MARC II MARKETING, INC. and LUCILA V.

JOSON,
Petitioners, - versus - ALFREDO M. JOSON, Respondent.
G.R. No. 171993 December 12, 2011
In this Petition for Review on Certiorari under Rule 45 of the
Rules of Court, herein petitioners Marc II Marketing, Inc. and
Lucil a V. Joson assailed the Decision[1] dated 20 June 2005 of
the Court of Appeals in CA-G.R. SP No. 76624 for reversing
and setting aside the Resolution[2] of the National Labor
Relations Commission (NLRC) dated 15 October 2002, thereby
affirming the Labor Arbiters Decision [3] dated 1 October 2001
finding herein respondent Alfredo M. Josons dismissal from
employment as illegal. In the questioned Decision, the Court
of Appeals upheld the Labor Arbiters jurisdiction over the case
on the basis that respondent was not an officer but a mere
employee of petitioner Marc II Marketing, Inc., thus, totally
disregarding the latters allegation of intra-corporate
controversy. Nonetheless, the Court of Appeals remanded the
case to the NLRC for further proceedings to determine the
proper amount of monetary awards that should be given to
respondent.
Assailed as well is the Court of Appeals Resolution [4] dated 7
March 2006 denying their Motion for Reconsideration.
Petitioner Marc II Marketing, Inc. (petitioner corporation) is a
corporation duly organized and existing under and by virtue of
the laws of the Philippines. It is primarily engaged in buying,
marketing, selling and distributing in retail or wholesale for
export or import household appliances and products and other
items.[5] It took over the business operations of Marc
Marketing, Inc. which was made non-operational following its
incorporation and registration with the Securities and
Exchange Commission (SEC). Petitioner Lucila V. Joson (Lucila)
is the President and majority stockholder of petitioner
corporation. She was also the former President and majority
stockholder of the defunct Marc Marketing, Inc.
Respondent Alfredo M. Joson (Alfredo), on the other hand, was
the General Manager, incorporator, director and stockholder
of petitioner corporation.
The controversy of this case arose from the following factual
milieu:
Before petitioner corporation was officially incorporated,
[6]
respondent has already been engaged by petitioner Lucila,
in her capacity as President of Marc Marketing, Inc., to work as
the General Manager of petitioner corporation. It was
formalized through the execution of a Management
Contract[7] dated 16 January 1994 under the letterhead of
Marc Marketing, Inc.[8] as petitioner corporation is yet to be
incorporated at the time of its execution. It was explicitly
provided therein that respondent shall be entitled to 30% of
its net income for his work as General Manager. Respondent
will also be granted 30% of its net profit to compensate for
the possible loss of opportunity to work overseas. [9]
Pending incorporation of petitioner corporation, respondent
was designated as the General Manager of Marc Marketing,
Inc., which was then in the process of winding up its
business. For occupying the said position, respondent was
among its corporate officers by the express provision of
Section 1, Article IV[10] of its by-laws.[11]

On 15 August 1994, petitioner corporation was officially

incorporated and registered with the SEC. Accordingly, Marc
Marketing, Inc. was made non-operational. Respondent
continued to discharge his duties as General Manager but this
time under petitioner corporation.
Pursuant to Section 1, Article IV[12] of petitioner corporations
by-laws,[13] its corporate officers are as follows: Chairman,
President, one or more Vice-President(s), Treasurer and
Secretary. Its Board of Directors, however, may, from time to
time, appoint such other officers as it may determine to be
necessary or proper.
Per
an
undated
Secretarys
Certificate,[14] petitioner
corporations Board of Directors conducted a meeting on 29
August 1994 where respondent was appointed as one of its
corporate officers with the designation or title of General
Manager to function as a managing director with other duties
and responsibilities that the Board of Directors may provide
and authorized.[15]
Nevertheless, on 30 June 1997, petitioner corporation decided
to stop and cease its operations, as evidenced by an Affidavit
of Non-Operation[16] dated 31 August 1998, due to poor sales
collection aggravated by the inefficient management of its
affairs. On the same date, it formally informed respondent of
the cessation of its business operation.Concomitantly,
respondent was apprised of the termination of his services as
General Manager since his services as such would no longer
be necessary for the winding up of its affairs. [17]
Feeling aggrieved, respondent filed a Complaint for
Reinstatement and Money Claim against petitioners before
the Labor Arbiter which was docketed as NLRC NCR Case No.
00-03-04102-99.
In his complaint, respondent averred that petitioner Lucila
dismissed him from his employment with petitioner
corporation due to the feeling of hatred she harbored towards
his family. The same was rooted in the filing by petitioner
Lucilas estranged husband, who happened to be respondents
brother, of a Petition for Declaration of Nullity of their
Marriage.[18]
For the parties failure to settle the case amicably, the Labor
Arbiter required them to submit their respective position
papers. Respondent complied but petitioners opted to file a
Motion to Dismiss grounded on the Labor Arbiters lack of
jurisdiction as the case involved an intra-corporate
controversy, which jurisdiction belongs to the SEC [now with
the Regional Trial Court (RTC)].[19] Petitioners similarly raised
therein the ground of prescription of respondents monetary
claim.
On 5 September 2000, the Labor Arbiter issued an
Order[20] deferring the resolution of petitioners Motion to
Dismiss until the final determination of the case. The Labor
Arbiter also reiterated his directive for petitioners to submit
position paper. Still, petitioners did not comply. Insisting that
the Labor Arbiter has no jurisdiction over the case, they
instead filed an Urgent Motion to Resolve the Motion to
Dismiss and the Motion to Suspend Filing of Position Paper.
In an Order[21] dated 15 February 2001, the Labor Arbiter
denied both motions and declared final the Order dated 5
September 2000. The Labor Arbiter then gave petitioners a
period of five days from receipt thereof within which to file

position paper, otherwise, their Motion to Dismiss will be

treated as their position paper and the case will be considered
submitted for decision.
Petitioners, through counsel, moved for extension of time to
submit position paper. Despite the requested extension,
petitioners still failed to submit the same. Accordingly, the
case was submitted for resolution.
On 1 October 2001, the Labor Arbiter rendered his Decision in
favor of respondent. Its decretal portion reads as follows:
WHEREFORE, premises considered, judgment is hereby
rendered declaring
[respondents]
dismissal
from
employment illegal. Accordingly, [petitioners] are hereby
ordered:
1.
To reinstate [respondent] to his former or equivalent
position without loss of seniority rights, benefits, and
privileges;
2.
Jointly and severally liable to pay [respondents] unpaid
wages in the amount of P450,000.00 per month from [26
March 1996] up to time of dismissal in the total amount
of P6,300,000.00;
3.
Jointly and severally liable to pay [respondents] full
backwages in the amount of P450,000.00 per month from
date of dismissal until actual reinstatement which at the time
of promulgation amounted to P21,600,000.00;
4.
Jointly and severally liable to pay moral damages in the
amount of P100,000.00 and attorneys fees in the amount of
5% of the total monetary award.[22] [Emphasis supplied.]
In the aforesaid Decision, the Labor Arbiter initially resolved
petitioners Motion to Dismiss by finding the ground of lack of
jurisdiction to be without merit. The Labor Arbiter elucidated
that petitioners failed to adduce evidence to prove that the
present case involved an intra-corporate controversy. Also,
respondents money claim did not arise from his being a
director or stockholder of petitioner corporation but from his
position as being its General Manager. The Labor Arbiter
likewise held that respondent was not a corporate officer
under petitioner corporations by-laws. As such, respondents
complaint clearly arose from an employer-employee
relationship, thus, subject to the Labor Arbiters jurisdiction.
The Labor Arbiter then declared respondents dismissal from
employment as illegal. Respondent, being a regular employee
of petitioner corporation, may only be dismissed for a valid
cause and upon proper compliance with the requirements of
due process. The records, though, revealed that petitioners
failed to present any evidence to justify respondents
dismissal.

October 2001 and dismissed respondents Complaint for want

of jurisdiction.[23]
The NLRC enunciated that the validity of respondents
appointment and termination from the position of General
Manager was made subject to the approval of petitioner
corporations Board of Directors. Had respondent been an
ordinary employee, such board action would not have been
required. As such, it is clear that respondent was a corporate
officer whose dismissal involved a purely intra-corporate
controversy. The NLRC went further by stating that
respondents claim for 30% of the net profit of the corporation
can only emanate from his right of ownership therein as
stockholder, director and/or corporate officer. Dividends or
profits are paid only to stockholders or directors of a
corporation and not to any ordinary employee in the absence
of any profit sharing scheme. In addition, the question of
remuneration of a person who is not a mere employee but a
stockholder and officer of a corporation is not a simple labor
problem. Such matter comes within the ambit of corporate
affairs and management and is an intra-corporate controversy
in contemplation of the Corporation Code.[24]
When respondents Motion for Reconsideration was denied in
another Resolution[25] dated 23 January 2003, he filed a
Petition for Certiorari with the Court of Appeals ascribing
grave abuse of discretion on the part of the NLRC.
On 20 June 2005, the Court of Appeals rendered its now
assailed Decision declaring that the Labor Arbiter has
jurisdiction over the present controversy. It upheld the finding
of the Labor Arbiter that respondent was a mere employee of
petitioner corporation, who has been illegally dismissed from
employment without valid cause and without due
process. Nevertheless, it ordered the records of the case
remanded to the NLRC for the determination of the
appropriate amount of monetary awards to be given to
respondent. The Court of Appeals, thus, decreed:
WHEREFORE, the petition is by us PARTIALLY GRANTED. The
Labor Arbiter is DECLARED to have jurisdiction over the
controversy. The records are REMANDED to the NLRC for
further proceedings to determine the appropriate amount of
monetary
awards
to
be
adjudged
in
favor
of
[respondent]. Costs against the [petitioners] in solidum.[26]
Petitioners moved for its reconsideration but to no avail. [27]
Petitioners are now before this Court with the following
assignment of errors:

I.

THE COURT OF APPEALS ERRED AND COMMITTED

GRAVE ABUSE OF DISCRETION IN DECIDING THAT
THE NLRC HAS THE JURISDICTION IN RESOLVING A
PURELY INTRA-CORPORATE MATTER WHICH IS
COGNIZABLE BY THE SECURITIES AND EXCHANGE
COMMISSION/REGIONAL TRIAL COURT.

II.

ASSUMING, GRATIS ARGUENDO, THAT THE NLRC HAS

JURISDICTION OVER THE CASE, STILL THE COURT OF
APPEALS SERIOUSLY ERRED IN NOT RULING THAT

Aggrieved, petitioners appealed the aforesaid Labor Arbiters

Decision to the NLRC.
In its Resolution dated 15 October 2002, the NLRC ruled in
favor of petitioners by giving credence to the Secretarys
Certificate, which evidenced petitioner corporations Board of
Directors meeting in which a resolution was approved
appointing respondent as its corporate officer with
designation as General Manager. Therefrom, the NLRC
reversed and set aside the Labor Arbiters Decision dated 1

THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP

BETWEEN [RESPONDENT] ALFREDO M. JOSON AND
MARC
II
MARKETING,
INC.
[PETITIONER
CORPORATION].

III.

IV.

ASSUMING GRATIS ARGUENDO THAT THE NLRC HAS

JURISDICTION OVER THE CASE, THE COURT OF
APPEALS ERRED IN NOT RULING THAT THE LABOR
ARBITER COMMITTED GRAVE ABUSE OF DISCRETION
IN
AWARDING
MULTI-MILLION
PESOS
IN
COMPENSATION AND BACKWAGES BASED ON THE
PURPORTED GROSS INCOME OF [PETITIONER
CORPORATION].

THE COURT OF APPEALS SERIOUSLY ERRED AND

COMMITTED GRAVE ABUSE OF DISCRETION IN NOT
MAKING
ANY
FINDINGS
AND
RULING THAT
[PETITIONER LUCILA] SHOULD NOT BE HELD
SOLIDARILY LIABLE IN THE ABSENCE OF EVIDENCE OF
MALICE AND BAD FAITH ON HER PART.[28]

Petitioners fault the Court of Appeals for having sustained the

Labor Arbiters finding that respondent was not a corporate
officer under petitioner corporations by-laws.They insist that
there is no need to amend the corporate by-laws to specify
who its corporate officers are. The resolution issued by
petitioner corporations Board of Directors appointing
respondent as General Manager, coupled with his assumption
of the said position, positively made him its corporate
officer. More so, respondents position, being a creation of
petitioner corporations Board of Directors pursuant to its bylaws, is a corporate office sanctioned by the Corporation Code
and the doctrines previously laid down by this Court. Thus,
respondents removal as petitioner corporations General
Manager involved a purely intra-corporate controversy over
which the RTC has jurisdiction.
Petitioners further contend that respondents claim for 30% of
the net profit of petitioner corporation was anchored on the
purported Management Contract dated 16 January 1994. It
should be noted, however, that said Management Contract
was executed at the time petitioner corporation was still
nonexistent and had no juridical personality yet. Such being
the case, respondent cannot invoke any legal right therefrom
as it has no legal and binding effect on petitioner
corporation. Moreover, it is clear from the Articles of
Incorporation of petitioner corporation that respondent was its
director and stockholder. Indubitably, respondents claim for
his share in the profit of petitioner corporation was based on
his capacity as such and not by virtue of any employeremployee relationship.
Petitioners further avow that even if the present case does not
pose an intra-corporate controversy, still, the Labor Arbiters
multi-million peso awards in favor of respondent were
erroneous. The same was merely based on the latters selfserving computations without any supporting documents.

Finally, petitioners maintain that petitioner Lucila cannot be

held solidarily liable with petitioner corporation. There was
neither allegation nor iota of evidence presented to show that
she acted with malice and bad faith in her dealings with
respondent. Moreover, the Labor Arbiter, in his Decision,
simply concluded that petitioner Lucila was jointly and
severally liable with petitioner corporation without making any
findings thereon. It was, therefore, an error for the Court of
Appeals to hold petitioner Lucila solidarily liable with
petitioner corporation.
From the foregoing arguments, the initial question is which
between the Labor Arbiter or the RTC, has jurisdiction over
respondents dismissal as General Manager of petitioner
corporation. Its
resolution
necessarily
entails
the
determination of whether respondent as General Manager of
petitioner corporation is a corporate officer or a mere
employee of the latter.
While Article 217(a)2[29] of the Labor Code, as amended,
provides that it is the Labor Arbiter who has the original and
exclusive jurisdiction over cases involving termination or
dismissal of workers when the person dismissed or terminated
is a corporate officer, the case automatically falls within the
province of the RTC. The dismissal of a corporate officer is
always regarded as a corporate act and/or an intra-corporate
controversy.[30]
Under Section 5[31] of Presidential Decree No. 902-A, intracorporate controversies are those controversies arising out of
intra-corporate or partnership relations, between and among
stockholders, members or associates; between any or all of
them and the corporation, partnership or association of which
they are stockholders, members or associates, respectively;
and between such corporation, partnership or association and
the State insofar as it concerns their individual franchise or
right to exist as such entity. It also includes controversies
in
the
election
or
appointments
of directors,
trustees, officers
or
managers
of
such
corporations, partnerships or associations.[32]
Accordingly, in determining whether the SEC (now the RTC)
has jurisdiction over the controversy, the status or
relationship of the parties and the nature of the question that
is the subject of their controversy must be taken into
consideration.[33]
In Easycall Communications Phils., Inc. v. King, this Court held
that in the context of Presidential Decree No. 902A, corporate officers are those officers of a corporation
who are given that character either by the Corporation
Code or by the corporations by-laws. Section 25[34] of the
Corporation Code specifically enumerated who are these
corporate officers, to wit: (1) president; (2) secretary; (3)
treasurer; and (4) such other officers as may be provided
for in the by-laws.[35]
The aforesaid Section 25 of the Corporation Code, particularly
the phrase such other officers as may be provided for in the
by-laws, has been clarified and elaborated in this Courts
recent pronouncement in Matling Industrial and Commercial
Corporation v. Coros, where it held, thus:
Conformably with Section 25, a position must be expressly
mentioned in the [b]y-[l]aws in order to be considered
as a corporate office. Thus, the creation of an office
pursuant to or under a [b]y-[l]aw enabling provision is

not enough to make a position a corporate office.

[In] Guerrea v. Lezama [citation omitted] the first ruling on the
matter, held that the only officers of a corporation were
those given that character either by the Corporation
Code or by the [b]y-[l]aws; the rest of the corporate
officers could be considered only as employees or
subordinate officials. Thus, it was held in Easycall
Communications Phils., Inc. v. King [citation omitted]:
An "office" is created by the charter of the
corporation and the officer is elected by the directors or
stockholders. On the other hand, an employee occupies no
office and generally is employed not by the action of the
directors or stockholders but by the managing officer of
the corporation who also determines the compensation
to be paid to such employee.
xxxx
This interpretation is the correct application of Section
25 of the Corporation Code, which plainly states that the
corporate officers are the President, Secretary, Treasurer and
such other officers as may be provided for in the [b]y[l]aws. Accordingly, the corporate officers in the context
of PD No. 902-A are exclusively those who are given
that character either by the Corporation Code or by the
corporations [b]y[l]aws.
A different interpretation can easily leave the way
open for the Board of Directors to circumvent the
constitutionally guaranteed security of tenure of the
employee by the expedient inclusion in the [b]y-[l]aws
of an enabling clause on the creation of just any
corporate officer position.
It is relevant to state in this connection that the SEC, the
primary agency administering the Corporation Code,
adopted a similar interpretation of Section 25 of the
Corporation Code in its Opinion dated November 25,
1993 [citation omitted], to wit:
Thus, pursuant to the above provision (Section 25 of the
Corporation Code), whoever are the corporate officers
enumerated in the by-laws are the exclusive Officers of
the corporation and the Board has no power to create
other Offices without amending first the corporate
[b]y-laws. However, the Board may create appointive
positions other than the positions of corporate
Officers, but the persons occupying such positions are
not considered as corporate officers within the
meaning of Section 25 of the Corporation Code and are
not empowered to exercise the functions of the corporate
Officers, except those functions lawfully delegated to them.
Their functions and duties are to be determined by the Board
of Directors/Trustees.[36] [Emphasis supplied.]
A careful perusal of petitioner corporations by-laws,
particularly paragraph 1, Section 1, Article IV, [37] would
explicitly reveal that its corporate officers are composed only
of: (1) Chairman; (2) President; (3) one or more Vice-President;
(4) Treasurer; and (5) Secretary.[38] The position of General
Manager was not among those enumerated.
Paragraph 2, Section 1, Article IV of petitioner corporations bylaws, empowered its Board of Directors to appoint such other
officers as it may determine necessary or proper. [39] It is by
virtue of this enabling provision that petitioner corporations

Board of Directors allegedly approved a resolution to make

the position of General Manager a corporate office, and,
thereafter, appointed respondent thereto making him one of
its corporate officers. All of these acts were done without first
amending its by-laws so as to include the General Manager in
its roster of corporate officers.
With the given circumstances and in conformity with Matling
Industrial and Commercial Corporation v. Coros, this Court
rules that respondent was not a corporate officer of petitioner
corporation because his position as General Manager was not
specifically mentioned in the roster of corporate officers in its
corporate by-laws. The enabling clause in petitioner
corporations by-laws empowering its Board of Directors to
create additional officers, i.e., General Manager, and the
alleged subsequent passage of a board resolution to that
effect
cannot
make
such
position
a
corporate
office. Matling clearly enunciated that the board of directors
has no power to create other corporate offices without first
amending the corporate by-laws so as to include therein the
newly created corporate office. Though the board of directors
may create appointive positions other than the positions of
corporate officers, the persons occupying such positions
cannot be viewed as corporate officers under Section 25 of
the Corporation Code.[40] In view thereof, this Court holds
that unless and until petitioner corporations by-laws is
amended for the inclusion of General Manager in the list of its
corporate officers, such position cannot be considered as a
corporate office within the realm of Section 25 of the
Corporation Code.
This Court considers that the interpretation of Section 25 of
the Corporation Code laid down in Matling safeguards the
constitutionally enshrined right of every employee to security
of tenure. To allow the creation of a corporate officer position
by a simple inclusion in the corporate by-laws of an enabling
clause empowering the board of directors to do so can result
in the circumvention of that constitutionally well-protected
right.[41]
It is also of no moment that respondent, being petitioner
corporations General Manager, was given the functions of a
managing director by its Board of Directors. As held
in Matling, the only officers of a corporation are those
given that character either by the Corporation Code or by the
corporate by-laws. It follows then that the corporate officers
enumerated in the by-laws are the exclusive officers of the
corporation while the rest could only be regarded as mere
employees or subordinate officials.[42] Respondent, in this
case, though occupying a high ranking and vital position in
petitioner corporation but which position was not specifically
enumerated or mentioned in the latters by-laws, can only be
regarded as its employee or subordinate official. Noticeably,
respondents compensation as petitioner corporations General
Manager was set, fixed and determined not by the latters
Board of Directors but simply by its President, petitioner
Lucila. The same was not subject to the approval of petitioner
corporations Board of Directors. This is an indication that
respondent was an employee and not a corporate officer.
To prove that respondent was petitioner corporations
corporate officer, petitioners presented before the NLRC an
undated Secretarys Certificate showing that corporations
Board of Directors approved a resolution making respondents
position of General Manager a corporate office. The
submission, however, of the said undated Secretarys
Certificate will not change the fact that respondent was an

employee. The certification does not amount to an

amendment of the by-laws which is needed to make the
position of General Manager a corporate office.
Moreover, as has been aptly observed by the Court of
Appeals, the board resolution mentioned in that undated
Secretarys Certificate and the latter itself were obvious
fabrications, a mere afterthought. Here we quote with
conformity the Court of Appeals findings on this matter stated
in this wise:
The board resolution is an obvious fabrication. Firstly, if it had
been in existence since [29 August 1994], why did not [herein
petitioners] attach it to their [M]otion to [D]ismiss filed on [26
August 1999], when it could have been the best evidence that
[herein respondent] was a corporate officer? Secondly, why
did they report the [respondent] instead as [herein petitioner
corporations] employee to the Social Security System [(SSS)]
on [11 October 1994] or a later date than their [29 August
1994] board resolution? Thirdly, why is there no indication
that the [respondent], the person concerned himself, and the
[SEC] were furnished with copies of said board
resolution? And, lastly, why is the corporate [S]ecretarys
[C]ertificate not notarized in keeping with the customary
procedure? That is why we called it manipulative evidence as
it was a shameless sham meant to be thrown in as a wild card
to muddle up the [D]ecision of the Labor Arbiter to the end
that it be overturned as the latter had firmly pointed out that
[respondent] is not a corporate officer under [petitioner
corporations by-laws]. Regrettably, the [NLRC] swallowed the
bait hook-line-and sinker. It failed to see through its nature as
a belatedly manufactured evidence. And even on the
assumption that it were an authentic board resolution,
it did not make [respondent] a corporate officer as the
board did not first and properly create the position of a
[G]eneral [M]anager by amending its by-laws.
(2) The scope of the term officer in the phrase and such other
officers as may be provided for in the by-laws[] (Sec. 25, par.
1), would naturally depend much on the provisions of the bylaws of the corporation. (SEC Opinion, [4 December 1991.]) If
the by-laws enumerate the officers to be elected by the board,
the provision is conclusive, and the board is without power
to create new offices without amending the bylaws. (SEC Opinion, [19 October 1971.])

herein, i.e., respondents dismissal as petitioner corporations

General Manager, the same did not present or relate to an
intra-corporate dispute. To note, there was no evidence
submitted to show that respondents removal as petitioner
corporations General Manager carried with it his removal as
its director and stockholder. Also, petitioners allegation that
respondents claim of 30% share of petitioner corporations net
profit was by reason of his being its director and stockholder
was without basis, thus, self-serving. Such an allegation was
tantamount to a mere speculation for petitioners failure to
substantiate the same.
In addition, it was not shown by petitioners that the position of
General Manager was offered to respondent on account of his
being petitioner corporations director and stockholder. Also, in
contrast to NLRCs findings, neither petitioner corporations bylaws nor the Management Contract stated that respondents
appointment and termination from the position of General
Manager was subject to the approval of petitioner
corporations Board of Directors. If, indeed, respondent was a
corporate officer whose termination was subject to the
approval of its Board of Directors, why is it that his
termination was effected only by petitioner Lucila, President of
petitioner corporation? The records are bereft of any evidence
to show that respondents dismissal was done with the
conformity of petitioner corporations Board of Directors or
that the latter had a hand on respondents dismissal.No board
resolution whatsoever was ever presented to that effect.
With all the foregoing, this Court is fully convinced that,
indeed, respondent, though occupying the General Manager
position, was not a corporate officer of petitioner corporation
rather he was merely its employee occupying a high-ranking
position.
Accordingly, respondents dismissal as petitioner corporations
General Manager did not amount to an intra-corporate
controversy. Jurisdiction therefor properly belongs with the
Labor Arbiter and not with the RTC.
Having established that respondent was not petitioner
corporations corporate officer but merely its employee, and
that, consequently, jurisdiction belongs to the Labor Arbiter,
this Court will now determine if respondents dismissal from
employment is illegal.

(3) If, for example, the general manager of a corporation is

not listed as an officer, he is to be classified as an employee
although he has always been considered as one of the
principal officers of a corporation [citing De Leon, H. S., The
Corporation Code of the Philippines Annotated, 1993 Ed., p.
215.][43] [Emphasis supplied.]

It was not disputed that respondent worked as petitioner

corporations General Manager from its incorporation on 15
August 1994 until he was dismissed on 30 June 1997.The
cause of his dismissal was petitioner corporations cessation of
business operations due to poor sales collection aggravated
by the inefficient management of its affairs.

That respondent was also a director and a stockholder of

petitioner corporation will not automatically make the case fall
within the ambit of intra-corporate controversy and be
subjected to RTCs jurisdiction. To reiterate, not all conflicts
between the stockholders and the corporation are classified
as intra-corporate. Other factors such as the status or
relationship of the parties and the nature of the question that
is the subject of the controversy[44] must be considered in
determining whether the dispute involves corporate matters
so as to regard them as intra-corporate controversies. [45] As
previously discussed, respondent was not a corporate officer
of petitioner corporation but a mere employee thereof so
there was no intra-corporate relationship between them. With
regard to the subject of the controversy or issue involved

In termination cases, the burden of proving just and valid

cause for dismissing an employee from his employment rests
upon the employer. The latter's failure to discharge that
burden would necessarily result in a finding that the dismissal
is unjustified.[46]
Under Article 283 of the Labor Code, as amended, one of the
authorized causes in terminating the employment of an
employee is the closing or cessation of operation of
the establishment or undertaking. Article 283 of the Labor
Code, as amended, reads, thus:
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 workers and the Department of
Labor and Employment at least one (1) month before the
intended date thereof. x x x In case of retrenchment to
prevent losses and in cases of closures or cessation of
operations of establishment or undertaking not due to
serious business losses or financial reverses, the
separation pay shall be equivalent to one (1) month
pay or to at least one-half (1/2) month pay for every
year of service, whichever is higher. A fraction of at
least six (6) months shall be considered one (1) whole
year.[Emphasis supplied.]

corporation failed to comply with the one-month prior written

notice rule. The records disclosed that respondent, being
petitioner corporations employee, and the DOLE were not
given a written notice at least one month before petitioner
corporation ceased its business operations. Moreover, the
records clearly show that respondents dismissal was effected
on the same date that petitioner corporation decided to stop
and cease its operation. Similarly, respondent was not paid
separation pay upon termination of his employment.

From the afore-quoted provision, the closure or cessation of

operations of establishment or undertaking may either
be due to serious business losses or financial reverses
or otherwise. If the closure or cessation was due to serious
business losses or financial reverses, it is incumbent upon the
employer to sufficiently and convincingly prove the same. If it
is otherwise, the employer can lawfully close shop anytime as
long as it was bona fide in character and not impelled by a
motive to defeat or circumvent the tenurial rights of
employees and as long as the terminated employees were
paid in the amount corresponding to their length of service.[47]

The grant of separation pay, as an incidence of

termination of employment under Article 283, is a
statutory obligation on the part of the employer and a
demandable right on the part of the employee, except
only where the closure or cessation of operations was due to
serious business losses or financial reverses and there is
sufficient proof of this fact or condition.In the absence of
such proof of serious business losses or financial
reverses, the employer closing his business is
obligated to pay his employees and workers their
separation pay.

Accordingly, under Article 283 of the Labor Code, as

amended, there are three requisites for a valid cessation
of business operations: (a) service of a written notice to
the employees and to the Department of Labor and
Employment (DOLE) at least one month before the
intended date thereof; (b) the cessation of business must
be bona fide in character; and (c) payment to the
employees of termination pay amounting to one month
pay or at least one-half month pay for every year of service,
whichever is higher.

The rule, therefore, is that in all cases of business closure

or cessation of operation or undertaking of the
employer, the affected employee is entitled to
separation pay. This is consistent with the state policy
of treating labor as a primary social economic force,
affording full protection to its rights as well as its
welfare. The exception is when the closure of business or
cessation of operations is due to serious business losses or
financial reverses duly proved, in which case, the right of
affected employees to separation pay is lost for obvious
reasons.[51] [Emphasis supplied.]

In this case, it is obvious that petitioner corporations cessation

of business operations was not due to serious business
losses. Mere
poor
sales
collection,
coupled
with
mismanagement of its affairs does not amount to serious
business losses. Nonetheless, petitioner corporation can still
validly cease or close its business operations because such
right is legally allowed, so long as it was not done for the
purpose of circumventing the provisions on termination of
employment embodied in the Labor Code.[48] As has been
stressed by this Court in Industrial Timber Corporation v.
Ababon, thus:
Just as no law forces anyone to go into business, no law can
compel anybody to continue the same. It would be stretching
the intent and spirit of the law if a court interferes with
management's prerogative to close or cease its business
operations just because the business is not suffering from any
loss or because of the desire to provide the workers continued
employment.[49]
A careful perusal of the records revealed that, indeed,
petitioner corporation has stopped and ceased business
operations beginning 30 June 1997. This was evidenced by a
notarized Affidavit of Non-Operation dated 31 August
1998. There was also no showing that the cessation of its
business operations was done in bad faith or to circumvent
the Labor Code. Nevertheless, in doing so, petitioner

As respondents dismissal was not due to serious business

losses, respondent is entitled to payment of separation pay
equivalent to one month pay or at least one-half month pay
for every year of service, whichever is higher. The rationale
for this was laid down in Reahs Corporation v. National Labor
Relations Commission,[50] thus:

As previously discussed, respondents dismissal was due to an

authorized cause, however, petitioner corporation failed to
observe procedural due process in effecting such
dismissal. In Culili v. Eastern Telecommunications Philippines,
Inc.,[52] this Court made the following pronouncements, thus:

x x x there are two aspects which characterize the

concept of due process under the Labor Code: one
is substantive whether the termination of employment was
based on the provision of the Labor Code or in accordance
with the prevailing jurisprudence; the other is procedural the
manner in which the dismissal was effected.
Section 2(d), Rule I, Book VI of the Rules Implementing the
Labor Code provides:
(d) In all cases of termination of employment, the following
standards of due process shall be substantially observed:
xxxx
For termination of employment as defined in Article 283 of the
Labor Code, the requirement of due process shall be
deemed complied with upon service of a written notice

to the employee and the appropriate Regional Office of

the Department of Labor and Employment at least
thirty
days
before
effectivity
of
the
termination, specifying the ground or grounds for
termination.
In Mayon Hotel & Restaurant v. Adana, [citation omitted] we
observed:
The requirement of law mandating the giving of notices was
intended not only to enable the employees to look for another
employment and therefore ease the impact of the loss of their
jobs and the corresponding income, but more importantly, to
give the Department of Labor and Employment (DOLE) the
opportunity to ascertain the verity of the alleged authorized
cause of termination.[53] [Emphasis supplied].
The records of this case disclosed that there was absolutely
no written notice given by petitioner corporation to the
respondent and to the DOLE prior to the cessation of its
business operations. This is evident from the fact that
petitioner corporation effected respondents dismissal on the
same date that it decided to stop and cease its business
operations. The necessary consequence of such failure to
comply with the one-month prior written notice rule, which
constitutes a violation of an employees right to statutory due
process, is the payment of indemnity in the form of nominal
damages.[54] In Culili
v.
Eastern
Telecommunications
Philippines, Inc., this Court further held:
In Serrano v. National Labor Relations Commission [citation
omitted], we noted that a job is more than the salary that it
carries. There is a psychological effect or a stigma in
immediately finding ones self laid off from work. This is
exactly why our labor laws have provided for mandating
procedural due process clauses. Our laws, while recognizing
the right of employers to terminate employees it
cannot sustain, also recognize the employees right to
be properly informed of the impending severance of
his ties with the company he is working for. x x x.
x x x Over the years, this Court has had the opportunity to
reexamine the sanctions imposed upon employers who fail to
comply with the procedural due process requirements in
terminating its employees. In Agabon v. National Labor
Relations Commission [citation omitted], this Court reverted
back to the doctrine in Wenphil Corporation v. National Labor
Relations Commission [citation omitted] and held that where
the dismissal is due to a just or authorized cause, but
without observance of the due process requirements,
the dismissal may be upheld but the employer must
pay an indemnity to the employee. The sanctions to be
imposed however, must be stiffer than those imposed
in Wenphil to achieve a result fair to both the employers and
the employees.
In Jaka Food Processing Corporation v. Pacot [citation
omitted], this Court, taking a cue from Agabon, held that since
there is a clear-cut distinction between a dismissal due to a
just cause and a dismissal due to an authorized cause, the
legal implications for employers who fail to comply with the
notice requirements must also be treated differently:
Accordingly, it is wise to hold that: (1) if the dismissal is
based on a just cause under Article 282 but the employer
failed to comply with the notice requirement, the sanction to
be imposed upon him should be tempered because the

dismissal process was, in effect, initiated by an act imputable

to the employee; and (2) if the dismissal is based on an
authorized cause under Article 283 but the employer failed to
comply with the notice requirement, the sanction should be
stiffer because the dismissal process was initiated by the
employer's exercise of his management prerogative.
[55]
[Emphasis supplied.]
Thus, in addition to separation pay, respondent is also entitled
to an award of nominal damages. In conformity with this
Courts ruling in Culili v. Eastern Telecommunications
Philippines, Inc. and Shimizu Phils. Contractors, Inc. v.
Callanta, both citing Jaka Food Processing Corporation v.
Pacot,[56] this Court fixed the amount of nominal damages
to P50,000.00.
With respect to petitioners contention that the Management
Contract executed between respondent and petitioner Lucila
has no binding effect on petitioner corporation for having
been executed way before its incorporation, this Court finds
the same meritorious.
Section 19 of the Corporation Code expressly provides:
Sec. 19. Commencement of corporate existence. - A
private corporation formed or organized under this
Code commences to have corporate existence and
juridical personality and is deemed incorporated from
the date the Securities and Exchange Commission
issues a certificate of incorporation under its official
seal; and thereupon the incorporators, stockholders/members
and their successors shall constitute a body politic and
corporate under the name stated in the articles of
incorporation for the period of time mentioned therein, unless
said period is extended or the corporation is sooner dissolved
in accordance with law. [Emphasis supplied.]
Logically, there is no corporation to speak of prior to an
entitys incorporation. And no contract entered into before
incorporation can bind the corporation.
As can be gleaned from the records, the Management
Contract dated 16 January 1994 was executed between
respondent and petitioner Lucila months before petitioner
corporations incorporation on 15 August 1994. Similarly, it
was done when petitioner Lucila was still the President of Marc
Marketing, Inc. Undeniably, it cannot have any binding and
legal effect on petitioner corporation. Also, there was no
evidence presented to prove that petitioner corporation
adopted, ratified or confirmed the Management Contract. It is
for the same reason that petitioner corporation cannot be
considered estopped from questioning its binding effect now
that respondent was invoking the same against it. In no way,
then, can it be enforced against petitioner corporation, much
less, its provisions fixing respondents compensation as
General Manager to 30% of petitioner corporations net
profit. Consequently, such percentage cannot be the basis for
the computation of respondents separation pay. This finding,
however, will not affect the undisputed fact that respondent
was, indeed, the General Manager of petitioner corporation
from its incorporation up to the time of his dismissal.
Accordingly, this Court finds it necessary to still remand the
present case to the Labor Arbiter to conduct further
proceedings for the sole purpose of determining the
compensation that respondent was actually receiving during
the period that he was the General Manager of petitioner

corporation, this, for the proper computation of his separation

pay.
As regards petitioner Lucilas solidary liability, this Court
affirms the same.

G.R. No. L-43350 December 23, 1937

CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiffappellant, vs. TEODORO SANDIKO, defendant-appellee.
LAUREL, J.:

As a rule, corporation has a personality separate and distinct

from its officers, stockholders and members such
that corporate officers are not personally liable for their
official acts unless it is shown that they have exceeded
their authority. However, this corporate veil can be pierced
when the notion of the legal entity is used as a means to
perpetrate fraud, an illegal act, as a vehicle for the evasion of
an existing obligation, and to confuse legitimate issues. Under
the Labor Code, for instance, when a corporation violates a
provision declared to be penal in nature, the penalty shall be
imposed upon the guilty officer or officers of the corporation.
[57]

Based on the prevailing circumstances in this case, petitioner

Lucila, being the President of petitioner corporation, acted in
bad faith and with malice in effecting respondents dismissal
from employment. Although petitioner corporation has a valid
cause for dismissing respondent due to cessation of business
operations, however, the latters dismissal therefrom was done
abruptly by its President, petitioner Lucila. Respondent was
not given the required one-month prior written notice that
petitioner corporation will already cease its business
operations. As can be gleaned from the records, respondent
was dismissed outright by petitioner Lucila on the same day
that petitioner corporation decided to stop and cease its
business operations. Worse, respondent was not given
separation pay considering that petitioner corporations
cessation of business was not due to business losses or
financial reverses.
WHEREFORE, premises considered, the Decision and
Resolution
dated 20
June
2005 and 7
March
2006,
respectively, of the Court of Appeals in CA-G.R. SP No. 76624
are
hereby AFFIRMED with
the MODIFICATION finding
respondents dismissal from employment legal but without
proper observance of due process. Accordingly, petitioner
corporation, jointly and solidarily liable with petitioner Lucila,
is hereby ordered to pay respondent the following; (1)
separation pay equivalent to one month pay or at least onehalf month pay for every year of service, whichever is higher,
to be computed from the commencement of employment until
termination; and (2) nominal damages in the amount
of P50,000.00.
This Court, however, finds it proper to still remand the records
to the Labor Arbiter to conduct further proceedings for the
sole purpose of determining the compensation that
respondent was actually receiving during the period that he
was the General Manager of petitioner corporation for the
proper computation of his separation pay.
Costs against petitioners.
SO ORDERED.

This is an appeal from a judgment of the Court of First

Instance of Manila absolving the defendant from the plaintiff's
complaint.
Manuel Tabora is the registered owner of four parcels of land
situated in the barrio of Linao, town of Aparri, Province of
Cagayan, as evidenced by transfer certificate of title No. 217
of the land records of Cagayan, a copy of which is in evidence
as Exhibit 1. To guarantee the payment of a loan in the sum of
P8,000, Manuel Tabora, on August 14, 1929, executed in favor
of the Philippine National Bank a first mortgage on the four
parcels of land above-mentioned. A second mortgage in favor
of the same bank was in April of 1930 executed by Tabora
over the same lands to guarantee the payment of another
loan amounting to P7,000. A third mortgage on the same
lands was executed on April 16, 1930 in favor of Severina
Buzon to whom Tabora was indebted in the sum of P2,9000.
These mortgages were registered and annotations thereof
appear at the back of transfer certificate of title No. 217.
On May 31, 1930, Tabora executed a public document entitled
"Escritura de Transpaso de Propiedad Inmueble" (Exhibit A) by
virtue of which the four parcels of land owned by him was sold
to the plaintiff company, said to under process of
incorporation, in consideration of one peso (P1) subject to the
mortgages in favor of the Philippine National Bank and
Severina Buzon and, to the condition that the certificate of
title to said lands shall not be transferred to the name of the
plaintiff company until the latter has fully and completely paid
Tabora's indebtedness to the Philippine National Bank.
The plaintiff company filed its article incorporation with the
Bureau of Commerce and Industry on October 22, 1930
(Exhibit 2). A year later, on October 28, 1931, the board of
directors of said company adopted a resolution (Exhibit G)
authorizing its president, Jose Ventura, to sell the four parcels
of lands in question to Teodoro Sandiko for P42,000. Exhibits
B, C and D were thereafter made and executed. Exhibit B is a
deed of sale executed before a notary public by the terms of
which the plaintiff sold ceded and transferred to the
defendant all its right, titles, and interest in and to the four
parcels of land described in transfer certificate in turn
obligated himself to shoulder the three mortgages
hereinbefore referred to. Exhibit C is a promisory note for
P25,300. drawn by the defendant in favor of the plaintiff,
payable after one year from the date thereof. Exhibit D is a
deed of mortgage executed before a notary public in
accordance with which the four parcels of land were given a
security for the payment of the promissory note, Exhibit C. All
these three instrument were dated February 15, 1932.
The defendant having failed to pay the sum stated in the
promissory note, plaintiff, on January 25, 1934, brought this
action in the Court of First Instance of Manila praying that
judgment be rendered against the defendant for the sum of
P25,300, with interest at legal rate from the date of the filing
of the complaint, and the costs of the suits. After trial, the
court below, on December 18, 1934, rendered judgment
absolving the defendant, with costs against the plaintiff.
Plaintiff presented a motion for new trial on January 14, 1935,

which motion was denied by the trial court on January 19 of

the same year. After due exception and notice, plaintiff has
appealed to this court and makes an assignment of various
errors.
In dismissing the complaint against the defendant, the court
below, reached the conclusion that Exhibit B is invalid
because of vice in consent and repugnancy to law. While we
do not agree with this conclusion, we have however voted to
affirm the judgment appealed from the reasons which we shall
presently state.
The transfer made by Tabora to the Cagayan fishing
Development Co., Inc., plaintiff herein, was affected on May
31, 1930 (Exhibit A) and the actual incorporation of said
company was affected later on October 22, 1930 (Exhibit 2).
In other words, the transfer was made almost five months
before the incorporation of the company. Unquestionably, a
duly organized corporation has the power to purchase and
hold such real property as the purposes for which such
corporation was formed may permit and for this purpose may
enter into such contracts as may be necessary (sec. 13, pars.
5 and 9, and sec. 14, Act No. 1459). But before a corporation
may be said to be lawfully organized, many things have to be
done. Among other things, the law requires the filing of
articles of incorporation (secs. 6 et seq., Act. No. 1459).
Although there is a presumption that all the requirements of
law have been complied with (sec. 334, par. 31 Code of Civil
Procedure), in the case before us it can not be denied that the
plaintiff was not yet incorporated when it entered into a
contract of sale, Exhibit A. The contract itself referred to the
plaintiff as "una sociedad en vias de incorporacion." It was not
even a de facto corporation at the time. Not being in legal
existence then, it did not possess juridical capacity to enter
into the contract.
Corporations are creatures of the law, and can only come into
existence in the manner prescribed by law. As has already
been stated, general law authorizing the formation of
corporations are general offers to any persons who may bring
themselves within their provisions; and if conditions precedent
are prescribed in the statute, or certain acts are required to be
done, they are terms of the offer, and must be complied with
substantially before legal corporate existence can be
acquired. (14 C. J., sec. 111, p. 118.)
That a corporation should have a full and complete
organization and existence as an entity before it can enter
into any kind of a contract or transact any business, would
seem to be self evident. . . . A corporation, until organized,
has no being, franchises or faculties. Nor do those engaged in
bringing it into being have any power to bind it by contract,
unless so authorized by the charter there is not a corporation
nor does it possess franchise or faculties for it or others to
exercise, until it acquires a complete existence. (Gent vs.
Manufacturers and Merchant's Mutual Insurance Company,
107 Ill., 652, 658.)
Boiled down to its naked reality, the contract here (Exhibit A)
was entered into not between Manuel Tabora and a nonexistent corporation but between the Manuel Tabora as owner
of the four parcels of lands on the one hand and the same
Manuel Tabora, his wife and others, as mere promoters of a
corporations on the other hand. For reasons that are selfevident, these promoters could not have acted as agent for a
projected corporation since that which no legal existence
could have no agent. A corporation, until organized, has no

life and therefore no faculties. It is, as it were, a child in

ventre sa mere. This is not saying that under no
circumstances may the acts of promoters of a corporation be
ratified by the corporation if and when subsequently
organized. There are, of course, exceptions (Fletcher Cyc. of
Corps., permanent edition, 1931, vol. I, secs. 207 et seq.), but
under the peculiar facts and circumstances of the present
case we decline to extend the doctrine of ratification which
would result in the commission of injustice or fraud to the
candid and unwary.(Massachusetts rule, Abbott vs. Hapgood,
150 Mass., 248; 22 N. E. 907, 908; 5 L. R. A., 586; 15 Am. St.
Rep., 193; citing English cases; Koppel vs. Massachusetts
Brick Co., 192 Mass., 223; 78 N. E., 128; Holyoke Envelope
Co., vs. U. S. Envelope Co., 182 Mass., 171; 65 N. E., 54.) It
should be observed that Manuel Tabora was the registered
owner of the four parcels of land, which he succeeded in
mortgaging to the Philippine National Bank so that he might
have the necessary funds with which to convert and develop
them into fishery. He appeared to have met with financial
reverses. He formed a corporation composed of himself, his
wife, and a few others. From the articles of incorporation,
Exhibit 2, it appears that out of the P48,700, amount of capital
stock subscribed, P45,000 was subscribed by Manuel Tabora
himself and P500 by his wife, Rufina Q. de Tabora; and out of
the P43,300, amount paid on subscription, P42,100 is made to
appear as paid by Tabora and P200 by his wife. Both Tabora
and His wife were directors and the latter was treasurer as
well. In fact, to this day, the lands remain inscribed in Tabora's
name. The defendant always regarded Tabora as the owner of
the lands. He dealt with Tabora directly. Jose Ventura,
president of the plaintiff corporation, intervened only to sign
the contract, Exhibit B, in behalf of the plaintiff. Even the
Philippine National Bank, mortgagee of the four parcels of
land, always treated Tabora as the owner of the same.
(See Exhibits E and F.) Two civil suits (Nos. 1931 and 38641)
were brought against Tabora in the Court of First Instance of
Manila and in both cases a writ of attachment against the four
parcels of land was issued. The Philippine National Bank
threatened to foreclose its mortgages. Tabora approached the
defendant Sandiko and succeeded in the making him sign
Exhibits B, C, and D and in making him, among other things,
assume the payment of Tabora's indebtedness to the
Philippine National Bank. The promisory note, Exhibit C, was
made payable to the plaintiff company so that it may not
attached by Tabora's creditors, two of whom had obtained
writs of attachment against the four parcels of land.
If the plaintiff corporation could not and did not acquire the
four parcels of land here involved, it follows that it did not
possess any resultant right to dispose of them by sale to the
defendant, Teodoro Sandiko.
Some of the members of this court are also of the opinion that
the transfer from Manuel Tabora to the Cagayan Fishing
Development Company, Inc., which transfer is evidenced by
Exhibit A, was subject to a condition precedent (condicion
suspensiva), namely, the payment of the mortgage debt of
said Tabora to the Philippine National Bank, and that this
condition not having been complied with by the Cagayan
Fishing Development Company, Inc., the transfer was
ineffective. (Art. 1114, Civil Code; Wise & Co. vs. Kelly and
Lim, 37 Phil., 696; Manresa, vol. 8, p. 141.) However, having
arrived at the conclusion that the transfer by Manuel Tabora to
the Cagayan Fishing Development Company, Inc. was null
because at the time it was affected the corporation was nonexistent, we deem it unnecessary to discuss this
point.lawphil.net

The decision of the lower court is accordingly affirmed, with

costs against the appellant. So Ordered

G.R. No. L-48627

FERMIN Z. CARAM, JR. and ROSA O. DE CARAM,
petitioners
vs.
THE HONORABLE COURT OF APPEALS and ALBERTO V.
ARELLANO, respondents.
CRUZ, J.:
We gave limited due course to this petition on the question of
the solidary liability of the petitioners with their co-defendants
in the lower court 1 because of the challenge to the following
paragraph in the dispositive portion of the decision of the
respondent court: *
1. Defendants are hereby ordered to jointly and severally pay
the plaintiff the amount of P50,000.00 for the preparation of
the project study and his technical services that led to the
organization of the defendant corporation, plus P10,000.00
attorney's fees; 2
The petitioners claim that this order has no support in fact and
law because they had no contract whatsoever with the private
respondent regarding the above-mentioned services. Their
position is that as mere subsequent investors in the
corporation that was later created, they should not be held
solidarily liable with the Filipinas Orient Airways, a separate
juridical entity, and with Barretto and Garcia, their codefendants in the lower court, ** who were the ones who
requested the said services from the private respondent. 3
We are not concerned here with the petitioners' codefendants, who have not appealed the decision of the
respondent court and may, for this reason, be presumed to
have accepted the same. For purposes of resolving this case
before us, it is not necessary to determine whether it is the
promoters of the proposed corporation, or the corporation
itself after its organization, that shall be responsible for the
expenses incurred in connection with such organization.
The only question we have to decide now is whether or not
the petitioners themselves are also and personally liable for
such expenses and, if so, to what extent.
The reasons for the said order are given by the respondent
court in its decision in this wise:
As to the 4th assigned error we hold that as to the
remuneration due the plaintiff for the preparation of the
project study and the pre-organizational services in the
amount of P50,000.00, not only the defendant corporation but
the other defendants including defendants Caram should be
jointly and severally liable for this amount. As we above
related it was upon the request of defendants Barretto and
Garcia that plaintiff handled the preparation of the project
study which project study was presented to defendant Caram
so the latter was convinced to invest in the proposed airlines.
The project study was revised for purposes of presentation to
financiers and the banks. It was on the basis of this study that
defendant corporation was actually organized and rendered
operational. Defendants Garcia and Caram, and Barretto
became members of the Board and/or officers of defendant

corporation. Thus, not only the defendant corporation but all

the other defendants who were involved in the preparatory
stages of the incorporation, who caused the preparation
and/or benefited from the project study and the technical
services of plaintiff must be liable. 4
It would appear from the above justification that the
petitioners were not really involved in the initial steps that
finally led to the incorporation of the Filipinas Orient Airways.
Elsewhere in the decision, Barretto was described as "the
moving spirit." The finding of the respondent court is that the
project study was undertaken by the private respondent at
the request of Barretto and Garcia who, upon its completion,
presented it to the petitioners to induce them to invest in the
proposed airline. The study could have been presented to
other prospective investors. At any rate, the airline was
eventually organized on the basis of the project study with the
petitioners as major stockholders and, together with Barretto
and Garcia, as principal officers.
The following portion of the decision in question is also worth
considering:
... Since defendant Barretto was the moving spirit in the preorganization work of defendant corporation based on his
experience and expertise, hence he was logically
compensated in the amount of P200,000.00 shares of stock
not as industrial partner but more for his technical services
that brought to fruition the defendant corporation. By the
same token, We find no reason why the plaintiff should not be
similarly compensated not only for having actively
participated in the preparation of the project study for several
months and its subsequent revision but also in his having
been involved in the pre-organization of the defendant
corporation, in the preparation of the franchise, in inviting the
interest of the financiers and in the training and screening of
personnel. We agree that for these special services of the
plaintiff the amount of P50,000.00 as compensation is
reasonable. 5
The above finding bolsters the conclusion that the petitioners
were not involved in the initial stages of the organization of
the airline, which were being directed by Barretto as the main
promoter. It was he who was putting all the pieces together,
so to speak. The petitioners were merely among the financiers
whose interest was to be invited and who were in fact
persuaded, on the strength of the project study, to invest in
the proposed airline.
Significantly, there was no showing that the Filipinas Orient
Airways was a fictitious corporation and did not have a
separate juridical personality, to justify making the
petitioners, as principal stockholders thereof, responsible for
its obligations. As a bona fide corporation, the Filipinas Orient
Airways should alone be liable for its corporate acts as duly
authorized by its officers and directors.
In the light of these circumstances, we hold that the
petitioners cannot be held personally liable for the
compensation claimed by the private respondent for the
services performed by him in the organization of the
corporation. To repeat, the petitioners did not contract such
services. It was only the results of such services that Barretto
and Garcia presented to them and which persuaded them to
invest in the proposed airline. The most that can be said is
that they benefited from such services, but that surely is no
justification to hold them personally liable therefor. Otherwise,

all the other stockholders of the corporation, including those

who came in later, and regardless of the amount of their share
holdings, would be equally and personally liable also with the
petitioners for the claims of the private respondent.
The petition is rather hazy and seems to be flawed by an
ambiguous ambivalence. Our impression is that it is opposed
to the imposition of solidary responsibility upon the Carams
but seems to be willing, in a vague, unexpressed offer of
compromise, to accept joint liability. While it is true that it
does here and there disclaim total liability, the thrust of the
petition seems to be against the imposition of solidary liability
only rather than against any liability at all, which is what it
should have categorically argued.
Categorically, the Court holds that the petitioners are not
liable at all, jointly or jointly and severally, under the first
paragraph of the dispositive portion of the challenged
decision. So holding, we find it unnecessary to examine at this
time the rules on solidary obligations, which the partiesneedlessly, as it turns out have belabored unto death.
WHEREFORE, the petition is granted. The petitioners are
declared not liable under the challenged decision, which is
hereby modified accordingly. It is so ordered.
G.R. No. 76509 December 15, 1989
PIONEER
INSURANCE
&
CORPORATION, petitioner, vs. THE HON.
APPEALS, WEAREVER TEXTILE MILLS,
VICENTE LIM, respondents.

SURETY
COURT OF
INC., and

GUTIERREZ, JR., J.:

This is a petition for certiorari seeking to annul and set aside
the decision of the Court of appeals which affirmed the
dismissal of the petitioner's complaint on the ground that
compensation cannot take place between the petitioner and
the private respondents as its requisites are not present.
In September, 1978, petitioner Pioneer Insurance and Surety
Corporation issued general warehousing bonds in favor of the
Bureau of Customs for importation of raw materials in the
total amount of P 6,500,000.00. The bonds were issued on
behalf of the private respondents Wearever Textile Mills, Inc.,
and its president, Vicente T. Lim.
To secure the petitioner from and against any and all harm,
damages and losses of whatever kind and nature which it may
incur as a consequence of its becoming a surety upon the
bonds, the respondents executed jointly and severally in favor
of the petitioner indemnity agreements for said bonds each of
which contain the following stipulations:
INDEMNITY: -The undersigned, jointly and severally, agree and
bind themselves to indemnify and hold and save harmless the
Corporation from and against any and all damages, losses,
costs, stamps, taxes, penalties, charges and expenses of
whatsoever kind and nature which the Corporation shall or
may at any time incur in consequence of having become
surety upon the bond/note or any extension, renewal,
substitution or alteration thereof made at the instance of the
undersigned or executed on behalf of the undersigned or any
of them; and to pay, reimburse and make good to the
Corporation, its successors and assigns, all sums and amounts
of money which it or its representatives shall or may pay or

cause to be paid or become liable to pay, on account of the

undersigned or any of them, of whatsoever kind and nature
including 20% of the amount involved in the litigation or other
matters growing out of or connected therewith for attorney's
fees but in no case to be less than P 200.00. The undersigned
further agree, jointly and severally, that in case of any
extension or renewal of the bond/note, to bind ourselves for
the payment thereof under the same terms and conditions, as
above mentioned, without the necessity of executing another
Indemnity Agreement for the purpose and we hereby equally
waive our right to be notified of any renewal or extension of
the bond/note which may be granted under this Indemnity
Agreement.
MATURITY OF OUR OBLIGATIONS CONTRACTED HEREWITH:The above indemnities shall be paid to the corporation as
soon as demand is received from the creditor or as soon as it
becomes liable to make payment of any sum under the terms
of the above-mentioned bond/note, its renewal, extensions or
substitutions whether the said sum or sums or part thereof
have been actually paid or not. (pp. 29-30, Rollo)
The private respondents failed to comply with their
commitment under the warehousing bonds by reason whereof
the Bureau of Customs demanded from the petitioner
payment of the value of the said bonds in the amount of P
6,390,259.00. This amount eventually reached P 9,031,000.00
in 1983.
In the meantime, in response to the petitioner's demand
letter, the private respondents wrote petitioner promising that
they will settle their obligations with the Bureau of Customs.
On representations by private respondents to the Bureau of
Customs, the latter granted the request of respondents for
staggered monthly installment payments of their obligation on
condition that the respondents will make an initial payment of
P 500,000.00 and thereafter shall amortize the balance of P
400,000.00 monthly until fully paid pursuant to the first
indorsement by the Bureau of Customs dated September 22,
1976. Other than the initial payment of P 500,000.00,
however, respondents have not made any other payments
thereby violating the terms of the said agreement.
As a result of the foregoing, the Bureau of Customs again
demanded from the petitioner payment of its bonds. No
payment, however, has been made as yet.
Sometime in 1979, a fire gutted the respondent's factory
destroying materials insured with the petitioner in the amount
of P l,144,744.49. Respondents demanded from the petitioner
payment of the proceeds of the insurance policy but the latter
refused to pay claiming that said proceeds must be applied by
way of partial compensation or set-off against its liability with
the Bureau of Customs arising from the warehousing bonds.
The petitioner's efforts to protect itself from total loss in the
much bigger amount of P 6,390,259.00 which as of April 19,
1983 had already reached P 9,031,000.00 having proved
fruitless, the complaint for compensation was filed below.
The trial court rendered judgment in favor of the private
respondents and ordered the petitioner to pay, among others,
the insurance proceeds in the amount of P l,144,744.49 plus
legal interest from November 19, 1979 until the whole amount
is fully paid.

On appeal, the Court of Appeals affirmed the trial court's

decision, holding that legal compensation cannot take place
because the requisites thereof are not present, namely: that
petitioner is not the creditor of private respondents; and that
the former's claim against the latter is not due, demandable
and liquidated because its liability on the warehousing bonds
was extinguished when the textile goods covered by the same
were destroyed by the fire. Therefore, according to the
appellate court since the petitioner and private respondents
are not mutually creditors and debtors to each other, the law
on compensation is inapplicable.
In this petition, Pioneer Insurance alleges that legal
compensation or set-off under Articles 1278 and 1279 can
take place because there is due to private respondents from
the petitioner the amount of P l,144,744.49 as proceeds of the
fire insurance policy in the same manner that the private
respondents are bound, jointly and severally, to reimburse
petitioner what the latter is liable to pay the Bureau of
Customs in the total amount of P 6,390,259.00 and which, as
of the date of the filing of the complaint, had already reached
P 9,031,000.00. The petitioner also stresses that even if it has
not yet paid the Bureau of Customs any amount, the private
respondents have already become indebted to the petitioner
pursuant to the indemnity agreement which stands as the law
between the parties.
On the other hand, the private respondents argue that the
demands to pay made by the Bureau of Customs did not
prove nor create any liability and even if they did, the liability
under the warehousing bonds in favor of the Bureau of
Customs was the liability of the petitioner; that petitioner did
not pay and has never paid the Bureau of Customs under the
warehousing bonds and, therefore, the private respondents
have nothing to reimburse the petitioner for and that the
approved staggered payment arrangement of the respondents
with the Bureau of Customs released petitioner from liability
under the warehousing bonds.
We rule for the petitioner.
In the case of The International Corporate Bank, Inc. v. The
Intermediate Appellate Court, et al. (G.R. No. 69560, June 30,
1988), we reiterated the requisites of legal compensation. We
said:
Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other. (Art. 1278, Civil
Code). 'When all the requisites mentioned in Art. 1279 of the
Civil Code are present, compensation takes effect by
operation of law, even without the consent or knowledge of
the debtors.' (Art. 1290, Civil Code). Art. 1279 of the Civil
Code requires among others, that in order that legal
compensation shall take place, the two debts be due' and
'they be liquidated and demandable.' Compensation is not
proper where the claim of the person asserting the set-off
against the other is not clear nor liquidated; compensation
cannot extend to unliquidated, disputed claim arising from
breach of contract. (Compania General de Tabacos v. French
and Unson, 39 Phil. 34; Lorenzo & Martinez v. Herrero 17 Phil.
29).
There can be no doubt that petitioner is indebted to private
respondent in the amount of P 1,062,063.83 representing the
proceeds of her money market investment. This is admitted.
But whether private respondent is indebted to petitioner in
the amount of P6.81 million representing the deficiency

balance after the foreclosure of the mortgage executed to

secure the loan extended to her, is vigorously disputed. This
circumstance prevents legal compensation from taking place.
(CA Decision, Rollo, pp. 112- 113).
There is no dispute that the petitioner owes the private
respondents the amount representing the proceed of the
insurance policy. The private respondents, however, try to
negate their liability by questioning the veracity and accuracy
of the Bureau of Customs' demand letters to the petitioner
and by claiming that they have no more liability because of
the fortuitous event. At the same time, however, they admit
liability when they argue that the petitioner was released from
the same upon their agreement with the Bureau of Customs
to make staggered payments. Finally, the private respondents
argue that since the petitioner has not made any payment yet
regarding the amount demanded by the Bureau of Customs,
there is nothing for which the petitioner should be reimbursed.
It is needless to emphasize that at the time the fire occurred,
the private respondents together with the petitioner had
already incurred liability on the warehousing bonds with the
Bureau of Customs because of the respondents' inability to
comply with the provisions of their undertaking. It is,
therefore, clear that as far as the amount of P 9,031,000.00 is
concerned, both the petitioner and respondents were already
liable for said amount to the Bureau of Customs when the
contingency for which compensation is sought, happened.
Neither can the respondents claim that the petitioner was
released from liability when they made arrangements with the
Bureau of Customs for staggered payments since the facts will
bear out that other than the P 500,000.00 payment by
respondents, no further payment was made by them thus
leading the Bureau of Customs to go after the petitioner
again. The private respondents, contend, however, that since
the petitioner has not made any payment with the Bureau of
Customs, it cannot demand reimbursement and, thus,
petitioner cannot apply legal compensation or set-off against
them because their liability has not yet become due and
demandable.
In the recent case of Mercantile Insurance Co., Inc. v. Felipe
Ysmael, Jr., & Co., Inc. (G.R. No. L-40962, January 13, 1989),
we ruled:
The question as to whether or not under the Indemnity
Agreement of the parties, the Surety can demand
indemnification from the principal, upon the latter's default,
even before the former has paid to the creditor, has long been
settled by this Court in the affirmative.
It has been held that:
The stipulation in the indemnity agreement allowing the
surety to recover even before it paid the creditor is
enforceable. In accordance therewith, the surety may demand
from the indemnitors even before paying the creditors.
(Cosmopolitan Ins. Co. Inc. v. Reyes, 15 SCRA 528 [1965]
citing: Security Bank v. Globe Assurance, 58 Off. Gaz, 3709
[April 30, 1962]; Alto Surety and Ins. Co., Inc. v. Aguilar, et al.,
G.R. No. L-5625, March 16, 1954).
Clearly, the petitioner can demand reimbursement from the
respondents even before it has actually paid its obligation to
the Bureau of Customs. It can, in principle, be held liable
under the warehouse bonds even before actual payment to
the Bureau of Customs. The liability has been fixed. What

remains is simply its liquidation. The respondents who

defaulted on the agreement to make staggered payments
thereby causing the petitioner's liability to the Bureau of
Customs cannot refuse the set-off. Consequently, legal
compensation can take place between the petitioner and the
private respondents, that is, the petitioner can partially set-off
the insurance proceeds in the amount of P 1,144,744.49
against its liability under the warehousing bonds which has
been computed in the amount of P 9,031,000.00 as of 1983.
From the records, it is seen that the last demand letter of the
Bureau of Customs asking the petitioner to pay the value of
the bonds was on March 27,1981. The records are silent on
whether or not the Bureau of Customs sued either of the
parties to enforce liability under the warehousing bonds. It
may be noted that the petitioner admits its liability under the
warehousing bonds. Since the issue is legal compensation and
in order to avoid any miscarriage of justice, the Court refers
the issue on the enforcement of liability under the bonds to
the Bureau of Customs.
WHEREFORE, the petition is GRANTED. The decision of the
Court of Appeals dated September 23, 1986 is hereby
ANNULLED and SET ASIDE. A copy of this decision is furnished
the Commissioner of Customs for appropriate action to be
taken under the warehousing bonds. Costs against the private
respondents.
SO ORDERED.

G.R. No. L-20993

September 28, 1968

RIZAL
LIGHT
&
ICE
CO.,
INC., petitioner,
vs.
THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC
SERVICE COMMISSION, respondents.
---------------------------G.R. No. L-21221

September 28, 1968

RIZAL LIGHT & ICE CO., INC., petitioner, vs. THE PUBLIC
SERVICE COMMISSION and MORONG ELECTRIC CO.,
INC., respondents.
ZALDIVAR, J.:
These two cases, being interrelated, are decided together.
Case G.R. No. L-20993 is a petition of the Rizal Light & Ice Co.,
Inc. to review and set aside the orders of respondent Public
Service Commission, 1 dated August 20, 1962, and February
15, 1963, in PSC Case No. 39716, cancelling and revoking the
certificate of public convenience and necessity and forfeiting
the franchise of said petitioner. In the same petition, the
petitioner prayed for the issuance of a writ of preliminary
injunction ex parte suspending the effectivity of said orders
and/or enjoining respondents Commission and/or Municipality
of Morong, Rizal, from enforcing in any way the cancellation
and revocation of petitioner's franchise and certificate of
public convenience during the pendency of this appeal. By
resolution of March 12, 1963, this Court denied the petition for
injunction, for lack of merit.

Case G. R. L-21221 is likewise a petition of the Rizal Light &

Ice Co., Inc. to review and set aside the decision of the
Commission dated March 13, 1963 in PSC Case No. 62-5143
granting a certificate of public convenience and necessity to
respondent Morong Electric Co., Inc. 2 to operate an electric
light, heat and power service in the municipality of Morong,
Rizal. In the petition Rizal Light & Ice Co., Inc. also prayed for
the issuance of a writ of preliminary injunction ex
parte suspending the effectivity of said decision. Per
resolution of this Court, dated May 6, 1963, said petition for
injunction was denied.
The facts, as they appear in the records of both cases, are as
follows:
Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation
with business address at Morong, Rizal. On August 15, 1949, it
was granted by the Commission a certificate of public
convenience and necessity for the installation, operation and
maintenance of an electric light, heat and power service in
the municipality of Morong, Rizal.
In an order dated December 19, 1956, the Commission
required the petitioner to appear before it on February 18,
1957 to show cause why it should not be penalized for
violation of the conditions of its certificate of public
convenience and the regulations of the Commission, and for
failure to comply with the directives to raise its service
voltage and maintain them within the limits prescribed in the
Revised Order No. 1 of the Commission, and to acquire and
install a kilowattmeter to indcate the load in kilowatts at any
particular time of the generating unit. 3
For failure of the petitioner to appear at the hearing on
February 18, 1957, the Commission ordered the cancellation
and revocation of petitioner's certificate of public convenience
and necessity and the forfeiture of its franchise. Petitioner
moved for reconsideration of said order on the ground that its
manager, Juan D. Francisco, was not aware of said hearing.
Respondent municipality opposed the motion alleging that
petitioner has not rendered efficient and satisfactory service
and has not complied with the requirements of the
Commission for the improvement of its service. The motion
was set for hearing and Mr. Pedro S. Talavera, Chief, Industrial
Division of the Commission, was authorized to conduct the
hearing for the reception of the evidence of the parties. 4
Finding that the failure of the petitioner to appear at the
hearing set for February 18, 1957 the sole basis of the
revocation of petitioner's certificate was really due to the
illness of its manager, Juan D. Francisco, the Commission set
aside its order of revocation. Respondent municipality moved
for reconsideration of this order of reinstatement of the
certificate, but the motion was denied.
In a petition dated June 25, 1958, filed in the same case,
respondent municipality formally asked the Commission to
revoke petitioner's certificate of public convenience and to
forfeit its franchise on the ground, among other things, that it
failed to comply with the conditions of said certificate and
franchise. Said petition was set for hearing jointly with the
order to show cause. The hearings had been postponed
several times.
Meanwhile, inspections had been made of petitioner's electric
plant and installations by the engineers of the Commission, as
follows: April 15, 1958 by Engineer Antonio M. Alli; September

18, 1959, July 12-13, 1960, and June 21-24, 1961, by Engineer
Meliton S. Martinez. The inspection on June 21-24, 1961 was
made upon the request of the petitioner who manifested
during the hearing on December 15, 1960 that improvements
have been made on its service since the inspection on July 1213, 1960, and that, on the basis of the inspection report to be
submitted, it would agree to the submission of the case for
decision without further hearing.
When the case was called for hearing on July 5, 1961,
petitioner failed to appear. Respondent municipality was then
allowed to present its documentary evidence, and thereafter
the case was submitted for decision.
On July 7, 1961, petitioner filed a motion to reopen the case
upon the ground that it had not been furnished with a copy of
the report of the June 21-24, 1961 inspection for it to reply as
previously agreed. In an order dated August 25, 1961,
petitioner was granted a period of ten (10) days within which
to submit its written reply to said inspection report, on
condition that should it fail to do so within the said period the
case would be considered submitted for decision. Petitioner
failed to file the reply. In consonance with the order of August
25, 1961, therefore, the Commission proceeded to decide the
case. On July 29, 1962 petitioner's electric plant was burned.
In its decision, dated August 20, 1962, the Commission, on
the basis of the inspection reports of its aforenamed
engineers, found that the petitioner had failed to comply with
the directives contained in its letters dated May 21, 1954 and
September 4, 1954, and had violated the conditions of its
certificate of public convenience as well as the rules and
regulations of the Commission. The Commission concluded
that the petitioner "cannot render the efficient, adequate and
satisfactory electric service required by its certificate and that
it is against public interest to allow it to continue its
operation." Accordingly, it ordered the cancellation and
revocation of petitioner's certificate of public convenience and
the forfeiture of its franchise.
On September 18, 1962, petitioner moved for reconsideration
of the decision, alleging that before its electric plant was
burned on July 29, 1962, its service was greatly improved and
that it had still existing investment which the Commission
should protect. But eight days before said motion for
reconsideration was filed, or on September 10, 1962, Morong
Electric, having been granted a municipal franchise on May 6,
1962 by respondent municipality to install, operate and
maintain an electric heat, light and power service in said
municipality approved by the Provincial Board of Rizal on
August 31, 1962 filed with the Commission an application
for a certificate of public convenience and necessity for said
service. Said application was entitled "Morong Electric Co.,
Inc., Applicant", and docketed as Case No. 62-5143.
Petitioner opposed in writing the application of Morong
Electric, alleging among other things, that it is a holder of a
certificate of public convenience to operate an electric light,
heat and power service in the same municipality of Morong,
Rizal, and that the approval of said application would not
promote public convenience, but would only cause ruinous
and wasteful competition. Although the opposition is dated
October 6, 1962, it was actually received by the Commission
on November 8, 1962, or twenty four days after the order of
general default was issued in open court when the application
was first called for hearing on October 15, 1962. On
November 12, 1962, however, the petitioner filed a motion to

lift said order of default. But before said motion could be

resolved, petitioner filed another motion, dated January 4,
1963, this time asking for the dismissal of the application
upon the ground that applicant Morong Electric had no legal
personality when it filed its application on September 10,
1962, because its certificate of incorporation was issued by
the Securities and Exchange Commission only on October 17,
1962. This motion to dismiss was denied by the Commission
in a formal order issued on January 17, 1963 on the premise
that applicant Morong Electric was a de facto corporation.
Consequently, the case was heard on the merits and both
parties presented their respective evidence. On the basis of
the evidence adduced, the Commission, in its decision dated
March 13, 1963, found that there was an absence of electric
service in the municipality of Morong and that applicant
Morong Electric, a Filipino-owned corporation duly organized
and existing under the laws of the Philippines, has the
financial capacity to maintain said service. These
circumstances, considered together with the denial of the
motion for reconsideration filed by petitioner in Case No.
39715 on February, 15, 1963, such that as far as the
Commission was concerned the certificate of the petitioner
was already declared revoked and cancelled, the Commission
approved the application of Morong Electric and ordered the
issuance in its favor of the corresponding certificate of public
convenience and necessity.1awphl.nt
On March 8, 1963, petitioner filed with this Court a petition to
review the decision in Case No. 39715 (now G. R. No. L20993). Then on April 26, 1963, petitioner also filed a petition
to review the decision in Case No. 62-5143 (now G. R. No. L21221).
In questioning the decision of the Commission in Case No.
39715, petitioner contends: (1) that the Commission acted
without or in excess of its jurisdiction when it delegated the
hearing of the case and the reception of evidence to Mr. Pedro
S. Talavera who is not allowed by law to hear the same; (2)
that the cancellation of petitioner's certificate of public
convenience was unwarranted because no sufficient evidence
was adduced against the petitioner and that petitioner was
not able to present evidence in its defense; (3) that the
Commission failed to give protection to petitioner's
investment; and (4) that the Commission erred in imposing
the extreme penalty of revocation of the certificate.
In questioning the decision in Case No. 62-5143, petitioner
contends: (1) that the Commission erred in denying
petitioner's motion to dismiss and proceeding with the hearing
of the application of the Morong Electric; (2) that the
Commission erred in granting Morong Electric a certificate of
public convenience and necessity since it is not financially
capable to render the service; (3) that the Commission erred
when it made findings of facts that are not supported by the
evidence adduced by the parties at the trial; and (4) that the
Commission erred when it did not give to petitioner protection
to its investment a reiteration of the third assignment of
error in the other case.1awphl.nt
We shall now discuss the appeals in these two cases
separately.
G.R. No. L-20993
1. Under the first assignment of error, petitioner contends that
while Mr. Pedro S. Talavera, who conducted the hearings of the
case below, is a division chief, he is not a lawyer. As such,

under Section 32 of Commonwealth Act No. 146, as amended,

the Commission should not have delegated to him the
authority to conduct the hearings for the reception of
evidence of the parties.
We find that, really, Mr. Talavera is not a lawyer. 5 Under the
second paragraph of Section 32 of Commonwealth Act No.
146, as amended, 6 the Commission can only authorize a
division chief to hear and investigate a case filed before it if
he is a lawyer. However, the petitioner is raising this question
for the first time in this appeal. The record discloses that
petitioner never made any objection to the authority of Mr.
Talavera to hear the case and to receive the evidence of the
parties. On the contrary, we find that petitioner had appeared
and submitted evidence at the hearings conducted by Mr.
Talavera, particularly the hearings relative to the motion for
reconsideration of the order of February 18, 1957 cancelling
and revoking its certificate. We also find that, through
counsel, petitioner had entered into agreements with Mr.
Talavera, as hearing officer, and the counsel for respondent
municipality, regarding procedure in order to abbreviate the
proceedings. 7 It is only after the decision in the case turned
out to be adverse to it that petitioner questioned the
proceedings held before Mr. Talavera.
This Court in several cases has ruled that objection to the
delegation of authority to hear a case filed before the
Commission and to receive the evidence in connection
therewith is a procedural, not a jurisdictional point, and is
waived by failure to interpose timely the objection and the
case had been decided by the Commission. 8 Since petitioner
has never raised any objection to the authority of Mr. Talavera
before the Commission, it should be deemed to have waived
such procedural defect, and consonant with the precedents on
the matter, petitioner's claim that the Commission acted
without or in excess of jurisdiction in so authorizing Mr.
Talavera should be dismissed. 9
2. Anent the second assigned error, the gist of petitioner's
contention is that the evidence consisting of inspection
reports upon which the Commission based its decision is
insufficient and untrustworthy in that (1) the authors of said
reports had not been put to test by way of cross-examination;
(2) the reports constitute only one side of the picture as
petitioner was not able to present evidence in its defense; (3)
judicial notice was not taken of the testimony of Mr. Harry B.
Bernardino, former mayor of respondent municipality, in PSC
Case No. 625143 (the other case, G. R. No. L-21221) to the
effect that the petitioner had improved its service before its
electric power plant was burned on July 29, 1962 which
testimony contradicts the inspection reports; and (4) the
Commission acted both as prosecutor and judge passing
judgment over the very same evidence presented by it as
prosecutor a situation "not conducive to the arrival at just
and equitable decisions."
Settled is the rule that in reviewing the decision of the Public
Service Commission this Court is not required to examine the
proof de novo and determine for itself whether or not the
preponderance of evidence really justifies the decision. The
only function of this Court is to determine whether or not
there is evidence before the Commission upon which its
decision might reasonably be based. This Court will not
substitute its discretion for that of the Commission on
questions of fact and will not interfere in the latter's decision
unless it clearly appears that there is no evidence to support
it. 10 Inasmuch as the only function of this Court in reviewing

the decision of the Commission is to determine whether there

is sufficient evidence before the Commission upon which its
decision can reasonably be based, as it is not required to
examine the proof de novo, the evidence that should be made
the basis of this Court's determination should be only those
presented in this case before the Commission. What then was
the evidence presented before the Commission and made the
basis of its decision subject of the present appeal? As stated
earlier, the Commission based its decision on the inspection
reports submitted by its engineers who conducted the
inspection of petitioner's electric service upon orders of the
Commission. 11 Said inspection reports specify in detail the
deficiencies incurred, and violations committed, by the
petitioner resulting in the inadequacy of its service. We
consider that said reports are sufficient to serve reasonably as
bases of the decision in question. It should be emphasized, in
this connection that said reports, are not mere documentary
proofs presented for the consideration of the Commission, but
are the results of the Commission's own observations and
investigations
which
it
can
rightfully
take
into
consideration, 12 particularly in this case where the petitioner
had not presented any evidence in its defense, and speaking
of petitioner's failure to present evidence, as well as its failure
to cross-examine the authors of the inspection reports,
petitioner should not complain because it had waived not only
its right to cross-examine but also its right to present
evidence. Quoted hereunder are the pertinent portions of the
transcripts of the proceedings where the petitioner, through
counsel, manifested in clear language said waiver and its
decision to abide by the last inspection report of Engineer
Martinez:
Proceedings of December 15, 1960
COMMISSION:
It appears at the last hearing of this case on September 23,
1960, that an engineer of this Commission has been ordered
to make an inspection of all electric services in the province of
Rizal and on that date the engineer of this Commission is still
undertaking that inspection and it appears that the said
engineer had actually made that inspection on July 12 and 13,
1960. The engineer has submitted his report on November 18,
1960 which is attached to the records of this case.
ATTY. LUQUE (Councel for Petitioner):
... (W)e respectfully state that while the report is, as I see it
attached to the records, clear and very thorough, it was made
sometime July of this year and I understand from the
respondent that there is some improvement since this report
was made ... we respectfully request that an up-to-date
inspection be made ... . An inspector of this Commission can
be sent to the plant and considering that the engineer of this
Commission, Engineer Meliton Martinez, is very acquainted to
the points involved we pray that his report will be used by us
for the reason that he is a technical man and he knows well as
he has done a good job and I think our proposition would
expedite the matter. We sincerely believe that the inspection
report will be the best evidence to decide this matter.
xxx

xxx

xxx

ATTY. LUQUE:
... This is a very important matter and to show the good faith
of respondent in this case we will not even cross-examine the

engineer when he makes a new report. We will agree to the

findings and, your honor please, considering as we have
manifested before that Engineer Martinez is an experienced
engineer of this Commission and the points reported by
Engineer Martinez on the situation of the plant now will
prevent the necessity of having a hearing, of us bringing new
evidence and complainant bringing new evidence. ... .
xxx

xxx

xxx

COMMISSION (to Atty. Luque):

Q
Does the Commission understand from the counsel
for applicant that if the motion is granted he will submit this
order to show cause for decision without any further hearing
and the decision will be based on the report of the engineer of
this Commission?
A
We respectfully reply in this manner that we be
allowed or be given an opportunity just to read the report and
99%, we will agree that the report will be the basis of that
decision. We just want to find out the contents of the report,
however, we request that we be furnished with a copy of the
report before the hearing so that we will just make a
manifestation that we will agree.
COMMISSION (to Atty. Luque):
Q
In order to prevent the delay of the disposition of this
case the Commission will allow counsel for the applicant to
submit his written reply to the report that the engineer of this
Commission. Will he submit this case without further hearing
upon the receipt of that written reply?
A

Yes, your honor.

Proceedings of August 25, 1961

ATTY. LUQUE (Counsel for petitioner):

In order to avoid any delay in the consideration of this case
we are respectfully move (sic) that instead of our witnesses
testifying under oath that we will submit a written reply under
oath together with the memorandum within fifteen (15) days
and we will furnish a copy and upon our submission of said
written reply under oath and memorandum we consider this
case submitted. This suggestion is to abbreviate the necessity
of presenting witnesses here which may prolong the
resolution of this case.
ATTY. OLIVAS (Counsel for respondent municipality):
I object on the ground that there is no resolution by this
Commission on the action to reopen the case and second this
case has been closed.
ATTY. LUQUE:
With regard to the testimony on the ground for opposition we
respectfully submit to this Commission our motion to submit a
written reply together with a memorandum. Also as stated to
expedite the case and to avoid further hearing we will just
submit our written reply. According to our records we are
furnished with a copy of the report of July 17, 1961. We submit
your honor.
xxx

xxx

xxx

COMMISSION:
To give applicant a chance to have a day in court the
Commission grants the request of applicant that it be given 10
days within which to submit a written reply on the report of
the engineer of the Commission who inspected the electric
service, in the municipality of Morong, Rizal, and after the
submission of the said written reply within 10 days from today
this case will be considered submitted for decision.
The above-quoted manifestation of counsel for the petitioner,
specifically the statement referring to the inspection report of
Engineer Martinez as the "best evidence to decide this
matter," can serve as an argument against petitioner's claim
that the Commision should have taken into consideration the
testimony of Mr. Bernardino. But the primary reasons why the
Commission could not have taken judicial cognizance of said
testimony are: first, it is not a proper subject of judicial notice,
as it is not a "known" fact that is, well established and
authoritatively
settled,
without
qualification
and
contention; 13 second, it was given in a subsequent and
distinct case after the petitioner's motion for reconsideration
was heard by the Commission en banc and submitted for
decision, 14 and third, it was not brought to the attention of the
Commission in this case through an appropriate pleading. 15
Regarding the contention of petitioner that the Commission
had acted both as prosecutor and judge, it should be
considered that there are two matters that had to be decided
in this case, namely, the order to show cause dated December
19, 1956, and the petition or complaint by respondent
municipality dated June 25, 1958. Both matters were heard
jointly, and the record shows that respondent municipality had
been allowed to present its evidence to substantiate its
complaint. It can not be said, therefore, that in this case the
Commission had acted as prosecutor and judge. But even
assuming, for the sake of argument, that there was a
commingling of the prosecuting and investigating functions,
this exercise of dual function is authorized by Section 17(a) of
Commonwealth Act No. 146, as amended, under which the
Commission has power "to investigate, upon its own initiative
or upon complaint in writing, any matter concerning any
public service as regards matters under its jurisdiction; to,
require any public service to furnish safe, adequate, and
proper service as the public interest may require and warrant;
to enforce compliance with any standard, rule, regulation,
order or other requirement of this Act or of the
Commission ... ." Thus, in the case of Collector of Internal
Revenue vs. Estate of F. P. Buan, L-11438, July 31, 1958, this
Court held that the power of the Commission to cancel and
revoke a certificate of public convenience and necessity may
be exercised by it even without a formal charge filed by any
interested party, with the only limitation that the holder of the
certificate should be given his day in court.
It may not be amiss to add that when prosecuting and
investigating duties are delegated by statute to an
administrative body, as in the case of the Public Service
Commission, said body may take steps it believes appropriate
for the proper exercise of said duties, particularly in the
manner of informing itself whether there is probable violation
of the law and/or its rules and regulations. It may initiate an
investigation, file a complaint, and then try the charge as
preferred. So long as the respondent is given a day in court,
there can be no denial of due process, and objections to said
procedure cannot be sustained.

3. In its third assignment of error, petitioner invokes the

"protection-of-investment rule" enunciated by this Court
in Batangas Transportation Co. vs. Orlanes 16 in this wise:
The Government having taken over the control and
supervision of all public utilities, so long as an operator under
a prior license complies with the terms and conditions of his
license and reasonable rules and regulations for its operation
and meets the reasonable demands of the public, it is the
duty of the Commission to protect rather than to destroy his
investment by the granting of the second license to another
person for the same thing over the same route of travel. The
granting of such a license does not serve its convenience or
promote the interests of the public.
The above-quoted rule, however, is not absolute, for nobody
has exclusive right to secure a franchise or a certificate of
public convenience. 17 Where, as in the present case, it has
been shown by ample evidence that the petitioner, despite
ample time and opportunity given to it by the Commission,
had failed to render adequate, sufficient and satisfactory
service and had violated the important conditions of its
certificate as well as the directives and the rules and
regulations of the Commission, the rule cannot apply. To apply
that rule unqualifiedly is to encourage violation or disregard of
the terms and conditions of the certificate and the
Commission's directives and regulations, and would close the
door to other applicants who could establish, operate and
provide adequate, efficient and satisfactory service for the
benefit and convenience of the inhabitants. It should be
emphasized that the paramount consideration should always
be the public interest and public convenience. The duty of the
Commission to protect investment of a public utility operator
refers only to operators of good standing those who comply
with the laws, rules and regulations and not to operators
who are unconcerned with the public interest and whose
investments have failed or deteriorated because of their own
fault. 18
4. The last assignment of error assails the propriety of the
penalty imposed by the Commission on the petitioner that
is, the revocation of the certificate and the forfeiture of the
franchise. Petitioner contends that the imposition of a fine
would have been sufficient, as had been done by the
Commission in cases of a similar nature.
It should be observed that Section 16(n) of Commonwealth
Act No. 146, as amended, confers upon the Commission
ample power and discretion to order the cancellation and
revocation of any certificate of public convenience issued to
an operator who has violated, or has willfully and
contumaciously refused to comply with, any order, rule or
regulation of the Commission or any provision of law. What
matters is that there is evidence to support the action of the
Commission. In the instant case, as shown by the evidence,
the contumacious refusal of the petitioner since 1954 to
comply with the directives, rules and regulations of the
Commission, its violation of the conditions of its certificate
and its incapability to comply with its commitment as shown
by its inadequate service, were the circumstances that
warranted the action of the Commission in not merely
imposing a fine but in revoking altogether petitioner's
certificate. To allow petitioner to continue its operation would
be to sacrifice public interest and convenience in favor of
private interest.

A grant of a certificate of public convenience confers no

property rights but is a mere license or privilege, and such
privilege is forfeited when the grantee fails to comply with his
commitments behind which lies the paramount interest of the
public, for public necessity cannot be made to wait, nor
sacrificed for private convenience. (Collector of Internal
Revenue v. Estate of F. P. Buan, et al., L-11438 and Santiago
Sambrano, et al. v. PSC, et al., L-11439 & L-11542-46, July 31,
1958)
(T)he Public Service Commission, ... has the power to specify
and define the terms and conditions upon which the public
utility shall be operated, and to make reasonable rules and
regulations for its operation and the compensation which the
utility shall receive for its services to the public, and for any
failure to comply with such rules and regulations or the
violation of any of the terms and conditions for which the
license was granted, the Commission has ample power to
enforce the provisions of the license or even to revoke it, for
any failure or neglect to comply with any of its terms and
provisions. (Batangas Trans. Co. v. Orlanes, 52 Phil. 455, 460;
emphasis supplied)
Presumably, the petitioner has in mind Section 21 of
Commonwealth Act No. 146, as amended, which provides that
a public utility operator violating or failing to comply with the
terms and conditions of any certificate, or any orders,
decisions or regulations of the Commission, shall be subject to
a fine and that the Commission is authorized and empowered
to impose such fine, after due notice and hearing. It should be
noted, however, that the last sentence of said section states
that the remedy provided therein "shall not be a bar to, or
affect any other remedy provided in this Act but shall be
cumulative and additional to such remedy or remedies." In
other words, the imposition of a fine may only be one of the
remedies which the Commission may resort to, in its
discretion. But that remedy is not exclusive of, or has
preference over, the other remedies. And this Court will not
substitute its discretion for that of the Commission, as long as
there is evidence to support the exercise of that discretion by
the Commission.
G. R. No. L-21221
Coming now to the other case, let it be stated at the outset
that before any certificate may be granted, authorizing the
operation of a public service, three requisites must be
complied with, namely: (1) the applicant must be a citizen of
the Philippines or of the United States, or a corporation or copartnership, association or joint-stock company constituted
and organized under the laws of the Philippines, sixty per
centum at least of the stock or paid-up capital of which
belongs entirely to citizens of the Philippines or of the United
States; 19 (2) the applicant must be financially capable of
undertaking the proposed service and meeting the
responsibilities incident to its operation; 20 and (3) the
applicant must prove that the operation of the public service
proposed and the authorization to do business will promote
the public interest in a proper and suitable manner. 21
As stated earlier, in the decision appealed from, the
Commission found that Morong Electric is a corporation duly
organized and existing under the laws of the Philippines, the
stockholders of which are Filipino citizens, that it is financially
capable of operating an electric light, heat and power service,
and that at the time the decision was rendered there was
absence of electric service in Morong, Rizal. While the

petitioner does not dispute the need of an electric service in

Morong, Rizal, 22 it claims, in effect, that Morong Electric
should not have been granted the certificate of public
convenience and necessity because (1) it did not have a
corporate personality at the time it was granted a franchise
and when it applied for said certificate; (2) it is not financially
capable of undertaking an electric service, and (3) petitioner
was rendering efficient service before its electric plant was
burned, and therefore, being a prior operator its investment
should be protected and no new party should be granted a
franchise and certificate of public convenience and necessity
to operate an electric service in the same locality.
1. The bulk of petitioner's arguments assailing the personality
of Morong Electric dwells on the proposition that since a
franchise is a contract, 23 at least two competent parties are
necessary to the execution thereof, and parties are not
competent except when they are in being. Hence, it is
contended that until a corporation has come into being, in this
jurisdiction, by the issuance of a certificate of incorporation by
the Securities and Exchange Commission (SEC) it cannot enter
into any contract as a corporation. The certificate of
incorporation of the Morong Electric was issued by the SEC on
October 17, 1962, so only from that date, not before, did it
acquire juridical personality and legal existence. Petitioner
concludes that the franchise granted to Morong Electric on
May 6, 1962 when it was not yet in esse is null and void and
cannot be the subject of the Commission's consideration. On
the other hand, Morong Electric argues, and to which
argument the Commission agrees, that it was a de
facto corporation at the time the franchise was granted and,
as such, it was not incapacitated to enter into any contract or
to apply for and accept a franchise. Not having been
incapacitated, Morong Electric maintains that the franchise
granted to it is valid and the approval or disapproval thereof
can be properly determined by the Commission.
Petitioner's contention that Morong Electric did not yet have a
legal personality on May 6, 1962 when a municipal franchise
was granted to it is correct. The juridical personality and legal
existence of Morong Electric began only on October 17, 1962
when its certificate of incorporation was issued by the
SEC. 24 Before that date, or pending the issuance of said
certificate of incorporation, the incorporators cannot be
considered as de facto corporation. 25 But the fact that Morong
Electric had no corporate existence on the day the franchise
was granted in its name does not render the franchise invalid,
because later Morong Electric obtained its certificate of
incorporation and then accepted the franchise in accordance
with the terms and conditions thereof. This view is sustained
by eminent American authorities. Thus, McQuiuin says:
The fact that a company is not completely incorporated at the
time the grant is made to it by a municipality to use the
streets does not, in most jurisdictions, affect the validity of the
grant. But such grant cannot take effect until the corporation
is organized. And in Illinois it has been decided that the
ordinance granting the franchise may be presented before the
corporation grantee is fully organized, where the organization
is completed before the passage and acceptance. (McQuillin,
Municipal Corporations, 3rd Ed., Vol. 12, Chap. 34, Sec. 34.21)
Fletcher says:
While a franchise cannot take effect until the grantee
corporation is organized, the franchise may, nevertheless, be
applied for before the company is fully organized.

A grant of a street franchise is valid although the corporation

is not created until afterwards. (Fletcher, Cyclopedia Corp.
Permanent Edition, Rev. Vol. 6-A, Sec. 2881)
And Thompson gives the reason for the rule:
(I)n the matter of the secondary franchise the authorities are
numerous in support of the proposition that an ordinance
granting a privilege to a corporation is not void because the
beneficiary of the ordinance is not fully organized at the time
of the introduction of the ordinance. It is enough that
organization is complete prior to the passage and acceptance
of the ordinance. The reason is that a privilege of this
character is a mere license to the corporation until it accepts
the grant and complies with its terms and conditions.
(Thompson on Corporations, Vol. 4, 3rd Ed., Sec. 2929) 26
The incorporation of Morong Electric on October 17, 1962 and
its acceptance of the franchise as shown by its action in
prosecuting the application filed with the Commission for the
approval of said franchise, not only perfected a contract
between the respondent municipality and Morong Electric but
also cured the deficiency pointed out by the petitioner in the
application of Morong EIectric. Thus, the Commission did not
err in denying petitioner's motion to dismiss said application
and in proceeding to hear the same. The efficacy of the
franchise, however, arose only upon its approval by the
Commission on March 13, 1963. The reason is that
Under Act No. 667, as amended by Act No. 1022, a municipal
council has the power to grant electric franchises, subject to
the approval of the provincial board and the President.
However, under Section 16(b) of Commonwealth Act No. 146,
as amended, the Public Service Commission is empowered "to
approve, subject to constitutional limitations any franchise or
privilege granted under the provisions of Act No. 667, as
amended by Act No. 1022, by any political subdivision of the
Philippines when, in the judgment of the Commission, such
franchise or privilege will properly conserve the public
interests and the Commission shall in so approving impose
such conditions as to construction, equipment, maintenance,
service, or operation as the public interests and convenience
may reasonably require, and to issue certificates of public
convenience and necessity when such is required or provided
by any law or franchise." Thus, the efficacy of a municipal
electric franchise arises, therefore, only after the approval of
the Public Service Commission. (Almendras vs. Ramos, 90
Phil. 231) .
The conclusion herein reached regarding the validity of the
franchise granted to Morong Electric is not incompatible with
the holding of this Court in Cagayan Fishing Development Co.,
Inc. vs. Teodoro Sandiko 27upon which the petitioner leans
heavily in support of its position. In said case this Court held
that a corporation should have a full and complete
organization and existence as an entity before it can enter
into any kind of a contract or transact any business. It should
be pointed out, however, that this Court did not say in that
case that the rule is absolute or that under no circumstances
may the acts of promoters of a corporation be ratified or
accepted by the corporation if and when subsequently
organized. Of course, there are exceptions. It will be noted
that American courts generally hold that a contract made by
the promoters of a corporation on its behalf may be adopted,
accepted or ratified by the corporation when organized. 28

2. The validity of the franchise and the corporate personality

of Morong Electric to accept the same having been shown, the
next question to be resolved is whether said company has the
financial qualification to operate an electric light, heat and
power service. Petitioner challenges the financial capability of
Morong Electric, by pointing out the inconsistencies in the
testimony of Mr. Jose P. Ingal, president of said company,
regarding its assets and the amount of its initial investment
for the electric plant. In this connection it should be stated
that on the basis of the evidence presented on the matter, the
Commission has found the Morong Electric to be "financially
qualified to install, maintain and operate the proposed electric
light, heat and power service." This is essentially a factual
determination which, in a number of cases, this Court has said
it will not disturb unless patently unsupported by evidence. An
examination of the record of this case readily shows that the
testimony of Mr. Ingal and the documents he presented to
establish the financial capability of Morong Electric provide
reasonable grounds for the above finding of the Commission.
It is now a very well-settled rule in this jurisdiction that the
findings and conclusions of fact made by the Public Service
Commission, after weighing the evidence adduced by the
parties in a public service case, will not be disturbed by the
Supreme Court unless those findings and conclusions appear
not to be reasonably supported by evidence. (La Mallorca and
Pampanga Bus Co. vs. Mercado, L-19120, November 29, 1965)
For purposes of appeal, what is decisive is that said
testimonial evidence provides reasonable support for the
Public Service Commission's findings of financial capacity on
the part of applicants, rendering such findings beyond our
power to disturb. (Del Pilar Transit vs. Silva, L-21547, July 15,
1966)
It may be worthwhile to mention in this connection that per
inspection report dated January 20, 1964 29 of Mr. Meliton
Martinez of the Commission, who inspected the electric
service of Morong on January 15-16, 1964, Morong Electric "is
serving electric service to the entire area covered by its
approved plan and has constructed its line in accordance with
the plans and specifications approved by the Commission." By
reason thereof, it was recommended that the requests of
Morong Electric (1) for the withdrawal of its deposit in the
amount of P1,000.00 with the Treasurer of the Philippines, and
(2) for the approval of Resolution No. 160 of the Municipal
Council of Morong, Rizal, exempting the operator from making
the additional P9,000.00 deposit mentioned in its petition,
dated September 16, 1963, be granted. This report removes
any doubt as to the financial capability of Morong Electric to
operate and maintain an electric light, heat and power
service.
3. With the financial qualification of Morong Electric beyond
doubt, the remaining question to be resolved is whether, or
not, the findings of fact of the Commission regarding
petitioner's service are supported by evidence. It is the

contention of the petitioner that the Commission made some

findings of fact prejudicial to its position but which do not find
support from the evidence presented in this case. Specifically,
petitioner refers to the statements or findings that its service
had "turned from bad to worse," that it miserably failed to
comply with the oft-repeated promises to bring about the
needed improvement, that its equipment is unserviceable,
and that it has no longer any plant site and, therefore, has
discredited itself. Petitioner further states that such
statements are not only devoid of evidentiary support but
contrary to the testimony of its witness, Mr. Harry Bernardino,
who testified that petitioner was rendering efficient and
satisfactory service before its electric plant was burned on July
29, 1962.
On the face of the decision appealed from, it is obvious that
the Commission in describing the kind of service petitioner
was rendering before its certificate was ordered revoked and
cancelled, took judicial notice of the records of the previous
case (PSC Case No. 39715) where the quality of petitioner's
service had been squarely put in issue. It will be noted that
the findings of the Commission were made notwithstanding
the fact that the aforementioned testimony of Mr. Bernardino
had been emphasized and pointed out in petitioner's
Memorandum to the Commission. 30 The implication is simple:
that as between the testimony of Mr. Bernardino and the
inspection reports of the engineers of the Commission, which
served as the basis of the revocation order, the Commission
gave credence to the latter. Naturally, whatever conclusion or
finding of fact that the Commission arrived at regarding the
quality of petitioner's service are not borne out by the
evidence presented in this case but by evidence in the
previous case. 31 In this connection, we repeat, the conclusion,
arrived at by the Commission after weighing the conflicting
evidence in the two related cases, is a conclusion of fact
which this Court will not disturb.
And it has been held time and again that where the
Commission has reached a conclusion of fact after weighing
the conflicting evidence, that conclusion must be respected,
and the Supreme Court will not interfere unless it clearly
appears that there is no evidence to support the decision of
the Commission. (La Mallorca and Pampanga Bus Co., Inc. vs.
Mercado, L-19120, November 29, 1965 citing Pangasinan
Trans. Co., Inc. vs. Dela Cruz, 96 Phil. 278)
For that matter, petitioner's pretension that it has a prior right
to the operation of an electric service in Morong, Rizal, is not
tenable; and its plea for protection of its investment, as in the
previous case, cannot be entertained.
WHEREFORE, the two decisions of the Public Service
Commission, appealed from, should be, as they are hereby
affirmed, with costs in the two cases against petitioner Rizal
Light & Ice Co., Inc. It is so ordered.