Republic of the Philippines SUPREME COURT Manila

EN BANC

G.R. No. L-37331 March 18, 1933

FRED M. HARDEN, J.D. HIGHSMITH, and JOHN C. HART, in their own behalf and
in that all other stockholders of the Balatoc Mining Company, etc., plaintiffs-
appellants, vs. BENGUET CONSOLIDATED MINING COMPANY, BALATOC
MINING COMPANY, H. E. RENZ, JOHN W. JAUSSERMANN, and A. W. BEAM,
defendants-appellees.

Gibbs and McDonough and Roman Ozaeta for appellants. DeWitt, Perkins and Brady
for appellees. Ross, Lawrence and Selph for appellee Balatoc Mining Company.

STREET, J.:

This action was originally instituted in the Court of First Instance of the City of Manila by
F. M. Harden, acting in his own behalf and that of all other stockholders of the
Balatoc Mining Co. who might join in the action and contribute to the expense of the
suit. With the plaintiff Harden two others, J. D. Highsmith and John C. Hart,
subsequently associated themselves. The defendants are the Benguet Consolidated
Mining Co., the Balatoc Mining Co., H. E. Renz, John W. Haussermann, and A. W.
Beam. The principal purpose of the original action was to annul a certificate
covering 600,000 shares of the stock of the Balatoc Mining Co., which have been
issued to the Benguet Consolidated Mining Co., and to secure to the Balatoc
Mining Co., the restoration of a large sum of money alleged to have been
unlawfully collected by the Benguet Consolidated Mining Co., with legal interest,
after deduction therefrom of the amount expended by the latter company under a
contract between the two companies, bearing date of March 9, 1927. The complaint
was afterwards amended so as to include a prayer for the annulment of this
contract. Shortly prior to the institution of this lawsuit, the Benguet Consolidated
Mining Co., transferred to H. E. Renz, as trustee, the certificate for 600,000 shares
of the Balatoc Mining Co. which constitute the principal subject matter of the
action. This was done apparently to facilitate the splitting up to the shares in the course
of the sale or distribution. To prevent this the plaintiffs, upon filing their original
complaint, procured a preliminary injunction restraining the defendants, their
agents and servants, from selling, assigning or transferring the 600,000 shares of
the Balatoc Mining Co., or any part thereof, and from removing said shares from
the Philippine Islands. This explains the connection of Renz with the case. The other
individual defendants are made merely as officials of the Benguet Consolidated
Mining Co. Upon hearing the cause the trial court dismissed the complaint and
dissolved the preliminary injunction, with costs against the plaintiffs. From this
judgment the plaintiffs appealed.

The facts which have given rise this lawsuit are simple, as the financial interests involve
are immense. Briefly told these facts are as follows: The Benguet Consolidated Mining
Co. was organized in June, 1903, as a sociedad anonima in conformity with the
provisions of Spanish law; while the Balatoc Mining Co. was organized in
December 1925, as a corporation, in conformity with the provisions of the
Corporation Law (Act No. 1459). Both entities were organized for the purpose of
engaging in the mining of gold in the Philippine Islands, and their respective
properties are located only a few miles apart in the subprovince of Benguet. The
capital stock of the Balatoc Mining Co. consists of one million shares of the par
value of one peso (P1) each.

When the Balatoc Mining Co. was first organized the properties acquired by it
were largely undeveloped; and the original stockholders were unable to supply
the means needed for profitable operation. For this reason, the board of directors
of the corporation ordered a suspension of all work, effective July 31, 1926. In
November of the same year a general meeting of the company's stockholders
appointed a committee for the purpose of interesting outside capital in the mine.
Under the authority of this resolution the committee approached A. W. Beam, then
president and general manager of the Benguet Company, to secure the capital
necessary to the development of the Balatoc property. As a result of the
negotiations thus begun, a contract, formally authorized by the management of both
companies, was executed on March 9, 1927, the principal features of which were
that the Benguet Company was to proceed with the development and construct a
milling plant for the Balatoc mine, of a capacity of 100 tons of ore per day, and
with an extraction of at least 85 per cent of the gold content. The Benguet
Company also agreed to erect an appropriate power plant, with the aerial
tramlines and such other surface buildings as might be needed to operate the
mine. In return for this it was agreed that the Benguet Company should receive
from the treasurer of the Balatoc Company shares of a par value of P600,000, in
payment for the first P600,000 be thus advanced to it by the Benguet Company.

The performance of this contract was speedily begun, and by May 31, 1929, the
Benguet Company had spent upon the development the sum of P1,417,952.15. In
compensation for this work a certificate for six hundred thousand shares of the
stock of the Balatoc Company has been delivered to the Benguet Company, and
the excess value of the work in the amount of P817,952.15 has been returned to
the Benguet Company in cash. Meanwhile dividends of the Balatoc Company have
been enriching its stockholders, and at the time of the filing of the complaint the
value of its shares had increased in the market from a nominal valuation to more
than eleven pesos per share. While the Benguet Company was pouring its million and
a half into the Balatoc property, the arrangements made between the two companies
appear to have been viewed by the plaintiff Harden with complacency, he being the
owner of many thousands of the shares of the Balatoc Company. But as soon as the
success of the development had become apparent, he began this litigation in
which he has been joined by two others of the eighty shareholders of the Balatoc
Company.

Briefly, the legal point upon which the action is planted is that it is unlawful for the
Benguet Company to hold any interest in a mining corporation and that the
contract by which the interest here in question was acquired must be annulled,
with the consequent obliteration of the certificate issued to the Benguet Company and
the corresponding enrichment of the shareholders of the Balatoc Company.

When the Philippine Islands passed to the sovereignty of the United States, in the
attention of the Philippine Commission was early drawn to the fact that there is no
entity in Spanish law exactly corresponding to the notion of the corporation in
English and American law; and in the Philippine Bill, approved July 1, 1902, the
Congress of the United States inserted certain provisions, under the head of
Franchises, which were intended to control the lawmaking power in the Philippine
Islands in the matter of granting of franchises, privileges and concessions. These
provisions are found in section 74 and 75 of the Act. The provisions of section 74 have
been superseded by section 28 of the Act of Congress of August 29, 1916, but in section
75 there is a provision referring to mining corporations, which still remains the law, as
amended. This provisions, in its original form, reads as follows: "... it shall be unlawful
for any member of a corporation engaged in agriculture or mining and for any
corporation organized for any purpose except irrigation to be in any wise
interested in any other corporation engaged in agriculture or in mining."

Under the guidance of this and certain other provisions thus enacted by Congress, the
Philippine Commission entered upon the enactment of a general law authorizing the
creation of corporations in the Philippine Islands. This rather elaborate piece of
legislation is embodied in what is called our Corporation Law (Act No. 1459 of the
Philippine Commission). The evident purpose of the commission was to introduce
the American corporation into the Philippine Islands as the standard commercial
entity and to hasten the day when the sociedad anonima of the Spanish law would
be obsolete. That statute is a sort of codification of American corporate law.

For the purposes general description only, it may be stated that the sociedad anonima
is something very much like the English joint stock company, with features
resembling those of both the partnership is shown in the fact that sociedad, the generic
component of its name in Spanish, is the same word that is used in that language to
designate other forms of partnership, and in its organization it is constructed along the
same general lines as the ordinary partnership. It is therefore not surprising that for
purposes of loose translation the expression sociedad anonima has not infrequently the
other hand, the affinity of this entity to the American corporation has not escaped notice,
and the expression sociedad anonima is now generally translated by the word
corporation. But when the word corporation is used in the sense of sociedad anonima
and close discrimination is necessary, it should be associated with the Spanish
expression sociedad anonima either in a parenthesis or connected by the word "or". This
latter device was adopted in sections 75 and 191 of the Corporation Law.

In drafting the Corporation Law the Philippine Commission inserted bodily, in subsection
(5) of section 13 of that Act (No. 1459) the words which we have already quoted from
section 75 of the Act of Congress of July 1, 1902 (Philippine Bill); and it is of course
obvious that whatever meaning originally attached to this provision in the Act of
Congress, the same significance should be attached to it in section 13 of our
Corporation Law.

As it was the intention of our lawmakers to stimulate the introduction of the

American Corporation into Philippine law in the place of the sociedad anonima, it
was necessary to make certain adjustments resulting from the continued co-
existence, for a time, of the two forms of commercial entities. Accordingly, in
section 75 of the Corporation Law, a provision is found making the sociedad anonima
subject to the provisions of the Corporation Law "so far as such provisions may be
applicable", and giving to the sociedades anonimas previously created in the Islands the
option to continue business as such or to reform and organize under the provisions of
the Corporation Law. Again, in section 191 of the Corporation Law, the Code of
Commerce is repealed in so far as it relates to sociedades anonimas. The purpose of
the commission in repealing this part of the Code of Commerce was to compel
commercial entities thereafter organized to incorporate under the Corporation
Law, unless they should prefer to adopt some form or other of the partnership. To
this provision was added another to the effect that existing sociedades anonimas, which
elected to continue their business as such, instead of reforming and reorganizing
under the Corporation Law, should continue to be governed by the laws that were
in force prior to the passage of this Act "in relation to their organization and
method of transacting business and to the rights of members thereof as between
themselves, but their relations to the public and public officials shall be governed
by the provisions of this Act."

As already observed, the provision above quoted from section 75 of the Act Congress
of July 1, 1902 (Philippine Bill), generally prohibiting corporations engaged in
mining and members of such from being interested in any other corporation
engaged in mining, was amended by section 7 of Act No. 3518 of the Philippine
Legislature, approved by Congress March 1, 1929. The change in the law effected by
this amendment was in the direction of liberalization. Thus, the inhibition contained in
the original provision against members of a corporation engaged in agriculture or
mining from being interested in other corporations engaged in agriculture or in
mining was so modified as merely to prohibit any such member from holding
more than fifteen per centum of the outstanding capital stock of another such
corporation. Moreover, the explicit prohibition against the holding by any
corporation (except for irrigation) of an interest in any other corporation engaged
in agriculture or in mining was so modified as to limit the restriction to
corporations organized for the purpose of engaging in agriculture or in mining.

As originally drawn, our Corporation Law (Act No. 1459) did not contain any
appropriate clause directly penalizing the act of a corporation, a member of a
corporation ,in acquiring an interest contrary to paragraph (5) of section 13 of the
Act. The Philippine Legislature undertook to remedy this situation in section 3 of Act No.
2792 of the Philippine Legislature, approved on February 18, 1919, but this provision
was declared invalid by this court in Government of the Philippine Islands vs. El Hogar
Filipino (50 Phil., 399), for lack of an adequate title to the Act. Subsequently the
Legislature reenacted substantially the same penal provision in section 21 of Act
No. 3518, under a title sufficiently broad to comprehend the subject matter. This part of
Act No. 3518 became effective upon approval by the Governor-General, on December 3,
1928, and it was therefore in full force when the contract now in question was made.

This provision was inserted as a new section in the Corporation Law, forming section
1990 (A) of said Act as it now stands. Omitting the proviso, which seems not to be
pertinent to the present controversy, said provision reads as follows:

SEC. 190 (A). Penalties. The violation of any of the provisions of this Act and its
amendments not otherwise penalized therein, shall be punished by a fine of not
more than five thousand pesos and by imprisonment for not more than five years,
in the discretion of the court. If the violation is committed by a corporation, the same
shall, upon such violation being proved, be dissolved by quo warranto proceedings
instituted by the Attorney-General or by any provincial fiscal by order of said
Attorney-General: . . . .

Upon a survey of the facts sketched above it is obvious that there are two fundamental
questions involved in this controversy. The first is whether the plaintiffs can maintain
an action based upon the violation of law supposedly committed by the Benguet
Company in this case. The second is whether, assuming the first question to be
answered in the affirmative, the Benguet Company, which was organized as a
sociedad anonima, is a corporation within the meaning of the language used by
the Congress of the United States, and later by the Philippine Legislature,
prohibiting a mining corporation from becoming interested in another mining
corporation. It is obvious that, if the first question be answered in the negative, it will be
unnecessary to consider the second question in this lawsuit.

Upon the first point it is at once obvious that the provision referred to was adopted by the
lawmakers with a sole view to the public policy that should control in the granting of
mining rights. Furthermore, the penalties imposed in what is now section 190 (A) of
the Corporation Law for the violation of the prohibition in question are of such
nature that they can be enforced only by a criminal prosecution or by an action of
quo warranto. But these proceedings can be maintained only by the Attorney-
General in representation of the Government.

What room then is left for the private action which the plaintiffs seek to assert in this
case? The defendant Benguet Company has committed no civil wrong against the
plaintiffs, and if a public wrong has been committed, the directors of the Balatoc
Company, and the plaintiff Harden himself, were the active inducers of the
commission of that wrong. The contract, supposing it to have been unlawful in
fact, has been performed on both sides, by the building of the Balatoc plant by the
Benguet Company and the delivery to the latter of the certificate of 600,000 shares
of the Balatoc Company. There is no possibility of really undoing what has been done.
Nobody would suggest the demolition of the mill. The Balatoc Company is secure in
the possession of that improvement, and talk about putting the parties in status
quo ante by restoring the consideration with interest, while the Balatoc Company
remains in possession of what it obtained by the use of that money, does not quite
meet the case. Also, to mulct the Benguet Company in many millions of dollars in favor
of individuals who have not the slightest equitable right to that money in a proposition to
which no court can give a ready assent.

The most plausible presentation of the case of the plaintiffs proceeds on the assumption
that only one of the contracting parties has been guilty of a misdemeanor, namely, the
Benguet Company, and that the other party, the Balatoc Company, is wholly innocent to
participation in that wrong. The plaintiffs would then have us apply the second paragraph
of article 1305 of the Civil Code which declares that an innocent party to an illegal
contract may recover anything he may have given, while he is not bound to fulfill any
promise he may have made. But, supposing that the first hurdle can be safely vaulted,
the general remedy supplied in article 1305 of the Civil Code cannot be invoked where
an adequate special remedy is supplied in a special law. It has been so held by this
court in Go Chioco vs. Martinez (45 Phil., 256, 280), where we refused to apply that
article to a case of nullity arising upon a usurious loan. The reason given for the decision
on this point was that the Usury Act, as amended, contains all the provisions necessary
for the effectuation of its purposes, with the result that the remedy given in article 1305
of the Civil Code is unnecessary. Much more is that idea applicable to the situation now
before us, where the special provisions give ample remedies for the enforcement of the
law by action in the name of the Government, and where no civil wrong has been done
to the party here seeking redress.

The view of the case presented above rest upon considerations arising upon our own
statutes; and it would seem to be unnecessary to ransack the American decisions for
analogies pertinent to the case. We may observe, however, that the situation involved is
not unlike that which has frequently arisen in the United States under provisions of the
National Bank Act prohibiting banks organized under that law from holding real property.
It has been uniformly held that a trust deed or mortgaged conveying property of this kind
to a bank, by way of security, is valid until the transaction is assailed in a direct
proceeding instituted by the Government against the bank, and the illegality of such
tenure supplies no basis for an action by the former private owner, or his creditor, to
annul the conveyance. (National Bank vs. Matthews, 98 U. S., 621; Kerfoot vs. Farmers
& M. Bank, 218 U. S., 281.) Other analogies point in the same direction. (South & Ala. R.
Ginniss vs. B. & M. Consol. etc. Mining Co., 29 Mont., 428; Holmes & Griggs Mfg. Co.
vs. Holmes & Wessell Metal Co., 127 N. Y., 252; Oelbermann vs. N. Y. & N. R. Co., 77
Hun., 332.)

Most suggestive perhaps of all the cases in Compaia Azucarera de Carolina vs.
Registrar (19 Porto Rico, 143), for the reason that this case arose under a provision of
the Foraker Act, a law analogous to our Philippine Bill. It appears that the registrar had
refused to register two deeds in favor of the Compaia Azucarera on the ground that the
land thereby conveyed was in excess of the area permitted by law to the company. The
Porto Rican court reversed the ruling of the registrar and ordered the registration of the
deeds, saying:

Thus it may be seen that a corporation limited by the law or by its charter has until
the State acts every power and capacity that any other individual capable of
acquiring lands, possesses. The corporation may exercise every act of ownership
over such lands; it may sue in ejectment or unlawful detainer and it may demand
specific performance. It has an absolute title against all the world except the State
after a proper proceeding is begun in a court of law. ... The Attorney General is the
exclusive officer in whom is confided the right to initiate proceedings for escheat
or attack the right of a corporation to hold land.

Having shown that the plaintiffs in this case have no right of action against the
Benguet Company for the infraction of law supposed to have been committed, we
forego any discussion of the further question whether a sociedad anonima
created under Spanish law, such as the Benguet Company, is a corporation within
the meaning of the prohibitory provision already so many times mentioned. That
important question should, in our opinion, be left until it is raised in an action brought by
the Government.

The judgment which is the subject of his appeal will therefore be affirmed, and it is so
ordered, with costs against the appellants.
 Republic of the Philippines SUPREME COURT Manila

EN BANC

G.R. No. L-23145 November 29, 1968

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG,

ancillary administrator-appellee, vs. BENGUET CONSOLIDATED, INC., oppositor-
appellant.

Cirilo F. Asperillo, Jr., for ancillary administrator-appellee. Ross, Salcedo, Del Rosario,
Bito and Misa for oppositor-appellant.

FERNANDO, J.:

Confronted by an obstinate and adamant refusal of the domiciliary administrator, the

County Trust Company of New York, United States of America, of the estate of the
deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to
surrender to the ancillary administrator in the Philippines the stock certificates
owned by her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy
the legitimate claims of local creditors, the lower court, then presided by the
Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor:
"After considering the motion of the ancillary administrator, dated February 11, 1964, as
well as the opposition filed by the Benguet Consolidated, Inc., the Court hereby (1)
considers as lost for all purposes in connection with the administration and
liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates
covering the 33,002 shares of stock standing in her name in the books of the
Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs
said corporation to issue new certificates in lieu thereof, the same to be delivered
by said corporation to either the incumbent ancillary administrator or to the
Probate Division of this Court."1

From such an order, an appeal was taken to this Court not by the domiciliary
administrator, the County Trust Company of New York, but by the Philippine
corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper.
The challenged order represents a response and expresses a policy, to paraphrase
Frankfurter, arising out of a specific problem, addressed to the attainment of specific
ends by the use of specific remedies, with full and ample support from legal doctrines of
weight and significance.

The facts will explain why. As set forth in the brief of appellant Benguet Consolidated,
Inc., Idonah Slade Perkins, who died on March 27, 1960 in New York City, left
among others, two stock certificates covering 33,002 shares of appellant, the
certificates being in the possession of the County Trust Company of New York,
which as noted, is the domiciliary administrator of the estate of the deceased. 2
Then came this portion of the appellant's brief: "On August 12, 1960, Prospero Sanidad
instituted ancillary administration proceedings in the Court of First Instance of
Manila; Lazaro A. Marquez was appointed ancillary administrator, and on January
22, 1963, he was substituted by the appellee Renato D. Tayag. A dispute arose
between the domiciary administrator in New York and the ancillary administrator
in the Philippines as to which of them was entitled to the possession of the stock
certificates in question. On January 27, 1964, the Court of First Instance of Manila
ordered the domiciliary administrator, County Trust Company, to "produce and
deposit" them with the ancillary administrator or with the Clerk of Court. The
domiciliary administrator did not comply with the order, and on February 11, 1964,
the ancillary administrator petitioned the court to "issue an order declaring the
certificate or certificates of stocks covering the 33,002 shares issued in the name
of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or]
considered as lost."3

It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is
immaterial" as far as it is concerned as to "who is entitled to the possession of the stock
certificates in question; appellant opposed the petition of the ancillary administrator
because the said stock certificates are in existence, they are today in the
possession of the domiciliary administrator, the County Trust Company, in New
York, U.S.A...."4

It is its view, therefore, that under the circumstances, the stock certificates cannot be
declared or considered as lost. Moreover, it would allege that there was a failure to
observe certain requirements of its by-laws before new stock certificates could be
issued. Hence, its appeal.

As was made clear at the outset of this opinion, the appeal lacks merit. The
challenged order constitutes an emphatic affirmation of judicial authority sought
to be emasculated by the willful conduct of the domiciliary administrator in
refusing to accord obedience to a court decree. How, then, can this order be
stigmatized as illegal?

As is true of many problems confronting the judiciary, such a response was called for by
the realities of the situation. What cannot be ignored is that conduct bordering on wilful
defiance, if it had not actually reached it, cannot without undue loss of judicial prestige,
be condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness
as to preclude such a solution, the more so as deeper reflection would make clear its
being buttressed by indisputable principles and supported by the strongest policy
considerations.

It can truly be said then that the result arrived at upheld and vindicated the honor of the
judiciary no less than that of the country. Through this challenged order, there is thus
dispelled the atmosphere of contingent frustration brought about by the persistence of
the domiciliary administrator to hold on to the stock certificates after it had, as admitted,
voluntarily submitted itself to the jurisdiction of the lower court by entering its appearance
through counsel on June 27, 1963, and filing a petition for relief from a previous order of
March 15, 1963.

Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to
what was decreed. For without it, what it had been decided would be set at naught and
nullified. Unless such a blatant disregard by the domiciliary administrator, with residence
abroad, of what was previously ordained by a court order could be thus remedied, it
would have entailed, insofar as this matter was concerned, not a partial but a well-nigh
complete paralysis of judicial authority.

1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee
ancillary administrator to gain control and possession of all assets of the decedent within
the jurisdiction of the Philippines. Nor could it. Such a power is inherent in his duty to
settle her estate and satisfy the claims of local creditors.5 As Justice Tuason speaking
for this Court made clear, it is a "general rule universally recognized" that
administration, whether principal or ancillary, certainly "extends to the assets of a
decedent found within the state or country where it was granted," the corollary
being "that an administrator appointed in one state or country has no power over
property in another state or country."6

It is to be noted that the scope of the power of the ancillary administrator was, in an
earlier case, set forth by Justice Malcolm. Thus: "It is often necessary to have more than
one administration of an estate. When a person dies intestate owning property in the
country of his domicile as well as in a foreign country, administration is had in both
countries. That which is granted in the jurisdiction of decedent's last domicile is termed
the principal administration, while any other administration is termed the ancillary
administration. The reason for the latter is because a grant of administration does not ex
proprio vigore have any effect beyond the limits of the country in which it is granted.
Hence, an administrator appointed in a foreign state has no authority in the [Philippines].
The ancillary administration is proper, whenever a person dies, leaving in a country other
than that of his last domicile, property to be administered in the nature of assets of the
deceased liable for his individual debts or to be distributed among his heirs."7

It would follow then that the authority of the probate court to require that ancillary
administrator's right to "the stock certificates covering the 33,002 shares ...
standing in her name in the books of [appellant] Benguet Consolidated, Inc...." be
respected is equally beyond question. For appellant is a Philippine corporation
owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its
shares of stock cannot therefore be considered in any wise as immune from
lawful court orders.

Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds
application. "In the instant case, the actual situs of the shares of stock is in the
Philippines, the corporation being domiciled [here]." To the force of the above
undeniable proposition, not even appellant is insensible. It does not dispute it. Nor could
it successfully do so even if it were so minded.

2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion
for the legality of the challenged order, how does appellant, Benguet Consolidated, Inc.
propose to carry the extremely heavy burden of persuasion of precisely demonstrating
the contrary? It would assign as the basic error allegedly committed by the lower court
its "considering as lost the stock certificates covering 33,002 shares of Benguet
belonging to the deceased Idonah Slade Perkins, ..."9 More specifically, appellant would
stress that the "lower court could not "consider as lost" the stock certificates in question
when, as a matter of fact, his Honor the trial Judge knew, and does know, and it is
admitted by the appellee, that the said stock certificates are in existence and are today
in the possession of the domiciliary administrator in New York."10

There may be an element of fiction in the above view of the lower court. That certainly
does not suffice to call for the reversal of the appealed order. Since there is a refusal,
persistently adhered to by the domiciliary administrator in New York, to deliver the
shares of stocks of appellant corporation owned by the decedent to the ancillary
administrator in the Philippines, there was nothing unreasonable or arbitrary in
considering them as lost and requiring the appellant to issue new certificates in
lieu thereof. Thereby, the task incumbent under the law on the ancillary administrator
could be discharged and his responsibility fulfilled.

Any other view would result in the compliance to a valid judicial order being made to
depend on the uncontrolled discretion of the party or entity, in this case domiciled
abroad, which thus far has shown the utmost persistence in refusing to yield obedience.
Certainly, appellant would not be heard to contend in all seriousness that a judicial
decree could be treated as a mere scrap of paper, the court issuing it being powerless to
remedy its flagrant disregard.

It may be admitted of course that such alleged loss as found by the lower court did not
correspond exactly with the facts. To be more blunt, the quality of truth may be lacking in
such a conclusion arrived at. It is to be remembered however, again to borrow from
Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends
have played an important part in its development."11

Speaking of the common law in its earlier period, Cardozo could state fictions "were
devices to advance the ends of justice, [even if] clumsy and at times offensive." 12 Some
of them have persisted even to the present, that eminent jurist, noting "the quasi
contract, the adopted child, the constructive trust, all of flourishing vitality, to attest the
empire of "as if" today."13 He likewise noted "a class of fictions of another order, the
fiction which is a working tool of thought, but which at times hides itself from view till
reflection and analysis have brought it to the light."14

What cannot be disputed, therefore, is the at times indispensable role that fictions as
such played in the law. There should be then on the part of the appellant a further
refinement in the catholicity of its condemnation of such judicial technique. If ever an
occasion did call for the employment of a legal fiction to put an end to the anomalous
situation of a valid judicial order being disregarded with apparent impunity, this is it.
What is thus most obvious is that this particular alleged error does not carry persuasion.

3. Appellant Benguet Consolidated, Inc. would seek to bolster the above

contention by its invoking one of the provisions of its by-laws which would set
forth the procedure to be followed in case of a lost, stolen or destroyed stock
certificate; it would stress that in the event of a contest or the pendency of an
action regarding ownership of such certificate or certificates of stock allegedly
lost, stolen or destroyed, the issuance of a new certificate or certificates would
await the "final decision by [a] court regarding the ownership [thereof]."15

Such reliance is misplaced. In the first place, there is no such occasion to apply
such by-law. It is admitted that the foreign domiciliary administrator did not
appeal from the order now in question. Moreover, there is likewise the express
admission of appellant that as far as it is concerned, "it is immaterial ... who is
entitled to the possession of the stock certificates ..." Even if such were not the
case, it would be a legal absurdity to impart to such a provision conclusiveness
and finality. Assuming that a contrariety exists between the above by-law and the
command of a court decree, the latter is to be followed.

It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to

which, however, the judiciary must yield deference, when appropriately invoked and
deemed applicable. It would be most highly unorthodox, however, if a corporate by-law
would be accorded such a high estate in the jural order that a court must not only take
note of it but yield to its alleged controlling force.

The fear of appellant of a contingent liability with which it could be saddled unless the
appealed order be set aside for its inconsistency with one of its by-laws does not
impress us. Its obedience to a lawful court order certainly constitutes a valid defense,
assuming that such apprehension of a possible court action against it could possibly
materialize. Thus far, nothing in the circumstances as they have developed gives
substance to such a fear. Gossamer possibilities of a future prejudice to appellant do not
suffice to nullify the lawful exercise of judicial authority.

4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with
implications at war with the basic postulates of corporate theory.

We start with the undeniable premise that, "a corporation is an artificial being
created by operation of law...."16 It owes its life to the state, its birth being purely
dependent on its will. As Berle so aptly stated: "Classically, a corporation was
conceived as an artificial person, owing its existence through creation by a
sovereign power."17 As a matter of fact, the statutory language employed owes
much to Chief Justice Marshall, who in the Dartmouth College decision defined a
corporation precisely as "an artificial being, invisible, intangible, and existing only
in contemplation of law."18

The well-known authority Fletcher could summarize the matter thus: "A
corporation is not in fact and in reality a person, but the law treats it as though it
were a person by process of fiction, or by regarding it as an artificial person
distinct and separate from its individual stockholders.... It owes its existence to
law. It is an artificial person created by law for certain specific purposes, the
extent of whose existence, powers and liberties is fixed by its charter." 19 Dean
Pound's terse summary, a juristic person, resulting from an association of human
beings granted legal personality by the state, puts the matter neatly.20

There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to
quote from Friedmann, "is the reality of the group as a social and legal entity,
independent of state recognition and concession."21 A corporation as known to
Philippine jurisprudence is a creature without any existence until it has received
the imprimatur of the state according to law. It is logically inconceivable therefore
that it will have rights and privileges of a higher priority than that of its creator.
More than that, it cannot legitimately refuse to yield obedience to acts of its state
organs, certainly not excluding the judiciary, whenever called upon to do so.
As a matter of fact, a corporation once it comes into being, following American law still of
persuasive authority in our jurisdiction, comes more often within the ken of the judiciary
than the other two coordinate branches. It institutes the appropriate court action to
enforce its right. Correlatively, it is not immune from judicial control in those
instances, where a duty under the law as ascertained in an appropriate legal
proceeding is cast upon it.

To assert that it can choose which court order to follow and which to disregard is to
confer upon it not autonomy which may be conceded but license which cannot be
tolerated. It is to argue that it may, when so minded, overrule the state, the source of its
very existence; it is to contend that what any of its governmental organs may lawfully
require could be ignored at will. So extravagant a claim cannot possibly merit approval.

5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a
guardianship proceedings then pending in a lower court, the United States Veterans
Administration filed a motion for the refund of a certain sum of money paid to the minor
under guardianship, alleging that the lower court had previously granted its petition to
consider the deceased father as not entitled to guerilla benefits according to a
determination arrived at by its main office in the United States. The motion was denied.
In seeking a reconsideration of such order, the Administrator relied on an American
federal statute making his decisions "final and conclusive on all questions of law or fact"
precluding any other American official to examine the matter anew, "except a judge or
judges of the United States court."23 Reconsideration was denied, and the Administrator
appealed.

In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of
the opinion that the appeal should be rejected. The provisions of the U.S. Code, invoked
by the appellant, make the decisions of the U.S. Veterans' Administrator final and
conclusive when made on claims property submitted to him for resolution; but they are
not applicable to the present case, where the Administrator is not acting as a judge but
as a litigant. There is a great difference between actions against the Administrator
(which must be filed strictly in accordance with the conditions that are imposed by the
Veterans' Act, including the exclusive review by United States courts), and those actions
where the Veterans' Administrator seeks a remedy from our courts and submits to their
jurisdiction by filing actions therein. Our attention has not been called to any law or treaty
that would make the findings of the Veterans' Administrator, in actions where he is a
party, conclusive on our courts. That, in effect, would deprive our tribunals of judicial
discretion and render them mere subordinate instrumentalities of the Veterans'
Administrator."

It is bad enough as the Viloria decision made patent for our judiciary to accept as final
and conclusive, determinations made by foreign governmental agencies. It is infinitely
worse if through the absence of any coercive power by our courts over juridical persons
within our jurisdiction, the force and effectivity of their orders could be made to depend
on the whim or caprice of alien entities. It is difficult to imagine of a situation more
offensive to the dignity of the bench or the honor of the country.

Yet that would be the effect, even if unintended, of the proposition to which appellant
Benguet Consolidated seems to be firmly committed as shown by its failure to accept the
validity of the order complained of; it seeks its reversal. Certainly we must at all pains
see to it that it does not succeed. The deplorable consequences attendant on appellant
prevailing attest to the necessity of negative response from us. That is what appellant
will get.

That is all then that this case presents. It is obvious why the appeal cannot succeed. It is
always easy to conjure extreme and even oppressive possibilities. That is not decisive. It
does not settle the issue. What carries weight and conviction is the result arrived at, the
just solution obtained, grounded in the soundest of legal doctrines and distinguished by
its correspondence with what a sense of realism requires. For through the appealed
order, the imperative requirement of justice according to law is satisfied and national
dignity and honor maintained.

WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of
the Court of First Instance, dated May 18, 1964, is affirmed. With costs against
oppositor-appelant Benguet Consolidated, Inc.

[G.R. No. 119002. October 19, 2000]

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs.

HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL
FEDERATION, respondents.

DECISION

KAPUNAN, J.:

On June 30 1989, petitioner International Express Travel and Tour Services,

Inc., through its managing director, wrote a letter to the Philippine Football
Federation (Federation), through its president private respondent Henri Kahn,
wherein the former offered its services as a travel agency to the latter.[1] The offer
was accepted.

Petitioner secured the airline tickets for the trips of the athletes and officials
of the Federation to the South East Asian Games in Kuala Lumpur as well as
various other trips to the People's Republic of China and Brisbane. The total cost
of the tickets amounted to P449,654.83. For the tickets received, the Federation
made two partial payments, both in September of 1989, in the total amount of
P176,467.50.[2]

On 4 October 1989, petitioner wrote the Federation, through the private

respondent a demand letter requesting for the amount of P265,894.33.[3] On 30
October 1989, the Federation, through the Project Gintong Alay, paid the amount
of P31,603.00.[4]
 On 27 December 1989, Henri Kahn issued a personal check in the amount of
P50,000 as partial payment for the outstanding balance of the Federation.[5]
Thereafter, no further payments were made despite repeated demands.

This prompted petitioner to file a civil case before the Regional Trial Court of
Manila. Petitioner sued Henri Kahn in his personal capacity and as President of the
Federation and impleaded the Federation as an alternative defendant. Petitioner
sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased
by the Federation on the ground that Henri Kahn allegedly guaranteed the said
obligation.[6]

Henri Kahn filed his answer with counterclaim. While not denying the
allegation that the Federation owed the amount P207,524.20, representing the unpaid
balance for the plane tickets, he averred that the petitioner has no cause of action
against him either in his personal capacity or in his official capacity as president
of the Federation. He maintained that he did not guarantee payment but merely
acted as an agent of the Federation which has a separate and distinct juridical
personality.[7]

On the other hand, the Federation failed to file its answer, hence, was
declared in default by the trial court.[8]

In due course, the trial court rendered judgment and ruled in favor of the
petitioner and declared Henri Kahn personally liable for the unpaid obligation of
the Federation. In arriving at the said ruling, the trial court rationalized:

Defendant Henri Kahn would have been correct in his contentions had it been duly
established that defendant Federation is a corporation. The trouble, however, is
that neither the plaintiff nor the defendant Henri Kahn has adduced any evidence
proving the corporate existence of the defendant Federation. In paragraph 2 of its
complaint, plaintiff asserted that "Defendant Philippine Football Federation is a sports
association xxx." This has not been denied by defendant Henri Kahn in his Answer.
Being the President of defendant Federation, its corporate existence is within the
personal knowledge of defendant Henri Kahn. He could have easily denied specifically
the assertion of the plaintiff that it is a mere sports association, if it were a domestic
corporation. But he did not.

xxx

A voluntary unincorporated association, like defendant Federation has no power

to enter into, or to ratify, a contract. The contract entered into by its officers or
agents on behalf of such association is not binding on, or enforceable against it.
The officers or agents are themselves personally liable.

x x x[9]

The dispositive portion of the trial court's decision reads:

WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff
the principal sum of P207,524.20, plus the interest thereon at the legal rate computed
from July 5, 1990, the date the complaint was filed, until the principal obligation is fully
liquidated; and another sum of P15,000.00 for attorney's fees.
The complaint of the plaintiff against the Philippine Football Federation and the
counterclaims of the defendant Henri Kahn are hereby dismissed.

With the costs against defendant Henri Kahn.[10]

Only Henri Kahn elevated the above decision to the Court of Appeals. On 21
December 1994, the respondent court rendered a decision reversing the trial court,
the decretal portion of said decision reads:

WHEREFORE, premises considered, the judgment appealed from is hereby

REVERSED and SET ASIDE and another one is rendered dismissing the complaint
against defendant Henri S. Kahn.[11]

In finding for Henri Kahn, the Court of Appeals recognized the juridical
existence of the Federation. It rationalized that since petitioner failed to prove that
Henri Kahn guaranteed the obligation of the Federation, he should not be held
liable for the same as said entity has a separate and distinct personality from its
officers.

Petitioner filed a motion for reconsideration and as an alternative prayer pleaded

that the Federation be held liable for the unpaid obligation. The same was denied by the
appellate court in its resolution of 8 February 1995, where it stated that:

As to the alternative prayer for the Modification of the Decision by expressly declaring in
the dispositive portion thereof the Philippine Football Federation (PFF) as liable for the
unpaid obligation, it should be remembered that the trial court dismissed the
complaint against the Philippine Football Federation, and the plaintiff did not
appeal from this decision. Hence, the Philippine Football Federation is not a party
to this appeal and consequently, no judgment may be pronounced by this Court
against the PFF without violating the due process clause, let alone the fact that
the judgment dismissing the complaint against it, had already become final by
virtue of the plaintiff's failure to appeal therefrom. The alternative prayer is therefore
similarly DENIED.[12]

Petitioner now seeks recourse to this Court and alleges that the respondent court
committed the following assigned errors:[13]

A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

PETITIONER HAD DEALT WITH THE PHILIPPINE FOOTBALL
FEDERATION (PFF) AS A CORPORATE ENTITY AND IN NOT
HOLDING THAT PRIVATE RESPONDENT HENRI KAHN WAS THE
ONE WHO REPRESENTED THE PFF AS HAVING A CORPORATE
PERSONALITY.

B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING

PRIVATE RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR
THE OBLIGATION OF THE UNINCORPORATED PFF, HAVING
NEGOTIATED WITH PETITIONER AND CONTRACTED THE
OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL PAYMENT
AND ASSURED PETITIONER OF FULLY SETTLING THE
OBLIGATION.
 C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT
PERSONALLY LIABLE, THE HONORABLE COURT OF APPEALS
ERRED IN NOT EXPRESSLY DECLARING IN ITS DECISION THAT
THE PFF IS SOLELY LIABLE FOR THE OBLIGATION.

The resolution of the case at bar hinges on the determination of the existence of
the Philippine Football Federation as a juridical person. In the assailed decision, the
appellate court recognized the existence of the Federation. In support of this, the
CA cited Republic Act 3135, otherwise known as the Revised Charter of the
Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the
laws from which said Federation derives its existence.

As correctly observed by the appellate court, both R.A. 3135 and P.D. No.
604 recognized the juridical existence of national sports associations. This may
be gleaned from the powers and functions granted to these associations. Section
14 of R.A. 3135 provides:

SEC. 14. Functions, powers and duties of Associations. - The National Sports'
Association shall have the following functions, powers and duties:

1. To adopt a constitution and by-laws for their internal organization and

government;

2. To raise funds by donations, benefits, and other means for their purposes.

3. To purchase, sell, lease or otherwise encumber property both real and personal,
for the accomplishment of their purpose;

4. To affiliate with international or regional sports' Associations after due consultation

with the executive committee;

xxx

13. To perform such other acts as may be necessary for the proper accomplishment of
their purposes and not inconsistent with this Act.

Section 8 of P.D. 604, grants similar functions to these sports associations:

SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National
sports associations shall have the following functions, powers, and duties:

1. Adopt a Constitution and By-Laws for their internal organization and government
which shall be submitted to the Department and any amendment thereto shall take effect
upon approval by the Department: Provided, however, That no team, school, club,
organization, or entity shall be admitted as a voting member of an association unless 60
per cent of the athletes composing said team, school, club, organization, or entity are
Filipino citizens;

2. Raise funds by donations, benefits, and other means for their purpose subject to the
approval of the Department;
3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the
accomplishment of their purpose;

4. Conduct local, interport, and international competitions, other than the Olympic and
Asian Games, for the promotion of their sport;

5. Affiliate with international or regional sports associations after due consultation with
the Department;

xxx

13. Perform such other functions as may be provided by law.

The above powers and functions granted to national sports associations

clearly indicate that these entities may acquire a juridical personality. The power
to purchase, sell, lease and encumber property are acts which may only be done
by persons, whether natural or artificial, with juridical capacity. However, while we
agree with the appellate court that national sports associations may be accorded
corporate status, such does not automatically take place by the mere passage of
these laws.

It is a basic postulate that before a corporation may acquire juridical

personality, the State must give its consent either in the form of a special law or a
general enabling act. We cannot agree with the view of the appellate court and the
private respondent that the Philippine Football Federation came into existence
upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604
any provision creating the Philippine Football Federation. These laws merely
recognized the existence of national sports associations and provided the manner
by which these entities may acquire juridical personality. Section 11 of R.A. 3135
provides:

SEC. 11. National Sports' Association; organization and recognition. - A National

Association shall be organized for each individual sports in the Philippines in the manner
hereinafter provided to constitute the Philippine Amateur Athletic Federation.
Applications for recognition as a National Sports' Association shall be filed with the
executive committee together with, among others, a copy of the constitution and by-laws
and a list of the members of the proposed association, and a filing fee of ten pesos.

The Executive Committee shall give the recognition applied for if it is satisfied that said
association will promote the purposes of this Act and particularly section three thereof.
No application shall be held pending for more than three months after the filing thereof
without any action having been taken thereon by the executive committee. Should the
application be rejected, the reasons for such rejection shall be clearly stated in a written
communication to the applicant. Failure to specify the reasons for the rejection shall not
affect the application which shall be considered as unacted upon: Provided, however,
That until the executive committee herein provided shall have been formed, applications
for recognition shall be passed upon by the duly elected members of the present
executive committee of the Philippine Amateur Athletic Federation. The said executive
committee shall be dissolved upon the organization of the executive committee herein
provided: Provided, further, That the functioning executive committee is charged with the
responsibility of seeing to it that the National Sports' Associations are formed and
organized within six months from and after the passage of this Act.

Section 7 of P.D. 604, similarly provides:

SEC. 7. National Sports Associations. - Application for accreditation or recognition as a

national sports association for each individual sport in the Philippines shall be filed with
the Department together with, among others, a copy of the Constitution and By-Laws
and a list of the members of the proposed association.

The Department shall give the recognition applied for if it is satisfied that the national
sports association to be organized will promote the objectives of this Decree and has
substantially complied with the rules and regulations of the Department: Provided, That
the Department may withdraw accreditation or recognition for violation of this Decree
and such rules and regulations formulated by it.

The Department shall supervise the national sports association: Provided, That the latter
shall have exclusive technical control over the development and promotion of the
particular sport for which they are organized.

Clearly the above cited provisions require that before an entity may be
considered as a national sports association, such entity must be recognized by
the accrediting organization, the Philippine Amateur Athletic Federation under
R.A. 3135, and the Department of Youth and Sports Development under P.D. 604.
This fact of recognition, however, Henri Kahn failed to substantiate. In attempting
to prove the juridical existence of the Federation, Henri Kahn attached to his
motion for reconsideration before the trial court a copy of the constitution and by-
laws of the Philippine Football Federation. Unfortunately, the same does not prove
that said Federation has indeed been recognized and accredited by either the
Philippine Amateur Athletic Federation or the Department of Youth and Sports
Development. Accordingly, we rule that the Philippine Football Federation is not a
national sports association within the purview of the aforementioned laws and
does not have corporate existence of its own.

Thus being said, it follows that private respondent Henry Kahn should be held
liable for the unpaid obligations of the unincorporated Philippine Football
Federation. It is a settled principal in corporation law that any person acting or
purporting to act on behalf of a corporation which has no valid existence assumes
such privileges and becomes personally liable for contract entered into or for
other acts performed as such agent.[14] As president of the Federation, Henri
Kahn is presumed to have known about the corporate existence or non-existence
of the Federation. We cannot subscribe to the position taken by the appellate
court that even assuming that the Federation was defectively incorporated, the
petitioner cannot deny the corporate existence of the Federation because it had
contracted and dealt with the Federation in such a manner as to recognize and in
effect admit its existence.[15] The doctrine of corporation by estoppel is
mistakenly applied by the respondent court to the petitioner. The application of
the doctrine applies to a third party only when he tries to escape liability on a
contract from which he has benefited on the irrelevant ground of defective
incorporation.[16] In the case at bar, the petitioner is not trying to escape liability
from the contract but rather is the one claiming from the contract.

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The
decision of the Regional Trial Court of Manila, Branch 35, in Civil Case No. 90-53595 is
hereby REINSTATED.

SO ORDERED.

[G.R. No. 120138. September 5, 1997]

MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS, RODOLFO L.

JOCSON, JR., MELVIN S. JURISPRUDENCIA, AUGUSTUS CESAR AZURA
and EDGARDO D. PABALAN, petitioners, vs. COURT OF APPEALS,
SECURITIES AND EXCHANGE COMMISSION, TORMIL REALTY &
DEVELOPMENT CORPORATION, ANTONIO P. TORRES, JR., MA.
CRISTINA T. CARLOS, MA. LUISA T. MORALES, and DANTE D.
MORALES, respondents.

DECISION

KAPUNAN, J.:

In this petition for review on certiorari under Rule 45 of the Revised Rules of Court,
petitioners seek to annul the decision of the Court of Appeals in CA-G.R. SP. No. 31748
dated 23 May 1994 and its subsequent resolution dated 10 May 1995 denying
petitioners motion for reconsideration.

The present case involves two separate but interrelated conflicts. The facts leading
to the first controversy are as follows:

The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority
stockholder of Tormil Realty & Development Corporation while private
respondents who are the children of Judge Torres deceased brother Antonio A.
Torres, constituted the minority stockholders. In particular, their respective
shareholdings and positions in the corporation were as follows:

Name of Stockholder Number of Percentage Position(s)

Shares

Manuel A. Torres, Jr. 100,120 57.21 Dir./Pres./Chair

Milagros P. Torres 33,430 19.10 Dir./Treasurer
Josefina P. Torres 8,290 4.73 Dir./Ass. Cor-Sec.
Ma. Cristina T. Carlos 8,290 4.73 Dir./Cor-Sec.
Antonio P. Torres, Jr. 8,290 4.73 Director
 Ma. Jacinta P. Torres 8,290 4.73 Director
Ma. Luisa T. Morales 7,790 4.45 Director
Dante D. Morales 500 .28 Director [1]

In 1984, Judge Torres, in order to make substantial savings in taxes, adopted

an estate planning scheme under which he assigned to Tormil Realty &
Development Corporation (Tormil for brevity) various real properties he owned
and his shares of stock in other corporations in exchange for 225,972 Tormil
Realty shares. Hence, on various dates in July and August of 1984, ten (10) deeds of
assignment were executed by the late Judge Torres:

ASSIGNMENT DATE PROPERTY ASSIGNED LOCATION SHARES TO

BE ISSUED

1. July 13, 1984 TCT 81834 Quezon City 13,252

TCT 144240 Quezon City
2. July 13, 1984 TCT 77008 Manila
TCT 65689 Manila 78,493
TCT 109200 Manila
3. July 13, 1984 TCT 374079 Makati 8,307
4. July 24, 1984 TCT 41527 Pasay
TCT 41528 Pasay 9,855
TCT 41529 Pasay
5. Aug. 06, 1984 El Hogar Filipino Stocks 2,000
6, Aug. 06, 1984 Manila Jockey Club Stocks 48,737
7. Aug. 07, 1984 San Miguel Corp. Stocks 50,283
8. Aug. 07, 1984 China Banking Corp. Stocks 6,300
9. Aug. 20, 1984 Ayala Corp. Stocks 7,468
10. Aug. 29, 1984 Ayala Fund Stocks 1,322
225,972 [2]

Consequently, the aforelisted properties were duly recorded in the inventory

of assets of Tormil Realty and the revenues generated by the said properties were
correspondingly entered in the corporations books of account and financial
records.

Likewise, all the assigned parcels of land were duly registered with the
respective Register of Deeds in the name of Tormil Realty, except for the ones
located in Makati and Pasay City.

At the time of the assignments and exchange, however, only 225,000 Tormil
Realty shares remained unsubscribed, all of which were duly issued to and
received by Judge Torres (as evidenced by stock certificates Nos. 17, 18, 19, 20, 21,
22, 23, 24 & 25).[3]
Due to the insufficient number of shares of stock issued to Judge Torres and
the alleged refusal of private respondents to approve the needed increase in the
corporations authorized capital stock (to cover the shortage of 972 shares due to
Judge Torres under the estate planning scheme), on 11 September 1986, Judge Torres
revoked the two (2) deeds of assignment covering the properties in Makati and
Pasay City.[4]
 Noting the disappearance of the Makati and Pasay City properties from the
corporations inventory of assets and financial records private respondents, on 31
March 1987, were constrained to file a complaint with the Securities and Exchange
Commission (SEC) docketed as SEC Case No. 3153 to compel Judge Torres to
deliver to Tormil Corporation the two (2) deeds of assignment covering the
aforementioned Makati and Pasay City properties which he had unilaterally
revoked and to cause the registration of the corresponding titles in the name of
Tormil. Private respondents alleged that following the disappearance of the
properties from the corporations inventory of assets, they found that on October 24,
1986, Judge Torres, together with Edgardo Pabalan and Graciano Tobias, then
General Manager and legal counsel, respectively, of Tormil, formed and organized
a corporation named Torres-Pabalan Realty and Development Corporation and
that as part of Judge Torres contribution to the new corporation, he executed in
its favor a Deed of Assignment conveying the same Makati and Pasay City
properties he had earlier transferred to Tormil.

The second controversy--involving the same parties--concerned the election of the

1987 corporate board of directors.

The 1987 annual stockholders meeting and election of directors of Tormil

corporation was scheduled on 25 March 1987 in compliance with the provisions of its by-
laws.
Pursuant thereto, Judge Torres assigned from his own shares, one (1) share
each to petitioners Tobias, Jocson, Jurisprudencia, Azura and Pabalan. These
assigned shares were in the nature of qualifying shares, for the sole purpose of
meeting the legal requirement to be able to elect them (Tobias and company) to
the Board of Directors as Torres nominees.

The assigned shares were covered by corresponding Tormil Stock

Certificates Nos. 030, 029, 028, 027, 026 and at the back of each certificate the
following inscription is found:

The present certificate and/or the one share it represents, conformably to the purpose
and intention of the Deed of Assignment dated March 6, 1987, is not held by me under
any claim of ownership and I acknowledge that I hold the same merely as trustee of
Judge Manuel A. Torres, Jr. and for the sole purpose of qualifying me as Director;

(Signature of Assignee) [5]

The reason behind the aforestated action was to remedy the inequitable lopsided
set-up obtaining in the corporation, where, notwithstanding his controlling interest in
the corporation, the late Judge held only a single seat in the nine-member Board
of Directors and was, therefore, at the mercy of the minority, a combination of any
two (2) of whom would suffice to overrule the majority stockholder in the Boards decision
making functions. [6]

On 25 March 1987, the annual stockholders meeting was held as scheduled. What
transpired therein was ably narrated by Attys. Benito Cataran and Bayani De los Reyes,
the official representatives dispatched by the SEC to observe the proceedings (upon
request of the late Judge Torres) in their report dated 27 March 1987:
 xxx.

The undersigned arrived at 1:55 p.m. in the place of the meeting, a residential bungalow
in Urdaneta Village, Makati, Metro Manila. Upon arrival, Josefina Torres introduced us to
the stockholders namely: Milagros Torres, Antonio Torres, Jr., Ma. Luisa Morales, Ma.
Cristina Carlos and Ma. Jacinta Torres. Antonio Torres, Jr. questioned our authority and
personality to appear in the meeting claiming subject corporation is a family and private
firm. We explained that our appearance there was merely in response to the request of
Manuel Torres, Jr. and that SEC has jurisdiction over all registered corporations. Manuel
Torres, Jr., a septuagenarian, argued that as holder of the major and controlling shares,
he approved of our attendance in the meeting.

At about 2:30 p.m., a group composed of Edgardo Pabalan, Atty. Graciano Tobias, Atty.
Rodolfo Jocson, Jr., Atty. Melvin Jurisprudencia, and Atty. Augustus Cesar Azura
arrived. Atty. Azura told the body that they came as counsels of Manuel Torres, Jr. and
as stockholders having assigned qualifying shares by Manuel Torres, Jr.

The stockholders meeting started at 2:45 p.m. with Mr. Pabalan presiding after verbally
authorized by Manuel Torres, Jr., the President and Chairman of the Board. The
secretary when asked about the quorum, said that there was more than a quorum. Mr.
Pabalan distributed copies of the presidents report and the financial statements. Antonio
Torres, Jr. requested time to study the said reports and brought out the question of
auditing the finances of the corporation which he claimed was approved previously by
the board. Heated arguments ensued which also touched on family matters. Antonio
Torres, Jr. moved for the suspension of the meeting but Manuel Torres, Jr. voted for the
continuation of the proceedings.

Mr. Pabalan suggested that the opinion of the SEC representatives be asked on the
propriety of suspending the meeting but Antonio Torres, Jr. objected reasoning out that
we were just observers.

When the Chairman called for the election of directors, the Secretary refused to write
down the names of nominees prompting Atty. Azura to initiate the appointment of Atty.
Jocson, Jr. as Acting Secretary.

Antonio Torres, Jr. nominated the present members of the Board. At this juncture,
Milagros Torres cried out and told the group of Manuel Torres, Jr. to leave the house.

Manuel Torres, Jr., together with his lawyers-stockholders went to the residence of Ma.
Jacinta Torres in San Miguel Village, Makati, Metro Manila. The undersigned joined
them since the group with Manuel Torres, Jr. the one who requested for S.E.C.
observers, represented the majority of the outstanding capital stock and still constituted
a quorum.

At the resumption of the meeting, the following were nominated and elected as directors
for the year 1987-1988:

1. Manuel Torres, Jr.

2. Ma. Jacinta Torres
 3. Edgardo Pabalan
4. Graciano Tobias
5. Rodolfo Jocson, Jr.
6. Melvin Jurisprudencia
7. Augustus Cesar Azura
8. Josefina Torres
9. Dante Morales

After the election, it was resolved that after the meeting, the new board of
directors shall convene for the election of officers.

xxx. [7]

Consequently, on 10 April 1987, private respondents instituted a complaint

with the SEC (SEC Case No. 3161) praying in the main, that the election of
petitioners to the Board of Directors be annulled.

Private respondents alleged that the petitioners-nominees were not

legitimate stockholders of Tormil because the assignment of shares to them
violated the minority stockholders right of pre-emption as provided in the
corporations articles and by-laws.

Upon motion of petitioners, SEC Cases Nos. 3153 and 3161 were consolidated for
joint hearing and adjudication.

On 6 March 1991, the Panel of Hearing Officers of the SEC rendered a decision
in favor of private respondents. The dispositive portion thereof states, thus:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering and directing the respondents, particularly respondent Manuel A.

Torres, Jr., to turn over and deliver to TORMIL through its Corporate Secretary, Ma.
Cristina T. Carlos: (a) the originals of the Deeds of Assignment dated July 13 and 24,
1984 together with the owners duplicates of Transfer Certificates of Title Nos. 374079 of
the Registry of Deeds for Makati, and 41527, 41528 and 41529 of the Registry of Deeds
for Pasay City and/or to cause the formal registration and transfer of title in and over
such real properties in favor of TORMIL with the proper government agency; (b) all
corporate books of account, records and papers as may be necessary for the conduct of
a comprehensive audit examination, and to allow the examination and inspection of such
accounting books, papers and records by any or all of the corporate directors, officers
and stockholders and/or their duly authorized representatives or auditors;

2. Declaring as permanent and final the writ of preliminary injunction issued by the
Hearing Panel on February 13, 1989;

3. Declaring as null and void the election and appointment of respondents to the
Board of Directors and executive positions of TORMIL held on March 25, 1987, and
all their acts and resolutions made for and in behalf of TORMIL by authority of and
pursuant to such invalid appointment & election held on March 25, 1987;
4. Ordering the respondents jointly and severally, to pay the complainants the sum of
ONE HUNDRED THOUSAND PESOS (P100,000.00) and by way of attorneys fees. [8]

Petitioners promptly appealed to the SEC en banc (docketed as SEC-AC No.

339). Thereafter, on 3 April 1991, during the pendency of said appeal, petitioner
Manuel A. Torres, Jr. died. However, notice thereof was brought to the attention of
the SEC not by petitioners counsel but by private respondents in a Manifestation
dated 24 April 1991.[9]
On 8 June 1993, petitioners filed a Motion to Suspend Proceedings on
grounds that no administrator or legal representative of the late Judge Torres
estate has yet been appointed by the Regional Trial Court of Makati where Sp. Proc.
No. M-1768 (In Matter of the Issuance of the Last Will and Testament of Manuel A.
Torres, Jr.) was pending. Two similar motions for suspension were filed by petitioners on
28 June 1993 and 9 July 1993.

On 19 July 1993, the SEC en banc issued an Order denying petitioners

aforecited motions on the following ground:

Before the filing of these motions, the Commission en banc had already completed
all proceedings and had likewise ruled on the merits of the appealed cases.
Viewed in this light, we thus feel that there is nothing left to be done except to deny
these motions to suspend proceedings. [10]

On the same date, the SEC en banc rendered a decision, the dispositive portion of
which reads, thus:

WHEREFORE, premises considered, the appealed decision of the hearing panel is

hereby affirmed and all motions pending before us incident to this appealed case are
necessarily DISMISSED.

SO ORDERED. [11]

Undaunted, on 10 August 1993, petitioners proceeded to plead its cause to the

Court of Appeals by way of a petition for review (docketed as CA-G.R. SP No.
31748).

On 23 May 1994, the Court of Appeals rendered a decision, the dispositive portion
of which states:

WHEREFORE, the petition for review is DISMISSED and the appealed decision is
accordingly affirmed.

SO ORDERED. [12]

From the said decision, petitioners filed a motion for reconsideration which was
denied in a resolution issued by the Court of Appeals dated 10 May 1995. [13]
Insisting on their cause, petitioners filed the present petition for review
alleging that the Court of Appeals committed the following errors in its decision:
 (1)

WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A FULL LENGTH
DECISION, WITHOUT THE EVIDENCE AND THE ORIGINAL RECORD OF S.E.C. - AC
NO. 339 BEING PROPERLY BROUGHT BEFORE IT FOR REVIEW AND RE-
EXAMINATION, AN OMISSION RESULTING IN A CLEAR TRANSGRESSION OR
CURTAILMENT OF THE RIGHTS OF THE HEREIN PETITIONERS TO PROCEDURAL
DUE PROCESS;

(2)

WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE RESPONDENT

S.E.C., WHICH IS VOID FOR HAVING BEEN RENDERED WITHOUT THE PROPER
SUBSTITUTION OF THE DECEASED PRINCIPAL PARTY-RESPONDENT IN S.E.C.-
AC NO. 339 AND CONSEQUENTLY, FOR WANT OF JURISDICTION OVER THE SAID
DECEASEDS TESTATE ESTATE, AND MOREOVER, WHEN IT SOUGHT TO JUSTIFY
THE NON-SUBSTITUTION BY ITS APPLICATION OF THE CIVIL LAW CONCEPT OF
NEGOTIORUM GESTIO;

(3)

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE

ORIGINAL RECORD OF S.E.C. -AC NO. 339 NOT HAVING ACTUALLY BEEN RE-
EXAMINED, THAT S.E.C. CASE NO. 3153 INVOLVED A SITUATION WHERE
PERFORMANCE WAS IMPOSSIBLE (AS CONTEMPLATED UNDER ARTICLE 1191
OF THE CIVIL CODE) AND WAS NOT A MERE CASE OF LESION OR INADEQUACY
OF CAUSE (UNDER ARTICLE 1355 OF THE CIVIL CODE) AS SO ERRONEOUSLY
CHARACTERIZED BY THE RESPONDENT S.E.C.; and,

(4)

WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE

ORIGINAL RECORD OF S.E.C.-AC NO. 339 NOT HAVING ACTUALLY BEEN
EXAMINED, THAT THE RECORDING BY THE LATE JUDGE MANUEL A. TORRES,
JR. OF THE QUESTIONED ASSIGNMENT OF QUALIFYING SHARES TO HIS
NOMINEES, WAS AFFIRMED IN THE STOCK AND TRANSFER BOOK BY AN
ACTING CORPORATE SECRETARY AND MOREOVER, THAT ACTUAL NOTICE OF
SAID ASSIGNMENT WAS TIMELY MADE TO THE OTHER STOCKHOLDERS. [14]

We shall resolve the issues in seriatim.

Petitioners insist that the failure to transmit the original records to the Court of
Appeals deprived them of procedural due process. Without the evidence and the original
records of the proceedings before the SEC, the Court of Appeals, petitioners adamantly
state, could not have possibly made a proper appreciation and correct determination of
the issues, particularly the factual issues they had raised on appeal. Petitioners also
assert that since the Court of Appeals allegedly gave due course to their petition, the
original records should have been forwarded to said court.

Petitioners anchor their argument on Secs. 8 and 11 of SC Circular 1-91 (dated 27

February 1991) which provides that:
8. WHEN PETITION GIVEN DUE COURSE.-The Court of Appeals shall give due course
to the petition only when it shows prima facie that the court, commission, board, office or
agency concerned has committed errors of fact or law that would warrant reversal or
modification of the order, ruling or decision sought to be reviewed. The findings of fact of
the court commission, board, office or agency concerned when supported by substantial
evidence shall be final.

xxx.

11. TRANSMITTAL OF RECORD.-Within fifteen (15) days from notice that the petition
has been given due course, the court, commission, board, office or agency concerned
shall transmit to the Court of Appeals the original or a certified copy of the entire record
of the proceeding under review. The record to be transmitted may be abridged by
agreement of all parties to the proceeding. The Court of Appeals may require or permit
subsequent correction or addition to the record.

Petitioners contend that the Court of Appeals had given due course to their petition
as allegedly indicated by the following acts:

a) it granted the restraining order applied for by the herein petitioners, and after hearing,
also the writ of preliminary injunction sought by them; under the original SC Circular No.
1-91, a petition for review may be given due course at the onset (paragraph 8) upon a
mere prima facie finding of errors of fact or law having been committed, and such prima
facie finding is but consistent with the grant of the extra-ordinary writ of preliminary
injunction;

b) it required the parties to submit simultaneous memoranda in its resolution dated

October 15, 1993 (this is in addition to the comment required to be filed by the
respondents) and furthermore declared in the same resolution that the petition will be
decided on the merits, instead of outrightly dismissing the same;

c) it rendered a full length decision, wherein: (aa) it expressly declared the respondent
S.E.C. as having erred in denying the pertinent motions to suspend proceedings; (bb) it
declared the supposed error as having become a non-issue when the respondent C.A.
proceeded to hear (the) appeal; (cc) it formulated and applied its own theory of
negotiorum gestio in justifying the non-substitution of the deceased principal party in S.E
C. -AC No. 339 and moreover, its theory of di minimis non curat lex (this, without first
determining the true extent of and the correct legal characterization of the so-called
shortage of Tormil shares; and, (dd) it expressly affirmed the assailed decision of
respondent S.E.C .[15]

Petitioners contention is unmeritorious.

There is nothing on record to show that the Court of Appeals gave due
course to the petition. The fact alone that the Court of Appeals issued a
restraining order and a writ of preliminary injunction and required the parties to
submit their respective memoranda does not indicate that the petition was given
due course. The office of an injunction is merely to preserve the status quo
pending the disposition of the case. The court can require the submission of
memoranda in support of the respective claims and positions of the parties
without necessarily giving due course to the petition. The matter of whether or not
to give due course to a petition lies in the discretion of the court.

It is worthy to mention that SC Circular No. 1-91 has been replaced by Revised
Administrative Circular No. 1-95 (which took effect on 1 June 1995) wherein the
procedure for appeals from quasi-judicial agencies to the Court of Appeals was clarified
thus:

10. Due course.-- If upon the filing of the comment or such other pleadings or documents
as may be required or allowed by the Court of Appeals or upon the expiration of the
period for the filing thereof, and on the bases of the petition or the record the Court
of Appeals finds prima facie that the court or agency concerned has committed
errors of fact or law that would warrant reversal or modification of the award,
judgment, final order or resolution sought to be reviewed, it may give due course to
the petition; otherwise, it shall dismiss the same. The findings of fact of the court or
agency concerned, when supported by substantial evidence, shall be binding on the
Court of Appeals.

11. Transmittal of record.-- Within fifteen (15) days from notice that the petition has
been given due course, the Court of Appeals may require the court or agency
concerned to transmit the original or a legible certified true copy of the entire
record of the proceeding under review. The record to be transmitted may be abridged
by agreement of all parties to the proceeding. The Court of Appeals may require or
permit subsequent correction of or addition to the record. (Underscoring ours.)

The aforecited circular now formalizes the correct practice and clearly states that
in resolving appeals from quasi judicial agencies, it is within the discretion of the
Court of Appeals to have the original records of the proceedings under review be
transmitted to it. In this connection, petitioners claim that the Court of Appeals
could not have decided the case on the merits without the records being brought
before it is patently lame. Indubitably, the Court of Appeals decided the case on
the basis of the uncontroverted facts and admissions contained in the pleadings,
that is, the petition, comment, reply, rejoinder, memoranda, etc. filed by the
parties.

II

Petitioners contend that the decisions of the SEC and the Court of Appeals are
null and void for being rendered without the necessary substitution of parties (for
the deceased petitioner Manuel A. Torres, Jr.) as mandated by Sec. 17, Rule 3 of the
Revised Rules of Court, which provides as follows:

SEC. 17. Death of party.--After a party dies and the claim is not thereby extinguished,
the court shall order, upon proper notice, the legal representative of the deceased to
appear and to be substituted for the deceased, within a period of thirty (30) days, or
within such time as may be granted. If the legal representative fails to appear within said
time, the court may order the opposing party to procure the appointment of a legal
representative of the deceased within a time to be specified by the court, and the
representative shall immediately appear for and on behalf of the interest of the
deceased. The court charges involved in procuring such appointment, if defrayed by the
opposing party, may be recovered as costs. The heirs of the deceased may be allowed
to be substituted for the deceased, without requiring the appointment of an executor or
administrator and the court may appoint guardian ad litem for the minor heirs.

Petitioners insist that the SEC en banc should have granted the motions to
suspend they filed based as they were on the ground that the Regional Trial Court of
Makati, where the probate of the late Judge Torres will was pending, had yet to appoint
an administrator or legal representative of his estate.

We are not unaware of the principle underlying the aforequoted provision:

It has been held that when a party dies in an action that survives, and no order is
issued by the Court for the appearance of the legal representative or of the heirs
of the deceased to be substituted for the deceased, and as a matter of fact no
such substitution has ever been effected, the trial held by the court without such
legal representative or heirs, and the judgment rendered after such trial, are null
and void because the court acquired no jurisdiction over the persons of the legal
representative or of the heirs upon whom the trial and the judgment are not
binding. [16]

As early as 8 April 1988, Judge Torres instituted Special Proceedings No. M-

1768 before the Regional Trial Court of Makati for the ante-mortem probate of his
holographic will which he had executed on 31 October 1986. Testifying in the said
proceedings, Judge Torres confirmed his appointment of petitioner Edgardo D.
Pabalan as the sole executor of his will and administrator of his estate. The
proceedings, however, were opposed by the same parties, herein private
respondents Antonio P. Torres, Jr., Ma. Luisa T. Morales and Ma. Cristina T. Carlos,
[17] who are nephew and nieces of Judge Torres, being the children of his late brother
Antonio A. Torres.

It can readily be observed therefore that the parties involved in the present
controversy are virtually the same parties fighting over the representation of the late
Judge Torres estate. It should be recalled that the purpose behind the rule on
substitution of parties is the protection of the right of every party to due process.
It is to ensure that the deceased party would continue to be properly represented
in the suit through the duly appointed legal representative of his estate. In the
present case, this purpose has been substantially fulfilled (despite the lack of
formal substitution) in view of the peculiar fact that both proceedings involve
practically the same parties. Both parties have been fiercely fighting in the probate
proceedings of Judge Torres holographic will for appointment as legal representative of
his estate. Since both parties claim interests over the estate, the rights of the estate
were expected to be fully protected in the proceedings before the SEC en banc and the
Court of Appeals. In either case, whoever shall be appointed legal representative of
Judge Torres estate (petitioner Pabalan or private respondents) would no longer
be a stranger to the present case, the said parties having voluntarily submitted to
the jurisdiction of the SEC and the Court of Appeals and having thoroughly
participated in the proceedings.
 The foregoing rationale finds support in the recent case of Vda. de Salazar v. CA,
[18] wherein the Court expounded thus:

The need for substitution of heirs is based on the right to due process accruing to every
party in any proceeding. The rationale underlying this requirement in case a party dies
during the pendency of proceedings of a nature not extinguished by such death, is that
xxx the exercise of judicial power to hear and determine a cause implicitly presupposes
in the trial court, amongst other essentials, jurisdiction over the persons of the parties.
That jurisdiction was inevitably impaired upon the death of the protestee pending the
proceedings below such that unless and until a legal representative is for him duly
named and within the jurisdiction of the trial court, no adjudication in the cause could
have been accorded any validity or binding effect upon any party, in representation of
the deceased, without trenching upon the fundamental right to a day in court which is the
very essence of the constitutionally enshrined guarantee of due process.

We are not unaware of several cases where we have ruled that a party having died in an
action that survives, the trial held by the court without appearance of the deceaseds
legal representative or substitution of heirs and the judgment rendered after such trial,
are null and void because the court acquired no jurisdiction over the persons of the legal
representatives or of the heirs upon whom the trial and the judgment would be binding.
This general rule notwithstanding, in denying petitioners motion for
reconsideration, the Court of Appeals correctly ruled that formal substitution of
heirs is not necessary when the heirs themselves voluntarily appeared,
participated in the case and presented evidence in defense of deceased
defendant. Attending the case at bench, after all, are these particular circumstances
which negate petitioners belated and seemingly ostensible claim of violation of her rights
to due process. We should not lose sight of the principle underlying the general rule that
formal substitution of heirs must be effectuated for them to be bound by a subsequent
judgment. Such had been the general rule established not because the rule on
substitution of heirs and that on appointment of a legal representative are jurisdictional
requirements per se but because non-compliance therewith results in the undeniable
violation of the right to due process of those who, though not duly notified of the
proceedings, are substantially affected by the decision rendered therein. xxx.

It is appropriate to mention here that when Judge Torres died on April 3, 1991,
the SEC en banc had already fully heard the parties and what remained was the
evaluation of the evidence and rendition of the judgment.

Further, petitioners filed their motions to suspend proceedings only after

more than two (2) years from the death of Judge Torres. Petitioners counsel was
even remiss in his duty under Sec. 16, Rule 3 of the Revised Rules of Court.[19] Instead,
it was private respondents who informed the SEC of Judge Torres death through a
manifestation dated 24 April 1991.

For the SEC en banc to have suspended the proceedings to await the
appointment of the legal representatives by the estate was impractical and would
have caused undue delay in the proceedings and a denial of justice. There is no
telling when the probate court will decide the issue, which may still be appealed to the
higher courts.

In any case, there has been no final disposition of the properties of the late Judge
Torres before the SEC. On the contrary, the decision of the SEC en banc as affirmed by
the Court of Appeals served to protect and preserve his estate. Consequently, the rule
that when a party dies, he should be substituted by his legal representative to protect the
interest of his estate in observance of due process was not violated in this case in view
of its peculiar situation where the estate was fully protected by the presence of the
parties who claim interest thereto either as directors, stockholders or heirs.

Finally, we agree with petitioners contention that the principle of negotiorum gestio
[20] does not apply in the present case. Said principle explicitly covers abandoned or
neglected property or business.

III

Petitioners find legal basis for Judge Torres act of revoking the assignment
of his properties in Makati and Pasay City to Tormil corporation by relying on Art.
1191 of the Civil Code which provides that:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

Petitioners contentions cannot be sustained. We see no justifiable reason to

disturb the findings of SEC, as affirmed by the Court of Appeals:

We sustain the ruling of respondent SEC in the decision appealed from (Rollo, pp.
45-46) that -

x x x the shortage of 972 shares would not be valid ground for respondent Torres
to unilaterally revoke the deeds of assignment he had executed on July 13, 1984
and July 24, 1984 wherein he voluntarily assigned to TORMIL real properties
covered by TCT No. 374079 (Makati) and TCT No. 41527, 41528 and 41529 (Pasay)
respectively.

A comparison of the number of shares that respondent Torres received from

TORMIL by virtue of the deeds of assignment and the stock certificates issued by
the latter to the former readily shows that TORMIL had substantially performed
what was expected of it. In fact, the first two issuances were in satisfaction to the
properties being revoked by respondent Torres. Hence, the shortage of 972 shares
would never be a valid ground for the revocation of the deeds covering Pasay and
Quezon City properties.
In Universal Food Corp. vs. CA, the Supreme Court held:

The general rule is that rescission of a contract will not be permitted for a slight or carnal
breach, but only for such substantial and fundamental breach as would defeat the very
object of the parties in making the agreement.

The shortage of 972 shares definitely is not substantial and fundamental breach
as would defeat the very object of the parties in entering into contract. Art. 1355 of
the Civil Code also provides: Except in cases specified by law, lesion or inadequacy of
cause shall not invalidate a contract, unless there has been fraud, mistake or undue
influences. There being no fraud, mistake or undue influence exerted on respondent
Torres by TORMIL and the latter having already issued to the former of its 225,000
unissued shares, the most logical course of action is to declare as null and void the deed
of revocation executed by respondent Torres. (Rollo, pp. 45-46.) [21]

The aforequoted Civil Code provision does not apply in this particular situation for
the obvious reason that a specific number of shares of stock (as evidenced by stock
certificates) had already been issued to the late Judge Torres in exchange for his Makati
and Pasay City properties. The records thus disclose:

DATE OF PROPERTY LOCATION NO. OF SHARES ORDER OF

ASSIGNMENT ASSIGNED TO BE ISSUED COMPLIANCE

1. July 13, 1984 TCT 81834 Quezon City) 13,252 3rd

TCT 144240 Quezon City)
2. July 13, 1984 TCT 77008 Manila)
TCT 65689 Manila) 78,493 2nd
TCT 102200 Manila)
3. July 13, 1984 TCT 374079 Makati 8,307 1st
4. July 24, 1984 TCT 41527 Pasay)
TCT 41528 Pasay) 9,855 4th
TCT 41529 Pasay)
5. August 6, 1984 El Hogar Filipino Stocks 2,000 7th
6. August 6, 1984 Manila Jockey Club Stocks 48,737 5th
7. August 7, 1984 San Miguel Corp. Stocks 50,238 8th
8. August 7, 1984 China Banking Corp. Stocks 6,300 6th
9. August 20, 1984 Ayala Corp. Stocks 7,468.2) 9th
10. August 29, 1984 Ayala Fund Stocks 1,322.1)
TOTAL 225,972.3

* Order of stock certificate issuances by TORMIL to respondent Torres relative to the

Deeds of Assignment he executed sometime in July and August, 1984. [22] (Emphasis
ours.)

Moreover, we agree with the contention of the Solicitor General that the shortage
of shares should not have affected the assignment of the Makati and Pasay City
properties which were executed in 13 and 24 July 1984 and the consideration for which
have been duly paid or fulfilled but should have been applied logically to the last
assignment of property -- Judge Torres Ayala Fund shares--which was executed on 29
August 1984.[23]

IV

Petitioners insist that the assignment of qualifying shares to the nominees

of the late Judge Torres (herein petitioners) does not partake of the real nature of
a transfer or conveyance of shares of stock as would call for the imposition of
stringent requirements (with respect to the) recording of the transfer of said
shares. Anyway, petitioners add, there was substantial compliance with the above-
stated requirement since said assignments were entered by the late Judge Torres
himself in the corporations stock and transfer book on 6 March 1987, prior to the 25
March 1987 annual stockholders meeting and which entries were confirmed on 8 March
1987 by petitioner Azura who was appointed Assistant Corporate Secretary by Judge
Torres.

Petitioners further argue that:

10.10. Certainly, there is no legal or just basis for the respondent S.E.C. to penalize the
late Judge Torres by invalidating the questioned entries in the stock and transfer book,
simply because he initially made those entries (they were later affirmed by an acting
corporate secretary) and because the stock and transfer book was in his possession
instead of the elected corporate secretary, if the background facts herein-before narrated
and the serious animosities that then reigned between the deceased Judge and his
relatives are to be taken into account;

xxx.

10.12. Indeed it was a practice in the corporate respondent, a family corporation

with only a measly number of stockholders, for the late judge to have personal
custody of corporate records; as president, chairman and majority stockholder,
he had the prerogative of designating an acting corporate secretary or to himself
make the needed entries, in instances where the regular secretary, who is a mere
subordinate, is unavailable or intentionally defaults, which was the situation that
obtained immediately prior to the 1987 annual stockholders meeting of Tormil, as the
late Judge Torres had so indicated in the stock and transfer book in the form of the
entries now in question;

10.13. Surely, it would have been futile nay foolish for him to have insisted under those
circumstances, for the regular secretary, who was then part of a group ranged against
him, to make the entries of the assignments in favor of his nominees; [24]

Petitioners contentions lack merit.

It is precisely the brewing family discord between Judge Torres and private
respondents--his nephew and nieces that should have placed Judge Torres on his
guard. He should have been more careful in ensuring that his actions (particularly
the assignment of qualifying shares to his nominees) comply with the
requirements of the law. Petitioners cannot use the flimsy excuse that it would have
been a vain attempt to force the incumbent corporate secretary to register the
aforestated assignments in the stock and transfer book because the latter belonged to
the opposite faction. It is the corporate secretarys duty and obligation to register
valid transfers of stocks and if said corporate officer refuses to comply, the
transferor-stockholder may rightfully bring suit to compel performance.[25] In
other words, there are remedies within the law that petitioners could have availed
of, instead of taking the law in their own hands, as the cliche goes.

Thus, we agree with the ruling of the SEC en banc as affirmed by the Court
of Appeals:

We likewise sustain respondent SEC when it ruled, interpreting Section 74 of the

Corporation Code, as follows (Rollo, p. 45):

In the absence of (any) provision to the contrary, the corporate secretary is the custodian
of corporate records. Corollarily, he keeps the stock and transfer book and makes proper
and necessary entries therein.

Contrary to the generally accepted corporate practice, the stock and transfer book
of TORMIL was not kept by Ms. Maria Cristina T. Carlos, the corporate secretary
but by respondent Torres, the President and Chairman of the Board of Directors of
TORMIL. In contravention to the above cited provision, the stock and transfer book was
not kept at the principal office of the corporation either but at the place of respondent
Torres.

These being the obtaining circumstances, any entries made in the stock and
transfer book on March 8, 1987 by respondent Torres of an alleged transfer of
nominal shares to Pabalan and Co. cannot therefore be given any valid effect.
Where the entries made are not valid, Pabalan and Co. cannot therefore be
considered stockholders of record of TORMIL. Because they are not stockholders,
they cannot therefore be elected as directors of TORMIL. To rule otherwise would
not only encourage violation of clear mandate of Sec. 74 of the Corporation Code
that stock and transfer book shall be kept in the principal office of the corporation
but would likewise open the flood gates of confusion in the corporation as to who
has the proper custody of the stock and transfer book and who are the real
stockholders of records of a certain corporation as any holder of the stock and
transfer book, though not the corporate secretary, at pleasure would make entries
therein.

The fact that respondent Torres holds 81.28% of the outstanding capital stock of
TORMIL is of no moment and is not a license for him to arrogate unto himself a
duty lodged to (sic) the corporate secretary. [26]

All corporations, big or small, must abide by the provisions of the

Corporation Code. Being a simple family corporation is not an exemption. Such
corporations cannot have rules and practices other than those established by law.

WHEREFORE, premises considered, the petition for review on certiorari is hereby

DENIED.

SO ORDERED.
 Republic of the Philippines SUPREME COURT Manila

EN BANC

G.R. No. L-17295 July 30, 1962

ANG PUE & COMPANY, ET AL., plaintiffs-appellants, vs. SECRETARY OF

COMMERCE AND INDUSTRY, defendant-appellee.

Felicisimo E. Escaran for plaintiffs-appellants. Office of the Solicitor General for

defendant-appellee.

DIZON, J.:

Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue
& Company, Ang Pue and Tan Siong against the Secretary of Commerce and
Industry to secure judgment "declaring that plaintiffs could extend for five years
the term of the partnership pursuant to the provisions of plaintiffs' Amendment to
the Article of Co-partnership."

The answer filed by the defendant alleged, in substance, that the extension for
another five years of the term of the plaintiffs' partnership would be in violation of
the provisions of Republic Act No. 1180.

It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens,
organized the partnership Ang Pue & Company for a term of five years from May
1, 1953, extendible by their mutual consent. The purpose of the partnership was
"to maintain the business of general merchandising, buying and selling at
wholesale and retail, particularly of lumber, hardware and other construction
materials for commerce, either native or foreign." The corresponding articles of
partnership (Exhibit B) were registered in the Office of the Securities & Exchange
Commission on June 16, 1953.

On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail
business. It provided, among other things, that, after its enactment, a partnership
not wholly formed by Filipinos could continue to engage in the retail business
until the expiration of its term.

On April 15, 1958 prior to the expiration of the five-year term of the partnership
Ang Pue & Company, but after the enactment of the Republic Act 1180, the
partners already mentioned amended the original articles of part ownership (Exhibit B)
so as to extend the term of life of the partnership to another five years. When the
amended articles were presented for registration in the Office of the Securities &
Exchange Commission on April 16, 1958, registration was refused upon the ground that
the extension was in violation of the aforesaid Act.

From the decision of the lower court dismissing the action, with costs, the plaintiffs
interposed this appeal.

The question before us is too clear to require an extended discussion. To organize a

corporation or a partnership that could claim a juridical personality of its own and
transact business as such, is not a matter of absolute right but a privilege which
may be enjoyed only under such terms as the State may deem necessary to
impose. That the State, through Congress, and in the manner provided by law, had
the right to enact Republic Act No. 1180 and to provide therein that only Filipinos
and concerns wholly owned by Filipinos may engage in the retail business can
not be seriously disputed. That this provision was clearly intended to apply to
partnership already existing at the time of the enactment of the law is clearly
showing by its provision giving them the right to continue engaging in their retail
business until the expiration of their term or life.

To argue that because the original articles of partnership provided that the
partners could extend the term of the partnership, the provisions of Republic Act
1180 cannot be adversely affect appellants herein, is to erroneously assume that
the aforesaid provision constitute a property right of which the partners can not
be deprived without due process or without their consent. The agreement contain
therein must be deemed subject to the law existing at the time when the partners
came to agree regarding the extension. In the present case, as already stated,
when the partners amended the articles of partnership, the provisions of Republic
Act 1180 were already in force, and there can be not the slightest doubt that the
right claimed by appellants to extend the original term of their partnership to
another five years would be in violation of the clear intent and purpose of the law
aforesaid.

WHEREFORE, the judgment appealed from is affirmed, with costs.

[G.R. No. 125469. October 27, 1997]

PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. THE HONORABLE COURT

OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and PUERTO
AZUL LAND, INC., respondents.

DECISION

TORRES, JR., J.:

The Securities and Exchange Commission is the government agency, under the
direct general supervision of the Office of the President,[1] with the immense task of
enforcing the Revised Securities Act, and all other duties assigned to it by pertinent
laws. Among its inumerable functions, and one of the most important, is the supervision
of all corporations, partnerships or associations, who are grantees or primary
franchise and/or a license or permit issued by the government to operate in the
Philippines.[2] Just how far this regulatory authority extends, particularly, with regard to
the Petitioner Philippine Stock Exchange, Inc. is the issue in the case at bar.
In this Petition for Review of Certiorari, petitioner assails the resolution of the
respondent Court of Appeals, dated June 27, 1996, which affirmed the decision of
the Securities and Exchange Commission ordering the petitioner Philippine Stock
Exchange, Inc. to allow the private respondent Puerto Azul Land, Inc. to be listed
in its stock market, thus paving the way for the public offering of PALIs shares.

The facts of the case are undisputed, and are hereby restated in sum.

The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had
sought to offer its shares to the public in order to raise funds allegedly to develop
its properties and pay its loans with several banking institutions. In January, 1995,
PALI was issued a Permit to Sell its shares to the public by the Securities and
Exchange Commission (SEC). To facilitate the trading of its shares among investors,
PALI sought to course the trading of its shares through the Philippine Stock
Exchange, Inc. (PSE), for which purpose it filed with the said stock exchange an
application to list its shares, with supporting documents attached.

On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALIs
application, recommended to the PSEs Board of Governors the approval of PALIs listing
application.
On February 14, 1996, before it could act upon PALIs application, the Board
of Governors of PSE received a letter from the heirs of Ferdinand E. Marcos,
claiming that the late President Marcos was the legal and beneficial owner of
certain properties forming part of the Puerto Azul Beach Hotel and Resort
Complex which PALI claims to be among its assets and that the Ternate
Development Corporation, which is among the stockholders of PALI, likewise appears to
have been held and continue to be held in trust by one Rebecco Panlilio for then
President Marcos and now, effectively for his estate, and requested PALIs
application to be deferred. PALI was requested to comment upon the said letter.

PALIs answer stated that the properties forming part of Puerto Azul Beach
Hotel and Resort Complex were not claimed by PALI as its assets. On the contrary,
the resort is actually owned by Fantasia Filipina Resort, Inc. and the Puerto Azul
Country Club, entities distinct from PALI. Furthermore, the Ternate Development
Corporation owns only 1.20% of PALI. The Marcoses responded that their claim is
not confined to the facilities forming part of the Puerto Azul Hotel and Resort
Complex, thereby implying that they are also asserting legal and beneficial
ownership of other properties titled under the name of PALI.

On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the
Presidential Commission on Good Government (PCGG) requesting for comments on the
letter of the PALI and the Marcoses. On March 4, 1996, the PSE was informed that the
Marcoses received a Temporary Restraining Order on the same date, enjoining the
Marcoses from, among others, further impeding, obstructing, delaying or interfering in
any manner by or any means with the consideration, processing and approval by the
PSE of the initial public offering of PALI. The TRO was issued by Judge Martin S.
Villarama, Executive Judge of the RTC of Pasig City in Civil Case No. 65561, pending in
Branch 69 thereof.

In its regular meeting held on March 27, 1996, the Board of Governors of the
PSE reached its decision to reject PALIs application, citing the existence of
serious claims, issues and circumstances surrounding PALIs ownership over its
assets that adversely affect the suitability of listing PALIs shares in the stock
exchange.

On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting
Chairman, Perfecto R. Yasay, Jr., bringing to the SECs attention the action taken
by the PSE in the application of PALI for the listing of its shares with the PSE, and
requesting that the SEC, in the exercise of its supervisory and regulatory powers over
stock exchanges under Section 6(j) of P.D. No. 902-A, review the PSEs action on
PALIs listing application and institute such measures as are just and proper and
under the circumstances.

On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching
thereto the letter of PALI and directing the PSE to file its comments thereto within five
days from its receipt and for its authorized representative to appear for an inquiry on the
matter. On April 22, 1996, the PSE submitted a letter to the SEC containing its
comments to the April 11, 1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the PSEs decision.
The dispositive portion of the said order reads:
WHEREFORE, premises considered, and invoking the Commissioners authority and
jurisdiction under Section 3 of the Revised Securities Act, in conjunction with
Section 3, 6(j) and 6(m) of the Presidential Decree No. 902-A, the decision of the
Board of Governors of the Philippine Stock Exchange denying the listing of
shares of Puerto Azul Land, Inc., is hereby set aside, and the PSE is hereby
ordered to immediately cause the listing of the PALI shares in the Exchange,
without prejudice to its authority to require PALI to disclose such other material
information it deems necessary for the protection of the investing public.

This Order shall take effect immediately.

SO ORDERED.

PSE filed a motion for reconsideration of the said order on April 29, 1996, which
was, however denied by the Commission in its May 9, 1996 Order which states:

WHEREFORE, premises considered, the Commission finds no compelling reason to

consider its order dated April 24, 1996, and in the light of recent developments on the
adverse claim against the PALI properties, PSE should require PALI to submit full
disclosure of material facts and information to protect the investing public. In this regard,
PALI is hereby ordered to amend its registration statements filed with the Commission to
incorporate the full disclosure of these material facts and information.

Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May 17,
1996 a Petition for Review (with application for Writ of Preliminary Injunction and
Temporary Restraining Order), assailing the above mentioned orders of the SEC,
submitting the following as errors of the SEC:

I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF

DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT
POWER, JURISDICTION, OR AUTHORITY; SEC HAS NO POWER TO
ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE
ASSETS ARE SEQUESTERED AND TO REVIEW AND SUBSTITUTE
DECISIONS OF PSE ON LISTING APPLICATIONS;

II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF

DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY AND
ABUSIVE MANNER IN DISAPPROVING PALIS LISTING
APPLICATION;

III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR
ALLOWING FURTHER DISPOSITION OF PROPERTIES IN CUSTODIA
LEGIS AND WHICH FORM PART OF NAVAL/MILITARY
RESERVATION; AND

IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY

PROMULGATED AND ITS IMPLEMENTATION AND APPLICATION
IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF THE
CONSTITUTION.

On June 4, 1996, PALI filed its Comment to the Petition for Review and
subsequently, a Comment and Motion to Dismiss. On June 10, 1996, PSE filed its
Reply to Comment and Opposition to Motion to Dismiss.

On June 27, 1996, the Court of Appeals promulgated its Resolution

dismissing the PSEs Petition for Review. Hence, this Petition by the PSE.

The appellate court had ruled that the SEC had both jurisdiction and
authority to look into the decision of the petitioner PSE, pursuant to Section 3[3]
of the Revised Securities Act in relation to Section 6(j) and 6(m)[4] of P.D. No. 902-
A, and Section 38(b)[5] of the Revised Securities Act, and for the purpose of
ensuring fair administration of the exchange. Both as a corporation and as a stock
exchange, the petitioner is subject to public respondents jurisdiction, regulation
and control. Accepting the argument that the public respondent has the authority
merely to supervise or regulate, would amount to serious consequences,
considering that the petitioner is a stock exchange whose business is impressed
with public interest. Abuse is not remote if the public respondent is left without any
system of control. If the securities act vested the public respondent with jurisdiction and
control over all corporations; the power to authorize the establishment of stock
exchanges; the right to supervise and regulate the same; and the power to alter and
supplement rules of the exchange in the listing or delisting of securities, then the law
certainly granted to the public respondent the plenary authority over the petitioner; and
the power of review necessarily comes within its authority.

All in all, the court held that PALI complied with all the requirements for
public listing, affirming the SECs ruling to the effect that:

x x x the Philippine Stock Exchange has acted in an arbitrary and abusive manner
in disapproving the application of PALI for listing of its shares in the face of the
following considerations:

1. PALI has clearly and admittedly complied with the Listing Rules and full disclosure
requirements of the Exchange;

2. In applying its clear and reasonable standards on the suitability for listing of shares,
PSE has failed to justify why it acted differently on the application of PALI, as compared
to the IPOs of other companies similarly that were allowed listing in the Exchange;

3. It appears that the claims and issues on the title to PALIs properties were even less
serious than the claims against the assets of the other companies in that, the assertions
of the Marcoses that they are owners of the disputed properties were not substantiated
enough to overcome the strength of a title to properties issued under the Torrens
System as evidence of ownership thereof;

4. No action has been filed in any court of competent jurisdiction seeking to nullify PALIs
ownership over the disputed properties, neither has the government instituted recovery
proceedings against these properties. Yet the import of PSEs decision in denying PALIs
application is that it would be PALI, not the Marcoses, that must go to court to prove the
legality of its ownership on these properties before its shares can be listed.

In addition, the argument that the PALI properties belong to the Military/Naval
Reservation does not inspire belief. The point is, the PALI properties are now titled. A
property losses its public character the moment it is covered by a title. As a matter of
fact, the titles have long been settled by a final judgment; and the final decree having
been registered, they can no longer be re-opened considering that the one year period
has already passed. Lastly, the determination of what standard to apply in allowing
PALIs application for listing, whether the discretion method or the system of public
disclosure adhered to by the SEC, should be addressed to the Securities Commission, it
being the government agency that exercises both supervisory and regulatory authority
over all corporations.

On August 15, 1996, the PSE, after it was granted an extension, filed an instant
Petition for Review on Certiorari, taking exception to the rulings of the SEC and the
Court of Appeals. Respondent PALI filed its Comment to the petition on October 17,
1996. On the same date, the PCGG filed a Motion for Leave to file a Petition for
Intervention. This was followed up by the PCGGs Petition for Intervention on October 21,
1996. A supplemental Comment was filed by PALI on October 25, 1997. The Office of
the Solicitor General, representing the SEC and the Court of Appeals, likewise filed its
Comment on December 26, 1996. In answer to the PCGGs motion for leave to file
petition for intervention, PALI filed its Comment thereto on January 17, 1997, whereas
the PSE filed its own Comment on January 20, 1997.

On February 25, 1996, the PSE filed its Consolidated Reply to the comments of
respondent PALI (October 17, 1996) and the Solicitor General (December 26, 1996). On
may 16, 1997, PALI filed its Rejoinder to the said consolidated reply of PSE.

PSE submits that the Court of Appeals erred in ruling that the SEC had
authority to order the PSE to list the shares of PALI in the stock exchange. Under
presidential decree No. 902-A, the powers of the SEC over stock exchanges are
more limited as compared to its authority over ordinary corporations. In connection
with this, the powers of the SEC over stock exchanges under the Revised
Securities Act are specifically enumerated, and these do not include the power to
reverse the decisions of the stock exchange. Authorities are in abundance even in
the United States, from which the countrys security policies are patterned, to the effect of
giving the Securities Commission less control over stock exchanges, which in turn are
given more lee-way in making the decision whether or not to allow corporations to offer
their stock to the public through the stock exchange. This is in accord with the
business judgment rule whereby the SEC and the courts are barred from intruding
into business judgments of corporations, when the same are made in good faith.
The said rule precludes the reversal of the decision of the PSE to deny PALIs
listing application, absent a showing a bad faith on the part of the PSE. Under the
listing rule of the PSE, to which PALI had previously agreed to comply, the PSE retains
the discretion to accept or reject applications for listing. Thus, even if an issuer
has complied with the PSE listing rules and requirements, PSE retains the
discretion to accept or reject the issuers listing application if the PSE determines
that the listing shall not serve the interests of the investing public.

Moreover, PSE argues that the SEC has no jurisdiction over sequestered
corporations, nor with corporations whose properties are under sequestration. A
reading of Republic of the Philippines vs. Sandiganbayan, G.R. No. 105205, 240 SCRA
376, would reveal that the properties of PALI, which were derived from the Ternate
Development Corporation (TDC) and the Monte del Sol Development Corporation
(MSDC), are under sequestration by the PCGG, and the subject of forfeiture
proceedings in the Sandiganbayan. This ruling of the Court is the law of the case
between the Republic and the TDC and MSDC. It categorically declares that the assets
of these corporations were sequestered by the PCGG on March 10, 1986 and April 4,
1988.

It is, likewise, intimidated that the Court of Appeals sanction that PALIs ownership
over its properties can no longer be questioned, since certificates of title have been
issued to PALI and more than one year has since lapsed, is erroneous and ignores well
settled jurisprudence on land titles. That a certificate of title issued under the Torrens
System is a conclusive evidence of ownership is not an absolute rule and admits certain
exceptions. It is fundamental that forest lands or military reservations are non-alienable.
Thus, when a title covers a forest reserve or a government reservation, such title is void.

PSE, likewise, assails the SECs and the Court of Appeals reliance on the alleged
policy of full disclosure to uphold the listing of the PALIs shares with the PSE, in the
absence of a clear mandate for the effectivity of such policy. As it is, the case records
reveal the truth that PALI did not comply with the listing rules and disclosure
requirements. In fact, PALIs documents supporting its application contained
misrepresentations and misleading statements, and concealed material
information. The matter of sequestration of PALIs properties and the fact that the
same form part of military/naval/forest reservations were not reflected in PALIs
application.

It is undeniable that the petitioner PSE is not an ordinary corporation, in that

although it is clothed with the marking of a corporate entity, its functions as the primary
channel through which the vessels of capital trade ply. The PSEs relevance to the
continued operation and filtration of the securities transactions in the country gives it a
distinct color of importance such that government intervention in its affairs becomes
justified, if not necessary. Indeed, as the only operational stock exchange in the country
today, the PSE enjoys a monopoly of securities transactions, and as such, it yields an
immense influence upon the countrys economy.

Due to this special nature of stock exchanges, the countrys lawmakers has seen it
wise to give special treatment to the administration and regulation of stock exchanges.[6]

These provisions, read together with the general grant of jurisdiction, and right of
supervision and control over all corporations under Sec. 3 of P.D. 902-A, give the SEC
the special mandate to be vigilant in the supervision of the affairs of stock exchanges so
that the interests of the investing public may be fully safeguarded.

Section 3 of Presidential Decree 902-A, standing alone, is enough authority to

uphold the SECs challenged control authority over the petitioner PSE even as it provides
that the Commission shall have absolute jurisdiction, supervision, and control over all
corporations, partnerships or associations, who are the grantees of primary franchises
and/or a license or permit issued by the government to operate in the Philippines The
SECs regulatory authority over private corporations encompasses a wide margin of
areas, touching nearly all of a corporations concerns. This authority springs from the fact
that a corporation owes its existence to the concession of its corporate franchise from
the state.
The SECs power to look into the subject ruling of the PSE, therefore, may be
implied from or be considered as necessary or incidental to the carrying out of the
SECs express power to insure fair dealing in securities traded upon a stock
exchange or to ensure the fair administration of such exchange.[7] It is, likewise,
observed that the principal function of the SEC is the supervision and control over
corporations, partnerships and associations with the end in view that investment
in these entities may be encouraged and protected, and their activities pursued
for the promotion of economic development.[8]

Thus, it was in the alleged exercise of this authority that the SEC reversed the
decision of the PSE to deny the application for listing in the stock exchange of the
private respondent PALI. The SECs action was affirmed by the Court of Appeals.

We affirm that the SEC is the entity with the primary say as to whether or not
securities, including shares of stock of a corporation, may be traded or not in the
stock exchange. This is in line with the SECs mission to ensure proper
compliance with the laws, such as the Revised Securities Act and to regulate the
sale and disposition of securities in the country.[9] As the appellate court explains:

Paramount policy also supports the authority of the public respondent to review
petitioners denial of the listing. Being a stock exchange, the petitioner performs a
function that is vital to the national economy, as the business is affected with
public interest. As a matter of fact, it has often been said that the economy moves
on the basis of the rise and fall of stocks being traded. By its economic power, the
petitioner certainly can dictate which and how many users are allowed to sell
securities thru the facilities of a stock exchange, if allowed to interpret its own
rules liberally as it may please. Petitioner can either allow or deny the entry to the
market of securities. To repeat, the monopoly, unless accompanied by control,
becomes subject to abuse; hence, considering public interest, then it should be
subject to government regulation.
 The role of the SEC in our national economy cannot be minimized. The
legislature, through the Revised Securities Act, Presidential Decree No. 902-A, and
other pertinent laws, has entrusted to it the serious responsibility of enforcing all
laws affecting corporations and other forms of associations not otherwise vested
in some other government office.[10]

This is not to say, however, that the PSEs management prerogatives are
under the absolute control of the SEC. The PSE is, after all, a corporation
authorized by its corporate franchise to engage in its proposed and duly approved
business. One of the PSEs main concerns, as such, is still the generation of profit
for its stockholders. Moreover, the PSE has all the rights pertaining to
corporations, including the right to sue and be sued, to hold property in its own
name, to enter (or not to enter) into contracts with third persons, and to perform
all other legal acts within its allocated express or implied powers.

A corporation is but an association of individuals, allowed to transact under

an assumed corporate name, and with a distinct legal personality. In organizing
itself as a collective body, it waives no constitutional immunities and perquisites
appropriate to such body.[11] As to its corporate and management decisions,
therefore, the state will generally not interfere with the same. Questions of policy
and of management are left to the honest decision of the officers and directors of
a corporation, and the courts are without authority to substitute their judgment for
the judgment of the board of directors. The board is the business manager of the
corporation, and so long as it acts in good faith, its orders are not reviewable by
the courts.[12]

Thus, notwithstanding the regulatory power of the SEC over the PSE, and
the resultant authority to reverse the PSEs decision in matters of application for
listing in the market, the SEC may exercise such power only if the PSEs judgment
is attended by bad faith. In board of Liquidators vs. Kalaw,[13] it was held that bad
faith does not simply connote bad judgment or negligence. It imports a dishonest
purpose or some moral obliquity and conscious doing of wrong. It means a
breach of a known duty through some motive or interest of ill will, partaking of the
nature of fraud.

In reaching its decision to deny the application for listing of PALI, the PSE
considered important facts, which in the general scheme, brings to serious
question the qualification of PALI to sell its shares to the public through the stock
exchange. During the time for receiving objections to the application, the PSE
heard from the representative of the late President Ferdinand E. Marcos and his
family who claim the properties of the private respondent to be part of the Marcos
estate. In time, the PCGG confirmed this claim. In fact, an order of sequestration
has been issued covering the properties of PALI, and suit for reconveyance to the
state has been filed in the Sandiganbayan Court. How the properties were effectively
transferred, despite the sequestration order, from the TDC and MSDC to Rebecco
Panlilio, and to the private respondent PALI, in only a short span of time, are not yet
explained to the Court, but it is clear that such circumstances give rise to serious doubt
as to the integrity of PALI as a stock issuer. The petitioner was in the right when it
refused application of PALI, for a contrary ruling was not to the best interest of the
general public. The purpose of the Revised Securities Act, after all, is to give
adequate and effective protection to the investing public against fraudulent
representations, or false promises, and the imposition of worthless ventures.[14]
 It is to be observed that the U.S. Securities Act emphasized its avowed protection
to acts detrimental to legitimate business, thus:

The Securities Act, often referred to as the truth in securities Act, was designed not only
to provide investors with adequate information upon which to base their decisions to buy
and sell securities, but also to protect legitimate business seeking to obtain capital
through honest presentation against competition form crooked promoters and to prevent
fraud in the sale of securities. (Tenth Annual Report, U.S. Securities and Exchange
Commission, p. 14).

As has been pointed out, the effects of such an act are chiefly (1) prevention of
excesses and fraudulent transactions, merely by requirement of that details be revealed;
(2) placing the market during the early stages of the offering of a security a body of
information, which operating indirectly through investment services and expert investors,
will tend to produce a more accurate appraisal of a security. x x x. Thus, the Commission
may refuse to permit a registration statement to become effective if it appears on its face
to be incomplete or inaccurate in any material respect, and empower the Commission to
issue a stop order suspending the effectiveness of any registration statement which is
found to include any untrue statement of a material fact or to omit to state any material
fact required to be stated therein or necessary to make the statements therein not
misleading. (Idem).

Also, as the primary market for securities, the PSE has established its name
and goodwill, and it has the right to protect such goodwill by maintaining a
reasonable standard of propriety in the entities who choose to transact through
its facilities. It was reasonable for PSE, therefore, to exercise its judgment in the
manner it deems appropriate for its business identity, as long as no rights are
trampled upon, and public welfare is safeguarded.

In this connection, it is proper to observe that the concept of government

absolutism in a thing of the past, and should remain so.

The observation that the title of PALI over its properties is absolute and can no
longer be assailed is of no moment. At this juncture, there is the claim that the properties
were owned by the TDC and MSDC and were transferred in violation of sequestration
orders, to Rebecco Panlilio and later on to PALI, besides the claim of the Marcoses that
such properties belong to Marcos estate, and were held only in trust by Rebecco
Panlilio. It is also alleged by the petitioner that these properties belong to naval and
forest reserves, and therefore beyond private dominion. If any of these claims is
established to be true, the certificates of title over the subject properties now held by
PALI may be disregarded, as it is an established rule that a registration of a certificate of
title does not confer ownership over the properties described therein to the person
named as owner. The inscription in the registry, to be effective, must be made in good
faith. The defense of indefeasibility of a Torrens Title does not extend to a transferee
who takes the certificate of title with notice of a flaw.
In any case, for the purpose of determining whether PSE acted correctly in
refusing the application of PALI, the true ownership of the properties of PALI need
not be determined as an absolute fact. What is material is that the uncertainty of
the properties ownership and alienability exists, and this puts to question the
qualification of PALIs public offering. In sum, the Court finds that the SEC had
acted arbitrarily in arrogating unto itself the discretion of approving the
application for listing in the PSE of the private respondent PALI, since this is a
matter addressed to the sound discretion of the PSE, a corporate entity, whose
business judgments are respected in the absence of bad faith.

The question as to what policy is, or should be relied upon in approving the
registration and sale of securities in the SEC is not for the Court to determine, but is left
to the sound discretion of the Securities and Exchange Commission. In mandating the
SEC to administer the Revised Securities Act, and in performing its other functions
under pertinent laws, the Revised Securities Act, under Section 3 thereof, gives the SEC
the power to promulgate such rules and regulations as it may consider appropriate in the
public interest for the enforcement of the said laws. The second paragraph of Section 4
of the said law, on the other hand, provides that no security, unless exempt by law, shall
be issued, endorsed, sold, transferred or in any other manner conveyed to the public,
unless registered in accordance with the rules and regulations that shall be promulgated
in the public interest and for the protection of investors by the Commission. Presidential
Decree No. 902-A, on the other hand, provides that the SEC, as regulatory agency, has
supervision and control over all corporations and over the securities market as a whole,
and as such, is given ample authority in determining appropriate policies. Pursuant to
this regulatory authority, the SEC has manifested that it has adopted the policy of full
material disclosure where all companies, listed or applying for listing, are required to
divulge truthfully and accurately, all material information about themselves and the
securities they sell, for the protection of the investing public, and under pain of
administrative, criminal and civil sanctions. In connection with this, a fact is deemed
material if it tends to induce or otherwise effect the sale or purchase of its securities.[15]
While the employment of this policy is recognized and sanctioned by laws, nonetheless,
the Revised Securities Act sets substantial and procedural standards which a proposed
issuer of securities must satisfy.[16] Pertinently, Section 9 of the Revised Securities Act
sets forth the possible Grounds for the Rejection of the registration of a security:

- - The Commission may reject a registration statement and refuse to issue a permit to
sell the securities included in such registration statement if it finds that - -

(1) The registration statement is on its face incomplete or inaccurate in any material
respect or includes any untrue statement of a material fact or omits to state a material
facts required to be stated therein or necessary to make the statements therein not
misleading; or

(2) The issuer or registrant - -

(i) is not solvent or not is sound financial condition;

(ii) has violated or has not complied with the provisions of this Act, or the rules
promulgated pursuant thereto, or any order of the Commission;

(iii) has failed to comply with any of the applicable requirements and conditions that the
Commission may, in the public interest and for the protection of investors, impose before
the security can be registered;

(iv) had been engaged or is engaged or is about to engaged in fraudulent transactions;

(v) is in any was dishonest of is not of good repute; or

(vi) does not conduct its business in accordance with law or is engaged in a business
that is illegal or contrary or government rules and regulations.

(3) The enterprise or the business of the issuer is not shown to be sound or to be based
on sound business principles;

(4) An officer, member of the board of directors, or principal stockholder of the issuer is
disqualified to such officer, director or principal stockholder; or

(5) The issuer or registrant has not shown to the satisfaction of the Commission that the
sale of its security would not work to the prejudice to the public interest or as a fraud
upon the purchaser or investors. (Emphasis Ours)

A reading of the foregoing grounds reveals the intention of the lawmakers to make
the registration and issuance of securities dependent, to a certain extent, on the merits
of the securities themselves, and of the issuer, to be determined by the Securities and
Exchange Commission. This measure was meant to protect the interest of the investing
public against fraudulent and worthless securities, and the SEC is mandated by law to
safeguard these interests, following the policies and rules therefore provided. The
absolute reliance on the full disclosure method in the registration of securities is,
therefore, untenable. At it is, the Court finds that the private respondent PALI, on at least
two points (nos. 1 and 5) has failed to support the propriety of the issue of its shares with
unfailing clarity, thereby lending support to the conclusion that the PSE acted correctly in
refusing the listing of PALI in its stock exchange. This does not discount the effectivity of
whatever method the SEC, in the exercise of its vested authority, chooses in setting the
standard for public offerings of corporations wishing to do so. However, the SEC must
recognize and implement the mandate of the law, particularly the Revised Securities Act,
the provisions of which cannot be amended or supplanted my mere administrative
issuance.

In resum, the Court finds that the PSE has acted with justified circumspection,
discounting, therefore, any imputation of arbitrariness and whimsical animation on its
part. Its action in refusing to allow the listing of PALI in the stock exchange is justified by
the law and by the circumstances attendant to this case.

ACCORDINGLY, in view of the foregoing considerations, the Court hereby

GRANTS the Petition for Review on Certiorari. The decisions of the Court of Appeals
and the Securities and Exchage Commission dated July 27, 1996 and April 24, 1996,
respectively, are hereby REVERSED and SET ASIDE, and a new Judgment is hereby
ENTERED, affirming the decision of the Philippine Stock Exchange to deny the
application for listing of the private respondent Puerto Azul Land, Inc.
SO ORDERED.

Republic of the Philippines SUPREME COURT Manila

 SECOND DIVISION

G.R. No. L-41337 June 30, 1988

TAN BOON BEE & CO., INC., petitioner, vs. THE HONORABLE HILARION U.
JARENCIO, PRESIDING JUDGE OF BRANCH XVIII of the Court of First Instance of
Manila, GRAPHIC PUBLISHING, INC., and PHILIPPINE AMERICAN CAN DRUG
COMPANY, respondents.

De Santos, Balgos & Perez Law Office for petitioner.

Araneta Mendoza & Papa Law Office for respondent Phil. American Drug Company.

PARAS, J.:

This is a petition for certiorari, with prayer for preliminary injunction, to annul and
set aside the March 26, 1975 Order of the then Court of First Instance of Manila,
Branch XXIII, setting aside the sale of "Heidelberg" cylinder press executed by the
sheriff in favor of the herein petitioner, as well as the levy on the said property,
and ordering the sheriff to return the said machinery to its owner, herein private
respondent Philippine American Drug Company.

Petitioner herein, doing business under the name and style of Anchor Supply Co.,
sold on credit to herein private respondent Graphic Publishing, Inc. (GRAPHIC for
short) paper products amounting to P55,214.73. On December 20, 1972, GRAPHIC
made partial payment by check to petitioner in the total amount of P24,848.74; and
on December 21, 1972, a promissory note was executed to cover the balance of
P30,365.99. In the said promissory note, it was stipulated that the amount will be
paid on monthly installments and that failure to pay any installment would make
the amount immediately demandable with an interest of 12% per annum. On
September 6, 1973, for failure of GRAPHIC to pay any installment, petitioner filed
with the then Court of First Instance of Manila, Branch XXIII, presided over by herein
respondent judge, Civil Case No. 91857 for a Sum of Money (Rollo, pp. 36-38).
Respondent judge declared GRAPHIC in default for failure to file its answer within
the reglementary period and plaintiff (petitioner herein) was allowed to present its
evidence ex parte. In a Decision dated January 18, 1974 (Ibid., pp. 39-40), the trial
court ordered GRAPHIC to pay the petitioner the sum of P30,365.99 with 12%
interest from March 30, 1973 until fully paid, plus the costs of suit. On motion of
petitioner, a writ of execution was issued by respondent judge; but the aforestated
writ having expired without the sheriff finding any property of GRAPHIC, an alias
writ of execution was issued on July 2, 1974.

Pursuant to the said issued alias writ of execution, the executing sheriff levied
upon one (1) unit printing machine Identified as "Original Heidelberg Cylinder
Press" Type H 222, NR 78048, found in the premises of GRAPHIC. In a Notice of
Sale of Execution of Personal Property dated July 29, 1974, said printing machine
was scheduled for auction sale on July 26, 1974 at 10:00 o'clock at 14th St., Cor.
Atlanta St., Port Area, Manila (lbid., p. 45); but in a letter dated July 19, 1974, herein
private respondent, Philippine American Drug Company (PADCO for short) had
informed the sheriff that the printing machine is its property and not that of
GRAPHIC, and accordingly, advised the sheriff to cease and desist from carrying
out the scheduled auction sale on July 26, 1974. Notwithstanding the said letter, the
sheriff proceeded with the scheduled auction sale, sold the property to the
petitioner, it being the highest bidder, and issued a Certificate of Sale in favor of
petitioner (Rollo, p. 48). More than five (5) hours after the auction sale and the
issuance of the certificate of sale, PADCO filed an "Affidavit of Third Party Claim"
with the Office of the City Sheriff (Ibid., p. 47). Thereafter, on July 30,1974, PADCO
filed with the Court of First Instance of Manila, Branch XXIII, a Motion to Nullify Sale on
Execution (With Injunction) (Ibid., pp, 49-55), which was opposed by the petitioner
(Ibid., pp. 5668). Respondent judge, in an Order dated March 26, 1975 (Ibid., pp. 64-69),
ruled in favor of PADCO. The decretal portion of the said order, reads:

WHEREFORE, the sale of the 'Heidelberg cylinder press executed by the Sheriff in
favor of the plaintiff as well as the levy on the said property is hereby set aside
and declared to be without any force and effect. The Sheriff is ordered to return
the said machinery to its owner, the Philippine American Drug Co.

Petitioner filed a Motion For Reconsideration (Ibid., pp. 7093) and an Addendum to
Motion for Reconsideration (Ibid., pp. 94-08), but in an Order dated August 13, 1975, the
same was denied for lack of merit (Ibid., p. 109). Hence, the instant petition.

In a Resolution dated September 12, 1975, the Second Division of this Court resolved to
require the respondents to comment, and to issue a temporary restraining order (Rollo,
p. 111 ). After submission of the parties' Memoranda, the case was submitted for
decision in the Resolution of November 28, 1975 (Ibid., p. 275).

Petitioner, to support its stand, raised two (2) issues, to wit:

THE RESPONDENT JUDGE GRAVELY EXCEEDED, IF NOT ACTED WITHOUT

JURISDICTION WHEN HE ACTED UPON THE MOTION OF PADCO, NOT ONLY
BECAUSE SECTION 17, RULE 39 OF THE RULES OF COURT WAS NOT COMPLIED
WITH, BUT ALSO BECAUSE THE CLAIMS OF PADCO WHICH WAS NOT A PARTY
TO THE CASE COULD NOT BE VENTILATED IN THE CASE BEFORE HIM BUT IN
INDEPENDENT PROCEEDING.

II

THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION WHEN HE

REFUSED TO PIERCE THE PADCO'S (IDENTITY) AND DESPITE THE ABUNDANCE
OF EVIDENCE CLEARLY SHOWING THAT PADCO WAS CONVENIENTLY
SHIELDING UNDER THE THEORY OF CORPORATE PETITION.

Petitioner contends that respondent judge gravely exceeded, if not, acted without
jurisdiction, in nullifying the sheriffs sale not only because Section 17, Rule 39 of the
Rules of Court was not complied with, but more importantly because PADCO could not
have litigated its claim in the same case, but in an independent civil proceeding.
This contention is well-taken.

In the case of Bayer Philippines, Inc. vs. Agana (63 SCRA 355, 366-367 [1975]), this
Court categorically ruled as follows:

In other words, constitution, Section 17 of Rule 39 of the Revised Rules of Court, the
rights of third-party claimants over certain properties levied upon by the sheriff to satisfy
the judgment should not be decided in the action where the third-party claims have been
presented, but in the separate action instituted by the claimants.

... Otherwise stated, the court issuing a writ of execution is supposed to enforce the
authority only over properties of the judgment debtor, and should a third party appeal- to
claim the property levied upon by the sheriff, the procedure laid down by the Rules is
that such claim should be the subject of a separate and independent action.

xxx xxx xxx

... This rule is dictated by reasons of convenience, as "intervention is more likely to inject
confusion into the issues between the parties in the case . . . with which the third-party
claimant has nothing to do and thereby retard instead of facilitate the prompt dispatch of
the controversy which is the underlying objective of the rules of pleading and practice."
Besides, intervention may not be permitted after trial has been concluded and a final
judgment rendered in the case.

However, the fact that petitioner questioned the jurisdiction of the court during the initial
hearing of the case but nevertheless actively participated in the trial, bars it from
questioning now the court's jurisdiction. A party who voluntarily participated in the trial,
like the herein petitioner, cannot later on raise the issue of the court's lack of jurisdiction
(Philippine National Bank vs. Intermediate Appellate Court, 143 SCRA [1986]).

As to the second issue (the non-piercing of PADCO's corporate Identity) the decision of
respondent judge is as follows:

The plaintiff, however, contends that the controlling stockholders of the Philippine
American Drug Co. are also the same controlling stockholders of the Graphic
Publishing, Inc. and, therefore, the levy upon the said machinery which was found
in the premises occupied by the Graphic Publishing, Inc. should be upheld. This
contention cannot be sustained because the two corporations were duly
incorporated under the Corporation Law and each of them has a juridical
personality distinct and separate from the other and the properties of one cannot
be levied upon to satisfy the obligation of the other. This legal preposition is
elementary and fundamental.

It is true that a corporation, upon coming into being, is invested by law with a personality
separate and distinct from that of the persons composing it as well as from any other
legal entity to which it may be related (Yutivo & Sons Hardware Company vs. Court of
Tax Appeals, 1 SCRA 160 [1961]; and Emilio Cano Enterprises, Inc. vs. CIR, 13 SCRA
290 [1965]). As a matter of fact, the doctrine that a corporation is a legal entity distinct
and separate from the members and stockholders who compose it is recognized and
respected in all cases which are within reason and the law (Villa Rey Transit, Inc. vs.
Ferrer, 25 SCRA 845 [1968]). However, this separate and distinct personality is
merely a fiction created by law for convenience and to promote justice (Laguna
Transportation Company vs. SSS, 107 Phil. 833 [1960]). Accordingly, this separate
personality of the corporation may be disregarded, or the veil of corporate fiction
pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to
work an injustice, or where necessary to achieve equity or when necessary for the
protection of creditors (Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347 [1976]).
Corporations are composed of natural persons and the legal fiction of a separate
corporate personality is not a shield for the commission of injustice and inequity
(Chenplex Philippines, Inc., et al. vs. Hon. Pamatian et al., 57 SCRA 408 (19741).
Likewise, this is true when the corporation is merely an adjunct, business conduit
or alter ego of another corporation. In such case, the fiction of separate and
distinct corporation entities should be disregarded (Commissioner of Internal
Revenue vs. Norton & Harrison, 11 SCRA 714 [1964]).

In the instant case, petitioner's evidence established that PADCO was never
engaged in the printing business; that the board of directors and the officers of
GRAPHIC and PADCO were the same; and that PADCO holds 50% share of stock
of GRAPHIC. Petitioner likewise stressed that PADCO's own evidence shows that
the printing machine in question had been in the premises of GRAPHIC since May,
1965, long before PADCO even acquired its alleged title on July 11, 1966 from
Capitol Publishing. That the said machine was allegedly leased by PADCO to
GRAPHIC on January 24, 1966, even before PADCO purchased it from Capital
Publishing on July 11, 1966, only serves to show that PADCO's claim of
ownership over the printing machine is not only farce and sham but also
unbelievable.

Considering the aforestated principles and the circumstances established in this

case, respondent judge should have pierced PADCO's veil of corporate Identity.

Respondent PADCO argues that if respondent judge erred in not piercing the veil of its
corporate fiction, the error is merely an error of judgment and not an error of jurisdiction
correctable by appeal and not by certiorari.

To this argument of respondent, suffice it to say that the same is a mere technicality. In
the case of Rubio vs. Mariano (52 SCRA 338, 343 [1973]), this Court ruled:

While We recognize the fact that these movants the MBTC, the Phillips spouses, the
Phillips corporation and the Hacienda Benito, Inc. did raise in their respective answers
the issue as to the propriety of the instant petition for certiorari on the ground that the
remedy should have been appeal within the reglementary period, We considered such
issue as a mere technicality which would have accomplished nothing substantial except
to deny to the petitioner the right to litigate the matters he raised ...

Litigations should, as much as possible, be decided on their merits and not on

technicality (De las Alas vs. Court of Appeals, 83 SCRA 200, 216 [1978]). Every party-
litigant must be afforded the amplest opportunity for the proper and just determination of
his cause, free from the unacceptable plea of technicalities (Heirs of Ceferino Morales
vs. Court of Appeals, 67 SCRA 304, 310 [1975]).
PREMISES CONSIDERED, the March 26,1975 Order of the then Court of First
Instance of Manila, is ANNULLED and SET ASIDE, and the Temporary Restraining
Order issued is hereby made permanent.

SO ORDERED.