MATLING INDUSTRIAL G.R. No.

157802
AND COMMERCIAL CORPORATION,
RICHARD K. SPENCER, Present:
CATHERINE SPENCER,
AND ALEX MANCILLA, CARPIO MORALES, Chairperson,
Petitioners, BRION,
BERSAMIN,
VILLARAMA, JR., and
-versus - SERENO, JJ.

Promulgated:
RICARDO R. COROS, October 13, 2010
Respondent.
x-----------------------------------------------------------------------------------------x

DECISION

BERSAMIN, J.:
This case reprises the jurisdictional conundrum of whether a complaint for illegal dismissal is cognizable by
the Labor Arbiter (LA) or by the Regional Trial Court (RTC). The determination of whether the dismissed officer was
a regular employee or a corporate officer unravels the conundrum. In the case of the regular employee, the LA has
jurisdiction; otherwise, the RTC exercises the legal authority to adjudicate.

In this appeal via petition for review on certiorari, the petitioners challenge the decision dated September 13,
2002[1] and the resolution dated April 2, 2003,[2] both promulgated in C.A.-G.R. SP No. 65714 entitled Matling
Industrial and Commercial Corporation, et al. v. Ricardo R. Coros and National Labor Relations Commission,
whereby by the Court of Appeals (CA) sustained the ruling of the National Labor Relations Commission (NLRC) to
the effect that the LA had jurisdiction because the respondent was not a corporate officer of petitioner Matling
Industrial and Commercial Corporation (Matling).

Antecedents

After his dismissal by Matling as its Vice President for Finance and Administration, the respondent filed on August
10, 2000 a complaint for illegal suspension and illegal dismissal against Matling and some of its corporate officers
(petitioners) in the NLRC, Sub-Regional Arbitration Branch XII, Iligan City.[3]

The petitioners moved to dismiss the complaint,[4] raising the ground, among others, that the complaint
pertained to the jurisdiction of the Securities and Exchange Commission (SEC) due to the controversy being intra-
corporate inasmuch as the respondent was a member of Matlings Board of Directors aside from being its Vice-
President for Finance and Administration prior to his termination.
The respondent opposed the petitioners motion to dismiss,[5] insisting that his status as a member of Matlings Board
of Directors was doubtful, considering that he had not been formally elected as such; that he did not own a single share
of stock in Matling, considering that he had been made to sign in blank an undated indorsement of the certificate of
stock he had been given in 1992; that Matling had taken back and retained the certificate of stock in its custody; and
that even assuming that he had been a Director of Matling, he had been removed as the Vice President for Finance
and Administration, not as a Director, a fact that the notice of his termination dated April 10, 2000 showed.

On October 16, 2000, the LA granted the petitioners motion to dismiss,[6] ruling that the respondent was a
corporate officer because he was occupying the position of Vice President for Finance and Administration and at the
same time was a Member of the Board of Directors of Matling; and that, consequently, his removal was a corporate
act of Matling and the controversy resulting from such removal was under the jurisdiction of the SEC, pursuant to
Section 5, paragraph (c) of Presidential Decree No. 902.

Ruling of the NLRC

The respondent appealed to the NLRC,[7] urging that:

I
THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION
GRANTING APPELLEES MOTION TO DISMISS WITHOUT GIVING THE APPELLANT
AN OPPORTUNITY TO FILE HIS OPPOSITION THERETO THEREBY VIOLATING THE
BASIC PRINCIPLE OF DUE PROCESS.

II
 THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN DISMISSING THE
CASE FOR LACK OF JURISDICTION.

On March 13, 2001, the NLRC set aside the dismissal, concluding that the respondents complaint for illegal dismissal
was properly cognizable by the LA, not by the SEC, because he was not a corporate officer by virtue of his position
in Matling, albeit high ranking and managerial, not being among the positions listed in Matlings Constitution and By-
Laws.[8] The NLRC disposed thuswise:

WHEREFORE, the Order appealed from is SET ASIDE. A new one is entered declaring and holding
that the case at bench does not involve any intracorporate matter. Hence, jurisdiction to hear and act
on said case is vested with the Labor Arbiter, not the SEC, considering that the position of Vice-
President for Finance and Administration being held by complainant-appellant is not listed as among
respondent's corporate officers.

Accordingly, let the records of this case be REMANDED to the Arbitration Branch of origin in
order that the Labor Arbiter below could act on the case at bench, hear both parties, receive their
respective evidence and position papers fully observing the requirements of due process, and resolve
the same with reasonable dispatch.
SO ORDERED.

The petitioners sought reconsideration,[9] reiterating that the respondent, being a member of the Board of Directors,
was a corporate officer whose removal was not within the LAs jurisdiction.

The petitioners later submitted to the NLRC in support of the motion for reconsideration the certified
machine copies of Matlings Amended Articles of Incorporation and By Laws to prove that the President of Matling
was thereby granted full power to create new offices and appoint the officers thereto, and the minutes of special
meeting held on June 7, 1999 by Matlings Board of Directors to prove that the respondent was, indeed, a Member of
the Board of Directors.[10]

Nonetheless, on April 30, 2001, the NLRC denied the petitioners motion for reconsideration.[11]

Ruling of the CA

The petitioners elevated the issue to the CA by petition for certiorari, docketed as C.A.-G.R. No. SP 65714,
contending that the NLRC committed grave abuse of discretion amounting to lack of jurisdiction in reversing the
correct decision of the LA.

In its assailed decision promulgated on September 13, 2002,[12] the CA dismissed the petition for certiorari,
explaining:

For a position to be considered as a corporate office, or, for that matter, for one to be considered as
a corporate officer, the position must, if not listed in the by-laws, have been created by the
corporation's board of directors, and the occupant thereof appointed or elected by the same board of
directors or stockholders. This is the implication of the ruling in Tabang v. National Labor Relations
Commission, which reads:
The president, vice president, secretary and treasurer are commonly regarded as the
principal or executive officers of a corporation, and modern corporation statutes usually
designate them as the officers of the corporation. However, other offices are sometimes
created by the charter or by-laws of a corporation, or the board of directors may be
empowered under the by-laws of a corporation to create additional offices as may be
necessary.
It has been held that an 'office' is created by the charter of the corporation and the
officer is elected by the directors or stockholders. On the other hand, an 'employee'
usually occupies no office and generally is employed not by action of the directors or
stockholders but by the managing officer of the corporation who also determines the
compensation to be paid to such employee.
This ruling was reiterated in the subsequent cases of Ongkingco v. National Labor Relations
Commission and De Rossi v. National Labor Relations Commission.
The position of vice-president for administration and finance, which Coros used to hold in
the corporation, was not created by the corporations board of directors but only by its president or
executive vice-president pursuant to the by-laws of the corporation. Moreover, Coros appointment
to said position was not made through any act of the board of directors or stockholders of the
corporation. Consequently, the position to which Coros was appointed and later on removed from,
is not a corporate office despite its nomenclature, but an ordinary office in the corporation.
 Coros alleged illegal dismissal therefrom is, therefore, within the jurisdiction of the labor
arbiter.
WHEREFORE, the petition for certiorari is hereby DISMISSED.
SO ORDERED.
The CA denied the petitioners motion for reconsideration on April 2, 2003.[13]

Issue

Thus, the petitioners are now before the Court for a review on certiorari, positing that the respondent was a
stockholder/member of the Matlings Board of Directors as well as its Vice President for Finance and Administration;
and that the CA consequently erred in holding that the LA had jurisdiction.

The decisive issue is whether the respondent was a corporate officer of Matling or not. The resolution of the issue
determines whether the LA or the RTC had jurisdiction over his complaint for illegal dismissal.

Ruling

The appeal fails.

I
The Law on Jurisdiction in Dismissal Cases

As a rule, the illegal dismissal of an officer or other employee of a private employer is properly cognizable
by the LA. This is pursuant to Article 217 (a) 2 of the Labor Code, as amended, which provides as follows:

Article 217. Jurisdiction of the Labor Arbiters and the Commission. - (a) Except as
otherwise provided under this Code, the Labor Arbiters shall have original and exclusive
jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case
by the parties for decision without extension, even in the absence of stenographic notes, the
following cases involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving
wages, rates of pay, hours of work and other terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the
employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions involving
the legality of strikes and lockouts; and

6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims arising from employer-employee relations, including those of persons in
domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00)
regardless of whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by
Labor Arbiters.

(c) Cases arising from the interpretation or implementation of collective bargaining

agreements and those arising from the interpretation or enforcement of company personnel policies
shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and
voluntary arbitration as may be provided in said agreements. (As amended by Section 9, Republic
Act No. 6715, March 21, 1989).

Where the complaint for illegal dismissal concerns a corporate officer, however, the controversy falls under
the jurisdiction of the Securities and Exchange Commission (SEC), because the controversy arises out of intra-
corporate or partnership relations between and among stockholders, members, or associates, or between any or all of
them and the corporation, partnership, or association of which they are stockholders, members, or associates,
respectively; and between such corporation, partnership, or association and the State insofar as the controversy
concerns their individual franchise or right to exist as such entity; or because the controversy involves the election or
appointment of a director, trustee, officer, or manager of such corporation, partnership, or association.[14] Such
controversy, among others, is known as an intra-corporate dispute.

Effective on August 8, 2000, upon the passage of Republic Act No. 8799, [15] otherwise known
as The Securities Regulation Code, the SECs jurisdiction over all intra-corporate disputes was transferred to the RTC,
pursuant to Section 5.2 of RA No. 8799, to wit:

5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court: Provided, that the Supreme Court in the exercise of its authority may
designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The
Commission shall retain jurisdiction over pending cases involving intra-corporate disputes
submitted for final resolution which should be resolved within one (1) year from the enactment
of this Code. The Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.

Considering that the respondents complaint for illegal dismissal was commenced on August 10, 2000, it
might come under the coverage of Section 5.2 of RA No. 8799, supra, should it turn out that the respondent was a
corporate, not a regular, officer of Matling.

II
Was the Respondents Position of Vice President
for Administration and Finance a Corporate Office?

We must first resolve whether or not the respondents position as Vice President for Finance and Administration was
a corporate office. If it was, his dismissal by the Board of Directors rendered the matter an intra-corporate dispute
cognizable by the RTC pursuant to RA No. 8799.

The petitioners contend that the position of Vice President for Finance and Administration was a corporate office,
having been created by Matlings President pursuant to By-Law No. V, as amended,[16] to wit:

BY LAW NO. V

Officers

The President shall be the executive head of the corporation; shall preside over the meetings of the
stockholders and directors; shall countersign all certificates, contracts and other instruments of the
corporation as authorized by the Board of Directors; shall have full power to hire and discharge any
or all employees of the corporation; shall have full power to create new offices and to appoint
the officers thereto as he may deem proper and necessary in the operations of the corporation
and as the progress of the business and welfare of the corporation may demand; shall make
reports to the directors and stockholders and perform all such other duties and functions as are
incident to his office or are properly required of him by the Board of Directors. In case of the absence
or disability of the President, the Executive Vice President shall have the power to exercise his
functions.

The petitioners argue that the power to create corporate offices and to appoint the individuals to assume the
offices was delegated by Matlings Board of Directors to its President through By-Law No. V, as amended; and that
any office the President created, like the position of the respondent, was as valid and effective a creation as that made
by the Board of Directors, making the office a corporate office. In justification, they cite Tabang v. National Labor
Relations Commission,[17] which held that other offices are sometimes created by the charter or by-laws of a
corporation, or the board of directors may be empowered under the by-laws of a corporation to create additional
officers as may be necessary.
The respondent counters that Matlings By-Laws did not list his position as Vice President for Finance and
Administration as one of the corporate offices; that Matlings By-Law No. III listed only four corporate officers,
namely: President, Executive Vice President, Secretary, and Treasurer; [18] that the corporate offices contemplated in
the phrase and such other officers as may be provided for in the by-laws found in Section 25 of the Corporation
Code should be clearly and expressly stated in the By-Laws; that the fact that Matlings By-Law No. III dealt
with Directors & Officers while its By-Law No. V dealt with Officers proved that there was a differentiation between
the officers mentioned in the two provisions, with those classified under By-Law No. V being ordinary or non-
corporate officers; and that the officer, to be considered as a corporate officer, must be elected by the Board of
Directors or the stockholders, for the President could only appoint an employee to a position pursuant to By-Law No.
V.

We agree with respondent.

Section 25 of the Corporation Code provides:

Section 25. Corporate officers, quorum.--Immediately after their election, the directors of a
corporation must formally organize by the election of a president, who shall be a director, a treasurer
who may or may not be a director, a secretary who shall be a resident and citizen of
the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or
more positions may be held concurrently by the same person, except that no one shall act as president
and secretary or as president and treasurer at the same time.
The directors or trustees and officers to be elected shall perform the duties enjoined on them
by law and the by-laws of the corporation. Unless the articles of incorporation or the by-laws provide
for a greater majority, a majority of the number of directors or trustees as fixed in the articles of
incorporation shall constitute a quorum for the transaction of corporate business, and every decision
of at least a majority of the directors or trustees present at a meeting at which there is a quorum shall
be valid as a corporate act, except for the election of officers which shall require the vote of a
majority of all the members of the board.

Directors or trustees cannot attend or vote by proxy at board meetings.

Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be
considered as a corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling provision is
not enough to make a position a corporate office. Guerrea v. Lezama,[19] the first ruling on the matter, held that the
only officers of a corporation were those given that character either by the Corporation Code or by the By-Laws; the
rest of the corporate officers could be considered only as employees or subordinate officials. Thus, it was held
in Easycall Communications Phils., Inc. v. King:[20]

An office is created by the charter of the corporation and the officer is elected by the directors or
stockholders. On the other hand, an employee occupies no office and generally is employed not by
the action of the directors or stockholders but by the managing officer of the corporation who also
determines the compensation to be paid to such employee.

In this case, respondent was appointed vice president for nationwide expansion by Malonzo,
petitioner's general manager, not by the board of directors of petitioner. It was also Malonzo who
determined the compensation package of respondent. Thus, respondent was an employee, not a
corporate officer. The CA was therefore correct in ruling that jurisdiction over the case was properly
with the NLRC, not the SEC (now the RTC).

This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states that
the corporate officers are the President, Secretary, Treasurer and such other officers as may be provided for in the By-
Laws. Accordingly, the corporate officers in the context of PD No. 902-A are exclusively those who are given that
character either by the Corporation Code or by the corporations By-Laws.

A different interpretation can easily leave the way open for the Board of Directors to circumvent the
constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the By-Laws of an
enabling clause on the creation of just any corporate officer position.

It is relevant to state in this connection that the SEC, the primary agency administering the Corporation Code,
adopted a similar interpretation of Section 25 of the Corporation Code in its Opinion dated November 25, 1993,[21] to
wit:

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are
the corporate officers enumerated in the by-laws are the exclusive Officers of the corporation
and the Board has no power to create other Offices without amending first the corporate By-
laws. However, the Board may create appointive positions other than the positions of
corporate Officers, but the persons occupying such positions are not considered as corporate
officers within the meaning of Section 25 of the Corporation Code and are not empowered to
exercise the functions of the corporate Officers, except those functions lawfully delegated to
them. Their functions and duties are to be determined by the Board of Directors/Trustees.
 Moreover, the Board of Directors of Matling could not validly delegate the power to create a corporate office
to the President, in light of Section 25 of the Corporation Code requiring the Board of Directors itself to elect the
corporate officers. Verily, the power to elect the corporate officers was a discretionary power that the law exclusively
vested in the Board of Directors, and could not be delegated to subordinate officers or agents.[22] The office of Vice
President for Finance and Administration created by Matlings President pursuant to By Law No. V was an ordinary,
not a corporate, office.

To emphasize, the power to create new offices and the power to appoint the officers to occupy them vested by By-
Law No. V merely allowed Matlings President to create non-corporate offices to be occupied by ordinary employees
of Matling. Such powers were incidental to the Presidents duties as the executive head of Matling to assist him in the
daily operations of the business.

The petitioners reliance on Tabang, supra, is misplaced. The statement in Tabang, to the effect that offices not
expressly mentioned in the By-Laws but were created pursuant to a By-Law enabling provision were also considered
corporate offices, was plainly obiter dictum due to the position subject of the controversy being mentioned in the By-
Laws. Thus, the Court held therein that the position was a corporate office, and that the determination of the rights
and liabilities arising from the ouster from the position was an intra-corporate controversy within the SECs
jurisdiction.

In Nacpil v. Intercontinental Broadcasting Corporation,[23] which may be the more appropriate ruling, the position
subject of the controversy was not expressly mentioned in the By-Laws, but was created pursuant to a By-Law
enabling provision authorizing the Board of Directors to create other offices that the Board of Directors might see fit
to create. The Court held there that the position was a corporate office, relying on the obiter dictum in Tabang.
Considering that the observations earlier made herein show that the soundness of their dicta is not
unassailable, Tabang and Nacpil should no longer be controlling.

III
Did Respondents Status as Director and
Stockholder Automatically Convert his Dismissal
into an Intra-Corporate Dispute?

Yet, the petitioners insist that because the respondent was a Director/stockholder of Matling, and relying on Paguio
v. National Labor Relations Commission[24] and Ongkingko v. National Labor Relations Commission, [25] the NLRC
had no jurisdiction over his complaint, considering that any case for illegal dismissal brought by a stockholder/officer
against the corporation was an intra-corporate matter that must fall under the jurisdiction of the SEC conformably
with the context of PD No. 902-A.

The petitioners insistence is bereft of basis.

To begin with, the reliance on Paguio and Ongkingko is misplaced. In both rulings, the complainants were undeniably
corporate officers due to their positions being expressly mentioned in the By-Laws, aside from the fact that both of
them had been duly elected by the respective Boards of Directors. But the herein respondents position of Vice
President for Finance and Administration was not expressly mentioned in the By-Laws; neither was the position of
Vice President for Finance and Administration created by Matlings Board of Directors. Lastly, the President, not the
Board of Directors, appointed him.

True it is that the Court pronounced in Tabang as follows:

Also, an intra-corporate controversy is one which arises between a stockholder and the corporation.
There is no distinction, qualification or any exemption whatsoever. The provision is broad and
covers all kinds of controversies between stockholders and corporations. [26]

However, the Tabang pronouncement is not controlling because it is too sweeping and does not accord with reason,
justice, and fair play. In order to determine whether a dispute constitutes an intra-corporate controversy or not, the
Court considers two elements instead, namely: (a) the status or relationship of the parties; and (b) the nature of the
question that is the subject of their controversy. This was our thrust in Viray v. Court of Appeals:[27]

The establishment of any of the relationships mentioned above will not necessarily always confer
jurisdiction over the dispute on the SEC to the exclusion of regular courts. The statement made in
one case that the rule admits of no exceptions or distinctions is not that absolute. The better policy
in determining which body has jurisdiction over a case would be to consider not only the status or
relationship of the parties but also the nature of the question that is the subject of their controversy.
 Not every conflict between a corporation and its stockholders involves corporate matters that only
the SEC can resolve in the exercise of its adjudicatory or quasi-judicial powers. If, for example, a
person leases an apartment owned by a corporation of which he is a stockholder, there should be no
question that a complaint for his ejectment for non-payment of rentals would still come under the
jurisdiction of the regular courts and not of the SEC. By the same token, if one person injures another
in a vehicular accident, the complaint for damages filed by the victim will not come under the
jurisdiction of the SEC simply because of the happenstance that both parties are stockholders of the
same corporation. A contrary interpretation would dissipate the powers of the regular courts and
distort the meaning and intent of PD No. 902-A.

In another case, Mainland Construction Co., Inc. v. Movilla,[28] the Court reiterated these determinants
thuswise:
In order that the SEC (now the regular courts) can take cognizance of a case, the controversy must
pertain to any of the following relationships:

a) between the corporation, partnership or association and the public;

b) between the corporation, partnership or association and its stockholders, partners,

members or officers;
c) between the corporation, partnership or association and the State as far as its franchise,
permit or license to operate is concerned; and
d) among the stockholders, partners or associates themselves.
The fact that the parties involved in the controversy are all stockholders or that the parties
involved are the stockholders and the corporation does not necessarily place the dispute within the
ambit of the jurisdiction of SEC. The better policy to be followed in determining jurisdiction over a
case should be to consider concurrent factors such as the status or relationship of the parties or the
nature of the question that is the subject of their controversy. In the absence of any one of these
factors, the SEC will not have jurisdiction. Furthermore, it does not necessarily follow that every
conflict between the corporation and its stockholders would involve such corporate matters as only
the SEC can resolve in the exercise of its adjudicatory or quasi-judicial powers.[29]

The criteria for distinguishing between corporate officers who may be ousted from office at will, on one
hand, and ordinary corporate employees who may only be terminated for just cause, on the other hand, do not depend
on the nature of the services performed, but on the manner of creation of the office. In the respondents case, he was
supposedly at once an employee, a stockholder, and a Director of Matling. The circumstances surrounding his
appointment to office must be fully considered to determine whether the dismissal constituted an intra-corporate
controversy or a labor termination dispute. We must also consider whether his status as Director and stockholder had
any relation at all to his appointment and subsequent dismissal as Vice President for Finance and Administration.

Obviously enough, the respondent was not appointed as Vice President for Finance and Administration because of his
being a stockholder or Director of Matling. He had started working for Matling on September 8, 1966, and had been
employed continuously for 33 years until his termination on April 17, 2000, first as a bookkeeper, and his climb in
1987 to his last position as Vice President for Finance and Administration had been gradual but steady, as the following
sequence indicates:

1966 Bookkeeper
1968 Senior Accountant
1969 Chief Accountant
1972 Office Supervisor
1973 Assistant Treasurer
1978 Special Assistant for Finance
1980 Assistant Comptroller
1983 Finance and Administrative Manager
1985 Asst. Vice President for Finance and Administration
1987 to April 17, 2000 Vice President for Finance and Administration

Even though he might have become a stockholder of Matling in 1992, his promotion to the position of Vice
President for Finance and Administration in 1987 was by virtue of the length of quality service he had rendered as an
employee of Matling. His subsequent acquisition of the status of Director/stockholder had no relation to his promotion.
Besides, his status of Director/stockholder was unaffected by his dismissal from employment as Vice President for
Finance and Administration.
 In Prudential Bank and Trust Company v. Reyes,[30] a case involving a lady bank manager who had risen
from the ranks but was dismissed, the Court held that her complaint for illegal dismissal was correctly brought to the
NLRC, because she was deemed a regular employee of the bank. The Court observed thus:

It appears that private respondent was appointed Accounting Clerk by the Bank on July 14,
1963. From that position she rose to become supervisor. Then in 1982, she was appointed Assistant
Vice-President which she occupied until her illegal dismissal on July 19, 1991. The banks
contention that she merely holds an elective position and that in effect she is not a regular
employee is belied by the nature of her work and her length of service with the Bank. As earlier
stated, she rose from the ranks and has been employed with the Bank since 1963 until the termination
of her employment in 1991. As Assistant Vice President of the Foreign Department of the Bank,
she is tasked, among others, to collect checks drawn against overseas banks payable in foreign
currency and to ensure the collection of foreign bills or checks purchased, including the signing of
transmittal letters covering the same. It has been stated that the primary standard of determining
regular employment is the reasonable connection between the particular activity performed by the
employee in relation to the usual trade or business of the employer. Additionally, an employee is
regular because of the nature of work and the length of service, not because of the mode or even the
reason for hiring them. As Assistant Vice-President of the Foreign Department of the Bank she
performs tasks integral to the operations of the bank and her length of service with the bank totaling
28 years speaks volumes of her status as a regular employee of the bank. In fine, as a regular
employee, she is entitled to security of tenure; that is, her services may be terminated only for a just
or authorized cause. This being in truth a case of illegal dismissal, it is no wonder then that the Bank
endeavored to the very end to establish loss of trust and confidence and serious misconduct on the
part of private respondent but, as will be discussed later, to no avail.

WHEREFORE, we deny the petition for review on certiorari, and affirm the decision of the Court of Appeals.

Costs of suit to be paid by the petitioners.

SO ORDERED.
 PRINCE TRANSPORT, INC. and MR. RENATO CLAROS, G.R. No. 167291
Petitioners,
Present:

CARPIO, J., Chairperson,

- versus - NACHURA,
PERALTA,
ABAD, and
_____________,** JJ.
DIOSDADO GARCIA, LUISITO GARCIA, RODANTE
ROMERO, REX BARTOLOME, FELICIANO GASCO,
JR., DANILO ROJO, EDGAR SANFUEGO, AMADO Promulgated:
GALANTO, EUTIQUIO LUGTU, JOEL GRAMATICA,
MIEL CERVANTES, TERESITA CABANES, ROE DELA
CRUZ, RICHELO BALIDOY, VILMA PORRAS,
MIGUELITO SALCEDO, CRISTINA GARCIA, MARIO January 12, 2011
NAZARENO, DINDO TORRES, ESMAEL RAMBOYONG,
ROBETO*MANO, ROGELIO BAGAWISAN, ARIEL
SNACHEZ, ESTAQULO VILLAREAL, NELSON
MONTERO, GLORIA ORANTE, HARRY TOCA,
PABLITO MACASAET and RONALD GARCITA
Respondents.
x-----------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court praying for the annulment
of the Decision[1] and Resolution[2] of the Court of Appeals (CA) dated December 20, 2004 and February 24, 2005,
respectively, in CA-G.R. SP No. 80953. The assailed Decision reversed and set aside the Resolutions dated May 30,
2003[3] and September 26, 2003[4] of the National Labor Relations Commission (NLRC) in CA No. 029059-01, while
the disputed Resolution denied petitioners' Motion for Reconsideration.

The present petition arose from various complaints filed by herein respondents charging petitioners with illegal
dismissal, unfair labor practice and illegal deductions and praying for the award of premium pay for holiday and rest
day, holiday pay, service leave pay, 13th month pay, moral and exemplary damages and attorney's fees.

Respondents alleged in their respective position papers and other related pleadings that they were employees of Prince
Transport, Inc. (PTI), a company engaged in the business of transporting passengers by land; respondents were hired
either as drivers, conductors, mechanics or inspectors, except for respondent Diosdado Garcia (Garcia), who was
assigned as Operations Manager; in addition to their regular monthly income, respondents also received commissions
equivalent to 8 to 10% of their wages; sometime in October 1997, the said commissions were reduced to 7 to 9%; this
led respondents and other employees of PTI to hold a series of meetings to discuss the protection of their interests as
employees; these meetings led petitioner Renato Claros, who is the president of PTI, to suspect that respondents are
about to form a union; he made known to Garcia his objection to the formation of a union; in December 1997, PTI
employees requested for a cash advance, but the same was denied by management which resulted in demoralization
on the employees' ranks; later, PTI acceded to the request of some, but not all, of the employees; the foregoing
circumstances led respondents to form a union for their mutual aid and protection; in order to block the continued
formation of the union, PTI caused the transfer of all union members and sympathizers to one of its sub-companies,
Lubas Transport (Lubas); despite such transfer, the schedule of drivers and conductors, as well as their company
identification cards, were issued by PTI; the daily time records, tickets and reports of the respondents were also filed
at the PTI office; and, all claims for salaries were transacted at the same office; later, the business of Lubas deteriorated
because of the refusal of PTI to maintain and repair the units being used therein, which resulted in the virtual stoppage
of its operations and respondents' loss of employment.
Petitioners, on the other hand, denied the material allegations of the complaints contending that herein respondents
were no longer their employees, since they all transferred to Lubas at their own request; petitioners have nothing to
do with the management and operations of Lubas as well as the control and supervision of the latter's
employees;petitioners were not aware of the existence of any union in their company and came to know of the same
only in June 1998 when they were served a copy of the summons in the petition for certification election filed by the
union; that before the union was registered on April 15, 1998, the complaint subject of the present petition was already
filed; that the real motive in the filing of the complaints was because PTI asked respondents to vacate the bunkhouse
where they (respondents) and their respective families were staying because PTI wanted to renovate the same.

Subsequently, the complaints filed by respondents were consolidated.

On October 25, 2000, the Labor Arbiter rendered a Decision, [5] the dispositive portion of which reads as follows:

WHEREFORE, judgment is hereby rendered:

1. Dismissing the complaints for Unfair Labor Practice, non-payment of holiday pay
and holiday premium, service incentive leave pay and 13 th month pay;
Dismissing the complaint of Edgardo Belda for refund of boundary-hulog;
2. Dismissing the complaint for illegal dismissal against the respondents Prince
Transport, Inc. and/or Prince Transport Phils. Corporation, Roberto Buenaventura, Rory Bayona,
Ailee Avenue, Nerissa Uy, Mario Feranil and Peter Buentiempo;

3. Declaring that the complainants named below are illegally dismissed by Lubas
Transport; ordering said Lubas Transport to pay backwages and separation pay in lieu of
reinstatement in the following amount:

Complainants Backwages Separation Pay

(1) Diosdado Garcia P222,348.70 P79,456.00
(2) Feliciano Gasco, Jr. 203,350.00 54,600.00
(3) Pablito Macasaet 145,250.00 13,000.00
(4) Esmael Ramboyong 221,500.00 30,000.00
(5) Joel Gramatica 221,500.00 60,000.00
(6) Amado Galanto 130,725.00 29,250.00
(7) Miel Cervantes 265,800.00 60,000.00
(8) Roberto Mano 221,500.00 50,000.00
(9) Roe dela Cruz 265,800.00 60,000.00
(10) Richelo Balidoy 130,725.00 29,250.00
(11) Vilma Porras 221,500.00 70,000.00
(12) Miguelito Salcedo 265,800.00 60,000.00
(13) Cristina Garcia 130,725.00 35,100.00
(14) Luisito Garcia 145,250.00 19,500.00
(15) Rogelio Bagawisan 265,800.00 60,000.00
(16) Rodante H. Romero 221,500.00 60,000.00
(17) Dindo Torres 265,800.00 50,000.00
(18) Edgar Sanfuego 221,500.00 40,000.00
(19) Ronald Gacita 221,500.00 40,000.00
(20) Harry Toca 174,300.00 23,400.00
(21) Amado Galanto 130,725.00 17,550.00
(22) Teresita Cabaes 130,725.00 17,550.00
(23) Rex Bartolome 301,500.00 30,000.00
(24) Mario Nazareno 221,500.00 30,000.00
(25) Eustaquio Villareal 145,250.00 19,500.00
(26) Ariel Sanchez 265,800.00 60,000.00
(27) Gloria Orante 263,100.00 60,000.00
(28) Nelson Montero 264,600.00 60,000.00
(29) Rizal Beato 295,000.00 40,000.00
(30) Eutiquio Lugtu 354,000.00 48,000.00
(31) Warlito Dickensomn 295,000.00 40,000.00
(32) Edgardo Belda 354,000.00 84,000.00
(33) Tita Go 295,000.00 70,000.00
(34) Alex Lodor 295,000.00 50,000.00
(35) Glenda Arguilles 295,000.00 40,000.00
(36) Erwin Luces 354,000.00 48,000.00
(37) Jesse Celle 354,000.00 48,000.00
(38) Roy Adorable 295,000.00 40,000.00
(39) Marlon Bangcoro 295,000.00 40,000.00
(40)Edgardo Bangcoro 354,000.00 36,000.00

4. Ordering Lubas Transport to pay attorney's fees equivalent to ten (10%) of the total
monetary award; and

6. Ordering the dismissal of the claim for moral and exemplary damages for lack merit.
SO ORDERED.[6]
The Labor Arbiter ruled that petitioners are not guilty of unfair labor practice in the absence of evidence to show that
they violated respondents right to self-organization. The Labor Arbiter also held that Lubas is the respondents
employer and that it (Lubas) is an entity which is separate, distinct and independent from PTI. Nonetheless, the Labor
Arbiter found that Lubas is guilty of illegally dismissing respondents from their employment.

Respondents filed a Partial Appeal with the NLRC praying, among others, that PTI should also be held equally liable
as Lubas.

In a Resolution dated May 30, 2003, the NLRC modified the Decision of the Labor Arbiter and disposed as follows:

WHEREFORE, premises considered, the appeal is hereby PARTIALLY GRANTED.

Accordingly, the Decision appealed from is SUSTAINED subject to the modification that
Complainant-Appellant Edgardo Belda deserves refund of his boundary-hulog in the amount
of P446,862.00; and that Complainants-Appellants Danilo Rojo and Danilo Laurel should be
included in the computation of Complainants-Appellants claim as follows:

Complainants Backwages Separation Pay

41. Danilo Rojo P355,560.00 P48,000.00
42. Danilo Laurel P357,960.00 P72,000.00

As regards all other aspects, the Decision appealed from is SUSTAINED.

SO ORDERED.[7]

Respondents filed a Motion for Reconsideration, but the NLRC denied it in its Resolution[8] dated September 26, 2003.

Respondents then filed a special civil action for certiorari with the CA assailing the Decision and Resolution of the
NLRC.

On December 20, 2004, the CA rendered the herein assailed Decision which granted respondents' petition. The CA
ruled that petitioners are guilty of unfair labor practice; that Lubas is a mere instrumentality, agent conduit or adjunct
of PTI; and that petitioners act of transferring respondents employment to Lubas is indicative of their intent to frustrate
the efforts of respondents to organize themselves into a union. Accordingly, the CA disposed of the case as follows:

WHEREFORE, the Petition for Certiorari is hereby GRANTED. Accordingly, the subject
decision is hereby REVERSED and SET ASIDE and another one ENTERED finding the
respondents guilty of unfair labor practice and ordering them to reinstate the petitioners to their
former positions without loss of seniority rights and with full backwages.

With respect to the portion ordering the inclusion of Danilo Rojo and Danilo Laurel in the
computation of petitioner's claim for backwages and with respect to the portion ordering the refund
of Edgardo Belda's boundary-hulog in the amount of P446,862.00, the NLRC decision is affirmed
and maintained.

SO ORDERED.[9]

Petitioners filed a Motion for Reconsideration, but the CA denied it via its Resolution[10] dated February 24, 2005.

Hence, the instant petition for review on certiorari based on the following grounds:

A
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN GIVING
DUE COURSE TO THE RESPONDENTS' PETITION FOR CERTIORARI

1. THE COURT OF APPEALS SHOULD HAVE RESPECTED THE FINDINGS OF

THE LABOR ARBITER AND AFFIRMED BY THE NLRC

2. ONLY ONE PETITIONER EXECUTED AND VERIFIED THE PETITION

3. THE COURT OF APPEALS SHOULD NOT HAVE GIVEN DUE COURSE TO THE
PETITION WITH RESPECT TO RESPONDENTS REX BARTOLOME, FELICIANO
 GASCO, DANILO ROJO, EUTIQUIO LUGTU, AND NELSON MONTERO AS THEY
FAILED TO FILE AN APPEAL TO THE NLRC

B
THE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING THAT PETITIONERS
PRINCE TRANSPORT, INC. AND MR. RENATO CLAROS AND LUBAS TRANSPORT ARE
ONE AND THE SAME CORPORATION AND THUS, LIABLE IN SOLIDUM TO
RESPONDENTS.

C
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN ORDERING
THE REINSTATEMENT OF RESPONDENTS TO THEIR PREVIOUS POSITION WHEN IT IS
NOT ONE OF THE ISSUES RAISED IN RESPONDENTS' PETITION FOR CERTIORARI.[11]

Petitioners assert that factual findings of agencies exercising quasi-judicial functions like the NLRC are accorded not
only respect but even finality; that the CA should have outrightly dismissed the petition filed before it because
in certiorari proceedings under Rule 65 of the Rules of Court it is not within the province of the CA to evaluate the
sufficiency of evidence upon which the NLRC based its determination, the inquiry being limited essentially to whether
or not said tribunal has acted without or in excess of its jurisdiction or with grave abuse of discretion. Petitioners assert
that the CA can only pass upon the factual findings of the NLRC if they are not supported by evidence on record, or
if the impugned judgment is based on misapprehension of facts which circumstances are not present in this case.
Petitioners also emphasize that the NLRC and the Labor Arbiter concurred in their factual findings which were based
on substantial evidence and, therefore, should have been accorded great weight and respect by the CA.

Respondents, on the other hand, aver that the CA neither exceeded its jurisdiction nor committed error in re-
evaluating the NLRCs factual findings since such findings are not in accord with the evidence on record and the
applicable law or jurisprudence.

The Court agrees with respondents.

The power of the CA to review NLRC decisions via a petition for certiorari under Rule 65 of the Rules of Court has
been settled as early as this Courts decision in St. Martin Funeral Homes v. NLRC.[12] In said case, the Court held that
the proper vehicle for such review is a special civil action for certiorari under Rule 65 of the said Rules, and that the
case should be filed with the CA in strict observance of the doctrine of hierarchy of courts. Moreover, it is already
settled that under Section 9 of Batas Pambansa Blg. 129, as amended by Republic Act No. 7902, the CA pursuant to
the exercise of its original jurisdiction over petitions for certiorari is specifically given the power to pass upon the
evidence, if and when necessary, to resolve factual issues.[13] Section 9 clearly states:

xxxx

The Court of Appeals shall have the power to try cases and conduct hearings, receive evidence and
perform any and all acts necessary to resolve factual issues raised in cases falling within its original
and appellate jurisdiction, including the power to grant and conduct new trials or further proceedings.
xxx

However, equally settled is the rule that factual findings of labor officials, who are deemed to have acquired expertise
in matters within their jurisdiction, are generally accorded not only respect but even finality by the courts when
supported by substantial evidence, i.e., the amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion.[14] But these findings are not infallible. When there is a showing that they were arrived
at arbitrarily or in disregard of the evidence on record, they may be examined by the courts. [15] The CA can grant the
petition for certiorari if it finds that the NLRC, in its assailed decision or resolution, made a factual finding not
supported by substantial evidence.[16] It is within the jurisdiction of the CA, whose jurisdiction over labor cases has
been expanded to review the findings of the NLRC.[17]

In this case, the NLRC sustained the factual findings of the Labor Arbiter. Thus, these findings are generally binding
on the appellate court, unless there was a showing that they were arrived at arbitrarily or in disregard of the evidence
on record. In respondents' petition for certiorari with the CA, these factual findings were reexamined and reversed by
the appellate court on the ground that they were not in accord with credible evidence presented in this case. To
determine if the CA's reexamination of factual findings and reversal of the NLRC decision are proper and with
sufficient basis, it is incumbent upon this Court to make its own evaluation of the evidence on record. [18]
After a thorough review of the records at hand, the Court finds that the CA did not commit error in arriving at its own
findings and conclusions for reasons to be discussed hereunder.

Firstly, petitioners posit that the petition filed with the CA is fatally defective, because the attached verification and
certificate against forum shopping was signed only by respondent Garcia.

The Court does not agree.

While the general rule is that the certificate of non-forum shopping must be signed by all the plaintiffs in a case and
the signature of only one of them is insufficient, the Court has stressed that the rules on forum shopping, which were
designed to promote and facilitate the orderly administration of justice, should not be interpreted with such absolute
literalness as to subvert its own ultimate and legitimate objective. [19] Strict compliance with the provision regarding
the certificate of non-forum shopping underscores its mandatory nature in that the certification cannot be altogether
dispensed with or its requirements completely disregarded.[20] It does not, however, prohibit substantial compliance
therewith under justifiable circumstances, considering especially that although it is obligatory, it is not
jurisdictional.[21]

In a number of cases, the Court has consistently held that when all the petitioners share a common interest and invoke
a common cause of action or defense, the signature of only one of them in the certification against forum shopping
substantially complies with the rules.[22] In the present case, there is no question that respondents share a common
interest and invoke a common cause of action. Hence, the signature of respondent Garcia is a sufficient compliance
with the rule governing certificates of non-forum shopping. In the first place, some of the respondents actually
executed a Special Power of Attorney authorizing Garcia as their attorney-in-fact in filing a petition for certiorari with
the CA.[23]

The Court, likewise, does not agree with petitioners' argument that the CA should not have given due course to the
petition filed before it with respect to some of the respondents, considering that these respondents did not sign the
verification attached to the Memorandum of Partial Appeal earlier filed with the NLRC. Petitioners assert that the
decision of the Labor Arbiter has become final and executory with respect to these respondents and, as a consequence,
they are barred from filing a petition for certiorari with the CA.

With respect to the absence of some of the workers signatures in the verification, the verification requirement is
deemed substantially complied with when some of the parties who undoubtedly have sufficient knowledge and belief
to swear to the truth of the allegations in the petition had signed the same. Such verification is deemed a sufficient
assurance that the matters alleged in the petition have been made in good faith or are true and correct, and not merely
speculative. Moreover, respondents' Partial Appeal shows that the appeal stipulated as complainants-appellants Rizal
Beato, et al., meaning that there were more than one appellant who were all workers of petitioners.

In any case, the settled rule is that a pleading which is required by the Rules of Court to be verified, may be given due
course even without a verification if the circumstances warrant the suspension of the rules in the interest of
justice.[24] Indeed, the absence of a verification is not jurisdictional, but only a formal defect, which does not of itself
justify a court in refusing to allow and act on a case. [25] Hence, the failure of some of the respondents to sign the
verification attached to their Memorandum of Appeal filed with the NLRC is not fatal to their cause of action.

Petitioners also contend that the CA erred in applying the doctrine of piercing the corporate veil with respect to Lubas,
because the said doctrine is applicable only to corporations and Lubas is not a corporation but a single proprietorship;
that Lubas had been found by the Labor Arbiter and the NLRC to have a personality which is separate and distinct
from that of PTI; that PTI had no hand in the management and operation as well as control and supervision of the
employees of Lubas.

The Court is not persuaded.

On the contrary, the Court agrees with the CA that Lubas is a mere agent, conduit or adjunct of PTI. A settled
formulation of the doctrine of piercing the corporate veil is that when two business enterprises are owned, conducted
and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties,
disregard the legal fiction that these two entities are distinct and treat them as identical or as one and the same. [26] In
the present case, it may be true that Lubas is a single proprietorship and not a corporation. However, petitioners
attempt to isolate themselves from and hide behind the supposed separate and distinct personality of Lubas so as to
evade their liabilities is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent
and remedy.

Thus, the Court agrees with the observations of the CA, to wit:
 As correctly pointed out by petitioners, if Lubas were truly a separate entity, how come that it was
Prince Transport who made the decision to transfer its employees to the former? Besides, Prince
Transport never regarded Lubas Transport as a separate entity. In the aforesaid letter, it referred to
said entity as Lubas operations. Moreover, in said letter, it did not transfer the employees; it assigned
them. Lastly, the existing funds and 201 file of the employees were turned over not to a new
company but a new management.[27]

The Court also agrees with respondents that if Lubas is indeed an entity separate and independent from PTI why is it
that the latter decides which employees shall work in the former?

What is telling is the fact that in a memorandum issued by PTI, dated January 22, 1998, petitioner company admitted
that Lubas is one of its sub-companies.[28] In addition, PTI, in its letters to its employees who were transferred to
Lubas, referred to the latter as its New City Operations Bus. [29]

Moreover, petitioners failed to refute the contention of respondents that despite the latters transfer to Lubas of their
daily time records, reports, daily income remittances of conductors, schedule of drivers and conductors were all made,
performed, filed and kept at the office of PTI. In fact, respondents identification cards bear the name of PTI.

It may not be amiss to point out at this juncture that in two separate illegal dismissal cases involving different groups
of employees transferred by PTI to other companies, the Labor Arbiter handling the cases found that these companies
and PTI are one and the same entity; thus, making them solidarily liable for the payment of backwages and other
money claims awarded to the complainants therein.[30]

Petitioners likewise aver that the CA erred and committed grave abuse of discretion when it ordered petitioners to
reinstate respondents to their former positions, considering that the issue of reinstatement was never brought up before
it and respondents never questioned the award of separation pay to them.

The Court is not persuaded.

It is clear from the complaints filed by respondents that they are seeking reinstatement.[31]

In any case, Section 2 (c), Rule 7 of the Rules of Court provides that a pleading shall specify the relief sought, but
may add a general prayer for such further or other reliefs as may be deemed just and equitable. Under this rule, a court
can grant the relief warranted by the allegation and the proof even if it is not specifically sought by the injured party;
the inclusion of a general prayer may justify the grant of a remedy different from or together with the specific remedy
sought, if the facts alleged in the complaint and the evidence introduced so warrant. [32]

Moreover, in BPI Family Bank v. Buenaventura,[33] this Court ruled that the general prayer is broad enough to justify
extension of a remedy different from or together with the specific remedy sought. Even without the prayer for a
specific remedy, proper relief may be granted by the court if the facts alleged in the complaint and the evidence
introduced so warrant. The court shall grant relief warranted by the allegations and the proof even if no such relief is
prayed for. The prayer in the complaint for other reliefs equitable and just in the premises justifies the grant of a relief
not otherwise specifically prayed for.[34] In the instant case, aside from their specific prayer for reinstatement,
respondents, in their separate complaints, prayed for such reliefs which are deemed just and equitable.

As to whether petitioners are guilty of unfair labor practice, the Court finds no cogent reason to depart from the
findings of the CA that respondents transfer of work assignments to Lubas was designed by petitioners as a subterfuge
to foil the formers right to organize themselves into a union. Under Article 248 (a) and (e) of the Labor Code, an
employer is guilty of unfair labor practice if it interferes with, restrains or coerces its employees in the exercise of
their right to self-organization or if it discriminates in regard to wages, hours of work and other terms and conditions
of employment in order to encourage or discourage membership in any labor organization.

Indeed, evidence of petitioners' unfair labor practice is shown by the established fact that, after respondents' transfer
to Lubas, petitioners left them high and dry insofar as the operations of Lubas was concerned. The Court finds no error
in the findings and conclusion of the CA that petitioners withheld the necessary financial and logistic support such as
spare parts, and repair and maintenance of the transferred buses until only two units remained in running condition.
This left respondents virtually jobless.

WHEREFORE, the instant petition is DENIED. The assailed Decision and Resolution of the Court of Appeals,
dated December 20, 2004 and February 24, 2005, respectively, in CA-G.R. SP No. 80953, are AFFIRMED.

SO ORDERED.
 MARC II MARKETING, INC. and LUCILA V. G.R. No. 171993
JOSON,
Present:
Petitioners,
CARPIO, J.,
Chairperson,
BRION,
PEREZ,
SERENO, and
- versus - REYES, JJ.

Promulgated:

ALFREDO M. JOSON, December 12, 2011

Respondent.

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

PEREZ, J.:

In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, herein petitioners Marc II Marketing,
Inc. and Lucila V. Joson assailed the Decision[1] dated 20 June 2005 of the Court of Appeals in CA-G.R. SP No. 76624
for reversing and setting aside the Resolution[2] of the National Labor Relations Commission (NLRC) dated 15
October 2002, thereby affirming the Labor Arbiters Decision[3] dated 1 October 2001 finding herein respondent
Alfredo M. Josons dismissal from employment as illegal. In the questioned Decision, the Court of Appeals upheld the
Labor Arbiters jurisdiction over the case on the basis that respondent was not an officer but a mere employee of
petitioner Marc II Marketing, Inc., thus, totally disregarding the latters allegation of intra-corporate
controversy. Nonetheless, the Court of Appeals remanded the case to the NLRC for further proceedings to determine
the proper amount of monetary awards that should be given to respondent.

Assailed as well is the Court of Appeals Resolution[4] dated 7 March 2006 denying their Motion for
Reconsideration.

Petitioner Marc II Marketing, Inc. (petitioner corporation) is a corporation duly organized and existing under and by
virtue of the laws of the Philippines. It is primarily engaged in buying, marketing, selling and distributing in retail or
wholesale for export or import household appliances and products and other items. [5] It took over the business
operations of Marc Marketing, Inc. which was made non-operational following its incorporation and registration with
the Securities and Exchange Commission (SEC). Petitioner Lucila V. Joson (Lucila) is the President and majority
stockholder of petitioner corporation. She was also the former President and majority stockholder of the defunct Marc
Marketing, Inc.

Respondent Alfredo M. Joson (Alfredo), on the other hand, was the General Manager, incorporator, director and
stockholder of petitioner corporation.
 The controversy of this case arose from the following factual milieu:
Before petitioner corporation was officially incorporated, [6] respondent has already been engaged by
petitioner Lucila, in her capacity as President of Marc Marketing, Inc., to work as the General Manager of petitioner
corporation. It was formalized through the execution of a Management Contract [7] dated 16 January 1994 under the
letterhead of Marc Marketing, Inc.[8] as petitioner corporation is yet to be incorporated at the time of its execution. It
was explicitly provided therein that respondent shall be entitled to 30% of its net income for his work as General
Manager. Respondent will also be granted 30% of its net profit to compensate for the possible loss of opportunity to
work overseas.[9]

Pending incorporation of petitioner corporation, respondent was designated as the General Manager of Marc
Marketing, Inc., which was then in the process of winding up its business. For occupying the said position, respondent
was among its corporate officers by the express provision of Section 1, Article IV [10] of its by-laws.[11]

On 15 August 1994, petitioner corporation was officially incorporated and registered with the SEC. Accordingly,
Marc Marketing, Inc. was made non-operational. Respondent continued to discharge his duties as General Manager
but this time under petitioner corporation.

Pursuant to Section 1, Article IV[12] of petitioner corporations by-laws,[13] its corporate officers are as follows:
Chairman, President, one or more Vice-President(s), Treasurer and Secretary. Its Board of Directors, however, may,
from time to time, appoint such other officers as it may determine to be necessary or proper.

Per an undated Secretarys Certificate,[14] petitioner corporations Board of Directors conducted a meeting on
29 August 1994 where respondent was appointed as one of its corporate officers with the designation or title of General
Manager to function as a managing director with other duties and responsibilities that the Board of Directors may
provide and authorized.[15]

Nevertheless, on 30 June 1997, petitioner corporation decided to stop and cease its operations, as evidenced
by an Affidavit of Non-Operation[16] dated 31 August 1998, due to poor sales collection aggravated by the inefficient
management of its affairs. On the same date, it formally informed respondent of the cessation of its business
operation.Concomitantly, respondent was apprised of the termination of his services as General Manager since his
services as such would no longer be necessary for the winding up of its affairs. [17]

Feeling aggrieved, respondent filed a Complaint for Reinstatement and Money Claim against petitioners
before the Labor Arbiter which was docketed as NLRC NCR Case No. 00-03-04102-99.

In his complaint, respondent averred that petitioner Lucila dismissed him from his employment with
petitioner corporation due to the feeling of hatred she harbored towards his family. The same was rooted in the filing
by petitioner Lucilas estranged husband, who happened to be respondents brother, of a Petition for Declaration of
Nullity of their Marriage.[18]

For the parties failure to settle the case amicably, the Labor Arbiter required them to submit their respective
position papers. Respondent complied but petitioners opted to file a Motion to Dismiss grounded on the Labor Arbiters
lack of jurisdiction as the case involved an intra-corporate controversy, which jurisdiction belongs to the SEC [now
with the Regional Trial Court (RTC)].[19] Petitioners similarly raised therein the ground of prescription of respondents
monetary claim.

On 5 September 2000, the Labor Arbiter issued an Order [20] deferring the resolution of petitioners Motion to
Dismiss until the final determination of the case. The Labor Arbiter also reiterated his directive for petitioners to
submit position paper. Still, petitioners did not comply. Insisting that the Labor Arbiter has no jurisdiction over the
case, they instead filed an Urgent Motion to Resolve the Motion to Dismiss and the Motion to Suspend Filing of
Position Paper.
 In an Order[21] dated 15 February 2001, the Labor Arbiter denied both motions and declared final the Order
dated 5 September 2000. The Labor Arbiter then gave petitioners a period of five days from receipt thereof within
which to file position paper, otherwise, their Motion to Dismiss will be treated as their position paper and the case
will be considered submitted for decision.

Petitioners, through counsel, moved for extension of time to submit position paper. Despite the requested
extension, petitioners still failed to submit the same. Accordingly, the case was submitted for resolution.

On 1 October 2001, the Labor Arbiter rendered his Decision in favor of respondent. Its decretal portion reads
as follows:

WHEREFORE, premises considered, judgment is hereby rendered declaring

[respondents] dismissal from employment illegal. Accordingly, [petitioners] are hereby ordered:

1. To reinstate [respondent] to his former or equivalent position without loss of seniority

rights, benefits, and privileges;
2. Jointly and severally liable to pay [respondents] unpaid wages in the amount
of P450,000.00 per month from [26 March 1996] up to time of dismissal in the total
amount of P6,300,000.00;
3. Jointly and severally liable to pay [respondents] full backwages in the amount
of P450,000.00 per month from date of dismissal until actual reinstatement which at
the time of promulgation amounted to P21,600,000.00;
4. Jointly and severally liable to pay moral damages in the amount of P100,000.00 and
attorneys fees in the amount of 5% of the total monetary award. [22] [Emphasis
supplied.]
In the aforesaid Decision, the Labor Arbiter initially resolved petitioners Motion to Dismiss by finding the
ground of lack of jurisdiction to be without merit. The Labor Arbiter elucidated that petitioners failed to adduce
evidence to prove that the present case involved an intra-corporate controversy. Also, respondents money claim did
not arise from his being a director or stockholder of petitioner corporation but from his position as being its General
Manager. The Labor Arbiter likewise held that respondent was not a corporate officer under petitioner corporations
by-laws. As such, respondents complaint clearly arose from an employer-employee relationship, thus, subject to the
Labor Arbiters jurisdiction.

The Labor Arbiter then declared respondents dismissal from employment as illegal. Respondent, being a
regular employee of petitioner corporation, may only be dismissed for a valid cause and upon proper compliance with
the requirements of due process. The records, though, revealed that petitioners failed to present any evidence to justify
respondents dismissal.

Aggrieved, petitioners appealed the aforesaid Labor Arbiters Decision to the NLRC.

In its Resolution dated 15 October 2002, the NLRC ruled in favor of petitioners by giving credence to the
Secretarys Certificate, which evidenced petitioner corporations Board of Directors meeting in which a resolution was
approved appointing respondent as its corporate officer with designation as General Manager. Therefrom, the NLRC
reversed and set aside the Labor Arbiters Decision dated 1 October 2001 and dismissed respondents Complaint for
want of jurisdiction.[23]

The NLRC enunciated that the validity of respondents appointment and termination from the position of
General Manager was made subject to the approval of petitioner corporations Board of Directors. Had respondent
been an ordinary employee, such board action would not have been required. As such, it is clear that respondent was
a corporate officer whose dismissal involved a purely intra-corporate controversy. The NLRC went further by stating
that respondents claim for 30% of the net profit of the corporation can only emanate from his right of ownership
therein as stockholder, director and/or corporate officer. Dividends or profits are paid only to stockholders or directors
of a corporation and not to any ordinary employee in the absence of any profit sharing scheme. In addition, the question
of remuneration of a person who is not a mere employee but a stockholder and officer of a corporation is not a simple
labor problem. Such matter comes within the ambit of corporate affairs and management and is an intra-corporate
controversy in contemplation of the Corporation Code. [24]

When respondents Motion for Reconsideration was denied in another Resolution [25] dated 23 January 2003,
he filed a Petition for Certiorari with the Court of Appeals ascribing grave abuse of discretion on the part of the
NLRC.

On 20 June 2005, the Court of Appeals rendered its now assailed Decision declaring that the Labor Arbiter
has jurisdiction over the present controversy. It upheld the finding of the Labor Arbiter that respondent was a mere
employee of petitioner corporation, who has been illegally dismissed from employment without valid cause and
without due process. Nevertheless, it ordered the records of the case remanded to the NLRC for the determination of
the appropriate amount of monetary awards to be given to respondent. The Court of Appeals, thus, decreed:

WHEREFORE, the petition is by us PARTIALLY GRANTED. The Labor Arbiter is

DECLARED to have jurisdiction over the controversy. The records are REMANDED to the NLRC
for further proceedings to determine the appropriate amount of monetary awards to be adjudged in
favor of [respondent]. Costs against the [petitioners] in solidum.[26]

Petitioners moved for its reconsideration but to no avail. [27]

Petitioners are now before this Court with the following assignment of errors:

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

II.

ASSUMING, GRATIS ARGUENDO, THAT THE NLRC HAS JURISDICTION OVER THE
CASE, STILL THE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT
THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN [RESPONDENT]
ALFREDO M. JOSON AND MARC II MARKETING, INC. [PETITIONER CORPORATION].

III.

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

THE COURT OF APPEALS SERIOUSLY ERRED AND COMMITTED GRAVE ABUSE OF

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

Petitioners fault the Court of Appeals for having sustained the Labor Arbiters finding that respondent was
not a corporate officer under petitioner corporations by-laws.They insist that there is no need to amend the corporate
by-laws to specify who its corporate officers are. The resolution issued by petitioner corporations Board of Directors
appointing respondent as General Manager, coupled with his assumption of the said position, positively made him its
corporate officer. More so, respondents position, being a creation of petitioner corporations Board of Directors
pursuant to its by-laws, is a corporate office sanctioned by the Corporation Code and the doctrines previously laid
down by this Court. Thus, respondents removal as petitioner corporations General Manager involved a purely intra-
corporate controversy over which the RTC has jurisdiction.

Petitioners further contend that respondents claim for 30% of the net profit of petitioner corporation was
anchored on the purported Management Contract dated 16 January 1994. It should be noted, however, that said
Management Contract was executed at the time petitioner corporation was still nonexistent and had no juridical
personality yet. Such being the case, respondent cannot invoke any legal right therefrom as it has no legal and binding
effect on petitioner corporation. Moreover, it is clear from the Articles of Incorporation of petitioner corporation that
respondent was its director and stockholder. Indubitably, respondents claim for his share in the profit of petitioner
corporation was based on his capacity as such and not by virtue of any employer-employee relationship.

Petitioners further avow that even if the present case does not pose an intra-corporate controversy, still, the
Labor Arbiters multi-million peso awards in favor of respondent were erroneous. The same was merely based on the
latters self-serving computations without any supporting documents.

Finally, petitioners maintain that petitioner Lucila cannot be held solidarily liable with petitioner
corporation. There was neither allegation nor iota of evidence presented to show that she acted with malice and bad
faith in her dealings with respondent. Moreover, the Labor Arbiter, in his Decision, simply concluded that petitioner
Lucila was jointly and severally liable with petitioner corporation without making any findings thereon. It was,
therefore, an error for the Court of Appeals to hold petitioner Lucila solidarily liable with petitioner corporation.

From the foregoing arguments, the initial question is which between the Labor Arbiter or the RTC, has
jurisdiction over respondents dismissal as General Manager of petitioner corporation. Its resolution necessarily entails
the determination of whether respondent as General Manager of petitioner corporation is a corporate officer or a mere
employee of the latter.

While Article 217(a)2[29] of the Labor Code, as amended, provides that it is the Labor Arbiter who has the
original and exclusive jurisdiction over cases involving termination or dismissal of workers when the person dismissed
or terminated is a corporate officer, the case automatically falls within the province of the RTC. The dismissal of a
corporate officer is always regarded as a corporate act and/or an intra-corporate controversy.[30]
Under Section 5[31] of Presidential Decree No. 902-A, intra-corporate controversies are those controversies
arising out of intra-corporate or partnership relations, between and among stockholders, members or
associates; between any or all of them and the corporation, partnership or association of which they are stockholders,
members or associates, respectively; and between such corporation, partnership or association and the State insofar as
it concerns their individual franchise or right to exist as such entity. It also includes controversies in the election or
appointments of directors, trustees, officers or managers of such corporations, partnerships or associations.[32]

Accordingly, in determining whether the SEC (now the RTC) has jurisdiction over the controversy, the status
or relationship of the parties and the nature of the question that is the subject of their controversy must be taken into
consideration.[33]

In Easycall Communications Phils., Inc. v. King, this Court held that in the context of Presidential Decree
No. 902-A, corporate officers are those officers of a corporation who are given that character either by the
Corporation Code or by the corporations by-laws. Section 25[34] of the Corporation Code specifically enumerated
who are these corporate officers, to wit: (1) president; (2) secretary; (3) treasurer; and (4) such other officers as may
be provided for in the by-laws.[35]

The aforesaid Section 25 of the Corporation Code, particularly the phrase such other officers as may be
provided for in the by-laws, has been clarified and elaborated in this Courts recent pronouncement in Matling
Industrial and Commercial Corporation v. Coros, where it held, thus:

Conformably with Section 25, a position must be expressly mentioned in the [b]y-[l]aws
in order to be considered as a corporate office. Thus, the creation of an office pursuant to or
under a [b]y-[l]aw enabling provision is not enough to make a position a corporate office.
[In] Guerrea v. Lezama [citation omitted] the first ruling on the matter, held that the only officers
of a corporation were those given that character either by the Corporation Code or by the
[b]y-[l]aws; the rest of the corporate officers could be considered only as employees or
subordinate officials. Thus, it was held in Easycall Communications Phils., Inc. v. King [citation
omitted]:

An "office" is created by the charter of the corporation and the officer is

elected by the directors or stockholders. On the other hand, an employee occupies no
office and generally is employed not by the action of the directors or stockholders but by
the managing officer of the corporation who also determines the compensation to be
paid to such employee.

xxxx

This interpretation is the correct application of Section 25 of the Corporation

Code, which plainly states that the corporate officers are the President, Secretary, Treasurer and
such other officers as may be provided for in the [b]y-[l]aws. Accordingly, the corporate officers
in the context of PD No. 902-A are exclusively those who are given that character either by the
Corporation Code or by the corporations [b]y[l]aws.

A different interpretation can easily leave the way open for the Board of Directors to
circumvent the constitutionally guaranteed security of tenure of the employee by the expedient
inclusion in the [b]y-[l]aws of an enabling clause on the creation of just any corporate officer
position.

It is relevant to state in this connection that the SEC, the primary agency administering
the Corporation Code, adopted a similar interpretation of Section 25 of the Corporation Code
in its Opinion dated November 25, 1993 [citation omitted], to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation

Code), whoever are the corporate officers enumerated in the by-laws are the exclusive
Officers of the corporation and the Board has no power to create other Offices
without amending first the corporate [b]y-laws. However, the Board may create
appointive positions other than the positions of corporate Officers, but the persons
occupying such positions are not considered as corporate officers within the meaning
of Section 25 of the Corporation Code and are not empowered to exercise the functions
of the corporate Officers, except those functions lawfully delegated to them. Their
functions and duties are to be determined by the Board of Directors/Trustees.[36] [Emphasis
supplied.]

A careful perusal of petitioner corporations by-laws, particularly paragraph 1, Section 1, Article IV,[37] would
explicitly reveal that its corporate officers are composed only of: (1) Chairman; (2) President; (3) one or more Vice-
President; (4) Treasurer; and (5) Secretary.[38] The position of General Manager was not among those enumerated.

Paragraph 2, Section 1, Article IV of petitioner corporations by-laws, empowered its Board of Directors to
appoint such other officers as it may determine necessary or proper. [39] It is by virtue of this enabling provision that
petitioner corporations Board of Directors allegedly approved a resolution to make the position of General Manager a
corporate office, and, thereafter, appointed respondent thereto making him one of its corporate officers. All of these
acts were done without first amending its by-laws so as to include the General Manager in its roster of corporate
officers.

With the given circumstances and in conformity with Matling Industrial and Commercial Corporation v.
Coros, this Court rules that respondent was not a corporate officer of petitioner corporation because his position as
General Manager was not specifically mentioned in the roster of corporate officers in its corporate by-laws. The
enabling clause in petitioner corporations by-laws empowering its Board of Directors to create additional officers, i.e.,
General Manager, and the alleged subsequent passage of a board resolution to that effect cannot make such position a
corporate office. Matling clearly enunciated that the board of directors has no power to create other corporate offices
without first amending the corporate by-laws so as to include therein the newly created corporate office. Though the
board of directors may create appointive positions other than the positions of corporate officers, the persons occupying
such positions cannot be viewed as corporate officers under Section 25 of the Corporation Code. [40] In view thereof,
this Court holds that unless and until petitioner corporations by-laws is amended for the inclusion of General Manager
in the list of its corporate officers, such position cannot be considered as a corporate office within the realm of Section
25 of the Corporation Code.

This Court considers that the interpretation of Section 25 of the Corporation Code laid down
in Matling safeguards the constitutionally enshrined right of every employee to security of tenure. To allow the
creation of a corporate officer position by a simple inclusion in the corporate by-laws of an enabling clause
empowering the board of directors to do so can result in the circumvention of that constitutionally well-protected
right.[41]

It is also of no moment that respondent, being petitioner corporations General Manager, was given the
functions of a managing director by its Board of Directors. As held in Matling, the only officers of a corporation are
those given that character either by the Corporation Code or by the corporate by-laws. It follows then that the corporate
officers enumerated in the by-laws are the exclusive officers of the corporation while the rest could only be regarded
as mere employees or subordinate officials.[42] Respondent, in this case, though occupying a high ranking and vital
position in petitioner corporation but which position was not specifically enumerated or mentioned in the latters by-
laws, can only be regarded as its employee or subordinate official. Noticeably, respondents compensation as petitioner
corporations General Manager was set, fixed and determined not by the latters Board of Directors but simply by its
President, petitioner Lucila. The same was not subject to the approval of petitioner corporations Board of
Directors. This is an indication that respondent was an employee and not a corporate officer.

To prove that respondent was petitioner corporations corporate officer, petitioners presented before the
NLRC an undated Secretarys Certificate showing that corporations Board of Directors approved a resolution making
respondents position of General Manager a corporate office. The submission, however, of the said undated Secretarys
Certificate will not change the fact that respondent was an employee. The certification does not amount to an
amendment of the by-laws which is needed to make the position of General Manager a corporate office.

Moreover, as has been aptly observed by the Court of Appeals, the board resolution mentioned in that undated
Secretarys Certificate and the latter itself were obvious fabrications, a mere afterthought. Here we quote with
conformity the Court of Appeals findings on this matter stated in this wise:

The board resolution is an obvious fabrication. Firstly, if it had been in existence since [29
August 1994], why did not [herein petitioners] attach it to their [M]otion to [D]ismiss filed on [26
August 1999], when it could have been the best evidence that [herein respondent] was a corporate
officer? Secondly, why did they report the [respondent] instead as [herein petitioner corporations]
employee to the Social Security System [(SSS)] on [11 October 1994] or a later date than their [29
August 1994] board resolution? Thirdly, why is there no indication that the [respondent], the person
concerned himself, and the [SEC] were furnished with copies of said board resolution? And, lastly,
why is the corporate [S]ecretarys [C]ertificate not notarized in keeping with the customary
procedure? That is why we called it manipulative evidence as it was a shameless sham meant to be
thrown in as a wild card to muddle up the [D]ecision of the Labor Arbiter to the end that it be
overturned as the latter had firmly pointed out that [respondent] is not a corporate officer under
[petitioner corporations by-laws]. Regrettably, the [NLRC] swallowed the bait hook-line-and
sinker. It failed to see through its nature as a belatedly manufactured evidence. And even on the
assumption that it were an authentic board resolution, it did not make [respondent] a
corporate officer as the board did not first and properly create the position of a [G]eneral
[M]anager by amending its by-laws.

(2) The scope of the term officer in the phrase and such other officers as may be
provided for in the by-laws[] (Sec. 25, par. 1), would naturally depend much on the
provisions of the by-laws of the corporation. (SEC Opinion, [4 December 1991.]) If the
by-laws enumerate the officers to be elected by the board, the provision is conclusive, and
the board is without power to create new offices without amending the by-laws. (SEC
Opinion, [19 October 1971.])
 (3) If, for example, the general manager of a corporation is not listed as an officer,
he is to be classified as an employee although he has always been considered as one of the
principal officers of a corporation [citing De Leon, H. S., The Corporation Code of the
Philippines Annotated, 1993 Ed., p. 215.] [43] [Emphasis supplied.]

That respondent was also a director and a stockholder of petitioner corporation will not automatically make
the case fall within the ambit of intra-corporate controversy and be subjected to RTCs jurisdiction. To reiterate, not all
conflicts between the stockholders and the corporation are classified as intra-corporate. Other factors such as the status or
relationship of the parties and the nature of the question that is the subject of the controversy [44] must be considered in
determining whether the dispute involves corporate matters so as to regard them as intra-corporate controversies.[45] As previously
discussed, respondent was not a corporate officer of petitioner corporation but a mere employee thereof so there was no intra-
corporate relationship between them. With regard to the subject of the controversy or issue involved herein, i.e., respondents
dismissal as petitioner corporations General Manager, the same did not present or relate to an intra-corporate dispute. To note,
there was no evidence submitted to show that respondents removal as petitioner corporations General Manager carried
with it his removal as its director and stockholder. Also, petitioners allegation that respondents claim of 30% share of
petitioner corporations net profit was by reason of his being its director and stockholder was without basis, thus, self-
serving. Such an allegation was tantamount to a mere speculation for petitioners failure to substantiate the same.

In addition, it was not shown by petitioners that the position of General Manager was offered to respondent
on account of his being petitioner corporations director and stockholder. Also, in contrast to NLRCs findings, neither
petitioner corporations by-laws nor the Management Contract stated that respondents appointment and termination
from the position of General Manager was subject to the approval of petitioner corporations Board of Directors. If,
indeed, respondent was a corporate officer whose termination was subject to the approval of its Board of Directors,
why is it that his termination was effected only by petitioner Lucila, President of petitioner corporation? The records
are bereft of any evidence to show that respondents dismissal was done with the conformity of petitioner corporations
Board of Directors or that the latter had a hand on respondents dismissal.No board resolution whatsoever was ever
presented to that effect.

With all the foregoing, this Court is fully convinced that, indeed, respondent, though occupying the General
Manager position, was not a corporate officer of petitioner corporation rather he was merely its employee occupying
a high-ranking position.

Accordingly, respondents dismissal as petitioner corporations General Manager did not amount to an intra-
corporate controversy. Jurisdiction therefor properly belongs with the Labor Arbiter and not with the RTC.

Having established that respondent was not petitioner corporations corporate officer but merely its employee,
and that, consequently, jurisdiction belongs to the Labor Arbiter, this Court will now determine if respondents
dismissal from employment is illegal.

It was not disputed that respondent worked as petitioner corporations General Manager from its incorporation
on 15 August 1994 until he was dismissed on 30 June 1997.The cause of his dismissal was petitioner corporations
cessation of business operations due to poor sales collection aggravated by the inefficient management of its affairs.

In termination cases, the burden of proving just and valid cause for dismissing an employee from his
employment rests upon the employer. The latter's failure to discharge that burden would necessarily result in a finding
that the dismissal is unjustified.[46]

Under Article 283 of the Labor Code, as amended, one of the authorized causes in terminating the
employment of an employee is the closing or cessation of operation of the establishment or undertaking. Article
283 of the Labor Code, as amended, reads, thus:
ART. 283. Closure of establishment and reduction of personnel. The employer may also terminate the
employment of any employee due to the installation of labor saving-devices, redundancy,
retrenchment to prevent losses or the closing or cessation of operation of the establishment or
undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by
serving a written notice on the workers and the Department of Labor and Employment at least one
(1) month before the intended date thereof. x x x In case of retrenchment to prevent losses and in
cases of closures or cessation of operations of establishment or undertaking not due to serious
business losses or financial reverses, the separation pay shall be equivalent to one (1) month
pay or to at least one-half (1/2) month pay for every year of service, whichever is higher. A
fraction of at least six (6) months shall be considered one (1) whole year.[Emphasis supplied.]

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

Accordingly, under Article 283 of the Labor Code, as amended, there are three requisites for a valid
cessation of business operations: (a) service of a written notice to the employees and to the Department of Labor
and Employment (DOLE) at least one month before the intended date thereof; (b) the cessation of business must
be bona fide in character; and (c) payment to the employees of termination pay amounting to one month pay or
at least one-half month pay for every year of service, whichever is higher.

In this case, it is obvious that petitioner corporations cessation of business operations was not due to serious
business losses. Mere poor sales collection, coupled with mismanagement of its affairs does not amount to serious
business losses. Nonetheless, petitioner corporation can still validly cease or close its business operations because
such right is legally allowed, so long as it was not done for the purpose of circumventing the provisions on termination
of employment embodied in the Labor Code.[48] As has been stressed by this Court in Industrial Timber Corporation
v. Ababon, thus:
Just as no law forces anyone to go into business, no law can compel anybody to continue the same. It
would be stretching the intent and spirit of the law if a court interferes with management's
prerogative to close or cease its business operations just because the business is not suffering from
any loss or because of the desire to provide the workers continued employment. [49]

A careful perusal of the records revealed that, indeed, petitioner corporation has stopped and ceased business
operations beginning 30 June 1997. This was evidenced by a notarized Affidavit of Non-Operation dated 31 August
1998. There was also no showing that the cessation of its business operations was done in bad faith or to circumvent
the Labor Code. Nevertheless, in doing so, petitioner corporation failed to comply with the one-month prior written
notice rule. The records disclosed that respondent, being petitioner corporations employee, and the DOLE were not
given a written notice at least one month before petitioner corporation ceased its business operations. Moreover, the
records clearly show that respondents dismissal was effected on the same date that petitioner corporation decided to
stop and cease its operation. Similarly, respondent was not paid separation pay upon termination of his employment.

As respondents dismissal was not due to serious business losses, respondent is entitled to payment of separation pay
equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher. The rationale
for this was laid down in Reahs Corporation v. National Labor Relations Commission,[50] thus:

The grant of separation pay, as an incidence of termination of employment under

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

The rule, therefore, is that in all cases of business closure or cessation of operation or
undertaking of the employer, the affected employee is entitled to separation pay. This is
consistent with the state policy of treating labor as a primary social economic force, affording
full protection to its rights as well as its welfare. The exception is when the closure of business
or cessation of operations is due to serious business losses or financial reverses duly proved, in
which case, the right of affected employees to separation pay is lost for obvious
reasons.[51] [Emphasis supplied.]
 As previously discussed, respondents dismissal was due to an authorized cause, however, petitioner
corporation failed to observe procedural due process in effecting such dismissal. In Culili v. Eastern
Telecommunications Philippines, Inc.,[52] this Court made the following pronouncements, thus:

x x x there are two aspects which characterize the concept of due process under the Labor
Code: one is substantive whether the termination of employment was based on the provision of the
Labor Code or in accordance with the prevailing jurisprudence; the other is procedural the manner
in which the dismissal was effected.

Section 2(d), Rule I, Book VI of the Rules Implementing the Labor Code provides:

(d) In all cases of termination of employment, the following standards of due

process shall be substantially observed:

xxxx

For termination of employment as defined in Article 283 of the Labor

Code, the requirement of due process shall be deemed complied with upon
service of a written notice to the employee and the appropriate Regional
Office of the Department of Labor and Employment at least thirty days
before effectivity of the termination, specifying the ground or grounds for
termination.

In Mayon Hotel & Restaurant v. Adana, [citation omitted] we observed:

The requirement of law mandating the giving of notices was intended

not only to enable the employees to look for another employment and therefore
ease the impact of the loss of their jobs and the corresponding income, but more
importantly, to give the Department of Labor and Employment (DOLE) the
opportunity to ascertain the verity of the alleged authorized cause of
termination.[53] [Emphasis supplied].

The records of this case disclosed that there was absolutely no written notice given by petitioner corporation
to the respondent and to the DOLE prior to the cessation of its business operations. This is evident from the fact that
petitioner corporation effected respondents dismissal on the same date that it decided to stop and cease its business
operations. The necessary consequence of such failure to comply with the one-month prior written notice rule, which
constitutes a violation of an employees right to statutory due process, is the payment of indemnity in the form of
nominal damages.[54] In Culili v. Eastern Telecommunications Philippines, Inc., this Court further held:
In Serrano v. National Labor Relations Commission [citation omitted], we noted that a job
is more than the salary that it carries. There is a psychological effect or a stigma in immediately
finding ones self laid off from work. This is exactly why our labor laws have provided for mandating
procedural due process clauses. Our laws, while recognizing the right of employers to terminate
employees it cannot sustain, also recognize the employees right to be properly informed of the
impending severance of his ties with the company he is working for. x x x.

x x x Over the years, this Court has had the opportunity to reexamine the sanctions imposed upon
employers who fail to comply with the procedural due process requirements in terminating its
employees. In Agabon v. National Labor Relations Commission [citation omitted], this Court
reverted back to the doctrine in Wenphil Corporation v. National Labor Relations
Commission[citation omitted] and held that where the dismissal is due to a just or authorized
cause, but without observance of the due process requirements, the dismissal may be upheld
but the employer must pay an indemnity to the employee. The sanctions to be imposed however,
must be stiffer than those imposed in Wenphil to achieve a result fair to both the employers and the
employees.

In Jaka Food Processing Corporation v. Pacot [citation omitted], this Court, taking a cue
from Agabon, held that since there is a clear-cut distinction between a dismissal due to a just cause
and a dismissal due to an authorized cause, the legal implications for employers who fail to comply
with the notice requirements must also be treated differently:
 Accordingly, it is wise to hold that: (1) if the dismissal is based on a just cause
under Article 282 but the employer failed to comply with the notice requirement, the
sanction to be imposed upon him should be tempered because the dismissal process was,
in effect, initiated by an act imputable to the employee; and (2) if the dismissal is based on
an authorized cause under Article 283 but the employer failed to comply with the notice
requirement, the sanction should be stiffer because the dismissal process was initiated by
the employer's exercise of his management prerogative.[55] [Emphasis supplied.]

Thus, in addition to separation pay, respondent is also entitled to an award of nominal damages. In conformity
with this Courts ruling in Culili v. Eastern Telecommunications Philippines, Inc. and Shimizu Phils. Contractors, Inc.
v. Callanta, both citing Jaka Food Processing Corporation v. Pacot,[56] this Court fixed the amount of nominal
damages to P50,000.00.

With respect to petitioners contention that the Management Contract executed between respondent and petitioner
Lucila has no binding effect on petitioner corporation for having been executed way before its incorporation, this
Court finds the same meritorious.

Section 19 of the Corporation Code expressly provides:

Sec. 19. Commencement of corporate existence. - A private corporation formed or

organized under this Code commences to have corporate existence and juridical personality and
is deemed incorporated from the date the Securities and Exchange Commission issues a
certificate of incorporation under its official seal; and thereupon the incorporators,
stockholders/members and their successors shall constitute a body politic and corporate under the
name stated in the articles of incorporation for the period of time mentioned therein, unless said
period is extended or the corporation is sooner dissolved in accordance with law. [Emphasis
supplied.]

Logically, there is no corporation to speak of prior to an entitys incorporation. And no contract entered into before
incorporation can bind the corporation.

As can be gleaned from the records, the Management Contract dated 16 January 1994 was executed between
respondent and petitioner Lucila months before petitioner corporations incorporation on 15 August 1994. Similarly,
it was done when petitioner Lucila was still the President of Marc Marketing, Inc. Undeniably, it cannot have any
binding and legal effect on petitioner corporation. Also, there was no evidence presented to prove that petitioner
corporation adopted, ratified or confirmed the Management Contract. It is for the same reason that petitioner
corporation cannot be considered estopped from questioning its binding effect now that respondent was invoking the
same against it. In no way, then, can it be enforced against petitioner corporation, much less, its provisions fixing
respondents compensation as General Manager to 30% of petitioner corporations net profit. Consequently, such
percentage cannot be the basis for the computation of respondents separation pay. This finding, however, will not
affect the undisputed fact that respondent was, indeed, the General Manager of petitioner corporation from its
incorporation up to the time of his dismissal.
Accordingly, this Court finds it necessary to still remand the present case to the Labor Arbiter to conduct
further proceedings for the sole purpose of determining the compensation that respondent was actually receiving
during the period that he was the General Manager of petitioner corporation, this, for the proper computation of his
separation pay.
As regards petitioner Lucilas solidary liability, this Court affirms the same.

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

Based on the prevailing circumstances in this case, petitioner Lucila, being the President of petitioner
corporation, acted in bad faith and with malice in effecting respondents dismissal from employment. Although
petitioner corporation has a valid cause for dismissing respondent due to cessation of business operations, however,
the latters dismissal therefrom was done abruptly by its President, petitioner Lucila. Respondent was not given the
required one-month prior written notice that petitioner corporation will already cease its business operations. As can
be gleaned from the records, respondent was dismissed outright by petitioner Lucila on the same day that petitioner
corporation decided to stop and cease its business operations. Worse, respondent was not given separation pay
considering that petitioner corporations cessation of business was not due to business losses or financial reverses.
 WHEREFORE, premises considered, the Decision and Resolution dated 20 June 2005 and 7 March 2006,
respectively, of the Court of Appeals in CA-G.R. SP No. 76624 are hereby AFFIRMED with
the MODIFICATION finding respondents dismissal from employment legal but without proper observance of due
process. Accordingly, petitioner corporation, jointly and solidarily liable with petitioner Lucila, is hereby ordered to
pay respondent the following; (1) separation pay equivalent to one month pay or at least one-half month pay for every
year of service, whichever is higher, to be computed from the commencement of employment until termination; and
(2) nominal damages in the amount of P50,000.00.

This Court, however, finds it proper to still remand the records to the Labor Arbiter to conduct further
proceedings for the sole purpose of determining the compensation that respondent was actually receiving during the
period that he was the General Manager of petitioner corporation for the proper computation of his separation pay.

Costs against petitioners.

SO ORDERED.
 DONNINA C. HALLEY, G.R. No. 157549
Petitioner,
Present:

CARPIO MORALES, Chairperson,

BRION,
-versus- BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

Promulgated:
PRINTWELL, INC.,
Respondent. May 30, 2011
x----------------------------------------------------------------------------------------- x

DECISION

BERSAMIN, J:

Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid subscriptions.
They cannot invoke the veil of corporate identity as a shield from liability, because the veil may be lifted to avoid
defrauding corporate creditors.

Weaffirm with modification the decisionpromulgated on August 14, 2002, [1]whereby the Court of
Appeals(CA) upheld thedecision of the Regional Trial Court, Branch 71, in Pasig City (RTC), [2]ordering the
defendants (including the petitioner)to pay to Printwell, Inc. (Printwell) the principal sum of P291,342.76 plus interest.

Antecedents

The petitioner wasan incorporator and original director of Business Media Philippines, Inc. (BMPI), which,
at its incorporation on November 12, 1987, [3]had an authorized capital stock of P3,000,000.00 divided into 300,000
shares each with a par value of P10.00,of which 75,000 were initially subscribed, to wit:

Subscriber No. of shares Total subscription Amount paid

Donnina C. Halley 35,000 P 350,000.00 P87,500.00
Roberto V. Cabrera, Jr. 18,000 P 180,000.00 P45,000.00
Albert T. Yu 18,000 P 180,000.00 P45,000.00
Zenaida V. Yu 2,000 P 20,000.00 P5,000.00
Rizalino C. Vineza 2,000 P 20,000.00 P5,000.00
TOTAL 75,000 P750,000.00 P187,500.00

Printwellengaged in commercial and industrial printing.BMPI commissioned Printwell for the printing of the
magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI published and sold. For that
purpose, Printwell extended 30-day credit accommodations to BMPI.

In the period from October 11, 1988 until July 12, 1989, BMPI placedwith Printwell several orders on credit,
evidenced byinvoices and delivery receipts totalingP316,342.76.Considering that BMPI
paidonlyP25,000.00,Printwell suedBMPIon January 26, 1990 for the collection of the unpaid balance of P291,342.76
in the RTC.[4]

On February 8, 1990,Printwell amended thecomplaint in order to implead as defendants all the original
stockholders and incorporators to recover on theirunpaid subscriptions, as follows: [5]

Name Unpaid Shares

Donnina C. Halley P 262,500.00
Roberto V. Cabrera, Jr. P135,000.00
Albert T. Yu P135,000.00
Zenaida V. Yu P15,000.00
Rizalino C. Vieza P15,000.00
 TOTAL P 562,500.00

The defendants filed a consolidated answer,[6]averring that they all had paid their subscriptions in full; that BMPI had
a separate personality from those of its stockholders; thatRizalino C. Vieza had assigned his fully-paid up sharesto a
certain Gerardo R. Jacinto in 1989; andthat the directors and stockholders of BMPI had resolved to dissolve BMPI
during the annual meetingheld on February 5, 1990.

To prove payment of their subscriptions, the defendantstockholderssubmitted in evidenceBMPI official receipt (OR)
no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR no. 223, andOR no. 227,to wit:

Receipt No. Date Name Amount

217 November 5, 1987 Albert T. Yu P 45,000.00
218 May 13, 1988 Albert T. Yu P 135,000.00
220 May 13, 1988 Roberto V. Cabrera, Jr. P 135,000.00
221 November 5, 1987 Roberto V. Cabrera, Jr. P 45,000.00
222 November 5, 1987 Zenaida V. Yu P 5,000.00
223 May 13, 1988 Zenaida V. Yu P 15,000.00
227 May 13, 1988 Donnina C. Halley P 262,500.00

In addition, the stockholderssubmitted other documentsin evidence, namely:(a) an audit report dated March 30, 1989
prepared by Ilagan, Cepillo & Associates (submitted to the SEC and the BIR); [7](b) BMPIbalance sheet[8] and income
statement[9]as of December 31, 1988; (c) BMPI income tax return for the year 1988 (stamped received by the
BIR);[10](d) journal vouchers;[11](e) cash deposit slips;[12] and(f)Bank of the Philippine Islands (BPI) savings account
passbookin the name of BMPI.[13]

Ruling of the RTC

On November 3, 1993, the RTC rendereda decision in favor of Printwell, rejecting the allegation of payment in full
of the subscriptions in view of an irregularity in the issuance of the ORs and observingthat the defendants had used
BMPIs corporate personality to evade payment and create injustice, viz:

The claim of individual defendants that they have fully paid their subscriptions to defend[a]nt
corporation, is not worthy of consideration, because:

a) in the case of defendants-spouses Albert and Zenaida Yu, it will be noted that the alleged
payment made on May 13, 1988 amounting to P135,000.00, is covered by Official Receipt
No. 218 (Exh. 2), whereas the alleged payment made earlier on November 5, 1987,
amounting to P5,000.00, is covered by Official Receipt No. 222 (Exh. 3). This is cogent
proof that said receipts were belatedly issued just to suit their theory since in the ordinary
course of business, a receipt issued earlier must have serial numbers lower than those
issued on a later date. But in the case at bar, the receipt issued on November 5, 1987 has
serial numbers (222) higher than those issued on a later date (May 13, 1988).

b) The claim that since there was no call by the Board of Directors of defendant corporation
for the payment of unpaid subscriptions will not be a valid excuse to free individual
defendants from liability. Since the individual defendants are members of the Board of
Directors of defendantcorporation, it was within their exclusive power to prevent the
fulfillment of the condition, by simply not making a call for the payment of the unpaid
subscriptions. Their inaction should not work to their benefit and unjust enrichment at the
expense of plaintiff.
Assuming arguendo that the individual defendants have paid their unpaid subscriptions, still,
it is very apparent that individual defendants merely used the corporate fiction as a cloak or cover
to create an injustice; hence, the alleged separate personality of defendant corporation should be
disregarded (Tan Boon Bee & Co., Inc. vs. Judge Jarencio, G.R. No. 41337, 30 June 1988).[14]
Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to Printwell pro rata, thusly:

Defendant Business Media, Inc. is a registered corporation (Exhibits A, A-1 to A-9), and, as
appearing from the Articles of Incorporation, individual defendants have the following unpaid
subscriptions:
Names Unpaid Subscription
Donnina C. Halley P262,500.00
Roberto V. Cabrera, Jr. 135.000.00
 Albert T. Yu 135,000.00
Zenaida V. Yu 15,000.00
Rizalino V. Vineza 15,000.00
--------------------
Total P562,500.00

and it is an established doctrine that subscriptions to the capital stock of a corporation constitute a
fund to which creditors have a right to look for satisfaction of their claims (Philippine National Bank
vs. Bitulok Sawmill, Inc., 23 SCRA 1366) and, in fact, a corporation has no legal capacity to release
a subscriber to its capital stock from the obligation to pay for his shares, and any agreement to this
effect is invalid (Velasco vs. Poizat, 37 Phil. 802).

The liability of the individual stockholders in the instant case shall be pro-rated as follows:

Names Amount
Donnina C. Halley P149,955.65
Roberto V. Cabrera, Jr. 77,144.55
Albert T. Yu 77,144.55
Zenaida V. Yu 8,579.00
Rizalino V. Vineza 8,579.00
------------------
Total P321,342.75[15]

The RTC disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering
defendants to pay to plaintiff the amount of P291,342.76, as principal, with interest thereon at 20%
per annum, from date of default, until fully paid, plus P30,000.00 as attorneys fees, plus costs of
suit.

Defendants counterclaims are ordered dismissed for lack of merit.

SO ORDERED.[16]

Ruling of the CA

All the defendants, except BMPI, appealed.

Spouses Donnina and Simon Halley, andRizalinoVieza defined the following errors committed by the RTC,
as follows:

I.
THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS LIABLE FOR
THE LIABILITIES OF THE DEFENDANT CORPORATION.

II.
ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE EXTENT OF
THEIR UNPAID SUBSCRIPTION OF SHARES OF STOCK, IF ANY, THE TRIAL COURT
NONETHELESS ERRED IN NOT FINDING THAT APPELLANTS-STOCKHOLDERS HAVE,
AT THE TIME THE SUIT WAS FILED, NO SUCH UNPAID SUBSCRIPTIONS.

On their part, Spouses Albert and Zenaida Yu averred:

I.
THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO DEFENDANTS-
APPELLANTS SPOUSES ALBERT AND ZENAIDA YUS EXHIBITS 2 AND 3 DESPITE THE
UNREBUTTED TESTIMONY THEREON BY APPELLANT ALBERT YU AND THE
ABSENCE OF PROOF CONTROVERTING THEM.

II.
THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES ALBERT AND
ZENAIDA YU PERSONALLY LIABLE FOR THE CONTRACTUAL OBLIGATION OF
BUSINESS MEDIA PHILS., INC. DESPITE FULL PAYMENT BY SAID DEFENDANTS-
APPELLANTS OF THEIR RESPECTIVE SUBSCRIPTIONS TO THE CAPITAL STOCK OF
BUSINESS MEDIA PHILS., INC.
Roberto V. Cabrera, Jr. argued:

I.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE DOCTRINE
OF PIERCING THE VEIL OF CORPORATE PERSONALITY IN ABSENCE OF ANY
SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES THAT WOULD JUSTIFY RESORT
THERETO.

II.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO RULE THAT INDIVIDUAL
DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFF-APPELLEES CLAIM BASED ON
THEIR RESPECTIVE SUBSCRIPTION. NOTWITHSTANDING OVERWHELMING
EVIDENCE SHOWING FULL SETTLEMENT OF SUBSCRIBED CAPITAL BY THE
INDIVIDUAL DEFENDANTS.

On August 14, 2002, the CA affirmed the RTC, holding that the defendants resort to the corporate personality would
createan injustice becausePrintwell would thereby be at a loss against whom it would assert the right to collect, viz:

Settled is the rule that when the veil of corporate fiction is used as a means of perpetrating fraud or
an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes,
the achievements or perfection of monopoly or generally the perpetration of knavery or crime, the
veil with which the law covers and isolates the corporation from the members or stockholders who
compose it will be lifted to allow for its consideration merely as an aggregation of individuals (First
Philippine International Bank vs. Court of Appeals, 252 SCRA 259). Moreover, under this doctrine,
the corporate existence may be disregarded where the entity is formed or used for non-legitimate
purposes, such as to evade a just and due obligations or to justify wrong (Claparols vs. CIR, 65
SCRA 613).

In the case at bench, it is undisputed that BMPI made several orders on credit from appellee
PRINTWELL involving the printing of business magazines, wrappers and subscription cards, in the
total amount of P291,342.76 (Record pp. 3-5, Annex A) which facts were never denied by appellants
stockholders that they owe appellee the amount of P291,342.76. The said goods were delivered to
and received by BMPI but it failed to pay its overdue account to appellee as well as the interest
thereon, at the rate of 20% per annum until fully paid. It was also during this time that appellants
stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay
their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the
unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order to protect
its right can collect from the appellants stockholders regarding their unpaid subscriptions. To deny
appellee from recovering from appellants would place appellee in a limbo on where to assert their
right to collect from BMPI since the stockholders who are appellants herein are availing the defense
of corporate fiction to evade payment of its obligations. [17]

Further, the CA concurred with the RTC on theapplicability of thetrust fund doctrine, under which corporate debtors
might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts, stating thus:

It is an established doctrine that subscription to the capital stock of a corporation constitute a fund
to which creditors have a right to look up to for satisfaction of their claims, and that the assignee in
insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for
the payment of its debts (PNB vs. Bitulok Sawmill, 23 SCRA 1366).

Premised on the above-doctrine, an inference could be made that the funds, which consists of the
payment of subscriptions of the stockholders, is where the creditors can claim monetary
considerations for the satisfaction of their claims. If these funds which ought to be fully subscribed
by the stockholders were not paid or remain an unpaid subscription of the corporation then the
creditors have no other recourse to collect from the corporation of its liability. Such occurrence was
evident in the case at bar wherein the appellants as stockholders failed to fully pay their unpaid
subscriptions, which left the creditors helpless in collecting their claim due to insufficiency of funds
of the corporation. Likewise, the claim of appellants that they already paid the unpaid subscriptions
could not be given weight because said payment did not reflect in the Articles of Incorporations of
BMPI that the unpaid subscriptions were fully paid by the appellants stockholders. For it is a rule
that a stockholder may be sued directly by creditors to the extent of their unpaid subscriptions to the
corporation (Keller vs. COB Marketing, 141 SCRA 86).
 Moreover, a corporation has no power to release a subscription or its capital stock, without valuable
consideration for such releases, and as against creditors, a reduction of the capital stock can take
place only in the manner and under the conditions prescribed by the statute or the charter or the
Articles of Incorporation. (PNB vs. Bitulok Sawmill, 23 SCRA 1366).[18]

The CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim of full payment of the
subscriptions to the capital stock unworthy of consideration; andheld that the veil of corporate fiction could be pierced
when it was used as a shield to perpetrate a fraud or to confuse legitimate issues, to wit:

Finally, appellants SPS YU, argued that the fact of full payment for the unpaid subscriptions
was incontrovertibly established by competent testimonial and documentary evidence, namely
Exhibits 1, 2, 3 & 4, which were never disputed by appellee, clearly shows that they should not be
held liable for payment of the said unpaid subscriptions of BMPI.

The reliance is misplaced.

We are hereby reproducing the contents of the above-mentioned exhibits, to wit:

Exh: 1 YU Official Receipt No. 217 dated November 5, 1987 amounting to P45,000.00
allegedly representing the initial payment of subscriptions of stockholder Albert Yu.
Exh: 2 YU Official Receipt No. 218 dated May 13, 1988 amounting to P135,000.00
allegedly representing full payment of balance of subscriptions of stockholder Albert Yu.
(Record p. 352).
Exh: 3 YU Official Receipt No. 222 dated November 5, 1987 amounting to P5,000.00
allegedly representing the initial payment of subscriptions of stockholder Zenaida Yu.
Exh: 4 YU Official Receipt No. 223 dated May 13, 1988 amounting to P15,000.00
allegedly representing the full payment of balance of subscriptions of stockholder Zenaida
Yu. (Record p. 353).

Based on the above exhibits, we are in accord with the lower courts findings that the claim
of the individual appellants that they fully paid their subscription to the defendant BMPI is not
worthy of consideration, because, in the case of appellants SPS. YU, there is an inconsistency
regarding the issuance of the official receipt since the alleged payment made on May 13, 1988
amounting to P135,000.00 was covered by Official Receipt No. 218 (Record, p. 352), whereas the
alleged payment made earlier on November 5, 1987 amounting to P5,000.00 is covered by Official
Receipt No. 222 (Record, p. 353). Such issuance is a clear indication that said receipts were belatedly
issued just to suit their claim that they have fully paid the unpaid subscriptions since in the ordinary
course of business, a receipt is issued earlier must have serial numbers lower than those issued on a
later date. But in the case at bar, the receipt issued on November 5, 1987 had a serial number (222)
higher than those issued on May 13, 1988 (218). And even assuming arguendo that the individual
appellants have paid their unpaid subscriptions, still, it is very apparent that the veil of corporate
fiction may be pierced when made as a shield to perpetuate fraud and/or confuse legitimate issues.
(Jacinto vs. Court of Appeals, 198 SCRA 211).[19]

Spouses Halley and Vieza moved for a reconsideration, but the CA denied their motion for reconsideration.

Issues

Only Donnina Halley has come to the Court to seek a further review, positing the following for our
consideration and resolution, to wit:

I.
THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION THAT
DID NOTSTATE THE FACTS AND THE LAW UPON WHICH THE JUDGMENT WAS
BASED BUT MERELY COPIED THE CONTENTS OF RESPONDENTS MEMORANDUM
ADOPTING THE SAME AS THE REASON FOR THE DECISION

II.
 THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL
TRIAL COURT WHICH ESSENTIALLY ALLOWED THE PIERCING OF THE VEIL OF
CORPORATE FICTION

III.
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST FUND
DOCTRINE WHEN THE GROUNDS THEREFOR HAVE NOT BEEN SATISFIED.

On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum of Printwell; and submits
that the RTCthereby violatedthe requirement imposed in Section 14, Article VIII of the Constitution[20] as well as in
Section 1,Rule 36 of the Rules of Court,[21]to the effect that a judgment or final order of a court should state clearly
and distinctly the facts and the law on which it is based. The petitioner claims that the RTCs violation indicated that
the RTC did not analyze the case before rendering its decision, thus denying her the opportunity to analyze the
decision; andthat a suspicion of partiality arose from the fact that the RTC decision was but a replica of Printwells
memorandum.She cites Francisco v. Permskul,[22] in which the Court has stated that the reason underlying the
constitutional requirement, that every decision should clearly and distinctly state the facts and the law on which it is
based, is to inform the reader of how the court has reached its decision and thereby give the losing party an opportunity
to study and analyze the decision and enable such party to appropriately assign the errors committed therein on appeal.

On the second and third errors, the petitioner maintains that the CA and the RTC erroneously pierced the veil of
corporate fiction despite the absence of cogent proof showing that she, as stockholder of BMPI, had any hand in
transacting with Printwell; thatthe CA and the RTC failed to appreciate the evidence that she had fully paid her
subscriptions; and the CA and the RTCwrongly relied on the articles of incorporation in determining the current list
of unpaid subscriptions despite the articles of incorporationbeing at best reflectiveonly of the pre-incorporation status
of BMPI.

As her submissions indicate, the petitioner assails the decisions of the CA on: (a) the propriety of disregarding the
separate personalities of BMPI and its stockholdersby piercing the thin veil that separated them; and (b) the application
of the trust fund doctrine.

Ruling

The petition for review fails.

I
The RTC did not violate
the Constitution and the Rules of Court

The contention of the petitioner, that the RTC merely copied the memorandum of Printwell in writing its
decision, and did not analyze the records on its own, thereby manifesting a bias in favor of Printwell, is unfounded.

It is noted that the petition for review merely generally alleges that starting from its page 5, the decision of
the RTC copied verbatim the allegations of herein Respondents in its Memorandum before the said court, as if the
Memorandum was the draft of the Decision of the Regional Trial Court of Pasig, [23]but fails to specify either the
portions allegedly lifted verbatim from the memorandum, or why she regards the decision as copied. The omission
renders thepetition for review insufficient to support her contention, considering that the mere similarityin language
or thought between Printwells memorandum and the trial courts decisiondid not necessarily justify the conclusion that
the RTC simply lifted verbatim or copied from thememorandum.

It is to be observed in this connection that a trial or appellate judge may occasionally viewa partys
memorandum or brief as worthy of due consideration either entirely or partly. When he does so, the judgemay adopt
and incorporatein his adjudicationthe memorandum or the parts of it he deems suitable,and yet not be guilty of the
accusation of lifting or copying from the memorandum.[24] This isbecause ofthe avowed objective of the memorandum
to contribute in the proper illumination and correct determination of the controversy.Nor is there anything untoward
in the congruence of ideas and views about the legal issues between himself and the party drafting the
memorandum.The frequency of similarities in argumentation, phraseology, expression, and citation of authorities
between the decisions of the courts and the memoranda of the parties, which may be great or small, can be fairly
attributable tothe adherence by our courts of law and the legal profession to widely knownor universally accepted
precedents set in earlier judicial actions with identical factual milieus or posing related judicial dilemmas.

We also do not agree with the petitioner that the RTCs manner of writing the decisiondeprivedher ofthe
opportunity to analyze its decisionas to be able to assign errors on appeal. The contrary appears, considering that she
was able to impute and assignerrors to the RTCthat she extensively discussed in her appeal in the CA, indicating her
thorough analysis ofthe decision of the RTC.

Our own readingof the trial courts decision persuasively shows that the RTC did comply with the
requirements regarding the content and the manner of writing a decision prescribed in the Constitution and the Rules
of Court. The decision of the RTC contained clear and distinct findings of facts, and stated the applicablelaw and
jurisprudence, fully explaining why the defendants were being held liable to the plaintiff. In short, the reader was at
once informed of the factual and legal reasons for the ultimate result.

II
Corporate personality not to be used to foster injustice

Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons, namely: (a) to reach
the unpaid subscriptions because it appeared that such subscriptions were the remaining visible assets of BMPI; and
(b) to avoid multiplicity of suits.[25]

The petitionersubmits that she had no participation in the transaction between BMPI and Printwell;that BMPI
acted on its own; and that shehad no hand in persuading BMPI to renege on its obligation to pay. Hence, she should
not be personally liable.

We rule against the petitioners submission.

Although a corporation has a personality separate and distinct from those of its stockholders, directors, or
officers,[26]such separate and distinct personality is merely a fiction created by law for the sake of convenience and to
promote the ends of justice.[27]The corporate personality may be disregarded, and the individuals composing the
corporation will be treated as individuals, if the corporate entity is being used as a cloak or cover for fraud or
illegality;as a justification for a wrong; as an alter ego, an adjunct, or a business conduit for the sole benefit of the
stockholders.[28] As a general rule, a corporation is looked upon as a legal entity, unless and until sufficient reason to
the contrary appears. Thus,the courts always presume good faith, andfor that reason accord prime importance to the
separate personality of the corporation, disregarding the corporate personality only after the wrongdoing is first clearly
and convincingly established.[29]It thus behooves the courts to be careful in assessing the milieu where the piercing of
the corporate veil shall be done.[30]

Although nowhere in Printwells amended complaint or in the testimonies Printwell offered can it be read or
inferred from that the petitioner was instrumental in persuading BMPI to renege onits obligation to pay; or that
sheinduced Printwell to extend the credit accommodation by misrepresenting the solvency of BMPI toPrintwell, her
personal liability, together with that of her co-defendants, remainedbecause the CA found her and the other defendant
stockholders to be in charge of the operations of BMPI at the time the unpaid obligation was transacted and incurred,
to wit:
In the case at bench, it is undisputed that BMPI made several orders on credit from appellee
PRINTWELL involving the printing of business magazines, wrappers and subscription cards, in the
total amount of P291,342.76 (Record pp. 3-5, Annex A) which facts were never denied by appellants
stockholders that they owe(d) appellee the amount of P291,342.76. The said goods were delivered
to and received by BMPI but it failed to pay its overdue account to appellee as well as the interest
thereon, at the rate of 20% per annum until fully paid. It was also during this time that appellants
stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay
their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the
unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order to protect
its right can collect from the appellants stockholders regarding their unpaid subscriptions. To deny
appellee from recovering from appellants would place appellee in a limbo on where to assert their
right to collect from BMPI since the stockholders who are appellants herein are availing the defense
of corporate fiction to evade payment of its obligations. [31]

It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its obligations to pay,
and whether or not she induced Printwell to transact with BMPI were not gooddefensesin the suit.

III
Unpaid creditor may satisfy its claim from
unpaid subscriptions;stockholders must
prove full payment oftheir subscriptions
 Both the RTC and the CA applied the trust fund doctrineagainst the defendant stockholders, including the
petitioner.

The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause she had already fully paid
her subscriptions to the capital stock of BMPI. She thus insiststhat both lower courts erred in disregarding the evidence
on the complete payment of the subscription, like receipts, income tax returns, and relevant financial statements.

The petitioners argumentis devoid of substance.

The trust fund doctrineenunciates a

xxx rule that the property of a corporation is a trust fund for the payment of creditors, but
such property can be called a trust fund only by way of analogy or metaphor. As between the
corporation itself and its creditors it is a simple debtor, and as between its creditors and stockholders
its assets are in equity a fund for the payment of its debts. [32]

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,[33]was adopted in our
jurisdiction in Philippine Trust Co. v. Rivera,[34]where thisCourt declared that:

It is established doctrine that subscriptions to the capital of a corporation constitute a fund to

which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency
can maintain an action upon any unpaid stock subscription in order to realize assets for the payment
of its debts. (Velasco vs. Poizat, 37 Phil., 802) xxx[35]

We clarify that the trust fund doctrineis not limited to reaching the stockholders unpaid subscriptions. The
scope of the doctrine when the corporation is insolvent encompasses not only the capital stock, but also other property
and assets generally regarded in equity as a trust fund for the payment of corporate debts. [36]All assets and property
belonging to the corporation held in trust for the benefit of creditors thatwere distributed or in the possession of the
stockholders, regardless of full paymentof their subscriptions, may be reached by the creditor in satisfaction of its
claim.

Also, under the trust fund doctrine,a corporation has no legal capacity to release an original subscriber to its
capital stock from the obligation of paying for his shares, in whole or in part, [37] without a valuable consideration,[38] or
fraudulently, to the prejudice of creditors.[39]The creditor is allowed to maintain an action upon any unpaid
subscriptions and thereby steps into the shoes of the corporation for the satisfaction of its debt. [40]To make out a prima
facie case in a suit against stockholders of an insolvent corporation to compel them to contribute to the payment of its
debts by making good unpaid balances upon their subscriptions, it is only necessary to establish that thestockholders
have not in good faith paid the par value of the stocks of the corporation. [41]

The petitionerposits that the finding of irregularity attending the issuance of the receipts (ORs) issued to the
other stockholders/subscribers should not affect her becauseher receipt did not suffer similar irregularity.

Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her favor,we still
cannot sustain the petitioners defense of full payment of her subscription.

In civil cases, theparty who pleads payment has the burden of proving it, that even where the plaintiff must
allege nonpayment, the general rule is that the burden rests on the defendant to prove payment, rather than on the
plaintiff to prove nonpayment. In other words, the debtor bears the burden of showing with legal certainty that the
obligation has been discharged by payment.[42]

Apparently, the petitioner failed to discharge her burden.

A receipt is the written acknowledgment of the fact of payment in money or other settlement between the
seller and the buyer of goods, thedebtor or thecreditor, or theperson rendering services, and theclient or
thecustomer.[43]Althougha receipt is the best evidence of the fact of payment, it isnot conclusive, but merely
presumptive;nor is it exclusive evidence,considering thatparole evidence may also establishthe fact of payment. [44]

The petitioners ORNo. 227,presentedto prove the payment of the balance of her subscription, indicated that
her supposed payment had beenmade by means of a check. Thus, to discharge theburden to prove payment of her
subscription, she had to adduce evidence satisfactorily proving that her payment by check wasregardedas payment
under the law.

Paymentis defined as the delivery of money.[45]Yet, because a check is not money and only substitutes for
money, the delivery of a check does not operate as payment and does not discharge the obligation under a
judgment.[46] The delivery of a bill of exchange only produces the fact of payment when the bill has been
encashed.[47]The following passage fromBank of Philippine Islands v. Royeca[48]is enlightening:

Settled is the rule that payment must be made in legal tender. A check is not legal tender
and, therefore, cannot constitute a valid tender of payment. Since a negotiable instrument is
only a substitute for money and not money, the delivery of such an instrument does not, by
itself, operate as payment. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until the payment by
commercial document is actually realized.

To establish their defense, the respondents therefore had to present proof, not only that
they delivered the checks to the petitioner, but also that the checks were encashed. The
respondents failed to do so. Had the checks been actually encashed, the respondents could have
easily produced the cancelled checks as evidence to prove the same. Instead, they merely
averred that they believed in good faith that the checks were encashed because they were not
notified of the dishonor of the checks and three years had already lapsed since they issued the
checks.

Because of this failure of the respondents to present sufficient proof of payment, it was no
longer necessary for the petitioner to prove non-payment, particularly proof that the checks were
dishonored. The burden of evidence is shifted only if the party upon whom it is lodged was able to
adduce preponderant evidence to prove its claim.

Ostensibly, therefore, the petitioners mere submission of the receipt issued in exchange of the check did not
satisfactorily establish her allegation of full payment of her subscription. Indeed, she could not even inform the trial
court about the identity of her drawee bank,[49]and about whether the check was cleared and its amount paid to
BMPI.[50]In fact, she did not present the check itself.

Theincome tax return (ITR) and statement of assets and liabilities of BMPI, albeit presented, had no bearing
on the issue of payment of the subscription because they did not by themselves prove payment. ITRsestablish
ataxpayers liability for taxes or a taxpayers claim for refund. In the same manner, the deposit slips and entries in the
passbook issued in the name of BMPI were hardly relevant due to their not reflecting the alleged payments.

It is notable, too, that the petitioner and her co-stockholders did not support their allegation of complete
payment of their respective subscriptions with the stock and transfer book of BMPI. Indeed, books and records of a
corporation (including the stock and transfer book) are admissible in evidence in favor of or against the corporation
and its members to prove the corporate acts, its financial status and other matters (like the status of the stockholders),
and are ordinarily the best evidence of corporate acts and proceedings.[51]Specifically, a stock and transfer book is
necessary as a measure of precaution, expediency, and convenience because it provides the only certain and accurate
method of establishing the various corporate acts and transactions and of showing the ownership of stock and like
matters.[52]That she tendered no explanation why the stock and transfer book was not presented warrants the inference
that the book did not reflect the actual payment of her subscription.

Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a certificate covering her
subscription might have been a reliable evidence of full payment of the subscriptions, considering that under Section
65 of the Corporation Code a certificate of stock issues only to a subscriber who has fully paid his subscription. The
lack of any explanation for the absence of a stock certificate in her favor likewise warrants an unfavorable inference
on the issue of payment.

Lastly, the petitioner maintains that both lower courts erred in relying on the articles of incorporationas proof
of the liabilities of the stockholders subscribing to BMPIs stocks, averring that the articles of incorporationdid not
reflect the latest subscription status of BMPI.

Although the articles of incorporation may possibly reflect only the pre-incorporation status of a corporation,
the lower courts reliance on that document to determine whether the original subscribersalready fully paid their
subscriptions or not was neither unwarranted nor erroneous. As earlier explained, the burden of establishing the fact
of full payment belonged not to Printwell even if it was the plaintiff, but to the stockholders like the petitioner who,
as the defendants, averredfull payment of their subscriptions as a defense. Their failure to substantiate their averment
of full payment, as well as their failure to counter the reliance on the recitals found in the articles of
incorporation simply meant their failure or inability to satisfactorily prove their defense of full payment of the
subscriptions.

To reiterate, the petitionerwas liablepursuant to the trust fund doctrine for the corporate obligation of BMPI
by virtue of her subscription being still unpaid. Printwell, as BMPIs creditor,had a right to reachher unpaid subscription
in satisfaction of its claim.
 IV
Liability of stockholders for corporate debts isup
to the extentof their unpaid subscription

The RTC declared the stockholders pro rata liable for the debt(based on the proportion to their shares in the
capital stock of BMPI); and held the petitionerpersonally liable onlyin the amount of P149,955.65.

We do not agree. The RTC lacked the legal and factual support for its prorating the liability. Hence, we need
to modify the extent of the petitioners personal liability to Printwell. The prevailing rule is that a stockholder is
personally liable for the financial obligations of the corporation to the extent of his unpaid subscription.[53]In view
ofthe petitioners unpaid subscription being worth P262,500.00, shewas liable up to that amount.

Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed at 12% per
annum from the date the amended complaint was filed on February 8, 1990 until the obligation (i.e., to the extent of
the petitioners personal liability of P262,500.00) is fully paid.[54]

Lastly, we find no basis togrant attorneys fees, the award for which must be supported by findings of fact
and of law as provided under Article 2208 of the Civil Code[55]incorporated in the body of decision of the trial court.
The absence of the requisite findings from the RTC decision warrants the deletion of the attorneys fees.

ACCORDINGLY, we deny the petition for review on certiorari;and affirm with modification the decision
promulgated on August 14, 2002by ordering the petitionerto pay to Printwell, Inc. the sum of P262,500.00, plus
interest of 12% per annum to be computed from February 8, 1990 until full payment.

The petitioner shall paycost of suit in this appeal.

SO ORDERED.
 ALERT SECURITY AND INVESTIGATION G.R. No. 182397
AGENCY, INC. AND/OR MANUEL D. DASIG,
Petitioners, Present:

CORONA, C.J.,
- versus - Chairperson,
LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.

SAIDALI PASAWILAN, WILFREDO

VERCELES AND MELCHOR BULUSAN, Promulgated:
Respondents.
September 14, 2011
x-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR., J.:

This petition for review on certiorari assails the Decision[1] dated February 1, 2008 of the Court of Appeals
(CA) in CA-G.R. SP No. 99861. The appellate court reversed and set aside the January 31, 2007 Decision[2] and March
15, 2007 Resolution[3] of the National Labor Relations Commission (NLRC) and reinstated the Labor Arbiters
Decision[4] finding petitioners guilty of illegal dismissal.

The facts follow.

Respondents Saidali Pasawilan, Wilfredo Verceles and Melchor Bulusan were all employed by petitioner
Alert Security and Investigation Agency, Inc. (Alert Security) as security guards beginning March 31, 1996, January
14, 1997, and January 24, 1997, respectively. They were paid 165.00 pesos a day as regular employees, and assigned
at the Department of Science and Technology (DOST) pursuant to a security service contract between the DOST and
Alert Security.

Respondents aver that because they were underpaid, they filed a complaint for money claims against Alert
Security and its president and general manager, petitioner Manuel D. Dasig, before Labor Arbiter Ariel C. Santos. As
a result of their complaint, they were relieved from their posts in the DOST and were not given new assignments
despite the lapse of six months. On January 26, 1999, they filed a joint complaint for illegal dismissal against
petitioners.

Petitioners, on the other hand, deny that they dismissed the respondents. They claimed that from the DOST,
respondents were merely detailed at the Metro Rail Transit, Inc. at the Light Rail Transit Authority (LRTA) Compound
in Aurora Blvd. because the wages therein were already adjusted to the latest minimum wage. Petitioners presented
Duty Detail Orders[5] that Alert Security issued to show that respondents were in fact assigned to LRTA. Respondents,
however, failed to report at the LRTA and instead kept loitering at the DOST and tried to convince other security
guards to file complaints against Alert Security. Thus, on August 3, 1998, Alert Security filed a termination
report[6] with the Department of Labor and Employment relative to the termination of the respondents.

Upon motion of the respondents, the joint complaint for illegal dismissal was ordered consolidated with
respondents earlier complaint for money claims. The records of the illegal dismissal case were sent to Labor Arbiter
Ariel C. Santos, but later returned to the Office of the Labor Arbiter hearing the illegal dismissal complaint because a
Decision[7] has already been rendered in the complaint for money claims on July 14, 1999. In that decision, the
complaint for money claims was dismissed for lack of merit but petitioners were ordered to pay respondents their
latest salary differentials.

On July 28, 2000, Labor Arbiter Melquiades Sol D. Del Rosario rendered a Decision [8] on the complaint for
illegal dismissal. The Labor Arbiter ruled:
 CONFORMABLY WITH THE FOREGOING, judgment is hereby rendered finding
complainants to have been illegally dismissed. Consequently, each complainant should be paid in
solidum by the respondents the individual awards computed in the body of the decision, which is
hereto adopted as part of this disposition.

SO ORDERED.[9]

Aggrieved, petitioners appealed the decision to the NLRC claiming that the Labor Arbiter erred in deciding
a re-filed case when it was filed in violation of the prohibitions against litis pendencia and forum shopping. Further,
petitioners argued that complainants were not illegally dismissed but were only transferred. They claimed that it was
the respondents who refused to report for work in their new assignment.

On January 31, 2007, the NLRC rendered a Decision[10] ruling that Labor Arbiter Del Rosario did not err in
taking cognizance of respondents complaint for illegal dismissal because the July 14, 1999 Decision of Labor Arbiter
Santos on the complaint for money claims did not at all pass upon the issue of illegal dismissal. The NLRC, however,
dismissed the complaint for illegal dismissal after ruling that the fact of dismissal or termination of employment was
not sufficiently established. According to the NLRC, [the] sweeping generalization that the complainants were
constructively dismissed is not sufficient to establish the existence of illegal dismissal. [11] The dispositive portion of
the NLRC decision reads:

WHEREFORE, premises considered, the respondents appeal is hereby given due course
and the decision dated July 28, 2000 is hereby REVERSED and SET-ASIDE and a new one entered
DISMISSING the complaint for illegal dismissal for lack of merit.

SO ORDERED.[12]

Unfazed, respondents filed a petition for certiorari with the CA questioning the NLRC decision and alleging
grave abuse of discretion.

On February 1, 2008, the CA rendered the assailed Decision[13] reversing and setting aside the NLRC decision
and reinstating the July 28, 2000 Decision of Labor Arbiter Del Rosario. The CA ruled that Alert Security, as an
employer, failed to discharge its burden to show that the employees separation from employment was not motivated
by discrimination, made in bad faith, or effected as a form of punishment or demotion without sufficient cause. The
CA also found that respondents were never informed of the Duty Detail Orders transferring them to a new post, thereby
making the alleged transfer ineffective. The dispositive portion of the CA decision states:

WHEREFORE, premises considered, the January 31, 2007 decision of the NLRC is
hereby REVERSED and SET ASIDE and the July 28, 2000 decision of the Labor Arbiter is
hereby REVIVED.

SO ORDERED.[14]

Petitioners filed a motion for reconsideration, but the motion was denied in a Resolution [15] dated March 31,
2008.

Petitioners are now before this Court to seek relief by way of a petition for review on certiorari under Rule
45 of the 1997 Rules of Civil Procedure, as amended.

Petitioners argue that the CA erred when it held that the NLRC committed grave abuse of
discretion. According to petitioners, the NLRC was correct when it ruled that there was no sufficient basis to rule that
respondents were terminated from their employment while there was proof that they were merely transferred from
DOST to LRTA as shown in the Duty Detail Orders. Verily, petitioners claim that there was no termination at all;
instead, respondents abandoned their employment by refusing to report for duty at the LRTA Compound.

Further, petitioners argue that the CA erred when it reinstated the July 28, 2000 Decision of Labor Arbiter
Del Rosario in its entirety. The dispositive portion of said decision ruled that respondents should be paid their
monetary awards in solidum by Alert Security and Manuel D. Dasig, its President and General Manager. They argue
that Alert Security is a duly organized domestic corporation which has a legal personality separate and distinct from
its members or owners. Hence, liability for whatever compensation or money claims owed to employees must be
borne solely by Alert Security and not by any of its individual stockholders or officers.

On the other hand, respondents claim that the NLRC committed a serious error in ruling that they failed to
provide factual substantiation of their claim of constructive dismissal. Respondents aver that their Complaint
Form[16] sufficiently constitutes the basis of their claim of illegal dismissal. Also, respondents aver that Alert Security
itself admitted that respondents were relieved from their posts as security guards in DOST, albeit raising the defense
that it was a mere transfer as shown by Duty Detail Orders, which, however, were never received by respondents, as
observed by the Labor Arbiter.

Essentially, the issue for resolution is whether respondents were illegally dismissed.

We rule in the affirmative.

As a rule, employment cannot be terminated by an employer without any just or authorized cause. No less
than the 1987 Constitution in Section 3, Article 13 guarantees security of tenure for workers and because of this, an
employee may only be terminated for just[17] or authorized[18] causes that

must comply with the due process requirements mandated[19] by law. Hence, employers are barred from arbitrarily
removing their workers whenever and however they want.The law sets the valid grounds for termination as well as
the proper procedure to take when terminating the services of an employee.

In De Guzman, Jr. v. Commission on Elections,[20] the Court, speaking of the Constitutional guarantee of
security of tenure to all workers, ruled:

x x x It only means that an employee cannot be dismissed (or transferred) from the service for causes
other than those provided by law and after due process is accorded the employee. What it seeks to
prevent is capricious exercise of the power to dismiss. x x x (Emphasis supplied.)

Although we recognize the right of employers to shape their own work force, this management prerogative
must not curtail the basic right of employees to security of tenure. There must be a valid and lawful reason for
terminating the employment of a worker. Otherwise, it is illegal and would be dealt with by the courts accordingly.

As stated in Bascon v. Court of Appeals:[21]

x x x The employers power to dismiss must be tempered with the employees right to security of
tenure. Time and again we have said that the preservation of the lifeblood of the toiling laborer
comes before concern for business profits. Employers must be reminded to exercise the power to
dismiss with great caution, for the State will not hesitate to come to the succor of workers wrongly
dismissed by capricious employers.

In the case at bar, respondents were relieved from their posts because they filed with the Labor Arbiter a
complaint against their employer for money claims due to underpayment of wages. This reason is unacceptable and
illegal. Nowhere in the law providing for the just and authorized causes of termination of employment is there any
direct or indirect reference to filing a legitimate complaint for money claims against the employer as a valid ground
for termination.

The Labor Code, as amended, enumerates several just and authorized causes for a valid termination of
employment. An employee asserting his right and asking for minimum wage is not among those causes. Dismissing
an employee on this ground amounts to retaliation by management for an employees legitimate grievance without due
process. Such stroke of retribution has no place in Philippine Labor Laws.

Petitioners aver that respondents were merely transferred to a new post wherein the wages are adjusted to the
current minimum wage standards. They maintain that the respondents voluntarily abandoned their jobs when they
failed to report for duty in the new location.
 Assuming this is true, we still cannot hold that the respondents abandoned their posts. For abandonment of
work to fall under Article 282 (b) of the Labor Code, as amended, as gross and habitual neglect of duties there must
be the concurrence of two elements. First, there should be a failure of the employee to report for work without a valid
or justifiable reason, and second, there should be a showing that the employee intended to sever the employer-
employee relationship, the second element being the more determinative factor as manifested by overt acts.[22]

As regards the second element of intent to sever the employer-employee relationship, the CA correctly ruled
that:

x x x the fact that petitioners filed a complaint for illegal dismissal is indicative of their intention to
remain employed with private respondent considering that one of their prayers in the complaint is
for re-instatement. As declared by the Supreme Court, a complaint for illegal dismissal is
inconsistent with the charge of abandonment, because when an employee takes steps to protect
himself against a dismissal, this cannot, by logic, be said to be abandonment by him of his right to
be able to work.[23]

Further, according to Alert Security itself, respondents continued to report for work and loiter in the DOST
after the alleged transfer order was issued. Such circumstance makes it unlikely that respondents have clear intention
of leaving their respective jobs. In any case, there is no dispute that in cases of abandonment of work, notice shall be
served at the workers last known address.[24] This petitioners failed to do.

On the element of the failure of the employee to report for work, we also cannot accept the allegations of
petitioners that respondents unjustifiably refused to report for duty in their new posts. A careful review of the records
reveals that there is no showing that respondents were notified of their new assignments. Granting that the Duty Detail
Orders were indeed issued, they served no purpose unless the intended recipients of the orders are informed of such.

The employer cannot simply conclude that an employee is ipso facto notified of a transfer when there is no
evidence to indicate that the employee had knowledge of the transfer order. Hence, the failure of an employee to report
for work at the new location cannot be taken against him as an element of abandonment.

We acknowledge and recognize the right of an employer to transfer employees in the interest of the
service. This exercise is a management prerogative which is a lawful right of an employer. However, like all rights,
there are limitations to the right to transfer employees. As ruled in the case of Blue Dairy Corporation v. NLRC:[25]

x x x The managerial prerogative to transfer personnel must be exercised without grave abuse of
discretion, bearing in mind the basic elements of justice and fair play. Having the right should not
be confused with the manner in which that right is exercised. Thus, it cannot be used as a subterfuge
by the employer to rid himself of an undesirable worker. In particular, the employer must be able to
show that the transfer is not unreasonable, inconvenient or prejudicial to the employee; nor does it
involve a demotion in rank or a diminution of his salaries, privileges and other benefits. x x x

In addition to these tests for a valid transfer, there should be proper and effective notice to the employee
concerned. It is the employers burden to show that the employee was duly notified of the transfer. Verily, an employer
cannot reasonably expect an employee to report for work in a new location without first informing said employee of
the transfer. Petitioners insistence on the sufficiency of mere issuance of the transfer order is indicative of bad faith
on their part.

Besides, according to petitioners, the reason for the transfer to LRTA of the respondents was that the wages
in LRTA were already adjusted to comply with the minimum wage rates. Now it is hard to believe that after being
ordered to transfer to LRTA where the wages are better, the respondents would still refuse the transfer. That would
mean that the respondents refused better wages and instead chose to remain in DOST, underpaid, and go through the
lengthy process of claiming and asking for minimum wage. This proposed scenario of petitioners simply does not jibe
with human logic and experience.

On the question of the propriety of holding petitioner Manuel D. Dasig, president and general manager of
Alert Security, solidarily liable with Alert Security for the payment of the money awards in favor of respondents, we
find petitioners arguments meritorious.

Basic is the rule that a corporation has a separate and distinct personality apart from its directors, officers, or
owners. In exceptional cases, courts find it proper to breach this corporate personality in order to make directors,
officers, or owners solidarily liable for the companies acts. Section 31, Paragraph 1 of the Corporation
Code[26] provides:

Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary
interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally
for all damages resulting therefrom suffered by the corporation, its stockholders or members and
other persons.

xxxx

Jurisprudence has been consistent in defining the instances when the separate and distinct personality of a
corporation may be disregarded in order to hold the directors, officers, or owners of the corporation liable for corporate
debts. In McLeod v. National Labor Relations Commission,[27] the Court ruled:

Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate
fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime. In the
absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such
corporate officer cannot be made personally liable for corporate liabilities. x x x

Further, in Carag v. National Labor Relations Commission,[28] the Court clarified the McLeod doctrine as
regards labor laws, to wit:

We have already ruled in McLeod v. NLRC[29] and Spouses Santos v. NLRC[30] that Article
212(e)[31] of the Labor Code, by itself, does not make a corporate officer personally liable for
the debts of the corporation. The governing law on personal liability of directors for debts of the
corporation is still Section 31 of the Corporation Code. x x x

In the present case, there is no evidence to indicate that Manuel D. Dasig, as president and general manager
of Alert Security, is using the veil of corporate fiction to defeat public convenience, justify wrong, protect fraud, or
defend crime. Further, there is no showing that Alert Security has folded up its business or is reneging in its
obligations. In the final analysis, it is Alert Security that respondents are after and it is also Alert Security who should
take responsibility for their illegal dismissal.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in
CA-G.R. SP No. 99861 and the Decision dated July 28, 2000 of the Labor Arbiter are MODIFIED. Petitioner Manuel
D. Dasig is held not solidarily liable with petitioner Alert Security and Investigation, Inc. for the payment of the
monetary awards in favor of respondents. Said Decision of the Court of Appeals in all other aspects is AFFIRMED.

With costs against the petitioners.

SO ORDERED.
 [G.R. No. 141994. January 17, 2005]
FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL
CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F.
AGO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000 Resolution of the Court of
Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992
Decision[3] of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held
Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and
ordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine moral
damages, attorneys fees and costs of suit.
The Antecedents
Expos is a radio documentary[4] program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre
(Alegre).[5] Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc.
(FBNI). Expos is heard over Legazpi City, the Albay municipalities and other Bicol areas. [6]
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students,
teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC) and
its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs
College of Medicine, filed a complaint for damages[7] against FBNI, Rima and Alegre on 27 February 1990. Quoted
are portions of the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them
to pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects
including those they have passed already. Several students had approached me stating that they had consulted with
the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing the
same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by
DECS. xxx
Third: Students are required to take and pay for the subject even if the subject does not have an instructor -
such greed for money on the part of AMECs administration. Take the subject Anatomy: students would pay for
the subject upon enrolment because it is offered by the school. However there would be no instructor for such subject.
Students would be informed that course would be moved to a later date because the school is still searching for the
appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past
few years since its inception because of funds support from foreign foundations. If you will take a look at the AMEC
premises youll find out that the names of the buildings there are foreign soundings. There is a McDonald Hall. Why
not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign
foundations for AMEC is substantial, isnt it? With the report which is the basis of the expose in DZRC today, it would
be very easy for detractors and enemies of the Ago family to stop the flow of support of foreign foundations who assist
the medical school on the basis of the latters purpose. But if the purpose of the institution (AMEC) is to deceive
students at cross purpose with its reason for being it is possible for these foreign foundations to lift or suspend their
donations temporarily.[8]
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute
of Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues to
accept rejects. For example how many teachers in AMEC are former teachers of Aquinas University but were
removed because of immorality? Does it mean that the present administration of AMEC have the total definite moral
foundation from catholic administrator of Aquinas University. I will prove to you my friends, that AMEC is a
dumping ground, garbage, not merely of moral and physical misfits. Probably they only qualify in terms of
intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work,
being an old woman. Is the AMEC administration exploiting the very [e]nterprising or compromising and
undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola were if she is very old.
As in atmospheric situation zero visibility the plane cannot land, meaning she is very old, low pay follows. By the
way, Dean Justita Lola is also the chairman of the committee on scholarship in AMEC. She had retired from Bicol
University a long time ago but AMEC has patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does
this mean? Immoral and physically misfits as teachers.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You
are too old. As an aviation, your case is zero visibility. Dont insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The
reason is practical cost saving in salaries, because an old person is not fastidious, so long as she has money to buy the
ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by
evil. When they become members of society outside of campus will be liabilities rather than assets. What do you
expect from a doctor who while studying at AMEC is so much burdened with unreasonable imposition? What do you
expect from a student who aside from peculiar problems because not all students are rich in their struggle to improve
their social status are even more burdened with false regulations. xxx[9] (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI,
Rima and Alegre transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation.
AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selection and
supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer[10] alleging that the
broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a
sense of public duty to report the goings-on in AMEC, [which is] an institution imbued with public interest.
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea,
collaborating counsel of Atty. Lozares, filed a Motion to Dismiss[11] on FBNIs behalf. The trial court denied the motion
to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the selection and
supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an
application; (2) be interviewed; and (3) undergo an apprenticeship and training program after passing the interview.
FBNI likewise claimed that it always reminds its broadcasters to observe truth, fairness and objectivity in their
broadcasts and to refrain from using libelous and indecent language. Moreover, FBNI requires all broadcasters to pass
the Kapisanan ng mga Brodkaster sa Pilipinas (KBP) accreditation test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision [12] finding FBNI and Alegre liable for libel except
Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters claim that
their utterances were the result of straight reporting because it had no factual basis. The broadcasters did not even
verify their reports before airing them to show good faith. In holding FBNI liable for libel, the trial court found that
FBNI failed to exercise diligence in the selection and supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with
Alegres expos. The trial court found Rimas statement within the bounds of freedom of speech, expression, and of the
press. The dispositive portion of the decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused
by the controversial utterances, which are not found by this court to be really very serious and damaging, and
there being no showing that indeed the enrollment of plaintiff school dropped, defendants Hermogenes Jun
Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally
ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM)
the amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of
suit.
SO ORDERED. [13] (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the
decision to the Court of Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The
appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for damages
and attorneys fees because the broadcasts were directed against AMEC, and not against her. The dispositive portion
of the Court of Appeals decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel
Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.[14]
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January
2000 Resolution.
Hence, FBNI filed this petition.[15]
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that
FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and
Alegres claim that they were actuated by their moral and social duty to inform the public of the students gripes as
insufficient to justify the utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the
broadcasts were made with reckless disregard as to whether they were true or false. The appellate court pointed out
that FBNI, Rima and Alegre failed to present in court any of the students who allegedly complained against AMEC.
Rima and Alegre merely gave a single name when asked to identify the students. According to the Court of Appeals,
these circumstances cast doubt on the veracity of the broadcasters claim that they were impelled by their moral and
social duty to inform the public about the students gripes.
The Court of Appeals found Rima also liable for libel since he remarked that (1) AMEC-BCCM is a dumping
ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize
expenses on its employees salaries; and (3) AMEC burdened the students with unreasonable imposition and false
regulations.[16]
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its
employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. The
Court of Appeals denied Agos claim for damages and attorneys fees because the libelous remarks were directed against
AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC
moral damages, attorneys fees and costs of suit.
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL
DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT.
The Courts Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against
AMEC.[17] While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals
that AMECs cause of action is based on Articles 30 and 33 of the Civil Code. Article 30[18] authorizes a separate civil
action to recover civil liability arising from a criminal offense. On the other hand, Article 33[19] particularly provides
that the injured party may bring a separate civil action for damages in cases of defamation, fraud, and physical injuries.
AMEC also invokes Article 19[20] of the Civil Code to justify its claim for damages. AMEC cites Articles 2176[21] and
2180[22] of the Civil Code to hold FBNI solidarily liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or
omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or
juridical person, or to blacken the memory of one who is dead. [24]
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances
tending to cause it dishonor, discredit and contempt. Rima and Alegres remarks such as greed for money on the part
of AMECs administrators; AMEC is a dumping ground, garbage of xxx moral and physical misfits; and AMEC
students who graduate will be liabilities rather than assets of the society are libelous per se. Taken as a whole, the
broadcasts suggest that AMEC is a money-making institution where physically and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly
impelled by their civic duty to air the students gripes. FBNI alleges that there is no evidence that ill will or spite
motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts
to obtain AMECs side and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that
since there is no malice, there is no libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed malicious.[25] Rima and Alegre failed to show adequately their good
intention and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public
affairs program, Rima and Alegre should have presented the public issues free from inaccurate and misleading
information.[26] Hearing the students alleged complaints a month before the expos,[27] they had sufficient time to verify
their sources and information. However, Rima and Alegre hardly made a thorough investigation of the students alleged
gripes. Neither did they inquire about nor confirm the purported irregularities in AMEC from the Department of
Education, Culture and Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged
AMEC official who refused to disclose any information. Alegre simply relied on the words of the students because
they were many and not because there is proof that what they are saying is true.[28] This plainly shows Rima and
Alegres reckless disregard of whether their report was true or not.
Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. Significantly, some courts in
the United States apply the privilege of neutral reportage in libel cases involving matters of public interest or public
figures. Under this privilege, a republisher who accurately and disinterestedly reports certain defamatory statements
made against public figures is shielded from liability, regardless of the republishers subjective awareness of the truth
or falsity of the accusation.[29] Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded
comments abound in the broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcasts
were made. The privilege of neutral reportage applies where the defamed person is a public figure who is involved in
an existing controversy, and a party to that controversy makes the defamatory statement. [30]
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of
Appeals,[31] FBNI contends that the broadcasts fall within the coverage of qualifiedly privileged communications for
being commentaries on matters of public interest. Such being the case, AMEC should prove malice in fact or actual
malice. Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of fair comment, thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or
slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is
deemed false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation
is deemed malicious, nevertheless, when the discreditable imputation is directed against a public person in his public
capacity, it is not necessarily actionable. In order that such discreditable imputation to a public official may be
actionable, it must either be a false allegation of fact or a comment based on a false supposition. If the comment
is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken,
as long as it might reasonably be inferred from the facts.[32] (Emphasis supplied)
True, AMEC is a private learning institution whose business of educating students is genuinely imbued with
public interest. The welfare of the youth in general and AMECs students in particular is a matter which the public has
the right to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt with matters of public
interest. However, unlike in Borjal, the questioned broadcasts are not based on established facts. The record supports
the following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff,
yet, defendants have not presented in court, nor even gave name of a single student who made the complaint to them,
much less present written complaint or petition to that effect. To accept this defense of defendants is too dangerous
because it could easily give license to the media to malign people and establishments based on flimsy excuses that
there were reports to them although they could not satisfactorily establish it. Such laxity would encourage careless
and irresponsible broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not
verify and analyze the truth of the reports before they aired it, in order to prove that they are in good faith.
Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet,
plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the
controversial broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff, which
certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-
rebuttal). Defendants could have easily known this were they careful enough to verify. And yet, defendants were very
categorical and sounded too positive when they made the erroneous report that plaintiff had no permit to offer Physical
Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove
not to be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school
was given the name Mcdonald building, that was only in order to honor the first missionary in Bicol of plaintiffs
religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears
to be received by plaintiff school from the aforementioned McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail
in one subject, they are made to repeat all the other subject[s], even those they have already passed, nor their claim
that the school charges laboratory fees even if there are no laboratories in the school. No evidence was presented to
prove the bases for these claims, at least in order to give semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out
Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991,
and was found to be 75 years old. xxx Even older people prove to be effective teachers like Supreme Court Justices
who are still very much in demand as law professors in their late years. Counsel for defendants is past 75 but is found
by this court to be still very sharp and effective. So is plaintiffs counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile.
The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being
from the place himself, this court is aware that majority of the medical graduates of plaintiffs pass the board
examination easily and become prosperous and responsible professionals. [33]
Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion
happens to be mistaken, as long as it might reasonably be inferred from the facts. [34] However, the comments of Rima
and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and remain libelous per se.
The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. (Radio
Code). Item I(B) of the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate
and misleading information. x x x Furthermore, the station shall strive to present balanced discussion
of issues. x x x.
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues and
commentary programs so that they conform to the provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest,
general welfare and good order in the presentation of public affairs and public issues. [36](Emphasis
supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical
conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct
imposed by the radio broadcast industry on its own members. The Radio Code is a public warranty by the radio
broadcast industry that radio broadcast practitioners are subject to a code by which their conduct are measured for
lapses, liability and sanctions.
 The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of
their profession, just like other professionals. A professional code of conduct provides the standards for determining
whether a person has acted justly, honestly and with good faith in the exercise of his rights and performance of his
duties as required by Article 19[37] of the Civil Code. A professional code of conduct also provides the standards for
determining whether a person who willfully causes loss or injury to another has acted in a manner contrary to morals
or good customs under Article 21[38] of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation. [39]
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral
shock.[40] The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.[41] to justify the award of moral damages.
However, the Courts statement in Mambulao that a corporation may have a good reputation which, if besmirched,
may also be a ground for the award of moral damages is an obiter dictum.[42]
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 [43] of the Civil Code. This
provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of
defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical
person such as a corporation can validly complain for libel or any other form of defamation and claim for moral
damages.[44]
Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a case, evidence of an
honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. [46] Neither
in such a case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the recovery
of some damages.[47] In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the
broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation.
Therefore, we reduce the award of moral damages from P300,000 to P150,000.
III.
Whether the award of attorneys fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys
fees. FBNI adds that the instant case does not fall under the enumeration in Article 2208 [48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys
fees. AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both the trial and appellate
courts failed to explicitly state in their respective decisions the rationale for the award of attorneys fees. [49] In Inter-
Asia Investment Industries, Inc. v. Court of Appeals,[50] we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and
counsels fees are not to be awarded every time a party wins a suit. The power of the court to award attorneys fees
under Article 2208 of the Civil Code demands factual, legal and equitable justification, without which the award
is a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events, the
court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for
the award of attorneys fees.[51](Emphasis supplied)
While it mentioned about the award of attorneys fees by stating that it lies within the discretion of the court and
depends upon the circumstances of each case, the Court of Appeals failed to point out any circumstance to justify the
award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys
fees because it exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre.
FBNI maintains that its broadcasters, including Rima and Alegre, undergo a very regimented process before they are
allowed to go on air. Those who apply for broadcaster are subjected to interviews, examinations and an apprenticeship
program.
FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI
points out that the minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI
did not exercise the diligence of a good father of a family in selecting and supervising them. Rimas accreditation
lapsed due to his non-payment of the KBP annual fees while Alegres accreditation card was delayed allegedly for
reasons attributable to the KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not
required by any law or government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they
commit.[52] Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance,
cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit.[53] Thus,
AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising
from the libelous broadcasts. As stated by the Court of Appeals, recovery for defamatory statements published by
radio or television may be had from the owner of the station, a licensee, the operator of the station, or a person who
procures, or participates in, the making of the defamatory statements. [54] An employer and employee are solidarily
liable for a defamatory statement by the employee within the course and scope of his or her employment, at least when
the employer authorizes or ratifies the defamation.[55] In this case, Rima and Alegre were clearly performing their
official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved
that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did
not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed that it exercised
diligence in the selection of its broadcasters without introducing any evidence to prove that it observed the same
diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised diligence in supervising its
broadcasters. FBNIs alleged constant reminder to its broadcasters to observe truth, fairness and objectivity and to
refrain from using libelous and indecent language is not enough to prove due diligence in the supervision of its
broadcasters. Adequate training of the broadcasters on the industrys code of conduct, sufficient information on libel
laws, and continuous evaluation of the broadcasters performance are but a few of the many ways of showing diligence
in the supervision of broadcasters.
FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in
mind their qualifications. However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs
regimented process of application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP
accreditation,[56] which is one of FBNIs requirements before it hires a broadcaster. Significantly, membership in the
KBP, while voluntary, indicates the broadcasters strong commitment to observe the broadcast industrys rules and
regulations. Clearly, these circumstances show FBNIs lack of diligence in selecting and supervising Rima and Alegre.
Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of
26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of
moral damages is reduced from P300,000 to P150,000 and the award of attorneys fees is deleted. Costs against
petitioner.
SO ORDERED.
EN BANC

WILSON P. GAMBOA, G.R. No. 176579

Petitioner,
Present:
- versus -
CORONA, C.J.,
FINANCE SECRETARY MARGARITO B. CARPIO,
TEVES, FINANCE UNDERSECRETARY JOHN VELASCO, JR.,
P. SEVILLA, AND COMMISSIONER RICARDO LEONARDO-DE CASTRO,
ABCEDE OF THE PRESIDENTIAL BRION,
COMMISSION ON GOOD GOVERNMENT PERALTA,
(PCGG) IN THEIR CAPACITIES AS CHAIR BERSAMIN,
AND MEMBERS, RESPECTIVELY, OF THE DEL CASTILLO,
PRIVATIZATION COUNCIL, ABAD,
CHAIRMAN ANTHONI SALIM OF FIRST VILLARAMA, JR.,
PACIFIC CO., LTD. IN HIS CAPACITY AS PEREZ,
DIRECTOR OF METRO PACIFIC ASSET MENDOZA, and
HOLDINGS INC., CHAIRMAN MANUEL V. SERENO, JJ.
PANGILINAN OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY (PLDT)
IN HIS CAPACITY AS MANAGING DIRECTOR
OF FIRST PACIFIC CO., LTD., PRESIDENT
NAPOLEON L. NAZARENO OF PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY,
CHAIR FE BARIN OF THE SECURITIES
EXCHANGE COMMISSION, and PRESIDENT
FRANCIS LIM OF THE PHILIPPINE STOCK
EXCHANGE,
Respondents.

PABLITO V. SANIDAD and Promulgated:

ARNO V. SANIDAD,
Petitioners-in-Intervention. June 28, 2011

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CARPIO, J.:

The Case

This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of shares
of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the
Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First
Pacific).

The Antecedents

The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company
(PLDT), are as follows:1

On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the
right to engage in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an
American company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to
PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose
Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of
Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of
stock of PTIC held by PHI were sequestered by the Presidential Commission on Good Government (PCGG). The
111,415 PTIC shares, which represent about 46.125 percent of the outstanding capital stock of PTIC, were later
declared by this Court to be owned by the Republic of the Philippines. 2

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent
of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the
Philippine Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding
capital stock of PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the public bidding
was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio
Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510 million.

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the
111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February
2007 deadline set by IPC and instead, yielded its right to PTIC itself which was then given by IPC until 2 March 2007
to buy the PTIC shares. On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional
Sale and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC,
with the Philippine Government for the price of P25,217,556,000 or US$510,580,189. The sale was completed on 28
February 2007.

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is
actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT. With
the sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby
increasing the common shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11,
Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not
more than 40 percent.3

On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and
PCGG Commissioner Ricardo Abcede allege the following relevant facts:

On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC
held 26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on the
other hand, was incorporated in 1977, and became the owner of 111,415 PTIC shares or 46.125 percent of the
outstanding capital stock of PTIC by virtue of three Deeds of Assignment executed by Ramon Cojuangco and
Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were sequestered by the PCGG, and subsequently
declared by this Court as part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered PTIC
shares were reconveyed to the Republic of the Philippines in accordance with this Courts decision 4 which became
final and executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding
common shares of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC), composed of the
Department of Finance and the PCGG, as the disposing entity. An invitation to bid was published in seven different
newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid conference was held, and the original
deadline for bidding scheduled on 4 December 2006 was reset to 8 December 2006. The extension was published in
nine different newspapers.

During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid
of P25,217,556,000. The government notified First Pacific, the majority owner of PTIC shares, of the bidding results
and gave First Pacific until 1 February 2007 to exercise its right of first refusal in accordance with PTICs Articles of
Incorporation. First Pacific announced its intention to match Parallaxs bid.

On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public hearing
on the particulars of the then impending sale of the 111,415 PTIC shares. Respondents Teves and Sevilla were among
those who attended the public hearing. The HR Committee Report No. 2270 concluded that: (a) the auction of the
governments 111,415 PTIC shares bore due diligence, transparency and conformity with existing legal procedures;
and (b) First Pacifics intended acquisition of the governments 111,415 PTIC shares resulting in First Pacifics
100% ownership of PTIC will not violate the 40 percent constitutional limit on foreign ownership of a public
utility since PTIC holds only 13.847 percent of the total outstanding common shares of PLDT. 5 On 28 February
2007, First Pacific completed the acquisition of the 111,415 shares of stock of PTIC.

Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of
111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC shares
was already owned by First Pacific and its affiliates); (b) Parallax offered the highest bid amounting
to P25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted in PTICs
Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the highest
bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when
MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.
Respondent Pangilinan denies the other allegations of facts of petitioner.

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration
of nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the 111,415 PTIC shares
would result in an increase in First Pacifics common shareholdings in PLDT from 30.7 percent to 37 percent, and this,
combined with Japanese NTT DoCoMos common shareholdings in PLDT, would result to a total foreign common
shareholdings in PLDT of 51.56 percent which is over the 40 percent constitutional limit. 6 Petitioner asserts:

If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to 37.0 percent
of its common or voting- stockholdings, x x x. Hence, the consummation of the sale will put the two largest
foreign investors in PLDT First Pacific and Japans NTT DoCoMo, which is the worlds largest wireless
telecommunications firm, owning 51.56 percent of PLDT common equity. x x x With the completion of the
sale, data culled from the official website of the New York Stock Exchange (www.nyse.com) showed that
those foreign entities, which own at least five percent of common equity, will collectively own 81.47 percent
of PLDTs common equity. x x x
x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which
PLDT submitted to the New York Stock Exchange for the period 2003-2005, revealed that
First Pacific and several other foreign entities breached the constitutional limit of 40
percent ownership as early as 2003. x x x7

Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC
shares to First Pacific violates the constitutional limit on foreign ownership of a public utility; (2) whether public
respondents committed grave abuse of discretion in allowing the sale of the 111,415 PTIC shares to First Pacific; and
(3) whether the sale of common shares to foreigners in excess of 40 percent of the entire subscribed common capital
stock violates the constitutional limit on foreign ownership of a public utility. 8

On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit
Attached Petition-in-Intervention. In the Resolution of 28 August 2007, the Court granted the motion and noted the
Petition-in-Intervention.

Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify the
sale by respondents of the 111,415 PTIC shares to First Pacific or assignee. Petitioners-in-intervention claim that, as
PLDT subscribers, they have a stake in the outcome of the controversy x x x where the Philippine Government is
completing the sale of government owned assets in [PLDT], unquestionably a public utility, in violation of the
nationality restrictions of the Philippine Constitution.

The Issue

This Court is not a trier of facts. Factual questions such as those raised by petitioner, 9 which indisputably demand a
thorough examination of the evidence of the parties, are generally beyond this Courts jurisdiction. Adhering to this
well-settled principle, the Court shall confine the resolution of the instant controversy solely on the threshold and
purely legal issue of whether the term capital in Section 11, Article XII of the Constitution refers to the total common
shares only or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of
PLDT, a public utility.

The Ruling of the Court

The petition is partly meritorious.

Petition for declaratory relief treated as petition for mandamus

At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition for
prohibition is within the original jurisdiction of this court, which however is not exclusive but is concurrent with the
Regional Trial Court and the Court of Appeals. The actions for declaratory relief, 10 injunction, and annulment of sale
are not embraced within the original jurisdiction of the Supreme Court. On this ground alone, the petition could have
been dismissed outright.

While direct resort to this Court may be justified in a petition for prohibition, 11 the Court shall nevertheless refrain
from discussing the grounds in support of the petition for prohibition since on 28 February 2007, the questioned sale
was consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the
111,415 PTIC shares.

However, since the threshold and purely legal issue on the definition of the term capital in Section 11, Article XII of
the Constitution has far-reaching implications to the national economy, the Court treats the petition for declaratory
relief as one for mandamus.12

In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one for
mandamus considering the grave injustice that would result in the interpretation of a banking law. In that case, which
involved the crime of rape committed by a foreign tourist against a Filipino minor and the execution of the final
judgment in the civil case for damages on the tourists dollar deposit with a local bank, the Court declared Section 113
of Central Bank Circular No. 960, exempting foreign currency deposits from attachment, garnishment or any other
order or process of any court, inapplicable due to the peculiar circumstances of the case. The Court held that injustice
would result especially to a citizen aggrieved by a foreign guest like accused x x x that would negate Article 10 of the
Civil Code which provides that in case of doubt in the interpretation or application of laws, it is presumed that the
lawmaking body intended right and justice to prevail. The Court therefore required respondents Central Bank of the
Philippines, the local bank, and the accused to comply with the writ of execution issued in the civil case for damages
and to release the dollar deposit of the accused to satisfy the judgment.

In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural infirmity
of the petition for declaratory relief and treated the same as one for mandamus. In Alliance, the issue was whether the
government unlawfully excluded petitioners, who were government employees, from the enjoyment of rights to which
they were entitled under the law. Specifically, the question was: Are the branches, agencies, subdivisions, and
instrumentalities of the Government, including government owned or controlled corporations included among the four
employers under Presidential Decree No. 851 which are required to pay their employees x x x a thirteenth (13th)
month pay x x x ? The Constitutional principle involved therein affected all government employees, clearly justifying
a relaxation of the technical rules of procedure, and certainly requiring the interpretation of the assailed presidential
decree.

In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue
involved has far-reaching implications. As this Court held in Salvacion:

The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However,
exceptions to this rule have been recognized. Thus, where the petition has far-reaching implications
and raises questions that should be resolved, it may be treated as one for mandamus.15 (Emphasis
supplied)

In the present case, petitioner seeks primarily the interpretation of the term capital in Section 11, Article XII of the
Constitution. He prays that this Court declare that the term capital refers to common shares only, and that such shares
constitute the sole basis in determining foreign equity in a public utility. Petitioner further asks this Court to declare
any ruling inconsistent with such interpretation unconstitutional.

The interpretation of the term capital in Section 11, Article XII of the Constitution has far-reaching implications to
the national economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or second class
citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have effective control of
the national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation, and
to future generations of Filipinos, it is the threshhold legal issue presented in this case.

The Court first encountered the issue on the definition of the term capital in Section 11, Article XII of the Constitution
in the case of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the same public utility
(PLDT) and substantially the same private respondents. Despite the importance and novelty of the constitutional issue
raised therein and despite the fact that the petition involved a purely legal question, the Court declined to resolve the
case on the merits, and instead denied the same for disregarding the hierarchy of courts.17 There, petitioner Fernandez
assailed on a pure question of law the Regional Trial Courts Decision of 21 February 2003 via a petition for review
under Rule 45. The Courts Resolution, denying the petition, became final on 21 December 2004.
The instant petition therefore presents the Court with another opportunity to finally settle this purely legal issue which
is of transcendental importance to the national economy and a fundamental requirement to a faithful adherence to our
Constitution. The Court must forthwith seize such opportunity, not only for the benefit of the litigants, but more
significantly for the benefit of the entire Filipino people, to ensure, in the words of the Constitution, a self-reliant and
independent national economy effectively controlled by Filipinos.18 Besides, in the light of vague and confusing
positions taken by government agencies on this purely legal issue, present and future foreign investors in this country
deserve, as a matter of basic fairness, a categorical ruling from this Court on the extent of their participation in the
capital of public utilities and other nationalized businesses.
Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for over
75 years since the 1935 Constitution. There is no reason for this Court to evade this ever recurring fundamental issue
and delay again defining the term capital, which appears not only in Section 11, Article XII of the Constitution, but
also in Section 2, Article XII on co-production and joint venture agreements for the development of our natural
resources,19 in Section 7, Article XII on ownership of private lands, 20 in Section 10, Article XII on the reservation of
certain investments to Filipino citizens,21 in Section 4(2), Article XIV on the ownership of educational
institutions,22 and in Section 11(2), Article XVI on the ownership of advertising companies. 23

Petitioner has locus standi

There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject sale,
which he claims to violate the nationality requirement prescribed in Section 11, Article XII of the Constitution. If the
sale indeed violates the Constitution, then there is a possibility that PLDTs franchise could be revoked, a dire
consequence directly affecting petitioners interest as a stockholder.

More importantly, there is no question that the instant petition raises matters of transcendental importance to the
public. The fundamental and threshold legal issue in this case, involving the national economy and the economic
welfare of the Filipino people, far outweighs any perceived impediment in the legal personality of the petitioner to
bring this action.

In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendental importance
to the public, thus:

In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of mandamus is
to obtain the enforcement of a public duty, the people are regarded as the real parties in interest; and because
it is sufficient that petitioner is a citizen and as such is interested in the execution of the laws, he need not show
that he has any legal or special interest in the result of the action. In the aforesaid case, the petitioners sought to
enforce their right to be informed on matters of public concern, a right then recognized in Section 6, Article IV of the
1973 Constitution, in connection with the rule that laws in order to be valid and enforceable must be published in the
Official Gazette or otherwise effectively promulgated. In ruling for the petitioners legal standing, the Court declared
that the right they sought to be enforced is a public right recognized by no less than the fundamental law of the land.
Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a mandamus proceeding
involves the assertion of a public right, the requirement of personal interest is satisfied by the mere fact that
petitioner is a citizen and, therefore, part of the general public which possesses the right.
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under the
questioned contract for the development, management and operation of the Manila International Container
Terminal, public interest [was] definitely involved considering the important role [of the subject contract] . . .
in the economic development of the country and the magnitude of the financial consideration involved. We
concluded that, as a consequence, the disclosure provision in the Constitution would constitute sufficient authority for
upholding the petitioners standing. (Emphasis supplied)

Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the
petitioner has the requisite locus standi.

Definition of the Term Capital in

Section 11, Article XII of the 1987 Constitution

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of
public utilities, to wit:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens;
nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under the condition that it shall be subject
to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general public. The participation of foreign investors
in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital,
and all the executive and managing officers of such corporation or association must be citizens of the
Philippines. (Emphasis supplied)

The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:
 Section 5. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines at least sixty per centum of the capital of which is owned by such
citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period
than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall
be subject to amendment, alteration, or repeal by the National Assembly when the public interest so requires.
The State shall encourage equity participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate
share in the capital thereof. (Emphasis supplied)

The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz:

Section 8. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or other entities
organized under the laws of the Philippines sixty per centum of the capital of which is owned by citizens
of the Philippines, nor shall such franchise, certificate, or authorization be exclusive in character or for a
longer period than fifty years. No franchise or right shall be granted to any individual, firm, or corporation,
except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when
the public interest so requires. (Emphasis supplied)

Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that
the Filipinization provision in the 1987 Constitution is one of the products of the spirit of nationalism which gripped
the 1935 Constitutional Convention.25 The 1987 Constitution provides for the Filipinization of public utilities by
requiring that any form of authorization for the operation of public utilities should be granted only to citizens of the
Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens. The provision is [an express] recognition of the sensitive and vital
position of public utilities both in the national economy and for national security. 26 The evident purpose of the
citizenship requirement is to prevent aliens from assuming control of public utilities, which may be inimical to the
national interest.27 This specific provision explicitly reserves to Filipino citizens control of public utilities, pursuant
to an overriding economic goal of the 1987 Constitution: to conserve and develop our patrimony 28 and ensure a self-
reliant and independent national economy effectively controlled by Filipinos.29

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality
requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted authority
to operate a public utility, at least 60 percent of its capital must be owned by Filipino citizens.

The crux of the controversy is the definition of the term capital. Does the term capital in Section 11, Article XII of
the Constitution refer to common shares or to the total outstanding capital stock (combined total of common and non-
voting preferred shares)?

Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common
shares because such shares are entitled to vote and it is through voting that control over a corporation is exercised.
Petitioner posits that the term capital in Section 11, Article XII of the Constitution refers to the ownership of common
capital stock subscribed and outstanding, which class of shares alone, under the corporate set-up of PLDT, can vote
and elect members of the board of directors. It is undisputed that PLDTs non-voting preferred shares are held mostly
by Filipino citizens.30 This arose from Presidential Decree No. 217, 31 issued on 16 June 1973 by then President
Ferdinand Marcos, requiring every applicant of a PLDT telephone line to subscribe to non-voting preferred shares to
pay for the investment cost of installing the telephone line.32

Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners definition of the term
capital.33 Petitioners-in-intervention allege that the approximate foreign ownership of common capital stock of PLDT
x x x already amounts to at least 63.54% of the total outstanding common stock, which means that foreigners exercise
significant control over PLDT, patently violating the 40 percent foreign equity limitation in public utilities prescribed
by the Constitution.

Respondents, on the other hand, do not offer any definition of the term capital in Section 11, Article XII of the
Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT do not dispute that more than
40 percent of the common shares of PLDT are held by foreigners.

In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the procedural infirmities
of the petition and the supposed violation of the due process rights of the affected foreign common shareholders.
Respondent Nazareno does not deny petitioners allegation of foreigners dominating the common shareholdings of
PLDT. Nazarenostressed mainly that the petition seeks to divest foreign common shareholders purportedly
exceeding 40% of the total common shareholdings in PLDT of their ownership over their shares. Thus, the
foreign natural and juridical PLDT shareholders must be impleaded in this suit so that they can be
heard.34 Essentially, Nazareno invokes denial of due process on behalf of the foreign common shareholders.

While Nazareno does not introduce any definition of the term capital, he states that among the factual assertions
that need to be established to counter petitioners allegations is the uniform interpretation by government
agencies (such as the SEC), institutions and corporations (such as the Philippine National Oil Company-Energy
Development Corporation or PNOC-EDC) of including both preferred shares and common shares in
controlling interest in view of testing compliance with the 40% constitutional limitation on foreign ownership
in public utilities.35

Similarly, respondent Manuel V. Pangilinan does not define the term capital in Section 11, Article XII of the
Constitution. Neither does he refute petitioners claim of foreigners holding more than 40 percent of PLDTs common
shares. Instead, respondent Pangilinan focuses on the procedural flaws of the petition and the alleged violation of the
due process rights of foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) the absence of this Courts
jurisdiction over the petition; (2) petitioners lack of standing; (3) mootness of the petition; (4) non-availability of
declaratory relief; and (5) the denial of due process rights. Moreover, respondent Pangilinan alleges that the issue
should be whether owners of shares in PLDT as well as owners of shares in companies holding shares in PLDT may
be required to relinquish their shares in PLDT and in those companies without any law requiring them to surrender
their shares and also without notice and trial.

Respondent Pangilinan further asserts that Section 11, [Article XII of the Constitution] imposes no nationality
requirement on the shareholders of the utility company as a condition for keeping their shares in the utility
company. According to him, Section 11 does not authorize taking one persons property (the shareholders stock in the
utility company) on the basis of another partys alleged failure to satisfy a requirement that is a condition only for that
other partys retention of another piece of property (the utility company being at least 60% Filipino-owned to keep its
franchise).36

The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla, Commissioner
Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition of the term capital. In its
Memorandum37 dated 24 September 2007, the OSG also limits its discussion on the supposed procedural defects of
the petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of interested parties, and lack of basis for
injunction. The OSG does not present any definition or interpretation of the term capital in Section 11, Article XII of
the Constitution. The OSG contends that the petition actually partakes of a collateral attack on PLDTs franchise as a
public utility, which in effect requires a full-blown trial where all the parties in interest are given their day in court. 38

Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock Exchange
(PSE), does not also define the term capital and seeks the dismissal of the petition on the following grounds: (1) failure
to state a cause of action against Lim; (2) the PSE allegedly implemented its rules and required all listed companies,
including PLDT, to make proper and timely disclosures; and (3) the reliefs prayed for in the petition would adversely
impact the stock market.

In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record
of PLDT, contended that the term capital in the 1987 Constitution refers to shares entitled to vote or the common
shares. Fernandez explained thus:

The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to
ownership of shares of stock entitled to vote, i.e., common shares, considering that it is through voting that
control is being exercised. x x x

Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully
nationalized and partially nationalized activities is for Filipino nationals to be always in control of the
corporation undertaking said activities. Otherwise, if the Trial Courts ruling upholding respondents
arguments were to be given credence, it would be possible for the ownership structure of a public utility
corporation to be divided into one percent (1%) common stocks and ninety-nine percent (99%) preferred
stocks. Following the Trial Courts ruling adopting respondents arguments, the common shares can be owned
entirely by foreigners thus creating an absurd situation wherein foreigners, who are supposed to be minority
shareholders, control the public utility corporation.

xxxx

Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership
and the controlling interest.
 xxxx

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the
Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore,
ownership of record of shares will not suffice but it must be shown that the legal and beneficial ownership
rests in the hands of Filipino citizens. Consequently, in the case of petitioner PLDT, since it is already
admitted that the voting interests of foreigners which would gain entry to petitioner PLDT by the acquisition
of SMART shares through the Questioned Transactions is equivalent to 82.99%, and the nominee
arrangements between the foreign principals and the Filipino owners is likewise admitted, there is, therefore,
a violation of Section 11, Article XII of the Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support
the proposition that the meaning of the word capital as used in Section 11, Article XII of the Constitution
allegedly refers to the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is
immaterial how the stock is classified, whether as common or preferred, cannot stand in the face of a clear
legislative policy as stated in the FIA which took effect in 1991 or way after said opinions were rendered,
and as clarified by the above-quoted Amendments. In this regard, suffice it to state that as between the law
and an opinion rendered by an administrative agency, the law indubitably prevails. Moreover, said Opinions
are merely advisory and cannot prevail over the clear intent of the framers of the Constitution.

In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best merely
advisory for it is the courts that finally determine what a law means.39

On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y.
Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon
L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued that the term capital in Section 11, Article XII of the
Constitution includes preferred shares since the Constitution does not distinguish among classes of stock, thus:

16. The Constitution applies its foreign ownership limitation on the corporations capital, without distinction as
to classes of shares. x x x

In this connection, the Corporation Code which was already in force at the time the present (1987)
Constitution was drafted defined outstanding capital stock as follows:

Section 137. Outstanding capital stock defined. The term outstanding capital stock, as used in this Code,
means the total shares of stock issued under binding subscription agreements to subscribers or stockholders,
whether or not fully or partially paid, except treasury shares.

Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor
exclude either class of shares, in determining the outstanding capital stock (the capital) of a corporation.
Consequently, petitioners suggestion to reckon PLDTs foreign equity only on the basis of PLDTs outstanding
common shares is without legal basis. The language of the Constitution should be understood in the sense it
has in common use.
xxxx

17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is
nothing in the Record of the Constitutional Commission (Vol. III) which petitioner misleadingly cited in the
Petition x x x which supports petitioners view that only common shares should form the basis for computing
a public utilitys foreign equity.
xxxx

18. In addition, the SEC the government agency primarily responsible for implementing the Corporation Code,
and which also has the responsibility of ensuring compliance with the Constitutions foreign equity restrictions
as regards nationalized activities x x x has categorically ruled that both common and preferred shares are
properly considered in determining outstanding capital stock and the nationality composition thereof. 40

We agree with petitioner and petitioners-in-intervention. The term capital in Section 11, Article XII of the Constitution
refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common
shares,41 and not to the total outstanding capital stock comprising both common and non-voting preferred shares.
The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:

Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or
series of shares, or both, any of which classes or series of shares may have such rights, privileges or
 restrictions as may be stated in the articles of incorporation: Provided, That no share may be deprived of
voting rights except those classified and issued as preferred or redeemable shares, unless otherwise
provided in this Code: Provided, further, That there shall always be a class or series of shares which have
complete voting rights. Any or all of the shares or series of shares may have a par value or have no par value
as may be provided for in the articles of incorporation: Provided, however, That banks, trust companies,
insurance companies, public utilities, and building and loan associations shall not be permitted to issue no-
par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets
of the corporation in case of liquidation and in the distribution of dividends, or such other preferences as may
be stated in the articles of incorporation which are not violative of the provisions of this Code: Provided, That
preferred shares of stock may be issued only with a stated par value. The Board of Directors, where authorized
in the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any series
thereof: Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof
with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder
of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares
without par value may not be issued for a consideration less than the value of five (P5.00) pesos per share:
Provided, further, That the entire consideration received by the corporation for its no-par value shares shall
be treated as capital and shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional
or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share
shall be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the
holders of such shares shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the
corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation or business in accordance with this Code;
and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular
corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights.

Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the
corporation.43 This is exercised through his vote in the election of directors because it is the board of directors that
controls or manages the corporation.44 In the absence of provisions in the articles of incorporation denying voting
rights to preferred shares, preferred shares have the same voting rights as common shares. However, preferred
shareholders are often excluded from any control, that is, deprived of the right to vote in the election of directors and
on other matters, on the theory that the preferred shareholders are merely investors in the corporation for income in
the same manner as bondholders.45 In fact, under the Corporation Code only preferred or redeemable shares can be
deprived of the right to vote.46 Common shares cannot be deprived of the right to vote in any corporate meeting, and
any provision in the articles of incorporation restricting the right of common shareholders to vote is invalid. 47

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which
usually have no voting rights, the term capital in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the election of directors, then the term capital
shall include such preferred shares because the right to participate in the control or management of the corporation is
exercised through the right to vote in the election of directors. In short, the term capital in Section 11, Article XII
of the Constitution refers only to shares of stock that can vote in the election of directors.

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino
citizens the control and management of public utilities. As revealed in the deliberations of the Constitutional
Commission, capital refers to the voting stock or controlling interest of a corporation, to wit:

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity;
namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.

MR. VILLEGAS. That is right.

 MR. NOLLEDO. In teaching law, we are always faced with this question: Where do we base the equity
requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital
stock of a corporation? Will the Committee please enlighten me on this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center
who provided us a draft. The phrase that is contained here which we adopted from the UP draft is 60
percent of voting stock.

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent,
unpaid capital stock shall be entitled to vote.

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40
percent equity invests in another corporation which is permitted by the Corporation Code, does the
Committee adopt the grandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. Yes.48

xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase voting stock or
controlling interest.

MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: corporations or
associations at least sixty percent of whose CAPITAL is owned by such citizens.

MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned
by citizens.

MR. VILLEGAS. That is right.

MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40
percent of the capital is owned by them, but it is the voting capital, whereas, the Filipinos own the
nonvoting shares. So we can have a situation where the corporation is controlled by foreigners despite
being the minority because they have the voting capital. That is the anomaly that would result here.

MR. BENGZON. No, the reason we eliminated the word stock as stated in the 1973 and 1935
Constitutions is that according to Commissioner Rodrigo, there are associations that do not have
stocks. That is why we say CAPITAL.

MR. AZCUNA. We should not eliminate the phrase controlling interest.

MR. BENGZON. In the case of stock corporations, it is assumed. 49 (Emphasis supplied)

Thus, 60 percent of the capital assumes, or should result in, controlling interest in the corporation. Reinforcing this
interpretation of the term capital, as referring to controlling interest or shares entitled to vote, is the definition of a
Philippine national in the Foreign Investments Act of 1991,50 to wit:

SEC. 3. Definitions. - As used in this Act:

a. The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or
association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote
is owned and held by citizens of the Philippines; or a corporation organized abroad and registered as doing
 business in the Philippines under the Corporation Code of which one hundred percent (100%) of the capital
stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent
(60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and
its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both
corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the
members of the Board of Directors of each of both corporations must be citizens of the Philippines, in order
that the corporation, shall be considered a Philippine national. (Emphasis supplied)

In explaining the definition of a Philippine national, the Implementing Rules and Regulations of the Foreign
Investments Act of 1991 provide:

b. Philippine national shall mean a citizen of the Philippines or a domestic partnership or association wholly
owned by the citizens of the Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty percent [60%] of the fund will
accrue to the benefit of the Philippine nationals; Provided,that where a corporation its non-Filipino
stockholders own stocks in a Securities and Exchange Commission [SEC] registered enterprise, at least sixty
percent [60%] of the capital stock outstanding and entitled to vote of both corporations must be owned and
held by citizens of the Philippines and at least sixty percent [60%] of the members of the Board of Directors
of each of both corporation must be citizens of the Philippines, in order that the corporation shall be
considered a Philippine national. The control test shall be applied for this purpose.

Compliance with the required Filipino ownership of a corporation shall be determined on the basis of
outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled
to vote are considered.

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title
is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or
transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals.

Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-
Philippine nationals. (Emphasis supplied)

Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required in the Constitution. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is
required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is considered as non-
Philippine national[s].

Under Section 10, Article XII of the Constitution, Congress may reserve to citizens of the Philippines or to
corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher
percentage as Congress may prescribe, certain areas of investments. Thus, in numerous laws Congress has reserved
certain areas of investments to Filipino citizens or to corporations at least sixty percent of the capital of which is
owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or R.A. No.
5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and Medium
Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic
Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No.
10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term capital in Section 11, Article XII of the
Constitution is also used in the same context in numerous lawsreserving certain areas of investments to Filipino
citizens.

To construe broadly the term capital as the total outstanding capital stock, including both common and non-
voting preferred shares, grossly contravenes the intent and letter of the Constitution that the State shall develop a self-
reliant and independent national economy effectively controlled by Filipinos. A broad definition unjustifiably
disregards who owns the all-important voting stock, which necessarily equates to control of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to the term capital. Let us assume that a corporation
has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with
both classes of share having a par value of one peso (P1.00) per share. Under the broad definition of the term capital,
such corporation would be considered compliant with the 40 percent constitutional limit on foreign equity of public
utilities since the overwhelming majority, or more than 99.999 percent, of the total outstanding capital stock is Filipino
owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the election of directors,
even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise control
over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot vote
in the election of directors and hence, have no control over the public utility. This starkly circumvents the intent of
the framers of the Constitution, as well as the clear language of the Constitution, to place the control of public utilities
in the hands of Filipinos. It also renders illusory the State policy of an independent national economy effectively
controlled by Filipinos.

The example given is not theoretical but can be found in the real world, and in fact exists in the present case.

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs Articles
of Incorporation expressly state that the holders of Serial Preferred Stock shall not be entitled to vote at any
meeting of the stockholders for the election of directors or for any other purpose or otherwise participate in any
action taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders.51

On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDTs
Articles of Incorporation52 state that each holder of Common Capital Stock shall have one vote in respect of each share
of such stock held by him on all matters voted upon by the stockholders, and the holders of Common Capital Stock
shall have the exclusive right to vote for the election of directors and for all other purposes. 53

In short, only holders of common shares can vote in the election of directors, meaning only common shareholders
exercise control over PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of
directors, do not have any control over PLDT. In fact, under PLDTs Articles of Incorporation, holders of common
shares have voting rights for all purposes, while holders of preferred shares have no voting right for any purpose
whatsoever.

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT.
In fact, based on PLDTs 2010 General Information Sheet (GIS), 54which is a document required to be submitted
annually to the Securities and Exchange Commission,55 foreigners hold 120,046,690 common shares of PLDT
whereas Filipinos hold only 66,750,622 common shares.56 In other words, foreigners hold 64.27% of the total number
of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares equates
to control, it is clear that foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the
allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII of
the Constitution.

Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per share the
SIP58 preferred shares earn a pittance in dividends compared to the common shares. PLDT declared dividends for the
common shares at P70.00 per share, while the declared dividends for the preferred shares amounted to a measly P1.00
per share.59 So the preferred shares not only cannot vote in the election of directors, they also have very little and
obviously negligible dividend earning capacity compared to common shares.

As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is P5.00 per share,
whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value
of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44%
of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred
shares.61 Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares
constitute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred
shares but with the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control
and Filipino beneficial ownership in a public utility.

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos
in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights, is constitutionally required for the States grant of authority to operate a
public utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and
earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional requirement of 60
percent Filipino control and Filipino beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends,
of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that [n]o
franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to
x x xcorporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is
owned by such citizens x x x.

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right
to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs
common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred
shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that
common shares earn;63 (5) preferred shares have twice the par value of common shares; and (6) preferred shares
constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership
and control of a public utility is a mockery of the Constitution.

Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value
of P2,328.00 per share,64 while PLDT preferred shares with a par value of P10.00 per share have a current stock market
value ranging from only P10.92 to P11.06 per share,65 is a glaring confirmation by the market that control and
beneficial ownership of PLDT rest with the common shares, not with the preferred shares.

Indisputably, construing the term capital in Section 11, Article XII of the Constitution to include both voting and non-
voting shares will result in the abject surrender of our telecommunications industry to foreigners, amounting to a clear
abdication of the States constitutional duty to limit control of public utilities to Filipino citizens. Such an interpretation
certainly runs counter to the constitutional provision reserving certain areas of investment to Filipino citizens, such as
the exploitation of natural resources as well as the ownership of land, educational institutions and advertising
businesses. The Court should never open to foreign control what the Constitution has expressly reserved to Filipinos
for that would be a betrayal of the Constitution and of the national interest. The Court must perform its solemn duty
to defend and uphold the intent and letter of the Constitution to ensure, in the words of the Constitution, a self-reliant
and independent national economy effectively controlled by Filipinos.

Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to
Filipinos specific areas of investment, such as the development of natural resources and ownership of land, educational
institutions and advertising business, is self-executing. There is no need for legislation to implement these self-
executing provisions of the Constitution. The rationale why these constitutional provisions are self-executing was
explained in Manila Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional
mandate, the presumption now is that all provisions of the constitution are self-executing. If the constitutional
provisions are treated as requiring legislation instead of self-executing, the legislature would have the power
to ignore and practically nullify the mandate of the fundamental law. This can be cataclysmic. That is why
the prevailing view is, as it has always been, that

. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-executing. . .
. Unless the contrary is clearly intended, the provisions of the Constitution should be considered self-
executing, as a contrary rule would give the legislature discretion to determine when, or whether, they
shall be effective. These provisions would be subordinated to the will of the lawmaking body, which could
make them entirely meaningless by simply refusing to pass the needed implementing statute. (Emphasis
supplied)

In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief Justice,
agreed that constitutional provisions are presumed to be self-executing. Justice Puno stated:

Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future
legislation for their enforcement. The reason is not difficult to discern. For if they are not treated as self-
executing, the mandate of the fundamental law ratified by the sovereign people can be easily ignored
and nullified by Congress. Suffused with wisdom of the ages is the unyielding rule that legislative
actions may give breath to constitutional rights but congressional inaction should not suffocate them.

Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and seizures,
the rights of a person under custodial investigation, the rights of an accused, and the privilege against self-
incrimination. It is recognized that legislation is unnecessary to enable courts to effectuate constitutional
provisions guaranteeing the fundamental rights of life, liberty and the protection of property. The same
treatment is accorded to constitutional provisions forbidding the taking or damaging of property for public
use without just compensation. (Emphasis supplied)
Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied directly the provisions
of the 1935, 1973 and 1987 Constitutions limiting land ownership to Filipinos. In Soriano v. Ong Hoo,68 this Court
ruled:

x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an
alien, and as both the citizen and the alien have violated the law, none of them should have a recourse against
the other, and it should only be the State that should be allowed to intervene and determine what is to be done
with the property subject of the violation. We have said that what the State should do or could do in such
matters is a matter of public policy, entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee
Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While the legislature has not definitely decided what
policy should be followed in cases of violations against the constitutional prohibition, courts of justice
cannot go beyond by declaring the disposition to be null and void as violative of the Constitution.
x x x (Emphasis supplied)

To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935 Constitution,
or over the last 75 years, not one of the constitutional provisions expressly reserving specific areas of investments to
corporations, at least 60 percent of the capital of which is owned by Filipinos, was enforceable. In short, the framers
of the 1935, 1973 and 1987 Constitutions miserably failed to effectively reserve to Filipinos specific areas of
investment, like the operation by corporations of public utilities, the exploitation by corporations of mineral resources,
the ownership by corporations of real estate, and the ownership of educational institutions. All the legislatures that
convened since 1935 also miserably failed to enact legislations to implement these vital constitutional provisions that
determine who will effectively control the national economy, Filipinos or foreigners. This Court cannot allow such an
absurd interpretation of the Constitution.

This Court has held that the SEC has both regulatory and adjudicative functions. 69 Under its regulatory functions, the
SEC can be compelled by mandamus to perform its statutory duty when it unlawfully neglects to perform the same.
Under its adjudicative or quasi-judicial functions, the SEC can be also be compelled by mandamus to hear and decide
a possible violation of any law it administers or enforces when it is mandated by law to investigate such violation.

Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the Articles
of Incorporation of any corporation where the required percentage of ownership of the capital stock to be owned
by citizens of the Philippines has not been complied with as required by existing laws or the Constitution. Thus,
the SEC is the government agency tasked with the statutory duty to enforce the nationality requirement prescribed in
Section 11, Article XII of the Constitution on the ownership of public utilities. This Court, in a petition for declaratory
relief that is treated as a petition for mandamus as in the present case, can direct the SEC to perform its statutory duty
under the law, a duty that the SEC has apparently unlawfully neglected to do based on the 2010 GIS that respondent
PLDT submitted to the SEC.
Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the power and function to suspend
or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds provided by law. The SEC is mandated under Section 5(d)
of the same Code with the power and function to investigate x x x the activities of persons to ensure
compliance with the laws and regulations that SEC administers or enforces. The GIS that all corporations are required
to submit to SEC annually should put the SEC on guard against violations of the nationality requirement prescribed
in the Constitution and existing laws. This Court can compel the SEC, in a petition for declaratory relief that is treated
as a petition for mandamus as in the present case, to hear and decide a possible violation of Section 11, Article XII of
the Constitution in view of the ownership structure of PLDTs voting shares, as admitted by respondents and as stated
in PLDTs 2010 GIS that PLDT submitted to SEC.

WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in Section 11, Article XII of the
1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case
only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares).
Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition of the
term capital in determining the extent of allowable foreign ownership in respondent Philippine Long Distance
Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate
sanctions under the law.

SO ORDERED.
G.R. No. 115849 January 24, 1996
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and
MERCURIO RIVERA, petitioners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE
JANOLO,respondents.
DECISION
PANGANIBAN, J.:
In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of letters and/or in
a meeting with the buyers constitute a perfected and enforceable contract of sale over 101 hectares of land in Sta.
Rosa, Laguna? Does the doctrine of "apparent authority" apply in this case? If so, may the Central Bank-appointed
conservator of Producers Bank (now First Philippine International Bank) repudiate such "apparent authority" after
said contract has been deemed perfected? During the pendency of a suit for specific performance, does the filing of a
"derivative suit" by the majority shareholders and directors of the distressed bank to prevent the enforcement or
implementation of the sale violate the ban against forum-shopping?
Simply stated, these are the major questions brought before this Court in the instant Petition for review
on certiorariunder Rule 45 of the Rules of Court, to set aside the Decision promulgated January 14, 1994 of the
respondent Court of Appeals1 in CA-G.R CV No. 35756 and the Resolution promulgated June 14, 1994 denying the
motion for reconsideration. The dispositive portion of the said Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages awarded
under paragraphs 3, 4 and 6 of its dispositive portion and the reduction of the award in paragraph 5 thereof
to P75,000.00, to be assessed against defendant bank. In all other aspects, said decision is hereby
AFFIRMED.
All references to the original plaintiffs in the decision and its dispositive portion are deemed, herein and
hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito.
Costs against appellant bank.
The dispositive portion of the trial court's2 decision dated July 10, 1991, on the other hand, is as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the
defendants as follows:
1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated at
Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less, covered by and embraced in Transfer
Certificates of Title Nos. T-106932 to T-106937, inclusive, of the Land Records of Laguna, between the
plaintiffs as buyers and the defendant Producers Bank for an agreed price of Five and One Half Million
(P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and receipt from the
plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a deed of absolute sale over the
aforementioned six (6) parcels of land, and to immediately deliver to the plaintiffs the owner's copies of
T.C.T. Nos. T-106932 to T- 106937, inclusive, for purposes of registration of the same deed and transfer of
the six (6) titles in the names of the plaintiffs;
3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio Demetria the
sums of P200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00 as exemplary
damages ;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of P400,000.00 for and by
way of attorney's fees;
6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate damages in the
amount of P20,000.00;
With costs against the defendants.
After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the petition was given
due course in a Resolution dated January 18, 1995. Thence, the parties filed their respective memoranda and reply
memoranda. The First Division transferred this case to the Third Division per resolution dated October 23, 1995. After
carefully deliberating on the aforesaid submissions, the Court assigned the case to the undersigned ponentefor the
writing of this Decision.
The Parties
Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank, for
brevity) is a banking institution organized and existing under the laws of the Republic of the Philippines. Petitioner
Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all times material to this case, Head-Manager
of the Property Management Department of the petitioner Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original plaintiffs-
appellees Demetrio Demetria and Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside through
this petition.
The Facts
The facts of this case are summarized in the respondent Court's Decision 3 as follows:
(1) In the course of its banking operations, the defendant Producer Bank of the Philippines acquired six
parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rose, Laguna, and covered by
Transfer Certificates of Title Nos. T-106932 to T-106937. The property used to be owned by BYME
Investment and Development Corporation which had them mortgaged with the bank as collateral for a loan.
The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and thus
initiated negotiations for that purpose.
(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME investment's legal counsel,
Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property Management Department of the
defendant bank. The meeting was held pursuant to plaintiffs' plan to buy the property (TSN of Jan. 16, 1990,
pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant Rivera, made a formal
purchase offer to the bank through a letter dated August 30, 1987 (Exh. "B"), as follows:
August 30, 1987
The Producers Bank of the Philippines
Makati, Metro Manila
Attn. Mr. Mercurio Q. Rivera
Manager, Property Management Dept.
Gentleman:
I have the honor to submit my formal offer to purchase your properties covered by titles listed hereunder
located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less.
TCT NO. AREA
T-106932 113,580 sq. m.
T-106933 70,899 sq. m.
T-106934 52,246 sq. m.
T-106935 96,768 sq. m.
T-106936 187,114 sq. m.
T-106937 481,481 sq. m.
My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in
cash.
Kindly contact me at Telephone Number 921-1344.
(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter which is
hereunder quoted (Exh. "C"):
September 1, 1987
JP M-P GUTIERREZ ENTERPRISES
142 Charisma St., Doña Andres II
Rosario, Pasig, Metro Manila
Attention: JOSE O. JANOLO
Dear Sir:
Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna (formerly
owned by Byme Industrial Corp.). Please be informed however that the bank's counter-offer is at P5.5 million
for more than 101 hectares on lot basis.
We shall be very glad to hear your position on the on the matter.
Best regards.
(4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply, wrote (Exh. "D"):
September 17, 1987
Producers Bank
Paseo de Roxas
Makati, Metro Manila
Attention: Mr. Mercurio Rivera
Gentlemen:
In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa, Laguna,
I would like to amend my previous offer and I now propose to buy the said lot at P4.250 million in CASH..
Hoping that this proposal meets your satisfaction.
(5) There was no reply to Janolo's foregoing letter of September 17, 1987. What took place was a meeting
on September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-President of defendant bank.
Rivera as well as Fajardo, the BYME lawyer, attended the meeting. Two days later, or on September 30,
1987, plaintiff Janolo sent to the bank, through Rivera, the following letter (Exh. "E"):
The Producers Bank of the Philippines
Paseo de Roxas, Makati
Metro Manila
Attention: Mr. Mercurio Rivera
 Re: 101 Hectares of Land
in Sta. Rosa, Laguna
Gentlemen:
Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are accepting your
offer for us to purchase the property at Sta. Rosa, Laguna, formerly owned by Byme Investment, for a total
price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).
Thank you.
(6) On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by the
Central Bank since 1984) was replaced by an Acting Conservator in the person of defendant Leonida T.
Encarnacion. On November 4, 1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh.
"F"):
Attention: Atty. Demetrio Demetria
Dear Sir:
Your proposal to buy the properties the bank foreclosed from Byme investment Corp. located at Sta. Rosa,
Laguna is under study yet as of this time by the newly created committee for submission to the newly
designated Acting Conservator of the bank.
For your information.
(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what
plaintiff considered as a perfected contract of sale, which demands were in one form or another refused by
the bank. As detailed by the trial court in its decision, on November 17, 1987, plaintiffs through a letter to
defendant Rivera (Exhibit "G") tendered payment of the amount of P5.5 million "pursuant to (our) perfected
sale agreement." Defendants refused to receive both the payment and the letter. Instead, the parcels of land
involved in the transaction were advertised by the bank for sale to any interested buyer (Exh, "H" and "H-
1"). Plaintiffs demanded the execution by the bank of the documents on what was considered as a "perfected
agreement." Thus:
Mr. Mercurio Rivera
Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila
Dear Mr. Rivera:
This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare lot located
in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to 106937.
From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this same lot in
the amount of P5.5 million was accepted by our client thru a letter dated September 30, 1987 and was received
by you on October 5, 1987.
In view of the above circumstances, we believe that an agreement has been perfected. We were also informed
that despite repeated follow-up to consummate the purchase, you now refuse to honor your commitment.
Instead, you have advertised for sale the same lot to others.
In behalf of our client, therefore, we are making this formal demand upon you to consummate and execute
the necessary actions/documentation within three (3) days from your receipt hereof. We are ready to remit
the agreed amount of P5.5 million at your advice. Otherwise, we shall be constrained to file the necessary
court action to protect the interest of our client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter and stated, in its
communication of December 2, 1987 (Exh. "I"), that said letter has been "referred . . . to the office of our
Conservator for proper disposition" However, no response came from the Acting Conservator. On December
14, 1987, the plaintiffs made a second tender of payment (Exh. "L" and "L-1"), this time through the Acting
Conservator, defendant Encarnacion. Plaintiffs' letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
Attn.: Atty. NIDA ENCARNACION
Central Bank Conservator
We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No. 258387 in
the amount of P5.5 million as our agreed purchase price of the 101-hectare lot covered by TCT Nos. 106932,
106933, 106934, 106935, 106936 and 106937 and registered under Producers Bank.
This is in connection with the perfected agreement consequent from your offer of P5.5 Million as the purchase
price of the said lots. Please inform us of the date of documentation of the sale immediately.
Kindly acknowledge receipt of our payment.
(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988, plaintiff, through
counsel, made a final demand for compliance by the bank with its obligations under the considered perfected
contract of sale (Exhibit "N"). As recounted by the trial court (Original Record, p. 656), in a reply letter dated
May 12, 1988 (Annex "4" of defendant's answer to amended complaint), the defendants through Acting
Conservator Encarnacion repudiated the authority of defendant Rivera and claimed that his dealings with the
 plaintiffs, particularly his counter-offer of P5.5 Million are unauthorized or illegal. On that basis, the
defendants justified the refusal of the tenders of payment and the non-compliance with the obligations under
what the plaintiffs considered to be a perfected contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the bank, its
Manager Rivers and Acting Conservator Encarnacion. The basis of the suit was that the transaction had with
the bank resulted in a perfected contract of sale, The defendants took the position that there was no such
perfected sale because the defendant Rivera is not authorized to sell the property, and that there was no
meeting of the minds as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar Hernandez and
Gatmaitan, filed a motion to intervene in the trial court, alleging that as owner of 80% of the Bank's
outstanding shares of stock, he had a substantial interest in resisting the complaint. On July 8, 1991, the trial
court issued an order denying the motion to intervene on the ground that it was filed after trial had already
been concluded. It also denied a motion for reconsideration filed thereafter. From the trial court's decision,
the Bank, petitioner Rivera and conservator Encarnacion appealed to the Court of Appeals which
subsequently affirmed with modification the said judgment. Henry Co did not appeal the denial of his motion
for intervention.
In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of Demetria and
Janolo, in view of the assignment of the latters' rights in the matter in litigation to said private respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several other
stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an action (hereafter, the
"Second Case") — purportedly a "derivative suit" — with the Regional Trial Court of Makati, Branch 134, docketed
as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo "to declare any perfected sale of the property
as unenforceable and to stop Ejercito from enforcing or implementing the sale" 4 In his answer, Janolo argued that the
Second Case was barred by litis pendentia by virtue of the case then pending in the Court of Appeals. During the pre-
trial conference in the Second Case, plaintiffs filed a Motion for Leave of Court to Dismiss the Case Without Prejudice.
"Private respondent opposed this motion on the ground, among others, that plaintiff's act of forum shopping justifies
the dismissal of both cases, with prejudice." 5 Private respondent, in his memorandum, averred that this motion is still
pending in the Makati RTC.
In their Petition6 and Memorandum7 , petitioners summarized their position as follows:
I.
The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito (in substitution
of Demetria and Janolo) and the bank.
II.
The Court of Appeals erred in declaring the existence of an enforceable contract of sale between the parties.
III.
The Court of Appeals erred in declaring that the conservator does not have the power to overrule or revoke
acts of previous management.
IV.
The findings and conclusions of the Court of Appeals do not conform to the evidence on record.
On the other hand, petitioners prayed for dismissal of the instant suit on the ground 8 that:
I.
Petitioners have engaged in forum shopping.
II.
The factual findings and conclusions of the Court of Appeals are supported by the evidence on record and
may no longer be questioned in this case.
III.
The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo
(substituted by; respondent Ejercito) and the bank.
IV.
The Court of Appeals has correctly held that the conservator, apart from being estopped from repudiating the
agency and the contract, has no authority to revoke the contract of sale.
The Issues
From the foregoing positions of the parties, the issues in this case may be summed up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the statute of frauds?
4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers and/or
to revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of facts?
The First Issue: Was There Forum-Shopping?
In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised Circular
No. 28-91 requiring that a party "must certify under oath . . . [that] (a) he has not (t)heretofore commenced any other
action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or
agency; (b) to the best of his knowledge, no such action or proceeding is pending" in said courts or agencies. A
violation of the said circular entails sanctions that include the summary dismissal of the multiple petitions or
complaints. To be sure, petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating "for
the record(,) the pendency of Civil Case No. 92-1606 before the Regional Trial Court of Makati, Branch 134, involving
a derivative suit filed by stockholders of petitioner Bank against the conservator and other defendants but which is the
subject of a pending Motion to Dismiss Without Prejudice.9
Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of actual forum
shopping because the instant petition pending before this Court involves "identical parties or interests represented,
rights asserted and reliefs sought (as that) currently pending before the Regional Trial Court, Makati Branch 134 in
the Second Case. In fact, the issues in the two cases are so interwined that a judgement or resolution in either case will
constitute res judicata in the other." 10
On the other hand, petitioners explain 11 that there is no forum-shopping because:
1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded as a defendant,
whereas in the "Second Case" (assuming the Bank is the real party in interest in a derivative suit), it
wasplaintiff;
2) "The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances";
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and attached to
the Petition identifies the action as a "derivative suit," it "does not mean that it is one" and "(t)hat is a legal
question for the courts to decide";
4) Petitioners did not hide the Second Case at they mentioned it in the said
VERIFICATION/CERTIFICATION.
We rule for private respondent.
To begin with, forum-shopping originated as a concept in private international law.12 , where non-resident litigants are
given the option to choose the forum or place wherein to bring their suit for various reasons or excuses, including to
secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more
friendly venue. To combat these less than honorable excuses, the principle of forum non conveniens was developed
whereby a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most
"convenient" or available forum and the parties are not precluded from seeking remedies elsewhere.
In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party attempts to have his action tried
in a particular court or jurisdiction where he feels he will receive the most favorable judgment or verdict." Hence,
according to Words and Phrases14 , "a litigant is open to the charge of "forum shopping" whenever he chooses a forum
with slight connection to factual circumstances surrounding his suit, and litigants should be encouraged to attempt to
settle their differences without imposing undue expenses and vexatious situations on the courts".
In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of venues, as it was
originally understood in conflicts of laws, but also to a choice of remedies. As to the first (choice of venues), the Rules
of Court, for example, allow a plaintiff to commence personal actions "where the defendant or any of the defendants
resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff" (Rule 4,
Sec, 2 [b]). As to remedies, aggrieved parties, for example, are given a choice of pursuing civil liabilities independently
of the criminal, arising from the same set of facts. A passenger of a public utility vehicle involved in a vehicular
accident may sue on culpa contractual, culpa aquiliana or culpa criminal — each remedy being available
independently of the others — although he cannot recover more than once.
In either of these situations (choice of venue or choice of remedy), the litigant actually shops for a forum of
his action, This was the original concept of the term forum shopping.
Eventually, however, instead of actually making a choice of the forum of their actions, litigants, through the
encouragement of their lawyers, file their actions in all available courts, or invoke all relevant remedies
simultaneously. This practice had not only resulted to (sic) conflicting adjudications among different courts
and consequent confusion enimical (sic) to an orderly administration of justice. It had created extreme
inconvenience to some of the parties to the action.
Thus, "forum shopping" had acquired a different concept — which is unethical professional legal practice.
And this necessitated or had given rise to the formulation of rules and canons discouraging or altogether
prohibiting the practice. 15
What therefore originally started both in conflicts of laws and in our domestic law as a legitimate device for solving
problems has been abused and mis-used to assure scheming litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned,
promulgated Circular 28-91. And even before that, the Court had prescribed it in the Interim Rules and Guidelines
issued on January 11, 1983 and had struck down in several cases 16 the inveterate use of this insidious malpractice.
Forum shopping as "the filing of repetitious suits in different courts" has been condemned by Justice Andres R.
Narvasa (now Chief Justice) in Minister of Natural Resources, et al., vs. Heirs of Orval Hughes, et al., "as a
reprehensible manipulation of court processes and proceedings . . ." 17 when does forum shopping take place?
There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable
opinion (other than by appeal or certiorari) in another. The principle applies not only with respect to suits
filed in the courts but also in connection with litigations commenced in the courts while an administrative
proceeding is pending, as in this case, in order to defeat administrative processes and in anticipation of an
unfavorable administrative ruling and a favorable court ruling. This is specially so, as in this case, where the
court in which the second suit was brought, has no jurisdiction. 18
The test for determining whether a party violated the rule against forum shopping has been laid dawn in the 1986 case
of Buan vs. Lopez 19 , also by Chief Justice Narvasa, and that is, forum shopping exists where the elements of litis
pendentia are present or where a final judgment in one case will amount to res judicata in the other, as follows:
There thus exists between the action before this Court and RTC Case No. 86-36563 identity of parties, or at
least such parties as represent the same interests in both actions, as well as identity of rights asserted and
relief prayed for, the relief being founded on the same facts, and the identity on the two preceding particulars
is such that any judgment rendered in the other action, will, regardless of which party is successful, amount
to res adjudicata in the action under consideration: all the requisites, in fine, of auter action pendant.
xxx xxx xxx
As already observed, there is between the action at bar and RTC Case No. 86-36563, an identity as regards
parties, or interests represented, rights asserted and relief sought, as well as basis thereof, to a degree
sufficient to give rise to the ground for dismissal known as auter action pendant or lis pendens. That same
identity puts into operation the sanction of twin dismissals just mentioned. The application of this sanction
will prevent any further delay in the settlement of the controversy which might ensue from attempts to seek
reconsideration of or to appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563
promulgated on July 15, 1986, which dismissed the petition upon grounds which appear persuasive.
Consequently, where a litigant (or one representing the same interest or person) sues the same party against whom
another action or actions for the alleged violation of the same right and the enforcement of the same relief is/are still
pending, the defense of litis pendencia in one case is bar to the others; and, a final judgment in one would constitute res
judicata and thus would cause the dismissal of the rest. In either case, forum shopping could be cited by the other
party as a ground to ask for summary dismissal of the two 20 (or more) complaints or petitions, and for imposition of
the other sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action against the erring
lawyer.
Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious that there
exist identity of parties or interests represented, identity of rights or causes and identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave rise to the instant petition was filed by the
buyer (herein private respondent and his predecessors-in-interest) against the seller (herein petitioners) to enforce the
alleged perfected sale of real estate. On the other hand, the complaint 21 in the Second Case seeks to declare such
purported sale involving the same real property "as unenforceable as against the Bank", which is the petitioner herein.
In other words, in the Second Case, the majority stockholders, in representation of the Bank, are seeking to accomplish
what the Bank itself failed to do in the original case in the trial court. In brief, the objective or the relief being sought,
though worded differently, is the same, namely, to enable the petitioner Bank to escape from the obligation to sell the
property to respondent. In Danville Maritime, Inc. vs. Commission on Audit. 22 , this Court ruled that the filing by a
party of two apparently different actions, but with the same objective, constituted forum shopping:
In the attempt to make the two actions appear to be different, petitioner impleaded different respondents
therein — PNOC in the case before the lower court and the COA in the case before this Court and sought
what seems to be different reliefs. Petitioner asks this Court to set aside the questioned letter-directive of the
COA dated October 10, 1988 and to direct said body to approve the Memorandum of Agreement entered into
by and between the PNOC and petitioner, while in the complaint before the lower court petitioner seeks to
enjoin the PNOC from conducting a rebidding and from selling to other parties the vessel "T/T Andres
Bonifacio", and for an extension of time for it to comply with the paragraph 1 of the memorandum of
agreement and damages. One can see that although the relief prayed for in the two (2) actions are ostensibly
different, the ultimate objective in both actions is the same, that is, approval of the sale of vessel in favor of
petitioner and to overturn the letter-directive of the COA of October 10, 1988 disapproving the
sale. (emphasis supplied).
In an earlier case 23 but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant special civil action for certiorari and prohibition in
this Court despite the pendency of their action in the Makati Regional Trial Court, is a species of forum-
shopping. Both actions unquestionably involve the same transactions, the same essential facts and
circumstances. The petitioners' claim of absence of identity simply because the PCGG had not been
impleaded in the RTC suit, and the suit did not involve certain acts which transpired after its commencement,
is specious. In the RTC action, as in the action before this Court, the validity of the contract to purchase and
sell of September 1, 1986, i.e., whether or not it had been efficaciously rescinded, and the propriety of
implementing the same (by paying the pledgee banks the amount of their loans, obtaining the release of the
pledged shares, etc.) were the basic issues. So, too, the relief was the same: the prevention of such
implementation and/or the restoration of the status quo ante. When the acts sought to be restrained took place
anyway despite the issuance by the Trial Court of a temporary restraining order, the RTC suit did not
become functus oficio. It remained an effective vehicle for obtention of relief; and petitioners' remedy in the
premises was plain and patent: the filing of an amended and supplemental pleading in the RTC suit, so as to
include the PCGG as defendant and seek nullification of the acts sought to be enjoined but nonetheless done.
The remedy was certainly not the institution of another action in another forum based on essentially the same
facts, The adoption of this latter recourse renders the petitioners amenable to disciplinary action and both
their actions, in this Court as well as in the Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least, of interests represented. Although the plaintiffs
in the Second Case (Henry L. Co. et al.) are not name parties in the First Case, they represent the same interest and
entity, namely, petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the matter in
controversy. They are not principally or even subsidiarily liable; much less are they direct parties in the assailed
contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a "derivative
suit". In the caption itself, petitioners claim to have brought suit "for and in behalf of the Producers Bank of the
Philippines" 24 . Indeed, this is the very essence of a derivative suit:
An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he
holdsstock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse
to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder
is regarded as a nominal party, with the corporation as the real party in interest. (Gamboa v. Victoriano, 90
SCRA 40, 47 [1979]; emphasis supplied).
In the face of the damaging admissions taken from the complaint in the Second Case, petitioners, quite strangely,
sought to deny that the Second Case was a derivative suit, reasoning that it was brought, not by the minority
shareholders, but by Henry Co et al., who not only own, hold or control over 80% of the outstanding capital stock,
but also constitute the majority in the Board of Directors of petitioner Bank. That being so, then they really represent
the Bank. So, whether they sued "derivatively" or directly, there is undeniably an identity of interests/entity
represented.
Petitioner also tried to seek refuge in the corporate fiction that the personality Of the Bank is separate and distinct
from its shareholders. But the rulings of this Court are consistent: "When the fiction is urged as a means of perpetrating
a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the
law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for
its consideration merely as an aggregation of individuals." 25
In addition to the many cases 26 where the corporate fiction has been disregarded, we now add the instant case, and
declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition
against forum-shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a derivative
suit, cannot be allowed to trifle with court processes, particularly where, as in this case, the corporation itself has not
been remiss in vigorously prosecuting or defending corporate causes and in using and applying remedies available to
it. To rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the
stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping, even assuming arguendo that there is identity
of parties, causes of action and reliefs sought, "because it (the Bank) was the defendant in the (first) case while it was
the plaintiff in the other (Second Case)",citing as authority Victronics Computers, Inc., vs. Regional Trial Court,
Branch 63, Makati, etc. et al., 27 where Court held:
The rule has not been extended to a defendant who, for reasons known only to him, commences a new action
against the plaintiff — instead of filing a responsive pleading in the other case — setting forth therein, as
causes of action, specific denials, special and affirmative defenses or even counterclaims, Thus, Velhagen's
and King's motion to dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping as
such did not exist in the first place. (emphasis supplied)
Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen the forum
in said case.
Respondent, on the other hand, replied that there is a difference in factual setting between Victronics and the present
suit. In the former, as underscored in the above-quoted Court ruling, the defendants did not file any responsive
pleading in the first case. In other words, they did not make any denial or raise any defense or counter-claim therein
In the case before us however, petitioners filed a responsive pleading to the complaint — as a result of which, the
issues were joined.
Indeed, by praying for affirmative reliefs and interposing counter–claims in their responsive pleadings, the petitioners
became plaintiffs themselves in the original case, giving unto themselves the very remedies they repeated in the
Second Case.
Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is the vexation
caused the courts and parties-litigant by a party who asks different courts and/or administrative agencies to rule on the
same or related causes and/or to grant the same or substantially the same reliefs, in the process creating the possibility
of conflicting decisions being rendered by the different fora upon the same issue. In this case, this is exactly the
problem: a decision recognizing the perfection and directing the enforcement of the contract of sale will directly
conflict with a possible decision in the Second Case barring the parties front enforcing or implementing the said sale.
Indeed, a final decision in one would constitute res judicata in the other 28 .
The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction possible now is
the dismissal of both cases with prejudice, as the other sanctions cannot be imposed because petitioners' present
counsel entered their appearance only during the proceedings in this Court, and the Petition's
VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of the Second Case to show
good faith in observing Circular 28-91. The Lawyers who filed the Second Case are not before us; thus the rudiments
of due process prevent us from motu propio imposing disciplinary measures against them in this Decision. However,
petitioners themselves (and particularly Henry Co, et al.) as litigants are admonished to strictly follow the rules against
forum-shopping and not to trifle with court proceedings and processes They are warned that a repetition of the same
will be dealt with more severely.
Having said that, let it be emphasized that this petition should be dismissed not merely because of forum-shopping
but also because of the substantive issues raised, as will be discussed shortly.
The Second Issue: Was The Contract Perfected?
The respondent Court correctly treated the question of whether or not there was, on the basis of the facts established,
a perfected contract of sale as the ultimate issue. Holding that a valid contract has been established, respondent Court
stated:
There is no dispute that the object of the transaction is that property owned by the defendant bank as acquired
assets consisting of six (6) parcels of land specifically identified under Transfer Certificates of Title Nos. T-
106932 to T-106937. It is likewise beyond cavil that the bank intended to sell the property. As testified to by
the Bank's Deputy Conservator, Jose Entereso, the bank was looking for buyers of the property. It is definite
that the plaintiffs wanted to purchase the property and it was precisely for this purpose that they met with
defendant Rivera, Manager of the Property Management Department of the defendant bank, in early August
1987. The procedure in the sale of acquired assets as well as the nature and scope of the authority of Rivera
on the matter is clearly delineated in the testimony of Rivera himself, which testimony was relied upon by
both the bank and by Rivera in their appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20):
A: The procedure runs this way: Acquired assets was turned over to me and then I published it in
the form of an inter-office memorandum distributed to all branches that these are acquired assets for
sale. I was instructed to advertise acquired assets for sale so on that basis, I have to entertain offer;
to accept offer, formal offer and upon having been offered, I present it to the Committee. I provide
the Committee with necessary information about the property such as original loan of the borrower,
bid price during the foreclosure, total claim of the bank, the appraised value at the time the property
is being offered for sale and then the information which are relative to the evaluation of the bank to
buy which the Committee considers and it is the Committee that evaluate as against the exposure of
the bank and it is also the Committee that submit to the Conservator for final approval and once
approved, we have to execute the deed of sale and it is the Conservator that sign the deed of sale,
sir.
The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the property, dealt
with and talked to the right person. Necessarily, the agenda was the price of the property, and plaintiffs were
dealing with the bank official authorized to entertain offers, to accept offers and to present the offer to the
Committee before which the said official is authorized to discuss information relative to price determination.
Necessarily, too, it being inherent in his authority, Rivera is the officer from whom official information
regarding the price, as determined by the Committee and approved by the Conservator, can be had. And
Rivera confirmed his authority when he talked with the plaintiff in August 1987. The testimony of plaintiff
Demetria is clear on this point (TSN of May 31,1990, pp. 27-28):
Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him
point-blank his authority to sell any property?
A: No, sir. Not point blank although it came from him, (W)hen I asked him how long it would take
because he was saying that the matter of pricing will be passed upon by the committee. And when I
asked him how long it will take for the committee to decide and he said the committee meets every
week. If I am not mistaken Wednesday and in about two week's (sic) time, in effect what he was
saying he was not the one who was to decide. But he would refer it to the committee and he would
relay the decision of the committee to me.
Q — Please answer the question.
A — He did not say that he had the authority (.) But he said he would refer the matter to the
committee and he would relay the decision to me and he did just like that.
"Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was the Head,
with Jose Entereso as one of the members.
What transpired after the meeting of early August 1987 are consistent with the authority and the duties of
Rivera and the bank's internal procedure in the matter of the sale of bank's assets. As advised by Rivera, the
plaintiffs made a formal offer by a letter dated August 20, 1987 stating that they would buy at the price of
P3.5 Million in cash. The letter was for the attention of Mercurio Rivera who was tasked to convey and accept
such offers. Considering an aspect of the official duty of Rivera as some sort of intermediary between the
plaintiffs-buyers with their proposed buying price on one hand, and the bank Committee, the Conservator
and ultimately the bank itself with the set price on the other, and considering further the discussion of price
at the meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no other logical
conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that "the bank's
counter-offer is at P5.5 Million for more than 101 hectares on lot basis," such counter-offer price had been
determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented
plaintiffs' offer for discussion by the Committee of such matters as original loan of borrower, bid price during
foreclosure, total claim of the bank, and market value. Tersely put, under the established facts, the price of
P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and definitive price at which the
bank was selling the property.
 There were averments by defendants below, as well as before this Court, that the P5.5 Million price was not
discussed by the Committee and that price. As correctly characterized by the trial court, this is not credible.
The testimonies of Luis Co and Jose Entereso on this point are at best equivocal and considering the gratuitous
and self-serving character of these declarations, the bank's submission on this point does not inspire belief.
Both Co ad Entereso, as members of the Past Due Committee of the bank, claim that the offer of the plaintiff
was never discussed by the Committee. In the same vein, both Co and Entereso openly admit that they seldom
attend the meetings of the Committee. It is important to note that negotiations on the price had started in early
August and the plaintiffs had already offered an amount as purchase price, having been made to understand
by Rivera, the official in charge of the negotiation, that the price will be submitted for approval by the bank
and that the bank's decision will be relayed to plaintiffs. From the facts, the official bank price. At any rate,
the bank placed its official, Rivera, in a position of authority to accept offers to buy and negotiate the sale by
having the offer officially acted upon by the bank. The bank cannot turn around and later say, as it now does,
that what Rivera states as the bank's action on the matter is not in fact so. It is a familiar doctrine, the doctrine
of ostensible authority, that if a corporation knowingly permits one of its officers, or any other agent, to do
acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to
do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through
such agent, he estopped from denying his authority (Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court
of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14,
1993). 29
Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: "(1) Consent of
the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which
is established."
There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels of land in
Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by Transfer Certificates of
Title Nos. T-106932 to T-106937. There is, however, a dispute on the first and third requisites.
Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counter-offer which Rivera (or
Co) may have made is unauthorized. Since there was no counter-offer by the Bank, there was nothing for Ejercito (in
substitution of Demetria and Janolo) to accept." 30 They disputed the factual basis of the respondent Court's findings
that there was an offer made by Janolo for P3.5 million, to which the Bank counter-offered P5.5 million. We have
perused the evidence but cannot find fault with the said Court's findings of fact. Verily, in a petition under Rule 45
such as this, errors of fact — if there be any - are, as a rule, not reviewable. The mere fact that respondent Court (and
the trial court as well) chose to believe the evidence presented by respondent more than that presented by petitioners
is not by itself a reversible error. In fact, such findings merit serious consideration by this Court, particularly where,
as in this case, said courts carefully and meticulously discussed their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review the question of
Rivera's authority to act and petitioner's allegations that the P5.5 million counter-offer was extinguished by the P4.25
million revised offer of Janolo. Here, there are questions of law which could be drawn from the factual findings of the
respondent Court. They also delve into the contractual elements of consent and cause.
The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of "apparent
authority", with special reference to banks, was laid out in Prudential Bank vs. Court of Appeals31 , where it was held
that:
Conformably, we have declared in countless decisions that the principal is liable for obligations contracted
by the agent. The agent's apparent representation yields to the principal's true representation and the contract
is considered as entered into between the principal and the third person (citing National Food Authority vs.
Intermediate Appellate Court, 184 SCRA 166).
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of
dealings of the officers in their representative capacity but not for acts outside the scape of their
authority (9 C.J.S., p. 417). A bank holding out its officers and agents as worthy of confidence will
not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope
of their employment; nor will it be permitted to shirk its responsibility for such frauds even though
no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking
corporation is liable to innocent third persons where the representation is made in the course of its
business by an agent acting within the general scope of his authority even though, in the particular
case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his
principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND
752, 204 NW 818, 40 ALR 1021).
Application of these principles is especially necessary because banks have a fiduciary relationship with the
public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith
will be eroded where banks do not exercise strict care in the selection and supervision of its employees,
resulting in prejudice to their depositors.
From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or implied authority to
act for the Bank in the matter of selling its acquired assets. This evidence includes the following:
(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material to this case, Manager of
the Property Management Department of the Bank". By his own admission, Rivera was already the person
in charge of the Bank's acquired assets (TSN, August 6, 1990, pp. 8-9);
 (b) As observed by respondent Court, the land was definitely being sold by the Bank. And during the initial
meeting between the buyers and Rivera, the latter suggested that the buyers' offer should be no less than P3.3
million (TSN, April 26, 1990, pp. 16-17);
(c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million (TSN, 30 July 1990, p.11);
(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5 million (TSN, July
30, p. 11);
(e) Rivera received the letter dated September 17, 1987 containing the buyers' proposal to buy the property
for P4.25 million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the Bank (TSN,
January 16, 1990, p. 18);
(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1994, during which the
Bank's offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting, Co,
a major shareholder and officer of the Bank, confirmed Rivera's statement as to the finality of the Bank's
counter-offer of P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the officer acting for
the Bank in relation to parties interested in buying assets owned/acquired by the Bank. In fact, Rivera was
the officer mentioned in the Bank's advertisements offering for sale the property in question (cf. Exhs. "S"
and "S-1").
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32 , the Court, through Justice Jose
A. R. Melo, affirmed the doctrine of apparent authority as it held that the apparent authority of the officer of the Bank
of P.I. in charge of acquired assets is borne out by similar circumstances surrounding his dealings with buyers.
To be sure, petitioners attempted to repudiate Rivera's apparent authority through documents and testimony which
seek to establish Rivera's actual authority. These pieces of evidence, however, are inherently weak as they consist of
Rivera's self-serving testimony and various inter-office memoranda that purport to show his limited actual authority,
of which private respondent cannot be charged with knowledge. In any event, since the issue is apparent authority, the
existence of which is borne out by the respondent Court's findings, the evidence of actual authority is immaterial
insofar as the liability of a corporation is concerned 33 .
Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law firm" had once acted
for the Bank in three criminal cases, they should be charged with actual knowledge of Rivera's limited authority. But
the Court of Appeals in its Decision (p. 12) had already made a factual finding that the buyers had no notice of Rivera's
actual authority prior to the sale. In fact, the Bank has not shown that they acted as its counsel in respect to any
acquired assets; on the other hand, respondent has proven that Demetria and Janolo merely associated with a loose
aggrupation of lawyers (not a professional partnership), one of whose members (Atty. Susana Parker) acted in said
criminal cases.
Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter dated September 17,
1987 extinguished the Bank's offer of P5.5 million 34 .They disputed the respondent Court's finding that "there was a
meeting of minds when on 30 September 1987 Demetria and Janolo through Annex "L" (letter dated September 30,
1987) "accepted" Rivera's counter offer of P5.5 million under Annex "J" (letter dated September 17, 1987)", citingthe
late Justice Paras35 , Art. 1319 of the Civil Code 36 and related Supreme Court rulings starting with Beaumont vs.
Prieto 37 .
However, the above-cited authorities and precedents cannot apply in the instant case because, as found by the
respondent Court which reviewed the testimonies on this point, what was "accepted" by Janolo in his letter dated
September 30, 1987 was the Bank's offer of P5.5 million as confirmed and reiterated to Demetria and Atty. Jose
Fajardo by Rivera and Co during their meeting on September 28, 1987. Note that the said letter of September 30, 1987
begins with"(p)ursuant to our discussion last 28 September 1987 . . .
Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that the September
28, 1987 meeting "was meant to have the offerors improve on their position of P5.5. million." 38 However, both the
trial court and the Court of Appeals found petitioners' testimonial evidence "not credible", and we find no basis for
changing this finding of fact.
Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common finding that private
respondents' evidence is more in keeping with truth and logic — that during the meeting on September 28, 1987, Luis
Co and Rivera "confirmed that the P5.5 million price has been passed upon by the Committee and could no longer be
lowered (TSN of April 27, 1990, pp. 34-35)"39 . Hence, assuming arguendo that the counter-offer of P4.25 million
extinguished the offer of P5.5 million, Luis Co's reiteration of the said P5.5 million price during the September 28,
1987 meeting revived the said offer. And by virtue of the September 30, 1987 letter accepting this revived offer, there
was a meeting of the minds, as the acceptance in said letter was absolute and unqualified.
We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and action, particularly
the latter's counter-offer of P5.5 million, as being "unauthorized and illegal" came only on May 12, 1988 or more than
seven (7) months after Janolo' acceptance. Such delay, and the absence of any circumstance which might have
justifiably prevented the Bank from acting earlier, clearly characterizes the repudiation as nothing more than a last-
minute attempt on the Bank's part to get out of a binding contractual obligation.
Taken together, the factual findings of the respondent Court point to an implied admission on the part of the petitioners
that the written offer made on September 1, 1987 was carried through during the meeting of September 28, 1987. This
is the conclusion consistent with human experience, truth and good faith.
It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was raised for the first time
on appeal and should thus be disregarded.
This Court in several decisions has repeatedly adhered to the principle that points of law, theories, issues of
fact and arguments not adequately brought to the attention of the trial court need not be, and ordinarily will
not be, considered by a reviewing court, as they cannot be raised for the first time on appeal (Santos vs. IAC,
No. 74243, November 14, 1986, 145 SCRA 592). 40
. . . It is settled jurisprudence that an issue which was neither averred in the complaint nor raised during the
trial in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules
of fair play, justice and due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA
434 [1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA
70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990). 41
Since the issue was not raised in the pleadings as an affirmative defense, private respondent was not given an
opportunity in the trial court to controvert the same through opposing evidence. Indeed, this is a matter of due process.
But we passed upon the issue anyway, if only to avoid deciding the case on purely procedural grounds, and we repeat
that, on the basis of the evidence already in the record and as appreciated by the lower courts, the inevitable conclusion
is simply that there was a perfected contract of sale.
The Third Issue: Is the Contract Enforceable?
The petition alleged42 :
Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the meeting of
28 September 1987, and it was this verbal offer that Demetria and Janolo accepted with their letter of 30
September 1987, the contract produced thereby would be unenforceable by action — there being no note,
memorandum or writing subscribed by the Bank to evidence such contract. (Please see article 1403[2], Civil
Code.)
Upon the other hand, the respondent Court in its Decision (p, 14) stated:
. . . Of course, the bank's letter of September 1, 1987 on the official price and the plaintiffs' acceptance of the
price on September 30, 1987, are not, in themselves, formal contracts of sale. They are however clear
embodiments of the fact that a contract of sale was perfected between the parties, such contract being binding
in whatever form it may have been entered into (case citations omitted). Stated simply, the banks' letter of
September 1, 1987, taken together with plaintiffs' letter dated September 30, 1987, constitute in law a
sufficient memorandum of a perfected contract of sale.
The respondent Court could have added that the written communications commenced not only from September 1,
1987 but from Janolo's August 20, 1987 letter. We agree that, taken together, these letters constitute sufficient
memoranda — since they include the names of the parties, the terms and conditions of the contract, the price and a
description of the property as the object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did constitute a "new"
offer which was accepted by Janolo on September 30, 1987. Still, the statute of frauds will not apply by reason of the
failure of petitioners to object to oral testimony proving petitioner Bank's counter-offer of P5.5 million. Hence,
petitioners — by such utter failure to object — are deemed to have waived any defects of the contract under the statute
of frauds, pursuant to Article 1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the
failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under
them.
As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-offer of
P5.5 million is a plenty — and the silence of petitioners all throughout the presentation makes the evidence binding
on them thus;
A Yes, sir, I think it was September 28, 1987 and I was again present because Atty. Demetria told me to
accompany him we were able to meet Luis Co at the Bank.
xxx xxx xxx
Q Now, what transpired during this meeting with Luis Co of the Producers Bank?
A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q What price?
A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the final price
and that is the price they intends (sic) to have, sir.
Q What do you mean?.
A That is the amount they want, sir.
Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic) that the defendant Rivera's
counter-offer of 5.5 million was the defendant's bank (sic) final offer?
A He said in a day or two, he will make final acceptance, sir.
Q What is the response of Mr. Luis Co?.
A He said he will wait for the position of Atty. Demetria, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]
Q What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?
A We went straight to the point because he being a busy person, I told him if the amount of P5.5 million
could still be reduced and he said that was already passed upon by the committee. What the bank expects
 which was contrary to what Mr. Rivera stated. And he told me that is the final offer of the bank P5.5 million
and we should indicate our position as soon as possible.
Q What was your response to the answer of Mr. Luis Co?
A I said that we are going to give him our answer in a few days and he said that was it. Atty. Fajardo and I
and Mr. Mercurio [Rivera] was with us at the time at his office.
Q For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office in Producers
Bank Building during this meeting?
A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q By Mr. Co you are referring to?
A Mr. Luis Co.
Q After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter offer by the
bank?
A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank which offer we accepted, the
offer of the bank which is P5.5 million.
[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]
Q According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the Committee and it
is not within his power to reduce this amount. What can you say to that statement that the amount of P5.5
million was reached by the Committee?
A It was not discussed by the Committee but it was discussed initially by Luis Co and the group of Atty.
Demetrio Demetria and Atty. Pajardo (sic) in that September 28, 1987 meeting, sir.
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]
The Fourth Issue: May the Conservator Revoke
the Perfected and Enforceable Contract.
It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the Philippines during
the time that the negotiation and perfection of the contract of sale took place. Petitioners energetically contended that
the conservator has the power to revoke or overrule actions of the management or the board of directors of a bank,
under Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:
Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the
Monetary Board finds that a bank or a non-bank financial intermediary performing quasi-banking functions
is in a state of continuing inability or unwillingness to maintain a state of liquidity deemed adequate to protect
the interest of depositors and creditors, the Monetary Board may appoint a conservator to take charge of the
assets, liabilities, and the management of that institution, collect all monies and debts due said institution and
exercise all powers necessary to preserve the assets of the institution, reorganize the management thereof,
and restore its viability. He shall have the power to overrule or revoke the actions of the previous management
and board of directors of the bank or non-bank financial intermediary performing quasi-banking functions,
any provision of law to the contrary notwithstanding, and such other powers as the Monetary Board shall
deem necessary.
In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the perfected contract of sale
was raised for the first time in this Petition — as this was not litigated in the trial court or Court of Appeals. As already
stated earlier, issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals, "cannot be raised
for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process." 43
In the second place, there is absolutely no evidence that the Conservator, at the time the contract was perfected,
actually repudiated or overruled said contract of sale. The Bank's acting conservator at the time, Rodolfo Romey,
never objected to the sale of the property to Demetria and Janolo. What petitioners are really referring to is the letter
of Conservator Encarnacion, who took over from Romey after the sale was perfected on September 30, 1987 (Annex
V, petition) which unilaterally repudiated — not the contract — but the authority of Rivera to make a binding offer
— and which unarguably came months after the perfection of the contract. Said letter dated May 12, 1988 is
reproduced hereunder:
May 12, 1988
Atty. Noe C. Zarate
Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila
Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria regarding the six (6)
parcels of land located at Sta. Rosa, Laguna.
We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor perfected a
"contract to sell and buy" with any of them for the following reasons.
In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and approved by former Acting
Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua detailed the functions
of Property Management Department (PMD) staff and officers (Annex A.), you will immediately read that
Manager Mr. Mercurio Rivera or any of his subordinates has no authority, power or right to make any alleged
counter-offer. In short, your lawyer-clients did not deal with the authorized officers of the bank.
 Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Bates Pambansa Blg. 68.) and
Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended), only the Board of Directors/Conservator
may authorize the sale of any property of the corportion/bank..
Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank conservators
(starting January, 1984) to sell the aforesaid property to any of your clients. Apparently, what took place
were just preliminary discussions/consultations between him and your clients, which everyone
knows cannot bind the Bank's Board or Conservator.
We are, therefore, constrained to refuse any tender of payment by your clients, as the same is patently
violative of corporate and banking laws. We believe that this is more than sufficient legal justification for
refusing said alleged tender.
Rest assured that we have nothing personal against your clients. All our acts are official, legal and in
accordance with law. We also have no personal interest in any of the properties of the Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T. Encarnacion
LEONIDA T. EDCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a
bank, it must be pointed out that such powers must be related to the "(preservation of) the assets of the bank, (the
reorganization of) the management thereof and (the restoration of) its viability." Such powers, enormous and extensive
as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe against
the non-impairment clause of the Constitution 44 . If the legislature itself cannot revoke an existing valid contract, how
can it delegate such non-existent powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing
law, deemed to be defective — i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes
the place of a bank's board of directors. What the said board cannot do — such as repudiating a contract validly entered
into under the doctrine of implied authority — the conservator cannot do either. Ineluctably, his power is not unilateral
and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to
assail such contracts — as he has already done so in the instant case. A contrary understanding of the law would
simply not be permitted by the Constitution. Neither by common sense. To rule otherwise would be to enable a failing
bank to become solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke all
previous dealings which had one way or another or come to be considered unfavorable to the Bank, yielding nothing
to perfected contractual rights nor vested interests of the third parties who had dealt with the Bank.
The Fifth Issue: Were There Reversible Errors of Facts?
Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the Court of
Appeals are not reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover & Trust Corporation, 45 , we
held:
. . . The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule
45 of the Revised Rules of Court has been stated in Remalante vs. Tibe, G.R. No. 59514, February 25, 1988,
158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule
45 of the Revised Rules of Court. "The jurisdiction of the Supreme Court in cases brought to it from the
Court of Appeals is limited to reviewing and revising the errors of law imputed to it, its findings of the fact
being conclusive " [Chan vs. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating
a long line of decisions]. This Court has emphatically declared that "it is not the function of the Supreme
Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of
law that might have been committed by the lower court" (Tiongco v. De la Merced, G. R. No. L-24426, July
25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865;
Baniqued vs. Court of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596). "Barring, therefore,
a showing that the findings complained of are totally devoid of support in the record, or that they are so
glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this Court is not
expected or required to examine or contrast the oral and documentary evidence submitted by the parties"
[Santa Ana, Jr. vs. Hernandez, G. R. No. L-16394, December 17, 1966, 18 SCRA 973] [at pp. 144-145.]
Likewise, in Bernardo vs. Court of Appeals 46 , we held:
The resolution of this petition invites us to closely scrutinize the facts of the case, relating to the sufficiency
of evidence and the credibility of witnesses presented. This Court so held that it is not the function of the
Supreme Court to analyze or weigh such evidence all over again. The Supreme Court's jurisdiction is limited
to reviewing errors of law that may have been committed by the lower court. The Supreme Court is not a
trier of facts. . . .
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and Development
Corp. 47 :
The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals,
are final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a
reassessment of facts found by the lower courts is allowed are when the conclusion is a finding grounded
entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or
 impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is
premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same
are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we
find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts
below.
In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance Company
Inc. vs. Hon. Court of Appeals, et al. 48 is equally applicable to the present case:
We see no valid reason to discard the factual conclusions of the appellate court, . . . (I)t is not the function of
this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the
parties, particularly where, such as here, the findings of both the trial court and the appellate court on the
matter coincide. (emphasis supplied)
Petitioners, however, assailed the respondent Court's Decision as "fraught with findings and conclusions which were
not only contrary to the evidence on record but have no bases at all," specifically the findings that (1) the "Bank's
counter-offer price of P5.5 million had been determined by the past due committee and approved by conservator
Romey, after Rivera presented the same for discussion" and (2) "the meeting with Co was not to scale down the price
and start negotiations anew, but a meeting on the already determined price of P5.5 million" Hence, citingPhilippine
National Bank vs. Court of Appeals 49 , petitioners are asking us to review and reverse such factual findings.
The first point was clearly passed upon by the Court of Appeals 50 , thus:
There can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs
by letter that "the bank's counter-offer is at P5.5 Million for more than 101 hectares on lot basis, "such
counter-offer price had been determined by the Past Due Committee and approved by the Conservator after
Rivera had duly presented plaintiffs' offer for discussion by the Committee . . . Tersely put, under the
established fact, the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and
definitive price at which the bank was selling the property. (p. 11, CA Decision)
xxx xxx xxx
. . . The argument deserves scant consideration. As pointed out by plaintiff, during the meeting of September
28, 1987 between the plaintiffs, Rivera and Luis Co, the senior vice-president of the bank, where the topic
was the possible lowering of the price, the bank official refused it and confirmed that the P5.5 Million price
had been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35)
(p. 15, CA Decision).
The respondent Court did not believe the evidence of the petitioners on this point, characterizing it as "not credible"
and "at best equivocal and considering the gratuitous and self-serving character of these declarations, the bank's
submissions on this point do not inspire belief."
To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo Romey to testify
on their behalf, as he would have been in the best position to establish their thesis. Under the rules on evidence 51 ,
such suppression gives rise to the presumption that his testimony would have been adverse, if produced.
The second point was squarely raised in the Court of Appeals, but petitioners' evidence was deemed insufficient by
both the trial court and the respondent Court, and instead, it was respondent's submissions that were believed and
became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts are valid
and correct. But the petitioners are now asking this Court to disturb these findings to fit the conclusion they are
espousing, This we cannot do.
To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by the Court of
Appeals 52 . We have studied both the records and the CA Decision and we find no such exceptions in this case. On
the contrary, the findings of the said Court are supported by a preponderance of competent and credible evidence. The
inferences and conclusions are seasonably based on evidence duly identified in the Decision. Indeed, the appellate
court patiently traversed and dissected the issues presented before it, lending credibility and dependability to its
findings. The best that can be said in favor of petitioners on this point is that the factual findings of respondent Court
did not correspond to petitioners' claims, but were closer to the evidence as presented in the trial court by private
respondent. But this alone is no reason to reverse or ignore such factual findings, particularly where, as in this case,
the trial court and the appellate court were in common agreement thereon. Indeed, conclusions of fact of a trial judge
— as affirmed by the Court of Appeals — are conclusive upon this Court, absent any serious abuse or evident lack of
basis or capriciousness of any kind, because the trial court is in a better position to observe the demeanor of the
witnesses and their courtroom manner as well as to examine the real evidence presented.
Epilogue.
In summary, there are two procedural issues involved forum-shopping and the raising of issues for the first time on
appeal [viz., the extinguishment of the Bank's offer of P5.5 million and the conservator's powers to repudiate contracts
entered into by the Bank's officers] — which per se could justify the dismissal of the present case. We did not limit
ourselves thereto, but delved as well into the substantive issues — the perfection of the contract of sale and its
enforceability, which required the determination of questions of fact. While the Supreme Court is not a trier of facts
and as a rule we are not required to look into the factual bases of respondent Court's decisions and resolutions, we did
so just the same, if only to find out whether there is reason to disturb any of its factual findings, for we are only too
aware of the depth, magnitude and vigor by which the parties through their respective eloquent counsel, argued their
positions before this Court.
We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a government-
appointed conservator and "there is need to rehabilitate the Bank in order to get it back on its feet . . . as many people
depend on (it) for investments, deposits and well as employment. As of June 1987, the Bank's overdraft with the
Central Bank had already reached P1.023 billion . . . and there were (other) offers to buy the subject properties for a
substantial amount of money." 53
While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot emotionally close its
eyes to overriding considerations of substantive and procedural law, like respect for perfected contracts, non-
impairment of obligations and sanctions against forum-shopping, which must be upheld under the rule of law and
blind justice.
This Court cannot just gloss over private respondent's submission that, while the subject properties may currently
command a much higher price, it is equally true that at the time of the transaction in 1987, the price agreed upon of
P5.5 million was reasonable, considering that the Bank acquired these properties at a foreclosure sale for no more than
P3.5 million 54 . That the Bank procrastinated and refused to honor its commitment to sell cannot now be used by it to
promote its own advantage, to enable it to escape its binding obligation and to reap the benefits of the increase in land
values. To rule in favor of the Bank simply because the property in question has algebraically accelerated in price
during the long period of litigation is to reward lawlessness and delays in the fulfillment of binding contracts.
Certainly, the Court cannot stamp its imprimatur on such outrageous proposition.
WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court hereby DENIES the
petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in forum-
shopping and WARNED that a repetition of the same or similar acts will be dealt with more severely. Costs against
petitioners.
SO ORDERED.
G.R. No. 101897. March 5, 1993.
LYCEUM OF THE PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS, LYCEUM OF APARRI, LYCEUM
OF CABAGAN, LYCEUM OF CAMALANIUGAN, INC., LYCEUM OF LALLO, INC., LYCEUM OF TUAO,
INC., BUHI LYCEUM, CENTRAL LYCEUM OF CATANDUANES, LYCEUM OF SOUTHERN PHILIPPINES,
LYCEUM OF EASTERN MINDANAO, INC. and WESTERN PANGASINAN LYCEUM, INC., respondents.

SYLLABUS
1. CORPORATION LAW; CORPORATE NAMES; REGISTRATION OF PROPOSED NAME WHICH IS
IDENTICAL OR CONFUSINGLY SIMILAR TO THAT OF ANY EXISTING CORPORATION, PROHIBITED;
CONFUSION AND DECEPTION EFFECTIVELY PRECLUDED BY THE APPENDING OF GEOGRAPHIC
NAMES TO THE WORD "LYCEUM". — The Articles of Incorporation of a corporation must, among other things,
set out the name of the corporation. Section 18 of the Corporation Code establishes a restrictive rule insofar as
corporate names are concerned: "Section 18. Corporate name. — No corporate name may be allowed by the Securities
an Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing
laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of
incorporation under the amended name." The policy underlying the prohibition in Section 18 against the registration
of a corporate name which is "identical or deceptively or confusingly similar" to that of any existing corporation or
which is "patently deceptive" or "patently confusing" or "contrary to existing laws," is the avoidance of fraud upon
the public which would have occasion to deal with the entity concerned, the evasion of legal obligations and duties,
and the reduction of difficulties of administration and supervision over corporations. We do not consider that the
corporate names of private respondent institutions are "identical with, or deceptively or confusingly similar" to that of
the petitioner institution. True enough, the corporate names of private respondent entities all carry the word "Lyceum"
but confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum."
Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the
Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines.
2. ID.; ID.; DOCTRINE OF SECONDARY MEANING; USE OF WORD "LYCEUM," NOT ATTENDED WITH
EXCLUSIVITY. — It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning
in relation to petitioner with the result that word, although originally a generic, has become appropriable by petitioner
to the exclusion of other institutions like private respondents herein. The doctrine of secondary meaning originated in
the field of trademark law. Its application has, however, been extended to corporate names sine the right to use a
corporate name to the exclusion of others is based upon the same principle which underlies the right to use a particular
trademark or tradename. In Philippine Nut Industry, Inc. v. Standard Brands, Inc., the doctrine of secondary meaning
was elaborated in the following terms: " . . . a word or phrase originally incapable of exclusive appropriation with
reference to an article on the market, because geographically or otherwise descriptive, might nevertheless have been
used so long and so exclusively by one producer with reference to his article that, in that trade and to that branch of
the purchasing public, the word or phrase has come to mean that the article was his product." The question which
arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name has been for such length of
time and with such exclusivity as to have become associated or identified with the petitioner institution in the mind of
the general public (or at least that portion of the general public which has to do with schools). The Court of Appeals
recognized this issue and answered it in the negative: "Under the doctrine of secondary meaning, a word or phrase
originally incapable of exclusive appropriation with reference to an article in the market, because geographical or
otherwise descriptive might nevertheless have been used so long and so exclusively by one producer with reference
to this article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean that
the article was his produce (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). This circumstance has been referred to as the
distinctiveness into which the name or phrase has evolved through the substantial and exclusive use of the same for a
considerable period of time. . . . No evidence was ever presented in the hearing before the Commission which
sufficiently proved that the word 'Lyceum' has indeed acquired secondary meaning in favor of the appellant. If there
was any of this kind, the same tend to prove only that the appellant had been using the disputed word for a long period
of time. . . . In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a long
period of time, this fact alone did not amount to mean that the said word had acquired secondary meaning in its favor
because the appellant failed to prove that it had been using the same word all by itself to the exclusion of others. More
so, there was no evidence presented to prove that confusion will surely arise if the same word were to be used by other
educational institutions. Consequently, the allegations of the appellant in its first two assigned errors must necessarily
fail." We agree with the Court of Appeals. The number alone of the private respondents in the case at bar suggests
strongly that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for applicability
of the doctrine of secondary meaning. Petitioner's use of the word "Lyceum" was not exclusive but was in truth shared
with the Western Pangasinan Lyceum and a little later with other private respondent institutions which registered with
the SEC using "Lyceum" as part of their corporation names. There may well be other schools using Lyceum or Liceo
in their names, but not registered with the SEC because they have not adopted the corporate form of organization.
3. ID.; ID.; MUST BE EVALUATED IN THEIR ENTIRETY TO DETERMINE WHETHER THEY ARE
CONFUSINGLY OR DECEPTIVELY SIMILAR TO ANOTHER CORPORATE ENTITY'S NAME. — petitioner
institution is not entitled to a legally enforceable exclusive right to use the word "Lyceum" in its corporate name and
that other institutions may use "Lyceum" as part of their corporate names. To determine whether a given corporate
name is "identical" or "confusingly or deceptively similar" with another entity's corporate name, it is not enough to
ascertain the presence of "Lyceum" or "Liceo" in both names. One must evaluate corporate names in their entirety and
when the name of petitioner is juxtaposed with the names of private respondents, they are not reasonably regarded as
"identical" or "confusingly or deceptively similar" with each other.
DECISION
FELICIANO, J p:
Petitioner is an educational institution duly registered with the Securities and Exchange Commission ("SEC"). When
it first registered with the SEC on 21 September 1950, it used the corporate name Lyceum of the Philippines, Inc. and
has used that name ever since.
On 24 February 1984, petitioner instituted proceedings before the SEC to compel the private respondents, which are
also educational institutions, to delete the word "Lyceum" from their corporate names and permanently to enjoin them
from using "Lyceum" as part of their respective names.
Some of the private respondents actively participated in the proceedings before the SEC. These are the following, the
dates of their original SEC registration being set out below opposite their respective names:
Western Pangasinan Lyceum — 27 October 1950
Lyceum of Cabagan — 31 October 1962
Lyceum of Lallo, Inc. — 26 March 1972
Lyceum of Aparri — 28 March 1972
Lyceum of Tuao, Inc. — 28 March 1972
Lyceum of Camalaniugan — 28 March 1972
The following private respondents were declared in default for failure to file an answer despite service of summons:
Buhi Lyceum;
Central Lyceum of Catanduanes;
Lyceum of Eastern Mindanao, Inc.; and
Lyceum of Southern Philippines
Petitioner's original complaint before the SEC had included three (3) other entities:
1. The Lyceum of Malacanay;
2. The Lyceum of Marbel; and
3. The Lyceum of Araullo
The complaint was later withdrawn insofar as concerned the Lyceum of Malacanay and the Lyceum of Marbel, for
failure to serve summons upon these two (2) entities. The case against the Liceum of Araullo was dismissed when that
school motu proprio change its corporate name to "Pamantasan ng Araullo."
The background of the case at bar needs some recounting. Petitioner had sometime before commenced in the SEC a
proceeding (SEC-Case No. 1241) against the Lyceum of Baguio, Inc. to require it to change its corporate name and to
adopt another name not "similar [to] or identical" with that of petitioner. In an Order dated 20 April 1977, Associate
Commissioner Julio Sulit held that the corporate name of petitioner and that of the Lyceum of Baguio, Inc. were
substantially identical because of the presence of a "dominant" word, i.e., "Lyceum," the name of the geographical
location of the campus being the only word which distinguished one from the other corporate name. The SEC also
noted that petitioner had registered as a corporation ahead of the Lyceum of Baguio, Inc. in point of time, 1 and ordered
the latter to change its name to another name "not similar or identical [with]" the names of previously registered
entities.
The Lyceum of Baguio, Inc. assailed the Order of the SEC before the Supreme Court in a case docketed as G.R. No.
L-46595. In a Minute Resolution dated 14 September 1977, the Court denied the Petition for Review for lack of merit.
Entry of judgment in that case was made on 21 October 1977. 2
Armed with the Resolution of this Court in G.R. No. L-46595, petitioner then wrote all the educational institutions it
could find using the word "Lyceum" as part of their corporate name, and advised them to discontinue such use of
"Lyceum." When, with the passage of time, it became clear that this recourse had failed, petitioner instituted before
the SEC SEC-Case No. 2579 to enforce what petitioner claims as its proprietary right to the word "Lyceum." The SEC
hearing officer rendered a decision sustaining petitioner's claim to an exclusive right to use the word "Lyceum." The
hearing officer relied upon the SEC ruling in the Lyceum of Baguio, Inc. case (SEC-Case No. 1241) and held that the
word "Lyceum" was capable of appropriation and that petitioner had acquired an enforceable exclusive right to the
use of that word.
On appeal, however, by private respondents to the SEC En Banc, the decision of the hearing officer was reversed and
set aside. The SEC En Banc did not consider the word "Lyceum" to have become so identified with petitioner as to
render use thereof by other institutions as productive of confusion about the identity of the schools concerned in the
mind of the general public. Unlike its hearing officer, the SEC En Banc held that the attaching of geographical names
to the word "Lyceum" served sufficiently to distinguish the schools from one another, especially in view of the fact
that the campuses of petitioner and those of the private respondents were physically quite remote from each other. 3
Petitioner then went on appeal to the Court of Appeals. In its Decision dated 28 June 1991, however, the Court of
Appeals affirmed the questioned Orders of the SEC En Banc. 4 Petitioner filed a motion for reconsideration, without
success.
Before this Court, petitioner asserts that the Court of Appeals committed the following errors:
1. The Court of Appeals erred in holding that the Resolution of the Supreme Court in G.R. No. L-46595 did not
constitute stare decisis as to apply to this case and in not holding that said Resolution bound subsequent determinations
on the right to exclusive use of the word Lyceum.
2. The Court of Appeals erred in holding that respondent Western Pangasinan Lyceum, Inc. was incorporated earlier
than petitioner.
3. The Court of Appeals erred in holding that the word Lyceum has not acquired a secondary meaning in favor of
petitioner.
4. The Court of Appeals erred in holding that Lyceum as a generic word cannot be appropriated by the petitioner to
the exclusion of others. 5
We will consider all the foregoing ascribed errors, though not necessarily seriatim. We begin by noting that the
Resolution of the Court in G.R. No. L-46595 does not, of course, constitute res adjudicata in respect of the case at bar,
since there is no identity of parties. Neither is stare decisis pertinent, if only because the SEC En Banc itself has re-
examined Associate Commissioner Sulit's ruling in the Lyceum of Baguio case. The Minute Resolution of the Court
in G.R. No. L-46595 was not a reasoned adoption of the Sulit ruling.
The Articles of Incorporation of a corporation must, among other things, set out the name of the corporation. 6 Section
18 of the Corporation Code establishes a restrictive rule insofar as corporate names are concerned:
"SECTION 18. Corporate name. — No corporate name may be allowed by the Securities an Exchange Commission
if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any
other name already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change
in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the
amended name." (Emphasis supplied)
The policy underlying the prohibition in Section 18 against the registration of a corporate name which is "identical or
deceptively or confusingly similar" to that of any existing corporation or which is "patently deceptive" or "patently
confusing" or "contrary to existing laws," is the avoidance of fraud upon the public which would have occasion to
deal with the entity concerned, the evasion of legal obligations and duties, and the reduction of difficulties of
administration and supervision over corporations. 7
We do not consider that the corporate names of private respondent institutions are "identical with, or deceptively or
confusingly similar" to that of the petitioner institution. True enough, the corporate names of private respondent
entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of
geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by
the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with
the Lyceum of the Philippines.
Etymologically, the word "Lyceum" is the Latin word for the Greek lykeion which in turn referred to a locality on the
river Ilissius in ancient Athens "comprising an enclosure dedicated to Apollo and adorned with fountains and buildings
erected by Pisistratus, Pericles and Lycurgus frequented by the youth for exercise and by the philosopher Aristotle
and his followers for teaching." 8 In time, the word "Lyceum" became associated with schools and other institutions
providing public lectures and concerts and public discussions. Thus today, the word "Lyceum" generally refers to a
school or an institution of learning. While the Latin word "lyceum" has been incorporated into the English language,
the word is also found in Spanish (liceo) and in French (lycee). As the Court of Appeals noted in its Decision, Roman
Catholic schools frequently use the term; e.g., "Liceo de Manila," "Liceo de Baleno" (in Baleno, Masbate), "Liceo de
Masbate," "Liceo de Albay." 9 "Lyceum" is in fact as generic in character as the word "university." In the name of the
petitioner, "Lyceum" appears to be a substitute for "university;" in other places, however, "Lyceum," or "Liceo" or
"Lycee" frequently denotes a secondary school or a college. It may be (though this is a question of fact which we need
not resolve) that the use of the word "Lyceum" may not yet be as widespread as the use of "university," but it is clear
that a not inconsiderable number of educational institutions have adopted "Lyceum" or "Liceo" as part of their
corporate names. Since "Lyceum" or "Liceo" denotes a school or institution of learning, it is not unnatural to use this
word to designate an entity which is organized and operating as an educational institution.
It is claimed, however, by petitioner that the word "Lyceum" has acquired a secondary meaning in relation to petitioner
with the result that that word, although originally a generic, has become appropriable by petitioner to the exclusion of
other institutions like private respondents herein.
The doctrine of secondary meaning originated in the field of trademark law. Its application has, however, been
extended to corporate names sine the right to use a corporate name to the exclusion of others is based upon the same
principle which underlies the right to use a particular trademark or tradename. 10 In Philippine Nut Industry, Inc. v.
Standard Brands, Inc., 11 the doctrine of secondary meaning was elaborated in the following terms:
" . . . a word or phrase originally incapable of exclusive appropriation with reference to an article on the market,
because geographically or otherwise descriptive, might nevertheless have been used so long and so exclusively by one
producer with reference to his article that, in that trade and to that branch of the purchasing public, the word or phrase
has come to mean that the article was his product." 12
The question which arises, therefore, is whether or not the use by petitioner of "Lyceum" in its corporate name has
been for such length of time and with such exclusivity as to have become associated or identified with the petitioner
institution in the mind of the general public (or at least that portion of the general public which has to do with schools).
The Court of Appeals recognized this issue and answered it in the negative:
"Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive appropriation with
reference to an article in the market, because geographical or otherwise descriptive might nevertheless have been used
so long and so exclusively by one producer with reference to this article that, in that trade and to that group of the
purchasing public, the word or phrase has come to mean that the article was his produce (Ana Ang vs. Toribio Teodoro,
74 Phil. 56). This circumstance has been referred to as the distinctiveness into which the name or phrase has evolved
through the substantial and exclusive use of the same for a considerable period of time. Consequently, the same
doctrine or principle cannot be made to apply where the evidence did not prove that the business (of the plaintiff) has
continued for so long a time that it has become of consequence and acquired a good will of considerable value such
that its articles and produce have acquired a well-known reputation, and confusion will result by the use of the disputed
name (by the defendant) (Ang Si Heng vs. Wellington Department Store, Inc., 92 Phil. 448).
With the foregoing as a yardstick, [we] believe the appellant failed to satisfy the aforementioned requisites. No
evidence was ever presented in the hearing before the Commission which sufficiently proved that the word 'Lyceum'
has indeed acquired secondary meaning in favor of the appellant. If there was any of this kind, the same tend to prove
only that the appellant had been using the disputed word for a long period of time. Nevertheless, its (appellant)
exclusive use of the word (Lyceum) was never established or proven as in fact the evidence tend to convey that the
cross-claimant was already using the word 'Lyceum' seventeen (17) years prior to the date the appellant started using
the same word in its corporate name. Furthermore, educational institutions of the Roman Catholic Church had been
using the same or similar word like 'Liceo de Manila,' 'Liceo de Baleno' (in Baleno, Masbate), 'Liceo de Masbate,'
'Liceo de Albay' long before appellant started using the word 'Lyceum'. The appellant also failed to prove that the
word 'Lyceum' has become so identified with its educational institution that confusion will surely arise in the minds
of the public if the same word were to be used by other educational institutions.
In other words, while the appellant may have proved that it had been using the word 'Lyceum' for a long period of
time, this fact alone did not amount to mean that the said word had acquired secondary meaning in its favor because
the appellant failed to prove that it had been using the same word all by itself to the exclusion of others. More so, there
was no evidence presented to prove that confusion will surely arise if the same word were to be used by other
educational institutions. Consequently, the allegations of the appellant in its first two assigned errors must necessarily
fail." 13 (Underscoring partly in the original and partly supplied)
We agree with the Court of Appeals. The number alone of the private respondents in the case at bar suggests strongly
that petitioner's use of the word "Lyceum" has not been attended with the exclusivity essential for applicability of the
doctrine of secondary meaning. It may be noted also that at least one of the private respondents, i.e., the Western
Pangasinan Lyceum, Inc., used the term "Lyceum" seventeen (17) years before the petitioner registered its own
corporate name with the SEC and began using the word "Lyceum." It follows that if any institution had acquired an
exclusive right to the word "Lyceum," that institution would have been the Western Pangasinan Lyceum, Inc. rather
than the petitioner institution.
In this connection, petitioner argues that because the Western Pangasinan Lyceum, Inc. failed to reconstruct its records
before the SEC in accordance with the provisions of R.A. No. 62, which records had been destroyed during World
War II, Western Pangasinan Lyceum should be deemed to have lost all rights it may have acquired by virtue of its
past registration. It might be noted that the Western Pangasinan Lyceum, Inc. registered with the SEC soon after
petitioner had filed its own registration on 21 September 1950. Whether or not Western Pangasinan Lyceum, Inc. must
be deemed to have lost its rights under its original 1933 registration, appears to us to be quite secondary in importance;
we refer to this earlier registration simply to underscore the fact that petitioner's use of the word "Lyceum" was neither
the first use of that term in the Philippines nor an exclusive use thereof. Petitioner's use of the word "Lyceum" was
not exclusive but was in truth shared with the Western Pangasinan Lyceum and a little later with other private
respondent institutions which registered with the SEC using "Lyceum" as part of their corporation names. There may
well be other schools using Lyceum or Liceo in their names, but not registered with the SEC because they have not
adopted the corporate form of organization.
We conclude and so hold that petitioner institution is not entitled to a legally enforceable exclusive right to use the
word "Lyceum" in its corporate name and that other institutions may use "Lyceum" as part of their corporate names.
To determine whether a given corporate name is "identical" or "confusingly or deceptively similar" with another
entity's corporate name, it is not enough to ascertain the presence of "Lyceum" or "Liceo" in both names. One must
evaluate corporate names in their entirety and when the name of petitioner is juxtaposed with the names of private
respondents, they are not reasonably regarded as "identical" or "confusingly or deceptively similar" with each other.
WHEREFORE, the petitioner having failed to show any reversible error on the part of the public respondent Court of
Appeals, the Petition for Review is DENIED for lack of merit, and the Decision of the Court of Appeals dated 28 June
1991 is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K. SA BANSANG PILIPINAS,
INC. petitioner, vs. IGLESIA NG DIOS KAY CRISTO JESUS, HALIGI AT SUHAY NG
KATOTOHANAN, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review assailing the Decision dated October 7, 1997 [1] and the Resolution dated February
16, 1999[2] of the Court of Appeals in CA-G.R. SP No. 40933, which affirmed the Decision of the Securities and
Exchange and Commission (SEC) in SEC-AC No. 539.[3]
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of God in Christ Jesus,
the Pillar and Ground of Truth),[4] is a non-stock religious society or corporation registered in 1936. Sometime in 1976,
one Eliseo Soriano and several other members of respondent corporation disassociated themselves from the latter and
succeeded in registering on March 30, 1977 a new non-stock religious society or corporation, named Iglesia ng Dios
Kay Kristo Hesus, Haligi at Saligan ng Katotohanan.
On July 16, 1979, respondent corporation filed with the SEC a petition to compel the Iglesia ng Dios Kay Kristo
Hesus, Haligi at Saligan ng Katotohanan to change its corporate name, which petition was docketed as SEC Case No.
1774. On May 4, 1988, the SEC rendered judgment in favor of respondent, ordering the Iglesia ng Dios Kay Kristo
Hesus, Haligi at Saligan ng Katotohanan to change its corporate name to another name that is not similar or identical
to any name already used by a corporation, partnership or association registered with the Commission.[5] No appeal
was taken from said decision.
It appears that during the pendency of SEC Case No. 1774, Soriano, et al., caused the registration on April 25,
1980 of petitioner corporation, Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K., sa Bansang
Pilipinas. The acronym H.S.K. stands for Haligi at Saligan ng Katotohanan.[6]
On March 2, 1994, respondent corporation filed before the SEC a petition, docketed as SEC Case No. 03-94-
4704, praying that petitioner be compelled to change its corporate name and be barred from using the same or similar
name on the ground that the same causes confusion among their members as well as the public.
Petitioner filed a motion to dismiss on the ground of lack of cause of action. The motion to dismiss was
denied. Thereafter, for failure to file an answer, petitioner was declared in default and respondent was allowed to
present its evidence ex parte.
On November 20, 1995, the SEC rendered a decision ordering petitioner to change its corporate name. The
dispositive portion thereof reads:
PREMISES CONSIDERED, judgment is hereby rendered in favor of the petitioner (respondent herein).
Respondent Mga Kaanib sa Iglesia ng Dios Kay Kristo Jesus (sic), H.S.K. sa Bansang Pilipinas (petitioner herein) is
hereby MANDATED to change its corporate name to another not deceptively similar or identical to the same
already used by the Petitioner, any corporation, association, and/or partnership presently registered with the
Commission.
Let a copy of this Decision be furnished the Records Division and the Corporate and Legal Department [CLD] of
this Commission for their records, reference and/or for whatever requisite action, if any, to be undertaken at their end.
SO ORDERED.[7]
Petitioner appealed to the SEC En Banc, where its appeal was docketed as SEC-AC No. 539. In a decision dated
March 4, 1996, the SEC En Banc affirmed the above decision, upon a finding that petitioner's corporate name was
identical or confusingly or deceptively similar to that of respondents corporate name. [8]
Petitioner filed a petition for review with the Court of Appeals. On October 7, 1997, the Court of Appeals
rendered the assailed decision affirming the decision of the SEC En Banc. Petitioners motion for reconsideration was
denied by the Court of Appeals on February 16, 1992.
Hence, the instant petition for review, raising the following assignment of errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER HAS NOT
BEEN DEPRIVED OF ITS RIGHT TO PROCEDURAL DUE PROCESS, THE HONORABLE COURT OF
APPEALS DISREGARDED THE JURISPRUDENCE APPLICABLE TO THE CASE AT BAR AND
INSTEAD RELIED ON TOTALLY INAPPLICABLE JURISPRUDENCE.
II
THE HONORABLE COURT OF APPEALS ERRED IN ITS INTEPRETATION OF THE CIVIL CODE
PROVISIONS ON EXTINCTIVE PRESCRIPTION, THEREBY RESULTING IN ITS FAILURE TO FIND
THAT THE RESPONDENT'S RIGHT OF ACTION TO INSTITUTE THE SEC CASE HAS SINCE
PRESCRIBED PRIOR TO ITS INSTITUTION.
III
THE HONORABLE COURT OF APPEALS FAILED TO CONSIDER AND PROPERLY APPLY THE
EXCEPTIONS ESTABLISHED BY JURISPRUDENCE IN THE APPLICATION OF SECTION 18 OF THE
CORPORATION CODE TO THE INSTANT CASE.
IV
THE HONORABLE COURT OF APPEALS FAILED TO PROPERLY APPRECIATE THE SCOPE OF THE
CONSTITUTIONAL GUARANTEE ON RELIGIOUS FREEDOM, THEREBY FAILING TO APPLY THE
SAME TO PROTECT PETITIONERS RIGHTS.[9]
 Invoking the case of Legarda v. Court of Appeals,[10] petitioner insists that the decision of the Court of Appeals
and the SEC should be set aside because the negligence of its former counsel of record, Atty. Joaquin Garaygay, in
failing to file an answer after its motion to dismiss was denied by the SEC, deprived them of their day in court.
The contention is without merit. As a general rule, the negligence of counsel binds the client. This is based on
the rule that any act performed by a lawyer within the scope of his general or implied authority is regarded as an act
of his client.[11] An exception to the foregoing is where the reckless or gross negligence of the counsel deprives the
client of due process of law.[12] Said exception, however, does not obtain in the present case.
In Legarda v. Court of Appeals, the effort of the counsel in defending his clients cause consisted in filing a
motion for extension of time to file answer before the trial court. When his client was declared in default, the counsel
did nothing and allowed the judgment by default to become final and executory. Upon the insistence of his client, the
counsel filed a petition to annul the judgment with the Court of Appeals, which denied the petition, and again the
counsel allowed the denial to become final and executory. This Court found the counsel grossly negligent and
consequently declared as null and void the decision adverse to his client.
The factual antecedents of the case at bar are different. Atty. Garaygay filed before the SEC a motion to dismiss
on the ground of lack of cause of action. When his client was declared in default for failure to file an answer, Atty.
Garaygay moved for reconsideration and lifting of the order of default.[13] After judgment by default was rendered
against petitioner corporation, Atty. Garaygay filed a motion for extension of time to appeal/motion for
reconsideration, and thereafter a motion to set aside the decision. [14]
Evidently, Atty. Garaygay was only guilty of simple negligence. Although he failed to file an answer that led to
the rendition of a judgment by default against petitioner, his efforts were palpably real, albeit bereft of zeal. [15]
Likewise, the issue of prescription, which petitioner raised for the first time on appeal to the Court of Appeals,
is untenable. Its failure to raise prescription before the SEC can only be construed as a waiver of that defense. [16] At
any rate, the SEC has the authority to de-register at all times and under all circumstances corporate names which in
its estimation are likely to spawn confusion. It is the duty of the SEC to prevent confusion in the use of corporate
names not only for the protection of the corporations involved but more so for the protection of the public. [17]
Section 18 of the Corporation Code provides:
Corporate Name. --- No corporate name may be allowed by the Securities and Exchange Commission if the proposed
name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or is contrary to existing laws. When a change in the corporate
name is approved, the Commission shall issue an amended certificate of incorporation under the amended name.
Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names states:
(d) If the proposed name contains a word similar to a word already used as part of the firm name or style of a registered
company, the proposed name must contain two other words different from the name of the company already registered;
Parties organizing a corporation must choose a name at their peril; and the use of a name similar to one adopted
by another corporation, whether a business or a nonprofit organization, if misleading or likely to injure in the exercise
of its corporate functions, regardless of intent, may be prevented by the corporation having a prior right, by a suit for
injunction against the new corporation to prevent the use of the name.[18]
Petitioner claims that it complied with the aforecited SEC guideline by adding not only two but eight words to
their registered name, to wit: Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc., which, petitioner argues, effectively
distinguished it from respondent corporation.
The additional words Ang Mga Kaanib and Sa Bansang Pilipinas, Inc. in petitioners name are, as correctly
observed by the SEC, merely descriptive of and also referring to the members, or kaanib, of respondent who are
likewise residing in the Philippines. These words can hardly serve as an effective differentiating medium necessary to
avoid confusion or difficulty in distinguishing petitioner from respondent. This is especially so, since both petitioner
and respondent corporations are using the same acronym --- H.S.K.;[19] not to mention the fact that both are espousing
religious beliefs and operating in the same place. Parenthetically, it is well to mention that the acronym H.S.K. used
by petitioner stands for Haligi at Saligan ng Katotohanan.[20]
Then, too, the records reveal that in holding out their corporate name to the public, petitioner highlights the
dominant words IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT SALIGAN NG KATOTOHANAN, which is
strikingly similar to respondent's corporate name, thus making it even more evident that the additional words Ang Mga
Kaanib and Sa Bansang Pilipinas, Inc., are merely descriptive of and pertaining to the members of respondent
corporation.[21]
Significantly, the only difference between the corporate names of petitioner and respondent are the
words SALIGAN and SUHAY. These words are synonymous --- both mean ground, foundation or support. Hence, this
case is on all fours with Universal Mills Corporation v. Universal Textile Mills, Inc.,[22] where the Court ruled that the
corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are undisputably so similar that even
under the test of reasonable care and observation confusion may arise.
Furthermore, the wholesale appropriation by petitioner of respondent's corporate name cannot find justification
under the generic word rule. We agree with the Court of Appeals conclusion that a contrary ruling would encourage
other corporations to adopt verbatim and register an existing and protected corporate name, to the detriment of the
public.
The fact that there are other non-stock religious societies or corporations using the names Church of the Living
God, Inc., Church of God Jesus Christ the Son of God the Head, Church of God in Christ & By the Holy Spirit, and
other similar names, is of no consequence. It does not authorize the use by petitioner of the essential and distinguishing
feature of respondent's registered and protected corporate name. [23]
 We need not belabor the fourth issue raised by petitioner. Certainly, ordering petitioner to change its corporate
name is not a violation of its constitutionally guaranteed right to religious freedom. In so doing, the SEC merely
compelled petitioner to abide by one of the SEC guidelines in the approval of partnership and corporate names, namely
its undertaking to manifest its willingness to change its corporate name in the event another person, firm, or entity has
acquired a prior right to the use of the said firm name or one deceptively or confusingly similar to it.
WHEREFORE, in view of all the foregoing, the instant petition for review is DENIED. The appealed decision
of the Court of Appeals is AFFIRMED in toto.
SO ORDERED.
SEVENTH DAY ADVENTIST G.R. No. 150416
CONFERENCE CHURCH OF
SOUTHERN PHILIPPINES, INC.,
and/or represented by MANASSEH
C. ARRANGUEZ, BRIGIDO P.
GULAY, FRANCISCO M. LUCENARA,
DIONICES O. TIPGOS, LORESTO
C. MURILLON, ISRAEL C. NINAL,
GEORGE G. SOMOSOT, JESSIE
T. ORBISO, LORETO PAEL and
JOEL BACUBAS,
Petitioners, Present:

PUNO, J., Chairperson,

SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.

NORTHEASTERN MINDANAO
MISSION OF SEVENTH DAY
ADVENTIST, INC., and/or
represented by JOSUE A. LAYON,
WENDELL M. SERRANO, FLORANTE
P. TY and JETHRO CALAHAT
and/or SEVENTH DAY ADVENTIST
CHURCH [OF] NORTHEASTERN
MINDANAO MISSION,*
Respondents. Promulgated:
July 21, 2006

x------------------------------------------x

DECISION

CORONA, J.:
This petition for review on certiorari assails the Court of Appeals (CA) decision[1] and resolution[2] in CA-G.R. CV
No. 41966 affirming, with modification, the decision of the Regional Trial Court (RTC) of Bayugan, Agusan del Sur,
Branch 7 in Civil Case No. 63.
This case involves a 1,069 sq. m. lot covered by Transfer Certificate of Title (TCT) No. 4468
in Bayugan, Agusan del Sur originally owned by Felix Cosio and his wife, Felisa Cuysona.
 On April 21, 1959, the spouses Cosio donated the land to the South Philippine Union Mission of Seventh
Day Adventist Church of BayuganEsperanza, Agusan (SPUM-SDA Bayugan).[3] Part of the deed of donation read:

KNOW ALL MEN BY THESE PRESENTS:

That we Felix Cosio[,] 49 years of age[,] and Felisa Cuysona[,] 40 years of age, [h]usband and wife,
both are citizen[s] of the Philippines, and resident[s] with post office address in the Barrio
of Bayugan, Municipality of Esperanza, Province of Agusan, Philippines, do hereby grant, convey
and forever quit claim by way of Donation or gift unto the South Philippine [Union] Mission of
Seventh Day Adventist Church of Bayugan, Esperanza, Agusan, all the rights, title, interest, claim
and demand both at law and as well in possession as in expectancy of in and to all the place of land
and portion situated in the Barrio of Bayugan, Municipality of Esperanza, Province of Agusan,
Philippines, more particularly and bounded as follows, to wit:

1. a parcel of land for Church Site purposes only.

2. situated [in Barrio Bayugan, Esperanza].
3. Area: 30 meters wide and 30 meters length or 900 square meters.
4. Lot No. 822-Pls-225. Homestead Application No. V-36704, Title No. P-285.
5. Bounded Areas
North by National High Way; East by Bricio Gerona; South by Serapio Abijaron and West
by Feliz Cosio xxx. [4]
The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day Adventist Church, on behalf
of the donee.
Twenty-one years later, however, on February 28, 1980, the same parcel of land was sold by the
spouses Cosio to the Seventh Day Adventist Church of Northeastern Mindanao Mission (SDA-NEMM).[5] TCT No.
4468 was thereafter issued in the name of SDA-NEMM.[6]
Claiming to be the alleged donees successors-in-interest, petitioners asserted ownership over the property. This was
opposed by respondents who argued that at the time of the donation, SPUM-
SDA Bayugan could not legally be a donee
because, not having been incorporated yet, it had no juridical personality. Neither were petitioners members of the
local church then, hence, the donation could not have been made particularly to them.
On September 28, 1987, petitioners filed a case, docketed as Civil Case No. 63 (a suit for cancellation of title, quieting
of ownership and possession, declaratory relief and reconveyance with prayer for preliminary injunction and
damages), in the RTC of Bayugan, Agusan del Sur. After trial, the trial court rendered a decision[7] on November 20,
1992 upholding the sale in favor of respondents.
On appeal, the CA affirmed the RTC decision but deleted the award of moral damages and attorneys
fees.[8] Petitioners motion for reconsideration was likewise denied. Thus, this petition.
The issue in this petition is simple: should SDA-NEMMs ownership of the lot covered by TCT No. 4468 be
upheld?[9] We answer in the affirmative.
The controversy between petitioners and respondents involves two supposed transfers of the lot previously
owned by the spouses Cosio: (1) a donation to petitioners alleged predecessors-in-interest in 1959 and (2) a sale to
respondents in 1980.
Donation is undeniably one of the modes of acquiring ownership of real property. Likewise, ownership
of a property may be transferred by tradition as a consequence of a sale.
Petitioners contend that the appellate court should not have ruled on the validity of the donation since it was
not among the issues raised on appeal. This is not correct because an appeal generally opens the entire case for review.
We agree with the appellate court that the alleged donation to petitioners was void.
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another
person who accepts it. The donation could not have been made in favor of an entity yet inexistent at the time it was
made. Nor could it have been accepted as there was yet no one to accept it.
 The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-
SDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to accept such gift.
Declaring themselves a de facto corporation, petitioners allege that they should benefit from the donation.
But there are stringent requirements before one can qualify as a de facto corporation:
(a) the existence of a valid law under which it may be incorporated;
(b) an attempt in good faith to incorporate; and
(c) assumption of corporate powers.[10]
While there existed the old Corporation Law (Act 1459),[11] a law under which SPUM-SDA Bayugan could have been
organized, there is no proof that there was an attempt to incorporate at that time.
The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the existence
of a de facto corporation.[12] We have held that an organization not registered with the Securities and Exchange
Commission (SEC) cannot be considered a corporation in any concept, not even as a corporation de
facto.[13] Petitioners themselves admitted that at the time of the donation, they were not registered with the SEC, nor
did they even attempt to organize[14] to comply with legal requirements.
Corporate existence begins only from the moment a certificate of incorporation is issued. No such certificate
was ever issued to petitioners or their supposed predecessor-in-interest at the time of the donation. Petitioners
obviously could not have claimed succession to an entity that never came to exist. Neither could the principle of
separate juridical personality apply since there was never any corporation[15] to speak of. And, as already stated, some
of the representatives of petitioner Seventh Day Adventist Conference Church of Southern Philippines, Inc. were not
even members of the local church then, thus, they could not even claim that the donation was particularly for them.[16]

The de facto doctrine thus effects a compromise between two conflicting public interest[s]the one
opposed to an unauthorized assumption of corporate privileges; the other in favor of doing justice
to the parties and of establishing a general assurance of security in business dealing with
corporations.[17]

Generally, the doctrine exists to protect the public dealing with supposed corporate entities,
not to favor the defective or non-existent corporation.[18]
In view of the foregoing, petitioners arguments anchored on their supposed de facto status hold no water. We
are convinced that there was no donation to petitioners or their supposed predecessor-in-interest.
On the other hand, there is sufficient basis to affirm the title of SDA-NEMM. The factual findings of the trial
court in this regard were not convincingly disputed. This Court is not a trier of facts. Only questions of law are the
proper subject of a petition for review on certiorari. [19]

Sustaining the validity of respondents title as well as their right of ownership over the property, the trial court
stated:

[W]hen Felix Cosio was shown the Absolute Deed of Sale during the hearing xxx he acknowledged
that the same was his xxx but that it was not his intention to sell the controverted property because
he had previously donated the same lot to the South Philippine Union Mission of SDA
Church of Bayugan-Esperanza. Cosio avouched that had it been his intendment to sell, he would not
have disposed of it for a mere P2,000.00 in two installments but for P50,000.00 or P60,000.00.
According to him, the P2,000.00was not a consideration of the sale but only a form of help extended.

A thorough analysis and perusal, nonetheless, of the Deed of Absolute Sale disclosed that it
has the essential requisites of contracts pursuant to xxx Article 1318 of the Civil Code, except
that the consideration of P2,000.00 is somewhat insufficient for a [1,069-square meter] land. Would
then this inadequacy of the consideration render the contract invalid?

Article 1355 of the Civil Code 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 influence.
No evidence [of fraud, mistake or undue influence] was adduced by [petitioners].
xxx
Well-entrenched is the rule that a Certificate of Title is generally a conclusive evidence of
[ownership] of the land. There is that strong and solid presumption that titles were legally issued
and that they are valid. It is irrevocable and indefeasible and the duty of the Court is to see to it that
the title is maintained and respected unless challenged in a direct proceeding. xxx The title shall be
received as evidence in all the Courts and shall be conclusive as to all matters contained therein.
[This action was instituted almost seven years after the certificate of title in respondents name was
issued in 1980.][20]
According to Art. 1477 of the Civil Code, the ownership of the thing sold shall be transferred to the vendee
upon the actual or constructive delivery thereof. On this, the noted author Arturo Tolentino had this to say:
The execution of [a] public instrument xxx transfers the ownership from the vendor to the
vendee who may thereafter exercise the rights of an owner over the same [21]
Here, transfer of ownership from the spouses Cosio to SDA-NEMM was made upon constructive delivery of
the property on February 28, 1980 when the sale was made through a public instrument. [22] TCT No. 4468 was
thereafter issued and it remains in the name of SDA-NEMM.
WHEREFORE, the petition is hereby DENIED.
Costs against petitioners.
SO ORDERED.
G.R. No. L-2598 June 29, 1950
C. ARNOLD HALL and BRADLEY P. HALL, petitioners,
vs.
EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN, EMMA BROWN,
HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and Commercial Co.,
Inc.,respondents.

BENGZON, J.:
This is petition to set aside all the proceedings had in civil case No. 381 of the Court of First Instance of Leyte and to
enjoin the respondent judge from further acting upon the same.
Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown,
Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the article of
incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber business
to carry on as general contractors, operators and managers, etc. Attached to the article was an affidavit of the treasurer
stating that 23,428 shares of stock had been subscribed and fully paid with certain properties transferred to the
corporation described in a list appended thereto.
(2) Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with
the adoption of by-laws and the election of its officers.
(3) On December 2, 1947, the said articles of incorporation were filed in the office of the Securities and Exchange
Commissioner, for the issuance of the corresponding certificate of incorporation.
(4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental office, the
respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed before the Court of First
Instance of Leyte the civil case numbered 381, entitled "Fred Brown et al. vs. Arnold C. Hall et al.", alleging among
other things that the Far Eastern Lumber and Commercial Co. was an unregistered partnership; that they wished to
have it dissolved because of bitter dissension among the members, mismanagement and fraud by the managers and
heavy financial losses.
(5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting the
court's jurisdiction and the sufficiently of the cause of action.
(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and at the request of
plaintiffs, appointed of the properties thereof, upon the filing of a P20,000 bond.
(7) The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the receiver, but the
respondent judge refused to accept the offer and to discharge the receiver. Whereupon, the present special civil action
was instituted in this court. It is based upon two main propositions, to wit:
(a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company, because it being a de
facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding instituted in accordance with
section 19 of the Corporation Law.
(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of incorporation but only a
partnership.
Discussion: The second proposition may at once be dismissed. All the parties are informed that the Securities and
Exchange Commission has not, so far, issued the corresponding certificate of incorporation. All of them know, or
sought to know, that the personality of a corporation begins to exist only from the moment such certificate is issued
— not before (sec. 11, Corporation Law). The complaining associates have not represented to the others that they
were incorporated any more than the latter had made similar representations to them. And as nobody was led to believe
anything to his prejudice and damage, the principle of estoppel does not apply. Obviously this is not an instance
requiring the enforcement of contracts with the corporation through the rule of estoppel.
The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern Lumber and Commercial
Co., is a de facto corporation, section 19 of the Corporation Law applies, and therefore the court had not jurisdiction
to take cognizance of said civil case number 381. Section 19 reads as follows:
. . . The due incorporation of any corporations claiming in good faith to be a corporation under this Act and
its right to exercise corporate powers shall not be inquired into collaterally in any private suit to which the
corporation may be a party, but such inquiry may be had at the suit of the Insular Government on information
of the Attorney-General.
There are least two reasons why this section does not govern the situation. Not having obtained the certificate of
incorporation, the Far Eastern Lumber and Commercial Co. — even its stockholders — may not probably claim "in
good faith" to be a corporation.
Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a certificate of
incorporation by the Director of the Bureau of Commerce and Industry which calls a corporation into being.
The immunity if collateral attack is granted to corporations "claiming in good faith to be a corporation under
this act." Such a claim is compatible with the existence of errors and irregularities; but not with a total or
substantial disregard of the law. Unless there has been an evident attempt to comply with the law the claim
to be a corporation "under this act" could not be made "in good faith." (Fisher on the Philippine Law of Stock
Corporations, p. 75. See also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.)
Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the alleged
corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may be terminated
in a private suit for its dissolution between stockholders, without the intervention of the state.
There might be room for argument on the right of minority stockholders to sue for dissolution; 1 but that question does
not affect the court's jurisdiction, and is a matter for decision by the judge, subject to review on appeal. Whkch brings
us to one principal reason why this petition may not prosper, namely: the petitioners have their remedy by appealing
the order of dissolution at the proper time.
There is a secondary issue in connection with the appointment of a receiver. But it must be admitted that receivership
is proper in proceedings for dissolution of a company or corporation, and it was no error to reject the counter-bond,
the court having declared the dissolution. As to the amount of the bond to be demanded of the receiver, much depends
upon the discretion of the trial court, which in this instance we do not believe has been clearly abused.
Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction heretofore issued will be
dissolved.
G.R. Nos. 188642 & 189425, October 17, 2016
AGDAO RESIDENTS INC., THE DIRECTORS LANDLESS LANDLESS ASSOCIATION, BOARD OF OF
AGDAO ASSOCIATION, INC., IN THEIR PERSONAL CAPACITY NAMELY: ARMANDO JAVONILLO, MA.
ACELITA ARMENTANO, ALEX JOSOL, ANTONIA AMORADA, JULIUS ALINSUB, POMPENIANO
ESPINOSA, JR., SALCEDO DE LA CRUZ, CLAUDIO LAO, CONSORCIO DELGADO, ROMEO CABILLO,
RICARDO BACONG, RODOLFO GALENZOGA, BENJAMIN LAMIGO, AND ASUNCION A.
ALCANTARA, Petitioners, v. ROLANDO MARAMION, LEONIDAS JAMISOLA, VIRGINIA CANOY,
ELIZABETH GONZALES, CRISPINIANO QUIRE-QUIRE, ERNESTINO DUNLAO, ELLA DEMANDANTE,
ELLA RIA DEMANDANTE, ELGIN DEMANDANTE, SATURNINA WITARA, VIRGILIO DAYONDON,
MELENCIA MARAMION, ANGELICA PENKIAN, PRESENTACION TAN, HERNANI GREGORY, RUDY
GIMARINO, VALENTIN CAMEROS, RODEL CAMEROS, ZOLLO JABONETE, LUISITO TAN, JOSEPH
QUIRE-QUIRE, ERNESTO DUNLAO, JR., FRED DUNLAO, LIZA MARAMION, CLARITA ROBILLA,
RENATO DUNLAO AND PRUDENCIO JUARIZA, JR., Respondents.

G.R. NOS. 188888-89

ROLANDO MARAMION, LEONIDAS JAMISOLA, VIRGINIA CANOY, ERNESTINO DUNLAO, ELLA
DEMANDANTE, ELLA RIA DEMANDANTE, ELGIN DEMANDANTE, SATURNINA WITARA, MELENCIA
MARAMION, LIZA MARAMION, ANGELICA PENKIAN, PRESENTACION TAN, AS SUBSTITUTED BY HIS
LEGAL HEIRS: HERNANI GREGORY, RUDY GIMARINO, RODEL CAMEROS, VALENTIN CAMEROS,
VIRGILIO DAYONDON, PRUDENCIO JUARIZA, JR., ZOILO JABONETE, LUISITO TAN, ERNESTINO
DUNLAO, JR., FRED DUNLAO, CLARITA ROBILLA, AND RENATO DUNLAO, Petitioners, v. AGDAO
LANDLESS RESIDENTS ASSOCIATION, INC., THE DIRECTORS LANDLESS BOARD OF OF AGDAO
RESIDENTS ASSOCIATION, INC., IN THEIR PERSONAL CAPACITY, NAMELY: ARMANDO JAVONILLO,
MA. ACELITA ARMENTANO, ALEX JOSOL, ANTONIA AMORADA, JULIUS ALINSUB, POMPENIANO
ESPINOSA, JR. JACINTO BO-OC, HERMENIGILDO DUMAPIAS, SALCEDO DE LA CRUZ, CLAUDIO LAO,
CONSORCIO DELGADO, ROMEO CABILLO, RICARDO BACONG, RODOLFO GALENZOGA, BENJAMIN
LAMIGO, ROMEO DE LA CRUZ, ASUNCION ALCANTARA AND LILY LOY, Respondents.
DECISION
JARDELEZA, J.:
These are consolidated petitions for review on certiorari assailing the Court of Appeals' (CA) Decision1and
Resolution2 dated November 24, 2008 and June 19, 2009, respectively, in CA-G.R. SP No. 01858-MIN and CA-
G.R. SP No. 01861-MIN. The CA affirmed with modification the Decision3 of the Regional Trial Court (court a
quo) dated July 11, 2007 which ruled in favor of respondents.
The Parties

Petitioners are Agdao Landless Residents Association, Inc. (ALRAI), a non-stock, non-profit corporation duly
organized and existing under and by virtue of the laws of the Republic of the Philippines,4 and its board of
directors,5 namely, Armando Javonillo (Javonillo), Ma. Acelita Armentano (Armentano), Alex Josol, Salcedo de
la Cruz, Jr., Claudio Lao, Antonia Amorada, Julius Alinsub, Pompeniano Espinosa, Consorcio Delgado, Romeo
Cabillo, Benjamin Lamigo, Ricardo Bacong, Rodolfo Galenzoga, and Asuncion Alcantara
(Alcantara).6 Respondents are allegedly ousted members of ALRAI, namely, Rolando Maramion, Leonidas
Jamisola, Virginia Canoy (Canoy), Elizabeth Gonzales, Crispiniano Quire-Quire, Emestino Dunlao, Ella
Demandante, Ella Ria Demandante, Elgin Demandante, Satumina Witara (Witara), Virgilio Dayondon
(Dayondon), Melencia Maramion, Angelica Penkian (Penkian), Presentacion Tan, Hemani Gregory (Gregory),
Rudy Gimarino (Gimarino), Valentin Cameros, Radel Cameros (Cameros), Zoilo Jabonete, Luisito Tan (Tan),
Joseph Quire Quire, Emestino Dunlao, Jr., Fred Dunlao, Liza Maramion, Clarita Robilla (Robilla), Renata Dunlao
and Prudencio Juariza, Jr. (Juariza).7
chanro bleslaw

The Antecedents

Dakudao & Sons, Inc. (Dakudao) executed six Deeds of Donation8 in favor of ALRAI covering 46 titled lots
(donated lots).9 One Deed of Donation10 prohibits ALRAI, as donee, from partitioning or distributing individual
certificates of title of the donated lots to its members, within a period of five years from execution, unless a
written authority is secured from Dakudao.11 A violation of the prohibition will render the donation void, and
title to and possession of the donated lot will revert to Dakudao.12 The other five Deeds of Donation do not
provide for the five-year restriction.

In the board of directors and stockholders meetings held on January 5, 2000 and January 9, 2000,
respectively, members of ALRAI resolved to directly transfer 10 of the donated lots to individual members and
non members of ALRAI.13 Transfer Certificate of Title (TCT) Nos. T-62124 (now T-322968), T-297811 (now
TCT No. T-322966), T-297813 (now TCT No. T-322967) and T-62126 (now TCT No. T-322969) were
transferred to Romeo Dela Cruz (Dela Cruz). TCT Nos. T-41374 (now TCT No. T-322963) and T-41361 (now
TCT No. T-322962) were transferred to petitioner Javonillo, the president of ALRAI. TCT Nos. T-41365 (now
TCT No. T-322964) and T-41370 (now TCT No. T-322964) were transferred to petitioner Armentano, the
secretary of ALRAI. TCT Nos. T-41367 (now TCT No. T-322971) and T-41366 were transferred to petitioner
Alcantara, the widow of the fanner legal counsel of ALRAI. The donated lot covered by TCT No. T-41366
(replaced by TCT No. T-322970) was sold to Lily Loy (Loy) and now covered by TCT No. T-338403.14 chanrobles law

Respondents filed a Complaint15 against petitioners. Respondents alleged that petitioners expelled them as
members of ALRAI, and that petitioners are abusing their powers as officers.16 Respondents further alleged
that petitioners were engaged in the following anomalous and illegal acts: (1) requiring ALRAI's members to
pay exorbitant arrear fees when ALRAI's By-Laws only set membership dues at P1.00 per month;17 (2) partially
distributing the lands donated by Dakudao to some officers of ALRAI and to some non-members in violation
of the Deeds of Donation;18 (3) illegally expelling them as members of ALRAI without due process;19 and (4)
being unable to show the books of accounts of ALRAI.20 They also alleged that Loy (who bought one of the
donated lots from Alcantara) was a buyer in bad faith, having been aware of the status of the land when she
bought it.21 chan roble slaw

Thus, respondents prayed for: (1) the restoration of their membership to ALRAI; (2) petitioners to stop selling
the donated lands and to annul the titles transferred to Javonillo, Armentano, Dela Cruz, Alcantara and Loy;
(3) the production of the accounting books of ALRAI and receipts of payments from ALRAI's members; (4) the
accounting of the fees paid by ALRAI's members; and (5) damages.22 chanro bles law

In their Answer,23 petitioners alleged that ALRAI transferred lots to Alcantara as attorney's fees ALRAI owed
to her late husband, who was the legal counsel of ALRAI.24 On the other hand, Javonillo and Armentano, as
president and secretary of ALRAI, respectively, made a lot of sacrifices for ALRAI, while Dela Cruz provided
financial assistance to ALRAI.25 cralawred chan roble slaw

Petitioners also alleged that respondents who are non-members of ALRAI have no personality to sue. They
also claimed that the members who were removed were legally ousted due to their absences in meetings.26 chanrob leslaw

The Ruling of the RTC

On July 11, 2007, the court a quo promulgated its Decision,27 the decretal portion of which reads:
chanRoble svirtual Lawlib ra ry

After weighing the documentary and testimonial evidence presented, as well as the arguments propounded
by the counsels, this Court tilts the scale of justice in favor of complainants and hereby grants the following:
ChanRob les Virtualawl ibra ry

1. Defendants are enjoined from disposing or selling further the donated lands to the
detriment of the beneficiary-members of the Association;
2. The Complainants and/or the ousted members are hereby restored to their
membership with ALRAI, and a complete list of all bona fide members should be
made and submitted before this Court;
3. The Register of Deeds of the City of Davao is directed to annul the Land Titles
transferred to Armando Javonillo, Ma. Acelita Armentano, Romeo dela Cruz, Asuncion
Alcantara and Lily Loy with TCT Nos. T-322962, T-322963, T-322964, T-322965, T-
322966, T-322967, T-322968, T-322969, T-322971 and T-338403 (formerly T-
322970), respectively; and to register said titles to the appropriate donee provided
in the Deeds of Donation; and cralawlawl ibra ry

4. Defendants are further directed to produce all the Accounting Books of the
Association, receipts of the payments made by all the members, and for an
accounting of the fees paid by the members from the time of its incorporation up to
the present;
5. Moral, exemplary and attorney's fees being unsubstantiated, the same cannot be
given due course; and cralawlawl ibrary

6. Defendants are ordered to shoulder the costs of suit.

SO ORDERED.28

The court a quo treated the case as an intra-corporate dispute.29 It found respondents to be bona
fidemembers of ALRAI.30 Being bona fide members, they are entitled to notices of meetings held for the
purpose of suspending or expelling them from ALRAI.31 The court a quo however found that respondents were
expelled without due process.32 It also annulled all transfers of the donated lots because these violated the
five-year prohibition under the Deeds of Donation.33 It also found Loy a purchaser in bad faith.34 chan robles law

Both Loy and petitioners filed separate appeals with the CA. Loy's appeal was docketed as CA-G.R. SP No.
01858;35 while petitioners' appeal was docketed as CA-G.R. SP No. 1861.36 In its Resolution37 dated October
19, 2007, the CA ordered the consolidation of the appeals.
The Ruling of the Court of Appeals

The CA affirmed with modification the court a quo's Decision. The decretal portion of the CA Decision38dated
November 24, 2008 reads:
chanRoble svirtual Lawlib ra ry

WHEREFORE, the consolidated petitions are PARTLY GRANTED. The assailed Decision dated July 11,2007
of the Regional Trial Court (RTC), Eleventh (11th)Judicial Region, Branch No. 10 of Davao City in Civil Case
No. 29,047-02 is hereby AFFIRMED with MODIFICATION.

The following Transfer Certificates of Title are declared VALID:

1. TCT Nos. T-322966, T-322967, T-322968 and T-322969 in the name of petitioner
Romeo C. DelaCruz; and
2. TCT No. T-338403 in the name of petitioner Lily Loy.
The following Transfer Certificates of Title are declared VOID:
1. TCT Nos. T-322963 and T-322962 in the name of Petitioner Armando Javonillo;
2. TCT Nos. T-322964 and T-322965 in the name of petitioner Ma. Acelita Armentano; and
3. TCT No. T-322971 in the name of petitioner Asuncion A. Alcantara.
Petitioners who are members of ALRAI may inspect all the records and books of accounts of ALRAI and demand
accounting of its funds in accordance with Section 1, Article VII and Section 6, Article V of ALRAI's Constitution
and By-Laws.
SO ORDERED.39

Under Section 2, Article III of ALRAI's Amended Constitution and By-Laws (ALRAI Constitution), the corporate
secretary should give written notice of all meetings to all members at least three days before the date of the
meeting.40 The CA found that respondents were not given notices of the meetings held for the purpose of their
termination from ALRAI at least three days before the date of the meeting.41Being existing members of ALRAI,
respondents are entitled to inspect corporate books and demand accounting of corporate funds in accordance
with Section 1, Article VII and Section 6, Article V ofthe ALRAI Constitution.42 chanroble slaw

The CA also noted that among the donated lots transferred, only one [under TCT No. T-41367 (now TCT No.
322971) and transferred to Alcantara] was covered by the five-year prohibition.43 Although petitioners
attached to their Memorandum44 dated November 19, 2007 a Secretary's Certificate45 of Dakudao resolving
to remove the restriction from the land covered by TCT No. T-41367, the CA did not take this certificate into
consideration because petitioners never mentioned its existence in any of their pleadings before the court a
quo. Thus, without the required written authority from the donor, the CA held that the disposition of the land
covered by TCT No. T-41367 is prohibited and the land's subsequent registration under TCT No. T-322971 is
void.46 chan rob leslaw

However, the CA nullified the transfers made to Javonillo and Armentano because these transfers violated
Section 6 of Article IV of the ALRAI Constitution. Section 6 prohibits directors from receiving any compensation,
except for per diems, for their services to ALRAI.47 The CA upheld the validity of the transfers to Dela Cruz
and Alcantara48 because the ALRAI Constitution does not prohibit the same. The CA held that as a
consequence, the subsequent transfer of the lot covered by TCT No. T-41366 to Loy from Alcantara was also
valid.49 chan rob leslaw

Both parties filed separate motions for reconsideration with the CA but these were denied in a
Resolution50 dated June 19, 2009.

Thus, the parties filed separate petitions for review on certiorari under Rule 45 of the Rules of Court with this
Court. In a Resolution51 dated September 30, 2009, we resolved to consolidate the petitions considering they
assail the same CA Decision and Resolution dated November 24, 2008 and June 19, 2009, respectively. The
petitions also involve the same parties and raise interrelated issues.
The Issues

Petitioners raise the following issues for resolution of the Court, to wit:
chanRoble svirtual Lawlib ra ry

1. Whether respondents should be reinstated as members of ALRAI; and

2. Whether the transfers of the donated lots are valid.

Our Ruling

We find the petition partly meritorious.

I. Legality of respondents' termination

Petitioners argue that respondents were validly dismissed for violation of the ALRAI Constitution particularly
for non-payment of membership dues and absences in the meetings.52 chan roble slaw

Petitioners' argument is without merit. We agree with the CA's finding that respondents were illegally
dismissed from ALRAI.

We stress that only questions of law may be raised in a petition for review on certiorari under Rule 45 of the
Rules of Court, since "the Supreme Court is not a trier of facts."53 It is not our function to review, examine
and evaluate or weigh the probative value of the evidence presented.

When supported by substantial evidence, the findings of fact of the CA are conclusive and binding on the
parties and are not reviewable by this Court, unless the case falls under any of the recognized exceptions in
Jurisprudence.54 c han robles law

The court a quo held that respondents are bona fide members of ALRAL55 This finding was not disturbed by
the CA because it was not raised as an issue before it and thus, is binding and conclusive on the parties and
upon this Court.56 In addition, both the court a quo and the CA found that respondents were illegally removed
as members of ALRAI. Both courts found that in terminating respondents from ALRAI, petitioners deprived
them of due process.57 chan roble slaw

Section 9158 of the Corporation Code of the Philippines (Corporation Code)59 provides that membership in a
non-stock, non-profit corporation (as in petitioner ALRAI in this case) shall be terminated in the manner and
for the cases provided in its articles of incorporation or the by-laws.

In tum, Section 5, Article II of the ALRAI Constitution60 states:

chanRoble svirtual Lawlib ra ry
Sec. 5. - Termination of Membership - Membership may be lost in any of the following: a) Delinquent in the
payment of monthly dues; b) failure to [attend] any annual or special meeting of the association
for three consecutive times without justifiable cause, and c) expulsion may be exacted by majority vote
of the entire members, on causes which herein enumerated: 1) Act and utterances which are derogatory and
harmful to the best interest of the association; 2) Failure to attend any annual or special meeting of the
association for six (6) consecutive months, which shall be construed as lack of interest to continue his
membership, and 3) any act to conduct which are contrary to the objectives, purpose and aims of the
association as embodied in the charter[.]61

Petitioners allege that the membership of respondents in ALRAI was terminated due to (a) non-payment of
membership dues and (b) failure to consecutively attend meetings.62 However, petitioners failed to
substantiate these allegations. In fact, the court a quo found that respondents submitted several receipts
showing their compliance with the payment of monthly dues.63 Petitioners likewise failed to prove that
respondents' absences from meetings were without any justifiable grounds to result in the loss of their
membership in ALRAI.

Even assuming that petitioners were able to prove these allegations, the automatic termination of respondents'
membership in ALRAI is still not warranted. As shown above, Section 5 of the ALRAI Constitution does not
state that the grounds relied upon by petitioners will cause the automatictermination of respondents'
membership. Neither can petitioners argue that respondents' memberships in ALRAI were terminated under
letter (c) of Section 5, to wit:
chanRoble svirtual Lawlib ra ry

x x x c) expulsion may be exacted by majority vote of the entire members, on causes which herein
enumerated: 1) Act and utterances which are derogatory and harmful to the best interest of the association;
2) Failure to attend any annual or special meeting of the association for six (6) consecutive months, which
shall be construed as lack of interest to continue his membership, and 3) any act to conduct which are contrary
to the objectives, purpose and aims of the association as embodied in the charter; x x x64 chanro blesvi rt uallawl ibra ry

Although termination of membership from ALRAI may be made by a majority of the members, the court a
quo found that the "guideline (referring to Section 2, Article III of the ALRAI Constitution) was not followed,
hence, complainants' ouster from the association was illegally done."65 The court a quo cited Section 2, Article
III of the ALRAI Constitution which provides, thus:
chanRoble svirtual Lawlib ra ry

Sec. 2. -Notice- The Secretary shall give or cause to be given written notice of all meetings, regular or special
to all members of the association at least three (3) days before the date of each meetings either by mail or
personally. Notice for special meetings shall specify the time and the purposes or purpose for which it was
called; x x x 66

The CA concurred with the finding of the court a quo.67 The CA noted that the evidence presented revealed
that the General Meeting for the termination of membership was to be held on July 29, 2001, at 2 o'clock in
the afternoon; but the Notice to all officers and members of ALRAI informing them about the General Meeting
appeared to have been signed by ALRAI's President only on July 27, 2001.68 Thus, the CA held that the "notice
for the July 29, [2001] meeting where the general membership of ALRAI approved the expulsion of some of
the respondents was short of the three (3)-day notice requirement. More importantly, the petitioners have
failed to adduce evidence showing that the expelled members were indeed notified of any meeting or
investigation proceeding where they are given the opportunity to be heard prior to the termination of their
membership."69 chan roble slaw

The requirement of due notice becomes more essential especially so since the ALRAI Constitution provides for
the penalties to be imposed in cases where any member is found to be in arrears in payment of contributions,
or is found to be absent from any meeting without any justifiable cause. Section 3, Article II and Section 3,
Article III of the ALRAI Constitution provide, to wit:
chanRoble svirtual Lawlib ra ry

Article II

xxx

Sec. 3. - Suspension of members Any member who shall be six (6) months in arrears in the payment of
monthly dues or additional contributions or assessments shall be automatically suspended and may be
reinstated only upon payment of the corresponding dues in arrears or additional contributions and after
approval of the board of Directors.70 chan robles law

x x x

Article III
xxx

Sec. 3. - Any member who shall be absent from any meeting without justifiable causes shall be liable to a fine
of Two Pesos (P 2.00);71

Clearly, members proved to be in arrears in the payment of monthly dues, contributions, or assessments shall
only be automatically suspended; while members who shall be absent from any meeting without any justifiable
cause shall only be liable for a fine. Nowhere in the ALRAI Constitution does it say that the foregoing actions
shall cause the automatic termination of membership. Thus, the CA correctly ruled that "respondents'
expulsion constitutes an infringement of their constitutional right to due process of law and is not in accord
with the principles established in Article 19 of the Civil Code, x x x."72 chanrobles law

There being no valid termination of respondents' membership m ALRAI, respondents remain as its existing
members.73 It follows that as members, respondents are entitled to inspect the records and books of accounts
of ALRAI subject to Section 1, Article VII74 of ALRAI's Constitution, and they can demand the accounting of its
funds in accordance with Section 6, Article V of the ALRAI Constitution.75 In addition, Sections 7476 and 7577 of
the Corporation Code also sanction the right of respondents to inspect the records and books of accounts of
ALRAI and demand the accounting of its funds.

II. On the validity of the donated lots

We modify the decision of the CA.

At the onset, we find that the cause of action and the reliefs sought in the complaint pertaining to the donated
lands (ALRAI's corporate property) strictly call for the filing of a derivative suit, and not an individual suit
which respondents filed.

Individual suits are filed when the cause of action belongs to the stockholder personally, and not to the
stockholders as a group, or to the corporation, e.g. denial of right to inspection and denial of dividends to a
stockholder. If the cause of action belongs to a group of stockholders, such as when the rights violated belong
to preferred stockholders, a class or representative suit may be filed to protect the stockholders in the
group.78 chan roble slaw

A derivative suit, on the other hand, is one which is instituted by a shareholder or a member of a corporation,
for and in behalf of the corporation for its protection from acts committed by directors, trustees, corporate
officers, and even third persons.79 The whole purpose of the law authorizing a derivative suit is to allow the
stockholders/members to enforce rights which are derivative (secondary) in nature, i.e., to enforce a corporate
cause of action.80 chanrob leslaw

The nature of the action, as well as which court or body has jurisdiction over it, is determined based on the
allegations contained in the complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to
recover upon all or some of the claims asserted therein.81 cha nrob leslaw

In this case, the complaint alleged, thus:

chanRoble svirtual Lawlib ra ry

FIRST CAUSE OF ACTION

9. Sometime in 2001, Complainants accidentally discovered that portions of the aforementioned donated lands
were partially distributed by the Officers of said association, AMONG THEMSELVES, without knowledge of its
members.
xxx

11. Then there was illegal partial distribution of the donated lands. Not only the President and Secretary of
the Association, but also some personalities who are not members of the association and who themselves own
big tracts of land, are the recipients of the donated lands, which acts are contrary to the clear intents as
indicated in the deed of donation. x x x82

In the same complaint, respondents prayed .for the following reliefs, among others, to wit:
chanRoble svirtual Lawlib ra ry

a) An Order for a writ of PRELIMINARY PROHIBITORY MANDATORY INJUNCTION to stop the Defendants from
disposing the donated lands to the detriment of the beneficiary-members of the Association[.]
xxx

c) To cease and desist from selling donated lands subject of this case and to annul the titles transferred x x
x.

d) To annul the Land Titles fraudulently and directly transferred from the Dacudao in the names of Defendants
Javonillo, Armentano, Romeo de la Cruz and Alcantara, and subsequently to defendant Lily Loy in the name
of Agdao Landless Associatidn.83

In a strict sense, the first cause of action, and:the reliefs sought, should have been brought through a
derivative suit. The first cause of action pertains to the corporate right of ALRAI involving its corporate
properties which it owned by virtue of the Deeds of Donation. In derivative suits, the real party-in-interest is
the corporation, and the suing stockholder is a mere nominal party.84 A derivative suit, therefore, concerns "a
wrong to the corporation itself."85 chan roble slaw

However, we liberally treat this case (in relation to the cause of action pertaining to ALRAI's corporate
properties) as one pursued by the corporation itself, for the following reasons.

First, the court a quo has jurisdiction to hear and decide this controversy. Republic Act No. 8799,86 in relation
to Section 5 of Presidential Decree No. 902-A,87 vests the court a quo with original and exclusive jurisdiction
to hear and decide cases involving:
chanRoble svirtual Lawlib ra ry

Sec. 5. x x x

(a) Devices or schemes employed by or any acts, of the board of directors, business associates, its officers or
partnership, amounting to fraud and misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, members of associations or organizations registered with the
Commission.

Second, we note that petitioners did not object to the institution of the case (on the ground that a derivative
suit should have been lodged instead of an individual suit) in any of the proceedings before the court a quo or
before the CA.88 chanrobles law

Third, a reading of the complaint (in relation to the cause of action pertaining to ALRAI's corporate properties)
shows that respondents do not pray for reliefs for their personal benefit; but in fact, for the benefit of the
ALRAI, to wit:
chanRoble svirtual Lawlib ra ry

c) To cease and desist from selling donated lands subject of this case and to annul the titles transferred to
Armando Javonillo, Ma. Acelita Armentano, Romeo de Ia Cruz, Asuncion Alcantara and Lily Loy x x x.

d) To annul the Land Titles fraudulently and directly transferred from the (sic) Dacudao in the names of
Defendants Javonillo, Armentano, Romeo de la Cruz and Alcantara, and subsequently to Defendant Lily Loy in
the name of Agdao Landless Assiociation.89

The reliefs sought show that the complaint was filed ultimately to curb the alleged mismanagement of ALRAI's
corporate properties. We note that the danger sought to be avoided in Evangelista v. Santos90does not exist
in this case. In Santos, plaintiff stockholders sought damages against the principal officer of the corporation,
alleging that the officer's mismanagement of the affairs and assets of the corporation brought about the loss
of the value of its stocks. In ruling against the plaintiff-stockholders, this Court held that "[t]he stockholders
may not directly claim those damages for themselves for that would result in the appropriation by, and the
distribution among them of part of the corporate assets before the dissolution of the corporation x x x."91 More,
in Santos, if only the case was brought before the proper venue, this Court added, "we note that the action
stated in their complaint is susceptible of being converted into a derivative suit for the benefit of the
corporation by a mere change in the prayer."92 chanrob leslaw

In this case, the reliefs sought do not entail the premature distribution of corporate assets. On the contrary,
the reliefs seek to preserve them for the corporate interest of ALRAI. Clearly then, any benefit that may be
recovered is accounted for, not in favor of respondents, but for the corporation, who is the real party-in-
interest Therefore, the occasion for the strict application of the rule that a derivative suit should be brought
in order to protect and vindicate the interest of the corporation does not obtain under the circumstances of
this case.

Commart (Phils.), Inc. v. Securities and Exchange Commission (SEC)93 upholds the same principle. In that
case, the chairman and board of directors of Commart were sued for diverting into their private accounts
amounts due to Commart as commissions. Respondents argued that the Hearing Panel of the SEC should
dismiss the case·on the ground that it has no jurisdiction over the matter because the case is not a derivative
suit The Hearing Panel denied the motion, and was affirmed by the SEC. Upon appeal, this Court affirmed the
decision of the SEC, to wit:
chanRoble svirtual Lawlib ra ry

The complaint in SEC Case No. 2673, particularly paragraphs 2 to 9 under First Cause of Action, readily shows
that it avers the diversion of corporate income into the private bank accounts of petitioner x x x and his wife.
Likewise, the principal relief prayed for in the complaint is the recovery of a sum of money in favor of the
corporation. This being the case, the complaint is definitely a derivative suit. xxx
xxx

In any case, the suit is for the benefit of Commart itself, for a judgment in favor of the complainants will
necessarily mean recovery by the corporation of the US$2.5 million alleged to have been diverted from its
coffers to the private bank accounts of its top managers and directors. Thus, the prayer in the Amended
Complaint is for judgment ordering respondents x x x, "to account for and to, turn over or deliver to the
Corporation" the aforesaid sum, with legal interest, and "ordering all the respondents, as members of the
Board of Directors to take such remedial steps as would protect the corporation from further depredation of
the funds and property."94

Fourth, based on the records, we find that there is substantial compliance with the requirements of a derivative
suit, to wit:
chanRoble svirtual Lawlib ra ry

a) [T]he party bringing suit should be a shareholder as of the time of the act or transaction complained of,
the number of his shares not being material;

b) [H]e has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for
the appropriate relief but the latter has failed or refused to heed his plea; and cralawlawli bra ry
c) [T]he cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being
caused to the corporation and not to the particular stockholder bringing the suit.95

Here, the court a quo found that respondents are bona fide members of ALRAI.96 As for the second requisite,
respondents also have tried to demand appropriate relief within the corporation, but the demand was
unheeded. In their Memorandum before the CA, respondents alleged, thus:
chanRoble svirtual Lawlib ra ry

4.18 The occurrence of the series of distressing revelation prompted Respondents to confront Defendant
Armentano on the accounting of all payments made including the justification for the illegal distribution of the
Donated Land to four persons mentioned in preceding paragraph (4.12) of this memorandum. Unfortunately,
Petitioner Armentano merely reasoned their (referring to the four persons) right to claim ownership of the
land as compensation for their service and attorney's fees;

4.19 Anxious of the plan of action taken by the Respondents against the Petitioners, the latter started
harassing the unschooled Respondents by unduly threatening them. Respondents simply wanted the land due
them, an accounting of the finances of the Association and justification of the illegal disposition of the Donated
Land which was donated for the landless members of the Association;

4.20 As a consequence, Petitioners on their own, with grave abuse of power and in violation of the Constitution
and By-Laws of the Association maliciously expelled the Respondents particularly those persistently inquisitive
about Petitioners' moves and acts which only emphasized their practice of upholding the MOB RULE by
presenting solicited signatures of alleged members and non-members written on a scrap of paper signifying
confirmation of the ouster (sic) members. x x x97

We note that respondents' demand on Armentano substantially complies with the second requirement. While
it is true that the complaining stockholder must show that he has exhausted all the means within his reach to
attain within the corporation the redress for his grievances, demand is unnecessary if the exercise will result
in futility.98 Here, after respondents demanded Armentano to justify the transfer of ALRAI's properties to the
individual petitioners, respondents were expelled from the corporation, which termination we have already
ruled as invalid. To our mind, the threat of expulsion against respondents is sufficient to forestall any
expectation of further demand for relief from petitioners. Ultimately, to make an effort to demand redress
within the corporation will only result in futility, rendering the exhaustion of other remedies unnecessary.

Finally, the third requirement for the institution of a derivative suit is clearly complied with. As discussed in
the previous paragraphs, the cause of action and the reliefs sought ultimately redound to the benefit of ALRAI.
In this case, and as in a proper derivative suit, ALRAI is the party-in-interest and respondents are merely
nominal parties.

In view of the foregoing, and considering further the interest of justice, and the length of time that this case
has been pending, we liberally treat this case as one pursued by the corporation to protect its corporate rights.
As the court a quo noted, this case "commenced [on] April 2, 2002, blossomed in a full-blown trial and
ballooned into seven (7) voluminous rollos."99 chan rob leslaw

We now proceed to resolve the issue of the validity of the transfers of the donated lots to Javonillo, Armentano,
DelaCruz, Alcantara and Loy. We agree with the CA in ruling that the TCTs issued in the names of Javonillo,
Armentano and Alcantara are void.100 We modify the ruling of the CA insofar as we rule that the TCTs issued
in the names of Dela Cruz and Loy are also void.101 chan roble sl aw

One of the primary purposes of ALRAI is the giving of assistance in uplifting and promoting better living
conditions to all members in particular and the public in general.102 One of its objectives includes "to uplift and
promote better living condition, education, health and general welfare of all members in particular and the
public in general by providing its members humble shelter and decent housing."103Respondents maintain that
it is pursuant to this purpose and objective that the properties subject of this case were donated to ALRAI.104 chanrob leslaw

Section 36, paragraphs 7 and 11 of the Corporation Code provide:

chanRoble svirtual Lawlib ra ry

Sec. 36. Corporate powers and capacity. - Every corporation incorporated under this Code has the power and
capacity: ChanRoblesVi rt ualawlib ra ry

xxx

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with
such real and personal property, including securities and bonds of other corporations, as the transaction of
the lawful business of the corporation may reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution.
xxx

11. To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as
stated in the articles of incorporation.105 chan roble svirtuallaw lib rary

The Corporation Code therefore tells us that the power of a corporation to validly grant or convey any of its
real or personal properties is circumscribed by its primary purpose. It is therefore important to determine
whether the grant or conveyance is pursuant to a legitimate corporate purpose, or is at least reasonable and
necessary to further its purpose.

Based on the records of this case, we find that the transfers of the corporate properties to Javonillo,
Armentano, Dela Cruz, Alcantara and Loy are bereft of any legitimate corporate purpose, nor were they shown
to be reasonably necessary to further ALRAI's purposes. This is principally because, as respondents argue,
petitioners "personally benefitted themselves by allocating among themselves vast track of lands at the dire
expense of the landless general membership of the Association."106 chan roble slaw

We take first the cases of Dela Cruz, Alcantara and Loy.

We disagree with theCA in ruling that the TCTs issued in the name of Dela Cruz are valid. The transfer of
property to him does not further the corporate purpose of ALRAI. To justify the transfer to Dela Cruz,
petitioners merely allege that, "[o]n the other hand, the lots given by ALRAI to Romeo de la Cruz were
compensation for the financial assistance he had been extending to ALRAI."107 Records of this case do not
bear any evidence to show how much Dela Cruz has extended to ALRAI as financial assistance. The want of
evidence to support this allegation cannot allow a determination whether the amount of the financial help that
Dela Cruz extended to ALRAI is commensurate to the amount of the property transferred to him. The lack of
evidence on this point is prejudicial to ALRAI because ALRAI had parted with its property without any means
by which to determine whether the transfer is fair and reasonable under the circumstances.

The same is true with the transfer of properties to Alcantara. Petitioners allege that Alcantara's husband, Atty.
Pedro Alcantara, "handled all the legal work both before the Regional Trial Court in Davao City (Civil Case No.
16192) and the Court of Appeals in Manila (CA GR No. 13744). He agreed to render his services although he
was being paid intermittently, with just small amounts, in the hope that he will be compensated when ALRAI
triumphs in the litigation."108 Petitioners thus claim that "[b]ecause of the legal services of her husband, who
is now deceased, petitioner Alcantara was given by ALRAI two (2) lots x x x."109 chanro bleslaw

Petitioners admit that Atty. Pedro Alcantara represented ALRAI as counsel on part contingency basis.110In their
Memorandum before the court a quo, respondents alleged that, "[i]n fact, Complainants have duly paid Atty.
Alcantara's legal fees as evidence (sic) by corresponding receipts issued by the receiving Officer of the
Association."111 The aforementioned receipts112 show that Atty. Pedro Alcantara had already been paid the
total amount of P16,845.00.

In Rayos v. Hernandez,113 we held that a contingent fee arrangement is valid in this jurisdiction. It is generally
recognized as valid and binding, but must be laid down in an express contract. In the same case, we have
identified the circumstances to be considered in determining the reasonableness of a claim for attorney's fees
as follows: (1) the amount and character of the service rendered; (2) labor, time, and trouble involved; (3)
the nature and importance of the litigation or business in which the services were rendered; (4) the
responsibility imposed; (5) the amount of money or the value of the property affected by the controversy or
involved in the employment; (6) the skill and experience called for in the performance of the services; (7) the
professional character and social standing of the attorney; (8) the results secured; (9) whether the fee is
absolute or contingent, it being recognized that an attorney may properly charge a much larger fee when it is
contingent than when it is not; and (10) the financial capacity and economic status of the client have to be
taken into account in fixing the reasonableness of the fee.114
cha nro bleslaw

In this case however, petitioners did not substantiate the extent of the services that Atty. Pedro Alcantara
rendered for ALRAL In fact, no engagement or retainer contract was ever presented to prove the terms of
their agreement. Petitioners did not also present evidence as to the value of the ALRAI properties at the time
of transfer to Alcantara. There is therefore no proof that the amount of the properties transferred to Alcantara,
in addition to the legal fees he received, is commensurate (as compensation) to the reasonable value of his
legal services. Using the guidelines set forth in Rayos, absent proof, there is no basis to determine whether
the transfer of the property to Alcantara is reasonable under the circumstances.115 chan robles law

The importance of this doctrine in Rayos is emphasized in the Canons of Professional Ethics116 and the Rules
of Court.117 In both, the overriding consideration is the reasonableness of the terms of the contingent fee
agreement, so much so that the grant of the contingent fee is subject to the supervision of the court.118 c hanro bles law

Spouses Cadavedo v. Lacaya119 further illustrates this principle. In that case, this Court was confronted with
the issue of whether the contingent attorney's fees consisting of one-half of the property that was subject of
litigation was valid and reasonable. This Court ruled that the attorney's fee is excessive and unconscionable,
and is therefore void. The Court said that as "matters then stood, [there] was not a sufficient reason to justify
a large fee in the absence of any showing that special skills and additional work had been involved."120 The
Court also noted that Spouses Cadavedo and Atty. Lacaya already made arrangements for the cost and
expenses for the cases handled.121 chan roble slaw

Similarly in this case, there is no proof that special skills and additional work have been put in by Atty. Pedro
Alcantara. Further, as adverted to in previous paragraphs, receipts show that intermittent payments as legal
fees have already been paid to him. We also note that in this case, not only one-half of a property was
transferred to Alcantara as compensation; but two whole parcels of land - one with more or less 400 square
meters (TCT No. 41366), and the other with more or less 395 square meters (TCT No. 41367). 122 The amount
of fee contracted for, standing alone and unexplained would be sufficient to show that an unfair advantage
had been taken of the client, or that a legal fraud had been perpetrated on him.123 chanrob leslaw
Consequently, we also find that Alcantara's subsequent sale to Loy is not valid. Alcantara cannot sell the
property, over which she did not have the right to own, in the first place. More, based on the records, the
court a quo had already made a finding that Loy is guilty of bad faith as to render her purchase of the property
from Alcantara void. 124 chan rob leslaw

We likewise find that there is failure to show any legitimate corporate purpose in the transfer of ALRAI's
corporate properties to Javonillo and Armentano.

The Board Resolution125 confirming the transfer of ALRAI's corporate properties to Javonillo and Armentano
merely read, "[t]hat the herein irrevocable confirmation is made in recognition of, and gratitude for the
outstanding services rendered by x x x Mr. Armando Javonillo, our tireless President and Mrs. Acelita
Armentano, our tactful, courageous, and equally tireless Secretary, without whose efforts and sacrifices to
acquire a portion of the realty of Dacudao & Sons, Inc., would not have been attained." 126 In their
Memorandum, petitioners also alleged that "[t]he most difficult part of their (Javonillo and Armentano) job
was to raise money to meet expenses. x x x It was very difficult for petitioners Javonillo and Armentano when
they needed to pay P300,000.00 for realty tax on the land donated by Dakudao and Sons, Inc. to ALRAI. It
became more difficult when the Bureau of Internal Revenue was demanding P6,874,000.00 as donor's tax on
the donated lands. Luckily, they were able to make representation with the BIR to waive the tax." 127 chanrob leslaw

These reasons cannot suffice to prove any legitimate corporate purpose in the transfer of the properties to
Javonillo and Armentano. For one, petitioners cannot argue that the properties transferred to them will serve
as reimbursements of the amounts they advanced for ALRAL There is no evidence to show that they indeed
paid the realty tax on the donated lands. Neither did petitioners present any proof of actual disbursements
they incurred whenever Javonillo and Armentano allegedly helped Atty. Pedro Alcantara in handling the cases
involving ALRAI.128 Like in the cases of Dela Cruz and Alcantara, absent proof, there was no basis by which it
could have been determined whether the transfer of properties to Javonillo and Armentano was reasonable
under the circumstances at that time. Second, petitioners cannot argue that the properties are transferred as
compensatioh for Javonillo. It is well settled that directors of corporations presumptively serve without
compensation; so that while the directors, in assigning themselves additional duties, act within their power,
they nonetheless act in excess of their authority by voting for themselves compensation for such additional
duties.129 Even then, aside from the claim of petitioners, there is no showing that Javonillo rendered
extraordinary or unusual services to ALRAI.

The lack of legitimate corporate purpose is even more emphasized when Javonillo and Armentano, as a director
and an officer of ALRAI, respectively, violated the fiduciary nature130 of their positions in the corporation.

Section 32 of the Corporation Code provides, thus:

chanRoble svirtual Lawlib ra ry

Sec. 32. Dealings of directors, trustees or officers with the corporation. —A contract of the corporation with
one or more of its directors or trustees or officers is voidable, at the option of such corporation, unless all of
the following conditions are present:

1. That the presence of such director or trustee in the board meeting in which the contract was approved
chanRoble svirtual Lawlib ra ry

was not necessary to constitute a quorum for such meeting;

2. That the vote of such director or trustee was not necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of directors.

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract
with a director or trustee, such contract may be ratified by the vote of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock or of at least two thirds (2/3) of the members in a meeting
called for the purpose: Provided, That full disclosure of the adverse interest of the directors or trustees involved
is made at such meeting: Provided, however, That the contract is fair and reasonable under the circumstances.

Being the corporation's agents and therefore, entrusted with the management of its affairs, the directors or
trustees and other officers of a corporation occupy a fiduciary relation towards it, and cannot be allowed to
contract with the corporation, directly or indirectly, or to sell property to it, or purchase property from it,
where they act both for the corporation and for themselves.131 One situation where a director may gain undue
advantage over his corporation is when he enters into a contract with the latter. 132 c hanrobles law

Here, we note that Javonillo, as a director, signed the Board Resolutions133 confirming the transfer of the
corporate properties to himself, and to Armentano. Petitioners cannot argue that the transfer of the corporate
properties to them is valid by virtue of the Resolution134 by the general membership of ALRAI confirming the
transfer for three reasons.

First, as cited, Section 32 requires that the contract should be ratified by a vote representing at least two-
thirds of the members in a meeting called for the purpose. Records of this case do not show whether the
Resolution was indeed voted by the required percentage of membership. In fact, respondents take exception
to the credibility of the signatures of the persons who voted in the Resolution. They argue that, "from the
alleged 134 signatures, 24 of which are non-members, 4 of which were signed twice under different numbers,
and 27 of which are apparently proxies unequipped with the proper authorization. Obviously, on such alleged
general membership meeting the majority of the entire membership was not attained."135 chanrob leslaw
Second, there is also no showing that there was full disclosure of the adverse interest of the directors involved
when the Resolution was approved. Full disclosure is required under the aforecited Section 32 of the
Corporation Code.136chanro bles law

Third, Section 32 requires that the contract be fair and reasonable under the circumstances. As previously
discussed, we find that the transfer of the corporate properties to the individual petitioners is not fair and
reasonable for (1) want of legitimate corporate purpose, and for (2) the breach of the fiduciary nature of the
positions held by Javonillo and Armentano. Lacking any of these (full disclosure and a showing that the contract
is fair and reasonable), ratification by the two-thirds vote would be of no avail.137 chanro bleslaw

In view of the foregoing, we rule that the transfers of ALRAI's corporate properties to Javonillo, Armentano,
Dela Cruz, Alcantara and Loy are void. We affirm the finding of the court a quo when it ruled that "[n]o proof
was shown to justify the transfer of the titles, hence, said transfer should be annulled."138 cha nrob leslaw

WHEREFORE, in view of the foregoing, the petitions for review on certiorari in G.R. Nos. 188642 & 189425
and in G.R. Nos. 188888-89 are PARTIALLY GRANTED. The Decision of the CA dated November 24, 2008
and its Resolution dated June 19, 2009 ruling that respondents are reinstated as members of ALRAI are
hereby AFFIRMED. The Decision of theCA dated November 24, 2008 and its Resolution dated June 19, 2009
are MODIFIED as follows:

The following Transfer Certificates of Title are VOID:

chanRoble svirtual Lawlib ra ry ChanRobles Vi rtua lawlib rary

(1) TCT Nos. T-322962 and T-322963 in the name of Armando Javonillo;
(2) TCT Nos. T-322964 and T-322965 in the name of Ma. Acelita Armentano;
(3) TCT Nos. T-322966, T-322967, T-322968, and T-322969 in the name of Romeo Dela Cruz;
(4) TCT No. T-338403 in the name of Lily Loy; and
(5) TCT No. T-322971 in the name of Asuncion Alcantara.

SO ORDERED. chanRoblesvirt ual Lawlib rary

G.R. No. 194964-65, January 11, 2016
UNIVERSITY OF MINDANAO, INC., Petitioner, v. BANGKO SENTRAL PILIPINAS, ET AL., Respondents.
DECISION
LEONEN, J.:
Acts of an officer that arc not authorized by the board of directors/trustees do not bind the corporation unless the
corporation ratifies the acts or holds the officer out as a person with authority to transact on its behalf.

This is a Petition for Review on Certiorari1 of the Court of Appeals' December 17, 2009 Decision2 and December 20,
2010 Resolution.3 The Court of Appeals reversed the Cagayan De Oro City trial court's and the Iligan City trial court's
Decisions to nullify mortgage contracts involving University of Mindanao's properties. 4

University of Mindanao is an educational institution. For the year 1982, its Board of Trustees was chaired by
Guillermo B. Torres. His wife, Dolores P. Torres, sat as University of Mindanao's Assistant Treasurer. 5

Before 1982, Guillermo B. Torres and Dolores P. Torres incorporated and operated two (2) thrift banks: (1) First Iligan
Savings & Loan Association, Inc. (FISLAI); and (2) Davao Savings and Loan Association, Inc. (DSLAI). Guillermo
B. Torres chaired both thrift banks. He acted as FISLAI's President, while his wife, Dolores P. Torres, acted as
DSLAI's President and FISLAI's Treasurer.6

Upon Guillermo B. Torres' request, Bangko Sentral ng Pilipinas issued a P1.9 million standby emergency credit to
FISLAI. The release of standby emergency credit was evidenced by three (3) promissory notes dated February 8,
1982, April 7, 1982, and May 4, 1982 in the amounts of P500,000.00, P600,000.00, and P800,000.00, respectively.
All these promissory notes were signed by Guillermo B. Torres, and were co-signed by either his wife, Dolores P.
Torres, or FISLAI's Special Assistant to the President, Edmundo G. Ramos, Jr. 7

On May 25, 1982, University of Mindanao's Vice President for Finance, Saturnino Petalcorin, executed a deed of real
estate mortgage over University of Mindanao's property in Cagayan de Oro City (covered by Transfer Certificate of
Title No. T-14345) in favor of Bangko Sentral ng Pilipinas.8 "The mortgage served as security for FISLAI's PI.9
Million loan[.]"9 It was allegedly executed on University of Mindanao's behalf. 10

As proof of his authority to execute a real estate mortgage for University of Mindanao, Saturnino Petalcorin showed
a Secretary's Certificate signed on April 13, 1982 by University of Mindanao's Corporate Secretary, Aurora de
Leon.11 The Secretary's Certificate stated:chanRoblesvirtualLawlibrary
That at the regular meeting' of the Board of Trustees of the aforesaid corporation [University of Mindanao] duly
convened on March 30, 1982, at which a quorum was present, the following resolution was unanimously
adopted:chanRoblesvirtualLawlibrary
"Resolved that the University of Mindanao, Inc. be and is hereby authorized, to mortgage real estate properties with
the Central Bank of the Philippines to serve as security for the credit facility of First Iligan Savings and Loan
Association, hereby authorizing the President and/or Vice-president for Finance, Saturnino R. Petalcorin of the
University of Mindanao,- Inc. to sign, execute and deliver the covering mortgage document or any other documents
which may be proper[l]y required." 12
cralawlawlibrary

The Secretary's Certificate was supported by an excerpt from the minutes of the January 19, 1982 alleged meeting of
University of Mindanao's Board of Trustees. The excerpt was certified by Aurora de Leon on March 13, 1982 to be a
true copy of University of Mindanao's records on file. 13 The excerpt reads:chanRoblesvirtualLawlibrary
3 - Other Matters:
(a) Cagayan de Oro and Iligan properties:
Resolution No. 82-1-8

Authorizing the Chairman to appoint Saturnino R. Petalcorin, Vice-President for Finance, to represent the University
of Mindanao to transact, transfer, convey, lease, mortgage, or otherwise hypothecate any or all of the following
properties situated at Cagayan de Oro and Iligan City and authorizing further Mr. Petalcorin to sign any or all
documents relative thereto:chanRoblesvirtualLawlibrary
1. A parcel of land situated at Cagayan de Oro City, covered and technically described in TRANSFER
CERTIFICATE OF TITLE No. T-14345 of the Registry of Deeds of Cagayan de Oro City;
2. A parcel of land situated at Iligan City, covered and technically described in TRANSFER
CERTIFICATE OF TITLE NO..T-15696 (a.t.) of the Registry of Deeds of Iligan City; and
3. A parcel of land situated at Iligan City, covered and technically described in TRANSFER
CERTIFICATE OF TITLE NO. T-15697 (a.f.) of the Registry of Deeds of Iligan City.14
cralawlawlibrary
The mortgage deed executed by Saturnino Petalcorin in favor of Bangko Sentral ng Pilipinas was annotated on the
certificate of title of the Cagayan de Oro City property (Transfer Certificate of Title No. 14345) on June 25, 1982.
Aurora de Leon's'certification was also annotated on the Cagayan de Oro City property's certificate of title (Transfer
Certificate of Title No. 14345).15

On October 21, 1982, Bangko Sentral ng Pilipinas granted FISLAI an additional loan of P620,700.00. Guillermo B.
Torres and Edmundo Ramos executed a promissory note on October 21, 1982 to cover that amount. 16

On November 5, 1982, Saturnino Petalcorin executed another deed of real estate mortgage, allegedly on behalf of
University of Mindanao, over its two properties in Iligan City. This mortgage served as additional security for
FISLAI's loans. The two Iligan City properties were covered by Transfer Certificates of Title Nos, T-15696 and T-
15697.17

On January 17, 1983, Bangko Sentral ng Pilipinas' mortgage lien over the Iligan City properties and Aurora de Leon's
certification were annotated on Transfer Certificates of Title Nos. T-15696 and T-15697.18 On January 18, 1983,
Bangko Sentral ng Pilipinas' mortgage lien over the Iligan City properties was also annotated on the tax declarations
covering the Iligan City properties.19

Bangko Sentral ng Pilipinas also granted emergency advances to DSLAI on May 27, 1983 and on August 20, 1984 in
the amounts of P1,633,900.00 and P6,489,000.00, respectively. 20

On January 11, 1985, FISLAI, DSLAI, and Land Bank of the Philippines entered into a Memorandum of Agreement
intended to rehabilitate the thrift banks, which had been suffering from their depositors' heavy withdrawals. Among
the terms of the agreement was the merger of FISLAI and DSLAI, with DSLAI as the surviving corporation. DSLAI
later became known as Mindanao Savings and Loan Association, Inc. (MSLAI). 21

Guillermo B. Torres died on March 2, 1989. 22

MSLAI failed to recover from its losses and was liquidated on May 24, 1991.23

On June 18, 1999, Bangko Sentral ng Pilipinas sent a letter to University of Mindanao, informing it that the bank
would foreclose its properties if MSLAI's total outstanding obligation of P12,534,907.73 remained unpaid. 24

In its reply to Bangko Sentral ng Pilipinas' June 18, 1999 letter, University of Mindanao, through its Vice President
for Accounting, Gloria E. Detoya, denied that University of Mindanao's properties were mortgaged. It also denied
having received any loan proceeds from Bangko Sentral ng Pilipinas.25cralawred

On July 16, 1999, University of Mindanao filed two Complaints for nullification and cancellation of mortgage. One
Complaint was filed before the Regional Trial Court of Cagayan de Oro City, and the other Complaint was filed before
the Regional Trial Court of Iligan City. 26

University of Mindanao alleged in its Complaints that it did not obtain any loan from Bangko Sentral ng Pilipinas. It
also did not receive any loan proceeds from the bank. 27

University of Mindanao also alleged that Aurora de Leon's certification was anomalous. It never authorized Saturnino
Petalcorin to execute real estate mortgage contracts involving its properties to secure FISLAI's debts. It never ratified
the execution of the mortgage contracts. Moreover, as an educational institution, it cannot mortgage its properties to
secure another person's debts.28

On November 23, 2001, the Regional Trial Court of Cagayan de Oro City rendered a Decision in favor of University
of Mindanao,29 thus:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against
defendants:chanRoblesvirtualLawlibrary

1. DECLARING the real estate mortgage Saturnino R. Petalcorin executed in favor of BANGKO SENTRAL NG
PILIPINAS involving Lot 421-A located in Cagayan de Oro City with an area of 482 square meters covered by TCT
No. T-14345 as annuled [sic];

2. ORDERING the Register of Deeds of Cagayan de Oro City to cancel Entry No. 9951 and Entry No. 9952 annotated
at the back of said TCT No. T-14345, Registry of Deeds of Cagayan de Oro City;

Prayer for attorney's fee [sic] is hereby denied there being no proof that in demanding payment of the emergency loan,
defendant BANGKO SENTRAL NG PILIPINAS was motivated by evident bad faith,

SO ORDERED.30 (Citation omitted)cralawlawlibrary

The Regional Trial Court of Cagayan de Oro City found that there was no board resolution giving Saturnino Petalcorin
authority to execute mortgage contracts on behalf of University of Mindanao. The Cagayan de Oro City trial court
gave weight to Aurora de Leon's testimony that University ofMindanao's Board of Trustees did not issue a board
resolution that would support the Secretary's Certificate she issued. She testified that she signed the Secretary's
Certificate only upon Guillermo B. Torres' orders. 31

Saturnino Petalcorin testified that he had no authority to execute a mortgage contract on University ofMindanao's
behalf. He merely executed the contract because of Guillermo B. Torres' request. 32

Bangko Sentral ng Pilipinas' witness Daciano Pagui, Jr. also admitted that there was no board resolution giving
Saturnino Petalcorin authority to execute mortgage contracts on behalf of University of Mindanao. 33

The Regional Trial Court of Cagayan de Oro City ruled that Saturnino Petalcorin was not authorized to execute
mortgage contracts for University of Mindanao. Hence, the mortgage of University ofMindanao's Cagayan de Oro
City property was unenforceable. Saturnino Petalcorin's unauthorized acts should be annulled.34

Similarly, the Regional Trial Court of Iligan City rendered a Decision on December 7, 2001 in favor of University of
Mindanao.35 The dispositive portion of the Decision reads:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants,
as follows:chanRoblesvirtualLawlibrary

1. Nullifying and canceling [sic] the subject Deed of Real Estate Mortgage dated November 5, 1982 for being
unenforceable or void contract;

2. Ordering the Office of the Register of Deeds of Iligan City to cancel the entries on TCT No. T-15696 and TCT No.
T- 15697 with respect to the aforesaid Deed of Real Estate Mortgage dated November 5, 1982 and all other entries
related thereto;

3. Ordering the defendant Bangko Sentral ng Pilipinas to return the owner's duplicate copies of TCT No. T-15696 and
TCT No. 15697 to the plaintiff;

4. Nullifying the subject [foreclosure [proceedings and the [a]uction [s]ale conducted by defendant Atty. Gerardo
Paguio, Jr. on October 8, 1999 including all the acts subsequent thereto and ordering the Register of Deeds of Iligan
City not to register any Certificate of Sale pursuant to the said auction sale nor make any transfer of the corresponding
titles, and if already registered and transferred, to cancel all the said entries in TCT No. T-15696 and TCT No. T-
15697 and/or cancel the corresponding new TCTs in the name of defendant Bangko Sentral ng Pilipinas;

5. Making the Preliminary Injunction per Order of this Court dated October 13, 2000 permanent.

No pronouncement as to costs.36 (Citation omitted)cralawlawlibrary

The Iligan City trial court found that the Secretary's Certificate issued by Aurora de Leon was fictitious 37and irregular
for being unnumbered.38 It also did not specify the identity, description, or location of the mortgaged properties. 39

The Iligan City trial court gave credence to Aurora de Leon's testimony that the University of Mindanao's Board of
Trustees did not take up the documents in its meetings. Saturnino Petalcorin corroborated her testimony. 40

The Iligan City trial court ruled that the lack of a board resolution authorizing Saturnino Petalcorin to execute
documents of mortgage on behalf of University of Mindanao made the real estate mortgage contract unenforceable
under Article 140341 of the Civil Code.42 The mortgage contract and the subsequent acts of foreclosure and auction
sale were void because the mortgage contract was executed without University of Mindanao' s authority. 43

The Iligan City trial court also ruled that the annotations on the titles of University of Mindanao's properties do not
operate as notice to the University because annotations only bind third parties and not owners. 44 Further, Bangko
Sentral ng Pilipinas' right to foreclose the University of Mindanao's properties had already prescribed. 45

Bangko Sentral ng Pilipinas separately appealed the Decisions of both the Cagayan de Oro City and the Iligan City
trial courts.46

After consolidating both cases, the Court of Appeals issued a Decision on December 17, 2009 in favor of Bangko
Sentral ng Pilipinas, thus:chanRoblesvirtualLawlibrary
FOR THE REASONS STATED, the Decision dated 23 November 2001 of the Regional Trial Court of Cagayan de
Oro City, Branch 24 in Civil Case No. 99-414 and the Decision dated 7 December 2001 of the Regional Trial Court
of Iligan City, Branch 1 in Civil Case No. 4790 are REVERSED and SET ASIDE. The Complaints in both cases
before the trial courts are DISMISSED. The Writ of Preliminary Injunction issued by the Regional Trial Court of
Iligan City, Branch 1 in Civil Case No. 4790 is LIFTED and SET ASIDE.

SO ORDERED.47cralawlawlibrary

The Court of Appeals ruled that "[although BSP failed to prove that the UM Board of Trustees actually passed a Board
Resolution authorizing Petalcorin to mortgage the subject real properties," 48 Aurora de Leon's Secretary's Certificate
"clothed Petalcorin with apparent and ostensible authority to execute the mortgage deed on its behalf[.]" 49 Bangko
Sentral ng Pilipinas merely relied in good faith on the Secretary's Certificate. 50 University of Mindanao is estopped
from denying Saturnino Petalcorin's authority.51

Moreover, the Secretary's Certificate was notarized. This meant that it enjoyed the presumption of regularity as to the
truth of its statements and authenticity of the signatures.52 Thus, "BSP cannot be faulted for relying on the [Secretary's
Certificate.]"53

The Court of Appeals also ruled that since University of Mindanao's officers, Guillermo B. Torres and his wife,
Dolores P. Torres, signed the promissory notes, University of Mindanao was presumed to have knowledge of the
transaction.54 Knowledge of an officer in relation to matters within the scope of his or her authority is notice to the
corporation.55

The annotations on University of Mindanao's certificates of title also operate as constructive notice to it that its
properties were mortgaged.56 Its failure to disown the mortgages for more than a decade was implied ratification. 57

The Court of Appeals also ruled that Bangko Sentral ng Pilipinas' action for foreclosure had not yet prescribed because
the due date extensions that Bangko Sentral ng Pilipinas granted to FISLAI extended the due date of payment to five
(5) years from February 8, 1985.58 The bank's demand letter to Dolores P. Torres on June 18, 1999 also interrupted
the prescriptive period.59

University of Mindanao and Bangko Sentral ng Pilipinas filed a Motion for Reconsideration60 and Motion for Partial
Reconsideration respectively of the Court of Appeals' Decision. On December 20, 2010, the Court of Appeals issued
a Resolution, thus:chanRoblesvirtualLawlibrary
Acting on the foregoing incidents, the Court RESOLVES to:chanRoblesvirtualLawlibrary
1. GRANT the appellant's twin motions for extension of time to file comment/opposition
and NOTE the Comment . on the appellee's Motion for Reconsideration it subsequently
filed on June 23, 2010;
2. GRANT the appellee's three (3) motions for extension of time to file comment/opposition
and NOTE the Comment on the appellant's Motion for Partial Reconsideration it filed on
July 26, 2010;
3. NOTE the appellant's "Motion for Leave to File Attached Reply Dated August 11, 2010"
filed on August 13, 2010 and DENY the attached "Reply to Comment Dated July 26,
2010";
4. DENY the appellee's Motion for Reconsideration as it does' not offer any arguments
sufficiently meritorious to warrant modification or reversal of the Court's 17 December
2009 Decision. The Court finds that there is no compelling reason to reconsider its ruling;
and
5. GRANT the appellant's Motion for Partial Reconsideration, as the Court finds it
meritorious, considering that it ruled in its Decision that "BSP can still foreclose on the
UM's real property in Cagayan de Oro City covered by TCT No. T- 14345." It then follows
that the injunctive writ issued by the RTC of Cagayan de Oro City, Branch 24 must be
lifted. The Court's 17 December 2009 Decision is
accordingly MODIFIED and AMENDED to read as
follows:chanRoblesvirtualLawlibrary
"FOR THE REASONS STATED, the Decision dated 23 November 2001 of the
Regional Trial Court of Cagayan de Oro City, Branch 24 in Civil Case No. 99-
414 and the Decision dated 7 December 2001 of the Regional Trial Court of Iligan
City, Branch 1 in Civil Case No. 4790 are REVERSED and SET ASIDE. The
Complaints in both cases before the trial courts are DISMISSED. The Writs of
Preliminary Injunction issued by the Regional Trial Court of Iligan City, Branch
1 in Civil Case No. 4790 and in the Regional Trial Court of Cagayan de Oro City,
Branch 24 in Civil Case No. 99-414 are LIFTED and SET ASIDE."
SO ORDERED.61 (Citation omitted)
cralawlawlibrary

Hence, University of Mindanao filed this Petition for Review. The issues for resolution
are:chanRoblesvirtualLawlibrary

First, whether respondent Bangko Sentral ng Pilipinas' action to foreclose the mortgaged properties had already
prescribed; and

Second, whether petitioner University of Mindanao is bound by the real estate mortgage contracts executed by
Saturnino Petalcorin.

We grant the Petition.

I

Petitioner argues that respondent's action to foreclose its mortgaged properties had already prescribed.

Petitioner is mistaken.

Prescription is the mode of acquiring or losing rights through the lapse of time. 62 Its purpose is "to protect the diligent
and vigilant, not those who sleep on their rights." 63

The prescriptive period for actions on mortgages is ten (10) years from the day they may be brought. 64Actions on
mortgages may be brought not upon the execution of the mortgage contract but upon default in payment of the
obligation secured by the mortgage. 65

A debtor is considered in default when he or she fails to pay the obligation on due date and, subject to exceptions,
after demands for payment were made by the creditor. Article 1169 of the Civil Code
provides:chanRoblesvirtualLawlibrary
ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:chanRoblesvirtualLawlibrary

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract;
or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.cralawlawlibrary

Article 1193 of the Civil'Code provides that an obligation is demandable only upon due date. It
provides:chanRoblesvirtualLawlibrary
ART. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day
comes.

Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.

A day certain is understood to be that which must necessarily come, although it may not be known when.

If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated
by the rules of the preceding Section.cralawlawlibrary

In other words, as a general rule, a person defaults and prescriptive period for action runs when (1) the obligation
becomes due and demandable; and (2) demand for payment has been made.

The prescriptive period neither runs from the date of the execution of a contract nor does the prescriptive period
necessarily run on the date when the loan becomes due and demandable.66 Prescriptive period runs from the date of
demand,67 subject to certain exceptions.
In other words, ten (10) .years may lapse from the date of the execution of contract, without barring a cause of action
on the mortgage when there is a gap between the period of execution of the contract and the due date or between the
due date and the demand date in cases when demand is necessary. 68

The mortgage contracts in this case were executed by Saturnino Petalcorin in 1982. The maturity dates of FISLAI's
loans were repeatedly extended until the loans became due and demandable only in 1990. Respondent informed
petitioner of its decision to foreclose its properties and demanded payment in 1999.

The running of the prescriptive period of respondent's action on the mortgages did not start when it executed the
mortgage contracts with Saturnino Petalcorin in 1982.

The prescriptive period for filing an action may run either (1) from 1990 when the loan became due, if the obligation
was covered by the exceptions under Article 1169 of the Civil Code; (2) or from 1999 when respondent demanded
payment, if the obligation was not covered by the exceptions under Article 1169 of the Civil Code.

In either case, respondent's Complaint with cause of action based on the mortgage contract was filed well within the
prescriptive period.

Given the termination of all traces of FISLAI's existence,70 demand may have been rendered unnecessary under Article
1169(3)71 of the Civil Code. Granting that this is the case,.respondent would have had ten (10) years from due date in
1990 or until 2000 to institute an action on the mortgage contract.

However, under Article 115572 of the Civil Code, prescription of actions may be interrupted by (1) the filing of a court
action; (2) a written extrajudicial demand; and (3) the written acknowledgment of the debt by the debtor.

Therefore, the running of the prescriptive period was interrupted when respondent sent its demand letter to petitioner
on June 18, 1999. This eventually led to petitioner's filing of its annulment of mortgage complaints before the Regional
Trial Courts of Iligan City and Cagayan De Oro City on July 16, 1999.

Assuming that demand was necessary, respondent's action was within the ten (10)-year prescriptive period.
Respondent demanded payment of the loans in 1999 and filed an action in the same year.
II

Petitioner argues that the execution of the mortgage contract was ultra vires. As an educational institution, it may not
secure the loans of third persons.73 Securing loans of third persons is not among the purposes for which petitioner was
established.74

Petitioner, is correct.

Corporations are artificial entities granted legal personalities upon their creation by their incorporators in accordance
with law. Unlike natural persons, they have no inherent powers. Third persons dealing with corporations cannot
assume that corporations have powers. It is up to those persons dealing with corporations to determine their
competence as expressly defined by the law and their articles of incorporation.75

A corporation may exercise its powers only within those definitions. Corporate acts that are outside those express
definitions under the law or articles of incorporation or those "committed outside the object for which a corporation
is created"76 are ultra vires.

The only exception to this, rule is when acts are necessary and incidental to carry out a corporation's purposes, and to
the exercise of powers conferred by the Corporation Code and under a corporation's articles of incorporation. 77 This
exception is specifically included in the general powers of a corporation under Section 36 of the Corporation
Code:chanRoblesvirtualLawlibrary
SEC. 36. Corporate powers and capacity.—Every corporation incorporated under this Code has the power and
capacity:chanRoblesvirtualLawlibrary
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the articles of incorporation and
the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in
accordance with this Code;
 6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and to admit members to the corporation if it be a non
stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal
with such real and personal property, including securities and bonds of other corporations, as the
transaction of the lawful business of the corporation may reasonably and necessarily require, subject
to the limitations prescribed by law and the Constitution;
8. To enter into merger or consolidation with other corporations as provided in this Code;
9. To make reasonable donations, including those for the public welfare or for hospital, charitable,
cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign,
shall give donations in aid of any political party or candidate or for purposes of partisan political
activity;
10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and
employees; and
11. To exercise such other powers as may be essential or necessary to carry out its purpose or purposes
as stated in its articles of incorporation. (Emphasis supplied)
cralawlawlibrary

Montelibano, et al. v. Bacolod-Murcia Milling Co., Inc.78 stated the test to determine if a corporate act is in accordance
with its purposes:chanRoblesvirtualLawlibrary
It is a question, therefore, in each case, of the logical relation of the act to the corporate purpose expressed in the
charter. If that act is one which is lawful in itself, and not otherwise prohibited, is done for the purpose of serving
corporate ends, and is reasonably tributary to the promotion of those ends, in a substantial, and not in a remote and
fanciful, sense, it may fairly be considered within charter powers. The test to be applied is whether the act in question
is in direct and immediate furtherance of the corporation's business, fairly incident to the express powers and
reasonably necessary to their exercise. If so, the corporation has the power to do it; otherwise, not. 79 (Emphasis
supplied)cralawlawlibrary

As an educational institution, petitioner serves:chanRoblesvirtualLawlibrary

a. To establish, conduct and operate a college or colleges, and/or university;
b. To acquire properties,, real and/or personal, in connection with the establishment and operation of
such college or colleges;
c. To do and perform the various and sundry acts and things permitted by the laws of the Philippines
unto corporations like classes and kinds;
d. To engage in agricultural, industrial, and/or commercial pursuits in line with educational program
of the corporation and to acquire all properties, real and personal [,] necessary for the purposes[;]
e. To establish, operate, and/or acquire broadcasting and television stations also in line with the
educational program of the corporation and for such other purposes as the Board of Trustees may
determine from time to time;
f. To undertake housing projects of faculty members and employees, and to acquire real estates for
this purpose;
g. To establish, conduct and operate and/or invest in educational foundations; [As amended on
December 15, 1965][;]
h. To establish, conduct and operate housing and dental schools, medical facilities and other related
undertakings;
i. To invest in other corporations. [As amended on December 9, 1998]. [Amended Articles of
Incorporation of the University of Mindanao, Inc. - the Petitioner].80
cralawlawlibrary

Petitioner does not have the power to mortgage its properties in order to secure loans of other persons. As an
educational institution, it is limited to developing human capital thrpugh formal instruction. It is not a corporation
engaged in the business of securing loans of others.

Hiring professors, instructors, and personnel; acquiring equipment and real estate; establishing housing facilities for
personnel and students; hiring a concessionaire; and other activities that can be directly connected to the operations
and conduct of the education business may constitute the necessary and incidental acts of an educational institution.

Securing FISLAI's loans by mortgaging petitioner's properties does not appear to have even the remotest connection
to the operations of petitioner as an educational institution. Securing loans is not an adjunct of the educational
institution's conduct of business.81 It does not appear that securing third-party loans was necessary to maintain
petitioner's business of providing instruction to individuals.
This court upheld the validity of corporate acts when those acts were shown to be clearly within the corporation's
powers or were connected to the corporation's purposes.

In Pirovano, et al. v. De la Rama Steamship Co.,82 this court declared valid the donation given to the children of a
deceased person who contributed to the growth of the corporation.83 This court found that this donation was within
the broad scope of powers and purposes of the corporation to "aid in any other manner any person . . . in which any
interest is held by this corporation or in the affairs or prosperity of which this corporation has a lawful interest." 84

In Twin Towers Condominium Corporation v. Court of Appeals, et al.,85 this court declared valid a rule by Twin
Towers Condominium denying delinquent members the right to use condominium facilities. This court ruled that the
condominium's power to promulgate rules on the use of facilities and to enforce provisions of the Master Deed was
clear in the Condominium Act, Master Deed, and By-laws of the condominium.87Moreover, the promulgation of such
rule was "reasonably necessary" to attain the purposes of the condominium project. 88

This court has, in effect, created a presumption that corporate acts are valid if, on their face, the acts were within the
corporation's powers or purposes. This presumption was explained as early as in 1915 in Coleman v. Hotel De
France,89 where this court ruled that contracts entered into by corporations in the exercise of their incidental powers
are not ultra vires.90

Coleman involved a hotel's cancellation of an employment contract it executed with a gymnast. One of the hotel's
contentions was the supposed ultra vires nature of the contract.- It was executed outside its express and implied powers
under the articles of incorporation.91

In ruling in favor of the contract's validity, this court considered the incidental powers of the hotel to include the
execution of employment contracts with entertainers for the purpose of providing its guests entertainment and
increasing patronage.92

This court ruled that a contract executed by a corporation shall be presumed valid if on its face its execution was not
beyond the powers of the corporation to do.93 Thus:chanRoblesvirtualLawlibrary
When a contract is not on its face necessarily beyond the scope of the power of the corporation by which it was made,
it will, in the absence of proof to the contrary, be presumed to be valid. Corporations are presumed to contract within
their powers. The doctrine of ultra vires, when invoked for or against a corporation, should not be allowed to prevail
where it would defeat the ends of justice or work a legal wrong. 94cralawlawlibrary

However, this should not be interpreted to mean that such presumption applies to all cases, even when the act in
question is on its face beyond the corporation's power to do or when the evidence contradicts the presumption.

Presumptions are "inference[s] as to the existence of a fact not actually known, arising from its usual connection with
another which is known, or a conjecture based on past experience as to what course human affairs ordinarily
take."95 Presumptions embody values and revealed behavioral expectations under a given set of circumstances.

Presumptions may be conclusive96 or disputable.97

Conclusive presumptions are presumptions that may not be overturned by evidence, however strong the evidence
is.98 They are made conclusive not because there is an established uniformity in behavior whenever identified
circumstances arise. They are conclusive because they are declared as such under the law or the rules. Rule 131,
Section 2 of the Rules of Court identifies two (2) conclusive presumptions:chanRoblesvirtualLawlibrary
SEC. 2. Conclusive presumptions.— The following are instances of conclusive
presumptions:chanRoblesvirtualLawlibrary

(a) Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe
a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or
omission, be permitted to falsify it;

(b) The tenant is not permitted to deny the title of his landlord at the time of the commencement of the relation of
landlord and tenant between them.cralawlawlibrary

On the other hand, disputable, presumptions are presumptions that may be overcome by contrary evidence.99 They are
disputable in recognition of the variability of human behavior. Presumptions are not always true. They may be wrong
under certain circumstances, and courts are expected to apply them, keeping in mind the nuances of every experience
that may render the expectations wrong.

Thus, the application of disputable presumptions on a given circumstance must be based on the existence of certain
facts on which they are meant to operate. "[Presumptions are not allegations, nor do they supply their
absence[.]"100 Presumptions are conclusions. They do not apply when there are no facts or allegations to support them.

If the facts exist to set in motion the operation of a disputable presumption, courts may accept the presumption.
However, contrary evidence may be presented to rebut the presumption.

Courts cannot disregard contrary evidence offered to rebut disputable presumptions. Disputable presumptions apply
only in the absence of contrary evidence or explanations. This court explained in Philippine Agila Satellite Inc. v.
Usec. Trinidad-Lichauco:101chanroblesvirtuallawlibrary
We do not doubt the existence of the presumptions of "good faith" or "regular performance of official duty," yet these
presumptions are disputable and may be contradicted and overcome by other evidence. Many civil actions are oriented
towards overcoming any number of these presumptions, and a cause of action can certainly be geared towards such
effect. The very purpose of trial is to allow a party to present evidence to overcome the disputable presumptions
involved. Otherwise, if trial is deemed irrelevant or unnecessary, owing to the perceived indisputability of the
presumptions, the judicial exercise would be relegated to a mere ascertainment of what presumptions apply in a given
case, nothing more. Consequently, the entire Rules of Court is rendered as excess verbiage, save perhaps for the
provisions laying down the legal presumptions.

If this reasoning of the Court of Appeals were ever adopted as a jurisprudential rule, no public officer could ever be
sued for acts executed beyond their official functions or authority, or for tortious conduct or behavior, since such acts
would "enjoy the presumption of good faith and in the regular performance of official duty." Indeed, few civil actions
of any nature would ever reach the trial stage, if a case can be adjudicated by a mere determination from the complaint
or answer as to which legal presumptions are applicable. For-example, the presumption that a person is innocent of a
wrong is a disputable presumption on the same level as that of the regular performance of official duty. A civil
complaint for damages necessarily alleges that the defendant committed a wrongful act or omission that would serve
as basis for the award of damages. With the rationale of the Court of Appeals, such complaint can be dismissed upon
a motion to dismiss solely on the ground that the presumption is that a person is innocent of a wrong. 102 (Emphasis
supplied, citations omitted)cralawlawlibrary

In this case, the presumption that the execution of mortgage contracts was within petitioner's corporate powers does
not apply. Securing third-party loans is not connected to petitioner's purposes as an educational institution.
III

Respondent argues that petitioner's act of mortgaging its properties to guarantee FISLAI's loans was consistent with
petitioner's business interests, since petitioner was presumably a FISLAI shareholder whose officers and shareholders
interlock with FISLAI. Respondent points out that petitioner and its key officers held substantial shares in MSLAI
when DSLAI and FISLAI merged. Therefore, it was safe to assume that when the mortgages were executed in 1982,
petitioner held substantial shares in FISLAI.103

Parties dealing with corporations cannot simply assume that their transaction is within the corporate powers. The acts
of a corporation are still limited by its powers and purposes as provided in the law and its articles of incorporation.

Acquiring shares in another corporation is not a means to create new powers for the acquiring corporation. Being a
shareholder of another corporation does not automatically change the nature and purpose of a corporation's business.
Appropriate amendments must be made either to the law or the articles of incorporation before a corporation can
validly exercise powers outside those provided in law or the articles of incorporation. In other words, without an
amendment, what is ultra vires before a corporation acquires shares in other corporations is still ultra vires after such
acquisition.

Thus, regardless of the number of shares that petitioner had with FISLAI, DSLAI, or MSLAI, securing loans of third
persons is still beyond petitioner's power to do. It is still inconsistent with its purposes under the law104 and its articles
of incorporation.105

In attempting to show petitioner's interest in securing FISLAI's loans by adverting to their interlocking, directors and
shareholders, respondent disregards petitioner's separate personality from its officers, shareholders, and other juridical
persons.

The separate personality of corporations means that they are "vest[ed] [with] rights, powers, and attributes [of their
own] as if they were natural persons[.]" 106 Their assets and liabilities are their own and not their officers', shareholders',
or another corporation's. In the same vein, the assets and liabilities of their officers and shareholders are not the
corporations'. Obligations incurred by corporations are not obligations of their officers and shareholders. Obligations
of officers and shareholders are not obligations of corporations.107 In other words, corporate interests are separate from
the personal interests of the natural persons that comprise corporations.
Corporations are given separate personalities to allow natural persons to balance the risks of business as they
accumulate capital. They are, however, given limited competence as a means to protect the public from fraudulent
acts that may be committed using the separate juridical personality given to corporations.

Petitioner's key officers, as shareholders of FISLAI, may have an interest in ensuring the viability of FISLAI by
obtaining a loan from respondent and securing it by whatever means. However, having interlocking officers and
stockholders with FISLAI does not mean that petitioner, as an educational institution, is or must necessarily be
interested in the affairs of FISLAI.

Since petitioner is an entity distinct and separate not only from its own officers and shareholders but also from FISLAI,
its interests as an educational institution may not be consistent with FISLAI's.

Petitioner and FISLAI have different constituencies. Petitioner's constituents comprise persons who have committed
to developing skills and acquiring knowledge in their chosen fields by availing the formal instruction provided by
petitioner. On the other hand, FISLAI is a thrift bank, which constituencies comprise investors.

While petitioner and FISLAI exist ultimately to benefit their stockholders, their constituencies affect the means by
which they can maintain their existence. Their interests are congruent with sustaining their constituents' needs because
their existence depends on that. Petitioner can exist only if it continues to provide for the kind and quality of instruction
that is needed by its constituents. Its operations and existence are placed at risk when resources are used on activities
that are not geared toward the attainment of its purpose. Petitioner has no business in securing FISLAI, DSLAI, or
MSLAI's loans. This activity is not compatible with its business of providing quality instruction to its constituents.

Indeed, there are instances when we disregard the separate corporate personalities of the corporation and its
stockholders, directors, or officers. This is called piercing of the corporate veil.

Corporate veil is pierced when the separate personality of the corporation is being used to perpetrate fraud, illegalities,
and injustices.108 In Lanuza, Jr. v. BF Corporation:109chanroblesvirtuallawlibrary
Piercing the corporate veil is warranted when "[the separate personality of a corporation] is used as a means to
perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes,
or to confuse legitimate issues." It is also warranted in alter ego cases "where a corporation is merely a farce since it
is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation."110cralawlawlibrary

These instances have not been shown in this case. There is no evidence pointing to the possibility that petitioner used
its separate personality to defraud third persons or commit illegal acts. Neither is there evidence to show that petitioner
was merely a farce of a corporation. What has been shown instead was that petitioner, too, had been victimized by
fraudulent and unauthorized acts of its own officers and directors.

In this case, instead of guarding against fraud, we perpetuate fraud if we accept respondent's contentions.
IV

Petitioner argues that it did not authorize Saturnino Petalcorin to mortgage its properties on its behalf. There was no
board resolution to that effect. Thus, the mortgages executed by Saturnino Petalcorin were unenforceable. 111

The mortgage contracts executed in favor of respondent do not bind petitioner. They were executed without authority
from petitioner.

Petitioner must exercise its.powers and conduct its business through its Board of Trustees. Section 23 of the
Corporation Code provides:chanRoblesvirtualLawlibrary
SEC. 23. The board of directors or trustees—Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there
is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their
successors are elected and qualified.cralawlawlibrary

Being a juridical person, petitioner cannot conduct its business, make decisions, or act in any manner without action
from its Board of Trustees. The Board of Trustees must act as a body in order to exercise corporate powers. Individual
trustees are not clothed with corporate powers just by being a trustee. Hence, the individual trustee cannot bind the
corporation by himself or herself.
The corporation may, however, delegate through a board resolution its corporate powers or functions to a
representative, subject to limitations under the law and the corporation's articles of incorporation.112

The relationship between a corporation and its representatives is governed by the general principles of
agency.113 Article 1317 of the Civil Code provides that there must be authority from the principal before anyone can
act in his or her name:chanRoblesvirtualLawlibrary
ART. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by
law a right to represent him.cralawlawlibrary

Hence, without delegation by the board of directors or trustees, acts of a person—including those of the corporation's
directors, trustees, shareholders, or officers—executed on behalf of the corporation are generally not binding on the
corporation.114

Contracts entered into in another's name without authority or valid legal representation are generally unenforceable.
The Civil Code provides:chanRoblesvirtualLawlibrary
ART. 1317. . . .

A contract entered into in the name of another by one who has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf
it has been executed, before it is revoked by the other contracting party.
. . . .

ART. 1403. The following contracts are unenforceable, unless they are ratified:chanRoblesvirtualLawlibrary

(1) Those entered into in the name of another person by one who has been given no authority or legal representation,
or who has acted beyond his powers[.]cralawlawlibrary

The unenforceable status of contracts entered into by an unauthorized person on behalf of another is based on the basic
principle that contracts must be consented to by both parties. 115 There is no contract without meeting of the minds as
to the subject matter and cause of the obligations created under the contract.116

Consent of a person cannot be presumed from representations of another, especially if obligations will be incurred as
a result. Thus, authority is required to make actions made on his or her behalf binding on a person. Contracts entered
into by persons without authority from the corporation shall generally be considered ultra vires and
unenforceable117 against the corporation.

Two trial courts118 found that the Secretary's Certificate and the board resolution were either non-existent or fictitious.
The trial courts based their findings on the testimony of the Corporate Secretary, Aurora de Leon herself. She signed
the Secretary's Certificate and the excerpt of the minutes of the alleged board meeting purporting to authorize
Saturnino Petalcorin to mortgage petitioner's properties. There was no board meeting to that effect. Guillermo B.
Torres ordered the issuance of the Secretary's Certificate. Aurora de Leon's testimony was corroborated by Saturnino
Petalcorin.

Even the Court of Appeals, which reversed the trial courts' decisions, recognized that "BSP failed to prove that the
UM Board of Trustees actually passed a Board Resolution authorizing Petalcorin to mortgage the subject real
properties[.]"119

Well-entrenched is the rule that this court, not being a trier of facts, is bound by the findings of fact of the trial courts
and the Court of Appeals when such findings are supported by evidence on record. 120 Hence, not having the proper
board resolution to authorize Saturnino Petalcorin to execute the mortgage contracts for petitioner, the contracts he
executed are unenforceable against petitioner. They cannot bind petitioner.

However, personal liabilities may be incurred by directors who assented to such unauthorized act 121 and by the person
who contracted in excess of the limits of his or her authority without the corporation's knowledge. 122
V

Unauthorized acts that are merely beyond the powers of the corporation under its articles of incorporation are not void
ab initio.

In Pirovano, et al, this court explained that corporate acts may be ultra vires but not void. 123 Corporate acts may be
capable of ratification:124chanroblesvirtuallawlibrary
[A] distinction should be made between corporate acts or contracts which are illegal and those which are merely ultra
vires. The former contemplates the doing of an act which is contrary to law, morals, or public order, or contravene
some rules of public policy or public duty, and are, like similar transactions between individuals, void. They cannot
serve as basis of a court action, nor acquire validity by performance, ratification, or estoppel. Mere ultra vires acts, on
the other hand, or those which are not illegal and void ab initio, but are not merely within the scope of the articles of
incorporation, are merely voidable and may become binding and enforceable when ratified by the
stockholders.125cralawlawlibrary

Thus, even though a person did not give another person authority to act on his or her behalf, the action may be enforced
against him or her if it is shown that he or she ratified it or allowed the other person to act as if he or she had full
authority to do so. The Civil Code provides:chanRoblesvirtualLawlibrary
ART. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope
of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it
expressly or tacitly.

ART. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the
former allowed the latter to act as though he had full powers.(Emphasis supplied)cralawlawlibrary

Ratification is a voluntary and deliberate confirmation or adoption of a previous unauthorized act. It.converts the
unauthorized act of an agent into an act of the principal. 127 It cures the lack of consent at the time of the execution of
the contract entered into by the representative, making the contract valid and enforceable. 128 It is, in essence, consent
belatedly given through express or implied acts that are deemed a confirmation or waiver of the right to impugn the
unauthorized act.129 Ratification has the effect of placing the principal in a position as if he or she signed the original
contract. In Board of Liquidators v. Heirs ofM. Kalaw, et al.:130chanroblesvirtuallawlibrary
Authorities, great in number, are one in the idea that "ratification by a corporation of an unauthorized act or contract
by its officers or others relates back to the time of the act or contract ratified, and is equivalent to original authority;"
and that "[t]he corporation and the other party to the transaction are in precisely the same position as if the act or
contract had been authorized at the time." The language of one case is expressive: "The adoption or ratification of a
contract by a corporation is nothing more nor less than the making of an original contract. The theory of corporate
ratification is predicated on the right of a corporation to contract, and any ratification or adoption is equivalent to a
grant of prior authority."131 (Citations omitted)cralawlawlibrary

Implied ratification may take the form of silence, acquiescence, acts consistent with approval of the act,, or acceptance
or retention of benefits.132 However, silence, acquiescence, retention of benefits, and acts that may be interpreted as
approval of the act do not by themselves constitute implied ratification. For an act to constitute an implied ratification,
there must be no acceptable explanation for the act-other than that there is an intention to adopt the act as his or her
own.133 "[It] cannot be inferred from acts that a principal has a right to do independently of the unauthorized act of the
agent."134

No act by petitioner can be interpreted as anything close to ratification. It was not shown that it issued a resolution
ratifying the execution of the mortgage contracts. It was not shown that it received proceeds of the loans secured by
the mortgage contracts. There was also no showing that it received any consideration for the execution of the mortgage
contracts. It even appears that petitioner was unaware of the mortgage contracts until respondent notified it of its desire
to foreclose the mortgaged properties.

Ratification must be knowingly and voluntarily done.135 Petitioner's lack of knowledge about the mortgage executed
in its name precludes an interpretation that there was any ratification on its part.

Respondent further argues that petitioner is presumed to have knowledge of its transactions with respondent because
its officers, the Spouses Guillermo and Dolores Torres, participated in obtaining the loan. 136

Indeed, a corporation, being a person created by mere fiction of law, can act only through natural persons such as its
directors, officers, agents, and representatives. Hence, the general rule is that knowledge of an officer is considered
knowledge of the corporation.

However, even though the Spouses Guillermo and Dolores Torres were officers of both the thrift banks and petitioner,
their knowledge of the mortgage contracts cannot be considered as knowledge of the corporation.

The rule that knowledge of an officer is considered knowledge of the corporation applies only when the officer is
acting within the authority given to him or her by the corporation. In Francisco v. Government Service Insurance
System:137chanroblesvirtuallawlibrary
Knowledge of facts acquired or possessed by an officer or agent of a corporation in the course of his employment, and
in relation to matters within the scope of his authority, is notice to the corporation, whether he communicates such
knowledge or not.138cralawlawlibrary

The public should be able to rely on and be protected from the representations of a corporate representative acting
within the scope of his or her authority. This is why an authorized officer's knowledge is considered knowledge of
corporation. However, just as the public should be able to rely on and be protected from corporate representations,
corporations should also be able to expect that they will not be bound by unauthorized actions made on their account.

Thus, knowledge should be actually communicated to the corporation through its authorized representatives. A
corporation cannot be expected to act or not act on a knowledge that had not been communicated to it through an
authorized representative. There can be no implied ratification without actual communication. Knowledge of the
existence of contract must be brought to the corporation's representative who has authority to ratify it. Further, "the
circumstances must be shown from which such knowledge may be presumed." 139

The Spouses Guillermo and Dolores Torres' knowledge cannot be interpreted as knowledge of petitioner. Their
knowledge was not obtained as petitioner's representatives. It was not shown that they were acting for and within the
authority given by petitioner when they acquired knowledge of the loan transactions and the mortgages. The
knowledge was obtained in the interest of and as representatives of the thrift banks.
VI

Respondent argues that Satnrnino Petalcorin was clothed with the authority to transact on behalf of petitioner, based
on the board resolution dated March 30, 1982 and Aurora de Leon's notarized Secretary's Certificate. 140 According to
respondent, petitioner is bound by the mortgage contracts executed by Saturnino Petalcorin. 141

This court has recognized presumed or apparent authority or capacity to bind corporate representatives in instances
when the corporation, through its silence or other acts of recognition, allowed others to believe that persons, through
their usual exercise of corporate powers, were conferred with authority to deal on the corporation's behalf. 142

The doctrine of apparent authority does not go into the question of the corporation's competence or power to do a
particular act. It involves the question of whether the officer has the power or is clothed with the appearance of having
the power to act for the corporation. A finding that there is apparent authority is not the same as a finding that the
corporate act in question is within the corporation's limited powers.

The rule on apparent authority is based on the principle of estoppel. The Civil Code
provides:chanRoblesvirtualLawlibrary
ART. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon.
. . . .

ART, 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or
his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

Agency may be oral, unless the law requires a specific form.cralawlawlibrary

A corporation is estopped by its silence and acts of recognition because we recognize that there is information
asymmetry between third persons who have little to no information as to what happens during corporate meetings,
and the corporate officers, directors, and representatives who are insiders to corporate affairs.143

In People's Air car go and Warehousing Co. Inc. v. Court of Appeals,144 this court held that the contract entered into
by the corporation's officer without a board resolution was binding upon the corporation because it previously allowed
the officer to contract on its behalf despite the lack of board resolution. 145

In Francisco, this court ruled that Francisco's proposal for redemption of property was accepted by and binding upon
the Government Service Insurance System. This court did not appreciate the Government Service Insurance System's
defense that since it was the Board Secretary and not the General Manager who sent Francisco the acceptance telegram,
it could not be made binding upon the Government Service Insurance System. It did not authorize the Board Secretary
to sign for the General Manager. This court appreciated the Government Service Insurance System's failure to disown
the telegram sent by the Board Secretary and its silence while it accepted all payments made by Francisco for the
redemption of property.146
There can be no apparent authority and the corporation cannot be estopped from denying the binding affect of an act
when there is no evidence pointing to similar acts and other circumstances that can be interpreted as the corporation
holding out a representative as having authority to contract on its behalf. In Advance Paper Corporation v. Arma
Traders Corporation,147 this court had the occasion to say:chanRoblesvirtualLawlibrary
The doctrine of apparent authority does not apply if the principal did not commit any acts or conduct which a third
party knew and relied upon in good faith as a result of the exercise of reasonable prudence. Moreover, the agent's acts
or conduct must have produced a change of position to the third party's detriment. (Citation omitted)cralawlawlibrary

Saturnino Petalcorin's authority to transact on behalf of petitioner cannot be presumed based on a Secretary's
Certificate and excerpt from the minutes of the alleged board meeting that were found to have been simulated. These
documents cannot be considered as the corporate acts that held out Saturnino Petalcorin as petitioner's authorized
representative for mortgage transactions. They were not supported by an actual board meeting. 149
VII

Respondent argues that it may rely on the Secretary's Certificate issued by Aurora de Leon because it was notarized.

The Secretary's Certificate was void whether or not it was notarized.

Notarization creates a presumption of regularity and authenticity on the document. This presumption may be rebutted
by "strong, complete and conclusive proof"150 to the contrary. While notarial acknowledgment "attaches full faith and
credit to the document concerned[,]" 151 it does not give the document its validity or binding effect. When there is
evidence showing that the document is invalid, the presumption of regularity or authenticity is not applicable.

In Basilio v. Court of Appeals152 this court was convinced that the purported signatory on a deed of sale was not as
represented, despite testimony from the notary public that the signatory appeared before him and signed the
instrument.153 Apart from finding that there was forgery,154 this court noted:chanRoblesvirtualLawlibrary
The notary public, Atty. Ruben Silvestre, testified that he was the one who notarized the document and that Dionisio
Z. Basilio appeared personally before him and signed the. instrument himself. However, he admitted that he did not
know Dionisio Z. Basilio personally to ascertain if the person who signed the document was actually Dionisio Z.
Basilio himself, or another person who stood in his place. He could not even recall whether the document had been
executed in his office or not.

Thus, considering the testimonies of various witnesses and a comparison of the signature in question with admittedly
genuine signatures, the Court is convinced that Dionisio Z. Basilio did not execute the questioned deed of
sale. Although the questioned deed of sale was a public document having in its favor the presumption of regularity,
such presumption was adequately refuted by competent witnesses showing its forgery and the Court's own visual
analysis of the document. (Emphasis supplied, citations omitted)cralawlawlibrary

In Suntay v. Court of Appeals,156 this court held that a notarized deed of sale was void because it was a mere sham.157 It
was not intended to have any effect between the parties.158 This court said:chanRoblesvirtualLawlibrary
[I]t is not the intention nor the function of the notary public to validate and make binding' an instrument never, in the
first place, intended to have any binding legal effect upon the parties thereto. 159cralawlawlibrary

Since the notarized Secretary's Certificate was found to have been issued without a supporting board resolution, it
produced no effect. It is not binding upon petitioner. It should not have been relied on by respondent especially given
its status as a bank.
VIII

The banking institution is "impressed with public interest" 160 such that the public's faith is "of paramount
importance."161 Thus, banks are required to exercise the highest degree of diligence in their transactions. 162 In China
Banking Corporation v. Lagon,163 this court found that the bank was not a mortgagee in good faith for its failure to
question the due execution of a Special Power of Attorney that was presented to it in relation to a mortgage
contract.164 This court said:chanRoblesvirtualLawlibrary
Though petitioner is not expected to conduct an exhaustive investigation on the history of the mortgagor's title, it
cannot be excused from the duty of exercising the due diligence required of a banking institution. Banks are expected
to exercise more care and prudence than private individuals in their dealings, even those that involve registered lands,
for their business is affected with public interest.165 (Citations omitted) cralawlawlibrary
For its failure to exercise the degree of diligence required of banks, respondent cannot claim good faith in the execution
of the mortgage contracts with Saturnino Petalcorin. Respondent's witness, Daciano Paguio, Jr., testified that there
was no board resolution authorizing Saturnino Petalcorin to act on behalf of petitioner. 166 Respondent did not inquire
further as to Saturnino Petalcorin's authority.

Banks cannot rely on assumptions. This will be contrary to the high standard of diligence required of them.
VI

According to respondent, the annotations of respondent's mortgage interests on the certificates of titles of petitioner's
properties operated as constructive notice to petitioner of the existence of such interests.167Hence, petitioners are now
estopped from claiming that they did not know about the mortgage.

Annotations of adverse claims on certificates of title to properties operate as constructive notice only to third parties—
not to the court or the registered owner. In Sajonas v. Court of Appeals:168chanroblesvirtuallawlibrary
[Annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property
where the registration of such interest or right is not otherwise provided for by the Land Registration Act or Act 496
(now [Presidential Decree No.] 1529 or the Property Registration Decree), and serves a warning to third parties
dealing with said property that someone is claiming an interest on the same or a better right than that of the registered
owner thereof.169 (Emphasis supplied)cralawlawlibrary

Annotations are merely claims of interest or claims of the legal nature and incidents of relationship between the person
whose name appears on the document and the person who caused the annotation. It does not say anything about the
validity of the claim or convert a defective claim or document into a valid one. 170 These claims may be proved or
disproved during trial.

Thus, annotations are not conclusive upon courts or upon owners who may not have reason to doubt the security of
their claim as their properties' title holders.

WHEREFORE, the Petition is GRANTED. The Court of Appeals' Decision dated December 17, 2009
is REVERSED and SET ASIDE. The Regional Trial Courts' Decisions of November 23, 2001 and December 7, 2001
are REINSTATED.

SO ORDERED.
 G.R. No. 174909, January 20, 2016
MARCELINO M. FLORETE, JR., MARIA ELENA F. MUYCO AND RAUL A.
MUYCO, Petitioners, v. ROGELIO M. FLORETE, IMELDA C. FLORETE, DIAMEL CORPORATION,
ROGELIO C. FLORETE JR., AND MARGARET RUTH C. FLORETE, Respondents.

G.R. NO. 177275

ROGELIO M. FLORETE SR., Petitioner, v. MARCELINO M. FLORETE, JR., MARIA ELENA F. MUYCO
AND RAUL A. MUYCO, Respondents.
DECISION
LEONEN, J.:
A stockholder may suffer from a wrong done to or involving a corporation, but this does not vest in the aggrieved
stockholder a sweeping license to sue in his or her own capacity. The determination of the stockholder's appropriate
remedy—whether it is an individual suit, a class suit, or a derivative suit—hinges on the object of the wrong done.
When the object of the wrong done is the corporation itself or "the whole body of its stock and property without any
severance or distribution among individual holders," 1 it is a derivative suit, not an individual suit or
class/representative suit, that a stockholder must resort to.

This resolves consolidated cases involving a Complaint for Declaration of Nullity of Issuances, Transfers and Sale
of Shares in People's Broadcasting Service, Inc. and All Posterior Subscriptions and Increases thereto with
Damages.2 The Complaint did not implead as parties the concerned corporation, some of the transferees, transferors
and other parties involved in the assailed transactions. The Petition3 docketed as G.R. No. 174909 assails the Court
of Appeals Decision affirming the dismissal of the Complaint and sustaining the award of P25,000,000.00 as moral
damages and P5,000,000.00 as exemplary damages in favor of Rogelio Florete, Sr. The Petition 4 docketed as G.R.
No. 177275 assails the Court of Appeals Decision that disallowed the immediate execution of the same award of
damages.

Spouses Marcelino Florete, Sr. and Salome Florete (now both deceased) had four (4) children: Marcelino Florete, Jr.
(Marcelino, Jr.), Maria Elena Muyco (Ma. Elena), Rogelio Florete, Sr. (Rogelio, Sr.), and Teresita Menchavez
(Teresita), now deceased.5chanroblesvirtuallawlibrary

People's Broadcasting Service, Inc. (People's Broadcasting) is a private corporation authorized to operate, own,
maintain, install, and construct radio and television stations in the Philippines. 6 In its incorporation on March 8,
1966,7 it had an authorized capital stock of P250,000.00 divided into 2,500 shares at PI00.00 par value per share. 8

Twenty-five percent (25%) of the corporation's authorized capital stock were then subscribed to as follows:
Stockholder Number of Shares

Marcelino Florete, Sr. (Marcelino, Sr.) 250 shares

Salome Florete (Salome) 100 shares

Ricardo Berlin (Berlin) 50 shares

Pacifico Sudario (Sudario) 50 shares

Atty. Santiago Divinagracia (Divinagracia), now deceased 9 50 shares10

On November 17, 1967, Berlin and Sudario resigned from their positions as General Manager and Station
Supervisor, respectively.11 Berlin and Sudario each transferred 20 shares to Raul Muyco and Estrella
Mirasol.12chanroblesvirtuallawlibrary

Salome died on November 22, 1980.13 Marcelino, Sr. suffered a stroke on July 12, 1982, which left him paralyzed
and bedridden until his death on October 3, 1990.14 After Marcelino, Sr.'s stroke, their son, Rogelio, Sr. started
managing the affairs of People's Broadcasting.15chanroblesvirtuallawlibrary

In October 1993, People's Broadcasting sought the services of the accounting and auditing firm Sycip Gorres Velayo
and Co. in order to determine the ownership of equity in the corporation. 16 On November 2, 1994, Sycip Gorres
Velayo and Co. submitted a report detailing the movements of the corporation's shares from November 23, 1967 to
December 8, 1989.17 The relevant portion of this report reads:
B. PEOPLE'S BROADCASTING SERVICE, INC. (PBS)

The movements in the capital stock accounts (by beneficial stockholders) are as follows:
Beneficial Shareholdings Additional Transfer Transfer Transfer Increase Shareholdings
Stockholder Nov. 27, Subscription of of of (F) Oct. 31, 1993
1967 (A) Sept. 1, Shares Shares Shares
1982 (B) of of Stock of
Stock (D) Stock
March June 5,
1, 1983 1987
(C) (E)

Marcelino M. 560 - 750 (680) - 62,344.19 62,974.19

Florete, Sr.

Salome M. 30 (30) - - -
Florete

Rogelio M. 20 5 1110 370 (5) 149,624.75 151,124.75

Florete

Ma. Elena F. 20 5 - - (25) 2,493.68 2,493.68

Muyco

Teresita F. - 5 - 20 (25) 2,493.69 2,493.69

Menchavez

Marcelino M. - 5 - 20 (20) 2,493.44 2,493.44

Florete, Jr.

Santiago C. 20 - - 270 75 29,925.25 30,290.25

Divinagracia

Newsound 610 - (610)

Broadcasting18

Consolidated - 1,250 (1,250)

Broadcasting

Total 1,260 1,250 249,375.00 251,875.00

(A) The People's Broadcasting Service, Inc. was incorporated in 1965 with an authorized capital stock of
P250,000 divided into 2,500 shares at PI00 par value. As of November 23, 1967, the total subscribed
shares of stock was [sic] 1,260. The 610 shares issued in the name of [Newsounds Broadcasting Network,
Inc.] was [sic] authorized by the Board of Directors in payment for the obligation of the Corporation to
[Newsounds Broadcasting Network, Inc.].

....

(B) On August 5, 1982, the Board of Directors passed Resolution No. 4 which authorized Atty. Divinagracia
to negotiate the purchase of two stations of Consolidated Broadcasting System, Inc. (CBS), DYMF and
DXMF in Cebu and Davao, respectively. In consideration thereof, [People's Broadcasting Service, Inc.]
shall issue 1,250 shares of stock in favor of [Consolidated Broadcasting System, Inc.]. In pursuance
thereof, on September 1, 1982, the Corporation issued the remaining 1,240 shares of unissued capital
stock to [Consolidated Broadcasting System, Inc.]. To complete the consideration of 1,250 shares, it was
explained that [Salome] transferred her 10 shares to [Consolidated Broadcasting System, Inc.] and
distributed her remaining 20 shares to her children, at 5 shares each.

(C) On March 1, 1983, all the 610 shares of [Newsounds Broadcasting Network, Inc.] were transferred to
[Rogelio, Sr.]. We were not able to determine the person who endorsed the certificate in [sic] behalf [of]
[Newsounds Broadcasting Network, Inc.] as the certificate was not found on file. On the same day, the
entire investment of [Consolidated Broadcasting System, Inc.] were transferred to [Marcelino, Sr.] and
[Rogelio, Sr.] at the proportion of 750 shares and 500 shares, respectively. The cancelled certificates of
[Consolidated Broadcasting System, Inc.] were endorsed by [Rogelio, Sr.] in [sic] its behalf.
 (D) On February 28 and August 1, 1983, [Marcelino, Sr.] transferred 680 shares from his block to the
following:

Transferee No. of Shares Date of Transfer

Rogelio M. Florete [Sr.] 370 February 28, 1983

Santiago C. Divinagracia 270 August 1, 1983

Marcelino M. Florete, Jr. 20 August 1, 1983

Teresita F. Menchavez 20 August 1, 1983

Total 680

(E) On June 3, 1987, the Corporation effected the transfer of 75 shares to [Divinagracia] by virtue of the
deeds of sale executed by the transferors concerned in his favor.

(F) On December 8, 1989, the [Securities and Exchange Commission] approved the application of the
Corporation to increase the authorized capital stock to P100,000,000.00 divided into 1,000,000 shares at
P100 par value. Of the increase, 249,375 shares were subscribed for P24,937,500 and P6,234,375 thereof
was paid-up. The subscribers to the increase were as indicated in the foregoing.

There were no other transactions affecting the interest of the beneficial stockholders up to October 31, 1993 except
transfers to and from designated nominees[.]19chanroblesvirtuallawlibrary

Even as it tracked the movements of shares, Sycip Gorres Velayo and Co. declined to give a categorical statement
on equity ownership as People's Broadcasting's corporate records were incomplete. 20 The report contained the
following disclaimer on the findings regarding the corporation's capital structure:
Because the procedures included certain assumptions as represented by the corporate secretaries mentioned in
Attachment I and we have not verified the documents supporting some of the transactions, we do not express an
opinion on the capital stock accounts of the respective companies [including People's Broadcasting] as at October
31, 1993.21 (Emphasis supplied)

On February 1, 1997, the Board of Directors of People's Broadcasting approved Sycip Gorres Velayo and Co.'s
report.22chanroblesvirtuallawlibrary

In the meantime, Rogelio, Sr. transferred a portion of his shareholdings to the members of his immediate family,
namely: Imelda Florete, Rogelio Florete, Jr., and Margaret Ruth Florete, as well as to Diamel Corporation, a
corporation owned by Rogelio, Sr.'s family.23chanroblesvirtuallawlibrary

As of April 27, 2002, the stockholders of record of People's Broadcasting were the
following:24chanroblesvirtuallawlibrary
Stockholder No. of Shares

1. Diamel Corporation 30,000.00

2. Rogelio Florete [Sr.] 153,881.53

3. Marcelino Florete, Jr. 18,240.99

4. Ma. Elena Muyco 18,227.23

5. Santiago Divinagracia 30,289.25

6. Imelda Florete 1,000.00

7. Rogelio Florete, Jr. 100.00

8. Margaret Ruth Florete 100.00

 9. Raul Muyco 10.00

10. Manuel Villa, Jr. 10.00

11 .Gregorio Rubias 1.00

12. Cyril Regaldao 1.00

13. Jose Mari Trenas 1.00

14. Enrico Jacomille 1.00

15. Joseph Vincent Go 1.00

16. Jerry Trenas 1.00

17. Efrain Trenas 10.00

On June 23, 2003, Marcelino, Jr., Ma. Elena, and Raul Muyco (Marcelino, Jr. Group) filed before the Regional Trial
Court a Complaint25 for Declaration of Nullity of Issuances, Transfers and Sale of Shares in People's Broadcasting
Service, Inc. and All Posterior Subscriptions and Increases thereto with Damages 26 against Diamel Corporation,
Rogelio, Sr., Imelda Florete, Margaret Florete, and Rogelio Florete, Jr. (Rogelio, Sr. Group).

On July 25, 2003, the Rogelio, Sr. Group filed their Answer with compulsory
counterclaim.27chanroblesvirtuallawlibrary

On August 2, 2005, the Regional Trial Court issued a Decision (which it called a "Placitum") dismissing the
Marcelino, Jr. Group's Complaint. It ruled that the Marcelino, Jr. Group did not have a cause of action against the
Rogelio, Sr. Group and that the former is estopped from questioning the assailed movement of shares of People's
Broadcasting. It also ruled that indispensible parties were not joined in their Complaint.

According to the trial court, the indispensable parties would include:

[Marcelino, Sr.] and/or his estate and/or his heirs, [Salome] and/or her estate and/or her heirs, [Divinagracia] and/or
his estate and/or his successors-in-interest, [Teresita] and/or her estate and/or her own successors-in-interest, the
other [People's Broadcasting Service, Inc.] stockholders who may be actually beneficial owners and not purely
nominees, all the so called nominal stockholders. . . [and] the various [People's Broadcasting Service, Inc.]
Corporate Secretaries[.]"28chanrobleslaw

The Regional Trial Court granted Rogelio, Sr.'s compulsory counterclaim for moral and exemplary damages
amounting to P25,000,000.00 and P5,000,000.00, respectively, reasoning that Rogelio, Sr. suffered from the
besmirching of his personal and commercial reputation.29chanroblesvirtuallawlibrary

The dispositive portion of the Regional Trial Court Decision reads:

WHEREFORE, premises duly considered, the instant "Complaint" of the plaintiffs is hereby DISMISSED for lack
of merit.

The "Counterclaim" of defendant Rogelio Florete Sr. is hereby given DUE COURSE but only insofar as the claims
for moral and exemplary damages are concerned. Consequently, the plaintiffs herein are hereby ordered to pay,
jointly and severally, defendant Rogelio Florete Sr., the following sums, to wit:

1. TWENTY FIVE MILLION PESOS (P25,000,000.00) as and for MORAL DAMAGES; and,

2. FIVE MILLION PESOS (P5,000,000.00) as and for EXEMPLARY DAMAGES.

The "Counterclaim(s)" of the other defendants and the prayer for the recovery of attorney's fees and litigation
expenses of defendant Rogelio Florete, Sr. are hereby DISMISSED likewise for lack of merit.

SO ORDERED.30chanrobleslaw

On August 15, 2005, Rogelio, Sr. filed a Motion for the immediate execution of the award of moral and exemplary
damages pursuant to Rule I, Section 431 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies.32chanroblesvirtuallawlibrary
On September 8, 2005, the Marcelino, Jr. Group filed before the Court of Appeals a Petition for Review 33 with a
prayer for the issuance of a temporary restraining order and/or writ of preliminary injunction to deter the immediate
execution of the trial court Decision awarding damages to Rogelio, Sr. 34 The Court of Appeals issued a temporary
restraining order and, subsequently, a writ of preliminary injunction. 35chanroblesvirtuallawlibrary

In its Decision36 dated March 29, 2006, the Court of Appeals denied the Marcelino, Jr. Group's Petition and affirmed
the trial court Decision.37 It also lifted the temporary restraining order and writ of preliminary
injunction.38chanroblesvirtuallawlibrary

The Court of Appeals ruled that the Marcelino, Jr. Group did not have a cause of action against those whom they
have impleaded as defendants. It also noted that the principal obligors in or perpetrators of the assailed transactions
were persons other than those in the Rogelio, Sr. Group who have not been impleaded as parties. Thus, the Court of
Appeals emphasized that the following parties were indispensable to the case: People's Broadcasting; Marcelino, Sr.;
Consolidated Broadcasting System, Inc.; Salome; Divinagracia; Teresita; and "other stockholders of [People's
Broadcasting] to whom the shares were transferred or the nominees of the
stockholders."39chanroblesvirtuallawlibrary

The Court of Appeals further emphasized that the estates of Marcelino, Sr. and Salome had long been settled, with
those in the Marcelino, Jr. Group participating (in their capacity as heirs). As the Marcelino, Jr. Group failed to act
to protect their supposed interests in shares originally accruing to Marcelino, Sr. and Salome, the group is estopped
from questioning the distribution of Marcelino, Sr.'s and Salome's assets. 40 Furthering the conclusion that the
Marcelino, Jr. Group was bound by estoppel, the Court of Appeals noted that the Marcelino, Jr. Group was well
aware of the matters stated in the report furnished by Sycip Gorres Velayo and Co. but failed to act on any supposed
error in the report. Instead, the Marcelino, Jr. Group waited ten (10) years before filing their Complaint. In the
interim, they even participated in the affairs of People's Broadcasting, voting their shares and electing members of
the Board of Directors.41chanroblesvirtuallawlibrary

On April 26, 2006, the Marcelino, Jr. Group filed a Motion for Reconsideration dated April 24,
2006.42chanroblesvirtuallawlibrary

Pending resolution of the Marcelino, Jr. Group's Motion for Reconsideration, Rogelio, Sr. filed before the Regional
Trial Court a Motion to resolve his earlier motion for the immediate execution of the awards of moral and exemplary
damages, which was filed on August 15, 2005.43 The Regional Trial Court granted the Motion in its Order dated
May 18, 2006.44 On May 23, 2006, a Writ of Execution was issued to enforce the award of moral and exemplary
damages.45chanroblesvirtuallawlibrary

The Marcelino, Jr. Group filed a Petition for Certiorari 46 before the Court of Appeals questioning the Regional Trial
Court Order to immediately execute its Decision.47 On June 13, 2006, the Court of Appeals issued a temporary
restraining order and, subsequently, a writ of preliminary injunction.48 The Court of Appeals reversed the trial court
Order of immediate execution in the Decision promulgated on November 28, 2006. 49 It also annulled the writ of
execution issued pursuant to the Order of immediate execution. Rogelio, Sr. filed a Motion for
Reconsideration,50 but it was denied on February 23, 2007.51chanroblesvirtuallawlibrary

On September 15, 2006, the Court of Appeals denied the Marcelino, Jr. Group's Motion for Reconsideration dated
April 24, 2006.52chanroblesvirtuallawlibrary

Hence, on November 17, 2006, the Marcelino, Jr. Group filed the Petition 53 docketed as GR. No. 174909.

Since the Court of Appeals Decision disallowed the immediate execution of the Regional Trial Court Decision,
Rogelio, Sr. filed on May 7, 2007 the Petition54 docketed as GR. No. 177275.

On March 16, 2009, this court ordered the consolidation of the Petitions docketed as GR. No. 174909 and GR. No.
177275.

For resolution are the following issues:

First, whether it was proper for the Regional Trial Court to dismiss the Complaint filed by the Marcelino, Jr. Group;

Second, assuming that it was error for the Regional Trial Court to dismiss the Complaint and that the case may be
decided on the merits, whether the transfers of shares assailed by the Marcelino, Jr. Group should be nullified; and

Lastly, whether the Regional Trial Court's award of moral and exemplary damages in favor of Rogelio, Sr. may be
executed at this juncture of the proceedings.

The Marcelino, Jr. Group insists that they have sufficiently established causes of action accruing to them and against
the Rogelio, Sr. Group.55 They add that they have impleaded all indispensable parties.56 Thus, they claim that it was
an error for the Regional Trial Court to dismiss their Complaint. They assert that a resolution of the case on the
merits must ensue.

The Marcelino, Jr. Group seeks to nullify the following transactions on the shares of stock of People's Broadcasting,
as noted in the report of Sycip Gorres Velayo and Co.:
(a) Issuance of 1,240 shares to Consolidated Broadcasting System, Inc. on September 1, 1982,

(b) Transfer of 10 shares from Salome to Consolidated Broadcasting System, Inc. on September 1,
1982,

(c) Issuance of 610 shares to Newsounds Broadcasting Network, Inc. on November 17, 1967,

(d) Transfer of 610 shares from Newsounds Broadcasting Network, Inc. to Rogelio, Sr. on March 1,
1983,

(e) Transfer of 750 shares from Consolidated Broadcasting System, Inc. to Marcelino, Sr. on March 1,
1983,

(f) Transfer of 500 shares from Consolidated Broadcasting System, Inc. to Rogelio, Sr.,

(g) Transfer of 680 shares from Marcelino, Sr. to the following: 370 shares to Rogelio, Sr., 270 shares
to Divinagracia, 20 shares to Marcelino, Jr., and 20 shares to Teresita, and

(h) Increase in the authorized capital stock to PI00,000,000.00 divided into 1,000,000 shares with a par
value of PI00.00 per share on December 8, 1989, and the resulting subscriptions. 57

For the issuance of 1,250 shares to Consolidated Broadcasting System, Inc., the Marcelino, Jr. Group argues that
Board Resolution No. 4 dated August 5, 1982, the basis for the issuance of the 1,250 shares in favor of Consolidated
Broadcasting System, Inc., was a forgery: it was simulated, unauthorized, and issued without a quorum as required
under Section 25 of the Corporation Code.58 They add that Salome, who allegedly transferred her 10 shares to
complete the 1,250 share transfer, was already dead at the time of the alleged transfer on September 1, 1982. 59 The
Marcelino, Jr. Group claims that no member of the Board attended the meeting referred to in Board Resolution No.
4.60 They further allege that the signature of Marcelino, Sr. in Board Resolution No. 4 is a forgery. 61 They argue that
Marcelino, Sr. could not have attended the meeting on August 5, 1982 because from July 12, 1982 to August 26,
1982,62 he was confined in Gov. B. Lopez Memorial Hospital for quadriparesis and motor aphasia. 63 They also
supplied the trial court with specimen signatures of Marcelino, Sr. to prove that the signature appearing on Board
Resolution No. 4 was forged.64chanroblesvirtuallawlibrary

The Marcelino, Jr. Group alleges that from the time Marcelino, Sr. suffered a stroke on July 12, 1982 until his death
on October 3, 1990, he was no longer capable of giving consent because of his quadriparesis and motor
aphasia.65 As they emphasized, "[q]uadriparesis means weakness of the upper and lower extremities with spasticity
and tremors. Motor aphasia means that the patient could not communicate, unable to talk, nor responds [sic] to
question or simple commands."66 Thus, they conclude that all of the issuances of shares in favor of Marcelino, Sr.
and all of the transfers of shares to and from Marcelino, Sr. from July 12, 1982 are void for lack of consent.

With respect to the issuance of 610 shares to Newsounds Broadcasting Network, Inc. and the subsequent transfer of
610 shares to Rogelio, Sr., the Marcelino, Jr. Group argues that there is no deed of conveyance to support the
transfer and that the stock certificates representing the 610 shares are missing. They conclude that because of the
absence of the stock certificates, there is no valid delivery and endorsement as required by Section 63 of the
Corporation Code.67 Hence, the transfer is invalid.

Regarding the increase in the authorized capital stock of People's Broadcasting, the Marcelino, Jr. Group argues that
the increase was procured by fraud because it was made "by the new Board of Directors who were elected by
stockholders who were transferees of the illegal, fraudulent and anomalous transfers, and therefore have no power
and authority to procure such increase." 68 They also pray that the subscriptions to the increase be
nullified.69chanroblesvirtuallawlibrary

After a declaration that the issuances and transfers are void, the Marcelino, Jr. Group prays that the capital structure
of People's Broadcasting System be corrected to reflect the following: 70chanroblesvirtuallawlibrary
Beneficial Stockholder No. of Shares %

Marcelino Florete, Sr. 660 81.48

 Salome Florete 100 12.35

Santiago Divinagracia 50 6.17

Total 810 100.00

The Marcelino, Jr. Group further claims that the award of moral and exemplary damages is erroneous. 71 They add
that the amounts of P25,000,000.00 as moral damages and P5,000,000.00 as exemplary damages are
excessive.72chanroblesvirtuallawlibrary

The Rogelio, Sr. Group seeks the denial of the Petition filed by the Marcelino, Jr. Group, claiming that it raises
factual questions that may not be taken cognizance of in a petition for review on certiorari under Rule
45.73chanroblesvirtuallawlibrary

They further argue that the Marcelino, Jr. Group has no cause of action against them. 74 They insist that indispensable
parties have not been impleaded75 and that the Marcelino Jr. Group's claims should have been raised during the
settlement of the estates of deceased Spouses Marcelino, Sr. and Salome Florete. 76 They also argue that the
Marcelino, Jr. Group is already estopped from questioning Sycip Gorres Velayo and Co.'s report because they
allowed 10 years to lapse before questioning the truthfulness of the report. They add that the Marcelino, Jr. Group's
members have been voting their shares since 1963 without making any reservation. 77chanroblesvirtuallawlibrary

In G.R. No. 177275, Rogelio, Sr. argues that the Court of Appeals erred in disallowing the immediate execution of
the Regional Trial Court Decision. He argues that the Petition filed by the Marcelino, Jr. Group before the Court of
Appeals should not have been accepted because Rule 65 petitions require that there no longer be any appeal nor any
plain, speedy, and adequate remedy in the ordinary course of law. 78 He alleges that when the Petition was filed by
the Marcelino, Jr. Group, there was still a pending appeal before the Court of Appeals to resolve the main
case.79 Rogelio, Sr. adds that the filing of a new petition despite the pendency of the main case is a violation of the
rule against forum shopping.80chanRoblesvirtualLawlibrary
I

The sufficiency of the Marcelino, Jr. Group's plea for relief, through their Complaint for Declaration of Nullity of
Issuances, Transfers and Sale of Shares in People's Broadcasting Service, Inc. and All Posterior Subscriptions and
Increases thereto with Damages,81 hinges on a characterization of the suit or action they initiated. This
characterization requires a determination of the cause of action through which the Marcelino, Jr. Group came to
court for relief. It will, thus, clarify the parties who must be included in their action and the procedural and
substantive requirements they must satisfy if their action is to prosper.

A stockholder suing on account of wrongful or fraudulent corporate actions (undertaken through directors,
associates, officers, or other persons) may sue in any of three (3) capacities: as an individual; as part of a group or
specific class of stockholders; or as a representative of the corporation.

Villamor v. Umale82 distinguished individual suits from class or representative suits:

Individual suits are filed when the cause of action belongs to the individual stockholder personally, and not to the
stockholders as a group or to the corporation, e.g., denial of right to inspection and denial of dividends to a
stockholder. If the cause of action belongs to a group of stockholders, such as when the rights violated belong to
preferred stockholders, a class or representative suit may be filed to protect the stockholders in the
group.83chanroblesvirtuallawlibrary

Villamor further explained that a derivative suit "is an action filed by stockholders to enforce a corporate
action."84 A derivative suit, therefore, concerns "a wrong to the corporation itself." 85 The real party in interest is the
corporation, not the stockholders filing the suit. The stockholders are technically nominal parties but are nonetheless
the active persons who pursue the action for and on behalf of the corporation.

Remedies through derivative suits are not expressly provided for in our statutes—more specifically, in the
Corporation Code and the Securities Regulation Code—but they are "impliedly recognized when the said laws make
corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of
their fiduciary duties."86 They are intended to afford reliefs to stockholders in instances where those responsible for
running the affairs of a corporation would not otherwise act:
However, in cases of mismanagement where the wrongful acts are committed by the directors or trustees
themselves, a stockholder or member may find that he has no redress because the former are vested by law with the
right to decide whether or not the corporation should sue, and they will never be willing to sue themselves. The
corporation would thus be helpless to seek remedy. Because of the frequent occurrence of such a situation, the
common law gradually recognized the right of a stockholder to sue on behalf of a corporation in what eventually
became known as a "derivative suit." It has been proven to be an effective remedy of the minority against the abuses
of management. Thus, an individual stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever officials of the
corporation refuse to sue or are the ones to be sued or hold the control of the corporation. In such actions, the suing
stockholder is regarded as the nominal party, with the corporation as the party in interest. 87chanrobleslaw

The distinction between individual and class/representative suits on one hand and derivative suits on the other is
crucial. These are not discretionary alternatives. The fact that stockholders suffer from a wrong done to or involving
a corporation does not vest in them a sweeping license to sue in their own capacity. The recognition of derivative
suits as a vehicle for redress distinct from individual and representative suits is an acknowledgment that certain
wrongs may be addressed only through acts brought for the corporation:
Although in most every case of wrong to the corporation, each stockholder is necessarily affected because the value
of his interest therein would be impaired, this fact of itself is not sufficient to give him an individual cause of action
since the corporation is a person distinct and separate from him, and can and should itself sue the
wrongdoer.88chanrobleslaw

In Asset Privatization Trust v. Court of Appeals,89 the reasons for disallowing a direct individual suit were further
explained:
The reasons given for not allowing direct individual suit are:

(1) . . . "the universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the
corporate property; that both of these are in the corporation itself for the benefit of the stockholders." In other words,
to allow shareholders to sue separately would conflict with the separate corporate entity principle;

(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case
of Evangelista v. Santos, that 'the stockholders may not directly claim those damages for themselves for that would
result in the appropriation by, and the distribution among them of part of the corporate assets before the dissolution
of the corporation and the liquidation of its debts and liabilities, something which cannot be legally done in view of
Section 16 of the Corporation Law...";

(3) the filing of such suits would conflict with the duty of the management to sue for the protection of all concerned;

(4) it would produce wasteful multiplicity of suits; and

(5) it would involve confusion in ascertaining the effect of partial recovery by an individual on the damages
recoverable by the corporation for the same act.90chanrobleslaw

The avenues for relief are, thus, mutually exclusive. The determination of the appropriate remedy hinges on the
object of the wrong done. When the object is a specific stockholder or a definite class of stockholders, an individual
suit or class/representative suit must be resorted to. When the object of the wrong done is the corporation itself or
"the whole body of its stock and property without any severance or distribution among individual holders," 91 it is a
derivative suit that a stockholder must resort to. In Cua, Jr. v. Tan:92chanroblesvirtuallawlibrary
Indeed, the Court notes American jurisprudence to the effect that a derivative suit, on one hand, and individual and
class suits, on the other, are mutually exclusive, viz.:ChanRoblesVirtualawlibrary
As the Supreme Court has explained: "A shareholder's derivative suit seeks to recover for the benefit of the
corporation and its whole body of shareholders when injury is caused to the corporation that may not otherwise be
redressed because of failure of the corporation to act. Thus, 'the action is derivative, i.e., in the corporate right, if the
gravamen of the complaint is injury to the corporation, or to the whole body of its stock and property without any
severance or distribution among individual holders, or it seeks to recover assets for the corporation or to prevent the
dissipation of its assets.'" In contrast, "a direct action [is one] filed by the shareholder individually (or on behalf of a
class of shareholders to which he or she belongs) for injury to his or her interest as a shareholder.. . . [T]he two
actions are mutually exclusive: i.e., the right of action and recovery belongs to either the shareholders (direct action)
or the corporation (derivative action)."

Thus, in Nelson v. Anderson, the minority shareholder alleged that the other shareholder of the corporation
negligently managed the business, resulting in its total failure. The appellate court concluded that the plaintiff could
not maintain the suit as a direct action: "Because the gravamen of the complaint is injury to the whole body of its
stockholders, it was for the corporation to institute and maintain a remedial action. A derivative action would have
been appropriate if its responsible officials had refused or failed to act." The court went on to note that the damages
shown at trial were the loss of corporate profits. Since "[shareholders own neither the property nor the earnings of
the corporation," any damages that the plaintiff alleged that resulted from such loss of corporate profits "were
incidental to the injury to the corporation." 93 (Emphasis supplied, citations omitted)

Villamor recalls the requisites for filing derivative suits:

Rule 8, Section 1 of the Interim Rules of Procedure for Intra Corporate Controversies (Interim Rules) provides the
five (5) requisites for filing derivative suits:ChanRoblesVirtualawlibrary
SECTION 1. Derivative action.—A stockholder or member may bring an action in the name of a corporation or
association, as the case may be, provided, that:
(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred
and at the time the action was filed;

(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust
all remedies available under the articles of incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; and

(4) The suit is not a nuisance or harassment suit.

In case of nuisance or harassment suit, the court shall forthwith dismiss the case.
The fifth requisite for filing derivative suits, while not included in the enumeration, is implied in the first paragraph
of Rule 8, Section 1 of the Interim Rules: The action brought by the stockholder or member must be "in the name of
[the] corporation or association. . . ." This requirement has already been settled in jurisprudence.

Thus, in Western Institute of Technology, Inc., et al. v. Salas, et al, this court said that "[a]mong the basic
requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the
corporation must allege in his complaint before the proper forum that he is suing on a derivative cause of action on
behalf of the corporation and all other shareholders similarly situated who wish to join [him]." ...

Moreover, it is important that the corporation be made a party to the case. 94 (Citations omitted)

II

The greater number of cases that sustained stockholders' recourse to derivative suits involved corporate acts
amounting to mismanagement by either the corporation's directors or officers in relations to third persons. Several
cases serve as examples.

Hi-Yield Realty v. Court of Appeals95 affirmed the Regional Trial Court's and Court of Appeals' characterization of a
Petition for Annulment of Real Estate Mortgage and Foreclosure Sale 96 as a derivative suit. The Petition was
initiated by private respondent Roberto H. Torres, a stockholder, on behalf of the corporation Honorio Torres &
Sons, Inc. Petitioner Hi-Yield Realty, Inc. was among the defendants to the Petition, along with the related parties,
Leonora, Ma. Theresa, Glenn, and Stephanie, all surnamed Torres, as well as the Registers of Deeds of Marikina and
of Quezon City. Against Hi-Yield Realty, Inc.'s claims, this court sustained the respondent's position that the
Petition was "primarily a derivative suit to redress the alleged unauthorized acts of its corporate officers and major
stockholders in connection with the lands."97chanroblesvirtuallawlibrary

Cua, Jr. considered two corporate acts to be valid objects of a derivative suit. The first was a resolution of the Board
of Directors of the corporation Philippine Racing Club, Inc. to acquire up to 100% of the common shares of another
corporation, JTH Davies Holdings, Inc., as well as to appoint Santiago Cua, Jr. "to act as attorney-in-fact and proxy
who could vote all the shares of [Philippine Racing Club, Inc.] in [JTH Davies Holdings, Inc.], as well as nominate,
appoint, and vote into office directors and/or officers during regular and special stockholders meetings of [JTH
Davies Holdings, Inc.]."98 The second was another resolution of Philippine Racing Club, Inc.'s Board of Directors
"approving the property-for-shares exchange between Philippine] R[acing] C[lub], I[nc]. and [JTH Davies Holdings,
Inc.]."99chanroblesvirtuallawlibrary

In Cua, Jr., the derivative suit grounded on the first was dismissed by this court for being moot and academic. 100The
suit grounded on the second was similarly dismissed for failure to comply with one of the requisites for instituting a
derivative suit. The plaintiffs "made no mention at all of appraisal rights, which could or could not have been
available to them[,]" thereby violating Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate
Controversies.101chanroblesvirtuallawlibrary

As with Hi-Yield Realty and Cua, Go v. Distinction Properties Development and Construction, Inc. 102 concerned a
corporate action taken in relation to a third person.

Petitioners Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim filed before the Housing and Land Use Regulatory
Board a Complaint, which they claimed was one for specific performance intended to compel the developer of
Phoenix Heights Condominium, Distinction Properties Development and Construction, Inc. (Distinction Properties),
to fulfill its contractual obligations. The Complaint was filed in the wake of an agreement entered into by Distinction
Properties with the condominium corporation Phoenix Heights Condominium Corporation (PHCC). PHCC
"approved a settlement offer from [Distinction Properties] for the set-off of the latter's association dues arrears with
the assignment [from Distinction Properties] of title over [two saleable commercial units/spaces originally held by
Distinction Properties] and their conversion into common areas." 103chanroblesvirtuallawlibrary

This court clarified that the true purpose of the petitioners' action was not to compel Distinction Properties to fulfill
its contractual obligations. Instead, "petitioners [we]re actually seeking to nullify and invalidate the duly constituted
acts of PHCC - the April 29, 2005 Agreement entered into by PHCC with DPDCI and its Board Resolution which
authorized the acceptance of the proposed offsetting/settlement of DPDCI's indebtedness and approval of the
conversion of certain units from saleable to common areas." This court thereby concluded that "the cause of action
rightfully pertains to PHCC [and that] [petitioners cannot exercise the same except through a derivative
suit."104chanroblesvirtuallawlibrary

The prevalence of derivative suits arising from corporate actions taken in relation to third persons is to be expected.
After all, it is easier to perceive the wrong done to a corporation when third persons unduly gain an advantage.
However, this does not mean that derivative suits cannot arise with respect to conflicts among a corporation's
directors, officers, and stockholders.

Ching and Wellington v. Subic Bay Golf and Country Club105 sustained the Regional Trial Court's and Court of
Appeals' characterization of the Complaint filed by stockholders against officers of the corporation as a derivative
suit. Nestor Ching and Andrew Wellington filed a Complaint in their own names and in their right as individual
stockholders assailing an amendment introduced into Subic Bay Golf and Country Club's articles of incorporation,
which supposedly "takes away the right of the shareholders to participate in the pro-rata distribution of the assets of
the corporation after its dissolution." 106 They anchored their action on Section 5(a) of Presidential Decree No. 902-
A.107 They claimed that this statutory provision "allows any a stockholder to file a complaint against the Board of
Directors for employing devices or schemes amounting to fraud and misrepresentation which is detrimental to the
interest of the public and/or the stockholders." 108chanroblesvirtuallawlibrary

This court did not sustain Nestor Ching's and Andrew Wellington's claim of a right to sue in their own capacity.
Concluding that the petitioners' action was a derivative suit, this court explained:
The reliefs sought in the Complaint, namely that of enjoining defendants from acting as officers and Board of
Directors of the corporation, the appointment of a receiver, and the prayer for damages in the amount of the decrease
in the value of the shares of stock, clearly show that the Complaint was filed to curb the alleged mismanagement of
[Subic Bay Gold and Country Club]. The causes of action pleaded by petitioners do not accrue to a single
shareholder or a class of shareholders but to the corporation itself. 109 (Emphasis supplied)

We are mindful that in 1979, in Gamboa v. Victoriano,110 this court characterized an action to nullify the sale of 823
unissued shares on the ground of violating the plaintiffs' pre-emptive rights and in violation of the voting
requirement for the Board of Directors as not a derivative suit. This court characterized the action as one in which
"the plaintiffs are alleging and vindicating their own individual interests or prejudice, and not that of the
corporation."111chanroblesvirtuallawlibrary

This pronouncement cannot be considered as a binding precedent for holding actions of the sort filed by the
plaintiffs therein to not be derivative suit. This point in Gamboa was mere obiter dictum. The main issue
in Gamboa was the validity of the trial court's denial of the Motion to Dismiss filed by four of the seven defendants
after the plaintiffs entered into a compromise agreement with the three other defendants. The resolution of this issue
was contingent on the determination of whether the compromise amounted to the plaintiff's waiver and estoppel for
having conceded the validity of the sale. Besides, this court itself acknowledged that the statement it made
characterizing the action brought by the plaintiffs was premature. Immediately after saying that "the plaintiffs are
alleging and vindicating their own individual interests or prejudice, and not that of the corporation[,]" 112 this court
stated: "At any rate, it is yet too early in the proceedings since the issues have not been
joined."113chanRoblesvirtualLawlibrary
III

In this case, the Marcelino, Jr. Group anchored their Complaint on violations of and liabilities arising from the
Corporation Code, specifically: Section 23114 (on corporate decision-making being vested in the board of directors),
Section 25115 (quorum requirement for the transaction of corporate business), Sections 39 116 and 102117 (both on
stockholders' preemptive rights), Section 62118 (stipulating the consideration for which stocks must be issued),
Section 63119 (stipulating that no transfer of shares "shall be valid, except as between the parties, until the transfer is
recorded in the books of the corporation"), and Section 65 120 (on liabilities of directors and officers "to the
corporation and its creditors" for the issuance of watered stocks) in relation to provisions in People's Broadcasting's
Articles of Incorporation and By-Laws as regards conditions for issuances of and subscription to shares. The
Marcelino, Jr. Group ultimately prays that People's Broadcasting's entire capital structure be reconfigured to reflect a
status quo ante.121chanroblesvirtuallawlibrary
As with Ching and Wellington, the actions being assailed by the Marcelino, Jr. Group pertain to parties that are not
extraneous to People's Broadcasting. They assail and seek to nullify acts taken by various iterations of People's
Broadcasting's Board of Directors. All these acts and incidents concern the capital structure of People's
Broadcasting. These acts reconfigured, through redistribution and enlargement, the structure of People's
Broadcasting's equity ownership. These acts also admitted into People's Broadcasting new equity holders such as
Consolidated Broadcasting System, Inc. and Newsounds Broadcasting Network, Inc.

As Ching and Wellington exemplifies, the action should be a proper derivative suit even if the assailed acts do not
pertain to a corporation's transactions with third persons. Cua, Jr. established that the pivotal consideration is
whether the wrong done as well as the cause of action arising from it accrues to the corporation itself or to the whole
body of its stockholders. Ching and Wellington states that if "[t]he causes of action pleaded ... do not accrue to a
single shareholder or a class of shareholders but to the corporation itself," 122 the action should be deemed a
derivative suit. Also, in Go, an action "seeking to nullify and invalidate the duly constituted acts [of a corporation]"
entails a cause of action that "rightfully pertains to [the corporation itself and which stockholders] cannot exercise . .
. except through a derivative suit." 123chanroblesvirtuallawlibrary

These are the same conditions in this case. What the Marcelino, Jr. Group asks is the complete reversal of a number
of corporate acts undertaken by People' Broadcasting's different boards of directors. These boards supposedly
engaged in outright fraud or, at the very least, acted in such a manner that amounts to wanton mismanagement of
People's Broadcasting's affairs. The ultimate effect of the remedy they seek is the reconfiguration of People's
Broadcasting's capital structure.

The remedies that the Marcelino, Jr. Group seeks are for People's Broadcasting itself to avail. Ordinarily, these
reliefs may be unavailing because objecting stockholders such as those in the Marcelino, Jr. Group do not hold the
controlling interest in People's Broadcasting. This is precisely the situation that the rule permitting derivative suits
contemplates: minority shareholders having no other recourse "whenever the directors or officers of the corporation
refuse to sue to vindicate the rights of the corporation or are the ones to be sued and are in control of the
corporation."124chanroblesvirtuallawlibrary

The Marcelino, Jr. Group points to violations of specific provisions of the Corporation Code that supposedly attest
to how their rights as stockholders have been besmirched. However, this is not enough to sustain a claim that the
Marcelino, Jr. Group initiated a valid individual or class suit. To reiterate, whether stockholders suffer from a wrong
done to or involving a corporation does not readily vest in them a sweeping license to sue in their own capacity.

The specific provisions adverted to by the Marcelino, Jr. Group signify alleged wrongdoing committed against the
corporation itself and not uniquely to those stockholders who now comprise the Marcelino, Jr. Group. A violation of
Sections 23 and 25 of the Corporation Code—on how decision-making is vested in the board of directors and on the
board's quorum requirement—implies that a decision was wrongly made for the entire corporation, not just with
respect to a handful of stockholders. Section 65 specifically mentions that a director's or officer's liability for the
issuance of watered stocks in violation of Section 62 is solidary "to the corporation and its creditors," not to any
specific stockholder. Transfers of shares made in violation of the registration requirement in Section 63 are invalid
and, thus, enable the corporation to impugn the transfer. Notably, those in the Marcelino, Jr. Group have not shown
any specific interest in, or unique entitlement or right to, the shares supposedly transferred in violation of Section 63.

Also, the damage inflicted upon People's Broadcasting's individual stockholders, if any, was indiscriminate. It was
not unique to those in the Marcelino, Jr. Group. It pertained to "the whole body of [People's Broadcasting's]
stock."125 Accordingly, it was upon People's Broadcasting itself that the causes of action now claimed by the
Marcelino Jr. Group accrued. While stockholders in the Marcelino, Jr. Group were permitted to seek relief, they
should have done so not in their unique capacity as individuals or as a group of stockholders but in place of the
corporation itself through a derivative suit. As they, instead, sought relief in their individual capacity, they did so
bereft of a cause of action. Likewise, they did so without even the slightest averment that the requisites for the filing
of a derivative suit, as spelled out in Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate
Controversies, have been satisfied. Since the Complaint lacked a cause of action and failed to comply with the
requirements of the Marcelino, Jr. Group's vehicle for relief, it was only proper for the Complaint to have been
dismissed.chanRoblesvirtualLawlibrary
IV

Erroneously pursuing a derivative suit as a class suit not only meant that the Marcelino, Jr. Group lacked a cause of
action; it also meant that they failed to implead an indispensable party.

In derivative suits, the corporation concerned must be impleaded as a party. As explained in Asset Privatization
Trust:
Not only is the corporation an indispensible party, but it is also the present rule that it must be served with process.
The reason given is that the judgment must be made binding upon the corporation in order that the corporation may
get the benefit of the suit and may not bring a subsequent suit against the same defendants for the same cause of
action. In other words the corporation must be joined as party because it is its cause of action that is being litigated
and because judgment must be a res ajudicata [sic] against it.126chanroblesvirtuallawlibrary

We have already discussed Go where this court concluded that an action brought by three individual stockholders
was, in truth, a derivative suit. There, this court further explained that a case cannot prosper when the proper party is
not impleaded:
As it is clear that the acts being assailed are those of PHHC, this case cannot prosper for failure to implead the
proper party, PHCC.

An indispensable party is defined as one who has such an interest in the controversy or subject matter that a final
adjudication cannot be made, in his absence, without injuring or affecting that interest. In the recent case
of Nagkakaisang Lakas ng Manggagawa sa Keihin (NLMK-OLALIA-KMU) v. Keihin Philippines Corporation, the
Court had the occasion to state that:ChanRoblesVirtualawlibrary
Under Section 7, Rule 3 of the Rules of Court, "parties in interest without whom no final determination can be had
of an action shall be joined as plaintiffs or defendants." If there is a failure to implead an indispensable party, any
judgment rendered would have no effectiveness. It is "precisely 'when an indispensable party is not before the court
(that) an action should be dismissed.' The absence of an indispensable party renders all subsequent actions of the
court null and void for want of authority to act, not only as to the absent parties but even to those present." The
purpose of the rules on joinder of indispensable parties is a complete determination of all issues not only between
the parties themselves, but also as regards other persons who may be affected by the judgment. A decision valid on
its face cannot attain real finality where there is want of indispensable parties.
Similarly, in the case of Plasabas v. Court of Appeals, the Court held that a final decree would necessarily affect the
rights of indispensable parties so that the Court could not proceed without their presence. In support thereof, the
Court in Plasabas cited the following authorities, thus:ChanRoblesVirtualawlibrary
The general rule with reference to the making of parties in a civil action requires the joinder of all indispensable
parties under any and all conditions, their presence being a sine qua non of the exercise of judicial power. For this
reason, our Supreme Court has held that when it appears of record that there are other persons interested in the
subject matter of the litigation, who are not made parties to the action, it is the duty of the court to suspend the trial
until such parties are made either plaintiffs or defendants, x x x Where the petition failed to join as party defendant
the person interested in sustaining the proceeding in the court, the same should be dismissed, x x x When an
indispensable party is not before the court, the action should be dismissed.

Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or
defendants. The burden of procuring the presence of all indispensable parties is on the plaintiff. The evident purpose
of the rule is to prevent the multiplicity of suits by requiring the person arresting a right against the defendant to
include with him, either as co-plaintiffs or as co-defendants, all persons standing in the same position, so that the
whole matter in dispute may be determined once and for all in one litigation.
From all indications, PHCC is an indispensable party and should have been impleaded, either as a plaintiff or as a
defendant, in the complaint filed before the HLURB as it would be directly and adversely affected by any
determination therein. To belabor the point, the causes of action, or the acts complained of, were the acts of PHCC
as a corporate body[.]127 (Citations omitted)

There are two consequences of a finding on appeal that indispensable parties have not been joined. First, all
subsequent actions of the lower courts are null and void for lack of jurisdiction. 128 Second, the case should be
remanded to the trial court for the inclusion of indispensable parties. It is only upon the plaintiff's refusal to comply
with an order to join indispensable parties that the case may be dismissed. 129chanroblesvirtuallawlibrary

All subsequent actions of lower courts are void as to both the absent and present parties. 130 To reiterate, the inclusion
of an indispensable party is a jurisdictional requirement:
While the failure to implead an indispensable party is not per se a ground for the dismissal of an action, considering
that said party may still be added by order of the court, on motion of the party or on its own initiative at any stage of
the action and/or such times as are just, it remains essential — as it is jurisdictional — that any indispensable party
be impleaded in the proceedings before the court renders judgment. This is because the absence of such
indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only as
to the absent parties but even as to those present.131 (Emphasis supplied, citation omitted)

In Metropolitan Bank and Trust Co. v. Alejo132 and Arcelona v. Court of Appeals,133 this court clarified that the
courts must first acquire jurisdiction over the person of an indispensable party. Any decision rendered by a court
without first obtaining the required jurisdiction over indispensable parties is null and void for want of jurisdiction:
"the presence of indispensable parties is necessary to vest the court with jurisdiction, which is 'the authority to hear
and determine a cause, the right to act in a case.'" 134chanroblesvirtuallawlibrary

In Divinagracia v. Parilla,135Macawadib v. Philippine National Police Directorate for Personnel and Records
Management,136People v. Go,137 and Valdez-Tallorin v. Heirs of Tarona,138 among others, this court annulled
judgments rendered by lower courts in the absence of indispensible parties.

The second consequence is unavailing in this case. While "[njeither misjoinder nor non-joinder of parties is ground
for dismissal of an action"139 and is, thus, not fatal to the Marcelino, Jr. Group's action, we have shown that they lack
a cause of action. This warrants the dismissal of their Complaint.

The first consequence, however, is crucial. It determines the validity of the Regional Trial Court's award of damages
to Rogelio, Sr.

Since the Regional Trial Court did not have jurisdiction, the decision awarding damages in favor of Rogelio, Sr. is
void.

Apart from this, there is no basis in jurisprudence for awarding moral and exemplary damages in cases where
individual suits that were erroneously filed were dismissed. In the analogous cases that we previously discussed—
Hi-Yield Realty, Cua, Jr., Go, and Ching and Wellington—the dismissal alone of the erroneously filed complaints
sufficed. This court never saw the need to award moral and exemplary damages. This is in keeping with the Civil
Code provisions that stipulate when the award of such damages is proper. We find no reason to conclude that the
Marcelino, Jr. Group acted in so malevolent, oppressive, or reckless a manner that moral and exemplary damages
must be awarded in such huge amounts as the Regional Trial Court did.

From the conclusion that the Decision awarding damages is void and unwarranted, it necessarily follows that the
Order of the Regional Trial Court to immediately execute its Decision is likewise null and void. In Arcelona, the
Decision sought to be annulled was already being executed. However, this court found that the assailed Decision
was promulgated without indispensable parties being impleaded. Hence, the Decision was ruled to have been made
without jurisdiction. This court nullified the judgment and declared:
A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of any right nor the creator
of any obligation. All acts performed pursuant to it and all claims emanating from it have no legal effect. Hence, it
can never become final and any writ of execution based on it is void: x x x it may be said to be a lawless thing
which can be treated as an outlaw and slain at sight, or ignored wherever and whenever it exhibits its
head.140 (Emphasis supplied)

Accordingly, the subsequent Order of the Decision's immediate execution is also void for lack of jurisdiction.
Contrary to Rogelio Sr.'s claim in its Petition, execution cannot ensue. For this reason, the Petition docketed as G.R.
No. 177275 must be denied.

WHEREFORE, the Petition docketed as G.R. No. 174909 is PARTLY GRANTED and the Petition docketed as
G.R. No. 177275 is DENIED.

The Complaint filed by Marcelino M. Florete, Jr., Maria Elena F. Muyco, and Raul A. Muyco for Declaration of
Nullity of Issuances, Transfers and Sale of Shares in People's Broadcasting Service, Inc. and All Posterior
Subscriptions and Increases thereto with Damages is dismissed as the complainants have no cause of action. The
award of P25,000,000.00 as moral damages and P5,000,000.00 as exemplary damages in favor of Rogelio Florete,
Sr. is deleted. The Regional Trial Court Order dated May 18, 2006 ordering the immediate execution of its Decision
dated August 2, 2005 is set aside.