MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K.
SPENCER, CATHERINE for Finance and Administration being held by complainant-appellant is not listed as among
SPENCER, AND ALEX MANCILLA, Petitioners, vs. RICARDO R. COROS, Respondent.
G.R. No. 157802 October 13, 2010
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, 20021and 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 Matling’s 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
Matling’s 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 executive vice-president pursuant to the by-laws of the corporation. Moreover, Coros’ appointment to
THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION GRANTING
APPELLEE’S 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 respondent’s 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 Matling’s 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
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 LA’s jurisdiction.
The petitioners later submitted to the NLRC in support of the motion for reconsideration the certified
machine copies of Matling’s 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 Matling’s 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 corporation’s board of directors but only by its president or
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 Matling’s 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.
1
 Ruling
The appeal fails.
I respondent was a corporate, not a regular, officer of Matling.
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 (₱5,000.00) 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 SEC’s 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 Commission’s 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 respondent’s 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
II
Was the Respondent’s Position of Vice President for Administration and Finance a Corporate Office?
We must first resolve whether or not the respondent’s 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 Matling’s 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 Matling’s 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 Matling’s By-Laws did not list his position as Vice President for Finance
and Administration as one of the corporate offices; that Matling’s 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 Matling’s 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
2
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 corporation’s
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
Matling’s 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 Matling’s President to create non-corporate offices to be
occupied by ordinary employees of Matling. Such powers were incidental to the President’s duties as
the executive head of Matling to assist him in the daily operations of the business.
The petitioners’ reliance on Tabang, supra, is misplaced. The statement in Tabang, to the effect that
offices not expressly mentioned in the By-Laws but were created pursuant to a By-Law enabling
provision were also considered corporate offices, was plainly obiter dictum due to the position subject
of the controversy being mentioned in the By-Laws. Thus, the Court held therein that the position was a
corporate office, and that the determination of the rights and liabilities arising from the ouster from the
position was an intra-corporate controversy within the SEC’s 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 Respondent’s 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 Commission24 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 respondent’s 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 Matling’s 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;
3
 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 respondent’s case, he was supposedly at once an employee, a stockholder, and a Director of
Matling. The circumstances surrounding his appointment to office must be fully considered to
determine whether the dismissal constituted an intra-corporate controversy or a labor termination
dispute. We must also consider whether his status as Director and stockholder had any relation at all to
his appointment and subsequent dismissal as Vice President for Finance and Administration.
Obviously enough, the respondent was not appointed as Vice President for Finance and Administration
because of his being a stockholder or Director of Matling. He had started working for Matling on
September 8, 1966, and had been employed continuously for 33 years until his termination on April 17,
2000, first as a bookkeeper, and his climb in 1987 to his last position as Vice President for Finance and
Administration had been gradual but steady, as the following sequence indicates:
1966 – Bookkeeper
1968 – Senior Accountant
1969 – Chief Accountant
1972 – Office Supervisor
1973 – Assistant Treasurer
1978 – Special Assistant for Finance
1980 – Assistant Comptroller
1983 – Finance and Administrative Manager
1985 – Asst. Vice President for Finance and Administration
1987 to April 17, 2000 – Vice President for Finance and Administration
Even though he might have become a stockholder of Matling in 1992, his promotion to the position of
Vice President for Finance and Administration in 1987 was by virtue of the length of quality service he
had rendered as an employee of Matling. His subsequent acquisition of the status of
Director/stockholder had no relation to his promotion. Besides, his status of Director/stockholder was
unaffected by his dismissal from employment as Vice President for Finance and
Administration.1avvphi1
In Prudential Bank and Trust Company v. Reyes,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 bank’s 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.
QUEENSLAND-TOKYO COMMODITIES, INC., ROMEO Y. LAU, and CHARLIE
COLLADO, Petitioners, vs. THOMAS GEORGE, Respondent.
G.R. No. 172727 September 8, 2010
RESOLUTION
NACHURA, J.:
At bar is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Queensland-
Tokyo Commodities, Inc. (QTCI), Romeo Y. Lau (Lau), and Charlie Collado (Collado), challenging the
September 30, 2005 Decision1 and the January 20, 2006 Resolution2 of the Court of Appeals (CA) in CA-
G.R. SP No. 58741.
QTCI is a duly licensed broker engaged in the trading of commodity futures. In 1995, Guillermo
Mendoza, Jr. (Mendoza) and Oniler Lontoc (Lontoc) of QTCI met with respondent Thomas George
(respondent), encouraging the latter to invest with QTCI. On July 7, 1995, upon Mendoza’s prodding,
respondent finally invested with QTCI. On the same day, Collado, in behalf of QTCI, and respondent
signed the Customer’s Agreement.3 Forming part of the agreement was the Special Power of
Attorney4 executed by respondent, appointing Mendoza as his attorney-in-fact with full authority to
trade and manage his account.
On June 20, 1996, the Securities and Exchange Commission (SEC) issued a Cease-and-Desist Order
(CDO) against QTCI. Alarmed by the issuance of the CDO, respondent demanded from QTCI the return
of his investment, but it was not heeded. He then sought legal assistance, and discovered that Mendoza
and Lontoc were not licensed commodity futures salesmen.
On February 4, 1998, respondent filed a complaint for Recovery of Investment with Damages 5 with the
SEC against QTCI, Lau, and Collado (petitioners), and against the unlicensed salesmen, Mendoza and
Lontoc. The case was docketed as SEC Case No. 02-98-5886, and was raffled to SEC Hearing Officer
Julieto F. Fabrero.
Only petitioners answered the complaint, as Mendoza and Lontoc had since vanished into thin air.
Traversing the complaint, petitioners denied the material allegations in the complaint and alleged lack
of cause of action, as a defense. Petitioners averred that QTCI only assigned duly qualified persons to
handle the accounts of its clients; and denied allowing unlicensed brokers or agents to handle
respondent’s account. They claimed that they were not aware of, nor were they privy to, any
arrangement which resulted in the account of respondent being handled by unlicensed brokers. They
added that even assuming that the subject account was handled by an unlicensed broker, respondent
is now estopped from raising it as a ground for the return of his investment. They pointed out that
respondent transacted business with QTCI for almost a year, without questioning the license or the
authority of the traders handling his account. It was only after it became apparent that QTCI could no
longer resume its business transactions by reason of the CDO that respondent raised the alleged lack
of authority of the brokers or traders handling his account. The losses suffered by respondent were due
to circumstances beyond petitioners’ control and could not be attributed to them. Respondent’s
4
remedy, they added, should be against the unlicensed brokers who handled the account. Thus,
petitioners prayed for the dismissal of the complaint.6
After due proceedings, the SEC Hearing Officer rendered a decision7 in favor of respondent, decreeing
that:
WHEREFORE, premises considered, [petitioners] Queensland Tokyo [C]ommodities, Inc., Romeo Y. Lau
(aka "Lau Ching Yee") and Charlie F. Collado are hereby ordered to jointly and severally pay the
[respondent] the following:
1. The amount of ₱138,164.00, Philippine currency, representing the x x x return of his
[respondent’s] peso investment, plus legal rate of interest from February 1998 until fully paid;
2. The amount of $19,820.00, American dollars, or its peso equivalent at the time of payment
representing the [respondent’s] return of his dollar investments, plus legal rate of interest from
February 1998 until fully paid;
3. The amount of ₱100,000.00 as (sic) by way of moral damages;
4. The amount of ₱50,000.00 as and (sic) by way of exemplary damages;
5. The amount of ₱10,000.00 as and for attorney’s fees; and
6. The amount of ₱2,877.00 as cost of suit.
SO ORDERED.8
Petitioners appealed to the Commission en banc, but the appeal was dismissed because the Notice of
Appeal and the Memorandum on Appeal were not verified.9
Petitioners then went to the CA via a petition for review10 under Rule 43, faulting the Commission en
banc for dismissing their appeal on purely technical ground. They insisted that they did not violate the
rules on commodity futures trading. Thus, they faulted the SEC Hearing Officer for nullifying the
Customer’s Agreement and for holding them liable for respondent’s claims.
On September 30, 2005, the CA rendered the now challenged Decision.11 It declared the dismissal of
petitioners’ appeal by the Commission en banc improper. Nevertheless, it did not order a remand of the
case to the Commission en banc because jurisdiction over petitioners’ appeal had already been
transferred to the Regional Trial Court (RTC) by virtue of Republic Act No. 8799 or the Securities
Regulation Code. The CA thus proceeded to decide the merits of the case, affirming in toto the decision
of the SEC Hearing Officer. The appellate court failed to see any reason to disturb the SEC Hearing
Officer’s finding of liability on the part of petitioners. It sustained the finding that petitioners violated
the Revised Rules and Regulations on Commodity Futures Trading when they allowed
an unlicensed salesman, like Mendoza, to handle respondent’s account. The CA also upheld the
nullification of the Customer’s Agreement, and the award of moral and exemplary damages, as well
attorney’s fees, in favor of respondent. The CA disposed, thus:
WHEREFORE, premises considered, the petition is DISMISSED for lack of merit. The assailed decision
dated February 7, 2000 is hereby AFFIRMED in toto.
SO ORDERED.12
Petitioners filed a motion for reconsideration,13 but the CA denied it on January 20, 2006.14
Hence, this recourse by petitioners arguing that:
A.
THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONERS KNOWINGLY
PERMITTED AN UNLICENSED TRADER TO SOLICIT AND HANDLE REPONDENT’S ACCOUNT, AND
THAT PETITIONERS ARE GUILTY OF FRAUD AND MISREPRESENTATION.
B.
THE HONORABLE COURT OF APPEALS ERRED IN FINDING INDIVIDUAL PETITIONERS SOLIDARILY
LIABLE FOR THE DAMAGES AND AWARDS DUE [THE] RESPONDENT.15
Petitioners insist that they did not violate the Revised Rules and Regulations on Commodity Futures
Trading. They claim that it has been QTCI’s policy and practice to appoint only licensed traders to trade
the client’s account. They denied any participation in the designation of Mendoza as respondent’s
attorney-in-fact; taking exception to the findings that they permitted Mendoza to trade respondent’s
account. Petitioners also assailed the weight given by the SEC Hearing Officer and by the CA to
respondent’s evidence.
It is evident that the issue raised in this petition is the correctness of the factual findings of the SEC
Hearing Officer, as affirmed by the CA. It is well-settled that factual findings of administrative agencies
are generally held to be binding and final so long as they are supported by substantial evidence in the
records of the case. It is not the function of this Court to analyze or weigh all over again the evidence
and the credibility of witnesses presented before the lower court, tribunal, or office, as we are not a trier
of facts. Our jurisdiction is limited to reviewing and revising errors of law imputed to the lower court,
the latter’s findings of fact being conclusive and not reviewable by this Court. 16
We sustain the finding of the SEC Hearing Officer and the CA that petitioners allowed unlicensed
individuals to engage in, solicit or accept orders in futures contracts, and thus, transgressed the
Revised Rules and Regulations on Commodity Futures Trading.17
We are not persuaded by petitioners’ assertion that they had no hand in Mendoza’s designation as
respondent’s attorney-in-fact. As pointed out by the CA, the Special Power of Attorney formed part of
respondent’s agreement with QTCI, and under the Customer’s Agreement,18 only a licensed or
registered dealer or investment consultant may be appointed as attorney-in-fact. Thus:
2. If I so desire, I shall appoint you as my agent pursuant to a Special Power of Attorney which I shall
execute for this purpose and which form part of this Agreement.
xxxx
18. I hereby confer, pursuant to the Special Power of Attorney herewith attached, full authority to your
licensed/registered dealer/investment in charge of my account/s and your Senior Officer, who must also
be a licensed/registered dealer/investment consultant, to sign all order slips on futures trading. 19
Inexplicably, petitioners did not object to, and in fact recognized, Mendoza’s appointment as
respondent’s attorney-in-fact. Collado, in behalf of QTCI, concluded the Customer’s Agreement despite
the fact that the appointed attorney-in-fact was not a licensed dealer. Worse, petitioners permitted
Mendoza to handle respondent’s account.
Indubitably, petitioners violated the Revised Rules and Regulations on Commodity Futures Trading
prohibiting any unlicensed person to engage in, solicit or accept orders in futures contract.
Consequently, the SEC Hearing Officer and the CA cannot be faulted for declaring the contract between
QTCI and respondent void.
Batas Pambansa Bilang (B.P. Blg.) 178 or the Revised Securities Act explicitly provided:
SEC. 53. Validity of Contracts. x x x.
(b) Every contract executed in violation of any provision of this Act, or any rule or regulation
thereunder, and every contract, including any contract for listing a security on an exchange heretofore
or hereafter made, the performance of which involves the violation of, or the continuance of any
relationship or practice in violation of, any provision of this Act, or any rule and regulation thereunder,
shall be void.
Likewise, Paragraph 2920 of the Customer’s Agreement provides:
29.
Contracts entered into by unlicensed Account Executives (A/E) or Investment consultants are deemed
void and of no legal effect.
Clearly, the CA merely adhered to the clear provision of B.P. Blg. 178 and to the stipulation in the
parties’ agreement when it declared as void the Customer’s Agreement between QTCI and respondent.
It is settled that a void contract is equivalent to nothing; it produces no civil effect. It does not create,
modify, or extinguish a juridical relation. Parties to a void agreement cannot expect the aid of the law;
the courts leave them as they are, because they are deemed in pari delicto or in equal fault.21 This rule,
however, is not absolute. Article 1412 of the Civil Code provides an exception, and permits the return of
that which may have been given under a void contract. Thus:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he has
given by virtue of the contract, or demand the performance of the other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he has given by
reason of the contract, or ask for the fulfillment of what has been promised him. The other,
who is not at fault, may demand the return of what he has given without any obligation to
comply with his promise.
The evidence on record established that petitioners indeed permitted an unlicensed trader and
salesman, like Mendoza, to handle respondent’s account. On the other hand, the record is bereft of
5
proof that respondent had knowledge that the person handling his account was not a licensed trader.
Respondent can, therefore, recover the amount he had given under the contract. The SEC Hearing
Officer and the CA, therefore, committed no reversible error in holding that respondent is entitled to a
full recovery of his investments.
Petitioners Collado and Lau next fault the CA in making them solidarily liable for the payment of
respondent’s claim.
Doctrine dictates that a corporation is invested by law with a personality separate and distinct from
those of the persons composing it, such that, save for certain exceptions, corporate officers who
entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities of
the latter. Personal liability of a corporate director, trustee, or officer, along (although not necessarily)
with the corporation, may validly attach, as a rule, only when – (1) he assents to a patently unlawful act
of the corporation, or when he is guilty of bad faith or gross negligence in directing its affairs, or when
there is a conflict of interest resulting in damages to the corporation, its stockholders, or other
persons; (2) he consents to the issuance of watered down stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto; (3) he agrees to hold
himself personally and solidarily liable with the corporation; or (4) he is made by a specific provision of
law personally answerable for his corporate action.221avvphi1
In holding Lau and Collado jointly and severally liable with QTCI for respondent’s claim, the SEC
Hearing Officer explained in this wise:
Anent the issue of who among the individual [petitioners] are jointly liable with QTCI in the payment of
the awards, the Commission took into consideration, among others, that audit report on the trading
activities submitted by the Brokers and Exchange Department (BED) of this Commission (Exhibit "J").
The findings contained in the report include the presence of seven (7) unlicensed investment
consultants in QTCI, and the company practice of changing deeds of Special Power of Attorney bearing
those who are licensed (exhibits "J-1" and "J-2").
The Commission also took into consideration the fact that [petitioner] Collado, who is not a licensed
commodity salesman, himself violated the aforequoted provisions of the Revised Rules and
Regulations on Commodity Futures Trading when he admitted having participated in the execution of
the customers orders (p. 7, TSN dated January 21, 1999) without giving any exception thereto, which
presumably includes his participation in the execution of customers orders of the [respondent].
Such being the case, [Mendoza’s] participation in the trading of [respondent’s] account is within the
knowledge of [petitioner] Collado.
The presence of seven (7) unlicensed investment consultants within QTCI apart from x x x Mendoza,
and [petitioner] Collado’s participation in the unlawful execution of orders under the [respondent’s]
account clearly established the fact that the management of QTCI failed to implement the rules and
regulations against the hiring of, and associating with, unlicensed consultants or traders. How these
unlicensed personnel been able to pursue their unlawful activities is a reflection of how negligent [the]
management was.
[Petitioner] Romeo Lau, as president of [petitioner] QTCI, cannot feign innocence on the existence of
these unlawful activities within the company, especially so that Collado, himself a ranking officer of
QTCI, is involved in the unlawful execution of customers orders. [Petitioner] Lau, being the chief
operating officer, cannot escape the fact that had he exercised a modicum of care and discretion in
supervising the operations of QTCI, he could have detected and prevented the unlawful acts of
[petitioner] Collado and Mendoza.
It is therefore safe to conclude that although Lau may not have participated nor been aware of the
unlawful acts, he is however deemed to have been grossly negligence in directing the affairs of QTCI.
In all, it having been established by substantial evidence that [petitioner] Collado assented to the
unlawful act of QTCI, and that [petitioner] Lau is grossly negligent in directing the affairs of QTCI, and
pursuant to Section 31 of the Corporation Code, they are therefore, jointly and severally liable with QTCI
for all the damages and awards due to the [respondent].23
We find no compelling reason to depart from the conclusion of the SEC Hearing Officer, which was
affirmed by the CA. We are in full accord with his reasons for holding Lau and Collado jointly and
severally liable with QTCI for the payment of respondent’s claim.
Finally we sustain the awards for moral and exemplary damages in favor of respondent. Moral damages
are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injuries
unjustly caused. Although incapable of pecuniary estimation, the amount must somehow be
proportional to and in approximation of the suffering inflicted. Moral damages are not punitive in nature
and were never intended to enrich the claimant at the expense of the defendant. 24
Likewise, exemplary damages are properly exigible of QTCI. Article 2229 25 of the Civil Code provides
that such damages may be imposed by way of example or correction for the public good. While
exemplary damages cannot be recovered as a matter of right, they need not be proved, although
plaintiff must show that he is entitled to moral, temperate, or compensatory damages before the court
may consider the question of whether or not exemplary damages should be awarded. Exemplary
damages are imposed not to enrich one party or impoverish another, but to serve as a deterrent against
or as a negative incentive to curb socially deleterious actions. 26
However, the same statutory and jurisprudential standards dictate reduction of the amounts of moral
and exemplary damages fixed by the SEC. Certainly, there is no hard-and-fast rule in determining what
would be a fair and reasonable amount of moral and exemplary damages, since each case must be
governed by its own peculiar facts.27 Courts are given discretion in determining the amount, with the
limitation that it should not be palpably and scandalously excessive. Indeed, it must be commensurate
to the loss or injury suffered.28
In this case, we find a need to modify, by reducing the awards for moral damages from ₱100,000.00 to
₱50,000.00; and for exemplary damages from ₱50,000.00 to ₱30,000.00.
In fine, except for the modification of the awards for moral and exemplary damages, there is no
justification to overturn the findings of the SEC Hearing Officer, as affirmed by the CA.
We reiterate that the findings of facts and conclusions of law of the SEC are controlling on the
reviewing authority. Indeed, the rule is that the findings of fact of administrative bodies, if based on
substantial evidence, are controlling on the reviewing authority. It has been held that it is not for the
appellate court to substitute its own judgment for that of the administrative agency on the sufficiency of
the evidence and the credibility of the witnesses. The Hearing Officer had the optimum opportunity to
review the pieces of evidence presented before him and to observe the demeanor of the witnesses.
Administrative decisions on matters within his jurisdiction are entitled to respect and can only be set
aside on proof of grave abuse of discretion, fraud, or error of law, 29 which has not been shown by
petitioner in this case.
WHEREFORE, the challenged Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 58741
are AFFIRMED with MODIFICATION that the awards for moral and exemplary damages are reduced to
₱50,000.00 and ₱30,000.00, respectively.
SO ORDERED.
EASYCALL COMMUNICATIONS PHILS., INC., Petitioner, vs. EDWARD KING, Respondent.
G.R. No. 145901 December 15, 2005
DECISION
CORONA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court assails the February 10, 2000
decision1 and November 8, 2000 resolution of the Court of Appeals (CA) in CA-G.R. SP No. 53510. The
assailed decision nullified the November 27, 1998 decision and April 29, 1999 resolution of the National
Labor Relations Commission (NLRC) and entered a new one declaring that the respondent Edward King
was illegally dismissed and awarding him backwages, separation pay and attorney’s fees.
Petitioner Easycall Communications Phils., Inc. was a domestic corporation primarily engaged in the
business of message handling. On May 20, 1992, petitioner, through its general manager, Roberto B.
Malonzo, hired the services of respondent as assistant to the general manager. He was given the
6
responsibility of ensuring that the expansion plans outside Metro Manila and Metro Cebu were achieved
at the soonest possible time.
In an August 14, 1992 memorandum, Mr. R.T. Casas, respondent’s immediate superior, recommended
his promotion to assistant vice president for nationwide expansion. On December 22, 1992, respondent
was appointed to the even higher position of vice president for nationwide expansion. Respondent’s
promotion was based on his performance during the six months preceding his appointment. As vice
president for nationwide expansion, he became responsible for the sales and rentals of pager units in
petitioner’s expansion areas. He was also in charge of coordinating with the dealers in these areas.
Sometime in March 1993, Malonzo reviewed the sales performance of respondent. He also scrutinized
the status of petitioner’s Nationwide Expansion Program (NEP) which was under respondent’s
responsibility. He found that respondent’s actual sales for the period October 1992–March 1993 was
78% of his sales commitment and 70% of his sales target.
Malonzo also checked the frequency and duration of the provincial sales development visits made by
respondent for the same period to expansion areas under his jurisdiction. He discovered that the latter
spent around 40% of the total number of working days for that period in the field.
The management then confronted respondent regarding his sales performance and provincial sales
development visits. A series of dialogues between petitioner’s management and respondent ensued.
On April 16, 1993, Rockwell Gohu, petitioner’s deputy general manager, talked to respondent to discuss
his sales performance. In the course of the conversation, Gohu informed respondent that Malonzo
wanted his resignation. This prompted respondent to write a memorandum to Malonzo. In his
memorandum, he inquired whether Malonzo really wanted him to resign. He emphasized that his work
performance had yet to be evaluated. He also stated that, based on the approved budget for fiscal year
ending in June 1993, he was within the budget and targets set forth by petitioner. He further declared
that he had no intention of resigning from his position.
On April 19, 1993, respondent received a notice of termination signed by Malonzo. The notice informed
him of the termination of his employment with petitioner effective April 30, 1993. In particular, the
relevant portion of the notice read:
This is to inform you that management is no longer confident that you are the right manager for the
position you are occupying. Our series of discussions on the various aspects of your functions with
you did not convince us that it is to the best interest of Easy Call to retain your services. xxx 2
(Emphasis supplied)
Aggrieved, the respondent filed a complaint for illegal dismissal with the NLRC. It was docketed as
NLRC Case No. 00-04-02913-93.
In his June 24, 1997 decision, the labor arbiter found that the termination of respondent’s employment
on the ground of loss of confidence was valid. Consequently, the labor arbiter dismissed the complaint
for lack of merit.
On appeal, the NLRC affirmed the decision of the labor arbiter in its November 27, 1998 decision, with
the modification that petitioner was ordered to indemnify respondent in the amount of ₱10,000 for
violating respondent’s right to due process. Respondent filed a partial motion for reconsideration
praying that the NLRC reverse its ruling insofar as it declared that he was validly dismissed for cause.
The NLRC, however, denied the motion for lack of merit in a April 29, 1999 resolution. The NLRC also
dismissed the complaint for lack of jurisdiction.
Respondent filed a petition for certiorari with the CA. The CA granted the petition and ruled that the
NLRC erred in holding that it lacked jurisdiction over the case. The CA also ruled that the dismissal of
respondent was illegal for having been done without cause and in violation of his right to due process.
Petitioner moved for a reconsideration of the CA decision but the motion was denied in the CA’s
November 8, 2000 resolution. Hence, this petition.
Petitioner now raises the following errors:
I.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT
SUBSTITUTED ITS OWN FINDINGS TO THAT OF THE NLRC IN VIOLATION OF THE RULE THAT
REGULAR COURTS SHOULD ACCORD GREAT RESPECT TO FINDINGS OF ADMINISTRATIVE
AGENCIES CONSIDERING THAT THERE IS SUBSTANTIAL EVIDENCE TO SUPPORT THE SIMILAR
FINDINGS OF BOTH THE LABOR ARBITER AND THE COMMISSIONERS OF NLRC.
II.
FURTHERMORE, GLARING IS THE FACT THAT THE HONORABLE COURT OF APPEALS SIMPLY
DISREGARDED THE SUBSTANTIAL EVIDENCE ON RECORD WHICH INDISPUTABLY SHOWED THAT
RESPONDENT WAS TOTALLY REMISS IN HIS DUTIES AS VICE PRESIDENT FOR NATIONWIDE
EXPANSION.
III.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO CONSIDER THAT
BEING A CORPORATE OFFICER, THE NLRC HAS NO JURISDICTION OVER THE SUBJECT UNDER PD
902-A.3
We shall rule first on the issue of jurisdiction as it is decisive. If the NLRC had no jurisdiction, then it
would be unnecessary to consider the validity of respondent’s dismissal.
Petitioner argues that since respondent was a "corporate officer," the NLRC had no jurisdiction over
the subject matter under PD 902-A. In support of its contention, petitioner invokes Paguio v. NLRC 4
where we held that the removal of a corporate officer, whether elected or appointed, is an intra-
corporate controversy over which the NLRC has no jurisdiction. The petitioner also cites our ruling in
de Rossi v. NLRC 5 to the effect that the SEC, not the NLRC, has original and exclusive jurisdiction over
cases involving the removal of corporate officers.
Under Section 5 of PD 902-A, the law applicable at the time this controversy arose,6 the SEC, not the
NLRC, had original and exclusive jurisdiction over cases involving the removal of corporate officers.
Section 5(c) of PD 902-A applied to a corporate officer’s dismissal for his dismissal was a corporate act
and/or an intra-corporate controversy.7
However, it had to be first established that the person removed or dismissed was a corporate officer
before the removal or dismissal could properly fall within the jurisdiction of the SEC and not the NLRC.
Here, aside from its bare allegation, petitioner failed to show that respondent was in fact a corporate
officer.
"Corporate officers" in the context of PD 902-A are those officers of a corporation who are given that
character either by the Corporation Code or by the corporation’s by-laws.8 Under Section 25 of the
7
Corporation Code, the "corporate officers" are the president, secretary, treasurer and such other
officers as may be provided for in the by-laws.
A careful look at de Rossi (as well as the line of cases involving the removal of corporate officers where
we held that it was the SEC and not the NLRC which had jurisdiction9 ) will show that the person whose
removal was the subject of the controversy was a corporate officer whose position was provided for in
the by-laws. That is not by any means the case here.
The burden of proof is on the party who makes the allegation.10 Here, petitioner merely alleged that
respondent was a corporate officer. However, it failed to prove that its by-laws provided for the office of
"vice president for nationwide expansion." Since petitioner failed to satisfy the burden of proof that was
required of it, we cannot sanction its claim that respondent was a "corporate officer" whose removal
was cognizable by the SEC under PD 902-A and not by the NLRC under the Labor Code.
An "office" is created by the charter of the corporation and the officer is elected by the directors or
stockholders.11 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.12
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.
We now proceed to the substantive issue of the validity of the dismissal of respondent.
While loss of confidence is a valid ground for dismissing an employee, it should not be simulated.13 It
must not be indiscriminately used as a shield by the employer against a claim that the dismissal of an
employee was arbitrary.14
To be a valid ground for an employee’s dismissal, loss of trust and confidence must be based on a
willful breach and founded on clearly established facts.15 A breach is willful if it is done intentionally,
knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly,
thoughtlessly, heedlessly or inadvertently.16 Thus, a willful breach cannot be a breach resulting from
mere carelessness.
In this case, the labor arbiter’s finding, affirmed by the NLRC, was that the sales record of respondent
and the time he spent in the field were "clear indications of complainant’s inefficiency and/or
negligence."17 Inefficiency implies negligence, incompetence, ignorance and carelessness.18
Negligence is the want or lack of care required by the circumstances.19
The grounds cited by petitioner, i.e., respondent’s alleged poor sales performance and the allegedly
excessive time he spent in the field, were not sufficient to support a claim of loss of confidence as a
ground for dismissal.
Furthermore, the alleged loss of confidence was not founded on clearly established facts.20 First,
petitioner included the sales performance of respondent for the period covering October 1992 to
December 1992 in arriving at the conclusion that his sales record was dismal. However, as the CA
correctly pointed out, petitioner previously recognized that respondent’s performance for that period
"was not merely satisfactory" but "more than extra-ordinary that it merited his promotion not only to the
position of assistant vice president, to which he was recommended by his supervisor, but to the even
higher position of vice president."21 This self-contradictory position of petitioner negates its claim of
loss of confidence in respondent.
Moreover, the promotion of an employee negates the employer’s claim that it has lost its trust and
confidence in the employee.22 Hence, petitioner’s claim of loss of confidence crumbles in the light of
respondent’s promotion not only to assistant vice-president but to the even higher position of vice-
president.
Second, the sales record of respondent for the period October 1992–December 1992 was recognized as
so exemplary that it merited his promotion. Later, however, this very same record was suddenly
deemed poor and dismal to justify loss of confidence. Thus, petitioner interpreted one and the same
sales record as proof of respondent’s simultaneous efficiency and inefficiency. This could only mean
that there was no sufficient standard with which to measure the performance of respondent, an
indication of the arbitrariness of petitioner.
Finally, during the hearing of this case before the labor arbiter, Malonzo stated that the percentage of
the time spent by respondent in his sales area was actually "not below par."23 This admission of
petitioner’s general manager only proves all the more the lack of sufficient standard for determining
respondent’s performance.
The lack of just cause in respondent’s dismissal was aggravated by the absence of due process.
The twin requirements of notice and hearing constitute the essential elements of due process. The law
requires the employer to furnish the employee sought to be dismissed with two written notices before
termination of employment can be legally effected: (1) a written notice apprising the employee of the
particular acts or omissions for which his dismissal is sought in order to afford him an opportunity to
be heard and to defend himself with the assistance of counsel, if he desires, and (2) a subsequent
notice informing the employee of the employer’s decision to dismiss him.24 This procedure is
mandatory and its absence taints the dismissal with illegality.25
In this case, respondent was served with one notice only ― the notice of his termination. The series of
dialogues between petitioner’s management and respondent was not enough as it failed to show that
the latter was apprised of the cause of his dismissal.26 These dialogues or consultations could not
validly substitute for the actual observance of notice and hearing.27
WHEREFORE, the petition is hereby DENIED. The February 10, 2000 decision and November 8, 2000
resolution of the Court of Appeals in CA-G.R. SP No. 53510 are AFFIRMED.
Costs against the petitioner.
SO ORDERED.
8
MAMITUA SABER, substituted by his HEIRS, represented by ORFIA ALICER SABER, petitioners,
vs. COURT OF APPEALS, PHILIPPINE AMANAH BANK and ASGARI ARADJI, respondents.
G.R. No. 132981 August 31, 2004
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari filed by the heirs of Dr. Mamitua Saber of the Decision1 of the
Court of Appeals in CA-G.R. CV No. 22626 reversing the Decision2 of the Regional Trial Court of Marawi
City, Branch 9, in Civil Case No. 2323 (84-R), as well as the Resolution of the appellate court denying the
motion for reconsideration thereof.
The Antecedents
On April 8, 1974 then President Ferdinand E. Marcos appointed Dr. Mamitua Saber, then Dean of
Research at the Mindanao State University and Acting Director, National Science Museum, as Executive
Vice-President of the Philippine Amanah Bank (PAB).3 He was also designated as the Officer-in-Charge
of the bank pending the election of its president by the Board of Directors. Saber was surprised
because he did not apply for appointment to the position. He inquired from Executive Secretary
Alejandro Melchor why he was appointed thereto, considering that he had no experience whatsoever in
the field of business and banking. He was told that he was chosen by the President from among forty
applicants because of his proven personal integrity. Saber took a year-long leave of absence from the
university and assumed office at the PAB. From the serenity of the academe, he plunged head-on into
the turbulent and intricate world of business.
One of the members of the Board of Directors of the bank was Asgari Aradji who was also the Acting
Chairman of the Screening Committee for Personnel. Martin Saludo, then Senior Vice-President of the
Philippine National Bank (PNB), was a management consultant of the PAB.
Saber was sent to Malaysia to study how its Malaysian government prepared and managed the annual
Muslim pilgrimage (Hajj) to Mecca, and thus, avoid the fiascos that plagued previous such pilgrimages
of Filipino Muslims in the past. After his stint in Malaysia, Saber resumed his duties at the PAB.
In a Letter dated September 19, 1974, Executive Secretary Alejandro Melchor informed Chairman of the
PAB Board of Directors Dr. Cesar A. Majul, that the bank had been designated to make appropriate
preparations and arrangements for the annual pilgrimage of Filipino Muslims to Mecca.4 The next day,
Majul forwarded the letter to Saber, directing the latter to undertake the appropriate arrangements for
the pilgrimage.5 Saber was concerned because he had only two months to prepare; the pilgrims had to
be in Mecca in time for the one-day ceremony at Mt. Arafat on December 23, 1974. Considering that
Saber had no experience thereon, the PAB Board of Directors designated Saludo as the head of the
one-man oversight committee to oversee the preparations.
Saber issued Office Memorandum No. 92 forming a Pilgrimage Secretariat with the following officers:
Atty. Lanang S. Ali, as Chairman and Pilgrimage Administrator; Dialel Basman, as Finance Officer; and
Kuisan Go, as Trade and Investment Officer. Saber later issued Office Order No. 95, designating ten (10)
members of the Secretariat who would join the pilgrimage and coordinate the same. This included
Lugum Uka, as Vice-Chairman, and Alexander Lucman, as member.6 On October 4, 1974, Saber issued
another Memorandum delineating the specific duties of the Secretariat members who were joining the
trip.7
Saber decided to charter the M/V Sweet Homes, owned by the Sweet Lines, Inc., for the trip. In behalf of
the PAB, as charter, Saber executed a Uniform Time-Charter on October 15, 1974 under which the PAB
chartered the M/V Sweet Homes to transport the pilgrims to Mecca and back to the Philippines for
P5,300,000 cash, the amount budgeted8 by the PAB. The parties executed a Rider to Charter Party in
which the PAB was allowed to load cargoes in the cargo hold of the vessel up to 500 metric tons free of
freight.9 The vessel was scheduled to leave on November 28, 1974. There was no time to lose; the PAB
conducted a massive information drive to inform the Muslims of the arrangements, including the
accommodations on board the vessel and urged them to join the Hajj through the bank. Prospective
pilgrims, including PAB depositors, made reservations for the voyage and made partial payments for
their tickets thereon.
On October 25, 1974, Saber wrote then President Marcos requesting that other parties not be allowed to
charter any ship or aircraft bringing pilgrims to Jeddah, to avoid unfair competition with the PAB.10
However, President Marcos granted Congressman Ali Dimaporo and some politicians from Lanao del
Sur permission to charter a plane to transport the pilgrims. Worse, Sacar Basman, the General Manager
of the Arabian Gulf Export Agency Corporation (AGEAC) had been representing to the public that he
was one of the Pilgrimage Directors, that he had been allotted 25 passengers for the voyage on board
the M/V Sweet Homes and solicited fare payments from interested pilgrims.11
On November 8, 1974, Indar Tampi, the Marawi Branch Manager of the PAB, wrote Saber expressing his
disappointment over the turn of events – politicians being allowed to charter a private plane which was
in direct competition with the PAB. He stated that this could derail the success of the pilgrimage and
cause great financial loss to the bank. He also expressed his apprehensions about the representations
of Sacar Basman that he was one of pilgrimage directors, and that he was allotted 25 accommodations
on the M/V Sweet Homes.12 Tampi sent a telegram to Saber on November 14, 1974 informing the latter
that many prospective passengers, including 120 depositors of the PAB who were booked for the
voyage on board the M/V Sweet Homes, had withdrawn their reservations. Furthermore, about 200 1st
and 2nd class cabin accommodations were rendered vacant.13 When he learned of the foregoing
developments, President Marcos was alarmed and ordered that pilgrims going to Mecca by plane be
limited to 100 passengers.14
In November 1974, Saber formed a three-man panel called the "Troika," composed of Atty. Lanang Ali,
Dialel Basman and Ibrahim Mamao, to coordinate the arrangements for the pilgrimage. Rather than
allow the vessel to leave for Mecca with many vacant cabins, Saber decided to sell tickets to Basman
on credit. He issued a Memorandum15 on November 21, 1974, informing the Troika that he had reached
an agreement with Basman that the latter would purchase forty (40) first class (ordinary) cabin
accommodations and thirty (30) second class (dormitory) accommodations on board the M/V Sweet
Homes, and that Basman would pay via a postdated check. Saber directed the Troika to implement the
agreement. Saber issued a supplemental memorandum to the Secretariat ordering it as follows:
… [T]o give and issue on credit purchase basis additional One Hundred Twenty (120) fare tickets all of
first class accommodations at P6,500.00 each under the following terms and conditions, tax FREE;
1. The said fare tickets all first class accommodations at P6,500.00 each in the total sum of SEVEN
HUNDRED FIFTY-SIX THOUSAND (P756,000.00) PESOS, Philippine Currency, shall consist of the unsold
tickets and the same shall be given and issued to Datu Sacar Basman on credit purchase basis.
2. The said sum of P756,000.00 shall be paid by means of post-dated check issued by Datu Sacar
Basman in favor of the Philippine Amanah Bank.
In a parallel development, Atty. Mangawan Toro, the Legal Counsel of the PAB, prepared a Freight
Contract which the PAB, through Saber, and the AGEAC, through Basman, its General Manager,
executed without the approval of the PAB Board of Directors. Under the contract, AGEAC was allowed
to load on the M/V Sweet Homes chartered by the PAB, exportable/importable goods and other cargoes
on its trip to Saudi Arabia and return, in consideration of P178,000 to be paid by AGEAC via a postdated
check, under the following terms and conditions:
9
7. That the PARTY OF THE SECOND PART will pay, and hand in and deliver the payment of the
consideration referred to above within a period of ten (10) days from and after arrival in the Philippines
in its return home trip.
8. That as a security for the payment of the freight agreed upon, the PARTY OF THE SECOND PART
hereby agrees that the PARTY OF THE FIRST PART shall have a superior lien in the proceeds on the
sale of the goods evidenced by the bill of lading, invoices and other documents and/or on the goods in
case no sale is made.17
On the other hand, Saber stated in his Memo-Directives in the Secretariat that in connection with the
Freight Contract with AGEAC –
4. The proceeds of the exported goods sold shall be placed in the possession of the PAB Treasurer or
his authorized representative which shall be made available to Datu Sacar Basman for use in payment
for goods to be imported; likewise, the proceeds derived from the sale of the imported goods shall be
kept by the said Treasurer or his authorized representative and all sums indicated in the postdated
check/s issued by Datu Sacar Basman be deducted therefrom and/or whatever amount or sums of
money due to the bank as embodied in the memo-directive of November 21, 1974 and in this addendum,
likewise, in other contracts signed by the parties herein.18
Although they believed that the agreements of Saber with Basman/AGEAC were against the policies of
the PAB, the Troika/Secretariat had to implement the Memoranda, and because of Saber’s insistence,
gave the tickets to Basman. In payment thereof, Basman drew and issued PAB Check Nos. 00377 and
00378, both postdated February 4, 1975 against his account No. 10000008 payable to PAB with no
amounts written thereon.19 Basman loaded exportable goods on board the vessel. When the vessel
arrived in Saudi Arabia, the authorities did not allow the M/V Sweet Homes to dock. Its passengers were
boarded on boats and transported to the pier. Basman failed to unload and sell the exportable goods,
much less purchase importable goods. When the postdated checks were deposited on the due dates
thereof in the account of the PAB, they were dishonored.20 Basman, likewise, failed to pay for the
freight charge for the exportable cargo of AGEAC to Saudi Arabia. Consequently, the PAB sustained a
huge financial loss.
PAB Auditor Aramis Aguilar submitted his Report of the Accounts Receivables in connection with the
pilgrimage in the total amount of P1,033,700, thus:
SCHEDULE OF RECEIVABLES
I. For Tickets Sold:
1. Sacar Basman P654,000.00
2. 78 Passengers (Surrenderees) sponsored by PC Authorities 296,400.00
3. Eight (8) persons guaranteed by Ambassador L. Pangandaman 49,600.00
4. Nascuin Dakinangcob 1,700.00
5. Acmad Buat 2,700.00
6. Ali Usman 3,800.00
7. Ali Laguindab 3,800.00
Sub-total P1,012,000.00
II. For Mutawiff:
1. Cosain Ali Usman 900.00
2. Surrenderees assessed by the PC Authorities 13,600.00
3. Eight (8) Passengers guaranteed by Ambassador L. Pangandaman 7,200.00
Sub-total P 21,700.00
TOTAL RECEIVABLES P 1,033,700.0021
During the meeting of the PAB Board of Directors, Saber was present. The Board, after exhaustive
deliberations, approved Resolution No. 67, Series of 1975, without any objection, declaring Saber liable
for the receivables on the ground that the Board did not authorize him to sell tickets on credit payable
via postdated checks, and to execute the Freight Contract with AGEAC. The Board directed Saber to
collect the receivables himself, because of its perception that if the PAB endeavored to collect the
receivables, it would, thereby, be ratifying the unauthorized acts of Saber.
PAB Director Asgari A. Aradji, who was also Acting Chairman of the Personnel Screening Committee of
the PAB, made verbal representations to the PAB Board of Directors to grant PAB Management
Consultant and PAB Senior Vice-President Martin L. Saludo the power to perform the duties and
exercise the powers of PAB President, in lieu of Saber who was only the Officer-in-Charge. He issued a
Memorandum to the Board of Directors, through the Chairman of the Board, on February 21, 1975
reiterating his proposal. He explained the following therein:
Specifically, I refer to the mishandling of the 1974 MECCA Pilgrimage. The Board set a budget of P5.53
million but the incumbent OIC authorized a total disbursement of P9.157 million or an excess of P3.62
million.
As Chairman of the Personnel Screening Committee, I have discovered, much to my surprise, that a
number of employees have been retained in spite their not having the necessary qualifications for the
positions; other[s] were terminated despite the fact that they are more deserving than those who were
retained.
These instances clearly indicate the apparent lack of exercise of effective leadership which is so vital
and essential at this crucial stage if we are to make the Amanah Bank truly responsive to the needs of
our Muslim brothers. Moreover, the purpose for which Dr. Namitua Saber has been designated as OIC
have already been accomplished and such designation has become academic with the constitution of
the PAB Board of Directors.22
Meanwhile, Saber’s leave of absence at the Mindanao State University expired and he had to report
back to the university. He applied for a clearance from the PAB. Assistant Auditor Rodolfo Ocampo
signed the said clearance for and in behalf of Auditor Aramis Aguilar, subject to Resolution No. 67,
Series of 1975 of the PAB Board of Directors. Because of the conditional clearance issued by the PAB,
Saber was reinstated to his position as professor at the university with the salary of P34,000.00 per
annum, but not to his former position as Dean for Research.
On May 6, 1975, the PAB Board of Directors approved Resolution No. 92 confirming the
recommendation of the management of the bank for the creation of an Investigating Committee of five
(5) members, chaired by Aradji, to look into the administrative and/or criminal liabilities of the persons
involved in the Pilgrimage Project.23 It also resolved that pending the outcome of the investigation,
Saber be given only a conditional clearance.24
During the formal investigation, Saber testified and submitted documentary evidence. Aradji submitted
his Report to the PAB Board of Directors that there was basis for Saber to be charged with violation of
Republic Act No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act, and recommended
that the proper criminal complaint be filed against him. The management approved the recommendation
of Aradji.
On July 10, 1975, the Board of Directors of the PAB approved Resolution No. 155 confirming the
recommendation of the PAB Management based on the Report of the Investigating Committee headed
10
by Aradji. The resolution authorized the filing of a criminal complaint against Saber for violation of Rep.
Act No. 3019, and for Aradji to sign the said complaint and testify against Saber:
1. That a criminal case for violation of the provisions of the Anti-Graft and Corrupt Practices Act
(Republic Act 3019) be filed against Dr. Mamitua Saber and that Director Asgari A. Aradji, Chairman,
Investigation Committee, 1974 Mecca Pilgrimage Project be authorized, as he is hereby authorized to
sign for and in behalf of the Bank the complaint against Dr. Mamitua Saber and thereafter to testify and
represent the Bank. Should sufficient evidence be found later to prove conspiracy in the preparation
and execution of the Freight Contract, the memorandum and the addendum thereto mentioned above,
that Messrs. Lanang Ali, Mañgawan Doro, Dialel Basman and other persons involved be included as
respondents;25
Pursuant thereto, Aradji signed the criminal complaint filed with the Office of the City Fiscal of
Zamboanga City against Saber for violation of Rep. Act No. 3019. The case was docketed as Slip No.
527-75. The complaint, as well as the report on the investigation of Saber, was the subject of a news
item in the Times Journal, a newspaper of general circulation under the by-line of reporter Emilio
Macaspac.26
On October 6, 1975, Saber filed a civil complaint for damages in the RTC of Marawi City, Branch 9,
against the PAB,27 the Chairman and the members of its Board of Directors, its Managing Director
Martin Saludo, Auditor Aramis Aguilar, and Assistant Auditor Rodolfo Ocampo. Saber alleged therein
that the PAB was authorized to make the appropriate arrangements for the pilgrimage; he had the
implied authority to enter into transactions, including the authority to sell the tickets to Basman on
credit and to execute the Freight Contract with AGEAC. He pointed out that Martin Saludo, who was
appointed by the Board of Directors to oversee the preparation of the pilgrimage, approved the said
transactions; hence, he is not personally liable for the receivables of P1,033,700. He alleged that the
defendants therein acted arbitrarily, oppressively and unfairly in considering the receivables in
connection with the pilgrimage as his personal obligation and in approving Resolution No. 67. He
further averred that the conditional clearance made by Ocampo and Aguilar caused him great damage
and prejudice, and that the filing of the anti-graft charges against him by the PAB and its Board of
Directors was devoid of any factual and legal basis. He claimed that the filing of the charges, the
nationwide publication thereof at the behest of the PAB, and the press release of the Investigating
Committee’s report and the complaint caused him dishonor, shame, discredit and contempt, shock,
besmirched reputation, and wounded feelings, for which the defendants were liable for moral,
exemplary and actual damages. He also alleged that because of his preventive suspension, he failed to
receive his salary from the Mindanao State University, causing him and his family severe economic
losses. He further claimed that Aradji and Saludo conspired to oust him from the PAB.
Saber, thereafter, prayed that, after due proceedings, judgment be rendered in his favor:
WHEREFORE, it is respectfully prayed that judgment be rendered in favor of plaintiff and against
defendants, as follows:
1. Declaring PAB Board’s Resolution No. 67, Series of 1975 (Annex ‘D’) null and void;
2. Ordering the deletion of the questioned notation ‘Subject to Board Resolution No. 67, Series of 1975’
contained in the Certificate of Clearance (Annex ‘E’);
3. Ordering defendant, jointly and severally in their official and/or personal capacity, to pay plaintiff, the
following:
1. The amount of no less than P1,000,000.00 as and for moral damages;
2. The amount of no less than P3,650.00 monthly from July 1975, until plaintiff shall have resumed his
position in the Mindanao State University;
3. The amount of no less than P100,000.00 as nominal damages;
4. A reasonable amount to be determined by the Honorable Court, as and for exemplary damages;
5. Attorney’s fees in the amount equivalent to 25% of whatever amount is awarded by the Honorable
Court in favor of the plaintiff.
Plaintiff further prays for such other and further relief as this Honorable Court may deem just and
equitable in the premises.28
On motion of Saber, the complaint was dismissed as against the chairman and members of the PAB
Board of Directors.29
The remaining defendants therein, the PAB and Aradji, alleged the following in their Answer: Saber sold
tickets on credit to Basman payable via postdated checks without authority from the PAB Board of
Directors; defendant Martin Saludo approved in principle the lease of the cargo spaces in the M/V Sweet
Home, but subject to the approval of the PAB Board of Directors; the said lease contract, including the
Freight Contract with AGEAC, was never approved by the PAB Board of Directors; the PAB had no
obligation to issue a clearance to Saber, and it would have been injudicious it to have done so on
account of Saber’s unpaid personal obligations to the bank; contrary to Saber’s claim, there were
factual and legal bases for the approval of Resolution No. 67 and the filing of the graft charges against
him; Saber made no allegations in the complaint that they (the defendants therein) caused or in any way
participated in the publication of the charges filed by the PAB against him; and, the defendants acted in
good faith, in the performance of their duties in the filing of the complaint in violation of Section 3, Rep.
Act No. 3019.
On December 9, 1975, the Board of Trustees of the MSU approved Resolution No. 969, Series of 1975,
approving the reinstatement of Saber to his former position as Dean of Research, with the
corresponding salary effective from the date he would report for work.30
After a preliminary investigation, Special Counsel Genaro T. Lorena, Jr. of the Office of the City Fiscal
issued a Resolution dismissing the complaint in Slip No. 527-75.31 The petition for review thereon filed
by the PAB was dismissed on August 2, 1978.32 However, upon review by the Tanodbayan, the
resolution of the Special Counsel was reversed with the following recommendation:
The undersigned finds and so holds that there exists a prima facie case for violation of Sec. 3, par. (e)
on three (3) counts (on the basis of the memoranda of November 21 and 28, 1974, and that of the freight
contract, respectively) of the Anti-Graft Law against respondents MAMITUA SABER, LANANG ALI,
DIALEL BASMAN, IBRAHIM MAMAO, TINDUG MACARAMBON, IBRAHIM MACADATAR and SACAR
BASMAN, and that they are probably guilty thereof. Accordingly, it is recommended that the
corresponding informations for Violation of the Anti-Graft Law be filed against respondents.33
Three Informations were filed against Saber, Sacar Basman, Lanang Ali, Dialel Basman, Ibrahim Mamao,
Tindug Macarambon and Ibrahim Macadatar in the Sandiganbayan for violation of Section 3(e) of Rep.
Act No. 3019. The cases were docketed as Criminal Cases Nos. 1835 to 1837.34 Saber was preventively
suspended by the Sandiganbayan as required by law.
After trial, the Sandiganbayan rendered a Decision on January 6, 1982 acquitting all the accused.35 In
acquitting Saber of the charge, the Sandiganbayan ruled:
It is of no legal consequence that both the MEMORANDUM and the ADDENDUM were not approved by
the Board of Directors of the BANK. For one thing, it is not the absence of such approval that made the
11
transactions subject of both documents criminal under the penalizing Act but whether they caused
undue injury to the BANK or gave unwarranted benefits, advantage or preference to Sacar Basman
through manifest partiality, evident bad faith or gross inexcusable negligence of the accused BANK
officials, which the court believes did not. For another thing, the time element and the fact that the
members of the Board were themselves responsible officials of different government offices precluded
convening them to a meeting for that purpose. And still for another thing, Dr. Saber, who was then the
Executive Vice President and Officer-in-Charge of the BANK and entrusted with the management of the
Pilgrimage Project must be deemed to have been impliedly clothed with authority to enter into any
contract related to the Project. A corporate officer, entrusted with the general management and control
of its business, has implied authority to make any contract or do any other act which is necessary or
appropriate to the conduct of the ordinary business of the corporation. (Board of Liquidators vs. Kalaw,
supra, citing 2 Fletcher Cyclopedia Corporations, p. 607.)36
On February 11, 1989, the RTC rendered a Decision in Civil Case No. 2323 in favor of Saber, and against
the PAB and Aradji, thus:
WHEREFORE, for all the foregoing findings, judgment is hereby rendered in favor of plaintiff and
against defendants, as follows:
1. Ordering defendant Philippine Amanah Bank jointly and severally with defendant Asgari Aradji, to
pay plaintiff the amounts of:
a. Nine Hundred Thousand (P900,000.00) Pesos as moral damages;
b. One Hundred Thousand (P100,000.00) Pesos as nominal damages;
c. Seventy Thousand (P70,000.00) Pesos as and for Attorney’s fee; and
d. The costs of suit.
SO ORDERED.
The trial court ruled that the PAB and Aradji were liable for damages based on the following:
...(1) Malicious Prosecution of the criminal cases against plaintiff; (2) Libel arising from derogatory and
malicious publications against plaintiff; and (3) willful injury against plaintiff under the provisions of the
New Civil Code on Human Relations, arising from Resolution No. 67, Series of 1975 and the conditional
clearance in question.38
The trial court based its ruling partly on the decision of the Sandiganbayan in Criminal Cases Nos. 1836
to 1837, on the finding that the PAB and Aradji caused the publication of the filing of the criminal
charges against Saber in the Office of the City Fiscal in the Times Journal, and that the ouster of the
plaintiff from the PAB was instigated by Aradji. Thus:
… It is unrebutted that plaintiff’s ouster was conspired in as demonstrated by the fact that when Saludo
and other members of the Task Force prepared the budget for Amanah Bank, the salary of the President
of the Bank was P67,000.00 per annum and the salary of the Executive Vice-President which the plaintiff
assumed was P48,000.00 but to pressure plaintiff from giving up his position, the Board was moved by
Saludo to reduce his salary to only P30,000.00 per annum. When plaintiff left the Bank, Saludo took over
the position which plaintiff held. After Saludo, defendant Aradji assumed the position of Executive Vice-
President, the same position which plaintiff held before he left the Bank. (pp. 4, 26, Deposition of
Aradji).39
The trial court also ruled that the sales of the tickets to Basman on credit and the execution of the
Freight Contract were with the prior approval of Martin Saludo, the head of the One-Man Oversight
Committee, as well as Nestor Kalaw, who was the PNB Legal Counsel.
The decision was appealed to the Court of Appeals, which rendered a judgment reversing the decision
of the trial court. The CA ruled that Saber failed to prove bad faith and malice against the PAB and
Aradji in the performance of their duties, and in exercising the powers of their office. It also held that
the latter acted out of duty to protect the interests of the PAB. The CA further ratiocinated that –
Defendants could not be blamed for acting the way they did for they were charged with the duty to act
for the bank with loyalty and dedication, and according to their best judgment. It is a well-known rule of
law that questions of policy or of management are left solely to the honest decisions of officers and
directors of a corporation, and so long as they act in good faith, their orders are not reviewable by the
courts.
It is, thus, evident that defendants PAB and Aradji were not in the least motivated by any malicious
intent or by a sinister design to unduly harass plaintiff Saber, but only by a well-founded anxiety to
protect the interests of the bank when they caused the filing of a criminal complaint against the latter.
The facts which presented themselves were such as would excite the belief in a reasonable mind that
the person charged was guilty of the crimes for which he was prosecuted. This is the essence of
probable cause which eliminates the element of malice essential in making out a case of malicious
prosecution. (Almendra v. Alvero, 50 SCRA 62 [1965]).
But whether or not defendants’ perception of the facts and circumstances is actually correct is
irrelevant, the only issue being whether or not there was probable cause in the filing of the criminal
complaint.40
The appellate court disagreed with the trial court’s finding of the existence of conspiracy between
Saludo and Aradji, thus:
Nor can we see any "conspiracy" to pressure Saber into giving up his position by the reduction of his
salary. As explained by defendants, PAB’s salary structure could not be made at par with that of the
Philippine National Bank, for instance, since it was just a small bank with a paid-up capital of only P50
Million and moreover, it had only eight branches. It was therefore deemed necessary to rationalize the
salary level of the bank’s officers and staff to make the operations of the bank more economically
sound and viable.41
The Present Petition
In the meantime, Saber died intestate. His heirs, represented by Orfia Alicer Saber, filed the instant
petition for review on certiorari of the decision of the CA, alleging that the appellate court erred in
reversing the decision of the trial court:
Petitioners herein respectfully submit that the Court a quo committed error in concluding that under the
environmental circumstances, the award of damages to plaintiff may not be sustained whether based
on the principle of abuse of rights or for malicious prosecution.42
The petitioners aver that Saber was able to prove his claims for damages against the respondent, based
on the principles of abuse of rights and malicious prosecution.
The petitioners contend that the respondents acted with malice and/or in bad faith. They allege that
Saber was deprived of his right to be investigated by the impartial investigator. They pointed out that
respondent Aradji, who was the Chairman of the Investigating Committee, was biased against Saber,
considering that the respondent made strong representations to the Board of Directors of the
respondent bank that he (Saber) be replaced by Saludo. The petitioners stress that respondent Aradji, a
12
non-lawyer, was designated to head the Investigating Committee to investigate the pilgrimage fiasco.
The petitioners also allege that Saber was denied due process, as he was never furnished with a copy
of the Report of the Investigating Committee. They claim that Saludo and respondent Aradji pressed
Saber into resigning by proposing for the reduction of his salary as PAB Executive Vice-President from
P48,000 per annum to P24,000 per annum, and conspired to oust him from the said position and as
officer-in-charge of the petitioner bank because of their ambitions: Saludo aspired to become the
president of the respondent bank, while respondent Aradji wanted to be the Managing Director.
The petitioners claim that Saber acted in good faith in entering into agreements with Basman/AGEAC as
confirmed by the Sandiganbayan in its decision; yet, respondent PAB still approved Resolution No. 67,
Series of 1975, holding Saber personally liable for P1,012,000.00 even before the PAB tried to collect the
amount from the debtors; by its acts, the respondent bank merely made Saber as a scapegoat.
Finally, the petitioners aver that the respondents are liable for damages for malicious prosecution
because (a) Saber alone was charged for violation of Rep. Act No. 3019, although there were others who
were involved in the pilgrimage fiasco; and (b) despite the dismissal of the criminal complaint by the
Special Counsel, the respondents, nevertheless, pursued their appeal in the Tanodbayan who found
probable cause against Saber which finding was barren of factual basis as confirmed by the decision of
the Sandiganbayan acquitting him of the charges.
The Ruling of the Court
The petition has no merit.
Abuse of right under Article 19 of the New Civil Code on which Saber anchored his claim for damages
and attorney’s fees, provides:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.
The elements of abuse of rights are the following: (a) the existence of a legal right or duty which is
exercised in bad faith; and (b) for the sole intent of prejudicing or injuring another. Malice or bad faith is
at the core of said provision.43 Good faith is presumed and he who alleges bad faith has the duty to
prove the same.44 Good faith refers to the state of the mind which is manifested by the acts of the
individual concerned. It consists of the intention to abstain from taking an unconscionable and
unscrupulous advantage of another.45 A public officer is presumed to have acted in good faith in the
performance of his duties. Unless there is a clear showing of malice, bad faith or gross negligence,
such public officer is not liable for moral and exemplary damages for acts done in the performance of
his official duties.46 Mistakes committed by a public officer are not actionable absent any clear
showing that they were motivated by malice or gross negligence amounting to bad faith.47 Bad faith, on
the other hand, does not simply connote bad judgment to simple negligence, dishonest purpose or
some moral obloquy and conscious doing of a wrong, a breach of known duty due to some motives or
interest or ill-will that partakes of the nature of fraud.48 Malice connotes ill-will or spite and speaks not
in response to duty. It implies an intention to do ulterior and unjustifiable harm. Malice is bad faith or
bad motive.49
We agree with the petitioners that a person other than respondent Aradji should have been designated
as Chairperson of the Investigating Committee to investigate the pilgrimage fiasco. This is so because
in his Memorandum to the Board of Directors of the PAB on February 21, 1975, respondent Aradji had
declared that the 1974 Mecca pilgrimage under the supervision of Saber was mishandled and there
were indications then that there was an apparent lack of exercise of effective leadership which was so
vital and essential to make the bank truly responsive to the needs of the Filipino Muslims. Respondent
Aradji then proposed that Saludo exercise the powers of the president of the respondent bank in place
of Saber. In fine, respondent Aradji attributed the problems attendant to the pilgrimage fiasco to Saber.
But then Saber did not oppose the designation by the Board of Directors for respondent Aradji to be the
Chairman of the Investigating Committee, or even asked for the latter’s inhibition. Saber must have
believed that he could still prove that he acted in good faith, and was not guilty of any wrongdoing
regardless of any misconception of respondent Aradji. Besides, respondent Aradji was only the
chairman of the committee, and there were four (4) other members who could rule in Saber’s favor. As it
was, Saber even appeared before the committee and adduced testimonial and documentary evidence in
his behalf. Thus, Saber testified:
Q Now, what was your rule in the investigation when you were invited to appear?
A As I have stated, they wanted me to shed light or give information about the behavior or what had
happened in that pilgrimage.
Q Did you actually appear and testified?
A Yes, I testified. I even gave the committee some documentary reports, a copy of the report which had
been submitted to the chairman of the bank, Dr. Majul.
Q You said that Mr. Aradji headed the investigation committee created by the bank. Is that Mr. Aradji the
same defendant in this case?
A Yes, sir.50
It was only after the Report and Recommendation of the Investigating Committee was approved by the
Board of Directors of the respondent PAB, and the subsequent publication of the said report in the
Times Journal that Saber complained, for the first time, of the impropriety of the designation of
respondent Aradji as Chairman of the committee.
In any event, it cannot be concluded that the Board of Directors of the PAB acted in bad faith or with
malice in designating the respondent Aradji as chairman of the committee, and that the latter acted in
bad faith or with malice in accepting the position and in not inhibiting himself from the said
investigation.
Respondent Aradji was the Acting Chairman of the Personnel Servicing Committee. There were four (4)
other members of the Investigating Committee, one of whom was a lawyer, Atty. Arasad Alpad, Jr.; the
other members were Executive Vice-President Berua Ibrahim and Assistant Vice-President Alexander
Lacman,51 all of whom could rule for Saber based on the evidence on record. Moreover, the report and
recommendations of the committee were still subject to the review of the Board of Directors of the
respondent bank, which included then Minister Cesar Virata. Respondent Aradji, for his part, could also
still rule for Saber, based on the evidence on record.
It is true that in his Memorandum dated February 21, 1975 respondent Aradji proposed to the Board of
Directors of the respondent PAB that Saludo, a Senior Vice-President of the PNB and PAB management
consultant, to exercise the powers and perform the duties of the president of the respondent bank, in
effect terminating the designation of Saber as Officer-in-Charge. However, he did so not to spite Saber,
but for good and justifiable reasons, thus:
Mr. Saludo has behind him more than 35 years of solid banking experience and expertise in the Bank.
He is acceptable to both Christians and Muslims. I strongly believe that he is imminently qualified to
exercise the duties and powers of the President of the Bank.
For the record, I wish to emphasize that Mr. Saludo was never sought much less intimated to me his
desire to exercise such duties and powers. On the contrary, his being connected with our Bank is an
additional burden to him but which he has graciously accepted as [a] challenge to place the Bank on a
competitive level with the other commercial banks in the country.
13
In submitting this proposal, I am only motivated by my desire to improve the stature of the Bank, which
gesture could only be accomplished if we grant the men that executive freedom to act, and to exercise
strong, positive and assertive leadership in our organization.52
Saber failed to adduce convincing evidence that Saludo and respondent Aradji conspired to oust him
from his position as Assistant Vice-President of the respondent bank.
Neither may bad faith nor malice be imputed on the respondents in holding Saber personally liable for
the receivables of P1,033,700. The evidence of Saber, no less, shows that he was present during the
16th Meeting of the Board of Directors of the PAB. So were Ministers Cesar Virata and Leonides Virata.
After an intensive and exhaustive discussion, the Board resolved that Saber had no authority to enter
into any agreement with Basman for the sale of the tickets on credit payable by postdated checks, and
to execute a Freight Contract with AGEAC over the cargo hold in the M/V Sweet Homes. The Board
unanimously resolved not to ratify the agreements executed by Basman and Saber in behalf of the PAB
and with AGEAC, and for Saber to take full responsibility for the collection of receivables. This is shown
by the Minutes of the stenographic notes taken during the Board Meeting:
MR. SALUDO : Atty. Sadac is a lawyer, there are problems but we have to concentrate on this.
ATTY. ABBAS : Does the Board ratify such act?
DIR. C. VIRATA : No.
ATTY. ABBAS : Is it against Dr. Saber in his individual capacity?
DR. SABER : I have not been acting as an individual person. I have always acted on that because it is
part of my position as an officer of the Bank. There is not a single act that have not think (sic) to save
the predicament of the boat in the tense moments. When the boat was about to leave, my Troika
recommended to me that this is the recourse, even my Legal Officer advised me, even the Auditor
himself who is (sic) there in Zamboanga. If (sic) it was really very urgent that I have to act on the spot. I
have to take (sic) a decision because it is going to affect the entire boat if the result was negative but
the real intention is (sic) to help. We thought that we will make good for the Bank.
DIR. C. VIRATA : I think, we have to clarify, Dr. Saber, as between the responsibility of the officers and
that of the Board. While it is true that you have certain discretionary powers but that is either affirmed
or reviewed by the Board. In this case, you have no authority on this very important matter so you have
to take on your individual capacity because the Board refuses to share the responsibility.
DIR. DOMINGO : Which we will review or affirm.
DIR. C. VIRATA : That is the responsibility as being the head of the institution and all of us are subject
to this restriction.
CHAIRMAN : So, I think, better muster all the legal minds in the Bank, Mr. Saludo and the staff.
DIR. DOMINGO : And finish this once and for all.
MR. SALUDO : We could file an action against Sacar Basman. The question is, can we recommend?
DIR. CRUZ : That is ratifying an act.
MR. SALUDO : We declared that Troika is short.
DR. SABER : The Troika is here.
DIR. C. VIRATA : It is useless. The Troika will say that Dr. Saber was the one.
CHAIRMAN : You run after them individually.
DIR. DOMINGO : Who are the members of the Troika?
DR. SABER : They are: Atty. Lanang Ali, Administrator, Dialel Basman, the Treasurer, Tindug
Macarambon, Project Accountant and Ibrahim Mamao. Anything they recommended that these are their
needs I issued them because they are the ones implementing. They implemented even in the Branches
and I thought it is for the good of the Bank.
DIR. TEODORO : The problem here is they are funds due to the Bank. This boat was chartered even
without the approval of the Board.
AUD. AGUILAR : Excuse me, there is a possibility to collect because they have issued a communication
ordering the people to ride in the boat.
DIR. CRUZ : We will get good Legal Advisers here. It must be the Solicitor General.
CHAIRMAN : This was what I was suggesting.
MR. SALUDO : Atty. Sadac here is willing to assist the Legal Counsel of the Amanah Bank.
DIR. CRUZ : Can we not engage the services of the government counsel?
CHAIRMAN : If you think you find this necessary. (MR. SALUDO)
DIR. CRUZ : I don’t know the lawyer involved but basing in (sic) our experience, unless you hire a
super-duper lawyer at least you can easily win the case. We could ask for the assistance of the Office of
the Solicitor General.
DR. SABER : Mr. Chairman and gentlemen, let me comment. Will you please look on this affair of the
pilgrimage not in terms of loss but in terms of other things, what are the various outcome[s] of the
pilgrimage.
CHAIRMAN : With all respect to your views, Dr. Saber, there are 2 points here. The Bank is incurring
losses, the other one is, there are people owing money. These are 2 different things. The way I look at it,
the Bank is already incurring a loss of P900,000. We are only talking on (sic) the Accounts Receivables,
it can only serve to explain why we are losing. I think every effort should be made because it involved
not only you but also other people like Ambassador Pangandaman. Even these people, you have to
have the legal counseling to help, and we will work hand in hand with other lawyers with their advice. If
this is difficult, we have government lawyers, this is a government bank. We can seek their advice. The
problem is how do we collect money? We are not talking (sic) that the charter of the boat is exorbitant,
if it is high. The question is how can the Bank recover? Shall the people owing the Bank pay? Even the
Charter rate, it is very big, that is something else. I think, that is the problem. I don’t know if we
understand the Board here, whether we like it or not, we have to collect.
DIR. CRUZ : We have reached a consensus, why don’t we give Dr. Saber 30 days to liquidate? He is
accountable, then we will decide later what course of action shall we take.
DIR. TEODORO : Until the money is returned here as the Board has found it necessary and it is
reflected in the report, and efforts should be made on the Accounts Receivables. He is responsible to
go after the people involved. This is the only official action of the Board.
MR. SALUDO : Sir, do you think the case will drag on if we can not liquidate within 30 days?
DIR. TEODORO : We can not close our eyes that the money of the Bank is lacking in amount.
DIR. CRUZ : The idea here is that, such Legal action on those people responsible, so these people have
to liquidate the account within 30 days, failure on your part, then we resort on (sic) the other course[s]
of action.
CHAIRMAN : Any objections[?]
BOARD MEMBERS : None.
CHAIRMAN : APPROVED[53]
Indeed, the Sandiganbayan ruled in its decision in Criminal Cases Nos. 1835-1837 that Saber had the
implied authority as Executive Vice-President to sell tickets on credit via postdated checks and to allow
Basman to load his cargoes in the cargo section of the M/V Sweet Homes; that Saber acted in good
faith; hence, was not criminally liable therefor; that the respondent bank resorted to the dubious
expedience of charging the receivables against the account of Saber, instead of availing itself of legal
remedies for their collection. However, it cannot thereby be concluded that the Board of Directors of
respondent PAB acted in bad faith or with malice.
There is no evidence on record that as claimed by the petitioners, Saludo and respondent Aradji
conspired to oust Saber as Executive Vice-President of the PAB and Officer-in-Charge. Saludo merely
14
told Saber intimately that it was his ambition to become President of the bank had not President Marcos
appointed Saber. Moreover, Saludo and Saber even became intimate friends:
ATTY. FABIE:
Cross-examination to elucidate not because he does not understand. It is not that, Your Honor. A
practitioner should be fair. If he cross-examines, the purpose is to elicit the truth, not to distort. Here, in
this case, we want the truth.
ATTY. SADAC: That is the purpose of my cross-examination.
COURT: LET US PROCEED.
ATTY. SADAC: (to witness)
Q Again, Dr. Saber, on page 213 of the transcript of stenographic notes, dated January 16, 1980, you
testified that Mr. Saludo allegedly manifested to you his desire to be president of the Philippine Amanah
Bank. For the information of this Honorable Court, will you tell us when was this made or relayed to
you?
A During my incumbency in the Philippine Amanah Bank. He did not tell me that he desires to replace
me, only his desire to become president of the Bank. He told me intimately, he said: "Brod, if President
Marcos did not get you I would have been made president of the Philippine Amanah Bank because I am
also a Muslim." He told that to me intimately. It was intimate, the same as I was intimate with you.
Q When was that within your incumbency, when was that made?
A In fact, he said this to me several times, and again I cannot count how many times I am not keeping
statistics of statements.
COURT:
Q AND THAT WAS SAID TO YOU DURING YOUR INCUMBENCY?
A Yes, Your Honor.
ATTY. SADAC:
Q Will you tell us, Dr. Saber, because we want to be specific, in what occasion did Mr. Saludo tell you,
what particular occasion?
A Well, under the roof of the Philippine Amanah Bank and some other occasions, but I cannot recall
again as I said I did not put this in my diary.
Q You cannot again remember, Dr. Saber?
A Yes, Sir.
Q And when he made this alleged manifestation of his desire to become president of the Philippine
Amanah Bank, were there other people around you in these alleged several occasions?
A I cannot remember if there were people around. If there were I will bring them to court to testify
because, as I said, this is between friends. Mr. Saludo confirmed his friendship to me and we became
friends when we were in the Philippine Amanah Bank.
Neither is there evidence that respondent Aradji had any involvement at all in the reduction of Saber’s
salary from P48,000 to P24,000 per annum. The budget of the bank was modified upon the advice of
PNB President Panfilo Domingo and Saludo. This is gleaned from the transcript of stenographic notes
of Saber’s testimony:
Q Do you know, Mr. Saber, for the information of this Honorable Court, how much does the president of
the Philippine Amanah Bank received?
A The budget was P48,000.00 per annum, but I received that for a few months the Board of Directors
with the advise of President Domingo of the Philippine National Bank and Vice-President Saludo
reduced it to 50% and I was paid only P24,000.00 per annum. That discourage me staying with the Bank.
Q In other words, the President of the Philippine Amanah Bank under that new budget that you have
mentioned is receiving about P24,000.00 per annum?
A The last salary was P24,000.00 instead of P48,000.00.55
The budget was approved by the Board of Directors of the PAB and Central Bank of the Philippines
Governor Gregorio Licaros.56
Saber failed to adduce evidence that respondent Aradji issued any press release covering his Report to
the Board of Directors of the PAB or his formal investigation and the criminal complaint he filed against
Saber for violation of Rep. Act No. 3019. The news report of Emil Macaspac of the Times Journal does
not attribute the source of the facts contained therein. When pressed to adduce evidence to prove that
the news report was based on the press release issued by the respondent Aradji, Saber hedged and
surmised that the source of the news report could have been Atty. Roberto Sadac, the Legal Officer of
the PAB:
Q Do you know personally Emil Macaspac, the reporter of the Times Journal?
ATTY. R. SADAC: I just want to remind the witness that he is testifying under oath.
ATTY. B. FABIE: The witness, Your Honor, is an intelligent man. Dr. Saber is an educator.
COURT:
GO AHEAD ANSWER THE QUESTION.
WITNESS:
A I do not know him personally nor intimately associated with him. I cannot remember his face but he
was among the newspaper men frequenting your office and my office.
Q To be specific Dr. Saber, will you tell this Honorable Court the day or the time or the period when
these newspaper men especially Emil Macaspac frequenting my office or your office?
A I am getting the evidence from the dateline of the news of July 28, 1975. So, I presumed that before
the news report was printed, he was frequenting your office, otherwise, where is the source of the
news? He cannot get it from outside.57
The respondent PAB cannot be faulted, nor can it be ordered to pay damages and attorney’s fees for
issuing a conditional clearance to Saber after his resignation from respondent PAB. Saber had not yet
liquidated his accountability of P1,012,000 when his leave of absence from the university had expired.
The Investigating Committee had yet to commence and terminate its investigation of Saber’s
accountability, administrative or civil, for the pilgrimage fiasco. The respondent PAB had no discretion
to issue a clearance to Saber. It bears stressing that a public officer, in the discharge of his duties has
to use prudence, caution and attention in the management of his affairs. In fact, the respondent PAB
was duty bound to withhold such clearance to Saber pending final determination of his monetary
accountabilities. Even assuming that Saber and/or the petitioners sustained economic difficulties on
account of the conditional clearance issued by the respondent PAB, the petitioners are not entitled to
moral and exemplary damages. The act of the respondent PAB was not wrongful. It is a case of
damnum absque injuria and not of damnum et injuria.58
To constitute malicious prosecution, there must be proof that the prosecutor was prompted by a
sinister or devious design to vex and humiliate a person, and that it was initiated deliberately, knowing
that the charges are false and groundless.59 Malice with probable cause must both be clearly
established to justify an award of damages based on malicious prosecution.60 Lack of probable cause
is an element separate and distinct from that of malice. One cannot be held liable for damages for
malicious prosecution where he acted with probable cause.61 We also held that a determination that
there is no probable cause cannot be made to rest solely on the fact that the trial court after trial
decided to acquit the accused. Neither can lack of probable cause be made to rest on the fact that the
finding of probable cause of the Special Counsel was reversed by the Secretary of Justice or the
Ombudsman as the case may be.62 The mere act of submitting the case to the authorities for
prosecution does not make one liable for malicious prosecution.63 Moreover, the adverse result of an
action does not per se make the action wrongful and subject the action to damages, for the law could
15
not have meant to impose a penalty on the right to litigate. If damages result from a person’s exercise
of a right, it is damnum absque injuria.64
Probable cause is that which engenders a well-founded belief that a crime has been committed and that
the respondent is probably guilty thereof and should be held for trial. A finding for probable cause
needs only to rest on evidence showing that in all probability, a crime has been committed by the
respondent. Probable cause need not be based on clear and convincing evidence beyond reasonable
doubt. While probable cause demands more than mere suspicion, it does not require that the evidence
would justify conviction.65
Saber failed to prove that the respondents filed the criminal complaints against him with malice and
despite lack of probable cause therefor.
The respondent PAB, through respondent Aradji, filed a criminal complaint against Saber for violations
of Section 3(e) of Rep. Act No. 3019, which has the following enumerated elements:
(1) The accused is a public officer or a private person charged in conspiracy with the former;
(2) The said public officer commits the prohibited acts during the performance of his or her official
duties or in relation to his or her public functions;
(3) That he or she causes undue injury to any party, whether the government or a private party;
(4) Such undue injury is caused by giving unwarranted benefits, advantage or preference to such
parties; and
(5) That the public officer has acted with manifest partiality, evident bad faith or gross inexcusable
neglect.66
In this case, the Tanodbayan found probable cause for three (3) counts of violations of Section 3(e) of
Republic Act No. 3019.67 Indeed, the evidence on record shows the following:
First. Saber allowed Basman to buy tickets worth P756,000 payable on credit via postdated checks over
the objection of the Troika-Secretariat. The postdated checks were blank as to the amounts. As found
by the Sandiganbayan:
Pursuant to the MEMORANDUM (Exh."G"), accused Dialel Basman as Finance Officer of the Secretariat
issued to Sacar Basman the seventy (70) tickets therein specified worth P392,000 (t.s.n., p. 23, August
11, 1981), for which Sacar Basman issued Philippine Amanah Bank Check No. 00377 payable to the
BANK, postdated February 4, 1975, drawn against Sacar Basman’s account No. 10000008 but blank as
to the amount (Exh. "I"). Under the ADDENDUM (Exh. "G-1"), Dialel Basman issued one hundred twenty
(120) first class tickets to Sacar Basman for which Sacar Basman issued PAB Check No. 00378 payable
to the BANK, similarly postdated February 4, 1975, drawn against the same account, and also blank as
to the amount. (Exh. "I-1".). …68
Saber failed to ascertain whether Basman issued the said checks against sufficient funds in his
account with the respondent bank. When the checks were deposited by respondent PAB in its account,
the said checks were dishonored.
Second. Saber allowed the AGEAC to pay freight charges of P178,000 via Check Nos. 00377 and 00378
postdated February 4, 1975, although the balance of the account of Basman in the respondent bank was
only P1,834.55. AGEAC/Basman failed to pay the amount to the respondent PAB after the pilgrimage.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED DUE COURSE. No costs.
SO ORDERED.
MARIA CLARA PIROVANA ET AL., plaintiffs-appellees, vs. THE DE LA RAMA STEAMSHIP CO.,
defendant-appellant.
G.R. No. L-5377 December 29, 1954
Del Rosario and Garcia for appellant.
Vicente J. Francisco for appellees.
BAUTISTA ANGELO, J.:
This is an appeal from a decision of the Court of First Instance of Rizal declaring the donation made by
the defendant in favor of the minor children of the late Enrico Pirovano of the proceeds of the insurance
policies taken on his life valid and binding, and ordering said defendant to pay to said minor children
the sum of P583,813.59, with interest thereon at the rate of per cent from the date of filing of the
complaint, plus an additional amount equivalent to 20 per cent of said sum of P538,813.59 as damages
by way of attorney's fees and the costs of action.
Plaintiffs herein are the minor children of the late Enrico Pirovano represented by their mother and
judicial guardian Estefania R. Pirovano. They seek to enforce certain resolutions adopted by the Board
of Directors and stockholders of the defendant company giving to said minor children of the proceeds
of the insurance policies taken on the life of their deceased father Enrico Pirovano with the company as
beneficiary. Defendant's main defense is: that said resolutions and the contract executed pursuant
thereto are ultra vires, and, if valid, the obligation to pay the amount given is not yet due and
demandable.
The trial court resolved all the issues raised by the parties in favor of the plaintiffs and, after
considering the evidence, both oral and documentary, arrived at the following conclusions:
First. — That the contract executed between the plaintiffs and the defendant is a renumerative donation.
Second. — That said contract or donation is not ultra vires, but an act executed within the powers of the
defendant corporation in accordance with its articles of incorporation and by laws, sanctioned and
approved by its Board of Directors and stockholders; and subsequently ratified by other subsequent
acts of the defendant company.
Third. — That the said donation is in accordance with the trend of modern and more enlightened
legislation in its treatment of questions between labor and capital.
Fourth. — That the condition mentioned in the donation is null and void because it depends on the
provisions of Article 1115 of the old Civil Code.
Fifth. — That if the condition is valid, its non-fulfillment is due to the desistance of the defendant
company from obeying and doing the wishes and mandates of the majority of the stockholders.
Sixth. — That the non-payment of the debt in favor of the National Development Company is not due to
the lack of funds, nor to lack of authority, but the desire of the President of the corporation to preserve
and continue the Government participation in the company.
Seventh. — That due demands were made by the plaintiffs and their attorneys and these demands were
rejected for no justifiable or legal grounds.
The important facts which need to be considered for purposes of this appeal may be briefly stated as
follows: Defendant is a corporation duly organized in accordance with law with an authorized capital of
P500,000, divided into 5,000 shares, with a par value of P100 each share. The stockholders were:
Esteban de la Rama, 1,800 shares, Leonor de la Rama, 100 shares, Estefania de la Rama, 100 shares,
and Eliseo Hervas, Tomas Concepcion, Antonio G. Juanco, and Gaudencio Volasote with 5 shares
each. Leonor and Estefania are daughters of Don Esteban, while the rest his employees. Estefania de la
Rama was married to the late Enrico Pirovano and to them four children were born who are the plaintiffs
in this case.
16
Enrico Pirovano became the president of the defendant company and under his management the
company grew and progressed until it became a multi-million corporation by the time Pirovano was
executed by the Japanese during the occupation. On May 13, 1941, the capital stock of the corporation
was increased to P2,000,000, after which a 100 per cent stock dividend was declared. Subsequently, or
before the outbreak of the war , new stock dividends of 200 per cent and 33 1/3 per cent were again
declared. On December 4, 1941, the capital stock was once more increased to P5,000,000. Under
Pirovano's management, the assets of the company grew and increased from an original paid up capital
of around P240,000 to P15,538,024.37 by September 30, 1941 (Exhibit HH).
In the meantime, Don Esteban de la Rama, who practically owned and controlled the stock of the
defendant corporation, distributed his shareholding among his five daughters, namely, Leonor,
Estefania, Lourdes, Lolita and Conchita and his wife Natividad Aguilar so that, at that time, or on July
10, 1946, the stockholding of the corporation stood as follows: Esteban de la Rama, 869 shares, Leonor
de la Rama, 3,375 shares, Estefania de la Rama, 3,368 shares, Lourdes de la Rama, 3,368 shares, Lolita
de la Rama, 3,368 shares, Conchita de la Rama, 3,376 shares, and Natividad Aguilar, 2,136 shares. The
other stockholders , namely, Eliseo Hervas, Tomas Concepcion, Antonio Juanco, and Jose Aguilar, who
were merely employees of Don Esteban, were given 40 shares each, while Pio Pedrosa, Marcial P.
Lichauco and Rafael Roces, one share each, because they merely represented the National
Development Company. This Company was given representation in the Board Of Directors of the
corporation because at that time the latter had an outstanding bonded indebtedness to the National
Development Company.
This bonded indebtedness was incurred on February 26, 1940 and was in the amount of P7,500.00. The
bond held by the National Development Company was redeemable within a period of 20 years from
March 1, 1940,. bearing interest at the rate of 5 per cent per annum. To secure said bonded
indebtedness, all the assets of the De la Rama Steamship Co., Inc., and properties of Don Esteban de la
Rama, as well as those of the Hijos de I. de la Rama and Co., Inc., a sister corporation owned by Don
Esteban and his family, were mortgaged to the National Development Company (Annexes A, B, C, D of
Exhibit 3, Deed of Trust). Payments made by the corporation under the management of Pirovano
reduced this bonded indebtedness to P3,260,855.77.
Upon arrangement made with the National Development Company, the outstanding bonded
indebtedness was converted into non-voting preferred shares of stock of the De la Rama company
under the express condition that they would bear affixed cumulative dividend of 6 per cent per annum
and would be redeemable within 15 years (Exhibits 5 and 7). This conversion was carried out on
September 23, 1949, when the National Development Company executed a "Deed of Termination of
Trust and Release of Mortgage" in favor of the De la Rama company (Exhibit 6.) The immediate effect of
this conversion was the released from incumbrance of all the properties Of Don Esteban and of the
Hijos de I. de la Rama and Co., Inc., which was apparently favorable to the interests of the De la Rama
company, but, on the other hand, it resulted in the inconvenience that, as holder of the preferred stock,
the National Development Company, was given to the right to 40 per cent of the membership of the
Board of Directors of the De la Rama company, which meant an increase in the representation of the
National Development Company from 2 to 4 of the 9 members of said Board of Directors.
The first resolution granting to the Pirovano children the proceeds of the insurance policies taken on
his life by the defendant company was adopted by the Board of Directors at a meeting held on July 10,
1946, (Exhibit B). This grant was called in the resolution as "Special Payment to Minor Heirs of the late
Enrico Pirovano". Because of its direct hearing on the issues involved in this case, said resolution is
hereunder reproduced in toto:
SPECIAL PAYMENT TO MINORS HEIRS OF THE LATE ENRICO PIROVANO
The President stated that the principal purpose for which the meeting had been called was to discuss
the advisability of making some form of compensation to the minor heirs of the late Enrico Pirovano,
former President and General Manager of the Company. As every member of the Board knows, said the
President, the late Enrico Pirovano who was largely responsible for the very successful development of
the activities of the Company prior to war was killed by the Japanese in Manila sometime in 1944
leaving as his only heirs four minor children, Maria Carla, Esteban, Enrico and John Albert. Early in
1941, explained the President, the Company had insured the life of Mr. Pirovano for a million pesos.
Following the occupation of the Philippines by Japanese forces the Company was unable to pay the
premiums on those policies issued by Filipino companies and these policies had lapsed. But with
regards to the York Office of the De la Rama Steamship Co., Inc. had kept up payment of the premiums
from year to year. The payments made on account of these premiums, however, are very small
compared to the amount which the Company will now receive as a result of Mr. Pirovano's death. The
President proposed therefore that out of the proceeds of these policies the sum of P400,000 be set
aside for the minor children of the deceased, said sum of money to be convertible into 4,000 shares of
the stock of the Company, at par, or 1,000 shares for each child. This proposal, explained the President
as being made by him upon suggestion of President Roxas, but, he added, that he himself was very
much in favor of it also. On motion of Miss Leonor de la Rama duly seconded by Mrs. Lourdes de la
Rama de Osmeña, the following resolution was, thereupon, unanimously approved:
Whereas, the late Enrico Pirovano, President and General Manager of the De la Rama Steamship
Company, died in Manila sometime in November, 1944:
Whereas, the said Enrico Pirovano was largely responsible for the rapid and very successful
development of the activities of thus company;
Whereas, early in 1941 this company insured the life of said Enrico Pirovano in various Philippine and
American Life Insurance companies for the total sum of P1,000,000;
Whereas, the said Enrico Pirovano is survived by his widow, Estefania Pirovano and four minor
children, to wit: Esteban, Maria Carla, Enrico and John Albert, all surnamed Pirovano;lawphil.net
Whereas, said Enrico Pirovano left practically nothing to his heirs and it is but fit proper that this
company which owes so much to the deceased should make some provision for his children;
Whereas, this company paid premium on Mr. Pirovano's life insurance policies for a period of only 4
years so that it will receive from the insurance companies sums of money greatly in excess of the
premiums paid by this company.
Be it resolved, That out of the proceeds to be collected from the life insurance policies on the life of the
late Enrico Pirovano, the sum of P400,000 be set aside for equal division among the 4 minor children of
the deceased, to wit: Esteban, Maria Carla, Enrico and John Albert, all surnamed Pirovano, which sum
of money shall be convertible into shares of stock of the De la Rama Steamship Company, at par and,
for that purpose, that the present registered stockholders of the corporation be requested to waive their
preemptive right to 4,000 shares of the unissued stock of the company in order to enable each of the 4
minor heirs of the deceased, to wit: Esteban, Maria Carla, Enrico and John Albert, all surnamed
Pirovano, to obtain 1,000 shares at par;
Resolved, further, that in view of the fact that under the provisions of the indenture with the National
Development Company, it is necessary that action herein proposed to be confirmed by the Board of
Directors of that company, the Secretary is hereby instructed to send a copy of this resolution to the
proper officers of the National Development Company for appropriate action. (Exhibit B)
17
The above resolution, which was adopted on July 10, 1946, was submitted to the stockholders of the De
la Rama company at a meeting properly convened, and on that same date, July 10, 1946, the same was
duly approved.
It appears that, although Don Esteban and the Members of his family were agreeable to giving to the
Pirovano children the amount of P400,000 out of the proceeds of the insurance policies taken on the life
of Enrico Pirovano, they did not realize that when they provided in the above referred two resolutions
that said Amount should be paid in the form of shares of stock, they would be actually giving to the
Pirovano children more than what they intended to give. This came about when Lourdes de la Rama,
wife of Sergio Osmeña, Jr., showed to the latter copies of said resolutions and asked him to explain
their import and meaning, and it was value then that Osmeña explained that because the value then of
the shares of stock was actually 3.6 times their par value, the donation their value, the donation,
although purporting to be only P400,00, would actually amount to a total of P1,440,000. He further
explained that if the Pirovano children would given shares of stock in lieu of the amount to be donated,
the voting strength of the five daughters of Don Esteban in the company would be adversely affected in
the sense that Mrs. Pirovano would be adversely affected in the sense that Mrs. Pirovano would have a
voting power twice as much as that of her sisters. This caused Lourdes de la Rama to write to the
secretary of the corporation, Atty. Marcial Lichauco, asking him to cancel the waiver she supposedly
gave of her pre-emptive rights. Osmeña elaborated on this matter at the annual meeting of the
stockholders held on December 12, 1946 but at said meeting it was decided to leave the matter in
abeyance pending further action on the part of the members of the De la Rama family.
Osmeña, in the meantime, took up the matter with Don Esteban and, as consequence, the latter, on
December 30, 1946, addressed to Marcial Lichauco a letter stating, among other things, that "in view of
the total lack of understanding by me and my daughters of the two Resolutions abovementioned,
namely, Directors' and Stockholders' dated July 10, 1946, as finally resolved by the majority of the
Stockholders and Directors present yesterday, that you consider the abovementioned resolutions
nullified." (Exhibit CC).
On January 6, 1947, the Board of Directors of the De la Rama company, as a consequence of the
change of attitude of Don Esteban, adopted a resolution changing the form of the donation to the
Pirovano children from a donation of 4,000 shares of stock as originally planned into a renunciation in
favor of the children of all the company's "right, title, and interest as beneficiary in and to the proceeds
of the abovementioned life insurance policies", subject to the express condition that said proceeds
should be retained by the company as a loan drawing interest at the rate of 5 per cent per annum and
payable to the Pirovano children after the company "shall have first settled in full the balance of its
present remaining bonded indebtedness in the sum of approximately P5,000,000" (Exhibit C). This
resolution was concurred in by the representatives of the National Development Company. The
pertinent portion of the resolution reads as follows:
Be resolved, that out of gratitude to the late Enrico Pirovano this Company renounce as it hereby
renounces, all of his right, title, and interest as beneficiary in and to the proceeds of the
abovementioned life insurance policies in favor of Esteban, Maria Carla, Enrico and John Albert, all
surnamed Pirovano, subject to the terms and conditions herein after provided;
That the proceeds of said insurance policies shall be retained by the Company in the nature of a loan
drawing interest at the rate of 5 per cent annum from the date of receipt of payment by the Company
from the various insurance companies above-mentioned until the time the time the same amounts are
paid to the minor heirs of Enrico Pirovano previously mentioned;
That all amounts received from the above-mentioned policies shall be divided equally among the
minors heirs of said Enrico Pirovano;
That the company shall proceed to pay the proceeds of said insurance policies plus interests that may
have accrued to each of the heirs of the said Enrico Pirovano or their duly appointed representatives
after the Company shall have first settled in full the balance of its present remaining bonded
indebtedness in the sum of the approximately P5,000,000.
The above resolution was carried out by the company and Mrs. Estefania R. Pirovano, the latter acting
as guardian of her children, by executing a Memorandum Agreement on January 10, 1947 and June 17,
1947, respectively, stating therein that the De la Rama Steamship Co., Inc., shall enter in its books as a
loan the proceeds of the life insurance policies taken on the life of Pirovano totalling S321,500, which
loan would earn interest at the rate of 5 per cent per annum. Mrs. Pirovano, in executing the agreement,
acted with the express authority granted to her by the court in an order dated March 26, 1947.
On June 24, 1947, the Board of Directors approved a resolution providing therein that instead of the
interest on the loan being payable, together with the principal, only after the company shall have first
settled in full its bonded indebtedness, said interest may be paid to the Pirovano children "whenever
the company is in a position to met said obligation" (Exhibit D), and on February 26, 1948, Mrs.
Pirovano executed a public document in which she formally accepted the donation (Exhibit H). The Dela
Rama company took "official notice" of this formal acceptance at a meeting held by its Board of
Directors on February 26, 1948.
In connection with the above negotiations, the Board of Directors took up at its meeting on July 25,
1949, the proposition of Mrs. Pirovano to buy the house at New Rochelle, New York, owned by the
Demwood Realty, a subsidiary of the De la Rama company at its original costs of $75,000, which would
be paid from the funds held in trust belonging to her minor children. After a brief discussion relative to
the matter, the proposition was approved in a resolution adopted on the same date.
The formal transfer was made in an agreement signed on September 5, 1949 by Mrs. Pirovano, as
guardian of her children, and by the De la Rama company, represented by its new General Manager,
Sergio Osmeña, Jr. The transfer of this property was approved by the court in its order of September
20, 1949.lawphil.net
On September 13, 1949, or two years and 3 months after the donation had been approved in the various
resolutions herein above mentioned, the stockholders of the De la Rama company formally ratified the
donation (Exhibit E), with certain clarifying modifications, including the resolution approving the
transfer of the Demwood property to the Pirovano children. The clarifying modifications are quoted
hereunder:
1. That the payment of the above-mentioned donation shall not be affected until such time as the
Company shall have first duly liquidated its present bonded indebtedness in the amount of
P3,260,855.77 with The National Development Company, or fully redeemed the preferred shares of stock
in the amount which shall be issued to the National Development Company in lieu thereof;
2. That any and all taxes, legal fees, and expenses in any way connected with the above
transaction shall be chargeable and deducted from the proceeds of the life insurance policies
mentioned in the resolutions of the Board of Directors. (Exhibit E)
Sometime in March 1950, the President of the corporation, Sergio Osmeña, Jr., addressed an inquiry to
the Securities and Exchange Commission asking for opinion regarding the validity of the donation of
the proceeds of the insurance policies to the Pirovano children. On June 20, 1950 that office rendered
18
its opinion that the donation was void because the corporation could not dispose of its assets by gift
and therefore the corporation acted beyond the scope of its corporate powers. This opinion was
submitted to the Board of Directors at its meting on July 12, 1950, on which occasion the president
recommend that other legal ways be studied whereby the donation could be carried out. On September
14, 1950, another meeting was held to discuss the propriety of the donation. At this meeting the
president expressed the view that, since the corporation was not authorized by its charter to make the
donation to the Pirovano children and the majority of the stockholders was in favor of making provision
for said children, the manner he believed this could be done would be to declare a cash dividend in
favor of the stockholders in the exact amount of the insurance proceeds and thereafter have the
stockholders make the donation to the children in their individual capacity. Notwithstanding this
proposal of the president, the board took no action on the matter, and on March 8, 1951, at a
stockholders' meeting convened on that date the majority of the stockholders' voted to revoke the
resolution approving the donation to the Pirovano children. The pertinent portion of the resolution
reads as follows:
Be it resolved, as it is hereby resolved, that in view of the failure of compliance with the above
conditions to which the above donation was made subject, and in view of the opinion of the Securities
and Exchange Commissioner, the stockholders revoke, rescind and annul, as they do thereby revoke,
rescind and annul, its ratification and approval on September 13, 1949 of the aforementioned resolution
of the Board of Directors of January 6, 1947, as amended on June 24, 1947. (Exhibit T)
In view of the resolution declaring that the corporation failed to comply with the condition set for the
effectivity of the donation and revoking at the same time the approval given to it by the corporation, and
considering that the corporation can no longer set aside said donation because it had no longer set
aside said donation because it had long been perfected and consummated, the minor children of the
late Enrico Pirovano, represented by their mother and guardian, Estefania R. de Pirovano, demanded
the payment of the credit due them as of December 31, 1951, amounting to P564,980.89, and this
payment having been refused, they instituted the present action in the Court of First Instance of Rizal
wherein they prayed that the be granted an alternative relief of the following tenor: (1) sentencing
defendant to pay to the plaintiff the sum of P564,980.89 as of December 31, 1951, with the
corresponding interest thereon; (2) as an alternative relief, sentencing defendant to pay to the plaintiffs
the interests on said sum of P564,980.89 at the rate of 5 per cent per annum, and the sum of
P564,980.89 after the redemption of the preferred shares of the corporation held by the National
Development Company; and (3) in any event, sentencing defendant to pay the plaintiffs damages in the
amount of not less than 20 per cent of the sum that may be adjudged to the plaintiffs, and the costs of
action.
The only issues which in the opinion of the court need to be determined in order to reach a decision in
this appeal are: (1) Is the grant of the proceeds of the insurance policies taken on the life of the late
Enrico Pirovano as embodied in the resolution of the Board of Directors of defendant corporation
adopted on January 6, 1947 and June 24, 1947 a remunerative donation as found by the lower court?;
(2) IN the affirmative case, has that donation been perfected before its rescission or nullification by the
stockholders of the corporation on March 8, 1951?; (3) Can defendant corporation give by way of
donation the proceeds of said insurance policies to the minor children of the late Enrico Pirovano under
the law or its articles of corporation, or is that donation an ultra vires act?; and (4) has the defendant
corporation, by the acts it performed subsequent to the granting of the donation, deliberately prevented
the fulfillment of the condition precedent to the payment of said donation such that it can be said it has
forfeited its right to demand its fulfillment and has made the donation entirely due and demandable?
We will discuss these issues separately.
1. To determine the nature of the grant made by the defendant corporation to the minor children
of the late Enrico Pirovano, we do not need to go far nor dig into the voluminous record that lies at the
bottom of this case. We do not even need to inquire into the interest which has allegedly been shown
by President Roxas in the welfare of the children of his good friend Enrico Pirovano. Whether President
Roxas has taken the initiative in the move to give something to said children which later culminated in
the donation now in dispute, is of no moment for the fact is that, from the mass of evidence on hand,
such a donation has been given the full indorsement and encouraging support by Don Esteban de la
Rama who was practically the owner of the corporation. We only need to fall back to accomplish this
purpose on the several resolutions of the Board of Directors of the corporations containing said grant
for they clearly state the reasons and purposes why the donation has been given.
Before we proceed further, it is convenient to state here in passing that, before the Board of Directors
had approved its resolution of January 6, 1947, as later amended by another resolution adopted on
June 24, 1947, the corporation had already decided to give to the minor children of the late Enrico
Pirovano the sum of P400,000 out of the proceeds of the insurance policies taken on his life in the form
of shares, and that when this form was considered objectionable because its result and effect would be
to give to said children a much greater amount considering the value then of the stock of the
corporation, the Board of Directors decided to amend the donation in the form and under the terms
stated in the aforesaid resolutions. Thus, in the original resolution approved by the Board of Directors
on July 10, 1946, wherein the reasons for granting the donation to the minor children of the late Enrico
Pirovano were clearly, we find out the following revealing statements:
Whereas, the late Enrico Pirovano President and General Manager of the De la Rama Steamship
Company, died in Manila sometime in November, 1944;
Whereas, the said Enrico Pirovano was largely responsible for the rapid and very successful
development of the activities of this company;
Whereas, early in 1941 this company insured the life of said Enrico Pirovano in various Philippine and
American Life Insurance companies for the total sum of P1,000,000;
Whereas, the said Enrico Pirovano is survived by his widow, Estefania Pirovano and 4 minor children,
to wit: Esteban, Maria Carla, Enrico and John Albert, all surnamed Pirovano;
Whereas, the said Enrico Pirovano left practically nothing to his heirs and it is but fit and proper that
this company which owes so much to the deceased should make some provisions for his children;
Whereas, this company paid premiums on Mr. Pirovano's life insurance policies for a period of only 4
years so that it will receive from the insurance companies sums of money greatly in excess of the
premiums paid by the company,
Again, in the resolution approved by the Board of Directors on January 6, 1947, we also find the
following expressive statements which are but a reiteration of those already expressed in the original
resolution:
Whereas, the late Enrico Pirovano, President and General Manager of the De la Rama Steamship Co.,
Inc., died in Manila sometime during the latter part of the year 1944;
Whereas, the said Enrico Pirovano was to a large extent responsible for the rapid and very successful
development and expansion of the activities of this company;
Whereas, early in 1941, the life of the said Enrico Pirovano was insured in various life companies, to
wit:
Whereas, the said Enrico Pirovano is survived by 4 minor children, to wit: Esteban, Maria Carla, Enrico
and John Albert, all surnamed Pirovano; and
Whereas, the said Enrico Pirovano left practically nothing to his heirs and it is but fit and proper that
this Company which owes so much to the deceased should make some provision for his children;
19
Be it resolved, that out of gratitude to the late Enrico Pirovano this Company renounce as it hereby
renounces, . . . .
From the above it clearly appears that the corporation thought of giving the donation to the children of
the late Enrico Pirovano because he "was to a large extent responsible for the rapid and very
successful development and expansion of the activities of this company"; and also because he "left
practically nothing to his heirs and it is but fit and proper that this company which owes so much to the
deceased should make some provision to his children", and so, the donation was given "out of
gratitude to the late Enrico Pirovano." We do not need to stretch our imagination to see that a grant or
donation given under these circumstances is remunerative in nature in contemplation of law.
That which is made to a person in consideration of his merits or for services rendered to the donor,
provided they do not constitute recoverable debts, or that in which a burden less than the value of the
thing given is imposed upon the donee, is also a donation." (Art. 619, old Civil Code.)
In donations made to a person for services rendered to the donor, the donor's will is moved by acts
which directly benefit him. The motivating cause is gratitude, acknowledgment of a favor, a desire to
compensate. A donation made to one who saved the donor's life, or a lawyer who renounced his fees
for services rendered to the donor, would fall under this class of donations. These donations are called
remunerative donations . (Sinco and Capistrano, The Civil Code, Vol. 1, p. 676; Manresa, 5th ed., pp. 72-
73.)
2. The next question to be determined is whether the donation has been perfected such that the
corporation can no longer rescind it even if it wanted to. The answer to this question cannot but be in
the affirmative considering that the same has not only been granted in several resolutions duly adopted
by the Board of Directors of the defendant corporation, and in all these corporate acts the concurrence
of the representatives of the National Development Company, the only creditor whose interest may be
affected by the donation, has been expressly given. The corporation has even gone further. It actually
transferred the ownership of the credit subject of donation to the Pirovano children with the express
understanding that the money would be retained by the corporation subject to the condition that the
latter would pay interest thereon at the rate of 5 per cent per annum payable whenever said corporation
may be in a financial position to do so. Thus, the following acts of the corporation as reflected from the
evidence bear this out:
(a) The donation was embodied in a resolution duly approved by the Board of Directors on
January 6, 19437. In this resolution, the representatives of the National Development Company, have
given their concurrence. This is the only creditor which can be considered as being adversely affected
by the donation. The resolution of June 24, 1947 did not modify the substance of the former resolution
for it merely provided that instead of the interest on the loan being payable, together with the principal,
only after the corporation had first settled in full its bonded indebtedness, said interest would be paid
"whenever the company is in a position to meet said obligation."
(b) The resolution of January 6, 1947 was actually carried out when the company and Mrs.
Estefania R. Pirovano, executed a memorandum agreement stating therein hat the proceeds of the
insurance policies would be entered in the books of the corporation as a loan which would bear an
interest at the rate of 5 per cent per annum, and said agreement was signed by Mrs. Pirovano as judicial
guardian of her children after she had been expressly authorized by the court to accept the donation in
behalf of her children.
(c) While the donation can be considered as duly executed by the execution of the document
stated in the preceding paragraph, and by the entry in the books of the corporation of the donation as a
loan, a further record of said execution was made when Mrs. Pirovano executed a public document on
February 26, 1948 making similar acceptance of the donation. And this acceptance was officially
recorded by the corporation when on the same date its Board of Directors approved a resolution taking
"official notice" of said acceptance.
(d) On July 25, 1949, the Board of Directors approved the proposal of Mrs. Pirovano to buy the
house at New Rochelle, New York, owned by a subsidiary of the corporation at the costs of S75,000
which would be paid from the sum held in trust belonging to her minor children. And this agreement
was actually carried out in a document signed by the general manager of the corporation and by Mrs.
Pirovano, who acted on the matter with the express authority of the court.
(e) And on September 30, 1949, or two years and 3 months after the donation had been executed,
the stockholders of the defendant corporation formally ratified and gave approval to the donation as
embodied in the resolutions above referred to, subject to certain modifications which did not materially
affect the nature of the donation.
There can be no doubt from the foregoing relation of facts the donation was a corporate act carried out
by the corporation not only with the sanction of its Board of Directors but also of its stockholders. It is
evident that the donation has reached the stage of perfection which is valid and binding upon the
corporation and as such cannot be rescinded unless there is exists legal grounds for doing so. In this
case, we see none. The two reasons given for the rescission of said donation in the resolution of the
corporation adopted on March 8, 1951, to wit: that the corporation failed to comply with the conditions
to which the above donation was made subject, and that in the opinion of the Securities and Exchange
Commission said donation is ultra vires, are not, in our opinion, valid and legal as to justify the
rescission of a perfected donation. These reasons, as we will discuss in the latter part of this decision,
cannot be invoked by the corporation to rescind or set at naught the donation, and the only way by
which this can be done is to show that the donee has been in default, or that the donation has not been
validly executed, or is illegal or ultra vires, and such is not the case as we will see hereafter. We
therefore declare that the resolution approved by the stockholders of the defendant corporation on
March 8, 1951 did not and cannot have the effect of nullifying the donation in question.
3. The third question to be determined is: Can defendant corporation give by way of donation the
proceeds of said insurance policies to the minor children of the late Enrico Pirovano under the law or
its articles of corporation, or is that donation an ultra vires act? To answer this question it is important
for us to examine the articles of incorporation of the De la Rama company to see this question it is
important for us to examine the articles of incorporation of the De la Rama company to see if the act or
donation is outside of their scope. Paragraph second of said articles provides:
Second.— The purposes for which said corporation is formed are:
(a) To purchase, charter, hire, build, or otherwise acquire steam or other ships or vessels,
together with equipments and furniture therefor, and to employ the same in conveyance and carriage of
goods, wares and merchandise of every description, and of passengers upon the high seas.
(b) To sell, let, charter, or otherwise dispose of the said vessels or other property of the company.
(c) To carry on the business of carriers by water.
(d) To carry on the business of shipowners in all of its branches.
(e) To purchase or take on lease, lands, wharves, stores, lighters, barges and other things which
the company may deem necessary or advisable to be purchased or leased for the necessary and proper
purposes of the business of the company, and from time to time to sell the dispose of the same.
(f) To promote any company or companies for the purposes of acquiring all or any of the property
or liabilities of this company, or both, or for any other purpose which may seem directly or indirectly
calculated to benefit the company.
(g) To invest and deal with the moneys of the company and immediately required, in such manner
as from time to time may be determined.
(h) To borrow, or raise, or secure the payment of money in such manner as the company shall
think fit.
20
(i) Generally, to do all such other thing and to transact all business as may be directly or
indirectly incidental or conducive to the attainment of the above object, or any of them respectively.
(j) Without in any particular limiting or restricting any of the objects and powers of the
corporation, it is hereby expressly declared and provided that the corporation shall have power to issue
bonds and provided that the corporation shall have power to issue bonds and other obligations, to
mortgage or pledge any stocks, bonds or other obligations or any property which may be required by
said corporations; to secure any bonds, guarantees or other obligations by it issued or incurred; to
lend money or credit to and to aid in any other manner any person, association, or corporation of which
any obligation or in which any interest is held by this corporation or in the affairs or prosperity of which
this corporation or in the affairs or prosperity of which this corporation has a lawful interest, and to do
such acts and things as may be necessary to protect, preserve, improve, or enhance the value of any
such obligation or interest; and, in general, to do such other acts in connection with the purposes for
which this corporation has been formed which is calculated to promote the interest of the corporation
or to enhance the value of its property and to exercise all the rights, powers and privileges which are
now or may hereafter be conferred by the laws of the Philippines upon corporations formed under the
Philippine Corporation Act; to execute from time to time general or special powers of attorney to
persons, firms, associations or corporations either in the Philippines, in the United States, or in any
other country and to revoke the same as and when the Directors may determine and to do any and or all
of the things hereinafter set forth and to the same extent as natural persons might or could do.
After a careful perusal of the provisions above quoted we find that the corporation was given broad and
almost unlimited powers to carry out the purposes for which it was organized among them, (1) "To
invest and deal with the moneys of the company not immediately required, in such manner as from time
to time may be determined" and, (2) "to aid in any other manner any person, association, or corporation
of which any obligation or in which any interest is held by this corporation or in the affairs or prosperity
of which this corporation has a lawful interest." The world deal is broad enough to include any manner
of disposition, and refers to moneys not immediately required by the corporation, and such disposition
may be made in such manner as from time to time may be determined by the corporations. The
donation in question undoubtedly comes within the scope of this broad power for it is a fact appearing
in the evidence that the insurance proceeds were not immediately required when they were given away.
In fact, the evidence shows that the corporation declared a 100 per cent cash dividend, or P2,000,000,
and later on another 30 per cent cash dividend. This is clear proof of the solvency of the corporation. It
may be that, as insinuated, Don Esteban wanted to make use of the insurance money to rehabilitate the
central owned by a sister corporation, known as Hijos de I. de la Rama and Co., Inc., situated in Bago,
Negros Occidental, but this, far from reflecting against the solvency of the De la Rama company, only
shows that the funds were not needed by the corporation.
Under the second broad power we have the above stated, that is, to aid in any other manner any person
in the affairs and prosperity of whom the corporation has a lawful interest, the record of this case is
replete with instances which clearly show that the corporation knew well its scope and meaning so
much so that, with the exception of the instant case, no one has lifted a finger to dispute their validity.
Thus, under this broad grant of power, this corporation paid to the heirs of one Florentino Nonato, an
engineer of one of the ships of the company who died in Japan, a gratuity of P7,000, equivalent to one
month salary for each year of service. It also gave to Ramon Pons, a captain of one of its ships , a
retirement gratuity equivalent to one month salary for every year of service, the same to be based upon
his highest salary. And it contributed P2,000 to the fund raised by the Associated Steamship Lines for
the widow of the late Francis Gispert, secretary of said Association, of which the De la Rama Steamship
Co., Inc., was a member along with about 30 other steamship companies. In this instance, Gispert was
not even an employee of the corporation. And invoking this vast power, the corporation even went to
the extent of contributing P100,000 to the Liberal Party campaign funds, apparently in the hope that by
conserving its cordial relations with that party it might continue to retain the patronage of the
administration. All these acts executed before and after the donation in question have never been
questioned and were willingly and actually carried out.
We don't see much distinction between these acts of generosity or benevolence extended to some
employees of the corporation, and even to some in whom the corporation was merely interested
because of certain moral or political considerations, and the donation which the corporation has seen
fit to give to the children of the late Enrico Pirovano from the point of view of the power of the
corporation as expressed in its articles of incorporation. And if the former had been sanctioned and had
been considered valid and intra vires, we see no plausible reasons why the latter should now be
deemed ultra vires. It may perhaps be argued that the donation given to the children of the late Enrico
Pirovano is so large and disproportionate that it can hardly be considered a pension of gratuity that can
be placed on a par with the instances above mentioned, but this argument overlooks one consideration:
the gratuity here given was not merely motivated by pure liberality or act of generosity, but by a deep
sense of recognition of the valuable services rendered by the late Enrico Pirovano which had
immensely contributed to the growth of the corporation to the extent that from its humble capitalization
it blossomed into a multi-million corporation that it is today. In other words of the very resolutions
granting the donation or gratuity, said donation was given not only because the company was so
indebted to him that it saw fit and proper to make provisions for his children, but it did so out of a sense
of gratitude. Another factor that we should bear in mind is that Enrico Pirovano was not only a high
official of the company but was at the same time a member of the De la Rama family, and the recipient
of the donation are the grandchildren of Don Esteban de la Rama. This we, may say, is the motivating
root cause behind the grant of this bounty.
It may be contended that a donation is different from a gratuity. While technically this may be so in
substance they are the same. They are even similar to a pension. Thus, it was granted for services
previously rendered, and which at the time they were rendered gave rise to no legal obligation. " (Words
and Phrases, Permanent Edition, p. 675; O'Dea vs. Cook,, 169 Pac., 306, 176 Cal., 659.) Or stated in
another way, a "Gratuity is mere bounty given by the Government in consideration or recognition or
meritorious services and springs from the appreciation an d graciousness of the Government", (Ilagan
vs. Ilaya, G.R. No. 33507, Dec. 20 1930) or "A gratuity is something given freely, or without recompense,
a gift, something voluntarily given in return for a favor or services; a bounty; a tip." Wood Mercantile
Co. vs. Cole, 209 S.W. 2d. 290; Mendoza vs. Dizon, 77 Phil., 533, 43 Off. Gaz. p. 4633. We do not see
much difference between this definition of gratuity and a remunerative donation contemplated in the
Civil Code. In essence they are the same. Such being the case, it may be said that this donation is
gratuity in a large sense for it was given for valuable services rendered an ultra vires act in the light of
the following authorities:
Indeed, some cases seem to hold that the giving of a pure gratuity to directors is ultra vires of
corporation, so that it could not be legalized even if the approval of the shareholders; but this position
has no sound reason to support it, and is opposed to the weight of authority (Suffaker vs. Kierger's
Assignee, 53 S.W. Rep. 288; !07 Ky. 200; 46 L.R.A. 384).
But although business corporations cannot contribute to charity or benevolence, yet they are not
required always to insist on the full extent of their legal rights. They are not forbidden for the
recognizing moral obligation of which strict law takes no cognizance. They are not prohibited from
establishing a reputation for board, liberal, equitable dealing which may stand them in good stead in
competition with less fair rivals. Thus, an incorporated fire insurance company which policies except
losses from explosions may nevertheless pay a loss from that cause when other companies are
21
accustomed to do so, such liberal dealing being deemed conducive to the prosperity of the
corporation." (Modern Law of Corporations, Machen, Vol. 1, p. 81).
So, a bank may grant a five years pension to the family at one of its officers. In all cases in this sorts,
the amount of the gratuity rests entirely within the discretion of the company, unless indeed it be all
together out of the reason and fitness. But where the company has ceased to be going concerned, this
power to make gifts or present it at the end. (Modern Law of Corporations, Machen, Vol. 1, p. 82.).
Payment of Gratitude out of Capital.— There seems on principle no reason to doubt that gifts or
gratuities wherever they are lawful may be paid out of capital as well as out of profits. (Modern Law of
corporations, Machen, Vol. 1 p. 83.).
Whether desirable to supplement implied powers of this kind by express provisions.— Enough has
been said to show that the implied powers of a corporation to give gratuities to its servants and
officers, as well as to strangers, are ample, so that there is therefore no need to supplement them by
express provisions." (modern Law of Corporations, Machen, Vol. 1, p. 83.) 1
Granting arguendo that the donation given by Pirovano children is outside the scope of the powers of
the defendant corporation, or the scope of the powers that it may exercise under the law, or it is an ultra
vires act, still it may said that the same can not be invalidated, or declared legally ineffective for the
reason alone, it appearing that the donation represents not only the act of the Board of Directors but of
the stockholders themselves as shown by the fact that the same has been expressly ratified in a
resolution duly approved by the latter. By this ratification, the infirmity of the corporate act, it may has
been obliterated thereby making the cat perfectly valid and enforceable. This is specially so if the
donation is not merely executory but executed and consummated and no creditors are prejudice, or if
there are creditors affected, the latter has expressly given their confirmity.
In making this pronouncement, advertence should made of the nature of the ultra vires act that is in
question. A little digression needs be made on this matter to show the different legal effect that may
result consequent upon the performance of a particular ultra vires act on the part of the corporation.
may authorities may be cited interpreting or defining, extent, and scope of an ultra vires act, but all of
them are uniform and unanimous that the same may be either an act performed merely outside the
scope of the powers granted to it by it articles of incorporation, or one which is contrary to law or
violative of any principle which will void any contract whether done individually or collectively. In other
words, 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 policy or public duty, and are, like similar transactions between the individuals void.
They cannot serve as basis of a court action, nor require validity ultra vires acts on the other hand, or
those which are not illegal and void ab initio, but are merely within 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.
Strictly speaking, an ultra vires act is one outside the scope of the power conferred by the legislature,
and although the term has been used indiscriminately, it is properly distinguishable from acts which are
illegal, in excess or abuse of power, or executed in an unauthorized manner, or acts within corporate
powers but outside the authority of particular officers or agents (19 C. J. S. 419).
Corporate transactions which are illegal because prohibited by statute or against public policy are
ordinarily void and unenforceable regardless of the part performance, ratification, or estoppel; but
general prohibitions against exceeding corporate powers and prohibitions intended to protect a
particular class or specifying the consequences of violation may not preclude enforcement of the
transaction and an action may be had for the part unaffected by the illegality or for equitable restitution.
(19 C.J.S. 421.)
Generally, a transaction within corporate powers but executed in an irregular or unauthorized manner is
voidable only, and may become enforceable by reason of ratification or express or implied assent by
the stockholders or by reason of estoppel of the corporation or the other party to the transaction to
raise the objection, particularly where the benefits are retained
As appears in paragraphs 960-964 supra, the general rule is that a corporation must act in the manner
and with the formalities, if any, prescribed by its character or by the general law. However, a
corporation transaction or contract which is within the corporation powers, which is neither wrong in
itself nor against public policy, but which is defective from a failure to observe in its execution a
requirement of law enacted for the benefit or protection of a certain class, is voidable and is valid until
avoided, not void until validated; the parties for whose benefit the requirement was enacted may ratify it
or be estoppel to assert its invalidity, and third persons acting in good faith are not usually affected by
an irregularity on the part of the corporation in the exercise of its granted powers. (19 C.J.S., 423-24.)
It is true that there are authorities which told that ultra vires acts, or those performed beyond the
powers conferred upon the corporation either by law or by its articles of incorporation, are not only
voidable, but wholly void and of no legal effect, and that such acts cannot be validated by ratification or
be the basis of any action in court; but such ruling does not constitute the weight of authority, the
reason being that they fail to make the important distinction we have above adverted to. Because rule
has been rejected by most of the state courts and even by the modern treaties or corporations (7
Flethcer, Cyc. Corps., 563-564). And now it can be said that the majority of the cases hold that acts
which are merely ultra vires, or acts which are not illegal, may be ratified by the stockholders of a
corporation (Brooklyn Heights R. Co. vs. Brooklyn City R. Co., 135 N.Y. Supp. 1001).
Strictly speaking, an act of a corporation outside of its character powers is just as such ultra vires
where all the stockholders consent thereto as in a case where none of the stockholders expressly or
cannot be ratified so as to make it valid, even though all the stockholders consent thereto; but
inasmuch as the stockholders in reality constitute the corporation, it should , it would seem, be
estopped to allege ultra vires, and it is generally so held where there are no creditors, or the creditors
are not injured thereby, and where the rights of the state or the public are not involved, unless the act is
not only ultra vires but in addition illegal and void. of course, such consent of all the stockholders
cannot adversely affect creditors of the corporation nor preclude a proper attack by the state because
of such ultra vires act. (7 Fletcher Corp., Sec. 3432, p. 585)
Since it is not contended that the donation under consideration is illegal, or contrary to any of the
express provision of the articles of incorporation, nor prejudicial to the creditors of the defendant
corporation, we cannot but logically conclude, on the strength of the authorities we have quoted above,
that said donation, even if ultra vires in the supposition we have adverted to, is not void, and if voidable
its infirmity has been cured by ratification and subsequent acts of the defendant corporation. The
defendant corporation, therefore, is now prevented or estopped from contesting the validity of the
donation. This is specially so in this case when the very directors who conceived the idea of granting
said donation are practically the stockholders themselves, with few nominal exception. This applies to
the new stockholder Jose Cojuangco who acquired his interest after the donation has been made
because of the rule that a "purchaser of shares of stock cannot avoid ultra vires acts of the corporation
authorized by its vendor, except those done after the purchase" (7 Fletcher, Cyc. Corps. section 3456, p.
603; Pascual vs. Del Saz Orozco, 19 Phil., 82.) Indeed, how can the stockholders now pretend to revoke
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the donation which has been partly consummated? How can the corporation now set at naught the
transfer made to Mrs. Pirovano of the property in New York, U.S.A., the price of which was paid by her
but of the proceeds of the insurance policies given as donation. To allow the corporation to undo what
it has done would only be most unfair but would contravene the well-settled doctrine that the defense of
ultra vires cannot be set up or availed of in completed transactions (7 Fletcher, Cyc. Corps. Section
3497, p. 652; 19 C.J.S., 431).
4. We now come to the fourth and last question that the defendant corporation, by the acts it has
performed subsequent to the granting of the donation, deliberately prevented the fulfillment of the
condition precedent to the payment of said donation such that it can be said it has forfeited entirely due
and demandable.
It should be recalled that the original resolution of the Board of Directors adopted on July 10, 1946
which provided for the donation of P400,000 out of the proceeds which the De la Rama company would
collect on the insurance policies taken on the life of the late Enrico Pirovano was, as already stated
above, amended on January 6, 1947 to include, among the conditions therein provided, that the
corporation shall proceed to pay said amount, as well as the interest due thereon, after it shall have
settled in full balance of its bonded indebtedness in the sum of P5,000,000. It should be recalled that on
September 13, 1949, or more than 2 years after the last amendment referred too above, the stockholders
adopted another resolution whereby they formally ratified said donation but subject to the following
clarifications: (1) that the amount of the donation shall not be effected until such time as the company
shall have first duly liquidated its present bonded indebtedness in the amount of P3,260,855.77 to the
National Development Company, or shall have first fully redeemed the preferred shares of stock in the
amount to be issued to said company in lieu thereof, and (2) that any and all taxes, legal fees, and
expenses connected with the transaction shall be chargeable from the proceeds of said insurance
policies.
The trial court, in considering these conditions in the light of the acts subsequently performed by the
corporation in connection with the proceeds of the insurance policies, considered said conditions null
and void, or at most not written because in its pinion their non-fulfillment was due to a deliberate
desistance of the corporation and not to lack of funds to redeem the preferred shares of the National
Development Company. The conclusions arrived at by the trial court on this point are as follows:
Fourth. — that the condition mentioned in the donation is null and void because it depends on the
exclusive will of the donor, in accordance with the provisions of Article 1115 of the Old Civil Code.
Fifth. — That if the condition is valid, its non-fulfillment is due to the desistance of the defendant
company from obeying and doing the wishes and mandate of the majority of the stockholders.
Sixth. — That the non-payment of the debt in favor of the National Development Company is due to the
lack of funds, nor to lack of authority, but to the desire of the President of the corporation to preserve
and continue the Government participation in the company.
To this views of the trial court, we fail to agree. There are many factors we can consider why the failure
to immediately redeem the preferred shares issued to the National Development Company as desired
by the minor children of the late Enrico Pirovano cannot or should not be attributed to a mere desire on
the part of the corporation to delay the redemption, or to prejudice the interest of the minors, but rather
to protect the interest of the corporation itself. One of them is the text of the very resolution approved
by the National Development Company on February 18, 1949 which prescribed the terms and conditions
under which it expressed its conformity to the conversion of the bonded indebtedness into preferred
shares of stock. The text of the resolution above mentioned reads:
Resolved: That the outstanding bonded indebtedness of the Dela Rama Steamship Co., Inc., in the
approximate amount of P3,260,855.77 be converted into non-voting preferred shares of stock of said
company, said shares to bear a fixed dividend of 6 percent per annum which shall be cumulative and
redeemable within 15 years. Said shares shall be preferred as to assets in the event of liquidation or
dissolution of said company but shall be non-participating.
It is plain from the text of the above resolution that the defendant corporation had 15 years from
February 18, 1949, or until 1964, within which to effect the redemption of the preferred shares issued to
the National Development Company. This condition cannot but be binding and obligatory upon the
donees, if they desire to maintain the validity of the donation, for it is not only the basis upon which the
stockholders of the defendant corporation expressed their willingness to ratify the donation, but it is
also by way which its creditor, the National Development Company, would want it to be. If the defendant
corporation is given 15 years within which to redeem the preferred shares, and that period would expire
in 1964, one cannot blame the corporation for availing itself of this period if in its opinion it would
redound to its best interest. It cannot therefore be said that the fulfillment of the condition for the
payment of the donation is one that wholly depends on the exclusive will of the donor, as the lower
court has concluded, simply because it failed to meet the redemption of said shares in her manner
desired by the donees. While it may be admitted that because of the disposition of the assets of the
corporation upon the suggestion of its general manager more than enough funds had been raised to
effect the immediate redemption of the above shares, it is not correct to say that the management has
completely failed in its duty to pay its obligations for, according to the evidence, a substantial portion
of the indebtedness has been paid and only a balance of about P1,805,169.98 was outstanding when the
stockholders of the corporation decided to revoke or cancel the donation. (Exhibit P.)
But there are other good reasons why all the available funds have not been actually applied to the
redemption of the preferred shares, one of them being the "desire of the president of the corporation to
preserve and continue the government participation in the company" which even the lower court found
it to be meritorious, which is one way by which it could continue receiving the patronage and protection
of the government. Another reason is that the redemption of the shares does not depend on the will of
the corporation alone but to a great extent on the will of a third party, the National Development
Company. In fact, as the evidence shows, this Company had pledged these shares to the Philippine
National Bank and the Rehabilitation Finance Corporation as a security to obtain certain loans to
finance the purchase of certain ships to be built for the use of the company under management
contract entered into between the corporation and the National Development Company, and this was
what prevented the corporation from carrying out its offer to pay the sum P1,956,513.07 on April 5,
1951. Had this offer been accepted, or favorably acted upon by the National Development Company, the
indebtedness would have been practically liquidated, leaving outstanding only one certificate worth
P217,390.45. Of course, the corporation could have insisted in redeeming the shares if it wanted to even
to the extent of taking a court action if necessary to force its creditor to relinquish the shares that may
be necessary to accomplish the redemption, but such would be a drastic step which would have not
been advisable considering the policy right along maintained by the corporation to preserve its cordial
and smooth relation with the government. At any rate, whether such attitude be considered as a mere
excuse to justify the delay in effecting the redemption of the shares, or a mere desire on the part of the
corporation to retain in its possession more funds available to attend to other pressing need as
demanded by the interest of the corporation, we fail to see in such an attitude an improper motive to
circumvent the early realization of the desire of the minors to obtain the immediate payment of the
donation which was made dependent upon the redemption of said shares there being no clear evidence
that may justify such design. Anyway, a great portion of the funds went to the stockholders themselves
by way of dividends to offset, so it appears, the huge advances that the corporation had made to them
which were entered in the books of the corporation as loans and, therefore, they were invested for their
own benefit. As General Manager Osmeña said, "we were first confronted with the problem of the
withdrawals of the family which had to be repaid back to the National Development Company and one
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of the most practical solutions to that was to declare dividends and reduce the amounts of their
withdrawals", which then totalled about P3,000,000.

All things considered, we are of the opinion that the finding of the lower court that the failure of the
defendant corporation to comply with the condition of the donation is merely due to its desistance from
obeying the mandate of the majority of the stockholders and not to lack of funds, or to lack of authority,
has no foundation in law or in fact, and, therefore, its conclusion that because of such desistance that
condition should be deemed as fulfilled and the payment of the donation due and demandable, is not
justified. In this respect, the decision of the lower court should be reversed.

Having reached the foregoing conclusion, we deem it unnecessary to discuss the other issues raised
by the parties in their briefs.

The lower court adjudicated to plaintiff an additional amount equivalent to 20 per cent of the amount
claimed as damages by way of attorney's fees, and in our opinion, this award can be justified under
Article 2208, paragraph 2, of the new Civil Code, which provides: "When the defendant's act or omission
has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest",
attorney's fees nay be awarded as damages. However, the majority believes that this award should be
reduced to 10 per cent.

Wherefore, the decision appealed from should be modified as follows: (a) that the donation made in
favor of the children of the late Enrico Pirovano of the proceeds of the insurance policies taken on his
life is valid and binding on the defendant corporation, (b) that said donation, which amounts to a total of
P583,813.59, including interest, as it appears in the books of the corporation as of August 31, 1951, plus
interest thereon at the rate of 5 per cent per annum from the filing of the complaint, should be paid to
the plaintiffs after the defendant corporation shall have fully redeemed the preferred shares issued to
the National Development Company under the terms and conditions stated in the resolutions of the
Board of Directors of January 6, 1947 and June 24, 1947, as amended by the resolution of the
stockholders adopted on September 13,1949; and (c) defendant shall pay to plaintiffs an additional
amount equivalent to 10 per cent of said amount of P583,813.59 as damages by way of attorney's fees,
and to pay the costs of action.

Paras, C. J., Pablo Bengzon, Padilla, Montemayor, Jugo, Concepcion, and Reyes, J. B. L., concur.
Reyes, A., concurs in the result.

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