[G.R. No. 123553. July 13, 1998] NORA A. BITONG vs. COURT OF APPEALS BELLOSILLO, J.

: These twin cases originated from a derivative suit [1] filed by petitioner Nora A. Bitong before the Securities and Exchange Commission (SEC hereafter) allegedly for the benefit of private respondent Mr. & Ms. Publishing Co., Inc. (Mr. & Ms. hereafter), among others, to hold respondent spouses Eugenia D. Apostol and Jose A. Apostol[2] liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and mismanagement in directing the affairs of Mr. & Ms. to the damage and prejudice of Mr. & Ms. and its stockholders, including petitioner. Alleging before the SEC that she had been the Treasurer and a Member of the Board of Directors of Mr. & Ms. from the time it was incorporated on 29 October 1976 to 11 April 1989, and was the registered owner of 1,000 shares of stock out of the 4,088 total outstanding shares, petitioner complained of irregularities committed from 1983 to 1987 by Eugenia D. Apostol, President and Chairperson of the Board of Directors. Petitioner claimed that except for the sale of the name Philippine Inquirer to Philippine Daily Inquirer (PDI hereafter) all other transactions and agreements entered into by Mr. & Ms. with PDI were not supported by any bond and/or stockholders resolution. And, upon instructions of Eugenia D. Apostol, Mr. & Ms. made several cash advances to PDI on various occasions amounting to P3.276 million. On some of these borrowings PDI paid no interest whatsoever. Despite the fact that the advances made by Mr. & Ms. to PDIwere booked as advances to an affiliate, there existed no board or stockholders resolution, contract nor any other document which could legally authorize the creation of and support to an affiliate. Petitioner further alleged that respondents Eugenia and Jose Apostol were stockholders, directors and officers in both Mr. & Ms.and PDI. In fact on 2 May 1986 respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda subscribed to PDI shares of stock at P50,000.00 each or a total of P150,000.00. The stock subscriptions were paid for by Mr. & Ms. and initially treated as receivables from officers and employees. But, no payments were ever received from respondents, Magsanoc and Nuyda. The petition principally sought to (a) enjoin respondents Eugenia D. Apostol and Jose A. Apostol from further acting as presidentdirector and director, respectively, of Mr. & Ms. and disbursing any money or funds except for the payment of salaries and similar expenses in the ordinary course of business, and from disposing of their Mr. & Ms. shares; (b) enjoin respondents Apostol spouses,

Magsanoc and Nuyda from disposing of the PDI shares of stock registered in their names; (c) compel respondents Eugenia and Jose Apostol to account for and reconvey all profits and benefits accruing to them as a result of their improper and fraudulent acts; (d) compel respondents Magsanoc and Nuyda to account for and reconvey to Mr. & Ms. all shares of stock paid from cash advances from it and all accessions or fruits thereof; (e) hold respondents Eugenia and Jose Apostol liable for damages suffered by Mr. & Ms. and the other stockholders, including petitioner, by reason of their improper and fraudulent acts; (f) appoint a management committee for Mr. & Ms. during the pendency of the suit to prevent further dissipation and loss of its assets and funds as well as paralyzation of business operations; and, (g) direct the management committee for Mr. & Ms. to file the necessary action to enforce its rights against PDI and other third parties. Private respondents Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms., on the other hand, refuted the allegations of petitioner by starting with a narration of the beginnings of Mr. & Ms. They recounted that on 9 March 1976 Ex Libris Publishing Co., Inc. (Ex Libris hereafter) was incorporated for the purpose of publishing a weekly magazine. Its original principal stockholders were spouses Senator Juan Ponce Enrile (then Minister of National Defense) and Cristina Ponce Enrile through Jaka Investments Corporation (JAKA hereafter), and respondents Eugenia and Jose Apostol. When Ex Libris suffered financial difficulties, JAKA and the Apostols, together with new investors Luis Villafuerte and Ramon Siy, restructured Ex Libris by organizing a new corporation known as Mr. & Ms. The original stockholders of Mr. & Ms., i.e., JAKA, Luis Villafuerte, Ramon Siy, the Apostols and Ex Libris continued to be virtually the same up to 1989. Thereafter it was agreed among them that, they being close friends, Mr. & Ms. would be operated as a partnership or a close corporation; respondent Eugenia D. Apostol would manage the affairs of Mr. & Ms.; and, no shares of stock would be sold to third parties without first offering the shares to the other stockholders so that transfers would be limited to and only among the original stockholders. Private respondents also asserted that respondent Eugenia D. Apostol had been informing her business partners of her actions as manager, and obtaining their advice and consent. Consequently the other stockholders consented, either expressly or impliedly, to her management. They offered no objections. As a result, the business prospered. Thus, as shown in a statement prepared by the accounting firm Punongbayan and Araullo, there were increases from 1976 to 1988 in the total assets of Mr. & Ms. from P457,569.00 to

P10,143,046.00; in the total stockholders equity from P203,378.00 to P2,324,954.00; and, in the net sales, from P301,489.00 to P16,325,610.00. Likewise, cash dividends were distributed and received by the stockholders. Private respondents further contended that petitioner, being merely a holder-in-trust of JAKA shares, only represented and continued to represent JAKA in the board. In the beginning, petitioner cooperated with and assisted the management until mid1986 when relations between her and her principals on one hand, and respondent Eugenia D. Apostol on the other, became strained due to political differences. Hence from mid-1986 to mid-1988 petitioner refused to speak with respondent Eugenia D. Apostol, and in 1988 the former became openly critical of the management of the latter. Nevertheless, respondent Eugenia D. Apostol always made available to petitioner and her representatives all the books of the corporation. Private respondents averred that all the PDI shares owned by respondents Eugenia and Jose Apostol were acquired through their own private funds and that the loan of P750,000.00 by PDIfrom Mr. & Ms. had been fully paid with 20% interest per annum. And, it was PDI, not Mr. & Ms., which loaned off P250,000.00 each to respondents Magsanoc and Nuyda. Private respondents further argued that petitioner was not the true party to this case, the real party being JAKA which continued to be the true stockholder of Mr. & Ms.; hence, petitioner did not have the personality to initiate and prosecute the derivative suit which, consequently, must be dismissed. On 6 December 1990, the SEC Hearing Panel[3] issued a writ of preliminary injunction enjoining private respondents from disbursing any money except for the payment of salaries and other similar expenses in the regular course of business. The Hearing Panel also enjoined respondent Apostol spouses, Nuyda and Magsanoc from disposing of their PDI shares, and further ruled x x x respondents contention that petitioner is not entitled to the provisional reliefs prayed for because she is not the real party in interest x x x x is bereft of any merit. No less than respondents Amended Answer, specifically paragraph V, No. 8 on Affirmative Allegations/Defenses states that `The petitioner being herself a minor stockholder and holder-in-trust of JAKA shares represented and continues to represent JAKA in the Board. This statement refers to petitioner sitting in the board of directors of Mr. & Ms. in two capacities, one as a minor stockholder and the other as the holder in trust of the shares of JAKA in Mr. & Ms. Such reference alluded to by the respondents indicates an admission on respondents part of the

petitioners legal personality to file a derivative suit for the benefit of the respondent Mr. & Ms. Publishing Co., Inc. The Hearing Panel however denied petitioners prayer for the constitution of a management committee. On 25 March 1991 private respondents filed a Motion to Amend Pleadings to Conform to Evidence alleging that the issue of whether petitioner is the real party-in-interest had been tried by express or implied consent of the parties through the admission of documentary exhibits presented by private respondents proving that the real partyin-interest was JAKA, not petitioner Bitong. As such, No. 8, par. V (Affirmative Allegations/Defenses), Answer to the Amended Petition, was stipulated due to inadvertence and excusable mistake and should be amended. On 10 October 1991 the Hearing Panel denied the motion for amendment. Petitioner testified at the trial that she became the registered and beneficial owner of 997 shares of stock of Mr. & Ms. out of the 4,088 total outstanding shares after she acquired them fromJAKA through a deed of sale executed on 25 July 1983 and recorded in the Stock and Transfer Book of Mr. & Ms. under Certificate of Shares of Stock No. 008. She pointed out that Senator Enrile decided that JAKA should completely divest itself of its holdings in Mr. & Ms. and this resulted in the sale to her of JAKAs interest and holdings in that publishing firm. Private respondents refuted the statement of petitioner that she was a stockholder of Mr. & Ms. since 25 July 1983 as respondent Eugenia D. Apostol signed Certificate of Stock No. 008 only on 17 March 1989, and not on 25 July 1983. Respondent Eugenia D. Apostol explained that she stopped using her long signature (Eugenia D. Apostol) in 1987 and changed it to E.D. Apostol, the signature which appeared on the face of Certificate of Stock No. 008 bearing the date 25 July 1983. And, since the Stock and Transfer Book which petitioner presented in evidence was not registered with the SEC, the entries therein including Certificate of Stock No. 008 were fraudulent. Respondent Eugenia D. Apostol claimed that she had not seen the Stock and Transfer Book at any time until 21 March 1989 when it was delivered by petitioner herself to the office of Mr. & Ms., and that petitioner repeatedly referred to Senator Enrile as "my principal" during the Mr. & Ms.board meeting of 22 September 1988, seven (7) times no less. On 3 August 1993, after trial on the merits, the SEC Hearing Panel dismissed the derivative suit filed by petitioner and dissolved the writ of preliminary injunction barring private respondents from disposing of their PDI shares and any of Mr. & Ms. assets. The Hearing Panel ruled that there was no serious mismanagement of Mr. & Ms. which would warrant drastic corrective measures. It gave

credence to the assertion of respondent Eugenia D. Apostol that Mr. & Ms. was operated like a close corporation where important matters were discussed and approved through informal consultations at breakfast conferences. The Hearing Panel also concluded that while the evidence presented tended to show that the real party-in-interest indeed was JAKAand/or Senator Enrile, it viewed the real issue to be the alleged mismanagement, fraud and conflict of interest on the part of respondent Eugenia D. Apostol, and allowed petitioner to prosecute the derivative suit if only to resolve the real issues. Hence, for this purpose, the Hearing Panel considered petitioner to be the real party-in-interest. On 19 August 1993 respondent Apostol spouses sold the PDI shares registered in the name of their holding company, JAED Management Corporation, to Edgardo B. Espiritu. On 25 August 1993 petitioner Bitong appealed to the SEC En Banc. On 24 January 1994 the SEC En Banc[4] reversed the decision of the Hearing Panel and, among others, ordered private respondents to account for, return and deliver to Mr. & Ms. any and all funds and assets that they disbursed from the coffers of the corporation including shares of stock, profits, dividends and/or fruits that they might have received as a result of their investment in PDI, including those arising from the P150,000.00 advanced to respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda; account for and return any profits and fruits of all amounts irregularly or unlawfully advanced to PDI and other third persons; and, cease and desist from managing the affairs of Mr. & Ms. for reasons of fraud, mismanagement, disloyalty and conflict of interest. The SEC En Banc also declared the 19 August 1993 sale of the PDI shares of JAED Management Corporation to Edgardo B. Espiritu to be tainted with fraud, hence, null and void, and considered Mr. & Ms. as the true and lawful owner of all the PDI shares acquired by respondents Eugenia D. Apostol, Magsanoc and Nuyda. It also declared all subsequent transferees of such shares as trustees for the benefit of Mr. & Ms. and ordered them to forthwith deliver said shares to Mr. & Ms. Consequently, respondent Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms. filed a petition for review before respondent Court of Appeals, docketed as CA-GR No. SP 33291, while respondent Edgardo B. Espiritu filed a petition for certiorari and prohibition also before respondent Court of Appeals, docketed as CAGR No. SP 33873. On 8 December 1994 the two (2) petitions were consolidated. On 31 August 1995 respondent appellate court rendered a decision reversing the SEC En Banc and held that from the evidence on record petitioner was not the owner of any share of stock in Mr. &

Ms. and therefore not the real party-in-interest to prosecute the complaint she had instituted against private respondents. Accordingly, petitioner alone and by herself as an agent could not file a derivative suit in behalf of her principal. For not being the real party-in-interest, petitioners complaint did not state a cause of action, a defense which was never waived; hence, her petition should have been dismissed. Respondent appellate court ruled that the assailed orders of the SEC were issued in excess of jurisdiction, or want of it, and thus were null and void. [5] On 18 January 1996, petitioner's motion for reconsideration was denied for lack of merit. Before this Court, petitioner submits that in paragraph 1 under the caption "I. The Parties" of her Amended Petition before the SEC, she stated that she was a stockholder and director of Mr. & Ms. In par. 1 under the caption "II. The Facts" she declared that she "is the registered owner of 1,000 shares of stock of Mr. & Ms. out of the latters 4,088 total outstanding shares" and that she was a member of the Board of Directors of Mr. & Ms. and treasurer from its inception until 11 April 1989. Petitioner contends that private respondents did not deny the above allegations in their answer and therefore they are conclusively bound by this judicial admission. Consequently, private respondents admission that petitioner has 1,000 shares of stock registered in her name in the books of Mr. & Ms. forecloses any question on her status and right to bring a derivative suit on behalf of Mr. & Ms. Not necessarily. A party whose pleading is admitted as an admission against interest is entitled to overcome by evidence the apparent inconsistency, and it is competent for the party against whom the pleading is offered to show that the statements were inadvertently made or were made under a mistake of fact. In addition, a party against whom a single clause or paragraph of a pleading is offered may have the right to introduce other paragraphs which tend to destroy the admission in the paragraph offered by the adversary.[6] The Amended Petition before the SEC alleges I. THE PARTIES 1. Petitioner is a stockholder and director of Mr. & Ms. x x x x II. THE FACTS 1. Petitioner is the registered owner of 1,000 shares of stock of Mr. & Ms. out of the latters 4,088 total outstanding shares. Petitioner, at all times material to this petition, is a member of the Board of Directors of Mr. & Ms. and from the inception of Mr. & Ms. until 11 April 1989 was its treasurer x x x x On the other hand, the Amended Answer to the Amended Petition states -

I. PARTIES 1. Respondents admit the allegations contained in Caption I, pars. 1 to 4 of the Petition referring to the personality, addresses and capacity of the parties to the petition except x x x x but qualify said admission insofar as they are limited, qualified and/or expanded by allegations in the Affirmative Allegations/Defenses x x x x II. THE FACTS 1. Respondents admit paragraph 1 of the Petition, but qualify said admission as to the beneficial ownership of the shares of stock registered in the name of the petitioner, the truth being as stated in the Affirmative Allegations/Defenses of this Answer x x x x V. AFFIRMATIVE ALLEGATIONS/DEFENSES Respondents respectfully allege by way of Affirmative Allegations/Defenses, that x x x x 3. Fortunately, respondent Apostol was able to convince Mr. Luis Villafuerte to take interest in the business and he, together with the original investors, restructured the Ex Libris Publishing Company by organizing a new corporation known as Mr. & Ms. Publishing Co., Inc.x x x x Mr. Luis Villafuerte contributed his own P100,000.00. JAKA and respondent Jose Z. Apostol, original investors of Ex Libris contributed P100,000.00 each; Ex Libris Publishing Company was paid 800 shares for the name of Mr. & Ms. magazine and goodwill. Thus, the original stockholders of respondent Mr. & Ms. were: Cert./No./Date Name of Stockholder No. of Shares % 001-9-15-76 JAKA Investments Corp. 1,000 21% 002-9-15-76 Luis Villafuerte 1,000 21% 003-9-15-76 Ramon L. Siy 1,000 21% 004-9-15-76 Jose Z. Apostol 1,000 21% 005-9-15-76 Ex Libris Publishing Co. 800 16% 4,800 96% 4. The above-named original stockholders of respondent Mr. & Ms. continue to be virtually the same stockholders up to this date x x xx 8. The petitioner being herself a minor stockholder and holder-intrust of JAKA shares, represented and continues to represent JAKA in the Board x x x x 21. Petitioner Nora A. Bitong is not the true party to this case, the true party being JAKA Investments Corporation which continues to be the true stockholder of respondent Mr. & Ms. Publishing Co., Inc., consequently, she does not have the personality to initiate and prosecute this derivative suit, and should therefore be dismissed x x xx

The answer of private respondents shows that there was no judicial admission that petitioner was a stockholder of Mr. & Ms. to entitle her to file a derivative suit on behalf of the corporation. Where the statements of the private respondents were qualified with phrases such as, "insofar as they are limited, qualified and/or expanded by," "the truth being as stated in the Affirmative Allegations/Defenses of this Answer" they cannot be considered definite and certain enough, cannot be construed as judicial admissions.[7] More so, the affirmative defenses of private respondents directly refute the representation of petitioner that she is a true and genuine stockholder of Mr. & Ms. by stating unequivocally that petitioner is not the true party to the case but JAKA which continues to be the true stockholder of Mr. & Ms. In fact, one of the reliefs which private respondents prayed for was the dismissal of the petition on the ground that petitioner did not have the legal interest to initiate and prosecute the same. When taken in its totality, the Amended Answer to the Amended Petition, or even the Answer to the Amended Petition alone, clearly raises an issue as to the legal personality of petitioner to file the complaint. Every alleged admission is taken as an entirety of the fact which makes for the one side with the qualifications which limit, modify or destroy its effect on the other side. The reason for this is, where part of a statement of a party is used against him as an admission, the court should weigh any other portion connected with the statement, which tends to neutralize or explain the portion which is against interest. In other words, while the admission is admissible in evidence, its probative value is to be determined from the whole statement and others intimately related or connected therewith as an integrated unit. Although acts or facts admitted do not require proof and cannot be contradicted, however, evidence aliunde can be presented to show that the admission was made through palpable mistake.[8] The rule is always in favor of liberality in construction of pleadings so that the real matter in dispute may be submitted to the judgment of the court.[9] Petitioner also argues that since private respondents failed to appeal the 6 December 1990 Order and the 3 August 1993 Decision of the SEC Hearing Panel declaring that she was the real party-in-interest and had legal personality to sue, they are now estopped from questioning her personality. Not quite. The 6 December 1990 Order is clearly an interlocutory order which cannot be considered as having finally resolved on the merits the issue of legal capacity of petitioner. The SEC Hearing Panel discussed the issue of legal capacity solely for the purpose of ruling on the application for writ of preliminary injunction

as an incident to the main issues raised in the complaint. Being a mere interlocutory order, it is not appealable. For, an interlocutory order refers to something between the commencement and end of the suit which decides some point or matter but it is not the final decision of the whole controversy.[10]Thus, even though the 6 December 1990 Order was adverse to private respondents, they had the legal right and option not to elevate the same to the SEC En Banc but rather to await the decision which resolves all the issues raised by the parties and to appeal therefrom by assigning all errors that might have been committed by the Hearing Panel. On the other hand, the 3 August 1993 Decision of the Hearing Panel dismissing the derivative suit for failure to prove the charges of mismanagement, fraud, disloyalty and conflict of interest and dissolving the writ of preliminary injunction, was favorable to private respondents. Hence, they were not expected to appeal therefrom. In fact, in the 3 August 1993 Decision, the Hearing Panel categorically stated that the evidence presented showed that the real party-in-interest was not petitioner Bitong but JAKA and/or Senator Enrile. Petitioner was merely allowed to prosecute her complaint so as not to sidetrack "the real issue to be resolved (which) was the allegation of mismanagement, fraud and conflict of interest allegedly committed by respondent Eugenia D. Apostol." It was only for this reason that petitioner was considered to be capacitated and competent to file the petition. Accordingly, with the dismissal of the complaint of petitioner against private respondents, there was no compelling reason for the latter to appeal to the SEC En Banc. It was in fact petitioners turn as the aggrieved party to exercise her right to appeal from the decision. It is worthy to note that even during the appeal of petitioner before the SEC En Banc private respondents maintained their vigorous objection to the appeal and reiterated petitioners lack of legal capacity to sue before the SEC. Petitioner then contends that she was a holder of the proper certificates of shares of stock and that the transfer was recorded in the Stock and Transfer Book of Mr. & Ms. She invokes Sec. 63 of The Corporation Code which provides that no transfer shall be valid except as between the parties until the transfer is recorded in the books of the corporation, and upon its recording the corporation is bound by it and is estopped to deny the fact of transfer of said shares. Petitioner alleges that even in the absence of a stock certificate, a stockholder solely on the strength of the recording in the stock and transfer book can exercise all the rights as stockholder, including the right to file a derivative suit in the name of the

corporation. And, she need not present a separate deed of sale or transfer in her favor to prove ownership of stock. Section 63 of The Corporation Code expressly provides Sec. 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer however shall be valid except as between the parties until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred x x x x This provision above quoted envisions a formal certificate of stock which can be issued only upon compliance with certain requisites. First, the certificates must be signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation. A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock.[11] Second, delivery of the certificate is an essential element of its issuance. Hence, there is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted therein has no control over the books of the company.[12] Third, the par value, as to par value shares, or the full subscription as to no par value shares, must first be fully paid. Fourth, the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder. The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the contrary. However, this presumption may be rebutted.[13] Similarly, books and records of a corporation which include even the stock and transfer book are generally admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters including ones status as a stockholder. They are ordinarily the best evidence of corporate acts and proceedings. However, the books and records of a corporation are not conclusive even against the corporation but are prima facie evidence

only. Parol evidence may be admitted to supply omissions in the records, explain ambiguities, or show what transpired where no records were kept, or in some cases where such records were contradicted.[14] The effect of entries in the books of the corporation which purport to be regular records of the proceedings of its board of directors or stockholders can be destroyed by testimony of a more conclusive character than mere suspicion that there was an irregularity in the manner in which the books were kept. [15] The foregoing considerations are founded on the basic principle that stock issued without authority and in violation of law is void and confers no rights on the person to whom it is issued and subjects him to no liabilities.[16] Where there is an inherent lack of power in the corporation to issue the stock, neither the corporation nor the person to whom the stock is issued is estopped to question its validity since an estoppel cannot operate to create stock which under the law cannot have existence.[17] As found by the Hearing Panel and affirmed by respondent Court of Appeals, there is overwhelming evidence that despite what appears on the certificate of stock and stock and transfer book, petitioner was not a bona fide stockholder of Mr. & Ms. before March 1989 or at the time the complained acts were committed to qualify her to institute a stockholders derivative suit against private respondents. Aside from petitioners own admissions, several corporate documents disclose that the true party-in-interest is not petitioner but JAKA. Thus, while petitioner asserts in her petition that Certificate of Stock No. 008 dated 25 July 1983 was issued in her name, private respondents argue that this certificate was signed by respondent Eugenia D. Apostol as President only in 1989 and was fraudulently antedated by petitioner who had possession of the Certificate Book and the Stock and Transfer Book. Private respondents stress that petitioners counsel entered into a stipulation on record before the Hearing Panel that the certificate was indeed signed by respondent Apostol only in 1989 and not in 1983. In her reply, petitioner admits that while respondent Eugenia D. Apostol signed the Certificate of Stock No. 008 in petitioners name only in 1989, it was issued by the corporate secretary in 1983 and that the other certificates covering shares in Mr. & Ms. had not yet been signed by respondent Eugenia D. Apostol at the time of the filing of the complaint with the SEC although they were issued years before. Based on the foregoing admission of petitioner, there is no truth to the statement written in Certificate of Stock No. 008 that the same was issued and signed on 25 July 1983 by its duly authorized officers specifically the President and Corporate Secretary because the actual date of signing thereof was 17 March 1989. Verily, a formal certificate of stock could not be considered issued in contemplation of

law unless signed by the president or vice-president and countersigned by the secretary or assistant secretary. In this case, contrary to petitioners submission, the Certificate of Stock No. 008 was only legally issued on 17 March 1989 when it was actually signed by the President of the corporation, and not before that date. While a certificate of stock is not necessary to make one a stockholder, e.g., where he is an incorporator and listed as stockholder in the articles of incorporation although no certificate of stock has yet been issued, it is supposed to serve as paper representative of the stock itself and of the owners interest therein. Hence, when Certificate of Stock No. 008 was admittedly signed and issued only on 17 March 1989 and not on 25 July 1983, even as it indicates that petitioner owns 997 shares of stock of Mr. & Ms., the certificate has no evidentiary value for the purpose of proving that petitioner was a stockholder since 1983 up to 1989. And even the factual antecedents of the alleged ownership by petitioner in 1983 of shares of stock of Mr. & Ms. are indistinctive if not enshrouded in inconsistencies. In her testimony before the Hearing Panel, petitioner said that early in 1983, to relieve Mr. & Ms. from political pressure, Senator Enrile decided to divest the family holdings in Mr. & Ms. as he was then part of the government and Mr. & Ms. was evolving to be an opposition newspaper. The JAKA shares numbering 1,000 covered by Certificate of Stock No. 001 were thus transferred to respondent Eugenia D. Apostol in trust or in blank.[18] Petitioner now claims that a few days after JAKAs shares were transferred to respondent Eugenia D. Apostol, Senator Enrile sold to petitioner 997 shares of JAKA. For this purpose, a deed of sale was executed and antedated to 10 May 1983.[19] This submission of petitioner is however contradicted by the records which show that a deed of sale was executed by JAKA transferring 1,000 shares of Mr. & Ms. to respondent Apostol on 10 May 1983 and not to petitioner. [20] Then Senator Enrile testified that in May or June 1983 he was asked at a media interview if his family owned shares of stock in Mr. & Ms. Although he and his family were stockholders at that time he denied it so as not to embarrass the magazine. He called up petitioner and instructed her to work out the documentation of the transfer of shares from JAKA to respondent Apostol to be covered by a declaration of trust. His instruction was to transfer the shares of JAKA in Mr. & Ms. and Ex Libris to respondent Apostol as a nominal holder. He then finally decided to transfer the shareholdings to petitioner.[21] When asked if there was any document or any written evidence of that divestment in favor of petitioner, Senator Enrile answered that there was an endorsement of the shares of stock. He said that there

was no other document evidencing the assignment to petitioner because the stocks were personal property that could be transferred even orally.[22] Contrary to Senator Enriles testimony, however, petitioner maintains that Senator Enrile executed a deed of sale in her favor. A careful perusal of the records shows that neither the alleged endorsement of Certificate of Stock No. 001 in the name of JAKA nor the alleged deed of sale executed by Senator Enrile directly in favor of petitioner could have legally transferred or assigned on 25 July 1983 the shares of stock in favor of petitioner because as of 10 May 1983 Certificate of Stock No. 001 in the name of JAKA was already cancelled and a new one, Certificate of Stock No. 007, issued in favor of respondent Apostol by virtue of a Declaration of Trust and Deed of Sale.[23] It should be emphasized that on 10 May 1983 JAKA executed a deed of sale over 1,000 Mr. & Ms. shares in favor of respondent Eugenio D. Apostol. On the same day, respondent Apostol signed a declaration of trust stating that she was the registered owner of 1,000 Mr. & Ms. shares covered by Certificate of Stock No. 007. The declaration of trust further showed that although respondent Apostol was the registered owner, she held the shares of stock and dividends which might be paid in connection therewith solely in trust for the benefit of JAKA, her principal. It was also stated therein that being a trustee, respondent Apostol agreed, on written request of the principal, to assign and transfer the shares of stock and any and all such distributions or dividends unto the principal or such other person as the principal would nominate or appoint. Petitioner was well aware of this trust, being the person in charge of this documentation and being one of the witnesses to the execution of this document.[24] Hence, the mere alleged endorsement of Certificate of Stock No. 001 by Senator Enrile or by a duly authorized officer of JAKA to effect the transfer of shares of JAKA to petitioner could not have been legally feasible because Certificate of Stock No. 001 was already canceled by virtue of the deed of sale to respondent Apostol. And, there is nothing in the records which shows that JAKA had revoked the trust it reposed on respondent Eugenia D. Apostol. Neither was there any evidence that the principal had requested her to assign and transfer the shares of stock to petitioner. If it was true that the shares of stock covered by Certificate of Stock No. 007 had been transferred to petitioner, the person who could legally endorse the certificate was private respondent Eugenia D. Apostol, she being the registered owner and trustee of the shares of stock covered by Certificate of Stock No.

007. It is a settled rule that the trustee should endorse the stock certificate to validate the cancellation of her share and to have the transfer recorded in the books of the corporation.[25] In fine, the records are unclear on how petitioner allegedly acquired the shares of stock of JAKA. Petitioner being the chief executive officer of JAKA and the sole person in charge of all business and financial transactions and affairs of JAKA[26] was supposed to be in the best position to show convincing evidence on the alleged transfer of shares to her, if indeed there was a transfer. Considering that petitioners status is being questioned and several factual circumstances have been presented by private respondents disproving petitioners claim, it was incumbent upon her to submit rebuttal evidence on the manner by which she allegedly became a stockholder. Her failure to do so taken in the light of several substantial inconsistencies in her evidence is fatal to her case. The rule is that the endorsement of the certificate of stock by the owner or his attorney-in-fact or any other person legally authorized to make the transfer shall be sufficient to effect the transfer of shares only if the same is coupled with delivery. The delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the new transferee. Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and, (c) to be valid against third parties, the transfer must be recorded in the books of the corporation.[27] At most, in the instant case, petitioner has satisfied only the third requirement. Compliance with the first two requisites has not been clearly and sufficiently shown. Considering that the requirements provided under Sec. 63 of The Corporation Code should be mandatorily complied with, the rule on presumption of regularity cannot apply. The regularity and validity of the transfer must be proved. As it is, even the credibility of the stock and transfer book and the entries thereon relied upon by petitioner to show compliance with the third requisite to prove that she was a stockholder since 1983 is highly doubtful. The records show that the original stock and transfer book and the stock certificate book of Mr. & Ms. were in the possession of petitioner before their custody was transferred to the Corporate Secretary, Atty. Augusto San Pedro.[28] On 25 May 1988, Assistant Corporate Secretary Renato Jose Unson wrote Mr. & Ms. about the lost stock and transfer book which was also noted by the corporations external auditors, Punongbayan and Araullo, in their audit. Atty. Unson even informed respondent Eugenia D. Apostol as

President of Mr. & Ms. that steps would be undertaken to prepare and register a new Stock and Transfer Book with the SEC. Incidentally, perhaps strangely, upon verification with the SEC, it was discovered that the general file of the corporation with the SEC was missing. Hence, it was even possible that the original Stock and Transfer Book might not have been registered at all. On 20 October 1988 respondent Eugenia D. Apostol wrote Atty. Augusto San Pedro noting the changes he had made in the Stock and Transfer Book without prior notice to the corporate officers. [29] In the 27 October 1988 directors' meeting, respondent Eugenia D. Apostol asked about the documentation to support the changes in the Stock and Transfer Book with regard to theJAKA shares. Petitioner answered that Atty. San Pedro made the changes upon her instructions conformably with established practice.[30] This simply shows that as of 1988 there still existed certain issues affecting the ownership of the JAKA shares, thus raising doubts whether the alleged transactions recorded in the Stock and Transfer Book were proper, regular and authorized. Then, as if to magnify and compound the uncertainties in the ownership of the shares of stock in question, when the corporate secretary resigned, the Stock and Transfer Book was delivered not to the corporate office where the book should be kept but to petitioner. [31] That JAKA retained its ownership of its Mr. & Ms. shares was clearly shown by its receipt of the dividends issued in December 1986.[32] This only means, very obviously, that Mr. & Ms. shares in question still belonged to JAKA and not to petitioner. For, dividends are distributed to stockholders pursuant to their right to share in corporate profits. When a dividend is declared, it belongs to the person who is the substantial and beneficial owner of the stock at the time regardless of when the distribution profit was earned. [33] Finally, this Court takes notice of the glaring and open admissions of petitioner made, not just seven (7) but nine (9) times, during the 22 September 1988 meeting of the board of directors that the Enriles were her principals or shareholders, as shown by the minutes thereof which she duly signed[34] 5. Mrs. E. Apostol explained to the Directors that through her efforts, the asset base of the Company has improved and profits were realized. It is for this reason that the Company has declared a 100% cash dividend in 1986. She said that it is up for the Board to decide based on this performance whether she should continue to act as Board Chairman or not. In this regard, Ms. N.A. Bitong expressed her recollection of how Ex-Libris/Mr. & Ms. were organized and her participation for and on behalf of her principals, as follows: She recalled that her principals were invited by Mrs. E. Apostol to invest in Ex-Libris and eventually Mr. & Ms. The relationship between her

principals and Mrs. E. Apostol made it possible for the latter to have access to several information concerning certain political events and issues. In many instances, her principals supplied first hand and newsworthy information that made Mr. & Ms. a popular paper x x x x 6. According to Ms. Bitong, her principals were instrumental in helping Mr. & Ms. survive during those years that it was cash strapped x x x x Ms. N.A. Bitong pointed out that the practice of using the former Ministers influence and stature in the government is one thing which her principals themselves are strongly against x x xx 7. x x x x At this point, Ms. N. Bitong again expressed her recollection of the subject matter as follows: (a) Mrs. E. Apostol, she remembers, brought up the concept of a cooperative-ran newspaper company in one of her breakfast session with her principals sometime during the end of 1985. Her principals when asked for an opinion, said that they recognized the concept as something very noble and visible x x x x Then Ms. Bitong asked a very specific question - "When you conceptualized Ex-Libris and Mr. & Ms., did you not think of my shareholders the Ponce Enriles as liabilities? How come you associated yourself with them then and not now? What is the difference?" Mrs. Apostol did not answer the question. The admissions of a party against his interest inscribed upon the record books of a corporation are competent and persuasive evidence against him.[35] These admissions render nugatory any argument that petitioner is a bona fide stockholder of Mr. & Ms. at any time before 1988 or at the time the acts complained of were committed. There is no doubt that petitioner was an employee of JAKA as its managing officer, as testified to by Senator Enrile himself. [36] However, in the absence of a special authority from the board of directors of JAKA to institute a derivative suit for and in its behalf, petitioner is disqualified by law to sue in her own name. The power to sue and be sued in any court by a corporation even as a stockholder is lodged in the board of directors that exercises its corporate powers and not in the president or officer thereof.[37] It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust, not of mere error of judgment or abuse of discretion, and intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholders.[38] The stockholders right to institute a derivative suit is not based on any express provision of The Corporation Code but is impliedly recognized when the law makes corporate directors or officers liable for damages suffered by

the corporation and its stockholders for violation of their fiduciary duties. Hence, a stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a special injury to him for which he is otherwise without redress.[39] In effect, the suit is an action for specific performance of an obligation owed by the corporation to the stockholders to assist its rights of action when the corporation has been put in default by the wrongful refusal of the directors or management to make suitable measures for its protection.[40] The basis of a stockholders suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation.[41] WHEREFORE, the petition is DENIED. The 31 August 1995 Decision of the Court of Appeals dismissing the complaint of petitioner Nora A. Bitong in CA-G.R. No. SP 33291, and granting the petition for certiorari and prohibition filed by respondent Edgardo B. Espiritu as well as annulling the 5 November 1993, 24 January 1994 and 18 February 1994 Orders of the SEC En Banc in CA-G.R. No. SP 33873, is AFFIRMED. Costs against petitioner. SO ORDERED.

G.R. No. L-15568 November 8, 1919 W. G. PHILPOTTS, vs. PHILIPPINE MANUFACTURING COMPANY STREET, J.: The petitioner, W. G. Philpotts, a stockholder in the Philippine Manufacturing Company, one of the respondents herein, seeks by this proceeding to obtain a writ of mandamus to compel the respondents to permit the plaintiff, in person or by some authorized agent or attorney, to inspect and examine the records of the business transacted by said company since January 1, 1918. The petition is filed originally in this court under the authority of section 515 of the Code of Civil Procedure, which gives to this tribunal concurrent jurisdiction with the Court of First Instance in cases, among others, where any corporation or person unlawfully excludes the plaintiff from the use and enjoyment of some right to which he is entitled. The respondents interposed a demurrer, and the controversy is now before us for the determination of the questions thus presented. The first point made has reference to a supposed defect of parties, and it is said that the action can not be maintained jointly against the corporation and its secretary without the addition of the allegation that the latter is the custodian of the business records of the respondent company. By the plain language of sections 515 and 222 of our Code of Civil Procedure, the right of action in such a proceeding as this is given against the corporation; and the respondent corporation in this case was the only absolutely necessary party. In the Ohio case of Cincinnati Volksblatt Co. vs. Hoffmister (61 Ohio St., 432; 48 L. R. A., 735), only the corporation was named as defendant, while the complaint, in language almost identical with that in the case at bar, alleged a demand upon and refusal by the corporation. Nevertheless the propriety of naming the secretary of the corporation as a codefendant cannot be questioned, since such official is customarily charged with the custody of all documents, correspondence, and records of a corporation, and he is presumably the person against whom the personal orders of the court would be made effective in case the relief sought should be granted. Certainly there is nothing in the complaint to indicate that the secretary is an improper person to be joined. The petitioner might have named the president of the corporation as a respondent also; and this official might be brought in later, even after judgment rendered, if necessary to the effectuation of the order of the court. Section 222 of our Code of Civil Procedure is taken from the California Code, and a decision of the California Supreme Court Barber vs. Mulford (117 Cal., 356) is quite clear upon the point that both the corporation and its officers may be joined as defendants.

The real controversy which has brought these litigants into court is upon the question argued in connection with the second ground of demurrer, namely, whether the right which the law concedes to a stockholder to inspect the records can be exercised by a proper agent or attorney of the stockholder as well as by the stockholder in person. There is no pretense that the respondent corporation or any of its officials has refused to allow the petitioner himself to examine anything relating to the affairs of the company, and the petition prays for a peremptory order commanding the respondents to place the records of all business transactions of the company, during a specified period, at the disposal of the plaintiff or his duly authorized agent or attorney, it being evident that the petitioner desires to exercise said right through an agent or attorney. In the argument in support of the demurrer it is conceded by counsel for the respondents that there is a right of examination in the stockholder granted under section 51 of the Corporation Law, but it is insisted that this right must be exercised in person. The pertinent provision of our law is found in the second paragraph of section 51 of Act No. 1459, which reads as follows: "The record of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours." This provision is to be read of course in connecting with the related provisions of sections 51 and 52, defining the duty of the corporation in respect to the keeping of its records. Now it is our opinion, and we accordingly hold, that the right of inspection given to a stockholder in the provision above quoted can be exercised either by himself or by any proper representative or attorney in fact, and either with or without the attendance of the stockholder. This is in conformity with the general rule that what a man may do in person he may do through another; and we find nothing in the statute that would justify us in qualifying the right in the manner suggested by the respondents. This conclusion is supported by the undoubted weight of authority in the United States, where it is generally held that the provisions of law conceding the right of inspection to stockholders of corporations are to be liberally construed and that said right may be exercised through any other properly authorized person. As was said in Foster vs. White (86 Ala., 467), "The right may be regarded as personal, in the sense that only a stockholder may enjoy it; but the inspection and examination may be made by another. Otherwise it would be unavailing in many instances." An observation to the same effect is contained in Martin vs. Bienville Oil Works Co. (28 La., 204), where it is said: "The possession of the right in question would be futile if the possessor of it, through lack of knowledge necessary to exercise it, were debarred the right of procuring in his behalf the

services of one who could exercise it." In Deadreck vs. Wilson (8 Baxt. [Tenn.], 108), the court said: "That stockholders have the right to inspect the books of the corporation, taking minutes from the same, at all reasonable times, and may be aided in this by experts and counsel, so as to make the inspection valuable to them, is a principle too well settled to need discussion." Authorities on this point could be accumulated in great abundance, but as they may be found cited in any legal encyclopedia or treaties devoted to the subject of corporations, it is unnecessary here to refer to other cases announcing the same rule. In order that the rule above stated may not be taken in too sweeping a sense, we deem it advisable to say that there are some things which a corporation may undoubtedly keep secret, notwithstanding the right of inspection given by law to the stockholder; as for instance, where a corporation, engaged in the business of manufacture, has acquired a formula or process, not generally known, which has proved of utility to it in the manufacture of its products. It is not our intention to declare that the authorities of the corporation, and more particularly the Board of Directors, might not adopt measures for the protection of such process form publicity. There is, however, nothing in the petition which would indicate that the petitioner in this case is seeking to discover anything which the corporation is entitled to keep secret; and if anything of the sort is involved in the case it may be brought out at a more advanced stage of the proceedings. lawphil.net The demurrer is overruled; and it is ordered that the writ of mandamus shall issue as prayed, unless within 5 days from notification hereof the respondents answer to the merits. So ordered.

G.R. No. 164301 October 19, 2011 BANK OF THE PHILIPPINE ISLANDS, vs.BPI EMPLOYEES UNIONDAVAO CHAPTER-FEDERATION OF UNIONS IN BPI UNIBANK, Respondent. RESOLUTION LEONARDO-DE CASTRO, J.: In the present incident, petitioner Bank of the Philippine Islands (BPI) moves for reconsideration1 of our Decision dated August 10, 2010, holding that former employees of the Far East Bank and Trust Company (FEBTC) "absorbed" by BPI pursuant to the two banks merger in 2000 were covered by the Union Shop Clause in the then existing collective bargaining agreement (CBA) 2 of BPI with respondent BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank (the Union). To recall, the Union Shop Clause involved in this long standing controversy provided, thus: ARTICLE II xxxx Section 2. Union Shop - New employees falling within the bargaining unit as defined in Article I of this Agreement, who may hereafter be regularly employed by the Bank shall, within thirty (30) days after they become regular employees, join the Union as a condition of their continued employment. It is understood that membership in good standing in the Union is a condition of their continued employment with the Bank.3 (Emphases supplied.) The bone of contention between the parties was whether or not the "absorbed" FEBTC employees fell within the definition of "new employees" under the Union Shop Clause, such that they may be required to join respondent union and if they fail to do so, the Union may request BPI to terminate their employment, as the Union in fact did in the present case. Needless to state, BPI refused to accede to the Unions request. Although BPI won the initial battle at the Voluntary Arbitrator level, BPIs position was rejected by the Court of Appeals which ruled that the Voluntary Arbitrators interpretation of the Union Shop Clause was at war with the spirit and rationale why the Labor Code allows the existence of such provision. On review with this Court, we upheld the appellate courts ruling and disposed of the case as follows: WHEREFORE, the petition is hereby DENIED, and the Decision dated September 30, 2003 of the Court of Appeals is AFFIRMED, subject to the thirty (30) day notice requirement imposed herein. Former FEBTC employees who opt not to become union members but who qualify for retirement shall receive their retirement benefits in accordance with law, the applicable retirement plan, or the CBA, as the case may be. 4 Notwithstanding our affirmation of the applicability of the Union Shop Clause to former FEBTC employees, for reasons already

extensively discussed in the August 10, 2010 Decision, even now BPI continues to protest the inclusion of said employees in the Union Shop Clause. In seeking the reversal of our August 10, 2010 Decision, petitioner insists that the parties to the CBA clearly intended to limit the application of the Union Shop Clause only to new employees who were hired as non-regular employees but later attained regular status at some point after hiring. FEBTC employees cannot be considered new employees as BPI merely stepped into the shoes of FEBTC as an employer purely as a consequence of the merger.5 Petitioner likewise relies heavily on the dissenting opinions of our respected colleagues, Associate Justices Antonio T. Carpio and Arturo D. Brion. From both dissenting opinions, petitioner derives its contention that "the situation of absorbed employees can be likened to old employees of BPI, insofar as their full tenure with FEBTC was recognized by BPI and their salaries were maintained and safeguarded from diminution" but such absorbed employees "cannot and should not be treated in exactly the same way as old BPI employees for there are substantial differences between them."6 Although petitioner admits that there are similarities between absorbed and new employees, they insist there are marked differences between them as well. Thus, adopting Justice Brions stance, petitioner contends that the absorbed FEBTC employees should be considered "a sui generis group of employees whose classification will not be duplicated until BPI has another merger where it would be the surviving corporation." 7 Apparently borrowing from Justice Carpio, petitioner propounds that the Union Shop Clause should be strictly construed since it purportedly curtails the right of the absorbed employees to abstain from joining labor organizations.8 Pursuant to our directive, the Union filed its Comment 9 on the Motion for Reconsideration. In opposition to petitioners arguments, the Union, in turn, adverts to our discussion in the August 10, 2010 Decision regarding the voluntary nature of the merger between BPI and FEBTC, the lack of an express stipulation in the Articles of Merger regarding the transfer of employment contracts to the surviving corporation, and the consensual nature of employment contracts as valid bases for the conclusion that former FEBTC employees should be deemed new employees.10 The Union argues that the creation of employment relations between former FEBTC employees and BPI (i.e., BPIs selection and engagement of former FEBTC employees, its payment of their wages, power of dismissal and of control over the employees conduct) occurred after the merger, or to be more precise, after the Securities and Exchange Commissions (SEC) approval of the merger.11 The Union likewise points out that BPI failed to offer any counterargument to the Courts reasoning that:

The rationale for upholding the validity of union shop clauses in a CBA, even if they impinge upon the individual employee's right or freedom of association, is not to protect the union for the union's sake. Laws and jurisprudence promote unionism and afford certain protections to the certified bargaining agent in a unionized company because a strong and effective union presumably benefits all employees in the bargaining unit since such a union would be in a better position to demand improved benefits and conditions of work from the employer. x x x. x x x Nonetheless, settled jurisprudence has already swung the balance in favor of unionism, in recognition that ultimately the individual employee will be benefited by that policy. In the hierarchy of constitutional values, this Court has repeatedly held that the right to abstain from joining a labor organization is subordinate to the policy of encouraging unionism as an instrument of social justice. 12 While most of the arguments offered by BPI have already been thoroughly addressed in the August 10, 2010 Decision, we find that a qualification of our ruling is in order only with respect to the interpretation of the provisions of the Articles of Merger and its implications on the former FEBTC employees security of tenure. Taking a second look on this point, we have come to agree with Justice Brions view that it is more in keeping with the dictates of social justice and the State policy of according full protection to labor to deem employment contracts as automatically assumed by the surviving corporation in a merger, even in the absence of an express stipulation in the articles of merger or the merger plan. In his dissenting opinion, Justice Brion reasoned that: To my mind, due consideration of Section 80 of the Corporation Code, the constitutionally declared policies on work, labor and employment, and the specific FEBTC-BPI situation i.e., a merger with complete "body and soul" transfer of all that FEBTC embodied and possessed and where both participating banks were willing (albeit by deed, not by their written agreement) to provide for the affected human resources by recognizing continuity of employment should point this Court to a declaration that in a complete merger situation where there is total takeover by one corporation over another and there is silence in the merger agreement on what the fate of the human resource complement shall be, the latter should not be left in legal limbo and should be properly provided for, by compelling the surviving entity to absorb these employees. This is what Section 80 of the Corporation Code commands, as the surviving corporation has the legal obligation to assume all the obligations and liabilities of the merged constituent corporation. Not to be forgotten is that the affected employees managed, operated and worked on the transferred assets and properties as their means of livelihood; they constituted a basic component of their corporation

during its existence. In a merger and consolidation situation, they cannot be treated without consideration of the applicable constitutional declarations and directives, or, worse, be simply disregarded. If they are so treated, it is up to this Court to read and interpret the law so that they are treated in accordance with the legal requirements of mergers and consolidation, read in light of the social justice, economic and social provisions of our Constitution. Hence, there is a need for the surviving corporation to take responsibility for the affected employees and to absorb them into its workforce where no appropriate provision for the merged corporation's human resources component is made in the Merger Plan. 13 By upholding the automatic assumption of the non-surviving corporations existing employment contracts by the surviving corporation in a merger, the Court strengthens judicial protection of the right to security of tenure of employees affected by a merger and avoids confusion regarding the status of their various benefits which were among the chief objections of our dissenting colleagues. However, nothing in this Resolution shall impair the right of an employer to terminate the employment of the absorbed employees for a lawful or authorized cause or the right of such an employee to resign, retire or otherwise sever his employment, whether before or after the merger, subject to existing contractual obligations. In this manner, Justice Brions theory of automatic assumption may be reconciled with the majoritys concerns with the successor employers prerogative to choose its employees and the prohibition against involuntary servitude.1avvphi1 Notwithstanding this concession, we find no reason to reverse our previous pronouncement that the absorbed FEBTC employees are covered by the Union Shop Clause. Even in our August 10, 2010 Decision, we already observed that the legal fiction in the law on mergers (that the surviving corporation continues the corporate existence of the non-surviving corporation) is mainly a tool to adjudicate the rights and obligations between and among the merged corporations and the persons that deal with them.14 Such a legal fiction cannot be unduly extended to an interpretation of a Union Shop Clause so as to defeat its purpose under labor law. Hence, we stated in the Decision that: In any event, it is of no moment that the former FEBTC employees retained the regular status that they possessed while working for their former employer upon their absorption by petitioner. This fact would not remove them from the scope of the phrase "new employees" as contemplated in the Union Shop Clause of the CBA, contrary to petitioner's insistence that the term "new employees" only refers to those who are initially hired as non-regular employees for possible regular employment.

The Union Shop Clause in the CBA simply states that "new employees" who during the effectivity of the CBA "may be regularly employed" by the Bank must join the union within thirty (30) days from their regularization. There is nothing in the said clause that limits its application to only new employees who possess non-regular status, meaning probationary status, at the start of their employment. Petitioner likewise failed to point to any provision in the CBA expressly excluding from the Union Shop Clause new employees who are "absorbed" as regular employees from the beginning of their employment. What is indubitable from the Union Shop Clause is that upon the effectivity of the CBA, petitioner's new regular employees (regardless of the manner by which they became employees of BPI) are required to join the Union as a condition of their continued employment.15 Although by virtue of the merger BPI steps into the shoes of FEBTC as a successor employer as if the former had been the employer of the latters employees from the beginning it must be emphasized that, in reality, the legal consequences of the merger only occur at a specific date, i.e., upon its effectivity which is the date of approval of the merger by the SEC. Thus, we observed in the Decision that BPI and FEBTC stipulated in the Articles of Merger that they will both continue their respective business operations until the SEC issues the certificate of merger and in the event no such certificate is issued, they shall hold each other blameless for the non-consummation of the merger.16 We likewise previously noted that BPI made its assignments of the former FEBTC employees effective on April 10, 2000, or after the SEC approved the merger.17 In other words, the obligation of BPI to pay the salaries and benefits of the former FEBTC employees and its right of discipline and control over them only arose with the effectivity of the merger. Concomitantly, the obligation of former FEBTC employees to render service to BPI and their right to receive benefits from the latter also arose upon the effectivity of the merger. What is material is that all of these legal consequences of the merger took place during the life of an existing and valid CBA between BPI and the Union wherein they have mutually consented to include a Union Shop Clause. From the plain, ordinary meaning of the terms of the Union Shop Clause, it covers employees who (a) enter the employ of BPI during the term of the CBA; (b) are part of the bargaining unit (defined in the CBA as comprised of BPIs rank and file employees); and (c) become regular employees without distinguishing as to the manner they acquire their regular status. Consequently, the number of such employees may adversely affect the majority status of the Union and even its existence itself, as already amply explained in the Decision. Indeed, there are differences between (a) new employees who are hired as probationary or temporary but later regularized, and (b) new

employees who, by virtue of a merger, are absorbed from another company as regular and permanent from the beginning of their employment with the surviving corporation. It bears reiterating here that these differences are too insubstantial to warrant the exclusion of the absorbed employees from the application of the Union Shop Clause. In the Decision, we noted that: Verily, we agree with the Court of Appeals that there are no substantial differences between a newly hired non-regular employee who was regularized weeks or months after his hiring and a new employee who was absorbed from another bank as a regular employee pursuant to a merger, for purposes of applying the Union Shop Clause. Both employees were hired/employed only after the CBA was signed. At the time they are being required to join the Union, they are both already regular rank and file employees of BPI. They belong to the same bargaining unit being represented by the Union. They both enjoy benefits that the Union was able to secure for them under the CBA. When they both entered the employ of BPI, the CBA and the Union Shop Clause therein were already in effect and neither of them had the opportunity to express their preference for unionism or not. We see no cogent reason why the Union Shop Clause should not be applied equally to these two types of new employees, for they are undeniably similarly situated. 18 Again, it is worthwhile to highlight that a contrary interpretation of the Union Shop Clause would dilute its efficacy and put the certified union that is supposedly being protected thereby at the mercy of management. For if the former FEBTC employees had no say in the merger of its former employer with another bank, as petitioner BPI repeatedly decries on their behalf, the Union likewise could not prevent BPI from proceeding with the merger which undisputedly affected the number of employees in the bargaining unit that the Union represents and may negatively impact on the Unions majority status. In this instance, we should be guided by the principle that courts must place a practical and realistic construction upon a CBA, giving due consideration to the context in which it is negotiated and purpose which it is intended to serve.19 We now come to the question: Does our affirmance of our ruling that former FEBTC employees absorbed by BPI are covered by the Union Shop Clause violate their right to security of tenure which we expressly upheld in this Resolution? We answer in the negative. In Rance v. National Labor Relations Commission,20 we held that: It is the policy of the state to assure the right of workers to "security of tenure" (Article XIII, Sec. 3 of the New Constitution, Section 9, Article II of the 1973 Constitution). The guarantee is an act of social justice. When a person has no property, his job may possibly be his only possession or means of livelihood. Therefore, he should be protected against any arbitrary deprivation of his job. Article 280 of

the Labor Code has construed security of tenure as meaning that "the employer shall not terminate the services of an employee except for a just cause or when authorized by" the Code. x x x (Emphasis supplied.) We have also previously held that the fundamental guarantee of security of tenure and due process dictates that no worker shall be dismissed except for a just and authorized cause provided by law and after due process is observed.21 Even as we now recognize the right to continuous, unbroken employment of workers who are absorbed into a new company pursuant to a merger, it is but logical that their employment may be terminated for any causes provided for under the law or in jurisprudence without violating their right to security of tenure. As Justice Carpio discussed in his dissenting opinion, it is well-settled that termination of employment by virtue of a union security clause embodied in a CBA is recognized in our jurisdiction.22 In Del Monte Philippines, Inc. v. Saldivar,23 we explained the rationale for this policy in this wise: Article 279 of the Labor Code ordains that "in cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by [Title I, Book Six of the Labor Code]."Admittedly, the enforcement of a closedshop or union security provision in the CBA as a ground for termination finds no extension within any of the provisions under Title I, Book Six of the Labor Code. Yet jurisprudence has consistently recognized, thus: "It is State policy to promote unionism to enable workers to negotiate with management on an even playing field and with more persuasiveness than if they were to individually and separately bargain with the employer. For this reason, the law has allowed stipulations for 'union shop' and 'closed shop' as means of encouraging workers to join and support the union of their choice in the protection of their rights and interests vis-a-vis the employer."24 (Emphasis supplied.) Although it is accepted that non-compliance with a union security clause is a valid ground for an employees dismissal, jurisprudence dictates that such a dismissal must still be done in accordance with due process. This much we decreed in General Milling Corporation v. Casio,25 to wit: The Court reiterated in Malayang Samahan ng mga Manggagawa sa M. Greenfield v. Ramos that: While respondent company may validly dismiss the employees expelled by the union for disloyalty under the union security clause of the collective bargaining agreement upon the recommendation by the union, this dismissal should not be done hastily and summarily thereby eroding the employees' right to due process, self-organization and security of tenure. The enforcement of union security clauses is authorized by law provided such enforcement is not characterized by

arbitrariness, and always with due process. Even on the assumption that the federation had valid grounds to expel the union officers, due process requires that these union officers be accorded a separate hearing by respondent company. The twin requirements of notice and hearing constitute the essential elements of procedural 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. This procedure is mandatory and its absence taints the dismissal with illegality. Irrefragably, GMC cannot dispense with the requirements of notice and hearing before dismissing Casio, et al. even when said dismissal is pursuant to the closed shop provision in the CBA. The rights of an employee to be informed of the charges against him and to reasonable opportunity to present his side in a controversy with either the company or his own union are not wiped away by a union security clause or a union shop clause in a collective bargaining agreement. x x x26 (Emphases supplied.) In light of the foregoing, we find it appropriate to state that, apart from the fresh thirty (30)-day period from notice of finality of the Decision given to the affected FEBTC employees to join the Union before the latter can request petitioner to terminate the formers employment, petitioner must still accord said employees the twin requirements of notice and hearing on the possibility that they may have other justifications for not joining the Union. Similar to our August 10, 2010 Decision, we reiterate that our ruling presupposes there has been no material change in the situation of the parties in the interim. WHEREFORE, the Motion for Reconsideration is DENIED. The Decision dated August 10, 2010 is AFFIRMED, subject to the qualifications that: (a) Petitioner is deemed to have assumed the employment contracts of the Far East Bank and Trust Company (FEBTC) employees upon effectivity of the merger without break in the continuity of their employment, even without express stipulation in the Articles of Merger; and (b) Aside from the thirty (30) days, counted from notice of finality of the August 10, 2010 Decision, given to former FEBTC employees to join the respondent, said employees shall be accorded full procedural due process before their employment may be terminated. SO ORDERED.

[G.R. No. 123793. June 29, 1998] ASSOCIATED BANK, vs. COURT OF APPEALS PANGANIBAN, J.: In a merger, does the surviving corporation have a right to enforce a contract entered into by the absorbed company subsequent to the date of the merger agreement, but prior to the issuance of a certificate of merger by the Securities and Exchange Commission? The Case This is a petition for review under Rule 45 of the Rules of Court seeking to set aside the Decision[1] of the Court of Appeals[2] in CA-GR CV No. 26465 promulgated on January 30, 1996, which answered the above question in the negative. The challenged Decision reversed and set aside the October 17, 1986 Decision[3] in Civil Case No. 8532243, promulgated by the Regional Trial Court of Manila, Branch 48, which disposed of the controversy in favor of herein petitioner as follows:[4] WHEREFORE, judgment is hereby rendered in favor of the plaintiff Associated Bank. The defendant Lorenzo Sarmiento, Jr. is ordered to pay plaintiff: 1. The amount of P4,689,413.63 with interest thereon at 14% per annum until fully paid; 2. The amount of P200,000.00 as and for attorneys fees; and 3. The costs of suit. On the other hand, the Court of Appeals resolved the case in this wise:[5] WHEREFORE, premises considered, the decision appealed from, dated October 17, 1986 is REVERSED and SET ASIDE and another judgment rendered DISMISSING plaintiffappellees complaint, docketed as Civil Case No. 8532243. There is no pronouncement as to costs. The Facts The undisputed factual antecedents, as narrated by the trial court and adopted by public respondent, are as follows: [6] x x x [O]n or about September 16, 1975 Associated Banking Corporation and Citizens Bank and Trust Company merged to form just one banking corporation known as Associated Citizens Bank, the surviving bank. On or about March 10, 1981, the Associated Citizens Bank changed its corporate name to Associated Bank by virtue of the Amended Articles of Incorporation. On September 7, 1977, the defendant executed in favor of Associated Bank a promissory note whereby the former undertook to pay the latter the sum

of P2,500,000.00 payable on or before March 6, 1978. As per said promissory note, the defendant agreed to pay interest at 14% per annum, 3% per annum in the form of liquidated damages, compounded interests, and attorneys fees, in case of litigation equivalent to 10% of the amount due. The defendant, to date, still owes plaintiff bank the amount of P2,250,000.00 exclusive of interest and other charges. Despite repeated demands the defendant failed to pay the amount due. xxx xxx xxx x x x [T]he defendant denied all the pertinent allegations in the complaint and alleged as affirmative and[/]or special defenses that the complaint states no valid cause of action; that the plaintiff is not the proper party in interest because the promissory note was executed in favor of Citizens Bank and Trust Company; that the promissory note does not accurately reflect the true intention and agreement of the parties; that terms and conditions of the promissory note are onerous and must be construed against the creditor-payee bank; that several partial payments made in the promissory note are not properly applied; that the present action is premature; that as compulsory counterclaim the defendant prays for attorneys fees, moral damages and expenses of litigation. On May 22, 1986, the defendant was declared as if in default for failure to appear at the Pre-Trial Conference despite due notice. A Motion to Lift Order of Default and/or Reconsideration of Order dated May 22, 1986 was filed by defendants counsel which was denied by the Court in [an] order dated September 16, 1986 and the plaintiff was allowed to present its evidence before the Court ex-parte on October 16, 1986. At the hearing before the Court ex-parte, Esteban C. Ocampo testified that x x x he is an accountant of the Loans and Discount Department of the plaintiff bank; that as such, he supervises the accounting section of the bank, he counterchecks all the transactions that transpired during the day and is responsible for all the accounts and records and other things that may[ ]be assigned to the Loans and Discount Department; that he knows the [D]efendant Lorenzo Sarmiento, Jr. because he has an outstanding loan with them as per their records; that Lorenzo Sarmiento, Jr. executed a promissory note No. TL-2649-77 dated September 7, 1977 in the amount of P2,500,000.00 (Exhibit A); that Associated Banking Corporation and the Citizens Bank and Trust Company merged to form one banking corporation

known as the Associated Citizens Bank and is now known as Associated Bank by virtue of its Amended Articles of Incorporation; that there were partial payments made but not full; that the defendant has not paid his obligation as evidenced by the latest statement of account (Exh. B); that as per statement of account the outstanding obligation of the defendant is P5,689,413.63 less P1,000,000.00 or P4,689,413.63 (Exh. B, B-1); that a demand letter dated June 6, 1985 was sent by the bank thru its counsel (Exh. C) which was received by the defendant on November 12, 1985 (Exh. C, C-1, C-2, C-3); that the defendant paid only P1,000,000.00 which is reflected in the Exhibit C. Based on the evidence presented by petitioner, the trial court ordered Respondent Sarmiento to pay the bank his remaining balance plus interests and attorneys fees. In his appeal, Sarmiento assigned to the trial court several errors, namely: [7] I The [trial court] erred in denying appellants motion to dismiss appellee banks complaint on the ground of lack of cause of action and for being barred by prescription and laches. II The same lower court erred in admitting plaintiffappellee banks amended complaint while defendant appellants motion to dismiss appellee banks original complaint and using/availing [itself of] the new additional allegations as bases in denial of said appellants motion and in the interpretation and application of the agreement of merger and Section 80 of BP Blg. 68, Corporation Code of the Philippines. III The [trial court] erred and gravely abuse[d] its discretion in rendering the two as if in default orders dated May 22, 1986 and September 16, 1986 and in not reconsidering the same upon technical grounds which in effect subvert the best primordial interest of substantial justice and equity. IV The court a quo erred in issuing the orders dated May 22, 1986 and September 16, 1986 declaring appellant as if in default due to non-appearance of appellants attending counsel who had resigned from the law firm and while the parties [were] negotiating for settlement of the case and after a one million peso payment had in fact been paid to appellee bank for appellants account at the start of such negotiation on February 18, 1986 as act of earnest desire to settle the obligation in good faith by the interested parties. V The lower court erred in according credence to appellee banks Exhibit B statement of account which

had been merely requested by its counsel during the trial and bearing date of September 30, 1986. VI The lower court erred in accepting and giving credence to appellee banks 27-year-old witness Esteban C. Ocampo as of the date he testified on October 16, 1986, and therefore, he was merely an eighteen-year-old minor when appellant supposedly incurred the foisted obligation under the subject PN No. TL-2649-77 dated September 7, 1977, Exhibit A of appellee bank. VII The [trial court] erred in adopting appellee banks Exhibit B dated September 30, 1986 in its decision given in open court on October 17, 1986 which exacted eighteen percent (18%) per annum on the foisted principal amount of P2.5 million when the subject PN, Exhibit A, stipulated only fourteen percent (14%) per annum and which was actually prayed for in appellee banks original and amended complaints. VIII The appealed decision of the lower court erred in not considering at all appellants affirmative defenses that (1) the subject PN No. TL-2649-77 for P2.5 million dated September 7, 1977, is merely an accommodation pour autrui bereft of any actual consideration to appellant himself and (2) the subject PN is a contract of adhesion, hence, [it] needs [to] be strictly construed against appellee bank -- assuming for granted that it has the right to enforce and seek collection thereof. IX The lower court should have at least allowed appellant the opportunity to present countervailing evidence considering the huge amounts claimed by appellee bank (principal sum of P2.5 million which including accrued interests, penalties and cost of litigation totaled P4,689,413.63) and appellants affirmative defenses -- pursuant to substantial justice and equity. The appellate court, however, found no need to tackle all the assigned errors and limited itself to the question of whether [herein petitioner had] established or proven a cause of action against [herein private respondent]. Accordingly, Respondent Court held that the Associated Bank had no cause of action against Lorenzo Sarmiento Jr., since said bank was not privy to the promissory note executed by Sarmiento in favor of Citizens Bank and Trust Company (CBTC). The court ruled that the earlier merger between the two banks could not have vested Associated Bank with any interest arising from the promissory note executed in favor of CBTC after such merger.

Thus, as earlier stated, Respondent Court set aside the decision of the trial court and dismissed the complaint. Petitioner now comes to us for a reversal of this ruling.[8] Issues In its petition, petitioner cites the following reasons: [9] I The Court of Appeals erred in reversing the decision of the trial court and in declaring that petitioner has no cause of action against respondent over the promissory note. II The Court of Appeals also erred in declaring that, since the promissory note was executed in favor of Citizens Bank and Trust Company two years after the merger between Associated Banking Corporation and Citizens Bank and Trust Company, respondent is not liable to petitioner because there is no privity of contract between respondent and Associated Bank. III The Court of Appeals erred when it ruled that petitioner, despite the merger between petitioner and Citizens Bank and Trust Company, is not a real party in interest insofar as the promissory note executed in favor of the merger. In a nutshell, the main issue is whether Associated Bank, the surviving corporation, may enforce the promissory note made by private respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed. The Courts Ruling The petition is impressed with merit. The Main Issue: Associated Bank Assumed All Rights of CBTC Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation.[10] Although there is a dissolution of the absorbed corporations, there is no winding up of their affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and powers, as well as their liabilities.[11] The merger, however, does not become effective upon the mere agreement of the constituent corporations. The procedure to be followed is prescribed under the Corporation Code. [12]Section 79 of said Code requires the approval by the Securities and Exchange Commission (SEC) of the articles of merger which, in turn, must have been duly approved by a majority of the respective stockholders of the constituent corporations. The same provision further states that the merger shall be effective only upon the issuance by the SEC of a certificate of merger. The effectivity date of the merger is crucial

for determining when the merged or absorbed corporation ceases to exist; and when its rights, privileges, properties as well as liabilities pass on to the surviving corporation. Consistent with the aforementioned Section 79, the September 16, 1975 Agreement of Merger,[13] which Associated Banking Corporation (ABC) and Citizens Bank and Trust Company (CBTC) entered into, provided that its effectivity shall, for all intents and purposes, be the date when the necessary papers to carry out this [m]erger shall have been approved by the Securities and Exchange Commission.[14] As to the transfer of the properties of CBTC to ABC, the agreement provides: 10. Upon effective date of the Merger, all rights, privileges, powers, immunities, franchises, assets and property of [CBTC], whether real, personal or mixed, and including [CBTCs] goodwill and tradename, and all debts due to [CBTC] on whatever act, and all other things in action belonging to [CBTC] as of the effective date of the [m]erger shall be vested in [ABC], the SURVIVING BANK, without need of further act or deed, unless by express requirements of law or of a government agency, any separate or specific deed of conveyance to legally effect the transfer or assignment of any kind of property [or] asset is required, in which case such document or deed shall be executed accordingly; and all property, rights, privileges, powers, immunities, franchises and all appointments, designations and nominations, and all other rights and interests of [CBTC] as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, trustee of estates of persons mentally ill and in every other fiduciary capacity, and all and every other interest of [CBTC] shall thereafter be effectually the property of [ABC] as they were of [CBTC], and title to any real estate, whether by deed or otherwise, vested in [CBTC] shall not revert or be in any way impaired by reason thereof; provided, however, that all rights of creditors and all liens upon any property of [CBTC] shall be preserved and unimpaired and all debts, liabilities, obligations, duties and undertakings of [CBTC], whether contractual or otherwise, expressed or implied, actual or contingent, shall henceforth attach to [ABC] which shall be responsible therefor and may be enforced against [ABC] to the same

extent as if the same debts, liabilities, obligations, duties and undertakings have been originally incurred or contracted by [ABC], subject, however, to all rights, privileges, defenses, set-offs and counterclaims which [CBTC] has or might have and which shall pertain to [ABC].[15] The records do not show when the SEC approved the merger. Private respondents theory is that it took effect on the date of the execution of the agreement itself, which was September 16, 1975. Private respondent contends that, since he issued the promissory note to CBTC on September 7, 1977 -- two years after the merger agreement had been executed -- CBTC could not have conveyed or transferred to petitioner its interest in the said note, which was not yet in existence at the time of the merger. Therefore, petitioner, the surviving bank, has no right to enforce the promissory note on private respondent; such right properly pertains only to CBTC. Assuming that the effectivity date of the merger was the date of its execution, we still cannot agree that petitioner no longer has any interest in the promissory note. A closer perusal of the merger agreement leads to a different conclusion. The provision quoted earlier has this other clause: Upon the effective date of the [m]erger, all references to [CBTC] in any deed, documents, or other papers of whatever kind or nature and wherever found shall be deemed for all intents and purposes, references to [ABC], the SURVIVING BANK, as if such references were direct references to [ABC]. x x x[16] (Underscoring supplied) Thus, the fact that the promissory note was executed after the effectivity date of the merger does not militate against petitioner. The agreement itself clearly provides that all contracts -- irrespective of the date of execution -- entered into in the name of CBTC shall be understood as pertaining to the surviving bank, herein petitioner. Since, in contrast to the earlier aforequoted provision, the latter clause no longer specifically refers only to contracts existing at the time of the merger, no distinction should be made. The clause must have been deliberately included in the agreement in order to protect the interests of the combining banks; specifically, to avoid giving the merger agreement a farcical interpretation aimed at evading fulfillment of a due obligation. Thus, although the subject promissory note names CBTC as the payee, the reference to CBTC in the note shall be construed, under the very provisions of the merger agreement, as a reference to petitioner bank, as if such reference [was a] direct reference to the latter for all intents and purposes.

No other construction can be given to the unequivocal stipulation. Being clear, plain and free of ambiguity, the provision must be given its literal meaning[17] and applied without a convoluted interpretation. Verba legis non est recedendum.[18] In light of the foregoing, the Court holds that petitioner has a valid cause of action against private respondent. Clearly, the failure of private respondent to honor his obligation under the promissory note constitutes a violation of petitioners right to collect the proceeds of the loan it extended to the former. Secondary Issues: Prescription, Laches, Contract Pour Autrui, Lack of Consideration No Prescription or Laches Private respondents claim that the action has prescribed, pursuant to Article 1149 of the Civil Code, is legally untenable. Petitioners suit for collection of a sum of money was based on a written contract and prescribes after ten years from the time its right of action arose.[19] Sarmientos obligation under the promissory note became due and demandable on March 6, 1978. Petitioners complaint was instituted on August 22, 1985, before the lapse of the ten-year prescriptive period. Definitely, petitioner still had every right to commence suit against the payor/obligor, the private respondent herein. Neither is petitioners action barred by laches. The principle of laches is a creation of equity, which is applied not to penalize neglect or failure to assert a right within a reasonable time, but rather to avoid recognizing a right when to do so would result in a clearly inequitable situation[20] or in an injustice.[21] To require private respondent to pay the remaining balance of his loan is certainly not inequitable or unjust. What would be manifestly unjust and inequitable is his contention that CBTC is the proper party to proceed against him despite the fact, which he himself asserts, that CBTCs corporate personality has been dissolved by virtue of its merger with petitioner. To hold that no payee/obligee exists and to let private respondent enjoy the fruits of his loan without liability is surely most unfair and unconscionable, amounting to unjust enrichment at the expense of petitioner. Besides, this Court has held that the doctrine of laches is inapplicable where the claim was filed within the prescriptive period set forth under the law. [22] No Contract Pour Autrui Private respondent, while not denying that he executed the promissory note in the amount of P2,500,000 in favor of CBTC, offers the alternative defense that said note was a contract pour autrui.

A stipulation pour autrui is one in favor of a third person who may demand its fulfillment, provided he communicated his acceptance to the obligor before its revocation. An incidental benefit or interest, which another person gains, is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.[23] Florentino vs. Encarnacion Sr.[24] enumerates the requisites for such contract: (1) the stipulation in favor of a third person must be a part of the contract, and not the contract itself; (2) the favorable stipulation should not be conditioned or compensated by any kind of obligation; and (3) neither of the contracting parties bears the legal representation or authorization of the third party. The fairest test in determining whether the third persons interest in a contract is a stipulation pour autrui or merely an incidental interest is to examine the intention of the parties as disclosed by their contract.[25] We carefully and thoroughly perused the promissory note, but found no stipulation at all that would even resemble a provision in consideration of a third person. The instrument itself does not disclose the purpose of the loan contract. It merely lays down the terms of payment and the penalties incurred for failure to pay upon maturity. It is patently devoid of any indication that a benefit or interest was thereby created in favor of a person other than the contracting parties. In fact, in no part of the instrument is there any mention of a third party at all. Except for his barefaced statement, no evidence was proffered by private respondent to support his argument. Accordingly, his contention cannot be sustained. At any rate, if indeed the loan actually benefited a third person who undertook to repay the bank, private respondent could have availed himself of the legal remedy of a third-party complaint.[26] That he made no effort to implead such third person proves the hollowness of his arguments. Consideration Private respondent also claims that he received no consideration for the promissory note and, in support thereof, cites petitioners failure to submit any proof of his loan application and of his actual receipt of the amount loaned. These arguments deserve no merit. Res ipsa loquitur. The instrument, bearing the signature of private respondent, speaks for itself. Respondent Sarmiento has not questioned the genuineness and due execution thereof. No further proof is necessary to show that he undertook to pay P2,500,000, plus interest, to petitioner bank on or before March 6, 1978. This he failed to do, as testified to by petitioners accountant. The latter presented before the trial court private respondents statement of account[27] as of September 30, 1986, showing an outstanding balance of P4,689,413.63 after deducting P1,000,000.00 paid seven months earlier. Furthermore, such partial payment is equivalent to

an express acknowledgment of his obligation. Private respondent can no longer backtrack and deny his liability to petitioner bank. A person cannot accept and reject the same instrument.[28] WHEREFORE, the petition is GRANTED. The assailed Decision is SET ASIDE and the Decision of RTC-Manila, Branch 48, in Civil Case No. 26465 is hereby REINSTATED. SO ORDERED.

G.R. No. 90596 April 8, 1991 SOLID MANILA CORPORATION, vs. BIO HONG TRADING CO., INC. SARMIENTO, J.:p This is an appeal filed by way of a petition for review on certiorari under Rule 45 of the Rules of Court. The petitioner raises two questions: (1) whether or not the Court of Appeals 1 erred in reversing the trial court which had rendered summary judgment; and (2) whether or not it erred in holding that an easement had been extinguished by merger. We rule for the petitioner on both counts. It appears that the petitioner is the owner of a parcel of land located in Ermita, Manila, covered by Transfer Certificate of Title No. 157750 of the Register of Deeds of Manila. The same lies in the vicinity of another parcel, registered in the name of the private respondent corporation under Transfer Certificate of Title No. 128784. The private respondent's title came from a prior owner, and in their deed of sale, the parties thereto reserved as an easement of way: . . .a portion thereof measuring NINE HUNDRED FOURTEEN SQUARE METERS, more or less, had been converted into a private alley for the benefit of neighboring estates, this being duly annotated at the back of the covering transfer Certificate of title per regulations of the Office of the City Engineer of Manila and that the three meterwide portion of said parcel along the Pasig River, with an area of ONE HUNDRED SEVENTY NINE (179) SQUARE METERS, more or less, had actually been expropriated by the City Government, and developed pursuant to the beautification drive of the Metro Manila Governor. (p. 3, Record). 2 As a consequence, an annotation was entered in the private respondent's title, as follows: Entry No. 7712/T-5000 CONSTRUCTION OF PRIVATE ALLEY It is hereby made of record that a construction of private alley has been undertaken on the lot covered by this title from Concepcion Street to the interior of the aforesaid property with the plan and specification duly approved by the City Engineer subject to the following conditions to wit: (1) That the private alley shall be at least three (3) meters in width; (2) That the alley shall not be closed so long as there's a building exists thereon (sic); (3) That the alley shall be open to the sky; (4) That the owner of the lot on which this private alley has been constituted shall construct the said alley and provide same with

concrete canals as per specification of the City Engineer; (5) That the maintenance and upkeep of the alley shall be at the expense of the registered owner; (6) That the alley shall remain open at all times, and no obstructions whatsoever shall be placed thereon; (7) That the owner of the lot on which the alley has been constructed shall allow the public to use the same, and allow the City to lay pipes for sewer and drainage purposes, and shall not act (sic) for any indemnity for the use thereof; and (8) That he shall impose upon the vendee or new owner of the property the conditions abovementioned; other conditions set forth in Doc. No. 4236, Page No. 11, Book No. 84 of Nicasio P. Misa, Not. Pub. of Manila. 3 The petitioner claims that ever since, it had (as well as other residents of neighboring estates) made use of the above private alley and maintained and contributed to its upkeep, until sometime in 1983, when, and over its protests, the private respondent constructed steel gates that precluded unhampered use. On December 6, 1984, the petitioner commenced suit for injunction against the private respondent, to have the gates removed and to allow full access to the easement. The court a quo shortly issued ex parte an order directing the private respondent to open the gates. Subsequently, the latter moved to have the order lifted, on the grounds that: (1) the easement referred to has been extinguished by merger in the same person of the dominant and servient estates upon the purchase of the property from its former owner; (2) the petitioner has another adequate outlet; (3) the petitioner has not paid any indemnity therefor; and (4) the petitioner has not shown that the right-of-way lies at the point least prejudicial to the servient estate. The private respondent's opposition notwithstanding, the trial court issued a "temporary writ of preliminary injunction to continue up to the final termination of the case upon its merits upon the posting of a P5,000.00 bond by the plaintiff. 4 (the petitioner herein). Thereafter, the respondent corporation answered and reiterated its above defenses. On April 15, 1986, the petitioner moved for summary judgment and the court a quo ruled on the same as follows: In view of the foregoing, this Court finds it unnecessary to try this case on the merit (sic) and hereby resolve (sic) to grant the plaintiffs motion for summary judgment. (pp. 15-107, Record). 5 On January 19, 1987, the trial court rendered judgment against the private respondent, the dispositive portion of which states: WHEREFORE, judgment is hereby rendered making permanent the temporary mandatory injunction, that

had been issued against the defendant, and for the defendant to pay the plaintiff the costs of this suit. The defendant's counterclaim against the plaintiff is hereby dismissed, for lack of merit. (Summary Judgment, p. 6). 6 The private respondent appealed to the respondent Court of Appeals. Meanwhile, the private respondent itself went to the Regional Trial Court on a petition for the cancellation of the annotation in question. The court granted cancellation, for which the petitioner instituted CA-G.R. SP No. 13421 of the respondent Court of Appeals which ordered the restoration of the annotation "without prejudice [to] the final outcome of 7 the private respondent's own appeal (subject of this petition). In reversing the trial court which had, as earlier mentioned, rendered summary judgment, the respondent Court of Appeals held that the summary judgment was improper and that the lower court erroneously ignored the defense set up by the private respondent that the easement in question had been extinguished. According to the Appellate Court, an easement is a mere limitation on ownership and that it does not impair the private respondent's title, and that since the private respondent had acquired title to the property, "merger" brought about an extinguishment of the easement. The petitioner submits that the respondent Court of Appeals erred, because the very deed of sale executed between the private respondent and the previous owner of the property "excluded" the alley in question, and that in any event, the intent of the parties was to retain the "alley" as an easement notwithstanding the sale. As already stated at the outset, the Court finds merit in the petition. There is no question that an easement, as described in the deed of sale executed between the private respondent and the seller, had been constituted on the private respondent's property, and has been in fact annotated at the back of Transfer Certificate of Title No. 128784. Specifically, the same charged the private respondent as follows: "(6) That the alley shall remain open at all times, and no obstructions whatsoever shall be placed thereon; (7) That the owner of the lot on which the alley has been constructed shall allow the public to use the same, and allow the City to lay pipes for sewer and drainage purposes, and shall not [ask] for any indemnity for the use thereof. . ." 8Its act, therefore, of erecting steel gates across the alley was in defiance of these conditions and a violation of the deed of sale, and, of course, the servitude of way. The Court then is of the opinion that injunction was and is proper and in denying injunctive relief on appeal, the respondent Appellate Court committed an error of judgment and law. It is hardly the point, as the Court of Appeals held, that the private respondent is the owner of the portion on which the right-of-way had

been established and that an easement can not impair ownership. The petitioner is not claiming the easement or any part of the property as its own, but rather, it is seeking to have the private respondent respect the easement already existing thereon. The petitioner is moreover agreed that the private respondent has ownership, but that nonetheless, it has failed to observe the limitation or encumbrance imposed on the same There is therefore no question as to ownership. The question is whether or not an easement exists on the property, and as we indicated, we are convinced that an easement exists. It is true that the sale did include the alley. On this score, the Court rejects the petitioner's contention that the deed of sale "excluded" it, because as a mere right-of-way, it can not be separated from the tenement and maintain an independent existence. Thus: Art. 617. Easements are inseparable from the estate to which they actively or passively belong. 9 Servitudes are merely accessories to the tenements of which they form part. 10 Although they are possessed of a separate juridical existence, as mere accessories, they can not, however, be alienated 11 from the tenement, or mortgaged separately. 12 The fact, however, that the alley in question, as an easement, is inseparable from the main lot is no argument to defeat the petitioner's claims, because as an easement precisely, it operates as a limitation on the title of the owner of the servient estate, specifically, his right to use (jus utendi). As the petitioner indeed hastens to point out, the deed itself stipulated that "a portion thereof [of the tenement] measuring NINE HUNDRED FOURTEEN SQUARE METERS, more or less, had been converted into a private alley for the benefit of the neighboring estates. . ." 13 and precisely, the former owner, in conveying the property, gave the private owner a discount on account of the easement, thus: WHEREAS, to compensate for the foregoing, the parties hereto agreed to adjust the purchase price from THREE MILLION SEVEN HUNDRED NINETY THOUSAND FOUR HUNDRED FORTY PESOS (P3,790,440.) to THREE MILLION FIVE HUNDRED THREE THOUSAND TWO HUNDRED FORTY PESOS (P3,503,240.00) 14 Hence, and so we reiterate, albeit the private respondent did acquire ownership over the property including the disputed alley as a result of the conveyance, it did not acquire the right to close that alley or otherwise put up obstructions thereon and thus prevent the public from using it, because as a servitude, the alley is supposed to be open to the public.

The Court is furthermore of the opinion, contrary to that of the Court of Appeals, that no genuine merger took place as a consequence of the sale in favor of the private respondent corporation. According to the Civil Code, a merger exists when ownership of the dominant and servient estates is consolidated in the same person. 15 Merger then, as can be seen, requires full ownership of both estates. One thing ought to be noted here, however. The servitude in question is a personal servitude, that is to say, one constituted not in favor of a particular tenement (a real servitude) but rather, for the benefit of the general public. Personal servitudes are referred to in the following article of the Civil Code: Art. 614. Servitudes may also be established for the benefit of a community, or of one or more persons to whom the encumbered estate does not belong. 16 In a personal servitude, there is therefore no "owner of a dominant tenement" to speak of, and the easement pertains to persons without a dominant estate, 17 in this case, the public at large. Merger, as we said, presupposes the existence of a prior servientdominant owner relationship, and the termination of that relation leaves the easement of no use. Unless the owner conveys the property in favor of the public if that is possible no genuine merger can take place that would terminate a personal easement. For this reason, the trial court was not in error in rendering summary judgment, and insofar as the respondent Court of Appeals held that it (the trial court) was in error, the Court of Appeals is in error. Summary judgments under Rule 34 of the Rules of Court are proper where there is no genuine issue as to the existence of a material fact, and the facts appear undisputed based on the pleadings, depositions, admissions, and affidavits of record. 18 In one case, this Court upheld a decision of the trial court rendered by summary judgment on a claim for money to which the defendant interposed the defense of payment but which failed to produce receipts. 19 We held that under the circumstances, the defense was not genuine but rather, sham, and which justified a summary judgment. In another case, we rejected the claim of acquisitive prescription over registered property and found it likewise to be sham, and sustained consequently, a summary judgment rendered because the title challenged was covered by a Torrens Certificate and under the law, Torrens titles are imprescriptible. 20 We also denied reconveyance in one case and approved a summary judgment rendered thereon, on the ground that from the records, the plaintiffs were clearly guilty of laches having failed to act until after twenty-seven years. 21 We likewise allowed summary judgment and rejected

contentions of economic hardship as an excuse for avoiding payment under a contract for the reason that the contract imposed liability under any and all conditions. 22 In the case at bar, the defense of merger is, clearly, not a valid defense, indeed, a sham one, because as we said, merger is not possible, and secondly, the sale unequivocally preserved the existing easement. In other words, the answer does not, in reality, tender any genuine issue on a material fact and can not militate against the petitioner's clear cause of action. As this Court has held, summary judgments are meant to rid a proceeding of the ritual of a trial where, from existing records, 23 the facts have been established, and trial would be futile. What indeed, argues against the posturing of the private respondent and consequently, the challenged holding of the respondent Court of Appeals as well is the fact that the Court of Appeals itself had rendered judgment, in its CA-G.R. No. 13421, entitled Solid Manila Corporation v. Ysrael, in which it nullified the cancellation of the easement annotated at the back of the private respondent's certificate of title ordered by Judge Ysrael in LRC Case No. 273. As the petitioner now in fact insists, the Court of Appeals' judgment, which was affirmed by this Court in its Resolution dated December 14, 1988, in G.R. No. 83540, is at least, the law of the case between the parties, as "law of the case" is known in law, e.g.: xxx xxx xxx Law of the case has been defined as the opinion delivered on a former appeal. More specifically, it means that whatever is once irrevocably established as the controlling legal rule of decision between the same parties in the same case continues to be the law of the case, whether correct on general principles or not, so long as the facts on which such decision was predicated continue to be the facts of the case before the court. (21 C.J.S. 330) (Emphasis supplied). It may be stated as a rule of general application that, where the evidence on a second or succeeding appeal is substantially the same as that on the first or preceding appeal, all matters, questions, points, or issues adjudicated on the prior appeal are the law of the case on all subsequent appeals and will not be considered or readjudicated therein. (5 C.J.S. 1267) (Emphasis supplied.) In accordance with the general rule stated in Section 1821, where, after a definite determination, the court has remanded the cause for further action below, it will refuse to examine question other than those arising subsequently to such determination and

remand, or other than the propriety of the compliance with its mandate; and if the court below has proceeded in substantial conformity to the directions of the appellate court, its action will not be questioned on a second appeal. As a general rule a decision on a prior appeal of the same case is held to be the law of the case whether that decision is right or wrong, the remedy of the party deeming himself aggrieved being to seek a rehearing. (5 C.J.S. 1276-77). (Emphasis supplied.) Questions necessarily involved in the decision on a former appeal will be regarded as the law of the case on a subsequent appeal, although the questions are not expressly treated in the opinion of the court, as the presumption is that all the facts in the case bearing on the point decided have received due consideration whether all or none of them are mentioned in the opinion. (5 C.J.S. 1286-87). (Emphasis supplied.) 24 CA-G.R. No. 13421 is the law of the case because clearly, it was brought to determine the rights of the parties regarding the easement, subject of the controversy in this case, although as a petition for "cancellation of annotation" it may have, at a glance, suggested a different cause of action. And for reasons of fair play, the private respondent can not validly reject CA-G.R. No. 13421 as the law of the case, after all, it was the one that initiated the cancellation proceedings with the Regional Trial Court in LRC No. 273 that precipitated that appeal. In the second place, the proceedings for cancellation of annotation was in fact meant to preempt the injunction decreed by the lower court in this case. Plainly and simply, the private respondent is guilty of forumshopping, as we have described the term: xxx xxx xxx There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies not only with respect to suits filed in the courts but also in connection with litigations commenced in the courts while an administrative proceeding is pending, as in this case, in order to defeat administrative processes and in anticipation of an unfavorable administrative ruling and a favorable court ruling. This is specially so, as in this case, where the court in which the second suit was brought, has no jurisdiction.25 to which contempt is a penalty. 26

As it happened, in its effort to shop for a friendly forum, the private respondent found an unfriendly court and it can not be made to profit from its act of malpractice by permitting it to downgrade its finality and deny its applicability as the law of the case. As a personal servitude, the right-of-way in question was established by the will of the owner. In the interesting case of North Negros Sugar Co., Inc. v. Hidalgo, 27 this Court, speaking through Justice Claro Recto, declared that a personal servitude (also a right of way in that case) is established by the mere "act" 28 of the landowner, and is not "contractual in the nature," 29 and a third party (as the petitioner herein is a third party) has the personality to claim its benefits. In his separate opinion, however, Justice Jose Laurel maintained that a personal or voluntary servitude does require a contract and that "[t]he act of the plaintiff in opening the private way here involved did not constitute an offer . . . " 30 and "[t]here being no offer, there could be no acceptance; hence no contract." 31 The Court sees no need to relive the animated exchanges between two legal titans (they would contend even more spiritedly in the "larger" world of politics) to whom present scholars perhaps owe their erudition and who, because of the paths they have taken, have shaped history itself; after all, and coming back to the case at bar, it is not disputed that an easement has been constituted, whereas it was disputed in North Negros' case. Rather, the question is whether it is still existing or whether it has been extinguished. As we held, our findings is that it is in existence and as a consequence, the private respondent can not bar the public, by erecting an obstruction on the alley, from its use. WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals is SET ASIDE and the decision of the Regional Trial Court is hereby REINSTATED. The petitioner and its counsel are hereby required to SHOW CAUSE why they should not be punished for contempt of court, and also administratively dealt with in the case of counsel, for forum shopping. IT IS SO ORDERED.