BUSINESS ORGANIZATION 2 NILTantay III-Manresa Case Digests TITLE I GENERAL PROVISIONS Definitions and Classifications Section !

Title of t"e Code# - This Code shall be known as "The Corporation Code of the Philippines". Section 2 ! Co$%o$ation defined# A corporation is an artificial being created by operation of law ha!ing the right of s"ccession and the powers attrib"tes and properties e#pressly a"thori$ed by law or incident to its e#istence. A# A$tificial Being C"ild Lea$ning Cente$ Vs# Tago$io &'() SCRA 2*)+ ,actsTi%othy was a &rade I' st"dent at Mary%o"nt (chool an acade%ic instit"tion operated and %aintained by Child Learning Center Inc. )CLC*. In the afternoon of March + ,--, between , and . p.%. Ti%othy entered the boy/s co%fort roo% at the third floor of the Mary%o"nt b"ilding to answer the call of nat"re. 0e howe!er fo"nd hi%self locked inside and "nable to get o"t. Ti%othy started to panic and so he banged and kicked the door and yelled se!eral ti%es for help. 1hen no help arri!ed he decided to open the window to call for help. In the process of opening the window Ti%othy went right thro"gh and fell down three stories. Ti%othy was hospitali$ed and gi!en %edical treat%ent for serio"s %"ltiple physical in2"ries. An action "nder Article .,34 of the Ci!il Code was filed by respondents against the CLC the %e%bers of its 5oard of 6irectors na%ely (po"ses 7dgardo and (yl!ia Li%on Alfonso Cr"$ Car%elo Narciso and L"ningning (al!ador and the Ad%inistrati!e 8fficer of Mary%o"nt (chool 9icardo Pilao. The co"rt a quo fo"nd in fa!or of respondents and ordered petitioners CLC and (po"ses Li%on to pay respondents 2ointly and se!erally P.:: .+;.,. as act"al and co%pensatory da%ages P.:: ::: as %oral da%ages P+: ::: as e#e%plary da%ages P,:: ::: as attorney/s fees and the costs of the s"it. The trial co"rt disregarded the corporate fiction of CLC and held the (po"ses Li%on personally liable beca"se they were the ones who act"ally %anaged the affairs of the CLC. Iss.e1<N there is basis for =piercing the !eil of corporate entity> in resol!ing the iss"e of alleged personal liability of petitioners 7dgardo L. Li%on and (yl!ia (. Li%on R.lingThere was no basis to pierce CLC/s separate corporate personality. To disregard the corporate e#istence the plaintiff %"st pro!e? ),* Control by the indi!id"al owners not %ere %a2ority or co%plete stock ownership res"lting in co%plete do%ination not only of finances b"t of policy and b"siness practice in respect to a transaction so that the corporate entity as to this transaction had at the ti%e no separate %ind will or e#istence of its own@ ).* s"ch control %"st ha!e been "sed by the defendant to co%%it fra"d or wrong to perpet"ate the !iolation of a stat"tory or other positi!e legal d"ty or a dishonest and "n2"st act in contra!ention of the plaintiff/s legal right@ and );* the control and breach of d"ty %"st pro#i%ately ca"se the in2"ry or "n2"st loss co%plained of. The absence of these ele%ents pre!ents piercing the corporate !eil. The e!idence on record fails to show that these ele%ents are present especially gi!en the fact that plaintiffs/ co%plaint had pleaded that CLC is a corporation d"ly organi$ed and e#isting "nder the laws of the Philippines. ABS/CBN Vs# CA &* 0 SCRA 1(2+ ,actsA5(-C5N and 'i!a e#ec"ted a Ail% 7#hibition Agree%ent whereby 'i!a ga!e A5(-C5N an e#cl"si!e right to e#hibit so%e 'i!a fil%s. (o%eti%e in 6ece%ber ,--, in accordance with paragraph ..B of said agree%ent stating that? ..B A5(-C5N shall ha!e the right of first ref"sal to the ne#t twenty-fo"r ).B* 'i!a fil%s for T' telecast "nder s"ch ter%s as %ay be agreed "pon by the parties hereto pro!ided howe!er that s"ch right shall be e#ercised by A5(-C5N fro% the act"al offer in writing.

'i!a thro"gh defendant 6el 9osario offered A5(-C5N thro"gh its !icepresident Charo (antos-Concio a list of three );* fil% packages );4 title* fro% which A5(-C5N %ay e#ercise its right of first ref"sal "nder the afore-said agree%ent. A5(-C5N howe!er thro"gh Mrs. Concio "can tick off only ten ),:* titles" )fro% the list* "we can p"rchase" and therefore did not accept said list. The titles ticked off by Mrs. Concio are not the s"b2ect of the case at bar e#cept the fil% CCMaging (ino Da Man." 6el 9osario approached A5(-C5NCs Ms. Concio with a list consisting of +. original %o!ie titles incl"ding the ,B titles s"b2ect of the present case as well as ,:B re-r"ns fro% which A5(-C5N %ay choose another +. titles as a total of ,+4 titles proposing to sell to A5(-C5N airing rights o!er this package of +. originals and +. re-r"ns for P4: ::: :::.:: of which P;: ::: :::.:: will be in cash and P;: ::: :::.:: worth of tele!ision spots. Also 6el 9osario and A5(-C5N general %anager 7"genio Lope$ III %et to disc"ss the package proposal of 'i!a. 1hat transpired in that l"nch %eeting is the s"b2ect of conflicting !ersions. Mr. Lope$ testified that he and Mr. 6el 9osario allegedly agreed that A5(-C9N was granted e#cl"si!e fil% rights to fo"rteen ),B* fil%s for a total consideration of P;4 %illion@ that he allegedly p"t this agree%ent as to the price and n"%ber of fil%s in a "napkinCC and signed it and ga!e it to Mr. 6el 9osario. 8n the other hand 6el 9osario denied ha!ing %ade any agree%ent with Lope$ regarding the ,B 'i!a fil%s@ denied the e#istence of a napkin in which Lope$ wrote so%ething@ and insisted that what he and Lope$ disc"ssed at the l"nch %eeting was 'i!aCs fil% package offer of ,:B fil%s )+. originals and +. re-r"ns* for a total price of P4: %illion. Mr. Lope$ pro%ising EsicFto %ake a co"nter proposal which ca%e in the for% of a proposal contract. 6el 9osario and Mr. &raciano &o$on of 95( (enior !ice-president for Ainance disc"ssed the ter%s and conditions of 'i!aCs offer to sell the ,:B fil%s after the re2ection of the sa%e package by A5(-C5N. After the re2ection of A5(-C5N and following se!eral negotiations and %eetings 6el 9osario and 'i!aCs President Teresita Cr"$ in consideration of P4: %illion signed a letter of agree%ent granting 95( the e#cl"si!e right to air ,:B 'i!a-prod"ced and<or acG"ired fil%s incl"ding the fo"rteen ),B* fil%s s"b2ect of the present case. Th"s A5(-C5N filed a co%plaint for specific perfor%ance with a prayer for a writ of preli%inary in2"nction and<or te%porary restraining order against 9ep"blic 5roadcasting Corporation 'i!a Prod"ction and 'icente 6el 9osario. 9TC iss"ed a te%porary restraining order en2oining 95( fro% proceeding with the airing broadcasting and tele!ising of the fo"rteen 'I'A fil%s s"b2ect of the contro!ersy starting with the fil% Maging Sino Ka Man which was sched"led to be shown on pri!ate respondents 95(C channel 3 at se!en oCclock in the e!ening of said date. Iss.e1<N 95( as a corporation is entitled to %oral da%ages R.lingArticle ..,3 of the NCC defines what are incl"ded in %oral da%ages while Article ..,- en"%erates the cases where they %ay be reco!ered Article ...: pro!ides that %oral da%ages %ay be reco!ered in breaches of contract where the defendant acted fra"d"lently or in bad faith. 95(Cs clai% for %oral da%ages co"ld possibly fall only "nder ite% ),:* of Article ..,- thereof which reads? ),:* Acts and actions referred to in Articles ., .4 .3 .H .- ;: ;. ;B and ;+. Moral da%ages are in the category of an award designed to co%pensate the clai%ant for act"al in2"ry s"ffered and not to i%pose a penalty on the wrongdoer. The award is not %eant to enrich the co%plainant at the e#pense of the defendant b"t to enable the in2"red party to obtain %eans di!ersion or a%"se%ents that will ser!e to ob!iate then %oral s"ffering he has "ndergone. It is ai%ed at the restoration within the li%its of the possible of the spirit"al status quo ante and sho"ld be proportionate to the s"ffering inflicted. Trial co"rts %"st then g"ard against the award of e#orbitant da%ages@ they sho"ld e#ercise balanced restrained and %eas"red ob2ecti!ity to a!oid s"spicion that it was d"e to passion pre2"dice or corr"ption on the part of the trial co"rt. The award of %oral da%ages cannot be granted in fa!or of a corporation beca"se being an artificial person and ha!ing e#istence only in legal conte%plation it has no feelings no e%otions no senses It cannot therefore e#perience physical s"ffering and %ental ang"ish which call be e#perienced only by one ha!ing a ner!o"s syste%. The state%ent in People v. Manero and Mambulao Lumber Co. v. PNB that a corporation %ay reco!er %oral da%ages if it "has a good rep"tation that is debased res"lting in social h"%iliation" is an obiter dictum. 8n this score alone the award for da%ages %"st be set aside since 95( is a corporation.

2ERALCO Vs# TEA2 Elect$onics &1'0 SCRA )2+

,acts,acts? T.7.A.M. 7lectronics Corporation )T7C* was for%erly known as N( 7lectronics )Philippines* Inc. before ,-H. and National (e%i-Cond"ctors )Phils.* before ,-HH. T7C is wholly owned by Technology 7lectronics Asse%bly and Manage%ent Pacific Corporation )TPC*. 8n the other hand Manila 7lectric Co%pany )Meralco* is a "tility co%pany s"pplying electricity in the Metro Manila area. Meralco and N( 7lectronics )Philippines* Inc. the predecessor-in-interest of T7C were parties to two separate contracts deno%inated as Agree%ents for the (ale of 7lectric 7nergy. Inder the aforesaid agree%ents Meralco "ndertook to s"pply T7C/s b"ilding known as 6yna Craft International Manila )6CIM*. Another contract was entered into for the s"pply of electric power to T7C/s N( 5"ilding. In (epte%ber ,-H4 T7C "nder its for%er na%e National (e%i-Cond"ctors )Phils.* entered into a Contract of Lease with Iltra 7lectronics Ind"stries Inc. )Iltra* for the "se of the for%er/s 6CIM b"ilding for a period of fi!e years or "ntil (epte%ber ,--,. Iltra was howe!er e2ected fro% the pre%ises on Aebr"ary ,. ,-HH by !irt"e of a co"rt order for repeated !iolation of the ter%s and conditions of the lease contract. 8n (epte%ber .H ,-H3 a tea% of Meralco/s inspectors cond"cted a s"rprise inspection of the electric %eters installed at the 6CIM b"ilding witnessed by Iltra/s representati!e Mr. 1illie Abangan. The two %eters were fo"nd to be allegedly ta%pered with and did not register the act"al power cons"%ption in the b"ilding. The res"lts of the inspection were reflected in the (er!ice Inspection 9eports prepared by the tea%. Meralco infor%ed T7C of the res"lts of the inspection and de%anded fro% the latter the pay%ent of P3 :B: B:,.:, representing its "nregistered cons"%ption fro% Aebr"ary ,: ,-H4 "ntil (epte%ber .H ,-H3 as a res"lt of the alleged ta%pering of the %eters. T7C recei!ed the letters on Jan"ary 3 ,-HH. (ince Iltra was in possession of the s"b2ect b"ilding d"ring the co!ered period T7C/s Managing 6irector Mr. 5obby Tan referred the de%and letter to Iltra which in t"rn infor%ed T7C that its 7#ec"ti!e 'icePresident had %et with petitioner/s representati!e. Iltra f"rther inti%ated that ass"%ing that there was ta%pering of the %eters petitioner/s assess%ent was e#cessi!e. Aor fail"re of T7C to pay the differential billing petitioner disconnected the electricity s"pply to the 6CIM b"ilding on April .- ,-HH. T7C de%anded fro% petitioner the reconnection of electrical ser!ice clai%ing that it had nothing to do with the alleged ta%pering b"t the latter ref"sed to heed the de%and. 0ence T7C filed a co%plaint on May .3 ,-HH before the 7nergy 9eg"latory 5oard )795* praying that electric power be restored to the 6CIM b"ilding. The 795 i%%ediately ordered the reconnection of the ser!ice b"t petitioner co%plied with it only on 8ctober ,. ,-HH after T7C paid P, ::: :::.:: "nder protest. The co%plaint before the 795 was later withdrawn as the parties dee%ed it best to ha!e the iss"es threshed o"t in the reg"lar co"rts. Prior to the reconnection or on J"ne 3 ,-HH petitioner cond"cted a sched"led inspection of the G"estioned %eters and fo"nd the% to ha!e been ta%pered anew. Meanwhile on April .+ ,-HH petitioner cond"cted another inspection this ti%e in T7C/s N( 5"ilding. The inspection allegedly re!ealed that the electric %eters were not registering the correct power cons"%ption. Petitioner th"s sent a letter dated J"ne ,H ,-HH de%anding pay%ent of P.H: H,;.3. representing the differential billing. T7C denied petitioner/s allegations and clai% in a letter dated J"ne .- ,-HH. Petitioner th"s sent T7C another letter de%anding pay%ent of the aforesaid a%o"nt with a warning that the electric ser!ice wo"ld be disconnected in case of contin"ed ref"sal to pay the differential billing. To a!ert the i%pending disconnection of electrical ser!ice T7C paid the abo!e a%o"nt "nder protest. 8n Jan"ary ,; ,-H- T7C and TPC filed a co%plaint for da%ages against petitioner and Iltra before the 9egional Trial Co"rt )9TC* of Pasig. The trial co"rt rendered a 6ecision in fa!or of T7C and TPC and against Iltra and Meralco declaring the latter 2ointly and se!erally liable. Iss.e1<N a corporation is entitled to %oral da%ages R.lingT7C/s clai% was pre%ised allegedly on the da%age to its goodwill and rep"tation. As a r"le a corporation is not entitled to %oral da%ages beca"se not being a nat"ral person it cannot e#perience physical s"ffering or senti%ents like wo"nded feelings serio"s an#iety %ental ang"ish and %oral shock. The only e#ception to this r"le is when the corporation has a rep"tation that is debased res"lting in its h"%iliation in the b"siness real%. 5"t in s"ch a case it is i%perati!e for the clai%ant to present proof to 2"stify the award. It is essential to pro!e the e#istence of the fact"al basis of the da%age and its ca"sal relation to petitioner/s acts. In the present case the records are bereft of any e!idence that the na%e or rep"tation of T7C<TPC has been debased as a res"lt of petitioner/s acts. Nisce Vs# E3.ita4le Ban5 &1 ) SCRA 2* + (o%eti%e in ,-HB Nati!idad opened an acco"nt in PCI Ban5 Paseo de Ro6as branch to cater her needs for easy access to foreign e#change. Thereafter Nati!idad deposited K.: +:: as was iss"ed a passbook. Ipon her reG"est the bank transferred K.: ::: to PCI Ca%ital Asia Ltd# in 0ong Dong !ia cable order. PCI owns al%ost all of the shares of PCI Capital. In ,--B 7G"itable and PCI bank %erged. In ,--4 the spo"ses Nisce sec"red a P.: ::: ::: loan fro% the 5ank. To sec"re the pay%ent of the loan they %ortgaged . real estate properties located in Makati. Another loan was also co!ered by a real estate %ortgage. They were able to pay partial pay%ents to the loan. 0owe!er they defa"lted in their pay%ents thereafter. The spo"ses offered their dollar acco"nt to setoff the indebtedness. 0owe!er the bank %ade no response on the offer. 7G"itable PCI bank filed a petition for e#tra2"dicial foreclos"re before the 9egional Trial Co"rt )9TC*. The spo"ses on the other hand filed a co%plaint for N"llity of the ("retyship agree%ent da%ages and legal co%pensation with a prayer for in2"ncti!e relief against the bank and the (heriff. The 9TC granted the in2"ncti!e relief. The Co"rt of Appeals re!ersed the trial co"rt/s decision. 0ence this petition. The petitioners %aintain that the K.: ::: dollar deposit sho"ld be setoff against their loan acco"nt with 7G"itable clai%ing that the bank is their debtor insofar as their deposit is concerned. Iss.e? 1<N PCI Capital and 7G"itable 5ank be treated as one entity so as to per%it co%pensation between 7G"itable and the spo"sesL R.lingNo they cannot be treated as one entity. Therefore there cannot be co%pensation between the%. Inder the Article ,.3H for co%pensation to take place the petitioners were b"rdened to establish a%ong others that each one of the obligors be bo"nd principally and that he be at the sa%e ti%e a principal creditor of the other. 1hen Nati!idad Nisce deposited her I(K.: +::.:: with the PCI5 PCI5 beca%e the debtor of petitioner. 0owe!er when "pon petitioner/s reG"est the a%o"nt of I(K.: :::.:: was transferred to PCI Capital )which forthwith iss"ed Certificate of 6eposit No. :,4,.* PCI Capital in t"rn beca%e the debtor of Nati!idad Nisce. Ad%ittedly PCI Capital is a s"bsidiary of respondent 5ank. 7!en then PCI Capital EPCI 7#press Padala )0D* Ltd.F has an independent and separate 2"ridical personality fro% that of the respondent 5ank its parent co%pany@ hence any clai% against the s"bsidiary is not a clai% against the parent co%pany and !ice !ersa. The fact that a corporation owns all of the stocks of another corporation taken alone is not s"fficient to 2"stify their being treated as one entity. If "sed to perfor% legiti%ate f"nctions a s"bsidiary/s separate e#istence shall be respected and the liability of the parent corporation as well as the s"bsidiary shall be confined to those arising in their respecti!e b"siness. A corporation has a separate personality distinct fro% its stockholders and fro% other corporations to which it %ay be cond"cted. This separate and distinct personality of a corporation is a fiction created by law for con!enience and to pre!ent in2"stice. The !eil of separate corporate personality %ay be lifted when inter alia the corporation is %erely an ad2"nct a b"siness cond"it or an alter ego of another corporation or where the corporation is so organi$ed and controlled and its affairs are so cond"cted as to %ake it %erely an instr"%entality agency cond"it or ad2"nct of another corporation@ or when the corporation is "sed as a cloak or co!er for fra"d or illegality@ or to work in2"stice@ or where necessary to achie!e eG"ity or for the protection of the creditors. In those cases where !alid gro"nds e#ist for piercing the !eil of corporate entity the corporation will be considered as a %ere association of persons. The liability will directly attach to the%. In applying the =instr"%entality> or =alter ego> doctrine the co"rts are concerned with reality and not for% with how the corporation operated and the indi!id"al defendant/s relationship to that operation. Petitioners failed to add"ce s"fficient e!idence to 2"stify the piercing of the !eil of corporate entity and render respondent 5ank liable for the I(K.: :::.:: deposit of petitioner Nati!idad Nisce as debtor. 2anaco% Vs# E3.ita4le/PCI &')7 SCRA 21)+ ,actsLa!ine Lo"ngewear Man"fact"ring Inc. ins"red its b"ildings and s"pplies against fire with Philippine Aire and Marine Ins"rance Corporation 9i$al ("rety and Ins"rance Co%pany Tabacalera Ins"rance Co%pany Airst Lepanto-Taisho Ins"rance Corporation 7G"itable Ins"rance Corporation and 9eliance Ins"rance Corporation.

7#cept for Policy iss"ed by Airst Lepanto all the ins"rance policies pro!ide that the loss if any shall be payable to 7G"itable 5anking Corporation&reenhills 5ranch as their interest %ay appear. 8n A"g"st , ,--H a fire g"tted La!ine/s b"ildings and their contents th"s clai%s were %ade against the policies. Certain ins"rance co%panies released the proceeds directly to 7G"itable 5ank despite Chandr"/s reG"est that pay%ents be %ade first to La!ine who shall thereafter pay 7G"itable 5ank. In behalf of La!ine a Petition for the Iss"ance of a 1rit of Preli%inary In2"nction with Prayer for Te%porary 9estraining 8rder was filed against Philfire 9i$al ("rety TIC8 Airst Lepanto and 7G"itable 5ank. The Trial Co"rt rendered a decision ordering the defendant 5ank to ref"nd the plaintiff the o!erpay%ent %ade to the 5ank and the defendant Ins"rance co%panies to pay plaintiff the "npaid ins"rance proceeds a%ong others. 8n April ; .::. the inter!enors filed a Motion for 7#ec"tion Pending Appeal on the following gro"nds? )a* TIC8 was on the brink of insol!ency@ )b* La!ine was in i%%inent danger of e#tinction@ and )c* any appeal fro% the trial co"rt/s 2"dg%ent wo"ld be %erely dilatory. J"dge La!ina granted the %otion for e#ec"tion pending appeal and iss"ed a writ of e#ec"tion on May .: .::. which was i%ple%ented the following day. The Co"rt of Appeals howe!er !oided the writ of e#ec"tion pending appeal. Iss.e1<N the Co"rt of Appeals co%%itted an error in !oiding the writ of e#ec"tion pending appeal.

Iss.e1<N Mendo$a and Matoko are personally liable for T'I/s indebtedness with the bank R.lingMes they are personally liable. The general r"le is that obligations inc"rred by a corporation acting thro"gh its directors officers or e%ployees are its sole liabilities. 0owe!er the !eil with which the law co!ers and isolates the corporation fro% its directors officers or e%ployees will be lifted when the corporation is "sed by any of the% as a cloak or co!er for fra"d or illegality or in2"stice. In the case at bar the fra"d was co%%itted by Mendo$a and Matoko to the pre2"dice of the bank. They transferred the 5eta !ideo %achines fro% T'I to A&T witho"t the consent of the bank. Also "pon inG"iry of the sheriff Mendo$a declined knowledge of the whereabo"ts of the %ortgaged !ideo %achines. A"rther the T'I is petitioner/s %ere alter ego or b"siness cond"it. They control the affairs of T'I. A%ong its stockholders or directors they were the only ones who beca%e incorporators of A&T. They transferred the assets of T'I to A&T. Th"s the petitioners had acted in bad faith to defra"d the bank since they s"cceeded in hiding the chattels pre!enting the sheriff to foreclose the %ortgage. Therefore they are the ones personally liable to the bank for the pay%ent of the loan and not T'I. Pet$on Vs# NLRC &101 SCRA 19)+

R.lingNo. The iss"ance of the e#ec"tion pending appeal was not 2"stified "nder the circ"%stances of the case. The Co"rt of Appeals correctly re!ersed the order. The general r"le is that only 2"dg%ents which ha!e beco%e final and e#ec"tory %ay be e#ec"ted. (ince the e#ec"tion of a 2"dg%ent pending appeal is an e#ception to the general r"le the e#istence of good reason is essential. Petitioners assert that La!ine/s financial distress is s"fficient reason to order e#ec"tion pending appeal. Citing Borja v. Court of Appeals they clai% that e#ec"tion pending appeal %ay be granted if the pre!ailing party is already of ad!anced age and in danger of e#tinction. Borja is not applicable to the case at bar beca"se its fact"al %ilie" is different. In Borja the pre!ailing party was a nat"ral person who at 34 years of age =%ay no longer en2oy the fr"it of the 2"dg%ent before he finally passes away.> La!ine on the other hand is a 2"ridical entity whose e#istence cannot be likened to a nat"ral person. Its precario"s financial condition is not by itself a co%pelling circ"%stance warranting i%%ediate e#ec"tion and does not o"tweigh the long-standing general policy of enforcing only final and e#ec"tory 2"dg%ents. 2endo8a Vs# Banco Real &'(0 SCRA )7+ ,acts7dgardo Matoko and Man"el Mendo$a are Preseident and &eneral Manager of Technical 'ideo Inc. respecti!ely. They were a"thori$ed by the 5oard of 6irectors of T'I thro"gh a 9esol"tion to apply for and sec"re a loan fro% the Pasay City 5anco 9eal 6e!elop%ent 5ank now L5C 5ank. The bank e#tended a loan of P+:: :::.:: to T'I and in t"rn Mendo$a in his capacity as &eneral Manager e#ec"ted a pro%issory note and chattel %ortgage o!er ,-+ "nits of 5eta !ideo %achines and their eG"ip%ent and accessories belonging to T'I in fa!or of the bank. ("bseG"ently T'I and two other !ideo fir%s Ao# 'ideo and &alactica 'ideo organi$ed a new corporation na%ed A&T 'ideo Network Inc. and was registered with the (7C. Mendo$a was the conc"rrent President of A&T and 8perating &eneral Manager of T'I. Th"s the office of T'I had to be transferred to the b"ilding of A&T for easier %onitoring of the distrib"tion and %arketing aspects of the b"siness. Aor T'I/s fail"re to pay its loan "pon %at"rity the bank filed a petition for 7#tra J"dicial Aoreclos"re and (ale of Chattel Mortgage. 0owe!er the (heriff/s 9eport<9et"rn shows that T'I is no longer doing b"siness at its gi!en address@ that its &eneral Manager Mendo$a is presently e%ployed with A&T@ that Mr. Mendo$a denied any knowledge of the whereabo"ts of the %ortgaged !ideo %achines. Meanwhile in another case where A&T and Mendo$a were defendants the 9TC iss"ed a search warrant. The agents of the N5I confiscated at the offices of A&T 4;H %achines and eG"ip%ent incl"ding the ,-+ 5eta %achines %ortgaged with the bank. The %achines and eG"ip%ent were left in the c"stody of N5I "ntil the petition for certiorari in that case has been resol!ed with finality. Thereafter the bank filed a co%plaint for collection of a s"% of %oney against T'I A&T and petitioners. Petitioners specifically denied that the loan is p"rely a corporate indebtedness.

,actsPetron Corporation a corporation d"ly organi$ed and e#isting "nder the laws of the Philippines is engaged in the refining sale and distrib"tion of petrole"% and other related prod"cts while its co-petitioner Peter C. Maligro was the for%er 'isayas 8perations Assistant Manager of Petron/s 'isayas-Mindanao 6istrict 8ffice at Lah"g Ceb" City. Petron thro"gh its Ceb" 6istrict 8ffice hired Chito (. Mantos an Ind"strial 7ngineer as a %anagerial professional and technical e%ployee with initial designation as a 5"lk Plant 7ngineering Trainee. 0e attained reg"lar e%ploy%ent stat"s on No!e%ber ,+ ,--: and was later on designated as a 5"lk Plant 9elief ("per!isor re%aining as s"ch for the ne#t fi!e years while being assigned to the different plants and offices of Petron within the 'isayas area. It was while assigned at Petron/s Ceb" 6istrict 8ffice with Peter Maligro as his i%%ediate s"perior when Mantos thr" a Notice of 6isciplinary Action was recei!ed by hi% that he was s.s%ended for ;: days for !iolating co%pany r"les and reg"lations regarding Absence 1itho"t Lea!e )A18L* not ha!ing reported for work d"ring the period A"g"st + to .3 ,--4. ("bseG"ently in a notice Ter%ination of (er!ices bearing date No!e%ber .: ,--4 and recei!ed by hi% on No!e%ber .+ ,--4 Mantos/ ser!ices were altogether te$:inated effecti!e 6ece%ber , ,--4 by reason of his contin"ed absences fro% A"g"st .H ,--4 onwards as well as for Ins"bordination<6isco"rtesy for %aking false acc"sations against his s"perior. Mantos filed with the National Labor 9elations Co%%ission 9egional Arbitration 5ranch )NL9C-9A5* Ceb" City a co%plaint for illegal dis%issal and other %onetary clai%s against Petron and<or Peter C. Maligro. Aor their part Petron and Maligro a!erred that Mantos was dis%issed for 2"st and !alid ca"ses. The Labor Arbiter declared Mantos to ha!e been constr"cti!ely dis%issed b"t r"led that only Petron co"ld be held liable to hi% for separation pay in lie" of reinstate%ent and the cash eG"i!alent of his certificate of stocks less his personal acco"ntabilities. The NL9C re!ersed the findings of the Labor Arbiter regarding Mantos/ constr"cti!e dis%issal as of No!e%ber , ,--4 and considered hi% to ha!e been illegally dis%issed only on 6ece%ber , ,--4. In the sa%e decision the NL9C ad2"dged Maligro solidarily liable with Petron. Iss.e1<N Maligro is liable for the dis%issal of Mantos R.ling(ettled is the r"le in this 2"risdiction that a corporation is in!ested by law with a legal personality separate and distinct fro% those acting for and in its behalf and in general fro% the people co%prising it. Th"s obligations inc"rred by corporate officers acting as corporate agents are not theirs b"t the direct acco"ntabilities of the corporation they represent. Tr"e solidary liabilities %ay

at ti%es be inc"rred by corporate officers b"t only when e#ceptional circ"%stances so warrant. Aor instance in labor cases corporate directors and officers %ay be held solidarily liable with the corporation for the ter%ination of e%ploy%ent if done with %alice or in bad faith. In the present case the apparent basis for the NL9C in holding petitioner Maligro solidarily liable with Petron were its findings that ),* the In!estigation Co%%ittee was created a day after the s"%%ons in NL9C 9A5-'II Case was recei!ed with Maligro no less being the chair%an thereof@ and ).* the basis for the charge of ins"bordination was the pri!ate respondent/s alleged %aking of false acc"sations against Maligro. Those findings howe!er cannot 2"stify a finding of personal liability on the part of Maligro inas%"ch as said findings do not point to Maligro/s e#tre%e personal hatred and ani%osity with the respondent. It cannot therefore be said that Maligro was %oti!ated by %alice and bad faith in connection with pri!ate respondent/s dis%issal fro% the ser!ice. If at all what said findings show are the illegality itself of pri!ate respondent/s dis%issal the lack of 2"st ca"se therefor and the non-obser!ance of proced"ral d"e process. 'erily the creation of the in!estigation co%%ittee and said co%%ittee/s consideration of the ins"bordination charge against the pri!ate respondent were %erely ai%ed to co!er "p the illegal dis%issal or to gi!e it a se%blance of legality. 5esides the fact that Maligro hi%self was the co%%ittee chair%an is not itself s"fficient to i%p"te bad faith on his part or attrib"te bias against hi%. It is "ndisp"ted that Maligro was pri!ate respondent/s s"perior being Petron/s 8perations Assistant Manager for 'isayas and Mindanao. It is th"s logical for hi% to be part of the co%%ittee that will in!estigate pri!ate respondent/s alleged infractions of co%pany r"les and reg"lations. As well the co%%ittee was co%posed of three other Petron officers as %e%bers and nowhere is there any showing that Maligro as co%%ittee chair%an infl"enced the other co%%ittee %e%bers to side against the pri!ate respondent. In any e!ent it %"st be stressed that pri!ate respondent/s allegation of bad faith on the part of Maligro was not established in this case. ;a:a:oto Vs# Nis"ino Leat"e$ &11 SCRA ''(+ ,acts9y"ichi Ma%a%oto )Ma%a%oto* a Japanese national organi$ed "nder Philippine laws 1ako 7nterprises Manila Incorporated )1AD8* a corporation engaged principally in leather tanning now known as Nishino Leather Ind"stries Inc. )NLII* one of herein respondents. In ,-H3 Ma%a%oto and the other respondent Ik"o Nishino )Nishino* also a Japanese national forged a Me%orand"% of Agree%ent "nder which they agreed to enter into a 2oint !ent"re wherein Nishino wo"ld acG"ire s"ch n"%ber of shares of stock eG"i!alent to 3:N of the a"thori$ed capital stock of 1AD8.

The trial co"rt decided the case in fa!or of Ma%a%oto

8n appeal the Co"rt of Appeals re!ersed the 9TC decision and dis%issed the co%plaint.

The Co"rt of Appeals ha!ing denied his Motion for 9econsideration Ma%a%oto filed the present petition. Iss.e1<N the ad!ice in the letter of Atty. 6oce that Ma%a%oto %ay retrie!e the %achineries and eG"ip%ent which ad%ittedly was part of his in!est%ent bo"nd the corporation. R.lingThe Co"rt holds in the negati!e. 1itho"t a 5oard 9esol"tion a"thori$ing respondent Nishino to act for and in behalf of the corporation he cannot bind the latter. Inder the Corporation Law "nless otherwise pro!ided corporate powers are e#ercised by the 5oard of 6irectors. Irging this Co"rt to pierce t e veil of corporate fiction Ma%a%oto arg"es that Ik"o Moshinob" and Ma%a%oto were the owners thereof the presence of other stockholders being only for the p"rpose of co%plying with the %ini%"% reG"ire%ents of the law. 1hat co"rse of action the Co%pany decides to do or not to do depends not on the "other %e%bers of the 5oard of 6irectors". It depends on what Ik"o and Moshinob" decide. The Co%pany is b"t a %ere instr"%entality of Ik"o EandF Moshinob". 1hile the !eil of separate corporate personality %ay be pierced when the corporation is %erely an ad2"nct a b"siness cond"it or alter ego of a person the %ere ownership by a single stockholder of e!en all or nearly all of the capital stocks of a corporation is not by itself a s"fficient gro"nd to disregard the separate corporate personality. The ele%ents deter%inati!e of the applicability of the doctrine of piercing the !eil of corporate fiction follow? !". Control# not mere majorit$ or complete stoc% control# but complete domination# not onl$ of finances but of polic$ and business practice in respect to t e transaction attac%ed so t at t e corporate entit$ as to t is transaction ad at t e time no separate mind# &ill or e'istence of its o&n( ). Suc control must ave been used b$ t e defendant to commit fraud or &rong# to perpetuate t e violation of a statutor$ or ot er positive legal dut$# or dis onest and unjust act in contravention of t e plaintiff*s legal rig ts( and +. , e aforesaid control and breac of dut$ must pro'imatel$ cause t e injur$ or unjust loss complained of. , e absence of an$ one of t ese elements prevents !piercing t e corporate veil.! -n appl$ing t e .instrumentalit$* or .alter ego* doctrine# t e courts are concerned &it realit$ and not form# &it o& t e corporation operated and t e individual defendant*s relations ip to t at operation.! In relation to the second ele%ent to disregard the separate 2"ridical personality of a corporation the wrongdoing or "n2"st act in contra!ention of a plaintiffCs legal rights %"st be clearly and con!incingly established@ it cannot be pres"%ed. 1itho"t a de%onstration that any of the e!ils so"ght to be pre!ented by the doctrine is present it does not apply. In the case at bar there is no showing that Nishino "sed the separate personality of NLII to "n2"stly act or do wrong to Ma%a%oto in contra!ention of his legal rights. Ma%a%oto arg"es that promissor$ estoppel lies against respondents th"s? Inder the doctrine of promissor$ estoppelO.estoppel %ay arise fro% the %aking of a pro%ise e!en tho"gh witho"t consideration if it was intended that the pro%ise sho"ld be relied "pon and in fact it was relied "pon and if a ref"sal to enforce it wo"ld be !irt"ally to sanction the perpetration of fra"d or wo"ld res"lt in other in2"stice. In paragraph twel!e ),.* of the Letter Ma%a%oto was e#pressly ad!ised that he co"ld take o"t the Machinery if he wanted to so pro!ided that the !al"e of said %achines wo"ld be ded"cted fro% his capital contrib"tion To sanction respondentsC atte%pt to e!ade their obligation wo"ld be to sanction the perpetration of fra"d and in2"stice against petitioner. It bears noting howe!er that the afore%entioned paragraph ,. of the letter is followed by a reG"est for Ma%a%oto to gi!e his "co%%ents on all the abo!e soonest 1hat was th"s proffered to Ma%a%oto was not a pro%ise b"t a %ere offer s"b2ect to his acceptance. 1itho"t acceptance a %ere offer prod"ces no obligation It is settled that the property of a corporation is not the property of its stockholders or %e%bers. Inder the trust fund doctrine the capital stock property and other assets of a corporation are regarded as eG"ity in tr"st for the pay%ent of corporate creditors which are preferred o!er the stockholders in the distrib"tion of corporate assets. The distrib"tion of corporate assets and

7!ent"ally Nishino and his brother Moshinob" Nishino )Moshinob"* acG"ired %ore than 3:N of the a"thori$ed capital stock of 1AD8 red"cing Ma%a%otoCs in!est%ent therein to by his clai% ,:N less than ,:N according to Nishino.

The corporate na%e of 1AD8 was later changed to as reflected earlier its c"rrent na%e NLII.

Negotiations s"bseG"ently ens"ed in light of a planned takeo!er of NLII by Nishino who wo"ld b"y-o"t the shares of stock of Ma%a%oto. In the co"rse of the negotiations Moshinob" and NishinoCs co"nsel Atty. 7%%an"el &. 6oce )Atty. 6oce* ad!ised Ma%a%oto by letter dated 8ctober ;: ,--, which stated that he )Ma%a%oto* %ay take o"t the %achineries )his contrib"tions* for his own "se and sale sho"ld he desire to do so pro!ided the !al"e of s"ch %achines is ded"cted fro% his and 1akoCs capital contrib"tions which will be paid to hi%. Ma%a%oto was reG"ested to infor% Atty 6oce of his co%%ents on the letter.

8n the basis of s"ch letter Ma%a%oto atte%pted to reco!er the %achineries and eG"ip%ent which were by Ma%a%otoCs ad%ission part of his in!est%ent in the corporation b"t he was fr"strated by respondents drawing Ma%a%oto to file before the 9egional Trial Co"rt )9TC* of Makati a co%plaint against the% for reple!in.

9TC iss"ed a writ of reple!in.

In their Answer with Co"nterclai% respondents clai%ed that the %achineries and eG"ip%ent s"b2ect of reple!in for% part of Ma%a%otoCs capital contrib"tions in consideration of his eG"ity in NLII and sho"ld th"s be treated as corporate property@ and that the abo!e-said letter of Atty. 6oce to Ma%a%oto was %erely a proposal "conditioned on EMa%a%otoCsF sell-o"t to . . . Nishino of his entire eG"ity " which proposal was yet to be a"thori$ed by the stockholders and 5oard of 6irectors of NLII.

property cannot be %ade to depend on the whi%s and caprices of the stockholders officers or directors of the corporation "nless the indispensable conditions and proced"res for the protection of corporate creditors are followed. <G S.::it Vs# CA &'10 SCRA )9+ ,acts-

)=7l 8ro Corporation>*. 7l 8ro Corporation had a contract with the Philippine Ar%y to s"pply the latter with =s"r!i!al bolos.> To finance the p"rchase of the raw %aterials for the s"r!i!al bolos petitioners on behalf of 7l 8ro Corporation applied with respondent 5ank of the Philippine Islands )=respondent bank>* for two co%%ercial letters of credit. The letters of credit were in fa!or of 7l 8ro Corporation/s s"ppliers Tanchaoco Man"fact"ring Incorporated )=Tanchaoco Incorporated>* and Maresco 9"bber and 9etreading Corporation )=Maresco Corporation>*. 9espondent bank granted petitioners/ application and iss"ed Letter of Credit No. .-::H-4-; for P+4B H3,.:+ to Tanchaoco Incorporated and Letter of Credit No. .-::-,B-+ for P.-B ::: to Maresco Corporation. (i%"ltaneo"s with the iss"ance of the letters of credit petitioners signed tr"st receipts in fa!or of respondent bank. Jose C. T"pa$ I' signed in his personal capacity a tr"st receipt corresponding to Letter of Credit to Tanchaoco. 0e bo"nd hi%self to sell the goods co!ered by the letter of credit and to re%it the proceeds to respondent bank if sold or to ret"rn the goods if not sold on or before .- 6ece%ber ,-H,. Likewise the petitioners signed in their capacities as officers of 7l 8ro Corporation a tr"st receipt corresponding to Letter of Credit to Maresco. They bo"nd the%sel!es to sell the goods co!ered by that letter of credit and to re%it the proceeds to respondent bank if sold or to ret"rn the goods if not sold on or before H 6ece%ber ,-H,. After Tanchaoco Incorporated and Maresco Corporation deli!ered the raw %aterials to 7l 8ro Corporation respondent bank paid the for%er P+4B H3,.:+ and P.-B ::: respecti!ely. Petitioners did not co%ply with their "ndertaking "nder the tr"st receipts. 9espondent bank %ade se!eral de%ands for pay%ents b"t 7l 8ro Corporation %ade partial pay%ents only. 8n .3 J"ne ,-H; and .H J"ne ,-H; respondent bank/s co"nsel and its representati!e respecti!ely sent final de%and letters to 7l 8ro Corporation. 7l 8ro Corporation replied that it co"ld not f"lly pay its debt beca"se the Ar%ed Aorces of the Philippines had delayed paying for the s"r!i!al bolos. 9espondent bank charged petitioners with estafa. The trial co"rt rendered 2"dg%ent acG"itting petitioners of estafa on reasonable do"bt. 0owe!er the trial co"rt fo"nd petitioners solidarily liable with 7l 8ro Corporation for the balance of 7l 8ro Corporation/s principal debt "nder the tr"st receipts. Iss.e1<N the T"pa$/s were liable for the debt of the Corporation "nder the tr"st receipts R.lingA corporation being a 2"ridical entity %ay act only thro"gh its directors officers and e%ployees. 6ebts inc"rred by these indi!id"als acting as s"ch corporate agents are not theirs b"t the direct liability of the corporation they represent. As an e#ception directors or officers are personally liable for the corporation/s debts only if they so contract"ally agree or stip"late. In the tr"st receipt dated - 8ctober ,-H, petitioners signed below this cla"se as officers of 7l 8ro Corporation. Th"s "nder petitioner Petronila T"pa$/s signat"re are the words ='ice-PresPTreas"rer> and "nder petitioner Jose T"pa$/s signat"re are the words ='ice-PresP8perations.> 5y so signing that tr"st receipt petitioners did not bind the%sel!es personally liable for 7l 8ro Corporation/s obligation. 0ence for the tr"st receipt dated - 8ctober ,-H, we s"stain petitioners/ clai% that they are not personally liable for 7l 8ro Corporation/s obligation. Aor the tr"st receipt dated ;: (epte%ber ,-H, the dorsal portion of which petitioner Jose T"pa$ signed alone we find that he did so in his personal capacity. Petitioner Jose T"pa$ did not indicate that he was signing as 7l 8ro Corporation/s 'ice-President for 8perations. 0ence petitioner Jose T"pa$ bo"nd hi%self personally liable for 7l 8ro Corporation/s debts. Not being a party to the tr"st receipt dated ;: (epte%ber ,-H, petitioner Petronila T"pa$ is not liable "nder s"ch tr"st receipt. 0owe!er respondent bank/s s"it against petitioner Jose T"pa$ stands despite the Co"rt/s finding that he is liable as g"arantor only. Airst e#c"ssion is not a pre-reG"isite to sec"re 2"dg%ent against a g"arantor. The g"arantor can still de%and defer%ent of the e#ec"tion of the 2"dg%ent against hi% "ntil after the assets of the principal debtor shall ha!e been e#ha"sted. (econd the benefit of e#c"ssion %ay be wai!ed. Inder the tr"st receipt dated ;: (epte%ber ,-H, petitioner Jose T"pa$ wai!ed e#c"ssion when he agreed that his =liability in the g"aranty shall be 6I97CT AN6 IMM76IAT7 witho"t any need whatsoe!er on the part of respondent bank to take any steps or e#ha"st any legal re%edies.> The clear i%port of this stip"lation is that petitioner Jose T"pa$ wai!ed the benefit of e#c"ssion "nder his g"arantee. As g"arantor petitioner Jose T"pa$ is liable for 7l 8ro Corporation/s principal debt and other accessory liabilities as stip"lated in the tr"st receipt and as pro!ided by law "nder the tr"st receipt dated ;: (epte%ber ,-H,.

National In!est%ent and 6e!elop%ent Corporation )NI6C* entered into a Joint 'ent"re Agree%ent )J'A* with Dawasaki 0ea!y Ind"stries Ltd. of Dobe Japan )DA1A(ADI* for the constr"ction operation and %anage%ent of the Philippine (hipyard and 7ngineering Corporation )P0IL(7C8*. Inder the J'A the NI6C and DA1A(ADI will contrib"te for the capitali$ation of P0IL(7C8 in the proportion of 4:N-B:N respecti!ely. Moreo!er the parties were granted the right of first ref"sal sho"ld either of the% decide to sell assign or transfer its interest in the 2oint !ent"re. NI6C transferred all its rights title and interest in P0IL(7C8 to the National &o!ern%ent. Thereafter the Asset Pri!ati$ation Tr"st )APT* was na%ed the tr"stee of the National &o!ern%entCs share in P0IL(7C8. The APT dee%ed it best to sell the National &o!ern%entCs share in P0IL(7C8 to pri!ate entities. After a series of negotiations between the APT and DA1A(ADI they agreed that the latterCs right of first ref"sal be "e#changed" for the right to top by +N the highest bid for the said shares. It was also agreed that Philyards 0oldings Inc. )P0I* wo"ld e#ercise DA1A(ADI/s right to top. At the p"blic bidding J.&. ("%%it 0oldings Inc. s"b%itted a bid and was declared the highest bidder. P0I then e#ercised its right to top. 0owe!er J.&. ("%%it opposed the offer of P0I to top its bid contending that since P0IL(7C8 is a landholding co%pany DA1A(ADI co"ld e#ercise its right of first ref"sal only "p to B:N of the shares of P0IL(7C8 d"e to the constit"tional prohibition on landholding by corporations with %ore than B:N foreign-owned eG"ity. It f"rther arg"es that since DA1A(ADI already held at least B:N eG"ity in P0IL(7C8 the right of first ref"sal was in"tile and co"ld not s"bseG"ently be con!erted into the right to top. Iss.e1<N DA1A(ADI had a !alid right of first ref"sal o!er P0IL(7C8 shares "nder the J'A considering that P0IL(7C8 owned land "ntil the ti%e of the bidding and DA1A(ADI already held B:N of P0IL(7C8/s eG"ity. R.lingThe ("pre%e Co"rt "pholds the !alidity of the %"t"al rights of first ref"sal "nder the J'A between DA1A(ADI and NI6C. The right of first ref"sal is a property right of P0IL(7C8 shareholders DA1A(ADI and NI6C "nder the ter%s of their J'A. This right allows the% to p"rchase the shares of their co-shareholder before they are offered to a third party. The agree%ent of co-shareholders to %"t"ally grant this right to each other does not constit"te a !iolation of the pro!isions of the Constit"tion li%iting land ownership to Ailipinos and Ailipino corporations. If the foreign shareholdings of a landholding corporation e#ceeds B:N it is not the foreign stockholders/ ownership of the shares which is ad!ersely affected b"t the capacity of the corporation to own land - that is the corporation beco%es disG"alified to own land. This finds s"pport "nder the basic corporate law principle that the corporation and its stockholders are separate 2"ridical entities. The right of first ref"sal o!er shares pertains to the shareholders whereas the capacity to own land pertains to the corporation. 0ence the fact that P0IL(7C8 owns land cannot depri!e stockholders of their right of first ref"sal. No law disG"alifies a person fro% p"rchasing shares in a landholding corporation e!en if the latter will e#ceed the allowed foreign eG"ity what the law disG"alifies is the corporation fro% owning land. T.%a8 Vs# CA &')1 SCRA *97+ ,acts-

Jose C. T"pa$ I' and Petronila C. T"pa$ was 'ice-President for 8perations and 'ice-President<Treas"rer respecti!ely of 7l 8ro 7ngra!er Corporation

=oodc"ild >oldings Vs# Ro6as &'*) SCRA 2*1+ ,actsThe respondent 9o#as 7lectric and Constr"ction Co%pany Inc. )97CCI* was the owner of two parcels of land identified as Lot , )Lot No. B-,-A-;-5-, * Lot . )Lot No. B-,-A-;-5-.*. A portion of Lot No. B-,-A-;-5-, which ab"tted Lot No. B-,-A-;-5-. was a dirt road accessing to the ("%"long 0ighway Antipolo 9i$al. At a special %eeting the 97CCICs 5oard of 6irectors appro!ed a resol"tion a"thori$ing the corporation thro"gh its president 9oberto 5. 9o#as to sell Lot . at a price and "nder s"ch ter%s and conditions which he dee%ed %ost reasonable and ad!antageo"s to the corporation@ and to e#ec"te sign and deli!er the pertinent sales doc"%ents and recei!e the proceeds of the sale for and on behalf of the co%pany. Petitioner 1oodchild 0oldings Inc. )10I* wanted to b"y Lot . on which it planned to constr"ct its wareho"se b"ilding and a portion of the ad2oining lot Lot , so that its B+-foot container !an wo"ld be able to readily enter or lea!e the property. 8ne of the ter%s incorporated in Jonathan 6yCs )10I President* offer incl"ded? a.* that the area of 3 .,; sG"are %eters of the s"b2ect property already incl"des the area on which the right of way tra!erses fro% the %ain lot )area* towards the e#it to the ("%"long 0ighway as shown in the location plan @ b.* in the e!ent that the right of way is ins"fficient for the b"yerCs p"rposes the seller agrees to sell additional sG"are %eter fro% his c"rrent ad2acent property to allow the b"yer to f"ll access and f"ll "se of the property. 9o#as indicated his acceptance of the offer. A 6eed of Absol"te (ale was e#ec"ted in fa!or of 10I "nder the conditions that 97CCI agrees to gi!e 10I the beneficial "se of and a right of way fro% ("%"long 0ighway to the property herein con!eyed and an additional .+ sG"are %eters in the corner of Lot , as t"rning and<or %ane"!ering area for 'endeeCs !ehicles. 97CCI agrees that in the e!ent that the right of way is ins"fficient for 10I/s "se it will sell additional sG"are %eters fro% its c"rrent ad2acent property to gi!e 10I f"ll access and f"ll "se of the property. In the %eanti%e 10I co%plained to 9oberto 9o#as that the !ehicles of 97CCI were parked on a portion of the property o!er which 10I had been granted a right of way. 9o#as pro%ised to look into the %atter. 6y and 9o#as disc"ssed the need of the 10I to b"y a +::-sG"are-%eter portion of Lot , as pro!ided for in the deed of absol"te sale. 0owe!er 9o#as died soon thereafter. 10I de%anded that 97CCI sell a portion of Lot , for its beneficial "se b"t 97CCI re2ected the de%and of 10I. In this petition 10I contends that when 97CCI sold Lot . it was well aware of its obligation to pro!ide the petitioner with a %eans of ingress to or egress fro% the property to the ("%"long 0ighway since the latter had no adeG"ate o"tlet to the p"blic highway. 10I f"rther asserts that it agreed to b"y the property beca"se of the grant by the respondent of a right of way and an option in its fa!or to b"y a portion of the ad2acent property@ that the 97CCI ne!er ob2ected to 9o#asC acceptance of its offer to p"rchase the property and the ter%s and conditions therein@ the respondent e!en allowed 9o#as to e#ec"te the deed of absol"te sale in its behalf@ that 10I dealt with 97CCI in good faith. Iss.e1<N 97CCI is bo"nd by the pro!isions in the deed of absol"te sale which was entered into by its president 9oberto 9o#as with 1oodchild 0oldings R.ling97CCI was not bo"nd by s"ch agree%ent. 97CCI did not a"thori$e 9o#as to grant a right of way o!er a portion of Lot , in fa!or of the petitioner and an option for the respondent to b"y a portion of the said property. 0ence the respondent was not bo"nd by s"ch pro!isions contained in the deed of absol"te sale. A corporation is a 2"ridical person separate and distinct fro% its stockholders or %e%bers. Accordingly the property of the corporation is not the property of its stockholders or %e%bers and %ay not be sold by the stockholders or %e%bers witho"t e#press a"thori$ation fro% the corporationCs board of directors. (ection .; of 5P 4H otherwise known as the Corporation Code of the Philippines pro!ides? "(7C. .;. The 5oard of 6irectors or Tr"stees. Inless otherwise pro!ided in this Code the corporate powers of all corporations for%ed "nder this Code shall be e#ercised all b"siness cond"cted and all property of s"ch corporations controlled and held by the board of directors or tr"stees to be elected fro% a%ong the holders of stocks or where there is no stock fro% a%ong the %e%bers of the corporation who shall hold office for one ),* year and "ntil their s"ccessors are elected and G"alified." A corporation %ay act only thro"gh its board of directors or when a"thori$ed either by its by-laws or by its board resol"tion thro"gh its officers or agents in the nor%al co"rse of b"siness. The general principles of agency go!ern the relation between the corporation and its officers or agents s"b2ect to the articles of incorporation by-laws or rele!ant pro!isions of law. &enerally the acts of the corporate officers within the scope of their a"thority are binding on the corporation. 0owe!er acts done by s"ch officers beyond the scope of their a"thority cannot bind the corporation "nless it has ratified s"ch acts e#pressly or tacitly or is estopped fro% denying the%?

The ("pre%e Co"rt re2ected 10I/s s"b%ission that in allowing 9o#as to e#ec"te the contract to sell and the deed of absol"te sale and failing to re2ect or disappro!e the sa%e the respondent thereby ga!e hi% apparent a"thority to grant a right of way and an option for the respondent to sell a portion thereof to the petitioner. Absent estoppel or ratification apparent a"thority cannot re%edy the lack of the written power reG"ired. It bears stressing that apparent a"thority is based on estoppel and can arise fro% two instances? ,.* the principal %ay knowingly per%it the agent to so hold hi%self o"t as ha!ing s"ch a"thority and in this way the principal beco%es estopped to clai% that the agent does not ha!e s"ch a"thority@ ..* the principal %ay so clothe the agent with the indicia of a"thority as to lead a reasonably pr"dent person to belie!e that he act"ally has s"ch a"thority. There can be no apparent a"thority of an agent witho"t acts or cond"ct on the part of the principal and s"ch acts or cond"ct of the principal %"st ha!e been known and relied "pon in good faith and as a res"lt of the e#ercise of reasonable pr"dence by a third person as clai%ant and s"ch %"st ha!e prod"ced a change of position to its detri%ent. The apparent power of an agent is to be deter%ined by the acts of the principal and not by the acts of the agent. To" Vs# Solid Ban5 &'07 SCRA 1''+ ,acts(8LI6 5AND C89P89ATI8N A&9776 T8 7QT7N6 an "o%nib"s line" credit facility worth P,: %illion in fa!or of respondent Airst 5"siness Paper Corporation )A5PC*. The ter%s and conditions of the agree%ent as well as the checklist of doc"%ents necessary to open the credit line were stip"lated in a "letter-ad!ise" of the 5ank dated ,4 May ,--; addressed to A5PC and to its President Denneth Ng Li. The "letter-ad!ise" was effecti!e "pon "co%pliance with the doc"%entary reG"ire%ents." The doc"%ents essential for the credit facility and s"b%itted for this p"rpose were the )a* 5oard 9esol"tion or e#cerpts of the 5oard of 6irectors Meeting d"ly ratified by a Notary P"blic a"thori$ing the loan and sec"rity arrange%ent as well as designating the officers to negotiate and sign for A5PC specifically stating a"thority to %ortgage pledge and<or assign the properties of the corporation@ )b* agree%ent to p"rchase 6o%estic 5ills@ and )c* Contin"ing &"aranty for any and all a%o"nts signed by petitioner-spo"ses L"is Toh and 'icky Tan Toh and respondent-spo"ses Denneth and Ma. 'ictoria Ng Li. The spo"ses L"is Toh and 'icky Tan Toh were then Chair%an of the 5oard and 'ice-President respecti!ely of A5PC while respondent-spo"ses Denneth Ng Li and Ma. 'ictoria Ng Li was President and &eneral Manager respecti!ely of the sa%e corporation. 8n ,: May ,--; %ore than thirty );:* days fro% date of the "letter-ad!ise " petitioner-spo"ses L"is Toh and 'icky Tan Toh and respondent-spo"ses Denneth Ng Li and Ma. 'ictoria Ng Li signed the reG"ired Contin"ing &"aranty which was e%bodied in a p"blic doc"%ent prepared solely by respondent 5ank. The Contin"ing &"aranty set forth no %a#i%"% li%it on the indebtedness that respondent A5PC %ay inc"r and for which the s"reties %ay be liable stating that the credit facility "co!ers any and all e#isting indebtedness of and s"ch other loans and credit facilities which %ay hereafter be granted to AI9(T 5I(IN7(( PAP79 C89P89ATI8N." The effecti!ity of the Contin"ing &"aranty was not contingent "pon any e!ent or ca"se other than the written re!ocation thereof with notice to the 5ank that %ay be e#ec"ted by the s"reties. 8n ,4 J"ne ,--; respondent A5PC started to a!ail of the credit facility and proc"re letters of credit. 8n ,3 No!e%ber ,--; A5PC opened thirteen ),;* letters of credit and obtained loans totaling P,+ ..3 +,:.::. As the letters of credit were sec"red A5PC thro"gh its officers Denneth Ng Li Ma. 'ictoria Ng Li and 9edentor Padilla as signatories e#ec"ted a series of tr"st receipts o!er the goods allegedly p"rchased fro% the proceeds of the loans. 8n ,B Jan"ary ,--B the 5ank ser!ed a de%and letter "pon A5PC and L"is Toh in!oking the acceleration cla"se in the tr"st receipts of A5PC and clai%ed pay%ent for P,: +;- 3+H.4H as "npaid o!erd"e acco"nts on the letters of credit pl"s interests and penalties within twenty-fo"r ).B* ho"rs fro% receipt thereof. The 5ank also in!oked the Contin"ing &"aranty e#ec"ted by petitioner-spo"ses L"is Toh and 'icky Tan Toh who were the only parties known to be within national 2"risdiction to answer as s"reties for the credit facility of A5PC. Petitioners asserted it was i%possible and abs"rd for the% to ha!e freely and conscio"sly e#ec"ted the s"rety on ,: May ,--; the date appearing on its face since beginning March of that year they had already di!ested their shares in A5PC and assigned the% in fa!or of Denneth Ng Li altho"gh the deeds of assign%ent were notari$ed only on ,B J"ne ,--;. Petitioners also contended that thro"gh A5PC 5oard 9esol"tion dated ,. May ,--; petitioner L"is Toh was re%o!ed as an a"thori$ed signatory for A5PC and replaced by Denneth Ng Li Ma. 'ictoria Ng Li and 9edentor Padilla for all the transactions of A5PC with respondent 5ank. They e!en resigned fro% their respecti!e positions in A5PC as reflected in the ,. J"ne ,--; (ecretaryCs Certificate s"b%itted to the (ec"rities and 7#change Co%%ission as L"is Toh was s"cceeded as Chair%an by respondent Ma. 'ictoria Ng Li while one Mylene C. Padilla took the place of petitioner 'icky Tan Toh as 'ice-President. The trial co"rt described the Contin"ing &"aranty as effecti!e only while petitioner-spo"ses were stockholders and officers of A5PC since respondent

5ank co%pelled petitioners to "nderwrite A5PCCs indebtedness as s"reties witho"t the reG"isite in!estigation of their personal sol!ency and capability to "ndertake s"ch risk. The lower co"rt also belie!ed that the 5ank knew of petitionersC di!est%ent of their shares in A5PC and their s"bseG"ent resignation as officers thereof as these facts were ob!io"s fro% the n"%ero"s p"blic doc"%ents that detailed the changes and s"bstit"tions in the list of a"thori$ed signatories for transactions between A5PC and the 5ank incl"ding the %any tr"st receipts being signed by persons other than petitioners as well as the designation of new A5PC officers which ca%e to the notice of the 5ankCs 'ice-President Jose Chan Jr. and other officers. Iss.e1<N the petitioners are personally liable to the bank R.lingThe Contin"ing &"aranty is a !alid and binding contract of petitioner-spo"ses as it is a p"blic doc"%ent that en2oys the pres"%ption of a"thenticity and d"e e#ec"tion. L"is Toh and 'icky Tan Toh "!ol"ntarily affi#ed their signat"res" on the s"rety agree%ent and were th"s "at so%e gi!en point in ti%e willing to be liable "nder those for%s." In the absence of clear con!incing and %ore than preponderant e!idence to the contrary o"r r"ling cannot be otherwise. (i%ilarly there is no basis for petitioners to li%it their responsibility thereon so long as they were corporate officers and stockholders of A5PC. Nothing in the Contin"ing &"aranty restricts their contract"al "ndertaking to s"ch condition or e!ent"ality. In fact the obligations ass"%ed by the% therein s"bsist ""pon the "ndersigned the heirs e#ec"tors ad%inistrators s"ccessors and assigns of the "ndersigned and shall in"re to the benefit of and be enforceable by yo" yo"r s"ccessors transferees and assigns " and that their co%%it%ent "shall re%ain in f"ll force and effect "ntil written notice shall ha!e been recei!ed by the 5ank that it has been re!oked by the "ndersigned." 'erily if petitioners intended not to be charged as s"reties after their withdrawal fro% A5PC they co"ld ha!e si%ply ter%inated the agree%ent by ser!ing the reG"ired notice of re!ocation "pon the 5ank as e#pressly allowed therein. -n /arcia v. Court of Appeals we r"led P 9egarding the petitionerCs clai% that he is liable only as a corporate officer of 1MC the s"rety agree%ent shows that he signed the sa%e not in representation of 1MC or as its president b"t in his personal capacity. 0e is therefore personally bo"nd. There is no law that prohibits a corporate officer fro% binding hi%self personally to answer for a corporate debt. 1hile the li%ited liability doctrine is intended to protect the stockholder by i%%"ni$ing hi% fro% personal liability for the corporate debts he %ay ne!ertheless di!est hi%self of this protection by !ol"ntarily binding hi%self to the pay%ent of the corporate debts. The petitioner cannot therefore take ref"ge in this doctrine that he has by his own acts effecti!ely wai!ed. 5"t as we bind the spo"ses L"is Toh and 'icky Tan Toh to the s"rety agree%ent they signed so %"st we also hold respondent 5ank to its representations in the "letter-ad!ise" of ,4 May ,--;. Partic"larly as to the e#tension of the d"e dates of the letters of credit we cannot e#cl"de fro% the Contin"ing &"aranty the preconditions of the 5ank that were plainly stip"lated in the "letter-ad!ise." Aairness and 2"stice dictate o"r doing so for the 5ank itself liberally applies the pro!isions of cognate agree%ents whene!er con!enient to enforce its contract"al rights s"ch as when it harnessed a pro!ision in the tr"st receipts e#ec"ted by respondent A5PC to declare its entire indebtedness as d"e and de%andable and thereafter to e#act pay%ent thereof fro% petitioners as s"reties. In the sa%e %anner we cannot disregard the pro!isions of the "letter-ad!ise" in si$ing "p the panoply of co%%ercial obligations between the parties herein. The grace period granted by respondent 5ank represents "ncere%onio"s abandon%ent and forfeit"re of the fifteen percent ),+N* %arginal deposit and the twenty-fi!e percent ).+N* partial pay%ent as fi#ed in the "letter-ad!ise." These pay%ents are "n%istakably additional sec"rities intended to protect both respondent 5ank and the s"reties in the e!ent that the principal debtor A5PC beco%es insol!ent d"ring the e#tension period. Co%pliance with these reG"isites was not wai!ed by petitioners in the Contin"ing &"aranty. Aor this "nwarranted e#ercise of discretion respondent 5ank bears the loss@ d"e to its "na"thori$ed e#tensions to pay granted to A5PC petitioner-spo"ses L"is Toh and 'icky Tan Toh are discharged as s"reties "nder the Contin"ing &"aranty. Ainally the foregoing o%ission or negligence of respondent 5ank in failing to safe-keep the sec"rity pro!ided by the %arginal deposit and the twenty-fi!e percent ).+N* reG"ire%ent res"lts in the %aterial alteration of the principal contract i.e. the "letter-ad!ise " and conseG"ently releases the s"rety. This inference was ad%itted by the 5ank thro"gh the testi%ony of its lone witness that "EwFhene!er this obligation beco%es d"e and de%andable e#cept when yo" roll it o!er )so* there is no!ation there on the original obligations." As has been said "if the s"retyship contract was %ade "pon the condition that the principal shall f"rnish the creditor additional sec"rity and the sec"rity being f"rnished "nder these conditions is afterwards released by the creditor the s"rety is wholly discharged witho"t regard to the !al"e of the sec"rities released for s"ch a transaction a%o"nts to an alteration of the %ain contract." B# Piecing t"e Veil of Co$%o$ate Entit?

>ei$s of Pa@a$illo Vs# CA &1*( SCRA 9)+ ,actsPanfilo Pa2arillo was the owner and operator of se!eral b"ses plying certain ro"tes in Metro Manila. 0e "sed the na%e P'P Liner in his b"ses. Pri!ate respondents were e%ployed as dri!ers cond"ctors and cond"ctresses by Panfilo.

6"ring their e%ploy%ent pri!ate respondents worked at least fo"r ti%es a week and allegedly they were not gi!en e%ergency cost of li!ing allowance )7C8LA* ,;th %onth pay and legal holiday pay and ser!ice incenti!e pay.

Thereafter pri!ate respondents and se!eral co-e%ployees for%ed a "nion called =(a%ahan ng %ga Manggagawa ng Panfilo '. Pa2arillo>. At the sa%e ti%e "pon learning of the said "nion Panfilo and his children and relati!es also for%ed a co%pany "nion where they acted as its directors and officers.

In A"g"st ,--3 respondent "nion filed a Co%plaint for "nfair labor practices and illegal ded"ction before the Labor Arbiter with Panfilo ' Pa2arillo Liner as pri!ate respondent. Notifications and s"%%ons were sent to Panfilo 0 Pajarillo# President1Manager# Panfilo 0 . Pajarillo Liner .

Another Co%plaint was later filed for !iolation of labor standards laws and pri!ate respondents this ti%e were P'P Liner Inc. and Panfilo ' Pa2arillo as its &eneral Manager. The 9egistry 9et"rn 9eceipt was addressed to P'P Liner Inc and was signed by a certain Irene &. Pa2arillo.

Panfilo denied the charges in the co%plaints. 0e died d"ring the co"rse of the proceedings.

The two cases were consolidated and when it reached the NL9C it ordered the reinstate%ent of and pay%ent of backwages 7C8LA ,; th %onth pay legal holiday pay and ser!ice incenti!e lea!e pay to pri!ate respondents. This was later on "pheld by the Co"rt of Appeals.

Iss.e-

,.

1<N P'P Liner Inc was i%properly i%pleaded beca"se it is a none#isting corporation@ 1<N CA %isapplied in piercing the !eil of Corporate 7ntity of P'P Pa2arillo Liner Inc.

..

R.ling-

The ("pre%e Co"rt held that Panfilo ' Pa2arillo Liner and P'P Liner are one and the sa%e entity belonging to one and the sa%e person Panfilo. 1hen P'P Liner Inc and Panfilo ' Pa2arillo Liner were i%pleaded as partyrespondents it was Panfilo thro"gh co"nsel who answered the co%plaint and filed the position papers %otions for reconsiderations and appeals. It was Panfilo thro"gh co"nsel who participated in the hearings and proceedings.

The ("pre%e Co"rt also fo"nd that Panfilo started his transportation b"siness as the sole owner and operator of passenger b"ses "tili$ing the na%e P'P Liner for his b"ses. After being charged by respondent "nion of "nfair labor practices illegal ded"ctions illegal dis%issal and !iolation of labor standard laws Panfilo transfor%ed his transportation b"siness into a fa%ily corporation na%ely P' Pa2arillo Liner. 0e and petitioners were the incorporators stockholders and officers therein. P' Pa2arillo Inc and the sole proprietorship of Panfilo ha!e the sa%e b"siness address and also "sed the na%e P'P Liner in its b"ses. A"rther the license to operate or franchise of the sole proprietorship was %erely transferred to P' Pa2arillo Liner Inc.

Th"s the doctrine of Piercing the 'eil of Corporate 7ntity was properly applied in this case. It is a f"nda%ental principle of corporation law that a

corporation is an entity separate and distinct fro% its stockholders and fro% other corporations to which it %ay be connected. 0owe!er this separate and distinct personality of a corporation is %erely a fiction created by law for con!enience and to pro%ote 2"stice. 0ence when it is "sed to defeat p"blic con!enience 2"stify wrong protect fra"d or defend cri%e or is "sed as a de!ice to defeat labor laws this separate personality of the corporation %ay be disregarded or the !eil of the corporate fiction pierced. C"ing Vs# Sec$eta$? Of <.stice &'7 SCRA )09+

The CA "pheld the assailed resol"tions of the (ecretary of J"stice for the following reasons? )a* petitioner being the (enior 'ice-President of P5MI and the signatory to the tr"st receipts is cri%inally liable for !iolation of P.6. No. ,,+@ )b* the iss"e raised by the petitioner on whether he !iolated P.6. No. ,,+ by his act"ations had already been resol!ed and laid to rest in Allied 5ank Corporation !. 8rdoSe$@ and )c* petitioner was estopped fro% raising the City Prosec"tor/s delay in the final disposition of the preli%inary in!estigation beca"se he failed to do so in the 68J. Th"s petitioner filed the instant petition.

,actsIss.eAlfredo Ching was the (enior 'ice-President of Philippine 5loo%ing Mills Inc. )P5MI*. (o%eti%e in (epte%ber to 8ctober ,-H: P5MI thro"gh petitioner applied with the 9i$al Co%%ercial 5anking Corporation for the iss"ance of co%%ercial letters of credit to finance its i%portation of assorted goods. ; 9espondent bank appro!ed the application and irre!ocable letters of credit were iss"ed in fa!or of petitioner. The goods were p"rchased and deli!ered in tr"st to P5MI. Petitioner signed ,; tr"st receipts as s"rety acknowledging deli!ery of the goods. Inder the receipts petitioner agreed to hold the goods in tr"st for the said bank with a"thority to sell b"t not by way of conditional sale pledge or otherwise@ and in case s"ch goods were sold to t"rn o!er the proceeds thereof as soon as recei!ed to apply against the relati!e acceptances and pay%ent of other indebtedness to respondent bank. In case the goods re%ained "nsold within the specified period the goods were to be ret"rned to respondent bank witho"t any need of de%and. Th"s said "goods %an"fact"red prod"cts or proceeds thereof whether in the for% of %oney or bills recei!ables or acco"nts separate and capable of identification" were respondent banks property. 1hen the tr"st receipts %at"red petitioner failed to ret"rn the goods to respondent bank or to ret"rn their !al"e a%o"nting to P4 -B: .H:.44 despite de%ands. Th"s the bank filed a cri%inal co%plaint for estafa against petitioner in the 8ffice of the City Prosec"tor of Manila. The Motion to R"ash the Infor%ations filed by petitioner on the gro"nd that the %aterial allegations therein did not a%o"nt to estafa was granted. In the %eanti%e the Co"rt rendered 2"dg%ent in Allied 5anking Corporation !. 8rdoSe$ holding that the penal pro!ision of P.6. No. ,,+ enco%passes any act !iolati!e of an obligation co!ered by the tr"st receipt@ it is not li%ited to transactions in!ol!ing goods which are to be sold )retailed* reshipped stored or processed as a co%ponent of a prod"ct "lti%ately sold. The Co"rt also r"led that "the non-pay%ent of the a%o"nt co!ered by a tr"st receipt is an act !iolati!e of the obligation of the entr"stee to pay." 8n Aebr"ary .3 ,--+ respondent bank re-filed the cri%inal co%plaint for estafa against petitioner before the 8ffice of the City Prosec"tor of Manila which r"led that there was no probable ca"se to charge petitioner with !iolating P.6. No. ,,+ as petitioner/s liability was only ci!il not cri%inal ha!ing signed the tr"st receipts as s"rety. 9espondent bank appealed the resol"tion to the 6epart%ent of J"stice )68J* !ia petition for re!iew. The (ecretary of J"stice iss"ed 9esol"tion No. .+: granting the petition and re!ersing the assailed resol"tion of the City Prosec"tor. According to the J"stice (ecretary the petitioner as (enior 'ice-President of P5MI e#ec"ted the ,; tr"st receipts and as s"ch was the one responsible for the offense. Th"s the e#ec"tion of said receipts is eno"gh to indict the petitioner as the official responsible for !iolation of P.6. No. ,,+. The J"stice (ecretary also declared that petitioner co"ld not contend that P.6. No. ,,+ co!ers only goods "lti%ately destined for sale as this iss"e had already been settled in Allied 5anking Corporation !. 8rdoSe$. The J"stice (ecretary f"rther stated that the respondent bo"nd hi%self "nder the ter%s of the tr"st receipts not only as a corporate official of P5MI b"t also as its s"rety@ hence he co"ld be proceeded against in two ).* ways? first as s"rety and second as the corporate official responsible for the offense "nder P.6. No. ,,+ !ia cri%inal prosec"tion. Moreo!er P.6. No. ,,+ e#plicitly allows the prosec"tion of corporate officers "witho"t pre2"dice to the ci!il liabilities arising fro% the cri%inal offense." Th"s according to the J"stice (ecretary the ci!il liability i%posed is clearly separate and distinct fro% the cri%inal liability of the acc"sed "nder P.6. No. ,,+. Confor%ably with the 9esol"tion of the (ecretary of J"stice the City Prosec"tor filed ,; Infor%ations against petitioner for !iolation of P.6. No. ,,+ before the 9TC of Manila. The cases were docketed as Cri%inal Cases No. ---,3H+-4 to ---,3H4:H and consolidated for trial before 5ranch +. of said co"rt. Petitioner filed a %otion for reconsideration which the (ecretary of J"stice denied in a 9esol"tion dated Jan"ary ,3 .:::. Petitioner then filed a petition for certiorari prohibition and %anda%"s with the CA assailing the resol"tions of the (ecretary of J"stice. 1<N Ching is cri%inally liable for !iolation of P.6. No. ,,+ R.ling(ection ,; of P6 ,,+ which states in part !i$? ### If the !iolation or offense is co%%itted by a corporation partnership association or other 2"dicial entities the penalty pro!ided for in this 6ecree shall be i%posed "pon the directors officers e%ployees or other officials or persons therein responsible for the offense witho"t pre2"dice to the ci!il liabilities arising fro% the cri%inal offense. There is no disp"te that it was the respondent who as senior !ice-president of P5M e#ec"ted the thirteen ),;* tr"st receipts. As s"ch the law points to hi% as the official responsible for the offense. (ince a corporation cannot be proceeded against cri%inally beca"se it cannot co%%it cri%e in which personal !iolence or %alicio"s intent is reG"ired cri%inal action is li%ited to the corporate agents g"ilty of an act a%o"nting to a cri%e and ne!er against the corporation itself. Th"s the e#ec"tion by respondent of said receipts is eno"gh to indict hi% as the official responsible for !iolation of P6 ,,+. "Parenthetically respondent is estopped to still contend that P6 ,,+ co!ers only goods which are "lti%ately destined for sale and not goods like those i%ported by P5M for "se in %an"fact"re. This iss"e has already been settled in the Allied 5anking Corporation case s"pra where he was also a party when the ("pre%e Co"rt r"led that P6 ,,+ is not li%ited to transactions in goods which are to be sold )retailed* reshipped stored or processed as a co%ponent or a prod"ct "lti%ately sold b"t co!ers fail"re to t"rn o!er the proceeds of the sale of entr"sted goods or to ret"rn said goods if "nsold or disposed of in accordance with the ter%s of the tr"st receipts. The respondent bo"nd hi%self "nder the ter%s of the tr"st receipts not only as a corporate official of P5M b"t also as its s"rety. It is e!ident that these are two ).* capacities which do not e#cl"de the other. Logically he can be proceeded against in two ).* ways? first as s"rety and secondly as the corporate official responsible for the offense "nder P6 ,,+ the present case is an appropriate re%edy "nder o"r penal law. Petitioner asserts that the appellate co"rt/s r"ling is erroneo"s beca"se )a* the transaction between P5MI and respondent bank is not a tr"st receipt transaction@ )b* he entered into the transaction and was s"ed in his capacity as P5MI (enior 'ice-President@ )c* he ne!er recei!ed the goods as an entr"stee for P5MI hence co"ld not ha!e co%%itted any dishonesty or ab"sed the confidence of respondent bank@ and )d* P5MI acG"ired the goods and "sed the sa%e in operating its %achineries and eG"ip%ent and not for resale. In the case at bar the transaction between petitioner and respondent bank falls "nder the tr"st receipt transactions en!isaged in P.6. No. ,,+. 9espondent bank i%ported the goods and entr"sted the sa%e to P5MI "nder the tr"st receipts signed by petitioner as entr"stee with the bank as entr"ster. Altho"gh petitioner signed the tr"st receipts %erely as (enior 'ice-President of P5MI and had no physical possession of the goods he cannot a!oid prosec"tion for !iolation of P.6. No. ,,+. Tho"gh the entr"stee is a corporation ne!ertheless the law specifically %akes the officers e%ployees or other officers or persons responsible for the offense witho"t pre2"dice to the ci!il liabilities of s"ch corporation and<or board of directors officers or other officials or e%ployees responsible for the offense. The rationale is that s"ch officers or e%ployees are !ested with the a"thority and responsibility to de!ise %eans necessary to ens"re co%pliance with the law and if they fail to do so are held cri%inally acco"ntable@ th"s they ha!e a responsible share in the !iolations of the law. If the cri%e is co%%itted by a corporation or other 2"ridical entity the directors officers e%ployees or other officers thereof responsible for the offense shall be charged and penali$ed for the cri%e precisely beca"se of the nat"re of the cri%e and the penalty therefor. A corporation cannot be arrested and i%prisoned@ hence cannot be penali$ed for a cri%e p"nishable by i%prison%ent. 0owe!er a corporation %ay be charged and prosec"ted for a cri%e if the i%posable penalty is fine. 7!en if the stat"te prescribes both fine and i%prison%ent as penalty a corporation %ay be prosec"ted and if fo"nd g"ilty %ay be fined.

1hen a cri%inal stat"te designates an act of a corporation or a cri%e and prescribes p"nish%ent therefor it creates a cri%inal offense which otherwise wo"ld not e#ist and s"ch can be co%%itted only by the corporation. 5"t when a penal stat"te does not e#pressly apply to corporations it does not create an offense for which a corporation %ay be p"nished. 8n the other hand if the (tate by stat"te defines a cri%e that %ay be co%%itted by a corporation b"t prescribes the penalty therefor to be s"ffered by the officers directors or e%ployees of s"ch corporation or other persons responsible for the offense only s"ch indi!id"als will s"ffer s"ch penalty. Corporate officers or e%ployees thro"gh whose act defa"lt or o%ission the corporation co%%its a cri%e are the%sel!es indi!id"ally g"ilty of the cri%e. The principle applies whether or not the cri%e reG"ires the conscio"sness of wrongdoing. It applies to those corporate agents who the%sel!es co%%it the cri%e and to those who by !irt"e of their %anagerial positions or other si%ilar relation to the corporation co"ld be dee%ed responsible for its co%%ission if by !irt"e of their relationship to the corporation they had the power to pre!ent the act. Moreo!er all parties acti!e in pro%oting a cri%e whether agents or not are principals. 1hether s"ch officers or e%ployees are benefited by their delict"al acts is not a to"chstone of their cri%inal liability. 5enefit is not an operati!e fact. In this case petitioner signed the tr"st receipts in G"estion. 0e cannot th"s hide behind the cloak of the separate corporate personality of P5MI. In the words of Chief J"stice 7arl 1arren a corporate officer cannot protect hi%self behind a corporation where he is the act"al present and efficient actor. >i/Ce:ent Vs# Ins.la$ Ban5 &1*' SCRA 2)9+ ,acts7nriG"e Tan and Lilia Tan )spo"ses Tan* were the controlling stockholders of 7.T. 0enry T Co. Inc. )7.T. 0enry* a co%pany engaged in the b"siness of processing and distrib"ting b"nker f"el. A%ong 7.T. 0enryCs c"sto%ers were 0i-Ce%ent Corporation )0i-Ce%ent* 9i!erside Mills Corporation )9i!erside* and Danebo Cos%etics Philippines Inc. )Danebo*. Aor their p"rchases these corporations iss"ed postdated checks to 7.T. 0enry. 7.T. 0enry and Ins"lar 5ank were into =re-disco"nting> of checks. Aro% ,-3- to ,-H, 7.T. 0enry was able to re-disco"nt its clientsC checks )with deeds of assign%ent* with respondent. 0owe!er in Aebr"ary ,-H, .: checks of 0i-Ce%ent )which were crossed and which bore the restriction =deposit to payee/s acco"nt only>* were dishonored. (o were the checks of 9i!erside and Danebo. 9espondent filed a co%plaint for s"% of %oney in the then Co"rt of Airst Instance of 9i$al against 7.T. 0enry the spo"ses Tan 0i-Ce%ent )incl"ding its general %anager and its treas"rer as signatories of the postdated crossed checks* 9i!erside and Danebo. 0i-Ce%ent filed its answer alleging a%ong others that? ),* its general %anager and treas"rer were not a"thori$ed to iss"e the postdated crossed checks in 7.T. 0enryCs fa!or@ ).* the deed of assign%ent p"rportedly e#ec"ted by 0i-Ce%ent assigning the% to respondent only bore the confor%ity of its treas"rer and );* respondent was not a holder in d"e co"rse as it sho"ld not ha!e disco"nted the% for being =crossed checks.> In their answer )with co"nterclai% against respondent and cross-clai%s against 0i-Ce%ent 9i!erside and Danebo* 7.T. 0enry and the spo"ses Tan clai%ed that? ),* the drawers of the postdated checks failed to honor the% d"e to the ad!erse econo%ic conditions pre!ailing at the ti%e respondent presented the% for pay%ent@ ).* the e#tra-2"dicial sale of the %ortgaged ("cat property was !oid d"e to gross inadeG"acy of the bid price and );* their loans were s"b2ected to a "s"rio"s interest rate of .,N p.a. 8n J"ne ;: ,-H- the trial co"rt rendered a decision which ordered 7.T. 0enry (po"ses Tan 0i-Ce%ent 9i!erside and Danebo to pay the face !al"e of the post dated checks. 9i!erside and Danebo did not appeal the decision to the CA which affir%ed it in toto. 0ence these petitions. 8n the other hand 7.T. 0enry and the spo"ses Tan essentially contend that the lower co"rts erred in? ),* applying the doctrine of piercing the !eil of the corporate entity to %ake the spo"ses Tan solidarily liable with 7.T. 0enry@ ).* not r"ling on their cross-clai%s and co"nterclai%s and );* not declaring the foreclos"re of 7.T. 0enryCs ("cat property as !oid. In their petition 7.T. 0enry and the spo"ses Tan arg"e that the lower co"rts erred in applying the =piercing the !eil of corporate entity> doctrine to their case. They clai% that both the trial and appellate co"rts failed to cite the reasons why the doctrine was rele!ant to the%. Iss.e-

1<N the Trial Co"rt and the Co"rt of Appeals erred in applying the piercing the !eil of Corporate entity and holding the spo"ses Tan personally liable for the face !al"e of the postdated checks R.lingThe ("pre%e Co"rt agreed with petitioners 7.T. 0enry and the spo"ses Tan in this respect. If any general r"le can be laid down it is that the corporation will be looked "pon as a legal entity "ntil s"fficient reasons to the contrary appear. It is only when the fiction or notion of legal entity is "sed to defeat p"blic con!enience 2"stify wrong perpet"ate fra"d or defend cri%e that the law will shred the corporate legal !eil and regard it as a %ere association of persons. This is referred to as the doctrine of piercing the !eil of corporate entity. 7.T. 0enryCs corporate !eil sho"ld not ha!e been pierced at all. 2irst the trial co"rt failed to pro!ide a clear gro"nd why the doctrine was "sed. It %erely stated that it agreed with respondent/s arg"%ents b"t did not e#plain why the doctrine was rele!ant to petitioner 7.T. 0enryCs and the spo"ses Tan/s case. 8n the other hand the CA held? OIt appears that spo"ses Tan are controlling stockholders of 7.T. 0enry T Co. Inc. as well as its a"thori$ed signatories. The b"siness of the corporation was cond"cted solely for the benefit of the spo"ses Tan who coll"ded with 0i-Ce%ent in defra"ding respondent. As the lower co"rt citedOIt is a settled law in this and other 2"risdictions that when the corporation is a %ere alter ego of a person sa%e being tr"e when the corporation is controlled and its affairs are so cond"cted to %ake it %erely an instr"%entality agency or cond"it of another. (i%ilarly the CA left a gaping hole by failing to pro!ide the basis for its r"ling that 7.T. 0enry and the spo"ses Tan defra"ded respondent. It did not also state what act constit"ted the fra"d. Ara"d is an allegation of fact that de%ands clear and con!incing e!idence. It is ne!er pres"%ed. Second the %ere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself s"fficient gro"nd for disregarding the separate corporate personality. Aor this gro"nd to stand in this case there %"st be proof that the spo"ses Tan? ),* had control or co%plete do%ination of 7.T. 0enry/s finances and that the latter had no separate e#istence with respect to the act co%plained of@ ).* "sed s"ch control to co%%it fra"d or wrong and );* the control was the pro#i%ate ca"se of the loss or in2"ry co%plained of by respondent. The records of this case do not show that these ele%ents were present.

Gene$al C$edit Co$%# Vs# Alsons &1 * SCRA 221+ ,acts&eneral Credit Corporation then known as Co%%ercial Credit Corporation )CCC* established CCC franchise co%panies in different "rban centers of the co"ntry. In f"rtherance of its b"siness &CC had as early as ,-3B applied for and was able to sec"re license fro% the then Central 5ank of the Philippines and the (ec"rities and 7#change Co%%ission to engage also in G"asibanking acti!ities. 8n the other hand respondent CCC 7G"ity Corporation )7RIITM for bre!ity* was organi$ed in No!e%ber ,--B by &CC for the p"rpose of a%ong other things taking o!er the operations and %anage%ent of the !ario"s franchise co%panies. At a ti%e %aterial hereto Alsons 6e!elop%ent and In!est%ent Corporation and Conrado Nicasio 7ditha and Ladislawa all s"rna%ed Alcantara and Alfredo de 5or2a )hereinafter the Alcantara fa%ily for con!enience* each owned 2"st like &CC shares in the aforesaid &CC franchise co%panies e.g. CCC 6a!ao and CCC Ceb". In 6ece%ber ,-H: AL(8N( and the Alcantara fa%ily for a consideration of Two Million )P. ::: :::.::* Pesos sold their shareholdings P a total of ,:, -+; shares %ore or less P in the CCC franchise co%panies to 7RIITM. 8n Jan"ary . ,-H, 7RIITM iss"ed AL(8N( et al. a =bearer> pro%issory note for P. ::: :::.:: with a one-year %at"rity date at ,HN interest per ann"% with pro!isions for da%ages and litigation costs in case of defa"lt. (o%e fo"r years later the Alcantara fa%ily assigned its rights and interests o!er the bearer note to AL(8N( which thenceforth beca%e the holder thereof. 5"t e!en before the e#ec"tion of the assign%ent deal aforestated letters of de%and for interest pay%ent were already sent to 7RIITM thro"gh its President 1ilfredo Labayen who pleaded inability to pay the stip"lated interest 7RIITM no longer then ha!ing assets or property to settle its obligation nor being e#tended financial s"pport by &CC.

AL(8N( ha!ing failed to collect on the bearer note afore%entioned filed a co%plaint for a s"% of %oney against 7RIITM and &CC. &CC is being i%pleaded as party-defendant for any 2"dg%ent AL(8N( %ight sec"re against 7RIITM and "nder the doctrine of piercing the !eil of corporate fiction against &CC 7RIITM ha!ing been organi$ed as a tool and %ere cond"it of &CC. Answering with a cross-clai% against &CC 7RIITM stated by way of special and affir%ati!e defenses that it )7RIITM*? a* was p"rposely organi$ed by &CC for the latter to a!oid C5 9"les and 9eg"lations on 68(9I )6irectors 8fficers (tockholders and 9elated Interest* li%itations and that it acted %erely as inter%ediary or bridge for loan transactions and other dealings of &CC to its franchises and the in!esting p"blic@ and b* is solely dependent "pon &CC for its f"nding reG"ire%ents to settle a%ong others eG"ity p"rchases %ade by in!estors on the franchises@ hence &CC is solely and directly liable to AL(8N( the for%er ha!ing failed to pro!ide O7RIITM the necessary f"nds to %eet its obligations to AL(8N(. &CC stressed that it is a distinct and separate entity fro% 7RIITM and alleging in essence that the b"siness relationships with each other were always at ar%/s length. The trial co"rt finds that 7RIITM was b"t an instr"%entality or ad2"nct of &CC and declaring the% as 2ointly and se!erally liable to Alsons. Iss.e1<N there is basis of piercing the !eil of corporate fiction R.lingA corporation is an artificial being !ested by law with a personality distinct and separate fro% those of the persons co%posing it as well as fro% that of any other entity to which it %ay be related. The first conseG"ence of the doctrine of legal entity of the separate personality of the corporation is that a corporation %ay not be %ade to answer for acts and liabilities of its stockholders or those of legal entities to which it %ay be connected or !ice !ersa. The notion of separate personality howe!er %ay be disregarded "nder the doctrine P =piercing the !eil of corporate fiction> P as in fact the co"rt will often look at the corporation as a %ere collection of indi!id"als or an aggregation of persons "ndertaking b"siness as a gro"p disregarding the separate 2"ridical personality of the corporation "nifying the gro"p. Another for%"lation of this doctrine is that when two ).* b"siness enterprises are owned cond"cted and controlled by the sa%e parties both law and eG"ity will when necessary to protect the rights of third parties disregard the legal fiction that two corporations are distinct entities and treat the% as identical or one and the sa%e. 1hether the separate personality of the corporation sho"ld be pierced hinges on obtaining facts appropriately pleaded or pro!ed. 0owe!er any piercing of the corporate !eil has to be done with ca"tion albeit the Co"rt will not hesitate to disregard the corporate !eil when it is %is"sed or when necessary in the interest of 2"stice. After all the concept of corporate entity was not %eant to pro%ote "nfair ob2ecti!es. A"thorities are agreed on at least three );* basic areas where piercing the !eil with which the law co!ers and isolates the corporation fro% any other legal entity to which it %ay be related is allowed. These are? ,* defeat of p"blic con!enience as when the corporate fiction is "sed as !ehicle for the e!asion of an e#isting obligation@ .* fra"d cases or when the corporate entity is "sed to 2"stify a wrong protect fra"d or defend a cri%e@ or ;* alter ego cases where a corporation is %erely a farce since it is a %ere alter ego or b"siness cond"it of a person or where the corporation is so organi$ed and controlled and its affairs are so cond"cted as to %ake it %erely an instr"%entality agency cond"it or ad2"nct of another corporation. The CA fo"nd !alid gro"nds to pierce the corporate !eil of petitioner &CC there being 2"stifiable basis for s"ch action. 1hen the appellate co"rt spoke of a 2"stifying factor the reference was to what the trial co"rt said in its decision na%ely? the e#istence of =certain circumstances 3& ic 4# ta%en toget er# gave rise to t e ineluctable conclusion t at 5 3respondent4 678-,9 is but an instrumentalit$ or adjunct of 3petitioner4 /CC.: Aore%ost of what referred to as =certain circ"%stances> are the co%%onality of directors officers and stockholders and e!en sharing of office between petitioner &CC and respondent 7RIITM@ certain financing and %anage%ent arrange%ents between the two allowing the petitioner to handle the f"nds of the latter@ the !irt"al do%ination if not control wielded by the petitioner o!er the finances b"siness policies and practices of respondent 7RIITM@ and the establish%ent of respondent 7RIITM by the petitioner to circ"%!ent C5 r"les. It bears to stress at this point that the facts and the inferences drawn therefro% "pon which the two ).* co"rts below applied the piercing doctrine stand for the %ost part "ndisp"ted. A%ong these is to reiterate the %atter of 7RIITM ha!ing been incorporated to ser!e as it did ser!e as an instr"%entality or ad2"nct of &CC. 1ith the !iew we take of this case &CC did not add"ce any e!idence let alone reb"t the testi%onies and doc"%ents presented by AL(8N( to establish the pre!ailing circ"%stances ad!erted to that pro!ided the 2"stifying occasion to pierce the !eil of corporate fiction between &CC and 7RIITM. AL(8N(* %aybe )sic* witho"t s"fficient property

with which to settle its obligations. Aor after all &CC was the entity which initiated and benefited i%%ensely fro% the fra"d"lent sche%e perpetrated in !iolation of the law. &i!en the foregoing considerations it behoo!es the petitioner as a %atter of law and eG"ity to ass"%e the legiti%ate financial obligation of a cashstrapped s"bsidiary corporation which it !irt"ally controlled to s"ch a degree that the latter beca%e its instr"%ent or agent. The facts as fo"nd by the co"rts a quo and the applicable law call for this kind of disposition. 8r else the Co"rt wo"ld be allowing the wrong "se of the fiction of corporate !eil. A$atea Vs# S.ico &1 7 SCRA 10 + ,actsPetitioners Aratea and Canonigo are the controlling stockholders of (a%ar Mining 6e!elop%ent Corporation )SAM;6C<* a do%estic corporation engaged in %ining operations in (an Isidro 1right 1estern (a%ar. 8n the other hand pri!ate respondent ("ico is a b"siness%an engaged in e#port and general %erchandise. (o%eti%e in ,-H- ("ico entered into a Memorandum of Agreement )M8A* with (AM67C8. Ar%ed with the proper board resol"tion Aratea and Canonigo signed the M8A as the d"ly a"thori$ed representati!es of the corporation. Inder the M8A ("ico wo"ld e#tend loans and cash ad!ances to (AM67C8 in e#change for the grant of the e#cl"si!e right to %arket fifty percent )+:N* of the total coal e#tracted by (AM67C8 fro% its %ining sites in (an Isidro 1right 1estern (a%ar. P"rs"ant to the M8A ("ico started releasing loans and cash ad!ances to (AM67C8 still thro"gh Aratea and ("ico. (AM67C8 started operations in its %ining sites to gather the coal. As agreed in the M8A fifty percent )+:N* of the coals prod"ced were offered by ("ico to different b"yers. 0owe!er (AM67C8 again thro"gh Aratea and Canonigo pre!ented the f"ll i%ple%entation of the %arketing arrange%ent by not accepting the prices offered by ("ico/s coal b"yers e!en tho"gh s"ch prices were co%petiti!e and fair eno"gh gi!ing no other e#planation for s"ch ref"sal other than saying that the price was too low. Aratea and Canonigo did not also set any criterion or standard with which any price offer wo"ld be %eas"red against. 5eca"se he failed to close any sale of his +:N share of the coal-prod"ce and gain profits therefro% ("ico co"ld not reali$e pay%ent of the loans and ad!ances he e#tended to (AM67C8. (AM67C8 on the other hand s"ccessf"lly disposed of its +:N share of the coal-prod"ce. 7!en with said coal sales howe!er (AM67C8 absol"tely %ade no pay%ent of its loan obligations to ("ico despite de%ands. Aratea and Canonigo e!ent"ally sold the %ining rights and passed on the operations of (AM67C8 to (o"theast Pacific Marketing Inc. )(PMI*. They also sold their shares in (AM67C8 to (PMI/s President Art"ro 7. 6y witho"t notice to or consent of ("ico in !iolation of the M8A. 0ence in the 9TC of Ceb" City ("ico filed a co%plaint for a ("% of Money and 6a%ages against (AM67C8 Aratea Canonigo and (eiko Philippines Inc. )(7ID8 which was later s"bstit"ted by (PMI and Art"ro 7. 6y*. 8n + Jan"ary ,--H the trial co"rt ca%e o"t with its decision rendering 2"dg%ent for ("ico and orders all the defendants (AM67C8 (PMI 6y (7ID8 5enito Aratea Ponciana Canonigo to solidarily pay the ("ico the principal obligation of P;.+ %illion pl"s +N interest per %onth reckoned fro% March ,-H- "ntil f"lly paid@ while defendants Aratea T Canonigo sho"ld solidarily pay plaintiff the balance on the principal a%o"nting to P-3H BB:.:: pl"s +N interest per %onth reckoned fro% March ,-H- "ntil f"lly paid. In addition all defendants are hereby ordered solidarily to pay da%ages. Iss.e1<N Aratea and Canonigo be held personally liable for the loans cash ad!ances and capital inf"sion %ade to ("ico R.ling(AM67C8 %"st generally be treated as separate and distinct entity fro% petitioners Aratea and Canonigo "nless there are facts and circ"%stances that wo"ld 2"stify the Co"rt to pierce the !eil of corporate fiction and treat the% as one and the sa%e. Aro% the facts as fo"nd by the trial co"rt and reechoed by the appellate co"rt the Co"rt has no reason to do"bt that ("ico was !ery well aware that he was dealing with (AM67C8 and that Aratea and Canonigo were %ere a"thori$ed representati!es acting for and in behalf of the corporation. In fact ("ico took note that Aratea and Canonigo were d"ly a"thori$ed by the corresponding board resol"tion. There were no indications whatsoe!er that ("ico was %isled to belie!e that the loans and cash ad!ances were initially intended for the personal benefit of Aratea and<or Canonigo and that the corporation was only "sed thereafter for the p"rpose of hiding behind the !eil of corporate fiction to e!ade personal liability. The e!idence s"fficiently established that all loans and cash ad!ances were "sed for the %ining operations of (AM67C8 and there were neither allegations nor proofs to the contrary. Absent any proof of fra"d or do"ble dealing therefore the doctrine on piercing the !eil of corporate entity wo"ld not apply.

10

The general r"le is that obligations inc"rred by the corporation acting thro"gh its directors officers and e%ployees are its sole liabilities. There are ti%es howe!er when solidary liabilities %ay be inc"rred b"t only when e#ceptional circ"%stances warrant s"ch as in the following cases? ,. 1hen directors and tr"stees or in appropriate cases the officers of a corporation? )a* !ote for or assent to patently "nlawf"l acts of the corporation@ )b* act in bad faith o$ Ait" gross negligence in di$ecting t"e co$%o$ate affai$sB )c* are g"ilty of conflict of interest to the pre2"dice of the corporation its stockholders or %e%bers and other persons@ .. 1hen a director or officer has consented to the ss"ance of &atered stoc%s or who ha!ing knowledge thereof did not forthwith file with the corporate secretary his written ob2ection thereto@ ;. 1hen a director tr"stee or officer has contract"ally agreed or stip"lated to hold hi%self personally and solidarily liable with the corporation@ or B. 1hen a director tr"stee or officer is %ade by specific pro!ision of law personally liable for his corporate action. In labor cases partic"larly corporate directors and officers are solidarily liable with the corporation for the ter%ination of e%ploy%ent of corporate e%ployees done with %alice or in bad faith. Petitioners Aratea and Canonigo despite ha!ing separate and distinct personalities fro% (AM67C8 %ay be held personally liable for the loans and ad!ances %ade by ("ico to (AM67C8 which they represent on acco"nt of their bad faith in carrying o"t the b"siness of the corporation. Petitioners Aratea and Canonigo acted in bad faith when they as officers of (AM67C8 "nreasonably pre!ented ("ico fro% selling his part of the coalprod"ce of the %ining site in gross !iolation of their M8A. This res"lted in ("ico not being "nable to reali$e profits fro% his +:N share of the coalprod"ce fro% which ("ico co"ld obtain part of the pay%ent for the loans and ad!ances he %ade in fa!or of (AM67C8. Moreo!er petitioners also acted in bad faith when they sold transferred and assigned their proprietary rights o!er the %ining area in fa!or of (PMI and 6y thereby ca"sing (AM67C8 to grossly !iolate its M8A with ("ico. ("ico s"ffered gra!e in2"stice beca"se he was pre!ented fro% acG"iring the opport"nity to obtain pay%ent of his loans and cash ad!ances while petitioners Aratea and Canonigo profited fro% the sale of their shareholdings in (AM67C8 in fa!or of (PMI and 6y. These facts d"ly established Aratea and Canonigo/s personal liability as officers<stockholders of (AM67C8 and their solidary liability with (AM67C8 for its obligations in fa!or of ("ico for the loans and cash ad!ances recei!ed by the corporation. AS< Co$%o$ation Vs# ECangelista &1') SCRA *00+ ,acts(po"ses 7fren and Ma"ra 7!angelista "nder the na%e and style of 9.M. (y Chicks are engaged in the large-scale b"siness of b"ying broiler eggs hatching the% and selling their hatchlings )chicks* and egg by-prod"cts in 5"lacan and N"e!a 7ci2a. Aor the inc"bation and hatching of these eggs respondents a!ailed of the hatchery ser!ices of A(J Corp. a corporation d"ly registered in the na%e of (an J"an and his fa%ily. (o%eti%e in ,--, 7!angelista deli!ered to A(J !ario"s G"antities of eggs whether s"ccessf"lly hatched or not. 7ach deli!ery was reflected in a =(etting 9eport>. Initially the ser!ice fees were paid "pon release of the eggs and byprod"cts to respondents. 5"t as their b"siness went along 7!angelista/s delays on their pay%ents were tolerated by (an J"an who 2"st carried o!er the balance as there %ay be into the ne#t deli!ery o"t of keeping goodwill with respondents. In Aebr"ary ,--; on se!eral occasions 7!angelista went to the hatchery to pick "p the chicks and by-prod"cts b"t (an J"an ref"sed to release the sa%e "nless respondents f"lly settle their acco"nts. 9espondents thereafter tendered so%e a%o"nt and belie!ing fir%ly that the total !al"e of the eggs deli!ered was %ore than s"fficient to co!er the o"tstanding balance respondents pro%ised to settle their acco"nts only "pon proper acco"nting by (an J"an. (an J"an disliked the idea and threatened to i%po"nd their !ehicle and detain the% at the hatchery co%po"nd if they sho"ld co%e back "nprepared to f"lly settle their acco"nts with hi%. ("bseG"ently respondents directed their errand boy Allan 5lanco to pick "p the chicks and by-prod"cts and also to ascertain if (an J"an was still willing to settle a%icably their differences. Infort"nately (an J"an was fir% in his

ref"sal and reiterated his threats on respondents. threats respondents ne!er went back to the hatchery.

Aearing (an J"an/s

9espondents filed with the 9TC an action for da%ages based on petitioners/ retention of the chicks and by-prod"cts co!ered by (etting 9eport Nos. ,:H to ,,;. 8n J"ly H ,--4 the 9TC r"led in fa!or of respondents and disregarded the corporate fiction of A(J Corp. and held it and (an J"an solidarily liable to respondents. 5oth parties appealed to the Co"rt of Appeals b"t the Co"rt of Appeals denied both appeals. The Co"rt of Appeals applying the doctrine of piercing the !eil of corporate fiction considered A(J Corp. and (an J"an as one entity after finding that there was no bona fide intention to treat the corporation as separate and distinct fro% (an J"an and his wife Il"%inada. Iss.e1<N the Co"rt of Appeals erred when it pierced the !eil of corporate fiction and held A(J Corpo. and Antonio (an J"an as one entity

R.lingNo. The Co"rt of Appeals is correct. The doctrine of piercing the !eil of corporate fiction finds application in the instant case. The ("pre%e Co"rt held that altho"gh no hard and fast r"le can be acc"rately laid down "nder which the 2"ridical personality of a corporate entity %ay be disregarded@ the following probati!e factors of identity 2"stify the application of the doctrine of piercing the !eil of corporate fiction in this case? ),* (an J"an and his wife own the b"lk of sales of A(J Corp.@ ).* The lot where the hatchery plant is located is owned by the (an J"an spo"ses@ );* A(J Corp. had no other properties or assets e#cept for the hatchery plant and the lot where it is located@ )B* (an J"an is in co%plete control of the corporation@ )+* There is no bona fide intention to treat A(J Corp. as a different entity fro% (an J"an@ and )4* The corporate fiction of AJ Corp. was "sed by (an J"an to ins"late hi%self fro% the legiti%ate clai%s of respondents defeat p"blic con!enience 2"stify wrong defend cri%e and e!ade a corporation/s s"bsidiary liability for da%ages. Therefore the decision of the Co"rt of Appeals after applying the doctrine of piercing the !eil of corporate fiction holding petitioners A(J Corporation and Antonio (an J"an solidarily liable to respondents 7fren and Ma"ra 7!angelista for the "n2"stified retention of the chicks and egg by-prod"cts co!ered by (etting 9eport Nos. ,:H to ,,; is correct. PCIB Vs# C.stodio &1'1 SCRA *)(+ ,acts6ennis C"stodio had a door-to-door dollar re%ittance b"siness. 1hile 1ilfredo 6. &liane was one of his agents in (a"di Arabia. As agent of C"stodio &liane collected dollars fro% o!erseas workers in (a"di Arabia to be re%itted to their beneficiaries in the Philippines. In their transactions C"stodio and &liane a!ailed of the ser!ices of the 6'press Padala desk of Philippine Co%%ercial and International 5ank )PCI5* now 5anco de 8ro-7PCI Inc. at its affiliate bank the Al 9ah2i 5ank in (a"di Arabia. The proced"re they adopted in re%itting dollars was to co"rse the% thro"gh reg"lar clients of PCI5 who ha!ing established a good relationship with the bank en2oyed special foreign e#change rates with it. 8ne of those clients was respondent 9olando Arancisco who %aintained 2oint acco"nts incl"ding those with his wife and 7rlinda Ch"a. Arancisco and his wife p"rportedly on behalf of 98L-76 Traders &ro"p Corporation )98L-76* a co%pany said to be owned and controlled by Arancisco entered into a Aoreign 5ills P"rchase Line Agree%ent )A5PLA* in the a%o"nt of P3: Million Pesos with the PCI5-&reenhills bank which wo"ld p"rchase checks and de%and drafts a%ong other things drawn on =I.(. 5ank > the proceeds of which wo"ld be ad!anced to Arancisco by the bank witho"t going thro"gh the reg"lar .;-day clearing period. Inder the A5PLA the spo"ses %ade the following "ndertaking that =If a check is ret"rned<dishonored for any reason whatsoe!er we shall i%%ediately witho"t need of de%and pay Ethe bankF the a%o"nt of the check together with the interest at the rate of UU percent )N* per ann"% # # # and penalty at the rate of twel!e percent ),.N* per ann"% co%p"ted fro% the date of p"rchase of the check to the date of f"ll pay%ent. UU - pre!ailing %arket rate The a%o"nt of ret"rned and dishonored checks together with interest penalty and other charges shall be debited fro% any of o"r acco"nts with any of Ethe bank/sF branches and if the credit balance thereof is ins"fficient we "ndertake to pay Ethe bankF the deficiency i%%ediately. And they a"thori$ed the PCI5-&reenhills # # # at EitsF option and witho"t notice to set-off or apply to the pay%ent of any dishonored<ret"rned check interest penalty and other charges any and all %onies which %ay be in EitsF hands on deposit or otherwise belonging to "s. Arancisco deposited fo"r dollar checks totaling I(K4+, ::: in his 2oint acco"nt with 7rlinda at the PCI5-&reenhills. The checks were cleared and

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paid by Chase Manhattan 5ank b"t they were s"bseG"ently dishonored for ins"fficient f"nds. Chase Manhattan 5ank th"s debited the a%o"nt of the dishonored checks fro% the acco"nt of PCI5-&reenhills which it %aintained with it. 0a!ing recei!ed notice of the debiting by Chase Manhattan 5ank of I(K4+, ::: fro% its acco"nt PCI5-&reenhills debited I(KH+ ::: fro% Arancisco and 7rlinda/s 2oint acco"nt as partial pay%ent of the I(K4+, ::: dishonored checks. In the %eanti%e or on May ,3 ,--H &liane re%itted I(KB. ;:: to the abo!e-said 2oint acco"nt of Arancisco at the PCI5-&reenhills. 5efore that howe!er Arancisco hi%self had asked C"stodio to desist fro% re%itting dollars to hi% fro% (a"di Arabia beca"se PCI5-&reenhills had i%posed a higher e#change rate on hi% )Arancisco*. 0a!ing gotten wind of &liane/s re%ittance of dollars to the 2oint acco"nt of Arancisco C"stodio instr"cted &liane to reG"est as the latter did for the a%end%ent of the designated beneficiary fro% Arancisco to 5elar%ino Corte$ and<or 9hodora Cr"$ who %aintained a 2oint acco"nt in PCI5-&reenhills. PCI5/s affiliate bank in (a"di Arabia trans%itted the reG"est to PCI5-7r%ita Manila which in t"rn trans%itted it to PCI5-&reenhills. At the ti%e the reG"est for change of beneficiary was recei!ed howe!er PCI5-&reenhills had set off the I(KB. ;:: re%itted by &liane against Arancisco/s re%aining balance of his obligation "nder the A5PLA )I(K4+, ::: %in"s the I(KH+ ::: earlier debited or I(K+44 :::*. The Area Manager for PCI5-Chinese 5anking &ro"p Marilyn Tan )Marilyn* to who% C"stodio attrib"ted the instr"ction to set-off the I(KB. ;:: re%ittance against Arancisco/s obligation to PCI5-&reenhills e#plained to C"stodio that the a%end%ent was no longer feasible as the I(KB. ;:: re%itted by &liane had already been applied as partial pay%ent of his )Arancisco/s* o"tstanding obligation with PCI5-&reenhills. (he th"s ad!ised C"stodio to take the %atter "p with Arancisco as she did not know of any arrange%ent between hi% and Arancisco. C"stodio and &liane thereafter filed on J"ly , ,--H a co%plaint against PCI5 Marilyn and Arancisco for specific perfor%ance and da%ages before the 9egional Trial Co"rt )9TC* of Makati to reco!er the I(KB. ;:: da%ages and attorney/s fees. They alleged that PCI5 failed to perfor% its obligation to deli!er the s"% of %oney they re%itted thro"gh it to their beneficiaries and that Arancisco wrongf"lly appropriated or consented to the appropriation of the aforesaid re%ittance as pay%ent of his loan acco"nt with the bank. 5y 6ecision of Jan"ary ;: .::. 5ranch ,;B of the Makati 9TC finding that PCI5 was negligent and that Arancisco albeit not negligent %ay not be "n2"stly enriched fo"nd the% 2ointly and se!erally liable to pay C"stodio and &liane da%ages attorney/s fees and costs. The Co"rt of Appeals by 6ecision of A"g"st ,, .::B granted the appeal of PCI5 and accordingly re!ersed the trial co"rt/s April .4 .::. 8rder-%odified decision. It freed PCI5 of any liability and held Arancisco solely liable to C"stodio and &liane. Iss.e1<N Arancisco/s personality is separate fro% 98L-76 to 2"stify his freedo% fro% liability R.lingArancisco raised this arg"%ent fo$ t"e fi$st ti:e in "is :otion fo$ $econside$ation of t"e a%%ellate co.$tDs o$iginal Decision . Points of law theories iss"es and arg"%ents not adeG"ately bro"ght to the attention of the trial co"rt ordinarily will not be considered by a re!iewing co"rt as they cannot be raised for the first ti%e on appeal beca"se this wo"ld be offensi!e to the basic r"les of fair play 2"stice and d"e process. It wo"ld be "nfair to the ad!erse party who wo"ld ha!e no opport"nity to present f"rther e!idence %aterial to the new theory which it co"ld ha!e done had it been aware of it at the ti%e of the hearing before the trial co"rt. A"rther%ore in his Answer with Co%p"lsory Co"nterclai% Arancisco clai%ed that =EhFe ne!er instr"cted nor a"thori$ed the defendant bank to apply the I.(. dollar re%ittances to pay "is loan o4ligation with the said bank>. Arancisco th"s !irt"ally ad%itted in these two cited pleadings that the loan to which the I(KB. ;:: re%ittance was applied Aas "is. As the ob2ect of pleadings is to draw the lines of battle so to speak between the litigants and to indicate fairly the nat"re of the clai%s or defenses of both parties a party cannot s"bseG"ently take a position contrary to or inconsistent with his pleadings. Inless a party alleges palpable %istake or denies s"ch ad%ission 2"dicial ad%issions cannot be contro!erted. Therefore as the I(KB. ;:: re%ittance was applied to ad%ission Arancisco/s loan the set-off was !alid. by his own

iss"es or where lifting the !eil is necessary to achie!e eG"ity or for the protection of the creditors. In the case at bar there can be no %istake that Arancisco belatedly in!oked the separate identity of 98L-76 to e!ade his liability to PCI5. 2anda.e Ding"oA Vs# NLRC &1'( SCRA '02+ ,actsPetitioner 0enry Iytengs" was the President and the for%er &eneral Manager of the Manda"e 6inghow 6i%s"% 0o"se Co. Inc. )Manda"e 6inghow* a d"ly organi$ed corporation which "sed to engage in the resta"rant b"siness. Manda"e 6inghow "sed to operate the Manda"e 6inghow 6i%s"% 0o"se )the resta"rant* which was located along A.C. Cortes A!en"e Manda"e City. In the co"rse of this resta"rant b"siness pri!ate respondents Aeli# Pacaldo I%elda Montellano L"$!i%inda C"enca Ana%ay 6elar%ente 9e%a 9a%os Pedro 6ayag%il (erina CasG"e2o 9icky Nano 7rwin Li%atog Leila 9osales 9an"lfo &eneral Nestor Ca%ia and Anesia 5lanca )pri!ate respondents* were e%ployed on !ario"s dates by Manda"e 6inghow as food handlers waiters helpers and checkers a%ong others all with a daily wage of P,4:.::. 0owe!er d"e to b"siness losses the establish%ent of n"%ero"s %alls in Ceb" City the grad"al dwindling of the n"%ber of c"sto%ers the rising cost of operations the great increase in rentals and the lack of a !iable alternati!e location the resta"rant closed down. 8n A"g"st ;, ,--H pri!ate respondents were ter%inated fro% the ser!ice as a res"lt of this clos"re. The resta"rant filed a Notice of 9etrench%ent with the 6epart%ent of Labor and 7%ploy%ent )68L7* on (epte%ber H ,--H. ConseG"ently pri!ate respondents filed a case for Illegal 6is%issal before the Labor Arbiter )LA* against Manda"e 6inghow and<or Iytengs" praying for the pay%ent of separation pay %edical allowance penalty for fail"re to notify the 68L7 and attorney/s fees. In his 6ecision dated J"ne ,: ,--- the LA absol!ed Iytengs" fro% any liability holding that the latter did not act in bad faith and in e#cess of his a"thority. Ne!ertheless the LA fo"nd Manda"e 6inghow liable ordering the sa%e to pay pri!ate respondents their respecti!e separation pay in the total a%o"nt of P,.. 3.:.::. Pri!ate respondents filed their Motion for 9econsideration clai%ing a%ong others that Manda"e 6inghow was only %ade to pay witho"t incl"ding Iytengs"@ that so%e of the% were not awarded separation pay in the said decision@ and that Manda"e 6inghow and Iytengs" deliberately intended to dis%iss the pri!ate respondents. Pri!ate respondents prayed that Manda"e 6inghow and Iytengs" be ordered 2ointly and se!erally to pay all the pri!ate respondents/ separation pay %edical allowance attorney/s fees and the penalty for fail"re to file notice of clos"re. Th"s in an 8rder dated J"ne ,: ,--- the LA awarded an additional a%o"nt of P,:B ;33.:: as separation pay to the other pri!ate respondents. 8n Aebr"ary - .::, the NL9C iss"ed an 7ntry of J"dg%ent certifying that the afore%entioned decision had beco%e final and e#ec"tory on 6ece%ber B .:::. 8n May .H .::, a 1rit of 7#ec"tion was iss"ed by the LA. 0owe!er when the said writ co"ld not be e#ec"ted as Manda"e 6inghow co"ld no longer be fo"nd and had transferred elsewhere@ in!oking the doctrine of piercing the !eil of corporate fiction pri!ate respondents %o!ed that the LA in the e#ercise of his eG"ity 2"risdiction iss"e an alias writ of e#ec"tion directing the (heriff to e#ec"te the 2"dg%ent against Manda"e 6inghow and Iytengs". Th"s on Aebr"ary ,H .::. the LA iss"ed an 8rder decreeing that a writ of e#ec"tion be iss"ed against the properties of the officers<stockholders of Manda"e 6inghow. 8n April ,4 .::. an Alias 1rit of 7#ec"tion was iss"ed. 8n April .B .::. Manda"e 6inghow and Iytengs" filed a Motion to R"ash the 1rit of 7#ec"tion. 8n May ,B .::. the (heriff s"b%itted his 9eport %anifesting that the said Alias 1rit was ser!ed on Manda"e 6inghow and Iytengs" and Notices of &arnish%ent were ser!ed on the banks. Th"s Iytengs"/s bank deposits were fro$en. 8n May .: .::. the LA denied Iytengs"/s Motion to R"ash the 1rit of 7#ec"tion. Iytengs" filed a Motion for 9econsideration and<or Appeal fro% the said 8rder before the NL9C. In its 6ecision dated March ,. .::; the NL9C denied the said appeal holding that Iytengs" is 2ointly and se!erally liable with Manda"e 6inghow on the gro"nd that he is the President<Chair%an of Manda"e 6inghow and that the latter is no longer e#isting. Iytengs" went to the CA !ia a petition for certiorari "nder 9"le 4+ of the 9"les of Ci!il Proced"re b"t the CA dis%issed the said petition for certiorari on the following gro"nds? ),* the petition failed to indicate the f"ll na%es of all pri!ate respondents and their respecti!e co%plete addresses@ ).* the certificate of non-for"% shopping attached to the petition was %erely signed by Iytengs" witho"t attaching the appropriate board resol"tion or secretary/s certificate showing his a"thority to file the said petition in behalf of Manda"e 6inghow@ and );* Manda"e 6inghow and Iytengs" failed to file a %otion for reconsideration of the NL9C decision before going to the CA on certiorari witho"t 2"stifying the reasons for s"ch fail"re. Iss.e1<N the 6octrine of Piercing the 'eil of Corporate Aiction was properly in!oked R.lingA corporation is in!ested by law with a personality separate and distinct fro% those of the persons co%posing it as well as fro% that of any other legal entity to which it %ay be related. 5eca"se of this the doctrine of piercing the !eil of corporate fiction %"st be e#ercised with ca"tion. In Mala$ang Sama an ng mga Manggaga&a sa M. /reenfield v. =amos this Co"rt reiterated the r"le that corporate directors and officers are solidarily liable with the corporation for the ter%ination of e%ployees done with %alice or bad faith. It has been held that bad faith does not connote bad 2"dg%ent or negligence@ it i%ports a dishonest p"rpose or so%e %oral obliG"ity and conscio"s doing of wrong@ it %eans breach of a known d"ty thro"gh so%e %oti!e or interest or ill will@ it partakes of the nat"re of fra"d.

Parenthetically too while Arancisco clai%s that the loan in G"estion was that of 98L-76 and not his he as earlier stated deposited the I(K4+, ::: checks in his 2oint acco"nt with 7rlinda and not in the acco"nt of 98L-76. At all e!ents while a corporation is clothed with a personality separate and distinct fro% the persons co%posing it the !eil of separate corporate personality %ay be lifted when it is "sed as a shield to conf"se legiti%ate

12

In this case it is worth %entioning that the LA in his 6ecision dated J"ne ,: ,--- e#pressly absol!ed Iytengs" fro% any liability holding that the latter did not act in bad faith and in e#cess of his a"thority. ("ch finding was not assailed by the pri!ate respondents nor did the NL9C in its 6ecision dated 8ctober .B .::: o!err"le the sa%e. The liability of Iytengs" was ne!er disc"ssed in the said NL9C decision which to the detri%ent of the pri!ate respondents had lapsed into finality. Const$.ction E DeCDt Co$%#Vs# C.enca &')) SCRA ( + ,actsIltra International Trading Corporation )IITC* applied for a s"rety bond fro% Malayan Ins"rance Co. Inc. )MICI* to g"arantee its credits indebtedness obligations and liabilities of any kind to &oodyear Tire and 9"bber Co%pany of the Philippines. MICI appro!ed the application and iss"ed MIC8 5ond No. 4+3;B for an a%o"nt not e#ceeding P4:: :::.::. The s"rety bond was !alid for ,. %onths and was renewed se!eral ti%es the last ti%e being on May ,+ ,-H;. IITC 7dilberto C"enca and 9odolfo C"enca e#ec"ted an Inde%nity Agree%ent in fa!or of MICI to protect the latter/s interest. 7dilberto was then the President while 9odolfo was a %e%ber of the 5oard of 6irectors of IITC. 7dilberto signed the inde%nity agree%ent in his official and personal capacity while 9odolfo signed in his personal capacity only. In the said agree%ent IITC 7dilberto and 9odolfo bo"nd the%sel!es 2ointly and se!erally to inde%nify MICI of any pay%ent it wo"ld %ake "nder the s"rety bond. 8n Aeb ,H ,-H; &oodyear sent to MICI a letter infor%ing it of the 6efa"lt of IITC on its obligation. After fail"re of IITC 7dilberto and 9odolfo to settle their obligation with &oodyear MICI was constrained to pay &oodyear P4:: :::.oo. After de%and for rei%b"rse%ent IITC 7dilberto and 9odolfo still failed to pay MICI which pro%pted the latter to file a co%plaint for collection of %oney against the%. IITC asked MICI to delay the filing of any s"it as the C6CP )now PNCC* had initiated a re!iew of IITC/s financial plans to enable it to pay its creditors. It is gi!en that IITC was a s"bsidiary of C6CP with the latter owning 3HN of IITC/s shares of stock. 8n J"ly .; ,-H; IITC wrote MICI proposing the following? I%%ediate pay%ent of P,+: :::.::. 5alance payable P+: :::.:: per %onth "ntil the obligation is f"lly liG"idated. Interest and penalty charges are to be wai!ed In the %ean ti%e 9odolfo filed a ;rd party co%plaint against petitioner C6CP )now PNCC* alleging that the latter had ass"%ed the liability of 9odolfo in the inde%nity agree%ent. CA affir%ed in toto the decision of the 9TC. The appellate co"rt held that IITC had i%pliedly a"thori$ed 7dilberto and 9odolfo to proc"re the s"rety bond and the inde%nity agree%ent@ hence IITC was liable. Moreo!er IITC was estopped fro% G"estioning 7dilberto and 9odolfo/s a"thority to enter into the inde%nity agree%ent in its behalf considering that it had already partially paid P,+: :::.:: to MICI. The appellate co"rt added that 7dilberto and 9odolfo ha!ing signed the inde%nity agree%ent also in their personal capacity wo"ld ordinarily be personally liable "nder the said agree%ent@ b"t beca"se MICI failed to appeal the decision of the 9TC it had effecti!ely wai!ed its right to hold the% liable on its clai%. The appellate co"rt noted that IITC was a s"bsidiary co%pany of C6CP )PNCC* beca"se the latter holds al%ost 3HN of IITC/s stocks. As s"ch IITC wo"ld p"rchase %aterials fro% s"ppliers s"ch as &oodyear in behalf of C6CP. Petitioner %aintains that the %ere fact that the %aterials p"rchased fro% &oodyear were deli!ered to it does not warrant the piercing of the corporate !eil so as to treat the two corporations as one entity absent s"fficient and clear showing that it was p"rposely "sed as a shield to defra"d creditors. Iss.e1<N C6CP )PNCC* is 2ointly and solidarily liable with IITC R.lingNo. 1e do not agree with the CA r"ling that the petitioner is liable "nder the inde%nity agree%ent. 8n this point the CA ratiocinated that the petitioner is liable considering that it is the %a2ority stockholder of IITC and the %aterials fro% &oodyear were p"rchased by IITC for and in its behalf. The petitioner cannot be %ade directly liable to MICI "nder the inde%nity agree%ent on the gro"nd that it is IITC/s %a2ority stockholder. It bears stressing that the petitioner was not a party defendant in the %ain action. MICI did not assert any clai% against the petitioner nor was the petitioner

i%pleaded in the third-party co%plaint on the gro"nd of its direct liability to MICI. Petitioner C6CP )PNCC* was bro"ght into the action by respondent 9odolfo si%ply for a =re%edy o!er.> No ca"se of action was asserted by MICI against it. The petitioner/s liability co"ld only be based on its alleged ass"%ption of respondent 9odolfo/s liability "nder the inde%nity agree%ent. (ince the petitioner/s liability is gro"nded on that of respondent 9odolfo/s it is i%perati!e that the latter be first ad2"dged liable to MICI before the petitioner %ay be held liable. In any case petitioner C6CP)PNCC* as %a2ority stockholder %ay not be held liable for IITC/s obligation. A corporation "pon co%ing into e#istence is in!ested by law with a personality separate and distinct fro% those persons co%posing it as well as fro% any other legal entity to which it %ay be related. The !eil of corporate fiction %ay only be disregarded in cases where the corporate !ehicle is being "sed to defeat p"blic con!enience 2"stify a wrong protect fra"d or defend a cri%e. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself s"fficient gro"nd for disregarding the separate corporate personality. To disregard the separate 2"ridical personality of a corporation the wrongdoing %"st be clearly and con!incingly established. Pa:%lona Plantation Co Vs# Ting"il &'10 SCRA '2 + ,actsPetitioner Pa%plona Plantations Co%pany Inc. was organi$ed for the p"rpose of taking o!er the operations of the cocon"t and s"gar plantation of 0acienda Pa%plona located in Pa%plona Negros 8riental. 1hen the co%pany took o!er the operation it did not absorb all the workers of 0acienda Pa%plona. (o%e howe!er were hired by the co%pany d"ring har!est season as cocon"t hookers or Vsakador / cocon"t filers cocon"t ha"lers cocon"t scoopers or Vl"giteros / and charcoal %akers. (o%eti%e in ,--+ Pa%plona Plantation Leis"re Corporation was established for the p"rpose of engaging in the b"siness of operating to"rist resorts hotels and inns with co%ple%entary facilities s"ch as resta"rants bars bo"tiG"es ser!ice shops entertain%ent golf co"rses tennis co"rts and other land and aG"atic sports and leis"re facilities. The Pa%plona Plantation Labor Independent Inion )PAPLII* cond"cted an organi$ational %eeting wherein se!eral respondents who are either "nion %e%bers or officers participated in said %eeting. Ipon learning that so%e of the respondents attended the said %eeting Petitioner Jose L"is 5ondoc %anager of the co%pany did not allow respondents to work any%ore in the plantation. 0ereafter respondents filed their respecti!e co%plaints with the NL9C against petitioners for "nfair labor practice illegal dis%issal "nderpay%ent o!erti%e pay pre%i"% pay for rest day and holidays ser!ice incenti!e lea!e pay da%ages attorney/s fees and ,;th %onth pay. 9espondent Carlito Tinghil a%ended his co%plaint to i%plead Pa%plona Plantation Leis"re Corporation. Labor Arbiter Jose &. &"tierre$ rendered a decision finding respondents e#cept 9"fino 5ac"bac Antonio CaSolas and Aeli# Torres who were co%plainants in another case to be entitled to separation pay. Petitioner-co%pany T 5ondoc appealed the Labor Arbiter/s decision to the NL9C. The NL9C re!ersed the Labor Arbiter/s r"ling that respondents e#cept Carlito Tinghil failed to i%plead Pa%plona Plantation Leis"re Corporation an indispensable party and that there e#ist no e%ployere%ployee relation between the parties. 9espondents filed a %otion for reconsideration which was denied by the NL9C. 9espondents ele!ated the case to the CA. &"ided by the fo"rfold test for deter%ining the e#istence of an e%ployer-e%ployee relationship@ the CA held that respondents were e%ployees of petitioner-co%pany. 0ence their dis%issal was illegal. Petitioner-co%pany T 5ondoc contended that the CA sho"ld ha!e dis%issed the case for the fail"re of respondents to i%plead the Pa%plona Plantation Leis"re Corporation an indispensable party for being the tr"e and real e%ployer. Allegedly respondents ad%itted that they had been e%ployed by the leis"re corporation and<or engaged to perfor% acti!ities that pertained to its b"siness. A"rther as the NL9C allegedly noted in their indi!id"al co%plaints respondents specifically a!erred that they had worked in the =golf co"rse> and perfor%ed related 2obs in the =recreational facilities> of the leis"re corporation. 0ence petitioner-co%pany clai% that as a s"gar and cocon"t plantation co%pany separate and distinct fro% the Pa%plona Plantation Leis"re Corporation the petitioner-co%pany is not the real party in interest. Iss.e1<N Pa%plona Plantation Co%pany Inc. is separate and distinct fro% Pa%plona Plantation Leis"re Corporation and that the latter was an indispensable party that sho"ld ha!e been i%pleaded for being the tr"e and real e%ployer R.ling-

13

No. An e#a%ination of the facts re!eals that for both the cocon"t plantation and the golf co"rse there is only one %anage%ent which the laborers deal with regarding their work. A portion of the plantation )also called 0acienda Pa%plona* had act"ally been con!erted into a golf co"rse and other recreational facilities. The weekly payrolls iss"ed by petitioner-co%pany bore the na%e Pa%plona Plantation Co. Inc. It is also a fact that respondents all recei!ed their pay fro% the sa%e person Petitioner 5ondoc -- the %anaging director of the co%pany. (ince the workers were working for a fir% known as Pa%plona Plantation Co. Inc. the reason they s"ed their e%ployer thro"gh that na%e was nat"ral and "nderstandable. Tr"e the Petitioner Pa%plona Plantation Co. Inc. and the Pa%plona Plantation Leis"re Corporation appear to be separate corporate entities. 5"t it is settled that this fiction of law cannot be in!oked to f"rther an end s"b!ersi!e of 2"stice. The principle reG"iring the piercing of the corporate !eil %andates co"rts to see thro"gh the protecti!e shro"d that disting"ishes one corporation fro% a see%ingly separate one. The corporate %ask %ay be re%o!ed and the corporate !eil pierced when a corporation is the %ere alter ego of another. 1here badges of fra"d e#ist where p"blic con!enience is defeated where a wrong is so"ght to be 2"stified thereby or where a separate corporate identity is "sed to e!ade financial obligations to e%ployees or to third parties the notion of separate legal entity sho"ld be set aside and the fact"al tr"th "pheld. 1hen that happens the corporate character is not necessarily abrogated. It contin"es for other legiti%ate ob2ecti!es. 0owe!er it %ay be pierced in any of the instances cited in order to pro%ote s"bstantial 2"stice. In the present case the corporations ha!e basically the sa%e incorporators and directors and are headed by the sa%e official. 5oth "se only one office and one payroll and are "nder one %anage%ent. In their indi!id"al Affida!its respondents allege that they worked "nder the s"per!ision and control of Petitioner 5ondoc -- the co%%on %anaging director of both the petitionerco%pany and the leis"re corporation. (o%e of the laborers of the plantation also work in the golf co"rse. Th"s the atte%pt to %ake the two corporations appear as two separate entities insofar as t e &or%ers are concerned sho"ld be !iewed as a de!io"s b"t ob!io"s %eans to defeat the ends of the law. ("ch a ploy sho"ld not be per%itted to clo"d the tr"th and perpetrate an in2"stice. In any e!ent there is no need to i%plead the leis"re corporation beca"se insofar as respondents are concerned the leis"re corporation and petitionerco%pany are one and the sa%e entity. <a$dine DaCis Vs# <RB Realt? &')* SCRA 111+ ,actsIn ,-3--,-H: J95 9ealty Inc. b"ilt a nine-storey b"ilding na%ed 5lanco Center on its parcel of land located at ,,- Alfaro (t. (alcedo 'illage Makati City. An air conditioning syste% was needed for the 5lanco Law Air% ho"sed at the second floor of the b"ilding. 8n March ,; ,-H: the respondent/s 7#ec"ti!e 'ice-President Jose 9. 5lanco accepted the contract G"otation of Mr. A.&. Morrison President of Aircon and 9efrigeration Ind"stries Inc. )Aircon* for two ).* sets of Aedders Adapto%atic ;: ::: kcal )Code? ,:-T9* air conditioning eG"ip%ent with a net total selling price of P-- +H4.::. Thereafter two ).* brand new packaged air conditioners of ,: tons capacity each to deli!er ;: ::: kcal or ,.: ::: 5TI0 were installed by Aircon. 1hen the "nits with rotary co%pressors were installed they co"ld not deli!er the desired cooling te%perat"re. 6espite se!eral ad2"st%ents and correcti!e %eas"res the respondent conceded that Aedders Air Conditioning I(A/s technology for rotary co%pressors for big capacity conditioners like those installed at the 5lanco Center had not yet been perfected. The parties thereby agreed to replace the "nits with reciprocating<se%i-her%etic co%pressors instead. In a Letter dated March .4 ,-H, Aircon stated that it wo"ld be replacing the "nits c"rrently installed with new ones "sing rotary co%pressors at the earliest possible ti%e. 9egrettably howe!er it co"ld not specify a date when deli!ery co"ld be effected. Te%pControl (yste%s Inc. )a s"bsidiary of Aircon "ntil ,-H3* "ndertook the %aintenance of the "nits incl"si!e of parts and ser!ices. In 8ctober ,-H3 the respondent learned thro"gh newspaper ads that Ma#i% Ind"strial and Merchandising Corporation )Ma#i% for short* was the new and e#cl"si!e licensee of Aedders Air Conditioning I(A in the Philippines for the %an"fact"re distrib"tion sale installation and %aintenance of Aedders air conditioners. The respondent reG"ested that Ma#i% honor the obligation of Aircon b"t the latter ref"sed. Considering that the ten-year period of prescription was fast approaching to e#pire on March ,; ,--: the respondent then instit"ted on Jan"ary .- ,--: an action for specific perfor%ance with da%ages against Aircon T 9efrigeration Ind"stries Inc. Aedders Air Conditioning I(A Inc. Ma#i% Ind"strial T Merchandising Corporation and petitioner Jardine 6a!ies Inc. The latter was i%pleaded as defendant considering that Aircon was a s"bsidiary of the petitioner. 8n May ,3 ,--4 the 9TC rendered its 6ecision ordering the Jardine 6a!ies Inc. Aedders Air Conditioning I(A Inc. and Ma#i% Ind"strial and Merchandising Corporation 2ointly and se!erally? ,. To deli!er install and place into operation the two ).* brand new "nits of Aedders "nitary packaged airconditioning "nits each of ,: tons capacity with rotary co%pressors to deli!er ;: ::: kcal or ,.: ::: 5TI0 to the second floor of the 5lanco Center b"ilding or to pay plaintiff the c"rrent price for two s"ch "nits@

.. To rei%b"rse plaintiff the a%o"nt of P++4 ++,.++ as and for the "nsa!ed electricity bills fro% 8ctober ., ,-H, "p to April ;: ,--+@ and another a%o"nt of P,H+ -+,.43 as and for repair costs@ ;. To pay plaintiff P+: :::.:: as and for attorney/s fees@ and B. Cost of s"it. The petitioner filed its notice of appeal with the CA alleging that the trial co"rt erred in holding it liable beca"se it was not a party to the contract between J95 9ealty Inc. and Aircon and that it had a personality separate and distinct fro% that of Aircon. 8n March .; .::: the CA affir%ed the trial co"rt/s r"ling in toto@ hence this petition. Iss.e1<N the Co"rt of Appeals erred in holding Jardine liable for the alleged contract"al breach of Aircon solely beca"se the latter was for%erly Jardine/s s"bsidiary R.ling1hile it is tr"e that Aircon is a s"bsidiary of the petitioner it does not necessarily follow that Aircon/s corporate legal e#istence can 2"st be disregarded. In 0elarde v. Lope># -nc.# the Co"rt categorically held that a s"bsidiary has an independent and separate 2"ridical personality distinct fro% that of its parent co%pany@ hence any clai% or s"it against the latter does not bind the for%er and vice versa. In applying the doctrine the following reG"isites %"st be established? ),* control not %erely %a2ority or co%plete stock control@ ).* s"ch control %"st ha!e been "sed by the defendant to co%%it fra"d or wrong to perpet"ate the !iolation of a stat"tory or other positi!e legal d"ty or dishonest acts in contra!ention of plaintiff/s legal rights@ and );* the aforesaid control and breach of d"ty %"st pro#i%ately ca"se the in2"ry or "n2"st loss co%plained of. The records bear o"t that Aircon is a s"bsidiary of the petitioner only beca"se the latter acG"ired Aircon/s %a2ority of capital stock. It howe!er does not e#ercise co%plete control o!er Aircon@ nowhere can it be gathered that the petitioner %anages the b"siness affairs of Aircon. Indeed no %anage%ent agree%ent e#ists between the petitioner and Aircon and the latter is an entirely different entity fro% the petitioner. Jardine 6a!ies Inc. incorporated as early as J"ne .H ,-B4 is pri%arily a financial and trading co%pany. Its Articles of Incorporation states a%ong %any others that the p"rposes for which the said corporation was for%ed are as follows? )a* To carry on the b"siness of %erchants co%%ission %erchants brokers factors %an"fact"rers and agents@ )b* Ipon co%plying with the reG"ire%ents of law applicable thereto to act as agents of co%panies and "nderwriters doing and engaging in any and all kinds of ins"rance b"siness. 8n the other hand Aircon incorporated on 6ece%ber .3 ,-+. is a %an"fact"ring fir%. Its Articles of Incorporation states that its p"rpose is %ainly P To carry on the b"siness of %an"fact"rers of co%%ercial and ho"sehold appliances and accessories of any for% partic"larly to %an"fact"re p"rchase sell or deal in air conditioning and refrigeration prod"cts of e!ery class and description as well as accessories and parts thereof or other kindred articles@ and to erect or b"y lease %anage or otherwise acG"ire %an"factories wareho"ses and depots for %an"fact"ring asse%blage repair and storing b"ying selling and dealing in the aforesaid appliances accessories and prod"cts. O The e#istence of interlocking directors corporate officers and shareholders which the respondent co"rt considered is not eno"gh 2"stification to pierce the !eil of corporate fiction in the absence of fra"d or other p"blic policy considerations. 5"t e!en when there is do%inance o!er the affairs of the s"bsidiary the doctrine of piercing the !eil of corporate fiction applies only when s"ch fiction is "sed to defeat p"blic con!enience 2"stify wrong protect fra"d or defend cri%e. To warrant resort to this e#traordinary re%edy there %"st be proof that the corporation is being "sed as a cloak or co!er for fra"d or illegality or to work in2"stice. Any piercing of the corporate !eil has to be done with ca"tion. The wrongdoing %"st be clearly and con!incingly established. It cannot 2"st be pres"%ed. In the instant case there is no e!idence that Aircon was for%ed or "tili$ed with the intention of defra"ding its creditors or e!ading its contracts and obligations. There was nothing fra"d"lent in the acts of Aircon in this case. Aircon as a %an"fact"ring fir% of air conditioners co%plied with its obligation of pro!iding two air conditioning "nits for the second floor of the 5lanco Center in good faith p"rs"ant to its contract

14

with the respondent. Infort"nately the perfor%ance of the air conditioning "nits did not satisfy the respondent despite se!eral ad2"st%ents and correcti!e %eas"res. 1e s"stain the petitioner/s separateness fro% that of Aircon in this case. It bears stressing that the petitioner was ne!er a party to the contract. Pri!ity of contracts takes effect only between parties their s"ccessors-in-interest heirs and assigns. The petitioner which has a separate and distinct legal personality fro% that of Aircon cannot therefore be held liable.

;. The directors are acc"sto%ed to take infor%al action with the e#press or i%plied acG"iesce of all the stockholders or B. All the directors ha!e e#press or i%plied knowledge of the action in G"estion and none of the% %akes pro%pt ob2ection thereto in writing. If a directorsC %eeting is held witho"t call or notice an action taken therein within the corporate powers is dee%ed ratified by a director who failed to attend "nless he pro%ptly files his written ob2ection with the secretary of the corporation after ha!ing knowledge thereof. In the instant case Petitioner Corporation is classified as a close corporation and conseG"ently a board resol"tion a"thori$ing the sale or %ortgage of the s"b2ect property is not necessary to bind the corporation for the action of its president. At any rate corporate action taken at a board %eeting witho"t proper call or notice in a close corporation is dee%ed ratified by the absent director "nless the latter pro%ptly files his written ob2ection with the secretary of the corporation after ha!ing knowledge of the %eeting which in his case 'irgilio 6"lay failed to do. It is rele!ant to note that altho"gh a corporation is an entity which has a personality distinct and separate fro% its indi!id"al stockholders or %e%bers the !eil of corporate fiction %ay be pierced when it is "sed to defeat p"blic con!enience 2"stify wrong protect fra"d or defend cri%e. The pri!ilege of being treated as an entity distinct and separate fro% its stockholder or %e%bers is therefore confined to its legiti%ate "ses and is s"b2ect to certain li%itations to pre!ent the co%%ission of fra"d or other illegal or "nfair act. 1hen the corporation is "sed %erely as an alter ego or b"siness cond"it of a person the law will regard the corporation as the act of that person. The ("pre%e Co"rt had repeatedly disregarded the separate personality of the corporation where the corporate entity was "sed to ann"l a !alid contract e#ec"ted by one of its %e%bers. PetitionersC clai% that the sale of the s"b2ect property by its president Man"el 6"lay to spo"ses 'eloso is n"ll and !oid as the alleged 5oard 9esol"tion was passed witho"t the knowledge and consent of the other %e%bers of the board of directors cannot be s"stained. Appellant 'irgilio 7. 6"layCs protestations of co%plete innocence to the effect that he ne!er participated nor was e!en aware of any %eeting or resol"tion a"thori$ing the %ortgage or sale of the s"b2ect pre%ises is diffic"lt to belie!e. 8n the contrary he is !ery %"ch pri!y to the transactions in!ol!ed. To begin with he is an incorporator and one of the board of directors designated at the ti%e of the organi$ation of Man"el 9. 6"lay 7nterprise Inc. In ordinary parlance the said entity is loosely referred to as a "fa%ily corporation". The no%enclat"re if i%precise howe!er fairly reflects the cohesi!eness of a gro"p and the parochial instincts of the indi!id"al %e%bers of s"ch an aggr"pation of which Man"el 9. 6"lay 7nterprises Inc. is typical? fo"r-fifths of its incorporators being close relati!es na%ely three );* children and their father whose na%e identifies their corporation. 5esides the fact that petitioner 'irgilio 6"lay on J"ne .B ,-3+ e#ec"ted an affida!it that he was a signatory witness to the e#ec"tion of the post-dated 6eed of Absol"te (ale of the s"b2ect property in fa!or of Torres indicates that he was aware of the transaction e#ec"ted between his father and pri!ate respondents and had therefore adeG"ate knowledge abo"t the sale of the s"b2ect property to pri!ate respondents. ConseG"ently Petitioner Corporation is liable for the act of Man"el 6"lay and the sale of the s"b2ect property to pri!ate respondents by Man"el 6"lay is !alid and binding. Section * ! Classes of co$%o$ations# Corporation for%ed or organi$ed "nder this Code %ay be stock or non-stock corporations. Corporations which ha!e capital stock di!ided into shares and are a"thori$ed to distrib"te to the holders of s"ch shares di!idends or allot%ents of the s"rpl"s profits on the basis of the shares held are stock corporations. All other corporations are non-stock corporations.

2R D.la? Vs# CA &221 SCRA )(7+ ,actsMan"el 9. 6"lay 7nterprises Inc a do%estic corporation owned a property co!ered by TCT No. ,3HH: and known as 6"lay Apart%ent consisting of si#teen ),4* apart%ent "nits on a si# h"ndred eighty-nine )4H-* sG"are %eters lot %ore or less located at (e!enth (treet )now 5"endia 7#tension* and A.5. 0arrison (treet Pasay City. Petitioner Corporation thro"gh its president Man"el 6"lay obtained !ario"s loans for the constr"ction of its hotel pro2ect 6"lay Continental 0otel )now Arederick 0otel*. It e!en had to borrow %oney fro% 'irgilio 6"lay to be able to contin"e the hotel pro2ect. As a res"lt of said loan 'irgilio 6"lay occ"pied one of the "nit apart%ents of the s"b2ect property since ,-3; while at the sa%e ti%e %anaging the 6"lay Apart%ent at his shareholdings in the corporation was s"bseG"ently increased by his father. Man"el 6"lay by !irt"e of 5oard 9esol"tion sold the s"b2ect property to spo"ses Maria Theresa and Castrense 'eloso in the a%o"nt of P;:: :::.:: as e!idenced by the 6eed of Absol"te (ale. Thereafter TCT No. ,3HH: was cancelled and TCT No. .;..+ was iss"ed to Maria Theresa 'eloso. ("bseG"ently Man"el 6"lay and spo"ses 'eloso e#ec"ted a Me%orand"% to the 6eed of Absol"te (ale of 6ece%ber .; ,-34 dated 6ece%ber - ,-33 gi!ing Man"el 6"lay within ).* years or "ntil 6ece%ber - ,-3- to rep"rchase the s"b2ect property for P.:: :::.:: which was howe!er not annotated either in TCT No. ,3HH: or TCT No. .;..+. 8n 6ece%ber .B ,-34 Maria 'eloso witho"t the knowledge of Man"el 6"lay %ortgaged the s"b2ect property to Man"el A. Torres for a loan of P.+: :::.:: which was d"ly annotated as 7ntry No. 4H,;- in TCT No. .;..+. Ipon the fail"re of Maria 'eloso to pay Torres the s"b2ect property was sold on April + ,-3H to Torres as the highest bidder in an e#tra2"dicial foreclos"re sale as e!idenced by the Certificate of (heriffCs (ale iss"ed on April .: ,-3H. 8n J"ly .: ,-3H Maria 'eloso e#ec"ted a 6eed of Absol"te Assign%ent of the 9ight to 9edee% in fa!or of Man"el 6"lay assigning her right to rep"rchase the s"b2ect property fro% Torres as a res"lt of the e#tra sale held on April .+ ,-3H. As neither Maria 'eloso nor her assignee Man"el 6"lay was able to redee% the s"b2ect property within the one year stat"tory period for rede%ption Torres filed an Affida!it of Consolidation of 8wnership with the 9egistry of 6eeds of Pasay City and TCT No. .B3-- was s"bseG"ently iss"ed to Man"el Torres on April .; ,-3-. 8n 8ctober , ,-3- Torres filed a petition for the iss"ance of a writ of possession against spo"ses 'eloso and Man"el 6"lay. 0owe!er when 'irgilio 6"lay was ne!er a"thori$ed by the Corporation to sell or %ortgage the s"b2ect property the trial co"rt ordered pri!ate respondent Torres to i%plead the Corporation as an indispensable party b"t the latter %o!ed for the dis%issal of his petition which was granted in an 8rder dated April H ,-H:. Iss.e1<N the sale of the s"b2ect property between pri!ate respondents spo"ses 'eloso and Man"el 6"lay has no binding effect on petitioner corporation as 5oard 9esol"tion No. ,H which a"thori$ed the sale of the s"b2ect property was resol!ed witho"t the appro!al of all the %e%bers of the board of directors and said 5oard 9esol"tion was prepared by a person not designated by the corporation to be its secretary R.ling(ection ,:, of the Corporation Code of the Philippines pro!ides? Inless the by-laws pro!ide otherwise any action by the directors of a close corporation witho"t a %eeting shall ne!ertheless be dee%ed !alid if? ,. 5efore or after s"ch action is taken written consent thereto is signed by all the directors or .. All the stockholders ha!e act"al or i%plied knowledge of the action and %ake no pro%pt ob2ection thereto in writing@ or

CIR Vs# Cl.4 ,ili%ino &1 SCRA *2 +

,actsThe "Cl"b Ailipino Inc. de Ceb" " is a ci!ic corporation organi$ed "nder the laws of the Philippines with an original a"thori$ed capital stock of P.. :::.:: which was s"bseG"ently increased to P.:: :::.::. Neither in the articles or by-laws are there a pro!ision relati!e to di!idends and their distrib"tion altho"gh it is co!enanted that "pon its dissol"tion the Cl"bCs re%aining assets after paying debts shall be donated to a charitable Philippine Instit"tion in Ceb". The Cl"b owns and operates a cl"b ho"se a bowling alley a golf co"rse )on a lot leased fro% the go!ern%ent* and a bar-resta"rant where it sells wines and liG"ors soft drinks %eals and short orders to its %e%bers and their g"ests. The bar?restaurant was a necessary incident to the operation of the cl"b and its golf-co"rse. The cl"b is operated %ainly with f"nds deri!ed fro% %e%bership fees and d"es. 1hate!er profits it had were "sed to defray its

15

o!erhead e#penses and to i%pro!e its golf-co"rse. In,-+, as a res"lt of a capital s"rpl"s arising fro% the re-!al"ation of its real properties the !al"e or price of which increased the Cl"b declared stock di!idends@ b"t no act"al cash di!idends were distrib"ted to the stockholders. In ,-+. a 5I9 agent disco!ered that the Cl"b has ne!er paid percentage ta# on the gross receipts of its bar and resta"rant altho"gh it sec"red licenses. The Collector of Internal 9e!en"e assessed against and de%anded fro% the Cl"b the following s"%s? W As percentage ta# on its gross receipts d"ring the ta# years ,-B4 to ,-+, P- +--.:3 ("rcharge therein . ;--.33 As fi#ed ta# for the years ,-B4 to ,-+. 3:.:: Co%pro%ise penalty +::.:: The Cl"b wrote the Collector reG"esting for the cancellation of the assess%ent. The reG"est ha!ing been denied the Cl"b filed the instant petition for re!iew. Iss.e1<N the Cl"b is liable for the ta#es assessed by the CI9 R.ling(ection ,H. of the Ta# Code states "Inless otherwise pro!ided e!ery person engaging in a b"siness on which the percentage ta# is i%posed shall pay in f"ll a fi#ed ann"al ta# of ten pesos for each calendar year or fraction thereof in which s"ch person shall engage in said b"siness." (ection ,H; pro!ides in general that "the percentage ta#es on b"siness shall be payable at the end of each calendar G"arter in the a%o"nt lawf"lly d"e on the b"siness transacted d"ring each G"arter@ etc." (ection ,-, sa%e Ta# Code pro!ides "Percentage ta# . . . Deepers of resta"rants refresh%ent parlors and other eating places shall pay a ta# three per centum and keepers of bar and cafes where wines or liG"ors are ser!ed fi!e per centum of their gross receipts . . .". It has been held that the liability for fi#ed and percentage ta#es as pro!ided by these sections does not ipso facto attach by %ere reason of the operation of a bar and resta"rant. Aor the liability to attach the operator thereof %"st be engaged in the b"siness as a barkeeper and resta"rate"r. The plain and ordinary %eaning of business is restricted to acti!ities or affairs where profit is the p"rpose or li!elihood is the %oti!e and the ter% b"siness when "sed witho"t G"alification sho"ld be constr"ed in its plain and ordinary %eaning restricted to acti!ities for profit or li!elihood. It is conceded that the Cl"b deri!ed profit fro% the operation of its bar and resta"rant b"t s"ch fact does not necessarily con!ert it into a profit-%aking enterprise. The bar and resta"rant are necessary ad2"ncts of the Cl"b to foster its p"rposes and the profits deri!ed therefro% are necessarily incidental to the pri%ary ob2ect of de!eloping and c"lti!ating sports for the healthf"l recreation and entertain%ent of the stockholders and %e%bers. That a Cl"b %akes so%e profit does not %ake it a profit-%aking Cl"b. As has been re%arked a cl"b sho"ld always stri!e whene!er possible to ha!e s"rpl"s. The facts that the capital stock of the respondent Cl"b is di!ided into shares does not detract fro% the finding of the trial co"rt that it is not engaged in the b"siness of operator of bar and resta"rant. 1hat is deter%inati!e of whether or not the Cl"b is engaged in s"ch b"siness is its ob2ect or p"rpose as stated in its articles and by-laws. It is a fa%iliar r"le that the act"al p"rpose is not controlled by the corporate for% or by the co%%ercial aspect of the b"siness prosec"ted b"t %ay be shown by e#trinsic e!idence incl"ding the by-laws and the %ethod of operation. Aro% the e#trinsic e!idence add"ced the Ta# Co"rt concl"ded that the Cl"b is not engaged in the b"siness as a barkeeper and resta"rate"r. Moreo!er for a stock corporation to e#ist two reG"isites %"st be co%plied with to wit? ),* a capital stock di!ided into shares and ).* an a"thority to distrib"te to the holders of s"ch shares di!idends or allot%ents of the s"rpl"s profits on the basis of the shares held. In the case at bar nowhere in its articles of incorporation or by-laws co"ld be fo"nd an a"thority for the distrib"tion of its di!idends or s"rpl"s profits. (trictly speaking it cannot therefore be considered a stock corporation within the conte%plation of the corporation law. A ta# is a b"rden and as s"ch it sho"ld not be dee%ed i%posed "pon fraternal ci!ic non-profit nonstock organi$ations "nless the intent to the contrary is %anifest and patent" )Collector !. 5P87 7lks Cl"b et al. supra * which is not the case in the present appeal. 0a!ing arri!ed at the concl"sion that respondent Cl"b is not engaged in the b"siness as an operator of a bar and resta"rant and therefore not liable for fi#ed and percentage ta#es it follows that it is not liable for any penalty %"ch less of a co%pro%ise penalty.

Section ' ! Co$%o$ations c$eated 4? s%ecial laAs o$ c"a$te$s# Corporations created by special laws or charters shall be go!erned pri%arily by the pro!isions of the special law or charter creating the% or applicable to the% s"pple%ented by the pro!isions of this Code insofar as they are applicable. C.enca Vs# Atas &1*1 SCRA '7+ ,actsC"enca was an incorporator President and Chief 7#ec"ti!e 8fficer of the then Constr"ction 6e!elop%ent Corporation of the Philippines )C6CP* now PNCC fro% its incorporation in ,-44 "ntil ,-H;. (o%eti%e in ,-33 C6CP was granted a franchise "nder Presidential 6ecree No. ,,,; to constr"ct operate and %aintain toll facilities of the North and (o"th L"$on 7#pressway. In the co"rse of its operations it inc"rred s"bstantial credit obligations fro% both pri!ate and go!ern%ent so"rces. 0owe!er its "npaid obligations ballooned so %"ch that by ,-H; it beca%e i%possible for it to settle its %at"ring and o!erd"e acco"nts with !ario"s &AIs na%ely the Philippine National 5ank )PN5* 6e!elop%ent 5ank of the Philippines )65P* National 6e!elop%ent Co%pany )N6C* &o!ern%ent (er!ice Ins"rance (yste% )&(I(* Land 5ank of the Philippines )L5P* and Philippin& 7#port and Aoreign Loan &"arantee Corporation )P7AL&C* now known as the Trade and In!est%ent 6e!elop%ent Corporation of the Philippines. 8n Aebr"ary .; ,-H; then President Aerdinand 7. Marcos iss"ed Letter of Instr"ction No. )L8I* ,.-+ directing the creditor &AIs to con!ert into C6CP/s shares of stock the following? ),* all of the direct obligations of C6CP and those of its wholly-owned s"bsidiaries incl"ding b"t not li%ited to loans credits accr"ed interests fees and ad!ances in any c"rrency o"tstanding as of 6ece%ber ;, ,-H.@ ).* the direct obligations of C6CP %at"ring in ,-H;@ and );* obligations %at"ring in ,-H; which were g"aranteed by the &AIs. 8n April .+ ,-H; a special stockholders/ %eeting presided by petitioner was held whereby stockholders representing %ore than two-thirds ).<;* of the o"tstanding capital stock of C6CP appro!ed the increase of its a"thori$ed capital stock fro% PhP ,.4 to ..3 billion in accordance with L8I ,.-+. Th"s the C6CP p"rs"ant to said letter con!erted so%e of its obligations to &AIs into eG"ity. The total s"bscription of the abo!e iss"ance of shares of stock p"rs"ant to L8I ,.-+ a%o"nted to PhP , B:+ .:. ::: or ,.B billion. Th"s with the i%ple%entation of L8I ,.-+ respondents-&AIs beca%e the %a2ority stockholders of C6CP to the e#tent of 3:N of the a"thori$ed capital stocks. The change in the corporation/s ownership was %ade p"blic thro"gh !ario"s anno"nce%ents. C6CP was later rena%ed to PNCC to reflect the Philippine &o!ern%ent stockholding and beca%e a go!ern%ent-acG"ired asset corporation. ConseG"ently the !ario"s &AIs were gi!en seats in the 5oard of 6irectors of PNCC and participated in the %anage%ent of the co%pany. Meanwhile so%eti%e in ,-HH p"rs"ant to Ad%inistrati!e 8rder Nos. ,B and 4B 65P PN5 P7AL&C and N6C transferred their interests in PNCC to the 9ep"blic of the Philippines which in t"rn con!eyed the% to the Asset Pri!ati$ation Tr"st )APT* now the Pri!ati$ation and Manage%ent 8ffice for disposition to the pri!ate sector p"rs"ant to the go!ern%ent/s pri!ati$ation progra%. 8n May ;, ,--4 %ore than a decade after L8I ,.-+ was i%ple%ented petitioner filed a co%plaint before the (7C (IC6 docketed as (7C Case No. :+--4-+;+3 entitled =odolfo M. Cuenca v. PNCC# et al. for the (7C to deter%ine and declare whether the &AIs were registered stockholders of PNCC and the n"%ber of shares held by each of the% and to co%pel PNCC to call and hold reg"lar stockholders/ %eetings and election of directors e!ery year. Petitioner a!erred that while PNCC iss"ed the abo!e specified certificates of stock to the &AIs p"rs"ant to L8I ,.-+ the &AIs howe!er ref"sed to cancel and ne!er did cancel the loans in their books as pay%ent for the shares iss"ed in their na%es by PNCC as =they considered it to be a di%in"tion of the !al"e of their in!est%ents.> Th"s petitioner clai%ed that so%e of the &AIs ref"sed to accept deli!ery of the stock certificates fro% PNCC while others were not e!en aware of the iss"ance of the certificates of stock in their na%es. ConseG"ently respondents-&AIs contin"ed to charge and recei!e pay%ents for their loan and interest charges fro% PNCC tho"gh these loans were s"pposed to ha!e been con!erted into co%%on stock in ,-H; p"rs"ant to L8I ,.-+. Iss.e1<N the &AIs ha!e act"ally cancelled PNCC/s loan in their books and 1<N PNCC is a &8CC R.ling-

16

Mes. Airst it is "ndisp"ted that shares of stock were iss"ed to the &AIs con!erting part of their o"tstanding loan credit to eG"ity with PNCC. The certificates of stock iss"ed attest to this fact. Moreo!er the ad%inistrati!e body below had d"ly deb"nked any irreg"larity in the face of these certificates of stock. (econd the records and acco"nts of PNCC d"ly reflected s"ch debt-to-eG"ity con!ersion as attested to by the independent a"ditors fro% Carlos J. 'aldes T Co. Certified P"blic Acco"ntants in the co%parati!e Ainancial (tate%ents co!ering the years ,-H. and ,-H;. Third the d"e iss"ance of the shares of stock in the na%es of the &AIs was corroborated by PNCC/s stock transfer agent Ca!al (ec"rities 9egistry Inc. Ao"rth the 6eed of Confir%ation and its ("pple%ent erased any do"bt as to the i%ple%entation of L8I ,.-+. Th"s based on these reasons there can be no do"bt as to the i%ple%entation of L8I ,.-+. Corollarily the shares of stock s"b2ect of the instant case iss"ed to the &AIs were for !al"e and th"s cannot be considered as !oid or =watered stocks.> Ainally it has been settled in P ilippine National Construction Corporation v. Pabion that PNCC is an acG"ired asset corporation and not a go!ern%entowned and<or controlled corporation )&8CC*. In said case we held that PNCC did not lose its stat"s as a pri!ate corporation "pon acG"isition by the go!ern%ent thro"gh &AIs of the %a2ority of its shares of stock. 8"r deter%ination that PNCC is an acG"ired asset corporation re%o!ed it fro% the category of a &8CC. Th"s while the (7C has no 2"risdiction o!er &8CCs with original charter or created by special law pri%arily beca"se they are go!erned by their charters it retains 2"risdiction o!er go!ern%ent-acG"ired asset corporations. Therefore the (7C %ay co%pel PNCC to hold a stockholders/ %eeting for the p"rpose of electing %e%bers of the latter/s board of directors. >D2, Vs# COA &'*2 SCRA 2)+ ,acts9ep"blic Act No. 4-3, =An Act to 7nco"rage Prod"cti!ity and Maintain Ind"strial Peace by Pro!iding Incenti!es to 5oth Labor and Capital > was appro!ed on No!e%ber .. ,--: and took effect on 6ece%ber - ,--:. (ection ; of said Act states? (ec. ;. Co!erage.-- This Act shall apply to all b"siness enterprises with or witho"t e#isting and d"ly recogni$ed or certified labor organi$ations incl"ding go!ern%ent-owned and controlled corporations perfor%ing proprietary f"nctions. It shall co!er all e%ployees and workers incl"ding cas"al reg"lar s"per!isory and %anagerial e%ployees. The (ecretary of Labor and 7%ploy%ent and the (ecretary of Ainance pro%"lgated the 9"les I%ple%enting 9ep"blic Act No. 4-3, on J"ne B ,--,. 9"le II of said i%ple%enting r"les pro!ides? (ection ,. Coverage. These 9"les shall apply to? )a* All b"siness enterprises with or witho"t e#isting d"ly recogni$ed or certified labor organi$ations incl"ding go!ern%ent-owned and controlled corporations perfor%ing proprietary f"nctions@ All e%ployees and workers incl"ding cas"al reg"lar rank-and-file s"per!isory and %anagerial e%ployees.

excluding those created, maintained or acquired in pursuance of a policy of the state, enunciated in the constitution or by law, and those whose officers and employees are covered by the Civil Service. Th"s the grant of prod"cti!ity incenti!e bon"s to the 06MA personnel in the total a%o"nt of P+ ,;4 3,:.-, was disallowed in a"dit "nder Notice of 6isallowance No. -4-::4-,:, )-,*. The disallowance was based on C8A 6ecision No. -4-.HH dated J"ne B ,--4 stating that 9ep"blic Act No. 4-3, does not apply to go!ern%ent-owned or controlled corporations or to go!ern%ent financial instit"tions with original charters perfor%ing proprietary f"nctions s"ch as the 06MA. 06MA thro"gh its President and Chief 7#ec"ti!e 8fficer Xorayda A%elia C. Alon$o reG"ested for the lifting of the disallowance. Alon$o arg"ed that 9ep"blic Act No. 4-3, applies to the e%ployees of 06MA since the co!erage of the said law incl"des go!ern%ent-owned and controlled corporations perfor%ing proprietary f"nctions and the s"pple%ental r"les e#cl"ding it fro% co!erage was iss"ed after the 06MA had already granted the prod"cti!ity incenti!e bon"s to its e%ployees. The Co%%ission on A"dit affir%ed the a"dit disallowance. Iss.e1<N 06MA is a &8CC with original charter perfor%ing proprietary f"nctions and is therefore e#cl"ded fro% the co!erage of 9A 4-3, R.lingThe pro!isions of 9A 4-3, taken together re!eal the legislati!e intent to incl"de only go!ern%ent-owned and controlled corporations perfor%ing proprietary f"nctions within its co!erage. Petitioner is a go!ern%ent-owned and controlled corporation perfor%ing proprietary f"nctions with original charter or created by special law specifically Presidential 6ecree )P6* No. ,3+. a%ending P6 No. ,+;:. As s"ch petitioner 06MA is co!ered by the Ci!il (er!ice p"rs"ant to Article IQ (ection .),* of the ,-H3 Constit"tion and therefore e#cl"ded fro% the co!erage of 9ep"blic Act No. 4-3,. (ince 9ep"blic Act No. 4-3, intended to co!er only go!ern%ent-owned and controlled corporations incorporated "nder the general corporation law the power of ad%inistrati!e officials to pro%"lgate r"les in the i%ple%entation of the stat"te is necessarily li%ited to what is intended and pro!ided for in the legislati!e enact%ent. 0ence the ("pple%ental 9"les clarified that go!ern%ent-owned and controlled corporations perfor%ing proprietary f"nctions which are =created %aintained or acG"ired in p"rs"ance of a policy of the state en"nciated in the constit"tion or by law and those whose officers and e%ployees are co!ered by the Ci!il (er!ice> are e#cl"ded fro% the co!erage of 9ep"blic Act No. 4-3,. Therefore e!en if petitioner 06MA granted the Prod"cti!ity Incenti!e 5on"s before the ("pple%ental 9"les were iss"ed clarifying that petitioner was e#cl"ded fro% the co!erage of 9ep"blic Act No. 4-3, the e%ployees of 06MA did not acG"ire a !ested right o!er said bon"s beca"se they were not entitled to it "nder 9ep"blic Act No. 4-3,. Moreo!er the 65M ad!ised petitioner herein 06MA on A"g"st .4 ,--, to defer pay%ent of the prod"cti!ity incenti!e bon"s to their e%ployees pending the iss"ance of a definite r"ling by the 8ffice of the President on the %atter. 6espite said ad!ice the 5oard of Tr"stees of 06MA opted to grant the said bon"s on a !ol"ntary basis as stated in its 9esol"tion No. -,-+B- (eries of ,--,. It e#pressed its =concern o!er the welfare of the officers and e%ployees of the A"nd rather than adhering to the stringent technicality of the law.> The 5oard therefore was aware that possibly 06MA %ay not be co!ered by 9ep"blic Act No. 4-3,. It sho"ld ha!e e#ercised pr"dence by awaiting the definite r"ling on the co!erage to pre!ent legal proble%s. P"ilS? Vs# COA &1*' SCRA ,actsThe Philippine (ociety for the Pre!ention of Cr"elty to Ani%als was incorporated as a 2"ridical entity o!er one h"ndred years ago by !irt"e of Act No. ,.H+ enacted on Jan"ary ,- ,-:+ by the Philippine Co%%ission. The petitioner at the ti%e it was created was co%posed of ani%al aficionados and ani%al propagandists. The ob2ects of the petitioner as stated in (ection . of its charter shall be to enforce laws relating to cr"elty inflicted "pon ani%als or the protection of ani%als in the Philippine Islands and generally to do and perfor% all things which %ay tend in any way to alle!iate the s"ffering of ani%als and pro%ote their welfare. At the ti%e of the enact%ent of Act No. ,.H+ the original Corporation Law Act No. ,B+- was not yet in e#istence. Act No. ,.H+ antedated both the Corporation Law and the constit"tion of the (ec"rities and 7#change Co%%ission. I%portant to note is that the nat"re of the petitioner as a corporate entity is disting"ished fro% the sociedad anonimas "nder the (panish Code of Co%%erce. Aor the p"rpose of enhancing its powers in pro%oting ani%al welfare and enforcing laws for the protection of ani%als the petitioner was initially i%b"ed "nder its charter with the power to apprehend !iolators of ani%al welfare laws. 2+

)b*

8n No!e%ber ., ,--, petitioner 06MA granted Prod"cti!ity Incenti!e 5on"s eG"i!alent to one %onth salary pl"s allowance to all its personnel p"rs"ant to 9ep"blic Act No. 4-3, and its I%ple%enting 9"les. The 06MA granted said bon"s despite the ad!ice on A"g"st .4 ,--, of Indersecretary (al!ador 7nriG"e$ of the 6epart%ent of 5"dget and Manage%ent )65M* to all go!ern%ent-owned and controlled corporations )&8CCs* and go!ern%ent financial instit"tions )&AIs* with original charters perfor%ing proprietary f"nctions to defer pay%ent of the prod"cti!ity incenti!e bon"s to their e%ployees pending the iss"ance of a definite r"ling by the 8ffice of the President on the %atter. 8n 6ece%ber .3 ,--, the 6epart%ent of Labor and 7%ploy%ent and the 6epart%ent of Ainance iss"ed the ("pple%ental 9"les I%ple%enting 9ep"blic Act No. 4-3, which pro!ides th"s? (ection ,.WParagraph )a* (ection , 9"le II of the 9"les I%ple%enting 9A 4-3, shall be a%ended to read as follows? Co!erage. These 9"les shall apply to? )a* All b"siness enterprises with or witho"t e#isting d"ly certified labor organi$ations incl"ding go!ern%ent-owned and controlled corporations perfor%ing proprietary f"nctions which are established solely for b"siness or profit or gain and accordingly

17

In addition the petitioner was to share one-half ),<.* of the fines i%posed and collected thro"gh its efforts for !iolations of the laws related thereto. ("bseG"ently howe!er the power to %ake arrests as well as the pri!ilege to retain a portion of the fines collected for !iolation of ani%al-related laws were recalled by !irt"e of Co%%onwealth Act )C.A.* No. ,BH. 8n 6ece%ber , .::; an a"dit tea% fro% respondent Co%%ission on A"dit )C8A* !isited the office of the petitioner to cond"ct an a"dit s"r!ey p"rs"ant to C8A 8ffice 8rder No. .::;-:+, dated No!e%ber ,H .::; addressed to the petitioner. The petitioner de%"rred on the gro"nd that it was a pri!ate entity not "nder the 2"risdiction of C8A.

Co%%ission at that %o%ent in history was well within its powers in ,-:+ to constit"te the petitioner as a pri!ate 2"ridical entity. The a%end%ents introd"ced by C.A. No. ,BH %ade it clear that the petitioner was a pri!ate corporation and not an agency of the go!ern%ent. This was e!ident in 7#ec"ti!e 8rder No. 4; iss"ed by then President of the Philippines Man"el L. R"e$on declaring that the re!ocation of the powers of the petitioner to appoint agents with powers of arrest =corrected a serio"s defect> in one of the laws e#isting in the stat"te books. As a c"rati!e stat"te and based on the doctrines so far disc"ssed C.A. No. ,BH has to be gi!en retroacti!e effect thereby freeing all do"bt as to which class of corporations the petitioner belongs that is it is a G"asi-p"blic corporation a kind of pri!ate do%estic corporation which the Co"rt will f"rther elaborate on "nder the fourt point. Second a reading of petitioner/s charter shows that it is not s"b2ect to control or s"per!ision by any agency of the (tate "nlike go!ern%ent-owned and -controlled corporations. No go!ern%ent representati!e sits on the board of tr"stees of the petitioner. Like all pri!ate corporations the s"ccessors of its %e%bers are deter%ined !ol"ntarily and solely by the petitioner in accordance with its by-laws and %ay e#ercise those powers generally accorded to pri!ate corporations s"ch as the powers to hold property to s"e and be s"ed to "se a co%%on seal and so forth. It %ay adopt by-laws for its internal operations? the petitioner shall be %anaged or operated by its officers =in accordance with its by-laws in force.> , ird. The e%ployees of the petitioner are registered and co!ered by the (ocial (ec"rity (yste% at the latter/s initiati!e and not thro"gh the &o!ern%ent (er!ice Ins"rance (yste% which sho"ld be the case if the e%ployees are considered go!ern%ent e%ployees. This is another indication of petitioner/s nat"re as a pri!ate entity. 2ourt . The fact that a certain 2"ridical entity is i%pressed with p"blic interest does not by that circ"%stance alone %ake the entity a p"blic corporation inas%"ch as a corporation %ay be pri!ate altho"gh its charter contains pro!isions of a p"blic character incorporated solely for the p"blic good. This class of corporations %ay be considered G"asi-p"blic corporations which are pri!ate corporations that render p"blic ser!ice s"pply p"blic wants or p"rs"e other elee%osynary ob2ecti!es. 1hile p"rposely organi$ed for the gain or benefit of its %e%bers they are reG"ired by law to discharge f"nctions for the p"blic benefit. 7#a%ples of these corporations are "tility railroad wareho"se telegraph telephone water s"pply corporations and transportation co%panies. It %"st be stressed that a G"asi-p"blic corporation is a s%ecies of %$iCate co$%o$ations b"t the G"alifying factor is the type of ser!ice the for%er renders to the p"blic? if it perfor%s a p"blic ser!ice then it beco%es a G"asi-p"blic corporation.

Iss.e1<N the petitioner is a pri!ate entity not s"b2ect to the 2"risdiction of C8A R.lingMes the P(PCA is a pri!ate entity. The =charter test> as it stands today pro!ides? ETFhe test to deter%ine whether a corporation is go!ern%ent owned or controlled or pri!ate in nat"re is si%ple. -s it created b$ its o&n c arter for t e e'ercise of a public function# or b$ incorporation under t e general corporation la&@ , ose &it special c arters are government corporations subject to its provisions and its e%ployees are "nder the 2"risdiction of the Ci!il (er!ice Co%%ission and are co%p"lsory %e%bers of the &o!ern%ent (er!ice Ins"rance (yste%. ### The petitioner is correct in stating that the charter test is predicated at best on the legal regi%e established by the ,-;+ Constit"tion (ection 3 Article QIII which states? (ec. 3. The National Asse%bly shall not e#cept by general law pro!ide for the for%ation organi$ation or reg"lation of pri!ate corporations "nless s"ch corporations are owned or controlled by the &o!ern%ent or any s"bdi!ision or instr"%entality thereof. The foregoing proscription has been carried o!er to the ,-3; and the ,-H3 Constit"tions. (ection ,4 of Article QII of the present Constit"tion pro!ides? (ec. ,4. The Congress shall not e#cept by general law pro!ide for the for%ation organi$ation or reg"lation of pri!ate corporations. &o!ern%ent-owned or controlled corporations %ay be created or established by special charters in the interest of the co%%on good and s"b2ect to the test of econo%ic !iability. (ection ,4 is essentially a re-enact%ent of (ection 3 of Article Q'I of the ,-;+ Constit"tion and (ection B of Article QI' of the ,-3; Constit"tion. And since the "nderpinnings of the charter test had been introd"ced by the ,-;+ Constit"tion and not earlier it follows that the test cannot apply to the petitioner which was incorporated by !irt"e of Act No. ,.H+ enacted on Jan"ary ,- ,-:+. (ettled is the r"le that laws in general ha!e no retroacti!e effect "nless the contrary is pro!ided. All stat"tes are to be constr"ed as ha!ing only a prospecti!e operation "nless the p"rpose and intention of the legislat"re to gi!e the% a retrospecti!e effect is e#pressly declared or is necessarily i%plied fro% the lang"age "sed. In case of do"bt the do"bt %"st be resol!ed against the retrospecti!e effect. There are a few e#ceptions. (tat"tes can be gi!en retroacti!e effect in the following cases? ),* when the law itself so e#pressly pro!ides@ ).* in case of re%edial stat"tes@ );* in case of c"rati!e stat"tes@ )B* in case of laws interpreting others@ and )+* in case of laws creating new rights. None of the e#ceptions is present in the instant case. The general principle of prospecti!ity of the law likewise applies to Act No. ,B+- otherwise known as the Corporation Law which had been enacted by !irt"e of the plenary powers of the Philippine Co%%ission on March , ,-:4 a little o!er a year after Jan"ary ,- ,-:+ the ti%e the petitioner e%erged as a 2"ridical entity. 7!en the Corporation Law respects the rights and powers of 2"ridical entities organi$ed beforehand. In a legal regi%e where the charter test doctrine cannot be applied the %ere fact that a corporation has been created by !irt"e of a special law does not necessarily G"alify it as a p"blic corporation. As stated at the ti%e the petitioner was for%ed the applicable law was the Philippine 5ill of ,-:. and e%phatically as also stated abo!e no proscription si%ilar to the charter test can be fo"nd therein. The te#t"al fo"ndation of the charter test which placed a li%itation on the power of the legislat"re first appeared in the ,-;+ Constit"tion. 0owe!er the petitioner was incorporated in ,-:+ by !irt"e of Act No. ,.+H a law antedating the Corporation Law )Act No. ,B+-* by a year and the ,-;+ Constit"tion by thirty years. There being neither a general law on the for%ation and organi$ation of pri!ate corporations nor a restriction on the legislat"re to create pri!ate corporations by direct legislation the Philippine

The tr"e criterion therefore to deter%ine whether a corporation is p"blic or pri!ate is fo"nd in the totality of the relation of the corporation to the (tate. If the corporation is created by the (tate as the latter/s own agency or instr"%entality to help it in carrying o"t its go!ern%ental f"nctions then that corporation is considered p"blic@ otherwise it is pri!ate. Applying the abo!e test pro!inces chartered cities and baranga$s can best e#e%plify p"blic corporations. They are created by the (tate as its own de!ice and agency for the acco%plish%ent of parts of its own p"blic works. 2ift . The respondents arg"e that since the charter of the petitioner reG"ires the latter to render periodic reports to the Ci!il &o!ernor whose f"nctions ha!e been inherited by the President the petitioner is therefore a go!ern%ent instr"%entality. This contention is inconcl"si!e. 5y !irt"e of the fiction that all corporations owe their !ery e#istence and powers to the (tate the reportorial reG"ire%ent is applicable to all corporations of whate!er nat"re whether they are p"blic G"asi-p"blic or pri!ate corporationsWas creat"res of the (tate there is a reser!ed right in the legislat"re to in!estigate the acti!ities of a corporation to deter%ine whether it acted within its powers. In other words the reportorial reG"ire%ent is the principal %eans by which the (tate %ay see to it that its creat"re acted according to the powers and f"nctions conferred "pon it.

NADECO Vs# PVB & 92 SCRA 21(+ ,actsAgri# Marketing Inc. had e#ec"ted in fa!or of Philippine 'eterans 5ank a real estate %ortgage o!er three );* parcels of land sit"ated in Los 5anos Lag"na. 6"ring the e#istence of the %ortgage Agri# went bankr"pt. It was for the e#pressed p"rpose of sal!aging this and the other Agri# co%panies that P6 No. ,3,3 was iss"ed by Pres. Marcos. P6 No. ,3,3 was ordered to rehabilitate the Agri# &ro"p of Co%panies to be ad%inistered %ainly by National 6e!elop%ent Co%pany. The law o"tlined the proced"re for filing clai%s against the Agri# co%panies and created a Clai%s Co%%ittee to process these clai%s. 7specially rele!ant is (ection B thereof pro!iding that =all %ortgages and other liens presently attaching to any of the assets of the dissol!ed corporations are hereby e#ting"ished. P"rs"ant to P6 No. ,3,3 P'5 filed a clai% with the Agri# Clai% Co%%ittee for the pay%ent of its loan credit. In the %eanti%e the New Agri# Inc. and the NA67C8 in!oking (ection B of the enact%ent filed a petition for the cancellation of the %ortgage lien in fa!or of Agri#. The P'5 took steps to e#tra2"dicially foreclose the %ortgage pro%pting NA67C8 to file a second case to stop the foreclos"re. The two cases were consolidated. The 9TC ann"lled not only the challenged pro!ision b"t the entire P6 No. ,3,3 on the gro"nds that the presidential e#ercise of the legislati!e power

18

was a !iolation of separation of powers the law i%paired the obligations of contracts and the decree !iolated the eG"al protection cla"se. Iss.e1<N P6 No. ,3,3 is !alid R.lingP6 No. ,3,3 is an in!alid e#ercise of police power not being in confor%ity with the traditional reG"ire%ents of a lawf"l s"b2ect and a lawf"l %ethod. The e#tinction of the %ortgage and other liens and of the interest and other charges pertaining to the legiti%ate creditors of Agri# constit"tes taking witho"t d"e process of law and this is co%po"nded by the red"ction of the sec"red creditors to the category of "nsec"red creditors in !iolation of the eG"al protection cla"se. Moreo!er the new corporation is neither owned nor controlled by the go!ern%ent. The NA67C8 was %erely reG"ired to e#tend a loan of not %ore than P,: ::: :::.:: to New Agri# Inc. Pending pay%ent thereof N6C wo"ld "ndertake the %anage%ent of the corporation b"t with the obligation of %aking periodic reports to the Agri# board of directors. After pay%ent of the loan the said board can then appoint its %anage%ent. The stocks of the new corporations are to be iss"ed to the old in!estors and stockholders of Agri# "pon proof of their clai%s against the abolished corporation. They shall then be the owners of the new corporation. New Agri# is entirely pri!ate and sho"ld ha!e been organi$ed "nder the Corporation Law in accordance with the abo!e-cited constit"tional pro!ision. The decree also interferes with p"rely pri!ate agree%ents witho"t any de%onstrated connection with the p"blic interest@ there is likewise an i%pair%ent of the obligation of contract.

(ection ,4 Article QII of the Constit"tion pro!ides? (ec. ,4. The Congress shall not e#cept by general law pro!ide for the for%ation organi$ation or reg"lation of pri!ate corporations. &o!ern%ent-owned or controlled corporations %ay be created or established by special charters in the interest of the co%%on good and s"b2ect to the test of econo%ic !iability. The Constit"tion e%phatically prohibits the creation of pri!ate corporations e#cept by a general law applicable to all citi$ens. The p"rpose of this constit"tional pro!ision is to ban pri!ate corporations created by special charters which historically ga!e certain indi!id"als fa%ilies or gro"ps special pri!ileges denied to other citi$ens. In short Congress cannot enact a law creating a pri!ate corporation with a special charter. ("ch legislation wo"ld be "nconstit"tional. Pri!ate corporations %ay e#ist only "nder a general law. If the corporation is pri!ate it %"st necessarily e#ist "nder a general law. (tated differently only corporations created "nder a general law can G"alify as pri!ate corporations. Inder e#isting laws that general law is the Corporation Code e#cept that the Cooperati!e Code go!erns the incorporation of cooperati!es. The Constit"tion a"thori$es Congress to create go!ern%ent-owned or controlled corporations thro"gh special charters. (ince pri!ate corporations cannot ha!e special charters it follows that Congress can create corporations with special charters only if s"ch corporations are go!ern%ent-owned or controlled. 8b!io"sly L16s are not pri!ate corporations beca"se they are not created "nder the Corporation Code. L16s are not registered with the (ec"rities and 7#change Co%%ission. (ection ,B of the Corporation Code states that =All corporations organi$ed "nder this code shall file with the (ec"rities and 7#change Co%%ission articles of incorporation # # #.> L16s ha!e no articles of incorporation no incorporators and no stockholders or %e%bers. There are no stockholders or %e%bers to elect the board directors of L16s as in the case of all corporations registered with the (ec"rities and 7#change Co%%ission. The local %ayor or the pro!incial go!ernor appoints the directors of L16s for a fi#ed ter% of office. Significantl?F %etitione$s a$e not c$eated .nde$ t"e said codeF 4.t on t"e cont$a$?F t"e? Ae$e c$eated %.$s.ant to a s%ecial laA and a$e goCe$ned %$i:a$il? 4? its %$oCision# L16s e#ist by !irt"e of P6 ,-H which constit"tes their special charter. (ince "nder the Constit"tion only go!ern%ent-owned or controlled corporations %ay ha!e special charters L16s can !alidly e#ist only if they are go!ern%entowned or controlled. To clai% that L16s are pri!ate corporations with a special charter is to ad%it that their e#istence is constit"tionally infir%. Inlike pri!ate corporations which deri!e their legal e#istence and power fro% the Corporation Code L16s deri!e their legal e#istence and power fro% P6 ,-H. Clearly L16s e#ist as corporations only by !irt"e of P6 ,-H which e6%$essl? confe$s on L=Ds co$%o$ate %oAe$s . (ection 4 of P6 ,-H pro!ides that L16s =shall e#ercise the powers rights and pri!ileges gi!en to pri!ate corporations "nder e#isting laws.> 1itho"t P6 ,-H L16s wo"ld ha!e no corporate powers. Th"s P6 ,-H constit"tes the special enabling charter of L16s. The inel"ctable concl"sion is that L16s are go!ern%ent-owned and controlled corporations with a special charter. The phrase =go!ern%ent-owned and controlled corporations with original charters> %eans &8CCs created "nder special laws and not "nder the general incorporation law. Certainly the go!ern%ent owns and controls L16s. The go!ern%ent organi$es L16s in accordance with a specific law P6 ,-H. There is no pri!ate party in!ol!ed as co-owner in the creation of an L16. J"st prior to the creation of L16s the national or local go!ern%ent owns and controls all their assets. The go!ern%ent controls L16s beca"se "nder P6 ,-H the %"nicipal or city %ayor or the pro!incial go!ernor appoints all the board directors of an L16 for a fi#ed ter% of si# years. The board directors of L16s are not coowners of the L16s. L16s ha!e no pri!ate stockholders or %e%bers. The board directors and other personnel of L16s are go!ern%ent e%ployees s"b2ect to ci!il ser!ice laws and anti-graft laws. 1hile (ection H of P6 ,-H states that =No p"blic official shall ser!e as director> of an L16 it only %eans that the appointees to the board of directors of L16s shall co%e fro% the pri!ate sector. 8nce s"ch pri!ate sector representati!es ass"%e office as directors they beco%e p"blic officials go!erned by the ci!il ser!ice law and anti-graft laws. 8therwise (ection H of P6 ,-H wo"ld contra!ene (ection .),* Article IQ-5 of the Constit"tion declaring that the ci!il ser!ice incl"des =go!ern%ent-owned or controlled corporations with original charters.> If L16s are neither &8CCs with original charters nor &8CCs witho"t original charters then they wo"ld fall "nder the ter% =agencies or instr"%entalities> of the go!ern%ent and th"s still s"b2ect to C8A/s a"dit 2"risdiction. 0owe!er the stark and "ndeniable fact is that the go!ern%ent owns L16s. (ection B+ of P6 ,-H recogni$es go!ern%ent ownership of L16s when (ection B+ states that the board of directors %ay dissol!e an L16 only on the condition that =anot"e$ %.4lic entit? has acG"ired the assets of the district and has

,eliciano Vs# COA &' 9 SCRA *)'+ ,actsA (pecial A"dit Tea% fro% C8A 9egional 8ffice a"dited the acco"nts of Leyte Metropolitan 1ater 6istrict. ("bseG"ently LM16 recei!ed a letter fro% C8A reG"esting pay%ent of a"diting fees. As &eneral Manager of LM16 Aeliciano sent a reply infor%ing C8A/s 9egional 6irector that the water district co"ld not pay the a"diting fees. The 9egional 6irector referred petitioner/s reply to the C8A Chair%an. Thereafter Aeliciano wrote C8A thro"gh the 9egional 6irector asking for ref"nd of all a"diting fees LM16 pre!io"sly paid to C8A.C8A Chair%an Celso 6. &angan denied his reG"ests. Petitioner filed a %otion for reconsideration on ;, March .::: which C8A denied on ;: Jan"ary .::,. 8n ,; March .::, petitioner filed this instant petition. Attached to the petition were resol"tions of the 'isayas Association of 1ater 6istricts )'A16* and the Philippine Association of 1ater 6istricts )PA16* s"pporting the petition. The C8A r"led that this Co"rt has already settled C8A/s a"dit 2"risdiction o!er local water districts in Davao City Water District v. Civil Service Commission and Commission on Audit# as follows? The abo!e-G"oted pro!ision Ereferring to (ection ;)b* P6 ,-HF definitely sets to na"ght petitioners/ contention that they are pri!ate corporations. It is clear therefro% that the power to appoint the %e%bers who will co%prise the %e%bers of the 5oard of 6irectors belong to the local e#ec"ti!es of the local s"bdi!ision "nit where s"ch districts are located. In contrast the %e%bers of the 5oard of 6irectors or the tr"stees of a pri!ate corporation are elected fro% a%ong %e%bers or stockholders thereof. It wo"ld not be a%iss at this point to e%phasi$e that a pri!ate corporation is created for the pri!ate p"rpose benefit ai% and end of its %e%bers or stockholders. Necessarily said %e%bers or stockholders sho"ld be gi!en a free hand to choose who will co%pose the go!erning body of their corporation. 5"t this is not the case here and this clearly indicates that petitioners are not pri!ate corporations. The C8A also denied petitioner/s reG"est for C8A to stop charging a"diting fees as well as petitioner/s reG"est for C8A to ref"nd all a"diting fees already paid. Iss.e1hether a Local 1ater 6istrict )=L16>* created "nder P6 ,-H as a%ended is a go!ern%ent-owned or controlled corporation s"b2ect to the a"dit 2"risdiction of C8A R.lingThe Constit"tion and e#isting laws %andate C8A to a"dit all go!ern%ent agencies incl"ding go!ern%ent-owned and controlled corporations )=&8CCs>* with original charters. An L16 is a &8CC with an original charter. The C8A/s a"dit 2"risdiction e#tends not only to go!ern%ent =agencies or instr"%entalities > b"t also to =go!ern%ent-owned and controlled corporations with original charters> as well as =other go!ern%ent-owned or controlled corporations> witho"t original charters.

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ass"%ed all obligations and liabilities attached thereto.> The i%plication is clear that an L16 is a p"blic and not a pri!ate entity. Section 1 ! Co$%o$ato$s and inco$%o$ato$sF stoc5"olde$s and :e:4e$s# Corporators are those who co%pose a corporation whether as stockholders or as %e%bers. Incorporators are those stockholders or %e%bers %entioned in the articles of incorporation as originally for%ing and co%posing the corporation and who are signatories thereof. Corporators in a stock corporation are called stockholders or shareholders. Corporators in a non-stock corporation are called %e%bers. Section ) / Classification of s"a$es# - The shares of stock of stock corporations %ay be di!ided into classes or series of shares or both any of which classes or series of shares %ay ha!e s"ch rights pri!ileges or restrictions as %ay be stated in the articles of incorporation? Pro!ided That no share %ay be depri!ed of !oting rights e#cept those classified and iss"ed as "preferred" or "redee%able" shares "nless otherwise pro!ided in this Code? Pro!ided f"rther That there shall always be a class or series of shares which ha!e co%plete !oting rights. Any or all of the shares or series of shares %ay ha!e a par !al"e or ha!e no par !al"e as %ay be pro!ided for in the articles of incorporation? Pro!ided howe!er That banks tr"st co%panies ins"rance co%panies p"blic "tilities and b"ilding and loan associations shall not be per%itted to iss"e no-par !al"e shares of stock. Preferred shares of stock iss"ed by any corporation %ay be gi!en preference in the distrib"tion of the assets of the corporation in case of liG"idation and in the distrib"tion of di!idends or s"ch other preferences as %ay be stated in the articles of incorporation which are not !iolati!e of the pro!isions of this Code? Pro!ided That preferred shares of stock %ay be iss"ed only with a stated par !al"e. The board of directors where a"thori$ed in the articles of incorporation %ay fi# the ter%s and conditions of preferred shares of stock or any series thereof? Pro!ided That s"ch ter%s and conditions shall be effecti!e "pon the filing of a certificate thereof with the (ec"rities and 7#change Co%%ission. (hares of capital stock iss"ed witho"t par !al"e shall be dee%ed f"lly paid and non-assessable and the holder of s"ch shares shall not be liable to the corporation or to its creditors in respect thereto? Pro!ided@ That shares witho"t par !al"e %ay not be iss"ed for a consideration less than the !al"e of fi!e )P+.::* pesos per share? Pro!ided f"rther That the entire consideration recei!ed by the corporation for its no-par !al"e shares shall be treated as capital and shall not be a!ailable for distrib"tion as di!idends. A corporation %ay f"rther%ore classify its shares for the p"rpose of ins"ring co%pliance with constit"tional or legal reG"ire%ents. 7#cept as otherwise pro!ided in the articles of incorporation and stated in the certificate of stock each share shall be eG"al in all respects to e!ery other share. 1here the articles of incorporation pro!ide for non-!oting shares in the cases allowed by this Code the holders of s"ch shares shall ne!ertheless be entitled to !ote on the following %atters? ,. A%end%ent of the articles of incorporation@ .. Adoption and a%end%ent of by-laws@ ;. (ale lease e#change %ortgage pledge or other disposition of all or s"bstantially all of the corporate property@ B. Inc"rring creating or increasing bonded indebtedness@ +. Increase or decrease of capital stock@ 4. Merger or consolidation of the corporation with another corporation or other corporations@ 3. In!est%ent of corporate f"nds in another corporation or b"siness in accordance with this Code@ and H. 6issol"tion of the corporation. 7#cept as pro!ided in the i%%ediately preceding paragraph the !ote necessary to appro!e a partic"lar corporate act as pro!ided in this Code shall be dee%ed to refer only to stocks with !oting rights. Re%.4lic Plante$s Vs# Agana &2)9 SCRA + ,acts-

9obes-Arancisco 9ealty and 6e!elop%ent Corporation sec"red a loan fro% 9ep"blic Planters 5ank in the a%o"nt of P,.: :::.::. As part of the proceeds of the loan preferred shares of stocks were iss"ed to the Corporation thro"gh its officers then Adalia A. 9obes and one Carlos A. 9obes. In other words instead of gi!ing the legal tender totaling to the f"ll a%o"nt of the loan which is P,.: :::.:: 9ep"blic lent s"ch a%o"nt partially in the for% of %oney and partially in the for% of stock certificates n"%bered ;.:B and ;.:+ each for B:: shares with a par !al"e of P,:.:: per share or for PB :::.:: each for a total of PH :::.::. (aid stock certificates were in the na%e of Adalia A. 9obes and Carlos A. 9obes who s"bseG"ently howe!er endorsed his shares in fa!or of Adalia A. 9obes. (aid certificates of stock bear the following ter%s and conditions? The Preferred (tock shall ha!e the following rights preferences G"alifications and li%itations to wit? ,. 8f the right to recei!e a G"arterly di!idend of 8ne Per Centum ),N* c"%"lati!e and participating. ### ### ### .. That s"ch preferred shares %ay be redee%ed by the syste% of drawing lots at any ti%e after two ).* years fro% the date of iss"e at the option of the Corporation. . . Thereafter pri!ate respondents proceeded against petitioner and filed a Co%plaint anchored on pri!ate respondentsC alleged rights to collect di!idends "nder the preferred shares in G"estion and to ha!e petitioner redee% the sa%e "nder the ter%s and conditions of the stock certificates. The trial co"rt rendered the herein assailed decision in fa!or of pri!ate respondents. In ordering petitioner to pay pri!ate respondents the face !al"e of the stock certificates as rede%ption price pl"s ,N G"arterly interest thereon "ntil f"ll pay%ent. Iss.e1<N the 9ep"blic Planters %ay be co%pelled to redee% its preferred stocks R.ling1hile the stock certificate does allow rede%ption the option to do so was clearly !ested in the petitioner bank. The rede%ption therefore is clearly the type known as "optional". Th"s e#cept as otherwise pro!ided in the stock certificate the rede%ption rests entirely with the corporation and the stockholder is witho"t right to either co%pel or ref"se the rede%ption of its stock. A"rther%ore the ter%s and conditions set forth therein "se the word "%ay". It is a settled doctrine in stat"tory constr"ction that the word "%ay" denotes discretion and cannot be constr"ed as ha!ing a %andatory effect. The rede%ption of said shares cannot be allowed. As pointed o"t by the petitioner the Central 5ank %ade a finding that said petitioner has been s"ffering fro% chronic reser!e deficiency and that s"ch finding res"lted in a directi!e iss"ed on Jan"ary ;, ,-3; by then &o!. &.(. Licaros of the Central 5ank to the President and Acting Chair%an of the 5oard of the petitioner bank prohibiting the latter fro% redee%ing any preferred share on the gro"nd that said rede%ption wo"ld red"ce the assets of the 5ank to the pre2"dice of its depositors and creditors. 9ede%ption of preferred shares was prohibited for a 2"st and !alid reason. The directi!e iss"ed by the Central 5ank &o!ernor was ob!io"sly %eant to preser!e the stat"s G"o and to pre!ent the financial r"in of a banking instit"tion that wo"ld ha!e res"lted in ad!erse reperc"ssions not only to its depositors and creditors b"t also to the banking ind"stry as a whole. The directi!e in li%iting the e#ercise of a right granted by law to a corporate entity %ay th"s be considered as an e#ercise of police power. It has howe!er been settled that the Constit"tional g"aranty of non-i%pair%ent of obligations of contract is li%ited by the e#ercise of the police power of the state the reason being that p"blic welfare is s"perior to pri!ate rights. The respondent 2"dge also stated that since the stock certificate granted the pri!ate respondents the right to recei!e a G"arterly di!idend of 8ne Per Centum ),N* c"%"lati!e and participating it "clearly and "neG"i!ocably indicates that the sa%e are "interest bearing stocks" or stocks iss"ed by a corporation "nder an agree%ent to pay a certain rate of interest thereon. As s"ch pri!ate respondents beco%e entitled to the pay%ent thereof as a %atter of right witho"t necessity of a prior declaration of di!idend." There is no legal basis for this obser!ation. 5oth (ec. ,4 of the Corporation Law and (ec. B; of the present Corporation Code prohibit the iss"ance of any stock di!idend witho"t the appro!al of stockholders representing not less than two-thirds ).<;* of the o"tstanding capital stock at a reg"lar or special %eeting d"ly called for the p"rpose. These pro!isions "nderscore the fact that pay%ent of di!idends to a stockholder is not a %atter of right b"t a %atter of consens"s. A"rther%ore "interest bearing stocks" on which the corporation agrees absol"tely to pay interest before di!idends are paid to co%%on stockholders is legal only when constr"ed as reG"iring pay%ent of interest as di!idends fro% net earnings or s"rpl"s only. Clearly the respondent 2"dge in co%pelling the petitioner to redee% the shares in G"estion and to pay the corresponding di!idends co%%itted gra!e ab"se of discretion a%o"nting to lack or e#cess of 2"risdiction in ignoring both the ter%s and conditions specified in the stock certificate as well as the clear %andate of the law.

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Anent the iss"e of prescription this Co"rt so holds that the clai% of pri!ate respondent is already barred by prescription as well as laches. Art. ,,BB of the New Ci!il Code pro!ides that a right of action that is fo"nded "pon a written contract prescribes in ten ),:* years. The letter-de%and %ade by the pri!ate respondents to the petitioner was %ade only on Jan"ary + ,-3- or al%ost eighteen years after receipt of the written contract in the for% of the stock certificate. Moreo!er the clai% of the pri!ate respondents is also barred by laches. Laches has been defined as the fail"re or neglect for an "nreasonable length of ti%e to do that which by e#ercising d"e diligence co"ld or sho"ld ha!e been done earlier@ it is negligence or o%ission to assert a right within a reasonable ti%e warranting a pres"%ption that the party entitled to assert it either has abandoned it or declined to assert it. Considering that the ter%s and conditions set forth in the stock certificate clearly indicate that rede%ption of the preferred shares %ay be %ade at any ti%e after the lapse of two years fro% the date of iss"e pri!ate respondents sho"ld ha!e taken it "pon the%sel!es after the lapse of the said period to inG"ire fro% the petitioner the reason why the said shares ha!e not been redee%ed. As it is not only two years had lapsed as agreed "pon b"t an additional si#teen years passed before the pri!ate respondents saw it fit to de%and their right. The petitioner at the ti%e it iss"ed said preferred shares to the pri!ate respondents in ,-4, co"ld not ha!e known that it wo"ld be s"ffering fro% chronic reser!e deficiency twel!e years later. 0ad the pri!ate respondents been !igilant in asserting their rights the rede%ption co"ld ha!e been effected at a ti%e when the petitioner bank was not s"ffering fro% any financial crisis. Castillo Vs# Baling"asa? &''0 SCRA ''*+ ,actsCastillo and 5alinghasay are stockholders of Medical Center ParanaG"G Inc. with the for%er holding Class =5> shares and the latter owning Class =A> shares. MCPI is a do%estic corporation with offices at 6r. A. (antos A!en"e ("cat ParaSaG"e City. It was organi$ed so%eti%e in (epte%ber ,-33. At the ti%e of its incorporation Act No. ,B+- the old Corporation Law was still in force and effect. The Article 'II of MCPI/s original Articles of Incorporation as appro!ed by the (ec"rities and 7#change Co%%ission )(7C* was a%ended twice and the latest a%end%ent pro!ide as follows? (7'7NT0? That the a"thori$ed capital stock of the corporation is T0I9TM T18 MILLI8N P7(8( )P;. ::: :::.::* di!ided as follows? CLA(( =A> =5> N8. 8A (0A97( , ::: ;, ::: PA9 'ALI7 P, :::.:: , :::.::

("bseG"ently the co%plaint was a%ended to i%plead MCPI as party-plaintiff for p"rposes only of the second ca"se of action. Iss.e1<N holders of Class =5> shares of the MCPI %ay be depri!ed of the right to !ote and be !oted for as directors in MCPI R.ling1hen Article 'II of the Articles of Incorporation of MCPI was a%ended in ,--. the phrase =e'cept & en ot er&ise provided b$ la&> was inserted in the pro!ision go!erning the grant of !oting powers to Class =A> shareholders. This partic"lar a%end%ent is rele!ant for it speaks of a law pro!iding for e#ceptions to the e#cl"si!e grant of !oting rights to Class =A> stockholders. 1hich law was the a%end%ent referring toL The deter%ination of which law to apply is necessary. There are two laws being cited and relied "pon by the parties in this case. In this instance the law in force at the ti%e of the ,--. a%end%ent was the Corporation Code )5.P. 5lg. 4H* not the Corporation Law )Act No. ,B+-* which had been repealed by then. 1e find and so hold that the law referred to in the a%end%ent to Article 'II refers to the Corporation Code and no other law. At the ti%e of the incorporation of MCPI in ,-33 the right of a corporation to classify its shares of stock was sanctioned by (ection + of Act No. ,B+-. The law repealing Act No. ,B+- 5.P. 5lg. 4H retained the sa%e grant of right of classification of stock shares to corporations b"t with a significant change. Inder (ection 4 of 5.P. 5lg. 4H the reG"ire%ents and restrictions on !oting rights were e#plicitly pro!ided for s"ch that = no s are ma$ be deprived of voting rig ts e'cept t ose classified and issued as Apreferred: or Aredeemable: s ares# unless ot er&ise provided in t is Code> and that =t ere s all al&a$s be a class or series of s ares & ic ave complete voting rig ts. > (ection 4 of the Corporation Code being dee%ed written into Article 'II of the Articles of Incorporation of MCPI it necessarily follows that "nless Class =5> shares of MCPI stocks are clearly categori$ed to be =preferred> or =redee%able> shares the holders of said Class =5> shares %ay not be depri!ed of their !oting rights. Note that there is nothing in the Articles of Incorporation nor an iota of e!idence on record to show that Class =5> shares were categori$ed as either =preferred> or =redee%able> shares. The only possible concl"sion is that Class =5> shares fall "nder neither category and th"s "nder the law are allowed to e#ercise !oting rights. 8ne of the rights of a stockholder is the right to participate in the control and %anage%ent of the corporation that is e#ercised thro"gh his !ote. The right to !ote is a right inherent in and incidental to the ownership of corporate stock and as s"ch is a property right. The stockholder cannot be depri!ed of the right to !ote his stock nor %ay the right be essentially i%paired either by the legislat"re or by the corporation witho"t his consent thro"gh a%ending the charter or the by-laws. Neither do we find %erit in respondents/ position that (ection 4 of the Corporation Code cannot apply to MCPI witho"t r"nning afo"l of the noni%pair%ent cla"se of the 5ill of 9ights. (ection ,BH of the Corporation Code e#pressly pro!ides that it shall apply to corporations in e#istence at the ti%e of the effecti!ity of the Code. 0ence the non-i%pair%ent cla"se is inapplicable in this instance. 1hen Article 'II of the Articles of Incorporation of MCPI were a%ended in ,--. the board of directors and stockholders %"st ha!e been aware of (ection 4 of the Corporation Code and intended that Article 'II be constr"ed in har%ony with the Code which was then already in force and effect. (ince (ection 4 of the Corporation Code e#pressly prohibits the depri!ation of !oting rights e#cept as to =preferred> and =redee%able> shares then Article 'II of the Articles of Incorporation cannot be constr"ed as granting e#cl"si!e !oting rights to Class =A> shareholders to the pre2"dice of Class =5> shareholders witho"t r"nning afo"l of the letter and spirit of the Corporation Code. Ga$cia Vs# Li: C". Sing &19 P"il 1)2+ ,actsThe debt which is the s"b2ect %atter of the co%plaint was not really an indebtedness of the Li% Ch" (ing b"t of Li% C"an (y who had an acco"nt with the Mercantile 5ank in the for% of "tr"st receipts" g"aranteed by the Li% Ch" as s"rety and with chattel %ortgage sec"rities. The Mercantile 5ank witho"t the knowledge and consent of Li% Ch" foreclosed the chattel %ortgage and pri!ately sold the property co!ered thereby. Inas%"ch as Li% C"an (y failed to co%ply with his obligations the plaintiff reG"ired the defendant as s"rety to sign a pro%issory note for the s"% of P,- ,:+.,3 payable in the %anner hereinbefore stated. The defendant had been paying the corresponding install%ents "ntil the debt was red"ced to the s"% of P- ,:+.,3 clai%ed in the co%plaint. The defendant is the owner of shares of stock of the plaintiff Mercantile 5ank of China a%o"nting to P,: :::. The plaintiff bank is now "nder liG"idation. The proceeds of the sale of the %ortgaged chattels together with other pay%ents %ade were applied to the a%o"nt of the pro%issory note in G"estion lea!ing the balance which the plaintiff now seeks to collect. Iss.e-

xcept when otherwise provided by law, only holders of Class !A" shares have the right to vote and the right to be elected as directors or as corporate officers. The (7C appro!ed the foregoing a%end%ent on (epte%ber .. ,--;. 8n Aebr"ary - .::, the shareholders of MCPI held their ann"al stockholders/ %eeting and election for directors. 6"ring the co"rse of the proceedings respondent 9"stico Ji%ene$ citing Article 'II as a%ended and notwithstanding MCPI/s history declared o!er the ob2ections of herein petitioners that no Class =5> shareholder was G"alified to r"n or be !oted "pon as a director. In the past MCPI had seen holders of Class =5> shares !oted for and ser!e as %e%bers of the corporate board and so%e Class =5> share owners were in fact no%inated for election as board %e%bers. Nonetheless Ji%ene$ went on to anno"nce that the candidates holding Class =A> shares were the winners of all seats in the corporate board. The petitioners protested clai%ing that Article 'II was n"ll and !oid for depri!ing the% as Class =5> shareholders of their right to !ote and to be !oted "pon in !iolation of the Corporation Code as a%ended. 8n March .. .::, after their protest was gi!en short shrift herein petitioners filed a Co%plaint for In2"nction Acco"nting and 6a%ages docketed as Ci!il Case No. C'-:,-:,B: before the 9TC of ParaSaG"e City 5ranch .+H. (aid co%plaint was fo"nded on two ).* principal ca"ses of action na%ely? a. Ann"l%ent of the declaration of directors of the MCPI %ade d"ring the Aebr"ary - .::, Ann"al (tockholders/ Meeting and for the cond"ct of an election whereat all stockholders irrespecti!e of the classification of the shares they hold sho"ld be afforded their right to !ote and be !oted for@ and b. (tockholders/ deri!ati!e s"it challenging the !alidity of a contract entered into by the 5oard of 6irectors of MCPI for the operation of the "ltraso"nd "nit.

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1<N it is proper to co%pensate the Li% Ch" (ing indebtedness of P- ,:+.,3 which is clai%ed in the co%plaint with the s"% of P,: ::: representing the !al"e of his shares of stock with the Mercantile 5ank of China R.lingA share of stock or the certificate thereof is not indebtedness to the owner nor e!idence of indebtedness and therefore it is not a credit. (tockholders as s"ch are not creditors of the corporation. It is the pre!ailing doctrine of the A%erican co"rts repeatedly asserted in the broadest ter%s that the capital stock of a corporation is a tr"st f"nd to be "sed %ore partic"larly for the sec"rity of creditors of the corporation who pres"%ably deal with it on the credit of its capital stock. Therefore the defendant-appellant Li% Ch" (ing not being a creditor of the Mercantile 5ank of China altho"gh the latter is a creditor of the for%er there is no s"fficient gro"nd to 2"stify co%pensation )art. ,,-+ Ci!il Code*. Section ( / #ounders$ shares. - Ao"ndersC shares classified as s"ch in the articles of incorporation %ay be gi!en certain rights and pri!ileges not en2oyed by the owners of other stocks pro!ided that where the e#cl"si!e right to !ote and be !oted for in the election of directors is granted it %"st be for a li%ited period not to e#ceed fi!e )+* years s"b2ect to the appro!al of the (ec"rities and 7#change Co%%ission. The fi!e-year period shall co%%ence fro% the date of the aforesaid appro!al by the (ec"rities and 7#change Co%%ission. Section 7 / %edeemable shares. - 9edee%able shares %ay be iss"ed by the corporation when e#pressly so pro!ided in the articles of incorporation. They %ay be p"rchased or taken "p by the corporation "pon the e#piration of a fi#ed period regardless of the e#istence of "nrestricted retained earnings in the books of the corporation and "pon s"ch other ter%s and conditions as %ay be stated in the articles of incorporation which ter%s and conditions %"st also be stated in the certificate of stock representing said shares. Section 9 / &reasury shares. - Treas"ry shares are shares of stock which ha!e been iss"ed and f"lly paid for b"t s"bseG"ently reacG"ired by the iss"ing corporation by p"rchase rede%ption donation or thro"gh so%e other lawf"l %eans. ("ch shares %ay again be disposed of for a reasonable price fi#ed by the board of directors. CIR Vs# 2anning &)) SCRA '+ ,actsManila Trading and ("pply Co. )MANT9A(C8* had an a"thori$ed capital stock of P. +:: ::: di!ided into .+ ::: co%%on shares@ .B 3:: of these were owned by J"li"s 9eese and the rest at ,:: shares each by the three respondents Manning Mc6onald and (i%%ons. In !iew of 9eese desire that "pon his death Mantrasco and its own two s"bsidiaries Mantrasco )&"a%* Inc. and the Port Motors Inc. wo"ld contin"e "nder the %anage%ent of respondents a tr"st agree%ent on his and respondent/s interest in Mantrasco was e#ec"ted. Ipon 9eese death the pro2ected transfer of his shares in the na%e of Mnatrasco co"ld not howe!er be i%%ediately effected for lack of s"fficient f"nds to co!er initial pay%ent on the shares. After Mantrasco %ade a partial pay%ent of 9eese/s share the certificate for the .B 3:: shares in 9eese/s na%e was cancelled and a new certificate was iss"ed in the na%e of Mantrasco. 1hen the entire p"rchase of 9eese/s shares was finally paid in f"ll the tr"st agree%ent was ter%inated and the tr"stees deli!ered to Mantrasco all the shares which they were holding in tr"st. 1hen the 5I9 e#a%ine the Mantrasco/s book it fo"nd o"t that .B 3:: shares had been proportionately distrib"ted to the respondents and the respondents failed to declare the said stock di!idends as part of their ta#able inco%e. The 5I9 concl"ded that the distrib"tion of 9eese/s shares as stock di!idends was in effect a distrib"tion of the =asset or property of the corporation as %ay be gleaned fro% the pay%ent of cash for the rede%ption of said stock and distrib"ting the sa%e as stock di!idends. Iss.e1<N the .B 3:: shares declared as stock di!idends were treas"ry shares R.lingNo.

Treas"ry shares are stocks iss"ed and f"lly paid for and reacG"ired by the corporation either by p"rchase donation forfeit"re or other %eans. Treas"ry shares are therefore iss"ed shares b"t being in the treas"ry they do not ha!e the stat"s of o"tstanding shares. ConseG"ently altho"gh a treas"ry share not ha!ing been retired by the corporation re-acG"iring it %ay be re-iss"ed sold again s"ch share as long as it is held by the corporation as a treas"ry shares participates neither in di!idends beca"se di!idends cannot be declared by the corporation to itself nor in the %eetings of the corporation as !oting stock for otherwise eG"al distrib"tion of !oting powers a%ong the stockholders will be effecti!ely lost and the directors will be able to perpet"ate their control of the corporation tho"gh it still represents a paid Pfor interest in the property of the corporation. Inder the tr"st agree%ent between the parties it is their %anifest intention to treat the .B 3:: shares of 9eese as absol"tely o"tstanding shares of 9eese/s estate "ntil they were f"lly paid. ("ch being the tr"e nat"re of the .B 3:: shares their declaration as treas"ry stock di!idend in ,-+H was a co%plete n"llity and plainly !iolati!e of p"blic policy. A stock di!idend being one payable in capital stock cannot be declared o"t of o"tstanding corporate stock b"t only fro% retained earnings. 1here corporate earnings are "sed to p"rchase o"tstanding stock treated as treas"ry stock as a technical b"t prohibited de!ice to a!oid effects of inco%e ta#ation distrib"tion of said corporate earnings in the for% of stock di!idends will s"b2ect stockholders recei!ing the% to inco%e ta#. S2C Vs# Sandigan4a?an &*'0 SCRA 279+ ,actsThe Cocon"t Ind"stry In!est%ent A"nd 0olding Co%panies sold ;; ,;; .44 shares of the o"tstanding capital stock of (an Mig"el Corporation to Andres (oriano III of the (MC &ro"p payable in fo"r )B* install%ents. Andres (oriano III paid the initial P+:: %illion to the ICP5 as ad%inistrator of the CIIA. The sale was transacted thro"gh the stock e#change and the shares were registered in the na%e of Anscor-0agedorn (ec"rities Inc. )A0(I*. The Presidential Co%%ission on &ood &o!ern%ent )PC&&* then led by the for%er President of the (enate the 0onorable Jo!ito 9. (alonga seG"estered the shares of stock s"b2ect of the sale. 6"e to the seG"estration the (MC &ro"p s"spended pay%ent of the balance of the p"rchase price of the s"b2ect stocks. In retaliation the ICP5 &ro"p rescinded the sale. Thereafter the ICP5 and CIIA 0olding Co%panies went to co"rt. They filed a co%plaint with the 9egional Trial Co"rt of Makati against the petitioners for confir%ation of rescission of sale with da%ages. The petitioners assailed in this Co"rt the 2"risdiction of the Makati 9TC on the gro"nd that pri%ary 2"risdiction was !ested with the PC&& since the (MC shares were seG"estered shares. 8n A"g"st ,: ,-HH we "pheld the petitioners. 1e ordered a%ong others the dis%issal of the rescission case filed in the Makati 9TC witho"t pre2"dice to the !entilation of the partiesC clai%s before the (andiganbayan. The record shows that the petitioners and the ICP5 &ro"p were able to thresh o"t their disp"te e#tra-2"dicially. In March ,--: they signed a Co%pro%ise Agree%ent and A%icable (ettle%ent. They likewise agreed to pay an "a$4it$ation fee " of + +:: ::: (MC shares co%posed of ; H+H H;, =A> shares and , 4B, ,4- =5> shares to the PCGG to be held in tr"st for the Co%prehensi!e Agrarian 9efor% Progra%. 8n March .; ,--: the petitioners and the ICP5 &ro"p filed with the (andiganbayan a <oint Petition fo$ A%%$oCal of t"e Co:%$o:ise Ag$ee:ent and A:ica4le Settle:ent# 8n March .- ,--: the (andiganbayan motu proprio directed that copies of the Joint Petition be f"rnished to E# Co@.angcoF <$#F 2# Lo4$egat and others who are defendants in Ci!il Case No. ::;;. The sa%e (MC shares are the s"b2ect of Ci!il Case No. ::;; and alleged as part of the alleged ill-gotten wealth of for%er President Marcos and his "cronies." The Re%.4lic of the Philippines thro"gh the 8ffice of the (olicitor &eneral )8(&* o%%osed the Co%pro%ise Agree%ent and A%icable (ettle%ent. It contended that the in!ol!ed coco-le!y f"nds are p"blic f"nds. As p"blic f"nds the coco-le!y f"nds in any for% or transfor%ation are beyond or "o"tside the co%%erce " and perforce not within the pri!ate disposition of pri!ate indi!id"als. The (andiganbayan iss"ed 9esol"tion reG"iring (MC to deli!er the .+.B+ %illion (MC treas"ry shares to the PC&&. 8n March ,H ,--. it denied petitionersC Motion for 9econsideration and f"rther ordered (MC to pay di!idends on the said treas"ry shares and to deli!er the% to the PC&&. Iss.e-

22

1<N the (andiganbayan gra!ely ab"sed its discretion in ordering (MC to deli!er its treas"ry shares to PC&& and to pay di!idends on said treas"ry shares R.lingIn the e#ercise of its disc$etion the (andiganbayan can reG"ire a partylitigant to deli!er a seG"estered property to the PC&&. 1e held in Baseco Cs# PCGG that "the power of the PC&& to se3.este$ %$o%e$t? clai%ed to be Cill-gottenC :eans to place or ca"se to be placed "nder its possession or control said property or any b"ilding or office wherein any s"ch property and any records pertaining thereto %ay be fo"nd incl"ding Cb"siness enterprises and entities C - - - fo$ t"e %.$%ose of %$eCenting t"e dest$.ctionF conceal:ent o$ dissi%ation ofF and ot"e$Aise conse$Cing and %$ese$Cing t"e sa:e - - - .ntil it can be deter%ined thro"gh appropriate 2"dicial proceedings whether the property was in tr"th Cill-gotten C i.e. acG"ired thro"gh or as a res"lt of i%proper or illegal "se or the con!ersion of f"nds belonging to the go!ern%ent or any of its branches instr"%entalities enterprises banks or financial instit"tions or by taking "nd"e ad!antage of official position a"thority relationship connection or infl"ence res"lting in "n2"st enrich%ent of the ostensible owner and gra!e da%age and pre2"dice to the (tate." The order of the (andiganbayan regarding the s"b2ect treas"ry shares is %erely %$ese$CatiCe in nat.$e . 1hen the petitioners and ICP5 &ro"p filed their Joint Manifestation of I%ple%entation of the Co%pro%ise Agree%ent and of 1ithdrawal of Petition the (andiganbayan ca.tioned that "the PC&& the ICP5 and the (MC &ro"p shall always act with d.e $ega$d to the seG"estered character of the shares of stock in!ol!ed as well as the fr"its thereof :o$e %a$tic.la$l? to %$eCent t"e loss o$ dissi%ation of t"ei$ Cal.e ." The ca"tion was wisely gi!en in !iew of the %any contested pro!isions of the Co%pro%ise Agree%ent. Aor one the (andiganbayan obser!ed that the con!ersion of the (MC shares to treas"ry shares will res"lt in a c"ange in t"e stat.s of the seG"estered shares in that? ,. 1hen the (MC con!erts these co%%on shares to treas"ry stock it is con!erting those o"tstanding shares into the corporationCs property for which reason t$eas.$? s"a$es do not ea$n diCidends# .. The $etained diCidends which wo"ld ha!e accr"ed to those shares if con!erted to treas"ry Ao.ld go into t"e co$%o$ation and enhance the corporation as a whole. The enhance%ent to the specific seG"estered shares howe!er wo"ld be only to the e#tent aliG"ot in relation to all the other o"tstanding (MC shares. ;. 5y con!erting the .4.B+ %illion shares of stock into treas"ry shares the S2C "as alte$ed not only the Coting %oAe$ of those shares of stock since treas"ry shares do not !ote b"t the (MC will ha!e act"ally enhanced the !oting strength of the other o"tstanding shares of stock to the e#tent that these .4.B+ %illion shares no longer !ote. These significant changes in the character of the (MC shares cannot be denied. In Co::issione$ of Inte$nal ReCen.e Cs# 2anning# , we e#plained the li%ited nat"re of treas"ry shares. Aor another the pay%ent to the PC&& of an a$4it$ation fee in the for% of + +:: ::: of (MC shares is deno"nced as illegal shocking and "nconscionable. C8C8A76 et al. ha!e assailed the legal right of PC&& to act as arbiter as well as the fairness of its acts as arbiter. C8C8A76 et al. esti%ate that the !al"e of the (MC shares gi!en to PC&& as arbitration fee which allegedly is not deser!ed can r"n to P F9))F)*1F000#00This is a serio"s allegation and the (andiganbayan cannot be charged with gra!e ab"se of discretion when it ordered that (MC sho"ld be te:%o$a$il? dispossessed of t"e s.4@ect t$eas.$? s"a$es and t"at S2C s"o.ld %a? t"ei$ diCidends A"ile t"e Co:%$o:ise Ag$ee:ent inColCing t"e: is still .nde$ 3.estion# Petitioners cannot rely on the case of ,i$st P"il# >oldings Co$%# Cs# Sandigan4a?an to 2"stify their insistence that the P+:: %illion pay%ent %ade by (oriano III sho"ld be !alidated. They contend that the r"les enco"raging a%icable settle%ent in ci!il cases sho"ld apply to cases in!ol!ing seG"estered properties. In ,i$st P"il# >oldings this Co"rt ga!e d"e co"rse to the petition and ordered the (andiganbayan to appro!e the PC&& 9esol"tion lifting the seG"estration of M79ALC8 shares. 1e noted that the 9ep"blic of the Philippines has agreed to settle the contro!ersy and the agree%ent will not in any way pre2"dice the rights of third persons. In the cases at bar the record is clear that the Re%.4lic of the Philippines thro"gh the 8ffice of the (olicitor &eneral !igoro"sly o%%osed the Co%pro%ise Agree%ent on legal and %oral gro"nds. C8C8A76 et al. also opposed and contend that the con!ersion of the (MC shares into treas"ry shares is highly pre2"dicial to the interests of the cocon"t far%ers. It cannot be gainsaid that if it is later pro!ed that (MC is not the lawf"l owner of the shares in G"estion what the ad2"dged lawf"l owner will recei!e are treas"ry shares with di%inished !al"e. The i%p"gned order of the (andiganbayan was iss"ed to a!oid this %ischief. TITLE II INCORPORATION AND ORGANIZATION O, PRIVATE CORPORATIONS

Section 0 / 'umber and qualifications of incorporators. - Any n"%ber of nat"ral persons not less than fi!e )+* b"t not %ore than fifteen ),+* all of legal age and a %a2ority of who% are residents of the Philippines %ay for% a pri!ate corporation for any lawf"l p"rpose or p"rposes. 7ach of the incorporators of s (tock Corporation %"st own or be a s"bscriber to at least one ),* share of the capital stock of the corporation. Ca$a: Vs# CA & 1 SCRA *(2+ ,actsThe petitioners were not really in!ol!ed in the initial steps that finally led to the incorporation of the Ailipinas 8rient Airways. The pro2ect st"dy was "ndertaken by the pri!ate respondent at the reG"est of 5arretto and &arcia who "pon its co%pletion presented it to the petitioners to ind"ce the% to in!est in the proposed airline. The st"dy co"ld ha!e been presented to other prospecti!e in!estors. At any rate the airline was e!ent"ally organi$ed on the basis of the pro2ect st"dy with the petitioners as %a2or stockholders and together with 5arretto and &arcia as principal officers. 9TC r"led that since 5arretto was the %o!ing spirit in the pre-organi$ation work of corporation based on his e#perience and e#pertise hence he was logically co%pensated in the a%o"nt of P.:: :::.:: shares of stock not as ind"strial partner b"t %ore for his technical ser!ices that bro"ght to fr"ition the corporation. 5y the sa%e token Arellano sho"ld be si%ilarly co%pensated not only for ha!ing acti!ely participated in the preparation of the pro2ect st"dy for se!eral %onths and its s"bseG"ent re!ision b"t also in his ha!ing been in!ol!ed in the pre-organi$ation of the defendant corporation in the preparation of the franchise in in!iting the interest of the financiers and in the training and screening of personnel. Aor these special ser!ices of the plaintiff the a%o"nt of P+: :::.:: as co%pensation is reasonable. Iss.e1<N the petitioners the%sel!es are also and personall$ liable for s"ch e#penses and if so to what e#tent R.lingThe petitioners were not in!ol!ed in the initial stages of the organi$ation of the airline which were being directed by 5arretto as the %ain pro%oter. It was he who was p"tting all the pieces together so to speak. The petitioners were %erely a%ong the financiers whose interest was to be in!ited and who were in fact pers"aded on the strength of the pro2ect st"dy to in!est in the proposed airline. (ignificantly there was no showing that the Ailipinas 8rient Airways was a fictitio"s corporation and did not ha!e a separate 2"ridical personality to 2"stify %aking the petitioners as principal stockholders thereof responsible for its obligations. As a bona fide corporation the Ailipinas 8rient Airways sho"ld alone be liable for its corporate acts as d"ly a"thori$ed by its officers and directors. In the light of these circ"%stances we hold that the petitioners cannot be held personally liable for the co%pensation clai%ed by the pri!ate respondent for the ser!ices perfor%ed by hi% in the organi$ation of the corporation. To repeat the petitioners did not contract s"ch ser!ices. It was only the res"lts of s"ch ser!ices that 5arretto and &arcia presented to the% and which pers"aded the% to in!est in the proposed airline. The %ost that can be said is that they benefited fro% s"ch ser!ices b"t that s"rely is no 2"stification to hold the% personally liable therefor. 8therwise all the other stockholders of the corporation incl"ding those who ca%e in later and regardless of the a%o"nt of their share holdings wo"ld be eG"ally and personally liable also with the petitioners for the clai%s of the pri!ate respondent. Pionee$ Ins.$ance Vs# CA & (1 SCRA ))7+ ,actsJacob (. Li% was engaged in the airline b"siness as owner-operator of (o"thern Air Lines )(AL* a single proprietorship. Japan 6o%estic Airlines )J6A* and Li% entered into and e#ec"ted a sales contract for the sale and p"rchase of two ).* 6C-;A Type aircrafts and one ),* set of necessary spare parts for the total agreed price of I( K,:- :::.:: to be paid in install%ents. 8ne 6C-; Aircraft arri!ed in Manila on J"ne 3 ,-4+ while the other aircraft arri!ed in Manila on J"ly ,H ,-4+. Pioneer Ins"rance and ("rety Corporation as s"rety e#ec"ted and iss"ed its ("rety 5ond in fa!or of J6A in behalf of its principal Li% for the balance price of the aircrafts and spare parts. It appears that 5order Machinery and 0ea!y 7G"ip%ent Co%pany Inc. )5or%aheco* Arancisco and Modesto Cer!antes )Cer!anteses* and Constancio Maglana contrib"ted so%e f"nds "sed in the p"rchase of the

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abo!e aircrafts and spare parts. The f"nds were s"pposed to be their contrib"tions to a new corporation proposed by Li% to e#pand his airline b"siness. They e#ec"ted two ).* separate inde%nity agree%ents in fa!or of Pioneer one signed by Maglana and the other 2ointly signed by Li% for (AL 5or%aheco and the Cer!anteses. The inde%nity agree%ents stip"lated that the inde%nitors principally agree and bind the%sel!es 2ointly and se!erally to inde%nify and hold and sa!e har%less Pioneer fro% and against any<all da%ages losses costs da%ages ta#es penalties charges and e#penses of whate!er kind and nat"re which Pioneer %ay inc"r in conseG"ence of ha!ing beco%e s"rety "pon the bond<note and to pay rei%b"rse and %ake good to Pioneer its s"ccessors and assigns all s"%s and a%o"nts of %oney which it or its representati!es sho"ld or %ay pay or ca"se to be paid or beco%e liable to pay on the% of whate!er kind and nat"re. Li% e#ec"ted in fa!or of Pioneer as deed of chattel %ortgage as sec"rity for the latterCs s"retyship in fa!or of the for%er. It was stip"lated therein that Li% transfer and con!ey to the s"rety the two aircrafts. The deed was d"ly registered with the 8ffice of the 9egister of 6eeds of the City of Manila and with the Ci!il Aerona"tics Ad%inistration p"rs"ant to the Chattel Mortgage Law and the Ci!il Aerona"tics Law respecti!ely. Li% defa"lted on his s"bseG"ent install%ent pay%ents pro%pting J6A to reG"est pay%ents fro% the s"rety. Pioneer paid a total s"% of P.-H 4.4.,.. Pioneer then filed a petition for the e#tra2"dicial foreclos"re of the said chattel %ortgage before the (heriff of 6a!ao City. The Cer!anteses and Maglana howe!er filed a third party clai% alleging that they are co-owners of the aircrafts 8n J"ly ,- ,-44 Pioneer filed an action for 2"dicial foreclos"re with an application for a writ of preli%inary attach%ent against Li% and respondents the Cer!anteses 5or%aheco and Maglana. The trial co"rt rendered a decision holding Li% liable to pay Pioneer b"t dis%issed PioneerCs co%plaint against all other defendants. The appellate co"rt %odified the trial co"rtCs decision in that the plaintiffs/ co%plaint against all the defendants was dis%issed. In all other respects the trial co"rtCs decision was affir%ed.

be i%plied in the absence of an agree%ent so as to %ake the for%er liable to contrib"te for pay%ent of debts illegally contracted by the latter It is therefore clear that the petitioner ne!er had the intention to for% a corporation with the respondents despite his representations to the%. This gi!es credence to the cross-clai%s of the respondents to the effect that they were ind"ced and l"red by the petitioner to %ake contrib"tions to a proposed corporation which was ne!er for%ed beca"se the petitioner reneged on their agree%ent. Maglana alleged in his cross-clai%? Applying therefore the principles of law earlier cited to the facts of the case necessarily no de facto partnership was created a%ong the parties which wo"ld entitle the petitioner to a rei%b"rse%ent of the s"pposed losses of the proposed corporation. The record shows that the petitioner was acting on his own and not in behalf of his other wo"ld-be incorporators in transacting the sale of the airplanes and spare parts. Section !

Corporate term. - A corporation shall e#ist for a period not e#ceeding fifty )+:* years fro% the date of incorporation "nless sooner dissol!ed or "nless said period is e#tended. The corporate ter% as originally stated in the articles of incorporation %ay be e#tended for periods not e#ceeding fifty )+:* years in any single instance by an a%end%ent of the articles of incorporation in accordance with this Code@ Pro!ided That no e#tension can be %ade earlier than fi!e )+* years prior to the original or s"bseG"ent e#piry date)s* "nless there are 2"stifiable reasons for an earlier e#tension as %ay be deter%ined by the (ec"rities and 7#change Co%%ission. Al"a:4$a Vs# SEC &2' SCRA 2)9+ Alha%bra Cigar and Cigarette Man"fact"ring Co%pany Inc. was d"ly incorporated "nder Philippine laws on Jan"ary ,+ ,-,.. 5y its corporate articles it was to e#ist for fifty )+:* years fro% incorporation. Its ter% of e#istence e#pired on Jan"ary ,+ ,-4.. 8n that date it ceased transacting b"siness entered into a state of liG"idation. Thereafter a new corporation W Alha%bra Ind"stries Inc. W was for%ed to carry on the b"siness of Alha%bra. 8n May , ,-4. Alha%braCs stockholders by resol"tion na%ed Angel (. &a%boa tr"stee to take charge of its liG"idation. 8n J"ne .: ,-4; W within Alha%braCs three-year stat"tory period for liG"idation - 9ep"blic Act ;+;, was enacted into law. It a%ended (ection ,H of the Corporation Law@ it e%powered do%estic pri!ate corporations to e#tend their corporate life beyond the period fi#ed by the articles of incorporation for a ter% not to e#ceed fifty years in any one instance. Pre!io"s to 9ep"blic Act ;+;, the %a#i%"% non-e#tendible ter% of s"ch corporations was fifty years. 8n J"ly ,+ ,-4; at a special %eeting Alha%braCs board of directors resol!ed to a%end paragraph "Ao"rth" of its articles of incorporation to e#tend its corporate life for an additional fifty years or a total of ,:: years fro% its incorporation. 8n A"g"st .4 ,-4; Alha%braCs stockholders representing %ore than twothirds of its s"bscribed capital stock !oted to appro!e the foregoing resol"tion. The "Ao"rth" paragraph of Alha%braCs articles of incorporation was th"s altered to read? A8I9T0. That the ter% for which said corporation is to e#ist is fifty )+:* years fro% and after the date of incorporation and for an additional period of fift$ CDEF $ears t ereafter. 8n 8ctober .H ,-4; Alha%braCs articles of incorporation as so a%ended certified correct by its president and secretary and a %a2ority of its board of directors were filed with respondent (ec"rities and 7#change Co%%ission )(7C*. 8n No!e%ber ,H ,-4; (7C howe!er ret"rned said a%ended articles of incorporation to Alha%braCs co"nsel with the r"ling that 9ep"blic Act ;+;, "which took effect only on J"ne .: ,-4; cannot be a!ailed of by the said corporation for the reason that its ter% of e#istence had already e#pired when the said law took effect in short said law has no retroacti!e effect." 8n 6ece%ber ; ,-4; Alha%braCs co"nsel so"ght reconsideration of (7CCs r"ling aforesaid refiled the a%ended articles of incorporation. (7C howe!er iss"ed an order denying the reconsideration so"ght. Alha%bra now in!okes the 2"risdiction of this Co"rt to o!ert"rn the concl"sion below. Iss.e1<N Alha%bra co"ld e#tend the ter% of its corporation e#istence R.ling-

Iss.e1hat legal r"les go!ern the relationship a%ong co-in!estors whose agree%ent was to do b"siness thro"gh the corporate !ehicle b"t who failed to incorporate the entity in which they had chosen to in!estL 0ow are the losses to be treated in sit"ations where their contrib"tions to the intended CcorporationC were in!ested not thro"gh the corporate for%L R.lingThese G"estions are pre%ised on the petitionerCs theory that as a res"lt of the fail"re of respondents 5or%aheco (po"ses Cer!antes Constancio Maglana and petitioner Li% to incorporate a de facto partnership a%ong the% was created and that as a conseG"ence of s"ch relationship all %"st share in the losses and<or gains of the !ent"re in proportion to their contrib"tion. The petitioner therefore G"estions the appellate co"rtCs findings ordering hi% to rei%b"rse certain a%o"nts gi!en by the respondents to the petitioner as their contrib"tions to the intended corporation. 1hile it has been held that as between the%sel!es the rights of the stockholders in a defecti!ely incorporated association sho"ld be go!erned by the s"pposed charter and the laws of the state relating thereto and not by the r"les go!erning partners it is ordinarily held that persons who atte%pt b"t fail to for% a corporation and who carry on b"siness "nder the corporate na%e occ"py the position of partners inter se. Th"s where persons associate the%sel!es together "nder articles to p"rchase property to carry on a b"siness and their organi$ation is so defecti!e as to co%e short of creating a corporation within the stat"te they beco%e in legal effect partners inter se and their rights as %e%bers of the co%pany to the property acG"ired by the co%pany will be recogni$ed. (o where certain persons associated the%sel!es as a corporation for the de!elop%ent of land for irrigation p"rposes and each con!eyed land to the corporation and two of the% contracted to pay a third the difference in the proportionate !al"e of the land con!eyed by hi% and no stock was e!er iss"ed in the corporation it was treated as a tr"stee for the associates in an action between the% for an acco"nting and its capital stock was treated as partnership assets sold and the proceeds distrib"ted a%ong the% in proportion to the !al"e of the property contrib"ted by each. Bo&ever# suc a relation does not necessaril$ e'ist# for ordinaril$ persons cannot be made to assume t e relation of partners# as bet&een t emselves# & en t eir purpose is t at no partners ip s all e'ist and it s ould be implied onl$ & en necessar$ to do justice bet&een t e parties( t us# one & o ta%es no part e'cept to subscribe for stoc% in a proposed corporation & ic is never legall$ formed does not become a partner &it ot er subscribers & o engage in business under t e name of t e pretended corporation# so as to be liable as suc in an action for settlement of t e alleged partners ip and contribution . A partnership relation between certain stockholders and other stockholders who were also directors will not

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Aro% J"ly ,+ to 8ctober .H ,-4; when Alha%bra %ade its atte%pt to e#tend its corporate e#istence its original ter% of fifty years had already e#pired )Jan"ary ,+ ,-4.*@ it was in the %idst of the three-year grace period stat"torily fi#ed in (ection 33 of the Corporation Law th"s? (7C. 33. 7!ery corporation whose charter e#pires by its own li%itation or is ann"lled by forfeit"re or otherwise or whose corporate e#istence for other p"rposes is ter%inated in any other %anner shall ne!ertheless be contin"ed as a body corporate for three years after the ti%e when it wo"ld ha!e been so dissol!ed for t e purpose of prosecuting and defending suits b$ or against it and of enabling it graduall$ to settle and close its affairs# to dispose of and conve$ its propert$ and to divide its capital stoc%# but not for t e purpose of continuing t e business for & ic it &as establis ed. Plain fro% the lang"age of the pro!ision is its %eaning? contin"ance of a "dissol!ed" corporation as a body corporate for three years has for its p"rpose the final clos"re of its affairs and no ot er( the corporation is specifically en2oined fro% "contin"ing the b"siness for which it was established". The liG"idation of the corporationCs affairs set forth in (ection 33 beca%e necessary precisely beca"se its life had ended. Aor this reason alone the corporate e#istence and 2"ridical personality of that corporation to do b"siness %ay no longer be e#tended. 1orth bearing in %ind corporation law. at this 2"nct"re is the basic de!elop%ent of

accordance with law. The %otion also states that since P5M failed to re%o!e its i%pro!e%ents on the leased pre%ises before the e#piration of the contract of lease s"ch i%pro!e%ents shall accr"e to respondents as owners of the land. 8n April .. ,-H. respondent co"rt iss"ed an order directing the cancellation of the inscriptions on respondentsC certificates of title. Petitioner PN5 filed a %otion for reconsideration of the abo!e order of the respondent co"rt b"t the latter denied it. Pri!ate respondents filed a %otion for entry of final 2"dg%ent and iss"ance of a writ of e#ec"tion of the order. The co"rt granted the aforesaid %otion for entry of final 2"dg%ent and ordered the 9egister of 6eeds of Pasig 9i$al to cancel the entries on respondentsC certificates of title stated in the order. Petitioner PN5 filed an o%nib"s %otion to set aside the entry of 2"dg%ent as ordered by the respondent co"rt on the gro"nd that it has no prior notice or knowledge of the order of respondent co"rt and that while there was a certification fro% the 5"rea" of Posts that three registry notices were sent to petitionerCs co"nsel there was no allegation or certification whatsoe!er that said notices were act"ally recei!ed by the addressee. Iss.e1<N the Trial Co"rt gra!ely ab"sed its discretion in iss"ing an order directing the cancellation of the inscriptions on respondentsC certificates of title R.lingAirst on the iss"e of prior notice and knowledge of the order? (ection H of 9"le ,; of the 9"les of Co"rt as a%ended pro!ides that ser!ice by registered %ail is co%plete "pon act"al receipt by the addressee@ b"t if he fails to clai% his %ail fro% the post office within fi!e )+* days fro% the date of first notice of the post%aster ser!ice shall take effect at the e#piration of s"ch ti%e. The fair and 2"st application of that e#ception depends "pon the concl"si!e proof that the first notice was sent by the post%aster to the addressee. The best e!idence of that fact wo"ld be the certification fro% the post%aster )5arra%eda !. Castillo L-.3.,, J"ly 4 ,-33 3H (C9A ,*. In the instant case the respondent co"rt fo"nd that the post%asterCs certification stated that three );* notices of the registered %ail which contained the order of J"ne .H ,-H. denying the %otion for reconsideration of the order of April .. ,-H. were sent to petitioner PN5Cs co"nsel at 7scolta Manila which is the address stated in the record of the case. The fact"al findings of the trial co"rt bear great weight and are binding "pon this Co"rt. 0ence as between the denial of the petitionersC co"nsel that he recei!ed the notice of the registered %ail and the post%asterCs certification that said notices were sent to hi% the post%asterCs clai% sho"ld pre!ail. The post%aster has the official d"ty to send notices of registered %ail and the pres"%ption is that official d"ty was reg"larly perfor%ed. (econd on the iss"e that the co"rt has no 2"risdiction to hear the case b"t the (7C as it raised as iss"es the corporate e#istence of P5M? Pri!ate respondentCs %otion with the respondent co"rt was for the cancellation of the entries on their titles on the gro"nd that the contract of lease e#ec"ted between the% and P5M had e#pired. This action is ci!il in nat"re and is within the 2"risdiction of the respondent co"rt. The circ"%stance that P5M as one of the contracting parties is a corporation whose corporate ter% had e#pired and which fact was %ade the basis for the ter%ination of the lease is not s"fficient to confer 2"risdiction on the (ec"rities and 7#change Co%%ission o!er the case. Presidential 6ecree No. -:.-A as a%ended en"%erates the cases o!er which the (7C has e#cl"si!e 2"risdiction and a"thority to resol!e. The case at bar is not co!ered by the en"%eration. Third on the iss"e of whether the cancellation of the entries on respondentCs certificates of title is !alid and proper 1e find that the respondent co"rt did not act in e#cess of its 2"risdiction in ordering the sa%e. The contract of lease e#pressly pro!ides that the ter% of the lease shall be twenty years fro% the e#ec"tion of the contract b"t can be e#tended for another period of twenty years at the option of the lessee sho"ld the corporate ter% be e#tended in accordance with law. Clearly the option of the lessee to e#tend the lease for another period of twenty years can be e#ercised only if the lessee as corporation renews or e#tends its corporate ter% of e#istence in accordance with the Corporation Code which is the applicable law. Contracts are to be interpreted according to their literal %eaning and sho"ld not be interpreted beyond their ob!io"s intend%ent. Th"s in the instant case the initial ter% of the contract of lease which co%%enced on March , ,-+B ended on March , ,-3B. P5M as lessee contin"ed to occ"py the leased pre%ises beyond that date with the acG"iescence and consent of the respondents as lessor. 9ecords show howe!er that P5M as a corporation had a corporate life of only twenty-fi!e ).+* years which ended on Jan"ary ,- ,-33. It sho"ld be noted howe!er that P5M allowed its corporate ter% to e#pire witho"t co%plying with the reG"ire%ents pro!ided by law for the e#tension of its corporate ter% of e#istence.

The co%%on law r"le at the beginning was rigid and infle#ible in that "pon its dissol"tion a corporation beca%e legally dead for all p"rposes. (tat"tory a"thori$ations had to be pro!ided for its contin"ance after dissol"tion "for li%ited and specified p"rposes incident to co%plete liG"idation of its affairs". Th"s the %o%ent a corporationCs right to e#ist as an "artificial person" ceases its corporate powers are ter%inated "2"st as the powers of a nat"ral person to take part in %"ndane affairs cease to e#ist "pon his death". There is nothing left b"t to cond"ct as it were the settle%ent of the estate of a deceased 2"ridical person. PNB Vs# C,I &209 SCRA 29'+ ,actsPri!ate respondents are the registered owners of three parcels of land in Pasig Metro Manila co!ered by 8CT No. H+; TCT Nos. ;.HB; and ;.H-3 of the 9egistry of 6eeds of 9i$al. Pri!ate respondents entered into a contract of lease with Philippine 5loo%ing Mills Co. Inc. whereby the letter shall lease the afore%entioned parcels of land as factory site. P5M was d"ly organi$ed and incorporated on Jan"ary ,- ,-+. with a corporate ter% of twenty-fi!e ).+* years. This leasehold right of P5M co!ering the parcels of land was d"ly annotated at the back of the abo!e stated certificates of title. The contract of lease pro!ides that the ter% of the lease is for twenty years beginning fro% the date of the contract and "is e#tendable for another ter% of twenty years at the option of the L7((77 sho"ld its ter% of e#istence be e#tended in accordance with law." The contract also states that the lessee agrees to ""se the property as factory site and for that p"rpose to constr"ct whate!er b"ildings or i%pro!e%ents %ay be necessary or con!enient and<or . . . for any p"rpose it %ay dee% fit@ and before the ter%ination of the lease to re%o!e all s"ch b"ildings and i%pro!e%ents" In accordance with the contract P5M introd"ced on the land b"ildings %achineries and other "sef"l i%pro!e%ents. These constr"ctions and i%pro!e%ents were registered with the 9egistry of 6eeds of 9i$al and annotated at the back of the respondentsC certificates of title. ("bseG"ently P5M e#ec"ted in fa!or of Philippine National 5ank a deed of assign%ent con!eying and transferring all its rights and interests "nder the contract of lease which it e#ec"ted with pri!ate respondents. The assign%ent was for and in consideration of the loans granted by PN5 to P5M. The deed of assign%ent was registered and annotated at the back of the pri!ate respondentsC certificates of title as 8n No!e%ber 4 ,-4; and 6ece%ber .; ,-4; respecti!ely P5M e#ec"ted in fa!or of PN5 a real estate %ortgage for a loan of P,:: :::.:: and an addend"% to real estate %ortgage for another loan of P, +-: :::.:: co!ering all the i%pro!e%ents constr"cted by P5M on the leased pre%ises. These %ortgages were registered and annotated at the back of respondentsC certificates. P5M filed a petition for registration of i%pro!e%ents in the titles of real property owned by pri!ate respondents. Pri!ate respondents filed a %otion in the sa%e proceedings which was gi!en a different case n"%ber to wit L9C Case No. 9-.3BB beca"se of the pay%ent of filing fees for the %otion. The %otion so"ght to cancel the annotations on respondentsC certificates of title pertaining to the assign%ent by P5M to PN5 of the for%erCs leasehold rights incl"sion of i%pro!e%ents and the real estate %ortgages %ade by P5M in fa!or of PN5 on the gro"nd that the contract of lease entered into between P5M and respondents%o!ants had already e#pired by the fail"re of P5M and<or its assignee to e#ercise the option to renew the second .:-year lease co%%encing on March , ,-3B and also by the fail"re of P5M to e#tend its corporate e#istence in

25

(ection ,, of Corporation Code pro!ides that a corporation shall e#ist for a period not e#ceeding fifty )+:* years fro% the date of incorporation "nless sooner dissol!ed or "nless said period is e#tended. Ipon the e#piration of the period fi#ed in the articles of incorporation in the absence of co%pliance with the legal reG"isites for the e#tension of the period the corporation ceases to e#ist and is dissol!ed ipso facto. 1hen the period of corporate life e#pires the corporation ceases to be a body corporate for the p"rpose of contin"ing the b"siness for which it was organi$ed. 5"t it shall ne!ertheless be contin"ed as a body corporate for three years after the ti%e when it wo"ld ha!e been so dissol!ed for the p"rpose of prosec"ting and defending s"its by or against it and enabling it grad"ally to settle and close its affairs to dispose of and con!ey its property and to di!ide its assets )(ec. ,.. Corporation Code*. There is no need for the instit"tion of a proceeding for quo &arranto to deter%ine the ti%e or date of the dissol"tion of a corporation beca"se the period of corporate e#istence is pro!ided in the articles of incorporation. 1hen s"ch period e#pires and witho"t any e#tension ha!ing been %ade p"rs"ant to law the corporation is dissol!ed a"to%atically insofar as the contin"ation of its b"siness is concerned. The quo &arranto proceeding "nder 9"le 44 of the 9"les of Co"rt as a%ended %ay be instit"ted by the (olicitor &eneral only for the in!ol"ntary dissol"tion of a corporation on the following gro"nds? a* when the corporation has offended against a pro!ision of an Act for its creation or renewal@ b* when it has forfeited its pri!ileges and franchises by non-"ser@ c* when it has co%%itted or o%itted an act which a%o"nts to a s"rrender of its corporate rights pri!ileges or franchises@ d* when it has %is-"sed a right pri!ilege or franchise conferred "pon it by law or when it has e#ercised a right pri!ilege or franchise in contra!ention of law. 0ence there is no need for the (7C to %ake an in!ol"ntary dissol"tion of a corporation whose corporate ter% had ended beca"se its articles of incorporation had in effect e#pired by its own li%itation. Considering the foregoing in relation to the contract of lease between the parties herein when P5MCs corporate life ended on Jan"ary ,- ,-33 and its ;-year period for winding "p and liG"idation e#pired on Jan"ary ,- ,-H: the option of e#tending the lease was likewise ter%inated on Jan"ary ,- ,-33 beca"se P5M failed to renew or e#tend its corporate life in accordance with law. Aro% then on the respondents can e#ercise their right to ter%inate the lease p"rs"ant to the stip"lations in the contract. Section 2 ! (inimum capital stoc) required of stoc) corporations. - (tock corporations incorporated "nder this Code shall not be reG"ired to ha!e any %ini%"% a"thori$ed capital stock e#cept as otherwise specifically pro!ided for by special law and s"b2ect to the pro!isions of the following section. Section * / Amount of capital stoc) to be subscribed and paid for the purposes of incorporation. - At least twenty-fi!e percent ).+N* of the a"thori$ed capital stock as stated in the articles of incorporation %"st be s"bscribed at the ti%e of incorporation and at least twenty-fi!e ).+N* per cent of the total s"bscription %"st be paid "pon s"bscription the balance to be payable on a date or dates fi#ed in the contract of s"bscription witho"t need of call or in the absence of a fi#ed date or dates "pon call for pay%ent by the board of directors? Pro!ided howe!er That in no case shall the paid-"p capital be less than fi!e Tho"sand )P+ :::.::* pesos. Section ' / Contents of the articles of incorporation. - All corporations organi$ed "nder this code shall file with the (ec"rities and 7#change Co%%ission articles of incorporation in any of the official lang"ages d"ly signed and acknowledged by all of the incorporators containing s"bstantially the following %atters e#cept as otherwise prescribed by this Code or by special law? ,. The na%e of the corporation@ .. The specific p"rpose or p"rposes for which the corporation is being incorporated. 1here a corporation has %ore than one stated p"rpose the articles of incorporation shall state which is the pri%ary p"rpose and which is<are he secondary p"rpose or p"rposes? Pro!ided That a non-stock corporation %ay not incl"de a p"rpose which wo"ld change or contradict its nat"re as s"ch@ ;. The place where the principal office of the corporation is to be located which %"st be within the Philippines@ B. The ter% for which the corporation is to e#ist@

3. The na%es nationalities and residences of persons who shall act as directors or tr"stees "ntil the first reg"lar directors or tr"stees are d"ly elected and G"alified in accordance with this Code@ H. If it be a stock corporation the a%o"nt of its a"thori$ed capital stock in lawf"l %oney of the Philippines the n"%ber of shares into which it is di!ided and in case the share are par !al"e shares the par !al"e of each the na%es nationalities and residences of the original s"bscribers and the a%o"nt s"bscribed and paid by each on his s"bscription and if so%e or all of the shares are witho"t par !al"e s"ch fact %"st be stated@ -. If it be a non-stock corporation the a%o"nt of its capital the na%es nationalities and residences of the contrib"tors and the a%o"nt contrib"ted by each@ and ,:. ("ch other %atters as are not inconsistent with law and which the incorporators %ay dee% necessary and con!enient. The (ec"rities and 7#change Co%%ission shall not accept the articles of incorporation of any stock corporation "nless acco%panied by a sworn state%ent of the Treas"rer elected by the s"bscribers showing that at least twenty-fi!e ).+N* percent of the a"thori$ed capital stock of the corporation has been s"bscribed and at least twenty-fi!e ).+N* of the total s"bscription has been f"lly paid to hi% in act"al cash and<or in property the fair !al"ation of which is eG"al to at least twenty-fi!e ).+N* percent of the said s"bscription s"ch paid-"p capital being not less than fi!e tho"sand )P+ :::.::* pesos. Section 1 / #orms of Articles of *ncorporation. - Inless otherwise prescribed by special law articles of incorporation of all do%estic corporations shall co%ply s"bstantially with the following for%?

ARTICLES O, INCORPORATION O, GGGGGGGGGGGGGGGGGGGGGGGGGG &Na:e of Co$%o$ation+ HNO= ALL 2EN B; T>ESE PRESENTST"e .nde$signed inco$%o$ato$sF all of legal age and a :a@o$it? of A"o: a$e $esidents of t"e P"ili%%inesF "aCe t"is da? Col.nta$il? ag$eed to fo$: a &stoc5+ &non/stoc5+ co$%o$ation .nde$ t"e laAs of t"e Re%.4lic of t"e P"ili%%inesB AND =E >EREB; CERTI,;,IRST- T"at t"e na:e of said co$%o$ation s"all 4e I##############################################F INC# o$ CORPORATIONIB SECOND- T"at t"e %.$%ose o$ %.$%oses fo$ A"ic" s.c" co$%o$ation is inco$%o$ated a$e- &If t"e$e is :o$e t"an one %.$%oseF indicate %$i:a$? and seconda$? %.$%oses+B T>IRD- T"at t"e %$inci%al office of t"e co$%o$ation is located in t"e Cit?J2.nici%alit? of #############################################F P$oCince of ##################################################F P"ili%%inesB ,OURT>- T"at t"e te$: fo$ A"ic" said co$%o$ation is to e6ist is ################ ?ea$s f$o: and afte$ t"e date of iss.ance of t"e ce$tificate of inco$%o$ationB ,I,T>- T"at t"e na:esF nationalities and $esidences of t"e inco$%o$ato$s of t"e co$%o$ation a$e as folloAsNA2E #################### #################### #################### #################### NATIONALIT; ############################# ############################# ############################# ############################# ############################# RESIDENCE #################################### #################################### #################################### #################################### ####################################

+. The na%es nationalities and residences of the incorporators@ #################### 4. The n"%ber of directors or tr"stees which shall not be less than fi!e )+* nor %ore than fifteen ),+*@

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SIKT>- T"at t"e n.:4e$ of di$ecto$s o$ t$.stees of t"e co$%o$ation s"all 4e #############B and t"e na:esF nationalities and $esidences of t"e fi$st di$ecto$s o$ t$.stees of t"e co$%o$ation a$e as folloAsNA2E #################### #################### #################### #################### #################### NATIONALIT; ############################# ############################# ############################# ############################# ############################# RESIDENCE #################################### #################################### #################################### #################################### ####################################

INo t$ansfe$ of stoc5 o$ inte$est A"ic" s"all $ed.ce t"e oAne$s"i% of ,ili%ino citi8ens to less t"an t"e $e3.i$ed %e$centage of t"e ca%ital stoc5 as %$oCided 4? e6isting laAs s"all 4e alloAed o$ %e$:itted to $eco$ded in t"e %$o%e$ 4oo5s of t"e co$%o$ation and t"is $est$iction s"all 4e indicated in all stoc5 ce$tificates iss.ed 4? t"e co$%o$ation#I IN =ITNESS =>EREO,F Ae "aCe "e$e.nto signed t"ese A$ticles of Inco$%o$ationF t"is ################### da? of ##############################F 9 ########### in t"e Cit?J2.nici%alit? of ########################################F P$oCince of #################################################F Re%.4lic of t"e P"ili%%ines# ################################################ ################################################ ################################################

SEVENT>- T"at t"e a.t"o$i8ed ca%ital stoc5 of t"e co$%o$ation is ################################################# &P######################+ PESOS in laAf.l :one? of t"e P"ili%%inesF diCided into ############### s"a$es Ait" t"e %a$ Cal.e of ################################### &P#######################+ Pesos %e$ s"a$e# &In case all t"e s"a$e a$e Ait"o.t %a$ Cal.e+T"at t"e ca%ital stoc5 of t"e co$%o$ation is ########################### s"a$es Ait"o.t %a$ Cal.e# &In case so:e s"a$es "aCe %a$ Cal.e and so:e a$e Ait"o.t %a$ Cal.e+- T"at t"e ca%ital stoc5 of said co$%o$ation consists of ######################## s"a$es of A"ic" ####################### s"a$es a$e of t"e %a$ Cal.e of ############################## &P#####################+ PESOS eac"F and of A"ic" ################################ s"a$es a$e Ait"o.t %a$ Cal.e# EIG>T>- T"at at least tAent? fiCe &21L+ %e$ cent of t"e a.t"o$i8ed ca%ital stoc5 a4oCe stated "as 4een s.4sc$i4ed as folloAsNa:e of S.4sc$i4e$ Nationalit? No of S"a$e A:o.nt

&Na:es and signat.$es of t"e inco$%o$ato$s+ SIGNED IN T>E PRESENCE O,############################################ ############################################# &Nota$ial Ac5noAledg:ent+

T97A(I979C( AAAI6A'IT REPUBLIC O, T>E P>ILIPPINES + CIT;J2UNICIPALIT; O, + S#S# PROVINCE O, +

S.4sc$i4ed S.4sc$i4ed ######################## #################### ######################## #################### ######################## #################### ######################## #################### ######################## #################### #################### #####################

IF ####################################F 4eing d.l? sAo$nF de%ose and sa?#################### ##################### #################### ##################### #################### ##################### #################### ##################### T"at I "aCe 4een elected 4? t"e s.4sc$i4e$s of t"e co$%o$ation as T$eas.$e$ t"e$eofF to act as s.c" .ntil :? s.ccesso$ "as 4een d.l? elected and 3.alified in acco$dance Ait" t"e 4?/laAs of t"e co$%o$ationF and t"at as s.c" T$eas.$e$F I "e$e4? ce$tif? .nde$ oat" t"at at least 21L of t"e a.t"o$i8ed ca%ital stoc5 of t"e co$%o$ation "as 4een s.4sc$i4ed and at least 21L of t"e total s.4sc$i%tion "as 4een %aidF and $eceiCed 4? :eF in cas" o$ %$o%e$t?F in t"e a:o.nt of not less t"an P1F000#00F in acco$dance Ait" t"e Co$%o$ation Code# ####################################### &Signat.$e of T$eas.$e$+ SUBSCRIBED AND S=ORN to 4efo$e :eF a Nota$? P.4licF fo$ and in t"e Cit?J2.nici%alit? of ################################## P$oCince of ##########################################F t"is ############# da? of #########################F 9 ########B 4? ############################################ Ait" Res# Ce$t# No# ##################### iss.ed at ################# on ######################F 9 ##########

NINT>- T"at t"e a4oCe/na:ed s.4sc$i4e$s "aCe %aid at least tAent?/fiCe &21L+ %e$cent of t"e total s.4sc$i%tion as folloAsNa:e of S.4sc$i4e$ A:o.nt S.4sc$i4ed Total Paid/In

################################# ################################ ################################# ################################ ################################# ################################ ################################# ################################ ################################# ################################

##################### ##################### ##################### ##################### #####################

NOTAR; PUBLIC 2? co::ission e6%i$es on ######################F 9 ######## Doc# No# ###############B Page No# ###############B Boo5 No# ##############B Se$ies of 9##### &(a+ Sec# )# Amendment of Articles of *ncorporation. - Inless otherwise prescribed by this Code or by special law and for legiti%ate p"rposes any pro!ision or %atter stated in the articles of incorporation %ay be a%ended by a %a2ority !ote of the board of directors or tr"stees and the !ote or written assent of the stockholders representing at least two-thirds ).<;* of the o"tstanding capital stock witho"t pre2"dice to the appraisal right of dissenting stockholders in accordance with the pro!isions of this Code or the !ote or written assent of at least two-thirds ).<;* of the %e%bers if it be a non-stock corporation.

&2odif? Nos# 7 and 9 if s"a$es a$e Ait" no %a$ Cal.e# In case t"e co$%o$ation is non/stoc5F Nos# (F 7 and 9 of t"e a4oCe a$ticles :a? 4e :odified acco$dingl?F and it is s.fficient if t"e a$ticles state t"e a:o.nt of ca%ital o$ :one? cont$i4.ted o$ donated 4? s%ecified %e$sonsF stating t"e na:esF nationalities and $esidences of t"e cont$i4.to$s o$ dono$s and t"e $es%ectiCe a:o.nt giCen 4? eac"#+ TENT>- T"at ####################################### "as 4een elected 4? t"e s.4sc$i4e$s as T$eas.$e$ of t"e Co$%o$ation to act as s.c" .ntil "is s.ccesso$ is d.l? elected and 3.alified in acco$dance Ait" t"e 4?/laAsF and t"at as s.c" T$eas.$e$F "e "as 4een a.t"o$i8ed to $eceiCe fo$ and in t"e na:e and fo$ t"e 4enefit of t"e co$%o$ationF all s.4sc$i%tion &o$ fees+ o$ cont$i4.tions o$ donations %aid o$ giCen 4? t"e s.4sc$i4e$s o$ :e:4e$s# ELEVENT>- &Co$%o$ations A"ic" Aill engage in an? 4.siness o$ actiCit? $ese$Ced fo$ ,ili%ino citi8ens s"all %$oCide t"e folloAing+-

27

The original and a%ended articles together shall contain all pro!isions reG"ired by law to be set o"t in the articles of incorporation. ("ch articles as a%ended shall be indicated by "nderscoring the change or changes %ade and a copy thereof d"ly certified "nder oath by the corporate secretary and a %a2ority of the directors or tr"stees stating the fact that said a%end%ent or a%end%ents ha!e been d"ly appro!ed by the reG"ired !ote of the stockholders or %e%bers shall be s"b%itted to the (ec"rities and 7#change Co%%ission. The a%end%ents shall take effect "pon their appro!al by the (ec"rities and 7#change Co%%ission or fro% the date of filing with the said Co%%ission if not acted "pon within si# )4* %onths fro% the date of filing for a ca"se not attrib"table to the corporation. Sec# (# +rounds when articles of incorporation or amendment may be re,ected or disapproved. - The (ec"rities and 7#change Co%%ission %ay re2ect the articles of incorporation or disappro!e any a%end%ent thereto if the sa%e is not in co%pliance with the reG"ire%ents of this Code? Pro!ided That the Co%%ission shall gi!e the incorporators a reasonable ti%e within which to correct or %odify the ob2ectionable portions of the articles or a%end%ent. The following are gro"nds for s"ch re2ection or disappro!al? ,. That the articles of incorporation or any a%end%ent thereto is not s"bstantially in accordance with the for% prescribed herein@ .. That the p"rpose or p"rposes of the corporation are patently "nconstit"tional illegal i%%oral or contrary to go!ern%ent r"les and reg"lations@ ;. That the Treas"rerCs Affida!it concerning the a%o"nt of capital stock s"bscribed and<or paid if false@ B. That the percentage of ownership of the capital stock to be owned by citi$ens of the Philippines has not been co%plied with as reG"ired by e#isting laws or the Constit"tion. No articles of incorporation or a%end%ent to articles of incorporation of banks banking and G"asi-banking instit"tions b"ilding and loan associations tr"st co%panies and other financial inter%ediaries ins"rance co%panies p"blic "tilities ed"cational instit"tions and other corporations go!erned by special laws shall be accepted or appro!ed by the Co%%ission "nless acco%panied by a fa!orable reco%%endation of the appropriate go!ern%ent agency to the effect that s"ch articles or a%end%ent is in accordance with law. Sec# 7# Corporate name. - No corporate na%e %ay be allowed by the (ec"rities and 7#change Co%%ission if the proposed na%e is identical or decepti!ely or conf"singly si%ilar to that of any e#isting corporation or to any other na%e already protected by law or is patently decepti!e conf"sing or contrary to e#isting laws. 1hen a change in the corporate na%e is appro!ed the Co%%ission shall iss"e an a%ended certificate of incorporation "nder the a%ended na%e. Ind.st$ial Ref$acto$ies Vs# CA &*90 SCRA 212+ ,acts9efractories Corporation of the Philippines )9CP* is a corporation d"ly organi$ed on 8ctober ,; ,-34 for the p"rpose of engaging in the b"siness of %an"fact"ring prod"cing selling e#porting and otherwise dealing in any and all refractory bricks its by-prod"cts and deri!ati!es. 8n J"ne .. ,-33 it registered its corporate and b"siness na%e with the 5"rea" of 6o%estic Trade. Ind"strial 9efractories Corporation of the Philippines on the other hand was incorporated on A"g"st .; ,-3- originally "nder the na%e "(ynclaire Man"fact"ring Corporation". It a%ended its Articles of Incorporation on A"g"st .; ,-H+ to change its corporate na%e to "Ind"strial 9efractories Corp. of the Philippines". It is engaged in the b"siness of %an"fact"ring all kinds of cera%ics and other prod"cts e#cept paints and $incs. 5oth co%panies are the only local s"ppliers of %onolithic g"nning %i#. 6isco!ering that I9CP was "sing s"ch corporate na%e 9CP filed on April ,B ,-HH with the (ec"rities and 7#change Co%%ission )(7C* a petition to co%pel petitioner to change its corporate na%e on the gro"nd that its corporate na%e is conf"singly si%ilar with that of petitioner/s s"ch that the p"blic %ay be conf"sed or decei!ed into belie!ing that they are one and the sa%e corporation. The (7C decided in fa!or of 9CP and against the I9CP declaring the latter/s corporate na%e VInd"strial 9efractories Corporation of the Philippines/ as decepti!ely and conf"singly si%ilar to that of 9CP/s corporate na%e V9efractories Corporation of the Philippines/. Accordingly respondent is hereby directed to a%end its Articles of Incorporation by deleting the na%e V9efractories Corporation of the Philippines/ in its corporate na%e within thirty );:* days fro% finality of this 6ecision. Likewise respondent is hereby ordered to pay the petitioner the s"% of P+: :::.:: as attorney/s fees."

Petitioner appealed to the (7C 7n 5anc arg"ing that it does not ha!e any 2"risdiction o!er the case and that respondent 9CP has no right to the e#cl"si!e "se of its corporate na%e as it is co%posed of generic or co%%on words. The (7C 7n 5anc %odified the appealed decision in that petitioner was ordered to delete or drop fro% its corporate na%e only the word "9efractories". Petitioner I9CP ele!ated the decision of the (7C 7n 5anc thro"gh a petition for re!iew on certiorari to the Co"rt of Appeals which then rendered the herein assailed decision. The appellate co"rt "pheld the 2"risdiction of the (7C o!er the case and r"led that the corporate na%es of petitioner I9CP and respondent 9CP are conf"singly or decepti!ely si%ilar and that respondent 9CP has established its prior right to "se the word "9efractories" as its corporate na%e. The appellate co"rt also fo"nd that the petition was filed beyond the regle%entary period. Iss.e),* 1<N 2"risdiction is !ested with the reg"lar co"rts as the present case is not one of the instances pro!ided in P.6. -:.-A@ ).* 1<N respondent 9CP is not entitled to "se the generic na%e "refractories"@ and );* 1<N there is no conf"sing si%ilarity between their corporate na%es R.lingThe 2"risdiction of the (7C is not %erely confined to the ad2"dicati!e f"nctions pro!ided in (ection + of P.6. -:.-A as a%ended. 5y e#press %andate it has absol"te 2"risdiction s"per!ision and control o!er all corporations. It also e#ercises reg"latory and ad%inistrati!e powers to i%ple%ent and enforce the Corporation Code one of which is (ection ,H which pro!ides? "(7C. ,H. Corporate na%e. -- No corporate na%e %ay be allowed by the (ec"rities and 7#change Co%%ission if the proposed na%e is identical or decepti!ely or conf"singly si%ilar to that of any e#isting corporation or to any other na%e already protected by law or is patently decepti!e conf"sing or contrary to e#isting laws. 1hen a change in the corporate na%e is appro!ed the Co%%ission shall iss"e an a%ended certificate of incorporation "nder the a%ended na%e." It is the (7C/s d"ty to pre!ent conf"sion in the "se of corporate na%es not only for the protection of the corporations in!ol!ed b"t %ore so for the protection of the p"blic and it has a"thority to de-register at all ti%es and "nder all circ"%stances corporate na%es which in its esti%ation are likely to generate conf"sion. Clearly therefore the present case falls within the a%bit of the (7C/s reg"latory powers. Likewise "ntenable is petitioner/s arg"%ent that there is no conf"sing or decepti!e si%ilarity between petitioner and respondent 9CP/s corporate na%es. Section 7 of t"e Co$%o$ation Code e#pressly prohibits the "se of a corporate na%e which is "identical or decepti!ely or conf"singly si%ilar to that of any e#isting corporation or to any other na%e already protected by law or is patently decepti!e conf"sing or contrary to e#isting laws". The policy behind the foregoing prohibition is to a!oid fra"d "pon the p"blic that will ha!e occasion to deal with the entity concerned the e!asion of legal obligations and d"ties and the red"ction of diffic"lties of ad%inistration and s"per!ision o!er corporation. P"rs"ant thereto the 9e!ised &"idelines in the Appro!al of Corporate and Partnership Na%es specifically reG"ires that? ),* a corporate na%e shall not be identical %isleading or conf"singly si%ilar to one already registered by another corporation with the Co%%ission@ and ).* if the proposed na%e is si%ilar to the na%e of a registered fir% the proposed na%e %"st contain at least one distincti!e word different fro% the na%e of the co%pany already registered. As held in P"ili%s E6%o$t B#V# Cs# Co.$t of A%%eals to fall within the prohibition of the law two reG"isites %"st be pro!en to wit? ),* that the co%plainant corporation acG"ired a prior right o!er the "se of s"ch corporate na%e@ and ).* the proposed na%e is either? )a* identical or )b* decepti!ely or conf"singly si%ilar to that of any e#isting corporation or to any other na%e already protected by law@ or )c* patently decepti!e conf"sing or contrary to e#isting law. As regards the first reG"isite it has been held that the right to the e#cl"si!e "se of a corporate na%e with freedo% fro% infringe%ent by si%ilarity is deter%ined by %$io$it? of ado%tion# In this case respondent 9CP was incorporated on 8ctober ,; ,-34 and since then has been "sing the corporate na%e "9efractories Corp. of the Philippines". Meanwhile I9CP was incorporated on A"g"st .; ,-3- originally "nder the na%e "(ynclaire Man"fact"ring Corporation". It only started "sing the na%e "Ind"strial 9efractories Corp. of the Philippines" when it a%ended its Articles of Incorporation on A"g"st .; ,-H+ or nine )-* years after respondent 9CP

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started "sing its na%e. Th"s being the prior registrant respondent 9CP has acG"ired the right to "se the word "9efractories" as part of its corporate na%e. Anent the second reG"isite in deter%ining the e#istence of conf"sing si%ilarity in corporate na%es the test is whether the si%ilarity is s"ch as to %islead a person "sing ordinary care and discri%ination and the Co"rt %"st look to the record as well as the na%es the%sel!es. Petitioner/s corporate na%e is "Ind"strial 9efractories Corp. of the Phils." while respondent/s is "9efractories Corp. of the Phils." 8b!io"sly both na%es contain the identical words "9efractories" "Corporation" and "Philippines". The only word that disting"ishes petitioner fro% respondent 9CP is the word "Ind"strial" which %erely identifies a corporation/s general field of acti!ities or operations. 1e need not linger on these two corporate na%es to concl"de that they are patently si%ilar that e!en with reasonable care and obser!ation conf"sion %ight arise. It %"st be noted that both cater to the sa%e clientele i.e.Y the steel ind"stry. In fact the (7C fo"nd that there were instances when different steel co%panies were act"ally conf"sed between the two especially since they also ha!e si%ilar prod"ct packaging. ("ch findings are accorded not only great respect b"t e!en finality and are binding "pon this Co"rt "nless it is shown that it had arbitrarily disregarded or %isapprehended e!idence before it to s"ch an e#tent as to co%pel a contrary concl"sion had s"ch e!idence been properly appreciated. And e!en witho"t s"ch proof of act"al conf"sion between the two corporate na%es it s"ffices that conf"sion is probable or likely to occ"r. PC <aCie$ E Sons Vs# CA &')2 SCRA *)+ ,actsP.C. Ja!ier and (ons (er!ices Inc. Plaintiff Corporation for short applied with Airst ("%%a (a!ings and Mortgage 5ank later on rena%ed as PAIC (a!ings and Mortgage 5ank 6efendant 5ank for short for a loan acco%%odation "nder the Ind"strial &"arantee Loan A"nd )I&LA* for P,.+ Million. Plaintiff Corporation thro"gh Pablo C. Ja!ier was ad!ised that its loan application was appro!ed and that the sa%e shall be forwarded to the Central 5ank )C5* for processing and release. The C5 released the loan to 6efendant 5ank in two ).* tranches of P3+: ::: each. The first tranche was released to the Plaintiff Corporation on May ,H ,-H, in the a%o"nt of P3+: :::.:: and the second tranche was released to Plaintiff Corporation on No!e%ber ., ,-H, in the a%o"nt of P3+: :::.::. Aro% the second tranche release the a%o"nt of P.+: :::.:: was ded"cted and deposited in the na%e of Plaintiff Corporation "nder a ti%e deposit. Plaintiffs clai% that the loan releases were delayed@ that the a%o"nt of P.+: :::.:: was ded"cted fro% the I&LA loan of P,.+ Million and placed "nder ti%e deposit@ that Plaintiffs were ne!er allowed to withdraw the proceeds of the ti%e deposit beca"se 6efendant 5ank intended this ti%e deposit as a"to%atic pay%ents on the accr"ed principal and interest d"e on the loan. 6efendant 5ank howe!er clai%s that only the final proceeds of the loan in the a%o"nt of P3+: :::.:: was delayed the sa%e ha!ing been released to Plaintiff Corporation only on No!e%ber .: ,-H, b"t this was beca"se of the shortfall in the collateral co!er of Plaintiff/s loan@ that this second tranche of the loan was precisely released after a fir% co%%it%ent was %ade by Plaintiff Corporation to co!er the collateral deficiency thro"gh the opening of a ti%e deposit "sing a portion of the loan proceeds in the a%o"nt of P.+: :::.:: for the p"rpose@ that in co%pliance with their co%%it%ent to s"b%it additional sec"rity and open ti%e deposit Plaintiff Ja!ier in fact opened a ti%e deposit for P.+: :::.:: and on Aebr"ary ,+ ,-H; e#ec"ted a chattel %ortgage o!er so%e %achineries in fa!or of 6efendant 5ank@ that thereafter Plaintiff Corporation defa"lted in the pay%ent of its I&LA loan with 6efendant 5ank hence 6efendant 5ank sent a de%and letter dated No!e%ber .. ,-H; re%inding Plaintiff Ja!ier to %ake pay%ents beca"se their acco"nts ha!e been long o!erd"e@ that on May . ,-HB 6efendant 5ank sent another de%and letter to Plaintiff spo"ses infor%ing the% that since they ha!e defa"lted in paying their obligation their %ortgage will now be foreclosed@ that when Plaintiffs still failed to pay 6efendant 5ank initiated e#tra2"dicial foreclos"re of the real estate %ortgage e#ec"ted by Plaintiff spo"ses and accordingly the a"ction sale of the property was sched"led by the 7#P8fficio (heriff on May - ,-HB. The instant co%plaint was filed to forestall the e#tra2"dicial foreclos"re sale of a piece of land co!ered by Transfer Certificate of Title )TCT* No. B3;.,4 %ortgaged by petitioner corporation in fa!or of Airst ("%%a (a!ings and Mortgage 5ank which bank was later rena%ed as PAIC (a!ings and Mortgage 5ank Inc. It likewise asked for the n"llification of the 9eal 7state Mortgages it entered into with Airst ("%%a (a!ings and Mortgage 5ank. The s"pple%ental co%plaint added se!eral defendants who sched"led for p"blic a"ction other real estate properties contained in the sa%e real estate %ortgages and co!ered by TCTs No. N-++,: No. B.4H3. No. +:4;B4 and 8riginal Certificate of Title No. ,:,B4. (e!eral e#tra2"dicial foreclos"res of the %ortgaged properties were sched"led b"t were te%porarily restrained by the 9TC notwithstanding the denial of petitioners/ prayer for a writ of preli%inary in2"nction. In an 8rder dated ,: 6ece%ber ,--: the 9TC ordered respondents-sheriffs to %aintain the status quo and to desist fro% f"rther proceeding with the e#tra2"dicial foreclos"re of the %ortgaged properties. Iss.e-

1<N P"blic 9espondent Co"rt gra!ely erred when it s"stained the dis%issal of petitioners/ co%plaint and in affir%ing the right of the respondent bank to collect the I&LA loans in lie" of first s"%%a sa!ings and %ortgage bank which originally granted said loans R.lingTheir defense that they sho"ld first be for%ally notified of the change of corporate na%e of Airst ("%%a (a!ings and Mortgage 5ank to PAIC (a!ings and Mortgage 5ank Inc. before they will contin"e paying their loan obligations to respondent bank %$es.%%oses t"at t"e$e e6ists a $e3.i$e:ent .nde$ a laA o$ $eg.lation o$de$ing a 4an5 t"at c"anges its co$%o$ate na:e to fo$:all? notif? all its de4to$s . After going o!er the Corporation Code and 5anking Laws as well as the reg"lations and circ"lars of both the (7C and the 5angko (entral ng Pilipinas )5(P* we find that there is no s"ch reG"ire%ent. This being the case this Co"rt cannot i%pose on a bank that changes its corporate na%e to notify a debtor of s"ch change absent any law circ"lar or reg"lation reG"iring it. ("ch act wo"ld be 2"dicial legislation. The for%al notification is therefore discretionary on the bank. Inless there is a law reg"lation or circ"lar fro% the (7C or 5(P reG"iring the for%al notification of all debtors of banks of any change in corporate na%e s"ch notification re%ains to be a %ere internal policy that banks %ay or %ay not adopt. In the case at bar tho"gh there was no e!idence showing that petitioners were f"rnished copies of official doc"%ents showing the Airst ("%%a (a!ings and Mortgage 5ank/s change of corporate na%e to PAIC (a!ings and Mortgage 5ank Inc. e!idence abo"nd that they had notice or knowledge thereof. (e!eral doc"%ents establish this fact. Airst letter dated ,4 J"ly ,-H; signed by 9ay%"ndo '. 5lanco Acco"ntant of Petitioner Corporation addressed to PAIC (a!ings and Mortgage 5ank Inc. Part of said letter reads? =In connection with yo"r inG"iry as to the "tili$ation of f"nds we obtained fro% the for%er Airst ("%%a (a!ings and Mortgage 5ank . . .> (econd 5oard 9esol"tion of petitioner corporation signed by Pablo C. Ja!ier (r. on .B A"g"st ,-H; a"thori$ing hi% to e#ec"te a Chattel Mortgage o!er certain %achinery in fa!or of PAIC (a!ings and Mortgage 5ank Inc. Third (ecretary/s Certificate signed by Aort"nato 7. &abriel Corporate (ecretary of petitioner corporation on :, (epte%ber ,-H; certifying that a board resol"tion was passed a"thori$ing Mr. Pablo C. Ja!ier (r. to e#ec"te a chattel %ortgage on the corporation/s eG"ip%ent that will ser!e as collateral to co!er the I&LA loan with PAIC (a!ings and Mortgage 5ank Inc. Ao"rth "ndated letter signed by Pablo C. Ja!ier (r. and addressed to PAIC (a!ings and Mortgage 5ank Inc. a"thori$ing Mr. 'ictor A. Ja!ier &eneral Manager of petitioner corporation to sec"re fro% PAIC (a!ings and Mortgage 5ank Inc. certain doc"%ents for his signat"re. Aro% the foregoing doc"%ents it cannot be denied that petitioner corporation was aware of Airst ("%%a (a!ings and Mortgage 5ank/s change of corporate na%e to PAIC (a!ings and Mortgage 5ank Inc. Dnowing f"lly well of s"ch change petitioner corporation has no !alid reason not to pay beca"se the I&LA loans were applied with and obtained fro% Airst ("%%a (a!ings and Mortgage 5ank. Airst ("%%a (a!ings and Mortgage 5ank and PAIC (a!ings and Mortgage 5ank Inc. are one and the sa%e bank to which petitioner corporation is indebted. A change in the corporate na%e does not %ake a new corporation whether effected by a special act or "nder a general law. It has no effect on the identity of the corporation or on its property rights or liabilities. The corporation "pon s"ch change in its na%e is in no sense a new corporation nor the s"ccessor of the original corporation. It is the sa%e corporation with a different na%e and its character is in no respect changed. P"ili%s E6%o$t Vs# CA &20) SCRA '1(+ ,actsPetitione$ P"ili%s E6%o$t B#V# &PEBV * a foreign corporation organi$ed "nder the laws of the Netherlands not engaged in b"siness here is the registered owner of the trade%arks P0ILIP( and P0ILIP( (0I7L6 7M5L7M "nder Certificate of 9egistration Nos. 9-,4B, and 9-,43B respecti!ely iss"ed by the Philippine Patent 8ffice )now the 5"rea" of Patents Trade%arks and Technology Transfer*. Petitione$s P"ili%s Elect$ical La:%sF Inc# and P"ili%s Ind.st$ial DeCelo%:entF Inc. a"thori$ed "sers of the trade%arks P0ILIP( and P0ILIP( (0I7L6 7M5L7M were incorporated on A"g"st .- and May .+ ,-+4 respecti!ely. All petitioner corporations belong to the P0ILIP( &ro"p of Co%panies. P$iCate Res%ondent Standa$d P"ili%s Co$%o$ation was iss"ed a Certificate of 9egistration by respondent Co%%ission on ,- May ,-H.. Petitioners filed a letter co%plaint with the (ec"rities T 7#change Co%%ission )(7C* asking for the cancellation of the word "P0ILIP(" fro% Pri!ate 9espondentCs corporate na%e in !iew of the prior registration with the 5"rea" of Patents of the trade%ark "P0ILIP(" and the logo "P0ILIP( (0I7L6 7M5L7M" in the na%e of Petitioner P75' and the pre!io"s registration of Petitioners Philips 7lectrical and Philips Ind"strial with the (7C. As a res"lt of Pri!ate 9espondentCs ref"sal to a%end its Articles of Incorporation petitioners filed with the (7C a Petition praying for the iss"ance of a 1rit of Preli%inary In2"nction alleging that the "se of the word P0ILIP( a%o"nts to an infringe%ent and clear !iolation of PetitionerCs

29

e#cl"si!e right to "se the sa%e considering that both parties engage in the sa%e b"siness. Pri!ate 9espondent co"ntered that Petitioner P755' has no legal capacity to s"e@ that its "se of its corporate na%e is not at all si%ilar to PetitionersC trade%ark P0ILIP( when considered in its entirety@ and that its prod"cts consisting of chain rollers belts bearings and c"tting saw are grossly different fro% PetitionersC electrical prod"cts. The (7C 0earing 8fficer r"led against the iss"ance of s"ch 1rit and dis%issed the Petition for lack of %erit. T"e "ea$ing office$ of SEC decla$ed t"at it fo.nd no s.fficient g$o.nd fo$ t"e g$anting of in@.nctiCe $elief on the basis of the testi%onial and doc"%entary e!idence presented it cannot order the re%o!al or cancellation of the word "P0ILIP(" fro% Pri!ate 9espondentCs corporate na%e on the basis of the sa%e e!idence adopted in toto d"ring trial on the %erits. BesidesF Section 7 of t"e Co$%o$ation Code &inf$a+ is a%%lica4le onl? A"en t"e co$%o$ate na:es in 3.estion a$e identical. 0ere there is no conf"sing si%ilarity between PetitionersC and Pri!ate 9espondentCs corporate na%es as those of the Petitioners P75' contain at least two words different fro% that of the 9espondent. PetitionersC Motion for 9econsideration was likewise denied. 8n appeal the (7C en banc affir%ed the dis%issal declaring that the corporate na%es of Petitioners and Pri!ate 9espondent hardly breed conf"sion inas%"ch as each contains at least two different words and r"les o"t any possibility of conf"sing one for the other. The Co"rt of Appeals swept aside PetitionersC clai% that following the r"ling in Con!erse 9"bber Corporation !. Ini!ersal Con!erse 9"bber Prod"cts Inc. et al the word P0ILIP( cannot be "sed as part of Pri!ate 9espondentCs corporate na%e as the sa%e constit"tes a do%inant part of PetitionersC corporate na%es. In so holding the Appellate Co"rt obser!ed that the Con!erse case is not fo"r-sG"are with the present case inas%"ch as the contending parties in Con!erse are engaged in a si%ilar b"siness that is the %an"fact"re of r"bber shoes. Ipholding the (7C the Appellate Co"rt concl"ded that "pri!ate respondentCs prod"cts consisting of chain rollers belts bearings and c"tting saw are "nrelated and non-co%peting with petitionersC prod"cts i.e. electrical la%ps s"ch that cons"%ers wo"ld not in any probability %istake one as the so"rce or origin of the prod"ct of the other." The Appellate Co"rt denied PetitionersC Motion for 9econsideration hence this Petition which was gi!en d"e co"rse. Iss.e1<N (ection ,H of the Corporation Code is applicable in the case at barL RULING Mes. As early as 1estern 7G"ip%ent and ("pply Co. !. 9eyes +, Phil. ,,+ t"e Co.$t decla$ed t"at a co$%o$ationMs $ig"t to .se its co$%o$ate and t$ade na:e is a %$o%e$t? $ig"tF a $ig"t in $e:F A"ic" it :a? asse$t and %$otect against t"e Ao$ld in t"e sa:e :anne$ as it :a? %$otect its tangi4le %$o%e$t?F $eal o$ %e$sonalF against t$es%ass o$ conCe$sion# It is regarded to a certain e#tent as a property right and one which cannot be i%paired or defeated by s"bseG"ent appropriation by another corporation in the sa%e field. A na%e is pec"liarly i%portant as necessary to the !ery e#istence of a corporation. Its na%e is one of its attrib"tes an ele%ent of its e#istence and essential to its identity. T"e gene$al $.le as to co$%o$ations is t"at eac" co$%o$ation :.st "aCe na:e 4? A"ic" it is to s.e and 4e s.ed and do all legal acts# The na%e of a corporation in this respect designates the corporation in the sa%e %anner as the na%e of an indi!id"al designates the person@ and the right to "se its corporate na%e is as %"ch a part of the corporate franchise as any other pri!ilege granted. A corporation acG"ires its na%e by choice and need not select a na%e identical with or si%ilar to one already appropriated by a senior corporation while an indi!id"alCs na%e is thr"st "pon hi% # A co$%o$ation can no :o$e .se a co$%o$ate na:e in Ciolation of t"e $ig"ts of ot"e$s t"an an indiCid.al can .se "is na:e legall? ac3.i$ed so as to :islead t"e %.4lic and in@.$e anot"e$# 8"r own Corporation Code in its Section 7F e6%$essl? %$oCides t"at"No corporate na%e %ay be allowed by the (ec"rities and 7#change Co%%ission if the proposed na%e is identical or decepti!ely or conf"singly si%ilar to that of any e#isting corporation or to any other na%e already protected by law or is patently decepti!e conf"sing or contrary to e#isting law. 1here a change in the corporate na%e is appro!ed the co%%ission shall iss"e an a%ended certificate of incorporation "nder the a%ended na%e." To co:e Ait"in its sco%e of t"e stat.to$? %$o"i4itionF tAo $e3.isites :.st 4e %$oCenF na:el?? ),* that the co%plainant corporation acG"ired a prior right o!er the "se of s"ch corporate na%e@ and ).* the proposed na%e is either? )a* identical or )b* decepti!ely or conf"singly si%ilar to that of any e#isting corporation or to any other na%e already protected by law@ or )c* patently decepti!e conf"sing or contrary to e#isting law. T"e $ig"t to t"e e6cl.siCe .se of a co$%o$ate na:e Ait" f$eedo: f$o: inf$inge:ent 4? si:ila$it? is dete$:ined 4? %$io$it? of ado%tion . In this regard there is no do"bt with respect to PetitionersC prior adoption of the na%e "P0ILIP(" as part of its corporate na%e. Petitioners Philips 7lectrical and Philips Ind"strial were incorporated on A"g"st .- and May .+ ,-+4

respecti!ely while 9espondent (tandard Philips was iss"ed a Certificate of 9egistration on April ,- ,-H. twenty-si# ).4* years later. Petitioner P75' has also "sed the trade%ark "P0ILIP(" on electrical la%ps of all types and their accessories since (epte%ber ;: ,-.. as e!idenced by Certificate of 9egistration No. ,4+,. The second reG"isite no less e#ists in this case. In dete$:ining t"e e6istence of conf.sing si:ila$it? in co$%o$ate na:esF t"e test is A"et"e$ t"e si:ila$it? is s.c" as to :islead a %e$son .sing o$dina$? ca$e and disc$i:ination. In so doing the Co"rt %"st look to the record as well as the na%es the%sel!es. 1hile the corporate na%es of Petitioners and Pri!ate 9espondent are not identical a reading of PetitionerCs corporate na%es to wit? P0ILIP( 7QP89T 5.'. P0ILIP( 7L7CT9ICAL LAMP( INC. and P0ILIP( IN6I(T9IAL 67'7L8PM7NT INC. ine!itably leads one to concl"de that "P0ILIP(" is indeed the do%inant word in that all the co%panies affiliated or associated with the principal corporation P75' are known in the Philippines and abroad as the P0ILIP( &ro"p of Co%panies. 9espondents %aintain that Petitioners did not present an iota of proof of act"al conf"sion or deception of the p"blic %"ch less a single p"rchaser or their prod"ct who has been decei!ed or conf"sed or showed any likelihood of conf"sion. It is settled that proof of act"al conf"sion need not be shown. It s"ffices that conf"sion is probably or likely to occ"r. It :a? 4e t"at P$iCate Res%ondentMs %$od.cts also consist of chain rollers belts bearing and the like while petitioners deal principally with electrical prod"cts. It is significant to note that e!en the 6irector of Patents had denied Pri!ate 9espondentCs application for registration of the trade%arks "(tandard Philips T 6e!ice" for chains rollers belts bearings and c"tting saw. That office held that P75' "had shipped to its s"bsidiaries in the Philippines eG"ip%ent %achines and their parts which fall "nder international class where chains rollers belts bearings and c"tting saw the goods in connection with which 9espondent is seeking to register "(TAN6A96 P0ILIP( also belong. A"rther%ore the records show that a%ong Pri!ate 9espondentCs pri%ary p"rposes in its Articles of Incorporation are the following? "To b"y sell barter trade %an"fact"re i%port e#port or otherwise acG"ire dispose of and deal with any kind of goods wares and %erchandise s"ch as b"t not li%ited to plastics carbon prod"cts office stationery and s"pplies hardware parts electrical wiring de!ices electrical co%ponent parts and<or co%ple%ent of ind"strial agric"lt"ral or co%%ercial %achineries constr"cti!e s"pplies electrical s"pplies and other %erchandise e#cept food dr"gs and cos%etics and to carry on s"ch b"siness as %an"fact"rer distrib"tor dealer indentor factor %an"fact"rerCs representati!e capacity for do%estic or foreign co%panies." Aor its part Philips 7lectrical also incl"des a%ong its pri%ary p"rposes the following? "To de!elop %an"fact"re and deal in electrical prod"cts incl"ding electronic %echanical and other si%ilar prod"cts ". GiCen P$iCate Res%ondentMs .nde$lined %$i:a$? %.$%oseF not"ing co.ld %$eCent it f$o: dealing in t"e sa:e line of 4.siness of elect$ical deCicesF %$od.cts o$ s.%%lies A"ic" fall .nde$ its %$i:a$? %.$%oses# 5esides there is showing that Pri!ate 9espondent not only %an"fact"red and sold ballasts for fl"orescent la%ps with their corporate na%e printed thereon b"t also ad!ertised the sa%e as (tandard Philips. As aptly pointed o"t by Petitioners Pri!ate respondentCs choice of CP0ILIP(C as part of its corporate na%e (TAN6A96 P0ILIP( C89P89ATI8N tends to show said respondentCs intention to ride on the pop"larity and established goodwill of said petitionerCs b"siness thro"gho"t the world". The s"bseG"ent appropriator of the na%e or one conf"singly si%ilar thereto "s"ally seeks an "nfair ad!antage a free ride on anotherCs goodwill. In allowing Pri!ate 9espondent the contin"ed "se to its corporate na%e the (7C %aintains that the corporate na%es of Petitioners P0ILIP( 7L7CT9ICAL LAMP( INC. and P0ILIP( IN6I(T9IAL 67'7L8PM7NT INC. contain at least two words different fro% that of the corporate na%e of respondent (TAN6A96 P0ILIP( C89P89ATI8N which words will readily identify Pri!ate 9espondent fro% Petitioners and !ice-!ersa "nder the &"idelines in the Appro!al of Corporate and Partnership Na%es for%"lated by the (7C the proposed na%e "sho"ld not be si%ilar to one already "sed by another corporation or partnership. If the proposed na%e contains a word already "sed as part of the fir% na%e or style of a registered co%pany the proposed na%e %"st contain two other words different fro% the co%pany already registered". ="at is lost sig"t of is t"at P>ILIPS is a t$ade:a$5 o$ t$ade na:e A"ic" Aas $egiste$ed as fa$ 4ac5 as 922# Petitione$sF t"e$efo$eF "aCe t"e e6cl.siCe $ig"t to its .se A"ic" :.st 4e f$ee f$o: an? inf$inge:ent 4? si:ila$it?# A corporation has an e#cl"si!e right to the "se of its na%e which %ay be protected by in2"nction "pon a principle si%ilar to that "pon which persons are protected in the "se of trade%arks and tradena%es. Notably too Pri!ate 9espondentsC na%e act"ally contains only a single word that is "(TAN6A96" different fro% that of Petitioners inas%"ch as the incl"sion of the ter% "Corporation" or "Corp." %erely ser!es the p"rpose of disting"ishing the corporation fro% partnerships and other b"siness organi$ations. In s"pport of its application for the registration of its Articles of Incorporation with the (7C Pri!ate 9espondent had s"b%itted an "ndertaking "%anifesting its willingness to change its corporate na%e in the e!ent another person fir% or entity has acG"ired a prior right to the "se of the said fir% na%e or one decepti!ely or conf"singly si%ilar to it." Pri!ate 9espondent %"st now be held its "ndertaking.

30

"As a general r"le parties organi$ing a corporation %"st choose a na%e at their peril@ and the "se of a na%e si%ilar to one adopted by another corporation whether a b"siness or a nonb"siness or nonprofit organi$ation if %isleading and likely to in2"re it in the e#ercise of its corporate f"nctions regardless of intent %ay be pre!ented by the corporation ha!ing the prior right by a s"it for in2"nction against the new corporation to pre!ent the "se of the na%e.

Kaanib" and "Sa Bansang Pilipinas# -nc.#! which petitioner arg"es effecti!ely disting"ished it fro% respondent corporation. The additional words "Ang Mga Kaanib: and " Sa Bansang Pilipinas# -nc ." in petitionerCs na%e are as correctly obser!ed by the (7C %erely descripti!e of and also referring to the %e%bers or kaanib of respondent who are likewise residing in the Philippines. These words can hardly ser!e as an effecti!e differentiating %edi"% necessary to a!oid conf"sion or diffic"lty in disting"ishing petitioner fro% respondent. This is especially so since both petitioner and respondent corporations are "sing the sa%e acrony% W 0.(.D.@ not to %ention the fact that both are espo"sing religio"s beliefs and operating in the sa%e place. Parenthetically it is well to %ention that the acrony% 0.(.D. "sed by petitioner stands for " Baligi at Saligan ng Katoto anan ." Then too the records re!eal that in holding o"t their corporate na%e to the p"blic petitioner highlights the do%inant words " -/L6S-A N/ ;-<S KA9 K=-S,< B6S8S# BAL-/- A, SAL-/AN N/ KA,<,<BANAN " which is strikingly si%ilar to respondentCs corporate na%e th"s %aking it e!en %ore e!ident that the additional words " Ang Mga Kaanib " and " Sa Bansang Pilipinas# -nc." are %erely descripti!e of and pertaining to the %e%bers of respondent corporation. (ignificantly the only difference between the corporate na%es of petitioner and respondent are the words SAL-/AN and S8BA9. These words are synony%o"s W both %ean gro"nd fo"ndation or s"pport. 0ence this case is on all fo"rs with 8niversal Mills Corporation v. 8niversal ,e'tile Mills# -nc . where the Co"rt r"led that the corporate na%es Ini!ersal Mills Corporation and Ini!ersal Te#tile Mills Inc. are "ndisp"tedly so si%ilar that e!en "nder the test of "reasonable care and obser!ation" conf"sion %ay arise. A"rther%ore the wholesale appropriation by petitioner of respondentCs corporate na%e cannot find 2"stification "nder the generic word r"le. 1e agree with the Co"rt of AppealsC concl"sion that a contrary r"ling wo"ld enco"rage other corporations to adopt !erbati% and register an e#isting and protected corporate na%e to the detri%ent of the p"blic. The fact that there are other non-stock religio"s societies or corporations "sing the na%es Ch"rch of the Li!ing &od Inc. Ch"rch of &od Jes"s Christ the (on of &od the 0ead Ch"rch of &od in Christ T 5y the 0oly (pirit and other si%ilar na%es is of no conseG"ence. It does not a"thori$e the "se by petitioner of the essential and disting"ishing feat"re of respondentCs registered and protected corporate na%e. Certainly ordering petitioner to change its corporate na%e is not a !iolation of its constit"tionally g"aranteed right to religio"s freedo%. In so doing the (7C %erely co%pelled petitioner to abide by one of the (7C g"idelines in the appro!al of partnership and corporate na%es na%ely its "ndertaking to %anifest its willingness to change its corporate na%e in the e!ent another person fir% or entity has acG"ired a prior right to the "se of the said fir% na%e or one decepti!ely or conf"singly si%ilar to it. Section 9 ! Commencement of corporate existence. - A pri!ate corporation for%ed or organi$ed "nder this Code co%%ences to ha!e corporate e#istence and 2"ridical personality and is dee%ed incorporated fro% the date the (ec"rities and 7#change Co%%ission iss"es a certificate of incorporation "nder its official seal@ and there"pon the incorporators stockholders<%e%bers and their s"ccessors shall constit"te a body politic and corporate "nder the na%e stated in the articles of incorporation for the period of ti%e %entioned therein "nless said period is e#tended or the corporation is sooner dissol!ed in accordance with law. 2R >oldings Vs# Ba@a$ &*70 SCRA ) (+ ,actsAsian 6e!elop%ent 5ank )A65* agreed to e#tend to Marcopper Mining Corporation )Marcopper* a loan "nder a =Principal Loan Agree%ent> and =Co%ple%entary Loan Agree%ent.> A65 and Placer 6o%e Inc. )Placer 6o%e* a foreign corporation which owns B:N of Marcopper e#ec"ted a =("pport and (tandby Credit agree%ent where Placer agreed to pro!ide Marcopper with cash flow s"pport for the pay%ent of its obligations to A65. To sec"re the loan Marcoper e#ec"ted in fa!or of A65 a =6eed of 9eal 7state and Chattel Mortgage.> Marcopper defa"lted in the pay%ent of its loan. Placer 6o%e in f"lfill%ent of its "ndertaking "nder the ("pport and (tandby Credit Agree%ent agreed to ha!e its s"bsidiary corporation petitioner M9 0olding Ltd. )M9 0olding* ass"%ed Marcopper/s obligation to A65. ConseG"ently in a deed of assign%ent A65 assigned to M9 holding all its rights interests and obligation "nder the loan agree%ents. Marcopper likewise e#ec"ted a =6eed of Assign%ent in fa!or of M9 0olding consisting of se!eral %achineries and real properties. Meanwhile (olidbank obtained a partial 2"dg%ent against Marcopper fro% the 9TC. Ipon (olidbank/s %otion the 9TC of Manila iss"ed a writ of e#ec"tion pending appeal against Marcopper. The sheriff iss"ed notices of le!y on Marcopper/s personal and real properties incl"ding those properties s"b2ect of the assign%ents abo!e-%entioned.

Ang 2ga Haani4 Vs# Iglesia &*(2 SCRA ( + ,acts-glesia ng ;ios Ka$ Cristo Gesus# Baligi at Su a$ ng Katoto anan )Ch"rch of &od in Christ Jes"s the Pillar and &ro"nd of Tr"th* is a non-stock religio"s society or corporation registered in ,-;4. (o%eti%e in ,-34 one 7liseo (oriano and se!eral other %e%bers of 9espondent Corporation disassociated the%sel!es fro% the latter and s"cceeded in registering on March ;: ,-33 a new non-stock religio"s society or corporation na%ed -glesia ng ;ios Ka$ Kristo Besus# Baligi at Saligan ng Katoto anan The respondent corporation filed with the (7C a petition to co%pel the -glesia ng ;ios Ka$ Kristo Besus# Baligi at Saligan ng Katoto anan to change its corporate na%e which the (7C rendered 2"dg%ent in fa!or of respondent ordering the -glesia ng ;ios Ka$ Kristo Besus# Baligi at Saligan ng Katoto anan to change its corporate na%e to another na%e that is not si%ilar or identical to any na%e already "sed by a corporation partnership or association registered with the Co%%ission. No appeal was taken fro% said decision. It appears that d"ring the pendency of (7C Case (oriano et al. ca"sed the registration on April .+ ,-H: of petitioner corporation Ang Mga Kaanib sa -glesia ng ;ios Ka$ Kristo Besus# B.S.K# sa Bansang Pilipinas . The acrony% "0.(.D." stands for Baligi at Saligan ng Katoto anan. Again the respondent corporation filed before the (7C a petition praying that petitioner be co%pelled to change its corporate na%e and be barred fro% "sing the sa%e or si%ilar na%e on the gro"nd that the sa%e ca"ses conf"sion a%ong their %e%bers as well as the p"blic. 8n No!e%ber .: ,--+ the (7C rendered a decision ordering petitioner to change its corporate na%e. Petitioner appealed to the (7C 6n Banc which affir%ed the abo!e decision "pon a finding that petitionerCs corporate na%e was identical or conf"singly or decepti!ely si%ilar to that of respondentCs corporate na%e. The CA also affir%ed the decision of the (7C 6n Banc "pon petitioner/s petition for re!iew. PetitionerCs %otion for reconsideration was denied by the Co"rt of Appeals. Iss.e1<N the 0onorable Co"rt of Appeals failed to consider and properly apply the e#ceptions established by 2"rispr"dence in the application of section ,H of the corporation code to the instant case R.ling(ection ,H of the Corporation Code pro!ides? Corporate Name. W No corporate na%e %ay be allowed by the (ec"rities and 7#change Co%%ission if the proposed na%e is identical or decepti!ely or conf"singly si%ilar to that of any e#isting corporation or to any other na%e already protected by law or is patently decepti!e conf"sing or is contrary to e#isting laws. 1hen a change in the corporate na%e is appro!ed the Co%%ission shall iss"e an a%ended certificate of incorporation "nder the a%ended na%e. Corollary thereto the pertinent portion of the (7C &"idelines on Corporate Na%es states? )d* If the proposed na%e contains a word si%ilar to a word already "sed as part of the fir% na%e or style of a registered co%pany the proposed na%e %"st contain two other words different fro% the na%e of the co%pany already registered@ Parties organi$ing a corporation %"st choose a na%e at their peril@ and the "se of a na%e si%ilar to one adopted by another corporation whether a b"siness or a nonprofit organi$ation if %isleading or likely to in2"re in the e#ercise of its corporate f"nctions regardless of intent %ay be pre!ented by the corporation ha!ing a prior right by a s"it for in2"nction against the new corporation to pre!ent the "se of the na%e. Petitioner clai%s that it co%plied with the aforecited (7C g"ideline by adding not only two b"t eight words to their registered na%e to wit? " Ang Mga

31

M9 0olding ser!ed a Third-Party Clai% "pon the sheriffs. It was denied. 5eca"se of that M9 holding co%%enced with the 9TC a co%plaint for rein!idication of properties with prayer for preli%inary in2"nction with te%porary restraining order against the respondents. The application was denied by the 9TC on the gro"nd that M9 0olding has no legal capacity to s"e it being a foreign corporation doing b"siness in the Philippines witho"t license. Its decision was affir%ed by the Co"rt of Appeals. Iss.e?

of the Calatagan Property to (il!erio Jr. 7sses and Tri-(tar. 8n May H .::: a writ of possession was iss"ed in fa!or of petitioners. 8n May .; .::: A5CI filed with the 9TC 5alayan an Irgent 6'?Parte Motion to ("spend 7nforce%ent of 1rit of Possession on the gro"nd of s"per!ening e!ent. A5CI pointed o"t that it is now the new owner of 7sses and Tri-(tar ha!ing p"rchased the =s"bstantial and controlling shares of stocks> of the two corporations. Iss.e-

1<N M9 0oldings is =doing b"siness> in the Philippines R.ling? M9 0oldings is not doing b"siness in the Philippines within the %eaning of the law. A re!iew of the r"ling of the co"rt does not pose %"ch co%ple#ity as the principles go!erning a foreign corporation/s right to s"e in local co"rts ha!e long been settled by o"r Corporation Law. These principles %ay be condensed in three state%ents? ,. .. If a foreign corporation does b"siness in the Philippines witho"t a license it cannot s"e before the Philippine co"rts@ If a foreign corporation is not doing b"siness in the Philippines it needs no license to s"e before Philippine co"rts on an isolated transaction or on a ca"se of action entirely independent of any b"siness transaction@ and If a foreign corporation does b"siness in the Philippines with the reG"ired license it can s"e before Philippine co"rts on any transaction. 1<N the acG"isition of 7sses and Tri-(tar by A5CI is a s"per!ening e!ent which is a s"fficient gro"nd to stay the e#ec"tion of a writ of possession. R.lingNo. The acG"isition of 7sses and Tri-(tar by A5CI cannot be considered as a s"per!ening e!ent which is a s"fficient gro"nd to stay e#ec"tion. The co"rt %ay stay i%%ediate e#ec"tion of a 2"dg%ent when s"per!ening e!ents occ"rring s"bseG"ent to the 2"dg%ent bring abo"t a %aterial change in the sit"ation of the parties. To 2"stify the stay of i%%ediate e#ec"tion the s"per!ening e!ents %"st ha!e a direct effect on the %atter already litigated and settled. 8r the s"per!ening e!ents %"st create a s"bstantial change in the rights or relation of the parties which wo"ld render e#ec"tion of a final 2"dg%ent "n2"st i%possible or ineG"itable %aking it i%perati!e to stay i%%ediate e#ec"tion in the interest of 2"stice. A5CI/s acG"isiton of the =s"bstantial and controlling shares of stocks> of 7sses and Tri-(tar does not create a s"btantial change in the rights or relations of the parties that wo"ld entitle A5CI to possession of the Calatagan Property a corporate property of 7sses and Tri-(tar. 7sses and Tri-(tar 2"st like A5CI are corporations. A Corporation has a personality distinct fro% its stockholders. A5CI/s alleged controlling shareholdings in 7sses and Tri-(tar %erely represents a proportionate or aliG"ot interest in the properties of the two corporations. ("ch controlling shareholdings do not !est A5CI with any legal right or title to any of 7sses and Tri-(tar/s corporate properties. 7!en ass"%ing that A5CI is the controlling shareholder of 7sses and Tri-(tar does not legally %ake it the owner of the Calatagan Property which is legally owned by 7sses and Tri-(tar as distinct 2"ridical persons. As s"ch A5CI is not entitled to the possession of any definite portion of the Calatagan Property or any of 7sses and Tri-(tars properties or assets. A5CI is not a co-owner or tenant in co%%on of the Calatagan Property or any of 7sses and Tri-(tar/s corporate properties. Possession of the Calatagan Property %"st be restored to 7sses and Tri-(tar to their representati!e (il!erio Jr. Li: Vs# CA &*2* SCRA 02+ ,acts9"fina L"y Li% is the s"r!i!ing spo"se of late Pastor M. Li% whose estate is the s"b2ect of probate proceedings in (pecial Proceedings "In 9e? Intestate 7state of Pastor M. Li% 9"fina L"y Li% represented by &eorge L"y Petitioner". Pri!ate respondents A"to Tr"ck Corporation Alliance Marketing Corporation (peed 6istrib"ting Inc. Acti!e 6istrib"ting Inc. and Action Co%pany are corporations for%ed organi$ed and e#isting "nder Philippine laws and which owned real properties co!ered "nder the Torrens syste%. 1hen Pastor M. Li% died intestate herein petitioner as s"r!i!ing spo"se and d"ly represented by her nephew &eorge L"y filed a 2oint petition for the ad%inistration of the estate of Pastor M. Li% before the 9egional Trial Co"rt of R"e$on City. Pri!ate respondent corporations whose properties were incl"ded in the in!entory of the estate of Pastor M. Li% then filed a %otion for the lifting of lis pendens and %otion for e#cl"sion of certain properties fro% the estate of the decedent. The 9egional Trial Co"rt sitting as a probate co"rt granted the pri!ate respondentsC twin %otions ordering the 9egister of 6eeds of R"e$on City to lift e#p"nge or delete the annotation of lis pendens on + Transfer Certificates of Title and it is hereby f"rther ordered that the properties co!ered by the sa%e titles as well as those properties by Transfer Certificate of Title Nos. 4,;B-B ;4;,.; .;4.;4 and .4;.;4 are e#cl"ded fro% these proceedings. ("bseG"ently 9"fina L"y Li% filed a !erified a%ended petition which contained the following a!er%ents? that the late Pastor M. Li% personally owned d"ring his lifeti%e the certain b"siness entities incl"ding pri!ate respondents@ that altho"gh the abo!e b"siness entities dealt and engaged in b"siness with the p"blic as corporations all their capital assets and eG"ity were howe!er personally owned by the late Pastor M Li%. 0ence the alleged stockholders and officers appearing in the respecti!e articles of incorporation of the abo!e b"siness entities were %ere d"%%ies of Pastor M. Li% and they were listed therein only for p"rposes of registration with the (ec"rities and 7#change Co%%ission@ that Pastor Li% likewise had Ti%e (a!ings and C"rrent 6eposits with the following banks? )a* Metrobank &race Park

;.

The Corporation Code is silent as to what constit"tes =doing> or =transacting> b"siness in the Philippines. 5"t 2"rispr"dence held that the ter% i%plies a contin"ity of co%%ercial dealings and arrange%ents and conte%plates to that e#tent the perfor%ance of acts or works or the e#ercise of so%e of the f"nctions nor%ally incident to and in progressi!e prosec"tion of the p"rpose and ob2ect for which the corporation was organi$ed. The test to deter%ine whether a corporation is =doing b"siness > is whether the foreign corporation is contin"ing the body or s"bstance of the b"siness or enterprise for which it was organi$e or whether it has s"bstantially retired fro it and t"rned it o!er to another. There are other stat"tes defining the ter% =doing b"siness> and as %ay be obser!ed one co%%on deno%inator a%ong the% all is the concept of =contin"ity.> In this case the CA categori$ed as =doing b"siness> M9 holdings/ participation "nder the Assign%ent agree%ents. This is "ntenable. The e#pression =doing b"siness sho"ld not be gi!en s"ch a strict and literal constr"ction as to %ake it apply to any corporate dealing. The p"rpose or b"siness for which petitioner was organi$ed is not discernible in the records. No effort was e#erted by the CA to establish the ne#"s between petitioner/s b"siness and the acts s"pposed to constit"te =doing b"siness.> Th"s whether the assign%ent contracts were incidental to petitioner/s b"siness or were contin"ation thereof is beyond deter%ination. Also the CA/s r"ling that M9 0oldings has the intention to contin"e Marcopper/s b"siness is based p"rely on con2ect"res and spec"lation. There was no showing that there are o!ert acts of the petitioner that wo"ld raise the concl"sion that indeed it had the intention of contin"ing Marcopper/s b"siness. In s"% M9 0oldings was engaged only in isolated acts or transactions. (ingle or isolated acts or transactions of foreign corporations are not regarded as a doing or carrying on of b"siness. SilCe$io Vs# ,ili%ino B.siness Cons.ltants &')) SCRA 17'+ ,acts9icardo (. (il!erio Jr. 7sses 6e!elop%ent Corporation and Tri-(tar Aar%s Inc. petitioners and Ailipino 5"siness Cons"ltants Inc. )=A5CI>* respondent are wrangling o!er possession of a 4. hectares land in Calatagan 5atangas )=Calatagan Property>*. (il!erio Jr. is the President of 7sses and Tri-(tar. 7sses and Tri-(tar were in possession of the Calatagan Property and registered in the na%es of 7sses and Tri-(tar. 7sses and Tri-(tar e#ec"ted a 6eed of (ale with Ass"%ption of Mortgage in fa!or of A5CI. 0owe!er 7sses and Tri-(tar failed to redee% the Calatagan Property. Th"s A5CI filed a Petition for Consolidation of Title of the Calatagan Property with the 9TC 5alayan. ("bseG"ently the Calatagan Property in the na%es of 7sses and Tri-(tar was cancelled and a new TCT was iss"ed in A5CI/s na%e. Thereafter a writ of possession was iss"ed in A5CI/s na%e. A5CI then entered the Calatagan Property. (il!erio Jr. 7sses and Tri-(tar conseG"ently filed a petition for relief fro% 2"dg%ent and the recall of the writ of possession alleging that the 2"dg%ent by defa"lt is !oid beca"se the 9TC 5alayan did not acG"ire 2"risdiction o!er the%. The 9TC 5alayan n"llified and set aside the 2"dg%ent by defa"lt and the writ of possession. The 9TC 5alayan also iss"ed an 8rder to restore possession

32

Caloocan City and R"e$on A!en"e R"e$on City 5ranches and )b* Airst Intestate 5ank )for%erly Prod"cers 5ank* 9i$al Co%%ercial 5anking Corporation and in other banks whose identities are yet to be deter%ined@ that the so%e real properties altho"gh registered in the na%e of the abo!e entities were act"ally acG"ired by Pastor M. Li% d"ring his %arriage with petitioner@ that the afore%entioned properties and<or real interests left by the late Pastor M. Li% are all con2"gal in nat"re ha!ing been acG"ired by hi% d"ring the e#istence of his %arriage with petitioner and that there are other real and personal properties owned by Pastor M. Li% which petitioner co"ld not as yet identify. The 9egional Trial Co"rt acting on petitionerCs %otion iss"ed an order ordering the 9egistry of 6eeds of R"e$on City to reinstate the annotation of lis pendens in case said annotation had already been deleted and<or cancelled said on the TCTs/. 8n :B (epte%ber ,--+ the probate co"rt appointed 9"fina Li% as special ad%inistrator and Mig"el Li% and Lawyer 6onald Lee as co-special ad%inistrators of the estate of Pastor M. Li% after which letters of ad%inistration were accordingly iss"ed. Pri!ate respondent filed a special ci!il action for certiorari with an "rgent prayer for a restraining order or writ of preli%inary in2"nction before the Co"rt of Appeals G"estioning the orders of the 9egional Trial Co"rt sitting as a probate co"rt. The Co"rt of Appeals granted the instant special ci!il action for certiorari. The i%p"gned orders iss"ed by respondent co"rt on J"ly B ,--+ and (epte%ber ,. ,--+ are hereby n"llified and set aside. The i%p"gned order iss"ed by respondent on (epte%ber ,+ ,--+ is n"llified insofar as petitioner corporations" bank acco"nts and records are concerned. Iss.e1<N the properties of pri!ate respondent corporations are properly part of the decedentCs estate incl"ding the pri!ate respondent corporations the%sel!es R.lingNo. It is settled that a corporation is clothed with personality separate and distinct fro% that of the persons co%posing it. It %ay not generally be held liable for that of the persons co%posing it. It %ay not be held liable for the personal indebtedness of its stockholders or those of the entities connected with it. 9"di%entary is the r"le that a corporation is in!ested by law with a personality distinct and separate fro% its stockholders or %e%bers. In the sa%e !ein a corporation by legal fiction and con!enience is an entity shielded by a protecti!e %antle and i%b"ed by law with a character alien to the persons co%prising it. Nonetheless the shield is not at all ti%es in!incible. Th"s in 2-=S, PB-L-PP-N6 -N,6=NA,-<NAL BANK vs . C<8=, <2 APP6ALS 1e en"nciated? . . . 1hen the fiction is "rged as a %eans of perpetrating a fra"d or an illegal act or as a !ehicle for the e!asion of an e#isting obligation the circ"%!ention of stat"tes the achie!e%ent or perfection of a %onopoly or generally the perpetration of kna!ery or cri%e the !eil with which the law co!ers and isolates the corporation fro% the %e%bers or stockholders who co%pose it will be lifted to allow for its consideration %erely as an aggregation of indi!id"als. . . Piercing the !eil of corporate entity reG"ires the co"rt to see thro"gh the protecti!e shro"d which e#e%pts its stockholders fro% liabilities that ordinarily they co"ld be s"b2ect to or disting"ishes one corporation fro% a see%ingly separate one were it not for the e#isting corporate fiction. The corporate %ask %ay be lifted and the corporate !eil %ay be pierced when a corporation is 2"st b"t the alter ego of a person or of another corporation. 1here badges of fra"d e#ist where p"blic con!enience is defeated@ where a wrong is so"ght to be 2"stified thereby the corporate fiction or the notion of legal entity sho"ld co%e to na"ght. A"rther the test in deter%ining the applicability of the doctrine of piercing the !eil of corporate fiction is as follows? ,* Control not %ere %a2ority or co%plete stock control b"t co%plete do%ination not only of finances b"t of policy and b"siness practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the ti%e no separate %ind will or e#istence of its own@ ).* ("ch control %"st ha!e been "sed by the defendant to co%%it fra"d or wrong to perpet"ate the !iolation of a stat"tory or other positi!e legal d"ty or dishonest and "n2"st act in contra!ention of plaintiffs legal right@ and );* The aforesaid control and breach of d"ty %"st pro#i%ately ca"se the in2"ry or "n2"st loss co%plained of. The absence of any of these ele%ents pre!ents "piercing the corporate !eil".

Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a s"fficient reason for disregarding the fiction of separate corporate personalities. Moreo!er to disregard the separate 2"ridical personality of a corporation the wrong-doing %"st be clearly and con!incingly established. It cannot be pres"%ed. &ranting arguendo that the 9egional Trial Co"rt in this case was not %erely acting in a li%ited capacity as a probate co"rt petitioner nonetheless failed to add"ce co%petent e!idence that wo"ld ha!e 2"stified the co"rt to i%pale the !eil of corporate fiction. Tr"ly the reliance reposed by petitioner on the affida!its e#ec"ted by Teresa Li% and Lani 1enceslao is "na!ailing considering that the afore%entioned doc"%ents possess no weighty probati!e !al"e p"rs"ant to the hearsay r"le. 5esides it is i%perati!e for "s to stress that s"ch affida!its are inad%issible in e!idence inas%"ch as the affiants were not at all presented d"ring the co"rse of the proceedings in the lower co"rt. To p"t it differently for this Co"rt to "phold the ad%issibility of said doc"%ents wo"ld be to relegate fro% 8"r d"ty to apply s"ch basic r"le of e!idence in a %anner consistent with the law and 2"rispr"dence. 8"r prono"nce%ent in P6<PL6 BANK AN; ,=8S, C<MPAN9 vs . L6<N-;AS finds pertinence? Affida!its are classified as hearsay e!idence since they are not generally prepared by the affiant b"t by another who "ses his own lang"age in writing the affiantCs state%ents which %ay th"s be either o%itted or %is"nderstood by the one writing the%. Moreo!er the ad!erse party is depri!ed of the opport"nity to cross-e#a%ine the affiants. Aor this reason affida!its are generally re2ected for being hearsay "nless the affiant the%sel!es are placed on the witness stand to testify thereon. As to the order of the lower co"rt dated ,+ (epte%ber ,--+ the Co"rt of Appeals correctly obser!ed that the 9egional Trial Co"rt 5ranch -; acted witho"t 2"risdiction in iss"ing said order@ The probate co"rt had no a"thority to de%and the prod"ction of bank acco"nts in the na%e of the pri!ate respondent corporations. Re?noso Vs# CA &*'1 SCRA **1+ (o%eti%e in the early ,-4:s the Co%%ercial Credit Corporation a financing and in!est%ent fir% decided to organi$e franchise co%panies in different parts of the co"ntry wherein it shall hold thirty percent );:N* eG"ity. 7%ployees of the CCC were designated as resident %anagers of the franchise co%panies. Petitioner 5ibiano 8. 9eynoso I' was designated as the resident %anager of the franchise co%pany in R"e$on City known as the Co%%ercial Credit Corporation of R"e$on City. CCC-RC entered into an e#cl"si!e %anage%ent contract with CCC whereby the latter was granted the %anage%ent and f"ll control of the b"siness acti!ities of the for%er. Inder the contract CCC-RC shall sell disco"nt and<or assign its recei!ables to CCC. ("bseG"ently howe!er this disco"nting arrange%ent was discontin"ed p"rs"ant to the so-called =68(9I 9"le> prohibiting the lending of f"nds by corporations to its directors officers stockholders and other persons with related interests therein. 8n acco"nt of the new restrictions i%posed by the Central 5ank policy by !irt"e of the 68(9I 9"le CCC decided to for% CCC 7G"ity Corporation )hereinafter =CCC-7G"ity>* a wholly-owned s"bsidiary to which CCC transferred its thirty );:N* percent eG"ity in CCC-RC together with two seats in the latter/s 5oard of 6irectors. Inder the new set-"p se!eral officials of Co%%ercial Credit Corporation incl"ding petitioner 9eynoso beca%e e%ployees of CCC-7G"ity. 1hile petitioner contin"ed to be the 9esident Manager of CCC-RC he drew his salaries and allowances fro% CCC-7G"ity. A"rther%ore altho"gh an e%ployee of CCC-7G"ity petitioner as well as all e%ployees of CCC-RC beca%e G"alified %e%bers of the Co%%ercial Credit Corporation 7%ployees Pension Plan. As 9esident Manager of CCC-RC petitioner in order to boost the b"siness acti!ities of CCC-RC deposited his personal f"nds in the co%pany. In ret"rn CCC-RC iss"ed to hi% its interest-bearing pro%issory notes. A co%plaint for s"% of %oney with preli%inary attach%ent was instit"ted by CCC-RC against petitioner who had in the %eanti%e been dis%issed fro% his e%ploy%ent by CCC-7G"ity. The co%plaint was s"bseG"ently a%ended in order to incl"de 0idelita N"!al petitioner/s wife as a party defendant. The co%plaint alleged that petitioner e%be$$led the f"nds of CCC-RC a%o"nting to P, ;:: +-;.,,. Petitioner denied ha!ing "nlawf"lly "sed f"nds of CCC-RC and asserted that the s"% of P, ;:: +-;.,, represented his %oney place%ents in CCC-RC as shown by twenty-three ).;* checks which he iss"ed to the said co%pany. The Co"rt finds the co%plaint witho"t %erit. Accordingly said co%plaint is hereby 6I(MI((76. 5y reason of said co%plaint defendant 5ibiano 9eynoso I' s"ffered degradation h"%iliation and %ental ang"ish. Th"s the Co"rt declared CCC liable to 9eynoso.

33

5oth parties appealed to the then Inter%ediate Appellate Co"rt. The appeal of Co%%ercial Credit Corporation of R"e$on City was dis%issed for fail"re to pay docket fees. Petitioner on the other hand withdrew his appeal. 0ence the decision beca%e final and accordingly a 1rit of 7#ec"tion was iss"ed. 0owe!er the 2"dg%ent re%ained "nsatisfied. CCC-RC alleged that the possession of its pre%ises and records had been taken o!er by CCC. Meanwhile in ,-H; CCC beca%e known as the &eneral Credit Corporation. The 9egional Trial Co"rt of R"e$on City iss"ed an 8rder directing &eneral Credit Corporation to file its co%%ent on petitioner/s %otion for alias writ of e#ec"tion. &eneral Credit Corporation filed a (pecial Appearance and 8pposition alleging that it was not a party to the case and therefore petitioner sho"ld direct his clai% against CCC-RC and not &eneral Credit Corporation. Petitioner filed his reply stating that the CCC-RC is an ad2"nct instr"%entality cond"it and agency of CCC. A"rther%ore petitioner in!oked the decision of the (ec"rities and 7#change Co%%ission in (7C Case No. .+H, entitled AAvelina /. =amoso# et al.# Petitioner versus /eneral Credit Corp.# et al.# =espondents#: where it was declared that &eneral Credit Corporation CCC-7G"ity and other franchised co%panies incl"ding CCC-RC were declared as one corporation. Th"s the 9egional Trial Co"rt of R"e$on City ordered the iss"ance of an alias writ of e#ec"tion. &eneral Credit Corporation filed an 8%nib"s Motion alleging that (7C Case No. .+H, was still pending appeal and %aintaining that the le!y on properties of the &eneral Credit Corporation by the dep"ty sheriff of the co"rt was erroneo"s. Petitioner insisted that &eneral Credit Corporation is 2"st the new na%e of Co%%ercial Credit Corporation@ hence &eneral Credit Corporation and Co%%ercial Credit Corporation sho"ld be treated as one and the sa%e entity. The 9egional Trial Co"rt of R"e$on City denied the 8%nib"s Motion and iss"ed an 8rder directing the iss"ance of an alias writ of e#ec"tion. The Co"rt of Appeals rendered a decision that the respondent co"rtCs ref"sal to iss"e a restraining order as ha!ing been rendered %oot by o"r 9esol"tion of 3 April ,--. which by way of in2"ncti!e relief pro!ided that "the respondents and their representati!es are hereby en2oined fro% cond"cting an a"ction sale )on e#ec"tion* of petitionerCs properties as well as initiating si%ilar acts of le!ying )"pon* and selling on e#ec"tion other properties of said petitioner". The in2"nction th"s granted as %odified by the words in parenthesis shall re%ain in force "ntil Ci!il Case No. 4,333 shall ha!e been finally ter%inated. In (P No. .34H; we grant the petition for certiorari and accordingly NILLIAM and (7T A(I67 for ha!ing been iss"ed in e#cess of 2"risdiction the 8rder of ,; Aebr"ary ,--. in Ci!il Case No. R-;:+H; as well as any other order or process thro"gh which the petitioner is %ade liable "nder the 2"dg%ent in said Ci!il Case No. R-;:+H;. Iss.e1<N the 2"dg%ent in fa!or of petitioner %ay be e#ec"ted against respondent &eneral Credit Corporation R.lingIt is the contention of &CC that it is a corporation separate and distinct fro% CCC-RC and therefore its properties %ay not be le!ied "pon to satisfy the %onetary 2"dg%ent in fa!or of petitioner. In short respondent raises corporate fiction as its defense. 0ence we are necessarily called "pon to apply the doctrine of piercing the !eil of corporate entity in order to deter%ine if &eneral Credit Corporation for%erly CCC %ay be held liable for the obligations of CCC-RC. The defense of separateness will be disregarded where the b"siness affairs of a s"bsidiary corporation are so controlled by the %other corporation to the e#tent that it beco%es an instr"%ent or agent of its parent. 5"t e!en when there is do%inance o!er the affairs of the s"bsidiary the doctrine of piercing the !eil of corporate fiction applies only when s"ch fiction is "sed to defeat p"blic con!enience 2"stify wrong protect fra"d or defend cri%e. It is ob!io"s that the "se by CCC-RC of the sa%e na%e of Co%%ercial Credit Corporation was intended to p"blicly identify it as a co%ponent of the CCC gro"p of co%panies engaged in one and the sa%e b"siness i.e. in!est%ent and financing. Aside fro% CCC-R"e$on City other franchise co%panies were organi$ed s"ch as CCC-North Manila and CCC-Cagayan 'alley. The organi$ation of s"bsidiary corporations as what was done here is "s"ally resorted to for the aggr"pation of capital the ability to co!er %ore territory and pop"lation the decentrali$ation of acti!ities best decentrali$ed and the sec"ring of other legiti%ate ad!antages. 5"t when the %other corporation and its s"bsidiary cease to act in good faith and honest b"siness 2"dg%ent when the corporate de!ice is "sed by the parent to a!oid its liability for legiti%ate obligations of the s"bsidiary and when the corporate fiction is "sed to perpetrate fra"d or pro%ote in2"stice the law steps in to re%edy the proble%. 1hen that happens the corporate character is not necessarily abrogated. It

contin"es for legiti%ate ob2ecti!es. 0owe!er it is pierced in order to re%edy in2"stice s"ch as that inflicted in this case. Aact"ally and legally the CCC had do%inant control of the b"siness operations of CCC-RC. The e#cl"si!e %anage%ent contract ins"red that CCC-RC wo"ld be %anaged and controlled by CCC and wo"ld not de!iate fro% the co%%ands of the %other corporation. In addition to the e#cl"si!e %anage%ent contract CCC appointed its own e%ployee petitioner as the resident %anager of CCC-RC. Petitioner/s designation as =resident %anager> i%plies that he was placed in CCC-RC by a s"perior a"thority. In fact e!en after his assign%ent to the s"bsidiary corporation petitioner contin"ed to recei!e his salaries allowances and benefits fro% CCC which later beca%e respondent &eneral Credit Corporation. Not only that. Petitioner and the other per%anent e%ployees of CCC-RC were G"alified %e%bers and participants of the 7%ployees Pension Plan of CCC. There are other indications in the record which attest to the applicability of the identity r"le in this case na%ely? the "nity of interests %anage%ent and control@ the transfer of f"nds to s"it their indi!id"al corporate con!eniences@ and the do%inance of policy and practice by the %other corporation ins"re that CCC-RC was an instr"%entality or agency of CCC. As petitioner stresses both CCC and CCC-RC were engaged in the sa%e principal line of b"siness in!ol!ing a single transaction process. Inder their disco"nting arrange%ents CCC financed the operations of CCC-RC. The s"bsidiary sold disco"nted or assigned its acco"nts recei!ables to CCC. Aaced with the financial obligations which CCC-RC had to satisfy the %other fir% closed CCC-RC in ob!io"s fra"d of its creditors. CCC-RC instead of opposing its clos"re cooperated in its own de%ise. Con!eniently CCC-RC stated in its opposition to the %otion for alias writ of e#ec"tion that all its properties and assets had been transferred and taken o!er by CCC. Inder the foregoing circ"%stances the contention of respondent &eneral Credit Corporation the new na%e of CCC that the corporate fiction sho"ld be appreciated in its fa!or is witho"t %erit. Paraphrasing the r"ling in Claparols v. Court of -ndustrial =elations# reiterated in Concept Builders -nc. v. National Labor =elations it is !ery ob!io"s that respondent =seeks the protecti!e shield of a corporate fiction whose !eil the present case co"ld and sho"ld be pierced as it was deliberately and %alicio"sly designed to e!ade its financial obligation of its e%ployees.> If the corporate fiction is s"stained it beco%es a handy deception to a!oid a 2"dg%ent debt and work an in2"stice. The decision raised to "s for re!iew is an in!itation to %"ltiplicity of litigation. As we stated in -slamic ;irectorate vs. Court of Appeals# the ends of 2"stice are not ser!ed if f"rther litigation is enco"raged when the iss"e is deter%inable based on the records. A co"rt 2"dg%ent beco%es "seless and ineffecti!e if the e%ployer in this case CCC as a %other corporation is placed beyond the legal reach of the 2"dg%ent creditor who after protracted litigation has been fo"nd entitled to positi!e relief. Co"rts ha!e been organi$ed to p"t an end to contro!ersy. This p"rpose sho"ld not be negated by an inapplicable and wrong "se of the fiction of the corporate !eil.

2a$.4eni Vs# Li$ag &*)2 SCRA )20+ ,actsMar"beni Corporation is a foreign corporation organi$ed and e#isting "nder the laws of Japan. It was doing b"siness in the Philippines thro"gh its d"ly licensed wholly owned s"bsidiary Mar"beni Philippines Corporation. Petitioners 9yoichi Tanaka 9yohei Di%"ra and (hoichi 8ne were officers of Mar"beni assigned to its Philippine branch. Aeli# Lirag filed with the 9egional Trial Co"rt Makati a co%plaint for specific perfor%ance and da%ages clai%ing that petitioners owed hi% the s"% of P4 ::: :::.:: representing co%%ission p"rs"ant to an oral cons"ltancy agree%ent with Mar"beni. Lirag clai%ed that 9yohei Di%"ra hired his cons"ltancy gro"p for the p"rpose of obtaining go!ern%ent contracts of !ario"s pro2ects. Di%"ra a"thori$ed hi% to work on the following pro2ects? ),* National Telephone Pro2ect ).* 9egional Teleco%%"nications Pro2ect@ );* Cargo 0andling 7G"ip%ent@ )B* Mariti%e Co%%"nications@ )+* Philippine National 9ailways 6epot@ and )4* 5"rea" of Posts )Phase II*. Petitioners pro%ised to pay hi% si# percent )4N* cons"ltancy fee based on the total costs of the pro2ects obtained. The cons"ltancy agree%ent was not red"ced into writing beca"se of the %"t"al tr"st between Mar"beni and the Lirag fa%ily. Their close b"siness and personal relationship dates back to ,-4: when respondentCs fa%ily was engaged in the te#tile fabric %an"fact"ring b"siness in which Mar"beni s"pplied the needed %achinery eG"ip%ent spare parts and raw %aterials.

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In co%pliance with the agree%ent respondent Lirag %ade representations with !ario"s go!ern%ent officials arranged for %eetings and conferences relayed pertinent infor%ation as well as s"b%itted feasibility st"dies and pro2ect proposals incl"ding pertinent doc"%ents reG"ired by petitioners. As petitioners had been i%pressed with respondentCs perfor%ance si# )4* additional pro2ects were gi!en to his gro"p "nder the sa%e "ndertaking. 8ne of the pro2ects handled by respondent Lirag the 5"rea" of Post pro2ect a%o"nting to P,:: ::: :::.:: was awarded to the "Mar"beni-(anrits" tande%." 6espite respondentCs repeated for%al !erbal de%ands for pay%ent of the agreed cons"ltancy fee petitioners did not pay. In response to the first de%and letter petitioners pro%ised to reply within fifteen ),+* days b"t they did not do so. P"rs"ant to the cons"ltancy agree%ent respondent clai%ed a co%%ission of si# percent )4N* of the total contract price or a total of P4 ::: :::.:: or in the alternati!e that he be paid the sa%e a%o"nt by way of da%ages or as the reasonable !al"e of the ser!ices he rendered to petitioners and f"rther clai%ed twenty percent ).:N* of the a%o"nt reco!erable as attorneyCs fees and the costs of s"it. Petitioners denied the cons"ltancy agree%ent. Petitioner 9yohei Di%"ra did not ha!e the a"thority to enter into s"ch agree%ent in behalf of Mar"beni. 8nly Mr. Morihiko Mar"ya%a the general %anager "pon iss"ance of a special power of attorney by the principal office in Tokyo Japan co"ld enter into any contract in behalf of the corporation. Mr. Mar"ya%a did not disc"ss with respondent Lirag any of the %atters alleged in the co%plaint nor agreed to the pay%ent of co%%ission. Moreo!er Mar"beni did not participate in the bidding for the 5"rea" of Post pro2ect nor benefited fro% the s"pposed pro2ect. Th"s petitioners %o!ed for the dis%issal of the co%plaint. The trial co"rt pro%"lgated a decision and r"led that respondent is entitled to a co%%ission. 9espondent was led to belie!e that there e#isted an oral cons"ltancy agree%ent. 0ence he perfor%ed his part of the agree%ent and helped petitioners get the pro2ect. Iss.e),* 1<N there was a cons"ltancy agree%ent between petitioners and respondent@ and corollary to this ).* 1<N respondent is entitled to recei!e a co%%ission if there was in fact a cons"ltancy agree%ent R.lingAs a general r"le fact"al findings of the Co"rt of Appeals are concl"si!e on the parties and are not re!iewed by the ("pre%e Co"rt W and they carry e!en %ore weight when the Co"rt of Appeals affir%ed the fact"al findings of the trial co"rt. It is not the f"nction of the ("pre%e Co"rt to weigh anew the e!idence passed "pon by the Co"rt of Appeals. Moreo!er only G"estions of law %ay be raised before the ("pre%e Co"rt in a petition for re!iew "nder 9"le B+ of the 9e!ised 9"les of Co"rt. 0owe!er the r"le is s"b2ect to e#ceptions s"ch as when the concl"sion is gro"nded on spec"lation s"r%ises or con2ect"res as in the instant case. An assid"o"s scr"tiny of the testi%onial and doc"%entary e!idence e#tant leads "s to the concl"sion that the e!idence co"ld not s"pport a solid concl"sion that a cons"ltancy agree%ent oral or written was agreed between petitioners and respondent. 9espondent atte%pted to fortify his own testi%ony by presenting se!eral corroborati!e witnesses. 0owe!er what was apparent in the testi%onies of these witnesses was the fact that they learned abo"t the e#istence of the cons"ltancy agree%ent only beca"se that was what respondent told the%. In ci!il cases he who alleges a fact has the b"rden of pro!ing it@ a %ere allegation is not e!idence. 0e %"st establish his ca"se by a preponderance of e!idence which respondent failed to establish in the instant case. Ass"%ing for the sake of arg"%ent that an oral cons"ltancy agree%ent has been perfected between the parties respondent Lirag co"ld not still clai% fees on the pro2ect that has not been awarded to Mar"beni. If respondentCs contentions were to be taken as tr"th he wo"ld be entitled to 4N cons"lting fee based on the total cost of the pro2ects obtained or on s"ccess basis. 0owe!er e!en respondent ad%itted that the 5"rea" of Post pro2ect was not awarded to Mar"beni b"t to (anrits". Mar"beni did not e!en 2oin the bidding for the 5"rea" of Post pro2ect. 9espondent co"ld not clai% fro% (anrits" beca"se of the absence of any agree%ent between hi% and the latter. 9espondent tried to 2"stify his co%%ission of ro"ghly abo"t P4 ::: :::.:: in the g"ise that Mar"beni and (anrits" are sister corporations thereby i%plying the need to pierce the !eil of corporate fiction. 9espondent clai%ed that Mar"beni as the s"pplier and real contractor of the pro2ect hired and s"bcontracted the pro2ect to (anrits". Not beca"se two foreign co%panies ca%e

fro% the sa%e co"ntry and closely worked together on certain pro2ects wo"ld the concl"sion arise that one was the cond"it of the other th"s piercing the !eil of corporate fiction. To disregard the separate 2"ridical personality of a corporation the wrongdoing %"st be clearly and con!incingly established. It cannot be pres"%ed. The separate personality of the corporation %ay be disregarded only when the corporation is "sed as a cloak or co!er for fra"d or illegality or to work in2"stice or where necessary for the protection of creditors. 1e co"ld not 2"st rely on respondentCs testi%ony regarding the e#istence of the "Mar"beni-(anrits" tande%" to 2"stify his clai% for pay%ent of co%%ission. This concl"sion is too con2ect"ral to be belie!ed. Aside fro% the self-ser!ing testi%ony of respondent regarding the e#istence of a close working relationship between Mar"beni and (anrits" there was nothing that wo"ld s"pport the concl"sion that (anrits" was an agent of Mar"beni. In the instant case the parties did not reach the second stage as the headG"arters in Tokyo Japan did not see it fit to hire a cons"ltant as they decided not to participate in the bidding. 0ence no cons"ltancy agree%ent was perfected whether oral or written. There was no absol"te acceptance of respondentCs offer of cons"ltancy ser!ices. In light of the foregoing we r"le that the preponderance of e!idence established no cons"ltancy agree%ent between petitioners and respondent fro% which the latter co"ld anchor his clai% for a si# percent )4N* cons"ltancy fee on a pro2ect that was not awarded to petitioners. ,$ancisco 2oto$s Vs# CA &*09 SCRA (2+ ,actsArancisco Motors filed a co%plaint against (po"ses &regorio and Librada Man"el to reco!er three tho"sand fo"r h"ndred twel!e and si# centa!os )P; B,..:4* representing the balance of the 2eep body p"rchased by the Man"els fro% petitioner@ an additional s"% of twenty tho"sand fo"r h"ndred fifty-fo"r and eighty centa!os )P.: B+B.H:* representing the "npaid balance on the cost of repair of the !ehicle@ and si# tho"sand pesos )P4 :::.::* for cost of s"it and attorneyCs fees. To the original balance on the price of 2eep body were added the costs of repair. Pri!ate respondents interposed a co"nterclai% for "npaid legal ser!ices by &regorio Man"el in the a%o"nt of fifty tho"sand pesos )P+: :::* which was not paid by the incorporators directors and officers of the petitioner. Pri!ate respondent &regorio Man"el alleged that while he was petitionerCs Assistant Legal 8fficer he represented %e%bers of the Arancisco fa%ily in the intestate estate proceedings of the late 5enita Trinidad. 0owe!er e!en after the ter%ination of the proceedings his ser!ices were not paid. (aid fa%ily %e%bers he said were also incorporators directors and officers of petitioner. 0ence to petitionerCs collection s"it he filed a co"nter per%issi!e co"nterclai% for the "npaid attorneyCs fees. The trial co"rt r"led in fa!or of pri!ate respondents and fo"nd that &regorio Man"el indeed rendered legal ser!ices to the Arancisco fa%ily in (pecial Proceedings N"%ber 3H:; W "In the Matter of Intestate 7state of 5enita Trinidad". (aid co"rt also fo"nd that his legal ser!ices were not co%pensated despite repeated de%ands and th"s ordered petitioner to pay hi% the a%o"nt of fifty tho"sand )P+: :::.::* pesos. The trial co"rt also decided the case in fa!or of petitioner in regard to the petitionerCs clai% for %oney b"t also allowed the co"nter-clai% of pri!ate respondents. 5oth parties appealed. 8n April ,+ ,--, the Co"rt of Appeals s"stained the trial co"rtCs decision. 0ence the present petition. Iss.e1<N the corporation is liable for the attorneys/ fees owing to the pri!ate respondents R.ling5asic in corporation law is the principle that a corporation has a separate personality distinct fro% its stockholders and fro% other corporations to which it %ay be connected. 0owe!er "nder the doctrine of piercing the !eil of corporate entity the corporationCs separate 2"ridical personality %ay be disregarded for e#a%ple when the corporate identity is "sed to defeat p"blic con!enience 2"stify wrong protect fra"d or defend cri%e. Also where the corporation is a %ere alter ego or b"siness cond"it of a person or where the corporation is so organi$ed and controlled and its affairs are so cond"cted as to %ake it %erely an instr"%entality agency cond"it or ad2"nct of another corporation then its distinct personality %ay be ignored. In these circ"%stances the co"rts will treat the corporation as a %ere aggr"pation of persons and the liability will directly attach to the%. The legal fiction of a

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separate corporate personality in those cited instances for reasons of p"blic policy and in the interest of 2"stice will be 2"stifiably set aside. In o"r !iew howe!er gi!en the facts and circ"%stances of this case the doctrine of piercing the corporate !eil has no rele!ant application here. 9espondent co"rt erred in per%itting the trial co"rtCs resort to this doctrine. The rationale behind piercing a corporationCs identity in a gi!en case is to re%o!e the barrier between the corporation fro% the persons co%prising it to thwart the fra"d"lent and illegal sche%es of those who "se the corporate personality as a shield for "ndertaking certain proscribed acti!ities. 0owe!er in the case at bar instead of holding certain indi!id"als or persons responsible for an alleged corporate act the sit"ation has been re!ersed. It is the petitioner as a corporation which is being ordered to answer for the personal liability of certain indi!id"al directors officers and incorporators concerned. 0ence it appears to "s that the doctrine has been t"rned "pside down beca"se of its erroneo"s in!ocation. Note that according to pri!ate respondent &regorio Man"el his ser!ices were solicited as co"nsel for %e%bers of the Arancisco fa%ily to represent the% in the intestate proceedings o!er 5enita TrinidadCs estate. These estate proceedings did not in!ol!e any b"siness of petitioner. Note also that he so"ght to collect legal fees not 2"st fro% certain Arancisco fa%ily %e%bers b"t also fro% Petitioner Corporation on the clai%s that its %anage%ent had reG"ested his ser!ices and he acceded thereto as an e%ployee of petitioner fro% who% it co"ld be ded"ced he was also recei!ing a salary. 0is %o!e to reco!er "npaid legal fees thro"gh a co"nterclai% against Arancisco Motors Corporation to offset the "npaid balance of the p"rchase and repair of a 2eep body co"ld only res"lt fro% an ob!io"s %isapprehension that petitionerCs corporate assets co"ld be "sed to answer for the liabilities of its indi!id"al directors officers and incorporators. ("ch res"lt if per%itted co"ld easily pre2"dice the corporation its own creditors and e!en other stockholders@ hence clearly iniG"ito"s to petitioner. A"rther%ore considering the nat"re of the legal ser!ices in!ol!ed whate!er obligation said incorporators directors and officers of the corporation had inc"rred it was inc"rred in their personal capacity. 1hen directors and officers of a corporation are "nable to co%pensate a party for a personal obligation it is far-fetched to allege that the corporation is perpet"ating fra"d or pro%oting in2"stice and be thereby held liable therefor by piercing its corporate !eil. 1hile there are no hard and fast r"les on disregarding separate corporate identity we %"st always be %indf"l of its f"nction and p"rpose. A co"rt sho"ld be caref"l in assessing the %ilie" where the doctrine of piercing the corporate !eil %ay be applied. 8therwise an in2"stice altho"gh "nintended %ay res"lt fro% its erroneo"s application. The personality of the corporation and those of its incorporators directors and officers in their personal capacities o"ght to be kept separate in this case. The clai% for legal fees against the concerned indi!id"al incorporators officers and directors co"ld not be properly directed against the corporation witho"t !iolating basic principles go!erning corporations. Moreo!er e!ery action W incl"ding a co"nterclai% W %"st be prosec"ted or defended in the na%e of the real party in interest. It is plainly an error to lay the clai% for legal fees of pri!ate respondent &regorio Man"el at the door of petitioner )AMC* rather than indi!id"al %e%bers of the Arancisco fa%ily. Section 20 ! De facto corporations. - The d"e incorporation of any corporation clai%ing in good faith to be a corporation "nder this Code and its right to e#ercise corporate powers shall not be inG"ired into collaterally in any pri!ate s"it to which s"ch corporation %ay be a party. ("ch inG"iry %ay be %ade by the (olicitor &eneral in a G"o warranto proceeding. Gala Vs# Ellice/Ag$o/Ind.st$ial &' 7 SCRA(27+ ,actsThe spo"ses Man"el and Alicia &ala their children &"ia 6o%ingo 8felia &ala 9a"l &ala and 9ita 5enson and their encargados 'irgilio &aleon and J"lian Jader for%ed and organi$ed the 7llice Agro-Ind"strial Corporation. As pay%ent for their s"bscriptions the &ala spo"ses transferred se!eral parcels of land located in the pro!inces of R"e$on and Lag"na to 7llice. Man"el &ala Alicia &ala and 8felia &ala s"bscribed to an additional ; .-- shares ,: 4+..+ shares and .H4.+ shares respecti!ely. The spo"ses Man"el and Alicia also acG"ired an additional ++: shares and .H, shares respecti!ely. ("bseG"ently &"ia 6o%ingo 8felia &ala 9a"l &ala 'irgilio &aleon and J"lian Jader incorporated the Margo Manage%ent and 6e!elop%ent Corporation )Margo*. Man"el &ala sold ,; ;,B of his shares in 7llice to Margo. Then Alicia &ala transferred , ::: of her shares in 7llice to a certain 'ictor de 'illa who transferred said shares to Margo. A few %onths later Alicia transferred H+B.; of her shares to 8felia &ala +:: to &"ia 6o%ingo and +:: to 9a"l &ala. Mears later Man"el &ala transferred all of his re%aining holdings in 7llice a%o"nting to . ,4B shares to 9a"l &ala and Alicia &ala transferred ,: ::: of her shares to Margo. In ,--: a special stockholders/ %eeting of Margo was held where a new board of directors was elected. The newly-elected board elected a new set of

officers where 9a"l &ala was elected as chair%an president and general %anager. 6"ring the %eeting the board appro!ed se!eral actions incl"ding the co%%ence%ent of proceedings to ann"l certain dispositions of Margo/s property %ade by Alicia &ala. The board also resol!ed to change the na%e of the corporation to M9& Manage%ent and 6e!elop%ent Corporation. (i%ilarly a special stockholders/ %eeting of 7llice was held to elect a new board of directors. A new set of corporate officers was elected and where 9a"l &ala was also elected as chair%an president and general %anager. 7llice and Margo filed against Alicia &"ia and 9ita with the (ec"rities and 7#change Co%%ission )(7C* a petition for acco"nting and restit"tion by the directors and officers and prayed that they be allowed to inspect the corporate books and doc"%ents of 7llice. (o that Alicia 9ita and &"ia initiated a co%plaint against 7llice and Margo praying for a%ong others the n"llification of the elections of directors and officers of both Margo and 7llice@ the n"llification of all board resol"tions iss"ed by Margo f by 7llice and the ret"rn of all titles to real property in the na%e of Margo and 7llice as well as all corporate papers and records of both Margo and 7llice which are in the possession and control of the respondents. These two cases were consolidated. Meanwhile d"ring the pendency of the (7C cases the shares of stock of Alicia and 8felia &ala in 7llice were le!ied and sold at p"blic a"ction to satisfy a 2"dg%ent rendered against the% in a Ci!il Case entitled A=egines Condominium v. <felia C/alaF Panes and Alicia /ala:. Thereafter the (7C rendered a Joint 6ecision in two (7C Cases 6is%issing the petition in (7C Case against Alicia 9ita and &"ia en2oining 7llice and Margo to perfor% corporate acts as directors and officers thereof n"llifying the election of the new sets of 5oard of 6irectors and 8fficers of 7llice and Margo ordering 9a"l &ala to ret"rn all the titles of real properties in the na%es of 7llice and Margo which were "nlawf"lly taken and held by hi% and directing the 7llice to ret"rn to herein Alicia all corporate papers records of both 7llice and Margo which are in their possession and control. Th"s 7llice and Margo appealed to the (7C 6n Banc# which re!ersed and set aside the decision of the 0earing 8fficer and a new one hereby rendered. Accordingly Alicia &ala and &"ia &. 6o%ingo are ordered as follows? ),* 2ointly and solidarily pay 7LLIC7 and<or MA9&8 the a%o"nt of P3:: :::.:: representing the consideration for the "na"thori$ed sale of a parcel of land to L"cky 0o%es and 6e!elop%ent Corporation@ ).* 2ointly and se!erally pay 7LLIC7 and MA9&8 the proceeds of sales of agric"lt"ral prod"cts a!eraging P,.: :::.:: per %onth fro% Aebr"ary ,3 ,-HH@ );* 2ointly and se!erally inde%nify the appellants P-: :::.:: as attorney/s fees@ )B* 2ointly and solidarily pay the costs of s"it@ )+* t"rn o!er to the indi!id"al appellants the corporate records of 7LLIC7 and MA9&8 in their possession@ and )4* desist and refrain fro% interfering with the %anage%ent of 7LLIC7 and MA9&8. Petitioners filed a petition for re!iew with the Co"rt of Appeals which dis%issed the petition for re!iew and affir%ed the decision of the (7C 6n Banc. 0ence this petition. Iss.eI 107T079 89 N8T T07 L8179 C8I9T 79976 IN N8T 67CLA9IN& A( ILL7&AL AN6 C8NT9A9M T8 PI5LIC P8LICM T07 PI9P8(7( AN6 MANN79 IN 10IC0 97(P8N67NT C89P89ATI8N( 1797 89&ANIX76 P 10IC0 1797 7.&. T8 ),* =P97'7NT T07 &ALA 7(TAT7 A98M 57IN& 598I&0T IN679 T07 C8'79A&7> 8A T07 C8MP9707N(I'7 A&9A9IAN 97A89M P98&9AM )CA9P* AN6 ).* PI9P89T76LM A89 =7(TAT7 PLANNIN&.> II 107T079 89 N8T T07 L8179 C8I9T 79976 ),* IN (I(PICI8I(LM 97(8L'IN& T07 CA(7 1IT0IN T18 ).* 6AM( A98M 97C7IPT 8A 97(P8N67NT(/ C8MM7NT@ AN6 ).* IN N<, MADIN& A 67T79MINATI8N 8A T07 I((I7( 8A AACT( AN6 IN(T7A6 9ITIALLM CITIN& T07 AACTIAL AIN6IN&( 8A T07 C8MMI((I8N A 78< 1IT08IT 6I(CI((I8N AN6 ANALM(I(@

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III 107T079 89 N8T T07 L8179 C8I9T 79976 IN 9ILIN& T0AT T07 89&ANIXATI8N 8A 97(P8N67NT C89P89ATI8N( 1A( N8T ILL7&AL A89 67P9I'IN& P7TITI8N79 9ITA &. 57N(8N 8A 079 L7&ITIM7. I' 107T079 89 N8T T07 L8179 C8I9T 79976 IN N8T PI79CIN& T07 '7IL( 8A C89P89AT7 AICTI8N 8A 97(P8N67NT( C89P89ATI8N( 7LLIC7 AN6 MA9&8. R.ling,. The petitioners/ first contention in s"pport of this theory is that the p"rposes for which 7llice and Margo were organi$ed sho"ld be declared as illegal and contrary to p"blic policy. They clai% that the respondents ne!er p"rs"ed e#e%ption fro% land refor% co!erage in good faith and instead %erely "sed the corporations as tools to circ"%!ent land refor% laws and to a!oid estate ta#es. (pecifically they point o"t that respondents ha!e not shown that the transfers of the land in fa!or of 7llice were e#ec"ted in co%pliance with the reG"ire%ents of (ection ,; of 9.A. ;HBB. A"rther%ore they alleged that respondent corporations were r"n witho"t any of the con!entional corporate for%alities. At the o"tset the Co"rt holds that petitioners/ contentions i%p"gning the legality of the p"rposes for which 7llice and Margo were organi$ed a%o"nt to collateral attacks which are prohibited in this 2"risdiction. (ection .: of the Corporation Code pro!ides that =the d"e incorporation of any corporation clai%ing in good faith to be a corporation "nder this Code and its right to e#ercise corporate powers shall not be inG"ired into collaterally in any pri!ate s"it to which s"ch corporation %aybe a party. ("ch inG"iry %ay be %ade by the (olicitor &eneral in a G"o warranto proceeding.> The best proof of the p"rpose of a corporation is its articles of incorporation and by-laws. The articles of incorporation %"st state the pri%ary and secondary p"rposes of the corporation while the by-laws o"tline the ad%inistrati!e organi$ation of the corporation which in t"rn is s"pposed to ins"re or facilitate the acco%plish%ent of said p"rpose. In the case at bar a per"sal of the Articles of Incorporation of 7llice and Margo shows no sign of the allegedly illegal p"rposes that petitioners are co%plaining of. It is well to note that if a corporation/s p"rpose as stated in the Articles of Incorporation is lawf"l then the (7C has no a"thority to inG"ire whether the corporation has p"rposes other than those stated and %anda%"s will lie to co%pel it to iss"e the certificate of incorporation. Ass"%ing there was e!en a grain of tr"th to the petitioners/ clai%s regarding the legality of what are alleged to be the corporation/s tr"e p"rposes we are still precl"ded fro% granting the% relief. 1e cannot address here their concerns regarding circ"%!ention of land refor% laws for the doctrine of pri%ary 2"risdiction precl"des a co"rt fro% arrogating "nto itself the a"thority to resol!e a contro!ersy the 2"risdiction o!er which is initially lodged with an ad%inistrati!e body of special co%petence. (ince pri%ary 2"risdiction o!er any !iolation of (ection ,; of 9ep"blic Act No. ;HBB that %ay ha!e been co%%itted is !ested in the 6epart%ent of Agrarian 9efor% Ad2"dication 5oard )6A9A5* then it is with said ad%inistrati!e agency that the petitioners %"st first plead their case. 1ith regard to their clai% that 7llice and Margo were %eant to be "sed as %ere tools for the a!oidance of estate ta#es s"ffice it say that the legal right of a ta#payer to red"ce the a%o"nt of what otherwise co"ld be his ta#es or altogether a!oid the% by %eans which the law per%its cannot be do"bted. The petitioners/ allegation that 7llice and Margo were r"n witho"t any of the typical corporate for%alities e!en if tr"e wo"ld not %erit the grant of any of the relief set forth in their prayer. 1e cannot disregard the corporate entities of 7llice and Margo on this gro"nd. At %ost s"ch allegations if pro!en to be tr"e sho"ld be addressed in an ad%inistrati!e case before the (7C. Th"s e!en if 7llice and Margo were organi$ed for the p"rpose of e#e%pting the properties of the &ala spo"ses fro% the co!erage of land refor% legislation and a!oiding estate ta#es we cannot disregard their separate 2"ridical personalities. .. Ne#t petitioners %ake %"ch of the fact that the Co"rt of Appeals pro%"lgated its assailed 6ecision a %ere two days fro% the ti%e the respondents filed their Co%%ent. They alleged that the appellate co"rt co"ld not ha!e %ade a deliberate st"dy of the fact"al G"estions in the case considering the sheer !ol"%e of e!idence a!ailable. In s"pport of this allegation they point o"t that the Co"rt of Appeals %erely adopted the fact"al findings of the (7C 7n 5anc !erbati% witho"t deliberation and analysis. In People v. Mercado it was r"led that the speed with which a lower co"rt disposes of a case cannot th"s be attrib"ted to the in2"dicio"s perfor%ance of its f"nction. The two-day period between the filing of petitioners/ Co%%ent

and the pro%"lgation of the decision was s"fficient ti%e to consider their arg"%ents and to incorporate these in the decision. As long as the lower co"rt does not sacrifice the orderly ad%inistration of 2"stice in fa!or of a speedy b"t reckless disposition of a case it cannot be taken to task for rendering its decision with d"e dispatch. A"rther%ore well-settled is the r"le that the fact"al findings of the Co"rt of Appeals are concl"si!e on the parties and are not re!iewable by the ("pre%e Co"rt. They carry e!en %ore weight when the Co"rt of Appeals affir%s the fact"al findings of a lower fact-finding body. Likewise the findings of fact of ad%inistrati!e bodies s"ch as the (7C will not be interfered with by the co"rts in the absence of gra!e ab"se of discretion on the part of said agencies or "nless the afore%entioned findings are not s"pported by s"bstantial e!idence. 0owe!er in the interest of eG"ity this Co"rt has re!iewed the fact"al findings of the (7C 7n 5anc which were affir%ed in toto by the Co"rt of Appeals and has fo"nd no cogent reason to dist"rb the sa%e. Indeed we are con!inced that the arg"%ents raised by the petitioners are nothing b"t "nwarranted concl"sions of law. (pecifically they insist that the &ala spo"ses ne!er %eant to part with the ownership of the shares which are in the na%es of their children and encargados and that all transfers of property to these indi!id"als are s"pposedly !oid for being absol"tely si%"lated for lack of consideration. 0owe!er as correctly held by the (7C 7n 5anc the transfers were only relati!ely si%"lated inas%"ch as the e!ident intention of the &ala spo"ses was to donate portions of their property to their children and encargados . ;. In an atte%pt to bolster their theory that the organi$ation of the respondent corporations was illegal the petitioners a!er that the legiti%e pertaining to petitioners 9ita &. 5enson and &"ia &. 6o%ingo fro% the estate of their father had been s"b2ect to "nwarranted red"ctions as a res"lt thereof. In s"% they clai% that stockholdings in 7llice which the late Man"el &ala had assigned to the% were ins"fficient to co!er their legiti%es since 5enson was only gi!en two shares while 6o%ingo recei!ed only si#teen shares o"t of a total n"%ber of ;+ ::: iss"ed shares. The reliefs so"ght by petitioners sho"ld ha!e been raised in a proceeding for settle%ent of estate rather than in the present intra-corporate contro!ersy. If they are gen"inely interested in sec"ring that part of their late father/s property which has been reser!ed for the% in their capacity as co%p"lsory heirs then they sho"ld si%ply e#ercise their actio ad supplendam legitimam or their right of co%pletion of legiti%e. ("ch relief %"st be so"ght d"ring the distrib"tion and partition stage of a case for the settle%ent of the estate of Man"el &ala filed before a co"rt which has taken 2"risdiction o!er the settle%ent of said estate. B. Ainally the petitioners pray that the !eil of corporate fiction that shro"d both 7llice and Margo be pierced consistent with their earlier allegation that both corporations were for%ed for p"rposes contrary to law and p"blic policy. In s"% they s"b%it that the respondent corporations are %ere b"siness cond"its of the deceased Man"el &ala and th"s %ay be disregarded to pre!ent in2"stice the distortion or hiding of the tr"th or the =letting in> of a 2"st defense. 0owe!er to warrant resort to the e#traordinary re%edy of piercing the !eil of corporate fiction there %"st be proof that the corporation is being "sed as a cloak or co!er for fra"d or illegality or to work in2"stice. The petitioners ha!e failed to pro!e that 7llice and Margo were being "sed as th"s. They ha!e not presented any e!idence to show how the separate 2"ridical entities of 7llice and Margo were "sed by the respondents to co%%it fra"d"lent illegal or "n2"st acts. 0ence this contention too %"st fail. Al4e$t Vs# UniCe$sit? P.4lis"ing & * SCRA 7'+ ,actsMariano A. Albert s"ed Ini!ersity P"blishing Co. Inc. Plaintiff alleged inter alia that defendant was a corporation d"ly organi$ed and e#isting "nder the laws of the Philippines. 6efendant thro"gh Jose M. Ar"ego its President entered into a contract with Albert whereby it agreed to pay plaintiff P;: :::.:: for the e#cl"si!e right to p"blish his re!ised Co%%entaries on the 9e!ised Penal Code and for his share in pre!io"s sales of the bookCs first edition@ that defendant had "ndertaken to pay in eight G"arterly install%ents of P; 3+:.:: starting J"ly ,+ ,-BH@ that per contract fail"re to pay one install%ent wo"ld render the rest d"e@ and that defendant had failed to pay the second install%ent. 6efendant ad%itted plaintiffCs allegation of defendantCs corporate e#istence@ ad%itted the e#ec"tion and ter%s of the contract dated J"ly ,- ,-BH@ b"t alleged that it was plaintiff who breached their contract by failing to deli!er his %an"script. A"rther%ore defendant co"nterclai%ed for da%ages. Plaintiff died before trial and J"sto 9. Albert his estateCs ad%inistrator was s"bstit"ted for hi%. The Co"rt renders 2"dg%ent in fa!or of the plaintiff and against the defendant the Ini!ersity P"blishing Co. Inc. ordering the

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defendant to pay the ad%inistrator J"sto 9. Albert the s"% of P.; :::.:: with legal ErateF of interest fro% the date of the filing of this co%plaint "ntil the whole a%o"nt shall ha!e been f"lly paid. The defendant shall also pay the costs. The co"nterclai% of the defendant is hereby dis%issed for lack of e!idence. As aforesaid we red"ced the a%o"nt of da%ages to P,+ :::.:: to be e#ec"ted in f"ll. Thereafter on J"ly .. ,-4, the co"rt a quo ordered iss"ance of an e#ec"tion writ against Ini!ersity P"blishing Co. Inc. Plaintiff howe!er on A"g"st ,: ,-4, petitioned for a writ of e#ec"tion against Gose M. Aruego# as t e real defendant stating "plaintiffCs co"nsel and the (heriff of Manila disco!ered that t ere is no suc entit$ as 8niversit$ Publis ing Co.# -nc. " Plaintiff anne#ed to his petition a certification fro% the sec"rities and 7#change Co%%ission dated J"ly ;, ,-4, attesting? "The records of this Co%%ission do not show the registration of INI'79(ITM PI5LI(0IN& C8. INC. either as a corporation or partnership." "Ini!ersity P"blishing Co. Inc." co"ntered by filing thro"gh co"nsel )Jose M. Ar"egoCs own law fir%* a "%anifestation" stating that "Jose M. Ar"ego is not a party to this case " and that therefore plaintiffCs petition sho"ld be denied. Iss.e1<N Ini!ersity P"blishing can be considered a corporation considering that it is not registered with the (7C R.lingThe fact of non?registration of Ini!ersity P"blishing Co. Inc. in the (ec"rities and 7#change Co%%ission has not been disp"ted. 6efendant wo"ld only raise the point that "Ini!ersity P"blishing Co. Inc. " and not Jose M. Ar"ego is the party defendant@ thereby ass"%ing that "Ini!ersity P"blishing Co. Inc." is an e#isting corporation with an independent 2"ridical personality. Precisely howe!er on acco"nt of the non-registration it cannot be considered a corporation not e!en a corporation de facto. It has therefore no personality separate fro% Jose M. Ar"ego@ it cannot be s"ed independently. The corporation-by-estoppel doctrine has not been in!oked. At any rate the sa%e is inapplicable here. Ar"ego represented a non-e#istent entity and ind"ced not only the plaintiff b"t e!en the co"rt to belie!e in s"ch representation. 0e signed the contract as "President" of "Ini!ersity P"blishing Co. Inc. " stating that this was "a corporation d"ly organi$ed and e#isting "nder the laws of the Philippines " and ob!io"sly %isled plaintiff )Mariano A. Albert* into belie!ing the sa%e. 8ne who has ind"ced another to act "pon his willf"l %isrepresentation that a corporation was d"ly organi$ed and e#isting "nder the law cannot thereafter set "p against his !icti% the principle of corporation by estoppel. "Ini!ersity P"blishing Co. Inc." p"rported to co%e to co"rt answering the co%plaint and litigating "pon the %erits. 5"t as stated "Ini!ersity P"blishing Co. Inc." has no independent personality@ it is 2"st a na%e. Jose M. Ar"ego was in reality the one who answered and litigated thro"gh his own law fir% as co"nsel. 0e was in fact if not in na%e the defendant. In Salvatiera vs. /arlitos supra p. ;:3; we r"led? "A person acting or p"rporting to act on behalf of a corporation which has no !alid e#istence assumes suc privileges and obligations and becomes personall$ liable for contracts entered into or for other acts perfor%ed as s"ch agent." 0ad Jose M. Ar"ego been na%ed as party defendant instead of or together with "Ini!ersity P"blishing Co. Inc. " there wo"ld be no roo% for debate as to his personal liability. (ince he was not so na%ed the %atters of "day in co"rt" and "d"e process" ha!e arisen. The e!idence is patently clear that Jose M. Ar"ego acting as representati!e of a non-e#istent principal was the real party to the contract s"ed "pon@ that he was the one who reaped the benefits res"lting fro% it so %"ch so that partial pay%ents of the consideration were %ade by hi%@ that he !iolated its ter%s thereby precipitating the s"it in G"estion@ and that in the litigation he was the real defendant. Perforce in line with the ends of 2"stice responsibility "nder the 2"dg%ent falls on hi%. 1e need hardly state that sho"ld there be persons who "nder the law are liable to Ar"ego for rei%b"rse%ent or contrib"tion with respect to the pay%ent he %akes "nder the 2"dg%ent in G"estion he %ay of co"rse proceed against the% thro"gh proper re%edial %eas"res. Section 2 ! Corporation by estoppel. - All persons who ass"%e to act as a corporation knowing it to be witho"t a"thority to do so shall be liable as general partners for all debts liabilities and da%ages inc"rred or arising as a res"lt thereof? Pro!ided howe!er That when any s"ch ostensible corporation is s"ed on any transaction entered by it as a corporation or on any tort co%%itted by it as s"ch it shall not be allowed to "se as a defense its lack of corporate personality. 8n who ass"%es an obligation to an ostensible corporation as s"ch cannot resist perfor%ance thereof on the gro"nd that there was in fact no corporation.

Li: Tong Li: Vs# P"il# ,is"ing &' 7 SCRA '* + ,acts8n behalf of "8cean R"est Aishing Corporation " Antonio Ch"a and Peter Mao entered into a Contract dated Aebr"ary 3 ,--: for the p"rchase of fishing nets of !ario"s si$es fro% the Philippine Aishing &ear Ind"stries Inc. )herein respondent*. They clai%ed that they were engaged in a b"siness !ent"re with Petitioner Li% Tong Li% who howe!er was not a signatory to the agree%ent. The total price of the nets a%o"nted to P+;. :B+. Ao"r h"ndred pieces of floats worth P4H ::: were also sold to the Corporation. The b"yers howe!er failed to pay for the fishing nets and the floats@ hence pri!ate respondents filed a collection s"it against Ch"a Mao and Petitioner Li% Tong Li% with a prayer for a writ of preli%inary attach%ent. The s"it was bro"ght against the three in their capacities as general partners on the allegation that "8cean R"est Aishing Corporation" was a none#istent corporation as shown by a Certification fro% the (ec"rities and 7#change Co%%ission. 8n No!e%ber ,H ,--. the trial co"rt rendered its 6ecision r"ling that Philippine Aishing &ear Ind"stries was entitled to the 1rit of Attach%ent and that Ch"a Mao and Li% as general partners were 2ointly liable to pay respondent. The trial co"rt r"led that a partnership a%ong Li% Ch"a and Mao e#isted based ),* on the testi%onies of the witnesses presented and ).* on a Co%pro%ise Agree%ent e#ec"ted by the three in a Ci!il Case which Ch"a and Mao had bro"ght against Li% in the 9TC of Malabon for )a* a declaration of n"llity of co%%ercial doc"%ents@ )b* a refor%ation of contracts@ )c* a declaration of ownership of fishing boats@ )d* an in2"nction and )e* da%ages. Li% appealed to the Co"rt of Appeals which affir%ed the 9TC. Iss.e1<N by their acts Li% Ch"a and Mao co"ld be dee%ed to ha!e entered into a partnership R.lingArt. ,343 W 5y the contract of partnership two or %ore persons bind the%sel!es to contrib"te %oney property or ind"stry to a co%%on f"nd with the intention of di!iding the profits a%ong the%sel!es. Ch"a Mao and Li% had decided to engage in a fishing b"siness which they started by b"ying boats worth P;.;+ %illion financed by a loan sec"red fro% Jes"s Li% who was petitionerCs brother. In their Co%pro%ise Agree%ent they s"bseG"ently re!ealed their intention to pay the loan with the proceeds of the sale of the boats and to di!ide eG"ally a%ong the% the e#cess or loss. These boats the p"rchase and the repair of which were financed with borrowed %oney fell "nder the ter% "co%%on f"nd" "nder Article ,343. The contrib"tion to s"ch f"nd need not be cash or fi#ed assets@ it co"ld be an intangible like credit or ind"stry. That the parties agreed that any loss or profit fro% the sale and operation of the boats wo"ld be di!ided eG"ally a%ong the% also shows that they had indeed for%ed a partnership. Moreo!er it is clear that the partnership e#tended not only to the p"rchase of the boat b"t also to that of the nets and the floats. The fishing nets and the floats both essential to fishing were ob!io"sly acG"ired in f"rtherance of their b"siness. It wo"ld ha!e been inconcei!able for Li% to in!ol!e hi%self so %"ch in b"ying the boat b"t not in the acG"isition of the aforesaid eG"ip%ent witho"t which the b"siness co"ld not ha!e proceeded. &i!en the preceding facts it is clear that there was a%ong petitioner Ch"a and Mao a partnership engaged in the fishing b"siness. They p"rchased the boats which constit"ted the %ain assets of the partnership and they agreed that the proceeds fro% the sales and operations thereof wo"ld be di!ided a%ong the%. 'erily petitioner entered into a b"siness agree%ent with Ch"a and Mao in which debts were "ndertaken in order to finance the acG"isition and the "pgrading of the !essels which wo"ld be "sed in their fishing b"siness. The sale of the boats as well as the di!ision a%ong the three of the balance re%aining after the pay%ent of their loans pro!es beyond ca!il that 21B Lourdes tho"gh registered in his na%e was not his own property b"t an asset of the partnership. It is not "nco%%on to register the properties acG"ired fro% a loan in the na%e of the person the lender tr"sts who in this case is the petitioner hi%self. After all he is the brother of the creditor Jes"s Li%. 1e stress that it is "nreasonable W indeed it is abs"rd W for petitioner to sell his property to pay a debt he did not inc"r if the relationship a%ong the three of the% was %erely that of lessor-lessee instead of partners. Corporation b$ 6stoppel

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Petitioner arg"es that "nder the doctrine of corporation by estoppel liability can be i%p"ted only to Ch"a and Mao and not to hi%. Again we disagree. (ec. ., of the Corporation Code of the Philippines pro!ides? (ec. .,. Corporation b$ estoppel . W All persons who ass"%e to act as a corporation knowing it to be witho"t a"thority to do so shall be liable as general partners for all debts liabilities and da%ages inc"rred or arising as a res"lt thereof? Provided o&ever# That when any s"ch ostensible corporation is s"ed on any transaction entered by it as a corporation or on any tort co%%itted by it as s"ch it shall not be allowed to "se as a defense its lack of corporate personality. 8ne who ass"%es an obligation to an ostensible corporation as s"ch cannot resist perfor%ance thereof on the gro"nd that there was in fact no corporation. Th"s e!en if the ostensible corporate entity is pro!en to be legally none#istent a party %ay be estopped fro% denying its corporate e#istence. "The reason behind this doctrine is ob!io"s W an "nincorporated association has no personality and wo"ld be inco%petent to act and appropriate for itself the power and attrib"tes of a corporation as pro!ided by law@ it cannot create agents or confer a"thority on another to act in its behalf@ th"s those who act or p"rport to act as its representati!es or agents do so witho"t a"thority and at their own risk. And as it is an ele%entary principle of law that a person who acts as an agent witho"t a"thority or witho"t a principal is hi%self regarded as the principal possessed of all the right and s"b2ect to all the liabilities of a principal a person acting or p"rporting to act on behalf of a corporation which has no !alid e#istence ass"%es s"ch pri!ileges and obligations and beco%es personally liable for contracts entered into or for other acts perfor%ed as s"ch agent. The doctrine of corporation by estoppel %ay apply to the alleged corporation and to a third party. In the first instance an "nincorporated association which represented it to be a corporation will be estopped fro% denying its corporate capacity in a s"it against it by a third person who relied in good faith on s"ch representation. It cannot allege lack of personality to be s"ed to e!ade its responsibility for a contract it entered into and by !irt"e of which it recei!ed ad!antages and benefits. 8n the other hand a third party who knowing an association to be "nincorporated nonetheless treated it as a corporation and recei!ed benefits fro% it %ay be barred fro% denying its corporate e#istence in a s"it bro"ght against the alleged corporation. In s"ch case all those who benefited fro% the transaction %ade by the ostensible corporation despite knowledge of its legal defects %ay be held liable for contracts they i%pliedly assented to or took ad!antage of. There is no disp"te that the respondent Philippine Aishing &ear Ind"stries is entitled to be paid for the nets it sold. The only G"estion here is whether petitioner sho"ld be held 2ointly liable with Ch"a and Mao. Petitioner contests s"ch liability insisting that only those who dealt in the na%e of the ostensible corporation sho"ld be held liable. (ince his na%e does not appear on any of the contracts and since he ne!er directly transacted with the respondent corporation ergo he cannot be held liable. InG"estionably petitioner benefited fro% the "se of the nets fo"nd inside 21B Lourdes the boat which has earlier been pro!en to be an asset of the partnership. 0e in fact G"estions the attach%ent of the nets beca"se the 1rit has effecti!ely stopped his "se of the fishing !essel. Altho"gh it was ne!er legally for%ed for "nknown reasons this fact alone does not precl"de the liabilities of the three as contracting parties in representation of it. Clearly "nder the law on estoppel those acting on behalf of a corporation and those benefited by it knowing it to be witho"t !alid e#istence are held liable as general partners. Technically it is tr"e that petitioner did not directly act on behalf of the corporation. 0owe!er ha!ing reaped the benefits of the contract entered into by persons with who% he pre!io"sly had an e#isting relationship he is dee%ed to be part of said association and is co!ered by the scope of the doctrine of corporation by estoppel. IntDl E6%$ess Vs# CA &*'* SCRA )('+ ,actsInternational 7#press Tra!el and To"r (er!ices Inc. thro"gh its %anaging director wrote a letter to the Philippine Aootball Aederation )Aederation* thro"gh its president pri!ate respondent 0enri Dahn wherein the for%er offered its ser!ices as a tra!el agency to the latter. The offer was accepted. Petitioner sec"red the airline tickets for the trips of the athletes and officials of the Aederation to the (o"th 7ast Asian &a%es in D"ala L"%p"r as well as !ario"s other trips to the PeopleCs 9ep"blic of China and 5risbane. The total cost of the tickets a%o"nted to PBB- 4+B.H;. Aor the tickets recei!ed the Aederation %ade two partial pay%ents both in (epte%ber of ,-H- in the total a%o"nt of P,34 B43.+:.

8n B 8ctober ,-H- petitioner wrote the Aederation thro"gh the pri!ate respondent a de%and letter reG"esting for the a%o"nt of P.4+ H-B.;;. 8n ;: 8ctober ,-H- the Aederation thro"gh the Pro2ect &intong Alay paid the a%o"nt of P;, 4:;.::. 8n .3 6ece%ber ,-H- 0enri Dahn iss"ed a personal check in the a%o"nt of P+: ::: as partial pay%ent for the o"tstanding balance of the Aederation. Thereafter no f"rther pay%ents were %ade despite repeated de%ands. This pro%pted petitioner to file a ci!il case before the 9egional Trial Co"rt of Manila. Petitioner s"ed 0enri Dahn in his personal capacity and as President of the Aederation and i%pleaded the Aederation as an alternati!e defendant. Petitioner so"ght to hold 0enri Dahn liable for the "npaid balance for the tickets p"rchased by the Aederation on the gro"nd that 0enri Dahn allegedly g"aranteed the said obligation. 0enri Dahn filed a!erred that the petitioner has no ca"se of action against hi% either in his personal capacity or in his official capacity as president of the Aederation. 0e %aintained that he did not g"arantee pay%ent b"t %erely acted as an agent of the Aederation which has a separate and distinct 2"ridical personality. 8n the other hand the Aederation failed to file its answer hence was declared in defa"lt by the trial co"rt. In d"e co"rse the trial co"rt rendered 2"dg%ent and r"led in fa!or of the petitioner and declared 0enri Dahn personally liable for the "npaid obligation of the Aederation. 8nly 0enri Dahn ele!ated the abo!e decision to the Co"rt of Appeals which re!ersed the trial co"rt. Iss.e1<N 0enri Dahn personally liable for the obligation of the "nincorporated PAA ha!ing negotiated with petitioner and contracted the obligation in behalf of the PAA %ade a partial pay%ent and ass"red petitioner of f"lly settling the obligation R.ling5efore an entity %ay be considered as a national sports association s"ch entity %"st be recogni$ed by the accrediting organi$ation the Philippine A%ate"r Athletic Aederation "nder 9.A. ;,;+ and the 6epart%ent of Mo"th and (ports 6e!elop%ent "nder P.6. 4:B. This fact of recognition howe!er 0enri Dahn failed to s"bstantiate. In atte%pting to pro!e the 2"ridical e#istence of the Aederation 0enri Dahn attached to his %otion for reconsideration before the trial co"rt a copy of the constit"tion and by-laws of the Philippine Aootball Aederation. Infort"nately the sa%e does not pro!e that said Aederation has indeed been recogni$ed and accredited by either the Philippine A%ate"r Athletic Aederation or the 6epart%ent of Mo"th and (ports 6e!elop%ent. Accordingly we r"le that the Philippine Aootball Aederation is not a national sports association within the p"r!iew of the afore%entioned laws and does not ha!e corporate e#istence of its own. Th"s being said it follows that pri!ate respondent 0enry Dahn sho"ld be held liable for the "npaid obligations of the "nincorporated Philippine Aootball Aederation. It is a settled principal in corporation law that any person acting or p"rporting to act on behalf of a corporation which has no !alid e#istence ass"%es s"ch pri!ileges and beco%es personally liable for contract entered into or for other acts perfor%ed as s"ch agent. As president of the Aederation 0enri Dahn is pres"%ed to ha!e known abo"t the corporate e#istence or none#istence of the Aederation. 1e cannot s"bscribe to the position taken by the appellate co"rt that e!en ass"%ing that the Aederation was defecti!ely incorporated@ the petitioner cannot deny the corporate e#istence of the Aederation beca"se it had contracted and dealt with the Aederation in s"ch a %anner as to recogni$e and in effect ad%it its e#istence. The doctrine of corporation by estoppel is %istakenly applied by the respondent co"rt to the petitioner. The application of the doctrine applies to a third party only when he tries to escape liability on a contract fro% which he has benefited on the irrele!ant gro"nd of defecti!e incorporation. In the case at bar the petitioner is not trying to escape liability fro% the contract b"t rather is the one clai%ing fro% the contract. 2e$$il L?nc" Vs# CA &2 ,acts8n No!e%ber .; ,-H3 Merrill Lynch A"t"res Inc. )hereafter si%ply ML AITI97(* filed a co%plaint with the 9egional Trial Co"rt at R"e$on City against the (po"ses Pedro M. Lara and 7lisa &. Lara for the reco!ery of a debt and interest thereon da%ages and attorneyCs fees. ML AITI97( is a a non-resident foreign corporation not doing b"siness in the Philippines d"ly organi$ed and e#isting "nder and by !irt"e of the laws of the state of 6elaware I.(.A.@" as well as b* a "f"t"res co%%ission %erchant" d"ly licensed to act as s"ch in the f"t"res %arkets and e#changes in the Inited (tates . . .essentially f"nctioning as a broker. . .)e#ec"ting* orders to b"y and sell f"t"res contracts recei!ed fro% its c"sto%ers on I.(. f"t"res e#changes. SCRA 72'+

39

It also defined a "f"t"res contract" as a "contract"al co%%it%ent to b"y and sell a standardi$ed G"antity of a partic"lar ite% at a specified f"t"re settle%ent date and at a price agreed "pon with the p"rchase or sale being e#ec"ted on a reg"lated f"t"res e#change." ML AITI97( alleged it entered into a A"t"res C"sto%er Agree%ent with the defendant spo"ses in !irt"e of which it agreed to act as the latterCs broker for the p"rchase and sale of f"t"res contracts in the I.(. P"rs"ant to the contract orders to b"y and sell f"t"res contracts were trans%itted to ML AITI97( by the Lara (po"ses "thro"gh the facilities of Merrill Lynch Philippines Inc. a Philippine corporation and a co%pany ser!icing plaintiffs c"sto%ers. The Lara (po"ses "knew and were d"ly ad!ised that Merrill Lynch Philippines Inc. was not a broker in f"t"res contracts " and that it "did not ha!e a license fro% the (ec"rities and 7#change Co%%ission to operate as a co%%odity trading ad!isor ) i e . Can entity which not being a broker f"rnishes ad!ice on co%%odity f"t"res to persons who trade in f"t"res contractsC*. The Lara (po"ses acti!ely traded in f"t"res contracts incl"ding "stock inde# f"t"res" for fo"r years or so i e . fro% ,-H; to 8ctober ,-H3 there being %ore or less reg"lar acco"nting and corresponding re%ittances of %oney )or crediting or debiting* %ade between the spo"ses and ML AITI97(. 5eca"se of a loss a%o"nting said spo"ses beca%e indebted to ML AITI97( for the ens"ing balance of I(KHB H;4..3 which the latter asked the% to pay. 0owe!er the Lara (po"ses howe!er ref"sed to pay this balance "alleging that the transactions were n"ll and !oid beca"se Merrill Lynch Philippines Inc. the Philippine co%pany ser!icing acco"nts of plaintiff had no license to operate as a Cco%%odity and<or financial f"t"res broker.> Iss.e1<N ML AITI97( %ay s"e in Philippine Co"rts to establish and enforce its rights against said spo"ses in light of the "ndeniable fact that it had transacted b"siness in this co"ntry witho"t being licensed to do so R.lingIf it be tr"e that d"ring all the ti%e that they were transacting with ML AITI97( the Laras were f"lly aware of its lack of license to do b"siness in the Philippines and in relation to those transactions had %ade pay%ents to and recei!ed %oney fro% it for se!eral years the G"estion is whether or not the Lara (po"ses are now estopped to i%p"gn ML AITI97(C capacity to s"e the% in the co"rts of the for"%. The r"le is that a party is estopped to challenge the personality of a corporation after ha!ing acknowledged the sa%e by entering into a contract with it. And the "doctrine of estoppel to deny corporate e#istence applies to foreign as well as to do%estic corporations@" "one who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate e#istence and capacity." The principle "will be applied to pre!ent a person contracting with a foreign corporation fro% later taking ad!antage of its nonco%pliance with the stat"tes chiefly in cases where s"ch person has recei!ed the benefits of the contract where s"ch person has acted as agent for the corporation and has !iolated his fid"ciary obligations as s"ch and where the stat"te does not pro!ide that the contract shall be !oid b"t %erely fi#es a special penalty for !iolation of the stat"te. . . ." The doctrine was adopted by this Co"rt as early as ,-.B in Asia Ban%ing Corporation v. Standard Products Co. in which the following prono"nce%ent was %ade? The general r"le that in the absence of fra"d of person who has contracted or otherwise dealt with an association in s"ch a way as to recogni$e and in effect ad%it its legal e#istence as a corporate body is thereby estopped to deny its corporate e#istence in any action leading o"t of or in!ol!ing s"ch contract or dealing "nless its e#istence is attacked for ca"ses which ha!e arisen since %aking the contract or other dealing relied on as an estoppel and t is applies to foreign as &ell as domestic corporations . There wo"ld see% to be no G"estion that the Laras recei!ed benefits generated by their b"siness relations with ML AITI97(. Those b"siness relations according to the Laras the%sel!es spanned a period of se!en )3* years@ and they e!idently fo"nd those relations to be of s"ch profitability as warranted their %aintaining the% for that not insignificant period of ti%e@ otherwise it is reasonably certain that they wo"ld ha!e ter%inated their dealings with ML AITI97( %"ch %"ch earlier. In fact e!en as regards their last transaction in which the Laras allegedly s"ffered a loss in the s"% of I(K,4: 3B-.4- the Laras nonetheless still recei!ed so%e %onetary ad!antage for ML AITI97( credited the% with the a%o"nt of I(K3+ -,;.B. then d"e to the% th"s red"cing their debt to I(KHB H;4..3. &i!en these facts and ass"%ing that the Lara (po"ses were aware fro% the o"tset that ML AITI97( had no license to do b"siness in this co"ntry and MLPI no a"thority to act as broker for it it wo"ld appear G"ite ineG"itable for the Laras to e!ade pay%ent of an otherwise legiti%ate indebtedness d"e and owing to ML AITI97( "pon the plea that it sho"ld not ha!e done b"siness in this co"ntry in the first place or that its agent in this co"ntry MLPI had no license either to operate as a "co%%odity and<or financial f"t"res broker." Considerations of eG"ity dictate that at the !ery least the iss"e of whether the Laras are in tr"th liable to ML AITI97( and if so in what a%o"nt and whether they were so far aware of the absence of the reG"isite licenses on the part of ML AITI97( and its Philippine correspondent MLPI as to be

estopped fro% alleging that fact as defense to s"ch liability sho"ld be !entilated and ad2"dicated on the %erits by the proper trial co"rt. Section 22 / ffects on non-use of corporate charter and continuous inoperation of a corporation. - If a corporation does not for%ally organi$e and co%%ence the transaction of its b"siness or the constr"ction of its works within two ).* years fro% the date of its incorporation its corporate powers cease and the corporation shall be dee%ed dissol!ed. 0owe!er if a corporation has co%%enced the transaction of its b"siness b"t s"bseG"ently beco%es contin"o"sly inoperati!e for a period of at least fi!e )+* years the sa%e shall be a gro"nd for the s"spension or re!ocation of its corporate franchise or certificate of incorporation. This pro!ision shall not apply if the fail"re to organi$e co%%ence the transaction of its b"sinesses or the constr"ction of its works or to contin"o"sly operate is d"e to ca"ses beyond the control of the corporation as %ay be deter%ined by the (ec"rities and 7#change Co%%ission.

TITLE III BOARD O, DIRECTORSJTRUSTEESJO,,ICERS Section 2* ! &he board of directors or trustees. - Inless otherwise pro!ided in this Code the corporate powers of all corporations for%ed "nder this Code shall be e#ercised all b"siness cond"cted and all property of s"ch corporations controlled and held by the board of directors or tr"stees to be elected fro% a%ong the holders of stocks or where there is no stock fro% a%ong the %e%bers of the corporation who shall hold office for one ),* year "ntil their s"ccessors are elected and G"alified. 7!ery director %"st own at least one ),* share of the capital stock of the corporation of which he is a director which share shall stand in his na%e on the books of the corporation. Any director who ceases to be the owner of at least one ),* share of the capital stock of the corporation of which he is a director shall thereby cease to be a director. Tr"stees of non-stock corporations %"st be %e%bers thereof. a %a2ority of the directors or tr"stees of all corporations organi$ed "nder this Code %"st be residents of the Philippines. P"il# AssDn of Stoc5 T$ansfe$ Vs# CA &1*) SCRA ) + ,actsPhilippine Association of (tock Transfer and 9egistry Agencies Inc. is an association of stock transfer agents principally engaged in the registration of stock transfers in the stock-and-transfer book of corporations. Petitioner/s 5oard of 6irectors "nani%o"sly appro!ed a resol"tion allowing its %e%bers to increase the transfer processing fee they charge their clients fro% PB+ per certificate to P3+ per certificate effecti!e J"ly , ,--4@ and e!ent"ally to P,:: per certificate effecti!e 8ctober , ,--4. The resol"tion also a"thori$ed the i%position of a processing fee for the cancellation of stock certificates at P.: per certificate effecti!e J"ly , ,--4. According to petitioner the rates had to be increased since it had been o!er fi!e years since the old rates were fi#ed and an increase of its fees was needed to s"stain the financial !iability of the association and "pgrade facilities and ser!ices. P"blic respondent (ec"rities and 7#change Co%%ission )(7C* allowed petitioner to i%pose the P3+ per certificate transfer fee and P.: per certificate cancellation fee effecti!e J"ly , ,--4. 5"t appro!al of the additional increase of the transfer fees to P,:: per certificate effecti!e 8ctober , ,--4 was withheld "ntil after a p"blic hearing. The (7C iss"ed a lettera"thori$ation to this effect on J"ne .: ,--4. Thereafter on J"ne .B ,--4 the Philippine Association of (ec"rities 5rokers and 6ealers Inc. registered its ob2ection to the %eas"re ad!anced by petitioner and reG"ested the (7C to defer its i%ple%entation. The (7C ad!ised petitioner to hold in abeyance the i%ple%entation of the increases "ntil the %atter was cleared with all the parties concerned. Petitioner nonetheless proceeded with the i%ple%entation of the increased fees. 8n J"ly . ,--4 following a co%plaint fro% the Philippine (tock 7#change the (7C again sent petitioner a second letter strongly "rging petitioner to desist fro% i%ple%enting the new rates in the interest of all participants in the sec"rity %arket. Petitioner also arg"ed that the i%position of the processing fee was a %anage%ent prerogati!e which was beyond the (7C/s a"thority to reg"late absent an e#press r"le or reg"lation. 8n J"ly H ,--4 the (7C iss"ed 8rder en2oining petitioner fro% i%posing the new fees.

40

6"ring the hearing petitioner ad%itted that it had started i%posing the fees. It f"rther ad%itted that aside fro% the G"estioned fees it had likewise started i%posing fees ranging fro% P+: to P+:: for report of shareholdings or list of certificates@ certification of shareholdings or other stockholder infor%ation reG"ested by e#ternal a"ditors and !alidation of stat"s of certificates all witho"t prior appro!al of the Co%%ission. Th"s for !iolating its orders the (7C ordered petitioner to pay a basic fine of P+ ::: and a daily fine of P+:: for contin"ing !iolations. Aggrie!ed petitioner went to the Co"rt of Appeals on certiorari contending that the (7C acted with gra!e ab"se of discretion or lack or e#cess of 2"risdiction in iss"ing the abo!e orders. The appellate co"rt iss"ed a te%porary restraining order on J"ly .4 ,--4 and a writ of preli%inary in2"nction on A"g"st .4 ,--4. 8n J"ne ,3 ,--H the appellate co"rt dis%issed the petition. It r"led that the power to reg"late petitioner/s fees was incl"ded in the general power gi!en to the (7C "nder (ection B: of The 9e!ised (ec"rities Act to reg"late s"per!ise e#a%ine s"spend or otherwise discontin"e the operation of sec"rities-related organi$ations like petitioner. The appellate co"rt likewise denied petitioner/s %otion for reconsideration. 0ence this appeal. Iss.e1<N the (7C acted with gra!e ab"se of discretion or lack or e#cess of 2"risdiction in iss"ing the contro!erted 8rders of J"ly H and ,, ,--4 R.ling5efore its repeal (ection B3 of The 9e!ised (ec"rities Act clearly ga!e the (7C the power to en2oin the acts or practices of sec"rities-related organi$ations e!en witho"t first cond"cting a hearing if "pon proper in!estigation or !erification the (7C is of the opinion that there e#ists the possibility that the act or practice %ay ca"se gra!e or irreparable in2"ry to the in!esting p"blic if left "nrestrained. (ection B3 clearly pro!ided (7C. B3. Cease and desist order.WThe Co%%ission after proper in!estigation or !erification motu proprio or "pon !erified co%plaint by any aggrie!ed party %ay iss"e a cease and desist order witho"t the necessity of a prior hearing if in its 2"dg%ent the act or practice "nless restrained :a? ca.se g$aCe o$ i$$e%a$a4le in@.$? o$ %$e@.dice to t"e inCesting %.4lic or %ay a%o"nt to fra"d or !iolation of the disclos"re reG"ire%ents of this Act and the r"les and reg"lations of the Co%%ission. )7%phasis s"pplied.* #### (aid section enforces the power of general s"per!ision of the (7C "nder (ection B: of the then 9e!ised (ec"rities Act. As a sec"rities-related organi$ation "nder the 2"risdiction and s"per!ision of the (7C by !irt"e of (ection B: of The 9e!ised (ec"rities Act and (ection ; of Presidential 6ecree No. -:.-A petitioner was "nder the obligation to co%ply with the J"ly H ,--4 8rder. 6efiance of the order was s"b2ect to ad%inistrati!e sanctions pro!ided in (ection B4 of The 9e!ised (ec"rities Act. Petitioner failed to show that the (7C which "ndo"btedly possessed the necessary e#pertise in %atters relating to the reg"lation of the sec"rities %arket gra!ely ab"sed its discretion in finding that there was a possibility that the increase in fees and i%position of cancellation fees will ca"se gra!e or irreparable in2"ry or pre2"dice to the in!esting p"blic. Indeed petitioner did not ad!ance any arg"%ent to co"nter the (7C/s finding. Th"s there appears to be no s"bstantial reason to n"llify the J"ly H ,--4 8rder. This is tr"e especially considering that as pointed o"t by the 8(& petitioner/s fee increases ha!e far-reaching effects on the capital %arket. Charging e#orbitant processing fees co"ld disco"rage %any s%all prospecti!e in!estors and c"rtail the inf"sion of %oney into the capital %arket and ha%per its growth. In P ilippine Stoc% 6'c ange# -nc. v. Court of Appeals# the Co"rt held that the (7C is witho"t a"thority to s"bstit"te its 2"dg%ent for that of the corporation/s board of directors on b"siness %atters so long as the board of directors acts in good faith. This Co"rt notes howe!er that this case in!ol!es not whether petitioner/s actions pertained to %anage%ent prerogati!es or whether petitioner acted in good faith. 9ather this case in!ol!es the G"estion of whether the (7C had the power to en2oin petitioner/s planned increase in fees after the (7C had deter%ined that said act if p"rs"ed %ay ca"se gra!e or irreparable in2"ry or pre2"dice to the in!esting p"blic. Petitioner was fined for !iolating the (7C/s cease-and-desist order which the (7C had iss"ed to protect the interest of the in!esting p"blic and not si%ply for e#ercising its 2"dg%ent in the %anner it dee%s appropriate for its b"siness. The reg"latory and s"per!isory powers of the Co%%ission "nder (ection B: of the then 9e!ised (ec"rities Act in o"r !iew were broad eno"gh to incl"de

the power to reg"late petitioner/s fees. Indeed (ection B3 ga!e the Co%%ission the power to en2oin motu proprio any act or practice of petitioner which co"ld ca"se gra!e or irreparable in2"ry or pre2"dice to the in!esting p"blic. The intentional o%ission in the law of any G"alification as to what acts or practices are s"b2ect to the control and s"per!ision of the (7C "nder (ection B3 confir%s the broad e#tent of the (7C/s reg"latory powers o!er the operations of sec"rities-related organi$ations like petitioner. The (7C/s a"thority to iss"e the cease-and-desist order being ind"bitable "nder (ection B3 in relation to (ection B: of the then 9e!ised (ec"rities Act and there being no showing that the (7C co%%itted gra!e ab"se of discretion in finding basis to iss"e said order we r"le that the Co"rt of Appeals co%%itted no re!ersible error in affir%ing the assailed orders. Aor its open and ad%itted defiance of a lawf"l cease-and-desist order petitioner was held appropriately liable for the pay%ent of the penalty i%posed on it in the (7C/s J"ly ,, ,--4 8rder. 2et$o Ce4. Vs# Adala &12) SCRA ')1+ In .::. Adala )respondent* applied for the iss"ance of a Certificate of P"blic Con!enience )CPC* with the National 1ater 9eso"rces 5oard )N195* to operate and %aintain waterworks syste% in certain parts of Ceb" City. At the initial hearing when Adala s"b%itted proof of co%pliance with the 2"risdictional reG"ire%ents the MC16 )petitioner* appeared thro"gh its lawyers to oppose the application. Petitioner prayed for the denial of the application on the following gro"nds? ,. petitioner/s 5oard of 6irectors had not consented to the iss"ance of the franchise applied for s"ch consent being %andatory as set forth in (ection B3 of P6 ,-H which reg"lates local water "tilities.@ .. the proposed waterworks wo"ld interfere with the petitioner/s water s"pply which it has the right to protect@ ;. the water needs of the residents in the s"b2ect area was already being well ser!ed by the petitioner. N195 dis%issed the petitioner/s opposition and fo"nd that the respondent was G"alified to operate a waterworks syste%. The Petitioner appealed the case b"t the sa%e was dis%issed by the 9TC of Ceb" City. The respondent on the other hand a!erred that the petitioner/s &eneral Manager 7ngr. Paredes who filed the present petition and signed the acco%panying !erification and certification of non- for"% shopping was not specifically a"thori$ed by the 5oard of 6irectors for that p"rpose and that the resol"tion only stated that 7ngr. Paredes was a"thori$ed to file in behalf of the MC16 e#propriation and other cases and this did not incl"de the signing of the certificate of non- for"% shopping. Petition %"st be dis%issed. Iss.eJs,.* 1hether or not the ter% Ato file in be alf of t e Metropolitan Cebu Hater ;istrict e'propriation and ot er cases: incl"de the grant of a"thority to sign the certificate of non- for"% shopping for and in behalf of the MC16. ..* 1hether or not the consent of the 5oard of 6irectors of the 1ater 6istrict is a condition sine qua non to the grant of CPC by the N195 "pon operators of waterworks within the ser!ice area of the 1ater 6istrict. R.ling,. The ter% Ato file in be alf of t e Metropolitan Cebu Hater ;istrict e'propriation and ot er cases: did not incl"de the grant of power to sign the certificate of non- for"% shopping for and in behalf of the MC16. 1hile the G"estioned resol"tion s"fficiently identifies the kind of cases which 7ngr. Paredes %ay file in petitioner/s behalf the sa%e does not a"thori$e hi% for the specific act of signing !erifications and certifications against for"%shopping for it %erely a"thori$es hi% to file cases in behalf of the corporation. There is no %ention of signing !erifications or for that %atter any doc"%ent of whate!er nat"re. A board resol"tion p"rporting to a"thori$e a person to sign doc"%ents in behalf of the corporation %"st e#plicitly !est s"ch a"thority. Inder 9"le ,; (ection . of the 9"les of Co"rt filing is the act of presenting the pleading or other paper to the clerk of co"rt. (ince the signing of !erifications and certifications against for"%- shopping is not integral to the act of filing this %ay not be dee%ed as necessarily incl"ded in an a"thori$ation %erely to file cases. 7ngr. Paredes not ha!ing been a"thori$ed to sign the !erification and certification of non- for"% shopping the instant petition %ay be dis%issed o"tright. .. The consent of the 5oard of 6irectors of MC16 was needed in granting a CPC to the respondent based on the e#press pro!ision of (ection B3 of P6 ,-H. 0owe!er this cannot be the basis of MC16 in opposing against the application of respondent Adala beca"se (ection B3 of P6 ,-H was held by the Co"rt to be "nconstit"tional since this pro!ision !ests an e#cl"si!e franchise "pon p"blic "tilities. This is fo"nd by the Co"rt to be rep"gnant to

41

Article QI' (ection + of the ,-3; Constit"tion that franchise certificate or a"thori$ation for p"blic "tility which is e#cl"si!e in character shall not be granted )the ,-3; Constit"tion was the basis of declaring the pro!ision "nconstit"tional beca"se P6 ,-H was enacted into law when the ,-3; Constit"tion was still in force*. Therefore (ection B3 of P6 ,-H cannot be relied "pon by the petitioner in s"pport of its opposition against respondent/s application. 2anila 2etal Containe$ Vs# PNB &1 ,actsPetitioner was the owner of a H :,+ sG"are %eter parcel of land located in Mandal"yong )now a City* Metro Manila. The property was co!ered by Transfer Certificate of Title )TCT* No. ;;.:-H of the 9egistry of 6eeds of 9i$al. To sec"re a P-:: :::.:: loan it had obtained fro% respondent Philippine National 5ank )PN5* petitioner e#ec"ted a real estate %ortgage o!er the lot. 9espondent PN5 later granted petitioner a new credit acco%%odation of P, ::: :::.::@ and on No!e%ber ,4 ,-3; petitioner e#ec"ted an A%end%ent of 9eal 7state Mortgage o!er its property. 8n March ;, ,-H, petitioner sec"red another loan of P4+; :::.:: fro% respondent PN5 payable in G"arterly install%ents of P;. 4+:.:: pl"s interests and other charges. 8n A"g"st + ,-H. respondent PN5 filed a petition for e#tra2"dicial foreclos"re of the real estate %ortgage and so"ght to ha!e the property sold at p"blic a"ction for P-,, +;..., petitioner/s o"tstanding obligation to respondent PN5 as of J"ne ;: ,-H. pl"s interests and attorney/s fees. After d"e notice and p"blication the property was sold at p"blic a"ction on (epte%ber .H ,-H. where respondent PN5 was declared the winning bidder for P, ::: :::.::. The Certificate of (ale iss"ed in its fa!or was registered with the 8ffice of the 9egister of 6eeds of 9i$al and was annotated at the dorsal portion of the title on Aebr"ary ,3 ,-H;. Th"s the period to redee% the property was to e#pire on Aebr"ary ,3 ,-HB. (ince petitioner failed to redee% the property the 9egister of 6eeds cancelled TCT No. ;.:-H on J"ne , ,-HB and iss"ed a new title in fa!or of respondent PN5. Petitioner/s offers had not yet been acted "pon by respondent PN5. Meanwhile the (pecial Assets Manage%ent 6epart%ent )(AM6* had prepared a state%ent of acco"nt and as of J"ne .+ ,-HB petitioner/s obligation a%o"nted to P, +3B +4:.B3. This incl"ded the bid price of P, :+4 -.B.+: interest ad!ances of ins"rance pre%i"%s ad!ances on realty ta#es registration e#penses %iscellaneo"s e#penses and p"blication cost. 1hen apprised of the state%ent of acco"nt petitioner re%itted P3.+ :::.:: to respondent PN5 as =deposit to rep"rchase > and 8fficial 9eceipt No. -3H,-, was iss"ed to it. Notwithstanding (AM6 reco%%endation to the %anage%ent of PN5 that petitioner be allowed to rep"rchase the property for P, +3B +4:.:: the PN5 %anage%ent infor%ed petitioner that it was re2ecting the offer and the reco%%endation of the (AM6. It was s"ggested that petitioner p"rchase the property for P. 44: :::.:: its %ini%"% %arket !al"e. 9espondent PN5 ga!e petitioner "ntil 6ece%ber ,+ ,-HB to act on the proposal@ otherwise its P3.+ :::.:: deposit wo"ld be ret"rned and the property wo"ld be sold to other interested b"yers. 8n J"ne B ,-H+ respondent PN5 infor%ed petitioner that the PN5 5oard of 6irectors had accepted petitioner/s offer to p"rchase the property b"t for P, -;, ;H-.+; in cash less the P3.+ :::.:: already deposited with it. 8n page two of the letter was a space abo!e the typewritten na%e of petitioner/s President Pablo &abriel where he was to affi# his signat"re. 0owe!er Pablo &abriel did not confor% to the letter b"t %erely indicated therein that he had recei!ed it. Petitioner did not respond so PN5 reG"ested petitioner in a letter dated J"ne ;: ,-HH to s"b%it an a%ended offer to rep"rchase. Meanwhile on J"ne ,3 ,--; petitioner/s 5oard of 6irectors appro!ed 9esol"tion No. ;-::B where it wai!ed assigned and transferred its rights o!er the property co!ered by TCT No. ;;:-- and TCT No. ;3:.+ in fa!or of 5ayani &abriel one of its 6irectors. Thereafter 5ayani &abriel e#ec"ted a 6eed of Assign%ent o!er +,N of the ownership and %anage%ent of the property in fa!or of 9eynaldo Tolentino who later %o!ed for lea!e to inter!ene as plaintiff-appellant. 8n J"ly ,B ,--; the CA iss"ed a resol"tion granting the %otion and likewise granted the %otion of 9eynaldo Tolentino s"bstit"ting petitioner MMCC as plaintiff-appellant and his %otion to withdraw as inter!enor. The CA rendered 2"dg%ent on May ,, .::: affir%ing the decision of the 9TC. It declared that petitioner ob!io"sly ne!er agreed to the selling price proposed by respondent PN5 )P, -;, ;H-.+;* since petitioner had kept on insisting that the selling price sho"ld be lowered to P, +3B +4:.B3. Clearly therefore there was no %eeting of the %inds between the parties as to the price or consideration of the sale. The CA ratiocinated that petitioner/s original offer to p"rchase the s"b2ect property had not been accepted by respondent PN5. In fact it %ade a co"nter-offer thro"gh its J"ne B ,-H+ letter specifically on the selling price@ SCRA '''+

petitioner did not agree to the co"nter-offer@ and the negotiations did not prosper. Moreo!er petitioner did not pay the balance of the p"rchase price within the si#ty-day period set in the J"ne B ,-H+ letter of respondent PN5. ConseG"ently there was no perfected contract of sale and as s"ch there was no contract to rescind. Petitioner re2ected respondent/s proposal in a letter dated J"ly ,B ,-HH. It %aintained that respondent PN5 had agreed to sell the property for P, +3B +4:.B3 and that since its P3.+ :::.:: downpay%ent had been accepted respondent PN5 was proscribed fro% increasing the p"rchase price of the property. Petitioner a!erred that it had a net balance payable in the a%o"nt of P4B; B+..;B. 9espondent PN5 howe!er re2ected petitioner/s offer to pay the balance of P4B; B+..;B in a letter dated A"g"st , ,-H-. Iss.e1<N petitioner and respondent PN5 had entered into a perfected contract for petitioner to rep"rchase the property fro% respondent R.lingIn this case petitioner had "ntil Aebr"ary ,3 ,-HB within which to redee% the property. 0owe!er since it lacked the reso"rces it reG"ested for %ore ti%e to redee%<rep"rchase the property "nder s"ch ter%s and conditions agreed "pon by the parties. The reG"est which was %ade thro"gh a letter dated A"g"st .+ ,-H; was referred to the respondent/s %ain branch for appropriate action. 1hen the petitioner was told that respondent did not allow N%a$tial $ede:%tionFO it sent a letter to respondent/s President reiterating its offer to p"rchase the property. There was no response to petitioner/s letters dated Aebr"ary ,: and ,+ ,-HB. The state%ent of acco"nt prepared by the (AM6 stating that the net clai% of respondent as of J"ne .+ ,-HB was P, +3B +4:.B3 cannot be considered an "nG"alified acceptance to petitioner/s offer to p"rchase the property. The state%ent is b"t a co%p"tation of the a%o"nt which petitioner was obliged to pay in case respondent wo"ld later agree to sell the property incl"ding interests ad!ances on ins"rance pre%i"% ad!ances on realty ta#es p"blication cost registration e#penses and %iscellaneo"s e#penses. There is no e!idence that the (AM6 was a"thori$ed by respondent/s 5oard of 6irectors to accept petitioner/s offer and sell the property for P, +3B +4:.B3. Any acceptance by the (AM6 of petitioner/s offer wo"ld not bind respondent. As this Co"rt r"led in A2 =ealt$ ;evelopment# -nc. vs. ;iese uan 2reig t Services# -nc.? (ection .; of the Corporation Code e#pressly pro!ides that the corporate powers of all corporations shall be e#ercised by the board of directors. J"st as a nat"ral person %ay a"thori$e another to do certain acts in his behalf so %ay the board of directors of a corporation !alidly delegate so%e of its f"nctions to indi!id"al officers or agents appointed by it. Th"s contracts or acts of a corporation %"st be %ade either by the board of directors or by a corporate agent d"ly a"thori$ed by the board. Absent s"ch !alid delegation<a"thori$ation the r"le is that the declarations of an indi!id"al director relating to the affairs of the corporation b"t not in the co"rse of or connected with the perfor%ance of a"thori$ed d"ties of s"ch director is held not binding on the corporation. Th"s a corporation can only e#ec"te its powers and transact its b"siness thro"gh its 5oard of 6irectors and thro"gh its officers and agents when a"thori$ed by a board resol"tion or its by-laws. It appears that the (AM6 had prepared a reco%%endation for respondent to accept petitioner/s offer to rep"rchase the property e!en beyond the one-year period@ it reco%%ended that petitioner be allowed to redee% the property and pay P, +3B +4:.:: as the p"rchase price. 9espondent later appro!ed the reco%%endation that the property be sold to petitioner. 5"t instead of the P, +3B +4:.B3 reco%%ended by the (AM6 and to which petitioner had pre!io"sly confor%ed respondent set the p"rchase price at P. 44: :::.::. In fine respondent/s acceptance of petitioner/s offer was G"alified hence can be at %ost considered as a co"nter-offer. If petitioner had accepted this co"nteroffer a perfected contract of sale wo"ld ha!e arisen@ as it t"rns o"t howe!er petitioner %erely so"ght to ha!e the co"nter-offer reconsidered. This reG"est for reconsideration wo"ld later be re2ected by respondent. 1e do not agree with petitioner/s contention that the P3.+ :::.:: it had re%itted to respondent was =earnest %oney> which co"ld be considered as proof of the perfection of a contract of sale "nder Article ,BH. of the New Ci!il Code. Th"s the P3.+ :::.:: was %erely a deposit to be applied as part of the p"rchase price of the property in the e!ent that respondent wo"ld appro!e the reco%%endation of (AM6 for respondent to accept petitioner/s offer to p"rchase the property for P, +3B +4:.B3. Inless and "ntil the respondent accepted the offer on these ter%s no perfected contract of sale wo"ld arise. Absent proof of the conc"rrence of all the essential ele%ents of a contract of

42

sale the gi!ing of earnest %oney cannot establish the e#istence of a perfected contract of sale. It appears that altho"gh respondent reG"ested petitioner to confor% to its a%ended co"nter-offer petitioner ref"sed and instead reG"ested respondent to reconsider its a%ended co"nter-offer. Petitioner/s reG"est was "lti%ately re2ected and respondent offered to ref"nd its P3.+ :::.:: deposit. In s"% then there was no perfected contract of sale between petitioner and respondent o!er the s"b2ect property.

The CTA r"led that since 5LC/s rental inco%e was all recei!ed prior to ,-H4 it follows that this was deri!ed fro% lease transactions prior to Jan"ary , ,-H3 and hence not co!ered by the re!en"e reg"lation. A %otion for reconsideration of the CTA/s decision was filed b"t was denied in a resol"tion dated J"ly .4 ,--+. 5LC then appealed the case to the Co"rt of Appeals which iss"ed the afore%entioned assailed decision and resol"tion. 0ence the present petition. The respondents arg"e that the petition sho"ld be dis%issed on the gro"nd that the 'erification<Certification of Non-Aor"% (hopping was signed by the co"nsel of record and not by 5LC thro"gh a d"ly a"thori$ed representati!e in !iolation of ("pre%e Co"rt Circ"lar .H--,. Iss.e1<N 5LC co%plies with the reG"ire%ent on 'erification<Certification of NonAor"% (hopping R.lingIn BA Savings Ban% v. Sia it was held that the certificate of non-for"% shopping %ay be signed for and on behalf of a corporation by a specifically a"thori$ed lawyer who has personal knowledge of the facts reG"ired to be disclosed in s"ch doc"%ent. This r"ling howe!er does not %ean that any lawyer acting on behalf of the corporation he is representing %ay ro"tinely sign a certification of non-for"% shopping. The Co"rt e%phasi$es that the lawyer %"st be "specifically a"thori$ed" in order !alidly to sign the certification. Corporations ha!e no powers e#cept those e#pressly conferred "pon the% by the Corporation Code and those that are i%plied by or are incidental to its e#istence. These powers are e#ercised thro"gh their board of directors and<or d"ly a"thori$ed officers and agents. 0ence physical acts like the signing of doc"%ents can be perfor%ed only by nat"ral persons d"ly a"thori$ed for the p"rpose by corporate bylaws or by specific act of the board of directors. The records are bereft of the a"thority of 5LC/s co"nsel to instit"te the present petition and to sign the certification of non-for"% shopping. 1hile said co"nsel %ay be the co"nsel of record for 5LC the representation does not !est "pon hi% the a"thority to e#ec"te the certification on behalf of his client. There %"st be a resol"tion iss"ed by the board of directors that specifically a"thori$es hi% to instit"te the petition and e#ec"te the certification for it is only then that his actions can be legally binding "pon 5LC. 5LC howe!er insists that there was s"bstantial co%pliance with (C Circ"lar No. .H--, beca"se the !erification<certification was iss"ed by a co"nsel who had f"ll personal knowledge that no other petition or action has been filed or is pending before any other trib"nal. According to 5LC said co"nsel/s law fir% has handled this case fro% the !ery beginning and co"ld !ery well attest and<or certify to the absence of an instit"ted or pending case in!ol!ing the sa%e or si%ilar iss"es. The arg"%ent of s"bstantial co%pliance deser!es no %erit gi!en the Co"rt/s r"ling in Mendigorin v. Cabantog ? OThe CA held that there was s"bstantial co%pliance with the 9"les of Co"rt citing 6i%agiba !s. Montal!o Jr. E.:. (C9A 4B,F to the effect that a lawyer who ass"%es responsibility for a clientCs ca"se has the d"ty to know the entire history of the case especially if any litigation is co%%enced. This !iew howe!er no longer holds a"thoritati!e !al"e in the light of 6igital Microwa!e Corporation !s. CA E;.H (C9A .H4F where it was held that the reason the certification against for"% shopping is reG"ired to be acco%plished by petitioner hi%self is that only the petitioner hi%self has act"al knowledge of whether or not he has initiated si%ilar actions or proceedings in other co"rts or trib"nals. 7!en co"nsel of record %ay be "naware of s"ch fact. To o"r %ind this !iew is %ore in accord with the intent and p"rpose of 9e!ised Circ"lar No. .H--,. Clearly therefore the present petition lacks the proper certification as strictly reG"ired by 2"rispr"dence and the 9"les of Co"rt. HAo5 Vs# P"il# Ca$%et &'1( SCRA ')1+ ,acts-

La B.gal/Blaan Vs# Ra:os &'2 SCRA 17+ R.ling1e shall now look closer at the plain lang"age of the Charter and e#a%ining the logical inferences. The drafters chose to e%phasi$e and highlight agreements ' ' ' involving eit er tec nical or financial assistance in relation to foreign corporations/ participation in large-scale 76I. The incl"sion of this cla"se on =technical or financial assistance> recogni$es the fact that foreign b"siness entities and %"ltinational corporations are the ones with the reso"rces and know-how to pro!ide technical and<or financial assistance of the %agnit"de and type reG"ired for large-scale e#ploration de!elop%ent and "tili$ation of these reso"rces. 6efinitely as b"siness persons well know and as a %atter of 2"dicial notice this %atter is not 2"st a G"estion of signing a pro%issory note or e#ec"ting a technology transfer agree%ent. Aoreign corporations "s"ally reG"ire that they be gi!en a say in the %anage%ent for instance of day-to-day operations of the 2oint !ent"re. They wo"ld de%and the appoint%ent of their own %en as for e#a%ple operations %anagers technical e#perts G"ality control heads internal a"ditors or co%ptrollers. A"rther%ore they wo"ld probably reG"ire seats on the 5oard of 6irectors -- all these to ens"re the s"ccess of the enterprise and the repay%ent of the loans and other financial assistance and to %ake certain that the f"nding and the technology they s"pply wo"ld not go to waste. Ilti%ately they wo"ld also want to protect their b"siness rep"tation and botto% lines. In short the drafters will ha!e to be credited with eno"gh prag%atis% and sa!!y to know that these foreign entities will not enter into s"ch =agree%ents in!ol!ing assistance> witho"t reG"iring arrange%ents for the protection of their in!est%ents gains and benefits. Th"s by specifying s"ch =agree%ents in!ol!ing assistance > the drafters necessarily ga!e i%plied assent to e!erything that these agree%ents necessarily entailed@ or that co"ld reasonably be dee%ed necessary to %ake the% tenable and effecti!e incl"ding %anage%ent a"thority with respect to the day-to-day operations of the enterprise and %eas"res for the protection of the interests of the foreign corporation P98'I676 T0AT Philippine so!ereignty o!er nat"ral reso"rces and f"ll control o!er the enterprise "ndertaking the 76I acti!ities re%ain fir%ly in the (tate. BPI Leasing Vs# CA &' ) SCRA '+ ,acts5LC is a corporation engaged in the b"siness of leasing properties. Aor the calendar year ,-H4 5LC paid the Co%%issioner of Internal 9e!en"e )CI9* a total of P, ,;- :B,.B- representing BN "contractor/s percentage ta#" then i%posed by (ection .:+ of the National Internal 9e!en"e Code )NI9C* based on its gross rentals fro% eG"ip%ent leasing for the said year a%o"nting to P.3 3H; 3.+.B.. The CI9 iss"ed 9e!en"e 9eg"lation which pro!ided that finance and leasing co%panies registered "nder 9ep"blic Act +-H: shall be s"b2ect to gross receipt ta# of +N-;N-,N on act"al inco%e earned. This %eans that co%panies registered "nder 9ep"blic Act +-H: s"ch as 5LC are not liable for "contractor/s percentage ta#" "nder (ection .:+ b"t are instead s"b2ect to "gross receipts ta#" "nder (ection .4: )now (ection ,..* of the NI9C. (ince 5LC had earlier paid the afore%entioned "contractor/s percentage ta# " it re-co%p"ted its ta# liabilities "nder the "gross receipts ta#" and arri!ed at the a%o"nt of P;4, -.B.BB. 5LC filed a clai% for a ref"nd with the CI9 for the a%o"nt of P333 ,,3.:+ representing the difference between the P, ,;- :B,.B- it had paid as "contractor/s percentage ta#" and P;4, -.B.BB it sho"ld ha!e paid for "gross receipts ta#." Ao"r days later to stop the r"nning of the prescripti!e period for ref"nds petitioner filed a petition for re!iew with the CTA. The CTA dis%issed the petition and denied 5LC/s clai% of ref"nd. The CTA held that 9e!en"e 9eg"lation ,--H4 as a%ended %ay only be applied prospecti!ely s"ch that it only co!ers all leases written on or after Jan"ary , ,-H3 as stated "nder (ection 3 of said re!en"e reg"lation.

6onald Dwok and his father-in-law Patricio L. Li% along with so%e other stockholders established a corporation the Philippine Carpet Man"fact"ring Corporation )PCMC*. The petitioner beca%e its general %anager e#ec"ti!e !ice-president and chief operations officer. Li% on the other hand was its president and chair%an of the board of directors. 1hen the petitioner retired ;4 years later or on 8ctober ;, ,--4 he was recei!ing a %onthly salary of P,4: :::.::. 0e de%anded the cash eG"i!alent of what he belie!ed to be his acc"%"lated !acation and sick lea!e credits d"ring the entire length of his ser!ice with the respondent corporation i.e. fro% No!e%ber ,4 ,-4+ to 8ctober ;, ,--4 in the total a%o"nt of P3 :H: +B4.:: pl"s interest. 0owe!er the respondent corporation ref"sed to accede to the petitioner/s de%ands clai%ing that the latter was not entitled thereto.

43

The respondent corporation denied all these clai%ing that "pon the petitioner/s retire%ent he recei!ed the a%o"nt of P4 -:. ;H3.,- representing all the benefits d"e hi%. 6espite this the petitioner again de%anded P3 :H: +B4.:: which de%and was witho"t fact"al and legal basis. The respondent corporation asserted that the chair%an of its board of directors and its president<!ice-president had "nli%ited discretion in the "se of their ti%e and had ne!er been reG"ired to file applications for !acation and sick lea!es@ as s"ch the said officers were not entitled to !acation and sick lea!e benefits. The respondent corporation likewise pointed o"t that e!en if the petitioner was entitled to the said additional benefits his clai% had already prescribed. It f"rther a!erred that it had no policy to grant !acation and sick lea!e credits to the petitioner. In his Affida!it dated May ,- ,--H Li% denied %aking any s"ch !erbal pro%ise to his son-in-law on the grant of "nli%ited !acation and sick lea!e credits and the cash con!ersion thereof. Li% a!erred that the petitioner had recei!ed !acation and sick lea!e benefits fro% ,--B to ,--4. Moreo!er ass"%ing that he did %ake s"ch pro%ise to the petitioner the sa%e had not been confir%ed or appro!ed !ia resol"tion of the respondent corporation/s board of directors. It was f"rther pointed o"t that as per the Me%orand"% dated No!e%ber 4 ,-H, only reg"lar e%ployees and %anagerial and confidential e%ployees falling "nder Category I were entitled to !acation and sick lea!e credits. The petitioner whose position did not fall "nder Category I was th"s not entitled to the benefits "nder the said %e%orand"%. The respondent corporation alleged that this was ad%itted by the petitioner hi%self and affir%ed by 9ao"l 9odrigo its inc"%bent e#ec"ti!e !ice-president and general %anager. The Labor Arbiter r"led in fa!or of the petitioner. The NL9C by %a2ority !ote rendered 2"dg%ent granting the appeal of the respondent corporation re!ersing and setting aside the decision of the Labor Arbiter. Also the CA rendered 2"dg%ent affir%ing the decision of the NL9C and dis%issing the petition. Iss.e1<N the petitioner is entitled based on the doc"%entary and testi%onial e!idence on record to the cash !al"e of his !acation and sick lea!e credits in the total a%o"nt of P3 :H: +B4.:: R.ling1hile the petitioner was "neG"i!ocal in clai%ing that the respondent corporation thro"gh its president and chair%an of the board of directors obliged itself as a %atter of policy to grant hi% the cash !al"e of his !acation and sick lea!e credits "pon his retire%ent he was b"rdened to pro!e his clai% by s"bstantial e!idence. The petitioner failed to discharge this b"rden. Aor a contract to be binding on the parties thereto it need not be in writing "nless the law reG"ires that s"ch contract be in so%e for% in order that it %ay be !alid or enforceable or that it be e#ec"ted in a certain way in which case that reG"ire%ent is absol"te and independent. Indeed corporate policies need not be in writing. Contracts entered into by a corporate officer or obligations or prestations ass"%ed by s"ch officer for and in behalf of s"ch corporation are binding on the said corporation only if s"ch officer acted within the scope of his a"thority or if s"ch officer e#ceeded the li%its of his a"thority the corporation has ratified s"ch contracts or obligations. In the present case the petitioner relied principally on his testi%ony to pro!e that Li% %ade a !erbal pro%ise to gi!e hi% !acation and sick lea!e credits as well as the pri!ilege of con!erting the sa%e into cash "pon retire%ent. The Co"rt agrees that those who belong to the "pper corporate echelons wo"ld ha!e %ore pri!ileges. 0owe!er the Co"rt cannot pres"%e the e#istence of s"ch pri!ileges or benefits. The petitioner was b"rdened to pro!e not only the e#istence of s"ch benefits b"t also that he is entitled to the sa%e especially considering that s"ch pri!ileges are not inherent to the positions occ"pied by the petitioner in the respondent corporation son-in-law of its president or not. 7!en ass"%ing that PCMC President Patricio Li% did pro%ise petitioner the cash con!ersion of his lea!es we agree with respondent that this cannot bind the co%pany in the absence of any 5oard resol"tion to that effect. 1e %"st stress that the personal act of the co%pany president cannot bind the corporation. As e#plicitly stated by the ("pre%e Co"rt in PeopleIs Aircargo and Hare ousing Co.# -nc. v. Court of AppealsJ =The general r"le is that in the absence of a"thority fro% the board of directors no person not e!en its officers can !alidly bind a corporation. A corporation is a 2"ridical person separate and distinct fro% its stockholders and %e%bers Vha!ing ### powers attrib"tes and properties e#pressly a"thori$ed by law or incident to its e#istence./O =O the power and the responsibility to decide whether the corporation sho"ld enter into a contract that will bind the corporation is lodged in the board s"b2ect to the articles of incorporation by-laws or rele!ant pro!isions of law.>

Petitioner %aintains that the PCMC 5oard of 6irectors has granted its President Patricio Li% aweso%e powers to grant benefits to its e%ployees adding that the 5oard has always gi!en its consent to the way Li% ran the affairs of the co%pany especially on %atters relating to the benefits that its corporate officers en2oyed. Tr"e 2"rispr"dence holds that the president of a corporation possesses the power to enter into a contract for the corporation when =the cond"ct on the part of both the president and corporation EshowsF that he had been in the habit of acting in si%ilar %atters on behalf of the co%pany and that the co%pany had a"thori$ed hi% so to act and had recogni$ed appro!ed and ratified his for%er and si%ilar actions.> In the case at bar howe!er there is no showing that PCMC had either recogni$ed appro!ed or ratified the cash con!ersion of petitioner/s lea!e credits as p"rportedly pro%ised to hi% by Li%. 8n the contrary PCMC has steadfastly %aintained that =the Co%pany thro"gh the 5oard has long adopted the policy of granting its earlier %entioned corporate officers "nli%ited lea!e benefits denying the% the pri!ilege of con!erting their "n"sed !acation or sick lea!e benefits into their cash eG"i!alent.> A, Realt? Vs# Diesel:an &*(* SCRA *71+ ,acts6iesel%an Areight (er!ice Co. is a do%estic corporation and a registered owner of a parcel of co%%ercial lot consisting of . :-B sG"are %eters located at ,:B 7. 9odrig"e$ A!en"e 5arrio Igong Pasig City Metro Manila. The property is co!ered by Transfer Certificate of Title No. ;-HB- iss"ed by the 9egistry of 6eeds of the Pro!ince of 9i$al. Man"el C. Cr"$ Jr. a %e%ber of the board of directors of 6iesel%an iss"ed a letter deno%inated as "A"thority To (ell 9eal 7state" to Cristeta N. Polintan a real estate broker of the CNP 9eal 7state 5rokerage. Cr"$ Jr. a"thori$ed Polintan "to look for a b"yer<b"yers and negotiate the sale" of the lot at P; :::.:: per sG"are %eter or a total of P4 .H. :::.::. Cr"$ Jr. has no written a"thority fro% 6iesel%an to sell the lot. In t"rn Cristeta Polintan thro"gh a letter dated May ,- ,-HH a"thori$ed Aelicisi%a )"Mi%i"* Noble to sell the sa%e lot. Aelicisi%a Noble then offered for sale the property to AA 9ealty T 6e!elop%ent Inc. )AA 9ealty* at P. +::.:: per sG"are %eter. Xenaida 9an"llo board %e%ber and !ice-president of AA 9ealty accepted the offer and iss"ed a check in the a%o"nt of P;:: :::.:: payable to the order of 6iesel%an. Polintan recei!ed the check and signed an "Acknowledge%ent 9eceipt" indicating that the a%o"nt of P;:: :::.:: represents the partial pay%ent of the property b"t ref"ndable within two weeks sho"ld AA 9ealty disappro!e 9an"lloCs action on the %atter. AA 9ealty confir%ed its intention to b"y the lot. 0ence 9an"llo asked Polintan for the board resol"tion of 6iesel%an a"thori$ing the sale of the property. 0owe!er Polintan co"ld only gi!e 9an"llo the original copy of TCT No. ;-HB- the ta# declaration and ta# receipt for the lot and a photocopy of the Articles of Incorporation of 6iesel%an. Man"el A. Cr"$ (r. President of 6iesel%an acknowledged receipt of the said P;:: :::.:: as "earnest %oney" b"t reG"ired AA 9ealty to finali$e the sale at P'F000#00 per sG"are %eter. AA 9ealty replied that it has paid an initial down pay%ent of P;:: :::.:: and is willing to pay the balance. 0owe!er Mr. Cr"$ (r. ter%inated the offer and de%anded fro% AA 9ealty the ret"rn of the title of the lot earlier deli!ered by Polintan. Clai%ing that there was a perfected contract of sale between the% AA 9ealty filed with the 9egional Trial Co"rt 5ranch ,4: Pasig City a co%plaint for specific perfor%ance against 6iesel%an and Cr"$ Jr.. The co%plaint prays that 6iesel%an be ordered to e#ec"te and deli!er a final deed of sale in fa!or of AA 9ealty. In its a%ended co%plaint AA 9ealty asked for pay%ent of P, +:: :::.:: as co%pensatory da%ages@ PB:: :::.:: as attorneyCs fees@ and P+:: :::.:: as e#e%plary da%ages. Meanwhile on J"ly ;: ,-HH 6iesel%an and Midas 6e!elop%ent Corporation )Midas* e#ec"ted a 6eed of Absol"te (ale ,; of the sa%e property. The agreed price was P. H::.:: per sG"are %eter. Midas deli!ered to 6iesel%an P+:: :::.:: as down pay%ent and deposited the balance of P+ ;:: :::.:: in escrow acco"nt with the PCI5ank. Constrained to protect its interest in the property Midas filed on April ; ,-Ha Motion for Lea!e to Inter!ene in Ci!il Case No. +4.3H. Midas alleged that it has p"rchased the property and took possession thereof hence 6iesel%an cannot be co%pelled to sell and con!ey it to AA 9ealty. The trial co"rt granted MidasC %otion. Iss.e1ho between petitioner AA 9ealty and respondent Midas has a right o!er the s"b2ect lot

44

R.ling(ection .; of the Corporation Code e#pressly pro!ides that the corporate powers of all corporations shall be e#ercised by the board of directors. J"st as a nat"ral person %ay a"thori$e another to do certain acts in his behalf so %ay the board of directors of a corporation !alidly delegate so%e of its f"nctions to indi!id"al officers or agents appointed by it. Th"s contracts or acts of a corporation %"st be %ade either by the board of directors or by a corporate agent d"ly a"thori$ed by the board. Absent s"ch !alid delegation<a"thori$ation the r"le is that the declarations of an indi!id"al director relating to the affairs of the corporation b"t not in the co"rse of or connected with the perfor%ance of a"thori$ed d"ties of s"ch director is held not binding on the corporation. In the instant case it is "ndisp"ted that respondent Cr"$ Jr. has no written a"thority fro% the board of directors of respondent 6iesel%an to sell or to negotiate the sale of the lot %"ch less to appoint other persons for the sa%e p"rpose. 9espondent Cr"$ Jr.Cs lack of s"ch a"thority precl"des hi% fro% conferring any a"thority to Polintan in!ol!ing the s"b2ect realty. Necessarily neither co"ld Polintan a"thori$e Aelicisi%a Noble. Clearly the collecti!e acts of respondent Cr"$ Jr. Polintan and Noble cannot bind 6iesel%an in the p"rported contract of sale. Petitioner AA 9ealty %aintains that the sale of land by an "na"thori$ed agent %ay be ratified where as here there is acceptance of the benefits in!ol!ed. In this case the receipt by respondent Cr"$ Jr. fro% AA 9ealty of the P;:: :::.:: as partial pay%ent of the lot effecti!ely binds respondent 6iesel%an. In!ol!ed in this case is a sale of land t"$o.g" an agent . Th"s the law on agency "nder the Ci!il Code takes precedence. This is well stressed in .ao /a Sin &rading vs. Court of Appeals "(ince a corporation s"ch as the pri!ate respondent can act only thro"gh its officers and agents all acts within the powers of said corporation :a? 4e %e$fo$:ed 4? agents of its selection @ and e#cept so far as li%itations or restrictions %ay be i%posed by special charter by-law or stat"tory pro!isions t"e sa:e gene$al %$inci%les of laA A"ic" goCe$n t"e $elation of agenc? fo$ a nat.$al %e$son goCe$n t"e office$ o$ agent of a co$%o$ationF of A"ateCe$ stat.s o$ $an5F in $es%ect to "is %oAe$ to act fo$ t"e co$%o$ation @ and agents A"en once a%%ointed o$ :e:4e$s acting in t"ei$ stead a$e s.4@ect to t"e sa:e $.lesF lia4ilitiesF and inca%acities as a$e agents of indiCid.als and %$iCate %e$sons ." )7%phasis s"pplied* Pertinently Article ,H3B of the sa%e Code pro!ides? "A9T. ,H3B. 1hen a sale of %iece of land or any interest therein is t"$o.g" an agent the a.t"o$it? of the latter s"all 4e in A$iting @ ot"e$AiseF t"e sale s"all 4e Coid ." )7%phasis s"pplied* Considering that respondent Cr"$ Jr. Cristeta Polintan and Aelicisi%a 9an"llo were not a"thori$ed by respondent 6iesel%an to sell its lot the s"pposed contract is !oid. 5eing a !oid contract it is not s"sceptible of ratification by clear %andate of Article ,B:- of the Ci!il Code. th"s? "A9T. ,B:-. The following cont$acts are ine6istent and Coid f$o: t"e Ce$? 4eginning ? # # # )3* Those e6%$essl? %$o"i4ited or decla$ed Coid 4? laA " T"ese cont$acts cannot 4e $atified . Neither can the right to set "p the defense of illegality be wai!ed." )7%phasis s"pplied* Ipon the other hand the !alidity of the sale of the s"b2ect lot to respondent Midas is "nG"estionable. As aptly noted by the Co"rt of Appeals the sale was a"thori$ed by a board resol"tion of respondent 6iesel%an dated May .3 ,-HH. Ta: =ing Ta5 Vs# 2a5asia$ &*10 SCRA '(1+ ,actsTa% 1ing Tak in his capacity as director of Concord-1orld Properties Inc. a do%estic corporation filed an affida!it-co%plaint with the R"e$on City Prosec"torCs 8ffice charging 'ic Ang (iong with !iolation of 5.P. 5lg. ... 6ocketed by the Prosec"tor as I.(. No. -;-,+HH4 the co%plaint alleged that a check for the a%o"nt of PH; ++: :::.:: iss"ed by 'ic Ang (iong in fa!or of Concord was dishonored when presented for encash%ent. 'ic Ang (iong so"ght the dis%issal of the case on two gro"nds? Airst that petitioner had no a"thority to file the case on behalf of Concord the payee of the dishonored check since the fir%Cs board of directors had not e%powered hi% to act on its behalf. (econd he and Concord had already agreed to a%icably settle the iss"e after he %ade a partial pay%ent of P,- ::: :::.:: on the dishonored check.

The City Prosec"tor dis%issed the co%plaint on the following gro"nds? ),* that petitioner lacked the reG"isite a"thority to initiate the cri%inal co%plaint for and on ConcordCs behalf@ and ).* that Concord and 'ic Ang (iong had already agreed "pon the pay%ent of the latterCs balance on the dishonored check. The Chief (tate Prosec"tor dis%issed the appeal for ha!ing been filed o"t of ti%e. PetitionerCs lawyer recei!ed a copy of the letter-resol"tion dis%issing the appeal on Jan"ary .: ,--+. The Trial Co"rt denied and dis%issed the petition for %anda%"s of petitioner. Iss.e1<N %anda%"s will lie R.lingNo. Chief (tate Prosec"tor in ref"sing to order the filing of infor%ation for !iolation of 5.P. 5lg. .. against 'ic Ang (iong did not act witho"t or in e#cess of 2"risdiction or with gra!e ab"se of discretion. Airst with respect to the agree%ent between Concord and 'ictor Ang (iong to a%icably settle their difference we find this resort to an alternati!e disp"te settle%ent %echanis% as not contrary to law p"blic policy or p"blic order. 7fforts of parties to sol!e their disp"tes o"tside of the co"rts are looked on with fa!or in !iew of the clogged dockets of the 2"diciary. (econd it is not disp"ted in the instant case that Concord a do%estic corporation was the payee of the b"% check not petitioner. Therefore it is Concord as payee of the bo"nced check which is the in2"red party. (ince petitioner was neither a payee nor a holder of the bad check he had neither the personality to s"e nor a ca"se of action against 'ic Ang (iong. Inder (ection ;4 of the Corporation Code read in relation to (ection .; it is clear that where a corporation is an in2"red party its power to s"e is lodged with its board of directors or t"rstees. Petitioner failed to show any proof that he was a"thori$ed or dep"ti$ed or granted specific powers by ConcordCs board of director to s"e 'ictor And (iong for and on behalf of the fir%. Clearly petitioner as a %inority stockholder and %e%ber of the board of directors had no s"ch power or a"thority to s"e on ConcordCs behalf. Nor can we "phold his act as a deri!ati!e s"it. Aor a deri!ati!e s"it to prosper it is reG"ired that the %inority stockholder s"ing for and on behalf of the corporation %"st allege in his co%plaint that he is s"ing on a deri!ati!e ca"se of action on behalf of the corporation and all other stockholders si%ilarly sit"ated who %ay wish to 2oin hi% in the s"it. There is no showing that petitioner has co%plied with the foregoing reG"isites. It is ob!io"s that petitioner has not shown any clear legal right which wo"ld warrant the o!ert"rning of the decision of p"blic respondents to dis%iss the co%plaint against 'ic Ang (iong. A p"blic prosec"tor by the nat"re of his office is "nder no co%p"lsion to file cri%inal infor%ation where no clear legal 2"stification has been shown and no s"fficient e!idence of g"ilt nor prima facie case has been presented by the petitioner. No re!ersible error %ay be attrib"ted to the co"rt a quo when it dis%issed petitionerCs special ci!il action for %anda%"s. BA SaCings Ban5 Vs# Sia &**) SCRA '7'+ ,actsThe Co"rt of Appeals iss"ed a 9esol"tion denying d"e co"rse to a Petition for Certiorari filed by 5A (a!ings 5ank on the gro"nd that =the Certification on anti-for"% shopping incorporated in the petition was signed not by the d"ly a"thori$ed representati!e of the petitioner as reG"ired "nder ("pre%e Co"rt Circ"lar No. .H--, b"t by its co"nsel in contra!ention of said circ"lar # # #.> A Motion for 9econsideration was s"bseG"ently filed by the petitioner attached to which was a 5A (a!ings 5ank Corporate (ecretary/s Certificate dated A"g"st ,B ,--3. The Certificate showed that the petitioner/s 5oard of 6irectors appro!ed a 9esol"tion on May ., ,--4 a"thori$ing the petitioner/s lawyers to represent it in any action or proceeding before any co"rt trib"nal or agency@ and to sign e#ec"te and deli!er the Certificate of Non-for"% (hopping a%ong others. 8n 8ctober .B ,--3 the Motion for 9econsideration was denied by the Co"rt of Appeals on the gro"nd that ("pre%e Co"rt 9e!ised Circ"lar No. .H-, =reG"ires that it is the petitioner not the co"nsel who %"st certify "nder oath to all of the facts and "ndertakings reG"ired therein.> Iss.e1<N ("pre%e Co"rt 9e!ised Circ"lar No. .H--, allows a corporation to a"thori$e its co"nsel to e#ec"te a certificate of non-for"% shopping for and on its behalf

45

R.lingA corporation s"ch as the petitioner has no powers e#cept those e#pressly conferred on it by the Corporation Code and those that are i%plied by or are incidental to its e#istence. In t"rn a corporation e#ercises said powers thro"gh its board of directors and<or its d"ly a"thori$ed officers and agents. Physical acts like the signing of doc"%ents can be perfor%ed only by nat"ral persons d"ly a"thori$ed for the p"rpose by corporate bylaws or by a specific act of the board of directors. =All acts within the powers of a corporation %ay be perfor%ed by agents of its selection@ and e#cept so far as li%itations or restrictions which %ay be i%posed by special charter by-law or stat"tory pro!isions the sa%e general principles of law which go!ern the relation of agency for a nat"ral person go!ern the officer or agent of a corporation of whate!er stat"s or rank in respect to his power to act for the corporation@ and agents once appointed or %e%bers acting in their stead are s"b2ect to the sa%e r"les liabilities and incapacities as are agents of indi!id"als and pri!ate persons.> In the present case the corporation/s board of directors iss"ed a 9esol"tion specifically a"thori$ing its lawyers =to act as their agents in any action or proceeding before the ("pre%e Co"rt the Co"rt of Appeals or any other trib"nal or agency@ and to sign e#ec"te and deli!er in connection therewith the necessary pleadings %otions !erification affida!it of %erit certificate of non-for"% shopping and other instr"%ents necessary for s"ch action and proceeding.> The 9esol"tion was s"fficient to !est s"ch persons with the a"thority to bind the corporation and was specific eno"gh as to the acts they were e%powered to do. In the case of nat"ral persons Circ"lar .H--, reG"ires the parties the%sel!es to sign the certificate of non-for"% shopping. 0owe!er s"ch reG"ire%ent cannot be i%posed on artificial persons like corporations for the si%ple reason that they cannot personally do the task the%sel!es. As already stated corporations act only thro"gh their officers and d"ly a"thori$ed agents. In fact physical actions like the signing and the deli!ery of doc"%ents %ay be perfor%ed on behalf of the corporate entity only by specifically a"thori$ed indi!id"als. It is noteworthy that the Circ"lar does not reG"ire corporate officers to sign the certificate. More i%portant there is no prohibition against a"thori$ing agents to do so. In fact not only was 5A (a!ings 5ank a"thori$ed to na%e an agent to sign the certificate@ it also e#ercised its appointing a"thority reasonably well. Aor who else knows of the circ"%stances reG"ired in the Certificate b"t its own retained co"nsel. Its reg"lar officers like its board chair%an and president %ay not e!en know the details reG"ired therein. Consistent with this rationale the Co"rt en banc in 9obern 6e!elop%ent Corporation !. J"dge Jes"s R"itain has allowed e!en an acting regional co"nsel of the National Power Corporation to sign a%ong others the certificate of non-for"% shopping reG"ired by Circ"lar .H--,. The Co"rt held that the co"nsel was =in the best position to !erify the tr"thf"lness and the correctness of the allegations in the Co%plaint> and =to know and to certify if an action # # # had already been filed and pending with the co"rts.> Circ"lar .H--, was prescribed by the ("pre%e Co"rt to prohibit and penali$e the e!ils of for"% shopping. 1e see no circ"%!ention of this rationale if the certificate was signed by the corporation/s specifically a"thori$ed co"nsel who had personal knowledge of the %atters reG"ired in the Circ"lar. In 5ernardo !. NL9C we e#plained that a literal interpretation of the Circ"lar sho"ld be a!oided if doing so wo"ld s"b!ert its !ery rationale. (aid the Co"rt? =# # #. Indeed while the reG"ire%ent as to certificate of non-for"% shopping is %andatory nonetheless the reG"ire%ents %"st not be interpreted too literally and th"s defeat the ob2ecti!e of pre!enting the "ndesirable practice of for"%shopping.> Ainally we stress that technical r"les of proced"re sho"ld be "sed to pro%ote not fr"strate 2"stice. 1hile the swift "nclogging of co"rt dockets is a la"dable ob2ecti!e the granting of s"bstantial 2"stice is an e!en %ore "rgent ideal. 2=SS Vs# CA &29( SCRA 27(+ ,actsM1(( leased aro"nd one h"ndred twenty eight ),.H* hectares of its land to C0&CCI for twenty fi!e ).+* years and renewable for another fifteen ),+* years or "ntil the year .::+ with the stip"lation allowing the latter to e#ercise a right of first ref"sal sho"ld the s"b2ect property be %ade open for sale. The ter%s and conditions of respondent C0&CCICs p"rchase thereof shall nonetheless be s"b2ect to presidential appro!al. P"rs"ant to Letter of instr"ction )L8I* iss"ed on J"ly .- ,-34 by then President Aerdinand 7. Marcos directing M1(( to negotiate the cancellation of the M1((-C0&CCI lease agree%ent for the disposition of the s"b2ect property 8scar Il"stre then &eneral Manager of M1(( so%eti%e in No!e%ber of ,-H: infor%ed respondent C0&CCI thro"gh its president herein respondent Pablo 9o%an Jr. of its preferential right to b"y the s"b2ect property which was "p for sale. 'al"ation thereof was to be %ade by an

appraisal co%pany of petitioner M1((C choice the Asian Appraisal Co. Inc. which on Jan"ary ;: ,-H, pegged a fair %arket !al"e of PB:.:: per sG"are %eter or a total of P+; H:: :::.:: for the s"b2ect property. Ipon being infor%ed that petitioner M1(( and respondent C0&CCI had already agreed in principle on the p"rchase of the s"b2ect property President Marcos e#pressed his appro!al of the sale as shown in his %arginal note on the letter sent by respondents Jose 9o#as and Pablo 9o%an Jr. dated 6ece%ber .: ,-H.. The 5oard of Tr"stees of petitioner M1(( thereafter passed 9esol"tion ;4H; appro!ing the sale of the s"b2ect property in fa!or of respondent (IL08I7TT7 as assignee of respondent C0&CCI at the appraised !al"e gi!en by Asian Appraisal Co. Inc. The M1((-(IL08I7TT7 sales agree%ent e!ent"ally p"shed thro"gh. Per the Agree%ent dated May ,, ,-H; co!ering said p"rchase the total price for the s"b2ect property is P+: -.+ .:: P.+ Million of which was to be paid "pon President MarcosC appro!al of the contract and the balance to be paid within one ),* year fro% the transfer of the title to respondent (IL08I7TT7 as !endee with interest at ,.N per ann"%. The balance was also sec"red by an irre!ocable letter of credit. A ("pple%ental Agree%ent was forged between petitioner M1(( and respondent (IL08I7TT7 on A"g"st ,, ,-H; to acc"rately identify the s"b2ect property. ("bseG"ently respondent (IL08I7TT7 "nder a deed of sale dated J"ly .4 ,-HB sold to respondent AMALA abo"t si#ty-se!en )43* hectares of the s"b2ect property at P,,:.:: per sG"are %eter. 8f the total price of aro"nd P3B Million P.+ Million was to be paid by respondent AMALA directly to petitioner M1(( for respondent (IL08I7TT7Cs acco"nt and P. Million directly to respondent (IL08I7TT7. P,, 4:: ::: was to be paid "pon the iss"ance of title in fa!or of respondent AMALA and the re%aining balance to be payable within one ),* year with ,.N per ann"% interest. 9espondent AMALA de!eloped the land it p"rchased into a pri%e residential area now known as the Ayala 0eights ("bdi!ision. Al%ost a decade later petitioner M1(( on March .4 ,--; filed an action against all herein na%ed respondents before the 9egional Trial Co"rt of R"e$on City seeking for the declaration of n"llity of the M1((-(IL08I7TT7 sales agree%ent and all s"bseG"ent con!eyances in!ol!ing the s"b2ect property and for the reco!ery thereof with da%ages. 9espondent AMALA filed its answer pleading the affir%ati!e defenses of ),* prescription ).* laches );* wai!er<estoppel<ratification )B* no ca"se of action )+* non-2oinder of indispensable parties and )4* non-2"risdiction of the co"rt for non-specification of a%o"nt of da%ages so"ght. 8n J"ne ,: ,--;@ the trial co"rt iss"ed an 8rder dis%issing the co%plaint of petitioner M1(( on gro"nds of prescription laches estoppel and non-2oinder of indispensable parties. Iss.e1<N the M1((-(IL08I7TT7 sales agree%ent and all s"bseG"ent con!eyances in!ol!ing the G"estioned property was !alid R.lingMes. It is the clai% of petitioner M1(( that Mr. Il"stre was ne!er gi!en the a"thority by its 5oard of Tr"stees to enter into the "initial agree%ent" of 6ece%ber .: ,-H. and therefore the sale of the s"b2ect property is in!alid. Petitioner M1(( %isses the point. The percei!ed infir%ity in the "initial agree%ent" can be c"red by ratification. (o settled is the precept that ratification can be %ade by the corporate board either e#pressly or i%pliedly. I%plied ratification %ay take !ario"s for%s W like silence or acG"iescence@ by acts showing appro!al or adoption of the contract@ or by acceptance and retention of benefits flowing therefro%. 5oth %odes of ratification ha!e been %ade in this case. There was e#press ratification %ade by the 5oard of petitioner M1(( when it passed 9esol"tion No. ;4-H; appro!ing the sale of the s"b2ect property to respondent (IL08I7TT7 and a"thori$ing Mr. Il"stre as &eneral Manager "to sign for and in behalf of the M1(( the contract papers and other pertinent doc"%ents relati!e thereto." I%plied ratification by "silence or acG"iescence" is re!ealed fro% the acts of petitioner M1(( in )a* sending three );* de%and letters for the pay%ent of the p"rchase price )b* accepting P.+ Million as downpay%ent and )c* accepting a letter of credit for the balance as hereinbefore %entioned. It %ay well be pointed o"t also that nowhere in petitioner M1((C co%plaint is it alleged that it ret"rned the a%o"nts or any part thereof co!ering the p"rchase price to any of the respondents-!endees at any point in ti%e. This is only indicati!e of petitioner M1((C acceptance and retention of benefits flowing fro% the sales transactions which is another for% of i%plied ratification.

46

Section 2' ! lection of directors or trustees. - At all elections of directors or tr"stees there %"st be present either in person or by representati!e a"thori$ed to act by written pro#y the owners of a %a2ority of the o"tstanding capital stock or if there be no capital stock a %a2ority of the %e%bers entitled to !ote. The election %"st be by ballot if reG"ested by any !oting stockholder or %e%ber. In stock corporations e!ery stockholder entitled to !ote shall ha!e the right to !ote in person or by pro#y the n"%ber of shares of stock standing at the ti%e fi#ed in the by-laws in his own na%e on the stock books of the corporation or where the by-laws are silent at the ti%e of the election@ and said stockholder %ay !ote s"ch n"%ber of shares for as %any persons as there are directors to be elected or he %ay c"%"late said shares and gi!e one candidate as %any !otes as the n"%ber of directors to be elected %"ltiplied by the n"%ber of his shares shall eG"al or he %ay distrib"te the% on the sa%e principle a%ong as %any candidates as he shall see fit? Pro!ided That the total n"%ber of !otes cast by hi% shall not e#ceed the n"%ber of shares owned by hi% as shown in the books of the corporation %"ltiplied by the whole n"%ber of directors to be elected? Pro!ided howe!er That no delinG"ent stock shall be !oted. Inless otherwise pro!ided in the articles of incorporation or in the by-laws %e%bers of corporations which ha!e no capital stock %ay cast as %any !otes as there are tr"stees to be elected b"t %ay not cast %ore than one !ote for one candidate. Candidates recei!ing the highest n"%ber of !otes shall be declared elected. Any %eeting of the stockholders or %e%bers called for an election %ay ad2o"rn fro% day to day or fro% ti%e to ti%e b"t not sine die or indefinitely if for any reason no election is held or if there not present or represented by pro#y at the %eeting the owners of a %a2ority of the o"tstanding capital stock or if there be no capital stock a %a2ority of the %e%ber entitled to !ote. Bataan S"i%?a$d Vs# PCGG & 10 SCRA 7 + ,acts5A(7C8 describes itself in its petition as "a shiprepair and shipb"ilding co%pany U U incorporated as a do%estic pri!ate corporation U U )on A"g. ;: ,-3.* by a consorti"% of Ailipino shipowners and shipping e#ec"ti!es. Its %ain office is at 7ngineer Island Port Area Manila where its 7ngineer Island (hipyard is ho"sed and its %ain shipyard is located at Mari!eles 5ataan." Its Articles of Incorporation disclose that its a"thori$ed capital stock is P4: ::: :::.:: di!ided into 4: ::: shares of which ,. ::: shares with a !al"e of P,. ::: :::.:: ha!e been s"bscribed and on said s"bscription the aggregate s"% of P; :;+ :::.:: has been paid by the incorporators. The sa%e articles Identify the incorporators n"%bering fifteen ),+* as follows? ),* Jose A. 9o2as ).* Anthony P. Lee );* 7d"ardo T. Marcelo )B* Jose P. Aernande$ )+* &eneroso Tanseco )4* 7%ilio T. Map )3* Antonio M. 7$peleta )H* Xacarias A%ante )-* (e!erino de la Cr"$ ),:* Jose Arancisco ),,* 6ioscoro Papa ),.* 8cta!io Posadas ),;* Man"el (. Mendo$a ),B* Magiliw Torres and ),+* 9odolfo Torres. 5y ,-H4 howe!er of these fifteen ),+* incorporators si# )4* had ceased to be stockholders na%ely? ),* &eneroso Tanseco ).* Antonio 7$peleta );* Xacarias A%ante )B* 8cta!io Posadas )+* Magiliw Torres and )4* 9odolfo Torres. As of this year ,-H4 there were twenty ).:* stockholders listed in 5A(7C8Cs (tock and Transfer 5ook. 5arely si# %onths after its incorporation 5A(7C8 acG"ired fro% National (hipyard T (teel Corporation or NA((C8 a go!ern%ent-owned or controlled corporation the latterCs shipyard at Mari!eles 5ataan known as the 5ataan National (hipyard )5N(* and W e#cept for NA((C8Cs 7ngineer Island (hops and certain eG"ip%ent of the 5N( consigned for f"t"re negotiation W all its str"ct"res b"ildings shops G"arters ho"ses plants eG"ip%ent and facilities in stock or in transit. This it did in !irt"e of a "Contract of P"rchase and (ale with Chattel Mortgage" e#ec"ted on Aebr"ary ,; ,-3;. The price was P+. ::: :::.::. As partial pay%ent thereof 5A(7C8 deli!ered to NA((C8 a cash bond of P,, B:: :::.:: con!ertible into cash within twenty-fo"r ).B* ho"rs fro% co%pletion of the in!entory "ndertaken p"rs"ant to the contract. The balance of PB, 4:: :::.:: with interest at se!en percent )3N* per ann"% co%po"nded se%i-ann"ally was stip"lated to be paid in eG"al se%i-ann"al install%ents o!er a ter% of nine )-* years pay%ent to co%%ence after a grace period of two ).* years fro% date of t"rno!er of the shipyard to 5A(7C8. ("bseG"ently the price of P+. ::: :::.:: was red"ced by %ore than onehalf to P.B ;,, ++:.:: abo"t eight )H* %onths later. A doc"%ent to this effect was e#ec"ted. This agree%ent bore the inter!ention of President Marcos. Certain other transactions of 5A(7C8 bore the inter!ention of President Marcos. In (epte%ber ,-33 two ).* reports were s"b%itted to President Marcos regarding 5A(7C8. The first was contained in a letter dated (epte%ber + ,-33 of 0ilario M. 9"i$ 5A(7C8 president. The second was e%bodied in a confidential %e%orand"% dated (epte%ber ,4 ,-33 of Capt. A.T. 9o%"alde$. They f"rther disclose the fine hand of Marcos in the affairs of 5A(7C8 and that of a 9o%"alde$ a relati!e by affinity. In the conte#t of the proceedings at bar the act"ality of the control by President Marcos of 5A(7C8 has been s"fficiently shown.

8ther e!idence s"b%itted to the Co"rt by the (olicitor &eneral pro!es that President Marcos not only e'ercised control o!er 5A(7C8 b"t also that he actuall$ o&ns well nigh one h"ndred percent of its o"tstanding stock. Th"s 5A(7C8 was seG"estered by the go!ern%ent thro"gh the PC&&. P"rs"ant to the order of seG"estration the PC&& was ordered to ens"re the contin"ity of these co%panies as going concerns the care and %aintenance of these assets "ntil s"ch ti%e that the 8ffice of the President thro"gh the Co%%ission on &ood &o!ern%ent sho"ld decide otherwise to report to the Co%%ission on &ood &o!ern%ent periodically. The order incl"des also the prod"ction of certain doc"%ents s"ch as incl"ding ,. (tock Transfer 5ook .. Legal doc"%ents s"ch as? ..,. Articles of Incorporation@ .... 5y-Laws@ ..;. Min"tes of the Ann"al (tockholders Meeting fro% ,-3; to ,-H4@ ..B. Min"tes of the 9eg"lar and (pecial Meetings of the 5oard of 6irectors fro% ,-3; to ,-H4@ ..+. Min"tes of the 7#ec"ti!e Co%%ittee Meetings fro% ,-3; to ,-H4@ ..4.7#isting contracts with s"ppliers<contractors<others. Thereafter so%e 5A(7C8 8fficers 0ilario M. 9"i$ Man"el (. Mendo$a Moises M. 'alde$ &ilberto Pasi%anero and 5enito 9. C"esta I ad!ising of the ter%ination of their ser!ices by the PC&&. Iss.e1hat is the scope and e#tent of the powers that %ay be wielded by the PC&& with regard to the properties or b"sinesses placed "nder seG"estration or pro!isionally taken o!er R.lingThe PC// cannot e'ercise acts of dominion o!er property seG"estered fro$en or pro!isionally taken o!er. A( already earlier stressed with no little insistence the act of seG"estration@ free$ing or pro!isional takeo!er of property does not i%port or bring abo"t a di!est%ent of title o!er said property@ does not %ake the PC&& the owner thereof. In relation to the property seG"estered fro$en or pro!isionally taken o!er the PC// is a conservator# not an o&ner. Therefore it can not perfor% acts of strict ownership@ and this is especially tr"e in the sit"ations conte%plated by the seG"estration r"les where "nlike cases of recei!ership for e#a%ple no co"rt e#ercises effecti!e s"per!ision or can "pon d"e application and hearing grant a"thority for the perfor%ance of acts of do%inion. The PC&& %ay th"s e#ercise only powers of ad%inistration o!er the property or b"siness seG"estered or pro!isionally taken o!er %"ch like a co"rtappointed recei!er s"ch as to bring and defend actions in its own na%e@ recei!e rents@ collect debts d"e@ pay o"tstanding debts@ and generally do s"ch other acts and things as %ay be necessary to f"lfill its %ission as conser!ator and ad%inistrator. (o too it is within the para%eters of these conditions and circ"%stances that the PC&& %ay properly e#ercise the prerogati!e to !ote seG"estered stock of corporations granted to it by the President of the Philippines thro"gh a Me%orand"% dated J"ne .4 ,-H4. That Me%orand"% a"thori$es the PC&& "pending the o"tco%e of proceedings to deter%ine the ownership of U U )seG"estered* shares of stock " "to !ote s"ch shares of stock as it %ay ha!e seG"estered in corporations at all stockholdersC %eetings called for the election of directors declaration of di!idends a%end%ent of the Articles of Incorporation etc." The Me%orand"% sho"ld be constr"ed in s"ch a %anner as to be consistent with and not contradictory of the 7#ec"ti!e 8rders earlier pro%"lgated on the sa%e %atter. There sho"ld be no e#ercise of the right to !ote si%ply beca"se the right e#ists or beca"se the stocks seG"estered constit"te the controlling or a s"bstantial part of the corporate !oting power. The stock is not to be !oted to replace directors or re!ise the articles or bylaws or otherwise bring abo"t s"bstantial changes in policy progra% or practice of the corporation e#cept for de%onstrably weighty and defensible gro"nds and always in the conte#t of the stated p"rposes of seG"estration or pro!isional takeo!er i.e. to pre!ent the dispersion or "nd"e disposal of the corporate assets. 6irectors are not to be !oted o"t si%ply beca"se the power to do so e#ists. ("bstit"tion of directors is not to be done witho"t reason or rhy%e sho"ld indeed be sh"nned if possible and "ndertaken only when essential to pre!ent disappearance or wastage of corporate property and always "nder s"ch circ"%stances as ass"re that the replace%ents are tr"ly possessed of co%petence e#perience and probity. In the case at bar there was adeG"ate 2"stification to !ote the inc"%bent directors o"t of office and elect others in their stead beca"se the e!idence showed prima facie that the for%er were 2"st tools of President Marcos and were no longer owners of any stock in the fir% if they e!er were at all. This is why in its 9esol"tion of 8ctober .H ,-H4@ this Co"rt declared that W Petitioner has failed to %ake o"t a case of gra!e ab"se or e#cess of 2"risdiction in respondentsC calling and holding of a stockholdersC %eeting for the election of directors as a"thori$ed by the Me%orand"% of the President U U )to the PC&&* dated J"ne .4 ,-H4 partic"larly where as in this case the go!ern%ent can thro"gh its designated directors properly e#ercise control and %anage%ent o!er what appear to be properties and assets owned and belonging to the go!ern%ent itself and o!er which the persons who appear in this case on behalf of 5A(7C8 ha!e failed to show any right or e!en any shareholding in said corporation. It %"st howe!er be e%phasi$ed that the cond"ct of the PC&& no%inees in the 5A(7C8 5oard in the %anage%ent of the co%panyCs affairs sho"ld

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henceforth be g"ided and go!erned by the nor%s herein laid down. They sho"ld ne!er for a %o%ent allow the%sel!es to forget that they are conser!ators not owners of the b"siness@ they are fid"ciaries tr"stees of who% the highest degree of diligence and rectit"de is in the pre%ises reG"ired. Section 21 ! Corporate officers, quorum. - I%%ediately after their election the directors of a corporation %"st for%ally organi$e by the election of a president who shall be a director a treas"rer who %ay or %ay not be a director a secretary who shall be a resident and citi$en of the Philippines and s"ch other officers as %ay be pro!ided for in the by-laws. Any two ).* or %ore positions %ay be held conc"rrently by the sa%e person e#cept that no one shall act as president and secretary or as president and treas"rer at the sa%e ti%e. The directors or tr"stees and officers to be elected shall perfor% the d"ties en2oined on the% by law and the by-laws of the corporation. Inless the articles of incorporation or the by-laws pro!ide for a greater %a2ority a %a2ority of the n"%ber of directors or tr"stees as fi#ed in the articles of incorporation shall constit"te a G"or"% for the transaction of corporate b"siness and e!ery decision of at least a %a2ority of the directors or tr"stees present at a %eeting at which there is a G"or"% shall be !alid as a corporate act e#cept for the election of officers which shall reG"ire the !ote of a %a2ority of all the %e%bers of the board. 6irectors or tr"stees cannot attend or !ote by pro#y at board %eetings. Caga?an Valle? Vs# CIR &1'1 SCRA 0+ ,actsPetitioner a corporation d"ly organi$ed and e#isting "nder Philippine laws is a d"ly licensed retailer of %edicine and other phar%ace"tical prod"cts. It operates two dr"gstores one in T"g"egarao and other in 9o#as Isabela "nder the na%e and style of =Merc"ry 6r"g>. Petitioner alleged that in ,--+ it granted .:N sales disco"nts to G"alified senior citi$ens on p"rchases of %edicine p"rs"ant to 9A 3B;. and its i%ple%enting r"les and reg"lations. That sa%e year the co%pany operated at a loss. Also instead of treating the sales disco"nts as ta# credit they were %ade ded"ctions to gross sales. The following year petitioner filed with the 5I9 a clai% for ta# ref"nd<ta# credit. The latter/s inaction co%pelled petitioner to file on March ,H ,--H a petition for re!iew before the CTA in order to forestall the .-year prescripti!e period pro!ided by the ta# code. ("bseG"ently the case was ele!ated to the CA. The co"rt iss"ed a resol"tion dis%issing the petition on proced"ral gro"nds. The CA held that the person who signed the !erification and certification of absence of for"% shopping a certain Jacinto J. Concepcion President of petitioner-corporation failed to add"ce proof that he was d"ly a"thori$ed by the board of directors to do so. Iss.e1<N a president of a corporation %ay sign a !erification and certification witho"t need of a board resol"tionL R.lingMes. The Co"rt had held in a line of cases that the following officials %ay sign the !erification and certification witho"t need of a board resol"tion. ,. the Chairperson of the 5oard of 6irectors@ .. the President of a corporation@ ;. the &eneral Manager or Acting &eneral Manager@ B. the Personnel 8fficer@ and +. an 7%ploy%ent (pecialist in a labor case. 1hile the abo!e list is not e#cl"si!e the deter%ination of the s"fficiency and the a"thority was done on a case to case basis. The rationale is to 2"stify the a"thority of corporate officers or representati!es of the corporation to sign the !erification or certificate against for"% shopping being Nin a %osition to Ce$if? t"e t$.t"f.lness and co$$ectness of t"e allegations in t"e %etitionO# The reG"ired s"b%ission of the board resol"tion is gro"nded on the basic precept that corporate powers are e#ercised by the board directors and not solely by an officer of the corporation. The Co"rt r"led that petitioner s"bstantially co%plied with (ec B and + 9"le 3 of the ,--3 9e!ised 9"les of Ci!il Proced"re as regards the certificate on non-for"% shopping. Airst the reG"isite board resol"tion has been s"b%itted albeit belatedly by petitioner. (econd the President of petitioner is in a position to !erify the tr"thf"lness and correctness of the allegations in the petition. Third the President of petitioner has signed the co%plaint before the CTA at the inception of this 2"dicial clai% for ref"nd or ta# credit.

Il.so$io Vs# Il.so$io &1'0 SCRA 72+ ,actsThe case arose fro% a Co%plaint-Affida!it filed by petitioner Marietta D. Il"sorio )Marietta* for robbery G"alified trespass to dwelling and !iolation of Presidential 6ecree )P.6.* No. ,H.- against pri!ate respondents (yl!ia D. Il"sorio )(yl!ia* Cristina A. Il"sorio )Cristina* Jo!ito Castro )Jo!ito* and fi!e )+* John 6oes. Petitioner alleges? that she 7rlinda D. Il"sorio )7rlinda* 9a%on D. Il"sorio and (hereen D. Il"sorio owns and controls the %a2ority of the shares of stock of Lakeridge Corporation )Lakeridge* the registered owner of Pentho"se Init B;-C )Pentho"se Init B;-C* of the Pacific Pla$a Condo%ini"% )Pacific Pla$a* in Ayala A!en"e Makati City that 7rlinda as Chairperson and President of Lakeridge for H years has been the present and lawf"l occ"pant of Pentho"se Init B;-C@ that so%eti%e in 8ctober ,--- 7rlinda left for I(A gi!ing Marietta f"ll a"thority to take care and o!ersee and sec"re Pentho"se Init B;-C thro"gh a letter addressed to the %anage%ent of the Pacific Pla$a@ that on No!e%ber . ,--- (yl!ia and Cristina with se!eral "nidentified persons with the consent of Jo!ito Chief (ec"rity of the Pacific Pla$a forcibly entered Pentho"se Init B;-C by breaking its door and locks and allegedly ca"sed the loss of doc"%ents and 2ewelry )this incident was s"b2ect of a robbery case before the 8ffice of the City Prosec"tor of Makati City*@ that on No!e%ber 4 ,--- fi!e )+* "nidentified persons with Jo!ito/s per%ission forcibly entered Pentho"se Init B;-C by breaking its door and locks replacing it with new ones and th"s pre!enting her entrance@

Pri!ate 9espondents/ answer? agreed hat the registered owner of Pentho"se Init B;-C is Lakeridge 6e!elop%ent Corporation denied that petitioner and the other persons na%ed in the Co%plaint-Affida!it own and control the %a2ority shares and that 7rlinda is the chairperson and president of Lakeridge. To b"ttress this allegation they s"b%itted copies of the "pdated &eneral Infor%ation (heet filed with the (ec"rities and 7#change Co%%ission )(7C* (ecretary/s Certification dated No!e%ber H ,--- and (7C Certificate of Corporate Ailing<Infor%ation dated No!e%ber ; ,--- all showing the stockholders the officers and the %e%bers of the board of directors of Lakeridge. They also alleged that the a"thority gi!en by 7rlinda to Marietta was witho"t force and effect being ultra vires in t"e a4sence of an? 4oa$d $esol.tion to s.%%o$t it# They also noted that the letter of a"thority while dated 8ctober 3 ,--- was recei!ed by the %anage%ent of the Pacific Pla$a only on No!e%ber ; ,--- which was after the No!e%ber . ,--incident described in the Co%plaint-Affida!it. They also s"b%itted a copy of Lakeridge/s letter dated 8ctober .: ,--- to the Pacific Pla$a Condo%ini"% Association Inc. recei!ed by the latter on 8ctober .- ,--- stating that Lakeridge had not a"thori$ed any lease or sale of Pentho"se Init B;-C. They also a!erred that Marietta was not a"thori$ed by the board of directors of Lakeridge to instit"te the cri%inal case and that 7rlinda/s residence was not at the Pacific Pla$a b"t in Antipolo 9i$al. More i%portantly they alleged that there co"ld not be robbery and G"alified trespass to dwelling beca"se as officers of Lakeridge they had the right to enter Pentho"se Init B;-C.

Jo!ito on his part said that the breaking of the door and locks was really an act of %aintenance on the property "pon the written reG"est of (yl!ia as one of the legiti%ate owners of the "nit. The Prosec"tor dis%issed the charges for lack of probable ca"se. 0e fo"nd that (yl!ia being a%ong the legiti%ate owners of and who had on se!eral occasions !isited the "nit had the a"thority to do so for the effecti!e %aintenance of the "nit. Marietta/s %otion for reconsideration of the 9esol"tion was denied. (he ele!ated the case to the 6epart%ent of J"stice@ howe!er the 68J (ecretary denied the sa%e. Ainally petitioner so"ght reco"rse in the Co"rt of Appeals which denied her petition for lack of %erit. 0ence the petition to the ("pre%e Co"rt. Iss.e1N the pri!ate respondents were representati!es of LAD79I6&7 and are a"thori$ed to break open the doors of Pentho"se Init B;-C of Pacific Pla$a Condo%ini"% and gain entry theretoL

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R.lingMes the pri!ate respondents has a"thority to break open the doors of the "nit and gain entry thereto. In this case the Co"rt fo"nd no co%pelling reason to de!iate fro% o"r policy of non-interference with the in!estigating prosec"tor/s findings of absence of probable ca"se. It is ad%itted by both parties that the registered owner of Pentho"se Init B;-C is Lakeridge. Aside fro% the allegation of Marietta there is no s"fficient e!idence on record that 7rlinda was indeed the lawf"l occ"pant of the "nit. In fact the letter dated 8ctober 3 ,--- by which she clai%ed 7rlinda ga!e her a"thority to occ"py o!ersee and sec"re Pentho"se Init B;-C and belatedly recei!ed by the %anage%ent of the Pacific Pla$a on No!e%ber ; ,--- was signed by 7rlinda =for LAD79I6&7> witho"t the appropriate resol"tion of Lakeridge/s board of directors to s"pport it. Likewise Marietta is not ar%ed with any board resol"tion a"thori$ing her to instit"te the cri%inal charges against the pri!ate respondents. A"rther%ore (yl!ia and Cristina were able to establish by co%petent e!idence that they were then the 'ice-President and the Assistant 'icePresident of Lakeridge respecti!ely. As s"ch officers they wo"ld ostensibly ha!e the right and a"thority to freely enter and perfor% acts of %aintenance of Pentho"se Init B;-C. The right co"ld incl"de breaking open the door and replacing its locks apparently d"e to loss of the keys. As to the cri%inal charges filed the ("pre%e Co"rt said that? 1e hold that the e!idence add"ced does not s"pport a finding of probable ca"se for the offenses defined in the pro!isions cited )Article .-; and .-- of the 9PC and P6 ,H.-. Marietta failed to pro!e by co%petent e!idence that? ),* Pentho"se Init B;-C was the dwelling place of 7rlinda@ ).* she has a"thority o!er the said "nit@ );* (yl!ia and Cristina had no a"thority to enter the "nit and cond"ct acts of %aintenance thereon@ and )B* (yl!ia and Cristina were ar%ed when they effected entrance. 5ased on these circ"%stances the charges of robbery and G"alified trespass to dwelling %"st ine!itably fail. Perforce the charge against Jo!ito for !iolation of P.6. No. ,H.- sho"ld also be dis%issed. Elcee ,a$:s Vs# NLRC &1 2 SCRA )02+ ,actsPa%pelo (e%illano and one h"ndred forty-three ),B;* other co%plainants represented by the labor "nion ("gar Agric"lt"ral Ind"strial Labor 8rgani$ation )(AIL8* filed this co%plaint for illegal dis%issal with prayer for reinstate%ent with back wages or in the alternati!e separation pay with da%ages against 7lcee Aar%s Cora$on (ag"e%"ller 0illa Corporation )0ILLA* 9ey 0ilado and 9oberto MontaSo. Pri!ate respondents alleged that they were all reg"lar far% workers in 0acienda Trinidad which was owned and operated by petitioner corporation 7lcee Aar%s. Co%plainants alleged that petitioner Cora$on (ag"e%"ller was the president of 7lcee Aar%s b"t records disclosed that it was her son Donrad (ag"e%"ller who was the president thereof. (o%e of the co%plainants allegedly worked in 0acienda Trinidad as early as ,-4:. 8n .3 April ,-H3 7lcee Aar%s entered into a Lease Agree%ent with &arnele AG"a C"lt"re Corporation )&arnele*. Ne!ertheless %ost of the pri!ate respondents contin"ed to work in 0acienda Trinidad. 8n appeal they presented payrolls and (ocial (ec"rity (yste% )(((* Aor%s 7-B iss"ed d"ring the period that &arnele leased the hacienda na%ing 7lcee Aar%s as their e%ployer. ("bseG"ently &arnele s"b-leased 0acienda Trinidad to 6aniel 0ilado who operated 0ILLA. The contract of lease e#ec"ted between &arnele and 6aniel 0ilado stip"lated the contin"ed e%ploy%ent of ,.: of the for%er/s e%ployees by the latter b"t the contract was silent as to the benefits which %ay accr"e to the e%ployees as a conseG"ence of their e%ploy%ent with 7lcee Aar%s. Th"s pri!ate respondents were allowed to contin"e working in 0acienda Trinidad "nder the %anage%ent of 0ILLA. (oon after 0ILLA took o!er 6aniel 0ilado entered into a Collecti!e 5argaining Agree%ent )C5A* with the Inited ("gar Aar%ers/ 8rgani$ation )I(A8*. 6"e to their ref"sal to 2oin the labor "nion the pri!ate respondents were ter%inated by 0ILLA. 8n .4 6ece%ber ,--: (AIL8 and ,BB co%plainants incl"ding the ,;, pri!ate respondents herein filed against 7lcee Aar%s Cora$on (ag"e%"ller 0ILLA and its officers 9ay 0ilado and 9oberto MontaSo a co%plaint for illegal dis%issal with reinstate%ent with back wages and separation pay with da%ages before the Labor Arbiter. The Labor Arbiter dis%issed their clai% for da%ages and denied all clai%s %ade against 7lcee Aar%s Cora$on (ag"e%"ller 9ey 0ilado and 9oberto MontaSo. Co%plainants appealed and arg"ed that they had an e%ployer-e%ployee relationship with 7lcee Aar%s before 0ILLA took possession of the hacienda in No!e%ber ,--:. They pointed o"t that 7lcee Aar%s failed to present proof that they were e%ployed by &arnele to s"bstantiate the e#istence of a !alid lease agree%ent between 7lcee Aar%s and &arnele. They also pleaded that the closed shop pro!ision of the C5A between 0ILLA and I(A8 cannot be %ade to apply to the co%plainants who were %e%bers of another "nion. Iss.e-

1<N the pri!ate respondents are entitled to the award of separation pay and %oral da%ages R.lingMoral da%ages are reco!erable when the dis%issal of an e%ployee is attended by bad faith or fra"d or constit"tes an act oppressi!e to labor or is done in a %anner contrary to good %orals good c"sto%s or p"blic policy. 7#e%plary da%ages on the other hand are reco!erable when the dis%issal was done in a wanton oppressi!e or %ale!olent %anner. 5ad faith on the part of 7lcee Aar%s is shown by the act of si%"lating a lease agree%ent with &arnele in order to e!ade paying pri!ate respondents the proper a%o"nt of separation benefits based on the n"%ber of years they worked in the hacienda as pro!ided by the Labor Code. 9ecords show that 7lcee Aar%s did not pay any separation benefits to the pri!ate respondents when they allegedly leased the hacienda to &arnele and again when the hacienda was leased to 6aniel 0ilado. 1hen the e%ployees filed their co%plaint with the Labor Arbiter 7lcee Aar%s "sing the si%"lated lease agree%ent with &arnele tried to deny liability by clai%ing that their clai%s had already prescribed. It clai%ed that the lease agree%ent with &arnele which was allegedly e#ec"ted in ,-H3 effecti!ely ter%inated the e%ployere%ployee relationship before the co%plaint was filed in ,--: or %ore than three years after. These "nla"dable acts "nder%ine the workers/ stat"tory rights for which %oral da%ages %ay be awarded. Liability for separation pay is pro!ided "nder Article .H; of the Labor Code. Aro% this pro!ision three reG"ire%ents are en"%erated in cases of cessation of b"siness operations of an e%ployer co%pany not d"e to b"siness re!erses? ),* ser!ice of a written notice to the e%ployees and to the M8L7 )now the (ecretary of Labor and 7%ploy%ent* at least one %onth before the intended date thereof@ ).* the cessation of or withdrawal fro% b"siness operations %"st be bona fide in character@ and );* pay%ent to the e%ployees of ter%ination pay a%o"nting to at least one-half %onth pay for each year of ser!ice or one %onth pay whiche!er is higher. In the present case 7lcee Aar%s effecti!ely ceased to operate and %anage 0acienda Trinidad when thro"gh &arnele it leased the hacienda to 6aniel 0ilado. The !alidity of the afore%entioned lease was not G"estioned by any of the parties. There is no G"estion that the lease to 6aniel 0ilado effecti!ely ter%inated the e%ployer-e%ployee relationship between 7lcee Aar%s and the far%workers. Pri!ate respondents Pa%pelo (e%illano and 9oel 5enignos testified that 0ILLA took possession of the hacienda in ,--: and %anaged the sa%e. Clearly there was a cessation of operations of 7lcee Aar%s which renders it liable for separation pay to its e%ployees "nder (ection .H; of the Labor Code. This Co"rt nonetheless finds %erit in the petitioners/ allegation that Cora$on (ag"e%"ller sho"ld not be s"bsidiarily liable with 7lcee Aar%s for separation pay and da%ages. It is basic that a corporation is in!ested by law with a personality separate and distinct fro% those of the persons co%posing it as well as fro% that of any other legal entity to which it %ay be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself s"fficient gro"nd for disregarding the separate corporate personality. In the case of Santos v. National Labor =elations Commission a corporate officer was not held liable for the obligations inc"rred by the corporation where the corporate officer was not e!en shown to ha!e had a direct hand in the dis%issal of the e%ployee eno"gh to attrib"te to hi% an "nlawf"l act. In the case of Mala$ang Sama an ng mga Manggaga&a sa M. /reenfield. v. =amos the Co"rt restated the r"le that corporate directors and officers are solidarily liable with the corporation for the ter%ination of e%ployees done with %alice or bad faith. 5ad faith was defined by the Co"rt th"s? =It has been held that bad faith does not connote bad 2"dg%ent or negligence@ it i%ports a dishonest p"rpose or so%e %oral obliG"ity and conscio"s doing of wrong@ it %eans breach of a known d"ty thro"gh so%e %oti!e or interest or ill will@ it partakes of the nat"re of fra"d.> In A.C. =ansom the corporate entity was a fa%ily corporation and e#ec"tion against it co"ld not be i%ple%ented beca"se of the disposition post-haste of its le!iable assets e!idently in order to e!ade its 2"st and d"e obligations. The doctrine of =piercing the !eil of corporate fiction> was th"s clearly appropriate. C ua likewise in!ol!ed another fa%ily corporation and this ti%e the conflict was between two brothers occ"pying the highest ranking positions in the co%pany. There were incontro!ertible facts which pointed to e#tre%e personal ani%osity that res"lted e!idently in bad faith in the easing o"t fro% the co%pany of one of the brothers by the other. In the case of Naguiat v. National Labor =elations Commission the Co"rt applied the doctrine fo"nd in the case of A. C. =ansom Labor 8ntion? CCL8 v. National Labor =elations Commission . There was a cessation of the operations of the e%ployer-corporation and th"s a proble% as to who shall pay the e%ployees. In holding the president solidarily liable the Co"rt considered that he had acti!ely engaged in the %anage%ent and operations of the corporation. Ne!ertheless it absol!ed fro% liability the !ice-president since no e!idence on the e#tent of his participation in the %anage%ent or operation of the b"siness was proffered. In the present case the e%ployees belie!ed that petitioner Cora$on (ag"e%"ller was the president of 7lcee Aar%s beca"se the e%ployees wo"ld

49

approach her if they needed help as well as the fact that her sons were the officers of 7lcee Aar%s and &arnele. 5eyond these bare s"ppositions no e!idence oral or doc"%entary was presented to pro!e that Cora$on (ag"e%"ller was tr"ly the President of 7lcee Aar%s. Nor was there e!en proof that she was in acti!e %anage%ent of the corporation and had dictated policies for i%ple%entation by the corporation. 7#tending help to pri!ate respondents certainly did not a"to%atically !est "pon her the position of President of the corporation. There likewise appears to be no e!idence on record that she acted %alicio"sly or in bad faith in ter%inating the ser!ices of the pri!ate respondents@ nor has it been shown that she has in any way consented to the si%"lated lease contract e#ec"ted by her sons which effecti!ely ter%inated the ser!ices of the pri!ate respondents. Pa:%lona Vs# Acosta &1 0 SCRA 2'9+ Aacts? There were originally 44 co%plainants in the case before the Labor Arbiter for "nderpay%ent o!erti%e pay pre%i"% pay for rest day and holiday ser!ice incenti!e lea!e pay da%ages attorney/s fees and ,;th %onth pay. The co%plainants clai%ed that they were reg"lar rank and file e%ployees of the Pa%plona Plantation Co. Inc. )petitioner* with different hiring periods work designations and salary rates. Petitioner howe!er denied this alleging that so%e of the co%plainants are seasonal e%ployees so%e are contractors others were hired "nder the pa%$a& syste% while the rest were hired by the Pa%plona Plantation Leis"re Corporation which has a separate and distinct entity fro% it. In a 6ecision dated (epte%ber ;: ,--H the Labor Arbiter )LA* held petitioner and its %anager Jose L"is 5ondoc liable for "nderpay%ent as co%plainants were reg"lar e%ployees of petitioner. They were also held g"ilty of illegal dis%issal with regard to co%plainants Joselito Tinghil and Pedro 7%perado. 8n appeal to the National Labor 9elations Co%%ission )NL9C* the LA/s 6ecision was re!ersed and another one was entered dis%issing all the co%plaints per 6ecision dated J"ne ;: .:::. It was the NL9C/s finding that the co%plaint sho"ld ha!e been directed against the Pa%plona Plantation Leis"re Corporation since co%plainants/ indi!id"al affida!its contained the allegations that their tasks pertained to their work =in the golf co"rse.> Iss.e1<N Petitioner/s Manager is personally liable for corporate acts which is not in accord with law R.lingThe r"le is that officers of a corporation are not personally liable for their official acts "nless it is shown that they ha!e e#ceeded their a"thority. 0owe!er the legal fiction that a corporation has a personality separate and distinct fro% stockholders and %e%bers %ay be disregarded if it is "sed as a %eans to perpet"ate fra"d or an illegal act or as a !ehicle for the e!asion of an e#isting obligation the circ"%!ention of stat"tes or to conf"se legiti%ate iss"es. Moreo!er a corporate officer is not personally liable for the %oney clai%s of discharged corporate e%ployees "nless he acted with e!ident %alice and bad faith in ter%inating their e%ploy%ent. Inder (ection .+ of the Corporation Code three officers are specifically pro!ided for which a corporation %"st ha!e? president secretary and treas"rer. The law howe!er does not li%it corporate officers to these three. (ection .+ gi!es corporations the widest latit"de to pro!ide for s"ch other offices as they %ay dee% necessary. The by-laws %ay and "s"ally do pro!ide for s"ch other officers e.g. !ice-president cashier a"ditor and general %anager. In this case there is no basis fro% which it %ay be ded"ced that 5ondoc as %anager of petitioner is also a corporate officer s"ch that he %ay be held liable for the %oney clai%s awarded in fa!or of respondents. 7!en ass"%ing that he is a corporate officer still there is no showing that he acted with e!ident %alice and bad faith. 5ondoc %ay ha!e signed and appro!ed the payrolls@ ne!ertheless it does not follow that he had a direct hand in deter%ining the a%o"nt of respondents/ corresponding salaries and other benefits. 5ondoc therefore sho"ld not ha!e been held liable together with petitioner. BPI ,a:il? Vs#,i$st 2et$o &'29 SCRA *0+ ,actsAirst Metro In!est%ent Corporation )AMIC* respondent is an in!est%ent ho"se organi$ed "nder Philippine laws. Petitioner 5ank of Philippine Islands Aa%ily (a!ings 5ank Inc. is a banking corporation also organi$ed "nder Philippine laws.

AMIC thro"gh its 7#ec"ti!e 'ice President Antonio 8ng opened c"rrent acco"nt no. HB:,-:3B3;-: and deposited M7T985AND check no. H-H43- of P,:: %illion with 5PI Aa%ily 5ank)5PI-A5* (an Arancisco del Monte 5ranch )R"e$on City*. 8ng %ade the deposit "pon reG"est of his friend Ador de Asis a close acG"aintance of Jai%e (ebastian then 5ranch Manager of 5PIA5 (an Arancisco del Monte 5ranch. (ebastian/s ai% was to increase the deposit le!el in his 5ranch. 5PI-A5 thro"gh (ebastian g"aranteed the pay%ent of P,B 443 4H3.:, representing ,3N per ann"% interest of P,:: %illion deposited by AMIC. The latter in t"rn ass"red 5PI-A5 that it will %aintain its deposit of P,:: %illion for a period of one year on condition that the interest of ,3N per ann"% is paid in ad!ance. This agree%ent between co%%"nications in writing. the parties was reached thro"gh their

("bseG"ently 5PI-A5 paid AMIC ,3N interest or P,B 443 4H3.:, "pon clearance of the latter/s check deposit. 0owe!er on A"g"st .- ,-H- on the basis of an A"thority to 6ebit signed by 8ng and Ma. Theresa 6a!id (enior Manager of AMIC 5PI A5 transferred PH: %illion fro% AMIC/s c"rrent acco"nt to the sa!ings acco"nt of Te!esteco Arrastre P (te!edoring Inc. )Te!esteco*. AMIC denied ha!ing a"thori$ed the transfer of its f"nds to Te!esteco clai%ing that the signat"res of 8ng and 6a!id were falsified. There"pon to reco!er i%%ediately its deposit AMIC on (epte%ber ,. ,-H- iss"ed 5PI A5 check no. ,.-:33 for PH4 :+3 4B4.3. payable to itself and drawn on its deposit with 5PI A5 (A6M branch. 5"t "pon presentation for pay%ent on (epte%ber ,; ,-H- 5PI A5 dishonored the check as it was =drawn against ins"fficient f"nds> )6AIA*. ConseG"ently AMIC filed with the 9egional Trial Co"rt 5ranch ,B4 Makati City Ci!il Case No. H--+.H: against 5PI A5. AMIC likewise ca"sed the filing by the 8ffice of the (tate Prosec"tors of an Infor%ation for estafa against 8ng de Asis (ebastian and fo"r others. 0owe!er the Infor%ation was dis%issed on the basis of a de%"rrer to e!idence filed by the acc"sed. Iss.e1<N 5PI-A5 clothed its 5ranch Manager with apparent a"thority to enter into s"ch a patently illegal arrange%ent R.ling1hile it %ay be tr"e that barely one %onth and se!en days fro% the date of deposit respondent AMIC de%anded the withdrawal of PH4 :+3 4B4.3. thro"gh the iss"ance of a check payable to itself the sa%e was %ade as a res"lt of the fra"d"lent and "na"thori$ed transfer by petitioner 5PI A5 of its PH: %illion deposit to Te!esteco/s sa!ings acco"nt. Certainly s"ch was a nor%al reaction of respondent as a depositor to petitioner/s fail"re in its fid"ciary d"ty to treat its acco"nt with the highest degree of care. Inder this circ"%stance the withdrawal of deposit by respondent AMIC before the one-year %at"rity date did not change the nat"re of its ti%e deposit to one of de%and deposit. In its atte%pt to e!ade any liability therefor petitioner now i%p"gns the !alidity of the s"b2ect agree%ent on the gro"nd that its 5ranch Manager Jai%e (ebastian o!erstepped the li%its of his a"thority in accepting respondent/s deposit with ,3N interest per ann"%. 1e ha!e held that if a corporation knowingly per%its its officer or any other agent to perfor% acts within the scope of an apparent a"thority holding hi% o"t to the p"blic as possessing power to do those acts the corporation will as against any person who has dealt in good faith with the corporation thro"gh s"ch agent be estopped fro% denying s"ch a"thority. (ignificantly the transaction was act"ally acknowledged and ratified by petitioner when it paid respondent in ad!ance the interest for one year. Th"s petitioner is estopped fro% denying that it a"thori$ed its 5ranch Manager to enter into an agree%ent with respondent/s 7#ec"ti!e 'ice President concerning the deposit with the corresponding ,3N interest per ann"%. 2a$tine8 Vs# CA &'*7 SCRA *0+ ,acts5PI International Ainance is a foreign corporation not doing b"siness in the Philippines with office address at the 5ank of A%erica Tower ,. 0arco"rt 9oad Central 0ongkong. It was a deposit-taking co%pany organi$ed and e#isting "nder and by !irt"e of the laws of 0ongkong and was also engaged in in!est%ent banking operations therein. Cintas Largas Ltd. )CLL* was also a foreign corporation established in 0ongkong with a paid-"p capital of 0DK,: :::. The registered shareholders of the CLL in 0ongkong were the 8!erseas No%inee Ltd. and (hares

50

No%inee Ltd. which were %ainly no%inee shareholders. In 0ongkong the no%inee shareholder of CLL was 5aker T McDen$ie No%inees Ltd. a leading solicitor fir%. 0owe!er beneficially the co%pany was eG"ally owned by Messrs. 9a%on (iy 9icardo Lopa 1ilfrido C. Martine$ and Mig"el J. Lacson. The registered office address of CLL in 0ongkong was ..<A Prince/s 5"ilding also the office address of Price 1aterho"se T Co. a large acco"nting fir% in 0ongkong. The b"lk of the b"siness of the CLL was the i%portation of %olasses fro% the Philippines principally fro% the Mar Tierra Corporation and the resale thereof in the international %arket. 0owe!er Mar Tierra Corporation also sold %olasses to its c"sto%ers. 1ilfrido C. Martine$ was the president of Mar Tierra Corporation while its e#ec"ti!e !ice-president was 5la%ar &on$ales. Abo"t B.N of the capital stock of Mar Tierra Corporation was owned by 9JL Martine$ Aishing Corporation )9JL* the leading t"na fishing o"tfit in the Philippines. 5PI International Ainance )then AIAL* granted CLL a letter of credit in the a%o"nt of I(K; ::: :::. 1ilfrido Martine$ signed the letter agree%ent with the respondent for the CLL. The CLL opened a %oney %arket place%ent with the respondent bearing MMP No. :4; with an initial place%ent of I(K;-: :::. The CLL also opened and %aintained a foreign c"rrency acco"nt and a deposit acco"nt with the respondent. The a"thori$ed signatory in both acco"nts of CLL was 1ilfrido C. Martine$. (o%e instr"ctions also ca%e fro% &on$ales to be confir%ed by 1ilfrido Martine$. 9"ben Martine$ and<or his son 1ilfrido C. Martine$ and<or Mig"el J. Lacson beca%e 2oint acco"nt holders of the said %oney %arket place%ents. 8n 8ctober ,: ,-H: 5la%ar &on$ales acting for Mar Tierra Corporation sent to the respondent a tele# confir%ing his telephone con!ersation with Michael ("ng<5ing Matoto reG"esting the respondent to transfer I(K;B: ::: to Acco"nt No. AC6 (A ,HB:.-3 registered in the na%e of Mar Tierra Corporation Philippine 5anking Corporation Inion Ce%ent 5"ilding Port Area Manila as payee with the following specific instr"ctions? )a* there sho"ld be no %ention of 1ilfrido Martine$ or Mar Tierra Corporation@ )b* the tele# instr"ction sho"ld be signed only by 1ilfrido Martine$ and sent only thro"gh the tele# %achine of Mar Tierra Corporation@ and )c* the final confir%ation of the transfer sho"ld be %ade by telephone call. &on$ales reG"ested the respondent in the sa%e tele# to confir% its total a!ailable acco"nt so that instr"ctions on the transfer of the f"nds to AC6 (A ,HB:.-3 co"ld be for%ali$ed. ("ng infor%ed &on$ales that the acco"nt a!ailable was appro#i%ately I(K;B: ::: considering the CLL deposit acco"nt and the %oney %arket place%ents. 8n 8ctober ,B ,-H: the respondent recei!ed a tele# fro% 1ilfrido C. Martine$ reG"esting that the transfer of I(K;B: ::: fro% the deposit acco"nt of the CLL or any deposit a!ailable be effected by telegraphic transfer as soon as possible to their acco"nt payee AC6 (A ,HB:.-3 Philippine 5anking Corporation Port Area Manila. 8n 8ctober ., ,-H: 1ilfrido Martine$ wrote the respondent confir%ing his reG"est for the transfer of I(K;B: ::: to =their> acco"nt AC6 (A ,HB:.-3 with the Philippine 5anking Corporation thro"gh 1ells Aargo 5ank of New Mork Philippine 5anking Corporation Acco"nt No. AC6I (A No. ::;-:,-.:+. The respondent co%plied with the reG"est of the CLL thro"gh 1ilfrido Martine$ and &on$ales and re%itted I(K;B: ::: as instr"cted. 0owe!er instead of ded"cting the a%o"nt fro% the f"nds in the CLL foreign c"rrency or deposit acco"nts and<or MMP Nos. :4; and :HB the respondent %erely =posted> the I(K;B: ::: as an acco"nt recei!able of the CLL since at that ti%e the %oney %arket place%ents had not yet %at"red. 1hen the %oney %arket place%ents %at"red howe!er the respondent did not collect the I(K;B: ::: therefro%. Instead the respondent allowed the CLL and<or 1ilfrido C. Martine$ to withdraw "p to J"ly ; ,-H, the b"lk of the CLL deposit acco"nt and MMP Nos. :HB and :4;@ hence it failed to sec"re rei%b"rse%ent for the I(K;B: ::: fro% the said deposit acco"nt and<or %oney %arket place%ents. In the %eanti%e the respondent de%anded fro% the CLL 1ilfrido Martine$ Lacson &on$ales and petitioner 9"ben Martine$ the pay%ent of the I(K;B: ::: re%itted by it to AC6 (A ,HB:.-3 per instr"ctions of &on$ales and 1ilfrido Martine$. No re%ittance was %ade to the respondent. Petitioner 9"ben Martine$ denied knowledge of any s"ch re%ittance as well as any liability for the a%o"nt thereof. 8n J"ne ,3 ,-H; the respondent filed a co%plaint against the CLL 1ilfrido Martine$ Lacson &on$ales and petitioner 9"ben Martine$ with the 9TC of Daloocan City for the collection of the principal a%o"nt of I(K;B: ::: with a plea for a writ of preli%inary attach%ent. Iss.e1<N the petitioner is obliged to rei%b"rse to the respondent the principal a%o"nt of I(K;B: ::: R.lingIn this case the respondent failed to add"ce the G"ant"% of e!idence necessary to pro!e any !alid gro"nd for the piercing of the !eil of corporate

entity of Mar Tierra Corporation or of 9JL for that %atter and render the petitioner liable for the respondent/s clai% 2ointly and se!erally with 1ilfrido Martine$ and Lacson. The %ere fact that the %a2ority stockholder of Mar Tierra Corporation is the 9JL and that the petitioner along with Jose and L"is Martine$ owned abo"t B.N of the capital stock of 9JL do not constit"te s"fficient e!idence that the latter corporation and<or the petitioner and his brothers had co%plete do%ination of Mar Tierra Corporation. It does not a"to%atically follow that the said corporation was "sed by the petitioner for the p"rpose of co%%itting fra"d or wrong or to perpetrate an in2"stice on the respondent. There is no e!idence on record that the petitioner had any in!ol!e%ent in the p"rchases of %olasses by 1ilfrido Martine$ &on$ales and Lacson and the s"bseG"ent sale thereof to the CLL thro"gh Mar Tierra Corporation. 8n the contrary the e!idence on record shows that the CLL p"rchased %olasses fro% Mar Tierra Corporation and paid for the sa%e thro"gh the credit facility granted by the respondent to the CLL. The CLL thereafter %ade re%ittances to Mar Tierra Corporation fro% its deposit acco"nt and MMP Nos. :4; and :HB with the respondent. The close b"siness relationship of the two corporations does not warrant a finding that Mar Tierra Corporation was b"t a cond"it of the CLL. Likewise the respondent failed to add"ce preponderant e!idence to pro!e that the Mar Tierra Corporation and the 9JL were so organi$ed and controlled its affairs so cond"cted as to %ake the latter corporation %erely an instr"%entality agency cond"it or ad2"nct of the for%er or of 1ilfrido Martine$ &on$ales and Lacson for that %atter or that s"ch corporations were organi$ed to defra"d their creditors incl"ding the respondent. The %ere fact therefore that the b"sinesses of two or %ore corporations are interrelated is not a 2"stification for disregarding their separate personalities absent s"fficient showing that the corporate entity was p"rposely "sed as a shield to defra"d creditors and third persons of their rights. Also the %ere fact that part of the proceeds of the sale of %olasses %ade by Mar Tierra Corporation to the CLL %ay ha!e been "sed by the latter as deposits in its deposit acco"nt with the respondent or in the %oney %arket place%ents in MMP Nos. :4; and :HB or that the f"nds of Mar Tierra Corporation and the CLL with the respondent were %ingled and their disposition controlled by 1ilfrido Martine$ does not constit"te preponderant e!idence that the petitioner 1ilfrido Martine$ and Lacson "sed the Mar Tierra Corporation and the 9JL to defra"d the respondent. The respondent treated the CLL and Mar Tierra Corporation as separate entities and considered the% as one and the sa%e entity only when 1ilfrido C. Martine$ and<or 5la%ar &on$ales failed to pay the I(K;B: ::: re%itted by the respondent to AC6 (A ,HB:.-3. This being the case there is no fact"al and legal basis to hold the petitioner liable to the respondent for the said a%o"nt. Section 2) ! %eport of election of directors, trustees and officers. - 1ithin thirty );:* days after the election of the directors tr"stees and officers of the corporation the secretary or any other officer of the corporation shall s"b%it to the (ec"rities and 7#change Co%%ission the na%es nationalities and residences of the directors tr"stees and officers elected. (ho"ld a director tr"stee or officer die resign or in any %anner cease to hold office his heirs in case of his death the secretary or any other officer of the corporation or the director tr"stee or officer hi%self shall i%%ediately report s"ch fact to the (ec"rities and 7#change Co%%ission. P$e:i.: 2a$4le Vs# CA &2)' SCRA ,acts8n J"ly ,H ,-H4 Pre%i"% Marble 9eso"rces Inc. )Pre%i"%* assisted by Atty. Arn"lfo 6"%adag as co"nsel filed an action for da%ages against International Corporate 5ank? (o%eti%e in A"g"st to 8ctober ,-H. Ayala In!est%ent and 6e!elop%ent Corporation iss"ed three );* checks. 8n A"g"st to 8ctober ,-H. for%er officers of the plaintiff corporation headed by (at"rnino &. 5elen Jr. witho"t any a"thority fro% the plaintiff deposited the abo!e-%entioned checks to the c"rrent acco"nt of his cond"it corporation Inter!est Merchant Ainance )Inter!est* The plaintiff has de%anded "pon the defendant to restit"te the a%o"nt representing the !al"e of the checks b"t defendant ref"sed. Pre%i"% prayed that 2"dg%ent be rendered ordering defendant bank to pay the a%o"nt of P;, 44;.HH representing the !al"e of the checks. Meanti%e the sa%e corporation i.e. Pre%i"% b"t this ti%e represented by (ig"ion 9eyna Montecillio and 8ngsiako Law 8ffice as co"nsel filed a %otion to dis%iss on the gro"nd that the filing of the case was witho"t a"thority fro% its d"ly constit"ted board of directors as shown by the e#cerpt of the %in"tes of the Pre%i"%Cs board of directorsC %eeting. +

51

In its opposition Pre%i"% thr" Atty. 6"%adag contended that the persons who signed the board resol"tion na%ely 5elen Jr. Nograles T 9eyes are not directors of the corporation and were allegedly for%er officers and stockholders of Pre%i"% who were dis%issed for !ario"s irreg"larities and fra"d"lent acts@ that (ig"ion 9eyna Law office is the lawyer of 5elen and Nograles and not of Pre%i"% and that the Articles of Incorporation of Pre%i"% shows that 5elen Nograles and 9eyes are not %a2ority stockholders. 8n the other hand (ig"ion 9eyna Law fir% as co"nsel of Pre%i"% asserted that it is the general infor%ation sheet filed with the (ec"rities and 7#change Co%%ission a%ong others that is the best e!idence that wo"ld show who are the stockholders of a corporation and not the Articles of Incorporation since the latter does not keep track of the %any changes that take place after new stockholders s"bscribe to corporate shares of stocks. Iss.e1hether or not the filing of the case for da%ages against pri!ate respondent was a"thori$ed by a d"ly constit"ted 5oard of 6irectors of the petitioner corporation. R.lingPetitioner thro"gh the first set of officers vi>. Mario Xa!alla 8scar &an Lionel Pengson Jose Ma. (il!a Aderito M"2"ico and 9odolfo Millare presented the Min"tes of the %eeting of its 5oard of 6irectors held on April , ,-H. as proof that the filing of the case against pri!ate respondent was a"thori$ed by the 5oard. 8n the other hand the second set of officers vi>. (at"rnino &. 5elen Jr. Alberto C. Nograles and Jose L.9. 9eyes presented a 9esol"tion dated J"ly ;: ,-H4 to show that Pre%i"% did not a"thori$e the filing in its behalf of any s"it against the pri!ate respondent International Corporate 5ank. 0owe!er it appears fro% the general infor%ation sheet and the Certification iss"ed by the (7C on A"g"st ,- ,-H4 that as of March B ,-H, the officers and %e%bers of the board of directors of the Pre%i"% Marble 9eso"rces Inc. were? Alberto C. Nograles - President<6irector Aernando 6. 0ilario - 'ice President<6irector A"g"sto I. &alace Treas"rer Jose L.9. 9eyes - (ecretary<6irector Pido 7. AG"ilar 6irector (at"rnino &. 5elen Jr. - Chair%an of the 5oard. 1hile the Min"tes of the Meeting of the 5oard on April , ,-H. states that the newly elected officers for the year ,-H. were 8scar &an Mario Xa!alla Aderito M"2"ico and 9odolfo Millare petitioner failed to show proof that this election was reported to the (7C. In fact the last entry in their &eneral Infor%ation (heet with the (7C as of ,-H4 appears to be the set of officers elected in March ,-H,. 1e agree with the finding of p"blic respondent Co"rt of Appeals that !in t e absence of 1an$ board resolution from its board of directors t e 3sic4 aut orit$ to act for and in be alf of t e corporation# t e present action must necessaril$ fail. , e po&er of t e corporation to sue and be sued in an$ court is lodged &it t e board of directors t at e'ercises its corporate po&ers. , us# t e issue of aut orit$ and t e invalidit$ of plaintiff?appellant *s subscription & ic is still pending# is a matter t at is also addressed# considering t e premises# to t e sound judgment of t e Securities K 6'c ange Commission.! 5y the e#press %andate of the Corporation Code )(ection .4* all corporations d"ly organi$ed p"rs"ant thereto are reG"ired to s"b%it within the period therein stated );: days* to the (ec"rities and 7#change Co%%ission the na%es nationalities and residences of the directors tr"stees and officers elected. (ec. .4 of the Corporation Code pro!ides th"s? (ec. .4. =eport of election of directors# trustees and officers. 1ithin thirty );:* days after the election of the directors tr"stees and officers of the corporation the secretary or any other officer of the corporation shall s"b%it to the (ec"rities and 7#change Co%%ission the na%es nationalities and residences of the directors tr"stees and officers elected. . . . 7!idently the ob2ecti!e so"ght to be achie!ed by (ection .4 is to gi!e the p"blic infor%ation "nder sanction of oath of responsible officers of the nat"re of b"siness financial condition and operational stat"s of the co%pany together with infor%ation on its key officers or %anagers so that those dealing with it and those who intend to do b"siness with it %ay know or ha!e the %eans of knowing facts concerning the corporationCs financial reso"rces and b"siness responsibility. The clai% therefore of petitioners as represented by Atty. 6"%adag that Xaballa et al. are the inc"%bent officers of Pre%i"% has not been f"lly

s"bstantiated. In the absence of an a"thority fro% the board of directors no person not e!en the officers of the corporation can !alidly bind the corporation. 2onfo$t >e$:anos Vs# Antonio 2onfo$t &'*' SCRA 2(+ ,actsMonfort 0er%anos Agric"lt"ral 6e!elop%ent Corporation a do%estic pri!ate corporation is the registered owner of a far% fishpond and s"gar cane plantation known as 0aciendas (an Antonio II Marapara Pinanoag and Tina%pa-an all sit"ated in Cadi$ City. It also owns one "nit of %otor !ehicle and two "nits of tractors. The sa%e allowed 9a%on 0. Monfort its 7#ec"ti!e 'ice President to breed and %aintain fighting cocks in his personal capacity at 0acienda (an Antonio. In ,--3 the gro"p of Antonio Monfort III thro"gh force and inti%idation allegedly took possession of the B 0aciendas the prod"ce thereon and the %otor !ehicle and tractors as well as the fighting cocks of 9a%on 0. Monfort. Two cases were filed p"rs"ant to s"ch act by Antonio. Airst the Corporation represented by its President Ma. Antonia M. (al!atierra and 9a%on 0. Monfort in his personal capacity filed against the gro"p of Antonio Monfort III a co%plaint for deli!ery of %otor !ehicle tractors and ;3H fighting cocks with prayer for in2"nction and da%ages. The gro"p of Antonio Monfort III contended that Ma. Antonia M. (al!atierra has no capacity to s"e on behalf of the Corporation beca"se the 5oard 9esol"tion a"thori$ing Ma. Antonia M. (al!atierra and<or 9a%on 0. Monfort to represent the Corporation is !oid as the p"rported Me%bers of the 5oard who passed the sa%e were not !alidly elected officers of the Corporation. (econd Ma. Antonia M. (al!atierra filed on behalf of the Corporation a co%plaint for forcible entry preli%inary %andatory in2"nction with te%porary restraining order and da%ages against the gro"p of Antonio Monfort III. It contended that the latter thro"gh force and inti%idation "nlawf"lly took possession of the B 0aciendas and depri!ed the Corporation of the prod"ce thereon. Antonio Monfort III alleged that they are possessing and controlling the 0aciendas and har!esting the prod"ce therein on behalf of the corporation and not for the%sel!es. They likewise raised the affir%ati!e defense of lack of legal capacity of Ma. Antonia M. (al!atierra to s"e on behalf of the Corporation. These two cases were consolidated. Iss.e1<N Ma. Antonia M. (al!atierra has the legal capacity to s"e on behalf of the Corporation R.lingA corporation has no power e#cept those e#pressly conferred on it by the Corporation Code and those that are i%plied or incidental to its e#istence. In t"rn a corporation e#ercises said powers thro"gh its board of directors and<or its d"ly a"thori$ed officers and agents. Th"s it has been obser!ed that the power of a corporation to s"e and be s"ed in any co"rt is lodged with the board of directors that e#ercises its corporate powers. In t"rn physical acts of the corporation like the signing of doc"%ents can be perfor%ed only by nat"ral persons d"ly a"thori$ed for the p"rpose by corporate by-laws or by a specific act of the board of directors. Corollary thereto corporations are reG"ired "nder (ection .4 of the Corporation Code to s"b%it to the (7C within thirty );:* days after the election the na%es nationalities and residences of the elected directors tr"stees and officers of the Corporation. In order to keep stockholders and the p"blic transacting b"siness with do%estic corporations properly infor%ed of their organi$ational operational stat"s the (7C iss"ed the following r"les? ### ### ###

.. A Gene$al Info$:ation S"eet shall be filed with this Co%%ission within thirty );:* days following the date of the ann"al stockholders/ %eeting. No e#tension of said period shall be allowed e#cept for !ery 2"stifiable reasons stated in writing by the President (ecretary Treas"rer or other officers "pon which the Co%%ission %ay grant an e#tension for not %ore than ten ),:* days. ..A. (ho"ld a director tr"stee or officer die resign or in any %anner cease to hold office the corporation shall report s"ch fact to the Co%%ission with fifteen ),+* days after s"ch death resignation or cessation of office.

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;. If for any 2"stifiable reason the ann"al %eeting has to be postponed the co%pany sho"ld notify the Co%%ission in writing of s"ch postpone%ent. T"e Gene$al Info$:ation S"eet s"all stateF a:ong ot"e$sF t"e na:es of t"e elected di$ecto$s and office$sF toget"e$ Ait" t"ei$ co$$es%onding %osition titleO In the instant case the si# signatories to the March ;, ,--3 5oard 9esol"tion a"thori$ing Ma. Antonia M. (al!atierra and<or 9a%on 0. Monfort to represent the Corporation were? Ma. Antonia M. (al!atierra President@ 9a%on 0. Monfort 7#ec"ti!e 'ice President@ 6irectors Pa"l M. Monfort M!ete M. 5enedicto and JaG"eline M. M"say@ and 7ster (. Monfort (ecretary. 0owe!er the na%es of the last fo"r )B* signatories to the said 5oard 9esol"tion do not appear in the ,--4 &eneral Infor%ation (heet s"b%itted by the Corporation with the (7C. Inder said &eneral Infor%ation (heet the co%position of the 5oard is as follows? ,. .. ;. B. +. 4. Ma. Antonia M. (al!atierra )Chair%an*@ 9a%on 0. Monfort )Me%ber*@ Antonio 0. Monfort Jr. )Me%ber*@ JoaG"in 0. Monfort )Me%ber*@ Arancisco 0. Monfort )Me%ber* and Jes"s Antonio 0. Monfort )Me%ber*.

9epresentati!es of the corporate shares present at the %eeting clai%ed that the shares are not "nder seG"estration@ or that if they are "nder seG"estration the PC&& had no right to !ote the sa%e. The PC&& clai%ed it represented H+ 3+4 .3- shares at the %eeting incl"ding the corporate shares which corresponded to , .H4 3BB ,H+ !otes which in t"rn were distrib"ted eG"ally a%ong the fifteen ),+* candidates who were declared elected. Petitioners allege that the .3 .,, 33: shares or a total of B:H ,34 ++: !otes representing the corporate shares were illegally cast by PC&& and sho"ld be co"nted in fa!or of petitioners. The petitioners assert that is they were allowed to !ote their corresponding shares accordingly then they wo"ld obtain eno"gh !otes to be elected. The PC&& has no right to !ote the seG"estered shares of petitioners incl"ding the seG"estered corporate shares. 8nly their owners d"ly a"thori$ed representati!es or pro#ies %ay !ote the said shares. ConseG"ently the election of pri!ate respondents Adolfo A$c"na 7dison Coseteng and Patricio Pineda as %e%bers of the board of directors of (MC for ,--:-,--, sho"ld be set aside. 0owe!er petitioners cannot be declared d"ly elected %e%bers of the board of directors thereby. An election for the p"rpose sho"ld be held where the G"estioned shares %ay be !oted by their owners and<or their pro#ies. ("ch election %ay be held at the ne#t shareholdersC %eeting in April ,--, or at s"ch date as %ay be set "nder the by-laws of (MC. Pri!ate respondents in both cases are hereby declared to be de facto officers who in good faith ass"%ed their d"ties and responsibilities as d"ly elected %e%bers of the board of directors of the (MC. They are thereby legally entitled to the e%ol"%ents of the office incl"ding salary fees and other co%pensation attached to the office "ntil they !acate the sa%e. Ne!ertheless the right of the &o!ern%ent represented by the PC&& as conser!ator of seG"estered assets %"st be adeG"ately protected. The i%portant rights of stockholders are the following? a* the right to !ote@ b* the right to recei!e di!idends@ c* the right to recei!e distrib"tions "pon liG"idation of the corporation@ and d* the right to inspect the books of the corporation. It is thro"gh the right to !ote that the stockholder participates in the %anage%ent of the corporation. The right to !ote "nlike the rights to recei!e di!idends and liG"idating distrib"tions is not a passi!e thing beca"se %anage%ent or ad%inistration is "nder the Corporation Code !ested in the board of directors with certain reser!ed powers residing in the stockholders directly. The board of directors and e#ec"ti!e co%%ittee )or %anage%ent co%%ittee* and the corporate officers selected by the board %ay %ake it !ery diffic"lt if not i%possible for the PC&& to carry o"t its d"ties as conser!ator if the 5oard or officers do not cooperate are hostile or antagonistic to the conser!atorCs ob2ecti!es. Th"s it is necessary to achie!e a balancing of or reconciliation between the stockholderCs right to !ote and the conser!atorCs stat"tory d"ty to reco!er and in the process thereof to conser!e assets tho"ght to be ill-gotten wealth "ntil final 2"dicial deter%ination of the character of s"ch assets or "ntil a final co%pro%ise agree%ent between the parties is reached. In 5A(7C8 the co"rt r"led that there sho"ld be no e#ercise of the right to !ote si%ply beca"se the right e#ists or beca"se the stocks seG"estered constit"te the controlling or a s"bstantial part of the corporate !oting power. The stock is not to be !oted to replace directors or re!ise the articles or bylaws or otherwise bring abo"t s"bstantial changes in policy progra% of practice of the corporation e#cept for de%onstrably weighty and defensible gro"nds and always in the conte#t of the stated p"rposes of seG"estration or pro!isional takeo!er i e . to pre!ent the dispersion or "nd"e disposal of the corporate assets. ;irectors are not to be voted out simpl$ because t e po&er to do so e'ists. Substitution of directors is not to be done &it out reason or r $me# s ould indeed be s unned if at all possible# and underta%en onl$ & en essential to prevent disappearance or &astage of corporate propert$# and always "nder s"ch circ"%stances as to ass"re that the replace%ents are tr"ly possessed of co%petence e#perience and probity. In the case at bar there was adeG"ate 2"stification to !ote the inc"%bent directors o"t of office and elect others in their stead beca"se the e!idence showed prima facie that the for%er were 2"st tools of President Marcos and were no longer owners of any stock in the fir% if they e!er were at all. Section 27 !

There is th"s a do"bt as to whether Pa"l M. Monfort M!ete M. 5enedicto JaG"eline M. M"say and 7ster (. Monfort were indeed d"ly elected Me%bers of the 5oard legally constit"ted to bring s"it in behalf of the Corporation. In the case at bar the fact that fo"r of the si# Me%bers of the 5oard listed in the ,--4 &eneral Infor%ation (heetare already dead at the ti%e the March ;, ,--3 5oard 9esol"tion was iss"ed does not a"to%atically %ake the fo"r signatories )i.e. Pa"l M. Monfort M!ete M. 5enedicto JaG"eline M. M"say and 7ster (. Monfort* to the said 5oard 9esol"tion )whose na%e do not appear in the ,--4 &eneral Infor%ation (heet* as a%ong the inc"%bent Me%bers of the 5oard. This is beca"se it was not established that they were d"ly elected to replace the said deceased 5oard Me%bers. A corporation is %andated to infor% the (7C of the na%es and the change in the co%position of its officers and board of directors within ;: days after election if one was held or ,+ days after the death resignation or cessation of office of any of its director tr"stee or officer if any of the% died resigned or in any %anner ceased to hold office. This the Corporation failed to do. The alleged election of the directors and officers who signed the March ;, ,--3 5oard 9esol"tion was held on 8ctober ,4 ,--4 b"t the (7C was infor%ed thereof %ore than two years later or on No!e%ber ,, ,--H. The B 6irectors appearing in the ,--4 &eneral Infor%ation (heet died between the years ,-HB P ,-H3 b"t the records do not show if s"ch de%ise was reported to the (7C. 1hat f"rther %ilitates against the p"rported election of those who signed the March ;, ,--3 5oard 9esol"tion was the belated s"b%ission of the alleged Min"tes of the 8ctober ,4 ,--4 %eeting where the G"estioned officers were elected. The iss"e of legal capacity of Ma. Antonia M. (al!atierra was raised before the lower co"rt by the gro"p of Antonio Monfort III as early as 99( b"t the Min"tes of said 8ctober ,4 ,--4 %eeting was presented by the Corporation only in its Se%te:4e$ 29F 999 Co%%ent before the Co"rt of Appeals. Moreo!er the Corporation failed to pro!e that the sa%e 8ctober ,4 ,--4 Min"tes was s"b%itted to the (7C. In fact the 99( &eneral Infor%ation (heet s"b%itted by the Corporation does not reflect the na%es of the B 6irectors clai%ed to be elected on 8ctober ,4 ,--4. Considering the foregoing we find that Ma. Antonia M. (al!atierra failed to pro!e that fo"r of those who a"thori$ed her to represent the Corporation were the lawf"lly elected Me%bers of the 5oard of the Corporation. As s"ch they cannot confer !alid a"thority for her to s"e on behalf of the corporation. Section 2( ! Disqualification of directors, trustees or officers. - No person con!icted by final 2"dg%ent of an offense p"nishable by i%prison%ent for a period e#ceeding si# )4* years or a !iolation of this Code co%%itted within fi!e )+* years prior to the date of his election or appoint%ent shall G"alify as a director tr"stee or officer of any corporation. Co@.angco Vs# Ro6as & 91 SCRA (9(+ Iss.e1<N the Presidential Co%%ission on &ood &o!ern%ent )PC&&* %ay !ote the seG"estered shares of stock of (an Mig"el Corporation )(MC* and elect its %e%bers of the board of directors R.ling-

%emoval of directors or trustees. - Any director or tr"stee of a corporation %ay be re%o!ed fro% office by a !ote of the stockholders holding or representing at least two-thirds ).<;* of the o"tstanding capital stock or if the

53

corporation be a non-stock corporation by a !ote of at least two-thirds ).<;* of the %e%bers entitled to !ote? Pro!ided That s"ch re%o!al shall take place either at a reg"lar %eeting of the corporation or at a special %eeting called for the p"rpose and in either case after pre!io"s notice to stockholders or %e%bers of the corporation of the intention to propose s"ch re%o!al at the %eeting. A special %eeting of the stockholders or %e%bers of a corporation for the p"rpose of re%o!al of directors or tr"stees or any of the% %"st be called by the secretary on order of the president or on the written de%and of the stockholders representing or holding at least a %a2ority of the o"tstanding capital stock or if it be a non-stock corporation on the written de%and of a %a2ority of the %e%bers entitled to !ote. (ho"ld the secretary fail or ref"se to call the special %eeting "pon s"ch de%and or fail or ref"se to gi!e the notice or if there is no secretary the call for the %eeting %ay be addressed directly to the stockholders or %e%bers by any stockholder or %e%ber of the corporation signing the de%and. Notice of the ti%e and place of s"ch %eeting as well as of the intention to propose s"ch re%o!al %"st be gi!en by p"blication or by written notice prescribed in this Code. 9e%o!al %ay be with or witho"t ca"se? Pro!ided That re%o!al witho"t ca"se %ay not be "sed to depri!e %inority stockholders or %e%bers of the right of representation to which they %ay be entitled "nder (ection .B of this Code. Raniel Vs# <oc"ico &1 ( SCRA 22 + ,actsPetitioners are Ma. 'ictoria Pag-ong P director of Nephro and Nectarina 9aniel P director and acting corporate secretary and ad%inistrator of Nephro. 9espondents are Pa"l Jochico John (teffens ("rya 'iriya P incorporators and directors of Nephro. The conflict started when petitioners G"estioned respondentsC plan to enter into a 2oint !ent"re with the 5"t"an 6octorsC 0ospital and College Inc. so%eti%e in 6ece%ber ,--3. 5eca"se of this petitioners clai% that respondents tried to co%pel the% to wai!e and assign their shares with Nephro b"t they ref"sed. Thereafter 9aniel so"ght an indefinite lea!e of absence d"e to stress b"t this was denied by Jochico as Nephro President. 9aniel ne!ertheless did not report for work ca"sing Jochico to de%and an e#planation fro% her why she sho"ld not be re%o!ed as Ad%inistrator and Corporate (ecretary. 9aniel replied e#pressing her senti%ents o!er the disappro!al of her reG"est for lea!e and respondentsC decision with regard to the 5"t"an !ent"re. 8n Jan"ary ;: ,--H Jochico iss"ed a Notice of (pecial 5oard Meeting on Aebr"ary . ,--H. 6espite receipt of the notice petitioners did not attend the board %eeting. In said %eeting the 5oard passed se!eral resol"tions ratifying the disappro!al of 9anielCs reG"est for lea!e dis%issing her as Ad%inistrator of Nephro declaring the position of Corporate (ecretary !acant appointing 8telio Jochico as the new Corporate (ecretary and a"thori$ing the call of a (pecial (tockholdersC Meeting on Aebr"ary ,4 ,--H for the p"rpose of the re%o!al of petitioners as directors of Nephro. 8telio Jochico iss"ed the corresponding notices for the (pecial (tockholdersC Meeting to be held on Aebr"ary ,4 ,--H which were recei!ed by petitioners on Aebr"ary . ,--H. Again they did not attend the %eeting. The stockholders who were present re%o!ed the petitioners as directors of Nephro. Th"s petitioners filed a case before the (7C. 5oth the (7C and the CA held that Pag-ongCs re%o!al as director and 9anielCs re%o!al as director and officer of Nephro were !alid. Aor its part the (7C r"led that the 5oard of 6irectors had s"fficient gro"nd to re%o!e 9aniel as officer d"e to loss of tr"st and confidence as her abr"pt and "na"thori$ed lea!e of absence e#hibited her disregard of her responsibilities as an officer of the corporation and disr"pted the operations of Nephro. The CA "pheld the (7CCs concl"sions adding f"rther that the special stockholdersC %eeting on Aebr"ary ,4 ,--H was likewise !alidly held. The CA also r"led that Pag-ongCs re%o!al as director of Nephro was 2"stified as it was d"e to her ""ndenied delay in the release of NephroCs %edical s"pplies fro% the wareho"se of the Aly-0igh 5rokerage where she was an officer on top of her and her co-petitioner 9anielCs absence fro% the afore%entioned directorsC and stockholdersC %eetings of Nephro despite d"e notice." Iss.e1<N only the stockholders or %e%bers ha!e the power to re%o!e the directors or tr"stees elected by the% R.ling8nly stockholders or %e%bers ha!e the power to re%o!e the directors or tr"stees elected by the% as laid down in Section )L of t e Corporation Code which pro!ides in part? (7C. .H. =emoval of directors or trustees. -- An? di$ecto$ o$ t$.stee of a co$%o$ation :a? 4e $e:oCed f$o: office 4? a Cote of t"e stoc5"olde$s "olding o$ $e%$esenting at least tAo/t"i$ds &2J*+ of t"e o.tstanding ca%ital stoc5 or if the corporation be a non-stock corporation by a !ote of at least two-thirds ).<;* of the %e%bers entitled to !ote? Provided that s"ch

re%o!al shall take place either at a reg"lar %eeting of the corporation or at a special %eeting called for the p"rpose and in either case after pre!io"s notice to stockholders or %e%bers of the corporation of the intention to propose s"ch re%o!al at the %eeting. A special %eeting of the stockholders or %e%bers of a corporation for the p"rpose of re%o!al of directors or tr"stees or any of the% %"st be called by the secretary on order of the president or on the written de%and of the stockholders representing or holding at least a %a2ority of the o"tstanding capital stock or if it be a nonstock corporation on the written de%and of a %a2ority of the %e%bers entitled to !ote. # # # Notice of the ti%e and place of s"ch %eeting as well as of the intention to propose s"ch re%o!al %"st be gi!en by p"blication or by written notice as prescribed in this Code. # # # Re:oCal :a? 4e Ait" o$ Ait"o.t ca.se- Provided# ,hat re%o!al witho"t ca"se %ay not be "sed to depri!e %inority stockholders or %e%bers of the right of representation to which they %ay be entitled "nder (ection .B of this Code. )7%phasis s"pplied* Petitioners do not disp"te that the stockholdersC %eeting was held in accordance with NephroCs 5y-Laws. The ownership of NephroCs o"tstanding capital stock is distrib"ted as follows? Jochico - .:: shares@ (teffens - ,:: shares@ 'iriya - ,:: shares@ 9aniel - 3+ shares@ and Pag-ong - .+ shares or a total of +:: shares. A two-thirds !ote of NephroCs o"tstanding capital stock wo"ld be ;;;.;; shares and d"ring the (tockholdersC (pecial Meeting held on Aebr"ary ,4 ,--H B:: shares !oted for petitionersC re%o!al. (aid n"%ber of !otes is %ore than eno"gh to o"st petitioners fro% their respecti!e positions as %e%bers of the board with or witho"t ca"se. Section 29 ! 0acancies in the office of director or trustee. - Any !acancy occ"rring in the board of directors or tr"stees other than by re%o!al by the stockholders or %e%bers or by e#piration of ter% %ay be filled by the !ote of at least a %a2ority of the re%aining directors or tr"stees if still constit"ting a G"or"%@ otherwise said !acancies %"st be filled by the stockholders in a reg"lar or special %eeting called for that p"rpose. A director or tr"stee so elected to fill a !acancy shall be elected only or the "ne#pired ter% of his predecessor in office. A directorship or tr"steeship to be filled by reason of an increase in the n"%ber of directors or tr"stees shall be filled only by an election at a reg"lar or at a special %eeting of stockholders or %e%bers d"ly called for the p"rpose or in the sa%e %eeting a"thori$ing the increase of directors or tr"stees if so stated in the notice of the %eeting. Section *0 ! Compensation of directors. - In the absence of any pro!ision in the by-laws fi#ing their co%pensation the directors shall not recei!e any co%pensation as s"ch directors e#cept for reasonable pre die%s? Pro!ided howe!er That any s"ch co%pensation other than per die%s %ay be granted to directors by the !ote of the stockholders representing at least a %a2ority of the o"tstanding capital stock at a reg"lar or special stockholdersC %eeting. In no case shall the total yearly co%pensation of directors as s"ch directors e#ceed ten ),:N* percent of the net inco%e before inco%e ta# of the corporation d"ring the preceding year. =este$n Instit.te Vs# Salas &2(7 SCRA 2 )+ ,actsPri!ate respondents 9icardo T. (alas (al!ador T. (alas (oledad (alasT"bille2a Antonio (. (alas and 9ichard (. (alas belonging to the sa%e fa%ily are the %a2ority and controlling %e%bers of the 5oard of Tr"stees of 1estern Instit"te of Technology Inc. )1IT for short* a stock corporation engaged in the operation a%ong others of an ed"cational instit"tion. According to petitioners the %inority stockholders of 1IT so%eti%e on J"ne , ,-H4 in the principal office of 1IT at La Pa$ Iloilo City a (pecial 5oard Meeting was held. In attendance were other %e%bers of the 5oard incl"ding one of the petitioners 9eginald 'illasis. Prior to aforesaid (pecial 5oard Meeting copies of notice thereof dated May .B ,-H4 were distrib"ted to all 5oard Me%bers. The notice allegedly indicated that the %eeting to be held on J"ne , ,-H4 incl"ded Ite% No. 4 which states? Possible i%ple%entation of Art. III (ec. 4 of the A%ended 5y-Laws of 1estern Instit"te of Technology Inc. on co%pensation of all officers of the corporation. In said %eeting the 5oard of Tr"stees passed 9esol"tion granting %onthly co%pensation to the pri!ate respondents as corporate officers retroacti!e J"ne , ,-H+ Iss.e1JN the pri!ate respondents are entitled to co%pensation R.ling(ection of the Corporation Code pro!ides?

54

(ec. ;:. Compensation of directors W In the absence of any pro!ision in the by-laws fi#ing their co%pensation the directors shall not recei!e any co%pensation as suc directors e#cept for reasonable per die%s? Provided# o&ever That any s"ch co%pensation )other than per die%s* %ay be granted to directors by the !ote of the stockholders representing at least a %a2ority of the o"tstanding capital stock at a reg"lar or special stockholdersC %eeting. In no case shall the total yearly co%pensation of directors as suc directors e#ceed ten ),:N* percent of the net inco%e before inco%e ta# of the corporation d"ring the preceding year. E7%phasis o"rsF There is no arg"%ent that directors or tr"stees as the case %ay be are not entitled to salary or other co%pensation when they perfor% nothing %ore than the "s"al and ordinary d"ties of their office. This r"le is fo"nded "pon a pres"%ption that directors<tr"stees render ser!ice grat"ito"sly and that the ret"rn "pon their shares adeG"ately f"rnishes the %oti!es for ser!ice witho"t co%pensation. Inder the foregoing section there are only two ).* ways by which %e%bers of the board can be granted co%pensation apart fro% reasonable per die%s? ),* when there is a pro!ision in the by-laws fi#ing their co%pensation@ and ).* when the stockholders representing a %a2ority of the o"tstanding capital stock at a reg"lar or special stockholdersC %eeting agree to gi!e it to the%. This proscription howe!er against granting co%pensation to directors<tr"stees of a corporation is not a sweeping r"le. 1orthy of note is the clear phraseology of (ection ;: which states? ". . . ETFhe directors shall not recei!e any co%pensation as suc directors . . . ." The phrase as suc directors is not witho"t significance for it deli%its the scope of the prohibition to co%pensation gi!en to the% for ser!ices perfor%ed p"rely in their capacity as directors or tr"stees. The "na%big"o"s i%plication is that %e%bers of the board %ay recei!e co%pensation in addition to reasonable per die%s when they render ser!ices to the corporation in a capacity other than as directors<tr"stees. In the case at bench 9esol"tion No. BH s. ,-H4 granted %onthly co%pensation to pri!ate respondents not in their capacity as %e%bers of the board b"t rather as officers of the corporation %ore partic"larly as Chair%an 'ice-Chair%an Treas"rer and (ecretary of 1estern Instit"te of Technology. Clearly therefore the prohibition with respect to granting co%pensation to corporate directors<tr"stees as suc "nder (ection ;: is not !iolated in this partic"lar case. ConseG"ently the last sentence of (ection ;: which pro!ides? . . . . . . . In no case shall the total yearly co%pensation of directors as suc directors e#ceed ten C"EMF percent of t e net income before income ta' of the corporation d"ring the preceding year. )7%phasis o"rsF does not likewise find application in this case since the co%pensation is being gi!en to pri!ate respondents in their capacity as officers of 1IT and not as board %e%bers. Section * ! 1iability of directors, trustees or officers. - 6irectors or tr"stees who willf"lly and knowingly !ote for or assent to patently "nlawf"l acts of the corporation or who are g"ilty of gross negligence or bad faith in directing the affairs of the corporation or acG"ire any personal or pec"niary interest in conflict with their d"ty as s"ch directors or tr"stees shall be liable 2ointly and se!erally for all da%ages res"lting therefro% s"ffered by the corporation its stockholders or %e%bers and other persons. 1hen a director tr"stee or officer atte%pts to acG"ire or acG"ires in !iolation of his d"ty any interest ad!erse to the corporation in respect of any %atter which has been reposed in hi% in confidence as to which eG"ity i%poses a disability "pon hi% to deal in his own behalf he shall be liable as a tr"stee for the corporation and %"st acco"nt for the profits which otherwise wo"ld ha!e accr"ed to the corporation. Ce4. Co.nt$? Cl.4 Vs# Eli8aga3.e &1'2 SCRA )1+ ,actsCeb" Co"ntry Cl"b Inc. )CCCI* petitioner is a do%estic corporation operating as a non-profit and non-stock pri!ate %e%bership cl"b ha!ing its principal place of b"siness in 5anilad Ceb" City. Petitioners herein are %e%bers of its 5oard of 6irectors. (o%eti%e in ,-H3 (an Mig"el Corporation a special co%pany proprietary %e%ber of CCCI designated respondent 9icardo A. 7li$agaG"e its (enior 'ice President and 8perations Manager for the 'isayas and Mindanao as a special non-proprietary %e%ber. The designation was thereafter appro!ed by the CCCI/s 5oard of 6irectors. In ,--4 respondent filed with CCCI an application for proprietary %e%bership. The application was indorsed by CCCI/s two ).* proprietary %e%bers na%ely? 7d%"ndo T. Misa and (il!ano L"do.

iss"ed Proprietary 8wnership Certificate No. ,BB4 to respondent. 6"ring the %eetings dated April B ,--3 and May ;: ,--3 of the CCCI 5oard of 6irectors action on respondent/s application for proprietary %e%bership was deferred. In another 5oard %eeting held on J"ly ;: ,--3 respondent/s application was !oted "pon. ("bseG"ently or on A"g"st , ,--3 respondent recei!ed a letter fro% J"li"s X. Neri CCCI/s corporate secretary infor%ing hi% that the 5oard disappro!ed his application for proprietary %e%bership. 8n A"g"st 4 ,--3 7d%"ndo T. Misa on behalf of respondent wrote CCCI a letter of reconsideration. As CCCI did not answer respondent on 8ctober 3 ,--3 wrote another letter of reconsideration. (till CCCI kept silent. 8n No!e%ber + ,--3 respondent again sent CCCI a letter inG"iring whether any %e%ber of the 5oard ob2ected to his application. Again CCCI did not reply. ConseG"ently on 6ece%ber .; ,--H respondent filed with the 9egional Trial Co"rt )9TC* 5ranch 3, Pasig City a co%plaint for da%ages against petitioners docketed as Ci!il Case No. 43,-:. After trial the 9TC rendered its 6ecision dated Aebr"ary ,B .::, in fa!or of respondent.

Iss.e1<N in disappro!ing respondent/s application for proprietary %e%bership with CCCI petitioners are liable to respondent for da%ages and if so whether their liability is 2oint and se!eral R.ling8b!io"sly the CCCI 5oard of 6irectors "nder its Articles of Incorporation has the right to appro!e or disappro!e an application for proprietary %e%bership. 5"t s"ch right sho"ld not be e#ercised arbitrarily. Articles ,and ., of the Ci!il Code on the Chapter on 0"%an 9elations pro!ide restrictions th"s?

Article ,-. 7!ery person %"st in the e#ercise of his rights and in the perfor%ance of his d"ties act with 2"stice gi!e e!eryone his d"e and obser!e honesty and good faith.

Article .,. Any person who willf"lly ca"ses loss or in2"ry to another in a %anner that is contrary to %orals good c"sto%s or p"blic policy shall co%pensate the latter for the da%age. In re2ecting respondent/s application for proprietary %e%bership we find that petitioners !iolated the r"les go!erning h"%an relations the basic principles to be obser!ed for the rightf"l relationship between h"%an beings and for the stability of social order. The trial co"rt and the Co"rt of Appeals aptly held that petitioners co%%itted fra"d and e!ident bad faith in disappro!ing respondent/s applications. This is contrary to %orals good c"sto% or p"blic policy. 0ence petitioners are liable for da%ages p"rs"ant to Article ,- in relation to Article ., of the sa%e Code.

It is th"s clear that respondent was left groping in the dark wondering why his application was disappro!ed. 0e was not e!en infor%ed that a "nani%o"s !ote of the 5oard %e%bers was reG"ired. 1hen he sent a letter for reconsideration and an inG"iry whether there was an ob2ection to his application petitioners apparently ignored hi%. Certainly respondent did not deser!e this kind of treat%ent. 0a!ing been designated by (an Mig"el Corporation as a special non-proprietary %e%ber of CCCI he sho"ld ha!e been treated by petitioners with co"rtesy and ci!ility. At the !ery least they sho"ld ha!e infor%ed hi% why his application was disappro!ed.

The e#ercise of a right tho"gh legal by itself %"st nonetheless be in accordance with the proper nor%. 1hen the right is e#ercised arbitrarily "n2"stly or e#cessi!ely and res"lts in da%age to another a legal wrong is co%%itted for which the wrongdoer %"st be held responsible. It bears reiterating that the trial co"rt and the Co"rt of Appeals held that petitioners/ disappro!al of respondent/s application is characteri$ed by bad faith.

As to petitioners/ reliance on the principle of damnum absque injuria or da%age witho"t in2"ry s"ffice it to state that the sa%e is %isplaced. In Amono$ v. /utierre> we held that this principle does not apply when t"e$e is an a4.se of a %e$sonDs $ig"t as in this case.

As the price of a proprietary share was aro"nd the P+ %illion range 5enito Inch"an then president of CCCI offered to sell respondent a share for only P;.+ %illion. 9espondent howe!er p"rchased the share of a certain 6r. 5"talid for only P; %illion. ConseG"ently on (epte%ber 4 ,--4 CCCI

As to the appellate co"rt/s award to respondent of %oral da%ages we find the sa%e in order. Inder Article ..,- of the New Ci!il Code %oral da%ages %ay be reco!ered a%ong others in acts and actions referred to in Article .,. 1e belie!e respondent/s testi%ony that he s"ffered %ental ang"ish social h"%iliation and wo"nded feelings as a res"lt of the arbitrary denial of his application. 0owe!er the a%o"nt of P. ::: :::.:: is e#cessi!e. 1hile there is no hard-and-fast r"le in deter%ining what wo"ld be a fair and reasonable a%o"nt of %oral da%ages the sa%e sho"ld not be palpably

55

and scandalo"sly e#cessi!e. Moral da%ages are not intended to i%pose a penalty to the wrongdoer neither to enrich the clai%ant at the e#pense of the defendant. Taking into consideration the attending circ"%stances here we hold that an award to respondent of P+: :::.:: instead of P. ::: :::.:: as %oral da%ages is reasonable.

(7C. ;,. Liabilit$ of directors# trustees or officers . - 6irectors or tr"stees who willf"lly and knowingly !ote for or assent to patently "nlawf"l acts of the corporation or who are g"ilty of gross negligence or bad faith in directing the affairs of the corporation or acG"ire any personal or pec"niary interest in conflict with their d"ty as s"ch directors or tr"stees shall be liable 2ointly and se!erally for all da%ages res"lting therefro% s"ffered by the corporation its stockholders or %e%bers and other persons. 5asic is the r"le that a corporation is in!ested by law with a personality separate and distinct fro% that of the persons co%posing it as well as fro% that of any other legal entity to which it %ay be related. A corporation is a 2"ridical entity with legal personality separate and distinct fro% those acting for and in its behalf and in general fro% the people co%prising it. Aollowing this the general r"le applied is that obligations inc"rred by the corporation acting thro"gh its directors officers and e%ployees are its sole liabilities. A director officer and e%ployee of a corporation are generally not held personally liable for obligations inc"rred by the corporation. 5eing a %ere fiction of law howe!er there are pec"liar sit"ations or !alid gro"nds that can e#ist to warrant the disregard of its independent being and the lifting of the corporate !eil. This sit"ation %ight arise when a corporation is "sed to e!ade a 2"st and d"e obligation or to 2"stify a wrong to shield or perpetrate fra"d to carry o"t other si%ilar "n2"stifiable ai%s or intentions or as a s"bterf"ge to co%%it in2"stice and so circ"%!ent the law. Taking a c"e fro% the abo!e pro!ision a corporate director a tr"stee or an officer %ay be held solidarily liable with the corporation in the following instances? 1hen directors and tr"stees or in appropriate cases the officers of a corporationW ,. .. ;. B. !ote for or assent to patently "nlawf"l acts of the corporation@ act in bad faith or with gross negligence in directing the corporate affairs@ are g"ilty of conflict of interest to the pre2"dice of the corporation its stockholders or %e%bers and other persons. 1hen a director or officer has consented to the iss"ance of watered stocks or who ha!ing knowledge thereof did not forthwith file with the corporate secretary his written ob2ection thereto. 1hen a director tr"stee or officer has contract"ally agreed or stip"lated to hold hi%self personally and solidarily liable with the Corporation. 1hen a director tr"stee or officer is %ade by specific pro!ision of law personally liable for his corporate action.

Anent the award of e#e%plary da%ages Article ...- allows it by way of e#a%ple or correction for the p"blic good. Nonetheless since e#e%plary da%ages are i%posed not to enrich one party or i%po!erish another b"t to ser!e as a deterrent against or as a negati!e incenti!e to c"rb socially deleterio"s actions we red"ce the a%o"nt fro% P, ::: :::.:: to P.+ :::.:: only.

8n the %atter of attorney/s fees and litigation e#penses Article ..:H of the sa%e Code pro!ides a%ong others that attorney/s fees and e#penses of litigation %ay be reco!ered in cases when e#e%plary da%ages are awarded and where the co"rt dee%s it 2"st and eG"itable that attorney/s fees and e#penses of litigation sho"ld be reco!ered as in this case. In any e!ent howe!er s"ch award %"st be reasonable 2"st and eG"itable. Th"s we red"ce the a%o"nt of attorney/s fees )P+:: :::.::* and litigation e#penses )P+: :::.::* to P+: :::.:: and P.+ :::.:: respecti!ely.

Lastly petitioners/ arg"%ent that they co"ld not be held 2ointly and se!erally liable for da%ages beca"se only one ),* !oted for the disappro!al of respondent/s application lacks %erit.

(7C. ;,. Liability of directors tr"stees or officers. W 6irectors or tr"stees who willf"lly and knowingly !ote for or assent to patently "nlawf"l acts of the corporation or who are g"ilty of gross negligence or 4ad fait" in directing the affairs of the corporation or acG"ire any personal or pec"niary interest in conflict with their d"ty as s"ch directors or tr"stees shall be lia4le @ointl? and seCe$all? for all da%ages res"lting therefro% s"ffered by the corporation its stockholders or %e%bers and other persons. Ga$cia Vs# Social Sec.$it? &1'0 SCRA '1)+

+. ,actsPetitioner I%%ac"lada L. &arcia 7d"ardo de Leon 9icardo de Leon Pacita Aernande$ and Cons"elo 'illan"e!a were directors of I%pact Corporation. The corporation was engaged in the b"siness of %an"fact"ring al"%in"% t"be containers and operated two factories. 8ne was a =sl"g> fo"ndry-factory located in C"yapo N"e!a 7ci2a while the other was an 7#tr"sion Plant in Cainta Metro Manila which processed the =sl"gs> into al"%in"% collapsible t"bes and si%ilar containers for toothpaste and other related prod"cts. 9ecords show that aro"nd ,-3H I%pact Corporation started enco"ntering financial proble%s. 5y ,-H: labor "nrest besieged the corporation. In March ,-H; I%pact Corporation filed with the (ec"rities and 7#change Co%%ission )(7C* a Petition for ("spension of Pay%ents. 8n H May ,-H+ the "nion of I%pact Corporation filed a Notice of (trike with the Ministry of Labor which was followed by a declaration of strike on .H J"ly ,-H+. ("bseG"ently the Ministry of Labor certified the labor disp"te for co%p"lsory arbitration to the National Labor 9elations Co%%ission )NL9C* in an 8rder dated .+ A"g"st ,-H+. The Ministry of Labor in the sa%e 8rder noted the inability of I%pact Corporation to pay wages ,; th %onth pay and ((( re%ittances d"e to cash liG"idity proble%s. The (ocial (ec"rity (yste% )(((* thro"gh its Legal and Collection 6i!ision )LC6* filed a case before the ((C for the collection of "nre%itted ((( pre%i"% contrib"tions withheld by I%pact Corporation fro% its e%ployees. In her Answer with Co"nterclai% dated .: May ,--- petitioner a!erred that I%pact Corporation had ceased operations in ,-H:. In her defense she insisted that she was a %ere director witho"t %anagerial f"nctions and she ceased to be s"ch in ,-H.. 7!en as a stockholder and director of I%pact Corporation petitioner contended that she cannot be %ade personally liable for the corporate obligations of I%pact Corporation since her liability e#tended only "p to the e#tent of her "npaid s"bscription of which she had none since her s"bscription was already f"lly paid. Iss.e1<N &arcia is liable for the "nre%itted ((( pre%i"%s of the e%ployees R.ling(ection ;, of the Corporation Code stip"lating on the liability of directors tr"stees or officers pro!ides?

6.

The sit"ation of petitioner as a director of I%pact Corporation when said corporation failed to re%it the ((( pre%i"% contrib"tions falls e#actly "nder the fo"rth sit"ation. (ection .H)f* of the (ocial (ec"rity Law i%poses a ci!il liability for any act or o%ission pertaining to the !iolation of the (ocial (ec"rity Law to wit?

)f* If the act or o%ission penali$ed by this Act be co%%itted by an association partnership corporation or any other instit"tion its %anaging head directors or partners shall be liable to the penalties pro!ided in this Act for the offense.

In fact cri%inal actions for !iolations of the (ocial (ec"rity Law are also pro!ided "nder the 9e!ised Penal Code. The (ocial (ec"rity Law pro!ides in (ection .H thereof to wit? )h* Any e%ployer who after ded"cting the %onthly contrib"tions or loan a%orti$ations fro% his e%ployees/ co%pensation fails to re%it the said ded"ctions to the ((( within thirty );:* days fro% the date they beca%e d"e shall be pres"%ed to ha!e %isappropriated s"ch contrib"tions or loan a%orti$ations and shall s"ffer the penalties pro!ided in Article Three h"ndred fifteen of the 9e!ised Penal Code. )i* Cri%inal action arising fro% a !iolation of the pro!isions of this Act %ay be co%%enced by the ((( or the e%ployee concerned either "nder this Act or in appropriate cases "nder the 9e!ised Penal Code? # # #.

9espondents wo"ld like this Co"rt to apply another e#ception to the r"le that the persons co%prising a corporation are not personally liable for acts done in the perfor%ance of their d"ties. The rationale cited by respondents in the two preceding paragraphs need not ha!e been applied beca"se the personal liability for the "nre%itted ((( pre%i"% contrib"tions and the late penalty thereof attaches to the petitioner

56

as a director of I%pact Corporation d"ring the period the a%o"nts beca%e d"e and de%andable by !irt"e of a direct pro!ision of law. Ca$ag Vs# NLRC &120 SCRA 27+ ,actsNational Aederation of Labor Inions )NAALI* and Mari!eles Apparel Corporation Labor Inion )MACLI* )collecti!ely co%plainants* on behalf of all of MAC/s rank and file e%ployees filed a co%plaint against MAC for illegal dis%issal bro"ght abo"t by its illegal clos"re of b"siness. Co%plainants alleged that on J"ly H ,--; Ait"o.t notice of an? 5ind filed in acco$dance Ait" %e$tinent %$oCisions of t"e La4o$ Code MAC ceased operations with the intention of co%pletely closing its shop or factory. ("ch intention was %anifested in a letter allegedly clai%ed by MAC as its notice filed onl? on t"e sa:e da? t"at t"e o%e$ations closed . Co%plainants %o!ed to i%plead Carag and 6a!id. Atty. Josh"a L. Pastores )Atty. Pastores* as co"nsel for respondents s"b%itted a position paper dated ., Aebr"ary ,--B and stated that co%plainants sho"ld not ha!e i%pleaded Carag and 6a!id beca"se MAC is act"ally owned by a consorti"% of banks. Carag and 6a!id own shares in MAC only to G"alify the% to ser!e as MAC/s officers. Arbiter 8rtig"erra rendered her 6ecision dated ,3 J"ne ,--B granting the %otion to i%plead Carag and 6a!id. In the sa%e 6ecision Arbiter 8rtig"erra declared Carag and 6a!id solidarily liable with MAC to co%plainants. Iss.e1<N Carag and 6a!id be held personally liable for the clos"re of MAC R.lingCarag was not iss"ed s"%%ons not accorded a conciliatory conference not ordered to s"b%it a position paper not accorded a hearing not gi!en an opport"nity to present his e!idence and not notified that the case was s"b%itted for resol"tion. Th"s we hold that Arbiter 8rtig"erra/s 6ecision is !oid as against Carag for "tter absence of d"e process. The r"le is that a director is not personally liable for the debts of the corporation which has a separate legal personality of its own. (ection ;, of the Corporation Code lays down the e#ceptions to the r"le as follows? Liabilit$ of directors# trustees or officers . - 6irectors or tr"stees who wilf"lly and knowingly !ote for or assent to patently "nlawf"l acts of the corporation or who are g"ilty of gross negligence or bad faith in directing the affairs of the corporation or acG"ire any personal or pec"niary interest in conflict with their d"ty as s"ch directors or tr"stees shall be liable 2ointly and se!erally for all da%ages res"lting therefro% s"ffered by the corporation its stockholders or %e%bers and other persons.

cri%inal act. ("ch proced"ral defect is called illegal dis%issal beca"se it fails to co%ply with %andatory proced"ral reG"ire%ents b"t it is not illegal in the sense that it constit"tes an "nlawf"l or cri%inal act. Aor a wrongdoing to %ake a director personally liable for debts of the corporation the wrongdoing appro!ed or assented to by the director %"st be a %atentl? .nlaAf.l act. Mere fail"re to co%ply with the notice reG"ire%ent of labor laws on co%pany clos"re or dis%issal of e%ployees does not a%o"nt to a patently "nlawf"l act. Patently "nlawf"l acts are those decla$ed .nlaAf.l 4? laA which i%poses penalties for co%%ission of s"ch "nlawf"l acts. There %"st be a law declaring the act "nlawf"l and penali$ing the act. Arbiter 8rtig"erra/s asserted that =when the co%pany had already ceased operations and there is no way by which a 2"dg%ent in fa!or of e%ployees co"ld be satisfied corporate officers can be held 2ointly and se!erally liable with the co%pany.> This assertion echoes the co%plainants/ clai% that Carag is personally liable for MAC/s debts to co%plainants =on the basis of Article .,.)e* of the Labor Code as a%ended > which says? PE:%lo?e$D incl.des an? %e$son acting in t"e inte$est of an e:%lo?e$F di$ectl? o$ indi$ectl? . The ter% shall not incl"de any labor organi$ation or any of its officers or agents e#cept when acting as e%ployer. )7%phasis s"pplied* Indeed co%plainants seek to hold Carag personally liable for the debts of MAC based solely on Article .,.)e* of the Labor Code. This is the specific legal gro"nd cited by co%plainants and "sed by Arbiter 8rtig"erra in holding Carag personally liable for the debts of MAC. 1e ha!e already r"led in McLeod v. NL=C and Spouses Santos v. NL=C that A$ticle 2 2&e+ of t"e La4o$ CodeF 4? itselfF does not :a5e a co$%o$ate office$ %e$sonall? lia4le fo$ t"e de4ts of t"e co$%o$ation . The go!erning law on personal liability of directors for debts of the corporation is still (ection ;, of the Corporation Code. The r"ling in A.C. =ansom Labor 8nion?CCL8 v. NL=C which the Co"rt of Appeals cited does not apply to this case. 1e G"ote pertinent portions of the r"ling th"s? The foregoing was c"lled fro% (ection . of 9A 4:. the Mini%"% 1age Law. (ince 9AN(8M is an artificial person it %"st ha!e an officer who can be pres"%ed to be the e%ployer being the =person acting in the interest of )the* e%ployer> 9AN(8M. The corporation only in the technical sense is the e%ployer. The responsible officer of an e%ployer corporation can be held personally not to say e!en cri%inally liable for non-pay%ent of back wages. That is the policy of the law. #### )c* If the policy of the law were otherwise the corporation e%ployer can ha!e de!io"s ways for e!ading pay%ent of back wages. In t"e instant caseF it Ao.ld a%%ea$ t"at RANSO2F in 9)9F fo$eseeing t"e %ossi4ilit? o$ %$o4a4ilit? of %a?:ent of 4ac5 Aages to t"e 22 st$i5e$sF o$gani8ed ROSARIO to $e%lace RANSO2F Ait" t"e latte$ to 4e eCent.all? %"ased o.t if t"e 22 st$i5e$s Ain t"ei$ case# 9AN(8M act"ally ceased operations on May , ,-3; after the 6ece%ber ,- ,-3. 6ecision of the Co"rt of Ind"strial 9elations was pro%"lgated against 9AN(8M. Clearly in A.C. =ansom 9AN(8M thro"gh its President organi$ed 98(A9I8 to e!ade pay%ent of backwages to the .. strikers. This sit"ation or anything si%ilar showing %alice or bad faith on the part of Patricio does not obtain in the present case. Th"s the r"le is still that the doctrine of piercing the corporate !eil applies only when the corporate fiction is "sed to defeat p"blic con!enience 2"stify wrong protect fra"d or defend cri%e. In the absence of %alice bad faith or a specific pro!ision of law %aking a corporate officer liable s"ch corporate officer cannot be %ade personally liable for corporate liabilities. Neit"e$ A$ticle 2 2QeR no$ A$ticle 2(* &noA 2(2+ of t"e La4o$ Code e6%$essl? :a5es an? co$%o$ate office$ %e$sonall? lia4le fo$ t"e de4ts of t"e co$%o$ation. Th"s it was error for Arbiter 8rtig"erra the NL9C and the Co"rt of Appeals to hold Carag personally liable for the separation pay owed by MAC to co%plainants based alone on Article .,.)e* of the Labor Code. Article .,.)e* does not state that corporate officers are personally liable for the "npaid salaries or separation pay of e%ployees of the corporation. The liability of corporate officers for corporate debts re%ains go!erned by (ection ;, of the Corporation Code. Pet Plans Vs# CA &''* SCRA 1 0+ ,actsPetitioner P7T PLAN( Incorporated is a co%pany engaged in the b"siness of selling ed"cational pension and %e%orial plans while co-petitioner Adrian '. 8ca%po is its President.

(ection ;, %akes a director personally liable for corporate debts if he Ailf.ll? and 5noAingl? Cotes fo$ o$ assents to %atentl? .nlaAf.l acts of t"e co$%o$ation. (ection ;, also %akes a director personally liable if he is g.ilt? of g$oss negligence o$ 4ad fait" in di$ecting t"e affai$s of t"e co$%o$ation. Co%plainants did not allege in their co%plaint that Carag wilf"lly and knowingly !oted for or assented to any patently "nlawf"l act of MAC. Co%plainants did not present any e!idence showing that Carag wilf"lly and knowingly !oted for or assented to any patently "nlawf"l act of MAC. Neither did Arbiter 8rtig"erra %ake any finding to this effect in her 6ecision. Co%plainants did not also allege that Carag is g"ilty of gross negligence or bad faith in directing the affairs of MAC. Co%plainants did not present any e!idence showing that Carag is g"ilty of gross negligence or bad faith in directing the affairs of MAC. Neither did Arbiter 8rtig"erra %ake any finding to this effect in her 6ecision. Arbiter 8rtig"erra stopped there and did not %ake any finding that Carag is g"ilty of bad faith or of wanton !iolation of labor standard laws. Arbiter 8rtig"erra did not specify what act of bad faith Carag co%%itted or what partic"lar labor standard laws he !iolated. To hold a director personally liable for debts of the corporation and th"s pierce the !eil of corporate fiction the bad faith or wrongdoing of the director %"st be established clearly and con!incingly. 5ad faith is ne!er pres"%ed. 5ad faith does not connote bad 2"dg%ent or negligence. 5ad faith i%ports a dishonest p"rpose. 5ad faith %eans breach of a known d"ty thro"gh so%e ill %oti!e or interest. 5ad faith partakes of the nat"re of fra"d. Neither does bad faith arise a"to%atically 2"st beca"se a corporation fails to co%ply with the notice reG"ire%ent of labor laws on co%pany clos"re or dis%issal of e%ployees. The fail"re to gi!e notice is not an "nlawf"l act beca"se the law does not define s"ch fail"re as "nlawf"l. ("ch fail"re to gi!e notice is a !iolation of proced"ral d"e process b"t does not a%o"nt to an "nlawf"l or

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P7T PLAN( e%ployed Jai%e M. Abad as its (ales 8perations Manager<6istrict Manager assigning hi% to its branch office in Aparri Cagayan. Later Abad was reassigned as a Tr"st Manager a position which is ne#t lower in rank than the one he was then occ"pying. The reasons for his de%otion are his fail"re to co%ply with the sales G"ota for the years ,--H and ,--- to recr"it %anpower and to de!elop his agency. Th"s Abad filed a co%plaint with the National Labor 9elations Co%%ission )NL9C* 9egional Arbitration 5ranch No. :. T"g"egarao Cagayan for illegal dis%issal<de%otion da%ages non-pay%ent of basic wages ,; th %onth pay and other %onetary incenti!es against P7T PLAN( and 8ca%po. The 7#ec"ti!e Labor Arbiter 9icardo N. 8laire$ rendered a decision declaring co%plainant illegally dis%issed and ordering respondents @ointl? and seCe$all? to reinstate hi% to his for%er position witho"t loss of seniority rights with f"ll backwages and other benefits co%p"ted at P.4 +;;.:: basic pay incl"ding ,;th %onth pay and allowances fro% J"ne ,4 to 6ece%ber ;, ,--and P,BB -,:.;+ "npaid basic wages incl"ding ,; th %onth pay for ,--4 to ,--H pl"s ten percent attorney/s fees. The reinstate%ent aspect is i%%ediately e#ec"tory e!en pending appeal. In case reinstate%ent is no longer feasible co%plainant shall be paid separation pay of one %onth co%pensation pay incl"ding allowances for e!ery year of ser!ice. All other clai%s are hereby dis%issed. Iss.e1<N the Co"rt of Appeals acted with gra!e ab"se of discretion when it dis%issed petitioners/ special ci!il action for certiorari on the gro"nd that petitioners failed to co%ply with the pro!isions of the 9"les of Co"rt on !erification and certificate of non-for"% shopping R.ling(ection ,. Petition for certiorari . P 1hen any trib"nal board or officer e#ercising 2"dicial or G"asi-2"dicial f"nctions has acted witho"t or in e#cess of its or his 2"risdiction or with gra!e ab"se of discretion a%o"nting to lack or e#cess of 2"risdiction and there is no appeal or any plain speedy and adeG"ate re%edy in the ordinary co"rse of law a person aggrie!ed thereby %ay file a !erified petition in the proper co"rt alleging the facts with certainty and praying that 2"dg%ent be rendered ann"lling or %odifying the proceedings of s"ch trib"nal board or officer and granting s"ch incidental reliefs as law and 2"stice %ay reG"ire. T"e %etition s"all 4e acco:%anied 4? a ce$tified t$.e co%? of t"e @.dg:entF o$de$ o$ $esol.tion s.4@ect t"e$eofF co%ies of all %leadings and doc.:ents $eleCant and %e$tinent t"e$etoF and a sAo$n ce$tification of non/fo$.: s"o%%ing as %$oCided in t"e t"i$d %a$ag$a%" of section *F R.le ')# Pertinent portions of (ection ; 9"le B4 pro!ides? (ection ;. Contents and filing of petition( effect of non?compliance &it requirements. P . . . The petitioner shall also s"b%it together with the petition a sworn certification that he has not theretofore co%%enced any other action in!ol!ing the sa%e iss"es in the ("pre%e Co"rt the Co"rt of Appeals or different di!isions thereof or any other trib"nal or agency@ if there is s"ch other action or proceeding he %"st state the stat"s of the sa%e@ and if he sho"ld thereafter learn that a si%ilar action or proceeding has been filed or is pending before the ("pre%e Co"rt the Co"rt of Appeals or different di!isions thereof or any other trib"nal or agency he "ndertakes to pro%ptly infor% the aforesaid co"rts and other trib"nal or agency thereof within fi!e )+* days therefro%. . . . The fail"re of the petitioner to co%ply with any of the foregoing reG"ire%ents shall be s"fficient gro"nd for the dis%issal of the petition. In CA-&.9. (P No. 4.B,: a certain 9olando M. 7spino signed the 'erification and Certification attached to the petition for certiorari as the d"ly a"thori$ed representati!e of petitioners. 0owe!er no proof was presented to show that 7spino is indeed the a"thori$ed representati!e of petitioners. As a conseG"ence CA-&.9. (P No. 4.B,: was dis%issed by the Co"rt of Appeals. ("bseG"ent to s"ch dis%issal howe!er petitioners filed a %otion for reconsideration attaching thereto a certificate iss"ed by 7spino who is also the corporate secretary of P7T PLAN( indicating that on 6ece%ber . .::: the 5oard of 6irectors of petitioner corporation iss"ed a resol"tion a"thori$ing hi% to represent the corporation in all cases filed by or against it =gi!ing hi% f"ll a"thority to enter into an a%icable settle%ent to s"b%it to alternati!e %odes of disp"te resol"tion and to enter into stip"lations or ad%issions of facts and of doc"%ents as well as to sign e#ec"te and deli!er all pleadings agree%ents papers and doc"%ents and do all those necessary to carry into effect the herein resol"tion.> The (ecretary/s Certificate was acco%panied by a certification iss"ed by herein petitioner 8ca%po the President<C78 of petitioner corporation attesting to the fact that 7spino is indeed the Corporate (ecretary of petitioner corporation and that he is a"thori$ed to represent petitioner corporation in all cases filed by or against it which incl"des the

a"thority to sign e#ec"te and deli!er all pleadings agree%ents papers and doc"%ents. In the present case a reading of the s"b2ect resol"tion iss"ed by the 5oard of 6irectors of P7T PLAN( shows that it a"thori$es 7spino to represent only P7T PLAN( not its co-petitioner 8ca%po. Nothing in the records at hand indicates that 7spino is clothed with special a"thority to represent 8ca%po. 0ence 7spino does not represent 8ca%po in the filing of CA-&.9. (P No. 4.B,:. As s"ch 8ca%po being a petitioner in his own right sho"ld ha!e also signed the !erification and certificate of non-for"% shopping attached to the petition of CA-&.9. (P No. 4.B,:. 8rdinarily 8ca%po sho"ld ha!e been considered a no%inal party as he was %erely i%pleaded by co%plainant in his capacity as the president of P7T PLAN( and no specific clai% or charge against hi% in his personal capacity was alleged in the co%plaint filed with the NL9C 9egional Arbitration 5ranch. 0owe!er considering that the Labor Arbiter/s decision %ade hi% 2ointly and solidarily liable with P7T PLAN( he has beco%e a real party-in-interest whose stake s"bseG"ent to the Labor Arbiter/s decision ha!e beco%e distinct fro% those of Petitioner Corporation. As s"ch it beco%es ine!itable for hi% to sign the !erification and certificate of non-for"% shopping. (ection ; 9"le B4 of the 9"les of Co"rt reG"ires that the petitioner shall sign the certificate of non-for"% shopping. In the case of corporations the physical act of signing %ay be perfor%ed in behalf of the corporate entity by specifically a"thori$ed indi!id"als for the si%ple reason that corporations as artificial persons cannot do the task the%sel!es. 0owe!er in the case of nat"ral persons the 9"le reG"ires the parties the%sel!es to sign the certificate of non-for"% shopping. The reason for s"ch a reG"ire%ent is that the petitioner hi%self or in case of a corporation its d"ly a"thori$ed representati!e knows better than anyone else whether a separate case has been filed or pending which in!ol!es s"bstantially the sa%e iss"es. In the present case it cannot be said with certainty that 7spino knows beyond do"bt that 8ca%po has not filed before any co"rt or trib"nal a separate case related to the present petition and the petition in CA-&.9. (P No. 4.B,:. In Loquias vs. <ffice of t e <mbudsman we held that fail"re of one of the petitioners to sign the !erification and certificate against for"% shopping constit"tes a defect in the petition which is a gro"nd for dis%issing the sa%e. 1hile we ha!e held in r"lings s"bseG"ent to Loquias that this r"le %ay be rela#ed petitioners %"st co%ply with two conditions? first petitioners %"st show 2"stifiable ca"se for their fail"re to personally sign the certification and@ second they %"st also be able to pro!e that the o"tright dis%issal of the petition wo"ld serio"sly i%pair the orderly ad%inistration of 2"stice. In the present case we find that petitioners failed to pro!e the presence of these conditions. The dis%issal by the Co"rt of Appeals of CA-&.9. (P No. 4.B,: sho"ld ha!e p"t petitioners on g"ard as to the basic proced"ral reG"ire%ents in filing the petition. Notwithstanding s"ch dis%issal and their s"bseG"ent filing of a %otion for reconsideration petitioners still failed to s"bstantially co%ply with the reG"ire%ents of the 9"les by the fail"re of 8ca%po to sign the certificate of non-for"% shopping. In the present petition filed before "s P7T PLAN( once again failed to s"b%it proof that it has a"thori$ed 7spino to file the present petition or to sign the !erification and certificate against for"% shopping attached thereto. Likewise petitioner 8ca%po again failed to sign the certificate of non-for"% shopping. 1e cannot allow a party to gain an ad!antage fro% its flagrant disregard of the 9"les. RN S?:aco Vs# Santos &')( SCRA * 2+ ,acts9espondent Malabon Aish 5rokers Association Inc. )MA5AI* was a non-stock corporation established to erect and operate the Malabon Aish 5rokers Association Aish Market ai%ed at pro%oting the econo%ic welfare of its %e%bers in their b"siness of b"ying and selling fish and other %arine prod"cts. Linda (ioson was elected as treas"rer of the corporation. 8n April ;: ,-H: Mariano &"ison as lessor and the MA5AI as lessee e#ec"ted a contract of lease o!er a portion of fi!e parcels of land located in Malabon Metro Manila. Incl"ded in the lease agree%ent was a portion of his property occ"pied by 9"dy (y%aco along 7strella (treet Malabon Metro Manila. The MA5AI th"s constr"cted the %arket on the leased property where its %e%bers installed their respecti!e stalls. 8n A"g"st ,; ,-H; a gro"p of MA5AI %e%bers led by Marcos 'alle Jr. appro!ed the corporation/s 5y-Laws. 8n A"g"st ,H ,-H; another set of MA5AI %e%bers led by Lino 5"hain %et and a%ended the 5y-Laws which the (ec"rities and 7#change Co%%ission )(7C* appro!ed on (epte%ber 3 ,-H;. 0owe!er 'alle Jr. and ten others filed a petition with the (7C against 5"hain et al. for the n"llification of the a%ended 5y-Laws@ to gi!e d"e co"rse to the 5y-Laws appro!ed on A"g"st ,; ,-H;@ and to declare the% )'alle Jr. et al.* as the d"ly-established %e%bers of the corporation/s 5oard of 6irectors. The case was docketed as (7C Case No. .+.,. The (7C 0earing 8fficer rendered a 6ecision ordering the dis%issal of the petition and directing the hold-o!er officers to call for a %e%bership %eeting to elect the new 5oard of 6irectors and 8fficers of the Malabon Aish 5rokers Association Inc. within ;: days fro% finality of the decision. According to the

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hearing officer fro% its incorporation the MA5AI had only ;+ legiti%ate %e%bers and respondent L"isito T. (antos was not listed as one of the%. The decision was appealed to the (7C which was howe!er dis%issed. This pro%pted 'alle Jr. et al. to ele!ate the decision to the Co"rt of Appeals )CA* via petition for re!iew. Meanwhile Mariano &"ison died intestate. 8n April ;: ,--: the 0eirs of Mariano &"ison and petitioner Nor%a (y%aco then President and Chair%an of the 5oard of 6irectors of petitioner 9.N. (y%aco Trading Corporation )(y%aco Corporation* e#ec"ted an "nnotari$ed contract of lease o!er a portion of the property pre!io"sly leased to MA5AI. Nor%a (y%aco was then also a %e%ber of the MA5AI 5oard of 6irectors. (y%aco Corporation had the stallholders e!icted fro% the %arket and filed a co%plaint for forcible entry against the% with the Metropolitan Trial Co"rt which the MeTC iss"ed a writ of preli%inary %andatory in2"nction against the defendants. It rendered 2"dg%ent in fa!or of the plaintiff corporation on 8ctober ,, ,--:. 8n May ;, ,--: the CA rendered 2"dg%ent affir%ing the (7C decision in (7C Case No. .+.,. The decision beca%e final and e#ec"tory. 8n 8ctober .- ,--: respondent (antos for and in behalf of the MA5AI filed a co%plaint for the ann"l%ent of the April ;: ,--: Contract of Lease between the 0eirs of Mariano &"ison and defendant (y%aco Corporation with in2"ncti!e relief against petitioners 7state of Mariano &"ison (y%aco Corporation and Nor%a (y%aco in the 9egional Trial Co"rt )9TC* of Malabon. 9espondent (antos alleged inter alia that as an MA5AI %e%ber he was a no%inal party@ he filed the deri!ati!e s"it for and in behalf of MA5AI. 0e f"rther alleged that the April ;: ,--: Contract of Lease e#ec"ted by the defendants was n"ll and !oid since it was e#ec"ted by (y%aco Corporation thro"gh Nor%a (y%aco who was the president and chair%an of the 5oard of 6irectors of the said corporation and still a %e%ber of the MA5AI 5oard of 6irectors@ hence the contract was e#ec"ted in !iolation of the principle of corporate opport"nity "nder (ections ;, and ;B of the Corporation Code of the Philippines. Iss.e1<N Nor%a (y%aco and<or 9.N. (y%aco Trading Corp. !iolates the doctrine of corporate opport"nity R.lingNo. (antos was not a legiti%ate MA5AI %e%ber@ hence he had no standing to file a deri!ati!e s"it for and in its behalf. 8ne of the reG"isites of a deri!ati!e s"it is that the party bringing the s"it sho"ld be a stockholder<%e%ber at the ti%e of the action or transaction co%plained of. The right to s"e deri!ati!ely is an attrib"te of corporate ownership which to be e#ercised reG"ires that the in2"ry alleged be indirect as far as the stockholders<%e%bers are concerned and direct only insofar as the corporation is concerned. The whole p"rpose of the law a"thori$ing a deri!ati!e s"it is to allow the stockholder<%e%ber to enforce rights which are deri!ati!e )secondary* in nat"re. A deri!ati!e action is a s"it by a shareholder<%e%ber to enforce a corporate ca"se of action. All the MA5AI %e%bers are not indispensable parties in a deri!ati!e s"it. It is eno"gh that a %e%ber or a %inority of s"ch %e%bers file a deri!ati!e s"it for and in behalf of the corporation. After all the %e%bers<stockholders who filed a deri!ati!e s"it are %erely no%inal parties the real party-in-interest being the corporation itself for and in whose behalf the s"it is filed. Any %onetary benefits "nder the decision of the co"rt shall pertain to the corporation. In light of the foregoing there is no longer a need for the Co"rt to still resol!e the other iss"es on whether (y%aco !iolated the doctrine of corporate opport"nity. Solid Ban5 Vs# 2indanao ,e$$o &')' SCRA '09+ ,acts=The Maria Cristina Che%ical Ind"stries )MCCI* and three );* Dorean corporations na%ely the (sangyong Corporation the Pohang Iron and (teel Co%pany and the 6ongil Ind"stries Co%pany Ltd. decided to forge a 2oint !ent"re and establish a corporation "nder the na%e of the Mindanao Aerroalloy Corporation )Corporation for bre!ity* with principal offices in Iligan City. 9icardo P. &"e!ara was the President and Chair%an of the 5oard of 6irectors of the Corporation. Jong-1on 0ong the &eneral Manager of (sangyong Corporation was the 'ice-President of the Corporation for Ainance Marketing and Ad%inistration. (o was Teresita 9. C". 8n No!e%ber .4 ,--: the 5oard of 6irectors of the Corporation appro!ed a V9esol"tion/ a"thori$ing its President and Chair%an of the 5oard of 6irectors

or Teresita 9. C" acting together with Jong-1on 0ong to sec"re an o%nib"s line in the aggregate a%o"nt of P;: ::: :::.:: fro% the (olidbank. =In the %eanti%e the Corporation started its operations so%eti%e in April ,--,. Its indebtedness ballooned to P.:: B+; 4H4.4- co%pared to its assets of only P4+ B34 :::.::. 8n May ., ,--, the Corporation sec"red an ordinary ti%e loan fro% the (olidbank in the a%o"nt of P; .:: :::.::. Another ordinary ti%e loan was granted by the 5ank to the Corporation on May .H ,--, in the a%o"nt of P, H:: :::.:: or in the total a%o"nt of P+ ::: :::.:: d"e on J"ly ,+ and .4 ,--, respecti!ely. =0owe!er the Corporation and the 5ank agreed to consolidate and at the sa%e ti%e restr"ct"re the two ).* loan a!ail%ents the sa%e payable on (epte%ber .: ,--,. The Corporation e#ec"ted VPro%issory Note No. -4--,::H4+-4/ in fa!or of the 5ank e!idencing its loan in the a%o"nt of P+ ,4: :::.:: payable on (epte%ber .: ,--,. Teresita C" and Jong-1on 0ong affi#ed their signat"res on the note. To sec"re the pay%ent of the said loan the Corporation thro"gh Jong-1on 0ong and Teresita C" e#ec"ted a V6eed of Assign%ent/ in fa!or of the 5ank co!ering its rights title and interest to VThe entire proceeds of drafts drawn "nder Irre!ocable Letter of Credit No. M-(-:B,-.::.:H: opened with The Mits"bishi 5ank Ltd. P Tokyo dated J"ne ,; ,--, for the acco"nt of (sangyong Japan Corporation 3A. Mats"okaTa%"ra-Cho 5ldg. ..-,: +-Cho%e (hi%bashi Minato-D" Tokyo Japan "p to the e#tent of I(K,-3 43-.::/ =The Corporation likewise e#ec"ted a VR"edan/ by way of additional sec"rity "nder which the Corporation bo"nd and obliged to keep and hold in tr"st for the 5ank or its 8rder VAerrosilicon for I(K,-3 43-.::/. Jong-1on 0ong and Teresita C" affi#ed their signat"res thereon for the Corporation. The Corporation also thro"gh Jong-1on 0ong and Teresita C" e#ec"ted a VTr"st 9eceipt Agree%ent/ by way of additional sec"rity for said loan the Corporation "ndertaking to hold in tr"st for the 5ank as its property the following? V,. T07 MIT(I5I(0I 5AND LT6. Tokyo L<C No. M-(-:B,.::.:H: for acco"nt of (sangyong Japan Corporation Tokyo Japan for I(K,-3 43-.:: Aerrosilicon to e#pire (epte%ber .: ,--,. V.. (7C RI76AN N8. -,-B34 dated J"ne .4 ,--, co!ering the following? Aerrosilicon for I(K,-3 43-.::/ =0owe!er shortly after the e#ec"tion of the said deeds the Corporation stopped its operations. The Corporation failed to pay its loan a!ail%ents fro% the 5ank incl"si!e of accr"ed interest. 8n Aebr"ary ,, ,--. the 5ank sent a letter to the Corporation de%anding pay%ent of its loan a!ail%ents incl"si!e of interests d"e. The Corporation failed to co%ply with the de%and of the 5ank. 8n No!e%ber .; ,--. the 5ank sent another letter to the ECorporationF de%anding pay%ent of its acco"nt which by No!e%ber .; ,--. had a%o"nted to P3 .H; -,;.;;. The Corporation again failed to co%ply with the de%and of the 5ank. =8n Jan"ary 4 ,--; the 5ank filed a co%plaint against the Corporation (ps. Jong-1on 0ong and the (ps. Teresita 9. C" for V("% of Money/ with a plea for the iss"ance of a writ of preli%inary attach%ent. =In dis%issing the co%plaint against the indi!id"al ErespondentsF the Co"rt a quo fo"nd and declared that EpetitionerF failed to add"ce a %orsel of e!idence to pro!e the personal liability of the said ErespondentsF for the clai%s of EpetitionerF and that the latter i%pleaded the ErespondentsF in its co%plaint and a%ended co%plaint solely to p"t %ore press"re on the 6efendant Corporation to pay its obligations to EpetitionerF. Iss.e1<N the indi!id"al respondents can be held 2ointly and solidary liable R.ling5asic is the principle that a corporation is !ested by law with a personality separate and distinct fro% that of each person co%posing or representing it. 7G"ally f"nda%ental is the general r"le that corporate officers cannot be held personally liable for the conseG"ences of their acts for as long as these are for and on behalf of the corporation within the scope of their a"thority and in good faith. The separate corporate personality is a shield against the personal liability of corporate officers whose acts are properly attrib"ted to the corporation. 9espondent &"e!ara was not personally liable for the contracts. 2irst it is beyond ca!il that he was d"ly a"thori$ed to act on behalf of the corporation@ and that in negotiating the loans with petitioner he did so in his official capacity. Second no s"fficient and specific e!idence was presented to show that he had acted in bad faith or gross negligence in that negotiation. , ird he did not hold hi%self personally and solidarily liable with the corporation. Neither is there any specific pro!ision of law %aking hi% personally answerable for the s"b2ect corporate acts. 8n the other hand 9espondents C" and 0ong signed the Pro%issory Note witho"t the word =by> preceding their signat"res atop the designation =Maker<5orrower> and the printed na%e of the corporation as follows? ZZ)(gd* C"<0ongZZ )Maker<5orrower* MIN6ANA8 A7998ALL8M

59

1hile their signat"res appear witho"t G"alification the inference that they signed in their indi!id"al capacities is negated by the following facts? ,* the na%e and the address of the corporation appeared on the space pro!ided for =Maker<5orrower>@ .* 9espondents C" and 0ong had only one set of signat"res on the instr"%ent when there sho"ld ha!e been two if indeed they had intended to be bo"nd solidarily -- the first as representati!es of the corporation and the second as the%sel!es in their indi!id"al capacities@ ;* they did not sign "nder the spaces pro!ided for =Co-%aker > and neither were their addresses reflected there@ and B* at the back of the Pro%issory Note they signed abo!e the words =A"thori$ed 9epresentati!e.> Moreo!er it is a#io%atic that solidary liability cannot be lightly inferred. Inder Article ,.:3 of the Ci!il Code =there is a solidary liability only when the obligation e#pressly so states or when the law or the nat"re of the obligation reG"ires solidarity.> (ince solidary liability is not clearly e#pressed in the Pro%issory Note and is not reG"ired by law or the nat"re of the obligation in this case no concl"sion of solidary liability can be %ade. A"rther%ore nothing s"pports the alleged 2oint liability of the indi!id"al petitioners beca"se as correctly pointed o"t by the two lower co"rts the e!idence shows that there is only one debtor? the corporation. In a 2oint obligation there %"st be at least two debtors each of who% is liable only for a proportionate part of the debt@ and the creditor is entitled only to a proportionate part of the credit. Moreo!er it is rather late in the day to raise the alleged 2oint liability as this %atter has not been pleaded before the trial and the appellate co"rts. 5efore the lower co"rts petitioner anchored its clai% solely on the alleged 2oint and se!eral )or solidary* liability of the indi!id"al respondents. Petitioner %"st be re%inded that an iss"e cannot be raised for the first ti%e on appeal b"t seasonably in the proceedings before the trial co"rt. (o too the Pro%issory Note in G"estion is a negotiable instr"%ent. Inder (ection ,- of the Negotiable Instr"%ents Law agents or representati!es %ay sign for the principal. Their a"thority %ay be established as in other cases of agency. (ection .: of the law pro!ides that a person signing =for and on behalf of a EdisclosedF principal or in a representati!e capacity # # # is not liable on the instr"%ent if he was d"ly a"thori$ed.> The a"thority of 9espondents C" and 0ong to sign for and on behalf of the corporation has been a%ply established by the 9esol"tion of Minfaco/s 5oard of 6irectors stating that =Atty. 9icardo P. &"e!ara )President and Chair%an* or Ms. Teresita 9. C" )'ice President* acting together with Mr. Jong 1on 0ong )'ice President* be as they are hereby a"thori$ed for and in behalf of the Corporation to? ,. Negotiate with and obtain fro% )petitioner* the e#tension of an o%nib"s line in the aggregate of P;: %illion # # #@ and .. 7#ec"te and deli!er all doc"%entation necessary to i%ple%ent all of the foregoing.> A"rther the agree%ent in!ol!ed here is a =contract of adhesion > which was prepared entirely by one party and offered to the other on a =take it or lea!e it> basis. Aollowing the general r"le the contract %"st be read against petitioner beca"se it was the party that prepared it %ore so beca"se a bank is held to high standards of care in the cond"ct of its b"siness. In the totality of the circ"%stances we hold that 9espondents C" and 0ong clearly signed the Note %erely as representati!es of Minfaco. 2a$igo:en Vs# Peo%le &'19 SCRA )9+ ,actsCalte# Philippines Inc. )Calte#* is engaged in the sale of gasoline and oil prod"cts to its c"sto%ers one of which was the Ind"strial ("gar 9eso"rces Inc. )IN(I97C8* with offices at the 5acolod M"rcia Milling Corporation Co%po"nd in 5acolod City. Calte# had granted a credit line to IN(I97C8 and the latter p"rchased gasoline and l"bricants fro% Calte# thro"gh its sales representati!e in Negros 8ccidental and 5acolod City. The finance officer of IN(I97C8 was 8felia Marigo%en while John '. 6alao was the assistant to the general %anager. They were a"thori$ed to draw and sign checks against the acco"nt of IN(I97C8 at the Aar 7ast 5ank and Tr"st Co%pany 5acolod City 5ranch. Calte# had agreed for IN(I97C8 to pay its p"rchases via postdated checks which were deli!ered to Calte# "pon the release of the p"rchased oil prod"cts. As e!idenced by separate deli!ery receipts IN(I97C8 bo"ght and took deli!ery of oil prod"cts fro% Calte#. In pay%ent thereof postdated checks drawn and signed by Marigo%en and 6alao against its acco"nt with the Aar 7ast 5ank and Tr"st Co%pany 5acolod City 5ranch were iss"ed in fa!or of Calte#. 8n d"e dates Calte# presented the said checks for pay%ent. 0owe!er Three );* checks were dishonored by the drawee bank for the reason that they were =drawn against ins"fficient f"nds.> Another check was likewise dishonored with the notation =acco"nt closed.> 0ence Calte# thro"gh 6alao %ade !erbal de%ands to IN(I97C8 for the replace%ent of the dishonored checks with either %anager/s checks or cash to no a!ail. 8n May 4 ,--. Calte# sent a confir%ation telegra% infor%ing IN(I97C8 of the dishonor of the said checks and again de%anded their replace%ent b"t recei!ed no reply.

8n J"ly 4 ,--. Calte# filed cri%inal co%plaints for !iolation of 5.P. 5lg. .. against Marigo%en and 6alao with the 8ffice of the City Prosec"tor of 5acolod City. They were thereafter charged with three co"nts of !iolation of 5.P. 5lg. .. in three separate Infor%ations filed with the 9TC of 5acolod City and docketed as Cri%inal Case Nos. ,;:,. to ,;:,B. Iss.e1<N Marigo%en co"ld be held ci!illy liable for the bo"ncing checks iss"ed to Calte# R.lingAor !iolation of 5.P. 5lg. .. to be co%%itted the prosec"tion %"st pro!e the following essential ele%ents? ),* the %aking drawing and iss"ance of any check to apply for acco"nt or for !al"e@ the knowledge of the %aker drawer or iss"er that at the ti%e of iss"e there are no s"fficient f"nds in or credit with the drawee bank for the pay%ent of s"ch check in f"ll "pon its present%ent@ and the s"bseG"ent dishonor of the check by the drawee bank for ins"fficiency of f"nds or credit or dishonor for the sa%e reason had not the drawer witho"t any !alid ca"se ordered the bank to stop pay%ent.

).*

);*

It is diffic"lt for the prosec"tion to pro!e the second ele%ent of the cri%e beca"se the knowledge on the part of the %aker drawer or iss"er that at the ti%e of iss"e he does not ha!e s"fficient f"nds or credit with the drawee bank for the pay%ent of s"ch checks in f"ll "pon its presentation is a state of the %ind. 0owe!er (ection . of 5.P. 5lg. .. pro!ides that if the prosec"tion pro!es that the %aking drawing and iss"ing of a check pay%ent of which is ref"sed by the drawee bank beca"se of ins"fficiency of f"nds or credit with the said bank within -: days fro% the date of the check s"ch shall be prima facie e!idence of the second ele%ent of the cri%e. The drawee or %aker of the check %ay o!erco%e the prima facie e!idence either by paying the a%o"nt of the check or by %aking arrange%ents for its pay%ent in f"ll within fi!e banking days after receipt of notice that s"ch check was not paid by the drawee bank. Contrary to the respondent/s contention the r"ling of the Co"rt in Lao v. Court of Appeals is applicable in this case. In acG"itting the petitioner therein the Co"rt e#plained? The absence of a notice of dishonor necessarily depri!es an acc"sed an opport"nity to precl"de a cri%inal prosec"tion. Accordingly proced"ral d"e process clearly en2oins that a notice of dishonor be act"ally ser!ed on petitioner. Petitioner has a right to de%and P and the basic post"lates of fairness reG"ire - that the notice of dishonor be act"ally sent to and recei!ed by her to afford her the opport"nity to a!ert prosec"tion "nder 5.P. 5lg. ... Moreo!er the notice of dishonor %"st be in &riting@ a !erbal notice is not eno"gh. The rationale for this was e#plained by the Co"rt in ;omagsang v. Court of Appeals to wit? Petitioner co"nters that the lack of a &ritten notice of dishonor is fatal. The Co"rt agrees. 1hile indeed (ection . of 5.P. 5lg. .. does not state that the notice of dishonor be in writing taken in con2"nction howe!er with (ection ; of the law i.e.# =that where there are no s"fficient f"nds in or credit with s"ch drawee bank s"ch fact s all al&a$s be e'plicitl$ stated in t e notice of dis onor or refusal#: a %ere oral notice or de%and to pay wo"ld appear to be ins"fficient for con!iction "nder the law. Th"s if the drawer or %aker is an officer of a corporation the notice of dishonor to the said corporation is not notice to the e%ployee or officer who drew or iss"ed the check for and in its behalf. The Co"rt e#plained in Lao v. Court of Appeals to wit? In this light the post"late of 9espondent Co"rt of Appeals that =)d*e%and on the Corporation constit"tes de%and on appellant )herein petitioner* > is erroneo"s. Pre%iere has no obligation to forward the notice addressed to it to the e%ployee concerned especially beca"se the corporation itself inc"rs no cri%inal liability "nder 5.P. 5lg. .. for the iss"ance of a bo"ncing check. 9esponsibility "nder 5.P. 5lg. .. is personal to the acc"sed@ hence personal knowledge of the notice of dishonor is necessary. ConseG"ently constr"cti!e notice to the corporation is not eno"gh to satisfy d"e process. Moreo!er it is petitioner as an officer of the corporation who is the latter/s agent for p"rposes of recei!ing notices and other doc"%ents and not the other way aro"nd. It is b"t a#io%atic that notice to the corporation which has a personality distinct and separate fro% the petitioner does not constit"te notice to the latter.

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In this case the prosec"tion failed to present any e%ployee of the PTTT to pro!e that the telegra%s fro% the offended party were in fact trans%itted to IN(I97C8 and that the latter recei!ed the sa%e. A"rther%ore there is no e!idence on record that the petitioner e!er recei!ed the said telegra%s fro% IN(I97C8 or that separate copies thereof were trans%itted to and recei!ed by the petitioner. In fine the respondent failed to pro!e the second ele%ent of the cri%e. 0ence the petitioner sho"ld be acG"itted of the cri%es charged. C".a Vs# CA &''* SCRA 219+ ,actsLydia 0ao treas"rer of (iena 9ealty Corporation filed a co%plaint-affida!it with the City Prosec"tor of Manila charging Arancis Ch"a and his wife 7lsa Ch"a of fo"r co"nts of falsification of p"blic doc"%ents p"rs"ant to Article ,3. in relation to Article ,3, of the 9e!ised Penal Code. The charge reads? (aid acc"sed prepared certified and falsified the Min"tes of the Ann"al (tockholders %eeting of the 5oard of 6irectors of the (iena 9ealty Corporation d"ly notari$ed before a Notary P"blic Atty. J"anito &. &arcia and entered in his Notarial 9egistry as 6oc No. ,:- Page .. 5ook No. I' and (eries of ,--B and therefore a p"blic doc"%ent by %aking or ca"sing it to appear in said Min"tes of the Ann"al (tockholders Meeting that one LM6IA 0A8 C0IA was present and has participated in said proceedings when in tr"th and in fact as the said acc"sed f"lly well knew that said Lydia C. 0ao was ne!er present d"ring the Ann"al (tockholders Meeting held on April ;: ,--B and neither has participated in the proceedings thereof to the pre2"dice of p"blic interest and in !iolation of p"blic faith and destr"ction of tr"th as therein proclai%ed. Petitioner had arg"ed before the Co"rt of Appeals that respondent had no a"thority whatsoe!er to bring a s"it in behalf of the Corporation since there was no 5oard 9esol"tion a"thori$ing her to file the s"it. Aor her part respondent 0ao clai%ed that the s"it was bro"ght "nder the concept of a deri!ati!e s"it. 9espondent %aintained that when the directors or tr"stees ref"sed to file a s"it e!en when there was a de%and fro% stockholders a deri!ati!e s"it was allowed. Iss.e1<N the Lydia 0ao/s filing of cri%inal case no. .H+3., was in the nat"re of a deri!ati!e s"it R.lingIn Hestern -nstitute we said? 0ere howe!er the case is not a deri!ati!e s"it b"t is %erely an appeal on the ci!il aspect of Cri%inal Cases Nos. ;3:-3 and ;3:-H filed with the 9TC of Iloilo for estafa and falsification of p"blic doc"%ent. A%ong the basic reG"ire%ents for a deri!ati!e s"it to prosper is that the %inority shareholder who is s"ing for and on behalf of the corporation %"st allege in his co%plaint before the proper for"% that he is s"ing on a deri!ati!e ca"se of action on behalf of the corporation and all other shareholders si%ilarly sit"ated who wish to 2oin. . . .This was not co%plied with by the petitioners either in their co%plaint before the co"rt a quo nor in the instant petition which in part %erely states that =this is a petition for re!iew on certiorari on p"re G"estions of law to set aside a portion of the 9TC decision in Cri%inal Cases Nos. ;3:-3 and ;3:-H> since the trial co"rt/s 2"dg%ent of acG"ittal failed to i%pose ci!il liability against the pri!ate respondents. 5y no a%o"nt of eG"ity considerations if at all deser!ed can a %ere appeal on the ci!il aspect of a cri%inal case be treated as a deri!ati!e s"it. Moreo!er in Hestern -nstitute we said that a %ere appeal in the ci!il aspect cannot be treated as a deri!ati!e s"it beca"se the appeal lacked the basic reG"ire%ent that it %"st be alleged in the co%plaint that the shareholder is s"ing on a deri!ati!e ca"se of action for and in behalf of the corporation and other shareholders who wish to 2oin. Inder (ection ;4 of the Corporation Code read in relation to (ection .; where a corporation is an in2"red party its power to s"e is lodged with its board of directors or tr"stees. An indi!id"al stockholder is per%itted to instit"te a deri!ati!e s"it on behalf of the corporation wherein he holds stocks in order to protect or !indicate corporate rights whene!er the officials of the corporation ref"se to s"e or are the ones to be s"ed or hold the control of the corporation. In s"ch actions the s"ing stockholder is regarded as a no%inal party with the corporation as the real party in interest. A deri!ati!e action is a s"it by a shareholder to enforce a corporate ca"se of action. The corporation is a necessary party to the s"it. And the relief which is granted is a 2"dg%ent against a third person in fa!or of the corporation. (i%ilarly if a corporation has a defense to an action against it and is not asserting it a stockholder %ay inter!ene and defend on behalf of the corporation.

In Cri%inal Case No. .H+3., the co%plaint was instit"ted by respondent against petitioner for falsifying corporate doc"%ents whose s"b2ect concerns corporate pro2ects of (iena 9ealty Corporation. Clearly (iena 9ealty Corporation is an offended party. 0ence (iena 9ealty Corporation has a ca"se of action. And the ci!il case for the corporate ca"se of action is dee%ed instit"ted in the cri%inal action. 0owe!er the board of directors of the corporation in this case did not instit"te the action against petitioner. Pri!ate respondent was the one who instit"ted the action. Pri!ate respondent asserts that she filed a deri!ati!e s"it in behalf of the corporation. This assertion is inacc"rate. Not e!ery s"it filed in behalf of the corporation is a deri!ati!e s"it. Aor a deri!ati!e s"it to prosper it is reG"ired that the %inority stockholder s"ing for and on behalf of the corporation %"st allege in his co%plaint that he is s"ing on a deri!ati!e ca"se of action on behalf of the corporation and all other stockholders si%ilarly sit"ated who %ay wish to 2oin hi% in the s"it. It is a condition sine qua non that the corporation be i%pleaded as a party beca"se not only is the corporation an indispensable party b"t it is also the present r"le that it %"st be ser!ed with process. The 2"dg%ent %"st be %ade binding "pon the corporation in order that the corporation %ay get the benefit of the s"it and %ay not bring s"bseG"ent s"it against the sa%e defendants for the sa%e ca"se of action. In other words the corporation %"st be 2oined as party beca"se it is its ca"se of action that is being litigated and beca"se 2"dg%ent %"st be a res adjudicata against it. In the cri%inal co%plaint filed by herein respondent nowhere is it stated that she is filing the sa%e in behalf and for the benefit of the corporation. Th"s the cri%inal co%plaint incl"ding the ci!il aspect thereof co"ld not be dee%ed in the nat"re of a deri!ati!e s"it The reco"rse of the co%plainant to the respondent Co"rt of Appeals was howe!er proper. The petition was bro"ght in her own na%e and in behalf of the Corporation. Altho"gh the corporation was not a co%plainant in the cri%inal action the s"b2ect of the falsification was the corporation/s pro2ect and the falsified doc"%ents were corporate doc"%ents. Therefore the corporation is a proper party in the petition for certiorari beca"se the proceedings in the cri%inal case directly and ad!ersely affected the corporation. >ei$s of T$inidad de Leon Vs# CA &'22 SCRA 0 + ,actsThis is a petition to cite for indirect conte%pt the officers of Meyca"ayan Central 9ealty Corporation )=Meyca"ayan>* for defying the final and e#ec"tory 6ecision and 9esol"tion of this Co"rt in &.9. No. ,,HB;4 entitled =0eirs of Man"el A. 9o#as and Trinidad de Leon 'da. 6e 9o#as !. Co"rt of Appeals and Mag"es"n Manage%ent T 6e!elop%ent Corporation> )=&.9. No. ,,HB;4>*. This petition ste%s fro% a case filed by Trinidad de Leon 'da. 6e 9o#as to set aside the decree of registration o!er two "nregistered parcels of land in Tagaytay City granted to Mag"es"n Manage%ent and 6e!elop%ent Corporation )=Mag"es"n>* before the 9egional Trial Co"rt on the gro"nd of act"al fra"d. The trial co"rt dis%issed the petition to set aside the decree of registration. 8n appeal the Co"rt of Appeals denied the petition for re!iew and affir%ed the findings of the trial co"rt. 8n ., March ,--3 this Co"rt re!ersed the appellate co"rt/s decision in &.9. No. ,,HB;4. 8n .. May ,--3 Meyca"ayan filed a Petition for Inter!ention in &.9. No. ,,HB;4. Meyca"ayan alleged that on ,B May ,--. it p"rchased three parcels of land fro% Mag"es"n which for% part of the property awarded to the heirs of Trinidad de Leon 'da. 6e 9o#as )=9o#as heirs>*. Meyca"ayan contended that since it is a p"rchaser in good faith and for !al"e the Co"rt sho"ld afford it the opport"nity to be heard. Meyca"ayan contends that the ad!erse decision in &.9. No. ,,HB;4 cannot i%pair its rights as a p"rchaser in good faith and for !al"e. The Co"rt resol!es to &9ANT petitioners/ Motion for Clarification together with the ("pple%ent theretoordering the 9egister of 6eeds shall CA'C 1 2C& 'o. 3-454 and all its derivative titles na%ely TCT Nos. T-.+4.+ T.+4.4 T-.+4.3 T-.+4.H &-64788, &-64789, and &-64793, the latter three being already in the name of (eycauayan %ealty and Development Corporation :also designated as !(eycauayan Central %ealty, *nc." and !(eycauayan %ealty Corporation";. 8n .: April ,--- Meyca"ayan filed a Co%plaint for recon!eyance da%ages and G"ieting of title with the trial co"rt entitled =Meyca"ayan Central 9ealty Corp. !. 0eirs of Man"el A. 9o#as and Trinidad de Leon 'da. de 9o#as Mag"es"n Manage%ent and 6e!elop%ent Corp. 9egister of 6eeds of Tagaytay City City Assessor of Tagaytay City and Land 9egistration A"thority.> The Co%plaint is al%ost an e#act reprod"ction of the Petition for Inter!ention filed by Meyca"ayan before this Co"rt. Iss.e1<N the offcers of Meyca"yan %ay be held for indirect conte%pt R.ling-

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Meyca"ayan/s 7#ec"ti!e 'ice-President J"an M. La%son Jr. g"ilty of indirect conte%pt. 1e also find that Meyca"ayan co%%itted for"% shopping and th"s Meyca"ayan and its 7#ec"ti!e 'ice President J"an M. La%son Jr. are g"ilty of direct conte%pt. Meyca"ayan/s obstinate ref"sal to abide by the Co"rt/s 6ecision in &.9. No. ,,HB;4 has no basis in !iew of this Co"rt/s clear prono"nce%ent to the contrary. The fact that this Co"rt specifically ordered the cancelation of Meyca"ayan/s titles to the disp"ted parcels of land in the 9esol"tion dated .J"ly ,--H sho"ld ha!e laid to rest the iss"e of whether the 6ecision and 9esol"tion in &.9. No. ,,HB;4 is binding on Meyca"ayan. Clearly Meyca"ayan/s defiance of this Co"rt/s 6ecision and 9esol"tion by filing an action for recon!eyance G"ieting of title and da%ages in!ol!ing the sa%e parcels of land which this Co"rt already decided with finality constit"tes indirect conte%pt "nder (ection ;)d* 9"le 3, of the 9"les of Ci!il Proced"re. (ection ;)d* of 9"le 3, reads? (7C. ;. -ndirect contempt to be punis ed after c arge and earing . P After a charge in writing has been filed and an opport"nity gi!en to the respondent to co%%ent thereon within s"ch period as %ay be fi#ed by the co"rt and to be heard by hi%self or co"nsel a person g"ilty of any of the following acts %ay be p"nished for indirect conte%pt? ### )d* Any i%proper cond"ct tending directly or indirectly to i%pede obstr"ct or degrade the ad%inistration of 2"stice@ In <alili, et al. v. C*%, et al. this Co"rt e#plained the concept of conte%pt of co"rt? Conte%pt of co"rt is a defiance of the a"thority 2"stice or dignity of the co"rt@ s"ch cond"ct as tends to bring the a"thority and ad%inistration of the law into disrespect or to interfere with or pre2"dice parties litigant or their witnesses d"ring litigation. Conte%pt of co"rt is defined as a disobedience to the Co"rt by acting in opposition to its a"thority 2"stice and dignity. It signifies not only a willf"l disregard or disobedience of the co"rt/s orders b"t s"ch cond"ct as tends to bring the a"thority of the co"rt and the ad%inistration of law into disrep"te or in so%e %anner to i%pede the d"e ad%inistration of 2"stice. Meyca"ayan/s contin"ing resistance to this Co"rt/s 2"dg%ent is an affront to the Co"rt and to the so!ereign dignity with which it is clothed. Meyca"ayan/s persistent atte%pts to raise iss"es long since laid to rest by a final and e#ec"tory 2"dg%ent of no less than the highest trib"nal of the land constit"te cont"%acio"s defiance of the a"thority of this Co"rt and i%pede the speedy ad%inistration of 2"stice. In this case Meyca"ayan 7#ec"ti!e 'ice President J"an M. La%son Jr. ca"sed the preparation and the filing of the Petition for Inter!ention in &.9. No. ,,HB;4 and the Co%plaint for 9econ!eyance 6a%ages and R"ieting of Title with the trial co"rt. J"an M. La%son Jr. signed the !erification and certification of non-for"% shopping for the Petition for Inter!ention and the Co%plaint for 9econ!eyance 6a%ages and R"ieting of Title. =7!en tho"gh a 2"dg%ent decree or order is addressed to the corporation only the officers as well as the corporation itself %ay be p"nished for conte%pt for disobedience to its ter%s at least if they knowingly disobey the co"rt/s %andate since a lawf"l 2"dicial co%%and to a corporation is in effect a co%%and to the officers.> Th"s for i%proper cond"ct tending to i%pede the orderly ad%inistration of 2"stice Meyca"ayan 7#ec"ti!e 'ice President J"an M. La%son Jr. sho"ld be fined ten tho"sand pesos )P,: :::*. Moreo!er Meyca"ayan/s act of filing a Co%plaint for 9econ!eyance R"ieting of Title and 6a%ages raising the sa%e iss"es in its Petition for Inter!ention which this Co"rt had already denied also constit"tes for"% shopping. In this case the Co"rt had already re2ected Meyca"ayan/s clai% on the s"b2ect lots when the Co"rt denied Meyca"ayan/s Petition for Inter!ention in &.9. No. ,,HB;4. The Co"rt r"led that there had been no inter!ening rights of an innocent p"rchaser for !al"e in!ol!ing the lots in disp"te. The 6ecision of this Co"rt in &.9. No. ,,HB;4 is already final and e#ec"tory. The filing by Meyca"ayan of an action to re-litigate the title to the sa%e property which this Co"rt had already ad2"dicated with finality is an ab"se of the co"rt/s processes and constit"tes direct conte%pt. (ection + of 9"le 3 of the 9"les of Co"rt pro!ides that =if the acts of the party or his co"nsel clearly constit"te willf"l and deliberate for"% shopping the sa%e shall be a gro"nd for s"%%ary dis%issal with pre2"dice and shall constit"te direct conte%pt as well as a ca"se for ad%inistrati!e sanctions.> The fact that Meyca"ayan did %ention in its certification of non-for"% shopping its atte%pt to inter!ene in &.9. No. ,,HB;4 which this Co"rt denied does not negate the e#istence of for"% shopping. This disclos"re does not e#c"lpate Meyca"ayan for deliberately seeking a friendlier for"% for its case and re-litigating an iss"e which this Co"rt had already decided with finality. The general r"le is that a corporation and its officers and agents %ay be held liable for conte%pt. A corporation and those who are officially responsible for the cond"ct of its affairs %ay be p"nished for conte%pt in disobeying 2"dg%ents decrees or orders of a co"rt %ade in a case within its 2"risdiction.

Inder (ection , of 9"le 3, of the 9"les of Co"rt direct conte%pt is p"nishable by a fine not e#ceeding two tho"sand pesos )P. :::* or i%prison%ent not e#ceeding ten ),:* days or both if co%%itted against a 9egional Trial Co"rt or a co"rt of eG"i!alent or higher rank. 0ence Meyca"ayan and its 7#ec"ti!e 'ice President J"an M. La%son Jr. are each fined P. ::: for direct conte%pt of co"rt for for"% shopping. >L Ca$los Vs# 2ARINA &'2 SCRA '27+ ,actsMA9INA P98P79TI7( C89P89ATI8N is engaged in the b"siness of real estate de!elop%ent. 8n May ,: ,-HH MPC entered into a contract with 0.L. CA9L8( C8N(T9ICTI8N INC. to constr"ct Phase III of a condo%ini"% co%ple# called MA9INA 5AM08M7( C8N68MINIIM P98J7CT consisting of townho"ses and !illas totaling ;, ho"sing "nits for a total consideration of P;H +H: 4:-.:: within a period of ;4+ days fro% receipt of VNotice to Proceed/. The original co%pletion date of the pro2ect was May ,4 ,-H- b"t it was e#tended to 8ctober ;, ,-H- with a grace period "ntil No!e%ber ;: ,-H-. =The contract was signed by Jo!encio A. Cinco president of MPC and 0onorio L. Carlos president of 0LC. =8n 6ece%ber ,+ ,-H- 0LC instit"ted this case for s"% of %oney against not only MPC b"t also against the latter/s alleged president Jes"s D. Typoco (r. and Tan M" seeking the pay%ent of !ario"s s"%s with an aggregate a%o"nt of P,B %illion pesos. The trial co"rt rendered for 0.L. CA9L8( C8N(T9ICTI8N INC. and as against MA9INA P98P79TI7( C89P89ATI8N TAN MI and J7(I( D. TMP8C8 (9. who are hereby ordered to pay 2ointly and se!erally the petitioner. Iss.e1<N respondents Jes"s Typoco and Tan M" are solidarily liable with MPC R.lingThese two respondents are not liable. (ection ;, of the Corporation Code )5atas Pa%bansa 5lg. 4H* pro!ides? =(ection ;,. Liabilit$ of directors# trustees or officers. 6irectors or tr"stees who willf"lly and knowingly !ote for or assent to patently "nlawf"l acts of the corporation or who are g"ilty of gross negligence or bad faith # # # shall be liable 2ointly and se!erally for all da%ages res"lting therefro% s"ffered by the corporation its stockholders and other persons.> The personal liability of corporate officers !alidly attaches only when )a* they assent to a patently "nlawf"l act of the corporation@ or )b* they are g"ilty of bad faith or gross negligence in directing its affairs@ or )c* they inc"r conflict of interest res"lting in da%ages to the corporation its stockholders or other persons. The records are bereft of any e!idence that Typoco acted in bad faith with gross or ine#c"sable negligence or that he acted o"tside the scope of his a"thority as co%pany president. The "nilateral ter%ination of the Contract d"ring the e#istence of the T98 was indeed conte%ptible -- for which MPC sho"ld ha!e %erely been cited for conte%pt of co"rt at the %ost -- and a preli%inary in2"nction wo"ld ha!e then stopped work by the second contractor. 5esides there is no showing that the "nilateral ter%ination of the Contract was n"ll and !oid. 9espondent Tan is not an officer or a director of MPC. 0is participation is li%ited to an alleged con!ersation between hi% and 7ngineer Mario Cornista petitioner/s pro2ect %anager. ("pposedly the for%er !erbally agreed therein to g"arantee the pay%ent of the latter/s progress billings. 1e find no satisfactory e!idence to show respondent/s alleged solidary liability to petitioner. Section *2 ! Dealings of directors, trustees or officers with the corporation. - A contract of the corporation with one or %ore of its directors or tr"stees or officers is !oidable at the option of s"ch corporation "nless all the following conditions are present? ,. That the presence of s"ch director or tr"stee in the board %eeting in which the contract was appro!ed was not necessary to constit"te a G"or"% for s"ch %eeting@ .. That the !ote of s"ch director or tr"stee was nor necessary for the appro!al of the contract@

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;. That the contract is fair and reasonable "nder the circ"%stances@ and B. That in case of an officer the contract has been pre!io"sly a"thori$ed by the board of directors. 1here any of the first two conditions set forth in the preceding paragraph is absent in the case of a contract with a director or tr"stee s"ch contract %ay be ratified by the !ote of the stockholders representing at least two-thirds ).<;* of the o"tstanding capital stock or of at least two-thirds ).<;* of the %e%bers in a %eeting called for the p"rpose? Pro!ided That f"ll disclos"re of the ad!erse interest of the directors or tr"stees in!ol!ed is %ade at s"ch %eeting? Pro!ided howe!er That the contract is fair and reasonable "nder the circ"%stances. 2ead Vs# 2cC.llo.g" &2 P"il 91+ ,actsMead and the "Philippine 7ngineering and Constr"ction Co%pany " the incorporators being the only stockholders and also the directors of said co%pany with general ordinary powers. 7ach of the stockholders paid into the co%pany K. ::: Me#ican c"rrency in cash with the e#ception of Mead who t"rned o!er to the co%pany personal property in lie" of cash. (hortly after the organi$ation the directors held a %eeting and elected the Mead as general %anager. 0e held this position with the co%pany for nine %onths when he resigned to accept the position of 7ngineer of the Canton and (hanghai 9ailway Co%pany. Inder the organi$ation the co%pany began b"siness abo"t April , ,:.. The contract and work "ndertaken by the co%pany d"ring the %anage%ent of Mead were the wrecking contract with the Na!y 6epart%ent at Ca!ite for the raising of the (panish ships s"nk by Ad%iral 6ewey@ the contract for the constr"ction of certain wareho"ses for the G"arter%aster depart%ent@ the constr"ction of a wharf at Aort McDinley for the &o!ern%ent@ The s"per!ision of the constr"ction of the Pacific 8riental Trading Co%panyCs wareho"se@ and so%e other odd 2obs not specifically set o"t in the record. (hortly after Mead left the Philippine Islands for China the other directors the defendants in this case held a %eeting on 6ece%ber .B ,-:; for the p"rpose of disc"ssing the condition of the co%pany at that ti%e and deter%ining what co"rse to p"rs"e. The P7CC Mcc"llo"gh as the President entered into a contract reffered to in the foregoing doc"%ent was known as the wrecking contract with the na!al a"thorities. 8n the .Hth of the sa%e %onth McC"llo"gh e#ec"ted and signed the transfer of his right title and interest in the within contract with the e#ception of one si#th which he hereby retain to 9. 1. 5rown 0. 6. C. Jones John T. Macleod and T. 0. Twenty%an. The assignees of the wrecking contract incl"ding McC"llo"gh for%ed was not known as the "Manila (al!age Association." This association paid to McC"llo"gh K,+ ::: Me#ican C"rrency cash for the assign%ent of said contract. In addition to this pay%ent McC"llo"gh retained a one-si#th interest in the new co%pany or association. Iss.e1<N a %a2ority of the stockholders who were at the sa%e ti%e a %a2ority of the directors of a corporation ha!e the power "nder the law and its Articles of Agree%ent to sell or transfer to one of its %e%bers the assets of said corporation R.ling-

the articles of incorporation the stockholders and directors had general ordinary powers. There is nothing in said articles which e#pressly prohibits the sale or transfer of the corporate property to one of the stockholders of said corporation. Articles ,3:: to ,3:H of the Ci!il Code deal with the %anner of dissol!ing a corporation. There is nothing in these articles which e#pressly or i%pliedly prohibits the sale of corporate property to one of its %e%bers nor a dissol"tion of a corporation in this %anner. Neither is there anything in articles ,+, to ,3B of the Code of Co%%erce which prohibits the dissol"tion of a corporation by s"ch sale or transfer. Article QIII of the corporationCs stat"tes e#pressly pro!ides that "in all the %eetings of the stockholders a %a2ority !ote of the stockholders present shall be necessary to deter%ine any G"estion disc"ssed." The sale or transfer to one of its %e%bers was a %atter which a %a2ority of the stockholders co"ld !ery properly consider. 5"t it i said that if the acts and resol"tions of a %a2ority of the stockholders in a corporation are binding in e!ery case "pon the %inority the %inority wo"ld be co%pletely wiped o"t and their rights wo"ld be wholly at the %ercy of the ab"ses of the %a2ority. &enerally speaking the !oice of a %a2ority of the stockholders is the law of the corporation b"t there are e#ceptions to this r"le. There %"st necessarily be a li%it "pon the power of the %a2ority. 1itho"t s"ch a li%it the will of the %a2ority wo"ld be absol"te and irresistible and %ight easily degenerate into an arbitrary tyranny. The reason for these li%itations is that in e!ery contract of partnership )and a corporation can be so%ething f"nda%ental and "nalterable which is beyond the power of the %a2ority of the stockholders and which constit"tes the r"le controlling their actions. this r"le which %"st be obser!ed is to be fo"nd in the essential co%pacts of s"ch partnership which ga!e ser!ed as a basis "pon which the %e%bers ha!e "nited and witho"t which it is not probable that they wo"ld ha!e entered not the corporation. Notwithstanding these li%itations "pon the power of the %a2ority of the stockholders their )the %a2orityCs* resol"tions when passed in good faith and for a 2"st ca"se deser!e caref"l consideration and are generally binding "pon the %inority. The resol"tions of the boards passed by a %a2ority !ote are !alid . . . and a"thority for passing s"ch resol"tions is "nli%ited pro!ided that the original contract is not broken by the% the partnership f"nds not de!oted to foreign p"rposes or the partnerships transfor%ed or changes %ade which are against p"blic policy or which infringe "pon the rights of third persons. McC"llo"gh did not represent the corporation in this transaction. It was represented by a G"or"% of the board of directors who were at the sa%e ti%e a %a2ority of the stockholders. 8rdinarily McC"llo"ghCs d"ties as president were to preside at the %eetings r"le on G"estions of order !ote in case of a tie etc. 0e co"ld not ha!e !oted in this transaction beca"se there was no tie. The acts of 0ilbert &reen 0artigan and McC"llo"gh in this transaction in !iew of the relations which they bore to the corporation are s"b2ect to the %ost se!ere scr"tiny. They are obliged to establish that they acted with the "t%ost candor and fair dealing for the interest of the corporation and witho"t taint %oti!es. 1e ha!e s"b2ected their cond"ct to this test and "nder the e!idence we belie!e it has safely e%erged fro% the ordeal. Transaction which only acco%plish 2"stice which are done in good faith and operate legal in2"ry to no one lack the characteristics of fra"d and are not to be "pset beca"se the relations of the parties gi!e rise to s"spicions which are f"lly cleared away. )0ancock !s. 0olbrook supra* 1e therefore concl"de that the sale or transfer %ade by the G"or"% of the board of directors W a %a2ority of the stockholders W is !alid and binding "pon the %a2ority-the plaintiff. This concl"sion is not in !iolation of the articles of incorporation of the Philippine 7ngineering and Constr"ction Co%pany. Nor do we here anno"nce a doctrine contrary to that anno"nced by the s"pre%e co"rt of (pain in its decisions dated April . ,H4. and J"ly H ,-:;. Section ** !

1hen the sale or transfer heretofore %entioned took place there were present fo"r directors all of who% ga!e their consent to that sale or transfer. The plaintiff was then abo"t and his e#press consent to %ake this transfer or sale was not obtained. 0e was before lea!ing one of the directors in this corporation and altho"gh he had resigned as %anager he had not resigned as a director. 0e accepted the position of engineer of the Canton and (hanghai 9ailway Co%pany knowing that his d"ties as s"ch engineer wo"ld reG"ire his whole ti%e and attention and pre!ent his ret"rning to the Philippine Islands for at least a year or %ore. The new position which he accepted in China was inco%patible with his position as director in the Philippine 7ngineering and Constr"ction Co%pany a corporation whose sphere of operations was li%ited to the Philippine Islands. These facts are s"fficient to constit"te an abandoning or !acating of hid position as director in said corporation. ConseG"ently the transfer or sale of the corporationCs assets to one of its %e%bers was %ade by the "nani%o"s consent of all the directors in the corporation at that ti%e. There were only fi!e stockholders in this corporation at any ti%e fo"r of who% were the directors who %ade the sale and the other the plaintiff who was absent in China when the said sale took place. The sale was therefore %ade by the "nani%o"s consent of fo"r-fifths of all the stockholders. Inder

Contracts between corporations with interloc)ing directors. - 7#cept in cases of fra"d and pro!ided the contract is fair and reasonable "nder the circ"%stances a contract between two or %ore corporations ha!ing interlocking directors shall not be in!alidated on that gro"nd alone? Pro!ided That if the interest of the interlocking director in one corporation is s"bstantial and his interest in the other corporation or corporations is %erely no%inal he shall be s"b2ect to the pro!isions of the preceding section insofar as the latter corporation or corporations are concerned. (tockholdings e#ceeding twenty ).:N* percent of the o"tstanding capital stock shall be considered s"bstantial for p"rposes of interlocking directors. Palting Vs# San <ose & 7 SCRA 92'+ (AN J8(7 P7T98L7IM filed with the Philippine (ec"rities and 7#change Co%%ission a sworn registration state%ent for the registration and licensing for sale in the Philippines 'oting Tr"st Certificates representing . ::: ::: shares of its capital stock of a par !al"e of K:.;+ a share at P,.:: per share.

63

It was alleged that the entire proceeds of the sale of said sec"rities will be de!oted or "sed e#cl"si!ely to finance the operations of (an Jose 8il Co%pany Inc. )a do%estic %ining corporation hereafter to be referred to as (AN J8(7 8IL* which has ,B petrole"% e#ploration concessions co!ering an area of a little less than , ::: ::: hectares located in the pro!inces of Pangasinan Tarlac N"e!a 7ci2a La Inion Iloilo Cotabato 6a!ao and Ag"san. It was the e#press condition of the sale that e!ery p"rchaser of the sec"rities shall not recei!e a stock certificate b"t a registered or bearer!oting-tr"st certificate fro% the !oting tr"stees na%ed therein Ja%es L. 5"ckley and A"stin &.7. Taylor the first residing in Connectic"t I.(.A. and the second in New Mork City. 1hile this application for registration was pending consideration by the (ec"rities and 7#change Co%%ission (AN J8(7 P7T98L7IM filed an a%ended (tate%ent on J"ne .: ,-+H for registration of the sale in the Philippines of its shares of capital stock which was increased fro% . ::: ::: to + ::: ::: at a red"ced offering price of fro% P,.:: to P:.3: per share. At this ti%e the par !al"e of the shares has also been red"ced fro% K.;+ to K.:, per share. Pedro 9. Palting and others allegedly prospecti!e in!estors in the shares of (AN J8(7 P7T98L7IM filed with the (ec"rities and 7#change Co%%ission an opposition to registration and licensing of the sec"rities on the gro"nds that ),* the tie-"p between the iss"er (AN J8(7 P7T98L7IM a Pana%anian corporation and (AN J8(7 8IL a do%estic corporation !iolates the Constit"tion of the Philippines the Corporation Law and the Petrole"% Act of ,-B-@ ).* the iss"er has not been licensed to transact b"siness in the Philippines@ );* the sale of the shares of the iss"er is fra"d"lent and works or tends to work a fra"d "pon Philippine p"rchasers@ and )B* the iss"er as an enterprise as well as its b"siness is based "pon "nso"nd b"siness principles. (AN J8(7 P7T98L7IM clai%ed that it was a "b"siness enterprise" en2oying parity rights "nder the 8rdinance appended to the Constit"tion which parity right with respect to %ineral reso"rces in the Philippines %ay be e#ercised p"rs"ant to the La"rel-Langley Agree%ent only thro"gh the %edi"% of a corporation organi$ed "nder the laws of the Philippines. Th"s registrant which is allegedly G"alified to e#ercise rights "nder the Parity A%end%ent had to do so thro"gh the %edi"% of a do%estic corporation which is the (AN J8(7 8IL. It ref"sed the contention that the Corporation Law was being !iolated by alleging that (ection ,; thereof applies only to foreign corporations doing b"siness in the Philippines and registrant was not doing b"siness here. The %ere fact that it was a holding co%pany of (AN J8(7 8IL and that registrant "ndertook the financing of and gi!ing technical assistance to said corporation did not constit"te transaction of b"siness in the Philippines. 9egistrant also denied that the offering for sale in the Philippines of its shares of capital stock was fra"d"lent or wo"ld work or tend to work fra"d on the in!estors. 8n A"g"st .- ,-+H and on (epte%ber - ,-+H the (ec"rities and 7#change Co%%issioner iss"ed the orders ob2ect of the present appeal. Iss.e1<N the sale of (an JoseCs sec"rities is fra"d"lent or wo"ld work or tend to work fra"d to p"rchasers of s"ch sec"rities in the Philippines R.lingThe relationship of these corporations in!ol!ed or affected in this case is ad%itted and established thro"gh the papers and doc"%ents which are parts of the records? (AN J8(7 8IL is a do%estic %ining corporation -:N of the o"tstanding capital stock of which is owned by respondent (AN J8(7 P7T98L7IM a foreign )Pana%anian* corporation the %a2ority interest of which is owned by 8IL IN'7(TM7NT( Inc. another foreign )Pana%anian* co%pany. This latter corporation in t"rn is wholly ),::N* owned by PANT7P7C 8IL C8MPANM C.A. and PANC8A(TAL P7T98L7IM C8MPANM C.A. both organi$ed and e#isting "nder the laws of 'ene$"ela. As of (epte%ber ;: ,-+4 there were - -34 stockholders of PANC8A(TAL P7T98L7IM fo"nd in B- A%erican states and I.(. territories holding ; B34 -HH shares of stock@ whereas as of No!e%ber ;: ,-+4 PANT7P7C 8IL C8MPANM was said to ha!e ; :33 -,4 shares held by ,. ;3; stockholders scattered in B- A%erican state. In the two lists of stockholders there is no indication of the citi$enship of these stockholders or of the total n"%ber of a"thori$ed stocks of each corporation for the p"rpose of deter%ining the corresponding percentage of these listed stockholders in relation to the respecti!e capital stock of said corporation. (o%e of the pro!isions of the Articles of Incorporation of respondent (AN J8(7 P7T98L7IM are noteworthy@ !i$? ),* the directors of the Co%pany need not be shareholders@ ).* that in the %eetings of the board of directors any director %ay be represented and %ay !ote thro"gh a pro#y who also need not be a director or stockholder@ and );* that no contract or transaction between the corporation and any other association or partnership will be affected e#cept in case of fra"d by the fact that any of the directors or officers of the corporation is interested in or is a director or officer of s"ch other association or partnership and that no s"ch contract or transaction of the corporation with any other person or persons

fir% association or partnership shall be affected by the fact that any director or officer of the corporation is a party to or has an interest in s"ch contract or transaction or has in anyway connected with s"ch other person or persons fir% association or partnership@ and finally that all and any of the persons who %ay beco%e director or officer of the corporation shall be relie!ed fro% all responsibility for which they %ay otherwise be liable by reason of any contract entered into with the corporation whether it be for his benefit or for the benefit of any other person fir% association or partnership in which he %ay be interested. These pro!isions are in direct opposition to o"r corporation law and corporate practices in this co"ntry. These pro!isions alone wo"ld o"tlaw any corporation locally organi$ed or doing b"siness in this 2"risdiction. Consider the "niG"e and "n"s"al pro!ision that no contract or transaction between the co%pany and any other association or corporation shall be affected e#cept in case of fra"d by the fact that any of the directors or officers of the co%pany %ay be interested in or are directors or officers of s"ch other association or corporation@ and that none of s"ch contracts or transactions of this co%pany with any person or persons fir%s associations or corporations shall be affected by the fact that any director or officer of this co%pany is a party to or has an interest in s"ch contract or transaction or has any connection with s"ch person or persons fir%s associations or corporations@ and that any and all persons who %ay beco%e directors or officers of this co%pany are hereby relie!ed of all responsibility which they wo"ld otherwise inc"r by reason of any contract entered into which this co%pany either for their own benefit or for the benefit of any person fir% association or corporation in which they %ay be interested. The i%pact of these pro!isions "pon the traditional 2"diciary relationship between the directors and the stockholders of a corporation is too ob!io"s to escape notice by those who are called "pon to protect the interest of in!estors. The directors and officers of the co%pany can do anything short of act"al fra"d with the affairs of the corporation e!en to benefit the%sel!es directly or other persons or entities in which they are interested and with i%%"nity beca"se of the ad!ance condonation or relief fro% responsibility by reason of s"ch acts. This and the other pro!ision which a"thori$es the election of non-stockholders as directors co%pletely disassociate the stockholders fro% the go!ern%ent and %anage%ent of the b"siness in which they ha!e in!ested. To ass"re contin"ity of the %anage%ent and stability of (AN J8(7 P7T98L7IM 8IL IN'7(TM7NT( as older of t e onl$ subscribed stoc% of the for%er corporation and acting "on behalf of all future holders of !oting tr"st certificates " entered into a !oting tr"st agree%ent with Ja%es L. 5"ckley and A"stin 7. Taylor whereby said Tr"stees were gi!en a"thority to !ote the shares represented by the o"tstanding tr"st certificates )incl"ding those that %ay henceforth be iss"ed* in the following %anner? )a* At all elections of directors the Tr"stees will designate a s"itable pro#y or pro#ies to vote for t e election of directors designated b$ t e ,rustees in t eir o&n discretion# aving in mind t e best interests of t e olders of t e voting trust certificates# it being understood t at an$ and all of t e ,rustees s all be eligible for election as directors @ )b* 8n any proposition for removal of a director the Tr"stees shall designate a s"itable pro#y or pro#ies to !ote for or against s"ch proposition as t e ,rustees in t eir o&n discretion ma$ determine# ha!ing in %ind the best interest of t e olders of t e voting trust certificates @ )c* 1ith respect to all ot er matters arising at any %eeting of stockholders the Tr"stees will instr"ct s"ch pro#y or pro#ies attending s"ch %eetings to !ote the shares of stock held by the Tr"stees in accordance &it t e &ritten instructions of eac older of voting trust certificates . )7%phasis s"pplied.* It was also therein pro!ided that the said Agree%ent shall be binding "pon the parties thereto their s"ccessors and "pon all holders of !oting tr"st certificates. And these are the !oting tr"st certificates that are offered to in!estors as a"thori$ed by (ec"rity and 7#change Co%%issioner. It can not be do"bted that the sale of respondentCs sec"rities wo"ld to say the least work or tend to work fra"d to Philippine in!estors. Go5ongAei Vs# SEC &79 SCRA **)+ ,acts&okongwei as stockholder of respondent (an Mig"el Corporation filed with the (ec"rities and 7#change Co%%ission )(7C* a petition for "declaration of n"llity of a%ended by-laws cancellation of certificate of filing of a%ended bylaws in2"nction and da%ages with prayer for a preli%inary in2"nction" against the %a2ority of the %e%bers of the 5oard of 6irectors and (an Mig"el Corporation as an "nwilling petitioner. Petitioner filed with the (7C a Manifestation stating that he intended to r"n for the position of director of respondent corporation. Thereafter respondents filed a Manifestation with respondent Co%%ission s"b%itting a 9esol"tion of the 5oard of 6irectors of respondent corporation disG"alifying and precl"ding petitioner fro% being a candidate for director "nless he co"ld s"b%it e!idence on May ; ,-33 that he does not co%e within the disG"alifications specified in

64

the a%end%ent to the by-laws s"b2ect %atter of (7C Case No. ,;3+. 5y reason thereof petitioner filed a %anifestation and %otion to resol!e pending incidents in the case and to iss"e a writ of in2"nction alleging that pri!ate respondents were seeking to n"llify and render ineffect"al the e#ercise of 2"risdiction by the respondent Co%%ission to petitionerCs irreparable da%age and pre2"dice. Allegedly despite a s"bseG"ent Manifestation to prod respondent Co%%ission to act petitioner was not heard prior to the date of the stockholdersC %eeting. Petitioner alleges that there appears a deliberate and concerted inability on the part of the (7C to act hence petitioner ca%e to this Co"rt. Petitioner likewise alleges that ha!ing disco!ered that respondent corporation has been in!esting corporate f"nds in other corporations and b"sinesses o"tside of the pri%ary p"rpose cla"se of the corporation in !iolation of section ,3-,<. of the Corporation Law he filed with respondent Co%%ission on Jan"ary .: ,-33 a petition seeking to ha!e pri!ate respondents Andres M. (oriano Jr. and Jose M. (oriano as well as the respondent corporation declared g"ilty of s"ch !iolation and ordered to acco"nt for s"ch in!est%ents and to answer for da%ages. 1ith respect to the afore-%entioned (7C cases it is petitionerCs contention before this Co"rt that respondent Co%%ission gra!ely ab"sed its discretion when it failed to act with deliberate dispatch on the %otions of petitioner seeking to pre!ent illegal and<or arbitrary i%positions or li%itations "pon his rights as stockholder of respondent corporation and that respondent are acting oppressi!ely against petitioner in gross derogation of petitionerCs rights to property and d"e process. 0e prayed that this Co"rt direct respondent (7C to act on collateral incidents pending before it. 8n May 4 ,-33 this Co"rt iss"ed a te%porary restraining order restraining pri!ate respondents fro% disG"alifying or pre!enting petitioner fro% r"nning or fro% being !oted as director of respondent corporation and fro% s"b%itting for ratification or confir%ation or fro% ca"sing the ratification or confir%ation of Ite% 4 of the Agenda of the ann"al stockholdersC %eeting on May ,: ,-33 or fro% %aking effecti!e the a%ended by-laws of respondent corporation "ntil f"rther orders fro% this Co"rt or "ntil the (ec"rities and 7#change Co%%ission acts on the %atters co%plained of in the instant petition. Iss.es1<N the pro!isions of the a%ended by-laws of respondent corporation disG"alifying a co%petitor fro% no%ination or election to the 5oard of 6irectors are !alid and reasonable R.lingIn this 2"risdiction "nder section ., of the Corporation Law a corporation %ay prescribe in its by-laws "the G"alifications d"ties and co%pensation of directors officers and e%ployees . . ." This %"st necessarily refer to a G"alification in addition to that specified by section ;: of the Corporation Law which pro!ides that "e!ery director %"st own in his right at least one share of the capital stock of the stock corporation of which he is a director . . ." Any person "who b"ys stock in a corporation does so with the knowledge that its affairs are do%inated by a %a2ority of the stockholders and that he i%pliedly contracts that the will of the %a2ority shall go!ern in all %atters within the li%its of the act of incorporation and lawf"lly enacted by-laws and not forbidden by law." To this e#tent therefore the stockholder %ay be considered to ha!e "parted with his personal right or pri!ilege to reg"late the disposition of his property which he has in!ested in the capital stock of the corporation and s"rrendered it to the will of the %a2ority of his fellow incorporators. . . . It can not therefore be 2"stly said that the contract e#press or i%plied between the corporation and the stockholders is infringed . . . by any act of the for%er which is a"thori$ed by a %a2ority . . ." P"rs"ant to section ,H of the Corporation Law any corporation %ay a%end its articles of incorporation by a !ote or written assent of the stockholders representing at least two-thirds of the s"bscribed capital stock of the corporation. If the a%end%ent changes di%inishes or restricts the rights of the e#isting shareholders then the dissenting %inority has only one right !i$.? "to ob2ect thereto in writing and de%and pay%ent for his share." Inder section .. of the sa%e law the owners of the %a2ority of the s"bscribed capital stock %ay a%end or repeal any by-law or adopt new by-laws. It cannot be said therefore that petitioner has a !ested right to be elected director in the face of the fact that the law at the ti%e s"ch right as stockholder was acG"ired contained the prescription that the corporate charter and the by-law shall be s"b2ect to a%end%ent alteration and %odification. It being settled that the corporation has the power to pro!ide for the G"alifications of its directors the ne#t G"estion that %"st be considered is whether the disG"alification of a co%petitor fro% being elected to the 5oard of 6irectors is a reasonable e#ercise of corporate a"thority. Altho"gh in the strict and technical sense directors of a pri!ate corporation are not regarded as tr"stees there cannot be any do"bt that their character is that of a fid"ciary insofar as the corporation and the stockholders as a body are concerned. As agents entr"sted with the %anage%ent of the corporation for the collecti!e benefit of the stockholders "they occ"py a fid"ciary relation and in this sense the relation is one of tr"st." " It is not denied that a %e%ber of the 5oard of 6irectors of the (an Mig"el Corporation has access to sensiti!e and highly confidential infor%ation s"ch as? )a* %arketing strategies and pricing str"ct"re@ )b* b"dget for e#pansion and di!ersification@ )c* research and de!elop%ent@ and )d* so"rces of f"nding a!ailability of personnel proposals of %ergers or tie-"ps with other fir%s.

It is ob!io"sly to pre!ent the creation of an opport"nity for an officer or director of (an Mig"el Corporation who is also the officer or owner of a co%peting corporation fro% taking ad!antage of the infor%ation which he acG"ires as director to pro%ote his indi!id"al or corporate interests to the pre2"dice of (an Mig"el Corporation and its stockholders that the G"estioned a%end%ent of the by-laws was %ade. Certainly where two corporations are co%petiti!e in a s"bstantial sense it wo"ld see% i%probable if not i%possible for the director if he were to discharge effecti!ely his d"ty to satisfy his loyalty to both corporations and place the perfor%ance of his corporation d"ties abo!e his personal concerns. The offer and ass"rance of petitioner that to a!oid any possibility of his taking "nfair ad!antage of his position as director of (an Mig"el Corporation he wo"ld absent hi%self fro% %eetings at which confidential %atters wo"ld be disc"ssed wo"ld not detract fro% the !alidity and reasonableness of the bylaws here in!ol!ed. Apart fro% the i%practical res"lts that wo"ld ens"e fro% s"ch arrange%ent it wo"ld be inconsistent with petitionerCs pri%ary %oti!e in r"nning for board %e%bership which is to protect his in!est%ents in (an Mig"el Corporation. More i%portant s"ch a proposed nor% of cond"ct wo"ld be against all accepted principles "nderlying a directorCs d"ty of fidelity to the corporation for the policy of the law is to enco"rage and enforce responsible corporate %anage%ent. Indeed access by a co%petitor to confidential infor%ation regarding %arketing strategies and pricing policies of (an Mig"el Corporation wo"ld s"b2ect the latter to a co%petiti!e disad!antage and "n2"stly enrich the co%petitor for ad!ance knowledge by the co%petitor of the strategies for the de!elop%ent of e#isting or new %arkets of e#isting or new prod"cts co"ld enable said co%petitor to "tili$e s"ch knowledge to his ad!antage. There is another i%portant consideration in deter%ining whether or not the a%ended by-laws are reasonable. The Constit"tion and the law prohibit co%binations in restraint of trade or "nfair co%petition. Th"s section . of Article QI' of the Constit"tion pro!ides? "The (tate shall reg"late or prohibit pri!ate %onopolies when the p"blic interest so reG"ires. No co%binations in restraint of trade or "nfair co%petition shall be allowed." Article ,H4 of the 9e!ised Penal Code also pro!ides? "Art. ,H4.Monopolies and co%binations in restraint of trade. W The penalty of prision correccional in its %ini%"% period or a fine ranging fro% two h"ndred to si# tho"sand pesos or both shall be i%posed "pon. 8b!io"sly if a co%petitor has access to the pricing policy and cost conditions of the prod"cts of (an Mig"el Corporation the essence of co%petition in a free %arket for the p"rpose of ser!ing the lowest priced goods to the cons"%ing p"blic wo"ld be fr"strated. The co%petitor co"ld so %anip"late the prices of his prod"cts or !ary its %arketing strategies by region or by brand in order to get the %ost o"t of the cons"%ers. 1here the two co%peting fir%s control a s"bstantial seg%ent of the %arket this co"ld lead to coll"sion and co%bination in restraint of trade. 9eason and e#perience point to the ine!itable concl"sion that the inherent tendency of interlocking directorates between co%panies that are related to each other as co%petitors is to bl"nt the edge of ri!alry between the corporations to seek o"t ways of co%pro%ising opposing interests and th"s eli%inate co%petition. As respondent (MC aptly obser!es knowledge by CAC-9obina of (MCCs costs in !ario"s ind"stries and regions in the co"ntry will enable the for%er to practice price discri%ination. CAC-9obina can seg%ent the entire cons"%ing pop"lation by geographical areas or inco%e gro"ps and change !arying prices in order to %a#i%i$e profits fro% e!ery %arket seg%ent. CAC-9obina co"ld deter%ine the %ost profitable !ol"%e at which it co"ld prod"ce for e!ery prod"ct line in which it co%petes with (MC. Access to (MC pricing policy by CAC-9obina wo"ld in effect destroy free co%petition and depri!e the cons"%ing p"blic of opport"nity to b"y goods of the highest possible G"ality at the lowest prices. Ainally considering that both 9obina and (MC are to a certain e#tent engaged in agric"lt"re then the election of petitioner to the 5oard of (MC %ay constit"te a !iolation of the prohibition contained in section ,;)+* of the Corporation Law. (aid section pro!ides in part that "any stockholder of %ore than one corporation organi$ed for the p"rpose of engaging in agric"lt"re %ay hold his stock in s"ch corporations solely for in!est%ent and not for the p"rpose of bringing abo"t or atte%pting to bring abo"t a co%bination to e#ercise control of s"ch corporationO*." Neither are 1e pers"aded by the clai% that the by-law was intended to pre!ent the candidacy of petitioner for election to the 5oard. If the by-law were to be applied in the case of one stockholder b"t wai!ed in the case of another then it co"ld be reasonably clai%ed that the by-law was being applied in a discri%inatory %anner. 0owe!er the by-law by its ter%s applies to all stockholders. The eG"al protection cla"se of the Constit"tion reG"ires only that the by-law operate eG"ally "pon all persons of a class. 5esides before petitioner can be declared ineligible to r"n for director there %"st be hearing and e!idence %"st be s"b%itted to bring his case within the a%bit of the disG"alification. (o"nd principles of p"blic policy and %anage%ent therefore s"pport the !iew that a by-law which disG"alifies a co%petition fro% election to the 5oard of 6irectors of another corporation is !alid and reasonable. In the absence of any legal prohibition or o!erriding p"blic policy wide latit"de %ay be accorded to the corporation in adopting %eas"res to protect legiti%ate corporate interests. Th"s "where the reasonableness of a by-law is a %ere %atter of 2"dg%ent and "pon which reasonable %inds %"st necessarily differ a co"rt wo"ld not be warranted in s"bstit"ting its 2"dg%ent instead of the 2"dg%ent of those who are a"thori$ed to %ake by-laws and who ha!e e#pressed their a"thority."

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Section *' ! Disloyalty of a director. - 1here a director by !irt"e of his office acG"ires for hi%self a b"siness opport"nity which sho"ld belong to the corporation thereby obtaining profits to the pre2"dice of s"ch corporation he %"st acco"nt to the latter for all s"ch profits by ref"nding the sa%e "nless his act has been ratified by a !ote of the stockholders owning or representing at least twothirds ).<;* of the o"tstanding capital stock. This pro!ision shall be applicable notwithstanding the fact that the director risked his own f"nds in the !ent"re.

(tockholders are too n"%ero"s scattered and "nfa%iliar with the b"siness of a corporation to cond"ct its b"siness directly. And so the plan of corporate organi$ation is for the stockholders to choose the directors who shall control and s"per!ise the cond"ct of corporate b"siness. In the present case the board/s creation of the positions of Assistant 'ice Presidents for Corporate Planning 8perations Ainance and Ad%inistration and those of the (pecial Assistants to the President and the 5oard Chair%an was in accordance with the reg"lar b"siness operations of Ailport as it is a"thori$ed to do so by the corporation/s by-laws p"rs"ant to the Corporation Code. The election of officers of a corporation is pro!ided for "nder (ection .+ of the Code. Also the a%ended 5ylaws of Ailport pro!ides that Office$s of t"e co$%o$ationF as %$oCided fo$ 4? t"e 4?/laAsF s"all 4e elected 4? t"e 4oa$d of di$ecto$s at their first %eeting after the election of 6irectors. Likewise the fi#ing of the corresponding re%"neration for the positions in G"estion is pro!ided for in the sa%e by-laws of the corporation that ### T"e Boa$d of Di$ecto$s s"all fi6 t"e co:%ensation of t"e office$s and agents of the corporation. Infort"nately the bylaws of the corporation are silent as to the creation by its board of directors of an e6ec.tiCe co::ittee. Inder (ection ;+ of the Corporation Code the creation of an e#ec"ti!e co%%ittee %"st be pro!ided for in the bylaws of the corporation. Notwithstanding the silence of Ailport/s bylaws on the %atter we cannot r"le that the creation of the e#ec"ti!e co%%ittee by the board of directors is illegal or "nlawf"l. 8ne reason is the absence of a showing as to the tr"e nat"re and f"nctions of said e#ec"ti!e co%%ittee considering that the =e#ec"ti!e co%%ittee > referred to in (ection ;+ of the Corporation Code which is as powerf"l as the board of directors and in effect acting for the board itself sho"ld be disting"ished fro% other co%%ittees which are within the co%petency of the board to create at anyti%e and whose actions reG"ire ratification and confir%ation by the board. Another reason is that ratiocinated by both the two ).* co"rts below the 5oard of 6irectors has the power to create positions not pro!ided for in Ailport/s bylaws since the board is the corporation/s go!erning body clearly "pholding the power of its board to e#ercise its prerogati!es in %anaging the b"siness affairs of the corporation. As well it %ay not be a%iss to point o"t that as testified to and ad%itted by petitioner Cr"$ hi%self it was d"ring his inc"%bency as Ailport president that the e#ec"ti!e co%%ittee in G"estion was created and that he was e!en the one who %o!ed for the creation of the positions of the A'Ps for 8perations Ainance and Ad%inistration. 5y his acG"iescence and<or ratification of the creation of the aforesaid offices Cr"$ is !irt"ally precl"ded fro% s"ing to declare s"ch acts of the board as in!alid or illegal. And it %akes no difference that he s"es in behalf of hi%self and of the other stockholders. Indeed as his !oice was not heard in protest when he was still Ailport/s president raising a h"e and cry only now leads to the ine!itable concl"sion that he did so o"t of spite and resent%ent for his non-reelection as president of the corporation. 1ith regard to the increased e%ol"%ents of the 5oard Chair%an 'icePresident Treas"rer and Assistant &eneral Manager which are s"pposedly disproportionate to the !ol"%e and nat"re of their work the Co"rt after a 2"dicio"s scr"tiny of the increase vis?N?vis the !al"e of the ser!ices rendered to the corporation by the officers concerned agrees with the findings of both the trial and appellate co"rts as to the reasonableness and fairness thereof. TITLE IV PO=ERS O, CORPORATION Section *) !

Section *1 ! xecutive committee. - The by-laws of a corporation %ay create an e#ec"ti!e co%%ittee co%posed of not less than three %e%bers of the board to be appointed by the board. (aid co%%ittee %ay act by %a2ority !ote of all its %e%bers on s"ch specific %atters within the co%petence of the board as %ay be delegated to it in the by-laws or on a %a2ority !ote of the board e#cept with respect to? ),* appro!al of any action for which shareholdersC appro!al is also reG"ired@ ).* the filing of !acancies in the board@ );* the a%end%ent or repeal of by-laws or the adoption of new by-laws@ )B* the a%end%ent or repeal of any resol"tion of the board which by its e#press ter%s is not so a%endable or repealable@ and )+* a distrib"tion of cash di!idends to the shareholders.

,ili%inas Po$t Se$Cices Vs# Go &1 7 SCRA '1*+ ,acts8n B (epte%ber ,--. petitioner 7liodoro C. Cr"$ Ailport/s president fro% ,-4H "ntil he lost his bid for reelection as Ailport/s president d"ring the general stockholders/ %eeting in ,--, wrote a letter to the corporation/s 5oard of 6irectors G"estioning the board/s creation of the following positions with a %onthly re%"neration of P,; :+:.:: each and the election thereto of certain %e%bers of the board. In his aforesaid letter Cr"$ reG"ested the board to take necessary action<actions to reco!er fro% those elected to the afore%entioned positions the salaries they ha!e recei!ed. 8n ,B J"ne ,--; Cr"$ p"rportedly in representation of Ailport and its stockholders a%ong which is herein co-petitioner Mindanao Ter%inal and 5rokerage (er!ices Inc. )Minterbro* filed with the (7C a petition which he describes as a deri!ati!e s"it against the herein respondents who were then the inc"%bent %e%bers of Ailport/s 5oard of 6irectors for alleged acts of %is%anage%ent detri%ental to the interest of the corporation and its shareholders at large na%ely a%o%g others the creation of an e#ec"ti!e co%%ittee in ,--, co%posed of se!en )3* %e%bers of the board with co%pensation of P+::.:: for each %e%ber per %eeting an office which to Cr"$ is not pro!ided for in the by-laws of the corporation and whose f"nction %erely d"plicates those of the President and &eneral Manager@ In the sa%e petition docketed as (7C Case No. :4--;-BB-, Cr"$ alleged that despite de%ands %ade "pon the respondent %e%bers of the board of directors to desist fro% creating the positions in G"estion and to acco"nt for the a%o"nts inc"rred in creating the sa%e the de%ands were "nheeded. Cr"$ th"s prayed that the respondent %e%bers of the board of directors be %ade to pay Ailport 2ointly and se!erally the s"%s of %oney !ariedly representing the da%ages inc"rred as a res"lt of the creation of the offices<positions co%plained of and the aggregate a%o"nt of the G"estioned increased salaries. Iss.e1<N CA erred in holding that Ailport/s 5oard of 6irectors acted within its powers in creating the e#ec"ti!e co%%ittee and the positions of A'Ps for Corporate Planning 8perations Ainance and Ad%inistration and those of the (pecial Assistants to the President and the 5oard Chair%an each with corresponding re%"neration and in increasing the salaries of the positions of 5oard Chair%an 'ice-President Treas"rer and Assistant &eneral Manager

Corporate powers and capacity. - 7!ery corporation incorporated "nder this Code has the power and capacity? ,. To s"e and be s"ed in its corporate na%e@ .. 8f s"ccession by its corporate na%e for the period of ti%e stated in the articles of incorporation and the certificate of incorporation@ ;. To adopt and "se a corporate seal@ B. To a%end its articles of incorporation in accordance with the pro!isions of this Code@ +. To adopt by-laws not contrary to law %orals or p"blic policy and to a%end or repeal the sa%e in accordance with this Code@ 4. In case of stock corporations to iss"e or sell stocks to s"bscribers and to sell stocks to s"bscribers and to sell treas"ry stocks in accordance with the pro!isions of this Code@ and to ad%it %e%bers to the corporation if it be a non-stock corporation@ 3. To p"rchase recei!e take or grant hold con!ey sell lease pledge %ortgage and otherwise deal with s"ch real and personal property incl"ding sec"rities and bonds of other corporations as the transaction of the lawf"l

R.lingThe go!erning body of a corporation is its board of directors. (ection .; of the Corporation Code e#plicitly pro!ides that "nless otherwise pro!ided therein the corporate powers of all corporations for%ed "nder the Code shall be e#ercised all b"siness cond"cted and all property of the corporation shall be controlled and held by a board of directors. Th"s with the e#ception only of so%e powers e#pressly granted by law to stockholders )or %e%bers in case of non-stock corporations* the board of directors )or tr"stees in case of non-stock corporations* has the sole a"thority to deter%ine policies enter into contracts and cond"ct the ordinary b"siness of the corporation within the scope of its charter i.e. its articles of incorporation by-laws and rele!ant pro!isions of law. 'erily the a"thority of the board of directors is restricted to the %anage%ent of the reg"lar b"siness affairs of the corporation "nless %ore e#tensi!e power is e#pressly conferred. The raison dIetre behind the confer%ent of corporate powers on the board of directors is not lost on the Co"rt. Indeed the concentration in the board of the powers of control of corporate b"siness and of appoint%ent of corporate officers and %anagers is necessary for efficiency in any large organi$ation.

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b"siness of the corporation %ay reasonably and necessarily reG"ire s"b2ect to the li%itations prescribed by law and the Constit"tion@ H. To enter into %erger or consolidation with other corporations as pro!ided in this Code@ -. To %ake reasonable donations incl"ding those for the p"blic welfare or for hospital charitable c"lt"ral scientific ci!ic or si%ilar p"rposes? Pro!ided That no corporation do%estic or foreign shall gi!e donations in aid of any political party or candidate or for p"rposes of partisan political acti!ity@ ,:. To establish pension retire%ent and other plans for the benefit of its directors tr"stees officers and e%ployees@ and ,,. To e#ercise s"ch other powers as %ay be essential or necessary to carry o"t its p"rpose or p"rposes as stated in the articles of incorporation. Pasc.al E Santos Vs# 2e:4e$s of T$a:o &''2 SCRA '*7+ ,actsThe Me%bers of Tra%o 1akas Neighborhood Association represented by 6o%inga Magno lodged before the Presidential Action Center a petition praying that ownership o!er three );* parcels of land sit"ated in 5arangay (an 6ionisio ParaSaG"e Metro Manila with an aggregate area of ;+ ,-+ sG"are %eters be awarded to the%. In their petition respondents alleged that petitioner clai%s ownership of the s"b2ect lots which they ha!e openly peacef"lly and contin"o"sly occ"pied since ,-+3. The petition was referred to the Land Manage%ent 5"rea" )LM5* for in!estigation and hearing. 6irector Abelardo &. Palad Jr. of the LM5 fo"nd for respondents declaring that the clai% of Pasc"al and (antos Inc. o!er the three lots is dis%issed and the indi!id"al %e%bers of T9AM8 1ADA( N7I&05890886 A((8CIATI8N now represented by 6o%inga Magno if G"alified %ay file appropriate p"blic land applications o!er the land they act"ally possessed and occ"pied. An indi!id"al s"r!ey shall be cond"cted on the land at their own e#pense and after appro!al of the said s"r!ey the sa%e shall be gi!en d"e co"rse.

,acts(po"ses 9eynaldo La"reano and Alorence La"reano are %a2ority stockholders of petitioner Corporation who entered into a series of loan and credit transactions with Philippine National Cooperati!e 5ank )PNC5 for short*. To sec"re pay%ent of the loans they e#ec"ted 6eeds of 9eal 7state Mortgage. In !iew of their fail"re to pay their indebtedness PNC5 applied for e#tra2"dicial foreclos"re of the real estate %ortgages. The bank was the p"rchaser of the properties in G"estion in the foreclos"re sale and titles thereof were consolidated in PNC5Cs na%e. PNC5 did not sec"re a writ of possession nor did it file e2ect%ent proceedings against the La"reano spo"ses beca"se there were then pending cases s"ch as . . . in!ol!ing the titles of ownership of s"b2ect two lots which are sit"ated at 5el-Air ("bdi!ision Makati Metro Manila. 5or%aheco Inc. beca%e the s"ccessor of the obligations and liabilities of PNC5 o!er s"b2ect lots by !irt"e of a 6eed of (ale<Assign%ent wherein 5or%aheco bo"ght fro% PNC5 "nder a b"lk sale titled and "ntitled properties incl"ding the two parcels of land in G"estion for%erly registered in the na%e of the La"reano spo"ses. Transfer Certificate of Title o!er the lots in G"estion was iss"ed in the na%e of 5or%aheco. Ai!e )+* days after sec"ring titles o!er the said properties 5or%aheco filed an "6'?Parte Petition for the Iss"ance of 1rit of Possession of the . lots sit"ated at 5el-Air 'illage Makati Metro Manila. Petitioner Corporation filed its Motion for Inter!ention and to Ad%it Attached Co%plaint in Inter!ention in said case. 5or%aheco filed its Motion to (trike o"t the Co%plaint in Inter!ention and all related pleadings filed by LI67C8 Corporation. Petitioner contends that pri!ate respondent is estopped fro% and is in bad faith for denying its knowledge that "Lideco Corporation" and La"reano In!est%ent and 6e!elop%ent Corporation are one and the sa%e entity since it has pre!io"sly "sed LI67C8 as an acrony% for the latter corporation. Petitioner contends that it was pri!ate respondent which first %ade "se of LI67C8 as a shorter ter% for La"reano In!est%ent and 6e!elop%ent Corporation when it filed its first %otion to strike dated Jan"ary - ,-H- prior to the filing by "Lideco Corporation" of its %otion for inter!ention and co%plaint in inter!ention on Jan"ary ,H ,-H-. 0ence pri!ate respondent sho"ld be considered estopped fro% denying that petitioner and "Lideco Corporation" are one and the sa%e corporation. Iss.e1hether 9espondent 5or%aheco Inc. is estopped fro% contesting the legal personality to s"e of "Lideco Corporation"

Iss.e1<N the persons who e#ec"ted the !erification and certification of non-for"% shopping attached to P(I/s %anifestation<petition for re!iew filed with the co"rt of appeals were a"thori$ed to do so R.lingThe reG"ire%ent that the petitioner sho"ld sign the certificate of non-for"% shopping applies e!en to corporations considering that the %andatory directi!es of the 9"les of Co"rt %ake no distinction between nat"ral and 2"ridical persons. In the case at bar the CA dis%issed the petition before it on the gro"nd that Lo%bos and Pasc"al the signatories to the !erification and certification on non-for"% shopping failed to show proof that they were a"thori$ed by petitioner/s board of directors to file s"ch a petition. 7#cept for the powers which are e#pressly conferred on it by the Corporation Code and those that are i%plied by or are incidental to its e#istence a corporation has no powers. It e#ercises its powers thro"gh its board of directors and<or its d"ly a"thori$ed officers and agents. Th"s its power to s"e and be s"ed in any co"rt is lodged with the board of directors that e#ercises its corporate powers. Physical acts like the signing of doc"%ents can be perfor%ed only by nat"ral persons d"ly a"thori$ed for the p"rpose by corporate by-laws or by a specific act of the board of directors. It is "ndisp"ted that when the petition for certiorari was filed with the CA there was no proof attached thereto that Lo%bos and Pasc"al were a"thori$ed to sign the !erification and non-for"% shopping certification. ("bseG"ent to the CA/s dis%issal of the petition howe!er petitioner filed a %otion for reconsideration to which it attached a certificate iss"ed by its board secretary stating that on Aebr"ary ,, .::: or prior to the filing of the petition Lo%bos and Pasc"al had been a"thori$ed by petitioner/s board of directors to file the petition before the CA. This Co"rt has r"led that the s"bseG"ent s"b%ission of proof of a"thority to act on behalf of a petitioner corporation 2"stifies the rela#ation of the 9"les for the p"rpose of allowing its petition to be gi!en d"e co"rse. It %"st also be kept in %ind that while the reG"ire%ent of the certificate of non-for"% shopping is %andatory nonetheless the reG"ire%ents %"st not be interpreted too literally and th"s defeat the ob2ecti!e of pre!enting the "ndesirable practice of for"% shopping. LIDECO Vs# CA &2(2 SCRA 21)+

R.ling7#a%ining the records of the case we obser!e that the %otion ad!erted to indeed %ade "se of LI67C8 as an acrony% for La"reano In!est%ent and 6e!elop%ent Corporation. 5"t said %otion distinctly specified that LI67C8 was the shorter ter% for =La"reano In!est%ent and 6e!elop%ent Corporation>. It is ob!io"s that no false representation or conceal%ent can be attrib"ted to pri!ate respondent. Neither can it be charged with con!eying the i%pression that the facts are other than or inconsistent with those which it now asserts since LI67C8 as an acrony% is clearly different fro% "Lideco Corporation" which represented itself as a corporation d"ly registered and organi$ed in accordance with law. Nor can it be logically inferred that petitioner relied or acted "pon s"ch representation of pri!ate respondent in thereafter referring to itself as "Lideco Corporation@" for petitioner is pres"%ed to know by which na%e it is registered and the legal pro!isions on the "se of its corporate na%e. (ection , 9"le ; of the 9"les of Co"rt pro!ides that only nat"ral or 2"ridical persons or entities a"thori$ed by law %ay be parties to a ci!il action. Inder the Ci!il Code a corporation has a legal personality of its own )Article BB* and %ay s"e or be s"ed in its na%e in confor%ity with the laws and reg"lations of its organi$ation )Article B4*. Additionally Article ;4 of the Corporation Code si%ilarly pro!ides? Art. ;4. Corporate po&ers and capacit$ . W 7!ery corporation incorporated "nder this Code has the power and capacity? ,. To s"e and be s"ed in its corporate name @ "Lideco Corporation" had no personality to inter!ene since it had not been d"ly registered as a corporation. If petitioner legally and tr"ly wanted to inter!ene it sho"ld ha!e "sed its corporate na%e as the law reG"ires and not another na%e which it had not registered. Indeed nowhere in the %otion for inter!ention and co%plaint in inter!ention does it appear that "Lideco Corporation" stands for La"reano In!est%ent and 6e!elop%ent Corporation. 5or%aheco Inc. th"s was not estopped fro% G"estioning the 2"ridical

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personality of "Lideco Corporation " e!en after the trial co"rt had allowed it to inter!ene in the case. &ranting arguendo that the na%e "Lideco Corporation" co"ld be "sed by petitioner corporation in its %otion there is an e!en %ore cogent reason for denying the petition. The trial co"rt concl"ded and we ha!e no reason to disagree that the inter!ention of Lideco or petitioner corporation was not proper beca"se neither had any legal interest in the s"b2ect of litigation. The e!idence )ta# declarations* attached to the petition for inter!ention and the co%plaint for inter!ention pertained to properties not being litigated in the instant case. Lideco and Petitioner Corporation both clai%ed to ha!e an interest in two ho"ses constr"cted in Lot ; 5lock B in 5el Air 'illage Makati. The s"b2ect %atter of the instant petition on the other hand are Lots B and + 5lock B of 5el Air 'illage. S%ecial Se$Cices Vs# Cent$o la Pa8 &2(2 SCRA 21)+ ,actsJ"dg%ent was rendered in fa!or of petitioner (pecial (er!ices Corporation by the Co"rt of Airst Instance 5ranch I' Manila against one Ale2andro 7st"dillo in the a%o"nt of P-B 3.3.+. %ore or less in an action for 9eple!in with ("% of Money. A writ of e#ec"tion was thereafter iss"ed b"t which has re%ained "nsatisfied. 5y !irt"e of an alias writ of e#ec"tion the (heriff of Manila ca"sed the annotation of a notice of le!y on Transfer Certificate of Title No. +,H;3 in respect of the rights interest and participation of said Ale2andro 7st"dillo one of the registered owners indicated in said title. The title co!ers two parcels of land sit"ated in (a%paloc Manila consisting of three h"ndred forty eight );BH* sG"are %eters and registered in the na%es of Ale2andro 7st"dillo %arried to Pri%iti!a 'ictoria@ JoaG"ina de la 9osa widow@ Pedro Pag"io %arried to A%or Jose and Ma#i%o 'ictoria %arried to J"liana 9oberto all Chapter %e%bers. The p"blic a"ction sale of 7st"dilloCs rights and interests in said properties was then sched"led on J"ly .; ,-3;. Ale2andro 7st"dillo filed a =Motion to 6issol!e and<or Cancel the Notice of Le!y> alleging that he and the other registered owners indicated on the title %erely held in tr"st the properties and i%pro!e%ents thereon in fa!or of respondent Centro La Pa$ )(a%ahang 7spiritista (a L"nd"yang La Pa$* a Chapter of Inion 7spiritista Cristiana de Ailipinas Inc. 8n J"ly ., ,-3; C7NT98 s"b%itted a third party clai% to the (heriff of Manila likewise a!erring e#cl"si!e ownership of the properties in G"estion. Iss.e1<N Centro La Pa$ which is %erely a Chapter of Inion 7spiritista de Ailipinas Inc. has a 2"ridical personality of its own in accordance with the pro!isions of o"r laws R.lingAltho"gh it was C7NT98 that was acti!ely prosec"ting the case in s"bstance it was representing the %other organi$ation the Inion 7spiritista Cristiana de Ailipinas Inc. which is the real party in interest and is itself na%ed in the Co%plaint. It is an organi$ation that is d"ly registered with the (ec"rities and 7#change Co%%ission and th"s possessed of a 2"ridical personality to s"e and be s"ed. The e!idence s"fficiently establishes that the registered owners of the parcels of land all of who% are %e%bers of C7NT98 hold the properties in tr"st for C7NT98 by !irt"e of the ind"bitable doc"%ents e#ec"ted e!en before the instit"tion of s"it. The fact of registration in the na%e of Ale2andro 7st"dillo and others does not bar e!idence to show that the registered owners hold the properties in tr"st for C7NT98. Ad%ittedly the tr"st was not registered in accordance with section 4+ of Act B-4 )the for%er Land 9egistration Law*. The absence of said registration howe!er cannot be taken against C7NT98 inas%"ch as if the p"blic a"ction sale had act"ally been held with petitioner as the s"ccessf"l b"yer petitioner co"ld not ha!e been considered a p"rchaser for !al"e and in good faith at said sale since it had knowledge of C7NT98Cs clai% partic"larly when the latter had filed a third-party-clai% with the (heriff of Manila before the sched"led a"ction sale which knowledge was eG"i!alent to registration of the se!eral "Acknowledg%ents" in the 9egistry of 6eeds. The concl"sion follows that inas%"ch as 7st"dillo has no interest in the properties in G"estion there is nothing that petitioner can le!y "pon. The power of a Co"rt in the e#ec"tion of its 2"dg%ent e#tends only o!er properties "nG"estionably belonging to the 2"dg%ent debtor.

a %eeting by the stockholders representing at least two-thirds ).<;* of the o"tstanding capital stock or by at least two-thirds ).<;* of the %e%bers in case of non-stock corporations. 1ritten notice of the proposed action and of the ti%e and place of the %eeting shall be addressed to each stockholder or %e%ber at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid or ser!ed personally? Pro!ided That in case of e#tension of corporate ter% any dissenting stockholder %ay e#ercise his appraisal right "nder the conditions pro!ided in this code. Section *7 ! =ower to increase or decrease capital stoc)> incur, create or increase bonded indebtedness. - No corporation shall increase or decrease its capital stock or inc"r create or increase any bonded indebtedness "nless appro!ed by a %a2ority !ote of the board of directors and at a stockholderCs %eeting d"ly called for the p"rpose two-thirds ).<;* of the o"tstanding capital stock shall fa!or the increase or di%in"tion of the capital stock or the inc"rring creating or increasing of any bonded indebtedness. 1ritten notice of the proposed increase or di%in"tion of the capital stock or of the inc"rring creating or increasing of any bonded indebtedness and of the ti%e and place of the stockholderCs %eeting at which the proposed increase or di%in"tion of the capital stock or the inc"rring or increasing of any bonded indebtedness is to be considered %"st be addressed to each stockholder at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid or ser!ed personally. A certificate in d"plicate %"st be signed by a %a2ority of the directors of the corporation and co"ntersigned by the chair%an and the secretary of the stockholdersC %eeting setting forth? ),* That the reG"ire%ents of this section ha!e been co%plied with@ ).* The a%o"nt of the increase or di%in"tion of the capital stock@ );* If an increase of the capital stock the a%o"nt of capital stock or n"%ber of shares of no-par stock thereof act"ally s"bscribed the na%es nationalities and residences of the persons s"bscribing the a%o"nt of capital stock or n"%ber of no-par stock s"bscribed by each and the a%o"nt paid by each on his s"bscription in cash or property or the a%o"nt of capital stock or n"%ber of shares of no-par stock allotted to each stock-holder if s"ch increase is for the p"rpose of %aking effecti!e stock di!idend therefor a"thori$ed@ )B* Any bonded indebtedness to be inc"rred created or increased@ )+* The act"al indebtedness of the corporation on the day of the %eeting@ )4* The a%o"nt of stock represented at the %eeting@ and )3* The !ote a"thori$ing the increase or di%in"tion of the capital stock or the inc"rring creating or increasing of any bonded indebtedness. Any increase or decrease in the capital stock or the inc"rring creating or increasing of any bonded indebtedness shall reG"ire prior appro!al of the (ec"rities and 7#change Co%%ission. 8ne of the d"plicate certificates shall be kept on file in the office of the corporation and the other shall be filed with the (ec"rities and 7#change Co%%ission and attached to the original articles of incorporation. Aro% and after appro!al by the (ec"rities and 7#change Co%%ission and the iss"ance by the Co%%ission of its certificate of filing the capital stock shall stand increased or decreased and the inc"rring creating or increasing of any bonded indebtedness a"thori$ed as the certificate of filing %ay declare? Pro!ided That the (ec"rities and 7#change Co%%ission shall not accept for filing any certificate of increase of capital stock "nless acco%panied by the sworn state%ent of the treas"rer of the corporation lawf"lly holding office at the ti%e of the filing of the certificate showing that at least twenty-fi!e ).+N* percent of s"ch increased capital stock has been s"bscribed and that at least twenty-fi!e ).+N* percent of the a%o"nt s"bscribed has been paid either in act"al cash to the corporation or that there has been transferred to the corporation property the !al"ation of which is eG"al to twenty-fi!e ).+N* percent of the s"bscription? Pro!ided f"rther That no decrease of the capital stock shall be appro!ed by the Co%%ission if its effect shall pre2"dice the rights of corporate creditors. Non-stock corporations %ay inc"r or create bonded indebtedness or increase the sa%e with the appro!al by a %a2ority !ote of the board of tr"stees and of at least two-thirds ).<;* of the %e%bers in a %eeting d"ly called for the p"rpose. 5onds iss"ed by a corporation shall be registered with the (ec"rities and 7#change Co%%ission which shall ha!e the a"thority to deter%ine the s"fficiency of the ter%s thereof. Ong ;ong Vs# Ti. &'0 SCRA + ,acts-

Section *( ! =ower to extend or shorten corporate term. - A pri!ate corporation %ay e#tend or shorten its ter% as stated in the articles of incorporation when appro!ed by a %a2ority !ote of the board of directors or tr"stees and ratified at

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The constr"ction of the Masagana Citi%all in Pasay City was threatened with stoppage and inco%pletion when its owner the Airst Landlink Asia 6e!elop%ent Corporation )ALA6C* which was owned by the Ti"s enco"ntered dire financial diffic"lties. It was hea!ily indebted to the Philippine National 5ank )PN5* for P,-: %illion. To sta!e off foreclos"re of the %ortgage on the two lots where the %all was being b"ilt the Ti"s in!ited the 8ngs to in!est in ALA6C. Inder the Pre("bscription Agree%ent they entered into the 8ngs and the Ti"s agreed to %aintain eG"al shareholdings in ALA6C? the 8ngs were to s"bscribe to , ::: ::: shares at a par !al"e of P,::.:: each while the Ti"s were to s"bscribe to an additional +B- H:: shares at P,::.:: each in addition to their already e#isting s"bscription of B+: .:: shares. A"rther%ore they agreed that the Ti"s were entitled to no%inate the 'ice-President and the Treas"rer pl"s fi!e directors while the 8ngs were entitled to no%inate the President the (ecretary and si# directors )incl"ding the chair%an* to the board of directors of ALA6C. Moreo!er the 8ngs were gi!en the right to %anage and operate the %all. Accordingly the 8ngs paid P,:: %illion in cash for their s"bscription to , ::: ::: shares of stock while the Ti"s co%%itted to contrib"te to ALA6C a fo"r-storey b"ilding and two parcels of land respecti!ely !al"ed at P.: %illion )for .:: ::: shares* P;: %illion )for ;:: ::: shares* and PB-.H %illion )for B- H:: shares* to co!er their additional +B- H:: stock s"bscription therein. The 8ngs paid in another P3: %illion to ALA6C and P.: %illion to the Ti"s o!er and abo!e their P,:: %illion in!est%ent the total s"% of which )P,-: %illion* was "sed to settle the P,-: %illion %ortgage indebtedness of ALA6C to PN5. The b"siness har%ony between the 8ngs and the Ti"s in ALA6C howe!er was shortli!ed beca"se the Ti"s rescinded the Pre-("bscription Agree%ent. The Ti"s acc"sed the 8ngs of ),* ref"sing to credit to the% the ALA6C shares co!ering their real property contrib"tions@ ).* pre!enting 6a!id (. Ti" and Cely M. Ti" fro% ass"%ing the positions of and perfor%ing their d"ties as 'ice-President and Treas"rer respecti!ely and );* ref"sing to gi!e the% the office spaces agreed "pon. The Ti"s went to (ec"rities and 7#change Co%%ission )(7C* seeking confir%ation of their rescission of the Pre-("bscription Agree%ent. After hearing the (7C thro"gh then 0earing 8fficer 9olando &. Andaya Jr. iss"ed a decision on May ,- ,--3 confir%ing the rescission so"ght by the Ti"s. Iss.e1<N the Ti"s co"ld legally rescind the Pre-("bscription Agree%ent R.lingNo they co"ld not. ALA6C was originally incorporated with an a"thori$ed capital stock of +:: ::: shares with the Ti"s owning B+: .:: shares representing the paid-"p capital. 1hen the Ti"s in!ited the 8ngs to in!est in ALA6C as stockholders an increase of the a"thori$ed capital stock beca%e necessary to gi!e each gro"p eG"al )+:-+:* shareholdings as agreed "pon in the Pre-("bscription Agree%ent. The a"thori$ed capital stock was th"s increased fro% +:: ::: shares to . ::: ::: shares with a par !al"e of P,:: each with the 8ngs s"bscribing to , ::: ::: shares and the Ti"s to +B- H:: %ore shares in addition to their B+: .:: shares to co%plete , ::: ::: shares. Th"s the s"b2ect %atter of the contract was the , ::: ::: unissued shares of ALA6C stock allocated to the 8ngs. (ince these were "niss"ed shares the partiesC Pre-("bscription Agree%ent was in fact a s"bscription contract as defined "nder (ection 4: Title 'II of the Corporation Code? Any contract for the acG"isition of unissued stoc% in an e'isting corporation or a corporation still to be for%ed shall be dee%ed a s"bscription within the %eaning of this Title notwithstanding the fact that the parties refer to it as a purc ase or some ot er contract A s"bscription contract necessarily in!ol!es the corporation as one of the contracting parties since the s"b2ect %atter of the transaction is property owned by the corporation P its shares of stock. Th"s the s"bscription contract )deno%inated by the parties as a Pre-("bscription Agree%ent* whereby the 8ngs in!ested P,:: %illion for , ::: ::: shares of stock was fro% the !iewpoint of the law one between the 8ngs and ALA6C not between the 8ngs and the Ti"s. 8therwise stated the Ti"s did not contract in their personal capacities with the 8ngs since they were not selling any of their own shares to the%. It was ALA6C that did. Considering therefore that the real contracting parties to the s"bscription agree%ent were ALA6C and the 8ngs alone a ci!il case for rescission on the gro"nd of breach of contract filed by the Ti"s in their personal capacities will not prosper. 8nly ALA6C had the legal personality to file s"it rescinding the s"bscription agree%ent with the 8ngs inas%"ch as it was the real party in interest therein. 0owe!er altho"gh the Ti"s were ad!ersely affected by the 8ngsC "nwillingness to let the% ass"%e their positions rescission d"e to breach of contract is definitely the wrong re%edy for their personal grie!ances. &he Corporation Code, S C rules and even the %ules of Court provide for appropriate and adequate intra-corporate remedies, other than

rescission, in situations li)e this. 9escission is certainly not one of the% especially if the party asking for it has no legal personality to do so and the reG"ire%ents of the law therefor ha!e not been %et. A contrary doctrine will tread on e#tre%ely dangero"s gro"nd beca"se it will allow 2"st any stockholder for 2"st abo"t any real or i%agined offense to de%and rescission of his s"bscription and call for the distrib"tion of so%e part of the corporate assets to hi% witho"t co%plying with the reG"ire%ents of the Corporation Code. 0ence the Ti"s in their personal capacities cannot seek the "lti%ate and e#traordinary re%edy of rescission of the s"b2ect agree%ent based on a less than s"bstantial breach of s"bscription contract. Not only are they not parties to the s"bscription contract between the 8ngs and ALA6C@ they also ha!e other a!ailable and effecti!e re%edies "nder the law. 9escission will still not prosper since it will !iolate the Tr"st A"nd 6octrine and the proced"res for the !alid distrib"tion of assets and property "nder the Corporation Code. The Tr"st A"nd 6octrine first en"nciated by this Co"rt in the ,-.; case of P ilippine ,rust Co. vs. =ivera pro!ides that s"bscriptions to the capital stock of a corporation constit"te a f"nd to which the creditors ha!e a right to look for the satisfaction of their clai%s. This doctrine is the "nderlying principle in the proced"re for the distrib"tion of capital assets e%bodied in the Corporation Code which allows the distrib"tion of corporate capital only in three instances? ),* a%end%ent of the Articles of Incorporation to red"ce the a"thori$ed capital stock ).* p"rchase of redee%able shares by the corporation regardless of the e#istence of "nrestricted retained earnings and );* dissol"tion and e!ent"al liG"idation of the corporation. A"rther%ore the doctrine is artic"lated in (ection B, on the power of a corporation to acG"ire its own shares and in (ection ,.. on the prohibition against the distrib"tion of corporate assets and property "nless the stringent reG"ire%ents therefor are co%plied with. In the instant case the rescission of the Pre-("bscription Agree%ent will effecti!ely res"lt in the "na"thori$ed distrib"tion of the capital assets and property of the corporation thereby !iolating the Tr"st A"nd 6octrine and the Corporation Code since rescission of a s"bscription agree%ent is not one of the instances when distrib"tion of capital assets and property of the corporation is allowed. Contrary to the Ti"sC allegation rescission will in the final analysis res"lt in the pre%at"re liG"idation of the corporation witho"t the benefit of prior dissol"tion in accordance with (ections ,,3 ,,H ,,- and ,.: of the Corporation Code. The Ti"sC case for rescission cannot !alidly be dee%ed a petition to decrease capital stock beca"se s"ch action ne!er co%plied with the for%al reG"ire%ents for decrease of capital stock "nder (ection ;H of the Corporation Code. No %a2ority !ote of the board of directors was e!er taken. Neither was there any stockholders/ %eeting at which the appro!al of stockholders owning at least two-thirds ).<;* of the o"tstanding capital stock was sec"red. There was no re!ised treas"rerCs affida!it and no proof that said decrease will not pre2"dice the creditorsC rights. A"rther%ore it is an i%proper 2"dicial intr"sion into the internal affairs of the corporation to co%pel ALA6C to file at the (7C a petition for the iss"ance of a certificate of decrease of stock. 6ecreasing a corporationCs a"thori$ed capital stock is an a%end%ent of the Articles of Incorporation. It is a decision that only the stockholders and the directors can %ake considering that they are the contracting parties thereto. -n t is case# t e ,ius are actuall$ not just as%ing for a revie& of t e legalit$ and fairness of a corporate decision. , e$ &ant t is Court to ma%e a corporate decision for 2LA;C . 1e decline to inter!ene and order corporate str"ct"ral changes not !ol"ntarily agreed "pon by its stockholders and directors. A 2"dicial order to decrease capital stock witho"t the assent of ALA6CCs directors and stockholders is a !iolation of the "b"siness 2"dg%ent r"le" which states that? ### ### ### )C*ontracts intra vires entered into by the board of directors are binding "pon the corporation and co"rts will not interfere "nless s"ch contracts are so "nconscionable and oppressi!e as to a%o"nt to wanton destr"ction to the rights of the %inority as when plaintiffs a!er that the defendants )%e%bers of the board* ha!e concl"ded a transaction a%ong the%sel!es as will res"lt in serio"s in2"ry to the plaintiffs stockholders. Apparently the Ti"s do not reali$e the illegal conseG"ences of seeking rescission and control of the corporation to the e#cl"sion of the 8ngs. ("ch an act infringes on the law on red"ction of capital stock. 8rdering the ret"rn and distrib"tion of the 8ngsC capital contrib"tion witho"t dissol!ing the corporation or decreasing its a"thori$ed capital stock is not only against the law b"t is also pre2"dicial to corporate creditors who en2oy absol"te priority of pay%ent o!er and abo!e any indi!id"al stockholder thereof. The "nilateral rescission by the Ti"s of the s"b2ect Pre-("bscription Agree%ent dated A"g"st ,+ ,--B is hereby declared as n"ll and !oid. 2ad$igal E Co# Vs# Za:o$a & 1 SCRA *11+ ,acts-

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The petitioner was engaged a%ong se!eral other corporate ob2ecti!es in the %anage%ent of 9i$al Ce%ent Co. Inc. Ad%ittedly the petitioner and 9i$al Ce%ent Co. Inc. are sister co%panies. 5oth are owned by the sa%e or practically the sa%e stockholders. The Madrigal Central 8ffice 7%ployees Inion so"ght for the renewal of its collecti!e bargaining agree%ent with the petitioner which was d"e to e#pire on Aebr"ary .H ,-3B. (pecifically it proposed a wage increase of P.::.:: a %onth an allowance of P,::.:: a %onth and other econo%ic benefits. The petitioner howe!er reG"ested for a defer%ent in the negotiations. 8n J"ly .- ,-3B by an alleged resol"tion of its stockholders the petitioner red"ced its capital stock fro% 34+ ::: shares to .43 ;44 shares. This was effected thro"gh the distrib"tion of the %arketable sec"rities owned by the petitioner to its stockholders in e#change for their shares in an eG"i!alent a%o"nt in the corporation. 8n A"g"st .. ,-3+ by yet another alleged stockholdersC action the petitioner red"ced its a"thori$ed capitali$ation fro% .43 ;44 shares to ,,: :H+ shares again thro"gh the sa%e sche%e. After the petitionerCs fail"re to sit down with the respondent "nion the latter co%%enced a co%plaint with the National Labor 9elations Co%%ission for "nfair labor practice against petitioner. In d"e ti%e the petitioner filed its position paper alleging operational losses. Iss.e1<N the red"ction of the co%pany/s capital stock was proper R.ling1hile the red"ction in capital stock created an apparent need for retrench%ent it was by all indications 2"st a %ask for the p"rge of "nion %e%bers who by then had agitated for wage increases. In the face of the petitioner co%panyCs piling profits the "nionists had the right to de%and for s"ch salary ad2"st%ents. That the petitioner %ade G"ite handso%e profits is clear fro% the records. A clear scr"tiny of the financial reports of the petitioner re!eals that it had been %aking s"bstantial profits in the operation. In ,-3. when it still had 34+ ::: co%%on shares of which ;:+ ::: were "niss"ed and B+- ::: o"tstanding capitali$ed at P,4 H;: :::.:: the respondent %ade a net profit of P. B:; .,,.+H. Its total assets were P3: H., ;,3.H,. In ,-3; based on the sa%e capitali$ation its profit increased to P. 3.B B4+.;;. Its total assets increased to PH; .B: B3;.3;. In ,-3B altho"gh its capitali$ation was red"ced fro% P,4 H;: :::.:: to P,, .;: B+-.;4 its profits were f"rther increased to P. -.. ;B-.3:. Its assets were P3H HB. ,3+.3+. The red"ction in its assets by PB ;-H .-3.-H was d"e to the fact that its capital stock was red"ced by the a%o"nt of P+ +-- +B:.+B. In ,-3+ for the period of only si# %onths the respondent reported a net profit of P+B3 B,B.3. which when added to the s"rpl"s of P+ +-,..,B.,- %akes a total s"rpl"s of P4 ,;H 4.H.-, as of J"ne ;: ,-3+. The petitioner wo"ld howe!er ha!e "s belie!e that it in fact s"stained losses. 1hate!er profits it earned so it clai%s were in the nat"re of di!idends "declared on its shareholdings in other co%panies in the earning of which the e%ployees had no participation whatsoe!er." "Cash di!idends " according to it "are the absol"te property of the stockholders and cannot be %ade a!ailable for disposition if only to %eet the e%ployeesC econo%ic de%ands." There is no %erit in this contention. 1e agree with the National Labor 9elations Co%%ission that "EtFhe di!idends recei!ed by the co%pany are corporate earnings arising fro% corporate in!est%ent." Indeed as fo"nd by the Co%%ission the petitioner had entered s"ch earnings in its financial state%ents as profits which it wo"ld not ha!e done if they were not in fact profits. Moreo!er it is incorrect to say that s"ch profits W in the for% of di!idends W are beyond the reach of the petitionerCs creditors since the petitioner had recei!ed the% as co%pensation for its %anage%ent ser!ices in fa!or of the co%panies it %anaged as a shareholder thereof. As s"ch shareholder the di!idends paid to it were its own %oney which %ay then be a!ailable for wage incre%ents. It is not a case of a corporation distrib"ting di!idends in fa!or of its stockholders in which case s"ch di!idends wo"ld be the absol"te property of the stockholders and hence o"t of reach by creditors of the corporation. 0ere the petitioner was acting as stockholder itself and in that case the right to a share in s"ch di!idends by way of salary increases %ay not be denied its e%ployees.

Accordingly this co"rt is con!inced that the petitionerCs capital red"ction efforts were to begin with a s"bterf"ge a deception as it were to ca%o"flage the fact that it had been %aking profits and conseG"ently to 2"stify the %ass layoff in its e%ployee ranks especially of "nion %e%bers. They were nothing b"t a pre%at"re and plain distrib"tion of corporate assets to ob!iate a 2"st sharing to labor of the !ast profits obtained by its 2oint efforts with capital thro"gh the years. ("rely we can neither co"ntenance nor condone this. It is an "nfair labor practice. Section *9 ! =ower to deny pre-emptive right. - All stockholders of a stock corporation shall en2oy pre-e%pti!e right to s"bscribe to all iss"es or disposition of shares of any class in proportion to their respecti!e shareholdings "nless s"ch right is denied by the articles of incorporation or an a%end%ent thereto? Pro!ided That s"ch pre-e%pti!e right shall not e#tend to shares to be iss"ed in co%pliance with laws reG"iring stock offerings or %ini%"% stock ownership by the p"blic@ or to shares to be iss"ed in good faith with the appro!al of the stockholders representing two-thirds ).<;* of the o"tstanding capital stock in e#change for property needed for corporate p"rposes or in pay%ent of a pre!io"sly contracted debt. Dee Vs# SEC & 99 SCRA 2*7+ ,actsNaga Telephone Co%pany Inc. was organi$ed in ,-+B the a"thori$ed capital was P,:: :::.::. In ,-3B Natelco decided to increase its a"thori$ed capital to P; ::: :::.::. As reG"ired by the P"blic (er!ice Act Natelco filed an application for the appro!al of the increased a"thori$ed capital with the then 5oard of Co%%"nications. A decision was rendered in said case appro!ing the said application s"b2ect to certain conditions a%ong which was? ;. That the iss"ance of the shares of stocks will be for a period of one year fro% the date hereof "after which no f"rther iss"es will be %ade witho"t pre!io"s a"thority fro% this 5oard." P"rs"ant to the appro!al gi!en by the then 5oard of Co%%"nications Natelco filed its A%ended Articles of Incorporation with the (7C. 1hen the a%ended articles were filed with the (7C the original a"thori$ed capital of P,:: :::.:: was already paid. 8f the increased capital of P. -:: :::.:: the s"bscribers s"bscribed to P+H: :::.:: of which P,B+ ::: was f"lly paid. Natelco entered into a contract with Co%%"nication (er!ices Inc. for the "%an"fact"re s"pply deli!ery and installation" of telephone eG"ip%ent. In accordance with this contract Natelco iss"ed .B ::: shares of co%%on stocks to C(I on the sa%e date as part of the downpay%ent. Another ,. ::: shares of co%%on stocks were iss"ed to C(I. In both instances no prior a"thori$ation fro% the 5oard of Co%%"nications now the National Teleco%%"nications Co%%ission was sec"red p"rs"ant to the conditions i%posed by the decision of the 58C. Later the stockholders of the Natelco held their ann"al stockholdersC %eeting to elect their se!en directors to their 5oard of 6irectors for the year ,-3-,-H:. In this election Pedro Lope$ 6ee was "nseated as Chair%an of the 5oard and President of the Corporation b"t was elected as one of the directors together with his wife A%elia Lope$ 6ee. In the election C(I was able to gain control of Natelco when the latterCs legal co"nsel Atty. L"ciano Maggay won a seat in the 5oard with the help of C(I. In the reorgani$ation Atty. Maggay beca%e president. The last three na%ed directors incl"ding the 6ee spo"ses ne!er attended the %eetings of the Maggay 5oard. The %e%bers of the Maggay 5oard who attended its %eetings were Maggay. Aederis 9a%os and Ja!alera. The last two were and are C(I representati!es. 6"ring the ten"re of the Maggay 5oard fro% J"ne .. ,-3- to March ,: ,-H: it did not refor% the contract of April ,. ,-33 and entered into another contract with C(I for the s"pply and installation of additional eG"ip%ent b"t also iss"ed to C(I ,,; H:: shares of co%%on stock. Iss.e1<N Natelco stockholders ha!e a right of pree%ption to the ,,; H:: shares in G"estion R.ling1hile the gro"p of L"ciano Maggay was in control of Natelco the Maggay 5oard iss"ed ,,; H:: shares of stock to C(I. Petitioner said that the Maggay 5oard in iss"ing said shares witho"t notifying Natelco stockholders !iolated their right of pre-e%ption to the "niss"ed shares. This Co"rt in Benito vs S6C# et al .),.; (C9A 3..* has r"led that?

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Petitioner bewails the fact that in !iew of the lack of notice to hi% of s"ch s"bseG"ent iss"ance he was not able to e#ercise his right of pre-e%ption o!er the "niss"ed shares. 0owe!er the general r"le is that pre-e%pti!e right is recogni$ed only with respect to new iss"es of shares and not with respect to additional iss"es of originally a"thori$ed shares. This is on the theory that when a corporation at its inception offers its first shares it is pres"%ed to ha!e offered all of those which it is a"thori$ed to iss"e. An original s"bscriber is dee%ed to ha!e taken his shares knowing that they for% a definite proportionate part of the whole n"%ber of a"thori$ed shares. 1hen the shares left "ns"bscribed are later re-offered he cannot therefore clai% a dil"tion of interest. The G"estioned iss"ance of the ,,; H:: stocks is not in!alid e!en ass"%ing that it was %ade witho"t notice to the stockholders as clai%ed by the petitioner. The power to iss"e shares of stocks in a corporation is lodged in the board of directors and no stockholders %eeting is reG"ired to consider it beca"se additional iss"ance of shares of stocks does not need appro!al of the stockholders. ConseG"ently no pre-e%pti!e right of Natelco stockholders was !iolated by the iss"ance of the ,,; H:: shares to C(I. Section '0 ! Sale or other disposition of assets. - ("b2ect to the pro!isions of e#isting laws on illegal co%binations and %onopolies a corporation %ay by a %a2ority !ote of its board of directors or tr"stees sell lease e#change %ortgage pledge or otherwise dispose of all or s"bstantially all of its property and assets incl"ding its goodwill "pon s"ch ter%s and conditions and for s"ch consideration which %ay be %oney stocks bonds or other instr"%ents for the pay%ent of %oney or other property or consideration as its board of directors or tr"stees %ay dee% e#pedient when a"thori$ed by the !ote of the stockholders representing at least two-thirds ).<;* of the o"tstanding capital stock or in case of non-stock corporation by the !ote of at least to two-thirds ).<;* of the %e%bers in a stockholderCs or %e%berCs %eeting d"ly called for the p"rpose. 1ritten notice of the proposed action and of the ti%e and place of the %eeting shall be addressed to each stockholder or %e%ber at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid or ser!ed personally? Pro!ided That any dissenting stockholder %ay e#ercise his appraisal right "nder the conditions pro!ided in this Code. A sale or other disposition shall be dee%ed to co!er s"bstantially all the corporate property and assets if thereby the corporation wo"ld be rendered incapable of contin"ing the b"siness or acco%plishing the p"rpose for which it was incorporated. After s"ch a"thori$ation or appro!al by the stockholders or %e%bers the board of directors or tr"stees %ay ne!ertheless in its discretion abandon s"ch sale lease e#change %ortgage pledge or other disposition of property and assets s"b2ect to the rights of third parties "nder any contract relating thereto witho"t f"rther action or appro!al by the stockholders or %e%bers. Nothing in this section is intended to restrict the power of any corporation witho"t the a"thori$ation by the stockholders or %e%bers to sell lease e#change %ortgage pledge or otherwise dispose of any of its property and assets if the sa%e is necessary in the "s"al and reg"lar co"rse of b"siness of said corporation or if the proceeds of the sale or other disposition of s"ch property and assets be appropriated for the cond"ct of its re%aining b"siness. In non-stock corporations where there are no %e%bers with !oting rights the !ote of at least a %a2ority of the tr"stees in office will be s"fficient a"thori$ation for the corporation to enter into any transaction a"thori$ed by this section. ).H ,<.a*

The contro!ersy arose with respect to 7sg"erra 5"ilding II. J"lietta started clai%ing one-half of the rentals of the said b"ilding which '7CCI ref"sed. Th"s J"lietta filed a %otion praying that '7CCI be ordered to re%it one-half of the rentals to her effecti!e Jan"ary ,--: "ntil the sa%e be sold. '7CCI opposed said %otion. Meanwhile 7sg"erra 5ldg. II was sold to ("reste Properties. Inc. for P,+: ::: :::.::. J"lieta '. 7sg"erra filed a %otion seeking the n"llification of the sale on the gro"nd that '7CCI is not the lawf"l and absol"te owner thereof and that she has not been notified nor cons"lted as to the ter%s and conditions of the sale. Iss.e1<N '7CCICs sale of 7sg"erra 5"ildingII a !alid e#ercise of corporate power R.lingPetitioner contends that '7CCI !iolated the condition in the co%pro%ise agree%ent reG"iring that the sale be %ade ""nder the ter%s and conditions recited in the enabling resol"tions of its 5oard of 6irectors and stockholders. (he r"es that no shareholdersC or directorsC %eeting wherein these resol"tions were passed was act"ally held. (he th"s bewails this sale as i%proper for not ha!ing co%plied with the reG"ire%ents %andated by (ection B: of the Corporation Code. PetitionerCs contention is plainly "n%eritorio"s. The co%pro%ise agree%ent clearly showed that the "enabling resol"tions of its )'7CCICs* board of directors and stockholders" referred to were those then already e#isting@ to wit? ),* "the resol"tion of the stockholders of '7CCI dated November O# "OLO )where* the stockholders a"thori$ed '7CCI to sell and<or disposed all or s"bstantially all its property and assets "pon s"ch ter%s and conditions and for s"ch consideration as t e board of directors ma$ deem e'pedient ." ).* the "resol"tion dated - November "OLO )where* the board of directors of '7CCI a"thori$ed '7CCI to sell and<or dispose all or s"bstantially all the property and assets of the corporation at t e ig est available price1s they co"ld be sold or disposed of in cash and in s"ch %anner as ma$ be eld convenient "nder the circ"%stances and aut ori>ed t e President 0icente B. 6sguerra. Gr. to negotiate. contract# e'ecute and sign suc sale for and in behalf of the corporation." '7CCICs sale of all the properties %entioned in the 2"dicially-appro!ed co%pro%ise agree%ent was done on the basis of its Corporate Secretar$*s Certification of these two resol"tions. The partial decision did not reG"ire any f"rther board or stockholder resol"tions to %ake '7CCICs sale of these properties !alid. 5eing reg"lar on its face the (ecretaryCs Certification was s"fficient for ("reste Properties Inc. to rely on. It did not ha!e to in!estigate the tr"th of the facts contained in s"ch certification. 8therwise b"siness transactions of corporations wo"ld beco%e tort"o"sly slow and "nnecessarily ha%pered. Inel"ctably '7CCICs sale of 7sg"erra 5"ilding II to ("reste was not ultra vires b"t a !alid e#ec"tion of the trial co"rtCs partial decision. 5ased on the foregoing the sale is also dee%ed to ha!e satisfied the reG"ire%ents of (ection B: of the Corporation Code. A"rther%ore petitioner J"lieta 7sg"erra is estopped fro% contesting the !alidity of '7CCICs corporate action in selling 7sg"erra 5"ilding II on the basis of said resol"tions and certification beca"se she ne!er raised this iss"e in '7CCICs prior sales of the other properties sold incl"ding the 7sg"erra 5"ilding I. The sa%e identical resol"tions and certification were "sed in s"ch prior sales. Nell E Co# Vs# Pacific ,a$:s & 1 SCRA ' 1+ ,acts-

Esg.e$$a Vs# CA &2)( SCRA *70+ ,actsJ"lieta 7sg"erra filed a co%plaint for ad%inistration of con2"gal partnership or separation of property against her h"sband 'icente 7sg"erra Jr. before the trial co"rt. The said co%plaint was later a%ended i%pleading '. 7sg"erra Constr"ction Co. Inc. )'7CCI* and other fa%ily corporations as defendants. The parties entered into a co%pro%ise agree%ent which was s"b%itted to the co"rt. 8n the basis of the said agree%ent the co"rt rendered two partial 2"dg%ents? one between 'icente and J"lieta and the other as between the latter and '7CCI. '7CCI shall sell<alienate<transfer or dispose of in any lawf"l and con!enient %anner and "nder the ter%s and conditions recited in the enabling resol"tions of its 5oard of 6irectors and stockholders '7CCI properties. After the properties shall ha!e been sold<alienated<transferred or disposed of and f"nds are reali$ed therefro% and after all the financial obligations of defendant '7CCI are co%pletely paid and<or settled defendant '7CCI shall ca"se to be paid and<or re%itted to the plaintiff s"ch a%o"nt<s"% eG"i!alent to fifty percent )+:N* of the )net* res"lting balance of s"ch f"nds. Nell Co. sec"red against Ins"lar Aar%s Inc. a 2"dg%ent for the s"% of P, H+;.H: representing the "npaid balance of the price of a p"%p sold by Nell to Ins"lar Aar%s with interest on said s"% pl"s P,.+.:: as attorneyCs fees and PHB.:: as costs. A writ of e#ec"tion was ret"rned "nsatisfied stating that Ins"lar Aar%s had no le!iable property. (oon thereafter Nell filed with the present action against Pacific Aar%s Inc. for the collection of the 2"dg%ent afore%entioned "pon the theory that it is the alter ego of Ins"lar Aar%s. In d"e co"rse the M"nicipal Co"rt rendered 2"dg%ent dis%issing NellCs co%plaint. Ipon appeal to CA the sa%e was denied. 0ence this appeal by certiorari "pon the gro"nd that the Co"rt of Appeals had erred? ),* in not holding the Pacific liable for said "npaid obligation of the Ins"lar Aar%s. Iss.e1<N Pacific Aar%s is liable to Nell Co. R.ling-

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&enerally where one corporation sells or otherwise transfers all of its assets to another corporation the latter is not liable for the debts and liabilities of the transferor e#cept? ),* where the p"rchaser e#pressly or i%pliedly agrees to ass"%e s"ch debts@ ).* where the transaction a%o"nts to a consolidation or %erger of the corporations@ );* where the p"rchasing corporation is %erely a contin"ation of the selling corporation@ and )B* where the transaction is entered into fra"d"lently in order to escape liability for s"ch debts. In the case at bar there is neither proof nor allegation that Pacific had e#pressly or i%pliedly agreed to ass"%e the debt of Ins"lar Aar%s in fa!or of appellant herein or that the it is a contin"ation of Ins"lar Aar%s or that the sale of either the shares of stock or the assets of Ins"lar Aar%s to the Pacific has been entered into fra"d"lently in order to escape liability for the debt of the Ins"lar Aar%s in fa!or of appellant herein. In fact these sales took place )March ,-+H* not only o!er si# )4* %onths before the rendition of the 2"dg%ent )8ctober - ,-+H* so"ght to be collected in the present action b"t also o!er a %onth before the filing of the case )May .- ,-+H* in which said 2"dg%ent was rendered. Moreo!er Pacific p"rchased the shares of stock of Ins"lar Aar%s as the ig est bidder at an a"ction sale held at the instance of a ban% to which said shares had been pledged as sec"rity for an obligation of Ins"lar Aar%s in fa!or of said bank. It has also been established that the it had paid P.H+ ,.4.-- for said shares of stock apart fro% the s"% of P,: :::.:: it likewise paid for the other assets of Ins"lar Aar%s. Neither is it clai%ed that these transactions ha!e res"lted in the consolidation or %erger of the Ins"lar Aar%s and appellee herein. 8n the contrary appellantCs theory to the effect that appellee is an alter ego of the Ins"lar Aar%s negates s"ch consolidation or %erger for a corporation cannot be its own alter ego. It is "rged howe!er that said P,: :::.:: paid by Pacific for other assets of Ins"lar Aar%s is a grossly inadeG"ate price beca"se Nell now clai%s said assets were worth aro"nd P.H+ ,.4.-- and that conseG"ently the sale %"st be considered fra"d"lent. 0owe!er the sale was s"b%itted to and appro!ed by the (ec"rities and 7#change Co%%ission. It %"st be pres"%ed therefore that the price paid was fair and reasonable. Moreo!er the only iss"e raised in the co"rt of origin was whether or not appellee is an alter ego of Ins"lar Aar%s. The G"estion of whether the afore%entioned sale of assets for P,: :::.:: was fra"d"lent or not had not been p"t in iss"e in said co"rt. 0ence it %ay not be raised on appeal. Section ' ! =ower to acquire own shares. - A stock corporation shall ha!e the power to p"rchase or acG"ire its own shares for a legiti%ate corporate p"rpose or p"rposes incl"ding b"t not li%ited to the following cases? Pro!ided That the corporation has "nrestricted retained earnings in its books to co!er the shares to be p"rchased or acG"ired? ,. To eli%inate fractional shares arising o"t of stock di!idends@ .. To collect or co%pro%ise an indebtedness to the corporation arising o"t of "npaid s"bscription in a delinG"ency sale and to p"rchase delinG"ent shares sold d"ring said sale@ and ;. To pay dissenting or withdrawing stockholders entitled to pay%ent for their shares "nder the pro!isions of this Code. Stein4e$g Vs# Velasco &12 P"il 91*+ ,acts(teinberg is the recei!er of the (ib"g"ey Trading Co%pany a do%estic corporation. The defendants are residents of the Philippine Islands. &regorio 'elasco President Aeli# del Castillo 'ice-president Andres L. Na!allo (ecretary-Treas"rer and 9"fino Man"el 6irector of the Trading Co%pany at a %eeting of the board of directors appro!ed and a"thori$ed !ario"s lawf"l p"rchases already %ade of a large portion of the capital stock of the co%pany fro% its !ario"s stockholders. P"rs"ant to s"ch resol"tion the corporation p"rchased fro% (. 9. &an$on ,:: shares of its capital stock of the par !al"e of P,: fro% Aeli# 6. Mendaros ,:: shares of the par !al"e of P,: and ,:: shares of the par !al"e of P,: each %ore fro% 6ionisio (aa!edra ,: shares of the sa%e par !al"e and fro% 'alentin Matias .: shares of like !al"e. The total a%o"nt of the capital stock p"rchased was P; ;::. At the ti%e of s"ch p"rchase the corporation had acco"nts payable a%o"nting to P,; H:3.+: %ost of which were "npaid at the ti%e petition for the dissol"tion of the corporation was filed d"e to financial condition in conte%plation of an insol!ency and dissol"tion. (teinberg prays 2"dg%ent for the s"% of P; ;:: fro% the &regorio 'elasco Aeli# del Castillo Andres L. Na!allo and 9"fino Man"el personally as %e%bers of the 5oard of 6irectors or for the reco!ery fro% (. 9. &an$on of the s"% of P, ::: fro% Aeli# 6. Mendaros P. ::: and fro% 6ionisio (aa!edra P,::. Iss.e-

1<N (ib"g"ey Trading Co%pany Incorporated co"ld legally p"rchase its own stock R.lingNo. It appears that the board of directors of the corporation a"thori$ed the p"rchase of ;;: shares of the capital stock of the corporation at the agreed price of P; ;:: and at the ti%e the p"rchase was %ade the corporation was indebted in the s"% of P,; H:3.+:. According to its books it had acco"nts recei!able in the s"% of P,- ,.4.:.. 1hen the petition was filed for its dissol"tion "pon the gro"nd that it was insol!ent its acco"nts payable a%o"nted to P- .B,.,- and its acco"nts recei!able P,. +,..B3 or an apparent asset of P; .3,..H o!er and abo!e its liabilities. 5"t it will be noted that there is no stip"lation or finding of facts as to what was the act"al cash !al"e of its acco"nts recei!able. Neither is there any stip"lation that those acco"nts or any part of the% e!er ha!e been or will be collected and it does appear that after his appoint%ent (teinberg %ade a diligent effort to collect the% and that he was "nable to do so. If in tr"th and in fact the corporation had an act"al bona fide s"rpl"s of P; ::: o!er and abo!e all of its debt and liabilities the pay%ent of the P; ::: in di!idends wo"ld not in the least i%pair the financial condition of the corporation or pre2"dice the interests of its creditors. In the p"rchase of its own stock to the a%o"nt of P; ;:: and in declaring the di!idends to the a%o"nt of P; ::: the real assets of the corporation were di%inished P4 ;::. It also appears fro% paragraph B of the stip"lation that the corporation had a "s"rpl"s profit" of P; ;,B.3. only. It is f"rther stip"lated that the di!idends sho"ld "be %ade in install%ents so as not to effect financial condition of the corporation." In other words that the corporation did not then ha!e an act"al bona fide s"rpl"s fro% which the di!idends co"ld be paid and that the pay%ent of the% in f"ll at the ti%e wo"ld "affect the financial condition of the corporation." It is indeed pec"liar that the action of the board in p"rchasing the stock fro% the corporation and in declaring the di!idends on the stock was all done at the sa%e %eeting of the board of directors and it appears in those %in"tes that the both &an$on and Mendaros were for%erly directors and resigned before the board appro!ed the p"rchase and declared the di!idends and that o"t of the whole ;;: shares p"rchased &an$on sold ,:: and Mendaros .:: or a total of ;:: shares o"t of the ;;: which were p"rchased by the corporation and for which it paid P; ;::. In other words the directors were per%itted to resign so that they co"ld sell their stock to the corporation. As stated the a"thori$ed capital stock was P.: ::: di!ided into . ::: shares of the par !al"e of P,: each which only P,: :;: was s"bscribed and paid. 6ed"cting the P; ;:: paid for the p"rchase of the stock there wo"ld be left P3 ::: of paid "p stock fro% which ded"ct P; ::: paid in di!idends there wo"ld be left PB ::: only. In this sit"ation and "pon this state of facts it is !ery apparent that the directors did not act in good faith or that they were grossly ignorant of their d"ties. Section '2 ! =ower to invest corporate funds in another corporation or business or for any other purpose. - ("b2ect to the pro!isions of this Code a pri!ate corporation %ay in!est its f"nds in any other corporation or b"siness or for any p"rpose other than the pri%ary p"rpose for which it was organi$ed when appro!ed by a %a2ority of the board of directors or tr"stees and ratified by the stockholders representing at least two-thirds ).<;* of the o"tstanding capital stock or by at least two thirds ).<;* of the %e%bers in the case of non-stock corporations at a stockholderCs or %e%berCs %eeting d"ly called for the p"rpose. 1ritten notice of the proposed in!est%ent and the ti%e and place of the %eeting shall be addressed to each stockholder or %e%ber at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid or ser!ed personally? Pro!ided That any dissenting stockholder shall ha!e appraisal right as pro!ided in this Code? Pro!ided howe!er That where the in!est%ent by the corporation is reasonably necessary to acco%plish its pri%ary p"rpose as stated in the articles of incorporation the appro!al of the stockholders or %e%bers shall not be necessary. De la Ra:a Vs# 2a/ao S.ga$ Cent$al &2( SCRA 2'(+ ,actsThis was a representati!e or deri!ati!e s"it co%%enced on 8ctober .: ,-+; in the Co"rt of Airst Instance of Manila by fo"r %inority stockholders against the Ma-ao ("gar Central Co. Inc. and J. A%ado Araneta and three other directors of the corporation. The co%plaint co%prising the period No!e%ber ,-B4 to 8ctober ,-+. stated fi!e ca"ses of action to wit? ),* for alleged illegal and "ltra-!ires acts consisting of self-dealing irreg"lar loans and "na"thori$ed in!est%ents@ ).* for alleged gross %is%anage%ent@ );* for alleged forfeit"re of corporate rights warranting dissol"tion@ )B* for alleged da%ages and attorneyCs fees@ and )+* for recei!ership.

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("%s were taken o"t of the f"nds of the Ma-ao ("gar Central Co. Inc. and deli!ered to these affiliated co%panies and !ice !ersa witho"t the appro!al of the Ma-ao 5oard of 6irectors in !iolation of (ec. III Art. 4-A of the by-laws. The Lower Co"rt dis%isses the petition for dissol"tion b"t conde%ns J. A%ado Araneta to pay "nto Ma-ao ("gar Central Co. Inc. the a%o"nt of PB4 .3:.:: with HN interest fro% the date of the filing of this co%plaint pl"s the costs@ the Co"rt reiterates the preli%inary in2"nction restraining the Ma-ao ("gar Central Co. Inc. %anage%ent to gi!e any loans or ad!ances to its officers and orders that this in2"nction be as it is hereby %ade per%anent@ and orders it to refrain fro% %aking in!est%ents in Aco2e Mining Mab"hay Printing and any other co%pany whose p"rpose is not connected with the ("gar Central b"siness@ costs of plaintiffs to be borne by the Corporation and J. A%ado Araneta. Iss.e1<N the in!est%ent of corporate f"nds of the Ma-ao ("gar Central Co. Inc. in the Philippine Aiber Processing Co. Inc. was not a !iolation of section ,3,<. of the Corporation Law R.lingAs to the Philippine Aiber Ma-ao ad%its ha!ing in!ested P4++ :::.:: in shares of stock of this co%pany b"t that this was ratified by the 5oard of 6irectors %ore than that Ma-ao contends that since said co%pany was engaged in the %an"fact"re of s"gar bags it was perfectly legiti%ate for Maao ("gar either to %an"fact"re s"gar bags or in!est in another corporation engaged in said %an"fact"re and they G"ote a"thorities for the p"rpose. The Co"rt is pers"aded to belie!e that Ma-ao on this point is correct beca"se while (ec. ,3-,<. of the Corporation Law pro!ides that? No corporation organi$ed "nder this act shall in!est its f"nds in any other corporation or b"siness or for any p"rpose other than the %ain p"rpose for which it was organi$ed "nless its board of directors has been so a"thori$ed in a resol"tion by the affir%ati!e !ote of stockholders holding shares in the corporation entitling the% to e#ercise at least two-thirds of the !oting power on s"ch proposal at the stockholdersC %eeting called for the p"rpose. The Co"rt is con!inced that that law sho"ld be "nderstood to %ean as the a"thorities state that it is prohibited to the Corporation to in!est in shares of another corporation "nless s"ch an in!est%ent is a"thori$ed by two-thirds of the !oting power of the stockholders if the p"rpose of the corporation in which in!est%ent is %ade is foreign to the p"rpose of the in!esting corporation beca"se s"rely there is %ore logic in the stand that if the in!est%ent is %ade in a corporation whose b"siness is i%portant to the in!esting corporation and wo"ld aid it in its p"rpose to reG"ire a"thority of the stockholders wo"ld be to "nd"ly c"rtail the Power of the 5oard of 6irectors. The only tro"ble here is that the in!est%ent was %ade witho"t any pre!io"s a"thority of the 5oard of 6irectors b"t was only ratified afterwards@ this of co"rse wo"ld ha!e the effect of legali$ing the "na"thori$ed act b"t it is an indication of the %anner in which corporate b"siness is transacted by the Maao ("gar ad%inistration the fact that off and on there wo"ld be passed by the 5oard of 6irectors resol"tions ratifying all acts pre!io"sly done by the %anage%ent. Section '* ! =ower to declare dividends. - The board of directors of a stock corporation %ay declare di!idends o"t of the "nrestricted retained earnings which shall be payable in cash in property or in stock to all stockholders on the basis of o"tstanding stock held by the%? Pro!ided That any cash di!idends d"e on delinG"ent stock shall first be applied to the "npaid balance on the s"bscription pl"s costs and e#penses while stock di!idends shall be withheld fro% the delinG"ent stockholder "ntil his "npaid s"bscription is f"lly paid? Pro!ided f"rther That no stock di!idend shall be iss"ed witho"t the appro!al of stockholders representing not less than two-thirds ).<;* of the o"tstanding capital stock at a reg"lar or special %eeting d"ly called for the p"rpose. (tock corporations are prohibited fro% retaining s"rpl"s profits in e#cess of one h"ndred ),::N* percent of their paid-in capital stock e#cept? ),* when 2"stified by definite corporate e#pansion pro2ects or progra%s appro!ed by the board of directors@ or ).* when the corporation is prohibited "nder any loan agree%ent with any financial instit"tion or creditor whether local or foreign fro% declaring di!idends witho"t its<his consent and s"ch consent has not yet been sec"red@ or );* when it can be clearly shown that s"ch retention is necessary "nder special circ"%stances obtaining in the corporation s"ch as when there is need for special reser!e for probable contingencies. PLDT Vs# NTC &1*9 SCRA *)1+ ,actsThis case pertains to (ection B: )e* of the P"blic (er!ice Act )P(A* as a%ended on March ,+ ,-HB p"rs"ant to 5atas Pa%bansa 5lg. ;.+ which

a"thori$ed the NTC to collect fro% p"blic teleco%%"nications co%panies ("per!ision and 9eg"lation Aees )(9A* of PhP :.+: for e!ery PhP ,:: or a fraction of the capital and stock s"bscribed or paid for of a stock corporation partnership or single proprietorship of the capital in!ested or of the property and eG"ip%ent whiche!er is higher. Inder (ection B: )e* of the P(A the NTC sent (9A assess%ents to Philippine Long 6istance Telephone Co%pany )PL6T* starting so%eti%e in ,-HH. The (9A assess%ents were based on the %arket !al"e of the o"tstanding capital stock incl"ding stock di!idends of PL6T. PL6T protested the assess%ents contending that the (9A o"ght to be based on the par !al"e of its o"tstanding capital stock. Its protest was denied by the NTC and likewise its %otion for reconsideration. PL6T appealed before the CA. The CA %odified the disposition of the NTC by holding that the (9A sho"ld be assessed at par !al"e of the o"tstanding capital stock of PL6T e#cl"ding stock di!idends. 1ith the denial of the NTC/s partial reconsideration of the CA 6ecision the iss"e of the basis for the assess%ent of the (9A was bro"ght before this Co"rt wherein we r"led that the (9A sho"ld be based neither on the par !al"e nor the %arket !al"e of the o"tstanding capital stock b"t on the !al"e of the stocks s"bscribed or paid incl"ding the pre%i"%s paid therefor that is the a%o"nt that the corporation recei!es incl"si!e of the pre%i"%s if any in consideration of the original iss"ance of the shares. 1e added that in the case of stock di!idends it is the a%o"nt that the corporation transfers fro% its s"rpl"s profit acco"nt to its capital acco"nt that is the a%o"nt the stock di!idends represent is eG"i!alent to the !al"e paid for its original iss"ance. PL6T arg"es that in o"r 6ecision in &.9. No. ,.3-;3 we ha!e e#cl"ded fro% the co!erage of the (9A the capital stocks iss"ed as stock di!idends. Petitioner arg"es that &.9. No. ,.3-;3 clearly delineates between capital s"bscribed and stock di!idends to the effect that the latter are not incl"ded in the concept of capital stock s"bscribed beca"se s"bscribers or shareholders do not pay for their s"bscriptions as no a%o"nt is recei!ed by the corporation in consideration of s"ch iss"ances since these are effected as %ere book entries that is the transfer fro% the retained earnings acco"nt to the capital or stock acco"nt. To bolster its position PL6T repeatedly "sed the phrase =act"al pay%ents> recei!ed by a corporation as a consideration for iss"ances of shares which do not apply to stock di!idends. Iss.e1<N stock di!idends are part of the o"tstanding capital stocks of a corporation insofar as it is s"b2ect to the (9A so that all the stock di!idends that are part of the o"tstanding capital stock of PL6T are s"b2ect to the (9A R.lingIn National ,elecommunications Commission v. Bonorable Court of Appeals which we G"ote? The ter% =capital> and other ter%s "sed to describe the capital str"ct"re of a corporation are of "ni!ersal acceptance and their "sages ha!e long been established in 2"rispr"dence. 5riefly capital refers to the !al"e of the property or assets of a corporation. The ca%ital s.4sc$i4ed is t"e total a:o.nt of t"e ca%ital t"at %e$sons &s.4sc$i4e$s o$ s"a$e"olde$s+ "aCe ag$eed to ta5e and %a? fo$ which need not necessarily by and can be %ore than the par !al"e of the shares. In fine it is t"e a:o.nt t"at t"e co$%o$ation $eceiCesF incl.siCe of t"e %$e:i.:s if an?F in conside$ation of t"e o$iginal iss.ance of t"e s"a$es. In t"e case of stoc5 diCidendsF it is t"e a:o.nt t"at t"e co$%o$ation t$ansfe$s f$o: its s.$%l.s %$ofit acco.nt to its ca%ital acco.nt. It is the sa%e a%o"nt that can be loosely ter%ed as the =tr"st f"nd> of the corporation. The =Tr"st A"nd> doctrine considers this s"bscribed capital as a tr"st f"nd for the pay%ent of the debts of the corporation to which the creditors %ay look for satisfaction. Intil the liG"idation of the corporation no part of the s"bscribed capital %ay be ret"rned or released to the stockholder )e#cept in the rede%ption of redee%able shares* witho"t !iolating this principle. Th"s di!idends %"st ne!er i%pair the s"bscribed capital@ s"bscription co%%it%ents cannot be condoned or re%itted@ nor can the corporation b"y its own shares "sing the s"bscribed capital as the considerations therefor. Two concepts can be gleaned fro% the abo!e. Airst what constit"tes capital stock that is s"b2ect to the (9A. (econd s"ch capital stock is eG"ated to the =tr"st f"nd> of a corporation held in tr"st as sec"rity for satisfaction to creditors in case of corporate liG"idation. PL6T/s contention that stock di!idends are not si%ilarly sit"ated as the s"bscribed capital stock beca"se the s"bscribers or shareholders do not pay for their iss"ances as no a%o"nt was recei!ed by the corporation in consideration of s"ch iss"ances since these are effected as a %ere book entry is erroneo"s. 6i!idends regardless of the for% these are declared that is cash property or stocks are !al"ed at the a%o"nt of the declared di!idend taken fro% the "nrestricted retained earnings of a corporation. Th"s the !al"e of the declaration in the case of a stock di!idend is the act"al !al"e of the original iss"ance of said stocks. =In the case of stock di!idends it is the a%o"nt that the corporation transfers fro% its s"rpl"s profit acco"nt to its capital acco"nt>

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or =it is the a%o"nt that the corporation recei!es in consideration of the original iss"ance of the shares.> It is =the distrib"tion of c"rrent or acc"%"lated earnings to the shareholders of a corporation pro rata based on the n"%ber of shares owned.> ("ch distrib"tion in whate!er for% is !al"ed at the declared a%o"nt or %onetary eG"i!alent. Th"s it cannot be said that no consideration is in!ol!ed in the iss"ance of stock di!idends. In fact the declaration of stock di!idends is akin to a forced p"rchase of stocks. 5y declaring stock di!idends a corporation plo"ghs back a portion or its entire "nrestricted retained earnings either to its working capital or for capital asset acG"isition or in!est%ents. It is si%plistic to say that the corporation did not recei!e any act"al pay%ent for these. 1hen the di!idend is distrib"ted it ceases to be a property of the corporation as the entire or portion of its "nrestricted retained earnings is distrib"ted pro rata to corporate shareholders. 1hen stock di!idends are distrib"ted the a%o"nt declared ceases to belong to the corporation b"t is distrib"ted a%ong the shareholders. ConseG"ently the "nrestricted retained earnings of the corporation are di%inished by the a%o"nt of the declared di!idend while the stockholders/ eG"ity is increased. A"rther%ore the act"al pay%ent is the cash !al"e fro% the "nrestricted retained earnings that each shareholder foregoes for additional stocks<shares which he wo"ld otherwise recei!e as reG"ired by the Corporation Code to be gi!en to the stockholders s"b2ect to the a!ailability and conditioned on a certain le!el of retained earnings. 7lsewise p"t where the "nrestricted retained earnings of a corporation are %ore than ,::N of the paid-in capital stock the corporate 5oard of 6irectors is %andated to declare di!idends which the shareholders will recei!e in cash "nless otherwise declared as property or stock di!idends which in the latter case the stockholders are forced to forego cash in lie" of property or stocks. In essence therefore the stockholders by recei!ing stock di!idends are forced to e#change the %onetary !al"e of their di!idend for capital stock and the %onetary !al"e they forego is considered the act"al pay%ent for the original iss"ance of the stocks gi!en as di!idends. Therefore stock di!idends acG"ired by shareholders for the %onetary !al"e they forego are "nder the co!erage of the (9A and the basis for the latter is s"ch %onetary !al"e as declared by the board of directors. Anent stock di!idends the !al"e transferred fro% the "nrestricted retained earnings of PL6T to the capital stock acco"nt p"rs"ant to the iss"ance of stock di!idends is the proper basis for the assess%ent of the (9A which the NTC correctly assessed. CIR Vs# CA &*0 SCRA 1'+ ,acts6on Andres (oriano a citi$en and resident of the Inited (tates for%ed the corporation "A. (oriano M Cia" predecessor of AN(C89 with a P, ::: :::.:: capitali$ation di!ided into ,: ::: co%%on shares at a par !al"e of P,::<share. AN(C89 is wholly owned and controlled by the fa%ily of 6on Andres who are all non-resident aliens. 6on Andres s"bscribed to B -4; shares of the + ::: shares originally iss"ed. 5y ,-B3 AN(C89 declared stock di!idends. Then 6on Andres died. As of that date the records re!ealed that he has a total shareholdings of ,H+ ,+B shares W +: B-+ of which are original iss"es and the balance of ,;B 4+shares as stock di!idend declarations. Correspondingly one-half of that shareholdings or -. +33 shares were transferred to his wife 6oSa Car%en (oriano as her con2"gal share. The other half for%ed part of his estate. P"rs"ant to a 5oard 9esol"tion AN(C89 redee%ed .H ::: co%%on shares fro% the 6on AndresC estate. The 5oard f"rther increased AN(C89Cs capital stock to P3+M di!ided into ,+: ::: preferred shares and 4:: ::: co%%on shares. Abo"t a year later AN(C89 again redee%ed H: ::: co%%on shares fro% the 6on AndresC estate f"rther red"cing the latterCs co%%on shareholdings to ,- 3.3. As stated in the 5oard 9esol"tions AN(C89Cs b"siness p"rpose for both rede%ptions of stocks is to partially retire said stocks as treas"ry shares in order to red"ce the co%panyCs foreign e#change re%ittances in case cash di!idends are declared. ("bseG"ently the 9e!en"e e#a%iners iss"ed a report proposing that AN(C89 be assessed for deficiency withholding ta#-at-so"rce p"rs"ant to (ections +; and +B of the ,-;- 9e!en"e Code for the year ,-4H and the second G"arter of ,-4- based on the transactions of e#change and rede%ption of stocks. The 5"rea" of Internal 9e!en"e )5I9* %ade the corresponding assess%ents despite the clai% of AN(C89 that it a!ailed of the ta# a%nesty "nder Presidential 6ecree )P.6.* .; which were a%ended by P.6.Cs 43 and ,+3. 0owe!er petitioner r"led that the in!oked decrees do not co!er (ections +; and +B in relation to Article H;)b* of the ,-;- 9e!en"e Act "nder which AN(C89 was assessed. AN(C89Cs s"bseG"ent protest on the assess%ents was denied in ,-H; by petitioner. ("bseG"ently AN(C89 filed a petition for re!iew with the CTA assailing the ta# assess%ents on the rede%ptions and e#change of stocks. In its decision the Ta# Co"rt re!ersed petitionerCs r"ling after finding s"fficient e!idence to o!erco%e the prima facie correctness of the G"estioned assess%ents. In a petition for re!iew the CA as %entioned affir%ed the r"ling of the CTA. 0ence this petition.

Iss.e1<N AN(C89Cs rede%ption of stocks fro% its stockholder as well as the e#change of co%%on with preferred shares can be considered as "essentially eG"i!alent to the distrib"tion of ta#able di!idend" %aking the proceeds thereof ta#able

R.lingThe rede%ption con!erts into %oney the stock di!idends which beco%e a reali$ed profit or gain and conseG"ently the stockholderCs separate property. Profits deri!ed fro% the capital in!ested cannot escape inco%e ta#. As reali$ed inco%e the proceeds of the redee%ed stock di!idends can be reached by inco%e ta#ation regardless of the e#istence of any b"siness p"rpose for the rede%ption. 8therwise to r"le that the said proceeds are e#e%pt fro% inco%e ta# when the rede%ption is s"pported by legiti%ate b"siness reasons wo"ld defeat the !ery p"rpose of i%posing ta# on inco%e. ("ch arg"%ent wo"ld open the door for inco%e earners not to pay ta# so long as the person fro% who% the inco%e was deri!ed has legiti%ate b"siness reasons. In other words the pay%ent of ta# "nder the e#e%pting cla"se of (ection H;)b* wo"ld be %ade to depend not on the inco%e of the ta#payer b"t on the b"siness p"rposes of a third party )the corporation herein* fro% who% the inco%e was earned. After considering the %anner and the circ"%stances by which the iss"ance and rede%ption of stock di!idends were %ade there is no other concl"sion b"t that the proceeds thereof are essentially considered eG"i!alent to a distrib"tion of ta#able di!idends. As "ta#able di!idend" "nder (ection H;)b* it is part of the "entire inco%e" s"b2ect to ta# "nder (ection .. in relation to (ection ., of the ,-;- Code. Moreo!er "nder (ection .-)a* of said Code di!idends are incl"ded in "gross inco%e". As inco%e it is s"b2ect to inco%e ta# which is reG"ired to be withheld at so"rce. The ,--3 Ta# Code %ay ha!e altered the sit"ation b"t it does not change this disposition. AN(C89Cs rede%ption of H. 3+..+ stock di!idends is herein considered as essentially eG"i!alent to a distrib"tion of ta#able di!idends for which it is LIA5L7 for the withholding ta#-at-so"rce. 8n the other hand the e#change of co%%on stocks with preferred stocks or preferred for co%%on or a co%bination of either for both %ay not prod"ce a recogni$ed gain or loss so long as the pro!isions of (ection H;)b* is not applicable. This is tr"e in a trade between two ).* persons as well as a trade between a stockholder and a corporation. In general this trade %"st be parts of %erger transfer to controlled corporation corporate acG"isitions or corporate reorgani$ations. No ta#able gain or loss %ay be recogni$ed on e#change of property stock or sec"rities related to reorgani$ations. 5oth shares are part of the corporationCs capital stock. 5oth stockholders are no different fro% ordinary in!estors who take on the sa%e in!est%ent risks. Preferred and co%%on shareholders participate in the sa%e !ent"re willing to share in the profits and losses of the enterprise. Moreo!er "nder the doctrine of eG"ality of shares W all stocks iss"ed by the corporation are pres"%ed eG"al with the sa%e pri!ileges and liabilities pro!ided that the Articles of Incorporation is silent on s"ch differences. In this case the e#change of shares witho"t %ore prod"ces no reali$ed inco%e to the s"bscriber. There is only a %odification of the s"bscriberCs rights and pri!ileges W which is not a flow of wealth for ta# p"rposes. The iss"e of ta#able di!idend %ay arise only once a s"bscriber disposes of his entire interest and not when there is still %aintenance of proprietary interest. Section '' ! =ower to enter into management contract. - No corporation shall concl"de a %anage%ent contract with another corporation "nless s"ch contract shall ha!e been appro!ed by the board of directors and by stockholders owning at least the %a2ority of the o"tstanding capital stock or by at least a %a2ority of the %e%bers in the case of a non-stock corporation of both the %anaging and the %anaged corporation at a %eeting d"ly called for the p"rpose? Pro!ided That ),* where a stockholder or stockholders representing the sa%e interest of both the %anaging and the %anaged corporations own or control %ore than one-third ),<;* of the total o"tstanding capital stock entitled to !ote of the %anaging corporation@ or ).* where a %a2ority of the %e%bers of the board of directors of the %anaging corporation also constit"te a %a2ority of the %e%bers of the board of directors of the %anaged corporation then the %anage%ent contract %"st be appro!ed by the stockholders of the %anaged corporation owning at least two-thirds ).<;* of the total o"tstanding capital stock entitled to !ote or by at least two-thirds ).<;* of the %e%bers in the case of a non-stock corporation. No %anage%ent contract shall be entered into for a period longer than fi!e years for any one ter%. The pro!isions of the ne#t preceding paragraph shall apply to any contract whereby a corporation "ndertakes to %anage or operate all or s"bstantially all of the b"siness of another corporation whether s"ch contracts are called ser!ice contracts operating agree%ents or otherwise? Pro!ided howe!er

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That s"ch ser!ice contracts or operating agree%ents which relate to the e#ploration de!elop%ent e#ploitation or "tili$ation of nat"ral reso"rces %ay be entered into for s"ch periods as %ay be pro!ided by the pertinent laws or reg"lations. )n* Section '1 ! ?ltra vires acts of corporations. - No corporation "nder this Code shall possess or e#ercise any corporate powers e#cept those conferred by this Code or by its articles of incorporation and e#cept s"ch as are necessary or incidental to the e#ercise of the powers so conferred. Ag.en8a Vs# 2et$o4an5 &2( SCRA + ,actsThe 5oard of 6irectors of Intertrade thro"gh a 5oard 9esol"tion a"thori$ed and e%powered Ag"en$a IntertradeCs President and Arrieta 7#ec"ti!e 'icePresident respecti!ely to 2ointly apply for and open credit lines with pri!ate respondent Metrobank. P"rs"ant to s"ch a"thority Ag"en$a and Arrieta e#ec"ted se!eral tr"st receipts fro% May to J"ne ,-33 the aggregate !al"e of which a%o"nted to P+4. BB;.B4 with Intertrade as the entr"stee and Metrobank as the entr"ster. Ag"en$a and Arrieta e#ec"ted a Contin"ing ("retyship Agree%ent whereby both bo"nd the%sel!es 2ointly and se!erally with Intertrade to pay Metrobank whate!er obligation Intertrade inc"rs b"t not e#ceeding the a%o"nt P3+: :::.::.

behalf of the corporation. This is e!idenced by the fact that pre!io"s to the contro!ersy the Intertrade 5oard of 6irectors thro"gh a board resol"tion 2ointly e%powered and a"thori$ed Ag"en$a and Arrieta to negotiate apply for and open credit lines with MetrobankCs. The participation of these two was %andated to be 2oint and not separate and indi!id"al. In the case at bench only respondent Arrieta together with a bookkeeper of the corporation signed the pro%issory notes witho"t the participation and appro!al of Ag"en$a. Moreo!er the enabling corporate act on this partic"lar transaction has not been obtained. Neither has it been shown that any pro!ision of the charter or any other act of the 5oard of 6irectors e#ists to confer power on the 7#ec"ti!e 'ice President acting alone and witho"t the conc"rrence of its President to e#ec"te the disp"ted doc"%ent. Th"s preceding fro% the pre%ise that the s"b2ect loan was not the responsibility of Intertrade it follows that the "ndertaking of Arrieta and the bookkeeper was not an "ndertaking co!ered by the Contin"ing ("retyship Agree%ent. The r"le is that a contract of s"rety is ne!er pres"%ed@ it %"st be e#press and cannot e#tend to %ore than what is stip"lated It is strictly constr"ed against the creditor e!ery do"bt being resol!ed against enlarging the liability of the s"rety. The present obligation inc"rred in s"b2ect contract of loan as sec"red by the Arrieta and Pere$ pro%issory note is not the obligation of the corporation and petitioner Ag"en$a b"t the indi!id"al and personal obligation of pri!ate respondents Arrieta and Lilia Pere$.

Lo%e8 Realt? Vs# ,ontec"a &2') SCRA 7*+ In this connection MetrobankCs 6ebit Me%o to Intertrade showed f"ll settle%ent of the letters of credit co!ered by said tr"st receipts in the total a%o"nt P+4. BB;.B4. Arrieta and Lilia P. Pere$ bookkeeper in the e%ploy of Intertrade obtained P+:: :::.:: loan fro% pri!ate respondent Metrobank. 5oth e#ec"ted Pro%issory Note in fa!or or said bank in the a%o"nt of P+:: ::: ::. Inder said note pri!ate respondents Arrieta and Pere$ pro%ised to pay said a%o"nt 2ointly and se!erally in twenty fi!e ).+* eG"al install%ents of P.: :::.:: each starting on April .: ,-3- with interest of ,H.3:BN per annum and in case of defa"lt a f"rther H N per annum Arrieta and Pere$ defa"lted in the pay%ent of se!eral install%ents th"s res"lting in the entire obligation beco%ing d"e and de%andable. Th"s Metrobank instit"ted s"it against Intertrade 'italiado Arrieta Lilia Pere$ and her h"sband Patricio Pere$ to collect not only the "npaid principal obligation b"t also interests fees and penalties e#e%plary da%ages as well as attorneyCs fees and costs of s"it. More than a year after Metrobank filed its original co%plaint it filed an A%ended Co%plaint for the sole p"rpose of i%pleading petitioner as liable for the loan %ade by Arrieta and Pere$ notwithstanding the fact that s"ch liability is being clai%ed on acco"nt of a Contin"ing ("retyship Agree%ent e#ec"ted by Ag"en$a and Arrieta especifically to g"arantee the credit line applied for by and granted to Intertrade thro"gh petitioner and Arrieta who were specially gi!en a"thority by Intertrade to open credit lines with Metrobank. The obligations inc"rred by Intertrade "nder s"ch credit lines were co%pletely paid as e!idenced by pri!ate respondent MetrobankCs debit %e%o in the f"ll a%o"nt of P+4. BB;.B4. Iss.e1<N the loan of P+:: :::.:: proc"red by'italiado Arrieta and Lilia Pere$ is a corporate liability of Intertrade and that Ag"en$a is liable thereon "nder the "Contin"ing ("retyship Agree%ent" R.lingThe only doc"%ent to e!idence the s"b2ect transaction was the pro%issory note signed by Arrieta and Lilia Pere$. There is no indication in said doc"%ent as to what capacity the two signatories had in affi#ing their signat"res thereon. The s"b2ect transaction is a loan contract for P+:: :::.:: "nder ter%s and conditions which are stringent if not onero"s. The power to borrow %oney is one of those cases where e!en a special power of attorney is reG"ired. In the instant case there is in!ariably a need of an enabling act of the corporation to be appro!ed by its 5oard of 6irectors. The records of this case is bereft of any e!idence that Intertrade thro"gh its 5oard of 6irectors conferred "pon Arrieta and Lilia Pere$ the a"thority to contract a loan with Metrobank and e#ec"te the pro%issory note as a sec"rity therefor. Neither a board resol"tion nor a stockholderCs resol"tion was presented by Metrobank to show that Arrieta and Lilia Pere$ were e%powered by Intertrade to e#ec"te the pro%issory note. The bank %ay arg"e that the act"ation of Arrieta and Lilia Pere$ was in accordance with the ordinary co"rse of b"siness "sages and practices of Intertrade. 0owe!er this contention is de!oid of %erit beca"se the pre!ailing practice in Intertrade was to e#plicitly a"thori$e an officer to contract loans in ,actsLope$ 9ealty Inc. is a corporation engaged in real estate b"siness while As"ncion Lope$ &on$ales is one of its %a2ority shareholders. 7#cept for Art"ro A. Lope$ the rest of the shareholders also sit as %e%bers of the 5oard of 6irectors. 8n A"g"st ,3 ,-H, e#cept for As"ncion Lope$ &on$ales who was then abroad the re%aining %e%bers of the 5oard of 6irectors na%ely? 9osendo de Leon 5en2a%in 5ernardino and Leo 9i!era con!ened a special %eeting and passed a resol"tion which reads? 9esol!ed as it is hereby resol!ed that the grat"ity )pay* of the e%ployees be gi!en as follows? )a* Those who will be laid off be gi!en the f"ll a%o"nt of grat"ity@ )b* Those who will be retained will recei!e )DM of t eir gratuit$ Cpa$F due on September " "OL"# and anot er )DM on Ganuar$ " "OL)# and DEM to be retained b$ t e office in t e meantime . Pri!ate respondents were the retained e%ployees of the corporation. The pri!ate respondents reG"ested for the f"ll pay%ent of their grat"ity pay. Their reG"est was granted in a special %eeting held on (epte%ber , ,-H,. At that ti%e howe!er As"ncion Lope$ &on$ales was still abroad. Allegedly while she was still o"t of the co"ntry she sent a cablegra% to the corporation ob2ecting to certain %atters taken "p by the board in her absence s"ch as the sale of so%e of the assets of the corporation. Ipon her ret"rn she flied a deri!ati!e s"it with the (ec"rities and 7#change Co%%ission )(7C* against %a2ority shareholder Art"ro A. Lope$. Notwithstanding the "corporate sG"abble" between petitioner As"ncion Lope$ &on$ales and Art"ro Lope$ the first two ).* install%ents of the grat"ity pay of pri!ate respondents Alorentina Aontecha Mila 9ef"er$o Marcial Ma%aril and Perfecto 5a"tista were paid by petitioner corporation. The !o"chers for the third install%ents of grat"ity pay of said pri!ate respondents )Alorentina Aontecha Mila 9ef"er$o Marcial Ma%aril and Perfecto 5a"tista* were cancelled by petitioner As"ncion Lope$ &on$ales. Likewise the first second and third install%ents of grat"ity pay of the rest of pri!ate respondents partic"larly 7dward Ma%aril Marissa Pasc"al and Allan Pi%entel were prepared b"t cancelled by petitioner As"ncion Lope$ &on$ales. 6espite pri!ate respondentsC repeated de%ands for their grat"ity pay corporation ref"sed to pay the sa%e. Iss.e1<N the board resol"tions granting grat"ity pay to their retained e%ployees are ultra vires on the gro"nd that As"ncion Lope$ &on$ales was not d"ly notified of the said special %eetings R.ling-

75

The general r"le is that a corporation thro"gh its board of directors sho"ld act in the %anner and within the for%alities if any prescribed by its charter or by the general law. Th"s directors %"st act as a body in a %eeting called p"rs"ant to the law or the corporationCs by-laws otherwise any action taken therein %ay be G"estioned by any ob2ecting director or shareholder. 5e that as it %ay 2"rispr"dence tells "s that an action of the board of directors d"ring a %eeting which was illegal for lack of notice %ay be ratified either e#pressly by the action of the directors in s"bseG"ent legal %eeting or i%pliedly by the corporationCs s"bseG"ent co"rse of cond"ct. In the case at bench it was established that petitioner corporation did not iss"e any resol"tion re!oking nor n"llifying the board resol"tions granting grat"ity pay to pri!ate respondents. Instead they paid the grat"ity pay partic"larly the first two ).* install%ents thereof of pri!ate respondents Alorentina Aontecha Mila 9ef"er$o Marcial Ma%aril and Perfecto 5a"tista. 6espite the alleged lack of notice to petitioner As"ncion Lope$ &on$ales at that ti%e the assailed resol"tions were passed we can glean fro% the records that she was aware of the corporationCs obligation "nder the said resol"tions. More i%portantly she acG"iesced thereto. As pointed o"t by pri!ate respondents petitioner As"ncion Lope$ &on$ales affi#ed her signat"re on Cash 'o"cher Nos. H,-,:-+,: and H,-,:-+:4 both dated 8ctober ,+ ,-H, e!idencing the .nd install%ent of the grat"ity pay of pri!ate respondents Mila 9ef"er$o and Alorentina Aontecha. The cond"ct of petitioners after the passage of resol"tions dated A"g"st ,3 ,-+, and (epte%ber , ,-H, had estopped the% fro% assailing the !alidity of said board resol"tions. Ass"%ing arguendo that there was no notice gi!en to As"ncion Lope$ &on$ale$ d"ring the special %eetings held on A"g"st ,3 ,-H, and (epte%ber , ,-H, it is erroneo"s to state that the resol"tions passed by the board d"ring the said %eetings were ultra vires . In legal parlance " ultra vires "act refers to one which is not within the corporate powers conferred by the Corporation Code or Articles of Incorporation or not necessary or incidental in the e#ercise of the powers so conferred. The assailed resol"tions before "s co!er a s"b2ect which concerns the benefit and welfare of the co%panyCs e%ployees. To stress pro!iding grat"ity pay for its e%ployees is one of the e#press powers of the corporation "nder the Corporation Code hence petitioners cannot in!oke the doctrine of ultra vires to a!oid any liability arising fro% the iss"ance the s"b2ect resol"tions. TITLE V B; LA=S Section ') ! Adoption of by-laws. - 7!ery corporation for%ed "nder this Code %"st within one ),* %onth after receipt of official notice of the iss"ance of its certificate of incorporation by the (ec"rities and 7#change Co%%ission adopt a code of by-laws for its go!ern%ent not inconsistent with this Code. Aor the adoption of by-laws by the corporation the affir%ati!e !ote of the stockholders representing at least a %a2ority of the o"tstanding capital stock or of at least a %a2ority of the %e%bers in case of non-stock corporations shall be necessary. The by-laws shall be signed by the stockholders or %e%bers !oting for the% and shall be kept in the principal office of the corporation s"b2ect to the inspection of the stockholders or %e%bers d"ring office ho"rs. A copy thereof d"ly certified to by a %a2ority of the directors or tr"stees co"ntersigned by the secretary of the corporation shall be filed with the (ec"rities and 7#change Co%%ission which shall be attached to the original articles of incorporation. Notwithstanding the pro!isions of the preceding paragraph by-laws %ay be adopted and filed prior to incorporation@ in s"ch case s"ch by-laws shall be appro!ed and signed by all the incorporators and s"b%itted to the (ec"rities and 7#change Co%%ission together with the articles of incorporation. In all cases by-laws shall be effecti!e only "pon the iss"ance by the (ec"rities and 7#change Co%%ission of a certification that the by-laws are not inconsistent with this Code. The (ec"rities and 7#change Co%%ission shall not accept for filing the bylaws or any a%end%ent thereto of any bank banking instit"tion b"ilding and loan association tr"st co%pany ins"rance co%pany p"blic "tility ed"cational instit"tion or other special corporations go!erned by special laws "nless acco%panied by a certificate of the appropriate go!ern%ent agency to the effect that s"ch by-laws or a%end%ents are in accordance with law.

L&'0AI was organi$ed on Aebr"ary H ,-H; as the association of ho%eowners and residents of the Loyola &rand 'illas. It was registered with the 0o%e Ainancing Corporation the predecessor of herein respondent 0I&C as the sole ho%eownersC organi$ation in the said s"bdi!ision "nder Certificate of 9egistration No. :B-,-3. It was organi$ed by the de!eloper of the s"bdi!ision and its first president was 'ictorio '. (oli!en hi%self the owner of the de!eloper. Aor "nknown reasons howe!er L&'0AI did not file its corporate by-laws. 1hen (oli!en inG"ired abo"t the stat"s of L&'0AI Atty. JoaG"in A. 5a"tista the head of the legal depart%ent of the 0I&C infor%ed hi% that L&'0AI had been a"to%atically dissol!ed for two reasons. Airst it did not s"b%it its bylaws within the period reG"ired by the Corporation Code and second there was non-"ser of corporate charter beca"se 0I&C had not recei!ed any report on the associationCs acti!ities. Apparently this infor%ation res"lted in the registration of the (o"th Association with the 0I&C. It filed its by-laws on J"ly .4 ,-H-. These de!elop%ents pro%pted the officers of the L&'0AI to lodge a co%plaint with the 0I&C. They G"estioned the re!ocation of L&'0AICs certificate of registration witho"t d"e notice and hearing and conco%itantly prayed for the cancellation of the certificates of registration of the North and (o"th Associations by reason of the earlier iss"ance of a certificate of registration in fa!or of L&'0AI. Iss.e1<N L&'0AICs fail"re to file its by-laws within the period prescribed by (ection B4 of the Corporation Code res"lted in the a"to%atic dissol"tion of L&'0AI R.ling(ection B4 aforeG"oted re!eals the legislati!e intent to attach a directory and not %andatory %eaning for the word "%"st" in the first sentence thereof. Note sho"ld be taken of the second paragraph of the law which allows the filing of the by-laws e!en prior to incorporation. This pro!ision in the sa%e section of the Code r"les o"t %andatory co%pliance with the reG"ire%ent of filing the by-laws "within one ),* %onth after receipt of official notice of the iss"ance of its certificate of incorporation by the (ec"rities and 7#change Co%%ission." It necessarily follows that fail"re to file the by-laws within that period does not i%ply the "de%ise" of the corporation. 5y-laws %ay be necessary for the "go!ern%ent" of the corporation b"t these are s"bordinate to the articles of incorporation as well as to the Corporation Code and related stat"tes. There are in fact cases where by-laws are "nnecessary to corporate e#istence or to the !alid e#ercise of corporate powers. Non-filing of the by-laws will not res"lt in a"to%atic dissol"tion of the corporation. Inder (ection 4)I* of P6 -:.-A the (7C is e%powered to "s"spend or re!oke after proper notice and hearing the franchise or certificate of registration of a corporation" on the gro"nd inter alia of "fail"re to file by-laws within the reG"ired period." It is clear fro% this pro!ision that there %"st first of all be a hearing to deter%ine the e#istence of the gro"nd and secondly ass"%ing s"ch finding the penalty is not necessarily re!ocation b"t %ay be only s"spension of the charter. In fact "nder the r"les and reg"lations of the (7C fail"re to file the by-laws on ti%e %ay be penali$ed %erely with the i%position of an ad%inistrati!e fine witho"t affecting the corporate e#istence of the erring fir%. It sho"ld be stressed in this connection that s"bstantial co%pliance with conditions s"bseG"ent will s"ffice to perfect corporate personality. 8rgani$ation and co%%ence%ent of transaction of corporate b"siness are b"t conditions s"bseG"ent and not prereG"isites for acG"isition of corporate personality. The adoption and filing of by-laws is also a condition s"bseG"ent. Inder (ection ,- of the Corporation Code a Corporation co%%ences its corporate e#istence and 2"ridical personality and is dee%ed incorporated fro% the date the (ec"rities and 7#change Co%%ission iss"es certificate of incorporation "nder its official seal. This %ay be done e!en before the filing of the by-laws which "nder (ection B4 of the Corporation Code %"st be adopted "within one %onth after receipt of official notice of the iss"ance of its certificate of incorporation." SaAad@aan Vs# CA &'19 SCRA 1 )+ ,acts(appari D. (awad2aan was a%ong the first e%ployees of the Philippine A%anah 5ank )PA5* when it was created by !irt"e of Presidential 6ecree No. .4B on :. A"g"st ,-3;. 0e rose thro"gh the ranks working his way "p fro% his initial designation as sec"rity g"ard to settling clerk bookkeeper credit in!estigator pro2ect analyst appraiser< inspector and e!ent"ally loans analyst. 1hile still designated as appraiser<in!estigator (awad2aan was assigned to inspect the properties offered as collaterals by Co%pressed Air Machineries and 7G"ip%ent Corporation )CAM7C* for a credit line of Ai!e Million Pesos )P+ ::: :::.::*. The properties consisted of two parcels of land. 8n the basis of his Inspection and Appraisal 9eport the PA5 granted the loan application.

Lo?ola G$and Villas Vs# CA &2() SCRA )7 + ,acts-

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In the %eanti%e (awad2aan was pro%oted to Loans Analyst I on :, J"ly ,-H-. ("bseG"ently Congress passed 9ep"blic Act 4HBH creating the Al-A%anah Isla%ic In!est%ent 5ank )AII5P* and repealing P.6. No. .4B )which created the PA5*. All assets liabilities and capital acco"nts of the PA5 were transferred to the AII5P and the e#isting personnel of the PA5 were to contin"e to discharge their f"nctions "nless discharged. In the ens"ing reorgani$ation (awad2aan was a%ong the personnel retained by the AII5P. 1hen CAM7C failed to pay despite the gi!en e#tension the Isla%ic 5ank disco!ered that the title to one of the property was sp"rio"s the property described therein non-e#istent and that the other property had a prior e#isting %ortgage in fa!or of one 6i!ina Pablico. The 5oard of 6irectors of the AII5P created an In!estigating Co%%ittee to look into the CAM7C transaction which had cost the bank (i# Million Pesos )P4 ::: :::.::* in losses. (awad2aan recei!ed a %e%orand"% fro% Isla%ic 5ank EAII5PF Chair%an 9oberto A. 6e 8ca%po charging hi% with 6ishonesty in the Perfor%ance of 8fficial 6"ties. Ipon reco%%endation of the In!estigating Co%%ittee the 5oard of 6irectors of the Isla%ic 5ank finds (awad2aan g"ilty of 6ishonesty in the Perfor%ance of 8fficial 6"ties and<or Cond"ct Pre2"dicial to the 5est Interest of the (er!ice and i%posing the penalty of 6is%issal fro% the (er!ice. 8n reconsideration the 5oard of 6irectors red"ced the penalty i%posed on petitioner fro% dis%issal to s"spension for a period of si# )4* %onths and one ),* day. (awad2aan by hi%self filed a Motion for New Trial in the Co"rt of Appeals based on the following gro"nds? fra"d accident %istake or e#c"sable negligence and newly disco!ered e!idence. 0e clai%ed that he had recently disco!ered that at the ti%e his e%ploy%ent was ter%inated the AII5P had not yet adopted its corporate by-laws. 0e attached a Certification by the (ec"rities and 7#change Co%%ission )(7C* that it was only on .3 May ,--. that the AII5P s"b%itted its draft by-laws to the (7C and that its registration was being held in abeyance pending certain corrections being %ade thereon. (awad2aan arg"ed that since the AII5P failed to file its by-laws within 4: days fro% the passage of 9ep. Act No. 4HBH as reG"ired by (ec. +, of the said law the bank and its stockholders had =already forfeited its franchise or charter incl"ding its license to e#ist and operate as a corporation > and th"s no longer ha!e =the legal standing and personality to initiate an ad%inistrati!e case.> Iss.e-

,acts&alicano Calapatia Jr. a stockholder of pri!ate 'alley &olf T Co"ntry Cl"b Inc. pledged his (tock Certificate No. ,.,- to China 5anking Corporation. C5C wrote '&CCI reG"esting that the afore%entioned pledge agree%ent be recorded in its books which '&CCI replied that the deed of pledge e#ec"ted by Calapatia in C5CCs fa!or was d"ly noted in its corporate books. Calapatia obtained a loan of P.: :::.:: fro% C5C pay%ent of which was sec"red by the aforestated pledge agree%ent still e#isting between Calapatia and C5C. 6"e to CalapatiaCs fail"re to pay his obligation C5C filed a petition for e#tra2"dicial foreclos"rere G"esting the latter to cond"ct a p"blic a"ction sale of the pledged stock. C5C infor%ed '&CCI of the abo!e-%entioned foreclos"re proceedings and reG"ested that the pledged stock be transferred to its C5CCs na%e and the sa%e be recorded in the corporate books. 0owe!er '&CCI wrote petitioner e#pressing its inability to accede to petitionerCs reG"est in !iew of CalapatiaCs "nsettled acco"nts with the cl"b. 6espite the foregoing Notary P"blic de 'era held a p"blic a"ction and C5C e%erged as the highest bidder at P.: :::.:: for the pledged stock. ConseG"ently petitioner was iss"ed the corresponding certificate of sale. '&CCI sent Calapatia a notice de%anding f"ll pay%ent of his o!erd"e acco"nt in the a%o"nt of P,H 3H;..B. ("bseG"ently '&CCI ca"sed to be p"blished in the newspaper 6aily 7#press a notice of a"ction sale of a n"%ber of its stock certificates incl"ded therein was CalapatiaCs own share of stock. C5C protested the sale by '&CCI of the s"b2ect share of stock and thereafter filed a case with for the n"llification of the a"ction and for the iss"ance of a new stock certificate in its na%e. Iss.e1<N '&CCI had the right to sell the share in G"estion in accordance with the e#press pro!ision fo"nd in its by-laws R.ling-

1<N the fail"re of the Isla%ic 5ank to file its by-laws within 4: days fro% the passage of 9ep. Act No. 4HBH as reG"ired by (ec. +, of the said law the bank and its stockholders had =already forfeited its franchise or charter incl"ding its license to e#ist and operate as a corporation > and th"s no longer ha!e =the legal standing and personality to initiate an ad%inistrati!e case.> R.lingThe AII5P was created by 9ep. Act No. 4HBH. It has a %ain office where it cond"cts b"siness has shareholders corporate officers a board of directors assets and personnel. It is in fact here represented by the 8ffice of the &o!ern%ent Corporate Co"nsel =the principal law office of go!ern%entowned corporations one of which is respondent bank.> At the !ery least by its fail"re to s"b%it its by-laws on ti%e the AII5P %ay be considered a de facto corporation whose right to e#ercise corporate powers %ay not be inG"ired into collaterally in any pri!ate s"it to which s"ch corporations %ay be a party. Moreo!er a corporation which has failed to file its by-laws within the prescribed period does not ipso facto lose its powers as s"ch. The (7C 9"les on ("spension<9e!ocation of the Certificate of 9egistration of Corporations details the proced"res and re%edies that %ay be a!ailed of before an order of re!ocation can be iss"ed. There is no showing that s"ch a proced"re has been initiated in this case. In any case petitioner/s arg"%ent is irrele!ant beca"se this case is not a corporate contro!ersy b"t a labor disp"te@ and it is an e%ployer/s basic right to freely select or discharge its e%ployees if only as a %eas"re of selfprotection against acts ini%ical to its interest. 9egardless of whether AII5P is a corporation a partnership a sole proprietorship or a sari?sari store it is an "ndisp"ted fact that AII5P is the petitioner/s e%ployer. AII5P chose to retain his ser!ices d"ring its reorgani$ation controlled the %eans and %ethods by which his work was to be perfor%ed paid his wages and e!ent"ally ter%inated his ser!ices. And tho"gh he has had a%ple opport"nity to do so the petitioner has not alleged that he is anything other than an e%ployee of AII5P. 0e has neither clai%ed nor shown that he is a stockholder or an officer of the corporation. 0a!ing accepted e%ploy%ent fro% AII5P and rendered his ser!ices to the said bank recei!ed his salary and accepted the pro%otion gi!en hi% it is now too late in the day for petitioner to G"estion its e#istence and its power to ter%inate his ser!ices. 8ne who ass"%es an obligation to an ostensible corporation as s"ch cannot resist perfor%ance thereof on the gro"nd that there was in fact no corporation. C"ina Ban5ing Vs# CA &2(0 SCRA 10*+

The p"rpose of a by-law is to reg"late the cond"ct and define the d"ties of the %e%bers towards the corporation and a%ong the%sel!es. They are selfi%posed and altho"gh adopted p"rs"ant to stat"tory a"thority ha!e no stat"s as p"blic law. Therefore it is the generally accepted r"le that third persons are not bo"nd by by-laws e#cept when they ha!e knowledge of the pro!isions either act"ally or constr"cti!ely. In the case of 2leis er v . Botica Nolasco B3 Phil. +HB the ("pre%e Co"rt held that the by-law restricting the transfer of shares cannot ha!e any effect on the transferee of the shares in G"estion as he "had no knowledge of s"ch by-law when the shares were assigned to hi%. 0e obtained the% in good faith and for a !al"able consideration. Be &as not a priv$ to t e contract created b$ t e b$?la& bet&een t e s are older . . and t e Botica Nolasco# -nc . (aid by-law cannot operate to defeat his right as a p"rchaser. In order to be bo"nd the third party %"st ha!e acG"ired knowledge of the pertinent by-laws at the ti%e the transaction or agree%ent between said third party and the shareholder was entered into in this case at the ti%e the pledge agree%ent was e#ec"ted. '&CCI co"ld ha!e easily infor%ed petitioner of its by-laws when it sent notice for%ally recogni$ing petitioner as pledgee of one of its shares registered in CalapatiaCs na%e. PetitionerCs belated notice of said by-laws at the ti%e of foreclos"re will not s"ffice. Ainally (ec. 4; of the Corporation Code which pro!ides that "no shares of stock against which the corporation holds any "npaid clai% shall be transferable in the books of the corporation" cannot be "tili$ed by '&CCI. The ter% ""npaid clai%" refers to "any "npaid clai% arising fro% "npaid s"bscription and not to any indebtedness which a s"bscriber or stockholder %ay owe the corporation arising fro% any other transaction." In the case at bar the s"bscription for the share in G"estion has been f"lly paid as e!idenced by the iss"ance of Me%bership Certificate No. ,.,-. 1hat Calapatia owed the corporation were %erely the %onthly d"es. 0ence the aforeG"oted pro!ision does not apply. Section '( ! Contents of by-laws. - ("b2ect to the pro!isions of the Constit"tion this Code other special laws and the articles of incorporation a pri!ate corporation %ay pro!ide in its by-laws for? ,. The ti%e place and %anner of calling and cond"cting reg"lar or special %eetings of the directors or tr"stees@

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.. The ti%e and %anner of calling and cond"cting reg"lar or special %eetings of the stockholders or %e%bers@ ;. The reG"ired G"or"% in %eetings of stockholders or %e%bers and the %anner of !oting therein@ B. The for% for pro#ies of stockholders and %e%bers and the %anner of !oting the%@ +. The G"alifications d"ties and co%pensation of directors or tr"stees officers and e%ployees@ 4. The ti%e for holding the ann"al election of directors of tr"stees and the %ode or %anner of gi!ing notice thereof@ 3. The %anner of election or appoint%ent and the ter% of office of all officers other than directors or tr"stees@ H. The penalties for !iolation of the by-laws@ -. In the case of stock corporations the %anner of iss"ing stock certificates@ and ,:. ("ch other %atters as %ay be necessary for the proper or con!enient transaction of its corporate b"siness and affairs. ).,a*

R.lingAd%ittedly the right to a%end the by-laws lies solely in the discretion of the e%ployer this being in the e#ercise of %anage%ent prerogati!e or b"siness 2"dg%ent. 0owe!er this right e#tensi!e as it %ay be cannot i%pair the obligation of e#isting contracts or rights. Prescinding fro% these pre%ises Phila%Cs insistence that it can legally dis%iss petitioner on the gro"nd that his ten"re has e#pired is "ntenable. To reiterate petitioner being a reg"lar e%ployee is entitled to sec"rity of ten"re hence his ser!ices %ay only be ter%inated for ca"ses pro!ided by law. A contrary interpretation wo"ld not find 2"stification in the laws or the Constit"tion. If we were to r"le otherwise it wo"ld enable an e%ployer to re%o!e any e%ployee fro% his e%ploy%ent by the si%ple e#pediency of a%ending its by-laws and pro!iding that his<her position shall cease to e#ist "pon the occ"rrence of a specified e!ent. If pri!ate respondent wanted to %ake the petitionerCs position co-ter%in"s with that of the 5oard of 6irectors then the a%end%ent %"st be effecti!e after petitionerCs stay with the pri!ate respondent not d"ring his ter%. 8b!io"sly the %eas"re taken by the pri!ate respondent in a%ending its by-laws is nothing b"t a de!io"s b"t cr"de atte%pt to circ"%!ent petitionerCs right to sec"rity of ten"re as a reg"lar e%ployee g"aranteed "nder the Labor Code. TITLE VI 2EETINGS Section '9 !

Section '7 ! Amendments to by-laws. - The board of directors or tr"stees by a %a2ority !ote thereof and the owners of at least a %a2ority of the o"tstanding capital stock or at least a %a2ority of the %e%bers of a non-stock corporation at a reg"lar or special %eeting d"ly called for the p"rpose %ay a%end or repeal any by-laws or adopt new by-laws. The owners of two-thirds ).<;* of the o"tstanding capital stock or two-thirds ).<;* of the %e%bers in a non-stock corporation %ay delegate to the board of directors or tr"stees the power to a%end or repeal any by-laws or adopt new by-laws? Pro!ided That any power delegated to the board of directors or tr"stees to a%end or repeal any by-laws or adopt new by-laws shall be considered as re!oked whene!er stockholders owning or representing a %a2ority of the o"tstanding capital stock or a %a2ority of the %e%bers in non-stock corporations shall so !ote at a reg"lar or special %eeting. 1hene!er any a%end%ent or new by-laws are adopted s"ch a%end%ent or new by-laws shall be attached to the original by-laws in the office of the corporation and a copy thereof d"ly certified "nder oath by the corporate secretary and a %a2ority of the directors or tr"stees shall be filed with the (ec"rities and 7#change Co%%ission the sa%e to be attached to the original articles of incorporation and original by-laws. The a%ended or new by-laws shall only be effecti!e "pon the iss"ance by the (ec"rities and 7#change Co%%ission of a certification that the sa%e are not inconsistent with this Code. /inds of meetings. - Meetings of directors tr"stees stockholders or %e%bers %ay be reg"lar or special. )n* Section 10 ! %egular and special meetings of stoc)holders or members. - 9eg"lar %eetings of stockholders or %e%bers shall be held ann"ally on a date fi#ed in the by-laws or if not so fi#ed on any date in April of e!ery year as deter%ined by the board of directors or tr"stees? Pro!ided That written notice of reg"lar %eetings shall be sent to all stockholders or %e%bers of record at least two ).* weeks prior to the %eeting "nless a different period is reG"ired by the bylaws. (pecial %eetings of stockholders or %e%bers shall be held at any ti%e dee%ed necessary or as pro!ided in the by-laws? Pro!ided howe!er That at least one ),* week written notice shall be sent to all stockholders or %e%bers "nless otherwise pro!ided in the by-laws. Notice of any %eeting %ay be wai!ed e#pressly or i%pliedly by any stockholder or %e%ber. 1hene!er for any ca"se there is no person a"thori$ed to call a %eeting the (ecretaries and 7#change Co%%ission "pon petition of a stockholder or %e%ber on a showing of good ca"se therefor %ay iss"e an order to the petitioning stockholder or %e%ber directing hi% to call a %eeting of the corporation by gi!ing proper notice reG"ired by this Code or by the by-laws. The petitioning stockholder or %e%ber shall preside thereat "ntil at least a %a2ority of the stockholders or %e%bers present ha!e been chosen one of their n"%ber as presiding officer. BOD Vs# Tan & 01 P"il '2)+ ,actsJohn Castillo et al. co%%enced a s"it in the co"rt of Airst Instance of Manila to declare n"ll and !oid election of the %e%bers of the board of directors of the (M5 1orkers (a!ings and Loan Association Inc. and of the %e%bers of the board of directors of the association to call for and hold another election in accordance with its constit"tion and by-laws and the Corporation Law@ to restain the defendants who had been illegally elected as %e%bers of the board of directors fro% e#ercising the f"nctions of their office@ to order the defendants to pay the plaintiffs attorneyCs fees and costs of the s"it@ and to grant the% other 2"st and eG"itable relief. The Co"rt rendered 2"dg%ent declaring the election held n"ll and !oid ordering the 586 to call for and hold another election in accordance with the constit"tion and by-laws of the association and the Corporation Law and sentencing the defendants to pay the plaintiffs the s"% of P, +:: as attorneyCs fees and to pay the cost of the s"it In co%pliance with the 2"dg%ent rendered by the Co"rt the election co%%ittee co%posed of R"intin Tesalona Man"el 6"%a"p and JoseC Capinio (antos set the %eeting of the %e%bers of the association for .H March at +?;: oCclock in the afternoon to elect the new %e%bers of the board of directors. The plaintiff filed an e#-parte %otion alleging that the election co%%ittee that had called the %eeting of %e%bers of the association is co%posed of the

Salaf$anca Vs# P"ila:life &*00 SCRA ')9+ ,acts7nriG"e (alafranca started working with Phila%life 'illage 0o%eowners Association as ad%inistrati!e officer for a period of si# %onths. 0e was then reappointed to his position three %ore ti%es. As ad%inistrati!e officer he was generally responsible for the %anage%ent of the !illageCs day to day acti!ities. After his ter% of e%ploy%ent e#pired he still contin"ed to work in the sa%e capacity albeit witho"t the benefit of a renewed contract. Thereafter Phila%life decided to a%end its by-laws. Incl"ded therein was a pro!ision regarding officers specifically the position of ad%inistrati!e officer "nder which said officer shall hold office at the pleas"re of the 5oard of 6irectors. In !iew of this de!elop%ent the association infor%ed (alafranca that his ter% of office shall be coter%in"s with the 5oard of 6irectors which appointed hi% to his position. A"rther%ore "ntil he s"b%its a %edical certificate showing his state of health his e%ploy%ent shall be on a %onth-to%onth basis. Notwithstanding the fail"re of herein petitioner to s"b%it his %edical certificate he contin"ed working "ntil his ter%ination in 6ece%ber ,--.. Clai%ing that his ser!ices had been "nlawf"lly and "ncere%onio"sly dispensed with petitioner filed a co%plaint for illegal dis%issal with %oney clai%s and for da%ages. Iss.e1<N the dis%issal of (alafranca is !alid on the theory that the latterCs position is coter%in"s with that of the 'illageCs 5oard of 6irectors as pro!ided for in its a%ended by-laws

78

sa%e %e%bers that had cond"cted and s"per!ised the election of the %e%bers of the board of directors that was declared n"ll and !oid by the Co"rt. In !iew thereof it wo"ld be ineG"itable to allow the% to cond"ct and s"per!ise again the forthco%ing election. The election to be cond"cted and s"per!ised by the said co%%ittee wo"ld not be held in accordance with the constit"tion and by laws of the association pro!iding for fi!e days notice to the %e%bers before the election since the notice was posted and sent o"t only on .4 March and the election wo"ld be held on .H March or two days after notice. The notice that beginning .4 March any %e%ber co"ld sec"re his ballot and pro#y fro% the office of the association is in !iolation of section + Article III of the Constit"tion and 5y-laws which prohibits !oting by pro#y in the election of %e%bers of the board of directors and that the defendant did not show that arrange%ent is being %ade "to g"arantee that the election will be held in accordance with the constit"tion and by laws." They prayed that the Co"rt appoint its representati!e or representati!es whose co%pensation shall be paid o"t of the f"nds of the association to s"per!ise and cond"ct the election ordered by it. R.ling(ection ; Article III of the Constit"tion and 5y-laws of the association pro!ides? Notice of the ti%e and place of holding of any ann"al %eeting or any special %eeting the %e%bers shall be gi!en either by posting the sa%e in a postage prepaid en!elope addressed to each %e%ber on the record at the address left by s"ch %e%ber with the (ecretary of the Association or at his known post-office address or by deli!ering the sa%e person at least )+* days before the date set for s"ch %eeting. . . . In lie" of addressing or ser!ing personal notices to the %e%bers notice of the %e%bers notice of a reg"lar ann"al %eeting or of a special %eeting of the %e%bers %ay be gi!en by posting copies of said notice at the different depart%ents and plants of the (an Mig"el 5rewery Inc. not less than fi!e )+* days prior to the date of the %eeting. Notice of a special %eeting of the %e%bers sho"ld be gi!en at leasts fi!e days before the date of the %eeting. Therefore the fi!e days pre!io"s notice reG"ired wo"ld not be co%plied with. As regards the creation of a co%%ittee of three !ested with the a"thority to call cond"ct and s"per!ise the election and the appoint%ent thereto of Candido C. 'iernes as chair%an and the representati!e of the co"rt and one representati!e each fro% the parties the Co"rt in the e#ercise of its eG"ity 2"risdiction %ay appoint%ent s"ch co%%ittee it ha!ing been shown that the 7lection Co%%ittee pro!ided for in section 3 of the 5y-laws of the association that cond"cted the election ann"lled by the respondent co"rt if allowed to act as s"ch %ay 2eopardise the rights of the respondents. In a proper proceeding a co"rt for eG"ity %ay direct the holding of a stockholdersC %eeting "nder the control of a special %aster and the action taken at s"ch a %eeting will not be set aside beca"se of a wrongf"l "se of the co"rtC interloc"tory decree where not bro"ght to the attention of the co"rt prior to the %eeting. A co"rt of eG"ity %ay on showing of good reason appoint a %aster to cond"ct and s"per!ise an election of directors when it appears that a fair election cannot %ake directions contrary to stat"te and p"blic policy with respect to the cond"ct of s"ch election. Section 1 ! =lace and time of meetings of stoc)holders or members. - (tockholdersC or %e%bersC %eetings whether reg"lar or special shall be held in the city or %"nicipality where the principal office of the corporation is located and if practicable in the principal office of the corporation? Pro!ided That Metro Manila shall for p"rposes of this section be considered a city or %"nicipality. Notice of %eetings shall be in writing and the ti%e and place thereof stated therein. All proceedings had and any b"siness transacted at any %eeting of the stockholders or %e%bers if within the powers or a"thority of the corporation shall be !alid e!en if the %eeting be i%properly held or called pro!ided all the stockholders or %e%bers of the corporation are present or d"ly represented at the %eeting. Section 12 ! @uorum in meetings. - Inless otherwise pro!ided for in this Code or in the by-laws a G"or"% shall consist of the stockholders representing a %a2ority of the o"tstanding capital stock or a %a2ority of the %e%bers in the case of nonstock corporations. Lan.8a Vs# CA &'1' SCRA 1'+ ,acts-

In ,-+. the Philippine Merchant Marine (chool Inc. )PMM(I* was incorporated with se!en h"ndred )3::* fo"nders/ shares and se!enty-si# )34* co%%on shares as its initial capital stock s"bscription reflected in the articles of incorporation. 0owe!er 8nr"bia et. al. and their predecessors who were in control of PMM(I registered the co%pany/s stock and transfer book for the first ti%e in ,-3H recording thirty-three );;* co%%on shares as the only iss"ed and o"tstanding shares of PMM(I. In ,-3- a special stockholders/ %eeting was called and held on the basis of what was considered as a G"or"% of twenty-se!en ).3* co%%on shares representing %ore than twothirds ).<;* of the co%%on shares iss"ed and o"tstanding. In ,-H. the heirs of one of the original incorporators J"an Acayan filed a petition with the (ec"rities and 7#change Co%%ission )(7C* for the registration of their property rights o!er one h"ndred ),.:* fo"nders/ shares and twel!e ),.* co%%on shares owned by their father. The (7C hearing officer held that the heirs of Acayan were entitled to the clai%ed shares and called for a special stockholders/ %eeting to elect a new set of officers. The (7C 6n Banc affir%ed the decision. As a res"lt the shares of Acayan were recorded in the stock and transfer book. 8n :4 May ,--. a special stockholders/ %eeting was held to elect a new set of directors. Pri!ate respondents thereafter filed a petition with the (7C G"estioning the !alidity of the :4 May ,--. stockholders/ %eeting alleging that the G"or"% for the said %eeting sho"ld not be based on the ,4+ iss"ed and o"tstanding shares as per the stock and transfer book b"t on the initial s"bscribed capital stock of se!en h"ndred se!enty-si# )334* shares as reflected in the ,-+. Articles of Incorporation. The petition was dis%issed. Appeal was %ade to the (7C 6n Banc which granted said appeal holding that the shares of the deceased incorporators sho"ld be d"ly represented by their respecti!e ad%inistrators or heirs concerned. The (7C directed the parties to call for a stockholders %eeting on the basis of the stockholdings reflected in the articles of incorporation for the p"rpose of electing a new set of officers for the corporation. Iss.e1<N the basis the o"tstanding capital stock and accordingly also for deter%ining the G"or"% at stockholders/ %eetings it sho"ld be the ,-3H stock and transfer book or it sho"ld be the ,-+. articles of incorporation R.ling(ec. +.. R"or"% in %eetings.- Inless otherwise pro!ided for in this Code or in the by-laws a G"or"% shall consist of the stockholders representing a %a2ority of the o"tstanding capital stock or %a2ority of the %e%bers in the case of non-stock corporation. 8"tstanding capital stock on the other hand is defined by the Code as? (ec. ,;3. 8"tstanding capital stock defined.W The ter% =o"tstanding capital stock> as "sed in this code %eans the total shares of stock iss"ed to s"bscribers or stockholders whether or not f"lly or partially paid )as long as there is binding s"bscription agree%ent* e#cept treas"ry shares. Th"s G"or"% is based on the totality of the shares which ha!e been s"bscribed and iss"ed whether it be fo"nders/ shares or co%%on shares. In the instant case two fig"res are being pitted against each otherW those contained in the articles of incorporation and those listed in the stock and transfer book. To base the co%p"tation of G"or"% solely on the ob!io"sly deficient if not inacc"rate stock and transfer book and co%pletely disregarding the iss"ed and o"tstanding shares as indicated in the articles of incorporation wo"ld work in2"stice to the owners and<or s"ccessors in interest of the said shares. This case is one instance where resort to doc"%ents other than the stock and transfer books is necessary. The stock and transfer book of PMM(I cannot be "sed as the sole basis for deter%ining the G"or"% as it does not reflect the totality of shares which ha!e been s"bscribed %ore so when the articles of incorporation show a significantly larger a%o"nt of shares iss"ed and o"tstanding as co%pared to that listed in the stock and transfer book. At the ti%e the corporation was set-"p there were already se!en h"ndred se!enty-si# )334* iss"ed and o"tstanding shares as reflected in the articles of incorporation. No proof was add"ced as to any transaction effected on these shares fro% the ti%e PMM(I was incorporated "p to the ti%e the instant petition was filed e#cept for the thirty-three );;* shares which were recorded in the stock and transfer book in ,-3H and the additional one h"ndred thirtytwo ),;.* in ,-H.. 5"t ob!io"sly the shares so ordered recorded in the stock and transfer book are a%ong the shares reflected in the articles of incorporation as the shares s"bscribed to by the incorporators na%ed therein. 8ne who is act"ally a stockholder cannot be denied his right to !ote by the corporation %erely beca"se the corporate officers failed to keep its records acc"rately. A corporation/s records are not the only e!idence of the ownership of stock in a corporation. In an A%erican case persons clai%ing shareholders stat"s in a professional corporation were listed as stockholders in the a%end%ent to the articles of incorporation. 8n that basis they were in all respects treated as shareholders. In fact the acts and cond"ct of the parties %ay e!en constit"te s"fficient e!idence of one/s stat"s as a shareholder or %e%ber. In the instant case no less than the articles of

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incorporation declare the incorporators to ha!e in their na%e the fo"nders and se!eral co%%on shares. Th"s to disregard the contents of the articles of incorporation wo"ld be to pretend that the basic doc"%ent which legally triggered the creation of the corporation does not e#ist and accordingly to allow great in2"stice to be ca"sed to the incorporators and their heirs. Section 1* ! %egular and special meetings of directors or trustees. - 9eg"lar %eetings of the board of directors or tr"stees of e!ery corporation shall be held %onthly "nless the by-laws pro!ide otherwise. (pecial %eetings of the board of directors or tr"stees %ay be held at any ti%e "pon the call of the president or as pro!ided in the by-laws. Meetings of directors or tr"stees of corporations %ay be held anywhere in or o"tside of the Philippines "nless the by-laws pro!ide otherwise. Notice of reg"lar or special %eetings stating the date ti%e and place of the %eeting %"st be sent to e!ery director or tr"stee at least one ),* day prior to the sched"led %eeting "nless otherwise pro!ided by the by-laws. A director or tr"stee %ay wai!e this reG"ire%ent either e#pressly or i%pliedly.

Indeed teleconferencing can only facilitate the linking of people@ it does not alter the co%ple#ity of gro"p co%%"nication. Altho"gh it %ay be easier to co%%"nicate via teleconferencing it %ay also be easier to %isco%%"nicate. Teleconferencing cannot satisfy the indi!id"al needs of e!ery type of %eeting. In the Philippines teleconferencing and !ideoconferencing of %e%bers of board of directors of pri!ate corporations is a reality in light of 9ep"blic Act No. H3-.. The (ec"rities and 7#change Co%%ission iss"ed (7C Me%orand"% Circ"lar No. ,+ on No!e%ber ;: .::, pro!iding the g"idelines to be co%plied with related to s"ch conferences. Th"s the Co"rt agrees with the 9TC that persons in the Philippines %ay ha!e a teleconference with a gro"p of persons in (o"th Dorea relating to b"siness transactions or corporate go!ernance. 7!en gi!en the possibility that Atty. Ag"inaldo and ("k Dyoo Di% participated in a teleconference along with the respondent/s 5oard of 6irectors the Co"rt is not con!inced that one was cond"cted@ e!en if there had been one the Co"rt is not inclined to belie!e that a board resol"tion was d"ly passed specifically a"thori$ing Atty. Ag"inaldo to file the co%plaint and e#ec"te the reG"ired certification against for"% shopping. It is settled that the reG"ire%ent to file a certificate of non-for"% shopping is %andatory and that the fail"re to co%ply with this reG"ire%ent cannot be e#c"sed. The certification is a pec"liar and personal responsibility of the party an ass"rance gi!en to the co"rt or other trib"nal that there are no other pending cases in!ol!ing basically the sa%e parties iss"es and ca"ses of action. 0ence the certification %"st be acco%plished by the party hi%self beca"se he has act"al knowledge of whether or not he has initiated si%ilar actions or proceedings in different co"rts or trib"nals. 7!en his co"nsel %ay be "naware of s"ch facts. 0ence the reG"isite certification e#ec"ted by the plaintiff/s co"nsel will not s"ffice. In a case where the plaintiff is a pri!ate corporation the certification %ay be signed for and on behalf of the said corporation by a specifically a"thori$ed person incl"ding its retained co"nsel who has personal knowledge of the facts reG"ired to be established by the doc"%ents. The records show that the petitioner filed a %otion to dis%iss the co%plaint on the gro"nd that the respondent failed to co%ply with (ection + 9"le 3 of the 9"les of Co"rt. The respondent opposed the %otion on 6ece%ber , ,--on its contention that Atty. Ag"inaldo its resident agent was d"ly a"thori$ed to s"e in its behalf. The respondent howe!er failed to establish its clai% that Atty. Ag"inaldo was its resident agent in the Philippines. 7!en the identification card of Atty. Ag"inaldo which the respondent appended to its pleading %erely showed that he is the co%pany lawyer of the respondent/s Manila 9egional 8ffice. The respondent thro"gh Atty. Ag"inaldo anno"nced the holding of the teleconference only d"ring the hearing of Jan"ary .H .:::@ Atty. Ag"inaldo then prayed for ten days or "ntil Aebr"ary H .::: within which to s"b%it the board resol"tion p"rportedly a"thori$ing hi% to file the co%plaint and e#ec"te the reG"ired certification against for"% shopping. The respondent howe!er failed to co%ply to s"b%it the said board resol"tion a"thori$ing hi% to !erify and sign the certificate of NA(. Section 1' ! Who shall preside at meetings. - The president shall preside at all %eetings of the directors or tr"stee as well as of the stockholders or %e%bers "nless the by-laws pro!ide otherwise. Section 11 !

E6%e$t$aCel Vs# CA &'19 SCRA '(+ ,actsDorean Airlines is a corporation established and registered in the 9ep"blic of (o"th Dorea and licensed to do b"siness in the Philippines. Its general %anager in the Philippines is ("k Dyoo Di% while its appointed co"nsel was Atty. Mario Ag"inaldo and his law fir%. In ,--- DAL thro"gh Atty. Ag"inaldo filed a Co%plaint against 7TI for the collection of the principal a%o"nt of P.4: ,+:.:: pl"s attorney/s fees and e#e%plary da%ages. The !erification and certification against for"% shopping was signed by Atty. Ag"inaldo who indicated therein that he was the resident agent and legal co"nsel of DAL and had ca"sed the preparation of the co%plaint. 7TI filed a %otion to dis%iss the co%plaint on the gro"nd that Atty. Ag"inaldo was not a"thori$ed to e#ec"te the !erification and certificate of non-for"% shopping as reG"ired by (ection + 9"le 3 of the 9"les of Co"rt. DAL opposed the %otion contending that Atty. Ag"inaldo was its resident agent and was registered as s"ch with the (ec"rities and 7#change Co%%ission )(7C* as reG"ired by the Corporation Code of the Philippines. It was f"rther alleged that Atty. Ag"inaldo was also the corporate secretary of DAL. Appended to the said opposition was the identification card of Atty. Ag"inaldo showing that he was the lawyer of DAL. Atty. Ag"inaldo clai%ed that he had been a"thori$ed to file the co%plaint thro"gh a resol"tion of the DAL 5oard of 6irectors appro!ed d"ring a special %eeting. DAL was gi!en a period of ,: days within which to s"b%it a copy of the said resol"tion. Ainally DAL s"b%itted on March 4 .::: an Affida!it of e!en date e#ec"ted by its general %anager ("k Dyoo Di% alleging that the board of directors cond"cted a special teleconference on J"ne .+ ,--- which he and Atty. Ag"inaldo attended. It was also a!erred that in that sa%e teleconference the board of directors appro!ed a resol"tion a"thori$ing Atty. Ag"inaldo to e#ec"te the certificate of non-for"% shopping and to file the co%plaint. ("k Dyoo Di% also alleged howe!er that the corporation had no written copy of the aforesaid resol"tion. Iss.e1<N DAL/s holding of a special %eeting thro"gh teleconferencing a"thori$ing Atty. Ag"inaldo to e#ec"te and sign the !erification and certificate of nonfor"% shopping is !alid R.lingA teleconference represents a "niG"e alternati!e to face-to-face )ATA* %eetings. It was first introd"ced in the ,-4:/s with A%erican Telephone and Telegraph/s Pict"rephone. At that ti%e howe!er no de%and e#isted for the new technology. Tra!el costs were reasonable and cons"%ers were "nwilling to pay the %onthly ser!ice charge for "sing the pict"rephone which was regarded as %ore of a no!elty than as an act"al %eans for e!eryday co%%"nication. In ti%e people fo"nd it ad!antageo"s to hold teleconferencing in the co"rse of b"siness and corporate go!ernance beca"se of the %oney sa!ed a%ong other ad!antages The Presidential Co%%ission on &ood &o!ern%ent cond"cted an 7TPI )7astern Teleco%%"nications Phil. Inc.* stockholders/ %eeting d"ring which a PC&& controlled board of directors was elected. A special stockholders %eeting was later con!ened by the registered 7TPI stockholders wherein another set of board of directors was elected as a res"lt of which two sets of s"ch board and officers were elected. Africa a stockholder of 7TPI alleging that the PC&& had since Jan"ary .,-HH been "illegally Ce#ercisingC the rights of stockholders of 7TPI " especially in the election of the %e%bers of the board of directors filed the abo!e-said %otion before the (andiganbayan.

%ight to vote of pledgors, mortgagors, and administrators. - In case of pledged or %ortgaged shares in stock corporations the pledgor or %ortgagor shall ha!e the right to attend and !ote at %eetings of stockholders "nless the pledgee or %ortgagee is e#pressly gi!en by the pledgor or %ortgagor s"ch right in writing which is recorded on the appropriate corporate books. 7#ec"tors ad%inistrators recei!ers and other legal representati!es d"ly appointed by the co"rt %ay attend and !ote in behalf of the stockholders or %e%bers witho"t need of any written pro#y. Re%.4lic Vs# Sandigan4a?an &'02 SCRA 7'+ ,acts-

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R.ling),* The PC&& cannot !ote seG"estered shares to elect the 7TPI 5oard of 6irectors or to a%end the Articles of Incorporation for the p"rpose of increasing the a"thori$ed capital stock "nless there is a prima facie e!idence showing that said shares are ill-gotten and there is an i%%inent danger of dissipation. ).* The 7TPI (tock and Transfer 5ook sho"ld be the basis for deter%ining which persons ha!e the right to !ote in the stockholders %eeting for the election of the 7TPI 5oard of 6irectors. );* The PC&& is entitled to !ote the shares ceded to it by 9oberto (. 5enedicto and his controlled corporations "nder the Co%pro%ise Agree%ent pro!ided that the shares are first registered in the na%e of the PC&&. The PC&& %ay not register the transfer of the MalacaSang and the Nieto shares in the 7TPI (tock and Transfer 5ook@ howe!er it %ay !ote the sa%e as conser!ator pro!ided that the PC&& satisfies the two-tiered test de!ised by the Co"rt in Cojuangco v. Calpo whether PC&& %ay !ote the seG"estered shares in (MC necessitates a deter%ination of at least two fact"al %atters? ,. whether there is prima facie e!idence showing that the said shares are illgotten and th"s belong to the state@ and .. whether there is an i%%ediate danger of dissipation th"s necessitating their contin"ed seG"estration and !oting by the PC&& while the %ain iss"e pends with the (andiganbayan. )B* The safeg"ards laid down in the case of Cojuangco v. =o'as shall be incorporated in the 7TPI Articles of Incorporation s"bstantially conte%poraneo"s to b"t not before the election of the 7TPI 5oard of 6irectors. )+* Me%bers of the (andiganbayan shall not participate in the stockholders %eeting for the election of the 7TPI 5oard of 6irectors. Neither shall a Clerk of Co"rt be appointed to call s"ch %eeting and iss"e notices thereof. The (andiganbayan shall appoint or the parties %ay agree to constit"te a co%%ittee of co%petent and i%partial persons to call send notices and preside at the %eeting for the election of the 7TPI 5oard of 6irectors@ and )4* This Co"rt has no 2"risdiction o!er the %otion to cite the PC&& and "its acco%plices" in conte%pt and to n"llify the stockholders %eeting of March ,3 ,--3. Section 1) ! 0oting in case of ,oint ownership of stoc). - In case of shares of stock owned 2ointly by two or %ore persons in order to !ote the sa%e the consent of all the co-owners shall be necessary "nless there is a written pro#y signed by all the co-owners a"thori$ing one or so%e of the% or any other person to !ote s"ch share or shares? Pro!ided That when the shares are owned in an "and<or" capacity by the holders thereof any one of the 2oint owners can !ote said shares or appoint a pro#y therefor. Section 1( ! 0oting right for treasury shares. - Treas"ry shares shall ha!e no !oting right as long as s"ch shares re%ain in the Treas"ry. Section 17 ! =roxies. - (tockholders and %e%bers %ay !ote in person or by pro#y in all %eetings of stockholders or %e%bers. Pro#ies shall in writing signed by the stockholder or %e%ber and filed before the sched"led %eeting with the corporate secretary. Inless otherwise pro!ided in the pro#y it shall be !alid only for the %eeting for which it is intended. No pro#y shall be !alid and effecti!e for a period longer than fi!e )+* years at any one ti%e. Section 19 ! 0oting trusts. - 8ne or %ore stockholders of a stock corporation %ay create a !oting tr"st for the p"rpose of conferring "pon a tr"stee or tr"stees the right to !ote and other rights pertaining to the shares for a period not e#ceeding fi!e )+* years at any ti%e? Pro!ided That in the case of a !oting tr"st specifically reG"ired as a condition in a loan agree%ent said !oting tr"st %ay be for a period e#ceeding fi!e )+* years b"t shall a"to%atically e#pire "pon f"ll pay%ent of the loan. A !oting tr"st agree%ent %"st be in writing and notari$ed and shall specify the ter%s and conditions thereof. A certified copy of s"ch agree%ent shall be filed with the corporation and with the (ec"rities and 7#change Co%%ission@ otherwise said agree%ent is ineffecti!e and "nenforceable. The certificate or certificates of stock co!ered by the !oting tr"st agree%ent shall be canceled and new ones shall be iss"ed in the na%e of the tr"stee or tr"stees stating that they are iss"ed p"rs"ant to said agree%ent. In the books of the corporation it shall be noted that the transfer in the na%e of the tr"stee or tr"stees is %ade p"rs"ant to said !oting tr"st agree%ent. The tr"stee or tr"stees shall e#ec"te and deli!er to the transferors !oting tr"st certificates which shall be transferable in the sa%e %anner and with the sa%e effect as certificates of stock.

The !oting tr"st agree%ent filed with the corporation shall be s"b2ect to e#a%ination by any stockholder of the corporation in the sa%e %anner as any other corporate book or record? Pro!ided That both the transferor and the tr"stee or tr"stees %ay e#ercise the right of inspection of all corporate books and records in accordance with the pro!isions of this Code. Any other stockholder %ay transfer his shares to the sa%e tr"stee or tr"stees "pon the ter%s and conditions stated in the !oting tr"st agree%ent and there"pon shall be bo"nd by all the pro!isions of said agree%ent. No !oting tr"st agree%ent shall be entered into for the p"rpose of circ"%!enting the law against %onopolies and illegal co%binations in restraint of trade or "sed for p"rposes of fra"d. Inless e#pressly renewed all rights granted in a !oting tr"st agree%ent shall a"to%atically e#pire at the end of the agreed period and the !oting tr"st certificates as well as the certificates of stock in the na%e of the tr"stee or tr"stees shall thereby be dee%ed canceled and new certificates of stock shall be reiss"ed in the na%e of the transferors. The !oting tr"stee or tr"stees %ay !ote by pro#y "nless the agree%ent pro!ides otherwise. National InCest:ent Vs# A3.ino & )* SCRA 1*+ ,acts5at2ak )5asic Agric"lt"ral Traders Jointly Ad%inistered Dasa%ahan* is a Ailipino-A%erican corporation organi$ed "nder the laws of the Philippines pri%arily engaged in the %an"fact"re of cocon"t oil and copra cake for e#port. In ,-4+ 5at2akCs financial condition deteriorated to the point of bankr"ptcy. As of that year 5at2akCs indebtedness to so%e pri!ate banks and to the Philippine National 5ank )PN5* a%o"nted to P,, -,+ :::.:: As sec"rity for the pay%ent of its obligations and ad!ances against ship%ents 5at2ak %ortgaged its three );* coco-processing oil %ills in (asa 6a!ao City Ji%ene$ Misa%is 8ccidental and Tana"an Leyte to Manila 5anking Corporation )Manila 5ank* 9ep"blic 5ank )95* and Philippine Co%%ercial and Ind"strial 5ank )PCI5* respecti!ely. In need for additional operating capital to place the three );* coco-processing %ills at their opti%"% capacity and %a#i%"% efficiency and to settle pay or otherwise liG"idate pending financial obligations with the different pri!ate banks 5at2ak applied to PN5 for additional financial assistance. 8n + 8ctober ,-4+ a Ainancial Agree%ent was s"b%itted by PN5 to 5at2ak for acceptance. The ter%s and conditions of the Ainancial Agree%ent were d"ly accepted by 5at2ak. Inder said Agree%ent NI6C wo"ld as it act"ally did in!est P4 3.. +::.:: in 5at2ak in the for% of preferred shares of stock con!ertible within fi!e )+* years at par into co%%on stock to liG"idate 5at2akCs obligations to 9ep"blic 5ank )95* Man"fact"rers 5ank and Tr"st Co%pany )M5TC* and Philippine Co%%ercial T Ind"strial 5ank )PCI5* and the balance of the in!est%ent was to be applied to 5at2akCs past d"e acco"nt of P + %illion with the PN5. Ipon recei!ing pay%ent 95 PCI5 and M5TC released in fa!or of PN5 the first and any %ortgages they held on the properties of 5at2ak. Ne#t a 'oting Tr"st Agree%ent was e#ec"ted on .4 8ctober ,-4+ in fa!or of NI6C by the stockholders representing 4:N of the o"tstanding paid-"p and s"bscribed shares of 5at2ak. This agree%ent was for a period of fi!e )+* years and "pon its e#piration was to be s"b2ect to negotiation between the parties. In J"ly ,-43 forced by the insol!ency of 5at2ak PN5 instit"ted e#tra2"dicial foreclos"re proceedings against the oil %ills of 5at2ak located in Tana"an Leyte and Ji%ene$ Misa%is 8ccidental. The properties were sold to PN5 as the highest bidder. 8ne year thereafter or in (epte%ber ,-4H final Certificates of (ale were iss"ed by the pro!incial sheriffs of Leyte ) and Misa%is 8ccidental ( for the two ).* oil %ills in Tana"an and Ji%ene$ in fa!or of PN5 after 5at2ak failed to e#ercise its right to redee% the foreclosed properties within the allowable one year period of rede%ption. ("bseG"ently PN5 transferred the ownership of the two ).* oil %ills to NI6C which as aforestated was a wholly-owned PN5 s"bsidiary. As regards the oil %ill located at (asa 6a!ao City the sa%e was si%ilarly foreclosed e#tra2"dicial by NI6C. It was sold to NI6C as the highest bidder. After 5at2ak failed to redee% the property NI6C consolidated its ownership of the oil %ill. Three );* years thereafter 5at2ak represented by %a2ority stockholders thro"gh Atty. A%ado 6"ran legal co"nsel of pri!ate respondent 5at2ak wrote a letter to NI6C inG"iring if the latter was still interested in negotiating the renewal of the 'oting Tr"st Agree%ent. 5at2ak wrote another letter to NI6C infor%ing the latter that 5at2ak wo"ld now safely ass"%e that NI6C was no longer interested in the renewal of said 'oting Tr"st Agree%ent and in !iew thereof reG"ested for the t"rn-o!er and transfer of all 5at2ak assets properties %anage%ent and operations. Iss.e-

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1<N the NI6C constit"ted as tr"stee of the assets %anage%ent and operations of 5at2ak that d"e to the e#piration of the 'oting Tr"st Agree%ent NI6C sho"ld t"rn o!er the assets of the three );* oil %ills to 5at2ak R.lingPN5 acG"ired ownership of two ).* of the three );* oil %ills by !irt"e of %ortgage foreclos"re sales. NI6C acG"ired ownership of the third oil %ill also "nder a %ortgage foreclos"re sale. Certificates of title were iss"ed to PN5 and NI6C after the lapse of the one ),* year rede%ption period. ("bseG"ently PN5 transferred the ownership of the two ).* oil %ills to NI6C. There can be no do"bt therefore that NI6C not only has possession of b"t also title to the three );* oil %ills for%erly owned by 5at2ak. The interest of 5at2ak o!er the three );* oil %ills ceased "pon the iss"ance of the certificates of title to PN5 and NI6C confir%ing their ownership o!er the said properties. More so 5at2ak does not i%p"gn the !alidity of the foreclos"re proceedings. Neither 5at2ak nor its stockholders ha!e instit"ted any legal proceedings to ann"l the %ortgage foreclos"re afore%entioned. Inder the aforecited pro!ision what was to be ret"rned by NI6C as tr"stee to 5at2akCs stockholders "pon the ter%ination of the agree%ent are the certificates of shares of stock belonging to 5at2akCs stockholders not the properties or assets of 5at2ak itself which were ne!er deli!ered in the first place to NI6C "nder the ter%s of said 'oting Tr"st Agree%ent. In any e!ent a !oting tr"st transfers only !oting or other rights pertaining to the shares s"b2ect of the agree%ent or control o!er the stock. The law on the %atter is (ection +- Paragraph , of the Corporation Code )5P 4H* which pro!ides? (ec. +-. 0oting ,rusts W 8ne or %ore stockholders of a stock corporation %ay create a !oting tr"st for the p"rpose of confering "pon a tr"stee or tr"sties the right to !ote and other rights pertaining to the shares for a period not e#ceeding fi!e )+* years at any one ti%e? ... The acG"isition by PN5-NI6C of the properties in G"estion was not %ade or effected "nder the capacity of a tr"stee b"t as a foreclosing creditor for the p"rpose of reco!ering on a 2"st and !alid obligation of 5at2ak. Moreo!er the pre!ention of i%%inent danger to property is the g"iding principle that go!erns co"rts in the %atter of appointing recei!ers. Inder (ec. , )b* 9"le +- of the 9"les of Co"rt it is necessary in granting the relief of recei!ership that the property or fired be in danger of loss re%o!al or %aterial in2"ry. In the case at bar 5at2ak in its petition for recei!ership or in its a%ended petition therefor failed to present any e!idence to establish the reG"isite condition that the property is in danger of being lost re%o!ed or %aterially in2"red "nless a recei!er is appointed to g"ard and preser!e it.

B. Pre!io"sly inc"rred indebtedness of the corporation@ +. A%o"nts transferred fro% "nrestricted retained earnings to stated capital@ and 4. 8"tstanding shares e#changed for stocks in the e!ent of reclassification or con!ersion. 1here the consideration is other than act"al cash or consists of intangible property s"ch as patents of copyrights the !al"ation thereof shall initially be deter%ined by the incorporators or the board of directors s"b2ect to appro!al by the (ec"rities and 7#change Co%%ission. (hares of stock shall not be iss"ed in e#change for pro%issory notes or f"t"re ser!ice. The sa%e considerations pro!ided for in this section insofar as they %ay be applicable %ay be "sed for the iss"ance of bonds by the corporation. The iss"ed price of no-par !al"e shares %ay be fi#ed in the articles of incorporation or by the board of directors p"rs"ant to a"thority conferred "pon it by the articles of incorporation or the by-laws or in the absence thereof by the stockholders representing at least a %a2ority of the o"tstanding capital stock at a %eeting d"ly called for the p"rpose. National E6c"ange Vs# De6te$ &1 P"il )0 + ,actsI. 5. 6e#ter signed a written s"bscription to the corporate stock of C. (. (al%on T Co. in the following for%? I hereby s"bscribe for three h"ndred );::* shares of the capital stock of C. (. (al%on and Co%pany payable fro% the first di!idends declared on any and all shares of said co%pany owned by %e at the ti%e di!idends are declared "ntil the f"ll a%o"nt of this s"bscription has been paid. Ipon this s"bscription the s"% of P,+ ::: was paid in Jan"ary ,-.: fro% a di!idend declared at abo"t that ti%e by the co%pany s"pple%ented by %oney s"pplied personally by the s"bscriber. 5eyond this nothing has been paid on the shares and no f"rther di!idend has been declared by the corporation. There is therefore a balance of P,+ ::: still paid "pon the s"bscription. The National 7#change Co. Inc. as assignee )thro"gh the Philippine National 5ank* of C. (. (al%on T Co. instit"ted an action for the p"rpose of reco!ering fro% I. 5. 6e#ter a balance of P,+ ::: the par !al"e of one h"ndred fifty shares of the capital stock of C. (. (al%on T co. with interest and costs. Iss.e1<N the stip"lation contained in the s"bscription to the effect that the s"bscription is payable fro% the first di!idends declared on the shares has the effect of relie!ing the s"bscriber fro% personal liability in an action to reco!er the !al"e of the shares R.lingThe stip"lation is in!alid. In the absence of restrictions in its charter a corporation "nder its general power to contract has the power to accept s"bscriptions "pon any special ter%s not prohibited by positi!e law or contrary to p"blic policy pro!ided they are not s"ch as to reG"ire the perfor%ance of acts which are beyond the powers conferred "pon the corporation by its character and pro!ided they do not constit"te a fra"d "pon other s"bscribers or stockholders or "pon persons who are or %ay beco%e creditors of the corporation. The Philippine Co%%ission inserted in the Corporation Law enacted March , ,-:4 the following pro!ision? ". . . no corporation shall iss"e stock or bonds e#cept in e#change for act"al cash paid to the corporation or for property act"ally recei!ed by it at a fair !al"ation eG"al to the par !al"e of the stock or bonds so iss"ed." )Act No. ,B+- sec. ,4 as a%ended by Act No. .3-. sec. ..* The prohibition against the iss"ance of shares by corporations e#cept for act"al cash to the par !al"e of the stock to its f"ll eG"i!alent in property is th"s enshrined in both the organic and stat"tory law of the Philippine@ Islands@ and it wo"ld see% that o"r law%akers co"ld scarcely ha!e chosen lang"age %ore directly s"ited to sec"re absol"te eG"ality stockholders with respect to their liability "pon stock s"bscriptions. Now if it is "nlawf"l to iss"e stock otherwise than as stated it is self-e!ident that a stip"lation s"ch as that now "nder consideration in a stock s"bscription is illegal for this stip"lation obligates the s"bscriber to pay nothing for the shares e#cept as di!idends

TITLE VII STOCHS AND STOCH>OLDERS Section )0 ! Subscription contract. - Any contract for the acG"isition of "niss"ed stock in an e#isting corporation or a corporation still to be for%ed shall be dee%ed a s"bscription within the %eaning of this Title notwithstanding the fact that the parties refer to it as a p"rchase or so%e other contract. Section ) ! =re-incorporation subscription. - A s"bscription for shares of stock of a corporation still to be for%ed shall be irre!ocable for a period of at least si# )4* %onths fro% the date of s"bscription "nless all of the other s"bscribers consent to the re!ocation or "nless the incorporation of said corporation fails to %ateriali$e within said period or within a longer period as %ay be stip"lated in the contract of s"bscription? Pro!ided That no pre-incorporation s"bscription %ay be re!oked after the s"b%ission of the articles of incorporation to the (ec"rities and 7#change Co%%ission. Section )2 ! Consideration for stoc)s. - (tocks shall not be iss"ed for a consideration less than the par or iss"ed price thereof. Consideration for the iss"ance of stock %ay be any or a co%bination of any two or %ore of the following? ,. Act"al cash paid to the corporation@ .. Property tangible or intangible act"ally recei!ed by the corporation and necessary or con!enient for its "se and lawf"l p"rposes at a fair !al"ation eG"al to the par or iss"ed !al"e of the stock iss"ed@ ;. Labor perfor%ed for or ser!ices act"ally rendered to the corporation@

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%ay accr"e "pon the stock. In the contingency that di!idends are not paid there is no liability at all. This is discri%ination in fa!or of the partic"lar s"bscriber and hence the stip"lation is "nlawf"l. The general doctrine of corporation law is in confor%ity with this concl"sion as %ay be seen fro% the following proposition taken fro% the standard encyclopedia treatise Corp"s J"ris? Nor has a corporation the power to recei!e a s"bscription "pon s"ch ter%s as will operate as a fra"d "pon the other s"bscribers or stockholders by s"b2ecting the partic"lar s"bscriber to lighter b"rdens or by gi!ing hi% greater rights and pri!ileges or as a fra"d "pon creditors of the corporation by withdrawing or decreasing the capital. It is well settled therefore as a general r"le that an agree%ent between a corporation and a partic"lar s"bscriber by which the s"bscription is not to be payable or is to be payable in part only whether it is for the p"rpose of pretending that the stock is really greater than it is or for the p"rpose of pre!enting the predo%inance of certain stockholders or for any other p"rpose is illegal and !oid as in fra"d of other stockholders or creditors or both and cannot be either enforced by the s"bscriber or interposed as a defense in an action on the s"bscription. Section )* ! Certificate of stoc) and transfer of shares. - The capital stock of stock corporations shall be di!ided into shares for which certificates signed by the president or !ice president co"ntersigned by the secretary or assistant secretary and sealed with the seal of the corporation shall be iss"ed in accordance with the by-laws. (hares of stock so iss"ed are personal property and %ay be transferred by deli!ery of the certificate or certificates endorsed by the owner or his attorney-in-fact or other person legally a"thori$ed to %ake the transfer. No transfer howe!er shall be !alid e#cept as between the parties "ntil the transfer is recorded in the books of the corporation showing the na%es of the parties to the transaction the date of the transfer the n"%ber of the certificate or certificates and the n"%ber of shares transferred. No shares of stock against which the corporation holds any "npaid clai% shall be transferable in the books of the corporation. Pacific Basin Vs# O$iental Pet$ole.: &1* SCRA ))(+ ,actsPacific 5asin (ec"rities Inc. )Pacific 5asin* thro"gh the stock brokerage fir% Airst 9eso"rces Manage%ent and (ec"rities Corporation )A9M(C* p"rchased ;:H ;:: ::: Class =A> shares of 8riental Petrole"% and Minerals Corporation )8PMC*. Pacific 5asin f"lly paid for the 8PMC shares in the total a%o"nt of P,3 3.3 :::.:: or P.:+3+: per share. The shares were listed and traded in the Makati (tock 7#change. The 8PMC shares t"rned o"t to be owned by Piedras Petrole"% Mining Corporation )Piedras Petrole"%* a seG"estered co%pany controlled by the no%inees of the Presidential Co%%ission on &ood &o!ern%ent )PC&&*. PC&& sent a letter to 7G"itable 5anking Corporation )75C* 8PMC/s stock and transfer agent confir%ing Piedras Petrole"%/s sale of the 8PMC shares in fa!or of Pacific 5asin thro"gh A9M(C. In the sa%e letter PC&& reG"ested 75C to record the acG"isition of said shares and to iss"e the corresponding certificates of stock in fa!or of Pacific 5asin. The reG"ests were left "nheeded. 75C infor%ed A9M(C that it cannot effect the transfer of the 8PMC s hares to Pacific 5asin on the following gro"nds? first that the endorser of the stock certificate a certain Mr. Cle%ente Madarang was not a%ong the a"thori$ed signatories of Piedras Petrole"%@ and second# there was no board resol"tion fro% Piedras Petrole"% which a"thori$ed the sale of the 8PMC shares. 8PMC and 75C arg"e that the 8PMC shares are go!ern%ent-owned and as go!ern%ent property these can be disposed of only thro"gh p"blic bidding. 0ence the sale by Piedras Petrole"% of the 8PMC shares to Pacific 5asin thro"gh the stock %arket is not !alid since it does not co%ply with the p"blic bidding reG"ire%ent. Iss.e1<N the sale between Pacific and 8PMC is !alid R.lingThe sale of the s"b2ect shares thro"gh the stock e#change is !alid and binding as there is no law which %andates that listed shares which are owned by the go!ern%ent be sold only thro"gh p"blic bidding. As conceded by both Pacific 5asin and 8PMC the s"b2ect 8PMC shares are listed and traded in the stock e#change. 8PMC is a listed corporation in the Philippine (tock 7#change )P(7*. As a listed corporation it shall be bo"nd by the pro!isions of the 9e!ised Listing 9"les of the P(7 the ob2ecti!e of which is =to pro!ide a fair orderly efficient and transparent %arket for the trading of sec"rities.

Moreo!er e!en if the law indeed reG"ires that the sale of the s"b2ect shares "ndergo p"blic bidding the Co"rt finds that sale thro"gh the stock e#change is already a s"bstantial co%pliance with the p"blic bidding reG"ire%ent. It is beyond disp"te that 8PMC holds no "npaid clai% against Pacific 5asin for the !al"e of the shares acG"ired by the latter. The Co"rt sees no reason why 8PMC and 75C consistently and contin"o"sly ref"sed to record the transfer in the stock and transfer books of 8PMC and iss"e new certificates in fa!or of Pacific 5asin. (ection 4; of the Corporation Code pro!ides? (ec. 4;. # # # (hares of stock so iss"ed are personal property and %ay be transferred by deli!ery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally a"thori$ed to %ake the transfer. No transfer howe!er shall be !alid e#cept as between the parties "ntil the transfer is recorded in the books of the corporation # # #. Clearly the right of a transferee< assignee to ha!e stocks transferred to his na%e is an inherent right flowing fro% his ownership of the stocks. The Co"rt had r"led in =ural Ban% of Salinas# -nc. v. Court of Appeals that the corporation/s obligation to register is %inisterial citing 2letc er to wit? In transferring stock the secretary of a corporation acts in p"rely %inisterial capacity and does not try to decide the G"estion of ownership. The d"ty of the corporation to transfer is a %inisterial one and if it ref"ses to %ake s"ch transaction witho"t good ca"se it %ay be co%pelled to do so by %anda%"s. The Co"rt f"rther held in =ural Ban% of Salinas that the only li%itation i%posed by (ection 4; of the Corporation Code is when the corporation holds any "npaid clai% against the shares intended to be transferred. Pacific 5asin satisfied the condition of f"ll pay%ent of the 8PMC shares as e!idenced by the A9MC 5"y In!oice No. ,B.:: dated May ;, ,--,. This fact was ne!er denied by both 8PMC and 75C. Therefore "pon Pacific 5asin/s f"ll pay%ent of the 8PMC shares it beca%e a %inisterial d"ty on the part of 8PMC to record the transfer in the stock and transfer book of 8PMC and iss"e new stock certificates in fa!or of Pacific 5asin. Th"s 8PMC/s and 75C/s ref"sal to record the transfer is !iolati!e of (ection 4; of the Corporation Code and 8PMC/s own a%ended by-laws which states that Ce$tificate of stoc5 s"all 4e iss.ed to eac" "olde$ of f.ll? %aid stoc5 in n"%erical order fro% the stock certificate book and shall be signed by the President and co"ntersigned by the (ecretary and sealed with the corporate seal. A record of each certificate iss"ed shall be kept on the st"b thereof and "pon the stock register of the co%pany. Re%.4lic Vs# Estate of >ans 2en8i &'() SCRA 20+ ,actsIn ,-+3 Men$i p"rchased the entire interest in 5"lletin fro% its fo"nder and owner Mr. Carson Taylor. In ,-4, Map owner of I( A"to%oti!e p"rchased 5"lletin shares fro% Men$i and beca%e one of the corporation/s %a2or stockholders. 8n April . ,-4H a stock option was e#ec"ted by and between Men$i and Men$i and Co. on the one hand and Map and I( A"to%oti!e on the other whereby the parties ga!e the each other preferential right to b"y the other/s 5"lletin shares. 8n April .. ,-4H the stockholders of 5"lletin appro!ed certain a%end%ents to 5"lletin/s Articles of Incorporation consisting of so%e restrictions on the transfer of 5"lletin shares to non-stockholders. The a%end%ents were appro!ed by the 5oard of 6irectors of 5"lletin and by the (ec"rities and 7#change Co%%ission )(7C*. (e!eral years later Atty. A%orsolo '. Mendo$a 'ice President of I( A"to%oti!e e#ec"ted a pro%issory note with his personal g"arantee in fa!or of Men$i pro%ising to pay the latter the s"% of P., ;:B -.,.,4 with interest at ,HN per ann"% as consideration for Men$i/s sale of his ,+B block on or before 6ece%ber ;, ,-HB. 8ne day after Men$i/s death a petition for the probate of his last will and testa%ent was filed by the na%ed e#ec"tor Atty. Montecillo. Atty. Montecillo recei!ed fro% I( A"to%oti!e two ).* checks in the a%o"nts of P., ;:B 33H..B and P; 44B B.,.H+ in f"ll pay%ent of the agreed p"rchase price and interest for the sale of the ,+B block. 8n the sa%e day Atty. Montecillo signed a co%pany !o"cher acknowledging receipt of the pay%ent for the shares indicating on the dorsal portion thereof the certificate n"%bers of the ,. stock certificates co!ering the ,+B block the n"%ber of shares co!ered by each certificate and the date of iss"ance thereof.

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Atty. Montecillo also wrote on the lower portion of the pro%issory note e#ec"ted by Atty. Mendo$a the words =Paid May ,+ ,-H+ )signed* M.&. Montecillo 7#ec"tor of the 7state of 0ans M. Men$i.> The (andiganbayan r"led that the sale of the ,+B block to I( A"to%oti!e is !alid and legal. According to the (andiganbayan the sale was %ade p"rs"ant to the stock option e#ec"ted in ,-4H between the parties to the sale. Negotiations took place and were concl"ded before Men$i/s death and f"ll pay%ent was %ade only after the probate co"rt had 2"dicially confir%ed the sale. Now the 9ep"blic G"estioned the !alidity of s"ch sale. They clai% that the reG"ire%ents for a !alid transfer of stocks na%ely? ),* there %"st be deli!ery of the stock certificate@ ).* the certificate %"st be indorsed by the owner or his attorney-in-fact or other persons legally a"thori$ed to %ake the transfer@ and );* the transfer %"st be recorded in the books of the corporation in order to be !alid against third parties ha!e all been %et. Iss.e1<N the sale between Men$i and I( A"to%oti!e was !alid R.lingThe absence of a deed of sale e!idencing the sale is allegedly not irreg"lar beca"se the law itself does not reG"ire any deed for the !alidity of the transfer of shares of stock it being s"fficient that s"ch transfer be effected by deli!ery of the stock certificates d"ly indorsed. At any rate a d"ly notari$ed 9eceipt co!ering the sale was e#ec"ted. Moreo!er the 5I9 certified that the 7state of Men$i paid the final ta# on capital gains deri!ed fro% the sale of the ,+B block and a"thori$ed the Corporate (ecretary to register the transfer of the said shares in the na%e of I( A"to%oti!e. A"rther a stock certificate co!ering the ,+B block was iss"ed to I( A"to%oti!e by R"i%son hi%self as Corporate (ecretary. (ec. 4; of the Corporation Code pro!ides the reG"isites for a !alid transfer of shares? (ec. 4;. Certificate of stoc% and transfer of s ares.P The capital stock of stock corporations shall be di!ided into shares for which certificates signed by the president or !ice-president co"ntersigned by the secretary or assistant secretary and sealed with the seal of the corporation shall be iss"ed in accordance with the bylaws. S"a$es of stoc5 so iss.ed a$e %e$sonal %$o%e$t? and :a? 4e t$ansfe$$ed 4? deliCe$? of t"e ce$tificate o$ ce$tificates indo$sed 4? t"e oAne$ o$ "is atto$ne?/in/fact o$ ot"e$ %e$son legall? a.t"o$i8ed to :a5e t"e t$ansfe$# No t$ansfe$F "oAeCe$F s"all 4e CalidF e6ce%t as 4etAeen t"e %a$tiesF .ntil t"e t$ansfe$ is $eco$ded in t"e 4oo5s of t"e co$%o$ation s"oAing t"e na:es of t"e %a$ties to t"e t$ansactionF t"e date of t"e t$ansfe$F t"e n.:4e$ of t"e ce$tificate o$ ce$tificates and t"e n.:4e$ of s"a$es t$ansfe$$ed# No shares of stock against which the corporation holds any "npaid clai% shall be transferable in the books of the corporation. The Corporation Code acknowledges that the deli!ery of a d"ly indorsed stock certificate is s"fficient to transfer ownership of shares of stock in stock corporations. ("ch %ode of transfer is !alid between the parties. In order to bind third persons howe!er the transfer %"st be recorded in the books of the corporation. Clearly then the absence of a deed of assign%ent is not a fatal flaw which renders the transfer in!alid as the 9ep"blic posits. There appears to be no disp"te in this case that the stock certificates co!ering the ,+B block were d"ly indorsed and deli!ered to the b"yer I( A"to%oti!e. The parties to the sale in fact do not G"estion the !alidity and legality of the transfer. At any rate the (andiganbayan/s fact"al findings that the ,+B block was sold to I( A"to%oti!e while Men$i was still ali!e and that Atty. Montecillo %erely accepted pay%ent by !irt"e of the a"thority conferred "pon hi% by Men$i hi%self are concl"si!e "pon this Co"rt s"pported as they are by the e!idence on record. Therefore the sale of the ,+B block to I( A"to%oti!e was !alid and legal. Ponce Vs# Alsons Ce:ent &*9* SCRA )02+ ,acts-

The late Aa"sto &. &aid was an incorporator of 'ictory Ce%ent Corporation )'CC* ha!ing s"bscribed to and f"lly paid .;- +:: shares of said corporation. Ponce and Aa"sto &aid e#ec"ted a "6eed of Indertaking" and "Indorse%ent" whereby the latter acknowledges that the for%er is the owner of said shares and he was therefore assigning<endorsing the sa%e to the plaintiff. Later 'CC was rena%ed Aloro Ce%ent Corporation. Thereafter ACC was rena%ed Alsons Ce%ent Corporation as shown by the A%ended Articles of Incorporation of ACC. Aro% the ti%e of incorporation of 'CC "p to the present no certificates of stock corresponding to the .;- +:: s"bscribed and f"lly paid shares of &aid were iss"ed in the na%e of Aa"sto &. &aid and<or of Ponce. 6espite repeated de%ands ACC ref"sed and contin"ed to ref"se witho"t any 2"stifiable reason to iss"e to Ponce the certificates of stocks corresponding to the .;- +:: shares of &aid in !iolation of plaintiff/s right to sec"re the corresponding certificate of stock in his na%e. Ponce filed a petition for %anda%"s against ACC. Attached to the co%plaint was the 6eed of Indertaking and Indorse%ent. Petitioner prayed that 2"dg%ent be rendered ordering respondents )a* to iss"e in his na%e certificates of stocks co!ering the .;- +:: shares of stocks and its legal incre%ents and )b* to pay hi% da%ages. Iss.e1<N the indorse%ent by &aid to Ponce of the shares of stock in G"estionW ass"%ing that the indorse%ent was in fact a transfer of stocksWwas !alid against third persons s"ch as AL(8N( "nder (ection 4; of the Corporation Code R.lingThere is no G"estion that Aa"sto &aid was an original s"bscriber of respondent corporation/s .;- +:: shares. This is clear fro% the n"%ero"s pleadings filed by either party. It is also clear fro% the A%ended Articles of Incorporation appro!ed on A"g"st - ,--+ that each share had a par !al"e of P ,.:: per share. And it is "ndisp"ted that petitioner had not %ade a pre!io"s reG"est "pon the corporate secretary of AL(8N( respondent Arancisco M. &iron Jr. to record the alleged transfer of stocks. The Corporation Code states that? SEC# )*# Ce$tificate of stoc5 and t$ansfe$ of s"a$es#! The capital stock of stock corporations shall be di!ided into shares for which certificates signed by the president or !ice-president co"ntersigned by the secretary or assistant secretary and sealed with the seal of the corporation shall be iss"ed in accordance with the by-laws. (hares of stock so iss"ed are personal property and %ay be transferred by deli!ery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally a"thori$ed to %ake the transfer. No transfer howe!er shall be !alid e#cept as between the parties "ntil the transfer is recorded in the books of the corporation so as to show the na%es of the parties to the transaction the date of the transfer the n"%ber of the certificate or certificates and the n"%ber of shares transferred. No shares of stock against which the corporation holds any "npaid clai% shall be transferable in the books of the corporation. P"rs"ant to the foregoing pro!ision a transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-e#istent as far as the corporation is concerned. As between the corporation on the one hand and its shareholders and third persons on the other the corporation looks only to its books for the p"rpose of deter%ining who its shareholders are. It is only when the transfer has been recorded in the stock and transfer book that a corporation %ay rightf"lly regard the transferee as one of its stockholders. Aro% this ti%e the conseG"ent obligation on the part of the corporation to recogni$e s"ch rights as it is %andated by law to recogni$e arises. 0ence witho"t s"ch recording the transferee %ay not be regarded by the corporation as one a%ong its stockholders and the corporation %ay legally ref"se the iss"ance of stock certificates in the na%e of the transferee e!en when there has been co%pliance with the reG"ire%ents of (ection 4B of the Corporation Code. This is the i%port of (ection 4; which states that "No transfer howe!er shall be !alid e#cept between the parties "ntil the transfer is recorded in the books of the corporation showing the na%es of the parties to the transaction the date of the transfer the n"%ber of the certificate or certificates and the n"%ber of shares transferred." The sit"ation wo"ld be different if the petitioner was hi%self the registered owner of the stock which he so"ght to transfer to a third party for then he wo"ld be entitled to the re%edy of %anda%"s. Aro% the corporation/s point of !iew the transfer is not effecti!e "ntil it is recorded. Inless and "ntil s"ch recording is %ade the de%and for the iss"ance of stock certificates to the alleged transferee has no legal basis. As between the corporation on the one hand and its shareholders and third persons on the other the corporation looks only to its books for the p"rpose of deter%ining who its shareholders are. In other words the stock and transfer book is the basis for ascertaining the persons entitled to the rights

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and s"b2ect to the liabilities of a stockholder. 1here a transferee is not yet recogni$ed as a stockholder the corporation is "nder no specific legal d"ty to iss"e stock certificates in the transferee/s na%e. The deed of "ndertaking with indorse%ent presented by petitioner does not establish on its face his right to de%and for the registration of the transfer and the iss"ance of certificates of stocks. In 0ager !s. 5ryan ,- Phil. ,;H ),-,,* this Co"rt held that a petition for %anda%"s fails to state a ca"se of action where it appears that the petitioner is not the registered stockholder and there is no allegation that he holds any power of attorney fro% the registered stockholder fro% who% he obtained the stocks to %ake the transfer. It has been %ade clear th"s far that before a transferee %ay ask for the iss"ance of stock certificates he %"st first ca"se the registration of the transfer and thereby en2oy the stat"s of a stockholder insofar as the corporation is concerned. A corporate secretary %ay not be co%pelled to register transfers of shares on the basis %erely of an indorse%ent of stock certificates. 1ith %ore reason in o"r !iew a corporate secretary %ay not be co%pelled to iss"e stock certificates witho"t s"ch registration. Absent an allegation that the transfer of shares is recorded in the stock and transfer book of respondent AL(8N( there appears no basis for a clear and indisp"table d"ty or clear legal obligation that can be i%posed "pon the respondent corporate secretary so as to 2"stify the iss"ance of the writ of %anda%"s to co%pel hi% to perfor% the transfer of the shares to petitioner. 1here the corporate secretary is "nder no clear legal d"ty to iss"e stock certificates beca"se of the petitioner/s fail"re to record earlier the transfer of shares one of the ele%ents of the ca"se of action for %anda%"s is clearly %issing. Bitong Vs# CA &292 SCRA 10*+ ,actsThese twin cases originated fro% a deri!ati!e s"it filed by Nora A. 5itong before the (7C allegedly for the benefit of Mr. K Ms. Publis ing Co.# -nc. a%ong others to hold spo"ses 7"genia 6. Apostol and Jose A. Apostol liable for fra"d %isrepresentation disloyalty e!ident bad faith conflict of interest and %is%anage%ent in directing the affairs of Mr. T Ms. to the da%age and pre2"dice of Mr. T Ms. and its stockholders incl"ding petitioner. Alleging before the (7C that she had been the Treas"rer and a Me%ber of the 5oard of 6irectors of Mr. T Ms. fro% the ti%e it was incorporated on .8ctober ,-34 to ,, April ,-H- and was the registered owner of , ::: shares of stock o"t of the B :HH total o"tstanding shares 5itong co%plained of irreg"larities co%%itted fro% ,-H; to ,-H3 by 7"genia 6. Apostol President and Chairperson of the 5oard of 6irectors. Petitioner clai%ed that e#cept for the sale of the na%e P ilippine -nquirer to P ilippine ;ail$ -nquirer all other transactions and agree%ents entered into by Mr.T Ms. with P6I were not s"pported by any bond and<or stockholdersC resol"tion. And "pon instr"ctions of 7"genia 6. Apostol Mr. T Ms. %ade se!eral cash ad!ances to P6I on !ario"s occasions a%o"nting to P;..34 %illion. 8n so%e of these borrowings P6I paid no interest whatsoe!er. 6espite the fact that the ad!ances %ade by Mr. T Ms. to P6I were booked as ad!ances to an affiliate there e#isted no board or stockholdersC resol"tion contract nor any other doc"%ent which co"ld legally a"thori$e the creation of and s"pport to an affiliate. Petitioner f"rther alleged that 7"genia and Jose Apostol were stockholders directors and officers in both Mr. T Ms. and P6I. In fact on . May ,-H4 7"genia 6. Apostol Leticia J. Magsanoc and Adoracion &. N"yda s"bscribed to P6I shares of stock at P+: :::.:: each or a total of P,+: :::.::. The stock s"bscriptions were paid for by Mr. T Ms. and initially treated as recei!ables fro% officers and e%ployees. 5"t no pay%ents were e!er recei!ed fro% respondents Magsanoc and Petitioner then contends that she was a holder of the proper certificates of shares of stock and that the transfer was recorded in the (tock and Transfer 5ook of Mr. T Ms. (he in!okes (ec. 4; of , e Corporation Code which pro!ides that no transfer shall be !alid e#cept as between the parties "ntil the transfer is recorded in the books of the corporation and "pon its recording the corporation is bo"nd by it and is estopped to deny the fact of transfer of said shares. Petitioner alleges that e!en in the absence of a stock certificate a stockholder solely on the strength of the recording in the stock and transfer book can e#ercise all the rights as stockholder incl"ding the right to file a deri!ati!e s"it in the na%e of the corporation. And she need not present a separate deed of sale or transfer in her fa!or to pro!e ownership of stock. R.ling(ec. 4; of , e Corporation Code en!isions a for%al certificate of stock which can be iss"ed only "pon co%pliance with the following reG"isites? a. 2irst the certificates %"st be signed by the president or !icepresident co"ntersigned by the secretary or assistant secretary and sealed with the seal of the corporation. A %ere typewritten state%ent ad!ising a stockholder of the e#tent of his ownership in a corporation witho"t G"alification and<or a"thentication cannot be considered as a for%al certificate of stock.

b.

c. d.

Second deli!ery of the certificate is an essential ele%ent of its iss"ance. 0ence there is no iss"ance of a stock certificate where it is ne!er detached fro% the stock books altho"gh blanks therein are properly filled "p if the person whose na%e is inserted therein has no control o!er the books of the co%pany. , ird the par !al"e as to par !al"e shares or the f"ll s"bscription as to no par !al"e shares %"st first be f"lly paid. 2ourt the original certificate %"st be s"rrendered where the person reG"esting the iss"ance of a certificate is a transferee fro% a stockholder.

The certificate of stock itself once iss"ed is a contin"ing affir%ation or representation that the stock described therein is !alid and gen"ine and is at least prima facie e!idence that it was legally iss"ed in the absence of e!idence to the contrary. 0owe!er this pres"%ption %ay be reb"tted. (i%ilarly books and records of a corporation which incl"de e!en the stock and transfer book are generally ad%issible in e!idence in fa!or of or against the corporation and its %e%bers to pro!e the corporate acts its financial stat"s and other %atters incl"ding oneCs stat"s as a stockholder. They are ordinarily the best e!idence of corporate acts and proceedings. 0owe!er the books and records of a corporation are not concl"si!e e!en against the corporation b"t are prima facie e!idence only. Parol e!idence %ay be ad%itted to s"pply o%issions in the records e#plain a%big"ities or show what transpired where no records were kept or in so%e cases where s"ch records were contradicted. The effect of entries in the books of the corporation which p"rport to be reg"lar records of the proceedings of its board of directors or stockholders can be destroyed by testi%ony of a %ore concl"si!e character than %ere s"spicion that there was an irreg"larity in the %anner in which the books were kept. The foregoing considerations are fo"nded on the basic principle that stock iss"ed witho"t a"thority and in !iolation of law is !oid and confers no rights on the person to who% it is iss"ed and s"b2ects hi% to no liabilities. 1here there is an inherent lack of power in the corporation to iss"e the stock neither the corporation nor the person to who% the stock is iss"ed is estopped to G"estion its !alidity since an estopped cannot operate to create stock which "nder the law cannot ha!e e#istence. In the case at bar there is o!erwhel%ing e!idence that despite what appears on the certificate of stock and stock and transfer book petitioner was not a bona fide stockholder of Mr. T Ms. before March ,-H- or at the ti%e the co%plained acts were co%%itted to G"alify her to instit"te a stockholderCs deri!ati!e s"it against pri!ate respondents. Aside fro% petitionerCs own ad%issions se!eral corporate doc"%ents disclose that the tr"e party-ininterest is not petitioner b"t JADA. In fine the records are "nclear on how petitioner allegedly acG"ired the shares of stock of JADA. Petitioner being the chief e#ec"ti!e officer of JADA and the sole person in charge of all b"siness and financial transactions and affairs of JADA was s"pposed to be in the best position to show con!incing e!idence on the alleged transfer of shares to her if indeed there was a transfer. Considering that petitionerCs stat"s is being G"estioned and se!eral fact"al circ"%stances ha!e been presented by pri!ate respondents dispro!ing petitionerCs clai% it was inc"%bent "pon her to s"b%it reb"ttal e!idence on the %anner by which she allegedly beca%e a stockholder. 0er fail"re to do so taken in the light of se!eral s"bstantial inconsistencies in her e!idence is fatal to her case. The r"le is that the endorse%ent of the certificate of stock by the owner or his attorney-in-fact or any other person legally a"thori$ed to %ake the transfer shall be s"fficient to effect the transfer of shares only if the sa%e is co"pled with deli!ery. The deli!ery of the stock certificate d"ly endorsed by the owner is the operati!e act of transfer of shares fro% the lawf"l owner to the new transferee. Th"s for a !alid transfer of stocks the reG"ire%ents are as follows? )a* There %"st be deli!ery of the stock certificate@ )b* The certificate %"st be endorsed by the owner or his attorney-in-fact or other persons legally a"thori$ed to %ake the transfer@ and )c* to be !alid against third parties the transfer %"st be recorded in the books of the corporation. At %ost in the instant case petitioner has satisfied only the third reG"ire%ent. Co%pliance with the first two reG"isites has not been clearly and s"fficiently shown. Considering that the reG"ire%ents pro!ided "nder (ec. 4; of , e Corporation Code sho"ld be %andatorily co%plied with the r"le on pres"%ption of reg"larity cannot apply. The reg"larity and !alidity of the transfer %"st be pro!ed. As it is e!en the credibility of the stock and transfer book and the entries thereon relied "pon by petitioner to show co%pliance with the third reG"isite to pro!e that she was a stockholder since ,-H; is highly do"btf"l. Li: Ta? Vs# CA &29* SCRA )*'+ ,acts(y &"iok and (y Li% sec"red a loan fro% the Li% Tay in the a%o"nt of PB: ::: payable within si# )4* %onths. To sec"re the pay%ent of the aforesaid loan and interest thereon each of the% e#ec"ted a Contract of Pledge in fa!or of the petitioner whereby they respecti!ely pledged three h"ndred );::* shares of stock in the &o Aay T Co%pany Inc. each. &"iok

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and Li% obliged the%sel!es to pay interest on said loan at the rate of ,:N per ann"% fro% the date of said contract of pledge. Inder said "Contracts of Pledge " &"iok and (y Li% co!enanted inter alia that? ;. In the e!ent of the fail"re of the PL76&89 to pay the a%o"nt within a period of si# )4* %onths fro% the date hereof the PL76&77 is hereby a"thori$ed to foreclose the pledge "pon the said shares of stock hereby created by selling the sa%e at p"blic or pri!ate sale with or witho"t notice to the PL76&89 at which sale the PL76&77 %ay be the p"rchaser at his option@ and the PL76&77 is hereby a"thori$ed and e%powered at his option to transfer the said shares of stock on the books of the corporation to his own na%e and to hold the certificate iss"ed in lie" thereof "nder the ter%s of this pledge and to sell the said shares to iss"e to hi% and to apply the proceeds of the sale to the pay%ent of the said s"% and interest in the %anner hereinabo!e pro!ided@ B. In the e!ent of the foreclos"re of this pledge and the sale of the pledged certificate any s"rpl"s re%aining in the hands of the PL76&77 after the pay%ent of the said s"% and interest and the e#penses if any connected with the foreclos"re sale shall be paid by the PL76&77 to the PL76&89@ +. Ipon pay%ent of the said a%o"nt and interest in f"ll the PL76&77 will on de%and of the PL76&89 redeli!er to hi% the said shares of stock by s"rrendering the certificate deli!ered to hi% by the PL76&89 or by retransferring each share to the PL76&89 in the e!ent that the PL76&77 "nder the option hereby granted shall ha!e ca"sed s"ch shares to be transferred to hi% "pon the books of the iss"ing co%pany." &"iok and (y Li% endorsed their respecti!e shares of stock in blank and deli!ered the sa%e to the EpFetitioner. 0owe!er &"iok and (y Li% failed to pay their respecti!e loans and the accr"ed interests thereon to the petitioner. In 8ctober ,--: the petitioner filed a "Petition for Manda%"s" against 9espondent Corporation praying that an order be iss"ed directing the corporate secretary of 9espondent &o Aay T Co. Inc. to register the stock transfers and iss"e new certificates in fa!or of Li% Tay. It is likewise prayed that 9espondent &o Aay T Co. Inc. be ordered to pay all di!idends d"e and "nclai%ed on the said certificates to Li% Tay. Iss.e1<N p"rs"ant to the contracts of pledge Li% Tay beca%e the owner of the shares when the ter% for the loans e#pired R.lingThe contract"al stip"lation shows that plaintiff was %erely aut ori>ed to foreclose the pledge "pon %at"rity of the loans not to own the%. ("ch foreclos"re is not a"to%atic for it %"st be done in a p"blic or pri!ate sale. Nowhere did the Co%plaint %ention that petitioner had in fact foreclosed the pledge and p"rchased the shares after s"ch foreclos"re. 0is stat"s as a %ere pledgee does not "nder ci!il law entitles hi% to ownership of the s"b2ect shares. It is also noteworthy that petitionerCs Co%plaint did not a!er that said shares were acG"ired thro"gh e#traordinary prescription no!ation or laches. Moreo!er petitionerCs clai% s"bseG"ent to the filing of the Co%plaint that he acG"ired ownership of the said shares thro"gh these three %odes is not ind"bitable and still has to be resol!ed. Manifestly the Co%plaint by itself did not contain any prima facie showing that petitioner was the owner of the shares of stocks. R"ite the contrary it de%onstrated that he was %erely a pledgee not an owner. PetitionerCs ownership o!er the shares in this case was not yet perfected when the Co%plaint was filed. The contract of pledge certainly does not %ake hi% the owner of the shares pledged. A"rther whether prescription effecti!ely transferred ownership of the shares whether there was a no!ation of the contracts of pledge and whether laches had set in were diffic"lt legal iss"es which were "npleaded and "nresol!ed when herein petitioner asked the corporate secretary of &o Aay to effect the transfer in his fa!or of the shares pledged to hi%. Ne.gene Vs# CA &*0* SCRA 291+ ,actsN7I&7N7 was d"ly registered with (7C to engage in trading b"siness for a ter% of fifty )+:* years with + incorporators<directors. The a"thori$ed capital stock of N7I&7N7 is P; :::.:::.:: di!ided into P;: ::: shares with a par !al"e of 8N7 0IN6976 P7(8( P,::.:: each. 8"t of this a"thori$ed capital stock P4::.:::.:: had been s"bscribed. The o"tstanding capital stock of N7I&7N7 was increased to P3:: :::.:: represented by 3 ::: shares thro"gh a declaration of di!idends %ade by the board of directors.

7"genio Alores Jr. assigned transferred and con!eyed his entire shareholdings of . B+: shares in N7I&7N7 to (onny Moreno , :+: shares Arsenio Mang Jr. 3:: share and Charles 8. (y 3:: shares. Th"s i%%ediately after the assign%ent of the entire shareholdings of 7"genio Alores Jr the sa%e was recorded in the stockholders of record of N7I&7N7. Later a board resol"tion appro!ing the dissol"tion of N7I&7N7 was passed. And acting "pon the Petition for 6issol"tion (7C iss"ed a Certificate of 6issol"tion of N7I&7N7. Th"s the petitioners bro"ght an action to ann"l or set aside the said (7C Certification on the 6issol"tion of Ne"gene. They contended that they are the %a2ority stockholders of N7I&7N7 owning eighty percent )H:N* of its o"tstanding capital stock at the ti%e of the adoption and appro!al of the 9esol"tion for the 6issol"tion of N7I&7N7. Prior thereto the pri!ate respondents had di!ested the%sel!es of their stockholdings when they endorsed their stock certificates in blank and deli!ered the sa%e to the Iy Aa%ily the beneficial owners of N7I&7N7. In !iew of the said transfers of shares of stock Arsenio Mang Jr. and Charles 8. (y )each the holder of only 3:: shares or ,:N each of the o"tstanding capital stock of N7I&7N7* and Lok Ch"n ("en )who had ceased to be a stockholder as J"ly , ,-H3* co"ld no longer !alidly !ote for the dissol"tion of 7I&7N7 "nder (ection ,,H of the Corporation Code and all the proceedings of the %eetings held which were i%properly called and held witho"t a G"or"% are n"ll !oid. 8n the other hand the pri!ate respondents Charles 8. (y Arsenio Mang Jr. and Lok Ch"n ("en theori$ed that the alleged assign%ents of shares of stock in fa!or of petitioners were si%"lated and fra"d"lently effected as there ne!er was any agree%ent entered into by the Iy fa%ily to award N7I&7N7C( stock certificates to Johnny D. 0. Iy beca"se s"b2ect stock certificates of the pri!ate respondents co!ering their shares of stock were endorsed in blank by the% and deli!ered to the Iy fa%ily who were the beneficial owners of N7I&7N7 for safe keeping. The pri!ate respondents ne!er sold their shares of stock in N7I&7N7 to any of the petitioners or other stockholders of record prior to the dissol"tion of the corporation so that they )pri!ate respondents* represented at least two-thirds ).<;* of the o"tstanding capital stock of N7I&7N7 when they !oted to dissol!e N7I&7N7. Iss.e1<N the transfers of stock in G"estion to Iy Aa%ily is !alid and effecti!e R.lingThe transfers of stock in G"estion co"ld not be !alid and effecti!e for the si%ple reason that there is a co%plete absence of proof that the alleged transfers were recorded in the books of the corporation. It relied on (ection 4; of the Corporation Code of the Philippines which pro!ides that no transfer shall be !alid e#cept as between the parties "ntil the transfer is recorded in the books of the corporation. At the ti%e of dissol"tion of N7I&7N7 Lok Ch"n ("en Charles 8. (y and Arsenio Mang Jr. owned at least two-thirds ).<;* of N7I&7N7Cs o"tstanding capital stock in s"fficient co%pliance with the ger%ane pro!ision of (ection ,,H of the Corporation Code of the Philippines. As shown in the (tock and Transfer 5ook of N7I&7N7 Lok Ch"n ("en is the holder of a total of , B:: shares of stock Charles 8. (y is the holder of a total of . H:: shares of stock and Arsenio Mang Jr. is the holder of , :+: shares. Therefore the entries on the N7I&7N7C( (tock and Transfer 5ook record the pri!ate respondents as the holders of + .+: shares constit"ting at least two-thirds ).<;* of N7I&7N7Cs o"tstanding capital stock of 3 ::: shares. Th"s the certificates of stock of the pri!ate respondents were stolen and therefore not !alidly transferred and the transfers of stock relied "pon by petitioners were fra"d"lently recorded in the (tock and Transfer 5ook of N7I&7N7 . The tr"e nat"re of the relationship between the stockholders of N7I&7N7 and the Iy fa%ily who had the "nderstanding that the beneficial ownership of N7I&7N7 wo"ld re%ain with the Iy fa%ily s"ch that s"b2ect shares of stock were i%%ediately "pon iss"ance endorsed in blank by the shareholders and entr"sted to the Iy fa%ily thro"gh 5an 0a Ch"a for safekeeping. 5oth the Johnson Lee and (ony Moreno the corporate secretary were aware of the real i%port or significance of the indorse%ents in blank on the stock certificates of the pri!ate respondent. 8b!io"sly then they acted in bad faith in assigning s"b2ect certificates of stock to the petitioners Nicanor Martin and Leoncio Tan and in recording the said transfers in disp"te in the (tock and Transfer book of N7I&7N7. Then too as no%inees of the Iy fa%ily the appro!al by the pri!ate respondents Charles 8. (y Lok Ch"n ("en and Arsenio Mang Jr. Jr. was necessary for the !alidity and effecti!ity of the transfer of the stock certificates registered "nder their na%es. In the case "nder consideration not only did

86

the transfers of stock in G"estion lack the reG"isite appro!al the pri!ate respondents categorically declared "nder oath that s"b2ect certificates of stock of theirs were stolen fro% the confidential !a"lt of the Iy fa%ily and illegally transferred to the na%es of petitioners in the (tock and Transfer 5ook of N7I&7N7. Therefore the pri!ate respondents herein are the legiti%ate holders and owners of at least-two-thirds ).<;* of the o"tstanding capital stock of N7I&7N7 with the corresponding right to !ote for its dissol"tion in accordance with (ection ,,H of the Corporation Code of the Philippines. Ga$cia Vs# <o:o.ad &*2* SCRA '2'+ ,acts6ico was e%ployed as %anager of his Mo"ng A"to ("pply. In order to assist hi% in entertaining clients &arcia "lent" his Proprietary 8wnership Certificate )P8C* in the Ceb" Co"ntry Cl"b to 6ico so the latter co"ld en2oy the "signing" pri!ileges of its %e%bers. The Cl"b then iss"ed P8C in the na%e of 6ico. Thereafter 6ico resigned as %anager of &arciaCs b"siness. Ipon de%and 6ico ret"rned their P8C. 6ico then e#ec"ted a 6eed of Transfer co!ering the s"b2ect certificate in fa!or of petitioner. The Cl"b was f"rnished with a copy of said deed b"t the transfer was not recorded in the books of the Cl"b beca"se &arcia failed to present proof of pay%ent of the reG"isite capital gains ta#. In the %eanti%e the spo"ses Atinon filed a case for collection of s"% of %oney against Jai%e 6ico. The trial co"rt rendered 2"dg%ent ordering 6ico to pay the spo"ses Atinon the s"% of P-:: :::.:: pl"s interests. After said 2"dg%ent beca%e final and e#ec"tory (heriff Jo%o"ad proceeded with its e#ec"tion. In the co"rse thereof the Proprietary 8wnership Certificate in the Ceb" Co"ntry Cl"b which was in the na%e of 6ico was le!ied on and sched"led for p"blic a"ction. Clai%ing ownership o!er the s"b2ect certificate &arcia filed the aforesaid action for in2"nction with prayer for preli%inary in2"nction to en2oin respondents fro% proceeding with the a"ction. The trial co"rt dis%issed petitionerCs co%plaint for in2"nction for lack of %erit. 8n appeal the CA affir%ed in toto the decision of the 9TC "pon finding that it co%%itted no re!ersible error in rendering the sa%e. 0ence this petition. Iss.e1<N whether a bona fide transfer of the shares of a corporation not registered or noted in the books of the corporation is !alid as against a s"bseG"ent lawf"l attach%ent of said shares regardless of whether the attaching creditor had act"al notice of said transfer or not. R.lingThe attach%ent pre!ails o!er the "nrecorded transfer. All transfers of shares not so entered in the book of corporation are in!alid as to attaching or e#ec"tion creditors of the assignors as well as to the corporation and to s"bseG"ent p"rchasers in good faith and indeed as to all persons interested e#cept the parties to s"ch transfers. All transfers not so entered on the books of the corporation are absol"tely !oid@ not beca"se they are witho"t notice or fra"d"lent in law or fact b"t beca"se they are %ade so !oid by stat"te. Th"s the transfer of the s"b2ect certificate %ade by 6ico to &arcia was not !alid as to the spo"ses Atinon the 2"dg%ent creditors as the sa%e still stood in the na%e of 6ico the 2"dg%ent debtor at the ti%e of the le!y on e#ec"tion. In addition the entry in the %in"tes of the %eeting of the Cl"bCs board of directors noting the resignation of 6ico as proprietary %e%ber thereof does not constit"te co%pliance with (ection 4; of the Corporation Code. (aid pro!ision of law strictly reG"ires the recording of the transfer in the books of the corporation and not elsewhere to be !alid as against third parties. BLT B.s Co# Vs# Bitanga &*)2 SCRA )*1+ ,actsThese cases in!ol!e the 5atangas Lag"na Tayabas 5"s Co%pany Inc. which has been owned by fo"r generations of the Potenciano fa%ily. I%%ediately prior to the e!ents leading to this contro!ersy the Potencianos owned H3.+N of the o"tstanding capital stock of 5LT5. 6olores A. Potenciano Ma# Joseph A. Potenciano Mercedelin A. Potenciano 6elfin C. Morro and Maya Ind"stries Inc. entered into a (ale and P"rchase Agree%ent whereby they sold to 5M5 Property 0oldings Inc. represented by its President 5en2a%in 5itanga their ., :3, ,,B shares of stock in 5LT5. The said shares represented B3.-HN of the total o"tstanding capital stock of 5LT5.

The p"rchase price for the shares of stock was P3. :34 B.+.:: the downpay%ent of which in the s"% of PBB ;+B 3.;.:: was %ade payable "pon signing of Agree%ent while the balance of P.3 3., 3:..:: was payable on No!e%ber .4 ,--3. A"rther%ore the b"yer g"aranteed that it shall take o!er the %anage%ent and operations of 5LT5 b"t shall i%%ediately s"rrender the sa%e to the sellers in case it fails to pay the balance of the p"rchase price on No!e%ber .4 ,--3. 5arely a %onth after the Agree%ent was e#ec"ted at a %eeting of the stockholders of 5LT5 5en2a%in 5itanga and Monina &race Li% were elected as directors of the corporation replacing 6olores and Ma# Joseph Potenciano. ("bseG"ently another stockholdersC %eeting was held wherein La"reano A. (iy and 9enato L. Le!eri$a were elected as directors replacing Candido Potenciano and 6elfin Morro who had both resigned as s"ch. The ann"al stockholdersC %eeting was sched"led on May ,- ,--H. 5efore the sched"led %eeting on May ,4 ,--H Michael Potenciano wrote 5en2a%in 5itanga reG"esting for a postpone%ent of the stockholdersC %eeting d"e to the absence of a thirty-day ad!ance notice. 0owe!er there was no response fro% 5itanga on whether or not the reG"est for postpone%ent was fa!orably acted "pon. 8n the sched"led date of the %eeting May ,- ,--H a notice of postpone%ent of the stockholdersC %eeting was p"blished in the Manila 5"lletin. Inas%"ch as there was no notice of postpone%ent prior to that a total of two h"ndred eighty si# stockholders representing H3N of the shares of stock of 5LT5 arri!ed and attended the %eeting. The %a2ority of the stockholders present re2ected the postpone%ent and !oted to proceed with the %eeting. The Potenciano gro"p was re-elected to the 5oard of 6irectors and a new set of officers was thereafter elected. 0owe!er the 5itanga gro"p ref"sed to relinG"ish their positions and contin"ed to act as directors and officers of 5LT5. The conflict between the Potencianos and the 5itanga gro"p escalated to le!els of "nrest and e!en !iolence a%ong laborers and e%ployees of the b"s co%pany. The 5itanga gro"p filed with the (ec"rities and 7#change Co%%ission a Co%plaint for 6a%ages and In2"nction which was denied. Then the 5itanga gro"p filed another co%plaint with application for a writ of preli%inary in2"nction and prayer for te%porary restraining order seeking to ann"l the May ,- ,--H stockholdersC %eeting. The (7C 0earing Panel granted the 5itanga gro"pCs application for a writ of preli%inary in2"nction "pon the posting of a bond in the a%o"nt of P.: ::: :::.::. It declared that the May ,- ,--H stockholdersC %eeting was !oid on the gro"nds that first Michael Potenciano had hi%self asked for its postpone%ent d"e to i%proper notice@ and second there was no G"or"% since 5M5 0oldings Inc. represented by the 5itanga gro"p which then owned +:..4N of 5LT5Cs shares ha!ing p"rchased the sa%e fro% the Potenciano gro"p was not present at the said %eeting. The 0earing Panel f"rther held that the 5itanga 5oard re%ains the legiti%ate 5oard in a holdo!er capacity. Iss.e1<N there was a !alid transfer of the shares of the gro"p of 6olores Potenciano to the 5itanga gro"p R.lingThe transfer of the shares of the gro"p of 6olores Potenciano to the 5itanga gro"p has not yet been recorded in the books of the corporation. 0ence the gro"p of 6olores Potenciano in whose na%es those shares still stand was the ones entitled to attend and !ote at the stockholdersC %eeting of the 5LT5 on ,- May ,--H. This being the case the 0earing Panel co%%itted gra!e ab"se of discretion in holding otherwise and in concl"ding that there was no G"or"% in said %eeting. Indeed "ntil registration is acco%plished the transfer tho"gh !alid between the parties cannot be effecti!e as against the corporation. Th"s the "nrecorded transferee the 5itanga gro"p in this case cannot !ote nor be !oted for. T"e %.$%ose of $egist$ationF t"e$efo$eF is tAo/fold- to enable the transferee to e#ercise all the rights of a stockholder incl"ding the right to !ote and to be !oted for and to infor% the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and s"b2ect to the liabilities of a stockholder. Intil challenged in a proper proceeding a stockholder of record has a right to participate in any %eeting@ his !ote can be properly co"nted to deter%ine whether a stockholdersC resol"tion was appro!ed despite the clai% of the alleged transferee. 8n the other hand a person who has p"rchased stock and who desires to be recogni$ed as a stockholder for the p"rpose of !oting %"st sec"re s"ch a standing by ha!ing the transfer recorded on the corporate books. Intil the transfer is registered the transferee is not a stockholder b"t an o"tsider. R.$al Ban5 of Li%a Cit? Vs# CA &*)) SCRA 77+

87

,actsThe instant contro!ersy arose fro% a disp"te between the 9"ral 5ank of Lipa City Incorporated )hereinafter referred to as the 5ank* represented by its officers and %e%bers of its 5oard of 6irectors and certain stockholders of the said bank. 9eynaldo 'illan"e!a (r. a stockholder of the 9"ral 5ank of Lipa City e#ec"ted a 6eed of Assign%ent wherein he assigned his shares as well as those of eight )H* other shareholders "nder his control with a total of ,: B43 shares in fa!or of the stockholders of the 5ank represented by its directors 5ernardo 5a"tista Jai%e C"stodio and 8cta!io Datigbak. (o%eti%e thereafter 9eynaldo 'illan"e!a (r. and his wife A!elina e#ec"ted an Agree%ent wherein they acknowledged their indebtedness to the 5ank in the a%o"nt of PB ::: :::.:: and stip"lated that said debt will be paid o"t of the proceeds of the sale of their real property described in the Agree%ent. At a %eeting of the 5oard of 6irectors of the 5ank the 'illan"e!a spo"ses ass"red the 5oard that their debt wo"ld be paid on or before 6ece%ber ;, of that sa%e year@ otherwise the 5ank wo"ld be entitled to liG"idate their shareholdings incl"ding those "nder their control. In s"ch an e!ent sho"ld the proceeds of the sale of said shares fail to satisfy in f"ll the obligation the "npaid balance shall be sec"red by other collateral s"fficient therefor. 1hen the 'illan"e!a spo"ses failed to settle their obligation to the 5ank on the d"e date the 5oard sent the% a letter de%anding? ),* the s"rrender of all the stock certificates iss"ed to the%@ and ).* the deli!ery of s"fficient collateral to sec"re the balance of their debt a%o"nting to P; ;B4 H-H.+B. The 'illan"e!as ignored the bankCs de%ands where"pon their shares of stock were con!erted into Treas"ry (tocks. Later the 'illan"e!as thro"gh their co"nsel G"estioned the legality of the con!ersion of their shares. Thereafter the stockholders of the 5ank %et to elect the new directors and set of officers for the year ,--B. The 'illan"e!as were not notified of said %eeting. Atty. A%ado Ignacio co"nsel for the 'illan"e!a spo"ses G"estioned the legality of the said stockholdersC %eeting and the !alidity of all the proceedings therein. In reply the new set of officers of the 5ank infor%ed Atty. Ignacio that the 'illan"e!as were no longer entitled to notice of the said %eeting since they had relinG"ished their rights as stockholders in fa!or of the 5ank. ConseG"ently the 'illan"e!a spo"ses filed with the (ec"rities and 7#change Co%%ission )(7C* a petition for ann"l%ent of the stockholdersC %eeting and election of directors and officers on Jan"ary ,+ ,--B with da%ages and prayer for preli%inary in2"nction The 'illan"e!asC %ain contention was that the stockholdersC %eeting and election of officers and directors held on Jan"ary ,+ ,--B were in!alid beca"se? ),* they were cond"cted in !iolation of the by-laws of the 9"ral 5ank@ ).* they were not gi!en d"e notice of said %eeting and election notwithstanding the fact that they had not wai!ed their right to notice@ );* they were depri!ed of their right to !ote despite their being holders of co%%on stock with corresponding !oting rights@ )B* their na%es were irreg"larly e#cl"ded fro% the list of stockholders@ and )+* the candidacy of petitioner A!elina 'illan"e!a for directorship was arbitrarily disregarded by respondent 5ernardo 5a"tista and co%pany d"ring the said %eeting. Iss.e1<N by !irt"e of the 6eed of Assign%ent the 'illan"e!a spo"ses had relinG"ished to the 5ank any and all rights they %ay ha!e had as stockholders of the 5ank R.ling1hile it %ay be tr"e that there was an assign%ent of pri!ate respondentsC shares to the petitioners said assign%ent was not s"fficient to effect the transfer of shares since there was no endorse%ent of the certificates of stock by the owners their attorneys-in-fact or any other person legally a"thori$ed to %ake the transfer. Moreo!er petitioners ad%it that the assign%ent of shares was not co"pled with deli!ery the absence of which is a fatal defect. The r"le is that the deli!ery of the stock certificate d"ly endorsed by the owner is the operati!e act of transfer of shares fro% the lawf"l owner to the transferee. Th"s title %ay be !ested in the transferee only by deli!ery of the d"ly indorsed certificate of stock. 1e ha!e "nifor%ly held that for a !alid transfer of stocks there %"st be strict co%pliance with the %ode of transfer prescribed by law. The reG"ire%ents are? )a* There %"st be deli!ery of the stock certificate? )b* The certificate %"st be endorsed by the owner or his attorney-in-fact or other persons legally a"thori$ed to %ake the transfer@ and )c* To be !alid against third parties the transfer %"st be recorded in the books of the corporation. As it is co%pliance with any of these reG"isites has not been clearly and s"fficiently shown. It %ay be arg"ed that despite non-co%pliance with the reG"isite endorse%ent and deli!ery the assign%ent was !alid between the parties %eaning the pri!ate respondents as assignors and the petitioners as assignees. 1hile the assign%ent %ay be !alid and binding on the petitioners and pri!ate respondents it does not necessarily %ake the transfer effecti!e. ConseG"ently the petitioners as %ere assignees cannot en2oy the stat"s of

a stockholder cannot !ote nor be !oted for and will not be entitled to di!idends insofar as the assigned shares are concerned Parenthetically the pri!ate respondents cannot as yet be depri!ed of their rights as stockholders "ntil and "nless the iss"e of ownership and transfer of the shares in G"estion is resol!ed with finality. To enable the shareholders of the 9"ral 5ank of Lipa City Inc. to %eet and elect their directors pri!ate respondents shall be notified of the %eeting and be allowed to e#ercise their rights as stockholders thereat. R.$al Ban5 of Salinas Vs# CA &2 0 SCRA 1 0+ ,actsCle%ente &. &"errero President of the 9"ral 5ank of (alinas Inc. e#ec"ted a Special Po&er of Attorne$ in fa!or of his wife Melania &"errero gi!ing and granting the latter f"ll power and a"thority to sell or otherwise dispose of and<or %ortgage B3; shares of stock of the 5ank registered in his na%e to e#ec"te the proper doc"%ents therefor and to recei!e and sign receipts for the dispositions. P"rs"ant to said (pecial Power of Attorney Melania &"errero as Attorney-inAact e#ec"ted a ;eed of Assignment for B3. shares o"t of the B3; shares in fa!or of pri!ate respondents L"$ Andico )B+3 shares* 1ilhel%ina 9osales ),: shares* the re%aining one ),* share of stock in fa!or of Arancisco &"errero (r. ("bseG"ently Melania &"errero presented to 9"ral 5ank of (alinas the two ).* 6eeds of Assign%ent for registration with a reG"est for the transfer in the 5ankCs stock and transfer book of the B3; shares of stock so assigned the cancellation of stock certificates in the na%e of Cle%ente &. &"errero and the iss"ance of new stock certificates co!ering the transferred shares of stocks in the na%e of the new owners thereof. 0owe!er petitioner 5ank denied the reG"est of Melania &"errero. Th"s Melania &"errero filed with the (ec"rities and 7#change Co%%ission an action for mandamus against 9"ral 5ank of (alinas its President and Corporate (ecretary. Petitioners filed their Answer with co"nterclai% alleging that "pon the death of Cle%ente &. &"errero his B3; shares of stock beca%e the property of his estate and his property and that of his widow sho"ld first be settled and liG"idated in accordance with law before any distrib"tion can be effected so that petitioners %ay not be a party to any sche%e to e!ade pay%ent of estate or inheritance ta# and in order to a!oid liability to any third persons or creditors of the late Cle%ente &. &"errero. Iss.e1<N an action for %anda%"s against the bank to record the transfer of stock is proper R.ling(ec. 4; of the Corporation Code pro!ides that =. . . (hares of stock so iss"ed are personal property and %ay be transferred by deli!ery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally a"thori$ed to %ake the transfer. No transfer howe!er shall be !alid e#cept as between the parties "ntil the transfer is recorded in the books of the corporation . . .> In the case of 2leis er vs. Botica Nolasco B3 Phil. +H; the Co"rt interpreted (ec. 4; in his wise? (aid (ection )(ec. ;+ of Act ,B+- Enow (ec. 4; of the Corporation CodeF* conte%plates no restriction as to who% the stocks %ay be transferred. It does not s"ggest that any discri%ination %ay be created by the corporation in fa!or of or against a certain p"rchaser. The owner of shares as owner of personal property is at liberty "nder said section to dispose the% in fa!or of who%e!er he pleases witho"t li%itation in this respect than the general pro!isions of law. . . The only li%itation i%posed by (ection 4; of the Corporation Code is when the corporation holds any "npaid clai% against the shares intended to be transferred which is absent here. A corporation either by its board its by-laws or the act of its officers cannot create restrictions in stock transfers beca"se? . . . 9estrictions in the traffic of stock %"st ha!e their so"rce in legislati!e enact%ent as the corporation itself cannot create s"ch i%pedi%ent. 5y-laws are intended %erely for the protection of the corporation and prescribe reg"lation not restriction@ they are always s"b2ect to the charter of the corporation. The corporation in the absence of s"ch power cannot ordinarily inG"ire into or pass "pon the legality of the transactions by which its stock passes fro% one person to another nor can it G"estion the consideration "pon which a sale is based. . . .

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The right of a transferee<assignee to ha!e stocks transferred to his na%e is an inherent right flowing fro% his ownership of the stocks. Th"s? 1hene!er a corporation ref"ses to transfer and register stock in cases like the present mandamus will lie to co%pel the officers of the corporation to transfer said stock in the books of the corporation" The corporationCs obligation to register is %inisterial. In transferring stock the secretary of a corporation acts in p"rely %inisterial capacity and does not try to decide the G"estion of ownership. The d"ty of the corporation to transfer is a %inisterial one and if it ref"ses to %ake s"ch transaction witho"t good ca"se it %ay be co%pelled to do so by mandamus. Aor the petitioner 9"ral 5ank of (alinas to ref"se registration of the transferred shares in its stock and transfer book which d"ty is %inisterial on its part is to render n"gatory and ineffect"al the spirit and intent of (ection 4; of the Corporation Code. Th"s the registration of the B3; shares in the stock and transfer book in the na%es of pri!ate respondents is proper. At all e!ents the registration is witho"t pre2"dice to the proceedings in co"rt to deter%ine the !alidity of the 6eeds of Assign%ent of the shares of stock in G"estion. Section )' !

p"t "p by the &o!ern%ent na%ely P-.:: for e!ery peso in!ested by defendant l"%ber prod"cers. Accordingly the late President 9o#as instr"cted the 0on. 7%ilio Abello then 7#ec"ti!e (ecretary and Chair%an of the 5oard of 6irectors of the Philippine National 5ank for the latter to grant said agency an o!erdraft in the original s"% of P.+: :::.:: which was later increased to P;+: :::.:: which was appro!ed by said 5oard of 6irectors of the Philippine National 5ank with interest at the rate of 4N per ann"% and sec"red by the chattel %ortgages on the stock of l"%ber of said agency." The Philippine &o!ern%ent did not in!est the P-.:: for e!ery peso co%ing fro% defendant l"%ber prod"cers. The loan e#tended to the Philippine L"%ber 6istrib"ting Agency by the Philippine National 5ank was not paid. The lower co"rt with f"ll recognition that the case for the plaintiff creditor Philippine National 5ank "is %eritorio"s strictly fro% the legal standpoint" b"t apparently "nable to "close its eyes to the eG"ity of the case" dis%issed nine )-* cases filed by it seeking "to reco!er fro% the defendant l"%ber prod"cers. ConseG"ently !iewing fro% all considerations of eG"ity in the case the Co"rt finds that plaintiff bank sho"ld not collect any %ore fro% the defendants the balance of their s"bscriptions to the capital stock of the Philippine L"%ber 6istrib"ting Agency Inc. Iss.e-

*ssuance of stoc) certificates. - No certificate of stock shall be iss"ed to a s"bscriber "ntil the f"ll a%o"nt of his s"bscription together with interest and e#penses )in case of delinG"ent shares* if any is d"e has been paid. Section )1 ! 1iability of directors for watered stoc)s. - Any director or officer of a corporation consenting to the iss"ance of stocks for a consideration less than its par or iss"ed !al"e or for a consideration in any for% other than cash !al"ed in e#cess of its fair !al"e or who ha!ing knowledge thereof does not forthwith e#press his ob2ection in writing and file the sa%e with the corporate secretary shall be solidarily liable with the stockholder concerned to the corporation and its creditors for the difference between the fair !al"e recei!ed at the ti%e of iss"ance of the stock and the par or iss"ed !al"e of the sa%e. Section )) ! *nterest on unpaid subscriptions. - ("bscribers for stock shall pay to the corporation interest on all "npaid s"bscriptions fro% the date of s"bscription if so reG"ired by and at the rate of interest fi#ed in the by-laws. If no rate of interest is fi#ed in the by-laws s"ch rate shall be dee%ed to be the legal rate. Section )( ! =ayment of balance of subscription. - ("b2ect to the pro!isions of the contract of s"bscription the board of directors of any stock corporation %ay at any ti%e declare d"e and payable to the corporation "npaid s"bscriptions to the capital stock and %ay collect the sa%e or s"ch percentage thereof in either case with accr"ed interest if any as it %ay dee% necessary. Pay%ent of any "npaid s"bscription or any percentage thereof together with the interest accr"ed if any shall be %ade on the date specified in the contract of s"bscription or on the date stated in the call %ade by the board. Aail"re to pay on s"ch date shall render the entire balance d"e and payable and shall %ake the stockholder liable for interest at the legal rate on s"ch balance "nless a different rate of interest is pro!ided in the by-laws co%p"ted fro% s"ch date "ntil f"ll pay%ent. If within thirty );:* days fro% the said date no pay%ent is %ade all stocks co!ered by said s"bscription shall there"pon beco%e delinG"ent and shall be s"b2ect to sale as hereinafter pro!ided "nless the board of directors orders otherwise. PNB Vs# Bit.lo5 SaA:ill &2* SCRA *))+ ,actsThe Philippine L"%ber 6istrib"ting Agency Inc. was organi$ed so%eti%e in the early part of ,-B3 "pon the initiati!e and insistence of the late President Man"el 9o#as who had called se!eral conferences between hi% and the s"bscribers and organi$ers of the Philippine L"%ber 6istrib"ting Agency Inc. to ins"re a steady s"pply of l"%ber which co"ld be sold at reasonable prices to enable the war s"fferers to rehabilitate their de!astated ho%es. 0e con!inced the l"%ber prod"cers to for% a l"%ber cooperati!e and to pool their so"rces together in order to wrest partic"larly the retail trade fro% aliens who were acting as %iddle%en in the distrib"tion of l"%ber. As an ind"ce%ent he pro%ised and agreed to finance the agency by %aking the &o!ern%ent in!est P-.:: by way of co"nterpart for e!ery peso that the %e%bers wo"ld in!est therein. The a%o"nt th"s contrib"ted by s"ch l"%ber prod"cers was not eno"gh for the operation of its b"siness especially ha!ing in %ind the pri%ary p"rpose of p"tting an end to alien do%ination in the retail trade of l"%ber prod"cts. Nor was there any appropriation by the legislat"re of the co"nterpart f"nd to be

1<N non-co%pliance with a plain stat"tory co%%and considering the pers"asi!eness of the plea that defendants-appellees wo"ld "not ha!e s"bscribed to the capital stock" of the Philippine L"%ber 6istrib"ting Agency "were it not for the ass"rance of the then President of the 9ep"blic of the Philippines that the &o!ern%ent wo"ld back it "p by in!esting P-.:: for e!ery peso" s"bscribed a condition which was not f"lfilled s"ch co%%it%ent not ha!ing been co%plied with be 2"stified R.lingIn P ilippine ,rust Co. v. =ivera 9 citing the leading case of 0elasco v. Poi>at 0 this Co"rt held? "It is established doctrine that s"bscriptions to the capital of a corporation constit"te a f"nd to which creditors ha!e a right to look for satisfaction of their clai%s and that the assignee in insol!ency can %aintain an action "pon any "npaid stock s"bscription in order to reali$e assets for the pay%ent of its debt.... A corporation has no power to release an original s"bscriber to its capital stock fro% the obligation of paying for his shares witho"t a !al"able consideration for s"ch release@ and as against creditors a red"ction of the capital stock can take place only in the %anner and "nder the conditions prescribed by the stat"te or the charter or the articles of incorporation. Moreo!er strict co%pliance with the stat"tory reg"lations is necessary...." It wo"ld be "nwarranted to ascribe to the late President 9o#as the !iew that the pay%ent of the stock s"bscriptions as th"s reG"ired by law co"ld be condoned in the e!ent that the co"nterpart f"nd to be in!ested by the &o!ern%ent wo"ld not be a!ailable. 7!en if s"ch were the case howe!er and s"ch a pro%ise were in fact %ade to f"rther the la"dable p"rpose to which the proposed corporation wo"ld be de!oted and the possibility that the l"%ber prod"cers wo"ld lose %oney in the process still the plain and specific wording of the applicable legal pro!ision as interpreted by this Co"rt %"st be controlling. It is a well-settled principle that with all the !ast powers lodged in the 7#ec"ti!e he is still de!oid of the prerogati!e of s"spending the operation of any stat"te or any of its ter%s. The e%phatic and categorical lang"age of an A%erican decision cited by the late J"stice La"rel in People v. 0era co%es to %ind? "5y the twentieth article of the declaration of rights in the constit"tion of this co%%onwealth it is declared that the power of s"spending the laws or the e#ec"tion of the laws o"ght ne!er to be e#ercised b"t by the legislat"re or by a"thority deri!ed fro% it to be e#ercised in s"ch partic"lar cases only as the legislat"re shall e#pressly pro!ide for...." Nor co"ld it be otherwise considering that the Constit"tion specifically en2oins the President to see to it that all laws be faithf"lly e#ec"ted. There %ay be a discretion as to what a partic"lar legal pro!ision reG"ires@ there can be none whatsoe!er as to the enforce%ent and application thereof once its %eaning has been ascertained. 1hat it decrees %"st be followed@ what it co%%ands %"st be obeyed. It %"st be respected the wishes of the President to the contrary notwithstanding e!en if i%pelled by the %ost worthy of %oti!es and the %ost pers"asi!e eG"itable considerations. To repeat s"ch is not the case here. Aor at no ti%e did President 9o#as e!er gi!e defendant l"%ber prod"cers to "nderstand that the fail"re of the &o!ern%ent for any reason to p"t "p the co"nterpart f"nd co"ld ter%inate their stat"tory liability. ("ch is not the law. Infort"nately the lower co"rt was of a different %ind. That is not to pay ho%age to the r"le of law. Its decision then one it is to be repeated infl"enced by what it considered to be the "eG"ity of the case" is not legally i%peccable.

Section )7 !

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Delinquency sale. - The board of directors %ay by resol"tion order the sale of delinG"ent stock and shall specifically state the a%o"nt d"e on each s"bscription pl"s all accr"ed interest and the date ti%e and place of the sale which shall not be less than thirty );:* days nor %ore than si#ty )4:* days fro% the date the stocks beco%e delinG"ent. Notice of said sale with a copy of the resol"tion shall be sent to e!ery delinG"ent stockholder either personally or by registered %ail. The sa%e shall f"rther%ore be p"blished once a week for two ).* consec"ti!e weeks in a newspaper of general circ"lation in the pro!ince or city where the principal office of the corporation is located. Inless the delinG"ent stockholder pays to the corporation on or before the date specified for the sale of the delinG"ent stock the balance d"e on his s"bscription pl"s accr"ed interest costs of ad!ertise%ent and e#penses of sale or "nless the board of directors otherwise orders said delinG"ent stock shall be sold at p"blic a"ction to s"ch bidder who shall offer to pay the f"ll a%o"nt of the balance on the s"bscription together with accr"ed interest costs of ad!ertise%ent and e#penses of sale for the s%allest n"%ber of shares or fraction of a share. The stock so p"rchased shall be transferred to s"ch p"rchaser in the books of the corporation and a certificate for s"ch stock shall be iss"ed in his fa!or. The re%aining shares if any shall be credited in fa!or of the delinG"ent stockholder who shall likewise be entitled to the iss"ance of a certificate of stock co!ering s"ch shares. (ho"ld there be no bidder at the p"blic a"ction who offers to pay the f"ll a%o"nt of the balance on the s"bscription together with accr"ed interest costs of ad!ertise%ent and e#penses of sale for the s%allest n"%ber of shares or fraction of a share the corporation %ay s"b2ect to the pro!isions of this Code bid for the sa%e and the total a%o"nt d"e shall be credited as paid in f"ll in the books of the corporation. Title to all the shares of stock co!ered by the s"bscription shall be !ested in the corporation as treas"ry shares and %ay be disposed of by said corporation in accordance with the pro!isions of this Code. Section )9 ! When sale may be questioned . - No action to reco!er delinG"ent stock sold can be s"stained "pon the gro"nd of irreg"larity or defect in the notice of sale or in the sale itself of the delinG"ent stock "nless the party seeking to %aintain s"ch action first pays or tenders to the party holding the stock the s"% for which the sa%e was sold with interest fro% the date of sale at the legal rate@ and no s"ch action shall be %aintained "nless it is co%%enced by the filing of a co%plaint within si# )4* %onths fro% the date of sale. Section (0 ! Court action to recover unpaid subscription. - Nothing in this Code shall pre!ent the corporation fro% collecting by action in a co"rt of proper 2"risdiction the a%o"nt d"e on any "npaid s"bscription with accr"ed interest costs and e#penses. EdAa$d Helle$ Vs# COB G$o.% 2a$5eting & ' SCRA 7)+ ,actsThis case is abo"t the liability of a %arketing distrib"tor "nder its sales agree%ents with the owner of the prod"cts. The petitioner presented its e!idence before J"dges Castro 5artolo%e and 5enipayo. 9espondents presented their e!idence before J"dge Ta%ayo who decided the case. 7dward A. Deller T Co. Ltd. appointed C85 &ro"p Marketing Inc. as e#cl"si!e distrib"tor of its ho"sehold prod"cts 5rite and N"!an in Panay and Negros. Inder that agree%ent Deller sold on credit its prod"cts to C85 &ro"p Marketing. As sec"rity for C85 &ro"p MarketingCs credit p"rchases "p to the a%o"nt of P;+ ::: one As"ncion Manahan %ortgaged her land to Deller. Manahan ass"%ed solidarily with C85 &ro"p Marketing the faithf"l perfor%ance of all the ter%s and conditions of the sales agree%ent )7#h. 6*. The parties e#ec"ted a second sales agree%ent whereby C85 &ro"p MarketingCs territory was e#tended to Northern and (o"thern L"$on. As sec"rity for the credit p"rchases "p to P.+ ::: of C85 &ro"p Marketing for that area To%as C. Loren$o Jr. and his father To%as (r. e#ec"ted a %ortgage on their land in N"e!a 7ci2a. Like Manahan the Loren$os were solidarily liable with C85 &ro"p Marketing for its obligations "nder the sales agree%ent. The board of directors of C85 &ro"p Marketing were apprised by Jose 7. 5a# the fir%Cs president and general %anager t at t e firm o&ed Keller about P"QO#EEE. 5a# was a"thori$ed to negotiate with Deller for the settle%ent of his fir%Cs liability. 5a# and 9. 8efeli of Deller signed the conditions for the settle%ent of C85 &ro"p MarketingCs liability. Later Deller s"ed on (epte%ber ,4 ,-3, C85 &ro"p Marketing its stockholders and the %ortgagors Manahan and Loren$o.

The lower co"rt ),* dis%issed the co%plaint@ ).* ordered Deller to pay C85 &ro"p Marketing the s"% of P,:: +-4.3. with 4N interest a year fro% A"g"st , ,-3, "ntil the a%o"nt is f"lly paid? );* ordered Deller to pay P,:: ::: as %oral da%ages to be allocated a%ong the stockholders of C85 &ro"p Marketing in proportion to their "npaid capital s"bscriptions@ )B* ordered the petitioner to pay Manahan P.: ::: as %oral da%ages@ )+* ordered the petitioner to pay P.: ::: as atto%eyCs fees to be di!ided a%ong the lawyers of all the answering defendants and to pay the costs of the s"it@ )4* declared !oid the %ortgages e#ec"ted by Manahan and Loren$o and the cancellation of the annotation of said %ortgages on the Torrens titles thereof and )3* dis%issed ManahanCs cross-clai% for lack of %erit. The Appellate Co"rt affir%ed said 2"dg%ent e#cept the award of P.: ::: as %oral da%ages which it eli%inated. Th"s petitioner appealed to this Co"rt. Iss.e1<N C85 &ro"p Marketing is liable to 7dward Deller R.lingThe lower co"rts erred in n"llifying the ad%issions of liability %ade in ,-3, by 5a# as president and general %anager of C85 &ro"p Marketing and in gi!ing credence to the alleged o!erpay%ent co%p"ted by 5a#. It did not only allow 5a# to n"llify his ad%issions as to the liability of C85 &ro"p Marketing b"t they also erroneo"sly rendered 2"dg%ent in its fa!or in the a%o"nt of its s"pposed o!erpay%ent in the s"% of P,:: +-4.3. in spite of the fact that C85 &ro"p Marketing was declared in defa"lt and did not file an$ counterclaim for t e supposed overpa$ment. There was a conference on the C85 &ro"p MarketingCs liability. 5a# in that disc"ssion did not present his reconciliation state%ents to show o!erpay%ent. 5a# ad%itted that Deller sent his co%pany %onthly state%ents of acco"nts b"t he co"ld not prod"ce any for%al protest against the s"pposed inacc"racy of the said state%ents. 0e la%ely e#plained that he wo"ld ha!e to dig "p his co%panyCs records for the for%al protest. 0e did not %ake any written de%and for reconciliation of acco"nts. As to the liability of the stockholders it is settled that a stockholder is personally liable for the financial obligations of a corporation to the e#tent of his "npaid s"bscription. Th"s C85 &ro"p %arketing Inc. is ordered to pay 7dward A. Deller T Co. Ltd. the s"% of P,H. --B.4: with ,.N interest per ann"% fro% A"g"st , ,-3, "p to the date of pay%ent pl"s P.: ::: as attorneyCs fees. As"ncion Manahan and To%as C. Loren$o Jr. are ordered to pay solidarity with C85 &ro"p Marketing the s"%s of P;+ ::: and P.+ ::: respecti!ely. The following respondents are solidarity liable with C85 &ro"p Marketing "p to the a%o"nts of their "npaid s"bscription to be applied to the co%panyCs liability herein? Jose 7. 5a# P;4 :::@ Arancisco C. de Castro P;4 :::@ Johnny de la A"ente P,. :::@ (ergio C. 8rdone$ P,. :::@ Trinidad C. 8rdone$ P; :::@ Magno C. 8rdone$ P; :::@ Adoracion C. 8rdone$ P; :::@ To%as C. Loren$o Jr. P; ::: and L"$ M. Ag"ilar-Adao P4 :::. If after ninety )-:* days fro% notice of the finality of the 2"dg%ent in this case the 2"dg%ent against C85 &ro"p Marketing has not been satisfied f"lly then the %ortgages e#ec"ted by Manahan and Loren$o sho"ld be foreclosed and the proceeds of the sales applied to the obligation of C85 &ro"p Marketing. (aid %ortgage obligations sho"ld bear si# percent legal interest per annum after the e#piration of the said -:-day period. Section ( ! ffect of delinquency. - No delinG"ent stock shall be !oted for be entitled to !ote or to representation at any stockholderCs %eeting nor shall the holder thereof be entitled to any of the rights of a stockholder e#cept the right to di!idends in accordance with the pro!isions of this Code "ntil and "nless he pays the a%o"nt d"e on his s"bscription with accr"ed interest and the costs and e#penses of ad!ertise%ent if any. Section (2 ! %ights of unpaid shares. - 0olders of s"bscribed shares not f"lly paid which are not delinG"ent shall ha!e all the rights of a stockholder. Section (* ! 1ost or destroyed certificates. - The following proced"re shall be followed for the iss"ance by a corporation of new certificates of stock in lie" of those which ha!e been lost stolen or destroyed? ,. The registered owner of a certificate of stock in a corporation or his legal representati!e shall file with the corporation an affida!it in triplicate setting forth if possible the circ"%stances as to how the certificate was lost stolen

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or destroyed the n"%ber of shares represented by s"ch certificate the serial n"%ber of the certificate and the na%e of the corporation which iss"ed the sa%e. 0e shall also s"b%it s"ch other infor%ation and e!idence which he %ay dee% necessary@ .. After !erifying the affida!it and other infor%ation and e!idence with the books of the corporation said corporation shall p"blish a notice in a newspaper of general circ"lation p"blished in the place where the corporation has its principal office once a week for three );* consec"ti!e weeks at the e#pense of the registered owner of the certificate of stock which has been lost stolen or destroyed. The notice shall state the na%e of said corporation the na%e of the registered owner and the serial n"%ber of said certificate and the n"%ber of shares represented by s"ch certificate and that after the e#piration of one ),* year fro% the date of the last p"blication if no contest has been presented to said corporation regarding said certificate of stock the right to %ake s"ch contest shall be barred and said corporation shall cancel in its books the certificate of stock which has been lost stolen or destroyed and iss"e in lie" thereof new certificate of stock "nless the registered owner files a bond or other sec"rity in lie" thereof as %ay be reG"ired effecti!e for a period of one ),* year for s"ch a%o"nt and in s"ch for% and with s"ch s"reties as %ay be satisfactory to the board of directors in which case a new certificate %ay be iss"ed e!en before the e#piration of the one ),* year period pro!ided herein? Pro!ided That if a contest has been presented to said corporation or if an action is pending in co"rt regarding the ownership of said certificate of stock which has been lost stolen or destroyed the iss"ance of the new certificate of stock in lie" thereof shall be s"spended "ntil the final decision by the co"rt regarding the ownership of said certificate of stock which has been lost stolen or destroyed. 7#cept in case of fra"d bad faith or negligence on the part of the corporation and its officers no action %ay be bro"ght against any corporation which shall ha!e iss"ed certificate of stock in lie" of those lost stolen or destroyed p"rs"ant to the proced"re abo!e-described.

No stock transfer agent or one engaged principally in the b"siness of registering transfers of stocks in behalf of a stock corporation shall be allowed to operate in the Philippines "nless he sec"res a license fro% the (ec"rities and 7#change Co%%ission and pays a fee as %ay be fi#ed by the Co%%ission which shall be renewable ann"ally? Pro!ided That a stock corporation is not precl"ded fro% perfor%ing or %aking transfer of its own stocks in which case all the r"les and reg"lations i%posed on stock transfer agents e#cept the pay%ent of a license fee herein pro!ided shall be applicable. To$$es <$# Vs# CA &2(7 SCRA (9*+ ,actsThe late Man"el A. Torres Jr. )J"dge Torres for bre!ity* was the %a2ority stockholder of Tor%il 9ealty T 6e!elop%ent Corporation while pri!ate respondents who are the children of J"dge TorresC deceased brother Antonio A. Torres constit"ted the %inority stockholders. In ,-HB J"dge Torres in order to %ake s"bstantial sa!ings in ta#es adopted an "estate planning" sche%e "nder which he assigned to Tor%il 9ealty T 6e!elop%ent Corporation )Tor%il for bre!ity* !ario"s real properties he owned and his shares of stock in other corporations in e#change for ..+ -3. Tor%il 9ealty shares. 0ence on !ario"s dates in J"ly and A"g"st of ,-HB ten ),:* deeds of assign%ent were e#ec"ted by the late J"dge Torres. ConseG"ently the said properties were d"ly recorded in the in!entory of assets of Tor%il 9ealty and the re!en"es generated by the said properties were correspondingly entered in the corporationCs books of acco"nt and financial records. Likewise all the assigned parcels of land were d"ly registered with the respecti!e 9egister of 6eeds in the na%e of Tor%il 9ealty e#cept for the ones located in Makati and Pasay City. At the ti%e of the assign%ents and e#change howe!er only ..+ ::: Tor%il 9ealty shares re%ained "ns"bscribed all of which were d"ly iss"ed to and recei!ed by J"dge Torres

TITLE VIII CORPORATE BOOHS AND RECORDS Section (' ! Aoo)s to be )ept> stoc) transfer agent. - 7!ery corporation shall keep and caref"lly preser!e at its principal office a record of all b"siness transactions and %in"tes of all %eetings of stockholders or %e%bers or of the board of directors or tr"stees in which shall be set forth in detail the ti%e and place of holding the %eeting how a"thori$ed the notice gi!en whether the %eeting was reg"lar or special if special its ob2ect those present and absent and e!ery act done or ordered done at the %eeting. Ipon the de%and of any director tr"stee stockholder or %e%ber the ti%e when any director tr"stee stockholder or %e%ber entered or left the %eeting %"st be noted in the %in"tes@ and on a si%ilar de%and the yeas and nays %"st be taken on any %otion or proposition and a record thereof caref"lly %ade. The protest of any director tr"stee stockholder or %e%ber on any action or proposed action %"st be recorded in f"ll on his de%and. The records of all b"siness transactions of the corporation and the %in"tes of any %eetings shall be open to inspection by any director tr"stee stockholder or %e%ber of the corporation at reasonable ho"rs on b"siness days and he %ay de%and writing for a copy of e#cerpts fro% said records or %in"tes at his e#pense. Any officer or agent of the corporation who shall ref"se to allow any director tr"stees stockholder or %e%ber of the corporation to e#a%ine and copy e#cerpts fro% its records or %in"tes in accordance with the pro!isions of this Code shall be liable to s"ch director tr"stee stockholder or %e%ber for da%ages and in addition shall be g"ilty of an offense which shall be p"nishable "nder (ection ,BB of this Code? Pro!ided That if s"ch ref"sal is %ade p"rs"ant to a resol"tion or order of the board of directors or tr"stees the liability "nder this section for s"ch action shall be i%posed "pon the directors or tr"stees who !oted for s"ch ref"sal? and Pro!ided f"rther That it shall be a defense to any action "nder this section that the person de%anding to e#a%ine and copy e#cerpts fro% the corporationCs records and %in"tes has i%properly "sed any infor%ation sec"red thro"gh any prior e#a%ination of the records or %in"tes of s"ch corporation or of any other corporation or was not acting in good faith or for a legiti%ate p"rpose in %aking his de%and. (tock corporations %"st also keep a book to be known as the "stock and transfer book" in which %"st be kept a record of all stocks in the na%es of the stockholders alphabetically arranged@ the install%ents paid and "npaid on all stock for which s"bscription has been %ade and the date of pay%ent of any install%ent@ a state%ent of e!ery alienation sale or transfer of stock %ade the date thereof and by and to who% %ade@ and s"ch other entries as the by-laws %ay prescribe. The stock and transfer book shall be kept in the principal office of the corporation or in the office of its stock transfer agent and shall be open for inspection by any director or stockholder of the corporation at reasonable ho"rs on b"siness days.

6"e to the ins"fficient n"%ber of shares of stock iss"ed to J"dge Torres and the alleged ref"sal of pri!ate respondents to appro!e the needed increase in the corporationCs a"thori$ed capital stock )to co!er the shortage of -3. shares d"e to J"dge Torres "nder the "estate planning" sche%e* on ,, (epte%ber ,-H4 J"dge Torres re!oked the two ).* deeds of assign%ent co!ering the properties in Makati and Pasay City. Noting the disappearance of the Makati and Pasay City properties fro% the corporationCs in!entory of assets and financial records pri!ate respondents were constrained to file a co%plaint with the (ec"rities and 7#change Co%%ission )(7C* to co%pel J"dge Torres to deli!er to Tor%il corporation the two ).* deeds of assign%ent co!ering the afore%entioned Makati and Pasay City properties which he had "nilaterally re!oked and to ca"se the registration of the corresponding titles in the na%e of Tor%il. Pri!ate respondents alleged that following the disappearance of the properties fro% the corporationCs in!entory of assets they fo"nd that J"dge Torres together with 7dgardo Pabalan and &raciano Tobias then &eneral Manager and legal co"nsel respecti!ely of Tor%il for%ed and organi$ed a corporation na%ed "Torres-Pabalan 9ealty and 6e!elop%ent Corporation" and that as part of J"dge TorresC contrib"tion to the new corporation he e#ec"ted in its fa!or a 6eed of Assign%ent con!eying the sa%e Makati and Pasay City properties he had earlier transferred to Tor%il. Iss.e1<N it is proper for the late 2"dge to ha!e personal c"stody of corporate records as president chair%an and %a2ority stockholder R.lingIt is precisely the brewing fa%ily discord between J"dge Torres and pri!ate respondents W his nephew and nieces that sho"ld ha!e placed J"dge Torres on his g"ard. 0e sho"ld ha!e been %ore caref"l in ens"ring that his actions )partic"larly the assign%ent of G"alifying shares to his no%inees* co%ply with the reG"ire%ents of the law. Petitioners cannot "se the fli%sy e#c"se that it wo"ld ha!e been a !ain atte%pt to force the inc"%bent corporate secretary to register the aforestated assign%ents in the stock and transfer book beca"se the latter belonged to the opposite faction. It is the corporate secretaryCs d"ty and obligation to register !alid transfers of stocks and if said corporate officer ref"ses to co%ply the transferor-stockholder %ay rightf"lly bring s"it to co%pel perfor%ance. In other words there are re%edies within the law that petitioners co"ld ha!e a!ailed of instead of taking the law in their own hands as the cliche goes. In interpreting (ection 3B of the Corporation Code as follows? In the absence of any pro!ision to the contrary the corporate secretary is the c"stodian of corporate records. Corollarily he keeps the stock and transfer book and %akes proper and necessary entries therein.

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Contrary to the generally accepted corporate practice the stock and transfer book of T89MIL was not kept by Ms. Maria Cristina T. Carlos the corporate secretary b"t by respondent Torres the President and Chair%an of the 5oard of 6irectors of T89MIL. In contra!ention to the abo!e cited pro!ision the stock and transfer book was not kept at the principal office of the corporation either b"t at the place of respondent Torres. These being the obtaining circ"%stances any entries %ade in the stock and transfer book on March H ,-H3 by respondent Torres of an alleged transfer of no%inal shares to Pabalan and Co. cannot therefore be gi!en any !alid effect. 1here the entries %ade are not !alid Pabalan and Co. cannot therefore be considered stockholders of record of T89MIL. 5eca"se they are not stockholders they cannot therefore be elected as directors of T89MIL. To r"le otherwise wo"ld not only enco"rage !iolation of clear %andate of (ec. 3B of the Corporation Code that stock and transfer book shall be kept in the principal office of the corporation b"t wo"ld likewise open the flood gates of conf"sion in the corporation as to who has the proper c"stody of the stock and transfer book and who are the real stockholders of records of a certain corporation as any holder of the stock and transfer book tho"gh not the corporate secretary at pleas"re wo"ld %ake entries therein. The fact that respondent Torres holds H,..HN of the o"tstanding capital stock of T89MIL is of no %o%ent and is not a license for hi% to arrogate "nto hi%self a d"ty lodged to ) sic * the corporate secretary. All corporations big or s%all %"st abide by the pro!isions of the Corporation Code. 5eing a si%ple fa%ily corporation is not an e#e%ption. ("ch corporations cannot ha!e r"les and practices other than those established by law. Ca%itol College of Iligan Vs# CA &*02 SCRA *'9+ ,acts8n A"g"st 3 ,-3+ the Co"rt of Airst Instance )now 9egional Trial Co"rt* of Iligan City rendered 2"dg%ent in a Ci!il Case entitled "Aranas !s. Iligan Capitol College et . al . " ordering CCI to deli!er to (po"ses Aranas their share of the profits and<or di!idends by !irt"e of their in!est%ent in the corporation and to pay the% P+ :::.:: as %oral da%ages and P, :::.:: as attorneyCs fees. This 2"dg%ent was affir%ed in toto by the Co"rt of Appeals b"t was later %odified by eli%inating the award of P+ :::.:: as %oral da%ages. Appeal to this Co"rt fro% the %odified 2"dg%ent pro!ed "na!ailing and the case was re%anded for e#ec"tion. In the co"rse of the e#ec"tion of the 2"dg%ent the 9TC iss"ed an 8rder directing the e#a%ination of the property and inco%e of CCI. This order of the 9TC was challenged by the petitioner before the Co"rt of Appeals. The Co"rt of Appeals affir%ed the 9TC order b"t with a G"alification that the e#a%ination of petitionerCs books of acco"nt be "li%ited only to the deter%ination if the corporation had declared di!idends fro% ,-4B and pri!ate respondentCs share thereof for "nless di!idends are declared the stockholders of a corporation are not entitled to any share in the profits of the corporation." The 9TC iss"ed another order reG"iring the physical in!entory of the assets of the petitioner. The !alidity of this order was G"estioned by the petitioner before the Co"rt of Appeals. The Co"rt of Appeals thr" then Associate J"stice J"sto P. Torres n"llified and set aside the challenged order and reiterated the appellate co"rtCs earlier r"ling. It ratiocinated that the deter%ination of corporate profits and the declaration of di!idends are corporate powers !ested in the board of directors which cannot be e#ercised by the co"rt. In addition the appellate co"rt r"led that the e#ec"tion of the final 2"dg%ent of the 9TC sho"ld be placed "nder the s"per!ision of the (ec"rities and 7#change Co%%ission )(7C* in !iew of the enact%ent of P.6. -:.-A. Iss.e-

5ased on the abo!e-G"oted r"ling of this Co"rt it is clear that the p"rpose of the inspection of petitionerCs books of acco"nt is not only to deter%ine whether di!idends ha!e been declared by the petitioner b"t also to ascertain whether profits ha!e been earned by the latter and whether pri!ate respondents ha!e been "n2"stly depri!ed of their share therein. ("ch deter%ination is possible only after fact"al e#a%ination by the board of directors of petitioner of the e#istence of s"ch profits and their declaration of di!idends. After the deter%ination of the e#istence of any s"ch profits pri!ate respondents %ay then a!ail the%sel!es of the proper legal re%edies a"thori$ed by the go!erning laws and pertinent r"les for the declaration of di!idends and de%and their appropriate participation therein. Pa$do Vs# >e$c.les L.:4e$ &'( P"il 9)'+ ,actsPardo is a stockholder in the 0erc"les L"%ber Co%pany Inc. and Ignacio Aerrer as acting secretary of the said co%pany has ref"sed to per%it the petitioner or his agent to inspect the records and b"siness transactions of the said 0erc"les L"%ber Co%pany Inc. at ti%es desired by the petitioner. The %ain gro"nd "pon of the co%pany/s ref"sal has reference to the ti%e or ti%es within which the right of inspection %ay be e#ercised. In article ,: of the 5y-laws of the corporation it is declared that "7!ery shareholder %ay e#a%ine the books of the co%pany and other doc"%ents pertaining to the sa%e "pon the days which the board of directors shall ann"ally fi#." At the directorsC %eeting of the corporation held on Aebr"ary ,4 ,-.B the board passed a resol"tion to the following effect that the books of the co%pany are at their disposition fro% the ,+th to .+th of the sa%e %onth for e#a%ination in appropriate ho"rs. The contention for the respondent is that this resol"tion of the board constit"tes a lawf"l restriction on the right conferred by stat"te@ and it is insisted that as the petitioner has not a!ailed hi%self of the per%ission to inspect the books and transactions of the co%pany within the ten days th"s defined his right to inspection and e#a%ination is lost at least for this year. Iss.eB 1<N the ref"sal of the co%pany to Pardo to inspect the books and transactions of the co%pany is !alid R.lingNo. The general right gi!en by the stat"te %ay not be lawf"lly abridged to the e#tent atte%pted in this resol"tion. It %ay be ad%itted that the officials in charge of a corporation %ay deny inspection when so"ght at "n"s"al ho"rs or "nder other i%proper conditions@ b"t neither the e#ec"ti!e officers nor the board of directors ha!e the power to depri!e a stockholder of the right altogether. A by-law "nd"ly restricting the right of inspection is "ndo"btedly in!alid. A"thorities to this effect are too n"%ero"s and direct to reG"ire e#tended co%%ent. It will be noted that o"r stat"te declares that the right of inspection can be e#ercised "at reasonable ho"rs." This %eans at reasonable ho"rs on b"siness days thro"gho"t the year and not %erely d"ring so%e arbitrary period of a few days chosen by the directors. P"il%otts Vs# P"il# 2fg# Co# &'0 P"il '( + ,acts-

1<N the co"rt erred in ordering CCI to s"b%it to the (7C for inspection all its records<books of acco"nt dating back in ,-4B to the present for the p"rpose of deter%ining whether profits ha!e been earned by petitioner and whether pri!ate respondents ha!e been "n2"stly depri!ed of their share therein. R.lingThe co"rt/s order was proper. The respondent co"rt in reG"iring petitioner to pay pri!ate respondentCs their "nreali$ed profits and<or di!idends %erely co%plied with the decision of this Co"rt in Aranas vs. Court of Appeals which r"led? The (ec"rities and 7#change Co%%ission is ordered to ca"se the e#ec"tion of the final 2"dg%ent , is &ill include# among ot ers# t e issuance of certificate of stoc% in favor of petitioners# inspection of t e boo%s of accounts of respondent corporation )now petitioner* for t e purpose of determining & et er profits ave indeed been earned b$ t e corporation and & et er erein petitioners )now pri!ate respondents* ave been unjustl$ deprived of t eir s are t erein.

1. &. Philpotts a stockholder in the Philippine Man"fact"ring Co%pany one of the respondents herein seeks by this proceeding to obtain a writ of mandamus to co%pel the respondents to per%it the plaintiff in person or by so%e a"thori$ed agent or attorney to inspect and e#a%ine the records of the b"siness transacted by said co%pany since Jan"ary , ,-,H. The petition is filed originally in this co"rt "nder the a"thority of section +,+ of the Code of Ci!il Proced"re which gi!es to this trib"nal conc"rrent 2"risdiction with the Co"rt of Airst Instance in cases a%ong others where any corporation or person "nlawf"lly e#cl"des the plaintiff fro% the "se and en2oy%ent of so%e right to which he is entitled. Iss.e1<N the right which the law concedes to a stockholder to inspect the records can be e#ercised by a proper agent or attorney of the stockholder as well as by the stockholder in person R.ling-

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There is no pretense that the respondent corporation or any of its officials has ref"sed to allow the petitioner hi%self to e#a%ine anything relating to the affairs of the co%pany and the petition prays for a pere%ptory order co%%anding the respondents to place the records of all b"siness transactions of the co%pany d"ring a specified period at the disposal of the plaintiff or his d"ly a"thori$ed agent or attorney it being e!ident that the petitioner desires to e#ercise said right thro"gh an agent or attorney. In the arg"%ent in s"pport of the de%"rrer it is conceded by co"nsel for the respondents that there is a right of e#a%ination in the stockholder granted "nder section +, of the Corporation Law b"t it is insisted that this right %"st be e#ercised in person. The pertinent pro!ision of o"r law is fo"nd in the second paragraph of section +, of Act No. ,B+- which reads as follows? "The record of all b"siness transactions of the corporation and the %in"tes of any %eeting shall be open to the inspection of any director %e%ber or stockholder of the corporation at reasonable ho"rs." This pro!ision is to be read of co"rse in connecting with the related pro!isions of sections +, and +. defining the d"ty of the corporation in respect to the keeping of its records. Th"s the right of inspection gi!en to a stockholder in the pro!ision abo!e G"oted can be e#ercised either by hi%self or by any proper representati!e or attorney in fact and either with or witho"t the attendance of the stockholder. This is in confor%ity with the general r"le that what a %an %ay do in person he %ay do thro"gh another@ and we find nothing in the stat"te that wo"ld 2"stify "s in G"alifying the right in the %anner s"ggested by the respondents. "That stockholders ha!e the right to inspect the books of the corporation taking %in"tes fro% the sa%e at all reasonable ti%es and %ay be aided in this by e#perts and co"nsel so as to %ake the inspection !al"able to the% is a principle too well settled to need disc"ssion." There are so%e things which a corporation %ay "ndo"btedly keep secret notwithstanding the right of inspection gi!en by law to the stockholder@ as for instance where a corporation engaged in the b"siness of %an"fact"re has acG"ired a for%"la or process not generally known which has pro!ed of "tility to it in the %an"fact"re of its prod"cts. It is not o"r intention to declare that the a"thorities of the corporation and %ore partic"larly the 5oard of 6irectors %ight not adopt %eas"res for the protection of s"ch process for% p"blicity. There is howe!er nothing in the petition which wo"ld indicate that the petitioner in this case is seeking to disco!er anything which the corporation is entitled to keep secret@ and if anything of the sort is in!ol!ed in the case it %ay be bro"ght o"t at a %ore ad!anced stage of the proceedings. Section (1 ! %ight to financial statements. - 1ithin ten ),:* days fro% receipt of a written reG"est of any stockholder or %e%ber the corporation shall f"rnish to hi% its %ost recent financial state%ent which shall incl"de a balance sheet as of the end of the last ta#able year and a profit or loss state%ent for said ta#able year showing in reasonable detail its assets and liabilities and the res"lt of its operations. At the reg"lar %eeting of stockholders or %e%bers the board of directors or tr"stees shall present to s"ch stockholders or %e%bers a financial report of the operations of the corporation for the preceding year which shall incl"de financial state%ents d"ly signed and certified by an independent certified p"blic acco"ntant. 0owe!er if the paid-"p capital of the corporation is less than P+: :::.:: the financial state%ents %ay be certified "nder oath by the treas"rer or any responsible officer of the corporation.

.. The ter%s of the %erger or consolidation and the %ode of carrying the sa%e into effect@ ;. A state%ent of the changes if any in the articles of incorporation of the s"r!i!ing corporation in case of %erger@ and with respect to the consolidated corporation in case of consolidation all the state%ents reG"ired to be set forth in the articles of incorporation for corporations organi$ed "nder this Code@ and B. ("ch other pro!isions with respect to the proposed %erger or consolidation as are dee%ed necessary or desirable. Section (( ! Stoc)holder$s or member$s approval. - Ipon appro!al by %a2ority !ote of each of the board of directors or tr"stees of the constit"ent corporations of the plan of %erger or consolidation the sa%e shall be s"b%itted for appro!al by the stockholders or %e%bers of each of s"ch corporations at separate corporate %eetings d"ly called for the p"rpose. Notice of s"ch %eetings shall be gi!en to all stockholders or %e%bers of the respecti!e corporations at least two ).* weeks prior to the date of the %eeting either personally or by registered %ail. (aid notice shall state the p"rpose of the %eeting and shall incl"de a copy or a s"%%ary of the plan of %erger or consolidation. The affir%ati!e !ote of stockholders representing at least two-thirds ).<;* of the o"tstanding capital stock of each corporation in the case of stock corporations or at least two-thirds ).<;* of the %e%bers in the case of non-stock corporations shall be necessary for the appro!al of s"ch plan. Any dissenting stockholder in stock corporations %ay e#ercise his appraisal right in accordance with the Code? Pro!ided That if after the appro!al by the stockholders of s"ch plan the board of directors decides to abandon the plan the appraisal right shall be e#ting"ished. Any a%end%ent to the plan of %erger or consolidation %ay be %ade pro!ided s"ch a%end%ent is appro!ed by %a2ority !ote of the respecti!e boards of directors or tr"stees of all the constit"ent corporations and ratified by the affir%ati!e !ote of stockholders representing at least two-thirds ).<;* of the o"tstanding capital stock or of two-thirds ).<;* of the %e%bers of each of the constit"ent corporations. ("ch plan together with any a%end%ent shall be considered as the agree%ent of %erger or consolidation. Section (7 ! Articles of merger or consolidation. - After the appro!al by the stockholders or %e%bers as reG"ired by the preceding section articles of %erger or articles of consolidation shall be e#ec"ted by each of the constit"ent corporations to be signed by the president or !ice-president and certified by the secretary or assistant secretary of each corporation setting forth? ,. The plan of the %erger or the plan of consolidation@ .. As to stock corporations the n"%ber of shares o"tstanding or in the case of non-stock corporations the n"%ber of %e%bers@ and ;. As to each corporation the n"%ber of shares or %e%bers !oting for and against s"ch plan respecti!ely. Section (9 ! ffectivity of merger or consolidation. - The articles of %erger or of consolidation signed and certified as herein abo!e reG"ired shall be s"b%itted to the (ec"rities and 7#change Co%%ission in G"adr"plicate for its appro!al? Pro!ided That in the case of %erger or consolidation of banks or banking instit"tions b"ilding and loan associations tr"st co%panies ins"rance co%panies p"blic "tilities ed"cational instit"tions and other special corporations go!erned by special laws the fa!orable reco%%endation of the appropriate go!ern%ent agency shall first be obtained. If the Co%%ission is satisfied that the %erger or consolidation of the corporations concerned is not inconsistent with the pro!isions of this Code and e#isting laws it shall iss"e a certificate of %erger or of consolidation at which ti%e the %erger or consolidation shall be effecti!e. If "pon in!estigation the (ec"rities and 7#change Co%%ission has reason to belie!e that the proposed %erger or consolidation is contrary to or inconsistent with the pro!isions of this Code or e#isting laws it shall set a hearing to gi!e the corporations concerned the opport"nity to be heard. 1ritten notice of the date ti%e and place of hearing shall be gi!en to each constit"ent corporation at least two ).* weeks before said hearing. The Co%%ission shall thereafter proceed as pro!ided in this Code.

TITLE IK 2ERGER AND CONSOLIDATION

Section () ! =lan or merger of consolidation. - Two or %ore corporations %ay %erge into a single corporation which shall be one of the constit"ent corporations or %ay consolidate into a new single corporation which shall be the consolidated corporation. The board of directors or tr"stees of each corporation party to the %erger or consolidation shall appro!e a plan of %erger or consolidation setting forth the following? ,. The na%es of the corporations proposing to %erge or consolidate hereinafter referred to as the constit"ent corporations@

Poliand Vs# NatDl DeCDt Co# &')( SCRA 100+ ,actsAsian 0ardwood Li%ited a 0ong Dong corporation e#tended credit acco%%odations in fa!or of &ALL78N totaling I(K; ;,3 3B3.;.. At that ti%e &ALL78N a do%estic corporation organi$ed in ,-33 and headed by its

93

president 9oberto C"enca was engaged in the %ariti%e transport of goods. The ad!ances were "tili$ed to a"g%ent &ALL78N/s working capital depleted as a res"lt of the p"rchase of fi!e new !essels and two second-hand !essels in ,-3- and co%petiti!eness of the shipping ind"stry. &ALL78N had inc"rred an obligation in the total a%o"nt of I(K; ;-, :HB.-, in fa!or of Asian 0ardwood. To finance the acG"isition of the !essels &ALL78N obtained loans fro% Japanese lenders na%ely Taiyo Dobe 5ank Ltd. Mits"i 5ank Ltd. and Mar"beni 5enel"#. &ALL78N thro"gh C"enca and 65P e#ec"ted a ;eed of 8nderta%ing whereby 65P g"aranteed the pro%pt and p"nct"al pay%ent of &ALL78N/s borrowings fro% the Japanese lenders. To sec"re 65P/s g"arantee "nder the ;eed of 8nderta%ing &ALL78N pro%ised a%ong others to sec"re a first %ortgage on the fi!e new !essels and on the secondhand !essels. Th"s &ALL78N e#ec"ted a %ortgage contract o!er fi!e of its !essels. Meanwhile President Aerdinand Marcos iss"ed Letter of Instr"ction )L8I* No. ,,++ directing N6C to acG"ire the entire shareholdings of &ALL78N for the a%o"nt originally contrib"ted by its shareholders payable in fi!e )+* years witho"t interest cost to the go!ern%ent. In the sa%e L8I 65P was to ad!ance to &ALL78N within three years fro% its effecti!ity the principal a%o"nt and the interest thereon of &ALL78N/s %at"ring obligations. L8I No. ,,-+ was iss"ed directing the foreclos"re of the %ortgage on the fi!e !essels. Aor fail"re of &ALL78N to pay its debt despite repeated de%ands fro% 65P the !essels were e#tra2"dicially foreclosed on !ario"s dates and acG"ired by 65P for the total a%o"nt of P+;- ::: :::.::. 65P s"bseG"ently sold the !essels to N6C for the sa%e a%o"nt. Asian 0ardwood assigned its rights o!er the o"tstanding obligation of &ALL78N of I(K. ;,+ 3B3.;. to 1orld Ini!ersal Trading and In!est%ent Co%pany (.A. )1orld Ini!ersal* e%bodied in a ;eed of Assignment which in t"rn assigned the credit to petitioner P8LIAN6. P8LIAN6 %ade written de%ands on &ALL78N N6C and 65P for the satisfaction of the o"tstanding balance in the a%o"nt of I(K. ;,+ 3B3.;.. Aor fail"re to heed the de%ands P8LIAN6 instit"ted a collection s"it against N6C 65P and &ALL78N. P8LIAN6 clai%ed that "nder L8I No. ,,++ and the Memorandum of Agreement between &ALL78N and N6C defendants &ALL78N N6C and 65P were solidarily liable to P8LIAN6 as assignee of the rights of the credit ad!ances<loan acco%%odations to &ALL78N. Iss.e1<N "pon the effecti!ity of L8I No. ,,++ N6C ipso facto acG"ired the interests in &ALL78N R.ling8rdinarily in the %erger of two or %ore e#isting corporations one of the co%bining corporations s"r!i!es and contin"es the co%bined b"siness while the rest are dissol!ed and all their rights properties and liabilities are acG"ired by the s"r!i!ing corporation. The %erger howe!er does not beco%e effecti!e "pon the %ere agree%ent of the constit"ent corporations. As specifically pro!ided "nder (ection 3- of said Code the %erger shall only be effecti!e "pon the iss"ance of a certificate of %erger by the (ec"rities and 7#change Co%%ission )(7C* s"b2ect to its prior deter%ination that the %erger is not inconsistent with the Code or e#isting laws. 1here a party to the %erger is a special corporation go!erned by its own charter the Code partic"larly %andates that a fa!orable reco%%endation of the appropriate go!ern%ent agency sho"ld first be obtained. The iss"ance of the certificate of %erger is cr"cial beca"se not only does it bear o"t (7C/s appro!al b"t also %arks the %o%ent where"pon the conseG"ences of a %erger take place. 5y operation of law "pon the effecti!ity of the %erger the absorbed corporation ceases to e#ist b"t its rights and properties as well as liabilities shall be taken and dee%ed transferred to and !ested in the s"r!i!ing corporation. The records do not show (7C appro!al of the %erger. P8LIAN6 cannot assert that no conditions were reG"ired prior to the ass"%ption by N6C of ownership of &ALL78N and its s"bsisting loans. Co%pliance with the stat"tory reG"ire%ents is a condition precedent to the effecti!e transfer of the shareholdings in &ALL78N to N6C. In directing N6C to acG"ire the shareholdings in &ALL78N the President co"ld not ha!e intended that the parties disregard the reG"ire%ents of law. In the absence of (7C appro!al there was no effecti!e transfer of the shareholdings in &ALL78N to N6C. 0ence N6C did not acG"ire the rights or interests of &ALL78N incl"ding its liabilities. PNB Vs# And$ada Elect$ic &*7 SCRA 2''+ ,actsNational ("gar 6e!elop%ent Corporation is a se%i-go!ern%ent corporation and the s"gar ar% of the PN5 while Pa%panga ("gar Mills is a corporation organi$ed e#isting and operating "nder the ,-3+ laws of the Philippines. Andrada 7lectric is engaged in the b"siness of general constr"ction for the repairs and<or constr"ction of different kinds of %achineries and b"ildings.

PN5 acG"ired the assets of PA(IMIL that were earlier foreclosed by the 6e!elop%ent 5ank of the Philippines )65P* "nder L8I No. ;,,. PN5 organi$ed NA(I67C8 to take ownership and possession of the assets and "lti%ately to nationali$e and consolidate its interest in other PN5 controlled s"gar %ills. Prior to the acG"isition of PN5 engaged the ser!ices of Andrada for electrical rewinding and repair %ost of which were partially paid by the PA(IMIL lea!ing se!eral "npaid acco"nts with the plaintiff. Andrada and PA(IMIL entered into a contract for the Andrada to perfor% so%e works constr"ction and %echanical works to PA(IMIL. 8"t of the total obligation of P333 .4;.H: PA(IMIL had paid only P.+: :::.:: lea!ing an "npaid balance a%o"nting to P+.3 .4;.H:. PA(IMIL %ade a partial pay%ent of P,B :::.:: in broken a%o"nts lea!ing an "npaid balance of P+,; .4;.H:. Andrada contended that since PN5 and NA(I67C8 now owned and possessed the assets of the defendant PA(IMIL they all benefited fro% the works and the electrical as well as the engineering and repairs perfor%ed by the plaintiff. 0owe!er PA(IMIL PN5 and NA(I67C8 failed and ref"sed to pay the plaintiff their 2"st !alid and de%andable obligation. Iss.e1<N PN5 sho"ld be held liable for the "npaid obligations of PA(IMIL by !irt"e of L8I Nos. ,H--A and ;,, which e#pressly a"thori$ed PA(IMIL and PN5 to %erge or consolidate R.lingAs a r"le a corporation that p"rchases the assets of another will not be liable for the debts of the selling corporation pro!ided the for%er acted in good faith and paid adeG"ate consideration for s"ch assets e#cept when any of the following circ"%stances is present? ),* where the p"rchaser e#pressly or i%pliedly agrees to ass"%e the debts ).* where the transaction a%o"nts to a consolidation or %erger of the corporations );* where the p"rchasing corporation is %erely a contin"ation of the selling corporation and )B* where the transaction is fra"d"lently entered into in order to escape liability for those debts. A consolidation is the "nion of two or %ore e#isting entities to for% a new entity called the consolidated corporation. A %erger on the other hand is a "nion whereby one or %ore e#isting corporations are absorbed by another corporation that s"r!i!es and contin"es the co%bined b"siness. The %erger howe!er does not beco%e effecti!e "pon the %ere agree%ent of the constit"ent corporations. (ince a %erger or consolidation in!ol!es f"nda%ental changes in the corporation as well as in the rights of stockholders and creditors there %"st be an e#press pro!ision of law a"thori$ing the%. Aor a !alid %erger or consolidation the appro!al by the (ec"rities and 7#change Co%%ission )(7C* of the articles of %erger or consolidation is reG"ired. These articles %"st likewise be d"ly appro!ed by a %a2ority of the respecti!e stockholders of the constit"ent corporations. In the case at bar we hold that there is no %erger or consolidation with respect to PA(IMIL and PN5. The proced"re prescribed "nder Title IQ of the Corporation Code was not followed. In fact PA(IMIL/s corporate e#istence had not been legally e#ting"ished or ter%inated. Neither did petitioner e#pressly or i%pliedly agree to ass"%e the debt of PA(IMIL to respondent. L8I No. ,, e#plicitly pro!ides that PN5 shall st"dy and s"b%it reco%%endations on the clai%s of PA(IMIL/s creditors. Clearly the corporate separateness between PA(IMIL and PN5 re%ains despite respondent/s insistence to the contrary. Associated Ban5 Vs# CA &29 SCRA 1 ,acts8n (epte%ber ,4 ,-3+ Associated 5anking Corporation and Citi$ens 5ank and Tr"st Co%pany %erged to for% 2"st one banking corporation known as Associated Citi$ens 5ank the s"r!i!ing bank. And on March ,: ,-H, the Associated Citi$ens 5ank changed its corporate na%e to Associated 5ank by !irt"e of the A%ended Articles of Incorporation. 8n (epte%ber 3 ,-33 (ar%iento e#ec"ted in fa!or of Associated 5ank a pro%issory note whereby the for%er "ndertook to pay the latter the s"% of P. +:: :::.:: payable on or before March 4 ,-3H. As per said pro%issory note the he agreed to pay interest at ,BN per ann"% ;N per ann"% in the for% of liG"idated da%ages co%po"nded interests and attorneyCs fees in case of litigation eG"i!alent to ,:N of the a%o"nt d"e. The defendant to date still owes plaintiff bank the a%o"nt of P. .+: :::.:: e#cl"si!e of interest and other charges. 6espite repeated de%ands the defendant failed to pay the a%o"nt d"e. +

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The defendant contended that Associated 5ank is not the proper party in interest beca"se the pro%issory note was e#ec"ted in fa!or of Citi$ens 5ank and Tr"st Co%pany. Iss.e1<N Associated 5ank the s"r!i!ing corporation %ay enforce the pro%issory note %ade by (ar%iento in fa!or of C5TC the absorbed co%pany after the %erger agree%ent had been signed R.ling8rdinarily in the %erger of two or %ore e#isting corporations one of the co%bining corporations s"r!i!es and contin"es the co%bined b"siness while the rest are dissol!ed and all their rights properties and liabilities are acG"ired by the s"r!i!ing corporation. Altho"gh there is dissol"tion of the absorbed corporations there is no winding "p of their affairs or liG"idation of their assets beca"se the s"r!i!ing corporation a"to%atically acG"ires all their rights pri!ileges and powers as well as their liabilities. The %erger howe!er does not beco%e effecti!e "pon the %ere agree%ent of the constit"ent corporations. The proced"re to be followed is prescribed "nder the Corporation Code. (ection 3- of said Code reG"ires the appro!al by the (ec"rities and 7#change Co%%ission )(7C* of the articles of %erger which in t"rn %"st ha!e been d"ly appro!ed by a %a2ority of the respecti!e stockholders of the constit"ent corporations. The sa%e pro!ision f"rther states that the %erger shall be effecti!e only "pon the iss"ance by the (7C of a certificate of %erger. The effecti!ity date of the %erger is cr"cial for deter%ining when the %erged or absorbed corporation ceases to e#ist@ and when its rights pri!ileges properties as well as liabilities pass on to the s"r!i!ing corporation. Consistent with the afore%entioned (ection 3- the (epte%ber ,4 ,-3+ Agree%ent of Merger which Associated 5anking Corporation )A5C* and Citi$ens 5ank and Tr"st Co%pany )C5TC* entered into pro!ided that its effecti!ity "shall for all intents and p"rposes be the date when the necessary papers to carry o"t this E%Ferger shall ha!e been appro!ed by the (ec"rities and 7#change Co%%ission." The records do not show when the (7C appro!ed the %erger. Pri!ate respondentCs theory is that it took effect on the date of the e#ec"tion of the agree%ent itself which was (epte%ber ,4 ,-3+. Pri!ate respondent contends that since he iss"ed the pro%issory note to C5TC on (epte%ber 3 ,-33 W two years after the %erger agree%ent had been e#ec"ted W C5TC co"ld not ha!e con!eyed or transferred to petitioner its interest in the said note which was not yet in e#istence at the ti%e of the %erger. Therefore petitioner the s"r!i!ing bank has no right to enforce the pro%issory note on pri!ate respondent@ s"ch right properly pertains only to C5TC. Ass"%ing that the effecti!ity date of the %erger was the date of its e#ec"tion we still cannot agree that petitioner no longer has any interest in the pro%issory note. A closer per"sal of the %erger agree%ent leads to a different concl"sion. The pro!ision G"oted earlier has this other cla"se? Ipon the effecti!e date of the E%Ferger all references to 3CB,C4 in an$ deed# documents# or ot er papers of & atever %ind or nature and & erever found s all be deemed for all intents and purposes# references to 3ABC4# t e S8=0-0-N/ BANK# as if suc references &ere direct references to 3ABC4 .... Th"s the fact that the pro%issory note was e#ec"ted after the effecti!ity date of the %erger does not %ilitate against petitioner. The agree%ent itself clearly pro!ides that all contracts W irrespecti!e of the date of e#ec"tion W entered into in the na%e of C5TC shall be "nderstood as pertaining to the s"r!i!ing bank herein petitioner. (ince in contrast to the earlier aforeG"oted pro!ision the latter cla"se no longer specifically refers only to contracts e#isting at the ti%e of the %erger no distinction sho"ld be %ade. The cla"se %"st ha!e been deliberately incl"ded in the agree%ent in order to protect the interests of the co%bining banks@ specifically to a!oid gi!ing the %erger agree%ent a farcical interpretation ai%ed at e!ading f"lfill%ent of a d"e obligation. Th"s altho"gh the s"b2ect pro%issory note na%es C5TC as the payee the reference to C5TC in the note shall be constr"ed "nder the !ery pro!isions of the %erger agree%ent as a reference to petitioner bank "as if s"ch reference was a direct reference to" the latter "for all intents and p"rposes." Section 70 ! ffects or merger or consolidation. - The %erger or consolidation shall ha!e the following effects? ,. The constit"ent corporations shall beco%e a single corporation which in case of %erger shall be the s"r!i!ing corporation designated in the plan of %erger@ and in case of consolidation shall be the consolidated corporation designated in the plan of consolidation@ .. The separate e#istence of the constit"ent corporations shall cease e#cept that of the s"r!i!ing or the consolidated corporation@

;. The s"r!i!ing or the consolidated corporation shall possess all the rights pri!ileges i%%"nities and powers and shall be s"b2ect to all the d"ties and liabilities of a corporation organi$ed "nder this Code@ B. The s"r!i!ing or the consolidated corporation shall there"pon and thereafter possess all the rights pri!ileges i%%"nities and franchises of each of the constit"ent corporations@ and all property real or personal and all recei!ables d"e on whate!er acco"nt incl"ding s"bscriptions to shares and other choses in action and all and e!ery other interest of or belonging to or d"e to each constit"ent corporation shall be dee%ed transferred to and !ested in s"ch s"r!i!ing or consolidated corporation witho"t f"rther act or deed@ and +. The s"r!i!ing or consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constit"ent corporations in the sa%e %anner as if s"ch s"r!i!ing or consolidated corporation had itself inc"rred s"ch liabilities or obligations@ and any pending clai% action or proceeding bro"ght by or against any of s"ch constit"ent corporations %ay be prosec"ted by or against the s"r!i!ing or consolidated corporation. The rights of creditors or liens "pon the property of any of s"ch constit"ent corporations shall not be i%paired by s"ch %erger or consolidation. Ba4st Vs# CA &*10 SCRA *' + ,acts7li$alde (teel Consolidated Inc. )7LI(C8N* obtained fro% Co%%ercial 5ank and Tr"st Co%pany )C5TC* a loan in the a%o"nt of PH :,+ -::.HB with interest at the rate of ,BN per ann"% e!idenced by a pro%issory note. 7LI(C8N defa"lted in its pay%ents lea!ing an o"tstanding indebtedness in the a%o"nt of P. 3-+ .B:.43. The letters of credit on the other hand were opened for 7LI(C8N by C5TC "sing the credit facilities of Pacific M"lti-Co%%ercial Corporation )MILTI* with the said bank p"rs"ant to the 9esol"tion of the 5oard of 6irectors of MILTI adopted that since at least -:N of the Co%panyCs gross sales is generated by the sale of tin-plates %an"fact"red by 7li$alde (teel Consolidated Inc. it is to the best interests of the Co%pany to contin"e handling said tin-plate line and beca"se 7li$alde (teel Consolidated Inc. has reG"ested the assistance of the Co%pany in obtaining credit facilities to enable it to %aintain the present le!el of its tin-plate %an"fact"ring o"tp"t and the Co%pany is willing to e#tend said reG"ested assistance MILTI allow and a"thori$e 7LIC8N to a!ail and %ake "se of the Credit Line of MILTI with C5CT. MILTI likewise g"arantee solidarily the pay%ent of the corresponding Letters of Credit "pon %at"rity of the sa%e. ("bseG"ently Antonio 9o#as Ch"a and Chester &. 5abst e#ec"ted a Contin"ing ("retyship whereby they bo"nd the%sel!es 2ointly and se!erally liable to pay any e#isting indebtedness of MILTI to C5TC to the e#tent of PH ::: :::.:: each. C5TC opened for 7LI(C8N in fa!or of National (teel Corporation three );* do%estic letters of credit which 7LI(C8N "sed to p"rchase tin black plates fro% National (teel Corporation. 7LI(C8N defa"lted in its obligation to pay the a%o"nts of the letters of credit lea!ing an o"tstanding acco"nt in the total a%o"nt of P; -4; ;3..:H. 8n 6ece%ber .. ,-H: the 5ank of the Philippine Islands )5PI* and C5TC entered into a %erger wherein 5PI as the s"r!i!ing corporation acG"ired all the assets and ass"%ed all the liabilities of C5TC. Meanwhile 7LI(C8N enco"ntered financial diffic"lties and beca%e hea!ily indebted to the 6e!elop%ent 5ank of the Philippines )65P*. In order to settle its obligations 7LI(C8N proposed to con!ey to 65P by way of dacion en pago all its fi#ed assets %ortgaged with 65P as pay%ent for its total indebtedness in the a%o"nt of P.:, ,H, H;;.,4. 8n 6ece%ber .H ,-3H 7LI(C8N and 65P e#ec"ted a 6eed of Cession of Property in Pay%ent of 6ebt. 65P for%ally took o!er the assets of 7LI(C8N incl"ding its indebtedness to 5PI. Thereafter 65P proposed for%"las for the settle%ent of all of 7LI(C8NCs obligations to its creditors b"t 5PI e#pressly re2ected the for%"la s"b%itted to it for not being acceptable. ConseG"ently 5PI as s"ccessor-in-interest of C5TC instit"ted a co%plaint for s"% of %oney against 7LI(C8N MILTI and 5abst. 7LI(C8N arg"ed that the co%plaint was pre%at"re since 65P had %ade serio"s efforts to settle its obligations with 5PI. 5abst also alleged that he signed the Contin"ing ("retyship on the "nderstanding that it co!ers only obligations which MILTI inc"rred solely for its benefit and not for any third party liability and he had no knowledge or infor%ation of any transaction between MILTI and 7LI(C8N. MILTI for its part denied knowledge of the %erger between 5PI and C5TC and a!erred that the g"aranty "nder its board resol"tion did not co!er p"rchases %ade by 7LI(C8N in the for% of tr"st receipts. It set "p a cross-

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clai% against 7LI(C8N alleging that the latter sho"ld be held liable for any 2"dg%ent which the co"rt %ay render against it in fa!or of 5PI. Iss.e1<N 5PI has legal capacity to reco!er the obligations of 7LI(C8N MILTI and 5abst to C5TC R.lingThere is no G"estion that there was a !alid %erger between 5PI and C5TC. It is settled that in the %erger of two e#isting corporations one of the corporations s"r!i!es and contin"es the b"siness while the other is dissol!ed and all its rights properties and liabilities are acG"ired by the s"r!i!ing corporation. 0ence 5PI has a right to instit"te the case a quo. Notwithstanding s"ch right 5PI cannot reco!er fro% the petitioner. Article ,.-; of the Ci!il Code pro!ides? No!ation which consists in s"bstit"ting a new debtor in the place of the original one %ay be %ade e!en witho"t the knowledge or against the will of the latter b"t not witho"t the consent of the creditor. Pay%ent by the new debtor gi!es hi% the rights %entioned in articles ,.;4 and ,.;3. 5PI contends that in order to ha!e a !alid no!ation there %"st be an e#press consent of the creditor. 0owe!er there e#ist clear indications that 5PI was aware of the ass"%ption by 65P of the obligations of 7LI(C8N. 6"e to the fail"re of 5PI to register its ob2ection to the take-o!er by 65P of 7LI(C8NCs assets at the creditorsC %eeting held in J"ne ,-H, and thereafter it is dee%ed to ha!e consented to the s"bstit"tion of 65P for 7LI(C8N as debtor. 5PI gi!es no cogent reason in withholding its consent to the s"bstit"tion other than its desire to preser!e its ca"ses of action and legal reco"rse against the s"reties of 7LI(C8N. It %"st be re%e%bered howe!er that while a s"rety is solidarily liable with the principal debtor his obligation to pay only arises "pon the principal debtorCs fail"re or ref"sal to pay. A contract of s"rety is an accessory pro%ise by which a person binds hi%self for another already bo"nd and agrees with the creditor to satisfy the obligation if the debtor does not. A s"rety is an ins"rer of the debt@ he pro%ises to pay the principalCs debt if the principal will not pay. In the case at bar there was no indication that the principal debtor will defa"lt in pay%ent. In fact 65P which had stepped into the shoes of 7LI(C8N was capable of pay%ent. Its a"thori$ed capital stock was increased by the go!ern%ent. More i%portantly the National 6e!elop%ent Co%pany took o!er the b"siness of 7LI(C8N and "ndertook to pay 7LI(C8NCs creditors and ear%arked for that p"rpose the a%o"nt of PB :,+ +;B.+B for pay%ent to 5PI. 5PICs cond"ct e!inced a clear and "n%istakable consent to the s"bstit"tion of 65P for 7LI(C8N as debtor. 0ence there was a !alid no!ation which res"lted in the release of 7LI(C8N fro% its obligation to 5PI whose ca"se of action sho"ld be directed against 65P as the new debtor. Moreo!er no!ation wo"ld ha!e d"al f"nctions W one to e#ting"ish an e#isting obligation the other to s"bstit"te a new one in its place W reG"iring a confl"# of fo"r essential reG"isites ),* a pre!io"s !alid obligation@ ).* an agree%ent of all parties concerned to a new contract@ );* the e#ting"ish%ent of the old obligation@ and )B* the birth of a !alid new obligation. Th"s the original obligation ha!ing been e#ting"ished the contracts of s"retyship e#ec"ted separately by 5abst and MILTI being accessory obligations are likewise e#ting"ished. 2cLeod Vs# NLRC &1 2 SCRA 222+

Chair%an and President. 0e worked for (ta. 9osa "ntil No!e%ber ;: and that fro% ti%e to ti%e the owners of Aar 7astern cons"lted with hi% on technical aspects of reoperation of the plant as per correspondence. Iss.e1<N Peggy Mills Inc. )PMI* and (ta. 9osa Te#tile Inc. )(9TI* are the sa%e entity so that the latter will be liable to McLeod R.lingAs a r"le a corporation that p"rchases the assets of another will not be liable for the debts of the selling corporation pro!ided the for%er acted in good faith and paid adeG"ate consideration for s"ch assets e#cept when any of the following circ"%stances is present? ),* where the p"rchaser e#pressly or i%pliedly agrees to ass"%e the debts ).* where the transaction a%o"nts to a consolidation or %erger of the corporations );* where the p"rchasing corporation is %erely a contin"ation of the selling corporation and )B* where the selling corporation fra"d"lently enters into the transaction to escape liability for those debts. None of the foregoing e#ceptions is present in this case. 0ere PMI transferred its assets to (9TI to settle its obligation to (9TI in the s"% of P.,: ::: :::. 1e are not con!inced that PMI fra"d"lently transferred these assets to escape its liability for any of its debts. PMI had already paid its e%ployees e#cept McLeod their %oney clai%s. There was also no %erger or consolidation of PMI and (9TI. Consolidation is the "nion of two or %ore e#isting corporations to for% a new corporation called the consolidated corporation. It is a co%bination by agree%ent between two or %ore corporations by which their rights franchises and property are "nited and beco%e those of a single new corporation co%posed generally altho"gh not necessarily of the stockholders of the original corporations. Merger on the other hand is a "nion whereby one corporation absorbs one or %ore e#isting corporations and the absorbing corporation s"r!i!es and contin"es the co%bined b"siness. The parties to a %erger or consolidation are called constit"ent corporations. In consolidation all the constit"ents are dissol!ed and absorbed by the new consolidated enterprise. In %erger all constit"ents e#cept the s"r!i!ing corporation are dissol!ed. In both cases howe!er there is no liG"idation of the assets of the dissol!ed corporations and the s"r!i!ing or consolidated corporation acG"ires all their properties rights and franchises and their stockholders "s"ally beco%e its stockholders. The s"r!i!ing or consolidated corporation ass"%es a"to%atically the liabilities of the dissol!ed corporations regardless of whether the creditors ha!e consented or not to s"ch %erger or consolidation. In the present case there is no showing that the s"b2ect dation in pay%ent in!ol!ed any corporate %erger or consolidation. Neither is there any showing of those indicati!e factors that (9TI is a %ere instr"%entality of PMI. Moreo!er (9TI did not e#pressly or i%pliedly agree to ass"%e any of PMI/s debts. Also McLeod did not present any e!idence to show the alleged rena%ing of =Peggy Mills Inc.> to =(ta. 9osa Te#tiles Inc.> 0ence it is not correct for McLeod to treat PMI and (9TI as the sa%e entity.

TITLE K ,actsJohn A. McLeod filed a co%plaint for retire%ent benefits !acation and sick lea!e benefits non-pay%ent of "n"sed airline tickets holiday pay "nderpay%ent of salary and ,; th %onth pay %oral and e#e%plary da%ages attorney/s fees pl"s interest against Ailipinas (ynthetic Corporation )Ailsyn* Aar 7astern Te#tile Mills Inc. (ta. 9osa Te#tiles Inc. Patricio Li% and 7ric 0". 0e alleged that he is an e#pert in te#tile %an"fact"ring process. As early as ,-+4 he was hired as the Assistant (pinning Manager of Ini!ersal Te#tiles Inc. )IT7Q*. Then he was pro%oted to (enior Manager and worked for IT7Q till ,-H: "nder its President Patricio Li%. In ,-3H Patricio Li% for%ed Peggy Mills Inc. with Ailsyn ha!ing controlling interest. 0e was absorbed by Peggy Mills as its 'ice President and Plant Manager. At the ti%e of his retire%ent he was recei!ing P4: :::.:: %onthly with !acation and sick lea!e benefits ,; th %onth pay holiday pay and two ro"nd trip b"siness class tickets on a ManilaLondon-Manila itinerary e!ery three years which is con!ertible to cash if "n"sed. In ,--, Ailsyn sold Peggy Mills Inc. to Aar 7astern Te#tile Mills Inc. as per agree%ent and this was rena%ed as (ta. 9osa Te#tile with Patricio Li% as APPRAISAL RIG>T Section 7 ! *nstances of appraisal right. - Any stockholder of a corporation shall ha!e the right to dissent and de%and pay%ent of the fair !al"e of his shares in the following instances? ,. In case any a%end%ent to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares or of a"thori$ing preferences in any respect s"perior to those of o"tstanding shares of any class or of e#tending or shortening the ter% of corporate e#istence@ .. In case of sale lease e#change transfer %ortgage pledge or other disposition of all or s"bstantially all of the corporate property and assets as pro!ided in the Code@ and

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;. In case of %erger or consolidation. )n* Section 72 ! <ow right is exercised. - The appraisal right %ay be e#ercised by any stockholder who shall ha!e !oted against the proposed corporate action by %aking a written de%and on the corporation within thirty );:* days after the date on which the !ote was taken for pay%ent of the fair !al"e of his shares? Pro!ided That fail"re to %ake the de%and within s"ch period shall be dee%ed a wai!er of the appraisal right. If the proposed corporate action is i%ple%ented or affected the corporation shall pay to s"ch stockholder "pon s"rrender of the certificate or certificates of stock representing his shares the fair !al"e thereof as of the day prior to the date on which the !ote was taken e#cl"ding any appreciation or depreciation in anticipation of s"ch corporate action. If within a period of si#ty )4:* days fro% the date the corporate action was appro!ed by the stockholders the withdrawing stockholder and the corporation cannot agree on the fair !al"e of the shares it shall be deter%ined and appraised by three );* disinterested persons one of who% shall be na%ed by the stockholder another by the corporation and the third by the two th"s chosen. The findings of the %a2ority of the appraisers shall be final and their award shall be paid by the corporation within thirty );:* days after s"ch award is %ade? Pro!ided That no pay%ent shall be %ade to any dissenting stockholder "nless the corporation has "nrestricted retained earnings in its books to co!er s"ch pay%ent? and Pro!ided f"rther That "pon pay%ent by the corporation of the agreed or awarded price the stockholder shall forthwith transfer his shares to the corporation. Section 7* ! ffect of demand and termination of right. - Aro% the ti%e of de%and for pay%ent of the fair !al"e of a stockholderCs shares "ntil either the abandon%ent of the corporate action in!ol!ed or the p"rchase of the said shares by the corporation all rights accr"ing to s"ch shares incl"ding !oting and di!idend rights shall be s"spended in accordance with the pro!isions of this Code e#cept the right of s"ch stockholder to recei!e pay%ent of the fair !al"e thereof? Pro!ided That if the dissenting stockholder is not paid the !al"e of his shares within ;: days after the award his !oting and di!idend rights shall i%%ediately be restored. Section 7' ! When right to payment ceases. - No de%and for pay%ent "nder this Title %ay be withdrawn "nless the corporation consents thereto. If howe!er s"ch de%and for pay%ent is withdrawn with the consent of the corporation or if the proposed corporate action is abandoned or rescinded by the corporation or disappro!ed by the (ec"rities and 7#change Co%%ission where s"ch appro!al is necessary or if the (ec"rities and 7#change Co%%ission deter%ines that s"ch stockholder is not entitled to the appraisal right then the right of said stockholder to be paid the fair !al"e of his shares shall cease his stat"s as a stockholder shall there"pon be restored and all di!idend distrib"tions which wo"ld ha!e accr"ed on his shares shall be paid to hi%. Section 71 ! Who bears costs of appraisal. - The costs and e#penses of appraisal shall be borne by the corporation "nless the fair !al"e ascertained by the appraisers is appro#i%ately the sa%e as the price which the corporation %ay ha!e offered to pay the stockholder in which case they shall be borne by the latter. In the case of an action to reco!er s"ch fair !al"e all costs and e#penses shall be assessed against the corporation "nless the ref"sal of the stockholder to recei!e pay%ent was "n2"stified. Section 7) ! 'otation on certificates> rights of transferee. - 1ithin ten ),:* days after de%anding pay%ent for his shares a dissenting stockholder shall s"b%it the certificates of stock representing his shares to the corporation for notation thereon that s"ch shares are dissenting shares. 0is fail"re to do so shall at the option of the corporation ter%inate his rights "nder this Title. If shares represented by the certificates bearing s"ch notation are transferred and the certificates conseG"ently canceled the rights of the transferor as a dissenting stockholder "nder this Title shall cease and the transferee shall ha!e all the rights of a reg"lar stockholder@ and all di!idend distrib"tions which wo"ld ha!e accr"ed on s"ch shares shall be paid to the transferee.

Pro!ided That any profit which a non-stock corporation %ay obtain as an incident to its operations shall whene!er necessary or proper be "sed for the f"rtherance of the p"rpose or p"rposes for which the corporation was organi$ed s"b2ect to the pro!isions of this Title. The pro!isions go!erning stock corporation when pertinent shall be applicable to non-stock corporations e#cept as %ay be co!ered by specific pro!isions of this Title. Section 77 ! =urposes. - Non-stock corporations %ay be for%ed or organi$ed for charitable religio"s ed"cational professional c"lt"ral fraternal literary scientific social ci!ic ser!ice or si%ilar p"rposes like trade ind"stry agric"lt"ral and like cha%bers or any co%bination thereof s"b2ect to the special pro!isions of this Title go!erning partic"lar classes of non-stock corporations. Re%.4lic Vs# S.nlife &'(* SCRA 29+ ,acts("n Life is a %"t"al life ins"rance co%pany organi$ed and e#isting "nder the laws of Canada. It is registered and a"thori$ed by the (ec"rities and 7#change Co%%ission and the Ins"rance Co%%ission to engage in b"siness in the Philippines as a %"t"al life ins"rance co%pany. ("n Life filed with the Co%%issioner of Internal 9e!en"e )CI9* its ins"rance pre%i"% ta# ret"rn for the third G"arter of ,--3 and paid the pre%i"% ta# in the a%o"nt of P;, BH+ H;B.+,. Aor the period co!ering A"g"st ., to 6ece%ber ,H ,--3 it filed with the CI9 its doc"%entary sta%p ta# )6(T* declaration ret"rns and paid the total a%o"nt of P;: ::: :::.::. Meanwhile the Co"rt of Ta# Appeals )CTA* rendered its decision in -nsular Life Assurance Co. Ltd. v. C-= which held that %"t"al life ins"rance co%panies are p"rely cooperati!e co%panies and are e#e%pt fro% the pay%ent of pre%i"% ta# and 6(T. This prono"nce%ent was later affir%ed by this co"rt in C-= v. -nsular Life Assurance Compan$# Ltd . ("n Life s"r%ised that being a %"t"al life ins"rance co%pany it was likewise e#e%pt fro% the pay%ent of pre%i"% ta# and 6(T. 0ence ("n Life filed with the CI9 an ad%inistrati!e clai% for ta# credit of its alleged erroneo"sly paid pre%i"% ta# and 6(T for the aforestated ta# periods. Aor fail"re of the CI9 to act "pon the ad%inistrati!e clai% for ta# credit and with the .-year period to file a clai% for ta# credit or ref"nd dwindling away and abo"t to e#pire ("n Life filed with the CTA a petition for re!iew. In its petition it prayed for the iss"ance of a ta# credit certificate in the a%o"nt of P4, BH+ H;B.+, representing P;, BH+ H;B.+, of erroneo"sly paid pre%i"% ta# for the third G"arter of ,--3 and P;: ::: :::.:: of 6(T on policies of ins"rance fro% A"g"st ., to 6ece%ber ,H ,--3. ("n Life stood fir% on its contention that it is a %"t"al life ins"rance co%pany !ested with all the characteristic feat"res and ele%ents of a cooperati!e co%pany or association as defined in (ection ,., of the Ta# Code. Pri%arily the %anage%ent and affairs of ("n Life were cond"cted by its %e%bers@ secondly it is operated with %oney collected fro% its %e%bers@ and lastly it has for its p"rpose the %"t"al protection of its %e%bers and not for profit or gain. Iss.e1<N ("nlife is a p"rely cooperati!e co%pany or association "nder (ection ,., of the National Internal 9e!en"e Code and a fraternal or beneficiary society order or cooperati!e co%pany on the lodge syste% or local cooperation plan and organi$ed and cond"cted solely by the %e%bers thereof for the e#cl"si!e benefit of each %e%ber and not for profit "nder (ection ,-of the National Internal 9e!en"e Code. R.lingThe Ta# Code defines a cooperati!e as an association =cond"cted by the %e%bers thereof with the %oney collected fro% a%ong the%sel!es and solely for their own protection and not for profit.> 1itho"t a do"bt ("nlife is a cooperati!e engaged in a %"t"al life ins"rance b"siness. 2irst it is %anaged by its %e%bers. 5oth the CA and the CTA fo"nd that the %anage%ent and affairs of ("nlife were cond"cted by its %e%berpolicyholders. A stock ins"rance co%pany doing b"siness in the Philippines %ay =alter its organi$ation and transfor% itself into a %"t"al ins"rance co%pany.> ("nlife has been %"t"ali$ed or con!erted fro% a stock life ins"rance co%pany to a nonstock %"t"al life ins"rance corporation p"rs"ant to (ection .44 of the Ins"rance Code of ,-3H. 8n the basis of its bylaws its ownership has been !ested in its %e%ber-policyholders who are each entitled to one !ote@ and who in t"rn elect fro% a%ong the%sel!es the %e%bers of its board of tr"stees. 5eing the go!erning body of a nonstock corporation the board e#ercises corporate powers lays down all corporate b"siness policies and ass"%es responsibility for the efficiency of %anage%ent.

TITLE KI NON/STOCH CORPORATIONS Section 7( ! Definition. - Aor the p"rposes of this Code a non-stock corporation is one where no part of its inco%e is distrib"table as di!idends to its %e%bers tr"stees or officers s"b2ect to the pro!isions of this Code on dissol"tion?

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Second it is operated with %oney collected fro% its %e%bers. (ince respondent is co%posed entirely of %e%bers who are also its policyholders all pre%i"%s collected ob!io"sly co%e only fro% the%. The %e%ber-policyholders constit"te =both ins"rer and ins"red> who =contrib"te by a syste% of pre%i"%s or assess%ents to the creation of a f"nd fro% which all losses and liabilities are paid.> The pre%i"%s pooled into this f"nd are ear%arked for the pay%ent of their inde%nity and benefit clai%s. , ird it is licensed for the %"t"al protection of its %e%bers not for the profit of anyone. As early as 8ctober ;: ,-B3 the director of co%%erce had already iss"ed a license to ("nlife -- a corporation organi$ed and e#isting "nder the laws of Canada -- to engage in b"siness in the Philippines. P"rs"ant to (ection ..+ of Canada/s Ins"rance Co%panies Act the Canadian Minister of (tate )for finance and pri!ati$ation* also declared in its A%ending Letters Patent that ("nlife wo"ld be a %"t"al co%pany effecti!e J"ne , ,--.. In the Philippines the Ins"rance Co%%issioner also granted it ann"al Certificates of A"thority to transact life ins"rance b"siness the %ost rele!ant of which were dated J"ly , ,--3 and J"ly , ,--H. A %"t"al life ins"rance co%pany is cond"cted for the benefit of its %e%berpolicyholders who pay into its capital by way of pre%i"%s. To that e#tent they are responsible for the pay%ent of all its losses. =The cash paid in for pre%i"%s and the pre%i"% notes constit"te their assets # # #.> In the e!ent that the co%pany itself fails before the ter%s of the policies e#pire the %e%ber-policyholders do not acG"ire the stat"s of creditors. 9ather they si%ply beco%e debtors for whate!er pre%i"%s that they ha!e originally agreed to pay the co%pany if they ha!e not yet paid those a%o"nts in f"ll for =%"t"al co%panies # # # depend solely "pon # # # pre%i"%s.> 8nly when the pre%i"%s will ha!e acc"%"lated to a s"% larger than that reG"ired to pay for co%pany losses will the %e%ber-policyholders be entitled to a = pro rata di!ision thereof as profits.> Contrib"ting to its capital the %e%ber-policyholders of a %"t"al co%pany are ob!io"sly also its owners. ("staining a d"al relationship inter se they not only contrib"te to the pay%ent of its losses b"t are also entitled to a proportionate share and participate alike in its profits and s"rpl"s. (haring in the co%%on f"nd any %e%ber-policyholder %ay choose to withdraw di!idends in cash or to apply the% in order to red"ce a s"bseG"ent pre%i"% p"rchase additional ins"rance or accelerate the pay%ent period. Altho"gh the pre%i"% %ade at the beginning of a year is %ore than necessary to pro!ide for the cost of carrying the ins"rance the %e%berpolicyholder will ne!ertheless recei!e the benefit of the o!ercharge by way of di!idends at the end of the year when the cost is act"ally ascertained. =The declaration of a di!idend "pon a policy red"ces pro tanto the cost of ins"rance to the holder of the policy. That is its p"rpose and effect.> The so-called =di!idend> that is recei!ed by %e%ber-policyholders is not a portion of profits set aside for distrib"tion to the stockholders in proportion to their s"bscription to the capital stock of a corporation. <ne a %"t"al co%pany has no capital stock to which s"bscription is necessary@ there are no stockholders to speak of b"t only %e%bers. And# t&o the a%o"nt they recei!e does not partake of the nat"re of a profit or inco%e. The G"asiappearance of profit will not change its character. It re%ains an overpa$ment a benefit to which the %e%ber-policyholder is eG"itably entitled. 'erily a %"t"al life ins"rance corporation is a cooperati!e that pro%otes the welfare of its own %e%bers. It does not operate for profit b"t for the %"t"al benefit of its %e%ber-policyholders. They recei!e their ins"rance at cost while reasonably and properly g"arding and %aintaining the stability and sol!ency of the co%pany. =The econo%ic benefits filter to the cooperati!e %e%bers. 7ither eG"ally or proportionally they are distrib"ted a%ong %e%bers in correlation with the reso"rces of the association "tili$ed.> It does not follow that beca"se respondent is registered as a nonstock corporation and th"s e#ists for a p"rpose other than profit the co%pany can no longer %ake any profits. 7arning profits is %erely its secondary not pri%ary p"rpose. In fact it %ay not lawf"lly engage in any b"siness acti!ity for profit for to do so wo"ld change or contradict its nat"re as a non-profit entity. It %ay howe!er in!est its corporate f"nds in order to earn additional inco%e for paying its operating e#penses and %eeting benefit clai%s. Any e#cess profit it obtains as an incident to its operations can only be "sed whene!er necessary or proper for the f"rtherance of the p"rpose for which it was organi$ed. The Ta# Code is clear. 8n the one hand (ection ,., of the Code e#e%pts cooperati!e co%panies fro% the + percent percentage ta# on ins"rance pre%i"%s. 8n the other hand (ection ,-- also e#e%pts fro% the 6(T policies of ins"rance or ann"ities %ade or granted by cooperati!e co%panies. 5eing a cooperati!e respondent is th"s e#e%pt fro% both types of ta#es. It is worthy to note that while 9A HB.B a%ending the Ta# Code has deleted the inco%e ta# of ,: percent i%posed "pon the gross in!est%ent inco%e of %"t"al life ins"rance co%panies -- do%estic and foreign -- the pro!isions of (ection ,., and ,-- re%ain "nchanged.

0a!ing been seasonably filed and a%ply s"bstantiated the clai% for e#e%ption in the a%o"nt of P4, BH+ H;B.+, representing percentage ta#es on ins"rance pre%i"%s and doc"%entary sta%p ta#es on policies of ins"rance or ann"ities that were paid by respondent in ,--3 is in order. Th"s the grant of a ta# credit certificate to respondent as ordered by the appellate co"rt was correct. C"a%te$ I / 2E2BERS Sec# 79# %ight to vote. - The right of the %e%bers of any class or classes to !ote %ay be li%ited broadened or denied to the e#tent specified in the articles of incorporation or the by-laws. Inless so li%ited broadened or denied each %e%ber regardless of class shall be entitled to one !ote. Inless otherwise pro!ided in the articles of incorporation or the by-laws a %e%ber %ay !ote by pro#y in accordance with the pro!isions of this Code. )n* 'oting by %ail or other si%ilar %eans by %e%bers of non-stock corporations %ay be a"thori$ed by the by-laws of non-stock corporations with the appro!al of and "nder s"ch conditions which %ay be prescribed by the (ec"rities and 7#change Co%%ission. Sec# 90# 'on-transferability of membership. - Me%bership in a non-stock corporation and all rights arising therefro% are personal and non-transferable "nless the articles of incorporation or the by-laws otherwise pro!ide. )n* Sec# 9 # &ermination of membership. - Me%bership shall be ter%inated in the %anner and for the ca"ses pro!ided in the articles of incorporation or the by-laws. Ter%ination of %e%bership shall ha!e the effect of e#ting"ishing all rights of a %e%ber in the corporation or in its property "nless otherwise pro!ided in the articles of incorporation or the by-laws. )n* C"inese ;2CA Vs# C"ing &( S ')0+ ,acts'ictor Ching filed an action for %anda%"s with preli%inary in2"nction against Chinese Mo"ng MenCs Christian Association of the Philippine Islands )Chinese MMCA for short* 1illia% &olangco in his capacity as 6irector and President of the Chinese MMCA and J"anito D. Tan in his capacity as 9ecording (ecretary of the Chinese MMCA. Ching anchored his action in the Co"rt of Airst Instance of Manila "pon the clai% that the Me%bership Ca%paign of the Chinese MMCA for ,-44 held fro% (epte%ber .3 ,-4+ "p to No!e%ber .4 ,-4+ only ,3+ applications for %e%bership were s"b%itted can!assed and accepted on the last day of the %e%bership ca%paign which was No!e%ber .4 ,-4+ at +?:: p.%. The herein petitioners on the other hand alleged that .B- %e%bership applications incl"ding the ,:4 s"b%itted thro"gh respondent Ching were filed d"ring the ca%paign period. A"rther the petitioners denied that there was any co"nting and<or appro!al of %e%bership applications that took place on No!e%ber .4 ,-4+ as "nder the Constit"tion and 5y-Laws of the Chinese MMCA %e%bership applications had to be screened by its Me%bership Co%%ittee endorsed fa!orably to its 5oard of 6irectors and appro!ed by the latter body by two-thirds %a2ority !ote. It is clai%ed by the petitioners that of the .B- applications s"b%itted ,3B were fa!orably endorsed by the Me%bership Co%%ittee to the 5oard of 6irectors and s"bseG"ently appro!ed by the latter. (e!enty-fi!e applications which were a%ong those s"b%itted by respondent Ching were not appro!ed for the reason that said respondent had gi!en "stop-pay%ent" orders on the checks s"b%itted by hi% and so%e others to co!er pay%ent of the fees corresponding to these 3+ applications. Accordingly petitioners contend that the ,-44 %e%bership of the Chinese MMCA sho"ld be constit"ted as they are constit"ted only by those ,3B applicants whose applications were appro!ed by the Chinese MMCA 5oard of 6irectors. The Co"rt of Airst Instance of Manila rendered its decision ann"lling the ,-44 ann"al %e%bership ca%paign of the respondent Chinese MMCA of the Philippine Islands witho"t pre2"dice to the holding of another one in lie" thereof@ declaring as witho"t legal effect the res"lts of the sa%e incl"ding the appro!al of ,3B applications to constit"te the present acti!e %e%bership of the association@ %aking per%anent the preli%inary in2"nction iss"ed in this case en2oining the respondents fro% holding the ann"al election of the respondent association "ntil s"ch ti%e that a new list of %e%bers shall ha!e been finali$ed@ and dis%issing the co"nterclai% of the respondents. Iss.e1<N respondent Co"rt of Appeals erred in ann"lling the ,-44 ann"al %e%bership ca%paign of MMCA and in declaring in!alid the appro!al by MMCA of ,3B applications for %e%bership R.lingThe position adopted by both the trial co"rt and the Co"rt of Appeals on the basis of the trial co"rtCs con2ect"re and spec"lation is not 2"stified.

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The doc"%entary e!idence itself as cited by the trial co"rt consisting of the applications and the receipts for pay%ent of the %e%bership fees show that they were filed and paid not later than the No!e%ber .4 ,-4+ deadline and this was f"rther s"pported by the bank state%ent of the petitioner MMCA deposit acco"nt with the China 5anking Corporation and the checks paid by certain %e%bers to the MMCA which show that the application fees corresponding to the G"estioned 3B applications )that raised the total to .Bfro% ,3+* were already paid to petitioner MMCA as the ti%e of the said deadline. No e!idence co"ld be cited by the trial co"rt to reb"t this well nigh concl"si!e doc"%entary e!idence other than respondentCs "ns"pported s"spicion which the trial co"rt adopted in a negati!e %anner with its state%ent that it is "not i%probable" that" some of those applications filed after said deadline". If there were indeed any applications filed after the deadline they certainly sho"ld ha!e been positi!ely pin-pointed and specifically ann"lled. 1hat is worse ,3+ %e%bership applications were "ndisp"tedly filed within the deadline )incl"ding the 3+ withdrawn by respondent* and yet the ,:: re%aining "nG"estioned %e%berships were n"llified by the G"estioned decision witho"t the indi!id"als concerned e!er ha!ing been i%pleaded or heard )e#cept the indi!id"al petitioners president and secretary*. The appealed decision th"s contra!ened the established principle that the co"rts cannot strip a %e%ber of a non-stock non-profit corporation of his %e%bership therein witho"t ca"se. 8therwise that wo"ld be an "nwarranted and "nd"e interference with the well established right of a corporation to deter%ine its %e%bership as anno"nced by Aletcher as follows? Co%pliance with pro!isions of charter constit"tion or by-laws. WIn order that %e%bership %ay be acG"ired in a non-stock corporation and !alid by-laws %"st be co%plied with e#cept in so far as they %ay be and are wai!ed. UUU 5"t pro!isions in the by-laws as to for%al steps to be taken to acG"ire %e%bership %ay be wai!ed by the corporation or it %ay be estopped to assert that they ha!e not been taken. Ainally the appealed decision did not gi!e d"e i%portance to the "ndisp"ted fact therein stated that "at the board %eeting of the association held on 6ece%ber 3 ,-4+ a list of ,3B applications for %e%bership old and new was s"b%itted to the board and appro!ed by the latter o!er the ob2ection of the petitioner Etherein pri!ate respondentF who was present at said %eeting." ("ch action of the petitioner associationCs board of directors appro!ing the ,3B %e%bership applications of old and new %e%bers constit"ting its acti!e %e%bership as d"ly processed and screened by the a"thori$ed co%%ittee 2"st be dee%ed a wai!er on its part of any technicality or reG"ire%ent of for% since otherwise the association wo"ld be practically paraly$ed and depri!ed of the s"bstantial re!en"es fro% the %e%bership d"es of P,3 B::.:: )at P,::.:: per application*.

the designated site and con!ened an election for 6istrict &o!ernor between the two candidates Lion (o and Lion Josefa. (o that there were two elections held on J"ne 4 ,-H. for the office of 6istrict &o!ernor of 6istrict ;:,-Al. 8ne election was held as a part of the official 6istrict Con!ention at the designated election %eeting site the Little Theater 8longapo National 0igh (chool at which Lion (o recei!ed ,B3 !otes and Lion Josefa recei!ed ; !otes. And the other election was held at the Ad%iral 9oyale 0otel at which Lion Josefa recei!ed ,,+ !otes. The action of 6istrict &o!ernor 0"ang in transferring the election %eeting away fro% the con!ention site was witho"t appro!al of a %a2ority of the delegates and was witho"t any clear a"thority and 2"stification. The said election %eeting held at the Little Theatre 8longapo National 0igh (chool was properly cond"cted and res"lted in the election of Lion (o. (aid election of Lion (o was d"ly certified by the official 7lection Co%%ittee Chair%an Lion 7rnesto CastaSeda appointed by 6istrict &o!ernor 0"ang and 6istrict &o!ernor 5eleno of 6istrict ;:,-7 the official M"ltiple 6istrict Co"ncil representati!e. 'icente Josefa filed a co%plaint for R"o 1arranto In2"nction 6a%ages with writ of preli%inary in2"nction and prayer for te%porary restraining order in the Co"rt of Airst Instance of Manila against Lions Cl"bs International and Ja%es L. (o. Ainding the foregoing allegations of the co%plaint to be s"fficient in for% and s"bstance the Co"rt of Airst Instance on the sa%e date J"ly , ,-H. iss"ed a te%porary restraining order en2oining (o fro% ass"%ing the powers and prerogati!es of the office of &o!ernor of 6istrict ;:,-Al and Lions Cl"bs International represented by Antonio 9a%os fro% recogni$ing and proclai%ing (o as the &o!ernor of 6istrict ;:,-Al for the fiscal year ,-H.,-H;. 8n J"ly H ,-H. defendants (o and Lions Cl"b International filed a Motion to 6is%iss and to Lift 9estraining 8rder. The Co"rt of Airst Instance iss"ed an 8rder denying defendantsC %otion to dis%iss. Ainding the Motion to lift restraining order to be %eritorio"s the Co"rt set aside said restraining order. 0erein petitioners Lions Cl"bs International and Ja%es L. (o now co%e to this Co"rt attrib"ting gra!e ab"se of discretion to the Co"rt of Airst Instance of Manila for the denial of their Motion to 6is%iss dated J"ly 4 ,-H. and contending that the Co"rt of Appeals acted in e#cess of its 2"risdiction in iss"ing its te%porary restraining order of J"ly .- ,-H.. As prayed for by said petitioners 1e iss"ed on A"g"st B ,-H. a te%porary restraining order en2oining the enforce%ent of the assailed te%porary restraining order of the Co"rt of Appeals. It is petitionersC s"b%ission that the s"b2ect %atter of the instant case is p"rely an internal affair of the Lions organi$ation and therefore is beyond 2"dicial re!iew. 8n the other hand pri!ate respondent %aintains that co"rt inter!ention is warranted when as he alleges in this case there is fra"d oppression. bad faith when the proceedings in G"estion are !iolati!e of the laws of the association or where the proceedings are illegal. Iss.e1<N there is the 2"sticiability of the election disp"te between herein petitioner Ja%es L. (o and pri!ate respondent 'icente Josefa for the position of 6istrict &o!ernor of 6istrict ;:,-Al Philippines R.lingThe general r"le is that "... the co"rts will not interfere with the internal affairs of an "nincorporated association so as to settle disp"tes between the %e%bers or G"estions of policy discipline or internal go!ern%ent so long as the go!ern%ent of the society is fairly and honestly ad%inistered in confor%ity with its laws and the law of the land and no property or ci!il rights are in!aded. Inder s"ch circ"%stances the decision of the go!erning body or established pri!ate trib"nal of the association is binding and concl"si!e and not s"b2ect to re!iew or collateral attack in the co"rts. " The general r"le of non-interference in the internal affairs of associations is howe!er s"b2ect to e#ceptions b"t the power of re!iew is e#tre%ely li%ited. Accordingly the co"rts ha!e and will e#ercise power to interfere in the internal affairs of an association where law and 2"stice so reG"ire and the proceedings of the association are s"b2ect to 2"dicial re!iew where there is fra"d oppression or bad faith or where the action co%plained of is capricio"s arbitrary or "n2"stly discri%inatory. Also the co"rts will "s"ally entertain 2"risdiction to grant relief in case property or ci!il rights are in!aded altho"gh it has also been held that the in!ol!e%ent of property rights does not necessarily a"thori$e 2"dicial inter!ention in the absence of arbitrariness fra"d or coll"sion. Moreo!er the co"rts will inter!ene where the proceedings in G"estion are !iolati!e of the laws of the society or the law of the land as by depri!ing a person of d"e process of law. (i%ilarly 2"dicial inter!ention is warranted where there is a lack of 2"risdiction on the part of the trib"nal cond"cting the proceedings where the organi$ation e#ceeds its powers or where the proceedings are otherwise illegal.

C"a%te$ II / TRUSTEES AND O,,ICERS Sec# 92# lection and term of trustees. - Inless otherwise pro!ided in the articles of incorporation or the by-laws the board of tr"stees of non-stock corporations which %ay be %ore than fifteen ),+* in n"%ber as %ay be fi#ed in their articles of incorporation or by-laws shall as soon as organi$ed so classify the%sel!es that the ter% of office of one-third ),<;* of their n"%ber shall e#pire e!ery year@ and s"bseG"ent elections of tr"stees co%prising onethird ),<;* of the board of tr"stees shall be held ann"ally and tr"stees so elected shall ha!e a ter% of three );* years. Tr"stees thereafter elected to fill !acancies occ"rring before the e#piration of a partic"lar ter% shall hold office only for the "ne#pired period. No person shall be elected as tr"stee "nless he is a %e%ber of the corporation. Inless otherwise pro!ided in the articles of incorporation or the by-laws officers of a non-stock corporation %ay be directly elected by the %e%bers. )n* Lions Cl.4 Vs# A:o$es & 2 S )2 + ,actsThe principal ad!ersaries in this contro!ersy are respondent 'icente Josefa of the Manila Traders Lions Cl"b and petitioner Ja%es L. (o of the Manila Centr"% Lions Cl"b which Lions cl"bs are d"ly organi$ed chartered and affiliated with Lions Cl"bs International ha!ing its International offices at ;:: ..nd (treet 8akbrook Illinois 4:+3: I.(.A. The Manila Traders Lions Cl"b and the Manila Centr"% Lions Cl"b together with other Lions cl"bs are e%braced and constit"ted into the newly organi$ed 6istrict ;:,-Al. The Lions districts in the co"ntry for% the so-called M"ltiple 6istrict ;:, Philippines. All cl"bs so organi$ed and chartered "nder the Constit"tion of Lions Cl"bs International are "nder the e#cl"si!e s"per!ision of the International 5oard of 6irectors. Josefa and (o were properly no%inated candidates for the office of 6istrict &o!ernor 6istrict ;:,-Al for the fiscal year ,-H.-H;. 8ne ho"r after the designated con!ening ti%e 6istrict &o!ernor 0"ang transferred the election %eeting fro% the designated site to the Ad%iral 9oyal 0otel. After the anno"nce%ent of 6istrict &o!ernor 0"ang transferring the election %eeting a %a2ority of the delegates of the newly a"thori$ed 6istrict ;:,-Al re%ained at

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In accordance with the general r"les as to 2"dicial interference cited abo!e the decision of an "nincorporated association on the G"estion of an election to office is a %atter pec"liarly and e#cl"si!ely to be deter%ined by the association and in the absence of fra"d is final and binding on the co"rts. )3 C.J.(. p. BB*. The instant contro!ersy between petitioner (o and respondent Josefa falls sG"arely within the a%bit of the r"le of 2"dicial non-inter!ention or noninterference. The elections in disp"te the %anner by which it was cond"cted and the res"lts thereof is strictly the internal affair that concerns only the Lions association and<or its %e%bers and 1e find fro% the records that the sa%e was resol!ed within the organi$ation of Lions Cl"bs International in accordance with the Constit"tion and 5y-Laws which are not i%%oral "nreasonable contrary to p"blic policy or in contra!ention of the laws of the land. It is of 2"dicial notice that a Lions cl"b is a !ol"ntary association of ci!ic%inded %en whose general p"rpose and ai% is to ser!e the people and the co%%"nity. It appears fro% the records that d"ly organi$ed and chartered Lions cl"bs all o!er the world are "nder the s"per!ision of the %other cl"b known as The International Association of Lions Cl"bs for Lions Cl"bs International* which holds international offices in Illinois I.(.A. and is go!erned by its constit"tion and by-laws. The records disclose that the election disp"te between petitioner Ja%es L. (o and respondent 'icente Josefa was bro"ght before and ele!ated to the International 5oard of 6irectors thro"gh the Constit"tion and 5y-Laws Co%%ittee of Lions Cl"bs International ;:: ..nd (treet 8akbrook Illinois 4:+3: I.(.A. At the %eeting of the International 5oard of 6irectors held on J"ne .3 ,-H. the election of petitioner Ja%es L. (o to ser!e as 6istrict &o!ernor of 6istrict ;:,-Al for the fiscal year ,-H.-H; was appro!ed and said petitioner was d"ly infor%ed thereof by 9ichard &. 9ice Manager 6istrict 8perations 6epart%ent Lions Cl"bs International in his letter dated J"ly H ,-H.. Petitioner attended and co%pleted the 6istrict &o!ernorsC 7#ec"ti!e (e%inar as 6istrict &o!ernor of ;:,-Al. 8n J"ne .- ,-H. petitioner (o was proclai%ed sworn to and installed to office as 6istrict &o!ernor of 6istrict ;:,-Al by the President of Lions International at the close of the 4+th Lions Cl"bs International Con!ention held in Atlanta &eorgia I.(.A. The 9eport of the Constit"tion and 5y-laws Co%%ittee d"ly appro!ed and adopted by the International 5oard of 6irectors clearly belies the clai% of in2"stice alleged by respondent Josefa in his co%plaint in Ci!il Case No. H.,:+HH that petitioner (o was illegally and arbitrarily no%inated@ that the latterCs election was illegal and that he )Josefa* was legally elected in a !alid election held at the new !en"e and was d"ly proclai%ed by the (tate Co"ncil of &o!ernors and that Lions International "nlawf"lly recogni$ed (o as the winner on the basis of his illegal election. These findings "pon the e!idence s"b%itted and e#a%ined at the hearing of the election protest before the Co%%ittee personally attended by both (o and Josefa %ay not be dist"rbed by the co"rts. The decision of the AssociationCs trib"nal the International 5oard of 6irectors is controlling since respondent Josefa alleges no in!asion of this property or ci!il rights and neither is it clai%ed that the go!ern%ent of the Association is not fairly and honestly ad%inistered in confor%ity with its laws and the law of the land. And since the disp"ted election to the position of 6istrict &o!ernor is within the pec"liar pro!ince and f"nction of Lions International thro"gh its established trib"nal to decide and deter%ine in accordance with its go!erning laws its resol"tion %ay not be G"estioned elsewhere %"ch less in the co"rts. In essence the co"rts considering the nat"re of the action or s"it at bar are witho"t 2"risdiction and a"thority to re!iew and re!erse the decision of the International 5oard of 6irectors Lions Cl"bs International appro!ing and recogni$ing the petitioner as d"ly elected 6istrict &o!ernor of 6istrict ;:,-A, for the fiscal year ,-H.-,-H;. Sec# 9*# =lace of meetings. - The by-laws %ay pro!ide that the %e%bers of a non-stock corporation %ay hold their reg"lar or special %eetings at any place e!en o"tside the place where the principal office of the corporation is located? Pro!ided That proper notice is sent to all %e%bers indicating the date ti%e and place of the %eeting? and Pro!ided f"rther That the place of %eeting shall be within the Philippines.

.. Assets held by the corporation "pon a condition reG"iring ret"rn transfer or con!eyance and which condition occ"rs by reason of the dissol"tion shall be ret"rned transferred or con!eyed in accordance with s"ch reG"ire%ents@ ;. Assets recei!ed and held by the corporation s"b2ect to li%itations per%itting their "se only for charitable religio"s bene!olent ed"cational or si%ilar p"rposes b"t not held "pon a condition reG"iring ret"rn transfer or con!eyance by reason of the dissol"tion shall be transferred or con!eyed to one or %ore corporations societies or organi$ations engaged in acti!ities in the Philippines s"bstantially si%ilar to those of the dissol!ing corporation according to a plan of distrib"tion adopted p"rs"ant to this Chapter@ B. Assets other than those %entioned in the preceding paragraphs if any shall be distrib"ted in accordance with the pro!isions of the articles of incorporation or the by-laws to the e#tent that the articles of incorporation or the by-laws deter%ine the distrib"ti!e rights of %e%bers or any class or classes of %e%bers or pro!ide for distrib"tion@ and +. In any other case assets %ay be distrib"ted to s"ch persons societies organi$ations or corporations whether or not organi$ed for profit as %ay be specified in a plan of distrib"tion adopted p"rs"ant to this Chapter. )n* Sec# 91# =lan of distribution of assets. - A plan pro!iding for the distrib"tion of assets not inconsistent with the pro!isions of this Title %ay be adopted by a non-stock corporation in the process of dissol"tion in the following %anner? The board of tr"stees shall by %a2ority !ote adopt a resol"tion reco%%ending a plan of distrib"tion and directing the s"b%ission thereof to a !ote at a reg"lar or special %eeting of %e%bers ha!ing !oting rights. 1ritten notice setting forth the proposed plan of distrib"tion or a s"%%ary thereof and the date ti%e and place of s"ch %eeting shall be gi!en to each %e%ber entitled to !ote within the ti%e and in the %anner pro!ided in this Code for the gi!ing of notice of %eetings to %e%bers. ("ch plan of distrib"tion shall be adopted "pon appro!al of at least two-thirds ).<;* of the %e%bers ha!ing !oting rights present or represented by pro#y at s"ch %eeting. )n* TITLE KII CLOSE CORPORATIONS Sec# 9)# Definition and applicability of &itle. - A close corporation within the %eaning of this Code is one whose articles of incorporation pro!ide that? ),* All the corporationCs iss"ed stock of all classes e#cl"si!e of treas"ry shares shall be held of record by not %ore than a specified n"%ber of persons not e#ceeding twenty ).:*@ ).* all the iss"ed stock of all classes shall be s"b2ect to one or %ore specified restrictions on transfer per%itted by this Title@ and );* The corporation shall not list in any stock e#change or %ake any p"blic offering of any of its stock of any class. Notwithstanding the foregoing a corporation shall not be dee%ed a close corporation when at least twothirds ).<;* of its !oting stock or !oting rights is owned or controlled by another corporation which is not a close corporation within the %eaning of this Code. Any corporation %ay be incorporated as a close corporation e#cept %ining or oil co%panies stock e#changes banks ins"rance co%panies p"blic "tilities ed"cational instit"tions and corporations declared to be !ested with p"blic interest in accordance with the pro!isions of this Code. The pro!isions of this Title shall pri%arily go!ern close corporations? Pro!ided That the pro!isions of other Titles of this Code shall apply s"ppletorily e#cept insofar as this Title otherwise pro!ides.

San <.an St$.ct.$al Vs# CA &29) S )* + ,acts(an J"an (tr"ct"ral and (teel Aabricators Inc.Cs entered into an agree%ent with Motorich (ales Corporation for the transfer to it of a parcel of land identified as Lot ;: 5lock , of the Acropolis &reens ("bdi!ision located in the 6istrict of M"rphy R"e$on City Metro Manila containing an area of Ao"r 0"ndred Ao"rteen )B,B* sG"are %eters. As stip"lated in the Agree%ent of ,B Aebr"ary ,-H- (an J"an paid the downpay%ent in the s"% of 8ne 0"ndred Tho"sand )P,:: :::.::* Pesos the balance to be paid on or before March . ,-H-. (an J"an (tr"ct"ral and (teel Aabricators Inc. alleges that on Aebr"ary ,B ,-H- it entered thro"gh its president Andres Co into the disp"ted Agree%ent with Motorich (ales Corporation which was in t"rn allegedly represented by its treas"rer Nenita Lee &r"enberg. Petitioner also arg"es that the !eil of corporate fiction of Motorich sho"ld be pierced beca"se the latter is a close corporation. (ince "(po"ses 9eynaldo L. &r"enberg and Nenita 9. &r"enberg owned all or al%ost all or --.H44N to be acc"rate of the s"bscribed capital stock" of Motorich petitioner arg"es that &r"enberg needed no a"thori$ation fro% the board to enter into the s"b2ect contract. It adds that being solely owned by the (po"ses &r"enberg

C"a%te$ III / DISTRIBUTION O, ASSETS IN NON/STOCH CORPORATIONS Sec# 9'# %ules of distribution. - In case dissol"tion of a non-stock corporation in accordance with the pro!isions of this Code its assets shall be applied and distrib"ted as follows? ,. All liabilities and obligations of the corporation shall be paid satisfied and discharged or adeG"ate pro!ision shall be %ade therefore@

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the co%pany can treated as a close corporation which can be bo"nd by the acts of its principal stockholder who needs no specific a"thority. Iss.e1<N Motorich is a close corporation R.lingIt is not. (ection -4 of the Corporation Code defines a close corporation as follows? (ec. -4. ;efinition and Applicabilit$ of ,itle . W A close corporation within the %eaning of this Code is one whose articles of incorporation pro!ide that? ),* All of the corporationCs iss"ed stock of all classes e#cl"si!e of treas"ry shares shall be held of record by not %ore than a specified n"%ber of persons not e#ceeding twenty ).:*@ ).* All of the iss"ed stock of all classes shall be s"b2ect to one or %ore specified restrictions on transfer per%itted by this Title@ and );* The corporation shall not list in any stock e#change or %ake any p"blic offering of any of its stock of any class. Notwithstanding the foregoing a corporation shall be dee%ed not a close corporation when at least two-thirds ).<;* of its !oting stock or !oting rights is owned or controlled by another corporation which is not a close corporation within the %eaning of this Code. . . . The articles of incorporation of Motorich (ales Corporation does not contain any pro!ision stating that ),* the n"%ber of stockholders shall not e#ceed .: or ).* a pree%ption of shares is restricted in fa!or of any stockholder or of the corporation or );* listing its stocks in any stock e#change or %aking a p"blic offering of s"ch stocks is prohibited. Aro% its articles it is clear that Motorich is not a close corporation. Motorich does not beco%e one either 2"st beca"se (po"ses 9eynaldo and Nenita &r"enberg owned --.H44N of its s"bscribed capital stock. The "%ere ownership by a single stockholder or by another corporation of all or capital stock of a corporation is not of itself s"fficient gro"nd for disregarding the separate corporate personalities." (o too a narrow distrib"tion of ownership does not by itself %ake a close corporation. Petitioner cites Manuel =. ;ula$ 6nterprises# -nc. v. Court of Appeals wherein the Co"rt r"led that ". . . petitioner corporation is classified as a close corporation and conseG"ently a board resol"tion a"thori$ing the sale or %ortgage of the s"b2ect property is not necessary to bind the corporation for the action of its president." 5"t the fact"al %ilie" in ;ula$ is not on all fo"rs with the present case. In ;ula$ the sale of real property was contracted by the president of a close corporation with the knowledge and acG"iescence of its board of directors. In the present case Motorich is not a close corporation as pre!io"sly disc"ssed and the agree%ent was entered into by the corporate treas"rer witho"t the knowledge of the board of directors. The Co"rt is not "naware that there are e#ceptional cases where "an action by a director who singly is the controlling stockholder %ay be considered as a binding corporate act and a board action as nothing %ore than a %ere for%ality." The present case howe!er is not one of the%. As stated by petitioner (po"ses 9eynaldo and Nenita &r"enberg own "al%ost --.H44N" of 9espondent Motorich. (ince Nenita is not the sole controlling stockholder of Motorich the afore%entioned e#ception does not apply. &ranting arguendo that the corporate !eil of Motorich is to be disregarded the s"b2ect parcel of land wo"ld then be treated as con2"gal property of (po"ses &r"enberg beca"se the sa%e was acG"ired d"ring their %arriage. There being no indication that said spo"ses who appear to ha!e been %arried before the effecti!ity of the Aa%ily Code ha!e agreed to a different property regi%e their property relations wo"ld be go!erned by con2"gal partnership of gains. As a conseG"ence Nenita &r"enberg co"ld not ha!e effected a sale of the s"b2ect lot beca"se "there is no co-ownership between the spo"ses in the properties of the con2"gal partnership of gains. 0ence neither spo"se can alienate in fa!or of another his<her interest in the partnership nor in any property belonging to it@ neither spo"se can ask for a partition of the properties before the partnership has been legally dissol!ed." Ass"%ing f"rther for the sake of arg"%ent that the spo"sesC property regi%e is the absol"te co%%"nity of property the sale wo"ld still be in!alid. Inder this regi%e "alienation of co%%"nity property %"st ha!e the written consent of the other spo"se or he a"thority of the co"rt witho"t which the disposition or enc"%brance is void." 5oth reG"ire%ents are %anifestly absent in the instant case. Sec# 9(# Articles of incorporation. - The articles of incorporation of a close corporation %ay pro!ide? ,. Aor a classification of shares or rights and the G"alifications for owning or holding the sa%e and restrictions on their transfers as %ay be stated therein s"b2ect to the pro!isions of the following section@

.. Aor a classification of directors into one or %ore classes each of who% %ay be !oted for and elected solely by a partic"lar class of stock@ and ;. Aor a greater G"or"% or !oting reG"ire%ents in %eetings of stockholders or directors than those pro!ided in this Code. The articles of incorporation of a close corporation %ay pro!ide that the b"siness of the corporation shall be %anaged by the stockholders of the corporation rather than by a board of directors. (o long as this pro!ision contin"es in effect? ,. No %eeting of stockholders need be called to elect directors@ .. Inless the conte#t clearly reG"ires otherwise the stockholders of the corporation shall be dee%ed to be directors for the p"rpose of applying the pro!isions of this Code@ and ;. The stockholders of the corporation shall be s"b2ect to all liabilities of directors. The articles of incorporation %ay likewise pro!ide that all officers or e%ployees or that specified officers or e%ployees shall be elected or appointed by the stockholders instead of by the board of directors. Sec# 97# 0alidity of restrictions on transfer of shares. - 9estrictions on the right to transfer shares %"st appear in the articles of incorporation and in the by-laws as well as in the certificate of stock@ otherwise the sa%e shall not be binding on any p"rchaser thereof in good faith. (aid restrictions shall not be %ore onero"s than granting the e#isting stockholders or the corporation the option to p"rchase the shares of the transferring stockholder with s"ch reasonable ter%s conditions or period stated therein. If "pon the e#piration of said period the e#isting stockholders or the corporation fails to e#ercise the option to p"rchase the transferring stockholder %ay sell his shares to any third person. Sec# 99# ffects of issuance or transfer of stoc) in breach of qualifying conditions. ? ,. If stock of a close corporation is iss"ed or transferred to any person who is not entitled "nder any pro!ision of the articles of incorporation to be a holder of record of its stock and if the certificate for s"ch stock conspic"o"sly shows the G"alifications of the persons entitled to be holders of record thereof s"ch person is concl"si!ely pres"%ed to ha!e notice of the fact of his ineligibility to be a stockholder. .. If the articles of incorporation of a close corporation states the n"%ber of persons not e#ceeding twenty ).:* who are entitled to be holders of record of its stock and if the certificate for s"ch stock conspic"o"sly states s"ch n"%ber and if the iss"ance or transfer of stock to any person wo"ld ca"se the stock to be held by %ore than s"ch n"%ber of persons the person to who% s"ch stock is iss"ed or transferred is concl"si!ely pres"%ed to ha!e notice of this fact. ;. If a stock certificate of any close corporation conspic"o"sly shows a restriction on transfer of stock of the corporation the transferee of the stock is concl"si!ely pres"%ed to ha!e notice of the fact that he has acG"ired stock in !iolation of the restriction if s"ch acG"isition !iolates the restriction. B. 1hene!er any person to who% stock of a close corporation has been iss"ed or transferred has or is concl"si!ely pres"%ed "nder this section to ha!e notice either )a* that he is a person not eligible to be a holder of stock of the corporation or )b* that transfer of stock to hi% wo"ld ca"se the stock of the corporation to be held by %ore than the n"%ber of persons per%itted by its articles of incorporation to hold stock of the corporation or )c* that the transfer of stock is in !iolation of a restriction on transfer of stock the corporation %ay at its option ref"se to register the transfer of stock in the na%e of the transferee. +. The pro!isions of s"bsection )B* shall not applicable if the transfer of stock tho"gh contrary to s"bsections ),* ).* of );* has been consented to by all the stockholders of the close corporation or if the close corporation has a%ended its articles of incorporation in accordance with this Title. 4. The ter% "transfer" as "sed in this section is not li%ited to a transfer for !al"e. 3. The pro!isions of this section shall not i%pair any right which the transferee %ay ha!e to rescind the transfer or to reco!er "nder any applicable warranty e#press or i%plied. Sec# 00# Agreements by stoc)holders. P ,. Agree%ents by and a%ong stockholders e#ec"ted before the for%ation and organi$ation of a close corporation signed by all stockholders shall s"r!i!e the incorporation of s"ch corporation and shall contin"e to be !alid and binding between and a%ong s"ch stockholders if s"ch be their intent to the e#tent that s"ch agree%ents are not inconsistent with the articles of

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incorporation irrespecti!e of where the pro!isions of s"ch agree%ents are contained e#cept those reG"ired by this Title to be e%bodied in said articles of incorporation. .. An agree%ent between two or %ore stockholders if in writing and signed by the parties thereto %ay pro!ide that in e#ercising any !oting rights the shares held by the% shall be !oted as therein pro!ided or as they %ay agree or as deter%ined in accordance with a proced"re agreed "pon by the%. ;. No pro!ision in any written agree%ent signed by the stockholders relating to any phase of the corporate affairs shall be in!alidated as between the parties on the gro"nd that its effect is to %ake the% partners a%ong the%sel!es. B. A written agree%ent a%ong so%e or all of the stockholders in a close corporation shall not be in!alidated on the gro"nd that it so relates to the cond"ct of the b"siness and affairs of the corporation as to restrict or interfere with the discretion or powers of the board of directors? Pro!ided That s"ch agree%ent shall i%pose on the stockholders who are parties thereto the liabilities for %anagerial acts i%posed by this Code on directors. +. To the e#tent that the stockholders are acti!ely engaged in the %anage%ent or operation of the b"siness and affairs of a close corporation the stockholders shall be held to strict fid"ciary d"ties to each other and a%ong the%sel!es. (aid stockholders shall be personally liable for corporate torts "nless the corporation has obtained reasonably adeG"ate liability ins"rance. Sec# 0 # When board meeting is unnecessary or improperly held. Inless the by-laws pro!ide otherwise any action by the directors of a close corporation witho"t a %eeting shall ne!ertheless be dee%ed !alid if? ,. 5efore or after s"ch action is taken written consent thereto is signed by all the directors@ or .. All the stockholders ha!e act"al or i%plied knowledge of the action and %ake no pro%pt ob2ection thereto in writing@ or ;. The directors are acc"sto%ed to take infor%al action with the e#press or i%plied acG"iescence of all the stockholders@ or B. All the directors ha!e e#press or i%plied knowledge of the action in G"estion and none of the% %akes pro%pt ob2ection thereto in writing. If a directorCs %eeting is held witho"t proper call or notice an action taken therein within the corporate powers is dee%ed ratified by a director who failed to attend "nless he pro%ptly files his written ob2ection with the secretary of the corporation after ha!ing knowledge thereof. Sec# 02# =re-emptive right in close corporations. - The pre-e%pti!e right of stockholders in close corporations shall e#tend to all stock to be iss"ed incl"ding reiss"ance of treas"ry shares whether for %oney property or personal ser!ices or in pay%ent of corporate debts "nless the articles of incorporation pro!ide otherwise. Sec# 0*# Amendment of articles of incorporation. - Any a%end%ent to the articles of incorporation which seeks to delete or re%o!e any pro!ision reG"ired by this Title to be contained in the articles of incorporation or to red"ce a G"or"% or !oting reG"ire%ent stated in said articles of incorporation shall not be !alid or effecti!e "nless appro!ed by the affir%ati!e !ote of at least two-thirds ).<;* of the o"tstanding capital stock whether with or witho"t !oting rights or of s"ch greater proportion of shares as %ay be specifically pro!ided in the articles of incorporation for a%ending deleting or re%o!ing any of the aforesaid pro!isions at a %eeting d"ly called for the p"rpose. Sec# 0'# Deadloc)s. - Notwithstanding any contrary pro!ision in the articles of incorporation or by-laws or agree%ent of stockholders of a close corporation if the directors or stockholders are so di!ided respecting the %anage%ent of the corporationCs b"siness and affairs that the !otes reG"ired for any corporate action cannot be obtained with the conseG"ence that the b"siness and affairs of the corporation can no longer be cond"cted to the ad!antage of the stockholders generally the (ec"rities and 7#change Co%%ission "pon written petition by any stockholder shall ha!e the power to arbitrate the disp"te. In the e#ercise of s"ch power the Co%%ission shall ha!e a"thority to %ake s"ch order as it dee%s appropriate incl"ding an order? ),* canceling or altering any pro!ision contained in the articles of incorporation by-laws or any stockholderCs agree%ent@ ).* canceling altering or en2oining any resol"tion or act of the corporation or its board of directors stockholders or officers@ );* directing or prohibiting any act of the corporation or its board of directors stockholders officers or other persons party to the action@ )B* reG"iring the p"rchase at their fair !al"e of shares of any stockholder either by the corporation regardless of the a!ailability of "nrestricted retained earnings in its books or by the other stockholders@ )+* appointing a pro!isional director@ )4* dissol!ing the corporation@ or )3* granting s"ch other relief as the circ"%stances %ay warrant. A pro!isional director shall be an i%partial person who is neither a stockholder nor a creditor of the corporation or of any s"bsidiary or affiliate of the corporation and whose f"rther G"alifications if any %ay be deter%ined by the Co%%ission. A pro!isional director is not a recei!er of the corporation and

does not ha!e the title and powers of a c"stodian or recei!er. A pro!isional director shall ha!e all the rights and powers of a d"ly elected director of the corporation incl"ding the right to notice of and to !ote at %eetings of directors "ntil s"ch ti%e as he shall be re%o!ed by order of the Co%%ission or by all the stockholders. 0is co%pensation shall be deter%ined by agree%ent between hi% and the corporation s"b2ect to appro!al of the Co%%ission which %ay fi# his co%pensation in the absence of agree%ent or in the e!ent of disagree%ent between the pro!isional director and the corporation. Sec# 01# Withdrawal of stoc)holder or dissolution of corporation. - In addition and witho"t pre2"dice to other rights and re%edies a!ailable to a stockholder "nder this Title any stockholder of a close corporation %ay for any reason co%pel the said corporation to p"rchase his shares at their fair !al"e which shall not be less than their par or iss"ed !al"e when the corporation has s"fficient assets in its books to co!er its debts and liabilities e#cl"si!e of capital stock? Pro!ided That any stockholder of a close corporation %ay by written petition to the (ec"rities and 7#change Co%%ission co%pel the dissol"tion of s"ch corporation whene!er any of acts of the directors officers or those in control of the corporation is illegal or fra"d"lent or dishonest or oppressi!e or "nfairly pre2"dicial to the corporation or any stockholder or whene!er corporate assets are being %isapplied or wasted. TITLE KIII SPECIAL CORPORATIONS C"a%te$ I / Ed.cational Co$%o$ations Sec# 0)# *ncorporation. - 7d"cational corporations shall be go!erned by special laws and by the general pro!isions of this Code. )n* Sec# 0(# =re-requisites to incorporation. - 7#cept "pon fa!orable reco%%endation of the Ministry of 7d"cation and C"lt"re the (ec"rities and 7#change Co%%ission shall not accept or appro!e the articles of incorporation and by-laws of any ed"cational instit"tion. ),4Ha* Sec# 07# Aoard of trustees. - Tr"stees of ed"cational instit"tions organi$ed as non-stock corporations shall not be less than fi!e )+* nor %ore than fifteen ),+*? Pro!ided howe!er That the n"%ber of tr"stees shall be in %"ltiples of fi!e )+*. Inless otherwise pro!ided in the articles of incorporation on the by-laws the board of tr"stees of incorporated schools colleges or other instit"tions of learning shall as soon as organi$ed so classify the%sel!es that the ter% of office of one-fifth ),<+* of their n"%ber shall e#pire e!ery year. Tr"stees thereafter elected to fill !acancies occ"rring before the e#piration of a partic"lar ter% shall hold office only for the "ne#pired period. Tr"stees elected thereafter to fill !acancies ca"sed by e#piration of ter% shall hold office for fi!e )+* years. A %a2ority of the tr"stees shall constit"te a G"or"% for the transaction of b"siness. The powers and a"thority of tr"stees shall be defined in the by-laws. Aor instit"tions organi$ed as stock corporations the n"%ber and ter% of directors shall be go!erned by the pro!isions on stock corporations. ),4-a*

C"a%te$ II / RELIGIOUS CORPORATIONS Sec# 09# Classes of religious corporations. - 9eligio"s corporations %ay be incorporated by one or %ore persons. ("ch corporations %ay be classified into corporations sole and religio"s societies. 9eligio"s corporations shall be go!erned by this Chapter and by the general pro!isions on non-stock corporations insofar as they %ay be applicable. )n* Sec# 0# Corporation sole. - Aor the p"rpose of ad%inistering and %anaging as tr"stee the affairs property and te%poralities of any religio"s deno%ination sect or ch"rch a corporation sole %ay be for%ed by the chief archbishop bishop priest %inister rabbi or other presiding elder of s"ch religio"s deno%ination sect or ch"rch. ),+Ba* Re%.4lic Vs# IAC & )7 S )1+ ,acts8n Aebr"ary . ,-3- the 98MAN CAT08LIC 5I(08P of L"cena represented by Msgr. Jose T. (anche$ filed an application for confir%ation of title to fo"r )B* parcels of land. Three of said parcels deno%inated as Lots , . and ; respecti!ely are sit"ated in 5arrio Masin M"nicipality of Candelaria R"e$on Pro!ince. The fo"rth parcel is located in 5arrio 5"cal )Tag"an* sa%e %"nicipality and pro!ince. As basis for the application the applicant clai%ed title to the !ario"s properties thro"gh either p"rchase or donation dating as far back as ,-.H. The legal reG"ire%ents of p"blication and posting were d"ly co%plied with as was the ser!ice of copies of notice of initial hearing on the proper go!ern%ent officials.

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In behalf of the 6irector of Lands and the 6irector of the 5"rea" of Aorest 6e!elop%ent the (olicitor &eneral filed an 8pposition on April .: ,-3alleging therein a%ong others that the applicant did not ha!e an i%perfect title or title in fee si%ple to the parcel of land being applied for. At the initial hearing held on No!e%ber ,; ,-3- only the Pro!incial Aiscal in representation of the (olicitor &eneral appeared to interpose personal ob2ection to the application. 0ence an 8rder of &eneral 6efa"lt against the whole world was iss"ed by the Co"rt a G"o e#cept for the 6irector of Lands and the 6irector of the 5"rea" of Aorest 6e!elop%ent. 7!al"ating the applicantCs s"b%itted proofs the co"rt a G"o concl"ded on the basis of acG"isiti!e prescription at the !ery least that the for%er had adeG"ately shown title to the parcels of land being clai%ed. (ince the acG"isition of these fo"r )B* lots by the applicant it has been in contin"o"s possession and en2oy%ent thereof and s"ch possession together with its predecessors-in interest co!ering a period of %ore than +. years )at least fro% the date of the s"r!ey in ,-.H* with respect to lots , and . abo"t 4. years with respect to lot ; all of plan P(I- 4+4H4@ and %ore than ;- years with respect to the fo"rth parcel described in plan P(I-,,.+-. )at least fro% the date of the s"r!ey in ,-B:* ha!e been open p"blic contin"o"s peacef"l ad!erse against the whole world and in the concept of owner. Accordingly the co"rt ordered the registration of the fo"r parcels together with the i%pro!e%ents thereon "in the na%e of the 98MAN CAT08LIC 5I(08P 8A LIC7NA INC. a religio"s corporation sole d"ly registered and e#isting "nder the laws of the 9ep"blic of the Philippines." Iss.e1<N the 9o%an Catholic 5ishop of L"cena as a corporation sole is G"alified to apply for confir%ation of its title to the fo"r )B* parcels of land s"b2ect of this case R.lingPetitioner arg"es that considering s"ch constit"tional prohibition pri!ate respondent is disG"alified to own and register its title to the lots in G"estion. A"rther it arg"es that since the application for registration was filed only on Aebr"ary . ,-3- long after the ,-3; Constit"tion took effect on Jan"ary ,3 ,-3; the application for registration and confir%ation of title is ineffect"al beca"se at the ti%e it was filed pri!ate corporation had been declared ineligible to acG"ire alienable lands of the p"blic do%ain p"rs"ant to Art. QI' (ec. ,, of the said constit"tion. The G"estioned posed before this Co"rt has been settled in the case of ;-=6C,<= <2 LAN;S vs. -ntermediate Appellate Court ),B4 (C9A +:E,-H4F* which re!ersed the r"ling first en"nciated in the ,-H. case of Manila 6lectric Co. vs. CAS,=< BA=,<L<M6 ),,B (C9A 3H- E,-H.F* i%posing the constit"tional ban on p"blic land acG"isition by pri!ate corporations which r"ling was declared e%phatically as res judicata on Jan"ary 3 ,-H4 in ;irector of Lands vs. Bermanos $ Bermanas de Sta. Cru> de Ma$o# -nc . ),B, (C9A ., E,-H4F*. In said case )6irector of Lands !. IAC supra* this Co"rt stated that a deter%ination of the character of the lands at the ti%e of instit"tion of the registration proceedings %"st be %ade. If they were then still part of the p"blic do%ain it %"st be answered in the negati!e. If on the other hand they were already pri!ate lands the constit"tional prohibition against their acG"isition by pri!ate corporation or association ob!io"sly does not apply. In affir%ing the 6ecision of the Inter%ediate Appellate Co"rt in said case this Co"rt adopted the !igoro"s dissent of the then J"stice later Chief J"stice Cla"dio Teehankee tracing the line of cases beginning with CA9IN8 in ,-:- thr" (I(I in ,-.+ down to 079IC8 in ,-H: which de!eloped affir%ed and reaffir%ed the doctrine that open e#cl"si!e and "ndisp"ted possession of alienable p"blic land for the period prescribed by law creates the legal fiction whereby the land "pon co%pletion of the reG"isite period ipso jure and witho"t the need of 2"dicial or other sanction ceases to be p"blic land and beco%esC pri!ate property. )6I97CT89 8A LAN6( !s. IAC supra p. +,H*. It %"st be e%phasi$ed that the Co"rt is not here saying that a corporation sole sho"ld be treated like an ordinary pri!ate corporation. A corporation sole consists of one person only and his s"ccessors )who will always be one at a ti%e* in so%e partic"lar station who are incorporated by law in order to gi!e the% so%e legal capacities and ad!antages partic"larly that of perpet"ity which in their nat"ral persons they co"ld not ha!e had. In this sense the Ding is a sole corporation@ so is a bishop or deans distinct fro% their se!eral chapters. Pertinent to this case is the pro!ision of (ec. ,,; 5atas Pa%bansa 5lg. 4H which reads as follows? (ec. ,,;. Acquisition and alienation of propert$ . W Any corporation sole %ay p"rchase and hold real estate and personal property for its ch"rch charitable bene!olent or ed"cational p"rposes and %ay recei!e beG"ests or gifts for s"ch p"rposes. ("ch corporation %ay %ortgage or sell real property held by it "pon obtaining an order for that p"rpose fro% the Co"rt of Airst Instance of

the pro!ince where the property is sit"ated@ b"t before the order is iss"ed proof %"st be %ade to the satisfaction of the Co"rt that notice of the application for lea!e to %ortgage or sell has been gi!en by p"blication or otherwise in s"ch %anner and for s"ch ti%e as said co"rt %ay ha!e directed and that it is to the interest of the corporation that lea!e to %ortgage or sell sho"ld be granted. The application for lea!e to %ortgage or sell %"st be %ade by petition d"ly !erified by the chief archbishop bishop priest %inister rabbi or presiding elder acting as corporation sole and %ay be opposed by any %e%ber of the religio"s deno%ination sect or ch"rch represented by the corporation sole? Pro!ided That in cases where the r"les reg"lations and discipline of the religio"s deno%ination sect or ch"rch religio"s society or order concerned represented by s"ch corporation sole reg"late the %ethod of acG"iring holding selling and %ortgaging real estate and personal property s"ch r"les reg"lations and discipline shall control and the inter!ention of the co"rts shall not be necessary. There is no do"bt that a corporation sole by the nat"re of its Incorporation is !ested with the right to p"rchase and hold real estate and personal property. It need not therefore be treated as an ordinary pri!ate corporation beca"se whether or not it be so treated as s"ch the Constit"tional pro!ision in!ol!ed will ne!ertheless be not applicable. In the light of the facts obtaining in this case and the r"ling of this Co"rt in ;irector of Lands vs. -AC ) supra +,;* the lands s"b2ect of this petition were already pri!ate property at the ti%e the application for confir%ation of title was filed in ,-3-. There is therefore no cogent reason to dist"rb the findings of the appellate co"rt. Re%.4lic Vs# Villan.eCa & ,actsLots Nos. +4H and +4- located at 5arrio 6a%pol Plaridel 5"lacan with an area of ;,; sG"are %eters and an assessed !al"e of P, ;+: were acG"ired by the Iglesia Ni Cristo on Jan"ary - ,-+; fro% Andres Pere$ in e#change for a lot with an area of .B3 sG"are %eters owned by the said ch"rch. The said lots were already possessed by Pere$ in ,-;;. They are not incl"ded in any %ilitary reser!ation. They are inside an area which was certified as alienable or disposable by the 5"rea" of Aorestry in ,-.3. The lots are planted to santol and %ango trees and banana plants. A chapel e#ists on the said land. The land had been declared for realty ta# p"rposes. 9ealty ta#es had been paid therefor. 8n (epte%ber ,; ,-33 the Iglesia Ni Cristo a corporation sole d"ly e#isting "nder Philippine laws filed with the Co"rt of Airst Instance of 5"lacan an application for the registration of the two lots. It alleged that it and its predecessors-in-interest had possessed the land for %ore than thirty years. It in!oked section BH)b* of the P"blic Land Law. The 9ep"blic of the Philippines thro"gh the 6irector of Lands opposed the application on the gro"nds that applicant as a pri!ate corporation is disG"alified to hold alienable lands of the p"blic do%ain that the land applied for is p"blic land not s"sceptible of pri!ate appropriation and that the applicant and its predecessors-in-interest ha!e not been in the open contin"o"s e#cl"si!e and notorio"s possession of the land since J"ne ,. ,-B+. Iss.e1<N the INC as a pri!ate corporation is disG"alified to hols alienable lands of the p"blic do%ain R.lingThe Iglesia Ni Cristo as a corporation sole or a 2"ridical person is disG"alified to acG"ire or hold alienable lands of the p"blic do%ain like the two lots in G"estion beca"se of the constit"tional prohibition already %entioned and beca"se the said ch"rch is not entitled to a!ail itself of the benefits of section BH)b* which applies only to Ailipino citi$ens or nat"ral persons. A corporation sole has no nationality )9o%an Catholic Apostolic Ad%. of 6a!ao Inc. !s. Land 9egistration Co%%ission ,:. Phil. +-4. (ee 9egister of 6eeds !s. Ing (i" (i Te%ple -3 Phil. +H and sec. B- of the P"blic Land Law*. The contention in the co%%ents of the Iglesia Ni Cristo that the two lots are pri!ate lands following the r"le laid down in ("si !s. 9a$on and 6irector of Lands BH Phil. B.B is not correct. 1hat was considered pri!ate land in the Susi case was a parcel of land possessed by a Ailipino citi$en since time immemorial# as in CariRo vs. -nsular /overnment# .,. I.(. BB- +; L. ed. +-B B, Phil. -;+ and 3 Phil. ,;.. The lots so"ght to be registered in this case do not fall within that category. They are still p"blic lands. A land registration proceeding "nder section BH)b* "pres"pposes that the land is p"blic" )Mindanao !s. 6irector of Lands L-,-+;+ J"ly ,: ,-43 .: (C9A 4B, 4BB*. As held in < C o vs. ;irector of Lands 3+ Phil. H-: "all lands that were not acG"ired fro% the &o!ern%ent either by p"rchase or by grant belong to the p"blic do%ain. An e#ception to the r"le wo"ld be any land that sho"ld ha!e been in the possession of an occ"pant and of his predecessors-in-interest since ti%e i%%e%orial for s"ch possession wo"ld 2"stify the pres"%ption that ' S 7(1+

103

the land had ne!er been part of the p"blic do%ain or that it had been a pri!ate property e!en before the (panish conG"est. " In 8$ 8n vs. Pere> 3, Phil. +:H it was noted that the right of an occ"pant of p"blic agric"lt"ral land to obtain a confir%ation of his title "nder section BH)b* of the P"blic Land Law is a "derecho do%inical incoati!o" and that before the iss"ance of the certificate of title the occ"pant is not in the 2"ridical sense the tr"e owner of the land since it still pertains to the (tate. Ro:an Cat"olic Vs# LRC & 02 P"il 191+ ,acts8n 8ctober B ,-+B Mateo L. 9odis a Ailipino citi$en and resident of the City of 6a!ao e#ec"ted a deed of sale of a parcel of land located in the sa%e city in fa!or of the 9o%an Catholic Apostolic Ad%inistrator of 6a!ao Inc. a corporation sole organi$ed and e#isting in accordance with Philippine Laws with Msgr. Clo!is Thiba"lt a Canadian citi$en as act"al inc"%bent. 1hen the deed of sale was presented to 9egister of 6eeds of 6a!ao for registration the latter ha!ing in %ind a pre!io"s resol"tion of the Ao"rth 5ranch of the Co"rt of Airst Instance of Manila wherein the Car%elite N"ns of 6a!ao were %ade to prepare an affida!it to the effect that 4: per cent of the %e%bers of their corporation were Ailipino citi$ens when they so"ght to register in fa!or of their congregation of deed of donation of a parcel of landW reG"ired said corporation sole to s"b%it a si%ilar affida!it declaring that 4: per cent of the %e%bers thereof were Ailipino citi$ens. The !endee in the letter dated J"ne .H ,-+B e#pressed willingness to s"b%it an affida!it both not in the sa%e tenor as that %ade the Progress of the Car%elite N"ns beca"se the two cases were not si%ilar for whereas the congregation of the Car%elite N"ns had fi!e incorporators the corporation sole has only one@ that according to their articles of incorporation the organi$ation of the Car%elite N"ns beca%e the owner of properties donated to it whereas the case at bar the totality of the Catholic pop"lation of 6a!ao wo"ld beco%e the owner of the property bo"ght to be registered. As the 9egister of 6eeds entertained so%e do"bts as to the registerability if the doc"%ent the %atter was referred to the Land 9egistration Co%%issioner en consulta for resol"tion. A resol"tion was rendered on (epte%ber ., ,-+B holding that in !iew of the pro!isions of (ection , and + of Article QIII of the Philippine Constit"tion the !endee was not G"alified to acG"ire pri!ate lands in the Philippines in the absence of proof that at least 4: per cent"% of the capital property or assets of the 9o%an Catholic Apostolic Ad%inistrator of 6a!ao Inc. was act"ally owned or controlled by Ailipino citi$ens there being no G"estion that the present inc"%bent of the corporation sole was a Canadian citi$en. It was also the opinion of the Land 9egistration Co%%issioner that section ,+- of the corporation Law relied "pon by the !endee was rendered operati!e by the afore%entioned pro!isions of the Constit"tion with respect to real estate "nless the precise condition set therein W that at least 4: per cent of its capital is owned by Ailipino citi$ens W be present and therefore ordered the 9egistered 6eeds of 6a!ao to deny registration of the deed of sale in the absence of proof of co%pliance with s"ch condition. Iss.e1<N the Ini!ersal 9o%an Catholic Apostolic Ch"rch in the Philippines or better still the corporation sole na%ed the 9o%an Catholic Apostolic Ad%inistrator of 6a!ao Inc. is G"alified to acG"ire pri!ate agric"lt"ral lands in the Philippines p"rs"ant to the pro!isions of Article QIII of the Constit"tion R.lingThe 9o%an Catholic 5ishop of Xa%boanga was incorporated )as a corporation sole* in September# "O")# principall$ to administer its temporalities and manage its properties . Probably d"e to the ra!ages of the last war its articles of incorporation were reconstructed in the (ec"rities and 7#change Co%%ission on April H ,-BH. At first this corporation sole ad%inistered all the te%poralities of the ch"rch e#isting or located in the island of Mindanao. Later on howe!er new dioceses were for%ed and new corporations sole were created to correspond with the territorial 2"risdiction of the new dioceses one of the% being petitioner herein the 9o%an Catholic Apostolic Ad%inistrator of 6a!ao Inc. which was registered with the (ec"rities and 7#change Co%%ission on (epte%ber ,. ,-+: and s"cceeded in the ad%inistrati!e for all the "te%poralities" of the 9o%an Catholic Ch"rch e#isting in 6a!ao. According to o"r Corporation Law P"blic Act No. ,+B- appro!ed April , ,-:4 a corporation sole is organi$ed and composed of a single individual the head of any religio"s society or ch"rch for the A6MINI(T9ATI8N of t e temporalities of suc societ$ or c urc . 5y "te%poralities" is %eant estate and properties not "sed e#cl"si!ely for religio"s worship. The s"ccessor in office of s"ch religio"s head or chief priest incorporated as a corporation sole shall beco%e the corporation sole on ascension to office and shall be per%itted to transact b"siness as s"ch on filing with the (ec"rities and 7#change Co%%ission a copy of his co%%ission certificate of election or letter of appoint%ent d"ly certified by any notary p"blic or clerk of co"rt of record )&"e!araCs The Philippine Corporation Law p. ..;*. The Corporation Law also contains the following pro!isions?

(7CTI8N ,+-. Any corporation sole %ay p"rchase and hold real estate and personal@ property for its ch"rch charitable bene!olent or ed"cational p"rposes and %ay recei!e beG"ests or gifts of s"ch p"rposes. ("ch corporation %ay %ortgage or sell real property held by it "pon obtaining an order for that p"rpose fro% the Co"rt of Airst Instance of the pro!ince in which the property is sit"ated@ b"t before %aking the order proof %"st be %ade to the satisfaction of the Co"rt that notice of the application for lea!e to %ortgage or sell has been gi!en by p"blication or otherwise in s"ch %anner and for s"ch ti%e as said Co"rt or the J"dge thereof %ay ha!e directed and that it is to the interest of the corporation that lea!e to %ortgage or sell %"st be %ade by petition d"ly !erified by the bishop chief priest or presiding elder acting as corporation sole and %ay be opposed by any %e%ber of the religio"s deno%ination society or ch"rch represented by the corporation sole? Pro!ided howe!er That in cases where the r"les reg"lations and discipline of the religio"s deno%ination society or ch"rch concerned represented by s"ch corporation sole reg"late the %ethods of acG"iring holding selling and %ortgaging real estate and personal property s"ch r"les reg"lations and discipline shall control and the inter!ention of the Co"rts shall not be necessary. It can therefore be noticed that the power of a corporation sole to purc ase real property like the power e#ercised in the case at bar it is not restricted altho"gh the power to sell or mortgage so%eti%es is depending "pon the r"les reg"lations and discipline of the ch"rch concerned represented by said corporation sole. If corporations sole can p"rchase and sell real estate for its ch"rch charitable bene!olent or ed"cational p"rposes can they register said real propertiesL As pro!ided by law lands held in tr"st for specific p"rposes %e be s"b2ect of registration )section 4- Act B-4* and the capacity of a corporation sole like petitioner herein to register lands belonging to it is acknowledged and title thereto %ay be iss"ed in its na%e )5ishop of N"e!a (ego!ia !s. Ins"lar &o!ern%ent .4 Phil. ;::-,-,;*. Indeed it is abs"rd that while the corporations sole that %ight be in need of acG"iring lands for the erection of te%ples where the faithf"l can pray or schools and ce%eteries which they are e#pressly a"thori$ed by law to acG"ire in connection with the propagation of the 9o%an Catholic Apostolic faith or in f"rtherance of their freedo% of religion they co"ld not register said properties in their na%e. 7!en before the establish%ent of the Philippine Co%%onwealth and of the 9ep"blic of the Philippines e!ery corporation sole then organi$ed and registered had by e#press pro!ision of law the necessary po&er and qualification to p"rchase in its na%e pri!ate lands located in the territory in which it e#ercised its f"nctions or %inistry and for which it was created independently of the nationality of its inc"%bent "niG"e and single %e%ber and head the bishop of the dioceses. It can be also %aintained witho"t fear of being gainsaid that the 9o%an Catholic Apostolic Ch"rch in the Philippines has no nationality and that the fra%ers of the Constit"tion as will be here"nder e#plained did not ha!e in %ind the religio"s corporations sole when they pro!ided that 4: per cent"% of the capital thereof be owned by Ailipino citi$ens. There co"ld be no contro!ersy as to the fact that a d"ly registered corporation sole is an artificial being ha!ing the right of s"ccession and the power attrib"tes and properties e#pressly a"thori$ed by law or incident to its e#istence )section , Corporation Law*. 7!en ass"%ing that petitioner had at the ti%e of the enact%ent of the Constit"tion the right to p"rchase real property or right co"ld not be e#ercised after the effecti!ity of o"r Constit"tion beca"se said power or right of corporations sole like the herein petitioner conferred in !irt"e of the aforeG"oted pro!isions of the Corporation Law co"ld no longer be e#ercised in !iew of the reG"isite therein prescribed that at least 4: per cent"% of the capital of the corporation had to be Ailipino. It has been shown before that? ),* the corporation sole "nlike the ordinary corporations which are for%ed by no less than + incorporators is co%posed of only one persons "s"ally the head or bishop of the diocese a "nit which is not s"b2ect to e#pansion for the p"rpose of deter%ining any percentage whatsoe!er@ ).* the corporation sole is only the administrator and not the owner of the te%poralities located in the territory co%prised by said corporation sole@ );* s"ch te%poralities are ad%inistered for and on behalf of the faithf"l residing in the diocese or territory of the corporation sole@ and )B* the latter as s"ch has no nationality and the citi$enship of the inc"%bent 8rdinary has nothing to do with the operation %anage%ent or ad%inistration of the corporation sole nor effects the citi$enship of the faithf"l connected with their respecti!e dioceses or corporation sole. In !iew of these pec"liarities of the corporation sole it wo"ld see% ob!io"s that when the specific pro!ision of the Constit"tion in!oked by respondent Co%%issioner )section , Art. QIII* was "nder consideration the fra%ers of the sa%e did not ha!e in %ind or o!erlooked this partic"lar for% of corporation. If this were so as the facts and circ"%stances already indicated tend to pro!e it to be so then the inescapable concl"sion wo"ld be that this reG"ire%ent of at least 4: per cent of Ailipino capital was ne!er intended to apply to corporations sole and the e#istence or not a !ested right beco%es "nG"estionably i%%aterial. In Ing (i" (i Te%ple case the fact that the appellant religio"s organi$ation has no capital stock does not s"ffice to escape the Constit"tional inhibition since it is ad%itted that its %e%bers are of foreign nationality. The p"rpose of the si#ty per cent"% reG"ire%ent is ob!io"sly to ens"re that corporation or associations allowed to acG"ire agric"lt"ral land or to e#ploit nat"ral reso"rces shall be controlled by Ailipinos@ and the spirit of the Constit"tion de%ands that in t e absence of capital stoc%# t e controlling members ip s ould be composed of 2ilipino citi>ens

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In that case respondent-appellant Ing (i" (i Te%ple was not a corporation sole b"t a corporation aggregate i.e. an "nregistered organi$ation operating thro"gh ; tr"stees all of Chinese nationality and that is why this Co"rt laid down the doctrine 2"st G"oted. 1ith regard to petitioner which likewise is a non-stock corporation the case is different beca"se it is a registered corporation sole e!idently of no nationality and registered %ainly to ad%inister the te%poralities and %anage the properties belonging to the faithf"l of said ch"rch residing in 6a!ao. 5"t e!en if we were to go o!er the record to inG"ire into the co%posing %e%bership to deter%ine whether the citi$enship reG"ire%ent is satisfied or not we wo"ld find "ndeniable proof that the %e%bers of the 9o%an Catholic Apostolic faith within the territory of 6a!ao are predo%inantly Ailipino citi$ens. As indicated before petitioner has presented e!idence to establish that the clergy and lay %e%bers of this religion f"lly co!er the percentage of Ailipino citi$ens reG"ired by the Constit"tion. These facts are not contro!erted by respondents and o"r concl"sion in this point is sensibly ob!io"s. Sec# # Articles of incorporation. - In order to beco%e a corporation sole the chief archbishop bishop priest %inister rabbi or presiding elder of any religio"s deno%ination sect or ch"rch %"st file with the (ec"rities and 7#change Co%%ission articles of incorporation setting forth the following? ,. That he is the chief archbishop bishop priest %inister rabbi or presiding elder of his religio"s deno%ination sect or ch"rch and that he desires to beco%e a corporation sole@ .. That the r"les reg"lations and discipline of his religio"s deno%ination sect or ch"rch are not inconsistent with his beco%ing a corporation sole and do not forbid it@ ;. That as s"ch chief archbishop bishop priest %inister rabbi or presiding elder he is charged with the ad%inistration of the te%poralities and the %anage%ent of the affairs estate and properties of his religio"s deno%ination sect or ch"rch within his territorial 2"risdiction describing s"ch territorial 2"risdiction@ B. The %anner in which any !acancy occ"rring in the office of chief archbishop bishop priest %inister rabbi of presiding elder is reG"ired to be filled according to the r"les reg"lations or discipline of the religio"s deno%ination sect or ch"rch to which he belongs@ and +. The place where the principal office of the corporation sole is to be established and located which place %"st be within the Philippines. The articles of incorporation %ay incl"de any other pro!ision not contrary to law for the reg"lation of the affairs of the corporation. )n* Sec# 2# Submission of the articles of incorporation. - The articles of incorporation %"st be !erified before filing by affida!it or affir%ation of the chief archbishop bishop priest %inister rabbi or presiding elder as the case %ay be and acco%panied by a copy of the co%%ission certificate of election or letter of appoint%ent of s"ch chief archbishop bishop priest %inister rabbi or presiding elder d"ly certified to be correct by any notary p"blic. Aro% and after the filing with the (ec"rities and 7#change Co%%ission of the said articles of incorporation !erified by affida!it or affir%ation and acco%panied by the doc"%ents %entioned in the preceding paragraph s"ch chief archbishop bishop priest %inister rabbi or presiding elder shall beco%e a corporation sole and all te%poralities estate and properties of the religio"s deno%ination sect or ch"rch theretofore ad%inistered or %anaged by hi% as s"ch chief archbishop bishop priest %inister rabbi or presiding elder shall be held in tr"st by hi% as a corporation sole for the "se p"rpose behalf and sole benefit of his religio"s deno%ination sect or ch"rch incl"ding hospitals schools colleges orphan asyl"%s parsonages and ce%eteries thereof. )n* Sec# *# Acquisition and alienation of property. - Any corporation sole %ay p"rchase and hold real estate and personal property for its ch"rch charitable bene!olent or ed"cational p"rposes and %ay recei!e beG"ests or gifts for s"ch p"rposes. ("ch corporation %ay sell or %ortgage real property held by it by obtaining an order for that p"rpose fro% the Co"rt of Airst Instance of the pro!ince where the property is sit"ated "pon proof %ade to the satisfaction of the co"rt that notice of the application for lea!e to sell or %ortgage has been gi!en by p"blication or otherwise in s"ch %anner and for s"ch ti%e as said co"rt %ay ha!e directed and that it is to the interest of the corporation that lea!e to sell or %ortgage sho"ld be granted. The application for lea!e to sell or %ortgage %"st be %ade by petition d"ly !erified by the chief archbishop bishop priest %inister rabbi or presiding elder acting as corporation sole and %ay be opposed by any %e%ber of the religio"s deno%ination sect or ch"rch represented by the corporation sole? Pro!ided That in cases where the r"les reg"lations and discipline of the religio"s deno%ination sect or ch"rch religio"s society or order concerned represented by s"ch corporation sole reg"late the %ethod of acG"iring holding selling and %ortgaging real estate and personal property s"ch r"les reg"lations and discipline shall control and the inter!ention of the co"rts shall not be necessary. ),+-a* Sec# '# #illing of vacancies. - The s"ccessors in office of any chief archbishop bishop priest %inister rabbi or presiding elder in a corporation sole shall beco%e the corporation sole on their accession to office and shall be per%itted to transact b"siness as s"ch on the filing with the (ec"rities and

7#change Co%%ission of a copy of their co%%ission certificate of election or letters of appoint%ent d"ly certified by any notary p"blic. 6"ring any !acancy in the office of chief archbishop bishop priest %inister rabbi or presiding elder of any religio"s deno%ination sect or ch"rch incorporated as a corporation sole the person or persons a"thori$ed and e%powered by the r"les reg"lations or discipline of the religio"s deno%ination sect or ch"rch represented by the corporation sole to ad%inister the te%poralities and %anage the affairs estate and properties of the corporation sole d"ring the !acancy shall e#ercise all the powers and a"thority of the corporation sole d"ring s"ch !acancy. ),+Ha* Sec# 1# Dissolution. - A corporation sole %ay be dissol!ed and its affairs settled !ol"ntarily by s"b%itting to the (ec"rities and 7#change Co%%ission a !erified declaration of dissol"tion. The declaration of dissol"tion shall set forth? ,. The na%e of the corporation@ .. The reason for dissol"tion and winding "p@ ;. The a"thori$ation for the dissol"tion of the corporation by the partic"lar religio"s deno%ination sect or ch"rch@ B. The na%es and addresses of the persons who are to s"per!ise the winding "p of the affairs of the corporation. Ipon appro!al of s"ch declaration of dissol"tion by the (ec"rities and 7#change Co%%ission the corporation shall cease to carry on its operations e#cept for the p"rpose of winding "p its affairs. )n* Sec# )# %eligious societies. - Any religio"s society or religio"s order or any diocese synod or district organi$ation of any religio"s deno%ination sect or ch"rch "nless forbidden by the constit"tion r"les reg"lations or discipline of the religio"s deno%ination sect or ch"rch of which it is a part or by co%petent a"thority %ay "pon written consent and<or by an affir%ati!e !ote at a %eeting called for the p"rpose of at least two-thirds ).<;* of its %e%bership incorporate for the ad%inistration of its te%poralities or for the %anage%ent of its affairs properties and estate by filing with the (ec"rities and 7#change Co%%ission articles of incorporation !erified by the affida!it of the presiding elder secretary or clerk or other %e%ber of s"ch religio"s society or religio"s order or diocese synod or district organi$ation of the religio"s deno%ination sect or ch"rch setting forth the following? ,. That the religio"s society or religio"s order or diocese synod or district organi$ation is a religio"s organi$ation of a religio"s deno%ination sect or ch"rch@ .. That at least two-thirds ).<;* of its %e%bership ha!e gi!en their written consent or ha!e !oted to incorporate at a d"ly con!ened %eeting of the body@ ;. That the incorporation of the religio"s society or religio"s order or diocese synod or district organi$ation desiring to incorporate is not forbidden by co%petent a"thority or by the constit"tion r"les reg"lations or discipline of the religio"s deno%ination sect or ch"rch of which it for%s a part@ B. That the religio"s society or religio"s order or diocese synod or district organi$ation desires to incorporate for the ad%inistration of its affairs properties and estate@ +. The place where the principal office of the corporation is to be established and located which place %"st be within the Philippines@ and 4. The na%es nationalities and residences of the tr"stees elected by the religio"s society or religio"s order or the diocese synod or district organi$ation to ser!e for the first year or s"ch other period as %ay be prescribed by the laws of the religio"s society or religio"s order or of the diocese synod or district organi$ation the board of tr"stees to be not less than fi!e )+* nor %ore than fifteen ),+*. ),4:a* Registe$ of Deeds Vs# Ung Si. Si Te:%le &9( P"il 2) + ,actsThe 9egister of 6eeds for the pro!ince of 9i$al ref"sed to accept for record a deed of donation e#ec"ted in d"e for% on Jan"ary .. ,-+; by Jes"s 6y a Ailipino citi$en con!eying a parcel of residential land in Caloocan 9i$al known as lot No. . block BH-6 P(6-B.,. &.L.9.8. 9ecord No. ,,.43 in fa!or of the "nregistered religio"s organi$ation "Ing (i" (i Te%ple" operating thro"gh three tr"stees all of Chinese nationality. The donation was d"ly accepted by M" J"an of Chinese nationality fo"nder and deaconess of the Te%ple acting in representation and in behalf of the latter and its tr"stees.

105

The ref"sal of the 9egistrar was ele!ated en Consultato the I'th 5ranch of the Co"rt of Airst Instance of Manila. 8n March ,B ,-+; the Co"rt "pheld the action of the 9i$al 9egister of 6eeds that IN& (II (I T7MPL7 is a religio"s organi$ation whose deaconess fo"nder tr"stees and ad%inistrator are all Chinese citi$ens this Co"rt is of the opinion and so hold that in !iew of the pro!isions of the sections , and + of Article QIII of the Constit"tion of the Philippines li%iting the acG"isition of land in the Philippines to its citi$ens or to corporations or associations at least si#ty per cent"% of the capital stock of which is owned by s"ch citi$ens adopted after the enact%ent of said Act No. .3, and the decision of the ("pre%e Co"rt in the case of Dri!enko !s. the 9egister of 6eeds of Manila the deed of donation in G"estion sho"ld not be ad%itted for registration.

notice to each stockholder or %e%ber either by registered %ail or by personal deli!ery at least thirty );:* days prior to said %eeting. A copy of the resol"tion a"thori$ing the dissol"tion shall be certified by a %a2ority of the board of directors or tr"stees and co"ntersigned by the secretary of the corporation. The (ec"rities and 7#change Co%%ission shall there"pon iss"e the certificate of dissol"tion. )4.a* Dag."o? Ente$%$ise Vs# Ponce &9) P"il 1+ ,actsIn the year ,-+: 6o%ingo Ponce was Chair%an and Manager and his son 5"hay M. Ponce was (ecretary-Treas"rer of 6ag"hoy 7nterprises Inc. 8n J"ne .Bth of said year 9ita L. Ponce wife of 6o%ingo e#ec"ted in fa!or of corporation a deed of %ortgage o!er a parcel of land incl"ding the i%pro!e%ents thereon sit"ated in Manila to sec"re the pay%ent of a loan of P+ ::: granted to her by said corporation payable within si# years with interest at ,. per cent per ann"%. 8n March ,: ,-+, 9ita L. Ponce with the consent of her h"sband 6o%ingo e#ec"ted another %ortgage deed a%ending the first one whereby the loan was increased fro% P+ ::: to P4 ,-: the ter%s and conditions of the %ortgage re%aining the sa%e. 9ita and 6o%ingo presented the two %ortgage deeds for registration in the office of the register of deeds b"t the said register after going o!er the papers noted defects and deficiencies and ad!ised 9ita and 6o%ingo to c"re the defects and f"rnish the necessary data. Instead of co%plying with the s"ggestion and reG"ire%ents the two withdrew the two %ortgage deeds and then %ortgaged the sa%e parcel of land in fa!or of the 9ehabilitation Ainance Corporation )9AC* to sec"re a loan. Potenciano &apol was the %a2ority stockholder in the 6ag"hoy 7nterprises Inc. and nat"rally was interested in the sec"rity of the pay%ent of the loan aforesaid. Ipon learning that the deeds of %ortgage were not registered and what is %ore that they were withdrawn fro% the office of the register of deeds and the land co!ered by the two deeds was again %ortgaged to the 9AC he filed a case entitled "Potenciano &apol for and on behalf of ;agu o$ 6nterprises# -nc. vs. ;omingo Ponce and Bu a$ M. Ponce " for acco"nting not only for the a%o"nt of the loan of P4 ,-: b"t apparently for other s"%s possibly on the theory that the loan in G"estion was granted by 6o%ingo and 5"hay acting as Chair%an-Manager and (ecretary-Treas"rer respecti!ely of the corporation. Thereafter the 6ag"hoy 7nterprises Inc. filed the present action against 9ita and her h"sband 6o%ingo to collect the a%o"nt of the loan incl"ding interests. The defendants alleged that the plaintiff corporation had no legal capacity to s"e for the reason that as a corporation it no longer was in e#istence beca"se on April ,4 ,-+, at a %eeting held by the stockholders and attended by Potenciano &apol the %a2ority stockholder a resol"tion was adopted dissol!ing the said corporation and that as a %atter of fact &apol was designated Assignee. Iss.e1<N the corporation has no capacity to s"e by reason of the dissol"tion R.lingA %ere resol"tion by the stockholders or by the 5oard of 6irectors of a corporation to dissol!e the sa%e does not effect the dissol"tion b"t that so%e other step ad%inistrati!e or 2"dicial is necessary. A"rther%ore "nder section 33 of the Corporation Law a corporation dissol!ed will contin"e in e#istence as a 2"dicial entity for a period of three years after the declaration of its dissol"tion to wind"p its affairs and protect its interests d"ring the period of liG"idation. Vesagas Vs# CA &*( S 107+ ,actsThe respondent spo"ses 6elfino and 0elenda 9aniel are %e%bers in good standing of the L"$ 'illaga Tennis Cl"d Inc. )cl"b*. They alleged that petitioner Teodoro 5. 'esagas who clai%s to be the cl"bCs d"ly elected president in conspiracy with petitioner 1ilfred 6. Asis who in t"rn clai%s to be its d"ly elected !ice-president and legal co"nsel s"%%arily stripped the% of their lawf"l %e%bership witho"t d"e process of law. Thereafter respondent spo"ses filed a Co%plaint with the (ec"rities and 7#change Co%%ission )(7C* on March .4 ,--3 against the petitioners. In this case respondents asked the Co%%ission to declare as illegal their e#p"lsion fro% the cl"b as it was allegedly done in "tter disregard of the pro!isions of its bylaws as well as the reG"ire%ents of d"e process. They likewise so"ght the ann"l%ent of the a%end%ents to the by-laws %ade on 6ece%ber H ,--4 changing the ann"al %eeting of the cl"b fro% the last ("nday of Jan"ary to No!e%ber and increasing the n"%ber of tr"stees fro% nine to fifteen. Ainally they prayed for the iss"ance of a Te%porary 9estraining 8rder and 1rit of Preli%inary In2"nction. The application for T98 was denied by (7C 0earing 8fficer (oller in an 8rder dated April .- ,--3.

Iy (i" (i Te%ple has appealed to this Co"rt clai%ing? ),* that the acG"isition of the land in G"estion for religio"s p"rposes is a"thori$ed and per%itted by Act No. .3, of the old Philippine Co%%ission pro!iding as follows? (7CTI8N ,. It shall be lawf"l for all religio"s associations of whate!er sort or deno%ination whether incorporated in the Philippine Islands or in the na%e of other co"ntry or not incorporated at all to hold land in the Philippine Islands "pon which to b"ild ch"rches parsonages or ed"cational or charitable instit"tions. (7C. .. ("ch religio"s instit"tions if not incorporated shall hold the land in the na%e of three Tr"stees for the "se of s"ch associations@ . . .. )Printed 9ec. App. p. +.* and ).* that the ref"sal of the 9egister of 6eeds !iolates the freedo% of religion cla"se of o"r Constit"tion EArt. III (ec. ,)3*F. Iss.e1<N a deed of donation of a parcel of land e#ec"ted in fa!or of a religio"s organi$ation whose fo"nder tr"stees and ad%inistrator are Chinese citi$ens sho"ld be registered or not R.lingIn !iew of the absol"te ter%s of section + Title QIII of the Constit"tion the pro!isions of Act No. .3, of the old Philippine Co%%ission %"st be dee%ed repealed since the Constit"tion was enacted in so far as inco%patible therewith. In pro!iding that W (a!e in cases of hereditary s"ccession no pri!ate agric"lt"ral land shall be transferred or assigned e#cept to indi!id"als corporations or associations G"alified to acG"ire or hold lands of the p"blic do%ain in the Philippines the Constit"tion %akes no e#ception in fa!or of religio"s associations. Neither is there any s"ch sa!ing fo"nd in sections , and . of Article QIII restricting the acG"isition of p"blic agric"lt"ral lands and other nat"ral reso"rces to "corporations or associations at least si#ty per cent"% of the capital of which is owned by s"ch citi$ens" )of the Philippines*. The fact that the appellant religio"s organi$ation has no capital stock does not s"ffice to escape the Constit"tional inhibition since it is ad%itted that its %e%bers are of foreign nationality. The p"rpose of the si#ty per cent"% reG"ire%ent is ob!io"sly to ens"re that corporations or associations allowed to acG"ire agric"lt"ral land or to e#ploit nat"ral reso"rces shall be controlled by Ailipinos@ and the spirit of the Constit"tion de%ands that in the absence of capital stock the controlling %e%bership sho"ld be co%posed of Ailipino citi$ens. To per%it religio"s associations controlled by non-Ailipinos to acG"ire agric"lt"ral lands wo"ld be to dri!e the opening wedge to re!i!e alien religio"s land holdings in this co"ntry. 1e can not ignore the historical fact that co%plaints against land holdings of that kind were a%ong the factors that sparked the re!ol"tion of ,H-4. As to the co%plaint that the disG"alification "nder article QIII is !iolati!e of the freedo% of religion g"aranteed by Article III of the Constit"tion we are by no %eans con!inced )nor has it been shown* that land ten"re is indispensable to the free e#ercise and en2oy%ent of religio"s profession or worship@ or that one %ay not worship the 6eity according to the dictates of his own conscience "nless "pon land held in fee si%ple. TITLE KIV DISSOLUTION Sec# (# (ethods of dissolution. - A corporation for%ed or organi$ed "nder the pro!isions of this Code %ay be dissol!ed !ol"ntarily or in!ol"ntarily. )n* Sec# 7# 0oluntary dissolution where no creditors are affected. - If dissol"tion of a corporation does not pre2"dice the rights of any creditor ha!ing a clai% against it the dissol"tion %ay be effected by %a2ority !ote of the board of directors or tr"stees and by a resol"tion d"ly adopted by the affir%ati!e !ote of the stockholders owning at least two-thirds ).<;* of the o"tstanding capital stock or of at least two-thirds ).<;* of the %e%bers of a %eeting to be held "pon call of the directors or tr"stees after p"blication of the notice of ti%e place and ob2ect of the %eeting for three );* consec"ti!e weeks in a newspaper p"blished in the place where the principal office of said corporation is located@ and if no newspaper is p"blished in s"ch place then in a newspaper of general circ"lation in the Philippines after sending s"ch

106

The petioners clai% in gratia argumenti that while the cl"b %ay ha!e been considered a corporation d"ring a brief spell still at the ti%e of the instit"tion of this case with the (7C the cl"b was already dissol!ed by !irt"e of a 5oard resol"tion. Iss.e1<N the cl"b was already dissol!ed by !irt"e of a 5oard resol"tion R.lingThe Corporation Code establishes the proced"re and other for%al reG"ire%ents a corporation needs to follow in case it elects to dissol!e and ter%inate its str"ct"re !ol"ntarily and where no rights of creditors %ay possibly be pre2"diced th"s? (ec. ,,H. 0oluntar$ dissolution & ere no creditors are affected. ? If dissol"tion of a corporation does not pre2"dice the rights of any creditor ha!ing a clai% against it the dissol"tion %ay be effected by %a2ority !ote of the board of directors or tr"stees and by a resol"tion d"ly adopted by the affir%ati!e !ote of the stockholders owning at least two-thirds ).<;* of the o"tstanding capital stock or at least two-thirds ).<;* of the %e%bers at a %eeting to be held "pon call of the directors or tr"stees after p"blication of the notice of ti%e place and ob2ect of the %eeting for three );* consec"ti!e weeks in a newspaper p"blished in the place where the principal office of said corporation is located@ and if no newspaper is p"blished in s"ch place then in a newspaper of general circ"lation in the Philippines after sending s"ch notice to each stockholder or %e%ber either by registered %ail or by personal deli!ery at least ;: days prior to said %eeting. A copy of the resol"tion a"thori$ing the dissol"tion shall be certified by a %a2ority of the board of directors or tr"stees and co"ntersigned by the secretary of the corporation. The (ec"rities and 7#change Co%%ission shall there"pon iss"e the certificate of dissol"tion. 1e note that to s"bstantiate their clai% of dissol"tion petitioners s"b%itted only two rele!ant doc"%ents? the Min"tes of the Airst 5oard Meeting held on Jan"ary + ,--3 and the board resol"tion iss"ed on April ,B ,--3 which declared "to contin"e to consider the cl"b as a non-registered or a noncorporate entity and 2"st a social association of respectable and respecting indi!id"al %e%bers who ha!e associated the%sel!es since the ,-3:Cs for the p"rpose of playing the sports of tennis # # #." 8b!io"sly these two doc"%ents will not s"ffice. The reG"ire%ents %andated by the Corporation Code sho"ld ha!e been strictly co%plied with by the %e%bers of the cl"b. The records re!eal that no proof was offered by the petitioners with regard to the notice and p"blication reG"ire%ents. (i%ilarly wanting is the proof of the board %e%bersC certification. Lastly and %ost i%portant of all the (7C 8rder of 6issol"tion was ne!er s"b%itted as e!idence. Sec# 9# 0oluntary dissolution where creditors are affected. - 1here the dissol"tion of a corporation %ay pre2"dice the rights of any creditor the petition for dissol"tion shall be filed with the (ec"rities and 7#change Co%%ission. The petition shall be signed by a %a2ority of its board of directors or tr"stees or other officers ha!ing the %anage%ent of its affairs !erified by its president or secretary or one of its directors or tr"stees and shall set forth all clai%s and de%ands against it and that its dissol"tion was resol!ed "pon by the affir%ati!e !ote of the stockholders representing at least two-thirds ).<;* of the o"tstanding capital stock or by at least two-thirds ).<;* of the %e%bers at a %eeting of its stockholders or %e%bers called for that p"rpose. If the petition is s"fficient in for% and s"bstance the Co%%ission shall by an order reciting the p"rpose of the petition fi# a date on or before which ob2ections thereto %ay be filed by any person which date shall not be less than thirty );:* days nor %ore than si#ty )4:* days after the entry of the order. 5efore s"ch date a copy of the order shall be p"blished at least once a week for three );* consec"ti!e weeks in a newspaper of general circ"lation p"blished in the %"nicipality or city where the principal office of the corporation is sit"ated or if there be no s"ch newspaper then in a newspaper of general circ"lation in the Philippines and a si%ilar copy shall be posted for three );* consec"ti!e weeks in three );* p"blic places in s"ch %"nicipality or city. Ipon fi!e )+* dayCs notice gi!en after the date on which the right to file ob2ections as fi#ed in the order has e#pired the Co%%ission shall proceed to hear the petition and try any iss"e %ade by the ob2ections filed@ and if no s"ch ob2ection is s"fficient and the %aterial allegations of the petition are tr"e it shall render 2"dg%ent dissol!ing the corporation and directing s"ch disposition of its assets as 2"stice reG"ires and %ay appoint a recei!er to collect s"ch assets and pay the debts of the corporation. )9"le ,:B 9Ca* C"ina Ban5ing Vs# 2ic"elin &17 P"il 2) + ,acts&eorge 8C Aarrell T Cie. Inc. is a do%estic corporation organi$ed in ,-.+ and registered in the sa%e year in the %ercantile register of the 5"rea" of Co%%erce and Ind"stry one of its p"rposes being that of acting as the agent and representati!e of foreign fir%s for the sale and distrib"tion of their prod"cts in the Philippines. And for a n"%ber of years prior to its dissol"tion acting as agent of the appellee M. Michelin T Cie. in the Philippine Islands for

the sale and distrib"tion of the r"bber tires for %otor cars prod"ced by the appellee and broadly known as "Michelin tires". These b"siness relations between the appellee and the corporation lasted "ntil the %onth of May ,-;: when the appellee decided to discontin"e the% and "pon settle%ent of acco"nts between both concerns it was fo"nd that the corporation failed to acco"nt for the s"% of P.; .4H.H; the sale price of a n"%ber of r"bber tires sold by the corporation. Prior to the filing of the petition for dissol"tion to the corporation %ade a partial pay%ent of P, ;:: lea!ing an "npaid balance of P., -4H.H;. 8n J"ly - ,-;: the board of directors filed the petition for its dissol"tion and for the appoint%ent of its president and general %anager &aston 8C Aarrell as recei!er and liG"idator to wind "p the affairs of the corporation which according to the petition had a balance of P+3 4:,..B o!er and abo!e its 2"st debts and liabilities. The appellee M. Michelin T Cie. filed its clai% against the corporation for the aforesaid balance of P., -4H.H; with a prayer that the clai% be allowed as a preferred one against the corporation on the gro"nd that the said a%o"nt represented the proceeds fro% the sale of a n"%ber of r"bber tires which were on deposit with and sold by the corporation. The co"rt rendered a 2"dg%ent allowing the clai% as a preferred clai% against the corporation and directing the recei!er to pay the a%o"nt thereof o"t of any f"nds in his possession. 8n (epte%ber ;: ,-;, China 5anking Corporation filed a %otion praying that the orders of No!e%ber H and No!e%ber .4 ,-;: be set aside as n"ll and !oid that appelleeCs clai% be allowed as an ordinary clai% and that the s"% P+ ::: paid by the recei!er to the appellee on acco"nt of the latterCs clai% be ref"nded to the f"nds of the corporation in the liG"idation for the benefit of the rest of the creditors. In s"pport of said %otion and with the per%ission of the co"rt of the appellant Leopoldo Dahn s"b%itted a %e%orand"% arg"ing on the n"llity of the said orders on the gro"nd of want of the notice and on the proposition that "nder the pro!isions of the Insol!ency Law appelleeCs clai% co"ld not and sho"ld not ha!e been allowed as a preferred clai% "nder the allegations contained therein. Iss.e1<N Michelin/s clai% can legally be allowed on its face as a preferred clai% R.lingA close e#a%ination of the record in this case fails to disclose the reasons which led the corporation to resort to the co"rt for a decree of !ol"ntary dissol"tion. If the corporation was "nder s"ch a financial condition as alleged in its petition for dissol"tion and did not desire to contin"e doing b"siness beca"se of failing conditions or of any other reason we are "nable to "nderstand the necessity of its seeking 2"dicial inter!ention in the winding "p of its affairs co"pled with the appoint%ent for a recei!er to deal with its creditors as tho"gh they were the creditors of an insol!ent corporation. (tat"tes a"thori$ing !ol"ntary dissol"tions are generally held to apply only to a dissol"tion bro"ght abo"t by the stockholders the%sel!es and while the appoint%ent of a recei!er rests within the so"nd 2"dicial discretion of the co"rt s"ch discretion %"st howe!er always be e#ercised with ca"tion and go!erned by legal and eG"itable principles the !iolation of which will a%o"nt to its ab"se and in %aking s"ch appoint%ent the co"rt sho"ld take into consideration all the facts and weigh the relati!e ad!antages and disad!antages of appointing a recei!er to wind "p the corporate b"siness. The co"rt sho"ld only act on facts which ha!e been pro!ed by co%petent legal e!idence. The appoint%ent of a recei!er by the co"rt to wind "p the affairs of the corporation "pon petition of !ol"ntary dissol"tion does not e%power the co"rt to hear and pass on the clai%s of the creditors of the corporation at first hand. In s"ch cases the recei!er does not act as a recei!er of an insol!ent corporation. (ince "liG"idation" as applied to the settle%ent of the affairs of a corporation consists of ad2"sting the debts and clai%s that is of collecting all that is d"e the corporation the settle%ent and ad2"st%ent of clai%s against it and the pay%ent of its 2"st debts all clai%s %"st be presented for allowance to the recei!er or tr"stee or other proper or persons d"ring the winding "p proceeding which in this 2"risdiction wo"ld be within the three years pro!ided by sections 33 and 3H of the Corporation Law as the ter% of the corporate e#istence of the corporation and if a clai% is disp"ted or "nliG"idated so that the recei!er cannot safely allow the sa%e it sho"ld be transferred to the proper co"rt for trial and allowance and the a%o"nt so allowed then presented to the recei!er or tr"stee for pay%ent. The r"lings of the recei!er on the !alidity of clai%s s"b%itted are s"b2ect to re!iew by the co"rt appointing s"ch recei!er tho"gh no appeal is taken to the latterCs r"ling and d"ring the winding "p proceedings after dissol"tion no creditor will be per%itted by legal process or otherwise to acG"ire priority or to enforce his clai% against the property held for distrib"tion as against the rights of other creditors. The decree of dissol"tion in the case at bar ha!ing been entered on A"g"st .. ,-;: and the %otion of the appellant China 5anking Corporation appearing to ha!e been filed on (epte%ber ;: ,-;, or abo"t thirteen %onths later it follows that the %otion was filed on ti%e to ha!e the appelleeCs clai% re!iewed by the co"rt "nder the pro!isions of the said section of the

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Corporation Law and the trial co"rt therefore erred in finding that the order of No!e%ber H ,-;: allowing appelleeCs clai% was final and "nappealable "nder the pro!isions of section ,;; of the Code of Ci!il Proced"re. The record in this case shows that &aston 8C Aarrell the recei!er herein besides being the principal pro%oter of the corporation and the holder of the largest n"%ber of shares was elected president and general %anager and that he held the said offices e!er since the organi$ation of the corporation and his cond"ct in e#ec"ting a %ortgage on his own ho"se and gi!ing a pledge on his shares of stock and on those of 9osario (anche$ represented by hi% as attorney in fact in fa!or of the appellee to g"arantee the latterCs clai% lends itself to a serio"s s"spicion. The facts appearing of record lea!e no roo% for do"bt that his ad%inistration of the b"siness of the corporation left %"ch to be desired and that he alone o"ght to be bla%ed for the shortage clai%ed by the appellee b"t to sa!e hi%self fro% personal liability he %ade the corporation sho"lder the b"rden of the obligation in e#change for a si%"lated con!eyance of his ho"se to the corporation. No sooner had the corporation beco%e delinG"ent in the pay%ent of the obligation "nder the ter%s of the written agree%ent than he resorted to a 2"dicial proceeding of !ol"ntary dissol"tion in an atte%pt to settle appelleeCs clai% and to free hi%self fro% all har% b"t fearing that the alleged preference of appelleeCs clai% %ight be defeated in coll"sion with the appellee they had the clai% allowed s"%%arily as a preferred clai% ignoring the rest of the world. AppellantsC contention that appelleeCs clai% cannot be lowed as a preferred clai% is well taken for e!en ad%itting for the sake of arg"%ent that the %erchandise which sale price is the s"b2ect of appelleeCs clai% was shipped to the corporation "nder a co%%ission agree%ent or any other agree%ent carrying the obligation to ret"rn either the goods on its price the fact is that the %erchandise in the case at bar was no longer in the corporationCs possession nor co"ld the appellee trace the proceeds fro% its sale and this is %ade %anifest by the !ery fact of the written agree%ent entered into between the appellee and the corporation whereby the appellee accepted pay%ent of the obligation by install%ents d"ly sec"red with a %ortgaged of property to g"arantee its pay%ent. 5"t s"ch is not the case howe!er for the !ery agree%ent of May ;, ,-;: %entioned in paragraph + of the appelleeCs clai% shows that the r"bber tires consigned to the corporation were to be sold by the latter "por orden c"enta y riesgo de los (res. M. Michelin T Cie." and that the c"sto%ersC acco"nts were opened "por orden c"enta y riesgo de M. Michelin T Cie." and so %"ch is this tr"e that the "ncollected acco"nts were t"rned o!er to and recei!ed by the appellee M. Michelin T Cie. Inder s"ch circ"%stances the a%o"nt of the appelleeCs clai% appears to be in the nat"re of a balance of a c"rrent acco"nt between the two fir%s %ore than anything else. The order appealed fro% is re!ersed and the appelleeCs clai% is hereby declared to be an ordinary clai%. The appellee is ordered to ref"nd to the corporation the s"% of P+ ::: erroneo"sly paid by the recei!er with costs against the appellee.

the corporation is perfor%ing banking f"nctions witho"t reG"isite certificate of a"thority fro% the Monetary 5oard of the Central 5ank. Iss.e1<N the dissol"tion of the (ec"rity and Acceptance Corporation for allegedly engaging in banking operations witho"t the a"thority reG"ired therefor by the &eneral 5anking Act is proper R.lingMes. Altho"gh ad%ittedly (ec"rity has not sec"red the reG"isite a"thority to engage in banking defendants deny that its transactions partake of the nat"re of banking operations. It is conceded howe!er that in conseG"ence of a propaganda ca%paign therefor a total of +- B4; sa!ings acco"nt deposits ha!e been %ade by the p"blic with the corporation and its 3B branches with an aggregate deposit of P, 4H- ,;4.3B which has been lent o"t to s"ch persons as the corporation dee%ed s"itable therefor. It is clear that these transactions partake of the nat"re of banking as the ter% is "sed in (ection . of the &eneral 5anking Act. Accordingly defendant corporation has !iolated the law by engaging in banking witho"t sec"ring the ad%inistrati!e a"thority reG"ired in 9ep"blic Act No. ;;3. That the illegal transactions th"s "ndertaken by defendant corporation warrant its dissol"tion is apparent fro% the fact that the foregoing %is"ser of the corporate f"nds and franchise affects the essence of its b"siness that it is willf"l and has been repeated +- B4; ti%es and that its contin"ance inflicts in2"ry "pon the p"blic owing to the n"%ber of persons affected thereby. It is "rged howe!er that this case sho"ld be re%anded to the Co"rt of Airst Instance of Manila "pon the a"thority of 0eragut vs. -sabela Sugar Co . )+3 Phil. .44*. In this connection it sho"ld be noted that this Co"rt is !ested with original 2"risdiction conc"rrently with co"rts of first instance to hear and decide quo &arranto cases and that conseG"ently it is discretionary for "s to entertain the present case or to reG"ire that the iss"es therein be taken "p in said Ci!il Case No. +.;B.. The 'erag"th case cited by herein defendants in s"pport of the second alternati!e is not in point beca"se in said case there were iss"es of fact which reG"ired the presentation of e!idence and co"rts of first instance are in general better eG"ipped than appellate co"rts for the taking of testi%ony and the deter%ination of G"estions of fact. In the case at bar there is howe!er no disp"te as to the principal facts or acts perfor%ed by the corporation in the cond"ct of its b"siness. The %ain iss"e here is one of law na%ely the legal nat"re of said facts or of the afore%entioned acts of the corporation. Aor this reason and beca"se p"blic interest de%ands an early disposition of the case we ha!e dee%ed it best to deter%ine the %erits thereof. Therefore the defendant corporation is accordingly ordered dissol!ed. The appoint%ent of recei!er herein iss"ed pendente lite is hereby %ade per%anent and the recei!er is accordingly directed to ad%inister the properties deposits and other assets of defendant corporation and wind "p the affairs thereof confor%ably to 9"les +- and 44 of the 9"les of Co"rt. Sec# 22# Corporate liquidation. - 7!ery corporation whose charter e#pires by its own li%itation or is ann"lled by forfeit"re or otherwise or whose corporate e#istence for other p"rposes is ter%inated in any other %anner shall ne!ertheless be contin"ed as a body corporate for three );* years after the ti%e when it wo"ld ha!e been so dissol!ed for the p"rpose of prosec"ting and defending s"its by or against it and enabling it to settle and close its affairs to dispose of and con!ey its property and to distrib"te its assets b"t not for the p"rpose of contin"ing the b"siness for which it was established. At any ti%e d"ring said three );* years the corporation is a"thori$ed and e%powered to con!ey all of its property to tr"stees for the benefit of stockholders %e%bers creditors and other persons in interest. Aro% and after any s"ch con!eyance by the corporation of its property in tr"st for the benefit of its stockholders %e%bers creditors and others in interest all interest which the corporation had in the property ter%inates the legal interest !ests in the tr"stees and the beneficial interest in the stockholders %e%bers creditors or other persons in interest. Ipon the winding "p of the corporate affairs any asset distrib"table to any creditor or stockholder or %e%ber who is "nknown or cannot be fo"nd shall be escheated to the city or %"nicipality where s"ch assets are located. 7#cept by decrease of capital stock and as otherwise allowed by this Code no corporation shall distrib"te any of its assets or property e#cept "pon lawf"l dissol"tion and after pay%ent of all its debts and liabilities. )33a H-a ,4a* Re4.$iano Vs#CA &*0 S *'2+ ,acts-

Sec# 20# Dissolution by shortening corporate term. - A !ol"ntary dissol"tion %ay be effected by a%ending the articles of incorporation to shorten the corporate ter% p"rs"ant to the pro!isions of this Code. A copy of the a%ended articles of incorporation shall be s"b%itted to the (ec"rities and 7#change Co%%ission in accordance with this Code. Ipon appro!al of the a%ended articles of incorporation of the e#piration of the shortened ter% as the case %ay be the corporation shall be dee%ed dissol!ed witho"t any f"rther proceedings s"b2ect to the pro!isions of this Code on liG"idation. )n* Sec# 2 # *nvoluntary dissolution. - A corporation %ay be dissol!ed by the (ec"rities and 7#change Co%%ission "pon filing of a !erified co%plaint and after proper notice and hearing on the gro"nds pro!ided by e#isting laws r"les and reg"lations. )n* Re%.4lic Vs# Sec.$it? C$edit & 9 S 17+ ,actsThe Articles of Incorporation of (ec"rity Credit were registered with the (ec"rities and 7#change Co%%ission on March .3 ,-4,. The ne#t day the 5oard of 6irectors of the corporation adopted a set of by-laws which were filed with said Co%%ission on April + ,-4,. The Central 5ank of the Philippines opined that said corporation is a banking instit"tion. Th"s the corporation thro"gh its president 9osendo T. 9es"ello so"ght a reconsideration of the afore%entioned opinion which reconsideration was denied on March ,4 ,-4.. The Co%%ission ad!ised the corporation on 6ece%ber + ,-4, to co%ply with the reG"ire%ents of the &eneral 5anking Act. In the %eanti%e the M"nicipal Co"rt of Manila iss"ed (earch 1arrant No. A,:,- and p"rs"ant thereto %e%bers of the intelligence di!ision of the Central 5ank and of the Manila Police 6epart%ent searched the pre%ises of the corporation and sei$ed doc"%ents and records thereof relati!e to its b"siness operations.Ipon the ret"rn of said warrant the sei$ed doc"%ents and records were with the a"thority of the co"rt placed "nder the c"stody of the Central 5ank of the Philippines. Ipon e#a%ination and e!al"ation of said doc"%ents and records the intelligence di!ision of the Central 5ank s"b%itted to the Acting 6ep"ty &o!ernor thereof a %e%orand"% finding that

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In a Ci!il Case entitled "Pepsi Cola 5ottling Co%pany of the Philippines Inc. !. Irbano )5en* 9eb"riano and Ja%es 9eb"riano " the 9egional Trial Co"rt rendered on J"ne , ,-H3 a decision in fa!or of plaintiff Pepsi Cola 5ottling Co. of the Philippines Inc. ordering Irbano )5en* 9eb"riano and Ja%es 9eb"riano to pay 2ointly and se!erally the plaintiff the s"% of P++ :::.:: less whate!er e%pties )cases and bottles* %ay be ret"rned by said defendants !al"ed at the rate of P++.:: per e%pty case with bottles and costs against the defendants in case of e#ec"tion. Pepsi Cola 5ottling Co%pany of the Philippines Inc. appealed to the Co"rt of Appeals seeking the %odification of the portion of the decision which stated the !al"e of the cases with e%pty bottles as P++.:: per case and obtained a fa!orable decision. 8n J"ne .4 ,--: 2"dg%ent was rendered where the decision appealed fro% is (7T A(I67 and another one is rendered ordering the defendant appellees to pay 2ointly and se!erally the plaintiff-appellant the s"% of P++ :::.:: with interest at the legal rate fro% Jan"ary ,-H. with costs against defendants-appellees. It appears that prior to the pro%"lgation of the decision of the trial co"rt Pepsi Cola has a%ended its articles of incorporation to shorten its ter% of e#istence to J"ly H ,-H;. The a%ended articles of incorporation was appro!ed by the (ec"rities and 7#change Co%%ission on March . ,-HB. The trial co"rt was not notified of this fact. Petitioners %o!ed to G"ash the writ of e#ec"tion alleging that when the decision was rendered by this 0onorable Co"rt when the said decision was appealed to the Co"rt of Appeals and when the Co"rt of Appeals rendered its decision Pepsi Cola was no longer in e#istence and had no %ore 2"ridical personality and so as s"ch it no longer had the capacity to s"e and be s"ed. Pepssi Cola arg"ed that the 2"risdiction of the co"rt as well as the respecti!e parties capacity to s"e had already been established d"ring the initial stages of the case@ and that when the co%plaint was filed in ,-H. pri!ate respondent was still an e#isting corporation so that the %ere fact that it was dissol!ed at the ti%e the case was yet to be resol!ed did not warrant the dis%issal of the case or o"st the trial co"rt of its 2"risdiction. Pri!ate respondent f"rther clai%ed that its dissol"tion was effected in order to transfer its assets to a new fir% of al%ost the sa%e na%e and was th"s only for con!enience. Iss.e1<N a dissol!ed and non-e#isting corporation co"ld no longer be represented by a lawyer and conco%itantly a lawyer co"ld not appear as co"nsel for a non-e#isting 2"dicial person R.ling(ec. ,.. of the Corporation Code pro!ides in part? [,... Corporate LiG"idation. W 7!ery Corporation whose charter e#pires by its own li%itation or is ann"lled by forfeit"re or otherwise or whose corporate e#istence for other p"rposes is ter%inated in any other %anner shall ne!ertheless be contin"ed as a body corporate for three );* years after the ti%e when it wo"ld ha!e been so dissol!ed for the p"rpose of prosec"ting and defending s"its by or against it and enabling it to settle and close its affairs to dispose of and con!ey its property and to distrib"te its assets b"t not for the p"rpose of contin"ing the b"siness for which it was established. At any ti%e d"ring said three );* years said corporation is a"thori$ed the e%powered to con!ey all of its property to tr"stees for the benefit of stockholders %e%bers creditors and other persons in interest. Aro% and after any s"ch con!eyance by the corporation of its property in tr"st for the benefit of its stockholders %e%bers creditors and others in interests all interests which the corporation had in the property in ter%inates the legal interest !ests in the tr"stees and the beneficial interest in the stockholders %e%bers creditors or other persons in interest. Petitioners arg"e that while pri!ate respondent Pepsi Cola 5ottling Co%pany of the Philippines Inc. "ndertook a !ol"ntary dissol"tion on J"ly ; ,-H; and the process of liG"idation for three );* years thereafter there is no showing that a tr"stee or recei!er was e!er appointed. They contend that [,.. of the Corporation Code does not a"thori$e a corporation after the three-year liG"idation period to contin"e actions instit"ted by it within said period of three years. It is to be noted that the ti%e d"ring which the corporation thro"gh its own officers %ay cond"ct the liG"idation of its assets and s"e and be s"ed as a corporation is li%ited to three years fro% the ti%e the period of dissol"tion co%%ences? b"t there is no ti%e li%it within which the tr"stees %"st co%plete a liG"idation placed in their hands. It is pro!ided only that the con!eyance to the tr"stees %"st be %ade within the three-year period. It %ay be fo"nd i%possible to co%plete the work of liG"idation within the three-year period or to red"ce disp"ted clai%s to 2"dg%ent. The a"thorities are to the effect that s"its by or against a corporation abate when it ceased to be an entity capable of s"ing or being s"ed b"t tr"stees to who% the corporate assets ha!e been con!eyed p"rs"ant to the a"thority of (ec. 3H Enow (ec. ,..F %ay s"e and be s"ed as s"ch in all %atters connected with the liG"idation. . . . A"rther%ore the Corporation Law pro!ides?

[,B+. A%end%ent or repeal. W No right or re%edy in fa!or of or against any corporation its stockholders %e%bers directors tr"stees or officers nor any liability inc"rred by any s"ch corporation stockholders %e%bers directors tr"stees or officers shall be re%o!ed or i%paired either by the s"bseG"ent dissol"tion of said corporation or by any s"bseG"ent a%end%ent or repeal of this Code or of any part thereof. This pro!ision safeg"ards the rights of a corporation which is dissol!ed pending litigation. There is therefore no reason why the s"it filed by pri!ate respondent sho"ld not be allowed to proceed to e#ec"tion. It is conceded by petitioners that the 2"dg%ent against the% and in fa!or of pri!ate respondent in C.A. &.9. No. ,4:3: had beco%e final and e#ec"tory. The only reason for their ref"sal to e#ec"te the sa%e is that there is no e#isting corporation to which they are indebted. ("ch arg"%ent is fallacio"s. As pre!io"sly %entioned the law specifically allows a tr"stee to %anage the affairs of the corporation in liG"idation. ConseG"ently any s"per!ening fact s"ch as the dissol"tion of the corporation repeal of a law or any other fact of si%ilar nat"re wo"ld not ser!e as an effecti!e bar to the enforce%ent of s"ch right. Pe%si Cola Vs# CA &''* S 170+ ,actsPepsi-Cola Prod"cts Philippines Inc. 7%ployees and 1orkers Inion )PC71I* is a d"ly- registered labor "nion of the e%ployees of the Pepsi-Cola 6istrib"tors of the Philippines )PC6P*. 8n J"ly ,B ,-H4 PC71I thro"gh its local "nion president Arisedes T. 5o%beo filed a Co%plaint against PC6P for pay%ent of o!erti%e ser!ices rendered by fifty-three )+;* of its %e%bers who were e%ployed as sales%en wareho"se%en tr"ck helpers ro"te sales%en ro"te sales workers distrib"tors cond"ctors and forklift operators on the eight )H* days d"ly- designated as M"sli% holidays for calendar year ,-H+ in their respecti!e places of assign%ent na%ely? Iligan City T"bod Lanao del Norte and 6ipolog City. The PC71I alleged inter alia that in pre!io"s years they had been paid o!erti%e pay for ser!ices rendered d"ring the eight )H* M"sli% holidays in their places of assign%ent incl"ding 6ipolog City. The PC6P %aintained that there were only fi!e )+* legal M"sli% holidays "nder the M"sli% Code. It asserted that "nder the law the cities of Cagayan de 8ro and 6ipolog were not incl"ded in the areas that officially obser!ed the M"sli% holidays and that the said holidays were only applicable to M"sli%s. It also arg"ed that e!en ass"%ing that the e%ployees were entitled to s"ch o!erti%e pay only the rank-and-file e%ployees and not the %anagerial e%ployees sho"ld be gi!en s"ch benefit. 8n May .4 ,-H3 the 7#ec"ti!e Labor Arbiter )7LA* rendered a 6ecision in fa!or of PC71I ordering PC6P to pay the clai%s of its workers. Pending resol"tion of the case ownership of !ario"s Pepsi-Cola bottling plants was transferred to petitioner Pepsi-Cola Prod"cts Philippines Inc. )PCPPI*. The NL9C directed the parties to file their respecti!e pleadings concerning the respondent/s e#istence as a corporate entity. The PC6P alleged that it had ceased to e#ist as a corporation on J"ly .B ,-H- and that it has winded "p its corporate affairs in accordance with law. It also a!erred that it was now owned by PCPPI. 8n Aebr"ary ,, ,--. the NL9C iss"ed a 9esol"tion dis%issing the co%plaint of the PC71I for the reason that with the cessation and dissol"tion of the corporate e#istence of the PC6P rendering any 2"dg%ent against it is incapable of e#ec"tion and satisfaction. Iss.e1<N with the cessation and dissol"tion of the corporate e#istence of PC6P any 2"dg%ent against it is incapable of e#ec"tion and satisfaction R.lingThe NL9C co%%itted a gra!e ab"se of its discretion a%o"nting to lack of 2"risdiction in dis%issing the case. The NL9C clearly erred in percei!ing that "pon the petitioner/s acG"isition of the PC6P the latter lost its corporate personality. Inder (ection ,.. of the Corporation Code a corporation whose corporate e#istence is ter%inated in any %anner contin"es to be a body corporate for three );* years after its dissol"tion for p"rposes of prosec"ting and defending s"its by and against it and to enable it to settle and close its affairs c"l%inating in the disposition and distrib"tion of its re%aining assets. It %ay d"ring the three-year ter% appoint a tr"stee or a recei!er who %ay act beyond that period. At any ti%e d"ring the said three );* years the corporation is a"thori$ed and e%powered to con!ey all of its properties to tr"stees for the benefit of stockholders %e%bers creditors and other persons in interest. Aro% and after any s"ch con!eyance by the corporation of its properties in tr"st for the

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benefit of its stockholders %e%bers creditors and others in interest all interest which the corporation had in the properties ter%inates the legal interest !ests in the tr"stees and the beneficial interest in the stockholders %e%bers creditors or other persons in interest. Ipon the winding "p of the corporate affairs any asset distrib"table to any creditor or stockholder or %e%ber who is "nknown or cannot be fo"nd shall be escheated to the city or %"nicipality where s"ch assets are located. 7#cept by decrease of capital stock and as otherwise allowed by this Code no corporation shall distrib"te any of its assets or property e#cept "pon lawf"l dissol"tion and after pay%ent of all its debts and liabilities. The ter%ination of the life of a corporate entity does not by itself ca"se the e#tinction or di%in"tion of the rights and liabilities of s"ch entity. If the threeyear e#tended life has e#pired witho"t a tr"stee or recei!er ha!ing been e#pressly designated by the corporation within that period the board of directors )or tr"stees* itself %ay be per%itted to so contin"e as "tr"stees" by legal i%plication to co%plete the corporate liG"idation. Gelano Vs# CA & 0* S 90+ ,actsIns"lar (aw%ill Inc. is a corporation organi$ed on (epte%ber ,3 ,-B+ with a corporate life of fifty )+:* years or "p to (epte%ber ,3 ,--+ with the pri%ary p"rpose of carrying on a general l"%ber and saw%ill b"siness. To carry on this b"siness it leased the paraphernal property of petitioner-wife &"iller%ina M. &elano at the corner of Canonigo and 8tis Paco Manila for P, .::.:: a %onth. It was while it was leasing the aforesaid property that its officers and directors had co%e to know petitioner-h"sband Carlos &elano who recei!ed fro% the corporation cash ad!ances on acco"nt of rentals to be paid by the corporation on the land. 5etween No!e%ber ,- ,-B3 to 6ece%ber .4 ,-+: &elano obtained fro% pri!ate respondent cash ad!ances of P.+ -+:.::. The said s"% was taken and recei!ed by Carlos &elano on the agree%ent that Ins"lar co"ld ded"ct the sa%e fro% the %onthly rentals of the leased pre%ises "ntil said cash ad!ances are f"lly paid. Carlos &elano was able to pay only P+ -+:.:: thereby lea!ing an "npaid balance of P.: :::.:: which he ref"sed to pay despite repeated de%ands by Ins"lar. 8n !ario"s occasions fro% May B ,-BH to (epte%ber ,, ,-B- petitioners h"sband and wife also %ade credit p"rchases of l"%ber %aterials fro% pri!ate respondent with a total price of P, ,.:.B4 in connection with the repair and i%pro!e%ent of petitionersC residence. The a%o"nt d"e pri!ate respondent on acco"nt of credit p"rchases of l"%ber %aterials is P-B4.B4 which petitioners failed to pay. 8n J"ly ,B ,-+. in order to acco%%odate and help petitioners renew pre!io"s loans obtained by the% fro% the China 5anking Corporation Ins"lar thro"gh Joseph Tan Moc (" e#ec"ted a 2oint and se!eral pro%issory note with Carlos &elano in fa!or of said bank in the a%o"nt of PH :::.:: payable in si#ty )4:* days. Aor fail"re of Carlos &elano to pay the pro%issory note "pon %at"rity the bank collected fro% the respondent corporation the a%o"nt of P- ,:4.:: incl"ding interests by debiting it fro% the corporationCs c"rrent acco"nt with the bank. Petitioner Carlos &elano was able to pay pri!ate respondent the a%o"nt of P+ :::.:: b"t the balance of PB ,:4.:: re%ained "nsettled. Th"s the corporation petitioners. filed a co%plaint for collection against herein

R.lingIn A%erican corporate law "pon which o"r Corporation Law was patterned it is well settled that "nless the stat"tes otherwise pro!ide all pending s"its and actions by and against a corporation are abated by a dissol"tion of the corporation. (ection 33 of the Corporation Law pro!ides that the corporation shall "be contin"ed as a body corporate for three );* years after the ti%e when it wo"ld ha!e been ... dissol!ed for the p"rpose of prosec"ting and defending s"its 5y or against it ... " so that thereafter it shall no longer en2oy corporate e#istence for s"ch p"rpose. Aor this reason (ection 3H of the sa%e law a"thori$es the corporation "at any ti%e d"ring said three years ... to con!ey all of its property to tr"stees for the benefit of %e%bers (tockholders creditors and other interested " e!idently for the p"rpose a%ong others of enabling said tr"stees to prosec"te and defend s"its by or against the corporation beg"n before the e#piration of said period. 1hen Ins"lar (aw%ill Inc. was dissol!ed on 6ece%ber ;, ,-4: "nder (ection 33 of the Corporation Law it still has the right "ntil 6ece%ber ;, ,-4; to prosec"te in its na%e the present case. After the e#piration of said period the corporation ceased to e#ist for all p"rposes and it can no longer s"e or be s"ed. 0owe!er a corporation that has a pending action and which cannot be ter%inated within the three-year period after its dissol"tion is a"thori$ed "nder (ection 3H to con!ey all its property to tr"stees to enable it to prosec"te and defend s"its by or against the corporation beyond the Three-year period. In the case at bar altho"gh Ins"lar did not appoint any tr"stee yet the co"nsel who prosec"ted and defended the interest of the corporation in the instant case and who in fact appeared in behalf of the corporation %ay be considered a tr"stee of the corporation at least with respect to the %atter in litigation only. (aid co"nsel had been handling the case when the sa%e was pending before the trial co"rt "ntil it was appealed before the Co"rt of Appeals and finally to this Co"rt. 1e therefore hold that there was a s"bstantial co%pliance with (ection 3H of the Corporation Law and as s"ch Ins"lar (aw%ill Inc. co"ld still contin"e prosec"ting the present case e!en beyond the period of three );* years fro% the ti%e of its dissol"tion. Aro% the abo!e G"oted co%%entary of J"stice Aisher the tr"stee %ay co%%ence a s"it which can proceed to final 2"dg%ent e!en beyond the threeyear period. No reason can be concei!ed why a s"it already co%%enced 5y the corporation itself d"ring its e#istence not by a %ere tr"stee who by fiction %erely contin"es the legal personality of the dissol!ed corporation sho"ld not be accorded si%ilar treat%ent allowed W to proceed to final 2"dg%ent and e#ec"tion thereof. The word "tr"stee" as s"ed in the corporation stat"te %"st be "nderstood in its general concept which co"ld incl"de the co"nsel to who% was entr"sted in the instant case the prosec"tion of the s"it filed by the corporation. The p"rpose in the transfer of the assets of the corporation to a tr"stee "pon its dissol"tion is %ore for the protection of its creditor and stockholders. 6ebtors like the petitioners herein %ay not take ad!antage of the fail"re of the corporation to transfer its assets to a tr"stee ass"%ing it has any to transfer which petitioner has failed to show in the first place. To s"stain petitionersC contention wo"ld be to allow the% to enrich the%sel!es at the e#pense of another which all enlightened legal syste%s conde%n. Cle:ente Vs# CA &2'2 S ( (+ ,actsIn an action entitled "6eclaration of 8wnership with 9ecei!ership " instit"ted the petitioners so"ght to be declared the owners of a piece of land so described as Lot No. ,BH-New of the s"bdi!ision plan Pls-+:.-6 being a portion of Lot No. ,BH of the cadastral s"r!ey of Cala%ba &.L.98 9ecords No. HB,H sit"ated in the 5arrio of Lecheria M"nicipality of Cala%ba Pro!ince of Lag"na island of L"$on. The pri!ate respondents likewise clai%ed ownership of the property by !irt"e of acG"isiti!e prescription. The trial co"rt dis%issed the co%plaint not %erely on what it apparently percei!ed to be an ins"fficiency of the e!idence that fir%ly co"ld establish plaintiffsC clai% of ownership o!er the property in disp"te b"t also on its thesis that absent a corporate liG"idation it is the corporation not the stockholders which can assert if at all any title to the corporate assets. The co"rt e!en then e#pressed so%e reser!ations on the corporationCs being able to still !alidly p"rs"e s"ch a clai%. Iss.e1<N the petitioners can be held to ha!e s"cceeded in establishing for the%sel!es a fir% title to the property in G"estion R.ling-

In the %eanti%e Ins"lar a%ended its Articles of Incorporation to shorten its ter% of e#istence "p to 6ece%ber ;, ,-4: only. The a%ended Articles of Incorporation was filed with and appro!ed by the (ec"rities and 7#change Co%%ission b"t the trial co"rt was not notified of the a%end%ent shortening the corporate e#istence and no s"bstit"tion of party was e!er %ade. 8n No!e%ber .: ,-4B and al%ost fo"r )B* years after the dissol"tion of the corporation the trial co"rt rendered a decision in fa!or of Ins"lar. After petitioners recei!ed a copy of the decision on A"g"st .B ,-3; they ca%e to know that the Ins"lar (aw%ill Inc. was dissol!ed way back on 6ece%ber ;, ,-4:. 0ence petitioners filed a %otion to dis%iss the case and<or reconsideration of the decision of the Co"rt of Appeals on gro"nds that the case was prosec"ted e!en after dissol"tion of pri!ate respondent as a corporation and that a def"nct corporation cannot %aintain any s"it for or against it witho"t first co%plying with the reG"ire%ents of the winding "p of the affairs of the corporation and the assign%ent of its property rights within the reG"ired period. Iss.e1<N a corporation whose corporate life had ceased by the e#piration of its ter% of e#istence co"ld still contin"e prosec"ting and defending s"its after its dissol"tion and beyond the period of three years pro!ided for "nder Act No. ,B+- otherwise known as the Corporation law to wind "p its affairs witho"t ha!ing "ndertaken any step to transfer its assets to a tr"stee or assignee

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PetitionersC e!idence is direly wanting@ all that appear to be certain are that the "(ociedad Pop"lar Cala%beSa " belie!ed to be a "sociedad anoni%a" and for a while engaged in the operation and %anage%ent of a cockpit has e#isted so%e ti%e in the past@ that it has acG"ired the parcel of land here in!ol!ed@ and that the plaintiffsC predecessors Mariano 7lepaSo and Pablo Cle%ente had been original stockholders of the sociedad . 7#cept in showing that they are the s"ccessors-in-interest of 7lepaSo and Cle%ente petitioners ha!e been "nable to co%e "p with any e!idence to s"bstantiate their clai% of ownership of the corporate asset. If indeed the sociedad has long beco%e def"nct it sho"ld behoo!e petitioners or anyone else who %ay ha!e any interest in the corporation to take appropriate %eas"res before a proper for"% for a pere%ptory settle%ent of its affairs. 1e %ight in!ite attention to the !ario"s %odes pro!ided by the Corporation Code )see (ees. ,,3-,..* for dissol!ing liG"idating or winding "p and ter%inating the life of the corporation. A%ong the ca"ses for s"ch dissol"tion are when the corporate ter% has e#pired or when "pon a !erified co%plaint and after notice and hearing the (ec"rities and 7#change Co%%ission orders the dissol"tion of a corporation for its contin"o"s inacti!ity for at least fi!e )+* years. The corporation contin"es to be a body corporate for three );* years after its dissol"tion for p"rposes of prosec"ting and defending s"its by and against it and for enabling it to settle and close its affairs c"l%inating in the disposition and distrib"tion of its re%aining assets. It %ay d"ring the three-year ter% appoint a tr"stee or a recei!er who %ay act beyond that period. The ter%ination of the life of a 2"ridical entity does not by itself ca"se the e#tinction or di%in"tion of the rights and liabilities of s"ch entity )see /on>ales vs. Sugar =egulator$ Administration ,3B (C9A ;33* nor those of its owners and creditors. If the three-year e#tended life has e#pired witho"t a tr"stee or recei!er ha!ing been e#pressly designated by the corporation within that period the board of directors )or tr"stees* itself following the rationale of the ("pre%e Co"rtCs decision in /elano vs. Court of Appeals ),:; (C9A -:* %ay be per%itted to so contin"e as "tr"stees" by legal i%plication to co%plete the corporate liG"idation. (till in the absence of a board of directors or tr"stees those ha!ing any pec"niary interest in the assets incl"ding not only the shareholders b"t likewise the creditors of the corporation acting for and in its behalf %ight %ake proper representations with the (ec"rities and 7#change co%%ission which has pri%ary and s"fficiently broad 2"risdiction in %atters of this nat"re for working o"t a final settle%ent of the corporate concerns. TITLE KV ,OREIGN CORPORATIONS Sec# 2*# Definition and rights of foreign corporations. - Aor the p"rposes of this Code a foreign corporation is one for%ed organi$ed or e#isting "nder any laws other than those of the Philippines and whose laws allow Ailipino citi$ens and corporations to do b"siness in its own co"ntry or state. It shall ha!e the right to transact b"siness in the Philippines after it shall ha!e obtained a license to transact b"siness in this co"ntry in accordance with this Code and a certificate of a"thority fro% the appropriate go!ern%ent agency. )n* Sec# 2'# Application to existing foreign corporations. - 7!ery foreign corporation which on the date of the effecti!ity of this Code is a"thori$ed to do b"siness in the Philippines "nder a license therefore iss"ed to it shall contin"e to ha!e s"ch a"thority "nder the ter%s and condition of its license s"b2ect to the pro!isions of this Code and other special laws. )n* Sec# 21# Application for a license. - A foreign corporation applying for a license to transact b"siness in the Philippines shall s"b%it to the (ec"rities and 7#change Co%%ission a copy of its articles of incorporation and by-laws certified in accordance with law and their translation to an official lang"age of the Philippines if necessary. The application shall be "nder oath and "nless already stated in its articles of incorporation shall specifically set forth the following? ,. The date and ter% of incorporation@ .. The address incl"ding the street n"%ber of the principal office of the corporation in the co"ntry or state of incorporation@ ;. The na%e and address of its resident agent a"thori$ed to accept s"%%ons and process in all legal proceedings and pending the establish%ent of a local office all notices affecting the corporation@ B. The place in the Philippines where the corporation intends to operate@ +. The specific p"rpose or p"rposes which the corporation intends to p"rs"e in the transaction of its b"siness in the Philippines? Pro!ided That said p"rpose or p"rposes are those specifically stated in the certificate of a"thority iss"ed by the appropriate go!ern%ent agency@ 4. The na%es and addresses of the present directors and officers of the corporation@ 3. A state%ent of its a"thori$ed capital stock and the aggregate n"%ber of shares which the corporation has a"thority to iss"e ite%i$ed by classes par !al"e of shares shares witho"t par !al"e and series if any@

H. A state%ent of its o"tstanding capital stock and the aggregate n"%ber of shares which the corporation has iss"ed ite%i$ed by classes par !al"e of shares shares witho"t par !al"e and series if any@ -. A state%ent of the a%o"nt act"ally paid in@ and ,:. ("ch additional infor%ation as %ay be necessary or appropriate in order to enable the (ec"rities and 7#change Co%%ission to deter%ine whether s"ch corporation is entitled to a license to transact b"siness in the Philippines and to deter%ine and assess the fees payable. Attached to the application for license shall be a d"ly e#ec"ted certificate "nder oath by the a"thori$ed official or officials of the 2"risdiction of its incorporation attesting to the fact that the laws of the co"ntry or state of the applicant allow Ailipino citi$ens and corporations to do b"siness therein and that the applicant is an e#isting corporation in good standing. If s"ch certificate is in a foreign lang"age a translation thereof in 7nglish "nder oath of the translator shall be attached thereto. The application for a license to transact b"siness in the Philippines shall likewise be acco%panied by a state%ent "nder oath of the president or any other person a"thori$ed by the corporation showing to the satisfaction of the (ec"rities and 7#change Co%%ission and other go!ern%ental agency in the proper cases that the applicant is sol!ent and in so"nd financial condition and setting forth the assets and liabilities of the corporation as of the date not e#ceeding one ),* year i%%ediately prior to the filing of the application. Aoreign banking financial and ins"rance corporations shall in addition to the abo!e reG"ire%ents co%ply with the pro!isions of e#isting laws applicable to the%. In the case of all other foreign corporations no application for license to transact b"siness in the Philippines shall be accepted by the (ec"rities and 7#change Co%%ission witho"t pre!io"s a"thority fro% the appropriate go!ern%ent agency whene!er reG"ired by law. )4Ha* Sec# 2)# *ssuance of a license. - If the (ec"rities and 7#change Co%%ission is satisfied that the applicant has co%plied with all the reG"ire%ents of this Code and other special laws r"les and reg"lations the Co%%ission shall iss"e a license to the applicant to transact b"siness in the Philippines for the p"rpose or p"rposes specified in s"ch license. Ipon iss"ance of the license s"ch foreign corporation %ay co%%ence to transact b"siness in the Philippines and contin"e to do so for as long as it retains its a"thority to act as a corporation "nder the laws of the co"ntry or state of its incorporation "nless s"ch license is sooner s"rrendered re!oked s"spended or ann"lled in accordance with this Code or other special laws. 1ithin si#ty )4:* days after the iss"ance of the license to transact b"siness in the Philippines the license e#cept foreign banking or ins"rance corporation shall deposit with the (ec"rities and 7#change Co%%ission for the benefit of present and f"t"re creditors of the licensee in the Philippines sec"rities satisfactory to the (ec"rities and 7#change Co%%ission consisting of bonds or other e!idence of indebtedness of the &o!ern%ent of the Philippines its political s"bdi!isions and instr"%entalities or of go!ern%ent-owned or controlled corporations and entities shares of stock in "registered enterprises" as this ter% is defined in 9ep"blic Act No. +,H4 shares of stock in do%estic corporations registered in the stock e#change or shares of stock in do%estic ins"rance co%panies and banks or any co%bination of these kinds of sec"rities with an act"al %arket !al"e of at least one h"ndred tho"sand )P,:: :::.* pesos@ Pro!ided howe!er That within si# )4* %onths after each fiscal year of the licensee the (ec"rities and 7#change Co%%ission shall reG"ire the licensee to deposit additional sec"rities eG"i!alent in act"al %arket !al"e to two ).N* percent of the a%o"nt by which the licenseeCs gross inco%e for that fiscal year e#ceeds fi!e %illion )P+ ::: :::.::* pesos. The (ec"rities and 7#change Co%%ission shall also reG"ire deposit of additional sec"rities if the act"al %arket !al"e of the sec"rities on deposit has decreased by at least ten ),:N* percent of their act"al %arket !al"e at the ti%e they were deposited. The (ec"rities and 7#change Co%%ission %ay at its discretion release part of the additional sec"rities deposited with it if the gross inco%e of the licensee has decreased or if the act"al %arket !al"e of the total sec"rities on deposit has increased by %ore than ten ),:N* percent of the act"al %arket !al"e of the sec"rities at the ti%e they were deposited. The (ec"rities and 7#change Co%%ission %ay fro% ti%e to ti%e allow the licensee to s"bstit"te other sec"rities for those already on deposit as long as the licensee is sol!ent. ("ch licensee shall be entitled to collect the interest or di!idends on the sec"rities deposited. In the e!ent the licensee ceases to do b"siness in the Philippines the sec"rities deposited as aforesaid shall be ret"rned "pon the licenseeCs application therefor and "pon proof to the satisfaction of the (ec"rities and 7#change Co%%ission that the licensee has no liability to Philippine residents incl"ding the &o!ern%ent of the 9ep"blic of the Philippines. )n* Sec# 2(# Who may be a resident agent. - A resident agent %ay be either an indi!id"al residing in the Philippines or a do%estic corporation lawf"lly transacting b"siness in the Philippines? Pro!ided That in the case of an indi!id"al he %"st be of good %oral character and of so"nd financial standing. )n* Sec# 27# %esident agent> service of process. - The (ec"rities and 7#change Co%%ission shall reG"ire as a condition precedent to the iss"ance of the license to transact b"siness in the Philippines by any foreign corporation that s"ch corporation file with the (ec"rities and 7#change Co%%ission a written power of attorney designating so%e person who %"st be a resident of the Philippines on who% any s"%%ons and other legal

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processes %ay be ser!ed in all actions or other legal proceedings against s"ch corporation and consenting that ser!ice "pon s"ch resident agent shall be ad%itted and held as !alid as if ser!ed "pon the d"ly a"thori$ed officers of the foreign corporation at its ho%e office. Any s"ch foreign corporation shall likewise e#ec"te and file with the (ec"rities and 7#change Co%%ission an agree%ent or stip"lation e#ec"ted by the proper a"thorities of said corporation in for% and s"bstance as follows? "The )na%e of foreign corporation* does hereby stip"late and agree in consideration of its being granted by the (ec"rities and 7#change Co%%ission a license to transact b"siness in the Philippines that if at any ti%e said corporation shall cease to transact b"siness in the Philippines or shall be witho"t any resident agent in the Philippines on who% any s"%%ons or other legal processes %ay be ser!ed then in any action or proceeding arising o"t of any b"siness or transaction which occ"rred in the Philippines ser!ice of any s"%%ons or other legal process %ay be %ade "pon the (ec"rities and 7#change Co%%ission and that s"ch ser!ice shall ha!e the sa%e force and effect as if %ade "pon the d"ly-a"thori$ed officers of the corporation at its ho%e office." 1hene!er s"ch ser!ice of s"%%ons or other process shall be %ade "pon the (ec"rities and 7#change Co%%ission the Co%%ission shall within ten ),:* days thereafter trans%it by %ail a copy of s"ch s"%%ons or other legal process to the corporation at its ho%e or principal office. The sending of s"ch copy by the Co%%ission shall be necessary part of and shall co%plete s"ch ser!ice. All e#penses inc"rred by the Co%%ission for s"ch ser!ice shall be paid in ad!ance by the party at whose instance the ser!ice is %ade. In case of a change of address of the resident agent it shall be his or its d"ty to i%%ediately notify in writing the (ec"rities and 7#change Co%%ission of the new address. )3.a@ and n* Sec# 29# 1aw applicable. - Any foreign corporation lawf"lly doing b"siness in the Philippines shall be bo"nd by all laws r"les and reg"lations applicable to do%estic corporations of the sa%e class e#cept s"ch only as pro!ide for the creation for%ation organi$ation or dissol"tion of corporations or those which fi# the relations liabilities responsibilities or d"ties of stockholders %e%bers or officers of corporations to each other or to the corporation. )3;a* Sec# *0# Amendments to articles of incorporation or by-laws of foreign corporations. - 1hene!er the articles of incorporation or by-laws of a foreign corporation a"thori$ed to transact b"siness in the Philippines are a%ended s"ch foreign corporation shall within si#ty )4:* days after the a%end%ent beco%es effecti!e file with the (ec"rities and 7#change Co%%ission and in the proper cases with the appropriate go!ern%ent agency a d"ly a"thenticated copy of the articles of incorporation or by-laws as a%ended indicating clearly in capital letters or by "nderscoring the change or changes %ade d"ly certified by the a"thori$ed official or officials of the co"ntry or state of incorporation. The filing thereof shall not of itself enlarge or alter the p"rpose or p"rposes for which s"ch corporation is a"thori$ed to transact b"siness in the Philippines. )n* Sec# * # Amended license. - A foreign corporation a"thori$ed to transact b"siness in the Philippines shall obtain an a%ended license in the e!ent it changes its corporate na%e or desires to p"rs"e in the Philippines other or additional p"rposes by s"b%itting an application therefor to the (ec"rities and 7#change Co%%ission fa!orably endorsed by the appropriate go!ern%ent agency in the proper cases. )n* Sec# *2# (erger or consolidation involving a foreign corporation licensed in the =hilippines. - 8ne or %ore foreign corporations a"thori$ed to transact b"siness in the Philippines %ay %erge or consolidate with any do%estic corporation or corporations if s"ch is per%itted "nder Philippine laws and by the law of its incorporation? Pro!ided That the reG"ire%ents on %erger or consolidation as pro!ided in this Code are followed. 1hene!er a foreign corporation a"thori$ed to transact b"siness in the Philippines shall be a party to a %erger or consolidation in its ho%e co"ntry or state as per%itted by the law of its incorporation s"ch foreign corporation shall within si#ty )4:* days after s"ch %erger or consolidation beco%es effecti!e file with the (ec"rities and 7#change Co%%ission and in proper cases with the appropriate go!ern%ent agency a copy of the articles of %erger or consolidation d"ly a"thenticated by the proper official or officials of the co"ntry or state "nder the laws of which %erger or consolidation was effected? Pro!ided howe!er That if the absorbed corporation is the foreign corporation doing b"siness in the Philippines the latter shall at the sa%e ti%e file a petition for withdrawal of it license in accordance with this Title. )n* Sec# **# Doing business without a license. - No foreign corporation transacting b"siness in the Philippines witho"t a license or its s"ccessors or assigns shall be per%itted to %aintain or inter!ene in any action s"it or proceeding in any co"rt or ad%inistrati!e agency of the Philippines@ b"t s"ch corporation %ay be s"ed or proceeded against before Philippine co"rts or ad%inistrati!e trib"nals on any !alid ca"se of action recogni$ed "nder Philippine laws. )4-a* B# Van Z.iden Vs# GTVL 2fg# &12* S 2**+ ,acts-

XII67N is a corporation incorporated "nder the laws of 0ong Dong. XII67N is not engaged in b"siness in the Philippines b"t is s"ing before the Philippine Co"rts for the reasons hereinafter stated. XII67N is engaged in the i%portation and e#portation of se!eral prod"cts incl"ding lace prod"cts. 8n se!eral occasions &T'L p"rchased lace prod"cts fro% XII67N. The proced"re for these p"rchases as per the instr"ctions of &T'L was that XII67N deli!ers the prod"cts p"rchased by &T'L to a certain 0ong Dong corporation known as Den$ar Ltd. )D7NXA9* and the prod"cts are then considered as sold "pon receipt by D7NXA9 of the goods p"rchased by &T'L. D7NXA9 had the obligation to deli!er the prod"cts to the Philippines and<or to follow whate!er instr"ctions &T'L had on the %atter. Insofar as XII67N is concerned "pon deli!ery of the goods to D7NXA9 in 0ong Dong the transaction is concl"ded@ and &T'L beca%e obligated to pay the agreed p"rchase price. 0owe!er co%%encing 8ctober ;, ,--B "p to the present &T'L has failed and ref"sed to pay the agreed p"rchase price for se!eral deli!eries ordered by it and deli!ered by XII67N as abo!e%entioned. In spite of said de%ands and in spite of pro%ises to pay and<or ad%issions of liability &T'L has failed and ref"sed and contin"es to fail and ref"se to pay the o!erd"e a%o"nt of I.(.K;. :HH.:. incl"si!e of interest. Th"s on ,; J"ly ,--- petitioner filed a co%plaint for s"% of %oney against respondent. Instead of filing an answer respondent filed a Motion to 6is%iss on the gro"nd that petitioner has no legal capacity to s"e. 9espondent alleged that petitioner is doing b"siness in the Philippines witho"t sec"ring the reG"ired license. Accordingly petitioner cannot s"e before Philippine co"rts. Iss.e1<N petitioner an "nlicensed foreign corporation has legal capacity to s"e before Philippine co"rts R.ling(ection ,;; of the Corporation Code pro!ides? ;oing business &it out license . W No foreign corporation transacting b"siness in the Philippines witho"t a license or its s"ccessors or assigns shall be per%itted to %aintain or inter!ene in any action s"it or proceeding in any co"rt or ad%inistrati!e agency of the Philippines@ b"t s"ch corporation %ay be s"ed or proceeded against before Philippine co"rts or ad%inistrati!e trib"nals on any !alid ca"se of action recogni$ed "nder Philippine laws. The law is clear. An "nlicensed foreign corporation doing b"siness in the Philippines cannot s"e before Philippine co"rts. 8n the other hand an "nlicensed foreign corporation not doing b"siness in the Philippines can s"e before Philippine co"rts. In the present contro!ersy petitioner is a foreign corporation which clai%s that it is not doing b"siness in the Philippines. As s"ch it needs no license to instit"te a collection s"it against respondent before Philippine co"rts. Inder (ection ;)d* of 9ep"blic Act No. 3:B. )9A 3:B.* or =The Aoreign In!est%ents Act of ,--, > the phrase =doing b"siness> incl"des? # # # soliciting orders ser!ice contracts opening offices whether called =liaison> offices or branches@ appointing representati!es or distrib"tors do%iciled in the Philippines or who in any calendar year stay in the co"ntry for a period or periods totalling one h"ndred eighty ),H:* days or %ore@ participating in the %anage%ent s"per!ision or control of any do%estic b"siness fir% entity or corporation in the Philippines@ and any other act or acts that i%ply a contin"ity of co%%ercial dealings or arrange%ents and conte%plate to that e#tent the perfor%ance of acts or works or the e#ercise of so%e of the f"nctions nor%ally incident to and in progressi!e prosec"tion of co%%ercial gain or of the p"rpose and ob2ect of the b"siness organi$ation? Provided# o&ever That the phrase =doing b"siness> shall not be dee%ed to incl"de %ere in!est%ent as a shareholder by a foreign entity in do%estic corporations d"ly registered to do b"siness and<or the e#ercise of rights as s"ch in!estor@ nor ha!ing a no%inee director or officer to represent its interests in s"ch corporation@ nor appointing a representati!e or distrib"tor do%iciled in the Philippines which transacts b"siness in its own na%e and for its own acco"nt. The series of transactions between petitioner and respondent cannot be classified as =doing b"siness> in the Philippines "nder (ection ;)d* of 9A 3:B.. An essential condition to be considered as =doing b"siness> in the Philippines is the act"al perfor%ance of specific co%%ercial acts within the territory of the Philippines for the plain reason that the Philippines has no 2"risdiction o!er co%%ercial acts perfor%ed in foreign territories. 0ere there is no showing that petitioner perfor%ed within the Philippine territory the specific acts of doing b"siness %entioned in (ection ;)d* of 9A 3:B.. Petitioner did not also open an office here in the Philippines appoint a representati!e or distrib"tor or %anage s"per!ise or control a local b"siness. 1hile petitioner and respondent entered into a series of transactions i%plying a contin"ity of co%%ercial dealings the perfection and cons"%%ation of these transactions were done o"tside the Philippines.

112

As earlier stated the series of transactions between petitioner and respondent transpired and were cons"%%ated in 0ong Dong. 1e also find no single acti!ity which petitioner perfor%ed here in the Philippines p"rs"ant to its p"rpose and ob2ect as a b"siness organi$ation. Moreo!er petitioner/s desire to do b"siness within the Philippines is not discernible fro% the allegations of the co%plaint or fro% its attach%ents. Therefore there is no basis for r"ling that petitioner is doing b"siness in the Philippines. An e#porter in one co"ntry %ay e#port its prod"cts to %any foreign i%porting co"ntries witho"t perfor%ing in the i%porting co"ntries specific co%%ercial acts that wo"ld constit"te doing b"siness in the i%porting co"ntries. The %ere act of e#porting fro% one/s own co"ntry witho"t doing any specific co%%ercial act within the territory of the i%porting co"ntry cannot be dee%ed as doing b"siness in the i%porting co"ntry. The i%porting co"ntry does not acG"ire 2"risdiction o!er the foreign e#porter who has not perfor%ed any specific co%%ercial act within the territory of the i%porting co"ntry. 1itho"t 2"risdiction o!er the foreign e#porter the i%porting co"ntry cannot co%pel the foreign e#porter to sec"re a license to do b"siness in the i%porting co"ntry. 8therwise Philippine e#porters by the %ere act alone of e#porting their prod"cts co"ld be considered by the i%porting co"ntries to be doing b"siness in those co"ntries. This will reG"ire Philippine e#porters to sec"re a b"siness license in e!ery foreign co"ntry where they "s"ally e#port their prod"cts e!en if they do not perfor% any specific co%%ercial act within the territory of s"ch i%porting co"ntries. ("ch a legal concept will ha!e a deleterio"s effect not only on Philippine e#ports b"t also on global trade. To be doing or =transacting b"siness in the Philippines> for p"rposes of (ection ,;; of the Corporation Code the foreign corporation %"st actuall$ transact business in t e P ilippines that is perfor% specific b"siness transactions within the Philippine territory on a contin"ing basis in its own na%e and for its own acco"nt. Act"al transaction of b"siness within the Philippine territory is an essential reG"isite for the Philippines to acG"ire 2"risdiction o!er a foreign corporation and th"s reG"ire the foreign corporation to sec"re a Philippine b"siness license. If a foreign corporation does not transact s"ch kind of b"siness in the Philippines e!en if it e#ports its prod"cts to the Philippines the Philippines has no 2"risdiction to reG"ire s"ch foreign corporation to sec"re a Philippine b"siness license. Considering that petitioner is not doing b"siness in the Philippines it does not need a license in order to initiate and %aintain a collection s"it against respondent for the "npaid balance of respondent/s p"rchases. 2aCest Vs# Sa:%ag.ita &'(0 S ''0+ ,actsMA'7(T )I.(.A.* Inc. )MA'7(T I.(.A. for short* is a corporation d"ly organi$ed and e#isting "nder the laws of the Inited (tates of A%erica b"t registered with the Philippine 5oard of In!est%ents while co-petitioner MA'7(T Manila Liaison 8ffice is MA'7(T I.(.A./s representati!e in the Philippines. 8n the other hand (a%pag"ita &ar%ent Corporation is a do%estic corporation engaged in the b"siness of %an"fact"ring and e#porting gar%ents. Ma!est I.(.A. and Ma!est Manila Liaison 8ffice entered into a series of transactions with (a%pag"ita &ar%ent Corporation whereby the for%er wo"ld f"rnish fro% abroad raw %aterials to be %an"fact"red by the latter into finished prod"cts for ship%ent to petitioners/ foreign b"yers Sears =oebuc% and GC Penne$. 7ach transaction was e%bodied in a p"rchase order the style and description as well as the G"antity %ode and date of deli!ery. The orders of Sears =oebuc% were d"ly paid in f"ll by way of letter of credit. The GC Penne$ orders consisting of H ::: pcs Cotton 1o!en Pants with total a%o"nt of K.- .::.:: were not co!ered by a letter of credit. 6espite ship%ent and receipt by GC Penne$ of said orders no pay%ent was %ade th"s pro%pting (a%pag"ita to send de%and letters which re%ained "nheeded. 8n April .3 ,--: (a%pag"ita filed a co%plaint for collection of a s"% of %oney a%o"nting to I(K.- .::.:: with da%ages against MA'7(T International Co. LT6 and Patrick 1ang for%er &eneral Manager of ML8. The trial co"rt rendered 2"dg%ent in fa!or of (a%pag"ita and against the petitioners and their co-defendants. Iss.e1<N Ma!est Manila Liaison 8ffice )ML8* being %erely an agent of Ma!est I.(.A sho"ld not be held solidarily liable with the principal R.lingML8 is solidarily liable with Ma!est I.(.A. since ML8 is the liaison office of Ma!est I.(.A and the e#tension office of both Ma!est I.(.A. and MILC. Ma!est I.(.A. appears to ha!e constit"ted ML8 as its representati!e and its f"lly s"bsidi$ed e#tension office in the Philippines. As s"ch ML8 can be

charged for the liabilities inc"rred by Ma!est I.(.A. in the co"ntry. And if ML8 can be so charged there is no rhy%e or reason why it cannot be ad2"dged as solidarily liable with head office Ma!est I.(.A. E$i5s Pte# Ltd# Vs# CA &2)() S 1)(+ ,actsPetitioner 7riks Pte. Ltd. is a non-resident foreign corporation engaged in the %an"fact"re and sale of ele%ents "sed in sealing p"%ps !al!es and pipes for ind"strial p"rposes !al!es and control eG"ip%ent "sed for ind"strial fl"id control and P'C pipes and fittings for ind"strial "ses. It is a corporation d"ly organi$ed and e#isting "nder the laws of the 9ep"blic of (ingapore. It is not licensed to do b"siness in the Philippines and is not so engaged. 6elfin 7nriG"e$ Jr. doing b"siness "nder the na%e and style of 6elrene 75 Controls Center and<or 75 Dar%ine Co%%ercial ordered and recei!ed fro% petitioner !ario"s ele%ents "sed in sealing p"%ps !al!es pipes and control eG"ip%ent P'C pipes and fittings. The ordered %aterials were deli!ered !ia airfreight. The transfers of goods were perfected in (ingapore for 7nriG"e$Cs acco"nt A.8.5. (ingapore with a -:-day credit ter%. ("bseG"ently de%ands were %ade by petitioner "pon pri!ate respondent to settle his acco"nt b"t the latter failed<ref"sed to do so. Th"s the corporation filed with a co%plaint for the reco!ery of (KB, -;-.4; or its eG"i!alent in Philippine c"rrency pl"s interest thereon and da%ages. 7nriG"e$ responded with a Motion to 6is%iss contending that petitioner corporation had no legal capacity to s"e. In an 8rder the trial co"rt dis%issed the action on the gro"nd that petitioner is a foreign corporation doing b"siness in the Philippines witho"t a license. Iss.e1<N 7riks %ay %aintain an action in Philippine co"rts considering that it has no license to do b"siness in the co"ntry R.lingThe resol"tion of this iss"e depends on whether petitionerCs b"siness with pri!ate respondent %ay be treated as isolated transactions. The sale by petitioner of the ite%s co!ered by the receipts which are part and parcel of its %ain prod"ct line was act"ally carried o"t in the progressi!e prosec"tion of co%%ercial gain and the p"rs"it of the p"rpose and ob2ect of its b"siness p"re and si%ple. A"rther its grant and e#tension of -:-day credit ter%s to pri!ate respondent for e!ery p"rchase %ade "narg"ably shows an intention to contin"e transacting with pri!ate respondent since in the "s"al co"rse of co%%ercial transactions credit is e#tended only to c"sto%ers in good standing or to those on who% there is an intention to %aintain long-ter% relationship. This being so the e#istence of a distrib"torship agree%ent between the parties as alleged b"t not pro!en by pri!ate respondent wo"ld if d"ly established by co%petent e!idence be %erely corroborati!e and fail"re to s"fficiently pro!e said allegation will not significantly affect the finding of the co"rts below. It is precisely "pon the set of facts abo!e detailed that we conc"r with respondent Co"rt that petitioner corporation was doing b"siness in the co"ntry. 7G"ally i%portant is the absence of any fact or circ"%stance which %ight tend e!en re%otely to negate s"ch intention to contin"e the progressi!e prosec"tion of petitionerCs b"siness acti!ities in this co"ntry. 0ad pri!ate respondent not t"rned o"t to be a bad risk in all likelihood petitioner wo"ld ha!e indefinitely contin"ed its co%%ercial transactions with hi% and not s"rprisingly in e!er increasing !ol"%es. Th"s we hold that the series of transactions in G"estion co"ld not ha!e been isolated or cas"al transactions. 1hat is deter%inati!e of "doing b"siness" is not really the n"%ber or the G"antity of the transactions b"t %ore i%portantly the intention of an entity to contin"e the body of its b"siness in the co"ntry. The n"%ber and G"antity are %erely e!idence of s"ch intention. The phrase "isolated transaction" has a definite and fi#ed %eaning i.e. a transaction or series of transactions set apart fro% the co%%on b"siness of a foreign enterprise in the sense that there is no intention to engage in a progressi!e p"rs"it of the p"rpose and ob2ect of the b"siness organi$ation. 1hether a foreign corporation is "doing b"siness" does not necessarily depend "pon the freG"ency of its transactions b"t %ore "pon the nat"re and character of the transactions. &i!en the facts of this case we cannot see how petitionerCs b"siness dealings will fit the category of "isolated transactions" considering that its intention to contin"e and p"rs"e the corp"s of its b"siness in the co"ntry had been clearly established. It has not presented any con!incing arg"%ent with eG"ally con!incing e!idence for "s to r"le otherwise. Accordingly and inel"ctably petitioner %"st be held to be incapacitated to %aintain the action a quo against pri!ate respondent.

113

It was ne!er the intent of the legislat"re to bar co"rt access to a foreign corporation or entity which happens to obtain an isolated order for b"siness in the Philippines. Neither did it intend to shield debtors fro% their legiti%ate liabilities or obligations. 5"t it cannot allow foreign corporations or entities which cond"ct reg"lar b"siness any access to co"rts witho"t the f"lfill%ent by s"ch corporations of the necessary reG"isites to be s"b2ected to o"r go!ern%entCs reg"lation and a"thority. 5y sec"ring a license the foreign entity wo"ld be gi!ing ass"rance that it will abide by the decisions of o"r co"rts e!en if ad!erse to it. ACon Ins.$ance Vs# CA &2(7 S * 2+

treaties between the petitioners and 1orldwide ("rety and Ins"rance were %ade thro"gh an international ins"rance broker and not thro"gh any entity or %eans re%otely connected with the Philippines. Moreo!er there is a"thority to the effect that a reins"rance co%pany is not doing b"siness in a certain state %erely beca"se the property or li!es which are ins"red by the original ins"rer co%pany are located in that state. The reason for this is that a contract of reins"rance is generally a separate and distinct arrange%ent fro% the original contract of ins"rance whose contracted risk is ins"red in the reins"rance agree%ent. 0ence the original ins"red has generally no interest in the contract of reins"rance. >.tc"ison Pa$ts Vs# SB2A &**9 S '*'+

,acts,actsM"pangco Cotton Mills engaged to sec"re with 1orldwide (ec"rity and Ins"rance Co. Inc. se!eral of its properties for the periods J"ly 4 ,-3- to J"ly 4 ,-H: for a co!erage of P,:: ::: :::.:: and fro% 8ctober , ,-H: to 8ctober , ,-H, also for P,:: ::: :::.::. 5oth contracts were co!ered by reins"rance treaties between 1orldwide ("rety and Ins"rance and se!eral foreign reins"rance co%panies incl"ding A!on Ins"rance. The reins"rance arrange%ents had been %ade thro"gh international broker C.J. 5oatwright and Co. Ltd. acting as agent of 1orldwide ("rety and Ins"rance. 8n 6ece%ber ,4 ,-3- and May . ,-H, within the respecti!e effecti!ity periods of the two policies the properties therein ins"red were ra$ed by fire thereby gi!ing rise to the obligation of the ins"rer to inde%nify the M"pangco Cotton Mills. Partial pay%ents were %ade by 1orldwide ("rety and Ins"rance and so%e of the reins"rance co%panies. 8n May . ,-H; 1orldwide ("rety and Ins"rance in a 6eed of Assign%ent acknowledged a re%aining balance of P,- BBB BB3.3+ still d"e M"pangco Cotton Mills and assigned to the latter all reins"rance proceeds still collectible fro% all the foreign reins"rance co%panies. Th"s in its interest as assignee and original ins"red M"pangco Cotton Mills instit"ted this collection s"it against the petitioners. Iss.e1<N the petitioners were deter%ined to be "doing b"siness in the Philippines" or not R.lingThere is no e#act r"le or go!erning principle as to what constit"tes doing or engaging in or transacting b"siness. Indeed s"ch case %"st be 2"dged in the light of its pec"liar circ"%stances "pon its pec"liar facts and "pon the lang"age of the stat"te applicable. The tr"e test howe!er see%s to be whether the foreign corporation is contin"ing the body or s"bstance of the b"siness or enterprise for which it was organi$ed. Article BB of the 8%nib"s In!est%ents Code of ,-H3 defines the phrase to incl"de? soliciting orders p"rchases ser!ice contracts opening offices whether called "liaison" offices or branches@ appointing representati!es or distrib"tors who are do%iciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totaling one h"ndred eighty ),H:* days or %ore@ participating in the %anage%ent s"per!ision or control of any do%estic b"siness fir% entity or corporation in the Philippines and any other act or acts that i%ply a contin"ity or co%%ercial dealings or arrange%ents and conte%plate to that e#tent the perfor%ance of acts or works or the e#ercise of so%e of the f"nctions nor%ally incident to and in progressi!e prosec"tion of co%%ercial gain or of the p"rpose and ob2ect of the b"siness organi$ation. The ter% ordinarily i%plies a contin"ity of co%%ercial dealings and arrange%ents and conte%plates to that e#tent the perfor%ance of acts or works or the e#ercise of the f"nctions nor%ally incident to and in progressi!e prosec"tion of the p"rpose and ob2ect of its organi$ation. A single act or transaction %ade in the Philippines howe!er co"ld G"alify a foreign corporation to be doing b"siness in the Philippines if s"ch sing"lar act is not %erely incidental or cas"al b"t indicates the foreign corporationCs intention to do b"siness in the Philippines. There is no s"fficient basis in the records which wo"ld %erit the instit"tion of this collection s"it in the Philippines. More specifically there is nothing to s"bstantiate the pri!ate respondentCs s"b%ission that the petitioners had engaged in b"siness acti!ities in this co"ntry. This is not an instance where the erroneo"s ser!ice of s"%%ons "pon the defendant can be c"red by the iss"ance and ser!ice of alias s"%%ons as in the absence of showing that petitioners had been doing b"siness in the co"ntry they cannot be s"%%oned to answer for the charges le!eled against the%. As it is pri!ate respondent has %ade no allegation or de%onstration of the e#istence of petitionersC do%estic agent b"t a!ers si%ply that they are doing b"siness not only abroad b"t in the Philippines as well. It does not appear at all that the petitioners had perfor%ed any act which wo"ld gi!e the general p"blic the i%pression that it had been engaging or intends to engage in its ordinary and "s"al b"siness "ndertakings in the co"ntry. The reins"rance The ("bic 5ay Metropolitan A"thority )or (5MA* ad!ertised in leading national daily newspapers and in one international p"blication an in!itation offering to the pri!ate sector the opport"nity to de!elop and operate a %odern %arine container ter%inal within the ("bic 5ay Areeport Xone. Three were declared by the (5MA as G"alified bidders after passing the pre-G"alification e!al"ation cond"cted by the (5MA/s Technical 7!al"ation Co%%ittee )or (5MA-T7C*. These are? ),* International Container Ter%inal (er!ices Inc. )or ICT(I*@ ).* a consorti"% consisting of 9oyal Port (er!ices Inc. and 0PC 0a%b"rg Port Cons"lting &M50 )or 9P(I*@ and );* 0"tchison Ports Philippines Li%ited )or 0PPL* representing a consorti"% co%posed of 0PPL &"oco 0oldings )Phils.* Inc. and Inicol Manage%ent (er!ices Inc. Thereafter the ser!ices of three );* international cons"ltants reco%%ended by the 1orld 5ank for their e#pertise were hired by (5MA to e!al"ate the b"siness plans s"b%itted by each of the bidders and to ens"re that there wo"ld be a transparent and co%prehensi!e re!iew of the s"b%itted bids. The cons"ltants after s"ch re!iew and e!al"ation "nani%o"sly concl"ded that 0PPL/s 5"siness Plan was =far s"perior to that of the two other bidders.> 0owe!er e!en before the sealed en!elopes containing the bidders/ proposed royalty fees co"ld be opened at the appointed ti%e and place 9P(I for%ally protested that ICT(I is legally barred fro% operating a second port in the Philippines based on 7#ec"ti!e 8rder No. .,. and 6epart%ent of Transportation and Co%%"nication )68TC* 8rder -+-H4;. Ne!ertheless the opening of the sealed financial bids proceeded ="nder ad!ise%ent> relati!e to the protest signified by 9P(I. The (5MA-P5AC decided to s"spend the anno"nce%ent of the winning bid howe!er and instead ga!e ICT(I se!en )3* days within which to respond to the letter-protest lodged by 9P(I. The 0PPL 2oined in 9P(I/s protest stating that ICT(I sho"ld be disG"alified beca"se it was already operating the Manila International Container Port )or MICP* which wo"ld gi!e rise to ine!itable conflict of interest between the MICP and the ("bic 5ay Container Ter%inal facility. 8n A"g"st ,+ ,--4 the (5MA-P5AC iss"ed a resol"tion re2ecting the bid of ICT(I beca"se =said bid does not co%ply with the reG"ire%ents of the tender doc"%ents and the laws of the Philippines.> The said resol"tion also declared that the winning bid be awarded to 0ITC0I(8N P89T( P0ILIPPIN7( LIMIT76 )0PPL* and that negotiations co%%ence i%%ediately with 0PPL )0ITC0I(8N* with a !iew to concl"ding an acceptable agree%ent within B+ days of this date failing which negotiations with 9P(I )98MAL* will co%%ence with a !iew to concl"ding an acceptable agree%ent within B+ days thereafter failing which there will be declared a fail"re of bids. The following day ICT(I filed a letter-appeal with (5MA/s 5oard of 6irectors reG"esting the n"llification and re!ersal of the abo!e-G"oted resol"tion re2ecting ICT(I/s bid while awarding the sa%e to 0PPL. 5"t e!en before the (5MA 5oard co"ld act on the appeal ICT(I filed a si%ilar appeal before the 8ffice of the President. 8n A"g"st ;: ,--4 then Chief Presidential Legal Co"nsel )CPLC* 9enato L. Cayetano s"b%itted a %e%orand"% to then President Aidel '. 9a%os containing the following reco%%endations that the President direct (5MA Chair%an &ordon to consider option n"%ber B P that is to re-e!al"ate the financial bids s"b%itted by the parties taking into consideration all the following factors which incl"des reinstate%ent of ICT(I/s bid. (5MA thro"gh the "nani%o"s !ote of all the 5oard Me%bers e#cl"ding the Chair%an of the 5oard who !ol"ntarily inhibited hi%self fro% participating in the re-e!al"ation selected the 0PPL bid as the winning bid being? the confor%ing bid with a realistic 5"siness Plan offering the greatest financial ret"rn to the (5MA@ the best possible offer in the %arket and the %ost ad!antageo"s to the go!ern%ent in accordance with the Tender 6oc"%ent. Notwithstanding the (5MA 5oard/s reco%%endations and action awarding the pro2ect to 0PPL then 7#ec"ti!e (ecretary 9"ben Torres s"b%itted a %e%orand"% to the 8ffice of the President reco%%ending that another rebidding be cond"cted. ConseG"ently the 8ffice of the President iss"ed a Me%orand"% directing the (5MA 5oard of 6irectors to refrain fro% signing the Concession Contract with 0PPL and to cond"ct a rebidding of the pro2ect. J"ly 3 ,--3 the 0PPL feeling aggrie!ed by the (5MA/s fail"re and ref"sal to co%%ence negotiations and to e#ec"te the Concession Agree%ent despite its earlier prono"nce%ents that 0PPL was the winning bidder filed a co%plaint against (5MA for specific perfor%ance %andatory in2"nction and da%ages.

114

1hile the case before the trial co"rt was pending litigation on A"g"st B ,--3 the (5MA sent notices to plaintiff 0PPL ICT(I and 9P(I reG"esting the% to declare their interest in participating in a rebidding of the proposed pro2ect. 8n 8ctober .: ,--3 plaintiff 0PPL recei!ed a copy of the %in"tes of the pre-bid conference which stated that the winning bidder wo"ld be anno"nced on 6ece%ber + ,--3. Then on No!e%ber B ,--3 plaintiff 0PPL learned that the (5MA had accepted the bids of ICT(I and 9P(I who were the only bidders who G"alified. 0ence this petition filed by petitioner )plaintiff below* 0PPL against respondents (5MA ICT(I 9P(I and the 7#ec"ti!e (ecretary seeking to obtain a prohibitory in2"nction. Iss.e1<N 0PPL has the legal capacity to e!en seek redress fro% this Co"rt R.lingAd%ittedly petitioner 0PPL is a foreign corporation organi$ed and e#isting "nder the laws of the 5ritish 'irgin Islands. 1hile the act"al bidder was a consorti"% co%posed of petitioner and two other corporations na%ely &"oco 0oldings )Phils.* Inc. and Inicol Manage%ent (er!ises Inc. it is only petitioner 0PPL that has bro"ght the contro!ersy before the Co"rt arg"ing that it is s"ing only on an isolated transaction to e!ade the legal reG"ire%ent that foreign corporations %"st be licensed to do b"siness in the Philippines to be able to file and prosec"te an action before Philippines co"rts. The %aelstro% of this iss"e is whether participating in the bidding is a %ere isolated transaction or did it constit"te =engaging in> or =transacting> b"siness in the Philippines s"ch that petitioner 0PPL needed a license to do b"siness in the Philippines before it co"ld co%e to co"rt. Participating in the bidding process constit"tes =doing b"siness> beca"se it shows the foreign corporation/s intention to engage in b"siness here. The bidding for the concession contract is b"t an e#ercise of the corporation/s reason for creation or e#istence. Th"s it has been held that =a foreign co%pany in!ited to bid for I596 and A65 international pro2ects in the Philippines will be considered as doing b"siness in the Philippines for which a license is reG"ired.> In this regard it is the perfor%ance by a foreign corporation of the acts for which it was created regardless of !ol"%e of b"siness that deter%ines whether a foreign corporation needs a license or not. If a foreign corporation operates a b"siness in the Philippines witho"t a license and th"s does not s"b%it itself to Philippine laws it is only 2"st that said foreign corporation be not allowed to in!oke the% in o"r co"rts when the need arises. =1hile foreign in!estors are always welco%e in this land to collaborate with "s for o"r %"t"al benefit they %"st be prepared as an indispensable condition to respect and be bo"nd by Philippine law in proper cases as in the one at bar.> The reG"ire%ent of a license is not intended to p"t foreign corporations at a disad!antage for the doctrine of lack of capacity to s"e is based on considerations of so"nd p"blic policy. Accordingly petitioner 0PPL %"st be held to be incapacitated to bring this petition for in2"nction before this Co"rt for it is a foreign corporation doing b"siness in the Philippines witho"t the reG"isite license. SB2A Vs# UIG of TaiAan &*'0 S *19+ ,acts8n .+ May ,--+ a VLease and 6e!elop%ent Agree%ent/ was e#ec"ted by II& and (5MA "nder which II& shall lease fro% (5MA the 5inictican &olf Co"rse and app"rtenant facilities thereto to be transfor%ed into a world class ,H-hole golf co"rse golf cl"b<resort co%%ercial to"ris% and residential center. The contract in pertinent part contains pre-ter%ination cla"ses. 8n B Aebr"ary ,--3 (5MA sent a letter to II& calling its attention to its alleged se!eral contract"al !iolations in !iew of II&/s fail"re to deli!er its !ario"s contract"al obligations pri%arily its fail"re to co%plete the rehabilitation of the &olf Co"rse in ti%e for the AP7C Leader/s ("%%it and to pay acc"%"lated lease rentals and "tilities and to post the reG"ired perfor%ance bond. II& interposed as an e#c"se the alleged defa"lt of its %ain contractor AA Cr"$ res"lting in their filing of s"it against the latter and co%%itted itself to co%ply with its obligations within a few days. II& howe!er failed to co%ply with its "ndertakings. 8n 3 March ,--3 (5MA sent a letter to II& declaring the latter in defa"lt of its contract"al obligations to (5MA "nder (ection ..., of the Lease and 6e!elop%ent Agree%ent and reG"ired it to show ca"se why petitioner (5MA sho"ld not pre-ter%inate the agree%ent. II& paid the rental arrearages b"t the other obligations re%ained "nsatisfied. Th"s on H (epte%ber ,--3 a letter of pre-ter%ination was ser!ed by (5MA reG"iring II& to !acate the pre%ises. 8n ,. (epte%ber ,--3 (5MA ser!ed the for%al notice of clos"re of ("bic 5ay &olf Co"rse and took o!er possession of the s"b2ect pre%ises. 8n e!en date II& filed a co%plaint against petitioner (5MA for VIn2"nction and 6a%ages/ with prayer for a writ of te%porary restraining order and writ of preli%inary in2"nction.

Iss.e1<N II& has the capacity to s"e R.lingAs a general r"le "nlicensed foreign non-resident corporations cannot file s"its in the Philippines. (ection ,;; of the Corporation Code specifically pro!ides? =(ec. ,;;. No foreign corporation transacting b"siness in the Philippines witho"t a license or its s"ccessors or assigns shall be per%itted to %aintain or inter!ene in any action s"it or proceeding in any co"rt or ad%inistrati!e agency of the Philippines b"t s"ch corporation %ay be s"ed or proceeded against before Philippine co"rts or ad%inistrati!e trib"nals on any !alid ca"se of action recogni$ed "nder Philippine laws.> A corporation has legal stat"s only within the state or territory in which it was organi$ed. Aor this reason a corporation organi$ed in another co"ntry has no personality to file s"its in the Philippines. In order to s"b2ect a foreign corporation doing b"siness in the co"ntry to the 2"risdiction of o"r co"rts it %"st acG"ire a license fro% the (7C and appoint an agent for ser!ice of process. 1itho"t s"ch license it cannot instit"te a s"it in the Philippines. It sho"ld be stressed howe!er that the licensing reG"ire%ent was =ne!er intended to fa!or do%estic corporations who enter into solitary transactions with "nwary foreign fir%s and then rep"diate their obligations si%ply beca"se the latter are not licensed to do b"siness in this co"ntry.> After contracting with a foreign corporation a do%estic fir% is estopped fro% denying the for%er/s capacity to s"e. 0ence in Merril L$nc 2utures v. CA# the Co"rt r"led? =The r"le is that a party is estopped to challenge the personality of a corporation after ha!ing acknowledged the sa%e by entering into a contract with it. And the Vdoctrine of estoppel to deny corporate e#istence applies to foreign as well as to do%estic corporations@/ =one who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its e#istence and capacity./ The principle Vwill be applied to pre!ent a person contracting with a foreign corporation fro% later taking ad!antage of its nonco%pliance with the stat"tes chiefly in cases where s"ch person has recei!ed the benefits of the contract # # #./> In this case (5MA is estopped fro% G"estioning the capacity to s"e of II&. In entering into the L6A with II& (5MA effecti!ely recogni$ed its personality and capacity to instit"te the s"it before the trial co"rt. Agilent Vs# Integ$ated Silicon &'2( S 19*+ ,actsAgilent Technologies (ingapore )Pte.* Ltd. is a foreign corporation which by its own ad%ission is not licensed to do b"siness in the Philippines. Integrated (ilicon Technology Philippines Corporation is a pri!ate do%estic corporation ,::N foreign owned which is engaged in the b"siness of %an"fact"ring and asse%bling electronics co%ponents. Teoh Diang 0ong Teoh Diang (eng and Anthony Choo Malaysian nationals are c"rrent %e%bers of Integrated (ilicon/s board of directors while Joanne Date M. dela Cr"$ Jean Day M. dela Cr"$ and 9olando T. Nacilla are its for%er %e%bers. A +-year 'al"e Added Asse%bly (er!ices Agree%ent )='AA(A>* was entered into between Integrated (ilicon and the 0ewlett-Packard (ingapore )Pte.* Ltd. (ingapore Co%ponents 8peration. Inder the ter%s of the 'AA(A Integrated (ilicon was to locally %an"fact"re and asse%ble fiber optics for e#port to 0P-(ingapore. 0P-(ingapore for its part was to consign raw %aterials to Integrated (ilicon@ transport %achinery to the plant of Integrated (ilicon@ and pay Integrated (ilicon the p"rchase price of the finished prod"cts. The 'AA(A had a fi!e-year ter% beginning on April . ,--4 with a pro!ision for ann"al renewal by %"t"al written consent. 8n (epte%ber ,- ,--- with the consent of Integrated (ilicon 0P-(ingapore assigned all its rights and obligations in the 'AA(A to Agilent. 8n May .+ .::, Integrated (ilicon filed a co%plaint for =(pecific Perfor%ance and 6a%ages> against Agilent and its officers Tan 5ian 7e Li% Chin 0ong Tey 5oon Teck and Arancis Dhor. It alleged that Agilent breached the parties/ oral agree%ent to e#tend the 'AA(A. Integrated (ilicon th"s prayed that defendant be ordered to e#ec"te a written e#tension of the 'AA(A for a period of fi!e years as earlier ass"red and pro%ised@ to co%ply with the e#tended 'AA(A@ and to pay act"al %oral e#e%plary da%ages and attorney/s fees. 8n J"ly . .::, Agilent filed a separate co%plaint against Integrated (ilicon Teoh Dang (eng Teoh Diang &ong Anthony Choo Joanne Date M. dela Cr"$ Jean Day M. dela Cr"$ and 9olando T. Nacilla for (pecific Perfor%ance 9eco!ery of Possession and ("% of Money with 9eple!in Preli%inary Mandatory In2"nction and 6a%ages. Agilent prayed that a writ of reple!in or in the alternati!e a writ of preli%inary %andatory in2"nction be iss"ed ordering defendants to i%%ediately ret"rn and deli!er to plaintiff its eG"ip%ent %achineries and the %aterials to be "sed for fiber-optic

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co%ponents which were left in the plant of Integrated (ilicon. It f"rther prayed that defendants be ordered to pay act"al and e#e%plary da%ages and attorney/s fees. (ilicon filed a Motion to 6is%iss on the gro"nds of lack of Agilent/s legal capacity to s"e@ litis pendentia@ for"% shopping@ and fail"re to state a ca"se of action. Iss.e1<N Agilent has a legal capacity to s"e R.lingIn a n"%ber of cases howe!er we ha!e held that an "nlicensed foreign corporation doing b"siness in the Philippines %ay bring s"it in Philippine co"rts against a Philippine citi$en or entity who had contracted with and benefited fro% said corporation. ("ch a s"it is pre%ised on the doctrine of estoppel. A party is estopped fro% challenging the personality of a corporation after ha!ing acknowledged the sa%e by entering into a contract with it. This doctrine of estoppel to deny corporate e#istence and capacity applies to foreign as well as do%estic corporations. The application of this principle pre!ents a person contracting with a foreign corporation fro% later taking ad!antage of its nonco%pliance with the stat"tes chiefly in cases where s"ch person has recei!ed the benefits of the contract. The principles regarding the right of a foreign corporation to bring s"it in Philippine co"rts %ay th"s be condensed in fo"r state%ents? ),* if a foreign corporation does b"siness in the Philippines witho"t a license it cannot s"e before the Philippine co"rts@ ).* if a foreign corporation is not doing b"siness in the Philippines it needs no license to s"e before Philippine co"rts on an isolated transaction or on a ca"se of action entirely independent of any b"siness transaction@ );* if a foreign corporation does b"siness in the Philippines witho"t a license a Philippine citi$en or entity which has contracted with said corporation %ay be estopped fro% challenging the foreign corporation/s corporate personality in a s"it bro"ght before Philippine co"rts@ and )B* if a foreign corporation does b"siness in the Philippines with the reG"ired license it can s"e before Philippine co"rts on any transaction. The challenge to Agilent/s legal capacity to file s"it hinges on whether or not it is doing b"siness in the Philippines. 0owe!er there is no definiti!e r"le on what constit"tes =doing> =engaging in> or =transacting> b"siness in the Philippines as this Co"rt obser!ed in the case of Ment olatum v. Mangaliman. The Co"rt disco"rsed on the two general tests to deter%ine whether or not a foreign corporation can be considered as =doing b"siness> in the Philippines. The first of these is the s"bstance test th"s? The tr"e test for doing b"siness howe!er see%s to be whether the foreign corporation is contin"ing the body of the b"siness or enterprise for which it was organi$ed or whether it has s"bstantially retired fro% it and t"rned it o!er to another. The second test is the contin"ity test e#pressed th"s? The ter% doing b"siness i%plies a contin"ity of co%%ercial dealings and arrange%ents and conte%plates to that e#tent the perfor%ance of acts or works or the e#ercise of so%e of the f"nctions nor%ally incident to and in the progressi!e prosec"tion of the p"rpose and ob2ect of its organi$ation. Altho"gh each case %"st be 2"dged in light of its attendant circ"%stances 2"rispr"dence has e!ol!ed se!eral g"iding principles for the application of these tests. Aor instance considering that it transacted with its Philippine co"nterpart for se!en years engaging in f"t"res contracts this Co"rt concl"ded that the foreign corporation in Merrill L$nc 2utures# -nc. v. Court of Appeals and Spouses Lara was doing b"siness in the Philippines. In Commissioner of -nternal =evenue v. Gapan Airlines CAGAL:F the Co"rt held that JAL was doing b"siness in the Philippines i.e. its co%%ercial dealings in the co"ntry were contin"o"s P despite the fact that no JAL aircraft landed in the co"ntry P as it sold tickets in the Philippines thro"gh a general sales agent and opened a pro%otions office here as well. In /eneral Corp. of t e P ils. v. 8nion -nsurance Societ$ of Canton and 2iremanIs 2und -nsurance a foreign ins"rance corporation was held to be doing b"siness in the Philippines as it appointed a settling agent here and iss"ed ,. %arine ins"rance policies. 1e held that these transactions were not isolated or cas"al b"t %anifested the contin"ity of the foreign corporation/s cond"ct and its intent to establish a contin"o"s b"siness in the co"ntry. In 6ri%s P,6 Ltd. v. Court of Appeals and 6nrique> the foreign corporation sold its prod"cts to a Ailipino b"yer who ordered the goods ,4 ti%es within an eight-%onth period. Accordingly this Co"rt r"led that the corporation was doing b"siness in the Philippines as there was a clear intention on its part to contin"e the body of its b"siness here despite the relati!ely short span of ti%e in!ol!ed. Communication Materials and ;esign# -nc.# et al. v. Court of Appeals# -,6C# et al. and ,op?Held Manufacturing v. 6C6;# -=,-# et al. both in!ol!ed the License and Technical Agree%ent and 6istrib"tor Agree%ent of foreign corporations with their respecti!e local co"nterparts that were the pri%ary bases for the Co"rt/s r"ling that the foreign corporations were doing b"siness in the Philippines. In partic"lar the Co"rt cited the highly restricti!e nat"re of certain pro!isions in the agree%ents in!ol!ed s"ch that as stated in Communication Materials the Philippine

entity is red"ced to a %ere e#tension or instr"%ent of the foreign corporation. Aor e#a%ple in Communication Materials the Co"rt dee%ed the =No Co%peting Prod"ct> pro!ision of the 9epresentati!e Agree%ent therein restricti!e. 5y the clear ter%s of the 'AA(A Agilent/s acti!ities in the Philippines were confined to ),* %aintaining a stock of goods in the Philippines solely for the p"rpose of ha!ing the sa%e processed by Integrated (ilicon@ and ).* consign%ent of eG"ip%ent with Integrated (ilicon to be "sed in the processing of prod"cts for e#port. As s"ch we hold that based on the e!idence presented th"s far Agilent cannot be dee%ed to be =doing b"siness> in the Philippines. (ilicon/s contention that Agilent lacks the legal capacity to file s"it is therefore de!oid of %erit. As a foreign corporation not doing b"siness in the Philippines it needed no license before it can s"e before o"r co"rts. Lo$en8o S"i%%ing Vs# C".44 E Sons &'* S 2))+ ,actsLoren$o (hipping Corporation a do%estic corporation engaged in coastwise shipping was the carrier of +H, b"ndles of black steel pipes the s"b2ect ship%ent fro% Manila to 6a!ao City. Aro% 6a!ao City &earb"lk Ltd. a foreign corporation licensed as a co%%on carrier "nder the laws of Norway and doing b"siness in the Philippines thro"gh its agent Philippine Trans%arine Carriers Inc. a do%estic corporation carried the goods on board its !essel M<' (an Mateo 'ictory to the Inited (tates for the acco"nt of ("%ito%o Corporation. The latter the consignee is a foreign corporation organi$ed "nder the laws of the Inited (tates of A%erica. It ins"red the ship%ent with Ch"bb and (ons Inc. a foreign corporation organi$ed and licensed to engage in ins"rance b"siness "nder the laws of the Inited (tates of A%erica. 6"e to its hea!ily r"sted condition the consignee ("%ito%o re2ected the da%aged steel pipes and declared the% "nfit for the p"rpose they were intended. It then filed a %arine ins"rance clai% with respondent Ch"bb and (ons Inc. which the latter settled in the a%o"nt of I(K,:B ,+,.::. 8n 6ece%ber . ,-HH Ch"bb and (ons Inc. filed a co%plaint for collection of a s"% of %oney against Loren$o (hipping &earb"lk and Trans%arine. Ch"bb and (ons Inc. alleged that it is not doing b"siness in the Philippines and that it is s"ing "nder an isolated transaction. Iss.e1<N Ch"bb and (ons has capacity to s"e before the Philippine co"rts R.lingIn the first place petitioner failed to raise the defense that ("%ito%o is a foreign corporation doing b"siness in the Philippines witho"t a license. It is therefore estopped fro% litigating the iss"e on appeal especially beca"se it in!ol!es a G"estion of fact which this Co"rt cannot resol!e. (econdly ass"%ing arguendo that ("%ito%o cannot s"e in the Philippines it does not follow that respondent as s"brogee has also no capacity to s"e in o"r 2"risdiction. In the instant case the rights inherited by the ins"rer Ch"bb and (ons pertain only to the pay%ent it %ade to the ins"red ("%ito%o as stip"lated in the ins"rance contract between the% and which a%o"nt it now seeks to reco!er fro% petitioner Loren$o (hipping which ca"sed the loss s"stained by the ins"red ("%ito%o. The capacity to s"e of Ch"bb and (ons co"ld not perchance belong to the gro"p of rights re%edies or sec"rities pertaining to the pay%ent ins"rer %ade for the loss which was s"stained by the ins"red ("%ito%o and co!ered by the contract of ins"rance. Capacity to s"e is a right personal to its holder. It is conferred by law and not by the parties. Lack of legal capacity to s"e %eans that the plaintiff is not in the e#ercise of his ci!il rights or does not ha!e the necessary G"alification to appear in the case or does not ha!e the character or representation he clai%s. It refers to a plaintiff/s general disability to s"e s"ch as on acco"nt of %inority insanity inco%petence lack of 2"ridical personality or any other disG"alifications of a party. 9espondent Ch"bb and (ons who was plaintiff in the trial co"rt does not possess any of these disabilities. 8n the contrary respondent Ch"bb and (ons has satisfactorily pro!en its capacity to s"e after ha!ing shown that it is not doing b"siness in the Philippines b"t is s"ing only "nder an isolated transaction i.e. "nder the one ),* %arine ins"rance policy iss"ed in fa!or of the consignee ("%ito%o co!ering the da%aged steel pipes. The law on corporations is clear in depri!ing foreign corporations which are doing b"siness in the Philippines witho"t a license fro% bringing or %aintaining actions before or inter!ening in Philippine co"rts. The law does not prohibit foreign corporations fro% perfor%ing single acts of b"siness. A foreign corporation needs no license to s"e before Philippine co"rts on an isolated transaction. 1e re2ect the clai% of petitioner Loren$o (hipping that respondent Ch"bb and (ons is not s"ing "nder an isolated transaction beca"se the steel pipes

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s"b2ect of this case are co!ered by two ).* bills of lading@ hence two transactions. The st"bborn fact re%ains that these two ).* bills of lading spawned fro% the single %arine ins"rance policy that Ch"bb and (ons iss"ed in fa!or of the consignee ("%ito%o co!ering the da%aged steel pipes. The e#ec"tion of the policy is a single act an isolated transaction. This Co"rt has not constr"ed the ter% =isolated transaction> to literally %ean =one> or a %ere single act. E.$o%ean Reso.$ces Vs# Ingenie.4.$o &'*1 S 2')+ ,acts7"ropean 9eso"rces and Technologies Inc. a corporation organi$ed and e#isting "nder the laws of the 9ep"blic of the Philippines is 2oined by 6elfin J. 1enceslao as petitioner in this case. Ingenie"b"ro 5irkhan \ Nolte Ingi"rgesellschaft %bh and 0eers T 5rockstedt &%bh T Co. are &er%an corporations who are respondents in this case and shall be collecti!ely referred to as the =&er%an Consorti"%>. The &er%an Consorti"% tendered and s"b%itted its bid to the Clark 6e!elop%ent Corporation to constr"ct operate and %anage the Integrated 1aste Manage%ent Center at the Clark (pecial 7cono%ic Xone )=C(7X>*. C6C accepted the &er%an Consorti"%/s bid and awarded the contract to it. 8n 8ctober 4 ,--- C6C and the &er%an Consorti"% e#ec"ted the Contract for (er!ices which e%bodies the ter%s and conditions of their agree%ent. The Contract for (er!ices pro!ides that the &er%an Consorti"% shall be e%powered to enter into a contract or agree%ent for the "se of the integrated waste %anage%ent center by corporations local go!ern%ent "nits entities and persons not only within the C(7X b"t also o"tside. Article 'III (ection 3 of the Contract for (er!ices pro!ides that the &er%an Consorti"% shall "ndertake to organi$e a local corporation as its representati!e for this pro2ect. P"rs"ant to this petitioner 7"ropean 9eso"rces and Technologies Inc. was incorporated. The parties likewise agreed to prepare and finali$e a (hareholders/ Agree%ent within one ),* %onth fro% the e#ec"tion of the M8I which shall pro!ide that the &er%an Consorti"% shall own fifteen percent ),+N* of the eG"ity in the 2oint !ent"re corporation 6M1AI shall own se!enty percent )3:N* and L5'TA shall own fifteen percent ),+N*. In the e!ent that the parties fail to e#ec"te the (hareholders/ Agree%ent the M8I shall be considered n"ll and !oid. 8n 6ece%ber ,, .::: 79TI recei!ed a letter fro% 5N Cons"ltants Philippines Inc. signed by Mr. 0olger 0olst for and on behalf of the &er%an Consorti"% stating that the &er%an Consorti"%/s contract with 6M1AI L5'TA and 79TI has been ter%inated or e#ting"ished on the following gro"nds? )a* the C6C did not gi!e its appro!al to the Consorti"%/s reG"est for the appro!al of the assign%ent or transfer by the &er%an Consorti"% in fa!or of 79TI of its rights and interests "nder the Contract for (er!ices@ )b* the parties failed to prepare and finali$e the (hareholders/ Agree%ent p"rs"ant to the pro!ision of the M8I@ )c* there is no %ore fact"al or legal basis for the 2oint !ent"re to contin"e@ and )d* with the ter%ination of the M8I the M8A is also dee%ed ter%inated or e#ting"ished. Attached to the letter was a copy of the letter of the C6C stating that the &er%an Consorti"%/s assign%ent of an eighty-fi!e percent )H+N* %a2ority interest to another party !iolated its representation to "ndertake both the financial and technical aspects of the pro2ect. The dil"tion of the Consorti"%/s interest in 79TI is a s"bstantial %odification of the Consorti"%/s representations which were "sed as bases for the award of the pro2ect to it. 8n Aebr"ary .: .::, petitioner 79TI thro"gh co"nsel sent a letter to C6C reG"esting for the reconsideration of its disappro!al of the agree%ent between 79TI and the &er%an Consorti"%. 5efore C6C co"ld act "pon petitioner 79TI/s letter the &er%an Consorti"% filed a co%plaint for in2"nction against herein petitioners. The &er%an Consorti"% clai%ed that 79TI/s contin"ed %isrepresentation as to their right to accept solid wastes fro% third parties for processing at the waste %anage%ent center will ca"se irreparable da%age to the Consorti"% and its e#cl"si!e right to operate the waste %anage%ent center at the C(7X. Moreo!er petitioner 79TI/s acts destroy the Consorti"%/s credibility and "nder%ine c"sto%er confidence in it. 0ence the &er%an Consorti"% prayed that a writ of te%porary restraining order be iss"ed against petitioner 79TI and after hearing a writ of preli%inary in2"nction be likewise iss"ed ordering petitioner 79TI to cease and desist fro% %isrepresenting to third parties or the p"blic that it has any right or interest in the waste %anage%ent center at C(7X. At the hearings on the application for in2"nction petitioners ob2ected to the presentation of e!idence on the gro"nd that the trial co"rt had no 2"risdiction o!er the case since the &er%an Consorti"% was co%posed of foreign corporations doing b"siness in the co"ntry witho"t a license. Moreo!er the M8A between the parties pro!ides that the disp"te sho"ld be referred to arbitration. Iss.e1<N 79TI are estopped fro% assailing the capacity of the &er%an to instit"te the s"it for in2"nction

R.ling1e ha!e held that the act of participating in a bidding process constit"tes =doing b"siness> beca"se it shows the foreign corporation/s intention to engage in b"siness in the Philippines. In this regard it is the perfor%ance by a foreign corporation of the acts for which it was created regardless of !ol"%e of b"siness that deter%ines whether a foreign corporation needs a license or not. ConseG"ently the &er%an Consorti"% is doing b"siness in the Philippines witho"t the appropriate license as reG"ired by o"r laws. 5y participating in the bidding cond"cted by the C6C for the operation of the waste %anage%ent center the &er%an Consorti"% e#hibited its intent to transact b"siness in the Philippines. Altho"gh the Contract for (er!ices pro!ided for the establish%ent of a local corporation to ser!e as respondents/ representati!e it is clear fro% the other pro!isions of the Contract for (er!ices as well as the letter by the C6C containing the disappro!al that it will be the &er%an Consorti"% which shall %anage and cond"ct the operations of the waste %anage%ent center for at least twenty-fi!e years. Moreo!er the &er%an Consorti"% was allowed to transact with other entities o"tside the C(7X for solid waste collection. Th"s it is clear that the local corporation to be established will %erely act as a cond"it or e#tension of the &er%an Consorti"%. As a general r"le "nlicensed foreign non-resident corporations cannot file s"its in the Philippines. (ection ,;; of the Corporation Code specifically pro!ides. 0owe!er there are e#ceptions to this r"le. In a n"%ber of cases we ha!e declared a party estopped fro% challenging or G"estioning the capacity of an "nlicensed foreign corporation fro% initiating a s"it in o"r co"rts. In the case of Communication Materials and ;esign# -nc. v. Court of Appeals a foreign corporation instit"ted an action before o"r co"rts seeking to en2oin a local corporation with who% it had a =9epresentati!e Agree%ent> fro% "sing its corporate na%e letter heads en!elopes sign boards and b"siness dealings as well as the foreign corporation/s trade%ark. The case arose when the foreign corporation disco!ered that the local corporation has !iolated certain contract"al co%%it%ents as stip"lated in their agree%ent. In said case we held that a foreign corporation doing b"siness in the Philippines witho"t license %ay s"e in Philippine Co"rts a Philippine citi$en or entity that had contracted with and benefited fro% it. 0ence the party is estopped fro% G"estioning the capacity of a foreign corporation to instit"te an action in o"r co"rts where it had obtained benefits fro% its dealings with s"ch foreign corporation and thereafter co%%itted a breach of or so"ght to renege on its obligations. The r"le relating to estoppel is deeply rooted in the a#io% of commodum e' injuria sua non abere debet Wno person o"ght to deri!e any ad!antage fro% his own wrong. In the case at bar petitioners ha!e clearly not recei!ed any benefit fro% its transactions with the &er%an Consorti"%. In fact there is no G"estion that petitioners were the ones who ha!e e#pended a considerable a%o"nt of %oney and effort preparatory to the i%ple%entation of the M8A. Neither do petitioners seek to back o"t fro% their obligations "nder both the M8I and the M8A by challenging respondents/ capacity to s"e. The re!erse co"ld not be any %ore acc"rate. Petitioners are insisting on the f"ll !alidity and i%ple%entation of their agree%ents with the &er%an Consorti"%. To r"le that the &er%an Consorti"% has the capacity to instit"te an action against petitioners e!en when the latter ha!e not co%%itted any breach of its obligation wo"ld be tanta%o"nt to an "nlicensed foreign corporation gaining access to o"r co"rts for protection and redress. 1e cannot allow this witho"t !iolating the !ery rationale for the law prohibiting a foreign corporation not licensed to do b"siness in the Philippines fro% s"ing or %aintaining an action in Philippine co"rts. Sec# *'# %evocation of license. - 1itho"t pre2"dice to other gro"nds pro!ided by special laws the license of a foreign corporation to transact b"siness in the Philippines %ay be re!oked or s"spended by the (ec"rities and 7#change Co%%ission "pon any of the following gro"nds? ,. Aail"re to file its ann"al report or pay any fees as reG"ired by this Code@ .. Aail"re to appoint and %aintain a resident agent in the Philippines as reG"ired by this Title@ ;. Aail"re after change of its resident agent or of his address to s"b%it to the (ec"rities and 7#change Co%%ission a state%ent of s"ch change as reG"ired by this Title@ B. Aail"re to s"b%it to the (ec"rities and 7#change Co%%ission an a"thenticated copy of any a%end%ent to its articles of incorporation or bylaws or of any articles of %erger or consolidation within the ti%e prescribed by this Title@ +. A %isrepresentation of any %aterial %atter in any application report affida!it or other doc"%ent s"b%itted by s"ch corporation p"rs"ant to this Title@

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4. Aail"re to pay any and all ta#es i%posts assess%ents or penalties if any lawf"lly d"e to the Philippine &o!ern%ent or any of its agencies or political s"bdi!isions@ 3. Transacting b"siness in the Philippines o"tside of the p"rpose or p"rposes for which s"ch corporation is a"thori$ed "nder its license@ H. Transacting b"siness in the Philippines as agent of or acting for and in behalf of any foreign corporation or entity not d"ly licensed to do b"siness in the Philippines@ or -. Any other gro"nd as wo"ld render it "nfit to transact b"siness in the Philippines. )n* Sec# *1# *ssuance of certificate of revocation. - Ipon the re!ocation of any s"ch license to transact b"siness in the Philippines the (ec"rities and 7#change Co%%ission shall iss"e a corresponding certificate of re!ocation f"rnishing a copy thereof to the appropriate go!ern%ent agency in the proper cases. The (ec"rities and 7#change Co%%ission shall also %ail to the corporation at its registered office in the Philippines a notice of s"ch re!ocation acco%panied by a copy of the certificate of re!ocation. )n* Sec# *)# Withdrawal of foreign corporations. - ("b2ect to e#isting laws and reg"lations a foreign corporation licensed to transact b"siness in the Philippines %ay be allowed to withdraw fro% the Philippines by filing a petition for withdrawal of license. No certificate of withdrawal shall be iss"ed by the (ec"rities and 7#change Co%%ission "nless all the following reG"ire%ents are %et@ ,. All clai%s which ha!e accr"ed in the Philippines ha!e been paid co%pro%ised or settled@ .. All ta#es i%posts assess%ents and penalties if any lawf"lly d"e to the Philippine &o!ern%ent or any of its agencies or political s"bdi!isions ha!e been paid@ and ;. The petition for withdrawal of license has been p"blished once a week for three );* consec"ti!e weeks in a newspaper of general circ"lation in the Philippines. TITLE KVI 2ISCELLANEOUS PROVISIONS Sec# *(# 2utstanding capital stoc) defined. - The ter% "o"tstanding capital stock" as "sed in this Code %eans the total shares of stock iss"ed "nder binding s"bscription agree%ents to s"bscribers or stockholders whether or not f"lly or partially paid e#cept treas"ry shares. )n* Sec# *7# Designation of governing boards. - The pro!isions of specific pro!isions of this Code to the contrary notwithstanding non-stock or special corporations %ay thro"gh their articles of incorporation or their by-laws designate their go!erning boards by any na%e other than as board of tr"stees. )n* Sec# *9# *ncorporation and other fees. - The (ec"rities and 7#change Co%%ission is hereby a"thori$ed to collect and recei!e fees as a"thori$ed by law or by r"les and reg"lations pro%"lgated by the Co%%ission. )n* Sec# '0# Stoc) ownership in certain corporations. - P"rs"ant to the d"ties specified by Article QI' of the Constit"tion the National 7cono%ic and 6e!elop%ent A"thority shall fro% ti%e to ti%e %ake a deter%ination of whether the corporate !ehicle has been "sed by any corporation or by b"siness or ind"stry to fr"strate the pro!isions thereof or of applicable laws and shall s"b%it to the 5atasang Pa%bansa whene!er dee%ed necessary a report of its findings incl"ding reco%%endations for their pre!ention or correction. Ma#i%"% li%its %ay be set by the 5atasang Pa%bansa for stockholdings in corporations declared by it to be !ested with a p"blic interest p"rs"ant to the pro!isions of this section belonging to indi!id"als or gro"ps of indi!id"als related to each other by consang"inity or affinity or by close b"siness interests or whene!er it is necessary to achie!e national ob2ecti!es pre!ent illegal %onopolies or co%binations in restraint or trade or to i%ple%ent national econo%ic policies declared in laws r"les and reg"lations designed to pro%ote the general welfare and foster econo%ic de!elop%ent. In reco%%ending to the 5atasang Pa%bansa corporations b"siness or ind"stries to be declared !ested with a p"blic interest and in for%"lating proposals for li%itations on stock ownership the National 7cono%ic and 6e!elop%ent A"thority shall consider the type and nat"re of the ind"stry the si$e of the enterprise the econo%ies of scale the geographic location the e#tent of Ailipino ownership the labor intensity of the acti!ity the e#port potential as well as other factors which are ger%ane to the reali$ation and pro%otion of b"siness and ind"stry.

Sec# ' # Annual report or corporations. - 7!ery corporation do%estic or foreign lawf"lly doing b"siness in the Philippines shall s"b%it to the (ec"rities and 7#change Co%%ission an ann"al report of its operations together with a financial state%ent of its assets and liabilities certified by any independent certified p"blic acco"ntant in appropriate cases co!ering the preceding fiscal year and s"ch other reG"ire%ents as the (ec"rities and 7#change Co%%ission %ay reG"ire. ("ch report shall be s"b%itted within s"ch period as %ay be prescribed by the (ec"rities and 7#change Co%%ission. )n* Sec# '2# Confidential nature of examination results. - All interrogatories propo"nded by the (ec"rities and 7#change Co%%ission and the answers thereto as well as the res"lts of any e#a%ination %ade by the Co%%ission or by any other official a"thori$ed by law to %ake an e#a%ination of the operations books and records of any corporation shall be kept strictly confidential e#cept insofar as the law %ay reG"ire the sa%e to be %ade p"blic or where s"ch interrogatories answers or res"lts are necessary to be presented as e!idence before any co"rt. )n* Sec# '*# %ule-ma)ing power of the Securities and xchange Commission. - The (ec"rities and 7#change Co%%ission shall ha!e the power and a"thority to i%ple%ent the pro!isions of this Code and to pro%"lgate r"les and reg"lations reasonably necessary to enable it to perfor% its d"ties here"nder partic"larly in the pre!ention of fra"d and ab"ses on the part of the controlling stockholders %e%bers directors tr"stees or officers. )n* Sec# ''# 0iolations of the Code. - 'iolations of any of the pro!isions of this Code or its a%end%ents not otherwise specifically penali$ed therein shall be p"nished by a fine of not less than one tho"sand )P, :::.::* pesos b"t not %ore than ten tho"sand )P,: :::.::* pesos or by i%prison%ent for not less than thirty );:* days b"t not %ore than fi!e )+* years or both in the discretion of the co"rt. If the !iolation is co%%itted by a corporation the sa%e %ay after notice and hearing be dissol!ed in appropriate proceedings before the (ec"rities and 7#change Co%%ission? Pro!ided That s"ch dissol"tion shall not precl"de the instit"tion of appropriate action against the director tr"stee or officer of the corporation responsible for said !iolation? Pro!ided f"rther That nothing in this section shall be constr"ed to repeal the other ca"ses for dissol"tion of a corporation pro!ided in this Code. ),-: ,<. a* Sec# '1# Amendment or repeal. - No right or re%edy in fa!or of or against any corporation its stockholders %e%bers directors tr"stees or officers nor any liability inc"rred by any s"ch corporation stockholders %e%bers directors tr"stees or officers shall be re%o!ed or i%paired either by the s"bseG"ent dissol"tion of said corporation or by any s"bseG"ent a%end%ent or repeal of this Code or of any part thereof. )n* Hnec"t Vs# United Ciga$ette &*7' S '1+ ,acts9ose Packing Co%pany Inc. a do%estic corporation owns three );* parcels of land with a total area of ;, HB. sG"are %eters sit"ated in (to. 6o%ingo Cainta 9i$al. The largest a%ong these parcels w< an area of ;, BB3 sG"are %eters is %ortgaged with the Philippine Co%%ercial and Ind"strial 5ank )PCI5*. The other two re%aining parcels are "nregistered. 8n 8ctober .4 ,-4+ 9ose Packing thro"gh its President 9ene Dnecht sold to the Inited Cigarette Corporation )ICC* a do%estic corporation the said parcels of land with all the b"ildings and i%pro!e%ents thereon for PH:: :::.::. 9ose Packing %ade a warranty that the lots are free fro% all liens and enc"%brances e#cept the real estate %ortgage constit"ted o!er one area co!ered by TCT No. 3;4.:. Aor its part ICC pro%ised to pay the p"rchase price "nder the following ter%s and conditions? )a* a P.+: :::.:: down pay%ent %"st be %ade "pon signing of the deed of sale with %ortgage@ )b* it will ass"%e 9ose Packing/s P.+: :::.:: o!erdraft line obligation with the PCI5 s"b2ect to the latter/s appro!al@ and )c* the balance of P;:: :::.:: shall be paid in two ann"al install%ents at P,+: :::.:: each )within ,. and ,B %onths* fro% the date of sale with ,:N ann"al interest. To sec"re the deal ICC initially paid 9ose Packing PH: :::.:: as earnest %oney. 5efore the deed of sale co"ld be e#ec"ted the parties fo"nd that 9ose Packing/s act"al obligation with the PCI5 far e#ceeded the P.+: :::.:: which ICC ass"%ed to pay "nder their agree%ent. (o the PCI5 de%anded additional collateral fro% ICC as a condition precedent for the appro!al of the sale of the %ortgaged property. 0owe!er ICC did not co%ply. Meanwhile 9ose Packing again offered to sell the sa%e lots to other prospecti!e b"yers witho"t the knowledge of ICC and witho"t ret"rning to the latter the earnest %oney it earlier paid. Aggrie!ed ICC filed a co%plaint against 9ose Packing and 9ene Dnecht for specific perfor%ance and reco!ery of da%ages. 7!ent"ally on J"ly ,- ,--: ICC thro"gh its liG"idator Alberto 1ong filed with the CAI 5ranch . a %otion for lea!e to inter!ene and to ad%it its co%plaint-in-inter!ention. 9ose Packing thro"gh its liG"idator<tr"stee Dnecht Inc. opposed the %otion clai%ing that the 6ecision in Ci!il Case No. -,4+ which beca%e final on March .; ,-33 can no longer be enforced since %ore than ten ),:* years had elapsed fro% its finality. 1hile it n"llified the 8rders dated 6ece%ber ,: ,--: and 8ctober ,: ,--, the CA nonetheless stressed that NUCCDs $ig"t to e6ec.te t"e @.dg:ent in CiCil Case No# 9 )1 "as not ?et %$esc$i4ed insofa$ as t"e %a$cel of land

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coCe$ed 4? TCT No# (*)20 is conce$nedO beca"se this land was in!ol!ed in Ci!il Case No. ,,:,+. Its e#ec"tion can be a!ailed of in 5ranch ,+, not in 5ranch ,+. of the 9TC Pasig City. As regards the tAo ot"e$ .n$egiste$ed %a$cels of landF the 2"dg%ent "as al$ead? %$esc$i4ed 4eca.se t"ese %$o%e$ties Ae$e not inColCed in CiCil Case No# 0 1F "enceF UCC s"o.ld "aCe t"en so.g"t t"e e6ec.tion of t"e @.dg:ent Ait" $es%ect to said %$o%e$ties# Iss.e1<N ICC/s right to enforce that 2"dg%ent had already prescribed R.lingThere is no do"bt that the 2"dg%ent in Ci!il Case No. -,4+ beca%e final and e#ec"tory on March .; ,-33. That this 2"dg%ent is still enforceable was decided with finality by this Co"rt in &.9. No. ,:-;H+. In =eburiano vs. Court of Appeals a case with si%ilar facts this Co"rt held? =the tr"stee )of a dissol!ed corporation* %ay co%%ence a s"it which can proceed to final 2"dg%ent eCen 4e?ond t"e t"$ee/ ?ea$ %e$iod &of li3.idation+ # # #F no $eason can 4e conceiCed A"? a s.it al$ead? co::enced 4? t"e co$%o$ation itself d.$ing its e6istenceF not by a %ere tr"stee who by fiction %erely contin"es the legal personality of the dissol!ed corporation s"o.ld not 4e acco$ded si:ila$ t$eat:ent ! to %$oceed to final @.dg:ent and e6ec.tion t"e$eof#O )7%phasis o"rs* Indeed the rights of a corporation )dissol!ed pending litigation* are accorded protection by law. This is clear fro% (ection ,B+ of the Corporation Code th"s? =(ection ,B+. Amendment or repeal. No $ig"t o$ $e:ed? in faCo$ of or against an? co$%o$ationF its stockholders %e%bers directors tr"stees or officers nor any liability inc"rred by any s"ch corporation stockholders %e%bers directors tr"stees or officers s"all 4e $e:oCed o$ i:%ai$ed eit"e$ 4? t"e s.4se3.ent dissol.tion of said co$%o$ation or by any s"bseG"ent a%end%ent or repeal of this Code or of any part thereof.> )7%phasis o"rs* The dissol"tion of ICC itself or the e#piration of its three-year liG"idation period sho"ld not be a bar to the enforce%ent of its rights as a corporation. 8ne of these rights to be s"re incl"des the ICC/s right to seek fro% the co"rt the e#ec"tion of a !alid and final 2"dg%ent in Ci!il Case No. -,4+ P thro"gh its tr"stee<liG"idator 7ncarnacion &on$ales 1ong P for the benefit of its stockholders creditors and any other person who %ay ha!e legal clai%s against it. To hold otherwise wo"ld be to allow petitioners to "n2"stly enrich the%sel!es at the e#pense of ICC. This in effect renders n"gatory all the efforts and e#penses of ICC in its G"est to sec"re 2"stice not to %ention the "nd"e delay in disposing of this case pre2"dicial to the ad%inistration of 2"stice. Sec# ')# %epealing clause. - 7#cept as e#pressly pro!ided by this Code all laws or parts thereof inconsistent with any pro!ision of this Code shall be dee%ed repealed. )n* Sec# '(# Separability of provisions. - (ho"ld any pro!ision of this Code or any part thereof be declared in!alid or "nconstit"tional the other pro!isions so far as they are separable shall re%ain in force. )n* Sec# '7# Applicability to existing corporations. - All corporations lawf"lly e#isting and doing b"siness in the Philippines on the date of the effecti!ity of this Code and heretofore a"thori$ed licensed or registered by the (ec"rities and 7#change Co%%ission shall be dee%ed to ha!e been a"thori$ed licensed or registered "nder the pro!isions of this Code s"b2ect to the ter%s and conditions of its license and shall be go!erned by the pro!isions hereof? Pro!ided That if any s"ch corporation is affected by the new reG"ire%ents of this Code said corporation shall "nless otherwise herein pro!ided be gi!en a period of not %ore than two ).* years fro% the effecti!ity of this Code within which to co%ply with the sa%e. )n* Sec# '9# appro!al. ffectivity. - This Code shall take effect i%%ediately "pon its

Thereafter the properties of (kyline were le!ied "pon %otion of 9"fina. (kyline appealed to CA b"t the Co"rt r"led that (kyline International Inc. was a con2"gal enterprise before its incorporation in 6ece%ber ,-3: when it was still a proprietorship. The Co"rt fo"nd that the only assets of the corporation are the con2"gal properties. Th"s =it is safe to ass"%e that (kyline International Corporation is another na%e for Mr. and Mrs. Pastor M. Li% in person.> (kyline then filed a petition for re!iew before this Co"rt b"t the petition was dis%issed. (o%eti%es later the (peed 6istrib"ting Corporation was registered with the (ec"rities and 7#change Co%%ission with Pastor Li% as one of the incorporators. 0e owned ten shares !al"ed at P,::.:: per share. Lita Li%Marcelo was elected treas"rer of the corporation. Also another corporation Lesli% Corporation was registered with the (ec"rities and 7#change Co%%ission with a capital stock of P,. ::: :::.:: di!ided into ,.: ::: shares at par !al"e of P,::.:: per share. Pastor Li% s"bscribed to -+ 3:: shares !al"ed at P- +3: :::.::. Inder the articles of incorporation Pastor Li% was the treas"rer-in-tr"st of the corporation. The 'ice-President and Treas"rer of the corporation was Lita Li%-Marcelo now %arried to Ireneo Marcelo. (o%eti%es in,--B Lesli% Corporation e#ec"ted a deed of absol"te sale in fa!or of the (peed represented by its 'ice-President Ireneo Marcelo o!er the parcel of lot located at 6ili%an R"e$on City for the price of P; -:: :::.::. Lita Li%-Marcelo the 'ice-President of Lesli% signed in the deed for and in behalf of the corporation. Lita Li%-Marcelo was a"thori$ed by the 5oard of 6irectors in a 9esol"tion A"g"st ,- ,--B to sign the said deed and to recei!e the p"rchase price for and in behalf of Lesli%. The said 9esol"tion was certified by corporate secretary Pedro AG"ino on A"g"st .. ,--B. ConseG"ently TCT No. ;44,3 which was in the na%e of Lesli% was cancelled and a new one TCT No. T-,,43,4 was iss"ed to and in the na%e of (peed. Prior to that sale Pastor Li% died intestate and was s"r!i!ed by his wife 9"fina Li%. 9"fina filed a co%plaint against (peed and the petitioners with the 9TC of R"e$on City for the n"llification of the 6eed of Absol"te (ale e#ec"ted by Lesli% in fa!or of (peed o!er the property co!ered by TCT No. T-;44,3 and the cancellation of TCT No. T-,,434 with da%ages before the 9TC of R"e$on City. 8n No!e%ber .+ ,--+ the 9TC iss"ed an order dis%issing the co%plaint real party-in-interest. According to the co"rt she had no ca"se of action against the petitioners as she was not pri!y to the contract of sale between Lesli% and (peed. Neither was she a stockholder of the defendant corporation@ as s"ch she co"ld not s"e for the corporation. According to the co"rt 9"fina co"ld not file the co%plaint in behalf of her deceased h"sband Pastor as she was "nable to show that she was the a"thori$ed representati!e of his estate@ e!en if she was so a"thori$ed her clai% was li%ited to the shares owned by Pastor which co"ld not e#tend to the properties of Lesli%. The co"rt also r"led that the action in!ol!ed intra-corporate contro!ersies o!er which the (7C had original and e#cl"si!e 2"risdiction. Iss.e1<N the CA is correct in re%anding the case to the 9TC and directing it to decide and hear the co%plaint on its %erits in !iew of 9ep. Act No. H3-which took effect on A"g"st H .::: d"ring the pendency of the case before it effecti!ely transferring 2"risdiction o!er cases in!ol!ing intra-corporate contro!ersies fro% the (7C to the 9TC R.lingThe CA is correct in re%anding the case to the 9TC. J"risdiction o!er the s"b2ect %atter is conferred by law. The nat"re of an action as well as which co"rt or body has 2"risdiction o!er it is deter%ined based on the allegations contained in the co%plaint of the plaintiff irrespecti!e of whether or not plaintiff is entitled to reco!er "pon all or so%e of the clai%s asserted therein. It cannot depend on the defenses set forth in the answer in a %otion to dis%iss or in a %otion for reconsideration by the defendant. (ection + of P.6. No. -:.-A pro!ides that the (7C shall ha!e original and e#cl"si!e 2"risdiction o!er co%plaints to hear and decide cases in!ol!ing the following? )a* 6e!ices or sche%es e%ployed by or any acts of the board of directors b"siness associates its officers or partners a%o"nting to fra"d and %isrepresentation which %ay be detri%ental to the interest of the p"blic and<or stockholders partners %e%bers of associations registered with the Co%%ission@ )b* Contro!ersies arising o"t of intra-corporate or partnership relations between and a%ong stockholders %e%bers or associates@ between any or all of the% and the corporation partnership or association and the (tate insofar as it concerns their indi!id"al franchise or right as s"ch entity@

INTRA/CORPORATE DISPUTE

S%eed Dist$i4.ting 0s# CA &'21 S )9 + ,actsPastor M. Li% %arried 9"fina L"y Li%. 6"ring the early part of their %arriage Pastor organi$ed so%e fa%ily corporations "sing their con2"gal f"nds. A%ong these corporations was (kyline International Corporation which was engaged in the i%portation and sale of 0ankook 5rand Dorean Tires and the acG"isition of real estate. The spo"ses were incorporators and %a2or stockholders of the corporation and were also e%ployed therein.

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)c* Contro!ersies in the election or appoint%ent of directors tr"stees officers or %anagers of s"ch corporations partnership or associations@ )d* Petitioners of corporations partnerships or associations to be declared in the state of s"spension of pay%ent in cases where the corporation partnership or association possesses s"fficient property to co!er all its debts b"t foresees the i%possibility of %eeting the% when they fall d"e or in cases where the corporation partnership or association has no s"fficient assets to co!er its liabilities b"t is "nder the %anage%ent of a rehabilitation recei!er or %anage%ent co%%ittee created p"rs"ant to this 6ecree. 0owe!er (ection +.. of 9ep. Act No. H3-- transferred the erstwhile e#cl"si!e and original 2"risdiction of the (7C o!er actions in!ol!ing intra-corporate contro!ersies to the co"rts of general 2"risdiction or the appropriate 9TC. All intra-corporate cases pending in the (7C were to be transferred to the appropriate 9TC. Congress thereby recogni$ed the e#pertise and co%petence of the 9TC to take cogni$ance of and resol!e cases in!ol!ing intra-corporate contro!ersies. In co%pliance with the law the Co"rt iss"ed on No!e%ber ., .::: a 9esol"tion designating certain branches of the 9TC in the National Capital 9egion to try and decide cases en"%erated in (ection + of P.6. No. -:.-A. Aor R"e$on City cases the Co"rt designated 5ranches B4 and -; of the 9TC. 5ranch ... of the R"e$on City 9TC which dis%issed the co%plaint of the 9"fina Li% was not so designated by the Co"rt. 8n March ,; .::, the Co"rt appro!ed the Interi% 9"les of Proced"re for IntraCorporate Contro!ersies which took effect on April , .::,. To deter%ine whether a case in!ol!es an intra-corporate contro!ersy and is to be heard and decided by the 5ranches of the 9TC specifically designated by the Co"rt to try and decide s"ch cases two ele%ents %"st conc"r? )a* the stat"s or relationship of the parties@ and ).* the nat"re of the G"estion that is the s"b2ect of their contro!ersy. The first ele%ent reG"ires that the contro!ersy %"st arise o"t of intracorporate or partnership relations between any or all of the parties and the corporation partnership or association of which they are stockholders %e%bers or associates@ between any or all of the% and the corporation partnership or association of which they are stockholders %e%bers or associates respecti!ely@ and between s"ch corporation partnership or association and the (tate insofar as it concerns their indi!id"al franchises. The second ele%ent reG"ires that the disp"te a%ong the parties be intrinsically connected with the reg"lation of the corporation. If the nat"re of the contro!ersy in!ol!es %atters that are p"rely ci!il in character necessarily the case does not in!ol!e an intra-corporate contro!ersy. The deter%ination of whether a contract is si%"lated or not is an iss"e that co"ld be resol!ed by applying pertinent pro!isions of the Ci!il Code. In the present reco"rse it is clear that 9"fina Li%/s co%plaint in the 9TC is not an intra-corporate case. Aor one thing she has ne!er been a stockholder of Lesli% or of (peed for that %atter. The co%plaint is one for the n"llification of the deed of absol"te sale e#ec"ted by Lesli% in fa!or of (peed o!er the property co!ered by TCT No. T-;44,3 in the na%e of Lesli% the cancellation of TCT No. T-,,43,4 in the na%e of (peed as well as the (ecretary/s Certificate dated A"g"st .. ,--B. (he alleged that since her deceased h"sband Pastor Li% acG"ired the property d"ring their %arriage the said property is a con2"gal in nat"re altho"gh registered "nder the na%e of Lesli% "nder TCT No. T-;44,3. (he asserted that the petitioners conni!ed to depri!e the estate of Pastor Li% and his heirs of their possession and ownership o!er the said property "sing a falsified (ecretary/s Certificate stating that the 5oard of 6irectors of Lesli% had a %eeting on A"g"st ,,--B when in fact no s"ch %eeting was held. Lita Li% was ne!er a stockholder of Lesli% or a %e%ber of its 5oard of 6irectors@ her h"sband Ireneo Marcelo was the 'ice-President of (peed@ and Pedro AG"ino was Lesli%/s corporate secretary. (he f"rther a!erred that the a%o"nt of P; -:: :::.:: the p"rchase price of the property "nder the deed of absol"te sale was not paid to Lesli% and that the (po"ses Marcelo and petitioner Pedro AG"ino contri!ed the said deed to cons"%%ate their de!io"s sche%e and chicanery. The pri!ate respondent concl"ded that the 6eed of Absol"te (ale was si%"lated@ hence n"ll and !oid. Th"s on the basis of the %aterial allegations of the co%plaint the co"rt a quo had 2"risdiction o!er the case. S? C"i: Vs# S? Si? >o &'70 S ')1+ ,actsThe (y (iy 0o T (ons Inc. is a do%estic corporation which was organi$ed in the ,-B:s engaged pri%arily in i%porting b"ying and selling hardware %achineries spare parts s"pplies and other allied prod"cts and %erchandise to be sold e#cl"si!ely on wholesale basis. It was doing b"siness "nder the na%e and style &"an Miac 0ardware. The corporation was owned and controlled by (y Chi% and his children. (o%eti%e in ,--: a contro!ersy ens"ed between (y Chi%/s two sons (y Tiong (hio" and (y Tiong 5io who was then the 'ice President for Ainance. (y Chi% sided with (y Tiong (hio". The intra-corporate disp"te reached the (ec"rities and 7#change Co%%ission )(7C*. Later the parties agreed to di!ide and distrib"te the assets and liabilities of the corporation. (o%e of the shares of stocks were assigned to Aelicidad Chan (y wife of (y Chi%. The spo"ses (y Chi% and Aelicidad Chan (y and spo"ses (y Tiong

(hio" and J"anita Tan (y and their children Charlie 9o%er and Jesse Ja%es Tan then beca%e stockholders and %e%bers of the 5oard of 6irectors of the corporation. After al%ost a decade later another intra-corporate disp"te ens"ed this ti%e between (y Chi% and his wife on the one hand and their son (y Tiong (hio" on the other. The co%plaint for acco"nting and da%ages against the spo"ses (y Chi% was filed on May 4 .::;. The co%plaint alleged that Aelicidad Chan (y as c"stodian of all cash collections had been depositing a%o"nts less than those appearing in the financial state%ents which are in the defendants/ c"stody and that no deposits were %ade in the corporation/s acco"nt fro% No!e%ber , .::. to Jan"ary ;, .::;. 5ased on the acco"ntant/s report Aelicidad Chan (y failed to acco"nt for P43 ,,3 .;:.;:. Now petitioners a!er that the CA erred in strictly applying the reG"isites "nder (ection , 9"le - of the Interi% 9"les regarding the creation of a %anage%ent co%%ittee. The petitioners posit that the word =and> in (ection ,),* 9"le - sho"ld be interpreted as =or > since a literal interpretation of the pro!ision wo"ld fr"strate the plain intention of the 9"le. They point o"t that the appellate co"rt/s strict interpretation of the r"le is contrary to the spirit of Presidential 6ecree No. -:.-A. They f"rther assert that the 9TC is e%powered to act and p"t a stop to %isappropriation of a corporation/s f"nds and th"s pre!ent b"siness operations fro% being paraly$ed. According to the petitioners for the Co"rt to idly wait and watch as assets of the corporation are pl"ndered "ntil the b"siness is paraly$ed wo"ld render in"tile (ection , 9"le - of the Interi% 9"les. Iss.e1<N the 9TC co%%itted gra!e ab"se of its discretion a%o"nting to e#cess or lack of 2"risdiction in creating a %anage%ent co%%ittee R.ling(ection , 9"le - of the Interi% 9"les pro!ides?

(7CTI8N ,. Creation of a management committee. P As an incident to any of the cases filed "nder these 9"les or the Interi% 9"les on Corporate 9ehabilitation a party %ay apply for the appoint%ent of a %anage%ent co%%ittee for the corporation partnership or association when there is i%%inent danger of? ),* ).* 6issipation loss wastage or destr"ction of assets or other properties@ and Paraly$ation of its b"siness operations which %ay be pre2"dicial to the interest of the %inority stockholders parties-litigants or the general p"blic.

1e do not agree with petitioners/ contention that the word =and> in (ection , 9"le - of the Interi% 9"les sho"ld be interpreted to %ean =or>. 1hile it is tr"e that in (ection 4)d* of Presidential 6ecree No. -:.-A an applicant for the appoint%ent of a %anage%ent co%%ittee is %andated to pro!e only one of the two reG"isites pro!ided therein the Co"rt in Gacinto v. 2irst HomenIs Credit Corporation r"led that the two reG"isites sho"ld be present before a %anage%ent co%%ittee %ay be created and a recei!er appointed by the 9TC? A reading of the aforecited legal pro!ision re!eals that for a %inority stockholder to obtain the appoint%ent of an interi% %anage%ent co%%ittee he %"st do %ore than %erely %ake a prima facie showing of a denial of his right to share in the concerns of the corporation@ he %"st show that the corporate property is in danger of being wasted and destroyed@ that the b"siness of the corporation is being di!erted fro% the p"rpose for which it has been organi$ed@ and that there is serio"s paraly$ation of operations all to his detri%ent. O The rationale for the need to establish the confl"ence of the two ).* reG"isites "nder (ection , 9"le - by an applicant for the appoint%ent of a %anage%ent co%%ittee is pri%arily based "pon the fact that s"ch co%%ittee and recei!er appointed by the co"rt will i%%ediately take o!er the %anage%ent of the corporation partnership or association incl"ding s"ch power as it %ay dee% appropriate and any of the powers specified in (ection + of the 9"le. Indeed "pon the appoint%ent of a recei!er the d"ly elected<appointed officers of the corporation are di!ested of the %anage%ent of s"ch corporation in fa!or of the %anage%ent co%%ittee<recei!er. ("ch transference of the corporation/s %anage%ent will certainly ha!e a negati!e if not crippling effect on the operations<affairs of the corporation not only with banks and other b"siness instit"tions incl"ding those abroad which it deals b"siness with. A wall of "ncertainty is erected@ the short and long-ter% plans of the %anage%ent of the corporation are disr"pted if not derailed. Th"s the creation and appoint%ent of a %anage%ent co%%ittee and a recei!er is an e#traordinary and drastic re%edy to be e#ercised with care and ca"tion@ and only when the reG"ire%ents "nder the Interi% 9"les are shown.

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It is a drastic co"rse for the benefit of the %inority stockholders the partieslitigants or the general p"blic are allowed only "nder pressing circ"%stances and when there is inadeG"acy ineffect"al or e#ha"stion of legal or other re%edies. The power to inter!ene before the legal re%edy is e#ha"sted and %is"sed when it is e#ercised in aid of s"ch a p"rpose. The power of the co"rt to contin"e a b"siness of a corporation partnership or association %"st be e#ercised with the greatest care and ca"tion. There sho"ld be a f"ll consideration of all the attendant facts incl"ding the interest of all the parties concerned. Neither Presidential 6ecree No. -:.-A and 9ep"blic Act No. H3-- nor the Interi% 9"les of Proced"re define =i%%inent danger.> =6anger> is a general ter% incl"ding peril 2eopardy ha$ard and risk@ as "sed in the 9"le it refers to e#pos"re or liability to in2"ry. =I%%inent> refers to so%ething which is threatening to happen at once so%ething close at hand so%ething to happen "pon the instant close altho"gh not yet happening and on the !erge of happening. In the present case petitioners failed to %ake a strong showing that there was an i%%inent danger of dissipation loss wastage or destr"ction of assets or other properties of respondent corporation and paralysis of its b"siness operations which %ay be pre2"dicial to the interest of the parties-litigants petitioners or the general p"blic. The 9TC th"s co%%itted gra!e ab"se of its discretion a%o"nting to e#cess of 2"risdiction in creating a %anage%ent co%%ittee and the s"bseG"ent appoint%ent of a co%ptroller. The bone of contention between the parties is whether there was a shortage or "nacco"nted f"nds of the corporation incl"ding P43 ,,3 .;:.;: allegedly inc"rred fro% ,--; )when petitioner (y Chi% ass"%ed office as President Aelicidad Chan (y as Assistant Treas"rer (y Tiong (hio" as &eneral Manager and J"anita Tan (y as Corporate Treas"rer*@ and who sho"ld be held acco"ntable therefor. Petitioners bla%e (y Tiong (hio" and J"anita Tan (y while the latter pin liability on petitioners based on the financial report of the 5anaria 5anaria and Co%pany and the clai% of J"anita Tan (y. 0owe!er these iss"es of fact ha!e yet to be deter%ined by the trial co"rt after d"e proceedings. Petitioners failed to add"ce a shred of e!idence d"ring the hearing of their %otion to pro!e their clai% that there was i%%inent danger of dissipation loss wastage or destr"ction of the assets or other properties of respondent e!er since (y Tiong (hio" beca%e president and J"anita Tan (y contin"ed discharging her d"ties as corporate treas"rer@ nor is there proof that there was i%%inent danger of paraly$ing the b"siness operations of the corporation. 1e ha!e re!iewed the records and find that contrary to the findings of the 9TC there is no i%%inent danger of dissipation or total loss of the assets f"nds properties and records of respondent corporation or paralysis of b"siness operations. In fact records show that there has been no slack in the b"siness operations of respondent corporation. Petitioners were di!ested of their corporate positions and th"s stockholdings in the corporation were red"ced. Petitioners clai% that (y Tiong (hio" and J"anita Tan (y )third-party defendants below* and their children "nlawf"lly o"sted the% fro% their positions and red"ced their shareholdings in the corporation. They posit that the for%er/s clai% that they )petitioners* %isappropriated the f"nds and assets of respondent was designed to 2"stify the "nlawf"l o"ster of petitioners fro% the %anage%ent of respondent corporation. Suc claims# o&ever# ave $et to be proven . 1hile the allegation that (y Tiong (hio" and J"anita Tan (y ab"sed their positions and %is%anaged the affairs of respondent corporation is a distinct possibility petitioners failed to add"ce proof thereon. Mere possibility witho"t proof of ab"sing corporate positions and dissipation of assets and properties of the corporation is not a !alid gro"nd for the appoint%ent of a %anage%ent co%%ittee<recei!er. 1e agree that past cond"ct and condition of the corporation %ay be considered in deter%ining the present sit"ation and what the f"t"re will be. 0owe!er a %anage%ent co%%ittee or recei!er will not be appointed %erely beca"se of things done or atte%pted at a past ti%e A"en t"e %$esent sit.ation and t"e %$os%ects fo$ t"e f.t.$e a$e not s.c" as to Aa$$ant ta5ing t"e cont$ol of t"e %$o%e$t? o.t of t"e "ands of its oAne$s . The circ"%stances to 2"stify the appoint%ent of a %anage%ent co%%ittee< recei!er %"st be e#traordinary and so%ething %ore %"st be shown than past %iscond"ct and a %ere apprehension based thereon of f"t"re wrongdoing. To repeat in the absence of a strong showing of an i%%inent danger of dissipation loss wastage or destr"ction of assets or other properties of a corporation and paralysis of its b"siness operations the %ere apprehension of f"t"re %iscond"ct based "pon prior %is%anage%ent will not a"thori$e the appoint%ent of a %anage%ent co%%ittee<recei!er. ;.@.ico Vs# S.ia:4ao &1 * S 2'*+ ,acts(trategic Alliance 6e!elop%ent Corporation )(T9A67C* is a do%estic corporation engaged in the b"siness of pro!iding financial and in!est%ent ad!isory ser!ices and in!esting in pro2ects thro"gh consorti"% or 2oint !ent"re infor%ation. 8n J"ly .3 ,--H the (ec"rities and 7#change Co%%ission )(7C* appro!ed the a%end%ent of (T9A67C/s Articles of Incorporation

a.t"o$i8ing t"e c"ange of its principal office fro% Pasig City to 5aya%bang Pangasinan. 8n March , .::B (T9A67C held its ann"al stockholders/ %eeting in its Pasig City office as indicated in the notices sent to the stockholders. At the said %eeting the following were elected %e%bers of the 5oard of 6irectors? Alderito X. M"2"ico 5onifacio C. ("%billa 6olney (. ("%billa ) %etitione$s "e$ein* Cesar T. R"ia%bao Jose M. Magno III and Ma. Christina Aerreros )$es%ondents "e$ein*. Petitioners Alderito M"2"ico was elected Chair%an and President while 5onifacio ("%billa was elected Treas"rer. All of the% then discharged the d"ties of their office. Afte$ fiCe &1+ :ont"s or on A"g"st ,4 .::B respondents filed a Co%plaint against (T9A67C )represented by herein petitioners as %e%bers of its 5oard of 6irectors*. The co%plaint prays that? ),* the March , .::B election be n"llified on the gro"nd of i:%$o%e$ Cen.e p"rs"ant to (ection +, of the Corporation Code@ ).* all ens"ing transactions cond"cted by the elected directors be likewise n"llified@ and );* a special stockholders/ %eeting be held anew. As the contro!ersy in!ol!es an intra-corporate disp"te the trial co"rt iss"ed an 8rder transferring said Ci!il Case to 9TC 5ranch BH Irdaneta City being a designated (pecial Co%%ercial Co"rt. 8n No!e%ber . .::B petitioners filed their Answer with Co"nterclai% in Ci!il )(7C* Case No. I-,B. They prayed for the dis%issal of the co%plaint on the following gro"nds a%ong others? )a* the co%plaint does not state a ca.se of action@ )b* the action is 4a$$ed 4? %$esc$i%tion for it was filed beyond the ,+-day prescripti!e period pro!ided by (ection . 9"le 4 of the Interi% 9"les and Proced"re &o!erning Intra-Corporate Contro!ersies "nder 9ep"blic Act )9.A.* No. H3--@ )c* respondents/ prayer that a special stockholders/ %eeting be held in 5aya%bang Pangasinan =is %$e:at.$e pending the establish%ent of a principal office of (T9A67C in said %"nicipality@> and )d* respondents AaiCed t"ei$ $ig"t to o4@ect to t"e Cen.e as they attended and participated in the said March , .::B %eeting and election Ait"o.t an? %$otest#> Petitioners likewise opposed the application for a writ of preli%inary in2"nction as respondents ha!e no right that was !iolated hence are not entitled to be protected by law. They f"rther prayed for da%ages by way of co"nterclai%. Iss.e1<N only the (7C not the 9TC has 2"risdiction to order the holding of a special stockholders/ %eeting in!ol!ing an intra-corporate contro!ersy and 1<N the action has prescribed R.lingAn intra-corporate contro!ersy is one which =pertains to any of the following relationships? ),* between the corporation partnership or association and the p"blic@ ).* between the corporation partnership or association and the (tate in so far as its franchise per%it or license to operate is concerned@ );* between the corporation partnership or association and its stockholders partners %e%bers or officers@ and )B* a:ong t"e stoc5"olde$sF %a$tne$s o$ associates t"e:selCes.> There is th"s no disp"te that respondents/ co%plaint in!ol!es an intra-corporate contro!ersy the contending parties being stoc5"olde$s and office$s of a corporation. Ipon the enact%ent of 9.A. No. H3-- otherwise known as =The (ec"rities 9eg"lation Code> which took effect on A"g"st H .::: the 2"risdiction of the (7C o!er intra-corporate contro!ersies and other cases en"%erated in (ection + of P.6. No. -:.-A has been t$ansfe$$ed to the co"rts of general 2"risdiction or the appropriate 9TC. P"rs"ant to 9.A. No. H3-- the Co"rt iss"ed a 9esol"tion dated No!e%ber ., .::: in A.M. No. ::-,,-:;-(C designating certain branches of the 9TC to try and decide cases en"%erated in (ection + of P.6. No. -:.-A. 5ranch BH of 9TC Irdaneta City the co"rt a quo is a%ong those designated as a (pecial Co%%ercial Co"rt. 8n March ,; .::, the Co"rt appro!ed the Interi% 9"les of Proced"re &o!erning Intra-Corporate Contro!ersies "nder 9.A. No. H3-- which took effect on April , .::,. Clearly the 9TC has the power to hear and decide the intra-corporate contro!ersy of the parties herein. Conco:itant to said %oAe$ is t"e a.t"o$it? to iss.e o$de$s necessa$? o$ incidental to t"e ca$$?ing o.t of t"e %oAe$s e6%$essl? g$anted to it# Th"s the 9TC %ay in a%%$o%$iate cases order the holding of a special %eeting of stockholders or %e%bers of a corporation in!ol!ing an intra-corporate disp"te "nder its s"per!ision. 8ne of the reliefs so"ght by respondents in the co%plaint is the n"llification of the election of the 5oard of 6irectors and corporate officers held d"ring the March , .::B ann"al stockholders/ %eeting on the gro"nd of i%proper !en"e in !iolation of the Corporation Code. 0ence the action in!ol!es an election contest falling sG"arely "nder the Interi% 9"les of Proced"re &o!erning Intra-Corporate Contro!ersies "nder 9.A. No. H3--. (ections , and . 9"le 4 of the Interi% 9"les pro!ide? (7C. ,. Cases covered. P The pro!isions of this r"le shall apply to election contests in stock and non-stock corporations. (7C. .. ;efinition. P An election contest refers to an? cont$oCe$s? o$ dis%.te inColCing title or clai% to any

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electi!e office in a stock or non-stock corporation the !alidation of pro#ies the %anner and Calidit? of elections and the G"alifications of candidates incl"ding the procla%ation of winners to the office of director tr"stee or other officer directly elected by the stockholders in a close corporation or by %e%bers of a non-stock corporation where the articles of incorporation or by-laws so pro!ide. )Inderscoring s"pplied* As pointed o"t by petitioners in their answer with co"nterclai% "nder (ection ; 9"le 4 of the Interi% 9"les of Proced"re &o!erning Intra-Corporate Contro!ersies "nder 9.A. No. H3-- an election contest %"st be =filed within ,+ days fro% the date of the election.> It was only on A"g"st ,4 .::B that respondents instit"ted an action G"estioning the !alidity of the March , .::B stockholders/ election clearly beyond the ,+-day prescripti!e period. Vesagas Vs# CA &*( S 107+ ,actsThe respondent spo"ses 6elfino and 0elenda 9aniel are %e%bers in good standing of the L"$ 'illaga Tennis Cl"d Inc. )cl"b*. They alleged that petitioner Teodoro 5. 'esagas who clai%s to be the cl"bCs d"ly elected president in conspiracy with petitioner 1ilfred 6. Asis who in t"rn clai%s to be its d"ly elected !ice-president and legal co"nsel s"%%arily stripped the% of their lawf"l %e%bership witho"t d"e process of law. Thereafter respondent spo"ses filed a Co%plaint with the (ec"rities and 7#change Co%%ission )(7C* on March .4 ,--3 against the petitioners. In this case respondents asked the Co%%ission to declare as illegal their e#p"lsion fro% the cl"b as it was allegedly done in "tter disregard of the pro!isions of its bylaws as well as the reG"ire%ents of d"e process. They likewise so"ght the ann"l%ent of the a%end%ents to the by-laws %ade on 6ece%ber H ,--4 changing the ann"al %eeting of the cl"b fro% the last ("nday of Jan"ary to No!e%ber and increasing the n"%ber of tr"stees fro% nine to fifteen. Ainally they prayed for the iss"ance of a Te%porary 9estraining 8rder and 1rit of Preli%inary In2"nction. The application for T98 was denied by (7C 0earing 8fficer (oller in an 8rder dated April .- ,--3. The petioners clai% in gratia argumenti that while the cl"b %ay ha!e been considered a corporation d"ring a brief spell still at the ti%e of the instit"tion of this case with the (7C the cl"b was already dissol!ed by !irt"e of a 5oard resol"tion. Iss.e1<N the disp"te between the respondents and petitioners is a corporate %atter within the e#cl"si!e co%petence of the (7C to decide 9"ling? In order that the co%%ission can take cogni$ance of a case the contro!ersy %"st pertain to any of the following relationship? a* between the corporation partnership or association and its stockholders partners %e%bers or officers@ c* between the corporation partnership or association and the state as far as its franchise per%it or license to operate is concerned@ and d* a%ong the stockholders partners or associates the%sel!es. The fact that the parties in!ol!ed in the contro!ersy are all stockholders or that the parties in!ol!ed are the stockholders and the corporation does not necessarily place the disp"te within the loop of 2"risdiction of the (7C. J"risdiction sho"ld be deter%ined by considering not only the stat"s or relationship of the parties b"t also the nat"re of the G"estion that is the s"b2ect of their contro!ersy. 1e r"le that the present disp"te is intra-corporate in character. In the first place the parties here in!ol!ed are officers and %e%bers of the cl"b. 9espondents clai% to be %e%bers of good standing of the cl"b "ntil they were p"rportedly stripped of their %e%bership in illegal fashion. Petitioners on the other hand are its President and 'ice-President respecti!ely. More significantly the present conflict relates to and in fact arose fro% this relation between the parties. The s"b2ect of the co%plaint na%ely the legality of the e#p"lsion fro% %e%bership of the respondents and the !alidity of the a%end%ents in the cl"bCs by-laws are f"rther%ore within the Co%%issionCs 2"risdiction. 1ell to "nderscore is the date when the original co%plaint was filed at the (7C which was March .4 ,--3. 8n that date the (7C still e#ercised G"asi2"dicial f"nctions o!er this type of s"its. It is a#io%atic that 2"risdiction is conferred by the Constit"tion and by the laws in force at the ti%e of the co%%ence%ent of the action. In partic"lar the Co%%ission was there"pon e%powered "nder (ec. + of P.6. -:.-A to hear and decide cases in!ol!ing intra-corporate disp"tes th"s? "(7C. +. In addition to the reg"latory and ad2"dicati!e f"nctions of the (ec"rities and 7#change Co%%ission o!er corporations partnerships and other for%s of association registered with it as e#pressly granted "nder e#isting laws and decrees it s"all "aCe o$iginal and e6cl.siCe @.$isdiction to "ea$ and decide cases inColCing# # # b* Cont$oCe$sies a$ising o.t of int$a/co$%o$ate o$ %a$tne$s"i% $elations between and a%ong stockholders %e%bers or associates@ between any or all of the% and the corporation partnership or association of

which they are the stockholders %e%bers or associates respecti!ely@ and between s"ch corporation partnership or association and the state insofar as it concerns their indi!id"al franchise or right to e#ist as s"ch entity@ The enact%ent of 9.A. H3-- otherwise known as the (ec"rities 9eg"lation Code howe!er transferred the 2"risdiction to resol!e intra-corporate contro!ersies to co"rts of general 2"risdiction or the appropriate 9egional Trial Co"rts th"s? "+... T"e Co::issionMs @.$isdiction oCe$ all cases en.:e$ated .nde$ Section 1 of P$esidential Dec$ee No# 902/A is "e$e4? t$ansfe$$ed to t"e Co.$t of gene$al @.$isdiction o$ t"e a%%$o%$iate Regional T$ial Co.$tProvided# that the ("pre%e Co"rt in the e#ercise of its a"thority %ay designate the 9egional Trial Co"rt branches that shall e#ercise 2"risdiction o!er these cases. The Co%%ission shall retain 2"risdiction o!er pending cases in!ol!ing intra-corporate disp"tes s"b%itted for final resol"tion which sho"ld be resol!ed within one ),* year fro% the enact%ent of this Code. The Co%%ission shall retain 2"risdiction o!er pending s"spension of pay%ents< rehabilitation cases filed as of ;: J"ne .::: "ntil finally disposed." 8n A"g"st .. .::: we iss"ed a resol"tion in A.M. No. ::-H-,:-(C wherein we "6I97CT)ed* the Co"rt Ad%inistrator and the (ec"rities and 7#change Co%%ission to ca"se the act"al transfer of the records of s"ch cases and all other (7C cases affected by 9.A. No. H3-- to the appropriate 9egional trial Co"rts # # #." 1e also iss"ed another resol"tion designating certain branches of the 9egional Trial Co"rt to try and decide cases for%erly cogni$able by the (7C. ConseG"ently the case at bar sho"ld now be referred to the appropriate 9egional Trial Co"rt.

CORPORATE RE>ABILITATION

Banco De O$o Vs# <APRL &11 S *'2+ ,actsAfter e!al"ating the financial state%ents of respondent JAP9L 6e!elop%ent Corporation )JAP9L* for fiscal years ,--H ,--- and .::: petitioner 5anco de 8ro-7PCI Inc. e#tended credit facilities to it a%o"nting to P.;: ::: ::: on March .H .::;. 9espondents 9apid Aor%ing Corporation )9AC* and Jose I. Arollado acted as JAP9L/s s"reties. 6espite its see%ingly strong financial position JAP9L defa"lted in the pay%ent of fo"r tr"st receipts soon after the appro!al of its loan. Petitioner later learned fro% M9M Manage%ent JAP9L/s financial ad!iser that JAP9L had altered and falsified its financial state%ents. It allegedly bloated its sales re!en"es to post a big inco%e fro% operations for the concerned fiscal years to pro2ect itself as a !iable in!est%ent. The infor%ation alar%ed petitioner. Citing rele!ant pro!isions of the Tr"st 9eceipt Agree%ent it de%anded i%%ediate pay%ent of JAP9L/s o"tstanding obligations a%o"nting to P,-B B-; ;HH.-H. 8n A"g"st ;: .::; JAP9L )and its s"bsidiary 9AC* filed a petition for rehabilitation in the 9egional Trial Co"rt )9TC* of R"e$on City 5ranch -: )R"e$on City 9TC*. It disclosed that it had been e#periencing a decline in sales for the three preceding years and a staggering loss in .::.. 5eca"se the petition was s"fficient in for% and s"bstance a stay order was iss"ed on (epte%ber .H .::;. 0owe!er the proposed rehabilitation plan for JAP9L and 9AC was e!ent"ally re2ected by the R"e$on City 9TC in an order dated May - .::+. 5eca"se JAP9L ignored its de%and for pay%ent petitioner filed a co%plaint for s"% of %oney with an application for the iss"ance of a writ of preli%inary attach%ent against respondents in the 9TC of Makati City 5ranch ,B+ )Makati 9TC* on A"g"st ., .::;. Petitioner essentially asserted that JAP9L was g"ilty of fra"d beca"se it )JAP9L* altered and falsified its financial state%ents. 8n Aebr"ary .: .::4 JAP9L )and its s"bsidiary 9AC* filed a petition for rehabilitation in the 9TC of Cala%ba Lag"na 5ranch ;B )Cala%ba 9TC*. Ainding JAP9L/s petition s"fficient in for% and in s"bstance the Cala%ba 9TC iss"ed a stay order on March ,; .::4. In !iew of the said order respondents hastily %o!ed to s"spend the proceedings in Ci!il Case No. :;---, pending in the Makati 9TC. 8n J"ly 3 .::4 the Makati 9TC granted the %otion with regard to JAP9L and 9AC b"t ordered Arollado to file an answer. It r"led that beca"se he was 2ointly and solidarily liable with JAP9L and 9AC the proceedings against hi% sho"ld contin"e. 9espondents %o!ed for reconsideration b"t it was denied. Iss.e-

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1<N JAP9L/s petition for corporate rehabilitation %ay prosper R.ling1e withhold 2"dg%ent for the %o%ent on the J"ly 3 .::4 order of the Makati 9TC s"spending the proceedings in Ci!il Case No. :;---, insofar as JAP9L and 9AC are concerned. Inder the Interi% 9"les of Proced"re on Corporate 9ehabilitation a stay order defers all actions or clai%s against the corporation seeking rehabilitation fro% the date of its iss"ance "ntil the dis%issal of the petition or ter%ination of the rehabilitation proceedings. The Makati 9TC %ay proceed to hear Ci!il Case No. :;---, only against Arollado if there is no gro"nd to go after JAP9L and 9AC )as will later be disc"ssed*. A creditor can de%and pay%ent fro% the s"rety solidarily liable with the corporation seeking rehabilitation. 9espondents ab"sed proced"ral technicalities )albeit "ns"ccessf"lly* for the sole p"rpose of pre!enting or at least delaying the collection of their legiti%ate obligations. Their reprehensible sche%e i%peded the speedy dispensation of 2"stice. More i%portantly howe!er considering the a%o"nt in!ol!ed respondents "tterly disregarded the significance of a stable and efficient banking syste% to the national econo%y. Protecting the integrity of the banking syste% has beco%e by large the responsibility of banks. The role of the p"blic partic"larly indi!id"al borrowers has not been e%phasi$ed. Ne!ertheless we are not "naware of the ra%pant and "nscr"p"lo"s practice of obtaining loans witho"t intending to pay the sa%e. In this case petitioner alleged that JAP9L fra"d"lently altered and falsified its financial state%ents in order to obtain its credit facilities. Considering the a%o"nt of petitioner/s e#pos"re in JAP9L 2"stice and fairness dictate that the Makati 9TC to hear whether or not respondents indeed co%%itted fra"d in sec"ring the credit acco%%odation. A finding of fra"d will change the whole pict"re. In this e!ent petitioner can "se the finding of fra"d to %o!e for the dis%issal of the rehabilitation case in the Cala%ba 9TC. The protecti!e re%edy of rehabilitation was ne!er intended to be a ref"ge of a debtor g"ilty of fra"d. Meanwhile the Makati 9TC sho"ld proceed to hear Ci!il Case No. :;---, against the three respondents g"ided by (ection B: of the &eneral 5anking Law. Inder this pro!ision banks ha!e the right to ann"l any credit acco%%odation or loan and de%and the i%%ediate pay%ent thereof fro% borrowers pro!en to be g"ilty of fra"d. Petitioner wo"ld then be entitled to the i%%ediate pay%ent of P,-B B-; ;HH.-H and other appropriate da%ages. Ainally considering that respondents failed to pay the fo"r tr"st receipts the Makati City Prosec"tor sho"ld in!estigate whether or not there is probable ca"se to indict respondents for !iolation of (ection ,; of the Tr"st 9eceipts Law. P$?ce Co$% Vs# CA &1'* S )1(+ ,actsPryce Corporation petitioner was incorporated "nder Meippine laws on (epte%ber 3 ,-H-. Its pri%ary p"rpose was to de!elop real estate in Mindanao. It engaged in the de!elop%ent of %e%orial parks operated a %a2or hotel in Cagayan de 8ro City and prod"ced ind"strial gases. The ,--3 Asian financial crisis howe!er badly affected petitioner/s operations res"lting in hea!y losses. It co"ld not %eet its obligations as they beca%e d"e. It inc"rred losses of P-B;.:- %illion in .::, PB3-.:+ %illion in .::. and P,.+.H4 %illion in .::;. Th"s on J"ly ,. .::B petitioner filed a petition for rehabilitation. Petitioner prayed for the appoint%ent of a 9ehabilitation 9ecei!er fro% a%ong the no%inees na%ed therein and the staying of the enforce%ent of all clai%s %onetary or otherwise against it. Petitioner also prayed that after d"e hearing its proposed 9ehabilitation Plan be appro!ed. 8n J"ly ,; .::B the 9TC iss"ed a =(tay 8rder> directing that? all clai%s against petitioner be deferred@ the initial hearing of the petition for rehabilitation be set on (epte%ber , .::B@ and all creditors and interested parties sho"ld file their respecti!e co%%ents<oppositions to the petition. In the sa%e 8rder the 9TC then appointed &ener T. Mendo$a as 9ehabilitation 9ecei!er. The petition was opposed by petitioner/s bank-creditors. The 5ank of the Philippine Islands clai%ed that the petition and the proposed 9ehabilitation Plan are coerci!e and !iolati!e of the contract. The Land 5ank of the

Philippines contended a%ong others that the petition is "nacceptable beca"se of the "nrealistic !al"ation of the properties s"b2ect of the dacion en pago. The China 5anking Corporation respondent herein alleged in its opposition that petitioner is sol!ent and that it filed the petition to force its creditors to accept dacion pay%ents. In effect petitioner passed on to the creditors the b"rden of %arketing and financing "nwanted %e%orial lots while e#e%pting it )petitioner* fro% paying interests and penalties. 8n (epte%ber ,; .::B the 9TC gi!e d"e co"rse to the petition. Ipon petition for re!iew the Co"rt of Appeals rendered its 6ecision granting respondent/s petition and re!ersing the assailed 8rders of the 9TC. Iss.e1<N the Co"rt of Appeals erred in denying the petition for rehabilitation of petitioner Pryce Corporation R.ling(ection 4 of the Interi% 9"les of Proced"re on Corporate 9ehabilitation pro!ides? (7C. 4. Sta$ <rder.W If the co"rt finds the petition to be s.fficient in fo$: and s.4stance it shall not later than fi!e )+* days fro% the filing of the petition iss"e an 8rder )a* appointing a 9ehabilitation 9ecei!er and fi#ing his bond@ )b* staying enforce%ent of all clai%s whether for %oney or otherwise and whether s"ch enforce%ent is by co"rt action or otherwise against the debtor its g"arantors and s"reties not solidarily liable with the debtor@ )c* prohibiting the debtor fro% selling enc"%bering transferring or disposing in any %anner any of its properties e#cept in the ordinary co"rse of b"siness@ )d* prohibiting the debtor fro% %aking any pay%ent of its liabilities o"tstanding as of the date of filing of the petition@ )e* prohibiting the debtor/s s"ppliers of goods or ser!ices fro% withholding s"pply of goods and ser!ices in the ordinary co"rse of b"siness for as long as the debtor %akes pay%ents for the ser!ices and goods s"pplied after the iss"ance of the stay order@ )f* directing the pay%ent in f"ll of all ad%inistrati!e e#penses inc"rred after the iss"ance of the stay order@ )g* fi6ing t"e initial "ea$ing on t"e %etition not ea$lie$ t"an fo$t? fiCe &'1+ da?s 4.t not late$ t"an si6t? &)0+ da?s f$o: t"e filing t"e$eof@ )h* directing the petitioner to p"blish the 8rder in a newspaper of general circ"lation in the Philippines once a week for two ).* consec"ti!e weeks@ )i* directing all creditors and all interested parties )incl"ding the (ec"rities and 7#change Co%%ission* to file and se$Ce on t"e de4to$ a Ce$ified co::ent on o$ o%%osition to t"e %etitionF Ait" s.%%o$ting affidaCits and doc"%ents not later than ten ),:* days before the date of the initial hearing and p"tting the% on notice that their fail"re to do so will bar the% fro% participating in the proceedings@ and )2* di$ecting t"e c$edito$s and inte$ested %a$ties to sec.$e f$o: t"e co.$t co%ies of t"e %etition and its anne6es within s"ch ti%e as to enable the%sel!es to file their co%%ent on or opposition to the petition and to prepare for the initial hearing of the petition. (ection 4 pro!ides that the petition %"st be =s"fficient in for% and s"bstance.> In =i>al Commercial Ban%ing Corporation v. -ntermediate Appellate Court this Co"rt held that "nder (ection 4)c* of P.6. No. -:.-A $eceiCe$s :a? 4e a%%ointed A"eneCe$- & + necessa$? in o$de$ to %$ese$Ce t"e $ig"ts of t"e %a$ties/litigantsB and<or ).* protect the interest of the in!esting p"blic and creditors. T"e sit.ations conte:%lated in t"ese instances a$e se$io.s in nat.$e# T"e$e :.st e6ist a clea$ and i::inent dange$ of losing t"e co$%o$ate assets if a $eceiCe$ is not a%%ointed# Absent s"ch danger s"ch as where there are s"fficient assets to s"stain the rehabilitation plan and both in!estors and creditors are a%ply protected the need for appointing a recei!er does not e#ist. Si:%l? %.tF t"e %.$%ose of t"e laA in di$ecting t"e a%%oint:ent of $eceiCe$s is to %$otect t"e inte$ests of t"e co$%o$ate inCesto$s and c$edito$s# 1e agree with the Co"rt of Appeals that the petition for rehabilitation does not allege that there is a clear and i%%inent danger that petitioner will lose its corporate assets if a recei!er is not appointed. In other words t"e Nse$io.s sit.ation testO laid doAn 4? %iBal Commercial Aan)ing Corporation "as not 4een :et or at least s"bstantially co%plied with. (ignificantly the (tay 8rder dated J"ly ,; .::B iss"ed by the 9TC does not state any serio"s sit"ation affecting petitioner/s corporate assets. 1e obser!e that in appointing Mr. &ener T. Mendo$a as 9ehabilitation 9ecei!er t"e onl? 4asis of t"e loAe$ co.$t Aas its finding that Nt"e %etition is s.fficient in fo$: and s.4stance#O 0owe!er it did not specify any reason or gro"nd to s"stain s"ch finding. Clearly the %etition failed to co:%l? Ait" t"e Nse$io.s sit.ation test#> In deter%ining whether petitioner/s financial sit"ation is serio"s and whether there is a clear and i%%inent danger that it will lose its corporate assets the 9TC acting as co%%ercial co"rt sho"ld cond"ct a hearing wherein both parties can present their respecti!e e!idence. 0ence a re%and of the records of this case to the 9TC is i%perati!e. UniAide >oldings Vs# <andecs T$ans%o &1' S 17+ ,acts-

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In Jan"ary ,--3 petitioner and respondent Jandecs Transportation Co. Inc. entered into a contract of =Assign%ent of Leasehold 9ights> "nder which the latter was to operate food and snack stalls at petitionerCs Iniwide Coastal Mall in ParaSaG"e City. The contract was for a period of ,H years co%%encing 8ctober , ,--3 "p to (epte%ber ;: .:,+ for a consideration of P. B4: 4;:.,+. The parties also agreed that respondentCs stalls wo"ld be located near the %o!ie ho"ses and wo"ld be the only stalls to sell food and be!erages in that area. 8n Aebr"ary 3 ,--3 respondent paid the contract price in f"ll. Petitioner howe!er failed to t"rn o!er the stall "nits on 8ctober , ,--3 as agreed "pon. 9espondent so"ght the rescission of the contract and the ref"nd of its pay%ent. Petitioner ref"sed both. 8n J"ly .; ,--- respondent filed a co%plaint in the 9egional Trial Co"rt )9TC* 5ranch .+3 of ParaSaG"e City for breach of contract rescission of contract da%ages and iss"ance of a writ of preli%inary attach%ent. In the co%plaint respondent clai%ed that despite f"ll pay%ent petitioner ),* failed to deli!er the stall "nits on the stip"lated date@ ).* opened its own food and snack stalls near the cine%a area and );* ref"sed to acco%%odate its reG"est for the rescission of the contract and the ref"nd of pay%ent. In its answer petitioner ad%itted respondentCs f"ll pay%ent of the contract price b"t denied that it was bo"nd to deli!er the stalls on 8ctober , ,--3. According to petitioner the contract was clear that it was to t"rn o!er the "nits only "pon co%pletion of the %all. It likewise clai%ed that "nder the contract it had the option to offer s"bstit"te stalls to respondent which the latter howe!er re2ected. After trial the 9TC r"led in fa!or of respondent. Aggrie!ed petitioner appealed the decision to the CA. 7#cept for the award of attorneyCs fees which it fo"nd to be bereft of any basis the CA "pheld the 9TC decision. Petitioner filed a partial %otion for reconsideration )M9* of the CA decision b"t it was denied as well. 0ence it filed the petition for re!iew on certiorari which we denied on A"g"st ,3 .::+. Thereafter petitioner filed the =Motion to ("spend Proceedings with Motion for 9econsideration.> In its %otion to s"spend the proceedings petitioner prays that the action in this Co"rt be held in abeyance in !iew of the (7CCs order of s"spension of pay%ents and appro!al of its rehabilitation plan. In its M9 on the other hand it insists that we sho"ld find ),* the rescission decreed by the lower co"rts erroneo"s and ).* the order for ref"nd of the P. B4: 4;:.,+ )with legal interest* to respondent "nwarranted. Iss.e1<N the %otion to s"spend the proceedings is warranted in the case at bar R.lingThe rele!ant law dealing with the s"spension of pay%ents for %oney clai%s against corporations "nder rehabilitation is Presidential 6ecree )P6* No. -:.A as a%ended. The ter% =clai%> "nder said law refers to debts or de%ands of pec"niary nat"re. It is the assertion of rights for the pay%ent of %oney. The raison d* Stre behind the s"spension of clai%s pending rehabilitation was e#plained in the case of B2 Bomes# -nc. v. CA? ...the reason for s"spending actions for clai%s against the corporation sho"ld not be diffic"lt to disco!er. It is not really to enable the %anage%ent co%%ittee or the rehabilitation recei!er to s"bstit"te the EcorporationF in any pending action against it before any co"rt trib"nal board or body. 8b!io"sly the real 2"stification is to enable the %anage%ent co%%ittee or the rehabilitation recei!er to effecti!ely e#ercise its<his powers free fro% any 2"dicial or e#tra-2"dicial interference that %ight "nd"ly hinder or pre!ent the =resc"e> of the debtor EcorporationF. To allow s"ch other action to contin"e wo"ld only add to the b"rden of the %anage%ent co%%ittee or rehabilitation recei!er whose ti%e effort and reso"rces wo"ld be wasted in defending clai%s against the corporation instead of being directed toward its restr"ct"ring and rehabilitation. In P ilippine Air Lines 3CPALF4# -ncorporated v. Tamora# we said that =all actions for clai%s against a corporation pending before any co"rt trib"nal or board shall ipso jure be s"spended in whate!er stage s"ch actions %ay be fo"nd "pon the appoint%ent by the (7C of a %anage%ent co%%ittee or a rehabilitation recei!er.> 0owe!er we wo"ld still find no cogent reason to re!erse o"r A"g"st ,3 .::+ resol"tion denying petitionerCs appeal e!en if the proceedings here were to be s"spended in the %eanti%e. And s"ch s"spension wo"ld not at all affect o"r position that the M9 sho"ld be denied as well. PAL Vs# PALEA &121 S 29+ ,acts-

This case arose fro% a labor Co%plaint filed by herein PAL7A against herein PAL and one Mary Anne del 9osario 6irector of Personnel PAL on , March ,-H- charging the% with "nfair labor practice for the non-pay%ent of ,; th %onth pay of e%ployees who had not been reg"lari$ed as of the ;: th of April ,-HH as allegedly stip"lated in the Collecti!e 5argaining Agree%ent )C5A* entered into by herein parties. 8n 4 Aebr"ary ,-H3 herein parties PAL and PAL7A the collecti!e bargaining agent of the rank and file e%ployees of PAL entered into a C5A that was to co!er the period of ,-H4 P ,-H-. Part of said agree%ent reG"ired PAL to pay its rank and file e%ployees the ,;th Month Pay )Mid-year 5on"s* and Christ%as 5on"s. PAL7A assailed the i%ple%entation of the foregoing g"ideline. It is of the !iew that all e%ployees of PAL whether reg"lar or non-reg"lar sho"ld be paid their ,;th %onth pay. In response to the abo!e PAL infor%ed PAL7A that rank and file e%ployees who were reg"lari$ed after ;: April ,-HH were not entitled to the ,;th %onth pay as they were already gi!en the Christ%as bon"s in 6ece%ber of ,-HH per the I%ple%enting 9"les of Presidential 6ecree No. H+,. PAL7A disagreeing with PAL filed a Co%plaint for "nfair labor practice before the NL9C on , March ,-H-. The "nion arg"ed that =the c"t-off period for reg"lari$ation sho"ld not be "sed as the para%eter for granting EtheF ,; th %onth pay considering that the law does not disting"ish the stat"s of e%ploy%ent b"t )sic* the law co!ers all e%ployees.> In its Position Paper s"b%itted before the labor arbiter PAL co"ntered that those rank and file e%ployees who were not reg"lari$ed by ;: April of a partic"lar year are in principle not denied their ,; th %onth pay considering they recei!e said %andatory bon"s in the for% of the Christ%as 5on"s@ that the Christ%as 5on"s gi!en to all its e%ployees is dee%ed a co%pliance with Presidential 6ecree No. H+, and the latter/s i%ple%enting r"les@ and that the foregoing has been the practice and has been for%ally adopted in the pre!io"s C5A/s as early as ,-3:. 8n ,. March ,--: the Labor Arbiter rendered his decision dis%issing the co%plaint for lack of %erit. 8n appeal to the NL9C the assailed decision of the Labor Arbiter was re!ersed. 8n ;: April ,--- the Co"rt of Appeals pro%"lgated its 6ecision dis%issing the petition filed by PAL. It affir%ed the .H Jan"ary ,--H NL9C 9esol"tion. 0ence this Petition for 9e!iew on Certiorari filed "nder 9"le B+ of the 9"les of Co"rt as a%ended. Te (ec"rities and 7#change Co%%ission )(7C* had %andated the rehabilitation of PAL. 8n ,3 May ,--- the (7C appro!ed the =A%ended and 9estated 9ehabilitation Plan> of PAL and appointed a =per%anent rehabilitation recei!er for the latter.> To date PAL is still "ndergoing rehabilitation. Iss.e1<N the s"spension of clai%s pending rehabilitation proceedings is proper R.lingThe pertinent law concerning the s"spension of actions for clai%s against corporations is Presidential 6ecree No. -:.-A as a%ended. Partic"larly (ection +)d* pro!ides? (7CTI8N +. In addition to the reg"latory ad2"dicati!e f"nctions of the (ec"rities and 7#change Co%%ission o!er corporations partnerships and other for%s of associations registered with it as e#pressly granted "nder e#isting laws and decrees it shall ha!e original and e#cl"si!e 2"risdiction to hear and decide cases in!ol!ing? ### d* Petitions of corporations partnerships or associations to be declared in the state of s"spension of pay%ents in cases where the corporation partnership or association possesses property to co!er all its debts b"t foresees the i%possibility of %eeting the% when they respecti!ely fall d"e or in cases where the corporation partnership or association has no s"fficient assets to co!er its liabilities b"t is "nder the E%anage%ent of a rehabilitation recei!er orF %anage%ent co%%ittee created p"rs"ant to this 6ecree. Likewise (ection 4)c* to wit? (7CTI8N 4. In order to effecti!ely e#ercise s"ch 2"risdiction the Co%%ission shall possess the following?

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#### c* To appoint one or %ore recei!ers of the property real or personal which is the s"b2ect of the action pending before the Co%%ission in accordance with the pertinent pro!isions of the 9"les of Co"rt in s"ch other cases whene!er necessary in order to preser!e the rights of the parties-litigants and<or protect the interest of the in!esting p"blic and creditors? # # # Pro!ided finally That "pon appoint%ent of a %anage%ent co%%ittee the rehabilitation recei!er board or body p"rs"ant to this 6ecree all actions for clai:s against corporations partnerships or associations "nder %anage%ent or recei!ership pending before any co"rt trib"nal board or body shall be s"spended accordingly. )7%phasis s"pplied.* The ter% =clai% > as conte%plated in (ec. 4)c* of Presidential 6ecree No. -:.-A refers =to debts or de%ands of a pec"niary nat"re. It %eans Vthe assertion of a right to ha!e %oney paid./> In the case at bar in the e!ent that the present petition is fo"nd to be witho"t %erit PAL will be obliged to satisfy the pec"niary clai%s of PAL7A P the pay%ent of the ,; th Month Pay for the partic"lar year to all rank and file e%ployees whether or not reg"lari$ed by ;: April ,-HH. In P ilippine Airlines# -nc. v. National Labor =elations Commission the Co"rt r"led that? In 9"bberworld )Phils.* Inc. !. NL9C we held that worker/s clai%s before the NL9C and labor arbiters are incl"ded a%ong the actions s"spended "pon the placing "nder recei!ership of the e%ployercorporations. Altho"gh strictly speaking the r"ling in 9"bberworld dealt with actions for clai%s pending before the NL9C and labor arbiters we find that the rationale for the a"to%atic s"spension therein set o"t wo"ld apply to the instant case where the e%ployee/s clai% was ele!ated on certiorari before this Co"rt # # #. #### The Co"rt holds that rendition of 2"dg%ent while petitioner is "nder a state of recei!ership co"ld render !iolence to the rationale for s"spension of pay%ents in (ection 4 )c* of P.6. -:.-A if the 2"dg%ent wo"ld res"lt in the granting of pri!ate respondent/s clai% to separation pay th"s defeating the basic p"rpose behind (ection 4 )c* of P.6. -:.-A which is to pre!ent dissipation of the distressed co%pany/s reso"rces. )7%phasis s"pplied.* In another PAL case specifically P ilippine Airlines# -nc. v. Court of Appeals this Co"rt again resol!ed to grant PAL/s Motion for ("spension of Proceedings by reason of the (7C 8rders dated .; J"ne ,--H and , J"ly ,--H appointing an Interi% 9ehabilitation 9ecei!er and en2oining the s"spension of all clai%s for pay%ent against PAL respecti!ely. Therein it was declared that this Co"rt is =not prepared to depart fro% the wellestablished doctrines> essentially %aintaining that all actions for clai%s against a corporation pending before any co"rt trib"nal or board shall ipso jure be s"spended in whate!er stage s"ch actions %ay be fo"nd "pon the appoint%ent by the (7C of a %anage%ent co%%ittee or a rehabilitation recei!er. And %ost recently is the case of P ilippine Airlines v. Tamora we held in si%ple ter%s that? 8therwise stated no other action %ay be taken in incl"ding the rendition of 2"dg%ent d"ring the state of s"spension P what are a"to%atically stayed or s"spended are the proceedings of an action or s"it and not 2"st the pay%ent of clai%s d"ring the e#ec"tion stage after the case had beco%e final and e#ec"tory. )Citation o%itted* The s"spension of action for clai%s against a corporation "nder rehabilitation recei!er or %anage%ent co%%ittee e%braces all phases of the s"it be it before the trial co"rt or any trib"nal or before this Co"rt. A"rther%ore actions that are s"spended co!er all clai%s against a distressed corporation whether for da%ages fo"nded on a breach of contract of carriage labor cases collection s"its or any other clai%s of a pec"niary nat"re. In act"al fact allowing s"ch actions to proceed wo"ld only increase the work-load of the %anage%ent co%%ittee or the rehabilitation recei!er whose precio"s ti%e and effort wo"ld be dissipated and wasted in defending s"its against the corporation instead of being channeled toward restr"ct"ring and rehabilitation. All told this Co"rt is constrained to s"spend the progress de!elop%ent and other proceedings in the present petition. Co$doCa Vs# Re?es DaAa? LaA Offices &12) S *00+ ,acts-

(o%eti%e in ,-33 and ,-3H petitioner Jose C. Cordo!a bo"ght fro% Philippine Inderwriters Ainance Corporation )Philfinance* certificates of stock of Celebrity (ports Pla$a Incorporated )C(PI* and shares of stock of !ario"s other corporations. 0e was iss"ed a confir%ation of sale. The C(PI shares were physically deli!ered by Philfinance to the for%er Ail%anbank and Philtr"st 5ank as c"stodian banks to hold these shares in behalf of and for the benefit of petitioner. 8n J"ne ,H ,-H, Philfinance was placed "nder recei!ership by p"blic respondent (ec"rities and 7#change Co%%ission )(7C*. Thereafter pri!ate respondents 9eyes 6away Li% 5ernardo Lindo 9osales Law 8ffices and Atty. 1endell Coronel )pri!ate respondents* were appointed as liG"idators. (o%eti%e in ,--, witho"t the knowledge and consent of petitioner and witho"t a"thority fro% the (7C pri!ate respondents withdrew the C(PI shares fro% the c"stodian banks. 8n May .3 ,--4 they sold the shares to Northeast Corporation and incl"ded the proceeds thereof in the f"nds of Philfinance. Petitioner learned abo"t the "na"thori$ed sale of his shares only on (epte%ber ,: ,--4. 0e lodged a co%plaint with pri!ate respondents b"t the latter ignored it pro%pting hi% to file on May 4 ,--3 a for%al co%plaint against pri!ate respondents in the recei!ership proceedings with the (7C for the ret"rn of the shares. Meanwhile on April ,H ,--3 the (7C appro!ed a ,+N rate of reco!ery for Philfinance/s creditors and in!estors. 8n May ,; ,--3 the liG"idators began the process of settling the clai%s against Philfinance fro% its assets. 8n April ,B ,--H the (7C rendered 2"dg%ent dis%issing the petition. 0owe!er it reconsidered this decision in a resol"tion dated (epte%ber .B ,--- and granted the clai%s of petitioner. It held that petitioner was the owner of the C(PI shares by !irt"e of a confir%ation of sale )which was considered as a deed of assign%ent* iss"ed to hi% by Philfinance. 5"t since the shares had already been sold and the proceeds co%%ingled with the other assets of Philfinance petitioner/s stat"s was con!erted into that of an ordinary creditor for the !al"e of s"ch shares. Th"s it ordered pri!ate respondents to pay petitioner the a%o"nt of P+ :4. +:: representing ,+N of the %onetary !al"e of his C(PI shares pl"s interest at the legal rate fro% the ti%e of their "na"thori$ed sale. 8n 8ctober .3 ,--- the (7C iss"ed an order clarifying its (epte%ber .B ,--- resol"tion. 1hile it reiterated its earlier order to pay petitioner the a%o"nt of P+ :4. +:: it deleted the award of legal interest. It clarified that it ne!er %eant to award interest since this wo"ld be "nfair to the other clai%ants. 8n appeal the CA affir%ed the (7C. It agreed that petitioner was indeed the owner of the C(PI shares b"t the reco!ery of s"ch shares had beco%e i%possible. It also declared that the clarificatory order %erely har%oni$ed the dispositi!e portion with the body of the resol"tion. Petitioner/s %otion for reconsideration was denied. 0ence this petition. Iss.e1<N Cordo!a beco%es an ordinary creditor of Philfinance R.lingThere is no disp"te that petitioner was the owner of the C(PI shares. 0owe!er pri!ate respondents as liG"idators of Philfinance illegally withdrew said certificates of stock witho"t the knowledge and consent of petitioner and a"thority of the (7C. After selling the C(PI shares pri!ate respondents added the proceeds of the sale to the assets of Philfinance. Inder these circ"%stances did the petitioner beco%e a creditor of PhilfinanceL 1e r"le in the affir%ati!e. 0owe!er Petitioner is seeking the ret"rn of his C(PI shares which for the present is no longer possible considering that the sa%e had already been sold by the respondents the proceeds of which are A6MITT76LM co%%ingled with the assets of P0ILAINANC7. This being the case EpetitionerF is now b"t a clai%ant for the !al"e of those shares. As a clai%ant he shall be treated as an ordinary creditor in so far as the !al"e of those certificates is concerned. The ret"rn of petitioner/s C(PI shares is well-nigh i%possible if not already an "tter i%possibility inas%"ch as the certificates of stocks ha!e already been alienated or transferred in fa!or of Northeast Corporation as early as May .3 ,--4 in conseG"ence whereof the proceeds of the sale ha!e been trans%"ted into corporate assets of Philfinance "nder custodia legis ready for distrib"tion to its creditors and<or in!estors. Case law holds that the assets of an instit"tion "nder recei!ership or liG"idation shall be dee%ed in custodia legis in the hands of the recei!er or liG"idator and shall fro% the %o%ent of s"ch recei!ership or liG"idation be e#e%pt fro% any order garnish%ent le!y attach%ent or e#ec"tion. Conco%itantly petitioner/s filing of his clai% o!er the s"b2ect C(PI shares before the (7C in the liG"idation proceedings bo"nd hi% to the ter%s and conditions thereof. 0e cannot de%and any special treat%ent Efro%F the liG"idator for this flies in the face of and will contra!ene the ("pre%e Co"rt dict"% that when a corporation threatened by bankr"ptcy is taken o!er by a

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recei!er all the creditors shall stand on eG"al footing. Not one of the% sho"ld be gi!en preference by paying one or so%e EofF the% ahead of the others. This is precisely the philosophy "nderlying the s"spension of all pending clai%s against the corporation "nder recei!ership. The r"le of th"%b is eG"ality in eG"ity. Th"s petitioner had beco%e an ordinary creditor of Philfinance. Petitioner/s right of action against Philfinance was a =clai%> properly to be litigated in the liG"idation proceedings. 1e note that there is an "ndisp"ted finding by the (7C and CA that pri!ate respondents sold the s"b2ect shares witho"t a"thority fro% the (7C. Petitioner e!idently has a ca"se of action against pri!ate respondents for their bad faith and "na"thori$ed acts and the res"lting da%age ca"sed to hi%. Land4an5 Vs# Ascot >oldings &1*( S *9)+ ,acts(o%eti%e in March ,--. after the Philippine Airlines )PAL* was pri!ati$ed Land 5ank p"rchased fro% the National &o!ern%ent so%e 3+ ::: ::: PAL shares at P,B.;-.+ per share or for a total consideration of P, :3- B;3 BH+.:,. Meanwhile respondents together with the Philippine National 5ank )PN5* the 6e!elop%ent 5ank of the Philippines )65P* the AAP 9etire%ent and (eparation 5enefits (yste% )AAP-9(5(* all stockholders of PAL and se!eral other parties for%ed a consorti"% in order to p"rchase 43N of PAL/s capital stocks which were then being sold by p"blic bidding. Aor this p"rpose the aforesaid consorti"% organi$ed a holding co%pany P the P9 0oldings Inc. )P9 0oldings* - to hold the PAL shares of stock. As it were Land 5ank with the &o!ern%ent (er!ice Ins"rance (yste% )&(I(* and the National &o!ern%ent owned ;;N of the iss"ed and o"tstanding shares of stock of PAL while respondents and other stockholders of P9 0oldings owned the other 43N. 8n J"ly .; .::. instead of honoring the (tockholdersC Agree%ent respondents filed with the 9TC of Makati a co%plaint against Land 5ank PN5 65P &(I( AAP-9(5( and the 9ep"blic of the Philippines praying that they be released fro% the obligation to b"y the PAL shares of petitioner and other defendants therein at P+.:: per share as earlier agreed "pon "nder the (tockholdersC Agree%ent on gro"nd of alleged radical change in the conditions pre!ailing at the ti%e the said agree%ent was entered and the present. Land 5ank and the other defendants in Ci!il Case No. :.-HB; contended that the e!ents or circ"%stances cited by the respondents were not !alid gro"nds for the latter to be released fro% their obligation "nder the doctrine of rebus sic stantibus. The trial co"rt rendered 2"dg%ent in fa!or of the plaintiffs and against the defendants declaring plaintiffs released fro% the obligation to co%ply with defendantsC option to sell their shares in Philippine Airlines Inc. 8n J"ly B .::4 the trial co"rt denied Land 5ankCs %otion for reconsideration. Therefro% Land 5ank decided to go to the CA on a petition for re!iew. Aor the p"rpose it filed with the CA on J"ly .+ .::4 a %otion for e#tension of ti%e to file the intended petition for re!iew. Infort"nately the %otion was denied by the CA. 8n A"g"st ,4 .::4 petitioner Land 5ank filed a %otion for reconsideration of the abo!e resol"tion "rging that e!en tho"gh a %otion for reconsideration of the March ,+ .::4 =J"dg%ent> of the trial co"rt is not allowed "nder the Interi% 9"les of Proced"re &o!erning Intra-Corporate Contro!ersies "nder 9.A. No. H3-- nonetheless it i%plored the appellate co"rt to consider the filing thereof as s"fficient =in the interest of s"bstantial 2"stice > to s"spend the r"nning of the regle%entary period to appeal. Petitioner hastens to add that the March ,+ .::4 =J"dg%ent> and the J"ly B .::4 8rder of the trial co"rt had created a dangero"s precedent when said co"rt "pheld respondentsC contention that the occ"rrence of the Afleet e'pansion and re? equiptment of PAL# pilot stri%e# Asian economic do&nturn# t e devaluation of t e peso and t e purported reduced demand for air travel: ha!e absol!ed the% fro% their obligation to co%ply with the (tockholders/ Agree%ent. 1ith its %otion for reconsideration ha!ing been denied by the CA in its eG"ally challenged resol"tion of (epte%ber ,, .::4 petitioner is now with this Co"rt via the present reco"rse "rging the Co"rt to co%pel the CA to appro!e its %otion for e#tension of ti%e to file petition for re!iew and "lti%ately to gi!e d"e co"rse to its intended petition for re!iew. R.lingIt is beyond G"ibbling that the assailed =J"dg%ent> in Ci!il Case No. :.-HB; was iss"ed by the 9TC in the e#ercise of its special 2"risdiction o!er intra-

corporate contro!ersies "nder 9.A. No. H3--. Ci!il Case No. :.-HB; was therefore go!erned by the Interi% 9"les of Corporate 9ehabilitation and the Interi% 9"les of Proced"re &o!erning Intra-Corporate Contro!ersies "nder 9.A. No. H3-- as well as A.M. No. :B---:3-(C of this Co"rt prescribing the %ode of appeal fro% decisions of the 9TC in intra-corporate contro!ersies. Inder (ection H);* 9"le , of the Interi% 9"les of Proced"re &o!erning IntraCorporate Contro!ersies Inder 9.A. No. H3-- motion for ne& trial# or for reconsideration of judgment or order# or for re?opening of trial are pro ibited pleadings in said cases. 0ence the filing by petitioner of a %otion for reconsideration before the trial co"rt did not toll the regle%entary period to appeal the 2"dg%ent via a petition for re!iew "nder 9"le B; of the ,--3 9"les of Ci!il Proced"re as a%ended. As a conseG"ence the CA has no %ore 2"risdiction to entertain the petition for re!iew which Land 5ank intended to file before it %"ch less to grant the %otion for e#tension of ti%e for the filing thereof. The prohibited %otion for reconsideration filed by the petitioner with the trial co"rt did not s"spend the period to appeal the 9TC/s =J"dg%ent> of March ,+ .::4. ConseG"ently that =J"dg%ent> beca%e final and e#ec"tory ,+-days thereafter. 1hen petitioner filed a %otion for e#tension to file a petition for re!iew in the CA on J"ly .+ .::4 or one h"ndred twenty fo"r ),.B* days after it recei!ed the 9TC =J"dg%ent > there was no %ore period to e#tend. &i!en these "ndeniable facts the CA cannot be fa"lted for denying petitioner/s %otion for e#tension. There is no ab"se %"ch less gra!e ab"se of discretion to speak of. Petitioner insists howe!er that the CA co%%itted gra!e ab"se of discretion in denying its %otion for e#tension beca"se the prohibited pleading it filed in the trial co"rt was still s"fficient to s"spend the r"nning of the regle%entary period to appeal Ain t e interest of substantial justice.: Infort"nately there is a scarcity of law or 2"rispr"dence to s"pport petitioner/s no!el theory. It is ob!io"s that a prohibited pleading cannot toll the r"nning of the period to appeal since s"ch pleading cannot be gi!en any legal effect precisely beca"se of its being prohibited. Proced"ral r"les setting the period for perfecting an appeal or filing an appellate petition are generally in!iolable. It is doctrinally entrenched that appeal is not a constit"tional right b"t a %ere stat"tory pri!ilege. 0ence parties who seek to a!ail of the pri!ilege %"st co%ply with the stat"tes or r"les allowing it. The reG"ire%ents for perfecting an appeal within the regla%entary period specified in the law %"st as a r"le be strictly followed. ("ch reG"ire%ents are considered indispensable interdictions against needless delays and are necessary for the orderly discharge of the 2"dicial b"siness. Aor s"re the perfection of an appeal in the %anner and within the period set by law is not only %andatory b"t 2"risdictional as well. Aail"re to perfect an appeal renders the 2"dg%ent appealed fro% final and e#ec"tory. 1e %"st stress that the bare in!ocation of =the interest of s"bstantial 2"stice> is not a %agic wand that will a"to%atically co%pel this Co"rt to s"spend proced"ral r"les. Proced"ral r"les are not to be belittled or dis%issed si%ply beca"se their non-obser!ance %ay ha!e res"lted in pre2"dice to a partyCs s"bstanti!e rights. Like all r"les they are reG"ired to be followed e#cept only for the %ost pers"asi!e of reasons when they %ay be rela#ed to relie!e a litigant of an in2"stice not co%%ens"rate with the degree of his tho"ghtlessness in not co%plying with the proced"re prescribed. The Co"rt reiterates that r"les of proced"re especially those prescribing the ti%e within which certain acts %"st be done ha!e oft been held as absol"tely indispensable to the pre!ention of needless delays and to the orderly and speedy discharge of b"siness. Indeed in no "ncertain ter%s the Co"rt held that the said r"les %ay be rela#ed only in =e#ceptionally %eritorio"s cases.> This case is not one of those. Petitioner/s clai% that it s"pposedly stands to lose its s"bstantial in!est%ent in shares of stock a%o"nting to P, :3- B;3 BH+.4, 2"st beca"se it filed a %otion for reconsideration is "nfo"nded. As we see it the so-called loss of substantial investment that petitioner co%plains abo"t is %ore i%aginary than real. As it is petitioner/s shares in PAL ha!e not been taken away fro% it@ neither has petitioner been depri!ed of any of its proprietary rights vis?N?vis the said shares of stock. Petitioner contin"es to hold and own the shares in its na%e. 9espondents who own the %a2ority of the shares in PAL ha!e all the %ore reason to keep the co%pany afloat and thri!ing since they ha!e %ore to lose. Any benefit that respondents %ay deri!e fro% the contin"ed profitable operations of PAL will likewise benefit petitioner. The Co"rt %ay deign to !eer away fro% the general r"le only if in its assess%ent the appeal on its face appears absol"tely %eritorio"s. Indeed the Co"rt has in a n"%ber of instances rela#ed proced"ral r"les in order to ser!e and achie!e s"bstantial 2"stice. In the circ"%stances obtaining in this case howe!er the occasion does not warrant the desired rela#ation. PAL Vs# >ei$s of Za:o$a &1*7 S '1)+ ,actsXa%ora was a cargo representati!e assigned at the International Cargo 8perations - I%port 8perations 6i!ision )IC8-I86* of petitioner Philippine Airlines Inc.

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8n March ,. ,--4 Xa%ora filed an action for illegal dis%issal "nfair labor practice non-pay%ent of wages and da%ages. 8n (epte%ber .H ,--H the Labor Arbiter dis%issed the co%plaint for lack of %erit. 8n J"ly .4 ,--- the NL9C re!ersed the Labor Arbiter/s decision and declared Xa%ora/s transfer illegal. It r"led that there was no !alid and legal reason for the transfer other than Xa%ora/s report of the s%"ggling and pilferage acti!ities. 8n appeal the Co"rt of Appeals affir%ed the decision of the NL9C. 0ence this instant petition. Iss.e1<N the Co"rt of Appeals erred in ordering respondent to present his %onetary clai% to petitioner/s rehabilitation recei!er R.lingIn resol!ing the petition the Co"rt noted that petitioner had been placed by the (ec"rities and 7#change Co%%ission )(7C* "nder a Per%anent 9ehabilitation 9ecei!er. ("ch being the case a s"spension of all actions for clai%s against petitioner pending before any co"rt trib"nal or board was ipso jure in order. The Co"rt likewise took note of the fact that s"ch s"spension of actions was obser!ed in so%e other cases against petitioner. 1e shall defer to these deter%inations. To reiterate the s"spension of all actions for clai%s against a corporation e%braces all phases of the s"it be it before the trial co"rt or any trib"nal or before this Co"rt. No other action %ay be taken incl"ding the rendition of 2"dg%ent d"ring the state of s"spension. It %"st be stressed that what are a"to%atically stayed or s"spended are the proceedings of a s"it and not 2"st the pay%ent of clai%s d"ring the e#ec"tion stage after the case had beco%e final and e#ec"tory. 8nce the process of rehabilitation howe!er is co%pleted this Co"rt will proceed to co%plete the proceedings on the s"spended actions. A"rther%ore the actions which were s"spended co!er all clai%s against the corporation whether for da%ages fo"nded on a breach of contract of carriage labor cases collection s"its or any other clai%s of a pec"niary nat"re. No e#ception in fa!or of labor clai%s is %entioned in the law. More i%portantly as the instant case in!ol!es essentially the sa%e facts parties and iss"es as &.9. No. ,44--4 entitled P ilippine Airlines# -nc.# et al. v. Bernardin G. Tamora we find it "nnecessary to %ake f"rther prono"nce%ents which %ight otherwise conflict with the disposition %ade by the Co"rt/s Third 6i!ision therein. Ga$cia Vs# PAL &1* S 1('+ ,acts-

9espondent also has liabilities to the 0ero 0oldings Inc. and its trade s"ppliers and other parties in the s"% of P,.B34 billion as of 6ece%ber ;, .::,. 8n Aebr"ary + .::. the trial co"rt iss"ed a (tay 8rder. In the sa%e (tay 8rder the trial co"rt appointed Marilo" Adea also a respondent as 9ehabilitation 9ecei!er. 8n J"ly .H .::; the trial co"rt iss"ed an 8rder appro!ing the 9ehabilitation Plan. The trial co"rt iss"ed an 8rder denying the Motion for 7#tension of Ti%e to Aile 9ecord on Appeal filed by Leca 9ealty on the gro"nd that "nder 9"le ; (ection , of the -nterim =ules of Procedure on Corporate =e abilitation a %otion for e#tension is a prohibited pleading. Iss.e,. 1<N the trial co"rt erred in r"ling that a %otion for e#tension of ti%e to file record on appeal is a prohibited pleading "nder (ection , of the Interi% 9"les of Proced"re on Corporate 9ehabilitation .. 1<N Man"ela/s 9ehabilitation Plan !iolates petitioner/s constit"tional right to non-i%pair%ent of contract and the Interi% 9"les of Proced"re on Corporate 9ehabilitation R.ling,. (ection ,. Nature of Proceedings. P Any proceeding initiated "nder these 9"les shall be considered in rem. J"risdiction o!er all those affected by the proceedings shall be considered as acG"ired "pon p"blication of the notice of the co%%ence%ent of the proceedings in any newspaper of general circ"lation in the Philippines in the %anner prescribed by these 9"les. The proceedings shall also be s"%%ary and non-ad!ersarial in nat"re. The following pleadings are prohibited? a* Motion to 6is%iss@ b* Motion for 5ill of Partic"lars@ c* Motion for New Trial or Aor 9econsideration@ d* Petition for 9elief@ e* Motion for 7#tension@ f* Me%orand"%@ g* Motion for Postpone%ent@ h* 9eply or 9e2oinder@ i* Third Party Co%plaint@ 2* Inter!ention@ ### ### ### The prohibited pleadings en"%erated abo!e are those filed in the rehabilitation proceedings. 8nce the trial co"rt decides the case and the aggrie!ed party appeals the proced"re to be followed is that prescribed by the 9"les of Co"rt as %andated by (ection + 9"le ; of the sa%e Interi% 9"les th"s? The re!iew of any order or decision of the co"rt or on appeal therefro% shall be in accordance with the 9"les of Co"rt. In this connection (ection ,, 9"le ,, of the 9"les of Co"rt )now the ,--3 9"les of Ci!il Proced"re as a%ended* states?

(ince petitioners/ clai% against PAL is a %oney clai% for their wages d"ring the pendency of PAL/s appeal to the NL9C the sa%e sho"ld ha!e been s"spended pending the rehabilitation proceedings. The Labor Arbiter the NL9C as well as the Co"rt of Appeals sho"ld ha!e abstained fro% resol!ing petitioners/ case for illegal dis%issal and sho"ld instead ha!e directed the% to lodge their clai% before PAL/s recei!er. 0owe!er to still reG"ire petitioners at this ti%e to re-file their labor clai% against PAL "nder the pec"liar circ"%stances of the case P that their dis%issal was e!ent"ally held !alid with only the %atter of reinstate%ent pending appeal being the iss"e P this Co"rt dee%s it legally e#pedient to s"spend the proceedings in this case. Leca Realt? Vs# 2an.ela &1*' S 9(+ ,acts8n Jan"ary ;, .::. Man"ela filed a Petition for 9ehabilitation. The petition alleges inter alia that respondent is a corporation pri%arily engaged in the b"siness of leasing to retailers co%%ercial spaces in shopping %alls. 9espondent is the owner and operator of the following %alls strategically located in Metro Manila. 9espondent has assets !al"ed at P,..B; billion and total liabilities of PB.H3 billion as of 6ece%ber ;, .::,. In order to finance the costs of b"ilding the Metropolis (tar and the Pacific Mall respondent obtained se!eral loans fro% two syndicates of lenders. 9espondent/s total o"tstanding loan fro% the syndicates )e.g. principal pl"s interest* is P..,3B billion as of 6ece%ber ;, .::,. These loans are sec"red by a %ortgage o!er M (tar 8ne and M (tar both located in Las PiSas City.

6'tension of time to plead . P Ipon %otion and on s"ch ter%s as %ay be 2"st the co"rt %ay e#tend the ti%e to plead pro!ided in these 9"les. The co"rt %ay also "pon like ter%s allow an answer or other pleading to be filed after the ti%e fi#ed by these 9"les. 'erily the trial co"rt erred in denying petitioner/s %otion for e#tension of ti%e to file record on appeal. 2# Petitioner contends that the appro!ed 9ehabilitation Plan drastically altered the ter%s of its lease contract with respondent Man"ela hence sho"ld be declared !oid. There is a gross discrepancy between the a%o"nts of rent agreed "pon by the parties and those pro!ided in the 9ehabilitation Plan. In The Ins"lar Life Ass"rance Co%pany Ltd. !. Co"rt of Appeals et al. we held? 1hen the lang"age of the contract is e#plicit lea!ing no do"bt as to the intention of the drafters thereof the co"rts %ay not read into it any other intention that wo"ld contradict its plain i%port. The Co"rt wo"ld be rewriting the contract of lease between Ins"lar and ("n 5rothers "nder the g"ise of constr"ction were we to interpret the Voption to renew/ cla"se as ("n 5rothers propo"nds it despite the

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e#press pro!ision in the original contract of lease and the contracting parties/ s"bseG"ent acts. As the Co"rt has held in 9i!iera Ailipina Inc. !s. Co"rt of Appeals Va co"rt e!en the ("pre%e Co"rt has no right to %ake new contracts for the parties or ignore those already %ade by the% si%ply to a!oid see%ing hardships. Neither abstract 2"stice nor the r"le of liberal constr"ction 2"stifies the creation of a contract for the parties which they did not %ake the%sel!es nor the i%position "pon one party to a contract of an obligation not ass"%ed./ The a%o"nt of rental is an essential condition of any lease contract. Needless to state the change of its rate in the 9ehabilitation Plan is not 2"stified as it i%pairs the stip"lation between the parties. 1e th"s r"le that the 9ehabilitation Plan is !oid insofar as it a%ends the rental rates agreed "pon by the parties. It %"st be e%phasi$ed that there is nothing in (ection + )c* of P.6. No. -:.-A a"thori$ing the change or %odification of contracts entered into by the distressed corporation and its creditors. Moreo!er the (tay 8rder iss"ed by the trial co"rt directed respondent Man"ela to pay in f"ll after the iss"ance of s"ch 8rder all ad%inistrati!e e#penses inc"rred. Ad%inistrati!e e#penses are costs associated with the general ad%inistration of an organi$ation and incl"de s"ch ite%s as "tilities $ents salaries postages f"rnit"re and ho"sekeeping charges. Inas%"ch as rents are considered ad%inistrati!e e#penses and considering that the (tay 8rder directed respondent Man"ela to pay the rents in f"ll then it %"st co%ply at the rates agreed "pon. 9espondent Man"ela therefore %"st "pdate its pay%ent of rental arrears and contin"e to pay c"rrent rentals at the rate stip"lated in the lease contract. Ling5od ng 2anggagaAa Vs# R.44e$Ao$ld &1 * S 207+ ,actsPetitioner Ling%od Manggaga&a sa =ubber&orld Adidas?Anglo is a legiti%ate labor "nion whose %e%bers were e%ployees of the principal respondent 9"bberworld Philippines Inc.)9"bberworld for short* a do%estic corporation engaged in the %an"fact"re of footwear bags and gar%ents. 8n A"g"st .4 ,--B 9"bberworld filed with the 6epart%ent of Labor and 7%ploy%ent )68L7* a Notice of ,emporar$ Partial S utdo&n d"e to se!ere financial crisis therein anno"ncing the for%al act"al co%pany sh"tdown to take effect on (epte%ber .4 ,--B. A copy of said notice was ser!ed on the $ecogni8ed labor "nion of 9"bberworld the Bisig Pag%a%aisa?NA2L8 the "nion with which the corporation had a collecti!e bargaining agree%ent. 8n (epte%ber , ,--B Bisig Pag%a%aisa?NA2L8 staged a strike. It set "p a picket line in front of the pre%ises of 9"bberworld and e!en welded its gate. As a res"lt 9"bberworldCs pre%ises closed pre%at"rely e!en before the date set for the start of its te%porary partial sh"tdown. 8n (epte%ber - ,--B herein petitioner "nion the Ling%od Manggaga&a Sa =ubber&orld# Adidas?Anglo )Lingkod for bre!ity* represented by its President (onia 7speran$a filed a co%plaint against 9"bberworld and its 'ice Chairperson Mr. Antonio Mang for "nfair labor practice )ILP* illegal sh"tdown and non-pay%ent of salaries and separation pay. 8n No!e%ber .. ,--B while the afore%entioned co%plaint was pending with Labor Arbiter 6inopol 9"bberworld filed with the (7C a Petition for ;eclaration of a State of Suspension of Pa$ments &it Proposed =e abilitation Plan which was granted by the (7C. Notwithstanding the (7CCs afore%entioned s"spension order and despite 9"bberworldCs s"b%ission on Jan"ary ,: ,--+ of a Motion to Suspend Proceedings Labor Arbiter 6inopol went ahead with the ILP case and rendered his decision. 8n (epte%ber ., ,--+ 9"bberworld went on appeal to the NL9C posting therefor a te%porary appeal bond in the a%o"nt of P+:: :::.:: as tentati!ely fi#ed by the Labor Arbiter. Its %otion for reconsideration of the sa%e 8rder ha!ing been denied by the NL9C in its 9esol"tion of March .- ,--4 9"bberworld directly went to this Co"rt on a Petition for Certiorari interposing the sole iss"e of whether or not the NL9C acted witho"t or in e#cess of 2"risdiction or with gra!e ab"se of discretion a%o"nting to lack or e#cess of 2"risdiction in reG"iring the corporation to post the "pgraded appeal bond of P.3 +:4 .++.3: based on the co%p"tation of Mr. Atien$a. Meanwhile on acco"nt of 9"bberworld/s fail"re to "pgrade or co%plete its appeal bond as indicated in the NL9C/s Jan"ary .. ,--4 8rder the Co%%ission in a decision dated J"ne .H ,--4 did dis%iss 9"bberworld/s appeal.

7!ent"ally in the herein assailed 6ecision dated Jan"ary ,H .::. the CA granted 9"bberworld/s petition in CAU/.=. SP. No. D++DV on the finding that the Labor Arbiter had indeed co%%itted gra!e ab"se of discretion when it proceeded with the ILP case despite the (7C/s s"spension order of 6ece%ber .H ,--B and accordingly declared the proceedings before it incl"ding the s"bseG"ent orders by the NL9C dis%issing 9"bberworld/s appeal and the writ of e#ec"tion n"ll and !oid. Iss.e1<N the CA is correct in ann"lling the decision of the NL9C R.ling1hile posting an appeal bond is indeed a reG"ire%ent for the perfection of an appeal fro% the decision of the Labor Arbiter to the NL9C 9"bberworld/s fail"re to "pgrade its appeal bond cannot bar in this partic"lar instance the re!iew by the CA of the lower co"rt proceedings. &i!en the fact"al %ilie" obtaining in this case it cannot be said that the decision of the Labor Arbiter or the decision<dis%issal order and writ of e#ec"tion iss"ed by the NL9C co"ld e!er attain final and e#ec"tory stat"s. The Labor Arbiter co%pletely disregarded and !iolated (ection 4)c* of Presidential 6ecree -:.-A as a%ended which categorically %andates the s"spension of all actions for clai%s against a corporation placed "nder a %anage%ent co%%ittee by the (7C. Th"s the proceedings before the Labor Arbiter and the order and writ s"bseG"ently iss"ed by the NL9C are all n"ll and !oid for ha!ing been "ndertaken or iss"ed in !iolation of the (7C s"spension 8rder dated 6ece%ber .H ,--B. As s"ch the Labor Arbiter/s decision incl"ding the dis%issal by the NL9C of 9"bberworl/s appeal co"ld not ha!e achie!ed a final and e#ec"tory stat"s. Acts e#ec"ted against the pro!isions of %andatory or prohibitory laws shall be !oid e#cept when the law itself a"thori$es their !alidity. The Labor ArbiterCs decision in this case is !oid ab initio# and therefore non-e#istent. A !oid 2"dg%ent is in effect no 2"dg%ent at all. No rights are di!ested by it nor obtained fro% it. 5eing worthless in itself all proceedings "pon which the 2"dg%ent is fo"nded are eG"ally worthless. It neither binds nor bars anyone. All acts perfor%ed "nder it and all clai%s flowing o"t of it are !oid. In other words a !oid 2"dg%ent is regarded as a n"llity and the sit"ation is the sa%e as it wo"ld be if there were no 2"dg%ent. It accordingly lea!es the partylitigants in the sa%e position they were in before the trial. In fact it is i%%aterial whether an appeal fro% the Labor ArbiterCs decision was perfected or not since a 2"dg%ent !oid ab initio is non-e#istent and cannot acG"ire finality. The 2"dg%ent is !"lnerable to attack e!en when no appeal has been taken. 0ence s"ch 2"dg%ent does not beco%e final in the sense of depri!ing a party of his right to G"estion its !alidity. 0ence no gra!e ab"se of discretion attended the CACs taking cogni$ance of the petition in CA? /.=. SP No. D++DV. 5esides the Labor Arbiter by si%"ltaneo"sly r"ling in his decision of A"g"st ,4 ,--+ on both the %erits of the ILP case and the %otion of 9"bberworld to s"spend the proceedings thereon effecti!ely reG"ired the respondent corporation to post a s"rety bond before the sa%e respondent co"ld ha!e G"estioned the arbiter/s action in not s"spending the proceedings before hi%. NeA ,$ontie$ Vs# RTC &1 * S )0 + ,actsNew Arontier ("gar Corporation )petitioner* is a do%estic corporation engaged in the b"siness of raw s"gar %illing. Aoreseeing that it cannot %eet its obligations with its creditors as they fell d"e petitioner filed a Petition for the 6eclaration of (tate of ("spension of Pay%ents with Appro!al of Proposed 9ehabilitation Plan "nder the Interi% 9"les of Proced"re on Corporate 9ehabilitation ).:::* so%e ti%e in A"g"st .::.. Ainding the petition to be s"fficient in for% and s"bstance the 9TC iss"ed a (tay 8rder dated A"g"st .: .::. appointing Man"el 5. Cle%ente as rehabilitation recei!er ordering the latter to p"t "p a bond and setting the initial hearing on the petition. 8ne of petitioner/s creditors the 7G"itable PCI 5ank )respondent bank* filed a Co%%ent<8pposition with Motion to 7#cl"de Property alleging that petitioner is not G"alified for corporate rehabilitation as it can no longer operate beca"se it has no assets left. 9espondent bank also alleged that the financial state%ents sched"le of debts and liabilities in!entory of assets affida!it of general financial condition and rehabilitation plan s"b%itted by petitioner are %isleading and inacc"rate since its properties ha!e already been foreclosed and transferred to respondent bank before the petition for rehabilitation was filed and petitioner in fact still owes respondent bank deficiency liability. 8n Jan"ary ,; .::; the 9TC iss"ed an 8%nib"s 8rder ter%inating the proceedings and dis%issing the case. Petitioner filed an 8%nib"s Motion b"t this was denied by the 9TC in its 8rder dated April ,B .::;. Petitioner then filed with the CA a special ci!il action for certiorari which was denied by the CA.

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In dis%issing the petition the CA s"stained the findings of the 9TC that since petitioner no longer has s"fficient assets and properties to contin"e with its operations and answer its corresponding liabilities it is no longer eligible for rehabilitation. Iss.e1<N Petitioner has no s"bstantial property left to %ake corporate rehabilitation feasible R.ling-

that the properties which were foreclosed by respondent bank co%prise the b"lk if not the entirety of its assets. It sho"ld be stressed that the Interi% 9"les was enacted to pro!ide for a s"%%ary and non-ad!ersarial rehabilitation proceedings. This is in consonance with the co%%ercial nat"re of a rehabilitation case which is ai%ed to be resol!ed e#peditio"sly for the benefit of all the parties concerned and the econo%y in general. As pro!ided in the Interi% 9"les the basic proced"re is as follows? ),* The petition is filed with the appropriate 9egional Trial Co"rt@

9ehabilitation conte%plates a contin"ance of corporate life and acti!ities in an effort to restore and reinstate the corporation to its for%er position of s"ccessf"l operation and sol!ency. Presently the applicable law on rehabilitation petitions filed by corporations partnerships or associations incl"ding rehabilitation cases transferred fro% the (ec"rities and 7#change Co%%ission to the 9TCs p"rs"ant to 9ep"blic Act No. H3-- or the (ec"rities 9eg"lation Code is the Interi% 9"les of Proced"re on Corporate 9ehabilitation ).:::*. Inder the Interi% 9"les the 9TC within fi!e )+* days fro% the filing of the petition for rehabilitation and after finding that the petition is s"fficient in for% and s"bstance shall iss"e a (tay 8rder appointing a 9ehabilitation 9ecei!er s.s%ending enfo$ce:ent of all claims prohibiting transfers or enc"%brances of the debtor/s properties prohibiting pay%ent of o"tstanding liabilities and prohibiting the withholding of s"pply of goods and ser!ices fro% the debtor. Any transfer of property or any other con!eyance sale pay%ent or agree%ent %ade in !iolation of the (tay 8rder or in !iolation of the 9"les %ay be declared !oid by the co"rt "pon %otion or motu proprio. A"rther the (tay 8rder is effecti!e both against sec"re and "nsec"red creditors. This is in har%ony with the principle of "eG"ality is eG"ity" first en"nciated in AlemarIs Sibal K Sons# -nc. v. 6lbinias th"s? 6"ring rehabilitation recei!ership the assets are held in tr"st for the eG"al benefit of all creditors to precl"de one fro% obtaining an ad!antage or preference o!er another by the e#pediency of an attach%ent e#ec"tion or otherwise. Aor what wo"ld pre!ent an alert creditor "pon learning of the recei!ership fro% r"shing posthaste to the co"rts to sec"re 2"dg%ents for the satisfaction of its clai%s to the pre2"dice of the less alert creditors. As 4etAeen c$edito$sF t"e 5e? %"$ase is Ie3.alit? is e3.it?#I 1hen a corporation threatened by bankr"ptcy is taken o!er by a recei!er all the creditors sho"ld stand on an eG"al footing. Not anyone of the% sho"ld be gi!en any preference by paying one or so%e of the% ahead of the others. This is precisely the reason for the s"spension of all pending clai%s against the corporation "nder recei!ership. Instead of creditors !e#ing the co"rts with s"its against the distressed fir% they are directed to file their clai%s with the recei!er who is a d"ly appointed officer of the (7C. )7%phasis s"pplied* Ne!ertheless the s"spension of the enforce%ent of all clai%s against the corporation is s"b2ect to the r"le that it s"all co::ence onl? f$o: t"e ti:e t"e Re"a4ilitation ReceiCe$ is a%%ointed . Th"s in =i>al Commercial Ban%ing Corporation v. -ntermediate Appellate Court the Co"rt "pheld the right of 9C5C to e#tra2"dicially foreclose the %ortgage on so%e of 5A 0o%es/ properties and reinstated the trial co"rt/s 2"dg%ent ordering the sheriff to e#ec"te and deli!er to 9C5C the certificate of a"ction sale in!ol!ing the properties. The Co"rt !acated its pre!io"s 6ecision rendered on (epte%ber ,B ,--. in the sa%e case finding that 9C5C can rightf"lly %o!e for the e#tra2"dicial foreclos"re of the %ortgage since it was done on 8ctober ,4 ,-HB while the %anage%ent co%%ittee was appointed only on March ,H ,-H+. The Co"rt also took note of the (7C/s denial of the petitioner/s consolidated %otion to cite the sheriff and 9C5C for conte%pt and to ann"l the a"ction proceedings and sale. In this case respondent bank instit"ted the foreclos"re proceedings against petitioner/s properties on March ,; .::. and a Certificate of (ale at P"blic A"ction was iss"ed on May 4 .::. with respondent bank as the highest bidder. The %ortgage on petitioner/s chattels was likewise foreclosed and the Certificate of (ale was iss"ed on May ,B .::.. It also appears that titles o!er the properties ha!e already been transferred to respondent bank. 8n the other hand the petition for corporate rehabilitation was filed only on A"g"st ,B .::. and the 9ehabilitation 9ecei!er appointed on A"g"st .: .::.. 9espondent bank therefore acted within its prerogati!es when it foreclosed and bo"ght the property and had title transferred to it since it was %ade prior to the appoint%ent of a rehabilitation recei!er. The fact that there is a pending case for the ann"l%ent of the foreclos"re proceedings and a"ction sales is of no %o%ent. Intil a co"rt of co%petent 2"risdiction ann"ls the foreclos"re sale of the properties in!ol!ed petitioner is bereft of a !alid title o!er the properties. In fact it is the trial co"rt/s %inisterial d"ty to grant a possessory writ o!er the properties. ConseG"ently the CA was correct in "pholding the 9TC/s dis%issal of the petition for rehabilitation in !iew of the fact that the titles to petitioner/s properties ha!e already passed on to respondent bank and petitioner has no %ore assets to speak of specially since petitioner does not disp"te the fact

).* If the petition is fo"nd to be s"fficient in for% and s"bstance the trial co"rt shall iss"e a (tay 8rder which shall pro!ide a%ong others for the appoint%ent of a 9ehabilitation 9ecei!er@ the fi#ing of the initial hearing on the petition@ a directi!e to the petitioner to p"blish the 8rder in a newspaper of general circ"lation in the Philippines once a week for two ).* consec"ti!e weeks@ and a directi!e to all creditors and all interested parties )incl"ding the (ec"rities and 7#change Co%%ission* to file and ser!e on the debtor a !erified co%%ent on or opposition to the petition with s"pporting affida!its and doc"%ents. ;* P"blication of the (tay 8rder@ B* Initial hearing on any %atter relating to the petition or on any co%%ent and<or opposition filed in connection therewith. If t"e t$ial co.$t is satisfied t"at t"e$e is :e$it in t"e %etitionF it s"all giCe d.e co.$se to t"e %etition @ +* 9eferral for e!al"ation of the rehabilitation plan to the rehabilitation recei!er who shall s"b%it his reco%%endations to the co"rt@ 4* Modifications or re!isions of the rehabilitation plan as necessary@ 3* ("b%ission of final rehabilitation plan to the trial co"rt for appro!al@ H* Appro!al<disappro!al of rehabilitation plan by the trial co"rt@ In the present case the petition for rehabilitation did not r"n its f"ll co"rse b"t was dis%issed by the 9TC after d"e consideration of the pleadings filed before it. 8n this score the 9TC cannot be fa"lted for its s"%%ary dis%issal as it is tanta%o"nt to a finding that there is no %erit to the petition. This is in accord with the trial co"rt/s a"thority to gi!e d"e co"rse to the petition or not "nder 9"le B (ection - of the Interi% 9"les. Letting the petition go thro"gh the process only to be dis%issed later on beca"se there are no assets to be conser!ed will not only defeat the reason for the r"les b"t will also be a waste of the trial co"rt/s ti%e and reso"rces. The CA also correctly r"led that petitioner a!ailed of the wrong re%edy when it filed a special ci!il action for certiorari with the CA "nder 9"le 4+ of the 9"les of Co"rt. The 8%nib"s 8rder dated Jan"ary ,; .::; iss"ed by the 9TC is a final order since it ter%inated the proceedings and dis%issed the case before the trial co"rt@ it lea!es nothing %ore to be done. As s"ch petitioner/s reco"rse is to file an appeal fro% the 8%nib"s 8rder. In this regard A.M. No. ::-H-,:-(C pro%"lgated by the Co"rt on (epte%ber B .::, pro!ides that a petition for rehabilitation is considered a special proceeding gi!en that it seeks to establish the stat"s of a party or a partic"lar fact. Accordingly the period of appeal pro!ided in paragraph ,- )b* of the Interi% 9"les 9elati!e to the I%ple%entation of Batas Pambansa Blg. ,.- for special proceedings shall apply. Inder said paragraph ,- )b* the period of appeal shall be thirty );:* days a record of appeal being reG"ired. 0owe!er it sho"ld be noted that the Co"rt iss"ed A.M. No. :B---:3-(C on (epte%ber ,B .::B clarifying the proper %ode of appeal in cases in!ol!ing corporate rehabilitation and intra-corporate contro!ersies. It is pro!ided therein that all decisions and final orders in cases falling "nder the Interi% 9"les of Corporate 9ehabilitation and the Interi% 9"les of Proced"re &o!erning Intra-Corporate Contro!ersies "nder 9ep"blic Act No. H3-- shall be appealed to the CA thro"gh a petition for re!iew "nder 9"le B; of the 9"les of Co"rt to be filed within fifteen ),+* days fro% notice of the decision or final order of the 9TC. In any e!ent as pre!io"sly stated since what petitioner filed was a petition for certiorari "nder 9"le 4+ of the 9"les the CA rightly dis%issed the petition and affir%ed the assailed 8rders. PAL Vs# H.$ang5ing &*79 S 177+ ,actsIn April ,--3 respondents all M"sli% Ailipinos ret"rned to Manila fro% their pilgri%age to the 0oly City of Mecca (a"di Arabia on board a Philippines Airlines )PAL* flight. 9espondents clai%ed that they were "nable to retrie!e their checked-in l"ggages. 8n :+ Jan"ary ,--H respondents filed a co%plaint with the 9egional Trial Co"rt )9TC* of Marawi City against PAL for breach of contract res"lting in da%ages d"e to negligence in the c"stody of the %issing l"ggages.

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8n :. March ,--H PAL filed its answer in!oking a%ong its defenses the li%itations "nder the 1arsaw Con!ention. 8n ,- J"ne ,--H before the case co"ld be heard on pre-trial PAL clai%ing to ha!e s"ffered serio"s b"siness losses d"e to the Asian econo%ic crisis followed by a %assi!e strike by its e%ployees filed a petition for the appro!al of a rehabilitation plan and the appoint%ent of a rehabilitation recei!er before the (ec"rities and 7#change Co%%ission )(7C*. 8n .; J"ne ,--H the (7C iss"ed an order granting the prayer for an appoint%ent of a rehabilitation recei!er and it constit"ted a three-%an panel to o!ersee PAL/s rehabilitation. 8n .+ (epte%ber ,--H the (7C created a %anage%ent co%%ittee confor%ably with (ection 4)d* of Presidential 6ecree )=P.6.>* -:. as a%ended declaring the s"spension of all actions for %oney clai%s against PAL pending before any co"rt trib"nal board or body. There"pon PAL %o!ed for the s"spension of the proceedings before the Marawi City 9TC. 8n ,, Jan"ary ,--- the trial co"rt iss"ed an order denying the %otion for s"spension of the proceedings on the gro"nd that the clai% of respondents was only yet to be established. PAL/s %otion for reconsideration was denied by the trial co"rt. PAL went to the Co"rt of Appeals !ia a petition for certiorari. 8n ,4 April ,--- the appellate co"rt dis%issed the petition for the fail"re of PAL to ser!e a copy of the petition on respondents. PAL %o!ed for a reconsideration. In its resol"tion dated :H 8ctober ,--- the appellate co"rt denied the %otion. Th"s PAL went to this Co"rt via a petition for re!iew on certiorari "nder 9"le B+ of the 9"les of Co"rt. Iss.e1<N the proceedings before the trial co"rt sho"ld ha!e been s"spended after the co"rt was infor%ed that a rehabilitation recei!er was appointed o!er the petitioner by the (ec"rities and 7#change Co%%ission "nder (ection 4)c* of Presidential 6ecree No. -:.-A R.ling8n ,+ 6ece%ber .::: the ("pre%e Co"rt in A.M. No. ::-H-,:-(C adopted the Interi% 9"les of Proced"re on Corporate 9ehabilitation and directed to be transferred fro% the (7C to 9egional Trial Co"rts all petitions for rehabilitation filed by corporations partnerships and associations "nder P.6. -:.-A in accordance with the a%endatory pro!isions of 9ep"blic Act No. H3--. The r"les reG"ire trial co"rts to iss"e a%ong other things a stay order in the =enforce%ent of all clai%s whether for %oney or otherwise and whether s"ch enforce%ent is by co"rt action or otherwise > against the corporation "nder rehabilitation its g"arantors and s"reties not solidarily liable with it. (pecifically (ection 4 9"le B of the Interi% 9"les of Proced"re on Corporate 9ehabilitation. The stay order is effecti!e fro% the date of its iss"ance "ntil the dis%issal of the petition or the ter%ination of the rehabilitation proceedings. The interi% r"les %"st likewise be read and applied along with (ection 4)c* of P.6. -:.-A as so a%ended directing that "pon the appoint%ent of a %anage%ent co%%ittee rehabilitation recei!er board or body p"rs"ant to the decree =all actions> for clai%s against the distressed corporation =pending before any co"rt trib"nal board or body shall be s"spended accordingly.> A =clai%> is said to be =a right to pay%ent A"et"e$ o$ not It is red"ced to 2"dg%ent liG"idated or "nliG"idated fi#ed or contingent %at"red or "n%at"red disp"ted or "ndisp"ted legal or eG"itable and sec"red or "nsec"red.> In Ainasia In!est%ents and Ainance Corporation this Co"rt has defined the word =clai% > conte%plated in (ection 4)c* of P.6. -:.-A as referring to debts or de%ands of a pec"niary nat"re and the assertion of a right to ha!e %oney paid as well. 'erily the clai% of pri!ate respondents against petitioner PAL is a %oney clai% for the %issing l"ggages a financial de%and that the law reG"ires to be s"spended pending the rehabilitation proceedings. C"as Realt? Vs# TalaCe$a &*9( S 7'+ ,actsPetitioner Chas 9ealty and 6e!elop%ent Corporation )C96C* is a do%estic corporation engaged in property de!elop%ent and %anage%ent. It is the owner and de!eloper of a three-hectare shopping co%ple# also known as the Megacenter Mall )Megacenter* in Cabanat"an City. The constr"ction of Megacenter co%%enced in Jan"ary ,--4 b"t by the ti%e of its so-called =soft opening> in J"ly ,--H it was only partly co%pleted d"e to lack of f"nds said to ha!e been bro"ght abo"t by constr"ction o!erages d"e to the %assi!e de!al"ation of the peso d"ring the econo%ic crisis in ,--3 low occ"pancy and rental arrearages of tenants. The opening of the "pper gro"nd floor and the second floor of the b"ilding followed respecti!ely in A"g"st ,--H and towards the end of ,--H. 7!ent"ally Megacenter opened its third floor in ,---. P"rportedly on acco"nt of factors beyond the control of C96C s"ch as high interest rates on its loans "npaid rentals of tenants low occ"pancy rate

sl"ggishness of the econo%y and the free$ing of its bank acco"nt by its %ain creditor the Land 5ank of the Philippines C96C enco"ntered diffic"lty in paying its obligations as and when they fell d"e and had to contend with collection s"its and related cases. 8n :B J"ne .::, C96C filed a petition for rehabilitation attaching thereto a proposed rehabilitation plan acco%panied by a secretary/s certificate consonantly with paragraph .)k* (ection . 9"le B of the Interi% 9"les of Proced"re on Corporate 9ehabilitation. C96C clai%ed that it had s"fficient assets and a workable rehabilitation plan both of which showed that the contin"ance of its b"siness was still feasible. It alleged that prior to the filing of the petition for rehabilitation a special %eeting of its stockholders was held on ,H April .::, d"ring which the %a2ority of the o"tstanding capital stock of C96C appro!ed the resol"tion a"thori$ing the filing of a petition for rehabilitation. 8n :H J"ne .::, the 9egional Trial Co"rt 5ranch .H of Cabanat"an City to which the petition was assigned iss"ed an order staying all clai%s against C96C and prohibited it fro% %aking any pay%ent on its o"tstanding obligations and selling or otherwise disposing or enc"%bering its property. Aorthwith the co"rt appointed a rehabilitation recei!er. 8n .: J"ly .::, Angel 6. Concepcion (r. herein pri!ate respondent filed a co%plaint in inter!ention opposing the appoint%ent of C96C/s no%inee for the post of rehabilitation recei!er. 0e belied C96C/s fact"al allegations and clai%ed that the predica%ent of the corporation was d"e to serio"s =%is%anage%ent fra"d e%be$$le%ent %isappropriation and gross<e!ident !iolation of the fid"ciary d"ties of C0A( officers.> Concepcion %o!ed to dis%iss and<or to deny the petition for rehabilitation on the gro"nd that there was no appro!al by the stockholders representing at least two-thirds ).<;* of the o"tstanding capital stock which according to hi% wo"ld be essential "nder paragraph .)k* (ection . 9"le B of the Interi% 9"les on Corporate 9ehabilitation. Concepcion f"rther asserted that the s"pposed appro!al of the directors of the filing of the petition for rehabilitation was inacc"rate considering that the %e%bership of petitioner C96C/s board of directors was still then being contested and pending final resol"tion. Iss.e1<N petition for rehabilitation and the proposed rehabilitation plan do not reG"ire e#traordinary corporate actions R.ling9"le B (ection .)k* of the Interi% 9"les on Corporate 9ehabilitation pro!ides? =(ec. .. Contents of the Petition. P The petition filed by the debtor %"st be !erified and %"st set forth with s"fficient partic"larity all the following %aterial facts? )a* the na%e and b"siness of the debtor@ )b* the nat"re of the b"siness of the debtor@ )c* the history of the debtor@ )d* the ca"se of its inability to pay its debts@ )e* all the pending actions or proceedings known to the debtor and the co"rts or trib"nals where they are pending@ )f* threats or de%ands to enforce clai%s or liens against the debtor@ and )g* the %anner by which the debtor %ay be rehabilitated and how s"ch rehabilitation %ay benefit the general body of creditors e%ployees and stockholders. =The petitioner shall be acco%panied by the following doc"%ents? =# # # ### # # #.

=k. A Certificate attesting "nder oath that )a* the filing of the petition has been d"ly a"thori$ed@ and )b* the directors and stockholders ha!e irre!ocably appro!ed and<or consented to in accordance with e#isting laws all actions or %atters necessary and desirable to rehabilitate the debtor incl"ding b"t not li%ited to a%end%ents to the articles of incorporation and by-laws or articles of partnership@ increase or decrease in the a"thori$ed capital stock@ iss"ance of bonded indebtedness@ alienation transfer or enc"%brance of assets of the debtor@ and %odification of shareholders/ rights.> 8bser!e that 9"le B (ection .)k* prescribes the need for a certification@ one# to state that the filing of the petition has been d"ly a"thori$ed and t&o# to confir% that the directors and stockholders ha!e irre!ocably appro!ed and<or consented to in accordance &it e'isting la&s all actions or %atters necessary and desirable to rehabilitate the corporate debtor incl"ding as and when called for s"ch e#traordinary corporate actions as %ay be %arked o"t. The phrase =in accordance with e#isting laws > ob!io"sly wo"ld refer to that which is or to those that are intended to be done by the corporation in the p"rs"it of its plan for rehabilitation. Th"s if any e#traordinary corporate action )%entioned in 9"le B (ection .)k* of the Interi% 9"les on Corporate 9ehabilitation* are to be done "nder the proposed rehabilitation plan the petitioner wo"ld be bo"nd to %ake it known that it has recei!ed the appro!al of a %a2ority of the directors and the affir%ati!e !otes of stockholders representing at least two-thirds ).<;* of the o"tstanding capital stock of the corporation. 1here no s"ch e#traordinary corporate acts )or one that "nder the law wo"ld call for a two-thirds ).<;* !ote* are conte%plated to be done in carrying o"t the proposed rehabilitation plan then the appro!al of stockholders wo"ld only be by a %a2ority not necessarily a two-thirds ).<;* !ote as long as of co"rse there is a G"or"% a fact which is not here being disp"ted. Nowhere in the aforeG"oted paragraph can it be inferred that an affir%ati!e

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!ote of stockholders representing at least two-thirds ).<;* of the o"tstanding stock is in!ariably necessary for the filing of a petition for rehabilitation regardless of the corporate action that the plan en!isions. J"st to the contrary it only reG"ires in the filing of the petition that the corporate actions therein proposed ha!e been d"ly appro!ed or consented to by the directors and stockholders =in consonance with e#isting laws.> The reG"ire%ent is designed to a!oid a sit"ation where a rehabilitation plan after being de!eloped and 2"dicially sanctioned cannot "lti%ately be seen thro"gh beca"se of the ref"sal of directors or stockholders to cooperate in the f"ll i%ple%entation of the plan. In fine a certification on the appro!al of stockholders is reG"ired b"t the G"estion whether s"ch appro!al sho"ld be by a %a2ority or by a two-thirds ).<;* !ote of the o"tstanding capital stock wo"ld depend on the e#isting law vis?N?vis the corporate act or acts proposed to be done in the rehabilitation of the distressed corporation. The rehabilitation plan s"b%itted by petitioner %erely consists of a repay%ent or re-str"ct"ring sche%e of C96C/s bank loans to Land 5ank of the Philippines and 7G"itable-PCI 5ank and of leasing o"t %ost of the a!ailable spaces in the Megacenter incl"ding the co%pletion of the constr"ction of the fo"rth floor to increase rental re!en"es. None of the proposed corporate actions wo"ld reG"ire a !ote of appro!al by the stockholders representing at least two-thirds ).<;* of the o"tstanding capital stock. 2=SS Vs# DaAa? &'*2 S 119+ ,actsM1(( granted Maynilad "nder a Concession Agree%ent a twenty-year period to %anage operate repair deco%%ission and ref"rbish the e#isting M1(( water deli!ery and sewerage ser!ices in the 1est Xone (er!ice Area for which Maynilad "ndertook to pay the corresponding concession fees on the dates agreed "pon in said agree%ent which a%ong other things consisted of pay%ents of petitioner/s %ostly foreign loans. To sec"re the concessionaire/s perfor%ance of its obligations "nder the Concession Agree%ent Maynilad was reG"ired "nder (ection 4.- of said contract to p"t "p a bond bank g"arantee or other sec"rity acceptable to M1((. 0owe!er on No!e%ber + .::. Maynilad ser!ed "pon M1(( a Notice of 7!ent of Ter%ination clai%ing that M1(( failed to co%ply with its obligations "nder the Concession Agree%ent and A%end%ent No. , regarding the ad2"st%ent %echanis% that wo"ld co!er Maynilad/s foreign e#change losses. 8n 6ece%ber - .::. Maynilad filed a Notice of 7arly Ter%ination of the concession which was challenged by M1((. This %atter was e!ent"ally bro"ght before the Appeals Panel on Jan"ary 3 .::; by M1((. M1(( thereafter s"b%itted a written notice on No!e%ber .B .::; to Citicorp International Li%ited as agent for the participating banks that by !irt"e of Maynilad/s fail"re to perfor% its obligations "nder the Concession Agree%ent it was drawing on the Irre!ocable (tandby Letter of Credit and thereby de%anded pay%ent in the a%o"nt of I(K-H -.; 4B:.,+. Prior to this howe!er Maynilad had filed on No!e%ber ,; .::; a petition for rehabilitation before the co"rt a quo which res"lted in the iss"ance of the (tay 8rder of No!e%ber ,3 .::; and the disp"ted 8rder of No!e%ber .3 .::;. Iss.e1<N the rehabilitation co"rt sitting as s"ch act in e#cess of its a"thority or 2"risdiction when it en2oined herein petitioner fro% seeking the pay%ent of the concession fees fro% the banks that iss"ed the Irre!ocable (tandby Letter of Credit in its fa!or and for the acco"nt of respondent Maynilad R.lingThe p"blic respondent relied on (ec. , 9"le ; of the Interi% 9"les on Corporate 9ehabilitation to s"pport its 2"risdiction o!er the Irre!ocable (tandby Letter of Credit and the banks that iss"ed it. The section reads in part =that 2"risdiction o!er those affected by the proceedings is considered acG"ired "pon the p"blication of the notice of co%%ence%ent of proceedings in a newspaper of general circ"lation> and goes f"rther to define rehabilitation as an in rem proceeding. The reference to =all those affected by the proceedings =co!ers creditors or s"ch other persons or entities holding assets belonging to the debtor "nder rehabilitation which sho"ld be reflected in its a"dited financial state%ents. The banks do not hold any assets of Maynilad that wo"ld be %aterial to the rehabilitation proceedings nor is Maynilad liable to the banks at this point. 9espondent Maynilad/s Ainancial (tate%ent as of 6ece%ber ;, .::, and .::. do not show the Irre!ocable (tandby Letter of Credit as part of its assets or liabilities and by respondent Maynilad/s own ad%ission it is not. In iss"ing the clarificatory order of No!e%ber .3 .::; en2oining petitioner fro% clai%ing fro% an asset that did not belong to the debtor and o!er which it did not acG"ire 2"risdiction the rehabilitation co"rt acted in e#cess of its 2"risdiction. 9espondent Maynilad insists howe!er that it is (ec. 4 )b* 9"le B of the Interi% 9"les that s"pports its clai% that the co%%ence%ent of the process to

draw on the (tandby Letter of Credit is an enforce%ent of clai% prohibited by and "nder the Interi% 9"les and the order of p"blic respondent. 1e disagree. Airst the clai% is not one against the debtor b"t against an entity that respondent Maynilad has proc"red to answer for its non-perfor%ance of certain ter%s and conditions of the Concession Agree%ent partic"larly the pay%ent of concession fees. (econdly (ec. 4 )b* of 9"le B of the Interi% 9"les does not en2oin the enforce%ent of all clai%s against g"arantors and s"reties 4.t onl? t"ose clai:s against g.a$anto$s and s.$eties A"o a$e not solida$il? lia4le Ait" t"e de4to$# 9espondent Maynilad/s clai% that the banks are not solidarily liable with the debtor does not find s"pport in 2"rispr"dence. The prohibition "nder (ec 4 )b* of 9"le B of the Interi% 9"les does not apply to herein petitioner as the prohibition is on the enforce%ent of clai%s against g"arantors or s"reties of the debtors whose obligations are not solidary with the debtor. The participating banks/ obligation are solidary with respondent Maynilad in that it is a pri%ary direct definite and an absol"te "ndertaking to pay and is not conditioned on the prior e#ha"stion of the debtor/s assets. These are the sa%e characteristics of a s"rety or solidary obligor. 5eing solidary the clai%s against the% can be p"rs"ed separately fro% and independently of the rehabilitation case as held in ,raders =o$al Ban% v. Court of Appeals and reiterated in P ilippine Blooming Mills# -nc. v. Court of Appeals where we said that property of the s"rety cannot be taken into c"stody by the rehabilitation recei!er )(7C* and said s"rety can be s"ed separately to enforce his liability as s"rety for the debts or obligations of the debtor. The debts or obligations for which a s"rety %ay be liable incl"de f"t"re debts an a%o"nt which %ay not be known at the ti%e the s"rety is gi!en. The p"blic respondent therefore e#ceeded his 2"risdiction in holding that he was co%petent to act on the obligation of the banks "nder the Letter of Credit "nder the arg"%ent that this was not a solidary obligation with that of the debtor. 5eing a solidary obligation the letter of credit is e#cl"ded fro% the 2"risdiction of the rehabilitation co"rt and therefore in en2oining petitioner fro% proceeding against the (tandby Letters of Credit to which it had a clear right "nder the law and the ter%s of said (tandby Letter of Credit p"blic respondent acted in e#cess of his 2"risdiction. Union Ban5 Vs# CA &290 S 97+ ,acts8n (epte%ber ,4 ,--3 7MC8 &ro"p of Co%panies 7"logio 8. M"tingco Caroline M"tingco-Mao and Theresa T. Lao )the "M"tingcos"* all of who% are controlling stockholders of the afore%entioned corporations 2ointly filed with the (7C a Petition for the 6eclaration of ("spension of Pay%entEsF Aor%ation and Appoint%ent of 9ehabilitation 9ecei!er<Co%%ittee Appro!al of 9ehabilitation Plan with Alternati!e Prayer for LiG"idation and 6issol"tion of Corporations. Ipon finding the abo!e petition to be s"fficient in for% and s"bstance the (7C 0earing Panel iss"ed an order setting its hearing on 8ctober .. ,--3. At the sa%e ti%e said panel also directed the s"spension of all actions clai%s and proceedings against pri!ate respondents pending before any co"rt trib"nal office board and<or co%%ission. Meanwhile so%e of pri!ate respondentsC creditors co%posed %ainly of twenty-two )..* do%estic banks )the "consorti"%"* incl"ding herein petitioner Inion 5ank of the Philippines also con!ened on (epte%ber ,- ,--3 for the p"rpose of deciding their options in the e!ent that pri!ate respondents in!oke the pro!isions of Presidential 6ecree No. -:.-A as a%ended. The %in"tes e%bodying the ter%s agreed "pon by the consorti"% in said %eeting pro!ided. 1itho"t notifying the %e%bers of the consorti"% petitioner howe!er decided to break away fro% the gro"p by s"ing pri!ate respondents in the reg"lar co"rts. In the %eanti%e the (7C iss"ed an order on appointing interi% recei!ers of the distressed corporations. Aside fro% co%%encing s"its in the reg"lar co"rts petitioner also !ehe%ently opposed pri!ate respondentsC petition for s"spension of pay%ents in the (7C by filing a Motion to 6is%iss on 8ctober .. ,--3. It contended that the (7C was bereft of 2"risdiction o!er s"ch petition on the gro"nd that the incl"sion of the M"tingcos in the petition "cannot be allowed since the a"thority and power of the Co%%ission "nder the !irt"e of the law applies only to corporations# partners ip3s4 and ot er forms of associations and not to indi!id"al petitioners who are not clearly co!ered by P.6. -:.-A as a%ended." According to petitioner what sho"ld ha!e been applied instead was the pro!ision on s"spension of pay%ents "nder Act No. ,-+4 otherwise known as the "Insol!ency Law " which %andated the filing of the petition in the 9egional Trial Co"rt and not in the (7C. Ainally petitioner disp"ted pri!ate respondentsC reco"rse to s"spension of pay%ents alleging that the latter

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pre2"diced their creditors by fra"d"lently disposing of corporate properties within the ;:-day period prior to the filing of s"ch petition. ("bseG"ently a creditorsC %eeting was again con!ened p"rs"ant to (7CCs earlier order dated (epte%ber ,- ,--3 wherein the %atter of creating a %anage%ent co%%ittee )the "Manco%"* was s"b%itted for resol"tion. Apparently only petitioner opposed the creation of said Manco% as it filed earlier with the (7C its Motion to 6is%iss. Iss.e1<N the (7C can !alidly acG"ire 2"risdiction o!er a petition for s"spension of pay%ents filed p"rs"ant to (ection + )d* of P.6. No. -:. W A as a%ended when s"ch petition 2oins as co-petitioners the petitioning corporate entities AN6 indi!id"al stockholders thereof R.ling(ection + )d* of P.6. No. -:.-A as a%endedF clearly does not allo& a mere individual to file t e petition & ic is limited to "corporations# partners ips or associations." Ad%inistrati!e agencies like the (7C are trib"nals of li%ited 2"risdiction and as s"ch can e#ercise only those powers which are specifically granted to the% by their enabling stat"tes. ConseG"ently where no a"thority is granted to hear petitions of indi!id"als for s"spension of pay%ents s"ch petitions are beyond the co%petence of the (7C. In a case of %is2oinder of parties W which in this case is the co-filing of the petition for s"spension of pay%ents by both the M"tingcos and the 7MC8 gro"p W the re%edy has ne!er been to dis%iss the petition in its entirety b"t to dis%iss it only as against the party "pon who% the trib"nal or body cannot acG"ire 2"risdiction. The res"lt therefore is that the petition with respect to 7MC8 shall s"bsist and %ay be !alidly acted "pon by the (7C. The M"tingcos on the other hand shall be dropped fro% the petition and be reG"ired to p"rs"e their re%edies in the reg"lar co"rts of co%petent 2"risdiction. PetitionerCs allegations of fra"d"lent dispositions of pri!ate respondentsC assets and the s"pposed insol!ency of the latter are hardly of any conseG"ence to the ass"%ption of 2"risdiction by the (7C o!er the nat"re or s"b2ect %atter of the petition for s"spension of pay%ents. Aside fro% the fact that these allegations are e!identiary in nat"re and still re%ains to be pro!ed we ha!e likewise consistently r"led that what deter%ines the nat"re of an action as well as which co"rt or body has 2"risdiction o!er it are the allegations of the co%plaint or a petition as in this case and the character of the relief so"ght. That the %erits of the case after d"e proceedings are later fo"nd to !eer away fro% the clai%s asserted by 7MC8 in its petition as when it is shown later that it is act"ally insol!ent and %ay not be entitled to s"spension of pay%ents does not di!est the (7C at all of its 2"risdiction already acG"ired at its inception thro"gh the allegations %ade in the petition. Neither are we con!inced by petitionerCs reasoning that the M"tingcos and the corporate entities %aking "p the 7MC8 &ro"p on the basis of the footnote that the for%er were filing the petition beca"se they bo"nd the%sel!es as s"rety to the corporate obligations sho"ld be considered as %ere indi!id"als who sho"ld file their petition for s"spension of pay%ents with the reg"lar co"rts p"rs"ant to (ection . of the Insol!ency Law. 1e do not see any legal gro"nd which sho"ld lead one to s"ch concl"sion. The doctrine of piercing the !eil of corporate fiction hea!ily relied "pon by petitioner is entirely %isplaced as said doctrine only applies when s"ch corporate fiction is "sed to defeat p"blic con!enience 2"stify wrong protect fra"d or defend cri%e.

5A 0o%es Inc. is a do%estic corporation operating "nder Philippine laws and organi$ed pri%arily to de!elop and sell residential lots and ho"ses and other related realty b"siness. 9ecords show that respondent 5A 0o%es had to a!ail itself of financial assistance fro% !ario"s so"rces to enable it to b"y properties and con!ert the% into residential s"bdi!isions. This res"lted in its inc"rring liabilities a%o"nting to PhP , +B. H:+ :4H..; as of J"ly ;, ,-HB. 8n the other hand d"ring its b"siness operations it was able to acG"ire properties and assets worth PhP . BH. HB; ;+H.H, as of J"ly ;, ,-HB which if liG"idated were %ore than eno"gh to pay all its creditors. 6espite its sol!ent stat"s respondent filed a Petition for 9ehabilitation and for 6eclaration in a (tate of ("spension of Pay%ents "nder (ection B of P6 No. ,3+H before the (ec"rities and 7#change Co%%ission. The (7C s"bseG"ently iss"ed an order creating Manage%ent Co%%ittee Chaired by Atty. Alorencio 8rendain as Chair%an Thereafter on Aebr"ary . ,-HH the (7C ordered the appoint%ent of a rehabilitation recei!er A58 Manage%ent Networks Inc. with petitioner 8rendain as Chair%an to pre!ent paraly$ation of 5A 0o%es/ b"siness operations. 8n 8ctober H ,--; a 6eed of Absol"te (ale was e#ec"ted by and between 5A 0o%esPrepresented by petitioner 8rendainPas absol"te and registered owner and the Local ("perior of the Aranciscan (isters of the I%%ac"late Phils. Inc. )L(A(IPI* o!er a parcel of land sit"ated at 5arangay Pasong Papaya 5A International M"nicipality of Las PiSas Metro Manila. Meanwhile on No!e%ber 3 ,--B the (7C hearing panel released an 8%nib"s 8rder which ad%itted and confir%ed the Closing 9eport s"b%itted by the recei!er petitioner 8rendain. It f"rther appointed a new Co%%ittee of 9ecei!ers co%posed of the ele!en ),,* %e%bers of the 5oard of 6irectors of 5A 0o%es with Albert C. Ag"irre as the Chair%an of the Co%%ittee. ConseG"ently recei!er 8rendain was relie!ed of his d"ties and responsibilities. 8n Jan"ary .; ,--4 5A 0o%es filed a Co%plaint before the Las PiSas 9TC against L(A(IPI and petitioner 8rendain in Ci!il Case No. LP--4-::..# for recon!eyance of the property co!ered by TCT No. T-;4BH.Walleging inter alia that the L(A(IPI transacted with 8rendain in his indi!id"al capacity and therefore neither A58 Manage%ent Inc . nor 8rendain had title to the property transferred. 8n J"ne ,B ,--4 Alorencio 5. 8rendain filed a Motion to 6is%iss stating that ),* the 9TC had no 2"risdiction o!er the recon!eyance s"it@ ).* the Co%plaint was barred by the finality of the No!e%ber 3 ,--B 8%nib"s 8rder of the (7C hearing panel@ and );* 5A 0o%es acting thro"gh its Co%%ittee of 9ecei!ers had neither the interest nor the personality to prosec"te the said action in the absence of (7C/s clear and act"al a"thori$ation for the instit"tion of the said s"it. Iss.e1<N the 9TC or (7C has 2"risdiction o!er the action for recon!eyance R.lingIn the case at bench the 5A 0o%es/ Co%plaint for recon!eyance was filed on Jan"ary .; ,--4 against L(A(IPI and Alorencio 5. 8rendain in Ci!il Case No. LP--4-::.. In ,--4 (ection + of P6 No. -:.-A which was appro!ed on March ,, ,-34 was still the law in forceWwhereby the (7C still had original and e#cl"si!e 2"risdiction to hear and decide cases in!ol!ing? b* contro!ersies arising o"t of intra-corporate or partnership relations between and a%ong stockholders %e%bers or associates@ between any and<or all of the% and the corporation partnership or association of which they are stockholders %e%bers or associates respecti!ely@ and between s"ch corporation partnership or association and the state insofar as it concerns their indi!id"al franchise or right to e#ist as s"ch entity.

SECURITIES REGULATION CODE

O$endain Vs# B, >o:es &10) S 21'+ ,acts-

Clearly the contro!ersy in!ol!es %atters p"rely ci!il in character and is beyond the a%bit of the li%ited 2"risdiction of the (7C. As held in 0ira$ v. Court of Appeals =EtFhe better policy in deter%ining which body has 2"risdiction o!er a case wo"ld be to consider not only E,F the stat"s or relationship of the parties b"t also E.F the nat"re of the G"estion that is the s"b2ect of their contro!ersy.> 0owe!er (ection + of P6 No. -:.-A does not apply in the instant case. The L(A(IPI is neither an officer nor a stockholder of 5A 0o%es and this case does not in!ol!e intra-corporate proceedings. In addition the seller petitioner 8rendain is being s"ed in his indi!id"al capacity for the "na"thori$ed sale of the property in contro!ersy. 0ence we find no cogent reason to s"stain

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petitioner/s %anifestation that the resol"tion of the instant contro!ersy depends on the ratification by the (7C of the acts of its agent or the recei!er beca"se the act of 8rendain was allegedly not within the scope of his a"thority as recei!er. A"rther%ore the deter%ination of the !alidity of the sale to L(A(IPI will necessitate the application of the pro!isions of the Ci!il Code on obligations and contracts agency and other pertinent pro!isions. In addition 2"risdiction o!er the case for recon!eyance is clearly !ested in the 9TC. The passage of 9A H3-- has p"t to rest petitioner 8rendain/s clai% that it is the (7C and not the 9TC that has 2"risdiction o!er Ci!il Case No. LP--4::... At present the instant petition has nothing to stand on and perforce %"st fail. # TI2E S>ARES

(ection 3: of 9ep"blic Act No. H3-- which was enacted on J"ly ,- .::: is the law which go!erns petitioner/s appeal fro% the orders of the (7C 6n Banc. It prescribes that s"ch appeal be taken to the CA by petition for re!iew in accordance with the pertinent pro!isions of the 9"les of Co"rt specifically 9"le B;. (ection B of 9"le B; is restricti!e in its treat%ent of the period within which a petition %ay be filed? (ection B. Period of appeal. - The appeal shall be taken within fifteen ),+* days fro% notice of the award 2"dg%ent final order or resol"tion or fro% the date of its last p"blication if p"blication is reG"ired by law for its effecti!ity or of the denial of petitioner/s %otion for new trial or reconsideration d"ly filed in accordance with the go!erning law of the co"rt or agency a G"o. 8nly one ),* %otion for reconsideration shall be allowed. 8pon proper motion and t e pa$ment of t e full amount of t e doc%et fee before t e e'piration of t e reglementar$ period# t e Court of Appeals ma$ grant an additional period of fifteen C"DF da$s onl$ &it in & ic to file t e petition for revie&. No furt er e'tension s all be granted e'cept for t e most compelling reason and in no case to e'ceed fifteen C"DF da$s. Petitioner/s Motion for 7#tension of Ti%e to Aile Petition for 9e!iew flo"ted the foregoing restriction? it so"ght not a ,+-day b"t a ;:-day e#tension of the appeal period@ and it did not e!en bother to cite a co%pelling reason for s"ch e#tension other than its co"nsel/s caseload which as we ha!e repeatedly r"led hardly G"alifies as an i%perati!e ca"se for %oderation of the r"les. Its %otion for e#tension being inherently flawed petitioner sho"ld not ha!e pres"%ed that the CA wo"ld f"lly grant the sa%e. Instead it sho"ld ha!e e#ercised d"e diligence by filing the proper petition within the allowable period or at the !ery least ascertaining fro% the CA whether its %otion for e#tension had been acted "pon. As it were petitioner/s co"nsel left the co"ntry "n%indf"l of the possibility that his client/s period to appeal was abo"t to lapse - as it indeed lapsed on J"ly .+ ,--- after the CA allowed the% a ,+-day e#tension only in !iew of the restriction "nder (ection B 9"le B;. Th"s petitioner has only itself to bla%e that the Petition for 9e!iew it filed on A"g"st ,- ,--- was late by .+ days. The CA cannot be fa"lted for dis%issing it. The Co"rt notes that the CA reckoned the ,+-day e#tension it granted to petitioner fro% J"ly ,: ,--- the date petitioner filed its Motion for 7#tension rather than fro% J"ly ,- ,--- the date of e#piration of petitioner/s original period to appeal. 1hile s"ch co%p"tation of the CA appears to be erroneo"s petitioner did not G"estion it in the present petition. 5"t e!en if we do reckon the ,+-day e#tension period fro% J"ly ,- ,--- the sa%e wo"ld ha!e ended on A"g"st ; ,--- %aking petitioner/s appeal still ine#c"sably tardy by ,4 days. 7ither way we reckon it therefore petitioner/s appeal was not perfected within the period prescribed "nder 9"le B;.Ne!ertheless the Co"rt opts to resol!e the s"bstanti!e iss"es raised by petitioner in its appeal so as to deter%ine the lawf"l rights of the parties and p"t an end to the litigation. Petitioner clai%s that at the ti%e it entered into a ti%eshare p"rchase agree%ent with respondents on 8ctober 4 ,--4 it already possessed the reG"isite license and %arketing agree%ent to engage in s"ch transactions as e!idenced by its registration with the (7C as a corporation. Petitioner arg"es that when it was registered and a"thori$ed by the (7C as broker of sec"rities - s"ch as the Lag"na de 5oracay ti%eshares - this had the effect of ratifying its 8ctober 4 ,--4 p"rchase agree%ent with respondents and re%o!ing any ca"se for the latter to rescind it. The Co"rt is not pers"aded. As cited by the (7C 6n Banc in its March .+ .::. 6ecision as early as Aebr"ary ,; ,--H the (7C thro"gh 6irector Linda A. 6aoang already rendered a r"ling on the effecti!ity of the registration state%ent of petitioner vi>? This has reference to yo"r registration state%ent which was rendered effecti!e ,, Aebr"ary ,--H. The ;: days within which a p"rchaser %ay e#ercise the option to unilaterall$ rescind the p"rchase agree%ent and recei!e the ref"nd of %oney paid applies to all p"rchase agree%ents entered into by the registrant prior to t e effectivit$ of t e registration statement. , e +E?da$ rescission period for contracts signed before t e =egistration Statement &as rendered effective s all commence on "" 2ebruar$ "OOL. , e rescission period for contracts after "" 2ebruar$ "OOL s all commence on t e date of purc ase agreement. Petitioner so"ght a reconsideration of said r"ling b"t the sa%e was denied by 6irector 6aoang in an 8rder dated March - ,--H. 0owe!er petitioner did not resort to any other ad%inistrati!e re%edy against said r"ling s"ch as by G"estioning the sa%e before the (7C 6n Banc. 0a!ing failed to e#ha"st the ad%inistrati!e re%edies a!ailable to it petitioner is already bo"nd by said r"ling and can no longer G"estion the sa%e thro"gh a direct and belated reco"rse to "s. Ainally the pro!isions of B.P. Blg. ,3H do not s"pport the contention of petitioner that its %ere registration as a corporation already a"thori$es it to deal with "nregistered ti%eshares. Corporate registration is 2"st one of se!eral reG"ire%ents before it %ay deal with ti%eshares? (ection H. Proced"re for registration. - )a* All sec"rities reG"ired to be registered "nder s"bsection )a* of (ection fo"r of this Act shall be registered

Ti:es"a$e Realt? Vs# Lao &1'' S 21'+ ,acts8n 8ctober 4 ,--4 Ti%eshare 9ealty sold to Ceasar M. Lao and Cynthia '. Corte$ one ti%eshare of Lag"na de 5oracay for I(K3 +::.:: payable in eight %onths and f"lly paid by the respondents. (o%eti%e in Aebr"ary ,--H the (7C iss"ed a resol"tion to the effect that petitioner was witho"t a"thority to sell sec"rities like ti%eshares prior to Aebr"ary ,, ,--H. It f"rther stated in the resol"tion<order that the 9egistration (tate%ent of petitioner beca%e effecti!e only on Aebr"ary ,, ,--H. It also held that the ;: days within which a p"rchaser %ay e#ercise the option to "nilaterally rescind the p"rchase agree%ent and recei!e the ref"nd of %oney paid applies to all p"rchase agree%ents entered into by petitioner prior to the effecti!ity of the 9egistration (tate%ent. Petitioner so"ght a reconsideration of the aforesaid order b"t the (7C denied the sa%e in a letter dated March ,--H. 8n March ;: ,--H respondents wrote petitioner de%anding their right and option to cancel their Contract as it appears that Lag"na de 5oracay is selling said shares witho"t license or a"thority fro% the (7C. 5"t despite repeated de%ands petitioner failed and ref"sed to ref"nd or pay respondents. 9espondents directly filed with (7C 6n Banc a Co%plaint against petitioner and the Me%bers of its 5oard of 6irectors - J"li"s (. (trachan Angel &. 'i!ar Jr. and Cecilia 9. Pal%a - for !iolation of (ection B of Batas Pambansa Bilang )5.P. 5lg.* ,3H. 8n March .+ .::. the (7C 6n Banc rendered a 6ecision in fa!or of respondents ordering petitioner together with J"li"s (. (trachan Angel &. 'i!ar Jr. and Cecilia 9. Pal%a to pay respondents the a%o"nt of I(K3 +::.::. Petitioner filed a Motion for 9econsideration which the (7C 6n Banc denied in an 8rder dated J"ne .B .::.. Petitioner recei!ed a copy of the J"ne .B .::. (7C 7n 5anc 8rder on J"ly B .::. and had ,+ days or "ntil J"ly ,- .::. within which to appeal. 0owe!er on J"ly ,: .::. petitioner so"ght fro% the CA an e#tension of ;: days co"nted fro% J"ly ,- .::. or "ntil A"g"st ,- .::. within which to appeal. The CA partly granted the %otion in an 8rder dated J"ly .B .::. to wit? As prayed for b"t conditioned on the ti%eliness of its filing the Motion for 7#tension to Aile Petition for 9e!iew dated :- J"ly .::. and filed before this Co"rt on ,: J"ly .::. is &9ANT76 and petitioners are gi!en a none#tendible period of fifteen ),+* days fro% ,: J"ly .::. or until )D Gul$ )EE) within which to file the desired petition otherwise the abo!e-entitled case will be dis%issed. Petitioner p"rportedly recei!ed the J"ly .B .::. CA 8rder on J"ly .- .::. b"t filed a Petition for 9e!iew with the CA on A"g"st ,- .::.. In the assailed 8ctober ;: .::. 9esol"tion the CA dis%issed the Petition for 9e!iew and denied petitionerCs Motion for 9econsideration in the assailed 9esol"tion dated J"ly B .::;. Petitioner filed the present petition. Iss.e1hether or not the e!ent"al appro!al or iss"ance of license has retroacti!e effect and therefore ratifies all earlier transactions R.ling-

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thro"gh the filing by the iss"er or by any dealer or "nderwriter interested in the sale thereof in the office of the Co%%ission of a sworn registration state%ent with respect to s"ch sec"rities containing or ha!ing attached thereto the following? # # # #

!ent"re pre%ised on a reasonable e#pectation of profits to be deri!ed fro% the entreprene"rial or %anagerial efforts of others. 6r. 5ailey testified on this %atter b"t no contract was s"b%itted by the prosec"tion. The prosec"tion failed to pro!e by s"fficient e!idence that indeed the a%o"nt deli!ered by 6r. 5ailey to Lansdale thro"gh appellant is an in!est%ent conte%plated by the 9e!ised (ec"rities Act and not a %ere act of b"ying and selling foreign e#change. Moreo!er the receipt %erely shows that 6r. 5ailey re%itted the a%o"nt of I(K4 :::.:: to Lansdale thro"gh appellant as acco"nt e#ec"ti!e. It contained a reG"est for appellant to follow-"p proper re%ittance and credit of her trading acco"nt as well as the iss"ance of the receipt of said a%o"nt which is confir%ed by appellant as shown by her signat"re. The receipt did not pro!e that appellant co%%itted any of the offenses charged against her. The receipt %erely established that appellant recei!ed the a%o"nt fro% 6r. 5ailey for the p"rpose of re%itting the sa%e to Lansdale and to follow-"p the crediting thereof to her trading acco"nt. The broch"re gi!en by appellant to 6r. 5ailey does not pro!e appellant/s g"ilt beyond reasonable do"bt in the absence of direct and specific proof on the ),* act"al participation of appellant in the alleged offer and sale of sec"rities to the p"blic within the Philippines which were not registered in !iolation of (ection B of 5.P. 5lg. ,3H@ ).* %anner by which appellant %isrepresented to 6r. 5ailey that Lansdale is d"ly licensed to engage in foreign e#change trading in !iolation of (ection .- of said law@ and );* %anner by which appellant %isrepresented to 6r. 5ailey that she was a licensed broker dealer or salesperson of sec"rities when in fact she was not thereby ind"cing 6r. 5ailey to in!est and deli!er the a%o"nt of I(K4 :::.:: in !iolation of (ection ,- of said law. A"rther%ore while it is established by the prosec"tion that Lansdale was not d"ly registered and appellant was not licensed as a broker the %anner by which appellant conni!ed with her co-acc"sed and ind"ced her to in!est her K4 :::.:: not K- :::.:: as erroneo"sly stated in the Infor%ation are too sketchy de!oid of any certainty as to the act"al participation of appellant in the co%%ission of the offenses charged against her. The testi%ony of co%plainant read in its entirety does not s"fficiently establish that appellant herself had "ttered any words of ass"rance or co%%itted a partic"lar act as specified "nder the aforeG"oted pro!ision of law. Neither did co%plainant/s testi%ony show her specific participation in the alleged conspiracy to defra"d co%plainant. 6r. 5ailey/s testi%ony did not pro!e the g"ilt of appellant beyond reasonable do"bt. Moreo!er the 9TC %ade %ention of a broch"re %arked as 7#hibit =5> b"t the sa%e is not offered as e!idence by the prosec"tion as shown by its 1ritten 8ffer of 7!idence. In fine there is no proof beyond reasonable do"bt to hold appellant g"ilty of all the offenses charged against her "nder the three Infor%ations. PoAe$>o:es Vs# SEC &1') S 1)(+ ,actsPetitioner is a do%estic corporation d"ly registered with p"blic respondent (7C. Its pri%ary p"rpose is to engage in the transaction of pro%oting acG"iring %anaging leasing obtaining options on de!elop%ent and i%pro!e%ent of real estate properties for s"bdi!ision and allied p"rposes and in the p"rchase sale and<or e#change of said s"bdi!ision and properties thro"gh network %arketing. Later the Co%%ission ordered P8179 08M7( INLIMIT76 C89P. its officers directors agents representati!es and any and all persons clai%ing and acting "nder their a"thority to i%%ediately C7A(7 AN6 67(I(T fro% f"rther engaging in the sale offer or distrib"tion of the sec"rities "pon the receipt of this order. In accordance with the pro!isions of (ection 4B.; of 9ep"blic Act No. H3-otherwise known as the (ec"rities 9eg"lation Code the parties s"b2ect of this Cease and 6esist 8rder %ay file a reG"est for the lifting thereof within fi!e )+* days fro% receipt. 8n Aebr"ary + .::, petitioner %o!ed for the lifting of the C68 which p"blic respondent (7C denied for lack of %erit on Aebr"ary .. .::,. Aggrie!ed petitioner went to the Co"rt of Appeals i%p"ting gra!e ab"se of discretion a%o"nting to lack or e#cess of 2"risdiction on p"blic respondent (7C for iss"ing the order. It also applied for a te%porary restraining order which the appellate co"rt granted. 8n J"ne ,H .::B the Co"rt of Appeals denied petitioner/s %otion for reconsideration@ hence this petition for re!iew.

);4* Inless pre!io"sly filed and registered with the Co%%ission and bro"ght "p to date? )a* A copy of its articles of incorporation with all a%end%ents thereof and its e#isting by-laws or instr"%ents corresponding thereto whate!er the na%e if the iss"er be a corporation. Prior to f"lfill%ent of all the other reG"ire%ents of (ection H petitioner is absolutel$ proscribed "nder (ection B fro% dealing with "nregistered ti%eshares th"s? (ection B. 9eG"ire%ent of registration of sec"rities. - )a* No sec"rities e#cept of a class e#e%pt "nder any of the pro!isions of (ection fi!e hereof or unless sold in an$ transaction e'empt under an$ of t e provisions of Section si' ereof# s all be sold or offered for sale or distribution to t e public &it in t e P ilippines unless suc securities s all ave been registered and permitted to be sold as ereinafter provided. 2# INVEST2ENT CONTRACT

Peo%le Vs# Pet$al4a &'*9 S 17+ ,acts7l!ira Petralba was con!icted for !iolating (ections B ,- and .- of 5atas Pa%bansa 5ilang )5.P. 5lg.* ,3H otherwise known as The 9e!ised (ec"rities Act. Inder the three Infor%ations appellant is charged with conni!ing and confederating together with her three co-acc"sed and %"t"ally helping one another with deliberate intent to gain and defra"d co%plainant by? ),* offering for sale together with her co-acc"sed sec"rities which were not registered in !iolation of (ection B of the law@ ).* representing and acting as broker or dealer to ind"ce co%plainant as in fact she deli!ered the s"b2ect a%o"nt not ha!ing been registered with the (ec"rities and 7#change Co%%ission in !iolation of (ection ,- of the sa%e law@ and );* ass"ring the co%plainant that Lansdale is d"ly licensed to engage in foreign e#change trading when in fact said co%pany is not d"ly-licensed as a conseG"ence of which co%plainant in!ested the a%o"nt of K4 :::.:: thereby engaging in fra"d"lent transactions in foreign e#change trading in !iolation of (ection .- of the law. Iss.e1<N the prosec"tion has established the g"ilt of appellant beyond reasonable do"bt for !iolating (ections B ,- and .- of 5.P. 5lg. ,3H R.lingAfter a caref"l e#a%ination of the prosec"tion e!idence we find that the findings of both lower co"rts were gro"nded on %ere s"r%ises or con2ect"res@ the inferences they %ade were %anifestly %istaken bordering on abs"rdity@ and the 2"dg%ent of the appellate co"rt was based on %isapprehension of facts or %ere concl"sions witho"t citation of specific co%petent e!idence. The Co"rt of Appeals erred in affir%ing the 9TC/s decision. The prosec"tion failed to establish the g"ilt of appellant beyond reasonable do"bt. Appellant clai%s that the transaction that transpired between co%plainant and her e%ployer Lansdale was a %ere foreign e#change trading which is not co!ered by the ter% =sec"rities> of 5.P. 5lg. ,3H the pre!ailing law at the ti%e of the co%%ission of the alleged cri%es. (ection . of 5.P. 5lg. ,3H pro!ides? (ection .. ;efinitions. P Aor p"rposes of this Act? =(ec"rities> shall incl"de bonds debent"res notes e!idences of indebtedness shares in a co%pany pre -organi$ation certificates or s"bscription inCest:ent cont$acts ce$tificates of inte$est o$ %a$tici%ation in a %$ofit s"a$ing ag$ee:ent ####### Clearly therefro% as pointed o"t by the 8ffice of the (olicitor &eneral the foreign e#change trading transaction that transpired between co%plainant and Lansdale appears to be an in!est%ent contract or participation in a profit sharing agree%ent that falls within the definition of the law. 1hen the in!estor is relati!ely "ninfor%ed and t"rns o!er his %oney to others essentially depending "pon their representations and their honesty and skill in %anaging it the transaction generally is considered to be an in!est%ent contract. The to"chtone is the presence of an in!est%ent in a co%%on

Iss.e1<N petition/s b"siness constit"tes an in!est%ent contract which sho"ld be registered with p"blic respondent (7C before its sale or offer for sale or distrib"tion to the p"blic

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.. To enco"rage %e%bers in a self-help progra%@ R.lingSection L. =equirement of =egistration of Securities. A L.". Securities s all not be sold or offered for sale or distribution &it in t e P ilippines# &it out a registration statement dul$ filed &it and approved b$ t e Commission. Prior to suc sale# information on t e securities# in suc form and &it suc substance as t e Commission ma$ prescribe# s all be made available to eac prospective purc aser. P"blic respondent (7C fo"nd the petitioner as a %arketing co%pany that pro%otes and facilitates sales of real properties and other related prod"cts of real estate de!elopers thro"gh effecti!e le!erage %arketing. It also described the cond"ct of petitioner/s b"siness as follows? The sche%e of the EpetitionerF corporation reG"ires an in!estor to beco%e a 5"siness Center 8wner )5C8* who %"st fill-"p and sign its application for%. The Ter%s and Conditions printed at the back of the application for% indicate that the 5C8 shall %ean an independent representati!e of Power 0o%es who is enrolled in the co%pany/s referral progra% and who will "lti%ately p"rchase real property fro% any accredited real estate de!elopers and as s"ch he is entitled to a referral bon"s<co%%ission. Paragraph + of the sa%e indicates that there e#ists no e%ployer<e%ployee relationship between the 5C8 and the Power 0o%es Inli%ited Corp. The 5C8 is reG"ired to pay I(K.;B as his enroll%ent fee. 0is enroll%ent entitles hi% to recr"it two in!estors who sho"ld pay I(K.;B each and o"t of which a%o"nt he shall recei!e I(K-.. In case the two referrals<enrollees wo"ld recr"it a %ini%"% of fo"r )B* persons each recr"iting two ).* persons who beco%e his<her own down lines the 5C8 will recei!e a total a%o"nt of I(K,f3..: after ded"cting the a%o"nt of I(K;4.H: as property f"nd fro% the gross a%o"nt of I(K,HB. After recr"iting ,.H persons in a period of eight )H* %onths for each Left and 9ight b"siness gro"ps or a total of .+4 enrollees whether directly referred by the 5C8 or thro"gh his down lines the 5C8 who recei!es a total a%o"nt of I(K,, B,..H: after ded"cting the a%o"nt of I(K;4;..: as property f"nd fro% the gross a%o"nt of I(K,, 334 has now an acc"%"lated a%o"nt of I(K. 3:: constit"ting as his Property A"nd placed in a Property A"nd acco"nt with the Chinabank. This acc"%"lated a%o"nt of I(K. 3:: is "sed as partial<f"ll down pay%ent for the real property chosen by the 5C8 fro% any of petitioner/s accredited real estate de!elopers. An in!est%ent contract is defined in the A%ended I%ple%enting 9"les and 9eg"lations of 9.A. No. H3-- as a contract transaction or sche%e )collecti!ely contract* whereby a person in!ests his %oney in a co%%on enterprise and is led to e#pect profits pri%arily fro% the efforts of others. 1e therefore r"le that the b"siness operation or the sche%e of petitioner constit"tes an in!est%ent contract that is a sec"rity "nder 9.A. No. H3--. Th"s it %"st be registered with p"blic respondent (7C before its sale or offer for sale or distrib"tion to the p"blic. As petitioner failed to register the sa%e its offering to the p"blic was rightf"lly en2oined by p"blic respondent (7C. The C68 was proper e!en witho"t a finding of fra"d. As an in!est%ent contract that is sec"rity "nder 9.A. No. H3-- it %"st be registered with p"blic respondent (7C otherwise the (7C cannot protect the in!esting p"blic fro% fra"d"lent sec"rities. The strict reg"lation of sec"rities is fo"nded on the pre%ise that the capital %arkets depend on the in!esting p"blic/s le!el of confidence in the syste%. ;. To grant ed"cational assistance@ B. To i%ple%ent the progra% on the Anti-6r"g ca%paign@ +. To acG"ire facilities either by or thro"gh p"rchase lease beG"est of donations eG"ip%ents ) sic * %achineries ) sic * and s"pplies for p"rposes of carrying o"t its b"siness operation or hold s"ch real or personal properties as %ay be con!enient and proper in order to achie!e the p"rpose of this corporation@ 4. To cooperate with other organi$ations instit"tions with si%ilar acti!ities for p"rposes of carrying o"t its b"siness@ and 3. To organi$e se%inars or conferences specially in the r"ral areas and other selected cities. 2 After obtaining its (7C registration the fo"ndation i%%ediately sw"ng into operation. It sent o"t broch"res soliciting deposits fro% the p"blic ass"ring wo"ld-be depositors that their %oney wo"ld either be do"bled after ., days or trebled after ;: days. Priscilla 5alasa also went aro"nd con!incing people to %ake deposits with the fo"ndation at their office at the 6ia$ Apart%ent P"erto Princesa. The %od"s operandi for in!esting with the fo"ndation was as follows? 1hen a person wo"ld deposit an a%o"nt the a%o"nt wo"ld be taken by a clerk to be gi!en to the teller. The teller wo"ld then fill "p a printed for% called a "slot." These "slots" were part of a booklet with one booklet containing one h"ndred "slots."

The control n"%ber indicated the n"%ber of the "slot" in a booklet while the space after "date" wo"ld contain the date when the slot was acG"ired as well as the date of its %at"rity. The a%o"nt deposited deter%ined the n"%ber of shares one share being eG"i!alent to one h"ndred pesos. The depositor had the discretion when to affi# his signat"re on the space pro!ided therefor. (o%e wo"ld sign their slot only after pay%ent on %at"rity while others wo"ld sign as soon as they were gi!en the slot. 0owe!er witho"t the control n"%ber and the sta%p of the teller d"ly signed or initialed no depositor co"ld clai% the proceeds of his deposit "pon %at"rity. ' After the slot had been filled "p by the teller he wo"ld gi!e it to the clerk assigned o"tside. The clerk wo"ld then gi!e the slot to the depositor. 0ence while it was the teller who prepared and iss"ed the slot he had no direct contact with the depositor. The slots handed to a depositor were signed beforehand by the president of the fo"ndation. 7!ery afternoon the co%ptrollers wo"ld take the list of depositors %ade by the tellers with the a%o"nts deposited by each and ha!e these typed. Nor%a Arancisco wo"ld then recei!e fro% the tellers the a%o"nts deposited by the p"blic. It was also her 2ob to pay the salaries of the fo"ndationCs e%ployees. Aor his part &"iller%o Arancisco wo"ld release %oney whene!er a deposit wo"ld %at"re as indicated in the slots. According to the fo"ndations r"les an in!estor co"ld deposit "p to P+ :::.:: only getting a slot corresponding thereto. Anyone who deposited %ore than that a%o"nt wo"ld howe!er be gi!en a slot b"t the slot had to be in he na%e of another person or se!eral other persons depending "pon the a%o"nt in!ested. According to (yl!ia Magnaye a fo"ndation teller all deposits %at"ring in A"g"st ,-H- were to be tripled. Aor s"ch deposits the slots iss"ed were colored yellow to signify that the depositor wo"ld ha!e his deposit tripled. 6eposits that wo"ld %at"re s"bseG"ent to A"g"st were only gi!en do"ble the a%o"nt deposited. 0owe!er there were ti%es when it was the depositor who wo"ld choose that his deposit be tripled in which case the deposit wo"ld %at"re later. The a%o"nts recei!ed by the fo"ndation were deposited in banks. Th"s a fo"ndation teller wo"ld fro% ti%e to ti%e go to PN5 PCI 5ank 65P and the 9"ral 5ank of Coron to deposit the collections in a 2oint acco"nt in the na%es of Priscilla 5alasa and Nor%a Arancisco. Initially the operation started with a few depositors with %ost depositors in!esting s%all a%o"nts to see whether the fo"ndation wo"ld %ake good on its pro%ise. 1hen the fo"ndation paid do"ble or triple the a%o"nts of their in!est%ent at %at"rity %ost not only rein!ested their earnings b"t e!en added to their initial in!est%ents. As word got aro"nd that deposits co"ld be do"bled within ., days or tripled if the period lasted for %ore than ;: days %ore depositors were attracted. 5linded by the prospect of gaining s"bstantial profits for nothing %ore than a %in"sc"le in!est%ent these in!estors like pre!io"s ones were l"red to rein!est their earnings if not to in!est %ore. Most wo"ld in!est %ore than P+ :::.:: the in!est%ent li%it set by the fo"ndation. Priscilla 5alasa wo"ld howe!er enco"rage depositors to in!est %ore than P+ :::.:: pro!ided that the e#cess was deposited "nder the na%e of others. (he ass"red the depositors that this was safe beca"se as long as the depositor was holding the slots he was the "owner" of the a%o"nt deposited. Most in!estors then deposited a%o"nts in the na%es of their relati!es.

*#

PONZI SC>E2E

Peo%le Vs# Balasa &291 S '9+ ,actsThe Panata Ao"ndation of the Philippines Inc. a non-stock non-profit corporation with principal address at (an Mig"el P"erto Princesa Palawan was registered with the sec"rities and 7#change Co%%ission "nder (.7.C. 9eg. No. ,4++4+. Its ten incoporators were Priscilla 5alasa Nor%ita 'isaya Analina Arancisco Lolita &elilang Cynthia Ang Nor%a Arancisco P"rabel 7spidol Melinda Mercado 9odolfo Ang Jr. and Teresa &. Carandang. Ai!e incorporators na%ely Priscilla 5alasa Nor%ita 'isaya Analina Arancisco Lolita &elilang and Cynthia Ang were na%ed first tr"stees. In addition the %anage%ent of the fo"ndation was entr"sted to Priscilla 5alasa as president and general %anager@ Nor%ita 'isaya as corporate secretary and head co%ptroller@ Nor%a Arancisco as cashier@ &"iller%o Arancisco as the disb"rsing officer@ and Analina Arancisco as treas"rer. The latter also do"bled as a typist of the Ao"ndation. 8n the other hand the e%ployees of the fo"ndation were the tellers 9ose%arie 5alasa (yl!ia Magnaye J"dith Ponciano Jessica 5"aya 9osario Arciaga Pa"l Arancisco 7nriG"ita &abayan and Anita Mac%ac. The co%ptrollers 9"th Jalo!er A%arino Agayo and A!elina Man were "nder the s"per!ision of Nor%ita 'isaya. Nelia 6aco one of the clerks assigned o"tside was the one in direct contact with the depositors. The Ao"ndationCs p"rposes as stated in its by-laws were as follows? ,. Iplift %e%bersC econo%ic condition by way of financial or cons"ltati!e basis ) sic *@

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At the o"tset the fo"ndationCs operations proceeded s%oothly as satisfied in!estors collected their in!est%ents "pon %at"rity. 8n No!e%ber .- ,-Hhowe!er the fo"ndation did not open. 6epositors whose in!est%ents were to %at"re on said date de%anded pay%ents b"t none was forthco%ing. 8n 6ece%ber . ,-H- Priscilla 5alasa anno"nced that since the fo"ndationCs %oney had been in!ested in the stock %arket it wo"ld res"%e operations on 6ece%ber B ,-H-. 8n that date the fo"ndation re%ained closed. 6epositors began to de%and rei%b"rse%ent of their deposits b"t the fo"ndation was "nable to deli!er. ConseG"ently si#ty-fo"r infor%ations all charging the offense of estafa as defined in Presidential 6ecree No. ,4H- were filed against Priscilla 5alasa Nor%ita 'isaya Nor%a Arancisco &"iller%o Arancisco Analina Arancisco and eight other persons %ostly incorporators and e%ployees of the Panata Ao"ndation before the 9egional Trial Co"rt of Palawan. Ao"rteen cases incl"ding Cri%inal Case Nos. HB.- and H3+, were raffled off to 5ranch +.. Two %ore cases Cri%inal Case Nos. H3:B and H3B- were si%ilarly assigned to it. 8f the si#teen casts assigned to 5ranch +. eight were with the consent of the acc"sed pro!isionally dis%issed for lack of e!idence. R.lingIt has been held that where one states that the f"t"re profits or inco%e of an enterprise shall be a certain s"% b"t he act"ally knows that there will be none or that they will be s"bstantially less than he represents the state%ent constit"tes actionable fra"d where the hearer belie!es hi% and relies on the state%ent to his in2"ry. That there was no profit forthco%ing can be clearly ded"ced fro% the fact that the fo"ndation was not engaged nor a"thori$ed to engage in any l"crati!e b"siness to finance its operation. It was not shown that it was the recipient of donations or beG"est with which to finance its "do"ble or triple yo"r %oney" sche%e nor did it ha!e any operating capital to speak of when it started operations. Parenthetically what appellants offered the p"blic was a "Pon$i sche%e " an in!est%ent progra% that offers i%possibly high ret"rns and pays these ret"rns to early in!estors o"t of the capital contrib"ted by later in!estors. Na%ed after Charles Pon$i who pro%oted the sche%e in the ,-.:s the original sche%e in!ol!ed the iss"ance of bonds which offered +:N interest in B+ days or a ,::N profit if held for -: days. 5asically Pon$i "sed the %oney he recei!ed fro% later in!estors to pay e#tra!agant rates of ret"rn to early in!estors thereby ind"cing %ore in!estors to place their %oney with hi% in the false hope of reali$ing this sa%e e#tra!agant rate of ret"rn the%sel!es. This was the !ery sa%e sche%e practiced by the Panata Ao"ndation. 0owe!er the Pon$i sche%e works only as long as there is an e!er-increasing n"%ber of new in!estors 2oining the sche%e. To pay off the +:N bonds Pon$i had to co%e "p with a one-and-a-half ti%es increase with each ro"nd. To pay ,::N profit he had to do"ble the n"%ber of in!estors at each stage and this is the reason why a Pon$i sche%e is a sche%e and not an in!est%ent strategy. The progression it depends "pon is "ns"stainable. The pattern of increase in the n"%ber of participants in the syste% e#plains how it is able to s"cceed in the short r"n and at the sa%e ti%e why it %"st fail in the long r"n. This ga%e is diffic"lt to s"stain o!er a long period of ti%e beca"se to contin"e paying the pro%ised profits to early in!estors the operator needs an e!er larger pool of later in!estors. The idea behind this type of swindle is that the "con-%an" collects his %oney fro% his second or third ro"nd of in!estors and then absconds before anyone else shows "p to collect. Necessarily these sche%es only last weeks or %onths at %ost. Note sho"ld also be taken of the fact that appellants "sed "slots" in their operation. These slots are act"ally sec"rities the iss"ance of which needs the appro!al of the (ec"rities and 7#change Co%%ission. Dnowing f"lly well that the (.7.C. wo"ld not appro!e the iss"ance of sec"rities by a non-stock nonprofit organi$ation the operators of the Pon$i sche%e ne!ertheless applied for registration as a fo"ndation an entity not allowed to engage in sec"rities. Ainally if the fo"ndation were indeed legiti%ate the incorporators o"tside of the %e%bers of the Arancisco fa%ily wo"ld not ha!e escaped fro% the cl"tches of the law. If the fo"ndation and its in!est%ent sche%e were legal then it behoo!ed the% to co%e o"t and testify for their own e#oneration. The wicked flee when no %an p"rs"eth? b"t the righteo"s are bold as a lion. '# VIOLATION O, SRC

(C5 was able to sell &TPMA sec"rities worth aro"nd P4 billion to so%e 4B+ in!estors. 0owe!er (C5/s operations did not re%ain "nchallenged. 8n J"ly ,H ,--3 the In!est%ent Capital Association of the Philippines )ICAP* filed with the (7C a co%plaint alleging that (C5 !iolated the 9e!ised (ec"rities Act partic"larly the pro!ision prohibiting the selling of sec"rities witho"t prior registration with the (7C@ and that its actions are potentially da%aging to the local %"t"al f"nd ind"stry. In its answer (C5 denied offering and selling sec"rities contending that it has been perfor%ing a =p"rely infor%ational f"nction> witho"t solicitations for any of its in!est%ent o"tlets abroad@ that it has a tr"st license and the ser!ices it renders "nder the =C"stodianship Agree%ent> for offshore in!est%ents are a"thori$ed by (ection 3. of the &eneral 5anking Act@ that its clients were the ones who took the initiati!e to in!est in sec"rities@ and it has been acting %erely as an agent or =passi!e order taker> for the%. 8n (epte%ber . ,--3 the (7C iss"ed a Cease and 6esist 8rder against (C5 holding that its ser!ices !iolated (ections B)a* and ,- of the 9e!ised (ec"rities Act. Meanwhile the 5(P directed (C5 not to incl"de in!est%ents in global %"t"al f"nds iss"ed abroad in its tr"st in!est%ents portfolio witho"t prior registration with the (7C. (C5 sent a letter to the 5(P confir%ing that it will withdraw third-party f"nd prod"cts which co"ld be directly p"rchased by in!estors. 0owe!er notwithstanding its co%%it%ent and the 5(P directi!e (C5 contin"ed to offer and sell &TPMA sec"rities in this co"ntry. This pro%pted petitioner to enter into an In!est%ent Tr"st Agree%ent with (C5 wherein he p"rchased I(KH :::.:: worth of sec"rities "pon the bank/s pro%ise of B:N ret"rn on his in!est%ent and a g"arantee that his %oney is safe. After si# )4* %onths howe!er petitioner learned that the !al"e of his in!est%ent went down to I(K3 :::.::. Meanwhile on No!e%ber .3 .::: the 5(P fo"nd that (C5 failed to co%ply with its directi!e of A"g"st ,3 ,--H. ConseG"ently it was fined in the a%o"nt of P;: :::.::. 8n J"ly ,+ .::; petitioner filed with the 6epart%ent of J"stice )68J* a co%plaint charging the abo!e-na%ed officers and %e%bers of the (C5 5oard of 6irectors and other (C5 officials with syndicated estafa. 8n Aebr"ary 3 .::B petitioner filed with the 68J a co%plaint for !iolation of (ection H., of the (ec"rities 9eg"lation Code against pri!ate respondents docketed as I.(. No. .::B-..-. Iss.e1<N the petitioner/s co%plaint for !iolation of (ec"rities 9eg"lation Code with the 68J is proper R.ling(ection +;., of the (ec"rities 9eg"lation Code pro!ides? (7C. +;. -nvestigations# -njunctions and Prosecution of <ffenses .P +;. ,. The Co%%ission %ay in its discretion %ake s"ch in!estigation as it dee%s necessary to deter%ine whether any person has !iolated or is abo"t to !iolate any pro!ision of this Code any r"le reg"lation or order there"nder or any r"le of an 7#change registered sec"rities association clearing agency other self-reg"latory organi$ation and %ay reG"ire or per%it any person to file with it a state%ent in writing "nder oath or otherwise as the Co%%ission shall deter%ine as to all facts and circ"%stances concerning the %atter to be in!estigated. The Co%%ission %ay p"blish infor%ation concerning any s"ch !iolations and to in!estigate any fact condition practice or %atter which it %ay dee% necessary or proper to aid in the enforce%ent of the pro!isions of this Code in the prescribing of r"les and reg"lations there"nder or in sec"ring infor%ation to ser!e as a basis for reco%%ending f"rther legislation concerning the %atters to which this Code relates? Provided# o&ever That any person reG"ested or s"bpoenaed to prod"ce doc"%ents or testify in any in!estigation shall si%"ltaneo"sly be notified in writing of the p"rpose of s"ch in!estigation? Provided# furt er T"at all c$i:inal co:%laints fo$ Ciolations of t"is Code and t"e i:%le:enting $.les and $eg.lations enfo$ced o$ ad:iniste$ed 4? t"e Co::ission s"all 4e $efe$$ed to t"e De%a$t:ent of <.stice fo$ %$eli:ina$? inCestigation and %$osec.tion 4efo$e t"e %$o%e$ co.$t- Provided# furt ermore# That in instances where the law allows independent ci!il or cri%inal proceedings of !iolations arising fro% the act the Co%%ission shall take appropriate action to i%ple%ent the sa%e? Provided# finall$@ That the in!estigation prosec"tion and trial of s"ch cases shall be gi!en priority. The Co"rt of Appeals held that "nder the abo!e pro!ision a cri%inal co%plaint for !iolation of any law or r"le ad%inistered by the (7C %"st first be filed with the latter. If the Co%%ission finds that there is probable ca"se then it sho"ld refer the case to the 68J. (ince petitioner failed to co%ply with the foregoing proced"ral reG"ire%ent the 68J did not gra!ely ab"se its discretion in dis%issing his co%plaint in I.(. No. .::B-..-.

BaCie$a Vs# PaglinaAan &1 1 S (0+ ,actsMan"el 5a!iera petitioner in these cases was the for%er head of the 09 (er!ice 6eli!ery and Ind"strial 9elations of (tandard Chartered 5ankPhilippines )(C5* one of herein respondents. (C5 is a foreign banking corporation d"ly licensed to engage in banking tr"st and other fid"ciary b"siness in the Philippines. As early as ,--4 it acted as a stock broker soliciting fro% local residents foreign sec"rities called =&L85AL T0I96 PA9TM MITIAL AIN6(> )&TPMA* deno%inated in I( dollars. These sec"rities were not registered with the (ec"rities and 7#change Co%%ission )(7C*. These were then re%itted o"twardly to (C5-0ong Dong and (C5-(ingapore.

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A cri%inal charge for !iolation of the (ec"rities 9eg"lation Code is a speciali$ed disp"te. 0ence it %"st first be referred to an ad%inistrati!e agency of special co%petence i.e. the (7C. Inder the doctrine of pri%ary 2"risdiction co"rts will not deter%ine a contro!ersy in!ol!ing a G"estion within the 2"risdiction of the ad%inistrati!e trib"nal where the G"estion de%ands the e#ercise of so"nd ad%inistrati!e discretion reG"iring the speciali$ed knowledge and e#pertise of said ad%inistrati!e trib"nal to deter%ine technical and intricate %atters of fact. The (ec"rities 9eg"lation Code is a special law. Its enforce%ent is partic"larly !ested in the (7C. 0ence all co%plaints for any !iolation of the Code and its i%ple%enting r"les and reg"lations sho"ld be filed with the (7C. 1here the co%plaint is cri%inal in nat"re the (7C shall indorse the co%plaint to the 68J for preli%inary in!estigation and prosec"tion as pro!ided in (ection +;., earlier G"oted. 1e th"s agree with the Co"rt of Appeals that petitioner co%%itted a fatal proced"ral lapse when he filed his cri%inal co%plaint directly with the 68J. 'erily no gra!e ab"se of discretion can be ascribed to the 68J in dis%issing petitioner/s co%plaint. 1# ,UTURES TRADING

(ec. . . . .? )a* (ec"rities shall incl"de bonds . . . co%%odity f"t"res contracts . . . The 9e!ised 9"les and 9eg"lations on Co%%odity A"t"res Trading iss"ed by the (7C and appro!ed by the Monetary 5oard of the Central bank defines s"ch contracts as follows? "Co%%odity A"t"res Contract" shall refer to an agree%ent to b"y or sell a specified G"antity and grade of a co%%odity at a f"t"re date at a price established at the floor of the e#change. The petitioner is a d"ly licensed co%%odity f"t"res broker as defined "nder the 9e!ised 9"les and 9eg"lations on Co%%odity A"t"res Trading as follows? "A"t"res Co%%ission Merchant<5roker" shall refer to a corporation or partnership which %"st be registered and licensed as a A"t"res Co%%ission Merchant<5roker and is engaged in soliciting or in accepting orders for the p"rchase or sale of any co%%odity for f"t"re deli!ery on or s"b2ect to the r"les of the contract %arket and that in connection with s"ch solicitation or acceptance of orders accepts any %oney sec"rities or property )or e#tends credit in lie" thereof* to %argin g"arantee or sec"re any trade or contract that res"lts or %ay res"lt therefro%. At the ti%e pri!ate respondent entered into the transaction with the petitioner she signed a doc"%ent deno%inated as "Trading Contract" in printed for% as prepared by the petitioner represented by its 5ranch Manager Albert Chia% incorporating the 9"les for Co%%odity Trading. A copy of said contract was f"rnished to the pri!ate respondent b"t the contents thereof were not e#plained to the for%er beyond what was told her by the petitionerCs Acco"nt 7#ec"ti!e 7li$abeth 6ia$. Pri!ate respondent was also told that the petitionerCs principal was Arankwell 7nterprises with offices in 0ongkong b"t the pri!ate respondentCs %oney which was s"pposed to ha!e been trans%itted to 0ongkong was kept by petitioner in a separate acco"nt in a local bank. The e!idence of Ch"a tend to show that in her transactions with the 8napal the parties ne!er intended to %ake or accept deli!ery of any partic"lar co%%odity b"t the parties %erely %ade a spec"lation on the rise or fall in the %arket of the contract price of the co%%odity s"b2ect of the transaction on the pretended date of deli!ery so that if the forecast was correct one party wo"ld %ake a profit b"t if the forecast was wrong one party wo"ld lose %oney. Inder this sche%e Ch"a was only able to reco!er PB3: :::.:: o"t of her original and "additional" deposit of PH:: :::.:: with the defendant. Petitioner ad%its that in all the transactions that it had with Ch"a there was no act"al deli!eries and that it has %ade no arrange%ent with the Central 5ank for the re%ittance of its c"sto%erCs %oney abroad b"t contends in its defense that the %ere fact that there were no act"al deli!eries %ade in the transactions which Ch"a had with petitioner did not %ean that no s"ch act"al deli!eries were intended by the parties since paragraph ,: of the r"les for co%%odity trading attached to the trading contract which Ch"a signed before she traded with the petitioner a%ply pro!ides for act"al deli!ery of the co%%odity s"b2ect of the transaction. The trading contract signed by pri!ate respondent and Albert Chia% representing petitioner is a contract for the sale of prod"cts for f"t"re deli!ery in which either seller or b"yer %ay elect to %ake or de%and deli!ery of goods agreed to be bo"ght and sold b"t where no s"ch deli!ery is act"ally %ade. 5y deli!ery is %eant the act by which the res or s"b2ect is placed in the act"al or constr"cti!e possession or control of another. It %ay be act"al as when physical possession is gi!en to the !endee or his representati!e@ or constr"cti!e which takes place witho"t act"al transfer of goods b"t incl"des sy%bolic deli!ery or s"bstit"ted deli!ery as when the e!idence of title to the goods the key to the wareho"se or bill of lading<wareho"se receipt is deli!ered. As a contract in printed for% prepared by petitioner and ser!ed on pri!ate respondent for the latterCs signat"re the trading contract bears all the indicia of a !alid trading contract beca"se it co%plies with the 9"les and 9eg"lations on Co%%odity A"t"res Trading as prescribed by the (7C. 5"t when the transaction which was carried o"t to i%ple%ent the written contract de!iates fro% the tr"e i%port of the agree%ent as when no s"ch deli!ery act"al or constr"cti!e of the co%%odity or goods is %ade and final settle%ent is %ade by pay%ent and receipt of only the difference in prices at the ti%e of deli!ery fro% that pre!ailing at the ti%e the sale is %ade the dealings in f"t"res beco%e %ere spec"lati!e contracts in which the parties %erely ga%ble on the rise or fall in prices. A contract for the sale or p"rchase of goods<co%%odity to be deli!ered at f"t"re ti%e if entered into witho"t the intention of ha!ing any goods<co%%odity pass fro% one party to another b"t with an "nderstanding that at the appointed ti%e the p"rchaser is %erely to recei!e or pay the difference between the contract and the %arket prices is a transaction which the law will not sanction for being illegal. The facts clearly establish that the petitioner is a direct participant in the transaction acting thro"gh its a"thori$ed agents. It recei!ed the c"sto%erCs orders and pri!ate respondentCs %oney. As per ter%s of the trading contract c"sto%erCs orders shall be directly trans%itted by the petitioner as broker to its principal Arankwell 7nterprises Ltd. of 0ongkong being a registered %e%ber of the International Co%%odity Clearing 0o"se which in t"rn %"st place the c"sto%erCs orders with the Tokyo 7#change. There is no e!idence that the orders and %oney were trans%itted to its principal Arankwell 7nterprises Ltd. in 0ongkong nor were the orders forwarded to the Tokyo 7#change. 1e draw

Ona%al Vs# CA &2 7 S 27 + ,acts8NAPAL Philippines Co%%odities Inc. )petitioner* a d"ly organi$ed and e#isting corporation was licensed as co%%ission %erchant<broker by the (7C to engage in co%%odity f"t"res trading in Ceb" City. 8napal and Ch"a concl"ded a "Trading Contract". Like all c"sto%ers of the petitioner pri!ate respondent was f"rnished reg"larly with "Co%%odities 6aily R"otations" showing daily %o!e%ents of prices of co%%odity f"t"res traded and of %arket reports indicating the !ol"%e of trade in different f"t"re e#changes in 0ongkong Tokyo and other centers. 7!ery ti%e a c"sto%er enters into a trading transaction with petitioner as broker the trading order is co%%"nicated by tele# to its principal Arankwell 7nterprises of 0ongkong. If the transaction either b"ying or selling co%%odity f"t"res is cons"%%ated by the principal the petitioner iss"es a doc"%ent known as "Confir%ation of Contract and 5alance (heet" to the c"sto%er. An order of a c"sto%er of the petitioner is s"pposed to be trans%itted fro% Ceb" to petitionerCs office in Manila. Aro% Manila it sho"ld be forwarded to 0ongkong and fro% there trans%itted to the Co%%odity A"t"res 7#change in Japan. There were only two parties in!ol!ed as far as the transactions co!ered by the Trading Contract are concerned W the petitioner and the pri!ate respondents. (o%eti%e in April of ,-H; Ch"a was in!ited by 8napalCs Acco"nt 7#ec"ti!e 7li$abeth 6ia$ to in!est in the co%%odity f"t"res trading by depositing the a%o"nt of P+:: :::.::@ (he was f"rther told that the b"siness is "profitable" and that she co"ld withdraw her %oney anyti%e@ she was f"rther%ore instr"cted to go to the 8napal 8ffice where she %et the Manager Mr. Cia% and the Acco"nt 7#ec"ti!e 7li$abeth 6ia$ who told her that they wo"ld take care of how to trade b"siness and her acco"nt. (he was then %ade to sign the Trading Contract and other doc"%ents witho"t %aking her aware<"nderstand the risks in!ol!ed@ that at the ti%e they let her sign "those papers" they were telling her that those papers were for "for%ality sake"@ that when she was told later on that she %ade a profit of P.: BH:.:: in a span of three days in the first transaction they told her that the b"siness is "!ery profitable". 8n J"ne . ,-H; Ch"a was infor%ed by Miss 6ia$ that she had to deposit an additional a%o"nt of P;:: :::.:: "to pay the difference" in prices otherwise she will lose her original deposit of P+:: :::.::@ Aearing the loss of her original deposit she was constrained to deposit an additional a%o"nt of P;:: :::.::@ (ince she was %ade to "nderstand that she co"ld withdraw her deposit<in!est%ent anyti%e she not knowing how the b"siness is operated<%anaged as she was not %ade to "nderstand what the b"siness was all abo"t she wanted to withdraw her in!est%ent@ b"t 7li$abeth 6ia$ told her she co"ld not get o"t beca"se there are so%e acco"nts hanging on the transactions. Ch"a f"rther testified that she "nderstood the transaction of b"ying and selling as spec"lating in prices and her paying the difference between gains and losses witho"t act"al deli!ery of the goods to be ga%bling and she wo"ld like to withdraw fro% this kind of b"siness the risk of which she was not %ade aware of. (he f"rther testified that she stopped trading in co%%odity f"t"res in (epte%ber ,-H; when she reali$ed she was engaged in ga%bling. (he was able to get only PB3: :::.:: o"t of her total deposit of PH:: :::.::. In order to reco!er the loss of P;;: :::.:: she filed this case and engaged the ser!ices of co"nsel for PB: :::.:: and e#pects to inc"r e#penses of litigation in the s"% of P.: :::.::." Iss.e1<N the Trading Contract on "f"t"res" is a specie of ga%bling and therefore n"ll and !oid R.ling-

A co%%odity f"t"res contract is a specie of sec"rities incl"ded in the broad definition of what constit"tes sec"rities "nder (ection . of the 9e!ised (ec"rities Act.

137

the concl"sion that no act"al deli!ery of goods and co%%odity was intended and e!er %ade by the parties. In the realities of the transaction the parties %erely spec"lated on the rise and fall in the price of the goods<co%%odity s"b2ect %atter of the transaction. If pri!ate respondentCs spec"lation was correct she wo"ld be the winner and the petitioner the loser so petitioner wo"ld ha!e to pay pri!ate respondent the "%argin". 5"t if pri!ate respondent was wrong in her spec"lation then she wo"ld e%erge as the loser and the petitioner the winner. The petitioner wo"ld keep the %oney or collect the difference fro% the pri!ate respondent. This is clearly a for% of ga%bling pro!ided for with "n%istakeable certainty "nder Article .:,H abo!estated. It wo"ld th"s be go!erned by the New Ci!il Code and not by the 9e!ised (ec"rities Act nor the 9"les and 9eg"lations on Co%%odity A"t"res Trading laid down by the (7C. After considering all the e!idence in this case it appears that petitioner and pri!ate respondent did not intend in the deals of p"rchasing and selling for f"t"re deli!ery the act"al or constr"cti!e deli!ery of the goods<co%%odity despite the pay%ent of the f"ll price therefor. The contract between the% falls "nder the definition of what is called "f"t"res". The pay%ents %ade "nder said contract were pay%ents of difference in prices arising o"t of the rise or fall in the %arket price abo!e or below the contract price th"s %aking it p"rely ga%bling and declared n"ll and !oid by law. Inder Article .:,H the pri!ate respondent is entitled to ref"nd fro% the petitioner what she paid. There is no e!idence that the orders of pri!ate respondent were act"ally trans%itted to the petitionerCs principal in 0ongkong and Tokyo. There was no arrange%ent %ade by petitioner with the Central 5ank for the p"rpose of re%itting the %oney of its c"sto%ers abroad. The %oney which was s"pposed to be re%itted to Arankwell 7nterprises of 0ongkong was kept by petitioner in a separate acco"nt in a local bank. 0a!ing recei!ed the %oney and orders of pri!ate respondent "nder the trading contract petitioner has the b"rden of pro!ing that said orders and %oney of pri!ate respondent had been trans%itted. 5"t petitioner failed to pro!e this point. S.eensland/To5?o Vs# 2ats.da &1 2 S 2()+ ,actsThis is a case for reco!ery of in!est%ents with da%ages filed by the Margie Mats"da against R"eensland-Tokyo Co%%odities Inc. a corporation then engaged as a co%%odity f"t"res broker and its officers and directors citing as gro"nds therefor the alleged n"llity of co%plainant/s spot<f"t"res contracts for ha!ing been allegedly traded and s"per!ised by "nlicensed e%ployees of RTCI in !iolation of (ection .: and ;;-A of the 9e!ised 9"les and 9eg"lations on Co%%odity A"t"res Trading. 8n J"ly ,; ,--+ Mats"da agreed to in!est with RTCI on the basis of its officers/ representations that in!est%ents in c"rrency contracts are !ery profitable and that her acco"nt wo"ld be handled by licensed in!est%ent cons"ltants. Charlie Collado ind"ced her to i%%ediately sign the C"sto%er/s Agree%ent and 9isk 6isclos"re (tate%ent witho"t e#plaining the contents thereof@ that she %ade in!est%ents in RTCI on J"ly ,; ,--+ in the a%o"nt of P,+: :::.:: and an additional a%o"nt of P. ::: :::.:: on J"ly .B ,--+@ that she was reG"ired to e#ec"te a (pecial Power of Attorney a"thori$ing Aeli# (a%paga and that within the sa%e period co%plainant/s acco"nt inc"rred s"bstantial losses@ and that so%eti%e in April ,--4 "pon !erification with the (ec"rities and 7#change Co%%ission )(7C* co%plainant learned for the first ti%e that Aeli# (a%paga and Charlie Collado were not licensed by the (7C@ that she de%anded the ret"rn of her in!est%ents b"t the petitioners ref"sed to co%ply and that since her c"rrency contracts are n"ll and !oid for ha!ing been traded and s"per!ised by "nlicensed e%ployees she is entitled to the ret"rn of her in!est%ents in the total a%o"nt of P. ,+: :::.::. Petitioners denied ha!ing %ade %isrepresentations and false pretenses to the co%plainant alleging a%ong others that it was the co%plainant together with her Japanese h"sband who ca%e to the office of RTCI on J"ly ,; ,--+ to pen an acco"nt with an initial deposit of P,+: :::.::. The petitioners f"rther alleged that Charlie Collado did not ind"ce the co%plainant to sign the C"sto%er/s Agree%ent and 9isk 6isclos"re (tate%ent@ that Collado is not in!ol!ed in the %arketing of in!est%ents beca"se he is only in charge of operations@ that Collado did not %isrepresent hi%self as a licensed cons"ltant and that he signed in behalf of RTCI on the C"sto%er/s Agree%ent as part of his official f"nction which does not howe!er reG"ire a license@ that co%plainant deposited P. ::: :::.:: on J"ly .B ,--+ to open a second acco"nt after she %ade a profit in the a%o"nt of P43 -3H.4, "nder her first acco"nt@ and that the attorney-in-fact of the co%plainant is Jose =Joel> Col%enar and not Aeli# (a%paga@ that Jose =Joel> Col%enar was d"ly licensed by the (7C as Co%%odity A"t"res sales%an. Iss.e1<N the Co%%ission en banc erred in dis%issing petitioner/s appeal R.lingThe co%%ission en banc did not err in dis%issing the petitioners/ appeal. Petitioners/ arg"%ent is that p"rs"ant to the A"g"st ;, ,--- New 9"les of Proced"re partic"larly (ec. , of 9"le Q' it had fifteen ),+* days fro% 6ece%ber 4 ,--- the date they recei!ed the denial of their Motion for 9econsideration or "p to 6ece%ber ., ,---. And since they filed their appeal on 6ece%ber .: ,--- EsoF then it was filed on ti%e.

("ch arg"%ent is %isplaced. Petitioners wo"ld in!oke the new r"les if fa!orable to the% b"t wo"ld disregard a clear one if ad!erse to their stand. Petitioners sho"ld be consistent. If they want to ha!e the J"ly ,+ ,--- r"le apply to the% then they sho"ld not be selecti!e in its application. Inder (ec. H 9"le Q' of the sa%e r"le a Motion for 9econsideration is a prohibited pleading. ("ch being the case the 2"dg%ent of the 0earing 8fficer has beco%e final and e#ec"tory p"rs"ant to (ec. , of 9"le Q'I of said 9"le. More so "nder the old r"le Inder (ec. ; 9"le Q'I of the old r"les the ti%e d"ring which EtheF Motion for 9econsideration is pending shall be ded"cted fro% the period for perfecting an appeal. P"rs"ant to said 9"le petitioners were twel!e ),.* days late in filing the appeal. 7ither way therefore "nder the old or the new 9"le the dis%issal of the appeal by the respondent Co%%ission is proper and !alid. The other gro"nds relied "pon G"estions of the finding of facts and concl"sions of the 0earing 8fficer. Petitioners o"ght to be %inded that in re!iewing ad%inistrati!e decisions the findings of fact %ade therein %"st be respected as long as they are s"pported by s"bstantial e!idence. )Lo !. CA ;., (C9A ,-:*. 1e ha!e caref"lly read the decision so"ght to be Ere!iewedF and 1e are con!inced that the sa%e is s"pported by s"bstantial e!idence. In fact the iss"es raised herein are the sa%e iss"es raised by Petitioners in its Motion for 9econsideration filed with the 0earing 8fficer. In s"% it was s"fficiently pro!en that only respondent Charlie Collado and Aeli# (a%paga had in fact assented to the "nlawf"l acts of respondent corporation Eand theyF sho"ld 2ointly and se!erally EbeF liable for the pay%ent of all da%ages s"stained and which are s"fficiently pro!en by the co%plainant. )# TENDER O,,ER

Os:ena III Vs# SSS &1** S * *+ ,acts(o%eti%e in .::; ((( a go!ern%ent financial instit"tion )&AI* created p"rs"ant to 9ep"blic Act )9A* No. ,,4, and placed "nder the direction and control of ((C took steps to liG"efy its long-ter% in!est%ents and di!ersify the% into higher-yielding and less !olatile in!est%ent prod"cts. A%ong its assets deter%ined as needing to be liG"efied were its shareholdings in 7PCI5. The principal reason behind the intended disposition as e#plained by respondent 6ela Pa$ d"ring the Aebr"ary B .::B hearing cond"cted by the (enate Co%%ittee on 5anks Ainancial Instit"tions and C"rrencies is that the shares in G"estion ha!e s"bstantially declined in !al"e and the ((( co"ld no longer afford to contin"e holding on to the% at the present le!el of 7PCI5/s inco%e. Albeit there were other interested parties only 5anco de 8ro Ini!ersal 5ank )568* and its in!est%ent s"bsidiary respondent 568 Capital appeared in earnest to acG"ire the shares in G"estion. Aollowing talks between the% 568 and ((( signed on 6ece%ber ;: .::; a Letter- Agree%ent for the sale and p"rchase of so%e ,H3.H %illion 7PCI5 co%%on shares )the (hares hereinafter* at PB;.+: per share which represents a pre%i"% of ;:N of the then %arket !al"e of the 7PCI5 shares. At abo"t this ti%e the (hares were trading at an a!erage of P;B.+: ] share. 8n April ,- .::B the Co%%ission on A"dit )C8A* in response to respondent 6ela Pa$/s letter-G"ery on the applicability of the p"blic bidding reG"ire%ent "nder C8A Circ"lar No. H--.-4 on the di!est%ent by the ((( of its entire 7PIC5 eG"ity holdings stated that the Acircular covers all assets of government agencies e'cept t ose merc andi>e or inventor$ eld for sale in t e regular course of business. > And while it e#pressed the opinion that the sale of the s"b2ect (hares are = subject to guidelines in t e Circular# > the C8A G"alified its deter%ination with a state%ent that s"ch negotiated sale wo"ld partake of a stock e#change transaction and therefore wo"ld be adhering to the general policy of p"blic a"ction. 8n J"ly ,B .::B ((C passed 9es. No. B.H appro!ing as earlier stated the sale of the 7PCI5 shares thro"gh the S&iss C allenge %ethod. A %onth later the eG"ally assailed 9es. No. BH+ was also passed. 8n A"g"st .; .B and .+ .::B ((( ad!ertised an -nvitation to Bid for the block p"rchase of the (hares. The -nvitation to Bid e#pressly pro!ided that the =result of t e bidding is subject to t e rig t of B;< Capital 5 to matc t e ig est bid.> 8ctober .: .::B was the date set for deter%ining the winning bid. The records do not show whether or not any interested gro"p<s s"b%itted bids. The botto% line howe!er is that e!en before the bid en!elopes if any co"ld be opened the herein petitioners co%%enced the instant special ci!il action for certiorari setting their sights pri%arily on the legality of the S&iss C allenge angle and a pro!ision in the -nstruction to Bidders "nder which the ((( "ndertakes to offer the (hares to 568 sho"ld no bidder or prospecti!e bidder G"alifies. And as earlier %entioned the Co"rt via a status quo order effecti!ely s"spended the proceedings on the proposed sale. Inder the S&iss C allenge for%at one of the bidders is gi!en the option or preferential =rig t to matc > the winning bid.

138

Petitioners assert in gist that a p"blic bidding with a S&iss C allenge co%ponent is contrary to C8A Circ"lar No. H--.-4 and p"blic policy which reG"ires adherence to co%petiti!e p"blic bidding in a go!ern%ent-contract award to ass"re the best price possible for go!ern%ent assets. Accordingly the petitioners "rge that the planned disposition of the (hares thro"gh a S&iss C allenge %ethod be scrapped. As arg"ed the S&iss C allenge feat"re tends to disco"rage wo"ld-be-bidders fro% "ndertaking the e#pense and effort of bidding if the chance of winning is di%inished by the preferential =rig t to matc > cla"se. P"shing the point petitioners a!er that the (hares are in the nat"re of long-ter% or non-c"rrent assets not reg"larly traded or held for sale in the reg"lar co"rse of b"siness. As s"ch their disposition %"st be go!erned by the afore%entioned C8A circ"lar which s"b2ect to se!eral e#ceptions prescribes =p"blic a"ction> as a pri%ary %ode of disposal of &AIs/ assets. And ob!io"sly finding the proposed p"rchase price to be inadeG"ate the petitioners e#pressed the belief that Aif properl$ bidded out in accordance &it 3t e4 C<A Circular 5# t e S ares could be sold at a price of at least Si't$ Pesos CPVE.EEF per s are.> 8ther s"pporting arg"%ents for allowing certiorari are set forth in so%e detail in the basic petition. Pending consideration of the petition s"per!ening e!ents and corporate %o!e%ents transpired that radically altered the fact"al co%ple#ion of the case. (o%e of these "ndisp"ted e!ents are? 568 %ade p"blic its intent to %erge with 7PCI5 the &(I( p"blicly anno"nced recei!ing fro% an "ndisclosed entity an offer to b"y its stake in 7PCI5 P ,.N of the bank/s o"tstanding capital stock P at P-..:: per share and S2 InCest:ents Co$%o$ation an affiliate of 568 and 568 Capital a %andatory tender offer )Tender 8ffer* co!ering the p"rchase of the enti$e o.tstanding ca%ital stoc5 of EPCIB at P92#00 %e$ s"a$e. 8wing to the foregoing de!elop%ents the Co"rt on 8ctober ; .::4 iss"ed a 9esol"tion reG"iring the Wparties to C<N2-=M ne&s reports t at price of subject s ares as been agreed upon at PO)( and if so# to MAN-26S, & et er t is case as become moot.: Airst to co%ply with the abo!e were p"blic respondents ((( et al.# by filing their Compliance and Manifestation# therein essentially stating that the case is now %oot in !iew of the (M-568 &ro"p/s Tender 8ffer at P-..:: ] "nit share for the s"b2ect 7PCI5 co%%on shares incl"si!e of the ((( shares s"b2ect of the petition. They also stated the obser!ation that the petitioners/ Manifestation and Motion to ,a%e Gudicial Notice ne!er G"estioned the Tender 8ffer th"s confir%ing the dispensability of a co%petiti!e p"blic bidding in the disposition of s"b2ect (hares. R.lingThe case with the !iew we take of it has indeed beco%e %oot and acade%ic for interrelated reasons. 1e start off with the core s"b2ect of this case. As %ay be noted the LetterAgree%ent the (PA the ((C resol"tions assailed in this reco"rse and the -nvitation to Bid sent o"t to i%ple%ent said resol"tions all ha!e a co%%on s"b2ect? the (hares P the ,H3.HB Million 7PCI5 co%%on shares. It cannot be o!ere%phasi$ed howe!er that the (hares as a necessary conseG"ence of the 568-7PCI5 %erger which saw 7PCI5 being absorbed by the s"r!i!ing 568 ha!e been t$ansfe$$ed to 568 and conCe$ted into BDO co%%on s"a$es "nder the e#change ratio set forth in the 568-7PCI5 Plan of Merger. As th"s con!erted the s"b2ect (hares are no longer eG"ity sec"rity iss"ances of the now def"nct 7PCI5 b"t those of 568-7PCI which needless to stress is a totally separate and distinct entity fro% what "sed to be 7PCI5. In net effect therefore the ,H3.HB Million 7PCI5 co%%on shares are now lost or ine#istent. And in this regard the Co"rt takes 2"dicial notice of the disappearance of 7PCI5 stocks fro% the local bo"rse listing. Instead 5687PCI (tocks are presently listed and being traded in the P(7. 1ith the abo!e consideration respondent ((( or ((C cannot "nder any circ"%stance ca"se the i%ple%entation of the assailed resol"tions let alone proceed with the planned disposition of the (hares be it via the traditional co%petiti!e bidding or the challenged p"blic bidding with a S&iss C allenge feat"re. At any rate the %oot-and-acade%ic angle wo"ld still hold sway e!en if it were to be ass"%ed hypothetically that the s"b2ect (hares are still e#isting. This is so for the s"per!ening 568-7PCI5 %erger has so effected changes in the circ"%stances of ((( and 568<568 Capital as to render the f"lfill%ent of any of the obligations that each %ay ha!e agreed to "ndertake "nder either the Letter-Agree%ent the (PA or the S&iss C allenge package legally i%possible. 1hen the ser!ice has beco%e so diffic"lt as to be %anifestly beyond the conte%plation of the parties total or partial release fro% a prestation and fro% the co"nter-prestation is allowed. Inder the theory of rebus sic stantibus# the parties stip"late in the light of certain pre!ailing conditions and once these conditions cease to e#ist the contract also ceases to e#ist. Ipon the facts obtaining in this case it is ab"ndantly clear that the conditions in which ((( and 568 Capital and<or 568 e#ec"ted the Letter-Agree%ent "pon which the pricing co%ponent P at PB;.+: per share P of the -nvitation to Bid was predicated ha!e ceased to e#ist. Accordingly the i%ple%entation of the Letter- Agree%ent or of the challenged 9es. Nos. B.H and BH+ cannot pla"sibly p"sh thro"gh e!en if the central fig"res in this case are so %inded. Lest it be o!erlooked 568-7PCI in a %anner of speaking stands now as the iss"er of what were once the s"b2ect (hares. ConseG"ently sho"ld ((( opt

to e#it fro% 568 and 568 Capital or 568 Capital in t"rn opt to p"rs"e (((/s shareholdings in 7PCI5 as th"s con!erted into 568 shares the salep"rchase o"ght to be via an Iss"er Tender 8ffer -- a phrase which %eans a p"blicly anno"nced intention by an iss"er to acG"ire any of its own class of eG"ity sec"rities or by an affiliate of s"ch iss"er to acG"ire s"ch sec"rities . In that e!ent"ality 568 or 568 Capital cannot possibly e#ercise the =right to %atch> "nder the S&iss C allenge proced"re a tender offer being wholly inconsistent with p"blic bidding. The offeror or b"yer in an iss"e tender offer transaction proposes to b"y or acG"ire at the stated price and gi!en ter%s its own shares of stocks held by its own stockholder who in t"rn si%ply ha!e to accept the tender to effect the sale. No bidding is in!ol!ed in the process. Aor perspecti!e a =tender offer> is a p"blicly anno"nced intention by a person acting alone or in concert with other persons to acG"ire eG"ity sec"rities of a p"blic co%pany i.e. one listed on an e#change a%ong others. The ter% is also defined as =an offer b$ t e acquiring person to stoc% olders of a public compan$ for t em to tender t eir s ares t erein on t e terms specified in t e offer: Tender offer is in place to protect the interests of %inority stockholders of a target co%pany against any sche%e that dil"tes the share !al"e of their in!est%ents. It affords s"ch %inority shareholders the opport"nity to withdraw or e#it fro% the co%pany "nder reasonable ter%s a chance to sell their shares at the sa%e price as those of the %a2ority stockholders. (# I2POSITION O, ,INES

SEC Vs# CA &2') S (*7+ ,actsC"aloping (ec"rities Corporation is a stockbroker Aidelity (tock Transfer Inc. on the other hand is the stock transfer agent of Phile# Mining Corporation. 8n or abo"t the first half of ,-HH certificates of stock of P0IL7Q representing one %illion fo"r h"ndred Etho"sandF ), B:: :::* shares were stolen fro% the pre%ises of AI67LITM. These stock certificates consisting of stock di!idends of certain P0IL7Q shareholders had been ret"rned to AI67LITM for lack of forwarding addresses of the shareholders concerned. Later the stolen stock certificates ended in the hands of a certain Ag"stin Lope$ a messenger of Ne& Horld Securit$ -nc . an entirely different stock brokerage fir%. In the first half of ,-H- Ag"stin Lope$ bro"ght the stolen stock certificates to CIAL8PIN& for trading and sale with the stock e#change. 1hen the said stocks were bro"ght to CIAL8PIN& all of the said stock certificates bore the "apparent" indorsement ) signature * in blan% of the owners )the stockholders to who% the stocks were iss"ed by P0IL7Q* thereof. At the side of these indorse%ents )signat"res* the words "(ignat"re 'erified" apparentl$ of 2-;6L-,9 were sta%ped on each and e!ery certificate. A"rther on the words "(ignat"re 'erified" showed the "s"al initials of the officers of AI67LITM. Ipon receipt of the said certificates fro% Ag"stin Lope$ CIAL8PIN& sta%ped each and e!ery certificate with the words "Indorse%ent &"aranteed " and thereafter traded the sa%e with the stock e#change. After the stock e#change awarded and confir%ed the sale of the stocks represented by said certificates to different b"yers the sa%e were deli!ered to AI67LITM for the cancellation of the stocks certificates and for iss"ance of new certificates in the na%e of the new b"yers. Ag"stin Lope$ on the other hand was paid by CIAL8PIN& with se!eral checks for Ao"r 0"ndred Tho"sand )PB:: :::.::* Pesos for the !al"e of the stocks. After acG"iring knowledge of the pilferage AI67LITM cond"cted an in!estigation with assistance of the National 5"rea" of In!estigation )N5I* and fo"nd that two of its e%ployees were in!ol!ed and signed the certificates. After two ).* %onths fro% receipt of said stock certificates AI67LITM re2ected the iss"ance of new certificates in fa!or of the b"yers for reasons that the signat"res of the owners of the certificates were allegedly forged and th"s the cancellation and new iss"ance thereof cannot be effected. 8n ,, A"g"st ,-HH AI67LITM so"ght an opinion on the %atter fro% (7C which on :4 8ctober ,-HH s"%%oned AI67LITM and CIAL8PIN& to a conference. The 5rokers and 7#change 6epart%ent )"576"* of the (7C ordered Aidelity (tock Transfers Inc. to replace all the s"b2ect shares and to ca"se the transfer thereof in the na%es of the b"yers within ten days fro% act"al receipt hereof. C"aloping (ec"rities INC. for ha!ing !iolated (ection .- a);* of the 9e!ised (ec"rities Act is hereby ordered to pay a fine of P+: :::.:: within fi!e )+* days fro% act"al receipt hereof. 0enceforth all brokers are reG"ired to %ake o"t checks in pay%ent of shares transacted only in the na%e of the registered owners thereof. Aro% the abo!e resol"tion as well as that which denied a %otion for reconsideration both CIAL8PIN& and AI67LITM appealed to the Co%%ission 6n Banc.

139

The Co%%ission rendered its decision finding both C"aloping (ec"rities Corporation and Aidelity (tock Transfers Inc. eG"ally negligent in the perfor%ance of their d"ties hereby orders the% to ),* 2ointly replace the s"b2ect shares and for Aidelity to ca"se the transfer thereof in the na%es of the b"yers and ).* to pay a fine of P+: ::: :: each for ha!EingF !iolated (ection .- )a* of the 9e!ised (ec"rities Act. The decision was appealed to the Co"rt of Appeals. In a consolidated decision dated .. J"ly ,--. the appellate co"rt re!ersed the (7C and set aside (7CCs order "witho"t pre2"dice to the right of persons in2"red to file the proper action for da%ages." The Co%%ission has bro"ght the case to this Co"rt in the instant petition for re!iew on certiorari contending that the appellate co"rt erred in setting aside the decision of the (7C which had )a* ordered the replace%ent of the certificates of stock of Phile# and )b* i%posed fines on both AI67LITM and CIAL8PIN&. Iss.e1<N (7C/s i%position of fines on Aidelity and C"aloping is proper R.lingThe 9e!ised (ec"rities Act )5atas Pa%bansa 5lg. ,3H* is designed in %ain to protect p"blic in!estors fro% fra"d"lent sche%es by reg"lating the sale and disposition of sec"rities creating for this p"rpose a (ec"rities and 7#change Co%%ission to ens"re proper co%pliance with the law. 0ere the (7C has aptly in!oked the pro!isions of (ection .- in relation to (ection B4 of the 9e!ised (ec"rities Act. This law pro!ides? (ec. .-. Ara"d"lent transactions. W )a* It shall be "nlawf"l for any person directly or indirectly in connection with the p"rchase or sale of any sec"rities W ### ### ### );* ,o engage in an$ act# transaction practice# or course of business & ic operates or &ould operate as a fraud or deceit upon an$ person (ec. B4. Ad%inistrati!e sanctions. W If after proper notice and earing# t e Commission finds t at t ere is a violation of t is Act# its rules# or its orders or that any registrant has in a registration state%ent and its s"pporting papers and other reports reG"ired by law or r"les to be filed with the Co%%ission %ade any "ntr"e state%ent of a %aterial fact or o%itted to state any %aterial fact reG"ired to be stated therein or necessary to %ake the state%ents therein not %isleading or ref"sed to per%it any "nlawf"l e#a%ination into its affairs it s all# in its discretion# impose an$ or all of t e follo&ing sanctions ? )a* ("spension or re!ocation of its certificate of registration and per%it to offer sec"rities@ )b* A fine of no less t an t&o undred CP)EE.EEF pesos nor more t an fift$ t ousand CPDE#EEE.EEF pesos pl"s not %ore than fi!e h"ndred )P+::.::* pesos for each day of contin"ing !iolation. There is to o"r %ind no G"estion that both AI67LITM and CIAL8PIN& ha!e been g"ilty of negligence in the cond"ct of their affairs in!ol!ing the G"estioned certificates of stock. To constit"te howe!er a !iolation of the 9e!ised (ec"rities Act that can warrant an i%position of a fine "nder (ection .-);* in relation to (ection B4 of the Act fra"d or deceit not %ere negligence on the part of the offender %"st be established. Ara"d here is akin to bad faith which i%plies a conscio"s and intentional design to do a wrongf"l act for a dishonest p"rpose or %oral obliG"ity@ it is "nlike that of the negati!e idea of negligence in that fra"d or bad faith conte%plates a state of %ind affir%ati!ely operating with f"rti!e ob2ecti!es. &i!en the fact"al circ"%stances fo"nd by the appellate co"rt neither AI67LITM nor CIAL8PIN& albeit indeed re%iss in the obser!ance of d"e diligence can be held liable "nder the abo!e pro!isions of the 9e!ised (ec"rities Act. 1e do not i%ply howe!er that the negligence co%%itted by pri!ate respondents wo"ld not at all be actionable@ "pon the other hand as we ha!e earlier inti%ated s"ch an action belongs not to the (7C b"t to those whose rights ha!e been in2"red. 8"r attention is called by the (olicitor &eneral on the !iolation by AI67LITM of (7C-576 Me%orand"% Circ"lar No. - series of ,-H3 which reads? To e#pedite the release of Certificates of (ec"rities to the b"yers the Co%%ission reiterates the following r"les in deli!ery of stock certificates? ,. 6eadlines for 6eli!ery of 6oc"%ents W All reG"ire%ents %"st be co%plied with the certificates of stock as well as necessary doc"%ents reG"ired for the transfer of shares shall be deli!ered within the following periods? ### ### ### d. Aro% transfer agent back to clearing ho"se and<or broker W not longer than ten ),:* days fro% receipt of doc"%ents pro!ided there is a "good deli!ery " & ere t ere is no " good deliver$ " t e certificate and t e accompan$ing documents s all be returned to t e clearing ouse or bro%er not later t an t&o C)F da$s after receipt t ereof# e#cept when defects can be

readily re%edied in which case the clearing ho"se or the broker shall instead be notified of the reG"ire%ents within the sa%e period. The notice to the clearing ho"se or broker shall indicate that the (ec"rities and 7#change Co%%ission has been notified of s"ch defecti!e deli!ery. AI67LITM is candid eno"gh to ad%it that it has tr"ly failed to pro%ptly notify CIAL8PIN& and the clearing ho"se of the pilferage of the certificates of stock. AI67LITM strongly asserts howe!er that it has been fined by the (7C not by !irt"e of Me%orand"% Circ"lar No. - b"t for a !iolation of (ection .-)a*);* of the 9e!ised (ec"rities Act and that the %e%orand"% circ"lar is only now being raised for the first ti%e in the instant petition. In -nsular Life Assurance Co.# Ltd. 6mplo$ees Association?NA,8 vs. -nsular Life Assurance Co. Ltd. this Co"rt has r"led that when iss"es are not specifically raised b"t they bear rele!ance and close relation to those properly raised a co"rt has the a"thority to incl"de all s"ch iss"es in passing "pon and resol!ing the contro!ersy. In Ban% of America N, K SA vs. Court of Appeals ..H (C9A ;+3 we ha!e said that "the r"le that only iss"es or theories raised in the initial proceedings %ay be taken "p by a party thereto on appeal sho"ld only refer to independent not conco%itant %atters to s"pport or oppose the ca"se of action or defense." In this case at bench partic"larly it is not a new iss"e that is being raised b"t a %e%orand"%circ"lar ha!ing the force and effect of law that has been cited to s"pport a position that relates to the !ery s"b2ect %atter of the contro!ersy. 8n this point accordingly we %"st r"le in fa!or of petitioner (7C.

7#

ANTI/2ONE; LAUNDERING ACT

Re%.4lic of t"e P"ili%%ines Vs# GlasgoA C$edit &1'2 S 91+ ,acts8n J"ly ,H .::; the 9ep"blic filed a co%plaint in the 9TC Manila for ci!il forfeit"re of assets with "rgent plea for iss"ance of te%porary restraining order T98 and<or writ of preli%inary in2"nction against the bank deposits in acco"nt n"%ber %aintained by &lasgow in C(5I. The case filed p"rs"ant to 9A -,4: the Anti-Money La"ndering Act of .::,. Acting on the 9ep"blic/s "rgent plea for the iss"ance of a T98 the e#ec"ti!e 2"dge of 9TC Manila iss"ed a 3.-ho"r T98 dated J"ly ., .::;. The case was thereafter raffled to 5ranch B3 and the hearing on the application for iss"ance of a writ of preli%inary in2"nction was set on A"g"st B .::;. After hearing the trial co"rt )thro"gh then Presiding J"dge Mari!ic T. 5alisiI%ali* iss"ed an order granting the iss"ance of a writ of preli%inary in2"nction. The in2"ncti!e writ was iss"ed on A"g"st H .::;. Meanwhile s"%%ons and alias s"%%ons to &lasgow was ret"rned ""nser!ed" as it co"ld no longer be fo"nd at its last known address. 8n A"g"st ,. .::+ the 8(& recei!ed a copy of &lasgo/s "Motion to 6is%iss )5y 1ay of (pecial Appearance*" dated A"g"st ,, .::+. It alleged that ),* the co"rt had no 2"risdiction o!er its person as s"%%ons had not yet been ser!ed on it@ ).* the co%plaint was pre%at"re and stated no ca"se of action as there was still no con!iction for estafa or other cri%inal !iolations i%plicating &lasgow and );* there was fail"re to prosec"te on the part of the 9ep"blic. The 9ep"blic opposed &lasgow/s %otion to dis%iss. It contended that its s"it was an action quasi in rem where 2"risdiction o!er the person of the defendant was not a prereG"isite to confer 2"risdiction on the co"rt. It asserted that prior con!iction for "nlawf"l acti!ity was not a precondition to the filing of a ci!il forfeit"re case and that its co%plaint alleged "lti%ate facts s"fficient to establish a ca"se of action. It denied that it failed to prosec"te the case. 8n 8ctober .3 .::+ the trial co"rt iss"ed the assailed order. It dis%issed the case on the following gro"nds? ),* i%proper !en"e as it sho"ld ha!e been filed in the 9TC of Pasig where C(5I the depository bank of the acco"nt so"ght to be forfeited was located@ ).* ins"fficiency of the co%plaint in for% and s"bstance and );* fail"re to prosec"te. It lifted the writ of preli%inary in2"nction and directed C(5I to release to &lasgow or its a"thori$ed representati!e the f"nds in CA-::+-,:-:::,.,-+. Iss.e1<N the co%plaint for ci!il forfeit"re was correctly dis%issed on gro"nds of i%proper !en"e ins"fficiency in for% and s"bstance and fail"re to prosec"te R.ling,. At any rate the trial co"rt was a proper !en"e. The order dis%issing the 9ep"blic/s co%plaint for ci!il forfeit"re of &lasgow/s acco"nt in C(5I has not yet attained finality on acco"nt of the pendency of this appeal. Th"s the 9"le of Proced"re in Cases of Ci!il Aorfeit"re applies to

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the 9ep"blic/s co%plaint. Moreo!er &lasgow itself 2"dicially ad%itted that the 9"le of Proced"re in Cases of Ci!il Aorfeit"re is "applicable to the instant case." Inder (ection ; Title II of the 9"le of Proced"re in Cases of Ci!il Aorfeit"re therefore the !en"e of ci!il forfeit"re cases is any 9TC of the 2"dicial region where the %onetary instr"%ent property or proceeds representing in!ol!ing or relating to an "nlawf"l acti!ity or to a %oney la"ndering offense are located. Pasig City where the acco"nt so"ght to be forfeited in this case is sit"ated is within the National Capital J"dicial 9egion )NCJ9*. Clearly the co%plaint for ci!il forfeit"re of the acco"nt %ay be filed in any 9TC of the NCJ9. (ince the 9TC Manila is one of the 9TCs of the NCJ9 it was a proper !en"e of the 9ep"blic/s co%plaint for ci!il forfeit"re of &lasgow/s acco"nt. .. (ection B Title II of the 9"le of Proced"re in Cases of Ci!il Aorfeit"re pro!ides? (ec. B. Contents of t e petition for civil forfeiture. - The petition for ci!il forfeit"re shall be !erified and contain the following allegations? )a* The na%e and address of the respondent@ )b* A description with reasonable partic"larity of the %onetary instr"%ent property or proceeds and their location@ and )c* The acts or o%issions prohibited by and the specific pro!isions of the AntiMoney La"ndering Act as a%ended which are alleged to be the gro"nds relied "pon for the forfeit"re of the %onetary instr"%ent property or proceeds@ and E)d*F The reliefs prayed for. 0ere the !erified co%plaint of the 9ep"blic contained the following allegations? )a* the na%e and address of the pri%ary defendant therein &lasgow@ )b* a description of the proceeds of &lasgow/s "nlawf"l acti!ities with partic"larity as well as the location thereof acco"nt no. CA-::+-,:-:::,.,-+ in the a%o"nt of P., ;:, B;:..H %aintained with C(5I@ )c* the acts prohibited by and the specific pro!isions of 9A -,4: as a%ended constit"ting the gro"nds for the forfeit"re of the said proceeds. In partic"lar s"spicio"s transaction reports showed that &lasgow engaged in "nlawf"l acti!ities of estafa and !iolation of the (ec"rities 9eg"lation Code )"nder (ection ;)i*)-* and ),;* 9A -,4: as a%ended*@ the proceeds of the "nlawf"l acti!ities were transacted and deposited with C(5I in acco"nt no. CA-::+-,:-:::,.,-+ thereby %aking the% appear to ha!e originated fro% legiti%ate so"rces@ as s"ch &lasgow engaged in %oney la"ndering )"nder (ection B 9A -,4: as a%ended*@ and the AMLC s"b2ected the acco"nt to free$e order and )d* the reliefs prayed for na%ely the iss"ance of a T98 or writ of preli%inary in2"nction and the forfeit"re of the acco"nt in fa!or of the go!ern%ent as well as other reliefs 2"st and eG"itable "nder the pre%ises. The for% and s"bstance of the 9ep"blic/s co%plaint s"bstantially confor%ed with (ection B Title II of the 9"le of Proced"re in Cases of Ci!il Aorfeit"re. Moreo!er (ection ,.)a* of 9A -,4: as a%ended pro!ides? (7C. ,.. 2orfeiture Provisions. )a* Civil 2orfeiture. 1hen there is a co!ered transaction report %ade and the co"rt has in a petition filed for the p"rpose ordered sei$"re of any %onetary instr"%ent or property in whole or in part directly or indirectly related to said report the 9e!ised 9"les of Co"rt on ci!il forfeit"re shall apply. 9A -,4: as a%ended and its i%ple%enting r"les and reg"lations lay down two conditions when applying for ci!il forfeit"re? ),* when there is a s"spicio"s transaction report or a co!ered transaction report dee%ed s"spicio"s after in!estigation by the AMLC and ).* the co"rt has in a petition filed for the p"rpose ordered the sei$"re of any %onetary instr"%ent or property in whole or in part directly or indirectly related to said report. It is the preli%inary sei$"re of the property in G"estion which brings it within the reach of the 2"dicial process. It is act"ally within the co"rt/s possession when it is s"b%itted to the process of the co"rt. The in2"ncti!e writ iss"ed on A"g"st H .::; re%o!ed acco"nt no. CA-::+-,:-:::,.,-+ fro% the effecti!e control of either &lasgow or C(5I or their representati!es or agents and s"b2ected it to the process of the co"rt.

(ince the acco"nt of &lasgow in C(5I was ),* co!ered by se!eral s"spicio"s transaction reports and ).* placed "nder the control of the trial co"rt "pon the iss"ance of the writ of preli%inary in2"nction the conditions pro!ided in (ection ,.)a* of 9A -,4: as a%ended were satisfied. 0ence the 9ep"blic represented by the AMLC properly instit"ted the co%plaint for ci!il forfeit"re. 9"le 4., of the 9e!ised I%ple%enting 9"les and 9eg"lations of 9A -,4: as a%ended states? 9"le 4.,. Prosecution of Mone$ Laundering )a* Any person %ay be charged with and con!icted of both the offense of %oney la"ndering and the "nlawf"l acti!ity as defined "nder 9"le ;)i* of the AMLA. )b* Any proceeding relating to the "nlawf"l acti!ity shall be gi!en precedence o!er the prosec"tion of any offense or !iolation "nder the AMLA Ait"o.t %$e@.dice to t"e application e'?parte by the AMLC to the Co"rt of Appeals for a free$e order with respect to the %onetary instr"%ent or property in!ol!ed therein and $eso$t to ot"e$ $e:edies %$oCided .nde$ t"e A2LAF t"e R.les of Co.$t and ot"e$ %e$tinent laAs and $.les . Ainally (ection .3 of the 9"le of Proced"re in Cases of Ci!il Aorfeit"re pro!ides? (ec. .3. No prior c arge# pendenc$ or conviction necessar$ . No %$io$ c$i:inal c"a$geF %endenc? of o$ conCiction fo$ an .nlaAf.l actiCit? or %oney la"ndering offense is necessa$? fo$ t"e co::ence:ent or the resol"tion of a petition for ci!il forfeit"re. Th"s regardless of the absence pendency or o"tco%e of a cri%inal prosec"tion for the "nlawf"l acti!ity or for %oney la"ndering an action for ci!il forfeit"re %ay be separately and independently prosec"ted and resol!ed. *# The 9ep"blic cannot be fa"lted for fail"re to prosec"te the co%plaint for ci!il forfeit"re. 1hile there was ad%ittedly a delay in the proceeding it co"ld not be entirely or pri%arily ascribed to the 9ep"blic. That &lasgow/s whereabo"ts co"ld not be ascertained was not only beyond the 9ep"blic/s control it was also attrib"table to &lasgow which left its principal office address witho"t infor%ing the (ec"rities and 7#change Co%%ission or any official reg"latory body )like the 5"rea" of Internal 9e!en"e or the 6epart%ent of Trade and Ind"stry* of its new address. Moreo!er as early as 8ctober H .::; the 9ep"blic was already seeking lea!e of co"rt to ser!e s"%%ons by p"blication. In Mara a$ v. Melicor ,H this Co"rt r"led? 1hile a co"rt can dis%iss a case on the gro"nd of non prosequitur the real test for the e#ercise of s"ch power is whether "nder the circ"%stances plaintiff is chargeable with want of d"e diligence in failing to proceed with reasonable pro%ptit"de. In t"e a4sence of a %atte$n o$ sc"e:e to dela? t"e dis%osition of t"e case o$ a Aanton fail.$e to o4se$Ce t"e :andato$? $e3.i$e:ent of t"e $.les on t"e %a$t of t"e %laintiffF as in t"e case at 4a$F co.$ts s"o.ld decide to dis%ense Ait" $at"e$ t"an Aield t"ei$ a.t"o$it? to dis:iss. )e%phasis s"pplied* 1e see no pattern or sche%e on the part of the 9ep"blic to delay the disposition of the case or a wanton fail"re to obser!e the %andatory reG"ire%ent of the r"les. The trial co"rt sho"ld not ha!e so eagerly wielded its power to dis%iss the 9ep"blic/s co%plaint.

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