G.R. No.

113032 August 21, 1997

WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L.
VILLASIS, DIMAS ENRIQUEZ, PRESTON F. VILLASIS & REGINALD F.
VILLASIS, petitioner,
vs.
RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALASTUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS & HON. JUDGE
PORFIRIO PARIAN, respondents.

HERMOSISIMA, JR., J.:

Up for review on certiorari are: (1) the Decision dated September
6, 1993 and (2) the Order dated November 23, 1993 of Branch 33
of the Regional Trial Court of Iloilo City in Criminal Cases Nos.
37097 and 37098 for estafa and falsification of a public document,
respectively. The judgment acquitted the private respondents of
both charges, but petitioners seek to hold them civilly liable.
Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad
Salas-Tubilleja, Antonio S. Salas, and Richard S. Salas, belonging to
the same family, are the majority and controlling members of the
Board of Trustees of Western Institute of Technology, Inc. (WIT,
for short), a stock corporation engaged in the operation, among
others, of an educational institution. According to petitioners, the
minority stockholders of WIT, sometime on June 1, 1986 in the
principal office of WIT at La Paz, Iloilo City, a Special Board
Meeting was held. In attendance were other members of the
Board including one of the petitioners Reginald Villasis. Prior to
aforesaid Special Board Meeting, copies of notice thereof, dated
May 24, 1986, were distributed to all Board Members. The notice
allegedly indicated that the meeting to be held on June 1, 1986
included Item No. 6 which states:
Possible implementation of Art. III, Sec. 6 of the
Amended By-Laws of Western Institute of Technology,
Inc. on compensation of all officers of the
corporation. 1
In said meeting, the Board of Trustees passed Resolution No. 48,
s. 1986, granting monthly compensation to the private
respondents as corporate officers retroactive June 1, 1985, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly
seconded by Mrs. Soledad Tubilleja (accused), it was
unanimously resolved that:
1

Corpo Page 7 Cases

The Officers of the Corporation

be granted monthly
compensation for services
rendered as follows: Chairman
P9,000.00/month, Vice
Chairman P3,500.00/month,
Corporate Treasurer
P3,500.00/month and Corporate
Secretary P3,500.00/month,
retroactive June 1, 1985 and the
ten per centum of the net profits
shall be distributed equally
among the ten members of the
Board of Trustees. This shall
amend and superceed (sic) any
previous resolution.
There were no other business.
The Chairman declared the meeting adjourned at 5:11
P.M.
This is to certify that the foregoing minutes of the
regular meeting of the Board of Trustees of Western
Institute of Technology, Inc. held on March 30, 1986 is
true and correct to the best of my knowledge and
belief. 2
A few years later, that is, on March 13, 1991, petitioners Homero
Villasis, Prestod Villasis, Reginald Villasis and Dimas Enriquez filed
an affidavit-complaint against private respondents before the
Office of the City Prosecutor of Iloilo, as a result of which two (2)
separate criminal informations, one for falsification of a public
document under Article 171 of the Revised Penal Code and the
other for estafa under Article 315, par. 1(b) of the RPC, were filed
before Branch 33 of the Regional Trial Court of Iloilo City. The
charge for falsification of public document was anchored on the
private respondents' submission of WIT's income statement for
the fiscal year 1985-1986 with the Securities and Exchange
Commission (SEC) reflecting therein the disbursement of
corporate funds for the compensation of private respondents
based on Resolution No. 4, series of 1986, making it appear that
the same was passed by the board on March 30, 1986, when in
truth, the same was actually passed on June 1, 1986, a date not
covered by the corporation's fiscal year 1985-1986 (beginning
May 1, 1985 and ending April 30, 1986). The Information for
falsification of a public document states:
The undersigned City Prosecutor accuses RICARDO T.
SALAS, SALVADOR T. SALAS, SOLEDAD SALASTUBILLEJA, ANTONIO S. SALAS and RICHARD S. SALAS
(whose dates and places of birth cannot be

ascertained) of the crime of FALSIFICATION OF A

PUBLIC DOCUMENT, Art. 171 of the Revised Penal
Code, committed as follows:
That on or about the 10th day of
June, 1986, in the City of Iloilo,
Philippines and within the
jurisdiction of this Honorable
Court, the above-named
accused, being then the
Chairman, Vice-Chairman,
Treasurer, Secretary, and
Trustee (who later became
Secretary), respectively, of the
board of trustees of the Western
Institute of Technology, Inc., a
corporation duly organized and
existing under the laws of the
Republic of the Philippines,
conspiring and confederating
together and mutually helping
one another, to better realized
(sic) their purpose, did then and
there wilfully, unlawfully and
criminally prepare and execute
and subsequently cause to be
submitted to the Securities and
Exchange Commission an income
statement of the corporation for
the fiscal year 1985-1986, the
same being required to be
submitted every end of the
corporation fiscal year by the
aforesaid Commission, and
therefore, a public document,
including therein the
disbursement of the retroactive
compensation of accused
corporate officers in the amount
of P186,470.70, by then and
there making it appear that the
basis thereof Resolution No. 4,
Series of 1986 was passed by the
board of trustees on March 30,
1986, a date covered by the
corporation's fiscal year 19851986 (i.e., from May 1, 1985 to
April 30, 1986), when in truth
and in fact, as said accused well
knew, no such Resolution No.
48, Series of 1986 was passed on
March 30, 1986.

CONTRARY TO LAW.

the same were their own, and

when herein accused were
informed of the illegality of
these disbursements by the
minority stockholders by way of
objections made in an annual
stockholders' meeting held on
June 14, 1986 and every year
thereafter, they refused, and still
refuse, to rectify the same to the
damage and prejudice of the
corporation (and its
stockholders) in the total sum of
P1,453,970.79 as of November
15, 1991.

Iloilo City, Philippines, November 22, 1991. 3 [Emphasis

ours].
The Information, on the other hand, for estafa reads:
The undersigned City Prosecutor accuses RICARDO
SALAS, SALVADOR T. SALAS, SOLEDAD SALASTUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS
(whose dates and places of birth cannot be
ascertained) of the crime of ESTAFA, Art. 315, par. 1 (b)
of the Revised Penal Code, committed as follows:
That on or about the 1st day of
June, 1986, in the City of Iloilo,
Philippines, and within the
jurisdiction of this Honorable
Court, the above-named
accused, being then the
Chairman, Vice-Chairman,
Treasurer, Secretary, and
Trustee (who later became
Secretary), respectively; of the
Board of Trustees of Western
Institute of Technology, Inc., a
corporation duly organized and
existing under the laws of the
Republic of the Philippines,
conspiring and confederating
together and mutually helping
one another to better realize
their purpose, did then and
there wilfully, unlawfully and
feloniously defraud the said
corporation (and its
stockholders) in the following
manner, to wit: herein accused,
knowing fully well that they have
no sufficient, lawful authority to
disburse let alone violation of
applicable laws and
jurisprudence, disbursed the
funds of the corporation by
effecting payment of their
retroactive salaries in the
amount of P186,470.00 and
subsequently paying themselves
every 15th and 30th of the
month starting June 15, 1986
until the present, in the amount
of P19,500.00 per month, as if
2

Corpo Page 7 Cases

CONTRARY TO LAW.
Iloilo City, Philippines, November 22, 1991. 4 [Emphasis
ours]
Thereafter, trial for the two criminal cases, docketed as Criminal
Cases Nos. 37097 and 37098, was consolidated. After a full-blown
hearing, Judge Porfirio Parian handed down a verdict of acquittal
on both counts 5 dated September 6, 1993 without imposing any
civil liability against the accused therein.
Petitioners filed a Motion for Reconsideration 6 of the civil aspect
of the RTC Decision which was, however, denied in an Order
dated November 23, 1993. 7
Hence, the instant petition.
Significantly on December 8, 1994, a Motion for Intervention,
dated December 2, 1994, was filed before this Court by Western
Institute of Technology, Inc., supposedly one of the petitioners
herein, disowning its inclusion in the petition and submitting that
Atty. Tranquilino R. Gale, counsel for the other petitioners, had no
authority whatsoever to represent the corporation in filing the
petition. Intervenor likewise prayed for the dismissal of the
petition for being utterly without merit. The Motion for
Intervention was granted on January 16, 1995. 8
Petitioners would like us to hold private respondents civilly liable
despite their acquittal in Criminal Cases Nos. 37097 and 37098.
They base their claim on the alleged illegal issuance by private
respondents of Resolution No. 48, series of 1986 ordering the
disbursement of corporate funds in the amount of P186,470.70
representing retroactive compensation as of June 1, 1985 in favor
of private respondents, board members of WIT, plus
P1,453,970.79 for the subsequent collective salaries of private

respondents every 15th and 30th of the month until the filing of
the criminal complaints against them on March 1991. Petitioners
maintain that this grant of compensation to private respondents
is proscribed under Section 30 of the Corporation Code. Thus,
private respondents are obliged to return these amounts to the
corporation with interest.
We cannot sustain the petitioners. The pertinent section of the
Corporation Code provides:
Sec. 30. Compensation of directors In the absence of
any provision in the by-laws fixing their compensation,
the directors shall not receive any compensation, as
such directors, except for reasonable per
diems: Provided, however, That any such
compensation (other than per diems) may be granted
to directors by the vote of the stockholders
representing at least a majority of the outstanding
capital stock at a regular or special stockholders'
meeting. In no case shall the total yearly compensation
of directors, as such directors, exceed ten (10%)
percent of the net income before income tax of the
corporation during the preceding year. [Emphasis ours]
There is no argument that directors or trustees, as the case may
be, are not entitled to salary or other compensation when they
perform nothing more than the usual and ordinary duties of their
office. This rule is founded upon a presumption that
directors/trustees render service gratuitously, and that the return
upon their shares adequately furnishes the motives for service,
without compensation. 9 Under the foregoing section, there are
only two (2) ways by which members of the board can be granted
compensation apart from reasonable per diems: (1) when there is
a provision in the by-laws fixing their compensation; and (2) when
the stockholders representing a majority of the outstanding
capital stock at a regular or special stockholders' meeting agree to
give it to them.
This proscription, however, against granting compensation to
directors/trustees of a corporation is not a sweeping rule. Worthy
of note is the clear phraseology of Section 30 which states: ". . .
[T]he directors shall not receive any compensation, as such
directors, . . . ." The phrase as such directors is not without
significance for it delimits the scope of the prohibition to
compensation given to them for services performed purely in
their capacity as directors or trustees. The unambiguous
implication is that members of the board may receive
compensation, in addition to reasonable per diems, when they
render services to the corporation in a capacity other than as
directors/trustees.10 In the case at bench, Resolution No. 48, s.
1986 granted monthly compensation to private respondents not
in their capacity as members of the board, but rather as officers of

the corporation, more particularly as Chairman, Vice-Chairman,

Treasurer and Secretary of Western Institute of Technology. We
quote once more Resolution No. 48, s. 1986 for easy
reference, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly
seconded by Mrs. Soledad Tubilleja (accused), it was
unanimously resolved that:
The Officers of the Corporation
be granted monthly
compensation for services
rendered as follows: Chairman
P9,000.00/month, Vice
Chairman P3,500.00/month,
Corporate Treasurer
P3,500.00/month and Corporate
Secretary P3,500.00/month,
retroactive June 1, 1985 and the
ten per centum of the net profits
shall be distributed equally
among the ten members of the
Board of Trustees. This shall
amend and superceed (sic) any
previous resolution.
There were no other business.
The Chairman declared the meeting adjourned at 5:11
P.M.
This is to certify that the foregoing minutes of the
regular meeting of the Board of Trustees of Western
Institute of Technology, Inc. held on March 30, 1986 is
true and correct to the best of my knowledge and
belief.]
Clearly, therefore, the prohibition with respect to granting
compensation to corporate directors/trustees as suchunder
Section 30 is not violated in this particular case. Consequently, the
last sentence of Section 30 which provides:
. . . . . . . In no case shall the total yearly compensation
of directors, as such directors, exceed ten (10%)
percent of the net income before income tax of the
corporation during the preceding year. (Emphasis ours]

Corpo Page 7 Cases

does not likewise find application in this case since the

compensation is being given to private respondents in their
capacity as officers of WIT and not as board members.

and exclusive jurisdiction to hear and decide cases

involving:
xxx xxx xxx

Petitioners assert that the instant case is a derivative suit brought

by them as minority shareholders of WIT for and on behalf of the
corporation to annul Resolution No. 48, s. 1986 which is
prejudicial to the corporation.
We are unpersuaded. A derivative suit is an action brought by
minority shareholders in the name of the corporation to redress
wrongs committed against it, for which the directors refuse to
sue. 12 It is a remedy designed by equity and has been the
principal defense of the minority shareholders against abuses by
the majority. 13 Here, however, the case is not a derivative suit but
is merely an appeal on the civil aspect of Criminal Cases Nos.
37097 and 37098 filed with the RTC of Iloilo for estafa and
falsification of public document. Among the basic requirements
for a derivative suit to prosper is that the minority shareholder
who is suing for and on behalf of the corporation must allege in
his complaint before the proper forum that he is suing on a
derivative cause of action on behalf of the corporation and all
other shareholders similarly situated who wish to join. 14 This is
necessary to vest jurisdiction upon the tribunal in line with the
rule that it is the allegations in the complaint that vests
jurisdiction upon the court or quasi-judicial body concerned over
the subject matter and nature of the action. 15 This was not
complied with by the petitioners either in their complaint before
the court a quo nor in the instant petition which, in part, merely
states that "this is a petition for review on certiorari on pure
questions of law to set aside a portion of the RTC decision in
Criminal Cases Nos. 37097 and 37098" 16 since the trial court's
judgment of acquittal failed to impose any civil liability against the
private respondents. By no amount of equity considerations, if at
all deserved, can a mere appeal on the civil aspect of a criminal
case be treated as a derivative suit.
Granting, for purposes of discussion, that this is a derivative suit
as insisted by petitioners, which it is not, the same is outrightly
dismissible for having been wrongfully filed in the regular court
devoid of any jurisdiction to entertain the complaint. The ease
should have been filed with the Securities and Exchange
Commission (SEC) which exercises original and exclusive
jurisdiction over derivative suits, they being intra-corporate
disputes, per Section 5 (b) of P.D. No. 902-A:
In addition to the regulatory and adjudicative functions
of the Securities and Exchange Commission over
corporations, partnerships and other forms of
associations registered with it as expressly granted
under existing laws and decrees, it shall have original

b) Controversies arising out of intra-corporate or

partnership relations, between and among
stockholders, members, or associates; between any or
all of them and the corporation, partnership or
association of which they are stockholders, members
or associates, respectively; and between such
corporation, partnership or association and the State
insofar as it concerns their individual franchise or right
to exist as such entity;
xxx xxx xxx
[Emphasis ours]
Once the case is decided by the SEC, the losing party may file a
petition for review before the Court of Appeals raising questions
of fact, of law, or mixed questions of fact and law. 17 It is only after
the case has ran this course, and not earlier, can it be brought to
us via a petition for review on certiorari under Rule 45 raising only
pure questions of law.18 Petitioners, in pleading that we treat the
instant petition as a derivative suit, are trying to short-circuit the
entire process which we cannot here sanction.
As an appeal on the civil aspect of Criminal Cases Nos. 37097 and
37098 for falsification of public document and estafa, which this
petition truly is, we have to deny the petition just the same. It will
be well to quote the respondent court's ratiocinations acquitting
the private respondents on both counts:
The prosecution wants this Court to believe and agree
that there is falsification of public document because,
as claimed by the prosecution, Resolution No. 48,
Series of 1986 (Exh. "1-E-1") was not taken up and
passed during the Regular Meeting of the Board of
Trustees of the Western Institute of Technology (WIT),
Inc. on March 30, 1986, but on June 1, 1986 special
meeting of the same board of trustees.
This Court is reluctant to accept this claim of
falsification. The prosecution omitted to submit the
complete minutes of the regular meeting of the Board
of Trustees on March 30, 1986. It only presented in
evidence Exh. "C", which is page 5 or the last page of
the said minutes. Had the complete minutes (Exh. "1")
consisting of five (5) pages, been submitted, it can be
readily seen and understood that Resolution No. 48,

Series of 1986 (Exh. "1-E-1") giving compensation to

corporate officers, was indeed included in Other
Business, No. 6 of the Agenda, and was taken up and
passed on March 30, 1986. The mere fact of existence
of Exh. "C" also proves that it was passed on March 30,
1986 for Exh. "C" is part and parcel of the whole
minutes of the Board of Trustees Regular Meeting on
March 30, 1986. No better and more credible proof
can be considered other than the Minutes (Exh. "1")
itself of the Regular Meeting of the Board of Trustees
on March 30, 1986. The imputation that said
Resolution No. 48 was neither taken up nor passed on
March 30, 1986 because the matter regarding
compensation was not specifically stated or written in
the Agenda and that the words "possible
implementation of said Resolution No. 48, was
expressly written in the Agenda for the Special Meeting
of the Board on June 1, 1986, is simply an implication.
This evidence by implication to the mind of the court
cannot prevail over the Minutes (Exh. "1") and cannot
ripen into proof beyond reasonable doubt which is
demanded in all criminal prosecutions.
This Court finds that under the Eleventh Article (Exh.
"3-D-1") of the Articles of Incorporation (Exh. "3-B") of
the Panay Educational Institution, Inc., now the
Western Institute of Technology, Inc., the officers of
the corporation shall receive such compensation as the
Board of Directors may provide. These Articles of
Incorporation was adopted on May 17, 1957 (Exh. "3E"). The Officers of the corporation and their
corresponding duties are enumerated and stated in
Sections 1, 2, 3 and 4 of Art. III of the Amended ByLaws of the Corporation (Exh. "4-A") which was
adopted on May 31, 1957. According to Sec. 6, Art. III
of the same By-Laws, all officers shall receive such
compensation as may be fixed by the Board of
Directors.
It is the perception of this Court that the grant of
compensation or salary to the accused in their capacity
as officers of the corporation, through Resolution No.
48, enacted on March 30, 1986 by the Board of
Trustees, is authorized by both the Articles of
Incorporation and the By-Laws of the corporation. To
state otherwise is to depart from the clear terms of the
said articles and by-laws. In their defense the accused
have properly and rightly asserted that the grant of
salary is not for directors, but for their being officers of
the corporation who oversee the day to day activities
and operations of the school.
xxx xxx xxx
4

Corpo Page 7 Cases

. . .[O]n the question of whether or not the accused

can be held liable for estafa under Sec. 1 (b) of Art. 315
of the Revised Penal Code, it is perceived by this Court
that the receipt and the holding of the money by the
accused as salary on basis of the authority granted by
the Articles and By-Laws of the corporation are not
tainted with abuse of confidence. The money they
received belongs to them and cannot be said to have
been converted and/or misappropriated by them.

the judgment of acquittal holds that the accused did not commit
the criminal acts imputed to them. 20
WHEREFORE, the instant petition is hereby DENIED with costs
against petitioners.SO ORDERED.

G.R. No. 121434 June 2, 1997

xxx xxx xxx

19

[Emphasis ours]
From the foregoing factual findings, which we find to be amply
substantiated by the records, it is evident that there is simply no
basis to hold the accused, private respondents herein, civilly
liable. Section 2(b) of Rule 111 on the New Rules on Criminal
Procedure provides:
Sec. 2. Institution of separate civil action.
xxx xxx xxx
(b) Extinction of the penal action does not carry with it
extinction of the civil, unless the extinction proceeds
from a declaration in a final judgment that the fact
from which the civil might arise did not exist.
[Emphasis ours]
Likewise, the last paragraph of Section 2, Rule 120 reads:
Sec. 2. Form and contents of judgment.
xxx xxx xxx
In case of acquittal, unless there is a clear showing that
the act from which the civil liability might arise did not
exist, the judgment shall make a finding on the civil
liability of the accused in favor of the offended party.
[Emphasis ours]
The acquittal in Criminal Cases Nos. 37097 and 37098 is not
merely based on reasonable doubt but rather on a finding that
the accused-private respondents did not commit the criminal acts
complained of. Thus, pursuant to the above rule and settled
jurisprudence, any civil action ex delicto cannot prosper. Acquittal
in a criminal action bars the civil action arising therefrom where

ELENA F. UICHICO, SAMUEL FLORO, VICTORIA F.

BASILIO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LUZVIMINDA
SANTOS, SHIRLEY PORRAS, CARMEN ELIZARDE, ET.
AL., respondents.
HERMOSISIMA, JR., J.:
Sought to be reversed in this special civil action for certiorari and
prohibition are the Resolutions of public respondent National
Labor Relations Commission (NLRC, for brevity), dated September
30, 1993, December 7, 1995, and May 24, 1995, holding
petitioners herein liable for the illegal dismissal of private
respondents and ordering them to pay the latter separation pay
plus backwages.
Private respondents were employed by Crispa, Inc. for many years
in the latter's garments factory located in Pasig Boulevard, Pasig
City. Sometime in September, 1991, private respondents' services
were terminated on the ground of retrenchment due to alleged
serious business losses suffered by Crispa, Inc. in the years
immediately preceding 1990. Thereafter, respondent employees,
on November, 1991, filed before the NLRC, National Capital
Region, Manila, three (3) separate complaints for illegal dismissal
and diminution of compensation against Crispa, Inc., Valeriano
Floro, and the petitioners. Valeriano Floro was a major
stockholder, incorporator and Director of Crispa, Inc., while the
petitioners were high ranking officers and directors of the
company. Said complaints were consolidated in order to expedite
the proceedings. The case was assigned to Labor Arbiter Raul
Aquino.
On July 20, 1992, after due hearing, Labor Arbiter Aquino
rendered a decision dismissing the complaints for illegal dismissal
but at the same time ordering Crispa, Inc., Floro and the
petitioners to pay respondent employees separation pay
equivalent to seventeen (17) days for every year of service, viz:

WHEREFORE, premises considered, the

instant complaint for illegal dismissal is
hereby DISMISSED for lack of merit.
However, as discussed in this decision,
respondents is (sic) hereby directed to pay
the separation pay of the complainants
equivalent to seventeen (17) days for every
year of service and computed as follows:

the Resolution to award them full backwages despite the finding

of illegal dismissal.
On April 21, 1995, the NLRC, treating the Motion to Clarity
Judgment as an Appeal, granted the same in this wise:
ACCORDINGLY, in view of the foregoing, the
complainants-appellees Motion to Clarify
Judgment is partially GRANTED and Mr.
Ricardo Atienza, Acting Chief of the
Examination and Computation Division is
hereby directed to include in the
computation, six months backwages as
provided for in the September 30, 1993
Revolution of the Division, which was
however omitted in the dispositive portion
thereof.

xxx xxx xxx

All other claims are hereby dismissed for
lack of merit. Respondent is hereby ordered
to pay 10% attorney's fees based on the
award.
SO ORDERED. 1
Dissatisfied, private respondents appealed before the public
respondent NLRC. In a Resolution, dated September 30, 1993, the
Second Division of the NLRC found Crispa, Inc., Valeriano Floro,
together with the petitioners liable for illegal dismissal, and
modified the award of separation pay in the amount of one (1)
month for every year of service instead of seventeen (17) days, to
wit:
WHEREFORE, the assailed Decision is
hereby Affirmed with Modification in so far
as the award of separation pay is concerned
to the effect that respondents are ordered
to pay complainants one month for every
year of service, instead of 17 days.
All other rulings are hereby AFFIRMED. 2
Petitioners filed a Motion for Reconsideration on November 12,
1993 but the same was denied by the NLRC in a Resolution dated
December 7, 1993, thus:
After due consideration of the Motion for
Reconsideration filed by respondents on
November 12, 1995, from the Resolution of
September 30, 1993, the Commission
(Second Division) RESOLVED to deny the
same for lack of merit. 3
On August 8, 1994, private respondents sought a clarification of
public respondent NLRC's Resolution dated September 30, 1993
insofar as the computation of separation pay by the Examination
and Computation Division was concerned as well as the failure of
5

Corpo Page 7 Cases

SO ORDERED. 4
Petitioners filed a Motion for Reconsideration of the April 21,
1995 Resolution, which was denied in another Resolution 5 dated
May 24, 1995.
Hence, this petition.
We shall dismiss the petition. The law recognizes the right of
every business entity to reduce its work force if the same is made
necessary by compelling economic factors which would endanger
its existence or stability. In spite of overwhelming support granted
by the social justice provisions of our Constitution in favor of
labor, the fundamental law itself guarantees, even during the
process of tilting the scales of social justice towards workers and
employees, "the right of enterprises to reasonable returns of
investment and to expansion and growth. 6 To hold otherwise
would not only be oppressive and inhuman, 7 but also counterproductive and ultimately subversive of the nation's thrust
towards a resurgence in our economy which would ultimately
benefit the majority of our people. Where appropriate and where
conditions are in accord with law and jurisprudence, the Court has
authorized valid reductions in the work force to forestall business
losses, 8 the hemorrhaging of capital, or even to recognize an
obvious reduction in the volume of business which has rendered
certain employees redundant. 9 Thus, Article 283 of the Labor
Code, which covers retrenchment, reads as follows:
Art. 283. Closure of establishment and
reduction of personnel The employer
may also terminate the employment of any
employee due to the installation of labor
saving devices, redundancy,retrenchment to

prevent losses or the closing or cessation of

operation of the establishment or
undertaking unless the closing is for the
purpose of circumventing the provisions of
this Title, by serving a written notice on the
worker and the Ministry of Labor and
Employment at least one (1) month before
the intended date thereof. In case of
termination due to the installation of labor
saving devices or redundancy, the worker
affected thereby shall be entitled to a
separation pay equivalent to at least his one
(1) month pay or to at least one (1) month
pay for every year of service, whichever is
higher. In case of retrenchment to prevent
losses and in cases of closures or cessation
of operations of establishment or
undertaking not due to serious business
losses or financial reverses, the separation
pay shall be equivalent to one (1) month
pay or at least one-half (1/2) month pay for
every year of service, whichever is higher. A
fraction of at least six (6) months shall be
considered as one (1) whole year.
Retrenchment, or "lay-off" in layman's parlance, is the
termination of employment initiated by the employer through no
fault of the employee's and without prejudice to the latter,
resorted to by management during periods of business recession,
industrial depression, or seasonal fluctuations, or during lulls
occasioned by lack of orders, shortage of materials, conversion of
the plant for a new production program or the introduction of
new methods or more efficient machinery, or of
automation. 10 Simply put, it is an act of the employer of
dismissing employees because of losses in the operation of a
business, lack of work, and considerable reduction on the volume
of his business, a right consistently recognized and affirmed by
this Court. 11 Nevertheless, while it is true that retrenchment is a
management prerogative, it is still subject to faithful compliance
with the substantive and procedural requirements laid down by
law and jurisprudence. And since retrenchment strikes at the very
core of an individual's employment, which may be the only lifeline
on which he and his family depend for survival, 12 the burden
clearly falls upon the employer to prove economic or business
losses with appropriate supporting evidence. 13 Any claim of
actual or potential business losses must satisfy certain established
standards before any reduction of personnel becomes legal, viz:
1. The losses expected and sought to be
avoided must be substantial and not
merely de minimis in extent;

2. The substantial losses apprehended must

be reasonably imminent, as such
imminence can be perceived objectively
and in good faith by the employer;
3. The retrenchment must be reasonably
necessary and likely to effectively prevent
the expected losses.
4. The alleged losses, if already realized, and
the expected imminent losses sought to be
forestalled, must be proved by sufficient
and convincing evidence. 14
In sustaining the Company's submission that it suffered serious
business losses in 1991, thus necessitating the retrenchment of
respondent employees, the Labor Arbiter found:
On the ground invoked by respondent for
closing its business, i.e., serious losses and
financial straits, respondent submitted
Financial Report wherein it incurred a net
loss of Fourty (sic) Three Million Four
Hundred Eighteen Thousand Two Hundred
Seventy Two and Ninety Eight Centavos
(P43,418,272.98) in 1991. Thus, based on all
the foregoing, we are constrained that
respondent was, indeed, suffering from
financial reverses that would justify its
decision to close down its business. Hence,
under Section 9 (b) Book VI, Rule III of
Omnibus Rules Implementing the Labor
Code, it provides:
Sec. 9. (b) Where the
termination of
employment is due to
retrenchment to
prevent losses and in
case of closure or
cessation of
operations of
establishment or
undertaking not due
to serious business
losses or financial
reverses, or where
the employee suffers
from a disease and
his continued
employment is
prohibited by law or
6

Corpo Page 7 Cases

is prejudicial to his
health or to the
health of his coemployees, the
employee shall be
entitled to
termination pay
equivalent to at least
one-half month pay
for every year of
service, a fraction of
at least six months
being considered as
one whole year. 15
The NLRC, in its September 30, 1993 Resolution, however,
reversed the foregoing findings of the Labor Arbiter and adjudged
Crispa, Inc. as well as the petitioners liable for illegal dismissal.
The NLRC ruled, thus:
We observe that the basis of the Labor
Arbiter in sustaining the argument of
financial reverses is the Statement of Profit
and Losses submitted by the respondent
(Supra.). The same however, does not bear
the signature of a certified public
accountant or audited by an independent
auditor. Briefly stated, it has no evidentiary
value. As such, the allege financial losses
which caused the temporary closure of
respondent CRISPA, Inc. has not been
sufficiently established. In the case of Lopez
Sugar Corp. vs. FFW, 189 SCRA 179, the
Supreme Court held that "alleged losses if
already realized and the expected losses
sought to be forestalled must be proved by
sufficient and commencing (sic)evidence.
Consequently, there being no financial
reverses for (sic) men (sic) the termination
of herein complainants from their
employment is perforce illegal. 16
We are more in accord with the aforequoted observations made
by the NLRC. It is true that administrative and quasi-judicial bodies
like the NLRC are not bound by the technical rules of procedure in
the adjudication of cases.17 However, this procedural rule should
not be construed as a license to disregard certain fundamental
evidentiary rules. While the rules of evidence prevailing in the
courts of law or equity are not controlling in proceedings before
the NLRC, the evidence presented before it must at least have a
modicum of admissibility for it to be given some probative
value. 18 The Statement of Profit and Losses submitted by Crispa,
Inc. to prove its alleged losses, without the accompanying

signature of a certified public accountant or audited by an

independent auditor, are nothing but self-serving documents
which ought to be treated as a mere scrap of paper devoid of any
probative value. For sure, this is not the kind of sufficient and
convincing evidence necessary to discharge the burden of proof
required of petitioners to establish the alleged losses suffered by
Crispa, Inc. in the years immediately preceding 1990 that would
justify the retrenchment of respondent employees. In fact,
petitioners, as directors and officers of Crispa, Inc., already
concede, albeit quite belatedly, in its Reply to Comment of Public
Respondent, 19 the finding of public respondent NLRC that
petitioners utterly failed to establish the alleged financial losses
borne by Crispa, Inc., 20 thus making the company guilty of illegal
dismissal against the private respondents. According to
petitioners, what they are actually assailing is the decision of the
NLRC holding them solidarily liable with the company for the
payment of separation pay and backwages to the private
respondents. It is the contention of the petitioners that the award
of backwages and separation pay is a corporate obligation and
must therefore be assumed by Crispa, Inc. alone.
We do not agree. A corporation is a juridical entity with legal
personality separate and distinct from those acting for and in its
behalf and, in general, from the people comprising it. The general
rule is that obligations incurred by the corporation, acting through
its directors, officers and employees, are its sole
liabilities. 21 There are times, however, when solidary liabilities
may be incurred but only when exceptional circumstances
warrant such as in the following cases:
1. When directors and trustees or, in
appropriate cases, the officers of a
corporation: (a) vote for or assent
to patently unlawful acts of the
corporation; (b) act in bad faith or
with gross negligence in directing the
corporate affairs; (c) are guilty of conflict of
interest to the prejudice of the corporation,
its stockholders or members, and other
persons;
2. When a director or officer has consented
to the issuance of watered stocks or who,
having knowledge thereof did not forthwith
file with the corporate secretary his written
objection thereto;
3. When a director, trustee or officer has
contractually agreed or stipulated to hold
himself personally and solidarily liable with
the corporation; or

4 When a director, trustee or officer is

made, by specific provision of law,
personally liable for his corporate action. 22
In labor cases, particularly, corporate directors and
officers are solidarily liable with the corporation for the
termination of employment of corporate employees
done with malice or in bad faith. 23 In this case, it is
undisputed that petitioners have a direct hand in the
illegal dismissal of respondent employees. They were
the ones, who as high-ranking officers and directors of
Crispa, Inc., signed the Board Resolution retrenching
private respondents on the feigned ground of serious
business losses that had no basis apart from an
unsigned and unaudited Profit and Loss Statement
which, to repeat, had no evidentiary value whatsoever.
This is indicative of bad faith on the part of petitioners
for which they can be held jointly and severally liable
with Crispa, Inc. for all the money claims of the illegally
terminated respondent employees in this case.
WHEREFORE, finding no grave abuse of discretion on the part of
the public respondent NLRC, the instant petition is hereby
DISMISSED.
Costs against petitioners.SO ORDERED.

G.R. No. 144805 June 8, 2006

The Eternit Corporation (EC) is a corporation duly organized and

registered under Philippine laws. Since 1950, it had been engaged
in the manufacture of roofing materials and pipe products. Its
manufacturing operations were conducted on eight parcels of
land with a total area of 47,233 square meters. The properties,
located in Mandaluyong City, Metro Manila, were covered by
Transfer Certificates of Title Nos. 451117, 451118, 451119,
451120, 451121, 451122, 451124 and 451125 under the name of
Far East Bank & Trust Company, as trustee. Ninety (90%) percent
of the shares of stocks of EC were owned by Eteroutremer S.A.
Corporation (ESAC), a corporation organized and registered under
the laws of Belgium.3 Jack Glanville, an Australian citizen, was the
General Manager and President of EC, while Claude Frederick
Delsaux was the Regional Director for Asia of ESAC. Both had their
offices in Belgium.
In 1986, the management of ESAC grew concerned about the
political situation in the Philippines and wanted to stop its
operations in the country. The Committee for Asia of ESAC
instructed Michael Adams, a member of ECs Board of Directors,
to dispose of the eight parcels of land. Adams engaged the
services of realtor/broker Lauro G. Marquez so that the properties
could be offered for sale to prospective buyers. Glanville later
showed the properties to Marquez.
Marquez thereafter offered the parcels of land and the
improvements thereon to Eduardo B. Litonjua, Jr. of the Litonjua
& Company, Inc. In a Letter dated September 12, 1986, Marquez
declared that he was authorized to sell the properties
for P27,000,000.00 and that the terms of the sale were subject to
negotiation.4

execution and preparation of all documents of sale, together with

the necessary governmental clearances.6
The Litonjua brothers deposited the amount of US$1,000,000.00
with the Security Bank & Trust Company, Ermita Branch, and
drafted an Escrow Agreement to expedite the sale.7
Sometime later, Marquez and the Litonjua brothers inquired from
Glanville when the sale would be implemented. In a telex dated
April 22, 1987, Glanville informed Delsaux that he had met with
the buyer, which had given him the impression that "he is
prepared to press for a satisfactory conclusion to the sale."8 He
also emphasized to Delsaux that the buyers were concerned
because they would incur expenses in bank commitment fees as a
consequence of prolonged period of inaction.9
Meanwhile, with the assumption of Corazon C. Aquino as
President of the Republic of the Philippines, the political situation
in the Philippines had improved. Marquez received a telephone
call from Glanville, advising that the sale would no longer
proceed. Glanville followed it up with a Letter dated May 7, 1987,
confirming that he had been instructed by his principal to inform
Marquez that "the decision has been taken at a Board Meeting
not to sell the properties on which Eternit Corporation is
situated."10
Delsaux himself later sent a letter dated May 22, 1987, confirming
that the ESAC Regional Office had decided not to proceed with
the sale of the subject land, to wit:
May 22, 1987

EDUARDO V. LINTONJUA, JR. and ANTONIO K.

LITONJUA, Petitioners,
vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES
CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK &
TRUST COMPANY, Respondents.
DECISION
CALLEJO, SR., J.:
On appeal via a Petition for Review on Certiorari is the
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 51022,
which affirmed the Decision of the Regional Trial Court (RTC),
Pasig City, Branch 165, in Civil Case No. 54887, as well as the
Resolution2 of the CA denying the motion for reconsideration
thereof.

Corpo Page 7 Cases

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the

property to Eduardo Litonjua, Jr., and his brother Antonio K.
Litonjua. The Litonjua siblings offered to buy the property
for P20,000,000.00 cash. Marquez apprised Glanville of the
Litonjua siblings offer and relayed the same to Delsaux in
Belgium, but the latter did not respond. On October 28, 1986,
Glanville telexed Delsaux in Belgium, inquiring on his position/
counterproposal to the offer of the Litonjua siblings. It was only
on February 12, 1987 that Delsaux sent a telex to Glanville stating
that, based on the "Belgian/Swiss decision," the final offer was
"US$1,000,000.00 and P2,500,000.00 to cover all existing
obligations prior to final liquidation."5
Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex
sent by Delsaux. Litonjua, Jr. accepted the counterproposal of
Delsaux. Marquez conferred with Glanville, and in a Letter dated
February 26, 1987, confirmed that the Litonjua siblings had
accepted the counter-proposal of Delsaux. He also stated that the
Litonjua siblings would confirm full payment within 90 days after

Mr. L.G. Marquez

L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines
Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to
proceed with the sale of the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every
six months) and examined the position as far as the Philippines
are (sic) concerned. Considering [the] new political situation since
the departure of MR. MARCOS and a certain stabilization in the

Philippines, the Committee has decided not to stop our

operations in Manila. In fact, production has started again last
week, and (sic) to recognize the participation in the Corporation.
We regret that we could not make a deal with you this time, but
in case the policy would change at a later state, we would consult
you again.
xxx
Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)11
When apprised of this development, the Litonjuas, through
counsel, wrote EC, demanding payment for damages they had
suffered on account of the aborted sale. EC, however, rejected
their demand.
The Litonjuas then filed a complaint for specific performance and
damages against EC (now the Eterton Multi-Resources
Corporation) and the Far East Bank & Trust Company, and ESAC in
the RTC of Pasig City. An amended complaint was filed, in which
defendant EC was substituted by Eterton Multi-Resources
Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and
Deogracias G. Eufemio were impleaded as additional defendants
on account of their purchase of ESAC shares of stocks and were
the controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged that since
Eteroutremer was not doing business in the Philippines, it cannot
be subject to the jurisdiction of Philippine courts; the Board and
stockholders of EC never approved any resolution to sell subject
properties nor authorized Marquez to sell the same; and the telex
dated October 28, 1986 of Jack Glanville was his own personal
making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in favor of
defendants and dismissed the amended complaint.12 The fallo of
the decision reads:
WHEREFORE, the complaint against Eternit Corporation now
Eterton Multi-Resources Corporation and Eteroutremer, S.A. is
dismissed on the ground that there is no valid and binding sale
between the plaintiffs and said defendants.

Corpo Page 7 Cases

The complaint as against Far East Bank and Trust Company is

likewise dismissed for lack of cause of action.
The counterclaim of Eternit Corporation now Eterton MultiResources Corporation and Eteroutremer, S.A. is also dismissed
for lack of merit.13
The trial court declared that since the authority of the
agents/realtors was not in writing, the sale is void and not merely
unenforceable, and as such, could not have been ratified by the
principal. In any event, such ratification cannot be given any
retroactive effect. Plaintiffs could not assume that defendants had
agreed to sell the property without a clear authorization from the
corporation concerned, that is, through resolutions of the Board
of Directors and stockholders. The trial court also pointed out that
the supposed sale involves substantially all the assets of
defendant EC which would result in the eventual total cessation of
its operation.14
The Litonjuas appealed the decision to the CA, alleging that "(1)
the lower court erred in concluding that the real estate broker in
the instant case needed a written authority from appellee
corporation and/or that said broker had no such written
authority; and (2) the lower court committed grave error of law in
holding that appellee corporation is not legally bound for specific
performance and/or damages in the absence of an enabling
resolution of the board of directors."15 They averred that Marquez
acted merely as a broker or go-between and not as agent of the
corporation; hence, it was not necessary for him to be
empowered as such by any written authority. They further
claimed that an agency by estoppel was created when the
corporation clothed Marquez with apparent authority to
negotiate for the sale of the properties. However, since it was a
bilateral contract to buy and sell, it was equivalent to a perfected
contract of sale, which the corporation was obliged to
consummate.
In reply, EC alleged that Marquez had no written authority from
the Board of Directors to bind it; neither were Glanville and
Delsaux authorized by its board of directors to offer the property
for sale. Since the sale involved substantially all of the
corporations assets, it would necessarily need the authority from
the stockholders.
On June 16, 2000, the CA rendered judgment affirming the
decision of the RTC. 16 The Litonjuas filed a motion for
reconsideration, which was also denied by the appellate court.
The CA ruled that Marquez, who was a real estate broker, was a
special agent within the purview of Article 1874 of the New Civil
Code. Under Section 23 of the Corporation Code, he needed a

special authority from ECs board of directors to bind such

corporation to the sale of its properties. Delsaux, who was merely
the representative of ESAC (the majority stockholder of EC) had
no authority to bind the latter. The CA pointed out that Delsaux
was not even a member of the board of directors of EC.
Moreover, the Litonjuas failed to prove that an agency by
estoppel had been created between the parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PERFECTED CONTRACT OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN
HOLDING THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM
RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE
AND DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE
SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY
PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE
SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT
TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID
PROPERTIES.17
Petitioners maintain that, based on the facts of the case, there
was a perfected contract of sale of the parcels of land and the
improvements thereon for "US$1,000,000.00 plus P2,500,000.00
to cover obligations prior to final liquidation." Petitioners insist
that they had accepted the counter-offer of respondent EC and
that before the counter-offer was withdrawn by respondents, the
acceptance was made known to them through real estate broker
Marquez.
Petitioners assert that there was no need for a written authority
from the Board of Directors of EC for Marquez to validly act as
broker/middleman/intermediary. As broker, Marquez was not an
ordinary agent because his authority was of a special and limited
character in most respects. His only job as a broker was to look for
a buyer and to bring together the parties to the transaction. He
was not authorized to sell the properties or to make a binding
contract to respondent EC; hence, petitioners argue, Article 1874
of the New Civil Code does not apply.

In any event, petitioners aver, what is important and decisive was

that Marquez was able to communicate both the offer and
counter-offer and their acceptance of respondent ECs counteroffer, resulting in a perfected contract of sale.
Petitioners posit that the testimonial and documentary evidence
on record amply shows that Glanville, who was the President and
General Manager of respondent EC, and Delsaux, who was the
Managing Director for ESAC Asia, had the necessary authority to
sell the subject property or, at least, had been allowed by
respondent EC to hold themselves out in the public as having the
power to sell the subject properties. Petitioners identified such
evidence, thus:
1. The testimony of Marquez that he was chosen by
Glanville as the then President and General Manager
of Eternit, to sell the properties of said corporation to
any interested party, which authority, as hereinabove
discussed, need not be in writing.

Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to
proceed with the sale of the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every
six months) and examined the position as far as the Philippines
are (sic) concerned. Considering the new political situation since
the departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our
operations in Manila[.] [I]n fact production started again last
week, and (sic) to reorganize the participation in the Corporation.
We regret that we could not make a deal with you this time, but
in case the policy would change at a later stage we would consult
you again.

2. The fact that the NEGOTIATIONS for the sale of the

subject properties spanned SEVERAL MONTHS, from
1986 to 1987;

In the meantime, I remain

3. The COUNTER-OFFER made by Eternit through

GLANVILLE to sell its properties to the Petitioners;

C.F. DELSAUX19

4. The GOOD FAITH of Petitioners in believing Eternits

offer to sell the properties as evidenced by the
Petitioners ACCEPTANCE of the counter-offer;

Petitioners further emphasize that they acted in good faith when

Glanville and Delsaux were knowingly permitted by respondent EC
to sell the properties within the scope of an apparent authority.
Petitioners insist that respondents held themselves to the public
as possessing power to sell the subject properties.

5. The fact that Petitioners DEPOSITED the price of

[US]$1,000,000.00 with the Security Bank and that an
ESCROW agreement was drafted over the subject
properties;
6. Glanvilles telex to Delsaux inquiring
"WHEN WE (Respondents) WILL IMPLEMENT ACTION
TO BUY AND SELL";
7. More importantly, Exhibits "G" and "H" of the
Respondents, which evidenced the fact that
Petitioners offer was allegedly REJECTED by both
Glanville and Delsaux.18
Petitioners insist that it is incongruous for Glanville and Delsaux to
make a counter-offer to petitioners offer and thereafter reject
such offer unless they were authorized to do so by respondent EC.
Petitioners insist that Delsaux confirmed his authority to sell the
properties in his letter to Marquez, to wit:
9

Corpo Page 7 Cases

Yours sincerely,

By way of comment, respondents aver that the issues raised by

the petitioners are factual, hence, are proscribed by Rule 45 of the
Rules of Court. On the merits of the petition, respondents EC
(now EMC) and ESAC reiterate their submissions in the CA. They
maintain that Glanville, Delsaux and Marquez had no authority
from the stockholders of respondent EC and its Board of Directors
to offer the properties for sale to the petitioners, or to any other
person or entity for that matter. They assert that the decision and
resolution of the CA are in accord with law and the evidence on
record, and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC,
through Glanville and Delsaux, conformed to the written authority
of Marquez to sell the properties. The authority of Glanville and
Delsaux to bind respondent EC is evidenced by the fact that
Glanville and Delsaux negotiated for the sale of 90% of stocks of
respondent EC to Ruperto Tan on June 1, 1997. Given the
significance of their positions and their duties in respondent EC at
the time of the transaction, and the fact that respondent ESAC

owns 90% of the shares of stock of respondent EC, a formal

resolution of the Board of Directors would be a mere ceremonial
formality. What is important, petitioners maintain, is that
Marquez was able to communicate the offer of respondent EC
and the petitioners acceptance thereof. There was no time that
they acted without the knowledge of respondents. In fact,
respondent EC never repudiated the acts of Glanville, Marquez
and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of
respondents that the issues raised by petitioner in this case are
factual. Whether or not Marquez, Glanville, and Delsaux were
authorized by respondent EC to act as its agents relative to the
sale of the properties of respondent EC, and if so, the boundaries
of their authority as agents, is a question of fact. In the absence of
express written terms creating the relationship of an agency, the
existence of an agency is a fact question.20 Whether an agency by
estoppel was created or whether a person acted within the
bounds of his apparent authority, and whether the principal is
estopped to deny the apparent authority of its agent are, likewise,
questions of fact to be resolved on the basis of the evidence on
record.21 The findings of the trial court on such issues, as affirmed
by the CA, are conclusive on the Court, absent evidence that the
trial and appellate courts ignored, misconstrued, or misapplied
facts and circumstances of substance which, if considered, would
warrant a modification or reversal of the outcome of the case.22
It must be stressed that issues of facts may not be raised in the
Court under Rule 45 of the Rules of Court because the Court is not
a trier of facts. It is not to re-examine and assess the evidence on
record, whether testimonial and documentary. There are,
however, recognized exceptions where the Court may delve into
and resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on
speculations, surmises, or conjectures; (2) when the inference
made is manifestly mistaken, absurd, or impossible; (3) when
there is grave abuse of discretion; (4) when the judgment is based
on a misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to
the admissions of both appellant and appellee; (7) when the
findings of the Court of Appeals are contrary to those of the trial
court; (8) when the findings of fact are conclusions without
citation of specific evidence on which they are based; (9) when
the Court of Appeals manifestly overlooked certain relevant facts
not disputed by the parties, which, if properly considered, would
justify a different conclusion; and (10) when the findings of fact of
the Court of Appeals are premised on the absence of evidence
and are contradicted by the evidence on record.23

We have reviewed the records thoroughly and find that the

petitioners failed to establish that the instant case falls under any
of the foregoing exceptions. Indeed, the assailed decision of the
Court of Appeals is supported by the evidence on record and the
law.
It was the duty of the petitioners to prove that respondent EC had
decided to sell its properties and that it had empowered Adams,
Glanville and Delsaux or Marquez to offer the properties for sale
to prospective buyers and to accept any counter-offer. Petitioners
likewise failed to prove that their counter-offer had been
accepted by respondent EC, through Glanville and Delsaux. It
must be stressed that when specific performance is sought of a
contract made with an agent, the agency must be established by
clear, certain and specific proof.24
Section 23 of Batas Pambansa Bilang 68, otherwise known as the
Corporation Code of the Philippines, provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise
provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year
and until their successors are elected and qualified.
Indeed, a corporation is a juridical person separate and distinct
from its members or stockholders and is not affected by the
personal rights,
obligations and transactions of the latter.25 It may act only
through its board of directors or, when authorized either by its bylaws or by its board resolution, through its officers or agents in
the normal course of business. The general principles of agency
govern the relation between the corporation and its officers or
agents, subject to the articles of incorporation, by-laws, or
relevant provisions of law.26
Under Section 36 of the Corporation Code, a corporation may sell
or convey its real properties, subject to the limitations prescribed
by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. Every corporation
incorporated under this Code has the power and capacity:
xxxx

10

Corpo Page 7 Cases

7. To purchase, receive, take or grant, hold, convey, sell, lease,

pledge, mortgage and otherwise deal with such real and personal
property, including securities and bonds of other corporations, as
the transaction of a lawful business of the corporation may
reasonably and necessarily require, subject to the limitations
prescribed by the law and the Constitution.
The property of a corporation, however, is not the property of the
stockholders or members, and as such, may not be sold without
express authority from the board of directors.27 Physical acts, like
the offering of the properties of the corporation for sale, or the
acceptance of a counter-offer of prospective buyers of such
properties and the execution of the deed of sale covering such
property, can be performed by the corporation only by officers or
agents duly authorized for the purpose by corporate by-laws or by
specific acts of the board of directors.28 Absent such valid
delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but
not in the course of, or connected with, the performance of
authorized duties of such director, are not binding on the
corporation.29
While a corporation may appoint agents to negotiate for the sale
of its real properties, the final say will have to be with the board
of directors through its officers and agents as authorized by a
board resolution or by its by-laws.30An unauthorized act of an
officer of the corporation is not binding on it unless the latter
ratifies the same expressly or impliedly by its board of directors.
Any sale of real property of a corporation by a person purporting
to be an agent thereof but without written authority from the
corporation is null and void. The declarations of the agent alone
are generally insufficient to establish the fact or extent of his/her
authority.31
By the contract of agency, a person binds himself to render some
service or to do something in representation on behalf of another,
with the consent or authority of the latter.32 Consent of both
principal and agent is necessary to create an agency. The principal
must intend that the agent shall act for him; the agent must
intend to accept the authority and act on it, and the intention of
the parties must find expression either in words or conduct
between them.33
An agency may be expressed or implied from the act of the
principal, from his silence or lack of action, or his failure to
repudiate the agency knowing that another person is acting on his
behalf without authority. Acceptance by the agent may be
expressed, or implied from his acts which carry out the agency, or
from his silence or inaction according to the
circumstances.34 Agency may be oral unless the law requires a
specific form.35However, to create or convey real rights over
immovable property, a special power of attorney is

necessary.36Thus, when a sale of a piece of land or any portion

thereof is through an agent, the authority of the latter shall be in
writing, otherwise, the sale shall be void.37
In this case, the petitioners as plaintiffs below, failed to adduce in
evidence any resolution of the Board of Directors of respondent
EC empowering Marquez, Glanville or Delsaux as its agents, to
sell, let alone offer for sale, for and in its behalf, the eight parcels
of land owned by respondent EC including the improvements
thereon. The bare fact that Delsaux may have been authorized to
sell to Ruperto Tan the shares of stock of respondent ESAC, on
June 1, 1997, cannot be used as basis for petitioners claim that
he had likewise been authorized by respondent EC to sell the
parcels of land.
Moreover, the evidence of petitioners shows that Adams and
Glanville acted on the authority of Delsaux, who, in turn, acted on
the authority of respondent ESAC, through its Committee for
Asia,38 the Board of Directors of respondent ESAC,39 and the
Belgian/Swiss component of the management of respondent
ESAC.40 As such, Adams and Glanville engaged the services of
Marquez to offer to sell the properties to prospective buyers.
Thus, on September 12, 1986, Marquez wrote the petitioner that
he was authorized to offer for sale the property
forP27,000,000.00 and the other terms of the sale subject to
negotiations. When petitioners offered to purchase the property
for P20,000,000.00, through Marquez, the latter relayed
petitioners offer to Glanville; Glanville had to send a telex to
Delsaux to inquire the position of respondent ESAC to petitioners
offer. However, as admitted by petitioners in their Memorandum,
Delsaux was unable to reply immediately to the telex of Glanville
because Delsaux had to wait for confirmation from respondent
ESAC.41 When Delsaux finally responded to Glanville on February
12, 1987, he made it clear that, based on the "Belgian/Swiss
decision" the final offer of respondent ESAC was US$1,000,000.00
plus P2,500,000.00 to cover all existing obligations prior to final
liquidation.42 The offer of Delsaux emanated only from the
"Belgian/Swiss decision," and not the entire management or
Board of Directors of respondent ESAC. While it is true that
petitioners accepted the counter-offer of respondent ESAC,
respondent EC was not a party to the transaction between them;
hence, EC was not bound by such acceptance.
While Glanville was the President and General Manager of
respondent EC, and Adams and Delsaux were members of its
Board of Directors, the three acted for and in behalf of
respondent ESAC, and not as duly authorized agents of
respondent EC; a board resolution evincing the grant of such
authority is needed to bind EC to any agreement regarding the
sale of the subject properties. Such board resolution is not a mere
formality but is a condition sine qua non to bind respondent EC.
Admittedly, respondent ESAC owned 90% of the shares of stocks
of respondent EC; however, the mere fact that a corporation

owns a majority of the shares of stocks of another, or even all of

such shares of stocks, taken alone, will not justify their being
treated as one corporation.43
It bears stressing that in an agent-principal relationship, the
personality of the principal is extended through the facility of the
agent. In so doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the latter would
have him do. Such a relationship can only be effected with the
consent of the principal, which must not, in any way, be
compelled by law or by any court.44
The petitioners cannot feign ignorance of the absence of any
regular and valid authority of respondent EC empowering Adams,
Glanville or Delsaux to offer the properties for sale and to sell the
said properties to the petitioners. A person dealing with a known
agent is not authorized, under any circumstances, blindly to trust
the agents; statements as to the extent of his powers; such
person must not act negligently but must use reasonable diligence
and prudence to ascertain whether the agent acts within the
scope of his authority.45 The settled rule is that, persons dealing
with an assumed agent are bound at their peril, and if they would
hold the principal liable, to ascertain not only the fact of agency
but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to prove it.46 In
this case, the petitioners failed to discharge their burden; hence,
petitioners are not entitled to damages from respondent EC.

reliance upon the representations, and that, in turn, needs proof

that the representations predated the action taken in
reliance.49Such proof is lacking in this case. In their
communications to the petitioners, Glanville and Delsaux
positively and unequivocally declared that they were acting for
and in behalf of respondent ESAC.
Neither may respondent EC be deemed to have ratified the
transactions between the petitioners and respondent ESAC,
through Glanville, Delsaux and Marquez. The transactions and the
various communications inter se were never submitted to the
Board of Directors of respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack
of merit. Costs against the petitioners.SO ORDERED.

G.R. No. 172727

September 8, 2010

QUEENSLAND-TOKYO COMMODITIES, INC., ROMEO Y. LAU, and

CHARLIE COLLADO, Petitioners,
vs.
THOMAS GEORGE, Respondent.
RESOLUTION

It appears that Marquez acted not only as real estate broker for
the petitioners but also as their agent. As gleaned from the letter
of Marquez to Glanville, on February 26, 1987, he confirmed, for
and in behalf of the petitioners, that the latter had accepted such
offer to sell the land and the improvements thereon. However,
we agree with the ruling of the appellate court that Marquez had
no authority to bind respondent EC to sell the subject properties.
A real estate broker is one who negotiates the sale of real
properties. His business, generally speaking, is only to find a
purchaser who is willing to buy the land upon terms fixed by the
owner. He has no authority to bind the principal by signing a
contract of sale. Indeed, an authority to find a purchaser of real
property does not include an authority to sell.47
Equally barren of merit is petitioners contention that respondent
EC is estopped to deny the existence of a principal-agency
relationship between it and Glanville or Delsaux. For an agency by
estoppel to exist, the following must be established: (1) the
principal manifested a representation of the agents authority or
knowlingly allowed the agent to assume such authority; (2) the
third person, in good faith, relied upon such representation; (3)
relying upon such representation, such third person has changed
his position to his detriment.48 An agency by estoppel, which is
similar to the doctrine of apparent authority, requires proof of
11

Corpo Page 7 Cases

NACHURA, J.:
At bar is a petition for review on certiorari under Rule 45 of the
Rules of Court filed by Queensland-Tokyo Commodities, Inc.
(QTCI), Romeo Y. Lau (Lau), and Charlie Collado (Collado),
challenging the September 30, 2005 Decision1 and the January 20,
2006 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No.
58741.
QTCI is a duly licensed broker engaged in the trading of
commodity futures. In 1995, Guillermo Mendoza, Jr. (Mendoza)
and Oniler Lontoc (Lontoc) of QTCI met with respondent Thomas
George (respondent), encouraging the latter to invest with QTCI.
On July 7, 1995, upon Mendozas prodding, respondent finally
invested with QTCI. On the same day, Collado, in behalf of QTCI,
and respondent signed the Customers Agreement.3 Forming part
of the agreement was the Special Power of Attorney4 executed by
respondent, appointing Mendoza as his attorney-in-fact with full
authority to trade and manage his account.
On June 20, 1996, the Securities and Exchange Commission (SEC)
issued a Cease-and-Desist Order (CDO) against QTCI. Alarmed by
the issuance of the CDO, respondent demanded from QTCI the

return of his investment, but it was not heeded. He then sought

legal assistance, and discovered that Mendoza and Lontoc were
not licensed commodity futures salesmen.
On February 4, 1998, respondent filed a complaint for Recovery of
Investment with Damages5 with the SEC against QTCI, Lau, and
Collado (petitioners), and against the unlicensed salesmen,
Mendoza and Lontoc. The case was docketed as SEC Case No. 0298-5886, and was raffled to SEC Hearing Officer Julieto F. Fabrero.
Only petitioners answered the complaint, as Mendoza and Lontoc
had since vanished into thin air. Traversing the complaint,
petitioners denied the material allegations in the complaint and
alleged lack of cause of action, as a defense. Petitioners averred
that QTCI only assigned duly qualified persons to handle the
accounts of its clients; and denied allowing unlicensed brokers or
agents to handle respondents account. They claimed that they
were not aware of, nor were they privy to, any arrangement
which resulted in the account of respondent being handled by
unlicensed brokers. They added that even assuming that the
subject account was handled by an unlicensed broker, respondent
is now estopped from raising it as a ground for the return of his
investment. They pointed out that respondent transacted
business with QTCI for almost a year, without questioning the
license or the authority of the traders handling his account. It was
only after it became apparent that QTCI could no longer resume
its business transactions by reason of the CDO that respondent
raised the alleged lack of authority of the brokers or traders
handling his account. The losses suffered by respondent were due
to circumstances beyond petitioners control and could not be
attributed to them. Respondents remedy, they added, should be
against the unlicensed brokers who handled the account. Thus,
petitioners prayed for the dismissal of the complaint.6
After due proceedings, the SEC Hearing Officer rendered a
decision7 in favor of respondent, decreeing that:
WHEREFORE, premises considered, [petitioners] Queensland
Tokyo [C]ommodities, Inc., Romeo Y. Lau (aka "Lau Ching Yee")
and Charlie F. Collado are hereby ordered to jointly and severally
pay the [respondent] the following:
1. The amount of P138,164.00, Philippine currency,
representing the x x x return of his [respondents] peso
investment, plus legal rate of interest from February
1998 until fully paid;
2. The amount of $19,820.00, American dollars, or its
peso equivalent at the time of payment representing
the [respondents] return of his dollar investments,

plus legal rate of interest from February 1998 until fully

paid;
3. The amount of P100,000.00 as (sic) by way of moral
damages;

SO ORDERED.12
Petitioners filed a motion for reconsideration,13 but the CA denied
it on January 20, 2006.14
Hence, this recourse by petitioners arguing that:

4. The amount of P50,000.00 as and (sic) by way of

exemplary damages;
5. The amount of P10,000.00 as and for attorneys
fees; and
6. The amount of P2,877.00 as cost of suit.

A.
THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING
THAT PETITIONERS KNOWINGLY PERMITTED AN UNLICENSED
TRADER TO SOLICIT AND HANDLE REPONDENTS ACCOUNT, AND
THAT PETITIONERS ARE GUILTY OF FRAUD AND
MISREPRESENTATION.

SO ORDERED.8
B.
Petitioners appealed to the Commission en banc, but the appeal
was dismissed because the Notice of Appeal and the
Memorandum on Appeal were not verified.9
Petitioners then went to the CA via a petition for review10 under
Rule 43, faulting the Commission en banc for dismissing their
appeal on purely technical ground. They insisted that they did not
violate the rules on commodity futures trading. Thus, they faulted
the SEC Hearing Officer for nullifying the Customers Agreement
and for holding them liable for respondents claims.
On September 30, 2005, the CA rendered the now challenged
Decision.11 It declared the dismissal of petitioners appeal by the
Commission en banc improper. Nevertheless, it did not order a
remand of the case to the Commission en banc because
jurisdiction over petitioners appeal had already been transferred
to the Regional Trial Court (RTC) by virtue of Republic Act No.
8799 or the Securities Regulation Code. The CA thus proceeded to
decide the merits of the case, affirming in toto the decision of the
SEC Hearing Officer. The appellate court failed to see any reason
to disturb the SEC Hearing Officers finding of liability on the part
of petitioners. It sustained the finding that petitioners violated the
Revised Rules and Regulations on Commodity Futures Trading
when they allowed
an unlicensed salesman, like Mendoza, to handle respondents
account. The CA also upheld the nullification of the Customers
Agreement, and the award of moral and exemplary damages, as
well attorneys fees, in favor of respondent. The CA disposed,
thus:
WHEREFORE, premises considered, the petition is DISMISSED for
lack of merit. The assailed decision dated February 7, 2000 is
hereby AFFIRMED in toto.
12

Corpo Page 7 Cases

THE HONORABLE COURT OF APPEALS ERRED IN FINDING

INDIVIDUAL PETITIONERS SOLIDARILY LIABLE FOR THE DAMAGES
AND AWARDS DUE [THE] RESPONDENT.15
Petitioners insist that they did not violate the Revised Rules and
Regulations on Commodity Futures Trading. They claim that it has
been QTCIs policy and practice to appoint only licensed traders to
trade the clients account. They denied any participation in the
designation of Mendoza as respondents attorney-in-fact; taking
exception to the findings that they permitted Mendoza to trade
respondents account. Petitioners also assailed the weight given
by the SEC Hearing Officer and by the CA to respondents
evidence.
It is evident that the issue raised in this petition is the correctness
of the factual findings of the SEC Hearing Officer, as affirmed by
the CA. It is well-settled that factual findings of administrative
agencies are generally held to be binding and final so long as they
are supported by substantial evidence in the records of the case.
It is not the function of this Court to analyze or weigh all over
again the evidence and the credibility of witnesses presented
before the lower court, tribunal, or office, as we are not a trier of
facts. Our jurisdiction is limited to reviewing and revising errors of
law imputed to the lower court, the latters findings of fact being
conclusive and not reviewable by this Court.16
We sustain the finding of the SEC Hearing Officer and the CA that
petitioners allowed unlicensed individuals to engage in, solicit or
accept orders in futures contracts, and thus, transgressed the
Revised Rules and Regulations on Commodity Futures Trading.17

As pointed out by the CA, the Special Power of Attorney formed

part of respondents agreement with QTCI, and under the
Customers Agreement,18 only a licensed or registered dealer or
investment consultant may be appointed as attorney-in-fact.
Thus:
2. If I so desire, I shall appoint you as my agent pursuant to a
Special Power of Attorney which I shall execute for this purpose
and which form part of this Agreement.
xxxx
18. I hereby confer, pursuant to the Special Power of Attorney
herewith attached, full authority to your licensed/registered
dealer/investment in charge of my account/s and your Senior
Officer, who must also be a licensed/registered dealer/investment
consultant, to sign all order slips on futures trading. 19
Inexplicably, petitioners did not object to, and in fact recognized,
Mendozas appointment as respondents attorney-in-fact.
Collado, in behalf of QTCI, concluded the Customers Agreement
despite the fact that the appointed attorney-in-fact was not a
licensed dealer. Worse, petitioners permitted Mendoza to handle
respondents account.
Indubitably, petitioners violated the Revised Rules and
Regulations on Commodity Futures Trading prohibiting any
unlicensed person to engage in, solicit or accept orders in futures
contract. Consequently, the SEC Hearing Officer and the CA
cannot be faulted for declaring the contract between QTCI and
respondent void.
Batas Pambansa Bilang (B.P. Blg.) 178 or the Revised Securities Act
explicitly provided:
SEC. 53. Validity of Contracts. x x x.
(b) Every contract executed in violation of any provision of this
Act, or any rule or regulation thereunder, and every contract,
including any contract for listing a security on an exchange
heretofore or hereafter made, the performance of which involves
the violation of, or the continuance of any relationship or practice
in violation of, any provision of this Act, or any rule and regulation
thereunder, shall be void.
Likewise, Paragraph 2920 of the Customers Agreement provides:
29.

We are not persuaded by petitioners assertion that they had no

hand in Mendozas designation as respondents attorney-in-fact.

Contracts entered into by unlicensed Account Executives (A/E) or

Investment consultants are deemed void and of no legal effect.
Clearly, the CA merely adhered to the clear provision of B.P. Blg.
178 and to the stipulation in the parties agreement when it
declared as void the Customers Agreement between QTCI and
respondent.
It is settled that a void contract is equivalent to nothing; it
produces no civil effect. It does not create, modify, or extinguish a
juridical relation. Parties to a void agreement cannot expect the
aid of the law; the courts leave them as they are, because they
are deemed in pari delicto or in equal fault.21 This rule, however,
is not absolute. Article 1412 of the Civil Code provides an
exception, and permits the return of that which may have been
given under a void contract. Thus:
Art. 1412. If the act in which the unlawful or forbidden cause
consists does not constitute a criminal offense, the following rules
shall be observed:
(1) When the fault is on the part of both contracting
parties, neither may recover what he has given by
virtue of the contract, or demand the performance of
the other's undertaking;
(2) When only one of the contracting parties is at fault,
he cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may
demand the return of what he has given without any
obligation to comply with his promise.
The evidence on record established that petitioners indeed
permitted an unlicensed trader and salesman, like Mendoza, to
handle respondents account. On the other hand, the record is
bereft of proof that respondent had knowledge that the person
handling his account was not a licensed trader. Respondent can,
therefore, recover the amount he had given under the contract.
The SEC Hearing Officer and the CA, therefore, committed no
reversible error in holding that respondent is entitled to a full
recovery of his investments.
Petitioners Collado and Lau next fault the CA in making them
solidarily liable for the payment of respondents claim.
Doctrine dictates that a corporation is invested by law with a
personality separate and distinct from those of the persons
composing it, such that, save for certain exceptions, corporate
officers who entered into contracts in behalf of the corporation
cannot be held personally liable for the liabilities of the latter.
13

Corpo Page 7 Cases

Personal liability of a corporate director, trustee, or officer, along

(although not necessarily) with the corporation, may validly
attach, as a rule, only when (1) he assents to a patently unlawful
act of the corporation, or when he is guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its stockholders,
or other persons; (2) he consents to the issuance of watered
down stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection
thereto; (3) he agrees to hold himself personally and solidarily
liable with the corporation; or (4) he is made by a specific
provision of law personally answerable for his corporate
action.221avvphi1
In holding Lau and Collado jointly and severally liable with QTCI
for respondents claim, the SEC Hearing Officer explained in this
wise:
Anent the issue of who among the individual [petitioners] are
jointly liable with QTCI in the payment of the awards, the
Commission took into consideration, among others, that audit
report on the trading activities submitted by the Brokers and
Exchange Department (BED) of this Commission (Exhibit "J"). The
findings contained in the report include the presence of seven (7)
unlicensed investment consultants in QTCI, and the company
practice of changing deeds of Special Power of Attorney bearing
those who are licensed (exhibits "J-1" and "J-2").
The Commission also took into consideration the fact that
[petitioner] Collado, who is not a licensed commodity salesman,
himself violated the aforequoted provisions of the Revised Rules
and Regulations on Commodity Futures Trading when he
admitted having participated in the execution of the customers
orders (p. 7, TSN dated January 21, 1999) without giving any
exception thereto, which presumably includes his participation in
the execution of customers orders of the [respondent].
Such being the case, [Mendozas] participation in the trading of
[respondents] account is within the knowledge of [petitioner]
Collado.
The presence of seven (7) unlicensed investment consultants
within QTCI apart from x x x Mendoza, and [petitioner] Collados
participation in the unlawful execution of orders under the
[respondents] account clearly established the fact that the
management of QTCI failed to implement the rules and
regulations against the hiring of, and associating with, unlicensed
consultants or traders. How these unlicensed personnel been able
to pursue their unlawful activities is a reflection of how negligent
[the] management was.

[Petitioner] Romeo Lau, as president of [petitioner] QTCI, cannot

feign innocence on the existence of these unlawful activities
within the company, especially so that Collado, himself a ranking
officer of QTCI, is involved in the unlawful execution of customers
orders. [Petitioner] Lau, being the chief operating officer, cannot
escape the fact that had he exercised a modicum of care and
discretion in supervising the operations of QTCI, he could have
detected and prevented the unlawful acts of [petitioner] Collado
and Mendoza.
It is therefore safe to conclude that although Lau may not have
participated nor been aware of the unlawful acts, he is however
deemed to have been grossly negligence in directing the affairs of
QTCI.
In all, it having been established by substantial evidence that
[petitioner] Collado assented to the unlawful act of QTCI, and that
[petitioner] Lau is grossly negligent in directing the affairs of QTCI,
and pursuant to Section 31 of the Corporation Code, they are
therefore, jointly and severally liable with QTCI for all the
damages and awards due to the [respondent].23
We find no compelling reason to depart from the conclusion of
the SEC Hearing Officer, which was affirmed by the CA. We are in
full accord with his reasons for holding Lau and Collado jointly and
severally liable with QTCI for the payment of respondents claim.
Finally we sustain the awards for moral and exemplary damages
in favor of respondent. Moral damages are meant to compensate
the claimant for any physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injuries unjustly caused.
Although incapable of pecuniary estimation, the amount must
somehow be proportional to and in approximation of the
suffering inflicted. Moral damages are not punitive in nature and
were never intended to enrich the claimant at the expense of the
defendant.24
Likewise, exemplary damages are properly exigible of QTCI. Article
222925 of the Civil Code provides that such damages may be
imposed by way of example or correction for the public good.
While exemplary damages cannot be recovered as a matter of
right, they need not be proved, although plaintiff must show that
he is entitled to moral, temperate, or compensatory damages
before the court may consider the question of whether or not
exemplary damages should be awarded. Exemplary damages are
imposed not to enrich one party or impoverish another, but to
serve as a deterrent against or as a negative incentive to curb
socially deleterious actions.26

However, the same statutory and jurisprudential standards

dictate reduction of the amounts of moral and exemplary
damages fixed by the SEC. Certainly, there is no hard-and-fast rule
in determining what would be a fair and reasonable amount of
moral and exemplary damages, since each case must be governed
by its own peculiar facts.27 Courts are given discretion in
determining the amount, with the limitation that it should not be
palpably and scandalously excessive. Indeed, it must be
commensurate to the loss or injury suffered.28

Promulgated:
LORETA T. YUNG,
Respondent.

August 16, 2010

X -------------------------------------------------------------------------------------X
DECISION
MENDOZA, J.:

In this case, we find a need to modify, by reducing the awards for

moral damages from P100,000.00 toP50,000.00; and for
exemplary damages from P50,000.00 to P30,000.00.
In fine, except for the modification of the awards for moral and
exemplary damages, there is no justification to overturn the
findings of the SEC Hearing Officer, as affirmed by the CA.
We reiterate that the findings of facts and conclusions of law of
the SEC are controlling on the reviewing authority. Indeed, the
rule is that the findings of fact of administrative bodies, if based
on substantial evidence, are controlling on the reviewing
authority. It has been held that it is not for the appellate court to
substitute its own judgment for that of the administrative agency
on the sufficiency of the evidence and the credibility of the
witnesses. The Hearing Officer had the optimum opportunity to
review the pieces of evidence presented before him and to
observe the demeanor of the witnesses. Administrative decisions
on matters within his jurisdiction are entitled to respect and can
only be set aside on proof of grave abuse of discretion, fraud, or
error of law,29 which has not been shown by petitioner in this
case.
WHEREFORE, the challenged Decision and Resolution of the Court
of Appeals in CA-G.R. SP No. 58741
areAFFIRMED with MODIFICATION that the awards for moral and
exemplary damages are reduced to P50,000.00 and P30,000.00,
respectively.SO ORDERED.

WENSHA SPA CENTER, INC.

and/or XU ZHI JIE,
Petitioners,

- versus -

14

G.R. No. 185122

Present:
CARPIO, J., Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

Corpo Page 7 Cases

Wensha. That same afternoon, Loreta went to the NLRC and filed
a case for illegal dismissal against Xu and Wensha.

This is a petition for review on certiorari under Rule 45

of the Rules of Court filed by an employer who was charged
before the National Labor Relations Commission (NLRC) for
dismissing an employee upon the advice of a Feng Shui master. In
this action, the petitioners assail the May 28, 2008 Decision[1] and
October 23, 2008 Resolution[2] of the Court of Appeals (CA) in CAG.R. SP No. 98855 entitledLoreta T. Yung v. National Labor
Relations Commission, Wensha Spa Center, Inc. and/or Xu Zhi Jie.
THE FACTS:
Wensha Spa Center, Inc. (Wensha) in Quezon City is in
the business of sauna bath and massage services. Xu Zhi Jie a.k.a.
Pobby Co (Xu) is its president,[3] respondent Loreta T.
Yung (Loreta) was its administrative manager at the time of her
termination from employment.
In her position paper,[4] Loreta stated that she used to
be employed by Manmen Services Co., Ltd. (Manmen) where Xu
was a client. Xu was apparently impressed by Loretas
performance. After he established Wensha, he convinced Loreta
to transfer and work at Wensha. Loreta was initially reluctant to
accept Xus offer because her job at Manmen was stable and she
had been with Manmen for seven years. But Xu was persistent
and offered her a higher pay. Enticed, Loreta resigned from
Manmen and transferred to Wensha. She started working
on April 21, 2004 as Xus personal assistant and interpreter at a
monthly salary of P12,000.00.
Loreta introduced positive changes to Wensha which
resulted in increased business. This pleased Xu so that on May 18,
2004, she was promoted to the position of Administrative
Manager.[5]
Loreta recounted that on August 10, 2004, she was
asked to leave her office because Xu and a Feng Shui master were
exploring the premises. Later that day, Xu asked Loreta to go on
leave with pay for one month. She did so and returned
on September 10, 2004. Upon her return, Xu and his wife asked
her to resign from Wensha because, according to the Feng Shui
master, her aura did not match that of Xu. Loreta refused but was
informed that she could no longer continue working at

Wensha and Xu denied illegally terminating Loretas

employment. They claimed that two months after Loreta was
hired, they received various complaints against her from the
employees so that onAugust 10, 2004, they advised her to take a
leave of absence for one month while they conducted an
investigation on the matter. Based on the results of the
investigation, they terminated Loretas employment on August
31, 2004 for loss of trust and confidence.[6]
The Labor Arbiter (LA) Francisco Robles dismissed
Loretas complaint for lack of merit. He found it more probable
that Loreta was dismissed from her employment due to Wenshas
loss of trust and confidence in her. The LAs decision[7] partly
reads:
However, this office has found it
dubious and hard to believe the
contentions made by the complainant that
she was dismissed by the respondents on
the sole ground that she is a mismatch in
respondents' business as advised by an
alleged Feng Shui Master. The complainant
herself alleged in her position paper that
she has done several improvements in
respondents business such as uplifting the
morale and efficiency of its employees and
increasing respondents clientele, and that
respondent Co was very much pleased with
the improvements
made
by
the
complainant that she was offered twice a
promotion but she nevertheless declined. It
would be against human experience and
contrary to business acumen to let go of
someone, who was an asset and has done
so much for the company merely on the
ground that she is a mismatch to the
business. Absent any proof submitted by
the complainant, this office finds it more
probable that the complainant was
dismissed due to loss of trust and
confidence.[8]
This ruling was affirmed by the NLRC in its December
29, 2006 Resolution,[9] citing its observation that Wensha was still
considering the proper action to take on the day Loreta left
Wensha and filed her complaint. The NLRC added that this finding
was bolstered by Wenshas September 10, 2004 letter to Loreta
asking her to come back to personally clarify some matters, but
she declined because she had already filed a case.

Loreta moved for a reconsideration of the NLRCs

ruling but her motion was denied. Loreta then went to the CA on
a petition for certiorari. The CA reversed the ruling of the NLRC on
the ground that it gravely abused its discretion in appreciating the
factual bases that led to Loretas dismissal. The CA noted that
there were irregularities and inconsistencies in Wenshas
position. The CA stated the following:

habitual tardiness, were mere photocopies

that are not even signed by Wenshas
authorized representative, thus suspect, if
not violative of the best evidence rule and,
therefore, incompetent evidence. x x x
[Emphases appear in the original]
x x x x.

We, thus, peruse the affidavits

and documentary evidence of the Private
Respondents
and
find
the
following: First, on the affidavits of their
witnesses, it must be noted that the same
were mere photocopies. It was held that
[T]he purpose of the rule in requiring the
production of the best evidence is the
prevention of fraud, because if a party is in
possession of such evidence and withholds
it, and seeks to substitute inferior evidence
in its place, the presumption naturally
arise[s] that the better evidence is withheld
for fraudulent purposes which its production
would expose and defeat. Moreover, the
affidavits were not executed under
oath. The rule is that an affiant must sign
the document in the presence of and take
his oath before a notary public as evidence
that
the
affidavit
was
properly
made. Guided by these principles, the
affidavits cannot be assigned any weighty
probative value and are mere scraps of
paper the contents of which are
hearsay. Second, on the sales report and
order slips, which allegedly prove that Yung
had been charging her food and drinks to
Wensha, the said pieces of evidence do not,
however, bear Yungs name thereon or
even her signature. In fact, it does not state
anyones
name,
except
that
of
Wensha. Hence, it would simply be
capricious to pinpoint, or impute, on Yung
as the author in charging such expenses to
Wensha on the basis of hearsay
evidence. Third, while the affidavit of
Wenshas Operations Manager, Princess
delos Reyes (delos Reyes), may have been
duly executed under oath, she did not,
however, specify the alleged infractions
that Yung committed. If at all, delos Reyes
only made general statements on the
alleged complaints against Yung that were
not even substantiated by any other piece
of evidence. Finally, the daily time records
(DTRs) of Yung, which supposedly prove her
15

Corpo Page 7 Cases

Finally, after the Private

Respondents filed their position paper, they
alleged mistake on the part of their former
counsel in stating that Yung was dismissed
on August
31,
2004.
Thus,
they
subsequently moved for the admission of
their rejoinder. Notably, however, the said
rejoinder was dated October 4, 2004,
earlier than the date when their position
paper was filed, which was on November 3,
2004. It is also puzzling that their position
paper was dated November 25, 2004, much
later than its date of filing. The
irregularities are simply too glaring to be
ignored. Nevertheless,
the
Private
Respondents
admission
of
Yungs
termination on August 31, 2004 cannot be
retracted. They cannot use the mistake of
their counsel as an excuse considering that
the position paper was verified by their
Operations Manager, delos Reyes, who
attested to the truth of the contents
therein.[10] [Emphasis supplied]
Hence, the fallo of the CA decision reads:
WHEREFORE,
the
instant
petition is GRANTED. Wensha Spa Center,
Inc. and Xu Zhi Jie are ORDERED to, jointly
and severally, pay Loreta T. Yung her full
backwages, other privileges, and benefits,
or
their
monetary
equivalent,
corresponding to the period of her dismissal
from September 1, 2004 up to the finality of
this decision, and damages in the amounts
of fifty thousand pesos (Php50,000.00) as
moral damages, twenty five thousand pesos
(Php25,000.00) as exemplary damages, and
twenty thousand pesos (Php20,000.00) as
attorneys fees. No costs.
SO ORDERED.[11]

Wensha and Xu now assail this ruling of the CA in this

petition presenting the following:
V.

GROUNDS
FOR
THE
ALLOWANCE OF THE PETITION

5.1
The following are the
reasons and arguments, which are purely
questions of law and some questions of
facts, which justify the appeal by certiorari
under Rule 45 of the 1997 Revised Rules of
Civil Procedure, as amended, to this
Honorable SUPREME COURT of the assailed
Decision and Resolution, to wit:
5.1.1

The
Honorabl
e COURT
OF
APPEALS
gravely
erred in
reversing
that
factual
findings
of
the
Honorabl
e Labor
Arbiter
and the
Honorabl
e NLRC
(Third
Division)
notwithst
anding
recognize
d
and
establish
ed rule in
our
jurisdicti
on that
findings
of facts
of quasijudicial
agencies
who
have
gained
expertise
on their

respectiv
e subject
matters
are given
respect
and
finality;
5.1.2 The Honorable
COURT OF
APPEALS
committed
grave
abuse of
discretion
and
serious
errors
when
it
ruled that
findings of
facts
of
the
Honorable
Labor
Arbiter
and
the
Honorable
NLRC are
not
supported
by
substantial
evidence
despite
the
fact
that the
records
clearly
show that
petitioner
therein
was
not
dismissed
but
is
under
investigati
on,
and
that she is
guilty of
serious
infractions
that
warranted
16

Corpo Page 7 Cases

her
terminatio
n;

5.1.3 The Honorable

COURT OF
APPEALS
grave[ly]
erred
when
it
ordered
herein
petitioner
to
pay
herein
responden
t
her
separation
pay, in lieu
of
reinstatem
ent, and
full
backwages
, as well as
damages
and
attorneys
fees;
5.1.4 The Honorable
COURT OF
APPEALS
committed
grave
abuse of
discretion
and
serious
errors
when
it
held that
petitioner
XU ZHI JIE
to
be
solidarily
liable with
WENSHA,
assuming
that
responden
t
was

illegally
dismissed;
5.2
The same need to be
corrected as they would work injustice to
the herein petitioner, grave and irreparable
damage will be done to him, and would
pose dangerous precedent.[12]
THE COURTS RULING:
Loretas security of tenure is guaranteed by the
Constitution and the Labor Code. The 1987 Philippine
Constitution provides in Section 18, Article II that the State shall
protect the rights of workers and promote their welfare. Section
3, Article XIII also provides that all workers shall be entitled to
security of tenure. Along that line, Article 3 of the Labor Code
mandates that the State shall assure the rights of workers to
security of tenure.
Under the security of tenure guarantee, a worker can
only be terminated from his employment for cause and after due
process. For a valid termination by the employer: (1) the dismissal
must be for a valid cause as provided in Article 282, or for any of
the authorized causes under Articles 283 and 284 of the Labor
Code; and (2) the employee must be afforded an opportunity to
be heard and to defend himself. A just and valid cause for an
employees dismissal must be supported by substantial evidence,
and before the employee can be dismissed, he must be given
notice and an adequate opportunity to be heard.[13] In the
process, the employer bears the burden of proving that the
dismissal of an employee was for a valid cause. Its failure to
discharge this burden renders the dismissal unjustified and,
therefore, illegal.[14]
As a rule, the factual findings of the court below are
conclusive on Us in a petition for review on certiorari where We
review only errors of law. This case, however, is an exception
because the CAs factual findings are not congruent with those of
the NLRC and the LA.
According to Wensha in its position paper,[15] it
dismissed Loreta on August 31, 2004 after investigating the
complaints against her. Wensha asserted that her dismissal was a
valid exercise of an employers right to terminate a managerial
employee for loss of trust and confidence. It claimed that she
caused the resignation of an employee because of gossips
initiated by her. It was the reason she was asked to take a leave
of absence with pay for one month starting August 10, 2004.[16]
Wensha also alleged that Loreta was sowing intrigues
in the company which was inimical to Wensha. She was also
accused of dishonesty, serious breach of trust reposed in her,
tardiness, and abuse of authority.[17]

In its Rejoinder, Wensha changed its position claiming

that it did not terminate Loretas employment on August 31,
2004. It even sent her a notice requesting her to report back to
work. She, however, declined because she had already filed her
complaint.[18]
As correctly found by the CA, the cause of Loretas
dismissal is questionable. Loss of trust and confidence to be a
valid ground for dismissal must have basis and must be founded
on clearly established facts.[19]

The Court finds the LA ruling that states, [a]bsent any

proof submitted by the complainant, this office finds it more
probable that the complainant was dismissed due to loss of trust
and confidence,[20]to be utterly erroneous as it is contrary to the
applicable rules and pertinent jurisprudence. The onus of proving
a valid dismissal rests on the employer, not on the employee.[21] It
is the employer who bears the burden of proving that its dismissal
of the employee is for a valid or authorized cause supported by
substantial evidence. [22]
According to the NLRC, [p]erusal of the entire records
show that complainant left the respondents premises when she
was confronted with the infractions imputed against her.[23] This
information was taken from the affidavit[24] of Princess Delos
Reyes (Delos Reyes) which was dated March 21, 2005, not in
Wenshas earlier position paper or pleadings submitted to the LA.
The affidavits[25] of employees attached to Delos Reyes affidavit
were all dated November 19, 2004 indicating that they were not
yet executed when the complaints against Loreta were
supposedly being investigated in August 2004.
It is also noteworthy that Wenshas position paper
related that because of the gossips perpetrated by Loreta, a
certain Oliva Gonzalo (Gonzalo) resigned from Wensha. Because
of the incident, Gonzalo, whose father was a policeman,
reportedly got angry with complainant and of the management
telling her friends at respondent company that she would
retaliate thus creating fear among those concerned.[26] As a
result, Loreta was advised to take a paid leave of absence for one
month while Wensha conducted an investigation.
According to Loreta, however, the reason for her
termination was her aura did not match that of Xu and the work
environment at Wensha. Loreta narrated:
On August 10, 2004 however,
complainant was called by respondent Xu
and told her to wait at the lounge area
while the latter and a Feng Shui Master
were doing some analysis of the
office. After several hours of waiting,
respondent Xu then told complainant that
17

Corpo Page 7 Cases

according to the Feng Shui master her

Chinese Zodiac sign is a mismatch with
that of the respondents; that complainant
should not enter the administrative office
for a month while an altar was to be placed
on the left side where complainant has her
table to allegedly correct the mismatch
and that it is necessary that offerings and
prayers have to be made and said for about
a month to correct the alleged
jinx. Respondent
Xu
instructed
complainant not to report to the office for a
month with assurance of continued and
regular salary. She was ordered not to seek
employment elsewhere and was told to
come back on the 10th of September
2004.[27]
Although she was a little confused, Loreta did as she
was instructed and did not report for work for a month. She
returned to work on September 10, 2004. This is how Loreta
recounted the events of that day:
On September 10, 2004, in the
morning, complainant reported to the
office of respondents. As usual, she
punched-in her time card and signed in the
logbook of the security guard. When she
entered the administrative office, some of
its employees immediately contacted
respondent Xu. Respondent Xu then
contacted complainant thru her mobile
phone and told her to leave the
administrative office immediately and
instead to wait for him in the dining area.
xxx
Complainant
waited
for
respondent Xu in the dining area. After
waiting for about two (2) hours, respondent
Xu was nowhere. Instead, it was Jiang Xue
Qin a.k.a Annie Co, the Chinese wife of
respondent Xu, who arrived and after a
short conversation between them, the
former frankly told complainant that she
has to resign allegedly she is a mismatch to
respondent Xu according to the Feng Shui
master and therefore she does not fit to
work (sic) with the respondents. Surprised
and shocked, complainant demanded of
Jiang Xue Qin to issue a letter of
termination if it were the reason therefor.

Instead of a termination letter

issued, Jiang Xue Qin insisted for the
complainant's
resignation. But
when
complainant stood her ground, Jian Xue Qin
shouted invectives at her and told to leave
the office immediately.
Respondent Xu did not show up
but talked to the complainant over the
mobile phone and convinced her likewise to
resign from the company since there is no
way to retain her because her aura
unbalanced the area of employment
according to the Feng Shui, the Chinese
spiritual art of placement. Hearing this
from no lees than respondent Xu,
complainant left the office and went
straight to this Office and filed the present
case on September 10, 2004. xxx[28]
Loreta also alleged that in the afternoon of that
day, September 10, 2004, a notice was posted on the Wensha
bulletin board that reads:

TO ALL EMPLOYEES
OF WENSHA SPA CENTER
WE WOULD LIKE TO INFORM YOU
THAT MS. LORIE TSE YUNG, FORMER
ADMINISTRATIVE
OFFICER
OF WENSHA SPA CENTER IS
NO
LONGER CONNECTED TO THIS COMPANY
STARTING TODAY SEPTEMBER 10, 2004.
ANY TRANSACTION MADE BY
HER IS NO LONGER A LIABILITY OF THE
COMPANY.
(SGD.) THE MANAGEMENT [Italics were in
red letters.][29]

The Court finds Loretas complaint credible. There is

consistency in her pleadings and evidence. In contrast, Wenshas
pleadings and evidence, taken as a whole, suffer from
inconsistency. Moreover, the affidavits of the employees only
pertain to petty matters that, to the Courts mind, are not
sufficient to support Wenshas alleged loss of trust and
confidence. To be a valid cause for termination of employment,
the act or acts constituting breach of trust must have been done
intentionally, knowingly, and purposely; and they must be
founded on clearly established facts.

The CA decision is supported by evidence and logically

flows from a review of the records. Loretas narration of the
events surrounding her termination from employment was simple
and straightforward. Her claims are more credible than the
affidavits which were clearly prepared as an afterthought.
More importantly, the records are bereft of evidence
that Loreta was duly informed of the charges against her and that
she was given the opportunity to respond to those charges prior
to her dismissal. If there were indeed charges against Loreta that
Wensha had to investigate, then it should have informed her of
those charges and required her to explain her side. Wensha
should also have kept records of the investigation conducted
while Loreta was on leave. The law requires that two notices be
given to an employee prior to a valid termination: the first notice
is to inform the employee of the charges against her with a
warning that she may be terminated from her employment and
giving her reasonable opportunity within which to explain her
side, and the second notice is the notice to the employee that
upon due consideration of all the circumstances, she is being
terminated from her employment.[30] This is a requirement of due
process and clearly, Loreta did not receive any of those required
notices.
We are in accord with the pronouncement of the CA
that the reinstatement of Loreta to her former position is no
longer feasible in the light of the strained relations between the
parties. Reinstatement, under the circumstances, would no
longer be practical as it would not be in the interest of both
parties. Under the law and jurisprudence, an illegally dismissed
employee is entitled to two reliefs - backwages and
reinstatement, which are separate and distinct. If reinstatement
would only exacerbate the tension and further ruin the relations
of the employer and the employee, or if their relationship has
been unduly strained due to irreconcilable differences,
particularly where the illegally dismissed employee held a
managerial or key position in the company, it would be prudent to
order payment of separation pay instead of reinstatement.[31] In
the case of Golden Ace Builders v. Talde,[32] We wrote:
Under the doctrine of strained
relations, the payment of separation pay
has been considered an acceptable
alternative to reinstatement when the
latter option is no longer desirable or
viable. On the one hand, such payment
liberates the employee from what could be
a highly oppressive work environment. On
the other, the payment releases the
employer from the grossly unpalatable
obligation of maintaining in its employ a
worker it could no longer trust.

18

Corpo Page 7 Cases

In the case at bench, the CA, upon its own assessment,

pronounced that the relations between petitioners and the
respondent have become strained because of her dismissal
anchored on dubious charges. The respondent has not contested
the finding. As she is not insisting on being reinstated, she should
be paid separation pay equivalent to one (1) month salary for
every year of service.[33] The CA, however, failed to decree such
award in the dispositive portion. This should be rectified.

the amounts of Fifty Thousand (P50,000.00)

Pesos, as moral damages; Twenty Five
Thousand (P25,000.00) Pesos as exemplary
damages;
and
Twenty
Thousand
(P20,000.00) Pesos, as attorneys fees. No
costs.
SO ORDERED.

Nevertheless, the Court finds merit in the argument of

petitioner Xu that the CA erred in ruling that he is solidarily liable
with Wensha.

MANUEL LUIS S. SANCHEZ,

Petitioner,

Elementary is the rule that a corporation is invested by

law with a personality separate and distinct from those of the
persons composing it and from that of any other legal entity to
which it may 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 sufficient ground for disregarding the
separate corporate personality.[34]
In labor cases, corporate directors and officers may be
held solidarily liable with the corporation for the termination of
employment only if done with malice or in bad faith.[35] Bad faith
does not connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of
wrong; it means breach of a known duty through some motive or
interest or ill will; it partakes of the nature of fraud.[36]

In the subject decision, the CA concluded that

petitioner Xu and Wensha are jointly and severally liable to
Loreta.[37] We have read the decision in its entirety but simply
failed to come across any finding of bad faith or malice on the
part of Xu. There is, therefore, no justification for such a
ruling. To sustain such a finding, there should be an evidence on
record that an officer or director acted maliciously or in bad faith
in terminating the services of an employee.[38] Moreover, the
finding or indication that the dismissal was effected with malice or
bad faith should be stated in the decision itself.[39]
WHEREFORE, the
petition
is PARTIALLY
GRANTED. The decretal portion of the May 28, 2008 Decision
of the Court of Appeals, in CA-G.R. SP No. 98855, is
hereby MODIFIED to read as follows:

G.R. No. 172885

Present:
Corona, J.,*
Carpio Morales,**

- versus -

Acting
Chairperso
n,
ChicoNazario,***
Brion, and
Abad, JJ.
REPUBLIC OF THE PHILIPPINES,
Represented by the Department of
Education, Culture and Sports,
Respondent.

Promulgated:
October 9, 2009

x --------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:

This petition for review on certiorari assails the

February 21, 2006 Decision[1] of the Court of Appeals in CA-G.R.
CV 83648 and its Resolution[2] of May 29, 2006, which dismissed
the petitioners appeal from the decision of Branch 71 of the
Regional Trial Court (RTC) of Pasig City in Civil Case 66852.
The Facts and the Case

WHEREFORE, the petition is

GRANTED. Wensha Spa Center, Inc. is
hereby ordered to pay Loreta T. Yung her
full backwages, other privileges, and
benefits, or their monetary equivalent,
and separation pay reckoned from the date
of her dismissal, September 1, 2004, up to
the finality of this decision, plus damages in

In 1980, during the regime of President Ferdinand E.

Marcos,
the
government-owned
Human
Settlements
Development Corporation (HSDC) built with public funds and on
government land the St. Martin Technical Institute Complex at
Barangay Ugong, Pasig City. This later on became known as
the University of Life Complex.

In July 1980, First Lady Imelda R. Marcos and others

organized the University of Life Foundation, Inc. (ULFI), a private
non-stock, non-profit corporation devoted to non-formal
education. On August 26, 1980 the government gave the
management and operation of the Complex to ULFI but HSDC was
to continue to construct facilities and acquire equipment for
it. Although ULFI was to get all the incomes of the Complex, ULFI
had to pay HSDC an annual fee of 14 percent of HSDCs
investments in it.
After the fall of the Marcos regime in 1986, the new
government reorganized HSDC into the Strategic Investment
Development Corporation (SIDCOR) under the supervision of the
Office of the President. Realizing that ULFI never paid the 14
percent annual fee due to HSDC, now totaling about P316 million,
on July 25, 1989 SIDCOR rescinded the HSDC-ULFI
agreement. Ironically, in its place, SIDCOR entered into an Interim
Management Agreement with ULFI, allowing it to continue
managing and operating the Complex.
Meantime, in October 1989, the government
transferred the ownership of ULFIs properties to the Department
of Education, Culture and Sports (DECS). Later in January 1990,
Republic Act 6847 transferred full control and management of the
Complex to DECS with effect two years from the laws
enactment. The DECS transferred its offices to the Complex in
December 1990. On January 29, 1991, SIDCOR transferred all its
rights in the Complex to the National Government which in turn
transferred the same to the DECS.
On January 31, 1991 DECS and ULFI entered into a
Management Agreement, granting ULFI the authority to manage
and operate the Complex until the end of that year. During this
period, ULFI was expressly mandated under the said Management
Agreement to remit to the Bureau of the Treasury, through the
DECS, all incomes from the Complex, net of allowable
expenses.[3] At the end of 1991, the DECS gave ULFI notice to
immediately vacate the Complex. But ULFI declined, prompting
the DECS to file an action for unlawful detainer against it in Civil
Case 2959 of the Metropolitan Trial Court (MeTC)
of Pasig City. After hearing, MeTC dismissed the action for lack of
merit. On the DECSs appeal to the RTC, the latter affirmed the
order of dismissal.
On appeal of the DECS to the Court of Appeals by
petition for review,[4] however, the latter rendered judgment
on January 17, 1995, reversing the MeTC and RTC decisions. The
appeals court ordered ULFI to vacate the Complex and pay such
reasonable rentals as the MeTC might fix. This Court dismissed
ULFIs recourse to it from the judgment of the Court of Appeals.[5]
On April 15, 1996 the MeTC fixed, after hearing, the
rents that ULFI had to pay the DECS at P22,559,215.14 (due from
February 1992 to January 1996) plus P6,325.00 per month until it
19

Corpo Page 7 Cases

shall have vacated the premises.[6] The DECS succeeded in

ejecting ULFI but the latter did not pay the amounts due from it.

1992 up to 1996, there could have been nothing left of the rentals
it collected from the lessees of the Complex.

On June 15, 1998 the DECS filed a complaint[7] before

the RTC of Pasig City in Civil Case 66852 for collection of
the P22,559,215.14 in unremitted rents and damages against
Henri Kahn, ULFIs President, and petitioner Manuel Luis S.
Sanchez, its Executive Vice-President, based on their personal
liability under Section 31 of the Corporation Code. The latter two
were Managing Director and Finance Director, respectively, of the
corporation.[8]

The DECS points out, on the other hand, that since

Kahn and petitioner Sanchez were guilty of fraud and bad faith in
managing the funds of ULFI, they can be made to personally
answer for those funds and to pay its corporate obligations
pursuant to Section 31 of the Corporation Code. They collected
money from rents but did not, as was their duty, remit this to the
DECS pursuant to the DECS-ULFI agreement.
The Issues

The complaint alleged that Kahn and petitioner

Sanchez, as key ULFI officers, were remiss in safekeeping ULFIs
corporate incomes and in accounting for them.[9] They neither
placed the incomes derived from the Complex in ULFIs deposit
account nor submitted the required financial statements detailing
their transactions. The underlying theory of the case is that Kahn
and Sanchez operated ULFI as if it were their own property,
handled the collections and spent the money as if it were their
personal belonging.[10] The DECS asked the RTC to order Kahn
and Sanchez personally to pay it theP22,559,215.14 in rents due
from
ULFI
with
legal
interest, exemplary
damages
of P1,000,000.00, attorneys fees of P500,000.00, and costs.
In his answer, petitioner Sanchez alleged that, being a
mere officer of ULFI, he cannot be made personally liable for its
adjudged corporate liability. He took exception to the complaint,
characterizing it as an attempt to pierce the corporate veil that
cloaked ULFI.
Satisfied that the DECS fully established its case, on
October 14, 2002, the RTC rendered judgment, ordering Kahn and
petitioner Sanchez to pay the DECS, jointly and
severally, P22,559,215.14 with legal interest from April 1, 1996
until they shall have fully paid the same, P500,000.00 in
exemplary damages, and P200,000.00 in attorneys fees, plus
costs.[11]
Both Kahn and petitioner Sanchez appealed to the
Court of Appeals. The latter court gave due course to Sanchezs
appeal but denied that of Kahn since it was filed out of
time. On February 21, 2006 the Court of Appeals rendered
judgment, wholly affirming the trial courts decision,[12] hence, this
petition.
In a nutshell, Sanchez argues that he cannot be made
personally liable for ULFIs corporate obligations absent specific
allegations in the complaint and evidence adduced during trial
that would warrant a piercing of the corporate veil. He further
argues that the DECS is barred by res judicata and forum shopping
from collecting from him what it could not get by execution from
ULFI under the judgment in the ejectment case. Finally, he claims
that because ULFI suffered losses in operations during the period

The case before this Court presents the following

issues:
1.
Whether or not petitioner Sanchez, a director
and chief executive officer of ULFI, can be held liable in damages
under Section 31 of the Corporation Code for gross neglect or bad
faith in directing the corporations affairs; and
2.
Whether or not the action in Civil Case 66852 is
barred by res judicata and constitutes forum shopping by the
DECS.
Rulings of the Court
Petitioner Sanchez points out that the Court of
Appeals decision arbitrarily changed the DECSs theory of the
case from one based on his and Kahns alleged failure to deposit
for the account of ULFI whatever rentals they have collected to
another based on their alleged failure to remit to the DECS the
incomes of the facilities they managed. But Sanchez is drawing
insignificant distinctions from what the DECS claims and what the
court below finds. Both essentially rest on Kahn and Sanchezs
failure to account for the rent incomes that they collected from
lease of spaces in the facilities of the Complex beyond the oneyear management authority that the DECS granted ULFI in 1991.
Petitioner Sanchez claims that there is no ground for
the courts below to pierce the veil of corporate identity and hold
him and Kahn, who were mere corporate officers, personally
liable for ULFIs obligations to the DECS. But this is not a case of
piercing the veil of corporate fiction. The DECS brought its action
against Sanchez and Kahn under Section 31 of the Corporation
Code, which should not be confused with actions intended to
pierce the corporate fiction.
Section 31 of the Corporation Code makes directorsofficers of corporations jointly and severally liable even to third
parties for their gross negligence or bad faith in directing the
affairs of their corporations. Thus:

Sec. 31. Liability of directors,

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

The DECS does not have to invoke the doctrine of

piercing the veil of corporate fiction. Section 31 above expressly
lays down petitioner Sanchez and Kahns liability for damages
arising from their gross negligence or bad faith in directing
corporate affairs. The doctrine mentioned, on the other hand, is
an equitable remedy resorted to only when the corporate fiction
is used, among others, to defeat public convenience, justify
wrong, protect fraud or defend a crime.[13]
Moreover, in a piercing case, the test is complete
control or domination, not only of finances, but of policy and
business practice in respect of the transaction attacked.[14] This is
not the case here. Section 31, under which this case was brought,
makes a corporate directorwho may or may not even be a
stockholder or memberaccountable for his management of the
affairs of the corporation.
Bad faith implies breach of faith and willful failure to
respond to plain and well understood obligation.[15] It does not
simply connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of
wrong; it means breach of a known duty through some motive or
interest or ill will.[16] It partakes of the nature of fraud.[17]
Gross negligence, on the other hand, is the want of
even slight care, acting or omitting to act in a situation where
there is duty to act, not inadvertently but willfully and
intentionally, with a conscious indifference to consequences
insofar as other persons may be affected.[18] It evinces
a thoughtless disregard of consequences without exerting any
effort to avoid them;[19] the want or absence of or failure to
exercise slight care or diligence, or the entire absence of care.[20]
In resolving the issue of whether or not petitioner
Sanchez, a director and chief executive officer of ULFI, can be held
liable in damages under Section 31 of the Corporation Code for
bad faith or gross neglect in directing the corporations affairs, the
20

Corpo Page 7 Cases

Court will consider only the Court of Appeals findings of

facts. This Courts jurisdiction in a petition for review
on certiorari under Rule 45 is limited to reviewing only errors of
law. It is bound by the findings of fact of the Court of Appeals.
The Court of Appeals found that from January 1992 to
January 1996, after ULFIs authority to manage the Complex
expired and despite the ejectment suit that the DECS filed against
it, petitioner Sanchez and Kahn still continued to lease spaces in
those facilities to third persons. And they collected and kept all
the rents although they knew that these primarily belonged to the
DECS. ULFI had merely managed the facilities and collected
earnings from them for the DECS. What is more, Sanchez and
Kahn were aware that they had to submit written accounts of
those rents and remit the net earnings from them to the Bureau
of Treasury, through the DECS, at the end of the year. Yet,
Sanchez and Kahn, acting in bad faith or with gross neglect did not
turn over even one centavo of rent to the DECS nor render an
accounting of their collections. Nor did they account for the
money they collected by submitting to the Securities and
Exchange Commission the required financial statements covering
such collections.
Parenthetically, a witness for the defense, Evangeline
Naniong, ULFIs bookkeeper, testified that the revenues from the
rents were deposited in the bank in the names of Sanchez and
ULFIs accountant. And so only they could withdraw and spend
those revenues.[21]
Petitioner Sanchez of course claims that the funds they
had collected proved inadequate even to meet expenses. But, as
the appellate court held, he had been unable to substantiate such
claims. As the officer charged with approving and implementing
corporate disbursements, Sanchez had the duty to present
documents showing how the incomes of the foundation were
spent. But he failed to do so even after the DECS, which took
custody of the records, asked Kahn to submit a list of the
documents they needed for establishing their defenses so these
may be made available to them.[22] Under the circumstances, the
indubitable conclusion is that petitioner Sanchez and Kahn acted
with bad faith, if not with gross negligence, in failing to perform
their duty to remit to DECS or keep in safe hands ULFIs incomes
from the leases.
Section 31 lays down the doctrine of corporate
opportunity and holds personally liable corporate directors
found guilty of gross negligence or bad faith in directing the affairs
of the corporation, which results in damage or injury to the
corporation, its stockholders or members, and other persons. The
ejectment suit that held only ULFI liable to the DECS for unpaid
rents does not constitute res judicata to the issue of personal
liabilities of Kahn and petitioner Sanchez under the circumstances
to pay such obligations, given that the unaccounted funds would
have settled the same.

Petitioners allegations of forum shopping must fail as

well. The essence of forum shopping is the filing of multiple suits
involving the same parties for the same cause of action, either
simultaneously or successively, for the purpose of obtaining a
favorable judgment.[23] This is not the case with respect to the
ejectment suit vis--vis the action for damages.
WHEREFORE,
the
Court DENIES the
petition
and AFFIRMS the February 21, 2006 Decision of the Court of
Appeals in CA-G.R. CV 83648 and its Resolution of May 29, 2006.
SO ORDERED.

Directors; Exercise of Corporate Powers

G.R. No. L-68555 March 19, 1993
PRIME WHITE CEMENT CORPORATION, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO
TE, respondents.
De Jesus & Associates for petitioner.
Padlan, Sutton, Mendoza & Associates for private respondent.
CAMPOS, JR., J.:
Before Us is a Petition for Review on Certiorari filed by petitioner
Prime White Cement Corporation seeking the reversal of the
decision * of the then Intermediate Appellate Court, the
dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing, the
judgment appealed from is hereby
affirmed in toto. 1
The facts, as found by the trial court and as adopted by the
respondent Court are hereby quoted, to wit:
On or about the 16th day of July, 1969,
plaintiff and defendant corporation thru its
President, Mr. Zosimo Falcon and Justo C.
Trazo, as Chairman of the Board, entered
into a dealership agreement (Exhibit A)
whereby said plaintiff was obligated to act
as the exclusive dealer and/or distributor of
the said defendant corporation of its

cement products in the entire Mindanao

area for a term of five (5) years and proving
(sic) among others that:
a. The corporation
shall, commencing
September, 1970, sell
to and supply the
plaintiff, as dealer
with 20,000 bags (94
lbs/bag) of white
cement per month;
b. The plaintiff shall
pay the defendant
corporation P9.70,
Philippine Currency,
per bag of white
cement, FOB Davao
and Cagayan de Oro
ports;
c. The plaintiff shall,
every time the
defendant
corporation is ready
to deliver the good,
open with any bank
or banking institution
a confirmed,
unconditional, and
irrevocable letter of
credit in favor of the
corporation and that
upon certification by
the boat captain on
the bill of lading that
the goods have been
loaded on board the
vessel bound for
Davao the said bank
or banking institution
shall release the
corresponding
amount as payment
of the goods so
shipped.
Right after the plaintiff entered into the
aforesaid dealership agreement, he placed
an advertisement in a national, circulating
newspaper the fact of his being the
21

Corpo Page 7 Cases

exclusive dealer of the defendant

corporation's white cement products in
Mindanao area, more particularly, in the
Manila Chronicle dated August 16, 1969
(Exhibits R and R-1) and was even
congratulated by his business associates, so
much so, he was asked by some of his
businessmen friends and close associates if
they can be his
sub-dealer in the Mindanao area.
Relying heavily on the dealership
agreement, plaintiff sometime in the
months of September, October, and
December, 1969, entered into a written
agreement with several hardware stores
dealing in buying and selling white cement
in the Cities of Davao and Cagayan de Oro
which would thus enable him to sell his
allocation of 20,000 bags regular supply of
the said commodity, by September, 1970
(Exhibits O, O-1, O-2, P, P-1, P-2, Q, Q-1 and
Q-2). After the plaintiff was assured by his
supposed buyer that his allocation of
20,000 bags of white cement can be
disposed of, he informed the defendant
corporation in his letter dated August 18,
1970 that he is making the necessary
preparation for the opening of the requisite
letter of credit to cover the price of the due
initial delivery for the month of September,
1970 (Exhibit B), looking forward to the
defendant corporation's duty to comply
with the dealership agreement. In reply to
the aforesaid letter of the plaintiff, the
defendant corporation thru its corporate
secretary, replied that the board of
directors of the said defendant decided to
impose the following conditions:
a. Delivery of white
cement shall
commence at the end
of November, 1970;
b. Only 8,000 bags of
white cement per
month for only a
period of three (3)
months will be
delivered;

c. The price of white

cement was priced at
P13.30 per bag;
d. The price of white
cement is subject to
readjustment
unilaterally on the
part of the
defendant;
e. The place of
delivery of white
cement shall be
Austurias (sic);
f. The letter of credit
may be opened only
with the Prudential
Bank, Makati Branch;
g. Payment of white
cement shall be made
in advance and which
payment shall be
used by the
defendant as
guaranty in the
opening of a foreign
letter of credit to
cover costs and
expenses in the
procurement of
materials in the
manufacture of white
cement. (Exhibit C).
xxx xxx xxx
Several demands to comply with the
dealership agreement (Exhibits D, E, G, I, R,
L, and N) were made by the plaintiff to the
defendant, however, defendant refused to
comply with the same, and plaintiff by force
of circumstances was constrained to cancel
his agreement for the supply of white
cement with third parties, which were
concluded in anticipation of, and pursuant
to the said dealership agreement.

Notwithstanding that the dealership

agreement between the plaintiff and
defendant was in force and subsisting, the
defendant corporation, in violation of, and
with evident intention not to be bound by
the terms and conditions thereof, entered
into an exclusive dealership agreement with
a certain Napoleon Co for the marketing of
white cement in Mindanao (Exhibit T)
hence, this suit. (Plaintiff's Record on
Appeal, pp. 86-90). 2
After trial, the trial court adjudged the corporation liable to
Alejandro Te in the amount of P3,302,400.00 as actual damages,
P100,000.00 as moral damages, and P10,000.00 as and for
attorney's fees and costs. The appellate court affirmed the said
decision mainly on the following basis, and We quote:
There is no dispute that when Zosimo R.
Falcon and Justo B. Trazo signed the
dealership agreement Exhibit "A", they
were the President and Chairman of the
Board, respectively, of defendant-appellant
corporation. Neither is the genuineness of
the said agreement contested. As a matter
of fact, it appears on the face of the
contract itself that both officers were duly
authorized to enter into the said agreement
and signed the same for and in behalf of the
corporation. When they, therefore, entered
into the said transaction they created the
impression that they were duly clothed with
the authority to do so. It cannot now be
said that the disputed agreement which
possesses all the essential requisites of a
valid contract was never intended to bind
the corporation as this avoidance is barred
by the principle of estoppel. 3
In this petition for review, petitioner Prime White Cement
Corporation made the following assignment of errors. 4
I
THE DECISION AND RESOLUTION OF THE
INTERMEDIATE APPELLATE COURT ARE
UNPRECEDENTED DEPARTURES FROM THE
CODIFIED PRINCIPLE THAT CORPORATE
OFFICERS COULD ENTER INTO CONTRACTS
IN BEHALF OF THE CORPORATION ONLY
WITH PRIOR APPROVAL OF THE BOARD OF
DIRECTORS.
22

Corpo Page 7 Cases

II
THE DECISION AND RESOLUTION OF THE
INTERMEDIATE APPELLATE COURT ARE
CONTRARY TO THE ESTABLISHED
JURISPRUDENCE, PRINCIPLE AND RULE ON
FIDUCIARY DUTY OF DIRECTORS AND
OFFICERS OF THE CORPORATION.
III
THE DECISION AND RESOLUTION OF THE
INTERMEDIATE APPELLATE COURT
DISREGARDED THE PRINCIPLE AND
JURISPRUDENCE, PRINCIPLE AND RULE ON
UNENFORCEABLE CONTRACTS AS
PROVIDED IN ARTICLE 1317 OF THE NEW
CIVIL CODE.

express delegation, a contract entered into by its President, on

behalf of the corporation, may still bind the corporation if the
board should ratify the same expressly or impliedly. Implied
ratification may take various forms like silence or acquiescence;
by acts showing approval or adoption of the contract; or by
acceptance and retention of benefits flowing
therefrom. 7 Furthermore, even in the absence of express or
implied authority by ratification, the President as such may, as a
general rule, bind the corporation by a contract in the ordinary
course of business, provided the same is reasonable under the
circumstances. 8 These rules are basic, but are all general and thus
quite flexible. They apply where the President or other officer,
purportedly acting for the corporation, is dealing with a third
person, i. e., a person outside the corporation.
The situation is quite different where a director or officer is
dealing with his own corporation. In the instant case respondent
Te was not an ordinary stockholder; he was a member of the
Board of Directors and Auditor of the corporation as well. He was
what is often referred to as a "self-dealing" director.

IV
THE DECISION AND RESOLUTION OF THE
INTERMEDIATE APPELLATE COURT
DISREGARDED THE PRINCIPLE AND
JURISPRUDENCE AS TO WHEN AWARD OF
ACTUAL AND MORAL DAMAGES IS PROPER.
V
IN NOT AWARDING PETITIONER'S CAUSE OF
ACTION AS STATED IN ITS ANSWER WITH
SPECIAL AND AFFIRMATIVE DEFENSES WITH
COUNTERCLAIM THE INTERMEDIATE
APPELLATE COURT HAS CLEARLY DEPARTED
FROM THE ACCEPTED USUAL, COURSE OF
JUDICIAL PROCEEDINGS.
There is only one legal issue to be resolved by this Court: whether
or not the "dealership agreement" referred by the President and
Chairman of the Board of petitioner corporation is a valid and
enforceable contract. We do not agree with the conclusion of the
respondent Court that it is.
Under the Corporation Law, which was then in force at the time
this case arose, 5 as well as under the present Corporation Code,
all corporate powers shall be exercised by the Board of Directors,
except as otherwise provided by law. 6Although it cannot
completely abdicate its power and responsibility to act for the
juridical entity, the Board may expressly delegate specific powers
to its President or any of its officers. In the absence of such

A director of a corporation holds a position of trust and as such,

he owes a duty of loyalty to his corporation. 9 In case his interests
conflict with those of the corporation, he cannot sacrifice the
latter to his own advantage and benefit. As corporate managers,
directors are committed to seek the maximum amount of profits
for the corporation. This trust relationship "is not a matter of
statutory or technical law. It springs from the fact that directors
have the control and guidance of corporate affairs and property
and hence of the property interests of the stockholders." 10 In the
case ofGokongwei v. Securities and Exchange Commission, this
Court quoted with favor from Pepper v. Litton, 11 thus:
. . . He cannot by the intervention of a
corporate entity violate the ancient precept
against serving two masters. . . . He cannot
utilize his inside information and his
strategic position for his own preferment.
He cannot violate rules of fair play by doing
indirectly through the corporation what he
could not do directly. He cannot use his
power for his personal advantage and to
the detriment of the stockholders and
creditors no matter how absolute in terms
that power may be and no matter how
meticulous he is to satisfy technical
requirements. For that power is at all times
subject to the equitable limitation that it
may not be exercised for the
aggrandizement, preference, or advantage
of the fiduciary to the exclusion or
detriment of the cestuis. . . . .

On the other hand, a director's contract with his corporation is

not in all instances void or voidable. If the contract is fair and
reasonable under the circumstances, it may be ratified by the
stockholders provided a full disclosure of his adverse interest is
made. Section 32 of the Corporation Code provides, thus:
Sec. 32. Dealings of directors, trustees or
officers with the corporation. A contract
of the corporation with one or more of its
directors or trustees or officers is voidable,
at the option of such corporation, unless all
the following conditions are present:
1. That the presence of such director or
trustee in the board meeting in which the
contract was approved was not necessary
to constitute a quorum for such meeting;
2. That the vote of such director or trustee
was not necessary for the approval of the
contract;
3. That the contract is fair and reasonable
under the circumstances; and
4. That in the case of an officer, the
contract with the officer has been
previously authorized by the Board of
Directors.
Where any of the first two conditions set
forth in the preceding paragraph is absent,
in the case of a contract with a director or
trustee, such contract may be ratified by
the vote of the stockholders representing at
least two-thirds (2/3) of the outstanding
capital stock or of two-thirds (2/3) of the
members in a meeting called for the
purpose: Provided, That full disclosure of
the adverse interest of the directors or
trustees involved is made at such meeting:
Provided, however, That the contract is fair
and reasonable under the circumstances.
Although the old Corporation Law which governs the instant case
did not contain a similar provision, yet the cited provision
substantially incorporates well-settled principles in corporate
law. 12
Granting arguendo that the "dealership agreement" involved here
would be valid and enforceable if entered into with a person
23

Corpo Page 7 Cases

other than a director or officer of the corporation, the fact that

the other party to the contract was a Director and Auditor of the
petitioner corporation changes the whole situation. First of all,
We believe that the contract was neither fair nor reasonable. The
"dealership agreement" entered into in July, 1969, was to sell and
supply to respondent Te 20,000 bags of white cement per month,
for five years starting September, 1970, at thefixed price of P9.70
per bag. Respondent Te is a businessman himself and must have
known, or at least must be presumed to know, that at that time,
prices of commodities in general, and white cement in particular,
were not stable and were expected to rise. At the time of the
contract, petitioner corporation had not even commenced the
manufacture of white cement, the reason why delivery was not to
begin until 14 months later. He must have known that within that
period of six years, there would be a considerable rise in the price
of white cement. In fact, respondent Te's own Memorandum
shows that in September, 1970, the price per bag was P14.50, and
by the middle of 1975, it was already P37.50 per bag. Despite this,
no provision was made in the "dealership agreement" to allow for
an increase in price mutually acceptable to the parties. Instead,
the price was pegged at P9.70 per bag for the whole five years of
the contract. Fairness on his part as a director of the corporation
from whom he was to buy the cement, would require such a
provision. In fact, this unfairness in the contract is also a basis
which renders a contract entered into by the President, without
authority from the Board of Directors, void or voidable, although
it may have been in the ordinary course of business. We believe
that the fixed price of P9.70 per bag for a period of five years was
not fair and reasonable. Respondent Te, himself, when he
subsequently entered into contracts to resell the cement to his
"new dealers" Henry Wee 13 and Gaudencio Galang 14 stipulated
as follows:
The price of white cement shall be mutually
determined by us but in no case shall the
same be less than P14.00 per bag (94 lbs).
The contract with Henry Wee was on September 15, 1969, and
that with Gaudencio Galang, on October 13, 1967. A similar
contract with Prudencio Lim was made on December 29,
1969. 15 All of these contracts were entered into soon after his
"dealership agreement" with petitioner corporation, and in each
one of them he protected himself from any increase in the market
price of white cement. Yet, except for the contract with Henry
Wee, the contracts were for only two years from October, 1970.
Why did he not protect the corporation in the same manner when
he entered into the "dealership agreement"? For that matter, why
did the President and the Chairman of the Board not do so either?
As director, specially since he was the other party in interest,
respondent Te's bounden duty was to act in such manner as not
to unduly prejudice the corporation. In the light of the
circumstances of this case, it is to Us quite clear that he was guilty
of disloyalty to the corporation; he was attempting in effect, to

enrich himself at the expense of the corporation. There is no

showing that the stockholders ratified the "dealership agreement"
or that they were fully aware of its provisions. The contract was
therefore not valid and this Court cannot allow him to reap the
fruits of his disloyalty.
As a result of this action which has been proven to be without
legal basis, petitioner corporation's reputation and goodwill have
been prejudiced. However, there can be no award for moral
damages under Article 2217 and succeeding articles on Section 1
of Chapter 3 of Title XVIII of the Civil Code in favor of a
corporation.
In view of the foregoing, the Decision and Resolution of the
Intermediate Appellate Court dated March 30, 1984 and August 6,
1984, respectively, are hereby SET ASIDE. Private respondent
Alejandro Te is hereby ordered to pay petitioner corporation the
sum of P20,000.00 for attorney's fees, plus the cost of suit and
expenses of litigation.SO ORDERED.

G.R. No. 111448

January 16, 2002

AF REALTY & DEVELOPMENT, INC. and ZENAIDA R.

RANULLO, petitioners,
vs.
DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and
MIDAS DEVELOPMENT CORPORATION,respondents.SANDOVALGUTIERREZ, J.:
Petition for review on certiorari assailing the Decision dated
December 10, 1992 and the Resolution (Amending Decision)
dated August 5, 1993 of the Court of Appeals in CA-G.R. CV No.
30133.
Dieselman Freight Service Co. (Dieselman for brevity) is a
domestic corporation and a registered owner of a parcel of
commercial lot consisting of 2,094 square meters, located at 104
E. Rodriguez Avenue, Barrio Ugong, Pasig City, Metro Manila. The
property is covered by Transfer Certificate of Title No. 39849
issued by the Registry of Deeds of the Province of Rizal.1
On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of
directors of Dieselman, issued a letter denominated as "Authority
To Sell Real Estate"2 to Cristeta N. Polintan, a real estate broker of
the CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to
look for a buyer/buyers and negotiate the sale" of the lot at
P3,000.00 per square meter, or a total of P6,282,000.00. Cruz, Jr.
has no written authority from Dieselman to sell the lot.

In turn, Cristeta Polintan, through a letter3 dated May 19, 1988,

authorized Felicisima ("Mimi") Noble4 to sell the same lot.
Felicisima Noble then offered for sale the property to AF Realty &
Development, Inc. (AF Realty) at P2,500.00 per square
meter.5 Zenaida Ranullo, board member and vice-president of AF
Realty, accepted the offer and issued a check in the amount of
P300,000.00 payable to the order of Dieselman. Polintan received
the check and signed an "Acknowledgement Receipt"6 indicating
that the amount of P300,000.00 represents the partial payment of
the property but refundable within two weeks should AF Realty
disapprove Ranullo's action on the matter.
On June 29, 1988, AF Realty confirmed its intention to buy the lot.
Hence, Ranullo asked Polintan for the board resolution of
Dieselman authorizing the sale of the property. However, Polintan
could only give Ranullo the original copy of TCT No. 39849, the tax
declaration and tax receipt for the lot, and a photocopy of the
Articles of Incorporation of Dieselman.7
On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman,
acknowledged receipt of the said P300,000.00 as "earnest money"
but required AF Realty to finalize the sale at P4,000.00 per square
meter.8 AF Realty replied that it has paid an initial down payment
of P300,000.00 and is willing to pay the balance.9
However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer
and demanded from AF Realty the return of the title of the lot
earlier delivered by Polintan.10
Claiming that there was a perfected contract of sale between
them, AF Realty filed with the Regional Trial Court, Branch 160,
Pasig City a complaint for specific performance (Civil Case No.
56278) against Dieselman and Cruz, Jr.. The complaint prays that
Dieselman be ordered to execute and deliver a final deed of sale
in favor of AF Realty.11 In its amended complaint,12 AF Realty
asked for payment of P1,500,000.00 as compensatory damages;
P400,000.00 as attorney's fees; and P500,000.00 as exemplary
damages.
In its answer, Dieselman alleged that there was no meeting of the
minds between the parties in the sale of the property and that it
did not authorize any person to enter into such transaction on its
behalf.
Meanwhile, on July 30, 1988, Dieselman and Midas Development
Corporation (Midas) executed a Deed of Absolute Sale13 of the
same property. The agreed price was P2,800.00 per square meter.
Midas delivered to Dieselman P500,000.00 as down payment and
deposited the balance of P5,300,000.00 in escrow account with
the PCIBank.
24

Corpo Page 7 Cases

Constrained to protect its interest in the property, Midas filed on

April 3, 1989 a Motion for Leave to Intervene in Civil Case No.
56278. Midas alleged that it has purchased the property and took
possession thereof, hence Dieselman cannot be compelled to sell
and convey it to AF Realty. The trial court granted Midas' motion.
After trial, the lower court rendered the challenged Decision
holding that the acts of Cruz, Jr. bound Dieselman in the sale of
the lot to AF Realty.14 Consequently, the perfected contract of sale
between Dieselman and AF Realty bars Midas' intervention. The
trial court also held that Midas acted in bad faith when it initially
paid Dieselman P500,000.00 even without seeing the latter's title
to the property. Moreover, the notarial report of the sale was not
submitted to the Clerk of Court of the Quezon City RTC and the
balance of P5,300,000.00 purportedly deposited in escrow by
Midas with a bank was not established.1wphi1.nt
The dispositive portion of the trial court's Decision reads:
"WHEREFORE, foregoing considered, judgment is
hereby rendered ordering defendant to execute and
deliver to plaintiffs the final deed of sale of the
property covered by the Transfer Certificate of Title
No. 39849 of the Registry of Deed of Rizal, Metro
Manila District II, including the improvements thereon,
and ordering defendants to pay plaintiffs attorney's
fees in the amount of P50,000.00 and to pay the costs.
"The counterclaim of defendants is necessarily
dismissed.
"The counterclaim and/or the complaint in
intervention are likewise dismissed
"SO ORDERED."15
Dissatisfied, all the parties appealed to the Court of Appeals.
AF Realty alleged that the trial court erred in not holding
Dieselman liable for moral, compensatory and exemplary
damages, and in dismissing its counterclaim against Midas.
Upon the other hand, Dieselman and Midas claimed that the trial
court erred in finding that a contract of sale between Dieselman
and AF Realty was perfected. Midas further averred that there
was no bad faith on its part when it purchased the lot from
Dieselman.
In its Decision dated December 10, 1992, the Court of Appeals
reversed the judgment of the trial court holding that since Cruz,

Jr. was not authorized in writing by Dieselman to sell the subject

property to AF Realty, the sale was not perfected; and that the
Deed of Absolute Sale between Dieselman and Midas is valid,
there being no bad faith on the part of the latter. The Court of
Appeals then declared Dieselman and Cruz, Jr. jointly and
severally liable to AF Realty for P100,000.00 as moral damages;
P100,000.00 as exemplary damages; and P100,000.00 as
attorney's fees.16
On August 5, 1993, the Court of Appeals, upon motions for
reconsideration filed by the parties, promulgated an Amending
Decision, the dispositive portion of which reads:
"WHEREFORE, The Decision promulgated on October
10, 1992, is hereby AMENDED in the sense that only
defendant Mr. Manuel Cruz, Jr. should be made liable
to pay the plaintiffs the damages and attorney's fees
awarded therein, plus the amount of P300,000.00
unless, in the case of the said P300,000.00, the same is
still deposited with the Court which should be
restituted to plaintiffs.
"SO ORDERED."17
AF Realty now comes to this Court via the instant petition alleging
that the Court of Appeals committed errors of law.
The focal issue for consideration by this Court is who between
petitioner AF Realty and respondent Midas has a right over the
subject lot.
The Court of Appeals, in reversing the judgment of the trial court,
made the following ratiocination:
"From the foregoing scenario, the fact that the board
of directors of Dieselman never authorized, verbally
and in writing, Cruz, Jr. to sell the property in question
or to look for buyers and negotiate the sale of the
subject property is undeniable.
"While Cristeta Polintan was actually authorized by
Cruz, Jr. to look for buyers and negotiate the sale of
the subject property, it should be noted that Cruz, Jr.
could not confer on Polintan any authority which he
himself did not have. Nemo dat quod non habet. In the
same manner, Felicisima Noble could not have
possessed authority broader in scope, being a mere
extension of Polintan's purported authority, for it is a
legal truism in our jurisdiction that a spring cannot rise
higher than its source. Succinctly stated, the alleged
sale of the subject property was effected through

persons who were absolutely without any authority

whatsoever from Dieselman.
"The argument that Dieselman ratified the contract by
accepting the P300,000.00 as partial payment of the
purchase price of the subject property is equally
untenable. The sale of land through an agent without
any written authority is void.
xxx

xxx

xxx

"On the contrary, anent the sale of the subject

property by Dieselman to intervenor Midas, the
records bear out that Midas purchased the same from
Dieselman on 30 July 1988. The notice of lis
pendens was subsequently annotated on the title of
the property by plaintiffs on 15 August 1988. However,
this subsequent annotation of the notice of lis
pendens certainly operated prospectively and did not
retroact to make the previous sale of the property to
Midas a conveyance in bad faith. A subsequently
registered notice of lis pendens surely is not proof of
bad faith. It must therefore be borne in mind that the
30 July 1988 deed of sale between Midas and
Dieselman is a document duly certified by notary
public under his hand and seal. x x x. Such a deed of
sale being public document acknowledged before a
notary public is admissible as to the date and fact of its
execution without further proof of its due execution
and delivery (Bael vs. Intermediate Appellate Court,
169 SCRA617; Joson vs. Baltazar, 194 SCRA 114) and to
prove the defects and lack of consent in the execution
thereof, the evidence must be strong and not merely
preponderant x x x."18
We agree with the Court of Appeals.
Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the
board of directors. Just as a natural person may authorize another
to do certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual
officers or agents appointed by it.19 Thus, contracts or acts of a
corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board.20 Absent such valid
delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but
not in the course of, or connected with, the performance of
authorized duties of such director, are held not binding on the
corporation.21

25

Corpo Page 7 Cases

In the instant case, it is undisputed that respondent Cruz, Jr. has

no written authority from the board of directors of respondent
Dieselman to sell or to negotiate the sale of the lot, much less to
appoint other persons for the same purpose. Respondent Cruz,
Jr.'s lack of such authority precludes him from conferring any
authority to Polintan involving the subject realty. Necessarily,
neither could Polintan authorize Felicisima Noble. Clearly, the
collective acts of respondent Cruz, Jr., Polintan and Noble cannot
bind Dieselman in the purported contract of sale.
Petitioner AF Realty maintains that the sale of land by an
unauthorized agent may be ratified where, as here, there is
acceptance of the benefits involved. In this case the receipt by
respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial
payment of the lot effectively binds respondent Dieselman.22
We are not persuaded.
Involved in this case is a sale of land through an agent. Thus, the
law on agency under the Civil Code takes precedence. This is well
stressed in Yao Ka Sin Trading vs. Court of Appeals:23
"Since a corporation, such as the private respondent,
can act only through its officers and agents, all acts
within the powers of said corporation may be
performed by agents of its selection; and, except so
far as limitations or restrictions may be imposed by
special charter, by-law, or statutory
provisions, the same general principles of law which
govern the relation of agency for a natural person
govern the officer or agent of a corporation, of
whatever status or rank, in respect to his power to act
for the corporation; and agents when once
appointed, or members acting in their stead, are
subject to thesame rules, liabilities, and incapacities
as are agents of individuals and private persons."
(Emphasis supplied)
Pertinently, Article 1874 of the same Code provides:
"ART. 1874. When a sale of piece of land or any
interest therein is through an agent, the authority of
the latter shall be in writing; otherwise, the sale shall
be void." (Emphasis supplied)
Considering that respondent Cruz, Jr., Cristeta Polintan and
Felicisima Ranullo were not authorized by respondent Dieselman
to sell its lot, the supposed contract is void. Being a void contract,
it is not susceptible of ratification by clear mandate of Article
1409 of the Civil Code, thus:

"ART. 1409. The following contracts are inexistent and

void from the very beginning:
xxx
(7) Those expressly prohibited or declared void by
law.
"These contracts cannot be ratified. Neither can the
right to set up the defense of illegality be waived."
(Emphasis supplied)
Upon the other hand, the validity of the sale of the subject lot to
respondent Midas is unquestionable. As aptly noted by the Court
of Appeals,24 the sale was authorized by a board resolution of
respondent Dieselman dated May 27, 1988.1wphi1.nt
The Court of Appeals awarded attorney's fees and moral and
exemplary damages in favor of petitioner AF Realty and against
respondent Cruz, Jr.. The award was made by reason of a breach
of contract imputable to respondent Cruz, Jr. for having acted in
bad faith. We are no persuaded. It bears stressing that petitioner
Zenaida Ranullo, board member and vice-president of petitioner
AF Realty who accepted the offer to sell the property, admitted in
her testimony25that a board resolution from respondent
Dieselman authorizing the sale is necessary to bind the latter in
the transaction; and that respondent Cruz, Jr. has no such written
authority. In fact, despite demand, such written authority was not
presented to her.26 This notwithstanding, petitioner Ranullo
tendered a partial payment for the unauthorized transaction.
Clearly, respondent Cruz, Jr. should not be held liable for damages
and attorney's fees.
WHEREFORE, the assailed Decision and Resolution of the Court of
Appeals are hereby AFFIRMED withMODIFICATION in the sense
that the award of damages and attorney's fees is deleted.
Respondent Dieselman is ordered to return to petitioner AF
Realty its partial payment of P300,000.00. Costs against
petitioners.SO ORDERED.

G.R. No. 109491

February 28, 2001

ATRIUM MANAGEMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS, E.T. HENRY AND CO., LOURDES VICTORIA
M. DE LEON, RAFAEL DE LEON, JR., AND HI-CEMENT
CORPORATION, respondents.
---------------------------------------G.R. No. 121794

February 28, 2001

LOURDES M. DE LEON, petitioner,

vs.
COURT OF APPEALS, ATRIUM MANAGEMENT CORPORATION,
AND HI-CEMENT CORPORATION,respondents.
PARDO, J.:
What is before the Court are separate appeals from the decision
of the Court of Appeals,1 ruling that Hi-Cement Corporation is not
liable for four checks amounting to P2 million issued to E.T. Henry
and Co. and discounted to Atrium Management Corporation.
On January 3, 1983, Atrium Management Corporation filed with
the Regional Trial Court, Manila an action for collection of the
proceeds of four postdated checks in the total amount of P2
million. Hi-Cement Corporation through its corporate signatories,
petitioner Lourdes M. de Leon,2 treasurer, and the late Antonio de
las Alas, Chairman, issued checks in favor of E.T. Henry and Co.
Inc., as payee. E.T. Henry and Co., Inc., in turn, endorsed the four
checks to petitioner Atrium Management Corporation for valuable
consideration. Upon presentment for payment, the drawee bank
dishonored all four checks for the common reason "payment
stopped". Atrium, thus, instituted this action after its demand for
payment of the value of the checks was denied.3
After due proceedings, on July 20, 1989, the trial court rendered a
decision ordering Lourdes M. de Leon, her husband Rafael de
Leon, E.T. Henry and Co., Inc. and Hi-Cement Corporation to pay
petitioner Atrium, jointly and severally, the amount of P2 million
corresponding to the value of the four checks, plus interest and
attorney's fees.4
On appeal to the Court of Appeals, on March 17, 1993, the Court
of Appeals promulgated its decision modifying the decision of the
trial court, absolving Hi-Cement Corporation from liability and
dismissing the complaint as against it. The appellate court ruled
that: (1) Lourdes M. de Leon was not authorized to issue the
subject checks in favor of E.T. Henry, Inc.; (2) The issuance of the
26

Corpo Page 7 Cases

subject checks by Lourdes M. de Leon and the late Antonio de las

Alas constituted ultra vires acts; and (3) The subject checks were
not issued for valuable consideration.5
At the trial, Atrium presented as its witness Carlos C. Syquia who
testified that in February 1981, Enrique Tan of E.T. Henry
approached Atrium for financial assistance, offering to discount
four RCBC checks in the total amount of P2 million, issued by HiCement in favor of E.T. Henry. Atrium agreed to discount the
checks, provided it be allowed to confirm with Hi-Cement the fact
that the checks represented payment for petroleum products
which E.T. Henry delivered to Hi-Cement. Carlos C. Syquia
identified two letters, dated February 6, 1981 and February 9,
1981 issued by Hi-Cement through Lourdes M. de Leon, as
treasurer, confirming the issuance of the four checks in favor of
E.T. Henry in payment for petroleum products.6
Respondent Hi-Cement presented as witness Ms. Erlinda Yap who
testified that she was once a secretary to the treasurer of HiCement, Lourdes M. de Leon, and as such she was familiar with
the four RCBC checks as the postdated checks issued by HiCement to E.T. Henry upon instructions of Ms. de Leon. She
testified that E.T. Henry offered to give Hi-Cement a loan which
the subject checks would secure as collateral.7
On July 20, 1989, the Regional Trial Court, Manila, Branch 09
rendered a decision, the dispositive portion of which reads:
"WHEREFORE, in view of the foregoing considerations,
and plaintiff having proved its cause of action by
preponderance of evidence, judgment is hereby
rendered ordering all the defendants except defendant
Antonio de las Alas to pay plaintiff jointly and severally
the amount of TWO MILLION (P2,000,000.00) PESOS
with the legal rate of interest from the filling of the
complaint until fully paid, plus the sum of TWENTY
THOUSAND (P20,000.00) PESOS as and for attorney's
fees and the cost of suit."
All other claims are, for lack of merit dismissed.
SO

ORDERED."8

In due time, both Lourdes M. de Leon and Hi-Cement appealed to

the Court of Appeals.9
Lourdes M. de Leon submitted that the trial court erred in ruling
that she was solidarilly liable with Hi-Cement for the amount of
the check. Also, that the trial court erred in ruling that Atrium was
an ordinary holder, not a holder in due course of the rediscounted
checks.10

Hi-Cement on its part submitted that the trial court erred in ruling
that even if Hi-Cement did not authorize the issuance of the
checks, it could still be held liable for the checks. And assuming
that the checks were issued with its authorization, the same was
without any consideration, which is a defense against a holder in
due course and that the liability shall be borne alone by E.T.
Henry.11
On March 17, 1993, the Court of Appeals promulgated its decision
modifying the ruling of the trial court, the dispositive portion of
which reads:
"Judgement is hereby rendered:
(1) dismissing the plaintiff's complaint as against
defendants Hi-Cement Corporation and Antonio De las
Alas;
(2) ordering the defendants E.T. Henry and Co., Inc.
and Lourdes M. de Leon, jointly and severally to pay
the plaintiff the sum of TWO MILLION PESOS
(P2,000,000.00) with interest at the legal rate from the
filling of the complaint until fully paid, plus P20,000.00
for attorney's fees.
(3) Ordering the plaintiff and defendants E.T. Henry
and Co., Inc. and Lourdes M. de Leon, jointly and
severally to pay defendant Hi-Cement Corporation, the
sum of P20,000.00 as and for attorney's fees.
With cost in this instance against the appellee Atrium
Management Corporation and appellant Lourdes
Victoria M. de Leon.
So ordered."12
Hence, the recourse to this Court.13
The issues raised are the following:
In G. R. No. 109491 (Atrium, petitioner):
1. Whether the issuance of the questioned checks was
an ultra vires act;
2. Whether Atrium was not a holder in due course and
for value; and

3. Whether the Court of Appeals erred in dismissing

the case against Hi-Cement and ordering it to pay
P20,000.00 as attorney's fees.14
In G. R. No. 121794 (de Leon, petitioner):
1. Whether the Court of Appeals erred in holding
petitioner personally liable for the Hi-Cement checks
issued to E.T. Henry;
2. Whether the Court of Appeals erred in ruling that
Atrium is a holder in due course;
3. Whether the Court of Appeals erred in ruling that
petitioner Lourdes M. de Leon as signatory of the
checks was personally liable for the value of the
checks, which were declared to be issued without
consideration;
4. Whether the Court of Appeals erred in ordering
petitioner to pay Hi-Cement attorney's fees and
costs.15
We affirm the decision of the Court of Appeals.
We first resolve the issue of whether the issuance of the checks
was an ultra vires act. The record reveals that Hi-Cement
Corporation issued the four (4) checks to extend financial
assistance to E.T. Henry, not as payment of the balance of the P30
million pesos cost of hydro oil delivered by E.T. Henry to HiCement. Why else would petitioner de Leon ask for counterpart
checks from E.T. Henry if the checks were in payment for hydro oil
delivered by E.T. Henry to Hi-Cement?
Hi-Cement, however, maintains that the checks were not issued
for consideration and that Lourdes and E.T. Henry engaged in a
"kiting operation" to raise funds for E.T. Henry, who admittedly
was in need of financial assistance. The Court finds that there was
no sufficient evidence to show that such is the case. Lourdes M.
de Leon is the treasurer of the corporation and is authorized to
sign checks for the corporation. At the time of the issuance of the
checks, there were sufficient funds in the bank to cover payment
of the amount of P2 million pesos.
It is, however, our view that there is basis to rule that the act of
issuing the checks was well within the ambit of a valid corporate
act, for it was for securing a loan to finance the activities of the
corporation, hence, not an ultra vires act.

27

Corpo Page 7 Cases

"An ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization
and therefore beyond the power conferred upon it by law"16 The
term "ultra vires" is "distinguished from an illegal act for the
former is merely voidable which may be enforced by
performance, ratification, or estoppel, while the latter is void and
cannot be validated."17
The next question to determine is whether Lourdes M. de Leon
and Antonio de las Alas were personally liable for the checks
issued as corporate officers and authorized signatories of the
check.
"Personal liability of a corporate director, trustee or officer along
(although not necessarily) with the corporation may so validly
attach, as a rule, only when:
"1. He assents (a) to a patently unlawful act of the
corporation, or (b) for bad faith or gross negligence in
directing its affairs, or (c) for conflict of interest,
resulting in damages to the corporation, its
stockholders or other persons;
"2. He consents to the issuance of watered down
stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written
objection thereto;
"3. He agrees to hold himself personally and solidarily
liable with the corporation; or
"4. He is made, by a specific provision of law, to
personally answer for his corporate action."18
In the case at bar, Lourdes M. de Leon and Antonio de las Alas as
treasurer and Chairman of Hi-Cement were authorized to issue
the checks. However, Ms. de Leon was negligent when she signed
the confirmation letter requested by Mr. Yap of Atrium and Mr.
Henry of E.T. Henry for the rediscounting of the crossed checks
issued in favor of E.T. Henry. She was aware that the checks were
strictly endorsed for deposit only to the payee's account and not
to be further negotiated. What is more, the confirmation letter
contained a clause that was not true, that is, "that the checks
issued to E.T. Henry were in payment of Hydro oil bought by HiCement from E.T. Henry". Her negligence resulted in damage to
the corporation. Hence, Ms. de Leon may be held personally liable
therefor.1wphi1.nt
The next issue is whether or not petitioner Atrium was a holder of
the checks in due course. The Negotiable Instruments Law,
Section 52 defines a holder in due course, thus:

"A holder in due course is a holder who has taken the

instrument under the following conditions:
(a) That it is complete and regular upon its
face;
(b) That he became the holder of it before it
was overdue, and without notice that it had
been previously dishonored, if such was the
fact;
(c) That he took it in good faith and for
value;
(d) That at the time it was negotiated to
him he had no notice of any infirmity in the
instrument or defect in the title of the
person negotiating it."
In the instant case, the checks were crossed checks and
specifically indorsed for deposit to payee's account only. From the
beginning, Atrium was aware of the fact that the checks were all
for deposit only to payee's account, meaning E.T. Henry. Clearly,
then, Atrium could not be considered a holder in due course.
However, it does not follow as a legal proposition that simply
because petitioner Atrium was not a holder in due course for
having taken the instruments in question with notice that the
same was for deposit only to the account of payee E.T. Henry that
it was altogether precluded from recovering on the instrument.
The Negotiable Instruments Law does not provide that a holder
not in due course can not recover on the instrument.19
The disadvantage of Atrium in not being a holder in due course is
that the negotiable instrument is subject to defenses as if it were
non-negotiable.20 One such defense is absence or failure of
consideration.21
We need not rule on the other issues raised, as they merely follow
as a consequence of the foregoing resolutions.
WHEREFORE, the petitions are hereby DENIED. The decision and
resolution of the Court of Appeals in CA-G. R. CV No. 26686, are
hereby AFFIRMED in toto.
No costs.SO ORDERED.

G.R. No. 131214

July 27, 2000

BA SAVINGS BANK, petitioner,

vs.
ROGER T. SIA, TACIANA U. SIA and JOHN DOE, respondents.

the counsel, who must certify under oath to all of the facts and
undertakings required therein."

liabilities and incapacities as are agents of individuals and private

persons."7

Hence, this appeal.5

In the present case, the corporations board of directors issued a

Resolution specifically authorizing its lawyers "to act as their
agents in any action or proceeding before the Supreme Court, the
Court of Appeals, or any other tribunal or agency[;] and to sign,
execute and deliver in connection therewith the necessary
pleadings, motions, verification, affidavit of merit, certificate of
non-forum shopping and other instruments necessary for such
action and proceeding." The Resolution was sufficient to vest such
persons with the authority to bind the corporation and was
specific enough as to the acts they were empowered to do.

Issue
DECISION
In its Memorandum, petitioner submits the following issues for
the consideration of the Court:

PANGANIBAN, J.:
The certificate of non-forum shopping required by Supreme Court
Circular 28-91 may be signed, for and on behalf of a corporation,
by a specifically authorized lawyer who has personal knowledge of
the facts required to be disclosed in such document. Unlike
natural persons, corporations may perform physical actions only
through properly delegated individuals; namely, its officers and/or
agents.
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of
the Rules of Court, assailing the August 6, 1997 Resolution1 of the
Court of Appeals (CA) in CA-GR SP No. 43209.2

"I Whether or not petitioner-corporations lawyers are

authorized to execute and sign the certificate of nonforum shopping. x x x
"II Whether or not the certification of petitioners
authorized lawyers will bind the corporation.
"III Whether or not the certification by petitioner
corporations lawyers is in compliance with the
requirements on non-forum shopping."6
Simply stated, the main issue is whether Supreme Court Revised
Circular No. 28-91 allows a corporation to authorize its counsel to
execute a certificate of non-forum shopping for and on its behalf.

Also challenged by petitioner is the October 24, 1997 CA

Resolution3 denying its Motion for Reconsideration.
The Facts

A Motion for Reconsideration was subsequently filed by the

petitioner, attached to which was a BA Savings Bank Corporate
Secretarys Certificate,4 dated August 14, 1997. The Certificate
showed that the petitioners Board of Directors approved a
Resolution on May 21, 1996, authorizing the petitioners lawyers
to represent it in any action or proceeding before any court,
tribunal or agency; and to sign, execute and deliver the Certificate
of Non-forum Shopping, among others.
On October 24, 1997, the Motion for Reconsideration was denied
by the Court of Appeals on the ground that Supreme Court
Revised Circular No. 28-91 "requires that it is the petitioner, not
28

Corpo Page 7 Cases

It is noteworthy that the Circular does not require corporate

officers to sign the certificate.1wphi1 More important, there is
no prohibition against authorizing agents to do so.

The Courts Ruling

The Petition is meritorious.

On August 6, 1997, the Court of Appeals issued a Resolution

denying due course to a Petition for Certiorari filed by BA Savings
Bank, on the ground that "the Certification on anti-forum
shopping incorporated in the petition was signed not by the duly
authorized representative of the petitioner, as required under
Supreme Court Circular No. 28-91, but by its counsel, in
contravention of said circular x x x."

In the case of natural persons, Circular 28-91 requires the parties

themselves to sign the certificate of non-forum shopping.
However, such requirement cannot be imposed on artificial
persons, like corporations, for the simple reason that they cannot
personally do the task themselves. As already stated, corporations
act only through their officers and duly authorized agents. In fact,
physical actions, like the signing and the delivery of documents,
may be performed, on behalf of the corporate entity, only by
specifically authorized individuals.

Main Issue:

In fact, not only was BA Savings Bank authorized to name an agent

to sign the certificate; it also exercised its appointing authority
reasonably well. For who else knows of the circumstances
required in the Certificate but its own retained counsel. Its regular
officers, like its board chairman and president, may not even
know the details required therein.

Authority of Counsel
A corporation, such as the petitioner, has no powers except those
expressly conferred on it by the Corporation Code and those that
are implied by or are incidental to its existence. In turn, a
corporation exercises said powers through its board of directors
and/or its duly authorized officers and agents. Physical acts, like
the signing of documents, can be performed only by natural
persons duly authorized for the purpose by corporate bylaws or
by a specific act of the board of directors. "All acts within the
powers of a corporation may be performed by agents of its
selection; and, except so far as limitations or restrictions which
may be imposed by special charter, by-law, or statutory
provisions, the same general principles of law which govern the
relation of agency for a natural person govern the officer or agent
of a corporation, of whatever status or rank, in respect to his
power to act for the corporation; and agents once appointed, or
members acting in their stead, are subject to the same rules,

Consistent with this rationale, the Court en banc in Robern

Development Corporation v. Judge Jesus Quitain8 has allowed
even an acting regional counsel of the National Power
Corporation to sign, among others, the certificate of non-forum
shopping required by Circular 28-91. The Court held that the
counsel was "in the best position to verify the truthfulness and
the correctness of the allegations in the Complaint" and "to know
and to certify if an action x x x had already been filed and pending
with the courts."9
Circular 28-91 was prescribed by the Supreme Court to prohibit
and penalize the evils of forum shopping. We see no
circumvention of this rationale if the certificate was signed by the
corporations specifically authorized counsel, who had personal
knowledge of the matters required in the Circular. In Bernardo v.
NLRC,10 we explained that a literal interpretation of the Circular

should be avoided if doing so would subvert its very rationale.

Said the Court:

Respondents.

January 20, 2009

"x x x. Indeed, while the requirement as to certificate of nonforum shopping is mandatory, nonetheless the requirements
must not be interpreted too literally and thus defeat the objective
of preventing the undesirable practice of forum-shopping."

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

Finally, we stress that technical rules of procedure should be used

to promote, not frustrate, justice.11 While the swift unclogging of
court dockets is a laudable objective, the granting of substantial
justice is an even more urgent ideal.

PUNO, C.J.:

WHEREFORE, the Petition is GRANTED and the appealed

Resolution is REVERSED and SET ASIDE. The case is REMANDED to
the Court of Appeals, which is directed to continue the
proceedings in CA-GR SP No. 43209 with all deliberate speed. No
costs.SO ORDERED.

MARANAW HOTELS AND

DECISION

Before the Court is a petition for review on certiorari

assailing a resolution issued by the Court of Appeals. The
resolution denied the petition for review filed by petitioner
Maranaw Hotels and Resort Corp.

The present proceedings emanate from a complaint for

regularization, subsequently converted into one for illegal
dismissal, filed before Labor Arbiter Madjayran H. Ajan by private
respondent Sheryl Oabel.

G.R. No. 149660

RESORT CORP.,
Petitioner,
Present:

PUNO, C.J.
,
Chairperso
n,
- versus -

CARPIO,
CORONA,
AZCUNA, and

It appears that private respondent Oabel was

initially hired by petitioner as an extra beverage attendant
on April 24, 1995. This lasted until February 7,
1997.[1] Respondent worked in Century Park Hotel, an
establishment owned by the petitioner.

On September 16, 1996,[2] petitioner contracted with Manila

Resource Development Corporation.[3] Subsequently, private
respondent Oabel was transferred to MANRED, with the latter
deporting itself as her employer.[4] MANRED has intervened at all
stages of these proceedings and has consistently claimed to be
the employer of private respondent Oabel. For the duration of her
employment, private respondent Oabel performed the following
functions:

LEONARDO-DE CASTRO, JJ.

COURT OF APPEALS, SHERYL

OABEL AND MANILA

Secretary, Public Relations Department:

Promulgated:

Gift Shop Attendant:

1997

February 10, 1997 7

April 7, 1997 April 21,

Shop Attendant:
1998[5]

May 21, 1997 July 30,

On July 20, 1998, private respondent filed before

the Labor Arbiter a petition for regularization of
employment against the petitioner. On August 1, 1998,
however, private respondent Oabel was dismissed from
employment.[6] Respondent converted her petition for
regularization into a complaint for illegal dismissal.
Labor Arbiter Madjayran H. Ajan rendered a
decision on July 13, 1999, dismissing the complaint against
the petitioner. The decision held:
While complainant alleged that
she has been working with the respondent
hotel in different department (sic) of the
latter on (sic) various capacities (although
not all departments are part and parcel of
the hotels), complainant never disputed the
fact that her work with the same were on a
per function basis or on a need basis coterminus with the function she was hired
for.Considering that complainant job (sic)
with the respondent hotel was on a per
function basis or on a need basis,
complainant could not even be considered
as casual employee or provisional
employee. Respondent hotel consider (sic)
complainant, at most, a project employee
which does not ripened (sic) into regular
employee (sic).[7]
Private respondent appealed before the National
Labor Relations Commission (NLRC). The NLRC reversed the
ruling of the Labor Arbiter and held that: (1) MANRED is a
labor-only contractor, and (2) private respondent was
illegally dismissed.
Of the first holding, the NLRC observed that
under the very terms of the service contract, MANRED shall
provide the petitioner not specific jobs or services but
personnel and that MANRED had insufficient capitalization
and was not sufficiently equipped to provide specific
jobs.[8] The NLRC likewise observed that the activities
performed by the private respondent were directly related
to and usually necessary or desirable in the business of the
petitioner.[9]

RESOURCE DEVELOPMENT
Waitress:
1997

CORP.,
29

Corpo Page 7 Cases

April 22, 1997 May 20,

With respect to the termination of private

respondents employment, the NLRC held that it was not

effected for a valid or just cause and was therefore illegal.

The dispositive portion of the ruling reads thus:
WHEREFORE,
the
decision
appealed from is hereby REVERSED. xxxx
Respondents Century Park Hotel and Manila
Resource Development Corporation are
hereby declared jointly and severally liable
for the following awards in favor of
complainant: 1) her full backwages and
benefits from August 1, 1998 up to the date
of her actual reinstatement; 2) her salary
differentials, share in the service charges,
service incentive leave pay and 13th month
pay from July 20, 1995 to July 31, 1998.
SO ORDERED.[10]

Petitioner subsequently appealed before the

Court of Appeals. In a resolution, the appellate court
dismissed the petition on account of the failure of the
petitioner to append the board resolution authorizing the
counsel for petitioner to file the petition before the Court of
Appeals. The Court of Appeals held:

After a careful perusal of the

records of the case, We resolve to DISMISS
the present petition on the ground of noncompliance with the rule on certification
against forum shopping taking into account
that the aforesaid certification was
subscribed and verified by the Personnel
Director of petitioner corporation without
attaching thereto his authority to do so for
and in behalf of petitioner corporation per
board resolution or special power of
attorney executed by the latter.[11]
Petitioner duly filed its motion for reconsideration
which was denied by the Court of Appeals in a resolution dated
August 30, 2001.[12]
In the present petition for review, the petitioner invokes
substantial justice as justification for a reversal of the resolution
of the Court of Appeals.[13] Petitioner likewise contends that the
filing of a motion for reconsideration with the certificate of nonforum shopping attached constitutes substantial compliance with
the requirement.[14]
There is no merit to the petition.

30

Corpo Page 7 Cases

Well-settled is the rule that the certificate of non-forum

shopping is a mandatory requirement. Substantial compliance
applies only with respect to the contents of the certificate but not
as to its presence in the pleading wherein it is required.
Petitioners contention that the filing of a motion for
reconsideration with an appended certificate of non forumshopping suffices to cure the defect in the pleading is absolutely
specious. It negates the very purpose for which the certification
against forum shopping is required: to inform the Court of the
pendency of any other case which may present similar issues and
involve similar parties as the one before it. The requirement
applies to both natural and juridical persons.
Petitioner relies upon this Courts ruling in Digital
Microwave Corp. v. Court of Appeals[15] to show that its
Personnel Director has been duly authorized to sign pleadings for
and in behalf of the petitioner. Petitioner, however, has taken the
ruling in Digital Microwave out of context. The portion of the
ruling in Digital Microwave upon which petitioner relies was in
response to the issue of impossibility of compliance by juridical
persons with the requirements of Circular 28-91.[16] The Courts
identification of duly authorized officers or directors as the proper
signatories of a certificate of non forum-shopping was in response
to that issue. The ruling does not, however, ipso facto clothe a
corporate officer or director with authority to execute a
certificate of non-forum shopping by virtue of the formers
position alone.
Any doubt on the matter has been resolved by the Courts
ruling in BPI Leasing Corp. v. Court of Appeals[17] where this Court
emphasized that the lawyer acting for the corporation must
bespecifically
authorized to
sign
pleadings
for
the
corporation.[18] Specific authorization, the Court held, could only
come in the form of a board resolution issued by the Board of
Directors that specifically authorizes the counsel to institute the
petition and execute the certification, to make his actions binding
on his principal, i.e., the corporation.[19]
This Court has not wavered in stressing the need for
strict adherence to procedural requirements. The rules of
procedure exist to ensure the orderly administration of justice.
They are not to be trifled with lightly.
For this reason alone, the petition must already be
dismissed. However, even if this grave procedural infirmity is set
aside, the petition must still fail. In the interest of averting further
litigation arising from the present controversy, and in light of the
respective positions asserted by the parties in the pleadings and
other memoranda filed before this Court, the Court now proceeds
to resolve the case on the merits.
Petitioner posits that it has entered into a service
agreement with intervenor MANRED. The latter, in turn,

maintains that private respondent Oabel is its employee and

subsequently holds itself out as the employer and offers the
reinstatement of private respondent.
Notably, private respondents purported employment
with MANRED commenced only in 1996, way after she was hired
by the petitioner as extra beverage attendant on April 24, 1995.
There is thus much credence in the private respondents claim
that the service agreement executed between the petitioner and
MANRED is a mere ploy to circumvent the law on employment, in
particular that which pertains on regularization.
In this regard, it has not escaped the notice of the
Court that the operations of the hotel itself do not cease with the
end of each event or function and that there is an ever present
need for individuals to perform certain tasks necessary in the
petitioners business. Thus, although the tasks themselves may
vary, the need for sufficient manpower to carry them out does
not. In any event, as borne out by the findings of the NLRC, the
petitioner determines the nature of the tasks to be performed by
the private respondent, in the process exercising control.
This being so, the Court finds no difficulty in sustaining
the finding of the NLRC that MANRED is a labor-only
contractor.[20] Concordantly, the real employer of private
respondent Oabel is the petitioner.
It appears further that private respondent has already
rendered more than one year of service to the petitioner, for the
period 1995-1998, for which she must already be considered a
regular employee, pursuant to Article 280 of the Labor Code:
Art. 280. Regular and casual
employment. The provisions of written
agreement to the contrary notwithstanding
and regardless of the oral agreement of the
parties, an employment shall be deemed to
be regular where the employee has been
engaged to perform activities which are
usually necessary or desirable in the usual
business or trade of the employer, except
where the employment has been fixed for a
specific project or undertaking the
completion or termination of which has
been determined at the time of the
engagement of the employee or where the
work or service to be performed is seasonal
in nature and the employment is for the
duration of the season.
An employment shall be
deemed to be casual if it is not covered by
the preceding paragraph: Provided, That
any employee who has rendered at least
one year of service, whether such service is

continuous or broken, shall be considered

a regular employee with respect to the
activity in which he is employed and his
employment shall continue while such
activity exists. (Emphasis supplied)
IN VIEW WHEREOF, the present petition is
DENIED. The resolution of the Court of Appeals dated June
15, 2001 is affirmed.
Costs against petitioner.
SO ORDERED.

G.R. No. 157802

October 13, 2010

MATLING INDUSTRIAL AND COMMERCIAL CORPORATION,

RICHARD K. SPENCER, CATHERINE SPENCER, AND ALEX
MANCILLA, Petitioners,
vs.
RICARDO R. COROS, Respondent.
DECISION
BERSAMIN, J.:
This case reprises the jurisdictional conundrum of whether a
complaint for illegal dismissal is cognizable by the Labor Arbiter
(LA) or by the Regional Trial Court (RTC). The determination of
whether the dismissed officer was a regular employee or a
corporate officer unravels the conundrum. In the case of the
regular employee, the LA has jurisdiction; otherwise, the RTC
exercises the legal authority to adjudicate.

After his dismissal by Matling as its Vice President for Finance and
Administration, the respondent filed on August 10, 2000 a
complaint for illegal suspension and illegal dismissal against
Matling and some of its corporate officers (petitioners) in the
NLRC, Sub-Regional Arbitration Branch XII, Iligan City.3
The petitioners moved to dismiss the complaint,4 raising the
ground, among others, that the complaint pertained to the
jurisdiction of the Securities and Exchange Commission (SEC) due
to the controversy being intra-corporate inasmuch as the
respondent was a member of Matlings Board of Directors aside
from being its Vice-President for Finance and Administration prior
to his termination.
The respondent opposed the petitioners motion to
dismiss,5 insisting that his status as a member of Matlings Board
of Directors was doubtful, considering that he had not been
formally elected as such; that he did not own a single share of
stock in Matling, considering that he had been made to sign in
blank an undated indorsement of the certificate of stock he had
been given in 1992; that Matling had taken back and retained the
certificate of stock in its custody; and that even assuming that he
had been a Director of Matling, he had been removed as the Vice
President for Finance and Administration, not as a Director, a fact
that the notice of his termination dated April 10, 2000 showed.
On October 16, 2000, the LA granted the petitioners motion to
dismiss,6 ruling that the respondent was a corporate officer
because he was occupying the position of Vice President for
Finance and Administration and at the same time was a Member
of the Board of Directors of Matling; and that, consequently, his
removal was a corporate act of Matling and the controversy
resulting from such removal was under the jurisdiction of the SEC,
pursuant to Section 5, paragraph (c) of Presidential Decree No.
902.
Ruling of the NLRC

In this appeal via petition for review on certiorari, the petitioners

challenge the decision dated September 13, 20021 and the
resolution dated April 2, 2003,2 both promulgated in C.A.-G.R. SP
No. 65714 entitled Matling Industrial and Commercial
Corporation, et al. v. Ricardo R. Coros and National Labor
Relations Commission, whereby by the Court of Appeals (CA)
sustained the ruling of the National Labor Relations Commission
(NLRC) to the effect that the LA had jurisdiction because the
respondent was not a corporate officer of petitioner Matling
Industrial and Commercial Corporation (Matling).

The respondent appealed to the NLRC,7 urging that:

THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE OF

DISCRETION GRANTING APPELLEES MOTION TO DISMISS
WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO FILE HIS
OPPOSITION THERETO THEREBY VIOLATING THE BASIC PRINCIPLE
OF DUE PROCESS.
II

Corpo Page 7 Cases

On March 13, 2001, the NLRC set aside the dismissal, concluding
that the respondents complaint for illegal dismissal was properly
cognizable by the LA, not by the SEC, because he was not a
corporate officer by virtue of his position in Matling, albeit high
ranking and managerial, not being among the positions listed in
Matlings Constitution and By-Laws.8 The NLRC disposed thuswise:
WHEREFORE, the Order appealed from is SET ASIDE. A new one is
entered declaring and holding that the case at bench does not
involve any intracorporate matter. Hence, jurisdiction to hear and
act on said case is vested with the Labor Arbiter, not the SEC,
considering that the position of Vice-President for Finance and
Administration being held by complainant-appellant is not listed
as among respondent's corporate officers.
Accordingly, let the records of this case be REMANDED to the
Arbitration Branch of origin in order that the Labor Arbiter below
could act on the case at bench, hear both parties, receive their
respective evidence and position papers fully observing the
requirements of due process, and resolve the same with
reasonable dispatch.
SO ORDERED.
The petitioners sought reconsideration,9 reiterating that the
respondent, being a member of the Board of Directors, was a
corporate officer whose removal was not within the LAs
jurisdiction.
The petitioners later submitted to the NLRC in support of the
motion for reconsideration the certified machine copies of
Matlings Amended Articles of Incorporation and By Laws to prove
that the President of Matling was thereby granted "full power to
create new offices and appoint the officers thereto, and the
minutes of special meeting held on June 7, 1999 by Matlings
Board of Directors to prove that the respondent was, indeed, a
Member of the Board of Directors.10

Antecedents

31

THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN

DISMISSING THE CASE FOR LACK OF JURISDICTION.

Nonetheless, on April 30, 2001, the NLRC denied the petitioners

motion for reconsideration.11
Ruling of the CA
The petitioners elevated the issue to the CA by petition for
certiorari, docketed as C.A.-G.R. No. SP 65714, contending that
the NLRC committed grave abuse of discretion amounting to lack
of jurisdiction in reversing the correct decision of the LA.

In its assailed decision promulgated on September 13, 2002,12 the

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

32

Corpo Page 7 Cases

The CA denied the petitioners motion for reconsideration on

April 2, 2003.13

4. Claims for actual, moral, exemplary and

other forms of damages arising from the
employer-employee relations;

Issue
Thus, the petitioners are now before the Court for a review on
certiorari, positing that the respondent was a
stockholder/member of the Matlings Board of Directors as well
as its Vice President for Finance and Administration; and that the
CA consequently erred in holding that the LA had jurisdiction.
The decisive issue is whether the respondent was a corporate
officer of Matling or not. The resolution of the issue determines
whether the LA or the RTC had jurisdiction over his complaint for
illegal dismissal.
Ruling
The appeal fails.

5. Cases arising from any violation of Article

264 of this Code, including questions
involving the legality of strikes and lockouts;
and
6. Except claims for Employees
Compensation, Social Security, Medicare
and maternity benefits, all other claims
arising from employer-employee relations,
including those of persons in domestic or
household service, involving an amount
exceeding five thousand pesos (P5,000.00)
regardless of whether accompanied with a
claim for reinstatement.
(b) The Commission shall have exclusive appellate
jurisdiction over all cases decided by Labor Arbiters.

I
The Law on Jurisdiction in Dismissal Cases
As a rule, the illegal dismissal of an officer or other employee of a
private employer is properly cognizable by the LA. This is pursuant
to Article 217 (a) 2 of the Labor Code, as amended, which
provides as follows:
Article 217. Jurisdiction of the Labor Arbiters and the
Commission. - (a) Except as otherwise provided under this Code,
the Labor Arbiters shall have original and exclusive jurisdiction to
hear and decide, within thirty (30) calendar days after the
submission of the case by the parties for decision without
extension, even in the absence of stenographic notes, the
following cases involving all workers, whether agricultural or nonagricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for
reinstatement, those cases that workers
may file involving wages, rates of pay, hours
of work and other terms and conditions of
employment;

(c) Cases arising from the interpretation or

implementation of collective bargaining agreements
and those arising from the interpretation or
enforcement of company personnel policies shall be
disposed of by the Labor Arbiter by referring the same
to the grievance machinery and voluntary arbitration
as may be provided in said agreements. (As amended
by Section 9, Republic Act No. 6715, March 21, 1989).
Where the complaint for illegal dismissal concerns a corporate
officer, however, the controversy falls under the jurisdiction of
the Securities and Exchange Commission (SEC), because the
controversy arises out of intra-corporate or partnership relations
between and among stockholders, members, or associates, or
between any or all of them and the corporation, partnership, or
association of which they are stockholders, members, or
associates, respectively; and between such corporation,
partnership, or association and the State insofar as the
controversy concerns their individual franchise or right to exist as
such entity; or because the controversy involves the election or
appointment of a director, trustee, officer, or manager of such
corporation, partnership, or association.14 Such controversy,
among others, is known as an intra-corporate dispute.
Effective on August 8, 2000, upon the passage of Republic Act No.
8799,15 otherwise known as The Securities Regulation Code, the
SECs jurisdiction over all intra-corporate disputes was transferred
to the RTC, pursuant to Section 5.2 of RA No. 8799, to wit:

5.2. The Commissions jurisdiction over all cases enumerated

under Section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the appropriate
Regional Trial Court: Provided, that the Supreme Court in the
exercise of its authority may designate the Regional Trial Court
branches that shall exercise jurisdiction over these cases. The
Commission shall retain jurisdiction over pending cases involving
intra-corporate disputes submitted for final resolution which
should be resolved within one (1) year from the enactment of this
Code. The Commission shall retain jurisdiction over pending
suspension of payments/rehabilitation cases filed as of 30 June
2000 until finally disposed.
Considering that the respondents complaint for illegal dismissal
was commenced on August 10, 2000, it might come under the
coverage of Section 5.2 of RA No. 8799, supra, should it turn out
that the respondent was a corporate, not a regular, officer of
Matling.
II
Was the Respondents Position of Vice President
for Administration and Finance a Corporate Office?
We must first resolve whether or not the respondents position as
Vice President for Finance and Administration was a corporate
office. If it was, his dismissal by the Board of Directors rendered
the matter an intra-corporate dispute cognizable by the RTC
pursuant to RA No. 8799.
The petitioners contend that the position of Vice President for
Finance and Administration was a corporate office, having been
created by Matlings President pursuant to By-Law No. V, as
amended,16 to wit:
BY LAW NO. V
Officers
The President shall be the executive head of the corporation; shall
preside over the meetings of the stockholders and directors; shall
countersign all certificates, contracts and other instruments of the
corporation as authorized by the Board of Directors; shall have full
power to hire and discharge any or all employees of the
corporation; shall have full power to create new offices and to
appoint the officers thereto as he may deem proper and
necessary in the operations of the corporation and as the
progress of the business and welfare of the corporation may
demand; shall make reports to the directors and stockholders and
perform all such other duties and functions as are incident to his
office or are properly required of him by the Board of Directors. In
33

Corpo Page 7 Cases

case of the absence or disability of the President, the Executive

Vice President shall have the power to exercise his functions.
The petitioners argue that the power to create corporate offices
and to appoint the individuals to assume the offices was
delegated by Matlings Board of Directors to its President through
By-Law No. V, as amended; and that any office the President
created, like the position of the respondent, was as valid and
effective a creation as that made by the Board of Directors,
making the office a corporate office. In justification, they
cite Tabang v. National Labor Relations Commission,17 which held
that "other offices are sometimes created by the charter or bylaws of a corporation, or the board of directors may be
empowered under the by-laws of a corporation to create
additional officers as may be necessary."
The respondent counters that Matlings By-Laws did not list his
position as Vice President for Finance and Administration as one
of the corporate offices; that Matlings By-Law No. III listed only
four corporate officers, namely: President, Executive Vice
President, Secretary, and Treasurer; 18 that the corporate offices
contemplated in the phrase "and such other officers as may be
provided for in the by-laws" found in Section 25 of the
Corporation Code should be clearly and expressly stated in the ByLaws; that the fact that Matlings By-Law No. III dealt with
Directors & Officers while its By-Law No. V dealt with Officers
proved that there was a differentiation between the officers
mentioned in the two provisions, with those classified under ByLaw No. V being ordinary or non-corporate officers; and that the
officer, to be considered as a corporate officer, must be elected
by the Board of Directors or the stockholders, for the President
could only appoint an employee to a position pursuant to By-Law
No. V.
We agree with respondent.
Section 25 of the Corporation Code provides:
Section 25. Corporate officers, quorum.--Immediately after their
election, the directors of a corporation must formally organize by
the election of a president, who shall be a director, a treasurer
who may or may not be a director, a secretary who shall be a
resident and citizen of the Philippines, and such other officers as
may be provided for in the by-laws. Any two (2) or more
positions may be held concurrently by the same person, except
that no one shall act as president and secretary or as president
and treasurer at the same time.
The directors or trustees and officers to be elected shall perform
the duties enjoined on them by law and the by-laws of the
corporation. Unless the articles of incorporation or the by-laws

provide for a greater majority, a majority of the number of

directors or trustees as fixed in the articles of incorporation shall
constitute a quorum for the transaction of corporate business,
and every decision of at least a majority of the directors or
trustees present at a meeting at which there is a quorum shall be
valid as a corporate act, except for the election of officers which
shall require the vote of a majority of all the members of the
board.
Directors or trustees cannot attend or vote by proxy at board
meetings.
Conformably with Section 25, a position must be expressly
mentioned in the By-Laws in order to be considered as a
corporate office. Thus, the creation of an office pursuant to or
under a By-Law enabling provision is not enough to make a
position a corporate office. Guerrea v. Lezama,19 the first ruling on
the matter, held that the only officers of a corporation were those
given that character either by the Corporation Code or by the ByLaws; the rest of the corporate officers could be considered only
as employees or subordinate officials. Thus, it was held inEasycall
Communications Phils., Inc. v. King:20
An "office" is created by the charter of the corporation and the
officer is elected by the directors or stockholders. On the other
hand, an employee occupies no office and generally is employed
not by the action of the directors or stockholders but by the
managing officer of the corporation who also determines the
compensation to be paid to such employee.
In this case, respondent was appointed vice president for
nationwide expansion by Malonzo, petitioner's general manager,
not by the board of directors of petitioner. It was also Malonzo
who determined the compensation package of respondent. Thus,
respondent was an employee, not a "corporate officer." The CA
was therefore correct in ruling that jurisdiction over the case was
properly with the NLRC, not the SEC (now the RTC).
This interpretation is the correct application of Section 25 of the
Corporation Code, which plainly states that the corporate officers
are the President, Secretary, Treasurer and such other officers as
may be provided for in the By-Laws. Accordingly, the corporate
officers in the context of PD No. 902-A are exclusively those who
are given that character either by the Corporation Code or by the
corporations By-Laws.
A different interpretation can easily leave the way open for the
Board of Directors to circumvent the constitutionally guaranteed
security of tenure of the employee by the expedient inclusion in
the By-Laws of an enabling clause on the creation of just any
corporate officer position.

It is relevant to state in this connection that the SEC, the primary

agency administering the Corporation Code, adopted a similar
interpretation of Section 25 of the Corporation Code in its Opinion
dated November 25, 1993,21to wit:

provision authorizing the Board of Directors to create other

offices that the Board of Directors might see fit to create. The
Court held there that the position was a corporate office, relying
on the obiter dictum in Tabang.

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

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

Considering that the observations earlier made herein show that

the soundness of their dicta is not
unassailable,Tabang and Nacpil should no longer be controlling.

Moreover, the Board of Directors of Matling could not validly

delegate the power to create a corporate office to the President,
in light of Section 25 of the Corporation Code requiring the Board
of Directors itself to elect the corporate officers. Verily, the power
to elect the corporate officers was a discretionary power that the
law exclusively vested in the Board of Directors, and could not be
delegated to subordinate officers or agents.22 The office of Vice
President for Finance and Administration created by Matlings
President pursuant to By Law No. V was an ordinary, not a
corporate, office.
To emphasize, the power to create new offices and the power to
appoint the officers to occupy them vested by By-Law No. V
merely allowed Matlings President to create non-corporate
offices to be occupied by ordinary employees of Matling. Such
powers were incidental to the Presidents duties as the executive
head of Matling to assist him in the daily operations of the
business.
The petitioners reliance on Tabang, supra, is misplaced. The
statement in Tabang, to the effect that offices not expressly
mentioned in the By-Laws but were created pursuant to a By-Law
enabling provision were also considered corporate offices, was
plainly obiter dictum due to the position subject of the
controversy being mentioned in the By-Laws. Thus, the Court held
therein that the position was a corporate office, and that the
determination of the rights and liabilities arising from the ouster
from the position was an intra-corporate controversy within the
SECs jurisdiction.
In Nacpil v. Intercontinental Broadcasting
Corporation,23 which may be the more appropriate ruling, the
position subject of the controversy was not expressly mentioned
in the By-Laws, but was created pursuant to a By-Law enabling
34

Corpo Page 7 Cases

III
Did Respondents Status as Director and
Stockholder Automatically Convert his Dismissal
into an Intra-Corporate Dispute?
Yet, the petitioners insist that because the respondent was a
Director/stockholder of Matling, and relying onPaguio v. National
Labor Relations Commission24 and Ongkingko v. National Labor
Relations Commission,25 the NLRC had no jurisdiction over his
complaint, considering that any case for illegal dismissal brought
by a stockholder/officer against the corporation was an intracorporate matter that must fall under the jurisdiction of the SEC
conformably with the context of PD No. 902-A.
The petitioners insistence is bereft of basis.
To begin with, the reliance on Paguio and Ongkingko is misplaced.
In both rulings, the complainants were undeniably corporate
officers due to their positions being expressly mentioned in the
By-Laws, aside from the fact that both of them had been duly
elected by the respective Boards of Directors. But the herein
respondents position of Vice President for Finance and
Administration was not expressly mentioned in the By-Laws;
neither was the position of Vice President for Finance and
Administration created by Matlings Board of Directors. Lastly, the
President, not the Board of Directors, appointed him.
True it is that the Court pronounced in Tabang as follows:
Also, an intra-corporate controversy is one which arises between
a stockholder and the corporation. There is no distinction,
qualification or any exemption whatsoever. The provision is broad
and covers all kinds of controversies between stockholders and
corporations.26
However, the Tabang pronouncement is not controlling because it
is too sweeping and does not accord with reason, justice, and fair
play. In order to determine whether a dispute constitutes an
intra-corporate controversy or not, the Court considers two
elements instead, namely: (a) the status or relationship of the

parties; and (b) the nature of the question that is the subject of
their controversy. This was our thrust in Viray v. Court of
Appeals:27
The establishment of any of the relationships mentioned above
will not necessarily always confer jurisdiction over the dispute on
the SEC to the exclusion of regular courts. The statement made in
one case that the rule admits of no exceptions or distinctions is
not that absolute. The better policy in determining which body
has jurisdiction over a case would be to consider not only the
status or relationship of the parties but also the nature of the
question that is the subject of their controversy.
Not every conflict between a corporation and its stockholders
involves corporate matters that only the SEC can resolve in the
exercise of its adjudicatory or quasi-judicial powers. If, for
example, a person leases an apartment owned by a corporation of
which he is a stockholder, there should be no question that a
complaint for his ejectment for non-payment of rentals would still
come under the jurisdiction of the regular courts and not of the
SEC. By the same token, if one person injures another in a
vehicular accident, the complaint for damages filed by the victim
will not come under the jurisdiction of the SEC simply because of
the happenstance that both parties are stockholders of the same
corporation. A contrary interpretation would dissipate the powers
of the regular courts and distort the meaning and intent of PD No.
902-A.
In another case, Mainland Construction Co., Inc. v. Movilla,28 the
Court reiterated these determinants thuswise:
In order that the SEC (now the regular courts) can take cognizance
of a case, the controversy must pertain to any of the following
relationships:
a) between the corporation, partnership or association
and the public;
b) between the corporation, partnership or association
and its stockholders, partners, members or officers;
c) between the corporation, partnership or association
and the State as far as its franchise, permit or license
to operate is concerned; and
d) among the stockholders, partners or associates
themselves.
The fact that the parties involved in the controversy are all
stockholders or that the parties involved are the stockholders and

the corporation does not necessarily place the dispute within the
ambit of the jurisdiction of SEC. The better policy to be followed in
determining jurisdiction over a case should be to consider
concurrent factors such as the status or relationship of the parties
or the nature of the question that is the subject of their
controversy. In the absence of any one of these factors, the SEC
will not have jurisdiction. Furthermore, it does not necessarily
follow that every conflict between the corporation and its
stockholders would involve such corporate matters as only the
SEC can resolve in the exercise of its adjudicatory or quasi-judicial
powers.29
The criteria for distinguishing between corporate officers who
may be ousted from office at will, on one hand, and ordinary
corporate employees who may only be terminated for just cause,
on the other hand, do not depend on the nature of the services
performed, but on the manner of creation of the office. In the
respondents case, he was supposedly at once an employee, a
stockholder, and a Director of Matling. The circumstances
surrounding his appointment to office must be fully considered to
determine whether the dismissal constituted an intra-corporate
controversy or a labor termination dispute. We must also consider
whether his status as Director and stockholder had any relation at
all to his appointment and subsequent dismissal as Vice President
for Finance and Administration.
Obviously enough, the respondent was not appointed as Vice
President for Finance and Administration because of his being a
stockholder or Director of Matling. He had started working for
Matling on September 8, 1966, and had been employed
continuously for 33 years until his termination on April 17, 2000,
first as a bookkeeper, and his climb in 1987 to his last position as
Vice President for Finance and Administration had been gradual
but steady, as the following sequence indicates:
1966 Bookkeeper
1968 Senior Accountant
1969 Chief Accountant
1972 Office Supervisor
1973 Assistant Treasurer
1978 Special Assistant for Finance
1980 Assistant Comptroller
1983 Finance and Administrative Manager
35

Corpo Page 7 Cases

1985 Asst. Vice President for Finance and

Administration

WHEREFORE, we deny the petition for review on certiorari, and

affirm the decision of the Court of Appeals.

1987 to April 17, 2000 Vice President for Finance and

Administration

Costs of suit to be paid by the petitioners.SO ORDERED.

Even though he might have become a stockholder of Matling in

1992, his promotion to the position of Vice President for Finance
and Administration in 1987 was by virtue of the length of quality
service he had rendered as an employee of Matling. His
subsequent acquisition of the status of Director/stockholder had
no relation to his promotion. Besides, his status of
Director/stockholder was unaffected by his dismissal from
employment as Vice President for Finance and
Administration.1avvphi1
In Prudential Bank and Trust Company v. Reyes,30 a case involving
a lady bank manager who had risen from the ranks but was
dismissed, the Court held that her complaint for illegal dismissal
was correctly brought to the NLRC, because she was deemed a
regular employee of the bank. The Court observed thus:
It appears that private respondent was appointed Accounting
Clerk by the Bank on July 14, 1963. From that position she rose to
become supervisor. Then in 1982, she was appointed Assistant
Vice-President which she occupied until her illegal dismissal on
July 19, 1991. The banks contention that she merely holds an
elective position and that in effect she is not a regular employee
is belied by the nature of her work and her length of service with
the Bank. As earlier stated, she rose from the ranks and has been
employed with the Bank since 1963 until the termination of her
employment in 1991. As Assistant Vice President of the Foreign
Department of the Bank, she is tasked, among others, to collect
checks drawn against overseas banks payable in foreign currency
and to ensure the collection of foreign bills or checks purchased,
including the signing of transmittal letters covering the same. It
has been stated that "the primary standard of determining regular
employment is the reasonable connection between the particular
activity performed by the employee in relation to the usual trade
or business of the employer. Additionally, "an employee is regular
because of the nature of work and the length of service, not
because of the mode or even the reason for hiring them." As
Assistant Vice-President of the Foreign Department of the Bank
she performs tasks integral to the operations of the bank and her
length of service with the bank totaling 28 years speaks volumes
of her status as a regular employee of the bank. In fine, as a
regular employee, she is entitled to security of tenure; that is, her
services may be terminated only for a just or authorized cause.
This being in truth a case of illegal dismissal, it is no wonder then
that the Bank endeavored to the very end to establish loss of trust
and confidence and serious misconduct on the part of private
respondent but, as will be discussed later, to no avail.

G.R. No. 166859

April 12, 2011

REPUBLIC OF THE PHILIPPINES, Petitioner,

vs.
SANDIGANBAYAN (FIRST DIVISION), EDUARDO M. COJUANGCO,
JR., AGRICULTURAL CONSULTANCY SERVICES, INC.,
ARCHIPELAGO REALTY CORP., BALETE RANCH, INC., BLACK
STALLION RANCH, INC., CHRISTENSEN PLANTATION COMPANY,
DISCOVERY REALTY CORP., DREAM PASTURES, INC., ECHO
RANCH, INC., FAR EAST RANCH, INC., FILSOV SHIPPING
COMPANY, INC., FIRST UNITED TRANSPORT, INC., HABAGAT
REALTY DEVELOPMENT, INC., KALAWAKAN RESORTS, INC.,
KAUNLARAN AGRICULTURAL CORP., LABAYUG AIR TERMINALS,
INC., LANDAIR INTERNATIONAL MARKETING CORP., LHL CATTLE
CORP., LUCENA OIL FACTORY, INC., MEADOW LARK
PLANTATIONS, INC., METROPLEX COMMODITIES, INC., MISTY
MOUNTAIN AGRICULTURAL CORP., NORTHEAST CONTRACT
TRADERS, INC., NORTHERN CARRIERS CORP., OCEANSIDE
MARITIME ENTERPRISES, INC., ORO VERDE SERVICES, INC.,
PASTORAL FARMS, INC., PCY OIL MANUFACTURING CORP.,
PHILIPPINE TECHNOLOGIES, INC., PRIMAVERA FARMS, INC.,
PUNONG-BAYAN HOUSING DEVELOPMENT CORP., PURA
ELECTRIC COMPANY, INC., RADIO AUDIENCE DEVELOPERS
INTEGRATED ORGANIZATION, INC., RADYO PILIPINO CORP.,
RANCHO GRANDE, INC., REDDEE DEVELOPERS, INC., SAN
ESTEBAN DEVELOPMENT CORP., SILVER LEAF PLANTATIONS,
INC., SOUTHERN SERVICE TRADERS, INC., SOUTHERN STAR
CATTLE CORP., SPADE ONE RESORTS CORP., UNEXPLORED LAND
DEVELOPERS, INC., VERDANT PLANTATIONS, INC., VESTA
AGRICULTURAL CORP. AND WINGS RESORTS
CORP., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 169203
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
SANDIGANBAYAN (FIRST DIVISION), EDUARDO M. COJUANGCO,
JR., MEADOW LARK PLANTATIONS, INC., SILVER LEAF
PLANTATIONS, INC., PRIMAVERA FARMS, INC., PASTORAL
FARMS, INC., BLACK STALLION RANCH, INC., MISTY MOUNTAINS
AGRICULTURAL CORP., ARCHIPELAGO REALTY CORP.,
AGRICULTURAL CONSULTANCY SERVICES, INC., SOUTHERN STAR

CATTLE CORP., LHL CATTLE CORP., RANCHO GRANDE, INC.,

DREAM PASTURES, INC., FAR EAST RANCH, INC., ECHO RANCH,
INC., LAND AIR INTERNATIONAL MARKETING CORP., REDDEE
DEVELOPERS, INC., PCY OIL MANUFACTURING CORP., LUCENA
OIL FACTORY, INC., METROPLEX COMMODITIES, INC., VESTA
AGRICULTURAL CORP., VERDANT PLANTATIONS, INC.,
KAUNLARAN AGRICULTURAL CORP., ECJ & SONS AGRICULTURAL
ENTERPRISES, INC., RADYO PILIPINO CORP., DISCOVERY REALTY
CORP., FIRST UNITED TRANSPORT, INC., RADIO AUDIENCE
DEVELOPERS INTEGRATED ORGANIZATION, INC., ARCHIPELAGO
FINANCE AND LEASING CORP., SAN ESTEBAN DEVELOPMENT
CORP., CHRISTENSEN PLANTATION COMPANY, NORTHERN
CARRIERS CORP., VENTURE SECURITIES, INC., BALETE RANCH,
INC., ORO VERDE SERVICES, INC., and KALAWAKAN RESORTS,
INC., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 180702
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
EDUARDO M. COJUANGCO, JR., FERDINAND E. MARCOS, IMELDA
R. MARCOS, EDGARDO J. ANGARA,* JOSE C. CONCEPCION,
AVELINO V. CRUZ, EDUARDO U. ESCUETA, PARAJA G. HAYUDINI,
JUAN PONCE ENRILE, TEODORO D. REGALA, DANILO URSUA,
ROGELIO A. VINLUAN, AGRICULTURAL CONSULTANCY SERVICES,
INC., ANGLO VENTURES, INC., ARCHIPELAGO REALTY CORP., AP
HOLDINGS, INC., ARC INVESTMENT, INC., ASC INVESTMENT, INC.,
AUTONOMOUS DEVELOPMENT CORP., BALETE RANCH, INC.,
BLACK STALLION RANCH, INC., CAGAYAN DE ORO OIL COMPANY,
INC., CHRISTENSEN PLANTATION COMPANY, COCOA INVESTORS,
INC., DAVAO AGRICULTURAL AVIATION, INC., DISCOVERY
REALTY CORP., DREAM PASTURES, INC., ECHO RANCH, INC., ECJ
& SONS AGRI. ENT., INC., FAR EAST RANCH, INC., FILSOV
SHIPPING COMPANY, INC., FIRST MERIDIAN DEVELOPMENT,
INC., FIRST UNITED TRANSPORT, INC., GRANEXPORT
MANUFACTURING CORP., HABAGAT REALTY DEVELOPMENT,
INC., HYCO AGRICULTURAL, INC., ILIGAN COCONUT INDUSTRIES,
INC., KALAWAKAN RESORTS, INC., KAUNLARAN AGRICULTURAL
CORP., LABAYOG AIR TERMINALS, INC., LANDAIR
INTERNATIONAL MARKETING CORP., LEGASPI OIL COMPANY,
LHL CATTLE CORP., LUCENA OIL FACTORY, INC., MEADOW LARK
PLANTATIONS, INC., METROPLEX COMMODITIES, INC., MISTY
MOUNTAIN AGRICULTURAL CORP., NORTHEAST CONTRACT
TRADERS, INC., NORTHERN CARRIERS CORP., OCEANSIDE
MARITIME ENTERPRISES, INC., ORO VERDE SERVICES, INC.,
PASTORAL FARMS, INC., PCY OIL MANUFACTURING CORP.,
PHILIPPINE RADIO CORP., INC., PHILIPPINE TECHNOLOGIES, INC.,
PRIMAVERA FARMS, INC., PUNONG-BAYAN HOUSING
DEVELOPMENT CORP., PURA ELECTRIC COMPANY, INC., RADIO
AUDIENCE DEVELOPERS INTEGRATED ORGANIZATION, INC.,
RADYO PILIPINO CORP., RANCHO GRANDE, INC., RANDY ALLIED
36

Corpo Page 7 Cases

VENTURES, INC., REDDEE DEVELOPERS, INC., ROCKSTEEL

RESOURCES, INC., ROXAS SHARES, INC., SAN ESTEBAN
DEVELOPMENT CORP., SAN MIGUEL CORPORATION OFFICERS,
INC., SAN PABLO MANUFACTURING CORP., SOUTHERN LUZON
OIL MILLS, INC., SILVER LEAF PLANTATIONS, INC., SORIANO
SHARES, INC., SOUTHERN SERVICE TRADERS, INC., SOUTHERN
STAR CATTLE CORP., SPADE 1 RESORTS CORP., TAGUM
AGRICULTURAL DEVELOPMENT CORP., TEDEUM RESOURCES,
INC., THILAGRO EDIBLE OIL MILLS, INC., TODA HOLDINGS, INC.,
UNEXPLORED LAND DEVELOPERS, INC., VALHALLA PROPERTIES,
INC., VENTURES SECURITIES, INC., VERDANT PLANTATIONS, INC.,
VESTA AGRICULTURAL CORP. and WINGS RESORTS
CORP., Respondents.
JOVITO R. SALONGA, WIGBERTO E. TAADA, OSCAR F. SANTOS,
VIRGILIO M. DAVID, ROMEO C. ROYANDAYAN for himself and
for SURIGAO DEL SUR FEDERATION OF AGRICULTURAL
COOPERATIVES (SUFAC), MORO FARMERS ASSOCIATION OF
ZAMBOANGA DEL SUR (MOFAZS) and COCONUT FARMERS OF
SOUTHERN LEYTE COOPERATIVE (COFA-SL); PHILIPPINE RURAL
RECONSTRUCTION MOVEMENT (PRRM), represented by
CONRADO S. NAVARRO; COCONUT INDUSTRY REFORM
MOVEMENT, INC. (COIR) represented by JOSE MARIE T.
FAUSTINO; VICENTE FABE for himself and for PAMBANSANG
KILUSAN NG MGA SAMAHAN NG MAGSASAKA (PAKISAMA);
NONITO CLEMENTE for himself and for the NAGKAKAISANG
UGNAYAN NG MGA MALILIIT NA MAGSASAKA AT
MANGGAGAWA SA NIYUGAN (NIUGAN); DIONELO M. SUANTE,
SR. for himself and for KALIPUNAN NG MALILIIT NA
MAGNINIYOG NG PILIPINAS (KAMMPIL), INC., PetitionersIntervenors.

Specifically, the petitions and their particular reliefs are as follows:

DECISION

More than three years later, on August 23, 1991, the Republic
once more amended the complaint apparently to avert the
nullification of the writs of sequestration issued against properties
of Cojuangco. The amended complaint dated August 19, 1991,
designated as Third Amended Complaint [Expanded Per CourtApproved Plaintiffs Manifestation/Motion Dated Dec. 8,
1987],8 impleaded in addition to Cojuangco, President Marcos,
and First Lady Imelda R. Marcos nine other individuals, namely:
Edgardo J. Angara, Jose C. Concepcion, Avelino V. Cruz, Eduardo
U. Escueta, Paraja G. Hayudini, Juan Ponce Enrile, Teodoro D.
Regala, and Rogelio Vinluan, collectively, the ACCRA lawyers, and
Danilo Ursua, and 71 corporations.

BERSAMIN, J.:
For over two decades, the issue of whether the sequestered
sizable block of shares representing 20% of the outstanding
capital stock of San Miguel Corporation (SMC) at the time of
acquisition belonged to their registered owners or to the coconut
farmers has remained unresolved. Through this decision, the
Court aims to finally resolve the issue and terminate the
uncertainty that has plagued that sizable block of shares since
then.
These consolidated cases were initiated on various dates by the
Republic of the Philippines (Republic) via petitions for certiorari in
G.R. Nos. 1668591 and 169023,2 and via petition for review on
certiorari in 180702,3 the first two petitions being brought to
assail the following resolutions issued in Civil Case No. 0033-F by
the Sandiganbayan, and the third being brought to appeal the
adverse decision promulgated on November 28, 2007 in Civil Case
No. 0033-F by the Sandiganbayan.

(a) G.R. No. 166859 (petition for certiorari), to assail

the resolution promulgated on December 10,
20044denying the Republics Motion For Partial
Summary Judgment;
(b) G.R. No. 169023 (petition for certiorari), to nullify
and set aside, firstly, the resolution promulgated on
October 8, 2003,5 and, secondly, the resolution
promulgated on June 24, 20056 modifying the
resolution of October 8, 2003; and
(c) G.R. No. 180702 (petition for review on certiorari),
to appeal the decision promulgated on November 28,
2007.7
ANTECEDENTS
On July 31, 1987, the Republic commenced Civil Case No. 0033 in
the Sandiganbayan by complaint, impleading as defendants
respondent Eduardo M. Cojuangco, Jr. (Cojuangco) and 59
individual defendants. On October 2, 1987, the Republic amended
the complaint in Civil Case No. 0033 to include two additional
individual defendants. On December 8, 1987, the Republic further
amended the complaint through its Amended Complaint
[Expanded per Court-Approved Plaintiffs Manifestation/Motion
Dated Dec. 8, 1987] albeit dated October 2, 1987.

On March 24, 1999, the Sandiganbayan allowed the subdivision of

the complaint in Civil Case No. 0033 into eight complaints, each
pertaining to distinct transactions and properties and impleading
as defendants only the parties alleged to have participated in the
relevant transactions or to have owned the specific properties
involved. The subdivision resulted into the following subdivided
complaints, to wit:

Subdivided Complaint
1. Civil Case No.
0033-A
2. Civil Case No.
0033-B
3. Civil Case No.
0033-C
4. Civil Case No.
0033-D
5. Civil Case No.
0033-E
6. Civil Case No.
0033-F

hereafter
Subject
Matterto Cojuangco and the Cojuangco corporations or
companies shall be as Cojuangco, et al., unless the context
requires
individualization.
Anomalous Purchase and Use of First United
Bank (now
United Coconut Planters Bank)
The material averments of the Republics Third Amended
Creation of Companies Out of Coco Levy Funds
Complaint (Subdivided)10 in Civil Case No. 0033-F included the
following:
Creation and Operation of Bugsuk Project and Award of P998 Million Damages to
Agricultural Investors, Inc.
12. Defendant Eduardo Cojuangco, Jr., served as a
public officer during the Marcos administration. During
Disadvantageous Purchases and Settlement of the Accounts
of Oil
Mills
Out of CocoasLevy
the period
of his
incumbency
a public officer, he
Funds
acquired assets, funds, and other property grossly and
disproportionate to his salaries, lawful
Unlawful Disbursement and Dissipation of Coco Levy manifestly
Funds
income and income from legitimately acquired
property.
Acquisition of SMC shares of stock

7. Civil Case No.

0033-G

Acquisition of Pepsi-Cola

8. Civil Case No.

0033-H

Behest Loans and Contracts

In Civil Case No. 0033-F, the individual defendants were

Cojuangco, President Marcos and First Lady Imelda R. Marcos, the
ACCRA lawyers, and Ursua. Impleaded as corporate defendants
were Southern Luzon Oil Mills, Cagayan de Oro Oil Company,
Incorporated, Iligan Coconut Industries, Incorporated, San Pablo
Manufacturing Corporation, Granexport Manufacturing
Corporation, Legaspi Oil Company, Incorporated, collectively
referred to herein as the CIIF Oil Mills, and their 14 holding
companies, namely: Soriano Shares, Incorporated, Roxas Shares,
Incorporated, Arc Investments, Incorporated, Toda Holdings,
Incorporated, ASC Investments, Incorporated, Randy Allied
Ventures, Incorporated, AP Holdings, Incorporated, San Miguel
Corporation Officers, Incorporated, Te Deum Resources,
Incorporated, Anglo Ventures, Incorporated, Rock Steel
Resources, Incorporated, Valhalla Properties, Incorporated, and
First Meridian Development, Incorporated.

13. Having fully established himself as the undisputed

"coconut king" with unlimited powers to deal with the
coconut levy funds, the stage was now set for
Defendant Eduardo M. Cojuangco, Jr. to launch his
predatory forays into almost all aspects of Philippine
economic activity namely: softdrinks, agribusiness, oil
mills, shipping, cement manufacturing, textile, as more
fully described below.
14. Defendant Eduardo Cojuangco, Jr. taking undue
advantage of his association, influence and connection,
acting in unlawful concert with Defendants Ferdinand
E. Marcos and Imelda R. Marcos, and the individual
defendants, embarked upon devices, schemes and
stratagems, including the use of defendant
corporations as fronts, to unjustly enrich themselves at
the expense of Plaintiff and the Filipino people, such as
when he misused coconut levy funds to buy out
majority of the outstanding shares of stock of San
Miguel Corporation in order to control the largest agribusiness, foods and beverage company in the
Philippines, more particularly described as follows:

Allegedly, Cojuangco purchased a block of 33,000,000 shares of

SMC stock through the 14 holding companies owned by the CIIF
Oil Mills. For this reason, the block of 33,133,266 shares of SMC
stock shall be referred to as the CIIF block of shares.

(b) He entered SMC in early 1983 when he

bought most of the 20 million shares
Enrique Zobel owned in the Company. The
shares, worth $49 million, represented 20%
of SMC;

Also impleaded as defendants in Civil Case No. 0033-F were

several corporations9 alleged to have been under Cojuangcos
control and used by him to acquire the block of shares of SMC
stock totaling 16,276,879 at the time of acquisition (representing
approximately 20% percent of the capital stock of SMC). These
corporations are referred to as Cojuangco corporations or
companies, to distinguish them from the CIIF Oil Mills. Reference

(c) Later that year, Cojuangco also acquired

the Soriano stocks through a series of
complicated and secret agreements, a key
feature of which was a "voting trust
agreement" that stipulated that Andres, Jr.
or his heir would proxy over the vote of the

37

Corpo Page 7 Cases

shares owned by Soriano and Cojuangco.

This agreement, which accounted for 30%
of the outstanding shares of SMC and which
lasted for five (5) years, enabled the
Sorianos to retain management control of
SMC for the same period;
(d) Furthermore, in exchange for an SMC
investment of $45 million in non-voting
preferred shares in UCPB, Soriano served as
the vice-chairman of the supposed bank of
the coconut farmers, UCPB, and in return,
Cojuangco, for investing funds from the
coconut levy, was named vice-chairman of
SMC;
(e) Consequently, Cojuangco enjoyed the
privilege of appointing his nominees to the
SMC Board, to which he appointed key
members of the ACCRA Law Firm (herein
Defendants) instead of coconut farmers
whose money really funded the sale;
(f) The scheme of Cojuangco to use the
lawyers of the said Firm was revealed in a
document which he signed on 19 February
1983 entitled "Principles and Framework of
Mutual Cooperation and Assistance" which
governed the rules for the conduct of
management of SMC and the disposition of
the shares which he bought.
(g) All together, Cojuangco purchased 33
million shares of the SMC through the
following 14 holding companies:

a) Soriano Shares,
Inc.

1,249,163

b) ASC Investors,
Inc.

1,562,449

c) Roxas Shares,
Inc.

2,190,860

d) ARC Investors,
Inc.

4,431,798

e) Toda Holdings,
Inc.

3,424,618

f) AP Holdings, Inc.

1,580,997

g) Fernandez
Holdings, Inc.

838,837

h) SMC Officers
Corps., Inc.

2,385,987

i) Te Deum
Resources, Inc.

2,674,899

j) Anglo Ventures
Corp.

1,000.000

k) Randy Allied
Ventures, Inc.

1,000,000

l) Rock Steel
Resources, Inc.

2,432,625

m) Valhalla
Properties Ltd.,
Inc.

1,361,033

n) First Meridian
Development, Inc.

1,000,000

33,133,266
3.1. The same fourteen companies were in
turn owned by the following six (6) so-called
CIIF Companies which were:

38

a) San Pablo
Manufacturing Corp.

19%

b) Southern Luzon
Coconut Oil Mills, Inc.

11%

c) Granexport
Manufacturing
Corporation

19%

d) Legaspi Oil Company,

Inc.

18%

e) Cagayan de Oro Oil

Company, Inc.

18%

f) Iligan Coconut
Industries, Inc.

15%

Corpo Page 7 Cases

100%
(h) Defendant Corporations are but "shell"
corporations owned by interlocking
shareholders who have previously admitted
that they are just "nominee stockholders"
who do not have any proprietary interest
over the shares in their names. The
respective affidavits of the following,
namely: Jose C. Concepcion, Florentino M.
Herrera III, Teresita J. Herbosa, Teodoro D.
Regala, Victoria C. de los Reyes, Manuel R.
Roxas, Rogelio A. Vinluan, Eduardo U.
Escuete and Franklin M. Drilon, who were
all, at the time they became such
stockholders, lawyers of the Angara Abello
Concepcion Regala & Cruz (ACCRA) Law
Offices, the previous counsel who
incorporated said corporations, prove that
they were merely nominee stockholders
thereof.
(i) Mr. Eduardo M. Cojuangco, Jr., acquired
a total of 16,276,879 shares of San Miguel
Corporation from the Ayala group: of said
shares, a total of 8,138,440 (broken into
7,128,227 Class A and 1,010,213 Class B
shares) were placed in the names of
Meadowlark Plantations, Inc. (2,034,610)
and Primavera Farms, Inc. (4,069,220). The
Articles of Incorporation of these three
companies show that Atty. Jose C.
Concepcion of ACCRA owns 99.6% of the
entire outstanding stock. The same
shareholder executed three (3) separate
"Declaration of Trust and Assignment of
Subscription:" in favor of a BLANK assignee
pertaining to his shareholdings in Primavera
Farms, Inc., Silver Leaf Plantations, Inc. and
Meadowlark Plantations, Inc.
(k) The other respondent Corporations are
owned by interlocking shareholders who
are likewise lawyers in the ACCRA Law
Offices and had admitted their status as
"nominee stockholders" only.
(k-1) The corporations:
Agricultural Consultancy
Services, Inc., Archipelago Realty
Corporation, Balete Ranch, Inc.,
Black Stallion Ranch, Inc.,
Discovery Realty Corporation,

First United Transport, Inc.,

Kaunlaran Agricultural
Corporation, LandAir
International Marketing
Corporation, Misty Mountains
Agricultural Corporation,
Pastoral Farms, Inc., Oro Verde
Services, Inc. Radyo Filipino
Corporation, Reddee
Developers, Inc., Verdant
Plantations, Inc. and Vesta
Agricultural Corporation, were
incorporated by lawyers of
ACCRA Law Offices.
(k-2) With respect to PCY Oil
Manufacturing Corporation and
Metroplex Commodities, Inc.,
they are controlled respectively
by HYCO, Inc. and Ventures
Securities, Inc., both of which
were incorporated likewise by
lawyers of ACCRA Law Offices.
(k-3) The stockholders who
appear as incorporators in most
of the other Respondents
corporations are also lawyers of
the ACCRA Law Offices, who as
early as 1987 had admitted
under oath that they were acting
only as "nominee stockholders."
(l) These companies, which ACCRA Law
Offices organized for Defendant Cojuangco
to be able to control more than 60% of SMC
shares, were funded by institutions which
depended upon the coconut levy such as
the UCPB, UNICOM, United Coconut
Planters Assurance Corp. (COCOLIFE),
among others. Cojuangco and his ACCRA
lawyers used the funds from 6 large
coconut oil mills and 10 copra trading
companies to borrow money from the UCPB
and purchase these holding companies and
the SMC stocks. Cojuangco used $150
million from the coconut levy, broken down
as follows:

Amount
(in

Source

Purpose

million)

$22.26

Oil
Mills

equity in
holding
companies

$65.6

Oil
Mills

loan to
holding
companies

UCPB

loan to
holding
companies
[164]

$61.2

The entire amount, therefore, came from

the coconut levy, some passing through the
Unicom Oil mills, others directly from the
UCPB.
(m) With his entry into the said Company, it
began to get favors from the Marcos
government, significantly the lowering of
the excise taxes (sales and specific taxes) on
beer, one of the main products of SMC.
(n) Defendant Cojuangco controlled SMC
from 1983 until his co-defendant Marcos
was deposed in 1986.
(o) Along with Cojuangco, Defendant Enrile
and ACCRA also had interests in SMC,
broken down as follows:
% of SMC
Cojuangco
31.3%

Owner
coconut levy
money

18%

companies linked
to Cojuangco

5.2%

government

5.2%

SMC employee
retirement fund

Enrile &
ACCRA

39

1.8%

Enrile

1.8%

Jaka Investment
Corporation

1.8%

ACCRA Investment
Corporation

Corpo Page 7 Cases

15. Defendants Eduardo Cojuangco, Jr., Edgardo J.

Angara, Jose C. Concepcion, Teodoro Regala, Avelino
Cruz, Rogelio Vinluan, Eduardo U. Escueta and Paraja
G. Hayudini of the Angara Concepcion Cruz Regala and
Abello law offices (ACCRA) plotted, devised, schemed,
conspired and confederated with each other in setting
up, through the use of coconut levy funds, the financial
and corporate framework and structures that led to
the establishment of UCPB, UNICOM, COCOLIFE,
COCOMARK. CIC, and more than twenty other coconut
levy-funded corporations, including the acquisition of
San Miguel Corporation shares and its
institutionalization through presidential directives of
the coconut monopoly. Through insidious means and
machinations, ACCRA, being the wholly-owned
investment arm, ACCRA Investments Corporation,
became the holder of approximately fifteen million
shares representing roughly 3.3% of the total
outstanding capital stock of UCPB as of 31 March 1987.
This ranks ACCRA Investments Corporation number 44
among the top 100 biggest stockholders of UCPB which
has approximately 1,400,000 shareholders. On the
other hand, the corporate books show the name
Edgardo J. Angara as holding approximately 3,744
shares as of February, 1984.
16. The acts of Defendants, singly or collectively,
and/or in unlawful concert with one another,
constitute gross abuse of official position and
authority, flagrant breach of public trust and fiduciary
obligations, brazen abuse of right and power, unjust
enrichment, violation of the constitution and laws of
the Republic of the Philippines, to the grave and
irreparable damage of Plaintiff and the Filipino
people.11
On June 17, 1999, Ursua and Enrile each filed his separate Answer
with Compulsory Counterclaims.
Before filing their answer, the ACCRA lawyers sought their
exclusion as defendants in Civil Case No. 0033, averring that even
as they admitted having assisted in the organization and
acquisition of the companies included in Civil Case No. 0033, they
had acted as mere nominees-stockholders of corporations
involved in the sequestration proceedings pursuant to office
practice. After the Sandiganbayan denied their motion, they
elevated their cause to this Court, which ultimately ruled in their
favor in the related cases of Regala, et al. v. Sandiganbayan, et
al.12 and Hayudini v. Sandiganbayan, et al.,13 as follows:
WHEREFORE, IN VIEW OF THE FOREGOING, the Resolutions of
respondent Sandiganbayan (First Division) promulgated on March

18, 1992 and May 21, 1992 are hereby ANNULLED and SET ASIDE.
Respondent Sandiganbayan is further ordered to exclude
petitioners Teodoro D. Regala, Edgardo J. Angara, Avelino V. Cruz,
Jose C. Concepcion, Victor P. Lazatin, Eduardo U. Escueta and
Paraja G. Hayudini as parties-defendants in SB Civil Case No. 0033
entitled "Republic of the Philippines v. Eduardo Cojuangco, Jr., et
al."
SO ORDERED.
Conformably with the ruling, the Sandiganbayan excluded the
ACCRA lawyers from the case on May 24, 2000.14
On June 23, 1999, Cojuangco filed his Answer to the Third
Amended Complaint,15 averring the following affirmative
defenses, to wit:
7.00. The Presidential Commission on Good
Government (PCGG) is without authority to act in the
name and in behalf of the "Republic of the
Philippines".
7.01. As constituted in E.O. No. 1, the PCGG was
composed of "Minister Jovito R. Salonga, as Chairman,
Mr. Ramon Diaz, Mr. Pedro L. Yap, Mr. Raul Daza and
Ms. Mary Concepcion Bautista, as Commissioners".
When the complaint in the instant case was filed,
Minister Salonga, Mr. Pedro L. Yap and Mr. Raul Daza
had already left the PCGG. By then the PCGG had
become functus officio.
7.02. The Sandiganbayan has no jurisdiction over the
complaint or over the transaction alleged in the
complaint.
7.03. The complaint does not allege any cause of
action.
7.04. The complaint is not brought in the name of the
real parties in interest, assuming any cause of action
exists.
7.05. Indispensable and necessary parties have not
been impleaded.
7.06. There is improper joinder of causes of action
(Sec. 6, Rule 2, Rules of Civil Procedure). The causes of
action alleged, if any, do not arise out of the same
contract, transaction or relation between the parties,

nor are they simply for money, or are of the same

nature and character.
7.07. There is improper joinder of parties defendants
(Sec. 11, Rule 3, Rules of Civil Procedure).The causes of
action alleged as to defendants, if any, do not involve a
single transaction or a related series of transactions.
Defendant is thus compelled to litigate in a suit
regarding matters as to which he has no involvement.
The questions of fact and law involved are not
common to all defendants.
7.08. In so far as the complaint seeks the forfeiture of
assets allegedly acquired by defendant "manifestly out
of proportion to their salaries, to their other lawful
income and income from legitimately acquired
property," under R.A. 1379, the "previous inquiry
similar to preliminary investigation in criminal cases"
required to be conducted under Sec. 2 of that law
before any suit for forfeiture may be instituted, was
not conducted; as a consequence, the Court may not
acquire and exercise jurisdiction over such a suit.
7.09. The complaint in the instant suit was filed July 31,
1987, or within one year before the local election held
on January 18, 1988. If this suit involves an action
under R.A. 1379, its institution was also in direct
violation of Sec. 2, R.A. No. 1379.
7.10. E.O. No. 1, E.O. No. 2, E.O. No. 14 and 14-A, are
unconstitutional. They violate due process, equal
protection, ex post facto and bill of attainder
provisions of the Constitution.
7.11. Acts imputed to defendant which he had
committed were done pursuant to law and in good
faith.
The Cojuangco corporations Answer16 had the same tenor as the
Answer of Cojuangco.
In his own Answer with Compulsory Counterclaims,17 Ursua
averred affirmative and special defenses.
In his own Answer with Compulsory Counterclaims,18 Enrile
specifically denied the material averments of the Third Amended
Complaint and asserted affirmative defenses.
The CIIF Oil Mills Answer19 also contained affirmative defenses.
40

Corpo Page 7 Cases

On December 20, 1999, the Sandiganbayan scheduled the pretrial in Civil Case No. 0033-F on March 8, 2000, giving the parties
sufficient time to file their Pre-Trial Briefs prior to that date.
Subsequently, the parties filed their respective Pre-Trial Briefs, as
follows: Cojuangco and the Cojuangco corporations, jointly on
February 14, 2000; Enrile, on March 1, 2000; the CIIF Oil Mills, on
March 3, 2000; and Ursua, on March 6, 2000. However, the
Republic sought several extensions to file its own Pre-Trial Brief,
and eventually did so on May 9, 2000.
In the meanwhile, some non-parties sought to intervene. On
November 22, 1999, GABAY Foundation, Inc. (GABAY) filed its
complaint-in-intervention. On February 24, 2000, the Philippine
Coconut Producers Federation, Inc., Maria Clara L. Lobregat, Jose
R. Eleazar, Jr., Domingo Espina, Jose Gomez, Celestino Sabate,
Manuel del Rosario, Jose Martinez, Jr., and Eladio Chato
(collectively referred to as COCOFED, considering that the cointervenors were its officers) also sought to intervene, citing the
October 2, 1989 ruling in G.R. No. 75713 entitled COCOFED v.
PCGG whereby the Court recognized COCOFED as the "private
national association of coconut producers certified in 1971 by the
PHILCOA as having the largest membership among such
producers" and as such "entrusted it with the task of maintaining
continuing liaison with the different sectors of the industry, the
government and its mass base." Pending resolution of its motion
for intervention, COCOFED filed a Pre-Trial Brief on March 2,
2000.
On May 24, 2000, the Sandiganbayan denied GABAYs
intervention without prejudice because it found "that the
allowance of GABAY to enter under the special character in which
it presents itself would be to open the doors to other groups of
coconut farmers whether of the same kind or of any other kind
which could be considered a sub-class or a sub-classification of
the coconut planters or the coconut industry of this country."20
COCOFEDs intervention as defendant was allowed on May 24,
2000, however, because "the position taken by the COCOFED is
relevant to the proceedings herein, if only to state that there is a
special function which the COCOFED and the coconut planters
have in the matter of the coconut levy funds and the utilization of
those funds, part of which is in dispute in the instant matter."21
The pre-trial was actually held on May 24, 2000,22 during which
the Sandiganbayan sought clarification from the parties,
particularly the Republic, on their respective positions, but at the
end it found the clarifications "inadequately" enlightening.
Nonetheless, the Sandiganbayan, not disposed to reset,
terminated the pre-trial:
xxx primarily because the Court is given a very clear impression
that the plaintiff does not know what documents will be or

whether they are even available to prove the causes of action in

the complaint. The Court has pursued and has exerted every form
of inquiry to see if there is a way by which the plaintiff could
explain in any significant particularity the acts and the evidence
which will support its claim of wrong-doing by the defendants.
The plaintiff has failed to do so.23
The following material portions of the pre-trial order24 are quoted
to provide a proper perspective of what transpired during the pretrial, to wit:
Upon oral inquiry from the Court, the issues which were being
raised by plaintiff appear to have been made on a very generic
character. Considering that any claim for violation or breach of
trust or deception cannot be made on generic statements but
rather by specific acts which would demonstrate fraud or breach
of trust or deception, together with the evidence in support
thereof, the same was not acceptable to the Court.
The plaintiff through its designated counsel for this morning, Atty.
Dennis Taningco, has represented to this Court that the annexes
to its pre-trial brief, more particularly the findings of the COA in its
various examinations, copies of which COA reports are attached
to the pre-trial brief, would demonstrate the wrong, the act or
omission attributed to the defendants or to several of them and
the basis, therefore, for the relief that plaintiff seeks in its
complaint. It would appear, however, that the plaintiff through its
counsel at this time is not prepared to go into the specifics of the
identification of these wrongs or omissions attributed to plaintiff.
The Court has reminded the plaintiff that a COA report proves
itself only in proceedings where the issue arises from a review of
the accountability of particular officers and, therefore, to show
the existence of shortages or deficiencies in an examination
conducted for that purpose, provided that such a report is
accompanied by its own working papers and other supporting
documents.
In civil cases such as this, a COA report would not have the same
independent probative value since it is not a review of the
accountability of public officers for public property in their
custody as accountable officers. It has been the stated view of this
Court that a COA report, to be of significant evidence, may itself
stand only on the basis of the supporting documents that upon
which it is based and upon an analysis made by those who are
competent to do so. The Court, therefore, sought a more specific
statement from plaintiff as to what these documents were and
which of them would prove a particular act or omission or a series
of acts or omissions purportedly committed by any, by several or
by all of the defendants in any particular stage of the chain of
alleged wrong-doing in this case.

The plaintiff was not in a position to do so.

The Court has remonstrated with the plaintiff, insofar as its
inadequacy is concerned, primarily because this case was set for
pre-trial as far back as December and has been reset from its
original setting, with the undertaking by the plaintiff to prepare
itself for these proceedings. It appears to this Court at this time
that the failure of the plaintiff to have available responses and
specific data and documents at this stage is not because the
matter has been the product of oversight or notes and papers left
elsewhere; rather, the agitation of this Court arises from the fact
that at this very stage, the plaintiff through its counsel does not
know what these documents are, where these documents will be
and is still anticipating a submission or a delivery thereof by COA
at an undetermined time. The justification made by counsel for
this stance is that this is only pre-trial and this information and
the documents are not needed yet.
The Court is not prepared to postpone the pre-trial anew
primarily because the Court is given a very clear impression that
the plaintiff does not know what documents will be or whether
they are even available to prove the causes of action in the
complaint. The Court has pursued and has exerted every form of
inquiry to see if there is a way by which the plaintiff could explain
in any significant particularity the acts and the evidence which will
support its claim of wrong-doing by the defendants. The plaintiff
has failed to do so.
Defendants Cojuangco have come back and reiterated their
previous inquiry as to the statement of the cause of action and
the description thereof. While the Court acknowledges that
logically, that statement along that line would be primary, the
Court also recognizes that sometimes the phrasing of the issue
may be determined or may arise after a statement of the
evidence is determined by this Court because the Court can put
itself in a position of more clearly and perhaps more accurately
stating what the issues are. The Pre-Trial Order, after all, is not so
much a reflection of merely separate submissions by all of the
parties involved, witnesses by the Court, as to what the subject
matter of litigation will be, including the determination of what
matters of fact remain unresolved. At this time, the plaintiff has
not taken the position on any factual statement or any piece of
evidence which can be subject of admission or denial, nor any
specifics of any act which could be disputed by the defendants;
what plaintiff through counsel has stated are general conclusions,
general statements of abuse and misuse and opportunism.
After an extended break requested by some of the parties, the
sessions were resumed and nothing anew arose from the plaintiff.
The plaintiff sought fifteen (15) days to file a reply to the
comments and observations made by defendant Cojuangco to the
pre-trial brief of the plaintiff. This Court denied this Request since
41

Corpo Page 7 Cases

the submissions in preparation for pre-trial are not litigious or

contentious matters. They are mere assertions or positions which
may or may not be meritorious depending upon the view of the
Court of the entire case and if useful at the pre-trial. At this stage,
the plaintiff then reiterated its earlier request to consider the pretrial terminated. The Court sought the positions of the other
parties, whether or not they too were prepared to submit their
respective positions on the basis of what was before the Court at
pre-trial. All of the parties, in the end, have come to an agreement
that they were submitting their own respective positions for
purpose of pre-trial on the basis of the submissions made of
record.
With all of the above, the pre-trial is now deemed terminated.
This Order has been overly extended simply because there has
been a need to put on record all of the events that have taken
place leading to the conclusions which were drawn herein.
The parties have indicated a desire to make their submissions
outside of trial as a consequence of this terminated pre-trial, with
the plea that the transcript of the proceedings this morning be
made available to them, so that they may have the basis for
whatever assertions they will have to make either before this
Court or elsewhere. The Court deems the same reasonable and
the Court now gives the parties fifteen (15) days after notice to
them that the transcript of stenographic notes of the proceedings
herein are complete and ready for them to be retrieved. Settings
for trial or for any other proceeding hereafter will be fixed by this
Court either upon request of the parties or when the Court itself
shall have determined that nothing else has to be done.
The Court has sought confirmation from the parties present as to
the accuracy of the recapitulation herein of the proceedings this
morning and the Court has gotten assent from all of the parties.
xxx
SO ORDERED.25
In the meanwhile, the Sandiganbayan, in order to conform with
the ruling in Presidential Commission on Good Government v.
Cojuangco, et al.,26 resolved COCOFEDs Omnibus Motion (with
prayer for preliminary injunction) relative to who should vote the
UCPB shares under sequestration, holding as follows: 27
In the light of all of the above, the Court submits itself to
jurisprudence and with the statements of the Supreme Court in
G.R. No. 115352 entitled Enrique Cojuangco, Jr., et al. vs. Jaime
Calpo, et al. dated January 27, 1997, as well as the resolution of
the Supreme Court promulgated on January 27, 1999 in the case

of PCGG vs. Eduardo Cojuangco, Jr., et al., G.R. No. 13319 which
included the Sandiganbayan as one of the respondents. In these
two cases, the Supreme Court ruled that the voting of
sequestered shares of stock is governed by two considerations,
namely:
1. whether there is prima facie evidence showing that
the said shares are ill-gotten and thus belong to the
State; and
2. whether there is an imminent danger of dissipation
thus necessitating their continued sequestration and
voting by the PCGG while the main issue pends with
the Sandiganbayan.
xxx

xxx

xxx

In view hereof, the movants COCOFED, et al and Ballares, et al. as

well as Eduardo Cojuangco, et al. who were acknowledged to be
registered stockholders of the UCPB are authorized, as are all
other registered stockholders of the United Coconut Planters
Bank, until further orders from this Court, to exercise their rights
to vote their shares of stock and themselves to be voted upon in
the United Coconut Planters Bank (UCPB) at the scheduled
Stockholders Meeting on March 6, 2001 or on any subsequent
continuation or resetting thereof, and to perform such acts as will
normally follow in the exercise of these rights as registered
stockholders.
xxx

xxx

xxx

Consequently, on March 1, 2001, the Sandiganbayan issued a writ

of preliminary injunction to enjoin the PCGG from voting the
sequestered shares of stock of the UCPB.
On July 25, 2002, before Civil Case No. 0033-F could be set for
trial, the Republic filed a Motion for Judgment on the Pleadings
and/or for Partial Summary Judgment (Re: Defendants CIIF
Companies, 14 Holding Companies and COCOFED, et al.).28
Cojuangco, Enrile, and COCOFED separately opposed the motion.
Ursua adopted COCOFEDs opposition.
Thereafter, the Republic likewise filed a Motion for Partial
Summary Judgment [Re: Shares in San Miguel Corporation
Registered in the Respective Names of Defendant Eduardo M.
Cojuangco, Jr. and the Defendant Cojuangco Companies].29
Cojuangco, et al. opposed the motion,30 after which the Republic
submitted its reply.31

On February 23, 2004, the Sandiganbayan issued an order,32 in

which it enumerated the admitted facts or facts that appeared to
be without substantial controversy in relation to the Republics
Motion for Judgment on the Pleadings and/or for Partial Summary
Judgment [Re: Defendants CIIF Companies, 14 Holding Companies
and COCOFED, et al.].
Commenting on the order of February 23, 2004, Cojuangco, et al.
specified the items they considered as inaccurate, but particularly
interposed no objection to item no. 17 (to the extent that item
no. 17 stated that Cojuangco had disclaimed any interest in the
CIIF block SMC shares of stock registered in the names of the 14
corporations listed in item no. 1 of the order).33
The Republic also filed its Comment,34 but COCOFED denied the
admitted facts summarized in the order of February 23, 2004.35
Earlier, on October 8, 2003,36 the Sandiganbayan resolved the
various pending motions and pleadings relative to the writs of
sequestration issued against the defendants, disposing:
IN VIEW OF THE FOREGOING, the Writs of Sequestration Nos. (a)
86-0042 issued on April 8, 1986, (b) 86-0062 issued on April 21,
1986, (c) 86-0069 issued on April 22, 1986, (d) 86-0085 issued on
May 9, 1986, (e) 86-0095 issued on May 16, 1986, (f) 86-0096
dated May 16, 1986, (g) 86-0097 issued on May 16, 1986, (h) 860098 issued on May 16, 1986 and (i) 87-0218 issued on May 27,
1987 are hereby declared automatically lifted for being null and
void.
Despite the lifting of the writs of sequestration, since the Republic
continues to hold a claim on the shares which is yet to be
resolved, it is hereby ordered that the following shall be
annotated in the relevant corporate books of San Miguel
Corporation:
(1) any sale, pledge, mortgage or other disposition of
any of the shares of the Defendants Eduardo
Cojuangco, et al. shall be subject to the outcome of
this case;
(2) the Republic through the PCGG shall be given
twenty (20) days written notice by Defendants
Eduardo Cojuangco, et al. prior to any sale, pledge,
mortgage or other disposition of the shares;

Philippines, subject to disposition only upon further

orders of this Court; and
(4) any cash dividends that are declared on the shares
shall be placed in escrow with the Land Bank of the
Philippines, subject to disposition only upon further
orders of this Court. If in case stock dividends are
declared, the conditions on the sale, pledge, mortgage
and other disposition of any of the shares as abovementioned in conditions 1, 2 and 3, shall likewise
apply.
In so far as the matters raised by Defendants Eduardo Cojuangco,
et al. in their "Omnibus Motion" dated September 23, 1996 and
"Reply to PCGGs Comment/Opposition with Motion to Order
PCGG to Complete Inventory, to Nullify Writs of Sequestration
and to Enjoin PCGG from Voting Sequestered Shares of Stock"
dated January 3, 1997, considering the above conclusion, this
Court rules that it is no longer necessary to delve into the matters
raised in the said Motions.
SO ORDERED.37
Cojuangco, et al. moved for the modification of the
resolution,38 praying for the deletion of the conditions for
allegedly restricting their rights. The Republic also sought
reconsideration of the resolution.39
Eventually, on June 24, 2005, the Sandiganbayan denied both
motions, but reduced the restrictions thuswise:
WHEREFORE, the "Motion for Reconsideration (Re: Resolution
dated September 17, 2003 Promulgated on October 8, 2003)"
dated October 24, 2003 of Plaintiff Republic is hereby DENIED for
lack of merit. As to the "Motion for Modification (Re: Resolution
Promulgated on October 8, 2003)" dated October 22, 2003, the
same is hereby DENIED for lack of merit. However, the restrictions
imposed by this Court in its Resolution dated September 17, 2003
and promulgated on October 8, 2003 shall now read as follows:
"Despite the lifting of the writs of sequestration, since the
Republic continues to hold a claim on the shares which is yet to be
resolved, it is hereby ordered that the following shall be
annotated in the relevant corporate books of San Miguel
Corporation:

"b) the Republic through the PCGG shall be given twenty (20) days
written notice by Defendants Eduardo Cojuangco, et al. prior to
any sale, pledge, mortgage or other disposition of the shares.
"SO ORDERED."40
Pending resolution of the motions relative to the lifting of the
writs of sequestration, SMC filed a Motion for Intervention with
attached Complaint-in-Intervention,41 alleging, among other
things, that it had an interest in the matter in dispute between
the Republic and defendants CIIF Companies for being the owner
by purchase of a portion (i.e., 25,450,000 SMC shares covered by
Stock Certificate Nos. A0004129 and B0015556 of the so-called
"CIIF block of SMC shares of stock" sought to be recovered as
alleged ill-gotten wealth).
Although Cojuangco, et al. interposed no objection to SMCs
intervention, the Republic opposed,42 averring that the
intervention would be improper and was a mere attempt to
litigate anew issues already raised and passed upon by the
Supreme Court. COCOFED similarly opposed SMCs
intervention,43 and Ursua adopted its opposition.
On May 6, 2004, the Sandiganbayan denied SMCs motion to
intervene.44 SMC sought reconsideration,45 and its motion to that
effect was opposed by COCOFED and the Republic.
On May 7, 2004, the Sandiganbyan granted the Republics Motion
for Judgment on the Pleadings and/or Partial Summary Judgment
(Re: Defendants CIIF Companies, 14 Holding Companies and
COCOFED, et al.) and rendered a Partial Summary Judgment,46 the
dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing, we hold that:
The Motion for Partial Summary Judgment (Re: Defendants CIIF
Companies, 14 Holding Companies and Cocofed, et al.) filed by
Plaintiff is hereby GRANTED. ACCORDINGLY, THE CIIF COMPANIES,
NAMELY:
1. Southern Luzon Coconut Oil Mills (SOLCOM);
2. Cagayan de Oro Oil Co., Inc. (CAGOIL);
3. Iligan Coconut Industries, Inc. (ILICOCO);

(3) in the event of sale, mortgage or other disposition

of the shares, by the Defendants Cojuangco, et al., the
consideration therefore, whether in cash or in kind,
shall be placed in escrow with Land Bank of the
42

Corpo Page 7 Cases

"a) any sale, pledge, mortgage or other disposition of any of the

shares of the Defendants Eduardo Cojuangco, et al. shall be
subject to the outcome of this case.

4. San Pablo Manufacturing Corp. (SPMC);

5. Granexport Manufacturing Corp. (GRANEX); and

6. Legaspi Oil Co., Inc. (LEGOIL),

SMC according to plaintiff or 31.3% of said capital stock according

to COCOFED, et al. and Ballares, et al.

AS WELL AS THE 14 HOLDING COMPANIES, NAMELY:

SO ORDERED.47
1. Soriano Shares, Inc.;
2. ACS Investors, Inc.;
3. Roxas Shares, Inc.;
4. Arc Investors, Inc.;

In the same resolution of May 7, 2004, the Sandiganbayan

considered the Motions to Dismiss filed by Cojuangco, et al. on
August 2, 2000 and by Enrile on September 4, 2000 as overtaken
by the Republics Motion for Judgment on the Pleadings and/or
Partial Summary Judgment.48
On May 25, 2004, Cojuangco, et al. filed their Motion for
Reconsideration.49

5. Toda Holdings, Inc.;

6. AP. Holdings, Inc.;
7. Fernandez Holdings, Inc.;
8. SMC Officers Corps. Inc.;
9. Te Deum Resources, Inc.;
10. Anglo Ventures, Inc.;
11. Randy Allied Ventures, Inc.;
12. Rock Steel Resources, Inc.;
13. Valhalla Properties Ltd., Inc.; and

COCOFED filed its so-called Class Action Omnibus Motion: (a)

Motion to Dismiss for Lack of Subject Matter Jurisdiction and
Alternatively, (b) Motion for Reconsideration dated May 26,
2004.50
The Republic submitted its Consolidated Comment.51
Relative to the resolution of May 7, 2004, the Sandiganbayan
issued its resolution of December 10, 2004,52denying the
Republics Motion for Partial Summary Judgment (Re: Shares in
San Miguel Corporation Registered in the Respective Names of
Defendants Eduardo M. Cojuangco, Jr. and the defendant
Cojuangco Companies) upon the following reasons:
In the instant case, a circumspect review of the records show that
while there are facts which appear to be undisputed, there are
also genuine factual issues raised by the defendants which need
to be threshed out in a full-blown trial. Foremost among these
issues are the following:

Let the trial of this Civil Case proceed with respect to the issues
which have not been disposed of in this partial Summary
Judgment, including the determination of whether the CIIF Block
of SMC Shares adjudged to be owned by the Government
represents 27% of the issued and outstanding capital stock of
43

Corpo Page 7 Cases

Answers to these issues are not evident from the submissions of

the plaintiff and must therefore be proven through the
presentation of relevant and competent evidence during trial. A
perusal of the subject Motion shows that the plaintiff hastily
derived conclusions from the defendants statements in their
previous pleadings although such conclusions were not supported
by categorical facts but only mere inferences. In the Reply dated
October 2, 2003, the plaintiff construed the supposed meaning of
the phrase "various sources" (referring to the source of defendant
Cojuangcos funds which were used to acquire the subject SMC
shares), which plaintiff said was quite obvious from the
defendants admission in his Pre-Trial Brief, which we quote:
"According to Cojuangcos own Pre-Trial Brief, these so-called
various sources, i.e., the sources from which he obtained the
funds he claimed to have used in buying the 20% SMC shares are
not in fact various as he claims them to be. He says he obtained
loans from UCPB and advances from the CIIF Oil Mills. He even
goes as far as to admit that his only evidence in this case would
have been records of UCPB and a representative of the CIIF Oil
Mills obviously the records of UCPB relate to the loans that
Cojuangco claims to have obtained from UCPB of which he was
President and CEO while the representative of the CIIF Oil Mills
will obviously testify on the advances Cojuangco obtained from
CIIF Oil Mills of which he was also the President and CEO."
From the foregoing premises, plaintiff went on to conclude that:

14. First Meridian Development, Inc.

AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION (SMC)
SHARES OF STOCK TOTALING 33,133,266 SHARES AS OF 1983
TOGETHER WITH ALL DIVIDENDS DECLARED, PAID AND ISSUED
THEREON AS WELL AS ANY INCREMENTS THERETO ARISING
FROM, BUT NOT LIMITED TO, EXERCISE OF PRE-EMPTIVE RIGHTS
ARE DECLARED OWNED BY THE GOVERNMENT IN-TRUST FOR ALL
THE COCONUT FARMERS AND ORDERED RECONVEYED TO THE
GOVERNMENT.

4) Whether or not defendant Cojuangco took

advantage of his position and/or close ties with then
President Marcos to obtain favorable concessions or
exemptions from the usual financial requirements
from the lending banks and/or coco-levy funded
companies, in order to raise the funds to acquire the
disputed SMC shares; and if so, what are these
favorable concessions or exemptions?

1) What are the "various sources" of funds, which the

defendant Cojuangco and his companies claim they
utilized to acquire the disputed SMC shares?
2) Whether or not such funds acquired from alleged
"various sources" can be considered coconut levy
funds;
3) Whether or not defendant Cojuangco had indeed
served in the governing bodies of PC, UCPB and/or CIIF
Oil Mills at the time the funds used to purchase the
SMC shares were obtained such that he owed a
fiduciary duty to render an account to these entities as
well as to the coconut farmers;

"These admissions of defendant Cojuangco are outright

admissions that he (1) took money from the bank entrusted by
law with the administration of coconut levy funds and (2) took
more money from the very corporations/oil mills in which part of
those coconut levy funds (the CIIF) was placed treating the
funds of UCPB and the CIIF as his own personal capital to buy his
SMC shares."
We cannot agree with the plaintiffs contention that the
defendants statements in his Pre-Trial Brief regarding the
presentation of a possible CIIF witness as well as UCPB records,
can already be considered as admissions of the defendants
exclusive use and misuse of coconut levy funds to acquire the
subject SMC shares and defendant Cojuangcos alleged taking
advantage of his positions to acquire the subject SMC shares.

Moreover, in ruling on a motion for summary judgment, the court

"should take that view of the evidence most favorable to the
party against whom it is directed, giving such party the benefit of
all inferences." Inasmuch as this issue cannot be resolved merely
from an interpretation of the defendants statements in his brief,
the UCPB records must be produced and the CIIF witness must be
heard to ensure that the conclusions that will be derived have
factual basis and are thus, valid.

WHEREFORE, the MOTION FOR EXECUTION OF PARTIAL

SUMMARY JUDGMENT (RE: CIIF BLOCK OF SMC SHARES OF
STOCK) dated August 8, 2005 of the plaintiff is hereby denied for
lack of merit. However, this Court orders the severance of this
particular claim of Plaintiff. The Partial Summary Judgment dated
May 7, 2004 is now considered a separate final and appealable
judgment with respect to the said CIIF Block of SMC shares of
stock.

7. Fernandez Holdings, Inc.;

WHEREFORE, in view of the forgoing, the Motion for Partial

Summary Judgment dated July 11, 2003 is hereby DENIED for lack
of merit.

The Partial Summary Judgment rendered on May 7, 2004 is

modified by deleting the last paragraph of the dispositive portion
which will now read, as follows:

11. Randy Allied Ventures, Inc.;

SO ORDERED.

WHEREFORE, in view of the foregoing, we hold that:

Thereafter, on December 28, 2004, the Sandiganbayan resolved

the other pending motions,53 viz:

The Motion for Partial Summary Judgment (Re: Defendants CIIF

Companies, 14 Holding Companies and Cocofed, et al.) filed by
Plaintiff is hereby GRANTED. ACCORDINGLY, THE CIIF COMPANIES,
NAMELY:

WHEREFORE, in view of the foregoing, the Motion for

Reconsideration dated May 25, 2004 filed by defendant Eduardo
M. Cojuangco, Jr., et al. and the Class Action Omnibus Motion: (a)
Motion to Dismiss for Lack of Subject Matter Jurisdiction and
Alternatively, (b) Motion for Reconsideration dated May 26, 2004
filed by COCOFED, et al. and Ballares, et al. are hereby DENIED for
lack of merit.

1. Southern Coconut Oil Mills (SOLCOM);

2. Cagayan de Oro Oil Co., Inc. (CAGOIL);
3. Iligan Coconut Industries, Inc. (ILICOCO);

SO ORDERED.54

On March 23, 2006, the Sandiganbayan granted the motions to

set for trial and set the trial on August 8, 10, and 11, 2006.59
In the meanwhile, on August 9, 2005, the Republic filed a Motion
for Execution of Partial Summary Judgment (re: CIIF block of SMC
Shares of Stock),60 contending that an execution pending appeal
was justified because any appeal by the defendants of the Partial
Summary Judgment would be merely dilatory.

12. Rock Steel Resources, Inc.;

13. Valhalla Properties Ltd., Inc.; and
14. First Meridian Development, Inc.
AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION (SMC)
SHARES OF STOCK TOTALING 33,133,266 SHARES AS OF 1983
TOGETHER WITH ALL DIVIDENDS DECLARED, PAID AND ISSUED
THEREON AS WELL AS ANY INCREMENTS THERETO ARISING
FROM, BUT NOT LIMITED TO, EXERCISE OF PRE-EMPTIVE RIGHTS
ARE DECLARED OWNED BY THE GOVERNMENT IN TRUST FOR ALL
THE COCONUT FARMERS AND ORDERED RECONVEYED TO THE
GOVERNMENT.

6. Legaspi Oil Co., Inc. (LEGOIL),

SO ORDERED.63

AS WELL AS THE 14 HOLDING COMPANIES, NAMELY:

1. Soriano Shares, Inc.;
2. ACS Investors, Inc.;
3. Roxas Shares, Inc.;

The Sandiganbayan denied the Republics Motion for Execution of

Partial Summary Judgment (re: CIIF block of SMC Shares of
Stock),62 to wit:

4. Arc Investors, Inc.;

5. Toda Holdings, Inc.;
6. AP Holdings, Inc.;

Corpo Page 7 Cases

10. Anglo Ventures, Inc.;

(GRANEX); and

5. Granexport Manufacturing Corp.

Cojuangco, et al. opposed the motion.61

44

9. Te Deum Resources, Inc.;

The aforementioned Partial Summary Judgment is now deemed a

separate appealable judgment which finally disposes of the
ownership of the CIIF Block of SMC Shares, without prejudice to
the continuation of proceedings with respect to the remaining
claims particularly those pertaining to the Cojuangco, et al. block
of SMC shares.

4. San Pablo Manufacturing Corp. (SPMC);

trial,55

COCOFED moved to set the case for

but the Republic
opposed the motion.56 On their part, Cojuangco, et al. also moved
to set the trial,57 with the Republic similarly opposing the
motion.58

8. SMC Officers Corps, Inc.;

During the pendency of the Republics motion for execution,

Cojuangco, et al. filed a Motion for Authority to Sell San Miguel
Corporation (SMC) shares, praying for leave to allow the sale of
SMC shares to proceed, exempted from the conditions set forth in
the resolutions promulgated on October 3, 2003 and June 24,
2005.64 The Republic opposed, contending that the requested
leave to sell would be tantamount to removing jurisdiction over
the res or the subject of litigation.65
However, the Sandiganbayan eventually granted the Motion for
Authority to Sell San Miguel Corporation (SMC) shares.66
Thereafter, Cojuangco, et al. manifested to the Sandiganbayan
that the shares would be sold to the San Miguel Corporation

Retirement Plan.67 Ruling on the manifestations of Cojuangco, et

al., the Sandiganbayan issued its resolution of July 30, 2007
allowing the sale of the shares, to wit:
This notwithstanding however, while the Court exempts the sale
from the express condition that it shall be subject to the outcome
of the case, defendants Cojuangco, et al. may well be reminded
that despite the deletion of the said condition, they cannot
transfer to any buyer any interest higher than what they have. No
one can transfer a right to another greater than what he himself
has. Hence, in the event that the Republic prevails in the instant
case, defendants Cojuangco, et al. hold themselves liable to their
transferees-buyers, especially if they are buyers in good faith and
for value. In such eventuality, defendants Cojuangco, et al. cannot
be shielded by the cloak of principle of caveat emptor because
case law has it that this rule only requires the purchaser to
exercise such care and attention as is usually exercised by
ordinarily prudent men in like business affairs, and only applies to
defects which are open and patent to the service of one exercising
such care.
Moreover, said defendants Eduardo M. Cojuangco, et al. are
hereby ordered to render their report on the sale within ten (10)
days from completion of the payment by the San Miguel
Corporation Retirement Plan.
SO ORDERED.68
Cojuangco, et al. later rendered a complete accounting of the
proceeds from the sale of the Cojuangco block of shares of SMC
stock, informing that a total amount of P 4,786,107,428.34 had
been paid to the UCPB as loan repayment.69
It appears that the trial concerning the disputed block of shares
was not scheduled because the consideration and resolution of
the aforecited motions for summary judgment occupied much of
the ensuing proceedings.
At the hearing of August 8, 2006, the Republic manifested70 that it
did not intend to present any testimonial evidence and asked for
the marking of certain exhibits that it would have the
Sandiganbayan take judicial notice of. The Republic was then
allowed to mark certain documents as its Exhibits A to I, inclusive,
following which it sought and was granted time within which to
formally offer the exhibits.
On August 31, 2006, the Republic filed its Manifestation of
Purposes (Re: Matters Requested or Judicial Notice on the 20%
Shares in San Miguel Corporation Registered in the Respective
Names of defendant Eduardo M. Cojuangco, Jr. and the defendant
Cojuangco Companies).71
45

Corpo Page 7 Cases

On September 18, 2006, the Sandiganbayan issued the following

resolution,72 to wit:
Acting on the Manifestation of Purposes (Re: Matters Requested
or Judicial Notice on the 20% Shares in San Miguel Corporation
Registered in the Respective names of Defendant Eduardo M.
Cojuangco, Jr. and the Defendant Cojuangco Companies) dated 28
August 2006 filed by the plaintiff, which has been considered its
formal offer of evidence, and the Comment of Defendants
Eduardo M. Cojuangco, Jr., et al. on Plaintiffs "Manifestation of
Purposes " Dated August 30, 2006 dated September 15, 2006,
the court resolves to ADMIT all the exhibits offered, i.e.:
Exhibit "A" the Answer of defendant Eduardo M.
Cojuangco, Jr. to the Third Amended Complaint
(Subdivided) dated June 23, 1999, as well as the submarkings (Exhibit "A-1" to "A-4";
Exhibit "B" the "Pre-Trial Brief dated January 11,
2000 of defendant CIIF Oil Mills and fourteen (14) CIIF
Holding Companies, as well as the sub-markings
Exhibits "B-1" and "B-2"
Exhibit "C" the Pre-Trial Brief dated January 11,
2000 of defendant Eduardo M. Cojuangco, Jr. as well as
the sub-markings Exhibits "C-1", "C-1-a" and "C-1-b";
Exhibit "D" the Plaintiffs Motion for Summary
Judgment [Re: Shares in San Miguel Corporation
Registered in the Respective Names of Defendant
Eduardo M. Cojuangco, Jr. and the Defendant
Cojuangco Companies] dated July 11, 2003, as well as
the sub-markings Exhibits "D-1" to "D-4"
the said exhibits being part of the record of the case,
as well as
Exhibit "E" Presidential Decree No. 961 dated July
11, 1976;
Exhibit "F" Presidential Decree No. 755 dated July
29, 1975;
Exhibit "G" Presidential Decree No. 1468 dated
June 11, 1978;
Exhibit "H" Decision of the Supreme Court in
Republic vs. COCOFED, et al., G.R. Nos. 147062-64,
December 14, 2001, 372 SCRA 462

the aforementioned exhibits being matters of public record.

The admission of these exhibits is being made over the objection
of the defendants Cojuangco, et al. as to the relevance thereof
and as to the purposes for which they were offered in evidence,
which matters shall be taken into consideration by the Court in
deciding the case on the merits.
The trial hereon shall proceed on November 21, 2006, at 8:30 in
the morning as previously scheduled.73
During the hearing on November 24, 2006, Cojuangco, et al. filed
their Submission and Offer of Evidence of Defendants,74 formally
offering in evidence certain documents to substantiate their
counterclaims, and informing that they found no need to present
countervailing evidence because the Republics evidence did not
prove the allegations of the Complaint. On December 5, 2006,
after the Republic submitted its Comment,75 the Sandiganbayan
admitted the exhibits offered by Cojuangco, et al., and granted
the parties a non-extendible period within which to file their
respective memoranda and reply-memoranda.
Thereafter, on February 23, 2007, the Sandiganbayan considered
the case submitted for decision.76
ISSUES
The various issues submitted for consideration by the Court are
summarized hereunder.
G.R. No. 166859
The Republic came to the Court via petition for certiorari77 to
assail the denial of its Motion for Partial Summary Judgment
through the resolution promulgated on December 10, 2004,
insisting that the Sandiganbayan thereby committed grave abuse
of discretion: (a) in holding that the various sources of funds used
in acquiring the SMC shares of stock remained disputed; (b) in
holding that it was disputed whether or not Cojuangco had served
in the governing bodies of PCA, UCPB, and/or the CIIF Oil Mills;
and (c) in not finding that Cojuangco had taken advantage of his
position and had violated his fiduciary obligations in acquiring the
SMC shares of stock in issue.
The Court will consider and resolve the issues thereby raised
alongside the issues presented in G.R. No. 180702.
G.R. No. 169203

In the resolution promulgated on October 8, 2003, the

Sandiganbayan declared as "automatically lifted for being null and
void" nine writs of sequestration (WOS) issued against properties
of Cojuangco and Cojuangco companies, considering that: (a)
eight of them (i.e., WOS No. 86-0062 dated April 21, 1986; WOS
No. 86-0069 dated April 22, 1986; WOS No. 86-0085 dated May 9,
1986; WOS No. 86-0095 dated May 16, 1986; WOS No. 86-0096
dated May 16, 1986; WOS No. 86-0097 dated May 16, 1986; WOS
No. 86-0098 dated May 16, 1986; and WOS No. 87-0218 dated
May 27, 1987) had been issued by only one PCGG Commissioner,
contrary to the requirement of Section 3 of the Rules of the PCGG
for at least two Commissioners to issue the WOS; and (b) the
ninth (i.e., WOS No. 86-0042 dated April 8, 1986), although issued
prior to the promulgation of the Rules of the PCGG requiring at
least two Commissioners to issue the WOS, was void for being
issued without prior determination by the PCGG of a prima facie
basis for sequestration.1avvphi1
Nonetheless, despite its lifting of the nine WOS, the
Sandiganbayan prescribed four conditions to be still "annotated in
the relevant corporate books of San Miguel Corporation"
considering that the Republic "continues to hold a claim on the
shares which is yet to be resolved."78
In its resolution promulgated on June 24, 2005, the
Sandiganbayan denied the Republics Motion for Reconsideration
filed vis-a-vis the resolution promulgated on October 8, 2003, but
reduced the conditions earlier imposed to only two.79
On September 1, 2005, the Republic filed a petition for
certiorari80 to annul the resolutions promulgated on October 8,
2003 and on June 24, 2005 on the ground that the Sandiganbayan
had thereby committed grave abuse of discretion:
I.
XXX IN LIFTING WRIT OF SEQUESTRATION NOS. 86-0042 AND 870218 DESPITE EXISTENCE OF THE BASIC REQUISITES FOR THE
VALIDITY OF SEQUESTRATION.
II.
XXX WHEN IT DENIED PETITIONERS ALTERNATIVE PRAYER IN ITS
MOTION FOR RECONSIDERATION FOR THE ISSUANCE OF AN
ORDER OF SEQUESTRATION AGAINST ALL THE SUBJECT SHARES
OF STOCK IN ACCORDNCE WITH THE RULING IN REPUBLIC VS.
SANDIGANBAYAN, 258 SCRA 685 (1996).
III.

46

Corpo Page 7 Cases

XXX IN SUBSEQUENTLY DELETING THE LAST TWO (2) CONDITIONS

WHICH IT EARLIER IMPOSED ON THE SUBJECT SHARES OF
STOCK.81
G.R. No. 180702
On November 28, 2007, the Sandiganbayan promulgated its
decision,82 decreeing as follows:
WHEREFORE, in view of all the foregoing, the Court is constrained
to DISMISS, as it hereby DISMISSES, the Third Amended Complaint
in subdivided Civil Case No. 0033-F for failure of plaintiff to prove
by preponderance of evidence its causes of action against
defendants with respect to the twenty percent (20%) outstanding
shares of stock of San Miguel Corporation registered in
defendants names, denominated herein as the "Cojuangco, et al.
block" of SMC shares. For lack of satisfactory warrant, the
counterclaims in defendants Answers are likewise ordered
dismissed.
SO ORDERED.
Hence, the Republic appeals, positing:

II.
WHETHER OR NOT THE SUBJECT SHARES IN SMC,
WHICH WERE ACQUIRED BY, AND ARE IN THE
RESPECTIVE NAMES OF RESPONDENTS COJUANGCO,
JR. AND THE COJUANGCO COMPANIES, SHOULD BE
RECONVEYED TO THE REPUBLIC OF THE PHILIPPINES
FOR HAVING BEEN ACQUIRED USING COCONUT LEVY
FUNDS.84
On their part, the petitioners-in-intervention85 submit the
following issues, to wit:
I
WHETHER OR NOT THE COURT A QUO GRAVELY ERRED
AND DECIDED THE CASE A QUO IN VIOLATION OF LAW
AND APPLICABLE RULINGS OF THE HONORABLE COURT
IN RULING THAT, WHILE ADMITTEDLY THE SUBJECT
SMC SHARES WERE PURCHASED FROM LOAN
PROCEEDS FROM UCPB AND ADVANCES FROM THE
CIIF OIL MILLS, SAID SUBJECT SMC SHARES ARE NOT
PUBLIC PROPERTY
II

I.
COCONUT LEVY FUNDS ARE PUBLIC FUNDS. THE SMC
SHARES, WHICH WERE ACQUIRED BY RESPONDENTS
COJUANGCO, JR. AND THE COJUANGCO COMPANIES
WITH THE USE OF COCONUT LEVY FUNDS IN
VIOLATION OF RESPONDENT COJUANGCO, JR.S
FIDUCIARY OBLIGATION ARE, NECESSARILY, PUBLIC
IN CHARACTER AND SHOULD BE RECONVEYED TO THE
GOVERNMENT.
II.
PETITIONER HAS CLEARLY DEMONSTRATED ITS
ENTITLEMENT, AS A MATTER OF LAW, TO THE RELIEFS
PRAYED FOR.83
and urging the following issues to be resolved, to wit:
I.
WHETHER THE HONORABLE SANDIGANBAYAN
COMMITTED A REVERSIBLE ERROR WHEN IT
DISMISSED CIVIL CASE NO. 0033-F; AND

WHETHER OR NOT THE COURT A QUO GRAVELY ERRED

AND DECIDED THE CASE A QUO IN VIOLATION OF LAW
AND APPLICABLE RULINGS OF THE HONORABLE COURT
IN FAILING TO RULE THAT, EVEN ASSUMING FOR THE
SAKE OF ARGUMENT THAT LOAN PROCEEDS FROM
UCPB ARE NOT PUBLIC FINDS, STILL, SINCE
RESPONDENT COJUANGCO, IN THE PURCHASE OF THE
SUBJECT SMC SHARES FROM SUCH LOAN PROCEEDS,
VIOLATED HIS FIDUCIARY DUTIES AND TOOK A
COMMERCIAL OPPORTUNITY THAT RIGHTFULLY
BELONGED TO UCPB (A PUBLIC CORPORATION), THE
SUBJECT SMC SHARES SHOULD REVERT BACK TO THE
GOVERNMENT.
RULING
We deny all the petitions of the Republic.
I
Lifting of nine WOS for violation of PCGG Rules
did not constitute grave abuse of discretion

Through its resolution promulgated on June 24, 2005, assailed on

certiorari in G.R. No. 169203, the Sandiganbayan lifted the nine
WOS for the following reasons, to wit:
Having studied the antecedent facts, this Court shall now resolve
the pending incidents especially defendants "Motion to Affirm
that the Writs or Orders of Sequestration Issued on Defendants
Properties Were Unauthorized, Invalid and Never Became
Effective" dated March 5, 1999.
Section 3 of the PCGG Rules and Regulations promulgated on April
11, 1986, provides:
"Sec. 3. Who may issue. A writ of sequestration or a freeze or
hold order may be issued by the Commission upon the authority
of at least two Commissioners, based on the affirmation or
complaint of an interested party or motu propio (sic) the issuance
thereof is warranted."
In this present case, of all the questioned writs of sequestration
issued after the effectivity of the PCGG Rules and Regulations or
after April 11, 1986, only writ no. 87-0218 issued on May 27, 1987
complied with the requirement that it be issued by at least two
Commissioners, the same having been issued by Commissioners
Ramon E. Rodrigo and Quintin S. Doromal. However, even if Writ
of Sequestration No. 87-0218 complied with the requirement that
the same be issued by at least two Commissioners, the records fail
to show that it was issued with factual basis or with factual
foundation as can be seen from the Certification of the
Commission Secretary of the PCGG of the excerpt of the minutes
of the meeting of the PCGG held on May 26, 1987, stating therein
that:
"The Commission approved the recommendation of Dir. Cruz to
sequester all the shares of stock, assets, records, and documents
of Balete Ranch, Inc. and the appointment of the Fiscal
Committee with ECI Challenge, Inc./Pepsi-Cola for Balete Ranch,
Inc. and the Aquacor Marketing Corp. vice Atty. S. Occena. The
objective is to consolidate the Fiscal Committee activities covering
three associated entities of Mr. Eduardo Cojuangco.Upon
recommendation of Comm. Rodrigo, the reconstitution of the
Board of Directors of the three companies was deferred for
further study."
Nothing in the above-quoted certificate shows that there was a
prior determination of a factual basis or factual foundation. It is
the absence of a prima facie basis for the issuance of a writ of
sequestration and not the lack of authority of two (2)
Commissioners which renders the said writ void ab initio. Thus,
being the case, Writ of Sequestration No. 87-0218 must be
automatically lifted.
47

Corpo Page 7 Cases

As declared by the Honorable Supreme Court in two cases it has

decided,
"The absence of a prior determination by the PCGG of a prima
facie basis for the sequestration order is, unavoidably, a fatal
defect which rendered the sequestration of respondent
corporation and its properties void ab initio." And
"The corporation or entity against which such writ is directed will
not be able to visually determine its validity, unless the required
signatures of at least two commissioners authorizing its issuance
appear on the very document itself. The issuance of sequestration
orders requires the existence of a prima facie case. The two
commissioner rule is obviously intended to assure a collegial
determination of such fact. In this light, a writ bearing only one
signature is an obvious transgression of the PCGG Rules."
Consequently, the writs of sequestration nos. 86-0062, 86-0069,
86-0085, 86-0095, 86-0096, 86-0097 and 86-0098 must be lifted
for not having complied with the pertinent provisions of the PCGG
Rules and Regulations, all of which were issued by only one
Commissioner and after April 11, 1986 when the PCGG Rules and
Regulations took effect, an utter disregard of the PCGGs Rules
and Regulations. The Honorable Supreme Court has stated that:
"Obviously, Section 3 of the PCGG Rules was intended to protect
the public from improvident, reckless and needless sequestrations
of private property. And since these Rules were issued by
Respondent Commission, it should be the first entity to observe
them."
Anent the writ of sequestration no. 86-0042 which was issued on
April 8, 1986 or prior to the promulgation of the PCGG Rules and
Regulations on April 11, 1986, the same cannot be declared void
on the ground that it was signed by only one Commissioner
because at the time it was issued, the Rules and Regulations of
the PCGG were not yet in effect. However, it again appears that
there was no prior determination of the existence of a prima
facie basis or factual foundation for the issuance of the said writ.
The PCGG, despite sufficient time afforded by this Court to show
that a prima facie basis existed prior to the issuance of Writ No.
86-0042, failed to do so. Nothing in the records submitted by the
PCGG in compliance of the Resolutions and Order of this Court
would reveal that a meeting was held by the Commission for the
purpose of determining the existence of a prima facieevidence
prior to its issuance. In a case decided by the Honorable Supreme
Court, wherein it involved a writ of sequestration issued by the
PCGG on March 19, 1986 against all assets, movable and
immovable, of Provident International Resources Corporation and
Philippine Casino Operators Corporation, the Honorable Supreme
Court enunciated:

"The questioned sequestration order was, however issued on

March 19, 1986, prior to the promulgation of the PCGG Rules and
Regulations. As a consequence, we cannot reasonably expect the
commission to abide by said rules, which were nonexistent at the
time the subject writ was issued by then Commissioner Mary
Concepcion Bautista. Basic is the rule that no statute, decree,
ordinance, rule or regulation (and even policies) shall be given
retrospective effect unless explicitly stated so. We find no
provision in said Rules which expressly gives them retroactive
effect, or implies the abrogation of previous writs issued not in
accordance with the same Rules. Rather, what said Rules provide
is that they "shall be effective immediately," which in legal
parlance, is understood as "upon promulgation". Only penal laws
are given retroactive effect insofar as they favor the accused.
We distinguish this case from Republic vs. Sandiganbayan,
Romualdez and Dio Island Resort, G.R. No. 88126, July 12,
1996 where the sequestration order against Dio Island Resort,
dated April 14, 1986, was prepared, issued and signed not by two
commissioners of the PCGG, but by the head of its task force in
Region VIII. In holding that said order was not valid since it was
not issued in accordance with PCGG Rules and Regulations, we
explained:
"(Sec. 3 of the PCGG Rules and Regulations), couched in clear and
simple language, leaves no room for interpretation. On the basis
thereof, it is indubitable that under no circumstances can a
sequestration or freeze order be validly issued by one not a
commissioner of the PCGG.
xxx

xxx

xxx

Even assuming arguendo that Atty. Ramirez had been given prior
authority by the PCGG to place Dio Island Resort under
sequestration, nevertheless, the sequestration order he issued is
still void since PCGG may not delegate its authority to sequester
to its representatives and subordinates, and any such delegation
is valid and ineffective."
We further said:
"In the instant case, there was clearly no prior determination
made by the PCGG of a prima facie basis for the sequestration of
Dio Island Resort, Inc. x x x
xxx

xxx

xxx

The absence of a prior determination by the PCGG of a prima

facie basis for the sequestration order is, unavoidably, a fatal
defect which rendered the sequestration of respondent
corporation and its properties void ab initio. Being void ab initio, it

is deemed nonexistent, as though it had never been issued, and

therefore is not subject to ratification by the PCGG.
What were obviously lacking in the above case were the basic
requisites for the validity of a sequestration order which we laid
down in BASECO vs. PCGG, 150 SCRA 181, 216, May 27,
1987, thus:
"Section (3) of the Commissions Rules and regulations provides
that sequestration or freeze (and takeover) orders issue upon the
authority of at least two commissioners, based on the affirmation
or complaint of an interested party, or motu propio (sic) when the
Commission has reasonable grounds to believe that the issuance
thereof is warranted."
In the case at bar, there is no question as to the presence of prima
facie evidence justifying the issuance of the sequestration order
against respondent corporations. But the said order cannot be
nullified for lack of the other requisite (authority of at least two
commissioners) since, as explained earlier, such requisite was
nonexistent at the time the order was issued."
As to the argument of the Plaintiff Republic that Defendants
Cojuangco, et al. have not shown any contrary prima facie proof
that the properties subject matter of the writs of sequestration
were legitimate acquisitions, the same is misplaced. It is a basic
legal doctrine, as well as many times enunciated by the Honorable
Supreme Court that when a prima facie proof is required in the
issuance of a writ, the party seeking such extraordinary writ must
establish that it is entitled to it by complying strictly with the
requirements for its issuance and not the party against whom the
writ is being sought for to establish that the writ should not be
issued against it.
According to the Republic, the Sandiganbayan thereby gravely
abused its discretion in: (a) in lifting WOS No. 86-0042 and No. 870218 despite the basic requisites for the validity of sequestration
being existent; (b) in denying the Republics alternative prayer for
the issuance of an order of sequestration against all the subject
shares of stock in accordance with the ruling in Republic v.
Sandiganbayan, 258 SCRA 685, as stated in its Motion For
Reconsideration; and (c) in deleting the last two conditions the
Sandiganbayan had earlier imposed on the subject shares of
stock.
We sustain the lifting of the nine WOS for the reasons made
extant in the assailed resolution of October 8, 2003, supra.
Section 3 of the Rules of the PCGG, promulgated on April 11,
1986, provides:
48

Corpo Page 7 Cases

Section 3. Who may issue. A writ of sequestration or a freeze or

hold order may be issued by the Commission upon the authority
of at least two Commissioners, based on the affirmation or
complaint of an interested party or motu proprio when the
Commission has reasonable grounds to believe that the issuance
thereof is warranted.

became academic following the Sandiganbayans promulgation of

its decision dismissing the Republics Amended Complaint, which
thereby removed the stated reason "the Republic continues to
hold a claim on the shares which is yet to be resolved"
underlying the need for the annotation of the conditions (whether
four or two).

Conformably with Section 3, supra, WOS No. 86-0062 dated April

21, 1986; WOS No. 86-0069 dated April 22, 1986; WOS No. 860085 dated May 9, 1986; WOS No. 86-0095 dated May 16, 1986;
WOS No. 86-0096 dated May 16, 1986; WOS No. 86-0097 dated
May 16, 1986; and WOS No. 86-0098 dated May 16, 1986 were
lawfully and correctly nullified considering that only one PCGG
Commissioner had issued them.

II
The Concept and Genesis of
Ill-Gotten Wealth in the Philippine Setting

Similarly, WOS No. 86-0042 dated April 8, 1986 and WOS No. 870218 dated May 27, 1987 were lawfully and correctly nullified
notwithstanding that WOS No. 86-0042, albeit signed by only one
Commissioner (i.e., Commissioner Mary Concepcion Bautista),
was not at the time of its issuance subject to the twoCommissioners rule, and WOS No. 87-0218, albeit already issued
under the signatures of two Commissioners considering that both
had been issued without a prior determination by the PCGG of a
prima facie basis for the sequestration.

In the immediate aftermath of the peaceful 1986 EDSA

Revolution, the administration of President Corazon C. Aquino
saw to it, among others, that rules defining the authority of the
government and its instrumentalities were promptly put in place.
It is significant to point out, however, that the administration
likewise defined the limitations of the authority.

Plainly enough, the irregularities infirming the issuance of the

several WOS could not be ignored in favor of the Republic and
resolved against the persons whose properties were subject of
the WOS. Where the Rules of the PCGG instituted safeguards
under Section 3, supra, by requiring the concurrent signatures of
two Commissioners to every WOS issued and the existence of a
prima facie case of ill gotten wealth to support the issuance, the
non-compliance with either of the safeguards nullified the WOS
thus issued. It is already settled that sequestration, due to its
tendency to impede or limit the exercise of proprietary rights by
private citizens, is construed strictly against the State,
conformably with the legal maxim that statutes in derogation of
common rights are generally strictly construed and rigidly
confined to the cases clearly within their scope and purpose.86
Consequently, the nullification of the nine WOS, being in
implementation of the safeguards the PCGG itself had instituted,
did not constitute any abuse of its discretion, least of all grave, on
the part of the Sandiganbayan.
Nor did the Sandiganbayan gravely abuse its discretion in reducing
from four to only two the conditions imposed for the lifting of the
WOS. The Sandiganbayan thereby acted with the best of
intentions, being all too aware that the claim of the Republic to
the sequestered assets and properties might be prejudiced or
harmed pendente lite unless the protective conditions were
annotated in the corporate books of SMC. Moreover, the issue

A brief review of the Philippine law and jurisprudence pertinent to

ill-gotten wealth should furnish an illuminating backdrop for
further discussion.

The first official issuance of President Aquino, which was made on

February 28, 1986, or just two days after the EDSA Revolution,
was Executive Order (E.O.) No. 1, which created the Presidential
Commission on Good Government (PCGG). Ostensibly, E.O. No. 1
was the first issuance in light of the EDSA Revolution having come
about mainly to address the pillage of the nations wealth by
President Marcos, his family, and cronies.
E.O. No. 1 contained only two WHEREAS Clauses, to wit:
WHEREAS, vast resources of the government have been amassed
by former President Ferdinand E. Marcos, his immediate family,
relatives, and close associates both here and abroad;
WHEREAS, there is an urgent need to recover all ill-gotten
wealth;87
Paragraph (4) of E.O. No. 288 further required that the wealth, to
be ill-gotten, must be "acquired by them through or as a result of
improper or illegal use of or the conversion of funds belonging to
the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by
taking undue advantage of their official position, authority,
relationship, connection or influence to unjustly enrich
themselves at the expense and to the grave damage and
prejudice of the Filipino people and the Republic of the
Philippines."

Although E.O. No. 1 and the other issuances dealing with ill-gotten
wealth (i.e., E.O. No. 2, E.O. No. 14, and E.O. No. 14-A) only
identified the subject matter of ill-gotten wealth and the persons
who could amass ill-gotten wealth and did not include an explicit
definition of ill-gotten wealth, we can still discern the meaning
and concept of ill-gotten wealth from the WHEREAS Clauses
themselves of E.O. No. 1, in that ill-gotten wealth consisted of the
"vast resources of the government" amassed by "former
President Ferdinand E. Marcos, his immediate family, relatives
and close associates both here and abroad." It is clear, therefore,
that ill-gotten wealth would not include all the properties of
President Marcos, his immediate family, relatives, and close
associates but only the part that originated from the "vast
resources of the government."
In time and unavoidably, the Supreme Court elaborated on the
meaning and concept of ill-gotten wealth. In Bataan Shipyard &
Engineering Co., Inc. v. Presidential Commission on Good
Government,89 or BASECO, for the sake of brevity, the Court held
that:
xxx until it can be determined, through appropriate judicial
proceedings, whether the property was in truth "ill-gotten," i.e.,
acquired through or as a result of improper or illegal use of or the
conversion of funds belonging to the Government or any of its
branches, instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of official position,
authority, relationship, connection or influence, resulting in unjust
enrichment of the ostensible owner and grave damage and
prejudice to the State. And this, too, is the sense in which the
term is commonly understood in other jurisdictions.90
The BASECO definition of ill-gotten wealth was reiterated in
Presidential Commission on Good Government v. Lucio C.
Tan,91 where the Court said:
On this point, we find it relevant to define "ill-gotten wealth." In
Bataan Shipyard and Engineering Co., Inc., this Court described
"ill-gotten wealth" as follows:
"Ill-gotten wealth is that acquired through or as a result of
improper or illegal use of or the conversion of funds belonging to
the Government or any of its branches, instrumentalities,
enterprises, banks or financial institutions, or by taking undue
advantage of official position, authority, relationship, connection
or influence, resulting in unjust enrichment of the ostensible
owner and grave damage and prejudice to the State. And this,
too, is the sense in which the term is commonly understood in
other jurisdiction."

49

Corpo Page 7 Cases

Concerning respondents shares of stock here, there is no

evidence presented by petitioner that they belong to the
Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions. Nor
is there evidence that respondents, taking undue advantage of
their connections or relationship with former President Marcos or
his family, relatives and close associates, were able to acquire
those shares of stock.
Incidentally, in its 1998 ruling in Chavez v. Presidential
Commission on Good Government,92 the Court rendered an
identical definition of ill-gotten wealth, viz:
xxx. We may also add that ill-gotten wealth, by its very nature,
assumes a public character. Based on the aforementioned
Executive Orders, ill-gotten wealth refers to assets and
properties purportedly acquired, directly or indirectly, by former
President Marcos, his immediate family, relatives and close
associates through or as a result of their improper or illegal use
of government funds or properties; or their having taken undue
advantage of their public office; or their use of powers, influence
or relationships, "resulting in their unjust enrichment and causing
grave damage and prejudice to the Filipino people and the
Republic of the Philippines."Clearly, the assets and properties
referred to supposedly originated from the government itself. To
all intents and purposes, therefore, they belong to the people.
As such, upon reconveyance they will be returned to the public
treasury, subject only to the satisfaction of positive claims of
certain persons as may be adjudged by competent courts.
Another declared overriding consideration for the expeditious
recovery of ill-gotten wealth is that it may be used for national
economic recovery.
All these judicial pronouncements demand two concurring
elements to be present before assets or properties were
considered as ill-gotten wealth, namely: (a) they must have
"originated from the government itself," and (b) they must have
been taken by former President Marcos, his immediate family,
relatives, and close associates by illegal means.
But settling the sources and the kinds of assets and property
covered by E.O. No. 1 and related issuances did not complete the
definition of ill-gotten wealth. The further requirement was that
the assets and property should have been amassed by former
President Marcos, his immediate family, relatives, and close
associates both here and abroad. In this regard, identifying former
President Marcos, his immediate family, and relatives was not
difficult, but identifying other persons who might be the close
associates of former President Marcos presented an inherent
difficulty, because it was not fair and just to include within the
term close associates everyone who had had any association with
President Marcos, his immediate family, and relatives.

Again, through several rulings, the Court became the arbiter to

determine who were the close associates within the coverage of
E.O. No. 1.
In Republic v. Migrio,93 the Court held that respondents Migrio,
et al. were not necessarily among the persons covered by the
term close subordinate or close associate of former President
Marcos by reason alone of their having served as government
officials or employees during the Marcos administration, viz:
It does not suffice, as in this case, that the respondent is or was
a government official or employee during the administration of
former Pres. Marcos. There must be a prima facie showing that
the respondent unlawfully accumulated wealth by virtue of his
close association or relation with former Pres. Marcos and/or his
wife. This is so because otherwise the respondents case will fall
under existing general laws and procedures on the matter. xxx
In Cruz, Jr. v. Sandiganbayan,94 the Court declared that the
petitioner was not a close associate as the term was used in E.O.
No. 1 just because he had served as the President and General
Manager of the GSIS during the Marcos administration.
In Republic v. Sandiganbayan,95 the Court stated that respondent
Maj. Gen. Josephus Q. Ramas having been a Commanding
General of the Philippine Army during the Marcos administration
"d[id] not automatically make him a subordinate of former
President Ferdinand Marcos as this term is used in Executive
Order Nos. 1, 2, 14 and 14-A absent a showing that he enjoyed
close association with former President Marcos."
It is well to point out, consequently, that the distinction laid down
by E.O. No. 1 and its related issuances, and expounded by
relevant judicial pronouncements unavoidably required
competent evidentiary substantiation made in appropriate judicial
proceedings to determine: (a) whether the assets or properties
involved had come from the vast resources of government, and
(b) whether the individuals owning or holding such assets or
properties were close associates of President Marcos. The
requirement of competent evidentiary substantiation made in
appropriate judicial proceedings was imposed because the factual
premises for the reconveyance of the assets or properties in favor
of the government due to their being ill-gotten wealth could not
be simply assumed. Indeed, in BASECO,96 the Court made this
clear enough by emphatically observing:
6. Governments Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety
of the Governments plan "to recover all ill-gotten wealth."

Neither can there be any debate about the proposition that

assuming the above described factual premises of the Executive
Orders and Proclamation No. 3 to be true, to be demonstrable by
competent evidence, the recovery from Marcos, his family and his
minions of the assets and properties involved, is not only a right
but a duty on the part of Government.

Accordingly, the Republic should furnish to the Sandiganbayan in

proper judicial proceedings the competent evidence proving who
were the close associates of President Marcos who had amassed
assets and properties that would be rightly considered as illgotten wealth.
III.

But however plain and valid that right and duty may be, still a
balance must be sought with the equally compelling necessity
that a proper respect be accorded and adequate protection
assured, the fundamental rights of private property and free
enterprise which are deemed pillars of a free society such as ours,
and to which all members of that society may without exception
lay claim.
xxx Democracy, as a way of life enshrined in the Constitution,
embraces as its necessary components freedom of conscience,
freedom of expression, and freedom in the pursuit of happiness.
Along with these freedoms are included economic freedom and
freedom of enterprise within reasonable bounds and under
proper control. xxx Evincing much concern for the protection of
property, the Constitution distinctly recognizes the preferred
position which real estate has occupied in law for ages. Property is
bound up with every aspect of social life in a democracy as
democracy is conceived in the Constitution. The Constitution
realizes the indispensable role which property, owned in
reasonable quantities and used legitimately, plays in the
stimulation to economic effort and the formation and growth of a
solid social middle class that is said to be the bulwark of
democracy and the backbone of every progressive and happy
country.
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders
cannot simply be assumed. They will have to be duly established
by adequate proof in each case, in a proper judicial proceeding, so
that the recovery of the ill-gotten wealth may be validly and
properly adjudged and consummated; although there are some
who maintain that the fact that an immense fortune, and "vast
resources of the government have been amassed by former
President Ferdinand E. Marcos, his immediate family, relatives,
and close associates both here and abroad," and they have
resorted to all sorts of clever schemes and manipulations to
disguise and hide their illicit acquisitions is within the realm of
judicial notice, being of so extensive notoriety as to dispense with
proof thereof. Be this as it may, the requirement of evidentiary
substantiation has been expressly acknowledged, and the
procedure to be followed explicitly laid down, in Executive Order
No. 14. 97

50

Corpo Page 7 Cases

Summary Judgment was not warranted;

The Republic should have adduced evidence
to substantiate its allegations against the Respondents
We affirm the decision of November 28, 2007, because the
Republic did not discharge its burden as the plaintiff to establish
by preponderance of evidence that the respondents SMC shares
were illegally acquired with coconut-levy funds.
The decision of November 28, 2007 fully explained why the
Sandiganbayan dismissed the Republics case against Cojuangco,
et al., viz:
Going over the evidence, especially the laws, i.e., P.D. No. 961,
P.D. No. 755, and P.D. No. 1468, over which plaintiff prayed that
Court to take judicial notice of, it is worth noting that these same
laws were cited by plaintiff when it filed its motion for judgment
on the pleadings and/or summary judgment regarding the CIIF
block of SMC shares of stock. Thus, the Court has already passed
upon the same laws when it arrived at judgment determining
ownership of the CIIF block of SMC shares of stock. Pertinently, in
the Partial Summary Judgment promulgated on May 7, 2004, the
Court gave the following rulings finding certain provisions of the
above-cited laws to be constitutionally infirmed, thus:
In this case, Section 2(d) and Section 9 and 10, Article III, of P.D.
Nos. 961 and 1468 mandated the UCPB to utilize the CIIF, an
accumulation of a portion of the CCSF and the CIDF, for
investment in the form of shares of stock in corporations
organized for the purpose of engaging in the establishment and
the operation of industries and commercial activities and other
allied business undertakings relating to coconut and other palm
oils industry in all aspects. The investments made by UCPB in CIIF
companies are required by the said Decrees to be equitably
distributed for free by the said bank to the coconut farmers (Sec.
10, P.D. No. 961 and Sec. 10, P.D. No. 1468). The public purpose
sought to be served by the free distribution of the shares of stock
acquired with the use of public funds is not evident in the laws
mentioned. More specifically, it is not clear how private
ownership of the shares of stock acquired with public funds can
serve a public purpose. The mode of distribution of the shares of
stock also left much room for the diversion of assets acquired

through public funds into private uses or to serve directly private

interests, contrary to the Constitution. In the said distribution,
defendants COCOFED, et al. and Ballares, et al. admitted that
UCPB followed the administrative issuances of PCA which we
found to be constitutionally objectionable in our Partial Summary
Judgment in Civil Case No. 0033-A, the pertinent portions of
which are quoted hereunder:
xxx

xxx

xxx

The distribution for free of the shares of stock of the CIIF

Companies is tainted with the above-mentioned constitutional
infirmities of the PCA administrative issuances. In view of the
foregoing, we cannot consider the provision of P.D. No. 961 and
P.D. No. 1468 and the implementing regulations issued by the PCA
as valid legal basis to hold that assets acquired with public funds
have legitimately become private properties.
The CIIF Companies having been acquired with public funds, the
14 CIIF-owned Holding Companies and all their assets, including
the CIIF Block of SMC Shares, being public in character, belong to
the government. Even granting that the 14 Holding Companies
acquired the SMC Shares through CIIF advances and UCPB loans,
said advances and loans are still the obligations of the said
companies. The incorporating equity or capital of the 14 Holding
Companies, which were allegedly used also for the acquisition of
the subject SMC shares, being wholly owned by the CIIF
Companies, likewise form part of the coconut levy funds, and thus
belong to the government in trust for the ultimate beneficiaries
thereof, which are all the coconut farmers.
xxx

xxx

xxx

And, with the above-findings of the Court, the CIIF block of SMC
shares were subsequently declared to be of public character and
should be reconveyed to the government in trust for coconut
farmers. The foregoing findings notwithstanding, a question now
arises on whether the same laws can likewise serve as ultimate
basis for a finding that the Cojuangco, et al. block of SMC shares
are also imbued with public character and should rightfully be
reconveyed to the government.
On this point, the Court disagrees with plaintiff that reliance on
said laws would suffice to prove that defendants Cojuangco, et
al.s acquisition of SMC shares of stock was illegal as public funds
were used. For one, plaintiffs reliance thereon has always had
reference only to the CIIF block of shares, and the Court has
already settled the same by going over the laws and quoting
related findings in the Partial Summary judgment rendered in Civil
Case No. 0033-A. For another, the allegations of plaintiff
pertaining to the Cojuangco block representing twenty percent

(20%) of the outstanding capital stock of SMC stress defendant

Cojuangcos acquisition by virtue of his positions as Chief
Executive Officer of UCPB, a member-director of the Philippine
Coconut Authority (PCA) Governing Board, and a director of the
CIIF Oil Mills. Thus, reference to the said laws would not settle
whether there was abuse on the part of defendants Cojuangco, et
al. of their positions to acquire the SMC shares. 98
Besides, in the Resolution of the Court on plaintiffs Motion for
Parial Summary Judgment (Re: Shares in San Miguel Corporation
Registered in the Respective Names of Defendants Eduardo M.
Cojuangco, Jr. and the defendant Cojuangco Companies), the
Court already rejected plaintiffs reference to said laws. In fact,
the Court declined to grant plaintiffs motion for partial summary
judgment because it simply contended that defendant
Cojuangcos statements in his pleadings, which plaintiff again
offered in evidence herein, regarding the presentation of a
possible CIIF witness as well as UCPB records can already be
considered admissions of defendants exclusive use and misuse of
coconut levy funds. In the said resolution, the Court already
reminded plaintiff that the issues cannot be resolved by plaintiffs
interpretation of defendant Cojuangcos statements in his brief.
Thus, the substantial portion of the Resolution of the Court
denying plaintiffs motion for partial summary judgment is again
quoted for emphasis: 99
We cannot agree with the plaintiffs contention that the
defendants statements in his Pre-Trial Brief regarding the
presentation of a possible CIIF witness as well as UCPB records,
can already be considered as admissions of the defendants
exclusive use and misuse of coconut levy funds to acquire the
subject SMC shares and defendant Cojuangcos alleged taking
advantage of his positions to acquire the subject SMC shares.
Moreover, in ruling on a motion for summary judgment, the court
"should take that view of the evidence most favorable to the
party against whom it is directed, giving such party the benefit of
all favorable inferences." Inasmuch as this issue cannot be
resolved merely from an interpretation of the defendants
statements in his brief, the UCPB records must be produced and
the CIIF witness must be heard to ensure that the conclusions that
will be derived have factual basis and are thus, valid. 100
WHEREFORE, in view of the foregoing, the Motion for Partial
Summary Judgment dated July 11, 2003 is hereby DENIED for lack
of merit.
SO ORDERED.

Even assuming that, as plaintiff prayed for, the Court takes judicial
notice of the evidence it offered with respect to the Cojuangco
block of SMC shares of stock, as contained in plaintiffs
manifestation of purposes, still its evidence do not suffice to
prove the material allegations in the complaint that Cojuangco
took advantage of his positions in UCPB and PCA in order to
acquire the said shares. As above-quoted, the Court, itself, has
already ruled, and hereby stress that "UCPB records must be
produced and the CIIF witness must be heard to ensure that the
conclusions that will be derived have factual basis and are thus,
valid." Besides, the Court found that there are genuine factual
issues raised by defendants that need to be threshed out in a fullblown trial, and which plaintiff had the burden to substantially
prove. Thus, the Court outlined these genuine factual issues as
follows:
1) What are the "various sources" of funds, which
defendant Cojuangco and his companies claim they
utilized to acquire the disputed SMC shares?
2) Whether or not such funds acquired from alleged
"various sources" can be considered coconut levy
funds;
3) Whether or not defendant Cojuangco had indeed
served in the governing bodies of PCA, UCPB and/or
CIIF Oil Mills at the time the funds used to purchase
the SMC shares were obtained such that he owed a
fiduciary duty to render an account to these entities as
well as to the coconut farmers;
4) Whether or not defendant Cojuangco took
advantage of his position and/or close ties with then
President Marcos to obtain favorable concessions or
exemptions from the usual financial requirements
from the lending banks and/or coco-levy funded
companies, in order to raise the funds to acquire the
disputed SMC shares; and if so, what are these
favorable concessions or exemptions?101
Answers to these issues are not evident from the submissions of
plaintiff and must therefore be proven through the presentation
of relevant and competent evidence during trial. A perusal of the
subject Motion shows that the plaintiff hastily derived conclusions
from the defendants statements in their previous pleadings
although such conclusions were not supported by categorical
facts but only mere inferences. xxx xxx xxx." (Emphasis
supplied)102

(Emphasis supplied)
Despite the foregoing pronouncement of the Court, plaintiff did
not present any other evidence during the trial of this case but
51

Corpo Page 7 Cases

instead made its manifestation of purposes, that later served as

its offer of evidence in the instant case, that merely used the
same evidence it had already relied upon when it moved for
partial summary judgment over the Cojuangco block of SMC
shares. Altogether, the Court finds the same insufficient to prove
plaintiffs allegations in the complaint because more than judicial
notices, the factual issues require the presentation of admissible,
competent and relevant evidence in accordance with Sections 3
and 4, Rule 128 of the Rules on Evidence.
Moreover, the propriety of taking judicial notice of plaintiffs
exhibits is aptly questioned by defendants Cojuangco, et al.
Certainly, the Court can take judicial notice of laws pertaining to
the coconut levy funds as well as decisions of the Supreme Court
relative thereto, but taking judicial notice does not mean that the
Court would accord full probative value to these exhibits. Judicial
notice is based upon convenience and expediency for it would
certainly be superfluous, inconvenient, and expensive both to
parties and the court to require proof, in the ordinary way, of
facts which are already known to courts. However, a court cannot
take judicial notice of a factual matter in controversy. Certainly,
there are genuine factual matters in the instant case, as abovecited, which plaintiff ought to have proven with relevant and
competent evidence other than the exhibits it offered.
Referring to plaintiffs causes of action against defendants
Cojuangco, et al., the Court finds its evidence insufficient to prove
that the source of funds used to purchase SMC shares indeed
came from coconut levy funds. In fact, there is no direct link that
the loans obtained by defendant Cojuangco, Jr. were the same
money used to pay for the SMC shares. The scheme alleged to
have been taken by defendant Cojuangco, Jr. was not even
established by any paper trail or testimonial evidence that would
have identified the same. On account of his positions in the UCPB,
PCA and the CIIF Oil Mills, the Court cannot conclude that he
violated the fiduciary obligations of the positions he held in the
absence of proof that he was so actuated and that he abused his
positions.103
It was plain, indeed, that Cojuangco, et al. had tendered genuine
issues through their responsive pleadings and did not admit that
the acquisition of the Cojuangco block of SMC shares had been
illegal, or had been made with public funds. As a result, the
Republic needed to establish its allegations with preponderant
competent evidence, because, as earlier stated, the fact that
property was ill gotten could not be presumed but must be
substantiated with competent proof adduced in proper judicial
proceedings. That the Republic opted not to adduce competent
evidence thereon despite stern reminders and warnings from the
Sandiganbayan to do so revealed that the Republic did not have
the competent evidence to prove its allegations against
Cojuangco, et al.

Still, the Republic, relying on the 2001 holding in Republic v.

COCOFED,104 pleads in its petition for review (G.R. No. 180702)
that:
With all due respect, the Honorable Sandiganbayan failed to
consider legal precepts and procedural principles vis--vis the
records of the case showing that the funds or "various loans" or
"advances" used in the acquisition of the disputed SMC Shares
ultimately came from the coconut levy funds.
As discussed hereunder, respondents own admissions in their
Answers and Pre-Trial Briefs confirm that the "various sources" of
funds utilized in the acquisition of the disputed SMC shares came
from "borrowings" and "advances" from the UCPB and the CIIF Oil
Mills.105
Thereby, the Republic would have the Sandiganbayan pronounce
the block of SMC shares of stock acquired by Cojuangco, et al. as
ill-gotten wealth even without the Republic first presenting
preponderant evidence establishing that such block had been
acquired illegally and with the use of coconut levy funds.
The Court cannot heed the Republics pleas for the following
reasons:

cases, particularly in reference to the ownership of the subject

shares.
We also lay down the caveat that, in declaring the coco levy funds
to be prima facie public in character, we are not ruling in any final
manner on their classification whether they are general or trust
or special funds since such classification is not at issue here.
Suffice it to say that the public nature of the coco levy funds is
decreed by the Court only for the purpose of determining the
right to vote the shares, pending the final outcome of the said civil
cases.
Neither are we resolving in the present case the question of
whether the shares held by Respondent Cojuangco are, as he
claims, the result of private enterprise. This factual matter should
also be taken up in the final decision in the cited cases that are
pending in the court a quo. Again, suffice it to say that the only
issue settled here is the right of PCGG to vote the sequestered
shares, pending the final outcome of said cases.
Thirdly, the Republics assertion that coconut levy funds had been
used to source the payment for the Cojuangco block of SMC
shares was premised on its allegation that the UCPB and the CIIF
Oil Mills were public corporations. But the premise was grossly
erroneous and overly presumptuous, because:

The best way to know what paragraph 2.01 of Cojuangcos

Answer admitted is to refer to both paragraph 4 of the Amended
Complaint and paragraph 2.01 of his Answer, which are
hereunder quoted:
Paragraph 4 of the Amended Complaint
4. Defendant EDUARDO M. COJUANGCO, JR., was Governor of
Tarlac, Congressman of then First District of Tarlac and
Ambassador-at-Large in the Marcos Administration. He was
commissioned Lieutenant Colonel in the Philippine Air Force,
Reserve. Defendant Eduardo M. Cojuangco, Jr., otherwise known
as the "Coconut King" was head of the coconut monopoly which
was instituted by Defendant Ferdinand E. Marcos, by virtue of the
Presidential Decrees. Defendant Eduardo E. Cojuangco, Jr., who
was also one of the closest associates of the Defendant Ferdinand
E. Marcos, held the positions of Director of the Philippine Coconut
Authority, the United Coconut Mills, Inc., President and Board
Director of the United Coconut Planters Bank, United Coconut
Planters Life Assurance Corporation, and United Coconut
Chemicals, Inc. He was also the Chairman of the Board and Chief
Executive Officer and the controlling stockholder of the San
Miguel Corporation. He may be served summons at 45 Balete
Drive, Quezon City or at 136 East 9th Street, Quezon City.
Paragraph 2.01 of Respondent Cojuangcos Answer

To begin with, it is notable that the decision of November 28,

2007 did not rule on whether coconut levy funds were public
funds or not. The silence of the Sandiganbayan on the matter was
probably due to its not seeing the need for such ruling following
its conclusion that the Republic had not preponderantly
established the source of the funds used to pay the purchase
price of the concerned SMC shares, and whether the shares had
been acquired with the use of coconut levy funds.
COCOFED106

Secondly, the ruling in Republic v.

determined only
whether certain stockholders of the UCPB could vote in the
stockholders meeting that had been called. The issue now before
the Court could not be controlled by the ruling in Republic v.
COCOFED, however, for even as that ruling determined the issue
of voting, the Court was forthright enough about not thereby
preempting the Sandiganbayans decisions on the merits on illgotten wealth in the several cases then pending, including this
one, viz:
In making this ruling, we are in no way preempting the
proceedings the Sandiganbayan may conduct or the final
judgment it may promulgate in Civil Case No. 0033-A, 0033-B and
0033-F. Our determination here is merely prima facie, and should
not bar the anti-graft court from making a final ruling, after
proper trial and hearing, on the issues and prayers in the said civil
52

Corpo Page 7 Cases

(a) The fact of the UCPB and the CIIF Oil Mills being
public corporations or government-owned or
government-controlled corporations precisely
remained controverted by Cojuangco, et al. in light of
the lack of any competent to that effect being in the
records;
(b) Cojuangco explicitly averred in paragraph 2.01.(b)
of his Answer that the UCPB was a "private
corporation;" and
(c) The Republic did not competently identify or
establish which ones of the Cojuangco corporations
had supposedly received advances from the CIIF Oil
Mills.
Fourthly, the Republic asserts that the contested block of shares
had been paid for with "borrowings" from the UCPB and
"advances" from the CIIF Oil Mills, and that such borrowings and
advances had been illegal because the shares had not been
purchased for the "benefit of the Coconut Farmers." To buttress
its assertion, the Republic relied on the admissions supposedly
made in paragraph 2.01 of Cojuangcos Answer in relation to
paragraph 4 of the Republics Amended Complaint.

2.01. Herein defendant admits paragraph 4 only insofar as it

alleges the following:
(a) That herein defendant has held the following
positions in government: Governor of Tarlac,
Congressman of the then First District of Tarlac,
Ambassador-at-Large, Lieutenant Colonel in the
Philippine Air Force and Director of the Philippines
Coconut Authority;
(b) That he held the following positions in private
corporations: Member of the Board of Directors of the
United Coconut Oil Mills, Inc.; President and member
of the Board of Directors of the United Coconut
Planters Bank, United Coconut Planters Life Assurance
Corporation, and United Coconut Chemicals, Inc.;
Chairman of the Board and Chief Executive of San
Miguel Corporation; and
(c) That he may be served with summons at 136 East
9th Street, Quezon City.
Herein defendant specifically denies the rest of the allegations of
paragraph 4, including any insinuation that whatever association

he may have had with the late Ferdinand Marcos or Imelda

Marcos has been in connection with any of the acts or
transactions alleged in the complaint or for any unlawful purpose.
It is basic in remedial law that a defendant in a civil case must
apprise the trial court and the adverse party of the facts alleged
by the complaint that he admits and of the facts alleged by the
complaint that he wishes to place into contention. The defendant
does the former either by stating in his answer that they are true
or by failing to properly deny them. There are two ways of
denying alleged facts: one is by general denial, and the other, by
specific denial.107
In this jurisdiction, only a specific denial shall be sufficient to place
into contention an alleged fact.108 Under Section 10,109 Rule 8 of
the Rules of Court, a specific denial of an allegation of the
complaint may be made in any of three ways, namely: (a) a
defendant specifies each material allegation of fact the truth of
which he does not admit and, whenever practicable, sets forth the
substance of the matters upon which he relies to support his
denial; (b) a defendant who desires to deny only a part of an
averment specifies so much of it as is true and material and
denies only the remainder; and (c) a defendant who is without
knowledge or information sufficient to form a belief as to the
truth of a material averment made in the complaint states so,
which has the effect of a denial.
The express qualifications contained in paragraph 2.01 of
Cojuangcos Answer constituted efficient specific denials of the
averments of paragraph 2 of the Republics Amended Complaint
under the first method mentioned in Section 10 of Rule 8, supra.
Indeed, the aforequoted paragraphs of the Amended Complaint
and of Cojuangcos Answer indicate that Cojuangco thereby
expressly qualified his admission of having been the President and
a Director of the UCPB with the averment that the UCPB was a
"private corporation;" that his Answers allegation of his being a
member of the Board of Directors of the United Coconut Oil Mills,
Inc. did not admit that he was a member of the Board of Directors
of the CIIF Oil Mills, because the United Coconut Oil Mills, Inc. was
not one of the CIIF Oil Mills; and that his Answer nowhere
contained any admission or statement that he had held the
various positions in the government or in the private corporations
at the same time and in 1983, the time when the contested
acquisition of the SMC shares of stock took place.
What the Court stated in Bitong v. Court of Appeals (Fifth
Division)110 as to admissions is illuminating:
When taken in its totality, the Amended Answer to the Amended
Petition, or even the Answer to the Amended Petition alone,
clearly raises an issue as to the legal personality of petitioner to
file the complaint. Every alleged admission is taken as an entirety
53

Corpo Page 7 Cases

of the fact which makes for the one side with the qualifications
which limit, modify or destroy its effect on the other side. The
reason for this is, where part of a statement of a party is used
against him as an admission, the court should weigh any other
portion connected with the statement, which tends to neutralize
or explain the portion which is against interest.
In other words, while the admission is admissible in evidence, its
probative value is to be determined from the whole statement
and others intimately related or connected therewith as an
integrated unit. Although acts or facts admitted do not require
proof and cannot be contradicted, however, evidence aliunde can
be presented to show that the admission was made through
palpable mistake. The rule is always in favor of liberality in
construction of pleadings so that the real matter in dispute may
be submitted to the judgment of the court.
And, lastly, the Republic cites the following portions of the joint
Pre-Trial Brief of Cojuangco, et al.,111 to wit:
IV.
PROPOSED EVIDENCE
xxx
4.01. xxx Assuming, however, that plaintiff presents evidence to
support its principal contentions, defendants evidence in rebuttal
would include testimonial and documentary evidence showing: a)
the ownership of the shares of stock prior to their acquisition by
respondents (listed in Annexes A" and B"); b) the consideration
for the acquisition of the shares of stock by the persons or
companies in whose names the shares of stock are now
registered; and c) the source of the funds used to pay the
purchase price.
4.02. Herein respondents intend to present the following
evidence:

4.03. Witnesses.
xxx
(b) A representative of the United Coconut Planters
Bank who will testify in regard the loans which were
used to source the payment of the price of SMC shares
of stock.
(c) A representative from the CIIF Oil Mills who will
testify in regard the loans or credit advances which
were used to source the payment of the purchase
price of the SMC shares of stock.
The Republic insists that the aforequoted portions of the joint
Pre-Trial Brief were Cojuangco, et al.s admission that:
(a) Cojuangco had received money from the UCPB, a
bank entrusted by law with the administration of the
coconut levy funds; and
(b) Cojuangco had received more money from the CIIF
Oil Mills in which part of the CIIF funds had been
placed, and thereby used the funds of the UCPB and
the CIIF as capital to buy his SMC shares.112
We disagree with the Republics posture.
The statements found in the joint Pre-Trial Brief of Cojuangco, et
al. were noticeably written beneath the heading of Proposed
Evidence. Such location indicated that the statements were only
being proposed, that is, they were not yet intended or offered as
admission of any fact stated therein. In other words, the matters
stated or set forth therein might or might not be presented at all.
Also, the text and tenor of the statements expressly conditioned
the proposal on the Republic ultimately presenting its evidence in
the action. After the Republic opted not to present its evidence,
the condition did not transpire; hence, the proposed admissions,
assuming that they were that, did not materialize.

xxx
b. Proposed Exhibits ____, ____, ____
Records of the United Coconut Planters Bank which would show
borrowings of the companies listed in Annexes "A" and "B", or
companies affiliated or associated with them, which were used to
source payment of the shares of stock of the San Miguel
Corporation subject of this case.

Obviously, too, the statements found under the heading of

Proposed Evidence in the joint Pre-Trial Brief were incomplete
and inadequate on the important details of the supposed
transactions (i.e., alleged borrowings and advances). As such, they
could not constitute admissions that the funds had come from
borrowings by Cojuangco, et al. from the UCPB or had been credit
advances from the CIIF Oil Companies. Moreover, the purpose for
presenting the records of the UCPB and the representatives of the
UCPB and of the still unidentified or unnamed CIIF Oil Mills as
declared in the joint Pre-Trial Brief did not at all show whether the

UCPB and/or the unidentified or unnamed CIIF Oil Mills were the
only sources of funding, or that such institutions, assuming them
to be the sources of the funding, had been the only sources of
funding. Such ambiguousness disqualified the statements from
being relied upon as admissions. It is fundamental that any
statement, to be considered as an admission for purposes of
judicial proceedings, should be definite, certain and
unequivocal;113 otherwise, the disputed fact will not get settled.

stock constituted ill-gotten wealth. The Republic was well

apprised of its burden of proof, first through the joinder of issues
made by the responsive pleadings of the defendants, including
Cojuangco, et al. The Republic was further reminded through the
pre-trial order and the Resolution denying its Motion for
Summary Judgment, supra, of the duty to prove the factual
allegations on ill-gotten wealth against Cojuangco, et al.,
specifically the following disputed matters:

Another reason for rejecting the Republics posture is that the

Sandiganbayan, as the trial court, was in no position to secondguess what the non-presented records of the UCPB would show
as the borrowings made by the corporations listed in Annexes A
and B, or by the companies affiliated or associated with them,
that "were used to source payment of the shares of stock of the
San Miguel Corporation subject of this case," or what the
representative of the UCPB or the representative of the CIIF Oil
Mills would testify about loans or credit advances used to source
the payment of the price of SMC shares of stock.

(a) When the loans or advances were incurred;

Lastly, the Rules of Court has no rule that treats the statements
found under the heading Proposed Evidence as admissions
binding Cojuangco, et al. On the contrary, the Rules of Court has
even distinguished between admitted facts and facts proposed to
be admitted during the stage of pre-trial. Section 6 (b),114 Rule 18
of the Rules of Court, requires a Pre-Trial Brief to include a
summary of admitted facts and a proposed stipulation of facts.
Complying with the requirement, the joint Pre-Trial Brief of
Cojuangco, et al. included the summary of admitted facts in its
paragraph 3.00 of its Item III, separately and distinctly from the
Proposed Evidence, to wit:

(d) The conditions attendant to the loans or advances,

if any;

III.
SUMMARY OF UNDISPUTED FACTS
3.00. Based on the complaint and the answer, the acquisition of
the San Miguel shares by, and their registration in the names of,
the companies listed in Annexes "A" and "B" may be deemed
undisputed.
3.01. All other allegations in the complaint are disputed.115
The burden of proof, according to Section 1, Rule 131 of the Rules
of Court, is "the duty of a party to present evidence on the facts in
issue necessary to establish his claim or defense by the amount of
evidence required by law." Here, the Republic, being the plaintiff,
was the party that carried the burden of proof. That burden
required it to demonstrate through competent evidence that the
respondents, as defendants, had purchased the SMC shares of
stock with the use of public funds; and that the affected shares of
54

Corpo Page 7 Cases

(b) The amount of the loans from the UCPB and of the
credit advances from the CIIF Oil Mills, including the
specific CIIF Oil Mills involved;
(c) The identities of the borrowers, that is, all of the
respondent corporations together, or separately; and
the amounts of the borrowings;

(e) The manner, form, and time of the payments made

to Zobel or to the Ayala Group, whether by check,
letter of credit, or some other form; and
(f) Whether the loans were paid, and whether the
advances were liquidated.
With the Republic nonetheless choosing not to adduce evidence
proving the factual allegations, particularly the aforementioned
matters, and instead opting to pursue its claims by Motion for
Summary Judgment, the Sandiganbayan became completely
deprived of the means to know the necessary but crucial details of
the transactions on the acquisition of the contested block of
shares. The Republics failure to adduce evidence shifted no
burden to the respondents to establish anything, for it was basic
that the party who asserts, not the party who denies, must
prove.116 Indeed, in a civil action, the plaintiff has the burden of
pleading every essential fact and element of the cause of action
and proving them by preponderance of evidence. This means that
if the defendant merely denies each of the plaintiffs allegations
and neither side produces evidence on any such element, the
plaintiff must necessarily fail in the action.117 Thus, the
Sandiganbayan correctly dismissed Civil Case No. 0033-F for
failure of the Republic to prove its case by preponderant
evidence.
A summary judgment under Rule 35 of the Rules of Court is a
procedural technique that is proper only when there is no genuine
issue as to the existence of a material fact and the moving party is

entitled to a judgment as a matter of law.118 It is a method

intended to expedite or promptly dispose of cases where the facts
appear undisputed and certain from the pleadings, depositions,
admissions, and affidavits on record.119 Upon a motion for
summary judgment the courts sole function is to determine
whether there is an issue of fact to be tried, and all doubts as to
the existence of an issue of fact must be resolved against the
moving party. In other words, a party who moves for summary
judgment has the burden of demonstrating clearly the absence of
any genuine issue of fact, and any doubt as to the existence of
such an issue is resolved against the movant. Thus, in ruling on a
motion for summary judgment, the court should take that view of
the evidence most favorable to the party against whom it is
directed, giving that party the benefit of all favorable
inferences.120
The term genuine issue has been defined as an issue of fact that
calls for the presentation of evidence as distinguished from an
issue that is sham, fictitious, contrived, set up in bad faith, and
patently unsubstantial so as not to constitute a genuine issue for
trial. The court can determine this on the basis of the pleadings,
admissions, documents, affidavits, and counter-affidavits
submitted by the parties to the court. Where the facts pleaded by
the parties are disputed or contested, proceedings for a summary
judgment cannot take the place of a trial.121 Well-settled is the
rule that a party who moves for summary judgment has the
burden of demonstrating clearly the absence of any genuine issue
of fact.122 Upon that partys shoulders rests the burden to prove
the cause of action, and to show that the defense is interposed
solely for the purpose of delay. After the burden has been
discharged, the defendant has the burden to show facts sufficient
to entitle him to defend.123 Any doubt as to the propriety of a
summary judgment shall be resolved against the moving party.
We need not stress that the trial courts have limited authority to
render summary judgments and may do so only in cases where no
genuine issue as to any material fact clearly exists between the
parties. The rule on summary judgment does not invest the trial
courts with jurisdiction to try summarily the factual issues upon
affidavits, but authorizes summary judgment only when it appears
clear that there is no genuine issue as to any material fact.124
IV.
Republics burden to establish by preponderance of evidence that
respondents SMC shares had been illegally acquired with
coconut-levy funds was not discharged
Madame Justice Carpio Morales argues in her dissent that
although the contested SMC shares could be inescapably treated
as fruits of funds that are prima facie public in character,
Cojuangco, et al. abstained from presenting countervailing

evidence; and that with the Republic having shown that the SMC
shares came into fruition from coco levy funds that are prima
facie public funds, Cojuangco, et al. had to go forward with
contradicting evidence, but did not.
The Court disagrees. We cannot reverse the decision of November
28, 2007 on the basis alone of judicial pronouncements to the
effect that the coconut levy funds were prima facie public
funds,125 but without any competent evidence linking the
acquisition of the block of SMC shares by Cojuangco, et al. to the
coconut levy funds.
V.
No violation of the DOSRI and
Single Borrowers Limit restrictions
The Republics lack of proof on the source of the funds by which
Cojuangco, et al. had acquired their block of SMC shares has made
it shift its position, that it now suggests that Cojuangco had been
enabled to obtain the loans by the issuance of LOI 926 exempting
the UCPB from the DOSRI and the Single Borrowers Limit
restrictions.
We reject the Republics suggestion.
Firstly, as earlier pointed out, the Republic adduced no evidence
on the significant particulars of the supposed loan, like the
amount, the actual borrower, the approving official, etc. It did not
also establish whether or not the loans were DOSRI126 or issued in
violation of the Single Borrowers Limit. Secondly, the Republic
could not outrightly assume that President Marcos had issued LOI
926 for the purpose of allowing the loans by the UCPB in favor of
Cojuangco. There must be competent evidence to that effect.
And, finally, the loans, assuming that they were of a DOSRI nature
or without the benefit of the required approvals or in excess of
the Single Borrowers Limit, would not be void for that reason.
Instead, the bank or the officers responsible for the approval and
grant of the DOSRI loan would be subject only to sanctions under
the law.127
VI.
Cojuangco violated no fiduciary duties
The Republic invokes the following pertinent statutory provisions
of the Civil Code, to wit:
Article 1455. When any trustee, guardian or other person holding
a fiduciary relationship uses trust funds for the purchase of
55

Corpo Page 7 Cases

property and causes the conveyance to be made to him or to a

third person, a trust is established by operation of law in favor of
the person to whom the funds belong.
Article 1456. If property is acquired through mistake or fraud, the
person obtaining it s by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the
property comes.
and the Corporation Code, as follows:
Section 31. Liability of directors, trustees or officers.Directors or
trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of the corporation
or acquire any personal or pecuniary interest in conflict with their
duty as such directors, or trustees shall be liable jointly and
severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or
acquires, in violation of his duty, any interest adverse to the
corporation in respect of any matter which has been reposed in
him in confidence, as to which equity imposes a disability upon
him to deal in his own behalf, he shall be liable as a trustee for the
corporation and must account for the profits which otherwise
would have accrued to the corporation.
Did Cojuangco breach his "fiduciary duties" as an officer and
member of the Board of Directors of the UCPB? Did his acquisition
and holding of the contested SMC shares come under a
constructive trust in favor of the Republic?
The answers to these queries are in the negative.
The conditions for the application of Articles 1455 and 1456 of the
Civil Code (like the trustee using trust funds to purchase, or a
person acquiring property through mistake or fraud), and Section
31 of the Corporation Code (like a director or trustee willfully and
knowingly voting for or assenting to patently unlawful acts of the
corporation, among others) require factual foundations to be first
laid out in appropriate judicial proceedings. Hence, concluding
that Cojuangco breached fiduciary duties as an officer and
member of the Board of Directors of the UCPB without competent
evidence thereon would be unwarranted and unreasonable.
Thus, the Sandiganbayan could not fairly find that Cojuangco had
committed breach of any fiduciary duties as an officer and
member of the Board of Directors of the UCPB. For one, the
Amended Complaint contained no clear factual allegation on
which to predicate the application of Articles 1455 and 1456 of

the Civil Code, and Section 31 of the Corporation Code. Although

the trust relationship supposedly arose from Cojuangcos being an
officer and member of the Board of Directors of the UCPB, the link
between this alleged fact and the borrowings or advances was not
established. Nor was there evidence on the loans or borrowings,
their amounts, the approving authority, etc. As trial court, the
Sandiganbayan could not presume his breach of fiduciary duties
without evidence showing so, for fraud or breach of trust is never
presumed, but must be alleged and proved.128
The thrust of the Republic that the funds were borrowed or lent
might even preclude any consequent trust implication. In a
contract of loan, one of the parties (creditor) delivers money or
other consumable thing to another (debtor) on the condition that
the same amount of the same kind and quality shall be
paid.129 Owing to the consumable nature of the thing loaned, the
resulting duty of the borrower in a contract of loan is to pay, not
to return, to the creditor or lender the very thing loaned. This
explains why the ownership of the thing loaned is transferred to
the debtor upon perfection of the contract.130 Ownership of the
thing loaned having transferred, the debtor enjoys all the rights
conferred to an owner of property, including the right to use and
enjoy (jus utendi), to consume the thing by its use (jus abutendi),
and to dispose (jus disponendi), subject to such limitations as may
be provided by law.131 Evidently, the resulting relationship
between a creditor and debtor in a contract of loan cannot be
characterized as fiduciary.132
To say that a relationship is fiduciary when existing laws do not
provide for such requires evidence that confidence is reposed by
one party in another who exercises dominion and influence.
Absent any special facts and circumstances proving a higher
degree of responsibility, any dealings between a lender and
borrower are not fiduciary in nature.133 This explains why, for
example, a trust receipt transaction is not classified as a simple
loan and is characterized as fiduciary, because the Trust Receipts
Law (P.D. No. 115) punishes the dishonesty and abuse of
confidence in the handling of money or goods to the prejudice of
another regardless of whether the latter is the owner.134
Based on the foregoing, a debtor can appropriate the thing loaned
without any responsibility or duty to his creditor to return the
very thing that was loaned or to report how the proceeds were
used. Nor can he be compelled to return the proceeds and fruits
of the loan, for there is nothing under our laws that compel a
debtor in a contract of loan to do so. As owner, the debtor can
dispose of the thing borrowed and his act will not be considered
misappropriation of the thing.135 The only liability on his part is to
pay the loan together with the interest that is either stipulated or
provided under existing laws.

WHEREFORE, the Court dismisses the petitions for certiorari in

G.R. Nos. 166859 and 169023; denies the petition for review on
certiorari in G.R. No. 180702; and, accordingly, affirms the
decision promulgated by the Sandiganbayan on November 28,
2007 in Civil Case No. 0033-F.
The Court declares that the block of shares in San Miguel
Corporation in the names of respondents Cojuangco, et al. subject
of Civil Case No. 0033-F is the exclusive property of Cojuangco, et
al. as registered owners.
Accordingly, the lifting and setting aside of the Writs of
Sequestration affecting said block of shares (namely: Writ of
Sequestration No. 86-0062 dated April 21, 1986; Writ of
Sequestration No. 86-0069 dated April 22, 1986; Writ of
Sequestration No. 86-0085 dated May 9, 1986; Writ of
Sequestration No. 86-0095 dated May 16, 1986; Writ of
Sequestration No. 86-0096 dated May 16, 1986; Writ of
Sequestration No. 86-0097 dated May 16, 1986; Writ of
Sequestration No. 86-0098 dated May 16, 1986; Writ of
Sequestration No. 86-0042 dated April 8, 1986; and Writ of
Sequestration No. 87-0218 dated May 27, 1987) are affirmed; and
the annotation of the conditions prescribed in the Resolutions
promulgated on October 8, 2003 and June 24, 2005 is
cancelled.SO ORDERED.

Directors; Per diems

G.R. No. 159355

August 9, 2010

GABRIEL C. SINGSON, ANDRE NAVATO, EDGARDO P. ZIALCITA,

ARACELI E. VILLANUEVA, TYRONE M. REYES, JOSE CLEMENTE,
JR., FEDERICO PASCUAL, ALEJANDRA C. CLEMENTE, ALBERT P.
FENIX, JR., and MELPIN A. GONZAGA, Petitioners,
vs.
COMMISSION ON AUDIT, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for certiorari seeking to set aside
Decision No. 2002-081,1 dated April 23, 2002, of the Commission
on Audit (COA), which affirmed the Decision No. 2000-008,2 dated
June 1, 2000, and the Resolution in CAO I Decision No. 2000012,3 dated August 11, 2000, of the Corporate Audit Office I, and
the COA Resolution No. 2003-115,4 dated July 31, 2003, which
denied petitioners motion for reconsideration thereof and
upheld the disallowance of petitioners Representation and
56

Corpo Page 7 Cases

Transportation Allowance (RATA) in the total amount

of P1,565,000.00 under Notice of Disallowance No. 99-001-101
(96-96) dated June 7, 1999.
The antecedents are as follows:
The Philippine International Convention Center, Inc. (PICCI) is a
government corporation whose sole stockholder is the Bangko
Sentral ng Pilipinas (BSP). Petitioner Araceli E. Villanueva was then
a member of the PICCI Board of Directors and Officer-in-Charge
(OIC) of PICCI, while co-petitioners Gabriel C. Singson, Andre
Navato, Edgardo P. Zialcita, and Melpin A. Gonzaga, Alejandra C.
Clemente, Jose Clemente, Jr., Federico Pascual, Albert P. Fenix, Jr.,
and Tyrone M. Reyes were then members of the PICCI Board of
Directors and officials of the BSP. By virtue of the PICCI By-Laws,
petitioners were authorized to receive P1,000.00 per diem each
for every meeting attended. Pursuant to its Monetary Board (MB)
Resolution No. 155 dated January 5, 1994, as amended by MB
Resolution No. 34 dated January 12, 1994, the BSP MB granted
additional monthly RATA, in the amount ofP1,500.00, to each of
the petitioners, as members of the Board of Directors of PICCI.
Consequently, from January 1996 to December 1998, petitioners
received their corresponding RATA in the total amount
of P1,565,000.00.
On June 7, 1999, then PICCI Corporate Auditor Adelaida A.
Aldovino issued Notice of Disallowance No. 99-001-101 (9698),6 addressed to petitioner Araceli E. Villanueva (through then
OIC Susan M. Galang of the Accounting Division of PICCI),
disallowing in audit the payment of petitioners RATA in the total
amount of P1,565,000.00,7and directing them to settle
immediately the said disallowances, due to the following reasons:
(a) As to petitioner Araceli E. Villanueva, there was double
payment of RATA to her as member of the PICCI Board and as OIC
of PICCI, which was in violation of Section 8, Article IX-B of the
1987 Constitution and, moreover, Compensation Policy Guideline
No. 6 provides that an official already granted commutable RATA
and designated by competent authority to perform duties in
concurrent capacity as OIC of another position whether or not in
the same agency and entitled to similar benefits, shall not be
granted said similar benefits, except where said similar allowances
are higher in rates than those of his regular position, in which case
he may be allowed to collect the difference thereof; and (b) As to
petitioners Gabriel Singson, Andre Navato, Edgardo Zialcita,
Melpin Gonzaga, Alejandra Clemente, Jose Clemente, Jr., Federico
Pascual, Albert P. Fenix, Jr., and Tyrone M. Reyes, there was
double payment of RATA to them as members of the PICCI Board
and as officers of BSP, which was in violation of Section 8, Article
IX-B of the 1987 Constitution and PICCI By-laws and, further, the
contemplation of the constitutional provisions which authorized
double compensation is construed to mean statutes passed by the
national legislative body and does not include resolutions passed

by governing boards, i.e., Section 229 of the Government

Accounting and Auditing Manual.
In a letter8 dated September 27, 1999, petitioners, through Board
Member and OIC of PICCI Araceli E. Villanueva, sought
reconsideration of the Notice of Disallowance No. 99-001-01 (9698) dated June 7, 1999.
In a letter9 dated October 14, 1999, PICCI Corporate Auditor
Aldovino denied petitioners motion for reconsideration and, on
February 18, 2000, petitioners filed their Notice of Appeal10 and
Appeal Memorandum.11
On June 1, 2000, Director Crescencio S. Sunico of the Corporate
Audit Office I, COA, rendered a Decision in CAO I Decision No.
2000-208 affirming the disallowance of the RATA received by
petitioners in their capacity as Directors of the PICCI Board. He
stated that except for per diems, Section 8, Article III of the PICCI
By-Laws prohibits the payment of salary to directors in the form
of compensation or reimbursement of expenses, based upon the
principle expression unius est exclusio alterius (the express
mention of one thing in a law means the exclusion of others not
expressly mentioned). Neither can the payment of RATA be legally
founded on Section 30 of the Corporation Code which states that
in the absence of any provision in the by-laws fixing their
compensation, the directors shall not receive any compensation
as such directors, except for reasonable per diems; provided,
however, that any such compensation (other than per diems) may
be granted to directors by the vote of the stockholders
representing at least a majority of the outstanding capital stock at
a regular or special stockholders' meeting. The power to fix the
compensation which the directors shall receive, if any, is left to
the corporation, to be determined in its by-laws or by the vote of
stockholders. The PICC By-Laws allows only the payment of per
diem to the directors. Thus, the BSP board resolution granting
RATA of P1,500.00 to petitioners violated the PICCI By-Laws.
Director Sunico also explained that although MB Resolution No.
15, dated January 5, 1994, as amended by MB Resolution No. 34,
dated January 12, 1994, would have the effect of amending the
PICCI By-laws, and may render the grant of RATA valid, such
amendment, however, had no effect because it failed to comply
with the procedural requirements set forth under Section 48 of
the Corporation Code.12
On August 11, 2000, Director Sunico issued a Resolution in CAO I
Decision No. 2000-012, affirming the disallowance of the RATA
received by the petitioners in their capacity as directors in the
total amount ofP1,565,000.00.
On petition for review by petitioners, the COA rendered the
assailed COA Decision No. 2002-081 dated April 23, 2002,
affirming CAO I Decision No. 2000-008 dated June 1, 2000 and

Notice of Disallowance No. 99-001-101 (96-98) dated June 7,

1999. It also directed the Auditor to determine the amounts to be
refunded by petitioners and to enforce and monitor their
settlement. It ruled that petitioners receipt of the P1,500.00
RATA from the BSP for every meeting they attended as members
of the PICCI Board of Directors was not valid.
In COA Decision No. 2003-115, dated July 31, 2003, the COA
issued a Resolution denying petitioners motion for
reconsideration and upheld the disallowance of the petitioners
RATA amounting to P1,565,000.00.
Hence, this present petition for certiorari raising the following
grounds:
I.
THE RESPONDENT COA COMMITTED GRAVE ABUSE OF
DISCRETION IN FINDING THAT THE PETITIONERS VIOLATED ITS BYLAWS WHEN SECTION 30 OF THE CORPORATION CODE
AUTHORIZES THE STOCKHOLDERS TO GRANT COMPENSATION TO
ITS DIRECTORS.

PICCIs sole stockholder, BSP (through its own governing body, the
Monetary Board), per MB Resolution No. 15 dated January 5,
1994, as amended by MB Resolution No. 34 dated January 12,
1994.
Respondent counters that said provision does not apply to
petitioners as Section 8 of the PICCI By-laws provides that the
compensation of the members of the PICCI Board of Directors
shall be given only through per diems.
Section 30 of the Corporation Code, which authorizes the
stockholders to grant compensation to its directors, states:
Sec. 30. Compensation of Directors. In the absence of any
provision in the by-laws fixing their compensation, the directors
shall not receive any compensation, as such directors, except for
reasonable per diems; Provided, however, that any such
compensation (other than per diems) may be granted to directors
by the vote of the stockholders representing at least a majority of
the outstanding capital stock at a regular or special stockholders
meeting. In no case shall the total yearly compensation of
directors, as such directors, exceed ten (10%) percent of the net
income before income tax of the corporation during the preceding
year.

II.
THE RESPONDENT COA COMMITTED GRAVE ABUSE OF
DISCRETION IN FINDING THAT THE PAYMENT OF RATA TO BSP
OFFICIALS WHO ARE MEMBERS OF THE PICCI BOARD VIOLATED
ITEM NO. 4 OF NATIONAL COMPENSATION CIRCULAR (NCC) NO.
67 DATED JANUARY [1], 1992 ISSUED BY THE DEPARTMENT OF
BUDGET AND MANAGEMENT (DBM) AS SAID NCC SPECIFICALLY
APPLIES ONLY TO "NATIONAL GOVERNMENT OFFICIALS AND
EMPLOYEES."
III.
THE RESPONDENT COA COMMITTED GRAVE ABUSE OF
DISCRETION IN DIRECTING THE AUDITOR TO ENFORCE REFUND OF
THE PAYMENTS TO THE PETITIONERS [WHO ARE] DIRECTORS AS
THE PETITIONERS ENJOY THE PRESUMPTION OF GOOD FAITH AND
ARE CONVINCED THAT THEY ARE LEGALLY ENTITLED THERETO IN
THE LIGHT OF THE SUPREME COURT DECISION IN ASSOCIATION
OF DEDICATED EMPLOYEES OF THE PHILIPPINE TOURISM
AUTHORITY (ADEPT) VS. COA, 295 SCRA 366.13
Petitioners contend that since PICCI was incorporated with the
Securities and Exchange Commission (SEC) (SEC Regulation No.
68840) and has no original charter, it should be governed by
Section 30 of the Corporation Code. According to petitioners,
their receipt of RATA as directors of PICCI was sanctioned by
57

Corpo Page 7 Cases

In construing the said provision, it bears stressing that the

directors of a corporation shall not receive any compensation for
being members of the board of directors, except for
reasonable per diems. The two instances where the directors are
to be entitled to compensation shall be when it is fixed by the
corporations by-laws or when the stockholders, representing at
least a majority of the outstanding capital stock, vote to grant the
same at a regular or special stockholders meeting, subject to the
qualification that, in any of the two situations, the total yearly
compensation of directors, as such directors, shall in no case
exceed ten (10%) percent of the net income before income tax of
the corporation during the preceding year.
Section 8 of the Amended By-Laws of PICCI,14 in consonance with
Section 30 of the Corporation Code, restricted the scope of
petitioners compensation by fixing their per diem at P1,000.00:
Sec. 8. Compensation. Directors, as such, shall not receive any
salary for their services but shall receive a per diem of one
thousand pesos (P1,000.00) per meeting actually
attended; Provided, that the Board of Directors at a regular and
special meeting may increase and decrease, as circumstances
shall warrant, such per diems to be received. Nothing herein
contained shall be construed to preclude any director from
serving the Corporation in any capacity and receiving
compensation therefor.15

The nomenclature for the compensation of the directors used

herein is per diems, and not salary or any other words of similar
import. Thus, petitioners are allowed to receive only per
diems of P1,000.00 for every meeting that they actually attended.
However, the Board of Directors may increase or decrease the
amount of per diems, when the prevailing circumstances shall
warrant. No other compensation may be given to them, except
only when they serve the corporation in another capacity.
Petitioners justify their entitlement to P1,500.00 RATA from the
PICCI, on the theory that:
[T]he purpose in issuing NCC No. 67 is to ensure uniformity and
consistency of actions on claims for RATA which is granted by law
to national government officials and employees to cover expenses
incurred in the discharge or performance of their duties and
responsibilities. Moreover, Item 2 of NCC 67 enumerated the
national government officials and employees that are covered by
the Circular, to wit:
[1] Those whose positions are listed under Service
Code 18 of the Index of Occupational Services issued
by the Department of Budget and Management (DBM),
pursuant to NCC No. 57, except for the positions of the
President, Vice-President, Lupon Member and Lupon
Chairman and positions under the Local Executives
Group;
[2] Those whose positions are identified as chiefs of
division in the Personal Services Itemization;
[3] Those whose positions are determined by the DBM
to be of equivalent rank with the officials and
employees enumerated under Section 2.1 and 2.2
hereof x x x; and
[4] Those who are duly designated by competent
authority to perform the full-time duties and
responsibilities, whether or not in concurrent capacity,
as Officers-in-Charge for one (1) final calendar month
or more of the positions enumerated in Sections 2.1,
2.2 and 2.3 hereof.
The PICCI is not an originally chartered corporation, but a
subsidiary corporation of BSP organized in accordance with the
Corporation Code of the Philippines. The Articles of Incorporation
of PICCI was registered on July 29, 1976 in the Securities and
Exchange Commission. As such, PICCI does not fall within the
coverage of NCC No. 67. As a matter of fact, by virtue of P.D. [No.]
520, PICCI is exempt from the coverage of the civil service law and
regulations (and Constitution defining coverage of civil service as

limited to those with original [charter] (TUCP v. NHA, G.R. No.

49677, May 4, 1089, Article IX-B, Sec. 1). Certainly, if PICCI is not
part of the National Government, but a mere subsidiary of a
government-owned and/or controlled corporation (BSP), its
officers, and more importantly, its directors, are not covered by
the term "national government officials and employees" to which
NCC No. 67 finds application.
Even the BSP, which is the sole stockholder of PICCI, is not
covered by NCC No. 67, not only for the same reasons stated
above but for the reason that it enjoys fiscal and administrative
autonomy, which is defined as the "guarantee of full flexibility to
allocate and utilize their resources with the wisdom and dispatch
that their needs require" (Bengzon v. Drilon, 208 SCRA 133).16
Respondent maintains that petitioners receipt of RATA from
PICCI, in addition to their per diem of P1,000 per meeting, and
another RATA from BSP, violates the rule against double
compensation; that as former officers of the BSP, petitioners
Gabriel P. Singson, Araceli E. Villanueva, Andre Navato, Edgardo P.
Zialcita, and Melpin A. Gonzaga were also receiving RATA from the
BSP, in addition to the RATA granted to them as PICCI Directors;
that there is double payment of RATA, since petitioners
membership in the PICCI Board is a mere adjunct of their positions
as BSP officials; that double compensation refers to two sets of
compensations for two different offices held concurrently by one
officer; and that while there is no general prohibition against
holding two offices which are not incompatible, when an officer
accepts a second office, he can draw the salary attached to such
second office only when he is specifically authorized by law which
does not exist in the present case.
In her letter, dated October 14, 1999, to petitioner Araceli E.
Villanueva, Corporate Auditor Adelaida A. Aldovino reiterated her
decision disallowing disbursements for RATA of PICCI directors for
the reasons set forth in Notice of Disallowance No. 99-001-101
(96-98). Thus,
Moreover, while the directors are not strictly speaking Officers-inCharge, but because they are doing duties in concurrent
capacities and are already receiving RATA from their principal
office, Budget Compensation Policy Guideline No. 6, dated
September 1, 1982, is applicable.
No. 3.0 of the guideline provides:
3.1 An Official/employee already entitled/granted commutable
transportation/representation allowances and designated by
competent authority to perform duties and responsibilities in
concurrent capacity as Officer-in-Charge of another position(s),
whether CES or non-CES, whether or not in the same

ministry/bureau/office or agency and entitled to similar

benefits/allowances, whether commutable or reimbursable,
except where similar allowances are higher in rates than those of
his regular position, in which case he may be allowed to collect
the difference thereof, provided the period of his temporary
stewardship is not less than one month on a reimbursable basis.
In view of the foregoing, we are reiterating our decision
disallowing disbursement for RATA of PICCI directors for reasons
stated in our Notice of Disallowance No. 99-001-01 (9698).1avvphi1
Further, please be reminded that disallowance not appealed
within six (6) months as prescribed under Section 48, 50 and 51 of
PD 1445 shall become final and executory.17
In COA Decision No. 2002-081 dated April 23, 2002, respondent
concluded that the payment of RATA to petitioners violated Item
No. 4 of National Compensation Circular (NCC) No. 67, dated
January 1, 1992, issued by the DBM, as the petitioners were
already drawing RATA from their mother agencies and, hence,
their receipt of RATA from PICCI was without legal basis and
constituted double compensation of RATA which is prohibited
under the Constitution. It also explained that under the By-Laws
of PICCI, the compensation of its directors should be in the form
of per diem and not RATA, and as the By-Laws have the same
force and effect of law as the corporate charter, its directors and
officers are under obligation to comply therewith.
Section 8, Article IX-B of the Constitution provides that no elective
or appointive public officer or employee shall receive additional,
double or indirect compensation, unless specifically authorized by
law, nor accept without the consent of the Congress, any present
emolument, office or title of any kind from any foreign
government. Pensions and gratuities shall not be considered as
additional, double or indirect compensation.
This provision, however, does not apply to the present case as
there was no double compensation of RATA to the petitioners.
In Leynes v. Commission on Audit,18 the Court clarified that what
National Compensation Circular (NCC) No. 67 seeks to prevent is
the dual collection of RATA by a national official from the budgets
of "more than one national agency." In the said case, the
interpretation was that NCC No. 67 cannot be construed as
nullifying the power of therein local government units to grant
allowances to judges under the Local Government Code of 1991.
Further, NCC No. 67 applies only to the national funds
administered by the DBM, not the local funds of the local
government units. Thus,

The pertinent provisions of NCC No. 67 read:

3. Rules and Regulations:
3.1.1 Payment of RATA, whether commutable or reimbursable,
shall be in accordance with the rates prescribed for each of the
following officials and employees and those of equivalent ranks,
and the conditions enumerated under the pertinent sections of
the General Provisions of the annual General Appropriations Act
(GAA):
xxx

Corpo Page 7 Cases

xxx

4. Funding Source:
In all cases, commutable and reimbursable RATA shall be paid
from the amount appropriated for the purpose and other personal
services savings of the agency or project from where the officials
and employees covered under this Circular draw their salaries. No
one shall be allowed to collect RATA from more than one
source. (Italics ours)
In construing NCC No. 67, we apply the principle in statutory
construction that force and effect should not be narrowly given to
isolated and disjoined clauses of the law but to its spirit, broadly
taking all its provisions together in one rational view. Because a
statute is enacted as a whole and not in parts or sections, that is,
one part is as important as the others, the statute should be
construed and given effect as a whole. A provision or section
which is unclear by itself may be clarified by reading and
construing it in relation to the whole statute.
Taking NCC No. 67 as a whole then, what it seeks to prevent is the
dual collection of RATA by a national official from the budgets of
"more than one national agency." We emphasize that the other
source referred to in the prohibition is another national agency.
This can be gleaned from the fact that the sentence "no one shall
be allowed to collect RATA from more than one source" (the
controversial prohibition) immediately follows the sentence that
RATA shall be paid from the budget of the national agency where
the concerned national officials and employees draw their
salaries. The fact that the other source is another national agency
is supported by RA 7645 (the GAA of 1993) invoked by respondent
COA itself and, in fact, by all subsequent GAAs for that matter,
because the GAAs all essentially provide that (1) the RATA of
national officials shall be payable from the budgets of their
respective national agencies and (2) those officials on detail with
other national agencies shall be paid their RATA only from the
budget of their parent national agency:
xxx

58

xxx

xxx

xxx

Clearly therefore, the prohibition in NCC No. 67 is only against the

dual or multiple collection of RATA by a national official from the
budgets of two or more national agencies. Stated otherwise,
when a national official is on detail with another national agency,
he should get his RATA only from his parent national agency and
not from the other national agency he is detailed to.19 (Italics
supplied.)
Moreover, Section 6 of Republic Act No. 7653 (The New Central
Bank Act) defines that the powers and functions of the BSP shall
be exercised by the BSP Monetary Board, which is composed of
seven (7) members appointed by the President of the Philippines
for a term of six (6) years. MB Resolution No. 15,20 dated January
5, 1994, as amended by MB Resolution No. 34, dated January 12,
1994, are valid corporate acts of petitioners that became the
bases for granting them additional monthly RATA of P1,500.00, as
members of the Board of Directors of PICCI. The RATA is distinct
from salary (as a form of compensation). Unlike salary which is
paid for services rendered, the RATA is a form of allowance
intended to defray expenses deemed unavoidable in the
discharge of office. Hence, the RATA is paid only to certain
officials who, by the nature of their offices, incur representation
and transportation expenses.21 Indeed, aside from the RATA that
they have been receiving from the BSP, the grant ofP1,500.00
RATA to each of the petitioners for every board meeting they
attended, in their capacity as members of the Board of Directors
of PICCI, in addition to their P1,000.00 per diem, does not run
afoul the constitutional proscription against double
compensation.
Petitioners invoke the ruling of ADEPT v. COA22 whereby the Court
took into consideration the good faith of therein petitioners and,
thus, allowed them to retain the incentive benefits they had
received for the year 1992.
Respondent points out that the records of the case do not support
petitioners claim of good faith, because they themselves were
the authors of the By-Laws of PICCI which prohibit the receipt of
compensation other than per diems and, therefore, should have
been conversant with the constitutional prohibition on double
compensation.
The Court upholds the findings of respondent that petitioners
right to compensation as members of the PICCI Board of Directors
is limited only to per diem of P1,000.00 for every meeting
attended, by virtue of the PICCI By-Laws. In the same vein, we also
clarify that there has been no double compensation despite the
fact that, apart from the RATA they have been receiving from the
BSP, petitioners have been granted the RATA of P1,500.00 for
every board meeting they attended, in their capacity as members
of the Board of Directors of PICCI, pursuant to MB Resolution No.
1523 dated January 5, 1994, as amended by MB Resolution No. 34
59

Corpo Page 7 Cases

dated January 12, 1994, of the Bangko Sentral ng Pilipinas. In this

regard, we take into consideration the good faith of petitioners.
The ruling in Blaquera, to which the cited case of ADEPT v. COA
was consolidated with, is applicable to the present case as
petitioners acted in good faith. The disposition in De Jesus v.
Commission on Audit,24 which cited Blaquera, is instructive:
Nevertheless, our pronouncement in Blaquera v.
Alcala25 supports petitioners position on the refund of the
benefits they received. In Blaquera, the officials and employees of
several government departments and agencies were paid
incentive benefits which the COA disallowed on the ground that
Administrative Order No. 29 dated 19 January 1993 prohibited
payment of these benefits. While the Court sustained the COA on
the disallowance, it nevertheless declared that:
Considering, however, that all the parties here acted in good faith,
we cannot countenance the refund of subject incentive benefits
for the year 1992, which amounts the petitioners have already
received. Indeed, no indicia of bad faith can be detected under
the attendant facts and circumstances. The officials and chiefs of
offices concerned disbursed such incentive benefits in the honest
belief that the amounts given were due to the recipients and the
latter accepted the same with gratitude, confident that they richly
deserve such benefits.
This ruling in Blaquera applies to the instant case. Petitioners here
received the additional allowances and bonuses in good faith
under the honest belief that LWUA Board Resolution No. 313
authorized such payment. At the time petitioners received the
additional allowances and bonuses, the Court had not yet
decided Baybay Water District [v. Commission on
Audit].26 Petitioners had no knowledge that such payment was
without legal basis. Thus, being in good faith, petitioners need not
refund the allowances and bonuses they received but disallowed
by the COA.27
In subsequent cases,28 the Court took into account the good faith
of the recipients of the allowances, bonuses, and other benefits
disallowed by respondent and ruled that they need not refund the
same.
As petitioners believed in good faith that they are entitled to the
RATA of P1,500.00 for every board meeting they attended, in
their capacity as members of the Board of Directors of PICCI,
pursuant to MB Resolution No. 1529dated January 5, 1994, as
amended by MB Resolution No. 34 dated January 12, 1994, of the
BSP, the Court sees no need for them to refund their RATA
respectively, in the total amount of P1,565,000.00, covering the
period from 1996-1998.

WHEREFORE, the petition is DISMISSED. Decision No. 2002-081,

dated April 23, 2002, of the Commission on Audit and its
Resolution No. 2003-115, dated July 31, 2003, which denied
petitioners motion for reconsideration thereof and upheld the
disallowance of petitioners Representation and Transportation
Allowance (RATA) in the total amount of P1,565,000.00 under
Notice of Disallowance No. 99-001-101 (96-96) dated June 7,
1999, areAFFIRMED WITH MODIFICATION. Petitioners need not
refund the Representation and Transportation Allowance (RATA)
they received pursuant to Monetary Board Resolution No.
1530 dated January 5, 1994, as amended by Monetary Board
Resolution No. 34 dated January 12, 1994, of the Bangko Sentral
ng Pilipinas granting each of them an additional monthly RATA
of P1,500.00, for every meeting attended, in their capacity as
members of the Board of Directors of Philippine International
Convention Center, Inc. (PICCI), or in the total amount
ofP1,565,000.00, covering the period from 1996-1998.SO
ORDERED.

Director; Holdover
G.R. No. 151969

September 4, 2009

VALLE VERDE COUNTRY CLUB, INC., ERNESTO VILLALUNA, RAY

GAMBOA, AMADO M. SANTIAGO, JR., FORTUNATO DEE,
AUGUSTO SUNICO, VICTOR SALTA, FRANCISCO ORTIGAS III, ERIC
ROXAS, in their capacities as members of the Board of Directors
of Valle Verde Country Club, Inc., and JOSE RAMIREZ,Petitioners,
vs.
VICTOR AFRICA, Respondent.
DECISION
BRION, J.:
In this petition for review on certiorari,1 the parties raise a legal
question on corporate governance: Can the members of a
corporations board of directors elect another director to fill in a
vacancy caused by the resignation of a hold-over director?
THE FACTUAL ANTECEDENTS
On February 27, 1996, during the Annual Stockholders Meeting of
petitioner Valle Verde Country Club, Inc. (VVCC), the following
were elected as members of the VVCC Board of Directors: Ernesto
Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal
(Makalintal), Francisco Ortigas III, Victor Salta, Amado M.
Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa.2 In
the years 1997, 1998, 1999, 2000, and 2001, however, the

requisite quorum for the holding of the stockholders meeting

could not be obtained. Consequently, the above-named directors
continued to serve in the VVCC Board in a hold-over capacity.
On September 1, 1998, Dinglasan resigned from his position as
member of the VVCC Board. In a meeting held on October 6,
1998, the remaining directors, still constituting a quorum of
VVCCs nine-member board, elected Eric Roxas (Roxas) to fill in
the vacancy created by the resignation of Dinglasan.
A year later, or on November 10, 1998, Makalintal also resigned
as member of the VVCC Board. He was replaced by Jose Ramirez
(Ramirez), who was elected by the remaining members of the
VVCC Board on March 6, 2001.
Respondent Africa (Africa), a member of VVCC, questioned the
election of Roxas and Ramirez as members of the VVCC Board
with the Securities and Exchange Commission (SEC) and the
Regional Trial Court (RTC), respectively. The SEC case questioning
the validity of Roxas appointment was docketed as SEC Case No.
01-99-6177. The RTC case questioning the validity of Ramirez
appointment was docketed as Civil Case No. 68726.
In his nullification complaint3 before the RTC, Africa alleged that
the election of Roxas was contrary to Section 29, in relation to
Section 23, of the Corporation Code of the Philippines
(Corporation Code). These provisions read:
Sec. 23. The board of directors or trustees. - Unless otherwise
provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year
until their successors are elected and qualified.
xxxx
Sec. 29. Vacancies in the office of director or trustee. - Any
vacancy occurring in the board of directors or trustees other than
by removal by the stockholders or members or by expiration of
term, may be filled by the vote of at least a majority of the
remaining directors or trustees, if still constituting a quorum;
otherwise, said vacancies must be filled by the stockholders in a
regular or special meeting called for that purpose. A director or
trustee so elected to fill a vacancy shall be elected only for the
unexpired term of his predecessor in office. xxx. [Emphasis
supplied.]

60

Corpo Page 7 Cases

Africa claimed that a year after Makalintals election as member

of the VVCC Board in 1996, his [Makalintals] term as well as
those of the other members of the VVCC Board should be
considered to have already expired. Thus, according to Africa, the
resulting vacancy should have been filled by the stockholders in a
regular or special meeting called for that purpose, and not by the
remaining members of the VVCC Board, as was done in this case.
Africa additionally contends that for the members to exercise the
authority to fill in vacancies in the board of directors, Section 29
requires, among others, that there should be an unexpired term
during which the successor-member shall serve. Since
Makalintals term had already expired with the lapse of the oneyear term provided in Section 23, there is no more "unexpired
term" during which Ramirez could serve.
4

Through a partial decision promulgated on January 23, 2002, the

RTC ruled in favor of Africa and declared the election of Ramirez,
as Makalintals replacement, to the VVCC Board as null and void.
Incidentally, the SEC issued a similar ruling on June 3, 2003,
nullifying the election of Roxas as member of the VVCC Board,
vice hold-over director Dinglasan. While VVCC manifested its
intent to appeal from the SECs ruling, no petition was actually
filed with the Court of Appeals; thus, the appellate court
considered the case closed and terminated and the SECs ruling
final and executory.5

year and until his successor is elected and qualified; otherwise

stated, a members term expires only when his successor to the
Board is elected and qualified. Thus, "until such time as [a
successor is] elected or qualified in an annual election where a
quorum is present," VVCC contends that "the term of [a member]
of the board of directors has yet not expired."
As the vacancy in this case was caused by Makalintals resignation,
not by the expiration of his term, VVCC insists that the board
rightfully appointed Ramirez to fill in the vacancy.
In support of its arguments, VVCC cites the Courts ruling in the
1927 El Hogar6 case which states:
Owing to the failure of a quorum at most of the general meetings
since the respondent has been in existence, it has been the
practice of the directors to fill in vacancies in the directorate by
choosing suitable persons from among the stockholders. This
custom finds its sanction in Article 71 of the By-Laws, which reads
as follows:
Art. 71. The directors shall elect from among the shareholders
members to fill the vacancies that may occur in the board of
directors until the election at the general meeting.
xxxx

As framed by VVCC, the issue for resolution is whether the

remaining directors of the corporations Board, still constituting a
quorum, can elect another director to fill in a vacancy caused by
the resignation of a hold-over director.

Upon failure of a quorum at any annual meeting the directorate

naturally holds over and continues to function until another
directorate is chosen and qualified. Unless the law or the charter
of a corporation expressly provides that an office shall become
vacant at the expiration of the term of office for which the officer
was elected, the general rule is to allow the officer to hold over
until his successor is duly qualified. Mere failure of a corporation
to elect officers does not terminate the terms of existing officers
nor dissolve the corporation. The doctrine above stated finds
expression in article 66 of the by-laws of the respondent which
declares in so many words that directors shall hold office "for the
term of one year or until their successors shall have been elected
and taken possession of their offices." xxx.

Citing law and jurisprudence, VVCC posits that the power to fill in
a vacancy created by the resignation of a hold-over director is
expressly granted to the remaining members of the corporations
board of directors.

It results that the practice of the directorate of filling vacancies

by the action of the directors themselves is valid. Nor can any
exception be taken to the personality of the individuals chosen by
the directors to fill vacancies in the body. [Emphasis supplied.]

Under the above-quoted Section 29 of the Corporation Code, a

vacancy occurring in the board of directors caused by the
expiration of a members term shall be filled by the corporations
stockholders. Correlating Section 29 with Section 23 of the same
law, VVCC alleges that a members term shall be for one

Africa, in opposing VVCCs contentions, raises the same

arguments that he did before the trial court.

THE PETITION
VVCC now appeals to the Court to assail the RTCs January 23,
2002 partial decision for being contrary to law and jurisprudence.
VVCC made a direct resort to the Court via a petition for review
on certiorari, claiming that the sole issue in the present case
involves a purely legal question.

THE COURTS RULING

We are not persuaded by VVCCs arguments and, thus, find its

petition unmeritorious.
To repeat, the issue for the Court to resolve is whether the
remaining directors of a corporations Board, still constituting a
quorum, can elect another director to fill in a vacancy caused by
the resignation of a hold-over director. The resolution of this legal
issue is significantly hinged on the determination of what
constitutes a directors term of office.
The holdover period is not part of the term of office of a member
of the board of directors
The word "term" has acquired a definite meaning in
jurisprudence. In several cases, we have defined "term" as the
time during which the officer may claim to hold the office as of
right, and fixes the interval after which the several incumbents
shall succeed one another.7 The term of office is not affected by
the holdover.8 The term is fixed by statute and it does not change
simply because the office may have become vacant, nor because
the incumbent holds over in office beyond the end of the term
due to the fact that a successor has not been elected and has
failed to qualify.
Term is distinguished from tenure in that an officers "tenure"
represents the term during which the incumbent actually holds
office. The tenure may be shorter (or, in case of holdover, longer)
than the term for reasons within or beyond the power of the
incumbent.
239

Based on the above discussion, when Section

of the
Corporation Code declares that "the board of directorsshall hold
office for one (1) year until their successors are elected and
qualified," we construe the provision to mean that the term of the
members of the board of directors shall be only for one year; their
term expires one year after election to the office. The holdover
period that time from the lapse of one year from a members
election to the Board and until his successors election and
qualification is not part of the directors original term of office,
nor is it a new term; the holdover period, however, constitutes
part of his tenure. Corollary, when an incumbent member of the
board of directors continues to serve in a holdover capacity, it
implies that the office has a fixed term, which has expired, and
the incumbent is holding the succeeding term.10
After the lapse of one year from his election as member of the
VVCC Board in 1996, Makalintals term of office is deemed to have
already expired. That he continued to serve in the VVCC Board in
a holdover capacity cannot be considered as extending his term.
To be precise, Makalintals term of office began in 1996 and
expired in 1997, but, by virtue of the holdover doctrine in Section
61

Corpo Page 7 Cases

23 of the Corporation Code, he continued to hold office until his

resignation on November 10, 1998. This holdover period,
however, is not to be considered as part of his term, which, as
declared, had already expired.
With the expiration of Makalintals term of office, a vacancy
resulted which, by the terms of Section 2911 of the Corporation
Code, must be filled by the stockholders of VVCC in a regular or
special meeting called for the purpose. To assume as VVCC does
that the vacancy is caused by Makalintals resignation in 1998,
not by the expiration of his term in 1997, is both illogical and
unreasonable. His resignation as a holdover director did not
change the nature of the vacancy; the vacancy due to the
expiration of Makalintals term had been created long before his
resignation.
The powers of the corporations board of directors emanate from
its stockholders
VVCCs construction of Section 29 of the Corporation Code on the
authority to fill up vacancies in the board of directors, in relation
to Section 23 thereof, effectively weakens the stockholders
power to participate in the corporate governance by electing their
representatives to the board of directors. The board of directors is
the directing and controlling body of the corporation. It is a
creation of the stockholders and derives its power to control and
direct the affairs of the corporation from them. The board of
directors, in drawing to themselves the powers of the
corporation, occupies a position of trusteeship in relation to the
stockholders, in the sense that the board should exercise not only
care and diligence, but utmost good faith in the management of
corporate affairs.12
The underlying policy of the Corporation Code is that the business
and affairs of a corporation must be governed by a board of
directors whose members have stood for election, and who have
actually been elected by the stockholders, on an annual basis.
Only in that way can the directors' continued accountability to
shareholders, and the legitimacy of their decisions that bind the
corporation's stockholders, be assured. The shareholder vote is
critical to the theory that legitimizes the exercise of power by the
directors or officers over properties that they do not own.13
This theory of delegated power of the board of directors similarly
explains why, under Section 29 of the Corporation Code, in cases
where the vacancy in the corporations board of directors is
caused not by the expiration of a members term, the successor
"so elected to fill in a vacancy shall be elected only for the
unexpired term of the his predecessor in office." The law has
authorized the remaining members of the board to fill in a
vacancy only in specified instances, so as not to retard or impair
the corporations operations; yet, in recognition of the

stockholders right to elect the members of the board, it limited

the period during which the successor shall serve only to the
"unexpired term of his predecessor in office."
While the Court in El Hogar approved of the practice of the
directors to fill vacancies in the directorate, we point out that this
ruling was made before the present Corporation Code was
enacted14 and before its Section 29 limited the instances when the
remaining directors can fill in vacancies in the board, i.e., when
the remaining directors still constitute a quorum and when the
vacancy is caused for reasons other than by removal by the
stockholders or by expiration of the term.1avvphi1
It also bears noting that the vacancy referred to in Section 29
contemplates a vacancy occurring within the directors term of
office. When a vacancy is created by the expiration of a term,
logically, there is no more unexpired term to speak of. Hence,
Section 29 declares that it shall be the corporations stockholders
who shall possess the authority to fill in a vacancy caused by the
expiration of a members term.
As correctly pointed out by the RTC, when remaining members of
the VVCC Board elected Ramirez to replace Makalintal, there was
no more unexpired term to speak of, as Makalintals one-year
term had already expired. Pursuant to law, the authority to fill in
the vacancy caused by Makalintals leaving lies with the VVCCs
stockholders, not the remaining members of its board of
directors.
WHEREFORE, we DENY the petitioners petition for review on
certiorari, and AFFIRM the partial decision of the Regional Trial
Court, Branch 152, Manila, promulgated on January 23, 2002, in
Civil Case No. 68726. Costs against the petitioners.SO ORDERED.

G.R. No. 178678

April 16, 2009

DR. HANS CHRISTIAN M. SEERES, Petitioner,

vs.
COMMISSION ON ELECTIONS and MELQUIADES A.
ROBLES, Respondents.
D E C I S I O NVELASCO, JR., J.:

point, Seeres would claim that the nominations made by Robles

were, for lack of authority, null and void owing to the expiration
of the latters term as party president. Furthermore, Seeres
asserted that Robles was, under the Constitution,9 disqualified
from being an officer of any political party, the latter being the
Acting Administrator of the Light Railway Transport Authority
(LRTA), a government-controlled corporation. Robles, so Seeres
would charge, was into a partisan political activity which civil
service members, like the former, were enjoined from engaging
in.

BE IT RESOLVED FURTHER, that all rights and privileges pertaining

to the membership of Hans M. Seeres with the party are
consequently cancelled.
BE IT RESOLVED FURTHER, that the President and Chairman of the
National Council of Buhay, Mr. Melquiades A. Robles, is hereby
authorized to cause the necessary filing of whatever
documents/letters before the House of Representatives and/or to
any other entity/agency/person to remove/drop Mr. Seeres
name in the roll of members in the said lower house. 11

The Case
Before us is a Petition for Certiorari1 under Rule 65 with a prayer
for a temporary restraining order and/or preliminary injunction to
nullify and enjoin the implementation of the Resolution2 dated
July 19, 2007 of the Commission on Elections (COMELEC), which
declared respondent Melquiades Robles (Robles) as the President
of Buhay Hayaan Yumabong (Buhay).

On May 10, 2007, the National Council of BUHAY adopted a

resolution10 expelling Seeres as party member for his act of
submitting a Certificate of Nomination for the party. The
resolution reads in part:
WHEREAS, Hans Christian M. Seeres, without authority from the
National Council, caused the filing of his Certificate of Nomination
with the Comelec last 27 March 2007.

The Undisputed Facts

In 1999, private respondent Robles was elected president and
chairperson of Buhay, a party-list group duly registered with
COMELEC.3 The constitution of BUHAY provides for a three-year
term for all its party officers, without re-election.4 BUHAY
participated in the 2001 and 2004 elections, with Robles as its
president. All the required Manifestations of Desire to Participate
in the said electoral exercises, including the Certificates of
Nomination of representatives, carried the signature of Robles as
president of BUHAY.5 On January 26, 2007, in connection with the
May 2007 elections, BUHAY again filed a Manifestation of its
Desire to Participate in the Party-List System of
Representation.6 As in the past two elections, the manifestation
to participate bore the signature of Robles as BUHAY president.
On March 29, 2007, Robles signed and filed a Certificate of
Nomination of BUHAYs nominees for the 2007 elections
containing the following names: (i) Rene M. Velarde, (ii) Ma.
Carissa Coscolluela, (iii) William Irwin C. Tieng, (iv) Melchor R.
Monsod, and (v) Teresita B. Villarama. Earlier, however, or on
March 27, 2007, petitioner Hans Christian Seeres, holding
himself up as acting president and secretary-general of BUHAY,
also filed a Certificate of Nomination with the COMELEC,
nominating: (i) himself, (ii) Hermenegildo C. Dumlao, (iii) Antonio
R. Bautista, (iv) Victor Pablo C. Trinidad, and (v) Eduardo C.
Solangon, Jr.7
Consequently, on April 17, 2007, Seeres filed with the COMELEC
a Petition to Deny Due Course to Certificates of Nomination.8 In it,
petitioner Seeres alleged that he was the acting president and
secretary-general of BUHAY, having assumed that position since
August 17, 2004 when Robles vacated the position. Pushing the
62

Corpo Page 7 Cases

WHEREAS, Hans Christian M. Seeres, again without authority

from the National Council, listed in his Certificate of Nomination
names of persons who are not even members of the Buhay party.
WHEREAS, Hans Christian M. Seeres, knowing fully well that the
National Council had previously approved the following as its
official nominees, to wit x x x to the 2007 Party-List elections; and
that Mr. Melquiades A. Robles was authorized to sign and submit
the partys Certificate of Nomination with the Comelec; and, with
evident premeditation to put the party to public ridicule and with
scheming intention to create confusion, still proceeded with the
filing of his unauthorized certificate of nomination even
nomination persons who are not members of Buhay.
WHEREAS, Hans Christian M. Seeres, in view of the foregoing,
underwent Party Discipline process pursuant to Article VII of the
Constitution and By-Laws of the Party.
xxxx
WHEREAS, after a careful examination of the [evidence] on his
case, the National Council found Hans Christian M. Seeres to
have committed acts in violation of the constitution and by-laws
of the party and decided to expel him as a member of the party.
NOW THEREFORE, be it RESOLVED as it is hereby RESOLVED that
the National Council has decided to expel Hans M. Seeres as a
member of the party effective close of business hour of 10 May
2007.

Later developments saw Robles filing a petition praying for the

recognition of Jose D. Villanueva as the new representative of
BUHAY in the House of Representatives for the remaining term
until June 30, 2007.12 Attached to the petition was a copy of the
expelling resolution adverted to. Additionally, Robles also filed on
the same day an "Urgent Motion to Declare Null and Void the
Certificate of Nomination and Certificates of Acceptance filed by
Hans Christian M. Seeres, Hermenegildo Dumlao, Antonio R.
Bautista, Victor Pablo Trinidad and Eduardo Solangon, Jr."13
On July 9 and July 18, 2007, respectively, the COMELEC issued two
resolutions proclaiming BUHAY as a winning party-list
organization for the May 2007 elections entitled to three (3)
House seats.14
This was followed by the issuance on July 19, 2007 by the en
banc COMELEC of Resolution E.M. No. 07-043 recognizing and
declaring Robles as the president of BUHAY and, as such, was the
one "duly authorized to sign documents in behalf of the party
particularly the Manifestation to participate in the party-list
system of representation and the Certification of Nomination of
its nominees."15 Explaining its action, COMELEC stated that since
no party election was held to replace Robles as party president,
then he was holding the position in a hold-over
capacity.161avvphi1
The COMELEC disposed of the partisan political activity issue with
the terse observation that Seeres arguments on the applicability
to Robles of the prohibition on partisan political activity were
unconvincing.17 The dispositive portion of the COMELEC
Resolution reads:
WHEREFORE, premises considered, this Commission (En Banc)
hereby recognizes Melquiades A. Robles as the duly authorized
representative of Buhay Hayaan Yumabong (Buhay) and to act for
and in its behalf pursuant to its Constitution and By-Laws.
SO ORDERED.18

On July 20, 2007, the first three (3) listed nominees of BUHAY for
the May 2007 elections, as per the Certificate of Nomination filed
by Robles, namely Rene M. Velarde, Ma. Carissa Coscolluela, and
William Irwin C. Tieng, took their oaths of office as BUHAY partylist representatives in the current Congress.19 Accordingly, on
September 3, 2007, the COMELEC, sitting as National Board of
Canvassers, issued a Certificate of Proclamation to BUHAY and its
nominees as representatives to the House of Representatives.20
Aggrieved, petitioner filed the instant petition.
The Issue
Whether or not the COMELEC acted without or in excess of
jurisdiction or with grave abuse of discretion amounting to lack or
excess of jurisdiction in issuing its challenged Resolution dated
June 19, 2007, which declared respondent Robles as the duly
authorized representative of BUHAY, and there is no appeal or
any other plain, speedy or adequate remedy in the ordinary
course of law except the instant petition.
Our Ruling
The petition should be dismissed for lack of merit.
Petition for Certiorari Is an Improper Remedy
A crucial matter in this recourse is whether the petition for
certiorari filed by Seeres is the proper remedy.
A special civil action for certiorari may be availed of when the
tribunal, board, or officer exercising judicial or quasi-judicial
functions has acted without or in excess of jurisdiction and there
is no appeal or any plain, speedy, and adequate remedy in the
ordinary course of law for the purpose of annulling the
proceeding.21 It is the "proper remedy to question any final order,
ruling and decision of the COMELEC rendered in the exercise of its
adjudicatory or quasi-judicial powers."22 For certiorari to prosper,
however, there must be a showing that the COMELEC acted with
grave abuse of discretion and that there is no appeal or any plain,
speedy and adequate remedy in the ordinary course of law.
In the present case, a plain, speedy and adequate remedy in the
ordinary course of law was available to Seeres. The 1987
Constitution cannot be more explicit in this regard. Its Article VI,
Section 17 states:
Sec. 17. The Senate and the House of Representatives shall each
have an Electoral Tribunal which shall be the sole judge of all
63

Corpo Page 7 Cases

contests relating to the election, returns and qualifications of

their respective Members. x x x

COMELEC considering it is BUHAY that ran for election as party-list

organization and not the BUHAY nominees.

This constitutional provision is reiterated in Rule 14 of the 1991

Revised Rules of the Electoral Tribunal of the House of
Representatives, to wit:

The following day, on July 19, 2007, the COMELEC issued the
assailed resolution declaring "Melquiades A. Robles as the duly
authorized representative of Buhay Hayaan Yumabong (Buhay)
and to act in its behalf pursuant to its Constitution and By-Laws."
COMELEC affirmed that his Certificate of Nomination was a valid
one as it ruled that "Robles is the President of Buhay Party-List
and therefore duly authorized to sign documents in behalf of the
party particularly the Manifestation to participate in the pary-list
system of representation and theCertificate of Nomination of its
nominees."29 The September 3, 2007 proclamation merely
confirmed the challenged July 19, 2007 Resolution. The July 19,
2007 Resolution coupled with the July 9, 2007 and July 18, 2007
proclamations vested the Robles nominees the right to represent
BUHAY as its sectoral representatives.

RULE 14. Jurisdiction.The Tribunal shall be the sole judge of all

contests relating to the election, returns and qualifications of the
Members of the House of Representatives.
In Lazatin v. House Electoral Tribunal, the Court elucidated on the
import of the word "sole" in Art. VI, Sec. 17 of the Constitution,
thus:
The use of the word sole emphasizes the exclusive character of
the jurisdiction conferred. The exercise of the power by the
Electoral Commission under the 1935 Constitution has been
described as intended to be as complete and unimpaired as if it
had remained originally in the legislature. Earlier, this grant of
power to the legislature was characterized by Justice Malcolm as
full, clear and complete. Under the amended 1935 Constitution,
the power was unqualifiedly reposed upon the Electoral Tribunal
and it remained as full, clear and complete as that previously
granted the legislature and the Electoral Commission. The same
may be said with regard to the jurisdiction of the Electoral
Tribunals under the 1987 Constitution."23
Then came Rasul v. COMELEC and Aquino-Oreta, in which the
Court again stressed that "the word sole in Sec. 17, Art. VI of the
1987 Constitution and Sec. 250 of the Omnibus Election Code
underscore the exclusivity of the Tribunals jurisdiction over
election contests relating to its members."24
The House of Representatives Electoral Tribunals (HRETs) sole
and exclusive jurisdiction over contests relative to the election,
returns and qualifications of the members of the House of
Representatives "begins only after a candidate has become a
member of the House of Representatives."25 Thus, once a winning
candidate has been proclaimed, taken his oath, and assumed
office as a Member of the House of Representatives, COMELECs
jurisdiction over elections relating to the election, returns, and
qualifications ends, and the HRETs own jurisdiction begins.26
It is undisputed that the COMELEC, sitting as National Board of
Canvassers, proclaimed BUHAY as a winning party-list
organization for the May 14, 2007 elections, entitled to three (3)
seats in the House of Representatives.27 The proclamation came in
the form of two Resolutions dated July 9, 2007 and July 18,
2007,28 respectively. Said resolutions are official proclamations of

Consequently, the first three (3) nominees in the Certificate of

Nomination submitted by Robles then took their oaths of office
before the Chief Justice on July 20, 2007 and have since then
exercised their duties and functions as BUHAY Party-List
representatives in the current Congress.
Without a doubt, at the time Seeres filed this petition before this
Court on July 23, 2007, the right of the nominees as party-list
representatives had been recognized and declared in the July 19,
2007 Resolution and the nominees had taken their oath and
already assumed their offices in the House of Representatives. As
such, the proper recourse would have been to file a petition for
quo warranto before the HRET within ten (10) days from receipt
of the July 19, 2007 Resolution and not a petition for certiorari
before this Court.30
Since Seeres failed to file a petition for quo warranto before the
HRET within 10 days from receipt of the July 19, 2007 Resolution
declaring the validity of Robles Certificate of Nomination, said
Resolution of the COMELEC has already become final and
executory. Thus, this petition has now become moot and can be
dismissed outright. And even if we entertain the instant special
civil action, still, petitioners postulations are bereft of merit.
Act of Nominating Is Not Partisan Political Activity
Petitioner Seeres contends that Robles, acting as BUHAY
President and nominating officer, as well as being the
Administrator of the LRTA, was engaging in electioneering or
partisan political campaign. He bases his argument on the
Constitution, which prohibits any officer or employee in the civil
service from engaging, directly or indirectly, in any electioneering
or partisan political campaign.31 He also cites Sec. 4 of the Civil

Service Law which provides that "no officer or employee in the

Civil Service x x x shall engage in any partisan political activity."
Lastly, he mentions Sec. 26(i) of the Omnibus Election Code which
makes it "an election offense for any officer in the civil service to
directly or indirectly x x x engage in any partisan political activity."
This contention lacks basis and is far from being persuasive. The
terms "electioneering" and "partisan political activity" have wellestablished meanings in the Omnibus Election Code, to wit:
Section 79. x x x
(b) The term election campaign or partisan political activity
refers to an act designed to promote the election or defeat of a
particular candidate or candidates to a public office which shall
include:
(1) Forming organizations, associations, clubs,
committees, or other groups of persons for the
purpose of soliciting votes and/or undertaking any
campaign for or against a candidate;
(2) Holding political caucuses, conferences, meetings,
rallies, parades, or other similar assemblies, for the
purpose of soliciting votes and/or undertaking any
campaign or propaganda for or against a candidate;
(3) Making speeches, announcements or
commentaries, or holding interviews for or against the
election of any candidate for public office;
(4) Publishing or distributing campaign literature or
materials designed to support or oppose the election
of any candidate; or
(5) Directly or indirectly soliciting votes, pledges or
support for or against a candidate.
The foregoing enumerated acts if performed for the purpose of
enhancing the chances of aspirants for nominations for candidacy
to a public office by a political party, agreement, or coalition of
parties shall not be considered as election campaign or partisan
election activity.
Public expression of opinions or discussions of probable issues in a
forthcoming election or on attributes of or criticisms against
probable candidates proposed to be nominated in a forth coming
political party convention shall not be construed as part of any
election campaign or partisan political activity contemplated
under this Article. (Emphasis supplied.)
64

Corpo Page 7 Cases

Guided by the above perspective, Robles act of submitting a

nomination list for BUHAY cannot, without more, be considered
electioneering or partisan political activity within the context of
the Election Code. First of all, petitioner did not aver that Robles
committed any of the five (5) acts defined in the aforequoted Sec.
79(b) of the Code, let alone adduce proof to show the fact of
commission.
Second, even if Robles performed any of the previously
mentioned acts, Sec. 79 of the Code is nonetheless unequivocal
that if the same is done only for the "purpose of enhancing the
chances of aspirants for nominations for candidacy to a public
office by a political party, agreement, or coalition of parties," it is
not considered as a prohibited electioneering or partisan election
activity.
From this provision, one can conclude that as long as the acts
embraced under Sec. 79 pertain to or are in connection with the
nomination of a candidate by a party or organization, then such
are treated as internal matters and cannot be considered as
electioneering or partisan political activity. The twin acts of
signing and filing a Certificate of Nomination are purely internal
processes of the party or organization and are not designed to
enable or ensure the victory of the candidate in the elections. The
act of Robles of submitting the certificate nominating Velarde and
others was merely in compliance with the COMELEC requirements
for nomination of party-list representatives and, hence, cannot be
treated as electioneering or partisan political activity proscribed
under by Sec. 2(4) of Art. IX(B) of the Constitution for civil
servants.
Moreover, despite the fact that Robles is a nominating officer, as
well as Chief of the LRTA, petitioner was unable to cite any legal
provision that prohibits his concurrent positions of LRTA President
and acting president of a party-list organization or that bars him
from nominating.
Last but not least, the nomination of Velarde, Coscolluela, Tieng,
Monsod, and Villarama to the 2007 party-list elections was, in the
final analysis, an act of the National Council of BUHAY. Robles
role in the nominating process was limited to signing, on behalf of
BUHAY, and submitting the partys Certificate of Nomination to
the COMELEC.32 The act of nominating BUHAYs representatives
was veritably a direct and official act of the National Council of
BUHAY and not Robles. Be that as it may, it is irrelevant who
among BUHAYs officials signs the Certificate of Nomination, as
long as the signatory was so authorized by BUHAY. The alleged
disqualification of Robles as nominating officer is indeed a nonissue and does not affect the act of the National Council of
nominating Velarde and others. Hence, the Certificate of
Nomination, albeit signed by Robles, is still the product of a valid
and legal act of the National Council of BUHAY. Robles

connection with LRTA could not really be considered as a factor

invalidating the nomination process.
"Hold-Over" Principle Applies
Petitioner Seeres further maintains that at the time the
Certificate of Nomination was submitted, Robles term as
President of BUHAY had already expired, thus effectively nullifying
the Certificate of Nomination and the nomination process.
Again, petitioners contention is untenable. As a general rule,
officers and directors of a corporation hold over after the
expiration of their terms until such time as their successors are
elected or appointed.33 Sec. 23 of the Corporation Code contains a
provision to this effect, thus:
Section 23. The board of directors or trustees.Unless otherwise
provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year
until their successors are elected and qualified.
The holdover doctrine has, to be sure, a purpose which is at once
legal as it is practical. It accords validity to what would otherwise
be deemed as dubious corporate acts and gives continuity to a
corporate enterprise in its relation to outsiders.34 This is the
analogical situation obtaining in the present case. The voting
members of BUHAY duly elected Robles as party President in
October 1999. And although his regular term as such President
expired in October 2002,35 no election was held to replace him
and the other original set of officers.36 Further, the constitution
and by-laws of BUHAY do not expressly or impliedly prohibit a
hold-over situation. As such, since no successor was ever elected
or qualified, Robles remained the President of BUHAY in a "holdover" capacity.
Authorities are almost unanimous that one who continues with
the discharge of the functions of an office after the expiration of
his or her legal termno successor having, in the meantime,
been appointed or chosenis commonly regarded as a de
facto officer, even where no provision is made by law for his
holding over and there is nothing to indicate the contrary.37 By
fiction of law, the acts of such de facto officer are considered valid
and effective.38
So it must be for the acts of Robles while serving as a hold-over
Buhay President. Among these acts was the submission of the
nomination certificate for the May 14, 2007 elections.

As a final consideration, it bears to state that petitioner is

estopped from questioning the authority of Robles as President of
BUHAY. As a principle of equity rooted on natural justice, the bar
of estoppel precludes a person from going back on his own acts
and representations to the prejudice of another whom he has led
to rely upon them.39
Again, it cannot be denied that Robles, as BUHAY President,
signed all manifestations of the partys desire to participate in the
2001 and 2004 elections, as well as all Certificates of
Nomination.40 In fact, the corresponding certificate for the 2004
elections included petitioner as one of the nominees. During this
time, Robles term as President had already expired, and yet,
petitioner never questioned Robles authority to sign the
Certificate of Nomination. As a matter of fact, petitioner even
benefited from the nomination, because he earned a seat in the
House of Representatives as a result of the partys
success.41 Clearly, petitioner cannot now be heard to argue that
Robles term as president of BUHAY has long since expired, and
that his act of submitting the Certificate of Nomination and the
manifestation to participate in the 2007 elections is null and void.
He is already precluded from doing so.
WHEREFORE, the petition is DISMISSED. Resolution E.M. No. 07043 of the COMELEC dated July 19, 2007 isAFFIRMED. No costs.SO
ORDERED.

Mercantile, Inc. ("Tramat"), one (1) unit HINOMOTO TRACTOR

Model MB 1100D powered by a 13 H.P. diesel engine. In payment,
David Ong, Tramat's president and manager, issued a check for
P33,500.00 (apparently replacing an earlier postdated check for
P33,080.00). Tramat, in turn, sold the tractor, together with an
attached lawn mower fabricated by it, to the Metropolitan
Waterworks and Sewerage System ("NAWASA") for P67,000.00.
David Ong caused a "stop payment" of the check when NAWASA
refused to pay the tractor and lawn mower after discovering that,
aside from some stated defects of the attached lawn mower, the
engine (sold by de la Cuesta) was a reconditioned unit.
On 28 May 1985, de la Cuesta filed an action for the recovery of
P33,500.00, as well as attorney's fees of P10,000.00, and the costs
of suit. Ong, in his answer, averred, among other things, that de la
Cuesta had no cause of action; that the questioned transaction
was between plaintiff and Tramat Mercantile, Inc., and not with
Ong in his personal capacity; and that the payment of the check
was stopped because the subject tractor had been priced as a
brand new, not as a reconditioned unit.
On 02 November 1989, after the reception of evidence, the trial
court rendered a decision, the dispositive portions of which read:
WHEREFORE, in view of the foregoing
consideration, judgment is hereby
rendered:
1. Ordering the
defendants, jointly
and severally, to pay
the plaintiff the sum
of P33,500.00 with
legal interest thereon
at the rate of 12% per
annum from July 7,
1984 until fully paid;
and

Officers
G.R. No. 111008 November 7, 1994
TRAMAT MERCANTILE, INC. AND DAVID ONG, petitioners,
vs.
HON. COURT OF APPEALS AND MELCHOR DE LA
CUESTA, respondents.
Emilio G. Abrogena for petitioners.

2. Ordering the
defendants, jointly
and severally, to pay
the plaintiff the sum
of P10,000.00 as
attorney's fees, and
the costs of this suit.

Constante B. Albano for private respondent.

VITUG, J.:
This petition for review on certiorari challenges the 04th March
1993 decision of the Court of Appeals and its resolution of 01 July
1993 denying the motion for reconsideration.
On 09 April 1984, Melchor de la Cuesta, doing business under the
name and style of "Farmers Machineries," sold to Tramat
65

Corpo Page 7 Cases

SO ORDERED. 1
An appeal was timely interposed by the defendants. On 04 March
1993, the Court of Appeals affirmed in toto the decision of the

trial court. Defendant-appellants' motion for reconsideration was

denied.
Hence, the instant petition.
We could find no reason to reverse the factual findings of both
the trial court and the appellate court, particularly in holding that
the contract between de la Cuesta and TRAMAT was one of
absolute, not conditional, sale of the tractor and that de la Cuesta
did not violate any warranty on the sale of the tractor to TRAMAT.
The appellate court, in its decision, adequately explained:
If the perfection of the sale was dependent
upon acceptance by the MWSS of the
subject tractor why did the appellants issue
a check in payment of the item to the
appellee? And long after MWSS had
complained about the defective tractor
engine, and after the appellee had failed to
remedy the defect, why did the appellants
still draw and deliver a replacement check
to the appellee for the increased amount of
P33,500.00?
These payments argue against the claim
now made by the defendants that the sale
was conditional.
According to the appellee, the additional
amount covered the cost of replacing the oil
gasket of the tractor engine when it was
repaired in Soledad Cac's gasoline station in
Quezon City. The appellants, on the other
hand, claims the amount represented the
freight charges for transporting the tractor
from Cauayan, Isabela to Metro Manila.
The appellants should have explained why
they failed to include the freight charges in
the first check. The tractor was transported
from Isabela to Metro Manila as early as
April 1984, and the first check was drawn at
about the same time. The freight charges
cannot be said to have been incurred when
the tractor engine was delivered back to the
supplier for repairs. The appellants
admitted that the engine was not brought
back to Isabela. The repairs were done at
Soledad Cac's gasoline station in Quezon
City.

Anent the first assigned error, We sustain

the trial court's finding that at the time of
the purchase, the appellants did not reveal
to the appellee the true purpose for which
the tractor would be used. Granting that
the appellants informed the appellee that
they would be reselling the unit to the
MWSS, an entity admittedly not engaged in
farming, and that they ordered the tractor
without the power tiller, an indispensable
accessory if the tractor would be used in
farming, these in themselves would not
constitute the required implied notice to
the appellee as seller.
xxx xxx xxx
In regard to the second assigned error, We
do not agree that the appellee should have
been held liable for the tractor's alleged
hidden defects. . . .
It has to be noted in this regard that, to
satisfy the requirements of the MWSS, the
appellants borrowed a lawn mower from
the MWSS so they could fabricate one such
mower. The appellants' witness stated that
the kind of mid-mounted lawn mower was
being manufactured by their competitor,
Alpha Machinery, which had by then
stopped supplying the same (tsn,
Nov. 29, 1988, pp. 73-74). There is no
showing that the appellants had had any
previous experience in the fabrication of
this lawn mower. In fact, as aforesaid, they
had to borrow one from the MWSS which
they could copy. But although they made a
copy with the same specifications and
design, there was no assurance that the
copy would function as well as with the
model.
xxx xxx xxx
Although the trial court discussed it in a
different light, We view the matter in the
same way the trial court did that the
lawn mower as fabricated by the appellants
was the root of the parties' problems.

Having had no previous experience in the

manufacture of lawn mowers of the same
type as that in litigation, and in a possibly
patent-infringing effort to undercut their
competition, the appellants gathered
enough daring to do the fabrication
themselves. But the product might have
proved too much for the subject tractor to
power, and the tractor's engine was
strained beyond its limits, causing it to
overheat and damage its gaskets.
No wonder, then, it was a gasket Soledad
Cac had to replace, at a cost chargeable to
the appellants. No wonder, furthermore,
the appellants' witness declared that even
after the replacement of that one gasket,
the engine still leaked oil after being
torture-tested. The integrity of the other
engine gaskets might have been impaired,
too. Such was the burden placed on the
engine. The engine malfunctioned not
necessarily because the engine, as alleged
by the appellants, had been a
reconditioned, and not a brand new, one. It
malfunctioned because it was made to do
what it simply could not. 2

Corpo Page 7 Cases

In the case at bench, there is no indication that petitioner David

Ong could be held personally accountable under any of the
abovementioned cases.
WHEREFORE, the petition is given DUE COURSE and the decision
of the trial court, affirmed by the appellate court, is MODIFIED
insofar as it holds petitioner David Ong jointly and severally liable
with Tramat Mercantile, Inc., which portion of the questioned
judgment is SET ASIDE. In all other respects, the decision appealed
from is AFFIRMED. No costs.SO ORDERED

G.R. No. 184520

March 13, 2013

ROLANDO DS.TORRES, Petitioner,

vs.
RURAL BANK OF SAN JUAN, INC., ANDRES CANO CHUA, JOBEL
GO CHUA, JESUS CANO CHUA, MEINRADO DALISAY, JOSE
MANALANSAN III, OFELIA GINA BE and NATY
ASTRERO, Respondents.
DECISION

It was, nevertheless, an error to hold David Ong jointly and

severally liable with TRAMAT to de la Cuesta under the
questioned transaction. Ong had there so acted, not in his
personal capacity, but as an officer of a corporation, TRAMAT,
with a distinct and separate personality. As such, it should only be
the corporation, not the person acting for and on its behalf, that
properly could be made liable thereon. 3
Personal liability of a corporate director, trustee or officer along
(although not necessarily) with the corporation may so validly
attach, as a rule, only when
1. He assents (a) to a patently unlawful act of the corporation, or
(b) for bad faith, or gross negligence in directing its affairs, or (c)
for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons; 4
2. He consents to the issuance of watered stocks or who, having
knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto; 5
3. He agrees to hold himself personally and solidarily liable with
the corporation; 6 or

66

4. He is made, by a specific provision of law, to personally answer

for his corporate action. 7

REYES, J.:
This Petition for Review on Certiorari,1 under Rule 45 of the Rules
of Court, seeks to reverse and set aside the Decision2 dated
February 21, 2008 of the Court of Appeals (CA) in CA-G.R. SP No.
94690 dismissing the complaint for illegal dismissal filed by
petitioner Rolando OS. Torres (petitioner) against respondent
Rural Bank of San Juan, Inc. (RBSJT) and its officers who are the
herein individual respondents, namely: Andres Cano Chua
(Andres), Jobel Go Chua (Jobel), Jesus Cano Chua (Jesus),
Meinrado Dalisay, Jose Manalansan III (Jose), Ofelia Ginabe
(Ofelia) and Naty Astrero (collectively referred to as
respondents).3
Likewise assailed is the CA Resolution4 dated June 3, 2008 which
denied reconsideration.
The antecedents
Culled from the rulings of the labor tribunals and the appellate
court are the ensuing factual milieu:5

The petitioner was initially hired by RBSJI as Personnel and

Marketing Manager in 1991. After a six-month probationary
period and finding his performance to be satisfactory, RBSJI
renewed his employment for the same post to a
permanent/regular status. In June 1996, the petitioner was
offered the position of Vice-President for RBSJIs newly created
department, Allied Business Ventures. He accepted the offer and
concomitantly relinquished his post. The vacancy created was
filled by respondent Jobel who temporarily held the position
concurrently as a Corporate Planning and Human Resources
Development Head.
On September 24, 1996, the petitioner was temporarily assigned
as the manager of RBSJIs N. Domingo branch in view of the
resignation of Jacinto Figueroa (Jacinto).
On September 27, 1996, Jacinto requested the petitioner to sign a
standard employment clearance pertaining to his accountabilities
with RBSJI. When the petitioner declined his request, Jacinto
threw a fit and shouted foul invectives. To pacify him, the
petitioner bargained to issue a clearance but only for Jacintos
paid cash advances and salary loan.
About seven months later or on April 17, 1997, respondent Jesus
issued a memorandum to the petitioner requiring him to explain
why no administrative action should be imposed on him for his
unauthorized issuance of a clearance to Jacinto whose
accountabilities were yet to be audited. Jacinto was later found to
have unliquidated cash advances and was responsible for a
questionable transaction involving P11 million for which RBSJI is
being sued by a certain Actives Builders Manufacturing
Corporation. The memorandum stressed that the clearance
petitioner issued effectively barred RBSJI from running after
Jacinto.6
The petitioner submitted his explanation on the same day
clarifying that the clearance was limited only to Jacintos paid cash
advances and salary loan based on the receipts presented by Lily
Aguilar (Lily), the cashier of N. Domingo branch. He emphasized
that he had no foreknowledge nor was he forewarned of Jacintos
unliquidated cash advances and questionable transactions and
that the clearance did not extend to those matters.7
After conducting an investigation, RBSJIs Human Resources
Department recommended the petitioners termination from
employment for the following reasons, to wit:
1. The issuance of clearance to Mr. Jacinto Figueroa by
the petitioner have been prejudicial to the Bank
considering that damages [sic] found caused by Mr.
Figueroa during his stay with the bank;
67

Corpo Page 7 Cases

2. The petitioner is not in any authority to issue said

clearance which is a violation of the Company Code of
Conduct and Discipline under Category B Grave
Offense No. 1 (falsifying or misrepresenting persons or
other company records, documents or papers)
equivalent to termination; and
3. The nature of his participation in the issuance of the
said clearance could be a reasonable ground for the
Management to believe that he is unworthy of the
trust and confidence demanded by his position which
is also a ground for termination under Article 282 of
the Labor Code.8
On May 19, 1997, RBSJIs Board of Directors adopted the above
recommendation and issued Resolution No. 97-102 terminating
the petitioner from employment, the import of which was
communicated to him in a Memorandum dated May 30, 1997.9
Feeling aggrieved, the petitioner filed the herein complaint for
illegal dismissal, illegal deduction, non-payment of service
incentive, leave pay and retirement benefits.10 The petitioner
averred that the supposed loss of trust and confidence on him
was a sham as it is in fact the calculated result of the respondents
dubious plot to conveniently oust him from RBSJI.
He claimed that he was deceived to accept a Vice-President
position, which turned out to be a mere clerical and menial work,
so the respondents can install Jobel, the son of a major
stockholder of RBSJI, as Personnel and Marketing Manager. The
plot to oust the petitioner allegedly began in 1996 when Jobel
annexed the Personnel and Marketing Departments to the
Business Development and Corporate Planning Department thus
usurping the functions of and displacing the petitioner, who was
put on a floating status and stripped of managerial privileges and
allowances.
The petitioner further alleged that he was cunningly assigned at
N. Domingo branch so he can be implicated in the anomalous
transaction perpetrated by Jacinto. He narrated that on
September 27, 1996, the officers of RBSJI, namely: Jobel, Andres,
Jose and Ofelia, were actually at the N. Domingo branch but they
all suspiciously left him to face the predicament caused by Jacinto.
He recounted that the next day he was assigned back at the Tarlac
extension office and thereafter repeatedly harassed and forced to
resign. He tolerated such treatment and pleaded that he be
allowed to at least reach his retirement age. On March 7, 1996, he
wrote a letter to George Cano Chua (George) expressing his
detestation of how the "new guys" are dominating the operations
of the company by destroying the image of pioneer employees,

like him, who have worked hard for the good image and market
acceptability of RBSJI. The petitioner requested for his transfer to
the operations or marketing department. His request was,
however, not acted upon.
The petitioner claimed that on March 19, 1997, respondent Jesus
verbally terminated him from employment but he later on
retracted the same and instead asked the petitioner to tender a
resignation letter. The petitioner refused. A month thereafter, the
petitioner received the memorandum asking him to explain why
he cleared Jacinto of financial accountabilities and thereafter
another memorandum terminating him from employment.
For their part, the respondents maintained that the petitioner was
validly dismissed for loss of trust and confidence precipitated by
his unauthorized issuance of a financial accountability clearance
sans audit to a resigned employee. They averred that a copy of
the clearance mysteriously disappeared from RBSJIs records
hence, the petitioners claim that it pertained only to Jacintos
paid cash advances and salary loan cannot stand for being
uncorroborated.
Attempts at an amicable settlement were made but the same
proved futile hence, the Labor Arbiter11 (LA) proceeded to rule on
the complaint.
Ruling of LA
In its Decision12 dated November 27, 1998, the LA sustained the
claims of the petitioner as against the factually unsubstantiated
allegation of loss of trust and confidence propounded by the
respondents. The LA observed that the petitioners selfless
dedication to his job and efforts to achieve RBSJIs stability, which
the respondents failed to dispute, negate any finding of bad faith
on his part when he issued a clearance of accountabilities in favor
of Jacinto. As such, the said act cannot serve as a valid and
justifiable ground for the respondents to lose trust and
confidence in him.
The LA further held that the failure of both parties to present a
copy of the subject clearance amidst the petitioners explanation
that it did not absolutely release Jacinto from liability, should
work against the respondents since it is the proof that will provide
basis for their supposed loss of trust and confidence.
The LA upheld the petitioners contention that the loss of trust
and confidence in him was indeed a mere afterthought to justify
the respondents premeditated plan to ease him out of RBSJI. The
LAs conclusion was premised on the convergence of the following
circumstances: (1) the petitioners stint from 1991-1996 was not
marred with any controversy or complaint regarding his

performance; (2) when Jobel joined RBSJI in the latter part of

1996, he took over the department led by the petitioner thus
placing the latter in a floating status; and (3) the petitioners
temporary transfer to the N. Domingo branch was designed to
deliberately put him in a bind and blame him on whatever course
of action he may take to resolve the same.
Accordingly, the petitioner was found to have been illegally
dismissed and thus accorded the following reliefs in the decretal
portion of the LA Decision, viz:
WHEREFORE, premises considered, judgment is hereby rendered
ordering respondent Bank and individual respondents, to
reinstate [the petitioner to his previous or equivalent position,
without loss of seniority rights and other benefits and privileges
appurtaining [sic] to him, and to pay the petitioner the following:
1. The petitioners partial backwages and other
emoluments in the form of allowances, as gasoline,
maintenance, representation, uniform and
membership allowances, from the time of his dismissal
up to his actual date of reinstatement, which as of this
date amount to:
Backwages (Partial)
P244,800.00
Gasoline Allowances ..
63,000.00
Maintenance Allowance .
45,000.00
Representation Allowance ..
54,000.00
Membership Allowance ..
12,000.00
Uniform Allowance 8,000.00
Total P426,800.00
2. The petitioners 13th month pay from the time of his
dismissal up to actual date of reinstatement, which as
of this date amounts to Twenty-Seven Thousand Two
Hundred (P27,200.00) Pesos;

3. Moral and exemplary damages in the amount of

Fifty Thousand ([P]50,000.00) Pesos each, respectively;
and
4. Attorneys fees amounting to ten percent (10%) of
the total award, specifically amounting to Fifty-Five
Thousand Nine Hundred Twenty-Three Pesos and Eight
([P]55,923.08) Centavos.
All other claims are hereby Dismissed for lack of merit.
SO ORDERED.13
Ruling of the National Labor Relations Commission (NLRC)
In its Resolution14 dated April 14, 2000, the NLRC disagreed with
the LAs conclusion and opined that it was anchored on irrelevant
matters such as the petitioners performance and the preferential
treatment given to relatives of RBSJIs stockholders. The NLRC
held that the legality of the petitioners dismissal must be based
on an appreciation of the facts and the proof directly related to
the offense charged, which NLRC found to have weighed heavily
in favor of the respondents.

Corpo Page 7 Cases

Anent the first disposition, the NLRC accorded weight to the

explanations proffered by the petitioner that the clearance issued
to Jacinto was limited only to his paid cash advances and salary
loan. The NLRC further held that the offense imputed to the
petitioner is not covered by Category B, Grave Offense No. 1 of
RBSJIs Code of Conduct and Discipline as it does not appear that
he falsified or misrepresented personal or other company records,
documents or papers.19
Taking an entirely opposite stance, the NLRC declared that the
clearance issued by the petitioner did not prejudice RBSJIs
interest as it was limited in scope and did not entirely clear Jacinto
from all his financial accountabilities. Also, the petitioner was only
"a day old" at the N. Domingo branch and thus he cannot be
reasonably expected to be aware of the misdeeds purportedly
committed by Jacinto.20
For the foregoing reasons, the NLRC reversed its earlier ruling and
reinstated the LAs Decision dated November 27, 1998, thus:

The NLRC remarked that the petitioner was indisputably not

authorized to issue the clearance. Also, the tantrums and furious
attitude exhibited by Jacinto are not valid reasons to submit to his
demands. The fact that the N. Domingo branch had been sued
civilly on February 25, 1997 for a tax scam while under Jacintos
leadership, should have alerted the petitioner into issuing him a
clearance. The action taken by the petitioner lacked the prudence
expected from a man of his stature thus prejudicing the interests
of RBSJI. Accordingly, the dispositive portion of the decision reads:

WHEREFORE, the Arbiters decision of 27 November 1998 is

hereby AFFIRMED and REINSTATED.

WHEREFORE, the decision appealed from is hereby REVERSED and

SET ASIDE. Let a new one [sic] entered DISMISSING the instant
case for lack of merit. However, respondent should pay the
petitioner his proportionate 13th month pay for 1997 as he was
dismissed on May 30, 1997.

SO ORDERED.21

SO ORDERED.15
The petitioner sought reconsideration16 which was admitted by
the NLRC in an Order dated September 30, 2005. From such
Order, the respondents filed a motion for reconsideration on the
ground that the petitioner failed to present a copy of his
purported motion bearing the requisite proof of filing.17
Traversing both motions, the NLRC issued its Decision18 dated
March 3, 2006: (1) granting the petitioners plea for the

68

reconsideration of its Resolution dated April 14, 2000 thus

effectively reversing and nullifying the same; and (2) denying the
respondents motion for reconsideration of the Order dated
September 30, 2005.

Accordingly, the Resolution of 14 April 2000 is REVERSED and SET

ASIDE.
Finally, the respondents Motion for Reconsideration dated 2
November 2005 is DENIED for lack of merit.

Ruling of the CA
The respondents sought recourse with the CA,22 which in its
Decision23 dated February 21, 2008 reversed and set aside the
NLRC Decision dated March 3, 2006 and ruled that the petitioner
was dismissed for a just cause. The appellate court articulated
that as the Acting Manager of RBSJIs N. Domingo branch, the
petitioner held a highly sensitive and critical position which
entailed the conscientious observance of company procedures.
Not only was he unauthorized to issue the clearance, he also
failed to exercise prudence in clearing Jacinto of his
accountabilities given the fact that the same were yet to be
audited. Such omission financially prejudiced RBSJI and it
amounted to gross negligence and incompetence sufficient to sow

in his employer the seed of mistrust and loss of confidence.24 The

decretal portion of the CA Decision thus reads:
IN VIEW OF ALL THE FOREGOING, the petition is GRANTED. The
March 03, 2006 Decision of the National Labor Relations
Commission is REVERSED and SET ASIDE. The April 14, 2000
Decision of the National Labor Relations Commission is hereby
REINSTATED. No costs.
SO ORDERED.25
The petitioner moved for reconsideration26 but the motion was
denied in the CA Resolution27 dated June 3, 2008. Hence, the
present appeal.
Arguments of the parties
The petitioner avers that the respondents claim of loss of trust
and confidence is not worthy of credence since they failed to
present a copy of the clearance purportedly showing that he
cleared Jacinto of all his financial accountabilities and not merely
as to his paid cash advances and salary loan. He points out that
RBSJI must be in custody thereof considering that it is a vital
official record.
The petitioner insists that the alleged loss of trust and confidence
in him is a mere subterfuge to cover the respondents ploy to oust
him out of RBSJI. He asserts that the seven-month gap between
the date when he issued the subject clearance and the date when
he was sent a memorandum for the said act shows that the
respondents supposed loss of trust and confidence was a mere
afterthought.28
On the other hand, the respondents invoke the ratiocinations of
the CA that they were justified in losing the trust and confidence
reposed on the petitioner since he failed to exercise the degree of
care expected of his managerial position. They reiterate the
petitioners admission that no audit was yet conducted as to the
accountabilities of Jacinto when he issued the clearance.
The respondents further assert that as a former Personnel
Manager, the petitioner is well-aware of RBSJIs policy that before
a resigned employee can be cleared of accountabilities, he must
be first examined or audited. However, the petitioner opted to
violate this policy and yield to Jacintos tantrums.29
The above arguments yield the focal issue of whether or not the
petitioner was validly dismissed from employment.
The Courts Ruling
69

Corpo Page 7 Cases

The petition is impressed with merit.

Settled is the rule that when supported by substantial evidence,
the findings of fact of the CA are conclusive and binding on the
parties and are not reviewable by this Court.30 As such, only errors
of law are reviewed by the Court in petitions for review of CA
decisions. By way of exception, however, the Court will exercise
its equity jurisdiction and re-evaluate, review and re-examine the
factual findings of the CA when, as in this case, the same are
contradicting31 with the findings of the labor tribunals.
The respondents failed to prove that the petitioner was dismissed
for a just cause.
As provided in Article 28232 of the Labor Code and as firmly
entrenched in jurisprudence,33 an employer has the right to
dismiss an employee by reason of willful breach of the trust and
confidence reposed in him.
To temper the exercise of such prerogative and to reconcile the
same with the employees Constitutional guarantee of security of
tenure, the law imposes the burden of proof upon the employer
to show that the dismissal of the employee is for just cause failing
which would mean that the dismissal is not justified. Proof
beyond reasonable doubt is not necessary but the factual basis for
the dismissal must be clearly and convincingly established.34
Further, the law mandates that before validity can be accorded to
a dismissal premised on loss of trust and confidence, two
requisites must concur, viz: (1) the employee concerned must be
holding a position of trust; and (2) the loss of trust must be based
on willful breach of trust founded on clearly established facts.35
There is no arguing that the petitioner was part of the upper
echelons of RBSJIs management from whom greater fidelity to
trust is expected. At the time when he committed the act which
allegedly led to the loss of RBSJIs trust and confidence in him, he
was the Acting Manager of N. Domingo branch. It was part of the
petitioners responsibilities to effect a smooth turn-over of
pending transactions and to sign and approve instructions within
the limits assigned to the position under existing
regulations.36 Prior thereto and ever since he was employed, he
has occupied positions that entail the power or prerogative to
dictate management policies as Personnel and Marketing
Manager and thereafter as Vice-President.
The presence of the first requisite is thus certain. Anent the
second requisite, the Court finds that the respondents failed to
meet their burden of proving that the petitioners dismissal was
for a just cause.

The act alleged to have caused the loss of trust and confidence of
the respondents in the petitioner was his issuance, without prior
authority and audit, of a clearance to Jacinto who turned out to
be still liable for unpaid cash advances and for an P11-million
fraudulent transaction that exposed RBSJI to suit. According to the
respondents, the clearance barred RBSJI from running after
Jacinto. The records are, however, barren of any evidence in
support of these claims.
As correctly argued by the petitioner and as above set forth, the
onus of submitting a copy of the clearance allegedly exonerating
Jacinto from all his accountabilities fell on the respondents. It was
the single and absolute evidence of the petitioners act that
purportedly kindled the respondents loss of trust. Without it, the
respondents allegation of loss of trust and confidence has no leg
to stand on and must thus be rejected. Moreover, one can
reasonably expect that a copy of the clearance, an essential
personnel document, is with the respondents. Their failure to
present it and the lack of explanation for such failure or the
documents unavailability props up the presumption that its
contents are unfavorable to the respondents assertions.
At any rate, the absence of the clearance upon which the
contradicting claims of the parties could ideally be resolved,
should work against the respondents. With only sworn pleadings
as proof of their opposite claims on the true contents of the
clearance, the Court is bound to apply the principle that the scales
of justice should be tilted in favor of labor in case of doubt in the
evidence presented.37
RBSJI also failed to substantiate its claim that the petitioners act
estopped them from pursuing Jacinto for his standing obligations.
There is no proof that RBSJI attempted or at least considered to
demand from Jacinto the payment of his unpaid cash advances.
Neither was RBSJI able to show that it filed a civil or criminal suit
against Jacinto to make him responsible for the alleged fraud.
There is thus no factual basis for RBSJIs allegation that it incurred
damages or was financially prejudiced by the clearance issued by
the petitioner.
More importantly, the complained act of the petitioner did not
evince intentional breach of the respondents trust and
confidence. Neither was the petitioner grossly negligent or
unjustified in pursuing the course of action he took.
It must be pointed out that the petitioner was caught in the
quandary of signing on the spot a standard employment clearance
for the furious Jacinto sans any information on his outstanding
accountabilities, and refusing to so sign but risk alarming or
scandalizing RBSJI, its employees and clients. Contrary to the
respondents allegation, the petitioner did not concede to
Jacintos demands. He was, in fact, able to equalize two equally

undesirable options by bargaining to instead clear Jacinto only of

his settled financial obligations after proper verification with
branch cashier Lily. It was only after Lily confirmed Jacintos
recorded payments that the petitioner signed the clearance. The
absence of an audit was precisely what impelled the petitioner to
decline signing a standard employment clearance to Jacinto and
instead issue a different one pertaining only to his paid
accountabilities.
Under these circumstances, it cannot be concluded that the
petitioner was in any way prompted by malicious motive in
issuing the clearance. He was also able to ensure that RBSJIs
interests are protected and that Jacinto is pacified. He did what
any person placed in a similar situation can prudently do. He was
able to competently evaluate and control Jacintos demands and
thus prevent compromising RBSJIs image, employees and clients
to an alarming scene.
The Court has repeatedly emphasized that the act that breached
the trust must be willful such that it was done intentionally,
knowingly, and purposely, without justifiable excuse, as
distinguished from an act done carelessly, thoughtlessly,
heedlessly or inadvertently.38 The conditions under which the
clearance was issued exclude any finding of deliberate or
conscious effort on the part of the petitioner to prejudice his
employer.
Also, the petitioner did not commit an irregular or prohibited act.
He did not falsify or misrepresent any company record as it was
officially confirmed by Lily that the items covered by the clearance
were truly settled by Jacinto. Hence, the respondents had no
factual basis in declaring that the petitioner violated Category B
Grave Offense No. 1 of the Company Code of Conduct and
Discipline.
The respondents cannot capitalize on the petitioners lack of
authority to issue a clearance to resigned employees. First, it
remains but an unsubstantiated allegation despite the several
opportunities for them in the proceedings below to show, through
bank documents, that the petitioner is not among those officers
so authorized. Second, it is the Courts considered view that by
virtue of the petitioners stature in respondent bank, it was wellwithin his discretion to sign or certify the truthfulness of facts as
they appear in RBSJIs records. Here, the records of RBSJI cashier
Lily clearly showed that Jacinto paid the cash advances and salary
loan covered by the clearance issued by the petitioner.
Lastly, the seven-month gap between the clearance incident and
the April 17, 1997 memorandum asking the petitioner to explain
his action is too lengthy to be ignored. It likewise remains
uncontroverted that during such period, respondent Jesus
verbally terminated the petitioner only to recall the same and
70

Corpo Page 7 Cases

instead ask the latter to tender a resignation letter. When the

petitioner refused, he was sent the memorandum questioning his
issuance of a clearance to Jacinto seven months earlier. The
confluence of these undisputed circumstances supports the
inference that the clearance incident was a mere afterthought
used to gain ground for the petitioners dismissal.

The award of separation pay in case of strained relations is more

beneficial to both parties in that it liberates the employee from
what could be a highly oppressive work environment in as much
as it releases the employer from the grossly unpalatable
obligation of maintaining in its employ a worker it could no longer
trust.46

Loss of trust and confidence as a ground for dismissal has never

been intended to afford an occasion for abuse because of its
subjective nature. It should not be used as a subterfuge for causes
which are illegal, improper and unjustified. It must be genuine,
not a mere afterthought intended to justify an earlier action taken
in bad faith.39

The award of moral and exemplary damages is not warranted.

All told, the unsubstantiated claims of the respondents fall short

of the standard proof required for valid termination of
employment. They failed to clearly and convincingly establish that
the petitioners act of issuing a clearance to Jacinto rendered him
unfit to continue working for RBSJI. The petitioner was illegally
dismissed from employment and is entitled to back wages, to be
computed from the date he was illegally dismissed until the
finality of this decision.40
The disposition of the case made by the LA in its Decision dated
November 27, 1998, as affirmed by the NLRC in its Decision dated
March 6, 2006, is most in accord with the above disquisitions
hence, must be reinstated. However, the monetary awards
therein should be clarified.
The petitioner is entitled to separation pay in lieu of
reinstatement and his back wages shall earn legal interest.
In accordance with current jurisprudence, the award of back
wages shall earn legal interest at the rate of six percent (6%) per
annum from the date of the petitioners illegal dismissal until the
finality of this decision.41Thereafter, it shall earn 12% legal
interest until fully paid42 in accordance with the guidelines in
Eastern Shipping Lines, Inc., v. Court of Appeals.43
In addition to his back wages, the petitioner is also entitled to
separation pay. It cannot be gainsaid that animosity and
antagonism have been brewing between the parties since the
petitioner was gradually eased out of key positions in RBSJI and to
reinstate him will only intensify their hostile working
atmosphere.44 Thus, based on strained relations, separation pay
equivalent to one (1) month salary for every year of service, with
a fraction of a year of at least six (6) months to be considered as
one (1) whole year, should be awarded in lieu of reinstatement, to
be computed from date of his engagement by RBSJI up to the
finality of this decision.45

In M+W Zander Philippines, Inc. v. Enriquez,47 the Court decreed

that illegal dismissal, by itself alone, does not entitle the
dismissed employee to moral damages; additional facts must be
pleaded and proven to warrant the grant of moral damages, thus:
Moral damages are recoverable only where the dismissal of the
employee was attended by bad faith or fraud, or constituted an
act oppressive to labor, or was done in a manner contrary to
morals, good customs or public policy. Such an award cannot be
justified solely upon the premise that the employer fired his
employee without just cause or due process. Additional facts
must be pleaded and proven to warrant the grant of moral
damages under the Civil Code, i.e., that the act of dismissal was
attended by bad faith or fraud, or constituted an act oppressive to
labor, or was done in a manner contrary to morals, good customs
or public policy; and, of course, that social humiliation, wounded
feelings, grave anxiety, and similar injury resulted
therefrom.48 (Citations omitted)
Bad faith does not connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of a known duty
through some motive or interest or ill will; it partakes of the
nature of fraud.49
Here, the petitioner failed to prove that his dismissal was
attended by explicit oppressive, humiliating or demeaning acts.
The following events merely sketch the struggle for power within
the upper management of RBSJI between the "old guys" and the
"new guys"; they do not convincingly prove that the respondents
schemed to gradually ease the petitioner out, viz: (1) his
promotion as Vice-President; (2) his replacement by Jobel as
Personnel and Marketing Manager; (2) his designation as Acting
Manager of N. Domingo branch and the recall thereof on the very
next day; (3) the presence of Andres, Jose and Ofelia at the N.
Domingo branch in the morning of
September 27, 1996; and (4) Georges inaction on the petitioners
request to be transferred to the operations or marketing
department. As disagreeable as they may seem, these acts cannot
be equated with bad faith that can justify an award of damages.

Since no moral damages can be granted under the facts of the

case, exemplary damages cannot also be awarded.50
The solidary liability of individual respondents as corporate
officers must be recalled.
In the same vein, the individual respondents cannot be made
solidarily liable with RBSJI for the illegal dismissal. Time and again,
the Court has held that a corporation has its own legal personality
separate and distinct from those of its stockholders, directors or
officers. Hence, absent any evidence that they have exceeded
their authority, corporate officers are not personally liable for
their official acts. Corporate directors and officers may be held
solidarily liable with the corporation for the termination of
employment only if done with malice or in bad faith.51 As
discussed above, the acts imputed to the respondents do not
support a finding of bad faith.
In addition, the lack of a valid cause for the dismissal of an
employee does not ipso facto mean that the corporate officers
acted with malice or bad faith. There must be an independent
proof of malice or bad faith,52 which is absent in the case at bar.

legal interest thereafter until fully paid; and (b) in lieu of

reinstatement, separation pay equivalent to one (1) month salary
for every year of service, with a fraction of at least six (6) months
to be considered as one (1) whole year, to be computed from the
date of his employment up to the finality of this decision.
The amounts awarded as moral damages, exemplary damages
and 13th month pay are DELETED. Only respondent Rural Bank of
San Juan, Inc. is liable for the illegal dismissal and the
consequential monetary awards arising therefrom. The other
portions of and monetary awards in the Labor Arbiter's Decision
dated November 27, 1998 are AFFIRMED.SO ORDERED.

G.R. No. 182571

LIGAYA ESGUERRA, LOWELL ESGUERRA AND LIESELL

ESGUERRA, PETITIONERS,
vs.
HOLCIM PHILIPPINES, INC., RESPONDENT.
DECISION

The award of 13th month pay is ncorrect.

Being a managerial employee, the petitioner is not entitled to
13th month pay.1wphi1 Pursuant to Memorandum Order No.
28, as implemented by the Revised Guidelines on the
Implementation of the 13th Month Pay Law dated November 16,
1987, managerial employees are exempt from receiving such
benefit without prejudice to the granting of other bonuses, in lieu
of the 13th month pay, to managerial employees upon the
employers discretion.53
The award of attorneys fees is proper.
It is settled that where an employee was forced to litigate and,
thus, incur expenses to protect his rights and interest, the award
of attorneys fees is legally and morally justifiable.54 Pursuant to
Article 111 of the Labor Code, ten percent (10%) of the total
award is the reasonable amount of attorneys fees that can be
awarded.
WHEREFORE, the petition is GRANTED. The Decision dated
February 21, 2008 and Resolution dated June 3, 2008 of the Court
of Appeals in CA-G.R. SP No. 94690 are REVERSED and SET ASIDE.
The Decision of the Labor Arbiter dated November 27, 1998 is
REINSTATED with the following MODIFICATIONS/CLARIFICATIONS:
Petitioner Rolando DS. Torres is entitled to the payment of: (a)
back wages reckoned from May 30, 1997 up to the finality of this
Decision, with interest at six percent (6%) per annum, and 12%
71

Corpo Page 7 Cases

September 2, 2013

REYES, J.:
The present petition is an offshoot of our final and executory
decision promulgated on December 27, 2002 in G.R. No. 120004,
entitled "Iluminada de Guzman v. Court of Appeals and Jorge
Esguerra."1 Ligaya Esguerra (Ligaya), Lowell Esguerra (Lowell), and
Liesell Esguerra (Liesell) (petitioners) are heirs of Jorge Esguerra
(Esguerra) while herein respondent, HOLCIM Philippines, Inc.
(HOLCIM) is the successor-in-interest of Iluminada de Guzman (de
Guzman).
In the instant petition, the petitioners assail the Decision2 dated
August 31, 2007 and Resolution3 dated April 14, 2008 of the Court
of Appeals (CA) in CA-G.R. SP No. 94838 which reversed and set
aside the: (a) Order4 dated December 1, 2005 of the Regional Trial
Court (RTC) of Malolos, Bulacan, Branch 16 granting the
petitioners motion for the issuance of the alias writ of execution
of the Decision dated December 27, 2002 in G.R. No. 120004,
which ordered HOLCIM to pay the amount equivalent to the total
volume of limestones extracted from the subject property in the
sum of P91,872,576.72; (b) Order5 dated December 20, 2005,
which reiterated the issuance of the alias writ of execution; and
(c) Order6 dated June 7, 2006, which denied the motion for
reconsideration of the above-mentioned orders and the
manifestation and motion for ocular inspection filed by HOLCIM.
The CAs Resolution dated April 14, 2008 denied herein

petitioners motion for reconsideration of the CAs Decision dated

August 31, 2007.
Antecedent Facts
As a backgrounder and as stated in our Decision dated December
27, 2002 in G.R. No. 120004, therein respondent Esguerra filed on
December 12, 1989 with the RTC, Malolos, Bulacan, Branch 16 an
action to annul the Free Patent in the name of de Guzman.
Esguerra claimed that he was the owner of Lot 3308-B, located at
Matiktik, Norzagaray, Bulacan, covered by Transfer Certificate of
Title No. T-1685-P (M) of the Registry of Deeds of Bulacan, with an
approximate area of 47,000 square meters. Esguerra learned that
the said parcel of land was being offered for sale by de Guzman to
Hi-Cement Corporation (now named HOLCIM Philippines, Inc.).
The former possessor of the land, Felisa Maningas, was issued
Free Patent No. 575674 which was subsequently issued in the
name of de Guzman over said parcel of land located at Gidgid,
Norzagaray, Bulacan with an area of 20.5631 hectares and
described in Psu-216349, covered by Original Certificate of Title
(OCT) No. P-3876. Esguerra also demanded that the portion of his
property, which has been encroached upon and included in de
Guzmans Free Patent, be excluded. He later amended his
complaint to implead Hi-Cement as a co-defendant since the
latter was hauling marble from the subject land. He also prayed
that Hi-Cement be ordered to desist from hauling marble, to
account for the marble already hauled and to pay him.7
The RTC dismissed Esguerras complaint but on appeal, the CA
reversed in the Decision dated February 28, 1995 in CA-G.R. CV
No. 40140. The dispositive portion reads as follows:
"WHEREFORE, premises considered, the decision appealed from is
REVERSED and SET ASIDE and another judgment is hereby
rendered:
"1. Declaring [de Guzmans] OCT No. P-3876 (Exh. B)
null and void insofar as the disputed area of 38,641
square meters, which is part of Lot 3308-B, covered by
TCT No. 1685-p (Exh. C) in the name of [Esguerra];
"2. Ordering [de Guzman] to cause the segregation, at
his expense, of the disputed area of 38,641 square
meters from OCT No. P-3876;
"3. Ordering [de Guzman] to surrender her owners
copy of OCT No. P-3876 to the Register of Deeds of
Bulacan who is in turn ordered to exclude from said
OCT No. P-3876 the disputed area of 38,641 square
meters included in [Esguerras] TCT No. T-1685;

"4. Ordering [de Guzman] to immediately vacate and

surrender to [Esguerra] possession of the disputed
area of 38,641 square meters;

3. That the plaintiffs be granted other legal and

equitable reliefs.12
On December 1, 2004, the RTC issued an Order13, to wit:

"5. Ordering defendant-appellee Hi-Cement

Corporation to immediately cease and desist from
quarrying or extracting marble from the disputed area;
"6. Ordering defendant-appellee Hi-Cement
Corporation to make an accounting of the
compensation or royalty it has paid to defendantappellee Iluminada de Guzman for marbles quarried
from the disputed area of 38,451 square meters from
the time of the filing of the amended complaint on
March 23, 1990.
"7. Ordering and sentencing defendant-appellee
Iluminada de Guzman to pay and turn over to
[Esguerra] all such amounts that she has received from
her co-defendant Hi-Cement Corporation as
compensation or royalty for marbles extracted or
quarried from the disputed area of 38,451 square
meters beginning March 23, 1990; and
"8. Ordering defendant-appellee Iluminada de Guzman
to pay the costs.
"SO ORDERED."8
In our Decision dated December 27, 2002 in G.R. No. 120004, the
Court affirmed in toto the aforesaid CAs decision. After attaining
finality, the case was remanded to the RTC for execution.9
Thereafter, the heirs of Esguerra, herein petitioners, filed an
Omnibus Motion10 dated September 28, 2004 with the RTC,
manifesting that the Courts decision in G.R. No. 120004 has yet
to be executed,11 and thus prayed:
xxxx
1. That Sheriff Perlito Dimagiba be directed to submit
his Return on the execution of the judgment;
2. That defendant Iluminada de Guzman and HiCement (now Union Cement Corporation Matictic,
Sapang Kawayn [sic], Norzagaray, Bulacan) be diverted
[sic] to appear before this Honorable Court x x x;

72

Corpo Page 7 Cases

Acting on the Omnibus Motion filed by the Heirs of Jorge

Esguerra, through counsel, Atty. Orlando Lambino, and pursuant
to Secs. 36 and 37, Rule 39 of [the] 1997 Rules of Civil Procedure,
the Court hereby GRANTS the same
AS PRAYED FOR, x x x Sheriff Perlito Dimagiba is hereby directed
to submit his return of a Writ of Execution dated October 28,
2003 within five (5) days from receipt of this Order.
Accordingly, defendant Iluminada de Guzman of Tanza, Malabon,
Metro Manila and the Hi-Cement (now Union Cement
Corporation, Matictic, Sapang Kawayan, Norzagaray, Bulacan) are
hereby ordered to appear before this Court on December 6, 2004
at 8:30 oclock in the morning to be examined on the dispositive
portion of the judgment of the Court of Appeals, affirmed by the
Supreme Court.14
However, contrary to the Order dated December 1, 2004, de
Guzman and HOLCIM were not examined. Rather, the petitioners
presented Engineer Louie Balicanta who testified that upon an
examination of the topographical maps covering the land of the
deceased Esguerra, the estimated volume of limestone hauled or
quarried therefrom covering the years 1990 to 2003 was
3,535,020.471 cubic meters. On May 16, 2005, the petitioners
filed their Formal Offer of Exhibits.15
Later, the petitioners filed a Supplement to the Motion for
Execution16 dated August 16, 2005 and a Motion for Alias Writ of
Execution17 dated November 9, 2005. They claimed that the
royalties due them amounted to P10.00 per metric ton. Thus, for
the 9,187,257.67 metric tons18 of limestone which HOLCIM
allegedly acquired, the petitioners should receive a total royalty
of P91,872,576.72.19
On December 1, 2005, the RTC made a finding that the total
volume of limestone which HOLCIM allegedly quarried from the
subject land amounted to P91,872,576.72. It also ordered the
issuance of an Alias Writ of Execution for the royalties which were
purportedly due to the petitioners.20 The said order states:
Acting on the motion for alias writ of execution filed by the
[petitioners], through counsel, to be meritorious, the same is
hereby granted, it appearing that the decision subject matter of
the writ of execution has not been satisfied by [de Guzman] and
Hi-Cement Corporation, and considering, further, that the Total
Volume Extracted Materials (LIMESTONE) at Lot #3308-B PSD-

102661 (Annex A) was properly proven during the hearing for the
examination of judgment debtors showing the claim of
Php91,872,576.72 to be substantiated based on the Monthly
Mineral Commodity Price Monitor for January 2005 (Annex B),
together with the O.R. for Certification fee (Annex C).
AS PRAYED FOR, let an alias writ of execution be issued for the
implementation of the Decision of the Supreme Court in relation
to the total volume extracted by Hi-Cement (now HOLCIM) which
is now the successor of defendant Iluminada de Guzman.21
On December 8, 2005, the petitioners filed an Urgent Motion for
Clarification22 praying that the alias writ of execution be clarified
for the purpose of directing [de Guzman] and/or Hi-Cement
Corporation and/or HOLCIM to pay the petitioners the amount
of P91,872,576.72.
As prayed for, the RTC issued an Order23 on December 20, 2005,
stating thus:
In view of the Urgent Motion for Clarification filed by the
[petitioners], through counsel, and there being no
comment/opposition filed by [de Guzman], let an alias writ of
execution be issued directing [de Guzman] and/or Hi-Cement
Corporation and/or HOLCIM to pay the [petitioners] the amount
of Php 91,872,576.72 representing their liability for the minerals
extracted from the subject property pursuant to the Order of the
Court, dated December 01, 2005.24
Subsequently, an alias writ of execution and notices of
garnishment on several banks, garnishing all amounts that may
have been deposited or owned by HOLCIM, were issued on
December 20, 2005 and December 21, 2005 respectively.25
On January 5, 2006, HOLCIM filed a motion for
reconsideration.26 It alleged that it did not owe any amount of
royalty to the petitioners for the extracted limestone from the
subject land. HOLCIM averred that it had actually entered into an
Agreement27 dated March 23, 1993 (Agreement) with the
petitioners governing their respective rights and obligations in
relation to the limestone allegedly extracted from the land in
question. HOLCIM further asserted that it had paid advance
royalty to the petitioners from year 1993, in an aggregate sum
of P694,184.22, an amount more than the P218,693.10 which the
petitioners were entitled under the Agreement.28
On January 13, 2006, the petitioners filed its Opposition to [the]
Motion for Reconsideration29 dated January 7, 2006, claiming that
the Motion for Reconsideration is barred by the omnibus motion
rule because HOLCIM failed to question the petitioners motion
for execution of this Courts decision in G.R. No. 120004. The

petitioners also averred that HOLCIM is barred by estoppel to

question the execution of the decision based on the Agreement,
because said Agreement is in contravention with the trial courts
previous orders which required HOLCIM to deposit to the clerk of
court the royalties due the deceased Esguerra. The petitioners
also argued that the Agreement is a way to evade the trial courts
orders and has been procured by taking advantage of the
petitioners financial distress after Esguerra died.30
On February 21, 2006, HOLCIM filed a Manifestation and Motion
(for Ocular Inspection).31 It asked the court to conduct an ocular
inspection, advancing the argument that HOLCIM did not extract
limestone from any portion of the 47,000-sq m property which
Esguerra owned; and that the pictures, which the petitioners
presented to prove that HOLCIM has been extracting limestone
from the subject land until year 2005, were actually photographs
of areas outside the contested land.
On June 7, 2006, the RTC denied HOLCIMs motion for
reconsideration and motion for ocular inspection. It held that the
petitioners proved their entitlement to the royalties totaling
to P91,872,576.72. The RTC also blamed HOLCIM for not
presenting its own witnesses and evidence. It further stated that
to grant the motions for reconsideration and ocular inspection is
to reopen the case despite the fact that the trial court has no
more power to do so since the execution of this Courts decision
in G.R. No. 120004 is now a matter of right on the petitioners
part.32
On June 13, 2006, HOLCIM filed a Petition for Certiorari (with
Urgent Applications for Temporary Restraining Order and/or Writ
of Preliminary Injunction)33 with the CA. On June 30, 2006, the
petitioners filed their Comment on [the] "Petition for Certiorari"
and Opposition,34 to which HOLCIM filed a Reply35 on July 25,
2006. On August 31, 2007, the CA promulgated the now assailed
decision finding merit in HOLCIMs petition.36 The dispositive
portion states:
WHEREFORE, the foregoing considered, the instant petition is
hereby GRANTED and the assailed Orders REVERSED and SET
ASIDE. No costs.
SO ORDERED.37
The motion for reconsideration thereof was denied in the CAs
Resolution38 dated April 14, 2008.
Issues

73

Corpo Page 7 Cases

Thus, the petitioners filed the present petition for review under
Rule 45 of the 1997 Rules of Civil Procedure, raising the following
assignment of errors:
A. THE [CA] GRAVELY ERRED IN NOT HOLDING THAT
[HOLCIM] IS ESTOPPED TO QUESTION THE
JURISDICTION OF THE TRIAL COURT TO CONDUCT A
HEARING ON THE EXACT PAYMENT WHICH [HOLCIM]
WAS SUPPOSED TO PAY TO THE PETITIONERS;
B. THE [CA] GRAVELY ERRED IN NOT DISMISSING
[HOLCIMS] PETITION FOR CERTIORARI ON [THE]
GROUND OF LACK OF BOARD RESOLUTION
AUTHORIZING THE FILING OF THE PETITION;
C. THE [CA] GRAVELY ERRED IN NOT DISMISSING THE
PETITION FOR [CERTIORARI], IT BEING NOT THE
PROPER REMEDY, BUT AN APPEAL;
D. THE [CA] GRAVELY ERRED IN HOLDING THAT THE
TRIAL COURT GRAVELY ABUSED ITS DISCRETION IN THE
EXECUTION OF THE DECISION BY CALLING FOR
EVIDENCE TO PROVE THE EXACT AMOUNT WHICH
[HOLCIM] HAS TO PAY TO THE PETITIONERS;
E. THE [CA] GRAVELY ERRED IN HOLDING THAT THE
ORDERS OF THE TRIAL COURT OF DECEMBER 1, 2005,
DECEMBER 20, 2005, AND JUNE 7, 2006 MODIFIED THE
DECISION OF THE CA G.R. CV NO. 40140 OF FEBRUARY
28, 1995[.]39
Our Ruling
The present petition has substantially complied with the
requirements.
HOLCIM alleged that the present petition is fatally defective since
all of the most important pleadings before the RTC and the CA
have not been attached to the present petition. However, a
review of the records of the case shows that the petitioners
attached to their petition the following: (a) the CAs Decision in
CA-G.R. SP No. 94838 dated August 31, 2007;40 (b) the CAs
Resolution in CA-G.R. SP No. 94838 dated April 14, 2008;41 (c) the
RTCs Order in Civil Case No. 725-M-89 dated December 1,
2005;42 (d) the RTCs Order in Civil Case No. 725-M-89 dated
December 20, 2005;43 (e) the RTCs Order in Civil Case No. 725-M89 dated June 7, 2006;44 (f) HOLCIMs Manifestation and Motion
(for Ocular Inspection) in Civil Case No. 725-M-89 dated February
21, 2006 and its attachments;45 (g) the Memorandum of
Agreement between Republic Cement Corporation and Spouses
Juan and Maria Bernabe dated December 1, 1991;46 (h) the Price

Monitor of the Department of Environment and Natural

Resources (DENR) on the price per metric ton of non-metallic
mines;47 and (i) the Special Power of Attorney executed by Ligaya
and Liesell appointing Lowell as their attorney-in-fact.48
From the foregoing, the Court finds the same substantially
compliant with the requirements of Section 4, Rule 45 of the 1997
Rules of Civil Procedure. All of the pertinent documents necessary
for the Court to appreciate the circumstances surrounding the
case and to resolve the issues at hand were attached.
Furthermore, the parties subsequent comment and reply have
sufficiently provided the Court the needed information regarding
the proceedings and acts of the trial court during the execution of
the final and executory decision of this Court in G.R. No. 120004
which are the matters being questioned. In Shimizu Philippines
Contractors, Inc. v. Magsalin,49the Court proceeded to give due
course to the petition when it found the same and its attachments
sufficient for the Court to access and resolve the controversy.50
On the other hand, the petitioners claim that HOLCIMs petition
for certiorari in the CA failed to comply with the rules on
Verification and Certification of Non-Forum Shopping because the
latter did not secure and/or attach a certified true copy of a board
resolution authorizing any of its officers to file said
petition.51 Thus, the CA should have dismissed outright HOLCIMs
petition before it.
The general rule is that a corporation can only exercise its powers
and transact its business through its board of directors and
through its officers and agents when authorized by a board
resolution or its bylaws. The power of a corporation to sue and be
sued is exercised by the board of directors. The physical acts of
the corporation, like the signing of documents, can be performed
only by natural persons duly authorized for the purpose by
corporate bylaws or by a specific act of the board. Absent the said
board resolution, a petition may not be given due course.52
In Bank of the Philippine Islands v. Court of Appeals,53 the Court
held that the application of the rules must be the general rule,
and the suspension or even mere relaxation of its application, is
the exception. This Court may go beyond the strict application of
the rules only on exceptional cases when there is truly substantial
compliance with the rule.54
In the case at bar, HOLCIM attached to its Petition for Certiorari
before the CA a Secretarys Certificate authorizing Mr. Paul M.
OCallaghan (OCallaghan), its Chief Operating Officer, to
nominate, designate and appoint the corporations authorized
representative in court hearings and conferences and the signing
of court pleadings.55 It also attached the Special Power of
Attorney dated June 9, 2006, signed by OCallaghan, appointing
Sycip Salazar Hernandez & Gatmaitan and/or any of its lawyers to

represent HOLCIM;56 and consequently, the Verification and

Certification of Non Forum Shopping signed by the authorized
representative.57 To be sure, HOLCIM, in its Reply filed in the CA,
attached another Secretarys Certificate, designating and
confirming OCallaghans power to authorize Sycip Salazar
Hernandez & Gatmaitan and/or any of its lawyers to file for and
on behalf of HOLCIM, the pertinent civil and/or criminal actions in
Civil Case No. 725-M-89 pending before the RTC, including any
petition to be filed with the CA and/or the Supreme Court in
connection with the Orders dated December 1, 2005, December
20, 2005 and June 7, 2006.58
The foregoing convinces the Court that the CA did not err in
admitting HOLCIMs petition before it. HOLCIM attached all the
necessary documents for the filing of a petition for certiorari
before the CA. Indeed, there was no complete failure to attach a
Certificate of Non-Forum Shopping. In fact, there was such a
certificate. While the board resolution may not have been
attached, HOLCIM complied just the same when it attached the
Secretarys Certificate dated July 17, 2006, thus proving that
OCallaghan had the authority from the board of directors to
appoint the counsel to represent them in Civil Case No. 725-M-89.
The Court recognizes the compliance made by HOLCIM in good
faith since after the petitioners pointed out the said defect,
HOLCIM submitted the Secretarys Certificate dated July 17, 2006,
confirming the earlier Secretarys Certificate dated June 9, 2006.
For the Court, the ruling in General Milling Corporation v.
NLRC59 is applicable where the Court rendered a decision in favor
of the petitioner despite its failure to attach the Certification of
Non- Forum Shopping. The Court held that there was substantial
compliance when it eventually submitted the required
documents. Substantial justice dictates that technical and
procedural rules must give way because a deviation from the rigid
enforcement of the rules will better serve the ends of justice. The
Court ratiocinated:
The rules of procedure are intended to promote, rather than
frustrate, the ends of justice, and while the swift unclogging of
court dockets is a laudable objective, it, nevertheless, must not be
met at the expense of substantial justice. Technical and
procedural rules are intended to help secure, not suppress, the
cause of justice and a deviation from the rigid enforcement of the
rules may be allowed to attain that prime objective for, after all,
the dispensation of justice is the core reason for the existence of
courts.60 (Citation omitted)
HOLCIMs filing in the CA of a petition for certiorari under Rule 65
of the 1997 Rules of Civil Procedure is proper.
The petitioners also argue that the CA gravely erred when it did
not dismiss HOLCIMs petition for certiorari on the ground of
improper remedy. The petitioners contend that HOLCIM should
74

Corpo Page 7 Cases

have filed an appeal because when the RTC allowed the

petitioners to adduce evidence to determine the exact amount to
be paid by HOLCIM during the execution stage, it was
implementing the dispositive portion of the decision of the CA in
CA-G.R. CV No. 40140 as affirmed by the Court. As ruled by the
trial court, a case in which an execution has been issued is
regarded as still pending so that all proceedings on the execution
are proceedings in the suit. Accordingly, the court that rendered
the judgment maintains a general supervisory control over its
process of execution, and this power carries with it the right to
determine questions of fact and law, which may be involved in the
execution.61 Thus, for the petitioners, the RTC neither acted in
excess of its jurisdiction nor with grave abuse of discretion, which
would call for HOLCIM to file a petition for certiorari.62
The Court disagrees with the petitioners mental acrobatics. Their
arguments are contrary to Section 1(f), Rule 41 of the Rules of
Court, which provides:
Sec. 1. Subject of appeal.An appeal may be taken from a
judgment or final order that completely disposes of the case, or of
a particular matter therein when declared by these Rules to be
appealable.
No appeal may be taken from:
xxxx
(f) an order of execution;
xxxx
In all the above instances where the judgment or final order is not
appealable, the aggrieved party may file an appropriate special
civil action under Rule 65.
The foregoing provision is explicit that no appeal may be taken
from an order of execution and a party who challenges such order
may file a special civil action for certiorari under Rule 65 of the
Rules of Court.63 An order of execution, when issued with grave
abuse of discretion amounting to lack or excess of jurisdiction,
may be the subject of a petition for certiorari under Rule
65.64 Thus, HOLCIM did not err in filing a petition for certiorari
under Rule 65 of the 1997 Rules of Civil Procedure.
HOLCIM is not estopped to question the jurisdiction of the trial
court to conduct a hearing and to accept evidence on the exact
amount of royalty HOLCIM should pay the petitioners.

The petitioners argue that HOLCIM is estopped from questioning

the jurisdiction of the RTC in conducting a hearing on the exact
amount of royalty that HOLCIM must pay the petitioners. They
allege that: (a) HOLCIM expressed willingness to pay the royalty to
whoever would be adjudged the rightful owner of the subject
land; (b) HOLCIM and de Guzman did not appear in the hearing
nor oppose the Omnibus Motion dated September 28, 2004; (c)
HOLCIM did not file any opposition or comment on the
petitioners Formal Offer of Evidence, Supplement to the Motion
for Execution and Motion for Alias Writ of Execution; and (d)
HOLCIM is now the new owner of de Guzmans property. As such,
it has acquired the rights, interests and liabilities of de Guzman.
The petitioners insist that HOLCIM must not only account for the
royalty it paid de Guzman, but it must also turn over said
payments to the petitioners.65
HOLCIM counter-argues that when it expressed willingness to pay
the royalties to whoever would be declared the rightful owner of
the subject land, it simply manifested its good faith in fulfilling its
obligations. It adds that the petitioners and HOLCIM entered into
an Agreement regarding the amount of royalty it should pay to
the landowner; and subsequently, the petitioners voluntarily
accepted and retained the amount of P694,184.22 paid by
HOLCIM. In fact, HOLCIM stresses that the said amount was more
than what was stipulated in the Agreement. HOLCIM also asserts
that jurisdiction is conferred by law, and not by laches, estoppel
or by agreement among the parties and such lack of jurisdiction
may be raised at any stage of the proceedings.66 Furthermore,
HOLCIM avers that it is even the DENR panel of arbitrators which
has jurisdiction over the case pursuant to Section 77 of the
Philippine Mining Act of 1995.67 Lastly, HOLCIM claims that it
eventually acquired de Guzmans property, maintaining that the
said property did not overlap with Esguerras property. Thus,
HOLCIMs ownership and quarrying operations on lands outside
the disputed area would have no bearing whatsoever on the
petitioners claim for royalties on extractions done within the
disputed area. HOLCIM also asseverates that the obligation to
turn over any royalty paid to de Guzman is not a real obligation
which attaches to the disputed area or to the land itself or which
follows the property to whoever might subsequently become its
owner; rather, HOLCIM argues that the obligation is purely a
personal obligation of de Guzman and thus, not transferable to
HOLCIM.
What is clear is that the present case emanates from the
petitioners desire to implement the CA decision in CA-G.R. CV No.
40140 which was affirmed by the Court in the Decision of
December 27, 2002 in G.R. No. 120004. At the execution stage,
the only thing left for the trial court to do is to implement the final
and executory judgment; and the dispositive portion of the
decision controls the execution of judgment. The final judgment
of this Court cannot be altered or modified, except for clerical
errors, misprisions or omissions.68

In the instant case, the CAs decision which this Court affirmed in
G.R. No. 120004 rendered, among others, the following judgment:
(a) Insofar as then defendant-appellee de Guzman is
concerned, the CA declared OCT No. P-3876 in her
possession null and void in relation to the disputed
area of 38,641 sq m; the same CAs decision
subsequently ordered de Guzman
[i] to segregate at her expense the disputed
area of 38,641 sq m from OCT No. P-3876;
[ii] to surrender her owners copy of OCT
No. P-3876 to the Register of Deeds of
Bulacan;
[iii] to immediately vacate and surrender to
then plaintiff-appellant Esguerra possession
of the disputed area;
[iv] to pay and turn over to plaintiffappellant Esguerra all the amount she
received from her co-defendant Hi-Cement
Corporation (now HOLCIM) as
compensation or royalty for marbles
extracted or quarried from the disputed
area of 38,451 sq m beginning March 23,
1990; and
[v] to pay the costs.
(b) Insofar as HOLCIM is concerned, the CAs decision
ordered HOLCIM
[i] to immediately cease and desist from
quarrying or extracting marble from the
disputed area; and
[ii] to make an accounting of the royalty it
paid to de Guzman.
Indeed, the final judgment does not direct HOLCIM nor its
predecessor Hi-Cement to pay a certain amount to Esguerra and
his heirs. What was required from HOLCIM to do was merely to
account for the payments it made to de Guzman. Apparently, this
was not enforced. It may be deduced from the records that when
the petitioners filed the Omnibus Motion dated September 28,
2004, they asked for the examination of de Guzman and HiCement (HOLCIM) under Sections 36 and 37 of Rule 39 of the
75

Corpo Page 7 Cases

Rules of Court. This motion was subsequently granted by the trial

court.

by the court which issued it, or by the court in which the action is
brought, upon such terms as may be just. (Emphasis ours)

Sections 3669 and 3770 of Rule 39 of the Rules of Court are

resorted to only when the judgment remains unsatisfied, and
there is a need for the judgment obligor to appear and be
examined concerning his property and income for their
application to the unsatisfied amount in the judgment. In the
instant case, the decision in CA-G.R. CV No. 40140 as affirmed by
the Court calls on HOLCIM to simply make an accounting of the
royalty paid to de Guzman. Unfortunately, the trial court, instead
of facilitating the accounting of payments made by HOLCIM to de
Guzman, proceeded to adduce evidence on the amount of
limestone extracted from the disputed area and imposed the
monetary liability on HOLCIM.

Pursuant to this Rule, in the examination of a person, corporation,

or other juridical entity who has the property of such judgment
obligor or is indebted to him (Rule 39, Section 37), and such
person, corporation, or juridical entity denies an indebtedness,
the court may only authorize the judgment obligee to institute an
action against such person or corporation for the recovery of such
interest or debt. Nothing in the Rules gives the court the authority
to order such person or corporation to pay the judgment obligee
and the court exceeds its jurisdiction if it orders the person who
denies the indebtedness to pay the same. In Atilano II v.
Asaali,72 the Court held that an "[e]xecution of a judgment can
only be issued against one who is a party to the action, and not
against one who, not being a party thereto, did not have his day in
court. Due process dictates that a court decision can only bind a
party to the litigation and not against innocent third parties."73

It is rather unfortunate that HOLCIM did not register a whimper

upon petitioners presentation of
evidence.1wphi1Notwithstanding, it cannot be denied that the
trial court committed grave abuse of discretion in issuing the
questioned orders without giving HOLCIM the chance to be heard.
Indeed, when the decision has been rendered unenforceable on
account of the undetermined amount to be awarded, it was
incumbent upon the trial court to receive evidence from both
parties to determine the exact amount due to the
petitioners.71 Since HOLCIM was not given an opportunity to rebut
the petitioners evidence, considering that the formers
Manifestation and Motion for Ocular Inspection was denied,
justice will be better served if the trial court determines first the
existence of documents relative to HOLCIMs payments made to
de Guzman, and if the same is not done, to receive further
evidence, this time, from both parties. It must be emphasized,
however, that the evidence to be adduced here is in relation to
the amount of royalty paid to de Guzman by HOLCIM for marbles
extracted from the disputed area of 38,451 sq m beginning March
23, 1990 up to the time HOLCIM ceased to operate in the subject
area. In the event that the petitioners claim is beyond the subject
area and period, and HOLCIM denies such indebtedness, the
governing rule should be Section 43, Rule 39 of the Rules of Court,
to wit:
SEC. 43. Proceedings when indebtedness denied or another
person claims the property. If it appears that a person or
corporation, alleged to have property of the judgment obligor or
to be indebted to him, claims an interest in the property adverse
to him or denies the debt, the court may authorize, by an order
made to that effect, the judgment obligee to institute an action
against such person or corporation for the recovery of such
interest or debt, forbid a transfer or other disposition of such
interest or debt within one hundred twenty (120) days from
notice of the order, and may punish disobedience of such order as
for contempt. Such order may be modified or vacated at any time

Finally, the Court does not agree with petitioners argument that
the person of de Guzman is "now merged in the person of
HOLCIM or that HOLCIM has assumed her personal liability or the
judgment rendered against her."74Nothing in the records shows
that HOLCIM admitted of assuming all the liabilities of de Guzman
prior to the sale of the subject property. HOLCIM, however,
expresses its willingness to pay royalty only to the rightful owner
of the disputed area. Thus, in the event that the amount paid by
HOLCIM to de Guzman has been proven, de Guzman is ordered to
turn over the payment to the petitioners.75 If the petitioners insist
that HOLCIM owed them more than what it paid to de Guzman,
the petitioners cannot invoke the CAs decision which was
affirmed by the Court in G.R. No. 120004 to ask for additional
royalty. As earlier discussed, this must be addressed in a separate
action for the purpose. All told, the Court finds no reversible error
with the decision of the CA in nullifying the orders of the RTC for
having been issued in excess of its jurisdiction.
WHEREFORE, the Decision dated August 31, 2007 and the
Resolution dated April 14, 2008 of the Court of Appeals in CA-G.R.
SP No. 94838 are hereby AFFIRMED.SO ORDERED.

G.R. No. 167751

March 2, 2011

HARPOON MARINE SERVICES, Inc. and JOSE LIDO T.

ROSIT, Petitioners,
vs.
FERNAN H. FRANCISCO, Respondent.
DECISION
DEL CASTILLO, J.:
Satisfactory evidence of a valid or just cause of dismissal is
indispensably required in order to protect a laborers right to
security of tenure. In the case before us, the employer presented
none despite the burden to prove clearly its cause.
This Petition for Review on Certiorari with Prayer for the Issuance
of a Temporary Restraining Order and/or a Writ of Preliminary
Injunction1 assails the Decision2 dated January 26, 2005 and
Resolution3 dated April 12, 2005 of the Court of Appeals (CA) in
CA-G.R. SP No. 79630, which affirmed the Decision4 of the
National Labor Relations Commission (NLRC) dated March 31,
2003, as well as the NLRC modified Decision5 dated June 30, 2003,
declaring petitioners Harpoon Marine Services, Incorporated
(Harpoon) and Jose Lido T. Rosit (Rosit) solidarily liable to pay
respondent Fernan H. Francisco (respondent) separation pay,
backwages and unpaid commissions for illegally dismissing him.
Factual Antecedents
Petitioner Harpoon, a company engaged in ship building and ship
repair, with petitioner Rosit as its President and Chief Executive
Officer (CEO), originally hired respondent in 1992 as its Yard
Supervisor tasked to oversee and supervise all projects of the
company. In 1998, respondent left for employment elsewhere but
was rehired by petitioner Harpoon and assumed his previous
position a year after.
On June 15, 2001, respondent averred that he was
unceremoniously dismissed by petitioner Rosit. He was informed
that the company could no longer afford his salary and that he
would be paid his separation pay and accrued commissions.
Respondent nonetheless continued to report for work. A few days
later, however, he was barred from entering the company
premises. Relying on the promise of petitioner Rosit, respondent
went to the office on June 30, 2001 to receive his separation pay
and commissions, but petitioner Rosit offered only his separation
pay. Respondent refused to accept it and also declined to sign a
quitclaim. After several unheeded requests, respondent, through
his counsel, sent a demand letter dated September 24, 20016 to
petitioners asking for payment of P70,000.00, which represents
76

Corpo Page 7 Cases

his commissions for the seven boats7 constructed and repaired by

the company under his supervision. In a letter-reply dated
September 28, 2001,8 petitioners denied that it owed respondent
any commission, asserting that they never entered into any
contract or agreement for the payment of commissions. Hence,
on October 24, 2001, respondent filed an illegal dismissal
complaint praying for the payment of his backwages, separation
pay, unpaid commissions, moral and exemplary damages and
attorneys fees.
Petitioners presented a different version of the events and
refuted the allegations of respondent. They explained that
petitioner Rosit indeed talked to respondent on June 15, 2001 not
to dismiss him but only to remind and warn him of his excessive
absences and tardiness, as evinced by his Time Card covering the
period June 1-15, 2001.9Instead of improving his work behavior,
respondent continued to absent himself and sought employment
with another company engaged in the same line of business, thus,
creating serious damage in the form of unfinished projects.
Petitioners denied having terminated respondent as the latter
voluntarily abandoned his work after going on Absence Without
Official Leave (AWOL) beginning June 22, 2001. Petitioners
contended that when respondents absences persisted, several
memoranda10 informing him of his absences were sent to him by
ordinary mail and were duly filed with the Department of Labor
and Employment (DOLE) on August 13, 2001. Upon respondents
continuous and deliberate failure to respond to these
memoranda, a Notice of Termination dated July 30, 200111 was
later on issued to him.
Respondent, however, denied his alleged tardiness and excessive
absences. He claimed that the three-day absence appearing on his
time card cannot be considered as habitual absenteeism. He
claimed that he incurred those absences because petitioner Rosit,
who was hospitalized at those times, ordered them not to report
for work until he is discharged from the hospital. In fact, a coworker, Nestor Solares (Solares), attested that respondent always
goes to work and continued to report until June 20,
2001.12 Respondent further denied having received the
memoranda that were allegedly mailed to him, asserting that said
documents were merely fabricated to cover up and justify
petitioners act of illegally terminating him on June 15, 2001.
Respondent absolved himself of fault for defective works,
justifying that he was illegally terminated even before the
company projects were completed. Finally, respondent denied
petitioners asseveration that he abandoned his job without any
formal notice in 1998 as he wrote a resignation letter which
petitioners received.
As regards the commissions claimed, respondent insisted that in
addition to his fixed monthly salary ofP18,200.00, he was paid a
commission of P10,000.00 for every ship repaired or constructed

by the company. As proof, he presented two check

vouchers13 issued by the company showing payment thereof.
Petitioners, on the other hand, contended that respondent was
hired as a regular employee with a fixed salary and not as an
employee paid on commission basis. The act of giving additional
monetary benefit once in a while to employees was a form of
recognizing employees efforts and cannot in any way be
interpreted as commissions. Petitioners then clarified that the
word "commission" as appearing in the check vouchers refer to
"additional money" that employees receive as differentiated from
the usual "vale" and is written for accounting and auditing
purposes only.
Ruling of the Labor Arbiter
On May 17, 2002, the Labor Arbiter rendered a Decision14 holding
that respondent was validly dismissed due to his unjustified
absences and tardiness and that due process was observed when
he was duly served with several memoranda relative to the cause
of his dismissal. The Labor Arbiter also found respondent entitled
to the payment of commissions by giving credence to the check
vouchers presented by respondent as well as attorneys fees for
withholding the payment of commissions pursuant to Article 111
of the Labor Code. The dispositive portion of the Labor Arbiters
Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered
finding the dismissal of complainant Fernan H. Francisco legal;
ordering respondents Harpoon Marine Services Inc., and Jose Lido
T. Rosit, to pay complainant his commission in the sum of
PHP70,000.00; as well as attorneys fees of ten percent (10%)
thereof; and dismissing all other claims for lack of merit.
SO ORDERED.15
Proceedings before the National Labor Relations Commission
Both parties appealed to the NLRC. Petitioners alleged that the
Labor Arbiter erred in ruling that respondent is entitled to the
payment of commissions and attorneys fees. They questioned
the authenticity of the check vouchers for being photocopies
bearing only initials of a person who remained unidentified. Also,
according to petitioners, the vouchers did not prove that
commissions were given regularly as to warrant respondents
entitlement thereto.16
Respondent, on the other hand, maintained that his dismissal was
illegal because there is no sufficient evidence on record of his
alleged gross absenteeism and tardiness. He likewise imputed bad
faith on the part of petitioners for concocting the memoranda for

the purpose of providing a semblance of compliance with due

process requirements.17

2. Separation Pay of one month salary for

CONCLUSIONS FOUNDED UPON A MISAPPREHENSION OF FACTS,

AMONG OTHERS.

every year of service

In its Decision dated March 31, 2003,18 the NLRC affirmed the
Labor
Arbiters award of commissions in favor of respondent for failure
of petitioners to refute the validity of his claim. The NLRC,
however, deleted the award of attorneys fees for lack of evidence
showing petitioners bad faith in terminating respondent.

II
(October 1999 17 May 2002)
WHETHER THE COURT OF APPEALS ERRED WHEN IT RULED THAT
THERE WAS AN ILLEGAL DISMISSAL IN THE SEPARATION FROM
EMPLOYMENT OF FERNAN H. FRANCISCO NOTWITHSTANDING
THE FACT THAT HE WAS HABITUALLY ABSENT, SUBSEQUENTLY
WENT ON AWOL, AND HAD ABANDONED HIS WORK AND
CORRELATIVELY, WHETHER HE IS ENTITLED TO BACKWAGES AND
SEPARATION PAY.

P18,200.00 x 3 yrs. = 54,600.00

3. Commission = 70,000.00

As the NLRC only resolved petitioners appeal, respondent moved

before the NLRC to resolve his appeal of the Labor Arbiters
Decision.19 For their part, petitioners filed a Verified Motion for
Reconsideration20 reiterating that there was patent error in
admitting, as valid evidence, photocopies of the check vouchers
without substantial proof that they are genuine copies of the
originals.

TOTAL P342,666.33

The NLRC, in its Decision dated June 30, 2003,21 modified its
previous ruling and held that respondents dismissal was illegal.
According to the NLRC, the only evidence presented by the
petitioners to prove respondents habitual absenteeism and
tardiness is his time card for the period covering June 1-15, 2001.
However, said time card reveals that respondent incurred only
three absences for the said period, which cannot be considered as
gross and habitual. With regard to the award of commissions, the
NLRC affirmed the Labor Arbiter because of petitioners failure to
question the authenticity of the check vouchers in the first
instance before the Labor Arbiter. It, nevertheless, sustained the
deletion of the award of attorneys fees in the absence of proof
that petitioners acted in bad faith. Thus, for being illegally
dismissed, the NLRC granted respondent backwages and
separation pay in addition to the commissions, as contained in the
dispositive portion of its Decision, as follows:

Ruling of the Court of Appeals

WHEREFORE, the decision dated 31 March 2003 is further

MODIFIED. Respondents are found to have illegally dismissed
complainant Fernan H. Francisco and are ordered to pay him the
following:

WHETHER The Court of Appeals committed error in rendering its

Decision and its Resolution dismissing and denying the Petition
for Certiorari a quo when it failed to rectify and correct the
findings and conclusions of the NLRC (and of the Labor Arbiter a
quo), which were arrived at with grave abuse of discretion
amounting to lack or excess of jurisdiction. In particular:

1. Backwages = P218,066.33
(15 June 2001 17 May 2002)
a) Salary P18,200.00 x 11.06 months = P201,292.00
b) 13th month pay: P201,292.00/12 = 16,774.33
---------------77

Corpo Page 7 Cases

The Motion for Reconsideration filed by complainant and

respondents are hereby DISMISSED for lack of merit.

III
WHETHER THE COURT OF APPEALS ERRED WHEN IT RULED THAT
FERNAN H. FRANCISCO IS ENTITLED TO COMMISSIONS IN THE
AMOUNT OF P70,000 EVEN THOUGH NO SUBSTANTIAL
EVIDENCE WAS SHOWN TO SUPPORT THE CLAIM.

SO ORDERED.22

Petitioners filed a petition for certiorari23 with the CA, which on

January 26, 2005, affirmed the findings and conclusions of the
NLRC. The CA agreed with the NLRC in not giving any probative
weight to the memoranda since there is no proof that the same
were sent to respondent. It also upheld respondents right to the
payment of commissions on the basis of the check vouchers and
declared petitioners solidarily liable for respondents backwages,
separation pay and accrued commissions.
Petitioners moved for reconsideration which was denied by the
CA. Hence, this petition.
Issues

I
WHETHER THE COURT OF APPEALS ERRED WHEN IT FAILED TO
REVERSE THE FINDINGS OF THE NLRC AND OF THE LABOR
ARBITER A QUO BECAUSE THESE FINDINGS ARE NOT SUPPORTED
BY SUBSTANTIAL EVIDENCE[;] ARE CONFLICTING AND
CONTRADICTORY; GROUNDED UPON SPECULATION,
CONJECTURES, AND ASSUMPTIONS; [AND] ARE MERE

IV
WHETHER THE COURT OF APPEALS ERRED WHEN IT RULED THAT
THERE WAS BAD FAITH ON THE PART OF PETITIONER ROSIT
EVEN THOUGH NO SUBSTANTIAL EVIDENCE WAS PRESENTED TO
PROVE THIS AND CORRELATIVELY, WHETHER PETITIONER ROSIT
CAN BE HELD SOLIDARILY LIABLE WITH PETITIONER HARPOON.24
Petitioners submit that there was no basis for the CA to rule that
respondent was illegally dismissed since more than sufficient
proof was adduced to show his habitual absenteeism and
abandonment of work as when he further incurred additional
absences after June 15, 2001 and subsequently went on AWOL;
when he completely ignored all the notices/memoranda sent to
him; when he never demanded for reinstatement in his
September 24, 2001 demand letter, complaint and position paper
before the Labor Arbiter; when it took him four months before
filing an illegal dismissal complaint; and when he was later found
to have been working for another company.
Petitioners also question the veracity of the documents presented
by respondent to prove his entitlement to commissions, to wit:
the two check vouchers25 and the purported list26 of vessels
allegedly constructed and repaired by the company. Petitioners
insist that the check vouchers neither prove that commissions
were paid on account of a repair or construction of a vessel nor
were admissible to prove that a regular commission is given for
every vessel that is constructed/repaired by the company under
respondents supervision. The list of the vessels, on the other
hand, cannot be used as basis in arriving at the amount of
commissions due because it is self-serving, unsigned, unverified

and merely enumerates a list of names of vessels which does not

prove anything. Therefore, the award of commissions was based
on unsupported assertions of respondent.
Petitioners also insist that petitioner Rosit, being an officer of the
company, has a personality distinct from that of petitioner
Harpoon and that no proof was adduced to show that he acted
with malice or bad faith hence no liability, solidary or otherwise,
should be imposed on him.
Our Ruling
The petition is partly meritorious.
Respondent was illegally dismissed for failure of petitioners to
prove the existence of a just cause for his dismissal.
Petitioners reiterate that respondent was a habitual absentee as
indubitably shown by his time card for the period covering June 115, 2001,27 payroll28 for the same period as well as the
memoranda29 enumerating his absences subsequent to
June 15, 2001.
Respondent belies these claims and explained that his absence for
three days as reflected in the time card was due to petitioner
Rosits prohibition for them to report for work owing to the
latters hospitalization. He claims that he was illegally terminated
on June 15, 2001 and was subsequently prevented from entering
company premises. In defense, petitioners deny terminating
respondent on June 15, 2001, maintaining that petitioner Rosit
merely reminded him of his numerous absences. However, in
defiance of the companys order, respondent continued to absent
himself, went on AWOL and abandoned his work.
We find no merit in petitioners contention that respondent
incurred unexplained and habitual absences and tardiness. A
scrutiny of the time card and payroll discloses that respondent
incurred only three days of absence and no record of tardiness. As
aptly held by the NLRC, the time card and payroll presented by
petitioners do not show gross and habitual absenteeism and
tardiness especially since respondents explanation of his threeday absence was not denied by petitioners at the first instance
before the Labor Arbiter. No other evidence was presented to
show the alleged absences and tardiness. On the other hand,
Solares, a co-worker of respondent has stated under oath that, as
their supervisor, respondent was diligent in reporting for work
until June 20, 2001 when they heard the news concerning
respondents termination from his job.

78

Corpo Page 7 Cases

Likewise, we are not persuaded with petitioners claim that

respondent incurred additional absences, went on AWOL and
abandoned his work. It is worthy to note at this point that
petitioners never denied having offered respondent his
separation pay. In fact, in their letter-reply dated September 28,
2001,30 petitioners intimated that respondent may pick up the
amount of P27,584.37 any time he wants, which amount
represents his separation and 13th month pays. Oddly, petitioners
deemed it fit to give respondent his separation pay despite their
assertion that there is just cause for his dismissal on the ground of
habitual absences. This inconsistent stand of petitioners bolsters
the fact that they wanted to terminate respondent, thus giving
more credence to respondents protestation that he was barred
and prevented from reporting for work.

In fine, both the NLRC and the CA did not commit manifest error
in finding that there was illegal dismissal. The award of backwages
and separation pay in favor of respondent is therefore proper.

Jurisprudence provides for two essential requirements for

abandonment of work to exist. The "failure to report for work or
absence without valid or justifiable reason" and "clear intention
to sever the employer-employee relationship x x x manifested by
some overt acts" should both concur.31 Further, the employees
deliberate and unjustified refusal to resume his employment
without any intention of returning should be established and
proven by the employer.32

The Court, however, is inclined to rule otherwise. Examination of

the check vouchers presented by respondent reveals that an
amount of P30,000.00 and P10,000.00 alleged as commissions
were paid to respondent on June 9, 2000 and September 28,
2000, respectively. Although the veracity and genuineness of
these documents were not effectively disputed by petitioners,
nothing in them provides that commissions were paid to
respondent on account of a repair or construction of a vessel. It
cannot also be deduced from said documents for what or for how
many vessels the amounts stated therein are for. In other words,
the check vouchers contain very scant details and can hardly be
considered as sufficient and substantial evidence to conclude that
respondent is entitled to a commission of P10,000.00 for every
vessel repaired or constructed by the company. At most, these
vouchers only showed that respondent was paid on two occasions
but were silent as to the specific purpose of payment. The list of
vessels supposedly repaired/constructed by the company neither
validates respondents monetary claim as it merely contains an
enumeration of 17 names of vessels and nothing more. No
particulars, notation or any clear indication can be found on the
list that the repair or complete construction of seven of the
seventeen boats listed therein was supervised or managed by
respondent. Worse, the list is written only on a piece of paper and
not on petitioners official stationery and is unverified and
unsigned. Verily, its patent vagueness makes it unworthy of any
credence to be used as basis for awarding respondent
compensations as alleged commissions. Aside from these
documents, no other competent evidence was presented by
respondent to determine the value of what is properly due him,
much less his entitlement to a commission. Respondents claim
cannot be based on allegations and unsubstantiated assertions
without any competent document to support it. Certainly, the
award of commissions in favor of respondent in the amount
of P70,000.00 should not be allowed as the claim is founded on
mere inferences, speculations and presumptions.

Petitioners failed to prove that it was respondent who voluntarily

refused to report back for work by his defiance and refusal to
accept the memoranda and the notices of absences sent to him.
The CA correctly ruled that petitioners failed to present evidence
that they sent these notices to respondents last known address
for the purpose of warning him that his continued failure to
report would be construed as abandonment of work. The affidavit
of petitioner Harpoons liaison officer that the
memoranda/notices were duly sent to respondent is insufficient
and self-serving. Despite being stamped as received, the
memoranda do not bear any signature of respondent to indicate
that he actually received the same. There was no proof on how
these notices were given to respondent. Neither was there any
other cogent evidence that these were properly received by
respondent.
The fact that respondent never prayed for reinstatement and has
sought employment in another company which is a competitor of
petitioner Harpoon cannot be construed as his overt acts of
abandoning employment. Neither can the delay of four months
be taken as an indication that the respondents filing of a
complaint for illegal dismissal is a mere afterthought. Records
show that respondent first attempted to get his separation pay
and alleged commissions from the company. It was only after his
requests went unheeded that he resorted to judicial recourse.

Respondent is not entitled to the payment of commissions since

the check vouchers and purported list of vessels show vagueness
as to sufficiently prove the claim.
The Labor Arbiter, the NLRC and the CA unanimously held that
respondent is entitled to his accrued commissions in the amount
of P10,000.00 for every vessel repaired/constructed by the
company or the total amount ofP70,000.00 for the seven vessels
repaired/constructed under his supervision.lawphi1

Rosit could not be held solidarily liable with Harpoon for lack of
substantial evidence of bad faith and malice on his part in
terminating respondent.
Although we find no error on the part of the NLRC and the CA in
declaring the dismissal of respondent illegal, we, however, are not
in accord with the ruling that petitioner Rosit should be held
solidarily liable with petitioner Harpoon for the payment of
respondents backwages and separation pay.
As held in the case of MAM Realty Development Corporation v.
National Labor Relations Commission,33"obligations incurred by
[corporate officers], acting as such corporate agents, are not
theirs but the direct accountabilities of the corporation they
represent."34 As such, they should not be generally held jointly
and solidarily liable with the corporation. The Court, however,
cited circumstances when solidary liabilities may be imposed, as
exceptions:
1. When directors and trustees or, in appropriate
cases, the officers of a corporation
(a) vote for or assent to [patently] unlawful
acts of the corporation;
(b) act in bad faith or with gross negligence
in directing the corporate affairs;
(c) are guilty of conflict of interest to the
prejudice of the corporation, its
stockholders or members, and other
persons.
2. When the director or officer has consented to the
issuance of watered stock or who, having knowledge
thereof, did not forthwith file with the corporate
secretary his written objection thereto.

fiction, the officers bad faith or wrongdoing "must be established

clearly and convincingly" as "[b]ad faith is never presumed."37
In the case at bench, the CAs basis for petitioner Rosits liability
was that he acted in bad faith when he approached respondent
and told him that the company could no longer afford his salary
and that he will be paid instead his separation pay and accrued
commissions. This finding, however, could not substantially justify
the holding of any personal liability against petitioner Rosit. The
records are bereft of any other satisfactory evidence that
petitioner Rosit acted in bad faith with gross or inexcusable
negligence, or that he acted outside the scope of his authority as
company president. Indeed, petitioner Rosit informed respondent
that the company wishes to terminate his services since it could
no longer afford his salary. Moreover, the promise of separation
pay, according to petitioners, was out of goodwill and
magnanimity. At the most, petitioner Rosits actuations only show
the illegality of the manner of effecting respondents termination
from service due to absence of just or valid cause and nonobservance of procedural due process but do not point to any
malice or bad faith on his part. Besides, good faith is still
presumed. In addition, liability only attaches if the officer has
assented to patently unlawful acts of the corporation.
Thus, it was error for the CA to hold petitioner Rosit solidarily
liable with petitioner Harpoon for illegally dismissing respondent.
WHEREFORE, the petition is PARTLY GRANTED. The Decision
dated January 26, 2005 and Resolution dated April 12, 2005 of the
Court of Appeals in CA-G.R. SP No. 79630 finding respondent
Fernan H. Francisco to have been illegally dismissed and awarding
him backwages and separation pay are AFFIRMED. The award of
commissions in his favor is, however, DELETED. Petitioner Jose
Lido T. Rosit is ABSOLVED from the liability adjudged against copetitioner Harpoon Marine Services, Incorporated.SO ORDERED.

G.R. No. 168757

3. When a director, trustee or officer has contractually
agreed or stipulated to hold himself personally and
solidarily liable with the corporation.

RENATO REAL, Petitioner,

vs.
SANGU PHILIPPINES, INC. and/ or KIICHI ABE, Respondents.

4. When a director, trustee or officer is made, by

specific provision of law, personally liable for his
corporate action.35

DECISION
DEL CASTILLO, J.:

The general rule is grounded on the theory that a corporation has

a legal personality separate and distinct from the persons
comprising it.36 To warrant the piercing of the veil of corporate
79

Corpo Page 7 Cases

January 19, 2011

The perennial question of whether a complaint for illegal dismissal

is intra-corporate and thus beyond the jurisdiction of the Labor
Arbiter is the core issue up for consideration in this case.
This Petition for Review on Certiorari assails the Decision1 dated
June 28, 2005 of the Court of Appeals (CA) in CA-G.R. SP. No.
86017 which dismissed the petition for certiorari filed before it.
Factual Antecedents
Petitioner Renato Real was the Manager of respondent
corporation Sangu Philippines, Inc., a corporation engaged in the
business of providing manpower for general services, like janitors,
janitresses and other maintenance personnel, to various clients.
In 2001, petitioner, together with 29 others who were either
janitors, janitresses, leadmen and maintenance men, all employed
by respondent corporation, filed their respective Complaints2 for
illegal dismissal against the latter and respondent Kiichi Abe, the
corporations Vice-President and General Manager. These
complaints were later on consolidated.
With regard to petitioner, he was removed from his position as
Manager through Board Resolution 2001-033adopted by
respondent corporations Board of Directors. Petitioner
complained that he was neither notified of the Board Meeting
during which said board resolution was passed nor formally
charged with any infraction. He just received from respondents a
letter4 dated March 26, 2001 stating that he has been terminated
from service effective March 25, 2001 for the following reasons:
(1) continuous absences at his post at Ogino Philippines Inc. for
several months which was detrimental to the corporations
operation; (2) loss of trust and confidence; and, (3) to cut down
operational expenses to reduce further losses being experienced
by respondent corporation.
Respondents, on the other hand, refuted petitioners claim of
illegal dismissal by alleging that after petitioner was appointed
Manager, he committed gross acts of misconduct detrimental to
the company since 2000. According to them, petitioner would
almost always absent himself from work without informing the
corporation of his whereabouts and that he would come to the
office only to collect his salaries. As he was almost always absent,
petitioner neglected to supervise the employees resulting in
complaints from various clients about employees performance. In
one instance, petitioner together with a few others, while
apparently drunk, went to the premises of one of respondents
clients, Epson Precision (Phils.) Inc., and engaged in a heated
argument with the employees therein. Because of this,
respondent Abe allegedly received a complaint from Epsons
Personnel Manager concerning petitioners conduct. Respondents
likewise averred that petitioner established a company engaged in
the same business as respondent corporations and even

submitted proposals for janitorial services to two of the latters

clients. Because of all these, the Board of Directors of respondent
corporation met on March 24, 2001 and adopted Board
Resolution No. 2001-03 removing petitioner as Manager.
Petitioner was thereafter informed of his removal through a letter
dated March 26, 2001 which he, however, refused to receive.
Further, in what respondents believed to be an act of retaliation,
petitioner allegedly encouraged the employees who had been
placed in the manpower pool to file a complaint for illegal
dismissal against respondents. Worse, he later incited those
assigned in Epson Precision (Phils.) Inc., Ogino Philippines
Corporation, Hitachi Cable Philippines Inc. and Philippine TRC Inc.
to stage a strike on April 10 to 16, 2001. Not satisfied, petitioner
together with other employees also barricaded the premises of
respondent corporation. Such acts respondents posited constitute
just cause for petitioners dismissal and that same was validly
effected.
Rulings of the Labor Arbiter and the National Labor Relations
Commission

complainants, the NLRC ruled that there was no dismissal. The

NLRC however, modified the appealed decision of the Labor
Arbiter in a Decision7 dated February 13, 2004, the dispositive
portion of which reads:
WHEREFORE, all foregoing premises considered, the appealed
Decision dated June 5, 2003 is hereby MODIFIED. Accordingly,
judgment is hereby rendered DISMISSING the complaint of
Renato Real for lack of jurisdiction. As to the rest of the
complainants, they are hereby ordered to immediately report
back to work but without the payment of backwages.
All other claims against respondents including attorneys fees are
DISMISSED for lack of merit.
SO ORDERED.
Still joined by his co-complainants, petitioner brought the case to
the CA by way of petition for certiorari.
Ruling of the Court of Appeals

The Labor Arbiter in a Decision5 dated June 5, 2003 declared

petitioner and his co-complainants as having been illegally
dismissed and ordered respondents to reinstate complainants to
their former positions without loss of seniority rights and other
privileges and to pay their full backwages from the time of their
dismissal until actually reinstated and furthermore, to pay them
attorneys fees. The Labor Arbiter found no convincing proof of
the causes for which petitioner was terminated and noted that
there was complete absence of due process in the manner of his
termination.
Respondents thus appealed to the National Labor Relations
Commission (NLRC) and raised therein as one of the issues the
lack of jurisdiction of the Labor Arbiter over petitioners
complaint. Respondents claimed that petitioner is both a
stockholder and a corporate officer of respondent corporation,
hence, his action against respondents is an intra-corporate
controversy over which the Labor Arbiter has no jurisdiction.
The NLRC found such contention of respondents to be
meritorious. Aside from petitioners own admission in the
pleadings that he is a stockholder and at the same time occupying
a managerial position, the NLRC also gave weight to the
corporations General Information Sheet6 (GIS) dated October 27,
1999 listing petitioner as one of its stockholders, consequently his
termination had to be effected through a board resolution. These,
the NLRC opined, clearly established petitioners status as a
stockholder and as a corporate officer and hence, his action
against respondent corporation is an intra-corporate controversy
over which the Labor Arbiter has no jurisdiction. As to the other
80

Corpo Page 7 Cases

Before the CA, petitioner imputed upon the NLRC grave abuse of
discretion amounting to lack or excess of jurisdiction in declaring
him a corporate officer and in holding that his action against
respondents is an intra-corporate controversy and thus beyond
the jurisdiction of the Labor Arbiter.
While admitting that he is indeed a stockholder of respondent
corporation, petitioner nevertheless disputed the declaration of
the NLRC that he is a corporate officer thereof. He posited that his
being a stockholder and his being a managerial employee do
not ipso facto confer upon him the status of a corporate officer.
To support this contention, petitioner called the CAs attention to
the same GIS relied upon by the NLRC when it declared him to be
a corporate officer. He pointed out that although said information
sheet clearly indicates that he is a stockholder of respondent
corporation, he is not an officer thereof as shown by the entry
"N/A" or "not applicable" opposite his name in the officer column.
Said column requires that the particular position be indicated if
the person is an officer and if not, the entry "N/A". Petitioner
further argued that the fact that his dismissal was effected
through a board resolution does not likewise mean that he is a
corporate officer. Otherwise, all that an employer has to do in
order to avoid compliance with the requisites of a valid dismissal
under the Labor Code is to dismiss a managerial employee
through a board resolution. Moreover, he insisted that his action
for illegal dismissal is not an intra-corporate controversy as same
stemmed from employee-employer relationship which is well
within the jurisdiction of the Labor Arbiter. This can be deduced
and is bolstered by the last paragraph of the termination letter

sent to him by respondents stating that he is entitled to benefits

under the Labor Code, to wit:
In this connection (his dismissal) you are entitled to separation
pay and other benefits provided for under the Labor Code of the
Philippines.8 (Emphasis supplied)
In contrast, respondents stood firm that the action against them is
an intra-corporate controversy. It cited Tabang v. National Labor
Relations Commission9 wherein this Court declared that "an intracorporate controversy is one which arises between a stockholder
and the corporation;" that "[t]here is no distinction, qualification,
nor any exemption whatsoever;" and that it is "broad and covers
all kinds of controversies between stockholders and
corporations." In view of this ruling and since petitioner is
undisputedly a stockholder of the corporation, respondents
contended that the action instituted by petitioner against them is
an intra-corporate controversy cognizable only by the appropriate
regional trial court. Hence, the NLRC correctly dismissed
petitioners complaint for lack of jurisdiction.
In the assailed Decision10 dated June 28, 2005, the CA sided with
respondents and affirmed the NLRCs finding that aside from
being a stockholder of respondent corporation, petitioner is also a
corporate officer thereof and consequently, his complaint is an
intra-corporate controversy over which the labor arbiter has no
jurisdiction. Said court opined that if it was true that petitioner is
a mere employee, the respondent corporation would not have
called a board meeting to pass a resolution for petitioners
dismissal considering that it was very tedious for the Board of
Directors to convene and to adopt a resolution every time they
decide to dismiss their managerial employees. To support its
finding, the CA likewise cited Tabang. As to petitioners cocomplainants, the CA likewise affirmed the NLRCS finding that
they were never dismissed from the service. The dispositive
portion of the CA Decision reads:
WHEREFORE, the instant petition is hereby DISMISSED.
Accordingly, the assailed decision and resolution of the public
respondent National Labor Relations Commission in NLRC NCR CA
No. 036128-03 NLRC SRAB-IV-05-6618-01-B/05-6619-02-B/056620-02-B/10-6637-01-B/10-6833-01-B, STANDS.
SO ORDERED.
Now alone but still undeterred, petitioner elevated the case to us
through this Petition for Review on Certiorari.
The Parties Arguments

Petitioner continues to insist that he is not a corporate officer. He

argues that a corporate officer is one who holds an elective
position as provided in the Articles of Incorporation or one who is
appointed to such other positions by the Board of Directors as
specifically authorized by its By-Laws. And, since he was neither
elected nor is there any showing that he was appointed by the
Board of Directors to his position as Manager, petitioner
maintains that he is not a corporate officer contrary to the
findings of the NLRC and the CA.
Petitioner likewise contends that his complaint for illegal dismissal
against respondents is not an intra-corporate controversy. He
avers that for an action or suit between a stockholder and a
corporation to be considered an intra-corporate controversy,
same must arise from intra-corporate relations, i.e., an action
involving the status of a stockholder as such. He believes that his
action against the respondents does not arise from intracorporate relations but rather from employer-employee relations.
This, according to him, was even impliedly recognized by
respondents as shown by the earlier quoted portion of the
termination letter they sent to him.
For their part, respondents posit that what petitioner is essentially
assailing before this Court is the finding of the NLRC and the CA
that he is a corporate officer of respondent corporation. To the
respondents, the question of whether petitioner is a corporate
officer is a question of fact which, as held in a long line of
jurisprudence, cannot be the subject of review under this Petition
for Review on Certiorari. At any rate, respondents insist that
petitioner who is undisputedly a stockholder of respondent
corporation is likewise a corporate officer and that his action
against them is an intra-corporate dispute beyond the jurisdiction
of the labor tribunals. To support this, they cited several
jurisprudence such as Pearson & George (S.E. Asia), Inc. v.
National Labor Relations Commission,11Philippine School of
Business Administration v. Leano,12 Fortune Cement Corporation v.
National Labor Relations Commission13 and again, Tabang v.
National Labor Relations Commission.14
Moreover, in an attempt to demolish petitioners claim that the
present controversy concerns employer-employee relations,
respondents enumerated the following facts and circumstances:
(1) Petitioner was an incorporator, stockholder and manager of
respondent company; (2) As an incorporator, he was one of only
seven incorporators of respondent corporation and one of only
four Filipino members of the Board of Directors; (3) As
stockholder, he has One Thousand (1,000) of the Ten Thousand
Eight Hundred (10,800) common shares held by Filipino
stockholders, with a par-value of One Hundred Thousand Pesos
(P100,000.00); (4) His appointment as manager was by virtue of
Section 1, Article IV of respondent corporations By-Laws; (5) As
manager, he had direct management and authority over all of
respondent corporations skilled employees; (6) Petitioner has
81

Corpo Page 7 Cases

shown himself to be an incompetent manager, unable to properly

supervise the employees and even causing friction with the
corporations clients by engaging in unruly behavior while in
clients premises; (7) As if his incompetence was not enough, in a
blatant and palpable act of disloyalty, he established another
company engaged in the same line of business as respondent
corporation; (8) Because of these acts of incompetence and
disloyalty, respondent corporation through a Resolution adopted
by its Board of Directors was finally constrained to remove
petitioner as Manager and declare his office vacant; (9) After his
removal, petitioner urged the employees under him to stage an
unlawful strike by leading them to believe that they have been
illegally dismissed from employment.15Apparently, respondents
intended to show from this enumeration that petitioners removal
pertains to his relationship with respondent corporation, that is,
his utter failure to advance its interest and the prejudice caused
by his acts of disloyalty. For this reason, respondents see the
action against them not as a case between an employer and an
employee as what petitioner alleges, but one by an officer and at
same time a major stockholder seeking to be reinstated to his
former office against the corporation that declared his position
vacant.
Finally, respondents state that the fact that petitioner is being
given benefits under the Labor Code as stated in his termination
letter does not mean that they are recognizing the employeremployee relations between them. They explain that the benefits
provided under the Labor Code were merely made by respondent
corporation as the basis in determining petitioners compensation
package and that same are merely part of the perquisites of
petitioners office as a director and manager. It does not and it
cannot change the intra-corporate nature of the controversy.
Hence, respondents pray that this petition be dismissed for lack of
merit.
Issues
From the foregoing and as earlier mentioned, the core issue to be
resolved in this case is whether petitioners complaint for illegal
dismissal constitutes an intra-corporate controversy and thus,
beyond the jurisdiction of the Labor Arbiter.
Our Ruling
Two-tier test in determining the existence of intra-corporate
controversy
Respondents strongly rely on this Courts pronouncement in the
1997 case of Tabang v. National Labor Relations Commission, to
wit:

[A]n intra-corporate controversy is one which arises between a

stockholder and the corporation. There is no distinction,
qualification nor any exemption whatsoever. The provision is
broad and covers all kinds of controversies between stockholders
and corporations.16
In view of this, respondents contend that even if petitioner
challenges his being a corporate officer, the present case still
constitutes an intra-corporate controversy as petitioner is
undisputedly a stockholder and a director of respondent
corporation.
It is worthy to note, however, that before the promulgation of
the Tabang case, the Court provided in Mainland Construction
Co., Inc. v. Movilla17 a "better policy" in determining which
between the Securities and Exchange Commission (SEC) and the
Labor Arbiter has jurisdiction over termination disputes,18 or
similarly, whether they are intra-corporate or not, viz:
The fact that the parties involved in the controversy are all
stockholders or that the parties involved are the stockholders and
the corporation does not necessarily place the dispute within the
ambit of the jurisdiction of the SEC (now the Regional Trial
Court19). The better policy to be followed in determining
jurisdiction over a case should be to consider concurrent factors
such as the status or relationship of the parties or the nature of
the question that is subject of their controversy. In the absence
of any one of these factors, the SEC will not have jurisdiction.
Furthermore, it does not necessarily follow that every conflict
between the corporation and its stockholders would involve such
corporate matters as only SEC (now the Regional Trial Court20) can
resolve in the exercise of its adjudicatory or quasi-judicial powers.
(Emphasis ours)
And, while Tabang was promulgated later than Mainland
Construction Co., Inc., the "better policy" enunciated in the latter
appears to have developed into a standard approach in classifying
what constitutes an intra-corporate controversy. This is explained
lengthily in Reyes v. Regional Trial Court of Makati, Br. 142,21 to
wit:
Intra-Corporate Controversy
A review of relevant jurisprudence shows a development in the
Courts approach in classifying what constitutes an intracorporate controversy. Initially, the main consideration in
determining whether a dispute constitutes an intra-corporate
controversy was limited to a consideration of the intra-corporate
relationship existing between or among the parties. The types of
relationships embraced under Section 5(b) x x x were as follows:

a) between the corporation, partnership or association

and the public;

the parties, and (2) the nature of the question that is the subject
of their controversy.

b) between the corporation, partnership or association

and its stockholders, partners, members or officers;

The first element requires that the controversy must arise out of
intra-corporate or partnership relations between any or all of the
parties and the corporation, partnership, or association of which
they are not stockholders, members or associates, between any
or all of them and the corporation, partnership or association of
which they are stockholders, members or associates, respectively;
and between such corporation, partnership, or association and
the State insofar as it concerns the individual franchises. The
second element requires that the dispute among the parties be
intrinsically connected with the regulation of the corporation. If
the nature of the controversy involves matters that are purely civil
in character, necessarily, the case does not involve an intracorporate controversy. [Citations omitted.]

c) between the corporation, partnership or association

and the State as far as its franchise, permit or license
to operate is concerned; and
d) among the stockholders, partners or associates
themselves.
The existence of any of the above intra-corporate relations was
sufficient to confer jurisdiction to the SEC (now the RTC),
regardless of the subject matter of the dispute. This came to be
known as the relationship test.
However, in the 1984 case of DMRC Enterprises v. Esta del Sol
Mountain Reserve, Inc., the Court introduced the nature of the
controversy test. We declared in this case that it is not the mere
existence of an intra-corporate relationship that gives rise to an
intra-corporate controversy; to rely on the relationship test alone
will divest the regular courts of their jurisdiction for the sole
reason that the dispute involves a corporation, its directors,
officers, or stockholders. We saw that there is no legal sense in
disregarding or minimizing the value of the nature of the
transactions which gives rise to the dispute.
Under the nature of the controversy test, the incidents of that
relationship must also be considered for the purpose of
ascertaining whether the controversy itself is intra-corporate. The
controversy must not only be rooted in the existence of an intracorporate relationship, but must as well pertain to the
enforcement of the parties correlative rights and obligations
under the Corporation Code and the internal and intra-corporate
regulatory rules of the corporation. If the relationship and its
incidents are merely incidental to the controversy or if there will
still be conflict even if the relationship does not exist, then no
intra-corporate controversy exists.
The Court then combined the two tests and declared that
jurisdiction should be determined by considering not only the
status or relationship of the parties, but also the nature of the
question under controversy. This two-tier test was adopted in the
recent case of Speed Distribution Inc. v. Court of Appeals:
To determine whether a case involves an intra-corporate
controversy, and is to be heard and decided by the branches of
the RTC specifically designated by the Court to try and decide such
cases, two elements must concur: (a) the status or relationship of
82

Corpo Page 7 Cases

Guided by this recent jurisprudence, we thus find no merit in

respondents contention that the fact alone that petitioner is a
stockholder and director of respondent corporation automatically
classifies this case as an intra-corporate controversy. To reiterate,
not all conflicts between the stockholders and the corporation are
classified as intra-corporate. There are other factors to consider in
determining whether the dispute involves corporate matters as to
consider them as intra-corporate controversies.
What then is the nature of petitioners Complaint for Illegal
Dismissal? Is it intra-corporate and thus beyond the jurisdiction of
the Labor Arbiter? We shall answer this question by using the
standards set forth in the Reyes case.

Petitioner negates his status as a corporate officer by pointing out

that although he was removed as Manager through a board
resolution, he was never elected to said position nor was he
appointed thereto by the Board of Directors. While the By-Laws of
respondent corporation provides that the Board may from time to
time appoint such officers as it may deem necessary or proper, he
avers that respondents failed to present any board resolution that
he was appointed pursuant to said By-Laws. He instead alleges
that he was hired as Manager of respondent corporation solely by
respondent Abe. For these reasons, petitioner claims to be a mere
employee of respondent corporation rather than as a corporate
officer.
We find merit in petitioners contention.
"Corporate officers in the context of Presidential Decree No.
902-A are those officers of the corporation who are given that
character by the Corporation Code or by the corporations bylaws. There are three specific officers whom a corporation must
have under Section 25 of the Corporation Code. These are the
president, secretary and the treasurer. The number of officers is
not limited to these three. A corporation may have such other
officers as may be provided for by its by-laws like, but not limited
to, the vice-president, cashier, auditor or general manager. The
number of corporate officers is thus limited by law and by the
corporations by-laws."22
Respondents claim that petitioner was appointed Manager by
virtue of Section 1, Article IV of respondent corporations By-Laws
which provides:

No intra-corporate relationship between the parties

As earlier stated, petitioners status as a stockholder and director
of respondent corporation is not disputed. What the parties
disagree on is the finding of the NLRC and the CA that petitioner is
a corporate officer. An examination of the complaint for illegal
dismissal, however, reveals that the root of the controversy is
petitioners dismissal as Manager of respondent corporation, a
position which respondents claim to be a corporate office. Hence,
petitioner is involved in this case not in his capacity as a
stockholder or director, but as an alleged corporate officer. In
applying the relationship test, therefore, it is necessary to
determine if petitioner is a corporate officer of respondent
corporation so as to establish the intra-corporate relationship
between the parties. And albeit respondents claim that the
determination of whether petitioner is a corporate officer is a
question of fact which this Court cannot pass upon in this petition
for review on certiorari, we shall nonetheless proceed to consider
the same because such question is not the main issue to be
resolved in this case but is merely collateral to the core issue
earlier mentioned.

ARTICLE IV
OFFICER
Section 1. Election/Appointment Immediately after their
election, the Board of Directors shall formally organize by electing
the President, Vice-President, the Secretary at said meeting.
The Board, may from time to time, appoint such other officers as
it may determine to be necessary or proper. Any two (2) or more
positions may be held concurrently by the same person, except
that no one shall act as President and Treasurer or Secretary at
the same time.
x x x x23 (Emphasis ours)
We have however examined the records of this case and we find
nothing to prove that petitioners appointment was made
pursuant to the above-quoted provision of respondent
corporations By-Laws. No copy of board resolution appointing
petitioner as Manager or any other document showing that he

was appointed to said position by action of the board was

submitted by respondents. What we found instead were mere
allegations of respondents in their various pleadings24 that
petitioner was appointed as Manager of respondent corporation
and nothing more. "The Court has stressed time and again that
allegations must be proven by sufficient evidence because mere
allegation is definitely not evidence."25
It also does not escape our attention that respondents made the
following conflicting allegations in their Memorandum on
Appeal26 filed before the NLRC which cast doubt on petitioners
status as a corporate officer, to wit:
xxxx
24. Complainant-appellee Renato Real was appointed as the
manager of respondent-appellant Sangu on November 6, 1998.
Priorly [sic], he was working at Atlas Ltd. Co. at Mito-shi, Ibarakiken Japan. He was staying in Japan as an illegal alien for the past
eleven (11) years. He had a problem with his family here in the
Philippines which prompted him to surrender himself to Japans
Bureau of Immigration and was deported back to the Philippines.
His former employer, Mr. Tsutomo Nogami requested Mr.
Masahiko Shibata, one of respondent-appellant Sangus Board of
Directors, if complainant-appellee Renato Real could work as one
of its employees here in the Philippines because he had been
blacklisted at Japans Immigration Office and could no longer go
back to Japan. And so it was arranged that he would serve as
respondent-appellant Sangus manager, receiving a salary
of P25,000.00. As such, he was tasked to oversee the operations
of the company. x x x (Emphasis ours)
xxxx
As earlier stated, complainant-appellee Renato Real was hired as
the manager of respondent-appellant Sangu. As such, his position
was reposed with full trust and confidence. x x x
While respondents repeatedly claim that petitioner was
appointed as Manager pursuant to the corporations By-Laws, the
above-quoted inconsistencies in their allegations as to how
petitioner was placed in said position, coupled by the fact that
they failed to produce any documentary evidence to prove that
petitioner was appointed thereto by action or with approval of
the board, only leads this Court to believe otherwise. It has been
consistently held that "[a]n office is created by the charter of the
corporation and the officer is elected (or appointed) by the
directors or stockholders."27 Clearly here, respondents failed to
prove that petitioner was appointed by the board of directors.
Thus, we cannot subscribe to their claim that petitioner is a
corporate officer. Having said this, we find that there is no intra83

Corpo Page 7 Cases

corporate relationship between the parties insofar as petitioners

complaint for illegal dismissal is concerned and that same does
not satisfy the relationship test.
Present controversy does not relate to intra-corporate dispute
We now go to the nature of controversy test. As earlier stated,
respondents terminated the services of petitioner for the
following reasons: (1) his continuous absences at his post at Ogino
Philippines, Inc; (2) respondents loss of trust and confidence on
petitioner; and, (3) to cut down operational expenses to reduce
further losses being experienced by the corporation. Hence,
petitioner filed a complaint for illegal dismissal and sought
reinstatement, backwages, moral damages and attorneys fees.
From these, it is not difficult to see that the reasons given by
respondents for dismissing petitioner have something to do with
his being a Manager of respondent corporation and nothing with
his being a director or stockholder. For one, petitioners
continuous absences in his post in Ogino relates to his
performance as Manager. Second, respondents loss of trust and
confidence in petitioner stemmed from his alleged acts of
establishing a company engaged in the same line of business as
respondent corporations and submitting proposals to the latters
clients while he was still serving as its Manager. While we note
that respondents also claim these acts as constituting acts of
disloyalty of petitioner as director and stockholder, we, however,
think that same is a mere afterthought on their part to make it
appear that the present case involves an element of intracorporate controversy. This is because before the Labor Arbiter,
respondents did not see such acts to be disloyal acts of a director
and stockholder but rather, as constituting willful breach of the
trust reposed upon petitioner as Manager.28 It was only after
respondents invoked the Labor Arbiters lack of jurisdiction over
petitioners complaint in the Supplemental Memorandum of
Appeal29 filed before the NLRC that respondents started
considering said acts as such. Third, in saying that they were
dismissing petitioner to cut operational expenses, respondents
actually want to save on the salaries and other remunerations
being given to petitioner as its Manager. Thus, when petitioner
sought for reinstatement, he wanted to recover his position as
Manager, a position which we have, however, earlier declared to
be not a corporate position. He is not trying to recover a seat in
the board of directors or to any appointive or elective corporate
position which has been declared vacant by the board. Certainly,
what we have here is a case of termination of employment which
is a labor controversy and not an intra-corporate dispute. In sum,
we hold that petitioners complaint likewise does not satisfy the
nature of controversy test.
With the elements of intra-corporate controversy being absent in
this case, we thus hold that petitioners complaint for illegal
dismissal against respondents is not intra-corporate. Rather, it is a

termination dispute and, consequently, falls under the jurisdiction

of the Labor Arbiter pursuant to Section 21730 of the Labor Code.
We take note of the cases cited by respondents and find them
inapplicable to the case at bar. Fortune Cement Corporation v.
National Labor Relations Commission31 involves a member of the
board of directors and at the same time a corporate officer who
claims he was illegally dismissed after he was stripped of his
corporate position of Executive Vice-President because of loss of
trust and confidence. On the other hand, Philippine School of
Business Administration v. Leano32 and Pearson & George v.
National Labor Relations Commission33 both concern a complaint
for illegal dismissal by corporate officers who were not re-elected
to their respective corporate positions. The Court declared all
these cases as involving intra-corporate controversies and thus
affirmed the jurisdiction of the SEC (now the RTC)34 over them
precisely because they all relate to corporate officers and their
removal or non-reelection to their respective corporate positions.
Said cases are by no means similar to the present case because as
discussed earlier, petitioner here is not a corporate officer.
With the foregoing, it is clear that the CA erred in affirming the
decision of the NLRC which dismissed petitioners complaint for
lack of jurisdiction. In cases such as this, the Court normally
remands the case to the NLRC and directs it to properly dispose of
the case on the merits. "However, when there is enough basis on
which a proper evaluation of the merits of petitioners case may
be had, the Court may dispense with the time-consuming
procedure of remand in order to prevent further delays in the
disposition of the case."35 "It is already an accepted rule of
procedure for us to strive to settle the entire controversy in a
single proceeding, leaving no root or branch to bear the seeds of
litigation. If, based on the records, the pleadings, and other
evidence, the dispute can be resolved by us, we will do so to serve
the ends of justice instead of remanding the case to the lower
court for further proceedings."36 We have gone over the records
before us and we are convinced that we can now altogether
resolve the issue of the validity of petitioners dismissal and
hence, we shall proceed to do so.
Petitioners dismissal not in accordance with law
"In an illegal dismissal case, the onus probandi rests on the
employer to prove that [the] dismissal of an employee is for a
valid cause."37 Here, as correctly observed by the Labor Arbiter,
respondents failed to produce any convincing proof to support
the grounds for which they terminated petitioner. Respondents
contend that petitioner has been absent for several months, yet
they failed to present any proof that petitioner was indeed absent
for such a long time. Also, the fact that petitioner was still able to
collect his salaries after his alleged absences casts doubts on the
truthfulness of such charge. Respondents likewise allege that

petitioner engaged in a heated argument with the employees of

Epson, one of respondents clients. But just like in the charge of
absenteeism, there is no showing that an investigation on the
matter was done and that disciplinary action was imposed upon
petitioner. At any rate, we have reviewed the records of this case
and we agree with the Labor Arbiter that under the
circumstances, said charges are not sufficient bases for
petitioners termination. As to the charge of breach of trust
allegedly committed by petitioner when he established a new
company engaged in the same line of business as respondent
corporations and submitted proposals to two of the latters
clients while he was still a Manager, we again observe that these
are mere allegations without sufficient proof. To reiterate,
allegations must be proven by sufficient evidence because mere
allegation is definitely not evidence.38
Moreover, petitioners dismissal was effected without due
process of law.lawphi1 "The twin requirements of notice and
hearing constitute the essential elements of due process. The law
requires the employer to furnish the employee sought to be
dismissed with two written notices before termination of
employment can be legally effected: (1) a written notice apprising
the employee of the particular acts or omissions for which his
dismissal is sought in order to afford him an opportunity to be
heard and to defend himself with the assistance of counsel, if he
desires, and (2) a subsequent notice informing the employee of
the employers decision to dismiss him. This procedure is
mandatory and its absence taints the dismissal with
illegality."39 Since in this case, petitioners dismissal was effected
through a board resolution and all that petitioner received was a
letter informing him of the boards decision to terminate him, the
abovementioned procedure was clearly not complied with. All
told, we agree with the findings of the Labor Arbiter that
petitioner has been illegally dismissed. And, as an illegally
dismissed employee is entitled to the two reliefs of backwages
and reinstatement,40 we affirm the Labor Arbiters judgment
ordering petitioners reinstatement to his former position without
loss of seniority rights and other privileges and awarding
backwages from the time of his dismissal until actually reinstated.
Considering that petitioner has to secure the services of counsel
to protect his interest and necessarily has to incur expenses, we
likewise affirm the award of attorneys fees which is equivalent to
10% of the total backwages that respondents must pay petitioner
in accordance with this Decision.
WHEREFORE, the petition is hereby GRANTED. The assailed June
28, 2005 Decision of the Court of Appeals insofar as it affirmed
the National Labor Relations Commissions dismissal of
petitioners complaint for lack of jurisdiction, is hereby REVERSED
and SET ASIDE. The June 5, 2003 Decision of the Labor Arbiter
with respect to petitioner Renato Real is AFFIRMED and this case
is ordered REMANDED to the National Labor Relations

84

Corpo Page 7 Cases

Commission for the computation of petitioners backwages and

attorneys fees in accordance with this Decision.SO ORDERED.

in preparing the manual of operations and

in the conduct of a seminar for [petitioner].
As no new ground was raised by petitioner, reconsideration of the
above-mentioned Decision was denied in the Resolution
promulgated on October 28, 1994.

G.R. No. 117847 October 7, 1998

PEOPLE'S AIRCARGO AND WAREHOUSING CO. INC., petitioner,
vs.
COURT OF APPEALS and STEFANI SAO, respondents.
PANGANIBAN, J.:
Contracts entered into by a corporate president without express
prior board approval bind the corporation, when such officer's
apparent authority is estabished and when these contracts are
ratified by the corporation.
The Case
This principle is stressed by the Court in rejecting the Petition for
Review of the February 28, 1994 Decision and the October 28,
1994 Resolution of the Court of Appeals in CA-GR CV No. 30670.
In a collection case 1 filed by Stefani Sao against People's
Aircargo and Warehousing Co., Inc., the Regional Trial Court (RTC)
of Pasay City, Branch 110, rendered a Decision 2 dated October 26,
1990, the dispositive portion of which reads: 3
WHEREFORE, in light of all the foregoing,
Judgment is hereby rendered, ordering
[petitioner] to pay [private respondent] the
amount of sixty thousand (P60,000.00)
pesos representing payment of [private
respondents] services in preparing the
manual of operations and in the conduct of
a seminar for [petitioner]. The Counterclaim
is hereby dismissed.
Aggrieved by what he considered a minuscule award of P60,000,
private respondent appealed to the Court of Appeals 4 (CA) which,
in its Decision promulgated February 28, 1994, granted his prayer
for P400,000, as follows: 5
WHEREFORE, PREMISES CONSIDERED, the
appealed judgment is hereby MODIFIED in
that [petitioner] is ordered to pay [private
respondent] the amount of four hundred
thousand pesos (P400,000.00) representing
payment of [private respondent's] services

The Facts
Petitioner is a domestic corporation, which was organized in the
middle of 1986 to operate a customs bonded warehouse at the
old Manila International Airport in Pasay City. 6
To obtain a license for the corporation from the Bureau of
Customs, Antonio Punsalan Jr., the corporation president,
solicited a proposal from private respondent for the preparation
of a feasibility study. 7 Private respondent submitted a letterproposal dated October 17, 1986 ("First Contract" hereafter) to
Punsalan, which is reproduced hereunder: 8
Dear Mr. Punsalan:
With reference to your request for
professional engineering consultancy
services for your proposed MIA
Warehousing Project may we offer the
following outputs and the corresponding
rate and terms of agreement:
====================================
===
Project Feasibility Study consisting of
Market Study
Technical Study
Financial Feasibility Study
Preparation of pertinent documentation
requirements for the application
__________________
__________________
_________

The above services will be provided for a

fee of [p]esos 350,000.00 payable according
to the following schedule:

On October 17, 1986, pertitioner, through Punsalan, sent private

respondent a letter, confirming their agreement as follows:

On December 4, 1986, upon Punsalan's request, private

respondent sent petitioner another letter-proposal ("Second
Contract" hereafter), which reads:

Dear Mr. Sao:

====================================
=================
Fifty percent (50%) upon confirmation of
the agreement
Twenty-five percent (25%) 15 days after the
confirmation of the agreement
Twenty-five percent (25%) upon submission
of the specified outputs
The outputs will be completed and
submitted within 30 days upon
confirmation of the agreement and receipt
by us of the first fifty percent payment.
--------------------------------------------------------------------------------

People's Air Cargo & Warehousing Co., Inc.

With regard to the services offered by your
company in your letter dated 13 October
1986, for the preparation of the necessary
study and documentations to support our
Application for Authority to Operate a
public Customs Bonded Warehouse located
at the old MIA Compound in Pasay City,
please be informed that our company is
willing to hire your services and will pay the
amount of THREE HUNDRED FIFTY
THOUSAND PESOS (P350,000.00) as follows:
P100,000.00 uppon signing of the
agreement;
150,000.00 on or before October 31,
1986, with the favorable Recommendation
of the CBW on our application.
100,000.00 upon receipt of the study in
final form.t

Thank you.
Yours truly, CONFORME:
(S)STEFANI C. SAO (S)ANTONIO C.
PUNSALAN, JR.
(T)STEFANI C. SAO (T)ANTONIO C.
PUNSALAN, JR.
Consultant for President,
PAIRCARGO

CONFORME & RECEIVED from PAIRCARGO,

the
amount of ONE HUNDRED THOUSAND
PESOS

Old MIA Compound, Metro Manila

Attention: Mr. ANTONIO PUN[S]ALAN, JR.
President
Dear Mr. Pun[s]alan:
This is to formalize our proposal for
consultancy services to your company the
scope of which is defined in the attached
service description.
The total service you have decided to avail .
. . would be available upon signing of the
conforme below and would come [in] the
amount of FOUR HUNDRED THOUSAND
PESOS (P400,000.00) payable at the
schedule defined as follows (with the
balance covered by post-dated cheques):
Downpayment upon
signing conforme
P80,000.00
15 January 1987 53,333.00

(P100,000.00), this 17th day of October,

1986
as 1st Installment payment of the service
agreement

Industrial Engineering

30 January 1987 53,333.00

15 February 1987 53,333.00
28 February 1987 53,333.00

dated October 13, 1986.

Initially, Cheng Yong, the majority stockholder of petitioner,
objected to private respondent's offer, as another company
priced a similar proposal at only P15,000. 9 However, Punsalan
preferred private respondent's service because of the latter's
membership in the task force, which was supervising the
transition of the Bureau of Customs from the Marcos government
to the Aquino administration. 10

85

Corpo Page 7 Cases

15 March1987 53,333.00
(S)STEFANI C. SAO
30 March 1987 53,333.00
(T)STEFANI C. SAO
Accordingly, private respondent prepared a feasibility study for
petitioner which eventually paid him the balance of the contract
price, although not according to the schedule agreed upon. 11

With is package, you are assured of the

highest service quality as our performance
record shows we always deliver no less.

Thank you very much.

"Hinanakit".

Yours truly,
(S)STEFANI C. SAO
(T)STEFANI C. SAO
Industrial Engineering
Consultant
CONFORME:
(S)ANTONIO C. PUNSALAN JR.
(T)PAIRCARGO CO. INC.
During the trial, the lower court observed that the Second
Contract bore, at the lower right portion of the letter, the
following notations in pencil:
1. Operations Manual
2. Seminar/workshop for your employees
P400,000 package
deal
50% upon completion
of seminar/workshop
50% upon approval
by the Commissioner
The Manual has already been approved by
the Commissioner but payment has not yet
been made.
The lower left corner of the letter also contained the following
notations:
1st letter 4 Dec.
1986
2nd letter 15 June
1987 with
86

Corpo Page 7 Cases

On January 10, 1987, Andy Villaceren, vice president of petitioner,

received the operations manual prepared by private
respondent. 12 Petitioner submitted said operations manual to the
Bureau of Customs is connection with the former's application to
operate a bonded warehouse; thereafter, in May 1987, the
Bureau issued to it a license to operate, enabling it to become one
of the three public bonded warehouses at the international
airport. 13 Private respondent also conducted, in the third week of
January 1987 in the warehouse of petitioner, a three-day training
seminar for the latter's employees. 14
On March 25, 1987, private respondent joined the Bureau of
Customs as special assistant to then Commissioner Alex Padilla, a
position he held until he became technical assitant to then
Commissioner Miriam Defensor-Santiago on March 7,
1988. 15 Meanwhile, Punsalan sold his shares in petitionercorporation and resigned as its president in 1987. 16
On February 9, 1988, private respondent filed a collection suit
against petitioner. He allege that he had prepared an operations
manual for petitioner, conducted a seminar-workshop for its
employees and delivered to it a computer program; but that,
despite demand, petitioner refused to pay him for his services.
Petitioner, in its answer, denied that private respondent had
prepared an operations manual and a computer program or
conducted a seminar-workshop for its employees. It further
alleged that the letter-agreement was signed by Punsalan without
authority, "in collusion with [private respondent] in order to
unlawfully get some money from [petitioner]," and despite his
knowledge that a group of employees of the company had been
commissioned by the board of directors to prepare an operations
manual. 17
The trial court declared the Second Contract unenforceable or
simulated. However, since private respondent had actually
prepared the operations manual and conducted a training
seminar for petitioner and its employees, the trial court awarded
P60,000 to the former, on the ground that no one should be
unjustly enriched at the expense of another (Article 2142, Civil
Code). The trial court determined the amount "in light of the
evidence presented by defendant on the usual charges made by a
leading consultancy firm on similar services." 18
The Ruling of the Court of Appeals
To Respondent Court, the pivotal issue of private respondent's
appeal was the enforceability of the Second Contract. It noted
that petitioner did not appeal the Decision of the trial court,

implying that it had agreed to pay the P60,000 award. If the

contract was valid and enforceable, then petitioner should be
held liable for the full amount stated therein, not P60,000 as held
by the lower court.
Rejecting the finding of the trial court that the December 4, 1986
contract was simulated or unenforceable, the CA ruled in favor of
its validity and enforceability. According to the Court of Appeals,
the evidence on record shows that the president of petititonercorporation had entered into the First Contract, which was similar
to the Second Contract. Thus, petitioner had clothed its president
with apparent authority to enter into the disputed agreement. As
it had also become the practice of the petitioner-corporation to
allow its president to negotiate and execute contracts necessary
to secure its license as a customs bonded warehouse without
prior board approval, the board itself, by its acts and through
acquiescence, practically laid aside the normal requirement of
prior express approval. The Second Contract was declared valid
and binding on the petitioner, which was held liable to private
respondent in the full amount of P400,000.
Disagreeing with the CA, petitioner lodged this petition before
us. 19
The Issues
Instead of alleging reversible errors, petitioner imputes "grave
abuse of discretion" to the Court of Appeals, viz.: 20
I. . . . [I]n ruling that the subject letteragreement for services was binding on the
corporation simply because it was entered
into by its president[;]
II. . . . [I]n ruling that the subject letteragreement for services was binding on the
corporation notwithstanding the lack of any
board authority since it was the purported
"practice" to allow the president to enter
into contracts of said nature (citing one
previous instance of a similar contract)[;]
and
III. . . . [I]n ruling that the subject letteragreement for services was a valid contract
and not merely simulated.
The Court will overlook the lapse of petitioner in alleging grave
abuse of discretion as its ground for seeking reversal of the
assailed Decision. Although the Rules of Court specify "reversible
errors" as grounds for a petition for review under Rule 45, the

Court will lay aside for the nonce this procedural lapse and
consider the allegations of "grave abuse" as statements of
reversible errors of law.
Petitioner does not contest its liability; it merely disputes the
amount of such accountability. Hence, the resolution of this
petition rests on the sole issue of the enforceability and validity of
the Second Contract, more specifically: (1) whether the president
of the petitioner-corporation had apparent authority to bind
petitioner to the Second Contract; and (2) whether the said
contract was valid and not merely simulated.
The Court's Ruling
The petition is not meritorious.
First Issue:
Apparent Authority of a Corporate President
Petitioner argues that the disputed contract is unenforceable,
because Punsalan, its president, was not authorized by its board
of directors to enter into said contract.
The general rule is that, in the absence of authority from the
board of directors, no person, not even its officers, can validly
bind a corporation. 21 A corporation is a juridical person, separate
and distinct from its stockholders and members, "having . . .
powers, attributes and properties expressly authorized by law or
incident to its existence." 22
Being a juridical entity, a corporation may board of directors,
which exercises almost all corporate powers, lays down all
corporate business policies and is responsible for the efficiency of
management, 23 as provided in Section 23 of the Corporation Code
of the Philippines:
Sec. 23. The Board of Directors or Trustees.
Unless otherwise provided in this Code,
the corporate powers of all corporations
formed under this Code shall be exercised,
all business conducted and all property of
such corporations controlled and held by
the board of directors or trustees . . . .
Under this provision, the power and the responsibility to decide
whether the corporation should enter into a contract that will
bind the corporation is lodged in the board, subject to the articles
of incorporaration, bylaws, or relevant provisions of
law. 24 Howeever, just as a natural person may authorize another
87

Corpo Page 7 Cases

to do certain acts for and on his behalf, the board of directors may
validly delegate some of its functions and powers to officers,
committees or agents. The authority of such individuals to bind
the corporation is generally derived from law, corporate bylaws or
authorization from the board, either expressly or impliedly by
habit, custom or acquiescence in the general course of
business, viz.: 25
A corporate officer or agent may represent
and bind the corporation in transactions
with third persons to the extent that [the]
authority to do so has been conferred upon
him, and this includes powers which have
been intentionally conferred, and also such
powers as, in the usual course of the
particular business, are incidental to, or
may be implied from, the powers
intentionally conferred, powers added by
custom and usage, as usually pertaining to
the particular officer or agent, and such
apparent powers as the corporation has
caused persons dealing with the officer or
agent to believe that it has conferred.
Accordingly, the appellate court ruled in this case that the
authority to act for and to bind a corporation may be presumed
from acts of recognition in other instances, wherein the power
was in fact exercised without any objection from its board or
shareholders. Petitioner had previously allowed its president to
enter into the First Contract with private respondent without a
board resolution expressly authorizing him; thus, it had clothed its
president with apparent authority to execute the subject contract.
Petitioner rebuts, arguing that a single isolated agreement prior
to the subject contract does not constitute corporate practice,
which Webster defines as "frequent or custmary action." It
cites Board of Liquidators v. Kalaw,26 in which the practice of
NACOCO allowing its general manager to negotiate and execute
contract in its copra trading activities for and on its behalf,
without prior board approval, was inferred from sixty contract
not one, as in present case previously entered into by the
corporation without such board resolution.
Petitioner's argument is not persuasive. Apparent authority is
derived not merely from practice. Its existence may be
ascertained through (1) the general manner in which the
corporation holds out an officer or agent as having the power to
act or, in other words, the apparent authority to act in general,
with which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof,
whether within or beyond the scope of his ordinary powers. 27 It
requires presentation of evidence of similar act(s) executed either

in its favor or in favor of other parties. 28 It is not the quantity of

similar acts which establishes apparent authority, but the vesting
of a corporale officer with the power to bind the corporation.
In the case at bar, petitioner, through its president Antonio
Punsalan Jr., entered into the First Contract without first securing
board approval. Despite such lack of board approval, petitioner
did not object to or repudiate said contract, thus "clothing" its
president with the power to bind the corporation. The grant of
apparent authority to Punsalan is evident in the testimony of Yong
senior vice president, treasurer and major stockholder of
petitioner. Testifying on the First Contract, he said: 29
A: Mr. [Punsalan] told
me that he prefer[s]
Mr. Sao because Mr.
Sao is very
influential with the
Collector of
Customs[s]. Because
the Collector of
Custom[s] will be the
one to approve our
project study and I
objected to that, sir.
And I said it [was an
exorbitant] price. And
Mr. Punsalan he is
the [p]resident, so he
[gets] his way.
Q: And so did the
company eventually
pay this P350,000.00
to Mr. Sao?
A: Yes, sir.
The First Contract was consummated, implemented
and paid without a hitch.
Hence, private respondent should not be faulted for believing that
Punsalan's conformity to the contract in dispute was also binding
on petitioner. It is familiar doctrine that if a corporation knowingly
permits one of its officers, or any other agent, to act within the
scope of an apparent authority, it holds him out to the public as
possessing the power to do those acts; and thus, the corporation
will, as against anyone who has in good faith dealt with it through
such agent, be estopped from denying the agent's authority. 30

Furthermore, private respondent prepared an operations manual

and conducted a seminar for the employees of petitioner in
accordance with their contract. Petitioner accepted the
operations manual, submitted it to the Bureau of Customs and
allowed the seminar for its employees. As a result of its
aforementioned actions, petitioner was given by the Bureau of
Customs a license to operate a bonded warehouse. Granting
arguendo then that the Second Contract was outside the usual
powers of the president, petitioner's ratification of said contract
and acceptance of benefits have made it binding, nonetheless.
The enforceability of contracts under Article 1403(2) is ratified "by
the acceptance of benefits under them" under Article 1405.
Inasmuch as a corporate president is often given general
supervision and control over corporate operations, the strict rule
that said officer has no inherent power to act for the corporation
is slowly giving way to the realization that such officer has certain
limited powers in the transaction of the usual and ordinary
business of the corporation. 31 In the absence of a charter or
bylaw provision to the contrary, the president is presumed to
have the authority to act within the domain of the general
objectives of its business and within the scope of his or her usual
duties. 32
Hence, it has been held in other jurisdictions that the president of
a corporation possesses the power to enter into a contract for the
corporation, when the "conduct on the part of both the president
and the corporation [shows] that he had been in the habit of
acting in similar matters on behalf of the company and that the
company had authorized him so to act and had recognized,
approved and ratified his former and similar
actions." 33 Furthermore, a party dealing with the president of a
corporation is entitled to assume that he has the authority to
enter, on behalf of the corporation, into contracts that are within
the scope of the powers of said corporation and that do not
violate any statute or rule on public policy. 34
Second Issue:
Alleged Simulation of the First Contract
As an alternative position, petitioner seeks to pare down its
liabilities by limiting its exposure from P400,000 to only P60,000,
the amount awarded by the RTC. Petitioner capitalizes on the
"badges of fraud" cited by the trial court in declaring said contract
either simulated or unenforceable, viz.:
. . . The October 1986 transaction with
[private respondent] involved P350,000.
The same was embodied in a letter which
bore therein not only the conformity of
[petitioner's] then President Punsalan but
also drew a letter-confirmation from the
88

Corpo Page 7 Cases

latter for, indeed, he was clothed with

authority to enter into the contract after
the same was brought to the attention and
consideration of [petitioner]. Not only that,
a [down payment] was made. In the alleged
agreement of December 4, 1986 subject of
the present case, the amount is even bigger
- P400,000.00. Yet, the alleged letteragreement drew no letter of confirmation.
And no [down payment] and postdated
checks were given. Until the filing of the
present case in February 1988, no written
demand for payment was sent to
[petitioner]. [Private respondent's] claim
that he sent one in writing, and one was
sent by his counsel who manifested that
"[h]e was looking for a copy in [his] files"
fails in light of his failure to present any
such copy. These and the following
considerations, to wit:
1) Despite the fact that no [down payment]
and/or postdated checks [partial payments]
(as purportedly stipulated in the alleged
contract) [was given, private respondent]
went ahead with the services[;]
2) [There was a delay in the filing of the
present suit, more than a year after [private
respondent] allegedly completed his
services or eight months after the alleged
last verbal demand for payment made on
Punsalan in June 1987;
3) Does not Punsalan's writing allegedly in
June 1987 on the alleged letter-agreement
of "your employees[,]" when it should have
been "our employees", as he was then still
connected with [petitioner], indicate that
the letter-agreement was signed by
Punsalan when he was no longer connected
with [petitioner] or, as claimed by
[petitioner], that Punsalan signed it without
[petitioner's] authority and must have been
done "in collusion with plaintiff in order to
unlawfully get some money from
[petitioner]?
4) If, as [private respondent] claims, the
letter was returned by Punsalan after
affixing thereon his conformity, how come .
. . when Punsalan allegedly visited [private

respondent] in his office at the Bureau of

Customs, in June 1987, Punsalan "brought"
(again?) the letter (with the pencil
[notation] at the left bottom portion
allegedly already written)?
5) How come . . . [private respondent] did
not even keep a copy of the alleged service
contract allegedly attached to the letteragreement?
6) Was not the letter-agreement a mere
draft, it bearing the corrections made by
Punsalan of his name (the letter "n" is
inserted before the last letter "o" in
Antonio) and of the spelling of his family
name (Punsalan, not Punzalan)?
7) Why was not Punsalan impleaded in the
case?
The issue of whether the contract is simulated or real is factual in
nature, and the Court eschews factual examinanon in a petition
for review under Rule 45 of the Rules of Court. 35 This rule,
however, admits of exceptions, one of which is a conflict between
the factual findings of the lower and of the appellate courts 36 as
in the case at bar.
After judicious deliberation, the Court agrees with the appellate
court that the alleged "badges of fraud" mentioned earlier have
not affected in any manner the perfection thereof. First, the lack
of payment (whether down, partial or full payment), even after
completion of private respondent's obligations, imports only a
defect in the performance of the contract on the part of
petitioner. Second, the delay in the filing of action was not fatal to
private respondent's cause. Despite the lapse of one year after
private respondent completed his services or eight months after
the alleged last demand for payment in June 1987, the action was
still filed within the allowable period, considering that an action
based on a written contract prescribes only after ten years from
the time the right of action accrues. 37 Third, a misspelling in the
contract does not establish vitiation of consent, cause or object of
the contract. Fourth, a confirmation letter is not an essential
element of a contract, neither is it necessary to perfect one.Fifth,
private respondent's failure to implead the corporate president
does not establish collusion between them. Petitioner could have
easily filed a third-party claim against Punsalan if it believed that it
had recourse against the latter. Lastly, the mere fact that the
contract price was six times the alleged going rate does not
invalidate it. 38 In short, these "badges" do not establish
simulation of said contract.

A fictitious and simulated agreement lacks consent which is

essential to a valid and enforceable contract. 39 A contract is
simulated if the parties do not intend to be bound at all
(absolutely simulated), 40 or if the parties conceal their true
agreement (relatively simulated). 41 In the case at bar, petitioner
received from private respondent a letter-offer containing the
terms of the former, including a stipulation of the consideration
for the latter's services. Punsalan's conformity, as well as the
receipt and use of the operations manual, shows petitioner's
consent to or, at the very least, ratification of the contract. To
repeat, petitioner even submitted the manual to the Bureau of
Customs and allowed private respondent to conduct the seminar
for its employees. Private respondent heard no objection from the
petitioner, until he claimed payment for the services he had
rendered.
Contemporaneous and subsequent acts are also principal factors
in the determination of the will of the contracting parties. 42 The
circumstances outlined above do not establish any intention to
simulate the contract in dispute. On the contrary, the legal
presumption is always on the validity of contracts. A corporation,
by accepting benefits of a transaction entered into without
authority, has ratified the agreement and is, therefore, bound by
it. 43
WHEREFORE, the petition is hereby DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.SO ORDERED.

G.R. No. 125778

June 10, 2003

INTER-ASIA INVESTMENTS INDUSTRIES, INC., Petitioner,

vs.
COURT OF APPEALS and ASIA INDUSTRIES, INC., Respondents.
DECISION

all the outstanding shares of stock of FARMACOR, INC.

(FARMACOR).4 The Agreement was signed by Leonides P.
Gonzales and Jesus J. Vergara, presidents of petitioner and private
respondent, respectively.5
Under paragraph 7 of the Agreement, petitioner as seller made
warranties and representations among which were "(iv.) [t]he
audited financial statements of FARMACOR at and for the year
ended December 31, 1977... and the audited financial statements
of FARMACOR as of September 30, 1978 being prepared by
S[ycip,] G[orres,] V[elayo and Co.]... fairly present or will present
the financial position of FARMACOR and the results of its
operations as of said respective dates; said financial statements
show or will show all liabilities and commitments of FARMACOR,
direct or contingent, as of said respective dates . . ."; and "(v.)
[t]he Minimum Guaranteed Net Worth of FARMACOR as of
September 30, 1978 shall be Twelve Million Pesos
(P12,000,000.00)."6
The Agreement was later amended with respect to the "Closing
Date," originally set up at 10:00 a.m. of September 30, 1978,
which was moved to October 31, 1978, and to the mode of
payment of the purchase price.7
The Agreement, as amended, provided that pending submission
by SGV of FARMACORs audited financial statements as of
October 31, 1978, private respondent may retain the sum of
P7,500,000.00 out of the stipulated purchase price of
P19,500,000.00; that from this retained amount of P7,500,000.00,
private respondent may deduct any shortfall on the Minimum
Guaranteed Net Worth of P12,000,000.00;8 and that if the
amount retained is not sufficient to make up for the deficiency in
the Minimum Guaranteed Net Worth, petitioner shall pay the
difference within 5 days from date of receipt of the audited
financial statements.9
Respondent paid petitioner a total amount of P 12,000,000.00:
P5,000,000.00 upon the signing of the Agreement, and
P7,000,000.00 on November 2, 1978.10

CARPIO-MORALES, J.:
The present petition for review on certiorari assails the Court of
Appeals Decision1 of January 25, 1996 and Resolution2 of July 11,
1996.
The material facts of the case are as follows:
On September 1, 1978, Inter-Asia Industries, Inc. (petitioner), by a
Stock Purchase Agreement3 (the Agreement), sold to Asia
Industries, Inc. (private respondent) for and in consideration of
the sum of P19,500,000.00 all its right, title and interest in and to
89

Corpo Page 7 Cases

From the STATEMENT OF INCOME AND DEFICIT attached to the

financial report11 dated November 28, 1978 submitted by SGV, it
appears that FARMACOR had, for the ten months ended October
31, 1978, a deficit of P11,244,225.00.12 Since the stockholders
equity amounted to P10,000,000.00, FARMACOR had a net worth
deficiency of P1,244,225.00. The guaranteed net worth shortfall
thus amounted to P13,244,225.00 after adding the net worth
deficiency of P1,244,225.00 to the Minimum Guaranteed Net
Worth of P12,000,000.00.

The adjusted contract price, therefore, amounted to

P6,225,775.00 which is the difference between the contract price
of P19,500,000.00 and the shortfall in the guaranteed net worth
of P13,224,225.00. Private respondent having already paid
petitioner P12,000,000.00, it was entitled to a refund of
P5,744,225.00.
Petitioner thereafter proposed, by letter13 of January 24, 1980,
signed by its president, that private respondents claim for refund
be reduced to P4,093,993.00, it promising to pay the cost of the
Northern Cotabato Industries, Inc. (NOCOSII) superstructures in
the amount of P759,570.00. To the proposal respondent agreed.
Petitioner, however, weiched on its promise. Petitioners total
liability thus stood at P4,853,503.00 (P4,093,993.00 plus
P759,570.00)14 exclusive of interest.15
On April 5, 1983, private respondent filed a complaint16 against
petitioner with the Regional Trial Court of Makati, one of two
causes of action of which was for the recovery of above-said
amount of P4,853,503.0017 plus interest.
Denying private respondents claim, petitioner countered that
private respondent failed to pay the balance of the purchase price
and accordingly set up a counterclaim.
Finding for private respondent, the trial court rendered on
November 27, 1991 a Decision,18 the dispositive portion of which
reads:
WHEREFORE, judgment is rendered in favor of plaintiff and
against defendant (a) ordering the latter to pay to the former the
sum of P4,853,503.0019 plus interest thereon at the legal rate
from the filing of the complaint until fully paid, the sum of
P30,000.00 as attorneys fees and the costs of suit; and (b)
dismissing the counterclaim.
SO ORDERED.
On appeal to the Court of Appeals, petitioner raised the following
errors:
THE TRIAL COURT ERRED IN HOLDING THE DEFENDANT
LIABLE UNDER THE FIRST CAUSE OF ACTION PLEADED
BY THE PLAINTIFF.
THE TRIAL COURT ERRED IN AWARDING ATTORNEYS
FEES AND IN DISMISSING THE COUNTERCLAIM.
THE TRIAL COURT ERRED IN RENDERING JUDGMENT IN
FAVOR OF THE PLAINTIFF, THE ALLEGED BREACH OF

WARRANTIES AND REPRESENTATION NOT HAVING

BEEN SHOWN, MUCH LESS ESTABLISHED BY THE
PLAINTIFF.20
By Decision of January 25, 1996, the Court of Appeals affirmed the
trial courts decision. Petitioners motion for reconsideration of
the decision having been denied by the Court of Appeals by
Resolution of July 11, 1996, the present petition for review on
certiorari was filed, assigning the following errors:
I
THE RESPONDENT COURT ERRED IN NOT HOLDING THAT THE
LETTER OF THE PRESIDENT OF THE PETITIONER IS NOT BINDING
ON THE PETITIONER BEING ULTRA VIRES.
II
THE LETTER CAN NOT BE AN ADMISSION AND WAIVER OF THE
PETITIONER AS A CORPORATION.
III
THE RESPONDENT COURT ERRED IN NOT DECLARING THAT THERE
IS NO BREACH OF WARRANTIES AND REPRESENTATION AS
ALLEGED BY THE PRIVATE RESPONDENT.
IV
THE RESPONDENT COURT ERRED IN ORDERING THE PETITIONER
TO PAY ATTORNEYS FEES AND IN SUSTAINING THE DISMISSAL OF
THE COUNTERCLAIM.18 (Underscoring in the original)
Petitioner argues that the January 24, 1980 letter-proposal (for
the reduction of private respondents claim for refund upon
petitioners promise to pay the cost of NOCOSII superstructures in
the amount of P759,570.00) which was signed by its president has
no legal force and effect against it as it was not authorized by its
board of directors, it citing the Corporation Law which provides
that unless the act of the president is authorized by the board of
directors, the same is not binding on it.
This Court is not persuaded.
The January 24, 1980 letter signed by petitioners president is
valid and binding. The case of Peoples Aircargo and Warehousing
Co., Inc. v. Court of Appeals19 instructs:

90

Corpo Page 7 Cases

The general rule is that, in the absence of authority from the

board of directors, no person, not even its officers, can validly
bind a corporation. A corporation is a juridical person, separate
and distinct from its stockholders and members, "having x x x
powers, attributes and properties expressly authorized by law or
incident to its existence."

It requires presentation of evidence of similar act(s) executed eit

her in its favor or infavor of other parties. It is not
the quantity of similar acts which establishes
apparent authority, but thevesting of
a corporate officer with power to bind the corporation.
x x x (Emphasis and underscoring supplied)

Being a juridical entity, a corporation may act through its board of

directors, which exercises almost all corporate powers, lays down
all corporate business policies and is responsible for the efficiency
of management, as provided in Section 23 of the Corporation
Code of the Philippines:
SEC. 23. The Board of Directors or Trustees. - Unless otherwise
provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the
board of directors or trustees x x x.
Under this provision, the power and responsibility to decide
whether the corporation should enter into a contract that will
bind the corporation is lodged in the board, subject to the articles
of incorporation, bylaws, or relevant provisions of law. However,
just as a natural person may authorize another to do certain acts
for and on his behalf, the board of directors may validly delegate
some of its functions and powers to officers, committees or
agents. The authority of such individuals to bind the corporation
is generally derived from law, corporate bylaws or authorization
from the board, either expressly or impliedly by habit, custom or
acquiescence in the general course of business, viz:
A corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent that
[the] authority to do so has been conferred upon him, and this
includes powers as, in the usual course of the particular business,
are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as
usually pertaining to the particular officer or agent, and such
apparent powers as the corporation has caused person dealing
with the officer or agent to believe that it has conferred.
xxx
[A]pparent authority is derived not merely from practice. Its
existence may be ascertained through (1) the general manner in
which the corporation holds out an officer or agent as having the
power to act or, in other words the apparent authority to act in
general, with which it clothes him; or (2) the acquiescence in his
acts of a particular nature, with actual or constructive
knowledge thereof, within or beyond the scope of his ordinary
powers.

As correctly argued by private respondent, an officer of a

corporation who is authorized to purchase the stock of another
corporation has the implied power to perform all other
obligations arising therefrom, such as payment of the shares of
stock. By allowing its president to sign the Agreement on its
behalf, petitioner clothed him with apparent capacity to perform
all acts which are expressly, impliedly and inherently stated
therein.21
Petitioner further argues that when the Agreement was executed
on September 1, 1978, its financial statements were extensively
examined and accepted as correct by private respondent, hence,
it cannot later be disproved "by resorting to some scheme such as
future financial auditing;"22 and that it should not be bound by the
SGV Report because it is self-serving and biased, SGV having been
hired solely by private respondent, and the alleged shortfall of
FARMACOR occurred only after the execution of the Agreement.
This Court is not persuaded either.
The pertinent provisions of the Agreement read:
7. Warranties and Representations - (a) SELLER warrants and
represents as follows:
xxx
(iv) The audited financial statements of FARMACOR as at and for
the year ended December 31, 1977 and
theaudited financial statements of FARMACOR as at September
30, 1978 being prepared by SGV pursuant toparagraph 6(b) fairly
present or will present the financial position of FARMACOR and
the results of its operations as of said respective dates; said
financial statements show or will show all liabilities and
commitments of FARMACOR, direct or contingent, as of said
respective dates; and the receivables set forth in said financial
statements are fully due and collectible, free and clear of any setoffs, defenses, claims and other impediments to their
collectibility.

(v) The Minimum Guaranteed Net Worth of FARMACOR as of

September 30, 1978 shall be Twelve Million Pesos
(P12,000,000.00), Philippine Currency.1wphi1
x x x (Underscoring in the original; emphasis supplied)23
True, private respondent accepted as correct the financial
statements submitted to it when the Agreement was executed on
September 1, 1978. But petitioner expressly warranted that the
SGV Reports "fairly present or will present the financial position of
FARMACOR." By such warranty, petitioner is estopped from
claiming that the SGV Reports are self-serving and biased.1wphi1
As to the claim that the shortfall occurred after the execution of
the Agreement, the declaration of Emmanuel de Asis, supervisor
in the Accounting Division of SGV and head of the team which
conducted the auditing of FARMACOR, that the period covered by
the audit was from January to October 1978 shows that the
periodbefore the Agreement was entered into (on September 1,
1978) was covered.24
As to petitioners assigned error on the award of attorneys fees
which, it argues, is bereft of factual, legal and equitable
justification, this Court finds the same well-taken.
On the matter of attorneys fees, it is an accepted doctrine that
the award thereof as an item of damages is the exception rather
than the rule, and counsels fees are not to be awarded every
time a party wins a suit. Thepower of the court to award
attorneys fees under Article 2208 of the Civil Code demands
factual, legaland equitable justification, without which the awar
d is a conclusion without a premise, its basis being
improperly left to speculation and conjecture. In all events, the
court must explicitly state in the text of the decision, and not
only in the decretal portion thereof, the legal reason for the
award of attorneys fees.25
x x x (Emphasis and underscoring supplied; citations omitted)
WHEREFORE, the instant petition is PARTLY GRANTED. The
assailed decision of the Court of Appeals affirming that of the trial
court is modified in that the award of attorneys fees in favor of
private respondent is deleted. The decision is affirmed in other
respects.SO ORDERED.

G.R. No. 137686

February 8, 2000

RURAL BANK OF MILAOR (CAMARINES SUR), petitioner,

vs.
FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIO,
FELICISIMO OCFEMIA, RENATO OCFEMIA JR, and WINSTON
OCFEMIA, respondents.
PANGANIBAN, J.:
When a bank, by its acts and failure to act, has clearly clothed its
manager with apparent authority to sell an acquired asset in the
normal course of business, it is legally obliged to confirm the
transaction by issuing a board resolution to enable the buyers to
register the property in their names. It has a duty to perform
necessary and lawful acts to enable the other parties to enjoy all
benefits of the contract which it had authorized.
The Case
Before this Court is a Petition for Review on Certiorari challenging
the December 18, 1998 Decision of the Court of Appeals 1 (CA) in
CA-GR SP No. 46246, which affirmed the May 20, 1997
Decision 2 of the Regional Trial Court (RTC) of Naga City (Branch
28). The CA disposed as follows:
Wherefore, premises considered, the Judgment
appealed from is hereby AFFIRMED. Costs against the
respondent-appellant. 3
The dispositive portion of the judgment affirmed by the CA ruled
in this wise:
WHEREFORE, in view of all the foregoing findings,
decision is hereby rendered whereby the [petitioner]
Rural Bank of Milaor (Camarines Sur), Inc. through its
Board of Directors is hereby ordered to immediately
issue a Board Resolution confirming the Deed of Sale it
executed in favor of Renato Ocfemia marked Exhibits
C, C-1 and C-2); to pay [respondents] the sum of FIVE
HUNDRED (P500.00) PESOS as actual damages; TEN
THOUSAND (P10,000.00) PESOS as attorney's fees;
THIRTY THOUSAND (P30,000.00) PESOS as moral
damages; THIRTY THOUSAND (P30,000.00) PESOS as
exemplary damages; and to pay the costs. 4
Also assailed is the February 26, 1999 CA Resolution 5 which
denied petitioner's Motion for Reconsideration.
The Facts

91

Corpo Page 7 Cases

The trial court's summary of the undisputed facts was reproduced

in the CA Decision as follows:
This is an action for mandamus with damages. On April
10, 1996, [herein petitioner] was declared in default on
motion of the [respondents] for failure to file an
answer within the reglementary-period after it was
duly served with summons. On April 26, 1996, [herein
petitioner] filed a motion to set aside the order of
default with objection thereto filed by [herein
respondents].
On June 17, 1996, an order was issued denying
[petitioner's] motion to set aside the order of default.
On July 10, 1996, the defendant filed a motion for
reconsideration of the order of June 17, 1996 with
objection thereto by [respondents]. On July 12, 1996,
an order was issued denying [petitioner's] motion for
reconsideration. On July 31, 1996, [respondents] filed a
motion to set case for hearing. A copy thereof was duly
furnished the [petitioner] but the latter did not file any
opposition and so [respondents] were allowed to
present their evidence ex-parte. A certiorari case was
filed by the [petitioner] with the Court of Appeals
docketed as CA GR No. 41497-SP but the petition was
denied in a decision rendered on March 31, 1997 and
the same is now final.
The evidence presented by the [respondents] through
the testimony of Marife O. Nio, one of the
[respondents] in this case, show[s] that she is the
daughter of Francisca Ocfemia, a co-[respondent] in
this case, and the late Renato Ocfemia who died on
July 23, 1994. The parents of her father, Renato
Ocfemia, were Juanita Arellano Ocfemia and Felicisimo
Ocfemia. Her other co-[respondents] Rowena O.
Barrogo, Felicisimo Ocfemia, Renato Ocfemia, Jr. and
Winston Ocfemia are her brothers and
sisters.1wphi1.nt
Marife O. Nio knows the five (5) parcels of land
described in paragraph 6 of the petition which are
located in Bombon, Camarines Sur and that they are
the ones possessing them which [were] originally
owned by her grandparents, Juanita Arellano Ocfemia
and Felicisimo Ocfemia. During the lifetime of her
grandparents, [respondents] mortgaged the said five
(5) parcels of land and two (2) others to the
[petitioner] Rural Bank of Milaor as shown by the Deed
of Real Estate Mortgage (Exhs. A and A-1) and the
Promissory Note (Exh. B).

The spouses Felicisimo Ocfemia and Juanita Arellano

Ocfemia were not able to redeem the mortgaged
properties consisting of seven (7) parcels of land and
so the mortgage was foreclosed and thereafter
ownership thereof was transferred to the [petitioner]
bank. Out of the seven (7) parcels that were
foreclosed, five (5) of them are in the possession of the
[respondents] because these five (5) parcels of land
described in paragraph 6 of the petition were sold by
the [petitioner] bank to the parents of Marife O. Nio
as evidenced by a Deed of Sale executed in January
1988 (Exhs. C, C-1 and C-2).

After two (2) weeks, Marife O. Nio returned to the

[petitioner] bank and she was told that the resolution
of the board would not be released because the
[petitioner] bank ha[d] no records from the old
manager. Because of this, Marife O. Nio brought the
matter to her lawyer and the latter wrote a letter on
December 22, 1995 to the [petitioner] bank inquiring
why no action was taken by the board of the request
for the issuance of the resolution considering that the
bank was already fully paid [for] the consideration of
the sale since January 1988 as shown by the deed of
sale itself (Exh. D and D-1 ).

The aforementioned five (5) parcels of land subject of

the deed of sale (Exh. C), have not been, however
transferred in the name of the parents of Merife O.
Nio after they were sold to her parents by the
[petitioner] bank because according to the Assessor's
Office the five (5) parcels of land, subject of the sale,
cannot be transferred in the name of the buyers as
there is a need to have the document of sale
registered with the Register of Deeds of Camarines Sur.

On January 15, 1996 the [petitioner] bank answered

[respondents'] lawyer's letter (Exh. D and D-1)
informing the latter that the request for board
resolution ha[d] already been referred to the board of
directors of the [petitioner] bank with another request
that the latter should be furnished with a certified
machine copy of the receipt of payment covering the
sale between the [respondents] and the [petitioner]
(Exh. E). This request of the [petitioner] bank was
already complied [with] by Marife O. Nio even before
she brought the matter to her lawyer.

In view of the foregoing, Marife O. Nio went to the

Register of Deeds of Camarines Sur with the Deed of
Sale (Exh. C) in order to have the same registered. The
Register of Deeds, however, informed her that the
document of sale cannot be registered without a board
resolution of the [petitioner] Bank. Marife Nio then
went to the bank, showed to if the Deed of Sale (Exh.
C), the tax declaration and receipt of tax payments and
requested the [petitioner] for a board resolution so
that the property can be transferred to the name of
Renato Ocfemia the husband of petitioner Francisca
Ocfemia and the father of the other [respondents]
having died already.
The [petitioner] bank refused her request for a board
resolution and made many alibi[s]. She was told that
the [petitioner] bank ha[d] a new manager and it had
no record of the sale. She was asked and she complied
with the request of the [petitioner] for a copy of the
deed of sale and receipt of payment. The president of
the [petitioner] bank told her to get an authority from
her parents and other [respondents] and receipts
evidencing payment of the consideration appearing in
the deed of sale. She complied with said requirements
and after she gave all these documents, Marife O. Nio
was again told to wait for two (2) weeks because the
[petitioner] bank would still study the matter.

92

Corpo Page 7 Cases

On January 23, 1996 [respondents'] lawyer wrote back

the branch manager of the [petitioner] bank informing
the latter that they were already furnished the receipts
the bank was asking [for] and that the [respondents]
want[ed] already to know the stand of the bank
whether the board [would] issue the required board
resolution as the deed of sale itself already show[ed]
that the [respondents were] clearly entitled to the land
subject of the sale (Exh. F). The manager of the
[petitioner] bank received the letter which was served
personally to him and the latter told Marife O. Nio
that since he was the one himself who received the
letter he would not sign anymore a copy showing him
as having already received said letter (Exh. F).
After several days from receipt of the letter (Exh. F)
when Marife O. Nio went to the [petitioner] again
and reiterated her request, the manager of the
[petitioner] bank told her that they could not issue the
required board resolution as the [petitioner] bank
ha[d] no records of the sale. Because of this Merife O.
Nio already went to their lawyer and ha[d] this
petition filed.
The [respondents] are interested in having the
property described in paragraph 6 of the petition
transferred to their names because their mother and

co-petitioner, Francisca Ocfemia, is very sickly and they

want to mortgage the property for the medical
expenses of Francisca Ocfemia. The illness of Francisca
Ocfemia beg[a]n after her husband died and her
suffering from arthritis and pulmonary disease already
became serious before December 1995.
Marife O. Nio declared that her mother is now in
serious condition and they could not have her
hospitalized for treatment as they do not have any
money and this is causing the family sleepless nights
and mental anguish, thinking that their mother may
die because they could not submit her for medication
as they do not have money. 6
The trial court granted the Petition. As noted earlier, the CA
affirmed the RTC Decision.
Hence, this recourse. 7 In a Resolution dated June 23, 1999, this
Court issued a Temporary Restraining Order directing the trial
court "to refrain and desist from executing [pending appeal] the
decision dated May 20, 1997 in Civil Case No. RTC-96-3513,
effective immediately until further orders from this Court." 8
Ruling of the Court of Appeals
The CA held that herein respondents were "able to prove their
present cause of action" against petitioner. It ruled that the RTC
had jurisdiction over the case, because (1) the Petition involved a
matter incapable of pecuniary estimation; (2) mandamus fell
within the jurisdiction of RTC; and (3) assuming that the action
was for specific performance as argued by the petitioner, it was
still cognizable by the said court.
Issues
In its Memorandum, 9 the bank posed the following questions:
1. Question of Jurisdiction of the Regional Trial Court.
Has a Regional Trial Court original jurisdiction over
an action involving title to real property with a total
assessed value of less than P20,000.00?
2. Question of Law. May the board of directors of a
rural banking corporation be compelled to confirm a
deed of absolute sale of real property owned by the
corporation which deed of sale was executed by the
bank manager without prior authority of the board of
directors of the rural banking corporation? 10

This Court's Ruling

The present Petition has no merit.
First Issue:
Jurisdiction of the Regional Trial Court

to be transferred in their names, however, the register of deeds

required the submission of a board resolution from the bank
confirming both the Deed of Sale and the authority of the bank
manager, Fe S. Tena, to enter into such transaction. Petitioner
refused. After being given the runaround by the bank,
respondents sued in exasperation.

In any event, the bank acknowledged, by its own acts or failure to

act, the authority of Fe S. Tena to enter into binding contracts.
After the execution of the Deed of Sale, respondents occupied the
properties in dispute and paid the real estate taxes due thereon. If
the bank management believed that it had title to the property, it
should have taken some measures to prevent the infringement or
invasion of its title thereto and possession thereof.

Allegations in the Petition for Mandamus Deemed Admitted

Petitioner submits that the RTC had no jurisdiction over the case.
Disputing the ruling of the appellate court that the present action
was incapable of pecuniary estimation, petitioner argues that the
matter in fact involved title to real property worth less than
P20,000. Thus, under RA 7691, the case should have been filed
before a metropolitan trial court, a municipal trial court or a
municipal circuit trial court.
We disagree. The well-settled rule is that jurisdiction is
determined by the allegations of the complaint. 11 In the present
case, the Petition for Mandamus filed by respondents before the
trial court prayed that petitioner-bank be compelled to issue a
board resolution confirming the Deed of Sale covering five parcels
of unregistered land, which the bank manager had executed in
their favor. The RTC has jurisdiction over such action pursuant to
Section 21 of BP 129, which provides:
Sec. 21. Original jurisdiction in other cases. Regional
Trial Courts shall exercise original jurisdiction;
(1) in the issuance of writ of certiorari, prohibition,
mandamus, quo warranto, habeas corpus and
injunction which may be enforced in any part of their
respective regions; and
(2) In actions affecting ambassadors and other public
ministers and consuls.
A perusal of the Petition shows that the respondents did not raise
any question involving the title to the property, but merely asked
that petitioner's board of directors be directed to issue the
subject resolution. Moreover, the bank did not controvert the
allegations in the said Petition. To repeat, the issue therein was
not the title to the property; it was respondents' right to compel
the bank to issue a board resolution confirming the Deed of Sale.
Second Issue:
Authority of the Bank Manager
Respondents initiated the present proceedings, so that they could
transfer to their names the subject five parcels of land; and
subsequently, to mortgage said lots and to use the loan proceeds
for the medical expenses of their ailing mother. For the property
93

Corpo Page 7 Cases

Respondents based their action before the trial court on the Deed
of Sale, the substance of which was alleged in and a copy thereof
was attached to the Petition for Mandamus. The Deed named Fe
S. Tena as the representative of the bank. Petitioner, however,
failed to specifically deny under oath the allegations in that
contract. In fact, it filed no answer at all, for which reason it was
declared in default. Pertinent provisions of the Rules of Court
read:
Sec. 7. Action or defense based on document.
Whenever an action or defense is based upon a
written instrument or document, the substance of
such instrument or document shall be set forth in the
pleading, and the original or a copy thereof shall be
attached to the pleading as an exhibit, which shall be
deemed to be a part of the pleading, or said copy may
with like effect be set forth in the pleading.
Sec. 8. How to contest genuineness of such
documents. When an action or defense is founded
upon a written instrument, copied in or attached to
the corresponding pleading as provided in the
preceding section, the genuineness and due execution
of the instrument shall be deemed admitted unless the
adverse party, under oath, specifically denies them,
and sets forth what he claims to be the facts; but this
provision does not apply when the adverse party does
not appear to be a party to the instrument or when
compliance with an order for an inspection of the
original instrument is refused. 12
In failing to file its answer specifically denying under oath the
Deed of Sale, the bank admitted the due execution of the said
contract. Such admission means that it acknowledged that Tena
was authorized to sign the Deed of Sale on its behalf. 13 Thus,
defenses that are inconsistent with the due execution and the
genuineness of the written instrument are cut off by an admission
implied from a failure to make a verified specific denial.
Other Acts of the Bank

Likewise, Tena had previously transacted business on behalf of

the bank, and the latter had acknowledged her authority. A bank
is liable to innocent third persons where representation is made
in the course of its normal business by an agent like Manager
Tena, even though such agent is abusing her authority. 14 Clearly,
persons dealing with her could not be blamed for believing that
she was authorized to transact business for and on behalf of the
bank. Thus, this Court has ruled in Board of Liquidators
v. Kalaw: 15
Settled jurisprudence has it that where similar acts
have been approved by the directors as a matter of
general practice, custom, and policy, the general
manager may bind the company without formal
authorization of the board of directors. In varying
language, existence of such authority is established, by
proof of the course of business, the usages and
practices of the company and by the knowledge which
the board of directors has, or must be presumed to
have, of acts and doings of its subordinates in and
about the affairs of the corporation. So also,
. . . authority to act for and bind a corporation may be
presumed from acts of recognition in other instances
where the power was in fact exercised.
. . . Thus, when, in the usual course of business of a
corporation, an officer has been allowed in his official
capacity to manage its affairs, his authority to
represent the corporation may be implied from the
manner in which he has been permitted by the
directors to manage its business.
Notwithstanding the putative authority of the manager to bind
the bank in the Deed of Sale, petitioner has failed to file an
answer to the Petition below within the reglementary period, let
alone present evidence controverting such authority. Indeed,
when one of herein respondents, Marife S. Nino, went to the bank
to ask for the board resolution, she was merely told to bring the
receipts. The bank failed to categorically declare that Tena had no
authority. This Court stresses the following:

. . . Corporate transactions would speedily come to a

standstill were every person dealing with a corporation
held duty-bound to disbelieve every act of its
responsible officers, no matter how regular they
should appear on their face. This Court has observed
in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655,
that
In passing upon the liability of a corporation
in cases of this kind it is always well to keep
in mind the situation as it presents itself to
the third party with whom the contract is
made. Naturally he can have little or no
information as to what occurs in corporate
meetings; and he must necessarily rely
upon the external manifestation of
corporate consent. The integrity of
commercial transactions can only be
maintained by holding the corporation
strictly to the liability fixed upon it by its
agents in accordance with law; and we
would be sorry to announce a doctrine
which would permit the property of man in
the city of Paris to be whisked out of his
hands and carried into a remote quarter of
the earth without recourse against the
corporation whose name and authority had
been used in the manner disclosed in this
case. As already observed, it is familiar
doctrine that if a corporation knowingly
permits one of its officers, or any other
agent, to do acts within the scope of an
apparent authority, and thus holds him out
to the public as possessing power to do
those acts, the corporation will, as against
any one who has in good faith dealt with
the corporation through such agent, be
estopped from denying his authority; and
where it is said "if the corporation permits
this means the same as "if the thing is
permitted by the directing power of the
corporation." 16
In this light, the bank is estopped from questioning the authority
of the bank manager to enter into the contract of sale. If a
corporation knowingly permits one of its officers or any other
agent to act within the scope of an apparent authority, it holds
the agent out to the public as possessing the power to do those
acts; thus, the corporation will, as against anyone who has in good
faith dealt with it through such agent, be estopped from denying
the agent's authority. 17

94

Corpo Page 7 Cases

Unquestionably, petitioner has authorized Tena to enter into the

Deed of Sale. Accordingly, it has a clear legal duty to issue the
board resolution sought by respondent's. Having authorized her
to sell the property, it behooves the bank to confirm the Deed of
Sale so that the buyers may enjoy its full use.
The board resolution is, in fact, mere paper work. Nonetheless, it
is paper work necessary in the orderly operations of the register
of deeds and the full enjoyment of respondents' rights. Petitionerbank persistently and unjustifiably refused to perform its legal
duty. Worse, it was less than candid in dealing with respondents
regarding this matter. In this light, the Court finds it proper to
assess the bank treble costs, in addition to the award of damages.
WHEREFORE, the Petition is hereby DENIED and the assailed
Decision and Resolution AFFIRMED. The Temporary Restraining
Order issued by this Court is hereby LIFTED. Treble costs against
petitioner.SO ORDERED.

G.R. No. 182147

December 15, 2010

ARNEL U. TY, MARIE ANTONETTE TY, JASON ONG, WILLY DY, and
ALVIN TY, Petitioners,
vs.
NBI SUPERVISING AGENT MARVIN E. DE JEMIL, PETRON GASUL
DEALERS ASSOCIATION, and TOTALGAZ DEALERS
ASSOCIATION, Respondents.
D E C I S I O NVELASCO, JR., J.:
The Case
In this Petition for Review on Certiorari under Rule 45, petitioners
seek the reversal of the Decision1 dated September 28, 2007 of
the Court of Appeals (CA) in CA-G.R. SP No. 98054, which reversed
and set aside the Resolutions dated October 9, 20062 and
December 14, 20063 of the Secretary of Justice, and reinstated the
November 7, 2005 Joint Resolution4 of the Office of the Chief
State Prosecutor. Petitioners assail also the CA Resolution5 dated
March 14, 2008, denying their motion for reconsideration.
The Facts
Petitioners are stockholders of Omni Gas Corporation (Omni) as
per Omnis General Information Sheet6 (GIS) dated March 6, 2004
submitted to the Securities and Exchange Commission (SEC).
Omni is in the business of trading and refilling of Liquefied

Petroleum Gas (LPG) cylinders and holds Pasig City Mayors

Permit No. RET-04-001256 dated February 3, 2004.
The case all started when Joaquin Guevara Adarlo & Caoile Law
Offices (JGAC Law Offices) sent a letter dated March 22, 20047 to
the NBI requesting, on behalf of their clients Shellane Dealers
Association, Inc., Petron Gasul Dealers Association, Inc., and
Totalgaz Dealers Association, Inc., for the surveillance,
investigation, and apprehension of persons or establishments in
Pasig City that are engaged in alleged illegal trading of petroleum
products and underfilling of branded LPG cylinders in violation of
Batas Pambansa Blg. (BP) 33,8 as amended by Presidential Decree
No. (PD) 1865.9
Earlier, the JGAC Law Offices was furnished by several petroleum
producers/brand owners their respective certifications on the
dealers/plants authorized to refill their respective branded LPG
cylinders, to wit: (1) On October 3, 2003, Pilipinas Shell Petroleum
Corporation (Pilipinas Shell) issued a certification10 of the list of
entities duly authorized to refill Shellane LPG cylinders; (2) on
December 4, 2003, Petron Corporation (Petron) issued a
certification11 of their dealers in Luzon, Visayas, and Mindanao
authorized to refill Petron Gasul LPG cylinders; and (3) on January
5, 2004, Total (Philippines) Corporation (Total) issued two
certifications12 of the refilling stations and plants authorized to
refill their Totalgaz and Superkalan Gaz LPG cylinders.
Agents De Jemil and Kawada attested to conducting surveillance
of Omni in the months of March and April 2004 and doing a testbuy on April 15, 2004. They brought eight branded LPG cylinders
of Shellane, Petron Gasul,Totalgaz, and Superkalan Gaz to Omni
for refilling. The branded LPG cylinders were refilled, for which
the National Bureau of Investigation (NBI) agents paid PhP 1,582
as evidenced by Sales Invoice No. 9004013 issued by Omni on April
15, 2004. The refilled LPG cylinders were without LPG valve seals
and one of the cylinders was actually underfilled, as found by LPG
Inspector Noel N. Navio of the Liquefied Petroleum Gas Industry
Association (LPGIA) who inspected the eight branded LPG
cylinders on April 23, 2004 which were properly marked by the
NBI after the test-buy.
The NBIs test-buy yielded positive results for violations of BP 33,
Section 2(a) in relation to Secs. 3(c) and 4, i.e., refilling branded
LPG cylinders without authority; and Sec. 2(c) in relation to Sec. 4,
i.e., underdelivery or underfilling of LPG cylinders. Thus, on April
28, 2004, Agent De Jemil filed an Application for Search Warrant
(With Request for Temporary Custody of the Seized
Items)14 before the Regional Trial Court (RTC) in Pasig City,
attaching, among others, his affidavit15 and the affidavit of
Edgardo C. Kawada,16 an NBI confidential agent.

On the same day of the filing of the application for search

warrants on April 28, 2004, the RTC, Branch 167 in Pasig City
issued Search Warrants No. 262417 and 2625.18 The NBI served the
warrants the next day or on April 29, 2004 resulting in the seizure
of several items from Omnis premises duly itemized in the NBIs
Receipt/Inventory of Property/Item Seized.19 On May 25, 2004,
Agent De Jemil filed his Consolidated Return of Search Warrants
with Ex-Parte Motion to Retain Custody of the Seized
Items20 before the RTC Pasig City.
Subsequently, Agent De Jemil filed before the Department of
Justice (DOJ) his Complaint-Affidavits against petitioners for:
(1) Violation of Section 2(a), in relation to Sections 3(c) and 4, of
B.P. Blg. 33, as amended by P.D. 1865;21 and (2) Violation of
Section 2(c), in relation to Section 4, of B.P. Blg. 33, as amended by
P.D. 1865,22docketed as I.S. Nos. 2004-616 and 2004-618,
respectively.
During the preliminary investigation, petitioners submitted their
Joint Counter-Affidavit,23 which was replied24 to by Agent De Jemil
with a corresponding rejoinder25 from petitioners.
The Ruling of the Office of the Chief State Prosecutor
in I.S. No. 2004-616 and I.S. No. 2004-618
On November 7, 2005, the 3rd Assistant City Prosecutor Leandro
C. Catalo of Manila issued a Joint Resolution,26later approved by
the Chief State Prosecutor Jovencito R. Zuo upon the
recommendation of the Head of the Task Force on AntiIntellectual Property Piracy (TFAIPP), Assistant Chief State
Prosecutor Leah C. Tanodra-Armamento, finding probable cause
to charge petitioners with violations of pertinent sections of BP
33, as amended, resolving as follows:
WHEREFORE, premises considered, it is hereby recommended
that two (2) Informations for violations of Section 2 [a] (illegal
trading in petroleum and/or petroleum products) and Section 2
[c] (underfilling of LPG cylinders), both of Batas Pambansa Bilang
33, as amended, be filed against respondents [herein petitioners]
ARNEL TY, MARIE ANTONETTE TY, JASON ONG, WILLY DY and
ALVIN TY.27
Assistant City Prosecutor Catalo found the existence of probable
cause based on the evidence submitted by Agent De Jemil
establishing the fact that Omni is not an authorized refiller
of Shellane, Petron Gasul, Totalgazand Superkalan Gaz LPG
cylinders. Debunking petitioners contention that the branded LPG
cylinders are already owned by consumers who are free to do
with them as they please, the law is clear that the stamped
markings on the LPG cylinders show who are the real owners
thereof and they cannot be refilled sans authority from Pilipinas
95

Corpo Page 7 Cases

Shell, Petron or Total, as the case may be. On the underfilling of

one LPG cylinder, the findings of LPG Inspector Navio of the LPGIA
were uncontroverted by petitioners.
Petitioners motion for reconsideration,28 was denied through a
Resolution29 by the Office of the Chief State Prosecutor issued on
May 3, 2006.
In time, petitioners appealed to the Office of the Secretary of
Justice.30
The Ruling of the DOJ Secretary
in I.S. No. 2004-616 and I.S. No. 2004-618
On October 9, 2006, the Office of the Secretary of Justice issued a
Resolution31 reversing and setting aside the November 7, 2005
Joint Resolution of the Office of the Chief State Prosecutor, the
dispositive portion of which reads:
WHEREFORE, the assailed resolution is hereby REVERSED and SET
ASIDE. The Chief State Prosecutor is directed to cause the
withdrawal of the informations for violations of Sections 2(a) and
2(c) of B.P. Blg. 33, as amended by P.D. 1865, against respondents
Arnel Ty, Mari Antonette Ty, Jason Ong, Willy Dy and Alvin Ty and
report the action taken within ten (10) days from receipt hereof.
SO ORDERED.32
The Office of the Secretary of Justice viewed, first, that the
underfilling of one of the eight LPG cylinders was an isolated
incident and cannot give rise to a conclusion of underfilling, as the
phenomenon may have been caused by human error, oversight or
technical error. Being an isolated case, it ruled that there was no
showing of a clear pattern of deliberate underfilling. Second, on
the alleged violation of refilling branded LPG cylinders sans
written authority, it found no sufficient basis to hold petitioners
responsible for violation of Sec. 2 (c) of BP 33, as amended, since
there was no proof that the branded LPG cylinders seized from
Omni belong to another company or firm, holding that the simple
fact that the LPG cylinders with markings or stamps of other
petroleum producers cannot by itself prove ownership by said
firms or companies as the consumers who take them to Omni fully
owned them having purchased or acquired them beforehand.
Agent De Jemil moved but was denied reconsideration33 through
another Resolution34 dated December 14, 2006 prompting him to
repair to the CA via a petition for certiorari35 under Rule 65 of the
Rules of Court, docketed as CA-G.R. SP No. 98054.
The Ruling of the CA

The Office of the Solicitor General (OSG), in its Comment36 on

Agent De Jemils appeal, sought the dismissal of the latters
petition viewing that the determination by the Office of the
Secretary of Justice of probable cause is entitled to respect owing
to the exercise of his prerogative to prosecute or not.
On August 31, 2007, Petron filed a Motion to Intervene and to
Admit Attached Petition-in-Intervention37 and Petition-inIntervention38 before the CA in CA-G.R. SP No. 98054. And much
earlier, the Nationwide Association of Consumers, Inc. (NACI) also
filed a similar motion.
On September 28, 2007, the appellate court rendered the assailed
Decision39 revoking the resolutions of the Office of the Secretary
of Justice and reinstated the November 7, 2005 Joint Resolution
of the Office of the Chief State Prosecutor. The fallo reads:
WHEREFORE, the instant petition is GRANTED. The assailed
resolutions dated October 9, 2006 and December 14, 2006 are
hereby REVERSED and SET ASIDE. The Joint Resolution dated
November 7, 2005 of the Office of the Chief State Prosecutor
finding probable cause against private respondents Arnel Ty,
Marie Antonette Ty, Jason Ong, Willy Dy, and Alvin Ty is
hereby REINSTATED.
SO ORDERED.40
Citing Sec. 1 (1) and (3) of BP 33, as amended, which provide for
the presumption of underfilling, the CA held that the actual
underfilling of an LPG cylinder falls under the prohibition of the
law which does not require for the underfilling to be substantial
and deliberate.
Moreover, the CA found strong probable violation of "refilling of
another companys or firms cylinders without such companys or
firms written authorization" under Sec. 3 (c) of BP 33, as
amended. The CA relied on the affidavits of Agents De Jemil and
Kawada, the certifications from various LPG producers that Omni
is not authorized to refill their branded LPG cylinders, the results
of the test-buy operation as attested to by the NBI agents and
confirmed by the examination of LPG Inspector Navio of the
LPGIA, the letter-opinion41 of the Department of Energy (DOE) to
Pilipinas Shell confirming that branded LPG cylinders are
properties of the companies whose stamp markings appear
thereon, and Department Circular No. 2000-05-00742 of the DOE
on the required stamps or markings by the manufacturers of LPG
cylinders.
After granting the appeal of Agent De Jemil, however, the motions
to intervene filed by Petron and NACI were simply noted by the
appellate court.

Petitioners motion for reconsideration was rebuffed by the CA

through the equally assailed March 14, 2008 Resolution.43

The Courts Ruling

allegation that he acted with grave abuse of discretion. This

remedy is available to the aggrieved party.53 (Emphasis supplied.)

We partially grant the petition.

Thus, the instant petition.
Procedural Issue: Petition for Certiorari under Rule 65 Proper
The Issues
I. WHETHER OR NOT RESPONDENTS WERE ENTITLED
TO THE SPECIAL CIVIL ACTION OF CERTIORARI IN THE
COURT OF APPEALS.
II. WHETHER OR NOT UNDER THE CIRCUMSTANCES
THERE WAS PROBABLE CAUSE TO BELIEVE THAT
PETITIONERS VIOLATED SECTION 2(A) OF BATAS
PAMBANSA BLG. 33, AS AMENDED.
III. WHETHER OR NOT UNDER THE CIRCUMSTANCES
THERE WAS PROBABLE CAUSE TO BELIEVE THAT
PETITIONERS VIOLATED SECTION 2(C) OF BATAS
PAMBANSA BLG. 33, AS AMENDED.
IV. WHETHER OR NOT PETITIONERS CAN BE HELD
LIABLE UNDER BATAS PAMBANSA BLG. 33, AS
AMENDED, FOR BEING MERE DIRECTORS, NOT
ACTUALLY IN CHARGE OF THE MANAGEMENT OF THE
BUSINESS AFFAIRS OF THE CORPORATION.44
The foregoing issues can be summarized into two core
issues: first, whether probable cause exists against petitioners for
violations of Sec. 2 (a) and (c) of BP 33, as amended; and second,
whether petitioners can be held liable therefor. We, however, will
tackle at the outset the sole procedural issue raised: the propriety
of the petition for certiorari under Rule 65 availed of by public
respondent Agent De Jemil to assail the resolutions of the Office
of the Secretary of Justice.

Petitioners raise the sole procedural issue of the propriety of the

legal remedy availed of by public respondent Agent De Jemil. They
strongly maintain that the Office of the Secretary of Justice
properly assumed jurisdiction and did not gravely abuse its
discretion in its determination of lack of probable causethe
exercise thereof being its sole prerogativewhich, they lament,
the appellate court did not accord proper latitude. Besides, they
assail the non-exhaustion of administrative remedies when Agent
De Jemil immediately resorted to court action through a special
civil action for certiorari under Rule 65 before the CA without first
appealing the resolutions of the Office of the Secretary of Justice
to the Office of the President (OP).
We cannot agree with petitioners.
For one, while it is the consistent principle in this jurisdiction that
the determination of probable cause is a function that belongs to
the public prosecutor48 and, ultimately, to the Secretary of Justice,
who may direct the filing of the corresponding information or
move for the dismissal of the case;49 such determination is subject
to judicial review where it is established that grave abuse of
discretion tainted the determination.
For another, there is no question that the Secretary of Justice is
an alter ego of the President who may opt to exercise or not to
exercise his or her power of review over the formers
determination in criminal investigation cases. As aptly noted by
Agent De Jemil, the determination of probable cause by the
Secretary of Justice is, under the doctrine of qualified political
agency, presumably that of the Chief Executive unless
disapproved or reprobated by the latter.

Petrons Comment-in-Intervention
On April 14, 2009, Petron entered its appearance by filing a
Motion for Leave to Intervene and to Admit Comment-inIntervention45 and its Comment-in-Intervention [To petition for
Review on Certiorari dated 13 May 2008].46 It asserted vested
interest in the seizure of several Gasul LPG cylinders and the right
to prosecute petitioners for unauthorized refilling of its branded
LPG cylinders by Omni. Petitioners duly filed their
Comment/Opposition47 to Petrons motion to intervene. It is clear,
however, that Petron has substantial interest to protect in so far
as its business relative to the sale and refilling of Petron Gasul LPG
cylinders is concerned, and therefore its intervention in the
instant case is proper.
96

Corpo Page 7 Cases

Chan v. Secretary of Justice50 delineated the proper remedy from

the determination of the Secretary of Justice. Therein, the Court,
after expounding on the policy of non-interference in the
determination of the existence of probable cause absent any
showing of arbitrariness on the part of the public prosecutor and
the Secretary of Justice, however, concluded, citing Alcaraz v.
Gonzalez51 and Preferred Home Specialties, Inc. v. Court of
Appeals,52 that an aggrieved party from the resolution of the
Secretary of Justice may directly resort to judicial review on the
ground of grave abuse of discretion, thus:
x x x [T]he findings of the Justice Secretary may be reviewed
through a petition for certiorari under Rule 65 based on the

It is thus clear that Agent De Jemil, the aggrieved party in the

assailed resolutions of the Office of the Secretary of Justice,
availed of and pursued the proper legal remedy of a judicial
review through a petition for certiorari under Rule 65 in assailing
the latters finding of lack of probable cause on the ground of
grave abuse of discretion.
First Core Issue: Existence of Probable Cause
Petitioners contend that there is no probable cause that Omni
violated Sec. 2 (a), in relation to Secs. 3 (c) and 4 of BP 33, as
amended, prohibiting the refilling of another companys or firms
LPG cylinders without its written authorization. First, the branded
LPG cylinders seized were not traded by Omni as its
representative annotated in the NBI receipt of seized items that
the filled LPG cylinders came from customers trucks and the
empty ones were taken from the warehouse or swapping section
of the refilling plant and not from the refilling section. Second, the
branded LPG cylinders are owned by end-user customers and not
by the major petroleum companies, i.e., Petron, Pilipinas Shell
and Total. And even granting arguendo that Omni is selling these
LPG cylinders, still there cannot be a prima facie case of violation
since there is no proof that the refilled branded LPG cylinders are
owned by another company or firm.
Third, granting that Petron, Total and Pilipinas Shell still own their
respective branded LPG cylinders already sold to consumers, still
such fact will not bind third persons, like Omni, who is not privy to
the agreement between the buying consumers and said major
petroleum companies. Thus, a subsequent transfer by the
customers of Petron, Total and Pilipinas Shell of the duly marked
or stamped LPG cylinders through swapping, for example, will
effectively transfer ownership of the LPG cylinders to the
transferee, like Omni.
Fourth, LPG cylinder exchange or swapping is a common industry
practice that the DOE recognizes. They point to a series of
meetings conducted by the DOE for institutionalizing the validity
of swapping of all and any kind of LPG cylinders among the
industry players. The meetings resulted in a draft Memorandum
of Agreement (MOA) which unfortunately was not signed due to
the withdrawal of petroleum major players Petron, Total and
Pilipinas Shell. Nonetheless, the non-signing of the MOA does not
diminish the fact of the recognized industry practice of cylinder
exchange or swapping. Relying on Republic Act No. (RA)
8479,54 petitioners maintain that said law promotes and
encourages the entry of new participants in the petroleum
industry such as Omni. And in furtherance of this mandate is the

valid practice of cylinder exchange or swapping in the LPG

industry.

17

LPG cylinders Petron Gasul, 11.0 kg

[emptly]

Sec. 3. Definition of terms.For the purpose of this Act, the

following terms shall be construed to mean:

We are not persuaded by petitioners strained rationalizations.

8
Probable violation of Sec. 2 (a) of BP 33, amended
First. The test-buy conducted on April 15, 2004 by the NBI agents,
as attested to by their respective affidavits, tends to show that
Omni illegally refilled the eight branded LPG cylinders for PhP
1,582. This is a clear violation of Sec. 2 (a), in relation to Secs. 3 (c)
and 4 of BP 33, as amended. It must be noted that the criminal
complaints, as clearly shown in the complaint-affidavits of Agent
De Jemil, are not based solely on the seized items pursuant to the
search warrants but also on the test-buy earlier conducted by the
NBI agents.
Second. The written certifications from Pilipinas Shell, Petron and
Total show that Omni has no written authority to refill LPG
cylinders, embossed, marked or stamped Shellane, Petron
Gasul, Totalgaz and Superkalan Gaz. In fact, petitioners neither
dispute this nor claim that Omni has authority to refill these
branded LPG cylinders.
Third. Belying petitioners contention, the seized items during the
service of the search warrants tend to show that Omni illegally
refilled branded LPG cylinders without authority.
On April 29, 2004, the NBI agents who served the search warrants
on Omni seized the following:

Quantity/Unit

Description

LPG cylinders Totalgaz, 11.0 kg

[filled]

LPG cylinder Petron Gasul, 11.0 kg

[filled]

LPG cylinder Shellane, 11.0 kg

[filled]

29

LPG cylinders Superkalan Gaz, 2.7 kg

[empty]

LPG cylinders Marked

as Omnigas with Shell emboss, 11.0
kg [empty]

Corpo Page 7 Cases

Illegal trading in petroleum and/or petroleum products

xxxx

LPG cylinders Marked

as Omnigas with Totalgaz emboss,
11.0 kg [empty]

23

LPG cylinders Shellane, 11.0 kg

[empty]

LPG cylinders Marked

as Omnigas with Gasul emboss,
11.0 kg [empty]

21

LPG cylindersTotalgaz, 11.0 kg

[empty]

The foregoing list is embodied in the NBIs Receipt/Inventory of

Property/Item Seized55 signed by NBI Agent Edwin J. Roble who
served and implemented the search warrants. And a copy thereof
was duly received by Atty. Allan U. Ty, representative of Omni,
who signed the same "under protest" and made the annotation at
the bottom part thereon: "The above items/cylinders were taken
at customers trucks and the empty cylinders taken at the
warehouse (swapping section) of the company."56
Even considering that the filled LPG cylinders were indeed already
loaded on customers trucks when confiscated, yet the fact that
these refilled LPG cylinders consisting of nine branded LPG
cylinders, specifically Totalgaz,Petron Gasul and Shellane, tends to
show that Omni indeed refilled these branded LPG cylinders
without authorization from Total, Petron and Pilipinas Shell. Such
a fact is bolstered by the test-buy conducted by Agent De Jemil
and NBI confidential agent Kawada: Omnis unauthorized refilling
of branded LPG cylinders, contrary to Sec. 2 (a) in relation to Sec.
3 (c) of BP 33, as amended. Said provisos provide:
Sec. 2. Prohibited Acts.The following acts are prohibited and
penalized:
(a) Illegal trading in petroleum and/or petroleum products;

97

xxxx

(c) Refilling of liquefied petroleum gas cylinders without

authority from said Bureau, or refilling of another companys or
firms cylinders without such companys or firms written
authorization; (Emphasis supplied.)
As petitioners strongly argue, even if the branded LPG cylinders
were indeed owned by customers, such fact does not authorize
Omni to refill these branded LPG cylinders without written
authorization from the brand owners Pilipinas Shell, Petron and
Total. In Yao, Sr. v. People,57 a case involving criminal infringement
of property rights under Sec. 155 of RA 8293,58 in affirming the
courts a quos determination of the presence of probable cause,
this Court held that from Sec. 155.159 of RA 8293 can be gleaned
that "mere unauthorized use of a container bearing a registered
trademark in connection with the sale, distribution or advertising
of goods or services which is likely to cause confusion, mistake or
deception among the buyers/consumers can be considered as
trademark infringement."60 The Court affirmed the presence of
infringement involving the unauthorized sale
of Gasul andShellane LPG cylinders and the unauthorized refilling
of the same by Masagana Gas Corporation as duly attested to and
witnessed by NBI agents who conducted the surveillance and testbuys.
Similarly, in the instant case, the fact that Omni refilled various
branded LPG cylinders even if owned by its customers but without
authority from brand owners Petron, Pilipinas Shell and Total
shows palpable violation of BP 33, as amended. As aptly noted by
the Court in Yao, Sr. v. People, only the duly authorized dealers
and refillers of Shellane, Petron Gasul and, by
extension, Total may refill these branded LPG cylinders. Our laws
sought to deter the pernicious practices of unscrupulous
businessmen.
Fourth. The issue of ownership of the seized branded LPG
cylinders is irrelevant and hence need no belaboring. BP 33, as
amended, does not require ownership of the branded LPG
cylinders as a condition sine qua non for the commission of
offenses involving petroleum and petroleum products. Verily, the
offense of refilling a branded LPG cylinder without the written
consent of the brand owner constitutes the offense regardless of
the buyer or possessor of the branded LPG cylinder.

After all, once a consumer buys a branded LPG cylinder from the
brand owner or its authorized dealer, said consumer is practically
free to do what he pleases with the branded LPG cylinder. He can
simply store the cylinder once it is empty or he can even destroy it
since he has paid a deposit for it which answers for the loss or
cost of the empty branded LPG cylinder. Given such fact, what the
law manifestly prohibits is the refilling of a branded LPG cylinder
by a refiller who has no written authority from the brand owner.
Apropos, a refiller cannot and ought not to refill branded LPG
cylinders if it has no written authority from the brand
owner.1avvphi1
Besides, persuasive are the opinions and pronouncements by the
DOE: brand owners are deemed owners of their duly embossed,
stamped and marked LPG cylinders even if these are possessed by
customers or consumers. The Court recognizes this right pursuant
to our laws, i.e., Intellectual Property Code of the Philippines.
Thus the issuance by the DOE Circular No. 2000-05-007,61 the
letter-opinion62 dated December 9, 2004 of then DOE Secretary
Vincent S. Perez addressed to Pilipinas Shell, the June 6, 2007
letter63 of then DOE Secretary Raphael P.M. Lotilla to the LPGIA,
and DOE Department Circular No. 2007-10-000764 on LPG Cylinder
Ownership and Obligations Related Thereto issued on October 13,
2007 by DOE Secretary Angelo T. Reyes.
Fifth. The ownership of the seized branded LPG cylinders,
allegedly owned by Omni customers as petitioners adamantly
profess, is of no consequence.
The law does not require that the property to be seized should be
owned by the person against whom the search warrants is
directed. Ownership, therefore, is of no consequence, and it is
sufficient that the person against whom the warrant is directed
has control or possession of the property sought to be
seized.65 Petitioners cannot deny that the seized LPG cylinders
were in the possession of Omni, found as they were inside the
Omni compound.
In fine, we also note that among those seized by the NBI are 16
LPG cylinders bearing the embossed brand names
of Shellane, Gasul and Totalgaz but were marked as Omnigas.
Evidently, this pernicious practice of tampering or changing the
appearance of a branded LPG cylinder to look like another brand
violates the brand owners property rights as infringement under
Sec. 155.1 of RA 8293. Moreover, tampering of LPG cylinders is a
mode of perpetrating the criminal offenses under BP 33, as
amended, and clearly enunciated under DOE Circular No. 200006-010 which provided penalties on a per cylinder basis for each
violation.
Foregoing considered, in the backdrop of the quantum of
evidence required to support a finding of probable cause, we
98

Corpo Page 7 Cases

agree with the appellate court and the Office of the Chief State
Prosecutor, which conducted the preliminary investigation, that
there exists probable cause for the violation of Sec. 2 (a) in
relation to Sec. 3 (c) of BP 33, as amended. Probable cause has
been defined as the existence of such facts and circumstances as
would excite belief in a reasonable mind, acting on the facts
within the knowledge of the prosecutor, that the person charged
was guilty of the crime for which he was prosecuted.66 After all,
probable cause need not be based on clear and convincing
evidence of guilt, as the investigating officer acts upon reasonable
beliefprobable cause implies probability of guilt and requires
more than bare suspicion but less than evidence which would
justify a conviction.67
Probable violation of Sec. 2 (c) of BP 33, as amended
Anent the alleged violation of Sec. 2 (c) in relation to Sec. 4 of BP
33, as amended, petitioners strongly argue that there is no
probable cause for said violation based upon an underfilling of a
lone cylinder of the eight branded LPG cylinders refilled during the
test-buy. Besides, they point out that there was no finding of
underfilling in any of the filled LPG cylinders seized during the
service of the search warrants. Citing DOEs Bureau of Energy
Utilization Circular No. 85-3-348, they maintain that some
deviation is allowed from the exact filled weight. Considering the
fact that an isolated underfilling happened in so many LPG
cylinders filled, petitioners are of the view that such is due to
human or equipment error and does not in any way constitute
deliberate underfilling within the contemplation of the law.
Moreover, petitioners cast aspersion on the report and findings of
LPG Inspector Navio of the LPGIA by assailing his independence
for being a representative of the major petroleum companies and
that the inspection he conducted was made without the presence
of any DOE representative or any independent body having
technical expertise in determining LPG cylinder underfilling
beyond the authorized quantity.
Again, we are not persuaded.
Contrary to petitioners arguments, a single underfilling
constitutes an offense under BP 33, as amended by PD 1865,
which clearly criminalizes these offenses. In Perez v. LPG Refillers
Association of the Philippines, Inc.,68 the Court affirmed the
validity of DOE Circular No. 2000-06-010 which provided penalties
on a per cylinder basis for each violation, thus:
B.P. Blg. 33, as amended, criminalizes illegal trading,
adulteration, underfilling, hoarding, and overpricing of petroleum
products. Under this general description of what constitutes
criminal acts involving petroleum products, the Circular merely

lists the various modes by which the said criminal acts may be
perpetrated, namely: no price display board, no weighing scale,
no tare weight or incorrect tare weight markings, no authorized
LPG seal, no trade name, unbranded LPG cylinders, no serial
number, no distinguishing color, no embossed identifying
markings on cylinder, underfilling LPG cylinders, tampering LPG
cylinders, and unauthorized decanting of LPG cylinders. These
specific acts and omissions are obviously within the
contemplation of the law, which seeks to curb the pernicious
practices of some petroleum merchants.69 (Emphasis supplied.)
Moreover, in denying the motion for reconsideration of the LPG
Refillers Association of the Philippines, Inc., the Court upheld the
basis of said DOE Circular No. 2000-06-010 on the imposition of
penalties on a per cylinder basis, thus:
Respondents position is untenable. The Circular is not
confiscatory in providing penalties on a per cylinder basis. Those
penalties do not exceed the ceiling prescribed in Section 4 of B.P.
Blg. 33, as amended, which penalizes "any person who
commits any act [t]herein prohibited." Thus, violation on a per
cylinder basis falls within the phrase "any act" as mandated in
Section 4. To provide the same penalty for one who violates a
prohibited act in B.P. Blg. 33, as amended, regardless of the
number of cylinders involved would result in an indiscriminate,
oppressive and impractical operation of B.P. Blg. 33, as amended.
The equal protection clause demands that "all persons subject to
such legislation shall be treated alike, under like
circumstances and conditions, both in the privileges conferred and
in the liabilities imposed."70
The Court made it clear that a violation, like underfilling, on a per
cylinder basis falls within the phrase of any actas mandated under
Sec. 4 of BP 33, as amended. Ineluctably, the underfilling of one
LPG cylinder constitutes a clear violation of BP 33, as amended.
The finding of underfilling by LPG Inspector Navio of the LPGIA, as
aptly noted by Manila Assistant City Prosecutor Catalo who
conducted the preliminary investigation, was indeed not
controverted by petitioners.
On the issue of manifest bias and partiality, suffice it to say that
aside from the allegation by petitioners, they have not shown that
LPG Inspector Navio is neither an expert nor qualified to
determine underfilling. Besides, it must be noted that the
inspection by LPG Inspector Navio was conducted in the presence
of NBI agents on April 23, 2004 who attested to that fact through
their affidavits. Moreover, no rules require and petitioners have
not cited any that the inspection be conducted in the presence of
DOE representatives.
Second Core Issue: Petitioners Liability for Violations

Sec. 4 of BP 33, as amended, provides for the penalties and

persons who are criminally liable, thus:
Sec. 4. Penalties. Any person who commits any act herein
prohibited shall, upon conviction, be punished with a fine of not
less than twenty thousand pesos (P20,000) but not more than
fifty thousand pesos (P50,000), or imprisonment of at least two
(2) years but not more than five (5) years, or both, in the
discretion of the court. In cases of second and subsequent
conviction under this Act, the penalty shall be both fine and
imprisonment as provided herein. Furthermore, the petroleum
and/or petroleum products, subject matter of the illegal trading,
adulteration, shortselling, hoarding, overpricing or misuse, shall
be forfeited in favor of the Government: Provided, That if the
petroleum and/or petroleum products have already been
delivered and paid for, the offended party shall be indemnified
twice the amount paid, and if the seller who has not yet delivered
has been fully paid, the price received shall be returned to the
buyer with an additional amount equivalent to such price; and in
addition, if the offender is an oil company, marketer, distributor,
refiller, dealer, sub-dealer and other retail outlets, or hauler, the
cancellation of his license.
Trials of cases arising from this Act shall be terminated within
thirty (30) days after arraignment.
When the offender is a corporation, partnership, or other juridical
person, the president, the general manager, managing partner, or
such other officer charged with the management of the business
affairs thereof, or employee responsible for the violation shall be
criminally liable; in case the offender is an alien, he shall be
subject to deportation after serving the sentence.
If the offender is a government official or employee, he shall be
perpetually disqualified from office. (Emphasis supplied.)
Relying on the third paragraph of the above statutory proviso,
petitioners argue that they cannot be held liable for any perceived
violations of BP 33, as amended, since they are mere directors of
Omni who are not in charge of the management of its business
affairs. Reasoning that criminal liability is personal, liability
attaches to a person from his personal act or omission but not
from the criminal act or negligence of another. Since Sec. 4 of BP
33, as amended, clearly provides and enumerates who are
criminally liable, which do not include members of the board of
directors of a corporation, petitioners, as mere members of the
board of directors who are not in charge of Omnis business
affairs, maintain that they cannot be held liable for any perceived
violations of BP 33, as amended. To bolster their position, they
attest to being full-time employees of various firms as shown by
the Certificates of Employment71 they submitted tending to show
that they are neither involved in the day-to-day business of Omni
99

Corpo Page 7 Cases

nor managing it. Consequently, they posit that even if BP 33, as

amended, had been violated by Omni they cannot be held
criminally liable thereof not being in any way connected with the
commission of the alleged violations, and, consequently, the
criminal complaints filed against them based solely on their being
members of the board of directors as per the GIS submitted by
Omni to SEC are grossly discriminatory.
On this point, we agree with petitioners except as to petitioner
Arnel U. Ty who is indisputably the President of Omni.
It may be noted that Sec. 4 above enumerates the persons who
may be held liable for violations of the law, viz: (1) the president,
(2) general manager, (3) managing partner, (4) such other officer
charged with the management of the business affairs of the
corporation or juridical entity, or (5) the employee responsible for
such violation. A common thread of the first four enumerated
officers is the fact that they manage the business affairs of the
corporation or juridical entity. In short, they are operating officers
of a business concern, while the last in the list is self-explanatory.
It is undisputed that petitioners are members of the board of
directors of Omni at the time pertinent. There can be no quibble
that the enumeration of persons who may be held liable for
corporate violators of BP 33, as amended, excludes the members
of the board of directors. This stands to reason for the board of
directors of a corporation is generally a policy making body. Even
if the corporate powers of a corporation are reposed in the board
of directors under the first paragraph of Sec. 2372 of the
Corporation Code, it is of common knowledge and practice that
the board of directors is not directly engaged or charged with the
running of the recurring business affairs of the corporation.
Depending on the powers granted to them by the Articles of
Incorporation, the members of the board generally do not
concern themselves with the day-to-day affairs of the
corporation, except those corporate officers who are charged
with running the business of the corporation and are
concomitantly members of the board, like the President. Section
2573 of the Corporation Code requires the president of a
corporation to be also a member of the board of directors.
Thus, the application of the legal maxim expressio unius est
exclusio alterius, which means the mention of one thing implies
the exclusion of another thing not mentioned. If a statute
enumerates the thing upon which it is to operate, everything else
must necessarily and by implication be excluded from its
operation and effect.74 The fourth officer in the enumerated list is
the catch-all "such other officer charged with the management of
the business affairs" of the corporation or juridical entity which is
a factual issue which must be alleged and supported by evidence.

A scrutiny of the GIS reveals that among the petitioners who are
members of the board of directors are the following who are
likewise elected as corporate officers of Omni: (1) Petitioner Arnel
U. Ty (Arnel) as President; (2) petitioner Mari Antonette Ty as
Treasurer; and (3) petitioner Jason Ong as Corporate Secretary.
Sec. 4 of BP 33, as amended, clearly indicated firstly the president
of a corporation or juridical entity to be criminally liable for
violations of BP 33, as amended.
Evidently, petitioner Arnel, as President, who manages the
business affairs of Omni, can be held liable for probable violations
by Omni of BP 33, as amended. The fact that petitioner Arnel is
ostensibly the operations manager of Multi-Gas Corporation, a
family owned business, does not deter him from managing Omni
as well. It is well-settled that where the language of the law is
clear and unequivocal, it must be taken to mean exactly what it
says.75 As to the other petitioners, unless otherwise shown that
they are situated under the catch-all "such other officer charged
with the management of the business affairs," they may not be
held liable under BP 33, as amended, for probable violations.
Consequently, with the exception of petitioner Arnel, the charges
against other petitioners must perforce be dismissed or dropped.
WHEREFORE, premises considered, we PARTIALLY GRANT the
instant petition. Accordingly, the assailed September 28, 2007
Decision and March 14, 2008 Resolution of the Court of Appeals in
CA-G.R. SP No. 98054 are AFFIRMED with MODIFICATION that
petitioners Mari Antonette Ty, Jason Ong, Willy Dy and Alvin Ty
are excluded from the two Informations charging probable
violations of Batas Pambansa Bilang 33, as amended. The Joint
Resolution dated November 7, 2005 of the Office of the Chief
State Prosecutor is modified accordingly.
No pronouncement as to costs.SO ORDERED.

G.R. No. 192416

March 23, 2011

GRANDTEQ INDUSTRIAL STEEL PRODUCTS, INC., ABELARDO

GONZALES,1 RONALD A. DE LEON,2 NOEL AGUIRRE, FELIX ARPIA,
and NICK EUGENIO, Petitioners,
vs.
ANNALIZA M. ESTRELLA, Respondent.
D E C I S I O NNACHURA, J.:
This petition for review on certiorari under Rule 45 of the Rules of
Court assails the Decision3 and the Resolution4of the Court of
Appeals (CA), respectively dated November 26, 2009 and May 17,
2010.
The Facts
Petitioner Grandteq Industrial Steel Products, Inc. (Grandteq), a
domestic corporation engaged in the sale and distribution of
welding electrodes, alloy steels, aluminum and copper
alloys,5 hired respondent Annaliza Estrella (Estrella) on November
15, 2001, as a sales engineer.6
Abelardo M. Gonzales (Gonzales), Ronald A. de Leon (De Leon),
Noel Aguirre (Aguirre), Felix Arpia (Arpia), and Nick Eugenio
(Eugenio) are officers of Grandteq.7
Sometime in January 2004, Grandteq and Estrella entered into a
Purchase/Assignment of Car Agreement,8whereby the former
undertook to purchase a car for Estrella, who would in turn refund
the purchase price to Grandteq in 100 monthly installments. The
agreement likewise stated that the "company shall retain the
ownership of the car until the car loan is fully paid." To
complement the terms of the agreement, Estrella executed a
Promissory Note.9
When Estrella defaulted in her payments, Grandteq instructed her
on September 15, 2004 to leave the car in the office
premises.10 Estrella failed to abide by the companys
directive;11 hence, on September 18, 2004, Grandteq sent her
another memorandum requiring her to explain her
"insubordination."12
In her reply to the memorandum, Estrella asserted that she had
already paid the P50,000.00 downpayment for the vehicle, and
that Grandteq had no valid cause to demand its surrender.13
Estrella also had claims against the company. On September 17,
2004, she filed a complaint for recovery of sales commissions,
allowances, and other benefits before the Labor Arbiter
100

Corpo Page 7 Cases

(LA).14 The complaint alleged that Grandteq refused to release her

sales commissions and incentives.15 She submitted a computation
of such claims to the LA on October 21, 2004.16

Lastly, the LA decreed that the notice of termination served to

Estrella on November 12, 2004 was evidently a mere afterthought
to cast a

Meanwhile, on September 20, 2004, Estrella filed an application

for leave of absence, and subsequently, submitted a medical
certificate recommending that she rest for three (3) weeks.
Grandteq denied her application; nonetheless, she went on leave
of absence effective September 22, 2004 until October 14, 2004.17

semblance of validity to her termination. As shown in the notice,

as early as September 22, 2004, Grandteq already decided to
terminate her services even before she could present her side and
refute the charges against her.

On October 1, 2004, Estrella tried to withdraw her salary for the

period September 15 to 30, 2004 from an Automated Teller
Machine. To her dismay, she discovered that her salary was not
remitted by Grandteq.18 Thus, on October 4, 2004, she amended
her complaint to include nonpayment of salary. She likewise
imputed illegal deduction of expanded withholding tax against
Grandteqs officers.19
On October 15, 2004, Estrella went to the office of Grandteq to
report for work, but the security guard refused her entry,
allegedly upon the behest of Grandteqs vice-president, De
Leon.20 Aggrieved, respondent again amended her complaint to
include illegal dismissal as one of her causes of action. She also
demanded for the payment of moral damages and attorneys
fees.21
Traversing the complaint, Grandteq averred that Estrella was
validly dismissed because she abandoned her job when she did
not report for work for three weeks despite the disapproval of her
leave application; that she committed insubordination when she
failed to obey an official order directing her to return a company
vehicle; that she violated the confidence and trust reposed in her
by the company when she negotiated in her personal capacity
with a client, Philex Mining Corporation, at the time when she was
allegedly sick; and that she failed to attend the administrative
hearing initiated by the company on October 29, 2004; thus,
Grandteq deemed her to have waived her right to be heard.
Estrella was furnished with a Notice of Termination22 on
November 12, 2004, indicating that she was being dismissed for
gross and habitual neglect of duty and fraud or willful breach of
trust. Grandteq denied any outstanding sales commissions or
incentives due Estrella.23
The LA24 ruled in favor of Estrella and held that Grandteq had no
justifiable cause to terminate her employment. Abandonment
could not be inferred from her absence sans any overt act
showing that she did not want to work anymore. Besides, she
went on sick leave with a prior notice to Grandteq. The immediate
filing of a complaint for illegal dismissal also negated a finding of
abandonment.

Estrellas money claims were granted, but no specific computation

was made as to her claim for sales commissions and incentives.
The decretal portion of the LAs decision25 reads:
WHEREFORE, the foregoing considered, judgment is hereby
rendered declaring [respondent] Annaliza M. Estrella to have
been illegally dismissed. [Petitioners] are ordered to reinstate
[respondent] to her former position without loss of seniority
rights and other benefits and to her full backwages from the time
her compensation was withheld up to the time of her actual
reinstatement. Likewise[, petitioner] Grandteq Industrial Steel
Products[,] Inc. is ordered to pay the monetary awards pursuant
to the computation of the Computation Unit of this Commission
forming part of the records of this case, as follows:
Basic Wage P 6,000.00
Allowance 5,000.00
P11,000.00
Backwages: 9/22/04 8/30/06
P11,000 x 23.30 mos. 256,300.00
13th Month Pay
of P256,300 21,358.33
SILP: P11,000/26 x 5/12 x 23.30.mos. 4,107.37
281,765.71
Moral Damages 10,000.00 10,000.00
Exemplary Damages 10,000.00 20,000.00
301,765.71

Atty.s Fees 28,176.57

TOTAL P329,942.28
Other claims are dismissed for lack of merit.
SO ORDERED.26

directive that it must further hear and decide on petitioners

claims for sales commission, allowances and other benefits, car
incentive,
S.A. (Salesman Advance) commission, and other incentives" as
specified in her second amended complaint.
SO ORDERED.30

Both parties appealed to the National Labor Relations Commission

(NLRC). Grandteq insisted that Estrellas dismissal was based on
valid grounds and was implemented with due process.27
Estrella, on the other hand, claimed that her unpaid sales
commissions, incentives, and salary for the period September 15
to 30, 2004 should be indicated in the dispositive portion of the
LAs decision. She further prayed that Grandteq officers Gonzales,
De Leon, Aguirre, Arpia, and Eugenio be declared solidarily liable
with the company.28
The NLRC found that Grandteq had valid grounds to dismiss
Estrella since her allegation of illegal termination was not
sufficiently substantiated by the security guards mere refusal to
allow her entry into Grandteqs premises. Estrellas act of going
on leave without Grandteqs approval constituted gross and
habitual neglect of duty. The NLRC decreed that Grandteq merely
failed to comply with procedural due process. Hence, the LAs
decision was modified as follows:
WHEREFORE, premises considered, the appeals are PARTLY
GRANTED and the Decision dated July 31, 2006 is MODIFIED
finding that respondents has (sic) valid ground to terminate
complainant but for failure to comply with the standards of due
process, respondents shall indemnify complainant in the amount
of P20,000.00 and ordering that the records of this case be
remanded to the office of origin for the disposition of
complainants money claims. The award of damages and
attorneys fees were not raised on appeal, hence, STANDS.
SO ORDERED.29
Grandteq sought recourse with the CA through a petition for
certiorari. On November 26, 2009, the CA reinstated the LAs
Decision and
ordered the case remanded to the LA for the resolution of
Estrellas claims for commissions and allowances, viz.:
ACCORDINGLY, the assailed June 11, 2008 Resolution is SET ASIDE.
The Labor Arbiters July 31, 2006 Decision is REINSTATED with the
101

Corpo Page 7 Cases

Petitioners interposed the present recourse when the CA

denied31 their motion for reconsideration.32 They proffer this sole
argument:
THE HONORABLE COURT OF APPEALS HAD DECIDED A QUESTION
OF SUBSTANCE IN PATENT DISREGARD OF THE PROVISIONS OF
THE LABOR CODE, THE PHILIPPINE CONSTITUTION, THE RULES OF
COURT, AND PERTINENT DECISIONS OF THIS HONORABLE
SUPREME COURT.33
We deny the petition.
The petition hinges on the question of whether the acts imputed
to Estrella constitute gross and habitual neglect of duty and loss
of trust and confidence so as to provide just cause for her
dismissal.
At the outset, we stress that these issues involve questions of
fact, the determination of which entails an evaluation of the
evidence on record. As a general rule, purely factual questions are
not passed upon in petitions for review under Rule 45, for this
Court does not try facts but merely relies on
the expert findings of labor tribunals whose statutory function is
to determine the facts. In the present case, however, in view of
the conflicting factual findings of the LA and the CA on one hand,
and the NLRC on the other, the Court is constrained to resolve the
factual question at hand.34
A judicious review of the records discloses that Grandteq failed to
prove that Estrella was justifiably dismissed due to lack of trust
and confidence and gross and habitual neglect of duty.
Grandteq attributes loss of trust and confidence to the following
acts: (1) insubordination when Estrella disobeyed a company
directive ordering her to return a company vehicle; and (2)
transacting, in her personal capacity, with a client of Grandteq.
Insubordination, as a just cause for the dismissal of an employee,
necessitates the concurrence of at least two requisites: (1) the

employee's assailed conduct must have been willful, that is,

characterized by a wrongful and perverse attitude; and (2) the
order violated must have been reasonable, lawful, made known
to the employee, and must pertain to the duties which he had
been engaged to discharge.35 The facts of the case do not show
the presence of the second requisite. The failure to return the
vehicle and the Purchase/Assignment of Car Agreement, from
which Grandteq derives its claim of ownership over the car, had
no relation at all to the discharge of respondents duties as a sales
engineer.
There is likewise no basis for a finding of legitimate loss of
confidence because Grandteq failed to show that Estrella held a
position of trust and confidence. Firm is the rule that loss of
confidence as a just cause for termination of employment is
premised on the fact that the employee concerned holds a
position of trust and confidence, where greater trust is placed by
management and from whom greater fidelity to duty is
correspondingly expected.36 The betrayal of this trust is the
essence of the offense for which an employee is penalized.37
The job description of Estrella dated February 19, 2004, signed by
her and by Grandteqs Vice President for Sales, Aguirre, and
approved by De Leon, Vice-President for Administration, and
Gonzales, President, confirms these findings:
- Should report to office 8:00 a.m. regularly from Monday to
Saturday.
- Submit itinerary/report of client visits.
- Will receive allowance of P5,000.00 monthly.
- 100Km radius, excess would be reimburse[d] to the office.
(Gasoline Allowance)
- Allowed North visit at least one week/month allocation
of P800.00. (This covers board, transportation and meal
allowance)
- Failure to report in office will be deducted to (sic) salary.38
Grandteq also imputes gross and habitual neglect of duty when
Estrella was absent from work for three (3) weeks without an
approved application for leave.
Gross negligence connotes want of care in the performance of
one's duties, while habitual neglect implies repeated failure to
perform one's duties for a period of time, depending on the

circumstances. The single or isolated act of negligence does not

constitute a just cause for the dismissal of an employee.39
We find no gross and habitual neglect in this case, and we quote
with approval the following disquisition of the CA:
Grandteq does not dispute receiving Estrellas Medical Certificate
and worse, proffers no explanation why it did not act on Estrellas
application for sick leave. And even if, arguendo, such absences
were established, still, they would merit at best mere suspension
from service. The penalty of dismissal would be too harsh,
considering that apparently, management had no complaint as
regards Estrellas quality of work.
Moreso that it is settled that an employees excusable and
unavoidable absences does (sic) not amount to an abandonment
of his employment. Abandonment, as a just and valid ground for
termination, means the deliberate, unjustified refusal of an
employee to resume his employment. For abandonment to be a
valid ground for dismissal, two (2) elements must be proved: the
intention of an employee to abandon, coupled with an overt act
from which it may be inferred that the employee has no more
intention to resume his work. The burden of proof is on the
employer to show a clear and deliberate intent on the part of the
employee to discontinue employment.
Here, these elements were not established. Estrellas actions after
her absences negate an intent to abandon her job. Estrellas
application for sick leave, the Medical Certificate she secured, and
the letter from her lawyer that she was going on sick leave and
more importantly, her going back to the company premises on
October 15, 2004 all indicate her intention to resume work after
the lapse of the period of her leave of absence. It would be the
height of inequity and injustice to declare Estrella to have
abandoned her job on the mere pretext that her sick leave
application was not approved. Especially so that prior to her
dismissal, she had no record of infraction of company rules for
which she could have been sanctioned by either warning,
reprimand or suspension. Besides, her filing of an illegal dismissal
case clearly contradicts Grandteqs allegation that she abandoned
her job.40
We must stress anew that, in termination cases, the burden rests
upon the employer to show that the dismissal of an employee is
for just cause, and failure to do so would mean that the dismissal
is not justified.41 Failure to discharge that burden would mean
that the dismissal is not justified and, therefore,
illegal.42 Grandteq miserably failed to discharge this onus, and
Estrellas termination from employment was, thus, illegal.

102

Corpo Page 7 Cases

Anent Estrellas claim for sales commissions and incentives, we

agree with the uniform ruling of the NLRC and the CA that the
matter needs the further assessment of the LA, thus:
A review of the records shows that Estrellas money claims
referred to unpaid sales commissions, allowances and other
incentives. And while the Labor Arbiter held:
"As regards the monetary claims, this office is in accord with the
complainant that respondents have failed to establish by
sufficient with evidence (sic) that complainant is not entitled
thereto. This is based on the principle that each party must prove
his affirmatives (sic) allegations. On the other hand, complainant
has adduced evidence of her entitlement thereto. (Annex B is B10)."
The court notes, however, that he failed to assess and weigh the
parties arguments on the matter. In fact, the Labor Arbiters
decision did not touch upon or rule on Grandteqs arguments and
evidence against Estrellas claims. As a result, the NLRC and this
Court have admittedly no basis in affirming his findings.
Verily, the resolution of Estrellas entitlement to her commissions
and allowances requires conscientious evaluation and assessment
of the evidence adduced by the parties, which is best undertaken
by the Labor Arbiter. It thus is just proper that said money claims
be remanded to the Labor Arbiter for proper evaluation of the
evidence of both parties.43

(a) vote for or assent to patently unlawful acts of the

corporation;
(b) act in bad faith or with gross negligence in directing
the corporate affairs;
xxxx
In labor cases, for instance, the Court has held corporate directors
and officers solidarily liable with the corporation for
the termination of employment of employees done
with malice or in bad faith.
From the decisions of the LA, the NLRC, and the CA, there is no
indication that Estrellas dismissal was effected with malice or bad
faith on the part of Grandteqs officers. Their liability for Estrellas
illegal dismissal, the consequential monetary award arising from
such dismissal and the other money claims awarded in the LAs
decision, as correctly affirmed by the CA, could thus only be joint,
not solidary.1awphil This pronouncement does not extend to
Estrellas claims for commissions, allowances, and incentives, as
the same are still subject to the LAs scrutiny.
WHEREFORE, foregoing considered, the petition is hereby
DENIED, and the November 26, 2009 Decision and the May 17,
2010 Resolution of the Court of Appeals are AFFIRMED.SO
ORDERED.

Lastly, we deem it imperative to resolve the question of whether

Grandteqs officers, who are co-petitioners herein, are solidarily
liable with the company.

G.R. No. 185814

There is solidary liability when the obligation expressly so states,

when the law so provides, or when the nature of the obligation so
requires.44 In MAM Realty Development Corporation v. NLRC,45 the
solidary liability of corporate officers in labor disputes was
discussed in this wise:

SHS PERFORATED MATERIALS, INC., WINFRIED

HARTMANNSHENN, and HINRICH JOHANN
SCHUMACHER, Petitioners,
vs.
MANUEL F. DIAZ, Respondent.

A corporation, being a juridical entity, may act only through its

directors, officers and employees. Obligations incurred by them,
acting as such corporate agents, are not theirs but the direct
accountabilities of the corporation they represent. True, solidary
liabilities may at times be incurred but only when exceptional
circumstances warrantsuch as, generally, in the following cases:
1. When directors and trustees or, in appropriate cases, the
officers of a corporation

October 13, 2010

D E C I S I O NMENDOZA, J.:
Petitioners, by way of this petition for review on certiorari under
Rule 45, seek to annul and set aside the December 23, 2008
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 100015,
which reversed and set aside the December 29, 2006
Resolution2 of the National Labor Relations Commission (NLRC).
The NLRC Resolution, in turn, reversed and set aside the June 15,
2006 Decision3 of the Labor Arbiter (LA).4

THE FACTS

DAILY/GENERAL DUTIES:

Petitioner SHS Perforated Materials, Inc. (SHS) is a start-up

corporation organized and existing under the laws of the Republic
of the Philippines and registered with the Philippine Economic
Zone Authority. Petitioner Winfried
Hartmannshenn (Hartmannshenn), a German national, is its
president, in which capacity he determines the administration and
direction of the day-to-day business affairs of SHS. Petitioner
Hinrich Johann Schumacher(Schumacher), also a German national,
is the treasurer and one of the board directors. As such, he is
authorized to pay all bills, payrolls, and other just debts of SHS of
whatever nature upon maturity. Schumacher is also the Executive
Vice-President of the European Chamber of Commerce of the
Philippines (ECCP) which is a separate entity from SHS. Both
entities have an arrangement where ECCP handles the payroll
requirements of SHS to simplify business operations and minimize
operational expenses. Thus, the wages of SHS employees are paid
out by ECCP, through its Accounting Services Department headed
by Juliet Taguiang (Taguiang).
Manuel F. Diaz (respondent) was hired by petitioner SHS as
Manager for Business Development on probationary status from
July 18, 2005 to January 18, 2006, with a monthly salary
of P100,000.00. Respondents duties, responsibilities, and work
hours were described in the Contract of Probationary
Employment,5 as reproduced below:

NAME

: Jose Manuel F. Diaz

TITLE/STATUS

: Manager for Business

Development

LOCATION

: Lot C3-2A, Phase I, Camelray

Industrial Park II, Calamba,
Laguna

REPORTS TO

: Direct to Mr. Winfried

Hartmannshenn

Normal Working
Hours

: 8:00 a.m. to 5:00 p.m.

subject to requirements of the
job

OVERTIME

: ________________________

JOB DESCRIPTION AND RESPONSIBILITIES:

103

Corpo Page 7 Cases

EMPLOYEEs training and expertise when

assigning additional tasks.

(a) Represent the company in any event

organized by PEZA;

AGREED:

(b) Perform sales/marketing functions;

(sgd. Manuel Diaz).

(c) Monitor/follow-up customers inquiry on

EMPLOYERs services;
(d) Monitor on-going job orders/projects;
(e) Submit requirements as needed in
application/renewal of necessary permits;
(f) Liaise closely with the other commercial
and technical staff of the company;
(g) Accomplish PEZA
documents/requirements for every sales
made; with legal assistance where
necessary at EMPLOYERs expense; and
(h) Perform other related duties and
responsibilities.
OTHER RESPONSIBILITIES:
(a) abide by and perform to the best of his
abilities all functions, duties and
responsibilities to be assigned by the
EMPLOYER in due course;

In addition to the above-mentioned responsibilities, respondent

was also instructed by Hartmannshenn to report to the SHS office
and plant at least two (2) days every work week to observe
technical processes involved in the manufacturing of perforated
materials, and to learn about the products of the company, which
respondent was hired to market and sell.
During respondents employment, Hartmannshenn was often
abroad and, because of business exigencies, his instructions to
respondent were either sent by electronic mail or relayed through
telephone or mobile phone. When he would be in the Philippines,
he and the respondent held meetings. As to respondents work,
there was no close supervision by him.
During meetings with the respondent, Hartmannshenn expressed
his dissatisfaction over respondents poor performance.
Respondent allegedly failed to make any concrete business
proposal or implement any specific measure to improve the
productivity of the SHS office and plant or deliver sales except for
a meagre P2,500.00 for a sample product. In numerous electronic
mail messages, respondent acknowledged his poor performance
and offered to resign from the company.
Respondent, however, denied sending such messages but
admitted that he had reported to the SHS office and plant only
eight (8) times from July 18, 2005 to November 30, 2005.

(c) will not disclose any confidential

information in respect of the affairs of the
EMPLOYER to any unauthorized person;

On November 16, 2005, in preparation for his trip to the

Philippines, Hartmannshenn tried to call respondent on his mobile
phone, but the latter failed to answer. On November 18, 2005,
Hartmannshenn arrived in the Philippines from Germany, and on
November 22 and 24, 2005, notified respondent of his arrival
through electronic mail messages and advised him to get in touch
with him. Respondent claimed that he never received the
messages.

(d) perform any other administrative or

non-administrative duties, as assigned by
any of the EMPLOYERs representative from
time to time either through direct written
order or by verbal assignment. The
EMPLOYER may take into account

On November 29, 2005, Hartmannshenn instructed Taguiang not

to release respondents salary. Later that afternoon, respondent
called and inquired about his salary. Taguiang informed him that it
was being withheld and that he had to immediately communicate
with Hartmannshenn. Again, respondent denied having received
such directive.

(b) comply with the orders and instructions

given from time to time by the EMPLOYER,
INC. through its authorized representatives;

The next day, on November 30, 2005, respondent served on SHS a

demand letter and a resignation letter. The resignation letter
reads:
This is to tender my irrevocable resignation from SHS Perforated
Materials, Inc, Philippines, effective immediately upon receipt of
my due and demandable salary for the period covering November
16 to 30, 2005, which has yet been unpaid and is still currently
being withheld albeit illegally. This covers and amounts to the
sum of Php50,000.00 pesos net of all taxes. As my employment
contract clearly shows I receive a monthly salary of
Php100,000.00 net of all taxes.
It is precisely because of illegal and unfair labor practices such as
these that I offer my resignation with neither regret nor remorse.6
In the evening of the same day, November 30, 2005, respondent
met with Hartmannshenn in Alabang. The latter told him that he
was extremely disappointed for the following reasons: his poor
work performance; his unauthorized leave and malingering from
November 16 to November 30, 2005; and failure to immediately
meet Hartmannshenn upon his arrival from Germany.
Petitioners averred that respondent was unable to give a proper
explanation for his behavior. Hartmannshenn then accepted
respondents resignation and informed him that his salary would
be released upon explanation of his failure to report to work, and
proof that he did, in fact, work for the period in question. He
demanded that respondent surrender all company property and
information in his possession. Respondent agreed to these "exit"
conditions through electronic mail. Instead of complying with the
said conditions, however, respondent sent another electronic mail
message to Hartmannshenn and Schumacher on December 1,
2005, appealing for the release of his salary.

respondents counsel by facsimile transmission. Despite being

informed of this, respondent never picked up the check.
Respondent countered that his counsel received petitioners
formal reply letter only on December 20, 2005, stating that his
salary would be released subsequent to the turn-over of all
materials owned by the company in his possession. Respondent
claimed that the only thing in his possession was a sample panels
folder which he had already returned and which was duly
received by Taguiang on November 30, 2005.
On December 9, 2005, respondent filed a Complaint7 against the
petitioners for illegal dismissal; non-payment of salaries/wages
and 13th month pay with prayer for reinstatement and full
backwages; exemplary damages, and attorneys fees, costs of suit,
and legal interest.
THE RULING OF THE LABOR ARBITER
On June 15, 2006, the LA rendered his decision, the dispositive
portion of which states:
WHEREFORE, premises considered, judgment is hereby rendered
declaring complainant as having been illegally dismissed and
further ordering his immediate reinstatement without loss of
seniority rights and benefits. It is also ordered that complainant
be deemed as a regular employee. Accordingly, respondents are
hereby ordered to jointly and severally pay complainant the
following
1. P704,166.67 (P100,000.00 x 6.5 + (P100,000.00 x
6.5/12) as backwages;
2. P50,000.00 as unpaid wages;

Respondent, on the other hand, claimed that the meeting with

Hartmannshenn took place in the evening of December 1, 2005,
at which meeting the latter insulted him and rudely demanded
that he accept P25,000.00 instead of his accrued wage and stop
working for SHS, which demands he refused. Later that same
night, he sent Hartmannshenn and Schumacher an electronic mail
message appealing for the release of his salary. Another demand
letter for respondents accrued salary for November 16 to
November 30, 2005, 13th month pay, moral and exemplary
damages, and attorneys fees was sent on December 2, 2005.
To settle the issue amicably, petitioners counsel advised
respondents counsel by telephone that a check had been
prepared in the amount of P50,000.00, and was ready for pick-up
on December 5, 2005. On the same date, a copy of the formal
reply letter relating to the prepared payment was sent to the
104

Corpo Page 7 Cases

3. P37,083.33 as unpaid 13th month pay

who withheld wages without valid cause. The LA also held that
respondents probationary employment was deemed regularized
because petitioners failed to conduct a prior evaluation of his
performance and to give notice two days prior to his termination
as required by the Probationary Contract of Employment and
Article 281 of the Labor Code. Petitioners contention that they
lost trust and confidence in respondent as a managerial employee
was not given credence for lack of notice to explain the supposed
loss of trust and confidence and absence of an evaluation of
respondents performance.
The LA believed that the respondent complied with the
obligations in his contract as evidenced by his electronic mail
messages to petitioners. He ruled that petitioners are jointly and
severally liable to respondent for backwages including 13th
month pay as there was no showing in the salary vouchers
presented that such was integrated in the salary; for moral and
exemplary damages for having in bad faith harassed respondent
into resigning; and for attorneys fees.
THE RULING OF THE NLRC
On appeal, the NLRC reversed the decision of the LA in its
December 29, 2006 Resolution, the dispositive portion of which
reads:
WHEREFORE, premises considered, the appeal is hereby
GRANTED.
The Decision dated June 15, 2006 is hereby REVERSED and SET
ASIDE and a new one is hereby entered:
(1) dismissing the complaint for illegal dismissal for
want of merit;
(2) dismissing the claims for 13th month pay, moral
and exemplary damages and attorneys fees for lack of
factual and legal basis; and

4. P200,000.00 as moral and exemplary damages;

5. P99,125.00 as attorneys fees.
SO ORDERED.8
The LA found that respondent was constructively dismissed
because the withholding of his salary was contrary to Article 116
of the Labor Code as it was not one of the exceptions for
allowable wage deduction by the employer under Article 113 of
the Labor Code. He had no other alternative but to resign because
he could not be expected to continue working for an employer

(3) ordering respondents to pay the complainants

unpaid salary for the period covering November 16-30,
2005 in the amount of FIFTY THOUSAND PESOS (Php
50,000.00).
SO ORDERED.9
The NLRC explained that the withholding of respondents salary
was a valid exercise of management prerogative. The act was
deemed justified as it was reasonable to demand an explanation
for failure to report to work and to account for his work

accomplishments. The NLRC held that the respondent voluntarily

resigned as evidenced by the language used in his resignation
letter and demand letters. Given his professional and educational
background, the letters showed respondents resolve to sever the
employer-employee relationship, and his understanding of the
import of his words and their consequences. Consequently,
respondent could not have been regularized having voluntarily
resigned prior to the completion of the probationary period. The
NLRC further noted that respondents 13th month pay was
already integrated in his salary in accordance with his
Probationary Contract of Employment and, therefore, no
additional amount should be due him.
On January 25, 2007, respondent filed a motion for
reconsideration but the NLRC subsequently denied it for lack of
merit in its May 23, 2007 Resolution.
THE RULING OF THE COURT OF APPEALS
The CA reversed the NLRC resolutions in its December 23, 2008
Decision, the dispositive portion of said decision reads:
WHEREFORE, premises considered, the herein petition is
GRANTED and the 29 December 2006 Resolution of the NLRC in
NLRC CN RAB-IV-12-21758-05-L, and the 23 May 2007 Resolution
denying petitioners Motion for Reconsideration, are REVERSED
and SET ASIDE. Accordingly, a new judgment is hereby entered in
that petitioner is hereby awarded separation pay equivalent to at
least one month pay, and his full backwages, other privileges and
benefits, or their monetary equivalent during the period of his
dismissal up to his supposed actual reinstatement by the Labor
Arbiter on 15 June 2006.
SO ORDERED.10
Contrary to the NLRC ruling, the CA held that withholding
respondents salary was not a valid exercise of management
prerogative as there is no such thing as a management
prerogative to withhold wages temporarily. Petitioners
averments of respondents failure to report to work were found
to be unsubstantiated allegations not corroborated by any other
evidence, insufficient to justify said withholding and lacking in
probative value. The malicious withholding of respondents salary
made it impossible or unacceptable for respondent to continue
working, thus, compelling him to resign. The respondents
immediate filing of a complaint for illegal dismissal could only
mean that his resignation was not voluntary. As a probationary
employee entitled to security of tenure, respondent was illegally
dismissed. The CA ruled out actual reinstatement, however,
reasoning out that antagonism had caused a severe strain in their

105

Corpo Page 7 Cases

relationship. It was of the view that separation pay equivalent to

at least one month pay would be a more equitable disposition.

SOLIDARILY AND PERSONALLY LIABLE WITH PETITIONER SHS FOR

THE PAYMENT OF THE MONETARY AWARD TO RESPONDENT.

THE ISSUES

The resolution of these issues is dependent on whether or not

respondent was constructively dismissed by petitioners, which
determination is, in turn, hinged on finding out (i) whether or not
the temporary withholding of respondents salary/wages by
petitioners was a valid exercise of management prerogative; and
(ii) whether or not respondent voluntarily resigned.

Aggrieved, the petitioners come to this Court praying for the

reversal and setting aside of the subject CA decision presenting
the following
ISSUES
I
THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE
ERROR IN NOT AFFIRMING THE DECISION OF THE NLRC, WHICH
WAS BASED ON SUBSTANTIAL EVIDENCE.
II
THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE
ERROR IN NOT AFFIRMING THE NLRCS HOLDING THAT
PETITIONERS WITHHOLDING OF RESPONDENTS SALARY FOR THE
PAYROLL PERIOD NOVEMBER 16-30, 2005 IN VIEW OF
RESPONDENTS FAILURE TO RENDER ACTUAL WORK FOR SAID
PAYROLL PERIOD WAS A VALID EXERCISE OF MANAGEMENT
PREROGATIVE.
III
THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE
ERROR IN AFFIRMING THE LABOR ARBITERS FINDING THAT
RESPONDENT HAD BEEN CONSTRUCTIVELY DISMISSED.
IV
THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE
ERROR IN AWARDING RESPONDENT SEPARATION PAY
EQUIVALENT TO AT LEAST ONE MONTH PAY IN LIEU OF
REINSTATEMENT, FULL BACKWAGES, AND OTHER PRIVILEGES
AND BENEFITS, OR THEIR MONETARY EQUIVALENT IN VIEW OF
THE FACT THAT RESPONDENT VOLUNTARILY RESIGNED FROM
PETITIONER SHS AND WAS NOT ILLEGALLY DISMISSED.
V
THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE
ERROR IN NOT HOLDING THAT INDIVIDUAL PETITIONERS
HARTMANNSHENN AND SCHUMACHER MAY NOT BE HELD

THE COURTS RULING

As a rule, the factual findings of the courts below are conclusive in
a petition for review on certiorari where only errors of law should
be reviewed. The case, however, is an exception because the
factual findings of the CA and the LA are contradictory to that of
the NLRC. Thus, a review of the records is necessary to resolve the
factual issues involved and render substantial justice to the
parties.11
Petitioners contend that withholding respondents salary from
November 16 to November 30, 2005, was justified because
respondent was absent and did not show up for work during that
period. He also failed to account for his whereabouts and work
accomplishments during said period. When there is an issue as to
whether an employee has, in fact, worked and is entitled to his
salary, it is within management prerogative to temporarily
withhold an employees salary/wages pending determination of
whether or not such employee did indeed work.
We disagree with petitioners.
Management prerogative refers "to the right of an employer to
regulate all aspects of employment, such as the freedom to
prescribe work assignments, working methods, processes to be
followed, regulation regarding transfer of employees, supervision
of their work, lay-off and discipline, and dismissal and recall of
work."12 Although management prerogative refers to "the right to
regulate all aspects of employment," it cannot be understood to
include the right to temporarily withhold salary/wages without
the consent of the employee. To sanction such an interpretation
would be contrary to Article 116 of the Labor Code, which
provides:
ART. 116. Withholding of wages and kickbacks prohibited. It
shall be unlawful for any person, directly or indirectly, to withhold
any amount from the wages of a worker or induce him to give up
any part of his wages by force, stealth, intimidation, threat or by
any other means whatsoever without the workers consent.

Any withholding of an employees wages by an employer may

only be allowed in the form of wage deductions under the
circumstances provided in Article 113 of the Labor Code, as set
forth below:
ART. 113. Wage Deduction. No employer, in his own behalf or in
behalf of any person, shall make any deduction from the wages of
his employees, except:
(a) In cases where the worker is insured with his
consent by the employer, and the deduction is to
recompense the employer for the amount paid by him
as premium on the insurance;
(b) For union dues, in cases where the right of the
worker or his union to check-off has been recognized
by the employer or authorized in writing by the
individual worker concerned; and
(c) In cases where the employer is authorized by law or
regulations issued by the Secretary of Labor.
As correctly pointed out by the LA, "absent a showing that the
withholding of complainants wages falls under the exceptions
provided in Article 113, the withholding thereof is thus
unlawful."13
Petitioners argue that Article 116 of the Labor Code only applies if
it is established that an employee is entitled to his salary/wages
and, hence, does not apply in cases where there is an issue or
uncertainty as to whether an employee has worked and is entitled
to his salary/wages, in consonance with the principle of "a fair
days wage for a fair days work." Petitioners contend that in this
case there was precisely an issue as to whether respondent was
entitled to his salary because he failed to report to work and to
account for his whereabouts and work accomplishments during
the period in question.
To substantiate their claim, petitioners presented hard copies of
the electronic mail messages14 sent to respondent on November
22 and 24, 2005, directing the latter to contact Hartmannshenn;
the Affidavit15 of Taguiang stating that she advised respondent on
or about November 29, 2005 to immediately communicate with
Mr. Hartmannshenn at the SHS office; Hartmannshenns CounterAffidavit16 stating that he exerted earnest efforts to contact
respondent through mobile phone; Schumachers CounterAffidavit17 stating that respondent had not filed any request for
official leave; and respondents admission in his Position
Paper18 that he found it absurd to report to the SHS plant when
only security guards and machinists were present.
106

Corpo Page 7 Cases

Respondent, on the other hand, presented reports19 prepared by

him and submitted to Hartmannshenn on November 18 and 25,
2005; a receipt20 issued to him by Taguiang for a clients payment
during the subject period; and eight notarized letters21 of
prospective clients vouching for meetings they had with the
respondent during the subject period.
The Court finds petitioners evidence insufficient to prove that
respondent did not work from November 16 to November 30,
2005. As can be gleaned from respondents Contract of
Probationary Employment and the exchanges of electronic mail
messages22 between Hartmannshenn and respondent, the latters
duties as manager for business development entailed cultivating
business ties, connections, and clients in order to make sales.
Such duties called for meetings with prospective clients outside
the office rather than reporting for work on a regular schedule. In
other words, the nature of respondents job did not allow close
supervision and monitoring by petitioners. Neither was there any
prescribed daily monitoring procedure established by petitioners
to ensure that respondent was doing his job. Therefore, granting
that respondent failed to answer Hartmannshenns mobile calls
and to reply to two electronic mail messages and given the fact
that he admittedly failed to report to work at the SHS plant twice
each week during the subject period, such cannot be taken to
signify that he did not work from November 16 to November 30,
2005.
Furthermore, the electronic mail reports sent to Hartmannshenn
and the receipt presented by respondent as evidence of his
having worked during the subject period were not controverted
by petitioners. The eight notarized letters of prospective clients
vouching for meetings they had with respondent during the
subject period may also be given credence. Although respondent
only presented such letters in support of his Motion for
Reconsideration filed with the NLRC, they may be considered by
this Court in light of Section 10, Rule VII, of the 2005 New Rules of
Procedure of the NLRC, which provides in part that "the rules of
procedure and evidence prevailing in courts of law and equity
shall not be controlling and the Commission shall use every and all
reasonable means to ascertain the facts in each case speedily and
objectively, without regard to technicalities of law or procedure,
all in the interest of due process." While administrative tribunals
exercising quasi-judicial functions are free from the rigidity of
certain procedural requirements, they are bound by law and
practice to observe the fundamental and essential requirements
of due process in justiciable cases presented before them.23 In this
case, due process was afforded petitioners as respondent filed
with the NLRC a Motion to Set Case for Reception of Additional
Evidence as regards the said letters, which petitioners had the
opportunity to, and did, oppose.
Although it cannot be determined with certainty whether
respondent worked for the entire period from November 16 to

November 30, 2005, the consistent rule is that if doubt exists

between the evidence presented by the employer and that by the
employee, the scales of justice must be tilted in favor of the
latter24 in line with the policy mandated by Articles 2 and 3 of the
Labor Code to afford protection to labor and construe doubts in
favor of labor. For petitioners failure to satisfy their burden of
proof, respondent is presumed to have worked during the period
in question and is, accordingly, entitled to his salary. Therefore,
the withholding of respondents salary by petitioners is contrary
to Article 116 of the Labor Code and, thus, unlawful.
Petitioners contend that respondent could not have been
constructively dismissed because he voluntarily resigned as
evidenced by his resignation letter. They assert that respondent
was not forced to draft the letter and his intention to resign is
clear from the contents and terms used, and that given
respondents professional and educational background, he was
fully aware of the import and consequences of the said letter.
They maintain that respondent resigned to save face and avoid
disciplinary measures due to his allegedly dismal work
performance and failure to report to work.
The Court, however, agrees with the LA and the CA that
respondent was forced to resign and was, thus, constructively
dismissed. In Duldulao v. Court of Appeals, it was written:
There is constructive dismissal if an act of clear discrimination,
insensibility, or disdain by an employer becomes so unbearable on
the part of the employee that it would foreclose any choice by
him except to forego his continued employment. It exists where
there is cessation of work because continued employment is
rendered impossible, unreasonable or unlikely, as an offer
involving a demotion in rank and a diminution in pay. 25
What made it impossible, unreasonable or unlikely for respondent
to continue working for SHS was the unlawful withholding of his
salary. For said reason, he was forced to resign. It is of no moment
that he served his resignation letter on November 30, 2005, the
last day of the payroll period and a non-working holiday, since his
salary was already due him on November 29, 2005, being the last
working day of said period. In fact, he was then informed that the
wages of all the other SHS employees were already released, and
only his was being withheld. What is significant is that the
respondent prepared and served his resignation letter right after
he was informed that his salary was being withheld. It would be
absurd to require respondent to tolerate the unlawful withholding
of his salary for a longer period before his employment can be
considered as so impossible, unreasonable or unlikely as to
constitute constructive dismissal. Even granting that the
withholding of respondents salary on November 30, 2005, would
not constitute an unlawful act, the continued refusal to release his
salary after the payroll period was clearly unlawful. The

petitioners claim that they prepared the check ready for pick-up
cannot undo the unlawful withholding.
It is worthy to note that in his resignation letter, respondent cited
petitioners "illegal and unfair labor practice"26as his cause for
resignation. As correctly noted by the CA, respondent lost no time
in submitting his resignation letter and eventually filing a
complaint for illegal dismissal just a few days after his salary was
withheld. These circumstances are inconsistent with voluntary
resignation and bolster the finding of constructive dismissal.
Petitioners cite the case of Solas v. Power & Telephone Supply
Phils., Inc.27 to support their contention that the mere withholding
of an employees salary does not by itself constitute constructive
dismissal. Petitioners are mistaken in anchoring their argument on
said case, where the withholding of the salary was deemed lawful.
In the above-cited case, the employees salary was withheld for a
valid reason - it was applied as partial payment of a debt due to
the employer, for withholding taxes on his income and for his
absence without leave. The partial payment of a debt due to the
employer and the withholding of taxes on income were valid
deductions under Article 113 paragraph (c) of the Labor Code. The
deduction from an employees salary for a due and demandable
debt to an employer was likewise sanctioned under Article 1706
of the Civil Code. As to the withholding for income tax purposes, it
was prescribed by the National Internal Revenue Code. Moreover,
the employee therein was indeed absent without leave.
In this case, the withholding of respondents salary does not fall
under any of the circumstances provided under Article 113.
Neither was it established with certainty that respondent did not
work from November 16 to November 30, 2005. Hence, the Court
agrees with the LA and the CA that the unlawful withholding of
respondents salary amounts to constructive dismissal.
Respondent was constructively dismissed and, therefore, illegally
dismissed.1avvphi1 Although respondent was a probationary
employee, he was still entitled to security of tenure. Section 3 (2)
Article 13 of the Constitution guarantees the right of all workers
to security of tenure. In using the expression "all workers," the
Constitution puts no distinction between a probationary and a
permanent or regular employee. This means that probationary
employees cannot be dismissed except for cause or for failure to
qualify as regular employees.28
This Court has held that probationary employees who are unjustly
dismissed during the probationary period are entitled to
reinstatement and payment of full backwages and other benefits
and privileges from the time they were dismissed up to their
actual reinstatement.29 Respondent is, thus, entitled to
reinstatement without loss of seniority rights and other privileges
as well as to full backwages, inclusive of allowances, and other
107

Corpo Page 7 Cases

benefits or their monetary equivalent computed from the time his

compensation was withheld up to the time of actual
reinstatement. Respondent, however, is not entitled to the
additional amount for 13th month pay, as it is clearly provided in
respondents Probationary Contract of Employment that such is
deemed included in his salary. Thus:
EMPLOYEE will be paid a net salary of One Hundred Thousand
(Php100,000.00) Pesos per month payable every 15th day and
end of the month.
The compensation package defined in this paragraph shall
represent all that is due and demandable under this Contract and
includes all benefits required by law such as the 13th month pay.
No other benefits, bonus or allowance shall be due the
employee. 30
(emphasis supplied)
Respondents reinstatement, however, is no longer feasible as
antagonism has caused a severe strain in their working
relationship. Under the doctrine of strained relations, the
payment of separation pay is considered an acceptable alternative
to reinstatement when the latter option is no longer desirable or
viable. Payment liberates the employee from what could be a
highly oppressive work environment, and at the same time
releases the employer from the obligation of keeping in its
employ a worker it no longer trusts. Therefore, a more equitable
disposition would be an award of separation pay equivalent to at
least one month pay, in addition to his full backwages, allowances
and other benefits.31
With respect to the personal liability of Hartmannshenn and
Schumacher, this Court has held that corporate directors and
officers are only solidarily liable with the corporation for
termination of employment of corporate employees if effected
with malice or in bad faith.32 Bad faith does not connote bad
judgment or negligence; it imports dishonest purpose or some
moral obliquity and conscious doing of wrong; it means breach of
unknown duty through some motive or interest or ill will; it
partakes of the nature of fraud.33 To sustain such a finding, there
should be evidence on record that an officer or director acted
maliciously or in bad faith in terminating the employee.34
Petitioners withheld respondents salary in the sincere belief that
respondent did not work for the period in question and was,
therefore, not entitled to it. There was no dishonest purpose or ill
will involved as they believed there was a justifiable reason to
withhold his salary. Thus, although they unlawfully withheld
respondents salary, it cannot be concluded that such was made
in bad faith. Accordingly, corporate officers, Hartmannshenn and

Schumacher, cannot be held personally liable for the corporate

obligations of SHS.
WHEREFORE, the assailed December 23, 2008 Decision of the
Court of Appeals in CA-G.R. SP No. 100015 is
hereby AFFIRMED with MODIFICATION. The additional amount
for 13th month pay is deleted. Petitioners Winfried
Hartmannshenn and Hinrich Johann Schumacher are not solidarily
liable with petitioner SHS Perforated Materials, Inc.SO ORDERED.

NOTE: Ang ubang cases kay nausab lang.