1

1.

Loyola Grand Villas v Court of Appeals

2.

China Banking v Court of Appeals

3.

Salafranca v Philamlife

4.

Republic of the Philippines v Cocofed

5.

Chua v Court of Appeals

6.

Expert Travel & Tours v Court of Appeals

7.

Ramon Lee v Court of Appeals

G.R. No. 117188 August 7, 1997

LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner,
vs.
HON. COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN ENCARNACION and
HORATIO AYCARDO, respondents.

ROMERO, J.:
May the failure of a corporation to file its by-laws within one month from the date of its incorporation, as mandated by
Section 46 of the Corporation Code, result in its automatic dissolution?
This is the issue raised in this petition for review on certiorari of the Decision 1 of the Court of Appeals affirming the
decision of the Home Insurance and Guaranty Corporation (HIGC). This quasi-judicial body recognized Loyola Grand
Villas Homeowners Association (LGVHA) as the sole homeowners' association in Loyola Grand Villas, a duly registered
subdivision in Quezon City and Marikina City that was owned and developed by Solid Homes, Inc. It revoked the
certificates of registration issued to Loyola Grand Villas homeowners (North) Association Incorporated (the North
Association for brevity) and Loyola Grand Villas Homeowners (South) Association Incorporated (the South
Association).
LGVHAI was organized on February 8, 1983 as the association of homeowners and residents of the Loyola Grand
Villas. It was registered with the Home Financing Corporation, the predecessor of herein respondent HIGC, as the sole
homeowners' organization in the said subdivision under Certificate of Registration No. 04-197. It was organized by the
developer of the subdivision and its first president was Victorio V. Soliven, himself the owner of the developer. For
unknown reasons, however, LGVHAI did not file its corporate by-laws.
Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed to do so. 2 To the officers'
consternation, they discovered that there were two other organizations within the subdivision the North Association
and the South Association. According to private respondents, a non-resident and Soliven himself, respectively headed
these associations. They also discovered that these associations had five (5) registered homeowners each who were
also the incorporators, directors and officers thereof. None of the members of the LGVHAI was listed as member of the
North Association while three (3) members of LGVHAI were listed as members of the South Association. 3 The North
Association was registered with the HIGC on February 13, 1989 under Certificate of Registration No. 04-1160 covering
Phases West II, East III, West III and East IV. It submitted its by-laws on December 20, 1988.

2
In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Joaquin A. Bautista, the head of the legal
department of the HIGC, informed him that LGVHAI had been automatically dissolved for two reasons. First, it did not
submit its by-laws within the period required by the Corporation Code and, second, there was non-user of corporate
charter because HIGC had not received any report on the association's activities. Apparently, this information resulted
in the registration of the South Association with the HIGC on July 27, 1989 covering Phases West I, East I and East II.
It filed its by-laws on July 26, 1989.
These developments prompted the officers of the LGVHAI to lodge a complaint with the HIGC. They questioned the
revocation of LGVHAI's certificate of registration without due notice and hearing and concomitantly prayed for the
cancellation of the certificates of registration of the North and South Associations by reason of the earlier issuance of a
certificate of registration in favor of LGVHAI.
On January 26, 1993, after due notice and hearing, private respondents obtained a favorable ruling from HIGC
Hearing Officer Danilo C. Javier who disposed of HIGC Case No. RRM-5-89 as follows:
WHEREFORE, judgment is hereby rendered recognizing the Loyola Grand Villas Homeowners Association, Inc.,
under Certificate of Registration No. 04-197 as the duly registered and existing homeowners association for
Loyola Grand Villas homeowners, and declaring the Certificates of Registration of Loyola Grand Villas
Homeowners (North) Association, Inc. and Loyola Grand Villas Homeowners (South) Association, Inc. as
hereby revoked or cancelled; that the receivership be terminated and the Receiver is hereby ordered to render
an accounting and turn-over to Loyola Grand Villas Homeowners Association, Inc., all assets and records of
the Association now under his custody and possession.
The South Association appealed to the Appeals Board of the HIGC. In its Resolution of September 8, 1993, the
Board 4 dismissed the appeal for lack of merit.
Rebuffed, the South Association in turn appealed to the Court of Appeals, raising two issues. First, whether or not
LGVHAI's failure to file its by-laws within the period prescribed by Section 46 of the Corporation Code resulted in the
automatic dissolution of LGVHAI. Second, whether or not two homeowners' associations may be authorized by the
HIGC in one "sprawling subdivision." However, in the Decision of August 23, 1994 being assailed here, the Court of
Appeals affirmed the Resolution of the HIGC Appeals Board.
In resolving the first issue, the Court of Appeals held that under the Corporation Code, a private corporation
commences to have corporate existence and juridical personality from the date the Securities and Exchange
Commission (SEC) issues a certificate of incorporation under its official seal. The requirement for the filing of by-laws
under Section 46 of the Corporation Code within one month from official notice of the issuance of the certificate of
incorporation presupposes that it is already incorporated, although it may file its by-laws with its articles of
incorporation. Elucidating on the effect of a delayed filing of by-laws, the Court of Appeals said:
We also find nothing in the provisions cited by the petitioner, i.e., Section 46 and 22, Corporation Code, or in
any other provision of the Code and other laws which provide or at least imply that failure to file the by-laws
results in an automatic dissolution of the corporation. While Section 46, in prescribing that by-laws must be
adopted within the period prescribed therein, may be interpreted as a mandatory provision, particularly
because of the use of the word "must," its meaning cannot be stretched to support the argument that
automatic dissolution results from non-compliance.
We realize that Section 46 or other provisions of the Corporation Code are silent on the result of the failure to
adopt and file the by-laws within the required period. Thus, Section 46 and other related provisions of the
Corporation Code are to be construed with Section 6 (1) of P.D. 902-A. This section empowers the SEC to
suspend or revoke certificates of registration on the grounds listed therein. Among the grounds stated is the
failure to file by-laws (see also II Campos: The Corporation Code, 1990 ed., pp. 124-125). Such suspension or
revocation, the same section provides, should be made upon proper notice and hearing. Although P.D. 902-A
refers to the SEC, the same principles and procedures apply to the public respondent HIGC as it exercises its
power to revoke or suspend the certificates of registration or homeowners association. (Section 2 [a], E.O.

3
535, series 1979, transferred the powers and authorities of the SEC over homeowners associations to the
HIGC.)
We also do not agree with the petitioner's interpretation that Section 46, Corporation Code prevails over
Section 6, P.D. 902-A and that the latter is invalid because it contravenes the former. There is no basis for
such interpretation considering that these two provisions are not inconsistent with each other. They are, in
fact, complementary to each other so that one cannot be considered as invalidating the other.
The Court of Appeals added that, as there was no showing that the registration of LGVHAI had been validly revoked, it
continued to be the duly registered homeowners' association in the Loyola Grand Villas. More importantly, the South
Association did not dispute the fact that LGVHAI had been organized and that, thereafter, it transacted business within
the period prescribed by law.
On the second issue, the Court of Appeals reiterated its previous ruling 5 that the HIGC has the authority to order the
holding of a referendum to determine which of two contending associations should represent the entire community,
village or subdivision.
Undaunted, the South Association filed the instant petition for review on certiorari. It elevates as sole issue for
resolution the first issue it had raised before the Court of Appeals, i.e., whether or not the LGVHAI's failure to file its
by-laws within the period prescribed by Section 46 of the Corporation Code had the effect of automatically dissolving
the said corporation.
Petitioner contends that, since Section 46 uses the word "must" with respect to the filing of by-laws, noncompliance
therewith would result in "self-extinction" either due to non-occurrence of a suspensive condition or the occurrence of
a resolutory condition "under the hypothesis that (by) the issuance of the certificate of registration alone the
corporate personality is deemed already formed." It asserts that the Corporation Code provides for a "gradation of
violations of requirements." Hence, Section 22 mandates that the corporation must be formally organized and should
commence transaction within two years from date of incorporation. Otherwise, the corporation would be deemed
dissolved. On the other hand, if the corporation commences operations but becomes continuously inoperative for five
years, then it may be suspended or its corporate franchise revoked.
Petitioner concedes that Section 46 and the other provisions of the Corporation Code do not provide for sanctions for
non-filing of the by-laws. However, it insists that no sanction need be provided "because the mandatory nature of the
provision is so clear that there can be no doubt about its being an essential attribute of corporate birth." To petitioner,
its submission is buttressed by the facts that the period for compliance is "spelled out distinctly;" that the certification
of the SEC/HIGC must show that the by-laws are not inconsistent with the Code, and that a copy of the by-laws "has
to be attached to the articles of incorporation." Moreover, no sanction is provided for because "in the first place, no
corporate identity has been completed." Petitioner asserts that "non-provision for remedy or sanction is itself the tacit
proclamation that non-compliance is fatal and no corporate existence had yet evolved," and therefore, there was "no
need to proclaim its demise." 6 In a bid to convince the Court of its arguments, petitioner stresses that:
. . . the word MUST is used in Sec. 46 in its universal literal meaning and corollary human implication its
compulsion is integrated in its very essence MUST is always enforceable by the inevitable consequence
that is, "OR ELSE". The use of the word MUST in Sec. 46 is no exception it means file the by-laws within
one month after notice of issuance of certificate of registration OR ELSE. The OR ELSE, though not specified, is
inextricably a part of MUST . Do this or if you do not you are "Kaput". The importance of the by-laws to
corporate existence compels such meaning for as decreed the by-laws is "the government" of the corporation.
Indeed, how can the corporation do any lawful act as such without by-laws. Surely, no law is indeed to create
chaos. 7
Petitioner asserts that P.D. No. 902-A cannot exceed the scope and power of the Corporation Code which itself does
not provide sanctions for non-filing of by-laws. For the petitioner, it is "not proper to assess the true meaning of Sec.
46 . . . on an unauthorized provision on such matter contained in the said decree."

4
In their comment on the petition, private respondents counter that the requirement of adoption of by-laws is not
mandatory. They point to P.D. No. 902-A as having resolved the issue of whether said requirement is mandatory or
merely directory. Citing Chung Ka Bio v. Intermediate Appellate Court, 8 private respondents contend that Section 6(I)
of that decree provides that non-filing of by-laws is only a ground for suspension or revocation of the certificate of
registration of corporations and, therefore, it may not result in automatic dissolution of the corporation. Moreover, the
adoption and filing of by-laws is a condition subsequent which does not affect the corporate personality of a
corporation like the LGVHAI. This is so because Section 9 of the Corporation Code provides that the corporate
existence and juridical personality of a corporation begins from the date the SEC issues a certificate of incorporation
under its official seal. Consequently, even if the by-laws have not yet been filed, a corporation may be considered a de
facto corporation. To emphasize the fact the LGVHAI was registered as the sole homeowners' association in the Loyola
Grand Villas, private respondents point out that membership in the LGVHAI was an "unconditional restriction in the
deeds of sale signed by lot buyers."
In its reply to private respondents' comment on the petition, petitioner reiterates its argument that the word " must"
in Section 46 of the Corporation Code is mandatory. It adds that, before the ruling in Chung Ka Bio v.Intermediate
Appellate Court could be applied to this case, this Court must first resolve the issue of whether or not the provisions of
P.D. No. 902-A prescribing the rules and regulations to implement the Corporation Code can "rise above and change"
the substantive provisions of the Code.
The pertinent provision of the Corporation Code that is the focal point of controversy in this case states:
Sec. 46. Adoption of by-laws. Every corporation formed under this Code, must within one (1) month after
receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange
Commission, adopt a code of by-laws for its government not inconsistent with this Code. For the adoption of
by-laws by the corporation, the affirmative vote of the stockholders representing at least a majority of the
outstanding capital stock, or of at least a majority of the members, in the case of non-stock corporations, shall
be necessary. The by-laws shall be signed by the stockholders or members voting for them and shall be kept
in the principal office of the corporation, subject to the stockholders or members voting for them and shall be
kept in the principal office of the corporation, subject to inspection of the stockholders or members during
office hours; and a copy thereof, shall be filed with the Securities and Exchange Commission which shall be
attached to the original articles of incorporation.
Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to
incorporation; in such case, such by-laws shall be approved and signed by all the incorporators and submitted
to the Securities and Exchange Commission, together with the articles of incorporation.
In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a
certification that the by-laws are not inconsistent with this Code.
The Securities and Exchange Commission shall not accept for filing the by-laws or any amendment thereto of
any bank, banking institution, building and loan association, trust company, insurance company, public utility,
educational institution or other special corporations governed by special laws, unless accompanied by a
certificate of the appropriate government agency to the effect that such by-laws or amendments are in
accordance with law.
As correctly postulated by the petitioner, interpretation of this provision of law begins with the determination of the
meaning and import of the word "must" in this section Ordinarily, the word "must" connotes an imperative act or
operates to impose a duty which may be enforced. 9 It is synonymous with "ought" which connotes compulsion or
mandatoriness. 10 However, the word "must" in a statute, like "shall," is not always imperative. It may be consistent
with an exercise of discretion. In this jurisdiction, the tendency has been to interpret "shall" as the context or a
reasonable construction of the statute in which it is used demands or requires. 11 This is equally true as regards the
word "must." Thus, if the languages of a statute considered as a whole and with due regard to its nature and object
reveals that the legislature intended to use the words "shall" and "must" to be directory, they should be given that
meaning. 12

5
In this respect, the following portions of the deliberations of the Batasang Pambansa No. 68 are illuminating:
MR. FUENTEBELLA. Thank you, Mr. Speaker.
On page 34, referring to the adoption of by-laws, are we made to understand here, Mr. Speaker, that by-laws
must immediately be filed within one month after the issuance? In other words, would this be mandatory or
directory in character?
MR. MENDOZA. This is mandatory.
MR. FUENTEBELLA. It being mandatory, Mr. Speaker, what would be the effect of the failure of the corporation
to file these by-laws within one month?
MR. MENDOZA. There is a provision in the latter part of the Code which identifies and describes the
consequences of violations of any provision of this Code. One such consequences is the dissolution of the
corporation for its inability, or perhaps, incurring certain penalties.
MR. FUENTEBELLA. But it will not automatically amount to a dissolution of the corporation by merely failing to
file the by-laws within one month. Supposing the corporation was late, say, five days, what would be the
mandatory penalty?
MR. MENDOZA. I do not think it will necessarily result in the automatic or ipso facto dissolution of the
corporation. Perhaps, as in the case, as you suggested, in the case of El Hogar Filipino where a quo
warranto action is brought, one takes into account the gravity of the violation committed. If the by-laws were
late the filing of the by-laws were late by, perhaps, a day or two, I would suppose that might be a tolerable
delay, but if they are delayed over a period of months as is happening now because of the absence of a
clear requirement that by-laws must be completed within a specified period of time, the corporation must
suffer certain consequences. 13
This exchange of views demonstrates clearly that automatic corporate dissolution for failure to file the by-laws on time
was never the intention of the legislature. Moreover, even without resorting to the records of deliberations of the
Batasang Pambansa, the law itself provides the answer to the issue propounded by petitioner.
Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuli
interpretatix est ipsum statutum), 14 Section 46 aforequoted reveals the legislative intent to attach a directory, and
not mandatory, meaning for the word "must" in the first sentence thereof. Note should be taken of the second
paragraph of the law which allows the filing of the by-laws even prior to incorporation. This provision in the same
section of the Code rules out mandatory compliance with the requirement of filing the by-laws "within one (1) month
after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange
Commission." It necessarily follows that failure to file the by-laws within that period does not imply the "demise" of
the corporation. By-laws may be necessary for the "government" of the corporation but these are subordinate to the
articles of incorporation as well as to the Corporation Code and related statutes. 15 There are in fact cases where bylaws are unnecessary to corporate existence or to the valid exercise of corporate powers, thus:
In the absence of charter or statutory provisions to the contrary, by-laws are not necessary either to the
existence of a corporation or to the valid exercise of the powers conferred upon it, certainly in all cases where
the charter sufficiently provides for the government of the body; and even where the governing statute in
express terms confers upon the corporation the power to adopt by-laws, the failure to exercise the power will
be ascribed to mere nonaction which will not render void any acts of the corporation which would otherwise be
valid. 16 (Emphasis supplied.)
As Fletcher aptly puts it:

6
It has been said that the by-laws of a corporation are the rule of its life, and that until by-laws have been
adopted the corporation may not be able to act for the purposes of its creation, and that the first and most
important duty of the members is to adopt them. This would seem to follow as a matter of principle from the
office and functions of by-laws. Viewed in this light, the adoption of by-laws is a matter of practical, if not one
of legal, necessity. Moreover, the peculiar circumstances attending the formation of a corporation may impose
the obligation to adopt certain by-laws, as in the case of a close corporation organized for specific purposes.
And the statute or general laws from which the corporation derives its corporate existence may expressly
require it to make and adopt by-laws and specify to some extent what they shall contain and the manner of
their adoption. The mere fact, however, of the existence of power in the corporation to adopt by-laws does
not ordinarily and of necessity make the exercise of such power essential to its corporate life, or to the validity
of any of its acts. 17
Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the consequences of the
non-filing of the same within the period provided for in Section 46. However, such omission has been rectified by
Presidential Decree No. 902-A, the pertinent provisions on the jurisdiction of the SEC of which state:
Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:
xxx xxx xxx
(1) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law, including the following:
xxx xxx xxx
5. Failure to file by-laws within the required period;
xxx xxx xxx
In the exercise of the foregoing authority and jurisdiction of the Commission or by a Commissioner or by such
other bodies, boards, committees and/or any officer as may be created or designated by the Commission for
the purpose. The decision, ruling or order of any such Commissioner, bodies, boards, committees and/or
officer may be appealed to the Commission sitting en banc within thirty (30) days after receipt by the
appellant of notice of such decision, ruling or order. The Commission shall promulgate rules of procedures to
govern the proceedings, hearings and appeals of cases falling with its jurisdiction.
The aggrieved party may appeal the order, decision or ruling of the Commission sitting en banc to the
Supreme Court by petition for review in accordance with the pertinent provisions of the Rules of Court.
Even under the foregoing express grant of power and authority, there can be no automatic corporate dissolution
simply because the incorporators failed to abide by the required filing of by-laws embodied in Section 46
of the Corporation Code. There is no outright "demise" of corporate existence. Proper notice and hearing are
cardinal components of due process in any democratic institution, agency or society. In other words, the incorporators
must be given the chance to explain their neglect or omission and remedy the same.
That the failure to file by-laws is not provided for by the Corporation Code but in another law is of no moment. P.D.
No. 902-A, which took effect immediately after its promulgation on March 11, 1976, is very much apposite to the
Code. Accordingly, the provisions above quoted supply the law governing the situation in the case at bar, inasmuch as
the Corporation Code and P.D. No. 902-A are statutes in pari materia. Interpretare et concordare legibus est optimus
interpretandi. Every statute must be so construed and harmonized with other statutes as to form a uniform system of
jurisprudence. 18
As the "rules and regulations or private laws enacted by the corporation to regulate, govern and control its own
actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and

7
among themselves in their relation to it," 19 by-laws are indispensable to corporations in this jurisdiction. These may
not be essential to corporate birth but certainly, these are required by law for an orderly governance and management
of corporations. Nonetheless, failure to file them within the period required by law by no means tolls the automatic
dissolution of a corporation.
In this regard, private respondents are correct in relying on the pronouncements of this Court in Chung Ka Bio
v.Intermediate Appellate Court, 20 as follows:
. . . . Moreover, failure to file the by-laws does not automatically operate to dissolve a corporation but is now
considered only a ground for such dissolution.
Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation Code, provided that the
powers of the corporation would cease if it did not formally organize and commence the transaction of its
business or the continuation of its works within two years from date of its incorporation. Section 20, which has
been reproduced with some modifications in Section 46 of the Corporation Code, expressly declared that
"every corporation formed under this Act, must within one month after the filing of the articles of incorporation
with the Securities and Exchange Commission, adopt a code of by-laws." Whether this provision should be
given mandatory or only directory effect remained a controversial question until it became academic with the
adoption of PD 902-A. Under this decree, it is now clear that the failure to file by-laws within the required
period is only a ground for suspension or revocation of the certificate of registration of corporations.
Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under Section 6(I) of PD
902-A, the SEC is empowered to "suspend or revoke, after proper notice and hearing, the franchise or
certificate of registration of a corporation" on the ground inter alia of "failure to file by-laws within the required
period." It is clear from this provision that there must first of all be a hearing to determine the existence of
the ground, and secondly, assuming such finding, the penalty is not necessarily revocation but may be only
suspension of the charter. In fact, under the rules and regulations of the SEC, failure to file the by-laws on
time may be penalized merely with the imposition of an administrative fine without affecting the corporate
existence of the erring firm.
It should be stressed in this connection that substantial compliance with conditions subsequent will suffice to
perfect corporate personality. Organization and commencement of transaction of corporate business are but
conditions subsequent and not prerequisites for acquisition of corporate personality. The adoption and filing of
by-laws is also a condition subsequent. Under Section 19 of the Corporation Code, a Corporation commences
its corporate existence and juridical personality and is deemed incorporated from the date the Securities and
Exchange Commission issues certificate of incorporation under its official seal. This may be done even before
the filing of the by-laws, which under Section 46 of the Corporation Code, must be adopted "within one month
after receipt of official notice of the issuance of its certificate of incorporation." 21
That the corporation involved herein is under the supervision of the HIGC does not alter the result of this case. The
HIGC has taken over the specialized functions of the former Home Financing Corporation by virtue of Executive Order
No. 90 dated December 17, 1989. 22 With respect to homeowners associations, the HIGC shall "exercise all the
powers, authorities and responsibilities that are vested on the Securities and Exchange Commission . . . , the
provision of Act 1459, as amended by P.D. 902-A, to the contrary notwithstanding." 23
WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned Decision of the Court
of Appeals AFFIRMED. This Decision is immediately executory. Costs against petitioner.
SO ORDERED.
G.R. No. 117604 March 26, 1997

8
CHINA BANKING CORPORATION, petitioner,
vs.
COURT OF APPEALS, and VALLEY GOLF and COUNTRY CLUB, INC., respondents.

KAPUNAN, J.:
Through a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner China Banking
Corporation seeks the reversal of the decision of the Court of Appeals dated 15 August 1994 nullifying the Securities
and Exchange Commission's order and resolution dated 4 June 1993 and 7 December 1993, respectively, for lack of
jurisdiction. Similarly impugned is the Court of Appeals' resolution dated 4 September 1994 which denied petitioner's
motion for reconsideration.
The case unfolds thus:
On 21 August 1974, Galicano Calapatia, Jr. (Calapatia, for brevity) a stockholder of private respondent Valley Golf &
Country Club, Inc. (VGCCI, for brevity), pledged his Stock Certificate No. 1219 to petitioner China Banking
Corporation (CBC, for brevity). 1
On 16 September 1974, petitioner wrote VGCCI requesting that the aforementioned pledge agreement be recorded in
its books. 2
In a letter dated 27 September 1974, VGCCI replied that the deed of pledge executed by Calapatia in petitioner's
favor was duly noted in its corporate books. 3
On 3 August 1983, Calapatia obtained a loan of P20,000.00 from petitioner, payment of which was secured by the
aforestated pledge agreement still existing between Calapatia and petitioner. 4
Due to Calapatia's failure to pay his obligation, petitioner, on 12 April 1985, filed a petition for extrajudicial foreclosure
before Notary Public Antonio T. de Vera of Manila, requesting the latter to conduct a public auction sale of the pledged
stock. 5
On 14 May 1985, petitioner informed VGCCI of the above-mentioned foreclosure proceedings and requested that the
pledged stock be transferred to its (petitioner's) name and the same be recorded in the corporate books. However, on
15 July 1985, VGCCI wrote petitioner expressing its inability to accede to petitioner's request in view of Calapatia's
unsettled accounts with the club. 6
Despite the foregoing, Notary Public de Vera held a public auction on 17 September 1985 and petitioner emerged as
the highest bidder at P20,000.00 for the pledged stock. Consequently, petitioner was issued the corresponding
certificate of sale. 7
On 21 November 1985, VGCCI sent Calapatia a notice demanding full payment of his overdue account in the amount
of P18,783.24. 8 Said notice was followed by a demand letter dated 12 December 1985 for the same amount 9and
another notice dated 22 November 1986 for P23,483.24. 10
On 4 December 1986, VGCCI caused to be published in the newspaper Daily Express a notice of auction sale of a
number of its stock certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's own
share of stock (Stock Certificate No. 1219).
Through a letter dated 15 December 1986, VGCCI informed Calapatia of the termination of his membership due to the
sale of his share of stock in the 10 December 1986 auction. 11

9
On 5 May 1989, petitioner advised VGCCI that it is the new owner of Calapatia's Stock Certificate No. 1219 by virtue
of being the highest bidder in the 17 September 1985 auction and requested that a new certificate of stock be issued
in its name. 12
On 2 March 1990, VGCCI replied that "for reason of delinquency" Calapatia's stock was sold at the public auction held
on 10 December 1986 for P25,000.00. 13
On 9 March 1990, petitioner protested the sale by VGCCI of the subject share of stock and thereafter filed a case with
the Regional Trial Court of Makati for the nullification of the 10 December 1986 auction and for the issuance of a new
stock certificate in its name. 14
On 18 June 1990, the Regional Trial Court of Makati dismissed the complaint for lack of jurisdiction over the subject
matter on the theory that it involves an intra-corporate dispute and on 27 August 1990 denied petitioner's motion for
reconsideration.
On 20 September 1990, petitioner filed a complaint with the Securities and Exchange Commission (SEC) for the
nullification of the sale of Calapatia's stock by VGCCI; the cancellation of any new stock certificate issued pursuant
thereto; for the issuance of a new certificate in petitioner's name; and for damages, attorney's fees and costs of
litigation.
On 3 January 1992, SEC Hearing Officer Manuel P. Perea rendered a decision in favor of VGCCI, stating in the main
that "(c)onsidering that the said share is delinquent, (VGCCI) had valid reason not to transfer the share in the name
of the petitioner in the books of (VGCCI) until liquidation of
delinquency." 15 Consequently, the case was dismissed. 16
On 14 April 1992, Hearing Officer Perea denied petitioner's motion for reconsideration.

17

Petitioner appealed to the SEC en banc and on 4 June 1993, the Commission issued an order reversing the decision of
its hearing officer. It declared thus:
The Commission en banc believes that appellant-petitioner has a prior right over the pledged share
and because of pledgor's failure to pay the principal debt upon maturity, appellant-petitioner can
proceed with the foreclosure of the pledged share.
WHEREFORE, premises considered, the Orders of January 3, 1992 and April 14, 1992 are hereby SET
ASIDE. The auction sale conducted by appellee-respondent Club on December 10, 1986 is declared
NULL and VOID. Finally, appellee-respondent Club is ordered to issue another membership certificate
in the name of appellant-petitioner bank.
SO ORDERED.

18

VGCCI sought reconsideration of the abovecited order. However, the SEC denied the same in its resolution dated 7
December 1993. 19
The sudden turn of events sent VGCCI to seek redress from the Court of Appeals. On 15 August 1994, the Court of
Appeals rendered its decision nullifying and setting aside the orders of the SEC and its hearing officer on ground of
lack of jurisdiction over the subject matter and, consequently, dismissed petitioner's original complaint. The Court of
Appeals declared that the controversy between CBC and VGCCI is not intra-corporate. It ruled as follows:
In order that the respondent Commission 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 in so far

10
as its franchise, permit or license to operate is concerned, and (d) among the stockholders, partners
or associates themselves (Union Glass and Container Corporation vs. SEC, November 28, 1983, 126
SCRA 31). The establishment of any of the relationship mentioned will not necessarily always confer
jurisdiction over the dispute on the Securities and Exchange Commission to the exclusion of the
regular courts. The statement made in Philex Mining Corp. vs. Reyes, 118 SCRA 602, 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 (Viray vs. Court of Appeals,
November 9, 1990, 191 SCRA 308, 322-323).
Indeed, the controversy between petitioner and respondent bank which involves ownership of the
stock that used to belong to Calapatia, Jr. is not within the competence of respondent Commission to
decide. It is not any of those mentioned in the aforecited case.
WHEREFORE, the decision dated June 4, 1993, and order dated December 7, 1993 of respondent
Securities and Exchange Commission (Annexes Y and BB, petition) and of its hearing officer dated
January 3, 1992 and April 14, 1992 (Annexes S and W, petition) are all nullified and set aside for lack
of jurisdiction over the subject matter of the case. Accordingly, the complaint of respondent China
Banking Corporation (Annex Q, petition) is DISMISSED. No pronouncement as to costs in this
instance.
SO ORDERED.

20

Petitioner moved for reconsideration but the same was denied by the Court of Appeals in its resolution dated 5
October 1994. 21
Hence, this petition wherein the following issues were raised:
II
ISSUES
WHETHER OR NOT RESPONDENT COURT OF APPEALS (Former Eighth Division) GRAVELY ERRED
WHEN:
1. IT NULLIFIED AND SET ASIDE THE DECISION DATED JUNE 04, 1993 AND ORDER DATED
DECEMBER 07, 1993 OF THE SECURITIES AND EXCHANGE COMMISSION EN BANC, AND WHEN IT
DISMISSED THE COMPLAINT OF PETITIONER AGAINST RESPONDENT VALLEY GOLF ALL FOR LACK OF
JURISDICTION OVER THE SUBJECT MATTER OF THE CASE;
2. IT FAILED TO AFFIRM THE DECISION OF THE SECURITIES AND EXCHANGE COMMISSIONEN
BANC DATED JUNE 04, 1993 DESPITE PREPONDERANT EVIDENCE SHOWING THAT PETITIONER IS
THE LAWFUL OWNER OF MEMBERSHIP CERTIFICATE NO. 1219 FOR ONE SHARE OF RESPONDENT
VALLEY GOLF.
The petition is granted.
The basic issue we must first hurdle is which body has jurisdiction over the controversy, the regular courts or the SEC.
P. D. No. 902-A conferred upon the SEC the following pertinent powers:
Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations,
partnerships or associations, who are the grantees of primary franchises and/or a license or permit

11
issued by the government to operate in the Philippines, and in the exercise of its authority, it shall
have the power to enlist the aid and support of and to deputize any and all enforcement agencies of
the government, civil or military as well as any private institution, corporation, firm, association or
person.
xxx xxx xxx
Sec. 5. 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 and exclusive jurisdiction to
hear and decide cases involving:
a) Devices or schemes employed by or any acts of the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which
may be detrimental to the interest of the public and/or of the stockholders, partners,
members of associations or organizations registered with the Commission.
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;
c) Controversies in the election or appointment of directors, trustees, officers, or
managers of such corporations, partnerships or associations.
d) Petitions of corporations, partnerships or associations to be declared in the state of
suspension of payments in cases where the corporation, partnership or association
possesses property to cover all of its debts but foresees the impossibility of meeting
them when they respectively fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities, but is under the Management
Committee created pursuant to this Decree.
The aforecited law was expounded upon in Viray v. CA
Co., Inc.v. Movilla 23 and Bernardo v. CA, 24 thus:

22

and in the recent cases of Mainland Construction

. . . .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.
Applying the foregoing principles in the case at bar, to ascertain which tribunal has jurisdiction we have to determine
therefore whether or not petitioner is a stockholder of VGCCI and whether or not the nature of the controversy
between petitioner and private respondent corporation is intra-corporate.
As to the first query, there is no question that the purchase of the subject share or membership certificate at public
auction by petitioner (and the issuance to it of the corresponding Certificate of Sale) transferred ownership of the
same to the latter and thus entitled petitioner to have the said share registered in its name as a member of VGCCI. It
is readily observed that VGCCI did not assail the transfer directly and has in fact, in its letter of 27 September 1974,
expressly recognized the pledge agreement executed by the original owner, Calapatia, in favor of petitioner and has
even noted said agreement in its corporate books. 25 In addition, Calapatia, the original owner of the subject share,
has not contested the said transfer.

12
By virtue of the afore-mentioned sale, petitioner became a bona fide stockholder of VGCCI and, therefore, the conflict
that arose between petitioner and VGCCI aptly exemplies an intra-corporate controversy between a corporation and
its stockholder under Sec. 5(b) of P.D. 902-A.
An important consideration, moreover, is the nature of the controversy between petitioner and private respondent
corporation. VGCCI claims a prior right over the subject share anchored mainly on Sec. 3, Art VIII of its by-laws which
provides that "after a member shall have been posted as delinquent, the Board may order his/her/its share sold to
satisfy the claims of the Club. . ." 26 It is pursuant to this provision that VGCCI also sold the subject share at public
auction, of which it was the highest bidder. VGCCI caps its argument by asserting that its corporate by-laws should
prevail. The bone of contention, thus, is the proper interpretation and application of VGCCI's aforequoted by-laws, a
subject which irrefutably calls for the special competence of the SEC.
We reiterate herein the sound policy enunciated by the Court in Abejo v. De la Cruz

27

6. In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative
commissions and boards the power to resolve specialized disputes in the field of labor (as in
corporations, public transportation and public utilities) ruled that Congress in requiring the Industrial
Court's intervention in the resolution of labor-management controversies likely to cause strikes or
lockouts meant such jurisdiction to be exclusive, although it did not so expressly state in the law. The
Court held that under the "sense-making and expeditious doctrine of primary jurisdiction . . . the
courts cannot or will not determine a controversy involving a question which is within the jurisdiction
of an administrative tribunal, where the question demands the exercise of sound administrative
discretion requiring the special knowledge, experience, and services of the administrative tribunal to
determine technical and intricate matters of fact, and a uniformity of ruling is essential to comply with
the purposes of the regulatory statute administered.
In this era of clogged court dockets, the need for specialized administrative boards or commissions
with the special knowledge, experience and capability to hear and determine promptly disputes on
technical matters or essentially factual matters, subject to judicial review in case of grave abuse of
discretion, has become well nigh indispensable. Thus, in 1984, the Court noted that "between the
power lodged in an administrative body and a court, the unmistakable trend has been to refer it to the
former. 'Increasingly, this Court has been committed to the view that unless the law speaks clearly
and unequivocably, the choice should fall on [an administrative agency.]'" The Court in the earlier case
of Ebon v. De Guzman, noted that the lawmaking authority, in restoring to the labor arbiters and the
NLRC their jurisdiction to award all kinds of damages in labor cases, as against the previous P.D.
amendment splitting their jurisdiction with the regular courts, "evidently, . . . had second thoughts
about depriving the Labor Arbiters and the NLRC of the jurisdiction to award damages in labor cases
because that setup would mean duplicity of suits, splitting the cause of action and possible conflicting
findings and conclusions by two tribunals on one and the same claim."
In this case, the need for the SEC's technical expertise cannot be over-emphasized involving as it does the meticulous
analysis and correct interpretation of a corporation's by-laws as well as the applicable provisions of the Corporation
Code in order to determine the validity of VGCCI's claims. The SEC, therefore, took proper cognizance of the instant
case.
VGCCI further contends that petitioner is estopped from denying its earlier position, in the first complaint it filed with
the RTC of Makati (Civil Case No. 90-1112) that there is no intra-corporate relations between itself and VGCCI.
VGCCI's contention lacks merit.
In Zamora v. Court of Appeals,

28

this Court, through Mr. Justice Isagani A. Cruz, declared that:

It follows that as a rule the filing of a complaint with one court which has no jurisdiction over it does
not prevent the plaintiff from filing the same complaint later with the competent court. The plaintiff is

13
not estopped from doing so simply because it made a mistake before in the choice of the proper
forum. . . .
We remind VGCCI that in the same proceedings before the RTC of Makati, it categorically stated (in its motion to
dismiss) that the case between itself and petitioner is intra-corporate and insisted that it is the SEC and not the
regular courts which has jurisdiction. This is precisely the reason why the said court dismissed petitioner's complaint
and led to petitioner's recourse to the SEC.
Having resolved the issue on jurisdiction, instead of remanding the whole case to the Court of Appeals, this Court
likewise deems it procedurally sound to proceed and rule on its merits in the same proceedings.
It must be underscored that petitioner did not confine the instant petition for review on certiorari on the issue of
jurisdiction. In its assignment of errors, petitioner specifically raised questions on the merits of the case. In turn, in its
responsive pleadings, private respondent duly answered and countered all the issues raised by petitioner.
Applicable to this case is the principle succinctly enunciated in the case of Heirs of Crisanta Y. Gabriel-Almoradie
v. Court of Appeals, 29 citing Escudero v. Dulay 30 and The Roman Catholic Archbishop of Manila v. Court of Appeals.

31

In the interest of the public and for the expeditious administration of justice the issue on infringement
shall be resolved by the court considering that this case has dragged on for years and has gone from
one forum to another.
It is a rule of procedure for the Supreme Court to strive to settle the entire controversy in a single
proceeding leaving no root or branch to bear the seeds of future litigation. No useful purpose will be
served if a case or the determination of an issue in a case is remanded to the trial court only to have
its decision raised again to the Court of Appeals and from there to the Supreme Court.
We have laid down the rule that the remand of the case or of an issue to the lower court for further
reception of evidence is not necessary where the Court is in position to resolve the dispute based on
the records before it and particularly where the ends of justice would not be subserved by the remand
thereof. Moreover, the Supreme Court is clothed with ample authority to review matters, even those
not raised on appeal if it finds that their consideration is necessary in arriving at a just disposition of
the case.
In the recent case of China Banking Corp., et al. v. Court of Appeals, et al.,
Francisco, ruled in this wise:

32

this Court, through Mr. Justice Ricardo J.

At the outset, the Court's attention is drawn to the fact that since the filing of this suit before the trial
court, none of the substantial issues have been resolved. To avoid and gloss over the issues raised by
the parties, as what the trial court and respondent Court of Appeals did, would unduly prolong this
litigation involving a rather simple case of foreclosure of mortgage. Undoubtedly, this will run counter
to the avowed purpose of the rules, i.e., to assist the parties in obtaining just, speedy and inexpensive
determination of every action or proceeding. The Court, therefore, feels that the central issues of the
case, albeit unresolved by the courts below, should now be settled specially as they involved pure
questions of law. Furthermore, the pleadings of the respective parties on file have amply ventilated
their various positions and arguments on the matter necessitating prompt adjudication.
In the case at bar, since we already have the records of the case (from the proceedings before the SEC) sufficient to
enable us to render a sound judgment and since only questions of law were raised (the proper jurisdiction for
Supreme Court review), we can, therefore, unerringly take cognizance of and rule on the merits of the case.
The procedural niceties settled, we proceed to the merits.

14
VGCCI assails the validity of the pledge agreement executed by Calapatia in petitioner's favor. It contends that the
same was null and void for lack of consideration because the pledge agreement was entered into on 21 August
1974 33 but the loan or promissory note which it secured was obtained by Calapatia much later or only on 3 August
1983.34
VGCCI's contention is unmeritorious.
A careful perusal of the pledge agreement will readily reveal that the contracting parties explicitly stipulated therein
that the said pledge will also stand as security for any future advancements (or renewals thereof) that Calapatia (the
pledgor) may procure from petitioner:
xxx xxx xxx
This pledge is given as security for the prompt payment when due of all loans, overdrafts, promissory
notes, drafts, bills or exchange, discounts, and all other obligations of every kind which have
heretofore been contracted, or which may hereafter be contracted, by the PLEDGOR(S) and/or
DEBTOR(S) or any one of them, in favor of the PLEDGEE, including discounts of Chinese drafts, bills of
exchange, promissory notes, etc., without any further endorsement by the PLEDGOR(S) and/or
Debtor(s) up to the sum of TWENTY THOUSAND (P20,000.00) PESOS, together with the accrued
interest thereon, as hereinafter provided, plus the costs, losses, damages and expenses (including
attorney's fees) which PLEDGEE may incur in connection with the collection thereof. 35 (Emphasis
ours.)
The validity of the pledge agreement between petitioner and Calapatia cannot thus be held suspect by VGCCI. As
candidly explained by petitioner, the promissory note of 3 August 1983 in the amount of P20,000.00 was but a
renewal of the first promissory note covered by the same pledge agreement.
VGCCI likewise insists that due to Calapatia's failure to settle his delinquent accounts, it had the right to sell the share
in question in accordance with the express provision found in its by-laws.
Private respondent's insistence comes to naught. It is significant to note that VGCCI began sending notices of
delinquency to Calapatia after it was informed by petitioner (through its letter dated 14 May 1985) of the foreclosure
proceedings initiated against Calapatia's pledged share, although Calapatia has been delinquent in paying his monthly
dues to the club since 1975. Stranger still, petitioner, whom VGCCI had officially recognized as the pledgee of
Calapatia's share, was neither informed nor furnished copies of these letters of overdue accounts until VGCCI itself
sold the pledged share at another public auction. By doing so, VGCCI completely disregarded petitioner's rights as
pledgee. It even failed to give petitioner notice of said auction sale. Such actuations of VGCCI thus belie its claim of
good faith.
In defending its actions, VGCCI likewise maintains that petitioner is bound by its by-laws. It argues in this wise:
The general rule really is that third persons are not bound by the by-laws of a corporation since they
are not privy thereto (Fleischer v. Botica Nolasco, 47 Phil. 584). The exception to this is when third
persons have actual or constructive knowledge of the same. In the case at bar, petitioner had actual
knowledge of the by-laws of private respondent when petitioner foreclosed the pledge made by
Calapatia and when petitioner purchased the share foreclosed on September 17, 1985. This is proven
by the fact that prior thereto, i.e., on May 14, 1985 petitioner even quoted a portion of private
respondent's by-laws which is material to the issue herein in a letter it wrote to private respondent.
Because of this actual knowledge of such by-laws then the same bound the petitioner as of the time
when petitioner purchased the share. Since the by-laws was already binding upon petitioner when the
latter purchased the share of Calapatia on September 17, 1985 then the petitioner purchased the said
share subject to the right of the private respondent to sell the said share for reasons of delinquency
and the right of private respondent to have a first lien on said shares as these rights are provided for
in the by-laws very very clearly. 36

15
VGCCI misunderstood the import of our ruling in Fleischer v. Botica Nolasco Co.:

37

And moreover, the by-law now in question cannot have any effect on the appellee. He had no
knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and
for a valuable consideration. He was not a privy to the contract created by said by-law between the
shareholder Manuel Gonzales and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his
rights as a purchaser.
An unauthorized by-law forbidding a shareholder to sell his shares without first offering them to the
corporation for a period of thirty days is not binding upon an assignee of the stock as a personal
contract, although his assignor knew of the by-law and took part in its adoption. (10 Cyc., 579;
Ireland vs. Globe Milling Co., 21 R.I., 9.)
When no restriction is placed by public law on the transfer of corporate stock, a purchaser is not
affected by any contractual restriction of which he had no notice. (Brinkerhoff-Farris Trust & Savings
Co. vs. Home Lumber Co., 118 Mo., 447.)
The assignment of shares of stock in a corporation by one who has assented to an unauthorized bylaw has only the effect of a contract by, and enforceable against, the assignor; the assignee is not
bound by such by-law by virtue of the assignment alone. (Ireland vs. Globe Milling Co., 21 R.I., 9.)
A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by
the board of directors, while it may be enforced as a reasonable regulation for the protection of the
corporation against worthless stockholders, cannot be made available to defeat the rights of third
persons. (Farmers' and Merchants' Bank of Lineville vs. Wasson, 48 Iowa, 336.) (Emphasis ours.)
In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the
transaction or agreement between said third party and the shareholder was entered into, in this case, at the time the
pledge agreement was executed. VGCCI could have easily informed petitioner of its by-laws when it sent notice
formally recognizing petitioner as pledgee of one of its shares registered in Calapatia's name. Petitioner's belated
notice of said by-laws at the time of foreclosure will not suffice. The ruling of the SEC en banc is particularly
instructive:
By-laws signifies the rules and regulations or private laws enacted by the corporation to regulate,
govern and control its own actions, affairs and concerns and its stockholders or members and directors
and officers with relation thereto and among themselves in their relation to it. In other words, by-laws
are the relatively permanent and continuing rules of action adopted by the corporation for its own
government and that of the individuals composing it and having the direction, management and
control of its affairs, in whole or in part, in the management and control of its affairs and activities. (9
Fletcher 4166, 1982 Ed.)
The purpose of a by-law is to regulate the conduct and define the duties of the members towards the
corporation and among themselves. They are self-imposed and, although adopted pursuant to
statutory authority, have no status as public law. (Ibid.)
Therefore, it is the generally accepted rule that third persons are not bound by by-laws, except when
they have knowledge of the provisions either actually or constructively. In the case of Fleisher v.Botica
Nolasco, 47 Phil. 584, the Supreme Court held that the by-law restricting the transfer of shares cannot
have any effect on the transferee of the shares in question as he "had no knowledge of such by-law
when the shares were assigned to him. He obtained them in good faith and for a valuable
consideration. He was not a privy to the contract created by the by-law between the
shareholder . . .and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his right as a
purchaser. (Emphasis supplied.)

16
By analogy of the above-cited case, the Commission en banc is of the opinion that said case is
applicable to the present controversy. Appellant-petitioner bank as a third party can not be bound by
appellee-respondent's by-laws. It must be recalled that when appellee-respondent communicated to
appellant-petitioner bank that the pledge agreement was duly noted in the club's books there was no
mention of the shareholder-pledgor's unpaid accounts. The transcript of stenographic notes of the
June 25, 1991 Hearing reveals that the pledgor became delinquent only in 1975. Thus, appellantpetitioner was in good faith when the pledge agreement was contracted.
The Commission en banc also believes that for the exception to the general accepted rule that third
persons are not bound by by-laws to be applicable and binding upon the pledgee, knowledge of the
provisions of the VGCI By-laws must be acquired at the time the pledge agreement was contracted.
Knowledge of said provisions, either actual or constructive, at the time of foreclosure will not affect
pledgee's right over the pledged share. Art. 2087 of the Civil Code provides that it is also of the
essence of these contracts that when the principal obligation becomes due, the things in which the
pledge or mortgage consists maybe alienated for the payment to the creditor.
In a letter dated March 10, 1976 addressed to Valley Golf Club, Inc., the Commission issued an
opinion to the effect that:
According to the weight of authority, the pledgee's right is entitled to full protection
without surrender of the certificate, their cancellation, and the issuance to him of new
ones, and when done, the pledgee will be fully protected against a subsequent
purchaser who would be charged with constructive notice that the certificate is
covered by the pledge. (12-A Fletcher 502)
The pledgee is entitled to retain possession of the stock until the pledgor pays or
tenders to him the amount due on the debt secured. In other words, the pledgee has
the right to resort to its collateral for the payment of the debts. (Ibid, 502)
To cancel the pledged certificate outright and the issuance of new certificate to a third
person who purchased the same certificate covered by the pledge, will certainly defeat
the right of the pledgee to resort to its collateral for the payment of the debt. The
pledgor or his representative or registered stockholders has no right to require a
return of the pledged stock until the debt for which it was given as security is paid and
satisfied, regardless of the length of time which have elapsed since debt was created.
(12-A Fletcher 409)
A bona fide pledgee takes free from any latent or secret equities or liens in favor either of the
corporation or of third persons, if he has no notice thereof, but not otherwise. He also takes it free of
liens or claims that may subsequently arise in favor of the corporation if it has notice of the pledge,
although no demand for a transfer of the stock to the pledgee on the corporate books has been made.
(12-A Fletcher 5634, 1982 ed., citing Snyder v. Eagle Fruit Co., 75 F2d739) 38
Similarly, VGCCI's contention that petitioner is duty-bound to know its by-laws because of Art. 2099 of the Civil Code
which stipulates that the creditor must take care of the thing pledged with the diligence of a good father of a family,
fails to convince. The case of Cruz & Serrano v. Chua A. H. Lee, 39 is clearly not applicable:
In applying this provision to the situation before us it must be borne in mind that the ordinary pawn
ticket is a document by virtue of which the property in the thing pledged passes from hand to hand by
mere delivery of the ticket; and the contract of the pledge is, therefore, absolvable to bearer. It results
that one who takes a pawn ticket in pledge acquires domination over the pledge; and it is the holder
who must renew the pledge, if it is to be kept alive.

17
It is quite obvious from the aforequoted case that a membership share is quite different in character from a
pawn ticket and to reiterate, petitioner was never informed of Calapatia's unpaid accounts and the restrictive
provisions in VGCCI's by-laws.
Finally, Sec. 63 of the Corporation Code which provides that "no shares of stock against which the corporation holds
any unpaid claim shall be transferable in the books of the corporation" cannot be utilized by VGCCI. The term "unpaid
claim" refers to "any unpaid claim arising from unpaid subscription, and not to any indebtedness which a subscriber or
stockholder may owe the corporation arising from any other transaction." 40 In the case at bar, the subscription for the
share in question has been fully paid as evidenced by the issuance of Membership Certificate No. 1219. 41 What
Calapatia owed the corporation were merely the monthly dues. Hence, the aforequoted provision does not apply.
WHEREFORE, premises considered, the assailed decision of the Court of Appeals is REVERSED and the order of the
SEC en banc dated 4 June 1993 is hereby AFFIRMED.
SO ORDERED.
G.R. No. 121791 December 23, 1998
ENRIQUE SALAFRANCA, petitioner,
vs.
PHILAMLIFE (PAMPLONA) VILLAGE HOMEOWNERS ASSOCIATION, INC., BONIFACIO DAZO and THE
SECOND DIVISION, NATIONAL LABOR RELATIONS COMMISSION (NLRC), respondents.

ROMERO, J.:
Petitioner Enrique Salafranca started working with the private respondent Philamlife Village Homeowners Association
on May 1, 1981 as administrative officer for a period of six months. From this date until December 31, 1983,
petitioner was reappointed to his position three more times. 1 As administrative officer, petitioner was generally
responsible for the management of the village's day to day activities. 2 After petitioner's term of employment expired
on December 31, 1983, he still continued to work in the same capacity, albeit, without the benefit of a renewed
contract.
Sometime in 1987, private respondent decided to amend its by-laws. Included therein was a provision regarding
officers, specifically, the position of administrative officer under which said officer shall hold office at the pleasure of
the Board of Directors. In view of this development, private respondent, on July 3, 1987, informed the petitioner that
his term of office shall be coterminus with the Board of Directors which appointed him to his position. Furthermore,
until he submits a medical certificate showing his state of health, his employment shall be on a month-to-month
basis. 3 Oddly, notwithstanding the failure of herein petitioner to submit his medical certificate, he continued working
until his termination in December 1992. 4 Claiming that his services had been unlawfully and unceremoniously
dispensed with, petitioner filed a complaint for illegal dismissal with money claims and for damages. 5
After the submission by the parties of their respective position papers and other pleadings, the Labor Arbiter rendered
a decision 6 ordering private respondent to pay the petitioner the amount of P257,833.33 representing his backwages,
separation pay and 13th month pay. In justifying the award, the Labor Arbiter elucidated:
Respondents' contention that complainant's term of employment was co-terminus with the term of
Office of the Board of Directors, is wanting in merit. Records show that complainant had been hired in
1981 while the Amendment of the respondents' By-Laws making the position of an Administrative
Officer co-terminus with the term of the Board of Directors was made in 1987. Evidently, the said
Amendment would not be applicable to the case of complainant who had become a regular employee
long time before the Amendment took place. Moreover, the Amendment should be applied
prospectively and not retroactively.

18
On appeal by the private respondent, the NLRC reversed the decision of the Labor Arbiter and rendered a new
one 7 reducing petitioner's monetary award to only one-half (1/2) month pay for every year of service representing his
retirement pay. In other words, the NLRC viewed the dismissal of the petitioner as a valid act by the private
respondent.
The fact that he continued to perform the function of the office of administrative officer without
extension or re-appointment thereafter, to our mind, did not in any way make his employment
permanent as in fact, he was even reminded of the nature of his position by then president of the
association Jaime Y. Ladao in a letter of 3 July 1987. His reply to the aforesaid letter, claiming his
employment regular, and viz a viz, referring to submit his medical certificate, notwithstanding, to our
mind, merely underscored the need to define his position as, in fact, the Association's Rules and
Regulations were amended if but to put to rest the tenural (sic) limit of the office of the Administrative
Officer in accordance with its earlier intention, that it is co-terminus with that of the members of the
Board of Directors.
WHEREFORE, the decision appealed from is hereby set aside. Respondents are hereby ordered to pay
herein appellee one half (1/2) month pay for every year of service representing his retirement pay.
In view of the sudden turn of events, petitioner has elevated the case to this Court assigning the following errors: 8
1. The NLRC gravely abused its discretion when it ruled that the employment of the Petitioner is not
purely based on considerations of Employer-Employee relationship.
2. Petitioner was illegally dismissed by private respondents.
As to the first assigned error by the petitioner, we need not dwell on this at length. We agree with the Solicitor
General's observation that an employer-employee relationship exists between the petitioner and the private
respondent. 9
xxx xxx xxx
The first element is present in this case. Petitioner was hired as Administrative Officer by respondents.
In fact, he was extended successive appointments by respondents.
The second element is also present since it is not denied that respondent PVHA paid petitioner a fixed
salary for his services.
As to the third element, it can be seen from the Records that respondents had the power of dismissal
over petitioner. In their letter dated December 7, 1992, respondents informed petitioner that they had
decided to discontinue his services. In their Position Paper submitted to the Labor Arbiter, respondents
stated that petitioner "was dismissed for cause." (p. 17, Record).
With respect to the fourth and most important element, respondents controlled the work of petitioner
not only with respect to the ends to be achieved but also the means used in reaching such ends.
Relative to the second assigned error of the petitioner, both the Solicitor General and the private respondent take the
stance that petitioner was not illegally dismissed. 10 On this aspect, we disagree with their contentions.
On the outset, there is no dispute that petitioner had already attained the status of a regular employee, as evidenced
by his eleven years of service with the private respondent. Accordingly, petitioner enjoys the right to security of
tenure 11 and his services may be terminated only for causes provided by law. 12

19
Viewed in this light, while private respondent has the right to terminate the services of petitioner, this is subject to
both substantive and procedural grounds. 13 The substantive causes for dismissal are those provided in Articles 282
and 283 of the, Labor Code, 14 while the procedural grounds refer to the observance of the requirement of due
process. 15In all these instances, it is the private respondent, being the employer, who must prove the validity of the
dismissal. 16
Having reviewed the records of this case carefully, we conclude that private respondent utterly failed to substantiate
petitioner's dismissal, rendering the latter's termination illegal. At the risk of being redundant, it must be stressed that
these requirements are mandatory and non-compliance therewith renders any judgment reached by the management
void and inexistent. 17
While private respondent imputes "gross negligence," and "serious misconduct" as the causes of petitioner's
dismissal, 18 not a shred of evidence was offered in support thereof, other than bare and uncorroborated allegations.
The facts and circumstances regarding such alleged infractions were never explained, While it is true that private
respondent, through its president Bonifacio Dazo, executed an affidavit narrating the alleged violations of the
petitioner, 19 these were never corroborated by concrete or competent evidence. It is settled that no undue importance
should be given to a sworn statement or affidavit as a piece of evidence because, being taken ex-parte, an affidavit is
almost always incomplete and inaccurate. 20 Furthermore, it must be noted that when petitioner was terminated in
1992, these alleged infractions were never raised nor communicated to him. In fact, these were only revealed after
the complaint was filed by the petitioner in 1993. Why there was a delay was never adequately explained by private
respondent.
Likewise, we note that Dazo himself was not presented as a witness to give the petitioner an opportunity to crossexamine him and propound clarificatory questions regarding matters averred in his affidavit. All told, the foregoing
lapses and the belated submission of the affidavit, cast doubt as to the credibility of the allegations. In sum, the
dismissal of the petitioner had no factual basis whatsoever. The rule is that unsubstantiated accusations without more,
are not tantamount to guilt. 21
As regards the issue of procedural due process, private respondent justifies its non-compliance therewith in this wise:
The Association Officers, being his peers and friends had a problem however in terminating his
services. He had been found to have committed infractions as previously enumerated. PVHA could
have proceeded with a full-blown investigation to hear these charges, but the ordeal might break the
old man's heart as this will surely affect his standing in the community. So they decided to make their
move as discreetly (but legally) as possible to save the petitioner's reputation. Terminating him in
accordance with the provision of the by-laws of the Association without pointing out his numerous
faults and malfeasance in office and with one-half month pay for every year of service in accordance
with the Retirement Law was the best and only alternative.
We are not impressed. The reasoning advanced by the private respondent is as puerile as it is preposterous.
The essence of due process is to afford the party an opportunity to be heard and defend himself, to cleanse his name
and reputation from any taint. It includes the twin requirements of notice and hearing. 22 This concept evolved from
the basic tenet that one's employment or profession is a property right protected by the constitutional guaranty of due
process of law. 23 Hence, an individual's separation from work must be founded on clearly-established facts, not on
mere conjectures and suspicions. 24
In light of the foregoing, private respondent's arguments are clearly baseless and without merit. In truth, instead of
protecting petitioner's reputation, private respondent succeeded in doing exactly the opposite it condemned the
petitioner without even hearing his side. It is stating the obvious that dismissal, being the ultimate penalty that can be
meted out to an employee, should be based on a clear or convincing ground. 25 As such, a decision to terminate an
employee without fully apprising him of the facts, on the pretext that the twin requirements of notice and hearing are
unnecessary or useless, is an invalid and obnoxious exercise of management prerogative.

20
Furthermore, private respondent, in an effort to validate the dismissal of the petitioner, posits the theory that the
latter's position is coterminus with that of the Village's Board of Directors, as provided for in its amended by-laws. 26
Admittedly, the right to amend the by-laws lies solely in the discretion of the employer, this being in the exercise of
management prerogative or business judgment. However this right, extensive as it may be, cannot impair the
obligation of existing contracts or rights.
Prescinding from these premises, private respondent's insistence that it can legally dismiss petitioner on the ground
that his tenure has expired is untenable. To reiterate, petitioner, being a regular employee, is entitled to security of
tenure, hence, his services may only be terminated for causes provided by law. 27 A contrary interpretation would not
find justification in the laws or the Constitution. If we were to rule otherwise, it would enable an employer to remove
any employee from his employment by the simple expediency of amending its by-laws and providing that his/her
position shall cease to exist upon the occurrence of a specified event.
If private respondent wanted to make the petitioner's position co-terminus with that of the Board of Directors, then
the amendment must be effective after petitioner's stay with the private respondent, not during his term. Obviously,
the measure taken by the private respondent in amending its by-laws is nothing but a devious, but crude, attempt to
circumvent petitioner's right to security of tenure as a regular employee guaranteed under the Labor Code. 28
Interestingly, the Solicitor General is of the view that what actually transpired was that petitioner was retired from his
employment, considering the fact that in 1992 he was already 70 years old and not terminated. 29
While there seems to be a semblance of plausibility in this contention for the matter of extension of service of such
employee or official is addressed to the sound discretion of the employer, still we have no doubt that this was just a
mere after-thought a dismissal disguised as retirement.
In the proceedings before the Labor Arbiter, it is noteworthy that private respondent never raised the issue of
compulsory retirement, 30 as a cause for terminating petitioner's service. In its appeal before the NLRC, this ground
was never discussed. In fact, private respondent, in justifying the termination of the petitioner, still anchored its claim
on the applicability of the amended by-laws. This omission is fatal to private respondent's cause, for the rule is wellsettled that matters, theories or arguments not brought out in the proceedings below will ordinarily not be considered
by a reviewing court, as they cannot be raised for the first time on appeal. 31
Undaunted, private respondent now asserts that the instant petition was filed out of time, 32 considering that the
assailed NLRC decision was received on June 28, 1995 while this petition was filed on September 20, 1995. At this
juncture, we take this opportunity to state that under the 1997 Rules of Civil Procedure, a petition for certiorari must
now be instituted within sixty days of receipt of the assailed judgment, order or resolution. 33 However, since this case
arose in 1995 and the aforementioned rule only took effect on July 1, 1997 then the old rule is applicable. Since prior
to the effectivity of the new rule, a special civil action of certiorari should be instituted within a period of three
months, 34 the instant petition which was filed on September 20, 1995 or two months and twenty-two days thereafter,
was still within the reglementary period.
With respect to the issue of the monetary award to be given to the petitioner, private respondent argues that he
deserves only retirement pay and nothing more. This position would have been tenable had petitioner not been
illegally dismissed. However, since we have already ruled petitioner's dismissal as without just cause and lacking due
process, the award of backwages and reinstatement is proper. 35
In this particular case, reinstatement is no longer feasible since petitioner was already 70 years old at the time he was
removed from his employment. As a substitute thereof, separation pay is generally awarded, 36 the amount of which
must be equivalent to one-month salary for every year of service. 37
With respect to the amount of backwages which, incidentally is different from separation pay, 38 it now settled that an
illegally dismissed employee is entitled to its full payment as long as the cause of action accrued after March 21,

21
1989.39 Considering that petitioner was terminated from the service on December 9, 1992, which is after March 21,
1989, he is entitled to full backwages from the time of the illegal dismissal without any, qualification or deduction. 40
As regards the issue of retirement pay, private respondent asserts that the correct amount should be one-half (1/2)
month salary for every year of service. This time we agree with private respondent's contention. The pertinent law is
Article 287 of the Labor Code, as amended by Republic Act No. 7641, which reads:
Art. 287. Retirement. Any employee may be retired upon reaching the retirement age established in
the collective bargaining agreement or other applicable employment contract.
In case of retirement, the employee shall he entitled to receive such retirement benefits as he may
have earned under existing laws and any collective bargaining agreement and other
agreements:Provided, however, That an employee's retirement benefits under any collective
bargaining and other agreements shall not be less than those provided herein.
In the absence of a retirement plan or agreement providing for retirement benefits of employees in
the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond
sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least
five (5) years in the said establishment, may retire and shall be entitled to retirement pay equivalent
to at least one-half (1/2) month salary for every year of service, a fraction of al least six (6) months
being considered as one whole year.
xxx xxx xxx
With respect to the issue that petitioner, being a managerial employee, is not entitled to thirteenth month pay,
Memorandum Order No. 28, as implemented by the Revised Guidelines on the Implementation of the 13th Month Pay
Law dated November 16, 1987, provides:
Sec. 1 of Presidential Decree No. 851 is hereby modified to the extent that all employers are hereby
required to pay all their rank and file employees a 13th month pay not later than December 24 of
every year.
Clearly, therefore, the foregoing exempts managerial employees from this benefit. Of course, this does not preclude
an employer from granting other bonuses, in lieu of the 13th month pay, to managerial employees in its discretion.
Finally, we cannot simply ignore private respondent's malicious scheme to remove petitioner from his position which is
contrary to good customs and effected in an oppressive manner, thus warranting an award of moral and exemplary
damages to the petitioner. 41 Moreover, since petitioner was forced to litigate and incur expenses to protect his right
and interests, he is entitled to attorney's fees. 42
WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The NLRC decision dated June 15, 1995 is
hereby REVERSED and SET ASIDE. Private respondent Philamlife Village Homeowners Association is ORDERED: (1) to
pay petitioner Enrique Salafranca separation pay equivalent to one month salary for every year of service; (2) to pay
his full backwages in accordance with our ruling in Bustamante v. NLRC; 43 (3) to pay his retirement pay in accordance
with Article 287 of the Labor Code, as amended by Republic Act No. 7641, (4) to pay moral and exemplary damages
in the amount of twenty thousand (P20,000.00) pesos and ten thousand (P10,000.00) pesos, respectively; 44 and (5)
to pay ten (10%) percent of the total amount due to petitioner, as attorney's fees. Consequently, the respondent
NLRC is ORDERED to COMPUTE the total monetary benefits awarded in accordance with this decision and to submit its
compliance thereon within thirty (30) days from notice of this decision.
SO ORDERED.
G.R. No. 147062-64

December 14, 2001

22
REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG), petitioner,
vs.
COCOFED, ET AL. and BALLARES, ET AL.,1 EDUARDO M. COJUANGCO JR. and the SANDIGANBAYAN (First
Division) respondents.
PANGANIBAN, J.:
The right to vote sequestered shares of stock registered in the names of private individuals or entitles and alleged to
have been acquired with ill-gotten wealth shall, as a rule, be exercised by the registered owner. The PCGG may,
however, be granted such voting right provided in can (1) show prima facie evidence that the wealth and/or the
shares are indeed ill-gotten; and (2) demonstrate imminent danger of dissipation of the assets, thus necessitating
their continued sequestration and voting by the government until a decision, ruling with finality on their ownership, is
promulgated by the proper court.1wphi1.nt
However, the foregoing "two-tiered" test does not apply when the sequestered stocks are acquired with funds that
are prima facie public in character or, at least, are affected with public interest. Inasmuch as the subject UCPB shares
in the present case were undisputably acquired with coco levy funds which are public in character, then the right to
vote them shall be exercised by the PCGG. In sum, the "public character" test, not the "two-tiered" one, applies in the
instant controversy.
The Case
Before us is a Petition for Certiorari with a prayer for the issuance of a temporary restraining order and/or a writ of
preliminary injunction under Rule 65 of the Rules of Court, seeking to set aside the February 28, 2001 Order 2 of the
First Division of the Sandiganbayan3 in Civil Case Nos. 0033-A, 0033-B and 0033-F. The pertinent portions of the
assailed Order read as follows:
"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.
"Since by way of form, the pleadings herein had been labeled as praying for an injunction, the right of the
movants to exercise their right as abovementioned will be subject to the posting of a nominal bond in the
amount of FIFTY THOUSAND PESOS (P50,000.00) jointly for the defendants COCOFED, et al. and Ballares, et
al., as well as all other registered stockholders of sequestered shares in that bank, and FIFTY THOUSAND
PESOS (P50,000.00) for Eduardo Cojuangco, Jr., et al., to answer for any undue damage or injury to the
United Coconut Planters Bank as may be attributed to their exercise of their rights as registered
stockholders."4
The Antecedents
The very roots of this case are anchored on the historic events that transpired during the change of government in
1986. Immediately after the 1986 EDSA Revolution, then President Corazon C. Aquino issued Executive Order (EO)
Nos. 1,5 26 and 14.7
"On the explicit premise that '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,' the Presidential Commission on
Good Government (PCGG) was created by Executive Order No. 1 to assist the President in the recovery of the illgotten wealth thus accumulated whether located in the Philippines or abroad." 8

23
Executive Order No. 2 states that the ill-gotten assets and properties are in the form of bank accounts, deposits, trust
accounts, shares of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other
kinds of real and personal properties in the Philippines and in various countries of the world. 9
Executive Order No. 14, on the other hand, empowered the PCGG, with the assistance of the Office of the Solicitor
General and other government agencies, inter alia, to file and prosecute all cases investigated by it under EO Nos. 1
and 2.
Pursuant to these laws, the PCGG issued and implemented numerous sequestrations, freeze orders and provisional
takeovers of allegedly ill-gotten companies, assets and properties, real or personal. 10
Among the properties sequestered by the Commission were shares of stock in the United Coconut Planters Bank
(UCPB) registered in the names of the alleged "one million coconut farmers," the so-called Coconut Industry
Investment Fund companies (CIIF companies) and Private Respondent Eduardo Cojuangco Jr. (hereinafter
"Cojuangco").
In connection with the sequestration of the said UCPB shares, the PCGG, on July 31, 1987, instituted an action for
reconveyance, reversion, accounting, restitution and damages docketed as Case No. 0033 in the Sandiganbayan.
On November 15, 1990, upon Motion11 of Private Respondent COCOFED, the Sandiganbayan issued a
Resolution12 lifting the sequestration of the subject UCPB shares on the ground that herein private respondents in
particular, COCOFED and the so-called CIIF companies had not been impleaded by the PCGG as parties-defendants
in its July 31, 1987 Complaint for reconveyance, reversion, accounting, restitution and damages. The Sandiganbayan
ruled that the Writ of Sequestration issued by the Commission was automatically lifted for PCGG's failure to commence
the corresponding judicial action within the six-month period ending on August 2, 1987 provided under Section 26,
Article XVIII of the 1987 Constitution. The anti-graft court noted that though these entities were listed in an annex
appended to the Complaint, they had not been named as parties-respondents.
This Sandiganbayan Resolution was challenged by the PCGG in a Petition for Certiorari docketed as GR No. 96073 in
this Court. Meanwhile, upon motion of Cojuangco, the anti-graft court ordered the holding of elections for the Board of
Directors of UCPB. However, the PCGG applied for and was granted by this Court a Restraining Order enjoining the
holding of the election. Subsequently, the Court lifted the Restraining Order and ordered the UCPB to proceed with the
election of its board of directors. Furthermore, it allowed the sequestered shares to be voted by their registered
owners.
The victory of the registered shareholders was fleeting because the Court, acting on the solicitor general's Motion for
Clarification/Manifestation, issued a Resolution on February 16, 1993, declaring that "the right of petitioners [herein
private respondents] to vote stock in their names at the meetings of the UCPB cannot be conceded at this time. That
right still has to be established by them before the Sandiganbayan. Until that is done, they cannot be deemed
legitimate owners of UCPB stock and cannot be accorded the right to vote them." 13 The dispositive portion of the said
Resolution reads as follows:
"IN VIEW OF THE FOREGOING, the Court recalls and sets aside the Resolution dated March 3, 1992 and,
pending resolution on the merits of the action at bar, and until further orders, suspends the effectivity of the
lifting of the sequestration decreed by the Sandiganbayan on November 15, 1990, and directs the restoration
of the status quo ante, so as to allow the PCGG to continue voting the shares of stock under sequestration at
the meetings of the United Coconut Planters Bank."14
On January 23, 1995, the Court rendered its final Decision in GR No. 96073, nullifying and setting aside the November
15, 1990 Resolution of the Sandiganbayan which, as earlier stated, lifted the sequestration of the subject UCPB
shares. The express impleading of herein Respondents COCOFED et al. was deemed unnecessary because "the
judgment may simply be directed against the shares of stock shown to have been issued in consideration of ill-gotten
wealth."15 Furthermore, the companies "are simply the res in the actions for the recovery of illegally acquires wealth,

24
and there is, in principle, no cause of action against them and no ground to implead them as defendants in said
case."16
A month thereafter, the PCGG pursuant to an Order of the Sandiganbayan subdivided Case No. 0033 into eight
Complaints and docketed them as Case Nos. 0033-A to 0033-H.
Six years later, on February 13, 2001, the Board of Directors of UCPB received from the ACCRA Law Office a letter
written on behalf of the COCOFED and the alleged nameless one million coconut farmers, demanding the holding of a
stockholders' meeting for the purpose of, among others, electing the board of directors. In response, the board
approved a Resolution calling for a stockholders' meeting on March 6, 2001 at three o'clock in the afternoon.
On February 23, 2001, "COCOFED, et al. and Ballares, et al." filed the "Class Action Omnibus Motion" 17 referred to
earlier in Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F, asking the court a quo:
"1. To enjoin the PCGG from voting the UCPB shares of stock registered in the respective names of the more
than one million coconut farmers; and
"2. To enjoin the PCGG from voting the SMC shares registered in the names of the 14 CIIF holding companies
including those registered in the name of the PCGG."18
On February 28, 2001, respondent court, after hearing the parties on oral argument, issued the assailed Order.
Hence, this Petition by the Republic of the Philippines represented by the PCGG. 19
The case had initially been raffled to this Court's Third Division which, by a vote of 3-2, 20 issued a Resolution21requiring
the parties to maintain the status quo existing before the issuance of the questioned Sandiganbayan Order dated
February 28, 2001. On March 7, 2001, Respondent COCOFED et al. moved that the instant Petition be heard by the
Court en banc.22 The Motion was unanimously granted by the Third Division.
On March 13, 2001, the Court en banc resolved to accept the Third Division's referral. 23 It heard the case on Oral
Argument in Baguio City on April 17, 2001. During the hearing, it admitted the intervention of a group of coconut
farmers and farm worker organizations, the Pambansang Koalisyon ng mga Samahang Magsasaka at Manggagawa ng
Niyugan (PKSMMN). The coalition claims that its members have been excluded from the benefits of the coconut levy
fund. Inter alia, it joined petitioner in praying for the exclusion of private respondents in voting the sequestered
shares.
Issues
Petitioner submits the following issues for our consideration: 24
"A.
Despite the fact that the subject sequestered shares were purchased with coconut levy funds (which were
declared public in character) and the continuing effectivity of Resolution dated February 16, 1993 in G.R. No.
96073 which allows the PCGG to vote said sequestered shares, Respondent Sandiganbayan, with grave abuse
of discretion, issued its Order dated February 20, 2001 enjoining PCGG from voting the sequestered shares of
stock in UCPB.
"B.
The Respondent Sandiganbayan violated petitioner's right to due process by taking cognizance of the Class
Action Omnibus Motion dated 23 February 2001 despite gross lack of sufficient notice and by issuing the writ

25
of preliminary injunction despite the obvious fact that there was no actual pressing necessity or urgency to do
so."
In its Resolution dated April 17, 2001, the Court defined the issue to be resolved in the instant case simply as follows:
This Court's Ruling
The Petition is impressed with merit.
Main Issue:
Who May Vote the Sequestered Shares of Stock?
Simply stated, the gut substantive issue to be resolved in the present Petition is: "Who may vote the sequestered
UCPB shares while the main case for their reversion to the State is pending in the Sandiganbayan?"
This Court holds that the government should be allowed to continue voting those shares inasmuch as they were
purchased with coconut levy funds that are prima facie public in character or, at the very least, are "clearly affected
with public interest."
General Rule: Sequestered Shares
Are Voted by the Registered Holder
At the outset, it is necessary to restate the general rule that the registered owner of the shares of a corporation
exercises the right and the privilege of voting.25 This principle applies even to shares that are sequestered by the
government, over which the PCGG as a mere conservator cannot, as a general rule, exercise acts of dominion. 26On the
other hand, it is authorized to vote these sequestered shares registered in the names of private persons and acquired
with allegedly ill-gotten wealth, if it is able to satisfy the two-tiered test devised by the Court inCojuangco v.
Calpo27 and PCGG v. Cojuangco Jr.,28 as follows:
(1) Is there prima facie evidence showing that the said shares are ill-gotten and thus belong to the State?
(2) Is there an imminent danger of dissipation, thus necessitating their continued sequestration and voting by
the PCGG, while the main issue is pending with the Sandiganbayan?
Sequestered Shares Acquired with Public Funds are an Exception
From the foregoing general principle, the Court in Baseco v. PCGG29 (hereinafter "Baseco") and Cojuangco Jr. v.
Roxas30 ("Cojuangco-Roxas") has provided two clear "public character" exceptions under which the government is
granted the authority to vote the shares:
(1) Where government shares are taken over by private persons or entities who/which registered them in
their own names, and
(2) Where the capitalization or shares that were acquired with public funds somehow landed in private hands.
The exceptions are based on the common-sense principle that legal fiction must yield to truth; that public property
registered in the names of non-owners is affected with trust relations; and that the prima facie beneficial owner
should be given the privilege of enjoying the rights flowing from the prima facie fact of ownership.
In Baseco, a private corporation known as the Bataan Shipyard and Engineering Co. was placed under sequestration
by the PCGG. Explained the Court:

26
"The facts show that the corporation known as BASECO was owned and controlled by President Marcos 'during
his administration, through nominees, by taking undue advantage of his public office and/or using his powers,
authority, or influence,' and that it was by and through the same means, that BASECO had taken over the
business and/or assets of the National Shipyard and Engineering Co., Inc., and other government-owned or
controlled entities."31
Given this factual background, the Court discussed PCGG's right over BASECO in the following manner:
"Now, in the special instance of a business enterprise shown by evidence to have been 'taken over by the
government of the Marcos Administration or by entities or persons close to former President Marcos,' the
PCGG is given power and authority, as already adverted to, to 'provisionally take (it) over in the public interest
or to prevent * * (its) disposal or dissipation;' and since the term is obviously employed in reference to going
concerns, or business enterprises in operation, something more than mere physical custody is connoted; the
PCGG may in this case exercise some measure of control in the operation, running, or management of the
business itself."32
Citing an earlier Resolution, it ruled further:
"Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and
holding of a stockholders' meeting for the election of directors as authorized by the Memorandum of the
President * * (to the PCGG) dated June 26, 1986, particularly, where as in this case, the government can,
through its designated directors, properly exercise control and management over what appear to be
properties and assets owned and belonging to the government itself and over which the persons who appear
in this case on behalf of BASECO have failed to show any right or even any shareholding in said
corporation."33 (Italics supplied)
The Court granted PCGG the right to vote the sequestered shares because they appeared to be "assets belonging to
the government itself." The Concurring Opinion of Justice Ameurfina A. Melencio-Herrera, in which she was joined by
Justice Florentino P. Feliciano, explained this principle as follows:
"I have no objection to according the right to vote sequestered stock in case of a take-over of business
actually belonging to the government or whose capitalization comes from public funds but which, somehow,
landed in the hands of private persons, as in the case of BASECO. To my mind, however, caution and prudence
should be exercised in the case of sequestered shares of an on-going private business enterprise, specially the
sensitive ones, since the true and real ownership of said shares is yet to be determined and proven more
conclusively by the Courts."34 (Italics supplied)
The exception was cited again by the Court in Cojuangco-Roxas35 in this wise:
"The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict ownership of
sequestered property. It is a mere conservator. It may not vote the shares in a corporation and elect the
members of the board of directors. The only conceivable exception is in a case of a takeover of a business
belonging to the government or whose capitalization comes from public funds, but which landed in private
hands as in BASECO."36 (Italics supplied)
The "public character" test was reiterated in many subsequent cases; most recently, in Antiporda v.
Sandiganbayan.37 Expressly citing Conjuangco-Roxas,38 this Court said that in determining the issue of whether the
PCGG should be allowed to vote sequestered shares, it was crucial to find out first whether these were purchased
with public funds, as follows:
"It is thus important to determine first if the sequestered corporate shares came from public funds that landed
in private hands."39

27
In short, when sequestered shares registered in the names of private individuals or entities are alleged to have been
acquired with ill-gotten wealth, then the two-tiered test is applied. However, when the sequestered shares in the name
of private individuals or entities are shown, prima facie, to have been (1) originally government shares, or (2)
purchased with public funds or those affected with public interest, then the two-tiered test does not apply. Rather, the
public character exceptions in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government shall vote
the shares.
UCPB Shares Were Acquired With Coconut Levy Funds
In the present case before the Court, it is not disputed that the money used to purchase the sequestered UCPB shares
came from the Coconut Consumer Stabilization Fund (CCSF), otherwise known as the coconut levy funds.
This fact was plainly admitted by private respondent's counsel, Atty. Teresita J. Herbosa, during the Oral Arguments
held on April 17, 2001 in Baguio City, as follows:
"Justice Panganiban:
"In regard to the theory of the Solicitor General that the funds used to purchase [both] the original 28 million
and the subsequent 80 million came from the CCSF, Coconut Consumers Stabilization Fund, do you agree with
that?
"Atty. Herbosa:
"Yes, Your Honor.
xxx

xxx

xxx

"Justice Panganiban:
"So it seems that the parties [have] agreed up to that point that the funds used to purchase 72% of the
former First United Bank came from the Coconut Consumer Stabilization Fund?
"Atty. Herbosa:
"Yes, Your Honor."40
Indeed in Cocofed v. PCGG,41 this Court categorically declared that the UCPB was acquired "with the use of the
Coconut Consumers Stabilization Fund in virtue of Presidential Decree No. 755, promulgated on July 29,
1975."
Coconut Levy Funds Are Affected With Public Interest
Having conclusively shown that the sequestered UCPB shares were purchased with coconut levies, we hold that these
funds and shares are, at the very least, "affected with public interest."
The Resolution issued by the Court on February 16, 1993 in Republic v. Sandiganbayan42 stated that coconut levy
funds were "clearly affected with public interest"; thus, herein private respondents even if they are the registered
shareholders cannot be accorded the right to vote them. We quote the said Resolution in part, as follows:
"The coconut levy funds being 'clearly affected with public interest, it follows that the corporations formed and
organized from those funds, and all assets acquired therefrom should also be regarded as 'clearly affected
with public interest.'"43

28
xxx

xxx

xxx

"Assuming, however, for purposes of argument merely, the lifting of sequestration to be correct, may it also be
assumed that the lifting of sequestration removed the character of the coconut levy companies of being
affected with public interest, so that they and their stock and assets may now be considered to be of private
ownership? May it be assumed that the lifting of sequestration operated to relieve the holders of stock in the
coconut levy companies affected with public interest of the obligation of proving how that stock had been
legitimately transferred to private ownership, or that those stockholders who had had some part in the
collection, administration, or disposition of the coconut levy funds are now deemed qualified to acquire said
stock, and freed from any doubt or suspicion that they had taken advantage of their special or fiduciary
relation with the agencies in charge of the coconut levies and the funds thereby accumulated? The obvious
answer to each of the questions is a negative one. It seems plain that the lifting of sequestration has no
relevance to the nature of the coconut levy companies or their stock or property, or to the legality of the
acquisition by private persons of their interest therein, or to the latter's capacity or disqualification to acquire
stock in the companies or any property acquired from coconut levy funds.
"This being so, the right of the [petitioners] to vote stock in their names at the meetings of the UCPB cannot
be conceded at this time. That right still has to be established by them before the Sandiganbayan. Until that is
done, they cannot be deemed legitimate owners of UCPB stock and cannot be accorded the right to vote
them."44 (Italics supplied)
It is however contended by respondents that this Resolution was in the nature of a temporary restraining order. As
such, it was supposedly interlocutory in character and became functus oficio when this Court decided GR No. 96073 on
January 23, 1995.
This argument is aptly answered by petitioner in its Memorandum, which we quote:
"The ruling made in the Resolution dated 16 February 1993 confirming the public nature of the coconut levy
funds and denying claimants their purported right to vote is an affirmation of doctrines laid down in the cases
of COCOFED v. PCGG supra, Baseco v. PCGG, supra, and Cojuangco v. Roxas, supra. Therefore it is of no
moment that the Resolution dated 16 February 1993 has not been ratified. Its jurisprudential based
remain."45 (Italics supplied)
To repeat, the foregoing juridical situation has not changed. It is still the truth today: "the coconut levy funds are
clearly affected with public interest." Private respondents have not "demonstrated satisfactorily that they have
legitimately become private funds."
If private respondents really and sincerely believed that the final Decision of the Court in Republic v.
Sandiganbayan (GR No. 96073, promulgated on January 23, 1995) granted them the right to vote, why did they wait
for the lapse of six long years before definitively asserting it (1) through their letter dated February 13, 2001,
addressed to the UCPB Board of Directors, demanding the holding of a shareholders' meeting on March 6, 2001; and
(2) through their Omnibus Motion dated February 23, 2001 filed in the court a quo, seeking to enjoin PCGG from
voting the subject sequestered shares during the said stockholders' meeting? Certainly, if they even half believed their
submission now that they already had such right in 1995 why are they suddenly and imperiously claiming it only
now?
It should be stressed at this point that the assailed Sandiganbayan Order dated February 28, 2001 allowing private
respondents to vote the sequestered shares is not based on any finding that the coconut levies and the shares have
"legitimately become private funds." Neither is it based on the alleged lifting of the TRO issued by this Court on
February 16, 1993. Rather, it is anchored on the grossly mistaken application of the two-tiered test mentioned earlier
in this Decision.
To stress, the two-tiered test is applied only when the sequestered asset in the hands of a private person is alleged to
have been acquired with ill-gotten wealth. Hence, in PCGG v. Cojuangco,47 we allowed Eduardo Cojuangco Jr. to vote

29
the sequestered shares of the San Miguel Corporation (SMC) registered in his name but alleged to have been acquired
with ill-gotten wealth. We did so on his representation that he had acquired them with borrowed funds and upon
failure of the PCGG to satisfy the "two-tiered" test. This test was, however, not applied to sequestered SMC shares
that were purchased with coco levy funds.
In the present case, the sequestered UCPB shares are confirmed to have been acquired with coco levies, not with
alleged ill-gotten wealth. Hence, by parity of reasoning, the right to vote them is not subject to the "two-tiered test"
but to the public character of their acquisition, which per Antiporda v. Sandiganbayan cited earlier, must first be
determined.
Coconut Levy Funds Are Prima Facie Public Funds
To avoid misunderstanding and confusion, this Court will even be more categorical and positive than its earlier
pronouncements: the coconut levy funds are not only affected with public interest; they are, in fact, prima
facie public funds.
Public funds are those moneys belonging to the State or to any political subdivision of the State; more specifically,
taxes, customs duties and moneys raised by operation of law for the support of the government or for the discharge of
its obligations.48 Undeniably, coconut levy funds satisfy this general definition of public funds, because of the
following reasons:
1. Coconut levy funds are raised with the use of the police and taxing powers of the State.
2. They are levies imposed by the State for the benefit of the coconut industry and its farmers.
3. Respondents have judicially admitted that the sequestered shares were purchased with public funds.
4. The Commission on Audit (COA) reviews the use of coconut levy funds.
5. The Bureau of Internal Revenue (BIR), with the acquiescence of private respondents, has treated them as
public funds.
6. The very laws governing coconut levies recognize their public character.
We shall now discuss each of the foregoing reasons, any one of which is enough to show their public character.
1. Coconut Levy Funds Are Raised Through the State's Police and Taxing Powers.
Indeed, coconut levy funds partake of the nature of taxes which, in general, are enforced proportional contributions
from persons and properties, exacted by the State by virtue of its sovereignty for the support of government and for
all public needs.49
Based on this definition, a tax has three elements, namely: a) it is an enforced proportional contribution from persons
and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied for the support of the
government. The coconut levy funds fall squarely into these elements for the following reasons:
(a) They were generated by virtue of statutory enactments imposed on the coconut farmers requiring the
payment of prescribed amounts. Thus, PD No. 276, which created the Coconut Consumer Stabilization Fund
(CCSF), mandated the following:
"a. A levy, initially, of P15.00 per 100 kilograms of copra resecada or its equivalent in other coconut products,
shall be imposed on every first sale, in accordance with the mechanics established under RA 6260, effective at
the start of business hours on August 10, 1973.

30
"The proceeds from the levy shall be deposited with the Philippine National Bank or any other government
bank to the account of the Coconut Consumers Stabilization Fund, as a separate trust fund which shall not
form part of the general fund of the government."50
The coco levies were further clarified in amendatory laws, specifically PD No. 961 51 and PD No. 146852 in this
wise:
"The Authority (Philippine Coconut Authority) is hereby empowered to impose and collect a levy, to be known
as the Coconut Consumers Stabilization Fund Levy, on every one hundred kilos of copra resecada, or its
equivalent in other coconut products delivered to, and/or purchased by, copra exporters, oil millers,
desiccators and other end-users of copra or its equivalent in other coconut products. The levy shall be paid by
such copra exporters, oil millers, desiccators and other end-users of copra or its equivalent in other coconut
products under such rules and regulations as the Authority may prescribe. Until otherwise prescribed by the
Authority, the current levy being collected shall be continued." 53
Like other tax measures, they were not voluntary payments or donations by the people. They were enforced
contributions exacted on pain of penal sanctions, as provided under PD No. 276:
"3. Any person or firm who violates any provision of this Decree or the rules and regulations promulgated
thereunder, shall, in addition to penalties already prescribed under existing administrative and special law, pay
a fine of not less than P2,500 or more than P10,000, or suffer cancellation of licenses to operate, or both, at
the discretion of the Court."54
Such penalties were later amended thus:
"Whenever any person or entity willfully and deliberately violates any of the provisions of this Act, or any rule
or regulation legally promulgated hereunder by the Authority, the person or persons responsible for such
violation shall be punished by a fine of not more than P20,000.00 and by imprisonment of not more than five
years. If the offender be a corporation, partnership or a juridical person, the penalty shall be imposed on the
officer or officers authorizing, permitting or tolerating the violation. Aliens found guilty of any offenses shall,
after having served his sentence, be immediately deported and, in the case of a naturalized citizen, his
certificate of naturalization shall be cancelled." 55
(b) The coconut levies were imposed pursuant to the laws enacted by the proper legislative authorities of the
State. Indeed, the CCSF was collected under PD No. 276, issued by former President Ferdinand E. Marcos who
was then exercising legislative powers.56
(c) They were clearly imposed for a public purpose. There is absolutely no question that they were collected to
advance the government's avowed policy of protecting the coconut industry. This Court takes judicial notice of
the fact that the coconut industry is one of the great economic pillars of our nation, and coconuts and their
byproducts occupy a leading position among the country's export products; that it gives employment to
thousands of Filipinos; that it is a great source of the state's wealth; and that it is one of the important
sources of foreign exchange needed by our country and, thus, pivotal in the plans of a government committed
to a policy of currency stability.
Taxation is done not merely to raise revenues to support the government, but also to provide means for the
rehabilitation and the stabilization of a threatened industry, which is so affected with public interest as to be within the
police power of the State, as held in Caltex Philippines v. COA57 and Osmea v. Orbos.58
Even if the money is allocated for a special purpose and raised by special means, it is still public in character. In the
case before us, the funds were even used to organize and finance State offices. In Cocofed v. PCGG,59 the Court
observed that certain agencies or enterprises "were organized and financed with revenues derived from coconut levies
imposed under a succession of laws of the late dictatorship x x x with deposed Ferdinand Marcos and his cronies as
the suspected authors and chief beneficiaries of the resulting coconut industry monopoly." 60The Court continued: "x x

31
x. It cannot be denied that the coconut industry is one of the major industries supporting the national economy. It is,
therefore, the State's concern to make it a strong and secure source not only of the livelihood of a significant segment
of the population, but also of export earnings the sustained growth of which is one of the imperatives of economic
stability. x x x."61
2. Coconut Funds Are Levied for the Benefit of the Coconut Industry and Its Farmers.
Just like the sugar levy funds, the coconut levy funds constitute state funds even though they may be held for a
special public purpose.
In fact, Executive Order No. 481 dated May 1, 1998 specifically likens the coconut levy funds to the sugar levy
funds, both being special public funds acquired through the taxing and police powers of the State. The
sugar levy funds, which are strikingly similar to the coconut levies in their imposition and purpose, were declared
public funds by this Court in Gaston v. Republic Planters Bank,62 from which we quote:
"The stabilization fees collected are in the nature of a tax which is within the power of the state to impose for
the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b],
P.D. No. 388). The collections made accrue to a 'Special Fund,' a 'Development and Stabilization Fund,' almost
identical to the 'Sugar Adjustment and Stabilization Fund' created under Section 6 of Commonwealth Act 567.
The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to
provide means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police
power of the State. (Lutz vs. Araneta, supra.)."63
The Court further explained:64
"The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a
special purpose that of 'financing the growth and development of the sugar industry and all its components,
stabilization of the domestic market including the foreign market.' The fact that the State has taken
possession of moneys pursuant to law is sufficient to constitute them as state funds, even though they are
held for a special purpose (Lawrence v. American Surety Co., 263 Mich 586. 294 ALR 535, cited in 42 Am.
Jur., Sec. 2., p. 718). Having been levied for a special purpose, the revenues collected are to be treated as a
special fund, to be, in the language of the statute, 'administered in trust' for the purpose intended. Once the
purpose has been fulfilled or abandoned, the balance, if any, is to be transferred to the general funds of the
Government. That is the essence of the trust intended (see 1987 Constitution, Art. VI, Sec. 29[3], lifted from
the 1935 Constitution, Article VI, Sec. 23[1]. (Italics supplied)
"The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds are
deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid
out only in pursuance of an appropriation made by law (1987 Constitution, Article VI, Sec. 29[1], 1973
Constitution, Article VIII, Sec. 18[1]).
"That the fees were collected from sugar producers, planters and millers, and that the funds were channeled
to the purchase of shares of stock in respondent Bank do not convert the funds into a trust fund for their
benefit nor make them the beneficial owners of the shares so purchased. It is but rational that the fees be
collected from them since it is also they who are to be benefited from the expenditure of the funds derived
from it. The investment in shares of respondent Bank is not alien to the purpose intended because of the
Bank's character as a commodity bank for sugar conceived for the industry's growth and development.
Furthermore, of note is the fact that one-half (1/2) or P0.50 per picul, of the amount levied under P.D. No.
388 is to be utilized for the 'payment of salaries and wages of personnel, fringe benefits and allowances of
officers and employees of PHILSUCOM' thereby immediately negating the claim that the entire amount levied
is in trust for sugar, producers, planters and millers.
"To rule in petitioners' favor would contravene the general principle that revenues derived from taxes cannot
be used for purely private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to

32
be utilized for the benefit of the entire sugar industry, 'and all its components, stabilization of the domestic
market including the foreign market,' the industry being of vital importance to the country's economy and to
national interest."
In the same manner, this Court has also ruled that the oil stabilization funds were public in character and subject to
audit by COA. It ruled in this wise:
"Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the
exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from the special
treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law
refers to as a 'trust liability account,' the fund nonetheless remains subject to the scrutiny and review of the
COA. The Court is satisfied that these measures comply with the constitutional description of a 'special fund.'
Indeed, the practice is not without precedent."65
In his Concurring Opinion in Kilosbayan v. Guingona,66 Justice Florentino P. Feliciano explained that the funds raised by
the On-line Lottery System were also public in nature. In his words:
"x x x. In the case presently before the Court, the funds involved are clearly public in nature. The funds to be
generated by the proposed lottery are to be raised from the population at large. Should the proposed
operation be as successful as its proponents project, those funds will come from well-nigh every town and
barrio of Luzon. The funds here involved are public in another very real sense: they will belong to the PCSO, a
government owned or controlled corporation and an instrumentality of the government and are destined for
utilization in social development projects which, at least in principle, are designed to benefit the general
public. x x x. The interest of a private citizen in seeing to it that public funds, from whatever source they may
have been derived, go only to the uses directed and permitted by law is as real and personal and substantial
as the interest of a private taxpayer in seeing to it that tax monies are not intercepted on their way to the
public treasury or otherwise diverted from uses prescribed or allowed by law. It is also pertinent to note that
the more successful the government is in raising revenues by non-traditional methods such as PAGCOR
operations and privatization measures, the lesser will be the pressure upon the traditional sources of public
revenues, i.e., the pocket books of individual taxpayers and importers." 67
Thus, the coconut levy funds like the sugar levy and the oil stabilization funds, as well as the monies generated by
the On-line Lottery System are funds exacted by the State. Being enforced contributions, the are prima faciepublic
funds.
3. Respondents Judicially Admit That the Levies Are Government Funds.
Equally important as the fact that the coconut levy funds were raised through the taxing and police powers of the
State is respondents' effective judicial admission that these levies are government funds. As shown by the
attachments to their pleadings,68 respondents concede that the Coconut Consumers Stabilization Fund (CCSF) and the
Coconut Investment Development Fund "constitute government funds x x x for the benefit of coconut farmers."
"Collections on both levies constitute government funds. However, unlike other taxes that the Government
levies and collects such as income tax, tariff and customs duties, etc., the collections on the CCSF and CIDF
are, by express provision of the laws imposing them, for a definite purpose, not just for any governmental
purpose. As stated above part of the collections on the CCSF levy should be spent for the benefit of the
coconut farmers. And in respect of the collections on the CIDF levy, P.D. 582 mandatorily requires that the
same should be spent exclusively for the establishment, operation and maintenance of a hybrid coconut seed
garden and the distribution, for free, to the coconut farmers of the hybrid coconut seednuts produced from
that seed garden.
"On the other hand, the laws which impose special levies on specific industries, for example on the mining
industry, sugar industry, timber industry, etc., do not, by their terms, expressly require that the collections on
those levies be spent exclusively for the benefit of the industry concerned. And if the enabling law thus so

33
provide, the fact remains that the governmental agency entrusted with the duty of implementing the purpose
for which the levy is imposed is vested with the discretionary power to determine when and how the
collections should be appropriated."69
4. The COA Audit Shows the Public Nature of the Funds.
Under COA Office Order No. 86-9470 dated April 15, 1986, 70 the COA reviewed the expenditure and use of the coconut
levies allocated for the acquisition of the UCPB. The audit was aimed at ascertaining whether these were utilized for
the purpose for which they had been intended. 71 Under the 1987 Constitution, the powers of the COA are as follows:
"The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts
pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in
trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities x x x." 72
Because these funds have been subjected to COA audit, there can be no other conclusion than that are prima
facie public in character.
5. The BIR Has Pronounced That the Coconut Levy Funds Are Taxes.
In response to a query posed by the administrator of the Philippine Coconut Authority regarding the character of the
coconut levy funds, the Bureau of Internal Revenue has affirmed that these funds are public in character. It held as
follows: "[T]he coconut levy is not a public trust fund for the benefit of the coconut farmers, but is in the nature of a
tax and, therefore, x x x public funds that are subject to government administration and disposition." 73
Furthermore, the executive branch treats the coconut levies as public funds. Thus, Executive Order No. 277, issued on
September 24, 1995, directed the mode of treatment, utilization, administration and management of the coconut levy
funds. It provided as follows:
'(a) The coconut levy funds, which include all income, interests, proceeds or profits derived therefrom, as well
as all assets, properties and shares of stocks procured or obtained with the use of such funds, shall be
treated, utilized, administered and managed as public funds consistent with the uses and purposes under the
laws which constituted them and the development priorities of the government, including the government's
coconut productivity, rehabilitation, research extension, farmers organizations, and market promotions
programs, which are designed to advance the development of the coconut industry and the welfare of the
coconut farmers."74 (Italics supplied)
Doctrinally, acts of the executive branch are prima facie valid and binding, unless declared unconstitutional or contrary
to law.
6. Laws Governing Coconut Levies Recognize Their Public Nature.
Finally and tellingly, the very laws governing the coconut levies recognize their public character. Thus, the
thirdWhereas clause of PD No. 276 treats them as special funds for a specific public purpose. Furthermore, PD No. 711
transferred to the general funds of the State all existing special and fiduciary funds including the CCSF. On the other
hand, PD No. 1234 specifically declared the CCSF as a special fund for a special purpose, which should be treated as
a special account in the National Treasury.
Moreover, even President Marcos himself, as the sole legislative/executive authority during the martial law years,
struck off the phrase which is a private fund of the coconut farmers from the original copy of Executive Order No. 504
dated May 31, 1978, and we quote:

34
"WHEREAS, by means of the Coconut Consumers Stabilization Fund ('CCSF'), which is the private fund of
the coconut farmers (deleted), essential coconut-based products are made available to household
consumers at socialized prices." (Emphasis supplied)
The phrase in bold face -- which is the private fund of the coconut farmers was crossed out and duly initialed
by its author, former, President Marcos. This deletion, clearly visible in "Attachment C" of petitioner's
Memorandum,75 was a categorical legislative intent to regard the CCSF as public, not private, funds.
Having Been Acquired With Public Funds, UCPB Shares Belong, Prima Facie, to the Government
Having shown that the coconut levy funds are not only affected with public interest, but are in fact prima faciepublic
funds, this Court believes that the government should be allowed to vote the questioned shares, because they belong
to it as the prima facie beneficial and true owner.
As stated at the beginning, voting is an act of dominion that should be exercised by the share owner. One of the
recognized rights of an owner is the right to vote at meetings of the corporation. The right to vote is classified as the
right to control.76 Voting rights may be for the purpose of, among others, electing or removing directors, amending a
charter, or making or amending by laws.77 Because the subject UCPB shares were acquired with government funds,
the government becomes their prima facie beneficial and true owner.
Ownership includes the right to enjoy, dispose of, exclude and recover a thing without limitations other than those
established by law or by the owner.78 Ownership has been aptly described as the most comprehensive of all real
rights.79 And the right to vote shares is a mere incident of ownership. In the present case, the government has been
shown to be the prima facie owner of the funds used to purchase the shares. Hence, it should be allowed the rights
and privileges flowing from such fact.
And paraphrasing Cocofed v. PCGG, already cited earlier, the Republic should continue to vote those shares until and
unless private respondents are able to demonstrate, in the main cases pending before the Sandiganbayan, that "they
[the sequestered UCPB shares] have legitimately become private."
Procedural and Incidental Issues:
Grave Abuse of Discretion, Improper Arguments and Intervenors' Relief
Procedurally, respondents argue that petitioner has failed to demonstrate that the Sandiganbayan committed grave
abuse of discretion, a demonstration required in every petition under Rule 65. 80
We disagree. We hold that the Sandiganbayan gravely abused its discretion when it contravened the rulings of this
Court in Baseco and Cojuangco-Roxas thereby unlawfully, capriciously and arbitrarily depriving the government of its
right to vote sequestered shares purchased with coconut levy funds which are prima faciepublic funds.
Indeed, grave abuse of discretion may arise when a lower court or tribunal violates or contravenes the Constitution,
the law or existing jurisprudence. In one case, 81 this Court ruled that the lower court's resolution was "tantamount to
overruling a judicial pronouncement of the highest Court x x x and unmistakably a very grave abuse of discretion." 82
The Public Character of Shares Is a Valid Issue
Private respondents also contend that the public nature of the coconut levy funds was not raised as an issue before
the Sandiganbayan. Hence, it could not be taken up before this Court.
Again we disagree. By ruling that the two-tiered test should be applied in evaluating private respondents' claim of
exercising voting rights over the sequestered shares, the Sandiganbayan effectively held that the subject assets were
private in character. Thus, to meet this issue, the Office of the Solicitor General countered that the shares were not

35
private in character, and that quite the contrary, they were and are public in nature because they were acquired with
coco levy funds which are public in character. In short, the main issue of who may vote the shares cannot be
determined without passing upon the question of the public/private character of the shares and the funds used to
acquire them. The latter issue, although not specifically raised in the Court a quo, should still be resolved in order to
fully adjudicate the main issue.
Indeed, this Court has "the authority to waive the lack of proper assignment of errors if the unassigned errors closely
relate to errors properly pinpointed out or if the unassigned errors refer to matters upon which the determination of
the questions raised by the errors properly assigned depend." 83
Therefore, "where the issues already raised also rest on other issues not specifically presented as long as the latter
issues bear relevance and close relation to the former and as long as they arise from matters on record, the Court has
the authority to include them in its discussion of the controversy as well as to pass upon them." 84
No Positive Relief For Intervenors
Intervenors anchor their interest in this case on an alleged right that they are trying to enforce in another
Sandiganbayan case docketed as SB Case No. 0187.85 In that case, they seek the recovery of the subject UCPB shares
from herein private respondents and the corporations controlled by them. Therefore, the rights sought to be protected
and the reliefs prayed for by intervenors are still being litigated in the said case. The purported rights they are
invoking are mere expectancies wholly dependent on the outcome of that case in the Sandiganbayan.
Clearly, we cannot rule on intervenors' alleged right to vote at this time and in this case. That right is dependent upon
the Sandiganbayan's resolution of their action for the recovery of said sequestered shares. Given the patent fact that
intervenors are not registered stockholders of UCPB as of the moment, their asserted rights cannot be ruled upon in
the present proceedings. Hence, no positive relief can be given them now, except insofar as they join petitioner in
barring private respondents from voting the subject shares.
Epilogue
In sum, we hold that the Sandiganbayan committed grave abuse of discretion in grossly contradicting and effectively
reversing existing jurisprudence, and in depriving the government of its right to vote the sequestered UCPB shares
which are prima facie public in character.
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 Nos. 0033-A, 0033-B and 0033-F. Our determination here is merelyprima
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 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.
This matter involving the coconut levy funds and the sequestered UCPB shares has been straddling the courts for
about 15 years. What we are discussing in the present Petition, we stress, is just an incident of the main cases which
are pending in the anti-graft court the cases for the reconveyance, reversion and restitution to the State of these
UCPB shares.

36
The resolution of the main cases has indeed been long overdue. Every effort, both by the parties and the
Sandiganbayan, should be exerted to finally settle this controversy.
WHEREFORE, the Petition is hereby GRANTED and the assailed Order SET ASIDE. The PCGG shall continue voting
the sequestered shares until Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F are finally and completely
resolved. Furthermore, the Sandiganbayan is ORDERED to decide with finality the aforesaid civil cases within a period
of six (6) months from notice. It shall report to this Court on the progress of the said cases every three (3) months,
on pain of contempt. The Petition in Intervention is DISMISSED inasmuch as the reliefs prayed for are not covered by
the main issues in this case. No costs.
SO ORDERED.
G.R. No. 150793

November 19, 2004

FRANCIS CHUA, petitioner,

vs.
HON. COURT OF APPEALS and LYDIA C. HAO, respondents.

DECISION

QUISUMBING, J.:
Petitioner assails the Decision,1 dated June 14, 2001, of the Court of Appeals in CA-G.R. SP No. 57070, affirming the
Order, dated October 5, 1999, of the Regional Trial Court (RTC) of Manila, Branch 19. The RTC reversed the Order,
dated April 26, 1999, of the Metropolitan Trial Court (MeTC) of Manila, Branch 22. Also challenged by herein petitioner
is the CA Resolution,2 dated November 20, 2001, denying his Motion for Reconsideration.
The facts, as culled from the records, are as follows:
On February 28, 1996, private respondent Lydia Hao, treasurer of Siena Realty Corporation, filed a complaint-affidavit
with the City Prosecutor of Manila charging Francis Chua and his wife, Elsa Chua, of four counts of falsification of
public documents pursuant to Article 1723 in relation to Article 1714 of the Revised Penal Code. The charge reads:
That on or about May 13, 1994, in the City of Manila, Philippines, the said accused, being then a private
individual, did then and there willfully, unlawfully and feloniously commit acts of falsification upon a public
document, to wit: the said accused prepared, certified, and falsified the Minutes of the Annual Stockholders
meeting of the Board of Directors of the Siena Realty Corporation, duly notarized before a Notary Public, Atty.
Juanito G. Garcia and entered in his Notarial Registry as Doc No. 109, Page 22, Book No. IV and Series of
1994, and therefore, a public document, by making or causing it to appear in said Minutes of the Annual
Stockholders Meeting that one LYDIA HAO CHUA was present and has participated in said proceedings, when
in truth and in fact, as the said accused fully well knew that said Lydia C. Hao was never present during the
Annual Stockholders Meeting held on April 30, 1994 and neither has participated in the proceedings thereof to
the prejudice of public interest and in violation of public faith and destruction of truth as therein proclaimed.
CONTRARY TO LAW.5
Thereafter, the City Prosecutor filed the Information docketed as Criminal Case No. 285721 6 for falsification of public
document, before the Metropolitan Trial Court (MeTC) of Manila, Branch 22, against Francis Chua but dismissed the
accusation against Elsa Chua.
Herein petitioner, Francis Chua, was arraigned and trial ensued thereafter.

37
During the trial in the MeTC, private prosecutors Atty. Evelyn Sua-Kho and Atty. Ariel Bruno Rivera appeared as private
prosecutors and presented Hao as their first witness.
After Hao's testimony, Chua moved to exclude complainant's counsels as private prosecutors in the case on the
ground that Hao failed to allege and prove any civil liability in the case.
In an Order, dated April 26, 1999, the MeTC granted Chua's motion and ordered the complainant's counsels to be
excluded from actively prosecuting Criminal Case No. 285721. Hao moved for reconsideration but it was denied.
Hence, Hao filed a petition for certiorari docketed as SCA No. 99-94846, 7 entitled Lydia C. Hao, in her own behalf and
for the benefit of Siena Realty Corporation v. Francis Chua, and the Honorable Hipolito dela Vega, Presiding Judge,
Branch 22, Metropolitan Trial Court of Manila, before the Regional Trial Court (RTC) of Manila, Branch 19.
The RTC gave due course to the petition and on October 5, 1999, the RTC in an order reversed the MeTC Order. The
dispositive portion reads:
WHEREFORE, the petition is GRANTED. The respondent Court is ordered to allow the intervention of the
private prosecutors in behalf of petitioner Lydia C. Hao in the prosecution of the civil aspect of Crim. Case No.
285721, before Br. 22 [MeTC], Manila, allowing Attys. Evelyn Sua-Kho and Ariel Bruno Rivera to actively
participate in the proceedings.
SO ORDERED.8
Chua moved for reconsideration which was denied.
Dissatisfied, Chua filed before the Court of Appeals a petition for certiorari. The petition alleged that the lower court
acted with grave abuse of discretion in: (1) refusing to consider material facts; (2) allowing Siena Realty Corporation
to be impleaded as co-petitioner in SCA No. 99-94846 although it was not a party to the criminal complaint in Criminal
Case No. 285721; and (3) effectively amending the information against the accused in violation of his constitutional
rights.
On June 14, 2001, the appellate court promulgated its assailed Decision denying the petition, thus:
WHEREFORE, premises considered, the petition is hereby DENIED DUE COURSE and DISMISSED. The Order,
dated October 5, 1999 as well as the Order, dated December 3, 1999, are hereby AFFIRMED in toto.
SO ORDERED.9
Petitioner had argued before the Court of Appeals that respondent had no authority whatsoever to bring a suit in
behalf of the Corporation since there was no Board Resolution authorizing her to file the suit.
For her part, respondent Hao claimed that the suit was brought under the concept of a derivative suit. Respondent
maintained that when the directors or trustees refused to file a suit even when there was a demand from
stockholders, a derivative suit was allowed.
The Court of Appeals held that the action was indeed a derivative suit, for it alleged that petitioner falsified documents
pertaining to projects of the corporation and made it appear that the petitioner was a stockholder and a director of the
corporation. According to the appellate court, the corporation was a necessary party to the petition filed with the RTC
and even if private respondent filed the criminal case, her act should not divest the Corporation of its right to be a
party and present its own claim for damages.
Petitioner moved for reconsideration but it was denied in a Resolution dated November 20, 2001.
Hence, this petition alleging that the Court of Appeals committed reversible errors:
I. IN RULING THAT LYDIA HAO'S FILING OF CRIMINAL CASE NO. 285721 WAS IN THE NATURE OF A
DERIVATIVE SUIT

38
II. IN UPHOLDING THE RULING OF JUDGE DAGUNA THAT SIENA REALTY WAS A PROPER PETITIONER IN
SCA NO. [99-94846]
III. IN UPHOLDING JUDGE DAGUNA'S DECISION ALLOWING LYDIA HAO'S COUNSEL TO CONTINUE AS
PRIVATE PROSECUTORS IN CRIMINAL CASE NO. 285721
IV. IN [OMITTING] TO CONSIDER AND RULE UPON THE ISSUE THAT JUDGE DAGUNA ACTED IN GRAVE
ABUSE OF DISCRETION IN NOT DISMISSING THE PETITION IN SCA NO. [99-94846] FOR BEING A SHAM
PLEADING.10
The pertinent issues in this petition are the following: (1) Is the criminal complaint in the nature of a derivative suit?
(2) Is Siena Realty Corporation a proper petitioner in SCA No. 99-94846? and (3) Should private prosecutors be
allowed to actively participate in the trial of Criminal Case No. 285721.
On the first issue, petitioner claims that the Court of Appeals erred when (1) it sustained the lower court in giving due
course to respondent's petition in SCA No. 99-94846 despite the fact that the Corporation was not the private
complainant in Criminal Case No. 285721, and (2) when it ruled that Criminal Case No. 285721 was in the nature of a
derivative suit.
Petitioner avers that a derivative suit is by nature peculiar only to intra-corporate proceedings and cannot be made
part of a criminal action. He cites the case of Western Institute of Technology, Inc. v. Salas, 11 where the court said that
an appeal on the civil aspect of a criminal case cannot be treated as a derivative suit. Petitioner asserts that in this
case, the civil aspect of a criminal case cannot be treated as a derivative suit, considering that Siena Realty
Corporation was not the private complainant.
Petitioner misapprehends our ruling in Western Institute. In that case, we said:
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. . . .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" since the
trial court's judgment of acquittal failed to impose 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.12
Moreover, in Western Institute, we said that a mere appeal in the civil aspect cannot be treated as a derivative suit
because the appeal lacked the basic requirement that it must be alleged in the complaint that the shareholder is suing
on a derivative cause of action for and in behalf of the corporation and other shareholders who wish to join.
Under Section 3613 of the Corporation Code, read in relation to Section 23, 14 where a corporation is an injured party,
its power to sue is lodged with its board of directors or trustees. 15 An individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he holds stocks in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real
party in interest.16
A derivative action is a suit by a shareholder to enforce a corporate cause of action. The corporation is a necessary
party to the suit. And the relief which is granted is a judgment against a third person in favor of the corporation.
Similarly, if a corporation has a defense to an action against it and is not asserting it, a stockholder may intervene and
defend on behalf of the corporation.17
Under the Revised Penal Code, every person criminally liable for a felony is also civilly liable. 18 When a criminal action
is instituted, the civil action for the recovery of civil liability arising from the offense charged shall be deemed
instituted with the criminal action, unless the offended party waives the civil action, reserves the right to institute it
separately or institutes the civil action prior to the criminal action. 19

39
In Criminal Case No. 285721, the complaint was instituted by respondent against petitioner for falsifying corporate
documents whose subject concerns corporate projects of Siena Realty Corporation. Clearly, Siena Realty Corporation is
an offended party. Hence, Siena Realty Corporation has a cause of action. And the civil case for the corporate cause of
action is deemed instituted in the criminal action.
However, the board of directors of the corporation in this case did not institute the action against petitioner. Private
respondent was the one who instituted the action. Private respondent asserts that she filed a derivative suit in behalf
of the corporation. This assertion is inaccurate. Not every suit filed in behalf of the corporation is a derivative suit. For
a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must
allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other
stockholders similarly situated who may wish to join him in the suit. 20 It is a condition sine qua non that the
corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the
present rule that it must be served with process. The judgment must be made binding upon the corporation in order
that the corporation may get the benefit of the suit and may not bring subsequent suit against the same defendants
for the same cause of action. In other words, the corporation must be joined as party because it is its cause of action
that is being litigated and because judgment must be a res adjudicata against it. 21
In the criminal complaint filed by herein respondent, nowhere is it stated that she is filing the same in behalf and for
the benefit of the corporation. Thus, the criminal complaint including the civil aspect thereof could not be deemed in
the nature of a derivative suit.
We turn now to the second issue, is the corporation a proper party in the petition for certiorari under Rule 65 before
the RTC? Note that the case was titled "Lydia C. Hao, in her own behalf and for the benefit of Siena Realty Corporation
v. Francis Chua, and the Honorable Hipolito dela Vega, Presiding Judge, Branch 22, Metropolitan Trial Court of Manila."
Petitioner before us now claims that the corporation is not a private complainant in Criminal Case No. 285721, and
thus cannot be included as appellant in SCA No. 99-94846.
Petitioner invokes the case of Ciudad Real & Dev't. Corporation v. Court of Appeals. 22 In Ciudad Real, it was ruled that
the Court of Appeals committed grave abuse of discretion when it upheld the standing of Magdiwang Realty
Corporation as a party to the petition for certiorari, even though it was not a party-in-interest in the civil case before
the lower court.
In the present case, respondent claims that the complaint was filed by her not only in her personal capacity, but
likewise for the benefit of the corporation. Additionally, she avers that she has exhausted all remedies available to her
before she instituted the case, not only to claim damages for herself but also to recover the damages caused to the
company.
Under Rule 65 of the Rules of Civil Procedure,23 when a trial court commits a grave abuse of discretion amounting to
lack or excess of jurisdiction, the person aggrieved can file a special civil action for certiorari. The aggrieved parties in
such a case are the State and the private offended party or complainant. 24
In a string of cases, we consistently ruled that only a party-in-interest or those aggrieved may file certiorari cases. It
is settled that the offended parties in criminal cases have sufficient interest and personality as "person(s) aggrieved"
to file special civil action of prohibition and certiorari. 25
In Ciudad Real, cited by petitioner, we held that the appellate court committed grave abuse of discretion when it
sanctioned the standing of a corporation to join said petition for certiorari, despite the finality of the trial court's denial
of its Motion for Intervention and the subsequent Motion to Substitute and/or Join as Party/Plaintiff.
Note, however, that in Pastor, Jr. v. Court of Appeals 26 we held that if aggrieved, even a non-party may institute a
petition for certiorari. In that case, petitioner was the holder in her own right of three mining claims and could file a
petition for certiorari, the fastest and most feasible remedy since she could not intervene in the probate of her fatherin-law's estate.27
In the instant case, we find that the recourse of the complainant to the respondent Court of Appeals was proper. The
petition was brought in her own name and in behalf of the Corporation. Although, the corporation was not a
complainant in the criminal action, the subject of the falsification was the corporation's project and the falsified
documents were corporate documents. Therefore, the corporation is a proper party in the petition for certiorari
because the proceedings in the criminal case directly and adversely affected the corporation.

40
We turn now to the third issue. Did the Court of Appeals and the lower court err in allowing private prosecutors to
actively participate in the trial of Criminal Case No. 285721?
Petitioner cites the case of Tan, Jr. v. Gallardo,28 holding that where from the nature of the offense or where the law
defining and punishing the offense charged does not provide for an indemnity, the offended party may not intervene in
the prosecution of the offense.
Petitioner's contention lacks merit. Generally, the basis of civil liability arising from crime is the fundamental postulate
that every man criminally liable is also civilly liable. When a person commits a crime he offends two entities namely
(1) the society in which he lives in or the political entity called the State whose law he has violated; and (2) the
individual member of the society whose person, right, honor, chastity or property has been actually or directly injured
or damaged by the same punishable act or omission. An act or omission is felonious because it is punishable by law, it
gives rise to civil liability not so much because it is a crime but because it caused damage to another. Additionally,
what gives rise to the civil liability is really the obligation and the moral duty of everyone to repair or make whole the
damage caused to another by reason of his own act or omission, whether done intentionally or negligently. The
indemnity which a person is sentenced to pay forms an integral part of the penalty imposed by law for the commission
of the crime.29 The civil action involves the civil liability arising from the offense charged which includes restitution,
reparation of the damage caused, and indemnification for consequential damages. 30
Under the Rules, where the civil action for recovery of civil liability is instituted in the criminal action pursuant to Rule
111, the offended party may intervene by counsel in the prosecution of the offense. 31 Rule 111(a) of the Rules of
Criminal Procedure provides that, "[w]hen a criminal action is instituted, the civil action arising from the offense
charged shall be deemed instituted with the criminal action unless the offended party waives the civil action, reserves
the right to institute it separately, or institutes the civil action prior to the criminal action."
Private respondent did not waive the civil action, nor did she reserve the right to institute it separately, nor institute
the civil action for damages arising from the offense charged. Thus, we find that the private prosecutors can intervene
in the trial of the criminal action.
Petitioner avers, however, that respondent's testimony in the inferior court did not establish nor prove any damages
personally sustained by her as a result of petitioner's alleged acts of falsification. Petitioner adds that since no
personal damages were proven therein, then the participation of her counsel as private prosecutors, who were
supposed to pursue the civil aspect of a criminal case, is not necessary and is without basis.
When the civil action is instituted with the criminal action, evidence should be taken of the damages claimed and the
court should determine who are the persons entitled to such indemnity. The civil liability arising from the crime may
be determined in the criminal proceedings if the offended party does not waive to have it adjudged or does not
reserve the right to institute a separate civil action against the defendant. Accordingly, if there is no waiver or
reservation of civil liability, evidence should be allowed to establish the extent of injuries suffered. 32
In the case before us, there was neither a waiver nor a reservation made; nor did the offended party institute a
separate civil action. It follows that evidence should be allowed in the criminal proceedings to establish the civil
liability arising from the offense committed, and the private offended party has the right to intervene through the
private prosecutors.
WHEREFORE, the instant petition is DENIED. The Decision, dated June 14, 2001, and the Resolution, dated November
20, 2001, of the Court of Appeals in CA-G.R. SP No. 57070, affirming the Order, dated October 5, 1999, of the
Regional Trial Court (RTC) of Manila, Branch 19, are AFFIRMED. Accordingly, the private prosecutors are hereby
allowed to intervene in behalf of private respondent Lydia Hao in the prosecution of the civil aspect of Criminal Case
No. 285721 before Branch 22, of Metropolitan Trial Court (MeTC) of Manila. Costs against petitioner.
SO ORDERED.
G.R. No. 152392

May 26, 2005

EXPERTRAVEL & TOURS, INC., petitioner,

vs.
COURT OF APPEALS and KOREAN AIRLINES, respondent.
DECISION

41
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 61000
dismissing the petition for certiorari and mandamus filed by Expertravel and Tours, Inc. (ETI).
The Antecedents
Korean Airlines (KAL) is a corporation established and registered in the Republic of South Korea and licensed to do
business in the Philippines. Its general manager in the Philippines is Suk Kyoo Kim, while its appointed counsel was
Atty. Mario Aguinaldo and his law firm.
On September 6, 1999, KAL, through Atty. Aguinaldo, filed a Complaint 2 against ETI with the Regional Trial Court
(RTC) of Manila, for the collection of the principal amount of P260,150.00, plus attorneys fees and exemplary
damages. The verification and certification against forum shopping was signed by Atty. Aguinaldo, who indicated
therein that he was the resident agent and legal counsel of KAL and had caused the preparation of the complaint.
ETI filed a motion to dismiss the complaint on the ground that Atty. Aguinaldo was not authorized to execute the
verification and certificate of non-forum shopping as required by Section 5, Rule 7 of the Rules of Court. KAL opposed
the motion, contending that Atty. Aguinaldo was its resident agent and was registered as such with the Securities and
Exchange Commission (SEC) as required by the Corporation Code of the Philippines. It was further alleged that Atty.
Aguinaldo was also the corporate secretary of KAL. Appended to the said opposition was the identification card of Atty.
Aguinaldo, showing that he was the lawyer of KAL.
During the hearing of January 28, 2000, Atty. Aguinaldo claimed that he had been authorized to file the complaint
through a resolution of the KAL Board of Directors approved during a special meeting held on June 25, 1999. Upon his
motion, KAL was given a period of 10 days within which to submit a copy of the said resolution. The trial court granted
the motion. Atty. Aguinaldo subsequently filed other similar motions, which the trial court granted.
Finally, KAL submitted on March 6, 2000 an Affidavit 3 of even date, executed by its general manager Suk Kyoo Kim,
alleging that the board of directors conducted a special teleconference on June 25, 1999, which he and Atty. Aguinaldo
attended. It was also averred that in that same teleconference, the board of directors approved a resolution
authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping and to file the complaint. Suk Kyoo Kim
also alleged, however, that the corporation had no written copy of the aforesaid resolution.
On April 12, 2000, the trial court issued an Order4 denying the motion to dismiss, giving credence to the claims of
Atty. Aguinaldo and Suk Kyoo Kim that the KAL Board of Directors indeed conducted a teleconference on June 25,
1999, during which it approved a resolution as quoted in the submitted affidavit.
ETI filed a motion for the reconsideration of the Order, contending that it was inappropriate for the court to take
judicial notice of the said teleconference without any prior hearing. The trial court denied the motion in its Order 5dated
August 8, 2000.
ETI then filed a petition for certiorari and mandamus, assailing the orders of the RTC. In its comment on the petition,
KAL appended a certificate signed by Atty. Aguinaldo dated January 10, 2000, worded as follows:
SECRETARYS/RESIDENT AGENTS CERTIFICATE
KNOW ALL MEN BY THESE PRESENTS:
I, Mario A. Aguinaldo, of legal age, Filipino, and duly elected and appointed Corporate Secretary and Resident
Agent of KOREAN AIRLINES, a foreign corporation duly organized and existing under and by virtue of the laws
of the Republic of Korea and also duly registered and authorized to do business in the Philippines, with office
address at Ground Floor, LPL Plaza Building, 124 Alfaro St., Salcedo Village, Makati City, HEREBY CERTIFY that
during a special meeting of the Board of Directors of the Corporation held on June 25, 1999 at which a
quorum was present, the said Board unanimously passed, voted upon and approved the following resolution
which is now in full force and effect, to wit:
RESOLVED, that Mario A. Aguinaldo and his law firm M.A. Aguinaldo & Associates or any of its lawyers
are hereby appointed and authorized to take with whatever legal action necessary to effect the

42
collection of the unpaid account of Expert Travel & Tours. They are hereby specifically authorized to
prosecute, litigate, defend, sign and execute any document or paper necessary to the filing and
prosecution of said claim in Court, attend the Pre-Trial Proceedings and enter into a compromise
agreement relative to the above-mentioned claim.
IN WITNESS WHEREOF, I have hereunto affixed my signature this 10 th day of January, 1999, in the City of
Manila, Philippines.
(Sgd.)
MARIO A. AGUINALDO
Resident Agent
SUBSCRIBED AND SWORN to before me this 10 th day of January, 1999, Atty. Mario A. Aguinaldo exhibiting to
me his Community Tax Certificate No. 14914545, issued on January 7, 2000 at Manila, Philippines.
Doc. No. 119;
Page No. 25;
Book No. XXIV
Series of 2000.

(Sgd.)
ATTY. HENRY D. ADASA
Notary Public
Until December 31, 2000
PTR #889583/MLA 1/3/20006

On December 18, 2001, the CA rendered judgment dismissing the petition, ruling that the verification and certificate
of non-forum shopping executed by Atty. Aguinaldo was sufficient compliance with the Rules of Court. According to the
appellate court, Atty. Aguinaldo had been duly authorized by the board resolution approved on June 25, 1999, and
was the resident agent of KAL. As such, the RTC could not be faulted for taking judicial notice of the said
teleconference of the KAL Board of Directors.
ETI filed a motion for reconsideration of the said decision, which the CA denied. Thus, ETI, now the petitioner, comes
to the Court by way of petition for review on certiorari and raises the following issue:
DID PUBLIC RESPONDENT COURT OF APPEALS DEPART FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS WHEN IT RENDERED ITS QUESTIONED DECISION AND WHEN IT ISSUED ITS
QUESTIONED RESOLUTION, ANNEXES A AND B OF THE INSTANT PETITION? 7
The petitioner asserts that compliance with Section 5, Rule 7, of the Rules of Court can be determined only from the
contents of the complaint and not by documents or pleadings outside thereof. Hence, the trial court committed grave
abuse of discretion amounting to excess of jurisdiction, and the CA erred in considering the affidavit of the
respondents general manager, as well as the Secretarys/Resident Agents Certification and the resolution of the board
of directors contained therein, as proof of compliance with the requirements of Section 5, Rule 7 of the Rules of Court.
The petitioner also maintains that the RTC cannot take judicial notice of the said teleconferencewithout prior hearing,
nor any motion therefor. The petitioner reiterates its submission that the teleconference and the resolution adverted to
by the respondent was a mere fabrication.
The respondent, for its part, avers that the issue of whether modern technology is used in the field of business is a
factual issue; hence, cannot be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. On the
merits of the petition, it insists that Atty. Aguinaldo, as the resident agent and corporate secretary, is authorized to
sign and execute the certificate of non-forum shopping required by Section 5, Rule 7 of the Rules of Court, on top of
the board resolution approved during the teleconference of June 25, 1999. The respondent insists that "technological
advances in this time and age are as commonplace as daybreak." Hence, the courts may take judicial notice that the
Philippine Long Distance Telephone Company, Inc. had provided a record of corporate conferences and meetings
through FiberNet using fiber-optic transmission technology, and that such technology facilitates voice and image
transmission with ease; this makes constant communication between a foreign-based office and its Philippine-based
branches faster and easier, allowing for cost-cutting in terms of travel concerns. It points out that even the ECommerce Law has recognized this modern technology. The respondent posits that the courts are aware of this
development in technology; hence, may take judicial notice thereof without need of hearings. Even if such hearing is
required, the requirement is nevertheless satisfied if a party is allowed to file pleadings by way of comment or
opposition thereto.

43
In its reply, the petitioner pointed out that there are no rulings on the matter of teleconferencing as a means of
conducting meetings of board of directors for purposes of passing a resolution; until and after teleconferencing is
recognized as a legitimate means of gathering a quorum of board of directors, such cannot be taken judicial notice of
by the court. It asserts that safeguards must first be set up to prevent any mischief on the public or to protect the
general public from any possible fraud. It further proposes possible amendments to the Corporation Code to give
recognition to such manner of board meetings to transact business for the corporation, or other related corporate
matters; until then, the petitioner asserts, teleconferencing cannot be the subject of judicial notice.
The petitioner further avers that the supposed holding of a special meeting on June 25, 1999 through teleconferencing
where Atty. Aguinaldo was supposedly given such an authority is a farce, considering that there was no mention of
where it was held, whether in this country or elsewhere. It insists that the Corporation Code requires board
resolutions of corporations to be submitted to the SEC. Even assuming that there was such a teleconference, it would
be against the provisions of the Corporation Code not to have any record thereof.
The petitioner insists that the teleconference and resolution adverted to by the respondent in its pleadings were mere
fabrications foisted by the respondent and its counsel on the RTC, the CA and this Court.
The petition is meritorious.
Section 5, Rule 7 of the Rules of Court provides:
SEC. 5. Certification against forum shopping. The plaintiff or principal party shall certify under oath in the
complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto
and simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim
involving the same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no
such other action or claim is pending therein; (b) if there is such other pending action or claim, a complete
statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action
or claim has been filed or is pending, he shall report that fact within five (5) days therefrom to the court
wherein his aforesaid complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint
or other initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise
provided, upon motion and after hearing. The submission of a false certification or non-compliance with any of
the undertakings therein shall constitute indirect contempt of court, without prejudice to the corresponding
administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful and
deliberate forum shopping, the same shall be ground for summary dismissal with prejudice and shall
constitute direct contempt, as well as a cause for administrative sanctions.
It is settled that the requirement to file a certificate of non-forum shopping is mandatory 8 and that the failure to
comply with this requirement cannot be excused. The certification is a peculiar and personal responsibility of the
party, an assurance given to the court or other tribunal that there are no other pending cases involving basically the
same parties, issues and causes of action. Hence, the certification must be accomplished by the party himself because
he has actual knowledge of whether or not he has initiated similar actions or proceedings in different courts or
tribunals. Even his counsel may be unaware of such facts. 9 Hence, the requisite certification executed by the plaintiffs
counsel will not suffice.10
In a case where the plaintiff is a private corporation, the certification may be signed, for and on behalf of the said
corporation, by a specifically authorized person, including its retained counsel, who has personal knowledge of the
facts required to be established by the documents. The reason was explained by the Court in National Steel
Corporation v. Court of Appeals,11 as follows:
Unlike natural persons, corporations may perform physical actions only through properly delegated
individuals; namely, its officers and/or agents.

The 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

44
by corporate by-laws or by 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, liabilities and incapacities as are agents of individuals and private
persons."

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.
Indeed, the certificate of non-forum shopping may be incorporated in the complaint or appended thereto as an
integral part of the complaint. The rule is that compliance with the rule after the filing of the complaint, or the
dismissal of a complaint based on its non-compliance with the rule, is impermissible. However, in exceptional
circumstances, the court may allow subsequent compliance with the rule. 12 If the authority of a partys counsel to
execute a certificate of non-forum shopping is disputed by the adverse party, the former is required to show proof of
such authority or representation.
In this case, the petitioner, as the defendant in the RTC, assailed the authority of Atty. Aguinaldo to execute the
requisite verification and certificate of non-forum shopping as the resident agent and counsel of the respondent. It
was, thus, incumbent upon the respondent, as the plaintiff, to allege and establish that Atty. Aguinaldo had such
authority to execute the requisite verification and certification for and in its behalf. The respondent, however, failed to
do so.
The verification and certificate of non-forum shopping which was incorporated in the complaint and signed by Atty.
Aguinaldo reads:
I, Mario A. Aguinaldo of legal age, Filipino, with office address at Suite 210 Gedisco Centre, 1564 A. Mabini
cor. P. Gil Sts., Ermita, Manila, after having sworn to in accordance with law hereby deposes and say: THAT 1. I am the Resident Agent and Legal Counsel of the plaintiff in the above entitled case and have caused the
preparation of the above complaint;
2. I have read the complaint and that all the allegations contained therein are true and correct based on the
records on files;
3. I hereby further certify that I have not commenced any other action or proceeding involving the same
issues in the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or
agency. If I subsequently learned that a similar action or proceeding has been filed or is pending before the
Supreme Court, the Court of Appeals, or different divisions thereof, or any tribunal or agency, I will notify the
court, tribunal or agency within five (5) days from such notice/knowledge.
(Sgd.)
MARIO A. AGUINALDO
Affiant
CITY OF MANILA
SUBSCRIBED AND SWORN TO before me this 30 th day of August, 1999, affiant exhibiting to me his
Community Tax Certificate No. 00671047 issued on January 7, 1999 at Manila, Philippines.
Doc. No. 1005;
Page No. 198;
Book No. XXI
Series of 1999.

(Sgd.)
ATTY. HENRY D. ADASA
Notary Public
Until December 31, 2000

45
PTR No. 320501 Mla. 1/4/9913
As gleaned from the aforequoted certification, there was no allegation that Atty. Aguinaldo had been authorized to
execute the certificate of non-forum shopping by the respondents Board of Directors; moreover, no such board
resolution was appended thereto or incorporated therein.
While Atty. Aguinaldo is the resident agent of the respondent in the Philippines, this does not mean that he is
authorized to execute the requisite certification against forum shopping. Under Section 127, in relation to Section 128
of the Corporation Code, the authority of the resident agent of a foreign corporation with license to do business in the
Philippines is to receive, for and in behalf of the foreign corporation, services and other legal processes in all actions
and other legal proceedings against such corporation, thus:
SEC. 127. Who may be a resident agent. A resident agent may either be an individual residing in the
Philippines or a domestic corporation lawfully transacting business in the Philippines: Provided, That in the
case of an individual, he must be of good moral character and of sound financial standing.
SEC. 128. Resident agent; service of process. The Securities and Exchange Commission shall require as a
condition precedent to the issuance of the license to transact business in the Philippines by any foreign
corporation that such corporation file with the Securities and Exchange Commission a written power of
attorney designating some persons who must be a resident of the Philippines, on whom any summons and
other legal processes may be served in all actions or other legal proceedings against such corporation, and
consenting that service upon such resident agent shall be admitted and held as valid as if served upon the
duly-authorized officers of the foreign corporation as its home office. 14
Under the law, Atty. Aguinaldo was not specifically authorized to execute a certificate of non-forum shopping as
required by Section 5, Rule 7 of the Rules of Court. This is because while a resident agent may be aware of actions
filed against his principal (a foreign corporation doing business in the Philippines), such resident may not be aware of
actions initiated by its principal, whether in the Philippines against a domestic corporation or private individual, or in
the country where such corporation was organized and registered, against a Philippine registered corporation or a
Filipino citizen.
The respondent knew that its counsel, Atty. Aguinaldo, as its resident agent, was not specifically authorized to execute
the said certification. It attempted to show its compliance with the rule subsequent to the filing of its complaint by
submitting, on March 6, 2000, a resolution purporting to have been approved by its Board of Directors during a
teleconference held on June 25, 1999, allegedly with Atty. Aguinaldo and Suk Kyoo Kim in attendance. However, such
attempt of the respondent casts veritable doubt not only on its claim that such a teleconference was held, but also on
the approval by the Board of Directors of the resolution authorizing Atty. Aguinaldo to execute the certificate of nonforum shopping.
In its April 12, 2000 Order, the RTC took judicial notice that because of the onset of modern technology, persons in
one location may confer with other persons in other places, and, based on the said premise, concluded that Suk Kyoo
Kim and Atty. Aguinaldo had a teleconference with the respondents Board of Directors in South Korea on June 25,
1999. The CA, likewise, gave credence to the respondents claim that such a teleconference took place, as contained
in the affidavit of Suk Kyoo Kim, as well as Atty. Aguinaldos certification.
Generally speaking, matters of judicial notice have three material requisites: (1) the matter must be one of common
and general knowledge; (2) it must be well and authoritatively settled and not doubtful or uncertain; and (3) it must
be known to be within the limits of the jurisdiction of the court. The principal guide in determining what facts may be
assumed to be judicially known is that of notoriety. Hence, it can be said that judicial notice is limited to facts
evidenced by public records and facts of general notoriety.[15] Moreover, a judicially noticed fact must be one not
subject to a reasonable dispute in that it is either: (1) generally known within the territorial jurisdiction of the trial
court; or (2) capable of accurate and ready determination by resorting to sources whose accuracy cannot reasonably
be questionable.16
Things of "common knowledge," of which courts take judicial matters coming to the knowledge of men generally in the
course of the ordinary experiences of life, or they may be matters which are generally accepted by mankind as true
and are capable of ready and unquestioned demonstration. Thus, facts which are universally known, and which may
be found in encyclopedias, dictionaries or other publications, are judicially noticed, provided, they are of such
universal notoriety and so generally understood that they may be regarded as forming part of the common knowledge

46
of every person. As the common knowledge of man ranges far and wide, a wide variety of particular facts have been
judicially noticed as being matters of common knowledge. But a court cannot take judicial notice of any fact which, in
part, is dependent on the existence or non-existence of a fact of which the court has no constructive knowledge.17
In this age of modern technology, the courts may take judicial notice that business transactions may be made by
individuals through teleconferencing. Teleconferencing is interactive group communication (three or more people in
two or more locations) through an electronic medium. In general terms, teleconferencing can bring people together
under one roof even though they are separated by hundreds of miles. 18 This type of group communication may be
used in a number of ways, and have three basic types: (1) video conferencing - television-like communication
augmented with sound; (2) computer conferencing - printed communication through keyboard terminals, and (3)
audio-conferencing-verbal communication via the telephone with optional capacity for telewriting or telecopying. 19
A teleconference represents a unique alternative to face-to-face (FTF) meetings. It was first introduced in the 1960s
with American Telephone and Telegraphs Picturephone. At that time, however, no demand existed for the new
technology. Travel costs were reasonable and consumers were unwilling to pay the monthly service charge for using
the picturephone, which was regarded as more of a novelty than as an actual means for everyday communication. 20 In
time, people found it advantageous to hold teleconferencing in the course of business and corporate governance,
because of the money saved, among other advantages include:
1. People (including outside guest speakers) who wouldnt normally attend a distant FTF meeting can
participate.
2. Follow-up to earlier meetings can be done with relative ease and little expense.
3. Socializing is minimal compared to an FTF meeting; therefore, meetings are shorter and more oriented to
the primary purpose of the meeting.
4. Some routine meetings are more effective since one can audio-conference from any location equipped with
a telephone.
5. Communication between the home office and field staffs is maximized.
6. Severe climate and/or unreliable transportation may necessitate teleconferencing.
7. Participants are generally better prepared than for FTF meetings.
8. It is particularly satisfactory for simple problem-solving, information exchange, and procedural tasks.
9. Group members participate more equally in well-moderated teleconferences than an FTF meeting. 21
On the other hand, other private corporations opt not to hold teleconferences because of the following disadvantages:
1. Technical failures with equipment, including connections that arent made.
2. Unsatisfactory for complex interpersonal communication, such as negotiation or bargaining.
3. Impersonal, less easy to create an atmosphere of group rapport.
4. Lack of participant familiarity with the equipment, the medium itself, and meeting skills.
5. Acoustical problems within the teleconferencing rooms.
6. Difficulty in determining participant speaking order; frequently one person monopolizes the meeting.
7. Greater participant preparation time needed.
8. Informal, one-to-one, social interaction not possible. 22

47
Indeed, teleconferencing can only facilitate the linking of people; it does not alter the complexity of group
communication. Although it may be easier to communicate via teleconferencing, it may also be easier to
miscommunicate. Teleconferencing cannot satisfy the individual needs of every type of meeting. 23
In the Philippines, teleconferencing and videoconferencing of members of board of directors of private corporations is
a reality, in light of Republic Act No. 8792. The Securities and Exchange Commission issued SEC Memorandum Circular
No. 15, on November 30, 2001, providing the guidelines to be complied with related to such conferences. 24 Thus, the
Court agrees with the RTC that persons in the Philippines may have a teleconference with a group of persons in South
Korea relating to business transactions or corporate governance.
Even given the possibility that Atty. Aguinaldo and Suk Kyoo Kim participated in a teleconference along with the
respondents Board of Directors, the Court is not convinced that one was conducted; even if there had been one, the
Court is not inclined to believe that a board resolution was duly passed specifically authorizing Atty. Aguinaldo to file
the complaint and execute the required certification against forum shopping.
The records show that the petitioner filed a motion to dismiss the complaint on the ground that the respondent failed
to comply with Section 5, Rule 7 of the Rules of Court. The respondent opposed the motion on December 1, 1999, on
its contention that Atty. Aguinaldo, its resident agent, was duly authorized to sue in its behalf. The respondent,
however, failed to establish its claim that Atty. Aguinaldo was its resident agent in the Philippines. Even the
identification card25 of Atty. Aguinaldo which the respondent appended to its pleading merely showed that he is the
company lawyer of the respondents Manila Regional Office.
The respondent, through Atty. Aguinaldo, announced the holding of the teleconference only during the hearing of
January 28, 2000; Atty. Aguinaldo then prayed for ten days, or until February 8, 2000, within which to submit the
board resolution purportedly authorizing him to file the complaint and execute the required certification against forum
shopping. The court granted the motion.26 The respondent, however, failed to comply, and instead prayed for 15 more
days to submit the said resolution, contending that it was with its main office in Korea. The court granted the motion
per its Order27 dated February 11, 2000. The respondent again prayed for an extension within which to submit the
said resolution, until March 6, 2000.28 It was on the said date that the respondent submitted an affidavit of its general
manager Suk Kyoo Kim, stating, inter alia, that he and Atty. Aguinaldo attended the said teleconference on June 25,
1999, where the Board of Directors supposedly approved the following resolution:
RESOLVED, that Mario A. Aguinaldo and his law firm M.A. Aguinaldo & Associates or any of its lawyers are
hereby appointed and authorized to take with whatever legal action necessary to effect the collection of the
unpaid account of Expert Travel & Tours. They are hereby specifically authorized to prosecute, litigate, defend,
sign and execute any document or paper necessary to the filing and prosecution of said claim in Court, attend
the Pre-trial Proceedings and enter into a compromise agreement relative to the above-mentioned claim. 29
But then, in the same affidavit, Suk Kyoo Kim declared that the respondent "do[es] not keep a written copy of the
aforesaid Resolution" because no records of board resolutions approved during teleconferences were kept. This belied
the respondents earlier allegation in its February 10, 2000 motion for extension of time to submit the questioned
resolution that it was in the custody of its main office in Korea. The respondent gave the trial court the impression
that it needed time to secure a copy of the resolution kept in Korea, only to allege later (via the affidavit of Suk Kyoo
Kim) that it had no such written copy. Moreover, Suk Kyoo Kim stated in his affidavit that the resolution was embodied
in the Secretarys/Resident Agents Certificate signed by Atty. Aguinaldo. However, no such resolution was appended
to the said certificate.
The respondents allegation that its board of directors conducted a teleconference on June 25, 1999 and approved the
said resolution (with Atty. Aguinaldo in attendance) is incredible, given the additional fact that no such allegation was
made in the complaint. If the resolution had indeed been approved on June 25, 1999, long before the complaint was
filed, the respondent should have incorporated it in its complaint, or at least appended a copy thereof. The respondent
failed to do so. It was only on January 28, 2000 that the respondent claimed, for the first time, that there was such a
meeting of the Board of Directors held on June 25, 1999; it even represented to the Court that a copy of its resolution
was with its main office in Korea, only to allege later that no written copy existed. It was only on March 6, 2000 that
the respondent alleged, for the first time, that the meeting of the Board of Directors where the resolution was
approved was held via teleconference.
Worse still, it appears that as early as January 10, 1999, Atty. Aguinaldo had signed a Secretarys/Resident Agents
Certificate alleging that the board of directors held a teleconference on June 25, 1999. No such certificate was
appended to the complaint, which was filed on September 6, 1999. More importantly, the respondent did not explain
why the said certificate was signed by Atty. Aguinaldo as early as January 9, 1999, and yet was notarized one year

48
later (on January 10, 2000); it also did not explain its failure to append the said certificate to the complaint, as well as
to its Compliance dated March 6, 2000. It was only on January 26, 2001 when the respondent filed its comment in the
CA that it submitted the Secretarys/Resident Agents Certificate 30 dated January 10, 2000.
The Court is, thus, more inclined to believe that the alleged teleconference on June 25, 1999 never took place, and
that the resolution allegedly approved by the respondents Board of Directors during the said teleconference was a
mere concoction purposefully foisted on the RTC, the CA and this Court, to avert the dismissal of its complaint against
the petitioner.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP
No. 61000 is REVERSED and SET ASIDE. The Regional Trial Court of Manila is hereby ORDERED to dismiss, without
prejudice, the complaint of the respondent.
SO ORDERED.
G.R. No. 93695 February 4, 1992
RAMON C. LEE and ANTONIO DM. LACDAO, petitioners,
vs.
THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS
GONZALES, respondents.
Cayanga, Zuniga & Angel Law Offices for petitioners.
Timbol & Associates for private respondents.

GUTIERREZ, JR., J.:

What is the nature of the voting trust agreement executed between two parties in this case? Who owns the stocks of
the corporation under the terms of the voting trust agreement? How long can a voting trust agreement remain valid
and effective? Did a director of the corporation cease to be such upon the creation of the voting trust agreement?
These are the questions the answers to which are necessary in resolving the principal issue in this petition
for certiorari whether or not there was proper service of summons on Alfa Integrated Textile Mills (ALFA, for short)
through the petitioners as president and vice-president, allegedly, of the subject corporation after the execution of a
voting trust agreement between ALFA and the Development Bank of the Philippines (DBP, for short).
From the records of the instant case, the following antecedent facts appear:
On November 15, 1985, a complaint for a sum of money was filed by the International Corporate Bank, Inc. against
the private respondents who, in turn, filed a third party complaint against ALFA and the petitioners on March 17,
1986.
On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint which the Regional Trial
Court of Makati, Branch 58 denied in an Order dated June 27, 1988.
On July 18, 1988, the petitioners filed their answer to the third party complaint.
Meanwhile, on July 12, 1988, the trial court issued an order requiring the issuance of an alias summons upon ALFA
through the DBP as a consequence of the petitioner's letter informing the court that the summons for ALFA was
erroneously served upon them considering that the management of ALFA had been transferred to the DBP.

49
In a manifestation dated July 22, 1988, the DBP claimed that it was not authorized to receive summons on behalf of
ALFA since the DBP had not taken over the company which has a separate and distinct corporate personality and
existence.
On August 4, 1988, the trial court issued an order advising the private respondents to take the appropriate steps to
serve the summons to ALFA.
On August 16, 1988, the private respondents filed a Manifestation and Motion for the Declaration of Proper Service of
Summons which the trial court granted on August 17, 1988.
On September 12, 1988, the petitioners filed a motion for reconsideration submitting that Rule 14, section 13 of the
Revised Rules of Court is not applicable since they were no longer officers of ALFA and that the private respondents
should have availed of another mode of service under Rule 14, Section 16 of the said Rules, i.e.,through publication to
effect proper service upon ALFA.
In their Comment to the Motion for Reconsideration dated September 27, 1988, the private respondents argued that
the voting trust agreement dated March 11, 1981 did not divest the petitioners of their positions as president and
executive vice-president of ALFA so that service of summons upon ALFA through the petitioners as corporate officers
was proper.
On January 2, 1989, the trial court upheld the validity of the service of summons on ALFA through the petitioners,
thus, denying the latter's motion for reconsideration and requiring ALFA to filed its answer through the petitioners as
its corporate officers.
On January 19, 1989, a second motion for reconsideration was filed by the petitioners reiterating their stand that by
virtue of the voting trust agreement they ceased to be officers and directors of ALFA, hence, they could no longer
receive summons or any court processes for or on behalf of ALFA. In support of their second motion for
reconsideration, the petitioners attached thereto a copy of the voting trust agreement between all the stockholders of
ALFA (the petitioners included), on the one hand, and the DBP, on the other hand, whereby the management and
control of ALFA became vested upon the DBP.
On April 25, 1989, the trial court reversed itself by setting aside its previous Order dated January 2, 1989 and
declared that service upon the petitioners who were no longer corporate officers of ALFA cannot be considered as
proper service of summons on ALFA.
On May 15, 1989, the private respondents moved for a reconsideration of the above Order which was affirmed by the
court in its Order dated August 14, 1989 denying the private respondent's motion for reconsideration.
On September 18, 1989, a petition for certiorari was belatedly submitted by the private respondent before the public
respondent which, nonetheless, resolved to give due course thereto on September 21, 1989.
On October 17, 1989, the trial court, not having been notified of the pending petition for certiorari with public
respondent issued an Order declaring as final the Order dated April 25, 1989. The private respondents in the said
Order were required to take positive steps in prosecuting the third party complaint in order that the court would not
be constrained to dismiss the same for failure to prosecute. Subsequently, on October 25, 1989 the private
respondents filed a motion for reconsideration on which the trial court took no further action.
On March 19, 1990, after the petitioners filed their answer to the private respondents' petition for certiorari, the public
respondent rendered its decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the orders of respondent judge dated April 25, 1989 and
August 14, 1989 are hereby SET ASIDE and respondent corporation is ordered to file its answer within
the reglementary period. (CA Decision, p. 8; Rollo, p. 24)

50
On April 11, 1990, the petitioners moved for a reconsideration of the decision of the public respondent which resolved
to deny the same on May 10, 1990. Hence, the petitioners filed this certiorari petition imputing grave abuse of
discretion amounting to lack of jurisdiction on the part of the public respondent in reversing the questioned Orders
dated April 25, 1989 and August 14, 1989 of the court a quo, thus, holding that there was proper service of summons
on ALFA through the petitioners.
In the meantime, the public respondent inadvertently made an entry of judgment on July 16, 1990 erroneously
applying the rule that the period during which a motion for reconsideration has been pending must be deducted from
the 15-day period to appeal. However, in its Resolution dated January 3, 1991, the public respondent set aside the
aforestated entry of judgment after further considering that the rule it relied on applies to appeals from decisions of
the Regional Trial Courts to the Court of Appeals, not to appeals from its decision to us pursuant to our ruling in the
case of Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [1989]. (CA Rollo,
pp. 249-250)
In their memorandum, the petitioners present the following arguments, to wit:
(1) that the execution of the voting trust agreement by a stockholders whereby all his shares to the
corporation have been transferred to the trustee deprives the stockholders of his position as director
of the corporation; to rule otherwise, as the respondent Court of Appeals did, would be violative of
section 23 of the Corporation Code ( Rollo, pp. 270-3273); and
(2) that the petitioners were no longer acting or holding any of the positions provided under Rule 14,
Section 13 of the Rules of Court authorized to receive service of summons for and in behalf of the
private domestic corporation so that the service of summons on ALFA effected through the petitioners
is not valid and ineffective; to maintain the respondent Court of Appeals' position that ALFA was
properly served its summons through the petitioners would be contrary to the general principle that a
corporation can only be bound by such acts which are within the scope of its officers' or agents'
authority (Rollo, pp. 273-275)
In resolving the issue of the propriety of the service of summons in the instant case, we dwell first on the nature of a
voting trust agreement and the consequent effects upon its creation in the light of the provisions of the Corporation
Code.
A voting trust is defined in Ballentine's Law Dictionary as follows:
(a) trust created by an agreement between a group of the stockholders of a corporation and the
trustee or by a group of identical agreements between individual stockholders and a common trustee,
whereby it is provided that for a term of years, or for a period contingent upon a certain event, or until
the agreement is terminated, control over the stock owned by such stockholders, either for certain
purposes or for all purposes, is to be lodged in the trustee, either with or without a reservation to the
owners, or persons designated by them, of the power to direct how such control shall be used. (98
ALR 2d. 379 sec. 1 [d]; 19 Am J 2d Corp. sec. 685).
Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements, a more definitive
meaning may be gathered. The said provision partly reads:
Sec. 59. Voting Trusts One or more stockholders of a stock corporation may create a voting trust
for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to
the share for a period rights pertaining to the shares for a period not exceeding five (5) years at any
one time: Provided, that in the case of a voting trust specifically required as a condition in a loan
agreement, said voting trust may be for a period exceeding (5) years but shall automatically expire
upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall
specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the
corporation and with the Securities and Exchange Commission; otherwise, said agreement is

51
ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust
agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees
stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be
noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust
agreement.
By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his
other rights such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell
certain interests in the assets of the corporation and other rights to which a stockholder may be entitled until the
liquidation of the corporation. However, in order to distinguish a voting trust agreement from proxies and other voting
pools and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock are
separated from the other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for
a definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of
the corporation. (5 Fletcher, Cyclopedia of the Law on Private Corporations, section 2075 [1976] p. 331citing Tankersly
v. Albright, 374 F. Supp. 538)
Under section 59 of the Corporation Code, supra, a voting trust agreement may confer upon a trustee not only the
stockholder's voting rights but also other rights pertaining to his shares as long as the voting trust agreement is not
entered "for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or
used for purposes of fraud." (section 59, 5th paragraph of the Corporation Code) Thus, the traditional concept of a
voting trust agreement primarily intended to single out a stockholder's right to vote from his other rights as such and
made irrevocable for a limited duration may in practice become a legal device whereby a transfer of the stockholder's
shares is effected subject to the specific provision of the voting trust agreement.
The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable or beneficial
ownership of the corporate shares of a stockholders, on the one hand, and the legal title thereto on the other hand.
The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders
of a corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights
pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory conditions and such
other terms and conditions specified in the agreement. The five year-period may be extended in cases where the
voting trust is executed pursuant to a loan agreement whereby the period is made contingent upon full payment of
the loan.
In the instant case, the point of controversy arises from the effects of the creation of the voting trust agreement. The
petitioners maintain that with the execution of the voting trust agreement between them and the other stockholders
of ALFA, as one party, and the DBP, as the other party, the former assigned and transferred all their shares in ALFA to
DBP, as trustee. They argue that by virtue to of the voting trust agreement the petitioners can no longer be
considered directors of ALFA. In support of their contention, the petitioners invoke section 23 of the Corporation Code
which provides, in part, that:
Every director must own at least one (1) share of the capital stock of the corporation of which he is a
director which share shall stand in his name on the books of the corporation. Any director who ceases
to be the owner of at least one (1) share of the capital stock of the corporation of which he is a
director shall thereby cease to be director . . . (Rollo, p. 270)
The private respondents, on the contrary, insist that the voting trust agreement between ALFA and the DBP had all the
more safeguarded the petitioners' continuance as officers and directors of ALFA inasmuch as the general object of
voting trust is to insure permanency of the tenure of the directors of a corporation. They cited the commentaries by
Prof. Aguedo Agbayani on the right and status of the transferring stockholders, to wit:
The "transferring stockholder", also called the "depositing stockholder", is equitable owner for the
stocks represented by the voting trust certificates and the stock reversible on termination of the trust
by surrender. It is said that the voting trust agreement does not destroy the status of the transferring

52
stockholders as such, and thus render them ineligible as directors. But a more accurate statement
seems to be that for some purposes the depositing stockholder holding voting trust certificates in lieu
of his stock and being the beneficial owner thereof, remains and is treated as a stockholder. It seems
to be deducible from the case that he may sue as a stockholder if the suit is in equity or is of an
equitable nature, such as, a technical stockholders' suit in right of the corporation. [Commercial Laws
of the Philippines by Agbayani, Vol. 3 pp. 492-493, citing 5 Fletcher 326, 327] (Rollo, p. 291)
We find the petitioners' position meritorious.
Both under the old and the new Corporation Codes there is no dispute as to the most immediate effect of a voting
trust agreement on the status of a stockholder who is a party to its execution from legal titleholder or owner of the
shares subject of the voting trust agreement, he becomes the equitable or beneficial owner. (Salonga,Philippine Law
on Private Corporations, 1958 ed., p. 268; Pineda and Carlos, The Law on Private Corporations and Corporate
Practice, 1969 ed., p. 175; Campos and Lopez-Campos, The Corporation Code; Comments, Notes & Selected
Cases, 1981, ed., p. 386; Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol.
3, 1988 ed., p. 536). The penultimate question, therefore, is whether the change in his status deprives the
stockholder of the right to qualify as a director under section 23 of the present Corporation Code which deletes the
phrase "in his own right." Section 30 of the old Code states that:
Every director must own in his own right at least one share of the capital stock of the stock
corporation of which he is a director, which stock shall stand in his name on the books of the
corporation. A director who ceases to be the owner of at least one share of the capital stock of a stock
corporation of which is a director shall thereby cease to be a director . . . (Emphasis supplied)
Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the
simple act of such director being a party to a voting trust agreement inasmuch as he remains owner (although
beneficial or equitable only) of the shares subject of the voting trust agreement pursuant to which a transfer of the
stockholder's shares in favor of the trustee is required (section 36 of the old Corporation Code). No disqualification
arises by virtue of the phrase "in his own right" provided under the old Corporation Code.
With the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not
beneficial owners of the shares registered in their names on the books of the corporation becomes formally legalized
(see Campos and Lopez-Campos, supra, p. 296) Hence, this is a clear indication that in order to be eligible as a
director, what is material is the legal title to, not beneficial ownership of, the stock as appearing on the books of the
corporation (2 Fletcher, Cyclopedia of the Law of Private Corporations, section 300, p. 92 [1969]citing People v. Lihme,
269 Ill. 351, 109 N.E. 1051).
The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981 disposed
of all their shares through assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners
ceased to own at least one share standing in their names on the books of ALFA as required under Section 23 of the
new Corporation Code. They also ceased to have anything to do with the management of the enterprise. The
petitioners ceased to be directors. Hence, the transfer of the petitioners' shares to the DBP created vacancies in their
respective positions as directors of ALFA. The transfer of shares from the stockholder of ALFA to the DBP is the
essence of the subject voting trust agreement as evident from the following stipulations:
1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of the stocks
owned by them respectively and shall do all things necessary for the transfer of their respective shares
to the TRUSTEE on the books of ALFA.
2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of shares
transferred, which shall be transferrable in the same manner and with the same effect as certificates
of stock subject to the provisions of this agreement;

53
3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or special, upon
any resolution, matter or business that may be submitted to any such meeting, and shall possess in
that respect the same powers as owners of the equitable as well as the legal title to the stock;
4. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose of
qualifying such person as director of ALFA, and cause a certificate of stock evidencing the share so
transferred to be issued in the name of such person;
xxx xxx xxx
9. Any stockholder not entering into this agreement may transfer his shares to the same trustees
without the need of revising this agreement, and this agreement shall have the same force and effect
upon that said stockholder. (CA Rollo, pp. 137-138; Emphasis supplied)
Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stock
covered by the agreement to the DBP as trustee, the latter became the stockholder of record with respect to the said
shares of stocks. In the absence of a showing that the DBP had caused to be transferred in their names one share of
stock for the purpose of qualifying as directors of ALFA, the petitioners can no longer be deemed to have retained
their status as officers of ALFA which was the case before the execution of the subject voting trust agreement. There
appears to be no dispute from the records that DBP has taken over full control and management of the firm.
Moreover, in the Certification dated January 24, 1989 issued by the DBP through one Elsa A. Guevarra, Vice-President
of its Special Accounts Department II, Remedial Management Group, the petitioners were no longer included in the list
of officers of ALFA "as of April 1982." (CA Rollo, pp. 140-142)
Inasmuch as the private respondents in this case failed to substantiate their claim that the subject voting trust
agreement did not deprive the petitioners of their position as directors of ALFA, the public respondent committed a
reversible error when it ruled that:
. . . while the individual respondents (petitioners Lee and Lacdao) may have ceased to be president
and vice-president, respectively, of the corporation at the time of service of summons on them on
August 21, 1987, they were at least up to that time, still directors . . .
The aforequoted statement is quite inaccurate in the light of the express terms of Stipulation No. 4 of the subject
voting trust agreement. Both parties, ALFA and the DBP, were aware at the time of the execution of the agreement
that by virtue of the transfer of shares of ALFA to the DBP, all the directors of ALFA were stripped of their positions as
such.
There can be no reliance on the inference that the five-year period of the voting trust agreement in question had
lapsed in 1986 so that the legal title to the stocks covered by the said voting trust agreement ipso facto reverted to
the petitioners as beneficial owners pursuant to the 6th paragraph of section 59 of the new Corporation Code which
reads:
Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at
the end of the agreed period, and the voting trust certificate as well as the certificates of stock in the
name of the trustee or trustees shall thereby be deemed cancelled and new certificates of stock shall
be reissued in the name of the transferors.
On the contrary, it is manifestly clear from the terms of the voting trust agreement between ALFA and the DBP that
the duration of the agreement is contingent upon the fulfillment of certain obligations of ALFA with the DBP. This is
shown by the following portions of the agreement.
WHEREAS, the TRUSTEE is one of the creditors of ALFA, and its credit is secured by a first mortgage
on the manufacturing plant of said company;

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WHEREAS, ALFA is also indebted to other creditors for various financial accomodations and because of
the burden of these obligations is encountering very serious difficulties in continuing with its
operations.
WHEREAS, in consideration of additional accommodations from the TRUSTEE, ALFA had offered and
the TRUSTEE has accepted participation in the management and control of the company and to assure
the aforesaid participation by the TRUSTEE, the TRUSTORS have agreed to execute a voting trust
covering their shareholding in ALFA in favor of the TRUSTEE;
AND WHEREAS, DBP is willing to accept the trust for the purpose aforementioned.
NOW, THEREFORE, it is hereby agreed as follows:
xxx xxx xxx
6. This Agreement shall last for a period of Five (5) years, and is renewable for as long as the
obligations of ALFA with DBP, or any portion thereof, remains outstanding; (CA Rollo, pp. 137-138)
Had the five-year period of the voting trust agreement expired in 1986, the DBP would not have transferred all its
rights, titles and interests in ALFA "effective June 30, 1986" to the national government through the Asset
Privatization Trust (APT) as attested to in a Certification dated January 24, 1989 of the Vice President of the DBP's
Special Accounts Department II. In the same certification, it is stated that the DBP, from 1987 until 1989, had handled
APT's account which included ALFA's assets pursuant to a management agreement by and between the DBP and APT
(CA Rollo, p. 142) Hence, there is evidence on record that at the time of the service of summons on ALFA through the
petitioners on August 21, 1987, the voting trust agreement in question was not yet terminated so that the legal title
to the stocks of ALFA, then, still belonged to the DBP.
In view of the foregoing, the ultimate issue of whether or not there was proper service of summons on ALFA through
the petitioners is readily answered in the negative.
Under section 13, Rule 14 of the Revised Rules of Court, it is provided that:
Sec. 13. Service upon private domestic corporation or partnership. If the defendant is a corporation
organized under the laws of the Philippines or a partnership duly registered, service may be made on
the president, manager, secretary, cashier, agent or any of its directors.
It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or
members who compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347 [1976]; Osias Academy v.
Department of Labor and Employment, et al., G.R. Nos. 83257-58, December 21, 1990). Thus, the above rule on
service of processes of a corporation enumerates the representatives of a corporation who can validly receive court
processes on its behalf. Not every stockholder or officer can bind the corporation considering the existence of a
corporate entity separate from those who compose it.
The rationale of the aforecited rule is that service must be made on a representative so integrated with the
corporation sued as to make it a priori supposable that he will realize his responsibilities and know what he should do
with any legal papers served on him. (Far Corporation v. Francisco, 146 SCRA 197 [1986] citing Villa Rey Transit, Inc.
v. Far East Motor Corp. 81 SCRA 303 [1978]).
The petitioners in this case do not fall under any of the enumerated officers. The service of summons upon ALFA,
through the petitioners, therefore, is not valid. To rule otherwise, as correctly argued by the petitioners, will
contravene the general principle that a corporation can only be bound by such acts which are within the scope of the
officer's or agent's authority. (see Vicente v. Geraldez, 52 SCRA 210 [1973]).

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WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed decision dated March 19, 1990 and
the Court of Appeals' resolution of May 10, 1990 are SET ASIDE and the Orders dated April 25, 1989 and October 17,
1989 issued by the Regional Trial Court of Makati, Branch 58 are REINSTATED.
SO ORDERED.