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THIRD DIVISION [G.R. Nos. 134963-64.

September 27, 2001] ALFREDO LONG and FELIX


ALMERIA, petitioners, vs. LYDIA BASA, ANTHONY SAYHEELIAM and YAO
CHEK, respondents. [G.R. Nos. 135152-53. September 27, 2001] LIM CHE BOON, TAN HON
KOC, JOSEPH LIM and LIU YEK SEE,petitioners, vs. LYDIA BASA, ANTHONY SAYHEELIAM
and YAO CHEK, respondents. [G.R. No. 137135. September 27, 2001]
LIM CHE BOON, TAN HON KOC, JOSEPH LIM and LIU YEK SEE, petitioners, vs. LYDIA BASA,
ANTHONY SAYHEELIAM and YAO CHEK, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
These are consolidated cases involving a religious corporation whose Board of Directors had expelled
certain members thereof on purely spiritual or religious grounds since they refused to follow its
teachings and doctrines. The controversy here centers on the legality of the expulsion.
The facts, as found by the Court of Appeals and as culled from the voluminous records of these cases,
may be stated as follows:
In 1973, a religious group known as "The Church In Quezon City (Church Assembly Hall),
Incorporated" ("CHURCH" for brevity), located at 140 Talayan St., Talayan Village, Quezon City, was
organized as "an entity of the brotherhood in Christ."[1]
It was registered in the same year with the Securities and Exchange Commission (SEC) as a non-stock,
non-profit religious corporation for the administration of its temporalities or the management of its
properties.[2]
The Articles of Incorporation and By-laws of the CHURCH decree that its affairs and operation shall be
managed by a Board of Directors consisting of six (6) members,[3] who shall be members of the
CHURCH.[4]
As a "brotherhood in Christ," the CHURCH embraced the Principles of Faith that "every member or
officer" thereof shall, without mental reservation, adhere strictly to the doctrine, teaching and faith
being observed by the (CHURCH) in proclaiming the Gospel of Christ, to save lost souls, to lead men in
worshipping the true God, in accordance with the Holy Bible and to believe:
(a The Old and the New Testaments comprising the Holy Bible as inspired by God;
(b The Trinity of the God-Head, which is God the Father, God the Son and God the Holy Spirit.
(c) That Jesus Christ, the only begotten Son of the Living God, conceived by the Virgin Mary through the
Holy Spirit, and possessing the nature of both God and man, and who died on the cross to save
mankind, was buried, rose again on the third day, has ascended up to heaven, and will come back to
reign as King someday.
(d) That the only way to salvation is solely by trusting on the shed blood of Jesus and the conviction
of the Holy Spirit."[5]
Zealous in upholding and guarding their Christian faith, and to ensure unity and uninterrupted exercise
of their religious belief, the members of the CHURCH vested upon the Board of Directors the absolute
power "(to preserve and protect the(ir) faith"[6] and to admit[7]and expel[8] a member of the
CHURCH.
Admission for membership in the CHURCH is so exacting. Only "persons zealous of the Gospel, faithful in
Church work and of sound knowledge of the Truth, as the Board of Directors shall admit to
membership, shall be members of the (CHURCH)."[9]
The procedure for the expulsion of an erring or dissident member is prescribed in Article VII
(paragraph 4) of the CHURCH By-laws, which provides that "If it is brought to the notice of the
Board of Directors that any member has failed to observe any regulations and By-laws of the
Institution (CHURCH) or the conduct of any member has been dishonorable or improper or
otherwise injurious to the character and interest of the Institution, theBoard of Directors
may b(y) resolution without assigning any reason therefor expel such member from such
Institution and he shall then forfeit his interest, rights and privileges in the Institution."
As early as 1988, the Board of Directors observed that certain members of the CHURCH, including
petitioners herein, exhibited "conduct which was dishonorable, improper and injurious to the character
and interest of the (CHURCH)"[10] by "introducing (to the members) doctrines and teachings which
were not based on the Holy Bible" and the Principles of Faith embraced by the CHURCH.[11]
Confronted with this situation, the respondents, as members of the Board of Directors, and some
responsible members of the CHURCH, advised the petitioners "to correct their ways"[12]and reminded
them "that under the By-laws, this organization is only for worshipping the true God, not to worship
Buddha or men."[13] The respondents also warned them that if they persist in their highly improper
conduct, they will be dropped from the membership of the CHURCH.[14]
These exhortations and warnings to the erring members were made during Sunday worship gatherings,
"in small group meetings and even one-on-one personal talk with them."[15] Since 1988,[16] these
warnings were announced by the members of the Board "(s)ometimes once aweek (when they) meet
together."[17]
But petitioners ignored these repeated admonitions.
Alarmed that petitioners' conduct will continue to undermine the integrity of the Principles of Faith of the
CHURCH, the Board of Directors, during its August 30, 1993 regular meeting [18] held for the purpose of
reviewing and updating the membership list of the CHURCH, removed from the said list certain names of
members, including the names of herein petitioners Joseph Lim, Liu Yek See, Alfredo Long and Felix
Almeria.[19] They were removed for espousing doctrines inimical or injurious to the Principles of Faith of
the CHURCH. The Board also updated the list by removing the names of those who have migrated to
other countries, those deceased and those whom the CHURCH had lost contact with.[20] The resolution
adopted by the Board in that August 30, 1993 meeting reads in part:
"Director Anthony Sayheeliam announced that the regular meeting is to review, update and approve the
list of corporate membership. After due deliberation and upon motion duly made and seconded, the
following resolutions were approved and adopted:
"RESOLVED, AS IT IS HEREBY RESOLVED, that the list of corporate membership of this Institution as
shown on Annex "A" is hereby reviewed, updated and approved bythe Board.
"RESOLVED, FURTHER, AS IT IS HEREBY FURTHER RESOLVED, that the Board approved that those who
are not included in the said list of corporate membership of this Institution are no longer considered as a
corporate member of this Institution.
"RESOLVED, FINALLY, AS IT IS HEREBY RESOLVED, that any or all previous lists of membership are
hereby superseded, revoked and/or rendered null, void and of no effect..
"There being no further business and no other matter to transact, the meeting was thereupon
adjourned."[21]
All the then six (6) members of the Board, namely, Directors Lim Che Boon, Tan Hon Koc (herein
petitioners), Anthony Sayheeliam, Leandro Basa, Yao Chec and Lydia L. Basa (herein respondents) "were
duly informed" of that meeting.[22] However, Directors Lim Che Boon and Tan Hon Koc did not appear.
[23] Thus, the above-quoted resolution was signed only by Directors Anthony Sayheeliam, Leandro
Basa, Yao Chec and Lydia L. Basa who composed the majority of the Board.
The updated membership list approved by the Board on August 30, 1993, together with the minutes of
the meeting, were duly filed with the SEC on September 13, 1993.[24]
On September 29, 1993, petitioners Lim Che Boon, Tan Hon Koc, Joseph Lim, Liu Yek See and others
questioned their expulsion by filing with the SEC Securities Investigation and Clearing Department a
petition,[25] docketed as SEC Case No. 09-93-4581 (and later a supplemental petition) against Directors
Yao Chek, Leandro Basa, Lydia Basa and Anthony Sayheeliam. It sought mainly the annulment of the
August 30, 1993 membership list and the reinstatement of the original list on the ground that the
expulsion was made without prior notice and hearing. The case was assigned to SEC Hearing
Officer Manuel Perea (the "Perea case").
The petition also prayed for the issuance of a temporary restraining order (TRO) and a writ of
preliminary injunction principally to enjoin the Board of Directors from holding any election of a new set
of directors among the members named in the August 30, 1993 list of corporate membership.
After conducting a hearing on the application for a writ of preliminary injunction, SEC Hearing Officer
Manuel Perea denied the same in an order dated February 22, 1994. [26] Perea ruled inter alia that the
expulsion was in accordance with the aforequoted provisions of paragraph 4, Article VII of the CHURCH

By-laws, reasoning that "the notice referred to (in par. 4) is notice to the Board of Directors of the
grounds for expulsion enumerated therein and not notice to the (erring) members."[27]
Perea's order further stated: "It is also clear (from par. 4) that the resolution of expulsion need not state
the reason for expelling a member."[28]
Petitioners elevated Perea's order of February 22, 1994 to the SEC en banc via a petition for
certiorari, docketed as SEC EB Case No. 389.[29] The SEC, in an en banc decision datedJuly 11,
1994,[30] affirmed the Perea ruling and "dismissed for lack of merit" the petition.
Petitioners did not appeal from the decision of the SEC en banc.[31]
Since the said SEC en banc decision pertains only to the preliminary injunction incident, the SEC,
through a hearing panel, conducted further proceedings to hear and decide the permissive counterclaim
and third-party complaint incorporated in respondents' supplemental answer, including their prayer for
injunctive relief to prevent petitioners from interfering and usurping the functions of the Board of
Directors.[32]
Petitioners subsequently filed motions to dismiss/strike out the counterclaim and third-party
complaint. But the motions were denied by the hearing panel in its omnibus order dated October 2,
1995. The said order also declined to act on respondents third-party complaints prayer for injunctive
relief since there is a case pending before another Hearing Officer in SEC Case No. 4994 for the
declaration of nullity of the general membership meeting held on February 12, 1995.[33]
Upon denial of the separate motions for reconsideration of both parties, the respondents filed with the
SEC en banc a petition for review on certiorari, docketed as SEC EB Case No. 484. A review of the
records show that the issue posed in this case is also the validity of the questioned expulsion already
resolved by the SEC en banc in its decision dated July 11, 1994 in SEC EB Case No. 389 which had
attained finality.
On July 31, 1996, the SEC en banc, by a vote of two to one, with one Commissioner abstaining,
issued an order in SEC EB Case No. 484, setting aside the expulsion of certain members of the
CHURCH approved by its Board of Directors on August 30, 1993 for being void and ordering the
reinstatement of petitioners as members of the CHURCH.
Promptly, herein respondents Anthony Sayheeliam and Lydia Basa filed a petition for review with the
Court of Appeals, docketed as CA-G.R. SP No. 41551,[34] assailing the July 31, 1996 order.
Respondent Yao Check, for his part, filed a motion for reconsideration of the order of July 31,
1996. Upon denial of his motion, he also filed with the Court of Appeals a petition for review, docketed
as CA-G.R. SP No. 43389. This case was consolidated with CA-G.R. SP No. 41551.[35]
On May 29, 1998, the Court of Appeals promulgated its now assailed decision granting respondents
consolidated petitions and reversing the July 31, 1996 order of the SEC en banc in SEC EB Case No. 484.
Petitioners filed a motion for reconsideration but was denied by the appellate court in a resolution dated
August 18, 1998.[36]
Hence, the present consolidated petitions for review by Certiorari (G.R. Nos. 134963-64 and G.R. Nos.
135152-53) under Rule 45 of the 1997 Rules of Civil Procedure, as amended.
The pith issue in the instant cases, as correctly defined by the Court of Appeals in its challenged
decision and resolution, is whether the expulsion of petitioners Joseph Lim, Liu Yek See, Alfredo Long
and Felix Almeria from the membership of the CHURCH by its Board of Directors through a resolution
issued on August 30, 1993 is in accordance with law.
Petitioners insist that the expulsion is void since it was rendered without prior notice to them or, in a
constitutional context, without due process.
On the other hand, respondents assert that the expulsion is in accordance with the By-laws of the
CHURCH.
We rule against the petitioners.
It must be emphasized that the issue of the validity of the expulsion had long been resolved and
declared valid by the SEC en banc in its decision dated July 11, 1994 in SEC EB Case No. 389. The
decision affirmed the order dated February 22, 1994 of SEC Hearing Officer Manuel Perea in SEC Case
No. 09-93-4581. The petitioners themselves admitted in their present petition that they did not appeal
anymore from the July 11, 1994 decision of the SEC en banc,[37] thereby rendering the same final and
conclusive. As such, the expulsion order is now inextricably binding on the parties concerned and can no
longer be modified, much less reversed.
What was definitely resolved in the Perea decision and in SEC EB Case No. 389 was the validity of the
expulsion proceedings conducted by the Board of Directors in its meeting on August 30, 1993 wherein a
Resolution updating the membership list of the CHURCH was approved. On the other hand, the SEC
hearing
panel
conducted further
proceedings only
to
decide
the permissive
counterclaim and third-party complaint incorporated in respondents supplemental answer,
including their prayer for injunctive relief to prevent petitioners from interfering and
usurping the functions of the Board of Directors.
Thus, we find accurate the following findings and conclusion of the Court of Appeals on this matter:
.It ought to be recalled that when Hearing Officer Perea denied the herein respondents (now
petitioners) prayer for injunctive relief in SEC Case No. 09-93-4581 to stop the herein
petitioners (now respondents) from calling a membership meeting on the basis of the
expurgated list of membership dated August 30, 1993, they interposed in SEC EB Case No. 389
a petition to review the order of denial. Then and there, the SEC en banc rendered its decision
dated July 11, 1994 sustaining Hearing Officer Perea on the ratiocination that the expulsion
of members effected on August 30, 1993 by the board of directors was valid having been
done in accordance with the bay-laws of the CHURCH, and although the herein respondents
(now petitioners) subsequently sought the dismissal of SEC Case No. 09-93-4581, the order of
dismissal explicitly stated that it did not encompass the herein petitioners (now
respondents) permissive counterclaim and third-party complaint. Thus, further proceedings
were conducted which culminated in the issuance of the Hearing Panels Omnibus Orders
dated October 2, 1995 and January 19, 1996, which were elevated, this time by the herein
petitioners (now respondents), to the SEC en banc in a petition for review on certiorari
docketed as SEC EB Case No. 484. It was in this latter case that the SEC en banc handed down its
assailed order of July 31, 1996 in violation of the law of the case that was earlier laid down
with finality in SEC EB Case No. 389.
xxxxxxxxx
Thusly, the question on the validity of the expulsion of some of the members of the
CHURCH was squarely raised and frontally resolved in the decision rendered in SEC EB Case
No. 389.[38] (Emphasis ours)
Clearly, the issuance by the SEC en banc of its July 31, 1996 order in SEC EB Case No. 484,
which reopened the very same issue of the validity of the expulsion proceedings,completely
reversing its final and executory en banc decision of July 11, 1994 (SEC EB Case No. 389), is
certainly in gross disregard of the rules and basic legal precept that accord finality to administrative,
quasi-judicial and judicial determinations.
The Court of Appeals is, therefore, correct in voiding the SEC en banc orders dated July 31, 1996 and
January 29, 1997 in SEC EB Case No. 484, thereby upholding the expulsion of petitioners and others by
the Board of Directors on August 30, 1993.
In this regard, what we said in Fortich vs. Corona, et al .[39] bears repeating: The orderly
administration of justice requires that the judgments/resolutions of a court or quasi-judicial body must
reach a point of finality set by the law, rules and regulations . The noble purpose is to
write finis to disputes once and for all. This is a fundamental principle in our justice system,
without which there would be no end to litigations. Utmost respect and adherence to this
principle must always be maintained by those who wield the power of adjudication.Any act
which violates such principle must immediately be struck down.[40]
Let it not be said that the denial of the present petitions, even on this ground alone, is a mere
technicality. In the aforecited case of Fortich vs. Corona, we held that once a case had been resolved
with finality, vested rights were acquired by the winning party. [41] Consequently, the rule on finality of
decisions, orders or resolutions of a judicial, quasi-judicial or administrative body is not a question of
technicality but of substance and merit,[42] the underlying consideration therefor being the
protection of the substantive rights of the winning party.[43] In the succinct words of Mr. Justice
Artemio V. Panganiban in the case of Videogram Regulatory Board vs. Court of Appeals, et al .,

[44] Just as a losing party has the right to file an appeal within the prescribed period, the winning
party also has the correlative right to enjoy the finality of the resolution of his/her case.
Be that as it may, we find baseless petitioners claim that their expulsion was executed without prior
notice or due process.
In the first place, the By-laws of the CHURCH, which the members have expressly adhered to, does not
require the Board of Directors to give prior notice to the erring or dissident members in cases of
expulsion. This is evident from the procedure for expulsion prescribed in Article VII (paragraph 4) of the
By-laws, which reads:
"4. If it is brought to the notice of the Board of Directors that any member has failed to observe any
regulations and By-laws of the Institution (CHURCH) or the conduct of any member has been
dishonorable or improper or otherwise injurious to the character and interest of the Institution,
the Board of Directors may b(y) resolutionwithout assigning any reason therefor expel such
member from such Institution and he shall then forfeit his interest, rights and privileges in the
Institution." (Emphasis ours)
From the above-quoted By-law provision, the only requirements before a member can be expelled or
removed from the membership of the CHURCH are: (a) the Board of Directors has been notified that a
member has failed to observe any regulations and By-laws of the CHURCH, or the conduct of any
member has been dishonorable or improper or otherwise injurious to the character and interest of the
CHURCH, and (b) a resolution is passed by the Board expelling the member concerned, without
assigning any reason therefor.
It is thus clear that a member who commits any of the causes for expulsion enumerated in paragraph 4
of Article VII may be expelled by the Board of Directors, through a resolution, without giving that erring
member any notice prior to his expulsion. The resolution need not even state the reason for such action.
The CHURCH By-law provision on expulsion, as phrased, may sound unusual and objectionable to
petitioners as there is no requirement of prior notice to be given to an erring member before he can be
expelled. But that is how peculiar the nature of a religious corporation is vis--vis an ordinary corporation
organized for profit. It must be stressed that the basis of the relationship between a religious
corporation and its members is the latters absolute adherence to a common religious or spiritual
belief. Once this basis ceases, membership in the religious corporation must also cease. Thus,
generally, there is no room for dissension in a religious corporation. And where, as here, any member of
a religious corporation is expelled from the membership for espousing doctrines and teachings contrary
to that of his church, the established doctrine in this jurisdiction is that such action from the church
authorities isconclusive upon the civil courts. As far back in 1918, we held in United States vs.
Canete[45]that:
"in matters purely ecclesiastical the decisions of the proper church tribunals areconclusive upon the civil
tribunals. A church member who is expelled from the membership by the church authorities, or a priest
or minister who is by them deprived of his sacred office, is without remedy in the civil courts, which will
not inquire into the correctness of the decisions of the ecclesiastical tribunals."[46] (Emphasis ours)
Obviously recognizing the peculiarity of a religious corporation, the Corporation Code leaves the matter
of ecclesiastical discipline to the religious group concerned.
Section 91 of the Corporation Code, which has been made explicitly applicable to religious corporations
by the second paragraph of Section 109 of the same Code, states:
"SEC. 91. Termination of membership.- Membership shall be terminated in the manner and for the
causes provided in the articles of incorporation or the by-laws.Termination of membership shall have the
effect of extinguishing all rights of a member in the corporation or in its property, unless otherwise
provided in the articles of incorporation or the by-laws." (Emphasis ours)
Moreover, the petitioners really have no reason to bewail the lack of prior notice in the By-laws. As
correctly observed by the Court of Appeals, they have waived such notice by adhering to those Bylaws. They became members of the CHURCH voluntarily. They entered into its covenant and
subscribed to its rules. By doing so, they are bound by their consent.[47]
Even assuming that petitioners' expulsion falls within the Constitutional provisions on "prior notice" or
"due process," still we can not conclude that respondents committed a constitutional infraction. It bears
emphasis that petitioners were given more than sufficientnotice of their impending expulsion, as shown
by the records.
We have narrated earlier the events which led to the questioned expulsion. From the undisputed
testimony of Director Anthony Sayheeliam (now respondent), it is clear that, as early as 1988, the
respondents-Board of Directors patiently and persistently reminded, advised and exhorted the erring
members, including herein petitioners, to stop espousing doctrines, teachings and religious belief
diametrically opposed to the Principles of Faith embraced by the CHURCH. The respondents-Board of
Directors further warned them during Sunday worship gatherings, in small group meetings and one-onone talk, that they would face disciplinary action and be dropped from the membership roll should they
continue to exhibit acts inimical and injurious to the teachings of the Holy Bible which the CHURCH so
zealously upholds.
When they ignored petitioners exhortations and warnings, the erring members should not now complain
about their expulsion from the membership of the CHURCH by the Board of Directors on August 30,
9193.
The Court of Appeals, whose findings of fact is accorded great respect as the same is conclusive on us,
made a precise observation on this matter:
.the petitioners (now respondents) further state that the Board of Directors, before deciding to purge
their list of membership, gave the erring members sufficient warning of their impending ouster. Thus:
the records of the instant case indisputably show that the erring members of the corporation, including
respondents (now petitioners) Lim Che Boon, Joseph Lim, Tan Hon Joc, Liu Yek See, Felix Almeria and
Alfredo Long, were given more than sufficient notice that the perpetration of acts inimical to and
inconsistent with the Articles of Faith of the Corporation will be subject to disciplinary authority of the
Board of Directors:
(Testimony of Anthony Sayheeliam, member of the Board of Directors)
Q. You mentioned that former members of the Corporation were dropped or expelled due to violations
of the principles of faith under the Articles of Incorporation and the By-laws, as well as for conduct
which was dishonorable, improper and injurious to the character and interest of the corporation. When
did the Board first note or observe these violations?
A. The Board noticed that since 1988.
Q. As a member of the Board of Directors, what actions did you take after the board observed these
violations?
A. We warned them and advised them to correct their ways of doing these things.
Q. As a member of the Board of Directors, what did you say or do in order to convince these former
members to correct their ways?
A. We told them that under the By-laws this organization is only for worshipping the true God, not to
worship Buddha or men.
Q. You also mentioned that you gave warnings to these errant members. As a member of the Board of
Directors, what did you do or say to warn these former members of the consequences of their acts?
A. Especially to the members of the organization, they should take all the consequences. Otherwise,
they will be dropped.
Q. These warnings and statements advising them to correct their way, on what occasion were these
statements made?
A. In a general service, Sunday, and also in small group meetings and even one-on-one, personally
talking with them.
Q. How often were these warnings or advise to correct made?
A. Sometimes once a week we meet together.
Q. Since when?
A. Since 1988. (TSN, December 1, 1993, Perea Case, pp. 9-12).
From the foregoing testimony of petitioner (now respondent) Anthony Sayheeliam during the hearing in
the Perea Case on 01 December 1993, it remains undisputedthat as early as 1988 private respondents
(now petitioners) and their cohorts knew that their acts and conduct would be subject to disciplinary
action. In fact, private respondents (now petitioners) never specifically denied or disputed the testimony
of petitioner (now respondent) Anthony Sayheeliam, whether on the witness stand or in any pleading in
the Perea Case or in the other cases between the parties, that they have been repeatedly admonished

by the members of the Board of Directors that the introduction of teachings and doctrines inconsistent
with the Principles of Faith of the Corporation is punishable with their expulsion (Rollo, CA-G.R. SP No.
41551, pp. 46-48.
We find the stance of the petitioners (now respondents) more persuasive as it is more in accord with
Section 91 of the Corporation Code which mandates that membership in a no-stock corporation and, for
that matter, in a religious corporation shall be terminated in the manner and for the causes enumerated
in the articles of incorporation or by-laws. The respondents (now petitioners) make no protestation that
the CHURCHs by-law provision on expulsion has not been complied with.[48](Emphasis ours)
Consequently, the expulsion was not tainted with any arbitrary treatment from the members of the
Board of Directors who, since 1988 up to August 30, 1993, or approximately five (5) years, have
patiently exhorted and warned the dissident members. This long period of time is more than adequate
an opportunity for the erring members and their followers to contemplate upon their covenant with the
CHURCH on their duty to protect and promote its Principles of Faith and not to violate them. It is a wellsettled principle in law that what due process contemplates is freedom from arbitrariness; what it
requires is fairness and justice; substance, rather than the form, being paramount. What it prohibits is
not the absence of previous notice but the absolute absence thereof.[49] A formal or trial type hearing is
not at all times and in all instances essential.[50]
Clearly, although the By-laws of the CHURCH do not require the Board of Directors to give notice to the
dissident petitioners of their impending expulsion, more than sufficient notice was given to them before
they were expelled by the Board on August 30, 1993.
Petitioners, however, contend that the expelled members were not actually notified and warned of their
impending expulsion. In support of this, they also cited the following testimony of Anthony Sayheeliam:
ATTY. PAULITE:
Q. Did you go through the list one by one?
A. Yes.
Q. So do you remember how many were expelled because of conduct dishonorable, improper, injurious
to the corporation?
A. At the time we did not count the number. We just talked it one by one, discussed
Q. Okey, Did you notify them of the grounds for their expulsion?
A. No.
Q. You did not. Did you give them an opportunity to defend themselves?
A. No.[51] (Emphasis ours)
Petitioners interpretation of the above-quoted testimony of Anthony Sayheeliam was out of context. The
question and answer focused on what the Board of Directors did during its meeting on August 30, 1993
wherein it evaluated each members standing and conduct in the light of the grounds for disciplinary
action as provided in the CHURCH By-laws. This is plain from the underscored portions of Sayheeliams
testimony. Thus, what Sayheeliam was saying is that on that very day of the expulsion, the Board of
Directors did not notify the expelled members anymore. Obviously, such notice was not made by the
Board of Directors simply because the By-laws of the CHURCH does not require the same, as already
discussed earlier.
Incidentally, during the pendency of these cases in this Court, petitioners filed an application for a
TRO/writ of preliminary injunction dated November 10, 1998, claiming therein that respondents are
denying them access to the premises of the CHURCH for purposes of exercising their right of
worship. Acting on the application, this Court required the respondents to comment thereon. In the
meantime, it issued a Special Order on December 18, 1998 enjoining the respondents from enforcing
the Court of Appeals decision "insofar as petitioners rights and privileges as members of the
CHURCH are concerned."Accordingly, petitioners were allowed "entry into the CHURCH building of
worship andparticipate in its religious and social activities."
On January 29, 1999, petitioners Lim Che Boon, Tan Hon Koc, Joseph Lim and Liu Yek See filed a
petition to cite respondents in contempt for refusing to comply with the Special Order of this Court. This
was docketed as G.R. No. 137135. Petitioners averred therein that respondents denied them access to
the worship halls for their special conference involving the spiritual training of some 1, 800 college
students from Regions I to VI.
In their comment, respondents opposed the petition, claiming that their refusal to lend the worship halls
was due to the fact that the intended special conference is not a religious service/activity of the
CHURCH and the participants are not members of the CHURCH. Thus, respondents assert that they did
not violate the Special Order of this Court.
We agree with the respondents. The Special Order allows petitioners entry into the CHURCH building to
participate in worship or other religious activities as members of the CHURCH. Clearly, the Special Order
does not allow petitioners unlimited or unrestrained access or use of the premises and properties of the
CHURCH. The intended special conference to be conducted by petitioners is not a CHURCH activity and
the participants therein are not members of the CHURCH.
WHEREFORE, the present consolidated petitions are DENIED. The assailed decision of the Court of
Appeals dated May 29, 1998 and its resolution dated August 18, 1998 are AFFIRMED. Costs against
petitioners.
The Special Order dated December 18, 1998 issued by this Court is LIFTED.
THIRD DIVISION
[G.R. No. 141961. ]
STA. CLARA HOMEOWNERS ASSOCIATION thru its Board of Directors composed of ARNEIL
CHUA, LUIS SARROSA, JOCELYN GARCIA, MA. MILAGROS VARGAS, LORENZO LACSON,
ERNESTO PICCIO, DINDO ILAGAN, DANILO GAMBOA JR. and RIZZA DE LA RAMA; SECURITY
GUARD CAPILLO; JOHN DOE; and SANTA CLARA ESTATE, INC., petitioners, vs. Spouses
VICTOR MA. GASTON and LYDIA GASTON, respondents.
DECISION
PANGANIBAN, J.:
A motion to dismiss based on lack of jurisdiction and lack of cause of action hypothetically admits the
truth of the allegations in the complaint. It is not dependent on the pleas or the theories set forth in the
answer or the motion to dismiss.Membership in a homeowners association is voluntary and cannot be
unilaterally forced by a provision in the associations articles of incorporation or by-laws, which the
alleged member did not agree to be bound to.
Statement of the Case
The Petition for Review before us assails the Decision[1] and the Resolution[2] of the Court of Appeals
(CA) in CA-GR SP No. 49130.The decretal portion of the challenged Decision reads as follows:
WHEREFORE, the petition is DISMISSED for lack of merit. The assailed Orders of the trial court are
AFFIRMED. No costs.[3]
The assailed Resolution denied petitioners Motion for Reconsideration.
The CA[4] affirmed the Orders[5] of the Regional Trial Court (RTC) of (Branch 49) in Civil Case No. 9810217, which had refused to dismiss herein respondents Complaint for alleged lack of jurisdiction and
lack of cause of action.
The Facts
The factual antecedents of the case are summarized by the Court of Appeals in this wise:
On , Spouses Victor Ma. Gaston and Lydia M. Gaston, private respondents herein, filed a complaint for
damages with preliminary injunction/preliminary mandatory injunction and temporary restraining order
before the Regional Trial Court in Negros Occidental at against petitioners Santa Clara Homeowners
Association (SCHA for brevity) thru its Board of Directors, namely: Arneil Chua, Luis Sarrosa, Jocelyn
Garcia, Ma. Milagros Vargas, LorenzoLacson, Ernesto Piccio, Dindo Ilagan, Danilo Gamboa, Jr., Rizza de
la Rama and Security Guard Capillo and John Doe, and Santa Clara Estate, Incorporated. The case was
docketed as Civil Case No 98-10217 and raffled to RTC-Branch 49,.
The complaint alleged that private respondents herein [were] residents of San Jose Avenue, Sta. Clara
Subdivision, Mandalagan, Bacolod City. They purchased their lots in the said subdivision sometime in
1974, and at the time of purchase, there was no mention or requirement of membership in any
homeowners association. From that time on, they have remained non-members of SCHA. They also
stated that an arrangement was made wherein homeowners who [were] non-members of the
association were issued non-member gatepass stickers for their vehicles for identification by the security

guards manning the subdivisions entrances and exits. This arrangement remained undisturbed until
sometime in the middle of March, 1998, when SCHA disseminated a board resolution which decreed that
only its members in good standing were to be issued stickers for use in their vehicles. Thereafter, on
three separate incidents, Victor M. Gaston, the son of the private respondents herein who lives with
them, was required by the guards on duty employed by SCHA to show his drivers license as a
prerequisite to his entrance to the subdivision and to his residence therein despite their knowing him
personally and the exact location of his residence. On , private respondent herein Victor Ma. Gaston was
himself prevented from entering the subdivision and proceeding to his residential abode when petitioner
herein security guards Roger Capillo and a John Doe lowered the steel bar of the KAMETAL gate of the
subdivision and demanded from him his drivers license for identification. The complaint further alleged
that these acts of the petitioners herein done in the presence of other subdivision owners had caused
private respondents to suffer moral damage.
On 3 April 1998, during the hearing of the private respondents application for the issuance of a
temporary restraining order before the lower court, counsel for the petitioners informed the court that
he would be filing a motion to dismiss the case and made assurance that pending the issuance of a
temporary restraining order, the private respondents would be granted unrestricted access to and from
their place of residence.
On 8 April 1998, petitioners herein filed a motion to dismiss arguing that the trial court ha[d] no
jurisdiction over the case as it involve[d] an intra-corporate dispute between SCHA and its members
pursuant to Republic Act No. 580, as amended by Executive Order Nos. 535 and 90, much [less], to
declare as null and void the subject resolution of the board of directors of SCHA, the proper forum being
the Home Insurance (and Guaranty) Corporation (HIGC). To support their claim of intra-corporate
controversy, petitioners stated that the Articles of Incorporation of SCHA, which was duly approved by
the Securities and Exchange Commission (SEC) on , provides that the association shall be a non-stock
corporation with all homeowners of Sta. Clara constituting its membership. Also, its by-laws contains a
provision that all real estate owners in Sta. Clara Subdivision automatically become members of the
association. The private respondents, having become lot owners of Sta. Clara Subdivision in 1974 after
the approval by the SEC of SCHAs articles of incorporation and by-laws, became members automatically
in 1974 of SCHA argued the petitioners. Moreover, the private respondents allegedly enjoyed the
privileges and benefits of membership in and abided by the rules of the association, and even attended
the general special meeting of the association members on . Their non-payment of the association
yearly dues [did] not make them non-members of SCHA continued the petitioners. And even granting
that the private respondents [were] not members of the association, the petitioners opined that the
HIGC still ha[d] jurisdiction over the case pursuant to Section 1 (a), Rule II of the Rules of Procedure of
the HIGC.
On 6 July 1998, the lower court, after having received private respondents opposition to petitioners
motion to dismiss and other subsequent pleadings filed by the parties, resolved to deny petitioners
motion to dismiss, finding that there existed no intra-corporate controversy since the private
respondents alleged that they ha[d] never joined the association; and, thus, the HIGC had no
jurisdiction to hear the case. On, petitioners submitted a Motion for Reconsideration, adding lack of
cause of action as ground for the dismissal of the case. This additional ground was anchored on the
principle of damnum absque injuria as allegedly there [was] no allegation in the complaint that the
private respondents were actually prevented from entering the subdivision and from having access to
their residential abode. On 17 August 1998, the court a quo, taking into consideration the comment filed
by the private respondents[,] on petitioners motion for reconsideration and the pleadings thereafter
submitted by the parties, denied the said motion without however ruling on the additional ground of
lack of cause of action x x x.
xxxxxxxxx
On , petitioners filed a motion to resolve defendants motion to dismiss on ground of lack of cause of
action. On 8 September 1998, after the petitioners and the private respondents submitted their
pleadings in support of or in opposition thereto, as the case may be, the trial court issued an order
denying the motion, x x x.[6]
On , petitioners elevated the matter to the Court of Appeals via a Petition for Certiorari.[7]
Ruling of the Court of Appeals
The Court of Appeals dismissed the Petition and ruled that the RTC had jurisdiction over the dispute. It
debunked petitioners contention that an intra-corporate controversy existed between the SCHA and
respondents. The CA held that the Complaint had stated a cause of action. It likewise opined that
jurisdiction and cause of action were determined by the allegations in the complaint and not by the
defenses and theories set up in the answer or the motion to dismiss.
Hence, this Petition.[8]
Issues
In their Memorandum, petitioners raise the following issues for the Courts consideration:
I
Whether or not Respondent Court of Appeals erred in upholding the jurisdiction of the court a quo, to
declare as null and void the resolution of the Board of SCHA, decreeing that only members [in] good
standing of the said association, were to be issued stickers for use in their vehicles.
II
Whether or not private respondents are members of SCHA.
III
Whether or not Respondent Court of Appeals erred in not ordering the dismissal of the Complaint in Civil
Case No. 98-10217 for lack of cause of action.[9]
In sum, the issues boil down to two: (1) Did the RTC have jurisdiction over the Complaint? and (2) Did
the Complaint state a cause of action?
This Courts Rulings
The Petition has no merit.
First Issue: Jurisdiction
Petitioners contend that the CA erred in upholding the trial courts jurisdiction to declare as null and void
the SCHA Resolution decreeing that only members in good standing would be issued vehicle stickers.
The RTC did not void the SCHA Resolution; it merely resolved the Motion to Dismiss filed by petitioners
by holding that it was the RTC, not the Home Insurance and Guaranty Corporation (HIGC), that had
jurisdiction over the dispute.
HIGCs Jurisdiction
HIGC[10] was created pursuant to Republic Act 580.[11] Originally, administrative supervision over
homeowners associations was vested by law in the Securities and Exchange Commission (SEC).[12]
Pursuant to Executive Order (EO) No. 535, however,[13] the HIGC assumed the regulatory and
adjudicative functions of the SEC over homeowners associations.Explicitly vesting such powers in the
HIGC is paragraph 2 of EO 535, which we quote hereunder:
2. In addition to the powers and functions vested under the Home Financing Act, the Corporation, shall
have among others, the following additional powers:
(a) x x x; and exercise all the powers, authorities and responsibilities that are vested in the Securities
and Exchange Commission with respect to home owners associations, the provision of Act 1459, as
amended by P.D. 902-A, to the contrarynothwithstanding;
(b) To regulate and supervise the activities and operations of all houseownersassociations registered in
accordance therewith.
Moreover, by virtue of the aforequoted provision, the HIGC also assumed the SECs original and exclusive
jurisdiction to hear and decide cases involving controversies arising from intra-corporate or partnership
relations.[14]
In December 1994, the HIGC adopted the Revised Rules of Procedure in the Hearing of Homeowners
Disputes, pertinent portions of which are reproduced below:
RULE II
Disputes Triable by HIGC/Nature of Proceedings
Section 1. Types of Disputes. - The HIGC or any person, officer, body, board or committee duly
designated or created by it shall have jurisdiction to hear and decide cases involving the following:
a) Devices or schemes employed by or any acts of the Board of Directors or officers of the association
amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or
of the members of the association or the association registered with HIGC

b) Controversies arising out of intra-corporate relations between and among members of the
association, between any or all of them and the association of which they are members; and between
such association and the state/general public or other entity in so far as it concerns its right to exist as a
corporate entity.
x x x x x x x x.
The aforesaid powers and responsibilities, which had been vested in the HIGC with respect to
homeowners associations, were later transferred to the Housing and Land Use Regulatory Board
(HLURB) pursuant to Republic Act 8763.[15]
Are Private Respondents SCHA Members?
In order to determine if the HIGC has jurisdiction over the dispute, it is necessary to resolve
preliminarily -- on the basis of the allegations in the Complaint -- whether private respondents are
members of the SCHA.
Petitioners contend that because the Complaint arose from intra-corporate relations between the SCHA
and its members, the HIGC therefore has no jurisdiction over the dispute. To support their contention
that private respondents are members of the association, petitioners cite the SCHAs Articles of
Incorporation[16] and By-laws[17]which provide that all landowners of the Sta. Clara Subdivision are
automatically members of the SCHA.
We are not persuaded. The constitutionally guaranteed freedom of association[18]includes the
freedom not to associate.[19] The right to choose with whom one will associate oneself is the very
foundation and essence of that partnership.[20] It should be noted that the provision guarantees the
right to form an association. It does not include the right to compel others to form or join one.[21]
More to the point, private respondents cannot be compelled to become members of the SCHA by the
simple expedient of including them in its Articles of Incorporation and By-laws without their express or
implied consent. True, it may be to the mutual advantage of lot owners in a subdivision to band
themselves together to promote their common welfare. But that is possible only if the owners voluntarily
agree, directly or indirectly, to become members of the association. True also, memberships in
homeowners associations may be acquired in various ways -- often through deeds of sale, certificates
or other forms of evidence of property ownership. In the present case, however, other than the said
Articles of Incorporation and By-laws, there is no showing that private respondents have agreed to be
SCHA members.
As correctly observed by the CA:
x x x. The approval by the SEC of the said documents is not an operative act which bestows
membership on the private respondents because the right to associate partakes of the nature of
freedom of contract which can be exercised by and between the homeowners amongst themselves, the
homeowners association and a homeowner, and the subdivision owner and a homeowner/lot buyer
x x x.[22]
No Privity of Contract
Clearly then, no privity of contract exists between petitioners and private respondents. As a general rule,
a contract is a meeting of minds between two persons.[23] The Civil Code upholds the spirit over the
form; thus, it deems an agreement to exist, provided the essential requisites are present. A contract is
upheld as long as there is proof of consent, subject matter and cause. Moreover, it is generally
obligatory in whatever form it may have been entered into. From the moment there is a meeting of
minds between the parties, it is perfected.[24]
As already adverted to, there are cases in which a party who enters into a contract of sale is also bound
by a lien annotated on the certificate of title. We recognized this in Bel Air Village Association, Inc.
v. Dionisio,[25] in which we ruled:
There is no dispute that Transfer Certificate of Title No. 81136 covering the subject parcel of land issued
in the name of the petitioner contains an annotation to the effect that the lot owner becomes an
automatic member of the respondent Bel-Air Association and must abide by such rules and regulations
laid down by the Association in the interest of the sanitation, security and the general welfare of the
community. It is likewise not disputed that the provision on automatic membership was expressly
annotated on the petitioners Transfer Certificate of Title and on the title of his predecessor-in-interest.
The question, therefore, boils down to whether or not the petitioner is bound by suchannotation.
Section 39 of Art. 496 (The Land Registration Act) states:
Sec. 39. Every person receiving a certificate of title in pursuance of a decree of registration, and every
subsequent purchaser of registered land who takes a certificate of title for value in good faith shall hold
the same free of all encumbrances except those noted on said certificate x x x. (Italics supplied)
The above ruling, however, does not apply to the case at bar. When private respondents purchased their
property in 1974 and obtained Transfer Certificates of Title Nos. T-126542 and T-127462 for Lots 11 and
12 of Block 37 along in Sta. Clara Subdivision, there was no annotation showing their automatic
membership in the SCHA. Thus, no privity of contract arising from the title certificate exists between
petitioners and private respondents.
Further, the records are bereft of any evidence that would indicate that private respondents intended to
become members of the SCHA. Prior to the implementation of the aforesaid Resolution, they and the
other homeowners who were not members of the association were issued non-member gate pass
stickers for their vehicles. This fact has not been disputed by petitioners. Thus, the SCHA recognized
that there were subdivision landowners who were not members thereof, notwithstanding the provisions
of its Articles of Incorporation and By-laws.
Jurisdiction Determined by Allegations in the Complaint
It is a settled rule that jurisdiction over the subject matter is determined by the allegations in the
complaint. Jurisdiction is not affected by the pleas or the theories set up by the defendant in an answer
or a motion to dismiss. Otherwise, jurisdiction would become dependent almost entirely upon the whims
of the defendant.[26]
The Complaint does not allege that private respondents are members of the SCHA. In point of fact, they
deny such membership. Thus, the HIGC has no jurisdiction over the dispute.
Petitioners likewise contend that even if private respondents are not members of the SCHA, an intracorporate controversy under the third type of dispute provided in Section 1(b) of Rule II of the HIGC
Rules exists. Petitioners posit that private respondents fall within the meaning of general public. We are
not convinced.
First, the third type of dispute refers only to cases wherein an associations right to exist as a corporate
entity is at issue. In the present case, the Complaint filed by private respondents refers to
the SCHAs acts allegedly amounting to an impairment of their free access to their place of residence
inside the Sta. Clara Subdivision.[27] The existence of SCHA as a corporate entity is clearly not at issue
in the instant case.
Second, in United BF Homeowners Association v. BF Homes, Inc.,[28] we held that Section 1(b), Rule II
of HIGCs Revised Rules of Procedure in the Hearing of Homeowners Disputes was void. The HIGC went
beyond its lawful authority provided by law when it promulgated its revised rules of procedure. There
was a clear attempt to unduly expand the provisions of Presidential Decree 902-A. As provided by the
law, it is only the State -- not the general public or other entity -- that can question an associations
franchise or corporate existence.[29]
To reiterate, the HIGC exercises limited jurisdiction over homeowners disputes.The law confines its
authority to controversies that arise from any of the following intra-corporate relations: (1) between and
among members of the association; (2) between any and/or all of them and the association of which
they are members; and (3) between the association and the state insofar as the controversy concerns
its right to exist as a corporate entity .[30]
It should be stressed that the Complaint here is for damages. It does not assert membership in the
SCHA as its basis. Rather, it is based on an alleged violation of their alleged right of access through the
subdivision and on the alleged embarrassment and humiliation suffered by the plaintiffs.
Second Issue: Sufficiency of Cause of Action
Petitioners claim that the CA erred in not ordering the dismissal of the Complaint for lack of cause of
action. They argue that there was no allegation therein that private respondents were actually
prevented from entering the subdivision and gaining access to their residential abode.
This contention is untenable. A defendant moving to dismiss a complaint on the ground of lack of cause
of action is regarded as having hypothetically admitted all the factual averments in the complaint. The
test of the sufficiency of the allegations constituting the cause of action is whether, admitting the facts
alleged, the court can render a valid judgment on the prayers. [31] This test implies that the issue must

be passed upon on the basis of the bare allegations in the complaint. The court does not inquire into the
We stress that, in rendering this Decision, this Court is not prejudging the main issue of whether, in
truth of such allegations and declare them to be false. To do so would constitute a procedural error and
truth and in fact, private respondents are entitled to a favorable decision by the RTC. That will be made
a denial of the plaintiffs right to due process.[32]
only after the proper proceedings therein.Later on, if it is proven during the trial that they are indeed
A complaint states a cause of action when it contains these three essential elements: (1) the legal right
members of the SCHA, then the case may be dismissed on the ground of lack of jurisdiction. We are
of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of the
merely holding that, on the basis of the allegations in the Complaint, (1) the RTC has jurisdiction over
defendant in violation of the said legal right.[33]
the controversy and (2) the Complaint sufficiently alleges a cause of action. Therefore, it is not subject
In the instant case, the records sufficiently establish a cause of action. First, the Complaint alleged that,
to attack by a motion to dismiss on these grounds.
under the Constitution, respondents had a right of free access to and from their residential
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against
abode. Second, under the law, petitioners have the obligation to respect this right. Third, such right was
petitioners.
impaired by petitioners when private respondents were refused access through the Sta. Clara
SO ORDERED.
Subdivision, unless they showed their drivers license for identification.
Melo, (Chairman), Sandoval-Gutierrez, and Carpio, JJ., concur.
Given these hypothetically admitted facts, the RTC, in the exercise of its original and exclusive
Vitug, J., I concur although I might call attention to Article 2174 of the Civil Code as and when pertinent.
jurisdiction,[34] could have rendered judgment over the dispute.
[10] The HIGC was initially called Home Financing Commission, thereafter Home Financing Corporation, later Home Insurance and Guaranty Corporation, until it finally became the Home Guaranty Corporation.
[11] An Act to Create the Home Financing Commission to Stimulate Home Building and Land Ownership and to Promote the Development of Land for that Purpose, Provide Liberal Financing Through an Insured Mortgage
System, and Develop Thrift through the Accumulation of Savings in Insured Institutions. .
[12] Presidential Decree 902-A (Section 3).
[13] Amending the Charter of the Home Financing Commission, Renaming it as Home Financing Corporation, Enlarging its Powers, and for Other Purposes. .
[14] Presidential Decree 902-A, Section 5, states: 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:
xxxxxxxxx
(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.
[15] An Act Consolidating and Amending Republic Act Nos. 580, 1557, 5488, and 7835 and Executive Order Nos. 535 and 90, as they apply to the Home Insurance and Guaranty Corporation.
[16] SECOND. - That the association shall be a non-stock corporation with all homeowners of Sta. Clara constituting its membership.
[17] All real estate owners in Sta. Clara Subdivision of Bacolod City, as defined and bounded in the Articles of Incorporation AUTOMATICALLY become members of the association.
[18] Art III, Sec. 8. The right of the people, including those employed in the public and private sectors, to form unions, associations, or societies for purposes not contrary to law shall not be abridged, 1987 Constitution.
[21] Bernas, The Constitution of the Republic of the Philippines: A Commentary, (1996 ed), p. 340.
[23] Art. 1305, Civil Code.
provision on automatic membership appearing as a condition in the Deed of Sale of 04 September 1974
and the annotation thereof on Transfer Certificate of Title No. 457308.
PADCOM contends that it cannot be compelled to be a member of the Association solely by virtue of the
FIRST DIVISION
automatic membership clause that appears on the title of the property and the Deed of Transfer. In
[G.R. No. 146807. May 9, 2002]
1975, when it bought the land, the Association was still inexistent.Therefore, the provision on automatic
PADCOM CONDOMINIUM CORPORATION, petitioner, vs. ORTIGAS CENTER ASSOCIATION,
membership was anticipatory in nature, subject to the actual formation of the Association and the
INC., respondent.
subsequent formulation of its implementing rules.
DECISION
PADCOM likewise maintains that the Associations By-laws requires an application for membership. Since
DAVIDE, JR., C.J.:
it never sought membership, the Court of Appeals erred in concluding that it was a member of the
Challenged in this case is the 30 June 2000 decision [1] of the Court of Appeals in CA-G.R. CV No.
Association by implication. Aside from the lack of evidence proving such membership, the Association
60099, reversing and setting aside the 1 September 1997 decision [2] of the Regional Trial Court of Pasig
has no basis to collect monthly dues since there is no board resolution defining and prescribing how
City, Branch 264, in Civil Case No. 63801.[3]
much should be paid.
Petitioner Padcom Condominium Corporation (hereafter PADCOM) owns and manages the Padilla Office
For its part, the Association claims that the Deed of Sale between OCLP and TDC clearly stipulates
Condominium Building (PADCOM Building) located at Emerald Avenue, Ortigas Center, Pasig City. The
automatic membership for the owners of lots in the Ortigas Center, including their successors-inland on which the building stands was originally acquired from the Ortigas & Company, Limited
interest. The filing of applications and acceptance thereof by the Board of Directors of the Association
Partnership (OCLP), by Tierra Development Corporation (TDC) under a Deed of Sale dated 4 September
are, therefore, mere formalities that can be dispensed with or waived. The provisions of the Associations
1974. Among the terms and conditions in the deed of sale was the requirement that the transferee and
By-laws cannot in any manner alter or modify the automatic membership clause imposed on a property
its successor-in-interest must become members of an association for realty owners and long-term
owner by virtue of an annotation of encumbrance on his title.
lessees in the area later known as the Ortigas Center. Subsequently, the said lot, together with
The Association likewise asserts that membership therein requires the payment of certain amounts for
improvements thereon, was conveyed by TDC in favor of PADCOM in a Deed of Transfer dated 25
its operations and activities, as may be authorized by its Board of Directors. The membership dues are
February 1975.[4]
for the common expenses of the homeowners for necessary services.
In 1982, respondent Ortigas Center Association, Inc. (hereafter the Association) was organized to
After a careful examination of the records of this case, the Court sees no reason to disturb the assailed
advance the interests and promote the general welfare of the real estate owners and long-term lessees
decision. The petition should be denied.
of lots in the Ortigas Center. It sought the collection of membership dues in the amount of two thousand
Section 44 of Presidential Decree No. 1529[11] mandates that:
seven hundred twenty-four pesos and forty centavos (P2,724.40) per month from PADCOM. The
SEC. 44. Statutory liens affecting title. Every registered owner receiving a certificate of title in pursuance
corporate books showed that PADCOM owed the Association P639,961.47, representing membership
of a decree of registration, and every subsequent purchaser of registered land taking a certificate of title
dues, interests and penalty charges from April 1983 to June 1993. [5] The letters exchanged between
for value and in good faith, shall hold the same free from all encumbrances except those noted on said
the parties through the years showed repeated demands for payment, requests for extensions of
certificate and any of the following encumbrances which may be subsisting, namely: xxx
payment, and even a settlement scheme proposed by PADCOM in September 1990.
Under the Torrens system of registration, claims and liens of whatever character, except those
In view of PADCOMs failure and refusal to pay its arrears in monthly dues, including interests and
mentioned by law, existing against the land binds the holder of the title and the whole world.[12]
penalties thereon, the Association filed a complaint for collection of sum of money before the trial court
It is undisputed that when the land in question was bought by PADCOMs predecessor-in-interest, TDC,
below, which was docketed as Civil Case No. 63801. The Association averred that purchasers of lands
from OCLP, the sale bound TDC to comply with paragraph (G) of the covenants, conditions and
within the Ortigas Center complex from OCLP are obligated under their contracts of sale to become
restrictions of the Deed of Sale, which reads as follows:[13]
members of the Association. This obligation was allegedly passed on to PADCOM when it bought the lot
G. AUTOMATIC MEMBERSHIP WITH THE ASSOCIATION:
from TDC, its predecessor-in-interest.[6]
The owner of this lot, its successor-in-interest hereby binds himself to become a member of the
In its answer, PADCOM contended that it is a non-stock, non-profit association, and for it to become a
ASSOCIATION which will be formed by and among purchasers, fully paid up Lot BUYERS, Building
special member of the Association, it should first apply for and be accepted for membership by the
Owners and the COMPANY in respect to COMPANY OWNED LOTS.
latters Board of Directors. No automatic membership was apparently contemplated in the Associations
The OWNER of this lot shall abide by such rules and regulations that shall be laid down by the
By-laws. PADCOM added that it could not be compelled to become a member without violating its right
ASSOCIATION in the interest of security, maintenance, beautification and general welfare of the OFFICE
to freedom of association. And since it was not a member of the Association, it was not liable for
BUILDING zone. The ASSOCIATION when organized shall also, among others, provide for and collect
membership dues, interests and penalties.[7]
assessments which shall constitute a lien on the property, junior only to liens of the Government for
During the trial, the Association presented its accountant as lone witness to prove that PADCOM was,
taxes.
indeed, one of its members and, as such, did not pay its membership dues.
Evidently, it was agreed by the parties that dues shall be collected from an automatic member and such
PADCOM, on the other hand, did not present its evidence; instead it filed a motion to dismiss by way of
fees or assessments shall be a lien on the property.
demurrer to evidence. It alleged that the facts established by the Association showed no right to the
This stipulation was likewise annotated at the back of Transfer Certificate of Title No. 457308 issued to
relief prayed for. It claimed that the provisions of the Associations By-laws and the Deed of Transfer did
TDC.[14] And when the latter sold the lot to PADCOM on 25 February 1975, the Deed of Transfer
not contemplate automatic membership. Rather, the owner or long-term lessee becomes a member of
expressly stated:[15]
the Association only after applying with and being accepted by its Board of Directors. Assuming further
NOW, THEREFORE, for and in consideration of the foregoing premises, the DEVELOPER, by these
that PADCOM was a member of the Association, the latter failed to show that the collection of monthly
presents, cedes, transfers and conveys unto the CORPORATION the above-described parcel of land
dues was a valid corporate act duly authorized by a proper resolution of the Associations Board of
evidenced by Transfer Certificate of Title No. 457308, as well as the Common and Limited Common
Directors.[8]
Areas of the Condominium project mentioned and described in the Master Deed with Declaration of
After due consideration of the issues raised in the motion to dismiss, the trial court rendered a decision
Restrictions (Annex A hereof), free from all liens and encumbrances, except those already annotated at
dismissing the complaint.[9]
the back of said Transfer Certificate of Title No. 457308, xxx
The Association appealed the case to the Court of Appeals, which docketed the appeal as CA-G.R. CV
This is so because any lien annotated on previous certificates of title should be incorporated in or carried
No. 60099. In its decision[10] of 30 June 2000, the Court of Appeals reversed and set aside the trial
over to the new transfer certificates of title. Such lien is inseparable from the property as it is a right in
courts dismissal of Civil Case No. 63801, and decreed as follows:
rem, a burden on the property whoever its owner may be. It subsists notwithstanding a change in
WHEREFORE, the appealed decision dated September 1, 1997 is REVERSED andSET ASIDE and, in
ownership; in short, the personality of the owner is disregarded. [16] As emphasized earlier, the
lieu thereof, a new one is entered ordering the appellee (PADCOM) to pay the appellant (the
provision on automatic membership was annotated in the Certificate of Title and made a condition in the
Association) the following:
Deed of Transfer in favor of PADCOM.Consequently, it is bound by and must comply with the covenant.
1) P639,961.47 as and for membership dues in arrears inclusive of earned interests and penalties; and
Moreover, Article 1311 of the Civil Code provides that contracts take effect between the parties, their
2) P25,000.00 as and for attorneys fees.
assigns and heirs. Since PADCOM is the successor-in-interest of TDC, it follows that the stipulation on
Costs against the appellees.
automatic membership with the Association is also binding on the former.
SO ORDERED.
We are not persuaded by PADCOMs contention that the By-laws of the Association requires application
The Court of Appeals justified its ruling by declaring that PADCOM automatically became a member of
for membership and acceptance thereof by the Board of Directors. Section 2 of the By-laws[17] reads:
the Association when the land was sold to TDC. The intent to pass the obligation to prospective
Section 2. Regular Members. Upon acceptance by the Board of Directors of Ortigas Center Association,
transferees was evident from the annotation of the same clause at the back of the Transfer Certificate of
Inc., all real estate owners, or long-term lessees of lots within the boundaries of the Association as
Title covering the lot. Despite disavowal of membership, PADCOMs membership in the Association was
defined in the Articles of Incorporation become regular members, provided, however that the long-term
evident from these facts: (1) PADCOM was included in the Associations list of bona fide members as of
lessees of a lot or lots in said area shall be considered as the regular members in lieu of the owners of
30 March 1995; (2) Narciso Padilla, PADCOMs President, was one of the Associations incorporators; and
the same. Likewise, regular membership in the Association automatically ceases upon the cessation of a
(3) having received the demands for payment, PADCOM not only acknowledged them, but asked for and
member to be an owner or long-term lessee of real estate in the area.
was granted repeated extensions, and even proposed a scheme for the settlement of its obligation. The
A lessee shall be considered a long-term lessee if his lease is in writing and for a period of two (2) years
Court of Appeals also ruled that PADCOM cannot evade payment of its obligation to the Association
or more. Membership of a long-term lessee in the Association shall be co-terminus with his legal
without violating equitable principles underlying quasi-contracts. Being covered by the Associations
possession (or his lease) of the lot/s in the area.Upon the lessees cessation of membership in the
avowed purpose to promote the interests and welfare of its members, PADCOM cannot be allowed to
Association, the owner shall automatically succeed the lessee as member thereat.
expediently deny and avoid the obligation arising from such membership.
As lot owner, PADCOM is a regular member of the Association. No application for membership is
Dissatisfied with the adverse judgment of the Court of Appeals, PADCOM filed the petition for review in
necessary. If at all, acceptance by the Board of Directors is a ministerial function considering that
this case. It raises the sole issue of whether it can be compelled to join the association pursuant to the

PADCOM is deemed to be a regular member upon the acquisition of the lot pursuant to the automatic
membership clause annotated in the Certificate of Title of the property and the Deed of Transfer.
Neither are we convinced by PADCOMs contention that the automatic membership clause is a violation
of its freedom of association. PADCOM was never forced to join the association.It could have avoided
such membership by not buying the land from TDC. Nobody forced it to buy the land when it bought the
building with the annotation of the condition or lien on the Certificate of Title thereof and accepted the
Deed. PADCOM voluntarily agreed to be bound by and respect the condition, and thus to join the
Association.
In addition, under the principle of estoppel, PADCOM is barred from disclaiming membership in the
Association. In estoppel, a person, who by his act or conduct has induced another to act in a particular
manner, is barred from adopting an inconsistent position, attitude or course of conduct that thereby
causes loss or injury to another.[18]
We agree with the Court of Appeals conclusion from the facts or circumstances it enumerated in its
decision and enumerated above that PADCOM is, indeed, a regular member of the Association. These
facts and circumstances are sufficient grounds to apply the doctrine of estoppel against PADCOM.
Having ruled that PADCOM is a member of the Association, it is obligated to pay its dues incidental
thereto. Article 1159 of the Civil Code mandates:
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.
Assuming in gratis argumenti that PADCOM is not a member of the Association, it cannot evade
payment without violating the equitable principles underlying quasi-contracts. Article 2142 of the Civil
Code provides:
Art. 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract
to the end that no one shall be unjustly enriched or benefited at the expense of another.
Generally, it may be said that a quasi-contract is based on the presumed will or intent of the obligor
dictated by equity and by the principles of absolute justice. Examples of these principles are: (1) it is
presumed that a person agrees to that which will benefit him; (2) nobody wants to enrich himself
unjustly at the expense of another; or (3) one must do unto others what he would want others to do
unto him under the same circumstances.[19]
As resident and lot owner in the Ortigas area, PADCOM was definitely benefited by the Associations acts
and activities to promote the interests and welfare of those who acquire property therein or benefit from
the acts or activities of the Association.
Finally, PADCOMs argument that the collection of monthly dues has no basis since there was no board
resolution defining how much fees are to be imposed deserves scant consideration. Suffice it is to say
that PADCOM never protested upon receipt of the earlier demands for payment of membership dues. In
fact, by proposing a scheme to pay its obligation, PADCOM cannot belatedly question the Associations
authority to assess and collect the fees in accordance with the total land area owned or occupied by the
members, which finds support in a resolution dated 6 November 1982 of the Associations incorporating
directors[20] and Section 2 of its By-laws.[21]
WHEREFORE, the petition is hereby DENIED for lack of merit.
Costs against petitioner.
SO ORDERED.
Puno, Kapunan, Ynares-Santiago, and Austria-Martinez, JJ., concur.
FIRST DIVISION
PAUL LEE TAN, ANDREW G.R. No. 153468 LIUSON, ESTHER WONG, STEPHEN CO, JAMES
TAN, Present:
JUDITH TAN, ERNESTO
TANCHI JR., EDWIN NGO, PANGANIBAN, CJ.,Chairperson,
VIRGINIA KHOO, SABINO YNARES-SANTIAGO,
PADILLA JR., EDUARDO P. AUSTRIA-MARTINEZ,
LIZARES and GRACE CALLEJO, SR., and
, CHICO-NAZARIO, JJ.
Petitioners,
- versus PAUL SYCIP and MERRITTO
LIM, Promulgated:
Respondents. August 17, 2006
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
DECISION
PANGANIBAN, CJ.:
For stock corporations, the quorum referred to in Section 52 of the Corporation Code is based on the number
of outstanding voting stocks.For nonstock corporations, only those who are actual, living members with voting
rights shall be counted in determining the existence of a quorum during members meetings. Dead members
shall not be counted.
The Case
[1]
The present Petition for Review on Certiorari
under Rule 45 of the Rules of Court seeks the reversal
of the January 23[2] and May 7, 2002,[3] Resolutions of the Court of Appeals (CA) in CA-GR SP No.
68202. The first assailed Resolution dismissed the appeal filed by petitioners with the CA. Allegedly,
without the proper authorization of the other petitioners, the Verification and Certification of Non-Forum
Shopping were signed by only one of them -- Atty. Sabino Padilla Jr.The second Resolution denied
reconsideration.
The Facts
(GCHS) is a nonstock, non-profit educational corporation with fifteen (15) regular members, who also
[4]
constitute the board of trustees.
During the annual members meeting held on April 6, 1998, there
[5]
were only eleven (11)
livingmember-trustees, as four (4) had already died. Out of the eleven, seven
(7)[6] attended the meeting through their respective proxies. The meeting was convened and chaired by
Atty. Sabino Padilla Jr. over the objection of Atty. Antonio C. Pacis, who argued that there was no
quorum.[7] In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia Khoo, and Judith Tan were
voted to replace the four deceased member-trustees.
When the controversy reached the Securities and Exchange Commission (SEC), petitioners maintained
that the deceased member-trustees should not be counted in the computation of the quorum because,
upon their death, members automatically lost all their rights (including the right to vote) and interests in
the corporation.
SEC Hearing Officer Malthie G. Militar declared the meeting null and void for lack of quorum. She held
that the basis for determining the quorum in a meeting of members should be their number as specified
in the articles of incorporation, not simply the number of living members.[8] She explained that the
qualifying phrase entitled to vote in Section 24[9] of the Corporation Code, which provided the basis for
determining a quorum for the election of directors or trustees, should be read together with Section 89.
[10]
The hearing officer also opined that Article III (2) [11] of the By-Laws of GCHS, insofar as it prescribed
the mode of filling vacancies in the board of trustees, must be interpreted in conjunction with Section
29[12] of the Corporation Code. The SEC en banc denied the appeal of petitioners and affirmed the
Decision of the hearing officer in toto.[13]It found to be untenable their contention that the word
members, as used in Section 52[14] of the Corporation Code, referred only to the living members of a
nonstock corporation.[15]
As earlier stated, the CA dismissed the appeal of petitioners, because the Verification and Certification of
Non-Forum Shopping had been signed only by Atty. Sabino Padilla Jr. No Special Power of Attorney had
been attached to show his authority to sign for the rest of the petitioners.
Hence, this Petition.[16]
Issues
Petitioners state the issues as follows:

Petitioners principally pray for the resolution of the legal question of whether or not in NON-STOCK
corporations, dead members should still be counted in determination of quorum for purposed of
conducting the Annual Members Meeting.
Petitioners have maintained before the courts below that the DEAD members should no longer be
counted in computing quorum primarily on the ground that members rights are personal and nontransferable as provided in Sections 90 and 91 of the Corporation Code of the Philippines.
The SEC ruled against the petitioners solely on the basis of a 1989 SEC Opinion that did not even
involve a non-stock corporation as petitioner GCHS.
The Honorable Court of Appeals on the other hand simply refused to resolve this question and instead
dismissed the petition for review on a technicality the failure to timely submit an SPA from the
petitioners authorizing their co-petitioner Padilla, their counsel and also a petitionerbefore the Court of
Appeals, to sign the petition on behalf of the rest of the petitioners.
Petitioners humbly submit that the action of both the SEC and the Court of Appeals are not in accord
with law particularly the pronouncements of this Honorable Court in Escorpizo v. University of
Baguio (306 SCRA 497), Robern Development Corporation v. Quitain (315 SCRA 150,) andMC
Engineering, Inc. v. NLRC , (360 SCRA 183). Due course should have been given the petition below and
the merits of the case decided in petitioners favor.[17]
In sum, the issues may be stated simply in this wise: 1) whether the CA erred in denying the Petition
below, on the basis of a defective Verification and Certification; and 2) whether dead members should
still be counted in the determination of the quorum, for purposes of conducting the annual members
meeting.
The Courts Ruling
The present Petition is partly meritorious.
Procedural Issue:
Verification and Certification
of Non-Forum Shopping
The Petition before the CA was initially flawed, because the Verification and Certification of Non-Forum
Shopping were signed by only one, not by all, of the petitioners; further, it failed to show proof that the
signatory was authorized to sign on behalf of all of them.Subsequently, however, petitioners submitted a
Special Power of Attorney, attesting that Atty. Padilla was authorized to file the action on their behalf.
[18]
In the interest of substantial justice, this initial procedural lapse may be excused. [19] There appears to
be no intention to circumvent the need for proper verification and certification, which are aimed at
assuring the truthfulness and correctness of the allegations in the Petition for Review and at
discouraging forum shopping.[20] More important, the substantial merits of petitioners case and the
purely legal question involved in the Petition should be considered special circumstances [21] or
compelling reasons that justify an exception to the strict requirements of the verification and the
certification of non-forum shopping.[22]
Main Issue:
Basis for Quorum
Generally, stockholders or members meetings are called for the purpose of electing directors or
trustees[23] and transacting some other business calling for or requiring the action or consent of the
shareholders or members,[24] such as the amendment of the articles of incorporation and bylaws, sale
or disposition of all or substantially all corporate assets, consolidation and merger and the like, or any
other business that may properly come before the meeting.
Under the Corporation Code, stockholders or members periodically elect the board of directors or
trustees, who are charged with the management of the corporation. [25] The board, in turn, periodically
elects officers to carry out management functions on a day-to-day basis. As owners, though, the
stockholders or members have residual powers over fundamental and major corporate changes.
While stockholders and members (in some instances) are entitled to receive profits, the management
and direction of the corporation are lodged with their representatives and agents -- the board of
directors or trustees.[26] In other words, acts of management pertain to the board; and those of
ownership, to the stockholders or members. In the latter case, the board cannot act alone, but must
seek approval of the stockholders or members.[27]
Conformably with the foregoing principles, one of the most important rights of a qualified shareholder or
member is the right to vote -- either personally or by proxy -- for the directors or trustees who are to
manage the corporate affairs.[28] The right to choose the persons who will direct, manage and operate
the corporation is significant, because it is the main way in which a stockholder can have a voice in the
management of corporate affairs, or in which a member in a nonstock corporation can have a say on
how the purposes and goals of the corporation may be achieved.[29] Once the directors or trustees are
elected, the stockholders or members relinquish corporate powers to the board in accordance with law.
In the absence of an express charter or statutory provision to the contrary, the general rule is that every
member of a nonstock corporation, and every legal owner of shares in a stock corporation, has a right
to be present and to vote in all corporate meetings. Conversely, those who are not stockholders or
members have no right to vote.[30]Voting may be expressed personally, or through proxies who vote in
their representative capacities.[31] Generally, the right to be present and to vote in a meeting is
determined by the time in which the meeting is held.[32]
Section 52 of the Corporation Code states:
Section 52. Quorum in Meetings. Unless otherwise provided for in this Code or in the by-laws, a quorum
shall consist of the stockholders representing a majority of the outstanding capital stock or a majority of
the members in the case of non-stock corporations.
In stock corporations, the presence of a quorum is ascertained and counted on the basis of
the outstanding capital stock, as defined by the Code thus:
SECTION 137. Outstanding capital stock defined . The term outstanding capital stock as used in this
Code, means the total shares of stock issued under binding subscription agreements to subscribers or
stockholders, whether or not fully or partially paid, except treasury shares. (Underscoring supplied)
The Right to Vote in
Stock Corporations
The right to vote is inherent in and incidental to the ownership of corporate stocks. [33] It is settled that
unissued stocks may not be voted or considered in determining whether a quorum is present in a
stockholders meeting, or whether a requisite proportion of the stock of the corporation is voted to adopt
a certain measure or act. Only stockactually issued and outstanding may be voted.[34] Under Section 6
of the Corporation Code, each share of stock is entitled to vote, unless otherwise provided in the articles
of incorporation or declared delinquent[35] under Section 67 of the Code.
Neither the stockholders nor the corporation can vote or represent shares that have never passed to the
ownership of stockholders; or, having so passed, have again been purchased by the corporation.
[36]These shares are not to be taken into consideration in determining majorities. When the law speaks
of a given proportion of the stock, it must be construed to mean the shares that have passed from the
corporation, and that may be voted.[37]
Section 6 of the Corporation Code, in part, provides:
Section 6. Classification of shares. The shares of stock of stock corporations may be divided into classes
or series of shares, or both, any of which classes or series of shares may have such rights, privileges or
restrictions as may be stated in the articles of incorporation: Provided, That no share may be deprived of
voting rights except those classified and issued as preferred or redeemable shares, unless otherwise
provided in this Code: Provided, further, that there shall always be a class or series of shares which have
complete voting rights.
xxxxxxxxx
Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the
holders of such shares shall nevertheless be entitled to vote on the following matters:
1.
Amendment of the articles of incorporation;
2.
Adoption and amendment of by-laws;
3.
, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the
corporation property;
4.
Incurring, creating or increasing bonded indebtedness;
5.
Increase or decrease of capital stock;
6.
Merger or consolidation of the corporation with another corporation or other corporations;

7.
Investment of corporate funds in another corporation or business in accordance with this Code;
Under the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the
and
death of the member.[46] Section 91 of the Corporation Code further provides that termination
8.
Dissolution of the corporation.
extinguishes all the rights of a member of the corporation, unless otherwise provided in the articles of
Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular
incorporation or the bylaws.
corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights.
Applying Section 91 to the present case, we hold that dead members who are dropped from the
Taken in conjunction with Section 137, the last paragraph of Section 6 shows that the intention of the
membership roster in the manner and for the cause provided for in the By-Laws of GCHS are not to be
lawmakers was to base the quorum mentioned in Section 52 on the number
counted in determining the requisite vote in corporate matters or the requisite quorum for the annual
of outstanding votingstocks.[38]
members meeting. With 11 remaining members, the quorum in the present case should be 6. Therefore,
The Right to Vote in
there being a quorum, the annual members meeting, conducted with six[47]members present, was
Nonstock Corporations
valid.
In nonstock corporations, the voting rights attach to membership. [39]Members vote as persons, in
Vacancy in the
accordance with the law and the bylaws of the corporation. Each member shall be entitled to one vote
Board of Trustees
unless so limited, broadened, or denied in the articles of incorporation or bylaws.[40] We hold that when
As regards the filling of vacancies in the board of trustees, Section 29 of the Corporation Code provides:
the principle for determining the quorum for stock corporations is applied by analogy to nonstock
SECTION 29. Vacancies in the office of director or trustee . -- Any vacancy occurring in the board of
corporations, only those who are actual members with voting rights should be counted.
directors or trustees other than by removal by the stockholders or members or by expiration of term,
Under Section 52 of the Corporation Code, the majority of the members representing the actual number
may be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting
of voting rights, not the number or numerical constant that may originally be specified in the articles of
a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or special meeting
incorporation, constitutes the quorum.[41]
called for that purpose. A director or trustee so elected to fill a vacancy shall be elected only for the
The March 3, 1986 SEC Opinion[42] cited by the hearing officer uses the phrase majority vote of the
unexpired term of his predecessor in office.
members; likewise Section 48 of the Corporation Code refers to 50 percent of 94 (the number of
Undoubtedly, trustees may fill vacancies in the board, provided that those remaining still constitute a
registered members of the association mentioned therein) plus one. The best evidence of who are
quorum. The phrase may be filled in Section 29 shows that the filling of vacancies in the board by the
the present members of the corporation is the membership book; in the case of stock corporations, it is
remaining directors or trustees constituting a quorum is merely permissive, not mandatory.
the stock and transfer book.[43] Section 25 of the Code specifically provides that a majority of
[48] Corporations, therefore, may choose how vacancies in their respective boards may be filled up -thedirectors or trustees, as fixed in the articles of incorporation, shall constitute a quorum for the
either by the remaining directors constituting a quorum, or by the stockholders or members in a regular
transaction of corporate business (unless the articles of incorporation or the bylaws provide for a greater
or special meeting called for the purpose.[49]
majority). If the intention of the lawmakers was to base the quorum in the meetings of stockholders or
The By-Laws of GCHS prescribed the specific mode of filling up existing vacancies in its board of
members on their absolute number as fixed in the articles of incorporation, it would have expressly
directors; that is, by a majority vote of the remaining members of the board.[50]
specified so. Otherwise, the only logical conclusion is that the legislature did not have that intention.
While a majority of the remaining corporate members were present, however, the election of the four
Effect of the Death
trustees cannot be legally upheld for the obvious reason that it was held in an annual meeting of the
of a Member or Shareholder
members, not of the board of trustees. We are not unmindful of the fact that the members of GCHS
Having thus determined that the quorum in a members meeting is to be reckoned as the actual number
themselves also constitute the trustees, but we cannot ignore the GCHS bylaw provision, which
of members of the corporation, the next question to resolve is what happens in the event of the death
specifically prescribes that vacancies in the board must be filled up by the remaining trustees. In other
of one of them.
words, these remaining member-trusteesmust sit as a board in order to validly elect the new ones.
In stock corporations, shareholders may generally transfer their shares.Thus, on the death of a
Indeed, there is a well-defined distinction between a corporate act to be done by the board and that by
shareholder, the executor or administrator duly appointed by the Court is vested with the legal title to
the constituent members of the corporation. The board of trustees must act, not individually or
the stock and entitled to vote it. Until a settlement and division of the estate is effected, the stocks of
separately, but as a body in a lawful meeting. On the other hand, in their annual meeting, the members
the decedent are held by the administrator or executor.[44]
may be represented by their respective proxies, as in the contested annual members meeting of GCHS.
On the other hand, membership in and all rights arising from a nonstock corporation are personal and
WHEREFORE, the Petition is partly GRANTED. The assailed Resolutions of the Court of Appeals are
non-transferable, unless the articles of incorporation or the bylaws of the corporation provide otherwise.
hereby REVERSED AND SET ASIDE. The remaining members of the board of trustees of Grace
[45] In other words, the determination of whether or not dead members are entitled to exercise their
Christian High School (GCHS) may convene and fill up the vacancies in the board, in accordance with
voting rights (through their executor or administrator), depends on those articles of incorporation or
this Decision. No pronouncement as to costs in this instance.
bylaws.
[4] Art. II (1), Amended By-Laws of GCHS, provides:
1. Number The regular members of the Corporation shall be fifteen (15) in number and they shall constitute the Board of Trustees. Associate, non-voting members may be admitted upon such terms as the Board of
Trustees may determine.(Memorandum for petitioners, p. 2; rollo, p. 92.)
[9] Section 24. Election of directors or trustees. At all elections of directors or trustees, there must be present, either in person or by representative authorized to act by written proxy, the owners of a majority of the
outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. x x x. Any meeting of the stockholders or members called for an election may adjourn from day to day or from time to
time but not sine die or indefinitely if, for any reason, no election is held, or if there are not present or represented by proxy, at the meeting, the owners of a majority of the outstanding capital stock, or if there be no
capital stock, a majority of the member entitled to vote. (Underscoring supplied)
[10] Section 89. Right to vote. The right of the members of any class or classes to vote may be limited, broadened or denied to the extent specified in the articles of incorporation or the by-laws. Unless so limited,
broadened or denied, each member, regardless of class, shall be entitled to one vote.
Unless otherwise provided in the articles of incorporation or the by-laws, a member may vote by proxy in accordance with the provisions of this Code.
Voting by mail or other similar means by members of non-stock corporations may be authorized by the by-laws of non-stock corporations with the approval of, and under such conditions which may be prescribed by, the
Securities and Exchange Commission.
[11] Article III (2). Vacancies Any vacancy in the Board of Trustees shall be filled by a majority vote of the remaining members of the Board. (Cited in Decision, SEC Case No. 08-98-6065, p. 6; rollo, p. 43.)
[12] Section 29. Vacancies in the office of director or trustee. Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term, may be filled by
the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum ; otherwise, said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. x x x.
(Underscoring supplied)
[13] See SEC Order dated , Annex D of Petition; rollo, pp. 46-51.
[14] Section 52. Quorum in meetings. Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of the stockholders representing a majority of the outstanding capital stock or a majority of the
members in the case of non-stock corporations. (Underscoring supplied)
[15] SEC Order dated , p. 3; rollo, p. 48.
[16] To resolve old cases, the Court created the Committee on Zero Backlog of Cases on . Consequently, the Court resolved to prioritize the adjudication of long-pending cases by redistributing them among all the
justices.This case was recently re-raffled and assigned to the undersigned ponente for study and report.
[17] Petitioners Memorandum, pp. 6-7; rollo, pp. 96-97.
[21] In certain exceptional circumstances, the Court has allowed the relaxation of the rule requiring verification and certification of non-forum shopping. LDP Marketing, Inc., v. Monter, GR No. 159653, January 25, 2006
citing Uy v. Land Bank of the Philippines , 336 SCRA 419, July 24, 2000, Roadway Express, Inc. v. Court of Appeals, et al., 264 SCRA 696, November 21, 1996, and Loyola v. Court of Appeals, et al ., 245 SCRA 477, June 29,
1995; Ateneo De Naga University v. Manalo, 458 SCRA 325, May 9, 2005.

[22] Uy v. Land Bank of the Philippines, supra.


[23] CORPORATION CODE, Sec. 24.
[24] See CORPORATION CODE, Secs. 6, 16, 24, 28-30, 32, 34, 38, 40, 42-44, 46, 48, 77, 118-120.
[25] CORPORATION CODE, Sec. 23.
[35] Section 71. Effect of delinquency. No delinquent stock shall be voted for or be entitled to vote or to representation at any stockholders meeting. x x x.
[36] Section 9. Treasury shares. Treasury shares are shares of stock which have been issued and fully paid for but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some
other lawful means. x x x.
Section 57. Voting right for treasury shares. Treasury shares shall have no voting right as long as such stock remains in the Treasury.
[40] CORPORATION CODE, Sec. 89.
[41] In Noremac, Inc. v. Centre Hill Court, Inc., (178 SE 877, March 14, 1935) the management and control of the corporation were vested in lot owners who were members of the corporation, by virtue of their ownership;
and the bylaws provided that a quorum should consist of members representing a majority of the lots, numbered from 1 to 30, inclusive; but the number of lots was later reduced to 29 so the Court said that the majority
of members representing actual number of lots was a quorum.
The landmark case Avelino v. Cuenca (83 Phil. 17, ) can be used by analogy. In that case, the Supreme Court said that [t]here is a difference between a majority of all the members of the House and a majority of the
House, which requires less number than the first.
In this case, the law refers to the majority of the members and not the majority of all the members. Thus, we can use the same reasoning that the majority of the members requires a lesser number than the majority of
all the members.
[42] See the Decision dated , SEC Case No. 08-98-6065, pp. 3-4; rollo, pp. 41-42.
[44] SEC Letter-Opinion to Ms. Rosevelinda E. Calingasan, et al., (R. Lopez) ; CORPORATION CODE, Sec. 55.
[45] CORPORATION CODE, Sec. 90.
intervenor for ejectment in Civil Case No. 38-81 with the Metropolitan Trial Court of Pasay City which
rendered a decision on April 25, 1985, dispositive portion of which reads, as follows:
Wherefore, judgment is hereby rendered in favor of the plaintiff (herein private respondents) and
against the defendants:
1. Ordering the defendants and all persons claiming possession under them to vacate the premises.
G.R. No. 91889 August 27, 1993
2. Ordering the defendants to pay the rents in the sum of P500.000 a month from May, 1979 until they
MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND NEPOMUCENO
shall have vacated the premises with interest at the legal rate;
REDOVAN, petitioners,
3. Ordering the defendants to pay attorney's fees in the sum of P2,000.00 and P1,000.00 as other
vs.
expenses of litigation and for them to pay the costs of the suit. 15
THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A. TORRES, JR.,
Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed an action against the
MARIA THERESA V. VELOSO AND CASTRENSE C. VELOSO, respondents.
presiding judge of the Metropolitan Trial Court of Pasay City, private respondents Pabalan and Torres for
Virgilio E. Dulay for petitioners.
the annulment of said decision with the Regional Trial Court of Pasay in Civil Case No. 2880-P.
Torres, Tobias, Azura & Jocson for private respondents.
Thereafter, the three (3) cases were jointly tried and the trial court rendered a decision in favor of
NOCON, J.:
private respondents.
This is a petition for review on certiorari to annul and set aside the decision 1 of the Court of Appeals
Not satisfied with said decision, petitioners appealed to the Court of Appeals which rendered a decision
affirming the decision 2 of the Regional Trial Court of Pasay, Branch 114 Civil Cases Nos. 8198-P, and
on October 23, 1989, the dispositive portion of which reads, as follows:
2880-P, the dispositive portion of which reads, as follows:
PREMISES CONSIDERED, the decision being appealed should be as it is hereby AFFIRMED in full. 16
Wherefore, in view of all the foregoing considerations, in this Court hereby renders judgment, as
On November 8, 1989, petitioners filed a Motion for Reconsideration which was denied on January 26,
follows:
1990.
In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay for
Hence, this petition.
annulment or declaration of nullity of the decision of the Metropolitan Trial Court, Branch 46, Pasay City,
During the pendency of this petition, private respondent Torres died on April 3, 1991 as shown in his
in its Civil Case No. 38-81 entitled "Edgardo D. Pabalan, et al., vs. Spouses Florentino Manalastas, et al.,"
death certificate 17 and named Torres-Pabalan Realty & Development Corporation as his heir in his
is dismissed for lack of merits;
holographic will 18 dated October 31, 1986.
In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay Enterprises, Inc. for cancellation of title
Petitioners contend that the respondent court had acted with grave abuse of discretion when it applied
of Manuel A. Torres, Jr. (TCT No. 24799 of the Register of Deeds of Pasay City) and reconveyance, is
the doctrine of piercing the veil of corporate entity in the instant case considering that the sale of the
dismissed for lack or merit, and,
subject property between private respondents spouses Veloso and Manuel Dulay has no binding effect
In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay are ordered
on petitioner corporation as Board Resolution No. 18 which authorized the sale of the subject property
to surrender and deliver possession of the parcel of land, together with all the improvements thereon,
was resolved without the approval of all the members of the board of directors and said Board
described in Transfer Certificate of Title No. 24799 of the Register of Deeds of Pasay City, in favor of
Resolution was prepared by a person not designated by the corporation to be its secretary.
therein plaintiffs Manuel A. Torres, Jr. as owner and Edgardo D. Pabalan as real estate administrator of
We do not agree.
said Manuel A. Torres, Jr.; to account for and return to said plaintiffs the rentals from dwelling unit No.
Section 101 of the Corporation Code of the Philippines provides:
8-A of the apartment building (Dulay Apartment) from June 1980 up to the present, to indemnify
Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide otherwise,
plaintiffs, jointly and severally, expenses of litigation in the amount of P4,000.00 and attorney's fees in
any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid
the sum of P6,000.00, for all the three (3) cases. Co-defendant Nepomuceno Redovan is ordered to pay
if:
the current and subsequent rentals on the premises leased by him to plaintiffs.
1. Before or after such action is taken, written consent thereto is signed by all the directors, or
The counterclaim of defendants Virgilio E. Dulay and Manuel R. Dulay Enterprises, Inc. and N. Redovan,
2. All the stockholders have actual or implied knowledge of the action and make no prompt objection
dismissed for lack of merit. With costs against the three (3) aforenamed defendants. 3
thereto in writing; or
The facts as found by the trial court are as follows:
3. The directors are accustomed to take informal action with the express or implied acquiese of all the
Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as members of its
stockholders, or
Board of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and
4. All the directors have express or implied knowledge of the action in question and none of them makes
general manager, Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulay
prompt objection thereto in writing.
with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and
If a directors' meeting is held without call or notice, an action taken therein within the corporate powers
designated as secretary, owned a property covered by TCT No. 17880 4 and known as Dulay Apartment
is deemed ratified by a director who failed to attend, unless he promptly files his written objection with
consisting of sixteen (16) apartment units on a six hundred eighty-nine (689) square meters lot, more or
the secretary of the corporation after having knowledge thereof.
less, located at Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City.
In the instant case, petitioner corporation is classified as a close corporation and consequently a board
Petitioner corporation through its president, Manuel Dulay, obtained various loans for the construction of
resolution authorizing the sale or mortgage of the subject property is not necessary to bind the
its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had to borrow money from
corporation for the action of its president. At any rate, corporate action taken at a board meeting
petitioner Virgilio Dulay to be able to continue the hotel project. As a result of said loan, petitioner
without proper call or notice in a close corporation is deemed ratified by the absent director unless the
Virgilio Dulay occupied one of the unit apartments of the subject property since property since 1973
latter promptly files his written objection with the secretary of the corporation after having knowledge of
while at the same time managing the Dulay Apartment at his shareholdings in the corporation was
the meeting which, in his case, petitioner Virgilio Dulay failed to do.
subsequently increased by his father. 5
It is relevant to note that although a corporation is an entity which has a personality distinct and
On
December
23,
1976,
Manuel
Dulay
by
virtue
of
Board
Resolution
separate from its individual stockholders or members, 19 the veil of corporate fiction may be pierced
No 18 6 of petitioner corporation sold the subject property to private respondents spouses Maria
when it is used to defeat public convenience justify wrong, protect fraud or defend crime. 20 The
Theresa and Castrense Veloso in the amount of P300,000.00 as evidenced by the Deed of Absolute
privilege of being treated as an entity distinct and separate from its stockholder or members is therefore
Sale. 7 Thereafter, TCT No. 17880 was cancelled and TCT No. 23225 was issued to private respondent
confined to its legitimate uses and is subject to certain limitations to prevent the commission of fraud or
Maria Theresa Veloso. 8 Subsequently, Manuel Dulay and private respondents spouses Veloso executed
other illegal or unfair act. When the corporation is used merely as an alter ego or business conduit of a
a Memorandum to the Deed of Absolute Sale of December 23, 1976 9 dated December 9, 1977 giving
person, the law will regard the corporation as the act of that person. 21 The Supreme Court had
Manuel Dulay within (2) years or until December 9, 1979 to repurchase the subject property for
repeatedly disregarded the separate personality of the corporation where the corporate entity was used
P200,000.00 which was, however, not annotated either in TCT No. 17880 or TCT No. 23225.
to annul a valid contract executed by one of its members.
On December 24, 1976, private respondent Maria Veloso, without the knowledge of Manuel Dulay,
Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to private
mortgaged the subject property to private respondent Manuel A. Torres for a loan of P250,000.00 which
respondents spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed without
was duly annotated as Entry No. 68139 in TCT No. 23225. 10
the knowledge and consent of the other members of the board of directors cannot be sustained. As
Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the subject
correctly pointed out by the respondent Court of Appeals:
property was sold on April 5, 1978 to private respondent Torres as the highest bidder in an extrajudicial
Appellant Virgilio E. Dulay's protestations of complete innocence to the effect that he never participated
foreclosure sale as evidenced by the Certificate of Sheriff's Sale 11 issued on April 20, 1978.
nor was even aware of any meeting or resolution authorizing the mortgage or sale of the subject
On July 20, 1978, private respondent Maria Veloso executed a Deed of Absolute Assignment of the Right
premises (see par. 8, affidavit of Virgilio E. Dulay, dated May 31, 1984, p. 14, Exh. "21") is difficult to
to Redeem 12 in favor of Manuel Dulay assigning her right to repurchase the subject property from
believe. On the contrary, he is very much privy to the transactions involved. To begin with, he is a
private respondent Torres as a result of the extra sale held on April 25, 1978.
incorporator and one of the board of directors designated at the time of the organization of Manuel R.
As neither private respondent Maria Veloso nor her assignee Manuel Dulay was able to redeem the
Dulay Enterprise, Inc. In ordinary parlance, the said entity is loosely referred to as a "family
subject property within the one year statutory period for redemption, private respondent Torres filed an
corporation". The nomenclature, if imprecise, however, fairly reflects the cohesiveness of a group and
Affidavit of Consolidation of Ownership 13 with the Registry of Deeds of Pasay City and TCT No.
the parochial instincts of the individual members of such an aggrupation of which Manuel R. Dulay
24799 14 was subsequently issued to private respondent Manuel Torres on April 23, 1979.
Enterprises, Inc. is typical: four-fifths of its incorporators being close relatives namely, three (3) children
On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of possession
and their father whose name identifies their corporation (Articles of Incorporation of Manuel R. Dulay
against private respondents spouses Veloso and Manuel Dulay in LRC Case No. 1742-P. However, when
Enterprises, Inc. Exh. "31-A"). 22
petitioner Virgilio Dulay was never authorized by the petitioner corporation to sell or mortgage the
Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed an affidavit 23 that he was a
subject property, the trial court ordered private respondent Torres to implead petitioner corporation as
signatory witness to the execution of the post-dated Deed of Absolute Sale of the subject property in
an indispensable party but the latter moved for the dismissal of his petition which was granted in an
favor of private respondent Torres indicates that he was aware of the transaction executed between his
Order dated April 8, 1980.
father and private respondents and had, therefore, adequate knowledge about the sale of the subject
On June 20, 1980, private respondent Torres and Edgardo Pabalan, real estate administrator of Torres,
property to private respondents.
filed an action against petitioner corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay
Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject
Apartment Unit No. 8-A for the recovery of possession, sum of money and damages with preliminary
property to private respondents by Manuel Dulay is valid and binding. As stated by the trial court:
injunction in Civil Case, No. 8198-P with the then Court of First Instance of Rizal.
. . . the sale between Manuel R. Dulay Enterprises, Inc. and the spouses Maria Theresa V. Veloso and
On July 21, 1980, petitioner corporation filed an action against private respondents spouses Veloso and
Castrense C. Veloso, was a corporate act of the former and not a personal transaction of Manuel R.
Torres for the cancellation of the Certificate of Sheriff's Sale and TCT No. 24799 in Civil Case No. 8278-P
Dulay. This is so because Manuel R. Dulay was not only president and treasurer but also the general
with the then Court of First Instance of Rizal.
manager of the corporation. The corporation was a closed family corporation and the only non-relative
On January 29, 1981, private respondents Pabalan and Torres filed an action against spouses Florentino
in the board of directors was Atty. Plaridel C. Jose who appeared on paper as the secretary. There is no
and Elvira Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with petitioner corporation as
denying the fact, however, that Maria Socorro R. Dulay at times acted as secretary. . . ., the Court can
not lose sight of the fact that the Manuel R. Dulay Enterprises, Inc. is a closed family corporation where

the incorporators and directors belong to one single family. It cannot be concealed that Manuel R. Dulay
as president, treasurer and general manager almost had absolute control over the business and affairs
of the corporation. 24
Moreover, the appellate courts will not disturb the findings of the trial judge unless he has plainly
overlooked certain facts of substance and value that, if considered, might affect the result of the
case, 25 which is not present in the instant case.
Petitioners' contention that private respondent Torres never acquired ownership over the subject
property since the latter was never in actual possession of the subject property nor was the property
ever delivered to him is also without merit.
Paragraph 1, Article 1498 of the New Civil Code provides:
When the sale is made through a public instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if from the deed the contrary do not appear or
cannot clearly be inferred.
Under the aforementioned article, the mere execution of the deed of sale in a public document is
equivalent to the delivery of the property. Likewise, this Court had held that:
It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased
if it is not redeemed during the period of one year after the registration of the sale. As such, he is
entitled to the possession of the said property and can demand it at any time following the consolidation
of ownership in his name and the issuance to him of a new transfer certificate of title. The buyer can in
fact demand possession of the land even during the redemption period except that he has to post a
bond in accordance with Section 7 of Act No. 3133 as amended. No such bond is required after the
redemption period if the property is not redeemed. Possession of the land then becomes an absolute
right of the purchaser as confirmed owner. 26
Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of
Sale in deemed equivalent to delivery.
Finally, we hold that the respondent appellate court did not err in denying petitioner's motion for
reconsideration despite the fact that private respondents failed to submit their comment to said motion
as required by the respondent appellate court from resolving petitioners' motion for reconsideration
without the comment of the private respondent which was required merely to aid the court in the
disposition of the motion. The courts are as much interested as the parties in the early disposition of
cases before them. To require otherwise would unnecessarily clog the courts' dockets.
WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED.
SO ORDERED.
FIRST DIVISION
[G.R. No. 129459. September 29, 1998]
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner, vs. COURT OF
APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT
CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents.
DECISION
PANGANIBAN, J.
May a corporate treasurer, by herself and without any authorization from the board of directors, validly
sell a parcel of land owned by the corporation? May the veil of corporate fiction be pierced on the mere
ground that almost all of the shares of stock of the corporation are owned by said treasurer and her
husband?
The Case
These questions are answered in the negative by this Court in resolving the Petition for Review on
Certiorari before us, assailing the March 18, 1997 Decision[1] of the Court of Appeals[2] in CA GR CV
No. 46801 which, in turn, modified the July 18, 1994 Decision of the Regional Trial Court of Makati,
Metro Manila, Branch 63[3] in Civil Case No. 89-3511. The RTC dismissed both the Complaint and the
Counterclaim filed by the parties. On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH MODIFICATION ordering
defendant-appellee Nenita Lee Gruenberg to REFUND or return to plaintiff-appellant the downpayment
of P100,000.00 which she received from plaintiff-appellant. There is no pronouncement as to costs.[4]
The petition also challenges the June 10, 1997 CA Resolution denying reconsideration.[5]
The Facts
The facts as found by the Court of Appeals are as follows:
Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.s amended complaint alleged that on 14
February 1989, plaintiff-appellant entered into an agreement with defendant-appellee Motorich Sales
Corporation for the transfer to it of a parcel of land identified as Lot 30, Block 1 of the Acropolis Greens
Subdivision located in the District of Murphy, Quezon City, Metro Manila, containing an area of Four
Hundred Fourteen (414) square meters, covered by TCT No. (362909) 2876; that as stipulated in the
Agreement of 14 February 1989, plaintiff-appellant paid the down payment in the sum of One Hundred
Thousand (P100,000.00) Pesos, the balance to be paid on or before March 2, 1989; that on March 1,
1989, Mr. Andres T. Co, president of plaintiff-appellant corporation, wrote a letter to defendant-appellee
Motorich Sales Corporation requesting for a computation of the balance to be paid; that said letter was
coursed through defendant-appellees broker, Linda Aduca, who wrote the computation of the balance;
that on March 2, 1989, plaintiff-appellant was ready with the amount corresponding to the balance,
covered by Metrobank Cashiers Check No. 004223, payable to defendant-appellee Motorich Sales
Corporation; that plaintiff-appellant and defendant-appellee Motorich Sales Corporation were supposed
to meet in the office of plaintiff-appellant but defendant-appellees treasurer, Nenita Lee Gruenberg, did
not appear; that defendant-appellee Motorich Sales Corporation despite repeated demands and in utter
disregard of its commitments had refused to execute the Transfer of Rights/Deed of Assignment which is
necessary to transfer the certificate of title; that defendant ACL Development Corp. is impleaded as a
necessary party since Transfer Certificate of Title No. (362909) 2876 is still in the name of said
defendant; while defendant JNM Realty & Development Corp. is likewise impleaded as a necessary party
in view of the fact that it is the transferor of right in favor of defendant-appellee Motorich Sales
Corporation; that on April 6, 1989, defendant ACL Development Corporation and Motorich Sales
Corporation entered into a Deed of Absolute Sale whereby the former transferred to the latter the
subject property; that by reason of said transfer, the Registry of Deeds of Quezon City issued a new title
in the name of Motorich Sales Corporation, represented by defendant-appellee Nenita Lee Gruenberg
and Reynaldo L. Gruenberg, under Transfer Certificate of Title No. 3571; that as a result of defendantsappellees Nenita Lee Gruenberg and Motorich Sales Corporations bad faith in refusing to execute a
formal Transfer of Rights/Deed of Assignment, plaintiff-appellant suffered moral and nominal damages
which may be assessed against defendants-appellees in the sum of Five Hundred Thousand
(500,000.00) Pesos; that as a result of defendants-appellees Nenita Lee Gruenberg and Motorich Sales
Corporations unjustified and unwarranted failure to execute the required Transfer of Rights/Deed of
Assignment or formal deed of sale in favor of plaintiff-appellant, defendants-appellees should be
assessed exemplary damages in the sum of One Hundred Thousand (P100,000.00) Pesos; that by
reason of defendants-appellees bad faith in refusing to execute a Transfer of Rights/Deed of Assignment
in favor of plaintiff-appellant, the latter lost the opportunity to construct a residential building in the sum
of One Hundred Thousand (P100,000.00) Pesos; and that as a consequence of defendants-appellees
Nenita Lee Gruenberg and Motorich Sales Corporations bad faith in refusing to execute a deed of sale in
favor of plaintiff-appellant, it has been constrained to obtain the services of counsel at an agreed fee of
One Hundred Thousand (P100,000.00) Pesos plus appearance fee for every appearance in court
hearings.
In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg interposed as
affirmative defense that the President and Chairman of Motorich did not sign the agreement adverted to
in par. 3 of the amended complaint; that Mrs. Gruenbergs signature on the agreement (ref: par. 3 of
Amended Complaint) is inadequate to bind Motorich. The other signature, that of Mr. Reynaldo
Gruenberg, President and Chairman of Motorich, is required; that plaintiff knew this from the very
beginning as it was presented a copy of the Transfer of Rights (Annex B of amended complaint) at the
time the Agreement (Annex B of amended complaint) was signed; that plaintiff-appellant itself drafted
the Agreement and insisted that Mrs. Gruenberg accept the P100,000.00 as earnest money; that
granting, without admitting, the enforceability of the agreement, plaintiff-appellant nonetheless failed to
pay in legal tender within the stipulated period (up to March 2, 1989); that it was the understanding

between Mrs. Gruenberg and plaintiff-appellant that the Transfer of Rights/Deed of Assignment will be
signed only upon receipt of cash payment; thus they agreed that if the payment be in check, they will
meet at a bank designated by plaintiff-appellant where they will encash the check and sign the Transfer
of Rights/Deed. However, plaintiff-appellant informed Mrs. Gruenberg of the alleged availability of the
check, by phone, only after banking hours.
On the basis of the evidence, the court a quo rendered the judgment appealed from[,] dismissing
plaintiff-appellants complaint, ruling that:
'The issue to be resolved is: whether plaintiff had the right to compel defendants to execute a deed of
absolute sale in accordance with the agreement of February 14, 1989; and if so, whether plaintiff is
entitled to damages.
As to the first question, there is no evidence to show that defendant Nenita Lee Gruenberg was indeed
authorized by defendant corporation, Motorich Sales, to dispose of that property covered by T.C.T. No.
(362909) 2876. Since the property is clearly owned by the corporation, Motorich Sales, then its
disposition should be governed by the requirement laid down in Sec. 40, of the Corporation Code of the
Philippines, to wit:
Sec. 40, Sale or other disposition of assets. Subject to the provisions of existing laws on illegal
combination and monopolies, a corporation may by a majority vote of its board of directors xxx sell,
lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and
assets, including its goodwill xxx when authorized by the vote of the stockholders representing at least
two third (2/3) of the outstanding capital stock x x x.
No such vote was obtained by defendant Nenita Lee Gruenberg for that proposed sale[;] neither was
there evidence to show that the supposed transaction was ratified by the corporation. Plaintiff should
have been on the look out under these circumstances. More so, plaintiff himself [owns] several
corporations (tsn dated August 16, 1993, p. 3) which makes him knowledgeable on corporation matters.
Regarding the question of damages, the Court likewise, does not find substantial evidence to hold
defendant Nenita Lee Gruenberg liable considering that she did not in anyway misrepresent herself to be
authorized by the corporation to sell the property to plaintiff (tsn dated September 27, 1991, p. 8).
In the light of the foregoing, the Court hereby renders judgment DISMISSING the complaint at instance
for lack of merit.
Defendants counterclaim is also DISMISSED for lack of basis.(Decision, pp. 7-8; Rollo, pp. 34-35)
For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into by and between:
MOTORICH SALES CORPORATION, a corporation duly organized and existing under and by virtue of
Philippine Laws, with principal office address at 5510 South Super Hi-way cor. Balderama St., Pio del
Pilar, Makati, Metro Manila, represented herein by its Treasurer, NENITA LEE GRUENBERG, hereinafter
referred to as the TRANSFEROR;
- and -SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and existing under and
by virtue of the laws of the Philippines, with principal office address at Sumulong Highway, Barrio
Mambungan, Antipolo, Rizal, represented herein by its President, ANDRES T. CO, hereinafter referred to
as the TRANSFEREE.
WITNESSETH, That:
WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30 Block 1 of the
ACROPOLIS GREENS SUBDIVISION located at the District of Murphy, Quezon City, Metro Manila,
containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS, covered by a TRANSFER OF
RIGHTS between JNM Realty & Dev. Corp. as the Transferor and Motorich Sales Corp. as the Transferee;
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have agreed as
follows:
1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED PESOS (P5,200.00) per square
meter; subject to the following terms:
a. Earnest money amounting to ONE HUNDRED THOUSAND PESOS (P100,000.00), will be paid upon the
execution of this agreement and shall form part of the total purchase price;
b. Balance shall be payable on or before March 2, 1989;
2. That the monthly amortization for the month of February 1989 shall be for the account of the
Transferor; and that the monthly amortization starting March 21, 1989 shall be for the account of the
Transferee;
The transferor warrants that he [sic] is the lawful owner of the above-described property and that there
[are] no existing liens and/or encumbrances of whatsoever nature;
In case of failure by the Transferee to pay the balance on the date specified on 1. (b), the earnest
money shall be forfeited in favor of the Transferor.
That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF
RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of February, 1989 at
Greenhills, San Juan, Metro Manila, Philippines.
MOTORICH SALES CORPORATION SAN STRUCTURAL &
TRANSFEROR STEEL FABRICATORS
TRANSFEREE
[SGD.] [SGD.]
By: NENITA LEE GRUENBERG By: ANDRES T. CO
Treasurer President
Signed in the presence of:
[SGD.] [SGD.]
_________________________ _____________________[6]
In its recourse before the Court of Appeals, petitioner insisted:
1. Appellant is entitled to compel the appellees to execute a Deed of Absolute Sale in accordance with
the Agreement of February 14, 1989,
2. Plaintiff is entitled to damages.[7]
As stated earlier, the Court of Appeals debunked petitioners arguments and affirmed the Decision of the
RTC with the modification that Respondent Nenita Lee Gruenberg was ordered to refund P100,000 to
petitioner, the amount remitted as downpayment or earnest money.Hence, this petition before us.[8]
The Issues
Before this Court, petitioner raises the following issues:
I. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the instant case
II. Whether or not the appellate court may consider matters which the parties failed to raise in the lower
court
III. Whether or not there is a valid and enforceable contract between the petitioner and the respondent
corporation
IV. Whether or not the Court of Appeals erred in holding that there is a valid correction/substitution of
answer in the transcript of stenographic note[s]
V. Whether or not respondents are liable for damages and attorneys fees[9]
The Court synthesized the foregoing and will thus discuss them seriatim as follows:
1. Was there a valid contract of sale between petitioner and Motorich?
2. May the doctrine of piercing the veil of corporate fiction be applied to Motorich?
3. Is the alleged alteration of Gruenbergs testimony as recorded in the transcript of stenographic notes
material to the disposition of this case?
4. Are respondents liable for damages and attorneys fees?
The Courts Ruling
The petition is devoid of merit.
First Issue: Validity of Agreement
Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it entered
through its president, Andres Co, into the disputed Agreement with Respondent Motorich Sales
Corporation, which was in turn allegedly represented by its treasurer, Nenita Lee Gruenberg. Petitioner
insists that [w]hen Gruenberg and Co affixed their signatures on the contract they both consented to be

bound by the terms thereof. Ergo, petitioner contends that the contract is binding on the two
corporations. We do not agree.
True, Gruenberg and Co signed on February 14, 1989, the Agreement according to which a lot owned by
Motorich Sales Corporation was purportedly sold. Such contract, however, cannot bind Motorich,
because it never authorized or ratified such sale.
A corporation is a juridical person separate and distinct from its stockholders or members.Accordingly,
the property of the corporation is not the property of its stockholders or members and may not be sold
by the stockholders or members without express authorization from the corporations board of directors.
[10] Section 23 of BP 68, otherwise known as the Corporation Code of the Philippines, provides:
SEC. 23. The Board of Directors or Trustees. -- Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees to be elected
from among the holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for one (1) year and until their successors are elected and qualified.
Indubitably, a corporation may act only through its board of directors, or, when authorized either by its
bylaws or by its board resolution, through its officers or agents in the normal course of business. The
general principles of agency govern the relation between the corporation and its officers or agents,
subject to the articles of incorporation, bylaws, or relevant provisions of law.[11] Thus, this Court has
held that a corporate officer or agent may represent and bind the corporation in transactions with third
persons to the extent that the authority to do so has been conferred upon him, and this includes powers
which have been intentionally conferred, and also such powers as, in the usual course of the particular
business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by
custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as
the corporation has caused persons dealing with the officer or agent to believe that it has conferred.[12]
Furthermore, the Court has also recognized the rule that persons dealing with an assumed agent,
whether the assumed agency be a general or special one, are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and
in case either is controverted, the burden of proof is upon them to establish it (Harry Keeler v.
Rodriguez, 4 Phil. 19).[13] Unless duly authorized, a treasurer, whose powers are limited, cannot bind
the corporation in a sale of its assets.[14]
In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg,
its treasurer, to sell the subject parcel of land.[15] Consequently, petitioner had the burden of proving
that Nenita Gruenberg was in fact authorized to represent and bind Motorich in the
transaction. Petitioner failed to discharge this burden. Its offer of evidence before the trial court
contained no proof of such authority.[16] It has not shown any provision of said respondents articles of
incorporation, bylaws or board resolution to prove that Nenita Gruenberg possessed such power.
That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of
ascertaining the extent of her authority to represent the corporation. Petitioner cannot assume that she,
by virtue of her position, was authorized to sell the property of the corporation. Selling is obviously
foreign to a corporate treasurers function, which generally has been described as to receive and keep
the funds of the corporation, and to disburse them in accordance with the authority given him by the
board or the properly authorized officers.[17]
Neither was such real estate sale shown to be a normal business activity of Motorich. The primary
purpose of Motorich is marketing, distribution, export and import in relation to a general merchandising
business.[18] Unmistakably, its treasurer is not cloaked with actual or apparent authority to buy or sell
real property, an activity which falls way beyond the scope of her general authority.
Articles 1874 and 1878 of the Civil Code of the Philippines provides:
ART. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of
the latter shall be in writing; otherwise, the sale shall be void.
ART. 1878 Special powers of attorney are necessary in the following case:
xxxxxxxxx
(5) To enter any contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
x x x x x x x x x.
Petitioner further contends that Respondent Motorich has ratified said contract of sale because of its
acceptance of benefits, as evidenced by the receipt issued by Respondent Gruenberg.[19] Petitioner is
clutching at straws.
As a general rule, the acts of corporate officers within the scope of their authority are binding on the
corporation. But when these officers exceed their authority, their actions cannot bind the corporation,
unless it has ratified such acts or is estopped from disclaiming them.[20]
In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or made
it appear to any third person that she had the authority, to sell its land or to receive the earnest
money. Neither was there any proof that Motorich ratified, expressly or impliedly, the contract. Petitioner
rests its argument on the receipt, which, however, does not prove the fact of ratification. The document
is a hand-written one, not a corporate receipt, and it bears only Nenita Gruenbergs signature. Certainly,
this document alone does not prove that her acts were authorized or ratified by Motorich.
Article 1318 of the Civil Code lists the requisites of a valid and perfected contract: (1) consent of the
contracting parties; (2) object certain which is the subject matter of the contract;(3) cause of the
obligation which is established. As found by the trial court[21] and affirmed by the Court of Appeals,
[22] there is no evidence that Gruenberg was authorized to enter into the contract of sale, or that the
said contract was ratified by Motorich. This factual finding of the two courts is binding on this Court.
[23] As the consent of the seller was not obtained, no contract to bind the obligor was
perfected. Therefore, there can be no valid contract of sale between petitioner and Motorich.
Because Motorich had never given a written authorization to Respondent Gruenberg to sell its parcel of
land, we hold that the February 14, 1989 Agreement entered into by the latter with petitioner is void
under Article 1874 of the Civil Code. Being inexistent and void from the beginning, said contract cannot
be ratified.[24]
Second Issue:
Piercing the Corporate Veil Not Justified
Petitioner also argues that the veil of corporate fiction of Motorich should be pierced, because the latter
is a close corporation. Since Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or
almost all or 99.866% to be accurate, of the subscribed capital stock [25] of Motorich, petitioner argues
that Gruenberg needed no authorization from the board to enter into the subject contract.[26] It adds
that, being solely owned by the Spouses Gruenberg, the company can be treated as a close corporation
which can be bound by the acts of its principal stockholder who needs no specific authority. The Court is
not persuaded.
First, petitioner itself concedes having raised the issue belatedly,[27] not having done so during the trial,
but only when it filed its sur-rejoinder before the Court of Appeals.[28] Thus, this Court cannot entertain
said issue at this late stage of the proceedings. It is well-settled that points of law, theories and
arguments not brought to the attention of the trial court need not be, and ordinarily will not be,
considered by a reviewing court, as they cannot be raised for the first time on appeal. [29] Allowing
petitioner to change horses in midstream, as it were, is to run roughshod over the basic principles of fair
play, justice and due process.
Second, even if the above-mentioned argument were to be addressed at this time, the Court still finds
no reason to uphold it. True, one of the advantages of a corporate form of business organization is the
limitation of an investors liability to the amount of the investment. [30] This feature flows from the legal
theory that a corporate entity is separate and distinct from its stockholders. However, the statutorily
granted privilege of a corporate veil may be used only for legitimate purposes. [31] On equitable
considerations, the veil can be disregarded when it is utilized as a shield to commit fraud, illegality or
inequity; defeat public convenience; confuse legitimate issues; or serve as a mere alter ego or business
conduit of a person or an instrumentality, agency or adjunct of another corporation.[32]
Thus, the Court has consistently ruled that [w]hen the fiction is used as a means of perpetrating a fraud
or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes,
the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil
with which the law covers and isolates the corporation from the members or stockholders who compose
it will be lifted to allow for its consideration merely as an aggregation of individuals.[33]

We stress that the corporate fiction should be set aside when it becomes a shield against liability for
fraud, illegality or inequity committed on third persons. The question of piercing the veil of corporate
fiction is essentially, then, a matter of proof. In the present case, however, the Court finds no reason to
pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said
corporation was formed, or that it is operated, for the purpose of shielding any alleged fraudulent or
illegal activities of its officers or stockholders; or that the said veil was used to conceal fraud, illegality or
inequity at the expense of third persons, like petitioner.
Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the
Corporation Code defines a close corporation as follows:
SEC. 96. Definition and Applicability of Title. -- A close corporation, within the meaning of this Code, is
one whose articles of incorporation provide that: (1)All of the corporations issued stock of all classes,
exclusive of treasury shares, shall be held of record by not more than a specified number of persons,
not exceeding twenty (20); (2) All of the issued stock of all classes shall be subject to one or more
specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any
stock exchange or make any public offering of any of its stock of any class. Notwithstanding the
foregoing, a corporation shall be deemed not a close corporation when at least two-thirds (2/3) of its
voting stock or voting rights is owned or controlled by another corporation which is not a close
corporation within the meaning of this Code. xxx.
The articles of incorporation[34] of Motorich Sales Corporation does not contain any provision stating
that (1) the number of stockholders shall not exceed 20, or (2) a preemption of shares is restricted in
favor of any stockholder or of the corporation, or (3) listing its stocks in any stock exchange or making a
public offering of such stocks is prohibited. From its articles, it is clear that Respondent Motorich is not a
close corporation.[35] Motorich does not become one either, just because Spouses Reynaldo and Nenita
Gruenberg owned 99.866% of its subscribed capital stock. The [m]ere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of
itself sufficient ground for disregarding the separate corporate personalities.[36] So too, a narrow
distribution of ownership does not, by itself, make a close corporation.
Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals [37] wherein the Court ruled that
xxx petitioner corporation is classified as a close corporation and, consequently, a board resolution
authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the
action of its president.[38] But the factual milieu inDulay is not on all fours with the present
case. In Dulay, the sale of real property was contracted by the president of a close corporation with the
knowledge and acquiescence of its board of directors.[39] In the present case, Motorich is not a close
corporation, as previously discussed, and the agreement was entered into by the corporate treasurer
without the knowledge of the board of directors.
The Court is not unaware that there are exceptional cases where an action by a director, who singly is
the controlling stockholder, may be considered as a binding corporate act and a board action as nothing
more than a mere formality.[40] The present case, however, is not one of them.
As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own almost 99.866% of Respondent
Motorich.[41] Since Nenita is not the sole controlling stockholder of Motorich, the aforementioned
exception does not apply. Granting arguendo that the corporate veil of Motorich is to be disregarded, the
subject parcel of land would then be treated as conjugal property of Spouses Gruenberg, because the
same was acquired during their marriage. There being no indication that said spouses, who appear to
have been married before the effectivity of the Family Code, have agreed to a different property regime,
their property relations would be governed by conjugal partnership of gains. [42] As a consequence,
Nenita Gruenberg could not have effected a sale of the subject lot because [t]here is no co-ownership
between the spouses in the properties of the conjugal partnership of gains. Hence, neither spouse
can alienate in favor of another his or her interest in the partnership or in any property belonging to it;
neither spouse can ask for a partition of the properties before the partnership has been legally
dissolved.[43]
Assuming further, for the sake of argument, that the spouses property regime is the absolute community
of property, the sale would still be invalid. Under this regime, alienation of community property must
have the written consent of the other spouse or the authority of the court without which the disposition
or encumbrance is void.[44] Both requirements are manifestly absent in the instant case.
Third Issue: Challenged Portion of TSN Immaterial
Petitioner calls our attention to the following excerpt of the transcript of stenographic notes(TSN):
Q Did you ever represent to Mr. Co that you were authorized by the corporation to sell the property?
A Yes, sir.[45]
Petitioner claims that the answer Yes was crossed out, and, in its place was written a No with an initial
scribbled above it.[46] This, however, is insufficient to prove that Nenita Gruenberg was authorized to
represent Respondent Motorich in the sale of its immovable property. Said excerpt should be understood
in the context of her whole testimony. During her cross-examination, Respondent Gruenberg testified:
Q So, you signed in your capacity as the treasurer?
[A] Yes, sir.
Q Even then you kn[e]w all along that you [were] not authorized?
A Yes, sir.
Q You stated on direct examination that you did not represent that you were authorized to sell the
property?
A Yes, sir.
Q But you also did not say that you were not authorized to sell the property, you did not tell that to Mr.
Co, is that correct?
A That was not asked of me.
Q Yes, just answer it.
A I just told them that I was the treasurer of the corporation and it [was] also the president who [was]
also authorized to sign on behalf of the corporation.
Q You did not say that you were not authorized nor did you say that you were authorized?
A Mr. Co was very interested to purchase the property and he offered to put up aP100,000.00 earnest
money at that time. That was our first meeting.[47]
Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its property. On
the other hand, her testimony demonstrates that the president of Petitioner Corporation, in his great
desire to buy the property, threw caution to the wind by offering and paying the earnest money without
first verifying Gruenbergs authority to sell the lot.
Fourth Issue:
Damages and Attorneys Fees
Finally, petitioner prays for damages and attorneys fees, alleging that [i]n an utter display of malice and
bad faith, [r]espondents attempted and succeeded in impressing on the trial court and [the] Court of
Appeals that Gruenberg did not represent herself as authorized by Respondent Motorich despite the
receipt issued by the former specifically indicating that she was signing on behalf of Motorich Sales
Corporation. Respondent Motorich likewise acted in bad faith when it claimed it did not authorize
Respondent Gruenberg and that the contract [was] not binding, [insofar] as it [was] concerned, despite
receipt and enjoyment of the proceeds of Gruenbergs act.[48] Assuming that Respondent Motorich was
not a party to the alleged fraud, petitioner maintains that Respondent Gruenberg should be held liable
because she acted fraudulently and in bad faith [in] representing herself as duly authorized by
[R]espondent [C]orporation.[49]
As already stated, we sustain the findings of both the trial and the appellate courts that the foregoing
allegations lack factual bases. Hence, an award of damages or attorneys fees cannot be justified. The
amount paid as earnest money was not proven to have redounded to the benefit of Respondent
Motorich. Petitioner claims that said amount was deposited to the account of Respondent Motorich,
because it was deposited with the account of Aren Commercial c/o Motorich Sales Corporation.
[50] Respondent Gruenberg, however, disputes the allegations of petitioner. She testified as follows:
Q You voluntarily accepted the P100,000.00, as a matter of fact, that was encashed, the check was
encashed.
A Yes, sir, the check was paid in my name and I deposit[ed] it . . .
Q In your account?
A Yes, sir. [51]

In any event, Gruenberg offered to return the amount to petitioner xxx since the sale did not push
through.[52]
Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has been the
president of Petitioner Corporation for more than ten years and has also served as chief executive of two
other corporate entities.[53] Co cannot feign ignorance of the scope of the authority of a corporate
treasurer such as Gruenberg. Neither can he be oblivious to his duty to ascertain the scope of
Gruenbergs authorization to enter into a contract to sell a parcel of land belonging to Motorich.
Indeed, petitioners claim of fraud and bad faith is unsubstantiated and fails to persuade the
Court. Indubitably, petitioner appears to be the victim of its own officers negligence in entering into a
contract with and paying an unauthorized officer of another corporation.

As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to return to
petitioner the amount she received as earnest money, as no one shall enrich himself at the expense of
another,[54] a principle embodied in Article 2154 of the Civil Code. [55]Although there was no binding
relation between them, petitioner paid Gruenberg on the mistaken belief that she had the authority to
sell the property of Motorich.[56] Article 2155 of the Civil Code provides that [p]ayment by reason of a
mistake in the construction or application of a difficult question of law may come within the scope of the
preceding article.
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.
SO ORDERED.

[8] This case was deemed submitted for resolution on May 15, 1998 upon receipt by this Court of the Memorandum for the Respondents. Petitioners Memorandum was received earlier, on May 7, 1998.
Hence, the present petition for review, petitioners assigning the following errors:
[55] Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered
I
through mistake, the obligation to return it arises.
THE "RESPONDENT COURT" ERRED IN DENYING PETlTIONERS MOTION TO DISMISS THIS CASE
DESPITE THE CLEAR FINDING THAT "RESPONDENT" HAD ALREADY CEASED TO EXIST AS A
CORPORATION SINCE DECEMBER 31, 1960 YET.
II
Republic
of
the
Philippines
THE "RESPONDENT COURT" ERRED IN NOT HOLDING THAT ACTIONS PENDING FOR OR AGAINST A
SUPREME
COURT
DEFUNCT CORPORATION ARE DEEMED ABATED.
Manila
III
FIRST DIVISION
THE "RESPONDENT COURT" ERRED IN HOLDING INSTEAD THAT EVEN IF THERE WAS NO
G.R. No. L-39050 February 24, 1981
COMPLIANCE WITH SECTIONS 77 AND 78 OF THE CORPORATION LAW FOR THE WINDING UP OF THE
CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO, petitioners,
AFFAIRS OF THE CORPORATION BY THE CONVEYANCE OF CORPORATE PROPERTY AND PROPERTY
vs.
RIGHTS TO AN ASSIGNEE, OR TRUSTEE OR THE APPOINTMENT OF A RECEIVER WITHIN THREE YEARS
THE HONORABLE COURT OF APPEALS and INSULAR SAWMILL, INC., respondents.
FROM THE DISSOLUTION OF SUCH CORPORATION, ANY LITIGATION FILED BY OR AGAINST THE
DISSOLVED CORPORATION, INSTITUTED WITHIN THREE YEARS AFTER SUCH DISSOLUTION BUT
DE CASTRO, J.:
WHICH COULD NOT BE TERMINATED WITHIN SAID PERIOD, MAY STILL BE CONTINUED AS IT IS NOT
Private respondent Insular Sawmill, Inc. is a corporation organized on September 17, 1945 with a
DEEMED ABATED.
corporate life of fifty (50) years, or up to September 17, 1995, with the primary purpose of carrying on a
IV
general lumber and sawmill business. To carry on this business, private respondent leased the
THE "RESPONDENT COURT" ERRED IN THE APPLICATION TO THIS CASE OF ITS RULING IN PASAY
paraphernal property of petitioner-wife Guillermina M. Gelano at the corner of Canonigo and Otis, Paco,
CREDIT AND FINANCE CORPORATION, VERSUS LAZARO, ET AL., 46 O.G. (11) 5528, AND IN
Manila for P1,200.00 a month. It was while private respondent was leasing the aforesaid property that
OVERLOOKING THE DISTINCTION LAID DOWN BY THIS HONORABLE COURT IN NUMEROUS DECIDED
its officers and directors had come to know petitioner-husband Carlos Gelano who received from the
CASES THAT ONLY CASES FILED IN THE NAME OF ASSIGNEES, TRUSTEES OR RECEIVERS (FOR A
corporation cash advances on account of rentals to be paid by the corporation on the land.
DEFUNCT CORPORATION), AI)POINTED WITHIN THREE YEARS FROM ITS DISSOLUTION, MAY BE
Between November 19, 1947 to December 26, 1950 petitioner Carlos Gelano obtained from private
PROSECUTED BEYOND THE SAID THREE YEAR PERIOD, AND THAT, ALL OTHERS ARE DEEMED ABATED.
respondent cash advances of P25,950.00. The said sum was taken and received by petitioner Carlos
V
Gelano on the agreement that private respondent could deduct the same from the monthly rentals of
THE "RESPONDENT COURT" ERRED IN HOLDING THAT WITH THE FILING OF SPECIAL PROCEEDINGS
the leased premises until said cash advances are fully paid. Out of the aforementioned cash advances in
NO. 92303 IN THE COURT OF FIRST INSTANCE OF MANILA BY FORMER DIRECTORS OF "PRIVATE
the total sum of P25,950.00, petitioner Carlos Gelano was able to pay only P5,950.00 thereby leaving an
RESPONDENT" ON OCTOBER 23,1973, OR, THIRTEEN YEARS AFTER ITS DISSOLUTION, A LEGAL,
unpaid balance of P20,000.00 which he refused to pay despite repeated demands by private
PERSONALITY WILL BE APPOINTED TO REPRESENT THE CORPORATION.
respondent. Petitioner Guillermina M. Gelano refused to pay on the ground that said amount was for the
VI
personal account of her husband asked for by, and given to him, without her knowledge and consent
THE "RESPONDENT COURT" ERRED IN PRACTICALLY RULING THAT THE THREE-YEAR PERIOD
and did not benefit the family.
PROVIDED FOR BY THE CORPORATION LAW WITHIN WHICH ASSIGNEES, TRUSTEES FOR RECEIVERS
On various occasions from May 4, 1948 to September 11, 1949 petitioners husband and wife also made
MAY BE APPOINTED MAY BE EXTENDED.
credit purchases of lumber materials from private respondent with a total price of P1,120.46 in
VII
connection with the repair and improvement of petitioners' residence. On November 9, 1949 partial
THE "RESPONDENT COURT" ERRED IN NOT HOLDING THAT THE FAILURE OF "PRIVATE RESPONDENT"
payment was made by petitioners in the amount of P91.00 and in view of the cash discount in favor of
OR ITS AUTHORIZED COUNSEL TO NOTIFY THE TRIAL COURT OF ITS DISSOLUTION OR OF ITS "CIVIL
petitioners in the amount of P83.00, the amount due private respondent on account of credit purchases
DEATH" MAY BE CONSIDERED AS AN ABANDONMENT OF ITS CAUSE OF ACTION AMOUNTING TO A
of lumber materials is P946.46 which petitioners failed to pay.
FAILURE TO PROSECUTE AND RESULTING IN THE ABATEMENT OF THE SUIT.
On July 14, 1952, in order to accommodate and help petitioners renew previous loans obtained by them
VIII
from the China Banking Corporation, private respondent, through Joseph Tan Yoc Su, executed a joint
THE "RESPONDENT COURT" ERRED IN RECOGNIZING THE PERSONALITY OF COUNSEL APPEARING
and several promissory note with Carlos Gelano in favor of said bank in the amount of P8,000.00
FOR PRIVATE RESPONDENT' DESPITE HIS ADMISSION THAT HE DOES NOT KNOW THE "PRIVATE
payable in sixty (60) days. For failure of Carlos Gelano to pay the promissory note upon maturity, the
RESPONDENT" NOR HAS HE MET ANY OF ITS DIRECTORS AND OFFICERS.
bank collected from the respondent corporation the amount of P9,106.00 including interests, by debiting
IX
it from the corporation's current account with the bank. Petitioner Carlos Gelano was able to pay private
THE "RESPONDENT COURT" ERRED IN AFFIRMING THE DECISION OF THE TRIAL COURT HOLDING IN
respondent the amount of P5,000.00 but the balance of P4,106.00 remained unsettled. Guillermina M.
FAVOR OF "PRIVATE RESPONDENT".
Gelano refused to pay on the ground that she had no knowledge about the accommodation made by the
X
corporation in favor of her husband.
THE "RESPONDENT COURT" ERRED IN MODIFYING THE TRIAL COURT'S DECISION AND HOLDING
On May 29, 1959 the corporation, thru Atty. German Lee, filed a complaint for collection against herein
EVEN THE CONJUGAL PARTNERSHIP OF PETITIONERS JOINTLY AND SEVERALLY LIABLE FOR THE
petitioners before the Court of First Instance of Manila. Trial was held and when the case was at the
OBLIGATION ADJUDGED AGAINST PETITIONER-HUSBAND, CARLOS GELANO.
stage of submitting memorandum, Atty. Lee retired from active law practice and Atty. Eduardo F. Elizalde
The main issue raised by petitioner is whether a corporation, whose corporate life had ceased by the
took over and prepared the memorandum.
expiration of its term of existence, could still continue prosecuting and defending suits after its
In the meantime, private respondent amended its Articles of Incorporation to shorten its term of
dissolution and beyond the period of three years provided for under Act No. 1459, otherwise known as
existence up to December 31, 1960 only. The amended Articles of Incorporation was filed with, and
the Corporation law, to wind up its affairs, without having undertaken any step to transfer its assets to a
approved by the Securities and Exchange Commission, but the trial court was not notified of the
trustee or assignee.
amendment shortening the corporate existence and no substitution of party was ever made. On
The complaint in this case was filed on May 29, 1959 when private respondent Insular Sawmill, Inc. was
November 20, 1964 and almost four (4) years after the dissolution of the corporation, the trial court
still existing. While the case was being tried, the stockholders amended its Articles of Incorporation by
rendered a decision in favor of private respondent the dispositive portion of which reads as follows:
shortening the term of its existence from December 31, 1995 to December 31, 1960, which was
WHEREFORE, judgment is rendered, ordering:
approved by the Securities and Exchange Commission.
1. Defendant Carlos Gelano to pay plaintiff the sum of:
In American corporate law, upon which our Corporation Law was patterned, it is well settled that, unless
(a) P19,650.00 with interest thereon at the legal rate from the date of the filing of the complaint on May
the statutes otherwise provide, all pending suits and actions by and against a corporation are abated by
29, 1959, until said sum is fully paid;
a dissolution of the corporation. 5 Section 77 of the Corporation Law provides that the corporation shall
(b) P4,106.00, with interest thereon at the legal rate from the date of the filing of the complaint until
"be continued as a body corporate for three (3) years after the time when it would have been ...
said sum is fully paid;
dissolved, for the purpose of prosecuting and defending suits By or against it ...," so that, thereafter, it
2. Defendants Carlos Gelano and Guillermina Mendoza to pay jointly and severally the sum of:
shall no longer enjoy corporate existence for such purpose. For this reason, Section 78 of the same law
(a) P946.46, with interest thereon, at the agreed rate of 12% per annum from October 6, 1946, until
authorizes the corporation, "at any time during said three years ... to convey all of its property to
said sum is fully paid;
trustees for the benefit of members, Stockholders, creditors and other interested," evidently for the
(b) P550.00, with interest thereon at the legal rate from the date of the filing of the complaint until the
purpose, among others, of enabling said trustees to prosecute and defend suits by or against the
said sum is fully paid;
corporation begun before the expiration of said period. 6Commenting on said sections, Justice Fisher
(c) Costs of the suit; and
said:
3. Defendant Carlos Gelano to pay the plaintiff the sum of P2,000.00 attorney's fees.
It is to be noted that the time during which the corporation, through its own officers, may conduct the
The Countered of defendants are dismissed.
liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the
SO ORDERED. 1
period of dissolution commences; but that there is no time limited within which the trustees must
Both parties appealed to the Court of Appeals, private respondent also appealing because it insisted that
complete a liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78) that the
both Carlos Gelano and Guillermina Gelano should be held liable for the substantial portion of the claim.
conveyance to the trustees must be made within the three-year period. It may be found impossible to
On August 23, 1973, the Court of Appeals rendered a decision modifying the judgment of the trial court
complete the work of liquidation within the three-year period or to reduce disputed claims to judgment.
by holding petitioner spouses jointly and severally liable on private respondent's claim and increasing the
The authorities are to the effect that suits by or against a corporation abate when it ceased to be an
award of P4,106.00. The dispositive portion of the decision reads as follows:
entity capable of suing or being sued (7 R.C.L. Corps., Par. 750); but trustees to whom the corporate
WHEREFORE, modified in the sense that the amount of P4,160.00 under paragraph 1 (b) is raised to
assets have been conveyed pursuant to the authority of Section 78 may sue and be sued as such in all
P8,160.00 and the clarification that the conjugal partnership of the spouses is jointly and severally liable
matters connected with the liquidation. By the terms of the statute the effect of the conveyance is to
for the obligations adjudged against defendant Carlos Gelano, the judgment appealed from is affirmed
make the trustees the legal owners of the property conveyed, subject to the beneficial interest therein
in all other respects. 2
of creditors and stockholders. 7
After petitioners received a copy of the decision on August 24, 1973, they came to know that the Insular
When Insular Sawmill, Inc. was dissolved on December 31, 1960, under Section 77 of the Corporation
Sawmill Inc. was dissolved way back on December 31, 1960. Hence, petitioners filed a motion to dismiss
Law, it stin has the right until December 31, 1963 to prosecute in its name the present case. After the
the case and/or reconsideration of the decision of the Court of Appeals on grounds that the case was
expiration of said period, the corporation ceased to exist for all purposes and it can no longer sue or be
prosecuted even after dissolution of private respondent as a corporation and that a defunct corporation
sued. 8
cannot maintain any suit for or against it without first complying with the requirements of the winding
However, a corporation that has a pending action and which cannot be terminated within the three-year
up of the affairs of the corporation and the assignment of its property rights within the required period.
period after its dissolution is authorized under Section 78 to convey all its property to trustees to enable
Incidentally, after receipt of petitioners' motion to dismiss and/or reconsideration or on October 28,
it to prosecute and defend suits by or against the corporation beyond the Three-year period although
1973, private respondent thru its former directors filed a Petition for Receivership before the Court of
private respondent (did not appoint any trustee, yet the counsel who prosecuted and defended the
First Instance of Manila, docketed as Special Proceedings No. 92303, 3 which petition is still pending
interest of the corporation in the instant case and who in fact appeared in behalf of the corporation may
before said court.
be considered a trustee of the corporation at least with respect to the matter in litigation only. Said
On November 5, 1973, private respondent filed comment on the motion to dismiss and or
counsel had been handling the case when the same was pending before the trial court until it was
reconsideration and after the parties have filed reply and rejoinder, the Court of Appeals on July 5, 1974
appealed before the Court of Appeals and finally to this Court. We therefore hold that there was a
issued a resolution 4 denying the aforesaid motion.
substantial compliance with Section 78 of the Corporation Law and as such, private respondent Insular

Sawmill, Inc. could still continue prosecuting the present case even beyond the period of three (3) years
from the time of its dissolution.
From the above quoted commentary of Justice Fisher, the trustee may commence a suit which can
proceed to final judgment even beyond the three-year period. No reason can be conceived why a suit
already commenced By the corporation itself during its existence, not by a mere trustee who, by fiction,
merely continues the legal personality of the dissolved corporation should not be accorded similar
treatment allowed to proceed to final judgment and execution thereof.
The word "trustee" as sued in the corporation statute must be understood in its general concept which
could include the counsel to whom was entrusted in the instant case, the prosecution of the suit filed by
the corporation. The purpose in the transfer of the assets of the corporation to a trustee upon its
dissolution is more for the protection of its creditor and stockholders. Debtors like the petitioners herein
may not take advantage of the failure of the corporation to transfer its assets to a trustee, assuming it
has any to transfer which petitioner has failed to show, in the first place. To sustain petitioners'
contention would be to allow them to enrich themselves at the expense of another, which all enlightened
legal systems condemn.
The observation of the Court of Appeals on the issue now before Us that:
Under Section 77 of the Corporation Law, when the corporate existence is terminated in any legal
manner, the corporation shall nevertheless continue as a body corporate for three (3) years after the
time when it would have been dissolved, for the purpose of prosecuting and defending suits by or
against it. According to authorities, the corporation "becomes incapable of making contracts or receiving
a grant. It does not, however, cease to be a body corporate for all purposes." In the case of Pasay Credit
and Finance Corp. vs. Isidro Lazaro and others, 46 OG (11) 5528, this Court held that "a corporation
may continue a pending 'litigation even after the lapse of the 3-year period granted by Section 77 of Act
1459 to corporation subsequent to their dissolution to continue its corporate existence for the purpose
of winding up their affairs and settling all the claims by and against same." We note that the plaintiff
Insular Sawmill, Inc. ceased as a corporation on December 30, 1960 but the case at bar was instituted
on May 29, 1959, during the time when the corporation was still very much alive. Accordingly, it is our
view that "any litigation filed by or against it instituted within the period, but which could not be
terminated, must necessarily prolong that period until the final termination of said litigation as otherwise
corporations in liquidation would lose what should justly belong to them or would be exempt from the
payment of just obligations through a mere technicality, something that courts should prevent"
(Philippine Commercial Laws by Martin, 1962 Ed., Vol. 2, p. 1716).
merits the approval of this Court.
The last two assigned errors refer to the disposition of the main case. Petitioners contend that the
obligations contracted by petitioner Carlos Gelano from November 19, 1947 until August 18, 1950
(before the effectivity of the New Civil Code) and from December 26, 1950 until July 14, 1952 (during
the effectivity of the New Civil Code) were his personal obligations, hence, petitioners should not be
held jointly and severally liable. As regards the said issues, suffice it to say that with the findings of the
Court of Appeals that the obligation contracted by petitioner-husband Carlos Gelano redounded to the
benefit of the family, the inevitable conclusion is that the conjugal property is liable for his debt pursuant
to paragraph 1, Article 1408, Civil Code of 1889 9 which provision incidentally can still be found in
paragraph 1, Article 161 of the New Civil Code. 10 Only the conjugal partnership is liable, not joint and
several as erroneously described by the Court of Appeals, the conjugal partnership being only a single
entity.
WHEREFORE, with the modification that only the conjugal partnership is liable, the appealed decision is
hereby affirmed in all other respects. Without pronouncement as to costs.
SO ORDERED.
Makasiar, Fernandez, and Guerrero, JJ., concur.
Teehankee, J., concur in the result.
Mr. Justice de Castro was designated to sit with the First Division under Special Order No. 225.
Footnotes
9 "Art. 1408. The conjugal partnership shall be liable for:
"1. All the debts and obligations contracted during the marriage by the husband, and also for those
contradicted by the wife in cases in which she can legally bind the courtship."
10 "Art. 161 The conjugal partnership shall be liable for:
"1. All debts and obligations contracted by the husband for the benefit of the conjugal partnership, and
those contracted by the wife, also for the same purpose, in cases where she may legally bind the
partnership."

FIRST DIVISION
[G.R. No. 142924. December 5, 2001]
TEODORO B. VESAGAS, and WILFRED D. ASIS, petitioners, vs. The Honorable COURT OF
APPEALS and DELFINO RANIEL and HELENDA RANIEL, respondents.
DECISION
PUNO, J.:
Before us is the instant Petition for Review on Certiorari assailing the Decision, dated July 30, 1999, of
the Court of Appeals in CA-G.R. SP No. 51189, as well as its Resolution, dated March 16, 2000, which
denied petitioners Motion for Reconsideration.
The respondent spouses Delfino and Helenda Raniel are members in good standing of the Luz Village
Tennis Club, Inc. (club). They alleged that petitioner Teodoro B. Vesagas, who claims to be the clubs
duly elected president, in conspiracy with petitioner Wilfred D. Asis, who, in turn, claims to be its duly
elected vice-president and legal counsel, summarily stripped them of their lawful membership, without
due process of law. Thereafter, respondent spouses filed a Complaint with the Securities and Exchange
Commission (SEC) on March 26, 1997 against the petitioners. It was docketed as SEC Case No. 03-975598.[1] In this case, respondents asked the Commission to declare as illegal their expulsion from the
club as it was allegedly done in utter disregard of the provisions of its by-laws as well as the
requirements of due process. They likewise sought the annulment of the amendments to the by-laws
made on December 8, 1996, changing the annual meeting of the club from the last Sunday of January
to November and increasing the number of trustees from nine to fifteen. Finally, they prayed for the
issuance of a Temporary Restraining Order and Writ of Preliminary Injunction. The application for TRO
was denied by SEC Hearing Officer Soller in an Order dated April 29, 1997.
Before the hearing officer could start proceeding with the case, however, petitioners filed a motion to
dismiss on the ground that the SEC lacks jurisdiction over the subject matter of the case. The motion
was denied on August 5, 1997. Their subsequent move to have the ruling reconsidered was likewise
denied. Unperturbed, they filed a petition for certiorari with the SEC En Banc seeking a review of the
hearing officers orders. The petition was again denied for lack of merit, and so was the motion for its
reconsideration in separate orders, dated July 14, 1998 and November 17, 1998,
respectively. Dissatisfied with the verdict, petitioners promptly sought relief with the Court of Appeals
contesting the ruling of the Commission en banc. The appellate court, however, dismissed the petition
for lack of merit in a Decision promulgated on July 30, 1999. Then, in a resolution rendered on March
16, 2000, it similarly denied their motion for reconsideration.
Hence, the present course of action where the petitioners raise the following grounds:
C.1. The respondent Court of Appeals committed a reversible error when it determined that the SEC has
jurisdiction in 03-97-5598.[2]
C.2. The respondent Court of Appeals committed a reversible error when it merely upheld the theoretical
power of the SEC Hearing Officer to issue a subpoena and to cite a person in contempt (actually a nonissue of the petition) while it shunted away the issue of whether that hearing officer may hold a person
in contempt for not obeying a subpoena where his residence is beyond fifty (50) kilometers from the
place of hearing and no transportation expense was tendered to him.[3]
In support of their first assignment of error, petitioners contend that since its inception in the 1970s, the
club in practice has not been a corporation. They add that it was only the respondent spouses,
motivated by their own personal agenda to make money from the club, who surreptitiously caused its
registration with the SEC. They then assert that, at any rate, the club has already ceased to be a

corporate body. Therefore, no intra-corporate relations can arise as between the respondent spouses
and the club or any of its members. Stretching their argument further, petitioners insist that since the
club, by their reckoning is not a corporation, the SEC does not have the power or authority to inquire
into the validity of the expulsion of the respondent spouses. Consequently, it is not the correct forum to
review the challenged act. In conclusion, petitioners put respondent spouses to task for their failure to
implead the club as a necessary or indispensable party to the case.
These arguments cannot pass judicial muster.
Petitioners attempt to impress upon this court that the club has never been a corporation is devoid of
merit. It must fail in the face of the Commissions explicit finding that the club was duly registered and a
certificate of incorporation was issued in its favor, thus:
We agree with the hearing officer that the grounds raised by petitioner in their motion to dismiss are
factual issues, the veracity of which can only be ascertained in a full blown hearing. Records show
that the association is duly registered with the association and a certificate of incorporation
was issued. Clearly, the Commission has jurisdiction over the said association. As to
petitioners allegation that the registration of the club was done without the knowledge of the members,
this is a circumstance which was not duly proven by the petitioner (sic) in his (sic) motion to dismiss.[4]
It ought to be remembered that the question of whether the club was indeed registered and issued a
certification or not is one which necessitates a factual inquiry. On this score, the finding of the
Commission, as the administrative agency tasked with among others the function of registering and
administering corporations, is given great weight and accorded high respect.We therefore have no
reason to disturb this factual finding relating to the clubs registration and incorporation.
Moreover, by their own admission contained in the various pleadings which they have filed in the
different stages of this case, petitioners themselves have considered the club as a corporation. This
admission, under the rules of evidence, binds them and may be taken or used against them. [5] Since
the admission was made in the course of the proceedings in the same case, it does not require proof,
and actually may be contradicted only by showing that it was made through palpable mistake or that no
such admission was made.[6] Noteworthy is the Minute of the First Board Meeting[7] held on January 5,
1997, which contained the following pertinent portions:
11. Unanimously approved by the Board a Resolution to Dissolve the corporate structure of
LVTC which is filed with the SEC. Such resolution will be formulated by Atty. Fred Asis to be ready
on or before the third week of January 1997.Meanwhile, the operational structure of the LVTC will
henceforth be reverted to its former status as an ordinary club/Association.[8]
Similarly, petitioners Motion to Dismiss[9] alleged:
1. This Commission has no jurisdiction over the Luz Village Tennis Club not only because it was not
impleaded but because since 5 January 1997, it had already rid itself, as it had to in order to
maintain respect and decency among its members, of the unfortunate experience of being a
corporate body. Thus at the time of the filing of the complaint, the club had already
dissolved its corporate existenceand has functioned as a mere association of respectable and
respecting individual members who have associated themselves since the 1970s x x x[10]
The necessary implication of all these is that petitioners recognized and acknowledged the corporate
personality of the club. Otherwise, there is no cogency in spearheading the move for its
dissolution. Petitioners were therefore well aware of the incorporation of the club and even agreed to
get elected and serve as its responsible officers before they reconsidered dissolving its corporate form.
This brings us to petitioners next point. They claim in gratia argumenti that while the club may have
been considered a corporation during a brief spell, still, at the time of the institution of this case with the
SEC, the club was already dissolved by virtue of a Board resolution.
Again, the argument will not carry the day for the petitioner. The Corporation Code establishes the
procedure and other formal requirements a corporation needs to follow in case it elects to dissolve and
terminate its structure voluntarily and where no rights of creditors may possibly be prejudiced, thus:
Sec. 118. Voluntary dissolution where no creditors are affected.- If dissolution of a corporation does not
prejudice the rights of any creditor having a claim against it, the dissolution may be effected by majority
vote of the board of directors or trustees and by a resolution duly adopted by the affirmative vote of the
stockholders owning at least two-thirds (2/3) of the outstanding capital stock or at least two-thirds (2/3)
of the members at a meeting to be held upon call of the directors or trustees after publication of the
notice of time, place and object of the meeting for three (3) consecutive weeks in a newspaper
published in the place where the principal office of said corporation is located; and if no newspaper is
published in such place, then in a newspaper of general circulation in the Philippines, after sending such
notice to each stockholder or member either by registered mail or by personal delivery at least 30 days
prior to said meeting. A copy of the resolution authorizing the dissolution shall be certified by a majority
of the board of directors or trustees and countersigned by the secretary of the corporation. The
Securities and Exchange Commission shall thereupon issue the certificate of dissolution.[11]
We note that to substantiate their claim of dissolution, petitioners submitted only two relevant
documents: the Minutes of the First Board Meeting held on January 5, 1997, and the board resolution
issued on April 14, 1997 which declared to continue to consider the club as a non-registered or a noncorporate entity and just a social association of respectable and respecting individual members who
have associated themselves, since the 1970s, for the purpose of playing the sports of tennis x x x.
[12] Obviously, these two documents will not suffice. The requirements mandated by the Corporation
Code should have been strictly complied with by the members of the club. The records reveal that no
proof was offered by the petitioners with regard to the notice and publication requirements. Similarly
wanting is the proof of the board members certification. Lastly, and most important of all, the SEC Order
of Dissolution was never submitted as evidence.
We now resolve whether the dispute between the respondents and petitioners is a corporate matter
within the exclusive competence of the SEC to decide. In order that the 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 as far as its franchise, permit or license to operate is
concerned; and d) among the stockholders, partners or associates themselves.[13] The fact that the
parties involved in the controversy are all stockholders or that the parties involved are the stockholders
and the corporation, does not necessarily place the dispute within the loop of jurisdiction of the SEC.
[14] Jurisdiction should be determined by considering not only the status or relationship of the parties
but also the nature of the question that is the subject of their controversy.[15]
We rule that the present dispute is intra-corporate in character. In the first place, the parties here
involved are officers and members of the club. Respondents claim to be members of good standing of
the club until they were purportedly stripped of their membership in illegal fashion. Petitioners, on the
other hand, are its President and Vice-President, respectively. More significantly, the present conflict
relates to, and in fact arose from, this relation between the parties. The subject of the complaint,
namely, the legality of the expulsion from membership of the respondents and the validity of the
amendments in the clubs by-laws are, furthermore, within the Commissions jurisdiction.
Well to underscore is the date when the original complaint was filed at the SEC, which was March 26,
1997. On that date, the SEC still exercised quasi-judicial functions over this type of suits. It is axiomatic
that jurisdiction is conferred by the Constitution and by the laws in force at the time of the
commencement of the action.[16] In particular, the Commission was thereupon empowered, under Sec.
5 of P.D. 902-A, to hear and decide cases involving intra-corporate disputes, thus:
SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of association registered with it as
expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction
to hear and decide cases involving:
xxx
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 the 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;
x x x.[17]

The enactment of R.A. 8799, otherwise known as the Securities Regulation Code, however, transferred
or on its own initiative at any stage of the action and on such terms as are just. Any claim against a
the jurisdiction to resolve intra-corporate controversies to courts of general jurisdiction or the
misjoined party may be severed and proceeded with separately.[21]
appropriate Regional Trial Courts, thus:
The other issue is with regard to the alleged oppressive subpoenas and orders issued by Hearing Officer
5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential
Soller, purportedly without or in excess of authority. In light of PD 902-As repeal, the need to rule on the
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the
question of the extent of the contempt powers of an SEC hearing officer relative to his authority to issue
appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise of its authority
subpoenas and orders to parties involved in intra-corporate cases, or potential witnesses therein has
may designate the Regional trial Court branches that shall exercise jurisdiction over these cases. The
been rendered academic. The enactment of RA 8799 mooted this issue as SEC hearing officers, now
Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for
bereft of any power to resolve disputes, are likewise stripped of their power to issue subpoenas and
final resolution which should be resolved within one (1) year from the enactment of this Code. The
contempt orders incidental to the exercise of their quasi-judicial powers.
Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of
At any rate, it taxes our credulity why the petitioners insist in raising this issue in the case at bar. The
30 June 2000 until finally disposed.[18]
so-called oppressive subpoenas and orders were not directed to them. They were issued to the clubs
On August 22, 2000, we issued a resolution, in A.M. No. 00-8-10-SC, wherein we DIRECT(ed) the Court
secretary, Purita Escobar, directing her to appear before the Commission and bring certain documents of
Administrator and the Securities and Exchange Commission to cause the actual transfer of the records of
the club, that were supposedly under her possession or control. It is obvious that the petitioners are not
such cases and all other SEC cases affected by R.A. No. 8799 to the appropriate Regional Trial Courts x
the proper parties to assail the oppressiveness of the subpoenas or the orders, and impugn their
x x.[19] We also issued another resolution designating certain branches of the Regional Trial Court to try
validity. Elementary is the principle that only those who expect to be adversely affected by an order can
and decide cases formerly cognizable by the SEC.[20] Consequently, the case at bar should now be
complain against it. It is their addressee, Purita Escobar, who can assail their alleged
referred to the appropriate Regional Trial Court.
oppressiveness. Petitioners protestation has therefore no legal leg to stand on.
Before we finally write finis to the instant petition, however, we will dispose of the two other issues
IN VIEW WHEREOF, finding no cogent reason to disturb the assailed Decision, the petition is
raised by the petitioners.
DENIED. In conformity with R.A. 8799, SEC Case No. 03-97-5598, entitled Delfino Raniel and Helenda
First is the alleged failure of the respondents to implead the club as a necessary or indispensable
Raniel v. Teodoro B. Vesagas and Wilfred D. Asis is referred to the Regional Trial Court of the Ninth
party. Petitioners contend that the original complaint should be dismissed for not including the club as
Judicial Region, Branch 33[22] located in Agusan del Norte (Butuan City), one of the designated special
one of the respondents therein. Dismissal is not the remedy for non-joinder of parties. Under the Rules,
commercial courts pursuant to A.M. No. 00-11-03-SC.
the remedy is to implead the non-party, claimed to be necessary or indispensable, in the action, thus:
SO ORDERED.
SEC. 11. Misjoinder and non-joinder of parties. Neither misjoinder nor non-joinder of parties is a ground
for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party
[5] SEC. 26. Admissions of a party. The act, declaration or omission of a party as to relevant fact may be given in evidence against him. (Section 26, Rule 130, Rules of Court.)
[6] SEC. 4. Judicial admissions. An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was
made through palpable mistake or that no such admission was made. (Section 4, Rule 129, Rules of Court.)
[7] Attached as an annex of the herein petition and as annex of their petition filed with Court of Appeals.
[8] Minutes of the First Board Meeting, Annex 1, Petition, p. 1; Rollo, p. 71.
[11] Section 118, Batas Pambansa Blg. 68, Corporation Code of the Philippines.
[17] Section 5, P.D. No. 902-A.
[18] Section 5.2, R.A. 8799, Securities Regulation Code.
[19] A.M. No. 00-8-10-SC. -- In Re: Transfer of Cases from the Securities and Exchange Commission to the Regular Courts Pursuant to R.A. No. 8799, August 22, 2000.
[20] A.M. No. 00-11-03-SC. -- Resolution Designating Certain Branches of Regional Trial Courts to Try and Decide Cases Formerly Cognizable by the Securities and Exchange Commission.
[21] Section 11, Rule 3, 1997 Rules of Civil Procedure.
We find for the petitioners.
FIRST DIVISION
Republic Act No. 7169 entitled An Act To Rehabilitate The Philippine Veterans Bank Created Under
[G.R. No. 105364*. June 28, 2001]
Republic Act No. 3518, Providing The Mechanisms Therefor, And For Other Purposes, which was signed
PHILIPPINE VETERANS BANK EMPLOYEES UNION-N.U.B.E. and PERFECTO V.
into law by President Corazon C. Aquino on January 2, 1992 and which was published in the Official
FERNANDEZ, petitioners, vs. HONORABLE BENJAMIN VEGA, Presiding Judge of Branch 39 of
Gazette on February 24, 1992, provides in part for the reopening of the Philippine Veterans Bank
the REGIONAL TRIAL COURT of Manila, the CENTRAL BANK OF THE PHILIPPINES and THE
together with all its branches within the period of three (3) years from the date of the reopening of the
LIQUIDATOR OF THE PHILIPPINE VETERANS BANK, respondents
head office.[7] The law likewise provides for the creation of a rehabilitation committee in order to
DECISION
facilitate the implementation of the provisions of the same.[8]
KAPUNAN, J.:
Pursuant to said R.A. No. 7169, the Rehabilitation Committee submitted the proposed Rehabilitation Plan
May a liquidation court continue with liquidation proceedings of the Philippine Veterans Bank (PVB)
of the PVB to the Monetary Board for its approval. Meanwhile, PVB filed a Motion to Terminate
when Congress had mandated its rehabilitation and reopening?
Liquidation of Philippine Veterans Bank dated March 13, 1992 with the respondent judge praying that
This is the sole issue raised in the instant Petition for Prohibition with Petition for Preliminary Injunction
the liquidation proceedings be immediately terminated in view of the passage of R.A. No. 7169.
and application for Ex Parte Temporary Restraining Order.
On April 10, 1992, the Monetary Board issued Monetary Board Resolution No. 348 which approved the
The antecedent facts of the case are as follows:
Rehabilitation Plan submitted by the Rehabilitaion Committee.
Sometime in 1985, the Central Bank of the Philippines (Central Bank, for brevity) filed with Branch 39 of
Thereafter, the Monetary Board issued a Certificate of Authority allowing PVB to reopen.
the Regional Trial Court of Manila a Petition for Assistance in the Liquidation of the Philippine Veterans
On June 3, 1992, the liquidator filed A Motion for the Termination of the Liquidation Proceedings of the
Bank, the same docketed as Case No. SP-32311.Thereafter, the Philipppine Veterans Bank Employees
Philippine Veterans Bank with the respondent judge.
Union-N.U.B.E., herein petitioner, represented by petitioner Perfecto V. Fernandez, filed claims for
As stated above, the Court, in a Resolution dated June 8, 1992, issued a temporary restraining order in
accrued and unpaid employee wages and benefits with said court in SP-32311.[1]
the instant case restraining respondent judge from further proceeding with the liquidation of PVB.
After lengthy proceedings, partial payment of the sums due to the employees were made.However, due
On August 3, 1992, the Philippine Veterans Bank opened its doors to the public and started regular
to the piecemeal hearings on the benefits, many remain unpaid.[2]
banking operations.
On March 8, 1991, petitioners moved to disqualify the respondent judge from hearing the above case on
Clearly, the enactment of Republic Act No. 7169, as well as the subsequent developments has rendered
grounds of bias and hostility towards petitioners.[3]
the liquidation court functus officio. Consequently, respondent judge has been stripped of the authority
On January 2, 1992, the Congress enacted Republic Act No. 7169 providing for the rehabilitation of the
to issue orders involving acts of liquidation.
Philippine Veterans Bank.[4]
Liquidation, in corporation law, connotes a winding up or settling with creditors and debtors. [9] It is the
Thereafter, petitioners filed with the labor tribunals their residual claims for benefits and for
winding up of a corporation so that assets are distributed to those entitled to receive them. It is the
reinstatement upon reopening of the bank.[5]
process of reducing assets to cash, discharging liabilities and dividing surplus or loss.
Sometime in May 1992, the Central Bank issued a certificate of authority allowing the PVB to reopen.[6]
On the opposite end of the spectrum is rehabilitation which connotes a reopening or
Despite the legislative mandate for rehabilitation and reopening of PVB, respondent judgecontinued with
reorganization. Rehabilitation contemplates a continuance of corporate life and activities in an effort to
the liquidation proceedings of the bank. Moreover, petitioners learned that respondents were set to
restore and reinstate the corporation to its former position of successful operation and solvency.[10]
order the payment and release of employee benefits upon motion of another lawyer, while petitioners
It is crystal clear that the concept of liquidation is diametrically opposed or contrary to the concept of
claims have been frozen to their prejudice.
rehabilitation, such that both cannot be undertaken at the same time. To allow the liquidation
Hence, the instant petition.
proceedings to continue would seriously hinder the rehabilitation of the subject bank.
Petitioners argue that with the passage of R.A. 7169, the liquidation court became functus officio, and
Anent the claim of respondents Central Bank and Liquidator of PVB that R.A. No. 7169 became effective
no longer had the authority to continue with liquidation proceedings.
only on March 10, 1992 or fifteen (15) days after its publication in the Official Gazette; and, the
In a Resolution, dated June 8, 1992, the Supreme Court resolved to issue a Temporary Restraining
contention of intervenors VOP Security, et. al. that the effectivity of said law is conditioned on the
Order enjoining the trial court from further proceeding with the case.
approval of a rehabilitation plan by the Monetary Board, among others, the Court is of the view that
On June 22, 1992, VOP Security & Detective Agency (VOPSDA) and its 162 security guards filed a
both contentions are bereft of merit.
Motion for Intervention with prayer that they be excluded from the operation of the Temporary
While as a rule, laws take effect after fifteen (15) days following the completion of their publication in
Restraining Order issued by the Court. They alleged that they had filed a motion before Branch 39 of the
the Official Gazette or in a newspaper of general circulation in the Philippines, the legislature has the
RTC of Manila, in SP-No. 32311, praying that said court order PVB to pay their backwages and salary
authority to provide for exceptions, as indicated in the clause unless otherwise provided.
differentials by authority of R.A. No 6727, Wage Orders No. NCR-01 and NCR-01-Ad and Wage Orders
In the case at bar, Section 10 of R.A. No. 7169 provides:
No. NCR-02 and NCR-02-A; and, that said court, in an Order dated June 5, 1992, approved therein
Sec. 10. Effectivity. - This Act shall take effect upon its approval.
movants case and directed the bank liquidator or PVB itself to pay the backwages and differentials in
Hence, it is clear that the legislature intended to make the law effective immediately upon its
accordance with the computation incorporated in the order. Said intervenors likewise manifested that
approval. It is undisputed that R.A. No. 7169 was signed into law by President Corazon C. Aquino on
there was an error in the computation of the monetary benefits due them.
January 2, 1992. Therefore, said law became effective on said date.
On August 18, 1992, petitioners, pursuant to the Resolution of this Court, dated July 6, 1992, filed their
Assuming for the sake of argument that publication is necessary for the effectivity of R.A. No. 7169,
Comment opposing the Motion for Leave to File Intervention and for exclusion from the operation of the
then it became legally effective on February 24, 1992, the date when the same was published in the
T.R.O. on the grounds that the movants have no legal interest in the subject matter of the pending
Official Gazette, and not on March 10, 1992, as erroneously claimed by respondents Central Bank and
action; that allowing intervention would only cause delay in the proceedings; and that the motion to
Liquidator.
exclude the movants from the T.R.O. is without legal basis and would render moot the relief sought
WHEREFORE, in view of the foregoing, the instant petition is hereby GIVEN
in the petition.
DUECOURSE and GRANTED. Respondent Judge is hereby PERMANENTLY ENJOINED from further
On September 3, 1992, the PVB filed a Petition-In-Intervention praying for the issuance of the writs of
proceeding with Civil Case No. SP- 32311.
certiorari and prohibition under Rule 65 of the Rules of Court in connection with the issuance by
SO ORDERED.
respondent judge of several orders involving acts of liquidation of PVB even after the effectivity of R.A.
Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.
No. 7169. PVB further alleges that respondent judge clearly acted in excess of or without jurisdiction
when he issued the questioned orders.
* This case was transferred to the ponente pursuant to the resolution in AM No. 00-9-03-SC. Re: Creation of Special Committee on Case Backlog dated February 27, 2001.
[7] Sec. 5, Republic Act No. 7169, Official Gazette, February 24, 1992, p. 963.
[8] Sec. 7, Ibid.
G.R. No. L-15778
April 23, 1962
Hong Lue had bought from the Foreign Liquidation Commission and that as it assumed Dee Hong Lue's
TAN TIONG BIO, ET AL., petitioners,
obligation to pay the 3-1/2% sales tax on said surplus goods, it was remitting the sum of P43,750.00 in
vs.
his behalf as deposit to answer for the payment of said sales tax with the understanding that it would
COMMISSIONER OF INTERNAL REVENUE, respondent.
later be adjusted after the determination of the exact consideration of the sale.
Sycip, Salazar and Associates for petitioners.
On January 31, 1948, the syndicate again wrote the Collector requesting the refund of P1,103.28
Office of the Solicitor General for respondent.
representing alleged excess payment of sales tax due to the adjustment and reduction of the purchase
BAUTISTA ANGELO, J.:
price in the amount of P31,522.18. Said letter was referred to an agent for verification and report. On
On October 19, 1946, the Central Syndicate, a corporation organized under the laws of the Philippines,
September 18, 1951, after a thorough investigation of the facts and circumstances surrounding the
thru its General Manager, David Sycip, sent a letter to the Collector of Internal Revenue advising the
transaction, the agent reported (1) that Dee Hong Lue purchased the surplus goods as trustee for the
latter that it purchased from Dee Hong Lue the entire stock of surplus properties which the said Dee
Central Syndicate which was in the process of organization at the time of the bidding; (2) that it was the

representatives of the Central Syndicate that removed the surplus goods from their base at Leyte on
February 21, 1947; (3) that the syndicate must have realized a gross profit of 18.8% from its sales
thereof; and (4) that if the sales tax were to be assessed on its gross sales it would still be liable for the
amount of P33,797.88 as deficiency sales tax and surcharge in addition to the amount of P43,750.00
which the corporation had deposited in the name of Dee Hong Lue as estimated sales tax due from the
latter.
Based on the above findings of the agent in charge of the investigation, the Collector decided that the
Central Syndicate was the importer and original seller of the surplus goods in question and, therefore,
the one liable to pay the sales tax. Accordingly, on January 4, 1952, the Collector assessed against the
syndicate the amount of P33,797.88 and P300.00 as deficiency sales tax, inclusive of the 25% surcharge
and compromise penalty, respectively, and on the same date, in a separate letter, he denied the request
of the syndicate for the refund of the sum of P1,103.28.
On September 8, 1954, the Central Syndicate elevated the case to the Court of Tax Appeals questioning
the ruling of the Collector which denies its claim for refund as well as the assessment made against it of
the sum of P33,797.88, plus the sum of P300.00 as compromise penalty, as stated above. The Collector
filed his answer thereto wherein he reiterated his ruling and prayed that the Central Syndicate be
ordered to pay the deficiency sales tax and surcharge as demanded in his letters dated January 4, 1952
and August 5, 1954. On October 28, 1954, the syndicate filed a motion requesting that the issue of
prescription it has raised against the collection of the tax be first determined as a preliminary question,
but action thereon was deferred by the Court of Tax Appeals until after the trial of the case on the
merits.
On November 5, 1954, the Collector filed a motion requiring the syndicate to file a bond to guarantee
the payment of the tax assessed against it which motion was denied by the Court of Tax Appeals on the
ground that cannot be legally done it appearing that the syndicate is already a non-existing entity due to
the expiration of its corporate existence. In view of this development, the Collector filed a motion to
dismiss the appeal on the ground of lack of personality on the part of the syndicate, which met an
opposition on the part of the latter, but on January 25, 1955, the Court of Tax Appeals issued a
resolution dismissing the appeal primarily on the ground that the Central Syndicate has no personality to
maintain the action then pending before it. From this order the syndicate appealed to the Supreme
Court wherein it intimated that the appeal should not be dismissed because it could be substituted by its
successors-in-interest, to wit: Tan Tiong Bio, Yu Khe Thai, Alfonso Sycip, Dee Hong Lue, Lim Shui Ty, Sy
Seng Tong, Sy En, Co Giap and David Sycip. And taking cue from this suggestion, this Court ruled
against the dismissal and held: "The resolution appealed from is set aside and the respondent court is
ordered to permit the substitution of the officers and directors of the defunct Central Syndicate as
appellants, and to proceed with the hearing of the appeal upon its merits." In permitting the
substitution, this Court labored under the premise that said officers and directors "may be held
personally liable for the unpaid deficiency assessments made by the Collector of Internal Revenue
against the defunct syndicate."
After trial, the Court of Tax Appeals rendered decision the dispositive part of which reads as follows:
WHEREFORE, in view of the foregoing considerations, the decision of the Collector of Internal Revenue
appealed from is hereby affirmed, except with regard to the imposition of the compromise penalty of
P300.00 the collection of which is unauthorized and illegal in the absence of a compromise agreement
between the parties. (Collector of Internal Revenue vs. University of Sto. Tomas, G. R. No. L-11274,
November 28, 1958; Collector of Internal Revenue vs. Bautista & Tan, G.R. No. L-12250, May 27,
1959.) .
The petitioners Tan Tiong Bio, Yu Khe Thai, Lim Shui Ty, Alfonso Sycip, Sy En alias Sy Seng Sui, Dee
Hong Lue, and Sy Seng Tong, who appear in the Articles of Incorporation of the Central Syndicate Annex
A (pp. 60-66, CTA rec.) as incorporators and directors of the corporation, the second named being in
addition its President and the seventh its Treasurer, are hereby ordered to pay jointly and severally, to
the Collector of Internal Revenue, the sum of P33,797.88 as deficiency sales tax and surcharge on the
surplus goods purchased by them from the Foreign Liquidation Commission on July 5, 1946, from which
they realized an estimated gross sales of P1,447,551.65, with costs. ..
Petitioners interposed the present appeal.
The important issues to be determined in this appeal are: (1) whether the importer of the surplus goods
in question the sale of which is subject to the present tax liability is Dee Hong Lue or the Central
Syndicate who has been substituted by the present petitioners; (2) whether the deficiency sales tax
which is now sought to be collected has already prescribed; and (3) the Central Syndicate having
already been dissolved because of the expiration of its corporate existence, whether the sales tax in
question can be enforced against its successors-in-interest who are the present petitioners.
1. Petitioners contend that the Central Syndicate cannot be held liable for the deficiency sales tax in
question because it is not the importer of the surplus goods purchased from the Foreign Liquidation
Commission for the reason that said surplus goods were purchased by Dee Hong Lue as shown by the
contract executed between him and the Foreign Liquidation Commission and the fact that the Central
Syndicate only purchased the same from Dee Hong Lue and not from the Foreign Liquidation
Commission as shown by Exhibit 13.
This contention cannot be sustained. As correctly observed by the Court of Tax Appeals, the
overwhelming evidence presented by the Collector points to the conclusion that Dee Hong Lue
purchased the surplus goods in question not for himself but for the Central Syndicate which was then in
the process of incorporation such that the deed of sale Exhibit 13 which purports to show that Dee Hong
Lue sold said goods to the syndicate for a consideration of P1,250,000.00 (the same amount paid by
Dee Hong Lue to the Foreign Liquidation Commission) "is but a ruse to evade payment of a greater
amount of percentage tax." The aforesaid conclusion of the lower court was arrived at after a thorough
analysis of the evidence on record, pertinent portion of which we quote hereunder with approval:
Exhibit "38-A" for the respondent (p. 178, BIR rec.) shows that as early as July 23, 1946, or before the
organization and incorporation of Central Syndicate, Mr. David Sycip, who was subsequently appointed
General Manager of the corporation, together with Messrs. Sy En alias Sy Seng Sui (one of the
incorporators of Central Syndicate), Serge Gordeof and Chin Siu Bun (an employee of the same
corporation), for and in the name of Central Syndicate then in the process of organization, went to Leyte
to take over the surplus properties sold by the FLC to Dee Hong Lue, which the latter held in trust for
the corporation. Exhibit 38-A, which is a certificate issued by no less than David Sycip himself who was
subsequently appointed General Manager of the corporation admits in express terms the following "...
the surplus property sold by the Foreign Liquidation Commission to Dee Hong Lue ( and held in trust by
the latter for the Syndicate ...." (Emphasis ours.) We give full weight and credence to the adverse
admissions made by David Sycip against the petitioners as appearing in his certificate Exhibit 38-A (p.
178, BIR rec.) considering that at the time he made them, he was a person jointly interested with the
petitioners in the transaction over which there was yet no controversy over any sales tax liability. (Secs.
11 and 33, Rule 123, Rules of Court; Clem vs. Forbeso, Tex. Cir App. 10 S.W. 2d 223; Street vs.
Masterson, Tex. Cir. App. 277 S.W. 407.) .
Exhibit '39' for the respondent (pp. 184-187, BIR rec.) which is a letter of Mr. Yu Khe Thai President,
Director and biggest stockholder of Central Syndicate (Exhibit A, pp. 60-65, CTA rec.) dated September
17, 1946 and addressed to the Commanding General AFWESPAC, Manila, contains the following
categorical admissions which corroborate the admissions made by David Sycip; that the so-called Leyte
'Mystery Pile' surplus properties were owned by Central Syndicate by virtue of a purchase from the
FLC, effected in the name of Dee Hong Lue on July 5, 1946, inasmuch as Central Syndicate was then
still in the process of organization; that Dee Hong Lue held the said surplus properties in trust until the
mere formal turnover to the corporation on August 20, 1946, when the corporation had already been
organized and incorporated under the laws of the Philippines; and that on July 23, 1946 viz., twenty-two
(22) days before the incorporation of Central Syndicate on August 15, 1946 'our General Manager, Mr.
David Sycip accompanied by one of our directors, Mr. Sy En, arrived in Leyte to take over the properties.'
Before passing on to the rest of the evidence supporting the finding of respondent, we would like to call
attention to this significant detail. It is stated in the letter, Exhibit 39 (pp. 184-187, BIR rec.) of Mr. Yu
Khe Thai that 'on July 23, 1946, our General Manager, Mr. David Sycip, accompanied by one of our
directors, Mr. Sy En, arrived in Leyte to take over the properties,' We ask: Why was there such a hurry
on the part of the promoters of Central Syndicate in taking over the surplus properties when the formal
agreement, Exhibit 13 (p. 66, BIR rec.), purporting to be a contract of sale of the 'Mystery Pile' between
Dee Hong Lue as vendor, and the Central Syndicate, as vendee, for the amount of P1,250,000.00, was

effected twenty-eight (28) days later viz., on August 20, 1946? Is this not another clear and
unmistakable indication that from the very start, as is the theory of the respondent, the real purchasers
of the 'Mystery Pile' from the FLC and as such the 'importers' of the goods, were the Central Syndicate
and/or the group of big financiers composing it before said corporation was incorporated on August 15,
1946; and, that Dee Hong Lue acted merely as agent of these persons when he purchased the pile from
the FLC? As a general rule, one does not exercise all the acts of ownership over a property especially if
it involves a big amount until after the documents evidencing such ownership are fully accomplished.
Moreover, it appears that on October 3, 1946, Dee Hong Lue was investigated by Major Primitivo San
Agustin, Jr., G-2 of the Philippine Army, because of the discovery of some gun parts found in his
shipment of surplus material from Palo, Leyte.
In his sworn statement, Exhibit 16 (pp. 133-139, BIR rec.) before said officer, Dee Hong Lue admitted
the following: That he paid the FLC the amount of P1,250,000.00 "with the checks of Yu Khe Thai,
maybe also Alfonso Sycip and my checks with many others"; that "at the beginning I was trying to buy
the pile for myself without telling other people and other friends of mine." "Watkins came to me and he
bid for me for P600,000 or P700,000, but later on when the price went up to P1,250,000, I talked to my
friends who said I could get money." "So, I bought it with their checks and mine" (Exhibit 16-B, p. 138,
BIR rec.) and, that after buying the "Mystery Pile", he (Dee Hong Lue) never inspected the same
personally. (p. 141, BIR rec.)
In his affidavit, Exhibit 15 (p. 144, BIR rec.) Dee Hong Lue admitted that of the amount of
P1,250,000.00 which he paid in two installments sometime in July, 1946, to the FLC, P1,181,250.00
(should be P1,181,000.00) of the amount came from the following: Yu Khe Thai who advanced to him
P250,000.00; Sy Seng Tong P375,000.00; Alfonso Z. Sycip - P375,000.00; Tan Tiong Bio P125,000.00; Robert Dee Se Wee P25,000.00; and, Jose S. Lim P31,000.00 that his understanding
with these persons was that should they eventually join him in Central Syndicate, such advances would
be adjusted to constitute their investments; and, that soon after the "Mystery Pile" was purchased from
the FLC, all the above-named persons with the exception of Robert Dee Se Wee and Jose S. Lim, formed
the Central Syndicate and a re-allocation of shares was made corresponding to the amounts advanced
by them.
Added to these, we have before us other documentary evidence for the respondent consisting of
Exhibits 18, 19, 20, 21, 23, 24, 25, 26, 27, 28 and 29 (pp. 85, 88, 92-96, 99-103, 117-128, 119-120,
121-128, BIR rec.) all tending to prove the same thing - that the Central Syndicate and/or the group of
big financiers composing it and not Dee Hong Lue was the real purchaser (importer) of the "Mystery
Pile" from the FLC; that in the contract of sale between Dee Hong Lue and the FLC the former acted
principally as agent (Article 1930, New Civil Code) of the petitioners Yu Khe Thai, Sy Seng Tong, Alfonso
Z. Sycip and Tan Tiong Bio who advanced the purchased price of P1,125,000.00 out of the
P1,250,000.00 paid to the FLC, Dee Hong Lue being the purchaser in his own right only with respect to
the amount of P69,000.00; and, that the deed, Exhibit 13 (p. 77, BIR rec.) purporting to show that Dee
Hong Lue sold the "Mystery Pile" to the Central Syndicate for consideration of P1,250.000.00 is but a
ruse to evade payment of a greater amount of percentage tax. 1wph1.t
To our mind, the deed of sale, Exhibit 13 (p. 66, BIR rec.) as well as the circumstances surrounding the
incorporation of the Central Syndicate, are shrouded with as much mystery as the so-called "Mystery
Pile" subject of the transaction. But, as oil is to water, the truth and underlying motives behind these
transactions have to surface in the end. Petitioners would want us to believe that Dee Hong Lue bought
in his own right and for himself the surplus goods in question for P1,250,000.00 from the FLC and then,
by virtue of a valid contract of sale, Exhibit 13 (p. 66, BIR rec.) transferred and conveyed the same to
the Central Syndicate at cost. If this be so, what need was there for Dee Hong Lue to agree in the
immediate organization and incorporation of the Central Syndicate with six other capitalists when he
could very well have disposed of the surplus goods to the public in his individual capacity and keep all
the profits to himself without sharing 9/10th of it to the other six incorporators and stockholders of the
newly incorporated Syndicate.
It appears that Dee Hong Lue "sold" the pile to the Central Syndicate for exactly the same price barely
forty-six (46) days after acquiring it from FLC and exactly five (5) days after the Syndicate was
registered with the Securities and Exchange Commission on August 19, 1946. This is indeed most
unusual for a businessman like Dee Hong Lue who, it is to be presumed, was out to make a killing when
he acquired the surplus goods from the FLC for the staggering amount of P1,750,000.00 in cash.
Again, why did Dee Hong Lue waste all his time and effort not to say his good connections with the FLC
by acquiring the goods from that agency only to sell it for the same amount to the Central Syndicate?
This would have been understandable if Dee Hong Lue were the biggest and controlling stockholder of
the Syndicate. He could perhaps reason out to himself, "the profits which I am sacrificing now in this
sale to the Syndicate, I will get it anyway in the form of dividends from it after it shall have disposed of
all the "Mystery Pile" to the public.' But then, how could this be possible when Dee Hong Lue was the
smallest subscriber to the capital stock of the Syndicate? It appears from the Articles of Incorporation
that of the authorized capital stock of the corporation in the amount of P500,000.00, Dee Hong Lue
subscribes to only P20,000.00 or 1/25th of the capital stock authorized and of this amount only
P5,000.00 was paid by him at the time of incorporation. So here is an experienced businessman like Dee
Hong Lue who, following the theory of petitioners' counsel, bought the "'Mystery Pile" for himself for
P1,250,000.00 in cash, and after a few days sold the same at cost to a corporation wherein he owned
only 1/25th of the authorized capital stock and wherein he was not even an officer, thus doling out to
the other six incorporators and stockholders net profits in the sum conservatively estimated by the
respondent to be P206,116.45 out of a total of P229,073.83 which normally could all go to him. We take
judicial notice of the fact that as a result of our immense losses in property throughout the archipelago
the during the Japanese occupation, either through destruction or systematic commandering by the
enemy and our forces, surplus properties commanded a very good price in the open market after the
liberation and that quite a number of surplus dealers made immense fortunes out of it. We believe the
respondent was quite charitable if not more than fair to the Central Syndicate in computing the profits
realized by it in the resale of the "Mystery Pile" to the public at only 18.8% of the acquisition price.
Now, from the side of the Central Syndicate. This corporation, as its articles of incorporation, Exhibit A
(pp. 60-66, CTA rec.) will show, was incorporated on August 15, 1946 with an authorized capital stock of
P500,000.00 of which P200,000.00 worth was subscribed by seven (7) persons and P50,000.00 paid-up
in cash at the time of incorporation. Five (5) days after its incorporation, as the Deed of Sale, Exhibit 13
(p. 66, BIR rec.) purports to show, the said corporation bought from Dee Hong Lue the "Mystery Pile"
for P1,250,000.00 in cash. This is indeed quite phenomenal and fantastic not to say the utmost degree
of finance considering that the corporation had a subscribed capital stock of only P200,000.00 of which
only P50,000.00 was paid-up at the time of incorporation and with not the least proof showing that it
never borrowed money in its own name from outside source to raise the enormous amount allegedly
paid to Dee Hong Lue nor evidence to show that it had by then in so short a time is five (5) days
accumulated a substantial reserve to meet Dee Hong Lue's selling price.
Furthermore, at first blush it would seem quite difficult to understand why the seven (7) incorporators
and stockholders of the Central Syndicate formed a corporation with a subscribed capital stock of only
P200,000.00, and with cash on hand of only P50,000.00 knowing fully well that there was a transaction
awaiting the newly registered corporation involving an outlay of P1,250,000.00 in cash. We believe this
was done after mature deliberation and for some ulterior motive. As we see it, the only logical answer is
that the incorporator wanted to limit whatever civil liability that might arise in favor of third persons, as
the present tax liability has now arisen, up to the amount of their subscriptions, although the surplus
deal they transacted and which we believe was the only purpose in the incorporation of the Central
Syndicate, was very much over and above their authorized capital. Moreover, by limiting its capital, the
corporation was also able to save on incidental expenses, such as attorney's fee and the filing fee paid
to the Securities and Exchange Commission, which were based on the amount of the authorized capital
stock.
Another mystery worth unravelling is what happened to the P1,181,240.00 (should be P1,181,000.00)
which Dee Hong Lue in his affidavit, Exhibit 15 (p. 144, BIR rec.) claims to have received from Messrs.
Uy Khe Thai, Sy Seng Tong, Alfonso Z. Sycip, Tan Tiong Bio (all incorporators of the Syndicate) and two
others as 'advances' with which to pay the FLC. There is no evidence on record to show that Dee Hong
Lue ever returned this amount to those six (6) persons after he supposedly received P1,250,000.00 from
the newly incorporated Syndicate by virtue of the Deed of Sale, Exhibit 13. This is the explanation that
Dee Hong Lue gave in this regard as appearing in his affidavit, Exhibit 15: "That soon after the above-

mentioned property was purchased, the above parties, with the exception of Robert Dee Se Wee and
Jose S. Lim decided to join the proposed Central Syndicate and a re-allocation of shares was made for
the reason that some of the above parties in turn had to get advances from third parties." If this were
true, why was it that Messrs. Yu Khe Thai, Sy Seng Tong, Alfonso Z. Sycip and Tan Tiong Bio who
advanced P250,000.00; P375,000.00 and P125,000.00 to Dee Hong Lue were made to appear in the
Articles of incorporation of the Central Syndicate as having subscribed to shares worth only P40,000.00;
P30,000.00; P30,000.00 and P20,000.00 and of having paid only P10,000.00, P7,500.00, P7,500.00, and
P5,000.00 on their subscriptions, respectively? Would it not be more in keeping with corporate practice,
following the explanation of Dee Hong Lue, to just credit those four (4) persons in the corporation with
shares worth the amount advanced by them to Dee Hong Lue?
On the basis of the above figures, the re-allocation of shares in favor of the four (4) incorporators who
advanced enormous sums for the Syndicate seems at first glance to be totally disproportionate and
unfair to them. However, in the final analysis it is not so as we will now show. Immediately after the
incorporation of the Syndicate, as the evidence shows, Dee Hong Lue was made to execute a deed of
transfer under the guise of a contract of sale, conveying full and complete ownership of the "Mystery
Pile" to the newly organized corporation. So we have, on the face of the Articles of Incorporation and
Exhibit 13, a corporation with assets worth only P50,000.00 cash owning properties worth over a million
pesos. Obviously, the incorporators of the Syndicate, particularly those four who advanced enormous
sums to Dee Hong Lue, are not ordinary businessmen who could easily be taken for a ride. With the
precipitated execution of the "Deed of Sale" by Dee Hong Lue in favor of the Syndicate, transferring and
conveying ownership over the entire pile to the latter, the recoupment of their advances from the newly
acquired assets of the corporation was sufficiently secured, and at the same time, by making the
document appear to be a deed of sale instead of a deed of transfer as it should be under Article 1891 of
the New Civil Code, they have reduced (at least attempted to) their sales tax liability with the argument
that Dee Hong Lue was the original "purchaser" or "importer" of the goods and therefore the taxable
sale was that one made by him to the Syndicate and not the sales made by the latter to the public. After
going over the Articles of Incorporation of the Central Syndicate and the other circumstances of this
case, we draw the conclusion that it was organized just for this particular transaction that its life span
was expressly limited to two (2) years from and after the date of incorporation just to give it time to
dispose of the "Mystery Pile" to the public and then liquidate all its assets among the seven
incorporators-stockholders as in fact it was done on August 15, 1948; that from the very start, the seven
(7) incorporators had intended it to be a closed corporation without the least intention of ever selling to
other persons the remaining authorized capital stock of P300,000.00 still unsubscribed; and, that upon
its liquidation, the seven (7) incorporators composing it got much more than their investments including
those who advanced P1,181,000.00 to the FLC for the corporation.
Petitioners would dispute the finding that Dee Hong Lue merely acted as a trustee of the Central
Syndicate when he purchased the surplus goods in question from the Foreign Liquidation Commission on
July 5, 1946 considering that on that date the syndicate has not yet been incorporated on the theory
that no legal relation may exist between parties one of whom has yet no legal existence. Technically this
may be true, but the fact remains that it cannot be denied that Dee Hong Lue purchased the goods on
behalf of those who advanced the money for the purchase thereof who later became the incorporators
and only stockholders of the syndicate with the understanding that the amounts they had respectively
advanced would be their investment and would represent their interest in the corporation. And this is
further evidenced by the fact that this purchase made by Dee Hong Lue was later approved and adopted
as the act of the Central Syndicate itself as can be gleaned from the certificate executed by David Sycip,
general manager of said syndicate, on September 16, 1946, wherein he emphasized that the persons
named therein (from whom Dee Hong Lue obtained the money) merely acted on behalf of the syndicate
and in fact were the ones who went to Leyte to take over the aforesaid surplus goods. In any event,
even if Dee Hong Lue may be deemed as the purchaser of the surplus goods in his own right,
nevertheless, the corporation still may be regarded as the importer of the same goods for the reason
that Dee Hong Lue transferred to it all his rights and interests in the contract with the Foreign
Liquidation Commission, and it was said corporation that took delivery thereof from the place where
they were stored in Leyte as may be seen from the letter of Dee Hong Lue to the Foreign Liquidation
Commission dated September 2, 1946 and the letter of the Central Syndicate to the said Commission
bearing the same date. Under these facts, it is clear that the Central Syndicate is the importer of the
surplus goods as correctly observed by Judge Umali in his concurring opinion, from which we quote: .
It is now well settled that a person who bought surplus goods from the Foreign Liquidation Commission
and who removed the goods bought from the U.S. military bases in the Philippines is considered an
importer of such goods and is subject to the sales tax or compensating tax, as the case may be. (Go
Cheng Tee v. Meer, 47 O.G. 269; Saura Import and Export v. Meer, G.R. No. L-2927, Jan. 26, 1951;
P.M.P. Navigation v. Meer, G.R. No. L-4621, March 24, 1953; Soriano y Cia v. Coll. of Int. Rev., 51 O.G.
4548.) In this case it appearing that the Central Syndicate was the owner of the 'Mystery Pile' before its
removal from Base K and that it was the one which actually took delivery thereof and removed the same
from the U.S. military base, it is the importer within the meaning of Section 186 of the Revenue Code,
as it stood before the enactment of Republic Act No. 594, and its sales of the surplus goods are the
original sales taxable under said section and not the sale to it by Dee Hong Lue.
2. Since the Central Syndicate, as we have already pointed out, was the importer of the surplus goods in
question, it was its duty under Section 183 of the Internal Revenue Code to file a return of its gross
sales within 20 days after the end of each quarter in order that the office of the internal revenue may
assess the sales tax that may be due thereon, but, as the record shows, the Central Syndicate failed to
file any return of its quarterly sales on the pretext that it was Dee Hong Lue who imported the surplus
goods and it merely purchased them from said importer. This is in fact what the syndicate intended to
impress upon the Collector when it wrote to him its letter of October 19, 1946 informing him that it
purchased from Dee Hong Lue the entire stock of the surplus goods which the latter had bought from
the Foreign Liquidation Commission and was therefore depositing in his name the sum of P43,750.00 to
answer for his sales tax liability, but this letter certainly cannot be considered as a return that may set in
operation the application of the prescriptive period provided for in Section 331 of the Tax Code, for,
evidently, said letter if at all could only be considered as such in behalf of Dee Hong Lue and not in
behalf of the Central Syndicate because such is the only nature and import of the letter. Besides, how
can such letter be considered as a return of the sales of the Central Syndicate when it was only on
February 21, 1947 when it removed the surplus goods in question from their base at Leyte? How can
such return inure to the benefit of the syndicate when the same surplus goods which were removed on
said date could not have been sold by the corporation earlier than the aforesaid date? It is obvious that
the letter of October 19, 1946 cannot possibly be considered as a return filed by the syndicate and so
cannot serve as basis for the computation of the prescriptive period of five years prescribed by law.
Nor can the fact that the Collector did not include in the assessment a surcharge of 50% serve as an
argument that a return had already been filed, for such failure can only mean that an oversight had
been committed in the non-inclusion of said surcharge. The syndicate having failed to file its quarterly
returns as required by Section 183 of the Tax Code, the period that has to be reckoned with is that
embodied in Section 332 of the same Code which provides that in case of failure to file the return the
tax may be assessed within 10 years after discovery of the falsity, fraud or omission of the payment of
the proper tax. Since it appears that the Collector discovered the failure of the syndicate to file the
return only on September 12, 1951 he has therefore up to September 18, 1961 within which to assess
or collect the deficiency tax in question. Consequently the assessment made on January 4, 1952 was
made within the prescribed period.
3. Petitioners argue (1) that the Court of Tax Appeals acted in excess of its jurisdiction in holding them
liable as officers or directors of the defunct Central Syndicate for the tax liability of the latter; (2) that
petitioners cannot be held liable for said tax liability there being no statutory provision in this jurisdiction
authorizing the government to proceed against the stockholders of a defunct corporation as transferees
of the corporate assets upon liquidation; (3) that assuming that the stockholders can be held so liable,
they are only liable to the extent of the benefits derived by them from the corporation and there is no
evidence showing that petitioners had been the beneficiaries of the defunct syndicate; (4) that
considering that the Collector instituted the present action on September 23, 1954 when he filed his
answer to the appeal of petitioners, said action was already barred by prescription pursuant to Sections
77 and 78 of the Corporation Law which allows corporations to continue as a body corporate only for

three years from its dissolution; and (5) that assuming that petitioners are liable to pay the tax, their
liability is not solidary, but only limited to the benefits derived by them from the corporation.
It should be stated at the outset that it was petitioners themselves who caused their substitution as
parties in the present case, being the successors-in-interest of the defunct syndicate, when they
appealed this case to the Supreme Court for which reason the latter Court declared that "the respondent
Court of Tax Appeals should have allowed the substitution of its former officers and directors is partiesappellants, since they are proper parties in interest insofar as they may be (and in fact are) held
personally liable for the unpaid deficiency assessments made by the Collector of Internal Revenue
against the defunct Syndicate." In fact, because of this directive their substitution was effected. They
cannot, therefore, be now heard to complain if they are made responsible for the tax liability of the
defunct syndicate whose representation they assumed and whose assets were distributed among them.
In the second place, there is good authority to the effect that the creditor of a dissolved corporation
may follow its assets once they passed into the hands of the stockholders. Thus, recognized are the
following rules in American jurisprudence: The dissolution of a corporation does not extinguish the debts
due or owing to it (Bacon v. Robertson, 18 How. 480, 15 L. Ed., 406; Curron v. State, 16 How. 304, 14 L.
Ed., 705). A creditor of a dissolve corporation may follow its assets, as in the nature of a trust fund, into
the hands of its stockholders (MacWilliams v. Excelsier Coal Co. [1924] 298 Fed. 384). An indebtedness
of a corporation to the federal government for income and excess profit taxes is not extinguished by the
dissolution of the corporation (Quinn v. McLeudon, 152 Ark. 271, 238 S.W., 32). And it has been stated,
with reference to the effect of dissolution upon taxes due from a corporation, "that the hands of the
government cannot, of course, collect taxes from a defunct corporation, it loses thereby none of its
rights to assess taxes which had been due from the corporation, and to collect them from persons, who
by reason of transactions with the corporation, hold property against which the tax can be enforced and
that the legal death of the corporation no more prevents such action than would the physical death of
an individual prevent the government from assessing taxes against him and collecting them from his
administrator, who holds the property which the decedent had formerly possessed" (Wonder Bakeries
Co. v. U.S. [1934] Ct. Cl. 6 F. Supp. 288). Bearing in mind that our corporation law is of American origin,
the foregoing authorities have persuasive effect in considering similar cases in this jurisdiction. This
must have been taken into account when in G.R. No. L-8800 this Court said that petitioners could be
held personally liable for the taxes in question as successors-in-interest of the defunct corporation.
Considering that the Central Syndicate realized from the sale of the surplus goods a net profit of
P229,073.83, and that the sale of said goods was the only transaction undertaken by said syndicate,
there being no evidence to the contrary, the conclusion is that said net profit remained intact and was
distributed among the stockholders when the corporation liquidated and distributed its assets on August
15, 1948, immediately after the sale of the said surplus goods. Petitioners are therefore the beneficiaries
of the defunct corporation and as such should be held liable to pay the taxes in question. However,
there being no express provision requiring the stockholders of the corporation to be solidarily liable for
its debts which liability must be express and cannot be presumed, petitioners should be held to be liable
for the tax in question only in proportion to their shares in the distribution of the assets of the defunct
corporation. The decision of the trial court should be modified accordingly.
WHEREFORE, with the above modification, we hereby affirm the decision appealed from, with costs
against petitioners.
Bengzon, C.J., Padilla, Labrador, Concepcion, Reyes. J.B.L., Paredes and Dizon, JJ., concur.
Barrera, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION
G.R. No. 81123 February 28, 1989
CRISOSTOMO REBOLLIDO, FERNANDO VALENCIA and EDWIN REBOLLIDO, petitioners
vs.
HONORABLE COURT OF APPEALS and PEPSICO, INC., respondents.
Erlinda S. Carolino for petitioners.
Acaban, Corvera, Del Castillo for private respondents.
GUTIERREZ, JR., J.:
The issues raised in this petition for review on certiorari in an action for damages arising from a
vehicular accident are lack of jurisdiction over the defendant and absence of due process.
On August 7, 1984, the petitioners filed Civil Case No. 8113 for damages against Pepsi Cola Bottling
Company of the Philippines, Inc. (hereinafter referred to as Pepsi Cola) and Alberto Alva before the
Regional Trial Court of Makati.
The case arose out of a vehicular accident on March 1, 1984, involving a Mazda Minibus used as a
schoolbus with Plate Number NWK-353 owned and driven by petitioners Crisostomo Rebollido and
Fernando Valencia, respectively and a truck trailer with Plate Number NRH-522 owned at that time by
Pepsi Cola and driven by Alberto Alva. (p. 37, Rollo)
On September 21, 1984, the sheriff of the lower court served the summons addressed to the
defendants. It was received by one Nanette Sison who represented herself to be the authorized person
receiving court processes as she was the secretary of the legal department of Pepsi Cola. (pp. 33, 75,
Rollo)
Pepsi Cola failed to file an answer and was later declared in default. The lower court heard the case exparte and adjudged the defendants jointly and severally liable for damages in a decision rendered on
June 24, 1985. 'The dispositive portion of the decision reads:
WHEREFORE, judgment is rendered in favor of plaintiffs, ordering defendants Pepsi Cola Bottling
Company of the Philippines, Inc., and its driver Fernando (should be Alberto) G. Alva to jointly and
severally pay plaintiffs the following amounts:
l) P 12,126.10,for the hospitalization and medical expenses of plaintiff Fernando Valencia;
2) P 326.35 as expenses for the medical treatment of plaintiff Edwin Rebollido;
3) P 9,922.00, for the repair of and cost of replacement parts of the Mazda Minibus belonging to plaintiff
Crisostomo Rebollido;
4) P 16,200.00, for the expenses incurred by plaintiff Crisostomo Rebollido in hiring another vehicle to
transport school pupils;
5) P 102,261.90, as unrealized monthly net income due plaintiff from June 1984 to March 30, 1985;
6) P 10,800.00, representing the unpaid salaries of plaintiff Fernando Valencia for the period from March
to December 1984;
'7) P 20,000.00, as moral damages due plaintiff Fernando Valencia;
8) P 20,000.00, as moral damages due plaintiff Crisostomo Rebollido;
9) A sum equivalent to ten (10%) per cent of the total amount due, as and for attorney's fees; and
10) The costs of suit. (pp. 38-39, Rollo)
On August 5, 1985, when the default judgment became final and executory, the petitioners filed a
motion for execution, a copy of which was received no longer by the defendant Pepsi Cola but by private
respondent PEPSICO, Inc., on August 6, 1985. At that time, the private respondent was already
occupying the place of business of Pepsi Cola at Ricogen Building, Aguirre Street, Legaspi Village,
Makati, Metro Manila. Private respondent, a foreign corporation organized under the laws of the State of
Delaware, USA, held offices here for the purpose, among others, of settling Pepsi Cola's debts, liabilities
and obligations which it assumed in a written undertaking executed on June 11, 1983, preparatory to
the expected dissolution of Pepsi Cola.
The dissolution of Pepsi Cola as approved by the Securities and Exchange Commission materialized on
March 2,1984, one day after the accident occurred. (p. 45, Rollo).
Earlier or in June 1983, the Board of Directors and the stockholders of Pepsi Cola adopted its amended
articles of incorporation to shorten its corporate term in accordance with Section 120 of the Corporation
Code following the procedure laid down by Section 37 (power to extend or shorten the corporate term)
and Section 16 (amendment of the articles of incorporation) of the same Code. Immediately after such
amendment or on June 16, 23 and 30, 1983, Pepsi Cola cause the publication of a notice of dissolution
and the assumption of liabilities by the private respondent in a newspaper of general circulation. (p. 77,
Rollo)

Realizing that the judgment of the lower court would eventually be executed against it, respondent
PEPSICO, Inc., opposed the motion for execution and moved to vacate the judgment on the ground of
lack of jurisdiction. The private respondent questioned the validity of the service of summons to a mere
clerk. It invoked Section 13, Rule 14 of the Rules of Court on the manner of service upon a private
domestic corporation and Section 14 of the same rule on service upon a private foreign corporation. (p.
82, Rollo)
On August 14, 1985, the lower court denied the motion of the private respondent holding that despite
the dissolution and the assumption of liabilities by the private respondent, there was proper service of
summons upon defendant Pepsi Cola. The lower court said that under Section 122 of the Corporation
Code, the defendant continued its corporate existence for three (3) years from the date of dissolution.
(p. 87, Rollo)
On August 27, 1985, the private respondent filed a special civil action for certiorari and prohibition with
the respondent court to annul and set aside the judgment of the lower court and its order denying the
motion to vacate the judgment, for having been issued without jurisdiction.
On December 29, 1986, the Court of Appeals granted the petition on the ground of lack of jurisdiction
ruling that there was no valid service of summons. The appellate court stated that any judgment
rendered against Pepsi Cola after its dissolution is a "liability" of the private respondent within the
contemplation of the undertaking, but service of summons should be made upon the private respondent
itself in accordance with Section 14, Rule 14 of the Rules of Court. It remanded the case to the lower
court and ordered that the private respondent be summoned and be given its day in court.
On November 27, 1987, a motion for reconsideration was denied.
Hence, this petition.
The issues raised are two-fold: (1) whether or not Pepsi Cola, the dissolved corporation, is the real party
in interest to whom summons should be served in the civil case for damages; and (2) whether or not
there was valid service of summons through Nanette Sison, allegedly the secretary of the legal
department of Pepsi Cola. If there was valid service of summons upon Pepsi Cola, the issue arises as to
whether or not such service validly vested jurisdiction on the lower court over the person of the
respondent corporation.
On the first issue, the petitioner maintain that it is Pepsi Cola which is the real party in the case before
the trial court because when the accident happened on March 1, 1984 or one day before the date of
legal dissolution, Pepsi Cola was still the registered owner of the truck involved. Being solidarily liable
with its driver for damages under Articles 2176 and 2180 of the Civil Code, there appears to be no
question that the complaint and summons were correctly filed and served on Pepsi Cola.
Section 2, Rule 3 of the Revised Rules of Court mandates that:
Parties in interest - Every action must be prosecuted and defended in the name of the real party in
interest. ... .
The Court has defined the real party-in-interest in the recent case of Samahan ng mga Nangungupahan
sa Azcarraga Textile Market, Inc., et al. u. Court of Appeals (G.R. No. 68357, September 26, 1988), as
follows:
The real party-in-interest is the party who stands to be benefited or injured by the judgment or the
party entitled to the avails of the suit. 'Interest' within the meaning of the rule means material interest,
an interest in issue and to be affected by the decree, as distinguished from mere interest in the question
involved, or a mere incidental interest. ... (Francisco, the Revised Rules of Court in the Phil., Vol. I, p.
126 cited in House International Building Tenants Association, Inc. v. Intermediate Appellate Court, 151
SCRA 705).
Furthermore, the Court in Walter Ascona Lee, et al. v. Hon. Manuel Romillo, Jr., et al. (G.R. No. 60937,
May 28, 1988) said:
xxx xxx xxx
... A real party in interest-plaintiff is one who has a legal right while a real party in interest-defendant is
one who has a correlative legal obligation whose act or omission violates the legal rights of the former.
(Emphasis supplied).
For purposes of valid summons, the dissolved Pepsi Cola was the real party in interest-defendant in the
civil case filed by the petitioners not only because it is the registered owner of the truck involved but
also because, when the cause of action accrued, Pepsi Cola still existed as a corporation and was the
party involved in the acts violative of the legal right of another.
The petitioners had a valid cause of action for damages against Pepsi Cola, A cause of action is defined
as "an act or omission of one party in violation of the legal right or rights of the other; and its essential
elements are a legal right of the plaintiff, correlative obligation of the defendants and an act or omission
of the defendant in violation of said legal right." (Santos v. Intermediate Appellate Court, 145 SCRA 248
[1986] citing Ma-ao Sugar Central Co. v. Barrios, et al., 79 Phil. 666 [1947]; See also Republic Planters
Bank v. Intermediate Appellate Court, 131 SCRA 631 [1984]).
The law provides that a corporation whose corporate term has ceased can still be made a party to a
suit. Under paragraph 1, Section 122 of the Corporation Code, a dissolved corporation:
xxx xxx xxx
...shall nevertheless be continued as a body corporate for three (3) years after the time when it would
have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling
it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not
for the purpose of continuing the business for which it was established.
In American jurisprudence, a similar provision in the Corporate Act of 1896 was construed with respect
to the kinds of suits that can be prosecuted against dissolved corporations:
xxx xxx xxx
... The words 'defending suits against them mean suits at law or in equity, in contract or tort, or of what
nature soever, and whether begun before or after dissolution. (Hould v. John P. Squire and Co. [1911]
81 NJL 103, 79 A 282).
The rationale for extending the period of existence of a dissolved corporation is explained in Castle's
Administrator v. Acrogen Coal, Co. (145 Ky 591,140 SW 1034 [1911]) as follows:
This continuance of its legal existence for the purpose of enabling it to close up its business is necessary
to enable the corporation to collect the demands due it as well an to allow its creditors to assert the
demands against it. If this were not so, then a corporation that became involved in liabilities might
escape the payment of its just obligations by merely surrendering its charter, and thus defeat its
creditors or greatly hinder and delay them in the collection of their demand. This course of conduct on
the part of corporations the law in justice to persons dealing with them does not permit. The person
who has a valid claim against a corporation, whether it arises in contract or tort should not be deprived
of the right to prosecute an action for the enforcement of his demands by the action of the stockholders
of the corporation in agreeing to its dissolution. The dissolution of a corporation does not extinguish
obligations or liabilities due by or to it. (Emphasis supplied)
In the case at bar, the right of action of the petitioners against Pepsi Cola and its driver arose not at the
time when the complaint was filed but when the acts or omission constituting the cause of action
accrued (Deter v. City of Delta 271 p. 67, 73 Colo 589, Keister v. Keister, 96 SE 315 123 Va 157, ALR
439), i.e. on March 1, 1984 which is the date of the accident and when Pepsi Cola allegedly committed
the wrong.
On the second and main issue of whether or not the service of summons through Ms. Nanette C. Sison,
upon Pepsi Cola operates to vest jurisdiction upon private respondent, it is important to know the
circumstances surrounding the service. At the time of the issuance and receipt of the summons, Pepsi
Cola was already dissolved. The Court is of the opinion that service is allowed in such a situation. In the
American case of Crawford v. Refiners Cooperative Association, Incorporation (71 NM 1, 375 p 2d 212
[1962]), it was held that a "defendant corporation is subject to suit and service of process even though
dissolved."
Nowhere in the Corporation Code is there any special provision on how process shall be served upon a
dissolved defendant corporation. The absence of any such provision, however, should not leave
petitioners without any remedy, unable to pursue recovery for wrongs committed by the corporation
before its dissolution. Since our law recognizes the liability of a dissolved corporation to an aggrieved
creditor, it is but logical for the law to allow service of process upon a dissolved corporation. Otherwise,
substantive rights would be lost by the mere lack of explicit technical rules.
The Rules of Court on service of summons upon a private domestic corporation is also applicable to a
corporation which is no longer a going concern.

Section 13, Rule 14 mandates:


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.
The case of Castle's Administrator v. Acrogen Coal Co. (supra) , is illustrative of the manner by which
service can nevertheless be made despite the death of the entity:
[W]hen an action that might have been instituted against a foreign or domestic corporation while it was
a going concern is instituted after its dissolution, process in the action may be served upon the same
person upon whom the process could be served before the dissolution. (P. 1036)
Therefore, service upon a dissolved corporation may be made through any of the persons enumerated in
Section 13, Rule 14.
To be sure, this Court has ruled that service on a mere employee or clerk of a corporation is not
sufficient. (Delta Motor Sales Corp. v. Mangosing, 70 SCRA 598 [1976]; ATM Trucking, Inc. v.
Buencamino, 124 SCRA 434 [1983]; Filoil Marketing Corp. v. Marine Development Corp. of the Phil., 117
SCRA 86 [1982]). The persons who should receive the summons should be those named in the statute;
otherwise, those who have charge or control of the operations of the company or who may be relied
upon to deliver the papers served upon them. (Villa Rey Transit, Inc. v. Far East Motor Corp., 81 SCRA
298 [1978]; and Summit Trading and Development Corp. v. Avendano, 135 SCRA 397 [1985]).
A liberal interpretation of Section 13, Rule 14 has been adopted in the case of G & G Trading
Corporation v. Court of Appeals (158 SCRA 466 [1988]):
Although it maybe true that the service of summons was made on a person not authorized to receive
the same ..., nevertheless since it appears that the summons and complaint were in fact received by the
corporation through its said clerk, the Court finds that there was substantial compliance, with the rule
on service of summons. Indeed the purpose of said rule as above stated to assure service of summons
on the corporation had thereby been attained. The need for :seedy justice must prevail over a
technicality.' (at p. 469; Emphasis supplied).
The rationale for the rule on service of summons upon a defendant corporation as explained in Delta
Motors Sales v. Mangosing (supra), is as follows:
The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice
in an action against it or to insure that the summons be served on a representative so integrated with
the corporation that such person will know what to do with the legal papers served on him. In other
words, 'to bring home to the corporation notice of the filing of the action'. (35A C.J.S. 288 citing Jenkins
v. Lykes Bros. S.S. Co., 48 F. Supp. 848; MacCarthy v. Langston, D.C. Fla., 23 F.R.D. 249). (at p. 603)
The fact that the summons was received through Miss Sison is not disputed by the parties. For which
corporation was she actions. After the dissolution and during the pendency of the case below, private
respondent PEPSICO held office at the same address of Pepsi Cola where Miss Sison was working. The
petitioners argue that summons was served through the secretary of the legal department who acted as
agent of Pepsi Cola. On the other hand, it is contended by private respondent PEPSICO that Miss Sison
works for its legal department and not of Pepsi Cola. So the., private respondent avers, there was no
valid service upon Pepsi Cola since buss Sison acted in PEPSICO's behalf. (p. 64, Rollo) Even assuming
this contention to be true, the private respondent had the obligation to act upon the summons received
and to defend Pepsi Cola pursuant to the undertaking it executed on June 11, 1983.
Whomsoever Miss Sison was acting for in receiving the summons there is no question that the notice of
the action was promptly delivered either to Pepsi Cola or PEPSICO with whom she is admittedly
connected. We rule, as in G & G Trading Corporation v. Court of Appeals (supra), that there was
substantial compliance with Section 13, Rule 14 because the purpose of notice was satisfied. Contrary to
the decision of the Court of Appeals, we therefore, hold that there was proper service of summons to
bind Pepsi Cola and that the decision of the lower court against Pepsi Cola rendered on June 24, 1985 is
valid and enforceable against the private respondent.
According to the undertaking executed in favor of Pepsi Cola, private respondent assumed:
xxx xxx xxx
... [A]ll the debts, liabilities and obligations (collectively, the 'Liabilities') of PBC whether firm or
contingent, contractual or otherwise, express or implied, wherever located, and of whatever nature and
description (including, but without limiting the generality of the foregoing, liabilities for damages and
taxes), hereby agrees and undertakes (i) to pay or cause to be paid or otherwise discharge or cause to
be discharged all of the Liabilities of PBC which Liabilities may be enforced against the Corporation to
the same extent as if the said Liabilities had been incurred or contracted originally by the
Corporation...and (iv) not to prejudice in any way the rights of creditors of PBC (p. 46, Rollo; Italics
supplied)
It is clear that private respondent is aware that the liabilities of Pepsi Cola are enforceable against it
upon the dissolution of Pepsi Cola. As correctly stated by the Court of Appeals, by virtue of the
assumption of the debts, liabilities and obligations of Pepsi Cola, "any judgment rendered against Pepsi
Cola after its dissolution is a 'liability' of PEPSICO, Inc., within the contemplation of the undertaking."
Hence it was incumbent upon respondent PEPSICO, Inc., to have defended the civil suit against the
corporation whose liabilities it had assumed. Failure to do so after it received the notice by way of
summons amounts to gross negligence and bad faith. The private respondent cannot now invoke a
technical defect involving improper service upon Pepsi Cola and alleged absence of service of summons
upon it. There is the substantive right of the petitioners to be considered over and above the attempt of
the private respondent to avoid the jurisdiction of the lower court.
Even assuming that jurisdiction over the private respondent can be acquired only by way of service of
summons in literal compliance with Section 14, Rule 14, the petitioners cannot be faulted for having
brought the case naming Pepsi Cola as one of the defendants so that the summons was addressed only
to the defendants named therein and not to the private respondent. At the time of the commencement
of the suit below, the petitioners had no knowledge of the legal dissolution and the undertaking
assumed by PEPSICO. The publication of the notice of dissolution and the assumption of liabilities, done
in June 1983 or eight months before the vehicular accident, cannot serve as a notice to the petitioners
who were not yet creditors having a claim upon a quasi-delict.
In view of the above, the valid service of summons upon Pepsi Cola operated as a sufficient service of
summons upon the private respondent. The lower court can enforce judgment against the private
respondent.
Therefore, we rule that the private respondent is bound to satisfy the judgment by default which has
become final and executory. The lower court did not abuse its discretion in denying the motion of the
private respondent to vacate judgment.
WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals is REVERSED and
SET ASIDE. The judgment of the lower court and its order denying the motion to vacate judgment are
REINSTATED.
SO ORDERED.
Fernan, C.J., Feliciano, Bidin and Cortes, JJ., concur.
THIRD DIVISION

[G.R. No. 148372. June 27, 2005]


CLARION PRINTING HOUSE, INC., and EULOGIO YUTINGCO, petitioners, vs. THE
HONORABLE NATIONAL LABOR RELATIONS COMMISSION (Third Division) and MICHELLE
MICLAT, respondents.
DECISION
CARPIO-MORALES, J.:
Respondent Michelle Miclat (Miclat) was employed on April 21, 1997 on a probationary basis as
marketing assistant with a monthly salary of P6,500.00 by petitioner Clarion Printing House (CLARION)
owned by its co-petitioner Eulogio Yutingco. At the time of her employment, she was not informed of
the standards that would qualify her as a regular employee.
On September 16, 1997, the EYCO Group of Companies of which CLARION formed part filed with the
Securities and Exchange Commission (SEC) a Petition for the Declaration of Suspension of Payment,
Formation and Appointment of Rehabilitation Receiver/ Committee, Approval of Rehabilitation Plan with
Alternative Prayer for Liquidation and Dissolution of Corporation[1] the pertinent allegations of which
read:
xxx

5. The situation was that since all these companies were sister companies and were operating under a
unified and centralized management team, the financial requirements of one company would normally
be backed up or supported by one of the available fundings from the other companies.
6. The expansion exhausted the cash availability of Nikon, NKI, and 2000 because those fundings were
absorbed by the requirements of NPI and EYCO Properties, Inc. which were placed on real estate
investments. However, at the time that those investments and expansions were made, there was no
cause for alarm because the market situation was very bright and very promising, hence, the decision of
the management to implement the expansion.
7. The situation resulted in the cash position being spread thin. However, despite the thin cash
positioning, the management still was very positive and saw a very viable proposition since the
expansion and the additional investments would result in a bigger real estate base which would be very
credible collateral for further expansions. It was envisioned that in the end, there would be bigger cash
procurement which would result in greater volume of production, profitability and other good results
based on the expectations and projections of the team itself.
8. Unfortunately, factors beyond the control and anticipation of the management came into play which
caught the petitioners flat-footed, such as:
a) The glut in the real estate market which has resulted in the bubble economy for the real estate
demand which right now has resulted in a severe slow down in the sales of properties;
b) The economic interplay consisting of the inflation and the erraticchanges in the pesodollar exchange rate which precipitated a soaring banking interest.
c) Labor problems that has precipitated adverse company effect on the media and in the financial
circuit.
d) Liberalization of the industry (GATT) which has resulted in flooding the market with imported
goods;
e) Other related adverse matters.
9. The inability of the EYCO Group of Companies to meet the obligations as they fall due on the
schedule agreed with the bank has now become a stark reality. The situation therefore is that since the
obligations would not be met within the scheduled due date, complications and problems would
definitely arise that would impair andaffect the operations of the entire conglomerate comprising the
EYCO Group of Companies.
xxx
12. By virtue of this development, there is a need for suspension of all accounts o[r] obligations incurred
by the petitioners in their separate and combined capacities in the meantime that they are working for
the rehabilitation of the companies that would eventually redound to the benefit of these creditors.
13. The foregoing notwithstanding, however, the present combined financial condition of the petitioners
clearly indicates that their assets are more than enough to pay off the credits.
x x x (Emphasis and underscoring supplied)[2]
On September 19, 1997, the SEC issued an Order[3] the pertinent portions of which read:
xxx
It appearing that the petition is sufficient in form and
substance, the corporatepetitioners prayer for the creation of management or receivership committee an
dcreditors approval of the proposed Rehabilitation Plan is hereby set for hearing onOctober 22, 1997 at
2:00 oclock in the afternoon at the SICD, SEC Bldg., EDSA, Greenhills, Mandaluyong City.
xxx
Finally, the petitioners are hereby enjoined from disposing any and all of their properties in any manner,
whatsoever, except in the ordinary course of business and from making any payment outside of the
legitimate business expenses during the pendency of the proceedings and as a consequence of the filing
of the Petition, all actions, claims and proceedings against herein petitioners pending before any court,
tribunal, office board and/or commission are deemed SUSPENDED until further orders from this Hearing
Panel pursuant to the rulings of the Supreme Court in the cases of RCBC v. IAC et al., 213 SCRA 830 and
BPI v. CA, 229 SCRA 223. (Underscoring supplied)
And on September 30, 1997, the SEC issued an Order[4] approving the creation of an interim receiver
for the EYCO Group of Companies.
On October 10, 1997, the EYCO Group of Companies issued to its employees the following
Memorandum:[5]
This is to formally announce the entry of the Interim Receiver Group represented by SGV from today
until October 22, 1997 or until further formal notice from the SEC.
This interim receiver groups function is to make sure that all assets of the company are secured and
accounted for both for the protection of us and our creditors.
Their function will involve familiarization with the different processes and controls in our organization &
keeping physical track of our assets like inventories and machineries.
Anything that would be required from you would need to be in writing and duly approved by the top
management in order for us to maintain a clear line.
We trust that this temporary inconvenience will benefit all of us in the spirit of goodwill. Lets extend our
full cooperation to them.
Thank you. (Underscoring supplied)
On October 22, 1997, the Assistant Personnel Manager of CLARION informed Miclat by telephone that
her employment contract had been terminated effective October 23, 1997. No reason was given for the
termination.
The following day or on October 23, 1997, on reporting for work, Miclat was informed by the General
Sales Manager that her termination was part of CLARIONs cost-cutting measures.
On November 17, 1997, Miclat filed a complaint[6] for illegal dismissal against CLARION and Yutingco
(petitioners) before the National Labor Relations Commission (NLRC).
In the meantime, or on January 7, 1998, the EYCO Group of Companies issued a
Memorandum[7] addressed to company managers advising them of a temporary partial shutdown of
some operations of the Company commencing on January 12, 1998 up to February 28, 1998:
In view of the numerous external factors such as slowdown in business and consumer demand and
consistent with Art. 286 of the Revised Labor Code of the Philippines, we are constrained to go on a
temporary partial shutdown of some operations of the Company.
To implement this measure, please submit to my office through your local HRAD the list of those whom
you will require to report for work and their specific schedules. Upon revalidation and approval of this
list, all those not in the list will not receive any pay nor will it be credited against their VL.
Please submit the listing no later than the morning of Friday, January 09, 1998.
Shutdown shall commence on January 12, 1998 up to February 28, 1998, unless otherwise recalled at
an earlier date.
Implementation of th[ese] directives will be done through your HRAD departments. (Underscoring
supplied)
In her Position Paper[8] dated March 3, 1998 filed before the labor arbiter, Miclat claimed that she was
never informed of the standards which would qualify her as a regular employee. She asserted, however,
that she qualified as a regular employee since her immediate supervisor even submitted a written
recommendation in her favor before she was terminated without just or authorized cause.
Respecting the alleged financial losses cited by petitioners as basis for her termination, Miclat disputed
the same, she contending that as marketing assistant tasked to receive sales calls, produce sales reports
and conduct market surveys, a credible assessment on production and sales showed otherwise.
In any event, Miclat claimed that assuming that her termination was necessary, the manner in which it
was carried out was illegal, no written notice thereof having been served on her, and she merely learned
of it only a day before it became effective.
Additionally, Miclat claimed that she did not receive separation pay, 13 th month pay and salaries for
October 21, 22 and 23, 1997.
On the other hand, petitioners claimed that they could not be faulted for retrenching some of its
employees including Miclat, they drawing attention to the EYCO Group of Companies being placed under
receivership, notice of which was sent to its supervisors and rank and file employees via a Memorandum
of July 21, 1997; that in the same memorandum, the EYCO Group of Companies advised them of a
scheme for voluntary separation from employment with payment of severance pay; and that CLARION
was only adopting the LAST IN, FIRST OUT PRINCIPLE when it terminated Miclat who was relatively
new in the company.

Contending that Miclats termination was made with due process, petitioners referred to the EYCO Group
of Companies abovesaid July 21, 1997 Memorandum which, so they claimed, substantially complied with
the notice requirement, it having been issued more than one month before Miclat was terminated on
October 23, 1997.
By Decision[9] of November 23, 1998, the labor arbiter found that Miclat wasillegally
dismissed and directed her reinstatement. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered ordering the respondent
to reinstate complainant to her former or equivalent position without loss of seniority rights and
benefits and to pay her backwages , from the time of dismissal to actual reinstatement,
proportionate 13th month pay and two (2) dayssalary computed as follows:
a.1) Backwages 10/23/97 to 11/30/98
P6,500.00 x 13.25 months = P86,125.00
a.2) Proportionate 13th month pay
1/12 of P86,125 = 7,177.08
b) 13th month pay - 1997
=P6,500 x 9.75 months/12 = 5,281.25
c) Two days salary
=P6,500/26 x 2 days = 500.00
TOTAL P 99,083.33
(Emphasis and underscoring supplied).
Before the National Labor Relations Commission (NLRC) to which petitioners appealed, they argued
that:[10]
1. [CLARION] was placed under receivership thereby evidencing the fact that it sustained business
losses to warrant the termination of [Miclat] from her employment.
2. The dismissal of [Miclat] from her employment having been effected in accordance with the law and
in good faith, [Miclat] does not deserve to be reinstated and paid backwages, 13 th month pay and two

(2) days salary.


And petitioners pointed out that CLARION had expressed its decision to shutdown its operations by
Memorandum[11] of January 7, 1998 to its company managers.
Appended to petitioners appeal before the NLRC were photocopies of their balance sheets from 1997 to
November 1998 which they claimed to unanimously show that x x x [petitioner] company experienced
business reverses which were made the basis x x x in retrenching x x x.[12]
By Resolution[13] of June 17, 1999, the NLRC affirmed the labor arbiters decision. The pertinent portion
of the NLRC Resolution reads:
There are three (3) valid requisites for valid retrenchment: (1) the retrenchment is necessary to prevent
losses and such losses are proven; (2) written notices to the employees and to the Department of Labor
and Employment at least one (1) month prior to the intended date of retrenchment; and (3) payment of
separation pay equivalent to one (1) month pay or at least month pay for every year of service,
whichever is higher. The two notices are mandatory. If the notice to the workers is later than the notices
sent to DOLE, the date of termination should be at least one month from the date of notice to the
workers.
In Lopez Sugar Corporation v. Federation of Free Workers Philippine Labor Union Association (PLUANACUSIP) and National Labor Relations Commission, the Supreme Court had the occasion to set
forth four standards which would justify retrenchment, being, firstly, - the losses expected should be
substantial and not merely de minimis in extent. If the loss purportedly sought to be forestalled by
retrenchment is clearly shown to be insubstantial and inconsequential in character, the bona fide nature
of the retrenchment would appear to be seriously in question; secondly, - the substantial loss
apprehended must be reasonably imminent, as such imminence can be perceived objectively and in
good faith by the employer. There should, in other words, be a certain degree of urgency for the
retrenchment, which is after all a drastic course with serious consequences for the livelihood of the
employees retired or otherwise laid-off; thirdly, - because of the consequential nature of retrenchment,
it must be reasonably necessary and likely to effectively prevent the expected losses. The employer
should have taken other measures prior or parallel to retrenchment to forestall losses, i.e., cut other cost
than labor costs; and lastly, - the alleged losses if already realized and the expected imminent losses
sought to be forestalled, must be proven by sufficient and convincing evidence.
The records show that these requirements were not substantially complied with. Andproofs presented by
respondents-appellants were short of being sufficient and convincing to justify valid retrenchment. Their
position must therefore fail. The reason is simple. Evidences on record presented fall short of the
requirement of substantial, sufficient and convincing evidence to persuade this Commission to declare
the validity of retrenchment espoused by respondents-appellants. The petition before the Securit[ies]
and Exchange Commission for suspension of payment does not prove anything to come within the
bounds of justifying retrenchment. In fact, the petition itself lends credence to the fact that
retrenchment was not actually reinstated under the circumstances prevailing when it stated, The
foregoing notwithstanding, however, the present combined financial condition of the petitioners clearly
indicates that their assets are more than enough to pay off the credits . Verily, reading further into the
petition, We are not ready to disregard the fact that the petition merely seeks to suspend payments of
their obligation from creditor banks and other financing institutions, and not because of imminent
substantial financial loss. On this account, We take note of paragraph 7 of the petition which
stated: The situation resulted in cash position being spread thin. However, despite the thin cash
positioning, the management was very positive and saw a very viable proposition since the expansion
and the additional investments would result in a bigger real estate base which would be a very credible
collateral for further expansions. It was envisioned that in the end, there would a bigger cash
procurement which would result in greater volume of production, profitability and other good results
based on the expectations and projections of the team itself. Admittedly, this does not create a picture
of retrenchable business atmosphere pursuant to Article 283 of the Labor Code.
We cannot disregard the fact that respondent-appellants failed in almost all of the criteria set by law and
jurisprudence in justifying valid retrenchment. The two (2) mandatory notices were violated. The
supposed notice to the DOLE (Annex 4, List of Employees on Shutdown) is of no moment, the same
having no bearing in this case. Herein complainant-appellee was not even listed therein and the date of
receipt by DOLE, that is, January 18, 1999, was way out of time in relation to this case. And no proof
was adduced to evidence cost cutting measures, to say the least. Nor was there proof shown that
separation pay had been awarded to complainant-appellee.
WHEREFORE, premises considered, and finding no grave abuse of discretion on the findings of Labor
Arbiter Nieves V. De Castro, the appeal is DENIED for lack of merit.
The decision appealed from is AFFIRMED in toto. (Italics in the original; underscoring supplied; citations
omitted)
Petitioners Motion for Reconsideration of the NLRC resolution having been denied by Resolution[14] of
July 29, 1999, petitioners filed a petition for certiorari[15] before the Court of Appeals (CA) raising the
following arguments:
1. PETITIONER CLARION WAS PLACED UNDER RECEIVERSHIP THEREBY EVIDENCING THE FACT THAT
IT SUSTAINED BUSINESS LOSSES TO WARRANT THE TERMINATION OF PRIVATE RESPONDENT
MICLAT FROM HER EMPLOYMENT.
2. THE DISMISSAL OF PRIVATE RESPONDENT MICLAT FROM HER EMPLOYMENT HAVING
BEEN EFFECTED IN ACCORDANCE WITH THE LAW AND IN GOOD FAITH, PRIVATE RESPONDENT DOES
NOT DESERVE TO BE REINSTATED AND PAID BACKWAGES, 13TH MONTH PAY AND TWO (2) DAYS
SALARY. (Underscoring supplied)
By Decision[16] of November 24, 2000, the CA sustained the resolutions of the NLRC in this wise:
In the instant case, Clarion failed to prove its ground for retrenchment as well as compliance with the
mandated procedure of furnishing the employee and the Department of Labor and Employment
(hereafter, DOLE) with one (1) month written notice and payment of separation pay to the
employee. Clarions failure to discharge its burden of proof is evident from the following instances:
First, Clarion presented no evidence whatsoever before the Labor Arbiter. To prove serious business
losses, Clarion presented its 1997 and 1998 financial statements and the SEC Order for the Creation of
an Interim Receiver, for the first time onappeal before the NLRC. The Supreme Court has
consistently disallowed such practice unless the party making the belated submission of evidence had

satisfactorily explained the delay. In the instant case, said financial statements are not admissible in
evidence due to Clarions failure to explain the delay.
Second, even if such financial statements were admitted in evidence, they would not alter the outcome
of the case as statements have weak probative value. The required method of proof in such case is the
presentation of financial statements prepared by independent auditors and not merely by company
accountants. Again, petitioner failed in this regard.
Third, even audited financial statements are not enough. The employer must present the statement for
the year immediately preceding the year the employee was retrenched, which Clarion failed to do in the
instant case, to prove not only the fact of business losses but more importantly, the fact that such losses
were substantial, continuing and without immediate prospect of abatement. Hence, neither the NLRC
nor the courts must blindly accept such audited financial statements. They must examine and make
inferences from the data presented to establish business losses. Furthermore, they must be cautioned
by the fact that sliding incomes or decreasing gross revenues alone are not necessarily business
losses within the meaning of Art. 283 since in the nature of things, the possibility of incurring losses is
constantly present in business operations.
Last, even if business losses were indeed sufficiently proven, the employer must stillprove that
retrenchment was resorted to only after less drastic measures such as the reduction of both
management and rank-and-file bonuses and salaries, going on reduced time, improving manufacturing
efficiency, reduction of marketing and advertising costs, faster collection of customer accounts,
reduction of raw materials investment and others, have been tried and found wanting. Again, petitioner
failed to prove the exhaustion of less drastic measures short of retrenchment as it had failed with the
other requisites.
It is interesting to note that Miclat started as a probationary employee on 21 April 1997. There being no
stipulation to the contrary, her probation period had a duration of six (6) months from her date of
employment. Thus, after the end of the probation period on 22 October 1997, she became a regular
employee as of 23 October 1997since she was allowed to work after the end of said period. It is also
clear that her probationary employment was not terminated at the end of the probation period on the
ground that the employee failed to qualify in accordance with reasonable standards made known to her
at the time of engagement.
However, 23 October 1997 was also the day of Miclats termination from employment on the ground of
retrenchment. Thus, we have a bizarre situation when the first day of an employees regular employment
was also the day of her termination. However, this is entirely possible, as had in fact happened in the
instant case, where the employers basis for termination is Art. 288, instead of Art. 281 of the Labor
Code. If petitioner terminated Miclat with Art. 281 in mind, it would have been too late to present such
theory at this stage and it would have been equally devastating for petitioner had it done so because no
evidence exists to show that Miclat failed to qualify with petitioners standards for regularization. Failure
to discharge its burden of proof would still be petitioners undoing.
Whichever way We examine the case, the conclusion is the same Miclat was illegallydismissed.
Consequently, reinstatement without loss of seniority rights and full backwages from date of dismissal
on 23 October 1997 until actual reinstatement is in order.
WHEREFORE, the instant petition is hereby DISMISSED and the 29 July 1999 and 7 June 1999
resolutions of the NLRC are SUSTAINED. (Emphasis and underscoring supplied)
By Resolution[17] of May 23, 2001, the CA denied petitioners motion for reconsideration of the decision.
Hence, the present petition for review on certiorari, petitioners contending that:
WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING THE
ASSAILED DECISIONS OF HONORABLE PUBLIC RESPONDENT COMMISSION:
A. HOLDING THAT PRIVATE RESPONDENT MICLAT WAS ILLEGALLY DISMISSED; and
B. ORDERING THE REINSTATEMENT OF PRIVATE RESPONDENT MICLAT TO HER FORMER OR
EQUIVALENT POSITION WITHOUT LOSS OF SENIORITY RIGHTS AND BENEFITS AND PAYMENT OF
TH
BACKWAGES, 1[3]
MONTH PAY AND TWO (2) DAYS SALARY.[18]
Petitioners argue that the conclusion of the CA that no sufficient proof of financial losses on the part of
CLARION was adduced is patently erroneous, given the serious business reverses it had gravely suffered
as reflected in its financial statements/balance sheets, thereby leaving as its only option the
retrenchment of its employees including Miclat.[19]
Petitioners further argue that when a company is under receivership and a receiver is appointed to take
control of its management and corporate affairs, one of the evident reasons is to prevent further losses
of said company and protect its remaining assets from being dissipated; and that the submission of
financial reports/statements prepared by independent auditors had been rendered moot and academic,
the company having shutdown its operations and having been placed under receivership by the SEC due
to its inability to pay or comply with its obligations.[20]
Respecting the CAs holding that the financial statements CLARION submitted for the first time on
appeal before the NLRC are inadmissible in evidence due to its failure to explain the delay in the
submission thereof, petitioners lament the CAs failure to consider that technical rules on evidence
prevailing in the courts are not controlling in proceedings before the NLRC which may consider evidence
such as documents and affidavits submitted by the parties for the first time on appeal.[21]
As to the CAs holding that CLARION failed to prove the exhaustion of less drastic measures short of
retrenching, petitioners advance that prior to the termination of Miclat, CLARION, together with the
other companies under the EYCO Group of Companies, was placed under receivership during which
drastic measures to continue business operations of the company and eventually rehabilitate itself were
implemented.[22]
Denying Miclats entitlement to backwages, petitioners proffer that her dismissal rested upon a valid and
authorized cause. And petitioners assail as grossly erroneous the award of 13th month pay to Miclat, she

not having sought it and, therefore, there was no jurisdiction to award the same.[23]
The petition is partly meritorious.
Contrary to the CAs ruling, petitioners could present evidence for the first time on appeal to the NLRC. It
is well-settled that the NLRC is not precluded from receiving evidence, even for the first time on appeal,
because technical rules of procedure are not binding in labor cases.
The settled rule is that the NLRC is not precluded from receiving evidence on appeal as technical rules of
evidence are not binding in labor cases. In fact, labor officials are mandated by the Labor Code to use
every and all reasonable means to ascertain the facts in each case speedily and objectively, without
regard to technicalities of law or procedure, all in the interest of due process. Thus, in Lawin Security
Services v. NLRC, and Bristol Laboratories Employees Association-DFA v. NLRC, we held that even if the
evidence was not submitted to the labor arbiter, the fact that it was duly introduced on appeal to the
NLRC is enough basis for the latter to be more judicious in admitting the same, instead of falling back
on the mere technicality that said evidence can no longer be considered on appeal. Certainly, the first
course of action would be more consistent with equity and the basic notions of fairness. (Italics in the
original; citations omitted)[24]
It is likewise well-settled that for retrenchment to be justified, any claim of actual or potential business
losses must satisfy the following standards: (1) the losses are substantial and not de minimis ; (2) the
losses are actual or reasonably imminent; (3) the retrenchment is reasonably necessary and is likely to
be effective in preventing expected losses; and (4) the alleged losses, if already incurred, or the
expected imminent losses sought to be forestalled, are proven by sufficient and convincing evidence.
[25] And it is the employer who has the onus of proving the presence of these standards.
Sections 5 and 6 of Presidential Decree No. 902-A (P.D. 902-A) (REORGANIZATION OF THE SECURITIES
AND EXCHANGE COMMISSION WITH ADDITIONAL POWERS AND PLACING SAID AGENCY UNDER THE
ADMINISTRATIVE SUPERVISION OF THE OFFICE OF THE PRESIDENT),[26] as amended, read:
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:
xxx
(d) Petitions of corporations, partnerships or associations declared in the state of
suspension of payments in cases where the corporation, partnership or association
possesses sufficient property to cover all debts but foresees the impossibility of meeting
them when they respectively fall due or in cases where the corporation, partnership,

association has no sufficient assets to cover its liabilities, but is under the management of a
Rehabilitation Receiver or Management Committee created pursuant to this Decree.
SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following
powers:
xxx
(c) To appoint one or more receivers of the property, real and personal, which is the subject of the
action pending before the Commission in accordance with the provisions of the Rules of Court in such
other cases whenever necessary in order to preserve the rights of the parties-litigants and/or protect
the interest of the investing public and creditors: Provided, however, That the Commission
may in appropriate cases, appoint a rehabilitation receiver of corporations, partnerships or
other associations not supervised or regulated by other government agencies who shall
have, in addition to powers of the regular receiver under the provisions of the Rules of
Court, such functions and powers as are provided for in the succeeding paragraph (d)
hereof: x x x
(d) To create and appoint a management committee, board or body upon petition or motu propio to
undertake the management of corporations, partnership or other associations not supervised or
regulated by other government agencies in appropriate cases when there is imminent danger of
dissipation, loss, wastage or destruction of assets or other properties or paralization of
business operations of such corporations or entities which may be prejudicial to the
interest of minority stockholders, parties-litigants of the general public: x x x (Emphasis and
underscoring supplied).
From the above-quoted provisions of P.D. No. 902-A, as amended, the appointment of a receiver or
management committee by the SEC presupposes a finding that, inter alia, a company possesses
sufficient property to cover all its debts but foresees the impossibility of meeting them when they
respectively fall due and there is imminent danger of dissipation, loss, wastage or destruction of assets
of other properties or paralization of business operations.
That the SEC, mandated by law to have regulatory functions over corporations, partnerships or
associations,[27] appointed an interim receiver for the EYCO Group of Companies on its petition in light
of, as quoted above, the therein enumerated factors beyond the control and anticipation of the
management rendering it unable to meet its obligation as they fall due, and thus resulting to
complications and problems . . . to arise that would impair and affect [its] operations . . . shows that
CLARION, together with the other member-companies of the EYCO Group of Companies, was suffering
business reverses justifying, among other things, the retrenchment of its employees.
This Court in fact takes judicial notice of the Decision[28] of the Court of Appeals dated June 11, 2000
in CA-G.R. SP No. 55208, Nikon Industrial Corp., Nikolite Industrial Corp., et al. [including
CLARION], otherwise known as the EYCO Group of Companies v. Philippine National Bank, Solidbank
Corporation, et al., collectively known and referred as the Consortium of Creditor Banks , which was
elevated to this Court via Petition for Certiorari and docketed as G.R. No. 145977, but which petition
this Court dismissed by Resolution dated May 3, 2005:
Considering the joint manifestation and motion to dismiss of petitioners and respondents dated February
24, 2003, stating that the parties have reached a final and comprehensive settlement of all the claims
and counterclaims subject matter of the case and accordingly, agreed to the dismissal of the petition
for certiorari, the Court Resolved to DISMISS the petition for certiorari (Underscoring supplied).
The parties in G.R. No. 145977 having sought, and this Court having granted, the dismissal of the
appeal of the therein petitioners including CLARION, the CA decision which affirmed in toto the
September 14, 1999 Order of the SEC, the dispositive portion of which SEC Order reads:
WHEREFORE, premises considered, the appeal is as it is hereby, granted and the Order dated 18
December 1998 is set aside. The Petition to be Declared in State ofSuspension of payments is
hereby disapproved and the SAC Plan terminated. Consequently, all committee, conservator/ receivers
created pursuant to said Order are dissolved and discharged and all acts and orders issued therein are
vacated.
The Commission, likewise, orders the liquidation and dissolution of the appellee
corporations. The case is hereby remanded to the hearing panel below for that purpose.
x x x (Emphasis and underscoring supplied),
has now become final and executory. Ergo, the SECs disapproval of the EYCO Group of Companies
Petition for the Declaration of Suspension of Payment . . . and the order for the liquidation and
dissolution of these companies including CLARION, must be deemed to have been unassailed.
That judicial notice can be taken of the above-said case of Nikon Industrial Corp. et al. v. PNB et
al., there should be no doubt.
As provided in Section 1, Rule 129 of the Rules of Court:
SECTION 1. Judicial notice, when mandatory. A court shall take judicial notice, without the introduction
of evidence, of the existence and territorial extent of states, their political history, forms of government
and symbols of nationality, the law of nations, the admiralty and maritime courts of the world and their
seals, the political constitution and history of the Philippines, the official acts of the legislative,
executive and judicial departments of the Philippines, the laws of nature, the measure of time, and the
geographical divisions. (Emphasis and underscoring supplied)
which Mr. Justice Edgardo L. Paras interpreted as follows:
A court will take judicial notice of its own acts and records in the same case, of facts established in
prior proceedings in the same case, of the authenticity of its own records of another case between the
same parties, of the files of related cases in the same court, and of public records on file in the
same court. In addition judicial notice will be taken of the record, pleadings or judgment of a case in
another court between the same parties or involving one of the same parties, as well as of the record of
another case between different parties in the same court. Judicial notice will also be taken of court
personnel. (Emphasis and underscoring supplied)[29]
In fine, CLARIONs claim that at the time it terminated Miclat it was experiencing business reverses gains
more light from the SECs disapproval of the EYCO Group of Companies petition to be declared in state
of suspension of payment, filed before Miclats termination, and of the SECs consequent order for
the group of companies dissolution and liquidation.
This Courts finding that Miclats termination was justified notwithstanding, since at the time she was
hired on probationary basis she was not informed of the standards that would qualify her as a regular
employee, under Section 6, Rule I of the Implementing Rules of Book VI of the Labor Code which reads:
SEC. 6. Probationary employment. There is probationary employment where the employee, upon his
engagement, is made to undergo a trial period during which the employer determines his fitness to
qualify for regular employment, based on reasonable standards made known to him at the time of
engagement.
Probationary employment shall be governed by the following rules:
xxx
(d) In all cases of probationary employment, the employer shall make known to the
employee the standards under which he will qualify as a regular employee at the time of his
engagement. Where no standards are made known to the employee at that time, he shall be deemed
a regular employee (Emphasis and underscoring supplied),
she was deemed to have been hired from day one as a regular employee.[30]
CLARION, however, failed to comply with the notice requirement provided for in Article 283 of the Labor
Code, to wit:
ART. 283. CLOSURE OF ESTABLISHMENT AND REDUCTION OF PERSONNEL. The employer may also
terminate the employment of any employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establishment
or undertaking unless the closing is for the purpose of circumventing the provisions of this Title, by
serving a written notice on the worker and the Ministry of Labor and Employment at least
one (1) month before the intended date thereof. x x x (Emphasis and underscoring supplied)
This Court thus deems it proper to award the amount equivalent to Miclats one (1) month salary
of P6,500.00 as nominal damages to deter employers from future violations of the statutory due process
rights of employees.[31]
Since Article 283 of the Labor Code also provides that [i]n case of retrenchment to prevent losses, . . .
the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for
every year of service, whichever is higher. . . , [a] fraction of at least six (6) months [being]

considered one (1) whole year, this Court holds that Miclat is entitled to separation pay equivalent to
one (1) month salary.
As to Miclats entitlement to 13th month pay, paragraph 6 of the Revised Guidelines on the 13 th Month
Pay Law provides:
6. 13th Month Pay of Resigned or Separated Employee
An employee x x x whose services were terminated any time before the time for payment of the
13th month pay is entitled to this monetary benefit in proportion to the length of time he worked during
the calendar year up to the time of his resignation or termination from the service. Thus if he worked
only from January up to September his proportionate 13 th month pay shall be equivalent to 1/12 of his
total basic salary he earned during that period.

xxx
Having worked at CLARION for six months, Miclats 13th month pay should be computed as follows:
(Monthly Salary x 6 ) / 12 = Proportionate 13 th month pay
(P6,500.00 x 6) / 12 = P3,250.00
With the appointment of a management receiver in September 1997, however, all claims and
proceedings against CLARION, including labor claims,[32] were deemed suspended during the existence
of the receivership.[33] The labor arbiter, the NLRC, as well as the CA should not have proceeded to
resolve respondents complaint for illegal dismissal and should instead have directed respondent to lodge
her claim before the then duly-appointed receiver of CLARION. To still require respondent, however, at
this time to refile her labor claim against CLARION under the peculiar circumstances of the case that 8
years have lapsed since her termination and that all the arguments and defenses of both parties were

already ventilated before the labor arbiter, NLRC and the CA; and that CLARION is already in the course
of liquidation this Court deems it most expedient and advantageous for both parties that CLARIONs
liability be determined with finality, instead of still requiring respondent to lodge her claim at this time
before the liquidators of CLARION which would just entail a mere reiteration of what has been already
argued and pleaded. Furthermore, it would be in the best interest of the other creditors of CLARION
that claims against the company be finally settled and determined so as to further expedite the
liquidation proceedings. For the lesser number of claims to be proved, the sooner the claims of all
creditors of CLARION are processed and settled.
WHEREFORE, the Court of Appeals November 24, 2000 Decision, together with its May 23, 2001
Resolution, is SET ASIDE and another rendered declaring the legality of the dismissal of respondent,
Michelle Miclat. Petitioners are ORDERED, however, to PAY her the following in accordance with the
foregoing discussions:
1) P6,500.00 as nominal damages for non-compliance with statutory due process;
2) P6,500.00 as separation pay; and
3) P3,250.00 as 13th month pay.

Let a copy of this Decision be furnished the SEC Hearing Panel charged with the liquidation and
dissolution of petitioner corporation for inclusion, in the list of claims of its creditors, respondent Michelle
Miclats claims, to be satisfied in accordance with Article 110 of the Labor Code in relation to the Civil
Code provisions on Concurrence and Preference of Credits.
Costs against petitioners.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.

[26] Now amended by the Securities Regulation Code (SRC) which took effect on August 8, 2000. Sec. 5.2 of the SRC provides that the SECs jurisdiction over all cases enumerated under Section 5 of PD 902-A is
transferred to the appropriate Regional Trial Court but shall retain jurisdiction over pending suspension of payments/ rehabilitation cases filed as of June 30, 2000 until finally disposed.
[27] Sec. 3 of PD 902-A provides that the SEC shall have absolute jurisdiction, supervision and control over all corporations, partnerships or associations, who are the grantees of primary franchises and/ or license or
permit issued by the government to operate in the Philippines; x x x. The SRC retained said power of the SEC over corporations. Paragraph (a) of Sec. 5 of said law provides that the SEC has jurisdiction and supervision
over all corporations, partnerships or associations who are the grantees of primary franchises and/ or license or permit issued by the Government.
[33] Pres. Decree No. 902-A (1976), sec. 6.
On , Rubberworld went on appeal to the NLRC, postingtherefor a temporary appeal bond in the amount
FIRST DIVISION
of P500,000.00 as tentatively fixed by the Labor Arbiter. Meanwhile, on , Ricardo Atienza of
LINGKOD MANGGAGAWA SA RUBBERWORLD, ADIDAS-ANGLO, its officers G.R. No. 153882
the NLRCs Research and Information Unit submitted his report on the computation of the monetary
and members as represented by SONIA ESPERANZA,
Present:
awards, as ordered by the Labor Arbiter. He came out with the total amount of Twenty Seven Million
Petitioners,
PUNO, C.J., Chairperson, Five Hundred Six Thousandand Two Hundred Fifty-Five Pesos and 70/100 (P27,506,255.70).
- versus SANDOVAL-GUTIERREZ,
DespiteRubberworlds vigorous opposition, the First Division of the NLRC, in itsOrder[6] of , required
RUBBERWORLD (PHILS.) INC. and ANTONIO YANG, LAYA MANANGHAYA ,
the corporation to post an appeal bond in an amount equivalent to Mr. Atienzas
SALGADO & CO., CPAs (In its capacity as liquidator of Rubberworld (Phils., AZCUNA, and
computation, with a warning that failure to do so shall result in the dismissal of its appeal for nonInc.),
GARCIA, JJ.
perfection, thus:
Respondents.
Promulgated:
Accordingly, respondents-appellants are hereby directed to upgrade or complete their Appeal Bond in
x------------------------------------------------------------------------------------------x
the amount equivalent to Twenty Seven Million Five Hundred Six Thousand Two Hundred Fifty-Five
DECISION
Pesos and 70/100 (P27,506,255.70) pursuant to the award as computed by Ricardo O. Atienza within
GARCIA, J.:
ten (10) days from receipt of this Order.
Assailed and sought to be set aside in this petition for review under Rule 45 of the Rules of Court is the
Failure of the respondents-appellants to comply with this directive will give this Commission no choice
Decision[1] dated January 18, 2002 of the Court of Appeals (CA) in CA-G.R. SP No. 53356, as reiterated
but to dismiss their appeal for non-perfection thereof.
in its Resolution[2] of June 5, 2002, denying the petitioners motion for reconsideration. The assailed CA
Its motion for reconsideration of the same Order having been denied by the NLRC in
decision annulled and set aside an earlier decision of the Labor Arbiter, as well as the
its Resolution[7] of March 29, 1996, Rubberworld directly went to this Court on a Petition for Certiorari,
resolution/order and writ of execution issued by the National Labor RelationsCommission (NLRC) in a
[8] interposing the sole issue of whether or not the NLRC acted without or in excess of jurisdiction or
labor dispute between the petitioners and the respondents over which a suspension order had been
with grave abuse of discretion amounting to lack or excess of jurisdiction in requiring the corporationto
issued by the Securities and Exchange Commission (SEC).
post the upgraded appeal bond of P27,506,255.70 based on the computation ofMr. Atienza.
Petitioner Lingkod Manggagawa sa Rubberworld, Adidas-Anglo is a legitimate labor union whose
Meanwhile, on account of Rubberworlds failure to upgrade or complete its appeal bond as indicated
members were employees of the principal respondent,Rubberworld Philippines, Inc.(Rubberworld, for
in the NLRCs January 22, 1996 Order, the Commission, in a decision[9] dated June 28, 1996, did dismiss
short), a domestic corporation engaged in the manufacture of footwear, bags and garments.
Rubberworlds appeal. Owing to this development, Rubberworld filed with the Court a Supplemental
The facts:
Petition forCertiorari,[10] therein incorporating its challenge to the said dismissal order of the NLRC,
On , Rubberworld filed with the Department of Labor and Employment (DOLE) a Notice of Temporary
contending that the labor tribunal acted without or in excess of jurisdiction.
Partial Shutdown due to severe financial crisis, therein announcing the formal actual company shutdown
On , the SEC issued an Order[11] declaring Rubberworld as dissolved and lifting its earlier suspension
to take effect on . A copy of said notice was served on therecognized labor union of
order, to wit:
Rubberworld, the Bisig Pagkakaisa-NAFLU, the unionwith which the corporation had a collective
Finding that the continuance in business [of Rubberworld] would neither be feasible/profitable nor work
bargaining agreement.
to the best of interest of the stockholders, parties-litigants, creditors, or the general
On , Bisig Pagkakaisa-NAFLU staged a strike. It set up a picket line in front of the premises of
public, xxx Rubberworld Philippines, Inc. is hereby DISSOLVED under Section 6(d) of P.D. 902Rubberworld and even welded its gate. As a result, Rubberworld's premises closed prematurely even
A. Accordingly, the suspension Order is LIFTED.
before the date set for thestart of its temporary partial shutdown.
The Laya Mananghaya Salgado & Co., CPAs is hereby appointed as liquidator to effect the dissolution of
On September 9, 1994, herein petitioner union, the Lingkod Manggagawa Sa Rubberworld, Adidasthe petitioner.
Anglo (Lingkod, for brevity), represented by its President, Sonia Esperanza, filed a complaint against
SO ORDERED.
Rubberworld and its Vice Chairperson, Mr. Antonio Yang, for unfair labor practice (ULP), illegal
On , a writ of execution[12] was issued by the NLRC in favor ofthe petitioner union with a copy
shutdown, and non-payment of salaries and separation pay. In its complaint,docketed as NLRC-NCRthereof served on the respondent corporation.Faced with this dilemma, Rubberworld filed with the
Case No. 00-09-06637 (hereinafter referred to as ULP Case, for brevity), petitioner union alleged that it
Court an Urgent Omnibus Motion to declare null and void the execution/garnishment made pursuant to
had filed a petition forcertification election during the freedom period, which petition was granted by the
the same writ. The motion, however, was denied by the Court in its Resolution of.
DOLE Regional Director. In the same complaint, petitioner union claimedthat the strike staged by Bisig
On , Rubberworld filed with the Court a Motion to Admit its Amended Petition for Certiorari[13] and its
Pagkakaisa-NAFLU was company-instigated/supported. The said complaint was referred to Labor Arbiter
Supplement,[14] alleging therein thatpursuant to the SEC Order dated , supra, the proceedings before
Ernesto Dinopol for appropriate action.
the Labor Arbiter should have been suspended. Hence, since the Labor Arbiter disregarded
On , while the aforementioned complaint was pending with Labor Arbiter Dinopol, Rubberworld
the SECs suspension order, the subsequent proceedingsbefore it were null and void.
filed with the SEC a Petition for Declaration of a State of Suspension of Payments with Proposed
Consistent with its ruling in St. Martin Funeral Homes v. NLRC,[15] the Court, in its Resolution of ,
Rehabilitation Plan. The petition, docketed as SEC Case No. 11-94-4920, was granted by the
referred Rubberworlds amended petition for certiorari and its supplement to the CA for appropriate
SEC in its Order[3] dated , to wit:
action, whereat it was docketed as G.R. SP No. 53356.
Accordingly, with the creation of the Management Committee, all actions for claims against Rubberworld
For its part, the CA, in its Resolution[16] of , over the vehement opposition of the petitioner union,
Philippines, Inc. pending before any court, tribunal, office, board, body, Commission or sheriff are
resolved to admit Rubberworldsaforementioned amended petition and the supplement thereto in the
hereby deemed SUSPENDED.
interest of justice.
Consequently, all pending incidents for preliminary injunctions, writ of attachments, foreclosures and the
Eventually, in the herein assailed Decision[17] dated January 18, 2002, the CA
like are hereby rendered moot and academic.
granted Rubberworlds petition in CAG.R. SP. No. 53356 on the finding that theLabor Arbiter had indeed
SO ORDERED.
committed grave abuse of discretion when it proceeded with the ULP case despite the SECs suspension
Notwithstanding the SEC's aforementioned suspension order and despiteRubberworld's submission
order of December 28, 1994, andaccordingly declared the proceedings before it, including the
on of a Motion to Suspend Proceedings,[4] Labor Arbiter Dinopol went ahead with the ULP case and
subsequent orders by the NLRC dismissing Rubberworlds appeal and the writ of execution, null and void.
rendered his decision[5] thereon on , saying in part, thus:
With their motion for reconsideration having been denied in the CA in itsResolution[18] of , petitioners
x x x [I]t is crystal clear that the SEC Order notwithstanding, Labor Arbiters and the National Labor
are now with the Court via the instant recourse, raising the following issues:
Relations Commission should not abdicate the jurisdiction which Article 217 of the Labor Code has
1) Whether the CA had committed grave abuse of discretion amounting to lack of jurisdiction or an
conferred upon them subject to the condition that awards, if any, should be presented to the
excess in the exercise thereof when it gave due course to the petition filed by Rubberworld (Phils.), Inc.
Management Committee for processing and payment,
and annulled and set aside the decisions rendered by the labor arbiter a quo and the NLRC, when the
and disposing as follows:
said decisions had become final and executory warranting the outright dismissal of the aforesaid
WHEREFORE, decision is hereby rendered:
petition;
1)
denying respondents motion to suspend proceedings;
2) Whether the CA had committed grave abuse of discretion and reversible error when it applied Section
2)
declaring respondent Rubberworld Phils., Inc. to have committed unfair labor practice;
5(d) and Section 6 (c) of P.D. No. 902-A, as amended, to the case at bar;
3)
declaring the temporary shutdown to have been officially ended as of ;
3) Whether the CA had committed reversible error when it adopted and applied the rulings in the cases
4)
ordering respondent Rubberworld Phils., Inc. to reinstate complainant-Union's members
of Rubberworld (Phils.), Inc., or Julie Yap Ong v. NLRC, Marilyn F. Arellano, et. al.[19] and Rubberworld
who indicate their intention to be so reinstated within one month from the receipt of this decision by
(Phils.), Inc. and Julie Y. Ong v. NLRC, Aquino Magsalin, et. al.[20] to the case at bar.
complainants' counsel;
We DENY.
5)
ordering respondent Rubberworld Phils., Inc. to pay the members of the complainantIt is the petitioners submission that the decision of the Labor Arbiter, theaffirmatory decision of the
Union their backwages computed from and separation pay if reinstatement is no longer possible plus
NLRC and the latters dismissal of Rubberworlds appeal, as well the writ of execution subsequently
10% of the total award of attorney's.
issued, can no longer be annulled and set aside, the same having all become final and
For purposes of quantifying the backwages and separation pay, and identifying the recipients thereof,
executory.Additionally, petitioners argue that no appeal from the decision of the Labor Arbiter was ever
Mr. Ricardo Atienza of the Research and Information Unit of this Commission is hereby directed to
perfected due to Rubberworld's failure to upgrade or post additional bond as ordered by the NLRC.
proceed to the office of the respondent Rubberworld whose responsible officers are ordered to allow Mr.
Hence, they submit that the CA acted in grave abuse of discretion in even giving due course
Atienza or his representative access to such records as may be necessary and render a report thereon
to Rubberworlds petition inCA-G.R. SP No. 53356, let alone rendering a decision thereon annulling and
within 30 days from his receipt of this Decision.
setting aside the proceedings before the Labor Arbiter and the NLRCs dismissal
For purposes of any appeal, the appeal bond is tentatively set at P500,000.00.
of Rubberworlds appeal and the writ of execution issued following the dismissal of said appeal.
SO ORDERED.
The Court disagrees.

While posting an appeal bond is indeed a requirement for the perfection of an appeal from the decision
of the Labor Arbiter to the NLRC, Rubberworlds failure to upgrade its appeal bond cannot bar, in this
particular instance, the review by the CA of the lower court proceedings.
Given the factual milieu obtaining in this case, it cannot be said that the decisionof the Labor Arbiter, or
the decision/dismissal order and writ of execution issued by the NLRC, could ever attain final and
executory status. The Labor Arbiter completely disregarded and violated Section 6(c) of Presidential
Decree 902-A,as amended, which categorically mandates the suspension of all actions for claims against
a corporation placed under a management committee by the SEC. Thus, the proceedings before
the Labor Arbiter and the order and writsubsequently issued by the NLRC are all null and void for having
been undertaken or issued in violation of the SEC suspension Order dated . As such, the Labor
Arbiters decision, including the dismissal by the NLRC of Rubberworls appeal, could not have achieved
a final and executory status.
Acts executed against the provisions of mandatory or prohibitory laws shall be void, except when the
law itself authorizes their validity.[21] The Labor Arbiter's decision in this case is void ab initio, and
therefore, non-existent.[22] A void judgment is in effect no judgment at all. No rights are divested by it
nor obtained from it. Being worthless in itself, all proceedings upon which the judgment isfounded are
equally worthless. It neither binds nor bars anyone. All acts performed under it and all claims flowing
out of it are void.[23] In other words, a void judgment is regarded as a nullity, and the situation is the
same as it would be if there were no judgment. It accordingly leaves the party-litigants in the same
position they were in before the trial.[24]
In fact, it is immaterial whether an appeal from the Labor Arbiter's decision was perfected or not, since
a judgment void ab initio is non-existent and cannot acquire finality.[25] The judgment is vulnerable to
attack even when no appeal has been taken. Hence, such judgment does not become final in the sense
of depriving a party of his right to question its validity.[26] Hence, no grave abuse of discretion attended
the CA's taking cognizance of the petition in CA-G.R. SP No. 53356.
Besides, the Labor Arbiter, by simultaneously ruling in his decision of on both the merits of
the ULP case and the motion of Rubberworld to suspend the proceedings thereon, effectively required
the respondent corporationto post a surety bond before the same respondent could have questioned the
arbiters action in not suspending the proceedings before him. A bond is only mandatory from an appeal
of the decision itself on the merits ofthe laborers' money claims to ensure payment thereof. Had
the Labor Arbiter taken heed of Rubberworlds motion to suspend proceedings when that motionwas
filed, and ruled upon it separately, no bond would have been required for areview
of his resolution thereon. As it were, the Labor Arbiter chose to continue to decide the main case,
then to incorporate in his decision the denial ofRubberworlds motion to suspend
proceedings, thereby effectively requiring a bond on a question which would not have ordinarily required
one.
We shall now address the more substantial issue in this case, namely, the applicability of the provisions
of Section 5 (d) and Section 6 (c) of P.D. No. 902-A, as amended, reorganizing the SEC, vesting it with
additional powers and placing it under the Office of the President, which respectively read:
Section 5. In addition to the regulatory 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:
xxx xxx xxx
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 sufficient property to
cover all 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 of a rehabilitation receiver or management committee created pursuant to
this Decree.
Section 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following
powers:
xxx xxx xxx
c) To appoint one or more receivers of the property, real or personal, which is the subject of the action
pending before the Commission in accordance with the pertinent provisions of the Rules of Court in such
other cases whenever necessary in order to preserve the rights of the parties-litigants and/or protect the
interest of the investing public and creditors: x x x Provided, finally, That upon appointment of a
management committee, the rehabilitation receiver, board or body, pursuant to this
Decree, all actions for claims against corporations, partnerships, or associations under
management or receivership pending before any court, tribunal, board or body shall be
suspended accordingly.[Emphasis supplied]
As correctly ruled by the CA, the issue of applicability in labor cases of theaforequoted provisions of PD
902-A, as amended, had already been resolved by this Court in its earlier decisions in Rubberworld
(Phils.), Inc., or Julie Yap Ong v. NLRC, Marilyn F. Arellano, et. al.[27] and Rubberworld (Phils.), Inc.
and Julie Y. Ong v. NLRC, Aquino, Magsalin, et. al,[28] supra.
In the first Rubberworld case, the Court upheld the applicability of PD 902-A to labor cases pursuant to
Section 5(d) and Section 6(c) thereof, with the following pronouncements:
It is plain from the foregoing provisions of the law that upon the appointment [by the SEC] of a
management committee or a rehabilitation receiver, all actions for claims against the corporation
pending before any court, tribunal or board shall ipso jure be suspended. The justification for the
automatic stay of all pending actions for claims is to enable the management committee or the
rehabilitation receiver to effectively exercise its/his powers free from any judicial or extra-judicial
interference that might unduly hinder or prevent the rescue of the debtor company. To allow such other
actions to continue would only add to the burden of the management committee or rehabilitation
receiver, whose time, effort and resources would be wasted in defending claims against the corporation
instead of being directed toward its restructuring and rehabilitation.[29]
xxx xxx xxx
x x x The law is clear: upon the creation of a management committee or the appointment of
a rehabilitation receiver, all claims for actions shall be suspended accordingly. No exception
in favor of labor claims is mentioned in the law. Since the law makes no distinction or
exemptions, neither should this Court. Ubi lex non distinguit nec nos distinguere
debemos. Allowing labor cases to proceed clearly defeats the purpose of the automatic stay and
severely encumbers the management committee's time and resources. The said committee would need
to defend against these suits, to the detriment of its primary and urgent duty to work towards
rehabilitating the corporation and making it viable again. To rule otherwise would open the floodgates to
other similarly situated claimants and forestall if not defeat the rescue efforts. Besides, even if the NLRC
awards the claims of private respondents, its ruling could not be enforced as long as the petitioner is
under the management committee.[30]
In Chua v. National Labor Relations Commission, we ruled that labor claims cannot proceed
independently of a bankruptcy liquidation proceeding, since these claims would spawn needless
controversy, delays, and confusion.[31]With more reason, allowing labor claims to continue in spite of a
SEC suspension order in a rehabilitation case would merely lead to such results.
xxx xxx xxx
Article 217 of the Labor Code should be construed not in isolation but in harmony with PD 902-A,
according to the basic rule in statutory construction that implied repeals are not favored.[32] Indeed, it
is axiomatic that each and every statute must be construed in a way that would avoid conflict with
existing laws. True, the NLRC has the power to hear and decide labor disputes, but such
authority is deemed suspended when PD 902-A is put into effect by the Securities and
Exchange Commission. [Emphasis supplied]
The second Rubberworld case reiterates the above pronouncements of the Court:
Presidential Decree No. 902-A is clear that all actions for claims against corporations, partnerships or
associations under management or receivership pending before any court, tribunal, board or body shall
be suspended accordingly. The law did not make any exception in favor of labor claims.
xxx xxx xxx
Thus, when NLRC proceeded to decide the case despite the SEC suspension order, the NLRC
acted without or in excess of its jurisdiction to hear and decide cases. As a consequence,

any resolution, decision or order that it rendered or issued without jurisdiction is a


nullity. [Emphasis supplied]
Petitioners argue, however, that the doctrines laid down in the two aforecitedcases cannot be made to
apply to the instant controversy because the SEC ordertherein only mandates that all pending cases
against Rubberworld Philippines, Inc. should be deemed suspended. Petitioners contend that the
decision of theLabor Arbiter in the present case, as well the order of dismissal and writ of execution
issued by NLRC, have become final and executory by reason ofRubberworlds failure to perfect its appeal
by not upgrading or completing the required cash or surety bond as ordained by the
NLRC. Petitioners thus conclude that the doctrine of stare decisis cannot apply to the instant case.
Petitioners are in error.
It is incontrovertible that the denial of Rubberworlds motion to suspend proceedings in the principal
case was incorporated in the decision of the LaborArbiter. Obviously, then, the Labor Arbiters decision
of wasrendered at a time when Lingkods complaint against Rubberworld in NLRC-NCR-Case No. 00-0906637-94 ought to have been suspended.
In short, at the time the SEC issued its suspension Order of , the proceedings before the Labor Arbiter
were still very much pending. As such,no final and executory decision could have validly
emanated therefrom. Like the CA, we do not see any reason why the doctrine of stare decisis will not
apply to this case.
For being well-grounded in fact and law, the assailed CA decision and resolutionin CA-G.R. SP No.
53356 cannot be said to have been tainted with grave abuse of discretion or issued in excess or want of
jurisdiction. We find no reason to overturn such rulings.
WHEREFORE, the instant petition is DENIED and the assailed decision and resolution of
the CA are AFFIRMED.
Costs against the petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 164856
August 29, 2007
JUANITO A. GARCIA and ALBERTO J. DUMAGO, Petitioners,
vs.
PHILIPPINE AIRLINES, INC., Respondent.
DECISION
QUISUMBING, J.:
This petition for review assails both the Decision1 dated December 5, 2003 and the Resolution2 dated
April 16, 2004 of the Court of Appeals in CA-G.R. SP No. 69540, which had annulled the
Resolutions3 dated November 26, 2001 and January 28, 2002 of the National Labor Relations
Commission (NLRC) in NLRC Injunction Case No. 0001038-01, and also denied the motion for
reconsideration, respectively.
The antecedent facts of the case are as follows:
Petitioners Alberto J. Dumago and Juanito A. Garcia were employed by respondent Philippine Airlines,
Inc. (PAL) as Aircraft Furnishers Master "C" and Aircraft Inspector, respectively. They were assigned in
the PAL Technical Center.
On July 24, 1995, a combined team of the PAL Security and National Bureau of Investigation (NBI)
Narcotics Operatives raided the Toolroom Section Plant Equipment Maintenance Division (PEMD) of the
PAL Technical Center. They found petitioners, with four others, near the said section at that time. When
the PAL Security searched the section, they found shabu paraphernalia inside the company-issued locker
of Ronaldo Broas who was also within the vicinity. The six employees were later brought to the NBI for
booking and proper investigation.
On July 26, 1995, a Notice of Administrative Charge 4 was served on petitioners. They were allegedly
"caught in the act of sniffing shabu inside the Toolroom Section," then placed under preventive
suspension and required to submit their written explanation within ten days from receipt of the notice.
Petitioners vehemently denied the allegations and challenged PAL to show proof that they were indeed
"caught in the act of sniffing shabu." Dumago claimed that he was in the Toolroom Section to request
for an allen wrench to fix the needles of the sewing and zigzagger machines. Garcia averred he was in
the Toolroom Section to inquire where he could take the Tracksters tire for vulcanizing.
On October 9, 1995, petitioners were dismissed for violation of Chapter II, Section 6, Article 46
(Violation of Law/Government Regulations) and Chapter II, Section 6, Article 48 (Prohibited Drugs) of
the PAL Code of Discipline.5 Both simultaneously filed a case for illegal dismissal and damages.
In the meantime, the Securities and Exchange Commission (SEC) placed PAL under an Interim
Rehabilitation Receiver due to severe financial losses.
On January 11, 1999, the Labor Arbiter rendered a decision6 in petitioners favor:
WHEREFORE, conformably with the foregoing, judgment is hereby rendered finding the respondents
guilty of illegal suspension and illegal dismissal and ordering them to reinstate complainants to their
former position without loss of seniority rights and other privileges. Respondents are hereby further
ordered to pay jointly and severally unto the complainants the following:
Alberto J. Dumago - P409,500.00 backwages as of 1/10/99
34,125.00 for 13th month pay
Juanito A. Garcia - P1,290,744.00 backwages as of 1/10/99
107,562.00 for 13th month pay
The amounts of P100,000.00 and P50,000.00 to each complainant as and by way of moral and
exemplary damages; and
The sum equivalent to ten percent (10%) of the total award as and for attorneys fees.
Respondents are directed to immediately comply with the reinstatement aspect of this Decision.
However, in the event that reinstatement is no longer feasible, respondent[s] are hereby ordered, in lieu
thereof, to pay unto the complainants their separation pay computed at one month for [e]very year of
service.
SO ORDERED.7
Meanwhile, the SEC replaced the Interim Rehabilitation Receiver with a Permanent Rehabilitation
Receiver.
On appeal, the NLRC reversed the Labor Arbiters decision and dismissed the case for lack of
merit.8Reconsideration having been denied, an Entry of Judgment9 was issued on July 13, 2000.
On October 5, 2000, the Labor Arbiter issued a Writ of Execution10 commanding the sheriff to proceed:
xxxx
1. To the Office of respondent PAL Building I, Legaspi St., Legaspi Village, Makati City or to any of its
Offices in the Philippines and cause reinstatement of complainants to their former position and to cause
the collection of the amount of [P]549,309.60 from respondent PAL representing the backwages of said
complainants on the reinstatement aspect;
2. In case you cannot collect from respondent PAL for any reason, you shall levy on the office
equipment and other movables and garnish its deposits with any bank in the Philippines, subject to the
limitation that equivalent amount of such levied movables and/or the amount garnished in your own
judgment, shall be equivalent to [P]549,309.60. If still insufficient, levy against immovable properties of
PAL not otherwise exempt from execution.
x x x x11
Although PAL filed an Urgent Motion to Quash Writ of Execution, the Labor Arbiter issued a Notice of
Garnishment12 addressed to the President/Manager of the Allied Bank Head Office in Makati City for the
amount ofP549,309.60.
PAL moved to lift the Notice of Garnishment while petitioners moved for the release of the garnished
amount. PAL opposed petitioners motion. It also filed an Urgent Petition for Injunction which the NLRC
resolved as follows:
WHEREFORE, premises considered, the Petition is partially GRANTED. Accordingly, the Writ of Execution
dated October 5, 2000 and related [N]otice of Garnishment [dated October 25, 2000] are DECLARED

valid. However, the instant action is SUSPENDED and REFERRED to the Receiver of Petitioner PAL for
appropriate action.
SO ORDERED.13
PAL appealed to the Court of Appeals on the grounds that: (1) by declaring the writ of execution and
the notice of garnishment valid, the NLRC gave petitioners undue advantage and preference over PALs
other creditors and hampered the task of the Permanent Rehabilitation Receiver; and (2) there was no
longer any legal or factual basis to reinstate petitioners as a result of the reversal by the NLRC of the
Labor Arbiters decision.
The appellate court ruled that the Labor Arbiter issued the writ of execution and the notice of
garnishment without jurisdiction. Hence, the NLRC erred in upholding its validity. Since PAL was under
receivership, it could not have possibly reinstated petitioners due to retrenchment and cash-flow
constraints. The appellate court declared that a stay of execution may be warranted by the fact that PAL
was under rehabilitation receivership. The dispositive portion of the decision reads:
WHEREFORE, premises considered and in view of the foregoing, the instant petition is hereby GIVEN
DUE COURSE. The assailed November 26, 2001 Resolution, as well as the January 28, 2002 Resolution
of public respondent National Labor Relations Commission is hereby ANNULLED and SET ASIDE for
having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction.
Consequently, the Writ of Execution and the Notice of Garnishment issued by the Labor Arbiter are
hereby likewise ANNULLED and SET ASIDE.
SO ORDERED.14
Hence, the instant petition raising a single issue as follows:
WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS ARE
ENTITLED TO THEIR ACCRUED WAGES DURING THE PENDENCY OF PALS APPEAL.15
Simply put, however, there are really two issues for our consideration: (1) Are petitioners entitled to
their wages during the pendency of PALs appeal to the NLRC? and (2) In the light of new developments
concerning PALs rehabilitation, are petitioners entitled to execution of the Labor Arbiters order of
reinstatement even if PAL is under receivership?
We shall first resolve the issue of whether the execution of the Labor Arbiters order is legally possible
even if PAL is under receivership.
We note that during the pendency of this case, PAL was placed by the SEC first, under an Interim
Rehabilitation Receiver and finally, under a Permanent Rehabilitation Receiver. The pertinent law on this
matter, Section 5(d) of Presidential Decree (P.D.) No. 902-A, as amended, provides that:
SECTION 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:
xxxx
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 of a rehabilitation receiver or] Management Committee created pursuant to this
Decree.
The same P.D., in Section 6(c) provides that:
SECTION 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following
powers:
xxxx
c) To appoint one or more receivers of the property, real or personal, which is the subject of the action
pending before the Commission in accordance with the pertinent provisions of the Rules of Court in such
other cases whenever necessary in order to preserve the rights of the parties-litigants and/or protect the
interest of the investing public and creditors: Provided, finally, That upon appointment of a
management committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for
claims against corporations, partnerships or associations under management or receivership pending
before any court, tribunal, board or body shall be suspended accordingly.
xxxx
Worth stressing, upon appointment by the SEC of a rehabilitation receiver, all actions for claims against
the corporation pending before any court, tribunal or board shall ipso jure be suspended. The purpose
of the automatic stay of all pending actions for claims is to enable the rehabilitation receiver to
effectively exercise its/his powers free from any judicial or extra-judicial interference that might unduly
hinder or prevent the rescue of the corporation.16
More importantly, the suspension of all actions for claims against the corporation embraces all phases of
the suit, be it before the trial court or any tribunal or before this Court.17 No other action may be taken,
including the rendition of judgment during the state of suspension. It must be stressed that what are
automatically stayed or suspended are the proceedings of a suit and not just the payment of claims
during the execution stage after the case had become final and executory.18
Furthermore, the actions that are suspended cover all claims against the corporation whether for
damages founded on a breach of contract of carriage, labor cases, collection suits or any other claims of
a pecuniary nature.19 No exception in favor of labor claims is mentioned in the law.201avvphi1
This Courts adherence to the above-stated rule has been resolute and steadfast as evidenced by its oftrepeated application in a plethora of cases involving PAL, the most recent of which is Philippine Airlines,
Inc. v. Zamora.21
Since petitioners claim against PAL is a money claim for their wages during the pendency of PALs
appeal to the NLRC, the same should have been suspended pending the rehabilitation proceedings. The
Labor Arbiter, the NLRC, as well as the Court of Appeals should have abstained from resolving
petitioners case for illegal dismissal and should instead have directed them to lodge their claim before
PALs receiver.22
However, to still require petitioners at this time to re-file their labor claim against PAL under the peculiar
circumstances of the case that their dismissal was eventually held valid with only the matter of
reinstatement pending appeal being the issue this Court deems it legally expedient to suspend the
proceedings in this case.
WHEREFORE, the instant petition is PARTIALLY GRANTED in that the instant proceedings herein are
SUSPENDED until further notice from this Court . Accordingly, respondent Philippine Airlines, Inc. is
herebyDIRECTED to quarterly update the Court as to the status of its ongoing rehabilitation. No costs.
SO ORDERED.
FIRST DIVISION
SPOUSES EDUARDO G.R. No. 165675
SOBREJUANITE and
FIDELA SOBREJUANITE, Present:
Petitioners,
Davide, Jr., C.J. (Chairman),
Quisumbing,
- versus - Ynares-Santiago,
Carpio, and
Azcuna, JJ.
ASB DEVELOPMENT
CORPORATION, Promulgated:
Respondent.
September 30, 2005
x ---------------------------------------------------------------------------------------- x

DECISION

YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the June 29, 2004 Decision of the Court of Appeals in CAG.R. SP No. 79420 which reversed and set aside the Decision of the Office of the President; and its
October 18, 2004 Resolution denying reconsideration thereof.
The antecedent facts show that on March 7, 2001, spouses Eduardo and Fidela Sobrejuanite
(Sobrejuanite) filed a Complaint[1] for rescission of contract, refund of payments and damages, against
ASB Development Corporation (ASBDC) before the Housing and Land Use Regulatory Board (HLURB).
Sobrejuanite alleged that they entered into a Contract to Sell with ASBDC over a condominium unit and
a parking space in the BSA Twin Tower-B Condominum located at Bank Drive, Ortigas Center,
Mandaluyong City. They averred that despite full payment and demands, ASBDC failed to deliver the
property on or before December 1999 as agreed. They prayed for the rescission of the contract; refund
of payments amounting to P2,674,637.10; payment of moral and exemplary damages, attorneys fees,
litigation expenses, appearance fee and costs of the suit.
ASBDC filed a motion to dismiss or suspend proceedings in view of the approval by the Securities and
Exchange Commission (SEC) on April 26, 2001 of the rehabilitation plan of ASB Group of Companies,
which includes ASBDC, and the appointment of a rehabilitation receiver. The HLURB arbiter however
denied the motion and ordered the continuation of the proceedings.
The arbiter found that under the Contract to Sell, ASBDC should have delivered the property to
Sobrejuanite in December 1999; that the latter had fully paid their obligations except the P50,000.00
which should be paid upon completion of the construction; and that rescission of the contract with
damages is proper.
The dispositive portion of the Decision reads:
WHEREFORE, in view of the foregoing judgment is rendered ordering the rescission of the contracts to
sell between the parties, and further ordering the respondent [ASBDC] to pay the complainants
[Sobrejuanite] the following:
a) all amortization payments by the complainants amounting to P2,674,637.10 plus 12% interest from
the date of actual payment of each amortization;
b) moral damages amounting to P200,000.00;
c) exemplary damages amounting to P100,000.00;
d) attorneys fees amounting to P100,000.00;
e) litigation expenses amounting to P50,000.00.
All other claims and all counter-claims are hereby dismissed.
IT IS SO ORDERED.[2]
The HLURB Board of Commissioners[3] affirmed the ruling of the arbiter that the approval of the
rehabilitation plan and the appointment of a rehabilitation receiver by the SEC did not have the effect of
suspending the proceedings before the HLURB. The board held that the HLURB could properly take
cognizance of the case since whatever monetary award that may be granted by it will be ultimately filed
as a claim before the rehabilitation receiver. The board also found that ASBDC failed to deliver the
property to Sobrejuanite within the prescribed period. The dispositive portion of the Decision reads:
Wherefore the petition for review is denied and the decision of the office below is affirmed. It shall be
understood that all monetary awards shall still be filed as claims before the rehabilitation receiver.[4]
ASBDC filed an appeal[5] before the Office of the President which was dismissed[6] for lack of merit.
Hence, ASBDC filed a petition[7] under Section 1, Rule 43 of the Rules of Court before the Court of
Appeals, docketed as CA-G.R. SP No. 79420.
On June 29, 2004, the Court of Appeals rendered its assailed Decision,[8] the dispositive portion of
which reads:
WHEREFORE, premises considered, the instant petition is GRANTED. The impugned decision dated June
27, 2003 of the Office of the President is hereby REVERSED AND SET ASIDE. No pronouncement as to
costs.
SO ORDERED.[9]
The Court of Appeals held that the approval by the SEC of the rehabilitation plan and the appointment
of the receiver caused the suspension of the HLURB proceedings. The appellate court noted that
Sobrejuanites complaint for rescission and damages is a claim under the contemplation of Presidential
Decree (PD) No. 902-A or the SEC Reorganization Act and A.M. No. 00-8-10-SC or the Interim Rules of
Procedure on Corporate Rehabilitation, because it sought to enforce a pecuniary demand. Therefore,
jurisdiction lies with the SEC and not HLURB. It also ruled that ASBDC was obliged to deliver the
property in December 1999 but its financial reverses warranted the extension of the period.
Sobrejuanites motion for reconsideration was denied[10] hence the instant petition which raises the
following issues:
1. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION
IN RULING THAT THE SEC, NOT THE HLURB, HAS JURISDICTION OVER PETITIONERS COMPLAINT, IN
CONTRAVENTION TO LAW AND THE RULING OF THIS HONORABLE COURT IN THE ARRANZA CASE.
2. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION
WHEN IT RULED THAT THE APPROVAL OF THE CORPORATE REHABILITATION PLAN AND THE
APPOINTMENT OF A RECEIVER HAD THE EFFECT OF SUSPENDING THE PROCEEDING IN THE HLURB,
AND THAT THE MONETARY AWARD GIVEN BY THE HLURB COULD NOT [BE] FILED IN THE SEC FOR
PROPER DISPOSITION, NOT BEING IN ACCORDANCE WITH LAW AND JURISPRUDENCE.
3. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION
IN RULING THAT RESPONDENT IS JUSTIFIED IN EXTENDING THE AGREED DATE OF DELIVERY BY
INVOKING AS GROUND THE FINANCIAL CONSTRAINTS IT EXPERIENCED, BEING CONTRARY TO LAW
AND IN EEFECT AN UNLAWFUL NOVATION OF THE AGREEMENT OF THE DATE OF DELIVERY ENTERED
INTO BY PETITIONERS AND RESPONDENT.[11]
The petition lacks merit.
Section 6(c) of PD No. 902-A empowers the SEC:
c) To appoint one or more receivers of the property, real and personal, which is the subject of the action
pending before the Commission whenever necessary in order to preserve the rights of the partieslitigants and/or protect the interest of the investing public and creditors: Provided, finally, That upon
appointment of a management committee, rehabilitation receiver, board or body, pursuant to this
Decree, all actions for claims against corporations, partnerships or associations under
management or receivership pending before any court, tribunal, board or body shall be
suspended accordingly. [Emphasis added]

The purpose for the suspension of the proceedings is to prevent a creditor from obtaining an advantage
or preference over another and to protect and preserve the rights of party litigants as well as the
interest of the investing public or creditors.[12] Such suspension is intended to give enough breathing
space for the management committee or rehabilitation receiver to make the business viable again,
without having to divert attention and resources to litigations in various fora.[13] The suspension would
enable the management committee or rehabilitation receiver to effectively exercise its/his powers free
from any judicial or extra-judicial interference that might unduly hinder or prevent the rescue of the
debtor company. To allow such other action to continue would only add to the burden of the
management committee or rehabilitation receiver, whose time, effort and resources would be wasted in
defending claims against the corporation instead of being directed toward its restructuring and
rehabilitation.[14]
Thus, in order to resolve whether the proceedings before the HLURB should be suspended, it is
necessary to determine whether the complaint for rescission of contract with damages is a claim within
the contemplation of PD No. 902-A.
In Finasia Investments and Finance Corp. v. Court of Appeals,[15] we construedclaim to refer only to
debts or demands pecuniary in nature. Thus:
[T]he word claim as used in Sec. 6(c) of P.D. 902-A refers to debts or demands of a pecuniary nature. It
means the assertion of a right to have money paid. It is used in special proceedings like those before
administrative court, on insolvency.
The word claim is also defined as:
Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or right
to an equitable remedy for breach of performance if such breach gives rise to a right to payment,
whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, unsecured.
In conflicts of law, a receiver may be appointed in any state which has jurisdiction over the defendant
who owes a claim.
As used in statutes requiring the presentation of claims against a decedents estate, claim is generally
construed to mean debts or demands of a pecuniary nature which could have been enforced against the
deceased in his lifetime and could have been reduced to simple money judgments; and among these are
those founded upon contract.
In Arranza v. B.F. Homes, Inc.,[16] claim is defined as referring to actions involving monetary
considerations.

Finasia Investments and Finance Corp. v. Court of Appeals and Arranza v. B.F. Homes, Inc. were
promulgated prior to the effectivity of the Interim Rules of Procedure on Corporate Rehabilitation on
December 15, 2000. The interim rules define a claim as referring to all claims or demands, of whatever
nature or character against a debtor or its property, whether for money or otherwise. The definition is
all-encompassing as it refers to all actions whether for money or otherwise. There are no distinctions or
exemptions.
Incidentally, although the petition for rehabilitation with prayer for suspension of actions and
proceedings was filed before the SEC on May 2, 2000,[17] or prior to the effectivity of the interim rules,
the same would still apply pursuant to Section 1, Rule 1 thereof which provides:
Section 1. Scope These Rules shall apply to petitions for rehabilitation filed by corporations,
partnerships, and associations pursuant to Presidential Decree No. 902-A, as amended.
Clearly then, the complaint filed by Sobrejuanite is a claim as defined under theInterim Rules of
Procedure on Corporate Rehabilitation. Even under our rulings in Finasia Investments and Finance Corp.
v. Court of Appeals and Arranza v. B.F. Homes, Inc., the complaint for rescission with damages would fall
under the category of claim considering that it is for pecuniary considerations.
In their complaint, Sobrejuanite pray for the rescission of the contract and the refund of P2,674,637.10
representing their total payments to ASBDC; P200,000.00 as moral damages; P100,000.00 as exemplary
damages; P100,000.00 as attorneys fees; P50,000.00 as litigation expenses; P1,500.00 per hearing as
appearance fees; and costs of the suit.
In the decision of the HLURB arbiter, ASBDC was ordered to pay P2,674,637.10 plus 12% interest from
the date of actual payment of each amortization, representing the refund of all the amortization
payments made by Sobrejuanite; P200,000.00 as moral damages; P100,000.00 as exemplary damages;
P100,000.00 as attorneys fees; and P50,000.00 as litigation expenses.
As such, the HLURB arbiter should have suspended the proceedings upon the approval by the SEC of
the ASB Group of Companies rehabilitation plan and the appointment of its rehabilitation receiver. By the
suspension of the proceedings, the receiver is allowed to fully devote his time and efforts to the
rehabilitation and restructuring of the distressed corporation.
It is well to note that even the execution of final judgments may be held in abeyance when a
corporation is under rehabilitation.[18] Hence, there is more reason in the instant case for the HLURB
arbiter to order the suspension of the proceedings as the motion to suspend was filed soon after the
institution of the complaint. By allowing the proceedings to proceed, the HLURB arbiter unwittingly gave
undue preference to Sobrejuanite over the other creditors and claimants of ASBDC, which is precisely
the vice sought to be prevented by Section 6(c) of PD 902-A. Thus:
As between creditors, the key phrase is equality is equity. When a corporation threatened by bankruptcy
is taken over by a receiver, all the creditors should stand on equal footing. Not anyone of them should
be given any preference by paying one or some of them ahead of the others. This is precisely the
reason for the suspension of all pending claims against the corporation under receivership. Instead of
creditors vexing the courts with suits against the distressed firm, they are directed to file their claims
with the receiver who is a duly appointed officer of the SEC.[19]
Petitioners reliance on Arranza v. B.F. Homes, Inc.[20] is misplaced. In that case, we held that the
HLURB retained its jurisdiction despite the rehabilitation proceedings since the claim filed by the
homeowners did not involve pecuniary considerations. The claim therein was for specific performance to
enforce the homeowners rights as regards right of way, open spaces, road and perimeter wall repairs,
and security. However, it can also be deduced therefrom that if the claim was for monetary awards, the
proceedings before the HLURB should be suspended during the rehabilitation. Thus:
No violation of the SEC order suspending payments to creditors would result as far as petitioners
complaint before the HLURB is concerned. To reiterate, what petitioners seek to enforce are respondents
obligations as a subdivision developer. Such claims are basically not pecuniary in nature although it
could incidentally involve monetary considerations. All that petitioners claims entail is the exercise of
proper subdivision management on the part of the SEC-appointed Board of Receivers towards the end
that homeowners shall enjoy the ideal community living that respondent portrayed they would have
when they bought real estate from it.
Neither may petitioners be considered as having claims against respondent within the context of the
following proviso of Section 6 (c) of P.D. No. 902-A, to warrant suspension of the HLURB proceedings.

.
In this case, under the complaint for specific performance before the HLURB, petitioners do not aim to
enforce a pecuniary demand. Their claim for reimbursement should be viewed in the light of
respondents alleged failure to observe its statutory and contractual obligations to provide petitioners a
decent human settlement and ample opportunities for improving their quality of life. The HLURB, not the
SEC, is equipped with the expertise to deal with that matter.[21]
Finally, we agree with the Court of Appeals that under the Contract to Sell, ASBDC was obliged to deliver
the property to Sobrejuanite on or before December 1999. Nonetheless, the same was deemed
extended due to the financial reverses experienced by the company. Section 7 of the Contract to Sell
allows the developer to extend the period of delivery on account of causes beyond its control, such as
financial reverses.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated June 29,
2004 in CA-G.R. SP No. 79420 and its Resolution dated October 18, 2004, are AFFIRMED.
SO ORDERED.
EN BANC
[G.R. No. 74851. December 9, 1999]
RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. INTERMEDIATE APPELLATE
COURT AND BF HOMES, INC.,respondents.
RESOLUTION
MELO, J.:
On September 14, 1992, the Court passed upon the case at bar and rendered its decision, dismissing
the petition of Rizal Commercial Banking Corporation (RCBC), thereby affirming the decision of the Court
of Appeals which canceled the transfer certificate of title issued in favor of RCBC, and reinstating that of
respondent BF Homes.
This will now resolve petitioners motion for reconsideration which, although filed in 1992 was not
deemed submitted for resolution until in late 1998. The delay was occasioned by exchange of pleadings,
the submission of supplemental papers, withdrawal and change of lawyers, not to speak of the case
having been passed from one departing to another retiring justice. It was not until May 3, 1999, when
the case was re-raffled to herein ponente, but the record was given to him only sometime in the late
October 1999.
By way of review, the pertinent facts as stated in our decision are reproduced herein, to wit:
On September 28, 1984, BF Homes filed a Petition for Rehabilitation and for Declaration of Suspension
of Payments (SEC Case No. 002693) with the Securities and Exchange Commission (SEC).
One of the creditors listed in its inventory of creditors and liabilities was RCBC.
On October 26, 1984, RCBC requested the Provincial Sheriff of Rizal to extra-judicially foreclose its real
estate mortgage on some properties of BF Homes. A notice of extra-judicial foreclosure sale was issued
by the Sheriff on October 29, 1984, scheduled on November 29, 1984, copies furnished both BF Homes
(mortgagor) and RCBC (mortgagee).
On motion of BF Homes, the SEC issued on November 28, 1984 in SEC Case No. 002693 a temporary
restraining order (TRO), effective for 20 days, enjoining RCBC and the sheriff from proceeding with the
public auction sale. The sale was rescheduled to January 29, 1985.
On January 25, 1985, the SEC ordered the issuance of a writ of preliminary injunction upon petitioners
filing of a bond. However, petitioner did not file a bond until January 29, 1985, the very day of the
auction sale, so no writ of preliminary injunction was issued by the SEC. Presumably, unaware of the
filing of the bond, the sheriffs proceeded with the public auction sale on January 29, 1985, in which
RCBC was the highest bidder for the properties auctioned.
On February 5, 1985, BF Homes filed in the SEC a consolidated motion to annul the auction sale and to
cite RCBC and the sheriff for contempt. RCBC opposed the motion.
Because of the proceedings in the SEC, the sheriff withheld the delivery to RCBC of a certificate of sale
covering the auctioned properties.
On February 13, 1985, the SEC in Case No. 002693 belatedly issued a writ of preliminary injunction
stopping the auction sale which had been conducted by the sheriff two weeks earlier.
On March 13, 1985, despite SEC Case No. 002693, RCBC filed with the Regional Trial Court, Br. 140,
Rizal (CC 10042) an action for mandamus against the provincial sheriff of Rizal and his deputy to compel
them to execute in its favor a certificate of sale of the auctioned properties.
In answer, the sheriffs alleged that they proceeded with the auction sale on January 29, 1985 because
no writ of preliminary injunction had been issued by SEC as of that date, but they informed the SEC that
they would suspend the issuance of a certificate of sale to RCBC.
On March 18, 1985, the SEC appointed a Management Committee for BF Homes.
On RCBCs motion in the mandamus case, the trial court issued on May 8, 1985 a judgment on the
pleadings, the dispositive portion of which states:
WHEREFORE, petitioners Motion for Judgment on the pleadings is granted and judgement is hereby
rendered ordering respondents to execute and deliver to petitioner the Certificate of the Auction Sale of
January 29, 1985, involving the properties sold therein, more particularly those described in Annex C of
their Answer. (p. 87, Rollo.)
On June 4, 1985, B.F. Homes filed an original complaint with the IAC pursuant to Section 9 of B.P. 129
praying for the annulment of the judgment, premised on the following:
x x x: (1) even before RCBC asked the sheriff to extra-judicially foreclose its mortgage on petitioners
properties, the SEC had already assumed exclusive jurisdiction over those assets, and (2) that there was
extrinsic fraud in procuring the judgment because the petitioner was not impleaded as a party in the
mandamus case, respondent court did not acquire jurisdiction over it, and it was deprived of its right to
be heard. (CA Decision, p. 88, Rollo).
On April 8, 1986, the IAC rendered a decision, setting aside the decision of the trial court, dismissing the
mandamus case and suspending issuance to RCBC of new land titles, until the resolution of case by SEC
in Case No. 002693, disposing as follows:
WHEREFORE, the judgment dated May 8, 1985 in Civil Case No. 10042 is hereby annulled and set aside
and the case is hereby dismissed. In view of the admission of respondent Rizal Commercial Banking
Corporation that the sheriffs certificate of sale has been registered on BF Homes TCTs . . . (here the
TCTs were enumerated) the Register of Deeds for Pasay City is hereby ordered to suspend the issuance
to the mortgagee-purchaser, Rizal Commercial Banking Corporation, of the owners copies of the new
land titles replacing them until the matter shall have been resolved by the Securities and Exchange
Commission in SEC Case No. 002693.
(p. 257-260, Rollo; also pp. 832-834, 213 SCRA 830[1992]; Emphasis in the original.)
On June 18, 1986, RCBC appealed the decision of the then Intermediate Appellate Court (now, back to
its old revered name, the Court of Appeals) to this Court, arguing that:
1. Petitioner did not commit extrinsic fraud in excluding private respondent as party defendant in Special
Civil Case No. 10042 as private respondent was not indispensable party thereto, its participation not
being necessary for the full resolution of the issues raised in said case.
2. SEC Case No. 2693 cannot be invoked to suspend Special Civil Case No. 10042, and for that matter,
the extra-judicial foreclosure of the real estate mortgage in petitioners favor, as these do not constitute
actions against private respondent contemplated under Section 6(c) of Presidential Decree No. 902-A.
3. Even assuming arguendo that the extra-judicial sale constitute an action that may be suspended
under Section 6(c) of Presidential Decree No. 902-A, the basis for the suspension thereof did not exist
so as to adversely affect the validity and regularity thereof.
4. The Regional Trial court had jurisdiction to take cognizance of Special Civil Case No. 10042.
5. The Regional Trial court had jurisdiction over Special Civil Case No. 10042.
(p. 5, Rollo.)
On November 12, 1986, the Court gave due course to the petition. During the pendency of the case,
RCBC brought to the attention of the Court an order issued by the SEC on October 16, 1986 in Case
No.002693, denying the consolidated Motion to Annul the Auction Sale and to cite RCBC and the Sheriff
for Contempt, and ruling as follows:

WHEREFORE, the petitioners Consolidated Motion to Cite Sheriff and Rizal Commercial Banking
Corporation for Contempt and to Annul Proceedings and Sale, dated February 5, 1985, should be as is,
hereby DENIED.
While we cannot direct the Register of Deeds to allow the consolidation of the titles subject of the
Omnibus Motion dated September 18, 1986 filed by the Rizal Commercial banking Corporation, and
therefore, denies said Motion, neither can this Commission restrain the said bank and the Register of
Deeds from effecting the said consolidation.
SO ORDERED.
(p. 143, Rollo.)
By virtue of the aforesaid order, the Register of Deeds of Pasay City effected the transfer of title over
subject pieces of property to petitioner RCBC, and the issuance of new titles in its name. Thereafter,
RCBC presented a motion for the dismissal of the petition, theorizing that the issuance of said new
transfer certificates of title in its name rendered the petition moot and academic.
In the decision sought to be reconsidered, a greatly divided Court (Justices Gutierrez, Nocon, and Melo
concurred with the ponente, Justice Medialdea; Chief Justice Narvasa, Justices Bidin, Regalado, and
Bellosillo concurred only in the result; while Justice Feliciano dissented and was joined by Justice Padilla,
then Justice, now Chief Justice Davide, and Justice Romero; Justices Grio-Aquino and Campos took no
part) denied petitioners motion to dismiss, finding basis for nullifying and setting aside the TCTs in the
name of RCBC. Ruling on the merits, the Court upheld the decision of the Intermediate Appellate Court
which dismissed the mandamus case filed by RCBC and suspended the issuance of new titles to
RCBC. Setting aside RCBCs acquisition of title and nullifying the TCTs issued to it, the Court held that:
. . . whenever a distressed corporation asks the SEC for rehabilitation and suspension of payments,
preferred creditors may no longer assert such preference, but . . . stand on equal footing with other
creditors. Foreclosure shall be disallowed so as not to prejudice other creditors, or cause discrimination
among them. If foreclosure is undertaken despite the fact that a petition for rehabilitation has been
filed, the certificate of sale shall not be delivered pending rehabilitation. Likewise, if this has also been
done, no transfer of title shall be effected also, within the period of rehabilitation. The rationale behind
PD 902-A, as amended, is to effect a feasible and viable rehabilitation. This cannot be achieved if one
creditor is preferred over the others.
In this connection, the prohibition against foreclosure attaches as soon as a petition for rehabilitation is
filed. Were it otherwise, what is to prevent the petitioner from delaying the creation of a Management
Committee and in the meantime dissipate all its assets. The sooner the SEC takes over and imposes a
freeze on all the assets, the better for all concerned.
(pp. 265-266, Rollo; also p. 838, 213 SCRA 830[1992].)
Then Justice Feliciano (joined by three other Justices), dissented and voted to grant the petition. He
opined that the SEC acted prematurely and without jurisdiction or legal authority in enjoining RCBC and
the sheriff from proceeding with the public auction sale. The dissent maintain that Section 6 (c) of
Presidential Decree 902-A is clear and unequivocal that, claims against the corporations, partnerships, or
associations shall be suspended only upon the appointment of a management committee, rehabilitation
receiver, board or body. Thus, in the case under consideration, only upon the appointment of the
Management Committee for BF Homes on March 18, 1985, should the suspension of actions for claims
against BF Homes have taken effect and not earlier.
In support of its motion for reconsideration, RCBC contends:
The restraining order and the writ of preliminary injunction issued by the Securities and Exchange
Commission enjoining the foreclosure sale of the properties of respondent BF Homes were issued
without or in excess of its jurisdiction because it was violative of the clear provision of Presidential
Decree No. 902-A, and are therefore null and void; and
Petitioner, being a mortgage creditor, is entitled to rely solely on its security and to refrain from joining
the unsecured creditors in SEC Case No. 002693, the petition for rehabilitation filed by private
respondent.
We find the motion for reconsideration meritorious.
The issue of whether or not preferred creditors of distressed corporations stand on equal footing with all
other creditors gains relevance and materiality only upon the appointment of a management committee,
rehabilitation receiver, board, or body. Insofar as petitioner RCBC is concerned, the provisions of
Presidential Decree No. 902-A are not yet applicable and it may still be allowed to assert its preferred
status because it foreclosed on the mortgage prior to the appointment of the management committee
on March 18, 1985. The Court, therefore, grants the motion for reconsideration on this score.
The law on the matter, Paragraph (c), Section 6 of Presidential Decree 902-A, provides:
Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following
powers:
c) To appoint one or more receivers of the property, real and personal, which is the subject of the action
pending before the Commission in accordance with the pertinent provisions of the Rules of Court in such
other cases whenever necessary to preserve the rights of the parties-litigants to and/or protect the
interest of the investing public and creditors; Provided, however, that the Commission may, in
appropriate cases, appoint a rehabilitation receiver of corporations, partnerships or other associations
not supervised or regulated by other government agencies who shall have, in addition to the powers of
a regular receiver under the provisions of the Rules of Court, such functions and powers as are provided
for in the succeeding paragraph (d) hereof: Provided, finally, That upon appointment of a management
committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against
corporations, partnerships or associations under management or receivership pending before any court,
tribunal, board or body shall be suspended accordingly. (As amended by PDs No. 1673, 1758 and by PD
No. 1799. Emphasis supplied.)
It is thus adequately clear that suspension of claims against a corporation under rehabilitation is
counted or figured up only upon the appointment of a management committee or a rehabilitation
receiver. The holding that suspension of actions for claims against a corporation under rehabilitation
takes effect as soon as the application or a petition for rehabilitation is filed with the SEC may, to some,
be more logical and wise but unfortunately, such is incongruent with the clear language of the law. To
insist on such ruling, no matter how practical and noble, would be to encroach upon legislative
prerogative to define the wisdom of the law plainly judicial legislation.
It bears stressing that the first and fundamental duty of the Court is to apply the law. When the law is
clear and free from any doubt or ambiguity, there is no room for construction or interpretation. As has
been our consistent ruling, where the law speaks in clear and categorical language, there is no occasion
for interpretation; there is only room for application (Cebu Portland Cement Co. vs. Municipality of Naga ,
24 SCRA 708 [1968]).
Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the court
has no choice but to see to it that its mandate is obeyed ( Chartered Bank Employees Association vs.
Ople, 138 SCRA 273 [1985]; Luzon Surety Co., Inc. vs. De Garcia, 30 SCRA 111 [1969]; Quijano vs.
Development Bank of the Philippines, 35 SCRA 270 [1970]).
Only when the law is ambiguous or of doubtful meaning may the court interpret or construe its true
intent. Ambiguity is a condition of admitting two or more meanings, of being understood in more than
one way, or of referring to two or more things at the same time. A statute is ambiguous if it is
admissible of two or more possible meanings, in which case, the Court is called upon to exercise one of
its judicial functions, which is to interpret the law according to its true intent.
Furthermore, as relevantly pointed out in the dissenting opinion, a petition for rehabilitation does not
always result in the appointment of a receiver or the creation of a management committee. The SEC has
to initially determine whether such appointment is appropriate and necessary under the
circumstances. Under Paragraph (d), Section 6 of Presidential Decree No. 902-A, certain situations must
be shown to exist before a management committee may be created or appointed, such as;
1. when there is imminent danger of dissipation, loss, wastage or destruction of assets or other
properties; or
2. when there is paralization of business operations of such corporations or entities which may be
prejudicial to the interest of minority stockholders, parties-litigants or to the general public.
On the other hand, receivers may be appointed whenever:
1. necessary in order to preserve the rights of the parties-litigants; and/or
2. protect the interest of the investing public and creditors. (Section 6 (c), P.D. 902-A.)

These situations are rather serious in nature, requiring the appointment of a management committee or
a receiver to preserve the existing assets and property of the corporation in order to protect the
interests of its investors and creditors. Thus, in such situations, suspension of actions for claims against
a corporation as provided in Paragraph (c) of Section 6, of Presidential Decree No. 902-A is necessary,
and here we borrow the words of the late Justice Medialdea, so as not to render the SEC management
Committee irrelevant and inutile and to give it unhampered rescue efforts over the distressed firm
(Rollo, p. 265).
Otherwise, when such circumstances are not obtaining or when the SEC finds no such imminent danger
of losing the corporate assets, a management committee or rehabilitation receiver need not be
appointed and suspension of actions for claims may not be ordered by the SEC. When the SEC does not
deem it necessary to appoint a receiver or to create a management committee, it may be assumed, that
there are sufficient assets to sustain the rehabilitation plan and, that the creditors and investors are
amply protected.
Petitioner additionally argues in its motion for reconsideration that, being a mortgage creditor, it is
entitled to rely on its security and that it need not join the unsecured creditors in filing their claims
before the SEC-appointed receiver. To support its position, petitioner cites the Courts ruling in the case
of Philippine Commercial International Bank vs. Court of Appeals , (172 SCRA 436 [1989]) that an order
of suspension of payments as well as actions for claims applies only to claims of unsecured creditors and
cannot extend to creditors holding a mortgage, pledge, or any lien on the property.
Ordinarily, the Court would refrain from discussing additional matters such as that presented in RCBCs
second ground, and would rather limit itself only to the relevant issues by which the controversy may be
settled with finality.
In view, however, of the significance of such issue, and the conflicting decisions of this Court on the
matter, coupled with the fact that our decision of September 14, 1992, if not clarified, might mislead the
Bench and the Bar, the Court resolved to discuss further.
It may be recalled that in the herein en banc majority opinion (pp. 256-275, Rollo, also published
as RCBC vs. IAC, 213 SCRA 830 [1992]), we held that:
. . . whenever a distressed corporation asks the SEC for rehabilitation and suspension of payments,
preferred creditors may no longer assert such preference, but . . . stand on equal footing with other
creditors. Foreclosure shall be disallowed so as not to prejudice other creditors, or cause discrimination
among them. If foreclosure is undertaken despite the fact that a petition for rehabilitation has been
filed, the certificate of sale shall not be delivered pending rehabilitation. Likewise, if this has also been
done, no transfer of title shall be effected also, within the period of rehabilitation. The rationale behind
PD 902-A, as amended, is to effect a feasible and viable rehabilitation. This cannot be achieved if one
creditor is preferred over the others.
In this connection, the prohibition against foreclosure attaches as soon as a petition for rehabilitation is
filed. Were it otherwise, what is to prevent the petitioner from delaying the creation of a Management
Committee and in the meantime dissipate all its assets. The sooner the SEC takes over and imposes a
freeze on all the assets, the better for all concerned.
(pp. 265-266, Rollo; also p. 838, 213 SCRA 830[1992]. Emphasis supplied.)
The foregoing majority opinion relied upon BF Homes, Inc. vs. Court of Appeals (190 SCRA 262 [1990]
per Cruz, J.: First Division) where it was held that when a corporation threatened by bankruptcy is taken
over by a receiver, all the creditors should stand on an equal footing. Not anyone of them should be
given preference by paying one or some of them ahead of the others. This is precisely the reason for
the suspension of all pending claims against the corporation under receivership. Instead of creditors
vexing the courts with suits against the distressed firm, they are directed to file their claims with the
receiver who is a duly appointed officer of the SEC (pp. 269-270; emphasis in the original). This ruling is
a reiteration ofAlemars Sibal & Sons, Inc. vs. Hon. Jesus M. Elbinias (pp. 99-100;186 SCRA 94 [1990
perFernan, C.J.: Third Division).
Taking the lead from Alemars Sibal & Sons, the Court also applied this same ruling in Araneta vs. Court
of Appeals (211 SCRA 390 [1992] per Nocon, J.: Second Division).
All the foregoing cases departed from the ruling of the Court in the much earlier case of PCIB vs. Court
of Appeals (172 SCRA 436 [1989] per Medialdea, J.: First Division) where the Court categorically ruled
that:
SECs order for suspension of payments of Philfinance as well as for all actions of claims against
Philfinance could only be applied to claims of unsecured creditors.Such order can not extend to creditors
holding a mortgage, pledge or any lien on the property unless they give up the property, security or lien
in favor of all the creditors of Philfinance. . .
(p. 440. Emphasis supplied)
Thus, in BPI vs. Court of Appeals (229 SCRA 223 [1994] per Bellosillo, J. : First Division)the Court
explicitly stated that . . . the doctrine in the PCIB Case has since been abrogated. InAlemars Sibal &
Sons v. Elbinias, BF Homes, Inc. v. Court of Appeals, Araneta v. Court of Appeals and RCBC v. Court of
Appeals, we already ruled that whenever a distressed corporation asks SEC for rehabilitation and
suspension of payments, preferred creditors may no longer assert such preference, but shall stand on
equal footing with other creditors. . . (pp. 227-228).
It may be stressed, however, that of all the cases cited by Justice Bellosillo in BPI, which abandoned the
Courts ruling in PCIB, only the present case satisfies the constitutional requirement that no doctrine or
principle of law laid down by the court in a decision rendered en banc or in division may be modified or
reversed except by the court sitting en banc (Sec 4, Article VIII, 1987 Constitution). The rest were
division decisions.
It behooves the Court, therefore, to settle the issue in this present resolution once and for all, and for
the guidance of the Bench and the Bar, the following rules of thumb shall are laid down:
1. All claims against corporations, partnerships, or associations that are pending before any court,
tribunal, or board, without distinction as to whether or not a creditor is secured or unsecured, shall be
suspended effective upon the appointment of a management committee, rehabilitation receiver, board,
or body in accordance with the provisions of Presidential Decree No. 902-A.
2. Secured creditors retain their preference over unsecured creditors, but enforcement of such
preference is equally suspended upon the appointment of a management committee, rehabilitation
receiver, board, or body. In the event that the assets of the corporation, partnership, or association are
finally liquidated, however, secured and preferred credits under the applicable provisions of the Civil
Code will definitely have preference over unsecured ones.
In other words, once a management committee, rehabilitation receiver, board or body is appointed
pursuant to P.D. 902-A, all actions for claims against a distressed corporation pending before any court,
tribunal, board or body shall be suspended accordingly.
This suspension shall not prejudice or render ineffective the status of a secured creditor as compared to
a totally unsecured creditor. P.D. 902-A does not state anything to this effect.What it merely provides is
that all actions for claims against the corporation, partnership or association shall be suspended. This
should give the receiver a chance to rehabilitate the corporation if there should still be a possibility for
doing so. (This will be in consonance withAlemars, BF Homes, Araneta, and RCBC insofar as enforcing
liens by preferred creditors are concerned.)
However, in the event that rehabilitation is no longer feasible and claims against the distressed
corporation would eventually have to be settled, the secured creditors shall enjoy preference over the
unsecured creditors (still maintaining PCIB ruling), subject only to the provisions of the Civil Code on
Concurrence and Preferences of Credit (our ruling in State Investment House, Inc. vs. Court of Appeals,
277 SCRA 209 [1997]).
The majority ruling in our 1992 decision that preferred creditors of distressed corporations shall, in a
way, stand on equal footing with all other creditors, must be read and understood in the light of the
foregoing rulings. All claims of both a secured or unsecured creditor, without distinction on this score,
are suspended once a management committee is appointed. Secured creditors, in the meantime, shall
not be allowed to assert such preference before the Securities and Exchange Commission. It may be
stressed, however, that this shall only take effect upon the appointment of a management committee,
rehabilitation receiver, board, or body, as opined in the dissent.
In fine, the Court grants the motion for reconsideration for the cogent reason that suspension of actions
for claims commences only from the time a management committee or receiver is appointed by the
SEC. Petitioner RCBC, therefore, could have rightfully, as it did, move for the extrajudicial foreclosure of

its mortgage on October 26, 1984 because a management committee was not appointed by the SEC
until March 18, 1985.
WHEREFORE, petitioners motion for reconsideration is hereby GRANTED. The decision dated
September 14, 1992 is vacated, the decision of Intermediate Appellate Court in AC-G.R. No. SP-06313
REVERSED and SET ASIDE, and the judgment of the Regional Trial Court National Capital Judicial
Region, Branch 140, in Civil Case No. 10042 REINSTATED.
SO ORDERED.

G.R. No. L-38649 March 26, 1979


FACILITIES MANAGEMENT CORPORATION, J. S. DREYER, and J. V. CATUIRA, petitioners,
vs.
LEONARDO DE LA ROSA AND THE HONORABLE COURT OF INDUSTRIAL
RELATIONS, respondents.
Sycip, Salazar, Feliciano & Associates for petitioners.
Benjamin M. Mendoza for respondent Court.
MAKASIAR, J:
Petition for review on certiorari of the decision of the Court of Industrial Relations, dated February 14,
1972, ordering petitioners herein to pay private respondent Leonardo de la Osa his overtime
compensation, as wen as his swing shift and graveyard shift premiums at the rate of fifty (50%) per
cent of his basic sa (Annex E, p. 31, rollo).
The aforesaid decision was based on a report submitted by the Hearing Examiner, CIR (Dagupan City
Branch), the pertinent portions of which are quoted hereinbelow:::
In a petition filed on July 1, 1967, Leonardo dela Osa sought his reinstatement. with full backwages, as
well as the recovery of his overtime compensation, swing shift and graveyard shift differentials.
Petitioner alleged that he was employed by respondents as follows: (1) painter with an hourly rate of
$1.25 from March, 1964 to November, 1964, inclusive; (2) houseboy with an hourly rate of $1.26 from
December, 1964 to November, 1965, inclusive; (3) houseboy with an hourly rate of $1.33 from
December, 1965 to August, 1966, inclusive; and (4) cashier with an hourly rate of $1.40 from August,
1966 to March 27, 1967, inclusive. He further averred that from December, 1965 to August, 1966,
inclusive, he rendered overtime services daily and that this entire period was divided into swing and
graveyard shifts to which he was assigned, but he was not paid both overtime and night shift premiums
despite his repeated demands from respondents.
Respondents filed on August 7, 1967 their letter- answer without substantially denying the material
allegations of the basic petition but interposed the following special defenses, namely: That respondents
Facilities Management Corporation and J. S. Dreyer are domiciled in Wake Island which is beyond the
territorial jurisdiction of the Philippine Government; that respondent J. V. Catuira, though an employee
of respondent corporation presently stationed in Manila, is without power and authority of legal
representation; and that the employment contract between petitioner and respondent corporation
carries -the approval of the Department of Labor of the Philippines.
Subsequently on May 3, 1968. respondents filed a motion to dismiss the subject petition on the ground
that this Court has no Jurisdiction over the instant case, and on May 24, 1968, petitioner interposed an
opposition thereto. Said motion was denied by this Court in its Order issued on July 12, 1968 sustaining
jurisdiction in accordance with the prevailing doctrine of the Supreme Court in similar cases.
xxx xxx xxx
But before we consider and discuss the foregoing issues, let us first ascertain if this Court could acquire
jurisdiction over the case at bar, it having been contended by respondents that they are domiciled in
Wake Island which is beyond the territorial jurisdiction of the Philippine Government. To this incidental
question, it may be stated that while it is true the site of work is Identified as Wake Island, it is equally
true the place of hire is established in Manila (See Section B, Filipino Employment Contract, Exhibit '1').
Moreover, what is important is the fact that the contract of employment between the parties litigant was
shown to have been originally executed and subsequently renewed in Manila, as asserted by petitioner
and not denied by respondents. Hence, any dispute arising therefrom should necessarily be determined
in the place or venue where it was contracted.
xxx xxx xxx
From the evidence on hand, it has been proven beyond doubt that petitioner canvas assigned to and
performed work in respondent company at slight time which consisted of two different schedules,
namely, swing shift and graveyard shifts, particularly during his tenure as houseboy for the second
period and as cashier. Petitioner's testimony to this effect was not contradicted, much less rebutted, by
respondents, as revealed by the records. Since petitioner actually rendered night time services as
required by respondents, and considering the physical, moral and sociological effects arising from the
performance of such nocturnal duties, we think and honestly believe that petitioner should be
compensated at least fifty percent (50%) more than his basic wage rate. This night shift premium pay
would indeed be at par with the overtime compensation stipulated at one and one-half (1 ) times of
the straight time rate.
xxx xxx xxx (pp. 31-36, rollo).
Apropos before this Court were filed three (3) other cases involving the same petitioner, all of which had
been finally dispoded of, as follows:
G.R. No Date of Filing Disposition
1. L-37117 July 30, 1973 Petition denied for
lack of merit on Sept.
13, 1973. Motion for
Reconsideration
denied lack of
merit, Nov. 20,1973.
2. L-38781 June 17,1974 Petition denied for
lack of merit on June
21,1974.
3. L-39111-12 Sept. 2,1974 Case dismissed on Feb.
6, 1976, pursuant to
voluntary manifesta
tion of private respon
dent Inocente R. Riel
that his claims had all
been settled to his entire
satisfaction.
Incidentally, in connection with G.R. No. L-39111-12 (No. 3 above), WE found strong evidence that
petitioner therein, which is also the petitioner in the case at bar, "twisted the arm" of private
respondent, when the latter in his Manifestation dated July 3, 1975, stated:
3. ... Furthermore, since petitioner FMC is a foreign corporation domiciled in California, U.S.A. and has
never been engaged in business in the Philippines, nor does it have an agent or an office in this country,
there exists no valid reason for me to participate in the continuation and/or prosecution of this case (p.
194, rollo).
as if jurisdiction depends on the will of the parties to a case. At any rate, considering that petitioner
paid the claims of private respondent, the case had become moot and academic. Besides, the fact of
such payment amounts to an acknowledgment on the part of petitioner of the jurisdiction of the court
over it.
WE have also noted that the principal question involved in each of the above-numbered three (3) cases
is more or less Identical, to wit: Is the mere act by a non-resident foreign corporation of recruiting
Filipino workers for its own use abroad, in law doing business in the Philippines?
In the case at bar, which was filed with this Court on June 3, 1974, petitioners presented, inter alia, the
following issue: ... can the CIR validly affirm a judgment against persons domiciled outside and not
doing business in the Philippines, and over whom it did not acquire jurisdiction')
While it is true that the issues presented in the decided cases are worded differently from the principal
issue raised in the case at bar, the fact remains that they all boil down to one and the same issue, which
was aptly formulated and ably resolved by Mr. Justice Ramon C. Fernandez, then with the Court of
Appeals and now a member of this Court, in CA-G.R. No. SP-01485-R, later elevated to this Court on
appeal by certiorari in Case G.R. No. L-37117 this case, the majority opinion of the Court of Appeals,
which was penned by Justice Fernandez and which WE hereby adopt, runs as follows:
The principal issue presented in this special civil action is whether petitioner has been 'doing business in
the Philippines' so that the service of summons upon its agent in the Philippines vested the Court of First
Instance of Manila with jurisdiction.
From the facts of record, the petitioner may be considered as doing busuness un the Philippines within
the the scope of Section 14, Rule 14 of the Rules of the Court which provide:

SEC 14. Service upon private foreign corporations. If the defendant is a foreign corporation or a nonresident joint stock company or association: doing business in the Philippines, service may be made on
its resident agent designated in accordance with law for that purpose or, if there be no such agent, on
the government official designated by law to that effect, or on any of its officers or agents within the
Philippines.
Indeed, the petitioner, in compliance with Act 2486 as implemented by Department of Labor Order No.
IV dated May 20, 1968 had to appoint Jaime V. Catuira, 1322 A. Mabini, Ermita, Manila as agent for FMC
with authority to execute Employment Contracts and receive, in behalf of that corporation, legal services
from and be bound by processes of the Philippine Courts of Justice, for as long as he remains an
employee of FMC (Annex 'I', rollo, p. 56). It is a fact that when the summons for the petitioner was
served on Jaime V. Catuira he was still in the employ of the FMC.
In his motion to dismiss Annex B', p. 19, Rollo), petitioner admits that Mr. Catuira represented it in this
country 'for the purpose of making arrangements for the approval by the Department of Labor of the
employment of Filipinos who are recruited by the Company as its own employees for assignment
abroad.' In effect, Mr. Catuira was a on officer representing petitioner in the Philippines.
Under the rules and regulations promulgated by the Board of Investments which took effect Feb. 3,
1969, implementing Rep. Act No. 5455, which took effect Sept. 30, 1968, the phrase 'doing business'
has been exemption with illustrations, among them being as follows:
xxx xxx xxx
(f) the performance within the Philippines of any act or combination of acts enumerated in section l(l) of
the Act shall constitute 'doing business' therein. in particular, 'doing business includes:
(1) Soliciting orders, purchases (sales) or service contracts. Concrete and specific solicitations by a
foreign firm, not acting independently of the foreign firm amounting to negotiation or fixing of the terms
and conditions of sales or service contracts, regardless of whether the contracts are actually reduced to
writing, shall constitute doing business even if the enterprise has no office or fixed place of business in
the Philippines. xxx
(2) Appointing a representative or distributor who is dociled in the Philippines, unless said representative
or distributor has an independent status, i.e., it transacts business in its name and for its own account,
and not in the name or for the account of the principal.
xxx xxx xxx
(4) Opening offices, whether called 'liaison'offices, agencies or branches, unless proved otherwise.
xxx xxx xxx
(10) Any other act or acts that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the exercise of some of the functions
normally incident to, or in the progressive prosecution of, commercial gain or of the purpose and
objective of the business organization (54 O.G. 53).
Recently decided by this Court again thru Mr. Justice Ramon C. Fernandez which is similar to the
case at bar, is G.R. No. L-26809, entitled Aetna Casualty & Curety Company, plaintiff- appellant versus
Pacific Star Line, the Bradman Co., Inc., Manila Port Service and/or Manila Railroad Company, Inc.,
defendants-appellees." The case is an appeal from the decision of the Court of First Instance of Manila,
Branch XVI, in its Civil Case No. 53074, entitledAetna Casualty & Surety Company vs. Pacific Star Lines,
The Bradman Co., Inc., Manila Port Service and/or Manila Railroad Company, Inc." dismissing the
complaint on the ground that the plaintiff has no legal capacity to bring the suit.
It appears that on February 11, 1963, Smith Bell & Co. (Philippines), Inc. and Aetna Casualty & Surety
Co., Inc., as subrogee instituted Civil Case No. 53074 in the Court of First Instance of Manila against
Pacific Star Line, The Bradman Co., Inc., Manila Port Service and/or Manila Railroad Company, Inc. to
recover the amount of US$2,300.00 representing the value of stolen and damaged cargo plus litigation
expenses and exemplary damages in the amounts of P1,000.00 and P2,000.00, respectively, with legal
interest thereon from the filing of the suit and costs.
After all the defendants had filed their answer, the defendants Manila Port Service and Manila Railroad
Company, Inc. amended their answer to allege that the plaintiff, Aetna Casualty & Surety Company, is a
foreign corporation not duly licensed to do business in the Philippines and, therefore, without capacity to
sue and be sued.
After the parties submitted a partial stipulation of facts and additional documentary evidence, the case
was submitted for decision of the trial court, which dismissed the complaint on the ground that the
plaintiff insurance company is subject to the requirements of Sections 68 and 69 of Act 1459, as
amended, and for its failure to comply therewith, it has no legal capacity to bring suit in this jurisdiction.
Plaintiff appealed to this Court.
The main issue involved in the appeal is whether or not the plaintiff appellant has been doing business
in the Philippines, considering the fact that it has no license to transact business in the Philippines as a
foreign corporation. WE ruled:
The object of Sections 68 and 69 of the Corporation Law was not to prevent the foreign corporation
from performing single acts, but to prevent it from acquiring a domicile for the purpose of business
without taking the steps necessary to render it amenable to suit in the local courts. It was never the
purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order
for business from the Philippines, from securing redress in the Philippine courts (Marshall Co. vs. Elser &
Co., 46 Phil 70,75).
In Mentholatum Co., Inc., et al vs- M Court rules thatNo general rule or governing principle can be laid down as to what constitutes 'doing' or 'engaging in' or
'transacting' business. Indeed, each case must be judged in the light of its peculiar environmental
circumstances. The true test, however, seems to be whether the foreign corporation is continuing the
body or substance of the business or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another. (Traction Cos. v. Collectors of Int Revenue
[C.C.A Ohio], 223 F. 984, 987). The term implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of, the purpose and object of its
organization (Griffin v. Implement Dealers' Mut. Fire Ins. Co., 241 N.W. 75, 77; Pauline Oil & Gas Co. v.
Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. III; Automotive Material Co. vs. American Standard
Metal Products Corp., 158 N.E. 698, 703, 327 III. 367)'. 72 Phil. 524, 528-529.
And in Eastboard Navigation, Ltd., et al. vs. Juan Ysmael & Co., Inc., this Court held:
(d) While plaintiff is a foreign corporation without license to transact business in the Philippines, it does
not follow that it has no capacity to bring the present action. Such license is not necessary because it is
not engaged in business in the Philippines. In fact, the transaction herein involved is the first business
undertaken by plaintiff in the Philippines, although on a previous occasion plaintiff's vessel was
chartered by the National Rice and Corn Corporation to carry rice cargo from abroad to the Philippines.
These two isolated transactions do not constitute engaging in business in the Philippines within the
purview of Sections 68 and 69 of the Corporation Law so as to bar plaintiff from seeking redress in our
courts. (Marshall Wens Co. vs. Henry W. Elser & Co. 49 Phil., 70; Pacific Vegetable Oil Corporation vs.
Angel O. Singson, G.R. No. L-7917, April 29, 1955)'. 102 Phil., pp. 1, 18.
Based on the rulings laid down in the foregoing cases, it cannot be said that the Aetna Casualty &
Surety Company is transacting business of insurance in the Philippines for which it must have a license.
The Contract of insurance was entered into in New York, U.S.A., and payment was made to the
consignee in its New York branch. It appears from the list of cases issued by the Clerk of Court of the
Court of First Instance of Manila that all the actions, except two (2) cases filed by Smith, Beer & Co.,
Inc. against the Aetna Casualty & Surety Company, are claims against the shipper and the arrastre
operators just like the case at bar.
Consequently, since the appellant Aetna Casualty & Surety Company is not engaged in the business of
insurance in the Philippines but is merely collecting a claim assigned to it by the consignee, it is not
barred from filing the instant case although it has not secured a license to transact insurance business in
the Philippines.
Indeed, if a foreign corporation, not engaged in business in the Philippines, is not banned from seeking
redress from courts in the Philippines, a fortiori, that same corporation cannot claim exemption from
being sued in Philippine courts for acts done against a person or persons in the Philippines.
WHEREFORE, THE PETITION IS HEREBY DENIED WITH COSTS AGAINST THE PETITIONERS.
SO ORDERED.
Teehankee (Chairman), Fernandez, Guerrero, De Castro, and Melencio Herrera, JJ., concur.

G.R. No. L-34382 July 20, 1983


THE HOME INSURANCE COMPANY, petitioner,
vs.
EASTERN SHIPPING LINES and/or ANGEL JOSE TRANSPORTATION, INC. and HON. A.
MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, Branch
XVII, respondents.
G.R. No. L-34383 July 20, 1983
THE HOME INSURANCE COMPANY, petitioner,
vs.
N. V. NEDLLOYD LIJNEN; COLUMBIAN PHILIPPINES, INC., and/or GUACODS, INC., and
HON. A. MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, Branch
XVII, respondents.
No. L-34382.
Zapa Law Office for petitioner.
Bito, Misa & Lozada Law Office for respondents.
No. L-34383.
Zapa Law Office for petitioner.
Ross, Salcedo, Del Rosario, Bito & Misa Law office for respondents.
GUTIERREZ, JR., J.:
Questioned in these consolidated petitions for review on certiorari are the decisions of the Court of First
Instance of Manila, Branch XVII, dismissing the complaints in Civil Case No. 71923 and in Civil Case No.
71694, on the ground that plaintiff therein, now appellant, had failed to prove its capacity to sue.
There is no dispute over the facts of these cases for recovery of maritime damages. In L-34382, the
facts are found in the decision of the respondent court which stated:
On or about January 13, 1967, S. Kajita & Co., on behalf of Atlas Consolidated Mining & Development
Corporation, shipped on board the SS "Eastern Jupiter' from Osaka, Japan, 2,361 coils of "Black Hot
Rolled Copper Wire Rods." The said VESSEL is owned and operated by defendant Eastern Shipping Lines
(CARRIER). The shipment was covered by Bill of Lading No. O-MA-9, with arrival notice to Phelps Dodge
Copper Products Corporation of the Philippines (CONSIGNEE) at Manila. The shipment was insured with
plaintiff against all risks in the amount of P1,580,105.06 under its Insurance Policy No. AS-73633.
xxx xxx xxx
The coils discharged from the VESSEL numbered 2,361, of which 53 were in bad order. What the
CONSIGNEE ultimately received at its warehouse was the same number of 2,361 coils with 73 coils loose
and partly cut, and 28 coils entangled, partly cut, and which had to be considered as scrap. Upon
weighing at CONSIGNEE's warehouse, the 2,361 coils were found to weight 263,940.85 kilos as against
its invoiced weight of 264,534.00 kilos or a net loss/shortage of 593.15 kilos, according to Exhibit "A", or
1,209,56 lbs., according to the claims presented by the consignee against the plaintiff (Exhibit "D-1"),
the CARRIER (Exhibit "J-1"), and the TRANSPORTATION COMPANY (Exhibit "K- l").
For the loss/damage suffered by the cargo, plaintiff paid the consignee under its insurance policy the
amount of P3,260.44, by virtue of which plaintiff became subrogated to the rights and actions of the
CONSIGNEE. Plaintiff made demands for payment against the CARRIER and the TRANSPORTATION
COMPANY for reimbursement of the aforesaid amount but each refused to pay the same. ...
The facts of L-34383 are found in the decision of the lower court as follows:
On or about December 22, 1966, the Hansa Transport Kontor shipped from Bremen, Germany, 30
packages of Service Parts of Farm Equipment and Implements on board the VESSEL, SS "NEDER RIJN"
owned by the defendant, N. V. Nedlloyd Lijnen, and represented in the Philippines by its local agent, the
defendant Columbian Philippines, Inc. (CARRIER). The shipment was covered by Bill of Lading No. 22 for
transportation to, and delivery at, Manila, in favor of the consignee, international Harvester Macleod,
Inc. (CONSIGNEE). The shipment was insured with plaintiff company under its Cargo Policy No. AS73735 "with average terms" for P98,567.79.
xxx xxx xxx
The packages discharged from the VESSEL numbered 29, of which seven packages were found to be in
bad order. What the CONSIGNEE ultimately received at its warehouse was the same number of 29
packages with 9 packages in bad order. Out of these 9 packages, 1 package was accepted by the
CONSIGNEE in good order due to the negligible damages sustained. Upon inspection at the consignee's
warehouse, the contents of 3 out of the 8 cases were also found to be complete and intact, leaving 5
cases in bad order. The contents of these 5 packages showed several items missing in the total amount
of $131.14; while the contents of the undelivered 1 package were valued at $394.66, or a total of
$525.80 or P2,426.98.
For the short-delivery of 1 package and the missing items in 5 other packages, plaintiff paid the
CONSIGNEE under its Insurance Cargo Policy the amount of P2,426.98, by virtue of which plaintiff
became subrogated to the rights and actions of the CONSIGNEE. Demands were made on defendants
CARRIER and CONSIGNEE for reimbursement thereof but they failed and refused to pay the same.
In both cases, the petitioner-appellant made the following averment regarding its capacity to sue:
The plaintiff is a foreign insurance company duly authorized to do business in the Philippines through its
agent, Mr. VICTOR H. BELLO, of legal age and with office address at Oledan Building, Ayala Avenue,
Makati, Rizal.
In L-34382, the respondent-appellee Eastern Shipping Lines, Inc., filed its answer and alleged that it:
Denies the allegations of Paragraph I which refer to plaintiff's capacity to sue for lack of knowledge or
information sufficient to form a belief as to the truth thereof.
Respondent-appellee, Angel Jose Transportation, Inc., in turn filed its answer admitting the allegations
of the complaint, regarding the capacity of plaintiff-appellant. The pertinent paragraph of this answer
reads as follows:
Angel Jose Admits the jurisdictional averments in paragraphs 1, 2, and 3 of the heading Parties.
In L-34383, the respondents-appellees N. V. Nedlloyd Lijhen, Columbian Philippines, Inc. and Guacods,
Inc., filed their answers. They denied the petitioner-appellant's capacity to sue for lack of knowledge or
information sufficient to form a belief as to the truth thereof.
As earlier stated, the respondent court dismissed the complaints in the two cases on the same ground,
that the plaintiff failed to prove its capacity to sue. The court reasoned as follows:
In the opinion of the Court, if plaintiff had the capacity to sue, the Court should hold that a) defendant
Eastern Shipping Lines should pay plaintiff the sum of P1,630.22 with interest at the legal rate from
January 5, 1968, the date of the institution of the Complaint, until fully paid; b) defendant Angel Jose
Transportation, Inc. should pay plaintiff the sum of P1,630.22 also with interest at the legal rate from
January 5, 1968 until fully paid; c) the counterclaim of defendant Angel Jose transportation, Inc. should
be ordered dismissed; and d) each defendant to pay one-half of the costs.
The Court is of the opinion that Section 68 of the Corporation Law reflects a policy designed to protect
the public interest. Hence, although defendants have not raised the question of plaintiff's compliance
with that provision of law, the Court has resolved to take the matter into account.
A suing foreign corporation, like plaintiff, has to plead affirmatively and prove either that the transaction
upon which it bases its complaint is an isolated one, or that it is licensed to transact business in this
country, failing which, it will be deemed that it has no valid cause of action (Atlantic Mutual Ins. Co. vs.
Cebu Stevedoring Co., Inc., 17 SCRA 1037). In view of the number of cases filed by plaintiff before this
Court, of which judicial cognizance can be taken, and under the ruling in Far East International Import
and Export Corporation vs. Hankai Koayo Co ., 6 SCRA 725, it has to be held that plaintiff is doing
business in the Philippines. Consequently, it must have a license under Section 68 of the Corporation
Law before it can be allowed to sue.
The situation of plaintiff under said Section 68 has been described as follows in Civil Case No. 71923 of
this Court, entitled 'Home Insurance Co. vs. N. V. Nedlloyd Lijnen , of which judicial cognizance can also
be taken:

Exhibit "R",presented by plaintiff is a certified copy of a license, dated July 1, 1967, issued by the Office
of the Insurance Commissioner authorizing plaintiff to transact insurance business in this country. By
virtue of Section 176 of the Insurance Law, it has to be presumed that a license to transact business
under Section 68 of the Corporation Law had previously been issued to plaintiff. No copy thereof,
however, was submitted for a reason unknown. The date of that license must not have been much
anterior to July 1, 1967. The preponderance of the evidence would therefore call for the finding that the
insurance contract involved in this case, which was executed at Makati, Rizal, on February 8, 1967, was
contracted before plaintiff was licensed to transact business in the Philippines.
This Court views Section 68 of the Corporation Law as reflective of a basic public policy. Hence, it is of
the opinion that, in the eyes of Philippine law, the insurance contract involved in this case must be held
void under the provisions of Article 1409 (1) of the Civil Code, and could not be validated by subsequent
procurement of the license. That view of the Court finds support in the following citation:
According to many authorities, a constitutional or statutory prohibition against a foreign corporation
doing business in the state, unless such corporation has complied with conditions prescribed, is effective
to make the contracts of such corporation void, or at least unenforceable, and prevents the maintenance
by the corporation of any action on such contracts. Although the usual construction is to the contrary,
and to the effect that only the remedy for enforcement is affected thereby, a statute prohibiting a noncomplying corporation from suing in the state courts on any contract has been held by some courts to
render the contract void and unenforceable by the corporation, even after its has complied with the
statute." (36 Am. Jur. 2d 299-300).
xxx xxx xxx
The said Civil Case No. 71923 was dismissed by this Court. As the insurance contract involved herein
was executed on January 20, 1967, the instant case should also be dismissed.
We resolved to consolidate the two cases when we gave due course to the petition.
The petitioner raised the following assignments of errors:
First Assignment of Error
THE HONORABLE TRIAL COURT ERRED IN CONSIDERING AS AN ISSUE THE LEGAL EXISTENCE OR
CAPACITY OF PLAINTIFF-APPELLANT.
Second Assignment of Error
THE HONORABLE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ON THE FINDING THAT
PLAINTIFF-APPELLANT HAS NO CAPACITY TO SUE.
On the basis of factual and equitable considerations, there is no question that the private respondents
should pay the obligations found by the trial court as owing to the petitioner. Only the question of
validity of the contracts in relation to lack of capacity to sue stands in the way of the petitioner being
given the affirmative relief it seeks. Whether or not the petitioner was engaged in single acts or solitary
transactions and not engaged in business is likewise not in issue. The petitioner was engaged in
business without a license. The private respondents' obligation to pay under the terms of the contracts
has been proved.
When the complaints in these two cases were filed, the petitioner had already secured the necessary
license to conduct its insurance business in the Philippines. It could already filed suits.
Petitioner was, therefore, telling the truth when it averred in its complaints that it was a foreign
insurance company duly authorized to do business in the Philippines through its agent Mr. Victor H.
Bello. However, when the insurance contracts which formed the basis of these cases were executed, the
petitioner had not yet secured the necessary licenses and authority. The lower court, therefore, declared
that pursuant to the basic public policy reflected in the Corporation Law, the insurance contracts
executed before a license was secured must be held null and void. The court ruled that the contracts
could not be validated by the subsequent procurement of the license.
The applicable provisions of the old Corporation Law, Act 1459, as amended are:
Sec. 68. No foreign corporation or corporations formed, organized, or existing under any laws other than
those of the Philippine Islands shall be permitted to transact business in the Philippine Islands until after
it shall have obtained a license for that purpose from the chief of the Mercantile Register of the Bureau
of Commerce and Industry, (Now Securities and Exchange Commission. See RA 5455) upon order of the
Secretary of Finance (Now Monetary Board) in case of banks, savings, and loan banks, trust
corporations, and banking institutions of all kinds, and upon order of the Secretary of Commerce
and Communications (Now Secretary of Trade. See 5455, section 4 for other requirements) in case of all
other foreign corporations. ...
xxx xxx xxx
Sec. 69. No foreign corporation or corporation formed, organized, or existing under any laws other than
those of the Philippine Islands shall be permitted to transact business in the Philippine Islands or
maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it
shall have the license prescribed in the section immediately preceding. Any officer, director, or agent of
the corporation or any person transacting business for any foreign corporation not having the license
prescribed shag be punished by imprisonment for not less than six months nor more than two years or
by a fine of not less than two hundred pesos nor more than one thousand pesos, or by both such
imprisonment and fine, in the discretion of the court.
As early as 1924, this Court ruled in the leading case of Marshall Wells Co. v. Henry W. Elser & Co. (46
Phil. 70) that the object of Sections 68 and 69 of the Corporation Law was to subject the foreign
corporation doing business in the Philippines to the jurisdiction of our courts. The Marshall Wells Co.
decision referred to a litigation over an isolated act for the unpaid balance on a bill of goods but the
philosophy behind the law applies to the factual circumstances of these cases. The Court stated:
xxx xxx xxx
Defendant isolates a portion of one sentence of section 69 of the Corporation Law and asks the court to
give it a literal meaning Counsel would have the law read thus: "No foreign corporation shall be
permitted to maintain by itself or assignee any suit for the recovery of any debt, claim, or demand
whatever, unless it shall have the license prescribed in section 68 of the law." Plaintiff, on the contrary,
desires for the court to consider the particular point under discussion with reference to all the law, and
thereafter to give the law a common sense interpretation.
The object of the statute was to subject the foreign corporation doing business in the Philippines to the
jurisdiction of its courts. The object of the statute was not to prevent the foreign corporation from
performing single acts, but to prevent it from acquiring a domicile for the purpose of business without
taking the steps necessary to render it amenable to suit in the local courts. The implication of the law is
that it was never the purpose of the Legislature to exclude a foreign corporation which happens to
obtain an isolated order for business from the Philippines, from securing redress in the Philippine courts,
and thus, in effect, to permit persons to avoid their contracts made with such foreign corporations. The
effect of the statute preventing foreign corporations from doing business and from bringing actions in
the local courts, except on compliance with elaborate requirements, must not be unduly extended or
improperly applied. It should not be construed to extend beyond the plain meaning of its terms,
considered in connection with its object, and in connection with the spirit of the entire law.
(State vs. American Book Co. [1904], 69 Kan, 1; American De Forest Wireless Telegraph Co. vs.Superior
Court of City & Country of San Francisco and Hebbard [1908], 153 Cal., 533; 5 Thompson on
Corporations, 2d ed., chap. 184.)
Confronted with the option of giving to the Corporation Law a harsh interpretation, which would
disastrously embarrass trade, or of giving to the law a reasonable interpretation, which would markedly
help in the development of trade; confronted with the option of barring from the courts foreign litigants
with good causes of action or of assuming jurisdiction of their cases; confronted with the option of
construing the law to mean that any corporation in the United States, which might want to sell to a
person in the Philippines must send some representative to the Islands before the sale, and go through
the complicated formulae provided by the Corporation Law with regard to the obtaining of the license,
before the sale was made, in order to avoid being swindled by Philippine citizens, or of construing the
law to mean that no foreign corporation doing business in the Philippines can maintain any suit until it
shall possess the necessary license;-confronted with these options, can anyone doubt what our decision
will be? The law simply means that no foreign corporation shall be permitted "to transact business in the
Philippine Islands," as this phrase is known in corporation law, unless it shall have the license required
by law, and, until it complies with the law, shall not be permitted to maintain any suit in the local courts.

A contrary holding would bring the law to the verge of unconstitutionality, a result which should be and
can be easily avoided. (Sioux Remedy Co. vs. Cope and Cope, supra; Perkins, Philippine Business Law,
p. 264.)
To repeat, the objective of the law was to subject the foreign corporation to the jurisdiction of our
courts. The Corporation Law must be given a reasonable, not an unduly harsh, interpretation which
does not hamper the development of trade relations and which fosters friendly commercial intercourse
among countries.
The objectives enunciated in the 1924 decision are even more relevant today when we view commercial
relations in terms of a world economy, when the tendency is to re-examine the political boundaries
separating one nation from another insofar as they define business requirements or restrict marketing
conditions.
We distinguish between the denial of a right to take remedial action and the penal sanction for nonregistration.
Insofar as transacting business without a license is concerned, Section 69 of the Corporation Law
imposed a penal sanction-imprisonment for not less than six months nor more than two years or
payment of a fine not less than P200.00 nor more than P1,000.00 or both in the discretion of the court.
There is a penalty for transacting business without registration.
And insofar as litigation is concerned, the foreign corporation or its assignee may not maintain any suit
for the recovery of any debt, claim, or demand whatever. The Corporation Law is silent on whether or
not the contract executed by a foreign corporation with no capacity to sue is null and void ab initio.
We are not unaware of the conflicting schools of thought both here and abroad which are divided on
whether such contracts are void or merely voidable. Professor Sulpicio Guevarra in his book Corporation
Law (Philippine Jurisprudence Series, U.P. Law Center, pp. 233-234) cites an Illinois decision which holds
the contracts void and a Michigan statute and decision declaring them merely voidable:
xxx xxx xxx
Where a contract which is entered into by a foreign corporation without complying with the local
requirements of doing business is rendered void either by the express terms of a statute or by statutory
construction, a subsequent compliance with the statute by the corporation will not enable it to maintain
an action on the contract. (Perkins Mfg. Co. v. Clinton Const. Co., 295 P. 1 [1930]. See also Diamond
Glue Co. v. U.S. Glue Co., supra see note 18.) But where the statute merely prohibits the maintenance of
a suit on such contract (without expressly declaring the contract "void"), it was held that a failure to
comply with the statute rendered the contract voidable and not void, and compliance at any time before
suit was sufficient. (Perkins Mfg. Co. v. Clinton Const. Co., supra.) Notwithstanding the above decision,
the Illinois statute provides, among other things that a foreign corporation that fails to comply with the
conditions of doing business in that state cannot maintain a suit or action, etc. The court said: 'The
contract upon which this suit was brought, having been entered into in this state when appellant was
not permitted to transact business in this state, is in violation of the plain provisions of the statute, and
is therefore null and void, and no action can be maintained thereon at any time, even if the corporation
shall, at some time after the making of the contract, qualify itself to transact business in this state by a
compliance with our laws in reference to foreign corporations that desire to engage in business here.
(United Lead Co. v. J.M. Ready Elevator Mfg. Co., 222 Ill. 199, 73 N.N. 567 [1906].)
A Michigan statute provides: "No foreign corporation subject to the provisions of this Act, shall maintain
any action in this state upon any contract made by it in this state after the taking effect of this
Act, untilit shall have fully complied with the requirement of this Act, and procured a certificate to that
effect from the Secretary of State," It was held that the above statute does not render contracts of a
foreign corporation that fails to comply with the statute void, but they may be enforced only after
compliance therewith. (Hastings Industrial Co. v. Moral, 143 Mich. 679,107 N.E. 706 [1906]; Kuennan v.
U.S. Fidelity & G. Co., Mich. 122; 123 N.W. 799 [1909]; Despres, Bridges & Noel v. Zierleyn, 163 Mich.
399, 128 N.W. 769 [1910]).
It has also been held that where the law provided that a corporation which has not complied with the
statutory requirements "shall not maintain an action until such compliance". "At the commencement of
this action the plaintiff had not filed the certified copy with the country clerk of Madera County, but it did
file with the officer several months before the defendant filed his amended answer, setting up this
defense, as that at the time this defense was pleaded by the defendant the plaintiff had complied with
the statute. The defense pleaded by the defendant was therefore unavailable to him to prevent the
plaintiff from thereafter maintaining the action. Section 299 does not declare that the plaintiff shall not
commence an action in any county unless it has filed a certified copy in the office of the county clerk,
but merely declares that it shall not maintain an action until it has filled it. To maintain an action is not
the same as to commence an action, but implies that the action has already been commenced." (See
also Kendrick & Roberts Inc. v. Warren Bros. Co., 110 Md. 47, 72 A. 461 [1909]).
In another case, the court said: "The very fact that the prohibition against maintaining an action in the
courts of the state was inserted in the statute ought to be conclusive proof that the legislature did not
intend or understand that contracts made without compliance with the law were void. The statute does
not fix any time within which foreign corporations shall comply with the Act. If such contracts were void,
no suits could be prosecuted on them in any court. ... The primary purpose of our statute is to compel a
foreign corporation desiring to do business within the state to submit itself to the jurisdiction of the
courts of this state. The statute was not intended to exclude foreign corporations from the state. It does
not, in terms, render invalid contracts made in this state by non-complying corporations. The better
reason, the wiser and fairer policy, and the greater weight lie with those decisions which hold that
where, as here, there is a prohibition with a penalty, with no express or implied declarations respecting
the validity of enforceability of contracts made by qualified foreign corporations, the contracts ... are
enforceable ... upon compliance with the law." (Peter & Burghard Stone Co. v. Carper, 172 N.E. 319
[1930].)
Our jurisprudence leans towards the later view. Apart from the objectives earlier cited from Marshall
Wells Co. v. Henry W. Elser & Co (supra), it has long been the rule that a foreign corporation actually
doing business in the Philippines without license to do so may be sued in our courts. The defendant
American corporation in General Corporation of the Philippines v. Union Insurance Society of Canton Ltd
et al. (87 Phil. 313) entered into insurance contracts without the necessary license or authority. When
summons was served on the agent, the defendant had not yet been registered and authorized to do
business. The registration and authority came a little less than two months later. This Court ruled:
Counsel for appellant contends that at the time of the service of summons, the appellant had not yet
been authorized to do business. But, as already stated, section 14, Rule 7 of the Rules of Court makes
no distinction as to corporations with or without authority to do business in the Philippines. The test is
whether a foreign corporation was actually doing business here. Otherwise, a foreign corporation
illegally doing business here because of its refusal or neglect to obtain the corresponding license and
authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid
service and thereby impugn the jurisdiction of the local courts. It would indeed be anomalous and quite
prejudicial, even disastrous, to the citizens in this jurisdiction who in all good faith and in the regular
course of business accept and pay for shipments of goods from America, relying for their protection on
duly executed foreign marine insurance policies made payable in Manila and duly endorsed and
delivered to them, that when they go to court to enforce said policies, the insurer who all along has
been engaging in this business of issuing similar marine policies, serenely pleads immunity to local
jurisdiction because of its refusal or neglect to obtain the corresponding license to do business here
thereby compelling the consignees or purchasers of the goods insured to go to America and sue in its
courts for redress.
There is no question that the contracts are enforceable. The requirement of registration affects only the
remedy.
Significantly, Batas Pambansa Blg. 68, the Corporation Code of the Philippines has corrected the
ambiguity caused by the wording of Section 69 of the old Corporation Law.
Section 133 of the present Corporation Code provides:
SEC. 133. Doing business without a license. -No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shag be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency in the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.

The old Section 69 has been reworded in terms of non-access to courts and administrative agencies in
order to maintain or intervene in any action or proceeding.
The prohibition against doing business without first securing a license is now given penal sanction which
is also applicable to other violations of the Corporation Code under the general provisions of Section 144
of the Code.
It is, therefore, not necessary to declare the contract nun and void even as against the erring foreign
corporation. The penal sanction for the violation and the denial of access to our courts and
administrative bodies are sufficient from the viewpoint of legislative policy.
Our ruling that the lack of capacity at the time of the execution of the contracts was cured by the
subsequent registration is also strengthened by the procedural aspects of these cases.
The petitioner averred in its complaints that it is a foreign insurance company, that it is authorized to do
business in the Philippines, that its agent is Mr. Victor H. Bello, and that its office address is the Oledan
Building at Ayala Avenue, Makati. These are all the averments required by Section 4, Rule 8 of the Rules
of Court. The petitioner sufficiently alleged its capacity to sue. The private respondents countered either
with an admission of the plaintiff's jurisdictional averments or with a general denial based on lack of
knowledge or information sufficient to form a belief as to the truth of the averments.
We find the general denials inadequate to attack the foreign corporations lack of capacity to sue in the
light of its positive averment that it is authorized to do so. Section 4, Rule 8 requires that "a party
desiring to raise an issue as to the legal existence of any party or the capacity of any party to sue or be
sued in a representative capacity shall do so by specific denial, which shag include such supporting
particulars as are particularly within the pleader's knowledge. At the very least, the private respondents
should have stated particulars in their answers upon which a specific denial of the petitioner's capacity
to sue could have been based or which could have supported its denial for lack of knowledge. And yet,
even if the plaintiff's lack of capacity to sue was not properly raised as an issue by the answers, the
petitioner introduced documentary evidence that it had the authority to engage in the insurance
business at the time it filed the complaints.
WHEREFORE, the petitions are hereby granted. The decisions of the respondent court are reversed and
set aside.
In L-34382, respondent Eastern Shipping Lines is ordered to pay the petitioner the sum of P1,630.22
with interest at the legal rate from January 5, 1968 until fully paid and respondent Angel Jose
Transportation Inc. is ordered to pay the petitioner the sum of P1,630.22 also with interest at the legal
rate from January 5, 1968 until fully paid. Each respondent shall pay one-half of the costs. The
counterclaim of Angel Jose Transportation Inc. is dismissed.
In L-34383, respondent N. V. Nedlloyd Lijnen, or its agent Columbian Phil. Inc. is ordered to pay the
petitioner the sum of P2,426.98 with interest at the legal rate from February 1, 1968 until fully paid, the
sum of P500.00 attorney's fees, and costs, The complaint against Guacods, Inc. is dismissed.
SO ORDERED.
Teehankee (Chairman), Plana, Escolin and Relova, JJ., concur.
Melencio-Herrera and Vasquez, JJ., are on leave.
G.R. No. L-47701
June 27, 1941
THE MENTHOLATUM CO., INC., ET AL., petitioners,
vs.
ANACLETO MANGALIMAN, ET AL., respondents.
Araneta, Zaragoza, Araneta & Bautista for petitioners.
Benito Soliven for respondents.
LAUREL, J.:
This is a petition for a writ of certiorari to review the decision of the Court of Appeals dated June 29,
1940, reversing the judgment of the Court of First Instance of Manila and dismissing petitioners'
complaint.
On October 1, 1935, the Mentholatum Co., Inc., and the Philippine-American Drug Co., Inc. instituted an
action in the Court of First Instance of Manila, civil case No. 48855, against Anacleto Mangaliman,
Florencio Mangaliman and the Director of the Bureau of Commerce for infringement of trade mark and
unfair competition. Plaintiffs prayed for the issuance of an order restraining Anacleto and Florencio
Mangaliman from selling their product "Mentholiman," and directing them to render an accounting of
their sales and profits and to pay damages. The complaint stated, among other particulars, that the
Mentholatum Co., Inc., is a Kansas corporation which manufactures Mentholatum," a medicament and
salve adapted for the treatment of colds, nasal irritations, chapped skin, insect bites, rectal irritation and
other external ailments of the body; that the Philippine-American Drug co., Inc., is its exclusive
distributing agent in the Philippines authorized by it to look after and protect its interests; that on June
26, 1919 and on January 21, 1921, the Mentholatum Co., Inc., registered with the Bureau of Commerce
and Industry the word, "Mentholatum," as trade mark for its products; that the Mangaliman brothers
prepared a medicament and salve named "Mentholiman" which they sold to the public packed in a
container of the same size, color and shape as "Mentholatum"; and that, as a consequence of these acts
of the defendants, plaintiffs suffered damages from the dimunition of their sales and the loss of goodwill
and reputation of their product in the market.
After a protracted trial, featured by the dismissal of the case on March 9, 1936 for failure of plaintiff's
counsel to attend, and its subsequent reinstatement on April 4, 1936, the Court of First Instance of
Manila, on October 29, 1937, rendered judgment in favor of the complainants, the dispositive part of its
decision reading thus:
En meritos de todo lo expuesto, este Juzgado dicta sentencia:
(a) Haciendo que sea perpetuo y permanente el iterdicto prohibitorio preliminar expedido contra
Anacleto Mangaliman, sus agentes y empleados, prohibiendoles vender su producto en la forma en que
se vendia al incoarse la demanda de autos, o de alguna otra manera competir injustamente contra el
producto de las demandantes, y de usar la marca industrial "MENTHOLIMAN" en sus productos;
(b) Ordenando al demandado Anacleto Mangaliman, que rinda exacta cuenta de sus ganancias por la
venta de su producto desde el dia 10 de marzo de 1934, hasta la fecha de esta decision, y que pague a
las demandantes, en concepto de daos y perjuicios, lo que resulte ser la ganancia de dicho
demandado;
(c) Condenando a dicho demandado, Anacleto Mangaliman, a pagar un multa de cincuenta pesos (P50)
por desacato al Juzgado, y las costas del juicio; y
(d) Sobreseyendo la contra-reclamacion del demandado, Anacleto Mangaliman, contra las demandantes.
In the Court of Appeals, where the cause was docketed as CA-G. R. No. 46067, the decision of the trial
court was, on June 29, 1940, reversed, said tribunal holding that the activities of the Mentholatum Co.,
Inc., were business transactions in the Philippines, and that, by section 69 of the Corporation Law, it
may not maintain the present suit. Hence, this petition for certiorari.
In seeking a reversal of the decision appealed from, petitioners assign the following errors:
1. The Court of Appeals erred in declaring that the transactions of the Mentholatum Co., Inc., in the
Philippines constitute "transacting business" in this country as this term is used in section 69 of the
Corporation Law. The aforesaid conclusion of the Court of Appeals is a conclusion of law and not of fact.
2. The Court of Appeals erred in not holding that whether or not the Mentholatum Co., Inc., has
transacted business in the Philippines is an issue foreign to the case at bar.
3. The Court of Appeals erred in not considering the fact that the complaint was filed not only by the
Mentholatum Co., Inc., but also by the Philippine-American Drug Co., Inc., and that even if the
Mentholatum Co., Inc., has no legal standing in this jurisdiction, the complaint filed should be decided on
its merits since the Philippine-American Drug Co., Inc., has sufficient interest and standing to maintain
the complaint.
Categorically stated, this appeal simmers down to an interpretation of section 69 of the Corporation
Law, and incidentally turns upon a substantial consideration of two fundamental propositions, to wit: (1)
whether or not the petitioners could prosecute the instant action without having secured the license
required in section 69 of the Corporation Law; and (2) whether or not the Philippine-American Drug Co.,
Inc., could by itself maintain this proceeding.
Petitioners maintain that the Mentholatum Co., Inc., has not sold personally any of its products in the
Philippines; that the Philippine-American Drug Co., Inc., like fifteen or twenty other local entities, was
merely an importer of the products of the Mentholatum Co., Inc., and that the sales of the PhilippineAmerican Drug Co., Inc., were its own and not for the account of the Mentholatum Co., Inc. Upon the

other hand, the defendants contend that the Philippine-American Drug Co., Inc., is the exclusive
distributing agent in the Philippines of the Mentholatum Co., Inc., in the sale and distribution of its
product known as "Mentholatum"; that, because of this arrangement, the acts of the latter; and that the
Mentholatum Co., Inc., being thus engaged in business in the Philippines, and not having acquired the
license required by section 68 of the Corporation Law, neither it nor the Philippine-American Drug co.,
Inc., could prosecute the present action.
Section 69 of Act No. 1459 reads:
SEC. 69. No foreign corporation or corporation formed, organized, or existing under any laws other than
those of the Philippine Islands shall be permitted to transact business in the Philippine Islands or
maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it
shall have the license prescribed in the section immediately preceding. Any officer, or agent of the
corporation or any person transacting business for any foreign corporation not having the license
prescribed shall be punished by imprisonment for not less than six months nor more than two years or
by a fine of not less than two hundred pesos nor more than one thousand pesos, or by both such
imprisonment and fine, in the discretion of the court.
In the present case, no dispute exists as to facts: (1) that the plaintiff, the Mentholatum Co., Inc., is a
foreign corporation; (2) that it is not licensed to do business in the Philippines. The controversy, in
reality, hinges on the question of whether the said corporation is or is not transacting business in the
Philippines.
No general rule or governing principle can be laid down as to what constitutes "doing" or "engaging in"
or "transacting" business. Indeed, each case must be judged in the light of its peculiar environmental
circumstances. The true test, however, seems to be whether the foreign corporation is continuing the
body or substance of the business or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another. (Traction Cos. v. Collectors of Int. Revenue [C.
C. A. Ohio], 223 F. 984, 987.) The term implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of, the purpose and object of its
organization. (Griffin v. Implement Dealers' Mut. Fire Ins. Co., 241 N. W. 75, 77; Pauline Oil & Gas Co. v.
Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. 111; Automotive Material Co. v. American Standard
Metal Products Corp., 158 N. E. 698, 703, 327 III. 367.)
In its decision of June 29, 1940, the Court of Appeals concluded that "it is undeniable that the
Mentholatum Co., through its agent, the Philippine-American Drug Co., Inc., has been doing business in
the Philippines by selling its products here since the year 1929, at least." This is assailed by petitioners
as a pure conclusion of law. This finding is predicated upon the testimony of Mr. Roy Springer of the
Philippine-American Drug Co., Inc., and the pleadings filed by petitioners. The complaint filed in the
Court of First Instance of Manila on October 1, 1935, clearly stated that the Philippine-American Drug
Co., Inc., is the exclusive distributing agent in the Philippine Islands of the Mentholatum Co., Inc., in the
sale and distribution of its product known as the Mentholatum." The object of the pleadings being to
draw the lines of battle between litigants and to indicate fairly the nature of the claims or defenses of
both parties (1 Sutherland's Code Pleading, Practice & Forms, sec. 83; Milliken v. Western Union Tel. Co.,
110 N. Y. 403, 18 N. E. 251; Eckrom v. Swenseld, 46 N. D. 561, 563, 179 N. W. 920), a party cannot
subsequently take a position contradictory to, or inconsistent with, his pleadings, as the facts therein
admitted are to be taken as true for the purpose of the action. (46 C. J., sec. 121, pp. 122-124.) It
follows that whatever transactions the Philippine-American Drug Co., Inc., had executed in view of the
law, the Mentholatum Co., Inc., did it itself. And, the Mentholatum Co., Inc., being a foreign corporation
doing business in the Philippines without the license required by section 68 of the Corporation Law, it
may not prosecute this action for violation of trade mark and unfair competition. Neither may the
Philippine-American Drug Co., Inc., maintain the action here for the reason that the distinguishing
features of the agent being his representative character and derivative authority (Mechem on Agency,
sec. 1; Sory on Agency, sec. 3; Sternaman v. Metropolitan Life Ins. Co., 170 N. Y. 21), it cannot now, to
the advantage of its principal, claim an independent standing in court.
The appellees below, petitioners here, invoke the case of Western Equipment and Supply Co. vs.
Reyes (51 Phil., 115). The Court of Appeals, however, properly distinguished that case from the one at
bar in that in the former "the decision expressly says that the Western Equipment and Supply Co. was
not engaged in business in the Philippines, and significantly added that if the plaintiff had been doing
business in the Philippine Islands without first obtaining a license, 'another and a very different question
would be presented'. " It is almost unnecessary to remark in this connection that the recognition of the
legal status of a foreign corporation is a matter affecting the policy of the forum, and the distinction
drawn in our Corporation Law is an expression of that policy. The general statement made in Western
Equipment and Supply Co. vs. Reyes regarding the character of the right involved should not be
construed in derogation of the policy-determining authority of the State.
The right of the petitioner conditioned upon compliance with the requirements of section 69 of the
Corporation Law to protect its rights, is hereby reserved.
The writ prayed for should be, as it hereby is, denied, with costs against the petitioners.
So ordered.
Avancea, C.J., Diaz, and Horrilleno, JJ., concur.
Separate Opinions
MORAN, J., dissenting:
Section 69 of the Corporation Law provides that, without license no foreign corporation may maintain by
itself or assignee any suit in the Philippine courts for the recovery of any debt, claim or demand
whatever. But this provision, as we have held in Western Equipment & Supply Company vs. Reyes (51
Phil., 115), does not apply to suits for infringement of trade marks and unfair competition, the theory
being that "the right to the use of the corporate and trade name of a foreign corporation is a property
right, a right in rem, which it may assert and protect in any of the courts of the world even in countries
where it does not personally transact any business," and that "trade mark does not acknowledge any
territorial boundaries but extends to every mark where the traders' goods have become known and
identified by the use of the mark."
For this reason, I dissent from the majority opinion.
[G.R. No. 118843. February 6, 1997]
ERIKS PTE. LTD., petitioner, vs. COURT OF APPEALS and DELFIN F. ENRIQUEZ,
JR., respondents.
DECISION
PANGANIBAN, J.:
Is a foreign corporation which sold its products sixteen times over a five-month period to the same
Filipino buyer without first obtaining a license to do business in the Philippines, prohibited from
maintaining an action to collect payment therefor in Philippine courts? In other words, is such foreign
corporation doing business in the Philippines without the required license and thus barred access to our
court system?
This is the main issue presented for resolution in the instant petition for review, which seeks the reversal
of the Decision[1] of the Court of Appeals, Seventh Division, promulgated on January 25, 1995, in CAG.R. CV No. 41275 which affirmed, for want of capacity to sue, the trial courts dismissal of the collection
suit instituted by petitioner.
The Facts
Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation engaged in the manufacture and sale of
elements used in sealing pumps, valves and pipes for industrial purposes, valves and control equipment
used for industrial fluid control and PVC pipes and fittings for industrial uses. In its complaint, it alleged
that:[2]
(I)t is a corporation duly organized and existing under the laws of the Republic of Singapore with
address at 18 Pasir Panjang Road #09-01, PSA Multi-Storey Complex, Singapore 0511. It is not licensed
to do business in the Philippines and i(s) not so engaged and is suing on an isolated transaction for
which it has capacity to sue x x x. (par. 1, Complaint; p. 1, Record)
On various dates covering the period January 17 -- August 16, 1989, private respondent Delfin Enriquez,
Jr., doing business under the name and style of Delrene EB Controls Center and/or EB Karmine
Commercial, ordered and received from petitioner various elements used in sealing pumps, valves, pipes

and control equipment, PVC pipes and fittings. The ordered materials were delivered via airfreight under
the following invoices:[3]
Date
Invoice No.
AWB No.
17 Jan 89
27065
618-7496-2941
24 Feb 89
27738
618-7553-6672
02 Mar 89
27855
(freight & handling charges per
03 Mar 89
27876
Inv. 27738)
03 Mar 89
27877
618-7553-7501
10 Mar 89
28046
618-7553-7501
618-7578-3256/
21 Mar 89
28258
618-7578-3481
14 Apr 89
28901
618-7578-4634
19 Apr 89
29001
618-7741-7631
16 Aug 89
31669
Self-collect
(handcarried by buyer)
21
04
14
25
02
05
15

Mar 89
Apr 89
Apr 89
Apr 89
May 89
May 89
May 89

28257
28601
28900
29127
29232
29332
29497

31 May 89

29844

618-7578-4634
618-7741-7605
618-7741-7631
618-7741-9720
(By seafreight)
618-7796-3255
(Freight & handling charges per
Inv. 29127)
618-7796-5646
Total

The transfers of goods were perfected in Singapore, for private respondents account, F.O.B. Singapore,
with a 90-day credit term. Subsequently, demands were made by petitioner upon private respondent to
settle his account, but the latter failed/refused to do so.
On August 28, 1991, petitioner corporation filed with the Regional Trial Court of Makati, Branch 138,
[4] Civil Case No. 91-2373 entitled Eriks Pte. Ltd. vs. Delfin Enriquez, Jr. for the recovery of S$41,939.63
or its equivalent in Philippine currency, plus interest thereon and damages. Private respondent
responded with a Motion to Dismiss, contending that petitioner corporation had no legal capacity to
sue. In an Order dated March 8, 1993,[5] the trial court dismissed the action on the ground that
petitioner is a foreign corporation doing business in the Philippines without a license. The dispositive
portion of said order reads:[6]
WHEREFORE, in view of the foregoing, the motion to dismiss is hereby GRANTED and accordingly, the
above-entitled case is hereby DISMISSED.
SO ORDERED.
On appeal, respondent Court affirmed said order as it deemed the series of transactions between
petitioner corporation and private respondent not to be an isolated or casual transaction. Thus,
respondent Court likewise found petitioner to be without legal capacity to sue, and disposed of the
appeal as follows:[7]
WHEREFORE, the appealed Order should be, as it is hereby AFFIRMED. The complaint is dismissed. No
costs.
SO ORDERED.
Hence, this petition.
The Issue
The main issue in this petition is whether petitioner-corporation may maintain an action in Philippine
courts considering that it has no license to do business in the country. The resolution of this issue
depends on whether petitioners business with private respondent may be treated as isolated
transactions.
Petitioner insists that the series of sales made to private respondent would still constitute isolated
transactions despite the number of invoices covering several separate and distinct items sold and
shipped over a span of four to five months, and that an affirmation of respondent Courts ruling would
result in injustice and unjust enrichment.
Private respondent counters that to declare petitioner as possessing capacity to sue will render nugatory
the provisions of the Corporation Code and constitute a gross violation of our laws. Thus, he argues,
petitioner is undeserving of legal protection.
The Courts Ruling
The petition has no merit.
The Concept of Doing Business
The Corporation Code provides:
Sec. 133. Doing business without a license. - No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.
The aforementioned provision prohibits, not merely absence of the prescribed license, but it also bars a
foreign corporation doing business in the Philippines without such license access to our courts.[8] A
foreign corporation without such license is not ipso facto incapacitated from bringing an action. A license
is necessary only if it istransacting or doing business in the country.
However, there is no definitive rule on what constitutes doing, engaging in, or transacting business. The
Corporation Code itself does not define such terms. To fill the gap, the evolution of its statutory
definition has produced a rather all-encompassing concept in Republic Act No. 7042[9] in this wise:
SEC. 3. Definitions. - As used in this Act:
xxx xxx xxx
(d) the phrase doing business shall include soliciting orders, service contracts, opening offices, whether
called liaison offices or branches; appointing representatives or distributors domiciled in the Philippines
or who in any calendar year stay in the country for a period or periods totalling one hundred eight(y)
(180) days or more; participating in the management, supervision or control of any domestic business,
firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the performance of acts or works,
or the exercise of some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization: Provided, however, That the
phrase doing business shall not be deemed to include mere investment as a shareholder by a foreign
entity in domestic corporations duly registered to do business, and/or the exercise of rights as such
investor; nor having a nominee director or officer to represent its interests in such corporation; nor
appointing a representative or distributor domiciled in the Philippines which transacts business in its own
name and for its own account. (underscoring supplied)
In the durable case of The Mentholatum Co. vs. Mangaliman, this Court discoursed on the test to
determine whether a foreign company is doing business in the Philippines, thus:[10]
x x x The true test, however, seems to be whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was organized or whether it has substantially retired
from it and turned it over to another. (Traction Cos. v. Collectors of Int. Revenue [C.C.A., Ohio], 223 F.
984, 987.] The term implies a continuity of commercial dealings and arrangements, and contemplates,
to that extent, the performance of acts or works or the exercise of some of the functions normally
incident to, and in progressive prosecution of, the purpose and object of its organization.] (sic) (Griffin v.
Implement Dealers Mut. Fire Ins. Co., 241 N.W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co.,

246 P. 851, 852, 118 Okl. 111; Automotive Material Co. v. American Standard Metal Products Corp., 158
N.E. 698, 703, 327 III. 367.)
The accepted rule in jurisprudence is that each case must be judged in the light of its own
environmental circumstances.[11] It should be kept in mind that the purpose of the law is to subject the
foreign corporation doing business in the Philippines to the jurisdiction of our courts. It is not to prevent
the foreign corporation from performing single or isolated acts, but to bar it from acquiring a domicile
for the purpose of business without first taking the steps necessary to render it amenable to suits in the
local courts.
The trial court held that petitioner-corporation was doing business without a license, finding that:[12]
The invoices and delivery receipts covering the period of (sic) from January 17, 1989 to August 16, 1989
cannot be treated to mean a singular and isolated business transaction that is temporary in
character. Granting that there is no distributorship agreement between herein parties, yet by the mere
fact that plaintiff, each time that the defendant posts an order delivers the items as evidenced by the
several invoices and receipts of various dates only indicates that plaintiff has the intention and desire to
repeat the (sic) said transaction in the future in pursuit of its ordinary business.Furthermore, and if the
corporation is doing that for which it was created, the amount or volume of the business done is
immaterial and a single act of that character may constitute doing business. (See p. 603, Corp. Code, De
Leon - 1986 Ed.).
Respondent Court affirmed this finding in its assailed Decision with this explanation:[13]
x x x Considering the factual background as laid out above, the transaction cannot be considered as an
isolated one. Note that there were 17 orders and deliveries (only sixteen per our count) over a fourmonth period. The appellee (private respondent) made separate orders at various dates. The
transactions did not consist of separate deliveries for one single order. In the case at bar, the
transactions entered into by the appellant with the appellee are a series of commercial dealings which
would signify an intent on the part of the appellant (petitioner) to do business in the Philippines and
could not by any stretch of the imagination be considered an isolated one, thus would fall under the
category of doing business.
Even if We were to view, as contended by the appellant, that the transactions which occurred between
January to August 1989, constitute a single act or isolated business transaction, this being the ordinary
business of appellant corporation, it can be said to be illegally doing or transacting business without a
license. x x x Here it can be clearly gleaned from the four-month period of transactions between
appellant and appellee that it was a continuing business relationship, which would, without doubt,
constitute doing business without a license. For all intents and purposes, appellant corporation is doing
or transacting business in the Philippines without a license and that, therefore, in accordance with the
specific mandate of Section 144 of the Corporation Code, it has no capacity to sue. (addition ours)
We find no reason to disagree with both lower courts. More than the sheer number of transactions
entered into, a clear and unmistakable intention on the part of petitioner to continue the body of its
business in the Philippines is more than apparent. As alleged in its complaint, it is engaged in the
manufacture and sale of elements used in sealing pumps, valves, and pipes for industrial purposes,
valves and control equipment used for industrial fluid control and PVC pipes and fittings for industrial
use. Thus, the sale by petitioner of the items covered by the receipts, which are part and parcel of its
main product line, was actually carried out in the progressive prosecution of commercial gain and the
pursuit of the purpose and object of its business, pure and simple. Further, its grant and extension of
90-day credit terms to private respondent for every purchase made, unarguably shows an intention to
continue transacting with private respondent, since in the usual course of commercial transactions,
credit is extended only to customers in good standing or to those on whom there is an intention to
maintain long-term relationship. This being so, the existence of a distributorship agreement between the
parties, as alleged but not proven by private respondent, would, if duly established by competent
evidence, be merely corroborative, and failure to sufficiently prove said allegation will not significantly
affect the finding of the courts below. Nor our own ruling. It is precisely upon the set of facts abovedetailed that we concur with respondent Court that petitioner corporation was doing business in the
country.
Equally important is the absence of any fact or circumstance which might tend even remotely to negate
such intention to continue the progressive prosecution of petitioners business activities in this
country. Had private respondent not turned out to be a bad risk, in all likelihood petitioner would have
indefinitely continued its commercial transactions with him, and not surprisingly, in ever increasing
volumes.
Thus, we hold that the series of transactions in question could not have been isolated or casual
transactions. What is determinative of doing business is not really the number or the quantity of the
transactions, but more importantly, the intention of an entity to continue the body of its business in the
country. The number and quantity are merely evidence of such intention. The phrase isolated
transaction has a definite and fixed meaning, i.e. a transaction or series of transactions set apart from
the common business of a foreign enterprise in the sense that there is no intention to engage in a
progressive pursuit of the purpose and object of the business organization. Whether a foreign
corporation is doing business does not necessarily depend upon the frequency of its transactions, but
more upon the nature and character of the transactions.[14]
Given the facts of this case, we cannot see how petitioners business dealings will fit the category of
isolated transactions considering that its intention to continue and pursue the corpus of its business in
the country had been clearly established. It has not presented any convincing argument with equally
convincing evidence for us to rule otherwise.
Incapacitated to Maintain Suit
Accordingly and ineluctably, petitioner must be held to be incapacitated to maintain the action a
quo against private respondent.
It was never the intent of the legislature to bar court access to a foreign corporation or entity which
happens to obtain an isolated order for business in the Philippines.Neither, did it intend to shield debtors
from their legitimate liabilities or obligations.[15] But it cannot allow foreign corporations or entities
which conduct regular business any access to courts without the fulfillment by such corporations of the
necessary requisites to be subjected to our governments regulation and authority. By securing a license,
the foreign entity would be giving assurance that it will abide by the decisions of our courts, even if
adverse to it.
Other Remedy Still Available
By this judgment, we are not foreclosing petitioners right to collect payment. Res judicata does not set
in a case dismissed for lack of capacity to sue, because there has been no determination on the merits.
[16] Moreover, this Court has ruled that subsequent acquisition of the license will cure the lack of
capacity at the time of the execution of the contract.[17]
The requirement of a license is not meant to put foreign corporations at a disadvantage. Rather, the
doctrine of lack of capacity to sue is based on considerations of sound public policy. [18] Thus, it has
been ruled in Home Insurance that:[19]
x x x The primary purpose of our statute is to compel a foreign corporation desiring to do business
within the state to submit itself to the jurisdiction of the courts of this state.The statute was not
intended to exclude foreign corporations from the state. x x x x The better reason, the wiser and fairer
policy, and the greater weight lie with those decisions which hold that where, as here, there is a
prohibition with a penalty, with no express or implied declarations respecting the validity of
enforceability of contracts made by qualified foreign corporations, the contracts x x x are enforceable x x
x upon compliance with the law.(Peter & Burghard Stone Co. v. Carper, 172 N.E. 319 [1930].)
While we agree with petitioner that the country needs to develop trade relations and foster friendly
commercial relations with other states, we also need to enforce our laws that regulate the conduct of
foreigners who desire to do business here. Such strangers must follow our laws and must subject
themselves to reasonable regulation by our government.
WHEREFORE, premises considered, the instant petition is hereby DENIED and the assailed Decision
is AFFIRMED.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.

[G.R. No. 138104. April 11, 2002]


MR HOLDINGS, LTD., petitioner, vs. SHERIFF CARLOS P. BAJAR, SHERIFF FERDINAND M.
JANDUSAY,
SOLIDBANK
CORPORATION,
AND
MARCOPPER
MINING
CORPORATION,respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
In the present Petition for Review on Certiorari, petitioner MR Holdings, Ltd. assails
the a) Decision[1] dated January 8, 1999 of the Court of Appeals in CA-G.R. SP No. 49226 finding no
grave abuse of discretion on the part of Judge Leonardo P. Ansaldo of the Regional Trial Court (RTC),
Branch 94, Boac, Marinduque, in denying petitioners application for a writ of preliminary injunction;
[2]and b) Resolution[3] dated March 29, 1999 denying petitioners motion for reconsideration.
The facts of the case are as follows:
Under a Principal Loan Agreement[4] and Complementary Loan Agreement,[5] both dated November 4,
1992, Asian Development Bank (ADB), a multilateral development finance institution, agreed to extend
to Marcopper Mining Corporation (Marcopper) a loan in the aggregate amount of US$40,000,000.00 to
finance the latters mining project at Sta. Cruz, Marinduque. The principal loan of US$ 15,000,000.00
was sourced from ADBs ordinary capital resources, while the complementary loan of US$ 25,000,000.00
was funded by the Bank of Nova Scotia, a participating finance institution.
On even date, ADB and Placer Dome, Inc., (Placer Dome), a foreign corporation which owns 40% of
Marcopper, executed a Support and Standby Credit Agreement whereby the latter agreed to provide
Marcopper with cash flow support for the payment of its obligations to ADB.
To secure the loan, Marcopper executed in favor of ADB a Deed of Real Estate and Chattel
Mortgage[6] dated November 11, 1992, covering substantially all of its (Marcoppers) properties and
assets in Marinduque. It was registered with the Register of Deeds on November 12, 1992.
When Marcopper defaulted in the payment of its loan obligation, Placer Dome, in fulfillment of its
undertaking under the Support and Standby Credit Agreement, and presumably to preserve its
international credit standing, agreed to have its subsidiary corporation, petitioner MR Holding, Ltd.,
assumed Marcoppers obligation to ADB in the amount of US$ 18,453,450.02. Consequently, in an
Assignment Agreement[7] dated March 20, 1997, ADB assigned to petitioner all its rights, interests and
obligations under the principal and complementary loan agreements, (Deed of Real Estate and Chattel
Mortgage, and Support and Standby Credit Agreement). On December 8, 1997, Marcopper likewise
executed a Deed of Assignment[8] in favor of petitioner. Under its provisions, Marcopper assigns,
transfers, cedes and conveys to petitioner, its assigns and/or successors-in-interest all of its
(Marcoppers) properties, mining equipment and facilities, to wit:
Land and Mining Rights
Building and Other Structures
Other Land Improvements
Machineries & Equipment, and Warehouse Inventory
Mine/Mobile Equipment
Transportation Equipment and Furniture & Fixtures
Meanwhile, it appeared that on May 7, 1997, Solidbank Corporation (Solidbank) obtained a Partial
Judgment[9] against Marcopper from the RTC, Branch 26, Manila, in Civil Case No. 96-80083
entitled Solidbank Corporation vs. Marcopper Mining Corporation, John E. Loney, Jose E. Reyes and
Teodulo C. Gabor, Jr., the decretal portion of which reads:
WHEREFORE, PREMISES CONSIDERED, partial judgment is hereby rendered ordering defendant
Marcopper Mining Corporation, as follows:
1. To pay plaintiff Solidbank the sum of Fifty Two Million Nine Hundred Seventy Thousand Pesos Seven
Hundred Fifty Six and 89/100 only (PHP 52,970,756.89), plus interest and charges until fully paid;
2. To pay an amount equivalent to Ten Percent (10%) of above-stated amount as attorneys fees; and
3. To pay the costs of suit.
"SO ORDERED.
Upon Solidbanks motion, the RTC of Manila issued a writ of execution pending appeal directing Carlos P.
Bajar, respondent sheriff, to require Marcopper to pay the sums of money to satisfy the Partial
Judgment.[10] Thereafter, respondent Bajar issued two notices of levy on Marcoppers personal and real
properties, and over all its stocks of scrap iron and unserviceable mining equipment. [11]Together with
sheriff Ferdinand M. Jandusay (also a respondent) of the RTC, Branch 94, Boac, Marinduque, respondent
Bajar issued two notices setting the public auction sale of the levied properties on August 27, 1998 at
the Marcopper mine site.[12]
Having learned of the scheduled auction sale, petitioner served an Affidavit of Third-Party
Claim[13] upon respondent sheriffs on August 26, 1998, asserting its ownership over all Marcoppers
mining properties, equipment and facilities by virtue of the Deed of Assignment.
Upon the denial of its Affidavit of ThirdParty Claim by the RTC of Manila,[14] petitioner commenced with
the RTC of Boac, Marinduque, presided by Judge Leonardo P. Ansaldo, a complaint for reivindication of
properties, etc., with prayer for preliminary injunction and temporary restraining order against
respondents Solidbank, Marcopper, and sheriffs Bajar and Jandusay.[15] The case was docketed as Civil
Case No. 98-13.
In an Order[16]dated October 6, 1998, Judge Ansaldo denied petitioners application for a writ of
preliminary injunction on the ground that a) petitioner has no legal capacity to sue, it being a foreign
corporation doing business in the Philippines without license; b)an injunction will amount to staying the
execution of a final judgment by a court of co-equal and concurrent jurisdiction; and c) the validity of
the Assignment Agreement and the Deed of Assignment has been put into serious question by the
timing of their execution and registration.
Unsatisfied, petitioner elevated the matter to the Court of Appeals on a Petition for Certiorari, Prohibition
and Mandamus, docketed therein as CA-G.R. SP No. 49226. On January 8, 1999, the Court of Appeals
rendered a Decision holding that Judge Ansaldo did not commit grave abuse of discretion in denying
petitioners prayer for a writ of preliminary injunction, ratiocinating as follows:
Petitioner contends that it has the legal capacity to sue and seek redress from Philippine courts as it is a
non-resident foreign corporation not doing business in the Philippines and suing on isolated transactions.
xxxxxx
We agree with the finding of the respondent court that petitioner is not suing on an isolated transaction
as it claims to be, as it is very obvious from the deed of assignment and its relationships with Marcopper
and Placer Dome, Inc. that its unmistakable intention is to continue the operations of Marcopper and
shield its properties/assets from the reach of legitimate creditors, even those holding valid and
executory court judgments against it. There is no other way for petitioner to recover its huge financial
investments which it poured into Marcoppers rehabilitation and the local situs where the Deeds of
Assignment were executed, without petitioner continuing to do business in the country.
xxxxxx
While petitioner may just be an assignee to the Deeds of Assignment, it may still fall within
the meaning of doing business in light of the Supreme Court ruling in the case of Far East
International Import and Export Corporation vs. Nankai Kogyo Co., 6 SCRA 725, that:
Where a single act or transaction however is not merely incidental or casual but indicates
the foreign corporations intention to do other business in the Philippines, said single act or
transaction constitutes doing or engaging in or transacting business in the Philippines.
Furthermore, the court went further by declaring that even a single act may constitute
doing business if it is intended to be the beginning of a series of transactions. (Far East
International Import and Export Corporation vs. Nankai Kogyo Co. supra).
On the issue of whether petitioner is the bona fide owner of all the mining facilities and equipment of
Marcopper, petitioner relies heavily on the Assignment Agreement allegedly executed on March 20, 1997
wherein all the rights and interest of Asian Development Bank (ADB) in a purported Loan Agreement
were ceded and transferred in favor of the petitioner as assignee, in addition to a subsequent Deed of
Assignment dated December 28, 1997 conveying absolutely all the properties, mining equipment and
facilities of Marcopper in favor of petitioner.
The Deeds of Assignment executed in favor of petitioner cannot be binding on the judgment creditor,
private respondent Solidbank, under the general legal principle that contracts can only bind the parties
who had entered into it, and it cannot favor or prejudice a third person ( Quano vs. Court of Appeals,
211 SCRA 40). Moreover, by express stipulation, the said deeds shall be governed, interpreted and

construed in accordance with laws of New York.


The Deeds of Assignment executed by Marcopper, through its President, Atty. Teodulo C.
Gabor, Jr., were clearly made in bad faith and in fraud of creditors, particularly private
respondent Solidbank. The first Assignment Agreement purportedly executed on March 20,
1997 was entered into after Solidbank had filed on September 19, 1996 a case against
Marcopper for collection of sum of money before Branch 26 of the Regional Trial Court
docketed as Civil Case No. 96-80083. The second Deed of Assignment purportedly executed
on December 28, 1997 was entered into by President Gabor after Solidbank had filed its
Motion for Partial Summary Judgment, after the rendition by Branch 26 of the Regional
Trial Court of Manila of a Partial Summary Judgment and after the said trial court had
issued a writ of execution, and which judgment was later affirmed by the Court of Appeals.
While the assignments (which were not registered with the Registry of Property as required by Article
1625 of the new Civil Code) may be valid between the parties thereof, it produces no effect as against
third parties. The purported execution of the Deeds of Assignment in favor of petitioner was in violation
of Article 1387 of the New Civil Code x x x. (Emphasis Supplied)
Hence, the present Petition for Review on Certiorari by MR Holdings, Ltd. moored on the following
grounds:
A. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN COMPLETELY
DISREGARDING AS A MATERIAL FACT OF THE CASE THE EXISTENCE OF THE PRIOR,
REGISTERED 1992 DEED OF REAL ESTATE AND CHATTEL MORTGAGE CREATING A LIEN
OVER THE LEVIED PROPERTIES, SUBJECT OF THE ASSIGNMENT AGREEMENT DATED
MARCH 20, 1997, THUS, MATERIALLY CONTRIBUTING TO THE SAID COURTS
MISPERCEPTION AND MISAPPRECIATION OF THE MERITS OF PETITIONERS CASE.
B. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN MAKING A
FACTUAL FINDING THAT THE SAID ASSIGNMENT AGREEMENT IS NOT REGISTERED, THE
SAME BEING CONTRARY TO THE FACTS ON RECORD, THUS, MATERIALLY CONTRIBUTING
TO THE SAID COURTS MISPERCEPTION AND MISAPPRECIATION OF THE MERITS OF
PETITIONERS CASE.
C. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN MAKING A
FACTUAL FINDING ON THE EXISTENCE OF AN ATTACHMENT ON THE PROPERTIES SUBJECT
OF INSTANT CASE, THE SAME BEING CONTRARY TO THE FACTS ON RECORD, THUS,
MATERIALLY CONTRIBUTING TO THE SAID COURTS MISPERCEPTION AND
MISAPPRECIATION OF THE MERITS OF PETITIONERS CASE.
D. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN HOLDING
THAT THE SAID ASSIGNMENT AGREEMENT AND THE DEED OF ASSIGNMENT ARE NOT
BINDING ON RESPONDENT SOLIDBANK WHO IS NOT A PARTY THERETO, THE SAME BEING
CONTRARY TO LAW AND ESTABLISHED JURISPRUDENCE ON PRIOR REGISTERED
MORTGAGE LIENS AND ON PREFERENCE OF CREDITS.
E. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN FINDING THAT
THE AFOREMENTIONED ASSIGNMENT AGREEMENT AND DEED OF ASSIGNMENT ARE SHAM,
SIMULATED, OF DUBIOUS CHARACTER, AND WERE MADE IN BAD FAITH AND IN FRAUD OF
CREDITORS, PARTICULARLY RESPONDENT SOLIDBANK, THE SAME BEING IN COMPLETE
DISREGARD OF, VIZ: (1) THE LAW AND ESTABLISHED JURISPRUDENCE ON PRIOR,
REGISTERED MORTGAGE LIENS AND ON PREFERENCE OF CREDITS, BY REASON OF WHICH
THERE EXISTS NO CAUSAL CONNECTION BETWEEN THE SAID CONTRACTS AND THE
PROCEEDINGS IN CIVIL CASE NO. 96-80083; (2) THAT THE ASIAN DEVELOPMENT BANK
WILL NOT OR COULD NOT HAVE AGREED TO A SHAM; SIMULATED, DUBIOUS AND
FRAUDULENT TRANSACTION; AND (3) THAT RESPONDENT SOLIDBANKS BIGGEST
STOCKHOLDER, THE BANK OF NOVA SCOTIA, WAS A MAJOR BENEFICIARY OF THE
ASSIGNMENT AGREEMENT IN QUESTION.
F. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN HOLDING
THAT PETITIONER IS WITHOUT LEGAL CAPACITY TO SUE AND SEEK REDRESS FROM
PHILIPPINE COURTS, IT BEING THE CASE THAT SECTION 133 OF THE CORPORATION CODE
IS WITHOUT APPLICATION TO PETITIONER, AND IT BEING THE CASE THAT THE SAID
COURT MERELY RELIED ON SURMISES AND CONJECTURES IN OPINING THAT PETITIONER
INTENDS TO DO BUSINESS IN THE PHILIPPINES.
G. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN HOLDING
THAT RESPONDENT MARCOPPER, PLACER DOME, INC., AND PETITIONER ARE ONE AND
THE SAME ENTITY, THE SAME BEING WITHOUT FACTUAL OR LEGAL BASIS.
H. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN HOLDING
PETITIONER GUILTY OF FORUM SHOPPING, IT BEING CLEAR THAT NEITHER LITIS
PENDENTIA NOR RES JUDICATAMAY BAR THE INSTANT REIVINDICATORY ACTION, AND IT
BEING CLEAR THAT AS THIRD-PARTY CLAIMANT, THE LAW AFFORDS PETITIONER THE
RIGHT TO FILE SUCH REIVINDICATORY ACTION.
I. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN RENDERING A
DECISION WHICH IN EFFECT SERVES AS JUDGMENT ON THE MERITS OF THE CASE.
J. THE SHERIFFS LEVY AND SALE, THE SHERIFFS CERTIFICATE OF SALE DATED OCTOBER
12, 1998, THE RTC-MANILA ORDER DATED FEBRUARY 12, 1999, AND THE RTC-BOAC
ORDER DATED NOVEMBER 25, 1998 ARE NULL AND VOID.
K. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN AFFIRMING
THE DENIAL BY THE RTC-BOAC OF PETITIONERS APPLICATION FOR PRELIMINARY
INJUNCTION, THE SAME BEING IN TOTAL DISREGARD OF PETITIONERS RIGHT
AS ASSIGNEE OF A PRIOR, REGISTERED MORTGAGE LIEN, AND IN DISREGARD OF THE
LAW AND JURISPRUDENCE ON PREFERENCE OF CREDIT."
In its petition, petitioner alleges that it is not doing business in the Philippines and characterizes its
participation in the assignment contracts (whereby Marcoppers assets where transferred to it) as mere
isolated acts that cannot foreclose its right to sue in local courts. Petitioner likewise maintains that the
two assignment contracts, although executed during the pendency of Civil Case No. 96-80083 in the
RTC of Manila, are not fraudulent conveyances as they were supported by valuable
considerations. Moreover, they were executed in connection with prior transactions that took place as
early as 1992 which involved ADB, a reputable financial institution. Petitioner further claims that when it
paid Marcoppers obligation to ADB, it stepped into the latters shoes and acquired its (ADBS) rights,
titles, and interests under the Deed of Real Estate and Chattel Mortgage. Lastly, petitioner asserts its
existence as a corporation, separate and distinct from Placer Dome and Marcopper.
In its comment, Solidbank avers that: a) petitioner is doing business in the Philippines and this is
evidenced by the huge investment it poured into the assignment contracts; b) granting that petitioner is
not doing business in the Philippines, the nature of its transaction reveals an intention to do business or
to begin a series of transaction in the country; c) petitioner, Marcopper and Placer Dome are one and
the same entity, petitioner being then a wholly-owned subsidiary of Placer Dome, which, in turn, owns
40% of Marcopper; d) the timing under which the assignments contracts were executed shows that
petitioners purpose was to defeat any judgment favorable to it (Solidbank); and e) petitioner violated
the rule on forum shopping since the object of Civil Case No. 98-13 (at RTC, Boac, Marinduque) is
similar to the other cases filed by Marcopper in order to forestall the sale of the levied properties.
Marcopper, in a separate comment, states that it is merely a nominal party to the present case and that
its principal concerns are being ventilated in another case.
The petition is impressed with merit.
Crucial to the outcome of this case is our resolution of the following issues: 1) Does petitioner have the
legal capacity to sue? 2)Was the Deed of Assignment between Marcopper and petitioner executed in
fraud of creditors? 3) Are petitioner MR Holdings, Ltd., Placer Dome, and Marcopper one and the same
entity? and 4) Is petitioner guilty of forum shopping?
We shall resolve the issues in seriatim.
I
The Court of Appeals ruled that petitioner has no legal capacity to sue in the Philippine courts because it
is a foreign corporation doing business here without license. A review of this ruling does not pose much
complexity as the principles governing a foreign corporations right to sue in local courts have long been
settled by our Corporation Law.[17] These principles may be condensed in three statements, to

wit: a) if a foreign corporation does business in the Philippines without a license, it cannot
sue before the Philippine courts;[18] b) if a foreign corporation is not doing business in the
Philippines, it needs no license to sue before Philippine courts on an isolated transaction[19]or on a
cause of action entirely independent of any business transaction; [20] and c) if a foreign
corporation does business in the Philippines with the required license, it can sue before Philippine
courts on any transaction. Apparently, it is not the absence of the prescribed license but the doing (of)
business in the Philippines without such license which debars the foreign corporation from access to our
courts.[21]
The task at hand requires us to weigh the facts vis--vis the established principles. The question whether
or not a foreign corporation is doing business is dependent principally upon the facts and circumstances
of each particular case, considered in the light of the purposes and language of the pertinent statute or
statutes involved and of the general principles governing the jurisdictional authority of the state over
such corporations.[22]
Batas Pambansa Blg. 68, otherwise known as The Corporation Code of the Philippines, is silent as to
what constitutes doing ortransacting business in the Philippines. Fortunately, jurisprudence has supplied
the deficiency and has held that the term implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of, the purpose and object for which the
corporation was organized.[23] In Mentholatum Co. Inc., vs. Mangaliman,[24] this Court laid down the
test to determine whether a foreign company isdoing business, thus:
x x x The true test, however, seems to be whether the foreign corporation is continuing the
body or substance of the business or enterprise for which it was organized or whether it
has substantially retired from it and turned it over to another. (Traction Cos. vs. Collectors of
Int. Revenue [C.C.A., Ohio], 223 F. 984,987.) x x x.
The traditional case law definition has metamorphosed into a statutory definition, having been adopted
with some qualifications in various pieces of legislation in our jurisdiction. For instance, Republic Act No.
7042, otherwise known as the Foreign Investment Act of 1991, defines doing business as follows:
d) The phrase doing business shall include soliciting orders, service contracts, opening offices, whether
called liaison offices or branches; appointing representatives or distributors domiciled in the Philippines
or who in any calendar year stay in the country for a period or periods totalling one hundred eight(y)
(180) days or more; participating in the management, supervision or control of any domestic business,
firm, entity, or corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the performance of
acts or works; or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the business
organization; Provided, however, That the phrase doing business shall not be deemed to include mere
investment as a shareholder by a foreign entity in domestic corporations duly registered to do business,
and/or the exercise of rights as such investor, nor having a nominee director or officer to represent its
interests in such corporation, nor appointing a representative or distributor domiciled in the Philippines
which transacts business in its own name and for its own account. (Emphasis supplied)[25]
Likewise, Section 1 of Republic Act No. 5455,[26] provides that:
SECTION. 1. Definition and scope of this Act. - (1) x x x the phrase doing business shall include
soliciting orders, purchases, service contracts, opening offices, whether called liaison offices or
branches; appointing representatives or distributors who are domiciled in the Philippines or who in any
calendar year stay in the Philippines for a period or periods totaling one hundred eighty days or more;
participating in the management, supervision or control of any domestic business firm, entity or
corporation in the Philippines; and any other act or acts that imply a continuity of commercial
dealings or arrangements, and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of the business organization.
There are other statutes[27] defining the term doing business in the same tenor as those above-quoted,
and as may be observed, one common denominator among them all is the concept of continuity.
In the case at bar, the Court of Appeals categorized as doing business petitioners participation under the
Assignment Agreement and the Deed of Assignment. This is simply untenable. The expression doing
business should not be given such a strict and literal construction as to make it apply to any corporate
dealing whatever.[28] At this early stage and with petitioners acts or transactions limited to the
assignment contracts, it cannot be said that it had performed acts intended to continue the business for
which
it
was
organized. It
may
not
be
amiss
to
point
out
that the purpose or business for which petitioner was organized is not discernible in the
records. No effort was exerted by the Court of Appeals to establish the nexus between
petitioners business and the acts supposed to constitute doing business. Thus, whether the
assignment contracts were incidental to petitioners business or were continuation thereof
is beyond determination. We cannot apply the case cited by the Court of Appeals, Far East Intl
Import and Export Corp. vs. Nankai Kogyo Co., Ltd., [29] which held that a single act may still constitute
doing business if it is not merely incidental or casual, but is of such character as distinctly to indicate a
purpose on the part of the foreign corporation to do other business in the state. In said case, there was
an express admission from an official of the foreign corporation that he was sent to the Philippines to
look into the operation of mines, thereby revealing the foreign corporations desire to continue engaging
in business here. But in the case at bar, there is no evidence of similar desire or intent. Unarguably,
petitioner may, as the Court of Appeals suggested, decide to operate Marcoppers mining business,
but, of course, at this stage, that is a mere speculation. Or it may decide to sell the credit secured by
the mining properties to an offshore investor, in which case the acts will still be isolated transactions. To
see through the present facts an intention on the part of petitioner to start a series of
business transaction is to rest on assumptions or probabilities falling short of actual
proof. Courts should never base its judgments on a state of facts so inadequately developed
that it cannot be determined where inference ends and conjecture begins.
Indeed, the Court of Appeals holding that petitioner was determined to be doing business in the
Philippines is based mainly on conjectures and speculation. In concluding that the unmistakable
intention of petitioner is to continue Marcoppers business, the Court of Appeals hangs on the wobbly
premise that there is no other way for petitioner to recover its huge financial investments which it
poured into Marcoppers rehabilitation without it (petitioner) continuing Marcoppers business in the
country.[30] This is a mere presumption.Absent overt acts of petitioner from which we may directly infer
its intention to continue Marcoppers business, we cannot give our concurrence. Significantly, a view
subscribed upon by many authorities is that the mere ownership by a foreign corporation of a property
in a certain state, unaccompanied by its active use in furtherance of the business for which it
was formed, is insufficient in itself to constitute doing business.[31] In Chittim vs. Belle Fourche
Bentonite Products Co., [32] it was held that even if a foreign corporation purchased
and took conveyances of a mining claim, did some assessment work thereon, and
endeavored to sell it, its acts will not constitute the doing of business so as to subject the
corporation to the statutory requirements for the transacting of business . On the same vein,
petitioner, a foreign corporation, which becomes the assignee of mining properties, facilities and
equipment cannot be automatically considered as doing business, nor presumed to have the intention of
engaging in mining business.
One important point. Long before petitioner assumed Marcoppers debt to ADB and became their
assignee under the two assignment contracts, there already existed a Support and Standby Credit
Agreement between ADB and Placer Dome whereby the latter bound itself to provide cash flow support
for Marcoppers payment of its obligations to ADB. Plainly, petitioners payment of US$ 18,453, 450.12 to
ADB was more of a fulfillment of an obligation under the Support and Standby Credit Agreement rather
than an investment. That petitioner had to step into the shoes of ADB as Marcoppers creditor was just a
necessary legal consequence of the transactions that transpired. Also, we must hasten to add that the
Support and Standby Credit Agreement was executed four (4) years prior to Marcoppers
insovency, hence, the alleged intention of petitioner to continue Marcoppers business could have no
basis for at that time, Marcoppers fate cannot yet be determined.
In the final analysis, we are convinced that petitioner was engaged only in isolated acts or
transactions. Single or isolated acts, contracts, or transactions of foreign corporations are not regarded
as a doing or carrying on of business. Typical examples of these are the making of a single contract,

sale, sale with the taking of a note and mortgage in the state to secure payment therefor, purchase, or
note, or the mere commission of a tort.[33] In these instances, there is no purpose to do any other
business within the country.
II
Solidbank contends that from the chronology and timing of events, it is evident that there existed a preset pattern of response on the part of Marcopper to defeat whatever court ruling that may be rendered
in favor of Solidbank.
We are not convinced.
While it may appear, at initial glance, that the assignment contracts are in the nature of fraudulent
conveyances, however, a closer look at the events that transpired prior to the execution of those
contracts gives rise to a different conclusion. The obvious flaw in the Court of Appeals Decision lies in its
constricted view of the facts obtaining in the case. In its factual narration, the Court of Appeals definitely
left out some events. We shall see later the significance of those events.
Article 1387 of the Civil Code of the Philippines provides:
Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are
presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient
property to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by persons against
whom some judgment has been rendered in any instance or some writ of attachment has
been issued. The decision or attachment need not refer to the property alienated, and need
not have been obtained by the party seeking rescission.
In addition to these presumptions, the design to defraud creditors may be proved in any other manner
recognized by law and of evidence.
This article presumes the existence of fraud made by a debtor. Thus, in the absence of satisfactory
evidence to the contrary, an alienation of a property will be held fraudulent if it is made after a
judgment has been rendered against the debtor making the alienation. [34] This presumption of fraud is
not conclusive and may be rebutted by satisfactory and convincing evidence. All that is necessary is
to establish affirmatively that the conveyance is made in good faith and for a sufficient and
valuable consideration.[35]
The Assignment Agreement and the Deed of Assignment were executed for valuable
considerations. Patent from the Assignment Agreement is the fact that petitioner assumed the payment
of US$ 18,453,450.12 to ADB in satisfaction of Marcoppers remaining debt as of March 20, 1997.
[36] Solidbank cannot deny this fact considering that a substantial portion of the said payment, in the
sum of US$ 13,886,791.06, was remitted in favor of the Bank of Nova Scotia, its major stockholder.[37]
The facts of the case so far show that the assignment contracts were executed in good faith. The
execution of the Assignment Agreement on Macrh 20, 1997 and the Deed of Assignment on December
8,1997 is not the alpha of this case. While the execution of these assignment contracts almost coincided
with the rendition on May 7, 1997 of the Partial Judgment in Civil Case No. 96-80083 by the Manila RTC,
however, there was no intention on the part of petitioner to defeat Solidbanks claim. It bears reiterating
that as early as November 4, 1992, Placer Dome had already bound itself under a Support and Standby
Credit Agreement to provide Marcopper with cash flow support for the payment to ADB of its
obligations. When Marcopper ceased operations on account of disastrous mine tailings spill into the Boac
River and ADB pressed for payment of the loan, Placer Dome agreed to have its subsidiary, herein
petitioner, paid ADB the amount of US $18,453,450.12. Thereupon, ADB and Marcopper executed,
respectively, in favor of petitioner an Assignment Agreement and a Deed of Assignment. Obviously, the
assignment contracts were connected with transactions that happened long before the rendition in 1997
of the Partial Judgment in Civil Case No. 96-80083 by the Manila RTC. Those contracts cannot be viewed
in isolation. If we may add, it is highly inconceivable that ADB, a reputable international financial
organization, will connive with Marcopper to feign or simulate a contract in 1992 just to defraud
Solidbank for its claim four years thereafter. And it is equally incredible for petitioner to be paying the
huge sum of US $ 18, 453, 450.12 to ADB only for the purpose of defrauding Solidbank of the sum
of P52,970.756.89.
It is said that the test as to whether or not a conveyance is fraudulent is -- does it prejudice the rights of
creditors?[38] We cannot see how Solidbanks right was prejudiced by the assignment contracts
considering that substantially all of Marcoppers properties were already covered by the registered Deed
of Real Estate and Chattel Mortgage executed by Marcopper in favor of ADB as early as November 11,
1992. As such, Solidbank cannot assert a better right than ADB, the latter being a preferred creditor. It
is basic that mortgaged properties answer primarily for the mortgaged credit, not for the judgment
credit of the mortgagors unsecured creditor. Considering that petitioner assumed Marcoppers debt to
ADB, it follows that Solidbanks right as judgment creditor over the subject properties must give way to
that of the former.
III
The record is lacking in circumstances that would suggest that petitioner corporation, Placer Dome and
Marcopper are one and the same entity. While admittedly, petitioner is a wholly-owned subsidiary of
Placer Dome, which in turn, which, in turn, was then a minority stockholder of Marcopper, however, the
mere fact that a corporation owns all of the stocks of another corporation, taken alone is
not sufficient to justify their being treated as one entity. If used to perform legitimate functions,
a subsidiarys separate existence shall be respected, and the liability of the parent corporation as well as
the subsidiary will be confined to those arising in their respective business.[39]
The recent case of Philippine National Bank vs. Ritratto Group Inc., [40] outlines the circumstances which
are useful in the determination of whether a subsidiary is but a mere instrumentality of the parentcorporation, to wit:
(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its
incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or no assets except
those conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is
described as a department or division of the parent corporation, or its business or financial responsibility
is referred to as the parent corporations own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest of the
subsidiary, but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
In this catena of circumstances, what is only extant in the records is the matter of stock
ownership. There are no other factors indicative that petitioner is a mere instrumentality of
Marcopper or Placer Dome. The mere fact that Placer Dome agreed, under the terms of the Support
and Standby Credit Agreement to provide Marcopper with cash flow support in paying its obligations to
ADB, does not mean that its personality has merged with that of Marcopper. This singular undertaking,
performed by Placer Dome with its own stockholders in Canada and elsewhere, is not a sufficient ground
to merge its corporate personality with Marcopper which has its own set of shareholders, dominated
mostly by Filipino citizens. The same view applies to petitioners payment of Marcoppers remaining debt
to ADB.
With the foregoing considerations and the absence of fraud in the transaction of the three foreign
corporations, we find it improper to pierce the veil of corporate fiction that equitable doctrine developed
to address situations where the corporate personality of a corporation is abused or used for wrongful
purposes.
IV
On the issue of forum shopping, there could have been a violation of the rules thereon if petitioner and
Marcopper were indeed one and the same entity. But since petitioner has a separate personality, it has
the right to pursue its third-party claim by filing the independent reivindicatory action with the RTC of
Boac, Marinduque, pursuant to Rule 39, Section 16 of the 1997 Rules of Civil Procedures. This remedy

has been recognized in a long line of cases decided by this Court. [41] In Rodriguez vs. Court of Appeals ,
[42]we held:
. . . It has long been settled in this jurisdiction that the claim of ownership of a third party over
properties levied for execution of a judgment presents no issue for determination by the court issuing
the writ of execution.
. . .Thus, when a property levied upon by the sheriff pursuant to a writ of execution is claimed by third
person in a sworn statement of ownership thereof, as prescribed by the rules, an entirely different
matter calling for a new adjudication arises. And dealing as it does with the all important question
of title, it is reasonable to require the filing of proper pleadings and the holding of a trial on the matter
in view of the requirements of due process.
. . . In other words, construing Section 17 of Rule 39 of the Revised Rules of Court (now Section 16 of
the 1997 Rules of Civil Procedure), the rights of third-party claimants over certain properties levied upon
by the sheriff to satisfy the judgment may not be taken up in the case where such claims are presented
but in a separate and independent action instituted by the claimants. (Emphasis supplied)
This reivindicatory action has for its object the recovery of ownership or possession of the property
seized by the sheriff, despite the third party claim, as well as damages resulting therefrom, and it may
be brought against the sheriff and such other parties as may be alleged to have connived with him in
the supposedly wrongful execution proceedings, such as the judgment creditor himself. Such action is
an entirely separate and distinct action from that in which execution has been issued. Thus,
there being no identity of parties and cause of action between Civil Case No. 98-13 (RTC, Boac) and
those cases filed by Marcopper, including Civil Case No. 96-80083 (RTC, Manila) as to give rise to res
judicata or litis pendentia, Solidbanks allegation of forum-shopping cannot prosper.[43]
All considered, we find petitioner to be entitled to the issuance of a writ of preliminary injunction.
Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides:
SEC. 3 Grounds for issuance of preliminary injunction. A preliminary injunction may be granted when it
is established:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in
restraining the commission or continuance of the act or acts complained of, or in requiring the
performance of an act or acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the acts or acts complained of during the
litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring
or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting
the subject of the action or proceeding, and tending to render the judgment ineffectual.
Petitioners right to stop the further execution of the properties covered by the assignment contracts is
clear under the facts so far established. An execution can be issued only against a party and not against
one who did not have his day in court.[44] The duty of the sheriff is to levy the property of the
judgment debtor not that of a third person. For, as the saying goes, one mans goods shall not be sold
for another man's debts.[45] To allow the execution of petitioners properties would surely work injustice
to it and render the judgment on the reivindicatory action, should it be favorable, ineffectual. In Arabay,
Inc., vs. Salvador,[46] this Court held that an injunction is a proper remedy to prevent a sheriff from
selling the property of one person for the purpose of paying the debts of another; and that while the
general rule is that no court has authority to interfere by injunction with the judgments or decrees of
another court of equal or concurrent or coordinate jurisdiction, however, it is not so when a third-party
claimant is involved. We quote the instructive words of Justice Querube C. Makalintal in Abiera vs. Court
of Appeals,[47] thus:
The rationale of the decision in the Herald Publishing Company case[48] is peculiarly applicable to the
one before Us, and removes it from the general doctrine enunciated in the decisions cited by the
respondents and quoted earlier herein.
1. Under Section 17 of Rule 39 a third person who claims property levied upon on execution may
vindicate such claim by action. Obviously a judgment rendered in his favor, that is, declaring him to be
the owner of the property, would not constitute interference with the powers or processes of the court
which rendered the judgment to enforce which the execution was levied. If that be so and it is so
because the property, being that of a stranger, is not subject to levy then an interlocutory
order such as injunction, upon a claim and prima facie showing of ownership by the
claimant, cannot be considered as such interference either.
WHEREFORE, the petition is GRANTED. The assailed Decision dated January 8, 1999 and the
Resolution dated March 29, 1999 of the Court of Appeals in CA G.R. No. 49226 are set aside. Upon filing
of a bond of P1,000,000.00, respondent sheriffs are restrained from further implementing the writ of
execution issued in Civil Case No. 96-80083 by the RTC, Branch 26, Manila, until further orders from this
Court. The RTC, Branch 94, Boac, Marinduque, is directed to dispose of Civil Case No. 98-13 with
dispatch.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Carpio, JJ., concur.
23] Columbia Pictures, Inc. vs. Court of Appeals, supra. As a general proposition upon which many
authorities agree in principle, subject to such modifications as may be necessary in view of the particular
issue or of the terms of the statute involved, it is recognized that a foreign corporation is doing,
transacting, engaging in, or carrying on business in the State when, and ordinarily only when, it has
entered the State by its agents and is there engaged in carrying on and transacting through them some
substantial part of its ordinary or customary business, usually continuous in the sense that it may be
distinguished from merely casual, sporadic, or occasional transactions and isolated acts.
[26] An Act to Require that the Making of Investments and the Doing of Business Within the Philippines
by Foreigners or Business Organizations Owned in Whole or in Part by Foreigners Should Contribute to
the Sound and Balanced Development of the National Economy on a Self-Sustaining Basis, and for Other
Purposes, Enacted Without executive approval, September 30, 1968 (65 O.G. No. 29, p. 7410).
[27] Article 65 of Presidential Decree No. 1789 (A Decree to Revise, Amend, and Codify the Investment,
Agricultural and Export Incentives Acts to be Known as the Omnibus Investment Code), which took
effect on January 16, 1981, defines doing business to include soliciting orders, purchases, service
contracts, opening offices, whether called liaison offices or branches; appointing representatives or
distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a
period or periods totaling one hundred eighty (180) days or more; participating in the management,
supervision or control of any domestic business firm, entity or corporation in the Philippines, and any
other act or acts that imply a continuity of commercial dealings or arrangements and
contemplate to that extent the performance of acts or works, or the exercise of some of the
functions normally incident to, and in progressive prosecution of , commercial gain or of the
purpose and object of the business organization.
See also Article 44 of the Omnibus Investments Code of 1987 (Executive Order No. 226, effective July
16, 1987).
[31] 36 Am Jur 340 citing Caledonian Coal Co. vs. Baker, 196 US 432, 49 Led 540. The mere ownership
of property within a state, without more, would not be sufficient for purposes of jurisdiction or process
under the minimum contact doctrine of the International Shoe Company vs. Washington Case (326 US
310, 90 Led 95, 66 S Ct 154, 161 ALR 1057.
[43] The test in determining the presence of forum-shopping is whether in the two (or more cases)
pending, there is identity of a) parties, b) rights or causes of action and c) reliefs sought. (Employees
Compensation Commission vs. Court of Appeals, G.R. No. 115858, June 28, 1996.

FIRST DIVISION

[G.R. No. 131367. August 31, 2000]


HUTCHISON PORTS PHILIPPINES LIMITED, petitioner, vs. SUBIC BAY METROPOLITAN
AUTHORITY, INTERNATIONAL CONTAINER TERMINAL SERVICES INC., ROYAL PORT
SERVICES INC. and the EXECUTIVE SECRETARY, respondents.
DECISION
YNARES-SANTIAGO, J.:
On February 12, 1996, the Subic Bay Metropolitan Authority (or SBMA) advertised in leading national
daily newspapers and in one international publication, [1] an invitation offering to the private sector the
opportunity to develop and operate a modern marine container terminal within the Subic Bay Freeport
Zone. Out of seven bidders who responded to the published invitation, three were declared by the SBMA
as qualified bidders after passing the pre-qualification evaluation conducted by the SBMAs Technical
Evaluation Committee (or SBMA-TEC). These are: (1) International Container Terminal Services, Inc. (or
ICTSI); (2) a consortium consisting of Royal Port Services, Inc. and HPC Hamburg Port Consulting GMBH
(or RPSI); and (3) Hutchison Ports Philippines Limited (or HPPL), representing a consortium composed
of HPPL, Guoco Holdings (Phils.), Inc. and Unicol Management Services, Inc. All three qualified bidders
were required to submit their respective formal bid package on or before July 1, 1996 by the SBMAs
Pre-qualification, Bids and Awards Committee (or SBMA-PBAC).
Thereafter, the services of three (3) international consultants[2] recommended by the World Bank for
their expertise were hired by SBMA to evaluate the business plans submitted by each of the bidders, and
to ensure that there would be a transparent and comprehensive review of the submitted bids. The SBMA
also hired the firm of Davis, Langdon and Seah Philippines, Inc. to assist in the evaluation of the bids
and in the negotiation process after the winning bidder is chosen. All the consultants, after such review
and evaluation unanimously concluded that HPPLs Business Plan was far superior to that of the two
other bidders.[3]
However, even before the sealed envelopes containing the bidders proposed royalty fees could be
opened at the appointed time and place, RPSI formally protested that ICTSI is legally barred from
operating a second port in the Philippines based on Executive Order No. 212 and Department of
Transportation and Communication (DOTC) Order 95-863. RPSI thus requested that the financial bid of
ICTSI should be set aside.[4]
Nevertheless, the opening of the sealed financial bids proceeded under advisement relative to the
protest signified by RPSI. The financial bids, more particularly the proposed royalty fee of each bidder,
was as follows:
ICTSI ------------US$57.80 TEU
HPPL ------------US$20.50 TEU
RPSI -------------US$15.08 TEU
The SBMA-PBAC decided to suspend the announcement of the winning bid, however, and instead gave
ICTSI seven (7) days within which to respond to the letter-protest lodged by RPSI. The HPPL joined in
RPSIs protest, stating that ICTSI should be disqualified because it was already operating the Manila
International Container Port (or MICP), which would give rise to inevitable conflict of interest between
the MICP and the Subic Bay Container Terminal facility.[5]
On August 15, 1996, the SBMA-PBAC issued a resolution rejecting the bid of ICTSI because said bid
does not comply with the requirements of the tender documents and the laws of the Philippines. The
said resolution also declared that:
RESOLVED FURTHER, that the winning bid be awarded to HUTCHISON PORTS PHILIPPINES
LIMITED (HPPL) and thatnegotiations commence immediately with HPPL (HUTCHISON) with a view to
concluding an acceptable agreement within 45 days of this date failing which negotiations with RPSI
(ROYAL) will commence with a view to concluding an acceptable agreement within 45 days thereafter
failing which there will be declared a failure of bids.[6] (Underscoring supplied)
The following day, ICTSI filed a letter-appeal with SBMAs Board of Directors requesting the nullification
and reversal of the above-quoted resolution rejecting ICTSIs bid while awarding the same to HPPL. But
even before the SBMA Board could act on the appeal, ICTSI filed a similar appeal before the Office of
the President.[7] On August 30, 1996, then Chief Presidential Legal Counsel (CPLC) Renato L. Cayetano
submitted a memorandum to then President Fidel V. Ramos, containing the following recommendations:
We therefore suggest that the President direct SBMA Chairman Gordon to consider option number 4 that
is to re-evaluate the financial bids submitted by the parties, taking into consideration all the following
factors:
1. Reinstate ICTSIs bid;
2. Disregard all arguments relating to monopoly;
3. The re-evaluation must be limited to the parties financial bids.
3.1 Considering that the parties business have been accepted (passed), strictly follow the criteria for bid
evaluation provided for in pars. (c) and (d), Part B (1) of the Tender Document.
4. In the re-evaluation, the COA should actively participate to determine which of the financial bids is
more advantageous.
5. In addition, all the parties should be given ample opportunity to elucidate or clarify the
components/justification for their respective financial bids in order to ensure fair play and transparency
in the proceedings.
6. The Presidents authority to review the final award shall remain.[8] (Underscoring supplied)
The recommendation of CPLC Cayetano was approved by President Ramos, and a copy of President
Ramos handwritten approval was sent to the SBMA Board of Directors. Accordingly, the SBMA Board,
with the concurrence of representatives of the Commission on Audit, agreed to focus the reevaluation of
the bids in accordance with the evaluation criteria and the detailed components contained in the Tender
Document, including all relevant information gleaned from the bidding documents, as well as the reports
of the three international experts and the consultancy firm hired by the SBMA.
On September 19, 1996, the SBMA Board issued a Resolution, declaring:
NOW, THEREFORE, IT IS HEREBY RESOLVED that the bid that conforms to the Invitation to Tender, that
has a realistic Business Plan offering the greatest financial return to SBMA, the best possible offer and
the most advantageous to the government is that of HPPL and HPPL is accordingly selected as the
winning bidder and is hereby awarded the concessionfor the operation and development of the Subic
Bay Container Terminal.[9] (Underscoring supplied)
In a letter dated September 24, 1996, the SBMA Board of Directors submitted to the Office of the
President the results of the re-evaluation of the bid proposals, to wit:
SBMA, through the unanimous vote of all the Board Members, excluding the Chairman of the Board who
voluntarily inhibited himself from participating in the re-evaluation, selected the HPPL bid as the winning
bid, being: the conforming bid with a realistic Business Plan offering the greatest financial return to the
SBMA; the best possible offer in the market, and the most advantageous to the government in
accordance with the Tender Document.[10]
Notwithstanding the SBMA Boards recommendations and action awarding the project to HPPL, then
Executive Secretary Ruben Torres submitted a memorandum to the Office of the President
recommending that another rebidding be conducted.[11] Consequently, the Office of the President
issued a Memorandum directing the SBMA Board of Directors to refrain from signing the Concession
Contract with HPPL and to conduct a rebidding of the project. [12]
In the meantime, the Resident Ombudsman for the DOTC filed a complaint against members of the
SBMA-PBAC before the Office of the Ombudsman for alleged violation of Section 3(e) of Republic Act No.
3019 for awarding the contract to HPPL. On April 16, 1997, the Evaluation and Preliminary Investigation
Bureau of the Office of the Ombudsman issued a Resolution absolving the members of the SBMA-PBAC
of any liability and dismissing the complaint against them, ruling thus:
After an assiduous study of the respective contentions of both parties, we are inclined to hold, as it is
hereby held, that there is no proof on record pinpointing respondents to have acted in excess of their
discretion when they awarded the bid to HPPL. Records revealed that respondents, in the exercise of
their discretion in determining the financial packages offered by the applicants, were guided by the
expert report of Davis, Langdon and Seah (DLS) that fairly evaluated which of the bidders tender the
greatest financial return to the government. There is no showing that respondents had abused their
prerogatives. As succinctly set forth in the DLS report it stated, among others, that, in assessing the full
financial return to SBMA offered by the bidders, it is necessary to consider the following critical matters:
1. Royalty fees
2. Volume of TEUs as affected by:

a. Tariff rates;
b. Marketing strategy;
c. Port facilities; and
d. Efficient reliable services.
With the preceding parameters for the evaluation of bidders business plan, the respondents were fairly
guided by, as they aligned their judgment in congruence with, the opinion of the panel of experts and
the SBMAs Technical Evaluation Committee to the effect that HPPLs business is superior while that of
ICTSIs appeared to be unrealistically high which may eventually hinder the competitiveness of the SBMA
port with the rest of the world. Respondents averred that the panel of World Bank experts noted that
ICTSIs high tariff rates at U.S. $119.00 per TEU is already higher by 37% through HPPL, which could
further increase by 20% in the first two (2) years and by 5% hike thereafter. In short, high tariffs would
discourage potential customers which may be translated into low cargo volume that will eventually
reduce financial return to SBMA. Respondents asserted that HPPLs business plan offers the greatest
financial return which could be equated that over the five years, HPPL offers 1.25 billion pesos while
ICTSI offers P0.859 billion, and RPSI offers P.420 billion. Over the first ten years HPPL gives P2.430
billion, ICTSI tenders P2.197 billion and RPSI has P1.632 billion.
Viewed from this perspective alongside with the evidence on record, the undersigned panel does not
find respondents to have exceeded their discretion in awarding the bid to HPPL. Consequently, it could
not be said that respondents act had placed the government at a grossly disadvantageous plight that
could have jeopardized the interest of the Republic of the Philippines.[13]
On July 7, 1997, the HPPL, feeling aggrieved by the SBMAs failure and refusal to commence negotiations
and to execute the Concession Agreement despite its earlier pronouncements that HPPL was the
winning bidder, filed a complaint[14] against SBMA before the Regional Trial Court (RTC) of Olongapo
City, Branch 75, for specific performance, mandatory injunction and damages. In due time, ICTSI, RPSI
and the Office of the President filed separate Answers-in-Intervention[15] to the complaint opposing the
reliefs sought by complainant HPPL.
Complainant HPPL alleged and argued therein that a binding and legally enforceable contract had been
established between HPPL and defendant SBMA under Article 1305 of the Civil Code, considering that
SBMA had repeatedly declared and confirmed that HPPL was the winning bidder. Having accepted HPPLs
offer to operate and develop the proposed container terminal, defendant SBMA is duty-bound to comply
with its obligation by commencing negotiations and drawing up a Concession Agreement with plaintiff
HPPL. HPPL also pointed out that the bidding procedure followed by the SBMA faithfully complied with
existing laws and rules established by SBMA itself; thus, when HPPL was declared the winning bidder it
acquired the exclusive right to negotiate with the SBMA. Consequently, plaintiff HPPL posited that SBMA
should be: (1) barred from conducting a re-bidding of the proposed project and/or performing any such
acts relating thereto; and (2) prohibited from negotiating with any party other than plaintiff HPPL until
negotiations between HPPL and SBMA have been concluded or in the event that no acceptable
agreement could be arrived at. Plaintiff HPPL also alleged that SBMAs continued refusal to negotiate the
Concession Contract is a substantial infringement of its proprietary rights, and caused damage and
prejudice to plaintiff HPPL.
Hence, HPPL prayed that:
(1) Upon the filing of this complaint, hearings be scheduled to determine the propriety of plaintiffs
mandatory injunction application which seeks to order defendant or any of its appropriate officers or
committees to forthwith specify the date as well as to perform any and all such acts (e.g. laying the
ground rules for discussion) for the commencement of negotiations with plaintiff with the view to
signing at the earliest possible time a Concession Agreement for the development and operation of the
Subic Bay Container Terminal.
(2) Thereafter, judgment be rendered in favor of plaintiff and against defendant:
2.1. Making permanent the preliminary mandatory injunction it had issued;
2.2. Ordering defendant to implement the Concession Agreement it had executed with plaintiff in
respect of the development and operation of the proposed Subic Bay Container Terminal;
2.3. Ordering defendant to pay for the cost of plaintiffs attorneys fees in the amount of P500,000.00, or
as otherwise proven during the trial.
Plaintiff prays for other equitable reliefs.[16]
During the pre-trial hearing, one of the issues raised and submitted for resolution was whether or not
the Office of the President can set aside the award made by SBMA in favor of plaintiff HPPL and if so,
can the Office of the President direct the SBMA to conduct a re-bidding of the proposed project.
While the case before the trial court was pending litigation, on August 4, 1997, the SBMA sent notices to
plaintiff HPPL, ICTSI and RPSI requesting them to declare their interest in participating in a rebidding of
the proposed project.[17] On October 20, 1997, plaintiff HPPL received a copy of the minutes of the prebid conference which stated that the winning bidder would be announced on December 5, 1997.
[18] Then on November 4, 1997, plaintiff HPPL learned that the SBMA had accepted the bids of ICTSI
and RPSI who were the only bidders who qualified.
In order to enjoin the rebidding while the case was still pending, plaintiff HPPL filed a motion for
maintenance of the status quo[19] on October 28, 1997. The said motion was denied by the court a
quo in an Order dated November 3, 1997, to wit:
Plaintiff maintains that by voluntarily participating in this proceedings, the defendant and the intervenors
have unqualifiedly agreed to submit the issue of the propriety, legality and validity of the Office of the
Presidents directive that the SBMA effect a rebidding of its concession contract or the operation of the
Subic Bay Container Terminal. As such, the status quo must be maintained in order not to thwart the
courts ability to resolve the issues presented. Further, the ethics of the profession require that counsel
should discontinue any act which tends to render the issues academic.
The Opposition is anchored on lack of jurisdiction since the issuance of a cease-and-desist order would
be tantamount to the issuance of a Temporary Restraining Order or a Writ of Injunction which this Court
cannot do in light of the provision of Section 21 of R.A. 7227 which states:
Section 21. Injunction and Restraining Order. The implementation of the projects for the conversion into
alternative productive uses of the military reservations are urgent and necessary and shall not be
restrained or enjoined except by an order issued by the Supreme Court of the Philippines.
During the hearing on October 30, 1997, SBMAs counsel revealed that there is no law or administrative
rule or regulation which requires that a bidding be accomplished within a definite time frame.
Truly, the matter of the deferment of the re-bidding on November 4, 1997 rests on the sound discretion
of the SBMA. For this Court to issue a cease-and-desist order would be tantamount to an issuance of a
Temporary Restraining Order or a Writ of Preliminary Injunction. (Prado v. Veridiano II, G.R. No. 98118,
December 6, 1991).
The Court notes that the Office of the President has not been heard fully on the issues. Moreover, one of
the intervenors is of the view that the issue of jurisdiction must be resolved first, ahead of all the other
issues.
WHEREFORE, and viewed from the foregoing considerations, plaintiffs motion is DENIED.
SO ORDERED.[20] (Underscoring supplied)
Hence, this petition filed by petitioner (plaintiff below) HPPL against respondents SBMA, ICTSI, RPSI and
the Executive Secretary seeking to obtain a prohibitory injunction. The grounds relied upon by petitioner
HPPL to justify the filing of the instant petition are summed up as follows:
29. It is respectfully submitted that to allow or for this Honorable Court to otherwise refrain from
restraining SBMA, during the pendency of this suit, from committing the aforementioned act(s) which
will certainly occur on 5 December 1997 such action (or inaction) will work an injustice upon petitioner
which has validly been announced as the winning bidder for the operation of the Subic Bay Container
Terminal.
30. To allow or for this Honorable Court to otherwise refrain from restraining SBMA, during the pendency
of this suit, from committing the aforementioned threatened acts would be in violation of petitioners
rights in respect of the action it had filed before the RTC of Olongapo City in Civil Case No. 243-O-97,
and could render any judgment which may be reached by said Court moot and ineffectual. As stated,
the legal issues raised by the parties in that proceedings are of far reaching importance to the national
pride and prestige, and they impact on the integrity of government agencies engaged in international
bidding of privatization projects. Its resolution on the merits by the trial court below and, thereafter, any
further action to be taken by the parties before the appellate courts will certainly benefit respondents
and the entire Filipino people.[21]

WHEREFORE, petitioner HPPL sought relief praying that:


a) Upon the filing of this petition, the same be given due course and a temporary restraining order
and/or writ of preliminary injunction be issued ex parte, restraining SBMA or any of its committees, or
other persons acting under its control or direction or upon its instruction, from declaring any winner
on 5 December 1997 or at any other date thereafter, in connection with the rebidding for the
privatization of the Subic Bay Container Terminal and/or for any, some or all of the respondents to
perform any such act(s) in pursuance thereof, until further orders from this Honorable Court;
b) After appropriate proceedings, judgment be rendered in favor of petitioner and against respondents
-(1) Ordering SBMA to desist from conducting any rebidding or in declaring the winner of any such
rebidding in respect of the development and operation of the Subic Bay Container Terminal until the
judgment which the RTC of Olongapo City may render in Civil Case No. 243-O-97 is resolved with
finality;
(2) Declaring null and void any award which SBMA may announce or issue on 5 December 1997; and
(3) Ordering respondents to pay for the cost of suit.
Petitioner prays for other equitable reliefs.[22]
The instant petition seeks the issuance of an injunctive writ for the sole purpose of holding in abeyance
the conduct by respondent SBMA of a rebidding of the proposed SBICT project until the case for specific
performance is resolved by the trial court. In other words, petitioner HPPL prays that the status quo be
preserved until the issues raised in the main case are litigated and finally determined. Petitioner was
constrained to invoke this Courts exclusive jurisdiction and authority by virtue of the above-quoted
Republic Act 7227, Section 21.
On December 3, 1997, this Court granted petitioner HPPLs application for a temporary restraining order
enjoining the respondent SBMA or any of its committees, or other persons acting under its control or
direction or upon its instruction, from declaring any winner on December 5, 1997 or at any other date
thereafter, in connection with the rebidding for the privatization of the Subic Bay Container Terminal
and/or for any, some or all of the respondents to perform any such act or acts in pursuance thereof.[23]
There is no doubt that since this controversy arose, precious time has been lost and a vital infrastructure
project has in essense been mothballed to the detriment of all parties involved, not the least of which is
the Philippine Government, through its officials and agencies, who serve the interest of the nation. It is,
therefore, imperative that the issues raised herein and in the court a quo be resolved without further
delay so as not to exacerbate an already untenable situation.
At the outset, the application for the injunctive writ is only a provisional remedy, a mere adjunct to the
main suit.[24]Thus, it is not uncommon that the issues in the main action are closely intertwined, if not
identical, to the allegations and counter allegations propounded by the opposing parties in support of
their contrary positions concerning the propriety or impropriety of the injunctive writ. While it is not our
intention to preempt the trial courts determination of the issues in the main action for specific
performance, this Court has a bounden duty to perform; that is, to resolve the matters before this Court
in a manner that gives essence to justice, equity and good conscience.
While our pronouncements are for the purpose only of determining whether or not the circumstances
warrant the issuance of the writ of injunction, it is inevitable that it may have some impact on the main
action pending before the trial court. Nevertheless, without delving into the merits of the main case, our
findings herein shall be confined to the necessary issues attendant to the application for an injunctive
writ.
For an injunctive writ to be issued, the following requisites must be proven:
First. That the petitioner/applicant must have a clear and unmistakable right.
Second. That there is a material and substantial invasion of such right.
Third. That there is an urgent and permanent necessity for the writ to prevent serious damage.[25]
To our mind, petitioner HPPL has not sufficiently shown that it has a clear and unmistakable right to be
declared the winning bidder with finality, such that the SBMA can be compelled to negotiate a
Concession Contract. Though the SBMA Board of Directors, by resolution, may have declared HPPL as
the winning bidder, said award cannot be said to be final and unassailable. The SBMA Board of Directors
and other officers are subject to the control and supervision of the Office of the President. All projects
undertaken by SBMA require the approval of the President of the Philippines under Letter of Instruction
No. 620, which places the SBMA under its ambit as an instrumentality, defined in Section 10 thereof as
an agency of the national government, not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions and government owned and controlled corporations .
[26] (Underscoring supplied)
As a chartered institution, the SBMA is always under the direct control of the Office of the President,
particularly when contracts and/or projects undertaken by the SBMA entail substantial amounts of
money. Specifically, Letter of Instruction No. 620 dated October 27, 1997 mandates that the approval of
the President is required in all contracts of the national government offices, agencies and
instrumentalities, including government-owned or controlled corporations involving two million pesos
(P2,000,000.00) and above, awarded through public bidding or negotiation. The President may, within
his authority, overturn or reverse any award made by the SBMA Board of Directors for justifiable
reasons. It is well-established that the discretion to accept or reject any bid, or even recall the award
thereof, is of such wide latitude that the courts will not generally interfere with the exercise thereof by
the executive department, unless it is apparent that such exercise of discretion is used to shield
unfairness or injustice. When the President issued the memorandum setting aside the award previously
declared by the SBMA in favor of HPPL and directing that a rebidding be conducted, the same was,
within the authority of the President and was a valid exercise of his prerogative. Consequently, petitioner
HPPL acquired no clear and unmistakable right as the award announced by the SBMA prior to the
Presidents revocation thereof was not final and binding.
There being no clear and unmistakable right on the part of petitioner HPPL, the rebidding of the
proposed project can no longer be enjoined as there is no material and substantial invasion to speak
of. Thus, there is no longer any urgent or permanent necessity for the writ to prevent any perceived
serious damage. In fine, since the requisites for the issuance of the writ of injunction are not present in
the instant case, petitioners application must be denied for lack of merit.[27]
Finally, we focus on the matter of whether or not petitioner HPPL has the legal capacity to even seek
redress from this Court. Admittedly, petitioner HPPL is a foreign corporation, organized and existing
under the laws of the British Virgin Islands. While the actual bidder was a consortium composed of
petitioner, and two other corporations, namely, Guoco Holdings (Phils.) Inc. and Unicol Management
Servises, Inc., it is only petitioner HPPL that has brought the controversy before the Court, arguing that
it is suing only on an isolated transaction to evade the legal requirement that foreign corporations must
be licensed to do business in the Philippines to be able to file and prosecute an action before Philippines
courts.
The maelstrom of this issue is whether participating in the bidding is a mere isolated transaction, or did
it constitute engaging in or transacting business in the Philippines such that petitioner HPPL needed a
license to do business in the Philippines before it could come to court.
There is no general rule or governing principle laid down as to what constitutes doing or engaging in or
transacting business in the Philippines. Each case must be judged in the light of its peculiar
circumstances.[28] Thus, it has often been held that a single act or transaction may be considered as
doing business when a corporation performs acts for which it was created or exercises some of the
functions for which it was organized. The amount or volume of the business is of no moment, for even a
singular act cannot be merely incidental or casual if it indicates the foreign corporations intention to do
business.[29]
Participating in the bidding process constitutes doing business because it shows the foreign corporations
intention to engage in business here. The bidding for the concession contract is but an exercise of the
corporations reason for creation or existence. Thus, it has been held that a foreign company invited to
bid for IBRD and ADB international projects in the Philippines will be considered as doing business in the
Philippines for which a license is required. In this regard, it is the performance by a foreign corporation
of the acts for which it was created, regardless of volume of business, that determines whether a
foreign corporation needs a license or not.[30]
The primary purpose of the license requirement is to compel a foreign corporation desiring to do

business within the Philippines to submit itself to the jurisdiction of the courts of the state and to enable
the government to exercise jurisdiction over them for the regulation of their activities in this country.
[31] If a foreign corporation operates a business in the Philippines without a license, and thus does not
submit itself to Philippine laws, it is only just that said foreign corporation be not allowed to invoke them
in our courts when the need arises. While foreign investors are always welcome in this land to
collaborate with us for our mutual benefit, they must be prepared as an indispensable condition to
respect and be bound by Philippine law in proper cases, as in the one at bar.[32] The requirement of a
license is not intended to put foreign corporations at a disadvantage, for the doctrine of lack of capacity
to sue is based on considerations of sound public policy. [33] Accordingly, petitioner HPPL must be held
to be incapacitated to bring this petition for injunction before this Court for it is a foreign corporation
doing business in the Philippines without the requisite license.
WHEREFORE, in view of all the foregoing, the instant petition is hereby DISMISSED for lack of
merit. Further, the temporary restraining order issued on December 3, 1997 is LIFTED and SET
ASIDE. No costs.
SO ORDERED.
Puno, Kapunan, and Pardo, JJ., concur.
Davide, Jr., C.J., (Chairman), in the result.

[1] Annex A; Rollo, p. 16; February 12, 1996 issues of the Philippine Daily Inquirer, Business World,
Lloyds List and 2 newspapers of local circulation in Olongapo City

G.R. No. L-61523 July 31, 1986


ANTAM CONSOLIDATED, INC., TAMBUNTING TRADING CORPORATION and AURORA
CONSOLIDATED SECURITIES and INVESTMENT CORPORATION, petitioners,
vs.
THE COURT OF APPEALS, THE HONORABLE MAXIMIANO C. ASUNCION (Court of First
Instance of Laguna, Branch II [Sta. Cruz]) and STOKELY VAN CAMP, INC., respondents.
Siguion Reyna, Montecillo & Ongsiako Law Offices for petitioners.
Bito, Misa & Lozada Law Offices for respondents.
GUTIERREZ, JR., J.:
This petition for certiorari and prohibition seeks to set aside the order of the Regional Trial Court of
Laguna which denied the petitioners' motion to dismiss on the ground that the reason relied upon by
them does not appear to be indubitable. Petitioners also seek to set aside the decision and resolution of
the Intermediate Appellate Court which respectively upheld the order of the trial court and denied the
petitioners' motion for reconsideration of the same.
On April 9, 1981, respondent Stokely Van Camp. Inc. (Stokely) filed a complaint against Banahaw Milling
Corporation (Banahaw), Antam Consolidated, Inc., Tambunting Trading Corporation (Tambunting),
Aurora Consolidated Securities and Investment Corporation, and United Coconut Oil Mills, Inc. (Unicom)
for collection of sum of money.
In its complaint, Stokely alleged: (1) that it is a corporation organized and existing under the laws of the
state of Indiana, U.S.A. and has its principal office at 941 North Meridian Street, Indianapolis, Indiana,
U.S.A., and one of its subdivisions "Capital City Product Company" (Capital City) has its office in
Columbus, Ohio, U.S.A.; (2) that Stokely and Capital City were not engaged in business in the
Philippines prior to the commencement of the suit so that Stokely is not licensed to do business in this
country and is not required to secure such license; (3) that on August 21, 1978, Capital City and
Coconut Oil Manufacturing (Phil.) Inc. (Comphil) with the latter acting through its broker Roths child
Brokerage Company, entered into a contract (No. RBS 3655) wherein Comphil undertook to sell and
deliver and Capital City agreed to buy 500 long tons of crude coconut oil to be delivered in
October/November 1978 at the c.i.f. price of US$0.30/1b. but Comphil failed to deliver the coconut oil so
that Capital City covered its coconut oil needs in the open market at a price substantially in excess of the
contract and sustained a loss of US$103,600; that to settle Capital City's loss under the contract, the
parties entered into a second contract (No. RBS 3738) on November 3, 1978 wherein Comphil undertook
to buy and Capital City agreed to sell 500 long tons of coconut crude oil under the same terms and
conditions but at an increased c.i.f. price of US$0.3925/lb.; (4) that the second contract states that "it is
a wash out against RBS 3655" so that Comphil was supposed to repurchase the undelivered coconut oil
at US$0.3925 from Capital City by paying the latter the sum of US$103,600.00 which is the same
amount of loss that Capital City sustained under the first contract; that Comphil again failed to pay said
amount, so to settle Capital City's loss, it entered into a third contract with Comphil on January 24, 1979
wherein the latter undertook to sell and deliver and Capital City agreed to buy the same quantity of
crude coconut oil to be delivered in April/May 1979 at the c.i.f. price of US$0.3425/lb.; (5) that the latter
price was 9.25 cents/lb. or US$103,600 for 500 long tons below the then current market price of 43.2
cents/lb. and by delivering said quantity of coconut oil to Capital City at the discounted price, Comphil
was to have settled its US$103,600 liability to Capital City; (6) that Comphil failed to deliver the coconut
oil so Capital City notified the former that it was in default; (7) that Capital City sustained damages in
the amount of US$175,000; and (8) that after repeated demands from Comphil to pay the said amount,
the latter still refuses to pay the same.
Respondent Stokely further prayed that a writ of attachment be issued against any and all the properties
of the petitioners in an amount sufficient to satisfy any lien of judgment that the respondent may obtain
in its action. In support of this provisional remedy and of its cause of action against the rest of the
petitioners other than Comphil, the respondent alleged the following: 1) After demands were made by
respondent on Comphil, the Tambuntings ceased to be directors and officers of Comphil and were
replaced by their five employees, who were managers of Tambunting's pawnshops and said employees
caused the name of Comphil to be changed to "Banahaw Milling Corporation" and authorized one of the
Tambuntings, Antonio P. Tambunting, Jr., who was at that time neither a director nor officer of Banahaw
to sell its oil mill; 2) Unicom has taken over the entire operations and assets of Banahaw because the
entire and outstanding capital stock of the latter was sold to the former; 3) ALL of the issued and
outstanding capital stock of Comphil are owned by the Tambuntings who were the directors and officers
of Comphil and who were the ones who benefited from the sale of Banahaw's assets or shares to
Unicorn; 4) ALL of the petitioners evaded their obligation to respondent by the devious scheme of using
Tambunting employees to replace the Tambuntings in the management of Banahaw and disposing of the
oil mill of Banahaw or their entire interests to Unicorn; and 5) Respondent has reasonable cause to
believe and does believe that the coconut oil milk which is the only substantial asset of Banahaw is
about to be sold or removed so that unless prevented by the Court there will probably be no assets of
Banahaw to satisfy its claim.
On April 10, 1981, the trial court ordered the issuance of a writ of attachment in favor of the respondent
upon the latter's deposit of a bond in the amount of P l,285,000.00.
On June 3, 1981, the respondent filed a motion for reconsideration to reduce the attachment bond.
Attached to this motion is an affidavit by the assistant attorney of the respondent's counsel stating that
he has verified with the records of Comphil and the Securities and Exchange Commission (SEC) the facts
he alleged in the prayer for the attachment order.
On June 11, 1981, the petitioners filed a motion to dismiss the complaint on the ground that the
respondent, being a foreign corporation not licensed to do business in the Philippines, has no personality
to maintain the instant suit.
After the respondent had filed an opposition to the motion to dismiss and petitioner has opposed the
attachment and the motion to reduce the attachment bond, the trial court issued an order, dated August
10, 1981, reducing the attachment bond to P 500,000.00 and denying the motion to dismiss by
petitioners on the ground that the reason cited therein does not appear to be indubitable.
Petitioners filed a petition for certiorari before the Indianapolis intermediate Appellate Court.
On June 14, 1982, the appellate court dismissed the petition stating that the respondent judge did not
commit any grave abuse of discretion in deferring the petitioners' motion to dismiss because the said
judge is not yet satisfied that he has the necessary facts which would permit him to make a judicious
resolution. The appellate court further ruled that in another case entitled United Coconut Oil Mills, Inc.

and Banahaw Milling Corporation v. Hon. Maximiano C. Asuncion and Stokely Van Camp, Inc. where the
facts and issues raised therein are intrinsically the same as in the case at bar, it has already denied the
petition for certiorari filed by Unicom and Banahaw for lack of merit and the same was upheld by the
Supreme Court.
Petitioners filed a motion for reconsideration but the same was denied. Hence, they filed this instant
petition for certiorari and prohibition with prayer for temporary restraining order, questioning the
propriety of the appellate court's decision in: a) affirming the deferment of the resolution on petitioner'
motion to dismiss; and b) denying the motion to set, aside the order of attachment.
With regards to the first question, petitioners maintain that the appellate court erred in denying their
motion to dismiss since the ground relied upon by them is clear and indubitable, that is, that the
respondent has no personality to sue. Petitioners argue that to maintain the suit filed with the trial
court, the respondent should have secured the requisite license to do business in the Philippines
because, in fact, it is doing business here. Petitioners anchor their argument that the respondent is a
foreign corporation doing business in the Philippines on the fact that by the respondent's own
allegations, it has participated in three transactions, either as a seller or buyer, which are by their
nature, in the pursuit of the purpose and object for which it was organized. Petitioners further argue
that the test of whether one is doing business or not is "whether there is continuity of transactions
which are in the pursuance of the normal business of the corporation" and that the transactions entered
into by respondent undoubtedly fall within this category.
We reject the petitioners' arguments.
In the case of Top-Weld Manufacturing, Inc. v. ECED, S.A. (138 SCRA 118,127-128), we stated:
There is no general rule or governing principle laid down as to what
constitutes'doing'or'engaging in' or 'transacting business in the Philippines.
Each case must be judged in the Light of its peculiar circumstance
(Mentholatum Co. v. Mangaliman, 72 Phil.524). Thus, a foreign corporation
with a settling agent in the Philippines which issues twelve marine policies
covering different shipments to the Philippines (General Corporation of the
Philippines v. Union Insurance Society of Canton, Ltd., 87 Phil. 313) and a
foreign corporation which had been collecting premiums on outstanding
policies (Manufacturing Life Insurance Co., v. Meer, 89 Phil. 351) were
regarded as doing business here. The acts of these corporations should be
distinguished from a single or isolated business transaction or occasional,
incidental and casual transactions which do not come within the meaning
of the law. Where a single act or transaction , however, is not merely
incidental or casual but indicates the foreign corporation's intention to do
other business in the Philippines, said single act or transaction constitutes
'doing' or 'engaging in' or 'transacting' business in the Philippines. (Far East
International Import and Export Corporation v. Nankai Kogyo, Co., 6 SCRA
725).
In the Mentholatum Co. v. Mangaliman case earlier cited, this Court held:
xxx xxx xxx
...The true test, however, seems to be whether the foreign corporation is
continuing the body or substance of the business or enterprise for which it
warning-organized or whether it has substantially was retired from it and
turned it over to another. (Traction Cos. v. Collectors of Int. Revenue [CCA.,
Ohio], 223 F. 984, 987.) The term implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the
performance of acts or workers or the exercise of some of the functions
normally incident to, and in progressive prosecution of, the purpose and
object of its organization. (Griffin v. Implement Dealers' Mut. Fire Ins. Co.,
241 N.W. 75, 77, Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851,
852, 118 Okl. 111; Automotive Material Co. v. American Standard Metal
Products Corp., 158 N.E. 698, 703, 327 111. 367.) '
In the case at bar, the transactions entered into by the respondent with the petitioners are not a series
of commercial dealings which signify an intent on the part of the respondent to do business in the
Philippines but constitute an isolated one which does not fall under the category of "doing business."
The records show that the only reason why the respondent entered into the second and third
transactions with the petitioners was because it wanted to recover the loss it sustained from the failure
of the petitioners to deliver the crude coconut oil under the first transaction and in order to give the
latter a chance to make good on their obligation. Instead of making an outright demand on the
petitioners, the respondent opted to try to push through with the transaction to recover the amount of
US$103,600.00 it lost. This explains why in the second transaction, the petitioners were supposed to
buy back the crude coconut oil they should have delivered to the respondent in an amount which will
earn the latter a profit of US$103,600.00. When this failed the third transaction was entered into by the
parties whereby the petitioners were supposed to sell crude coconut oil to the respondent at a
discounted rate, the total amount of such discount being US$103,600.00. Unfortunately, the petitioners
failed to deliver again, prompting the respondent to file the suit below.
From these facts alone, it can be deduced that in reality, there was only one agreement between the
petitioners and the respondent and that was the delivery by the former of 500 long tons of crude
coconut oil to the latter, who in turn, must pay the corresponding price for the same. The three
seemingly different transactions were entered into by the parties only in an effort to fulfill the basic
agreement and in no way indicate an intent on the part of the respondent to engage in a continuity of
transactions with petitioners which will categorize it as a foreign corporation doing business in the
Philippines. Thus, the trial court, and the appellate court did not err in denying the petitioners' motion to
dismiss not only because the ground thereof does not appear to be indubitable but because the
respondent, being a foreign corporation not doing business in the Philippines, does not need to obtain a
license to do business in order to have the capacity to sue. As we have held in Eastboard Navigation
Ltd. v. Juan Ysmael and Co., Inc. (102 Phil. 1, 18):
xxx xxx xxx
(d) While plaintiff is a foreign corporation without license to transact
business in the Philippines, it does not follow that it has no capacity to
bring the present action. Such license is ' not necessary because it is not
engaged in business in the Philippines. In fact, the transaction herein
involved is the first business undertaken by plaintiff in the Philippines,
although on a previous occasion plaintiff's vessel was chartered by the
National Rice and Corn Corporation to carry rice cargo from abroad to the
Philippines. These two isolated transactions do not constitute engaging in
business in the Philippines within the purview of Sections 68 and 69 of the
Corporation Law so as to bar plaintiff from seeking redress in our courts
(Marshall-Wells Co. v. Henry W. Elser & Co. 49 Phil. 70; Pacific Vegetable
Oil Corporation v. Angel 0. Singson, G.R. No. L-7917, April 29, 1955; also
cited in Facilities Management Corporation v. De la Osa, 89 SCRA 131,
138).
We agree with the respondent that it is a common ploy of defaulting local companies which are sued by
unlicensed foreign companies not engaged in business in the Philippines to invoke lack of capacity to
sue. The respondent cites decisions from 1907 to 1957 recognizing and rejecting the improper use of
this procedural tactic. (Damfschieffs Rhedered Union v. Cia Trans-atlantica, 8 Phil. 766 11907]; MarshallWells Co. v. Henry W. Elser & Co., 49 Phil. 70 [1924]; Western Equipment Co. v. Reyes, 51 Phil. 115
[1927]; Central Republic Bank v. Bustamante, 71 Phil. 359 [1941]; Pacific Vegetable Oil Co. v. Singson,
96 Phil.-986 [1955]; Eastboard Navigation, Ltd. v. Juan Ysmael and Co., Inc., 102 Phil. 1 [1957]). The
doctrine of lack of capacity to sue based on failure to first acquire a local license is based on
considerations of sound public policy. It intended to favor domestic corporations who enter was never
into solitary transactions with unwary foreign firms and then repudiate their obligations simply because
the latter are not licensed to do business in this country. The petitioners in this case are engaged in the
exportation of coconut oil, an export item so vital in our country's economy. They filed this petition on
the ground that Stokely is an unlicensed foreign corporation without a bare allegation or showing that

their defenses in the collection case are valid and meritorious. We cannot fault the two courts below for
acting as they did.
Anent the second issue they raise, the petitioners contend that the trial court should not have issued the
order of attachment and the appellate court should not have affirmed the same because the verification
in support of the prayer for attachment is insufficient. They state that the person who made such
verification does not personally know the facts relied upon for the issuance of the attachment order.
Petitioners capitalize on the fact that Renato Calma, the assistant attorney of Bito, Misa, and Lozada,
counsel for respondent, stated in his verification that "he has read the foregoing complaint and that
according to his information and belief the allegations therein contained are true and correct."
The above contention deserves scant consideration.
We rule that the defect in the original verification was cured when Renato Calma subsequently executed
an affidavit to the effect that the allegations he made in support of the prayer for attachment were
verified by him from the records of Comphil and the Securities and Exchange Commission. Moreover,
petitioner had the opportunity to oppose the issuance of the writ.
As to the merit of the attachment order itself, we find that the allegations in the respondent's complaint
satisfactorily justify the issuance of said order.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is DISMISSED for lack of merit. The Temporary
Restraining Order dated February 2, 1983 is hereby DISSOLVED. Costs against the petitioners.
SO ORDERED.
Feria (Chairman), Fernan, Cruz and Paras, JJ., concur.
Alampay, * J., took no part.
G.R. No. 97816 July 24, 1992
MERRILL LYNCH FUTURES, INC., petitioner,
vs.
HON. COURT OF APPEALS, and the SPOUSES PEDRO M. LARA and ELISA G.
LARA, respondents.
NARVASA, C.J.:
The capacity of a foreign corporation to maintain an action in the Philippines against residents thereof, is
the principal question in the appellate proceedings at bar. The issue arises from the undisputed facts
now to be briefly narrated.
On November 23, 1987, Merrill Lynch Futures, Inc. (hereafter, simply ML FUTURES) filed a complaint
with the Regional Trial Court at Quezon City against the Spouses Pedro M. Lara and Elisa G. Lara for the
recovery of a debt and interest thereon, damages, and attorney's fees. 1 In its complaint ML FUTURES
described itself as
a) a non-resident foreign corporation, not doing business in the Philippines,
duly organized and existing under and by virtue of the laws of the state of
Delaware, U.S.A.;" as well as
b) a "futures commission merchant" duly licensed to act as such in the
futures markets and exchanges in the United States, . . essentially
functioning as a broker . . (executing) orders to buy and sell futures
contracts received from its customers on U.S. futures exchanges.
It also defined a "futures contract" as a "contractual commitment to buy and sell a standardized quantity
of a particular item at a specified future settlement date and at a price agreed upon, with the purchase
or sale being executed on a regulated futures exchange."
In its complaint ML FUTURES alleged the following:
1) that on September 28, 1983 it entered into a Futures Customer Agreement with the defendant
spouses (Account No. 138-12161), in virtue of which it agreed to act as the latter's broker for the
purchase and sale of futures contracts in the U.S.;
2) that pursuant to the contract, orders to buy and sell futures contracts were transmitted to ML
FUTURES by the Lara Spouses "through the facilities of Merrill Lynch Philippines, Inc., a Philippine
corporation and a company servicing plaintiffs customers; 2
3) that from the outset, the Lara Spouses "knew and were duly advised that Merrill Lynch Philippines,
Inc. was not a broker in futures contracts," and that it "did not have a license from the Securities and
Exchange Commission to operate as a commodity trading advisor ( i.e., 'an entity which, not being a
broker, furnishes advice on commodity futures to persons who trade in futures contracts');
4) that in line with the above mentioned agreement and through said Merrill Lynch Philippines, Inc., the
Lara Spouses actively traded in futures contracts, including "stock index futures" for four years or
so, i.e., from 1983 to October, 1987, 3 there being more or less regular accounting and corresponding
remittances of money (or crediting or debiting) made between the spouses and ML FUTURES;
5) that because of a loss amounting to US$160,749.69 incurred in respect of three (3) transactions
involving "index futures," and after setting this off against an amount of US$75,913.42 then owing by
ML FUTURES to the Lara Spouses, said spouses became indebted to ML FUTURES for the ensuing
balance of US$84,836.27, which the latter asked them to pay;
6) that the Lara Spouses however refused to pay this balance, "alleging that the transactions were null
and void because Merrill Lynch Philippines, Inc., the Philippine company servicing accounts of plaintiff, . .
had no license to operate as a 'commodity and/or financial futures broker.'"
On the foregoing essential facts, ML FUTURES prayed (1) for a preliminary attachment against
defendant spouses' properties "up to the value of at least P2,267,139.50," and (2) for judgment, after
trial, sentencing the spouses to pay ML FUTURES:
a) the Philippine peso equivalent of $84,836.27 at the applicable
exchanged rate on date of payment, with legal interest from date of
demand until full payment;
b) exemplary damages in the sum of at least P500,000.00; and
c) attorney's fees and expenses of litigation as may be proven at the trial.
Preliminary attachment issued ex parte on December 2, 1987, and the defendant spouses were duly
served with summons.
They then filed a motion to dismiss dated December 18, 1987 on the grounds that:
(1) plaintiff ML FUTURES had "no legal capacity to sue" and
(2) its "complaint states no cause of action since . . (it) is not the real party
in interest."
In that motion to dismiss, the defendant spouses averred that:
a) although not licensed to do so, ML FUTURES had been doing business in the Philippines "at least for
the last four (4) years," this being clear from the very allegations of the complaint; consequently, ML
FUTURES is prohibited by law "to maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines;" and
b) they had never been informed that Merrill Lynch Philippines, Inc. was not licensed to do business in
this country; and contrary to the allegations of the complaint, all their transactions had actually been
with MERRILL LYNCH PIERCE FENNER & SMITH, INC., and not with ML FUTURES (Merrill Lynch Futures,
Inc.), in proof of which they attached to their motion to dismiss copies of eight (8) agreements, receipts
or reminders, etc., executed on standard printed forms of said Merrill Lynch Pierce Fenner & Smith
Inc. 4
ML FUTURES filed an OPPOSITION to the defendant spouses' motion to dismiss. In that motion
a) it drew attention to paragraph 4 of its complaint, admitted by defendants, that the latter "have been
actively trading in futures contracts . . . in U.S. futures exchanges from 1983 to 1987," and ask, "If the
trading . . . (was) made in U.S., how could plaintiff be doing business in the Philippines?"
b) it also drew attention to a printed form of "Merrill Lynch Futures, Inc." filled out and signed by
defendant spouses when they opened an account with ML Futures, in order to supply information about
themselves, including their bank's name
(1) in which appear the following epigraph:
"Account introduced by Merrill Lynch
International, Inc.," and the following
statements, to wit:
This Commodity Trading Advisor (Merrill Lynch, Pierce, Fenner & Smith
Philippines, Inc.) is prohibited by the Philippine Securities and Exchange

c) and it argued that

Commission from accepting funds in the trading advisor's name from a


client of Merrill Lynch Futures, Inc. for trading commodity interests. All
funds in this trading program must be placed with Merrill Lynch Futures,
Inc.;
and
. . . It is agreed between MERRILL LYNCH, PIERCE, FENNER & SMITH INC.,
and other account carrying MERRILL LYNCH entities and their customers
that all legal relationships between them will be governed by applicable
laws in countries outside the Philippines where sale and purchase
transactions take place.

(1) it is not permitted for defendant spouses to present "evidence" in


connection with a motion to dismiss based on failure of the complaint to
state a cause of action;
(2) even if the documents appended to the motion to dismiss be
considered as admissible "evidence," the same would be immaterial since
the documents refer to a different account number: 138-12136, the
defendants' account number with ML FUTURES being 138-12161;
(3) it is a lie for the defendant spouses to assert that they were never
informed that Merrill Lynch Philippines, Inc. had not been licensed to do
business in the Philippines; and
(4) defendant spouses should not be allowed to "invoke the aid of the
court with unclean hands.
The defendant spouses filed a REPLY reaffirming their lack of awareness that Merrill Lynch Philippines,
Inc.(formerly registered as Merrill Lynch, Pierce, Fenner & Smith Philippines, Inc .) 5 did not have a
license, claiming that they learned of this only from inquiries with the Securities and Exchange
Commission which elicited the information that it had denied said corporation's application to operate as
a commodity futures trading advisor a denial subsequently affirmed by the Court of Appeals (Merrill
Lynch Philippines, Inc. v. Securities & Exchange Commission, CA-G.R. No. 10821-SP, Nov. 19, 1987).
The spouses also submitted additional documents (Annexes J to R) involving transactions with Merrill
Lynch Pierce Fenner & Smith, Inc., dating back to 1980, stressing that all but one of the documents
"refer to Account No. 138-12161 which is the very account that is involved in the instant complaint."
ML FUTURES filed a Rejoinder alleging it had given the spouses a disclosure statement by which the
latter were made aware that the transactions they were agreeing on would take place outside of the
Philippines, and that "all funds in the trading program must be placed with Merrill Lynch Futures, Inc."
On January 12, 1988, the Trial Court promulgated an Order sustaining the motion to dismiss, directing
the dismissal of the case and discharging the writ of preliminary attachment. It later denied ML
FUTURES's motion for reconsideration, by Order dated February 29, 1988. ML FUTURES appealed to the
Court of Appeals. 6
In its own decision promulgated on November 27, 1990, 7 the Court of Appeals affirmed the Trial
Court's judgment. It declared that the Trial Court had seen "through the charade in the representation
of MLPI and the plaintiff that MLPI is only a trading advisor and in fact it is a conduit in the plaintiff's
business transactions in the Philippines as a basis for invoking the provisions of Section 133 of the
Corporation Code," 8 viz.:
Sec. 133. Doing business without a license . No foreign corporation
transacting business in the Philippines without a license, or its successors
or assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency in the Philippines; but
such corporation may be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause of action recognized
under Philippine laws.
It also declared that the evidence established that plaintiff had in fact been "doing
business" in this country in legal contemplation, adverting to Mentholatum
v. Mangaliman, 72 Phil. 524, 528-530, and Section 1 of Republic Act No. 5455 reading as
follows: 9
Sec. 1. Definition and scope of this ACT . (1) As used in this Act, the term
"investment" shall mean equity participation in any enterprise formed,
organized, or existing under the laws of the Philippines; and the phrase
"doing business" shall INCLUDE soliciting orders, purchases, service
contracts, opening offices, whether called "liaison" offices or
branches; appointing representatives or distributors who are domiciled in
the Philippines or who in any calendar year stay in the Philippines for a
period or periods totalling one hundred eighty days or more ; participating
in the management, supervision or control of any domestic business firm,
entity or corporation in the Philippines; AND ANY OTHER ACT OR ACTS
THAT IMPLY A CONTINUITY OF COMMERCIAL DEALINGS OR
ARRANGEMENTS AND CONTEMPLATE TO THAT EXTENT THE
PERFORMANCE OF ACTS OR WORKS, OR THE EXERCISE OF SOME
FUNCTIONS NORMALLY INCIDENT TO, AND IN PROGRESSIVE
PROSECUTION OF COMMERCIAL GAIN OR OF THE PURPOSE AND OBJECT
OF THE BUSINESS ORGANIZATION.
As regards the claim that it was error for the Trial Court to place reliance on the decision of the Court of
Appeals in CA-G.R. No. 10821-SP sustaining the finding of the Securities & Exchange Commission that
ML FUTURES was doing business in the Philippines since that judgment was not yet final and ML
FUTURES was not a party to that proceeding, the Court of Appeals ruled that there was no need to
belabor the point considering that there was, in any event, "adequate proof of the activities of MLPI . . .
which manifestly show that the plaintiff (ML FUTURES) performed a series of business acts,
consummated contracts and undertook transactions for the period from 1983 to October 1987," "and
because ML FUTURES had done so without license, it consequently had "no legal personality to bring
suit in Philippine courts."
Its motion for reconsideration having been denied, 10 ML FUTURES has appealed to this Court
on certiorari. Here, it submits the following issues for resolution:
(a) Whether or not the annexes appended by the Laras to their Motion to
Dismiss and Reply filed with the Regional Trial Court, but never
authenticated or offered, constitute admissible evidence.
(b) Whether or not in the proceedings below, ML FUTURES has been
accorded procedural due process.
(c) Whether or not the annexes, assuming them to be admissible,
established that ML FUTURES was doing business in the Philippines without
a license.
As just stated, the Lara Spouse's motion to dismiss was founded on two (2) grounds: (a) that the
plaintiff has no legal capacity to sue, and (b) that the complaint states no cause of action (Sec. 1 [d],
and [g], Rule 16, Rules of Court).
As regards the second ground, i.e., that the complaint states no cause of action, the settled doctrine of
course is that said ground must appear on the face of the complaint, and its existence may be
determined only by the allegations of the complaint, consideration of other facts being proscribed, and
any attempt to prove extraneous circumstances not being allowed. 11 The test of the sufficiency of the
facts alleged in a complaint as constituting a cause of action is whether or not, admitting the facts
alleged, the court might render a valid judgment upon the same in accordance with the prayer of the
complaint. 12 Indeed, it is error for a judge to conduct a preliminary hearing and receive evidence on
the affirmative defense of failure of the complaint to state a cause of action. 13
The other ground for dismissal relied upon, i.e., that the plaintiff has no legal capacity to sue may be
understood in two senses: one, that the plaintiff is prohibited or otherwise incapacitated by law to
institute suit in Philippine Courts, 14 or two, although not otherwise incapacitated in the sense just
stated, that it is not a real party in interest. 15 Now, the Lara Spouses contend that ML Futures has no
capacity to sue them because the transactions subject of the complaint were had by them, not with the

plaintiff ML FUTURES, but with Merrill Lynch Pierce Fenner & Smith , Inc. Evidence is quite obviously
needed in this situation, for it is not to be expected that said ground, or any facts from which its
existence may be inferred, will be found in the averments of the complaint. When such a ground is
asserted in a motion to dismiss, the general rule governing evidence on motions applies. The rule is
embodied in Section 7, Rule 133 of the Rules of Court.
Sec. 7. Evidence on motion . When a motion is based on facts not
appearing of record the court may hear the matter on affidavits or
depositions presented by the respective parties, but the court may direct
that the matter be heard wholly or partly on oral testimony or depositions.
There was, to be sure, no affidavit or deposition attached to the Lara Spouses' motion to dismiss or
thereafter proffered in proof of the averments of their motion. The motion itself was not verified. What
the spouses did do was to refer in their motion to documents which purported to establish that it was
not with ML FUTURES that they had theretofore been dealing, but another, distinct entity, Merrill Lynch,
Pierce, Fenner & Smith, Inc., copies of which documents were attached to the motion. It is significant
that ML FUTURES raised no issue relative to the authenticity of the documents thus annexed to the
Laras' motion. In fact, its arguments subsumed the genuineness thereof and even adverted to one or
two of them. Its objection was centered on the propriety of taking account of those documents as
evidence, considering the established principle that no evidence should be received in the resolution of a
motion to dismiss based on an alleged failure of the complaint to state a cause of action.
There being otherwise no question respecting the genuineness of the documents, nor of their relevance
to at least one of the grounds for dismissal i.e., the prohibition on suits in Philippine Courts by foreign
corporations doing business in the country without license it would have been a superfluity for the
Court to require prior proof of their authenticity, and no error may be ascribed to the Trial Court in
taking account of them in the determination of the motion on the ground, not that the complaint fails to
state a cause of action as regards which evidence is improper and impermissible but that the
plaintiff has no legal capacity to sue respecting which proof may and should be presented.
Neither may ML FUTURES argue with any degree of tenability that it had been denied due process in the
premises. As just pointed out, it was very clear from the outset that the claim of lack of its capacity to
sue was being made to rest squarely on the documents annexed thereto, and ML FUTURES had more
than ample opportunity to impugn those documents and require their authentication, but did not do so.
To sustain its theory that there should have been identification and authentication, and formal offer, of
those documents in the Trial Court pursuant to the rules of evidence would be to give unwarranted
importance to technicality and make it prevail over the substance of the issue.
The first question then, is, as ML FUTURES formulates it, whether or not the annexes, assuming them to
be admissible, establish that (a) ML FUTURES is prohibited from suing in Philippine Courts because
doing business in the country without a license, and that (b) it is not a real party in interest since the
Lara Spouses had not been doing business with it, but with another corporation, Merrill Lynch, Pierce,
Fenner & Smith, Inc.
The Court is satisfied that the facts on record adequately establish that ML FUTURES, operating in the
United States, had indeed done business with the Lara Spouses in the Philippines over several years,
had done so at all times through Merrill Lynch Philippines, Inc. (MLPI), a corporation organized in this
country, and had executed all these transactions without ML FUTURES being licensed to so transact
business here, and without MLPI being authorized to operate as a commodity futures trading advisor.
These are the factual findings of both the Trial Court and the Court of Appeals. These, too, are the
conclusions of the Securities & Exchange Commission which denied MLPI's application to operate as a
commodity futures trading advisor, a denial subsequently affirmed by the Court of Appeals. Prescinding
from the proposition that factual findings of the Court of Appeals are generally conclusive this Court has
been cited to no circumstance of substance to warrant reversal of said Appellate Court's findings or
conclusions in this case.
The Court is satisfied, too, that the Laras did transact business with ML FUTURES through its agent
corporation organized in the Philippines, it being unnecessary to determine whether this domestic firm
was MLPI (Merrill Lynch Philippines, Inc.) or Merrill Lynch Pierce Fenner & Smith (MLPI's alleged
predecessor). The fact is that ML FUTURES did deal with futures contracts in exchanges in the United
States in behalf and for the account of the Lara Spouses, and that on several occasions the latter
received account documents and money in connection with those transactions.
Given these facts, if indeed the last transaction executed by ML FUTURES in the Laras's behalf had
resulted in a loss amounting to US $160,749.69; that in relation to this loss, ML FUTURES had credited
the Laras with the amount of US$75,913.42 which it (ML FUTURES) then admittedly owed the
spouses and thereafter sought to collect the balance, US$84,836.27, but the Laras had refused to pay
(for the reasons already above stated), the crucial question is whether or not ML FUTURES may sue in
Philippine Courts to establish and enforce its rights against said spouses, in light of the undeniable fact
that it had transacted business in this country without being licensed to do so. In other words, if it be
true that during all the time that they were transacting with ML FUTURES, the Laras were fully aware of
its lack of license to do business in the Philippines, and in relation to those transactions had made
payments to, and received money from it for several years, the question is whether or not the Lara
Spouses are now estopped to impugn ML FUTURES' capacity to sue them in the courts of the forum.
The rule is that a party is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. 16 And the "doctrine of estoppel to deny
corporate existence applies to foreign as well as to domestic corporations;" 17 "one who has dealt with
a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and
capacity." 18 The principle "will be applied to prevent a person contracting with a foreign corporation
from later taking advantage of its noncompliance with the statutes, chiefly in cases where such person
has received the benefits of the contract (Sherwood v. Alvis, 83 Ala 115, 3 So 307, limited and
distinguished in Dudley v. Collier, 87 Ala 431, 6 So 304; Spinney v. Miller, 114 Iowa 210, 86 NW 317),
where such person has acted as agent for the corporation and has violated his fiduciary obligations as
such, and where the statute does not provide that the contract shall be void, but merely fixes a special
penalty for violation of the statute. . . ." 19
The doctrine was adopted by this Court as early as 1924 in Asia Banking Corporation v . Standard
Products Co., 20in which the following pronouncement was made: 21
The general rule that in the absence of fraud of person who has contracted
or otherwise dealt with an association in such a way as to recognize and in
effect admit its legal existence as a corporate body is thereby estopped to
deny its corporate existence in any action leading out of or involving such
contract or dealing, unless its existence is attacked for causes which have
arisen since making the contract or other dealing relied on as an estoppel
and this applies to foreign as well as domestic corporations . (14C.J .7;
Chinese Chamber of Commerce vs. Pua Te Ching, 14 Phil. 222).
There would seem to be no question that the Laras received benefits generated by their business
relations with ML FUTURES. Those business relations, according to the Laras themselves, spanned a
period of seven (7) years; and they evidently found those relations to be of such profitability as
warranted their maintaining them for that not insignificant period of time; otherwise, it is reasonably
certain that they would have terminated their dealings with ML FUTURES much, much earlier. In fact,
even as regards their last transaction, in which the Laras allegedly suffered a loss in the sum of
US$160,749.69, the Laras nonetheless still received some monetary advantage, for ML FUTURES
credited them with the amount of US$75,913.42 then due to them, thus reducing their debt to
US$84,836.27. Given these facts, and assuming that the Lara Spouses were aware from the outset that
ML FUTURES had no license to do business in this country and MLPI, no authority to act as broker for it,
it would appear quite inequitable for the Laras to evade payment of an otherwise legitimate
indebtedness due and owing to ML FUTURES upon the plea that it should not have done business in this
country in the first place, or that its agent in this country, MLPI, had no license either to operate as a
"commodity and/or financial futures broker."
Considerations of equity dictate that, at the very least, the issue of whether the Laras are in truth liable
to ML FUTURES and if so in what amount, and whether they were so far aware of the absence of the
requisite licenses on the part of ML FUTURES and its Philippine correspondent, MLPI, as to be estopped
from alleging that fact as defense to such liability, should be ventilated and adjudicated on the merits by
the proper trial court.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 16478 dated November 27, 1990
and its Resolution of March 7, 1991 are REVERSED and SET ASIDE, and the Regional Trial Court at
Quezon City, Branch 84, is ORDERED to reinstate Civil Case No. Q-52360 and forthwith conduct a
hearing to adjudicate the issues set out in the preceding paragraph on the merits.
SO ORDERED.
Padilla, Regalado and Nocon, JJ., concur.
Paras, J., Retired as of July 4, 1992.
Footnotes
1 The case was docketed as Civil Case No. Q-52360 and assigned to
Branch 84, presided over by Hon. Teodoro P. Regino.
2 It appears that Merrill Lynch Philippines, Inc. was formerly registered and
known as Merrill Lynch, Pierce, Fenner & Smith Philippines, Inc.
SEE footnote 5, infra.
3 The Laras say the trading was carried on for seven (7) years.
5 SEE footnote 2, supra.
8 The counterpart provision (Sec. 69) of the prior law, Act No. 1459, stated
that "No foreign corporation or corporation formed, organized, or existing
under any laws other than those of the Philippines, shall be permitted to
transact business in the Philippines or maintain by itself or assignee any
suit for the recovery of any debt, claim, or demand whatever , unless it
shall have the license prescribed in the section immediately preceding. . . ."
(emphasis supplied) (although, it may be added, it may be sued [General
Corporation of the Philippines v. Union Insurance Society of Canton, Ltd.,
87 Phil. 313 (1950)]).
10 Per Resolution dated March 7, 1991, which also "directed (the Trial
Court) to hear and resolve appellees' application for damages on the
appellant's attachment bond."
14 I .e., Section 133 of the Corporation Code, supra (SEE General
Corporation of the Philippines v. Union Insurance Society of Canton, Ltd.,
87 Phil. 313); or he does not have the necessary qualifications to appear at
the trial, such as when he is not in the full exercise of his civil rights
(Lunsod v. Ortega, 46 Phil. 664, cited in Felia, Civil Procedure, 1969 ed.,
pp. 316-317)
15 SEC. 2, Rule 3 of the Rules of Court provides that "Every action must be
prosecuted and defended in the name of the real party in interest. All
persons having an interest in the subject of the action and in obtaining the
relief demanded shall be joined as plaintiffs. All persons who claim an
interest in the controversy adverse to the plaintiff or who are necessary to
a complete determination or settlement of the questions involved therein
shall be joined as defendants." The real party in interest is the party who
would be benefited or injured by the judgment, or the 'party entitled to the
avails of the suit' (1 Sutherland, Code Pleading Practice & Forms, p. 11)
(Salonga v. Warner, Barnes & Co., Ltd., 88 Phil. 125, cited in Feria, op. cit.,
p. 139). SEE, also, Moran, op. cit., p. 154; and Lunsod v. Ortega, supra,
holding inter alia that a plaintiff has no legal capacity to sue when he does
not have the character or representation he claims, which is a matter of
evidence.
18 36 Am. Jur. 2d, pp. 296-297, although there is authority that said
doctrine "does not, by analogy, require that such person be held estopped
to deny that the corporation has complied with the local statutes imposing
conditions, restrictions, and regulations on foreign corporations and that it
has acquired thereby the right to do business in the state"

FIRST DIVISION

[G.R. No. 154618. ]


AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., petitioner, vs. INTEGRATED SILICON
TECHNOLOGY PHILIPPINES CORPORATION, TEOH KIANG HONG, TEOH KIANG SENG,
ANTHONY CHOO, JOANNE KATE M. DELA CRUZ, JEAN KAY M. DELA CRUZ and ROLANDO T.
NACILLA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the Decision dated of the Court of Appeals in CA-G.R. SP No. 66574,
which dismissed Civil Case No. 3123-2001-C and annulled and set aside the Order dated issued by the
Regional Trial Court of Calamba, Laguna, Branch 92.
Petitioner Agilent Technologies Singapore (Pte.), Ltd. (Agilent) is a foreign corporation, which, by its own
admission, is not licensed to do business in the .[1] Respondent Integrated Silicon Technology
Philippines Corporation (Integrated Silicon) is a private domestic corporation, 100% foreign owned,
which is engaged in the business of manufacturing and assembling electronics components.
[2] Respondents Teoh Kiang Hong, Teoh Kiang Seng and AnthonyChoo, Malaysian nationals, are current
members of Integrated Silicons board of directors, while Joanne Kate M. dela Cruz, Jean Kay
M. dela Cruz, and Rolando T. Nacilla are its former members.[3]
The juridical relation among the various parties in this case can be traced to a 5-year Value Added
Assembly Services Agreement (VAASA), entered into on April 2, 1996 between Integrated Silicon and
the Hewlett-Packard Singapore (Pte.) Ltd., Components Operation (HP-Singapore).[4] Under the terms
of the , Integrated Silicon was to locally manufacture and assemble fiber optics for export to HPSingapore. HP-Singapore, for its part, was to consign raw materials to Integrated Silicon; transport
machinery to the plant of Integrated Silicon; and pay Integrated Silicon the purchase price of the
finished products.[5] The had a five-year term, beginning on , with a provision for annual renewal by
mutual written consent.[6] On , with the consent of Integrated Silicon,[7] HP-Singapore assigned all its
rights and obligations in the to Agilent.[8]
On May 25, 2001, Integrated Silicon filed a complaint for Specific Performance and Damages
against Agilent and its officers Tan Bian Ee, Lim Chin Hong, Tey Boon Teck and Francis Khor, docketed as
Civil Case No. 3110-01-C. It alleged that Agilent breached the parties oral agreement to extend
the . Integrated Silicon thus prayed that defendant be ordered to execute a written extension of the for
a period of five years as earlier assured and promised; to comply with the extended ; and to pay actual,
moral, exemplary damages and attorneys fees.[9]
On , summons and a copy of the complaint were served on Atty. Ramon Quisumbing, who returned
these processes on the claim that he was not the registered agent of Agilent. Later, he entered a special
appearance to assail the courts jurisdiction over the person of Agilent.
On
July
2,
2001, Agilent filed
a
separate
complaint
against
Integrated
Silicon, Teoh Kang Seng, Teoh Kiang Gong, Anthony Choo, Joanne Kate M. dela Cruz, Jean Kay
M. dela Cruz and Rolando T. Nacilla,[10] for Specific Performance, Recovery of Possession, and Sum of
Money with Replevin, Preliminary Mandatory Injunction, and Damages, before the Regional Trial
Court, Calamba, Laguna, Branch 92, docketed as Civil Case No. 3123-2001-C. Agilent prayed that a writ
ofreplevin or, in the alternative, a writ of preliminary mandatory injunction, be issued ordering
defendants to immediately return and deliver to plaintiff its equipment, machineries and the materials to
be used for fiber-optic components which were left in the plant of Integrated Silicon. It further prayed
that defendants be ordered to pay actual and exemplary damages and attorneys fees.[11]
Respondents filed a Motion to Dismiss in Civil Case No. 3123-2001-C,[12] on the grounds of lack
of Agilents legal capacity to sue;[13] litis pendentia;[14] forum shopping;[15] and failure to state a
cause of action.[16]
On , the trial court denied the Motion to Dismiss and granted petitioner Agilents application for a writ

of replevin.[17]
Without filing a motion for reconsideration, respondents filed a petition for certiorari with the Court of
Appeals.[18]
In the meantime, upon motion filed by respondents, Judge Antonio S. Pozas of Branch 92 voluntarily
inhibited himself in Civil Case No. 3123-2001-C. The case was re-raffled and assigned to Branch 35, the
same branch where Civil Case No. 3110-2001-C is pending.
On , the Court of Appeals granted respondents petition for certiorari, set aside the assailed Order of the
trial court dated , and ordered the dismissal of Civil Case No. 3123-2001-C.
Hence, the instant petition raising the following errors:
I.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT DISMISSING RESPONDENTS
PETITION FOR CERTIORARI FOR RESPONDENTS FAILURE TO FILE A MOTION FOR RECONSIDERATION
BEFORE RESORTING TO THE REMEDY OF CERTIORARI.
II.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING AND SETTING ASIDE THE
TRIAL COURTS ORDER DATED AND ORDERING THE DISMISSAL OF CIVIL CASE NO. 3123-2001-C
BELOW ON THE GROUND OF LITIS PENDENTIA, ON ACCOUNT OF THE PENDENCY OF CIVIL CASE NO.
3110-2001-C.
III.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING AND SETTING ASIDE THE
TRIAL COURTS ORDER DATED AND ORDERING THE DISMISSAL OF CIVIL CASE NO. 3123-2001-C
BELOW ON THE GROUND OF FORUM SHOPPING, ON ACCOUNT OF THE PENDENCY OF CIVIL CASE NO.
3110-2001-C.
IV.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ORDERING THE DISMISSAL OF CIVIL
CASE NO. 323-2001-C BELOW INSTEAD OF ORDERING IT CONSOLIDATED WITH CIVIL CASE NO. 31102001-C.[19]
The two primary issues raised in this petition: (1) whether or not the Court of Appeals committed
reversible error in giving due course to respondents petition, notwithstanding the failure to file a Motion
for Reconsideration of the September 4, 2001 Order; and (2) whether or not the Court of Appeals
committed reversible error in dismissing Civil Case No. 3123-2001-C.
We find merit in the petition.
The Court of Appeals, citing the case of Malayang Manggagawa sa ESSO v. ESSO Standard Eastern, Inc.,
[20] held that the lower court had no jurisdiction over Civil Case No. 3123-2001-C because of
the pendency of Civil Case No. 3110-2001-C and, therefore, a motion for reconsideration was not
necessary before resort to a petition for certiorari. This was error.
Jurisdiction is fixed by law. Batas Pambansa Blg. 129 vests jurisdiction over the subject matter of Civil
Case No. 3123-2001-C in the RTC.[21]
The Court of Appeals ruling that the assailed Order issued by the RTC of Calamba, Branch 92, was a
nullity for lack of jurisdiction due to litis pendentia and forum shopping, has no legal
basis. The pendency of another action does not strip a court of the jurisdiction granted by law.
The Court of Appeals further ruled that a Motion for Reconsideration was not necessary in view of the
urgent necessity in this case. We are not convinced. In the case of Bache and Co. (Phils.), Inc. v. Ruiz ,
[22] relied on by the Court of Appeals, it was held that time is of the essence in view of the tax
assessments sought to be enforced by respondent officers of the Bureau of Internal Revenue against
petitioner corporation, on account of which immediate and more direct action becomes necessary. Tax
assessments in that case were based on documents seized by virtue of an illegal search, and the
deprivation of the right to due process tainted the entire proceedings with illegality. Hence, the urgent
necessity of preventing the enforcement of the tax assessments was patent. Respondents, on the other
hand, cite the case of Geronimo v. Commission on Elections,[23] where the urgent necessity of resolving
a disqualification case for a position in local government warranted the expeditious resort to
certiorari. In the case at bar, there is no analogously urgent circumstance which would necessitate the
relaxation of the rule on a Motion for Reconsideration.
Indeed, none of the exceptions for dispensing with a Motion for Reconsideration is present here. None
of the following cases cited by respondents serves as adequate basis for their procedural lapse.
In Vigan Electric Light Co., Inc. v. Public Service Commission ,[24] the questioned order was null and
void for failure of respondent tribunal to comply with due process requirements;
in Matanguihan v. Tengco,[25] the questioned order was a patent nullity for failure to acquire jurisdiction
over the defendants, which fact the records plainly disclosed; and in National Electrification
Administration v. Court of Appeals ,[26] the questioned orders were void for vagueness. No such patent
nullity is evident in the Order issued by the trial court in this case. Finally, while urgency may be a
ground for dispensing with a Motion for Reconsideration, in the case of Vivo v. Cloribel,[27] cited by
respondents, the slow progress of the case would have rendered the issues moot had a motion for
reconsideration been availed of. We find no such urgent circumstance in the case at bar.
Respondents, therefore, availed of a premature remedy when they immediately raised the matter to the
Court of Appeals on certiorari; and the appellate court committed reversible error when it took
cognizance of respondents petition instead of dismissing the same outright.
We come now to the substantive issues of the petition.
Litis pendentia is a Latin term which literally means a pending suit. It is variously referred to in some
decisions as lispendens and auter action pendant. While it is normally connected with the control which
the court has on a property involved in a suit during the continuance proceedings, it is more interposed
as a ground for the dismissal of a civil action pending in court.
Litis pendentia as a ground for the dismissal of a civil action refers to that situation wherein another
action is pending between the same parties for the same cause of action, such that the second action
becomes unnecessary and vexatious.For litis pendentia to be invoked, the concurrence of the following
requisites is necessary:
(a) identity of parties or at least such as represent the same interest in both actions;
(b) identity of rights asserted and reliefs prayed for, the reliefs being founded on the same facts; and
(c) the identity in the two cases should be such that the judgment that may be rendered in one would,
regardless of which party is successful, amount to res judicata in the other.[28]
The Court of Appeals correctly appreciated the identity of parties in Civil Cases No. 3123-2001-C and
3110-2001-C. Well-settled is the rule that lis pendens requires only substantial, and not absolute,
identity of parties.[29] There is substantial identity of parties when there is a community of interest
between a party in the first case and a party in the second case, even if the latter was not impleaded in
the first case.[30] The parties in these cases are vying over the interests of the two opposing
corporations; the individuals are only incidentally impleaded, being the natural persons purportedly
accused of violating these corporations rights.
Likewise, the fact that the positions of the parties are reversed, i.e., the plaintiffs in the first case are the
defendants in the second case or vice versa, does not negate the identity of parties for purposes of
determining whether the case is dismissible on the ground of litis pendentia.[31]
The identity of parties notwithstanding, litis pendentia does not obtain in this case because of the
absence of the second and third requisites. The rights asserted in each of the cases involved are
separate and distinct; there are two subjects of controversy presented for adjudication; and two causes
of action are clearly involved. The fact that respondents instituted a prior action for Specific Performance
and Damages is not a ground for defeating the petitioners action for Specific Performance, Recovery of
Possession, and Sum of Money with Replevin, Preliminary Mandatory Injunction, and Damages.
In Civil Case No. 3110-2001-C filed by respondents, the issue is whether or not there was a breach of an
oral promise to renew of the . The issue in Civil Case No. 3123-2001-C, filed by petitioner, is whether
petitioner has the right to take possession of the subject properties. Petitioners right of possession is
founded on the ownership of the subject goods, which ownership is not disputed and is not contingent
on the extension or non-extension of the . Hence, the replevinsuit can validly be tried even while the
prior suit is being litigated in the Regional Trial Court.
Possession of the subject properties is not an issue in Civil Case No. 3110-2001-C. The reliefs sought by
respondent Integrated Silicon therein are as follows: (1) execution of a written extension or renewal of
the ; (2) compliance with the extended ; and (3) payment of overdue accounts, damages, and attorneys
fees. The reliefs sought by petitionerAgilent in Civil Case No. 3123-2001-C, on the other hand, are as

follows: (1) issuance of a Writ of Replevin or Writ of Preliminary Mandatory Injunction; (2) recovery of
possession of the subject properties; (3) damages and attorneys fees.
Concededly, some items or pieces of evidence may be admissible in both actions. It cannot be said,
however, thatexactly the same evidence will support the decisions in both, since the legally significant
and controlling facts in each case are entirely different. Although the figures prominently in both suits,
Civil Case No. 3110-2001-C is premised on a purported breach of an oral obligation to extend the , and
damages arising out of Agilents alleged failure to comply with such purported extension. Civil Case No.
3123-2001-C, on the other hand, is premised on a breach of the itself, and damages arising
to Agilent out of that purported breach.
It necessarily follows that the third requisite for litis pendentia is also absent. The following are the
elements of resjudicata:
(a) The former judgment must be final;
(b) The court which rendered judgment must have jurisdiction over the parties and the subject matter;
(c) It must be a judgment on the merits; and
(d) There must be between the first and second actions identity of parties, subject matter, and cause of
action.[32]
In this case, any judgment rendered in one of the actions will not amount to res judicata in the other
action. There being different causes of action, the decision in one case will not constitute res judicata as
to the other.
Of course, a decision in one case may, to a certain extent, affect the other case. This, however, is not
the test to determine the identity of the causes of action. Whatever difficulties or inconvenience may be
entailed if both causes of action are pursued on separate remedies, the proper solution is not the
dismissal order of the Court of Appeals. The possible consolidation of said cases, as well as stipulations
and appropriate modes of discovery, may well be considered by the court below to subserve not only
procedural expedience but, more important, the ends of justice.[33]
We now proceed to the issue of forum shopping.
The test for determining whether a party violated the rule against forum-shopping was laid down in the
case of Buan v. Lopez.[34] Forum shopping exists where the elements of litis pendentia are present, or
where a final judgment in one case will amount to res judicata in the final other. There being
no litis pendentia in this case, a judgment in the said case will not amount to res judicata in Civil Case
No. 3110-2001-C, and respondents contention on forum shopping must likewise fail.
We are not unmindful of the afflictive consequences that may be suffered by both petitioner and
respondents if replevinis granted by the trial court in Civil Case No. 3123-2001-C. If respondent
Integrated Silicon eventually wins Civil Case No. 3110-2001-C, and the s terms are extended, petitioner
corporation will have to comply with its obligationsthereunder, which would include the consignment of
properties similar to those it may recover by way of replevin in Civil Case No. 3123-2001-C. However,
petitioner will also suffer an injustice if denied the remedy of replevin, resort to which is not only
allowed but encouraged by law.
Respondents argue that since Agilent is an unlicensed foreign corporation doing business in the , it lacks
the legal capacity to file suit.[35] The assailed acts of petitioner Agilent, purportedly in the nature of
doing business in the Philippines, are the following: (1) mere entering into the VAASA, which is a service
contract;[36] (2) appointment of a full-time representative in Integrated Silicon, to oversee and
supervise the production of Agilents products;[37] (3) the appointment byAgilent of six full-time staff
members, who were permanently stationed at Integrated Silicons facilities in order to inspect the
finished goods for Agilent;[38] and (4) Agilents participation in the management, supervision and
control of Integrated Silicon,[39] including instructing Integrated Silicon to hire more employees to
meet Agilents increasing production needs,[40]regularly performing quality audit, evaluation and
supervision of Integrated Silicons employees,[41] regularly performing inventory audit of raw materials
to be used by Integrated Silicon, which was also required to provide weekly inventory updates
to Agilent,[42] and providing and dictating Integrated Silicon on the daily production schedule, volume
and models of the products to manufacture and ship for Agilent.[43]
A foreign corporation without a license is not ipso facto incapacitated from bringing an action in
Philippine courts. A license is necessary only if a foreign corporation is transacting or doing business in
the country. The Corporation Code provides:
Sec. 133. Doing business without a license. No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.
The aforementioned provision prevents an unlicensed foreign corporation doing business in the from
accessing our courts.
In a number of cases, however, we have held that an unlicensed foreign corporation doing business in
the may bring suit in Philippine courts against a Philippine citizen or entity who had contracted with and
benefited from said corporation.[44] Such a suit is premised on the doctrine of estoppel. A party
is estopped from challenging the personality of a corporation after having acknowledged the same by
entering into a contract with it. This doctrine of estoppel to deny corporate existence and capacity
applies to foreign as well as domestic corporations.[45] The application of this principle prevents a
person contracting with a foreign corporation from later taking advantage of its noncompliance with the
statutes chiefly in cases where such person has received the benefits of the contract.[46]
The principles regarding the right of a foreign corporation to bring suit in Philippine courts may thus be
condensed in four statements: (1) if a foreign corporation does business in the Philippines without a
license, it cannot sue before the Philippine courts; [47] (2) if a foreign corporation is not doing business
in the Philippines, it needs no license to sue before Philippine courts on an isolated transaction or on a
cause of action entirely independent of any business transaction [48]; (3) if a foreign corporation does
business in the Philippines without a license, a Philippine citizen or entity which has contracted with said
corporation may be estopped from challenging the foreign corporations corporate personality in a suit
brought before Philippine courts;[49] and (4) if a foreign corporation does business in the
Philippines with the required license, it can sue before Philippine courts on any transaction.
The challenge to Agilents legal capacity to file suit hinges on whether or not it is doing business in
the .However, there is no definitive rule on what constitutes doing, engaging in, or transacting business
in the , as this Court observed in the case of Mentholatum v. Mangaliman.[50] The Corporation Code
itself is silent as to what acts constitute doing or transacting business in the .
Jurisprudence has it, however, that the term implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of
some of the functions normally incident to or in progressive prosecution of the purpose and subject of
its organization.[51]
In Mentholatum,[52] this Court discoursed on the two general tests to determine whether or not a
foreign corporation can be considered as doing business in the . The first of these is the substance test,
thus:[53]
The true test [for doing business], however, seems to be whether the foreign corporation is continuing
the body of the business or enterprise for which it was organized or whether it has substantially retired
from it and turned it over to another.
The second test is the continuity test, expressed thus:[54]
The term [doing business] implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of the functions
normally incident to, and in the progressive prosecution of, the purpose and object of its organization.
Although each case must be judged in light of its attendant circumstances, jurisprudence has evolved
several guiding principles for the application of these tests. For instance, considering that it transacted
with its Philippine counterpart for seven years, engaging in futures contracts, this Court concluded that
the foreign corporation in Merrill Lynch Futures, Inc. v. Court of Appeals and Spouses Lara ,[55] was
doing business in the . In Commissioner of Internal Revenue v. Japan Airlines (JAL) ,[56] the Court held
that JAL was doing business in the Philippines, i.e., its commercial dealings in the country were
continuous despite the fact that no JAL aircraft landed in the country as it sold tickets in the Philippines
through a general sales agent, and opened a promotions office here as well.
In General Corp. of the Phils. v. Union Insurance Society of Canton and Firemans Fund Insurance ,[57] a
foreign insurance corporation was held to be doing business in the , as it appointed a settling agent

here, and issued 12 marine insurance policies. We held that these transactions were not isolated or
casual, but manifested the continuity of the foreign corporations conduct and its intent to establish a
continuous business in the country. In Eriks PTE Ltd. v. Court of Appeals and Enriquez ,[58] the foreign
corporation sold its products to a Filipino buyer who ordered the goods 16 times within an eight-month
period. Accordingly, this Court ruled that the corporation was doing business in the , as there was a
clear intention on its part to continue the body of its business here, despite the relatively short span of
time involved.Communication Materials and Design, Inc., et al. v. Court of Appeals, ITEC, et al.
[59] and Top-Weld Manufacturing v. ECED, IRTI, et al .[60] both involved the License and Technical
Agreement and Distributor Agreement of foreign corporations with their respective local counterparts
that were the primary bases for the Courts ruling that the foreign corporations were doing business in
the Philippines.[61] In particular, the Court cited the highly restrictive nature of certain provisions in the
agreements involved, such that, as stated in Communication Materials , the Philippine entity is reduced
to a mere extension or instrument of the foreign corporation. For example, in Communication Materials ,
the Court deemed the No Competing Product provision of the Representative Agreement therein
restrictive.[62]
The case law definition has evolved into a statutory definition, having been adopted with some
qualifications in various pieces of legislation. The Foreign Investments Act of 1991 (the FIA; Republic Act
No. 7042, as amended), defines doing business as follows:
Sec. 3, par. (d). The phrase doing business shall include soliciting orders, service contracts, opening
offices, whether called liaison offices or branches; appointing representatives or distributors domiciled in
the Philippines or who in any calendar year stay in the country for a period or periods totaling one
hundred eighty (180) days or more; participating in the management, supervision or control of any
domestic business, firm, entity, or corporation in the Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally incident to, and in the progressive
prosecution of, commercial gain or of the purpose and object of the business organization.
An analysis of the relevant case law, in conjunction with Section 1 of the Implementing Rules and
Regulations of the FIA (as amended by Republic Act No. 8179), would demonstrate that the acts
enumerated in the VAASA do not constitute doing business in the Philippines.
Section 1 of the Implementing Rules and Regulations of the FIA (as amended by Republic Act No. 8179)
provides that the following shall not be deemed doing business:
(1) Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor;
(2) Having a nominee director or officer to represent its interest in such corporation;
(3) Appointing a representative or distributor domiciled in the which transacts business in the
representatives or distributors own name and account;
(4) The publication of a general advertisement through any print or broadcast media;
(5) Maintaining a stock of goods in the solely for the purpose of having the same processed by another
entity in the ;
(6) Consignment by a foreign entity of equipment with a local company to be used in the processing of
products for export;
(7) Collecting information in the ; and
(8) Performing services auxiliary to an existing isolated contract of sale which are not on a continuing
basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines,
servicing the same, training domestic workers to operate it, and similar incidental services.
By and large, to constitute doing business, the activity to be undertaken in the is one that is for profitmaking.[63]
By the clear terms of the VAASA, Agilents activities in the Philippines were confined to (1) maintaining a
stock of goods in the Philippines solely for the purpose of having the same processed by Integrated
Silicon; and (2) consignment of equipment with Integrated Silicon to be used in the processing of
products for export. As such, we hold that, based on the evidence presented thus far, Agilent cannot be
deemed to be doing business in the . Respondents contention that Agilent lacks the legal capacity to file
suit is therefore devoid of merit. As a foreign corporation not doing business in the , it needed no license
before it can sue before our courts.
Finally, as to Agilents purported failure to state a cause of action against the individual respondents, we
likewise rule in favor of petitioner. A Motion to Dismiss hypothetically admits all the allegations in the
Complaint, which plainly alleges that these individual respondents had committed or permitted the
commission of acts prejudicial to Agilent. Whether or not these individuals had divested themselves of
their interests in Integrated Silicon, or are no longer members of Integrated Silicons Board of Directors,
is a matter of defense best threshed out during trial.
WHEREFORE, PREMISES CONSIDERED, the petition is GRANTED. The Decision of the Court of
Appeals in CA-G.R. SP No. 66574 dated August 12, 2002, which dismissed Civil Case No. 3123-2001-C,
is REVERSED and SET ASIDE. The Order dated issued by the Regional Trial Court of Calamba, Laguna,
Branch 92, in Civil Case No. 3123-2001-C, is REINSTATED. Agilents application for a Writ of Replevin is
GRANTED.
No pronouncement as to costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Carpio, and Azcuna, JJ., concur.
[21] Batas Pambansa Blg. 129, sec. 19.
[47] CORPORATION CODE, sec. 133.
[61] According to the Court in Communication Materials , it was persuaded to conclude that the foreign
corporation was doing business in the, as this was the inevitable result after a scrutiny of the different
contracts and agreements entered into by the foreign corporation.

SECOND DIVISION
EXPERTRAVEL & TOURS,
AIRLINES,respondents.

[G.R. No. 152392. May 26, 2005]


INC., petitioner, vs. COURT OF
DECISION

APPEALS

and

KOREAN

CALLEJO, SR., J.:


Before us is a petition for review on certiorari of the Decision[1] 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 Order[4] 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[5] dated 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
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 10th day of January, 1999, in the City
of Manila, Philippines.
(Sgd.)
MARIO A. AGUINALDO
Resident Agent
SUBSCRIBED AND SWORN to before me this 10th 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.
(Sgd.)
Doc. No. 119; ATTY. HENRY D. ADASA
Page No. 25; Notary Public
Book No. XXIV Until December 31, 2000
Series of 2000. PTR #889583/MLA 1/3/2000[6]
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 teleconference without 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 E-Commerce 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.
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 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 30th day of August, 1999, affiant exhibiting to me his
Community Tax Certificate No. 00671047 issued on January 7, 1999 at Manila, Philippines.
(Sgd.)
Doc. No. 1005; ATTY. HENRY D. ADASA
Page No. 198; Notary Public
Book No. XXI Until December 31, 2000
Series of 1999. PTR No. 320501 Mla. 1/4/99[13]
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 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]
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 card [25] 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
Order[27] 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 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.
Puno, Acting C.J., (Chairman), Austria-Martinez, and Chico-Nazario, JJ., concur.
Tinga, J., out of the country.
[14] These provisions are the basis of Section 12, Rule 14 of the Rules of Court, which reads:
SEC. 12. Service upon foreign private juridical entity . When the defendant is a foreign private juridical
entity which has transacted business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if there be no such agent, on the government
official designated by law to that effect, or on any of its officers or agents within the Philippines.
[24] The Court also approved the Rule on Examination of a child witness which allows live-link television
testimony in criminal cases where the child is a victim or a witness (Section 25), which took effect on
December 15, 2000.
The early applications of videoconferencing in the States in the United States courts primarily focused on
video arraignments and probable cause hearings. As courts began to appreciate the costs savings and
the decreased security risks of the technology, other uses became apparent. Videoconferencing is an
effective tool for parole interviews, juvenile detention hearings, mental health hearings, domestic
violence hearings, pretrial conferences, remote witness testimony, and depositionsto name a few. The
technology will prove even more valuable in an age of international terrorist trials with witnesses from
around the world. Videoconferencing has become quite commonplace in State Courts per the Report.
The last comprehensive report: Use of Interactive Video for Court Proceedings: Legal Status
and Use Nationwide.Published in 1995, by the National Institute of Corrections, is that
videoconferencing is used in 50 states in the United States of America.

SECOND DIVISION
B. VAN ZUIDEN BROS., LTD., G.R. No. 147905
Petitioner,
Present:
QUISUMBING, J.,
Chairperson,
-versus- CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
GTVL MANUFACTURING Promulgated:
INDUSTRIES, INC.,
Respondent. May 28, 2007
x-----------------------------------------------------------------------------------------x
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review[1] of the Decision[2] of the Court of Appeals in CA-G.R. CV No.
66236. The Court of Appeals affirmed the Order[3] of the Regional Trial Court, Branch
258, Paraaque City (trial court) dismissing the complaint for sum of money filed by B. Van Zuiden Bros.,
Ltd. (petitioner) against GTVL Manufacturing Industries, Inc. (respondent).
The Facts
On , petitioner filed a complaint for sum of money against respondent, docketed as Civil Case No. 990249. The pertinent portions of the complaint read:
1. Plaintiff, ZUIDEN, is a corporation, incorporated under the laws of . x x x ZUIDEN is not engaged in
business in the , but is suing before the Philippine Courts, for the reasons hereinafter stated.
xxxx
3. ZUIDEN is engaged in the importation and exportation of several products, including lace products.
4. On several occasions, GTVL purchased lace products from [ZUIDEN].
5. The procedure for these purchases, as per the instructions of GTVL, was that ZUIDEN delivers the
products purchased by GTVL, to a certain Hong Kong corporation, known as Kenzar Ltd. (KENZAR),
x x x and the products are then considered as sold, upon receipt by KENZAR of the goods purchased by
GTVL.
KENZAR had the obligation to deliver the products to the and/or to follow whatever instructions GTVL
had on the matter.
Insofar as ZUIDEN is concerned, upon delivery of the goods to KENZAR in , the transaction is concluded;
and GTVL became obligated to pay the agreed purchase price.
xxxx
7. However, commencing up to the present, GTVL has failed and refused to pay the agreed purchase
price for several deliveries ordered by it and delivered by ZUIDEN, as above-mentioned.
xxxx
9. In spite [sic] of said demands and in spite [sic] of promises to pay and/or admissions of liability, GTVL
has failed and refused, and continues to fail and refuse, to pay the overdue amount of U.S.$32,088.02
[inclusive of interest].[4]
Instead of filing an answer, respondent filed a Motion to Dismiss[5] on the ground that petitioner has no
legal capacity to sue. Respondent alleged that petitioner is doing business in the Philippines without
securing the required license. Accordingly, petitioner cannot sue before Philippine courts.
After an exchange of several pleadings[6] between the parties, the trial court issued an Order on 10
November 1999 dismissing the complaint.
On appeal, the Court of Appeals sustained the trial courts dismissal of the complaint.

Hence, this petition.


The Court of Appeals Ruling
In affirming the dismissal of the complaint, the Court of Appeals relied on Eriks Pte., Ltd. v. Court of
Appeals.[7] In that case, Eriks, an unlicensed foreign corporation, sought to collect US$41,939.63 from a
Filipino businessman for goods which he purchased and received on several occasions from January to
May 1989. The transfers of goods took place in Singapore, for the Filipinos account, F.O.B. Singapore,
with a 90-day credit term. Since the transactions involved were not isolated, this Court found Eriks to be
doing business in the Philippines. Hence, this Court upheld the dismissal of the complaint on the ground
that Eriks has no capacity to sue.
The Court of Appeals noted that in Eriks, while the deliveries of the goods were perfected in Singapore,
this Court still found Eriks to be engaged in business in the Philippines. Thus, the Court of Appeals
concluded that the place of delivery of the goods (or the place where the transaction took place) is not
material in determining whether a foreign corporation is doing business in the Philippines. The Court of
Appeals held that what is material are the proponents to the transaction, as well as the parties to be
benefited and obligated by the transaction.
In this case, the Court of Appeals found that the parties entered into a contract of sale whereby
petitioner sold lace products to respondent in a series of transactions. While petitioner delivered the
goods in Hong Kong to Kenzar, Ltd. (Kenzar), another Hong Kong company, the party with whom
petitioner transacted was actually respondent, a Philippine corporation, and not Kenzar. The Court of
Appeals believed Kenzar is merely a shipping company. The Court of Appeals concluded that the delivery
of the goods in Hong Kong did not exempt petitioner from being considered as doing business in the
Philippines.
The Issue
The sole issue in this case is whether petitioner, an unlicensed foreign corporation, has legal capacity to
sue before Philippine courts. The resolution of this issue depends on whether petitioner is doing
business in the Philippines.
The Ruling of the Court
The petition is meritorious.
Section 133 of the Corporation Code provides:
Doing business without license. No foreign corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such corporation may be sued
or proceeded against before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws.
The law is clear. An unlicensed foreign corporation doing business in the Philippines cannot sue before
Philippine courts. On the other hand, an unlicensed foreign corporation not doing business in the
Philippines can sue before Philippine courts.
In the present controversy, petitioner is a foreign corporation which claims that it is not doing business
in the Philippines. As such, it needs no license to institute a collection suit against respondent before
Philippine courts.
Respondent argues otherwise. Respondent insists that petitioner is doing business in the Philippines
without the required license. Hence, petitioner has no legal capacity to sue before Philippine courts.
Under Section 3(d) of Republic Act No. 7042 (RA 7042) or The Foreign Investments Act of 1991, the
phrase doing business includes:
x x x soliciting orders, service contracts, opening offices, whether called liaison offices or branches;
appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in
the country for a period or periods totalling one hundred eighty (180) days or more; participating in the
management, supervision or control of any domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements,
and contemplate to that extent the performance of acts or works, or the exercise of some of the
functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and
object of the business organization: Provided, however, That the phrase doing business shall not be
deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of rights as such investor; nor having a nominee director
or officer to represent its interests in such corporation; nor appointing a representative or distributor
domiciled in the Philippines which transacts business in its own name and for its own account.
The series of transactions between petitioner and respondent cannot be classified as doing business in
the Philippines under Section 3(d) of RA 7042. An essential condition to be considered as doing business
in the Philippines is the actual performance of specific commercial acts within the territory of the
Philippines for the plain reason that the Philippines has no jurisdiction over commercial acts performed
in foreign territories. Here, there is no showing that petitioner performed within the Philippine
territory the specific acts of doing business mentioned in Section 3(d) of RA 7042. Petitioner did not also
open an office here in the Philippines, appoint a representative or distributor, or manage, supervise or
control a local business. While petitioner and respondent entered into a series of transactions implying a
continuity of commercial dealings, the perfection and consummation of these transactions were done
outside the Philippines.[8]
In its complaint, petitioner alleged that it is engaged in the importation and exportation of several
products, including lace products. Petitioner asserted that on several occasions, respondent purchased
lace products from it. Petitioner also claimed that respondent instructed it to deliver the purchased
goods to Kenzar, which is a Hong Kong company based in Hong Kong. Upon Kenzars receipt of the
goods, the products were considered sold. Kenzar, in turn, had the obligation to deliver the lace
products to the Philippines. In other words, the sale of lace products was consummated in Hong Kong.
As earlier stated, the series of transactions between petitioner and respondent transpired and were
consummated in Hong Kong.[9] We also find no single activity which petitioner performed here in the
Philippines pursuant to its purpose and object as a business organization. [10] Moreover, petitioners
desire to do business within the Philippines is not discernible from the allegations of the complaint or
from its attachments. Therefore, there is no basis for ruling that petitioner is doing business in the
Philippines.
In Eriks, respondent therein alleged the existence of a distributorship agreement between him and the
foreign corporation. If duly established, such distributorship agreement could support respondents claim
that petitioner was indeed doing business in the Philippines. Here, there is no such or similar agreement
between petitioner and respondent.
We disagree with the Court of Appeals ruling that the proponents to the transaction determine whether
a foreign corporation is doing business in the Philippines, regardless of the place of delivery or place
where the transaction took place. To accede to such theory makes it possible to classify, for instance, a
series of transactions between a Filipino in the United States and an American company based in the
United States as doing business in the Philippines, even when these transactions are negotiated and
consummated only within the United States.
An exporter in one country may export its products to many foreign importing countries without
performing in the importing countries specific commercial acts that would constitute doing business in
the importing countries. The mere act of exporting from ones own country, without doing any specific
commercial act within the territory of the importing country, cannot be deemed as doing business in the
importing country. The importing country does not acquire jurisdiction over the foreign exporter who has
not performed any specific commercial act within the territory of the importing country. Without
jurisdiction over the foreign exporter, the importing country cannot compel the foreign exporter to
secure a license to do business in the importing country.
Otherwise, Philippine exporters, by the mere act alone of exporting their products, could be considered
by the importing countries to be doing business in those countries. This will require Philippine exporters
to secure a business license in every foreign country where they usually export their products, even if
they do not perform any specific commercial act within the territory of such importing countries. Such a
legal concept will have a deleterious effect not only on Philippine exports, but also on global trade.
To be doing or transacting business in the Philippines for purposes of Section 133 of the Corporation
Code, the foreign corporation must actually transact business in the Philippines , that is, perform specific
business transactions within the Philippine territory on a continuing basis in its own name and for its
own account. Actual transaction of business within the Philippine territory is an essential requisite for the
Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to

secure a Philippine business license. If a foreign corporation does not transact such kind of business in
the Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to
require such foreign corporation to secure a Philippine business license.
Considering that petitioner is not doing business in the Philippines, it does not need a license in order to
initiate and maintain a collection suit against respondent for the unpaid balance of respondents
purchases.
WHEREFORE, we GRANT the petition. We REVERSE the Decision dated 18 April 2001 of the Court of
Appeals in CA-G.R. CV No. 66236. No costs.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice

G.R. No. 168639


January 29, 2007
ALDERITO Z. YUJUICO, BONIFACIO C. SUMBILLA, and DOLNEY S. SUMBILLA, Petitioners,
vs.
CEZAR T. QUIAMBAO, JOSE M. MAGNO III, MA. CHRISTINA F. FERREROS, ANTHONY K.
QUIAMBAO, SIMPLICIO T. QUIAMBAO, JR., ERIC C. PILAPIL, ALBERT M. RASALAN, and
REGIONAL TRIAL COURT, BRANCH 48, URDANETA CITY, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us for resolution is the Petition for Review on Certiorari1 challenging the Decision dated March
31, 2005 rendered by the Court of Appeals in CA-G.R. SP No. 87785, as well as its Resolution dated
June 29, 2006.
The facts are:
Strategic Alliance Development Corporation (STRADEC) is a domestic corporation engaged in the
business of providing financial and investment advisory services and investing in projects through
consortium or joint venture information.2 From its inception, STRADECs principal place of business was
located at the 24th Floor, One Magnificent Mile-Citra Building, San Miguel Avenue, Ortigas Center, Pasig
City. On July 27, 1998, the Securities and Exchange Commission (SEC) approved the amendment of
STRADECs Articles of Incorporation authorizing the change of its principal office from Pasig City to
Bayambang, Pangasinan.3
On March 1, 2004, STRADEC held its annual stockholders meeting in its Pasig City office as indicated in
the notices sent to the stockholders.4 At the said meeting, the following were elected members of the
Board of Directors: Alderito Z. Yujuico, Bonifacio C. Sumbilla, Dolney S. Sumbilla (petitioners herein),
Cesar T. Quiambao, Jose M. Magno III and Ma. Christina Ferreros (respondents herein). Petitioners
Alderito Yujuico was elected Chairman and President, while Bonifacio Sumbilla was elected Treasurer. All
of them then discharged the duties of their office.
After five (5) months, or on August 16, 2004, respondents filed with the Regional Trial Court (RTC), San
Carlos City, Pangasinan a Complaint against STRADEC (represented by herein petitioners as members of
its Board of Directors), docketed as Civil Case No. SCC-2874 and raffled off to Branch 56. The complaint
prays that: (1) the March 1, 2004 election be nullified on the ground of improper venue, pursuant to
Section 51 of the Corporation Code; (2) all ensuing transactions conducted by the elected directors be
likewise nullified; and (3) a special stockholders meeting be held anew.
Subsequently, respondents filed an Amended Complaint dated September 2, 2004 further praying for the
issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction to enjoin
petitioners from discharging their functions as directors and officers of STRADEC. On September 22,
2004, they filed a Supplemental Complaint praying that the court (1) direct Export Industry Bank, Cezar
T. Quiambao and Bonifacio G. Sumbilla to surrender to them the original and reconstituted Stock and
Transfer Book and other corporate documents of STRADEC; and (2) nullify the reconstituted Stock and
Transfer Book and all transactions of the corporation. Both pleadings were admitted by the trial court.
As the controversy involves an intra-corporate dispute, the trial court, on October 4, 2004, issued an
Order transferring Civil Case No. SCC-2874 to RTC, Branch 48, Urdaneta City, being a designated Special
Commercial Court.5 The case was then re-docketed as Civil (SEC) Case No. U-14.
Since Branch 48 of RTC, Urdaneta City had no presiding judge then, Judge Meliton G. Emuslan acted as
pairing judge of that branch to take cognizance of the cases therein until the appointment and
assumption to duty of a regular judge.6
On November 2, 2004, petitioners filed their Answer with Counterclaim7 in Civil (SEC) Case No. U-14.
They prayed for the dismissal of the complaint on the following grounds, among others: (a) the
complaint does not state a cause of action; (b) the action is barred by prescription for it was filed
beyond the 15-day prescriptive period provided by Section 2, Rule 6 of the Interim Rules and Procedure
Governing Intra-Corporate Controversies under Republic Act (R.A.) No. 8799; (c) respondents prayer
that a special stockholders meeting be held in Bayambang, Pangasinan "is premature pending the
establishment of a principal office of STRADEC in said municipality;" and (d) respondents waived their
right to object to the venue as they attended and participated in the said March 1, 2004 meeting and
election without any protest."8 Petitioners likewise opposed the application for a writ of preliminary
injunction as respondents have no right that was violated, hence, are not entitled to be protected by
law. They further prayed for damages by way of counterclaim.
Meanwhile, Judge Aurelio R. Ralar, Jr. was appointed presiding judge of RTC, Branch 48, Urdaneta City.
Significantly, on November 9, 2004, he took his oath of office before Associate Justice Diosdado M.
Peralta of the Sandiganbayan, and on November 12, 2004, he assumed his duties.9 Subsequently, or on
November 25, 2004, pairing Judge Meliton Emuslan still issued an Order 10 granting respondents
application for preliminary injunction ordering (1) the holding of a special stockholders meeting of
STRADEC on December 10, 2004 "in the principal office of the corporation in Bayambang, Pangasinan;"
and (2) the turn-over by petitioner Bonifacio Sumbilla to the court of the duplicate key of the safety
deposit box in Export Industry Bank, Shaw Boulevard, Pasig City where the original Stock and Transfer
Book of STRADEC was deposited. The pertinent portions of the Order read:
ORDER
This resolves the application of plaintiffs for the issuance of writ of preliminary prohibitory injunction.
During the hearing on the application for Temporary Restraining Order/Injunction on October 20, 2004,
plaintiffs presented as witnesses: Cezar T. Quiambao, Jose M. Magno III and Eric Gene Pilapil who
testified in support of the material averments of the plaintiffs in their Amended Complaint and
Supplemental Complaint. Specifically, plaintiff Quiambao testified, among other things, on the fact of the
unlawful denial by defendant Yujuico of his request for the holding of a special stockholders meeting,
the location of the principal place of office of the corporation, the deposit by him and defendant
Sumbilla of the Stock and Transfer Book of the corporation in the Export Industry Bank in Pasig City, the
illegal and unjustified reconstitution of said stock and transfer book, and the damages which he and the
corporation sustained as a result of defendants unlawful acts including the unauthorized sale of
corporate shares of stock.
Plaintiff Magno III testified that he did not attend the Annual Stockholders meeting held last March 1,
2004 and that he did not authorize anybody to appear for and in his behalf.
Lastly, witness Pilapil testified on the principal place of business of defendant corporation, the holding of
the Annual Stockholders Meeting in a place outside the principal place of business of the corporation,
and the fact that two (2) other stockholders, namely, Jose Magno III and Angel Umali were neither
present nor represented in said meeting, contrary to what was alleged in defendants Answer with
Counterclaim (see par. 50, Answer with Counterclaim).
xxx
After a careful evaluation of the records and all the pleadings extant in this case as well as the
testimonies of the witnesses for the plaintiffs, this court is inclined to grant the plaintiffs application for
the writs of preliminary prohibitory injunction in order to restrain the defendants from acting as officers
of the corporation and committing further acts inimical to the corporation and to the rest of the
stockholders thereof. It is also evident from the pleadings that defendants would not yield to the
demand of plaintiffs for the maintenance of the status quo until after the resolution of the merits of the
instant controversy.

xxx
The effect of the issuance of this Order would create a hiatus in the action of the board of directors of
STRADEC, pending the determination of the merits of the case and after trial on the merits.
It would thus be for the best interest of the corporation as well as its stockholders that an election be
undertaken of the members of the board and officers pursuant to STRADECS Articles of the corporation
(sic) and the Corporation Code of the Philippines, under the supervision of the court.
This is to avoid discontinuity of the operations of the corporation, which may result to its damage and
prejudice.
WHEREFORE, premises considered, let the Writ of Preliminary Injunction issue, upon posting of the
requisite bond in the amount of Five Hundred Thousand Pesos (P500,000.00) to answer for whatever
damages that the defendants would suffer on account of the issuance of the injunction writ, restraining
defendants from acting as officers of the Corporation and committing further acts inimical to the
corporation.
It is likewise ordered that a special stockholders meeting in the principal place of office of the
corporation in Bayambang, Pangasinan on December 10, 2004 be held. The Branch Clerk of this court
shall attend the said meeting to observe the proceedings and report his observations to this court. For
this purpose, the defendant Bonifacio Sumbilla is ordered to surrender to the court, not later than
December 3, 2004, the duplicate key given to him by Export Industry Bank, Shaw Blvd., Pasig City, of
the safety deposit box where he and plaintiff Cezar T. Quiambao deposited the Original Stock and
Transfer Book of STRADEC which shall be the basis in the determination of the corporate stockholding
during the meeting scheduled on the above-mentioned date.
SO ORDERED.
In compliance with the above Order, the court sheriff (and respondent Cezar Quiambao, as claimed by
petitioners) caused the opening of the safety deposit box of STRADEC in the Export Industry Bank,
Shaw Boulevard Branch, Pasig City and took custody of its contents.
On December 10, 2004, petitioners, claiming that a motion for reconsideration is a prohibited pleading
under Section 8(3), Rule 1 of the Interim Rules of Procedure Governing Intra-Corporate Controversies
under R.A. No. 8799, filed with the Court of Appeals a Petition for Certiorari with Prayer for the Issuance
of a TRO and/or Preliminary Injunction,11 assailing Judge Emuslans November 25, 2004 Order. The
petition was docketed as CA-G.R. SP No. 87785. In the proceedings before the appellate court,
petitioners raised the following issues:
A. Only the SEC, not the RTC, has jurisdiction to order the holding of a special
stockholders meeting involving an intra-corporate controversy;
B. Judge Meliton Emuslan had no authority to issue the assailed Order dated November
25, 2004 as Judge Aurelio Ralar, Jr. was already the presiding judge of RTC, Branch 48,
Urdaneta City;12 and
C. Assuming Judge Emuslan had authority to issue the assailed Order, he nonetheless
acted with grave abuse of discretion amounting to lack or excess of jurisdiction.
Meanwhile, on the same day (December 10), as directed in the November 25, 2004 Order of Judge
Emuslan, a special stockholders meeting of STRADEC was held in Bayambang, Pangasinan wherein a
new set of directors were elected for the term 2004-2005, namely: Cezar T. Quiambao, Anthony K.
Quiambao, and Simplicio T. Quiambao, Jr. Immediately thereafter, the new directors elected the
following officers: Cezar T. Quiambao as Chairman and President; Eric C. Pilapil as Corporate Secretary;
Anthony K. Quiambao as Corporate Treasurer; and Albert M. Rasalan as Assistant Corporate Secretary.
On March 31, 2005, the Court of Appeals rendered a Decision13 in CA-G.R. SP No. 87785, dismissing
the Petition for Certiorari. It upheld the jurisdiction of the RTC over the controversy and sustained the
validity of Judge Emuslans Order of November 25, 2004. Petitioners motion for reconsideration was
denied in a Resolution dated June 29, 2005.14
Hence, the instant Petition for Review on Certiorari.
FIRST, petitioners contend that the Court of Appeals erred in ruling that the RTC has the power to call a
special stockholders meeting involving an intra-corporate controversy. They maintain that it is only the
SEC that may do so to be held under its supervision.
The respondents, in their comment, counter that the appellate court correctly ruled that the power to
hear and decide controversies involving intra-corporate disputes, as well as to act on matters incidental
and necessary thereto, have been transferred from the SEC to the RTCs designated as Special
Commercial Courts. It would be the height of absurdity, they argue, to require the filing of a separate
case with the SEC for the sole purpose of asking the said agency to order the holding of a special
stockholders meeting where there is already a pending case involving the same matter before the
proper court.
We agree with respondents.
An intra-corporate controversy is one which "pertains to any of the following relationships: (1) between
the corporation, partnership or association and the public; (2) between the corporation, partnership or
association and the State in so far as its franchise, permit or license to operate is concerned; (3)
between the corporation, partnership or association and its stockholders, partners, members or officers;
and (4) among the stockholders, partners or associates themselves."15 There is thus no dispute that
respondents complaint in Civil (SEC) Case No. U-14 before the RTC, Branch 48, Urdaneta City involves
an intra-corporate controversy, the contending parties being stockholders and officers of a corporation.
Originally, Section 5 of Presidential Decree (P.D.) No. 902-A bestowed the SEC original and exclusive
jurisdiction over cases involving the following:
(a) Devices or schemes employed by, or any act 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, or
members of associations 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 and the State insofar as it concerns their individual
franchise or right as such entity;
(c) Controversies in the election or appointment of directors, trustees, officers or
managers of such corporations, partnership or associations;
(d) Petitioners of corporations, partnerships or associations to be declared in the state of
suspension of payment in cases where the corporation, partnership or association
possesses sufficient property to cover all its debts but foresees the impossibility of
meeting them when they fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities but is under the management of
a rehabilitation receiver or management committee created pursuant to this
Decree.16 (Underscoring supplied)
Upon the enactment of R.A. No. 8799, otherwise known as "The Securities Regulation Code" which took
effect on August 8, 2000,17 the jurisdiction of the SEC over intra-corporate controversies and other
cases enumerated in Section 5 of P.D. No. 902-A has been transferred to the courts of general
jurisdiction, or the appropriate RTC. Section 5.2 of R.A. No. 8799 provides:
5.2. The Commissions jurisdiction over all cases enumerated in Section 5 of Presidential Decree No.
902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court,
Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court
branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over
pending cases involving intra-corporate disputes submitted for final resolution which should be resolved
within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over
pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.
(Underscoring supplied)
Pursuant to R.A. No. 8799, the Court issued a Resolution dated November 21, 2000 in A.M. No. 00-1103-SC designating certain branches of the RTC to try and decide cases enumerated in Section 5 of P.D.
No. 902-A. Branch 48 of RTC, Urdaneta City, the court a quo, is among those designated as a Special
Commercial Court. On March 13, 2001, the Court approved the Interim Rules of Procedure Governing
Intra-Corporate Controversies under R.A. No. 8799 which took effect on April 1, 2001. 18 Sections 1 and
2, Rule 6 of the said Rules provide:
SEC. 1. Cases covered. The provisions of this rule shall apply to election contests in stock and nonstock corporations.

SEC. 2. Definition. An election contest refers to any controversy or dispute involving title or claim to
any elective office in a stock or non-stock corporation, the validation of proxies, the manner and validity
of elections, and the qualifications of candidates, including the proclamation of winners, to the office of
director, trustee or other officer directly elected by the stockholders in a close corporation or by
members of a non-stock corporation where the articles of incorporation or by-laws so provide.
(Underscoring supplied)
In Morato v. Court of Appeals,19 we held that pursuant to R.A. No. 8799 and the Interim Rules of
Procedure Governing Intra-Corporate Controversies, "among the powers and functions of the SEC which
were transferred to the RTC include the following: (a) jurisdiction and supervision over all corporations,
partnerships or associations which are the grantees of primary franchises and/or a license or permit
issued by the Government; (b) the approval, rejection, suspension, revocation or requirement for
registration statements, and registration and licensing applications; (c) the regulation, investigation, or
supervision of the activities of persons to ensure compliance; (d) the supervision, monitoring,
suspension or take over the activities of exchanges, clearing agencies, and other SROs; (e) the
imposition of sanctions for the violation of laws and the rules, regulations and orders issued pursuant
thereto; (f) the issuance of cease-and-desist orders to prevent fraud or injury to the investing public; (g)
the compulsion of the officers of any registered corporation or association to call meetings of
stockholders or members thereof under its supervision; and (h) the exercise of such other powers as
may be provided by law as well as those which may be implied from, or which are necessary or
incidental to the carrying out of, the express powers granted the Commission to achieve the objectives
and purposes of these laws."
Clearly, the RTC has the power to hear and decide the intra-corporate controversy of the parties herein.
Concomitant to said power is the authority to issue orders necessary or incidental to the carrying out of
the powers expressly granted to it. Thus, the RTC may, in appropriate cases, order the holding of a
special meeting of stockholders or members of a corporation involving an intra-corporate dispute under
its supervision.
SECOND, petitioners assert that Judge Emuslan did not have the authority to issue the assailed Order of
November 25, 2004 upon the appointment and assumption on "November 2, 2004" (should be
November 12) by Judge Aurelio R. Ralar, Jr. as the regular presiding judge of RTC, Branch 48, Urdaneta
City.
Significantly, respondents never refuted petitioners assertion. The Court of Appeals, for its part,
dismissed petitioners allegation by merely ruling that "this is the first time they are raising this issue
which is much too late in the day. In any event, one cannot question the authority of the court when it
does not suit him and accepts such authority when it favors him." 20 The ruling suggests that petitioners
are barred by laches and/or estoppel from raising that issue. The appellate court likewise denied
petitioners motion to set the case for oral arguments.
The Court of Appeals should have resolved the issue of whether Judge Emuslan had the authority to
issue the assailed Order, a jurisdictional question crucial to the resolution of the petition. It is elementary
that a jurisdictional controversy may be raised at any time.21
Indeed, as early as November 12, 2004, Judge Aurelio Ralar, Jr. assumed his duties as presiding judge of
RTC, Branch 48, Urdaneta City. Evidently, Judge Emuslans authority, as pairing judge of Branch 48, to
act on Civil (SEC) Case No. U-14 automatically ceased on that date. Therefore, he no longer had the
authority to issue the Order of November 25, 2004, or thirteen (13) days after Judge Ralar, Jr. had
assumed office. This is clear from this Courts Circular No. 19-98 dated February 18, 1998 which
mandates:
TO : ALL JUDGES OF THE REGIONAL TRIAL COURTS, METROPOLITAN TRIAL COURTS, MUNICIPAL
TRIAL COURTS IN CITIES, MUNICIPAL TRIAL COURTS, AND MUNICIPAL CIRCUIT TRIAL COURTS
SUBJECT : EXPANDED AUTHORITY OF PAIRING COURTS
In the interest of efficient administration of justice, the authority of the pairing judge under Circular No.
7 dated September 23, 1974 (Pairing System for Multiple Sala Stations) to act on incidental or
interlocutory matters and those urgent matters requiring immediate action on cases pertaining to the
paired court shall henceforth be expanded to include all other matters. Thus, whenever a vacancy
occurs by reason of resignation, dismissal, suspension, retirement, death, or prolonged absence of the
presiding judge in a multi-sala station, the judge of the paired court shall take cognizance of all cases
thereat as acting judge therein UNTIL the APPOINTMENT and ASSUMPTION TO DUTY OF THE REGULAR
JUDGE or the designation of an acting presiding judge or the return of the regular incumbent judge, or
until further orders from this Court.
For this purpose, the provisions of Circular No.7, dated September 23, 1974, inconsistent with this
Circular are hereby amended.
x x x. (Underscoring supplied)
Thus, although the RTC, Branch 48, Urdaneta City is clothed with power to take cognizance of Civil
(SEC) Case No. U-14, the exercise of such power is entirely a different matter. Verily, in Tolentino v.
Leviste,22 this Court, speaking through Justice (now Chief Justice) Reynato S. Puno, held:
x x x. Jurisdiction is not the same as the exercise of jurisdiction. As distinguished from the exercise of
jurisdiction, jurisdiction is the authority to decide a cause, not the decision rendered therein. Where
there is jurisdiction over the person and the subject matter, the decision on all other questions arising in
the case is but an exercise of the jurisdiction. x x x. (Underscoring supplied)
There are instances where a judge may commit errors. He may issue an order without authority. And if
clothed with power, he may exercise it in excess of his authority or with grave abuse of discretion
amounting to lack or excess of jurisdiction. Any of these acts may be struck down as a nullity through a
petition for certiorari,23 as what petitioners did before the Court of Appeals. It bears stressing that any
act or order rendered by a judge without authority, such as the questioned November 25, 2004 Order, is
no order at all. It is void. As such, it cannot be the source of any right nor the creator of any obligation.
All acts performed pursuant to it and all claims emanating from it have no legal force and effect.24
THIRD, petitioners further contend that even if Judge Emuslan had the authority to issue the challenged
Order, still he issued it with grave abuse of discretion amounting to lack or excess of jurisdiction. They
lament that the Order effectively disposed of the merits of the main case [Civil (SEC) Case No. U-14].
Unfortunately, despite the significance of this issue, the Court of Appeals totally ignored it by failing to
render a ruling thereon. Respondents, for their part, merely aver that Judge Emuslan "only had the best
interest of STRADEC in mind" when he issued the questioned Order. 25
We find for petitioners.
The duty of the court taking cognizance of an application for a writ of preliminary injunction is to
determine whether the requisites necessary for the grant of such writ are present. The requisites for the
issuance of a writ of preliminary injunction are: (1) the applicant for such writ must show that he has a
clear and unmistakable right that must be protected; and (2) there exists an urgent and paramount
necessity for the writ to prevent serious damage.26
In this case, Judge Emuslans November 25, 2004 Order, quoted earlier, is hazy and too unsubstantial to
justify the issuance of a writ of preliminary injunction. The Order does not contain specific findings of
fact and conclusion of law showing that the requirements for the grant of the injunctive writ are present.
It merely mentions the names of witnesses presented by respondents during the hearing on the
application for the issuance of the writ, but there is no specific and substantial narration of the
witnesses testimonies to establish the existence of a clear and unmistakable right on their part that
must be protected, as well as the serious damage or irreparable loss that they would suffer if the writ is
not granted. It does not also disclose the specific evidence formally offered by the applicants. Obviously,
the basis of the judges conclusion is too uncertain. Thus, in issuing the questioned November 25, 2004
Order granting a writ of preliminary injunction, he committed grave abuse of discretion. In Manila
International Airport Authority v. Court of Appeals,27 we held:
In the instant case, however, the trial courts order of January 20, 1993 was, on its face, bereft of basis
for the issuance of a writ of preliminary injunction. There were no findings of fact or law in the assailed
order indicating that any of the elements essential for the grant of a preliminary injunction existed. The
trial court alluded to hearings during which the parties marked their respective exhibits and the trial
court heard the oral arguments of opposing counsels. However, it cannot be ascertained what evidence
was formally offered and presented by the parties and given weight and credence by the trial court. The
basis for the trial courts conclusion that K Services was entitled to a writ of preliminary injunction is
unclear.
In its order of August 5, 1993, the trial court stated that it issued the injunction to prevent irreparable

loss that might be caused to K Services. Once more, however, the trial court neglected to mention what
right in esse of K Services, if any, was in danger of being violated and required the protection of a
preliminary injunction.
x x x.
x x x the possibility of irreparable damage without proof of actual existing right is not a ground for an
injunction (Heirs of Asuncion v. Gervacio, Jr., 304 SCRA 322 [1999]). Where the complainants right is
doubtful or disputed, injunction is not proper. Absent a clear legal right, the issuance of the injunctive
relief constitutes grave abuse of discretion (Id.).28
Furthermore, Judge Emuslans November 25, 2004 Order goes against the concept and objective of a
writ of preliminary injunction. A writ of preliminary injunction is a provisional remedy, an adjunct to a
main suit. It is also a preservative remedy, issued to preserve the status quo of the things subject of the
action or the relations between the parties during the pendency of the suit. In Selegna Management and
Development Corporation v. United Coconut Planters Bank,29 we held:
x x x. Injunction is not designed to protect contingent or future rights. It is not proper when the
complainants right is doubtful or disputed.
x x x, courts should avoid issuing this writ which in effect disposes of the main case without trial (F.
Regalado, Remedial Law Compendium, Vol. I, 639 (7th revised ed., 1999). x x x. (Underscoring
supplied)
In the same case of Manila International Airport Authority v. Court of Appeals, 30 we urged the courts to
exercise extreme caution in issuing the writ, thus:
x x x. We remind trial courts that while generally the grant of a writ of preliminary injunction rests on
the sound discretion of the court taking cognizance of the case, extreme caution must be observed in
the exercise of such discretion. The discretion of the court a quo to grant an injunctive writ must be
exercised based on the grounds and in the manner provided by law. Thus, the Court declared in Garcia
v. Burgos:
It has been consistently held that there is no power the exercise of which is more delicate, which
requires greater caution, deliberation and sound discretion, or more dangerous in a doubtful case, than
the issuance of an injunction. It is the strong arm of equity that should never be extended unless to
cases of great injury, where courts of law cannot afford an adequate or commensurate remedy in
damages.
Every court should remember that an injunction is a limitation upon the freedom of action of the
defendant and should not be granted lightly or precipitately. It should be granted only when the court is
fully satisfied that the law permits it and the emergency demands it [citations omitted]. (Underscoring
supplied)
To repeat, the purpose of the writ of preliminary injunction is to preserve the status quo until the court
could hear the merits of the case.31 The status quo is the last actual peaceable uncontested status that
preceded the controversy32 which, in the instant case, is the holding of the annual stockholders
meeting on March 1, 2004 and the ensuing election of the directors and officers of STRADEC. But
instead of preserving the status quo, Judge Emuslans Order messed it up when, in compliance
therewith, a special stockholders meeting was held anew and a new set of directors and officers of
STRADEC was elected. That effectively resolved respondents principal action without even a full-blown
trial on the merits since the Order impliedly ruled that the March 1, 2004 annual stockholders meeting
and election are void. Verily, the issuance of the questioned Order violates the established principle that
courts should avoid granting a writ of preliminary injunction that would in effect dispose of the main
case without trial.33
Equally important is the fact that the Order was issued even though respondents right to an injunctive
relief is doubtful or has been vehemently disputed. We note that petitioners, in their answer with
counterclaim, raised serious and valid defenses, among which is that the action is premature since the
principal office of STRADEC in Bayambang, Pangasinan is yet to be established, as authorized by the
SEC.34 Obviously, pending the establishment of a principal office in Bayambang, Pangasinan, all the
stockholders meetings of STRADEC have been properly held in their principal office in Pasig City.
Another weighty defense raised by petitioners is that the action has prescribed. One of the reliefs sought
by respondents in the complaint is the nullification of the election of the Board of Directors and
corporate officers held during the March 1, 2004 annual stockholders meeting on the ground of
improper venue, in violation of the Corporation Code. Hence, the action involves an election contest,
falling squarely under the Interim Rules of Procedure Governing Intra-Corporate Controversies under
R.A. No. 8799. Sections 1 and 2, Rule 6 of the Interim Rules provide:
SEC. 1. Cases covered. The provisions of this rule shall apply to election contests in stock and nonstock corporations.
SEC. 2. Definition. An election contest refers to any controversy or dispute involving title or claim to
any elective office in a stock or non-stock corporation, the validation of proxies, the manner and validity
of elections, and the qualifications of candidates, including the proclamation of winners, to the office of
director, trustee or other officer directly elected by the stockholders in a close corporation or by
members of a non-stock corporation where the articles of incorporation or by-laws so provide.
(Underscoring supplied)1avvphi1.net
It is important to note that the Court of Appeals itself ruled that respondents action before the RTC,
Branch 48, Urdaneta City is an election contest, thus:
Likewise, as clearly provided in Section 1, Rule 1 of the Interim Rules of Procedure Governing IntraCorporate Controversies under R.A. No. 8799, among the intra-corporate controversies transferred to
the special courts are:
xxx
(3) Controversies in the election or appointment of directors, trustees, officers, or managers of
corporation, partnerships or associations;
xxx
Undoubtedly, therefore, the instant case is an intra-corporate controversy among the stockholders
themselves relative to the election of directors or officers of STRADEC, specifically between respondents
x x x on one hand and petitioners x x x on the other. x x x. If there is still any doubt that the Special
Corporate Court can call for a stockholders meeting, Rule 6 (citing Sections 1 and 2) of the Interim
Rules completely puts to rest said issue.
xxx
Clearly, therefore, said Rule empowers the special corporate courts to decide election cases x x
x.35 (Underscoring supplied)
As pointed out by petitioners in their answer with counterclaim, under Section 3, Rule 6 of the Interim
Rules of Procedure Governing Intra-Corporate Controversies under R.A. No. 8799, an election contest
must be "filed within 15 days from the date of the election."36 It was only on August 16, 2004 that
respondents instituted an action questioning the validity of the March 1, 2004 stockholders election,
clearly beyond the 15-day prescriptive period.
In sum, Judge Emuslan, in granting the writ of preliminary injunction, acted with grave abuse of
discretion amounting to lack or excess of jurisdiction.
WHEREFORE, we GRANT the instant petition and reverse the assailed Decision and Resolution of the
Court of Appeals in CA-G.R. SP No. 87785.
The Order dated November 25, 2004 of Judge Meliton G. Emuslan, RTC, Branch 48, Urdaneta City in
Civil (SEC) Case No. U-14 and the special stockholders meeting and election held on December 10,
2004 in Bayambang, Pangasinan are SET ASIDE.
The last actual peaceable uncontested status of the parties prior to the filing by respondents herein of
Civil (SEC) Case No. U-14 is RESTORED.
This case is REMANDED to the RTC, Branch 48, Urdaneta City for further proceedings with dispatch.
SO ORDERED.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
5 Pursuant to Supreme Court Resolution dated November 21, 2000 in A.M. No. 00-11-03SC, "Resolution Designating Certain Branches of Regional Trial Courts to Try and Decide
Cases Formerly Cognizable by the Securities and Exchange Commission;" Supreme Court
Administrative Circular No. 08-2001, promulgated January 23, 2001, "Transfer to
Designated Regional Trial Courts of SEC Cases Enumerated in Section 5, P.D. No. 902-A".

FIRST DIVISION
MANUEL V. BAVIERA,
Petitioner,

the requirements of the SEC.


G.R. No.On , petitioner filed with the DOJ a complaint for violation of Section 8.1 [9] of the Securities Regulation
Code against private respondents, docketed as I.S. No. 2004-229.
versus On , the DOJ rendered its Joint Resolution[10] dismissing petitioners complaint for syndicated estafa in
ESPERANZA PAGLINAWAN, in her capacity as Department of Justice State Prosecutor; LEAH C.
I.S. No. 2003-1059; private respondents complaint for blackmail and extortion in I.S. No. 2003-1059-A;
TANODRA-ARMAMENTO, In her capacity as Assistant Chief State Prosecutor and Chairwoman
private respondents complaint for blackmail and perjury in I.S. No. 2003-1278; and petitioners complaint
of Task Force on Business Scam; JOVENCITO R. ZUNO, in his capacity as Department of Justice
for perjury against private respondents Morris and Gonzales in I.S. No. 2003-1278-A.
Chief State Prosecutor; STANDARD CHARTERED BANK, PAUL SIMON MORRIS, AJAY KANWAL,
Meanwhile, in a Resolution[11] dated , the DOJ dismissed petitioners complaint in I.S. No. 2004-229
SRIDHAR
(violation of Securities Regulation Code), holding that it should have been filed with the SEC.
RAMAN, MARIVEL GONZALES, CHONA REYES, MARIA ELLEN VICTOR, and ZENAIDA
Petitioners motions to dismiss his complaints were denied by the DOJ. Thus, he filed with the Court of
IGLESIAS,Respondents.
Appeals a petition for certiorari, docketed as CA-G.R. SP No. 85078. He alleged that the DOJ acted with
x-----------------------------x
grave abuse of discretion amounting to lack or excess of jurisdiction in dismissing his complaint
MANUEL V. BAVIERA, Petitioner,
G.R. No.for
170602
syndicated estafa.
versus Present: He also filed with the Court of Appeals a separate petition for certiorari assailing the DOJ Resolution
STANDARD CHARTERED BANK, BRYAN K. SANDERSON, THE RIGHT HONORABLE LORD PUNO, dismissing I.S. No. 2004-229 for violation of the Securities Regulation Code. This petition was
STEWARTBY, EVAN MERVYN DAVIES, MICHAEL BERNARD DENOMA, CHRISTOPHER AVEDIS SANDOVAL-GUTIERREZ,
docketed as CA-G.R. SP No. 87328.Petitioner claimed that the DOJ acted with grave abuse of discretion
KELJIK, RICHARD HENRY MEDDINGS, KAI NARGOLWALA, PETER ALEXANDER SANDS, RONNIE *,
tantamount to lack or excess of jurisdiction in holding that the complaint should have been filed with the
CHI CHUNG CHAN, SIR CK CHOW, BARRY CLARE, HO KWON PING, RUDOLPH HAROLD PETER AZCUNA,SEC.
and
ARKHAM, DAVID GEORGE MOIR, HIGH EDWARD NORTON, SIR RALPH HARRY ROBINS, GARCIA,On , the Court of Appeals promulgated its Decision dismissing the petition. It sustained the ruling of the
ANTHONY WILLIAM PAUL STENHAM (Standard Chartered Bank Chairman, Deputy Chairman, Promulgated:
DOJ that the case should have been filed initially with the SEC.
and Members of the Board), SHERAZAM MAZARI (Group Regional Head for Consumer FebruaryPetitioner
8, 2007 filed a motion for reconsideration but it was denied in a Resolution dated .
Banking), PAUL SIMON MORRIS, AJAY KANWAL, SRIDHAR RAMAN, MARIVEL GONZALES,
Meanwhile, on , the Court of Appeals rendered its Decision in CA-G.R. SP No. 85078 (involving
CHONA REYES, ELLEN VICTOR, RAMONA H. BERNAD, DOMINGO CARBONELL, JR., and
petitioners charges and respondents counter charges) dismissing the petition on the ground that the
ZENAIDA IGLESIAS (Standard Chartered Bank-Philippines Branch Heads/Officers),
purpose of a petition for certiorari is not to evaluate and weigh the parties evidence but to determine
Respondents.
whether the assailed Resolution of the DOJ was issued with grave abuse of discretion tantamount to
x -------------------------------------------------------------------------------------------x
lack of jurisdiction. Again, petitioner moved for a reconsideration but it was denied in a Resolution of .
Hence, the instant petitions for review on certiorari.
DECISION
For our resolution is the fundamental issue of whether the Court of Appeals erred in concluding that the
DOJ did not commit grave abuse of discretion in dismissing petitioners complaint in I.S. 2004-229 for
SANDOVAL-GUTIERREZ, J.:
violation of Securities Regulation Code and his complaint in I.S. No. 2003-1059 for syndicated estafa.
Before us are two consolidated Petitions for Review on Certiorari assailing the Decisions of the Court of
G.R. No 168380
Appeals in CA-G.R. SP No. 87328[1] and in CA-G.R. SP No. 85078.[2]
Re: I.S. No. 2004-229
The common factual antecedents of these cases as shown by the records are:
For violation of the Securities Regulation Code
Manuel Baviera, petitioner in these cases, was the former head of the HR Service Delivery and Industrial
Section 53.1 of the Securities Regulation Code provides:
Relations of Standard Chartered Bank-Philippines (SCB), one of herein respondents. SCB is a foreign
SEC. 53. Investigations, Injunctions and Prosecution of Offenses.
banking corporation duly licensed to engage in banking, trust, and other fiduciary business in the .
53. 1. The Commission may, in its discretion, make such investigation as it deems necessary to
Pursuant to Resolution No. 1142 dated of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP),
determine whether any person has violated or is about to violate any provision of this Code, any rule,
the conduct of SCBs business in this jurisdiction is subject to the following conditions:
regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing
1.
At the end of a one-year period from the date the SCB starts its trust functions, at least 25% of its
agency, other self-regulatory organization, and may require or permit any person to file with it a
trust accounts must be for the account of non-residents of the Philippines and that actual foreign
statement in writing, under oath or otherwise, as the Commission shall determine, as to all facts and
exchange had been remitted into the Philippines to fund such accounts or that the establishment of such
circumstances concerning the matter to be investigated. The Commission may publish information
accounts had reduced the indebtedness of residents (individuals or corporations or government
concerning any such violations and to investigate any fact, condition, practice or matter which it may
agencies) of the Philippines to non-residents. At the end of the second year, the above ratio shall be
deem necessary or proper to aid in the enforcement of the provisions of this Code, in the prescribing of
50%, which ratio must be observed continuously thereafter;
rules and regulations thereunder, or in securing information to serve as a basis for recommending
2.
The trust operations of SCB shall be subject to all existing laws, rules and regulations applicable to
further legislation concerning the matters to which this Code relates: Provided, however, That any
trust services, particularly the creation of a Trust Committee; and
person requested or subpoenaed to produce documents or testify in any investigation shall
3.
The bank shall inform the appropriate supervising and examining department of the BSP at the
simultaneously be notified in writing of the purpose of such investigation: Provided, further , That all
start of its operations.
criminal complaints for violations of this Code and the implementing rules and regulations
Apparently, SCB did not comply with the above conditions. Instead, as early as 1996, it acted as a stock
enforced or administered by the Commission shall be referred to the Department of Justice
broker, soliciting from local residents foreign securities called GLOBAL THIRD PARTY MUTUAL FUNDS
for preliminary investigation and prosecution before the proper court: Provided,
(GTPMF), denominated in US dollars. These securities were not registered with the Securities and
furthermore, That in instances where the law allows independent civil or criminal proceedings of
Exchange Commission (SEC). These were then remitted outwardly to SCB-Hong Kong and SCBviolations arising from the act, the Commission shall take appropriate action to implement the
Singapore.
same: Provided, finally; That the investigation, prosecution, and trial of such cases shall be given
SCBs counsel, Romulo Mabanta Buenaventura Sayoc and Delos Angeles Law Office, advised the bank to
priority.
proceed with the selling of the foreign securities although unregistered with the SEC, under the guise of
The Court of Appeals held that under the above provision, a criminal complaint for violation of any law
a custodianship agreement; and should it be questioned, it shall invoke Section 72[3] of the General
or rule administered by the SEC must first be filed with the latter. If the Commission finds that there is
Banking Act (Republic Act No.337).[4] In sum, SCB was able to sell GTPMF securities worth around P6
probable cause, then it should refer the case to the DOJ. Since petitioner failed to comply with the
billion to some 645 investors.
foregoing procedural requirement, the DOJ did not gravely abuse its discretion in dismissing his
However, SCBs operations did not remain unchallenged. On , the Investment Capital Association of the
complaint in I.S. No. 2004-229.
Philippines (ICAP) filed with the SEC a complaint alleging that SCB violated the Revised Securities Act,
A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it must
[5]particularly the provision prohibiting the selling of securities without prior registration with the SEC;
first be referred to an administrative agency of special competence, i.e., the SEC. Under the doctrine of
and that its actions are potentially damaging to the local mutual fund industry.
primary jurisdiction, courts will not determine a controversy involving a question within the jurisdiction
In its answer, SCB denied offering and selling securities, contending that it has been performing a purely
of the administrative tribunal, where the question demands the exercise of sound administrative
informational function without solicitations for any of its investment outlets abroad; that it has a trust
discretion requiring the specialized knowledge and expertise of said administrative tribunal to determine
license and the services it renders under the Custodianship Agreement for offshore investments are
technical and intricate matters of fact.[12] The Securities Regulation Code is a special law. Its
authorized by Section 72[6] of the General Banking Act; that its clients were the ones who took the
enforcement is particularly vested in the SEC. Hence, all complaints for any violation of the Code and its
initiative to invest in securities; and it has been acting merely as an agent or passive order taker for
implementing rules and regulations should be filed with the SEC. Where the complaint is criminal in
them.
nature, the SEC shall indorse the complaint to the DOJ for preliminary investigation and prosecution as
On , the SEC issued a Cease and Desist Order against SCB, holding that its services violated Sections
provided in Section 53.1 earlier quoted.
4(a)[7] and 19[8] of the Revised Securities Act.
We thus agree with the Court of Appeals that petitioner committed a fatal procedural lapse when he
Meantime, the SEC indorsed ICAPs complaint and its supporting documents to the BSP.
filed his criminal complaint directly with the DOJ. Verily, no grave abuse of discretion can be ascribed to
On , the SEC informed the Secretary of Finance that it withdrew GTPMF securities from the market and
the DOJ in dismissing petitioners complaint.
that it will not sell the same without the necessary clearances from the regulatory authorities.
G.R. No. 170602
Meanwhile, on , the BSP directed SCB not to include investments in global mutual funds issued abroad in
Re: I.S. No. 2003-1059 for
its trust investments portfolio without prior registration with the SEC.
Syndicated Estafa
On , SCB sent a letter to the BSP confirming that it will withdraw third-party fund products which could
Section 5, Rule 110 of the 2000 Rules of Criminal Procedure, as amended, provides that all criminal
be directly purchased by investors.
actions, commenced by either a complaint or an information, shall be prosecuted under the direction
However, notwithstanding its commitment and the BSP directive, SCB continued to offer and sell GTPMF
and control of a public prosecutor. This mandate is founded on the theory that a crime is a breach of the
securities in this country. This prompted petitioner to enter into an Investment Trust Agreement with
security and peace of the people at large, an outrage against the very sovereignty of the State. It
SCB wherein he purchased US$8,000.00 worth of securities upon the banks promise of 40% return on
follows that a representative of the State shall direct and control the prosecution of the offense.[13] This
his investment and a guarantee that his money is safe. After six (6) months, however, petitioner learned
representative of the State is the public prosecutor, whom this Court described in the old case of Suarez
that the value of his investment went down to US$7,000.00. He tried to withdraw his investment but
v. Platon,[14] as:
was persuaded by Antonette de los Reyes of SCB to hold on to it for another six (6) months in view of
[T]he representative not of an ordinary party to a controversy, but of a sovereignty whose obligation to
the possibility that the market would pick up.
govern impartially is as compelling as its obligation to govern at all; and whose interest, therefore, in a
Meanwhile, on , the BSP found that SCB failed to comply with its directive of .Consequently, it was fined
criminal prosecution is not that it shall win a case, but that justice shall be done. As such, he is in a
in the amount of P30,000.00.
peculiar and very definite sense a servant of the law, the twofold aim of which is that guilt shall not
The trend in the securities market, however, was bearish and the worth of petitioners investment went
escape or innocence suffers.
down further to only US$3,000.00.
Concomitant with his authority and power to control the prosecution of criminal offenses, the public
On , petitioner learned from Marivel Gonzales, head of the SCB Legal and Compliance Department, that
prosecutor is vested with the discretionary power to determine whether a prima facie case exists or not.
the latter had been prohibited by the BSP to sell GPTMF securities. Petitioner then filed with the BSP a
[15] This is done through a preliminary investigation designed to secure the respondent from hasty,
letter-complaint demanding compensation for his lost investment. But SCB denied his demand on the
malicious and oppressive prosecution. A preliminary investigation is essentially an inquiry to determine
ground that his investment is regular.
whether (a) a crime has been committed; and (b) whether there is probable cause that the accused is
On , petitioner filed with the Department of Justice (DOJ), represented herein by its prosecutors, public
guilty thereof.[16] In Pontejos v. Office of the Ombudsman ,[17]probable cause is defined as such facts
respondents, a complaint charging the above-named officers and members of the SCB Board of
and circumstances that would engender a well-founded belief that a crime has been committed and that
Directors and other SCB officials, private respondents, with syndicated estafa, docketed as I.S. No.
the respondent is probably guilty thereof and should be held for trial. It is the public prosecutor who
2003-1059.
determines during the preliminary investigation whether probable cause exists. Thus, the decision
For their part, private respondents filed the following as counter-charges against petitioner: (1)
whether or not to dismiss the criminal complaint against the accused depends on the sound discretion of
blackmail and extortion, docketed as I.S. No. 2003-1059-A; and blackmail and perjury, docketed as I.S.
the prosecutor.
No. 2003-1278.
Given this latitude and authority granted by law to the investigating prosecutor, the rule in this
On , petitioner also filed a complaint for perjury against private respondents Paul Simon Morris and
jurisdiction is that courts will not interfere with the conduct of preliminary investigations or
Marivel Gonzales, docketed as I.S. No. 2003-1278-A.
reinvestigations or in the determination of what constitutes sufficient probable cause for
On , the SEC issued a Cease and Desist Order against SCB restraining it from further offering, soliciting,
the filing of the corresponding information against an offender.[18] Courts are not empowered
or otherwise selling its securities to the public until these have been registered with the SEC.
to substitute their own judgment for that of the executive branch.[19] Differently stated, as the matter
Subsequently, the SEC and SCB reached an amicable settlement.
of whether to prosecute or not is purely discretionary on his part, courts cannot compel a public
On , the SEC lifted its Cease and Desist Order and approved the P7 million settlement offered by
prosecutor to file the corresponding information, upon a complaint, where he finds the evidence before
SCB. Thereupon, SCB made a commitment not to offer or sell securities without prior compliance with
him insufficient to warrant the filing of an action in court. In sum, the prosecutors findings on the

existence of probable cause are not subject to review by the courts, unless these are
patently shown to have been made with grave abuse of discretion.[20]
Grave abuse of discretion is such capricious and whimsical exercise of judgment on the part of the
public officer concerned which is equivalent to an excess or lack of jurisdiction. The abuse of discretion
must be as patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform
a duty enjoined by law, or to act at all in contemplation of law, as where the power is exercised in an
arbitrary and despotic manner by reason of passion or hostility.[21]
In determining whether the DOJ committed grave abuse of discretion, it is expedient to know if
the findings of factof herein public prosecutors were reached in an arbitrary or despotic manner.
The Court of Appeals held that petitioners evidence is insufficient to establish probable cause for
syndicated estafa. There is no showing from the record that private respondents herein did induce
petitioner by false representations to invest in the GTPMF securities. Nor did they act as a syndicate to
misappropriate his money for their own benefit. Rather, they invested it in accordance with his written
instructions. That he lost his investment is not their fault since it was highly speculative.
Records show that public respondents examined petitioners evidence with care, well aware of their duty
to prevent material damage to his constitutional right to liberty and fair play. In Suarez previously cited,
this Court made it clear that a public prosecutors duty is two-fold. On one hand, he is bound by his oath
of office to prosecute persons where the complainants evidence is ample and sufficient to
show prima facie guilt of a crime. Yet, on the other hand, he is likewise duty-bound to protect innocent
persons from groundless, false, or malicious prosecution.[22]
Hence, we hold that the Court of Appeals was correct in dismissing the petition for review against
private respondents and in concluding that the DOJ did not act with grave abuse of discretion
tantamount to lack or excess of jurisdiction.
On petitioners complaint for violation of the Securities Regulation Code, suffice it to state that, as aptly
declared by the Court of Appeals, he should have filed it with the SEC, not the DOJ. Again, there is no
indication here that in dismissing petitioners complaint, the DOJ acted capriciously or arbitrarily.
WHEREFORE, we DENY the petitions and AFFIRM the assailed Decisions of the Court of Appeals in
CA-G.R. SP No. 87328 and in CA-G.R. SP No. 85078.
Costs against petitioner.
SO ORDERED.

can be deemed as a direct violation of Section 11 of R.A. No. 8799[4] and the related provisions of its
Implementing Rules and Regulations; and that it is imperative to enjoin respondent from further
operating as such to protect the interest of the public. The dispositive portion of the said Order reads:
WHEREFORE, pursuant to the authority vested in the Commission, PERFORMANCE FOREIGN EXCHANGE
CORPORATION, its officers, directors, agents, representatives, and any and all persons claiming and
acting under their authority, are hereby ordered to immediately CEASE AND DESIST from further
engaging in the solicitation of funds for foreign currency trading and operating as a foreign
currency futures merchant/broker, upon receipt of this Order.
In accordance with the provisions of Section 64.3[5] of Republic Act 8799, otherwise known as the
Securities Regulation Code, the parties subject of this Cease and Desist Order may file a request for the
lifting thereof within five (5) days from receipt hereof.
SO ORDERED.
On January 25, 2001, respondent filed with petitioner SEC a motion[6] praying for the lifting of the
Cease and Desist Order, alleging that: (a) it has not violated any law or regulation in the conduct of its
business; (b) it has been operating in accordance with the purposes for which it was organized, which
purposes were duly approved by petitioner; (c) it has not engaged in currency futures contracts trading;
and (d) its business involves spot currency trading which is not a form of currency futures transaction.
On February 8, 2001, then SEC Chairman Lilia R. Bautista, in her desire to know with certainty the
nature
of
respondents
business,
sent
a
letter[7] to
the Bangko Sentral ng Pilipinas (BSP), requesting a definitive statement that respondents business
transactions are a form of financial derivatives and, therefore, can only be undertaken by banks or nonbank financial intermediaries performing quasi-banking functions.
Without waiting for BSPs determination of the matter, petitioner, the following day (February 9,
2001), issued an Order[8] denying respondents motion for the lifting of the Cease and Desist Order and
directing that the same stays until respondent shall have submitted the appropriate
endorsement from the BSP that it can engage in financial derivative transactions. The Order
states that the contracts entered into, offered and sold by respondent are in the nature of commodity
futures contracts;[9] and that such contracts may be considered a form of financial
derivatives instruments, the trading of which is regulated by BSP.
On February 16, 2001, respondent filed a Manifestation With Urgent Motion [10] praying that, pending
determination by the BSP of the real nature of its business, the implementation of the February 9, 2001
[3] SEC.72. In addition to the operations specifically authorized elsewhere in this Act, banking
Order be temporarily suspended to allow it to continue its operations.
institutions other than building and loan associations may perform the following services:
On March 15, 2001, respondent, in compliance with petitioners February 9, 2001 Order requiring it to
a)
Receive in custody funds, documents and valuable objects, and rent safety deposit boxes for the
submit the appropriate BSP endorsement, presented before the BSP panel of officers a summary of its
safeguarding of such effects;
operations and its foreign exchange spot product.
b)
Act as financial agent and buy and sell, by order of and for the account of their customers,
On April 23, 2001, petitioner issued an Order[11] making the Cease and Desist Order permanent,
shares, evidences of indebtedness and all other types of securities;
thus:
c)
Make collections and payments for the account of others and perform such other services for
WHEREAS, on February 19, 2001, PFEC filed with the Commission its Manifestation with Urgent Motion
their customers as are not incompatible with banking business;
to Temporarily Suspend Implementation of Order dated 09 February 2001, which Manifestation
d)
Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or
was denied by the Commission en banc during its meeting on February 22, 2001, and the said
administrator of investment management advisory/consultancy accounts.
denial was conveyed verbally to the corporation;
The banks shall perform the services permitted under subsections (a), (b), and (c) of this section as
WHEREFORE, premises considered, and pursuant to the authority vested in the Commission, the Cease
depositaries or as agents. Accordingly they shall keep the funds, securities and other effects which they
and Desist Order is now made permanent, and Performance Foreign Exchange Corporation is hereby
thus receive duly separated and apart from the banks own assets and liabilities.
directed to show causewithin thirty (30) days from receipt of this Order why its certificate of
The Monetary Board may regulate the operations authorized by this section in order to insure that said
registration should not be revoked for violation of the Securities Regulation Code, and/or
operations do not endanger the interest of the depositors and other creditors of the banks.
PD 902-A specifically on the ground of serious misrepresentation as to what the
[4] Now repealed by The General Banking Law of 2000 (Republic Act No. 8791).
corporation can do or is doing, to the great prejudice or damage to the general
[5] Batas Pambansa Blg. 178. Now repealed by Republic Act No. 8799 (The Securities Regulation Code),
public. (Underscoring supplied)
which took effect on July 19. 2000.
On May 4, 2001, respondent filed a motion[12] praying that the said Order be set aside. Petitioner,
[6] Supra at footnote 3.
however, did not act on the motion. This prompted respondent to file with petitioner a notice [13] dated
[7] SEC. 4. Requirement of registration of securities. (a) No securities, except of a class exempt under
June 14, 2001 that it is withdrawing its motion in order to seek a more appropriate and speedy remedy.
any of the provisions of Section five hereof or unless sold in any transaction exempt under any of the
Feeling the injurious effects of petitioners acts to its business operations, respondent, on June 20, 2001,
provisions of Section six hereof shall be sold or offered for sale or distribution to the public within the
filed with the Court of Appeals a Petition for Certiorari [14] with prayer for a temporary restraining order
Philippines unless such securities shall have been registered and permitted to be sold as hereinafter
and preliminary injunction, docketed as CA-G.R. SP No. 65217. Respondent alleged, among others, that
provided.
petitioner SEC acted without or in excess of its jurisdiction or with grave abuse of discretion when it
[8] SEC. 19. Registration of brokers, dealers and salesmen.- No broker, dealer or salesman shall
issued the Cease and Desist Order and its subsequent Order making the same permanent without
engage in business in the Philippines as such broker, dealer or salesman or sell any securities, including
waiting for the BSPs determination of the real nature of its business operations; and that petitioners
securities exempted under this Act, except in exempt transactions, unless he has been registered as a
Orders, issued without any factual basis, violated its (respondents) fundamental right to due process.
broker, dealer, or salesman pursuant to the provisions of this Section.
Meanwhile, on August 13, 2001, Amado M. Tetangco, Jr., then Officer-in-Charge, Office of the Governor,
[9] Sec. 8. Requirement of Registration of Securities:
BSP, in answer to SEC Chairman Lilia Bautistas letter-request of February 8, 2001, stated that
8.1. Securities shall not be sold or offered for sale or distribution within the , without a registration
respondents business activity does not fall under the category of futures trading and can not
statement duly filed with and approved by the Commission. Prior to such sale, information on the
be classified as financial derivatives transactions, thus:
securities, in such form and with such substance as the Commission may prescribe, shall be made
Dear Ms. Bautista,
available to each prospective purchaser.
This refers to your letter dated February 8, 2001 requesting for a definitive statement that the foreign
SECOND DIVISION
currency leverage trading engage in by private corporations, particularly, Performance Foreign Exchange
SECURITIES AND EXCHANGE COMMISSION,
G.R. No. 154131
Corporation (PFEC), is a financial derivatives transaction and that it can only be undertaken by banks or
Petitioner,
Present:
non-bank financial intermediaries performing quasi-banking functions and/or its subsidiaries/affiliates.
versus PUNO, J., Chairperson,
As indicated in your description of the transactions and the documents submitted, the foreign
PERFORMANCE FOREIGN EXCHANGE CORPORATION,
SANDOVAL-GUTIERREZ, currency leverage trading, subject of your query, is essentially similar in mechanics to currency
Respondent.
CORONA,
future trading, particularly with respect to the margin requirements, standard contract size, and daily
AZCUNA, and
market-to-market of open position. However, it does not fall under the category of futures
GARCIA, JJ.
trading because it is not exchange-traded. Further, we can not classify it as being financial
Promulgated:
derivatives transactions as we consider the transaction as plain currency margin trading, which by its
July 20, 2006
mechanics, involve the set-up of margin and non-delivery of the currencies involved.
x -------------------------------------------------------------------------------------- x
In view of the foregoing facts, the activities of the aforesaid corporation are not covered by BSP
guidelines on derivative licensing.
DECISION
We hope we have satisfactorily clarified your concerns.
Very truly yours,
SANDOVAL-GUTIERREZ, J.:
(Sgd.)
For our resolution is the Petition for Review on Certiorari [1] assailing the Decision[2] dated February 11,
AMANDO M. TETANGCO, JR.[15]
2002 and Resolution dated July 3, 2002 of the Court of Appeals in CA-G.R. SP No. 65217, entitled
On February 11, 2002, the Court of Appeals rendered a Decision[16] in favor of respondent, thus:
Performance Foreign Exchange Corporation, petitioner, versus Securities and Exchange
WHEREFORE, premises considered, the instant petition is GRANTED and accordingly, the
Commission, respondent.
assailed Orders dated January 16, 2001, February 9, 2001, February 22, 2001 and April 23,
The pertinent facts as found by the Court of Appeals are:
2001 of the Securities and Exchange Commission are SET ASIDE.
Performance Foreign Exchange Corporation, herein respondent, is a domestic corporation duly registered
SO ORDERED.
on June 23, 1998 under Securities and Exchange Commission (SEC) Registration No. A199808910, with
The Court of Appeals ruled that petitioner acted with grave abuse of discretion when it issued its
the following purposes:
challenged Orders without a positive factual finding that respondent violated the Securities
Primary Purpose
Regulation Code.
To operate as a broker/agent between market participants in transactions involving, but not limited to,
Petitioner filed a motion for reconsideration but it was denied by the appellate court in a
foreign exchange, deposits, interest rate instruments, fixed income securities, bonds/bills, repurchased
Resolution[17] dated July 3, 2002.
agreements of fixed income securities, certificate of deposits, bankers acceptances, bills of exchange,
Hence, the instant Petition for Review on Certiorari.
over-the-counter option of the aforementioned instruments, Lesser Developed Countrys (L.D.C.) debt,
Petitioner, through the Solicitor General, contends that the Court of Appeals erred in not applying the
energy and stock indexes and all related, similar or derivative products, other than acting as a broker for
rule that factual findings of quasi-judicial bodies, like the SEC, which have acquired expertise because
the trading of securities pursuant to the Revised Securities Act of the Philippines.
their jurisdiction is confined to specific matters, are generally accorded not only respect but even finality
Secondary Purpose
if such findings are supported by substantial evidence.[18]
To engage in money changer or exchanging foreign currencies into domestic currency, Philippine
In its Comment,[19] respondent counters that the instant petition utterly lacks merit and should be
currency or other foreign currencies into another currencies.
dismissed.
After two years of operation, respondent received a letter dated November 28, 2000 from the SEC,
The issue for our resolution is whether petitioner SEC acted with grave abuse of discretion in issuing the
herein petitioner, requiring it to appear before the Compliance and Enforcement Department (CED) on
Cease and Desist Order and its subsequent Order making it permanent.
December 14, 2000 for a clarificatory conference regarding its business operations. Respondents officers
Section 64 of R.A. No. 8799, provides:
complied and explained before the CED the nature of their business.
Sec. 64. Cease and Desist Order. 64.1. The Commission, after proper investigation or
On January 16, 2001, Emilio B. Aquino, Director of CED, issued a Cease and Desist Order, [3] in CED
verification, motuproprio, or upon verified complaint by any aggrieved party, may issue a cease and
Case No. 99-2297, stating that his department conducted an inquiry on respondents business operations
desist order without the necessity of a prior hearing if in its judgment the act or practice, unless
for possible violation of Republic Act (R.A.) No. 8799 (otherwise known as The Securities Regulation
restrained, will operate as a fraud on investors or is otherwise likely to cause grave or
Code); that the outcome of the inquiry shows that respondent is engaged in the trading of foreign
irreparable injury or prejudice to the investing public.
currency futures contracts in behalf of its clients without the necessary license; that such transaction
x x x. (Underscoring supplied)

Under the above provision, there are two essential requirements that must be complied with by the SEC
before it may issue a cease and desist order: First, it must conduct proper investigation or verification;
and Second, there must be a finding that the act or practice, unless restrained, will operate as a fraud
on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing
public.
Here, the first requirement is not present. Petitioner did not conduct proper investigation or
verification before it issued the challenged orders. The clarificatory conference undertaken by petitioner
regarding respondents business operations cannot be considered a proper investigation or verification
process to justify the issuance of the Cease and Desist Order. It was merely an initial stage of such
process, considering that after it issued the said order following the clarificatory conference, petitioner
still sought verification from the BSP on the nature of respondents business activity. Its letter to the
BSP dated February 8, 2001 states in part:
The Securities and Exchange Commission has been investigating corporations which engage in
foreign currency trading abroad. The following illustrates their operations:
xxx
Enclosed are pertinent documents which were submitted by a corporation showing how its transactions
operate. It is claimed by the corporation in question that theirs are all spot transactions and are not
covered by the Bangko Sentralng Pilipinas. We understand, however, that in other jurisdiction, this type
of activity can only be done by banks.
Previous inquiries from the Bangko Sentral ng Pilipinas, specifically Department of Commercial Banks II,
and your department, Commercial Banks I, lead to conclude that this kind of trading in foreign
currencies may be a form of financial derivatives.
May we, therefore, request a definitive statement that the above-described transactions,
and as illustrated in the attached documents, are a form of financial derivatives and,
therefore, can only be undertaken by banks, or non-bank financial intermediaries
performing quasi-banking functions and/or its subsidiaries/affiliates.[20](Underscoring
supplied)
Petitioners act of referring the matter to the BSP is an essential part of the investigation and
verification process. In fact, such referral indicates that petitioner concedes to the BSPs expertise in
determining the nature of respondents business. It bears stressing, however, that such investigation and
verification, to be proper, must be conducted by petitioner before, not after, issuing the Cease and
Desist Order in question. This, petitioner utterly failed to do. The issuance of such order even before it
could finish its investigation and verification on respondents business activity obviously
contravenes Section 64 of R.A. No. 8799 earlier quoted.
Worse, when respondent filed a motion praying that the same order be lifted for being premature,
petitioner, in its Order dated February 9, 2001, even denied the motion despite its admission therein
that it cannot determinecertain material facts involving respondents transactions and, as such, the
matter must be referred to the BSP for determination, thus:
In the light of the above circumstances, and the fact that the Commission cannot determine
whether such transactions are actually executed in Singapore or Hongkong as alleged, and
whether the foreign currency rates used in the transactions are verifiable, it is our position
that the same be endorsed to the BSP.
In view of the foregoing, the cease and desist order stays against the corporation until the latter shall be
able to submit the appropriate endorsement from the Bangko Sentral ng Pilipinas that it can engage in
financial derivative transactions.
SO ORDERED.[21] (Underscoring supplied)
And worst, without waiting for BSPs action, petitioner proceeded to issue its Order dated April 23, 2001
making the Cease and Desist Order permanent. In the same Order, petitioner further directed
respondent to show cause x x x why its certificate of registration should not be revoked for alleged
violation of the Securities Regulation Code and/or Presidential Decree No. 902-A, specifically on the
ground of serious misrepresentation as to what the corporation can do or is doing to the
great prejudice or damage to the general public. Obviously, without BSPsdetermination of the
nature of respondents business, there was no factual and legal basis to justify the issuance of such
order.
Which brings us to the second requirement. Before a cease and desist order may be issued by the
SEC, there must be a showing that the act or practice sought to be restrained will operate as a fraud on
investors or is likely to cause grave, irreparable injury or prejudice to the investing public. Such
requirement implies that the act to be restrained has been determined after conducting the
proper investigation/verification. In this case, the nature of the act to be restrained can only be
determined after the BSP shall have submitted its findings to petitioner.However, there is nothing in the
questioned Orders that shows how the public is greatly prejudiced or damaged by respondents business
operation.
In sum, we find no reversible error committed by the Court of Appeals in rendering its assailed Decision
and Resolution.
WHEREFORE, we DENY the petition. The challenged Decision and Resolution of the Court of Appeals
in CA-G.R. SP No. 65217 are AFFIRMED.
SO ORDERED.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

[1] Filed under Rule 45, 1997 Rules of Civil Procedure, as amended.
[4] Sec. 11. Commodity Futures Contracts. No person shall offer, sell or enter into commodity futures
contracts except in accordance with the rules, regulations and orders the Commission (SEC) may
prescribe in the public interest. The Commission shall promulgate rules and regulations involving
commodity futures contracts to protect investors to ensure the development of a fair and transparent
commodities market.
[5] Sec. 64.3. Any person against whom a cease and desist order was issued may, within five (5) days
from receipt of the order, file a formal request for a lifting thereof. Said request shall be set for hearing
by the Commission not later than fifteen (15) days from its filing and the resolution thereof shall be
made not later than ten (10) days from the termination of the hearing. If the Commission fails to resolve
the request within the time herein prescribed, the cease and desist order shall automatically be lifted.
[9] The Order cited the Implementing Rules and Regulations of the Securities Regulation Code
defining commodity futures contract as a contract providing for the making or taking delivery at a
prescribed time in the future of a specific quantity and quality of a commodity or the cash value thereof,
which is customarily offset prior to the delivery date, and includes standardized contracts having the
indicia of commodity futures, commodity options and commodity leverage, or margin contracts. Id., p.
58.