G.R. No.

100152 March 31, 2000 On December 5, 1988, private respondent Samahan ng On May 30, 1990, the trial court dismissed the petition for
Optometrist Sa Pilipinas (SOPI), Iligan Chapter, through its failure to exhaust administrative remedies, and dissolved the
Acting President, Dr. Frances B. Apostol, lodged a complaint writ of preliminary injunction it earlier issued. Petitioner's
ACEBEDO OPTICAL COMPANY, INC., petitioner, vs. THE
against the petitioner before the Office of the City Mayor, motion for reconsideration met the same fate. It was denied
HONORABLE COURT OF APPEALS, Hon. MAMINDIARA
alleging that Acebedo had violated the conditions set forth in by an Order dated June 28, 1990.
MANGOTARA, in his capacity as Presiding Judge of the
its business permit and requesting the cancellation and/or
RTC, 12th Judicial Region, Br. 1, Iligan City; SAMAHANG
revocation of such permit.
OPTOMETRIST Sa PILIPINAS Iligan City Chapter, LEO On October 3, 1990, instead of taking an appeal, petitioner
T. CAHANAP, City Legal Officer, and Hon. CAMILO P. filed a petition for certiorari, prohibition and mandamus with
CABILI, City Mayor of Iligan, respondents. Acting on such complaint, then City Mayor Camilo P. Cabili the Court of Appeals seeking to set aside the questioned
designated City Legal Officer Leo T. Cahanap to conduct an Order of Dismissal, branding the same as tainted with grave
investigation on the matter. On July 12, 1989, respondent City abuse of discretion on the part of the trial court.
PURISIMA, J.:
Legal Officer submitted a report to the City Mayor finding the
herein petitioner guilty of violating all the conditions of its
On January 24, 1991, the Ninth Division 2 of the Court of
At bar is a petition for review under Rule 45 of the Rules of business permit and recommending the disqualification of
Appeals dismissed the petition for lack of merit. Petitioner's
Court seeking to nullify the dismissal by the Court of Appeals petitioner from operating its business in Iligan City. The report
motion reconsideration was also denied in the Resolution
of the original petition for certiorari, prohibition further advised that no new permit shall be granted to
dated May 15, 1991.
and mandamus filed by the herein petitioner against the City petitioner for the year 1989 and should only be given time to
Mayor and City Legal Officer of Iligan and the Samahang wind up its affairs.
Optometrist sa Pilipinas Iligan Chapter (SOPI, for brevity). Undaunted, petitioner has come before this court via the
present petition, theorizing that:
On July 19, 1989, the City Mayor sent petitioner a Notice of
The antecedent facts leading to the filing of the instant Resolution and Cancellation of Business Permit effective as of
petition are as follows: said date and giving petitioner three (3) months to wind up its A. THE RESPONDENT COURT, WHILE CORRECTLY HOLDING
affairs. THAT THE RESPONDENT CITY MAYOR ACTED BEYOND HIS
AUTHORITY IN IMPOSING THE SPECIAL CONDITIONS IN THE
Petitioner applied with the Office of the City Mayor of Iligan
PERMIT AS THEY HAD NO BASIS IN ANY LAW OR
for a business permit. After consideration of petitioner's On October 17, 1989, petitioner brought a petition
ORDINANCE, ERRED IN HOLDING THAT THE SAID SPECIAL
application and the opposition interposed thereto by local for certiorari, prohibition and mandamus with prayer for
CONDITIONS NEVERTHELESS BECAME BINDING ON
optometrists, respondent City Mayor issued Business Permit restraining order/preliminary injunction against the
PETITIONER UPON ITS ACCEPTANCE THEREOF AS A
No. 5342 subject to the following conditions: respondents, City Mayor, City Legal Officer and Samahan ng
PRIVATE AGREEMENT OR CONTRACT.
Optometrists sa Pilipinas-Iligan City Chapter (SOPI), docketed
1. Since it is a corporation, Acebedo cannot put up an as Civil Case No. 1497 before the Regional Trial Court of Iligan
City, Branch I. Petitioner alleged that (1) it was denied due B. THE RESPONDENT COURT OF APPEALS ERRED IN
optical clinic but only a commercial store;
process because it was not given an opportunity to present its HOLDING THAT THE CONTRACT BETWEEN PETITIONER
evidence during the investigation conducted by the City Legal AND THE CITY OF ILIGAN WAS ENTERED INTO BY THE
2. Acebedo cannot examine and/or prescribe reading and LATTER IN THE PERFORMANCE OF ITS PROPRIETARY
Officer; (2) it was denied equal protection of the laws as the
similar optical glasses for patients, because these are FUNCTIONS.
limitations imposed on its business permit were not imposed
functions of optical clinics;
on similar businesses in Iligan City; (3) the City Mayor had no
authority to impose the special conditions on its business The petition is impressed with merit.
3. Acebedo cannot sell reading and similar eyeglasses permit; and (4) the City Legal Officer had no authority to
without a prescription having first been made by an conduct the investigation as the matter falls within the
Although petitioner agrees with the finding of the Court of
independent optometrist (not its employee) or exclusive jurisdiction of the Professional Regulation
Appeals that respondent City Mayor acted beyond the scope
independent optical clinic. Acebedo can only sell directly Commission and the Board of Optometry.
of his authority in imposing the assailed conditions in subject
to the public, without need of a prescription, Ray-Ban and
business permit, it has excepted to the ruling of the Court of
similar eyeglasses;
Respondent SOPI interposed a Motion to Dismiss the Petition Appeals that the said conditions nonetheless became binding
on the ground of non-exhaustion of administrative remedies on petitioner, once accepted, as a private agreement or
4. Acebedo cannot advertise optical lenses and but on November 24, 1989, Presiding Judge Mamindiara P. contract. Petitioner maintains that the said special conditions
eyeglasses, but can advertise Ray-Ban and similar glasses Mangotara deferred resolution of such Motion to Dismiss until are null and void for being ultra vires and cannot be given
and frames; after trial of the case on the merits. However, the prayer for a effect; and therefore, the principle of estoppel cannot apply
writ of preliminary injunction was granted. Thereafter, against it.
5. Acebedo is allowed to grind lenses but only upon the respondent SOPI filed its answer.1wphi1.nt
1
prescription of an independent optometrist.

CORPORATION LAW: 3.a. powers of corps Page 1 of 62

On the other hand, the public respondents, City Mayor and
City Legal Officer, private respondent SOPI and the Office of
the Solicitor General contend that as a valid exercise of police
power, respondent City Mayor has the authority to impose, as
he did, special conditions in the grant of business permits.
Police power as an inherent attribute of sovereignty is the
power to prescribe regulations to promote the health, morals,
peace, education, good order or safety and general welfare of
the people. 9 The State, through the legislature, has delegated
the exercise of police power to local government units, as
agencies of the State, in order to effectively accomplish and
carry out the declared objects of their creation. 4 This
delegation of police power is embodied in the general welfare
clause of the Local Government Code which provides:
Sec. 6. General Welfare. Every local government unit
shall exercise the powers expressly granted, those
necessarily implied therefrom, as well as powers
necessary, appropriate, or incidental for its efficient and
effective governance, and those which are essential to the
promotion of the general welfare. Within their respective
territorial jurisdictions, local government units shall ensure
and support, among other things, the preservation and
enrichment of culture, promote health and safety,
enhance the right of the people to a balanced ecology,
encourage and support the development of appropriate
and self-reliant scientific and technological capabilities,
improve public morals, enhance economic prosperity and
social justice, promote full employment among their
residents, maintain peace and order, and preserve the
comfort and convenience of their inhabitants.
The scope of police power has been held to be so authority in imposing such special conditions in its permit as
comprehensive as to encompass almost all matters affecting the same have no basis in the law or ordinance. Public
the health, safety, peace, order, morals, comfort and respondents and private respondent SOPI, on the other hand,
convenience of the community. Police power is essentially are one in saying that the imposition of said special
regulatory in nature and the power to issue licenses or grant conditions on petitioner's business permit is well within the
business permits, if exercised for a regulatory and not authority of the City Mayor as a valid exercise of police power.
revenue-raising purpose, is within the ambit of this power. 5
The authority of city mayors to issue or grant licenses and
business permits is beyond cavil. It is provided for by law.
Section 171, paragraph 2 (n) of Batas Pambansa Bilang 337
otherwise known as the Local Government Code of 1983,
reads:
Sec. 171. The City Mayor shall:
xxx xxx xxx
n) Grant or refuse to grant, pursuant to law, city licenses
or permits, and revoke the same for violation of law or
ordinance or the conditions upon which they are granted.
However, the power to grant or issue licenses or business
permits must always be exercised in accordance with law,
with utmost observance of the rights of all concerned to due
process and equal protection of the law.
Succinct and in point is the ruling of this Court, that:
. . . While a business may be regulated, such regulation
must, however, be within the bounds of reason, i.e., the
regulatory ordinance must be reasonable, and its
provision cannot be oppressive amounting to an arbitrary
interference with the business or calling subject of
regulation. A lawful business or calling may not, under the
guise of regulation, be unreasonably interfered with even
by the exercise of police power. . . .
xxx xxx xxx
. . . The exercise of police power by the local government
is valid unless it contravenes the fundamental law of the
land or an act of the legislature, or unless it is against
public policy or is unreasonable, oppressive, partial,
discriminating or in derogation of a common right. 6
In the case under consideration, the business permit granted
by respondent City Mayor to petitioner was burdened with
several conditions. Petitioner agrees with the holding by the
Court of Appeals that respondent City Mayor acted beyond his
As aptly discussed by the Solicitor General in his Comment,
the power to issue licenses and permits necessarily includes
the corollary power to revoke, withdraw or cancel the same.
And the power to revoke or cancel, likewise includes the
power to restrict through the imposition of certain conditions.
In the case of Austin-Hardware, Inc. vs. Court of Appeals, 7 it
was held that the power to license carries with it the authority
to provide reasonable terms and conditions under which the
licensed business shall be conducted. As the Solicitor General
puts it:
CORPORATION LAW: 3.a. powers of corps
If the City Mayor is empowered to grant or refuse to grant
a license, which is a broader power, it stands to reason
that he can also exercise a lesser power that is reasonably
incidental to his express power, i.e. to restrict a license
through the imposition of certain conditions, especially so
that there is no positive prohibition to the exercise of such
prerogative by the City Mayor, nor is there any particular
official or body vested with such authority. 8
However, the present inquiry does not stop there, as the
Solicitor General believes. The power or authority of the City
Mayor to impose conditions or restrictions in the business
permit is indisputable. What petitioner assails are the
conditions imposed in its particular case which, it complains,
amount to a confiscation of the business in which petitioner is
engaged.
Distinction must be made between the grant of a license or
permit to do business and the issuance of a license to engage
in the practice of a particular profession. The first is usually
granted by the local authorities and the second is issued by
the Board or Commission tasked to regulate the particular
profession. A business permit authorizes the person, natural
or otherwise, to engage in business or some form of
commercial activity. A professional license, on the other hand,
is the grant of authority to a natural person to engage in the
practice or exercise of his or her profession.
In the case at bar, what is sought by petitioner from
respondent City Mayor is a permit to engage in the business
of running an optical shop. It does not purport to seek a
license to engage in the practice of optometry as a corporate
body or entity, although it does have in its employ, persons
who are duly licensed to practice optometry by the Board of
Examiners in Optometry.
The case of Samahan ng Optometrists sa Pilipinas
vs. Acebedo International Corporation, G.R. No.
117097, 9promulgated by this Court on March 21, 1997, is in
point. The factual antecedents of that case are similar to
those of the case under consideration and the issue
ultimately resolved therein is exactly the same issue posed
for resolution by this Court en banc.
In the said case, the Acebedo International Corporation filed
with the Office of the Municipal Mayor an application for a
business permit for the operation of a branch of Acebedo
Optical in Candon, Ilocos Sur. The application was opposed by
the Samahan ng Optometrists sa Pilipinas-Ilocos Sur Chapter,
theorizing that Acebedo is a juridical entity not qualified to
practice optometry. A committee was created by the Office of
Page 2 of 62
the Mayor to study private respondent's application. Upon
recommendation of the said committee, Acebedo's
application for a business permit was denied. Acebedo filed a
petition with the Regional Trial Court but the same was
dismissed. On appeal, however, the Court of Appeals reversed
the trial court's disposition, prompting the Samahan ng
Optometrists to elevate the matter to this Court.
Former Senator Leticia Ramos-Shahani likewise voted her
reservation in casting her vote:
The First Division of this Court, then composed of Honorable
Justice Teodoro Padilla, Josue Bellosillo, Jose Vitug and
Santiago Kapunan, with Honorable Justice Regino
Hermosisima, Jr. as ponente, denied the petition and ruled in
favor of respondent Acebedo International Corporation,
holding that "the fact that private respondent hires
optometrists who practice their profession in the course of
their employment in private respondent's optical shops, does
not translate into a practice of optometry by private
respondent itself," 10 The Court further elucidated that in both
the old and new Optometry Law, R.A. No. 1998, superseded
by R.A. No. 8050, it is significant to note that there is no
prohibition against the hiring by corporations of optometrists.
The Court concluded thus:
The focus of contention remains to be the proposal of
Furthermore, it was ruled that the employment of a qualified
prohibiting the indirect practice of optometry by optometrist by a corporation is not against public
policy. 16 Unless prohibited by statutes, a corporation has all
corporations.1wphi1 We took a second look and even a
the contractual rights that an individual has 17 and it does not
third look at the issue in the bicameral conference, but a
compromise remained elusive. 11 become the practice of medicine or optometry because of the
presence of a physician or optometrist. 18The manufacturing,
selling, trading and bartering of eyeglasses and spectacles as
articles of merchandise do not constitute the practice of
optometry. 19
Senator Shahani: Mr. President.
In the case of Dvorine vs. Castelberg Jewelry
Corporation, 20 defendant corporation conducted as part of its
The optometry bills have evoked controversial views business, a department for the sale of eyeglasses and the
from the members of the panel. While we realize the furnishing of optometrical services to its clients. It employed a
need to uplift the standards of optometry as a profession, registered optometrist who was compensated at a regular
the consesnsus of both Houses was to avoid touching salary and commission and who was furnished instruments
sensitive issues which properly belong to judicial and appliances needed for the work, as well as an office. In
determination. Thus, the bicameral conference holding that corporation was not engaged in the practice of
committee decided to leave the issue of indirect practice optometry, the court ruled that there is no public policy
of optometry and the use of trade names open to the forbidding the commercialization of optometry, as in law and
wisdom of the Courts which are vested with the medicine, and recognized the general practice of making it a
prerogative of interpreting the laws. 12 commercial business by advertising and selling eyeglasses.

All told, there is no law that prohibits the hiring by From the foregoing, it is thus evident that Congress has not To accomplish the objective of the regulation, a state may
corporations of optometrists or considers the hiring by adopted a unanimous position on the matter of prohibition of provide by statute that corporations cannot sell eyeglasses,
corporations of optometrists as a practice by the indirect practice of optometry by corporations, specifically on spectacles, and lenses unless a duly licensed physician or a
corporation itself of the profession of optometry. the hiring and employment of licensed optometrists by optical duly qualified optometrist is in charge of, and in personal
corporations. It is clear that Congress left the resolution of attendance at the place where such articles are sold. 21 In
such issue for judicial determination, and it is therefore proper such a case, the patient's primary and essential safeguard
In the present case, the objective of the imposition of subject
for this Court to resolve the issue. lies in the optometrist's control of the "treatment" by means
conditions on petitioner's business permit could be attained
of prescription and preliminary and final examination. 22
by requiring the optometrists in petitioner's employ to
Even in the United States, jurisprudence varies and there is a
produce a valid certificate of registration as optometrist, from
the Board of Examiners in Optometry. A business permit is conflict of opinions among the federal courts as to the right of In analogy, it is noteworthy that private hospitals are
issued primarily to regulate the conduct of business and the a corporation or individual not himself licensed, to hire and maintained by corporations incorporated for the purpose of
City Mayor cannot, through the issuance of such permit, employ licensed optometrists. 13 furnishing medical and surgical treatment. In the course of
regulate the practice of a profession, like that of optometry. providing such treatments, these corporations employ
Such a function is within the exclusive domain of the Courts have distinguished between optometry as a learned physicians, surgeons and medical practitioners, in the same
administrative agency specifically empowered by law to profession in the category of law and medicine, and way that in the course of manufacturing and selling
supervise the profession, in this case the Professional optometry as a mechanical art. And, insofar as the courts eyeglasses, eye frames and optical lenses, optical shops hire
Regulations Commission and the Board of Examiners in regard optometry as merely a mechanical art, they have licensed optometrists to examine, prescribe and dispense
Optometry. tended to find nothing objectionable in the making and selling ophthalmic lenses. No one has ever charged that these
of eyeglasses, spectacles and lenses by corporations so long corporations are engaged in the practice of medicine. There is
indeed no valid basis for treating corporations engaged in the
It is significant to note that during the deliberations of the as the patient is actually examined and prescribed for by a
14 business of running optical shops differently.
bicameral conference committee of the Senate and the House qualified practitioner.
of Representatives on R.A. 8050 (Senate Bill No. 1998 and
House Bill No. 14100), the committee failed to reach a The primary purpose of the statute regulating the practice of It also bears stressing, as petitioner has pointed out, that the
consensus as to the prohibition on indirect practice of optometry is to insure that optometrical services are to be public and private respondents did not appeal from the ruling
optometry by corporations. The proponent of the bill, former rendered by competent and licensed persons in order to of the Court of Appeals. Consequently, the holding by the
Senator Freddie Webb, admitted thus: protect the health and physical welfare of the people from the Court of Appeals that the act of respondent City Mayor in
dangers engendered by unlicensed practice. Such purpose imposing the questioned special conditions on petitioner's
Senator Webb: xxx xxx xxx may be fully accomplished although the person rendering the business permit is ultra vires cannot be put into issue here by
service is employed by a corporation. 15 the respondents. It is well-settled that:

CORPORATION LAW: 3.a. powers of corps Page 3 of 62

 A party who has not appealed from the decision may not
obtain any affirmative relief from the appellate court
other than what he had obtain from the lower court, if
any, whose decision is brought up on appeal. 23
. . . an appellee who is not an appellant may assign
errors in his brief where his purpose is to maintain the
judgment on other grounds, but he cannot seek
modification or reversal of the judgment or affirmative
relief unless he has also appealed. 24
Thus, respondents' submission that the imposition of subject
special conditions on petitioner's business permit is not ultra
vires cannot prevail over the finding and ruling by the Court
of Appeals from which they (respondents) did not appeal.
Anent the second assigned error, petitioner maintains that its
business permit issued by the City Mayor is not a contract
entered into by Iligan City in the exercise of its proprietary
functions, such that although petitioner agreed to such
conditions, it cannot be held in estoppel since ultra vires acts
cannot be given effect.
imposition, which is ultra vires or beyond the ambit of
authority of respondent City Mayor. Ultra vires acts or acts
which are clearly beyond the scope of one's authority are null
and void and cannot be given any effect. The doctrine of
estoppel cannot operate to give effect to an act which is
otherwise null and void or ultra vires.
The Court of Appeals erred in adjudging subject business
permit as having been issued by responded City Mayor in the
performance of proprietary functions of Iligan City. As
hereinabove elaborated upon, the issuance of business
licenses and permits by a municipality or city is essentially
regulatory in nature. The authority, which devolved upon local
government units to issue or grant such licenses or permits, is
essentially in the exercise of the police power of the State
within the contemplation of the general welfare clause of the
Local Government Code.
WHEREFORE, the petition is GRANTED; the Decision of the
Court of Appeals in CA-GR SP No. 22995 REVERSED: and the
respondent City Mayor is hereby ordered to reissue
petitioner's business permit in accordance with law and with
this disposition. No pronouncement as to costs.

Respondents, on the other hand, agree with the ruling of the

SO ORDERED.
Court of Appeals that the business permit in question is in the
nature of a contract between Iligan City and the herein
petitioner, the terms and conditions of which are binding upon
agreement, and that petitioner is estopped from questioning
the same. Moreover, in the Resolution denying petitioner's
motion for reconsideration, the Court of Appeals held that the
contract between the petitioner and the City of Iligan was
entered into by the latter in the performance of its proprietary
functions.

This Court holds otherwise. It had occasion to rule that a

license or permit is not in the nature of a contract but a
special privilege.

. . . a license or a permit is not a contract between the

sovereignty and the licensee or permitee, and is not a
property in the constitutional sense, as to which the
constitutional proscription against impairment of the
obligation of contracts may extend. A license is rather in
the nature of a special privilege, of a permission or
authority to do what is within its terms. It is not in any
way vested, permanent or absolute. 25

It is therefore decisively clear that estoppel cannot apply in

this case. The fact that petitioner acquiesced in the special
conditions imposed by the City Mayor in subject business
permit does not preclude it from challenging the said

CORPORATION LAW: 3.a. powers of corps Page 4 of 62

G.R. No. 104720 April 4, 2001 purpose and without the imprimatur of the Central Bank to On October 31, 1991 the Court of Appeals rendered a
engage in the pawnshop business thereby causing unjust and Decision affirming with modification the decision of the SEC.
unfair competition with private respondent; and (2) the The dispositive portion of the now assailed decision reads:
PILIPINAS LOAN COMPANY, INC., petitioner, vs. HON.
business name of petitioner, "PILIPINAS" Loan, bears similarity
SECURITES AND EXCHANGE COMMISSION AND
1 in spelling and phonetics with the corporate name of private
FILIPINAS PAWNSHOP, INC., respondents. "WHEREFORE, premises considered, the decision appealed
respondent, "FILIPINAS" Pawnshop, creating constant
from is hereby modified, setting aside that portion
confusion in the minds of the public and the customers of
ordering petitioner to amend its articles of incorporation
GONZAGA-REYES, J.: private respondent. In the same complaint, private
by deleting the word "pledge" in its primary purposes and
respondent urged the SEC to: (1) order petitioner to change
the word "Pilipinas" as part of its corporate name.
Before us is a petition for review on certiorari under Rule 45 of its business name, Pilipinas Loan, and cease from using it in However, petitioner Pilipinas Loan Co., Inc., its directors,
the Rules of Court of the Decision 2 of the Court of Appeals in the near future; (2) order Pilipinas Loan to cease and desist officers agents or other persons acting in its behalf are
CA-G.R. SP No. 25782 entitled "Pilipinas Loan Company, Inc. from engaging in the business of pawnbroking as defined forthwith ordered to CEASE AND DESIST from further
vs. Honorable Securities and Exchange Commission and under PD No. 114; and (3) impose upon the director, officers, engaging in business as a pawnshop or "pawnbroker" or
Filipinas Pawnshop, Inc." dated October 31, 1991 and employees or persons responsible such penalties as may be "sanglaan" as defined in Presidential Decree No. 114,
Resolution dated March 19, 1992 which denied the motion for proper under the law. otherwise known as the Pawnshop Regulation Act until the
reconsideration of herein petitioner Pilipinas Loan Company, proper license shall have been secured from the Central
Inc. (petitioner). On October 18, 1990, petitioner filed its Comment/Answer Bank of the Philippines. In all other respects, the decision
questioning the power of the SEC to take cognizance of the is affirmed."3
Private respondent Filipinas Pawnshop, Inc. (private complaint involving (1) a supposed violation of the Pawnshop
respondent) is a duly organized corporation registered with Regulations Act which is more properly within the jurisdiction
On March 19, 1992, the Court of Appeals issued a Resolution
the Securities and Exchange Commission (SEC) on February 9, of the Central Bank; and (2) the determination of whether a
denying the motion for reconsideration filed by petitioner.
1959 with its principal place of business located along Pedro corporate name is confusingly similar to another which is
Gil St Paco, Metro Manila. The articles of incorporation of within the jurisdiction of the regular courts. Petitioner denied
private respondent states that its primary purpose is to that it is engaged in the pawnshop business, alleging that it is Hence, this petition for review anchored on these grounds:
extend loans at legal interest on the security of either a lending investor duly registered with the Central Bank.
personal properties or on the security of real properties, and "1. Respondent Court of Appeals gravely erred in not
to finance installment sales of motor vehicles, home On October 18, 1991, private respondent filed its reply to the holding that the determination by the Central Bank of
appliances and other chattels. Comment/Answer. alleged violation of PD No. 114 is a condition precedent to
the exercise by respondent Securities and Exchange
Commission of its regulatory power over petitioner.
Petitioner is a lending corporation duly registered with the On April 8, 1991, the PED of the SEC issued an Order directing
SEC on July 27, 1989 with some of its places of business petitioner to amend its articles of incorporation by changing
located along Pedro Gil, Sta. Ana, Manila and Onyx St., cor. the word "Pilipinas" in its corporate name, and to cease and 2. Respondent Court of Appeals gravely erred in not ruling
Augusto Francisco St., San Andres, Paco, Manila. Based on its desist from further engaging in the business of pawnshop or that the finding by respondent SEC is not supported by
articles of incorporation, the primary purpose of petitioner is: "sanglaan". substantial evidence and that petitioner was denied of its
right to due process.
"To act as a lending investor or, otherwise, to engage in On August 13, 1991, the SEC en banc rendered a Decision
the practice of lending money or extending loans on the affirming with modification the aforementioned Order. The 3. Respondent Court of Appeals erred in holding that the
security of real or personal, tangible or intangible Decision ordered petitioner to (1) amend its articles of activities of petitioner constitute pawnbroking." 4
properties whether as pledge, real or chattel mortgage or incorporation by deleting the word "pledge" in its primary
otherwise, xxx without however, engaging in pawnbroking purpose and the word "Pilipinas" as part of its corporate name While petitioner concedes that the SEC has jurisdiction to
as defined under PD 114." and substituting another word in lieu thereof within fifteen determine whether the condition or restriction in the articles
(15) days from receipt of the decision; and (2) to cease and of incorporation of a corporation has been violated, petitioner
On September 11, 1990, private respondent filed a complaint desist from further engaging in business as a "pawnshop" or disputes the authority of the SEC to determine whether a
against petitioner with the Prosecution and Enforcement "pawnbroker" or "sanglaan" as defined in Presidential Decree registered entity is violating PD 114. Petitioner maintains that
Department (PED) of the SEC docketed as PED CASE No. 90- No. 114, otherwise known as the Pawnshop Regulation Act, PD 114 vests this authority solely in the Central Bank.
0737. The complaint alleged that: (1) petitioner, contrary to until the proper license shall have been secured from the
the restriction set by the Commission, has been operating Central Bank of the Philippines.
In upholding the jurisdiction of the SEC, the Court of Appeals
and doing business as a pawnbroker, pawnshop or "sanglaan"
ruled that there is nothing in PD 114 that grants exclusively to
in the same neighborhood where private respondent has had Aggrieved, petitioner filed a petition for review before the
the Central Bank the authority to determine if there has been
its own pawnshop for 30 years in violation of its primary Court of Appeals docketed as CA G.R. SP No. 25782.
a violation of said decree. Petitioner insists that this

CORPORATION LAW: 3.a. powers of corps Page 5 of 62

interpretation is erroneous on the ground that it runs counter
to the time-honored maxim of expressio unius est exclusio
alterius. The express and specific mention of the Central Bank
in PD 114 allegedly implies the exclusion of other
governmental agencies from making a determination of
violations of the provisions of said decree. In support of its
argument, petitioner cites Section 17 of PD 114 that provides:
"Section 17. Grant of authority to the Central Bank. The
Central Bank is hereby authorized (a) to issue rules and
regulations to implement the provisions contained therein;
(b) to require from pawnshops reports of condition and
such other reports necessary to determine compliance
with the provisions of this Decree; (c) to exercise visitorial
powers whenever deemed necessary; (d) to impose such
administrative sanctions including the imposition of fines A corporation, under the Corporation Code, has only such
for violations of this Decree and regulations issued by the powers as are expressly granted to it by law and by its
Central Bank in pursuance thereto."
Petitioner points out that in the enforcement of PD 114, the
Central Bank is possessed with investigatory or inquisitorial
powers which include the power to inspect, or to secure, or to
require the disclosure of information by means of accounts,
records, reports, statements, testimony of witnesses,
production of documents, etc. Allegedly, it is only after the
Central Bank has made a determination of whether petitioner
is engaged in pawnbroking that the SEC can exercise its
regulatory powers over petitioner. Petitioner thus insists that
the jurisdiction of the SEC is limited to matters intrinsically
connected with the regulation of corporations, partnerships
and associations and those dealing with the internal affairs of
such entities. The SEC allegedly cannot arrogate unto itself
the power to look into violations of PD 114 when such power
rests solely with the Central Bank.
The petition is without merit.
Petitioner conjures a supposed conflict of jurisdiction between
the Central Bank and the SEC by insisting that it is only the
Central Bank that has jurisdiction over violations of PD 114.
The argument is misplaced. Basic is the rule that it is the
allegations in the complaint that vests jurisdiction. 5 A case in
point is Philippine Womans Christian Temperance Union, Inc.
vs. Abiertas House of Friendship, Inc.6 wherein we held that Jurisprudence has laid down the principle that it is the ruled that:
when the thrust of a complaint is on the ultra vires act of a certificate of incorporation that gives juridical personality to a
corporation, that is the complained act of a corporation is corporation and places it within SEC jurisdiction. 10 The case
contrary to its declared corporate purposes, the SEC has of Orosa, Jr. vs. Court of Appeals 11 teaches that this
jurisdiction to entertain the complaint before it.
It must be recalled that the complaint of private respondent
alleged that the articles of incorporation of petitioner
contained this prohibition: "without, however, engaging in
pawnbroking as defined in PD 114" and despite this
restriction, petitioner allegedly continued to actually operate
and do business as a pawnshop. The complaint thus treats of
a violation of petitioners primary franchise. Section 5 of PD
114, the same law invoked by petitioner, mandates that a
corporation desiring to engage in the pawnshop business
must first register with the SEC. Without question, the
complaint filed by private respondent against petitioner called
upon the SEC to exercise its adjudicatory and supervisory
powers. By law, the SEC has absolute jurisdiction, supervision
and control over all corporations that are enfranchised to act
as corporate entities.7 A violation by a corporation of its
franchise is properly within the jurisdiction of the SEC.
articles of incorporation,8 those which may be incidental to
such conferred powers, those reasonably necessary to
accomplish its purposes and those which may be incident to
its existence.9 In the case at bar, the limit of the powers of
petitioner as a corporation is very clear, it is categorically
prohibited from "engaging in pawnbroking as defined under
PD 114". Hence, in determining what constitutes
pawnbrokerage, the relevant law to consider is PD 114. This
reference to PD 114 is also in line with Article 2123 of the Civil
Code that states that:
"Art. 2123. With regard to pawnshops and other
establishments, which are engaged in making loans
secured by pledges, the special laws and regulations
concerning them shall be observed, and subsidiarily, the
provisions of this Title."
Indispensable therefore to the determination of whether or
not petitioner had violated its articles of incorporation, was an
inquiry by the SEC if petitioner was holding out itself to the
public as a pawnshop. It must be stressed that the
determination of whether petitioner violated PD 114 was
merely incidental to the regulatory powers of the SEC, to see We agree with the Court of Appeals that petitioner cannot
to it that a corporation does not go beyond the powers invoke the jurisdiction of the Central Bank in view of its own
granted to it by its articles of incorporation.
the business as a pawnshop. The Court of Appeals correctly
jurisdiction of the SEC is not affected even if the authority to
operate a certain specialized activity is withdrawn by the
appropriate regulatory body other than the SEC. With more
reason that we cannot sustain the submission of petitioner
that a declaration by the Central Bank that it violated PD 114
CORPORATION LAW: 3.a. powers of corps
is a condition precedent before the SEC can take cognizance
of the complaint against petitioner.
Aside from the supervision and control powers granted by
Section 3 of PD 902-A to the SEC, Section 5 thereof provides
that:
"Sec. 5. In addition to the regulatory and adjudicative
functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws
and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving:
a) Devices and schemes employed by or any acts of the
board of directors, business associates, its officers or
partners, amounting to fraud and misrepresentation which
may be detrimental to the interest of the public and/or of
the stockholders, partners, members of associations or
organizations registered with the commission". (Emphasis
ours)
Clearly, the recital in the complaint of private respondent that
petitioner is engaged in the pawnshop business when it is not
authorized to do so by its articles of incorporation amounts to
fraud, detrimental not only to the corporation but also to the
stockholders and the public. The relationship involved in this
controversy is a category of relationship over which the SEC
has exclusive jurisdiction, thus:
"(a) between the corporation, partnership or association
and the public; (b) between the corporation, partnership
or association and its stockholders, partners, members or
officers; (c) between the corporation, partnership or
association and the state in so far as its franchise, permit
or license to operate is concerned; and (d) among the
stockholders, partners or associates themselves". 12
avowal that it is not a pawnshop and neither is it engaged in
"It must be noted that upon close scrutiny, PD No. 114
provides that the supervisory powers of the Central Bank
extends merely to pawnshops registered with it in
accordance with Sec. 6 of the same law. In connection
with this, we take judicial notice of the Rules and
Regulations for Pawnshops (CB Circular No. 374) enacted
pursuant to the authority given to the Central Bank to
Page 6 of 62
 issue rules and regulations to implement the provisions of to the Central Bank was mainly to apprise the latter of the
PD 114, where it provides the following: disposition of the case so that it may accordingly act on it.
Sec. 11. Powers of Pawnshop.- A duly organized and
licensed pawnshop has, in general, the power to
engage in the business of lending money on the
security of personal property within the framework and
limitations of PD No. 114 and this circular, subject to
the regulatory and supervisory powers of the Central
Bank.
Sec. 36. Examination, Inspection, or Investigation. -
The official of the Central Bank in charge of non-bank
financial intermediary and his duly designated
representatives are hereby authorized to conduct an
examination, inspection, or investigation of books,
records, business affairs, administration, and financial
condition of any pawnshop, whenever said official
deems it necessary for the effective implementation of
Presidential Decree No. 114 and of this Circular. xxx
Furthermore, under CB Circular No. 381 providing for the
Procedure For Processing Complaints Against Pawnshops,
it is provided that:
The Monetary Board, Central Bank of the Philippines,
pursuant to its Chapter and Presidential Decree No.
114, entitled, The Pawnshop Regulation Act, has
promulgated the following procedures for processing
complaints against pawnshops;
1. Complaints against pawnshops must be filed with
the Office of Non Bank Financial Intermediaries
(ONBFI), Central Bank of the Philippines, in writing
and signed under oath by the complainant;
The foregoing must have also impelled Director Olaso of
the Central Bank to send private respondent a reply letter
(Exh. C) apprising it that only over pawnshops, and not
lending institutions, does the Central Bank exercise
supervisory powers. Considering that petitioner is
admittedly not a registered pawnshop operator, any
complaint filed against it is not cognizable by the Central
Bank."13 (Emphasis supplied)
The mere fact that a portion of the SEC decision stated that
copies of the same be furnished the Central Bank does not
necessarily mean that the SEC recognized the jurisdiction of
the Central Bank over PD 114 violations. Obviously, the SEC
had already assumed jurisdiction over the case and had in
fact disposed of it, the transmission of a copy of said decision
customers of petitioner and the supposed "promissory note"
between petitioner and its customers were also submitted to
the SEC. The SEC and the Court of Appeals were one in ruling
that the so-called "promissory note" was more of a pawn
Petitioner bewails the alleged violation of substantive due
ticket than an instrument of indebtedness. We see no cogent
process when the SEC rendered the assailed decision based
reason to set aside the factual findings of the SEC, also
on evidence which petitioner claims it did not receive. The
upheld by the Court of Appeals, based on the settled rule that
SEC allegedly reached the conclusion that petitioner is
the findings of fact of the SEC must be respected as long as
engaged in pawnshop activities based on the photographs
they are supported by substantial evidence, as in this case. 15
attached by private respondent to its position paper. The
photographs in question show that petitioner used a billboard
with the inscription "SANGLAAN" in front of its office. The Court of Appeals appreciated the entire evidence,
Petitioner however claims that it was not furnished a copy of consisting of the affidavits, the promissory note and
the position paper of private respondent and that these photographs, in this manner:
photographs were not presented during the hearing before
the PED. Except for said photographs, petitioner points out
"A careful examination and analysis of the records of this
that private respondent did not adduce any other evidence to
case indicates that petitioner has indeed engaged in the
substantiate its claim that petitioner is engaged in pawnshop
business of pawnbroking. It is not argued that petitioner
activities. Petitioner asserts that the photographs cannot be
do (sic) lend money on the security of personal property.
considered as substantial evidence.
What must be observed though are the very prominent
words "SANGLAAN" found on its billboards (Exhs. F and G)
We are not persuaded. Due process is not necessarily which cannot but give the impression to the public that its
tantamount to a full-blown trial. The essence of due process is establishment is more of a pawnshop than a lending
simply the opportunity to be heard or as applied to institution servicing different kinds of loans. The word
administrative proceedings, an opportunity to explain ones "SANGLAAN", especially in big cities, have come to be
side or an opportunity to seek a reconsideration of the ruling associated with pawnshops and it denotes the idea of a
or action taken.14 The records of this case show that petitioner place where one presents personal property for a loan,
was accorded every opportunity to be heard during the which is the exclusive domain of a pawnshop. Thus, the
conference before the PED wherein the parties were required use of such word by petitioner was more calculated to
to file their position papers, and on appeal before the SEC en attract customers who will acquire loans on the security of
banc. personal properties alone. That this activity is in fact
undertaken can be readily deduced from the graphic and
unmistakable set-up (Exhs. J and K) of petitioners place of
Contrary to the claim of petitioner, the Court of Appeals found
business which is a picture of a typical pawnshop where a
that the evidence presented by private respondent was duly
person transacts through small glass openings labeled
appended to the position paper submitted to the PED and to
sangla and tubos. Moreover, the supposed "promissory
the SEC en banc. Assuming arguendo that petitioner was not
note" evidencing a customers transaction with petitioner,
furnished a copy of the photographs, it is now too late in the
is more of a pawnticket than what it represents. We
day for petitioner to raise this matter before us when it could
hereby quote with approval the argument advanced by
have submitted this issue before the hearing officer and the
private respondent on this point.
SEC en banc. The records fail to support petitioners
insistence that it raised this issue before the SEC. In its appeal
before the SEC, petitioner merely harped on the fact that in "1. The contents of the pawnshop tickets issued by
ruling for private respondent, the hearing officer relied only respondent PILIPINAS LOAN as "promissory notes" are
on the photographs without mentioning that petitioner did not basically pawnshop tickets which as provided in the
receive a copy of said photographs. Plainly then, the SEC Pawnshop Regulation Act, PD No. 114 are the following:
could not have addressed this issue for the simple reason that
it was not duly informed of this matter, a situation which was
a) Name and residence of the pawner;
petitioners own making.
b) Date when loan is granted;
We reject petitioners claim that the SEC relied solely on the
photographs in reaching the conclusion that petitioner is
engaged in pawnshop activities. Aside from the questioned c) Amount of the principal loan;
photographs, other evidence such as affidavits of the past
CORPORATION LAW: 3.a. powers of corps Page 7 of 62
 d) Interest rate in percentage;
e) Period of maturity;
f) Description of the pawn
g) Signature of the pawnbroker or his authorized
representative;
h) Signature of the pawner; and
i) Other terms and conditions.
2. The only document required to be executed by the
customers (pawners) of respondent Pilipinas Loan is the
aforesaid "Promissory Loan", which is the only document
also commonly required in pawnshops or "sanglaan";
whereas genuine lending investors require a set of
documents xxx.
3. The respondent Pilipinas Loan always takes possession
of the "pawn" or articles pawned to secure the loan;
whereas, if it is truly operating as a Lending Investor it
does not have to take possession of the article pledged or
mortgaged because the borrowers capacity to pay is
established, normally with a co-maker.
xxx xxx xxx"16
Thus, the totality of the evidence substantially establishes the
conclusion that petitioner contravened its articles of
incorporation when it held itself out to the public as a
pawnshop.
WHEREFORE, in view of the foregoing, the petition is DENIED.
Costs against petitioner.
SO ORDERED.
Development Bank of the Philippines) he constituted a second
mortgage on the same certificate. This second mortgage was
approved by the respondent Commission, subject to the
mortgage lien in favor of petitioner.
The certificate was later sold to Francisco Benitez, Jr., who
resold it to Rodi Taxicab Company. Both sales were made with
assumption of the mortgage in favor of the RFC, and were
also approved provisionally by the Commission, subject to
petitioner's lien.
On October 10, 1953 petitioner filed an action to foreclose the
chattel mortgage executed in its favor by Concepcion (Civil
Case No. 20853 of the Court of First Instance of Manila) in
view of the failure of the latter and his guarantor, Placido
Esteban, to pay their overdue account.
While the above case was pending, the RFC also instituted
foreclosure proceedings on its second chattel mortgage, and
as a result of the decision in its favor therein rendered, the
certificate of public convenience was sold at public auction in
favor of Amador D. Santos for P24,010.00 on August 31,
1956. Santos immediately applied with the Commission for
the approval of the sale, and the same was approved on
January 26, 1957, subject to the mortgage lien in favor of
petitioner.
On June 9, 1958 the Court of First Instance of Manila rendered
judgment in Civil Case No. 20853, amended on August 1,
1958, adjudging Concepcion indebted to petitioner in the sum
of P15,197.84, with 12% interest thereon from December 2,
1941 until full payment, plus other assessments, and ordered
that the certificate of public convenience subject matter of
the chattel mortgage be sold at public auction in accordance
with law. Accordingly, on March 3, 1959 said certificate was
sold at public auction to petitioner, and six days thereafter
the Sheriff of the City of Manila issued in its favor the
G.R. No. L-17716 July 31, 1962 corresponding certificate of sale. Thereupon petitioner filed
the application mentioned heretofore for the approval of the
LUNETA MOTOR COMPANY, petitioner, vs. A.D. SANTOS, sale. In the meantime and before his death, Amador D. Santos
INC., ET AL., respondents. sold and transferred (Commission Case No. 1272231) all his
rights and interests in the certificate of public convenience in
Jose Agbulos for petitioner.
question in favor of the now respondent A.D. Santos, Inc., who
Graciano C. Regala and Angel A. Sison for respondents.
opposed petitioner's application.
DIZON, J.:
The record discloses that in the course of the hearing on said
Appeal from the decision of the Public Service Commission in application and after petitioner had rested its case, the
case No. 123401 dismissing petitioner's application for the respondent A. D. Santos, Inc., with leave of court, filed a
approval of the sale in its favor, made by the Sheriff of the motion to dismiss based on the following grounds:
City of Manila, of the certificate of public convenience granted
a) under the petitioner's Articles of Incorporation, it was
before the war to Nicolas Concepcion (Commission Cases Nos.
not authorized to engage in the taxicab business or
60604 and 60605, reconstituted after the war in Commission
operate as a common carrier;
Case No. 1470) to operate a taxicab service of 27 units in the
City of Manila and therefrom to any point in Luzon. b) the decision in Civil Case No. 20853 of the Court of
First Instance of Manila did not affect the oppositor nor
It appears that on December 31, 1941, to secure payment of
its predecessor Amador D. Santos inasmuch as neither of
a loan evidenced by a promissory note executed by Nicolas
them had been impleaded into the case;
Concepcion and guaranteed by one Placido Esteban in favor
of petitioner, Concepcion executed a chattel mortgage c) that what was sold to the petitioner were only the
covering the above mentioned certificate in favor of "rights, interests and participation" of Nicolas Concepcion
petitioner. in the certificate that had been granted to him which
were no longer existing at the time of the sale.
To secure payment of a subsequent loan obtained by
Concepcion from the Rehabilitation Finance Corporation (now
CORPORATION LAW: 3.a. powers of corps Page 8 of 62
On October 18, 1960, the respondent Commission, after could not thus engage in the line of business, it follows that it an electric plant in its factory site at Teresa, Rizal, for a period
considering the memoranda submitted by the parties, may not acquire an certificate of public convenience to of fifty years from June 26, 1958. By resolution of September
rendered the appealed decision sustaining the first ground operate a taxicab service, such as the one in question, 11, 1963, We denied petitioner's petition for the issuance of a
relied upon in support thereof, namely, that under petitioner's because such acquisition would be without purpose and writ of preliminary mandatory and prohibitory injunction
articles of incorporation it had no authority to engage in the would have no necessary connection with petitioner's restraining the Commission from enforcing its decision during
taxicab business or operate as a common carrier, and that, is legitimate business. the pendency of the appeal.
a result, it could not acquire by purchase the certificate of
In view of the conclusion we have arrived at on the decisive The Teresa Electric Light and Power Co., Inc. hereinafter
public convenience referred to above. Hence, the present
issue involved in this appeal, we deem it unnecessary to referred to as petitioner is a domestic corporation
appeal interposed by petitioner who claims that, in
resolve the other incidental questions raised by petitioner. operating an electric plant in Teresa, Rizal, under a subsisting
accordance with the Corporation Law and its articles of
certificate of public convenience and necessity issued on June
incorporation, it can acquire by purchase the certificate of WHEREFORE, the appealed decision is affirmed, with costs.
2, 1960 (PSC Case No. 129940), while the respondent Filipinas
public convenience in question, maintaining inferentially that,
is likewise a domestic corporation engaged in the
after acquiring said certificate, it could make use of it by
manufacture and sale of cement.
operating a taxicab business or operate is a common carrier
by land. On May 24, 1962 Filipinas filed an application with the Public
Service Commission for a certificate of public convenience to
There is no question that a certificate of public convenience
install, maintain and operate an electric plant in sitio
granted to the public operator is liable to execution
Kaysapon of barrio Pamanaan, municipality of Teresa, Rizal,
(Raymundo vs. Luneta Motor Co., 58 Phil. 889) and may be
for the purpose of supplying electric power and light to its
acquired by purchase. The question involved in the present
cement factory and its employees living within its compound.
appeal, however, is not only whether, under the Corporation
Law and petitioner's articles of incorporation, it may acquire Petitioner filed its written opposition alleging: that it is the
by purchase a certificate of public convenience, such as the duly authorized operator of an electric light, heat and power
one in question, but also whether, after its acquisition, service in Teresa, Rizal; that Filipinas is not authorized by its
petitioner may hold the certificate and thereunder operate as articles of incorporation to operate an electric plant; that the
a common carrier by land. Municipal Council of Teresa had not authorized it either to
operate the proposed service; that it is willing to supply
It is not denied that under Section 13 (5) of the Corporation
Filipinas' need for electricity; and that Filipinas' principal
Law, a corporation created thereunder may purchase, hold,
business does not come within the jurisdiction of the
etc., and otherwise deal in such real and personal property is
respondent Commission.
the purpose for which the corporation was formed may
permit, and the transaction of its lawful business may Answering the opposition, Filipinas averred that, under
reasonably and necessarily require. The issue here is paragraph 7 of its articles of incorporation, it is authorized to
precisely whether the purpose for which petitioner was operate the proposed electric plant; that there is no need for
organized and the transaction of its lawful business securing the approval of the Municipal Council before
reasonably and necessarily require the purchase and holding operating its electric plant as this is not a necessary requisite
by it of a certificate of public convenience like the one in for the issuance of a certificate of public convenience
question and thus give it additional authority to operate inasmuch as it already possesses the 3 basic requirements of
thereunder as a common carrier by land. law namely: Filipino citizenship, financial capacity and the
need for the service in the interest and convenience of the
Petitioner claims in this regard that its corporate purposes are
consuming public.
to carry on a general mercantile and commercial business,
etc., and that it is authorized in its articles of incorporation to During the hearings before the Commission Filipinas
operate and otherwise deal in and concerning automobiles presented its evidence and petitioner's counsel cross-
and automobile accessories' business in all its multifarious examined the witnesses. Upon the resumption of the hearing
ramification (petitioner's brief p. 7) and to operate, etc., and on December 17, 1962, petitioner's counsel filed an urgent
otherwise dispose of vessels and boats, etc., and to own and motion for the postponement of the presentation of its
operate steamship and sailing ships and other floating craft G.R. No. L-21804 September 25, 1967 evidence that day alleging that he was to attend a
and deal in the same and engage in the Philippine Islands and preliminary hearing at Caloocan City. As the date agreed upon
elsewhere in the transportation of persons, merchandise and TERESA ELECTRIC AND POWER CO., INC., petitioner, vs.
by the parties was set only after the attorneys for the parties
chattels by water; all this incidental to the transportation ofPUBLIC SERVICE COMMISSION and FILIPINAS CEMENT
had consulted their respective calendars, the Commission, in
automobiles (id. pp. 7-8 and Exhibit B). CORPORATION, respondents.
open court, denied said motion and considered the
We find nothing in the legal provision and the provisions of Lino B. Azicate & Associates for petitioner. application as submitted for resolution.
petitioner's articles of incorporation relied upon that could G. A. Borja for respondents. Upon consideration of the evidence, oral and documentary,
justify petitioner's contention in this case. To the contrary, adduced by Filipinas to the effect that the proposed electric
they are precisely the best evidence that it has no authority service will be limited to the exclusive needs of its cement
at all to engage in the business of land transportation and DIZON, J.: factory and to give light facilities to its employees living in the
operate a taxicab service. That it may operate and otherwise This is a petition to review and set aside the decision of the compound only, without adversely affecting the interests and
deal in automobiles and automobile accessories; that it may Public Service Commission dated March 15, 1963 in Case No. services of petitioner; that like the latter, Filipinas will not
engage in the transportation of persons by water does not 62-3521 granting to the Filipinas Cement Corporation generate its own electric current but buy it from the
mean that it may engage in the business of land hereinafter referred to as Filipinas a certificate of public MERALCO; and that no municipal streets will be traversed by
transportation an entirely different line of business. If it convenience and necessity to establish, maintain and operate its electric wires and posts except small portions of private

CORPORATION LAW: 3.a. powers of corps Page 9 of 62

properties, the Commission, pursuant to section 15 of authority to secure from any governmental, state,
Commonwealth Act 146, as amended, issued a certificate of municipality, or provincial, city or other authority, and to
G.R. No. 100468 May 6, 1997
public convenience to it on March 15, 1963, subject to the utilize and dispose of in any lawful manner, rights, powers,
conditions set forth therein.1awphl.nt privileges, franchises and concessions obviously necessary LAUREANO INVESTMENT & DEVELOPMENT
or at least related to the operation of its cement factory. CORPORATION, petitioner, vs. THE HONORABLE COURT
Petitioner filed a motion to set aside the above decision and
Moreover, said Articles of Incorporation also provide that the OF APPEALS and BORMAHECO, INC., respondents.
re-open the case but the same was denied en banc on August
corporation may generally perform any and all acts connected
12, 1963. Hence the instant petition for review filed on
with the business of manufacturing portland cement or
September 9 of the same year.
arising therefrom or incidental thereto. PANGANIBAN, J.:
Considering the assignment of errors made in petitioner's
It can not be denied that the operation of an electric light, May a plaintiff/petitioner which purports to be a corporation
brief, the following are the questions to be resolved in this
heat and power plant is necessarily connected with the validly bring suit under a name other than that registered
appeal: firstly, whether or not Filipinas should have secured
business of manufacturing cement. If in the modern world with the Securities and Exchange Commission?
either a municipal or legislative franchise before it could be
where we live today electricity is virtually a necessity for our
entitled to a certificate of public convenience and necessity to In this petition for review on certiorari under Rule 45 of the
daily needs, it is more so in the case of industries like the
operate and maintain an electric plant; secondly, whether Rules of Court, petitioner seeks the reversal of the
manufacture of cement.
under its articles of incorporation Filipinas is authorized to Decision 1 of the Court of Appeals 2 in CA-G.R. SP No. 22763,
operate and maintain an electric plant; and lastly, whether Upon the last question, petitioner claims that Filipinas is not promulgated on February 28, 1991, which resolved the above
Filipinas could be granted a certificate of public convenience entitled to a certificate of public convenience to maintain and question in the negative; and its Resolution 3 promulgated on
and necessity to operate and maintain an electric plant operate electric service for its cement plant and its June 10, 1991, denying petitioner's motion for
notwithstanding the existence of an electric plant operator in employees because petitioner is operating an electric plant in reconsideration. The assailed Decision upheld the following
the same municipality. the same municipality where Filipinas cement plant is located. questioned orders of the Regional Trial Court of Makati,
4
In relation to the first question petitioner contends that under While it is true that operators of public convenience and Branch 141: (1) the Order dated September 8, 1989, ruling
the provisions of Act No. 667 of the Philippine Commission, a service deserve some protection from unnecessary or that "Lideco Corporation" (the name under which herein
municipal or legislative franchise is a condition precedent to unlawful competition, yet the rule is that nobody has any petitioner represented itself 5
before the trial court) lacked
the granting to Filipinas of a certificate of public convenience exclusive right to secure a franchise or a certificate of public personality to intervene; (2) the Order dated May 7, 1990,
and necessity to operate and maintain an electric plant. convenience. Above any or all considerations, the grant of denying the motion of petitioner to take the place of "Lideco
franchises and certificates of public convenience and service Corporation" as party-intervenor and adopt 6 the latter's
Section 1 of the act mentioned above requires the filing of a
should be guided by public service and interest; the latter are complaint in intervention and other pleadings; and (3) the
formal application with the Council of the municipality in Order dated August 8, 1990, which denied the motion for
the primordial considerations to be taken into account.
which or through which the petitioner desires to construct or reconsideration of petitioner. 7
maintain its line, stating, among other things, the rate per Moreover, it has been established in this case that petitioner
month to be charged for electric light by lamp of specified was in no condition to supply the power needs of Filipinas, The Facts
standard candle-power, and by amount of electricity because its load capacity was only 200 kilowatts while The antecedents of this petition are summarized by the
consumed where a meter is used, and the rate per centum of Filipinas was in need of 6,000 Kilowatts power to operate its Respondent Court as follows:
the gross receipts which petitioner is willing to pay into the cement factory.
provincial treasury for the franchise. Paragraphs 2 and 3, The records show that spouses Reynaldo Laureano and
IN VIEW OF THE FOREGOING, the decision appealed from is Florence Laureano are majority stockholders of petitioner
section 2 of the same act also provide that not less than one-
affirmed, with costs. Corporation who entered into a series of loan and credit
half of one per centum of the gross earnings shall be paid into
the provincial treasury, and that the rates to be charged shall transactions with Philippine National Cooperative Bank
always be subject to regulations by act of the Philippine (PNCB for short). To secure payment of the loans, they
Commission or the legislative body of the Islands. executed Deeds of Real Estate Mortgage dated
December 11, 1962, January 9, 1963, July 2, 1963 and
The above requirements show that the act was intended to September 5, 1964, for the following amounts:
apply exclusively to any person or corporation who desires a P100,000.00, P20,000.00, P70,000.00 and P13,424.04,
franchise to construct and maintain an electric line or power respectively. In view of their failure to pay their
plant and line for business purposes, that is, to render service indebtedness, PNCB applied for extrajudicial foreclosure
to the general public at such rate of compensation as may be of the real estate mortgages. The bank was the
approved and regulated by the government. Clearly, purchaser of the properties in question in the foreclosure
therefore, it should not be made to apply to Filipinas who sale and titles thereof were consolidated in PNCB's name
applied for a certificate of public convenience and service to on February 20, 1984. PNCB did not secure a writ of
operate and maintain an electric plant exclusively for its own possession nor did it file ejectment proceedings against
use in connection with the operation of its cement factory and the Laureano spouses, because there were then pending
for the use of its employees living within the compound of the cases, such as . . . involving the titles of ownership of
factory the latter to receive service free of charge. subject two lots, which are situated at Bel-Air
It is, consequently, our view that all that Filipinas needs for Subdivision[,] Makati, Metro Manila.
the purpose above mentioned is a certificate of public G.R. No. L-48064 May 9, 1988 Private respondent Bormaheco, Inc. became the
convenience and necessity such as the one granted to it by successor of the obligations and liabilities of PNCB over
the respondent Public Service Commission. ANTHONY POWERS, et. al., vs. DONALD I. MARSHALL,
et. al. subject lots by virtue of a Deed of Sale/Assignment on
In relation to the second question, it appears that the Articles September 26, 1988 wherein Bormaheco bought from
of Incorporation of Filipinas (paragraph 7) provide for see cases on : 2.I Power/Authority of the Board of Directors PNCB under a bulk sale 114 titled and untitled properties
including the two parcels of land in question, formerly

CORPORATION LAW: 3.a. powers of corps Page 10 of 62

registered in the name of the Laureano spouses. Transfer
Certificate of Title Nos. 157724 and 157725 over the lots
in question were issued on October 12, 1988 in the name
of Bormaheco.
Five (5) days after securing titles over the said
properties, Bormaheco filed an "Ex-Parte Petition for the
Issuance of Writ of Possession of Lots 4 and 5, Block 4
situated at Bel-Air Village, Makati, Metro Manila and
embraced in TCT Nos. 157724 and 157725 of the
Registry of Deeds of Makati, Metro Manila," docketed as
LRC Case No. M-1530 before respondent Court. Petitioner
Corporation filed on January 18, 1989 its Motion for
Intervention and to Admit Attached Complaint in
Intervention in said case. After an exchange of pleadings,
respondent Court issued its order dated February 9,
1988, which reads:
There being a prima facie showing in the attached
complaint in intervention that herein intervenor
LIDECO CORPORATION has an interest which may
eventually and adversely be affected in whatever
decision the Court may render in the instant case; to
enable the parties concerned to properly ventilate
and litigate all the issues involving the subject
property thereby avoid multiplicity of suits, and in
the interest of justice, the Motion for Intervention,
filed by LIDECO CORPORATION is hereby GRANTED;
and the attached complaint in intervention
ADMITTED.
On July 26, 1989, respondent Bormaheco filed its Motion
to Strike out the Complaint in Intervention and all related
pleadings filed by LIDECO Corporation. The motion was
granted in the first questioned order dated September 8,
1989, which reads:
xxx xxx xxx
On the instant motion, the records show that
LIDECO Corporation appeared thru counsel and filed
its complaint in intervention, representing therein
that it is a corporation duly organized and registered
in accordance with law.
The Corporation Code explicitly provides that the
use of the word corporation presupposes that an
entity is duly registered (with the SEC) in
accordance with law.
Intervening in the instant petition, with the use of
the name LIDECO Corporation, the latter, in effect,
represents to this court that it is a corporation
whose personality is distinct and separate from its
stockholders and/or any other corporation bearing
different names. Hence, herein intervenor LIDECO
Corporation and LAUREANO INVESTMENT AND
DEVELOPMENT CORPORATION, to the mind of this
Court, are two (2) separate and distinct entities.
Inasmuch as the documents in support of its
complaint in intervention tax declarations are
in the names of Laureano Investment and
Development Corporation, and it appearing that
LIDECO Corporation is not a corporation or
CORPORATION LAW: 3.a. powers of corps
partnership duly organized and registered with the
SEC, there is, therefore, no way whatsoever that
LIDECO Corporation's interests will be adversely
affected by the outcome of the instant case.
WHEREFORE, for intervenor's lack of personality to
intervene in the instant proceedings, petitioner's
motion to strike out complaint in intervention is
hereby GRANTED.
Accordingly, all pleadings filed relative thereto are
ordered expunged from the records.
xxx xxx xxx
After the issuance of the above-cited order,
petitioner Corporation filed on October 4, 1989, its
Urgent Motion to Substitute Party Intervenor and to
Adopt Complaint in Intervention and All Pleadings.
An opposition thereto was filed by BORMAHECO,
after which the lower court issued its second
questioned order quoted below:
xxx xxx xxx
The court has painstakingly examined the two (2)
tax declarations and has found out that the said tax
declarations refer to two houses erected on Lot 3,
Block 4 and Lot 3, Block 4 of the Bel-Air Village,
Makati, Metro Manila. On the other hand, the subject
matter of the instant petition are Lot 4, Block 4 and
Lot 5, Block 4 of Bel-Air Village, Makati, Metro
Manila. Clearly, therefore, the properties upon which
the herein movant-corporation has interests refer to
properties different from those subject of the instant
petition.
Not only that. As correctly pointed out by the
petitioner, the afore-mentioned tax declarations
according to the records of the Makati Assessor's
Office were canceled on July 22, 1982 or five (5)
years, two (2) months and four (4) days before the
petitioner (BORMAHECO) purchased from the
Philippine National Cooperative Bank the two (2) lots
and the improvements found thereon evidenced by
the copies of Tax Declaration Nos. A-002-00512 and
6103 attached as Annexes A and B respectively to
the petitioner's rejoinder dated October 26, 1989.
The movant-corporation not having shown
documentary evidence showing that it has interest
on the two lots subject of the complaint and the
improvements found therein, it has, therefore, no
personality to file the instant motion. . . .
There is yet another reason why the motion should not
be granted. The movant corporation's request to be
substituted as party intervenor is not one of the
instances provided for in Sec. 20, Rule 3 of the Rules of
Court. Substitution of party litigant may be requested in
the following:
(a) When a party dies and the claim is not extinguished,
upon proper motion, the Honorable Court may order the
legal representative of the deceased to appear and to be
substituted for the deceased within the period of thirty
(30) days or within such time as may be granted. (Sec.
17, Rule 3, Rules of Court)
(b) In case of any transfer of interest, upon motion, the
Honorable Court may direct the person to whom the
interest is transferred to be substituted in the action or
joined with the original party. (Sec. 20, Rule 30 [should
be Rule 3], supra.)
which is not so in the case.
xxx xxx xxx
WHEREFORE, in view of the foregoing
considerations, the motions under consideration are
hereby DENIED.
A Motion for Reconsideration of the above-cited order
was
denied by respondent Court in its third questioned order
dated August 8, 1990, . . . 8
In likewise denying the petition of Laureano Investment and
Development Corporation (petitioner corporation),
Respondent Court ratiocinated:
Petitioner Corporation contends that respondent
Bormaheco's motion to strike out the complaint in
intervention and all related pleadings filed by LIDECO
Corporation was based on misleading and confusing
assertions that LIDECO Corporation is not a registered
corporation despite its admission and/or use of the word
LIDECO as acronym for Laureano Investment and
Development Corporation. The contention is untenable.
BORMAHECO has shown that LIDECO Corporation is not
organized and existing under Philippine laws. Neither has
it been registered with the Securities and Exchange
Commission. In support of said claim, BORMAHECO
presented a certification to the effect that the records of
the Commission do not show the registration of LIDECO,
INC. either as a corporation or as partnership.
Petitioner also contends that the motion . . . should have
been denied outright because it was filed in bad faith
and without legal and factual basis. On the contrary,
from the very first motion and pleading filed by petitioner
in LRC No. M-1530 pending before respondent Court, it is
very clear that the intervenor therein is LIDECO
Corporation. Nowhere in its complaint does it appear that
LIDECO Corporation is the brevity or acronym for
Laureano Investment and Development Corporation. The
claim that Lideco Corporation is the name of a
corporation which is duly registered and organized in
accordance with law has been belied by the absence of
SEC record showing the registration of Lideco, Inc. either
as corporation or as a partnership. It was only when
intervenor (petitioner herein) filed its opposition to the
motion to strike out that it clarified that Lideco
Corporation is the acronym for Laureano Investment and
Development Corporation.
xxx xxx xxx
Moreover, even assuming that Lideco Corporation and
Laureano Investment and Development Corporation are
one and the same, it was found by respondent Court that
Page 11 of 62
 the properties being claimed by petitioner are different enumerates a string of civil actions allegedly commenced by Development Corporation. It is obvious that no false
from those for which private respondent is seeking the the Laureano spouses before the trial court as well as representation or concealment can be attributed to private
issuance of a writ of possession; hence, the complaint in petitions before the appellate court concerning the properties respondent. Neither can it be charged with conveying the
intervention was correctly dismissed. 9 in question. As a result, Bormaheco claims, an "issue which impression that the facts are other than, or inconsistent with,
could have been laid to rest in 1967 is still being litigated." those which it now asserts since LIDECO, as an acronym, is
In conclusion, the appellate court said:
Furthermore, in an omnibus motion 16 filed on February 11, clearly different from "Lideco Corporation" which represented
We, therefore, fail to see the alleged grave abuse of 1997, private respondent claims that it is being unduly itself as a corporation duly registered and organized in
discretion on the part of respondent Court in issuing the deprived of rental income by as much as P40,000.00 a month accordance with law. 22 Nor can it be logically inferred that
questioned orders, as they were issued after the Court for each property, or a total of eight million pesos since 1988. petitioner relied or acted upon such representation of private
had considered the arguments of the parties and the On the other hand, it claims to have been assessed for and to respondent in thereafter referring to itself as "Lideco
evidence on record. Clearly, the lower court acted within have actually paid real estate taxes and Bel-Air Village Corporation;" for petitioner is presumed to know by which
its authority and sound discretion in issuing the said Association dues since such date name it is registered, and the legal provisions on the use of its
orders. 10 corporate name.
The Court's Ruling
Petitioner's motion for reconsideration of the above ruling Section 1, Rule 3 of the Rules of Court provides that only
The petition is not meritorious.
was, as earlier stated, denied by Respondent Court in its natural or juridical persons or entities authorized by law may
Resolution 11 promulgated on June 10, 1991. Hence, this Petitioner's Issues: be parties to a civil action. Under the Civil Code, a corporation
petition. has a legal personality of its own (Article 44), and may sue or
Estoppel be sued in its name, in conformity with the laws and
Issues regulations of its organization (Article 46). 23Additionally,
Petitioner contends that it was private respondent which first
Petitioner raises for resolution the following questions: made use of LIDECO as a shorter term for Laureano Article 36 of the Corporation Code similarly provides:
Investment and Development Corporation when it filed its Art. 36. Corporate powers and capacity. Every
1. Whether Respondent Bormaheco, Inc. is estopped from
first motion to strike dated January 9, 1989, 17 prior to the corporation incorporated under this Code has the power
contesting the legal personality to sue of "Lideco
filing by "Lideco Corporation" of its motion for intervention and capacity:
Corporation";
and complaint in intervention 18 on January 18, 1989. Hence,
2. Whether bad faith attended the filing of private private respondent should be considered estopped from 1. To sue and be sued in its corporate name;
respondent's motion to strike out the complaint in denying that petitioner and "Lideco Corporation" are one and . . . (emphasis supplied)
intervention and related pleadings. 12 the same corporation.
As the trial and appellate courts have held, "Lideco
Petitioner contends that private respondent is estopped from, The equitable doctrine of estoppel was explained by this
Corporation" had no personality to intervene since it had not
and is in bad faith for, denying its knowledge that "Lideco Court in Caltex (Philippines), Inc. vs. Court of Appeals19:
been duly registered as a corporation. If petitioner legally and
Corporation" and Laureano Investment and Development
Under the doctrine of estoppel, an admission or truly wanted to intervene, it should have used its corporate
Corporation are one and the same entity since it has
representation is rendered conclusive upon the person name as the law requires and not another name which it had
previously used LIDECO as an acronym for the latter
making it, and cannot be denied or disproved as against not registered. Indeed, as the Respondent Court found,
corporation.
the person relying thereon. A party may not go back on nowhere in the motion for intervention and complaint in
Private respondent submitted a lengthy (sixty-page) amended his own acts and representations to the prejudice of the intervention does it appear that "Lideco Corporation" stands
comment 13 to the petition, giving a detailed background to other party who relied upon them. In the law of evidence, for Laureano Investment and Development Corporation.
the instant case including various actions allegedly whenever a party has, by his own declaration, act, or Bormaheco, Inc., thus, was not estopped from questioning the
commenced by the Spouses Laureano questioning the omission, intentionally and deliberately led another to juridical personality of "Lideco Corporation," even after the
foreclosure of the subject properties. In sum, Bormaheco, Inc. believe a particular thing true, to act upon such belief, he trial court had allowed it to intervene in the case.
maintains that Respondent Court did not commit reversible cannot, in any litigation arising out of such declaration,
Granting arguendo that the name "Lideco Corporation" could
error in disallowing "Lideco Corporation" to intervene for the act, or omission, be permitted to falsify it. (footnotes
be used by petitioner corporation in its motion, there is an
reason that said entity did not satisfy the essential requisites omitted)
even more cogent reason for denying the petition. The trial
for being a party to an action, to wit: (1) natural or juridical 20 court concluded, and we have no reason to disagree, that the
We elaborated in Maneclang vs. Baun :
personality; (2) legal capacity to sue or be sued, i.e., having intervention of Lideco or petitioner corporation was not
all the qualifications and none of the disqualifications In estoppel by pais, as related to the party sought to be proper because neither had any legal interest in the subject of
provided for by law; and (3) real interest in the subject matter estopped, it is necessary that there be a concurrence of litigation. The evidence (tax declarations) attached to the
of the action. 14 the following requisites: (a) conduct amounting to false petition for intervention and the complaint for intervention
representation or concealment of material facts or at pertained to properties not being litigated in the instant case.
Private respondent adds that petitioner corporation is merely
least calculated to convey the impression that the facts Lideco and petitioner corporation both claimed to have an
an alter ego of the Laureano spouses who have lost their
are otherwise than, and inconsistent with, those which interest in two houses constructed in Lot 3, Block 4 in Bel Air
rights over the subject properties in favor of Bormaheco's
the party subsequently attempts to assert; (b) intent, or Village, Makati. 24 The subject matter of the instant petition,
predecessor-in-interest, the Philippine National Cooperative
at least expectation that this conduct shall be acted on the other hand, are Lots 4 and 5, Block 4, of Bel Air Village.
Bank (PNCB), by virtue of extrajudicial foreclosures.
upon, or at least influenced by the other party; and (c) This factual finding was affirmed by the Court of Appeals.
Petitioner's motion to intervene in the case below is just
knowledge, actual or constructive of the actual facts."
another ploy of the spouses to prevent subsequent owners Since the conclusion of the trial and appellate courts is based
(citing Kalalo vs. Luz, 34 SCRA 337, 1974)
from effectively exercising their rights of ownership over the on facts, and since the Supreme Court is not a trier of facts
properties. Examining the records of the case, we observe that the our function not being to examine and evaluate the evidence
21
motion adverted to indeed made use of LIDECO as an presented to the concerned tribunal which formed the basis of
Private respondent also filed before us a motion 15 to declare
acronym for Laureano Investment and Development its questioned decision, resolution or order 25 it is clear that
petitioner as engaged in forum shopping and to resolve the
Corporation. But said motion distinctly specified that LIDECO we cannot review such holding. We note further that
instant petition. In support of its motion, private respondent
was the shorter term for Laureano Investment and

CORPORATION LAW: 3.a. powers of corps Page 12 of 62

petitioner has failed to show that the factual findings of the
trial and appellate courts were arbitrary and/or constituted
one of the exceptions allowing review by this Court. 26
Bad Faith
(B)ad faith implies a conscious and intentional design to
do a wrongful act for a dishonest purpose or moral
obliquity; . . . bad faith contemplates a state of mind
affirmatively operating with furtive design or ill will. 27
Other than its bare allegations that private respondent acted
in bad faith, petitioner failed to show that the former acted
consciously and deliberately to achieve a dishonest purpose
or moral obliquity, or was motivated by ill will. Rather, as
discussed above, no false representation was contrived nor
concealment made by private respondent. Neither did it
deliberately convey facts other than, or inconsistent with,
what it now asserts and upon which petitioner had relied or
acted upon due to the representations of private respondent.
Hence, we hold that petitioner failed to demonstrate that
private respondent acted in bad faith in filing its assailed
second motion.
Private Respondent's Issue:
Forum Shopping
Private respondent, in turn, accuses petitioner and/or its
chairman of the board and majority stockholder, Reynaldo
Laureano, of forum shopping, alleging that both have
improperly instituted a string of cases through deliberate
splitting of causes of action thereby trifling with the courts
and abusing their processes.
There is forum shopping whenever, as a result of an adverse
opinion in one forum, a party seeks a favorable opinion (other
than appeal or certiorari) in another, 28 raising identical
causes of action, subject matter, and issues. 29 However,
private respondent, other than the enumeration in its
motion 30 of the case number and titles, nature of the actions
and decisions therein, failed to substantiate its allegations. It
did not show convincingly that the cases enumerated had
identical causes of action, subject matter and issues. From its
bare assertions, the Court cannot intelligently make a valid
finding of whether petitioner, indeed, engaged in forum
shopping. In any event, a ruling on this issue is not necessary The factual background of this case is as follows:
to the final resolution of the entire case.
WHEREFORE, premises considered, the petition is hereby of Concord-World Properties, Inc., (Concord for brevity), a
DENIED for its failure to show any reversible error on the part domestic corporation, filed an affidavit-complaint with the On September 14, 1995, the trial court disposed of the action
of Respondent Court. The questioned Decision of the Court of Quezon City Prosecutor's Office, charging Vic Ang Siong with as follows:
Appeals is AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 122452 January 29, 2001
TAM WING TAK, petitioner, vs. HON. RAMON P.
MAKASIAR (in his Capacity as Presiding Judge of the
Regional Trial Court of Manila, Branch 35) and ZENON
DE GUIA (in his capacity as Chief State
Prosecutor), respondents.
QUISUMBING, J.:
This is a petition for review on certiorari of the decision of the
Regional Trial Court of Manila, Branch 35, dated September
14, 1995, which dismissed herein petitioner's special civil
action for mandamus and sustained the Letter-Order of
respondent Chief State Prosecutor. The latter dismissed
petitioner's appeal from the resolution of the City Prosecutor
of Quezon City, which, in turn, dismissed petitioner's
complaint against Vic Ang Siong for violation of the Bouncing
Petitioner then filed Civil Case No. 95-74394 for mandamus
Checks Law or B.P. Blg. 22.
with the Regional Trial Court of Quezon City to compel the
Chief State Prosecutor to file or cause the filing of an
information charging Vic Ang Siong with violation of B.P. Blg.
On November 11, 1992, petitioner, in his capacity as director 22.
violation of B.P. Blg. 22. Docketed by the Prosecutor as I.S. No.
93-15886, the complaint alleged that a check for the amount
of P83,550,000.00, issued by Vic Ang Siong in favor of
Concord, was dishonored when presented for encashment.
Vic Ang Siong sought the dismissal of the case on two
grounds: First, that petitioner had no authority to file the case
on behalf of Concord, the payee of the dishonored check,
since the firm's board of directors had not empowered him to
act on its behalf. Second, he and Concord had already agreed
to amicably settle the issue after he made a partial payment
of P19,000,000.00 on the dishonored check.1wphi1.nt
CORPORATION LAW: 3.a. powers of corps
On March 23, 1994, the City Prosecutor dismissed I.S. No. 93-
15886 on the following grounds: (1) that petitioner lacked the
requisite authority to initiate the criminal complaint for and
on Concord's behalf; and (2) that Concord and Vic Ang Siong
had already agreed upon the payment of the latter's balance
on the dishonored check.
A copy of the City Prosecutor's resolution was sent by
registered mail to petitioner in the address he indicated in his
complaint-affidavit. Notwithstanding that petitioner was
represented by counsel, the latter was not furnished a copy of
the resolution.
On June 27, 1994, petitioner's counsel was able to secure a
copy of the resolution dismissing I.S. No. 93-15886. Counting
his 15-day appeal period from said date, petitioner moved for
reconsideration on July 7, 1994.
On October 21, 1994, the City Prosecutor denied petitioner's
motion for reconsideration. Petitioner's counsel received a
copy of the denial order on November 3, 1994.
On November 7, 1994, petitioner's lawyer filed a motion to
extend the period to appeal by an additional 15 days counted
from November 3, 1994 with the Chief State Prosecutor. He
manifested that it would take time to communicate with
petitioner who is a Hong Kong resident and enable the latter
to verify the appeal as procedurally required.
On November 8, 1994, petitioner appealed the dismissal of
his complaint by the City Prosecutor to the Chief State
Prosecutor. The appeal was signed by petitioner's attorney
only and was not verified by petitioner until November 23,
1994.
On December 8, 1994, the Chief State Prosecutor dismissed
the appeal for having been filed out of time. Petitioner's
lawyer received a copy of the letter-resolution dismissing the
appeal on January 20, 1995.
On January 30, 1995, petitioner moved for reconsideration.
On March 9, 1995, respondent Chief State Prosecutor denied
the motion for reconsideration.
WHEREFORE, for utter lack of merit, the petition for
mandamus of petitioner is DENIED and DISMISSED.
SO ORDERED.1
Petitioner moved for reconsideration, but the trial court
denied this motion in its order dated October 24, 1995.
Hence, the instant petition.
Before this Court, petitioner claims respondent judge
committed grave errors of law in sustaining respondent Chief
State Prosecutor whose action flagrantly contravenes: (1) the
established rule on service of pleadings and orders upon
Page 13 of 62
parties represented by counsel; (b) the basic principle that proceeding,7 nonetheless, it is not a court proceeding and perform a duty mandated by law. 16 Thus, mandamus may
except in private crimes, any competent person may initiate a hence, falls outside of the ambit of the Rules of Court. issue to compel a prosecutor to file an information when he
criminal case; and (3) the B.P. Blg. 22 requirement that refused to do so in spite of the prima facie evidence of guilt.17
We agree with petitioner that there is no "generally accepted
arrangement for full payment of a bounced check must be
practice" in the service of orders, resolutions, and processes, Petitioner takes the stance that it was grave abuse for
made by the drawer with the drawee within five (5) banking
which allows service upon either the litigant or his lawyer. As discretion on the part of respondent Chief State Prosecutor to
days from notification of the check's dishonor.2
a rule, notice or service made upon a party who is sustain the dismissal of I.S. No. 93-15886 on the grounds that:
We find pertinent for our resolution the following issues: represented by counsel is a nullity, 8 However, said rule admits (1) Vic Ang Siong's obligation which gave rise to the bounced
of exceptions, as when the court or tribunal order service check had already been extinguished by partial payment and
(1) Was there valid service of the City Prosecutor's
upon the party9 or when the technical defect is waived.10 agreement to amicably settle balance, and (2) petitioner had
resolution upon petitioner?
no standing to file the criminal complaint since he was neither
To resolve the issue on validity of service, we must make a
(2) Will mandamus lie to compel the City Prosecutor to the payee nor holder of the bad check. Petitioner opines that
determination as to which is the applicable rule the on
file the necessary information in court? neither ground justifies dismissal of his complaint.
service in the Rules of Court, as petitioner insists or the rule
In upholding respondent Chief State Prosecutor, the court a on service in DOJ Order No. 223? Petitioner's stand is unavailing. Respondent Chief State
quo held: Prosecutor in refusing to order the filing of an information for
The Rules of Court were promulgated by this Court pursuant
violation of B.P. Blg. 22 against Vic Ang Siong did not act
It is generally accepted principle in the service of orders, to Section 13, Article VII of the 1935 Constitution 11(now without or in excess of jurisdiction or with grave abuse of
12
resolutions, processes and other papers to serve them on Section 5 [5], Article VIII of the Constitution) to govern discretion.
the party or his counsel, either in his office, if known, or "pleadings, practice and procedure in all courts of the
else in the residence, also if known. As the party or his Philippines." The purpose of the Rules is clear and does not First, with respect to the agreement between Concord and
counsel is not expected to be present at all times in his need any interpretation. The Rules were meant to Victor Ang Siong to amicably settle their difference, we find
office or residence, service is allowed to be made with a govern court (stress supplied) procedures and pleadings. As this resort to an alternative dispute settlement mechanism as
person in charge of the office, or with a person of correctly pointed out by the Solicitor General, a preliminary not contrary to law, public policy, or public order. Efforts of
sufficient discretion to receive the same in the residence. investigation, notwithstanding its judicial nature, is not a parties to solve their disputes outside of the courts are looked
court proceeding. The holding of a preliminary investigation is on with favor, in view of the clogged dockets of the judiciary.
In the case under consideration, it is not disputed that a function of the Executive Department and not of the
the controverted Resolution dismissing the complaint of Judiciary.13 Thus, the rule on service provided for in the RulesSecond, it is not disputed in the instant case that Concord, a
the petitioner against Vic Ang Siong was served on the of Court cannot be made to apply to the service of resolutions domestic corporation, was the payee of the bum check, not
former by registered mail and was actually delivered by by public prosecutors, especially as the agency concerned, in petitioner. Therefore, it is Concord, as payee of the bounced
the postmaster on April 9, 1994 at said petitioner's given this case, the Department of Justice, has its own procedural check, which is the injured party. Since petitioner was neither
address in the record at No. 5 Kayumanggi Street, West rules governing said service. a payee nor a holder of the bad check, he had neither the
Triangle, Quezon City. The registered mail was in fact personality to sue nor a cause of action against Vic Ang Siong.
received by S. Ferraro. The service then was complete A plain reading of Section 2 of DOJ Order No. 223 clearly Under Section 36 of the Corporation Code18, read in relation to
and the period for filing a motion for reconsideration or shows that in preliminary investigation, service can be made Section 23,19 it is clear that where a corporation is an injured
appeal began to toll from that date. It expired on April upon the party himself or through his counsel. It must be party, its power to sue is lodged with its board of directors or
24, 1994. Considering that his motion for reconsideration assumed that when the Justice Department crafted the said turstees.20 Note that petitioner failed to show any proof that
was filed only on July 7, 1994, the same was filed beyond section, it was done with knowledge of the pertinent rule in he was authorized or deputized or granted specific powers by
the prescribed period, thereby precluding further appeal the Rules of Court and of jurisprudence interpreting it. The Concord's board of director to sue Victor And Siong for and on
to the Office of the respondent.3 DOJ could have just adopted the rule on service provided for
behalf of the firm. Clearly, petitioner as a minority stockholder
in the Rules of Court, but did not. Instead, it opted to word
and member of the board of directors had no such power or
Petitioner, before us, submits that there is no such "generally Section 2 of DOJ Order No. 223 in such a way as to leave no authority to sue on Concord's behalf. Nor can we uphold his
accepted practice" which gives a tribunal the option of doubt that in preliminary investigations, service of resolutions act as a derivative suit. For a derivative suit to prosper, it is
serving pleadings, orders, resolutions, and other papers to of public prosecutors could be made upon either the party or required that the minority stockholder suing for and on behalf
either the opposing party himself or his counsel. Petitioner his counsel. of the corporation must allege in his complaint that he is
insists that the fundamental rule in this jurisdiction is that if a suing on a derivative cause of action on behalf of the
party appears by counsel, then service can only be validly Moreover, the Constitution provides that "Rules of procedure corporation and all other stockholders similarly situated who
made upon counsel and service upon the party himself of special courts and quasi-judicial bodies shall remain may wish to join him in the suit. 21 There is no showing that
14
becomes invalid and without effect. Petitioner relies upon effective unless disapproved by the Supreme Court." There petitioner has complied with the foregoing requisites. It is
Rule 13, Section 2 of the Rules of Court 4 and our ruling in J.M. is naught in the records to show that we have disapproved obvious that petitioner has not shown any clear legal right
Javier Logging Corp. v. Mardo, 24 SCRA 776 (1968) to support and nullified Section 2 of DOJ Order No. 223 and since its which would warrant the overturning of the decision of public
his stand. In the J.M. Javier case, we held: validity is not an issue in the instant case, we shall refrain
respondents to dismiss the complaint against Vic Ang Siong. A
from ruling upon its validity.
[W]here a party appears by attorney, notice to the public prosecutor, by the nature of his office, is under no
former is not a notice in law, unless service upon the We hold that there was valid service upon petitioner pursuant compulsion to file a criminal information where no clear legal
party himself is ordered by the court5 to Section 2 of DOJ Order No. 223. justification has been shown, and no sufficient evidence of
guilt nor prima facie case has been presented by the
The Solicitor General, for respondents, contends that the On the issue of whether mandamus will lie. In general, petitioner.22 No reversible error may be attributed to the
applicable rule on service in the present case is Section 2 of mandamus may be resorted to only where one's right is court a quo when it dismissed petitioner's special civil action
the Department of Justice (DOJ) Order No. 223, 6 which allows founded clearly in law and not when it is doubtful. 15 The for mandamus.1wphi1.nt
service to be made upon either party or his counsel. exception is to be found in criminal cases where mandamus is
Respondents argue that while a preliminary investigation has available to compel the performance by the public prosecutor WHEREFORE, the instant petition is DISMISSED for lack of
been considered as partaking of the nature of a judicial of an ostensibly discretionary function, where by reason of merit. Costs against petitioner.
grave abuse of discretion on his part, he willfully refuses to
SO ORDERED.

CORPORATION LAW: 3.a. powers of corps Page 14 of 62

CORPORATION LAW: 3.a. powers of corps Page 15 of 62
G.R. No. 123553 July 13, 1998
(CA-G.R. No. 33291) July 13, 1998
NORA A. BITONG, petitioner,vs. COURT OF APPEALS
(FIFTH DIVISION), EUGENIA D. APOSTOL, JOSE A.
APOSTOL, MR. & MS. PUBLISHING CO., LETTY J.
MAGSANOC, AND ADORACION G. NUYDA, respondents.
(CA-G.R. No. 33873) July 13, 1998
NORA A. BITONG, petitioner,vs. COURT OF APPEALS
(FIFTH DIVISION) and EDGARDO B.
ESPIRITU, respondents.
BELLOSILLO, J.:
These twin cases originated from a derivative suit 1 filed by
petitioner Nora A. Bitong before the Securities and Exchange
Commission (SEC hereafter) allegedly for the benefit of
private respondent Mr. & Ms. Publishing Co., Inc. (Mr. & Ms.
hereafter), among others, to hold respondent spouses
Eugenia D. Apostol and Jose A. Apostol 2 liable for fraud,
misrepresentation, disloyalty, evident bad faith, conflict of
interest and mismanagement in directing the affairs of Mr. &
Ms. to the damage and prejudice of Mr. & Ms. and its
stockholders, including petitioner.
Alleging before the SEC that she had been the Treasurer and a
Member of the Board of Directors of Mr. & Ms. from the time it
was incorporated on 29 October 1976 to 11 April 1989, and
was the registered owner of 1,000 shares of stock out of the
4,088 total outstanding shares, petitioner complained of
irregularities committed from 1983 to 1987 by Eugenia D.
Apostol, President and Chairperson of the Board of Directors.
Petitioner claimed that except for the sale of the
name Philippine Inquirer to Philippine Daily Inquirer (PDI
hereafter) all other transactions and agreements entered into
by Mr. & Ms. with PDI were not supported by any bond and/or
stockholders' resolution. And, upon instructions of Eugenia D.
Apostol, Mr. & Ms. made several cash advances to PDI on
various occasions amounting to P3.276 million. On some of
these borrowings PDI paid no interest whatsoever. Despite the
fact that the advances made by Mr. & Ms. to PDI were booked
as advances to an affiliate, there existed no board or
stockholders' resolution, contract nor any other document
which could legally authorize the creation of and support to
an affiliate.
Petitioner further alleged that respondents Eugenia and Jose
Apostol were stockholders, directors and officers in both Mr. &
Ms. and PDI. In fact on 2 May 1986 respondents Eugenia D.
Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda
subscribed to PDI shares of stock at P50,000.00 each or a
total of P150,000.00. The stock subscriptions were paid for by
Mr. & Ms. and initially treated, as receivables from officers and
employees. But, no payments were ever received from
respondents, Magsanoc and Nuyda.
The petition principally sought to (a) enjoin respondents
Eugenia D. Apostol and Jose A. Apostol from further acting as
president-director and director, respectively, of Mr. & Ms. and
disbursing any money or funds except for the payment of
salaries and similar expenses in the ordinary course of
business, and from disposing of their Mr. & Ms. shares; (b) until mid-1986 when relations between her and her principals
enjoin respondents Apostol spouses, Magsanoc and Nuyda on one hand, and respondent Eugenia D. Apostol on the
from disposing of the PDI shares of stock registered in their other, became strained due to political differences. Hence
names; (c) compel respondents Eugenia and Jose Apostol to from mid-1986 to mid-1988 petitioner refused to speak with
account for and reconvey all profits and benefits accruing to respondent Eugenia D. Apostol, and in 1988 the former
them as a result of their improper and fraudulent acts; (d) became openly critical of the management of the latter.
compel respondents Magsanoc and Nuyda to account for and Nevertheless, respondent Eugenia D. Apostol always made
reconvey to Mr. & Ms. all shares of stock paid from cash available to petitioner and her representatives all the books of
advances from it and all accessions or fruits thereof; (e) hold the corporation.
respondents Eugenia and Jose Apostol liable for damages
Private respondents averred that all the PDI shares owned by
suffered by Mr. & Ms. and the other stockholders, including
respondents Eugenia and Jose Apostol were acquired through
petitioner, by reason of their improper and fraudulent acts; (f)
their own private funds and that the loan of P750,000.00 by
appoint a management committee for Mr. & Ms. during the
PDI from Mr. & Ms. had been fully paid with 20% interest per
pendency of the suit to prevent further dissipation and loss of
annum. And, it was PDI, not Mr. & Ms., which loaned off
its assets and funds as well as paralyzation of business
P250,000.00 each to respondents Magsanoc and Nuyda.
operations; and, (g) direct the management committee for Mr.
Private respondents further argued that petitioner was not the
& Ms. to file the necessary action to enforce its rights against
true party to this case, the real party being JAKA which
PDI and other third parties.
continued to be the true stockholder of Mr. & Ms.; hence,
Private respondents Apostol spouses, Magsanoc, Nuyda, and petitioner did not have the personality to initiate and
Mr. & Ms., on the other hand, refuted the allegations of prosecute the derivative suit which, consequently, must be
petitioner by starting with a narration of the beginnings of Mr. dismissed.
& Ms. They recounted that on 9 March 1976 Ex Libris
On 6 December 1990, the SEC Hearing Panel 3 issued a writ of
Publishing Co., Inc. (Ex Libris hereafter) was incorporated for
preliminary injunction enjoining private respondents from
the purpose of publishing a weekly magazine. Its original
disbursing any money except for the payment of salaries and
principal stockholders were spouses Senator Juan Ponce Enrile
other similar expenses in the regular course of business. The
(then Minister of National Defense) and Cristina Ponce Enrile
Hearing Panel also enjoined respondent Apostol spouses,
through Jaka Investments Corporation (JAKA hereafter), and
Nuyda and Magsanoc from disposing of their PDI shares, and
respondents Eugenia and Jose Apostol. When Ex
further ruled
Libris suffered financial difficulties, JAKA and the Apostols,
together with new investors Luis Villafuerte and Ramon Siy, . . . respondents' contention that petitioner is not
restructured Ex Libris by organizing a new corporation known entitled to the provisional reliefs prayed for because
as Mr. & Ms. she is not the real party in interest . . . is bereft of
any merit. No less than respondents' Amended
The original stockholders of Mr. & Ms., i.e., JAKA, Luis
Answer, specifically paragraph V, No. 8 on
Villafuerte, Ramon Siy, the Apostols and Ex Libris continued to
Affirmative Allegations/Defenses states that "The
be virtually the same up to 1989. Thereafter it was agreed
petitioner being herself a minor stockholder and
among them that, they being close friends, Mr. & Ms. would
holder-in-trust of JAKA shares represented and
be operated as a partnership or a close corporation;
continues to represent JAKA in the Board." This
respondent Eugenia D. Apostol would manage the affairs of
statement refers to petitioner sitting in the board of
Mr. & Ms.; and, no shares of stock would be sold to third
directors of Mr. & Ms. in two capacities, one as a
parties without first offering the shares to the other
minor stockholder and the other as the holder in
stockholders so that transfers would be limited to and only
trust of the shares of JAKA in Mr. & Ms. Such
among the original stockholders.
reference alluded to by the respondents indicates an
Private respondents also asserted that respondent Eugenia D. admission on respondents' part of the petitioner's
Apostol had been informing her business partners of her legal personality to file a derivative suit for the
actions as manager, and obtaining their advice and consent. benefit of the respondent Mr. & Ms. Publishing Co.,
Consequently the other stockholders consented, either Inc.
expressly or impliedly, to her management. They offered no
The Hearing Panel however denied petitioner's prayer for
objections. As a result, the business prospered. Thus, as
the constitution of a management committee.
shown in a statement prepared by the accounting
firm Punongbayan and Araullo, there were increases from On 25 March 1991 private respondents filed a Motion to
1976 to 1988 in the total assets of Mr. & Ms. from Amend Pleadings to Conform to Evidence alleging that the
P457,569.00 to P10,143,046.00; in the total stockholders' issue of whether petitioner is the real party-in-interest had
equity from P203,378.00 to P2,324,954.00; and, in the net been tried by express or implied consent of the parties
sales, from P301,489.00 to P16,325,610.00. Likewise, cash through the admission of documentary exhibits presented by
dividends were distributed and received by the stockholders. private respondents proving that the real party-in-interest was
JAKA, not petitioner Bitong. As such, No. 8, par. V (Affirmative
Private respondents further contended that petitioner, being
Allegations/Defenses), Answer to the Amended Petition, was
merely a holder-in-trust of JAKA shares, only represented and
stipulated due to inadvertence and excusable mistake and
continued to represent JAKA in the board. In the beginning,
petitioner cooperated with and assisted the management
CORPORATION LAW: 3.a. powers of corps Page 16 of 62
should be amended. On 10 October 1991 the Hearing Panel result of their investment in PDI, including those arising from the statements were inadvertently made or were made under
denied the motion for amendment. the P150,000.00 advanced to respondents Eugenia D. a mistake of fact. In addition, a party against whom a single
Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda; account clause or paragraph of a pleading is offered may have the
Petitioner testified at the trial that she became the registered
for and return any profits and fruits of all amounts irregularly right to introduce other paragraphs which tend to destroy the
and beneficial owner of 997 shares of stock of Mr. & Ms. out of
or unlawfully advanced to PDI and other third persons; and, admission in the paragraph offered by the adversary. 6
the 4,088 total outstanding shares after she acquired them
cease and desist from managing the affairs of Mr. & Ms. for
from JAKA through a deed of sale executed on 25 July 1983 The Amended Petition before the SEC alleges
reasons of fraud, mismanagement, disloyalty and conflict of
and recorded in the Stock and Transfer Book of Mr. & Ms.
interest. I. THE PARTIES
under Certificate of Shares of Stock No. 008. She pointed out
that Senator Enrile decided that JAKA should completely The SEC En Banc also declared the 19 August 1993 sale of the 1. Petitioner is a stockholder and director of Mr. & Ms. . . .
divest itself of its holdings in Mr. & Ms. and this resulted in the PDI shares of JAED Management Corporation to Edgardo B. .
sale to her of JAKA's interest and holdings in that publishing Espiritu to be tainted with fraud, hence, null and void, and
firm. considered Mr. & Ms. as the true and lawful owner of all the II. THE FACTS
PDI shares acquired by respondents Eugenia D. Apostol, 1. Petitioner is the registered owner of 1,000 shares of
Private respondents refuted the statement of petitioner that
Magsanoc and Nuyda. It also declared all subsequent stock of Mr. & Ms. out of the latter's 4,088 total
she was a stockholder of Mr. & Ms. since 25 July 1983 as
transferees of such shares as trustees for the benefit of Mr. & outstanding shares. Petitioner, at all times material to
respondent Eugenia D. Apostol signed Certificate of Stock No.
Ms. and ordered them to forthwith deliver said shares to Mr. & this petition, is a member of the Board of Directors of Mr.
008 only on 17 March 1989, and not on 25 July 1983.
Ms. & Ms. and from the inception of Mr. & Ms. until 11 April
Respondent Eugenia D. Apostol explained that she stopped
using her long signature (Eugenia D. Apostol) in 1987 and Consequently, respondent Apostol spouses, Magsanoc, 1989 was its treasurer . . .
changed it to E.D. Apostol, the signature which appeared on Nuyda, and Mr. & Ms. filed a petition for review before On the other hand, the Amended Answer to the Amended
the face of Certificate of Stock No. 008 bearing the date 25 respondent Court of Appeals, docketed as CA-GR No. SP Petition states
July 1983. And, since the Stock and Transfer Book which 33291, while respondent Edgardo B. Espiritu filed a petition
petitioner presented in evidence was not registered with the for certiorari and prohibition also before respondent Court of I. PARTIES
SEC, the entries therein including Certificate of Stock No. 008 Appeals, docketed as CA-GR No. SP 33873. On 8 December 1. Respondents admit the allegations contained in
were fraudulent. Respondent Eugenia D. Apostol claimed that 1994 the two (2) petitions were consolidated. Caption I, pars. 1 to 4 of the Petition referring to the
she had not seen the Stock and Transfer Book at anytime until personality, addresses and capacity of the parties to the
On 31 August 1995 respondent appellate court rendered a
21 March 1989 when it was delivered by petitioner herself to petition except . . . but qualify said admission insofar as
decision reversing the SEC En Banc and held that from the
the office of Mr. & Ms., and that petitioner repeatedly referred they are limited, qualified and/or expanded by
evidence on record petitioner was not the owner of any share
to Senator Enrile as "my principal" during the Mr. & Ms. board allegations in the Affirmative Allegations/Defenses . . .
of stock in Mr. & Ms. and therefore not the real party-in-
meeting of 22 September 1988, seven (7) times no less.
interest to prosecute the complaint she had instituted against II. THE FACTS
On 3 August 1993, after trial on the merits, the SEC Hearing private respondents. Accordingly, petitioner alone and by
Panel dismissed the derivative suit filed by petitioner and herself as an agent could not file a derivative suit in behalf of 1. Respondents admit paragraph 1 of the Petition, but
dissolved the writ of preliminary injunction barring private her principal. For not being the real party-in-interest, qualify said admission as to the beneficial ownership of
respondents from disposing of their PDI shares and any of Mr. petitioner's complaint did not state a cause of action, a the shares of stock registered in the name of the
& Ms. assets. The Hearing Panel ruled that there was no defense which was never waived; hence, her petition should petitioner, the truth being as stated in the Affirmative
serious mismanagement of Mr. & Ms. which would warrant have been dismissed. Respondent appellate court ruled that Allegations/Defenses of this Answer . . .
drastic corrective measures. It gave credence to the assertion the assailed orders of the SEC were issued in excess of V. AFFIRMATIVE ALLEGATIONS/DEFENSES
of respondent Eugenia D. Apostol that Mr. & Ms. was operated jurisdiction, or want of it, and thus were null and void. 5 On 18
like a close corporation where important matters were January 1996, petitioner's motion for reconsideration was Respondents respectfully allege by way of Affirmative
discussed and approved through informal consultations at denied for lack of merit. Allegations/Defenses, that . . . .
breakfast conferences. The Hearing Panel also concluded that
Before this Court, petitioner submits that in paragraph 1 3. Fortunately, respondent Apostol was able to convince
while the evidence presented tended to show that the real
under the caption "I. The Parties" of her Amended Mr. Luis Villafuerte to take interest in the business and
party-in-interest indeed was JAKA and/or Senator Enrile, it
Petition before the SEC, she stated that she was a stockholder he, together with the original investors, restructured the
viewed the real issue to be the alleged mismanagement,
and director of Mr. & Ms. In par. 1 under the caption "II. The Ex Libris Publishing Company by organizing a new
fraud and conflict of interest on the part of respondent
Facts" she declared that she "is the registered owner of 1,000 corporation known as Mr. & Ms. Publishing Co., Inc. . . .
Eugenia D. Apostol, and allowed petitioner to prosecute the
shares of stock of Mr. & Ms. out of the latter's 4,088 total Mr. Luis Villafuerte contributed his own P100,000.00.
derivative suit if only to resolve the real issues. Hence, for this
outstanding shares" and that she was a member of the Board JAKA and respondent Jose Z. Apostol, original investors of
purpose, the Hearing Panel considered petitioner to be the
of Directors of Mr. & Ms. and treasurer from its inception until Ex Libris contributed P100,000.00 each; Ex Libris
real party-in-interest.
11 April 1989. Petitioner contends that private respondents Publishing Company was paid 800 shares for the name of
On 19 August 1993 respondent Apostol spouses sold the PDI did not deny the above allegations in their answer and Mr. & Ms. magazine and goodwill. Thus, the original
shares registered in the name of their holding company, JAED therefore they are conclusively bound by this judicial stockholders of respondent Mr. & Ms. were:
Management Corporation, to Edgardo B. Espiritu. On 25 admission. Consequently, private respondents' admission that
Cert./No./Date Name of Stockholder No. of Shares %
August 1993 petitioner Bitong appealed to the SEC En Banc. petitioner has 1,000 shares of stock registered in her name in
the books of Mr. & Ms. forecloses any question on her status 001-9-15-76 JAKA Investments Corp. 1,000 21%
On 24 January 1994 the SEC En Banc 4 reversed the decision
and right to bring a derivative suit on behalf of Mr. & Ms.
of the Hearing Panel and, among others, ordered private 002-9-15-76 Luis Villafuerte 1,000 21%
respondents to account for, return and deliver to Mr. & Ms. Not necessarily. A party whose pleading is admitted as an
any and all funds and assets that they disbursed from the admission against interest is entitled to overcome by 003-9-15-76 Ramon L. Siy 1,000 21%
coffers of the corporation including shares of stock, profits, evidence the apparent inconsistency, and it is competent for 004-9-15-76 Jose Z. Apostol 1,000 21%
dividends and/or fruits that they might have received as a the party against whom the pleading is offered to show that
005-9-15-76 Ex Libris Publishing Co. 800 16%

CORPORATION LAW: 3.a. powers of corps Page 17 of 62

 real party-in-interest and had legal personality to sue, they separate deed of sale or transfer in her favor to prove
are now estopped from questioning her personality. ownership of stock.
4,800 96%
Not quite. The 6 December 1990 Order is clearly an Sec. 63 of The Corporation Code expressly provides
4. The above-named original stockholders of respondent
interlocutory order which cannot be considered as having
Mr. & Ms. continue to be virtually the same stockholders Sec. 63. Certificate of stock and transfer of shares.
finally resolved on the merits the issue of legal capacity of
up to this date . . . . The capital stock of stock corporations shall be divided
petitioner. The SEC Hearing Panel discussed the issue of legal
into shares for which certificates signed by the president
8. The petitioner being herself a minor stockholder and capacity solely for the purpose of ruling on the application for
or vice president, countersigned by the secretary or
holder-in-trust of JAKA shares, represented and continues writ of preliminary injunction as an incident to the main issues
assistant secretary, and sealed with the seal of the
to represent JAKA in the Board . . . . raised in the complaint. Being a mere interlocutory order, it is
corporation shall be issued in accordance with the by-
not appealable.
21. Petitioner Nora A. Bitong is not the true party to this laws. Shares of stock so issued are personal property and
case, the true party being JAKA Investments Corporation For, an interlocutory order refers to something between the may be transferred by delivery of the certificate or
which continues to be the true stockholder of respondent commencement and end of the suit which decides some point certificates indorsed by the owner or his attorney-in-fact
Mr. & Ms. Publishing Co., Inc., consequently, she does not or matter but it is not the final decision of the whole or other person legally authorized to make the transfer.
10
have the personality to initiate and prosecute this controversy. Thus, even though the 6 December 1990 Order No transfer however shall be valid except as between the
derivative suit, and should therefore be dismissed . . . . was adverse to private respondents, they had the legal right parties until the transfer is recorded in the books of the
and option not to elevate the same to the SEC En Banc but corporation showing the names of the parties to the
The answer of private respondents shows that there was no rather to await the decision which resolves all the issues transaction, the date of the transfer, the number of the
judicial admission that petitioner was a stockholder of Mr. & raised by the parties and to appeal therefrom by assigning all certificate or certificates and the number of shares
Ms. to entitle her to file a derivative suit on behalf of the errors that might have been committed by the Hearing Panel. transferred . . . .
corporation. Where the statements of the private respondents
were qualified with phrases such as, "insofar as they are On the other hand, the 3 August 1993 Decision of the Hearing This provision above quoted envisions a formal certificate of
limited, qualified and/or expanded by," "the truth being as Panel dismissing the derivative suit for failure to prove the stock which can be issued only upon compliance with certain
stated in the Affirmative Allegations/Defenses of this Answer" charges of mismanagement, fraud, disloyalty and conflict of requisites. First, the certificates must be signed by the
they cannot be considered definite and certain enough, interest and dissolving the writ of preliminary injunction, was president or vice-president, countersigned by the secretary or
cannot be construed as judicial admissions. 7 favorable to private respondents. Hence, they were not assistant secretary, and sealed with the seal of the
expected to appeal therefrom. corporation. A mere typewritten statement advising a
More so, the affirmative defenses of private respondents stockholder of the extent of his ownership in a corporation
directly refute the representation of petitioner that she is a In fact, in the 3 August 1993 Decision, the Hearing Panel without qualification and/or authentication cannot be
true and genuine stockholder of Mr. & Ms. by stating categorically stated that the evidence presented showed that considered as a formal certificate of stock. 11 Second, delivery
unequivocally that petitioner is not the true party to the case the real party-in-interest was not petitioner Bitong but JAKA of the certificate is an essential element of its issuance.
but JAKA which continues to be the true stockholder of Mr. & and/or Senator Enrile. Petitioner was merely allowed to Hence, there is no issuance of a stock certificate where it is
Ms. In fact, one of the reliefs which private respondents prosecute her complaint so as not to sidetrack "the real issue never detached from the stock books although blanks therein
prayed for was the dismissal of the petition on the ground to be resolved (which) was the allegation of mismanagement, are properly filled up if the person whose name is inserted
that petitioner did not have the legal interest to initiate and fraud and conflict of interest allegedly committed by therein has no control over the books of the company. 12Third,
prosecute the same. respondent Eugenia D. Apostol." It was only for this reason
the par value, as to par value shares, or the full subscription
that petitioner was considered to be capacitated and
When taken in its totality, the Amended Answer to the competent to file the petition. as to no par value shares, must first be fully paid. Fourth, the
Amended Petition, or even the Answer to the Amended original certificate must be surrendered where the person
Petition alone, clearly raises an issue as to the legal Accordingly, with the dismissal of the complaint of petitioner requesting the issuance of a certificate is a transferee from a
personality of petitioner to file the complaint. Every alleged against private respondents, there was no compelling reason stockholder.
admission is taken as an entirety of the fact which makes for for the latter to appeal to the SEC En Banc. It was in fact The certificate of stock itself once issued is a continuing
the one side with the qualifications which limit, modify or petitioner's turn as the aggrieved party to exercise her right affirmation or representation that the stock described therein
destroy its effect on the other side. The reason for this is, to appeal from the decision. It is worthy to note that even is valid and genuine and is at least prima facie evidence that
where part of a statement of a party is used against him as an during the appeal of petitioner before the SEC En it was legally issued in the absence of evidence to the
admission, the court should weigh any other portion Banc private respondents maintained their vigorous objection contrary. However, this presumption may be
connected with the statement, which tends to neutralize or to the appeal and reiterated petitioner's lack of legal capacity rebutted. 13 Similarly, books and records of a corporation
explain the portion which is against interest. to sue before the SEC.
which include even the stock and transfer book are generally
In other words, while the admission is admissible in evidence, Petitioner then contends that she was a holder of the proper admissible in evidence in favor of or against the corporation
its probative value is to be determined from the whole certificates of shares of stock and that the transfer was and its members to prove the corporate acts, its financial
statement and others intimately related or connected recorded in the Stock and Transfer Book of Mr. & Ms. She status and other matters including one's status as a
therewith as an integrated unit. Although acts or facts invokes Sec. 63 of The Corporation Code which provides that stockholder. They are ordinarily the best evidence of
admitted do not require proof and cannot be contradicted, no transfer shall be valid except as between the parties until corporate acts and proceedings.
however, evidence aliunde can be presented to show that the the transfer is recorded in the books of the corporation, and
However, the books and records of a corporation are not
admission was made through palpable mistake. 8 The rule is upon its recording the corporation is bound by it and is
conclusive even against the corporation but are prima
always in favor of liberality in construction of pleadings so estopped to deny the fact of transfer of said shares. Petitioner
facie evidence only. Parol evidence may be admitted to supply
that the real matter in dispute may be submitted to the alleges that even in the absence of a stock certificate, a
omissions in the records, explain ambiguities, or show what
judgment of the court. 9 stockholder solely on the strength of the recording in the
transpired where no records were kept, or in some cases
stock and transfer book can exercise all the rights as
Petitioner also argues that since private respondents failed to where such records were contradicted. 14The effect of entries
stockholder, including the right to file a derivative suit in the
appeal the 6 December 1990 Order and the 3 August 1993 in the books of the corporation which purport to be regular
name of the corporation. And, she need not present a
Decision of the SEC Hearing Panel declaring that she was the records of the proceedings of its board of directors or

CORPORATION LAW: 3.a. powers of corps Page 18 of 62

stockholders can be destroyed by testimony of a more admittedly signed and issued only on 17 March 1989 and not registered owner of 1,000 Mr. & Ms. shares covered by
conclusive character than mere suspicion that there was an on 25 July 1983, even as it indicates that petitioner owns 997 Certificate of Stock No. 007.
irregularity in the manner in which the books were kept. 15 shares of stock of Mr. & Ms., the certificate has no evidentiary
The declaration of trust further showed that although
value for the purpose of proving that petitioner was a
The foregoing considerations are founded on the basic respondent Apostol was the registered owner, she held the
stockholder since 1983 up to 1989.
principle that stock issued without authority and in violation shares of stock and dividends which might be paid in
of law is void and confers no rights on the person to whom it And even the factual antecedents of the alleged ownership by connection therewith solely in trust for the benefit of JAKA,
is issued and subjects him to no liabilities. 16 Where there is petitioner in 1983 of shares of stock of Mr. & Ms. are her principal. It was also stated therein that being a trustee,
an inherent lack of power in the corporation to issue the indistinctive if not enshrouded in inconsistencies. In her respondent Apostol agreed, on written request of the
stock, neither the corporation nor the person to whom the testimony before the Hearing Panel, petitioner said that early principal, to assign and transfer the shares of stock and any
stock is issued is estopped to question its validity since an in 1983, to relieve Mr. & Ms. from political pressure, Senator and all such distributions or dividends unto the principal or
estopped cannot operate to create stock which under the law Enrile decided to divest the family holdings in Mr. & Ms. as he such other person as the principal would nominate or appoint.
cannot have existence. 17 was then part of the government and Mr. & Ms. was evolving
Petitioner was well aware of this trust, being the person in
to be an opposition newspaper. The JAKA shares numbering
As found by the Hearing Panel and affirmed by respondent charge of this documentation and being one of the witnesses
1,000 covered by Certificate of Stock No. 001 were thus
Court of Appeals, there is overwhelming evidence that despite to the execution of this
transferred to respondent Eugenia D. Apostol in trust or in
what appears on the certificate of stock and stock and document. 24 Hence, the mere alleged endorsement of
blank. 18
transfer book, petitioner was not a bona fide stockholder of Certificate of Stock No. 001 by Senator Enrile or by a duly
Mr. & Ms. before March 1989 or at the time the complained Petitioner now claims that a few days after JAKA's shares were authorized officer of JAKA to effect the transfer of shares of
acts were committed to qualify her to institute a stockholder's transferred to respondent Eugenia D. Apostol, Senator Enrile JAKA to petitioner could not have been legally feasible
derivative suit against private respondents. Aside from sold to petitioner 997 shares of JAKA. For this purpose, a deed because Certificate of Stock No. 001 was already canceled by
petitioner's own admissions, several corporate documents of sale was executed and antedated to 10 May 1983. 19 This virtue of the deed of sale to respondent Apostol.
disclose that the true party-in-interest is not petitioner but submission of petitioner is however contradicted by the
And, there is nothing in the records which shows that JAKA
JAKA. records which show that a deed of sale was executed by JAKA
had revoked the trust it reposed on respondent Eugenia D.
transferring 1,000 shares of Mr. & Ms. to respondent Apostol
Thus, while petitioner asserts in her petition that Certificate of Apostol. Neither was there any evidence that the principal
on 10 May 1983 and not to petitioner. 20
Stock No. 008 dated 25 July 1983 was issued in her name, had requested her to assign and transfer the shares of stock
private respondents argue that this certificate was signed by Then Senator Enrile testified that in May or June 1983 he was to petitioner. If it was true that the shares of stock covered by
respondent Eugenia D. Apostol as President only in 1989 and asked at a media interview if his family owned shares of stock Certificate of Stock No. 007 had been transferred to
was fraudulently antedated by petitioner who had possession in Mr. & Ms. Although he and his family were stockholders at petitioner, the person who could legally endorse the
of the Certificate Book and the Stock and Transfer Book. that time he denied it so as not to embarrass the magazine. certificate was private respondent Eugenia D. Apostol, she
Private respondents stress that petitioner's counsel entered He called up petitioner and instructed her to work out the being the registered owner and trustee of the shares of stock
into a stipulation on record before the Hearing Panel that the documentation of the transfer of shares from JAKA to covered by Certificate of Stock No. 007. It is a settled rule
certificate was indeed signed by respondent Apostol only in respondent Apostol to be covered by a declaration of trust. that the trustee should endorse the stock certificate to
1989 and not in 1983. His instruction was to transfer the shares of JAKA in Mr. & Ms. validate the cancellation of her share and to have the transfer
and Ex Libris to respondent Apostol as a nominal holder. He recorded in the books of the corporation. 25
In her reply, petitioner admits that while respondent Eugenia
then finally decided to transfer the shareholdings to
D. Apostol signed the Certificate of Stock No. 008 in In fine, the records are unclear on how petitioner allegedly
petitioner. 21
petitioner's name only in 1989, it was issued by the corporate acquired the shares of stock of JAKA. Petitioner being the chief
secretary in 1983 and that the other certificates covering When asked if there was any document or any written executive officer of JAKA and the sole person in charge of all
shares in Mr. & Ms. had not yet been signed by respondent evidence of that divestment in favor of petitioner, Senator business and financial transactions and affairs of JAKA 26 was
Eugenia D. Apostol at the time of the filing of the complaint Enrile answered that there was an endorsement of the shares supposed to be in the best position to show convincing
with the SEC although they were issued years before. of stock. He said that there was no other document evidence on the alleged transfer of shares to her, if indeed
evidencing the assignment to petitioner because the stocks there was a transfer. Considering that petitioner's status is
Based on the foregoing admission of petitioner, there is no
were personal property that could be transferred even being questioned and several factual circumstances have
truth to the statement written in Certificate of Stock No. 008
orally. 22 Contrary to Senator Enrile's testimony, however, been presented by private respondents disproving petitioner's
that the same was issued and signed on 25 July 1983 by its
petitioner maintains that Senator Enrile executed a deed of claim, it was incumbent upon her to submit rebuttal evidence
duly authorized officers specifically the President and
sale in her favor. on the manner by which she allegedly became a stockholder.
Corporate Secretary because the actual date of signing
Her failure to do so taken in the light of several substantial
thereof was 17 March 1989. Verily, a formal certificate of A careful perusal of the records shows that neither the alleged
inconsistencies in her evidence is fatal to her case.
stock could not be considered issued in contemplation of law endorsement of Certificate of Stock No. 001 in the name of
unless signed by the president or vice-president and JAKA nor the alleged deed of sale executed by Senator Enrile The rule is that the endorsement of the certificate of stock by
countersigned by the secretary or assistant secretary. directly in favor of petitioner could have legally transferred or the owner or his attorney-in-fact or any other person legally
assigned on 25 July 1983 the shares of stock in favor of authorized to make the transfer shall be sufficient to effect
In this case, contrary to petitioner's submission, the
petitioner because as of 10 May 1983 Certificate of Stock No. the transfer of shares only if the same is coupled with
Certificate of Stock No. 008 was only legally issued on 17
001 in the name of JAKA was already cancelled and a new delivery. The delivery of the stock certificate duly endorsed by
March 1989 when it was actually signed by the President of
one, Certificate of Stock No. 007, issued in favor of the owner is the operative act of transfer of shares from the
the corporation, and not before that date. While a certificate
respondent Apostol by virtue of a Declaration of Trust and lawful owner to the new transferee.
of stock is not necessary to make one a stockholder, e.g.,
Deed of Sale. 23
where he is an incorporator and listed as stockholder in the Thus, for a valid transfer of stocks, the requirements are as
articles of incorporation although no certificate of stock has It should be emphasized that on 10 May 1983 JAKA executed, follows: (a) There must be delivery of the stock certificate; (b)
yet been issued, it is supposed to serve as paper a deed of sale over 1,000 Mr. & Ms. shares in favor of The certificate must be endorsed by the owner or his
representative of the stock itself and of the owner's interest respondent Eugenio D. Apostol. On the same day, respondent attorney-in-fact or other persons legally authorized to make
therein. Hence, when Certificate of Stock No. 008 was Apostol signed a declaration of trust stating that she was the the transfer; and, (c) to be valid against third parties, the

CORPORATION LAW: 3.a. powers of corps Page 19 of 62

transfer must be recorded in the books of the directors that the Enriles were her principals or shareholders,
corporation. 27 At most, in the instant case, petitioner has as shown by the minutes thereof which she duly signed 34
satisfied only the third requirement. Compliance with the first
two requisites has not been clearly and sufficiently shown.
Considering that the requirements provided under Sec. 63
of The Corporation Code should be mandatorily complied
with, the rule on presumption of regularity cannot apply. The
regularity and validity of the transfer must be proved. As it is, this performance whether she should continue to act as
even the credibility of the stock and transfer book and the
entries thereon relied upon by petitioner to show compliance
with the third requisite to prove that she was a stockholder
since 1983 is highly doubtful.
The records show that the original stock and transfer book
and the stock certificate book of Mr. & Ms. were in the
possession of petitioner before their custody was transferred
to the Corporate Secretary, Atty. Augusto San Pedro. 28 On 25
May 1988, Assistant Corporate Secretary Renato Jose Unson
wrote Mr. & Ms. about the lost stock and transfer book which
was also noted by the corporation's external
auditors, Punongbayan and Araullo, in their audit. Atty. Unson
even informed respondent Eugenia D. Apostol as President of
Mr. & Ms. that steps would be undertaken to prepare and
register a new Stock and Transfer Book with the SEC.
Incidentally, perhaps strangely, upon verification with the
SEC, it was discovered that the general file of the corporation
with the SEC was missing. Hence, it was even possible that
the original Stock and Transfer Book might not have been
registered at all.
On 20 October 1988 respondent Eugenia D. Apostol wrote
Atty. Augusto San Pedro noting the changes he had made in
the Stock and Transfer Book without prior notice to the
corporate officers. 29 In the 27 October 1988 directors'
meeting, respondent Eugenia D. Apostol asked about the
documentation to support the changes in the Stock and
Transfer Book with regard to the JAKA shares. Petitioner
answered that Atty. San Pedro made the changes upon her
instructions conformably with established practice. 30
This simply shows that as of 1988 there still existed certain
issues affecting the ownership of the JAKA shares, thus raising
doubts whether the alleged transactions recorded in the Stock
and Transfer Book were proper, regular and authorized. Then,
as if to magnify and compound the uncertainties in the
ownership of the shares of stock in question, when the
corporate secretary resigned, the Stock and Transfer Book
was delivered not to the corporate office where the book
should be kept but to petitioner. 31
That JAKA retained its ownership of its Mr. & Ms. shares was
clearly shown by its receipt of the dividends issued in
December 1986. 32 This only means, very obviously, that Mr.
& Ms. shares in question still belonged to JAKA and not to
petitioner. For, dividends are distributed to stockholders
pursuant to their right to share in corporate profits. When a
dividend is declared, it belongs to the person who is the
substantial and beneficial owner of the stock at the time
regardless of when the distribution profit was earned. 33
Finally, this Court takes notice of the glaring and open president or officer thereof. 37
admissions of petitioner made, not just seven (7) but nine (9)
times, during the 22 September 1988 meeting of the board of
It is well settled in this jurisdiction that where corporate
directors are guilty of a breach of trust, not of mere error of
judgment or abuse of discretion, and intracorporate remedy is
5. Mrs. E. Apostol explained to the Directors that through
futile or useless, a stockholder may institute a suit in behalf of
her efforts, the asset base of the Company has improved
himself and other stockholders and for the benefit of the
and profits were realized. It is for this reason that the
corporation, to bring about a redress of the wrong inflicted
Company has declared a 100% cash dividend in 1986.
directly upon the corporation and indirectly upon the
She said that it is up for the Board to decide based on
stockholders. 38 The stockholder's right to institute a
derivative suit is not based on any express provision of The
Board Chairman or not. In this regard, Ms. N.A. Bitong
Corporation Code but is impliedly recognized when the law
expressed her recollection of how Ex-Libris/Mr. & Ms.
makes corporate directors or officers liable for damages
were organized and her participation for and on behalf
suffered by the corporation and its stockholders for violation
of her principals, as follows: She recalled that her
of their fiduciary duties.
principals were invited by Mrs. E. Apostol to invest in Ex-
Libris and eventually Mr. & Ms. The relationship Hence, a stockholder may sue for mismanagement, waste or
between her principals and Mrs. E. Apostol made it dissipation of corporate assets because of a special injury to
possible for the latter to have access to several him for which he is otherwise without redress. 39 In effect, the
information concerning certain political events and suit is an action for specific performance of an obligation
issues. In many instances, her principals supplied first owed by the corporation to the stockholders to assist its
hand and newsworthy information that made Mr. & Ms. a rights of action when the corporation has been put in default
popular by the wrongful refusal of the directors or management to
paper . . . . make suitable measures for its protection. 40
6. According to Ms. Bitong, her principals were The basis of a stockholder's suit is always one in equity.
instrumental in helping Mr. & Ms. survive during those However, it cannot prosper without first complying with the
years that it was cash strapped . . . . Ms. N.A. Bitong legal requisites for its institution. The most important of these
pointed out that the practice of using the former is the bona fide ownership by a stockholder of a stock in his
Minister's influence and stature in the government is one own right at the time of the transaction complained of which
thing which her principals themselves are strongly invests him with standing to institute a derivative action for
against . . . . the benefit of the corporation. 41
7. . . . . At this point, Ms. N. Bitong again expressed her WHEREFORE, the petition is DENIED. The 31 August 1995
recollection of the subject matter as follows: (a) Mrs. E. Decision of the Court of Appeals dismissing the complaint of
Apostol, she remembers, brought up the concept of a petitioner Nora A. Bitong in CA-G.R. No. SP 33291, and
cooperative-ran newspaper company in one of her granting the petition for certiorari and prohibition filed by
breakfast session with her principals sometime during respondent Edgardo U. Espiritu as well as annulling the 5
the end of 1985. Her principals when asked for an November 1993, 24 January 1993 and 18 February 1994
opinion, said that they recognized the concept as Orders of the SEC En Banc in CA-G.R. No. SP 33873, is
something very noble and visible . . . . Then Ms. Bitong AFFIRMED. Costs against petitioner.
asked a very specific question "When you
SO ORDERED.
conceptualized Ex-Libris and Mr. & Ms., did you not think
of my shareholders the Ponce Enriles as liabilities? How
come you associated yourself with them then and not
now? What is the difference?" Mrs. Apostol did not
answer the question.
The admissions of a party against his interest inscribed upon
the record books of a corporation are competent and
persuasive evidence against him. 35 These admissions render
nugatory any argument that petitioner is a bona
fide stockholder of Mr. & Ms. at any time before 1988 or at the
time the acts complained of were committed. There is no
doubt that petitioner was an employee of JAKA as its
managing officer, as testified to by Senator Enrile
himself. 36 However, in the absence of a special authority from
the board of directors of JAKA to institute a derivative suit for
and in its behalf, petitioner is disqualified by law to sue in her
own name. The power to sue and be sued in any court by a
corporation even as a stockholder is lodged in the board of
directors that exercises its corporate powers and not in the G.R. No. L-44100 April 28, 1983
SPECIAL SERVICES CORPORATION, petitioner, vs.
CENTRO LA PAZ (SAMAHANG ESPIRITISTA SA
CORPORATION LAW: 3.a. powers of corps Page 20 of 62
LUNDUYANG LA PAZ), A CHAPTER OF UNION
ESPIRITISTA CRISTIANA DE FILIPINAS, INC., respondents.
MELENCIO-HERRERA, J.:
This is a Petition for Review on certiorari of the Decision
promulgated on May 11, 1976 by respondent Court of
Appeals 1 in CA-G.R. No. 56582-R, entitled "Centro La Paz
(Samahang Espiritista sa Lunduyang La Paz) a Chapter of
Union Espiritista Cristiana de Filipinas, Inc. vs. The Sheriff of
Manila and the Special Services Corporation." The Union
Espiritista Cristiana de Filipinas, Inc., is a semi-religious and
charitable organization. 2
The antecedental facts follow:
On October 10, 1972, judgment was rendered in favor of
petitioner Special Services Corporation by the Court of First
Instance, Branch IV, Manila, against one Alejandro Estudillo in In a judgment rendered on August 30, 1974, the Court a
the amount of P94,727.52, more or less, in an action for quo decreed in the dispositive portion:
Replevin with Sum of Money (Civil Case No. 85819). A writ of
execution was thereafter issued but which has remained
unsatisfied.
By virtue of an alias writ of execution issued on December 15,
1972, the Sheriff of Manila caused the annotation of a notice
of levy on Transfer Certificate of Title No. 51837, in respect of
the rights, interest and participation of said Alejandro
Estudillo, one of the registered owners indicated in said title.
That title covers two parcels of land situated in Sampaloc,
Manila, consisting of three hundred forty eight (348) square
meters and registered in the names of Alejandro Estudillo,
married to Primitiva Victoria; Joaquina de la Rosa, widow;
Pedro Paguio, married to Amor Jose and Maximo Victoria,
married to Juliana Roberto, all Chapter members.
The public auction sale of Estudillo's rights and interests in
said properties was scheduled on July 23, 1973.
On June 27, 1973, Alejandro Estudillo filed a "Motion to plaintiff," thus:
Dissolve and/or Cancel the Notice of Levy" alleging that he
and the other registered owners indicated on the title merely
held in trust the properties and improvements thereon in
favor of respondent Centro La Paz (Samahang Espiritista Sa
Lunduyang La Paz) a Chapter of Union Espiritista Cristiana de
Filipinas, Inc. (hereinafter referred to as CENTRO, for brevity),
as evidenced by "Acknowledgments" executed by them on
October 20, 1961 and October 2, 1971. Estudillo further
alleged that CENTRO's ownership was also evidenced by
letters dated February 15, 1963, November 29, 1963 and
August 8, 1966 sent to the City Assessor by him and Crispulo
Romero, President of CENTRO, long before the filing of the
replevin case on December 28, 1971 praying for the
revocation of tax assessments on said properties as the
same, were used for religious purposes. 3
On July 21, 1973, CENTRO submitted a third party claim to the
Sheriff of Manila likewise averring exclusive ownership of the
properties in question . 4
On July 23, 1973, "Centro La Paz (Samahang Espiritista sa
Lunduyang La Paz) a Chapter of Union Espiritista Cristiana de
Filipinas, Inc.," as plaintiff, instituted Civil Case No. 91412 for
Damages and Preliminary Injunction against herein petitioner
and the Sheriff of Manila with the Court of First Instance,
Branch IV, Manila, the same Court which rendered judgment
in the replevin case. CENTRO reiterated ownership of the
properties in question and emphasized that the registered
owners thereof had publicly acknowledged their possession of
said properties in the concept of trustees. 5
In its "Opposition to Petition for Preliminary Injunction and
Answer," petitioner averred that a Torrens Title issued in favor
of an owner is conclusive of all matters stated therein and
that the "Acknowledgments" of the registered owners not
being annotated on Transfer Certificates of Title No. 51837
could not bind anyone. 6
On August 27, 1973, a writ of preliminary injunction was
issued by the lower Court enjoining the public auction sale of
Estudillo's interest in the properties in question, 7 conditioned
upon CENTRO's posting a bond of P30,000.00.
IN VIEW OF THE FOREGOING CONSIDERATIONS,
judgment is hereby rendered in favor of the plaintiff,
against the defendants, enjoining the latter from
proceeding with the public auction sale of the real
property, pursuant to the notice of sale on execution of
real property, with costs against the defendant.
The writ of preliminary injunction issued in connection
with this case is, as it is hereby made permanent.
Defendant's counterclaim is, as it is hereby ordered
dismissed for lack of merit.
SO ORDERED. 8
The lower Court held that by a preponderance of evidence
CENTRO had established that it was "really and true and
lawful owner of the property in dispute, and that the persons
registered therein as its owners are merely trustees of the
The evidence on hand clearly preponderates in favor of
the plaintiff. The series of documents executed even as
early as 1957, long before the issue of whether Alejandro
Estudillo really has an interest and/or participation in the
property in dispute, attest to plaintiff's ownership of the
property in question. The Deed of Donation dated March
13, 1957 (Exh. A), Deed of Absolute Sale (Exh. E)
executed by Joaquina dela Rosa in favor of Alejandro
Estudillo, Pedro Paguio and Maximo Victoria of the same
property covered by the Deed of Donation, Exhibit A;
Deed of Sale (Exh. F) of two parcels in dispute described
under T.C.T. No. 51837 executed by Sta. Mesa Realty, Inc.
in favor of Alejandro Estudillo, Joaquina dela Rosa, Pedro
Q. Paguio and Maximo Victoria, Deed of Acknowledgment
dated October 30, 1961 (Exh. G) also executed by the
same Estudillo de la Rosa and Victoria acknowledging
that the property described under the aforementioned
T.C.T. No. 51837, together with the improvements
thereon are being possessed by them only as trustees;
another Deed of Acknowledgment executed on October
22, 1971, jointly by Amor Jose, widow of Paguio and the
latter's daughters, Sumilang Paguio and Filipina Paguio
CORPORATION LAW: 3.a. powers of corps
(co-registered owner of Estudillo) likewise declaring that
their possession of the said property is merely that of
trustees and not as owners; the petitions for revocation
of tax assessments Nos. 3187 and 3188 (Exhs. I and J);
the petition to exempt said parcels from taxation, being
owned by a religious organization (Exh. K) and the follow-
up letters addressed to the City Assessor of Manila,
dated February 15, 1963 (Exh. L), December 29,1963
(Exh. M) and May 29, 1962 (Exh N) respectively, plus the
Deed of Sale (Exh. 0) executed by Estudillo, heirs of dela
Rosa and Paguio of the two parcels in favor of Centro La
Paz, indubitably point to one and inescapable conclusion
that the plaintiff is really the true and lawful owner of the
property in dispute and that persons registered therein
as its owners, are merely trustees of the plaintiff.
While it may be true that the declaration of Estudillo
subsequent to the levy upon his interest in the aforesaid
property may be self-serving, which could be for the
purpose of avoiding liability, his declaration and that of
his co-owners, however, taking place years before the
instant controversy, could hardly be said to have been
motivated by a similar purpose (to evade responsibility)
since at that time, none as yet exist in favor of the
defendant nor anybody elm against the Estudillo. (Record
on Appeal, pp. 54-55) 9
Faced with that adverse judgment, petitioner appealed to
respondent Appellate Court, which affirmed the Court a quo's
Decision on May 11, 1976, and subsequently denied
reconsideration.
Petitioner then availed of the instant Petition, raising the
following issues:
l) Whether or not Centro La Paz which is merely a
Chapter of Union Espiritista de Filipinas, Inc. has a
juridical personality of its own in accordance with the
provisions of our laws;
2) Whether or not Centro La Paz, as claimed by it and the
respondent Court of Appeals, can validly be conferred
upon ownership of Transfer Certificate of Title No. 51837
by virtue of documents executed allegedly in its favor.
We affirm the judgment appealed from.
For one thing, the issues now raised were not directly litigated
in the Court below. For another, it is evident from the
Complaint that the plaintiff was the mother organization,
thus:
Centro La Paz (Samahang Espiritista sa Lunduyang La
Paz), A Chapter of Union Espiritista Cristiana de Filipinas,
Inc., Plaintiff.
Paragraph 1 of the Complaint likewise reads:
1. That the plaintiff is a juridical person duly organized
and existing under and by virtue of the laws of the
Republic of the Philippines, a semi-religious and
charitable organization, with a right to sue and be
sued, ...
Page 21 of 62
In the Offer of Evidence filed before the Trial Court, the The conclusion follows that inasmuch as Estudillo has no its person. It argued that none of the officers enumerated in
purpose of presenting Exhibit "A", the Deed of Donation dated interest in the properties in question, there is nothing that Section 13, Rule 14 of the Revised Rules of Court (namely, the
March 13, 1957, was "to establish or prove the following": petitioner can levy upon. The power of a Court in the corporation's president, manager, secretary, cashier, agent or
execution of its judgment extends only over properties any of its directors) received any summons in Civil Case No.
(a) That the plaintiff "CENTRO LA PAZ" as a chapter of
unquestionably belonging to the judgment debtor. 16 91-3242.
the association of spiritista commonly known as 'UNION
ESPIRITISTA CRISTIANA DE FILIPINAS, INC., 'which is a WHEREFORE, the judgment of respondent Court of Appeals In an Order dated February 18, 1992, the trial court denied
duly registered corporation or entity with the Office of (now Intermediate Appellate Court) affirming that of the Trial petitioner's motion and allowed private respondent to adduce
the Securities and Exchange Commission, is a Juridical Court, which enjoined petitioner "from proceeding with the its evidence ex parte on March 17, 1992 (Rollo, p. 36).
Person with the right to sue and be sued; public auction sale of the properties in question, pursuant to
On March 4, 1992, petitioner filed a motion for
the notice of sale on execution of real property" and made the
xxx xxx xxx 10 reconsideration giving as an additional ground therefor that
writ of preliminary injunction permanent, is hereby affirmed.
summons was served at Sucat, Paraaque, where its bus
In the Memorandum of CENTRO before the Trial Court, the SO ORDERED.
terminal was located, and not at its principal office at No.
following allegation also appears:
G.R. No. 111187 February 1, 1995 4474 Singian Street, Makati, Metro Manila, where its
That the plaintiff is a Chapter of the UNION ESPIRITISTA president, general manager, secretary, agent and directors
R. TRANSPORT CORPORATION, petitioner, vs. HON.
CRISTIANA DE FlLIPINAS, INC., a semi-religious and hold office. Petitioner asked, inter alia, that the trial court
COURT OF APPEALS, Former 15th Division, Manila,
charitable organization duly registered with the direct "the Clerk of Court to issue another summons together
HON. SALVADOR S. ABAD SANTOS, as Presiding Judge,
Securities and Exchange Commission as per Certificate with a copy of the complaint and serve such summons to the
Regional Trial Court of, Metro Manila, Branch 65 and
of Registration No. 15147, dated March 19, 1959, ... 11 President, General Manager, Cashier, or any of its Directors,
FLOSERIDA L. CASTAEDA, respondents.
with offices at Rizal Towers, 4474 Singian St., Makati, Metro
And in the Decision of the Trial Court, it found: Manila, who are authorized by law to receive these summons
The evidence for the plaintiff disclosed that it is a on behalf of the defendant corporation" (Rollo, p. 39).
QUIASON, J.:
chapter of the Union Espiritista Christiana de Filipinas, In an Order dated March 17, 1992, the trial court denied
Inc., a semi-religious and charitable organization duly This is a petition for review on certiorari under Rule 45 of the petitioner's motion for reconsideration for lack of merit (Rollo,
registered with the Securities and Exchange Commission Revised Rules of Court of the decision of the Court of Appeals p. 44).
per Certificate of Registration No. 15147 dated March 19, in CA-G.R. SP No. 27647 and its resolution dated July 21, 1993
1959. denying petitioner's motion for reconsideration. Hence, petitioner filed a petition for certiorari with the Court
12
of Appeals to nullify the above three orders of the trial court.
xxx xxx xxx I
The Court of Appeals dismissed the petition ruling that the
Evident from all the foregoing is that although it was CENTRO On November 22, 1991, private respondent filed a complaint trial court did not commit any grave abuse of discretion in
that was actively prosecuting the case, in substance, it was for damages arising from breach of contract of carriage declaring the petitioner in default and in denying petitioner's
representing the mother organization, the Union Espiritista against petitioner with the Regional Trial Court, Branch 65, motion for reconsideration.
Cristiana de Filipinas, Inc., which is the real party in interest Makati Manila (docketed as Civil Case No. 91-3242).
and is itself named in the Complaint. It is an organization that Petitioner moved for reconsideration of the appellate court's
Summons addressed to "R. Transport Corporation, Sucat decision, submitting the affidavit of its President to the effect
is duly registered with the Securities and Exchange
Road, Paraaque" was prepared (Rollo, p. 31). that its Operations Manager was a certain Roger F. Lemi and
Commission, and thus possessed of a juridical personality to
sue and be sued. 13 The process server of the trial court submitted his Officer's not Cesar Pasquin.
Return on December 6, 1991 stating: In its Resolution dated July 21, 1993, the appellate court
As found by both the Trial Court and respondent Appellate
Court, the evidence sufficiently establishes that the registered This is to certify that on the 4th day of December 1991, denied the motion.
owners of the parcels of land covered by TCT 51837, all of copy of the summons together with complaint and all its Hence, this petition.
whom are members of CENTRO, hold the properties in trust annexes attached thereto issued by this Honorable Court
for CENTRO by virtue of the indubitable documents executed in the above-entitled case has been duly served upon the II
even before the institution of suit. In the same manner that defendant R. Transport, Inc., of Sucat Road, Paraaque
The affidavit filed by the president of petitioner where she
the real property, registered solely in the name of a husband, and receipt was acknowledge (sic) by Mr. Cesar Pasquin
stated that the Operations Manager was not Cesar Pasquin
can be proven to be conjugal property with his wife, the fact who identified himself as the operation (sic) manager of
but a certain Roger F. Lemi deserves scant weight for being
of registration in the name of Alejandro Estudillo and others said company as evidence of (sic) his signature that
self-serving. As correctly held by the appellate court, the
does not bar evidence to show that the registered owners appears at the lower right portion of the original copy of
allegations in the affidavit cannot overcome the presumption
hold the properties in trust for CENTRO. 14 the summons.
stated in Section 3(m), Rule 131 of the Revised Rules of Court
Admittedly, the trust was not registered in accordance with Wherefore, the original copy of this summons is that official duty (that of the service of summons by the
section 65 of Act 496 (the former Land Registration Law). The respectfully returned to the Honorable Court of origin for process server) had been regularly performed. Thus, credence
absence of said registration, however, cannot be taken its record and information, DULY SERVED (Rollo, p. 60). is to be given to the process server's Officer's Return of
against CENTRO inasmuch as, if the public auction sale had December 6, 1991, where it is stated that a copy of the
actually been held, with petitioner as the successful buyer, In an Order dated January 28, 1991, the trial court upon ex summons was received at Sucat, Paraaque by a Cesar
petitioner could not have been considered a purchaser for parte motion of private respondent, declared petitioner in Pasquin, who identified himself as petitioner's Operations
value and in good faith at said sale since it had knowledge of default and appointed a commissioner to receive evidence ex Manager.
CENTRO's claim, particularly when the latter had filed a third- parte on February 18, 1992 (Rollo, p. 32).
Furthermore, the certificate of service by the proper officer
party-claim with the Sheriff of Manila before the scheduled On February 14, 1992, petitioner filed a Motion to Dismiss and
is prima facie evidence of the facts set out therein. Where
auction sale, which knowledge was equivalent to registration to Stop Ex Parte Reception of Evidence (Rollo, p. 33). It
such certificate shows that service of summons in an action
of the several "Acknowledgments" in the Registry of Deeds. 15 asserted that it was not properly served with summons and
against a corporation was made by serving a copy thereof on
consequently, the trial court did not acquire jurisdiction over

CORPORATION LAW: 3.a. powers of corps Page 22 of 62

a person therein named and described as the managing
agent of the company, it is prima facie evidences of the fact
that the person on whom the summons was served was in
fact the managing agent of the company. To overcome the
presumption arising from the certificate, the evidence must
be clear and convincing (Vargas and Co. v. Chan Hang Chiu,
29 Phil. 446 [1915]). Petitioner has failed to overcome such
presumption.
We now come to the issue of whether there was valid service
of summons. Petitioner contends that the summons was not
served on the proper officer of the corporation holding office
at Singian Street, Makati, Metro Manila, but on the Operations
Manager at petitioner's bus terminal in Sucat, Paraaque.
As a general rule, service of summons must be made on the
persons named in Section 13, Rule 14 of the Revised Rules of
Court which provides:
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.
Thus service on persons other than those mentioned in said
Rule has been held as improper (ATM Trucking, Inc. v.
Buencamino, 124 SCRA 434 [1983]; Delta Motor Sales
Corporation v. Mangosing, 70 SCRA 598 [1976]).
Through the years, the rule on service of summons has been
liberalized. Such liberalization is to give life to
the rationale behind Section 13 of Rule 14, stated in Villa Rey
Transit, Inc. v. Far East Motor Corporation, 81 SCRA 298
(1978) thus:
The rationale of all rules for service of process on of the corporation and not merely to a branch or department
corporations is that service must be made on a thereof.
representative so integrated with the corporation sued as
to make it a priori supposable that he will realize his
responsibilities and know what he should do with any SO ORDERED.
legal papers served on him.
Thus service of summons on persons other than those
enumerated in Section 13 of Rule 14 have been held proper
on the theory that those persons served were holding
positions of responsibility and could appreciate the
importance of the papers handed them, and could be
expected to deliver the papers to the proper officer (Rebollido
v. Court of Appeals, 170 SCRA 800 [1989]). These persons
ranged from ordinary clerks (Golden Country Farms, Inc. v.
Sanvar Development Corporation, 214 SCRA 295 [1992]; G &
G Trading v. Court of Appeals, 158 SCRA 466 [1988]), private
secretaries of corporate executives (Summit Trading and
Development Corporation v. Avendano, 135 SCRA 397
[1985]), retained counsel (Republic v. Ker & Company, Ltd.,
18 SCRA 207 [1966]), officials who had charge or control of
the operations of the corporation, like the Assistant General
Manager (Villa Rey Transit, Inc. v. Far East Motor
Corporation, supra), and the corporation's Chief of Finance
and Administrative Officer (Far Corporation v. Francisco, 146
SCRA 197 [1986]). These individuals were considered
"agents" within the contemplation of Section 13 of Rule 14
(Filoil Marketing Corporation v. Marine Development
Corporation of the Philippines, 117 SCRA 86 [1982]; Summit
Trading and Development Corporation v. Francisco, supra).
Thus, we hold that service of summons on petitioner's
Operations Manager was valid. He is an officer who may be
relied upon to appreciate the importance of the papers served
on him. The purpose of Section 13 of Rule 14 was served. The
fact that service was made at petitioner's bus terminal at the
address stated in the summons and not at its office in Makati
does not render the service of summons invalid. In Villa Rey
Transit, Inc., supra, we held valid the service of summons
made on the corporation's Assistant General Manager for
Operations holding office at the "sub-station" in Sampaloc,
Manila.
As held in Gesulgon v. National Labor Relations Commission,
219 SCRA 561 (1993), where service of summons was
effected on the corporation's Assistant Manager:
It would be contrary to public policy to permit a
corporation to free itself from the consequences of
service upon it of legal process by pleading the supposed
failure of one of its officers to carry out the duties
incumbent upon such officer (at pp. 569-570).
G.R. No. L-56613 March 14, 1988
Petitioner is engaged in the transportation business,
operating over 100 buses. Its central bus terminal is located THE DIRECTOR OF LANDS, petitioner, vs. THE
at Sucat, Paraaque, from where it conducts the bulk of its HONORABLE COURT OF APPEALS and IGLESIA NI
business. It was at that terminal where petitioner's Operations CRISTO, respondents.
Manager was found and upon whom service was made. We The Solicitor General for petitioner.
distinguish the instant case from First Integrated Bonding &
Cruz, Esguerra, Tafalla, Peren Castillo & Associates for
Insurance Co., Inc. v. Dizon, 125 SCRA 440 (1983), where we
respondents.
held that a branch manager does not come within the
enumeration of Section 13, Rule 14, who are officers whose
duties generally pertain to the overall transportation business
FERNAN, J.:
A complaint often heard from parties-litigants is the delay in
the resolution of their cases. This is one instance where the
WHEREFORE, the petition is DENIED.
delay will perhaps be regarded, at least by one of the parties,
as a welcome occurrence for had the case at bar been
resolved earlier, the result obtained may have been
diametrically and extremely different.
This is one of the several cases * involving the qualification of
private respondent Iglesia ni Cristo, a corporation sole, to
have an alleged alienable piece of public land registered in its
name under the 1973 Constitution.
The antecedents are as follows:
On November 28, 1973, private respondent Iglesia ni Cristo
filed an application with the then Court of First Instance of
Cavite for registration in its name of a parcel of land with an
area of 379 square meters located at Poblacion, Municipality
of Amadeo, Cavite. In said application, private respondent
alleged inter alia that it was the owner in fee simple of the
land afore-described, having acquired title thereto by virtue of
a Deed of Absolute Sale executed in 1947 by Aquelina de la
Cruz in its favor and that applicant and its predecessors-in-
interest had been in actual, continuous, public, peaceful and
adverse possession and occupation of said land in the
concept of owner for more than thirty [30] years. Private
respondent prayed that should the Land Registration Act not
CORPORATION LAW: 3.a. powers of corps Page 23 of 62
be applicable, the provisions of Chapter VIII of Commonwealth from the probative value thereof. As observed by the 424 and Herico v. Dar, 95 SCRA 437, among others. Thus, in
Act No. 141, as amended by Republic Act No. 6236 be applied appellate court: the recent case of Director of Lands v. Intermediate Appellate
as applicant and its predecessors-in-interest had been in Court, 146 SCRA 509, We categorically stated that the
Now, just because the law requires the filing of a tracing
possession of the land for more than thirty [30] years and had majority ruling in Meralco is "no longer deemed to be binding
cloth of the plan, that We should be too technical about it
introduced improvements thereon, including the fencing precedent", and that "[T]he correct rule, ... is that alienable
that the submission of the certified copy of the white
thereof on all sides. 1 public land held by a possessor, personally or through his
paper plan instead of the original of the tracing cloth of
predecessors-in-interest, openly, continuously and exclusively
The Republic of the Philippines, represented by the Director of the plan would compel Us to deny the registration? The
for the prescribed statutory period [30 years under the Public
Lands, opposed the application on the following grounds: 1] object of the law in requiring the submission of a tracing
Land Act, as amended] is converted to private property by
the applicant and its predecessors-in-interest did not possess cloth of the plan duly approved by the Bureau of Lands is
mere lapse or completion of said period, ipso jure." 6 We
sufficient title to acquire ownership in fee simple of the parcel to establish the true identitythe location of the land,
further reiterated therein the timehonored principle of non-
of land applied for; 2] neither the applicant nor its in terms of degrees and minutes in order that there is an
impairment of vested rights.
predecessors-in-interest have been in open, continuous, assurance that it does not overlap a land or portion of
exclusive and notorious possession and occupation of the land already covered by a previous land registration, or The crucial factor to be determined therefore is the length of
land in question; and, 3] the subject parcel of land is a portion that there will be no possibility that it will be overlapped time private respondent and its predecessors-in-interest had
of the public domain belonging to the Republic of the by a subsequent survey of any adjoining land. been in possession of the land in question prior to the
Philippines not subject to private appropriation. 2 institution of the instant registration proceedings. The land
In the case at bar, such Identity can be well-established
under consideration was acquired by private respondent from
After trial, the Court of First Instance of Cavite rendered by the white paper plan. To Us, it would not matter if the
Aquelina de la Cruz in 1947, who, in turn, acquired by same
judgment granting private respondent's application for plan introduced to establish the Identity of the land is
by purchase from the Ramos brothers and sisters, namely:
registration of title. It found that private respondent and its made of cloth or is made of paper. For one thing, a
Eusebia, Eulalia, Mercedes, Santos and Agapito, in 1936.
predecessors-in-interest had been in continuous, open and tracing cloth of the plan is required to be submitted to
Under section 48[b] of Commonwealth Act No. 141, as
adverse possession of the subject property in the concept of the Bureau of Lands. It must have a file copy of the
amended, "those who by themselves or through their
owner for more than forty [40] years and that the land was same. 5
predecessors-in-interest have been in open, continuous,
not within any military and naval reservation, nor covered by
Petitioner's heavy reliance on the case of Director of lands v. exclusive and notorious possession and occupation of
any kind of public land application or patent, as it is within the
Reyes, 68 SCRA 177, is misplaced. The original tracing cloth agricultural lands of the public domain, under a bona fide
proposed alienable or disposable block of the proposed LC
plan was deemed essential in that case as the lands involved claim of acquisition or ownership, for at least thirty years
Project No. 5-A of Amadeo, Cavite. 3
were vast tracts of uncultivated, mountainous and thickly immediately preceding the filing of the application for
Believing that private respondent did not sufficiently Identify forested lands which were necessarily difficult to Identify, confirmation of title except when prevented by war or force
the land in question by reason of its failure to submit the unlike the land subject matter of the instant registration case majeure" may apply to the Court of First Instance of the
original tracing cloth plan thereof and that private respondent which is more readily Identifiable by reason of its location, its province where the land is located for confirmation of their
was disqualified from holding, except by lease, alienable comparatively smaller size of 379 square meters as well as claims, and the issuance of a certificate of title therefor,
lands of the public domain under Section 11, Article XIV of the the chapel constructed thereon by private respondent in under the Land Registration Act. Said paragraph [b] further
1973 Constitution, the Director of Lands appealed the 1968. Moreover, the documentary evidence presented therein provides that "these shall be conclusively presumed to have
decision of the land registration court to the Court of Appeals. consisting in the blue-prints of two [2] survey plans were not performed all the conditions essential to a Government grant
The appellate court, however, affirmed in toto the assailed approved by the Director of Lands unlike Exhibit "O" which and shall be entitled to a certificate of title under the
decision. Hence, this petition for review on certiorari, bore the approval of the Land Registration Commission at the provisions of this chapter." Taking the year 1936 as the
petitioner Director of Lands reiterating as basis therefor the time it was empowered by law to approve original survey reckoning point, there being no showing as to when the
two [2] issues previously raised before the appellate court. plans and which was re- verified and approved by the Bureau Ramoses first took possession and occupation of the land in
of Lands when the authority to approve original survey plans question, the 30-year period of open, continuous, exclusive
We affirm. No reversible error was committed by the appellate and notorious possession and occupation required by law was
was withdrawn from the Land Registration Commission by P.D.
court in ruling that Exhibit "O", the true certified copy of the completed in 1966. The completion by private respondent of
No. 239.
white paper plan, was sufficient for the purpose of Identifying this statutory 30-year period has dual significance in the light
the land in question. Exhibit "O" was found by the appellate As observed at the outset, had this case been resolved of Section 48[b] of Commonwealth Act No. 141, as amended
court to reflect the land as surveyed by a geodetic engineer. immediately after it was submitted for decision, the result and prevailing jurisprudence: [1] at this point, the land in
It bore the approval of the Land Registration Commission, and may have been quite adverse to private respondent. For the question ceased by operation of law to be part of the public
was reverified and approved by the Bureau of Lands on April rule then prevailing under the case of Manila Electric domain; and [2] private respondent could have its title
25,1974 pursuant to the provisions of P.D. No. 239 Company v. Castro-Bartolome et al., 114 SCRA 799, reiterated thereto confirmed through the appropriate proceedings as
withdrawing from the Land Registration Commission the in Republic v. Villanueva, 114 SCRA 875 as well as the other under the Constitution then in force, private corporations or
authority to approve original survey plans. It contained the subsequent cases involving private respondent adverted to associations were not prohibited from acquiring public lands,
following material data: the barrio [poblacion], municipality above', is that a juridical person, private respondent in but merely prohibited from acquiring, holding or leasing such
[Amadeo] and province [Cavite] where the subject land is particular, is disqualified under the 1973 Constitution from type of land in excess of 1,024 hectares.
located, its area of 379 square meters, the land as plotted, its applying for registration in its name alienable public land, as
technical descriptions and its natural boundaries. Exhibit "O" such land ceases to be public land "only upon the issuance of If in 1966, the land in question was converted ipso jure into
was further supported by the Technical Descriptions 4 signed title to any Filipino citizen claiming it under section 48[b]" of private land, it remained so in 1974 when the registration
by a geodetic surveyor and attested by the Land Registration Commonwealth Act No. 141, as amended. These are precisely proceedings were commenced. This being the case, the
Commission. In fine, Exhibit "O" contained all the details and the cases cited by petitioner in support of its theory of prohibition under the 1973 Constitution would have no
information necessary for a proper and definite Identification disqualification. application. Otherwise construed, if in 1966, private
of the land sought to be registered, thereby serving the respondent could have its title to the land confirmed, then it
Since then, however, this Court had occasion to re-examine had acquired a vested right thereto, which the 1973
purpose for which the original tracing cloth plan is required.
the rulings in these cases vis-a-vis the earlier cases of Carino Constitution can neither impair nor defeat. 7
The fact therefore that the original survey plan was recorded
v. Insular Government, 41 Phil. 935, Susi v. Razon, 48 Phil.
on white paper instead of a tracing cloth should not detract

CORPORATION LAW: 3.a. powers of corps Page 24 of 62

WHEREFORE, the instant petition for review on certiorari is Plaintiffs herein are the minor children of the late Enrico Enrico Pirovano became the president of the defendant
hereby DENIED. The decision of the Court of appeals in CA- Pirovano represented by their mother and judicial guardian company and under his management the company grew and
G.R. No. 63498-R is AFFIRMED IN TOTO. This decision is Estefania R. Pirovano. They seek to enforce certain resolutions progressed until it became a multi-million corporation by the
immediately executory. No pronouncement as to costs. adopted by the Board of Directors and stockholders of the time Pirovano was executed by the Japanese during the
defendant company giving to said minor children of the occupation. On May 13, 1941, the capital stock of the
SO ORDERED.
proceeds of the insurance policies taken on the life of their corporation was increased to P2,000,000, after which a 100
deceased father Enrico Pirovano with the company as per cent stock dividend was declared. Subsequently, or before
beneficiary. Defendant's main defense is: that said resolutions the outbreak of the war , new stock dividends of 200 per cent
and the contract executed pursuant thereto are ultra vires, and 33 1/3 per cent were again declared. On December 4,
and, if valid, the obligation to pay the amount given is not yet 1941, the capital stock was once more increased to
due and demandable. P5,000,000. Under Pirovano's management, the assets of the
company grew and increased from an original paid up capital
The trial court resolved all the issues raised by the parties in
of around P240,000 to P15,538,024.37 by September 30,
favor of the plaintiffs and, after considering the evidence,
1941 (Exhibit HH).
both oral and documentary, arrived at the following
conclusions: In the meantime, Don Esteban de la Rama, who practically
owned and controlled the stock of the defendant corporation,
First. That the contract executed between the
distributed his shareholding among his five daughters,
plaintiffs and the defendant is a renumerative donation.
namely, Leonor, Estefania, Lourdes, Lolita and Conchita and
Second. That said contract or donation is not ultra his wife Natividad Aguilar so that, at that time, or on July 10,
vires, but an act executed within the powers of the 1946, the stockholding of the corporation stood as follows:
defendant corporation in accordance with its articles of Esteban de la Rama, 869 shares, Leonor de la Rama, 3,375
incorporation and by laws, sanctioned and approved by shares, Estefania de la Rama, 3,368 shares, Lourdes de la
its Board of Directors and stockholders; and Rama, 3,368 shares, Lolita de la Rama, 3,368 shares,
subsequently ratified by other subsequent acts of the Conchita de la Rama, 3,376 shares, and Natividad Aguilar,
defendant company. 2,136 shares. The other stockholders , namely, Eliseo Hervas,
Tomas Concepcion, Antonio Juanco, and Jose Aguilar, who
Third. That the said donation is in accordance with the were merely employees of Don Esteban, were given 40 shares
trend of modern and more enlightened legislation in its each, while Pio Pedrosa, Marcial P. Lichauco and Rafael Roces,
treatment of questions between labor and capital. one share each, because they merely represented the
Fourth. That the condition mentioned in the donation National Development Company. This Company was given
is null and void because it depends on the provisions of representation in the Board Of Directors of the corporation
Article 1115 of the old Civil Code. because at that time the latter had an outstanding bonded
indebtedness to the National Development Company.
Fifth. That if the condition is valid, its non-fulfillment is
due to the desistance of the defendant company from This bonded indebtedness was incurred on February 26, 1940
obeying and doing the wishes and mandates of the and was in the amount of P7,500.00. The bond held by the
majority of the stockholders. National Development Company was redeemable within a
period of 20 years from March 1, 1940,. bearing interest at
Sixth. That the non-payment of the debt in favor of the the rate of 5 per cent per annum. To secure said bonded
National Development Company is not due to the lack of indebtedness, all the assets of the De la Rama Steamship Co.,
G.R. No. L-5377 December 29, 1954 funds, nor to lack of authority, but the desire of the Inc., and properties of Don Esteban de la Rama, as well as
President of the corporation to preserve and continue the those of the Hijos de I. de la Rama and Co., Inc., a sister
MARIA CLARA PIROVANA ET AL., plaintiffs-appellees, vs. Government participation in the company. corporation owned by Don Esteban and his family, were
THE DE LA RAMA STEAMSHIP CO., defendant-appellant.
Seventh. That due demands were made by the mortgaged to the National Development Company (Annexes
Del Rosario and Garcia for appellant. plaintiffs and their attorneys and these demands were A, B, C, D of Exhibit 3, Deed of Trust). Payments made by the
Vicente J. Francisco for appellees. rejected for no justifiable or legal grounds. corporation under the management of Pirovano reduced this
bonded indebtedness to P3,260,855.77.
The important facts which need to be considered for purposes
BAUTISTA ANGELO, J.: of this appeal may be briefly stated as follows: Defendant is a Upon arrangement made with the National Development
corporation duly organized in accordance with law with an Company, the outstanding bonded indebtedness was
This is an appeal from a decision of the Court of First Instance authorized capital of P500,000, divided into 5,000 shares, converted into non-voting preferred shares of stock of the De
of Rizal declaring the donation made by the defendant in with a par value of P100 each share. The stockholders were: la Rama company under the express condition that they
favor of the minor children of the late Enrico Pirovano of the Esteban de la Rama, 1,800 shares, Leonor de la Rama, 100 would bear affixed cumulative dividend of 6 per cent per
proceeds of the insurance policies taken on his life valid and shares, Estefania de la Rama, 100 shares, and Eliseo Hervas, annum and would be redeemable within 15 years (Exhibits 5
binding, and ordering said defendant to pay to said minor Tomas Concepcion, Antonio G. Juanco, and Gaudencio and 7). This conversion was carried out on September 23,
children the sum of P583,813.59, with interest thereon at the Volasote with 5 shares each. Leonor and Estefania are 1949, when the National Development Company executed a
rate of per cent from the date of filing of the complaint, plus daughters of Don Esteban, while the rest his employees. "Deed of Termination of Trust and Release of Mortgage" in
an additional amount equivalent to 20 per cent of said sum of Estefania de la Rama was married to the late Enrico Pirovano favor of the De la Rama company (Exhibit 6.) The immediate
P538,813.59 as damages by way of attorney's fees and the and to them four children were born who are the plaintiffs in effect of this conversion was the released from incumbrance
costs of action. this case. of all the properties Of Don Esteban and of the Hijos de I. de
la Rama and Co., Inc., which was apparently favorable to the
interests of the De la Rama company, but, on the other hand,

CORPORATION LAW: 3.a. powers of corps Page 25 of 62

it resulted in the inconvenience that, as holder of the
preferred stock, the National Development Company, was
given to the right to 40 per cent of the membership of the
Board of Directors of the De la Rama company, which meant
an increase in the representation of the National
Development Company from 2 to 4 of the 9 members of said
Board of Directors.
The first resolution granting to the Pirovano children the
proceeds of the insurance policies taken on his life by the
defendant company was adopted by the Board of Directors at
a meeting held on July 10, 1946, (Exhibit B). This grant was
called in the resolution as "Special Payment to Minor Heirs of
the late Enrico Pirovano". Because of its direct hearing on the
issues involved in this case, said resolution is hereunder
reproduced in toto:
SPECIAL PAYMENT TO MINORS HEIRS OF THE LATE
ENRICO PIROVANO
The President stated that the principal purpose for which
the meeting had been called was to discuss the
advisability of making some form of compensation to the
minor heirs of the late Enrico Pirovano, former President
and General Manager of the Company. As every member
of the Board knows, said the President, the late Enrico
Pirovano who was largely responsible for the very
successful development of the activities of the Company
prior to war was killed by the Japanese in Manila
sometime in 1944 leaving as his only heirs four minor
children, Maria Carla, Esteban, Enrico and John Albert.
Early in 1941, explained the President, the Company had
insured the life of Mr. Pirovano for a million pesos.
Following the occupation of the Philippines by Japanese
forces the Company was unable to pay the premiums on
those policies issued by Filipino companies and these
policies had lapsed. But with regards to the York Office of
the De la Rama Steamship Co., Inc. had kept up payment
of the premiums from year to year. The payments made
on account of these premiums, however, are very small
compared to the amount which the Company will now
receive as a result of Mr. Pirovano's death. The President
proposed therefore that out of the proceeds of these
policies the sum of P400,000 be set aside for the minor
children of the deceased, said sum of money to be
convertible into 4,000 shares of the stock of the
Company, at par, or 1,000 shares for each child. This
proposal, explained the President as being made by him
upon suggestion of President Roxas, but, he added, that
he himself was very much in favor of it also. On motion
of Miss Leonor de la Rama duly seconded by Mrs.
Lourdes de la Rama de Osmea, the following resolution
was, thereupon, unanimously approved:
Whereas, the late Enrico Pirovano, President and General
Manager of the De la Rama Steamship Company, died in
Manila sometime in November, 1944:
Whereas, the said Enrico Pirovano was largely
responsible for the rapid and very successful
development of the activities of thus company;
Whereas, early in 1941 this company insured the life of
said Enrico Pirovano in various Philippine and American
Life Insurance companies for the total sum of shares of stock in lieu of the amount to be donated, the
P1,000,000; voting strength of the five daughters of Don Esteban in the
company would be adversely affected in the sense that Mrs.
Whereas, the said Enrico Pirovano is survived by his
Pirovano would be adversely affected in the sense that Mrs.
widow, Estefania Pirovano and four minor children, to wit:
Pirovano would have a voting power twice as much as that of
Esteban, Maria Carla, Enrico and John Albert, all
her sisters. This caused Lourdes de la Rama to write to the
surnamed Pirovano;lawphil.net
secretary of the corporation, Atty. Marcial Lichauco, asking
Whereas, said Enrico Pirovano left practically nothing to him to cancel the waiver she supposedly gave of her pre-
his heirs and it is but fit proper that this company which emptive rights. Osmea elaborated on this matter at the
owes so much to the deceased should make some annual meeting of the stockholders held on December 12,
provision for his children; 1946 but at said meeting it was decided to leave the matter
in abeyance pending further action on the part of the
Whereas, this company paid premium on Mr. Pirovano's members of the De la Rama family.
life insurance policies for a period of only 4 years so that
it will receive from the insurance companies sums of Osmea, in the meantime, took up the matter with Don
money greatly in excess of the premiums paid by this Esteban and, as consequence, the latter, on December 30,
company. 1946, addressed to Marcial Lichauco a letter stating, among
other things, that "in view of the total lack of understanding
Be it resolved, That out of the proceeds to be collected by me and my daughters of the two Resolutions
from the life insurance policies on the life of the late abovementioned, namely, Directors' and Stockholders' dated
Enrico Pirovano, the sum of P400,000 be set aside for July 10, 1946, as finally resolved by the majority of the
equal division among the 4 minor children of the Stockholders and Directors present yesterday, that you
deceased, to wit: Esteban, Maria Carla, Enrico and John consider the abovementioned resolutions nullified." (Exhibit
Albert, all surnamed Pirovano, which sum of money shall CC).
be convertible into shares of stock of the De la Rama
Steamship Company, at par and, for that purpose, that On January 6, 1947, the Board of Directors of the De la Rama
the present registered stockholders of the corporation be company, as a consequence of the change of attitude of Don
requested to waive their preemptive right to 4,000 Esteban, adopted a resolution changing the form of the
shares of the unissued stock of the company in order to donation to the Pirovano children from a donation of 4,000
enable each of the 4 minor heirs of the deceased, to wit: shares of stock as originally planned into a renunciation in
Esteban, Maria Carla, Enrico and John Albert, all favor of the children of all the company's "right, title, and
surnamed Pirovano, to obtain 1,000 shares at par; interest as beneficiary in and to the proceeds of the
abovementioned life insurance policies", subject to the
Resolved, further, that in view of the fact that under the express condition that said proceeds should be retained by
provisions of the indenture with the National the company as a loan drawing interest at the rate of 5 per
Development Company, it is necessary that action herein cent per annum and payable to the Pirovano children after the
proposed to be confirmed by the Board of Directors of company "shall have first settled in full the balance of its
that company, the Secretary is hereby instructed to send present remaining bonded indebtedness in the sum of
a copy of this resolution to the proper officers of the approximately P5,000,000" (Exhibit C). This resolution was
National Development Company for appropriate action. concurred in by the representatives of the National
(Exhibit B) Development Company. The pertinent portion of the
The above resolution, which was adopted on July 10, 1946, resolution reads as follows:
was submitted to the stockholders of the De la Rama Be resolved, that out of gratitude to the late Enrico
company at a meeting properly convened, and on that same Pirovano this Company renounce as it hereby renounces,
date, July 10, 1946, the same was duly approved. all of his right, title, and interest as beneficiary in and to
It appears that, although Don Esteban and the Members of his the proceeds of the abovementioned life insurance
family were agreeable to giving to the Pirovano children the policies in favor of Esteban, Maria Carla, Enrico and John
amount of P400,000 out of the proceeds of the insurance Albert, all surnamed Pirovano, subject to the terms and
policies taken on the life of Enrico Pirovano, they did not conditions herein after provided;
realize that when they provided in the above referred two That the proceeds of said insurance policies shall be
resolutions that said Amount should be paid in the form of retained by the Company in the nature of a loan drawing
shares of stock, they would be actually giving to the Pirovano interest at the rate of 5 per cent annum from the date of
children more than what they intended to give. This came receipt of payment by the Company from the various
about when Lourdes de la Rama, wife of Sergio Osmea, Jr., insurance companies above-mentioned until the time the
showed to the latter copies of said resolutions and asked him time the same amounts are paid to the minor heirs of
to explain their import and meaning, and it was value then Enrico Pirovano previously mentioned;
that Osmea explained that because the value then of the
shares of stock was actually 3.6 times their par value, the That all amounts received from the above-mentioned
donation their value, the donation, although purporting to be policies shall be divided equally among the minors heirs
only P400,00, would actually amount to a total of P1,440,000. of said Enrico Pirovano;
He further explained that if the Pirovano children would given
CORPORATION LAW: 3.a. powers of corps Page 26 of 62
 That the company shall proceed to pay the proceeds of
said insurance policies plus interests that may have
accrued to each of the heirs of the said Enrico Pirovano
or their duly appointed representatives after the
Company shall have first settled in full the balance of its
present remaining bonded indebtedness in the sum of
the approximately P5,000,000.
The above resolution was carried out by the company and
Mrs. Estefania R. Pirovano, the latter acting as guardian of her
children, by executing a Memorandum Agreement on January
10, 1947 and June 17, 1947, respectively, stating therein that
the De la Rama Steamship Co., Inc., shall enter in its books as
a loan the proceeds of the life insurance policies taken on the
life of Pirovano totalling S321,500, which loan would earn
interest at the rate of 5 per cent per annum. Mrs. Pirovano, in
executing the agreement, acted with the express authority
granted to her by the court in an order dated March 26, 1947.
On June 24, 1947, the Board of Directors approved a
resolution providing therein that instead of the interest on the
loan being payable, together with the principal, only after the
company shall have first settled in full its bonded
indebtedness, said interest may be paid to the Pirovano
children "whenever the company is in a position to met said
obligation" (Exhibit D), and on February 26, 1948, Mrs.
Pirovano executed a public document in which she formally
accepted the donation (Exhibit H). The Dela Rama company
took "official notice" of this formal acceptance at a meeting
held by its Board of Directors on February 26, 1948.
In connection with the above negotiations, the Board of
Directors took up at its meeting on July 25, 1949, the
proposition of Mrs. Pirovano to buy the house at New
Rochelle, New York, owned by the Demwood Realty, a
subsidiary of the De la Rama company at its original costs of
$75,000, which would be paid from the funds held in trust
belonging to her minor children. After a brief discussion
relative to the matter, the proposition was approved in a
resolution adopted on the same date.
The formal transfer was made in an agreement signed on
September 5, 1949 by Mrs. Pirovano, as guardian of her
children, and by the De la Rama company, represented by its
new General Manager, Sergio Osmea, Jr. The transfer of this
property was approved by the court in its order of September
20, 1949.lawphil.net
On September 13, 1949, or two years and 3 months after the
donation had been approved in the various resolutions herein
above mentioned, the stockholders of the De la Rama
company formally ratified the donation (Exhibit E), with
certain clarifying modifications, including the resolution
approving the transfer of the Demwood property to the
Pirovano children. The clarifying modifications are quoted
hereunder:
1. That the payment of the above-mentioned donation
shall not be affected until such time as the Company
shall have first duly liquidated its present bonded
indebtedness in the amount of P3,260,855.77 with The
National Development Company, or fully redeemed the
preferred shares of stock in the amount which shall be
issued to the National Development Company in lieu 1951, with the corresponding interest thereon; (2) as an
thereof; alternative relief, sentencing defendant to pay to the plaintiffs
the interests on said sum of P564,980.89 at the rate of 5 per
2. That any and all taxes, legal fees, and expenses in any
cent per annum, and the sum of P564,980.89 after the
way connected with the above transaction shall be
redemption of the preferred shares of the corporation held by
chargeable and deducted from the proceeds of the life
the National Development Company; and (3) in any event,
insurance policies mentioned in the resolutions of the
sentencing defendant to pay the plaintiffs damages in the
Board of Directors. (Exhibit E)
amount of not less than 20 per cent of the sum that may be
Sometime in March 1950, the President of the corporation, adjudged to the plaintiffs, and the costs of action.
Sergio Osmea, Jr., addressed an inquiry to the Securities and
The only issues which in the opinion of the court need to be
Exchange Commission asking for opinion regarding the
determined in order to reach a decision in this appeal are: (1)
validity of the donation of the proceeds of the insurance
Is the grant of the proceeds of the insurance policies taken on
policies to the Pirovano children. On June 20, 1950 that office
the life of the late Enrico Pirovano as embodied in the
rendered its opinion that the donation was void because the
resolution of the Board of Directors of defendant corporation
corporation could not dispose of its assets by gift and
adopted on January 6, 1947 and June 24, 1947 a
therefore the corporation acted beyond the scope of its
remunerative donation as found by the lower court?; (2) IN
corporate powers. This opinion was submitted to the Board of
the affirmative case, has that donation been perfected before
Directors at its meting on July 12, 1950, on which occasion
its rescission or nullification by the stockholders of the
the president recommend that other legal ways be studied
corporation on March 8, 1951?; (3) Can defendant corporation
whereby the donation could be carried out. On September 14,
give by way of donation the proceeds of said insurance
1950, another meeting was held to discuss the propriety of
policies to the minor children of the late Enrico Pirovano
the donation. At this meeting the president expressed the
under the law or its articles of corporation, or is that donation
view that, since the corporation was not authorized by its
an ultra vires act?; and (4) has the defendant corporation, by
charter to make the donation to the Pirovano children and the
the acts it performed subsequent to the granting of the
majority of the stockholders was in favor of making provision
donation, deliberately prevented the fulfillment of the
for said children, the manner he believed this could be done
condition precedent to the payment of said donation such
would be to declare a cash dividend in favor of the
that it can be said it has forfeited its right to demand its
stockholders in the exact amount of the insurance proceeds
fulfillment and has made the donation entirely due and
and thereafter have the stockholders make the donation to
demandable?
the children in their individual capacity. Notwithstanding this
proposal of the president, the board took no action on the We will discuss these issues separately.
matter, and on March 8, 1951, at a stockholders' meeting
1. To determine the nature of the grant made by the
convened on that date the majority of the stockholders' voted
defendant corporation to the minor children of the late Enrico
to revoke the resolution approving the donation to the
Pirovano, we do not need to go far nor dig into the
Pirovano children. The pertinent portion of the resolution
voluminous record that lies at the bottom of this case. We do
reads as follows:
not even need to inquire into the interest which has allegedly
Be it resolved, as it is hereby resolved, that in view of the been shown by President Roxas in the welfare of the children
failure of compliance with the above conditions to which of his good friend Enrico Pirovano. Whether President Roxas
the above donation was made subject, and in view of the has taken the initiative in the move to give something to said
opinion of the Securities and Exchange Commissioner, children which later culminated in the donation now in
the stockholders revoke, rescind and annul, as they do dispute, is of no moment for the fact is that, from the mass of
thereby revoke, rescind and annul, its ratification and evidence on hand, such a donation has been given the full
approval on September 13, 1949 of the aforementioned indorsement and encouraging support by Don Esteban de la
resolution of the Board of Directors of January 6, 1947, as Rama who was practically the owner of the corporation. We
amended on June 24, 1947. (Exhibit T) only need to fall back to accomplish this purpose on the
several resolutions of the Board of Directors of the
In view of the resolution declaring that the corporation failed
corporations containing said grant for they clearly state the
to comply with the condition set for the effectivity of the
reasons and purposes why the donation has been given.
donation and revoking at the same time the approval given to
it by the corporation, and considering that the corporation Before we proceed further, it is convenient to state here in
can no longer set aside said donation because it had no passing that, before the Board of Directors had approved its
longer set aside said donation because it had long been resolution of January 6, 1947, as later amended by another
perfected and consummated, the minor children of the late resolution adopted on June 24, 1947, the corporation had
Enrico Pirovano, represented by their mother and guardian, already decided to give to the minor children of the late
Estefania R. de Pirovano, demanded the payment of the credit Enrico Pirovano the sum of P400,000 out of the proceeds of
due them as of December 31, 1951, amounting to the insurance policies taken on his life in the form of shares,
P564,980.89, and this payment having been refused, they and that when this form was considered objectionable
instituted the present action in the Court of First Instance of because its result and effect would be to give to said children
Rizal wherein they prayed that the be granted an alternative a much greater amount considering the value then of the
relief of the following tenor: (1) sentencing defendant to pay stock of the corporation, the Board of Directors decided to
to the plaintiff the sum of P564,980.89 as of December 31, amend the donation in the form and under the terms stated in
CORPORATION LAW: 3.a. powers of corps Page 27 of 62
the aforesaid resolutions. Thus, in the original resolution for the rapid and very successful development and expansion the insurance policies would be entered in the books of the
approved by the Board of Directors on July 10, 1946, wherein of the activities of this company"; and also because he "left corporation as a loan which would bear an interest at the rate
the reasons for granting the donation to the minor children of practically nothing to his heirs and it is but fit and proper that of 5 per cent per annum, and said agreement was signed by
the late Enrico Pirovano were clearly, we find out the following this company which owes so much to the deceased should Mrs. Pirovano as judicial guardian of her children after she
revealing statements: make some provision to his children", and so, the donation had been expressly authorized by the court to accept the
was given "out of gratitude to the late Enrico Pirovano." We donation in behalf of her children.
Whereas, the late Enrico Pirovano President and General
do not need to stretch our imagination to see that a grant or
Manager of the De la Rama Steamship Company, died in (c) While the donation can be considered as duly executed by
donation given under these circumstances is remunerative in
Manila sometime in November, 1944; the execution of the document stated in the preceding
nature in contemplation of law.
paragraph, and by the entry in the books of the corporation of
Whereas, the said Enrico Pirovano was largely
That which is made to a person in consideration of his the donation as a loan, a further record of said execution was
responsible for the rapid and very successful
merits or for services rendered to the donor, provided made when Mrs. Pirovano executed a public document on
development of the activities of this company;
they do not constitute recoverable debts, or that in which February 26, 1948 making similar acceptance of the donation.
Whereas, early in 1941 this company insured the life of a burden less than the value of the thing given is And this acceptance was officially recorded by the corporation
said Enrico Pirovano in various Philippine and American imposed upon the donee, is also a donation." (Art. 619, when on the same date its Board of Directors approved a
Life Insurance companies for the total sum of old Civil Code.) resolution taking "official notice" of said acceptance.
P1,000,000;
In donations made to a person for services rendered to (d) On July 25, 1949, the Board of Directors approved the
Whereas, the said Enrico Pirovano is survived by his the donor, the donor's will is moved by acts which proposal of Mrs. Pirovano to buy the house at New Rochelle,
widow, Estefania Pirovano and 4 minor children, to wit: directly benefit him. The motivating cause is gratitude, New York, owned by a subsidiary of the corporation at the
Esteban, Maria Carla, Enrico and John Albert, all acknowledgment of a favor, a desire to compensate. A costs of S75,000 which would be paid from the sum held in
surnamed Pirovano; donation made to one who saved the donor's life, or a trust belonging to her minor children. And this agreement was
lawyer who renounced his fees for services rendered to actually carried out in a document signed by the general
Whereas, the said Enrico Pirovano left practically nothing the donor, would fall under this class of donations. These manager of the corporation and by Mrs. Pirovano, who acted
to his heirs and it is but fit and proper that this company donations are called remunerative donations . (Sinco and on the matter with the express authority of the court.
which owes so much to the deceased should make some Capistrano, The Civil Code, Vol. 1, p. 676; Manresa, 5th
provisions for his children; (e) And on September 30, 1949, or two years and 3 months
ed., pp. 72-73.)
after the donation had been executed, the stockholders of the
Whereas, this company paid premiums on Mr. Pirovano's 2. The next question to be determined is whether the defendant corporation formally ratified and gave approval to
life insurance policies for a period of only 4 years so that donation has been perfected such that the corporation can no the donation as embodied in the resolutions above referred
it will receive from the insurance companies sums of longer rescind it even if it wanted to. The answer to this to, subject to certain modifications which did not materially
money greatly in excess of the premiums paid by the question cannot but be in the affirmative considering that the affect the nature of the donation.
company, same has not only been granted in several resolutions duly
There can be no doubt from the foregoing relation of facts the
Again, in the resolution approved by the Board of Directors on adopted by the Board of Directors of the defendant donation was a corporate act carried out by the corporation
January 6, 1947, we also find the following expressive corporation, and in all these corporate acts the concurrence not only with the sanction of its Board of Directors but also of
statements which are but a reiteration of those already of the representatives of the National Development Company, its stockholders. It is evident that the donation has reached
expressed in the original resolution: the only creditor whose interest may be affected by the
the stage of perfection which is valid and binding upon the
donation, has been expressly given. The corporation has even
Whereas, the late Enrico Pirovano, President and General gone further. It actually transferred the ownership of the corporation and as such cannot be rescinded unless there is
Manager of the De la Rama Steamship Co., Inc., died in credit subject of donation to the Pirovano children with the exists legal grounds for doing so. In this case, we see none.
Manila sometime during the latter part of the year 1944; express understanding that the money would be retained by The two reasons given for the rescission of said donation in
the resolution of the corporation adopted on March 8, 1951,
Whereas, the said Enrico Pirovano was to a large extent the corporation subject to the condition that the latter would to wit: that the corporation failed to comply with the
responsible for the rapid and very successful pay interest thereon at the rate of 5 per cent per annum conditions to which the above donation was made subject,
development and expansion of the activities of this payable whenever said corporation may be in a financial and that in the opinion of the Securities and Exchange
company; position to do so. Thus, the following acts of the corporation
Commission said donation is ultra vires, are not, in our
as reflected from the evidence bear this out:
Whereas, early in 1941, the life of the said Enrico opinion, valid and legal as to justify the rescission of a
Pirovano was insured in various life companies, to wit: (a) The donation was embodied in a resolution duly approved perfected donation. These reasons, as we will discuss in the
by the Board of Directors on January 6, 19437. In this latter part of this decision, cannot be invoked by the
Whereas, the said Enrico Pirovano is survived by 4 minor resolution, the representatives of the National Development corporation to rescind or set at naught the donation, and the
children, to wit: Esteban, Maria Carla, Enrico and John Company, have given their concurrence. This is the only only way by which this can be done is to show that the donee
Albert, all surnamed Pirovano; and creditor which can be considered as being adversely affected has been in default, or that the donation has not been validly
Whereas, the said Enrico Pirovano left practically nothing by the donation. The resolution of June 24, 1947 did not executed, or is illegal or ultra vires, and such is not the case
to his heirs and it is but fit and proper that this Company modify the substance of the former resolution for it merely as we will see hereafter. We therefore declare that the
which owes so much to the deceased should make some provided that instead of the interest on the loan being resolution approved by the stockholders of the defendant
provision for his children; payable, together with the principal, only after the corporation on March 8, 1951 did not and cannot have the
corporation had first settled in full its bonded indebtedness, effect of nullifying the donation in question.
Be it resolved, that out of gratitude to the late Enrico said interest would be paid "whenever the company is in a
Pirovano this Company renounce as it hereby position to meet said obligation." 3. The third question to be determined is: Can defendant
renounces, . . . . corporation give by way of donation the proceeds of said
(b) The resolution of January 6, 1947 was actually carried out insurance policies to the minor children of the late Enrico
From the above it clearly appears that the corporation when the company and Mrs. Estefania R. Pirovano, executed a Pirovano under the law or its articles of corporation, or is that
thought of giving the donation to the children of the late memorandum agreement stating therein hat the proceeds of donation an ultra vires act? To answer this question it is
Enrico Pirovano because he "was to a large extent responsible

CORPORATION LAW: 3.a. powers of corps Page 28 of 62

important for us to examine the articles of incorporation of to do such other acts in connection with the purposes for steamship companies. In this instance, Gispert was not even
the De la Rama company to see this question it is important which this corporation has been formed which is an employee of the corporation. And invoking this vast power,
for us to examine the articles of incorporation of the De la calculated to promote the interest of the corporation or the corporation even went to the extent of contributing
Rama company to see if the act or donation is outside of their to enhance the value of its property and to exercise all P100,000 to the Liberal Party campaign funds, apparently in
scope. Paragraph second of said articles provides: the rights, powers and privileges which are now or may the hope that by conserving its cordial relations with that
hereafter be conferred by the laws of the Philippines party it might continue to retain the patronage of the
Second. The purposes for which said corporation is
upon corporations formed under the Philippine administration. All these acts executed before and after the
formed are:
Corporation Act; to execute from time to time general or donation in question have never been questioned and were
(a) To purchase, charter, hire, build, or otherwise acquire special powers of attorney to persons, firms, associations willingly and actually carried out.
steam or other ships or vessels, together with or corporations either in the Philippines, in the United
We don't see much distinction between these acts of
equipments and furniture therefor, and to employ the States, or in any other country and to revoke the same
generosity or benevolence extended to some employees of
same in conveyance and carriage of goods, wares and as and when the Directors may determine and to do any
the corporation, and even to some in whom the corporation
merchandise of every description, and of passengers and or all of the things hereinafter set forth and to the
was merely interested because of certain moral or political
upon the high seas. same extent as natural persons might or could do.
considerations, and the donation which the corporation has
(b) To sell, let, charter, or otherwise dispose of the said After a careful perusal of the provisions above quoted we find seen fit to give to the children of the late Enrico Pirovano from
vessels or other property of the company. that the corporation was given broad and almost unlimited the point of view of the power of the corporation as expressed
powers to carry out the purposes for which it was organized in its articles of incorporation. And if the former had been
(c) To carry on the business of carriers by water. among them, (1) "To invest and deal with the moneys of the sanctioned and had been considered valid and intra vires, we
(d) To carry on the business of shipowners in all of its company not immediately required, in such manner as from see no plausible reasons why the latter should now be
branches. time to time may be determined" and, (2) "to aid in any other deemed ultra vires. It may perhaps be argued that the
manner any person, association, or corporation of which any donation given to the children of the late Enrico Pirovano is so
(e) To purchase or take on lease, lands, wharves, stores, obligation or in which any interest is held by this corporation large and disproportionate that it can hardly be considered a
lighters, barges and other things which the company or in the affairs or prosperity of which this corporation has a pension of gratuity that can be placed on a par with the
may deem necessary or advisable to be purchased or lawful interest." The world deal is broad enough to include instances above mentioned, but this argument overlooks one
leased for the necessary and proper purposes of the any manner of disposition, and refers to moneys not consideration: the gratuity here given was not merely
business of the company, and from time to time to sell immediately required by the corporation, and such disposition motivated by pure liberality or act of generosity, but by a
the dispose of the same. may be made in such manner as from time to time may be deep sense of recognition of the valuable services rendered
(f) To promote any company or companies for the determined by the corporations. The donation in question by the late Enrico Pirovano which had immensely contributed
purposes of acquiring all or any of the property or undoubtedly comes within the scope of this broad power for it to the growth of the corporation to the extent that from its
liabilities of this company, or both, or for any other is a fact appearing in the evidence that the insurance humble capitalization it blossomed into a multi-million
purpose which may seem directly or indirectly calculated proceeds were not immediately required when they were corporation that it is today. In other words of the very
to benefit the company. given away. In fact, the evidence shows that the corporation resolutions granting the donation or gratuity, said donation
declared a 100 per cent cash dividend, or P2,000,000, and was given not only because the company was so indebted to
(g) To invest and deal with the moneys of the company later on another 30 per cent cash dividend. This is clear proof him that it saw fit and proper to make provisions for his
and immediately required, in such manner as from time of the solvency of the corporation. It may be that, as children, but it did so out of a sense of gratitude. Another
to time may be determined. insinuated, Don Esteban wanted to make use of the insurance factor that we should bear in mind is that Enrico Pirovano was
(h) To borrow, or raise, or secure the payment of money money to rehabilitate the central owned by a sister not only a high official of the company but was at the same
in such manner as the company shall think fit. corporation, known as Hijos de I. de la Rama and Co., Inc., time a member of the De la Rama family, and the recipient of
situated in Bago, Negros Occidental, but this, far from the donation are the grandchildren of Don Esteban de la
(i) Generally, to do all such other thing and to transact all reflecting against the solvency of the De la Rama company, Rama. This we, may say, is the motivating root cause behind
business as may be directly or indirectly incidental or only shows that the funds were not needed by the the grant of this bounty.
conducive to the attainment of the above object, or any corporation.
of them respectively. It may be contended that a donation is different from a
Under the second broad power we have the above stated, gratuity. While technically this may be so in substance they
(j) Without in any particular limiting or restricting any of that is, to aid in any other manner any person in the affairs are the same. They are even similar to a pension. Thus, it was
the objects and powers of the corporation, it is hereby and prosperity of whom the corporation has a lawful interest, granted for services previously rendered, and which at the
expressly declared and provided that the corporation the record of this case is replete with instances which clearly time they were rendered gave rise to no legal obligation. "
shall have power to issue bonds and provided that the show that the corporation knew well its scope and meaning so (Words and Phrases, Permanent Edition, p. 675; O'Dea vs.
corporation shall have power to issue bonds and other much so that, with the exception of the instant case, no one Cook,, 169 Pac., 306, 176 Cal., 659.) Or stated in another
obligations, to mortgage or pledge any stocks, bonds or has lifted a finger to dispute their validity. Thus, under this way, a "Gratuity is mere bounty given by the Government in
other obligations or any property which may be required broad grant of power, this corporation paid to the heirs of one consideration or recognition or meritorious services and
by said corporations; to secure any bonds, guarantees or Florentino Nonato, an engineer of one of the ships of the springs from the appreciation an d graciousness of the
other obligations by it issued or incurred; to lend money company who died in Japan, a gratuity of P7,000, equivalent Government", (Ilagan vs. Ilaya, G.R. No. 33507, Dec. 20 1930)
or credit to and to aid in any other manner any person, to one month salary for each year of service. It also gave to or "A gratuity is something given freely, or without
association, or corporation of which any obligation or in Ramon Pons, a captain of one of its ships , a retirement recompense, a gift, something voluntarily given in return for a
which any interest is held by this corporation or in the gratuity equivalent to one month salary for every year of favor or services; a bounty; a tip." Wood Mercantile Co. vs.
affairs or prosperity of which this corporation or in the service, the same to be based upon his highest salary. And it Cole, 209 S.W. 2d. 290; Mendoza vs. Dizon, 77 Phil., 533, 43
affairs or prosperity of which this corporation has a contributed P2,000 to the fund raised by the Associated Off. Gaz. p. 4633. We do not see much difference between
lawful interest, and to do such acts and things as may be Steamship Lines for the widow of the late Francis Gispert, this definition of gratuity and a remunerative donation
necessary to protect, preserve, improve, or enhance the secretary of said Association, of which the De la Rama contemplated in the Civil Code. In essence they are the same.
value of any such obligation or interest; and, in general, Steamship Co., Inc., was a member along with about 30 other Such being the case, it may be said that this donation is

CORPORATION LAW: 3.a. powers of corps Page 29 of 62

gratuity in a large sense for it was given for valuable services
rendered an ultra vires act in the light of the following
authorities:
Indeed, some cases seem to hold that the giving of a
pure gratuity to directors is ultra vires of corporation, so
that it could not be legalized even if the approval of the
shareholders; but this position has no sound reason to
support it, and is opposed to the weight of
authority (Suffaker vs. Kierger's Assignee, 53 S.W. Rep.
288; !07 Ky. 200; 46 L.R.A. 384).
But although business corporations cannot contribute to
charity or benevolence, yet they are not required always
to insist on the full extent of their legal rights. They are
not forbidden for the recognizing moral obligation of
which strict law takes no cognizance. They are not
prohibited from establishing a reputation for board,
liberal, equitable dealing which may stand them in good
stead in competition with less fair rivals. Thus, an
incorporated fire insurance company which policies
except losses from explosions may nevertheless pay a
loss from that cause when other companies are
accustomed to do so, such liberal dealing being deemed
conducive to the prosperity of the corporation." (Modern
Law of Corporations, Machen, Vol. 1, p. 81).
So, a bank may grant a five years pension to the family
at one of its officers. In all cases in this sorts, the amount
of the gratuity rests entirely within the discretion of the
company, unless indeed it be all together out of the
reason and fitness. But where the company has ceased
to be going concerned, this power to make gifts or
present it at the end. (Modern Law of Corporations,
Machen, Vol. 1, p. 82.).
Payment of Gratitude out of Capital. There seems on
principle no reason to doubt that gifts or gratuities
wherever they are lawful may be paid out of capital as
well as out of profits. (Modern Law of corporations,
Machen, Vol. 1 p. 83.).
Whether desirable to supplement implied powers of this
kind by express provisions. Enough has been said to
show that the implied powers of a corporation to give
gratuities to its servants and officers, as well as to
strangers, are ample, so that there is therefore no need
to supplement them by express provisions." (modern
Law of Corporations, Machen, Vol. 1, p. 83.) 1
Granting arguendo that the donation given by Pirovano
children is outside the scope of the powers of the defendant
corporation, or the scope of the powers that it may exercise
under the law, or it is an ultra vires act, still it may said that
the same can not be invalidated, or declared legally
ineffective for the reason alone, it appearing that the
donation represents not only the act of the Board of Directors
but of the stockholders themselves as shown by the fact that
the same has been expressly ratified in a resolution duly
approved by the latter. By this ratification, the infirmity of the
corporate act, it may has been obliterated thereby making
the cat perfectly valid and enforceable. This is specially so if
the donation is not merely executory but executed and
consummated and no creditors are prejudice, or if there are
creditors affected, the latter has expressly given their
confirmity.
In making this pronouncement, advertence should made of
the nature of the ultra vires act that is in question. A little
digression needs be made on this matter to show the different
legal effect that may result consequent upon the performance
of a particular ultra vires act on the part of the corporation.
may authorities may be cited interpreting or defining, extent,
and scope of an ultra vires act, but all of them are uniform
and unanimous that the same may be either an act
performed merely outside the scope of the powers granted to
it by it articles of incorporation, or one which is contrary to
law or violative of any principle which will void any contract
whether done individually or collectively. In other words, a
distinction should be made between corporate acts or
contracts which are illegal and those which are merely ultra
vires. The former contemplates the doing of an act which is
contrary to law, morals, or public policy or public duty, and
are, like similar transactions between the individuals void.
They cannot serve as basis of a court action, nor require
validity ultra vires acts on the other hand, or those which are
not illegal and void ab initio, but are merely within are not
illegal and void ab initio, but are not merely within the scope
of the articles of incorporation, are merely voidable and may
become binding and enforceable when ratified by the
stockholders.
Strictly speaking, an ultra vires act is one outside the
scope of the power conferred by the legislature, and
although the term has been used indiscriminately, it is
properly distinguishable from acts which are illegal, in
excess or abuse of power, or executed in an
unauthorized manner, or acts within corporate powers
but outside the authority of particular officers or agents
(19 C. J. S. 419).
Corporate transactions which are illegal because
prohibited by statute or against public policy are
ordinarily void and unenforceable regardless of the part
performance, ratification, or estoppel; but general
prohibitions against exceeding corporate powers and
prohibitions intended to protect a particular class or
specifying the consequences of violation may not
preclude enforcement of the transaction and an action
may be had for the part unaffected by the illegality or for
equitable restitution. (19 C.J.S. 421.)
Generally, a transaction within corporate powers but
executed in an irregular or unauthorized manner is
voidable only, and may become enforceable by reason of
ratification or express or implied assent by the
stockholders or by reason of estoppel of the corporation
or the other party to the transaction to raise the
objection, particularly where the benefits are retained
As appears in paragraphs 960-964 supra, the general
rule is that a corporation must act in the manner and
with the formalities, if any, prescribed by its character or
by the general law. However, a corporation transaction or
contract which is within the corporation powers, which is
neither wrong in itself nor against public policy, but
which is defective from a failure to observe in its
CORPORATION LAW: 3.a. powers of corps
execution a requirement of law enacted for the benefit or
protection of a certain class, is voidable and is valid until
avoided, not void until validated; the parties for whose
benefit the requirement was enacted may ratify it or be
estoppel to assert its invalidity, and third persons acting
in good faith are not usually affected by an irregularity
on the part of the corporation in the exercise of its
granted powers. (19 C.J.S., 423-24.)
It is true that there are authorities which told that ultra
vires acts, or those performed beyond the powers conferred
upon the corporation either by law or by its articles of
incorporation, are not only voidable, but wholly void and of no
legal effect, and that such acts cannot be validated by
ratification or be the basis of any action in court; but such
ruling does not constitute the weight of authority, the reason
being that they fail to make the important distinction we have
above adverted to. Because rule has been rejected by most of
the state courts and even by the modern treaties or
corporations (7 Flethcer, Cyc. Corps., 563-564). And now it
can be said that the majority of the cases hold that acts which
are merely ultra vires, or acts which are not illegal, may be
ratified by the stockholders of a corporation (Brooklyn Heights
R. Co. vs. Brooklyn City R. Co., 135 N.Y. Supp. 1001).
Strictly speaking, an act of a corporation outside of its
character powers is just as such ultra vires where all the
stockholders consent thereto as in a case where none of
the stockholders expressly or cannot be ratified so as to
make it valid, even though all the stockholders consent
thereto; but inasmuch as the stockholders in reality
constitute the corporation, it should , it would seem, be
estopped to allege ultra vires, and it is generally so held
where there are no creditors, or the creditors are not
injured thereby, and where the rights of the state or the
public are not involved, unless the act is not only ultra
vires but in addition illegal and void. of course, such
consent of all the stockholders cannot adversely affect
creditors of the corporation nor preclude a proper attack
by the state because of such ultra vires act. (7 Fletcher
Corp., Sec. 3432, p. 585)
Since it is not contended that the donation under
consideration is illegal, or contrary to any of the express
provision of the articles of incorporation, nor prejudicial to the
creditors of the defendant corporation, we cannot but
logically conclude, on the strength of the authorities we have
quoted above, that said donation, even if ultravires in the
supposition we have adverted to, is not void, and if voidable
its infirmity has been cured by ratification and subsequent
acts of the defendant corporation. The defendant corporation,
therefore, is now prevented or estopped from contesting the
validity of the donation. This is specially so in this case when
the very directors who conceived the idea of granting said
donation are practically the stockholders themselves, with
few nominal exception. This applies to the new stockholder
Jose Cojuangco who acquired his interest after the donation
has been made because of the rule that a "purchaser of
shares of stock cannot avoid ultra vires acts of the
corporation authorized by its vendor, except those done after
the purchase" (7 Fletcher, Cyc. Corps. section 3456, p. 603;
Pascual vs. Del Saz Orozco, 19 Phil., 82.) Indeed, how can the
stockholders now pretend to revoke the donation which has
Page 30 of 62
been partly consummated? How can the corporation now set President of the corporation to preserve and continue the government participation in the company" which even the
at naught the transfer made to Mrs. Pirovano of the property Government participation in the company. lower court found it to be meritorious, which is one way by
in New York, U.S.A., the price of which was paid by her but of which it could continue receiving the patronage and
To this views of the trial court, we fail to agree. There are
the proceeds of the insurance policies given as donation. To protection of the government. Another reason is that the
many factors we can consider why the failure to immediately
allow the corporation to undo what it has done would only be redemption of the shares does not depend on the will of the
redeem the preferred shares issued to the National
most unfair but would contravene the well-settled doctrine corporation alone but to a great extent on the will of a third
Development Company as desired by the minor children of
that the defense of ultra vires cannot be set up or availed of party, the National Development Company. In fact, as the
the late Enrico Pirovano cannot or should not be attributed to
in completed transactions (7 Fletcher, Cyc. Corps. Section evidence shows, this Company had pledged these shares to
a mere desire on the part of the corporation to delay the
3497, p. 652; 19 C.J.S., 431). the Philippine National Bank and the Rehabilitation Finance
redemption, or to prejudice the interest of the minors, but
Corporation as a security to obtain certain loans to finance
4. We now come to the fourth and last question that the rather to protect the interest of the corporation itself. One of
the purchase of certain ships to be built for the use of the
defendant corporation, by the acts it has performed them is the text of the very resolution approved by the
company under management contract entered into between
subsequent to the granting of the donation, deliberately National Development Company on February 18, 1949 which
the corporation and the National Development Company, and
prevented the fulfillment of the condition precedent to the prescribed the terms and conditions under which it expressed
this was what prevented the corporation from carrying out its
payment of said donation such that it can be said it has its conformity to the conversion of the bonded indebtedness
offer to pay the sum P1,956,513.07 on April 5, 1951. Had this
forfeited entirely due and demandable. into preferred shares of stock. The text of the resolution
offer been accepted, or favorably acted upon by the National
above mentioned reads:
It should be recalled that the original resolution of the Board Development Company, the indebtedness would have been
of Directors adopted on July 10, 1946 which provided for the Resolved: That the outstanding bonded indebtedness of practically liquidated, leaving outstanding only one certificate
donation of P400,000 out of the proceeds which the De la the Dela Rama Steamship Co., Inc., in the approximate worth P217,390.45. Of course, the corporation could have
Rama company would collect on the insurance policies taken amount of P3,260,855.77 be converted into non-voting insisted in redeeming the shares if it wanted to even to the
on the life of the late Enrico Pirovano was, as already stated preferred shares of stock of said company, said shares to extent of taking a court action if necessary to force its
above, amended on January 6, 1947 to include, among the bear a fixed dividend of 6 percent per annum which shall creditor to relinquish the shares that may be necessary to
conditions therein provided, that the corporation shall be cumulative and redeemable within 15 years. Said accomplish the redemption, but such would be a drastic step
proceed to pay said amount, as well as the interest due shares shall be preferred as to assets in the event of which would have not been advisable considering the policy
thereon, after it shall have settled in full balance of its bonded liquidation or dissolution of said company but shall be right along maintained by the corporation to preserve its
indebtedness in the sum of P5,000,000. It should be recalled non-participating. cordial and smooth relation with the government. At any rate,
that on September 13, 1949, or more than 2 years after the whether such attitude be considered as a mere excuse to
It is plain from the text of the above resolution that the justify the delay in effecting the redemption of the shares, or
last amendment referred too above, the stockholders adopted
defendant corporation had 15 years from February 18, 1949, a mere desire on the part of the corporation to retain in its
another resolution whereby they formally ratified said
or until 1964, within which to effect the redemption of the possession more funds available to attend to other pressing
donation but subject to the following clarifications: (1) that
preferred shares issued to the National Development need as demanded by the interest of the corporation, we fail
the amount of the donation shall not be effected until such
Company. This condition cannot but be binding and obligatory to see in such an attitude an improper motive to circumvent
time as the company shall have first duly liquidated its
upon the donees, if they desire to maintain the validity of the the early realization of the desire of the minors to obtain the
present bonded indebtedness in the amount of P3,260,855.77
donation, for it is not only the basis upon which the immediate payment of the donation which was made
to the National Development Company, or shall have first
stockholders of the defendant corporation expressed their dependent upon the redemption of said shares there being no
fully redeemed the preferred shares of stock in the amount to
willingness to ratify the donation, but it is also by way which clear evidence that may justify such design. Anyway, a great
be issued to said company in lieu thereof, and (2) that any
its creditor, the National Development Company, would want portion of the funds went to the stockholders themselves by
and all taxes, legal fees, and expenses connected with the
it to be. If the defendant corporation is given 15 years within way of dividends to offset, so it appears, the huge advances
transaction shall be chargeable from the proceeds of said
which to redeem the preferred shares, and that period would that the corporation had made to them which were entered in
insurance policies.
expire in 1964, one cannot blame the corporation for availing the books of the corporation as loans and, therefore, they
The trial court, in considering these conditions in the light of itself of this period if in its opinion it would redound to its best were invested for their own benefit. As General Manager
the acts subsequently performed by the corporation in interest. It cannot therefore be said that the fulfillment of the Osmea said, "we were first confronted with the problem of
connection with the proceeds of the insurance policies, condition for the payment of the donation is one that wholly the withdrawals of the family which had to be repaid back to
considered said conditions null and void, or at most not depends on the exclusive will of the donor, as the lower court the National Development Company and one of the most
written because in its pinion their non-fulfillment was due to a has concluded, simply because it failed to meet the practical solutions to that was to declare dividends and
deliberate desistance of the corporation and not to lack of redemption of said shares in her manner desired by the reduce the amounts of their withdrawals", which then totalled
funds to redeem the preferred shares of the National donees. While it may be admitted that because of the about P3,000,000.
Development Company. The conclusions arrived at by the trial disposition of the assets of the corporation upon the
court on this point are as follows: suggestion of its general manager more than enough funds All things considered, we are of the opinion that the finding of
had been raised to effect the immediate redemption of the the lower court that the failure of the defendant corporation
Fourth. that the condition mentioned in the donation is to comply with the condition of the donation is merely due to
above shares, it is not correct to say that the management
null and void because it depends on the exclusive will of its desistance from obeying the mandate of the majority of
has completely failed in its duty to pay its obligations for,
the donor, in accordance with the provisions of Article the stockholders and not to lack of funds, or to lack of
according to the evidence, a substantial portion of the
1115 of the Old Civil Code. authority, has no foundation in law or in fact, and, therefore,
indebtedness has been paid and only a balance of about
Fifth. That if the condition is valid, its non-fulfillment is P1,805,169.98 was outstanding when the stockholders of the its conclusion that because of such desistance that condition
due to the desistance of the defendant company from corporation decided to revoke or cancel the donation. (Exhibit should be deemed as fulfilled and the payment of the
obeying and doing the wishes and mandate of the P.) donation due and demandable, is not justified. In this respect,
majority of the stockholders. the decision of the lower court should be reversed.
But there are other good reasons why all the available funds
Sixth. That the non-payment of the debt in favor of the have not been actually applied to the redemption of the Having reached the foregoing conclusion, we deem it
National Development Company is due to the lack of preferred shares, one of them being the "desire of the unnecessary to discuss the other issues raised by the parties
funds, nor to lack of authority, but to the desire of the president of the corporation to preserve and continue the in their briefs.

CORPORATION LAW: 3.a. powers of corps Page 31 of 62

The lower court adjudicated to plaintiff an additional amount On August 22, 1975, by yet another alleged stockholders'
equivalent to 20 per cent of the amount claimed as damages action, the petitioner reduced its authorized capitalization
by way of attorney's fees, and in our opinion, this award can from 267,366 shares to 110,085 shares, again, through the
be justified under Article 2208, paragraph 2, of the new Civil June 30, 1987
same scheme.8
Code, which provides: "When the defendant's act or omission
has compelled the plaintiff to litigate with third persons or to G.R. No. L-48237
incur expenses to protect his interest", attorney's fees nay be After the petitioner's failure to sit down with the respondent
awarded as damages. However, the majority believes that union, the latter, on August 28, 1974, commenced Case No.
this award should be reduced to 10 per cent. MADRIGAL & COMPANY, INC., petitioner, vs. HON. LR-5415 with the National Labor Relations Commission on a
Wherefore, the decision appealed from should be modified as RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR complaint for unfair labor practice. 9 In due time, the petitioner
follows: (a) that the donation made in favor of the children of LEGAL AFFAIRS, THE HON. SECRETARY OF LABOR, and filed its position paper, 10 alleging operational losses. Pending
the late Enrico Pirovano of the proceeds of the insurance MADRIGAL CENTRAL OFFICE EMPLOYEES the resolution of Case No. LR-5415, the petitioner, in a letter
policies taken on his life is valid and binding on the defendant UNION, respondents.
dated November 17, 1975, 11 informed the Secretary of Labor
corporation, (b) that said donation, which amounts to a total
of P583,813.59, including interest, as it appears in the books that Rizal Cement Co., Inc., "from which it derives
of the corporation as of August 31, 1951, plus interest June 30, 1987 income" 12 "as the General Manager or Agent" 13 had "ceased
thereon at the rate of 5 per cent per annum from the filing of operating temporarily." 14 "In addition, "because of the desire
the complaint, should be paid to the plaintiffs after the of the stockholders to phase out the operations of the
defendant corporation shall have fully redeemed the No. L-49023 Madrigal & Co., Inc. due to lack of business incentives and
preferred shares issued to the National Development
prospects, and in order to prevent further losses," 15it had to
Company under the terms and conditions stated in the MADRIGAL & COMPANY, INC., petitioner, vs. HON.
resolutions of the Board of Directors of January 6, 1947 and reduce its capital stock on two occasions "As the situation,
MINISTER OF LABOR and MADRIGAL CENTRAL OFFICE therefore, now stands, the Madrigal & Co., Inc. is without
June 24, 1947, as amended by the resolution of the
stockholders adopted on September 13,1949; and (c) EMPLOYEES UNION, respondents. substantial income to speak of, necessitating a
defendant shall pay to plaintiffs an additional amount reorganization, by way of retrenchment, of its employees and
equivalent to 10 per cent of said amount of P583,813.59 as operations." 16 The petitioner then requested that it "be
damages by way of attorney's fees, and to pay the costs of allowed to effect said reorganization gradually considering all
action.
the circumstances, by phasing out in at least three (3) stages,
SARMIENTO, J.:
or in a manner the Company deems just, equitable and
convenient to all concerned, about which your good office will
These are two petitions for certiorari and prohibition filed by be apprised accordingly." 17 The letter, however, was not
the petitioner, the Madrigal & Co., Inc. The facts are verified and neither was it accompanied by the proper
undisputed. supporting papers. For this reason, the Department of Labor
took no action on the petitioner's request.
The petitioner was engaged, among several other corporate
objectives, in the management of Rizal Cement Co., On January 19, 1976, the labor arbiter rendered a
Inc.1 Admittedly, the petitioner and Rizal Cement Co., Inc. are decision 18 granting, among other things, a general wage
sister companies.2 Both are owned by the same or practically increase of P200.00 a month beginning March 1, 1974 plus a
the same stockholders.3 On December 28, 1973, the monthly living allowance of P100.00 monthly in favor of the
respondent, the Madrigal Central Office Employees Union, petitioner's employees. The arbiter specifically found that the
sought for the renewal of its collective bargaining agreement petitioner "had been making substantial profits in its
with the petitioner, which was due to expire on February 28, operation" 19 since 1972 through 1975. The petitioner
1974.4 Specifically, it proposed a wage increase of P200.00 a appealed.
month, an allowance of P100.00 a month, and other economic
benefits.5 The petitioner, however, requested for a deferment
On January 29, 1976, the petitioner applied for clearance to
in the negotiations.
terminate the services of a number of employees pursuant
supposedly to its retrenchment program. On February 3,
On July 29, 1974, by an alleged resolution of its stockholders, 1976, the petitioner applied for clearance to terminate 18
the petitioner reduced its capital stock from 765,000 shares employees more. 20 On the same date, the respondent union
to 267,366 shares.6 This was effected through the distribution went to the Regional Office (No. IV) of the Department of
of the marketable securities owned by the petitioner to its Labor (NLRC Case No. R04-2-1432-76) to complain of illegal
stockholders in exchange for their shares in an equivalent lockout against the petitioner. 21Acting on this complaint, the
amount in the corporation.7 Secretary of 22 Labor, in a decision dated December 14, 1976,
22 found the dismissals "to be contrary to law" 23 and ordered
the petitioner to reinstate some 40 employees, 37 of them

CORPORATION LAW: 3.a. powers of corps Page 32 of 62

with backwages. 24 The petitioner then moved for I. SAID RESPONDENTS ERRED IN HOLDING THAT THERE WAS As a general rule, the findings of administrative agencies are
reconsideration, which the Acting Labor Secretary, Amado NO VALID COMPLIANCE WITH THE CLEARANCE REQUIREMENT. accorded not only respect but even finality. 33 This is
Inciong, denied. 25 especially true with respect to the Department of Labor,
which performs not only a statutory function but carries out a
II. SAID RESPONDENTS ERRED IN NOT HOLDING THAT THERE
Constitutional mandate as well. 34 Our jurisdiction, as a rule, is
Thereafter, the petitioner filed an appeal to the Office of the IS NO LOCKOUT HERE IN LEGAL CONTEMPLATION, MUCH LESS
confined to cases of grave abuse of discretion. 35 But for
President. The respondent, the Presidential Assistant on Legal FOR UNION-BUSTING PURPOSES.
certiorari to lie, there must be such arbitrary and whimsical
Affairs, affirmed with modification the Labor Department's
exercise of power, or that discretion was exercised
decision, thus:
III. RESPONDENT PRESIDENTIAL ASSISTANT ERRED IN despotically. 36
ORDERING THE REINSTATEMENT OF THE REST OF AFFECTED
xxx xxx xxx MEMBERS OF RESPONDENT UNION WITH SIX (6) MONTHS
In no way can the questioned decisions be seen as arbitrary.
BACKWAGES, EXCEPT ALELI CONTRERAS, TERESITA EUSEBIO
The decisions themselves show why.
AND NORMA PARLADE WHO ARE TO BE REINSTATED WITHOUT
1. Eliseo Dizon, Eugenio Evangelista and Benjamin
BACKWAGES.
Victorio are excluded from the order of
Anent Case No. R04-2-1432-76 (G.R. No. 48237), we are
reinstatement.
satisfied with the correctness of the respondent Presidential
IV. RESPONDENT PRESIDENTIAL ASSISTANT ERRED IN LEAVING
Assistant for Legal Affairs' findings. We quote:
TO THE JUDGMENT OF RESPONDENT SECRETARY THE CASES
2. Rogelio Meneses and Roberto Taladro who appear
OF ROGELIO MENESES AND ROBERTO TALADRO WHO HAD
to have voluntarily retired and paid their retirement
VOLUNTARILY RETIRED AND PAID THEIR RETIREMENT PAY.31 xxx xxx xxx
pay, their cases are left to the judgment of the
Secretary of Labor who is in a better position to
assess appellant's allegation as to their retirement. xxx xxx xxx In urging reversal of the appealed decision,
appellant contends that (1) its letter dated
November 17, 1975, constitute "substantial
3. The rest are hereby reinstated with six (6) months while in G.R. No. 49023, it submits that:
compliance with the clearance requirement to
backwages, except Aleli Contreras, Teresita Eusebio
terminate;" and (2) individual appellees' dismissal
and Norma Parlade who are to be reinstated without
xxx xxx xxx had no relation to any union activities, but was the
backwages.
result of an honest-to-goodness retrenchment policy
1. RESPONDENT MINISTER ERRED IN AFFIRMING THE occasioned by loss of income due to cessation of
SO ORDERED. 26 operation.
DECISION EN BANC OF THE NATIONAL LABOR RELATIONS
COMMISSION DESPITE CLEAR INDICATIONS IN THE RECORD
xxx xxx xxx THAT THE AWARD WAS PREMATURE IN THE ABSENCE OF A We find the first contention to be without merit.
DEADLOCK IN NEGOTIATION AND THE FAILURE ON THE PART Aside from the fact that the controversial letter was
OF THE LABOR ARBITER TO RESOLVE THE MAIN IF NOT ONLY unverified, with not even a single document
On May 15, 1978, the petitioner came to this court. (G.R. No.
ISSUE OF REFUSAL TO BARGAIN, THEREBY DEPRIVING submitted in support thereof, the same failed to
48237.)
PETITIONER OF ITS RIGHT TO DUE PROCESS. specify the individual employees to be affected by
the intended retrenchment. Not only this, but the
Meanwhile, on May 25, 1977, the National Labor Relations
2. ASSUMING ARGUENDO THAT THERE WAS A DEADLOCK IN letter is so vague and indefinite regarding the
Commission rendered a decision affirming the labor arbiter's
NEGOTIATION, RESPONDENT MINISTER ERRED NEVERTHELESS manner of effecting appellant's retrenchment plan
judgment in Case No. LR-5415. 27 The petitioner appealed to
IN NOT FINDING THAT THE ECONOMIC BENEFITS GRANTED IN as to provide the Secretary of (sic) a reasonable
the Secretary of Labor. On June 9, 1978, the Secretary of
THE FORM OF SALARY INCREASES ARE UNFAIR AND VIOLATIVE basis on which to determine whether the request for
Labor dismissed the appeal. 28 Following these successive
OF THE MANDATORY GUIDELINES PRESCRIBED UNDER retrenchment was valid or otherwise, and whether
reversals, the petitioner came anew to this court. (G.R. No.
PRESIDENTIAL DECREE NO. 525 AND IGNORING THE the mechanics in giving effect thereto was just or
49023.)
UNDISPUTED FACT THAT PETITIONER HAD VIRTUALLY CEASED unjust to the employees concerned. In fact, to be
OPERATIONS AFTER HAVING TWICE DECREASED ITS CAPITAL clearly implied from the letter is that the
By our resolution dated October 9, 1978, we consolidated G.R. STOCKS AND, THEREFORE, NOT FINANCIALLY CAPABLE TO implementary measures needed to give effect to the
No. 48237 with G.R. No. 49023. 29 We likewise issued ABSORB SUCH AWARD OF BENEFITS. 32 intended retrenchment are yet to be thought of or
temporary restraining orders. 30 concretized in the indefinite future, measures about
which the office of the Secretary "will be apprised
xxx xxx xxx
In G.R. No. 48237, the petitioner argues, that. accordingly." All these, and more, as correctly found
by the Acting Secretary, cannot but show that the
There is no merit in these two (2) petitions. letter is insufficient in form and substance to
xxx xxx xxx constitute a valid compliance with the clearance

CORPORATION LAW: 3.a. powers of corps Page 33 of 62

requirement. That being so, it matters little whether
or not complainant union or any of its members
failed to interpose any opposition thereto.
It cannot be over-emphasized that the purpose in
requiring a prior clearance by the Secretary of
Labor, in cases of shutdown or dismissal of
employees, is to afford said official ample
opportunity to examine and determine the
reasonableness of the request. This is made
imperative in order to give meaning and substance
to the constitutional mandate that the State must
"afford protection to labor," and guarantee their
"security of tenure." Indeed, the rules require that
the application for clearance be filed ten (10) days
before the intended shutdown or dismissal, serving
a copy thereof to the employees affected in order
that the latter may register their own individual
objections against the grant of the clearance. But
how could this requirement of notice to the
employees have been complied with, when, as
observed by the Acting Secretary in his modificatory
decision dated June 30, 1977 "the latter of
November 17, 1975 does not even state definitely
the employees involved" upon whom service could
be made.
With respect to appellant's second contention, we
agree with the Acting Secretary's findings that
individual appellee's dismissal was an offshoot of
the union's demand for a renegotiation of the then
validly existing collective bargaining Agreement.
xxx xxx xxx
The pattern of appellant's acts after the decision of
the Labor Arbiter in Case No. LR-5415 has convinced
us that its sole objective was to render moot and
academic the desire of the union to exercise its right
to bargain collectively with management, especially
so when it is considered in the light of the fact that
under the said decision the demand by the union for
With respect Lo Case No. LR-5415 (G.R. No. 49023), we are
wage increase and allowances was granted. What
likewise content with the findings of the National Labor
renders appellant's motive suspect was its haste in
Relations Commission. Thus:
terminating the services of individual appellees,
without waiting the outcome of its appeal in Case
No. LR-5415. The amount involved by its offer to pay
double separation could very well have been used to
pay the salaries of those employees whose services
were sought to be terminated, until the resolution of
its appeal with the NLRC, since anyway, if its
planned retrenchment is found to be justifiable and
CORPORATION LAW: 3.a. powers of corps
done in good faith, its only liability is to answer for CBA on the assumption that there was already a
the separation pay provided by law. By and large, deadlock in negotiation. Appellant further contends
therefore, we agree with the Acting Secretary that, that, assuming there was deadlock in negotiation,
under the circumstances obtaining in this case, the economic benefits granted are unreasonable
"respondent's action [was] a systematic and and violative of the guideline prescribed by P.D. 525.
deliberate attempt to get rid of complainants
because of their union activities.
On the other hand, it is the union's stance that its
economic demands are justified by, the persistent
We now come to the individual cases of Aleli increase in the cost of living and the substantial
Contreras, Teresita Eusebio and Norma Parlade. It is earnings of the company from 1971 to 1975.
appellant's claim that these three (3) should not be
reinstated inasmuch as they have abandoned their
It bears to stress that although the union's petition
work by their continued absences, and moreover in
was precipitated by the company's refusal to
the case of Contreras, she failed to oppose the
bargain, there are glaring circumstances pointing
application for clearance filed against her on
out that the parties also submitted "deadlock" to
October 24, 1975. However, appellant's payrolls for
arbitration. The petition itself is couched in general
December 16-31, 1975, January 1-15, 1976 and
terms, praying for arbitration of the union's
January 16-31, 1976, show that the three (3) were
"dispute" with the respondent concerning proposed
"on leave without pay." As correctly appreciated by
changes in the collective bargaining agreement." It
the Acting Secretary, these "payrolls prove, first,
is supported with a copy of the proposed changes
that "leave" has been granted to these employees,
which just goes to show that the union, aside from
and, second, that it is a practice in the company to
the issue concerning respondent's refusal to
grant "leaves without pay" without loss of
bargain, sought determination of the merit of its
employment status, to those who have exhausted
proposals. On the part of the appellant company, it
their authorized leaves." As regards, Norma Parlade,
pleaded financial incapacity to absorb the proposed
the records show that she "truly incurred illness and
economic benefits during the initial stage of the
actually underwent surgery in Oct., 1975." As to
proceedings below. Even the evidence and
Aleli Contreras, there is no showing that the
arguments proferred below by both parties are
Secretary of Labor or appellant ever acted on the
relevant to deadlock issue. In the face of these
clearance. If we were to follow the logic of appellant,
factual environment, it is our view that the Labor
Contreras should not have been included in the
Arbiter below did not commit a reversible error in
application for clearance filed on Feb. 3, 1976. The
rendering judgment on the proposed CBA changes.
fact that she was included shows that up to that
At any rate, the minimum requirements of due
time, she was still considered as a regular
process was satisfied because as heretofore stated,
employee. It was for these reasons, coupled with the
the appellant was given Opportunity, and had in
length of service that these employees have
fact, presented evidence and argument in avoidance
rendered appellant, that the Acting Secretary
of the proposed CBA changes.
ordered their reinstatement but without
backwages. 37
We do not also subscribe to appellant's argument
that by reducing its capital, it is made evident that it
xxx xxx xxx
is phasing out its operations. On the contrary,
whatever may be the reason behind such
reductions, it is indicative of an intention to keep the
company a going concern. So much so that until
now almost four (4) years later, it is still very much
in existence and operational as before.
xxx xxx xxx
We now come to the question concerning the
equitableness of the economic benefits granted
Appellant now points that the only issue certified to
below. It requires no evidence to show that the
compulsory arbitration is "refusal to bargain" and it
employees concerned deserve some degree of
is, therefore, premature to dictate the terms of the
upliftment due to the unabated increase in the cost
Page 34 of 62
 of living especially in Metro Manila. Of course the
company would like us to believe that it is losing
and is therefore not financially capable of improving
the present CBA to favor its employees. In support
of such assertion, the company points that the
profits reflected in its yearly Statement of Income
and Expenses are dividends from security holdings.
We, however, reject as puerile its suggestion to
dissociate the dividends it received from security
holdings on the pretext that they belong exclusively
to its stockholders. The dividends received by the
company are corporate earnings arising from
corporate investment which no doubt are attended
to by the employees involved in this proceedings.
Otherwise. it would not have been reflected as part
of profits in the company's yearly financial
statements. In determining the reasonableness of
the economic grants below, we have, therefore,
scrutinized the company's Statement of Income and
Expenses from 1972 to 1975 and after equating the
welfare of the employees with the substantial
earnings of the company, we find the award to be
predicated on valid justifications.
A clear scrutiny of the financial reports of the creditors since the petitioner had received them as
respondent [herein petitioner] reveals that it had compensation for its management services in favor of the
been making substantial profits in the operation. companies it managed as a shareholder thereof. As such
shareholder, the dividends paid to it were its own money,
which may then be available for wage increments. It is not a
In 1972, when it still had 765,000 common shares,
case of a corporation distributing dividends in favor of its
of which 305,000 were unissued and 459,000
stockholders, in which case, such dividends would be the
outstanding capitalized at P16,830,000.00, the
absolute property of the stockholders and hence, out of reach
respondent made a net profit of P2,403,211.58. Its
by creditors of the corporation. Here, the petitioner was
total assets were P70,821,317.81.
acting as stockholder itself, and in that case, the right to a
share in such dividends, by way of salary increases, may not
In 1973, based on the same capitalization, its profit be denied its employees.
increased to P2,724,465.33. Its total assets
increased to P83,240,473.73.
Accordingly, this court is convinced that the petitioner's
capital reduction efforts were, to begin with, a subterfuge, a
In 1974, although its capitalization was reduced deception as it were, to camouflage the fact that it had been
from P16,830,000.00 to P11,230,459.36, its profits making profits, and consequently, to justify the mass layoff in
were further increased to P2,922,349.70. Its assets its employee ranks, especially of union members. They were
were P78,842,175.75. nothing but a premature and plain distribution of corporate
assets to obviate a just sharing to labor of the vast profits
The reduction in its assets by P4,398,297.98 was obtained by its joint efforts with capital through the years.
due to the fact that its capital stock was reduced by Surely, we can neither countenance nor condone this. It is an
the amount of P5,599,540.54. unfair labor practice.

The salary increase we herein sanction is also in

keeping with the rational that made imperative the
enactment of the Termination Pay Law since in case
the respondent company really closes down, the
employees will receive higher separation pay or
retirement benefits to tide them over while seeking
another employment. 38
What clearly emerges from the recorded facts is that the
petitioner, awash with profits from its business operations but
confronted with the demand of the union for wage increases,
decided to evade its responsibility towards the employees by
a devised capital reduction. While the reduction in capital
stock created an apparent need for retrenchment, it was, by
all indications, just a mask for the purge of union members,
who, by then, had agitated for wage increases. In the face of
the petitioner company's piling profits, the unionists had the
right to demand for such salary adjustments.
That the petitioner made quite handsome profits is clear from
the records. The labor arbiter stated in his decision in the
collective agreement case (Case No. LR-5415):
xxx xxx xxx
In 1975, for the period of only six months, the As we observed in People's Bank and Trust Company v.
respondent reported a net profit of P547,414.72, People's Bank and Trust Co. Employees Union:
which when added to the surplus of P5,591.214.19,
makes a total surplus of P6,138,628.91 as of June
30, 1975. 39
xxx xxx xxx
The petitioner would, however, have us believe that it in fact
sustained losses. Whatever profits it earned, so it claims were
in the nature of dividends "declared on its shareholdings in
other companies in the earning of which the employees had
no participation whatsoever." 40 "Cash dividends," according
to it, "are the absolute property of the stockholders and
cannot be made available for disposition if only to meet the
employees' economic demands." 41
There is no merit in this contention. We agree with the
National Labor Relations Commission that "[t]he dividends
received by the company are corporate earnings arising from
corporate investment." 42 Indeed, as found by the
Commission, the petitioner had entered such earnings in its
financial statements as profits, which it would not have done
if they were not in fact profits. 43
Moreover, it is incorrect to say that such profits in the form
of dividends are beyond the reach of the petitioner's
44
xxx xxx xxx
As has been held by this Court in Insular Lumber
Company vs. CA, et al., L-23875, August 29, 1969,
29 SCRA 371, retrenchment can only be availed of if
the company is losing or meeting financial reverses
in its operation, which certainly is not the case at
bar. Undisputed is the fact, that the Bank "at no
time incurred losses. " As a matter of fact, "the net
earnings of the Bank would be in the average of
P2,000,000.00 a year from 1960 to 1969 and, during
this period of nine (9) years, the Bank continuously
declared dividends to its stockholders." Thus the
mass lay-off or dismissal of the 65 employees under
the guise of retrenchment policy of the Bank is a
lame excuse and a veritable smoke-screen of its
scheme to bust the Union and thus unduly disturb
the employment tenure of the employees
concerned, which act is certainly an unfair labor
practice. 45
Yet, at the same tune, the petitioner would claim that "the
phasing out of its operations which brought about the
retrenchment of the affected employees was mainly dictated

CORPORATION LAW: 3.a. powers of corps Page 35 of 62

be the necessity of its stockholders in their capacity as heirs This decision is IMMEDIATELY EXECUTORY. half of his subscription. It does not appear that the formalities
of the late Don Vicente Madrigal to partition the estate left by prescribed in section 17 of the Corporation Law (Act No.
him." 46 It must be noted, however, that the labor cases were 1459), as amended, relative to the reduction of capital stock
SO ORDERED. in corporations were observed, and in particular it does not
tried on the theory of losses the petitioner was supposed to
appear that any certificate was at any time filed in the Bureau
have incurred to justify retrenchment. The petitioner cannot of Commerce and Industry, showing such reduction.
change its theory in the Supreme Court. Moreover, there is
nothing in the records that will substantiate this claim. But His Honor, the trial judge, therefore held that the resolution
relied upon the defendant was without effect and that the
what is more important is the fact that it is not impossible to
defendant was still liable for the unpaid balance of his
partition the Madrigal estate assuming that the estate is up subscription. In this we think his Honor was clearly right.
for partition without the petitioner's business closing shop
and inevitably, without the petitioner laying off its employees. It is established doctrine that subscription to the capital of a
corporation constitute a find to which creditors have a right to
look for satisfaction of their claims and that the assignee in
As regards the question whether or not the petitioner's letter insolvency can maintain an action upon any unpaid stock
dated November 17, 1975 47 was in substantial compliance subscription in order to realize assets for the payment of its
G.R. No. L-19761 January 29, 1923 debts. (Velasco vs. Poizat, 37 Phil., 802.) A corporation has no
with legal clearance requirements, suffice it to state that
power to release an original subscriber to its capital stock
apart from the Secretary of Labor's valid observation that the PHILIPPINE TRUST COMPANY, as assignee in insolvency from the obligation of paying for his shares, without a
same "did not constitute a sufficient clearance as of "La Cooperativa Naval Filipina," plaintiff-appellee, vs. valuable consideration for such release; and as against
contemplated by law, " 48 the factual circumstances show that MARCIANO RIVERA, defendant-appellant. creditors a reduction of the capital stock can take place only
the letter in question was itself a part of the "systematic and Araneta and Zaragoza for appellant. in the manner an under the conditions prescribed by the
deliberate attempt to get rid of [the union members] because Ross and Lawrence for appellee. statute or the charter or the articles of incorporation.
of their union activities." 49 Hence, whether or not the said Moreover, strict compliance with the statutory regulations is
STREET, J.: necessary (14 C. J., 498, 620).
letter complied with the legal formalities is beside the point
since under the circumstances, retrenchment was, in all This action was instituted on November 21, 1921, in the Court In the case before us the resolution releasing the
events, unjustified. Parenthetically, the clearance required of First Instance of Manila, by the Philippine Trust Company, shareholders from their obligation to pay 50 per centum of
as assignee in insolvency of La Cooperativa Naval Filipina, their respective subscriptions was an attempted withdrawal of
under Presidential Decree No. 850 has been done away with
against Marciano Rivera, for the purpose of recovering a so much capital from the fund upon which the company's
by Batas Blg. 130, approved on August 21, 1981. balance of P22,500, alleged to be due upon defendant's creditors were entitled ultimately to rely and, having been
subscription to the capital stock of said insolvent corporation. effected without compliance with the statutory requirements,
During the pendency of these petitions, the petitioner The trial judge having given judgment in favor of the plaintiff was wholly ineffectual.
for the amount sued for, the defendant appealed.
submitted manifestations to the effect that certain employees The judgment will be affirmed with cost, and it is so ordered.
have accepted retirement benefits pursuant to its It appears in evidence that in 1918 the Cooperativa Naval
retrenchment scheme. 50 This is a matter of defense that Filipina was duly incorporated under the laws of the Philippine
should be raised before the National Labor Relations Islands, with a capital of P100,000, divided into one thousand
shares of a par value of P100 each. Among the incorporators
Commission. of this company was numbered the defendant Mariano Rivera,
who subscribed for 450 shares representing a value of
To do away with the protracted process of determining the P45,000, the remainder of the stock being taken by other
persons. The articles of incorporation were duly registered in
earnings acquired by the employees as a result of ad interim
the Bureau of Commerce and Industry on October 30 of the
employment, and to erase any doubt as to the amount of same year.
backwages due them, this court, in line with the precedent
set in Mercury Drug Co., Inc. v. Court of Industrial In the course of time the company became insolvent and
went into the hands of the Philippine Trust Company, as
Relations, 51 affirmed in a long line of decisions that came
assignee in bankruptcy; and by it this action was instituted to
later, 52 hereby fixes the amount of backwages at three (3) recover one-half of the stock subscription of the defendant,
years pay reckoned at the increased rates decreed by the which admittedly has never been paid.
labor arbiter in Case No. LR-5415 without deduction or
The reason given for the failure of the defendant to pay the
qualification.
entire subscription is, that not long after the Cooperativa
Naval Filipina had been incorporated, a meeting of its
WHEREFORE, the petitions are hereby DISMISSED. Subject to stockholders occurred, at which a resolution was adopted to
the effect that the capital should be reduced by 50 per
the modification as to the amount of backwages hereby
centum and the subscribers released from the obligation to
awarded, the challenged decisions are AFFIRMED. The pay any unpaid balance of their subscription in excess of 50
temporary restraining orders are LIFTED. With costs against per centum of the same. As a result of this resolution it seems
the petitioner. to have been supposed that the subscription of the various
shareholders had been cancelled to the extent stated; and
fully paid certificate were issued to each shareholders for one-

CORPORATION LAW: 3.a. powers of corps Page 36 of 62


G.R. No. L-56655 July 25, 1983
DATU TAGORANAO BENITO, petitioner, vs. SECURITIES
AND EXCHANGE COMMISSION and JAMIATUL
PHILIPPINE-AL ISLAMIA, INC., respondents.
The Solicitor General for respondent.
Tacod D. Macaraya for private respondent.
RELOVA, J.:
On February 6, 1959, the Articles of Incorporation of
respondent Jamiatul Philippine-Al Islamia, Inc. (originally
Kamilol Islam Institute, Inc.) were filed with the Securities and
Exchange Commission (SEC) and were approved on
December 14, 1962. The corporation had an authorized
capital stock of P200,000.00 divided into 20,000 shares at a
par value of P10.00 each. Of the authorized capital stock,
8,058 shares worth P80,580.00 were subscribed and fully paid
for. Herein petitioner Datu Tagoranao Benito subscribed to
460 shares worth P4,600.00.
On October 28, 1975, the respondent corporation filed a
certificate of increase of its capital stock from P200,000.00 to
P1,000,000.00. It was shown in said certificate that
P191,560.00 worth of shares were represented in the
stockholders' meeting held on November 25, 1975 at which
time the increase was approved. Thus, P110,980.00 worth of
shares were subsequently issued by the corporation from the
unissued portion of the authorized capital stock of
P200,000.00. Of the increased capital stock of P1,000,000.00,
P160,000.00 worth of shares were subscribed by Mrs. Fatima
A. Ramos, Mrs. Tarhata A. Lucman and Mrs. Moki-in Alonto.
On November 18, 1976, petitioner Datu Tagoranao filed with
respondent Securities and Exchange Commission a petition
alleging that the additional issue (worth P110,980.00) of
previously subscribed shares of the corporation was made in
violation of his pre-emptive right to said additional issue and
that the increase in the authorized capital stock of the
corporation from P200,000.00 to P1,000,000.00 was illegal
considering that the stockholders of record were not notified
of the meeting wherein the proposed increase was in the
agenda. Petitioner prayed that the additional issue of shares
of previously authorized capital stock as well as the shares
issued from the increase in capital stock of respondent
corporation be cancelled; that the secretary of respondent
corporation be ordered to register the 2,540 shares acquired
by him (petitioner) from Domocao Alonto and Moki-in Alonto;
and that the corporation be ordered to render an accounting
of funds to the stockholders.
In their answer, respondents denied the material allegations
of the petition and, by way of special defense, claimed that
petitioner has no cause of action and that the stock
certificates covering the shares alleged to have been sold to
petitioner were only given to him as collateral for the loan of
Domocao Alonto and Moki-in Alonto.
On July 11, 1980, Hearing Officer Ledor E. Macalalag of the
Securities and Exchange Commission, after due proceedings,
rendered a decision which was affirmed by the Commission litigation in filing this suit against the directors of respondent
En Banc during its executive session held on March 9, 1981, corporation.
as follows:
We are not persuaded. As aptly stated by the Securities and
RESOLVED, That the decision of the hearing Officer in Exchange Commission in its decision:
SEC Case No. 1392, dated July 11, 1980, the dispositive
xxx xxx xxx
portion of which reads as follows:
... the questioned issuance of the unsubscribed portion of
WHEREFORE, in view of the foregoing
the capital stock worth P110,980.00 is ' not invalid even
considerations, this Commission hereby rules: (a)
if assuming that it was made without notice to the
That the issuance by the corporation of its unissued
stockholders as claimed by petitioner. The power to issue
shares was validly made and was not subject to the
shares of stocks in a corporation is lodged in the board of
pre-emptive rights of stockholders, including the
directors and no stockholders' meeting is necessary to
petitioner, herein; (b) That there is no sufficient
consider it because additional issuance of shares of
legal basis to set aside the certificate issued by this
stocks does not need approval of the stockholders. The
Commission authorizing the increase in capital stock
by-laws of the corporation itself states that 'the Board of
of respondent corporation from P200,000.00 to
Trustees shall, in accordance with law, provide for the
Pl,000,000.00. Considering, however, that petitioner
issue and transfer of shares of stock of the Institute and
has not waived his pre-emptive right to subscribe to
shall prescribe the form of the certificate of stock of the
the increased capitalization, respondent corporation
Institute. (Art. V, Sec. 1).
is hereby directed to allow petitioner to subscribe
thereto, at par value, proportionate to his present Petitioner bewails the fact that in view of the lack of
shareholdings, adding thereto the 2,540 shares notice to him of such subsequent issuance, he was not
transferred to him by Mr. Domocao Alonto and Mrs. able to exercise his right of pre-emption over the
Moki-in Alonto; (c) To direct as it hereby directs, the unissued shares. However, the general rule is that pre-
respondent corporation to immediately cancel emptive right is recognized only with respect to new
Certificates of Stock Nos. 216, 223, 302, all in the issue of shares, and not with respect to additional issues
name of Domocao Alonto, and Certificate of Stock of originally authorized shares. This is on the theory that
No. 217, in the name of Moki-in Alonto, upon their when a corporation at its inception offers its first shares,
presentation by the petitioner and to issue new it is presumed to have offered all of those which it is
certificates corresponding thereto in the name of authorized to issue. An original subscriber is deemed to
petitioner herein; (d) To direct, as it hereby directs, have taken his shares knowing that they form a definite
respondent corporation to religiously comply with proportionate part of the whole number of authorized
the requirement of filing annual financial statements shares. When the shares left unsubscribed are later re-
under pain of a more drastic action; (e) To declare, offered, he cannot therefore claim a dilution of interest.
as it hereby declares, as irregular, the election of (Campos and Lopez-Campos Selected Notes and Cases
the nine (9) members of the Board of Trustees of on Corporation Law, p. 855, citing Yasik V. Wachtel 25
respondent corporation on October 30, 1976, for Del. Ch. 247,17A. 2d 308 (1941). (pp. 33-34, Rollo)
which reason, respondent corporation is hereby
ordered to call a stockholders' meeting to elect a With respect to the claim that the increase in the authorized
new set of five (5) members of the Board of capital stock was without the consent, expressed or implied,
Trustees, unless in the meantime the said number is of the stockholders, it was the finding of the Securities and
accordingly increased and the requirement of law to Exchange Commission that a stockholders' meeting was held
make such increase effective have been complied on November 25,1975, presided over by Mr. Ahmad Domocao
with. It is understood that the said stockholders' Alonto, Chairman of the Board of Trustees and, among the
meeting be called within thirty (30) days from the many items taken up then were the change of name of the
time petitioner shall have subscribed to the corporation from Kamilol Islam Institute Inc. to Jamiatul
increased capitalization.' Philippine-Al Islamia, Inc., the increase of its capital stock
from P200,000.00 to P1,000,000.00, and the increase of the
be, as the same is hereby AFFIRMED, the same being in number of its Board of Trustees from five to nine. "Despite the
accordance with law and the facts of the case. (pp. 28- insistence of petitioner, this Commission is inclined to believe
29, Reno) that there was a stockholders' meeting on November 25,
1975 which approved the increase. The petitioner had not
Hence, this petition for review by way of appeal from the
sufficiently overcome the evidence of respondents that such
aforementioned decision of the Securities and Exchange
meeting was in fact held. What petitioner successfully proved,
Commission, petitioner contending that (1) the issuance of
however, was the fact that he was not notified of said
the 11,098 shares without the consent of the stockholders or
meeting and that he never attended the same as he was out
of the Board of Directors, and in the absence of consideration,
of the country at the time. The documentary evidence of
is null and void; (2) the increase in the authorized capital
petitioner conclusively proved that he was attending the
stock from P200,000.00 to P1,000,000.00 without the consent
Mecca pilgrimage when the meeting was held on November
or express waiver of the stockholders, is null and void; (3) he
25, 1975. (Exhs. 'Q', 'Q-14', 'R', 'S' and 'S-l'). While petitioner
is entitled to attorneys' fees, damages and expenses of
doubts the authenticity of the alleged minutes of the
CORPORATION LAW: 3.a. powers of corps Page 37 of 62
proceedings (Exh. '4'), the Commission notes with
significance that said minutes contain numerous details of
various items taken up therein that would negate any claim
that it was not authentic. Another thing that petitioner was
able to disprove was the allegation in the certificate of
increase (Exh. 'E-l') that all stockholders who did not
subscribe to the increase of capital stock have waived their
pre-emptive right to do so. As far as the petitioner is
concerned, he had not waived his pre-emptive right to
subscribe as he could not have done so for the reason that he
was not present at the meeting and had not executed a
waiver, thereof. Not having waived such right and for reasons
of equity, he may still be allowed to subscribe to the
increased capital stock proportionate to his present
shareholdings." (pp. 36-37, Rollo)
Well-settled is the rule that the findings of facts of
administrative bodies will not be interfered with by the courts
in the absence of grave abuse of discretion on the part of said
agencies, or unless the aforementioned findings are not
supported by substantial evidence. (Gokongwei, Jr. vs. SEC,
97 SCRA 78). In a long string of cases, the Supreme Court has
consistently adhered to the rule that decisions of
administrative officers are not to be disturbed by the courts
except when the former have acted without or in excess of
their jurisdiction or with grave abuse of discretion (Sichangco
vs. Board of Commissioners of Immigration, 94 SCRA 61).
Thus, in the case of Deluao vs. Casteel ( L-21906, Dec. 24,
1968, 26 SCRA 475, 496, citing Pajo vs. Ago, et al., L-15414,
June 30, 1960) and Genitano vs. Secretary of Agriculture and
Natural Resources, et al. (L-2ll67, March 31, 1966), the
Supreme Court held that:
... Findings of fact by an administrative board or official, SERVICES, INC., and NAGA TELEPHONE COMPANY,
following a hearing, are binding upon the courts and win INC., respondents.
not be disturbed except where the board or official has
gone beyond his statutory authority, exercised
unconstitutional powers or clearly acted arbitrarily and PARAS, J.:p
without regard to his duty or with grave abuse of These are petitions for certiorari with preliminary injunction Chairman of the Board and President of the Corporation, but
discretion. ...
ACCORDINGLY, this petition is hereby dismissed for lack of
merit.
SO ORDERED.
said application subject to certain conditions, among which
was:
3. That the issuance of the shares of stocks will be for a
period of one year from the date hereof, "after which no
further issues will be made without previous authority
from this Board."
Pursuant to the approval given by the then Board of
Communications, Natelco filed its Amended Articles of
Incorporation with the Securities and Exchange Commission
(SEC for short). When the amended articles were filed with
the SEC, the original authorized capital of P100,000.00 was
already paid. Of the increased capital of P2,900,000.00 the
subscribers subscribed to P580,000.00 of which P145,000 was
fully paid.
The capital stock of Natelco was divided into 213,000
common shares and 87,000 preferred shares, both at a par
G.R. No. L-60502 July 16, 1991
value of P10.00 per shares.
PEDRO LOPEZ DEE, petitioner, vs. SECURITIES AND
EXCHANGE COMMISSION, HEARING OFFICER On April 12, 1977, Natelco entered into a contract with
EMMANUEL SISON, NAGA TELEPHONE CO., INC., Communication Services, Inc. (CSI for short) for the
COMMUNICATION SERVICES, INC., LUCIANO MAGGAY, "manufacture, supply, delivery and installation" of telephone
AUGUSTO FEDERIS, NILDA RAMOS, FELIPA JAVALERA, equipment. In accordance with this contract, Natelco issued
DESIDERIO SAAVEDRA, respondents. 24,000 shares of common stocks to CSI on the same date as
part of the downpayment. On May 5, 1979, another 12,000
G.R. No. L-63922 July 16, 1991 shares of common stocks were issued to CSI. In both
instances, no prior authorization from the Board of
JUSTINO DE JESUS, SR., PEDRO LOPEZ DEE, JULIO
Communications, now the National Telecommunications
LOPEZ DEE, and VICENTE TORDILLA, JR., petitioners,vs.
Commission, was secured pursuant to the conditions imposed
INTERMEDIATE APPELLATE COURT, LUCIANO MAGGAY,
by the decision in BOC Case NO. 74-84 aforecited (Rollo, Vol.
NILDA I. RAMOS, DESIDERIO SAAVEDRA, AUGUSTO
III, Memorandum for private respondent Natelco, pp. 814-
FEDERIS, ERNESTO MIGUEL, COMMUNICATION
816).
On May 19, 1979, the stockholders of the Natelco held their
annual stockholders' meeting to elect their seven directors to
their Board of Directors, for the year 1979-1980. In this
election Pedro Lopez Dee (Dee for short) was unseated as
was elected as one of the directors, together with his wife,
and/or restraining order which seek to annul and set aside in: Amelia Lopez Dee (Rollo, Vol. III, Memorandum for private
(1) G.R. No. 60502, the order * of the hearing officer dated respondents, p. 985; p. 2).
May 4, 1982, setting the date for the election of the directors
to be held by the stockholders on May 22, 1982, in SEC Case In the election CSI was able to gain control of Natelco when
No. 1748 entitled "Pedro Lopez Dee v. Naga Telephone Co., the latter's legal counsel, Atty. Luciano Maggay (Maggay for
Inc. et al."; and (2) G.R. No. 63922, the decision ** of the short) won a seat in the Board with the help of CSI. In the
Intermediate Appellate Court dated April 14, 1983 which reorganization Atty. Maggay became president (Ibid.,
annulled the judgment of the trial court on the contempt Memorandum for Private Respondent Natelco, p. 811).
charge against the private respondents in G.R. No. SP-14846-
The following were elected in the May 19, 1979 election: Atty.
R, entitled "Luciano Maggay, et al. v. Hon. Delfin Vir Sunga, et
Luciano Maggay, Mr. Augusto Federis, Mrs. Nilda Ramos, Ms.
al."
Felipa Javalera, Mr. Justino de Jesus, Sr., Mr. Pedro Lopez Dee
As gathered from the records, the facts of these cases are as and Mrs Amelia C. Lopez Dee. The last three named directors
follows: never attended the meetings of the Maggay Board. The
members of the Maggay Board who attended its meetings
Naga Telephone Company, Inc. was organized in 1954, the were Maggay. Federis, Ramos and Javalera. The last two were
authorized capital was P100,000.00. In 1974 Naga Telephone and are CSI representatives (Ibid., p. 812).
Co., Inc. (Natelco for short) decided to increase its authorized
capital to P3,000,000.00. As required by the Public Service Petitioner Dee having been unseated in the election, filed a
Act, Natelco filed an application for the approval of the petition in the SEC docketed as SEC Case No. 1748,
increased authorized capital with the then Board of questioning the validity of the elections of May 19, 1979 upon
Communications under BOC Case No. 74-84. On January 8, the main ground that there was no valid list of stockholders
1975, a decision was rendered in said case, approving the through which the right to vote could be determined (Rollo,
Vol. I, pp. 254-262-A). As prayed for in the petition (Ibid., p.
CORPORATION LAW: 3.a. powers of corps Page 38 of 62
262), a restraining order was issued by the SEC placing stockholders and in the interest of fair play and justice, 4. Augusto Federis
petitioner and the other officers of the 1978-1979 Natelco the Hearing Officer shall order the formation of a special
5. Daniel J. Ilano
Board in hold-over capacity (Rollo, Vol. II, Reply, p. 667). committee of three, one from the respondents (other
than Natelco), one from petitioner, and the Hearing 6. Nelin J. Ilano Sr.
The SEC restraining order was elevated to the Supreme Court
Officer as Chairman to supervise the election.
in G.R. No. 50885 where the enforcement of the SEC 7. Ernesto A. Miguel
restraining order was restrained. Private respondents It remains to state that the Commission en banc cannot
therefore, replaced the hold-over officers (Rollo, Vol. 11, p. pass upon motions belatedly filed by petitioner and And, the following are the recognized officers to wit:
897). respondent Natelco to introduce newly discovered 1. President Luciano Maggay
evidence any such evidence may be introduced at
During the tenure of the Maggay Board, from June 22, 1979 to 2. Vice-President Nilda I. Ramos
hearings on the merits of SEC Case No. 1748.
March 10, 1980, it did not reform the contract of April 12,
1977, and entered into another contract with CSI for the SO ORDERED. (Rollo, Vol. I, p. 24). 3. Secretary Desiderio Saavedra
supply and installation of additional equipment but also 4. Treasurer Felipa Javalera
On April 21, 1982, petitioner filed a motion for reconsideration
issued to CSI 113,800 shares of common stock (Ibid., p. 812).
(Rollo, Vol. I, pp. 25-30). Likewise, private respondent Natelco 5. Auditor Daniel Ilano
The shares of common stock issued to CSI are as follows: filed its motion for reconsideration dated April 21, 1982 (Ibid.,
pp. 32-51). (Rollo, Vol. 1, pp. 302-303)
NO. OF SHARES DATE ISSUED
Pending resolution of the motions for reconsideration, on May Despite service of the order of May 25, 1982, the Lopez Dee
24,000 shares April 12, 1977 group headed by Messrs. Justino De Jesus and Julio Lopez Dee
4, 1982, respondent healing officer without waiting for the
12,000 shares May 5, 1979 decision of the commission en banc to become final and kept insisting no elections were held and refused to vacate
executory rendered an order stating that the election for their positions (Rollo, Vol. III, p. 985; p. 11).
28,000 shares October 2, 1979 directors would be held on May 22, 1982 (Ibid., pp. 300-301). On May 28, 1982, the SEC issued another order directing the
28,500 shares November 5, 1979 On May 20, 1982, the SEC en banc denied the motions for hold-over directors and officers to turn over their respective
20,000 shares November 14, 1979 reconsideration (Rollo, Vol. II, pp. 763-765). posts to the newly elected directors and officers and directing
the Sheriff of Naga City, with the assistance of PC and INP of
20,000 shares January 7, 1980 Meanwhile on May 20, 1982 (G.R. No. 63922), petitioner Naga City, and other law enforcement agencies of the City or
Antonio Villasenor (as plaintiff) filed Civil Case No. 1507 with of the Province of Camarines Sur, to enforce the aforesaid
16,500 shares January 26, 1980 the Court of First Instance of Camarines Sur, Naga City, order (Rollo, Vol. 11, pp. 577-578).
149,000 shares (Ibid., pp. 816-817). against private respondents and co-petitioners, de Jesus,
Tordilla and the Dee's all defendants therein, which was On May 29, 1982, the Sheriff of Naga City, assisted by law
Subsequently, the Supreme Court dismissed the petition in raffled to Branch I, presided over by Judge Delfin Vir Sunga enforcement agencies, installed the newly elected directors
G.R. No. 50885 upon the ground that the same was (Rollo, G.R. No. 63922; pp. 25-30). Villasenor claimed that he and officers of the Natelco, and the hold-over officers
premature and the Commission should be allowed to conduct was an assignee of an option to repurchase 36,000 shares of peacefully vacated their respective offices and turned-over
its hearing on the controversy. The dismissal of the petition common stocks of Natelco under a Deed of Assignment their functions to the new officers (Rollo, Vol. III, p. 985; pp.
resulted in the unseating of the Maggay group from the board executed in his favor (Rollo, p. 31). The defendants therein 12-13).
of directors of Natelco in a "hold-over" capacity (Rollo, Vol. II, (now private respondents), principally the Maggay group,
On June 2, 1982, a charge for contempt was filed by petitioner
p. 533). allegedly refused to allow the repurchase of said stocks when Villasenor alleging that private respondents have been
In the course of the proceedings in SEC Case No. 1748, petitioner Villasenor offered to defendant CSI the repurchase claiming in press conferences and over the radio airlanes that
respondent hearing officer issued an order on June 23, 1981, of said stocks by tendering payment of its price (Rollo, p. 26 they actually held and conducted elections on May 22, 1982
declaring: (1) that CSI is a stockholder of Natelco and, and p. 78). The complaint therefore, prayed for the allowance in the City of Naga and that they have a new set of officers,
therefore, entitled to vote; (2) that unexplained 16,858 shares to repurchase the aforesaid stocks and that the holding of the and that such acts of herein private respondents constitute
of Natelco appear to have been issued in excess to CSI which May 22, 1982 election of directors and officers of Natelco be contempt of court (G.R. 63922; Rollo, pp. 35-37).
should not be allowed to vote; (3) that 82 shareholders with enjoined (Rollo, pp. 28-29).
On September 7, 1982, the lower court rendered judgment on
their corresponding number of shares shall be allowed to A restraining order dated May 21, 1982 was issued by the
the contempt charge, the dispositive portion of which reads:
vote; and (4) consequently, ordering the holding of special lower court commanding desistance from the scheduled
stockholder' meeting to elect the new members of the Board election until further orders (Rollo, p. 32). WHEREFORE, judgment is hereby rendered:
of Directors for Natelco based on the findings made in the
order as to who are entitled to vote (Rollo, Vol. 1, pp. 288- Nevertheless, on May 22, 1982, as scheduled, the controlling 1. Declaring respondents, CSI Nilda Ramos, Luciano
299). majority of the stockholders of the Natelco defied the Maggay, Desiderio Saavedra, Augusto Federis and
restraining order, and proceeded with the elections, under the Ernesto Miguel, guilty of contempt of court, and
From the foregoing order dated June 23, 1981, petitioner Dee supervision of the SEC representatives (Rollo, Vol. III, p. 985); accordingly punished with imprisonment of six (6)
filed a petition for certiorari/appeal with the SEC en banc. The p. 10; G.R. No. 60502). months and to pay fine of P1,000.00 each; and
petition/appeal was docketed as SEC-AC NO. 036. Thereafter,
the Commission en banc rendered a decision on April 5, 1982, On May 25, 1982, the SEC recognized the fact that elections 2. Ordering respondents, CSI Nilda Ramos, Luciano
the dispositive part of which leads: were duly held, and proclaimed that the following are the Maggay, Desiderio Saavedra, Augusto Federis and
"duly elected directors" of the Natelco for the term 1982- Ernesto Miguel, and those now occupying the positions of
Now therefore, the Commission en banc resolves to 1983: directors and officers of NATELCO to vacate their
sustain the order of the Hearing Officer; to dismiss the respective positions therein, and ordering them to
petition/appeal for lack of merit; and order new elections 1. Felipa T. Javalera reinstate the hold-over directors and officers of
as the Hearing Officer shall set after consultations with 2. Nilda I. Ramos NATELCO, such as Pedro Lopez Dee as President, Justino
Natelco officers. For the protection of minority de Jesus, Sr., as Vice President, Julio Lopez Dee as
3. Luciano Maggay

CORPORATION LAW: 3.a. powers of corps Page 39 of 62

 Treasurer and Vicente Tordilla, Jr. as Secretary, and others In G.R. No. 60502 In a resolution issued by the Court En members, or associates; between any or all of them and
referred to as hold-over directors and officers of Banc dated March 22, 1983, the Court gave due course to the the corporation, partnership or association of which they
NATELCO in the order dated May 28, 1982 of SEC petition and required the parties to submit their respective are stockholders, members or associates, respectively;
Hearing Officer Emmanuel Sison, in SEC Case No. 1748 memoranda (Rollo, Resolution, p. 638-A; Vol. II). and between such corporation, partnership or association
(Exh. 6), by way of RESTITUTION, and consequently, and the state insofar as it concerns their individual
In G.R. No. 60502
ordering said respondents to turn over all records, franchise or right to exist as such entity;
property and assets of NATELCO to said hold-over The main issues in this case are:
c) Controversies in the election or appointments of
directors and officers. (Ibid., Rollo, p. 49).
(1) Whether or not the Securities and Exchange Commission directors, trustees, officers or managers of such
The trial judge issued an order dated September 10, 1982 has the power and jurisdiction to declare null and void shares corporations, partnerships or associations.
directing the respondents in the contempt charge to "comply of stock issued by NATELCO to CSI for violation of Sec. 20 (h)
d) Petitions of corporations, partnerships or associations
strictly, under pain of being subjected to imprisonment until of the Public Service Act;
to be declared in the state of suspension of payments in
they do so" (Ibid., p. 50). The order also commanded the
(2) Whether or not the issuance of 113,800 shares of Natelco cases where the corporation, partnership or association
Deputy Provincial Sheriff, with the aid of the PC Provincial
to CSI made during the pendency of SEC Case No. 1748 in the possesses sufficient property to cover all its debts but
Commander of Camarines Sur and the INP Station
Securities and Exchange Commission was valid; foresees the impossibility of meeting them when they
Commander of Naga City to "physically remove or oust from
respectively fall due or in cases where the corporation,
the offices or positions of directors and officers of NATELCO, (3) Whether or not Natelco stockholders have a right of partnership or association has no sufficient assets to
the aforesaid respondents (herein private respondents) . . . preemption to the 113,800 shares in question; and cover its liabilities, but is under the management of a
and to reinstate and maintain, the hold-over directors and
(4) Whether or not the private respondents were duly elected Rehabilitation Receiver or Management Committee
officers of NATELCO referred to in the order dated May 28,
to the Board of Directors of Natelco at an election held on created pursuant to this Decree, (As added by PD 1758)
1982 of SEC Hearing Officer Emmanuel Sison." (Ibid.).
May 22, 1982. In other words, in order that the SEC can take cognizance of a
Private respondents filed on September 17, 1982, a petition
In G.R. No. 63922 case, the controversy must pertain to any of the following
for certiorari and prohibition with preliminary injunction or
relationships: (a) between corporation, partnership or
restraining order against the CFI Judge of Camarines Sur, The crucial issue to be resolved is whether or not the trial
association and the public; (b) between the corporation,
Naga City and herein petitioners, with the then Intermediate judge has jurisdiction to restrain the holding of an election of
partnership, or association and its stockholders, partners,
Appellate Court which issued a resolution ordering herein officers and directors of a corporation. The petitions are
members or officers; (c) between the corporation, partnership
petitioners to comment on the petition, which was complied devoid of merit.
or association and the state insofar as its franchise, permit or
with, and at the same time temporarily refrained from
license to operate is concerned; and (d) among the
implementing and/or enforcing the questioned judgment and In G.R. No. 60502
stockholders, partners, or associates themselves (Union Glass
order of the lower court (Rollo, p. 77), Decision of CA, p. 2). I & Container Corp. vs. SEC, 126 SCRA 31 [1983]).
On April 14, 1983, the then Intermediate Appellate Court, It is the contention of petitioner that the Securities and
The jurisdiction of the SEC is limited to matters intrinsically
rendered a decision, the dispositive portion of which reads: Exchange Commission En Banc committed grave abuse of connected with the regulation of corporations, partnerships
WHEREFORE, judgment is hereby rendered as follows: discretion when, in its decision dated April 5, 1982, in SEC-AC and associations and those dealing with internal affairs of
No. 036, it refused to declare void the shares of stock issued such entities; P.D. 902-A does not confer jurisdiction to SEC
1. Annuling the judgment dated September 7, 1982 by Natelco to CSI allegedly in violation of Sec. 20 (h) of the
over all matters affecting corporations (Pereyra vs. IAC, 181
rendered by respondent judge on the contempt charge, Public Service Act. This section requires prior administrative
SCRA 244 [1990]; Sales vs. SEC, 169 SCRA 121 [1989]).
and his order dated September 10, 1982, implementing approval of any transfer or sale of shares of stock of any
said judgment; public service which vest in the transferee more than The jurisdiction of the SEC in SEC Case No. 1748 is limited to
deciding the controversy in the election of the directors and
2. Ordering the "hold-over" directors and officers of forty percentum of the subscribed capital of the said public
service. officers of Natelco. Thus, the SEC was correct when it refused
NATELCO to vacate their respective offices;
to rule on whether the issuance of the shares of Natelco
3. Directing respondents to restore or re-establish Section 5 of P.D. No. 902-A, as amended, enumerates the stocks to CSI violated Sec. 20 (h) of the Public Service Act.
petitioners (private respondents in this case) who were jurisdiction of the Securities and Exchange Commission:
The SEC ruling as to the issue involving the Public Service Act,
ejected on May 22, 1982 to their respective offices in the Sec. 5. In addition to the regulatory and adjudicative Section 20 (h), asserts that the Commission En Banc is not
NATELCO, . . .; functions of the Securities and Exchange Commission empowered to grant much less cancel franchise for telephone
4. Prohibiting whoever may be the successor of over Corporations, partnerships and other forms of and communications, and therefore has no authority to rule
respondent Judge from interfering with the proceedings associations, registered with it as expressly granted that the issuance and sale of shares would in effect constitute
of the Securities and Exchange Commission in SE-CAC under the existing laws and decrees, it shall have original a violation of Natelco's secondary franchise. It would be in
No. 036; and exclusive jurisdiction to hear and decide cases excess of jurisdiction on our part to decide that a violation of
involving: our public service laws has been committed. The matter is
xxx xxx xxx
a) Devices or schemes employed by or any acts, of the better brought to the attention of the appropriate body for
(Rollo, p. 88). board of directors, business associates, its officers or determination. Neither can the SEC provisionally decide the
The order of re-implementation was issued, and, finally, the partners, amounting to fraud and misrepresentation issue because it is only vested with the power to grant or
Maggay group has been restored as the officers of the Natelco which may be detrimental to the interest of the public revoke the primary corporate franchise. The SEC is
(Rollo, G.R. No. 60502, p. 985; p. 37). and/or of the stockholders, partners, members of empowered by P.D. 902-A to decide intra-corporate
associations or organizations registered with the controversies and that is precisely the only issue in this case.
Hence, these petitions involve the same parties and Commission. II
practically the same issues. Consequently, in the resolution of
the Court En Banc dated August 23, 1983, G.R. No. 63922 was (b) Controversies arising out of intra-corporate or The issuance of 113,800 shares of Natelco stock to CSI made
consolidated with G.R. No. 60502. partnership relations, between and among stockholders, during the pendency of SEC Case No. 1748 in the Securities

CORPORATION LAW: 3.a. powers of corps Page 40 of 62

and Exchange Commission was valid. The findings of the shares of stocks in a corporation is lodged in the board of Indubitably, the aforesaid restraining order, aimed not only to
SEC En Banc as to the issuance of the 113,800 shares of stock directors and no stockholders meeting is required to consider prevent the stockholders of Natelco from conducting the
was stated as follows: it because additional issuance of shares of stocks does not election of its directors and officers, but it also amounted to
need approval of the stockholders. Consequently, no pre- an injunctive relief against the SEC, since it is clear that even
But the issuance of 113,800 shares were (sic) pursuant
emptive right of Natelco stockholders was violated by the "public officers" (such as the Hearing Officer of the SEC) are
to a Board Resolution and stockholders' approval prior to
issuance of the 113,800 shares to CSI. commanded to desist from conducting or holding the election
May 19, 1979 when CSI was not yet in control of the
"under pain of punishment of contempt of court" (Ibid.) The
Board or of the voting shares. There is distinction IV
fact that the SEC or any of its officers has not been cited for
between an order to issue shares on or before May 19,
Petitioner insists that no meeting and election were held in contempt, along with the stockholders of Natelco, who chose
1979 and actual issuance of the shares after May 19,
Naga City on May 22, 1982 as directed by respondent Hearing to heed the lawful order of the SEC to go on with the election
1979. The actual issuance, it is true, came during the
Officer. This fact is shown by the Sheriffs return of a as scheduled by the latter, is of no moment, since it was
period when CSI was in control of voting shares and the
restraining order issued by the Court of First Instance of precisely the acts of herein private respondents done
Board (if they were in fact in control but only pursuant to
Camarines Sur in Case No. 1505 entitled "Antonio Villasenor v. pursuant to an order lawfully issued by an administrative
the original Board and stockholders' orders, not on the
Communications Service Inc, et al." (Rollo, Vol. 1, p. 309). body that have been considered as contemptuous by the
initiative to the new Board, elected May 19, 1979, which
lower court prompting the latter to cite and punish them for
petitioners are questioning. The Commission en There is evidence of the fact that the Natelco special contempt (Rollo, p. 48).
banc finds it difficult to see how the one who gave the stockholders' meeting and election of members of the Board
orders can turn around and impugn the implementation of Directors of the corporation were held at its office in Naga Noteworthy is the pertinent portion of the judgment of the
of the orders lie had previously given. The reformation of City on May 22, 1982 as shown when the Hearing Officer lower court which states:
the contract is understandable for Natelco lacked the issued an order on May 25, 1982, declaring the stockholders
Certainly, this Court will not tolerate, or much less
corporate funds to purchase the CSI equipment. named therein as corporate officers duly elected for the term
countenance, a mere Hearing Officer of the Securities
1982-1983.
xxx xxx xxx and Exchange Commission, to render a restraining order
More than that, private respondents were in fact charged with issued by it (said Court) within its jurisdiction, nugatory
Appellant had raise the issue whether the issuance of
contempt of court and found guilty for holding the election on and ineffectual and abet disobedience and even defiance
113,800 shares of stock during the incumbency of the
May 22, 1982, in defiance of the restraining order issued by by individuals and entities of the same. . . . (Rollo, p. 48).
Maggay Board which was allegedly CSI controlled, and
Judge Sunga (Rollo, Vol. II, p. 750).
while the case was sub judice, amounted to unfair and Finally, in the case of Philippine Pacific Fishing Co., Inc. vs.
undue advantage. This does not merit consideration in It is, therefore, very clear from the records that an election Luna, 12 SCRA 604, 613 [1983], this Tribunal stated clearly
the absence of additional evidence to support the was held on May 22, 1982 at the Natelco Offices in Naga City the following rule:
proposition. and its officers were duly elected, thereby rendering the issue
Nowhere does the law (P.D. No. 902-A) empower any
of election moot and academic, not to mention the fact that
In effect, therefore, the stockholders of Natelco approved the Court of First Instance to interfere with the orders of the
the election of the Board of Directors/Officers has been held
issuance of stock to CSI Commission (SEC). Not even on grounds of due process
annually, while this case was dragging for almost a decade.
or jurisdiction. The Commission is, conceding arguendo a
III
The contempt charge against herein private respondents was possible claim of respondents, at the very least, a co-
While the group of Luciano Maggay was in control of Natelco predicated on their failure to comply with the restraining equal body with the Courts of First Instance. Even as
by virtue of the restraining order issued in G.R. No. 50885, the order issued by the lower court on May 21, 1982, enjoining such co-equal, one would have no power to control the
Maggay Board issued 113,800 shares of stock to CSI them from holding the election of officers and directors of other. But the truth of the matter is that only the
Petitioner said that the Maggay Board, in issuing said shares Natelco scheduled on May 22, 1982. The SEC en banc, in its Supreme Court can enjoin and correct any actuation of
without notifying Natelco stockholders, violated their right of decision of April 5, 1982, directed the holding of a new the Commission.
pre-emption to the unissued shares. election which, through a conference attended by the hold-
Accordingly, it is clear that since the trial judge in the lower
over directors of Natelco accompanied by their lawyers and
This Court in Benito vs. SEC, et al., has ruled that: court (CFI of Camarines Sur) did not have jurisdiction in
presided by a SEC hearing officer, was scheduled on May 22,
issuing the questioned restraining order, disobedience thereto
Petitioner bewails the fact that in view of the lack of 1982 (Rollo, p. 59). Contrary to the claim of petitioners that did not constitute contempt, as it is necessary that the order
notice to him of such subsequent issuance, he was not the case is within the jurisdiction of the lower court as it does be a valid and legal one. It is an established rule that the
able to exercise his right of pre-emption over the not involve an intra-corporate matter but merely a claim of a court has no authority to punish for disobedience of an order
unissued shares. However, the general rule is that pre- private party of the right to repurchase common shares of issued without authority (Chanco v. Madrilejos, 9 Phil. 356;
emptive right is recognized only with respect to new stock of Natelco and that the restraining order was not meant Angel Jose Realty Corp. v. Galao, et al., 76 Phil. 201).
issues of shares, and not with respect to additional issues to stop the election duly called for by the SEC, it is undisputed
of originally authorized shares. This is on the theory that that the main objective of the lower court's order of May 21, Finally, it is well-settled that the power to punish for contempt
when a corporation at its inception offers its first shares, 1982 was precisely to restrain or stop the holding of said of court should be exercised on the preservative and not on
it is presumed to have offered all of those which it is election of officers and directors of Natelco, a matter purely the vindictive principle. Only occasionally should the court
authorized to issue. An original subscriber is deemed to within the exclusive jurisdiction of the SEC (P.D. No. 902-A, invoke its inherent power in order to retain that respect
have taken his shares knowing that they form a definite Section 5). The said restraining order reads in part: without which the administration of justice must falter or fail
proportionate part of the whole number of authorized (Rivera v. Florendo, 144 SCRA 643, 662-663 [1986]; Lipata v.
. . . A temporary restraining order is hereby
shares. When the shares left unsubscribed are later re- Tutaan, 124 SCRA 880 [1983]).
issued, directing defendants (herein respondents), their
offered, he cannot therefore (sic) claim a dilution of
agents, attorneys as well as any and all persons, PREMISES CONSIDERED, both petitioners are hereby
interest (Benito vs. SEC, et al., 123 SCRA 722).
whether public officers or private individuals to DISMISSED for lack of merit.
The questioned issuance of the 113,800 stocks is not invalid desist from conducting and holding, in any manner
SO ORDERED.
even assuming that it was made without notice to the whatsoever, an election of the directors and officers of
stockholders as claimed by the petitioner. The power to issue the Naga Telephone Co. (Natelco). . . . (Rollo, P. 32).

CORPORATION LAW: 3.a. powers of corps Page 41 of 62

G.R. No. 77816 June 30, 1988 the Philippine National Bank, also, in behalf of the Philippine Thus on February 16, 1987, PCGG Commissioners Raul Daza
Navy. 1 and Quintin Doromal issued the questioned writ of
PRESIDENTIAL COMMISSION ON GOOD
sequestration' over all the assets, properties, records and
GOVERNMENT, petitioner, vs. HON. BENJAMIN M. Upon consultation with the Philippine National Bank and
documents of private respondent.
AQUINO, JR., as Presiding Judge, Regional Trial Court, Central Bank officials, however, it was ascertained that it
NCJR Branch LXXII Malabon, Metro Manila, and would not be feasible to obtain a foreign loan before the end Private respondent asserted that the writ of sequestration
MARCELO FIBERGLASS CORPORATION, respondents. of the year 1982 to finance the contract with private was issued without a finding of a prima facie case. without
respondent. To beat the increase in engine prices, Marcelo prior notice and without affording private respondent an
G.R. No. 78753 June 30, 1988
again secured presidential approval to authorize the Ministry opportunity to show why a writ of sequestration should not be
MARCELO FIBERGLASS CORPORATION, petitioner, vs. of Budget and the Bureau of Treasury to release the first down issued since said writ was immediately implemented on
PRESIDENTIAL COMMISSION ON GOOD payment of P127,710,000 of the contract price from the February 17,1987 by agents of the PCGG with the support and
GOVERNMENT, respondent. umprogrammed funds appropriated under the Defense aid of soldiers in full battle gear who then occupied the
Capability Development Program of the Ministry of National premises of private respondent corporation.
Defense which had a remaining balance of some The PCGG allegedly padlocked the premises, barred private
FERNAN, J.: P300,000,000.00 and to subsequently include in the national respondent's personnel from entering the same and refused
budget of the Ministry of National Defense starting 1984, the to allow anyone to take out anything therefrom, including
In these special civil actions for certiorari, prohibition and/or yearly loan amortizations to be paid to private respondent. 2 purely personal effects and even items belonging to third
mandamus, the Supreme Court is tasked once more to persons brought to the premises for service or repair by
delineate ate the jurisdiction of the Regional Trial Court vis-a- On July 28,1983, the Philippine Navy, with the approval of private respondent.
vis the Presidential Commission on Good Government. former President Marcos paid private respondent the amount
of P127,710,000 representing the 30% initial down payment These circumstances prompted private respondent to file a
Petitioner Presidential Commission on Good Government, stipulated in the contract through Land Bank of the case for certiorari and prohibition with the Regional Trial Court
[hereinafter referred to as PCGG] in G.R. No. 77816 assails the Philippines Cashier's Check No. 009369 3 in violation of the of Malabon presided by respondent Judge Benjamin M. Aquino
assumption of jurisdiction and interference with its orders and contract which required that payment shall be made by in Civil Case No. 904-MN with a prayer for the issuance of a
functions by public respondent Judge Benjamin Aquino of the confirmed, irrevocable, divisible letter of credit established by restraining order and injunction.
Regional Trial Court, Branch LXXII of Malabon, Metro Manila in the Philippine Navy in favor of private respondent.
Civil Case No. 904-MN entitled "Marcelo Fiberglass On March 2, 1987, respondent judge issued the assailed
Corporation vs. Presidential Commission on Good Petitioner alleged that this violation was made possible restraining order enjoining the PCGG from issuing, executing,
Government." through Edward T. Marcelo's connection, influence and and implementing general warrants of search and seizure
closeness to then President Marcos, the former being reputed against MFC searching and seizing documents, assets,
G.R. No. 78753 consists of private respondent Marcelo to be a wedding godson, a business partner, front or dummy properties and records of MFC taking over the business
Fiberglass Corporation's comment to the petition in G.R. No. of the latter in several business corporations. of MFC and/or otherwise interfering with the exercise of the
77816 and counter- petition assailing the jurisdiction, power duties and powers of the board of directors and officers
and authority of the PCGG to sequester assets of private On February 22, 1985, the Philippine Navy made a second thereof The temporary restraining order also required
respondent which allegedly do not constitute ill- gotten payment in the amount of P72,860,000 bringing the total the PCGG to immediately turn over control of the premises;
wealth. payments to P200,570,000. Sometime in May or June, 1985,
return immediately all assets, properties, and documents
AFP Acting Chief of Staff, General Fidel Ramos approved and
Records show that on June 18, 1982, Edward T. Marcelo as recommended the release of P136,867,000 from the illegally searched and seized from MFC and furnish copies of
president of private respondent Marcelo Fiberglass Philippine Navy's 1985 appropriations which was set aside all proceedings, if any, including evidence, testimonial and/or
Corporation [hereinafter referred to as MFC] entered into a "for later release" under the Office of Budget Management by documentary, presented and considered thereat prior to the
Contract to Buy and Sell with the Philippine Navy represented a Forwar Obligational Authority dated May 5, 1983 4 for use as issuance of said writ of sequestration.
by Rear Admiral Simeon M. Alejandro, then Flag Officer in partial payment in the acquisition of 55 Marcelo boats. The PCGG filed a Motion to Dismiss and Opposition dated
Command, for the construction and delivery by the former of March 9, 1987 to which private respondent filed an Opposition
fifty-five 551 units of fiberglass high-speed patrol boats at On November 28, 1985, an amendment was executed by Rear on March 12,1987.
P7,200,000 each plus spare parts amounting to P29,700,000 Admiral Simeon Alejandro and Marcelo to respond to the
for a total contract price of P425,700,000. It was stipulated in depreciation of the Philippine peso adjusting the contract On March 19, 1987, after receiving evidence on the petition in
the contract that the patrol boats would be delivered within price from P425,700,000 to P926,524,500 based on the Civil Case No. 904-MN, respondent judge issued a writ of
thirty-six [36] months from the date the Philippine Navy pays prevailing exchange rate of P18.50 to US$1.00 subject to preliminary injunction ordering the PCGG to refrain or desist
5
to private respondent the stipulated down payment of thirty further adjustment in the event of future devaluation. from doing the acts enumerated in its restraining order.
per cent [30%] of the contract price. Despite payments in the total amount of P337,437,000 which Hence, on April 1, 1987, PCGG filed the instant petition in G.R.
The aforementioned contract as unilaterally initiated by is equivalent to 79% of the original contract pace of No. 77816 with a prayer for the issuance of a writ of
Edward T. Marcelo as president of private respondent P425,700,000 or 36% of the amended contract price of preliminary injunction and/or temporary restraining order,
corporation with the conduct of negotiations favorably P926,524,500, private respondent has not delivered a single raising the principal issue of whether respondent judge
endorsed by then President Ferdinand Marcos to the Ministry boat to the Philippine Navy. Under the new government of gravely abused his discretion or acted without or in excess of
of National Defense. President Corazon Aquino, Marcelo continued to press the jurisdiction in assuming jurisdiction and interfering with the
Philippine Navy to make the required payments to enable it to orders and functions of PCGG.
To facilitate funding of the initial down payment agreed upon complete the project.
under the contract, MFC through Edward Marcelo, secured In a resolution dated April 2, 1987, the Court resolved to
presidential approval for the issuance of a guarantee 'by the In the light thereof, the Minister of National Defense- require private respondent to comment on the petition and
national government in acquiring either a foreign currency recommended to petitioner the sequestration 6 of the assets further resolved to issue a temporary restraining order
loan in behalf of the Philippine Navy with a foreign bank or of private respondent and of Edward Marcelo for the recovery effective immediately and continuing until further orders from
offshore banking unit, or a peso term loan to be negotiated by by the government of the full amount of P337,437,000 this Court, ordering respondent judge to cease and desist
advanced to private respondent under the contract. from enforcing his orders dated March 2, 1987 and March 19,

CORPORATION LAW: 3.a. powers of corps Page 42 of 62

1987 and from proceeding with Civil Case No. 904-MN entitled
"Marcelo Fiberglass Corporation vs. PCGG, et al.," 7
On June 22, 1987, private respondent filed its comment and
counter-petition docketed as G.R. No. 78753 asking leave
from this Court to also consider its comment as a counter-
petition for certiorari, prohibition and/or mandamus with a
prayer for preliminary injunction and/or temporary restraining
order. Private respondent resorted to this remedy to submit
the following substantive issues" [1] that the PCGG does not
have the jurisdiction, power and authority to sequester the
assets of MFC which do not constitute ill-gotten wealth, and
21 that the issuance and implementation of the writ of
sequestration violates the constitutional rights of private
respondent against impairment of obligation of contracts and
deprivation of property without due process of law.
On the issue of jurisdiction of the Regional Trial Court over
petitioner PCGG, private respondent contends that Section 2
of Executive Order No. 14 vests the Sandiganbayan with
jurisdiction over civil and criminal cases filed by the PCGG but
not over special civil actions filed by private parties. Section 2
of Executive Order No. 14 reads:
Section 2. The Presidential Commission on Good exercise of its powers and functions for they involve the
Government shall file all such cases, whether civil or sequestration of the assets of private respondent Marcelo D E C I S I O N
criminal, with the Sandigan bayan which shall have Fiberglass Corporation and Edward T. Marcelo, its president.
exclusive and original jurisdiction thereof.
According to private respondent, section 2 does not limit the
filing of special civil actions by private persons exclusively
with the Sandiganbayan.
Private respondent further asserts that Presidential Decree
No. 1606 which created the Sandiganbayan does not vest
such court with jurisdiction over special civil actions such as
those involved herein and as enumerated in Section 4 of
Presidential Decree No. 1606.
The issue of whether or not the Regional Trial Courts have No..78753 is dismissed for lack of merit.
jurisdiction over the Presidential Commission on Good
Government in the exercise of the lather's powers and
functions under the applicable Executive Orders and Section
26, Article 7 Roll, pp. 103 & 104. Page 370 VIII of the 1987
Constitution has been laid to rest in PCGG vs. Hon. Emmanuel
G. Paa et al., G.R. No. 77663, April 12, 1988 where Mr. Chief
Justice Claudio Teehankee articulated the opinion of an almost
umanimous court as follows:
On the issue of jurisdiction squarely raised, as above
indicated, the Court sustains petitioner's stand and holds
that regional trial courts and the Court of Appears for
that matter have no jurisdiction over the Presidential
Commission on Good Government in the exercise of its
powers under the applicable Executive Orders and Article
XVIII, Section 26 of the Constitution and therefore may
not interfere with and restrain or set aside the orders and
actions of tile Commission. Under Section 2 of the
President's Executive Order No. 14 issued on May 7,
1986, all cases of the Commission regarding "the Funds,
Moneys, Assets and Properties Illegally Acquired or
Misappropriated by Former President Ferdinand Marcos,
Mrs. Imelda Romualdez Marcos, then, Close Relatives,
Subordinates, Business Associate, Dummies, Agents or
Nominees' whether civil or criminal, are lodge within the
'exclusive and original jurisdiction of the Sandiganbayan
and all incidents araising from incidental to, or related to,
such cases necessarily fall likewise under the
Sandiganbayan's exclusive and original jurisdiction
subject to review on certiorari exclusive by the Supreme
Court
It will be noted that the Sandiganbayan was held to have
exclusive and original jurisdiction in civil or criminal cases
lodged before it, as well as incidents arising from, incidental,
or related to such cases, subject to review on certiorari
exclusively by the Supreme Court. The attempt to remove
special civil actions from the Sandiganbayan's exclusive
jurisdiction is of no avail if they similarly involve the powers
and functions of the Presidential Commission on Good
G.R. No. 128606 December 4, 2000
Government.
The reasons for the exclusivity of the Sandiganbayan's
jurisdiction are more than amply explained in said decision REPUBLIC OF THE PHILIPPINES, petitioner, vs.
and We find it superfluous to restate the same. SANDIGANBAYAN (3RD DIVISION), JOSE L. AFRICA,
UNIMOLCO, ROBERTO BENEDICTO, ANDRES AFRICA and
Suffice it to say that the matters involved in these cases [G.R.
SMART COMMUNICATIONS, respondents.
Nos. 77816 and 78753] are orders of the PCGG issued in the
The propriety of said sequestration and any incident arising
from, incidental or related to such sequestration is within the YNARES-SANTIAGO, J.:
exclusive jurisdiction of the Sandiganbayan.
WHEREFORE, the petition for certiorari, prohibition and/or This is a petition for review assailing the Resolutions 1 of the
mandamus in G.R. No. 77816 is hereby granted. The orders Sandiganbayan dated December 6, 1996 2 and March 17,
issued by respondent judge on March 2, 1987 and March 19,
19973 in Civil Case No. 0009, entitled "Republic of the
1987 in Civil Case No. 904-MN are hereby set aside as null
and void. Respondent judge is ordered to cease and desist Philippines, Plaintiff versus Jose L. Africa, et al.,
from any further proceedings in Civil Case No. 904-MN, which Defendants," which upheld the sale by Universal Molasses
is hereby ordered dismissed. The counter-petition in G.R. Corporation (UNIMOLCO) of its shares of stock in Eastern
Telecommunications Philippines, Inc. (ETPI), to Smart
Communications. Petitioner contends that the sale violated its
SO ORDERED.
preemptive right as stockholder of ETPI, which is guaranteed
in the Articles of Incorporation.
ETPI was one of the corporations sequestered by the
Presidential Commission on Good Government (PCGG).
Among its stockholders were Roberto S. Benedicto and
UNIMOLCO.
Sometime in 1990, PCGG and Benedicto entered into a
compromise agreement whereby Benedicto ceded to the
government 204,000 shares of stock in ETPI, representing his
fifty-one percent (51%) equity therein. The other forty-nine
percent (49%), consisting of 196,000 shares of stock, were
released from sequestration and adjudicated by final
judgment to Benedicto and UNIMOLCO. Furthermore, the
government agreed to withdraw the cases filed against
Benedicto and free him from further criminal prosecution.
CORPORATION LAW: 3.a. powers of corps Page 43 of 62
In a written notice received on April 24, 1996 by Melquiades Stock to all then stockholders of record of the Corporation II. THE SANDIGANBAYAN ERRED IN
Gutierrez, the President and Chairman of the Board of ETPI, (except the Offeror) to purchase the Offered Stock pro rata, at APPROVING/RATIFYING THE SALE OF THE 196,000
UNIMOLCO offered to sell to ETPI its 196,000 shares of stock a price and upon terms and conditions specified by the SHARES BY PRIVATE RESPONDENTS UNIMOLCO,
therein. Offeror based upon a firm, bona fide, written cash offer from BENEDICTO AND AFRICA IN FAVOR OF SMART.
a bona fide purchaser.
Meanwhile, on motion of petitioner, through the PCGG, the Petitioner argues that it received the notice of UNIMOLCOs
Sandiganbayan issued a Resolution, dated May 7, 1996, The Corporation shall be entitled to exercise its right of first offer to sell its shares of stock only on August 30, 1996. The
authorizing the entry in the Stock and Transfer Book of ETPI of refusal with respect to all, but not less than all, of the Offered written notice, issued by Atty. Bayani K. Tan, ETPI Corporate
the transfer of ownership of 204,000 shares of stock to Stock for a period (hereinafter referred to as the "First Period") Secretary, gave the stockholders, including petitioner, until
petitioner, to be taken out of the shareholdings of UNIMOLCO. of thirty (30) days, from the receipt by it of a written offer to September 26, 1996 within which to exercise their preemptive
On June 5, 1996, Benedicto filed a "Manifestation and Motion" sell from the Offeror. right. On September 24, 1996, petitioner sent a letter to the
with the Sandiganbayan, praying that the Resolution dated Corporate Secretary stating that the government is exercising
May 7, 1996 be modified such that the entry of the 204,000 its right of first refusal and offering payment thereof in the
If the Corporation shall fail or refuse within the First Period to
shares of stock of petitioner in ETPI be taken out of the form of compensation or set-off against the assets of
accept the offer for all of the Offered Stock, then on or before
shareholdings of UNIMOLCO and/or Roberto S. Benedicto. respondent Benedicto still due to the Philippine government
the end of such First Period, the Secretary of the Corporation
under the Compromise Agreement.
shall transmit by registered mail and by telegram or cable a
On June 21, 1996, PCGG issued Resolution No. 96-142 copy of such offer to each stockholder of record (other than
enjoining all stockholders of ETPI from selling shares of stock the Offeror) at his/its address appearing on the books of the Respondents UNIMOLCO, Benedicto and Andres L. Africa filed
therein without the written conformity of the PCGG. 4 Corporation and shall also notify each stockholder of the their Comment,8 arguing that petitioners offer of payment by
expiry date of such offer (such expiry date being thirty (30) way of set-off was invalid, inasmuch as the Articles of
days after the end of the First Period). All then stockholders of Incorporation of ETPI specifically provided that tender of
Subsequently, on July 24, 1996, UNIMOLCO and Smart
record of the Corporation, other than the Offeror, shall be payment should be in cash, certified check or checks drawn
Communications executed a Deed of Absolute Sale whereby
entitled for a period (hereinafter referred to as the Second on a Philippine bank.
UNIMOLCO sold its 196,000 shares of stock in ETPI to
Period) ending thirty (30) days after the First Period to
Smart.5 Prior to the sale, Smart was not a stockholder of ETPI.
exercise their rights of first refusal with respect to all or any
Respondent SMART filed its Comment, 9 likewise arguing that
portion of the Offered Stock for which they have a right of first
petitioners proposal to off-set the purchase price for the
Thus, on August 8, 1996, petitioner filed with the refusal and may in addition offer to purchase any shares
shares of stock with assets of Benedicto did not constitute a
Sandiganbayan a "Motion to Cite Defendant Benedicto and thereof not subscribed for by the other stockholders pursuant
valid tender of payment. Moreover, petitioner cannot use
the Parties to the Sale of UNIMOLCO Shares in ETPI in to rights of first refusal. Such shares shall be allocated among
assets recovered as ill-gotten wealth for the purchase of the
Contempt of Court and to Rescind and/or Annul Said Sale." stockholders offering to purchase such shares, pro rata, up to
shares of stock because under Section 63 of Republic Act No.
Petitioner alleged that the sale of the 196,000 shares of stock the limits, if any, specified by such purchasing stockholders.
6657, any amounts derived therefrom shall be appropriated
of UNIMOLCO to Smart was in defiance of the May 7, 1996 Each such purchasing stockholder shall transmit to the
to fund the Comprehensive Agrarian Reform Program.
Resolution of the Sandiganbayan, which provided that the Corporation with his/its acceptance cash, or a certified check
204,000 shares of the government shall come from the or checks drawn on a Philippine bank or banks, in an amount
shareholdings of UNIMOLCO, and it interfered with the sufficient to meet the terms of the offer corresponding to such On October 2, 1997, Victor Africa filed a Motion for Leave to
proceedings thereon. In support of its prayer for the rescission number of shares of Offered Stock specified in his/its Intervene and a Comment-in-Intervention.10 He alleges that
and annulment of the sale, petitioner argued that the same acceptance. petitioners exercise of the right of first refusal is
violated its right of first refusal to purchase shares of stock in preconditioned on its being a stockholder of ETPI. However,
ETPI. intervenor has a pending motion before the Sandiganbayan
In its Resolution dated December 6, 1996, the Sandiganbayan
precisely questioning petitioners right to become a
denied petitioners motion for contempt and to rescind or
transferee of ETPI shares and to enjoin the registration of
The right of first refusal is contained in Article 10 of the annul the sale of the 196,000 ETPI shares of stock to
petitioner as a legitimate stockholder in the Stock and
Articles of Incorporation of ETPI, which states: Smart.6 Petitioner filed a motion for reconsideration but the
Transfer Book of ETPI. On December 10, 1997, the motion for
same was denied in a Resolution dated March 17, 1997. 7
leave to intervene was granted and the Comment-in-
ARTICLE TENTH: In the event any stockholder (hereinafter Intervention was admitted.11
referred to as the "Offeror") desires to dispose, transfer, sell Hence, this petition for review raising the following grounds:
or assign any shares of stock of the Corporation (hereinafter
The petition is without merit.
referred to as the "Offered Stock"), except in the case of any
I. THE SANDIGANBAYAN ERRED IN NOT
disposal, transfer, sale or assignment between or among the
RECOGNIZING PETITIONER PCGGS EXERCISE OF ITS
incorporators or to corporation controlled by the The records of the case clearly show that the written notice
RIGHT OF FIRST REFUSAL AS STOCKHOLDER, TO
incorporators, the Offeror shall give a right of first refusal to by UNIMOLCO, the Offeror, of its intention to sell its 196,000
PURCHASE THE 196,000 ETPI SHARES REGISTERED
the Corporation and, thereafter in the event that the shares of stock was duly received on April 24, 1996 by the
IN THE NAME OF UNIMOLCO.
Corporation shall refuse or fail to accept all of the Offered President and Chairman of the Board of ETPI. The

CORPORATION LAW: 3.a. powers of corps Page 44 of 62

Sandiganbayan correctly held that this was valid service of
the written offer to the corporation, applying by analogy the
Rules of Court provisions on service of summons. Petitioner
does not dispute that the written notice to the President and
Chairman of the Board of ETPI was service to the corporation.
It merely argues that after receipt of the offer, ETPI did not
act in accordance with the procedure laid down in the Articles
of Incorporation. Thus, in its petition for review, petitioner
states:
The April 24, 1996 offer sent to ETPI Chairman and President
Melquiades Gutierrez did not become valid and effective as it
was not able to completely comply with the requirements of
Article 10 of the ETPI Articles of Incorporation. Indeed, after
receipt by ETPI of the April 24, 1996 offer, ETPI never
acted on it. Assuming that ETPI, as a corporation did not
exercise its right of first refusal within the first thirty day
period pursuant to Article 10, it did not send notices to then
stockholders of record of ETPI about the offered sale and their
privilege to exercise their rights of first refusal. In other
words, the ETPI stockholders were denied of its formal notice
from ETPI about the said offer to sell the 196,000 share of
stock.12
Hence, the First Period of thirty days contemplated in the
Articles of Incorporation commenced to run on April 24, 1996,
giving the corporation until May 24, 1996 within which to
exercise its right of first refusal. ETPIs inaction simply means
that it did not desire to purchase the shares of stock. The
stockholders right of first refusal, thus, accrued upon the
expiration of the First Period and within the succeeding thirty
days, known as the Second Period. The Sandiganbayan held
that the First Period and the Second Period are "continuous in
character because the Second Period ends, in the very words
of Article 10 of the ETPI Articles, thirty (30) days after the
First Period, and the expiry date being thirty (30) days after
the end of the First Period."13 The Second Period, therefore,
covered the period from May 24, 1996 to June 23, 1996.
Petitioner maintains that under the Articles of Incorporation,
the Corporate Secretary of ETPI should have given the
stockholders written notice of the offer to sell on or before the
expiration of the First Period. However, Resolution No. 96-142,
adopted by PCGG on June 21, 1996, states among others:
WHEREAS, on 4 June 1996, the PCGG received copy of a letter requirement in the Articles of Incorporation that payment
of 29 May 1996 from Atty. Juan de Ocampo, alleging that he is must be tendered in "cash or certified checks or checks drawn
the Corporate Secretary of ETPI, copy of which is hereto on a Philippine bank or banks". The set-off or compensation it
attached, stating that under Article Tenth of the ETPI articles proposed does not fall under any of the recognized modes of
of Incorporation, all stockholders of record have the right of payment in the Articles. In order that compensation may be
first refusal to purchase pro rata to their holdings in ETPI to proper, Article 1279 of the Civil Code requires:
expire 20 days (supposed to be 30) from expiry date of ETPIs
right of first refusal which was allegedly 24 May 1996, giving
the Government up to 18 June 1996 to exercise the right of
first refusal to purchase up to 22,148 shares of stock.14
From the above, it clearly appears that, by petitioners own
admission and contrary to its belated protestation, the
procedure outlined in the Articles of Incorporation relating to
the right of first refusal was observed. But petitioner takes
exception to Atty. De Ocampos authority to act as Corporate
Secretary of ETPI. In this connection, the Sandiganbayan held:
xxx. The question of who are the legitimate directors and
officers of ETPI has been elevated to the Supreme Court but
has not yet been finally resolved. This should not, however,
detract from the fact that PCGG has actually been informed of
the intended sale.15
We agree with the Sandiganbayan. The purpose of the notice
requirement in Article 10 of the ETPI Articles of Incorporation
is to give the stockholders knowledge of the intended sale of
shares of stock of the corporation, in order that they may
exercise their preemptive right. Where it is shown that a
stockholder had actual knowledge of the intended sale within
the period prescribed to exercise the right, the notice
requirement had been sufficiently met. In the case at bar,
PCGG had actual knowledge of UNIMOLCOs offer to sell its
shares of stock. In fact, it issued Resolution No. 96-142
enjoining the sale of the said shares of stock to Smart.
Petitioner, thus, cannot feign lack of notice. 16
Parenthetically, PCGG had no more authority to enjoin the
sale of UNIMOLCOs 196,000 shares of stock, as it endeavored
to do in Resolution No. 96-142. As correctly found by the
Sandiganbayan, since the 196,000 shares of stock had
already been adjudicated by final judgment to Benedicto and
UNIMOLCO, PCGG could no longer exercise power and
authority over the same.17
Therefore, we sustain the Sandiganbayans ruling that
petitioners right of first refusal was not seasonably
exercised.18
Even on the assumption that petitioner exercised its right of
first refusal on time, it nonetheless failed to follow the
CORPORATION LAW: 3.a. powers of corps
(1) That each one of the obligors be bound principally,
and that he be at the same time a principal creditor of
the other;
(2) That both debts consist in a sum of money, or if the
things are consumable, they be of the same kind, and
also of the same quality if the later has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable, and
(5) That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.
Petitioner sought the offsetting of the price of the shares of
stock with assets of respondent Benedicto, whom it claimed
was indebted to it for certain lands and dividends due to it
under their Compromise Agreement. Benedicto was only a
stockholder of UNIMOLCO, the Offeror. While he may be the
majority stockholder, UNIMOLCO cannot be said to be liable
for Benedictos supposed obligations to petitioner. To be sure,
Benedicto and UNIMOLCO are separate and distinct persons.
On the basis of this alone, there can be no valid set-off.
Petitioner and UNIMOLCO are not principal debtors and
creditors of each other.
Petitioner counters that UNIMOLCOs corporate fiction should
be pierced since it is also owned by Benedicto. However,
mere majority ownership of the stocks of a corporation is
not per se a cause for piercing the corporate veil. There was
no evidence that UNIMOLCOs corporate entity was used by
respondent Benedicto to commit fraud or to do wrong on
petitioner; neither was it shown that the corporate entity was
merely a farce and that it was used as an alter ego, business
conduit or instrumentality of a person or another entity or
that piercing the corporation fiction is necessary to achieve
justice or equity.19 Only in these instances may the fiction be
pierced and disregarded.20 Being the party that invoked it,
petitioner has the burden of substantiating by clear and
convincing evidence that UNIMOLCOs corporate veil must be
pierced.
Besides, petitioners claims on the lands and dividends
allegedly due it from respondent Benedictos other business
holdings are not enforceable in court. Only liquidated debts
are enforceable in court, there being no apparent defenses
inherent in them.21 "For compensation to take place, a
distinction must be made between a debt and a mere claim. A
debt is a claim which has been formally passed upon by the
Page 45 of 62
highest authority to which it can in law be submitted and has
been declared to be a debt. A claim, on the other hand, is a
debt in embryo. It is mere evidence of a debt and must pass
through the process prescribed by law before it develops into
what is properly called a debt." 22 There being no two debts for
which either party may be said as principally bound to each
other, again, there can be no set-off.

In the final analysis, the resolution of this case hinges on

questions of fact.1wphi1 It is axiomatic that factual findings
of the Sandiganbayan are conclusive on the Supreme
Court.23 None of the exceptions to this rule 24 is present in this
case.

WHEREFORE, the petition is DENIED. The Resolutions of the

Sandiganbayan dated December 6, 1996 and March 17, 1997
in Civil Case No. 0009 are AFFIRMED.

SO ORDERED.

CORPORATION LAW: 3.a. powers of corps Page 46 of 62

G.R. No. L-20850 November 29, 1965 continuation of the selling corporation; and (4)
where the transaction is entered into fraudulently in
THE EDWARD J. NELL COMPANY, petitioner, vs. PACIFIC
order to escape liability for such debts.
FARMS, INC., respondent.
In the case at bar, there is neither proof nor allegation that
Agrava & Agrava for petitioner.
appellee had expressly or impliedly agreed to assume the
Araneta, Mendoza & Papa for respondent.
debt of Insular Farms in favor of appellant herein, or that the
CONCEPCION, J.: appellee is a continuation of Insular Farms, or that the sale of
either the shares of stock or the assets of Insular Farms to the
Appeal by certiorari, taken by Edward J. Nell Co. hereinafter appellee has been entered into fraudulently, in order to
referred to as appellant from a decision of the Court of escape liability for the debt of the Insular Farms in favor of
Appeals. appellant herein. In fact, these sales took place (March, 1958)
On October 9, 1958, appellant secured in Civil Case No. not only over six (6) months before the rendition of the
58579 of the Municipal Court of Manila against Insular Farms, judgment (October 9, 1958) sought to be collected in the
Inc. hereinafter referred to as Insular Farms a judgment for present action, but, also, over a month before the filing of the
the sum of P1,853.80 representing the unpaid balance of case (May 29, 1958) in which said judgment was rendered.
the price of a pump sold by appellant to Insular Farms with Moreover, appellee purchased the shares of stock of Insular
interest on said sum, plus P125.00 as attorney's fees and Farms as the highest bidder at an auction sale held at the
P84.00 as costs. A writ of execution, issued after the instance of a bank to which said shares had been pledged as
judgment had become final, was, on August 14, 1959, security for an obligation of Insular Farms in favor of said
returned unsatisfied, stating that Insular Farms had no bank. It has, also, been established that the appellee had paid
leviable property. Soon thereafter, or on November 13, 1959, P285,126.99 for said shares of stock, apart from the sum of
appellant filed with said court the present action against P10,000.00 it, likewise, paid for the other assets of Insular
Pacific Farms, Inc. hereinafter referred to as appellee for Farms.
the collection of the judgment aforementioned, upon the Neither is it claimed that these transactions have resulted in
theory that appellee is the alter ego of Insular Farms, which the consolidation or merger of the Insular Farms and appellee
appellee has denied. In due course, the municipal court herein. On the contrary, appellant's theory to the effect that
rendered judgment dismissing appellant's complaint. appellee is an alter ego of the Insular Farms negates such
Appellant appealed, with the same result, to the court of first consolidation or merger, for a corporation cannot be its
instance and, subsequently, to the Court of Appeals. Hence own alter ego.
this appeal by certiorari, upon the ground that the Court of
Appeals had erred: (1) in not holding the appellee liable for It is urged, however, that said P10,000.00 paid by appellee for
said unpaid obligation of the Insular Farms; and (2) in not other assets of Insular Farms is a grossly inadequate price,
granting attorney's fees to appellant. because, appellant now claims, said assets were worth
around P285,126.99, and that, consequently, the sale must
With respect to the first ground, it should be noted that be considered fraudulent. However, the sale was submitted to
appellant's complaint in the municipal court was anchored and approved by the Securities and Exchange Commission. It
upon the theory that appellee is an alter ego of Insular Farms, must be presumed, therefore, that the price paid was fair and
because the former had purchased all or substantially all of reasonable. Moreover, the only issue raised in the court of
the shares of stock, as well as the real and personal origin was whether or not appellee is an alter ego of Insular
properties of the latter, including the pumping equipment sold Farms. The question of whether the aforementioned sale of
by appellant to Insular Farms. The record shows that, on assets for P10,000.00 was fraudulent or not, had not been put
March 21, 1958, appellee purchased 1,000 shares of stock of in issue in said court. Hence, it may, not be raised on appeal.
Insular Farms for P285,126.99; that, thereupon, appellee sold
said shares of stock to certain individuals, who forthwith Being a mere consequence of the first assignment of error,
reorganized said corporation; and that the board of directors which is thus clearly untenable, appellant's second
thereof, as reorganized, then caused its assets, including its assignment of error needs no discussion.
leasehold rights over a public land in Bolinao, Pangasinan, to
WHEREFORE, the decision appealed from is hereby affirmed,
be sold to herein appellee for P10,000.00. We agree with the
with costs against the appellant. It is so ordered.
Court of Appeals that these facts do not prove that the
appellee is an alter ego of Insular Farms, or is liable for its
debts. The rule is set forth in Fletcher Cyclopedia
Corporations, Vol. 15, Sec. 7122, pp. 160-161, as follows:
Generally where one corporation sells or otherwise
transfers all of its assets to another corporation, the
latter is not liable for the debts and liabilities of the
transferor, except: (1) where the purchaser
expressly or impliedly agrees to assume such debts;
(2) where the transaction amounts to a
consolidation or merger of the corporations; (3)
where the purchasing corporation is merely a

CORPORATION LAW: 3.a. powers of corps Page 47 of 62

G.R. No. 207161, September 08, 2015
Y-I LEISURE PHILIPPINES, INC., YATS INTERNATIONAL
LTD. AND Y-I CLUBS AND RESORTS,
INC., Petitioners, v. JAMES YU, Respondent.
DECISION
MENDOZA, J.:
The present case attempts to unravel whether the transfer of
all or substantially all the assets of a corporation under
Section 40 of the Corporation Code carries with it the
assumption of corporate liabilities.
This is a petition for review on certiorari under Rule 45 of the
Rules of Court assailing the January 30, 2012 Decision 1 and
the April 29, 2013 Resolution2 of the Court of Appeals (CA), in
CA-G.R. CV No. 96036, which affirmed with modification the
August 31, 2010 Decision3 of the Regional Trial Court, Branch
81, Quezon City (RTC).
The Facts
Mt. Arayat Development Co. Inc. (MADCI) was a real estate
development corporation, which was registered 4 on February
7, 1996 before the Security and Exchange Commission (SEC).
On the other hand, respondent James Yu (Yu) was a
businessman, interested in purchasing golf and country club
shares.
Sometime in 1997, MADCI offered for sale shares of a golf and
country club located in the vicinity of Mt. Arayat in Arayat,
Pampanga, for the price of P550.00 per share. Relying on the
representation of MADCI's brokers and sales agents, Yu
bought 500 golf and 150 country club shares for a total price
of P650,000.00 which he paid by installment with fourteen
(14) Far East Bank and Trust Company (FEBTC) checks.5
Upon full payment of the shares to MADCI, Yu visited the
supposed site of the golf and country club and discovered
that it was non-existent. In a letter, dated February 5, 2000,
Yu demanded from MADCI that his payment be returned to
him.6 MADCI recognized that Yu had an investment of
P650,000.00, but the latter had not yet received any refund. 7
On August 14, 2000, Yu filed with the RTC a complaint8 for
collection of sum of money and damages with prayer for
preliminary attachment against MADCI and its president
Rogelio Sangil (Sangil) to recover his payment for the
purchase of golf and country club shares. In his transactions
with MADCI, Yu alleged that he dealt with Sangil, who used
MADCI's corporate personality to defraud him.
In his Answer,9 Sangil alleged that Yu dealt with MADCI as a
juridical person and that he did not benefit from the sale of
shares. He added that the return of Yu's money was no longer
possible because its approval had been blocked by the new
set of officers of MADCI, which controlled the majority of its
board of directors.
In its Answer,10 MADCI claimed that it was Sangil who
defrauded Yu. It invoked the Memorandum of
Agreement11 (MOA), dated May 29, 1999, entered into by
MADCI, Sangil and petitioner Yats International Ltd. (YIL).
Under the MOA, Sangil undertook to redeem MADCI
proprietary shares sold to third persons or settle in full all
their claims for refund of payments.12 Thus, it was MADCI's
position that Sangil should be ultimately liable to refund the
payment for shares purchased.
After the pre-trial, Yu filed an Amended Complaint, 13 wherein
he also impleaded YIL, Y-I Leisure Phils., Inc. (YILPI) and Y-I
Club & Resorts, Inc. (YICRI). According to Yu, he discovered in
the Registry of Deeds of Pampanga that, substantially, all the
assets of MADCI, consisting of one hundred twenty (120)
hectares of land located in Magalang, Pampanga, were sold to
YIL, YILPI and YICRI. The transfer was done in fraud of MADCI's
creditors, and without the required approval of its
stockholders and board of directors under Section 40 of the
Corporation Code. Yu also alleged that Sangil even filed a
case in Pampanga which assailed the said irregular transfers
of lands.
In their Answer,14 YIL, YILPI and YICRI alleged that they only
had an interest in MADCI in 1999 when YIL bought some of its
corporate shares pursuant to the MOA. This occurred two (2)
years after Yu bought his golf and country club shares from
MADCI. As a mere stockholder of MADCI, YIL could not be held
responsible for the liabilities of the corporation. As to the
transfer of properties from MADCI to YILPI 15 and subsequently
to YICRI,16 they averred that it was not undertaken to defraud
MADCI's creditors and it was done in accordance with the
MOA. In fact, it was stipulated in the MOA that Sangil
undertook to settle all claims for refund of third parties.
During the trial, the MOA was presented before the RTC. It
stated that Sangil controlled 60% of the capital stock of
MADCI, while the latter owned 120 hectares of agricultural
land in Magalang, Pampanga, the property intended for the
development of a golf course; that YIL was to subscribe to the
remaining 40% of the capital stock of MADCI for a
consideration of P31,000,000.00; that YIL also gave
P500,000.00 to acquire the shares of minority stockholders;
that as a condition for YIL's subscription, MADCI and Sangil
were obligated to obtain several government permits, such as
an environmental compliance certificate and land conversion
permit; that should MADCI and Sangil fail in their obligations,
they must return the amounts paid by YIL with interests; that
if they would still fail to return the same, YIL would be
authorized to sell the 120 hectare land to satisfy their
obligation; and that, as an additional security, Sangil
undertook to redeem all the MADCI proprietary shares sold to
third parties or to settle in full all their claims for refund.
Sangil then testified that MADCI failed to develop the golf
course because its properties were taken over by YIL after he
allegedly violated the MOA. 17 The lands of MADCI were
eventually sold to YICRI for a consideration of P9.3 million,
which was definitely lower than their market
price.18Unfortunately, the case assailing the transfers was
dismissed by a trial court in Pampanga.19
The president and chief executive officer of YILPI and YICRI,
CORPORATION LAW: 3.a. powers of corps
and managing director of YIL, Denny On Yat Wang (Wang),
was presented as a witness by YIL. He testified that YIL was
an investment company engaged in the development of real
estates, projects, leisure, tourism, and related
businesses.20 He explained that YIL subscribed to. the shares
of MADCI because it was interested in its golf course
development project in Pampanga.21 Thus, he signed the MOA
on behalf of YIL and he paid P31.5 million to subscribe to
MADCI's shares, subject to the fulfilment of Sangil's
obligations.22
Wang further testified that the MOA stipulated that MADCI
would execute a special power of attorney in his favor,
empowering him to sell the property of MADCI in case of
default in the performance of obligations.23 Due to Sangil's
subsequent default, a deed of absolute sale over the lands of
MADCI was eventually executed in favor of YICRI, its
designated company.24 Wang also stated that, aside from its
lands, MADCI had other assets in the form of loan advances of
its directors.25cralawred
The RTC Ruling
In its August 31, 2010 Decision, the RTC ruled that because
MADCI did not deny its contractual obligation with Yu, it must
be liable for the return of his payments. The trial court also
ruled that Sangil should be solidarily liable with MADCI
because he used the latter as a mere alter ego or business
conduit. The RTC was convinced that Sangil had absolute
control over the corporation and he started selling golf and
country club shares under the guise of MADCI even without
clearance from SEC.
The RTC, however, exonerated YIL, YILPI and YICRI from
liability because they were not part of the transactions
between MADCI and Sangil, on one hand and Yu, on the other
hand. It opined that YIL, YILPI and YICRI even had the
foresight of protecting the creditors of MADCI when they
made Sangil responsible for settling the claims of refunds of
thirds persons in the proprietary shares. The decretal portion
of the decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
1. Ordering defendants Mt. Arayat Development Corporation,
Inc. and Rogelio Sangil to pay plaintiff James Yu jointly and
severally the amounts of P650,000.04 with 6% legal rate of
interest from the filing of the amended complaint until full
payment and and P50,000.00 as attorney's fees.
2. Dismissing the instant case against defendant Y-I Leisure
Philippines, Inc., YATS International Limited and Y-I Clubs and
Resorts, Inc.; and
3. Dismissing the counterclaims of Y-I Leisure Philippines, Inc.,
YATS International Limited and Y-I Clubs and Resorts, Inc.
SO ORDERED.26
In two separate appeals, the parties elevated the case to the
Page 48 of 62
CA.
The CA Ruling
In its assailed Decision, dated January 30, 2012, the CA partly
granted the appeals and modified the RTC decision by holding
YIL and its companies, YILPI and YICRI, jointly and severally,
liable for the satisfaction of Yu's claim.
The CA held that the sale of lands between MADCI and YIL
must be upheld because Yu failed to prove that it was
simulated or that fraud was employed. This did not mean,
however, that YIL and its companies were free from any
liability for the payment of Yu's claim.
The CA explained that YIL, YILPI and YICRI could not escape
liability by simply invoking the provision in the MOA that
Sangil undertook the responsibility of paying all the creditors'
claims for refund. The provision was, in effect, a novation
under Article 1293 of the Civil Code, specifically the
substitution of debtors. Considering that Yu, as creditor of
MADCI, had no knowledge of the "change of debtors," the
MOA could not validly take effect against him. Accordingly,
MADCI remained to be a debtor of Yu.
Consequently, as the CA further held, the transfer of the
entire assets of MADCI to YICRI should not prejudice the
transferor's creditors. Citing the case of Caltex Philippines,
Inc. v, PNOC Shipping and Transport Corporation 27 (Caltex),
the CA ruled that the sale by MADCI of all its corporate assets
to YIL and its companies necessarily included the assumption
of its liabilities. Otherwise, the assets were put beyond the
reach of the creditors, like Yu. The CA stated that the liability
of YIL and its companies was determined not by their
participation in the sale of the golf and country club shares,
but by the fact that they bought the entire assets of MADCI
and its creditors might not have other means of collecting the
amounts due to them, except by going after the assets sold.
Anent Sangil's liability, the CA ruled that he could not use the
separate corporate personality of MADCI as a tool to evade
his existing personal obligations under the MOA. The
dispositive portion of the decision reads:
WHEREFORE, the appeals are PARTLY GRANTED. Accordingly,
the assailed Decision dated August 31, 2010 in Civil Case No.
Q-oo-41579 of the RTC of Quezon City, Branch 81, is hereby
AFFIRMED WITH MODIFICATION, in that defendants-appellees
YIL, YILPI and YICRI are hereby held jointly and severally liable
with defendant-appellee MADCI and defendant-appellant
Sangil for the satisfaction of plaintiff-appellant Yu's claim.
In all other respects, the assailed decision stands.
SO ORDERED.28
YIL and its companies, YILPI and YICRI, moved for
reconsideration, but their motion was denied by the CA in its
assailed Resolution, dated April 29, 2013.
Hence, this petition.
ISSUE
WHETHER OR NOT THE COURT OF APPEALS ERRED IN
RULING THAT PETITIONERS YATS GROUP SHOULD BE
HELD JOINTLY AND SEVERALLY LIABLE TO RESPONDENT
YU DESPITE THE ABSENCE OF FRAUD IN THE SALE OF
ASSETS AND BAD FAITH ON THE PART OF PETITIONERS
YATS GROUP.29
Petitioners YIL, YILPI and YICRI contend that the facts
of Caltex are not on all fours with the case at bench.
In Caltex, there was an express stipulation of the assumption
of all the obligations of the judgment debtor. Here, there was
no stipulation whatsoever stating that the petitioners shall
assume the payment of MADCI's debts.
The petitioners also argue that fraud must exist to hold third
parties liable. The sale in this case was not in any way tainted
by any of the "badges of fraud" cited in Oria v.
McMicking.30 The CA itself stated that the alleged simulation
of the sale was not established by respondent Yu. Moreover,
Article 1383 of the Civil Code requires that the creditor must
prove that he has no other legal remedy to satisfy his claim.
Such requirement must be followed whether by an action for
rescission or action for sum of money.
On September 20, 2013, respondent Yu filed his
Comment.31 He asserted that the CA correctly
applied Caltex in the present case as the lands sold to the
petitioners were the only assets of MADCI. After the sale,
MADCI became incapable of continuing its business, and its
corporate existence has just remained to this day in a virtual
state of suspended animation. Thus, unless the creditors had
agreed to the sale of all the assets of the corporation and had
accepted the purchasing corporation as the new debtor,
sufficient assets should have been reserved to pay their
claims.
On June 19, 2014, the petitioners filed their
Reply,32 reiterating their previous argument that the element
of fraud was required in order for a third party buyer to be
liable to the seller's creditors.
The Court's Ruling
The petition lacks merit.
To recapitulate, respondent Yu bought several golf and
country club shares from MADCI. Regrettably, the latter did
not develop the supposed project. Yu then demanded the
return of his payment, but MADCI could not return it anymore
because all its assets had been transferred. Through the acts
of YIL, MADCI sold all its lands to YILPI and, subsequently to
YICRI. Thus, Yu now claims that the petitioners inherited the
obligations of MADCI. On the other hand, the petitioners
counter that they did not assume such liabilities because the
transfer of assets was not committed in fraud of the MADCI's
creditors.
CORPORATION LAW: 3.a. powers of corps
Hence, the issue at hand presents a complex question of law -
whether fraud must exist in the transfer of all the corporate
assets in order for the transferee to assume the liabilities of
the transferor. To resolve this issue, a review of the laws and
jurisprudence concerning corporate assumption of liabilities
must be undertaken.
Background on the corporate assumption of liabilities
In the 1965 case of Nell v. Pacific Farms, Inc.,33 the Court first
pronounced the rule regarding the transfer of all the assets of
one corporation to another (hereafter referred to as the Nell
Doctrine) as follows:
Generally, where one corporation sells or otherwise transfers
all of its assets to another corporation, the latter is not liable
for the debts and liabilities of the transferor, except:
1. Where the purchaser expressly or impliedly agrees
to assume such debts;
2. Where the transaction amounts to a consolidation or
merger of the corporations;
3. Where the purchasing corporation is merely a
continuation of the selling corporation; and
4. Where the transaction is entered into fraudulently in
order to escape liability for such debts.
The Nell Doctrine states the general rule that the transfer of
all the assets of a corporation to another shall not render the
latter liable to the liabilities of the transferor. If any of the
above-cited exceptions are present, then the transferee
corporation shall assume the liabilities of the transferor.
Legal bases of the Nell Doctrine
An evaluation of our contract and corporation laws validates
that the Nell Doctrine is fully supported by Philippine statutes.
The general rule expressed by the doctrine reflects the
principle of relativity under Article 131134 of the Civil Code.
Contracts, including the rights and obligations arising
therefrom, are valid and binding only between the contracting
parties and their successors-in-interest. Thus, despite the sale
of all corporate assets, the transferee corporation cannot be
prejudiced as it is not in privity with the contracts between
the transferor corporation and its creditors.
The first exception under the Nell Doctrine, where the
transferee corporation expressly or impliedly agrees to
assume the transferor's debts, is provided under Article
204735 of the Civil Code. When a person binds himself
solidarity with the principal debtor, then a contract of
suretyship is produced. Necessarily, the corporation which
expressly or impliedly agrees to assume the transferor's debts
shall be liable to the same.
The second exception under the doctrine, as to the merger
and consolidation of corporations, is well-established
under Sections 76 to 80, Title X of the Corporation
Code. If the transfer of assets of one corporation to another
amounts to a merger or consolidation, then the transferee
Page 49 of 62
corporation must take over the liabilities of the transferor.
Another exception of the doctrine, where the sale of all
corporate assets is entered into fraudulently to escape
liability for transferor's debts, can be found under Article
1388 of the Civil Code. It provides that whoever acquires in
bad faith the things alienated in fraud of creditors, shall
indemnify the latter for damages suffered. Thus, if there is
fraud in the transfer of all the assets of the transferor
corporation, its creditors can hold the transferee liable.
The legal basis of the last in the four (4) exceptions to the Nell
Doctrine, where the purchasing corporation is merely a
continuation of the selling corporation, is challenging to
determine. In his book, Philippine Corporate Law,36 Dean
Cesar Villanueva explained that this exception contemplates
the "business-enterprise transfer." In such transfer, the
transferee corporation's interest goes beyond the assets of
the transferor's assets and its desires to acquire the latter's
business enterprise, including its goodwill.
In Villa Rev Transit, Inc. v. Ferrer,37 the Court held that when
one were to buy the business of another as a going concern,
he would usually wish to keep it going; he would wish to get
the location, the building, the stock in trade, and the
customers. He would wish to step into the seller's shoes and
to enjoy the same business relations with other men. He
would be willing to pay much more if he could get the "good
will" of the business, meaning by this, the good will of the
customers, that they may continue to tread the old footpath
to his door and maintain with him the business relations
enjoyed by the seller.
In other words, in this last exception, the transferee
purchases not only the assets of the transferor, but also its
business. As a result of the sale, the transferor is merely left
with its juridical existence, devoid of its industry and earning
capacity. Fittingly, the proper provision of law that is
contemplated by this exception would be Section 40 of the
Corporation Code,38 which provides:
Sec. 40. Sale or other disposition of assets. - Subject to the
provisions of existing laws on illegal combinations and
monopolies, a corporation may, by a majority vote of its
board of directors or trustees, sell, lease, exchange,
mortgage, pledge or otherwise dispose of all or
substantially all of its property and assets, including
its goodwill, upon such terms and conditions and for such
consideration, which may be money, stocks, bonds or other
instruments for the payment of money or other property or
consideration, as its board of directors or trustees may deem
expedient, when authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding
capital stock, or in case of non-stock corporation, by the vote
of at least two-thirds (2/3) of the members, in a stockholder's
or member's meeting duly called for the purpose. Written
notice of the proposed action and of the time and place of the
meeting shall be addressed to each stockholder or member at
his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office
with postage prepaid, or served personally: Provided, That
any dissenting stockholder may exercise his appraisal right
under the conditions provided in this Code.
A sale or other disposition shall be deemed to cover
substantially all the corporate property and assets if thereby
the corporation would be rendered incapable of
continuing the business or accomplishing the purpose
for which it was incorporated.
After such authorization or approval by the stockholders or
members, the board of directors or trustees may,
nevertheless, in its discretion, abandon such sale, lease,
exchange, mortgage, pledge or other disposition of property
and assets, subject to the rights of third parties under any
contract relating thereto, without further action or approval
by the stockholders or members.
Nothing in this section is intended to restrict the power of any
corporation, without the authorization by the stockholders or
members, to sell, lease, exchange, mortgage, pledge or
otherwise dispose of any of its property and assets if the
same is necessary in the usual and regular course of business
of said corporation or if the proceeds of the sale or other
disposition of such property and assets be appropriated for
the conduct of its remaining business.
In non-stock corporations where there are no members with
voting rights, the vote of at least a majority of the trustees in
office will be sufficient authorization for the corporation to
enter into any transaction authorized by this section.
[Emphases Supplied]
To reiterate, Section 40 refers to the sale, lease, exchange or
disposition of all or substantially all of the corporation's
assets, including its goodwill.39 The sale under this provision
does not contemplate an ordinary sale of all corporate assets;
the transfer must be of such degree that the transferor
corporation is rendered incapable of continuing its business or
its corporate purpose.40
Section 40 suitably reflects the business-enterprise transfer
under the exception of the Nell Doctrine because the
purchasing or transferee corporation necessarily continued
the business of the selling or transferor corporation. Given
that the transferee corporation acquired not only the assets
but also the business of the transferor corporation, then the
liabilities of the latter are inevitably assigned to the former.
It must be clarified, however, that not every transfer of the
entire corporate assets would qualify under Section 40. It
does not apply (1) if the sale of the entire property and assets
is necessary in the usual and regular course of business of
corporation, or (2) if the proceeds of the sale or other
disposition of such property and assets will be appropriated
for the conduct of its remaining business. 41 Thus, the litmus
test to determine the applicability of Section 40 would be the
capacity of the corporation to continue its business after the
sale of all or substantially all its assets.
Jurisprudential recognition of the business-enterprise transfer
CORPORATION LAW: 3.a. powers of corps
Jurisprudence has held that in a business-enterprise transfer,
the transferee is liable for the debts and liabilities of his
transferor arising from the business enterprise conveyed.
Many of the application of the business-enterprise transfer
have been related by the Court to the application of the
piercing doctrine.42
In A.D. Santos, Inc. v. Vasquez,43 a taxi driver filed a suit for
workmen's compensation against the petitioner corporation
therein. The latter's defense was that the taxi driver's
employer was Amador Santos, and not the corporation.
Initially, the taxi driver was employed by City Cab, a sole
proprietary by Amador Santos. The taxi business was,
however, transferred to the petitioner. Applying the piercing
doctrine, the Court held that the petitioner must still be held
liable due to the transfer of the business and should not be
allowed to confuse the legitimate issues.
In Buan v. Alcantara,44 the Spouses Buan were the owners of
Philippine Rabbit Bus Lines. They died in a vehicular accident
and the administrators of their estates were appointed. The
administrators then incorporated the Philippine Rabbit Bus
Lines. The issue raised was whether the liabilities of the
estates of the spouses were conveyed to the new corporation
due to the transfer of the business. Utilizing the alter-ego
doctrine, the Court ruled in the affirmative and stated that:
As between the estate and the corporation, the intention of
incorporation was to make the corporation liable for past and
pending obligations of the estate as the transportation
business itself was being transferred to and placed in the
name of the corporation. That liability on the part of the
corporation, vis-a-vis the estate, should continue to remain
with it even after the percentage of the estate's shares of
stock in the corporation should be diluted.45
The Court, however, applied the business-enterprise transfer
doctrine independent of the piercing doctrine in other cases.
In San Teodoro Development Enterprises v. SSS,46 the
petitioner corporation therein attempted to avoid the
compulsory coverage of the Social Security Law by alleging
that it was a distinct and separate entity from its limited
partnership predecessor, Chua Lam & Company, Ltd. The
Court, however, upheld the findings of the SSS that the entire
business of the previous partnership was transferred to the
corporation ostensibly for a valuable consideration. Hence,
"[t]he juridical person owning and operating the business
remain the same even if its legal personality was changed." 47
Similarly, in Laguna Trans. Co., Inc. v. SSS,48 the Court held
that the transferee corporation continued the same
transportation business of the unregistered partnership
therein, using the same lines and equipment. There was, in
effect, only a change in the form of the organization of the
entity engaged in the business of transportation of
passengers.
Perhaps the most telling jurisprudence which recognized the
business-enterprise transfer would be the assailed case
of Caltex. In that case, under an agreement of assumption of
obligations, LUSTEVECO transferred, conveyed and assigned
Page 50 of 62
to respondent PSTC all of its business, properties and assets
pertaining to its tanker and bulk business together with all the
obligations, properties and assets. 49 Meanwhile,
petitioner Caltex, Inc. obtained a judgment debt against
LUSTEVECO, and it sought to enforce the same against PSTC.
The Court ruled that PSTC was bound by its agreement with
LUSTEVECO and the former assumed all of the latter's
obligations pertaining to such business.
More importantly, the Court held that, even without the
agreement, PSTC was still liable to Caltex, Inc. based on
Section 40, as follows:
While the Corporation Code allows the transfer of all or
substantially all the properties and assets of a corporation,
the transfer should not prejudice the creditors of the assignor.
The only way the transfer can proceed without prejudice to
the creditors is to hold the assignee liable for the obligations
of the assignor. The acquisition by the assignee of all or
substantially all of the assets of the assignor
necessarily includes the assumption of the assignor's
liabilities, unless the creditors who did not consent to the
transfer choose to rescind the transfer on the ground of fraud.
To allow an assignor to transfer all its business, properties and
assets without the consent of its creditors and without
requiring the assignee to assume the assignor's obligations
will defraud the creditors. The assignment will place the
assignor's assets beyond the reach of its creditors.
Here, Caltex could not enforce the judgment debt against
LUSTEVECO. The writ of execution could not be satisfied
because LUSTEVECO's remaining properties had been
foreclosed by lienholders. In addition, all of LUSTEVECO's
business, properties and assets pertaining to its tanker and
bulk business had been assigned to PSTC without the
knowledge of its creditors. Caltex now has no other means of
enforcing the judgment debt except against PSTC.50
[Emphasis Supplied]
The Caltex case, thus, affirmed that the transfer of all or
substantially all the proper from one corporation to another
under Section 40 necessarily entails the assumption of the
assignor's liabilities, notwithstanding the absence of any
agreement on the assumption of obligations. The transfer of
all its business, properties and assets without the consent of
its creditors must certainly include the liabilities; or else, the
assignment will place the assignor's assets beyond the reach
of its creditors. In order to protect the creditors against
unscrupulous conveyance of the entire corporate
assets, Caltex justifiably concluded that the transfer of assets
of a corporation under Section 40 must likewise carry with it
the transfer of its liabilities.
Fraud is not an essential consideration in a business-
enterprise transfer
Notably, an evaluation of the relevant jurisprudence reveals
that fraud is not an essential element for the application of
the business-enterprise transfer.51 The petitioners in this case,
however, assert otherwise. They insist that under
the Caltex case, there was an assumption of liabilities
because fraud existed on the part of PSTC, as the transferee
corporation.
The Court disagrees.
The exception of the Nell doctrine,52 which finds its legal basis
under Section 40, provides that the transferee corporation
assumes the debts and liabilities of the transferor corporation
because it is merely a continuation of the latter's business. A
cursory reading of the exception shows that it does not
require the existence of fraud against the creditors before it
takes full force and effect. Indeed, under the Nell Doctrine,
the transferee corporation may inherit the liabilities of the
transferor despite the lack of fraud due to the continuity of
the latter's business.
The purpose of the business-enterprise transfer is to protect
the creditors of the business by allowing them a remedy
against the new owner of the assets and business enterprise.
Otherwise, creditors would be left "holding the bag," because
they may not be able to recover from the transferor who has
"disappeared with the loot," or against the transferee who can
claim that he is a purchaser in good faith and for
value.53 Based on the foregoing, as the exception of the Nell
doctrine relates to the protection of the creditors of the
transferor corporation, and does not depend on any deceit
committed by the transferee -corporation, then fraud is
certainly not an element of the business enterprise doctrine.
The Court also agrees with the CA, in its assailed April 29,
2013 resolution, that there was no finding of fraud in
the Caltex case; otherwise it should have been clearly and
categorically stated.54 The discussion in Caltex relative to
fraud seems more hypothetical than factual, thus:
If PSTC refuses to honor its written commitment to assume
the obligations of LUSTEVECO, there will be a fraud on the
creditors of LUSTEVECO. x x x To allow PSTC now to welsh on
its commitment is to sanction a fraud on LUSTEVECO's
creditors.55
Besides, the supposed fraud in Caltex referred to PSTC's
refusal to pay LUSTEVECO's creditors despite the agreement
on assumption of the latter's obligations. Again, the Court
emphasizes in the said case, even without the
agreement, PSTC was still liable to Caltex, Inc. under Section
40, due to the transfer of all or substantially all of the
corporate assets. At best, transfers of all or substantially all of
the assets to a transferee corporation without the consent of
the transferor corporation's creditor gives rise to a
presumption of fraud against the said creditors. 56
Applicability of the business-enterprise transfer in the present
case
Bearing in mind that fraud is not required to apply the
business-enterprise transfer, the next issue to be resolved is
whether the petitioners indeed became a continuation of
MADCI's business. Synthesizing Section 40 and the previous
rulings of this Court, it is apparent that the business-
enterprise transfer rule applies when two requisites concur:
CORPORATION LAW: 3.a. powers of corps
(a) the transferor corporation sells all or substantially all of its
assets to another entity; and (b) the transferee corporation
continues the business of the transferor corporation. Both
requisites are present in this case.
According to its articles of incorporation, the primary purpose
of MADCI was "[t]o acquire by purchase, lease, donation or
otherwise, and to own, use, improve, develop, subdivide, sell,
mortgage, exchange, lease, develop and hold for investment
or otherwise, real estate of all kinds, whether improved,
managed or otherwise disposed of buildings, houses,
apartment, and other structures of whatever kind, together
with their appurtenance."57 During the trial before the RTC,
Sangil testified that MADCI was a development company
which acquired properties in Magalang, Pampanga to be
developed into a golf course.58
The CA found that MADCI had an entire asset consisting of
120 hectares of land, and that its sale to the petitioners
rendered it incapable of continuing its intended golf and
country club business.59 The Court holds that such finding is
fully substantiated by the records of the case. The MOA itself
stated that MADCI had 120 hectares of agricultural land in
Magalang, Pampanga, for the development of a golf
course.60 MADCI had the right of ownership over these
properties consisting of 97 land titles, except for the 27 titles
previous delivered to YIL.61 The 120-hectare land, however,
was then sold to YILPI,62 and then transferred to YICRI.63
Respondent Yu testified that he verified the landholdings of
MADCI with the Register of Deeds in Pamapanga and
discovered that all its lands were transferred to
YICRI.64 Because the properties of MADCI were already
conveyed, Yu had no other way of collecting his refund. 65
Sangil also testified that MADCI had no more properties left
after the sale of the lands to the petitioners:
Atty. Nuguid: And after the sale, it has no more properties?
Sangil: That's right, Sir.
Q: And the business of MADCI was to operate and build golf
course?
A: That's right, Sir.
Q: And because of the sale of all these properties, MADCI was
not able to build the golf course?
A: Yes, Sir.
Q: And did not anymore operate as a corporation?
A: MADCI is still there but as far the development of
the golf course, it was taken over by Mr. Wang.66
[Emphasis Supplied]
As a witness for the petitioners, Wang testified that Y1L
bought the shares of stock of MADCI because it had some
interest in the project involving the development of a golf
course. The petitioners then found that MADCI had
landholdings in Pampanga which it would be able to develop
into a golf course.67 Hence, the petitioners were fully aware of
the nature of MADCFs business and its assets, but they
Page 51 of 62
continued to acquire its lands through the designated
company, YICRI.68
Based on these factual findings, the Court is convinced that
MADCI indeed had assets consisting of 120 hectares of
landholdings in Magalang, Pampanga, to be developed into a
golf course, pursuant to its primary purpose. Because of its
alleged violation of the MOA, however, MADCI was made to
transfer all its assets to the petitioners. No evidence existed
that MADCI subsequently acquired other lands for its
development projects. Thus, MADCI, as a real estate
development corporation, was left without any property to
develop eventually rendering it incapable of continuing the
business or accomplishing the purpose for which it was
incorporated.
Section 40 must apply.
Consequently, the transfer of the assets of MADCI to the
petitioners should have complied with the requirements under
Section 40. Nonetheless, the present petition is not concerned
with the validity of the transfer; but the respondent's claim of
refund of his P650,000.00 payment for golf and country club
shares. Both the CA and the RTC ruled that MADCI and Sangil
were liable.
On the question of whether the petitioners must also be held
solidarily liable to Yu, the Court answers in the affirmative.
While the Corporation Code allows the transfer of all or
substantially all of the assets of a corporation, the transfer
should not prejudice the creditors of the assignor
corporation.69 Under the business-enterprise transfer, the
petitioners have consequently inherited the liabilities of
MADCI because they acquired all the assets of the latter
corporation. The continuity of MADCI's land developments is
now in the hands of the petitioners, with all its assets and
liabilities. There is absolutely no certainty that Yu can still
claim its refund from MADCI with the latter losing all its
assets. To allow an assignor to transfer all its business,
properties and assets without the consent of its creditors will
place the assignor's assets beyond the reach of its creditors.
Thus, the only way for Yu to recover his money would be to
assert his claim against the petitioners as transferees of the
assets.
The MOA cannot prejudice respondent
The MOA, which contains a provision that Sangil undertook to
redeem MADCI proprietary shares sold to third persons or
settle in full all their claims for refund of payments, should not
prejudice respondent Yu. The CA correctly ruled that such
provision constituted novation under Article 129370of the
Civil Code. When there is a substitution of debtors, the
creditor must consent to the same; otherwise, it shall not in
any way affect the creditor. In this case, it was established
that Yu's consent was not secured in the execution of the
MOA. Thus, insofar as the respondent was concerned, the
debtor remained to be MADCI. And given that the assets and
business of MADCI have been transferred to the petitioners,
then the latter shall be liable.
Interestingly, the same issue on novation was tackled in WHEREFORE, the petition is DENIED. The January 30, 2012
the Caltex case and the Court resolved it in this wise: Decision and the April 29, 2013 Resolution of the Court of
Appeals in CA-G.R. CV No. 96036 are hereby AFFIRMED in
The Agreement, under Article 1291 of the Civil Code, is also a
toto.
novation of LUSTEVECO's obligations by substituting the
person of the debtor. Under Article 1293 of the Civil Code, a
SO ORDERED.
novation which consists in substituting a new debtor in place
of the original debtor cannot be made without the consent of
the creditor. Here, since the Agreement novated the
G.R. No. 142936 April 17, 2002
debt without the knowledge and consent of Caltex, the
Agreement cannot prejudice Caltex. Thus, the assets that PHILIPPINE NATIONAL BANK & NATIONAL SUGAR
LUSTEVECO transferred to PSTC in consideration, among DEVELOPMENT CORPORATION, petitioners, vs. ANDRADA
others, of the novation, or the value of such assets, remain ELECTRIC & ENGINEERING COMPANY, respondent.
even in the hands of PSTC subject to execution to satisfy the
see cases on 1.G- Doctrine of Piercing the Veil of
judgment claim of Caltex.71
Corporate Fiction
[Emphasis Supplied]
Free and Harmless Clause
The petitioners, however, are not left without recourse as
they can invoke the free and harmless clause under the MOA.
In business-enterprise transfer, it is possible that the
transferor and the transferee may enter into a contractual
stipulation stating that the transferee shall not be liable for
any or all debts arising from the business which were
contracted prior to the time of transfer. Such stipulations are
valid, but only as to the transferor and the transferee. These
stipulations, though, are not binding on the creditors of the
business enterprise who can still go after the transferee for
the enforcement of the liabilities.72
An example of a free and harmless clause can be observed in
the case of PCI Leasing v. UCPB.73 In that case, a claim for
damages was filed against the petitioner therein as the
registered owner of the vehicle, even though it was the
latter's lessee that committed an infraction. The Court
granted the claim against the petitioner based on the
registered-owner rule. Even so, the Court stated therein that:
xxx the Court believes that petitioner and other companies so
situated are not entirely left without recourse. They may
resort to third-party complaints against their lessees or
whoever are the actual operators of their vehicles. In the case
at bar, there is, in fact, a provision in the lease contract
between petitioner and SUGECO to the effect that the latter
shall indemnify and hold the former free and harmless from
any "liabilities, damages, suits, claims or judgments" arising
from the latter's use of the motor vehicle. Whether petitioner
would act against SUGECO based on this provision is its own
option.
In the present case, the MOA stated that Sangil undertook to
redeem MADCI proprietary shares sold to third persons or
settle in full all their claims for refund of payments. While this
free and harmless clause cannot affect respondent as a
creditor, the petitioners may resort to this provision to
recover damages in a third-party complaint. Whether the
petitioners would act against Sangil under this provision is
their own option.
CORPORATION LAW: 3.a. powers of corps Page 52 of 62
G.R. No. 117897 May 14, 1997
ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F.
PEREA and SECURITIES & EXCHANGE
COMMISSION, petitioners, vs. COURT OF APPEALS and
IGLESIA NI CRISTO, respondents.
HERMOSISIMA, JR., J.:
The subject of this petition for review is the Decision of the
1
public respondent Court of Appeals, dated October 28, 1994,
setting aside the portion of the Decision of the Securities and
Exchange Commission (SEC, for short) in SEC Case No. 4012
which declared null and void the sale of two (2) parcels of
land in Quezon City covered by the Deed of Absolute Sale
entered into by and between private respondent Iglesia Ni
Cristo (INC, for short) and the Islamic Directorate of the
Philippines, Inc., Carpizo Group, (IDP, for short).
The following facts appear of record.
Petitioner IDP-Tamano Group alleges that sometime in 1971,
Islamic leaders of all Muslim major tribal groups in the
Philippines headed by Dean Cesar Adib Majul organized and
incorporated the ISLAMIC DIRECTORATE OF THE PHILIPPINES
(IDP), the primary purpose of which is to establish an Islamic
Center in Quezon City for the construction of a "Mosque
(prayer place), Madrasah (Arabic School), and other religious
infrastructures" so as to facilitate the effective practice of
Islamic faith in the area. 2
Towards this end, that is, in the same year, the Libyan
government donated money to the IDP to purchase land at
Culiat, Tandang Sora, Quezon City, to be used as a Center for Neither group, however, took the necessary steps prescribed
the Islamic populace. The land, with an area of 49,652 square by the SEC in its October 3, 1986 Decision, and, thus, no valid
meters, was covered by two titles: Transfer Certificate of Title election of the members of the Board of Trustees of IDP was
Nos. RT-26520 (176616) 3 and RT-26521 (170567), 4 both ever called. Although the Carpizo Group 10 attempted to
registered in the name of IDP.
It appears that in 1971, the Board of Trustees of the IDP was
composed of the following per Article 6 of its Articles of
Incorporation:
Senator Mamintal Tamano 5
Congressman Ali Dimaporo
Congressman Salipada
Pendatun
Dean Cesar Adib Majul
Sultan Harun Al-Rashid
Lucman
Delegate Ahmad Alonto
Commissioner Datu Mama
Sinsuat
Mayor Aminkadra Abubakar 6
According to the petitioner, in 1972, after the purchase of the
land by the Libyan government in the name of IDP, Martial
Law was declared by the late President Ferdinand Marcos.
Most of the members of the 1971 Board of Trustees like
Senators Mamintal Tamano, Salipada Pendatun, Ahmad
Alonto, and Congressman Al-Rashid Lucman flew to the
Middle East to escape political persecution.
Thereafter, two Muslim groups sprung, the Carpizo Group,
headed by Engineer Farouk Carpizo, and the Abbas Group, led
by Mrs. Zorayda Tamano and Atty. Firdaussi Abbas. Both
groups claimed to be the legitimate IDP. Significantly, on and full physical possession thereof to INC. Likewise, INC filed
October 3, 1986, the SEC, in a suit between these two a motion in the same case to compel one Mrs. Leticia P. Ligon
contending groups, came out with a Decision in SEC Case No. to produce and surrender to the Register of Deeds of Quezon
2687 declaring the election of both the Carpizo Group and the City the owner's duplicate copy of TCT Nos. RT-26521 and RT-
Abbas Group as IDP board members to be null and void. The 26520 covering the aforementioned two parcels of land, so
dispositive portion of the SEC Decision reads: that the sale in INC's favor may be registered and new titles
issued in the name of INC. Mrs. Ligon was alleged to be the
WHEREFORE, judgment is hereby rendered declaring the
mortgagee of the two parcels of land executed in her favor by
elections of both the petitioners 7 and respondents 8 as
certain Abdulrahman R.T. Linzag and Rowaida Busran-
null and void for being violative of the Articles of
Sampaco claimed to be in behalf of the Carpizo Group.
Incorporation of petitioner corporation. With the
nullification of the election of the respondents, the The IDP-Tamano Group, on June 11, 1991, sought to intervene
approved by-laws which they certified to this in Civil Case No. Q-90-6937 averring, inter alia:
Commission as members of the Board of Trustees must
xxx xxx xxx
necessarily be likewise declared null and void. However,
before any election of the members of the Board of 2. That the Intervenor has filed a case before the
Trustees could be conducted, there must be an approved Securities and Exchange Commission (SEC) against Mr.
by-laws to govern the internal government of the Farouk Carpizo, et. al., who, through false schemes and
association including the conduct of election. And since machinations, succeeded in executing the Deed of Sale
the election of both petitioners and respondents have between the IDP and the Iglesia Ni Kristo (plaintiff in the
been declared null and void, a vacuum is created as to instant case) and which Deed of Sale is the subject of the
who should adopt the by-laws and certify its adoption. To case at bar;
remedy this unfortunate situation that the association
has found itself in, the members of the petitioning 3. That the said case before the SEC is docketed as Case
corporation are hereby authorized to prepare and adopt No. 04012, the main issue of which is whether or not the
their by-laws for submission to the Commission. Once aforesaid Deed of Sale between IDP and the Iglesia ni
approved, an election of the members of the Board of Kristo is null and void, hence, Intervenor's legal interest in
Trustees shall immediately be called pursuant to the the instant case. A copy of the said case is hereto
approved by-laws. attached as Annex "A";
SO ORDERED. 9 4. That, furthermore, Intervenor herein is the duly
constituted body which can lawfully and legally represent
the Islamic Directorate of the Philippines;
13
xxx xxx xxx
Private respondent INC opposed the motion arguing, inter
submit a set of by-laws, the SEC found that, aside from alia, that the issue sought to be litigated by way of
Engineer Farouk Carpizo and Atty. Musib Buat, those who intervention is an intra-corporate dispute which falls under
prepared and adopted the by-laws were not bona the jurisdiction of the SEC. 14
fide members of the IDP, thus rendering the adoption of the
by-laws likewise null and void. Judge Celia Lipana-Reyes of Branch 81, Regional Trial Court of
Quezon City, denied petitioner's motion to intervene on the
On April 20, 1989, without having been properly elected as ground of lack of juridical personality of the IDP-Tamano Group
new members of the Board of Trustee of IDP, the Carpizo and that the issues being raised by way of intervention are
Group caused to be signed an alleged Board Resolution 11 of intra-corporate in nature, jurisdiction thereto properly
the IDP, authorizing the sale of the subject two parcels of land pertaining to the SEC. 15
to the private respondent INC for a consideration of
P22,343,400.00, which sale was evidenced by a Deed of Apprised of the pendency of SEC Case No. 4012 involving the
Absolute Sale 12 dated April 20, 1989. controverted status of the IDP-Carpizo Group but without
waiting for the outcome of said case, Judge Reyes, on
On May 30, 1991, the petitioner 1971 IDP Board of Trustees September 12, 1991, rendered Partial Judgment in Civil Case
headed by former Senator Mamintal Tamano, or the Tamano No. Q-90-6937 ordering the IDP-Carpizo Group to comply with
Group, filed a petition before the SEC, docketed as SEC Case its obligation under the Deed of Sale of clearing the subject
No. 4012, seeking to declare null and void the Deed of lots of squatters and of delivering the actual possession
Absolute Sale signed by the Carpizo Group and the INC since thereof to INC. 16
the group of Engineer Carpizo was not the legitimate Board of
Trustees of the IDP. Thereupon, Judge Reyes in another Order, dated March 2,
1992, pertaining also to Civil Case No. Q-90-6937, treated INC
Meanwhile, private respondent INC, pursuant to the Deed of as the rightful owner of the real properties and disposed as
Absolute Sale executed in its favor, filed an action for Specific follows:
Performance with Damages against the vendor, Carpizo
Group, before Branch 81 of the Regional Trial Court of Quezon WHEREFORE, Leticia P. Ligon is hereby ordered to
City, docketed as Civil Case No. Q-90-6937, to compel said produce and/or surrender to plaintiff 17 the owner's copy
group to clear the property of squatters and deliver complete of RT-26521 (170567) and RT-26520 (176616) in open
CORPORATION LAW: 3.a. powers of corps Page 53 of 62
 court for the registration of the Deed of Absolute Sale in While the above petition was pending, however, the Supreme were mortgagee Leticia P. Ligon, as petitioner, and the Iglesia
the latter's name and the annotation of the mortgage Court rendered judgment in G.R. No. 107751 on the petition Ni Cristo, as private respondent. The IDP, as represented by
executed in her favor by herein defendant Islamic filed by Mrs. Leticia P. Ligon. The Decision, dated June 1, the 1971 Board of Trustees or the Tamano Group, was only
Directorate of the Philippines on the new transfer 1995, denied the Ligon petition and affirmed the October 28, made an ancillary party in G.R. No. 107751 as intervenor. 28 It
certificate of title to be issued to plaintiff. 1992 Decision of the Court of Appeals in CA-G.R. No. SP- was never originally a principal party thereto. It must be
27973 which sustained the Order of Judge Reyes compelling noted that intervention is not an independent action, but is
SO ORDERED. 18
mortgagee Ligon to surrender the owner's duplicate copies of merely collateral, accessory, or ancillary to the principal
On April 6, 1992, the above Order was amended by Judge TCT Nos. RT-26521 (170567) and RT-26520 (176616) to the action. It is just an interlocutory proceeding dependent on or
Reyes directing Ligon "to deliver the owner's duplicate copies Register of Deeds of Quezon City so that the Deed of Absolute subsidiary to the case between the original
of TCT Nos. RT-26521 (170567) and RT-26520 (176616) to Sale in INC's favor may be properly registered. parties. 29 Indeed, the IDP-Tamano Group cannot be
the Register of Deeds of Quezon City for the purposes stated considered a principal party in G.R. No. 107751 for purposes
Before we rule upon the main issue posited in this petition,
in the Order of March 2, 1992." 19 of applying the principle of res judicata since the contrary
we would like to point out that our disposition in G.R. No.
goes against the true import of the action of intervention as a
Mortgagee Ligon went to the Court of Appeals, thru a petition 107751 entitled, "Ligon v. Court of Appeals," promulgated on mere subsidiary proceeding without an independent life apart
for certiorari, docketed as CA-G.R No. SP-27973, assailing the June 1, 1995, in no wise constitutes res judicata such that the from the principal action as well as the intrinsic character of
foregoing Orders of Judge Reyes. The appellate court petition under consideration would be barred if it were the the intervenor as a mere subordinate party in the main case
dismissed her petition on October 28, 1992. 20 ease. Quite the contrary, the requisites or res judicata do not
whose right may be said to be only in aid of the right of the
obtain in the case at bench.
Undaunted, Ligon filed a petition for review before the original party. 30 It is only in the present case, actually, where
Supreme Court which was docketed as G.R. No. 107751. Section 49, Rule 39 of the Revised Rules of Court lays down the IDP-Tamano Group became a principal party, as petitioner,
the dual aspects of res judicata in actions in personam, to wit: with the Iglesia Ni Cristo, as private respondent. Clearly, there
In the meantime, the SEC, on July 5, 1993, finally came out is no identity of parties in both cases.
with a Decision in SEC Case No. 4012 in this wise: Effect of judgment. The effect of a judgment or final
order rendered by a court or judge of the Philippines, In this connection, although it is true that Civil Case No. Q-90-
1. Declaring the by-laws submitted by the having jurisdiction to pronounce the judgment or order, 6937, which gave rise to G.R. No. 107751, was entitled,
respondents 21 as unauthorized, and hence, null and void. may be as follows: "Iglesia Ni Kristo, Plaintiff v. Islamic Directorate of the
2. Declaring the sale of the two (2) parcels of land in Philippines, Defendant," 31 the IDP can not be considered
xxx xxx xxx essentially a formal party thereto for the simple reason that it
Quezon City covered by the Deed of Absolute Sale entered
into by Iglesia ni Kristo and the Islamic Directorate of the (b) In other cases the judgment or order is, with respect was not duly represented by a legitimate Board of Trustees in
Philippines, Inc. 22 null and void; to the matter directly adjudged or as to any other matter that case. As a necessary consequence, Civil Case No. Q-90-
that could have been raised in relation thereto, 6937, a case for Specific Performance with Damages, a mere
23
3. Declaring the election of the Board of Directors, of conclusive between the parties and their successors in action in personam, did not become final and executory
the corporation from 1986 to 1991 as null and void; interest by title subsequent to the commencement of the insofar as the true IDP is concerned since petitioner
4. Declaring the acceptance of the respondents, except action or special proceeding, litigating for the same thing corporation, for want of legitimate representation, was
Farouk Carpizo and Musnib Buat, as members of the IDP and under the same title and in the same capacity; effectively deprived of its day in court in said case. Res
null and void. inter alios judicatae nullum allis praejudicium faciunt. Matters
(c) In any other litigation between the same parties or adjudged in a cause do not prejudice those who were not
No pronouncement as to cost. their successors in interest, that only is deemed to have parties to it. 32 Elsewise put, no person (natural or juridical)
been adjudged in a former judgment which appears upon shall be affected by a proceeding to which he is a stranger. 33
SO ORDERED. 24 its face to have been so adjudged, or which was actually
and necessarily included therein or necessary thereto. Granting arguendo, that IDP may be considered a principal
Private respondent INC filed a Motion for Intervention, dated
party in Ligon, res judicata as a "bar by former judgment" will
September 7, 1993, in SEC Case No. 4012, but the same was Section 49(b) enunciates the first concept of res still not set in on the ground that the cause of action in the
denied on account of the fact that the decision of the case judicata known as "bar by prior judgment," whereas, Section
two cases are different. The cause of action in G.R. No.
had become final and executory, no appeal having been 49(c) is referred to as "conclusiveness of judgment."
107751 is the surrender of the owner's duplicate copy of the
taken therefrom. 25
There is "bar by former judgment" when, between the first transfer certificates of title to the rightful possessor thereof,
INC elevated SEC Case No. 4012 to the public respondent case where the judgment was rendered, and the second case whereas the cause of action in the present case is the validity
Court of Appeals by way of a special civil action for certiorari, where such judgment is invoked, there is identity of parties, of the Carpizo Group-INC Deed of Absolute Sale.
docketed as CA-G.R SP No. 33295. On October 28, 1994, the subject matter and cause of action. When the three identities
Res Judicata in the form of "conclusiveness of judgment"
court a quo promulgated a Decision in CA-G.R. SP No. 33295 are present, the judgment on the merits rendered in the first
cannot likewise apply for the reason that any mention at all
granting INC's petition. The portion of the SEC Decision in SEC constitutes an absolute bar to the subsequent action. But
in Ligon as to the validity of the disputed Carpizo Board-INC
Case No. 4012 which declared the sale of the two (2) lots in where between the first case wherein judgment is rendered
sale may only be deemed incidental to the resolution of the
question to INC as void was ordered set aside by the Court of and the second case wherein such judgment is invoked, there
primary issue posed in said case which is: Who between Ligon
Appeals. is only identity of parties but there is no identity of cause of and INC has the better right of possession over the owner's
Thus, the IDP-Tamano Group brought the instant petition for action, the judgment is conclusive in the second case, only as duplicate copy of the TCTs covering the IDP property? G.R. No.
review, dated December 21, 1994, submitting that the Court to those matters actually and directly controverted and 107751 cannot be considered determinative and conclusive
of Appeals gravely erred in: determined, and not as to matters merely involved therein. on the matter of the validity of the sale for this particular
This is what is termed "conclusiveness of judgment." 27 issue was not the principal thrust of Ligon. To rule otherwise
1) Not upholding the jurisdiction of the SEC to declare the
nullity of the sale; Neither of these concepts of res judicata find relevant would be to cause grave and irreparable injustice to IDP which
application in the case at bench. While there may be identity never gave its consent to the sale, thru a legitimate Board of
2) Encouraging multiplicity of suits; and of subject matter (IDP property) in both cases, there is no Trustees.
3) Not applying the principles of estoppel and laches. 26 identity of parties. The principal parties in G.R. No. 107751

CORPORATION LAW: 3.a. powers of corps Page 54 of 62

In any case, while it is true that the principle of res judicata is
a fundamental component of our judicial system, it should be
disregarded if its rigid application would involve the sacrifice
of justice to technicality. 34
The main question though in this petition is: Did the Court of
Appeals commit reversible error in setting aside that portion
of the SEC's Decision in SEC Case No. 4012 which declared
the sale of two (2) parcels of land in Quezon City between the
IDP-Carpizo Group and private respondent INC null and void?
We rule in the affirmative.
There can be no question as to the authority of the SEC to
pass upon the issue as to who among the different
contending groups is the legitimate Board of Trustees of the
IDP since this is a matter properly falling within the original
and exclusive jurisdiction of the SEC by virtue of Sections 3
and 5(c) of Presidential Decree No. 902-A:
Sec. 3. The Commission shall have absolute
jurisdiction, supervision and control over all
corporations, partnership or associations, who are the
grantees of primary franchises and/or a license or
permit issued by the government to operate in the
Philippines . . . .
xxx xxx xxx
Sec. 5. In addition to the regulatory and adjudicative
functions of the Securities and Exchange Commission
over corporations, partnerships and other forms of
associations registered with it as expressly granted
under existing laws and decrees, it shall have original
and exclusive jurisdiction to hear and decide cases
involving:
xxx xxx xxx
c) Controversies in the selection or appointment of
directors, trustees, officers, or managers of such
corporations, partnerships or associations. . . . .
If the SEC can declare who is the legitimate IDP Board,
then by parity of reasoning, it can also declare who is not
the legitimate IDP Board. This is precisely what the SEC
did in SEC Case No. 4012 when it adjudged the election
of the Carpizo Group to the IDP Board of Trustees to be
null and
void. 35 By this ruling, the SEC in effect made the
unequivocal finding that the IDP-Carpizo Group is a
bogus Board of Trustees. Consequently, the Carpizo
Group is bereft of any authority whatsoever to bind IDP in
any kind of transaction including the sale or disposition
of ID property.
It must be noted that SEC Case No. 4012 is not the first case
wherein the SEC had the opportunity to pass upon the status
of the Carpizo Group. As far back as October 3, 1986, the
SEC, in Case No. 2687, 36 in a suit between the Carpizo Group
and the Abbas Group, already declared the election of the
Carpizo Group (as well as the Abbas Group) to the IDP Board
as null and void for being violative of the Articles of
Incorporation. 37 Nothing thus becomes more settled than that
the IDP-Carpizo Group with whom private respondent INC
contracted is a fake Board.
Premises considered, all acts carried out by the Carpizo xxx xxx xxx
Board, particularly the sale of the Tandang Sora property,
The Tandang Sora property, it appears from the records,
allegedly in the name of the IDP, have to be struck down for
constitutes the only property of the IDP. Hence, its sale to a
having been done without the consent of the IDP thru a
third-party is a sale or disposition of all the corporate property
legitimate Board of Trustees. Article 1318 of the New Civil
and assets of IDP falling squarely within the contemplation of
Code lays down the essential requisites of contracts:
the foregoing section. For the sale to be valid, the majority
There is no contract unless the following requisites concur: vote of the legitimate Board of Trustees, concurred in by the
vote of at least 2/3 of the bona fide members of the
(1) Consent of the contracting parties;
corporation should have been obtained. These twin
(2) Object certain which is the subject matter of the requirements were not met as the Carpizo Group which voted
contract; to sell the Tandang Sora property was a fake Board of
Trustees, and those whose names and signatures were affixed
(3) Cause of the obligation which is established. by the Carpizo Group together with the sham Board
All these elements must be present to constitute a valid Resolution authorizing the negotiation for the sale were, from
contract. For, where even one is absent, the contract is all indications, not bona fide members of the IDP as they were
void. As succinctly put by Tolentino, consent is essential made to appear to be. Apparently, there are only fifteen (15)
for the existence of a contract, and where it is wanting, official members of the petitioner corporation including the
39
the contract is non-existent. 38 In this case, the IDP, eight (8) members of the Board of Trustees.
owner of the subject parcels of land, never gave its All told, the disputed Deed of Absolute Sale executed by the
consent, thru a legitimate Board of Trustees, to the fake Carpizo Board and private respondent INC was
disputed Deed of Absolute Sale executed in favor of INC. intrinsically void ab initio.
This is, therefore, a case not only of vitiated consent, but
one where consent on the part of one of the supposed Private respondent INC nevertheless questions the authority
contracting parties is totally wanting. Ineluctably, the of the SEC to nullify the sale for being made outside of its
subject sale is void and produces no effect whatsoever. jurisdiction, the same not being an intra-corporate dispute.
The Carpizo Group-INC sale is further deemed null and The resolution of the question as to whether or not the SEC
void ab initio because of the Carpizo Group's failure to comply had jurisdiction to declare the subject sale null and void is
with Section 40 of the Corporation Code pertaining to the rendered moot and academic by the inherent nullity of the
highly dubious sale due to lack of consent of the IDP, owner of
disposition of all or substantially all assets of the corporation:
the subject property. No end of substantial justice will be
Sec. 40. Sale or other disposition of assets. Subject to served if we reverse the SEC's conclusion on the matter, and
the provisions of existing laws on illegal combinations remand the case to the regular courts for further litigation
and monopolies, a corporation may, by a majority vote of over an issue which is already determinable based on what
its board of directors or trustees, sell, lease, exchange, we have in the records.
mortgage, pledge or otherwise dispose of all or
substantially all of its property and assets, including its It is unfortunate that private respondent INC opposed the
goodwill, upon terms and conditions and for such motion for intervention filed by the 1971 Board of Trustees in
consideration, which may be money, stocks, bonds or Civil Case. No. Q-90-6937, a case for Specific Performance
other instruments for the payment of money or other with Damages between INC and the Carpizo Group on the
property or consideration, as its board of directors or subject Deed of Absolute Sale. The legitimate IDP Board could
trustees may deem expedient, when authorized by the have been granted ample opportunity before the regional trial
vote of the stockholders representing at least two-thirds court to shed light on the true status of the Carpizo Board and
(2/3) of the outstanding capital stock; or in case of non- settled the matter as to the validity of the sale then and
stock corporation, by the vote of at least two-thirds (2/3) there. But INC, wanting to acquire the property at all costs
of the members, in a stockholders' or members' meeting and threatened by the participation of the legitimate IDP
duly called for the purpose. Written notice of the Board in the civil suit, argued for the denial of the motion
proposed action and of the time and place of the averring, inter alia, that the issue sought to be litigated by the
meeting shall be addressed to each stockholder or movant is intra-corporate in nature and outside the
member at his place of residence as shown on the books jurisdiction of the regional trial court. 40 As a result, the
of the corporation and deposited to the addressee in the motion for intervention was denied. When the Decision in SEC
post office with postage prepaid, or served Case No. 4012 came out nullifying the sale, INC came
personally: Provided, That any dissenting stockholder forward, this time, quibbling over the issue that it is the
may exercise his appraisal right under the conditions regional trial court, and not the SEC, which has jurisdiction to
provided in this Code. rule on the validity of the sale. INC is here trifling with the
courts. We cannot put a premium on this clever legal
A sale or other disposition shall be deemed to cover maneuverings of private respondent which, if countenanced,
substantially all the corporate property and assets if would result in a failure of justice.
thereby the corporation would be rendered incapable of
continuing the business or accomplishing the purpose for Furthermore, the Court observes that the INC bought the
which it was incorporated. questioned property from the Carpizo Group without even
seeing the owner's duplicate copy of the titles covering the
CORPORATION LAW: 3.a. powers of corps Page 55 of 62
property. This is very strange considering that the subject lot
is a large piece of real property in Quezon City worth millions,
and that under the Torrens System of Registration, the
minimum requirement for one to be a good faith buyer for
value is that the vendee at least sees the owner's duplicate
copy of the title and relies upon the same. 41 The private
respondent, presumably knowledgeable on the aforesaid
workings of the Torrens System, did not take heed of this and
nevertheless went through with the sale with undue haste.
The unexplained eagerness of INC to buy this valuable piece
of land in Quezon City without even being presented with the
owner's copy of the titles casts very serious doubt on the
rightfulness of its position as vendee in the transaction.
WHEREFORE, the petition is GRANTED. The Decision of the
public respondent Court of Appeals dated October 28, 1994 in
CA-G.R. SP No. 33295 is SET ASIDE. The Decision of the
Securities and Exchange Commission dated July 5, 1993 in
SEC Case No. 4012 is REINSTATED. The Register of Deeds of
Quezon City is hereby ordered to cancel the registration of
the Deed of Absolute Sale in the name of respondent Iglesia
Ni Cristo, if one has already been made. If new titles have
been issued in the name of Iglesia Ni Cristo, the Register of
Deeds is hereby ordered to cancel the same, and issue new
ones in the name of petitioner Islamic Directorate of the
Philippines. Petitioner corporation is ordered to return to
private respondent whatever amount has been initially paid
by INC as consideration for the property with legal interest, if
the same was actually received by IDP. Otherwise, INC may
run after Engineer Farouk Carpizo and his group for the
amount of money paid. SO ORDERED.
G.R. No. 119310 February 3, 1997
JULIETA V. ESGUERRA, petitioner, vs. COURT OF APPEALS
and SURESTE PROPERTIES, INC., respondents
PANGANIBAN, J.:
May a co-owner contest as unenforceable a sale of a real
property listed in and sold pursuant to the terms of a
judicially-approved compromise agreement but without the
knowledge of such co-owner? Is the corporate secretary's
certification of the shareholders' and directors resolution
authorizing such sale sufficient, or does the buyer need to go
behind such certification and investigate further the truth and
veracity thereof?
These questions are answered by this Court as it resolves the
instant petition challenging the Decision 1 in CA-G.R. SP No.
33307 promulgated May 31, 1994 by the respondent
Court, 2 reversing the judgment of the trial court.
The Antecedent Facts
The facts as found by the respondent Court of Appeals are as
follows:
On 29 June 1984, (now herein Petitioner) Julieta Esguerra
filed a complaint for administration of conjugal
partnership or separation of property against her
husband Vicente Esguerra, Jr. before (the trial) court. The
said complaint was later amended on 31 October 1985
impleading V. Esguerra Construction Co., Inc. (VECCI for
CORPORATION LAW: 3.a. powers of corps
brevity) and other family corporations as defendants
(Annex "C", p. 23, Rollo).
The parties entered into a compromise agreement which
was submitted to the court.' On the basis of the said
agreement, the court on 11 January 1990 rendered two
partial judgments: one between Vicente and (herein
petitioner) and the other as between the latter and
VECCI (Annex "F" and "G", pp. 26-27, Rollo). The
compromise agreement between (herein petitioner) and
VECCI provides in part:
"Plaintiff Julieta V. Esguerra and defendant V.
Esguerra Construction Co., Inc., as assisted by their
respective counsels, submitted to this Court on
January 11, 1990 a "Joint Motion for Partial Judgment
Based on Compromise Agreement", pertinent
provisions of which reads as follows:
"1. Defendant V. Esguerra Construction Co., Inc.,
(VECCI) shall sell/alienate/transfer or dispose of in
any lawful and convenient manner, and under the
terms and conditions recited in the enabling
resolutions of its Board of Directors and
stockholders, all the following properties:
* real estate and building located at 140 Amorsolo
Street, Legaspi Village, Makati, Metro Manila;
* real estate and building located at 104 Amorsolo
Street, Legaspi Village, Makati, Metro Manila;
* real estate and improvements located at Barangay
San Jose, Antipolo, Rizal;
* real estate and improvements located at Barangay
San Jose, Antipolo, Rizal;
* real estate and improvements located at
Kamagong Street, St. Anthony Subdivision, Cainta,
Rizal; and
* real estate and improvements located at Barangay
Malaatis, San Mateo, Rizal.
2. After the above-mentioned properties shall have
been sold/alienated/transferred or disposed of and
funds are realized therefrom, and after all the
financial obligations of defendant VECCI (those
specified in the enabling resolutions and such other
obligations determined to be due and will become
due) are completely paid and/or settled, defendant
VECCI shall cause to be paid and/or remitted to the
plaintiff such amount/sum equivalent to fifty percent After trial on the merits, the Regional Trial Court of Makati,
(50%) of the (net) resulting balance of such funds.
By virtue of said agreement, Esguerra Bldg. I located at
140 Amorsolo St., Legaspi Village was sold and the net
proceeds distributed according to the agreement. The
controversy arose with respect to Esguerra Building II
located at 104 Amorsolo St., Legaspi Village, Makati.
(Herein petitioner) started claiming one-half of the
rentals of the said building which VECCI refused. Thus, on
7 August 1990, (herein petitioner) filed a motion with
respondent court praying that VECCI be ordered to remit
one-half of the rentals to her effective January 1990 until
the same be sold (p. 28, id.). VECCI opposed said motion
(p. 31, Rollo).
On October 30, 1990 respondent (trial) court ruled in
favor of (herein petitioner) (p. 34, Rollo) which was
affirmed by this court in a decision dated 17 May 1991 in
CA-G.R. SP. No. 2380. VECCI resorted to the Supreme
Court which on 4 May 1992 in G.R. No. 100441 affirmed
this court's decision the fallo of which reads:
"The petition is without merit. As correctly found by
the respondent Court of Appeals, it can, be deduced
from the terms of the Compromise Agreement and
from the nature of the action in the court a quo that
the basis of the equal division of the proceeds of
any sale or disposition of any of the subject
properties is the acknowledged ownership of private
respondent over one-half of the said assets.
Considering that the other building has yet to be
sold, it is but logical that pending its disposition and
conformably with her one-half interest therein,
private respondent should be entitled to half of its
rentals which forms part of her share in the fruits of
the assets. To accord a different interpretation of the
Compromise Agreement would be prejudicial to the
established rights of private respondent." (p.
36, Rollo).
Meanwhile, Esguerra Bldg. II was sold to (herein private
respondent Sureste Properties. Inc.) for P150,000,000.00
(sic). On 17 June 1993, (Julieta V. Esguerra) filed a motion
seeking the nullification of the sale before respondent
(trial) court on the ground that VECCI is not the lawful
and absolute owner thereof and that she has not been
notified nor consulted as to the terms and conditions of
the sale (p. 37, Rollo).
Not being a party to the civil case, (private respondent
Sureste) on 23 June 1993 filed a Manifestation
concerning (herein petitioner's) motion to declare the
sale void ab initio. In its Manifestation (Sureste) points
out that in the compromise agreement executed by
VECCI and (Julieta V. Esguerra), she gave her express
consent to the sale of the said building (p. 38, Rollo).
On 05 August 1993, respondent judge (who took over the
case from Judge Buenaventura Guerrero, now Associate
Justice of this court) issued an Omnibus Order denying
among others, (Sureste's) motion, to which a motion for
reconsideration was filed. 3
Branch 133, 4 rendered its order, the dispositive portion of
which reads:
WHEREFORE, the Court resolves as it is resolved that:
1. The Omnibus Order of the Court issued on August 5,
1993 is hereby reconsidered and modified to the effect
that:
a. The Notice of Lis Pendens is annotated at the
back of the Certificate of Title of Esguerra Bldg. II
located at Amorsolo St., Legaspi Village, Makati,
Metro Manila is delivered to be valid and subsisting,
Page 56 of 62
 the cancellation of the same is hereby set aside; sale of the property is ineffectual and unenforceable as others, that the latter shall sell or otherwise dispose of
and, to herein petitioner's one-half (1/2) ownership/interest in certain properties, among them, Esguerra Bldgs. I and II,
the property since the sale was made without her and fifty (50%) percent of the net proceeds thereof to be
b. The sale of Esguerra Bldg. II to Sureste Properties,
knowledge and consent. given to the former. Pursuant to said agreement, VECCI
Inc. is declared valid with respect to one-half of the
sold the buildings. . . .
value thereof but ineffectual and unenforceable with BECAUSE:
respect to the other half as the acknowledged owner xxx xxx xxx
A. No proper corporate action of VECCI was made to
of said portion was not consulted as to the terms
effect such sale as required under the compromise . . . The compromise agreement expressly authorizes
and conditions of the sale.
agreement; VECCI to sell the subject properties, with the only
The other provisions of said Omnibus Order remain condition that the sale be in a lawful and convenient
B. The sale of the subject property was made in violation
undisturbed and are now deemed final and executory. manner and under the terms and conditions recited in
of the terms of the compromise agreement in that it was
the enabling resolutions of its Board of Directors and
2. Sureste Properties, Inc. is hereby enjoined from not made with the approval/consent of the acknowledged
stockholders. There is nothing in the said agreement
pursuing further whatever Court action it has filed owner of 1/2 of the said asset;
requiring VECCI to consult the private respondent (Julieta
against plaintiff as well as plaintiffs tenants at Esguerra
C. The prior sale of another property (the Esguerra Esguerra) before any sale (can be concluded). Thus,
Bldg. II;
Building I as distinguished from the subject property when VECCI sold the property to (Sureste Properties,
3. Plaintiffs Urgent Ex-parte Motion dated December 14, which is the Esguerra Building II) included in the said Inc.) as agreed upon, it need not consult the private
1993 is hereby DENIED for being moot and academic. compromise agreement was made only after the prior respondent. 2
approval/consent of petitioner and this procedure
4. Plaintiff is hereby directed to bring to Court, personally Moreover, petitioner's contention runs counter to Article 1900
established a precedent that applied in the subsequent
or through counsel, the subject shares of stocks on of the Civil Code which provides that:
sale of the Esguerra Building II; and
February 15, 1994 at 10:30 in the morning for the
So far as third persons are concerned, an act is deemed
physical examination of defendant or counsel. D. Respondent Sureste as purchaser pendente lite of the
to have been performed within the scope of the agent's
subject property covered by a notice of lis pendens was
SO ORDERED. 5 authority, if such act is within the terms of the power of
in law deemed to have been duly notified of the
attorney, as written, even if the agent has in fact
From the foregoing order, herein private respondent Sureste aforesaid conditions required for a valid sale of the
exceeded the limits of his authority according to an
Properties, Inc. interposed an appeal with the Court of subject property as well as of petitioner's "acknowledged
9 understanding between the principal and the agent.
Appeals which ruled in its favor, viz.: ownership over one-half" of the Esguerra Building II.
Thus, as far as private respondent Sureste Properties, Inc. is
From the foregoing, it is clear that respondent judge Simply put, petitioner (1) assails VECCI's sale of Esguerra
concerned, the sale to it by VECCI was completely valid and
abused his discretion when he rendered the sale of the Building II to private respondent as unenforceable to the
legal because it was executed in accordance with the
property unenforceable with respect to one-half. extent of her one-half share, and (2) accuses the appellate
compromise agreement, authorized not only by the parties
court of "acting without jurisdiction or with grave abuse of
WHEREFORE, the petition is hereby GRANTED. The thereto, who became co-principals in a contract of agency
discretion" in reversing the trial court's finding to that effect.
assailed order dated 1 February 1994 is hereby SET created thereby, but by the approving court as well.
ASIDE. No pronouncement as to cost. The Court's Ruling Consequently, the sale to Sureste Properties, Inc. of Esguerra
Building II cannot in any manner or guise be deemed
SO ORDERED. 6 The petition has no merit. unenforceable, as contended by petitioner.
Julieta Esguerra's Motion for Reconsideration 7 dated June 15, First Issue: Is the Contract of Sale Unenforceable? Consultation in the Sale of Esguerra Building I
1994 was denied by the respondent Court in the second Not a Binding Precedent
The Civil Code provides that a contract is unenforceable when
assailed Resolutions 8 promulgated on February 23, 1995.
it is ". . . entered into in the name of another person by one The petitioner further argues that VECCI's consulting her on
Hence this petition. who has been given no authority or legal representation, or the terms and conditions of its sale of Esguerra Building I set
who has acted beyond his powers." 10And that "(a) contract a binding precedent to be followed by the latter on
The Issues entered into in the name of another by one who has no subsequent sales. She adds that in failing to consult her on
Petitioner submits the following assignment of errors: authority or legal representation, or who has acted beyond his the sale of Esguerra Building II, VECCI "acted unfairly and
powers, shall be unenforceable, . . ." 11After a thorough review unjustly" as evidenced by (a) the sale of said building for only
. . . (I)n issuing the Decision (Annex "A" of the petition) of the case at bench, the Court finds the sale of Esguerra
and the Resolution (Annex "B" of the petition), the Court Building II by VECCI to private respondent Sureste Properties, P160,000,000.00 instead of P200,000,000.00, which is "the
of Appeals decided questions of substance contrary to Inc. valid. The sale was expressly and clearly authorized best price obtainable in the market," (b) payment of real
law and applicable jurisprudence and acted without under the judicially-approved compromise agreement freely estate broker's commission of 5% instead of just 2% as in the
jurisdiction and/or with grave abuse of discretion when: sale of Esguerra 1 building, and (c) the denial of petitioner's
consented to and voluntarily signed by petitioner Julieta right of first refusal when her offer to purchase her one-half
It validated the sale by VECCI to Sureste of the subject Esguerra. Thus, petitioner's contention that the sale is share for P80,000,000.00 as ordered by the trial court was
property without the knowledge and consent of the unenforceable as to her share for being unauthorized is totally ignored. 13
acknowledged co-owner thereof and in contravention of plainly incongruous with the express authority granted by the
the terms of the compromise agreement as well as the compromise agreement to VECCI, which specified no The Court is not persuaded. Petitioner's argument is
Resolution of this Honorable Court in G.R. No. 100441 condition that the latter shall first consult with the former debunked by the very nature of a compromise agreement.
wherein this Honorable Court recognized herein prior to selling any of the properties listed there. As astutely The mere fact that petitioner Julieta Esguerra was consulted
petitioner's 'acknowledged ownership of one-half of and correctly found by the appellate Court: by VECCI in the sale of Esguerra Building I did not affect nor
the subject property; and, vary the terms of the authority to sell granted the former as
The compromise agreement entered between private expressly spelled out in the judicially-approved compromise
It held that the trial court acted without jurisdiction and! respondent (Julieta Esguerra) and VECCI, which was agreement because "a compromise once approved by final
or abused its discretion when it held that the questioned approved by the court, expressly provides, among orders of the court has the force of res judicata between the

CORPORATION LAW: 3.a. powers of corps Page 57 of 62

parties and should not be disturbed except for vices of
consent or forgery." 14Hence, "a decision on a compromise
agreement is final and executory, . . . 15
Petitioner insists that had she been consulted in the sale of
Esguerra Building II, better terms could have been obtained.
This is plainly without legal basis since she already consented
to the compromise agreement which authorized VECCI to sell
the properties without the requirement of prior consultation
with her. "It is a long established doctrine that the law does
not relieve a party from the effects of an unwise, foolish, or
disastrous contract, entered into with all the required
formalities and with full awareness of what he was doing.
Courts have no power to relieve parties from obligations
voluntarily assumed, simply because their contracts turned
out to be disastrous deals or unwise investments." 16 It is a
truism that "a compromise agreement entered into by party-
litigants, when not contrary to law, public order, public policy,
morals, or good custom is a valid contract which is the law
between the parties themselves. It follows, therefore, that a
compromise agreement, not tainted with infirmity,
irregularity, fraud or illegality is the law between the parties
who are duty bound to abide by it and observe strictly its
terms and conditions 17 as in this case. Incidentally, private
respondent Sureste Properties, Inc. submits that the
petitioner offered to buy her one-half share for only
P75,000,000.00, not P80,000,000.00. 18 She therefore valued
the whole building only at P150,000,000.00 which amount is
P10,000,000.00 less than the price of P160,000,000.00 paid
by private respondent, the highest offer the market has
produced in two and a half years the building was offered for
sale. Even the 5% real estate broker's commission was not
disparate with the standard practice in the real estate
industry. Thus, the respondent Court aptly stated that:
. . . In affixing her signature on the compromise
agreement, private respondent (Julieta Esguerra) has
demonstrated her agreement to all the terms and
conditions therein and have (sic) given expressly her
consent to all acts that may be performed pursuant
thereto. She can not later on repudiate the effects of her
voluntary acts simply because it does not fit her. Her
contention that she was not consulted as to the terms of
the sale has no leg to stand on. 19
Parenthetically, the previous consultation can be deemed as
no more than a mere courtesy extended voluntarily by VECCI.
Besides, such previous consultation even assuming
arguendo that it was a binding precedent cannot bind
private respondent Sureste which was not a party thereto. To
declare the sale as infirm or unenforceable is to heap
unfairness upon Sureste Properties, Inc. and to undermine
public faith in court decisions approving compromise
agreements.
Right of First Refusal Waived
The argument of petitioner that she was denied her right of
first refusal is puerile. This alleged right, like other rights, may
be waived 20 as petitioner did waive it upon entering into the
compromise agreement. Corollarily, the execution of the
spouses' judicial compromise agreement necessitated the
sale of the spouses' co-owned properties and its proceeds
distributed fifty percent to each of them which, therefor,
resulted in its partition.21 If petitioner wanted to keep such
right of first refusal, she should have expressly reserved it in
the compromise agreement. For her failure to do so, she must
live with its consequences.
VECCI'S Sale of Esguerra
Building II A Valid Exercise of Corporate Power
Petitioner contends that VECCI violated the condition in the
compromise agreement requiring that the sale be made
"under the terms and conditions recited in the enabling
resolutions of its Board of Directors and stockholders. 22 She
rues that no shareholders' or directors' meeting, wherein
these resolutions were passed, was actually held. She thus
bewails this sale as improper for not having complied with the
requirements mandated by Section 40 of the Corporation
Code. 23
Petitioner's contention is plainly unmeritorious. The trial
court's partial decision dated January 11, 1990 approving the
compromise agreement clearly showed that the "enabling
resolutions of its (VECCI's) board of directors and
stockholders" referred to were those then already existing; to
wit: (1) "the resolution of the stockholders of VECCI
dated November 9, 1989, (where) the stockholders authorized
VECCI to sell and/or disposed all or substantially all its
property and assets upon such terms and conditions and for
such consideration as the board of directors may deem
expedient." 24 (2) the "resolution dated 9 November 1989,
(where) the board of directors of VECCI authorized VECCI to
sell and/or dispose all or substantially all the property and
assets of the corporation, at the highest available price/s they
could be sold or disposed of in cash, and in such manner as
may be held convenient under the circumstances,
and authorized the President Vicente B. Esguerra. Jr. to
negotiate. contract,execute and sign such sale for and in
behalf of the corporation." 25 VECCI's sale of all the properties
mentioned in the judicially-approved compromise agreement
was done on the basis of its Corporate Secretary's
Certification of these two resolutions. The partial decision did
not require any further board or stockholder resolutions to
make VECCI's sale of these properties valid. Being regular on
its face, the Secretary's Certification was sufficient for private
respondent Sureste Properties, Inc. to rely on. It did not have
to investigate the truth of the facts contained in such
certification. Otherwise, business transactions of corporations
would become tortuously slow and unnecessarily hampered.
Ineluctably, VECCI's sale of Esguerra Building II to private
respondent was not ultra vires but a valid execution of the
trial court's partial decision. Based on the foregoing, the sale
is also deemed to have satisfied the requirements of Section
40 of the Corporation Code.
Furthermore, petitioner Julieta Esguerra is estopped from
contesting the validity of VECCI's corporate action in selling
Esguerra Building II on the basis of said resolutions and
certification because she never raised this issue in VECCI's
prior sales of the other properties sold including the Esguerra
Building I. 26 The same identical resolutions and certification
were used in such prior sales.
Notice of Lis Pendens
CORPORATION LAW: 3.a. powers of corps
"Once a notice of lis pendens has been duly registered, any
cancellation or issuance of the title of the land involved as
well as any subsequent transaction affecting the same, would
have to be subject to the outcome" 27of the suit. In other
words, "a purchaser who buys registered land with full notice
of the fact that it is in litigation between the vendor and a
third party . . . stands in the shoes of his vendor and his title
is subject to the incidents and result of the pending litigation .
. . 28 In the present case, the purchase made by private
respondent Sureste Properties, Inc. of the property in
controversy is subject to the notice of lis pendens annotated
on its title. Thus, the private respondent's purchase remains
subject to our decision in the instant case. The former is
likewise deemed notified of all the incidents of this case
including the terms and conditions for the sale contained in
the compromise agreement. However, petitioner's inference
that the private respondent is also deemed to have been
notified that the manner of the sale of the properties
contained in the compromise agreement should be "made
only upon prior consent/conformity of the herein petitioner"
is non sequitur. Nowhere in the compromise agreement was
this inference expressly or impliedly stated. In the final
analysis, the determination of this issue ultimately depends
on this Court's disposition of this case.
Appealed Decision Consistent with Previous
Court of Appeals and Supreme Court Decisions
Petitioner maintains that the trial court's ruling that "the sale
of Esguerra Building II to Sureste is unenforceable to the
extent of one-half share of petitioner in the property" is based
on the Court of Appeals' decision in G.R. SP No. 23780 dated
May 17, 1991, and the Supreme Court's decision in G.R. No.
100441 dated May 4, 1992 which both acknowledged
petitioner's one-half ownership of said building. 29 She
reasons that "(a)s co-owner her consent or conformity to the
sale was necessary for the validity or effectivity thereof
insofar as her 1/2 share/ownership was concerned." 30 The
Court disagrees. As discussed previously, this repetitive
contention is negated by her consent to the compromise
agreement that authorized VECCI to sell the building without
need of further consultation with her. Her co-ownership in the
building was not inconsistent with her authorizing another,
specifically VECCI, to sell her share in this property via an
agency arrangement. As correctly stated by the respondent
Court of Appeals, the only import of this Court's ruling in G.R.
No. 100441 was as follows:
the only issue involved is whether or not private
respondent is entitled to one-half of the rentals of the
subject property pending its sale. The rulings of the
courts is (sic) therefore limited only to the issue of rental,
there being no provision in the compromise agreement
approved by the court for the rentals earned from the
building pending its sale. Nowhere in the said rulings did
it question nor assail the authority granted to VECCI to
sell the said building. In fact, the decisions affirmed the
authority granted to VECCI to sell the said building which
invoked the compromise agreement of the parties as a
basis of the decision (Manifestation, p. 38,. Rollo). 31
Page 58 of 62
 Second Issue: Did the Appellate Court Act Without
Jurisdiction
or With Grave Abuse of Discretion?
In the case of Alafriz vs. Nable, 32 this Court defined the
phrases "without jurisdiction" and "grave abuse of discretion"
as follows:
"Without jurisdiction" means that the court acted with
absolute want of jurisdiction. . . . "Grave abuse of
discretion" implies such capricious and whimsical
exercise of judgment as is equivalent to lack of
jurisdiction, or, in other words where the power is
exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, and it must be so patent
and gross as to amount to an evasion of positive duty or
to a virtual refusal to perform the duty enjoined or to act
at all in contemplation of law.
Contrary to petitioner's asseverations, the Court finds that the
respondent Court of Appeals judiciously, correctly and
certainly acted within its jurisdiction in reversing the trial
court's decision. As discussed, its decision is consistent with
law and existing jurisprudence.
Let it be emphasized that Rule 45 of the Rules of Court, under
which the present petition was filed, authorizes only
reversible errors of the appellate court as grounds for review,
and not "grave abuse of discretion" which is provided for by
Rule 65. It is basic that where Rule 45 is available, and in fact
availed of as a remedy -- as in this case recourse under
Rule 65 cannot be allowed either as an add-on or as a
substitute for appeal.
Finally, "(c)ourts as a rule may not impose upon the parties a
judgment different from their compromise agreement. It
would be an abuse of
discretion." 33 Hence, in this case, it is the trial court's decision
which is tainted with grave abuse of discretion for having
injudiciously added "prior consultation" to VECCI's authority to
sell the properties, a condition not contained in the judicially-
approved compromise agreement.
WHEREFORE, the petition is hereby DENIED for lack of merit,
no reversible error having been committed by respondent
Court. The assailed Decision is AFFIRMED in toto. Costs
against petitioner.
SO ORDERED.

CORPORATION LAW: 3.a. powers of corps Page 59 of 62

G.R. No. 76801 August 11, 1995
LOPEZ REALTY, INC., AND ASUNCION LOPEZ
GONZALES, petitioners, vs. FLORENTINA FONTECHA, ET
AL., AND THE NATIONAL LABOR RELATIONS
COMMISSION, respondents.
PUNO, J.:
The controversy at bench arose from a complaint filed by
private respondents, 1 namely, Florentina Fontecha, Mila
Refuerzo, Marcial Mamaril, Perfecto Bautista, Edward Mamaril,
Marissa Pascual and Allan Pimentel, against their employer
Lopez Realty Incorporated (petitioner) and its majority
stockholder, Asuncion Lopez Gonzales, for alleged non-
payment of their gratuity pay and other benefits. 2 The case
was docketed as NLRC-NCR Case No. 2-2176-82.
Lopez Realty, Inc., is a corporation engaged in real estate
business, while petitioner Asuncion Lopez Gonzales is one of
its majority shareholders. Her interest in the company vis-a-
vis the other shareholders is as follows:
1 Asuncion Lopez Gonzales 7831 shares
2 Teresita Lopez Marquez 7830 shares
3 Arturo F. Lopez 7830 shares
4 Rosendo de Leon 4 shares
5 Benjamin Bernardino 1 share
6 Leo Rivera 1 share
Except for Arturo F. Lopez, the rest of the shareholders
also sit as members of the Board of Directors.
As found by the Labor arbiter. 3 sometime in 1978, Arturo
Lopez submitted a proposal relative to the distribution of
certain assets of petitioner corporation among its three
(3) main shareholders. The proposal had three (3)
aspects, viz: (1) the sale of assets of the company to pay
for its obligations; (2) the transfer of certain assets of the
company to its three (3) main shareholders, while some
other assets shall remain with the company; and (3) the
reduction of employees with provision for their gratuity
pay. The proposal was deliberated upon and approved in
a special meeting of the board of directors held on April
17, 1978.
It appears that petitioner corporation approved two (2)
resolutions providing for the gratuity pay of its
employees, viz: (a) Resolution No. 6, Series of 1980,
passed by the stockholders in a special meeting held on
September 8, 1980, resolving to set aside, twice a year,
a certain sum of money for the gratuity pay of
its retiring employees and to create a Gratuity Fund for
the said contingency; and (b) Resolution No. 10, Series
of 1980, setting aside the amount of P157,750.00 as
Gratuity Fund covering the period from 1950 up to 1980.
Meanwhile, on July 28, 1981, board member and majority
stockholder Teresita Lopez Marquez died.
On August 17, 1981, except for Asuncion Lopez Gonzales
who was then abroad, the remaining members of the
Board of Directors, namely: Rosendo de Leon, Benjamin
Bernardino, and Leo Rivera, convened a special meeting
and passed a resolution which reads:
Resolved, as it is hereby resolved that the
gratuity (pay) of the employees be given
as follows:
(a) Those who will be laid off be given the
full amount of gratuity;
(b) Those who will be retained will
receive 25% of their gratuity (pay) due on
September 1, 1981, and another 25% on
January 1, 1982, and 50% to be retained
by the office in the meantime. (emphasis
supplied)
Private respondents were the retained employees of
petitioner corporation. In a letter, dated August 31, 1981,
private respondents requested for the full payment of
their gratuity pay. Their request was granted in a special
meeting held on September 1, 1981. The relevant,
portion of the minutes of the said board meeting reads:
In view of the request of the employees
contained in the letter dated August 31,
1981, it was also decided that, all those
remaining employees will receive another
25% (of their gratuity) on or before
October 15, 1981 and another 25% on or
before the end of November, 1981 of their
respective gratuity.
At that, time, however, petitioner Asuncion Lopez
Gonzales was still abroad. Allegedly, while she was still
out of the country, she sent a cablegram to the
corporation, objecting to certain matters taken up by the
board in her absence, such as the sale of some of the
assets of the corporation. Upon her return, she flied a
derivative suit with the Securities and Exchange
Commission (SEC) against majority shareholder Arturo F.
Lopez.
Notwithstanding the "corporate squabble" between
petitioner Asuncion Lopez Gonzales and Arturo Lopez, the
first two (2) installments of the gratuity pay of private
respondents Florentina Fontecha, Mila Refuerzo, Marcial
Mamaril and Perfecto Bautista were paid by petitioner
corporation.
Also, petitioner corporation had prepared the cash
vouchers and checks for the third installments of gratuity
pay of said private respondents (Florentina Fontecha, Mila
Refuerzo, Marcial Mamaril and Perfecto Bautista). For
some reason, said vouchers were cancelled by petitioner
Asuncion Lopez Gonzales.
Likewise, the first, second and third installments of
gratuity pay of the rest of private respondents,
particularly, Edward Mamaril, Marissa Pascual and Allan
Pimentel, were prepared but cancelled by petitioner
Asuncion Lopez Gonzales. Despite private respondents'
repeated demands for their gratuity pay, corporation
refused to pay the same. 4
CORPORATION LAW: 3.a. powers of corps
On July 23, 1984, Labor Arbiter Raymundo R. Valenzuela
rendered judgment in favor of private respondents. 5
Petitioners appealed the adverse ruling of the Labor
arbiter to public respondent National Labor Relations
Commission. The appeal focused on the alleged non-
ratification and non-approval of the assailed August 17,
1981 and September 1, 1981 Board Resolutions during the
Annual Stockholders' Meeting held on March 1, 1982.
Petitioners further insisted that the payment of the
gratuity to some of the private respondents was a mere
"mistake" on the part of petitioner corporation since,
pursuant to Resolution No. 6, dated September 8, 1980,
and Resolution No. 10, dated October 6, 1980, said
gratuity pay should be given only upon the employees'
retirement.
On November 20, 1985, public respondent, through its
Second Division, dismissed the appeal for lack of merit,
the pertinent portion of which states: 6
We cannot agree with the contention of respondents
(petitioners') that the Labor Arbiter a quo committed
abuse of discretion in his decision.
Respondents' (petitioners') contention that, the two
(2) resolutions dated 17 August 1981 and 1
September 1981 . . . which were not approved in the
annual stockholders meeting had no force and effect,
deserves scant consideration. The records show that
the stockholders did not revoke nor nullify these
resolutions granting gratuities to complainants.
On record, it appears that the said resolutions arose
from the legitimate creation of the Board of Directors
who steered the corporate affairs of the corporation. .
..
Respondents' (petitioners') allegation that the three
(3) complainants, Mila E. Refuerzo, Marissa S. Pascual
and Edward Mamaril, who had resigned after filing
the complaint on February 8, 1982, were precluded to
(sic) receive gratuity because the said resolutions
referred to only retiring employee could not be given
credence. A reading of Resolutions dated 17 August
1981 and 1 September 1981 disclosed that there
were periods mentioned for the payment of
complainants' gratuities. This disproves respondents'
argument allowing gratuities upon retirement of
employees. Additionally, the proposed distribution of
assets (Exh. C-1) filed by Mr. Arturo F. Lopez also
made mention of gratuity pay, " . . . (wherein) an
employee who desires to resign from the LRI will be
given the gratuity pay he or she earned." (Emphasis
supplied) Let us be reminded, too, that the
complainants' resignation was not voluntary but it
was pressurized (sic) due to "power struggle" which
was evident between Arturo Lopez and Asuncion
Gonzales.
The respondents' (petitioners') contention of a
mistake to have been committed in granting the first
two (2) installments of gratuities to complainants
Perfecto Bautista, Florentina Fontecha, Marcial
Page 60 of 62
 Mamaril and Mila Refuerzo, (has) no legal leg to stand
on. The record is bereft of any evidence that the
Board of Directors had passed a resolution nor is
there any minutes of whatever nature proving
mistakes in the award of damages (sic).
With regard to the award of service incentive leave
and others, the Commission finds no cogent reason to
disturb the appealed decision.
We affirm.
WHEREFORE, let the appealed decision be, as it is
hereby, AFFIRMED and let the instant appeal (be)
dismissed for lack of merit.
SO ORDERED.
Petitioners reconsidered. 7 In their motion for
reconsideration, petitioners assailed the validity of the
board resolutions passed on August 17, 1981 and
September 1, 1981, respectively, and claimed, for the first
time, that petitioner Asuncion Lopez Gonzales was not
notified of the special board meetings held on said dates.
The motion for reconsideration was denied by the Second
Division on July 24, 1986.
On September 4, 1986, petitioners filed another motion
for reconsideration. Again, the motion was denied by
public respondent in a Minute Resolution dated November
19, 1986. 8
Hence, the petition. As prayed for, we issued a Temporary
Restraining Order, 9 enjoining public respondent from
enforcing or executing the Resolution, dated November
20, 1986 (sic), in NLRC-NCR-2-2176-82. 10
The sole issue is whether or not public respondent acted
with grave abuse of discretion in holding that private
respondents are entitled to receive their gratuity pay
under the assailed board resolutions dated August 17,
1951 and September 1, 1981.
Petitioners contend that the board resolutions passed on
August 17, 1981 and September 1, 1981, granting
gratuity pay to their retained employees, are ultra vires on
the ground that petitioner Asuncion Lopez Gonzales was
not duly notified of the said special meetings. They aver,
further, that said board resolutions were not ratified by
the stockholders of the corporation pursuant to Section 28
1/2 of the Corporation Law (Section 40 of the Corporation
Code). They also insist that the gratuity pay must be given
only to the retiring employees, to the exclusion of the
retained employees or those who voluntarily resigned
from their posts.
At the outset, we note that petitioners allegation on lack
of notice to petitioner Asuncion Lopez Gonzales was raised
for the first time in the in their motion for reconsideration
filed before public respondent National Labor Relations
Commission, or after said public respondent had affirmed
the decision of the labor arbiter. To stress, in their appeal
before the NLRC, petitioners never raised the issue of lack
of notice to Asuncion Lopez Gonzales. The appeal dealt
with (a) the failure of the stockholders to ratify the
assailed resolutions and (b) the alleged "mistake"
committed by petitioner corporation in giving the gratuity
pay to some of its employees who are yet to retire from
employment.
In their comment, 11 private respondents maintain that the
new ground of lack of notice was not raised before the
labor arbiter, hence, petitioners are barred from raising
the same on appeal. Private respondents claim, further,
that such failure on the part of petitioners, had deprived
them the opportunity to present evidence that, in a
subsequent special board meeting held on September 29,
1981, the subject resolution dated September 1, 1981,
was unanimously approved by the board of directors of
petitioner corporation, including petitioner Asuncion Lopez
Gonzales. 12
Indeed, it would be offensive to the basic rules of fair play
and justice to allow petitioners to raise questions which
have not been passed upon by the labor arbiter and the
public respondent NLRC. It is well settled that questions
not raised in the lower courts cannot, be raised for the
first time on appeal. 13 Hence, petitioners may not invoke
any other ground, other than those it specified at the
labor arbiter level, to impugn the validity of the subject
resolutions.
We now come to petitioners' argument that the
resolutions passed by the board of directors during the
special meetings on August 1, 1981, and September 1,
1981, were ultra vires for lack of notice.
The general rule is that a corporation, through its board of
directors, should act in the manner and within the
formalities, if any, prescribed by its charter or by the
general law. 14 Thus, directors must act as a body in a
meeting called pursuant to the law or the corporation's
by-laws, otherwise, any action taken therein may be
questioned by any objecting director or shareholder. 15
Be that as it may, jurisprudence 16 tells us that an action
of the board of directors during a meeting, which was
illegal for lack of notice, may be ratified either expressly,
by the action of the directors in subsequent legal meeting,
or impliedly, by the corporation's subsequent course of
conduct. Thus, in one case, 17 it was held:
. . . In 2 Fletcher, Cyclopedia of the Law of Private
Corporations (Perm. Ed.) sec. 429, at page 290, it is
stated:
Thus, acts of directors at a meeting which was
illegal because of want of notice may be ratified
by the directors at a subsequent legal meeting, or
by the corporations course of conduct
...
Fletcher, supra, further states in sec. 762, at page
1073-1074:
Ratification by directors may be by an express
resolution or vote to that effect, or it may be
implied from adoption of the act, acceptance or
acquiescence. Ratification may be effected by a
resolution or vote of the board of directors
expressly ratifying previous acts either of
CORPORATION LAW: 3.a. powers of corps
corporate officers or agents; but it is not
necessary, ordinarily, to show a meeting and
formal action by the board of directors in order to
establish a ratification.
In American Casualty Co., v. Dakota Tractor and
Equipment Co., 234 F. Supp. 606, 611 (D.N.D. 1964),
the court stated:
Moreover, the unauthorized acts of an officer of a
corporation may be ratified by the corporation by
conduct implying approval and adoption of the act
in question. Such ratification may be express or
may be inferred from silence and inaction.
In the case at bench, it was established that petitioner
corporation did not issue any resolution revoking nor
nullifying the board resolutions granting gratuity pay to
private respondents. Instead, they paid the gratuity pay,
particularly, the first two (2) installments thereof, of
private respondents Florentina Fontecha, Mila Refuerzo,
Marcial Mamaril and Perfecto Bautista.
Despite the alleged lack of notice to petitioner Asuncion
Lopez Gonzales at that time the assailed resolutions were
passed, we can glean from the records that she was aware
of the corporation's obligation under the said resolutions.
More importantly, she acquiesced thereto. As pointed out
by private respondents, petitioner Asuncion Lopez
Gonzales affixed her signature on Cash Voucher Nos. 81-
10-510 and 81-10-506, both dated October 15, 1981,
evidencing the 2nd installment of the gratuity pay of
private respondents Mila Refuerzo and Florentina
Fontecha. 18
We hold, therefore, that the conduct of petitioners after
the passage of resolutions dated August, 17, 1951 and
September 1, 1981, had estopped them from assailing the
validity of said board resolutions.
Assuming, arguendo, that there was no notice given to
Asuncion Lopez Gonzalez during the special meetings held
on August 17, 1981 and September 1, 1981, it is
erroneous to state that the resolutions passed by the
board during the said meetings were ultra vires. In legal
parlance, "ultra vires" act refers to one which is not within
the corporate powers conferred by the Corporation Code
or articles of incorporation or not necessary or incidental
in the exercise of the powers so conferred. 19
The assailed resolutions before us cover a subject which
concerns the benefit and welfare of the company's
employees. To stress, providing gratuity pay for its
employees is one of the express powers of the corporation
under the Corporation Code, hence, petitioners cannot
invoke the doctrine of ultra vires to avoid any liability
arising from the issuance the subject resolutions. 20
We reject petitioners' allegation that private respondents,
namely, Mila Refuerzo, Marissa Pascual and Edward
Mamaril who resigned from petitioner corporation after
the filing of the case, are precluded from receiving their
gratuity pay. Pursuant to board resolutions dated August
17, 1981 and September 1, 1981, respectively, petitioner
corporation obliged itself to give the gratuity pay of its
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retained employees in four (4) installments: on September IN VIEW WHEREOF, the instant petition is DISMISSED for
1, 1981; October 15, 1981; November, 1981; and January lack of merit and the temporary restraining order we
1, 1982. Hence, at the time the aforenamed private issued on February 9, 1987 is LIFTED. Accordingly, the
respondents tendered their resignation, the assailed resolution of the National Labor Relations
aforementioned private respondents were already entitled Commission in NLRC-NCR-2176-82 is AFFIRMED. This
to receive their gratuity pay. decision is immediately executory. Costs against
petitioners.
Petitioners try to convince us that the subject resolutions
had no force and effect in view of the non-approval SO ORDERED.
thereof during the Annual Stockholders' Meeting held on
March 1, 1982. To strengthen their position, petitioners
cite section 28 1/2 of the Corporation Law (Section 40 of
the Corporation Code). We are not persuaded.
The cited provision is not applicable to the case at bench
as it refers to the sale, lease, exchange or disposition of all
or substantially all of the corporation's assets, including its
goodwill. In such a case, the action taken by the board of
directors requires the authorization of the stockholders on
record.
It will be observed that, except far Arturo Lopez, the
stockholders of petitioner corporation also sit as members
of the board of directors. Under the circumstances in field,
it will be illogical and superfluous to require the
stockholders' approval of the subject resolutions. Thus,
even without the stockholders' approval of the subject
resolutions, petitioners are still liable to pay private
respondents' gratuity pay.

CORPORATION LAW: 3.a. powers of corps Page 62 of 62