CORPORATION LAW CASES

Assigned

Republic of the Philippines VICTORIA B. AURIGUE — 25,250 shares

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 110358 November 9, 1994
QUINTIN ROBLEDO, MARIO SINLAO, LEONARDO SAAVEDRA, VICENTE
SECAPURI, DANIEL AUSTRIA, ET AL., petitioners,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, BACANI SECURITY
AND ALLIED SERVICES CO., INC., AND BACANI SECURITY AND
PROTECTIVE AGENCY AND/OR ALICIA BACANI, respondents.
MENDOZA, J.:
This is a petition for review of the decision of the First Division 1 of the National Labor
Relations Commission, setting aside the decision of the Labor Arbiter which held
private respondents jointly and severally liable to the petitioners for overtime and
legal holiday pay.
The facts of this case are as follows:
Petitioners were former employees of Bacani Security and Protective Agency (BSPA,
for brevity). They were employed as security guards at different times during the
period 1969 to December 1989 when BSPA ceased to operate.
BSPA was a single proprietorship owned, managed and operated by the late Felipe
Bacani. It was registered with the Bureau of Trade and Industry as a business name
in 1957. Upon its expiration, the registration was renewed on July 1, 1987 for a term
of five (5) years ending 1992.
On December 31, 1989, Felipe Bacani retired the business name and BSPA ceased
to operate effective on that day. At that time, respondent Alicia Bacani, daughter of
Felipe Bacani, was BSPA's Executive Directress.
On January 15, 1990 Felipe Bacani died. An intestate proceeding was instituted for
the settlement of his estate before the Regional Trial Court, National Capital Region,
Branch 155, Pasig, Metro Manila.
Earlier, on October 26, 1989, respondent Bacani Security and Allied Services Co.,
Inc. (BASEC, for brevity) had been organized and registered as a corporation with
the Securities and Exchange Commission. The following were the incorporators with
their respective shareholdings:
ALICIA BACANI — 25,250
LYDIA BACANI — 25,250
AMADO P. ELEDA — 25,250
FELIPE BACANI — 20,000 shares
The primary purpose of the corporation was to "engage in the business of providing
security" to persons and entities. This was the same line of business that BSPA was
engaged in. Most of the petitioners, after losing their jobs in BSPA, were employed
in BASEC.
On July 5, 1990, some of the petitioners filed a complaint with
the Department of Labor and Employment, National Capital Region, for
underpayment of wages and nonpayment of overtime pay, legal holiday pay,
separation pay and/or retirement/resignation benefits, and for the return of their
cash bond which they posted with BSPA. Made respondents were BSPA and BASEC.
Petitioners were subsequently joined by the rest of the petitioners herein who filed
supplementary complaints.
On March 1, 1992, the Labor Arbiter rendered a decision upholding the right of the
petitioners. The dispositive portion of his decision reads:
CONFORMABLY WITH THE FOREGOING, the judgment is hereby
rendered finding complainants entitled to their money claims as
herein above computed and to be paid by all the respondents
herein in solidum except BSPA which has already been retired
from business.
Respondents are further ordered to pay attorney's fees equivalent
to five (5) percent of the awarded money claims.
All other claims are hereby dismissed for lack of merit.
SO ORDERED.
On appeal the National Labor Relations Commission reversed. In a decision dated
March 30, 1993, the NLRC's First Division declared the Labor Arbiter without
jurisdiction and instead suggested that petitioners file their claims with the Regional
Trial Court, Branch 155, Pasig, Metro Manila, where an intestate proceeding for the
settlement of Bacani's estate was pending. Petitioners moved for a reconsideration
but their motion was denied for lack of merit. Hence this petition for review.
No appeal lies to review decisions of the NLRC. Nonetheless the petition in this case
was treated as a special civil action of certiorari to determine whether the NLRC did
not commit a grave abuse of its discretion in reversing the Labor Arbiter's decision.
The issues in this case are two fold: first, whether Bacani Security and Allied Services
Co. Inc. (BASEC) and Alicia Bacani can be held liable for claims of petitioners against
shares Bacani Security and Protective Agency (BSPA) and, second, if the claims were the
shares personal liability of the late Felipe Bacani, as owner of BSPA, whether the Labor
shares Arbiter had jurisdiction to decide the claims.

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Petitioners contend that public respondent erred in setting aside the Labor Arbiter's
judgment on the ground that BASEC is the same entity as BSPA the latter being
owned and controlled by one and the same family, namely the Bacani family. For
this reason they urge that the corporate fiction should be disregarded and BASEC
should be held liable for the obligations of the defunct BSPA.
We find the petition to be without merit.
As correctly found by the NLRC, BASEC is an entity separate and distinct from that
of BSPA. BSPA is a single proprietorship owned and operated by Felipe Bacani. Hence
its debts and obligations were the personal obligations of its owner. Petitioners' claim
which are based on these debts and personal obligations, did not survive the death
of Felipe Bacani on January 15, 1990 and should have been filed instead in the
intestate proceedings involving his estate.
Indeed, the rule is settled that unless expressly assumed labor contracts are not
enforceable against the transferee of an enterprise. The reason for this is that labor
contracts are in personam.2 Consequently, it has been held that claims for
backwages earned from the former employer cannot be filed against the new owners
of an enterprise.3Nor is the new operator of a business liable for claims for retirement
pay of employees.4
Petitioners claim, however, that BSPA was intentionally retired in order to allow
expansion of its business and even perhaps an increase in its capitalization for credit
purpose. According to them, the Bacani family merely continued the operation of
BSPA by creating BASEC in order to avoid the obligations of the former. Petitioners
anchor their claim on the fact that Felipe Bacani, after having ceased to operate
BSPA, became an incorporator of BASEC together with his wife and daughter.
Petitioners urge piercing the veil of corporate entity in order to hold BASEC liable for
BSPA's obligations.
The doctrine of piercing the veil of corporate entity is used whenever a court finds
that the corporate fiction is being used to defeat public convenience, justify wrong,
protect fraud, or defend crime, or to confuse legitimate issues, or that a corporation
is the mere alter ego or business conduit of a person or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.5 It is apparent,
therefore, that the doctrine has no application to this case where the purpose is not
to hold the individual stockholders liable for the obligations of the corporation but,
on the contrary, to hold the corporation liable for the obligations of a stockholder or
stockholders. Piercing the veil of corporate entity means looking through the
corporate form to the individual stockholders composing it. Here there is no reason
to pierce the veil of corporate entity because there is no question that petitioners'
claims, assuming them to be valid, are the personal liability of the late Felipe Bacani.
It is immaterial that he was also a stockholder of BASEC.
Indeed, the doctrine is stood on its head when what is sought is to make a
corporation liable for the obligations of a stockholder. But there are several reasons
why BASEC is not liable for the personal obligations of Felipe Bacani. For one, BASEC
came into existence before BSPA was retired as a business concern. BASEC was
incorporated on October 26, 1989 and its license to operate was released on May
28, 1990, while BSPA ceased to operate on December 31, 1989. Before, BSPA was
retired, BASEC was already existing. It is, therefore, not true that BASEC is a mere
continuity of BSPA.
Second, Felipe Bacani was only one of the five (5) incorporators of BASEC. He owned
the least number of shares in BASEC, which included among its incorporators
persons who are not members of his family. That his wife Lydia and daughter Alicia
were also incorporators of the same company is not sufficient to warrant the
conclusion that they hold their shares in his behalf.
Third, there is no evidence to show that the assets of BSPA were transferred to
BASEC. If BASEC was a mere continuation of BSPA, all or at least a substantial part
of the latter's assets should have found their way to BASEC.
Neither can respondent Alicia Bacani be held liable for BSPA's obligations. Although
she was Executive Directress of BSPA, she was merely an employee of the BSPA,
which was a single proprietorship.
Now, the claims of petitioners are actually money claims against the estate of Felipe
Bacani. They must be filed against his estate in accordance with Sec. 5 of Rule 86
which provides in part:
Sec. 5. Claims which must be filed under the notice. If not filed,
barred; exceptions. — All claims for money against the decedent,
arising from contract, express or implied, whether the same be
due, not due, or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and judgment for
money against the decedent, must be filed within the time limited
in the notice; otherwise they are barred forever, except that they
may be set forth as counterclaims in any action that the executor
or administrator may bring against the claimants . . .
The rationale for the rule is that upon the death of the defendant, a testate or
intestate proceeding shall be instituted in the proper court wherein all his creditors
must appear and file their claims which shall be paid proportionately out of the
property left by the deceased. The objective is to avoid duplicity of procedure. Hence
the ordinary actions must be taken out from the ordinary courts. 6 Under Art. 110
of the Labor Code, money claims of laborers enjoy preference over claims of other
creditors in case of bankruptcy or liquidation of the employer's business.
WHEREFORE, the petition for certiorari is DISMISSED. SO ORDERE
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Assigned
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 116781 September 5, 1997
TOMAS LAO CONSTRUCTION, LVM CONSTRUCTION CORPORATION,
THOMAS and JAMES DEVELOPERS (PHIL.), INC., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, MARIO O. LABENDIA, SR.,
ROBERTO LABENDIA, NARCISO ADAN, FLORENCIO GOMEZ, ERNESTO
BAGATSOLON, SALVADOR BABON, PATERNO BISNAR, CIRPRIANO
BERNALES, ANGEL MABUHAY, SR., LEO SURIGAO, and ROQUE
MORILLO, respondents.
BELLOSILLO, J.:
From October to December 1990 private respondents individually filed complaints
for illegal dismissal against petitioners with the National Labor Relations Commission
Regional Arbitration Branch No. VIII (NLRC — RAB VIII), Tacloban City. Alleging that
they were hired for various periods as construction workers in different capacities
they described their contractual terms as follows: (a) Roberto Labendia, general
construction foreman, from 1971 to 17 October 1990 at P3,700/month; (b) Narciso
Adan, tireman, from October 1981 to November 1990 at P75.00/day; (c) Florencio
Gomez, welder, from July 1983 to July 1990 at P260.00/day; (d) Ernesto Bagatsolon
leadman/checker, from June 1982 to October 1990 at P2,800/month; (e) Salvador
Babon, clerk/timekeeper/paymaster, from June 1982 to October 1990 at
P3,200/month; (f) Paterno Bisnar, road grader operator, from January 1979 to
October 1990 at 105/day; (g) Cipriano Bernales, instrument man, from February
1980 to November 1990 at P3,200/month; (h) Angel Mabulay, Sr., dump truck
driver, from August 1974 to October 1990 at P90/day; (I) Leo Surigao, payloader
operator, from March 1975 to January 1978 at P100/day; (J) Mario Labendia, Sr.
surveyor/foreman, from August 1971 to July 1990 at P2,900/month; and, (k) Roque
Morillo, company watchman, from August 1983 to October 1990 at P3,200/month.1
Within the periods of their respective employments, they alternately worked for
petitioners Tomas Lao Corporation (TLC), Thomas and James Developers (T&J) and
LVM Construction Corporation (LVM), altogether informally referred to as the "Lao
Group of Companies," the three (3) entities comprising a business conglomerate
exclusively controlled and managed by members of the Lao family.
TLC, T&J and LVM are engaged in the construction of public roads and bridges.
Under joint venture agreements they entered into among each other, they would
undertake their projects either simultaneously or successively so that, whenever
necessary, they would lease tools and equipment to one another. Each one would
also allow the utilization of their employees by the other two (2). With this
arrangement, workers were transferred whenever necessary to on-going projects of
the same company or of the others, or were rehired after the completion of the
project or project phase to which they were assigned. Soon after, however, TLC
ceased its operations2 while T&J and LVM stayed on.
Sometime in 1989 Andres Lao, Managing Director of LVM and President of
T&J,3 issued a memorandum4 requiring all workers and company personnel to sign
employment contract forms and clearances which were issued on 1 July 1989 but
antedated 10 January 1989. These were to be used allegedly for audit purposes
pursuant to a joint venture agreement between LVM and T&J. To ensure compliance
with the directive, the company ordered the withholding of the salary of any
employee who refused to sign. Quite notably, the contracts expressly described the
construction workers as project employees whose employments were for a definite
period, i.e., upon the expiration of the contract period or the completion of the
project for which the workers was hired.
Except for Florencio Gomez5 all private respondents refused to sign contending that
this scheme was designed by their employer to downgrade their status from regular
employees to mere project employees. Resultantly, their salaries were withheld.
They were also required to explain why their services should not be terminated for
violating company rules and warned that failure to satisfactorily explain would be
construed as "disinterest" in continued employment with the company. Since the
workers stood firm in their refusal to comply with the directives their services were
terminated.
NLRC RAB VIII dismissed the complaints lodged before it, finding that private
respondents were project employees whose employments could be terminated upon
completion of the projects or project phase for which they were hired. It upheld
petitioners' contention that the execution of their employment contracts was to
forestall the eventuality of being compelled to pay the workers their salaries even if
there was no more work to be done due to the completion of the projects or project
phases. The labor court however granted each employee a separation pay of
P6,435.00 computed at one-half (1/2) month salary for every year of service,
uniformly rounded at five (5) years.6
The decision of Labor Arbiter Gabino A. Velasquez, Jr., was reversed on appeal by
the Fourth Division of the National Labor Relations Commission (NLRC) of Cebu City
which found that private respondents were regular employees who were dismissed
without just cause and denied due process. The NLRC also overruled the fixing by
the Labor Arbiter of the term of employment of complainants uniformly at five (5)
years since the periods of employment of the construction workers as alleged in
their complaints were never refuted by petitioners. In granting monetary awards to
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complainants, NLRC disregarded the veil of corporate fiction and treated the three
(3) corporations as forming only one entity on the basis of the admission of
petitioners that "the three (3) operated as one (1), intermingling and commingling
all its resources, including manpower facility."7
Petitioners now lay their cause before us and assign the following errors: (a) NLRC
erred in classifying the employees as regular instead of project employees; (b)
assuming that the workers were regular employees, NLRC failed to consider that
they were terminated for cause; (c) assuming further that the employees were
illegally dismissed, NLRC erred in awarding back wages in excess of three (3) years;
and, (d) assuming finally that the decision is correct, NLRC erred when it pierced
the veil of corporate personality of petitioner-corporations.
The main thrust of petitioners' expostulation is that respondents have no valid cause
to complain about their employment contracts since these documents merely
formalized their status as project employees. They cite Policy Instruction No. 20 of
the Department of Labor which defines project employees as those employed in
connection with a particular construction project, adding that the ruling in Sandoval
Shipyards, Inc. v. NLRC8 applies squarely to the instant case because there the
Court declared that the employment of project employees is co-terminous with the
completion of the project regardless of the number of projects in which they have
worked. And as their employment is one for a definite period, they are not entitled
to separation pay nor is their employer required to obtain clearance from the
Secretary of Labor in connection with their termination. Petitioners thus argue that
their dismissal from the service of private respondents was legal since the projects
for which they were hired had already been completed. As additional ground, they
claim that Mario Labendia and Roberto Labendia had absented themselves without
leave giving management no choice but to sever their employment.
We are not convinced. The principal test in determining whether particular
employees are "project employees" distinguished from "regular employees" is
whether the "project employees" are assigned to carry out "specific project or
undertaking," the duration (and scope) of which are specified at the time the
employees are engaged for the project. "Project" in the realm of business and
industry refers to a particular job or undertaking that is within the regular or usual
business of employer, but which is distinct and separate and identifiable as such
from the undertakings of the company. Such job or undertaking begins and ends at
determined or determinable times.9
While it may be allowed that in the instant case the workers were initially hired for
specific projects or undertakings of the company and hence can be classified as
project employees, the repeated re-hiring and the continuing need for their services
over a long span of time (the shortest, at seven [7] years) have undeniably made
them regular employees. Thus, we held that where the employment of project
employees is extended long after the supposed project has been finished, the
employees are removed from the scope of project employees and considered regular
employees.10
While length of time may not be a controlling test for project employment, it can be
a strong factor in determining whether the employee was hired for a specific
undertaking or in fact tasked to perform functions which are vital, necessary and
indispensable to the usual business or trade of the employer. In the case at bar,
private respondents had already gone through the status of project employees. But
their employments became non-coterminous with specific projects when they
started to be continuously re-hired due to the demands of petitioners' business and
were re-engaged for many more projects without interruption. We note petitioners'
own admission —
[t]hese construction projects have been prosecuted by either of the three
petitioners, either individually or in a joint venture with one another.
Likewise, these construction projects have been prosecuted by either of
the three petitioners, either simultaneously, one construction project
overlapping another and/or one project commencing immediately after
another project has been completed or terminated. Perhaps because of
their capacity to prosecute government projects and their good record and
performance, at least one of the three petitioners had an on-going
construction project and/or one of the three petitioners' construction
project overlapped that of another.11
The denial by petitioners of the existence of a work pool in the company because
their projects were not continuous is amply belied by petitioners themselves who
admit that —
All the employees of either of the three petitioners were actually assigned
to a particular project to remain in said project until the completion or
termination of that project. However, after the completion of that particular
project or when their services are no longer needed in the project or
particular phase of the project where they were assigned, they were
transferred and rehired in another on-going project.12
A work pool may exist although the workers in the pool do not receive salaries and
are free to seek other employment during temporary breaks in the business,
provided that the worker shall be available when called to report for a project.
Although primarily applicable to regular seasonal workers, this set-up can likewise
be applied to project workers insofar as the effect of temporary cessation of work is
concerned. This is beneficial to both the employer and employee for it prevents the
unjust situation of "coddling labor at the expense of capital" and at the same time
enables the workers to attain the status of regular employees. Clearly, the
continuous rehiring of the same set of employees within the framework of the Lao
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Group of Companies is strongly indicative that private respondents were an integral
part of a work pool from which petitioners drew its workers for its various projects.
In a final attempt to convince the Court that private respondents were indeed project
employees, petitioners point out that the workers were not regularly maintained in
the payroll and were free to offer their services to other companies when there were
no on-going projects. This argument however cannot defeat the workers' status of
regularity. We apply by analogy the case of Industrial-Commercial-Agricultural
Workers Organization v. CIR13 which deals with regular seasonal employees. There
we held —
That during the temporary layoff the laborers are free to seek other
employment is natural, since the laborers are not being paid, yet must find
means of support. A period during which the Central is forced to suspend
or cease operation for a time . . . should not mean starvation for employees
and their families (emphasis supplied).
Truly, the cessation of construction activities at the end of every project is a
foreseeable suspension of work. Of course, no compensation can be demanded from
the employer because the stoppage of operations at the end of a project and before
the start of a new one is regular and expected by both parties to the labor relations.
Similar to the case of regular seasonal employees, the employment relation is not
severed by merely being suspended.14 The employees are, strictly speaking, not
separated from services but merely on leave of absence without pay until they are
reemployed.15 Thus we cannot affirm the argument that non-payment of salary or
non-inclusion in the payroll and the opportunity to seek other employment denote
project employment.
Contrary to petitioners' assertion, our ruling in Sandoval Shipyards is inapplicable
considering the special circumstances attendant to the present case. In Sandoval,
the hiring of construction workers, unlike in the instant case, was intermittent and
not continuous for the "shipyard merely accepts contracts for shipbuilding or for
repair of vessels from third parties and, only on occasions when it has work contract
of this nature that it hires workers to do the job which, needless to say, lasts only
for less than a year or longer."16
Moreover, if private respondents were indeed employed as "project employees,"
petitioners should have submitted a report of termination to the nearest public
employment office every time their employment was terminated due to completion
of each construction project.17 The records show that they did not. Policy Instruction
No. 20 is explicit that employers of project employees are exempted from the
clearance requirement but not from the submission of termination report. We have
consistently held that failure of the employer to file termination reports after every
project completion proves that the employees are not project employees.18 Nowhere
in the New Labor Code is it provided that the reportorial requirement is dispensed
with. The fact is that Department Order No. 19 superseding Policy Instruction No.
20 expressly provides that the report of termination is one of the indicators of project
employment.19
We agree with the NLRC that the execution of the project employment contracts
was "farcical."20 Obviously, the contracts were a scheme of petitioners to prevent
respondents' from being considered as regular employees. It imposed time frames
into an otherwise flexible employment period of private respondents some of whom
were employed as far back as 1969. Clearly, here was an attempt to circumvent
labor laws on tenurial security. Settled is the rule that when periods have been
imposed to preclude the acquisition of tenurial security by the employee, they should
be struck down as contrary to public morals, good customs or public order. 21 Worth
noting is that petitioners had engaged in various joint venture agreements in the
past without having to draft project employment contracts. That they would require
execution of employment contracts and waivers at this point, ostensibly to be used
for audit purposes, is a suspect excuse, considering that petitioners enforced the
directive by withholding the salary of any employee who spurned the order.
We likewise reject petitioners' justification in re-hiring private respondents i.e., that
it is much cheaper and economical to re-hire or re-employ the same workers than
to train a new set of employees. It is precisely because of this cost-saving benefit
to the employer that the law deems it fair that the employees be given a regular
status. We need not belabor this point.
The NLRC was correct in finding that the workers were illegally dismissed. The rule
is that in effecting a valid dismissal, the mandatory requirements of substantive and
procedural due process must be strictly complied with. These were wanting in the
present case. Private respondents were dismissed allegedly because of
insubordination or blatant refusal to comply with a lawful directive of their employer.
But willful disobedience of the employer's lawful orders as a just cause for the
dismissal of the employees envisages the concurrence of at least two (2) requisites:
(a) the employee's assailed conduct must have been willful or intentional, the
willfulness being characterized by a wrongful and perverse attitude; and, (b) the
order violated must have been reasonable, lawful, made known to the employee
and must pertain to the duties which he has been engaged to discharge. 22 The
refusal of private respondents was willful but not in the sense of plain and perverse
insubordination. It was dictated by necessity and justifiable reasons — for what
appeared to be an innocent memorandum was actually a veiled attempt to deny
them their rightful status as regular employees. The workers therefore had no option
but to disobey the directive which they deemed unreasonable and unlawful because
it would result in their being downsized to mere project workers. This act of self-
preservation should not merit them the extreme penalty of dismissal.
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The allegation of petitioners that private respondents are guilty of abandonment of
duty is without merit. The elements of abandonment are: (a) failure to report for
work or absence without valid or justifiable reason, and, (b) a clear intention to
sever the employer-employee relationship, with the second element as the more
determinative factor manifested by some overt acts.23 In this case, private
respondents Roberto Labendia and Mario Labendia were forced to leave their
respective duties because their salaries were withheld. They could not simply sit idly
and allow their families to starve. They had to seek employment elsewhere, albeit
temporarily, in order to survive. On the other hand, it would be the height of injustice
to validate abandonment in this particular case as a ground for dismissal of
respondents thereby making petitioners benefit from a gross and unjust situation
which they themselves created.24 Private respondents did not intend to sever ties
with petitioner and permanently abandon their jobs; otherwise, they would not have
filed this complaint for illegal dismissal.25
Petitioners submit that since private respondents were only project employees, they
are not entitled to security of tenure. This is incorrect. In Archbuild Masters and
Construction, Inc. v. NLRC26 we held —
. . . a project employee hired for a specific task also enjoys security of
tenure. A termination of his employment must be for a lawful cause and
must be done in a manner which affords him the proper notice and hearing
. . . . To allow employers to exercise their prerogative to terminate a project
worker's employment based on gratuitous assertions of project completion
would destroy the constitutionally protected right of labor to security of
tenure (emphasis supplied).
The burden of proving that an employee has been lawfully dismissed therefore lies
with the employer. In the case at bar, the assertions of petitioners were self-serving
and insufficient to substantiate their claim of proximate project completion. The
services of the employees were terminated not because of contract expiration but
as sanction for their refusal to sign the project employment forms and quitclaims.
Finding that the dismissal was without just cause, we find it unnecessary to dwell
on the non-observance of procedural due process. Suffice it to state that private
respondents were not priorly notified of their impending dismissal and that they
were not provided ample opportunity to defend themselves.
Petitioners charge as erroneous the grant to private respondents by NLRC of back
wages in excess of three (3) years or, in the alternative, to an award of separation
pay if reinstatement is no longer feasible.
We disagree. Since the illegal dismissal was made in 1990 or after the effectivity of
the amendatory provision of RA No. 6715 on 21 March 1989, private respondents'
back wages should be computed on the basis of Art. 279 of the Labor Code which
states that "(a)n employee who is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other privileges and to his full back
wages, inclusive of allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation was withheld from him up to
the time of his actual reinstatement."
Conformably with our ruling in Bustamante v. NLRC27 the illegally dismissed
employees are entitled to full back wages, undiminished by earnings derived
elsewhere during the period of their illegal dismissal. In the event that reinstatement
is no longer feasible, back wages shall be computed from the time of illegal
termination until the time of the finality of the decision.28 The award shall be based
on the documents submitted by private respondents, i.e. affidavits, SSS and
Medicare documents, since petitioners failed to adduce competent evidence to the
contrary. The separation pay shall be equivalent to "at least one (1) month salary
or to one (1) month salary for every year of service, whichever is higher, a fraction
of at least six (6) months being considered as one whole year."29
Finally, public respondent NLRC did not err in disregarding the veil of separate
corporate personality and holding petitioners jointly and severally liable for private
respondents' back wages and separation pay. The records disclose that the three
(3) corporations were in fact substantially owned and controlled by members of the
Lao family composed of Lao Hian Beng alias Tomas Lao, Chiu Siok Lian (wife of
Tomas Lao), Andrew C. Lao, Lao Y. Heng, Vicente Lao Chua, Lao E. Tin, Emmanuel
Lao and Ismaelita Maluto. A majority of the outstanding shares of stock in LVM and
T&J is owned by the Lao family. T&J is 100% owned by the Laos as reflected in its
Articles of Incorporation. The Lao Group of Companies therefore is a closed
corporation where the incorporators and directors belong to a single family. Lao Hian
Beng is the same Tomas Lao who owns Tomas Lao Corporation and is the majority
stockholder of T&J. Andrew C. Lao is the Managing Director of LVM Construction,
and President and Managing Director of the Lao Group of Companies. Petitioners
are engaged in the same line of business under one management and use the same
equipment including manpower services. Where it appears that [three] business
enterprises are owned, conducted and controlled by the same parties, both law and
equity will, when necessary to protect the rights of third persons, disregard the legal
fiction that the [three] corporations are distinct entities, and treat them as
identical.30
Consonant with our earlier ruling,31 we hold that the liability of petitioners extends
to the responsible officers acting in the interest of the corporations. In view of the
peculiar circumstances of this case, we disregard the separate personalities of the
three (3) corporations and at the same time declare the members of the corporations
jointly and severally liable with the corporations for the monetary awards due to
private respondents. It should always be borne in mind that the fiction of law that a
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corporation as a juridical entity has a distinct and separate personality was
envisaged for convenience and to serve justice; therefore it should not be used as
a subterfuge to commit injustice and circumvent labor laws.
WHEREFORE, the petition is DENIED and the decision of the National Labor Relations
Commission dated 05 August 1994 is AFFIRMED. Petitioners are ordered to reinstate
private respondents to their former positions without loss of seniority rights and
other privileges with full back wages, inclusive of allowances, computed from the
time compensation was withheld up to the time of actual reinstatement. In the event
that reinstatement is no longer feasible, petitioners are directed to pay private
respondents separation pay equivalent to one month salary for every year of service,
a fraction of at least six (6) months being considered one (1) year in the computation
thereof, and full back wages computed from the time compensation was withheld
until the finality of this decision. All other claims of the parties are DISMISSED for
lack of merit. Costs against petitioners.
SO ORDERED.
EN BANC
G.R. No. 141735 June 8, 2005
SAPPARI K. SAWADJAAN, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, THE CIVIL SERVICE COMMISSION
and AL-AMANAH INVESTMENT BANK OF THE PHILIPPINES, respondents.
DECISION
CHICO-NAZARIO, J.:
This is a petition for certiorari under Rule 65 of the Rules of Court of the Decision1 of
the Court of Appeals of 30 March 1999 affirming Resolutions No. 94-4483 and No.
95-2754 of the Civil Service Commission (CSC) dated 11 August 1994 and 11 April
1995, respectively, which in turn affirmed Resolution No. 2309 of the Board of
Directors of the Al-Amanah Islamic Investment Bank of the Philippines (AIIBP) dated
13 December 1993, finding petitioner guilty of Dishonesty in the Performance of
Official Duties and/or Conduct Prejudicial to the Best Interest of the Service and
dismissing him from the service, and its Resolution2 of 15 December 1999 dismissing
petitioner’s Motion for Reconsideration.
The records show that petitioner Sappari K. Sawadjaan was among the first
employees of the Philippine Amanah Bank (PAB) when it was created by virtue of
Presidential Decree No. 264 on 02 August 1973. He rose through the ranks, working
his way up from his initial designation as security guard, to settling clerk,
bookkeeper, credit investigator, project analyst, appraiser/ inspector, and
eventually, loans analyst.3
In February 1988, while still designated as appraiser/investigator, Sawadjaan was
assigned to inspect the properties offered as collaterals by Compressed Air
Machineries and Equipment Corporation (CAMEC) for a credit line of Five Million
Pesos (P5,000,000.00). The properties consisted of two parcels of land covered by
Transfer Certificates of Title (TCTs) No. N-130671 and No. C-52576. On the basis of
his Inspection and Appraisal Report,4 the PAB granted the loan application. When
the loan matured on 17 May 1989, CAMEC requested an extension of 180 days, but
was granted only 120 days to repay the loan.5
In the meantime, Sawadjaan was promoted to Loans Analyst I on 01 July 1989.6
In January 1990, Congress passed Republic Act 6848 creating the AIIBP and
repealing P.D. No. 264 (which created the PAB). All assets, liabilities and capital
accounts of the PAB were transferred to the AIIBP,7 and the existing personnel of
the PAB were to continue to discharge their functions unless discharged.8 In the
ensuing reorganization, Sawadjaan was among the personnel retained by the AIIBP.
When CAMEC failed to pay despite the given extension, the bank, now referred to
as the AIIBP, discovered that TCT No. N-130671 was spurious, the property
described therein non-existent, and that the property covered by TCT No. C-52576
had a prior existing mortgage in favor of one Divina Pablico.
On 08 June 1993, the Board of Directors of the AIIBP created an Investigating
Committee to look into the CAMEC transaction, which had cost the bank Six Million
Pesos (P6,000,000.00) in losses.9 The subsequent events, as found and decided
upon by the Court of Appeals,10 are as follows:
On 18 June 1993, petitioner received a memorandum from Islamic Bank [AIIBP]
Chairman Roberto F. De Ocampo charging him with Dishonesty in the Performance
of Official Duties and/or Conduct Prejudicial to the Best Interest of the Service and
preventively suspending him.
In his memorandum dated 8 September 1993, petitioner informed the Investigating
Committee that he could not submit himself to the jurisdiction of the Committee
because of its alleged partiality. For his failure to appear before the hearing set on
17 September 1993, after the hearing of 13 September 1993 was postponed due to
the Manifestation of even date filed by petitioner, the Investigating Committee
declared petitioner in default and the prosecution was allowed to present its
evidence ex parte.
On 08 December 1993, the Investigating Committee rendered a decision, the
pertinent portions of which reads as follows:
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In view of respondent SAWADJAAN’S abject failure to perform his duties and
assigned tasks as appraiser/inspector, which resulted to the prejudice and
substantial damage to the Bank, respondent should be held liable therefore. At this
juncture, however, the Investigating Committee is of the considered opinion that he
could not be held liable for the administrative offense of dishonesty considering the
fact that no evidence was adduced to show that he profited or benefited from being
remiss in the performance of his duties. The record is bereft of any evidence which
would show that he received any amount in consideration for his non-performance
of his official duties.
This notwithstanding, respondent cannot escape liability. As adverted to earlier, his
failure to perform his official duties resulted to the prejudice and substantial damage
to the Islamic Bank for which he should be held liable for the administrative offense
of CONDUCT PREJUDICIAL TO THE BEST INTEREST OF THE SERVICE.
Premises considered, the Investigating Committee recommends that respondent
SAPPARI SAWADJAAN be meted the penalty of SIX (6) MONTHS and ONE (1) DAY
SUSPENSION from office in accordance with the Civil Service Commission’s
Memorandum Circular No. 30, Series of 1989.
On 13 December 1993, the Board of Directors of the Islamic Bank [AIIBP] adopted
Resolution No. 2309 finding petitioner guilty of Dishonesty in the Performance of
Official Duties and/or Conduct Prejudicial to the Best Interest of the Service and
imposing the penalty of Dismissal from the Service.
On reconsideration, the Board of Directors of the Islamic Bank [AIIBP] adopted the
Resolution No. 2332 on 20 February 1994 reducing the penalty imposed on
petitioner from dismissal to suspension for a period of six (6) months and one (1)
day.
On 29 March 1994, petitioner filed a notice of appeal to the Merit System Protection
Board (MSPB).
On 11 August 1994, the CSC adopted Resolution No. 94-4483 dismissing the appeal
for lack of merit and affirming Resolution No. 2309 dated 13 December 1993 of the
Board of Directors of Islamic Bank.
On 11 April 1995, the CSC adopted Resolution No. 95-2574 denying petitioner’s
Motion for Reconsideration.
On 16 June 1995, the instant petition was filed with the Honorable Supreme Court
on the following assignment of errors:
I. Public respondent Al-Amanah Islamic Investment Bank of the Philippines
has committed a grave abuse of discretion amounting to excess or lack of
jurisdiction when it initiated and conducted administrative investigation
without a validly promulgated rules of procedure in the adjudication of
administrative cases at the Islamic Bank.
II. Public respondent Civil Service Commission has committed a grave
abuse of discretion amounting to lack of jurisdiction when it prematurely
and falsely assumed jurisdiction of the case not appealed to it, but to the
Merit System Protection Board.
III. Both the Islamic Bank and the Civil Service Commission erred in finding
petitioner Sawadjaan of having deliberately reporting false information and
therefore guilty of Dishonesty and Conduct Prejudicial to the Best Interest
of the Service and penalized with dismissal from the service.
On 04 July 1995, the Honorable Supreme Court En Banc referred this petition to this
Honorable Court pursuant to Revised Administrative Circular No. 1-95, which took
effect on 01 June 1995.
We do not find merit [in] the petition.
Anent the first assignment of error, a reading of the records would reveal that
petitioner raises for the first time the alleged failure of the Islamic Bank [AIIBP] to
promulgate rules of procedure governing the adjudication and disposition of
administrative cases involving its personnel. It is a rule that issues not properly
brought and ventilated below may not be raised for the first time on appeal, save in
exceptional circumstances (Casolita, Sr. v. Court of Appeals, 275 SCRA 257) none of
which, however, obtain in this case. Granting arguendo that the issue is of such
exceptional character that the Court may take cognizance of the same, still, it must
fail. Section 26 of Republic Act No. 6848 (1990) provides:
Section 26. Powers of the Board. The Board of Directors shall have the broadest
powers to manage the Islamic Bank, x x x The Board shall adopt policy guidelines
necessary to carry out effectively the provisions of this Charter as well as internal
rules and regulations necessary for the conduct of its Islamic banking business and
all matters related to personnel organization, office functions and salary
administration. (Italics ours)
On the other hand, Item No. 2 of Executive Order No. 26 (1992) entitled "Prescribing
Procedure and Sanctions to Ensure Speedy Disposition of Administrative Cases"
directs, "all administrative agencies" to "adopt and include in their respective Rules
of Procedure" provisions designed to abbreviate administrative proceedings.
The above two (2) provisions relied upon by petitioner does not require the Islamic
Bank [AIIBP] to promulgate rules of procedure before administrative discipline may
be imposed upon its employees. The internal rules of procedures ordained to be
adopted by the Board refers to that necessary for the conduct of its Islamic banking
business and all matters related to "personnel organization, office functions and
salary administration." On the contrary, Section 26 of RA 6848 gives the Board of
Directors of the Islamic Bank the "broadest powers to manage the Islamic Bank."
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Assigned
This grant of broad powers would be an idle ceremony if it would be powerless to
discipline its employees.
The second assignment of error must likewise fail. The issue is raised for the first
time via this petition for certiorari.Petitioner submitted himself to the jurisdiction of
the CSC. Although he could have raised the alleged lack of jurisdiction in his Motion
for Reconsideration of Resolution No. 94-4483 of the CSC, he did not do so. By filing
the Motion for Reconsideration, he is estopped from denying the CSC’s jurisdiction
over him, as it is settled rule that a party who asks for an affirmative relief cannot
later on impugn the action of the tribunal as without jurisdiction after an adverse
result was meted to him. Although jurisdiction over the subject matter of a case may
be objected to at any stage of the proceedings even on appeal, this particular rule,
however, means that jurisdictional issues in a case can be raised only during the
proceedings in said case and during the appeal of said case ( Aragon v. Court of
Appeals, 270 SCRA 603). The case at bar is a petition [for] certiorari and not an
appeal.
But even on the merits the argument must falter. Item No. 1 of CSC Resolution No.
93-2387 dated 29 June 1993, provides:
Decisions in administrative cases involving officials and employees of the civil service
appealable to the Commission pursuant to Section 47 of Book V of the Code ( i.e.,
Administrative Code of 1987) including personnel actions such as contested
appointments shall now be appealed directly to the Commission and not to the
MSPB.
In Rubenecia v. Civil Service Commission, 244 SCRA 640, 651, it was categorically
held:
. . . The functions of the MSPB relating to the determination of administrative
disciplinary cases were, in other words, re-allocated to the Commission itself.
Be that as it may, "(i)t is hornbook doctrine that in order `(t)o ascertain whether a
court (in this case, administrative agency) has jurisdiction or not, the provisions of
the law should be inquired into.’ Furthermore, `the jurisdiction of the court must
appear clearly from the statute law or it will not be held to exist.’"( Azarcon v.
Sandiganbayan, 268 SCRA 747, 757) From the provision of law abovecited, the Civil
Service Commission clearly has jurisdiction over the Administrative Case against
petitioner.
Anent the third assignment of error, we likewise do not find merit in petitioner’s
proposition that he should not be liable, as in the first place, he was not qualified to
perform the functions of appraiser/investigator because he lacked the necessary
training and expertise, and therefore, should not have been found dishonest by the
Board of Directors of Islamic Bank [AIIBP] and the CSC. Petitioner himself admits
that the position of appraiser/inspector is "one of the most serious [and] sensitive
job in the banking operations." He should have been aware that accepting such a
designation, he is obliged to perform the task at hand by the exercise of more than
ordinary prudence. As appraiser/investigator, he is expected, among others, to
check the authenticity of the documents presented by the borrower by comparing
them with the originals on file with the proper government office. He should have
made it sure that the technical descriptions in the location plan on file with the
Bureau of Lands of Marikina, jibe with that indicated in the TCT of the collateral
offered by CAMEC, and that the mortgage in favor of the Islamic Bank was duly
annotated at the back of the copy of the TCT kept by the Register of Deeds of
Marikina. This, petitioner failed to do, for which he must be held liable. That he did
not profit from his false report is of no moment. Neither the fact that it was not
deliberate or willful, detracts from the nature of the act as dishonest. What is
apparent is he stated something to be a fact, when he really was not sure that it
was so.
Wherefore, above premises considered, the instant Petition is DISMISSED, and the
assailed Resolutions of the Civil Service Commission are hereby AFFIRMED.
On 24 March 1999, Sawadjaan’s counsel notified the court a quo of his change of
address,11 but apparently neglected to notify his client of this fact. Thus, on 23 July
1999, Sawadjaan, by himself, filed a Motion for New Trial12 in the Court of Appeals
based on the following grounds: fraud, accident, mistake or excusable negligence
and newly discovered evidence. He claimed that he had recently discovered that at
the time his employment was terminated, the AIIBP had not yet adopted its
corporate by-laws. He attached a Certification13 by the Securities and Exchange
Commission (SEC) that it was only on 27 May 1992 that the AIIBP submitted its draft
by-laws to the SEC, and that its registration was being held in abeyance pending
certain corrections being made thereon. Sawadjaan argued that since the AIIBP
failed to file its by-laws within 60 days from the passage of Rep. Act No. 6848, as
required by Sec. 51 of the said law, the bank and its stockholders had "already
forfeited its franchise or charter, including its license to exist and operate as a
corporation,"14 and thus no longer have "the legal standing and personality to initiate
an administrative case."
Sawadjaan’s counsel subsequently adopted his motion, but requested that it be
treated as a motion for reconsideration.15 This motion was denied by the court a
quo in its Resolution of 15 December 1999.16
Still disheartened, Sawadjaan filed the present petition for certiorari under Rule 65
of the Rules of Court challenging the above Decision and Resolution of the Court of
Appeals on the ground that the court a quo erred: i) in ignoring the facts and
evidences that the alleged Islamic Bank has no valid by-laws; ii) in ignoring the facts
and evidences that the Islamic Bank lost its juridical personality as a corporation on
16 April 1990; iii) in ignoring the facts and evidences that the alleged Islamic Bank
Page 9 of 46
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Assigned
and its alleged Board of Directors have no jurisdiction to act in the manner they did
in the absence of a valid by-laws; iv) in not correcting the acts of the Civil Service
Commission who erroneously rendered the assailed Resolutions No. 94-4483 and
No. 95-2754 as a result of fraud, falsification and/or misrepresentations committed
by Farouk A. Carpizo and his group, including Roberto F. de Ocampo; v) in affirming
an unconscionably harsh and/or excessive penalty; and vi) in failing to consider
newly discovered evidence and reverse its decision accordingly.
Subsequently, petitioner Sawadjaan filed an "Ex-parte Urgent Motion for Additional
Extension of Time to File a Reply (to the Comments of Respondent Al-Amanah
Investment Bank of the Philippines),17 Reply (to Respondent’s Consolidated
Comment,)18 and Reply (to the Alleged Comments of Respondent Al-Amanah Islamic
Bank of the Philippines)."19 On 13 October 2000, he informed this Court that he had
terminated his lawyer’s services, and, by himself, prepared and filed the following:
1) Motion for New Trial;20 2) Motion to Declare Respondents in Default and/or
Having Waived their Rights to Interpose Objection to Petitioner’s Motion for New
Trial;21 3) Ex-Parte Urgent Motions to Punish Attorneys Amado D. Valdez, Elpidio J.
Vega, Alda G. Reyes, Dominador R. Isidoro, Jr., and Odilon A. Diaz for Being in
Contempt of Court & to Inhibit them from Appearing in this Case Until they Can
Present Valid Evidence of Legal Authority;22 4) Opposition/Reply (to Respondent
AIIBP’s Alleged Comment);23 5) Ex-Parte Urgent Motion to Punish Atty. Reynaldo A.
Pineda for Contempt of Court and the Issuance of a Commitment Order/Warrant for
His Arrest;24 6) Reply/Opposition (To the Formal Notice of Withdrawal of
Undersigned Counsel as Legal Counsel for the Respondent Islamic Bank with
Opposition to Petitioner’s Motion to Punish Undersigned Counsel for Contempt of
Court for the Issuance of a Warrant of Arrest);25 7) Memorandum for Petitioner;26 8)
Opposition to SolGen’s Motion for Clarification with Motion for Default and/or Waiver
of Respondents to File their Memorandum;27 9) Motion for Contempt of Court and
Inhibition/Disqualification with Opposition to OGCC’s Motion for Extension of Time
to File Memorandum;28 10) Motion for Enforcement (In Defense of the Rule of
Law);29 11) Motion and Opposition (Motion to Punish OGCC’s Attorneys Amado D.
Valdez, Efren B. Gonzales, Alda G. Reyes, Odilon A. Diaz and Dominador R. Isidoro,
Jr., for Contempt of Court and the Issuance of a Warrant for their Arrest; and
Opposition to their Alleged "Manifestation and Motion" Dated February 5,
2002);30 12) Motion for Reconsideration of Item (a) of Resolution dated 5 February
2002 with Supplemental Motion for Contempt of Court;3113) Motion for
Reconsideration of Portion of Resolution Dated 12 March 2002; 32 14) Ex-Parte
Urgent Motion for Extension of Time to File Reply Memorandum (To: CSC and
AIIBP’s Memorandum);33 15) Reply Memorandum (To: CSC’s Memorandum) With
Ex-Parte Urgent Motion for Additional Extension of time to File Reply Memorandum
(To: AIIBP’s Memorandum);34 and 16) Reply Memorandum (To: OGCC’s
Memorandum for Respondent AIIBP).35
Petitioner’s efforts are unavailing, and we deny his petition for its procedural and
substantive flaws.
The general rule is that the remedy to obtain reversal or modification of the
judgment on the merits is appeal. This is true even if the error, or one of the errors,
ascribed to the court rendering the judgment is its lack of jurisdiction over the
subject matter, or the exercise of power in excess thereof, or grave abuse of
discretion in the findings of fact or of law set out in the decision.36
The records show that petitioner’s counsel received the Resolution of the Court of
Appeals denying his motion for reconsideration on 27 December 1999. The fifteen
day reglamentary period to appeal under Rule 45 of the Rules of Court therefore
lapsed on 11 January 2000. On 23 February 2000, over a month after receipt of the
resolution denying his motion for reconsideration, the petitioner filed his petition
for certiorari under Rule 65.
It is settled that a special civil action for certiorari will not lie as a substitute for the
lost remedy of appeal,37 and though there are instances38 where the extraordinary
remedy of certiorari may be resorted to despite the availability of an appeal,39 we
find no special reasons for making out an exception in this case.
Even if we were to overlook this fact in the broader interests of justice and treat this
as a special civil action for certiorari under Rule 65,40 the petition would nevertheless
be dismissed for failure of the petitioner to show grave abuse of discretion.
Petitioner’s recurrent argument, tenuous at its very best, is premised on the fact
that since respondent AIIBP failed to file its by-laws within the designated 60 days
from the effectivity of Rep. Act No. 6848, all proceedings initiated by AIIBP and all
actions resulting therefrom are a patent nullity. Or, in his words, the AIIBP and its
officers and Board of Directors,
. . . [H]ave no legal authority nor jurisdiction to manage much less operate the
Islamic Bank, file administrative charges and investigate petitioner in the manner
they did and allegedly passed Board Resolution No. 2309 on December 13, 1993
which is null and void for lack of an (sic) authorized and valid by-laws. The CIVIL
SERVICE COMMISSION was therefore affirming, erroneously, a null and void
"Resolution No. 2309 dated December 13, 1993 of the Board of Directors of Al-
Amanah Islamic Investment Bank of the Philippines" in CSC Resolution No. 94-4483
dated August 11, 1994. A motion for reconsideration thereof was denied by the CSC
in its Resolution No. 95-2754 dated April 11, 1995. Both acts/resolutions of the CSC
are erroneous, resulting from fraud, falsifications and misrepresentations of the
alleged Chairman and CEO Roberto F. de Ocampo and the alleged Director Farouk
A. Carpizo and his group at the alleged Islamic Bank.41
Nowhere in petitioner’s voluminous pleadings is there a showing that the court a
quo committed grave abuse of discretion amounting to lack or excess of jurisdiction
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Assigned
reversible by a petition for certiorari. Petitioner already raised the question of
AIIBP’s corporate existence and lack of jurisdiction in his Motion for New Trial/Motion
for Reconsideration of 27 May 1997 and was denied by the Court of Appeals. Despite
the volume of pleadings he has submitted thus far, he has added nothing substantial
to his arguments.
The AIIBP was created by Rep. Act No. 6848. It has a main office where it conducts
business, has shareholders, corporate officers, a board of directors, assets, and
personnel. It is, in fact, here represented by the Office of the Government Corporate
Counsel, "the principal law office of government-owned corporations, one of which
is respondent bank."42 At the very least, by its failure to submit its by-laws on time,
the AIIBP may be considered a de facto corporation43 whose right to exercise
corporate powers may not be inquired into collaterally in any private suit to which
such corporations may be a party.44
Moreover, a corporation which has failed to file its by-laws within the prescribed
period does not ipso facto lose its powers as such. The SEC Rules on
Suspension/Revocation of the Certificate of Registration of Corporations,45details the
procedures and remedies that may be availed of before an order of revocation can
be issued. There is no showing that such a procedure has been initiated in this case.
In any case, petitioner’s argument is irrelevant because this case is not a corporate
controversy, but a labor dispute; and it is an employer’s basic right to freely select
or discharge its employees, if only as a measure of self-protection against acts
inimical to its interest.46 Regardless of whether AIIBP is a corporation, a partnership,
a sole proprietorship, or a sari-sari store, it is an undisputed fact that AIIBP is the
petitioner’s employer. AIIBP chose to retain his services during its reorganization,
controlled the means and methods by which his work was to be performed, paid his
wages, and, eventually, terminated his services.47
And though he has had ample opportunity to do so, the petitioner has not alleged
that he is anything other than an employee of AIIBP. He has neither claimed, nor
shown, that he is a stockholder or an officer of the corporation. Having accepted
employment from AIIBP, and rendered his services to the said bank, received his
salary, and accepted the promotion given him, it is now too late in the day for
petitioner to question its existence and its power to terminate his services. One who
assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation.481avvphi1
Even if we were to consider the facts behind petitioner Sawadjaan’s dismissal from
service, we would be hard pressed to find error in the decision of the AIIBP.
As appraiser/investigator, the petitioner was expected to conduct an ocular
inspection of the properties offered by CAMEC as collaterals and check the copies of
the certificates of title against those on file with the Registry of Deeds. Not only did
he fail to conduct these routine checks, but he also deliberately misrepresented in
his appraisal report that after reviewing the documents and conducting a site
inspection, he found the CAMEC loan application to be in order. Despite the number
of pleadings he has filed, he has failed to offer an alternative explanation for his
actions.
When he was informed of the charges against him and directed to appear and
present his side on the matter, the petitioner sent instead a memorandum
questioning the fairness and impartiality of the members of the investigating
committee and refusing to recognize their jurisdiction over him. Nevertheless, the
investigating committee rescheduled the hearing to give the petitioner another
chance, but he still refused to appear before it.
Thereafter, witnesses were presented, and a decision was rendered finding him
guilty of dishonesty and dismissing him from service. He sought a reconsideration
of this decision and the same committee whose impartiality he questioned reduced
their recommended penalty to suspension for six months and one day. The board
of directors, however, opted to dismiss him from service.
On appeal to the CSC, the Commission found that Sawadjaan’s failure to perform
his official duties greatly prejudiced the AIIBP, for which he should be held
accountable. It held that:
. . . (I)t is crystal clear that respondent SAPPARI SAWADJAAN was remiss in the
performance of his duties as appraiser/inspector. Had respondent performed his
duties as appraiser/inspector, he could have easily noticed that the property located
at Balintawak, Caloocan City covered by TCT No. C-52576 and which is one of the
properties offered as collateral by CAMEC is encumbered to Divina Pablico. Had
respondent reflected such fact in his appraisal/inspection report on said property the
ISLAMIC BANK would not have approved CAMEC’s loan of P500,000.00 in 1987 and
CAMEC’s P5 Million loan in 1988, respondent knowing fully well the Bank’s policy of
not accepting encumbered properties as collateral.
Respondent SAWADJAAN’s reprehensible act is further aggravated when he failed
to check and verify from the Registry of Deeds of Marikina the authenticity of the
property located at Mayamot, Antipolo, Rizal covered by TCT No. N-130671 and
which is one of the properties offered as collateral by CAMEC for its P5 Million loan
in 1988. If he only visited and verified with the Register of Deeds of Marikina the
authenticity of TCT No. N-130671 he could have easily discovered that TCT No. N-
130671 is fake and the property described therein non-existent.
...
This notwithstanding, respondent cannot escape liability. As adverted to earlier, his
failure to perform his official duties resulted to the prejudice and substantial damage
Page 11 of 46
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to the ISLAMIC BANK for which he should be held liable for the administrative
offense of CONDUCT PREJUDICIAL TO THE BEST INTEREST OF THE SERVICE.49
From the foregoing, we find that the CSC and the court a quo committed no grave
abuse of discretion when they sustained Sawadjaan’s dismissal from service. Grave
abuse of discretion implies such capricious and whimsical exercise of judgment as
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.50 The records show that the respondents did none of these; they acted in
accordance with the law.
WHEREFORE, the petition is DISMISSED. The Decision of the Court of Appeals of
30 March 1999 affirming Resolutions No. 94-4483 and No. 95-2754 of the Civil
Service Commission, and its Resolution of 15 December 1999 are hereby affirmed.
Costs against the petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-68555 March 19, 1993
PRIME WHITE CEMENT CORPORATION, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO
TE, respondents.
CAMPOS, JR., J.:
Before Us is a Petition for Review on Certiorari filed by petitioner Prime White
Cement Corporation seeking the reversal of the decision * of the then Intermediate
Appellate Court, the dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing, the judgment appealed
from is hereby affirmed in toto.1
The facts, as found by the trial court and as adopted by the respondent Court are
hereby quoted, to wit:
On or about the 16th day of July, 1969, plaintiff and defendant
corporation thru its President, Mr. Zosimo Falcon and Justo C.
Trazo, as Chairman of the Board, entered into a dealership
agreement (Exhibit A) whereby said plaintiff was obligated to act
as the exclusive dealer and/or distributor of the said defendant
corporation of its cement products in the entire Mindanao area for
a term of five (5) years and proving (sic) among others that:
a. The corporation shall, commencing
September, 1970, sell to and supply the
plaintiff, as dealer with 20,000 bags (94
lbs/bag) of white cement per month;
b. The plaintiff shall pay the defendant
corporation P9.70, Philippine Currency, per bag
of white cement, FOB Davao and Cagayan de
Oro ports;
c. The plaintiff shall, every time the defendant
corporation is ready to deliver the good, open
with any bank or banking institution a
confirmed, unconditional, and irrevocable letter
of credit in favor of the corporation and that
upon certification by the boat captain on the bill
of lading that the goods have been loaded on
board the vessel bound for Davao the said bank
or banking institution shall release the
corresponding amount as payment of the goods
so shipped.
Right after the plaintiff entered into the aforesaid dealership
agreement, he placed an advertisement in a national, circulating
newspaper the fact of his being the exclusive dealer of the
defendant corporation's white cement products in Mindanao area,
more particularly, in the Manila Chronicle dated August 16, 1969
(Exhibits R and R-1) and was even congratulated by his business
associates, so much so, he was asked by some of his businessmen
friends and close associates if they can be his
sub-dealer in the Mindanao area.
Relying heavily on the dealership agreement, plaintiff sometime
in the months of September, October, and December, 1969,
entered into a written agreement with several hardware stores
dealing in buying and selling white cement in the Cities of Davao
and Cagayan de Oro which would thus enable him to sell his
allocation of 20,000 bags regular supply of the said commodity,
by September, 1970 (Exhibits O, O-1, O-2, P, P-1, P-2, Q, Q-1 and
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Q-2). After the plaintiff was assured by his supposed buyer that
his allocation of 20,000 bags of white cement can be disposed of,
he informed the defendant corporation in his letter dated August
18, 1970 that he is making the necessary preparation for the
opening of the requisite letter of credit to cover the price of the
due initial delivery for the month of September, 1970 (Exhibit B),
looking forward to the defendant corporation's duty to comply
with the dealership agreement. In reply to the aforesaid letter of
the plaintiff, the defendant corporation thru its corporate
secretary, replied that the board of directors of the said defendant
decided to impose the following conditions:
a. Delivery of white cement shall commence at
the end of November, 1970;
b. Only 8,000 bags of white cement per month
for only a period of three (3) months will be
delivered;
c. The price of white cement was priced at
P13.30 per bag;
d. The price of white cement is subject to
readjustment unilaterally on the part of the
defendant;
e. The place of delivery of white cement shall
be Austurias (sic);
f. The letter of credit may be opened only with
the Prudential Bank, Makati Branch;
g. Payment of white cement shall be made in
advance and which payment shall be used by
the defendant as guaranty in the opening of a
foreign letter of credit to cover costs and
expenses in the procurement of materials in the
manufacture of white cement. (Exhibit C).
Several demands to comply with the dealership agreement
(Exhibits D, E, G, I, R, L, and N) were made by the plaintiff to the
defendant, however, defendant refused to comply with the same,
and plaintiff by force of circumstances was constrained to cancel
his agreement for the supply of white cement with third parties,
which were concluded in anticipation of, and pursuant to the said
dealership agreement.
Notwithstanding that the dealership agreement between the
plaintiff and defendant was in force and subsisting, the defendant
corporation, in violation of, and with evident intention not to be
bound by the terms and conditions thereof, entered into an
exclusive dealership agreement with a certain Napoleon Co for the
marketing of white cement in Mindanao (Exhibit T) hence, this
suit. (Plaintiff's Record on Appeal, pp. 86-90).2
After trial, the trial court adjudged the corporation liable to Alejandro Te in the
amount of P3,302,400.00 as actual damages, P100,000.00 as moral damages, and
P10,000.00 as and for attorney's fees and costs. The appellate court affirmed the
said decision mainly on the following basis, and We quote:
There is no dispute that when Zosimo R. Falcon and Justo B. Trazo
signed the dealership agreement Exhibit "A", they were the
President and Chairman of the Board, respectively, of defendant-
appellant corporation. Neither is the genuineness of the said
agreement contested. As a matter of fact, it appears on the face
of the contract itself that both officers were duly authorized to
enter into the said agreement and signed the same for and in
behalf of the corporation. When they, therefore, entered into the
said transaction they created the impression that they were duly
clothed with the authority to do so. It cannot now be said that the
disputed agreement which possesses all the essential requisites
of a valid contract was never intended to bind the corporation as
this avoidance is barred by the principle of estoppel.3
In this petition for review, petitioner Prime White Cement Corporation made the
following assignment of errors. 4
I
THE DECISION AND RESOLUTION OF THE INTERMEDIATE
APPELLATE COURT ARE UNPRECEDENTED DEPARTURES FROM
THE CODIFIED PRINCIPLE THAT CORPORATE OFFICERS COULD
ENTER INTO CONTRACTS IN BEHALF OF THE CORPORATION
ONLY WITH PRIOR APPROVAL OF THE BOARD OF DIRECTORS.
II
THE DECISION AND RESOLUTION OF THE INTERMEDIATE
APPELLATE COURT ARE CONTRARY TO THE ESTABLISHED
JURISPRUDENCE, PRINCIPLE AND RULE ON FIDUCIARY DUTY OF
DIRECTORS AND OFFICERS OF THE CORPORATION.
III
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THE DECISION AND RESOLUTION OF THE INTERMEDIATE
APPELLATE COURT DISREGARDED THE PRINCIPLE AND
JURISPRUDENCE, PRINCIPLE AND RULE ON UNENFORCEABLE
CONTRACTS AS PROVIDED IN ARTICLE 1317 OF THE NEW CIVIL
CODE.
IV
THE DECISION AND RESOLUTION OF THE INTERMEDIATE
APPELLATE COURT DISREGARDED THE PRINCIPLE AND
JURISPRUDENCE AS TO WHEN AWARD OF ACTUAL AND MORAL
DAMAGES IS PROPER.
V
IN NOT AWARDING PETITIONER'S CAUSE OF ACTION AS
STATED IN ITS ANSWER WITH SPECIAL AND AFFIRMATIVE
DEFENSES WITH COUNTERCLAIM THE INTERMEDIATE
APPELLATE COURT HAS CLEARLY DEPARTED FROM THE
ACCEPTED USUAL, COURSE OF JUDICIAL PROCEEDINGS.
There is only one legal issue to be resolved by this Court: whether or not the
"dealership agreement" referred by the President and Chairman of the Board of
petitioner corporation is a valid and enforceable contract. We do not agree with the
conclusion of the respondent Court that it is.
Under the Corporation Law, which was then in force at the time this case arose,5 as
well as under the present Corporation Code, all corporate powers shall be exercised
by the Board of Directors, except as otherwise provided by law.6 Although it cannot
completely abdicate its power and responsibility to act for the juridical entity, the
Board may expressly delegate specific powers to its President or any of its officers.
In the absence of such express delegation, a contract entered into by its President,
on behalf of the corporation, may still bind the corporation if the board should ratify
the same expressly or impliedly. Implied ratification may take various forms — like
silence or acquiescence; by acts showing approval or adoption of the contract; or
by acceptance and retention of benefits flowing therefrom.7 Furthermore, even in
the absence of express or implied authority by ratification, the President as such
may, as a general rule, bind the corporation by a contract in the ordinary course of
business, provided the same is reasonable under the circumstances. 8 These rules
are basic, but are all general and thus quite flexible. They apply where the President
or other officer, purportedly acting for the corporation, is dealing with a third
person, i. e., a person outside the corporation.
The situation is quite different where a director or officer is dealing with his own
corporation. In the instant case respondent Te was not an ordinary stockholder; he
was a member of the Board of Directors and Auditor of the corporation as well. He
was what is often referred to as a "self-dealing" director.
A director of a corporation holds a position of trust and as such, he owes a duty of
loyalty to his corporation.9 In case his interests conflict with those of the corporation,
he cannot sacrifice the latter to his own advantage and benefit. As corporate
managers, directors are committed to seek the maximum amount of profits for the
corporation. This trust relationship "is not a matter of statutory or technical law. It
springs from the fact that directors have the control and guidance of corporate
affairs and property and hence of the property interests of the stockholders." 10 In
the case of Gokongwei v. Securities and Exchange Commission, this Court quoted
with favor from Pepper v. Litton,11 thus:
. . . He cannot by the intervention of a corporate entity violate the
ancient precept against serving two masters. . . . He cannot utilize
his inside information and his strategic position for his own
preferment. He cannot violate rules of fair play by doing indirectly
through the corporation what he could not do directly. He cannot
use his power for his personal advantage and to the detriment of
the stockholders and creditors no matter how absolute in terms
that power may be and no matter how meticulous he is to satisfy
technical requirements. For that power is at all times subject to
the equitable limitation that it may not be exercised for the
aggrandizement, preference, or advantage of the fiduciary to the
exclusion or detriment of the cestuis. . . . .
On the other hand, a director's contract with his corporation is not in all instances
void or voidable. If the contract is fair and reasonable under the circumstances, it
may be ratified by the stockholders provided a full disclosure of his adverse interest
is made. Section 32 of the Corporation Code provides, thus:
Sec. 32. Dealings of directors, trustees or officers with the
corporation. — A contract of the corporation with one or more of
its directors or trustees or officers is voidable, at the option of
such corporation, unless all the following conditions are present:
1. That the presence of such director or trustee in the board
meeting in which the contract was approved was not necessary
to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for
the approval of the contract;
3. That the contract is fair and reasonable under the
circumstances; and
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4. That in the case of an officer, the contract with the officer has
been previously authorized by the Board of Directors.
Where any of the first two conditions set forth in the preceding
paragraph is absent, in the case of a contract with a director or
trustee, such contract may be ratified by the vote of the
stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or of two-thirds (2/3) of the members in
a meeting called for the purpose: Provided, That full disclosure of
the adverse interest of the directors or trustees involved is made
at such meeting: Provided, however, That the contract is fair and
reasonable under the circumstances.
Although the old Corporation Law which governs the instant case did not contain a
similar provision, yet the cited provision substantially incorporates well-settled
principles in corporate law. 12
Granting arguendo that the "dealership agreement" involved here would be valid
and enforceable if entered into with a person other than a director or officer of the
corporation, the fact that the other party to the contract was a Director and Auditor
of the petitioner corporation changes the whole situation. First of all, We believe
that the contract was neither fair nor reasonable. The "dealership agreement"
entered into in July, 1969, was to sell and supply to respondent Te 20,000 bags of
white cement per month, for five years starting September, 1970, at the fixed
price of P9.70 per bag. Respondent Te is a businessman himself and must have
known, or at least must be presumed to know, that at that time, prices of
commodities in general, and white cement in particular, were not stable and were
expected to rise. At the time of the contract, petitioner corporation had not even
commenced the manufacture of white cement, the reason why delivery was not to
begin until 14 months later. He must have known that within that period of six years,
there would be a considerable rise in the price of white cement. In fact, respondent
Te's own Memorandum shows that in September, 1970, the price per bag was
P14.50, and by the middle of 1975, it was already P37.50 per bag. Despite this, no
provision was made in the "dealership agreement" to allow for an increase in price
mutually acceptable to the parties. Instead, the price was pegged at P9.70 per bag
for the whole five years of the contract. Fairness on his part as a director of the
corporation from whom he was to buy the cement, would require such a provision.
In fact, this unfairness in the contract is also a basis which renders a contract entered
into by the President, without authority from the Board of Directors, void or voidable,
although it may have been in the ordinary course of business. We believe that the
fixed price of P9.70 per bag for a period of five years was not fair and reasonable.
Respondent Te, himself, when he subsequently entered into contracts to resell the
cement to his "new dealers" Henry Wee 13 and Gaudencio Galang 14 stipulated as
follows:
The price of white cement shall be mutually determined by us but
in no case shall the same be less than P14.00 per bag (94 lbs).
The contract with Henry Wee was on September 15, 1969, and that with Gaudencio
Galang, on October 13, 1967. A similar contract with Prudencio Lim was made on
December 29, 1969. 15 All of these contracts were entered into soon after his
"dealership agreement" with petitioner corporation, and in each one of them he
protected himself from any increase in the market price of white cement. Yet, except
for the contract with Henry Wee, the contracts were for only two years from October,
1970. Why did he not protect the corporation in the same manner when he entered
into the "dealership agreement"? For that matter, why did the President and the
Chairman of the Board not do so either? As director, specially since he was the other
party in interest, respondent Te's bounden duty was to act in such manner as not
to unduly prejudice the corporation. In the light of the circumstances of this case, it
is to Us quite clear that he was guilty of disloyalty to the corporation; he was
attempting in effect, to enrich himself at the expense of the corporation. There is
no showing that the stockholders ratified the "dealership agreement" or that they
were fully aware of its provisions. The contract was therefore not valid and this Court
cannot allow him to reap the fruits of his disloyalty.
As a result of this action which has been proven to be without legal basis, petitioner
corporation's reputation and goodwill have been prejudiced. However, there can be
no award for moral damages under Article 2217 and succeeding articles on Section
1 of Chapter 3 of Title XVIII of the Civil Code in favor of a corporation.
In view of the foregoing, the Decision and Resolution of the Intermediate Appellate
Court dated March 30, 1984 and August 6, 1984, respectively, are hereby SET
ASIDE. Private respondent Alejandro Te is hereby ordered to pay petitioner
corporation the sum of P20,000.00 for attorney's fees, plus the cost of suit and
expenses of litigation.
SO ORDERED.
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SECOND DIVISION
[G.R. No. 128550. March 16, 2000]
DIGITAL MICROWAVE CORPORATION, petitioner, vs. COURT OF
APPEALS and ASIAN HIGH TECHNOLOGY CORPORATION, respondents.
RESOLUTION
QUISUMBING, J.:
On December 14, 1994, private respondent Asian High Technology Corp. filed a
complaint against petitioner Digital Microwave Corp. for a sum of money and
damages before the Regional Trial Court of Pasig city. Petitioner moved for the
dismissal of the complaint. The trial court denied the motion, as well as petitioners
subsequent motion for reconsideration.
Petitioner then initiated a special civil action for certiorari before the Court of
Appeals, alleging grave abuse of discretion on the part of the trial court. However,
the Court of Appeals dismissed the petition for failure to comply with Revised Circular
No. 28-91, as amended by Administrative Circular No. 04-94. Said circular requires
the petition filed before the Court of Appeals to be accompanied by a sworn
certification against forum shopping, signed by petitioner himself. Petitioners
certification was signed by counsel; the petition was, thus, dismissed. Petitioner
moved for a reconsideration of the dismissal and submitted a sworn certification
against forum shopping duly signed by one of its senior officers. The motion was,
however, denied, with the Court of Appeals stating that
"In the present case, absent any compelling reason for petitioners
failure to comply, at first instance, with Revised Supreme Court
Circular No. 28-91, the Court cannot therefore, accept its
subsequent compliance."[1]
Aggrieved, petitioner is now before this Court seeking reversal of the ruling of the
Court of Appeals.
Revised Circular No. 28-91 provided:
"To avoid [forum shopping], every petition or complaint filed with
the Supreme Court, the Court of Appeals, or different Divisions
thereof, or any other tribunal or agency, shall comply with the
following requirements, aside from pertinent provisions of the
Rules of Court and existing circulars:
xxx
2. Certification.-The party must certify under oath that he has not
commenced any other action or proceeding involving the same
issues in the Supreme Court, the Court of Appeals, or different
Divisions thereof, or any other tribunal or agency, and that to the
best of his knowledge, no such action or proceeding is pending in
the Supreme Court, the Court of Appeals, or different Divisions
thereof, or any other tribunal or agency. If there is any other
action pending, he must state the status of the same. If he should
learn that a similar action or proceeding has been filed or is
pending before the Supreme Court, the Court of Appeals, or
different Divisions thereof, or any other tribunal or agency, he
should notify the court, tribunal or agency within five (5) days
from such notice."[2]
The requirement for a sworn certification against forum shopping was extended by
administrative Circular No. 04-94 to complaints, petitions, applications or other
initiatory pleadings filed in all courts or agencies other than the Supreme Court or
the Court of Appeals.
Petitioner contends that in the case of a corporation as petitioner, the certification
against forum shopping may be signed by a natural person authorized to do so and
with knowledge of the required facts. The authorized person may be anyone
authorized by the corporation, not necessarily an officer thereof. In such a case,
petitioner argues, the counsel of record has the authority to execute the certification
on behalf of the corporation, particularly considering that under the Rules of Court,
counsels authority to represent his client is presumed. No written power of attorney
is required for counsel to appear for his client.
If we follow petitioners line of reasoning, then the requirement in Revised Circular
No. 28-91 that petitioner himself must make the certification against forum shopping
would have been rendered useless. Why require petitioner himself to certify when
his counsel can anyway execute the certification on his behalf?
The reason the certification against forum shopping is required to be accomplished
by petitioner himself is because only the petitioner himself has actual knowledge of
whether or not he has initiated similar actions or proceedings in different courts or
agencies. Even his counsel may be unaware of such fact. For sure, his counsel is
aware of the action for which he has been retained. But what of other possible
actions?
We disagree with petitioner that a corporation cannot possibly hope to comply with
the requirement laid down by Revised Circular No. 28-91 because it is a juridical
entity and not a natural person. If this were so, then it would have been impossible
for a corporation to do anything at all. Needless to say, this is the reason why
corporations have directors and officers, to represent it in its transactions with
others. The same is true for the certification against forum shopping. It could easily
have been made by a duly authorized director or officer of the corporation. That
petitioner did not in the first instance comply with the requirement of revised Circular
No. 28-91 by having the certification against forum shopping signed by one of its
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Assigned
officers, as it did after its petition before the Court of Appeals had been dismissed,
is beyond our comprehension.
In the recent case of Spouses Valentin Ortiz and Camilla Milan Ortiz v. Court of
Appeals, et al., 299 SCRA 708, 711-712 (1998), we ruled that
"Regrettably, we find that substantial compliance will not suffice
in a matter involving strict observance as provided for in Circular
No. 28-91. The attestation contained in the certification on non-
forum shopping requires personal knowledge by the party who
executed the same. To merit the Courts consideration, petitioners
here must show reasonable cause for failure to personally sign the
certification. The petitioners must convince the court that the
outright dismissal of the petition would defeat the administration
of justice."
In this case, petitioner has not adequately explained its failure to have the
certification against forum shopping signed by one of its officers.
Neither has it shown any compelling reason for us to disregard strict compliance
with the rules.
As we further stated in Spouses Ortiz,
"Utter disregard of the rules cannot justly be rationalized by
harking on the policy of liberal construction."[3]
WHEREFORE, finding no merit in the petition, the petition is hereby DENIED.
SO ORDERED.
SECOND DIVISION
G.R. No. 144476 February 1, 2002
ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG,
WILLIAM T. ONG, WILLIE T. ONG, And JULIE ONG ALONZO, petitioners,
vs.
DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE
Y. TIU, JOHN YU, LOURDES C. TIU, INTRALAND RESOURCES
DEVELOPMENT CORP., MASAGANA TELAMART, INC., REGISTER OF
DEEDS OF PASAY CITY, And the SECURITIES AND EXCHANGE
COMMISSION, respondents.
x-----------------------x
G.R. No. 144629
DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE
Y. TIU, JOHN YU, LOURDES C. TIU, And INTRALAND RESOURCES
DEVELOPMENT CORP., petitioners,
vs.
ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG,
WILLIAM T. ONG, WILLIE T. ONG And JULIA ONG ALONZO, respondents.
DECISION
BUENA, J.:
Consolidated Petitions for Review of 1.) the Decision of the Court of Appeals1 in CA-
G.R. SP No. 49056 dated October 5, 1999, which affirmed with modifications the
Order dated September 11, 1998, issued by the SEC En Banc in SEC Case No. 598
and 601, confirming the rescission of the Pre-Subscription Agreement; and 2.) the
Resolution of the Court of Appeals dated August 17, 2000 which denied the motions
for reconsideration filed by the private parties herein, except Masagana Telamart,
Inc.
The antecedent facts of the case, as summarized by the Court of Appeals are as
follows:
"As one traverses Taft Avenue in Pasay City, one will see the Masagana Citimall, a
commercial complex owned and managed by the First Landlink Asia Development
Corporation (FLADC) (p. 127, 520 and 211, Rollo). It was not long ago when this
commercial complex, then unfinished, was threatened with incompletion when its
owner found it in financial distress in the amount of ₱190,000,000.00 for being
indebted to the Philippine National Bank (PNB), (pp. 520 and 212, Rollo). That was
in 1994 (Ibid.)
"FLADC was then fully owned by the Tiu Group composed of David S. Tiu, Cely Y.
Tiu, Moly Yu Gaw, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu (p.
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211, Rollo). In order to recover from its floundering finances, the Ong Group
composed of Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T.
Ong and Julie Ong Alonzo, were invited by the Tius to invest in FLADC (pp. 211 and
520, Rollo). Hence, the execution of a Pre-Subscription Agreement by and between
the Tiu and Ong Groups on August 15, 1994 (pp. 211-216, Rollo).
"By the Pre-Subscription Agreement, both parties agreed to maintain equal
shareholdings in FLADC with the Ongs investing cash while the Tius contributing
property (pp. 213-214, Rollo). Specifically, the Ongs were to subscribe to 1 million
shares of FLADC at a par value of ₱100.00 per share while the Tius were to subscribe
to 549,800 shares more of FLADC at a par value of ₱100.00 per share over and
above their previous subscription of 450,200 shares in order to complete a
subscription of 1 million shares (Ibid.). Commensurate to their proposed
subscriptions, the Ongs were to pay ₱100,000,000.00 in cash (p.213, Rollo), while
the Tius were to contribute the following properties by way of separate Deeds of
Assignments:
"1. A four-storey building described in Transfer Certificate of Title No. 15587
registered in the name of Intraland Resources and Development Corporation (a
corporation wholly owned by the Tius) and valued at ₱20,000,000.00;
"2. A 1,902.30 square meter parcel of land covered by Transfer Certificate of Title
No. 15587 in the name of Masagana Telamart, Inc. (also a corporation owned by
the Tius) and valued at ₱30,000,000.00; and
"3. A 151 square meter parcel of land adjacent to the properties covered by Transfer
Certificate of Title Nos. 132493 and 132494 and valued at ₱4,980,000.00 (pp. 212
and 214, Rollo).
"Also for purposes of equality, the parties agreed that 6 directors of FLADC were to
be nominated from the Ong Group, while 5 directors thereof were to be nominated
from the Tiu Group (p. 213, Rollo). It was also agreed that the positions of President
and Secretary of FLADC shall be held by the Ongs, while the positions of Vice-
President and Treasurer thereof shall be held by the Tius (Ibid.).
"In order to liquidate FLADC's outstanding ₱190,000,000.00 loan from the PNB, the
parties to the Pre-Subscription Agreement proposed payment thereof with the
₱100,000,000.00 cash to be invested by the Ongs to FLADC and with the available
funds of FLADC derived from:
"1. Reimbursement of costs of improvements received from tenants on the spaces
leased to them;
"2. Receipts from reservations to lease; and
"3. Receipts for deposit or advance rentals from tenants (pp. 213-214, Rollo).
"In order to comply with the Pre-Subscription Agreement, the necessary increase in
capital stock of FLADC was applied for and duly approved (pp. 184-187, Rollo). The
Ongs subscribed to 1 million shares thereof at a par value of ₱100.00 per share, or
₱100,000,000.00 (p. 185, Rollo). Intraland Resources and Development Corporation
executed the requisite Deed of Assignment over a 4-storey building it owned in favor
of FLADC and was duly credited with 200,000 shares therefor in FLADC (Ibid; pp.
837-838, Rollo).
"Masagana Telamart, Inc. executed a Deed of Assignment over the 1,902.30 square
meter property in favor of FLADC and delivered the owner's copy of the transfer
certificate of title of the same as well as the possession thereof to the latter (pp.
221-226, Rollo). Title over the 151 square meter property was also transferred in
the name of FLADC (pp. 1062-1063, Rollo).
"FLADC's articles of incorporation were also duly amended increasing the number of
its directors from seven (7) to eleven (11), six (6) of which were nominated by the
Ong Group, while the rest were nominated by the Tiu Group (pp. 188-189, Rollo).
Later, Wilson T. Ong and Juanita Tan Ong were elected President and Secretary,
respectively, while David S. Tiu and Cely Yao Tiu were elected Vice-President and
Treasurer, respectively (pp. 191-192, Rollo)
"The ₱190,000,000.00 loan from the PNB was also settled, but not quite in accord
with the provisions of the Pre-Subscription Agreement (pp.437-441, Rollo). In lieu
of the FLADC funds which were supposed to be used as partial payment for said
loan per Pre-Subscription Agreement, the Ongs had to pay ₱70,000,000.00 more
aside from their ₱100,000,000.00 subscription payment, and the Tius had to
advance ₱20,000,000.00 in cash, which amount was loaned to them by the former
(Ibid.).
"The controversy between the two parties arose when the Ongs refused to credit
the number of FLADC shares in the name of Masagana Telamart, Inc. commensurate
to its 1,902.30 square meter property contribution; also when they refused to credit
the number of FLADC shares in favor of the Tius commensurate to their 151 square
meter property contribution; and when David S. Tiu and Cely Y. Tiu were proscribed
from assuming and performing their duties as Vice-President and Treasurer,
respectively of FLADC (pp. 132-136, Rollo). These became the basis of the Tius'
unilateral rescission of the Pre-Subscription Agreement on February 23, 1996 (p.
867, rollo)."2
On February 27, 1996, the Tius sought the Securities and Exchange Commission
(SEC) confirmation of their rescission of the Pre-Subscription Agreement. Their
complaint was docketed as SEC Case No. 02-96-5269.
On May 19, 1997, after the Tiu Group, Masagana Telamart, Inc., Intraland Resources
and Development Corporation, the Ong Group and FLADC were heard on their
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Assigned
respective claims regarding the propriety of the Pre-Subscription Agreement's
rescission, SEC Hearing Officer Rolando G. Andaya, Jr., rendered a decision thereon
confirming the rescission as follows:
"WHEREFORE, judgment is hereby rendered confirming the rescission of the Pre-
Subscription Agreement, and consequently ordering:
"(a) The cancellation of the 1,000,000 shares subscription of the individual
defendants in FLADC;
"(b) FLADC to pay the amount of ₱170,000,000.00 to the individual
defendants representing the return of their contribution for 1,000,000
shares of FLADC;
"(c) The plaintiffs to submit with the Securities and Exchange Commission
amended articles of incorporation of FLADC to conform with this decision;
"(d) The defendants to surrender to the plaintiffs TCT Nos. 132493,
132494, 134066 (formerly 15587), 135325 and 134204 and any other title
or deed in the name of FLADC, failing in which said titles are declared void;
"(e) The Register of Deeds to issue new certificates of titles in favor of the
plaintiffs and to cancel the annotation of the Pre-Subscription Agreement
dated 15 August 1994 on TCT No. 134066 (formerly 15587).
"(f) The individual defendants, individually and collectively, their agents
and representatives, to desist from exercising or performing any and all
acts pertaining to stockholder, director or officer of FLADC or in any manner
intervene in the management and affairs of FLADC;
"(g) The individual defendants, jointly and severally, to return to FLADC
interest payment in the amount of ₱8,866,669.00 and all interest payments
as well as any payments on principal received from the ₱70,000,000.00
inexistent loan, plus the legal rate of interest thereon from the date of their
receipt of such payment, until fully paid;
"(h) The plaintiff David Tiu to pay individual defendants the sum of
₱20,000,000.00 representing his loan from said defendants plus legal
interest from the date of receipt of such amount.
"SO ORDERED."3
On motion of the Ong Group, the aforequoted decision was later partially
reconsidered in an omnibus order issued by SEC Hearing Officer Manolito S. Soller
on November 24, 1997, the decretal portion of which in part reads:
"WHEREFORE, premises considered, judgment is hereby rendered as follows:
"1. The Decision of this Commission dated May 19, 1997 is partially reconsidered
only insofar as the investment amounting to P70 million which is hereby declared
not as premium on capital stock but a liability of FLADC or advances of the
defendants made in favor of FLADC, and that the interest paid on account thereof
is hereby declared legal and valid;
"x x x x x x x x x
"SO ORDERED."4
Both the Ong and Tiu Groups appealed the aforequoted Omnibus Order to the
SEC en banc. Their respective appeals were docketed as SEC Case Nos. 598 and
601. On September 11, 1998, the SEC en banc issued an order, the decretal portion
of which reads:
"WHEREFORE, judgment is hereby rendered CONFIRMING the omnibus Order dated
24 November 1997 insofar as it confirms the rescission of the Pre-Subscription
Agreement and REVERSING the same insofar as it held that the seventy million (P70
M) paid by the Ong Group over and above the par value of the one million
(1,000,000) shares of stocks of FLADC which they had subscribed as loan and not
premium.
"Accordingly,
"1. The subscription contract entered into by the Ong group and the
corporation is hereby declared rescinded, the latter is ordered to cancel the
one million (1,000,000) shares subscription of the Ong Group in FLADC,
and FLADC shall return the amount of one hundred and seventy million
pesos (₱170 M) to the Ong Group;
"2. The Tiu Group shall pay the twenty million pesos (₱20 M) to the Ong
group which was loaned to them by the latter;
"3. The Ong Group, individually and collectively, their agents and
representatives, are hereby ordered to desist from exercising or performing
any and all acts pertaining to stockholders, directors or officers of FLADC
or in any manner intervening in the management and affairs of FLADC;
"4. The Ong Group, jointly and severally, are hereby ordered to return to
FLADC the interest payment on the seventy million pesos (₱70 M) in the
amount of eight million and eight hundred sixty-six thousand, and six
hundred sixty-nine pesos (₱8,866,669.00) and all additional interest
payments thereafter, as well as any payments on the principal received for
the seventy million pesos (₱70M) inexistent loan.
"No pronouncement as to cost and damages.
"SO ORDERED."5
From the said Order of the SEC En Banc, the Ongs appealed to the Court of Appeals,
by way of a petition for review under Rule 43 of the 1997 Rules of Civil Procedure.
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On October 5, 1999, the Court of Appeals issued the Decision subject of these
petitions for review, the decretal portion of which reads:
"WHEREFORE, the Order dated September 11, 1998 issued by the Securities and
Exchange Commission En Banc in SEC AC CASE NOS. 598 and 601 confirming the
rescission of the Pre-Subscription Agreement dated August 15, 1994 is hereby
AFFIRMED, subject to the following MODIFICATIONS:
"1. The Ong and Tiu Groups are ordered to liquidate First Landlink Asia Development
Corporation in accordance with the following cash and property contributions of the
parties therein.
a. Ong Group - ₱100,000,000.00 cash contribution for one (1) million shares in First
Landlink Asia Development Corporation at a par value of ₱100.00 per share;
b. Tiu Group:
1.) ₱45,020,000.00 original cash contribution for 450,200 shares in First
Landlink Asia Development Corporation at a par value of ₱100.00 per
share;
2.) A four-storey building described in Transfer Certificate of Title No.
15587 in the name of Intraland Resources and Development Corporation
valued at ₱20,000,000.00 for 200,000 shares in First Landlink Asia
Development Corporation at a par value of ₱100.00 per share.
3.) A 1,902.30 square meter parcel of land covered by Transfer Certificate
of Title No. 15587 in the name of Masagana Telamart, Inc. valued at
₱30,000,000.00 for 300,000 shares in First Landlink Asia Development
Corporation at a par value of ₱100.00 per share.
"2. Whatever remains of the assets of the First Landlink Asia
Development Corporation and the management thereof is hereby
ordered transferred to the Tiu Group.
"3. First Landlink Asia Development Corporation is hereby ordered
to pay the amount of ₱70,000,000.00 that was advanced to it by
the Ong Group upon the finality of this decision. Should the former
incur in delay in the payment thereof, it shall pay the legal interest
thereon pursuant to Article 2209 of the New Civil Code.
"4. The Tius are hereby ordered to pay the amount of
₱20,000,000.00 loaned them by the Ongs upon the finality of this
decision. Should the former incur in delay in the payment thereof,
it shall pay the legal interest thereon pursuant to Article 2209 of
the New Civil Code.
"SO ORDERED."6
The Court of Appeals arrived at the said decision after finding that rescission and
specific performance as provided in Art. 1191 of the New Civil Code, may
alternatively be availed of in this case. The question is who between the contending
parties may avail of the alternative remedies when both of them violated the
provisions of the contract, their Pre-Subscription Agreement. The Court of Appeals
also found that the Ongs were indeed preventing the Tius from assuming the duties
and responsibilities of the position of Vice-President and Treasurer of FLADC. The
Ongs also violated the Pre-subscription agreement when they did not credit to
Masagana Telamart, Inc. the number of shares in FLADC commensurate to its
property contribution (1,902.30 sq. m.), despite the execution by the Tius of the
Deed of Assignment over said property. The Court of Appeals also stated that the
records also reveal the following violations on the Tius' part: 1.) While there is, on
record, a Deed of Assignment over the 151 sq. m. parcel of land in favor of FLADC,
said Deed was not executed by the Tius in favor of FLADC but by the Lichaucos; and
2.) the Tius did not turn over to the Ong Group the entire amount of FLADC's funds
in violation of the Pre-Subscription Agreement which stipulated that the former
grants to the latter, the management and administration of the regular business of
FLADC upon the agreement's execution. The Court of Appeals also found that the
Tius were diverting rentals due to FLADC into their own MATTERCO account which
rentals appear to have not been remitted to FLADC up to now. Considering the
foregoing, the Court of Appeals concluded that the two groups can no longer work
harmoniously together and deemed it proper to confirm the rescission and for the
Ongs and the Tius to liquidate FLADC in accordance with their respective cash and
property contribution. The Court of Appeals also resolved the question of the nature
of the ₱70 M paid by the Ongs in excess of 1 million shares they acquired from
FLADC, ruling that the same is an advance made by the Ongs in favor of FLADC,
and not a premium or paid-in surplus on the actual value of 1 million shares, and
that no interest thereon may be awarded as there is no evidence on record which
shows that at the time the ₱70M was advanced to FLADC, the parties agreed that
the same shall earn interest.
On August 17, 2000, the Court of Appeals issued a Resolution which denied the
private parties' motions for reconsideration.
The Ong Group and the Tiu Group both filed their respective petitions for review
subject of these consolidated cases.
Except for the fourth assigned error in the Ongs' petition (G.R. No. 144476) and
sub-paragraphs (vi) and (vii) of the second assigned error in the Tius’ petition (G.R.
No. 144629), which are well taken, We find both petitions to be without merit.
In their Petition, docketed as G.R. No. 144476, the Ongs raise the following
assignment of errors:
"I
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Assigned
"The Court of Appeals erred in ruling that the ‘Pre-Subscription Agreement’ of the
parties dated August 15, 1994 may be rescinded under Article 1191 of the New Civil
Code.
"a. Rescission is applicable only to reciprocal obligations and the ‘Pre-
Subscription Agreement’ does not provide for reciprocity; hence, the
remedy of rescission is not available.
"b. Rescission is not applicable when ‘rights’ over the subject matter of the
rescission have been acquired by third persons.
"c. Rescission is only applicable in case of substantial and fundamental
breach.
"II
"The Court of Appeals erred in finding that the Ongs violated the ‘Pre-Subscription
Agreement’ in the following manner:
"a. The Ongs prevented the Tius from assuming the duties and responsibilities of
the Vice-President and Treasurer of FLADC by not providing them with adequate
offices.
"b. By not crediting Masagana Telamart, Inc. with 300,000 shares corresponding to
the value of the 1,902.30 square meters property covered by TCT No. 15587.
"III
"The Court of Appeals erred in confirming rescission of the ‘Pre-Subscription
Agreement’ dated August 15, 1994 and the ‘liquidation’ of FLADC ‘for practical
reasons,’ and to prevent ‘further squabbles and numerous litigations,’ reasons
unknown in law.
"IV
"The Court of Appeals erred in not awarding interest on the loan of respondent David
S. Tiu from petitioner Ong Yong in the amount of P20 million and the P70 million
advanced by the Ongs to FLADC.
"V
"The Court of Appeals erred in not awarding costs and damages to the Ongs."
On the first issue, the Court of Appeals did not err in ruling that the "Pre-Subscription
Agreement" of the parties dated August 15, 1994 may be rescinded under Article
1191 of the New Civil Code.
In paragraph (a) of the first assigned error, the Ongs allege that rescission is
applicable only to reciprocal obligations and the "Pre-Subscription Agreement" does
not provide for reciprocity, hence, the remedy of rescission is not available. The
Ongs cited the case of Songcuan vs. IAC, (191 SCRA 28) to illustrate their point
that "As in the Songcuan case, there are here two (2) separate and distinct
obligations each independent of the other – i.) the obligation to subscribe to, and to
pay, 50% of the increased capital stock of FLADC; and ii.) the obligation to install
the Ongs and the Tius as members of the Board of Directors and to certain corporate
positions, but only after the Ongs and the Tius have subscribed each to 50% of the
increased capital stock of FLADC."
In this petition, in lieu of Art. 1191,7 the Ongs invoke Articles 1156 and 1159 of the
New Civil Code which state –
"Art. 1156. An obligation is a juridical necessity to give, to do or not to do.
"Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith."
and that should there be any violation, those who failed to fulfill their obligations
should be required to perform their obligations under the agreement.
Contrary to the Ongs' assertion, the Songcuan case does not apply squarely to this
case. In the Songcuan case, this Court ruled that Art. 1191 to rescind the right of
the Alviars to repurchase does not apply because their corresponding obligations
can hardly be called reciprocal because the obligation of the Alviars to lease to
Songcuan the subject premise arises only after the latter had reconveyed the realties
to them. On the other hand, in the instant case, the obligations of the two (2) groups
to pay 50% of the increased capital stock of FLADC and to install them as members
of the Board of Directors and to certain corporate positions are simultaneous and
arise upon the execution of the pre-subscription agreement.
The Ongs illustrate reciprocity in the following manner: In a contract of sale, the
correlative duty of the obligation of the seller to deliver the property is the obligation
of the buyer to pay the agreed price.8
In the case at bar, the correlative obligation of the Tius to let the Ongs have and
exercise the functions of the positions of President and Secretary is the obligation
of the Ongs to let the Tius have and exercise the functions of Vice-President and
Treasurer. In this regard, the Court of Appeals aptly stated, and we quote:
"It cannot be denied that the Pre-Subscription Agreement contains reciprocal
obligations owing to the fact that the parties thereto agreed to maintain parity not
only in their shareholdings in FLADC but also with regard to their standing in FLADC
(pp. 214, 662, 708-710, 715-716, 1914, Rollo). In fine, each party has the obligation
to remain equal with the other on every matter pertaining to FLADC. Herein lies the
reciprocity in the Pre-Subscription Agreement."9
Moreover, the Ongs are now estopped from denying the applicability of Art. 1191 to
the present controversy. As correctly observed by the Court of Appeals in its
Resolution dated August 17, 2000, which denied the Ongs' motion for
reconsideration:
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Assigned
"Petitioners keep on harping for the Pre-Subscription Agreement's specific
performance yet they also actually failed to give a legal basis therefor. Why then
must they deny that the Tiu Group has a right to ask for rescission of their agreement
per Article 1191 of the Civil Code (pp. 1141-1145, Rollo) when they themselves
invoke the same law as basis for asking the specific performance of the same
agreement (pp.1156-1159, Rollo)"10
In paragraph (b) of the first assigned error, the Ongs allege that rescission is not
applicable when "rights" over the subject matter of the rescission have been
acquired by third persons. The Ongs refer to Arts. 1191 and 1385.11
The Ongs argue that the payment on subscription of ₱100 million by the Ongs is not
to the Tius and the payment of ₱54.98 million by the Tius is not to the Ongs, but to
FLADC, the corporation, which is distinct and separate from the Ongs and the Tius
notwithstanding the fact that they may be the only stockholders. Pursuant to Arts.
1191 and 1385, continue the Ongs, the payment made by the two (2) groups have
come to be legally owned and possessed by FLADC, the corporation, a third person,
who did not act in bad faith. So that any alleged violation of the Pre-Subscription
Agreement would have no consequence on the respective amounts paid by the two
(2) groups on their subscription to FLADC, a third party.
We are not convinced.
The reliance of the Ongs on Article 1385 is misplaced. We agree with the Tius that
the things which are the object of the Pre-Subscription Agreement – one million
shares of stock subscribed to by the Ong Group, the additional 549,800 shares
subscribed to by the Tius, and the corporate positions mentioned above – are not in
the possession of third persons, but are in the possession of the parties to the Pre-
Subscription Agreement. In any case, FLADC is not a third person in relation to the
Pre-Subscription Agreement though not named as a party. FLADC is deemed a party
to the agreement by virtue of stipulations pour autrie clearly and deliberately
conferring on it a favor or benefit which it subsequently accepted. (Art. 1311, Civil
Code)12 Such benefit was in the form of the payments made by the parties for their
subscription to shares of stock in FLADC, which FLADC accepted.
In paragraph (c) of the first assigned error, the Ongs allege that rescission is only
applicable in case of substantial and fundamental breach. The Ongs contend that
the substantial and fundamental aspects of the Pre-Subscription Agreement between
the two (2) groups are their commitment to subscribe to their respective numbers
of shares and to pay corresponding amount thereof. The Ongs say that they have
accomplished their part but not the Tius; and that their alleged breach of the
agreement in their alleged failure to provide adequate offices to David Tiu as Vice-
President and Cely Yao Tiu, as Treasurer, is hardly substantial and fundamental
because stockholders become Vice-President or Treasurer of a corporation by
election, not by virtue of office facilities he/she may have been provided.
The Ongs' contention is without merit. Suffice it to state that what makes a
stockholder an officer of a corporation is not simply the fact of his election but, more
important, his ability to perform the powers and functions of that office. As will be
discussed in the next assigned error, the Ongs indeed prevented the Tius from
exercising the powers and functions of their office. We rule, therefore, that such
breach of the agreement on the part of the Ongs is substantial and fundamental.
On the second assigned error, the Court of Appeals did not err in finding that the
Ongs violated the "Pre-Subscription Agreement" (a.) when it prevented the Tius
from assuming the duties and responsibilities of the Vice-President and Treasurer of
FLADC by not providing them with adequate offices, and (b.) when it did not credit
Masagana with 300,000 shares corresponding to the value of its 1,902.30 sq. m.
property contribution.
On paragraph (a), this Court takes exception to the phrase "by not providing them
with adequate offices." This is not the only reason but only one of the reasons cited
by the Court of Appeals in concluding that the Ongs violated the pre-subscription
agreement when they prevented the Tius from assuming the duties and
responsibilities of the Vice-President and Treasurer of FLADC. The discussion made
by the Court of Appeals on this point is correct, very clear and enlightening, and we
quote:
"A reading of the records, which to date comprises more than 2,100 pages, reveal
that the Ongs were indeed preventing the Tius from assuming the duties and
responsibilities of the position of Vice-President and Treasurer of FLADC. This is
highlighted by the fact that the Ongs' attempt to provide David S. Tiu and Cely Y.
Tiu with executive offices before the filing of the complaint a quo, was merely half-
hearted as evidenced by the delay in providing for said offices despite repeated
demands therefor (pp. 844-845, 862-868, 877-878, 895-896, 999-1000, Rollo), and
by the need to pass a board resolution when none is necessary in order to provide
executive offices for the FLADC President and his staff (pp. 936-937, Rollo). Another
fact which shows that the Tius were being prevented from assuming their
responsibilities is the criminal case for theft filed by the Ongs against David S. Tiu
(pp. 856-859, Rollo). Why must there be a need for the Tius to act surreptitiously in
order to have a copy of FLADC's records made if they were not actively being
prevented from inspecting the same? Anyway, for all intents and purposes, the Ongs
admit that they were preventing the Tius from assuming the responsibilities of Vice-
President and Treasurer of FLADC. This was made via their reply to the Tiu's letter
rescinding the Pre-Subscription Agreement, which in part reads:
'As to your contention that the ONG GROUP has failed to accord you, the elected
Vice-President of FLADC, and your wife, the elected treasurer of FLADC, the powers
vested in you by the by-laws, allow me to remind you that in accordance with the
Pre-Subscription Agreement, ‘the First Party (TIU GROUP) hereby grants to the
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Assigned
Second Part (ONG GROUP) the management and administration of the regular
business of the corporation upon the execution of this documents (sic).’
Notwithstanding this fact, the ONG GROUP has always made you a co-signatory to
the bank accounts of the corporation; however, to the great prejudice and damage
of the corporation you have, more often than not, either purposely delayed or
refused to affix your signature to checks in payment for the valid obligations of the
corporation. Moreover, from the start, the corporation has given your wife, who is
the Treasurer of FLADC, a space in our office but she has seldom come to hold office
there. Despite this, we have already acceded to your demand that your wife be
given a room in lieu of the space provided for her. Furthermore, pursuant to
the by-laws, both the Vice-President and the Treasurer are to perform duties which
may be assigned to them by the Board of Directors and/or the President. (p. 2049,
Rollo; underscoring supplied)'
"The Pre-Subscription Agreement provides that the position of Vice-President and
Treasurer of FLADC shall be nominated from the Tiu Group (p. 213, Rollo). Despite
the provision in the agreement turning over the management and administration of
FLADC to the Ong Group (p. 215, Rollo), there is nothing in the agreement which
states that the elected Vice-President and Treasurer of FLADC cannot or must not
be allowed to assume the responsibilities of their respective office. From the tenor
of the aforequoted reply to the Tius' letter of rescission, it is evident that the Ongs
have reduced the positions of Vice-President and Treasurer of FLADC to mere figure
heads."13
The Court of Appeals did not err in arriving at the same conclusion like the three (3)
tribunals below (Hearing Officer Andaya, Hearing Officer Soller and the SEC En
Banc), that the Ongs excluded the Tius from the corporation by preventing them
from participating in its operation and financial affairs.
In paragraph (b) of the second assigned error, the Ongs maintain that their group
cannot be faulted for not crediting Masagana with 300,000 shares corresponding to
the value of its 1,902.30 sq. m. property contribution, because the Deed of
Assignment over the said property executed by Masagana in favor of FLADC was
patently incomplete (not dated, no instrumental witness signed the Deed and the
Acknowledgement was not executed, because the Tius asked that the execution of
the document be not completed) and that the necessary documentary stamp taxes,
and capital gains and transfer taxes had not been paid, such that FLADC could not
process with the SEC the application regarding the exchange of the said property
for shares of stock in the corporation.
The issue boils down to the question of "Who has the obligation to pay the taxes
incident to the assignment?"
We rule that FLADC, the assignee, has the obligation to pay the taxes incident to
the assignment. The Court of Appeals did not err in holding that:
"xxx The provisions on this matter in the Pre-Subscription Agreement is clear that
upon the execution of the Deed of Assignment thereon in favor of FLADC, Masagana
Telamart, Inc. shall be credited with the number of shares in FLADC commensurate
to the value thereof of ₱30,000,000.00 (see paragraphs 14-15, 17 of the Pre-
Subscription Agreement, p. 214, Rollo). Since the Deed of Assignment over this
property has already been executed in favor of FLADC, and the owner's duplicate of
the title and possession thereof have already been delivered to FLADC (pp. 221-226,
563, Rollo), the Ongs should have credited 300,000 shares of FLADC at a par value
of ₱100.00 per share in the name of Masagana Telamart, Inc. The transfer of the
title to said property in FLADC's name is another matter which is governed by the
Deed of Assignment itself and not the Pre-Subscription Agreement (pp. 221-222,
Rollo)."14
The Deed of Assignment stipulates:
"The ASSIGNEE (FLADC) hereby accepts said assignment and assumes all the
obligations of performing all the terms and conditions including but not limited to,
the transfer of the said parcel of land in the name of First Landlink Asia Development
Corporation within a reasonable time." (Emphasis supplied)
Said stipulation does not enumerate nor exclude any obligation on the part of the
assignee for purposes of transferring the property in its name. Instead, the Deed
stipulates in simple language "all the obligations of performing all the terms and
conditions including, but not limited to, the transfer of the said parcel of land in the
name of (FLADC)." It imposes no obligation at all on the part of the assignor for
purposes of transferring the parcel of land in the name of FLADC.
In the interpretation of contracts, "if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the liberal meaning of its
stipulation shall control." (Art. 1370, Civil Code). Thus, the FLADC should shoulder
all obligations, such as taxes, legal fees, notarial fees and expenses of registration,
for the conveyance to be registered and the title to the property placed in the name
of FLADC.
If the Ongs find ambiguity in the said stipulation in that the same allegedly does not
provide that FLADC would pay for the taxes arising from the assignment, and that
it should have been expressly provided in the deed of assignment, such alleged
ambiguity can only be resolved against the Ongs for it was their lawyer, the late
Atty. John Uy, who prepared the Deed of Assignment. 15 Where the provisions of a
contract are ambiguous, such ambiguity must be construed against the party who
drafted the same.16
At any rate, the intention of the parties could not have been to impose on Masagana
the obligation to pay said taxes. As explained by the Tius in their Comment –
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"xxx for such imposition is not consistent with the fundamental concept of 'equality'
on which the Pre-Subscription Agreement is based. If Masagana were to pay the
taxes and other expenses for the transfer of its 1,902.30 sq. m. property contribution
to FLADC, Masagana would, in effect, be paying more than ₱30 million, the agreed
valuation of the said property contribution, for 300,000 shares of stock in FLADC.
Thus, assuming the Ong Group's computation of Masagana's net gain on the
assignment is correct, i.e., P14 million, and Masagana were to pay 35% of P14
million (P4.9 million) in taxes for such assignment, in addition to the amount of
₱570,690.00 in documentary stamp taxes, Masagana would be paying
₱35,470,690.00 for 300,000 shares of stock in FLADC, instead of only ₱30 million.
This could not have been the intention of the parties."17
The Ongs presented as proof that the Tius acknowledged their liability for the
payment of the taxes, the following letter-reply dated April 27, 1995 of Mr. David
Tiu to Mr. Wilson T. Ong's request for him to remit payment for documentary stamp
tax:
"With respect to your request for the remittance of ₱570,690.00 representing 1-
1/2% of documentary stamps on the assignment of the land with an area of
1,902.30 sq. m. described in TCT No. 134066, we are willing to remit the same after
our proposed meeting, together with Atty. John Uy and Atty. A. Santos regarding
the possible tax liability which we have earlier discussed with you."18
The contents of the said letter were satisfactorily explained by Mr. Tiu as simply a
diplomatic way of denying any tax liability on the transfer, precisely the reason
behind the need for a meeting between the lawyers of the two (2) groups:
"Hearing Officer:
"Okay, you may explain that.
"A In this letter that I mentioned, April 27, this is only my diplomatic way of denying
or telling the Ong Group that it is not part of our agreement that I will pay this
amount. Because it's clearly written in the Deed of Assignment that it is the assignee
(that) who will pay the documentary stamps and other taxes to be able to transfer
the parcel of land in the name of FLADC. That is why it is a meeting with both our
lawyers." (TSN, 15 April 1996, p. 34)
"Atty. Santos:
"Q In that letter, you made mention of a meeting to be held between Atty. Santos
and Atty. Uy. The Atty. Santos being referred there, is this Atty. Santos, this
representation?
"A Yes, Sir, you are the lawyer I'm referring. (TSN, 15 April 1996, pp. 43-44)19
Sub-paragraph (c) of the second assigned error, that the Tius, not the Ongs, violated
the Pre-Subscription Agreement, shall be discussed together with the Tius'
Assignment of Errors in G.R. No. 144629.
On the third assigned error, the Ongs allege that "the Court of Appeals erred in
confirming rescission of the Pre-Subscription Agreement and the liquidation of
FLADC 'for practical reasons,' and to prevent 'further squabbles and numerous
litigations,' reasons unknown in law." Allegedly, it is an error for the Court of Appeals
to order the transfer to the Tiu Group whatever remains of the assets of the FLADC
and the management thereof, upon the return to each group of their respective cash
and property contribution. The Ongs maintain that the two (2) groups' payment for
the shares of stocks belong to the corporation, no longer to the Ongs or Tius; and
even if the Ongs and Tius were the only stockholders, they do not have the authority
to transfer cash or properties of FLADC to themselves, for that would be
misappropriation. The Ongs further cite Sec. 122 of the Corporation Code to support
their claim that the order of the Court of Appeals for the return of the parties'
contribution (distribution of FLADC assets, in the words of the Ongs) is prohibited,
thus:
"Sec. 122. Corporate Liquidation. - xxx
"Except by decrease of capital stock and as otherwise allowed by this Code, no
corporation shall distribute any of its assets or property except upon lawful
dissolution and after payment of all its debts and liabilities."
The Ongs also question the order of the Court of Appeals to transfer to the Tius the
Masagana Citimall (the asset which would remain after moving out cash and
property to the Ongs and Tius), "the corporation's priceless jewel," when it was they
who caused the venture to flourish because of their P190 million contribution and
their management thereof.
We find the Ongs' contentions to be without merit.
The Tius counter, among others, that: "When the Ong Group invested their ₱170
million for 50% of the shares of FLADC, and loaned Mr. Tiu ₱20 million to enable
FLADC to pay the ₱190 million PNB loan, the mall leasing business was already in
place, and all the Ong Group had to do was continue the administration of the mall
already started by the Tiu Group, and oversee the collection of rentals which were
supposed to be remitted to the Treasurer, but which the Ong Group refused to do.
For the Ong Group to disregard the valuable contributions of the Tiu Group and
monopolize the credit for FLADC's success is plain arrogance."
As discussed in the first assigned error, the Court of Appeals correctly confirmed the
rescission of the Pre-Subscription Agreement on the basis of Art. 1191 of the Civil
Code. It could have relied on the said provision and nonetheless stood on valid
ground. It, however, judiciously took into account the special circumstances of the
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case and further justified its decision confirming the rescission of the Pre-
Subscription Agreement on the basis of its perception that the two groups "can no
longer work harmoniously together" and that "to pit them together in the
management of FLADC will only result to further squabbles and numerous litigation."
Moreover, what the Court of Appeals ordered was not corporate liquidation upon
lawful dissolution under Sec. 122 of the Corporation Code, as cited by the Ong
Group. The Court of Appeals clarified in its Resolution promulgated on August 17,
2000 that "in ordering liquidation, the Court does not mean its dissolution as
provided in the Corporation Code."20 The prohibition, therefore, under Section 122
against distribution of assets or properties of the corporation does not apply.
As a legal consequence of rescission, the order of the Court of Appeals to return the
cash and property contribution of the parties is based on law, hence, cannot be
considered an act of misappropriation. For how can the rescission of the Pre-
Subscription Agreement be implemented without returning to the two groups
whatever they delivered to the corporation in accordance with the Agreement?
With regard to the order of the Court of Appeals transferring to the Tiu Group
whatever remains of the assets of FLADC and the management thereof, the same is
but an inevitable consequence of the rescission of the Pre-Subscription Agreement.
Restoration of the parties to status quo ante dictates that the building constructed
on the two (2) existing lots of FLADC, the remaining asset of FLADC, be transferred
to the Tiu Group. The status quo anteimmediately prior to the execution of the Pre-
Subscription Agreement was that the Tius, then wholly owning FLADC, had control
and custody over this remaining asset.
On the fourth assignment of error, we find the same to be well taken. Indeed, the
Court of Appeals erred in ruling that: "Since no period was stipulated for the return
thereof (the P20 million loan extended to the Tius and the P70 million the Ongs
advanced to FLADC), the Court resolves to fix the same upon the finality of this
Decision (See Article 1197, Civil Code21 ). Failure of the Tius to pay the same upon
the finality of this decision shall make them liable for legal interests thereon pursuant
to Article 2209 of the New Civil Code."
We agree with the Ongs that since no period was stipulated for the return of the
₱20 million loan they extended to the Tius, the same should earn 12% interest per
annum and the period of payment of interest thereon should reckon from the time
of judicial (or extrajudicial) demand, which was, from April 23, 1996, when the Ongs
filed their Answer, and not upon the finality of this Decision.
In Eastern Shipping Lines, Inc. vs. Court of Appeals22 and affirmed in Gomez
vs. Court of Appeals (Sept. 21, 2000, G.R. No. 120747) and Catungal vs. Hao,
(March 22, 2001, G.R. No. 134972), among other cases, this Court discussed at
length the rate of interest, as well as the accrual thereof in awarding interest in the
concept of actual and compensatory damages and held that:
"1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing.23 Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article
116924 of the Civil Code."
However, we do not deem it fit that the ruling in Eastern Shipping Lines, Inc. should
also apply to the ₱70 million that the Ongs advanced to FLADC. This is because the
Ongs themselves, in the Board Resolution (Exhibit "16") that was approved in the
meeting of the Board of Directors of FLADC held on June 19, 1996 (during which
the Tiu group was absent), authorized payment of 10% interest per annum on the
said ₱70 million. Thus, as to the ₱70 million, the FLADC should be made to pay only
10% interest per annum and not 12%, the period to be reckoned from June 19,
1996.
The matter of why the ₱70 million paid by the Ongs should be adjudged as an
advance and not a premium or paid-in surplus shall be taken up in G.R. No. 144629,
the petition filed by the Tius.
On the fifth assigned error, the Ongs allege that the Court of Appeals erred in not
ordering the Tius to pay costs and damages to the Ongs for the filing of this baseless
and unwarranted suit. Considering all the foregoing which shows that the case filed
by the Tius for confirmation of the rescission of the pre-subscription agreement, is
meritorious, it is obviously no longer necessary to discuss this issue.
In their Petition, docketed as G.R. No. 144629, the Tius raise the following
Assignment of Errors:
"I
"The Court of Appeals erred in ordering the liquidation of FLADC instead of merely
ordering the restitution of the parties' respective investments.
"II
"The Court of Appeals erred in relaxing the application of the laws and jurisprudence
on rescission of reciprocal obligations and in ordering the liquidation of FLADC
obviously on the basis of its mistaken perception:
"i) That in 1994, prior to the entry of the Ong Group in FLADC, the
Masagana Citimall was threatened with incompletion;
"ii) That at that time, FLADC was in financial distress in the amount of ₱190
million for being indebted to PNB;
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"iii) That the Tiu Group invited the Ong Group to come in as stockholders
for FLADC to recover from its floundering finances;
"iv) That the Pre-Subscription Agreement was entered into by the parties
in order to rescue FLADC from financial distress, i.e., for the purpose of
settling its ₱190 million indebtedness to PNB;
"v) That under the circumstances, Masagana Citimall will not be what it is
today were it not for the money that the Ong Group invested;
"vi) That the Tiu Group violated the Pre-Subscription Agreement since the
deed of assignment over the 151 sq. m. lot was not executed by the Tiu
Group but by the Lichaucos in favor of FLADC, hence, the Tiu Group cannot
be credited with the number of shares commensurate to the value of said
lot and will not, therefore, be able to equal the Ong Group's one million
subscription in FLADC;
"vii) That the Tiu Group were pulling a fast one on the Ong Group by their
'alleged' 151 sq. m. property contribution in exchange for 49,800 shares in
FLADC;
"viii) That the Tiu Group did not turn over to the Ong Group the entire
amount of FLADC funds;
"ix) That the Tiu Group, by unilaterally rescinding the Pre-Subscription
Agreement, are now trying to oust the Ong Group from enjoying the fruits
of their P190 million investment in FLADC, and that this is ingratitude at its
height;
"x) That the Tiu Group were diverting rentals due to FLADC into their own
MATERRCO account which rentals appear to have not been remitted to
FLADC up to now; and
"xi) That the ₱70 million paid by the Ong Group was an advance and not a
premium on capital."
On their first assigned error, the Tius allege that the Court of Appeals erred in
ordering the liquidation of FLADC instead of merely ordering the restitution of the
parties' respective investments. The Tius continue: "To rescind is 'to declare a
contract as though it never were.' It is not merely to terminate it and release the
parties from further obligations to each other but to abrogate it from the beginning
and restore parties to their relative position which they would have occupied had no
contract ever been made (Ocampo vs. Court of Appeals, 233 SCRA 551)."25 The
Tius also contend that the liquidation of the profits of FLADC and the distribution
thereof to the parties offend the very essence of rescission which merely requires
mutual restoration in consonance with the basic principle that when an obligation
has been extinguished, it is the duty of the court to require the parties to surrender
whatever they may have received from the other so that they may be restored, as
far as practicable, to their original situation. In support thereof, the Tius cite the
following cases: Floro Enterprises, Inc. vs. Court of Appeals , 249 SCRA 354
[1995], citing Agustin vs. Court of Appeals, 186 SCRA 375 [1990]; Magdalena
Estate, Inc. vs. Myrich, 71 Phil., 344 [1941]; Po Pauco vs. Siguenza, et al., 49
Phil. 404 [1926].
On the other hand, the Ongs, in their Comment also question the order of the Court
of Appeals in its Decision for the rescission and liquidation of FLADC and for the
return to the Ongs of their ₱190 million, and nothing more. The Ongs ask what
became of the profits earned and the additional assets acquired by FLADC through
the efforts of the Ongs, and the ₱190 million they invested in FLADC.
To the above queries of the Ongs, it is precisely for those reasons that the Court of
Appeals in its Resolution of August 17, 2000, clarified thus:
"xxx. While the Court in the case at bench ordered the rescission of the Pre-
Subscription Agreement, it did not, however, order restitution of what the parties
contributed pursuant thereto. What the Court ordered was the liquidation of FLADC
in accordance with the actual amount of investment each party made in FLADC (pp.
18-19 and 24 of Decision; pp. 1045-1046 and 1050, Rollo). Restitution and
liquidation are two different things. Liquidation includes both the profits and losses
each party derived within the duration of their respective investment (see Sibal,
Philippine Legal Encyclopedia, p. 531; Black's Law Dictionary, p. 839; De Leon, The
Corporation Code of the Philippines Annotated, 1997 ed., p. 705, citing 16 Fletcher,
p. 658). Contrary therefore to Willie Ong's contention that the Ongs will simply
receive a return of their money without any fruits or interest, the decision assures
them that they (the Ong and Tiu Groups) will have a bountiful return of their
respective investments derived from the profits of the corporation."26
With regard to the Tius' allegations, the same are without merit. As cited by the Tius
themselves, "it is the duty of the court to require the parties to surrender whatever
they may have received from the other so that they may be restored, as far as
practicable, to their original situation." Restoration of the parties to their relative
position which they would have occupied had no contract ever been made is not
practicable nor possible because we cannot turn back the hands of time when the
mall was only "nearing completion" in 1994, when the mall was not fully tenanted
yet and they had an existing loan of ₱190 million with PNB with an interest of 19%
per annum. But the Masagana Citimall is now completely constructed/finished, the
₱190 million loan fully paid without their having to pay enormous interest, and the
Tius cannot deny that the Ongs are partly to be credited for the success of the
venture. What the Tius want the Court to order would have been fair and just had
there been no fault on their part as would be discussed in the second assigned error,
and had they come to Court with clean hands because he who comes to Court must
come with clean hands.27 If, as the Tius espouse, the Court would simply order the
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return of the ₱190 million of the Ongs, then, the Tius would be unjustly enriched at
the expense of the Ongs. Under the law, no one shall unjustly enrich himself at the
expense of another. "Niguno non deue enriquecerse tortizamente condaño de otro."
On their second assigned error, the Tius allege that the Court of Appeals erred in
relaxing the application of the laws and jurisprudence on rescission of reciprocal
obligations and ordering the liquidation of FLADC on the basis of its mistaken
perception.
Subparagraphs i-iv, and ix, being interrelated, shall be discussed jointly. The Tius
allege that contrary to the Court of Appeals' findings:
i.) In 1994, prior to the entry of the Ong Group in FLADC, the Masagana
Citimall was never threatened with incompletion;
ii.) Prior to the execution of the Pre-Subscription Agreement, FLADC was
not in financial distress;
iii.) The Tiu Group invited the Ong Group to come in as stockholders of
FLADC to expand the company's leasing business;
iv.) It is not true that the Pre-Subscription Agreement was entered into by
the parties in order to rescue FLADC from financial distress, i.e., for the
purpose of settling its ₱190 million indebtedness to PNB;
ix.) It is the Tiu Group, not the Ong Group, who were ousted from enjoying
the fruits of their investment in FLADC, hence, it is the Tiu Group who are
the victims of ingratitude;
We are not persuaded. The Court of Appeals did not have any mistaken perception.
Granting that the Masagana Citimall was not threatened with incompletion in 1994,
it would have gone off to a bad start had not the Ongs come in with ₱190 million
which was used to pay the Tius' loan with the PNB. The said loan would have meant
payment of 19% interest per annum. As presented by the Ongs in their Comment:28
"d. As of July 18, 1994, FLADC had already drawn a total amount of ₱188,254,599.77
from the credit line and was paying interest thereon at the rate of 19.00% per
annum or close to ₱3 Million every month.
"From the above-mentioned facts, assuming that FLADC would no longer draw on
its remaining credit line to complete the building, the following indisputable
conclusions may be reached:
"a. At 19% interest per annum, the interest payments alone for the ₱188,254,599.77
existing loan of FLADC with the PNB would be equivalent to the following amount:
₱35,768,373.96 on an annual basis;
₱ 8,942,093.49 on a quarterly basis; and
₱ 2,980,697.03 on a monthly basis.
"x x x xxx xxx
"c. For the same ₱190 Million loan, and in addition to the above-mentioned interest
payments, the semi-annual amortization for the PNB loan would have been
₱18,825,459.97 per payment and should have been payable as follows:
April 29, 1996 - initial payment
October 29, 1996 - 2nd payment
April 29, 1997 - 3rd payment
October 29, 1997 - 4th payment
April 29, 1998 - 5th payment
October 29, 1998 - 6th payment
April 29, 1999 - 7th payment
October 29, 1999 - 8th payment
April 29, 2000 - 9th payment
October 29, 2000 - final payment
"d. Again, had the Ongs not invested in FLADC in August 1994, then by the time
FLADC would have made its initial amortization payment of ₱18,825,459.97 on April
29, 1996, it would have been paying interest in the total amount of ₱59,613,940.60
(₱2,980,697.03/month x 20 months).
"Again, even assuming that the mall which FLADC was building was already
completed, it was impossible to generate these amounts from the mall operation for
that short period of time.
"e. Clearly, the Tius were constrained to invite a partner to rescue FLADC from its
inevitable bankruptcy."
With the above illustration of the Ongs, it became incumbent upon the Tius to
counter it by showing how it would have been able to generate such income as
would enable FLADC to pay interest and loan amortization without ₱190 million
infused by another group. This the Tius failed to do. All the Tius made was their
bare allegation that the Mall was already more than 50% tenanted at that time, and
was capable of paying the interests and amortization.
The Tius' claim – that they invited the Ongs to come in as stockholders of FLADC to
expand the company's leasing business – does not also appear to be true. Were this
the case, they should have used the new capital infusion of the Ongs to purchase
adjoining properties and/or erect a new building that could be connected with the
existing structure of FLADC. The Ongs put it in the following manner: "A close
reading of the Pre-Subscription Agreement belies the claims of the Tius. The reality,
as clearly appearing in the said agreement, is that the parties intended to fully
liquidate29 the ₱190 million loan of FLADC with PNB so that the company could
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continue to operate on a clean slate without the need of paying enormous interests.
The reason is simple. Since the Tius were not able to attract enough lessees to
occupy the Citimall, they knew that they would not be able to raise enough funds to
pay its loan with PNB. Thus, the Tius invited the Ongs primarily for two reasons: [1]
to pay off FLADC's obligation with PNB, and [2] to help the Tius fill up the Citimall
with new lessees."
The Court also notes that while it was the Tius who started the corporation, they
acquiesced to the arrangement that the President should come from the Ong Group
and the Board of Directors shall comprise of six (6) members from the Ongs, and
only five (5) from the Tius. If the Tius were not desperate or in financial distress
why should they agree to such an arrangement when, as claimed by the Tius,
(Petition, p. 74, Rollo, G.R. No. 144629, p. 171), the appraised value of the entire
property of FLADC as of 1994 was ₱420.3 million? If the FLADC had enough funds,
why did it have to borrow ₱70 million from the Ongs to be used in paying the ₱190
million loan with PNB? Therefore, we also agree with the Court of Appeals when it
held that:
"The Tius, in unilaterally rescinding the Pre-subscription Agreement, are now trying
to oust the Ongs from enjoying the fruits of their ₱190 million investment in FLADC.
This is ingratitude at its height, xxx."30
As to sub-paragraph (v.) suffice it to say that none of the two groups may claim that
their group's business acumen, hard work, and dedication account for what
Masagana Citimall is today because both of the groups contributed money/property
and labor thereto.
As to sub-paragraphs (vi) and (vii), the Court of Appeals indeed erred in finding that
the Tiu Group violated the Pre-Subscription Agreement since the deed of assignment
over the 151 sq. m. lot was not executed by the Tiu Group but by the Lichaucos in
favor of FLADC. Hence, the Tiu Group cannot be credited with the number of shares
commensurate to the value of said lot and will not, therefore, be able to equal the
Ong Group's one million subscription in FLADC.
We do not agree with the following discussion of the Court of Appeals on this point:
"Under the Pre-Subscription Agreement, the Tius were obliged to execute a Deed of
Assignment over a 151 square meter parcel of land in favor of FLADC as payment
of 49,800 shares thereof at a par value of ₱100.00 per share (see paragraphs 14,
15 and 17 of the Pre-Subscription Agreement, p. 214, Rollo). While there is on record
a Deed of Assignment thereon in favor of FLADC (pp. 308-312, Rollo), said Deed of
Assignment was not executed by the Tius in favor of FLADC. The Deed of
Assignment was executed by the Lichaucos in favor of FLADC (Ibid). If ever
somebody has to be credited with the number of shares commensurate to the value
of the 151 square meter property, it will not be the Tius but the Lichaucos.
"Per the Pre-Subscription Agreement, the 151 square meter property shall be used
by the Tius to acquire a number of shares in FLADC in order to equal the 1 million
subscription of the Ongs in FLADC (supra). It turned out, however, that the 151
square meter property was acquired by FLADC for a consideration of ₱900,000.00
(see paragraph 5 of Deed of Assignment, p. 309, Rollo). It will therefore be iniquitous
were the Ongs to credit the Tius the number of shares in FLADC commensurate to
the value of the 151 square meter property when the Tius did not contribute the
same for the purpose of acquiring shares in FLADC. The deed assigning this property
to FLADC was executed by the Lichaucos for a consideration which FLADC itself paid.
Said deed was executed even before the Pre-Subscription Agreement was entered
into between the parties. Consequently, the Tius cannot be credited with the number
of shares commensurate to the value of the 151 square meter property and will not
therefore be able to equal the Ongs' 1 million subscription in FLADC in accordance
with their undertaking in the Pre-Subscription Agreement (see paragraph 14 of Pre-
Subscription Agreement, p. 214, Rollo)."31
The Tius aver that the direct transfer of the property from the Lichaucos to FLADC
did not prejudice the Ongs or FLADC. According to the Tius, what is important is
that they obtained title to the 151 sq. m. property in the name of FLADC after the
execution of the Pre-Subscription Agreement, and possession thereof has already
been turned over to the corporation. Per the Tius, they cannot be denied full credit
for such property contribution, without unjustly enriching the Ongs and FLADC which
are now exercising control over the said property.
The Tius make the following explanations:
"During the brief negotiations that culminated in the execution of the Pre-
Subscription Agreement, the Tiu Group informed the Ong Group that as early as
March 1994 they had acquired from the Lichauco family another adjoining property
consisting of 151 sq. m. which was actually intended for the expansion of the mall.
They disclosed to the Ong Group that the Deed of Assignment over the said property
was placed in the name of FLADC and was to be directly transferred from the
Lichauco family to the corporation. This is precisely the reason why the property
was described in the Pre-Subscription Agreement as '[t]he lot under Transfer
Certificate No. ______ with an area of 150 sq. m., more or less xxx,' clearly indicating
that all that the parties were waiting for, at the time they were discussing the terms
of the Pre-Subscription Agreement, was the issuance of the title to the said lot.
"The Ong Group were (sic) fully aware of the real status of the 151 sq. m. property
when they agreed to consider it as one of the property contributions of the Tiu Group
in payment for their additional subscription in FLADC."32
The Tius' contentions on this issue are well taken. We do not see why the Lichaucos,
and not the Tius, should be credited with the number of shares commensurate to
the value of the 151 sq. m. property. The Lichaucos are not parties to the Pre-
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Subscription Agreement and are not even demanding that they be credited with
such shares in exchange for the said property. Just like this property, the 1,902.30
sq. m. parcel of land in the name of Masagana Telamart, Inc. (also a corporation
owned by the Tius), was also acquired by the Tius before the execution of the Pre-
Subscription Agreement. The fact that the 1,902.30 sq. m. property was acquired
by the Tius beforehand does not prejudice the Ongs, as shown by the Ongs' non-
objection to crediting the Masagana Telamart, Inc. with the commensurate number
of shares, subject only to the Tius' payment of the expenses for the transfer of the
title in the name of FLADC. So, too, in the case of the 151 sq. m. property, the fact
that the Deed of Assignment between the Lichaucos and the FLADC was executed
prior to the execution of the Pre-Subscription Agreement does not prejudice the
Ongs. Therefore, the Tius should be credited with 49,800 shares in FLADC for this
property contribution, pursuant to the Pre-Subscription Agreement.
Sub-paragraph (viii) of the second assigned error states that the Tius turned over
to the Ong Group the entire amount of FLADC funds mentioned in paragraph 5 of
the Pre-Subscription Agreement33 The Tius have the following explanation: "xxx
sometime in August 1994, the total amount of these available funds had not yet
been determined. Consequently, in lieu of these funds, which amounted to
₱5,840,089.12, ₱1,.30,002.63(sic) of which had been earlier remitted to FLADC, Mr.
Tiu paid the same using the ₱20 million he borrowed from Mr. Ong Yong. Such
payment dispensed with the need to remit the said funds to FLADC." 34 Why should
Mr. Tiu pay ₱20 million if he only needs to remit ₱5.8 million?
At any rate, assuming that the Tius' claim on this point, is true, the same is not
reason enough to alter the order of the Court of Appeals for the liquidation of FLADC.
On sub-paragraph (x), the Tius maintain that they never siphoned any rentals due
to FLADC to their MATERRCO account. In fact, the Tius continue, the trumped-up
criminal charges filed by the Ongs against Mr. and Mrs. Tiu regarding the aforesaid
act of siphoning FLADC funds, filed during the pendency of the rescission case with
the SEC to harass the Tius, were dismissed by the DOJ in its Resolution dated 15
Feb. 1999.
The argument fails to persuade. The dismissal of the said criminal case does not
necessarily mean that no act of siphoning FLADC funds was committed by the Tius.
The following excerpts from the testimony of Mr. David Tiu on cross-examination
shows otherwise:
"Q Mr. Tiu, of course, you will admit that during the transition period, you were
already operating Masagana Superstore, is that not correct?
"A Yes, partly we are occupying a portion of the building.
"Q Of course, Masagana Superstore was operated by Matterco, Inc. of which you
were the president?
"A Yes, Ma'am.
"Q And I understand also that Matterco, Inc. is wholly owned or majority owned by
the Tius?
"A Yes, Ma'am.
"Q Is it wholly owned by the Tius?
"A Majority owned.
"Q Mr. Tiu, I am showing to you a rental receipt no. 067 of Mercury Drug Corporation
which is a tenant of FLADC. This rental receipt is a receipt of Masagana Superstore
operated by Matterco., Inc. Do you affirm that this receipt was issued by Masagana
Superstore operated by Matterco, Inc. and that the rental here pertains to a rental
due from Mercury Drugstore which is a tenant of FLADC?
"A This was mistakenly deposited at Masagana account.
"x x x xxx xxx
"Q May I show you another receipt likewise issued by Masagana Superstore operated
by Matterco, Inc. dated October 5, 1994. Will you please tell me if this another
account, another payment that was mistakenly deposited to the account of
Masagana?
"A This is also one of these . . . Because during the time . . . (TSN, March 5, 1997,
pp. 88-91, a certified true copy of which forms part of Annex "N" and marked as
Annex "N-3")35
Finally, the Tius disagree with the Court of Appeals' characterization of the ₱70
million paid by the Ongs to FLADC. The Tius allege that the ₱70 million paid by the
Ongs in excess of the actual par value of one million shares they acquired from
FLADC was a premium on capital and not an advance. The Tius contend that the
receipt, Exh. "4," the Ongs' own exhibit, is quite clear that the amount of ₱170
million was the agreed price for the Ong Group's subscription to one million shares
in FLADC representing 50% of the capital stock of the corporation. Exh. "4," reads:
"Received from Mr. Ong Yong the amount of TWENTY MILLION PESOS
(₱20,000,000.00) in full payment of the agreed price of ONE HUNDRED SEVENTY
MILLION PESOS (₱170,000,000.00) representing his group's FIFTY PERCENT (50%)
share in First Landlink Asia Development Corporation."
The Tius explain that the excess payment of ₱70 million, considering that the par
value of the one million shares subscribed by the Ongs was only ₱100 million, at
₱100 per share, in corporation law, is called "paid-in surplus" or premium.
We are not convinced. This issue was very well discussed by the Court of Appeals,
and we agree and quote:
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"But the available funds of FLADC were not enough to cover the ₱90,000,000.00 immaterial, it appearing that there was also no board resolution authorizing FLADC
more needed to pay the PNB loan because all there was of FLADC's funds at the to secure a ₱20,000,000.00 advance from the Tius (p. 367, Rollo). What matters
time was ₱5,840,089.12 (pp. 734-735, Rollo). It was then, therefore, that the Ongs then and now is that the ₱190,000,000.00 loan from PNB was finally settled in order
advanced ₱70,000,000.00 in cash to FLADC while the Tius advanced ₱20,000,000.00 for FLADC to resume its business without fear of foreclosure of its properties.
in cash, an amount they also had to borrow from the Ongs (pp. 437-441, Rollo). "Besides, at the time the Ongs invested in FLADC, they knew that the same was in
"The Pre-Subscription Agreement is explicit in its terms - that the Ongs agreed to financial distress.1âwphi1 Why would the Ongs buy the shares of FLADC for 70%
pay ₱100,000,000.00 only for 1 million shares in FLADC at a par value of ₱100.00 more than their actual par value of ₱100.00 per share, when to do so would not be
per share (p. 211, Rollo). FLADC's application for an increase in capital stock shows in consonance with what a prudent man would do under the same circumstances?"36
that the par value of each of its shares is ₱100.00 only (pp. 185-186, Rollo). The Except for the issue regarding the rate of interest and reckoning period for the
same application also shows that the Ongs subscribed to 1 million shares of FLADC payment thereof, and that the Tius should be credited with 49,800 shares of FLADC
at a par value of ₱100.00 per share (Ibid). There is nothing in the application which for their 151 sq. m. lot property contribution, we find no other error in the assailed
shows that FLADC's shares are to be sold at a premium or at an amount higher than Decision which was judiciously rendered by the Court of Appeals.
the stated par value per share (Ibid).
WHEREFORE, the decision appealed from is hereby AFFIRMED with the following
"The receipt which states that the Ongs paid ₱170,000,000.00 for a 50% share in MODIFICATIONS:
FLADC must not be construed to mean that the Ongs paid ₱170,000,000.00 for one
1. the ₱20 million loan extended by the Ongs to the Tius shall earn interest
million shares in FLADC, thereby making the ₱70,000,000.00 thereof a premium or
at twelve percent (12%) per annum to be computed from the time of
paid-in-surplus on the actual par value of 1 million shares (p. 182, Rollo). To treat
judicial demand which is from April 23, 1996;
the ₱70,000,000.00 as premium would not only have the effect of modifying the
Pre-Subscription Agreement, but would actually novate it (see Article 1291 (1), New 2. the ₱70 million advanced by the Ongs to the FLADC shall earn interest
civil Code). at ten percent (10%) per annum to be computed from the date of the
FLADC Board Resolution which is June 19, 1996; and
"To allow a novation of the Pre-Subscription Agreement in this manner would negate
or contravene the very intention of the parties in entering into the Pre-Subscription 3. The Tius shall be credited with 49,800 shares in FLADC for their property
Agreement which is to maintain EQUALITY between them. contribution, specifically, the 151 sq. m. parcel of land.
"The Tius, in filing the complaint for rescission a quo, rely heavily on the Pre- SO ORDERED.
Subscription Agreement and even emphasized that it was entered into with the
intention of maintaining EQUALITY as regards the parties standing in FLADC (pp.
127-136, Rollo). If the Court were to allow the ₱70,000,000.00 to be classified as
premium or paid-in-surplus, then the Tius' theory will altogether crumble. The
respective valuation of the properties to be used as payment of the Tius' 1 million
share in FLADC which were presented in evidence to prove that said properties are
worth more than the agreed value thereof in the Pre-Subscription Agreement, and
therefore when added to the ₱45,020,000.00 paid up capital, are worth more than
1 million shares in FLADC, is of no consequence (pp. 1023-1047-A, Rollo). The same
valuations have been made AFTER the Pre-Subscription Agreement was entered into
and does not therefore reflect the actual value of the properties at the time the Pre-
Subscription Agreement was entered into (p. 1046, Rollo).
"The Tius also claim that the ₱70,000,000.00 cannot be treated as an advance
because there was no board resolution authorizing FLADC to incur such an obligation
(pp. 764-767, Rollo). As pointed out by SEC Hearing Official Soller, the fact that no
board resolution was passed allowing FLADC to incur such an obligation is

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Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 96674 June 26, 1992
RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS
and FRANCISCO TRIAS, petitioners,
vs.
COURT OF APPEALS*, SECURITIES AND EXCHANGE COMMISSION,
MELANIA A. GUERRERO, LUZ ANDICO, WILHEMINA G. ROSALES,
FRANCISCO M. GUERRERO, JR., and FRANCISCO GUERRERO ,
SR., respondents.
PARAS, J.:
The basic controversy in this case is whether or not the respondent court erred in
sustaining the Securities and Exchange Commission when it compelled
by Mandamus the Rural Bank of Salinas to register in its stock and transfer book the
transfer of 473 shares of stock to private respondents. Petitioners maintain that the
Petition for Mandamus should have been denied upon the following grounds.
(1) Mandamus cannot be a remedy cognizable by the Securities and Exchange
Commission when the purpose is to register certificates of stock in the names of
claimants who are not yet stockholders of a corporation:
(2) There exist valid reasons for refusing to register the transfer of the subject of
stock, namely:
(a) a pending controversy over the ownership of the certificates
of stock with the Regional Trial Court;
(b) claims that the Deeds of Assignment covering the subject
certificates of stock were fictitious and antedated; and
(c) claims on a resultant possible deprivation of inheritance share
in relation with a conflicting claim over the subject certificates of
stock.
The facts are not disputed.
On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of Salinas,
Inc., executed a Special Power of Attorney in favor of his wife, private respondent
Melania Guerrero, giving and granting the latter full power and authority to sell or
otherwise dispose of and/or mortgage 473 shares of stock of the Bank registered in
his name (represented by the Bank's stock certificates nos. 26, 49 and 65), to
execute the proper documents therefor, and to receive and sign receipts for the
dispositions.
On February 27, 1980, and pursuant to said Special Power of Attorney, private
respondent Melania Guerrero, as Attorney-in-Fact, executed a Deed of
Assignment for 472 shares out of the 473 shares, in favor of private respondents
Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco Guerrero,
Jr. (5 shares).
Almost four months later, or two (2) days before the death of Clemente Guerrero
on June 24, 1980, private respondent Melania Guerrero, pursuant to the same
Special Power of Attorney, executed a Deed of Assignment for the remaining one
(1) share of stock in favor of private respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero presented to petitioner Rural
Bank of Salinas the two (2) Deeds of Assignment for registration with a request for
the transfer in the Bank's stock and transfer book of the 473 shares of stock so
assigned, the cancellation of stock certificates in the name of Clemente G. Guerrero,
and the issuance of new stock certificates covering the transferred shares of stocks
in the name of the new owners thereof. However, petitioner Bank denied the request
of respondent Melania Guerrero.
On December 5, 1980, private respondent Melania Guerrero filed with the Securities
and Exchange Commission" (SEC) an action for mandamus against petitioners Rural
Bank of Salinas, its President and Corporate Secretary. The case was docketed as
SEC Case No. 1979.
Petitioners filed their Answer with counterclaim on December 19, 1980 alleging the
upon the death of Clemente G. Guerrero, his 473 shares of stock became the
property of his estate, and his property and that of his widow should first be settled
and liquidated in accordance with law before any distribution can be effected so that
petitioners may not be a party to any scheme to evade payment of estate or
inheritance tax and in order to avoid liability to any third persons or creditors of the
late Clemente G. Guerrero.
On January 29, 1981, a motion for intervention was filed by Maripol Guerrero, a
legally adopted daughter of the late Clemente G. Guerrero and private respondent
Melania Guerrero, who stated therein that on November 26, 1980 (almost two weeks
before the filing of the petition for Mandamus) a Petition for the administration of
the estate of the late Clemente G. Guerrero had been filed with the Regional Trial
Court, Pasig, Branch XI, docketed as Special Proceedings No. 9400. Maripol Guerrero
further claimed that the Deeds of Assignment for the subject shares of stock are
fictitious and antedated; that said conveyances are donations since the
considerations therefor are below the book value of the shares, the
assignees/private respondents being close relatives of private respondent Melania
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Guerrero; and that the transfer of the shares in question to assignees/private
respondents, other than private respondent Melania Guerrero, would deprive her
(Maripol Guerrero) of her rightful share in the inheritance. The SEC hearing officer
denied the Motion for Intervention for lack of merit. On appeal, the SEC En
Banc affirmed the decision of the hearing officer.
Intervenor Guerrero filed a complaint before the then Court of First Instance of Rizal,
Quezon City Branch, against private respondents for the annulment of the Deeds of
Assignment, docketed as Civil Case No. Q-32050. Petitioners, on the other hand,
filed a Motion to Dismiss and/or to Suspend Hearing of SEC Case No. 1979 until after
the question of whether the subject Deeds of Assignment are fictitious, void or
simulated is resolved in Civil Case No. Q-32050. The SEC Hearing Officer denied said
motion.
On December 10, 1984, the SEC Hearing Officer rendered a Decision granting the
writ of Mandamus prayed for by the private respondents and directing petitioners to
cancel stock certificates nos. 26, 49 and 65 of the Bank, all in the name of Clemente
G. Guerrero, and to issue new certificates in the names of private respondents,
except Melania Guerrero. The dispositive, portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the
petitioners and against the respondents, directing the latter,
particularly the corporate secretary of respondent Rural Bank of
Salinas, Inc., to register in the latter's Stock and Transfer Book
the transfer of 473 shares of stock of respondent Bank and to
cancel Stock Certificates Nos. 26, 45 and 65 and issue new Stock
Certificates covering the transferred shares in favor of petitioners,
as follows:
1. Luz Andico 457 shares
2. Wilhelmina Rosales 10 shares
3. Francisco Guerrero, Jr. 5 shares
4. Francisco Guerrero, Sr. 1 share
and to pay to the above-named petitioners, the dividends for said
shares corresponding to the years 1981, 1982, 1983 and 1984
without interest.
No pronouncement as to costs.
SO ORDERED. (p. 88, Rollo)
On appeal, the SEC En Banc affirmed the decision of the Hearing Officer. Petitioner
filed a petition for review with the Court of Appeals but said Court likewise affirmed
the decision of the SEC.
We rule in favor of the respondents.
Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive
jurisdiction to hear and decide cases involving intracorporate controversies. An
intracorporate controversy has been defined as one which arises between a
stockholder and the corporation. There is no distinction, qualification, nor any
exception whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The case at bar
involves shares of stock, their registration, cancellation and issuances thereof by
petitioner Rural Bank of Salinas. It is therefore within the power of respondent SEC
to adjudicate.
Respondent SEC correctly ruled in favor of the registering of the shares of stock in
question in private respondent's names. Such ruling finds support under Section 63
of the Corporation Code, to wit:
Sec. 63. . . . Shares of stock so issued are personal property and
may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other person
legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is
recorded in the books of the corporation . . .
In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court
interpreted Sec. 63 in his wise:
Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the Corporation
Code]) contemplates no restriction as to whom the stocks may be
transferred. It does not suggest that any discrimination may be
created by the corporation in favor of, or against a certain
purchaser. The owner of shares, as owner of personal property,
is at liberty, under said section to dispose them in favor of
whomever he pleases, without limitation in this respect, than the
general provisions of law. . . .
The only limitation imposed by Section 63 of the Corporation Code is when
the corporation holds any unpaid claim against the shares intended to be
transferred, which is absent here.
A corporation, either by its board, its by-laws, or the act of its officers, cannot create
restrictions in stock transfers, because:
. . . Restrictions in the traffic of stock must have their source in
legislative enactment, as the corporation itself cannot create such
impediment. By-laws are intended merely for the protection of the
corporation, and prescribe regulation, not restriction; they are
always subject to the charter of the corporation. The corporation,
in the absence of such power, cannot ordinarily inquire into or
pass upon the legality of the transactions by which its stock passes
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from one person to another, nor can it question the consideration
upon which a sale is based. . . . (Tomson on Corporation Sec.
4137, cited in Fleisher vs. Nolasco, Supra).
The right of a transferee/assignee to have stocks transferred to his name is an
inherent right flowing from his ownership of the stocks. Thus:
Whenever a corporation refuses to transfer and register stock in
cases like the present, mandamus will lie to compel the officers of
the corporation to transfer said stock in the books of the
corporation" (26, Cyc. 347, Hyer vs. Bryan, 19 Phil. 138; Fleisher
vs. Botica Nolasco, 47 Phil. 583, 594).
The corporation's obligation to register is ministerial.
In transferring stock, the secretary of a corporation acts in purely
ministerial capacity, and does not try to decide the question of
ownership. (Fletcher, Sec. 5528, page 434).
The duty of the corporation to transfer is a ministerial one and if
it refuses to make such transaction without good cause, it may be
compelled to do so by mandamus. (See. 5518, 12 Fletcher 394)
For the petitioner Rural Bank of Salinas to refuse registration of the transferred
shares in its stock and transfer book, which duty is ministerial on its part, is to render
nugatory and ineffectual the spirit and intent of Section 63 of the Corporation Code.
Thus, respondent Court of Appeals did not err in upholding the Decision of
respondent SEC affirming the Decision of its Hearing Officer directing the registration
of the 473 shares in the stock and transfer book in the names of private respondents.
At all events, the registration is without prejudice to the proceedings in court to
determine the validity of the Deeds of Assignment of the shares of stock in question.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.
SECOND DIVISION
[G.R. No. 118375. October 3, 2003]
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA
QUEAO, respondents.
DECISION
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45, assailing the
decision of the Sixteenth Division of the respondent Court of Appeals promulgated
on 21 December 1994[1], which affirmed in toto the decision handed down by the
Regional Trial Court (RTC) of Pasay City.[2]
The case arose when on 11 August 1981, private respondent Aurora Queao
(Queao) filed a complaint before the Pasay City RTC for cancellation of a Real Estate
Mortgage she had entered into with petitioner Celestina Naguiat (Naguiat). The RTC
rendered a decision, declaring the questioned Real Estate Mortgage void, which
Naguiat appealed to the Court of Appeals. After the Court of Appeals upheld the RTC
decision, Naguiat instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand
Pesos (P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed
to Queao Associated Bank Check No. 090990 (dated 11 August 1980) for the amount
of Ninety Five Thousand Pesos (P95,000.00), which was earlier issued to Naguiat by
the Corporate Resources Financing Corporation. She also issued her own Filmanbank
Check No. 065314, to the order of Queao, also dated 11 August 1980 and for the
amount of Ninety Five Thousand Pesos (P95,000.00). The proceeds of these checks
were to constitute the loan granted by Naguiat to Queao.[3]
To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11
August 1980 in favor of Naguiat, and surrendered to the latter the owners duplicates
of the titles covering the mortgaged properties.[4] On the same day, the mortgage
deed was notarized, and Queao issued to Naguiat a promissory note for the amount
of TWO HUNDRED THOUSAND PESOS (P200,000.00), with interest at 12% per
annum, payable on 11 September 1980.[5] Queao also issued a Security Bank and
Trust Company check, postdated 11 September 1980, for the amount of TWO
HUNDRED THOUSAND PESOS (P200,000.00) and payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was
dishonored for insufficiency of funds. On the following day, 12 September 1980,
Queao requested Security Bank to stop payment of her postdated check, but the
bank rejected the request pursuant to its policy not to honor such requests if the
check is drawn against insufficient funds.[6]
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On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding
settlement of the loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt
(Ruebenfeldt) met with Naguiat. At the meeting, Queao told Naguiat that she did
not receive the proceeds of the loan, adding that the checks were retained by
Ruebenfeldt, who purportedly was Naguiats agent.[7]
Naguiat applied for the extrajudicial foreclosure of the mortgage with the
Sheriff of Rizal Province, who then scheduled the foreclosure sale on 14 August
1981. Three days before the scheduled sale, Queao filed the case before the Pasay
City RTC,[8] seeking the annulment of the mortgage deed. The trial court eventually
stopped the auction sale.[9]
On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real
Estate Mortgage null and void, and ordering Naguiat to return to Queao the owners
duplicates of her titles to the mortgaged lots.[10] Naguiat appealed the decision
before the Court of Appeals, making no less than eleven assignments of error. The
Court of Appeals promulgated the decision now assailed before us that affirmed in
toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals, especially
on the issue of whether Queao had actually received the loan proceeds which were
supposed to be covered by the two checks Naguiat had issued or indorsed. Naguiat
claims that being a notarial instrument or public document, the mortgage deed
enjoys the presumption that the recitals therein are true. Naguiat also questions the
admissibility of various representations and pronouncements of Ruebenfeldt,
invoking the rule on the non-binding effect of the admissions of third persons.[11]
The resolution of the issues presented before this Court by Naguiat involves
the determination of facts, a function which this Court does not exercise in an appeal
by certiorari. Under Rule 45 which governs appeal by certiorari, only questions of
law may be raised[12] as the Supreme Court is not a trier of facts.[13] The resolution
of factual issues is the function of lower courts, whose findings on these matters are
received with respect and are in fact generally binding on the Supreme Court. [14] A
question of law which the Court may pass upon must not involve an examination of
the probative value of the evidence presented by the litigants.[15] There is a question
of law in a given case when the doubt or difference arises as to what the law is on
a certain state of facts; there is a question of fact when the doubt or difference
arises as to the truth or the falsehood of alleged facts.[16]
Surely, there are established exceptions to the rule on the conclusiveness of
the findings of facts of the lower courts.[17] But Naguiats case does not fall under
any of the exceptions. In any event, both the decisions of the appellate and trial
courts are supported by the evidence on record and the applicable laws.
Against the common finding of the courts below, Naguiat vigorously insists that
Queao received the loan proceeds. Capitalizing on the status of the mortgage deed
as a public document, she cites the rule that a public document enjoys the
presumption of validity and truthfulness of its contents. The Court of Appeals,
however, is correct in ruling that the presumption of truthfulness of the recitals in a
public document was defeated by the clear and convincing evidence in this case that
pointed to the absence of consideration.[18] This Court has held that the presumption
of truthfulness engendered by notarized documents is rebuttable, yielding as it does
to clear and convincing evidence to the contrary, as in this case.[19]
On the other hand, absolutely no evidence was submitted by Naguiat that the
checks she issued or endorsed were actually encashed or deposited. The mere
issuance of the checks did not result in the perfection of the contract of loan. For
the Civil Code provides that the delivery of bills of exchange and mercantile
documents such as checks shall produce the effect of payment only when they have
been cashed.[20] It is only after the checks have produced the effect of payment that
the contract of loan may be deemed perfected. Art. 1934 of the Civil Code provides:
An accepted promise to deliver something by way of commodatum or simple loan is
binding upon the parties, but the commodatum or simple loan itself shall not be
perfected until the delivery of the object of the contract.
A loan contract is a real contract, not consensual, and, as such, is perfected
only upon the delivery of the object of the contract.[21] In this case, the objects of
the contract are the loan proceeds which Queao would enjoy only upon the
encashment of the checks signed or indorsed by Naguiat. If indeed the checks were
encashed or deposited, Naguiat would have certainly presented the corresponding
documentary evidence, such as the returned checks and the pertinent bank records.
Since Naguiat presented no such proof, it follows that the checks were not encashed
or credited to Queaos account.
Naguiat questions the admissibility of the various written representations made
by Ruebenfeldt on the ground that they could not bind her following the res inter
alia acta alteri nocere non debet rule. The Court of Appeals rejected the argument,
holding that since Ruebenfeldt was an authorized representative or agent of Naguiat
the situation falls under a recognized exception to the rule.[22] Still, Naguiat insists
that Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship between
Naguiat and Ruebenfeldt is supported by ample evidence. As correctly pointed out
by the Court of Appeals, Ruebenfeldt was not a stranger or an unauthorized
person. Naguiat instructed Ruebenfeldt to withhold from Queao the checks she
issued or indorsed to Queao, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan application of Queaos
friend, Marilou Farralese, and it was in connection with that transaction that Queao
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came to know Naguiat.[23] It was also Ruebenfeldt who accompanied Queao in her
meeting with Naguiat and on that occasion, on her own and without Queao asking
for it, Reubenfeldt actually drew a check for the sum of P220,000.00 payable to
Naguiat, to cover for Queaos alleged liability to Naguiat under the loan
agreement.[24]
The Court of Appeals recognized the existence of an agency by
estoppel[25] citing Article 1873 of the Civil Code.[26] Apparently, it considered that at
the very least, as a consequence of the interaction between Naguiat and
Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of Naguiat,
but Naguiat did nothing to correct Queaos impression. In that situation, the rule is
clear. One who clothes another with apparent authority as his agent, and holds him
out to the public as such, cannot be permitted to deny the authority of such person
to act as his agent, to the prejudice of innocent third parties dealing with such person
in good faith, and in the honest belief that he is what he appears to be. [27] The Court
of Appeals is correct in invoking the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship between Naguiat and
Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed
to Queao were never encashed or deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the courts a
quo that the lender did not remit and the borrower did not receive the proceeds of
the loan. That being the case, it follows that the mortgage which is supposed to
secure the loan is null and void. The consideration of the mortgage contract is the
same as that of the principal contract from which it receives life, and without which
it cannot exist as an independent contract.[28] A mortgage contract being a mere
accessory contract, its validity would depend on the validity of the loan secured by
it.[29]
WHEREFORE, the petition is denied and the assailed decision is
affirmed. Costs against petitioner. SO ORDERED.
FIRST DIVISION
G.R. No. 131367 August 31, 2000
HUTCHISON PORTS PHILIPPINES LIMITED, petitioner,
vs.
SUBIC BAY METROPOLITAN AUTHORITY, INTERNATIONAL CONTAINER
TERMINAL SERVICES INC., ROYAL PORT SERVICES INC. and the
EXECUTIVE SECRETARY, respondents.
DECISION
YNARES-SANTIAGO, J.:
On February 12, 1996, the Subic Bay Metropolitan Authority (or SBMA) advertised
in leading national daily newspapers and in one international publication, 1 an
invitation offering to the private sector the opportunity to develop and operate a
modern marine container terminal within the Subic Bay Freeport Zone. Out of seven
bidders who responded to the published invitation, three were declared by the SBMA
as qualified bidders after passing the pre-qualification evaluation conducted by the
SBMA’s Technical Evaluation Committee (or SBMA-TEC). These are: (1) International
Container Terminal Services, Inc. (or ICTSI); (2) a consortium consisting of Royal
Port Services, Inc. and HPC Hamburg Port Consulting GMBH (or RPSI); and (3)
Hutchison Ports Philippines Limited (or HPPL), representing a consortium composed
of HPPL, Guoco Holdings (Phils.), Inc. and Unicol Management Services, Inc. All
three qualified bidders were required to submit their respective formal bid package
on or before July 1, 1996 by the SBMA’s Pre-qualification, Bids and Awards
Committee (or SBMA-PBAC).
Thereafter, the services of three (3) international consultants2 recommended by the
World Bank for their expertise were hired by SBMA to evaluate the business plans
submitted by each of the bidders, and to ensure that there would be a transparent
and comprehensive review of the submitted bids. The SBMA also hired the firm of
Davis, Langdon and Seah Philippines, Inc. to assist in the evaluation of the bids and
in the negotiation process after the winning bidder is chosen. All the consultants,
after such review and evaluation unanimously concluded that HPPL’s Business Plan
was "far superior to that of the two other bidders."3
However, even before the sealed envelopes containing the bidders’ proposed royalty
fees could be opened at the appointed time and place, RPSI formally protested that
ICTSI is legally barred from operating a second port in the Philippines based on
Executive Order No. 212 and Department of Transportation and Communication
(DOTC) Order 95-863. RPSI thus requested that the financial bid of ICTSI should be
set aside.4
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Nevertheless, the opening of the sealed financial bids proceeded "under advisement"
relative to the protest signified by RPSI. The financial bids, more particularly the
proposed royalty fee of each bidder, was as follows:
ICTSI ------------US$57.80 TEU
HPPL ------------US$20.50 TEU
RPSI -------------US$15.08 TEU
The SBMA-PBAC decided to suspend the announcement of the winning bid, however,
and instead gave ICTSI seven (7) days within which to respond to the letter-protest
lodged by RPSI. The HPPL joined in RPSI’s protest, stating that ICTSI should be
disqualified because it was already operating the Manila International Container Port
(or MICP), which would give rise to inevitable conflict of interest between the MICP
and the Subic Bay Container Terminal facility.5
On August 15, 1996, the SBMA-PBAC issued a resolution rejecting the bid of ICTSI
because "said bid does not comply with the requirements of the tender documents
and the laws of the Philippines." The said resolution also declared that:
RESOLVED FURTHER, that the winning bid be awarded to HUTCHISON PORTS
PHILIPPINES LIMITED (HPPL) and that negotiations commence immediately with
HPPL (HUTCHISON) with a view to concluding an acceptable agreement within 45
days of this date failing which negotiations with RPSI (ROYAL) will commence with
a view to concluding an acceptable agreement within 45 days thereafter failing which
there will be declared a failure of bids.6(Underscoring supplied)
The following day, ICTSI filed a letter-appeal with SBMA’s Board of Directors
requesting the nullification and reversal of the above-quoted resolution rejecting
ICTSI’s bid while awarding the same to HPPL. But even before the SBMA Board could
act on the appeal, ICTSI filed a similar appeal before the Office of the President.7 On
August 30, 1996, then Chief Presidential Legal Counsel (CPLC) Renato L. Cayetano
submitted a memorandum to then President Fidel V. Ramos, containing the following
recommendations:
We therefore suggest that the President direct SBMA Chairman Gordon to consider
option number 4 – that is to re-evaluate the financial bids submitted by the parties,
taking into consideration all the following factors:
1. Reinstate ICTSI’s bid;
2. Disregard all arguments relating to "monopoly";
3. The re-evaluation must be limited to the parties’ financial bids.
3.1 Considering that the parties’ business have been accepted
(passed), strictly follow the criteria for bid evaluation provided for
in pars. (c) and (d), Part B (1) of the Tender Document.
4. In the re-evaluation, the COA should actively participate to determine
which of the financial bids is more advantageous.
5. In addition, all the parties should be given ample opportunity to elucidate
or clarify the components/justification for their respective financial bids in
order to ensure fair play and transparency in the proceedings.
6. The President’s authority to review the final award shall
remain."8 (Underscoring supplied)
The recommendation of CPLC Cayetano was approved by President Ramos, and a
copy of President Ramos’ handwritten approval was sent to the SBMA Board of
Directors. Accordingly, the SBMA Board, with the concurrence of representatives of
the Commission on Audit, agreed to focus the reevaluation of the bids in accordance
with the evaluation criteria and the detailed components contained in the Tender
Document, including all relevant information gleaned from the bidding documents,
as well as the reports of the three international experts and the consultancy firm
hired by the SBMA.
On September 19, 1996, the SBMA Board issued a Resolution, declaring:
NOW, THEREFORE, IT IS HEREBY RESOLVED that the bid that conforms to the
Invitation to Tender, that has a realistic Business Plan offering the greatest financial
return to SBMA, the best possible offer and the most advantageous to the
government is that of HPPL and HPPL is accordingly selected as the winning
bidder and is hereby awarded the concession for the operation and development of
the Subic Bay Container Terminal.9(Underscoring supplied)
In a letter dated September 24, 1996, the SBMA Board of Directors submitted to the
Office of the President the results of the re-evaluation of the bid proposals, to wit:
SBMA, through the unanimous vote of all the Board Members, excluding the
Chairman of the Board who voluntarily inhibited himself from participating in the re-
evaluation, selected the HPPL bid as the winning bid, being: the conforming bid with
a realistic Business Plan offering the greatest financial return to the SBMA; the best
possible offer in the market, and the most advantageous to the government in
accordance with the Tender Document.10
Notwithstanding the SBMA Board’s recommendations and action awarding the
project to HPPL, then Executive Secretary Ruben Torres submitted a memorandum
to the Office of the President recommending that another rebidding be
conducted.11 Consequently, the Office of the President issued a Memorandum
directing the SBMA Board of Directors to refrain from signing the Concession
Contract with HPPL and to conduct a rebidding of the project.12
In the meantime, the Resident Ombudsman for the DOTC filed a complaint against
members of the SBMA-PBAC before the Office of the Ombudsman for alleged
violation of Section 3(e) of Republic Act No. 3019 for awarding the contract to HPPL.
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On April 16, 1997, the Evaluation and Preliminary Investigation Bureau of the Office
of the Ombudsman issued a Resolution absolving the members of the SBMA-PBAC
of any liability and dismissing the complaint against them, ruling thus:
After an assiduous study of the respective contentions of both parties, we are
inclined to hold, as it is hereby held, that there is no proof on record pinpointing
respondents to have acted in excess of their discretion when they awarded the bid
to HPPL. Records revealed that respondents, in the exercise of their discretion in
determining the financial packages offered by the applicants, were guided by the
expert report of Davis, Langdon and Seah (DLS) that fairly evaluated which of the
bidders tender the greatest financial return to the government. There is no showing
that respondents had abused their prerogatives. As succinctly set forth in the DLS
report it stated, among others, that, "in assessing the full financial return to SBMA
offered by the bidders, it is necessary to consider the following critical matters:
1. Royalty fees
2. Volume of TEU’s as affected by:
a. Tariff rates;
b. Marketing strategy;
c. Port facilities; and
d. Efficient reliable services.
With the preceding parameters for the evaluation of bidder’s business plan, the
respondents were fairly guided by, as they aligned their judgment in congruence
with, the opinion of the panel of experts and the SBMA’s Technical Evaluation
Committee to the effect that HPPL’s business is superior while that of ICTSI’s
appeared to be unrealistically high which may eventually hinder the competitiveness
of the SBMA port with the rest of the world. Respondents averred that the panel of
World Bank experts noted that ICTSI’s high tariff rates at U.S. $119.00 per TEU is
already higher by 37% through HPPL, which could further increase by 20% in the
first two (2) years and by 5% hike thereafter. In short, high tariffs would discourage
potential customers which may be translated into low cargo volume that will
eventually reduce financial return to SBMA. Respondents asserted that HPPL’s
business plan offers the greatest financial return which could be equated that over
the five years, HPPL offers 1.25 billion pesos while ICTSI offers P0.859 billion, and
RPSI offers P.420 billion. Over the first ten years HPPL gives P2.430 billion, ICTSI
tenders P2.197 billion and RPSI has P1.632 billion.
Viewed from this perspective alongside with the evidence on record, the undersigned
panel does not find respondents to have exceeded their discretion in awarding the
bid to HPPL. Consequently, it could not be said that respondents’ act had placed the
government at a grossly disadvantageous plight that could have jeopardized the
interest of the Republic of the Philippines.13
On July 7, 1997, the HPPL, feeling aggrieved by the SBMA’s failure and refusal to
commence negotiations and to execute the Concession Agreement despite its earlier
pronouncements that HPPL was the winning bidder, filed a complaint14 against SBMA
before the Regional Trial Court (RTC) of Olongapo City, Branch 75, for specific
performance, mandatory injunction and damages. In due time, ICTSI, RPSI and the
Office of the President filed separate Answers-in-Intervention15 to the complaint
opposing the reliefs sought by complainant HPPL.
Complainant HPPL alleged and argued therein that a binding and legally enforceable
contract had been established between HPPL and defendant SBMA under Article
1305 of the Civil Code, considering that SBMA had repeatedly declared and
confirmed that HPPL was the winning bidder. Having accepted HPPL’s offer to
operate and develop the proposed container terminal, defendant SBMA is duty-
bound to comply with its obligation by commencing negotiations and drawing up a
Concession Agreement with plaintiff HPPL. HPPL also pointed out that the bidding
procedure followed by the SBMA faithfully complied with existing laws and rules
established by SBMA itself; thus, when HPPL was declared the winning bidder it
acquired the exclusive right to negotiate with the SBMA. Consequently, plaintiff HPPL
posited that SBMA should be: (1) barred from conducting a re-bidding of the
proposed project and/or performing any such acts relating thereto; and (2)
prohibited from negotiating with any party other than plaintiff HPPL until
negotiations between HPPL and SBMA have been concluded or in the event that no
acceptable agreement could be arrived at. Plaintiff HPPL also alleged that SBMA’s
continued refusal to negotiate the Concession Contract is a substantial infringement
of its proprietary rights, and caused damage and prejudice to plaintiff HPPL.
Hence, HPPL prayed that:
(1) Upon the filing of this complaint, hearings be scheduled to determine
the propriety of plaintiff’s mandatory injunction application which seeks to
order defendant or any of its appropriate officers or committees to
forthwith specify the date as well as to perform any and all such acts (e.g.
laying the ground rules for discussion) for the commencement of
negotiations with plaintiff with the view to signing at the earliest possible
time a Concession Agreement for the development and operation of the
Subic Bay Container Terminal.
(2) Thereafter, judgment be rendered in favor of plaintiff and against
defendant:
2.1. Making permanent the preliminary mandatory injunction it
had issued;
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2.2. Ordering defendant to implement the Concession Agreement
it had executed with plaintiff in respect of the development and
operation of the proposed Subic Bay Container Terminal;
2.3. Ordering defendant to pay for the cost of plaintiff’s attorney’s
fees in the amount of P500,000.00, or as otherwise proven during
the trial.
Plaintiff prays for other equitable reliefs.16
During the pre-trial hearing, one of the issues raised and submitted for resolution
was whether or not the Office of the President can set aside the award made by
SBMA in favor of plaintiff HPPL and if so, can the Office of the President direct the
SBMA to conduct a re-bidding of the proposed project.
While the case before the trial court was pending litigation, on August 4, 1997, the
SBMA sent notices to plaintiff HPPL, ICTSI and RPSI requesting them to declare their
interest in participating in a rebidding of the proposed project.17 On October 20,
1997, plaintiff HPPL received a copy of the minutes of the pre-bid conference which
stated that the winning bidder would be announced on December 5, 1997.18 Then
on November 4, 1997, plaintiff HPPL learned that the SBMA had accepted the bids
of ICTSI and RPSI who were the only bidders who qualified.
In order to enjoin the rebidding while the case was still pending, plaintiff HPPL filed
a motion for maintenance of the status quo19 on October 28, 1997. The said motion
was denied by the court a quo in an Order dated November 3, 1997, to wit:
Plaintiff maintains that by voluntarily participating in this proceedings, the defendant
and the intervenors "have unqualifiedly agreed to submit the issue of the propriety,
legality and validity of the Office of the President’s directive that the SBMA effect a
rebidding" of its concession contract or the operation of the Subic Bay Container
Terminal. As such, the status quo must be maintained in order not to thwart the
court’s ability to resolve the issues presented. Further, the ethics of the profession
require that counsel should discontinue any act which tends to render the issues
academic.
The Opposition is anchored on lack of jurisdiction since the issuance of a cease-and-
desist order would be tantamount to the issuance of a Temporary Restraining Order
or a Writ of Injunction which this Court cannot do in light of the provision of Section
21 of R.A. 7227 which states:
Section 21. Injunction and Restraining Order. – The implementation of the projects
for the conversion into alternative productive uses of the military reservations are
urgent and necessary and shall not be restrained or enjoined except by an order
issued by the Supreme Court of the Philippines.
During the hearing on October 30, 1997, SBMA’s counsel revealed that there is no
law or administrative rule or regulation which requires that a bidding be
accomplished within a definite time frame.
Truly, the matter of the deferment of the re-bidding on November 4, 1997 rests on
the sound discretion of the SBMA. For this Court to issue a cease-and-desist order
would be tantamount to an issuance of a Temporary Restraining Order or a Writ of
Preliminary Injunction. (Prado v. Veridiano II, G.R. No. 98118, December 6, 1991).
The Court notes that the Office of the President has not been heard fully on the
issues. Moreover, one of the intervenors is of the view that the issue of jurisdiction
must be resolved first, ahead of all the other issues.
WHEREFORE, and viewed from the foregoing considerations, plaintiff’s motion is
DENIED.
SO ORDERED.20 (Underscoring supplied)
Hence, this petition filed by petitioner (plaintiff below) HPPL against respondents
SBMA, ICTSI, RPSI and the Executive Secretary seeking to obtain a prohibitory
injunction. The grounds relied upon by petitioner HPPL to justify the filing of the
instant petition are summed up as follows:
29. It is respectfully submitted that to allow or for this Honorable Court to
otherwise refrain from restraining SBMA, during the pendency of this suit,
from committing the aforementioned act(s) which will certainly occur on 5
December 1997 such action (or inaction) will work an injustice upon
petitioner which has validly been announced as the winning bidder for the
operation of the Subic Bay Container Terminal.
30. To allow or for this Honorable Court to otherwise refrain from
restraining SBMA, during the pendency of this suit, from committing the
aforementioned threatened acts would be in violation of petitioner’s rights
in respect of the action it had filed before the RTC of Olongapo City in Civil
Case No. 243-O-97, and could render any judgment which may be reached
by said Court moot and ineffectual. As stated, the legal issues raised by the
parties in that proceedings are of far reaching importance to the national
pride and prestige, and they impact on the integrity of government
agencies engaged in international bidding of privatization projects. Its
resolution on the merits by the trial court below and, thereafter, any further
action to be taken by the parties before the appellate courts will certainly
benefit respondents and the entire Filipino people.21
WHEREFORE, petitioner HPPL sought relief praying that:
a) Upon the filing of this petition, the same be given due course and a
temporary restraining order and/or writ of preliminary injunction be
issued ex parte, restraining SBMA or any of its committees, or other
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persons acting under its control or direction or upon its instruction, from
declaring any winner on 5 December 1997 or at any other date thereafter,
in connection with the rebidding for the privatization of the Subic Bay
Container Terminal and/or for any, some or all of the respondents to
perform any such act(s) in pursuance thereof, until further orders from this
Honorable Court;
b) After appropriate proceedings, judgment be rendered in favor of
petitioner and against respondents --
(1) Ordering SBMA to desist from conducting any rebidding or in
declaring the winner of any such rebidding in respect of the
development and operation of the Subic Bay Container Terminal
until the judgment which the RTC of Olongapo City may render in
Civil Case No. 243-O-97 is resolved with finality;
(2) Declaring null and void any award which SBMA may announce
or issue on 5 December 1997; and
(3) Ordering respondents to pay for the cost of suit.
Petitioner prays for other equitable reliefs.22
The instant petition seeks the issuance of an injunctive writ for the sole purpose of
holding in abeyance the conduct by respondent SBMA of a rebidding of the proposed
SBICT project until the case for specific performance is resolved by the trial court.
In other words, petitioner HPPL prays that the status quo be preserved until the
issues raised in the main case are litigated and finally determined. Petitioner was
constrained to invoke this Court’s exclusive jurisdiction and authority by virtue of the
above-quoted Republic Act 7227, Section 21.
On December 3, 1997, this Court granted petitioner HPPL’s application for a
temporary restraining order "enjoining the respondent SBMA or any of its
committees, or other persons acting under its control or direction or upon its
instruction, from declaring any winner on December 5, 1997 or at any other date
thereafter, in connection with the rebidding for the privatization of the Subic Bay
Container Terminal and/or for any, some or all of the respondents to perform any
such act or acts in pursuance thereof."23
There is no doubt that since this controversy arose, precious time has been lost and
a vital infrastructure project has in essense been "mothballed" to the detriment of
all parties involved, not the least of which is the Philippine Government, through its
officials and agencies, who serve the interest of the nation. It is, therefore,
imperative that the issues raised herein and in the court a quo be resolved without
further delay so as not to exacerbate an already untenable situation.
At the outset, the application for the injunctive writ is only a provisional remedy, a
mere adjunct to the main suit.24Thus, it is not uncommon that the issues in the main
action are closely intertwined, if not identical, to the allegations and counter
allegations propounded by the opposing parties in support of their contrary positions
concerning the propriety or impropriety of the injunctive writ. While it is not our
intention to preempt the trial court’s determination of the issues in the main action
for specific performance, this Court has a bounden duty to perform; that is, to
resolve the matters before this Court in a manner that gives essence to justice,
equity and good conscience.
While our pronouncements are for the purpose only of determining whether or not
the circumstances warrant the issuance of the writ of injunction, it is inevitable that
it may have some impact on the main action pending before the trial court.
Nevertheless, without delving into the merits of the main case, our findings herein
shall be confined to the necessary issues attendant to the application for an
injunctive writ.
For an injunctive writ to be issued, the following requisites must be proven:
First. That the petitioner/applicant must have a clear and unmistakable
right.
Second. That there is a material and substantial invasion of such right.
Third. That there is an urgent and permanent necessity for the writ to
prevent serious damage.25
To our mind, petitioner HPPL has not sufficiently shown that it has a clear and
unmistakable right to be declared the winning bidder with finality, such that the
SBMA can be compelled to negotiate a Concession Contract. Though the SBMA Board
of Directors, by resolution, may have declared HPPL as the winning bidder, said
award cannot be said to be final and unassailable. The SBMA Board of Directors and
other officers are subject to the control and supervision of the Office of the
President. All projects undertaken by SBMA require the approval of the President of
the Philippines under Letter of Instruction No. 620, which places the SBMA under its
ambit as an instrumentality, defined in Section 10 thereof as an "agency of the
national government, not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy, usually
through a charter. This term includes regulatory agencies, chartered institutions and
government owned and controlled corporations."26 (Underscoring supplied)
As a chartered institution, the SBMA is always under the direct control of the Office
of the President, particularly when contracts and/or projects undertaken by the
SBMA entail substantial amounts of money. Specifically, Letter of Instruction No.
620 dated October 27, 1997 mandates that the approval of the President is required
in all contracts of the national government offices, agencies and instrumentalities,
including government-owned or controlled corporations involving two million pesos
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(P2,000,000.00) and above, awarded through public bidding or negotiation. The
President may, within his authority, overturn or reverse any award made by the
SBMA Board of Directors for justifiable reasons. It is well-established that the
discretion to accept or reject any bid, or even recall the award thereof, is of such
wide latitude that the courts will not generally interfere with the exercise thereof by
the executive department, unless it is apparent that such exercise of discretion is
used to shield unfairness or injustice. When the President issued the memorandum
setting aside the award previously declared by the SBMA in favor of HPPL and
directing that a rebidding be conducted, the same was, within the authority of the
President and was a valid exercise of his prerogative. Consequently, petitioner HPPL
acquired no clear and unmistakable right as the award announced by the SBMA prior
to the President’s revocation thereof was not final and binding.
There being no clear and unmistakable right on the part of petitioner HPPL, the
rebidding of the proposed project can no longer be enjoined as there is no material
and substantial invasion to speak of. Thus, there is no longer any urgent or
permanent necessity for the writ to prevent any perceived serious damage. In fine,
since the requisites for the issuance of the writ of injunction are not present in the
instant case, petitioner’s application must be denied for lack of merit.27
Finally, we focus on the matter of whether or not petitioner HPPL has the legal
capacity to even seek redress from this Court.1âwphi1 Admittedly, petitioner HPPL
is a foreign corporation, organized and existing under the laws of the British Virgin
Islands. While the actual bidder was a consortium composed of petitioner, and two
other corporations, namely, Guoco Holdings (Phils.) Inc. and Unicol Management
Servises, Inc., it is only petitioner HPPL that has brought the controversy before the
Court, arguing that it is suing only on an isolated transaction to evade the legal
requirement that foreign corporations must be licensed to do business in the
Philippines to be able to file and prosecute an action before Philippines courts.
The maelstrom of this issue is whether participating in the bidding is a mere isolated
transaction, or did it constitute "engaging in" or "transacting" business in the
Philippines such that petitioner HPPL needed a license to do business in the
Philippines before it could come to court.
There is no general rule or governing principle laid down as to what constitutes
"doing" or "engaging in" or "transacting" business in the Philippines. Each case must
be judged in the light of its peculiar circumstances. 28 Thus, it has often been held
that a single act or transaction may be considered as "doing business" when a
corporation performs acts for which it was created or exercises some of the functions
for which it was organized. The amount or volume of the business is of no moment,
for even a singular act cannot be merely incidental or casual if it indicates the foreign
corporation’s intention to do business.29
Participating in the bidding process constitutes "doing business" because it shows
the foreign corporation’s intention to engage in business here. The bidding for the
concession contract is but an exercise of the corporation’s reason for creation or
existence. Thus, it has been held that "a foreign company invited to bid for IBRD
and ADB international projects in the Philippines will be considered as doing business
in the Philippines for which a license is required." In this regard, it is the performance
by a foreign corporation of the acts for which it was created, regardless of volume
of business, that determines whether a foreign corporation needs a license or not. 30
The primary purpose of the license requirement is to compel a foreign corporation
desiring to do business within the Philippines to submit itself to the jurisdiction of
the courts of the state and to enable the government to exercise jurisdiction over
them for the regulation of their activities in this country. 31 If a foreign corporation
operates a business in the Philippines without a license, and thus does not submit
itself to Philippine laws, it is only just that said foreign corporation be not allowed to
invoke them in our courts when the need arises. "While foreign investors are always
welcome in this land to collaborate with us for our mutual benefit, they must be
prepared as an indispensable condition to respect and be bound by Philippine law in
proper cases, as in the one at bar."32 The requirement of a license is not intended
to put foreign corporations at a disadvantage, for the doctrine of lack of capacity to
sue is based on considerations of sound public policy.33 Accordingly, petitioner HPPL
must be held to be incapacitated to bring this petition for injunction before this Court
for it is a foreign corporation doing business in the Philippines without the requisite
license.
WHEREFORE, in view of all the foregoing, the instant petition is hereby DISMISSED
for lack of merit. Further, the temporary restraining order issued on December 3,
1997 is LIFTED and SET ASIDE. No costs.
SO ORDERED.
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Assigned
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-68935 January 22, 1990
JOSE PENEYRA and MILAGROS CALDERON, petitioners,
vs.
HON. INTERMEDIATE APPELLATE COURT and HONORABLE GODOFREDO
RILLORAZA, respondents.
FERNAN, C.J.:
We modify the decision 1 rendered on September 28, 1984 by the then Intermediate
Appellate Court (IAC) now Court of Appeals, in AC-G.R. S.P. No. 03509 entitled,
"Jose Peneyra, et al. vs. Hon Godofredo G. Rilloraza, et al."
The antecedent facts are undisputed:
On May 7, 1976, the Board of Trustees of the Corregidor College Inc. awarded the
management and operation of its canteen at a monthly rental of P80.00 to
petitioners herein who are stockholders of the said College. Subsequently, upon
instructions of Eulogio Dizon, Chairman of the Board of Trustees of Corregidor
College, Inc., the rental payments of petitioners were refused, and on August 6,
1980, partial demolition of the canteen was effected. Consequently, on September
9, 1980, petitioners filed in the then Court of First Instance of Nueva Ecija an action
against Eulogio R. Dizon for damages with preliminary mandatory injunction. 2
After Dizon filed his answer and counterclaim, pre-trial took place. On February 20,
1981, petitioners presented their evidence and rested their case. The judge to whom
the case was assigned having inhibited himself, the case was re-assigned to herein
respondent judge, the Hon. Godofredo Rilloraza. 3
On September 2, 1983, petitioners filed a motion for leave to amend the complaint
so as to include Corregidor College, Inc. as additional defendant. Dizon opposed the
motion since petitioners had already presented their evidence. 4
In its order of September 15, 1983, the trial court denied petitioners' motion, ruling
that the proposed amendment would substantially alter petitioners' cause of action;
that defendant Dizon would be required to answer new issues wholly different from
those which were stated in the original complaint; and that petitioners having rested
their case, the amendment was too late. 5
Thereafter, petitioners asked for an extension of time to file a motion for
reconsideration of the aforesaid order but the same was denied by the trial court in
its order dated October 18, 1983. 6 Petitioners filed a motion for reconsideration
which the trial court granted in its order dated November 9, 1983. It gave petitioners
an extension of ten (10) days from notice within which to file the amended
complaint. 7 However, realizing that its order dated November 9, 1983 was
erroneous, the trial court reversed itself by setting aside said order. Instead, on
December 6, 1983, the trial court required petitioners to file within ten (10) days
from notice a motion for reconsideration of the Order of October 18, 1983. 8
On December 23, 1983, petitioners filed their motion for reconsideration of the order
denying the admission of their amended complaint. Two days later or on December
25, 1983, Eulogio Dizon died. Thereafter, his counsel moved to dismiss the complaint
by reason thereof. 9
In its order dated March 27, 1984, the trial court dismissed petitioners' complaint on
the ground that the action for damages did not survive the death of Eulogio
Dizon. 10 Petitioners moved to reconsider but were unsuccessful.
Arguing that the trial court gravely abused its discretion in denying admission of
their amended complaint and in subsequently dismissing their case, petitioners filed
a special civil action of certiorari and mandamus against respondent judge before
the IAC.
On September 28, 1984, the Appellate Court dismissed the petition holding that the
Securities and Exchange Commission (SEC) has jurisdiction over the case, the same
being an intracorporate dispute, that the amendment to include Corregidor College,
Inc. cannot be allowed and that the action for damages against Eulogio Dizon was
extinguished by his death. 11
Hence, this recourse.
The three issues before us are: does jurisdiction over Civil Case No. 774-G pertain
to the Securities and Exchange Commission? did the court a quo correctly deny
petitioners' motion for leave to amend complaint to include Corregidor College, Inc.
as additional defendant? and did the action for damages against Euologio Dizon
survive his death?
One of the reasons given by the appellate court in affirming the dismissal of Civil
Case No. 774-G is that the same is within the jurisdiction of the SEC. This is
erroneous.
While it is true that petitioners herein are stockholders of Corregidor College, Inc.,
the. complaint in Civil Case No. 774-G did not stem directly from such relationship,
but rather from the award to petitioners of the management and operation of its
canteen at a monthly rental of P80.00. The management of a canteen, even if
awarded to a stockholder, is outside or merely incidental to the central operations
of an educational institution. Petitioners thus convincingly argue that "the
controversy is not one where petitioners are bringing the action as stockholders but
rather as operators of the canteen under an agreement with said Board. In short,
the cause of action here is for damages arising from a violation of a contract of
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management operation of the College canteen by defendant Dizon. 12 Certainly, the
present controversy cannot qualify as an intra-controversy, its root being a
contractual breach separate and distinct from the corporate relationship between
petitioners and Corregidor College, Inc., which, it must be noted, was not even
named as a defendant in the original complaint. It was therefore patent error for
the Court of Appeals to immediately rule that the present case belongs to the SEC
just because petitioners alleged that they are stockholders of Corregidor College,
Inc.
Under Section 3 of Presidential Decree 902-A, 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. P.D.
902-A does not confer in the SEC absolute jurisdiction and control over all matters
affecting corporations. To uphold the appellate court's ruling would remove without
legal imprimatur from the regular courts all controversies over matters involving or
affecting corporations regardless of the nature of the transactions which give rise to
such disputes. 13
On the second issue posed by herein petitioners, We rule that the amendment to
include Corregidor College Inc. as additional defendant cannot be permitted
inasmuch as the motion to amend was made only after petitioners had already
rested their case on February 20, 1981. We note the fact that it was only after a
lapse of two (2) years and seven (7) months or on September 2, 1983 that
petitioners filed their motion to amend their complaint. To permit such amendment
would obviously delay the proceedings of the trial court. Needless to say, at that
point in the proceedings, substantial issues have already been joined.
The rule is that amendments should be liberally allowed 14 but this liberality at the
outset of the action decreases as the case moves to its termination. 15 Besides, an
application for leave to amend is ordinarily addressed to the sound discretion of the
trial court and as a rule this discretion will not be disturbed on appeal except in case
of an evident abuse thereof.16
Moreover, the inclusion of Corregidor College as additional party is a substantial
amendment which can be permitted only by leave of court. Section 3, of Rule 10 of
the Rules of Court states that, "(A)fter the case is set for hearing, substantial
amendments may be made only upon leave of court. But such leave may be refused
if it appears to the court that the motion was made with intent to delay the action
or that the cause of action or defense is substantially altered." The proposed
inclusion of Corregidor College would necessarily alter petitioners' cause of action in
that while petitioners alleged in their complaint:
9. That, the demolition being undertaken by the defendant is without any
authority from the Board of Trustees nor from the proper government office
concerned, in violation of the law, the only purpose of which is to harass
the plaintiffs;
10. That, due to the unlawful acts of the defendants, not only in violation
of the Board Resolution and of the law governing that matter, the herein
plaintiffs were so humiliated before the eyes of the people and their rights
and interest were prejudiced causing them irreparable damage for which
they have to be compensated for loss of income and moral damages in an
amount of not less than P 50,000.00; 17
thus ascribing to defendant Dizon personal responsibility for the alleged damages
suffered by them, the inclusion of Corregidor College would have the effect of
transforming said personal responsibility into a corporate and collective liability.
Correspondingly, the amendment would substantially affect the defense of
defendant Dizon in his capacity as College president.
As argued convincingly by petitioners, an action for the recovery of damages for
injury to personal property is not extinguished by the death of the defendant. This
is because such action may still be brought against the executor or administrator of
the estate of the defendant. Since the demolition of petitioners' canteen is a ground
for the recovery of damages arising from injury to personal property, then, as
provided in Section 1 of Rule 87 of the Rules of Court, the deceased defendant
should now be substituted by the executor, administrator or legal representative of
his estate as party-defendant.
WHEREFORE, the dismissal of Civil Case No. 774-G of the then Court of First
Instance of Nueva Ecija, Branch XXXI, Guimba, is hereby set aside. The successor
Regional Trial Court is ordered to reinstate Civil Case No. 774-G, to cause the
deceased defendant Eulogio Dizon to be substituted by the executor, administrator
or legal representative of his estate as party-defendant and thereafter to proceed
with the trial of the case with dispatch. The denial of petitioners' motion to amend
the complaint is affirmed. No costs.
SO ORDERED.
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Assigned

Republic of the Philippines

On October 6, 1996, herein petitioner sold to Ceasar M. Lao and Cynthia V.
Supreme Court
Cortez (respondents), one timeshare of Laguna de Boracay for US$7,500.00 under
Manila
THIRD DIVISION Contract No. 135000998 payable in eight months and fully paid by the respondents.

TIMESHARE REALTY G.R. No. 158941 Sometime in February 1998, the SEC issued a resolution to the effect that
CORPORATION, petitioner was without authority to sell securities, like timeshares, prior to February
Petitioner, Present: 11, 1998. It further stated in the resolution/order that the Registration Statement
of petitioner became effective only on February 11, 1998. It also held that the 30

YNARES-SANTIAGO, J., days within which a purchaser may exercise the option to unilaterally rescind the

Chairperson, purchase agreement and receive the refund of money paid applies to all purchase

- versus - AUSTRIA-MARTINEZ, agreements entered into by petitioner prior to the effectivity of the Registration

CORONA,* Statement.

NACHURA, and Petitioner sought a reconsideration of the aforesaid order but the SEC denied
REYES, JJ. the same in a letter dated March 9, 1998.
CESAR LAO and On March 30, 1998, respondents wrote petitioner demanding their right
CYNTHIA V. CORTEZ, Promulgated: and option to cancel their Contract, as it appears that Laguna de Boracay is selling
Respondents. February 11, 2008 said shares without license or authority from the SEC. For failure to get an answer
x------------------------------------------------x to the said letter, respondents this time, through counsel, reiterated their demand
DECISION through another letter dated June 29, 1998. But despite repeated demands,
AUSTRIA-MARTINEZ, J.: petitioner failed and refused to refund or pay respondents.[5]

Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court, assailing the October 30, 2002 Resolution[1] of the Court of Appeals
(CA), which denied due course to the appeal of Timeshare Realty Corporation
(petitioner) from the March 25, 2002 Decision[2] of the Securities and Exchange
Commission (SEC) in SEC Case No. 01-99-6199; and the July 4, 2003 CA
Resolution,[3] which denied petitioner’s Motion for Reconsideration.
Respondents directly filed with SEC En Banc[6] a Complaint[7] against
petitioner and the Members of its Board of Directors - Julius S. Strachan, Angel G.
Vivar, Jr. and Cecilia R. Palma - for violation of Section 4 of Batas Pambansa Bilang
(B.P. Blg.) 178.[8] Petitioner filed an Answer[9] to the Complaint but the SEC En
Banc, in an Order[10] dated April 25, 2000, expunged the Answer from the records
due to tardiness.

As found by the SEC,[4] the antecedent facts are as follows:

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On March 25, 2002, the SEC En Banc rendered a Decision in favor of
respondents, ordering petitioner, together with Julius S. Strachan, Angel G. Vivar,
Jr., and Cecilia R. Palma, to pay respondents the amount of US$7,500.00.[11]
Petitioner filed a Motion for Reconsideration[12] which the SEC En
Banc denied in an Order[13] dated June 24, 2002.
Petitioner received a copy of the June 24, 2002 SEC En Banc Order on July
4, 2002[14] and had 15 days or until July 19, 2002 within which to appeal. However,
on July 10, 2002, petitioner sought from the CA an extension of 30 days, counted
from July 19, 2002, or until August 19, 2002, within which to appeal.[15] The CA
partly granted the motion in an Order dated July 24, 2002, to wit:
As prayed for, but conditioned on the timeliness of its
filing, the Motion for Extension to File Petition for Review dated
09 July 2002 and filed before this Court on 10 July 2002 is
GRANTED and petitioners are given a non-extendible period of
fifteen (15) days from 10 July 2002 or until 25 July 2002 within
which to file the desired petition, otherwise, the above-entitled
case will be dismissed. (Emphasis supplied.) [16]
Petitioner purportedly received the July 24, 2002 CA Order on July 29,
2002,[17] but filed a Petition for Review with the CA on August 19, 2002.[18]
In the assailed October 30, 2002 Resolution, the CA dismissed the Petition
for Review, thus:
Under Section 4, Rule 43 of the 1997 Revised Rules of
Civil Procedure, petitioners shall not be given an extension longer
than fifteen (15) days from the expiration of the reglementary
period, except for the most compelling reason.
Thus, on 24 July 2002, in the absence of a compelling
reason that justifies the granting of a longer period of extension,
this Court issued a resolution wherein petitioners were given an
extension of ONLY fifteen days from 10 July 2002 or until 25 July
2002 within which to file the petition for review, otherwise, the
above entitled case will be dismissed.
However, records show that petitioners filed their petition
for review only on 19 August 2002, which is twenty-five (25) days
beyond the allowed 15-day extended period granted by this Court
WHEREFORE, the appeal from the decision of the
Securities and Exchange Commission (SEC) Case No. 01-99-6199
is hereby DISMISSED for failure of the petitioners to file their
Petition for Review under the 15-day period granted by this Court
as provided by Rule 43, Section 4 of the 1997 Revised Rules of
Civil Procedure.
SO ORDERED.[19]
and denied petitioner's Motion for Reconsideration in the assailed Resolution
dated July 4, 2003.[20]
Petitioner filed the present petition, urging us to look beyond the procedural
lapse in its appeal, and resolve the following substantive issues:
Whether or not the eventual approval or issuance of
license has retroactive effect and therefore ratifies all earlier
transactions;
Whether or not a party in a contract could withdraw or
rescind unilaterally without valid reason.[21]
We deny the petition.
A judgment must become final at the time appointed by law[22] -- this is a
fundamental principle upon which rests the efficacy of our courts whose processes
and decrees command obedience only when these are perceived to have some
degree of permanence and predictability. Thus, an appeal from such judgment,
not being a natural right but a mere statutory privilege, must be perfected according
to the mode and within the period prescribed by the law and the rules; otherwise,
the appeal is forever barred, and the judgment becomes binding.[23]
Section 70 of Republic Act No. 8799[24] which was enacted on July 19,
2000, is the law which governs petitioner’s appeal from the orders of the SEC En
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Banc. It prescribes that such appeal be taken to the CA “by petition for review in
accordance with the pertinent provisions of the Rules of Court,” specifically Rule
43.[25] Section 4 of Rule 43 is restrictive in its treatment of the period within which
a petition may be filed:
Section 4. Period of appeal. - The appeal shall be taken
within fifteen (15) days from notice of the award, judgment, final
order or resolution, or from the date of its last publication, if
publication is required by law for its effectivity, or of the denial of
petitioner’s motion for new trial or reconsideration duly filed in
accordance with the governing law of the court or agency a quo.
Only one (1) motion for reconsideration shall be allowed. Upon
proper motion and the payment of the full amount of the
docket fee before the expiration of the reglementary
period, the Court of Appeals may grant an additional
period of fifteen (15) days only within which to file the
petition for review. No further extension shall be granted
except for the most compelling reason and in no case to
exceed fifteen (15) days. (Emphasis supplied.)
Petitioner’s Motion for Extension of Time to File Petition for Review flouted
the foregoing restriction: it sought, not a 15-day, but a 30-day extension of the
appeal period;[26] and it did not even bother to cite a compelling reason for such
extension, other than its counsel’s caseload which, as we have repeatedly ruled,
hardly qualifies as an imperative cause for moderation of the rules.[27]
Its motion for extension being inherently flawed, petitioner should not have
presumed that the CA would fully grant the same.[28] Instead, it should have
exercised due diligence by filing the proper petition within the allowable period,[29] or
at the very least, ascertaining from the CA whether its motion for extension had
been acted upon.[30] As it were, petitioner’s counsel left the country, unmindful of
the possibility that his client’s period to appeal was about to lapse - as it indeed
lapsed on July 25, 1999, after the CA allowed them a 15-day extension only, in view
of the restriction under Section 4, Rule 43. Thus, petitioner has only itself to blame
that the Petition for Review it filed on August 19, 1999 was late by 25 days. The CA
cannot be faulted for dismissing it.
The Court notes that the CA reckoned the 15-day extension it granted to
petitioner from July 10, 1999, the date petitioner filed its Motion for Extension,
rather than from July 19, 1999, the date of expiration of petitioner’s original period
to appeal. While such computation of the CA appears to be erroneous, petitioner
did not question it in the present petition. But even if we do reckon the 15-day
extension period from July 19, 1999, the same would have ended on August 3, 1999,
making petitioner’s appeal still inexcusably tardy by 16 days. Either way we reckon
it, therefore, petitioner’s appeal was not perfected within the period prescribed
under Rule 43.
Nevertheless, the Court opts to resolve the substantive issues raised by
petitioner in its appeal so as to determine the lawful rights of the parties and put an
end to the litigation.
Petitioner claims that at the time it entered into a timeshare purchase
agreement with respondents on October 6, 1996, it already possessed the requisite
license and marketing agreement to engage in such transactions, [31] as evidenced
by its registration with the SEC as a corporation.[32] Petitioner argues that when it
was registered and authorized by the SEC as broker of securities[33] - such as the
Laguna de Boracay timeshares - this had the effect of ratifying its October 6,
1996 purchase agreement with respondents, and removing any cause for the latter
to rescind it.
The Court is not persuaded.

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office of the Commission, of a sworn registration statement with

As cited by the SEC En Banc in its March 25, 2002 Decision, as early
as February 13, 1998, the SEC, through Director Linda A. Daoang, already
rendered a ruling on the effectivity of the registration statement of petitioner, viz:
This has reference to your registration statement which
was rendered effective 11 February 1998. The 30 days within
which a purchaser may exercise the option to unilaterally
rescind the purchase agreement and receive the refund of
money paid, applies to all purchase agreements entered into by
the registrant prior to the effectivity of the registration
statement. The 30-day rescission period for contracts
signed before the Registration Statement was rendered
effective shall commence on 11 February 1998. The
rescission period for contracts after 11 February
1998 shall commence on the date of purchase
agreement. (Emphasis supplied.)[34]
Petitioner sought a reconsideration of said ruling but the same was denied
by Director Daoang in an Order dated March 9, 1998.[35] However, petitioner did
not resort to any other administrative remedy against said ruling, such as by
questioning the same before the SEC En Banc. Having failed to exhaust the
administrative remedies available to it, petitioner is already bound by said ruling and
can no longer question the same through a direct and belated recourse to us.[36]
respect to such securities, containing or having attached thereto,
the following:
(36) Unless previously filed and registered with the
Commission and brought up to date:
(a) A copy of its articles of incorporation with
all amendments thereof and its existing
by-laws or instruments corresponding
thereto, whatever the name, if the issuer
be a corporation.
Prior to fulfillment of all the other requirements of Section 8, petitioner
is absolutely proscribed under Section 4 from dealing with unregistered
timeshares, thus:
Section 4. Requirement of registration of securities. - (a)
No securities, except of a class exempt under any of the provisions
of Section five hereof or unless sold in any transaction exempt
under any of the provisions of Section six hereof, shall be sold or
offered for sale or distribution to the public within the
Philippines unless such securities shall have been
registered and permitted to be sold as hereinafter
provided. (Emphasis supplied.)
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioner.
SO ORDERED.

Finally, the provisions of B.P. Blg. 178 do not support the contention of
petitioner that its mere registration as a corporation already authorizes it to deal
with unregistered timeshares. Corporate registration is just one of several
requirements before it may deal with timeshares:

Section 8. Procedure for registration. - (a) All securities

required to be registered under subsection (a) of Section four of
this Act shall be registered through the filing by the issuer or by
any dealer or underwriter interested in the sale thereof, in the

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