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PRINCE TRANSPORT, INC. and MR. RENATO G.R. No. 167291 the award of premium pay for holiday and rest day, holiday pay, service leave pay,
CLAROS, 13th month pay, moral and exemplary damages and attorney's fees.
Petitioners, Present:
Respondents alleged in their respective position papers and other related pleadings that they
CARPIO, J., Chairperson, were employees of Prince Transport, Inc. (PTI), a company engaged in the business of
NACHURA, transporting passengers by land; respondents were hired either as drivers, conductors,
- versus - PERALTA, mechanics or inspectors, except for respondent Diosdado Garcia (Garcia), who was assigned
ABAD, and as Operations Manager; in addition to their regular monthly income, respondents also
_____________,** JJ. received commissions equivalent to 8 to 10% of their wages; sometime in October 1997, the
said commissions were reduced to 7 to 9%; this led respondents and other employees of PTI
DIOSDADO GARCIA, LUISITO GARCIA, to hold a series of meetings to discuss the protection of their interests as employees; these
RODANTE ROMERO, REX BARTOLOME, Promulgated: meetings led petitioner Renato Claros, who is the president of PTI, to suspect that
FELICIANO GASCO, JR., DANILO ROJO, EDGAR respondents are about to form a union; he made known to Garcia his objection to the
SANFUEGO, AMADO GALANTO, EUTIQUIO formation of a union; in December 1997, PTI employees requested for a cash advance, but
LUGTU, JOEL GRAMATICA, MIEL CERVANTES, the same was denied by management which resulted in demoralization on the employees'
TERESITA CABANES, ROE DELA CRUZ, January 12, 2011 ranks; later, PTI acceded to the request of some, but not all, of the employees; the foregoing
RICHELO BALIDOY, VILMA PORRAS, circumstances led respondents to form a union for their mutual aid and protection; in order to
MIGUELITO SALCEDO, CRISTINA GARCIA, block the continued formation of the union, PTI caused the transfer of all union members and
MARIO NAZARENO, DINDO TORRES, ESMAEL sympathizers to one of its sub-companies, Lubas Transport (Lubas); despite such transfer, the
RAMBOYONG, ROBETO*MANO, ROGELIO schedule of drivers and conductors, as well as their company identification cards, were issued
BAGAWISAN, ARIEL SNACHEZ, ESTAQULO by PTI; the daily time records, tickets and reports of the respondents were also filed at the
VILLAREAL, NELSON MONTERO, GLORIA PTI office; and, all claims for salaries were transacted at the same office; later, the business of
ORANTE, HARRY TOCA, PABLITO MACASAET Lubas deteriorated because of the refusal of PTI to maintain and repair the units being used
and RONALD GARCITA therein, which resulted in the virtual stoppage of its operations and respondents' loss of
Respondents. employment.
x-----------------------------------------------------------------------------------------x Petitioners, on the other hand, denied the material allegations of the complaints contending
that herein respondents were no longer their employees, since they all transferred to Lubas at
DECISION their own request;petitioners have nothing to do with the management and operations of
Lubas as well as the control and supervision of the latter's employees; petitioners were not
PERALTA, J.: aware of the existence of any union in their company and came to know of the same only in
June 1998 when they were served a copy of the summons in the petition for certification
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court election filed by the union; that before the union was registered on April 15, 1998, the
praying for the annulment of the Decision[1] and Resolution[2] of the Court of Appeals (CA) complaint subject of the present petition was already filed; that the real motive in the filing of
dated December 20, 2004 and February 24, 2005, respectively, in CA-G.R. SP No. 80953. the complaints was because PTI asked respondents to vacate the bunkhouse where they
The assailed Decision reversed and set aside the Resolutions dated May 30, 2003[3] and (respondents) and their respective families were staying because PTI wanted to renovate the
September 26, 2003[4] of the National Labor Relations Commission (NLRC) in CA No. same.
029059-01, while the disputed Resolution denied petitioners' Motion for Reconsideration.
Subsequently, the complaints filed by respondents were consolidated.
The present petition arose from various complaints filed by herein respondents charging
petitioners with illegal dismissal, unfair labor practice and illegal deductions and praying for
2

On October 25, 2000, the Labor Arbiter rendered a Decision,[5] the dispositive portion of (19) Ronald Gacita 221,500.00 40,000.00
which reads as follows: (20) Harry Toca 174,300.00 23,400.00
(21) Amado Galanto 130,725.00 17,550.00
WHEREFORE, judgment is hereby rendered: (22) Teresita Cabaes 130,725.00 17,550.00
(23) Rex Bartolome 301,500.00 30,000.00
1. Dismissing the complaints for Unfair Labor Practice, non- (24) Mario Nazareno 221,500.00 30,000.00
payment of holiday pay and holiday premium, service incentive leave pay (25) Eustaquio Villareal 145,250.00 19,500.00
and 13th month pay; (26) Ariel Sanchez 265,800.00 60,000.00
(27) Gloria Orante 263,100.00 60,000.00
Dismissing the complaint of Edgardo Belda for refund of boundary-
(28) Nelson Montero 264,600.00 60,000.00
hulog;
(29) Rizal Beato 295,000.00 40,000.00
2. Dismissing the complaint for illegal dismissal against the (30) Eutiquio Lugtu 354,000.00 48,000.00
respondents Prince Transport, Inc. and/or Prince Transport Phils. (31) Warlito Dickensomn 295,000.00 40,000.00
Corporation, Roberto Buenaventura, Rory Bayona, Ailee Avenue, Nerissa (32) Edgardo Belda 354,000.00 84,000.00
Uy, Mario Feranil and Peter Buentiempo; (33) Tita Go 295,000.00 70,000.00
(34) Alex Lodor 295,000.00 50,000.00
3. Declaring that the complainants named below are illegally (35) Glenda Arguilles 295,000.00 40,000.00
dismissed by Lubas Transport; ordering said Lubas Transport to pay (36) Erwin Luces 354,000.00 48,000.00
backwages and separation pay in lieu of reinstatement in the following (37) Jesse Celle 354,000.00 48,000.00
amount: (38) Roy Adorable 295,000.00 40,000.00
(39) Marlon Bangcoro 295,000.00 40,000.00
Complainants Backwages Separation Pay (40)Edgardo Bangcoro 354,000.00 36,000.00
(1) Diosdado Garcia P222,348.70 P79,456.00
(2) Feliciano Gasco, Jr. 203,350.00 54,600.00 4. Ordering Lubas Transport to pay attorney's fees equivalent to
(3) Pablito Macasaet 145,250.00 13,000.00 ten (10%) of the total monetary award; and
(4) Esmael Ramboyong 221,500.00 30,000.00
(5) Joel Gramatica 221,500.00 60,000.00 6. Ordering the dismissal of the claim for moral and exemplary
(6) Amado Galanto 130,725.00 29,250.00 damages for lack merit.
(7) Miel Cervantes 265,800.00 60,000.00 SO ORDERED.[6]
(8) Roberto Mano 221,500.00 50,000.00
(9) Roe dela Cruz 265,800.00 60,000.00
(10) Richelo Balidoy 130,725.00 29,250.00 The Labor Arbiter ruled that petitioners are not guilty of unfair labor practice in the absence
(11) Vilma Porras 221,500.00 70,000.00 of evidence to show that they violated respondents right to self-organization. The Labor
(12) Miguelito Salcedo 265,800.00 60,000.00 Arbiter also held that Lubas is the respondents employer and that it (Lubas) is an entity which
(13) Cristina Garcia 130,725.00 35,100.00 is separate, distinct and independent from PTI. Nonetheless, the Labor Arbiter found that
(14) Luisito Garcia 145,250.00 19,500.00 Lubas is guilty of illegally dismissing respondents from their employment.
(15) Rogelio Bagawisan 265,800.00 60,000.00
(16) Rodante H. Romero 221,500.00 60,000.00 Respondents filed a Partial Appeal with the NLRC praying, among others, that PTI should
(17) Dindo Torres 265,800.00 50,000.00 also be held equally liable as Lubas.
(18) Edgar Sanfuego 221,500.00 40,000.00
3

In a Resolution dated May 30, 2003, the NLRC modified the Decision of the Labor Arbiter With respect to the portion ordering the inclusion of Danilo Rojo and Danilo
and disposed as follows: Laurel in the computation of petitioner's claim for backwages and with
respect to the portion ordering the refund of Edgardo Belda's boundary-hulog
WHEREFORE, premises considered, the appeal is hereby PARTIALLY in the amount of P446,862.00, the NLRC decision is affirmed and
GRANTED. Accordingly, the Decision appealed from maintained.
is SUSTAINED subject to the modification that Complainant-Appellant
Edgardo Belda deserves refund of his boundary-hulog in the amount SO ORDERED.[9]
of P446,862.00; and that Complainants-Appellants Danilo Rojo and Danilo
Laurel should be included in the computation of Complainants-Appellants
claim as follows: Petitioners filed a Motion for Reconsideration, but the CA denied it via its
Resolution[10] dated February 24, 2005.
Complainants Backwages Separation Pay
Hence, the instant petition for review on certiorari based on the following grounds:
41. Danilo Rojo P355,560.00 P48,000.00
42. Danilo Laurel P357,960.00 P72,000.00
A
As regards all other aspects, the Decision appealed from is SUSTAINED. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION IN GIVING DUE COURSE TO THE RESPONDENTS'
SO ORDERED.[7] PETITION FOR CERTIORARI

1. THE COURT OF APPEALS SHOULD HAVE RESPECTED


Respondents filed a Motion for Reconsideration, but the NLRC denied it in its THE FINDINGS OF THE LABOR ARBITER AND AFFIRMED
Resolution[8] dated September 26, 2003. BY THE NLRC

Respondents then filed a special civil action for certiorari with the CA assailing the Decision 2. ONLY ONE PETITIONER EXECUTED AND VERIFIED THE
and Resolution of the NLRC. PETITION
3. THE COURT OF APPEALS SHOULD NOT HAVE GIVEN
On December 20, 2004, the CA rendered the herein assailed Decision which granted
DUE COURSE TO THE PETITION WITH RESPECT TO
respondents' petition. The CA ruled that petitioners are guilty of unfair labor practice; that
RESPONDENTS REX BARTOLOME, FELICIANO GASCO,
Lubas is a mere instrumentality, agent conduit or adjunct of PTI; and that petitioners act of
DANILO ROJO, EUTIQUIO LUGTU, AND NELSON MONTERO
transferring respondents employment to Lubas is indicative of their intent to frustrate the
AS THEY FAILED TO FILE AN APPEAL TO THE NLRC
efforts of respondents to organize themselves into a union. Accordingly, the CA disposed of
the case as follows:
B
THE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING
WHEREFORE, the Petition for Certiorari is hereby GRANTED.
THAT PETITIONERS PRINCE TRANSPORT, INC. AND MR. RENATO
Accordingly, the subject decision is hereby REVERSED and SET ASIDE
CLAROS AND LUBAS TRANSPORT ARE ONE AND THE SAME
and another one ENTERED finding the respondents guilty of unfair labor
CORPORATION AND THUS, LIABLE IN SOLIDUM TO
practice and ordering them to reinstate the petitioners to their former
RESPONDENTS.
positions without loss of seniority rights and with full backwages.
4

The Court of Appeals shall have the power to try cases and conduct hearings,
C receive evidence and perform any and all acts necessary to resolve factual
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF issues raised in cases falling within its original and appellate jurisdiction,
DISCRETION IN ORDERING THE REINSTATEMENT OF including the power to grant and conduct new trials or further proceedings. x
RESPONDENTS TO THEIR PREVIOUS POSITION WHEN IT IS NOT xx
ONE OF THE ISSUES RAISED IN RESPONDENTS' PETITION
FOR CERTIORARI.[11]
However, equally settled is the rule that factual findings of labor officials, who are deemed to
have acquired expertise in matters within their jurisdiction, are generally accorded not
Petitioners assert that factual findings of agencies exercising quasi-judicial functions like the only respect but evenfinality by the courts when supported by substantial evidence, i.e., the
NLRC are accorded not only respect but even finality; that the CA should have outrightly amount of relevant evidence which a reasonable mind might accept as adequate to justify a
dismissed the petition filed before it because in certiorari proceedings under Rule 65 of the conclusion.[14] But these findings are not infallible. When there is a showing that they were
Rules of Court it is not within the province of the CA to evaluate the sufficiency of evidence arrived at arbitrarily or in disregard of the evidence on record, they may be examined by the
upon which the NLRC based its determination, the inquiry being limited essentially to courts.[15] The CA can grant the petition for certiorariif it finds that the NLRC, in its assailed
whether or not said tribunal has acted without or in excess of its jurisdiction or with grave decision or resolution, made a factual finding not supported by substantial evidence.[16] It is
abuse of discretion. Petitioners assert that the CA can only pass upon the factual findings of within the jurisdiction of the CA, whose jurisdiction over labor cases has been expanded to
the NLRC if they are not supported by evidence on record, or if the impugned judgment is review the findings of the NLRC.[17]
based on misapprehension of facts which circumstances are not present in this case.
Petitioners also emphasize that the NLRC and the Labor Arbiter concurred in their factual In this case, the NLRC sustained the factual findings of the Labor Arbiter. Thus, these
findings which were based on substantial evidence and, therefore, should have been accorded findings are generally binding on the appellate court, unless there was a showing that they
great weight and respect by the CA. were arrived at arbitrarily or in disregard of the evidence on record. In respondents' petition
for certiorari with the CA, these factual findings were reexamined and reversed by the
Respondents, on the other hand, aver that the CA neither exceeded its jurisdiction nor appellate court on the ground that they were not in accord with credible evidence presented in
committed error in re-evaluating the NLRCs factual findings since such findings are not in this case. To determine if the CA's reexamination of factual findings and reversal of the
accord with the evidence on record and the applicable law or jurisprudence. NLRC decision are proper and with sufficient basis, it is incumbent upon this Court to make
its own evaluation of the evidence on record.[18]
The Court agrees with respondents.
After a thorough review of the records at hand, the Court finds that the CA did not commit
The power of the CA to review NLRC decisions via a petition for certiorari under Rule 65 of error in arriving at its own findings and conclusions for reasons to be discussed hereunder.
the Rules of Court has been settled as early as this Courts decision in St. Martin Funeral
Homes v. NLRC.[12] In said case, the Court held that the proper vehicle for such review is a Firstly, petitioners posit that the petition filed with the CA is fatally defective, because the
special civil action for certiorari under Rule 65 of the said Rules, and that the case should be attached verification and certificate against forum shopping was signed only by respondent
filed with the CA in strict observance of the doctrine of hierarchy of courts. Moreover, it is Garcia.
already settled that under Section 9 of Batas Pambansa Blg. 129, as amended by Republic Act
No. 7902, the CA pursuant to the exercise of its original jurisdiction over petitions The Court does not agree.
for certiorari is specifically given the power to pass upon the evidence, if and when
necessary, to resolve factual issues.[13] Section 9 clearly states: While the general rule is that the certificate of non-forum shopping must be signed by all the
plaintiffs in a case and the signature of only one of them is insufficient, the Court has stressed
xxxx that the rules on forum shopping, which were designed to promote and facilitate the orderly
5

administration of justice, should not be interpreted with such absolute literalness as to subvert
its own ultimate and legitimate objective.[19] Strict compliance with the provision regarding Petitioners also contend that the CA erred in applying the doctrine of piercing the corporate
the certificate of non-forum shopping underscores its mandatory nature in that the veil with respect to Lubas, because the said doctrine is applicable only to corporations and
certification cannot be altogether dispensed with or its requirements completely Lubas is not a corporation but a single proprietorship; that Lubas had been found by the
disregarded.[20] It does not, however, prohibit substantial compliance therewith under Labor Arbiter and the NLRC to have a personality which is separate and distinct from that of
justifiable circumstances, considering especially that although it is obligatory, it is not PTI; that PTI had no hand in the management and operation as well as control and
jurisdictional.[21] supervision of the employees of Lubas.

In a number of cases, the Court has consistently held that when all the petitioners share a The Court is not persuaded.
common interest and invoke a common cause of action or defense, the signature of only one
of them in the certification against forum shopping substantially complies with the rules.[22] In On the contrary, the Court agrees with the CA that Lubas is a mere agent, conduit or adjunct
the present case, there is no question that respondents share a common interest and invoke a of PTI. A settled formulation of the doctrine of piercing the corporate veil is that when two
common cause of action. Hence, the signature of respondent Garcia is a sufficient compliance business enterprises are owned, conducted and controlled by the same parties, both law and
with the rule governing certificates of non-forum shopping. In the first place, some of the equity will, when necessary to protect the rights of third parties, disregard the legal fiction
respondents actually executed a Special Power of Attorney authorizing Garcia as their that these two entities are distinct and treat them as identical or as one and the same.[26] In the
attorney-in-fact in filing a petition for certiorari with the CA.[23] present case, it may be true that Lubas is a single proprietorship and not a
corporation. However, petitioners attempt to isolate themselves from and hide behind the
The Court, likewise, does not agree with petitioners' argument that the CA should not have supposed separate and distinct personality of Lubas so as to evade their liabilities is precisely
given due course to the petition filed before it with respect to some of the respondents, what the classical doctrine of piercing the veil of corporate entity seeks to prevent and
considering that these respondents did not sign the verification attached to the Memorandum remedy.
of Partial Appeal earlier filed with the NLRC. Petitioners assert that the decision of the Labor
Arbiter has become final and executory with respect to these respondents and, as a Thus, the Court agrees with the observations of the CA, to wit:
consequence, they are barred from filing a petition for certiorari with the CA.
As correctly pointed out by petitioners, if Lubas were truly a separate entity,
With respect to the absence of some of the workers signatures in the verification, the how come that it was Prince Transport who made the decision to transfer its
verification requirement is deemed substantially complied with when some of the parties who employees to the former? Besides, Prince Transport never regarded Lubas
undoubtedly have sufficient knowledge and belief to swear to the truth of the allegations in Transport as a separate entity. In the aforesaid letter, it referred to said entity
the petition had signed the same. Such verification is deemed a sufficient assurance that the as Lubas operations. Moreover, in said letter, it did not transfer the
matters alleged in the petition have been made in good faith or are true and correct, and not employees; it assigned them. Lastly, the existing funds and 201 file of the
merely speculative. Moreover, respondents' Partial Appeal shows that the appeal stipulated as employees were turned over not to a new company but a new
complainants-appellants Rizal Beato, et al., meaning that there were more than one appellant management.[27]
who were all workers of petitioners.
The Court also agrees with respondents that if Lubas is indeed an entity separate and
In any case, the settled rule is that a pleading which is required by the Rules of Court to be
independent from PTI why is it that the latter decides which employees shall work in the
verified, may be given due course even without a verification if the circumstances warrant the
former?
suspension of the rules in the interest of justice.[24] Indeed, the absence of a verification is not
jurisdictional, but only a formal defect, which does not of itself justify a court in refusing to
What is telling is the fact that in a memorandum issued by PTI, dated January 22, 1998,
allow and act on a case.[25]Hence, the failure of some of the respondents to sign the
petitioner company admitted that Lubas is one of its sub-companies.[28] In addition, PTI, in its
verification attached to their Memorandum of Appeal filed with the NLRC is not fatal to their
letters to its employees who were transferred to Lubas, referred to the latter as its New City
cause of action.
Operations Bus.[29]
6

As to whether petitioners are guilty of unfair labor practice, the Court finds no cogent reason
Moreover, petitioners failed to refute the contention of respondents that despite the latters to depart from the findings of the CA that respondents transfer of work assignments to Lubas
transfer to Lubas of their daily time records, reports, daily income remittances of conductors, was designed by petitioners as a subterfuge to foil the formers right to organize themselves
schedule of drivers and conductors were all made, performed, filed and kept at the office of into a union. Under Article 248 (a) and (e) of the Labor Code, an employer is guilty of unfair
PTI. In fact, respondents identification cards bear the name of PTI. labor practice if it interferes with, restrains or coerces its employees in the exercise of their
right to self-organization or if it discriminates in regard to wages, hours of work and other
It may not be amiss to point out at this juncture that in two separate illegal dismissal cases terms and conditions of employment in order to encourage or discourage membership in any
involving different groups of employees transferred by PTI to other companies, the Labor labor organization.
Arbiter handling the cases found that these companies and PTI are one and the same entity;
thus, making them solidarily liable for the payment of backwages and other money claims Indeed, evidence of petitioners' unfair labor practice is shown by the established fact
awarded to the complainants therein.[30] that, after respondents' transfer to Lubas, petitioners left them high and dry insofar as the
operations of Lubas was concerned. The Court finds no error in the findings and conclusion
Petitioners likewise aver that the CA erred and committed grave abuse of discretion when it of the CA that petitioners withheld the necessary financial and logistic support such as spare
ordered petitioners to reinstate respondents to their former positions, considering that the parts, and repair and maintenance of the transferred buses until only two units remained in
issue of reinstatement was never brought up before it and respondents never questioned the running condition. This left respondents virtually jobless.
award of separation pay to them.
WHEREFORE, the instant petition is DENIED. The assailed Decision and Resolution of
The Court is not persuaded. the Court of Appeals, dated December 20, 2004 and February 24, 2005, respectively, in CA-
G.R. SP No. 80953, are AFFIRMED.
It is clear from the complaints filed by respondents that they are seeking reinstatement.[31]
SO ORDERED.
In any case, Section 2 (c), Rule 7 of the Rules of Court provides that a pleading shall specify
the relief sought, but may add a general prayer for such further or other reliefs as may be
deemed just and equitable. Under this rule, a court can grant the relief warranted by the
allegation and the proof even if it is not specifically sought by the injured party; the inclusion
of a general prayer may justify the grant of a remedy different from or together with the
specific remedy sought, if the facts alleged in the complaint and the evidence introduced so
warrant.[32]

Moreover, in BPI Family Bank v. Buenaventura,[33] this Court ruled that the general prayer is
broad enough to justify extension of a remedy different from or together with the specific
remedy sought.Even without the prayer for a specific remedy, proper relief may be granted by
the court if the facts alleged in the complaint and the evidence introduced so warrant. The
court shall grant relief warranted by the allegations and the proof even if no such relief is
prayed for. The prayer in the complaint for other reliefs equitable and just in the premises
justifies the grant of a relief not otherwise specifically prayed for.[34] In the instant case, aside
from their specific prayer for reinstatement, respondents, in their separate complaints, prayed
for such reliefs which are deemed just and equitable.
7

DONNINA C. HALLEY, G.R. No. 157549 Donnina C. Halley 35,000 P 350,000.00 P87,500.00
Petitioner, Roberto V. Cabrera, Jr. 18,000 P 180,000.00 P45,000.00
Present: Albert T. Yu 18,000 P 180,000.00 P45,000.00
Zenaida V. Yu 2,000 P 20,000.00 P5,000.00
CARPIO MORALES, Chairperson, Rizalino C. Vineza 2,000 P 20,000.00 P5,000.00
BRION, TOTAL 75,000 P750,000.00 P187,500.00
-versus- BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ. Printwell engaged in commercial and industrial printing. BMPI commissioned
Printwell for the printing of the magazine Philippines, Inc. (together with wrappers and
Promulgated: subscription cards) that BMPI published and sold. For that purpose, Printwell extended 30-
PRINTWELL, INC., day credit accommodations to BMPI.
Respondent. May 30, 2011
x-----------------------------------------------------------------------------------------x In the period from October 11, 1988 until July 12, 1989, BMPI placed with Printwell
several orders on credit, evidenced by invoices and delivery receipts
DECISION totalingP316,342.76.Considering that BMPI paidonlyP25,000.00,Printwell sued BMPI on
January 26, 1990 for the collection of the unpaid balance of P291,342.76 in the RTC.[4]

BERSAMIN, J: On February 8, 1990,Printwell amended the complaint in order to implead as


defendants all the original stockholders and incorporators to recover on their unpaid
subscriptions, as follows:[5]
Stockholders of a corporation are liable for the debts of the corporation up to the extent of
their unpaid subscriptions. They cannot invoke the veil of corporate identity as a shield from Name Unpaid Shares
liability, because the veil may be lifted to avoid defrauding corporate creditors. Donnina C. Halley P 262,500.00
Roberto V. Cabrera, Jr. P135,000.00
Albert T. Yu P135,000.00
We affirm with modification the decision promulgated on August 14, Zenaida V. Yu P15,000.00
2002,[1]whereby the Court of Appeals(CA) upheld the decision of the Regional Trial Court,
Rizalino C. Vieza P15,000.00
Branch 71, in Pasig City (RTC),[2]ordering the defendants (including the petitioner)to pay to
Printwell, Inc. (Printwell) the principal sum of P291,342.76 plus interest. TOTAL P 562,500.00

Antecedents The defendants filed a consolidated answer,[6]averring that they all had paid their
subscriptions in full; that BMPI had a separate personality from those of its stockholders; that
The petitioner wasan incorporator and original director of Business Media Rizalino C. Vieza had assigned his fully-paid up shares to a certain Gerardo R. Jacinto in
Philippines, Inc. (BMPI), which, at its incorporation on November 12, 1987,[3]had an 1989; and that the directors and stockholders of BMPI had resolved to dissolve BMPI during
authorized capital stock of P3,000,000.00 divided into 300,000 shares each with a par value the annual meeting held on February 5, 1990.
of P10.00,of which 75,000 were initially subscribed, to wit:
To prove payment of their subscriptions, the defendant stockholders submitted in evidence
Subscriber No. of shares Total subscription Amount paid BMPI official receipt (OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR
no. 223, and OR no. 227,to wit:
8

on November 5, 1987 has serial numbers (222) higher than those


Receipt No. Date Name Amount issued on a later date (May 13, 1988).
217 November 5, 1987 Albert T. Yu P 45,000.00
218 May 13, 1988 Albert T. Yu P 135,000.00 b) The claim that since there was no call by the Board of Directors of
220 May 13, 1988 Roberto V. Cabrera, Jr. P 135,000.00 defendant corporation for the payment of unpaid subscriptions will
221 November 5, 1987 Roberto V. Cabrera, Jr. P 45,000.00 not be a valid excuse to free individual defendants from liability.
Since the individual defendants are members of the Board of
222 November 5, 1987 Zenaida V. Yu P 5,000.00
Directors of defendant corporation, it was within their exclusive
223 May 13, 1988 Zenaida V. Yu P 15,000.00
power to prevent the fulfillment of the condition, by simply not
227 May 13, 1988 Donnina C. Halley P 262,500.00 making a call for the payment of the unpaid subscriptions. Their
inaction should not work to their benefit and unjust enrichment at the
expense of plaintiff.
In addition, the stockholders submitted other documents in evidence, namely:(a) an audit Assuming arguendo that the individual defendants have paid their
report dated March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC unpaid subscriptions, still, it is very apparent that individual defendants
and the BIR);[7](b) BMPI balance sheet[8] and income statement[9]as of December 31, 1988; merely used the corporate fiction as a cloak or cover to create an injustice;
(c) BMPI income tax return for the year 1988 (stamped received by the BIR);[10](d) journal hence, the alleged separate personality of defendant corporation should be
vouchers;[11](e) cash deposit slips;[12] and(f)Bank of the Philippine Islands (BPI) savings disregarded (Tan Boon Bee & Co., Inc. vs. Judge Jarencio, G.R. No. 41337,
account passbook in the name of BMPI.[13] 30 June 1988).[14]
Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to
Ruling of the RTC Printwell pro rata, thusly:

Defendant Business Media, Inc. is a registered corporation (Exhibits A,


On November 3, 1993, the RTC rendered a decision in favor of Printwell, rejecting the A-1 to A-9), and, as appearing from the Articles of Incorporation, individual
allegation of payment in full of the subscriptions in view of an irregularity in the issuance of defendants have the following unpaid subscriptions:
the ORs and observing that the defendants had used BMPIs corporate personality to evade Names Unpaid Subscription
payment and create injustice, viz: Donnina C. Halley P262,500.00
Roberto V. Cabrera, Jr. 135.000.00
The claim of individual defendants that they have fully paid their Albert T. Yu 135,000.00
subscriptions to defend[a]nt corporation, is not worthy of consideration, Zenaida V. Yu 15,000.00
because: Rizalino V. Vineza 15,000.00
--------------------
a) in the case of defendants-spouses Albert and Zenaida Yu, it will be Total P562,500.00
noted that the alleged payment made on May 13, 1988 amounting
to P135,000.00, is covered by Official Receipt No. 218 (Exh. 2), and it is an established doctrine that subscriptions to the capital stock of a
whereas the alleged payment made earlier on November 5, 1987, corporation constitute a fund to which creditors have a right to look for
amounting to P5,000.00, is covered by Official Receipt No. 222 satisfaction of their claims (Philippine National Bank vs. Bitulok Sawmill,
(Exh. 3). This is cogent proof that said receipts were belatedly Inc., 23 SCRA 1366) and, in fact, a corporation has no legal capacity to
issued just to suit their theory since in the ordinary course of release a subscriber to its capital stock from the obligation to pay for his
business, a receipt issued earlier must have serial numbers lower than shares, and any agreement to this effect is invalid (Velasco vs. Poizat, 37
those issued on a later date. But in the case at bar, the receipt issued Phil. 802).
9

STOCK, IF ANY, THE TRIAL COURT NONETHELESS ERRED IN NOT


The liability of the individual stockholders in the instant case shall be FINDING THAT APPELLANTS-STOCKHOLDERS HAVE, AT THE
pro-rated as follows: TIME THE SUIT WAS FILED, NO SUCH UNPAID SUBSCRIPTIONS.

Names Amount On their part, Spouses Albert and Zenaida Yu averred:


Donnina C. Halley P149,955.65
Roberto V. Cabrera, Jr. 77,144.55 I.
Albert T. Yu 77,144.55 THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT
Zenaida V. Yu 8,579.00 TO DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA
Rizalino V. Vineza 8,579.00 YUS EXHIBITS 2 AND 3 DESPITE THE UNREBUTTED TESTIMONY
------------------ THEREON BY APPELLANT ALBERT YU AND THE ABSENCE OF
Total P321,342.75[15] PROOF CONTROVERTING THEM.

The RTC disposed as follows: II.


WHEREFORE, judgment is hereby rendered in favor of plaintiff and against THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS
defendants, ordering defendants to pay to plaintiff the amount SPOUSES ALBERT AND ZENAIDA YU PERSONALLY LIABLE FOR
of P291,342.76, as principal, with interest thereon at 20% per annum, from THE CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS.,
date of default, until fully paid, plus P30,000.00 as attorneys fees, plus costs INC. DESPITE FULL PAYMENT BY SAID DEFENDANTS-
of suit. APPELLANTS OF THEIR RESPECTIVE SUBSCRIPTIONS TO THE
CAPITAL STOCK OF BUSINESS MEDIA PHILS., INC.
Defendants counterclaims are ordered dismissed for lack of merit.
Roberto V. Cabrera, Jr. argued:
SO ORDERED.[16]
I.
Ruling of the CA IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO
APPLY THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE
PERSONALITY IN ABSENCE OF ANY SHOWING OF EXTRA-
All the defendants, except BMPI, appealed. ORDINARY CIRCUMSTANCES THAT WOULD JUSTIFY RESORT
THERETO.
Spouses Donnina and Simon Halley, and Rizalino Vieza defined the following errors
committed by the RTC, as follows: II.
IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO
I. RULE THAT INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE
THE TRIAL COURT ERRED IN HOLDING APPELLANTS- PLAINTIFF-APPELLEES CLAIM BASED ON THEIR RESPECTIVE
STOCKHOLDERS LIABLE FOR THE LIABILITIES OF THE SUBSCRIPTION. NOTWITHSTANDING OVERWHELMING
DEFENDANT CORPORATION. EVIDENCE SHOWING FULL SETTLEMENT OF SUBSCRIBED
CAPITAL BY THE INDIVIDUAL DEFENDANTS.
II.
ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO
THE EXTENT OF THEIR UNPAID SUBSCRIPTION OF SHARES OF
10

On August 14, 2002, the CA affirmed the RTC, holding that the defendants resort to the satisfaction of their claims, and that the assignee in insolvency can maintain
corporate personality would create an injustice because Printwell would thereby be at a loss an action upon any unpaid stock subscription in order to realize assets for the
against whom it would assert the right to collect, viz: payment of its debts (PNB vs. Bitulok Sawmill, 23 SCRA 1366).

Settled is the rule that when the veil of corporate fiction is used as a means of Premised on the above-doctrine, an inference could be made that the funds,
perpetrating fraud or an illegal act or as a vehicle for the evasion of an which consists of the payment of subscriptions of the stockholders, is where
existing obligation, the circumvention of statutes, the achievements or the creditors can claim monetary considerations for the satisfaction of their
perfection of monopoly or generally the perpetration of knavery or crime, the claims. If these funds which ought to be fully subscribed by the stockholders
veil with which the law covers and isolates the corporation from the members were not paid or remain an unpaid subscription of the corporation then the
or stockholders who compose it will be lifted to allow for its consideration creditors have no other recourse to collect from the corporation of its
merely as an aggregation of individuals (First Philippine International Bank liability. Such occurrence was evident in the case at bar wherein the
vs. Court of Appeals, 252 SCRA 259). Moreover, under this doctrine, the appellants as stockholders failed to fully pay their unpaid subscriptions,
corporate existence may be disregarded where the entity is formed or used which left the creditors helpless in collecting their claim due to insufficiency
for non-legitimate purposes, such as to evade a just and due obligations or to of funds of the corporation. Likewise, the claim of appellants that they
justify wrong (Claparols vs. CIR, 65 SCRA 613). already paid the unpaid subscriptions could not be given weight because said
payment did not reflect in the Articles of Incorporations of BMPI that the
In the case at bench, it is undisputed that BMPI made several orders on credit unpaid subscriptions were fully paid by the appellants stockholders. For it is
from appellee PRINTWELL involving the printing of business magazines, a rule that a stockholder may be sued directly by creditors to the extent of
wrappers and subscription cards, in the total amount of P291,342.76 (Record their unpaid subscriptions to the corporation (Keller vs. COB Marketing, 141
pp. 3-5, Annex A) which facts were never denied by appellants stockholders SCRA 86).
that they owe appellee the amount of P291,342.76. The said goods were
delivered to and received by BMPI but it failed to pay its overdue account to Moreover, a corporation has no power to release a subscription or its capital
appellee as well as the interest thereon, at the rate of 20% per annum until stock, without valuable consideration for such releases, and as against
fully paid. It was also during this time that appellants stockholders were in creditors, a reduction of the capital stock can take place only in the manner
charge of the operation of BMPI despite the fact that they were not able to and under the conditions prescribed by the statute or the charter or the
pay their unpaid subscriptions to BMPI yet greatly benefited from said Articles of Incorporation. (PNB vs. Bitulok Sawmill, 23 SCRA 1366).[18]
transactions. In view of the unpaid subscriptions, BMPI failed to pay
appellee of its liability, hence appellee in order to protect its right can collect The CA declared that the inconsistency in the issuance of the ORs rendered the claim of full
from the appellants stockholders regarding their unpaid subscriptions. To payment of the subscriptions to the capital stock unworthy of consideration; and held that the
deny appellee from recovering from appellants would place appellee in a veil of corporate fiction could be pierced when it was used as a shield to perpetrate a fraud or
limbo on where to assert their right to collect from BMPI since the to confuse legitimate issues, to wit:
stockholders who are appellants herein are availing the defense of corporate
fiction to evade payment of its obligations.[17] Finally, appellants SPS YU, argued that the fact of full payment for the
unpaid subscriptions was incontrovertibly established by competent
Further, the CA concurred with the RTC on the applicability of the trust fund doctrine, under testimonial and documentary evidence, namely Exhibits 1, 2, 3 & 4, which
which corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid were never disputed by appellee, clearly shows that they should not be held
corporate debts, stating thus: liable for payment of the said unpaid subscriptions of BMPI.

It is an established doctrine that subscription to the capital stock of a The reliance is misplaced.
corporation constitute a fund to which creditors have a right to look up to for
11

We are hereby reproducing the contents of the above-mentioned


exhibits, to wit:
Issues
Exh: 1 YU Official Receipt No. 217 dated November 5,
1987 amounting to P45,000.00 allegedly representing the initial Only Donnina Halley has come to the Court to seek a further review, positing the
payment of subscriptions of stockholder Albert Yu. following for our consideration and resolution, to wit:
Exh: 2 YU Official Receipt No. 218 dated May 13, 1988
I.
amounting to P135,000.00 allegedly representing full payment of
THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE
balance of subscriptions of stockholder Albert Yu. (Record p. 352).
DECISION THAT DID NOTSTATE THE FACTS AND THE LAW UPON
Exh: 3 YU Official Receipt No. 222 dated November 5, WHICH THE JUDGMENT WAS BASED BUT MERELY COPIED THE
1987 amounting to P5,000.00 allegedly representing the initial CONTENTS OF RESPONDENTS MEMORANDUM ADOPTING THE
payment of subscriptions of stockholder Zenaida Yu. SAME AS THE REASON FOR THE DECISION
Exh: 4 YU Official Receipt No. 223 dated May 13,
1988 amounting to P15,000.00 allegedly representing the full payment II.
of balance of subscriptions of stockholder Zenaida Yu. (Record p. THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF
353). THE REGIONAL TRIAL COURT WHICH ESSENTIALLY ALLOWED
THE PIERCING OF THE VEIL OF CORPORATE FICTION

Based on the above exhibits, we are in accord with the lower courts III.
findings that the claim of the individual appellants that they fully paid their THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE
subscription to the defendant BMPI is not worthy of consideration, because, TRUST FUND DOCTRINE WHEN THE GROUNDS THEREFOR HAVE
in the case of appellants SPS. YU, there is an inconsistency regarding the NOT BEEN SATISFIED.
issuance of the official receipt since the alleged payment made on May 13,
1988 amounting to P135,000.00 was covered by Official Receipt No. 218
(Record, p. 352), whereas the alleged payment made earlier on November 5, On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum
1987 amounting to P5,000.00 is covered by Official Receipt No. 222 of Printwell; and submits that the RTC thereby violated the requirement imposed in Section
(Record, p. 353). Such issuance is a clear indication that said receipts were 14, Article VIII of the Constitution[20] as well as in Section 1,Rule 36 of the Rules of
belatedly issued just to suit their claim that they have fully paid the unpaid Court,[21]to the effect that a judgment or final order of a court should state clearly and
subscriptions since in the ordinary course of business, a receipt is issued distinctly the facts and the law on which it is based. The petitioner claims that the RTCs
earlier must have serial numbers lower than those issued on a later date. But violation indicated that the RTC did not analyze the case before rendering its decision, thus
in the case at bar, the receipt issued on November 5, 1987 had a serial denying her the opportunity to analyze the decision; and that a suspicion of partiality arose
number (222) higher than those issued on May 13, 1988 (218). And even from the fact that the RTC decision was but a replica of Printwells memorandum. She
assuming arguendo that the individual appellants have paid their unpaid cites Francisco v. Permskul,[22] in which the Court has stated that the reason underlying the
subscriptions, still, it is very apparent that the veil of corporate fiction may be constitutional requirement, that every decision should clearly and distinctly state the facts and
pierced when made as a shield to perpetuate fraud and/or confuse legitimate the law on which it is based, is to inform the reader of how the court has reached its decision
issues. (Jacinto vs. Court of Appeals, 198 SCRA 211).[19] and thereby give the losing party an opportunity to study and analyze the decision and enable
such party to appropriately assign the errors committed therein on appeal.
Spouses Halley and Vieza moved for a reconsideration, but the CA denied their motion for
reconsideration.
12

On the second and third errors, the petitioner maintains that the CA and the RTC erroneously copying from the memorandum.[24] This is because of the avowed objective of the
pierced the veil of corporate fiction despite the absence of cogent proof showing that she, as memorandum to contribute in the proper illumination and correct determination of the
stockholder of BMPI, had any hand in transacting with Printwell; that the CA and the RTC controversy. Nor is there anything untoward in the congruence of ideas and views about the
failed to appreciate the evidence that she had fully paid her subscriptions; and the CA and the legal issues between himself and the party drafting the memorandum. The frequency of
RTC wrongly relied on the articles of incorporation in determining the current list of unpaid similarities in argumentation, phraseology, expression, and citation of authorities between the
subscriptions despite the articles of incorporation being at best reflective only of the pre- decisions of the courts and the memoranda of the parties, which may be great or small, can be
incorporation status of BMPI. fairly attributable to the adherence by our courts of law and the legal profession to widely
known or universally accepted precedents set in earlier judicial actions with identical factual
As her submissions indicate, the petitioner assails the decisions of the CA on: (a) the milieus or posing related judicial dilemmas.
propriety of disregarding the separate personalities of BMPI and its stockholders by piercing
the thin veil that separated them; and (b) the application of the trust fund doctrine. We also do not agree with the petitioner that the RTCs manner of writing the decision
deprived her of the opportunity to analyze its decision as to be able to assign errors on appeal.
Ruling The contrary appears, considering that she was able to impute and assign errors to the RTC
that she extensively discussed in her appeal in the CA, indicating her thorough analysis of the
decision of the RTC.
The petition for review fails.
Our own reading of the trial courts decision persuasively shows that the RTC did
I comply with the requirements regarding the content and the manner of writing a decision
The RTC did not violate prescribed in the Constitution and the Rules of Court. The decision of the RTC contained
the Constitution and the Rules of Court clear and distinct findings of facts, and stated the applicable law and jurisprudence, fully
explaining why the defendants were being held liable to the plaintiff. In short, the reader was
at once informed of the factual and legal reasons for the ultimate result.
The contention of the petitioner, that the RTC merely copied the memorandum of
Printwell in writing its decision, and did not analyze the records on its own, thereby II
manifesting a bias in favor of Printwell, is unfounded. Corporate personality not to be used to foster injustice

It is noted that the petition for review merely generally alleges that starting from its
page 5, the decision of the RTC copied verbatim the allegations of herein Respondents in its Printwell impleaded the petitioner and the other stockholders of BMPI for two
Memorandum before the said court, as if the Memorandum was the draft of the Decision of reasons, namely: (a) to reach the unpaid subscriptions because it appeared that such
the Regional Trial Court of Pasig,[23]but fails to specify either the portions allegedly lifted subscriptions were the remaining visible assets of BMPI; and (b) to avoid multiplicity of
verbatim from the memorandum, or why she regards the decision as copied. The omission suits.[25]
renders the petition for review insufficient to support her contention, considering that the
mere similarity in language or thought between Printwells memorandum and the trial courts The petitioner submits that she had no participation in the transaction between BMPI
decision did not necessarily justify the conclusion that the RTC simply lifted verbatim or and Printwell; that BMPI acted on its own; and that shehad no hand in persuading BMPI to
copied from the memorandum. renege on its obligation to pay. Hence, she should not be personally liable.

It is to be observed in this connection that a trial or appellate judge may occasionally We rule against the petitioners submission.
view a partys memorandum or brief as worthy of due consideration either entirely or partly.
When he does so, the judge may adopt and incorporate in his adjudication the memorandum Although a corporation has a personality separate and distinct from those of its
or the parts of it he deems suitable, and yet not be guilty of the accusation of lifting or stockholders, directors, or officers,[26]such separate and distinct personality is merely a fiction
13

created by law for the sake of convenience and to promote the ends of justice.[27]The
corporate personality may be disregarded, and the individuals composing the corporation will III
be treated as individuals, if the corporate entity is being used as a cloak or cover for fraud or Unpaid creditor may satisfy its claim from
illegality; as a justification for a wrong; as an alter ego, an adjunct, or a business conduit for unpaid subscriptions;stockholders must
the sole benefit of the stockholders.[28] As a general rule, a corporation is looked upon as a prove full payment oftheir subscriptions
legal entity, unless and until sufficient reason to the contrary appears. Thus, the courts always
presume good faith, and for that reason accord prime importance to the separate personality
of the corporation, disregarding the corporate personality only after the wrongdoing is first Both the RTC and the CA applied the trust fund doctrineagainst the defendant
clearly and convincingly established.[29]It thus behooves the courts to be careful in assessing stockholders, including the petitioner.
the milieu where the piercing of the corporate veil shall be done.[30]
The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause
Although nowhere in Printwells amended complaint or in the testimonies Printwell she had already fully paid her subscriptions to the capital stock of BMPI. She thus insiststhat
offered can it be read or inferred from that the petitioner was instrumental in persuading both lower courts erred in disregarding the evidence on the complete payment of the
BMPI to renege onits obligation to pay; or that she induced Printwell to extend the credit subscription, like receipts, income tax returns, and relevant financial statements.
accommodation by misrepresenting the solvency of BMPI to Printwell, her personal liability,
together with that of her co-defendants, remained because the CA found her and the other The petitioners argumentis devoid of substance.
defendant stockholders to be in charge of the operations of BMPI at the time the unpaid
obligation was transacted and incurred, to wit: The trust fund doctrineenunciates a
In the case at bench, it is undisputed that BMPI made several orders on
credit from appellee PRINTWELL involving the printing of business xxx rule that the property of a corporation is a trust fund for the
magazines, wrappers and subscription cards, in the total amount payment of creditors, but such property can be called a trust fund only by
of P291,342.76 (Record pp. 3-5, Annex A) which facts were never denied by way of analogy or metaphor. As between the corporation itself and its
appellants stockholders that they owe(d) appellee the amount of P291,342.76. creditors it is a simple debtor, and as between its creditors and stockholders
The said goods were delivered to and received by BMPI but it failed to pay its assets are in equity a fund for the payment of its debts.[32]
its overdue account to appellee as well as the interest thereon, at the rate of
20% per annum until fully paid. It was also during this time that appellants The trust fund doctrine, first enunciated in the American case of Wood v.
stockholders were in charge of the operation of BMPI despite the fact that Dummer,[33]was adopted in our jurisdiction in Philippine Trust Co. v. Rivera,[34]where this
they were not able to pay their unpaid subscriptions to BMPI yet greatly Court declared that:
benefited from said transactions. In view of the unpaid subscriptions, BMPI
failed to pay appellee of its liability, hence appellee in order to protect its It is established doctrine that subscriptions to the capital of a
right can collect from the appellants stockholders regarding their unpaid corporation constitute a fund to which creditors have a right to look for
subscriptions. To deny appellee from recovering from appellants would place satisfaction of their claims and that the assignee in insolvency can maintain
appellee in a limbo on where to assert their right to collect from BMPI since an action upon any unpaid stock subscription in order to realize assets for the
the stockholders who are appellants herein are availing the defense of payment of its debts. (Velasco vs. Poizat, 37 Phil., 802) xxx[35]
corporate fiction to evade payment of its obligations.[31]
We clarify that the trust fund doctrine is not limited to reaching the stockholders
unpaid subscriptions. The scope of the doctrine when the corporation is insolvent
It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on encompasses not only the capital stock, but also other property and assets generally regarded
its obligations to pay, and whether or not she induced Printwell to transact with BMPI were in equity as a trust fund for the payment of corporate debts.[36]All assets and property
not good defenses in the suit. belonging to the corporation held in trust for the benefit of creditors that were distributed or
14

in the possession of the stockholders, regardless of full payment of their subscriptions, may Payment is defined as the delivery of money.[45]Yet, because a check is not money
be reached by the creditor in satisfaction of its claim. and only substitutes for money, the delivery of a check does not operate as payment and does
not discharge the obligation under a judgment.[46] The delivery of a bill of exchange only
Also, under the trust fund doctrine, a corporation has no legal capacity to release an produces the fact of payment when the bill has been encashed.[47]The following passage from
original subscriber to its capital stock from the obligation of paying for his shares, in whole or Bank of Philippine Islands v. Royeca[48]is enlightening:
in part,[37]without a valuable consideration,[38] or fraudulently, to the prejudice of
creditors.[39]The creditor is allowed to maintain an action upon any unpaid subscriptions and Settled is the rule that payment must be made in legal tender. A check
thereby steps into the shoes of the corporation for the satisfaction of its debt.[40]To make out is not legal tender and, therefore, cannot constitute a valid tender of
a prima facie case in a suit against stockholders of an insolvent corporation to compel them to payment. Since a negotiable instrument is only a substitute for money
contribute to the payment of its debts by making good unpaid balances upon their and not money, the delivery of such an instrument does not, by itself,
subscriptions, it is only necessary to establish that the stockholders have not in good faith operate as payment. Mere delivery of checks does not discharge the
paid the par value of the stocks of the corporation.[41] obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is
The petitioner posits that the finding of irregularity attending the issuance of the actually realized.
receipts (ORs) issued to the other stockholders/subscribers should not affect her because her
receipt did not suffer similar irregularity. To establish their defense, the respondents therefore had to
present proof, not only that they delivered the checks to the petitioner,
Notwithstanding that the RTC and the CA did not find any irregularity in the OR but also that the checks were encashed. The respondents failed to do
issued in her favor, we still cannot sustain the petitioners defense of full payment of her so. Had the checks been actually encashed, the respondents could have
subscription. easily produced the cancelled checks as evidence to prove the same.
Instead, they merely averred that they believed in good faith that the
In civil cases, the party who pleads payment has the burden of proving it, that even checks were encashed because they were not notified of the dishonor of
where the plaintiff must allege nonpayment, the general rule is that the burden rests on the the checks and three years had already lapsed since they issued the
defendant to prove payment, rather than on the plaintiff to prove nonpayment. In other checks.
words, the debtor bears the burden of showing with legal certainty that the obligation has
been discharged by payment.[42] Because of this failure of the respondents to present sufficient proof of
payment, it was no longer necessary for the petitioner to prove non-payment,
Apparently, the petitioner failed to discharge her burden. particularly proof that the checks were dishonored. The burden of evidence is
shifted only if the party upon whom it is lodged was able to adduce
A receipt is the written acknowledgment of the fact of payment in money or other preponderant evidence to prove its claim.
settlement between the seller and the buyer of goods, the debtor or the creditor, or the person
rendering services, and the client or the customer. Although a receipt is the best evidence of Ostensibly, therefore, the petitioners mere submission of the receipt issued in
the fact of payment, it is not conclusive, but merely presumptive; nor is it exclusive evidence, exchange of the check did not satisfactorily establish her allegation of full payment of her
considering that parole evidence may also establish the fact of payment.[44] subscription. Indeed, she could not even inform the trial court about the identity of her
drawee bank,[49]and about whether the check was cleared and its amount paid to BMPI.[50]In
The petitioners OR No. 227, presented to prove the payment of the balance of her fact, she did not present the check itself.
subscription, indicated that her supposed payment had been made by means of a check. Thus,
to discharge the burden to prove payment of her subscription, she had to adduce evidence The income tax return (ITR) and statement of assets and liabilities of BMPI, albeit
satisfactorily proving that her payment by check was regarded as payment under the law. presented, had no bearing on the issue of payment of the subscription because they did not by
themselves prove payment. ITRs establish a taxpayers liability for taxes or a taxpayers claim
15

for refund. In the same manner, the deposit slips and entries in the passbook issued in the To reiterate, the petitioner was liable pursuant to the trust fund doctrine for the
name of BMPI were hardly relevant due to their not reflecting the alleged payments. corporate obligation of BMPI by virtue of her subscription being still unpaid. Printwell, as
BMPIs creditor, had a right to reach her unpaid subscription in satisfaction of its claim.
It is notable, too, that the petitioner and her co-stockholders did not support their
allegation of complete payment of their respective subscriptions with the stock and transfer IV
book of BMPI. Indeed, books and records of a corporation (including the stock and transfer Liability of stockholders for corporate debts is up
book) are admissible in evidence in favor of or against the corporation and its members to to the extent of their unpaid subscription
prove the corporate acts, its financial status and other matters (like the status of the
stockholders), and are ordinarily the best evidence of corporate acts and
proceedings.[51]Specifically, a stock and transfer book is necessary as a measure of The RTC declared the stockholders pro rata liable for the debt(based on the
precaution, expediency, and convenience because it provides the only certain and accurate proportion to their shares in the capital stock of BMPI); and held the petitioner personally
method of establishing the various corporate acts and transactions and of showing the liable only in the amount of P149,955.65.
ownership of stock and like matters.[52]That she tendered no explanation why the stock and
transfer book was not presented warrants the inference that the book did not reflect the actual We do not agree. The RTC lacked the legal and factual support for its prorating the
payment of her subscription. liability. Hence, we need to modify the extent of the petitioners personal liability to Printwell.
The prevailing rule is that a stockholder is personally liable for the financial obligations of the
Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a corporation to the extent of his unpaid subscription.[53]In view of the petitioners unpaid
certificate covering her subscription might have been a reliable evidence of full payment of subscription being worth P262,500.00, she was liable up to that amount.
the subscriptions, considering that under Section 65 of the Corporation Code a certificate of
stock issues only to a subscriber who has fully paid his subscription. The lack of any Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is
explanation for the absence of a stock certificate in her favor likewise warrants an fixed at 12% per annum from the date the amended complaint was filed on February 8, 1990
unfavorable inference on the issue of payment. until the obligation (i.e., to the extent of the petitioners personal liability of P262,500.00) is
fully paid.[54]
Lastly, the petitioner maintains that both lower courts erred in relying on the articles
of incorporation as proof of the liabilities of the stockholders subscribing to BMPIs stocks, Lastly, we find no basis to grant attorneys fees, the award for which must be
averring that the articles of incorporation did not reflect the latest subscription status of supported by findings of fact and of law as provided under Article 2208 of the Civil
BMPI. Code[55]incorporated in the body of decision of the trial court. The absence of the requisite
findings from the RTC decision warrants the deletion of the attorneys fees.
Although the articles of incorporation may possibly reflect only the pre-
incorporation status of a corporation, the lower courts reliance on that document to determine ACCORDINGLY, we deny the petition for review on certiorari; and affirm with
whether the original subscribers already fully paid their subscriptions or not was neither modification the decision promulgated on August 14, 2002by ordering the petitioner to pay to
unwarranted nor erroneous. As earlier explained, the burden of establishing the fact of full Printwell, Inc. the sum of P262,500.00, plus interest of 12% per annum to be computed from
payment belonged not to Printwell even if it was the plaintiff, but to the stockholders like the February 8, 1990 until full payment.
petitioner who, as the defendants, averred full payment of their subscriptions as a defense.
Their failure to substantiate their averment of full payment, as well as their failure to counter The petitioner shall pay cost of suit in this appeal.
the reliance on the recitals found in the articles of incorporation simply meant their failure or
inability to satisfactorily prove their defense of full payment of the subscriptions. SO ORDERED.
16

ALERT SECURITY AND INVESTIGATION G.R. No. 182397 Respondents aver that because they were underpaid, they filed a complaint for money
AGENCY, INC. AND/OR MANUEL D. claims against Alert Security and its president and general manager, petitioner Manuel D.
DASIG, Present: Dasig, before Labor Arbiter Ariel C. Santos. As a result of their complaint, they were relieved
Petitioners, from their posts in the DOST and were not given new assignments despite the lapse of six
CORONA, C.J., months. On January 26, 1999, they filed a joint complaint for illegal dismissal against
Chairperson, petitioners.
- versus - LEONARDO-DE CASTRO,
BERSAMIN, Petitioners, on the other hand, deny that they dismissed the respondents. They
DEL CASTILLO, and claimed that from the DOST, respondents were merely detailed at the Metro Rail Transit, Inc.
VILLARAMA, JR., JJ. at the Light Rail Transit Authority (LRTA) Compound in Aurora Blvd. because the wages
therein were already adjusted to the latest minimum wage. Petitioners presented Duty Detail
Orders[5] that Alert Security issued to show that respondents were in fact assigned to
LRTA. Respondents, however, failed to report at the LRTA and instead kept loitering at the
SAIDALI PASAWILAN, WILFREDO
DOST and tried to convince other security guards to file complaints against Alert Security.
VERCELES AND MELCHOR Promulgated:
Thus, on August 3, 1998, Alert Security filed a termination report[6] with the Department of
BULUSAN,
Labor and Employment relative to the termination of the respondents.
Respondents. September 14, 2011
x-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
Upon motion of the respondents, the joint complaint for illegal dismissal was ordered
DECISION consolidated with respondents earlier complaint for money claims. The records of the illegal
dismissal case were sent to Labor Arbiter Ariel C. Santos, but later returned to the Office of
VILLARAMA, JR., J.: the Labor Arbiter hearing the illegal dismissal complaint because a Decision[7] has already
been rendered in the complaint for money claims on July 14, 1999. In that decision, the
This petition for review on certiorari assails the Decision[1] dated February 1, 2008 of complaint for money claims was dismissed for lack of merit but petitioners were ordered to
the Court of Appeals (CA) in CA-G.R. SP No. 99861. The appellate court reversed and set pay respondents their latest salary differentials.
aside the January 31, 2007 Decision[2] and March 15, 2007 Resolution[3] of the National
Labor Relations Commission (NLRC) and reinstated the Labor Arbiters Decision[4] finding On July 28, 2000, Labor Arbiter Melquiades Sol D. Del Rosario rendered a
petitioners guilty of illegal dismissal. Decision[8] on the complaint for illegal dismissal. The Labor Arbiter ruled:

CONFORMABLY WITH THE FOREGOING, judgment is


The facts follow.
hereby rendered finding complainants to have been illegally
dismissed. Consequently, each complainant should be paid in solidum by the
Respondents Saidali Pasawilan, Wilfredo Verceles and Melchor Bulusan were all respondents the individual awards computed in the body of the decision,
employed by petitioner Alert Security and Investigation Agency, Inc. (Alert Security) as which is hereto adopted as part of this disposition.
security guards beginning March 31, 1996, January 14, 1997, and January 24, 1997,
respectively. They were paid 165.00 pesos a day as regular employees, and assigned at the SO ORDERED.[9]
Department of Science and Technology (DOST) pursuant to a security service contract
between the DOST and Alert Security.
Aggrieved, petitioners appealed the decision to the NLRC claiming that the Labor
Arbiter erred in deciding a re-filed case when it was filed in violation of the prohibitions
17

against litis pendenciaand forum shopping. Further, petitioners argued that complainants were Petitioners filed a motion for reconsideration, but the motion was denied in a
not illegally dismissed but were only transferred. They claimed that it was the respondents Resolution[15] dated March 31, 2008.
who refused to report for work in their new assignment.
Petitioners are now before this Court to seek relief by way of a petition for review on
[10]
On January 31, 2007, the NLRC rendered a Decision ruling that Labor Arbiter Del certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended.
Rosario did not err in taking cognizance of respondents complaint for illegal dismissal
because the July 14, 1999 Decision of Labor Arbiter Santos on the complaint for money Petitioners argue that the CA erred when it held that the NLRC committed grave
claims did not at all pass upon the issue of illegal dismissal. The NLRC, however, dismissed abuse of discretion. According to petitioners, the NLRC was correct when it ruled that there
the complaint for illegal dismissal after ruling that the fact of dismissal or termination of was no sufficient basis to rule that respondents were terminated from their employment while
employment was not sufficiently established. According to the NLRC, [the] sweeping there was proof that they were merely transferred from DOST to LRTA as shown in the Duty
generalization that the complainants were constructively dismissed is not sufficient to Detail Orders. Verily, petitioners claim that there was no termination at all; instead,
establish the existence of illegal dismissal.[11] The dispositive portion of the NLRC decision respondents abandoned their employment by refusing to report for duty at the LRTA
reads: Compound.
WHEREFORE, premises considered, the respondents appeal is
hereby given due course and the decision dated July 28, 2000 is hereby Further, petitioners argue that the CA erred when it reinstated the July 28,
REVERSED and SET-ASIDE and a new one entered DISMISSING the 2000 Decision of Labor Arbiter Del Rosario in its entirety. The dispositive portion of said
complaint for illegal dismissal for lack of merit. decision ruled that respondents should be paid their monetary awards in solidum by Alert
Security and Manuel D. Dasig, its President and General Manager. They argue that Alert
SO ORDERED.[12] Security is a duly organized domestic corporation which has a legal personality separate and
distinct from its members or owners. Hence, liability for whatever compensation or money
claims owed to employees must be borne solely by Alert Security and not by any of its
Unfazed, respondents filed a petition for certiorari with the CA questioning the individual stockholders or officers.
NLRC decision and alleging grave abuse of discretion.
On the other hand, respondents claim that the NLRC committed a serious error in
On February 1, 2008, the CA rendered the assailed Decision[13] reversing and setting ruling that they failed to provide factual substantiation of their claim of constructive
aside the NLRC decision and reinstating the July 28, 2000 Decision of Labor dismissal. Respondents aver that their Complaint Form[16] sufficiently constitutes the basis of
Arbiter Del Rosario. The CA ruled that Alert Security, as an employer, failed to discharge its their claim of illegal dismissal. Also, respondents aver that Alert Security itself admitted that
burden to show that the employees separation from employment was not motivated by respondents were relieved from their posts as security guards in DOST, albeit raising the
discrimination, made in bad faith, or effected as a form of punishment or demotion without defense that it was a mere transfer as shown by Duty Detail Orders, which, however, were
sufficient cause. The CA also found that respondents were never informed of the Duty Detail never received by respondents, as observed by the Labor Arbiter.
Orders transferring them to a new post, thereby making the alleged transfer ineffective. The
dispositive portion of the CA decision states: Essentially, the issue for resolution is whether respondents were illegally dismissed.
WHEREFORE, premises considered, the January 31, 2007 decision
of the NLRC is hereby REVERSED and SET ASIDE and the July 28, We rule in the affirmative.
2000 decision of the Labor Arbiter is hereby REVIVED.
As a rule, employment cannot be terminated by an employer without any just or
SO ORDERED.[14] authorized cause. No less than the 1987 Constitution in Section 3, Article 13 guarantees
18

security of tenure for workers and because of this, an employee may only be terminated for The Labor Code, as amended, enumerates several just and authorized causes for a
just[17] or authorized[18] causes that valid termination of employment. An employee asserting his right and asking for minimum
wage is not among those causes. Dismissing an employee on this ground amounts to
must comply with the due process requirements mandated[19] by law. Hence, employers are retaliation by management for an employees legitimate grievance without due process. Such
barred from arbitrarily removing their workers whenever and however they want. The law stroke of retribution has no place in Philippine Labor Laws.
sets the valid grounds for termination as well as the proper procedure to take when
terminating the services of an employee. Petitioners aver that respondents were merely transferred to a new post wherein the
wages are adjusted to the current minimum wage standards. They maintain that the
In De Guzman, Jr. v. Commission on Elections,[20] the Court, speaking of the respondents voluntarily abandoned their jobs when they failed to report for duty in the new
Constitutional guarantee of security of tenure to all workers, ruled: location.

x x x It only means that an employee cannot be dismissed (or transferred) Assuming this is true, we still cannot hold that the respondents abandoned their
from the service for causes other than those provided by law and after due posts. For abandonment of work to fall under Article 282 (b) of the Labor Code, as amended,
process is accorded the employee. What it seeks to prevent is capricious as gross and habitual neglect of duties there must be the concurrence of two elements. First,
exercise of the power to dismiss. x x x (Emphasis supplied.) there should be a failure of the employee to report for work without a valid or justifiable
reason, and second, there should be a showing that the employee intended to sever the
employer-employee relationship, the second element being the more determinative factor as
Although we recognize the right of employers to shape their own work force, this manifested by overt acts.[22]
management prerogative must not curtail the basic right of employees to security of tenure.
There must be a valid and lawful reason for terminating the employment of a
worker. Otherwise, it is illegal and would be dealt with by the courts accordingly. As regards the second element of intent to sever the employer-employee relationship,
the CA correctly ruled that:

As stated in Bascon v. Court of Appeals:[21] x x x the fact that petitioners filed a complaint for illegal dismissal is
indicative of their intention to remain employed with private respondent
x x x The employers power to dismiss must be tempered with the employees considering that one of their prayers in the complaint is for re-instatement.
right to security of tenure. Time and again we have said that the preservation As declared by the Supreme Court, a complaint for illegal dismissal is
of the lifeblood of the toiling laborer comes before concern for business inconsistent with the charge of abandonment, because when an employee
profits. Employers must be reminded to exercise the power to dismiss with takes steps to protect himself against a dismissal, this cannot, by logic, be
great caution, for the State will not hesitate to come to the succor of workers said to be abandonment by him of his right to be able to work.[23]
wrongly dismissed by capricious employers.

Further, according to Alert Security itself, respondents continued to report for work
In the case at bar, respondents were relieved from their posts because they filed with and loiter in the DOST after the alleged transfer order was issued. Such circumstance makes
the Labor Arbiter a complaint against their employer for money claims due to underpayment it unlikely that respondents have clear intention of leaving their respective jobs. In any case,
of wages. This reason is unacceptable and illegal. Nowhere in the law providing for the just there is no dispute that in cases of abandonment of work, notice shall be served at the workers
and authorized causes of termination of employment is there any direct or indirect reference last known address.[24] This petitioners failed to do.
to filing a legitimate complaint for money claims against the employer as a valid ground for
termination.
On the element of the failure of the employee to report for work, we also cannot
accept the allegations of petitioners that respondents unjustifiably refused to report for duty in
19

their new posts. A careful review of the records reveals that there is no showing that through the lengthy process of claiming and asking for minimum wage. This proposed
respondents were notified of their new assignments. Granting that the Duty Detail Orders scenario of petitioners simply does not jibe with human logic and experience.
were indeed issued, they served no purpose unless the intended recipients of the orders are
informed of such. On the question of the propriety of holding petitioner Manuel D. Dasig, president and
general manager of Alert Security, solidarily liable with Alert Security for the payment of the
The employer cannot simply conclude that an employee is ipso facto notified of a money awards in favor of respondents, we find petitioners arguments meritorious.
transfer when there is no evidence to indicate that the employee had knowledge of the
transfer order. Hence, the failure of an employee to report for work at the new location cannot Basic is the rule that a corporation has a separate and distinct personality apart from
be taken against him as an element of abandonment. its directors, officers, or owners. In exceptional cases, courts find it proper to breach this
corporate personality in order to make directors, officers, or owners solidarily liable for the
We acknowledge and recognize the right of an employer to transfer employees in the companies acts. Section 31, Paragraph 1 of the Corporation Code[26] provides:
interest of the service. This exercise is a management prerogative which is a lawful right of
an employer.However, like all rights, there are limitations to the right to transfer employees. Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who
As ruled in the case of Blue Dairy Corporation v. NLRC:[25] willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the
x x x The managerial prerogative to transfer personnel must be exercised affairs of the corporation or acquire any personal or pecuniary interest in
without grave abuse of discretion, bearing in mind the basic elements of conflict with their duty as such directors, or trustees shall be liable jointly and
justice and fair play. Having the right should not be confused with the severally for all damages resulting therefrom suffered by the corporation, its
manner in which that right is exercised. Thus, it cannot be used as a stockholders or members and other persons.
subterfuge by the employer to rid himself of an undesirable worker. In
particular, the employer must be able to show that the transfer is not xxxx
unreasonable, inconvenient or prejudicial to the employee; nor does it
involve a demotion in rank or a diminution of his salaries, privileges and
other benefits. x x x Jurisprudence has been consistent in defining the instances when the separate and
distinct personality of a corporation may be disregarded in order to hold the directors,
officers, or owners of the corporation liable for corporate debts. In McLeod v. National Labor
In addition to these tests for a valid transfer, there should be proper and effective Relations Commission,[27] the Court ruled:
notice to the employee concerned. It is the employers burden to show that the employee was
duly notified of the transfer. Verily, an employer cannot reasonably expect an employee to Thus, the rule is still that the doctrine of piercing the corporate veil applies
report for work in a new location without first informing said employee of the only when the corporate fiction is used to defeat public convenience, justify
transfer. Petitioners insistence on the sufficiency of mere issuance of the transfer order is wrong, protect fraud, or defend crime. In the absence of malice, bad faith, or
indicative of bad faith on their part. a specific provision of law making a corporate officer liable, such corporate
officer cannot be made personally liable for corporate liabilities. x x x
Besides, according to petitioners, the reason for the transfer to LRTA of the
respondents was that the wages in LRTA were already adjusted to comply with the minimum
wage rates. Now it is hard to believe that after being ordered to transfer to LRTA where the Further, in Carag v. National Labor Relations Commission,[28] the Court clarified
wages are better, the respondents would still refuse the transfer. That would mean that the the McLeod doctrine as regards labor laws, to wit:
respondents refused better wages and instead chose to remain in DOST, underpaid, and go
We have already ruled in McLeod v. NLRC[29] and Spouses Santos v.
NLRC[30] that Article 212(e)[31] of the Labor Code, by itself, does not make
20

a corporate officer personally liable for the debts of the corporation. The
governing law on personal liability of directors for debts of the corporation is
still Section 31 of the Corporation Code. x x x

In the present case, there is no evidence to indicate that Manuel D. Dasig, as


president and general manager of Alert Security, is using the veil of corporate fiction to
defeat public convenience, justify wrong, protect fraud, or defend crime. Further, there is no
showing that Alert Security has folded up its business or is reneging in its obligations. In the
final analysis, it is Alert Security that respondents are after and it is also Alert Security who
should take responsibility for their illegal dismissal.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of


the Court of Appeals in CA-G.R. SP No. 99861 and the Decision dated July 28, 2000 of the
Labor Arbiter are MODIFIED. Petitioner Manuel D. Dasig is held not solidarily liable with
petitioner Alert Security and Investigation, Inc. for the payment of the monetary awards in
favor of respondents. Said Decision of the Court of Appeals in all other aspects
is AFFIRMED.

With costs against the petitioners.


21

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL which told them that there is no such regulation. If [there] is no such regulation why is
AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF AMEC doing the same?
MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.
xxx
DECISION
Second: Earlier AMEC students in Physical Therapy had complained that the course is
CARPIO, J.:
not recognized by DECS. xxx
The Case Third: Students are required to take and pay for the subject even if the subject does not
have an instructor - such greed for money on the part of AMECs administration. Take
This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000 the subject Anatomy: students would pay for the subject upon enrolment because it is offered
Resolution of the Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals by the school. However there would be no instructor for such subject. Students would be
affirmed with modification the 14 December 1992 Decision[3] of the Regional Trial Court of informed that course would be moved to a later date because the school is still searching for
Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas the appropriate instructor.
Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima
liable for libel and ordered them to solidarily pay Ago Medical and Educational Center-Bicol xxx
Christian College of Medicine moral damages, attorneys fees and costs of suit.
It is a public knowledge that the Ago Medical and Educational Center has survived and has
The Antecedents been surviving for the past few years since its inception because of funds support from
foreign foundations. If you will take a look at the AMEC premises youll find out that the
names of the buildings there are foreign soundings. There is a McDonald Hall. Why not Jose
Expos is a radio documentary[4] program hosted by Carmelo Mel Rima (Rima) and Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of
Hermogenes Jun Alegre (Alegre).[5] Expos is aired every morning over DZRC-AM which is foreign foundations for AMEC is substantial, isnt it? With the report which is the basis of the
owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City, expose in DZRC today, it would be very easy for detractors and enemies of the Ago family to
the Albay municipalities and other Bicol areas.[6] stop the flow of support of foreign foundations who assist the medical school on the basis of
the latters purpose. But if the purpose of the institution (AMEC) is to deceive students at
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged
cross purpose with its reason for being it is possible for these foreign foundations to lift or
complaints from students, teachers and parents against Ago Medical and Educational Center-
suspend their donations temporarily.[8]
Bicol Christian College of Medicine (AMEC) and its administrators. Claiming that the
broadcasts were defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College of
Medicine, filed a complaint for damages[7] against FBNI, Rima and Alegre on 27 February xxx
1990. Quoted are portions of the allegedly libelous broadcasts:
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School
JUN ALEGRE: and the AMEC-Institute of Mass Communication in their effort to minimize expenses in
terms of salary are absorbing or continues to accept rejects. For example how many
teachers in AMEC are former teachers of Aquinas University but were removed because of
Let us begin with the less burdensome: if you have children taking medical course at
immorality? Does it mean that the present administration of AMEC have the total definite
AMEC-BCCM, advise them to pass all subjects because if they fail in any subject they
moral foundation from catholic administrator of Aquinas University. I will prove to you my
will repeat their year level, taking up all subjects including those they have passed
friends, that AMEC is a dumping ground, garbage, not merely of moral and physical
already. Several students had approached me stating that they had consulted with the DECS
misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs of
22

AMEC is Justita Lola, as the family name implies. She is too old to work, being an old On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an
woman. Is the AMEC administration exploiting the very [e]nterprising or compromising and Answer[10] alleging that the broadcasts against AMEC were fair and true. FBNI, Rima and
undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola Alegre claimed that they were plainly impelled by a sense of public duty to report the goings-
were if she is very old. As in atmospheric situation zero visibility the plane cannot land, on in AMEC, [which is] an institution imbued with public interest.
meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the chairman
of the committee on scholarship in AMEC. She had retired from Bicol University a long time Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty.
Edmundo Cea, collaborating counsel of Atty. Lozares, filed a Motion to Dismiss[11] on FBNIs
ago but AMEC has patiently made use of her.
behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate
Answer claiming that it exercised due diligence in the selection and supervision of Rima and
xxx
Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an
application; (2) be interviewed; and (3) undergo an apprenticeship and training program after
MEL RIMA: passing the interview. FBNI likewise claimed that it always reminds its broadcasters to
observe truth, fairness and objectivity in their broadcasts and to refrain from using libelous
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically and indecent language. Moreover, FBNI requires all broadcasters to pass the Kapisanan ng
misfit people. What does this mean? Immoral and physically misfits as teachers. mga Brodkaster sa Pilipinas (KBP) accreditation test and to secure a KBP permit.

May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are On 14 December 1992, the trial court rendered a Decision[12] finding FBNI and Alegre
no longer fit to teach. You are too old. As an aviation, your case is zero visibility. Dont insist. liable for libel except Rima. The trial court held that the broadcasts are libelous per se. The
trial court rejected the broadcasters claim that their utterances were the result of straight
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship reporting because it had no factual basis. The broadcasters did not even verify their reports
committee at that. The reason is practical cost saving in salaries, because an old person is not before airing them to show good faith. In holding FBNI liable for libel, the trial court found
fastidious, so long as she has money to buy the ingredient of beetle juice. The elderly can get that FBNI failed to exercise diligence in the selection and supervision of its employees.
by thats why she (Lola) was taken in as Dean. In absolving Rima from the charge, the trial court ruled that Rimas only participation
was when he agreed with Alegres expos. The trial court found Rimas statement within the
xxx bounds of freedom of speech, expression, and of the press. The dispositive portion of the
decision reads:
xxx On our end our task is to attend to the interests of students. It is likely that the students
would be influenced by evil. When they become members of society outside of campus WHEREFORE, premises considered, this court finds for the plaintiff. Considering the
will be liabilities rather than assets. What do you expect from a doctor who while studying degree of damages caused by the controversial utterances, which are not found by this
at AMEC is so much burdened with unreasonable imposition? What do you expect from a court to be really very serious and damaging, and there being no showing that indeed
student who aside from peculiar problems because not all students are rich in their struggle to the enrollment of plaintiff school dropped, defendants Hermogenes Jun Alegre, Jr. and
improve their social status are even more burdened with false regulations. xxx[9] (Emphasis Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and
supplied) severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian
College of Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages,
The complaint further alleged that AMEC is a reputable learning institution. With the plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit.
supposed exposs, FBNI, Rima and Alegre transmitted malicious imputations, and as such,
destroyed plaintiffs (AMEC and Ago) reputation. AMEC and Ago included FBNI as SO ORDERED. [13] (Emphasis supplied)
defendant for allegedly failing to exercise due diligence in the selection and supervision of its
employees, particularly Rima and Alegre. Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the
other, appealed the decision to the Court of Appeals. The Court of Appeals affirmed the trial
23

courts judgment with modification. The appellate court made Rima solidarily liable with and attorneys fees because the libelous remarks were directed against AMEC, and not against
FBNI and Alegre. The appellate court denied Agos claim for damages and attorneys fees her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC
because the broadcasts were directed against AMEC, and not against her. The dispositive moral damages, attorneys fees and costs of suit.
portion of the Court of Appeals decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the Issues
modification that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I]
and Hermo[g]enes Alegre. FBNI raises the following issues for resolution:

SO ORDERED.[14] I. WHETHER THE BROADCASTS ARE LIBELOUS;

FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
denied in its 26 January 2000 Resolution.
Hence, FBNI filed this petition.[15] III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR
The Ruling of the Court of Appeals PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS OF
SUIT.
The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are
libelous per se and that FBNI, Rima and Alegre failed to overcome the legal presumption of The Courts Ruling
malice. The Court of Appeals found Rima and Alegres claim that they were actuated by their
moral and social duty to inform the public of the students gripes as insufficient to justify the
utterance of the defamatory remarks. We deny the petition.
Finding no factual basis for the imputations against AMECs administrators, the Court of This is a civil action for damages as a result of the allegedly defamatory remarks of
Appeals ruled that the broadcasts were made with reckless disregard as to whether they were Rima and Alegre against AMEC.[17] While AMEC did not point out clearly the legal basis for
true or false. The appellate court pointed out that FBNI, Rima and Alegre failed to present in its complaint, a reading of the complaint reveals that AMECs cause of action is based on
court any of the students who allegedly complained against AMEC. Rima and Alegre merely Articles 30 and 33 of the Civil Code. Article 30[18] authorizes a separate civil action to
gave a single name when asked to identify the students. According to the Court of Appeals, recover civil liability arising from a criminal offense. On the other hand, Article
these circumstances cast doubt on the veracity of the broadcasters claim that they were 33[19] particularly provides that the injured party may bring a separate civil action for damages
impelled by their moral and social duty to inform the public about the students gripes. in cases of defamation, fraud, and physical injuries. AMEC also invokes Article 19[20] of the
Civil Code to justify its claim for damages. AMEC cites Articles 2176[21] and 2180[22] of the
The Court of Appeals found Rima also liable for libel since he remarked that (1) AMEC- Civil Code to hold FBNI solidarily liable with Rima and Alegre.
BCCM is a dumping ground for morally and physically misfit teachers; (2) AMEC obtained
the services of Dean Justita Lola to minimize expenses on its employees salaries; and (3)
AMEC burdened the students with unreasonable imposition and false regulations.[16] I.
Whether the broadcasts are libelous
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and
supervision of its employees for allowing Rima and Alegre to make the radio broadcasts
without the proper KBP accreditation. The Court of Appeals denied Agos claim for damages
24

A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or reportage because unfounded comments abound in the broadcasts. Moreover, there is no
imaginary, or any act or omission, condition, status, or circumstance tending to cause the existing controversy involving AMEC when the broadcasts were made. The privilege of
dishonor, discredit, or contempt of a natural or juridical person, or to blacken the memory of neutral reportage applies where the defamed person is a public figure who is involved in an
one who is dead.[24] existing controversy, and a party to that controversy makes the defamatory statement.[30]
There is no question that the broadcasts were made public and imputed to AMEC defects However, FBNI argues vigorously that malice in law does not apply to this case.
or circumstances tending to cause it dishonor, discredit and contempt. Rima and Alegres Citing Borjal v. Court of Appeals,[31] FBNI contends that the broadcasts fall within the
remarks such as greed for money on the part of AMECs administrators; AMEC is a dumping coverage of qualifiedly privileged communications for being commentaries on matters of
ground, garbage of xxx moral and physical misfits; and AMEC students who graduate will be public interest. Such being the case, AMEC should prove malice in fact or actual malice.
liabilities rather than assets of the society are libelous per se. Taken as a whole, the Since AMEC allegedly failed to prove actual malice, there is no libel.
broadcasts suggest that AMEC is a money-making institution where physically and morally
unfit teachers abound. FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of
fair comment, thus:
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima
and Alegre were plainly impelled by their civic duty to air the students gripes. FBNI alleges [F]air commentaries on matters of public interest are privileged and constitute a valid defense
that there is no evidence that ill will or spite motivated Rima and Alegre in making the in an action for libel or slander. The doctrine of fair comment means that while in general
broadcasts. FBNI further points out that Rima and Alegre exerted efforts to obtain AMECs every discreditable imputation publicly made is deemed false, because every man is
side and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes presumed innocent until his guilt is judicially proved, and every false imputation is deemed
that since there is no malice, there is no libel. malicious, nevertheless, when the discreditable imputation is directed against a public person
in his public capacity, it is not necessarily actionable. In order that such discreditable
FBNIs contentions are untenable.
imputation to a public official may be actionable, it must either be a false allegation of
Every defamatory imputation is presumed malicious.[25] Rima and Alegre failed to show fact or a comment based on a false supposition. If the comment is an expression of
adequately their good intention and justifiable motive in airing the supposed gripes of the opinion, based on established facts, then it is immaterial that the opinion happens to be
students. As hosts of a documentary or public affairs program, Rima and Alegre should have mistaken, as long as it might reasonably be inferred from the facts.[32] (Emphasis supplied)
presented the public issues free from inaccurate and misleading information.[26] Hearing the
students alleged complaints a month before the expos,[27] they had sufficient time to verify True, AMEC is a private learning institution whose business of educating students is
their sources and information. However, Rima and Alegre hardly made a thorough genuinely imbued with public interest. The welfare of the youth in general and AMECs
investigation of the students alleged gripes. Neither did they inquire about nor confirm the students in particular is a matter which the public has the right to know. Thus, similar to the
purported irregularities in AMEC from the Department of Education, Culture and Sports. newspaper articles in Borjal, the subject broadcasts dealt with matters of public interest.
Alegre testified that he merely went to AMEC to verify his report from an alleged AMEC However, unlike in Borjal, the questioned broadcasts are not based on established facts. The
official who refused to disclose any information. Alegre simply relied on the words of the record supports the following findings of the trial court:
students because they were many and not because there is proof that what they are saying is
true.[28] This plainly shows Rima and Alegres reckless disregard of whether their report was xxx Although defendants claim that they were motivated by consistent reports of students and
true or not. parents against plaintiff, yet, defendants have not presented in court, nor even gave name of a
Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. single student who made the complaint to them, much less present written complaint or
Significantly, some courts in the United States apply the privilege of neutral reportage in libel petition to that effect. To accept this defense of defendants is too dangerous because it could
cases involving matters of public interest or public figures. Under this privilege, a republisher easily give license to the media to malign people and establishments based on flimsy excuses
who accurately and disinterestedly reports certain defamatory statements made against public that there were reports to them although they could not satisfactorily establish it. Such laxity
figures is shielded from liability, regardless of the republishers subjective awareness of the would encourage careless and irresponsible broadcasting which is inimical to public interests.
truth or falsity of the accusation.[29] Rima and Alegre cannot invoke the privilege of neutral
25

Secondly, there is reason to believe that defendant radio broadcasters, contrary to the The contention that plaintiffs graduates become liabilities rather than assets of our society is a
mandates of their duties, did not verify and analyze the truth of the reports before they aired mere conclusion. Being from the place himself, this court is aware that majority of the
it, in order to prove that they are in good faith. medical graduates of plaintiffs pass the board examination easily and become prosperous and
responsible professionals.[33]
Alegre contended that plaintiff school had no permit and is not accredited to offer Physical
Therapy courses. Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, Had the comments been an expression of opinion based on established facts, it is
1987 or more than 2 years before the controversial broadcast, accreditation to offer Physical immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred
Therapy course had already been given the plaintiff, which certificate is signed by no less from the facts.[34] However, the comments of Rima and Alegre were not backed up by facts.
than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C- Therefore, the broadcasts are not privileged and remain libelous per se.
rebuttal). Defendants could have easily known this were they careful enough to verify. And
The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga Brodkaster sa
yet, defendants were very categorical and sounded too positive when they made the erroneous
report that plaintiff had no permit to offer Physical Therapy courses which they were Pilipinas, Ink. (Radio Code). Item I(B) of the Radio Code provides:
offering.
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
The allegation that plaintiff was getting tremendous aids from foreign foundations like
Mcdonald Foundation prove not to be true also. The truth is there is no Mcdonald Foundation 1. x x x
existing. Although a big building of plaintiff school was given the name Mcdonald building,
that was only in order to honor the first missionary in Bicol of plaintiffs religion, as explained 4. Public affairs program shall present public issues free from personal bias,
by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears prejudice and inaccurate and misleading information. x x x Furthermore, the
to be received by plaintiff school from the aforementioned McDonald Foundation which does station shall strive to present balanced discussion of issues. x x x.
not exist.
xxx
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that
when medical students fail in one subject, they are made to repeat all the other subject[s], 7. The station shall be responsible at all times in the supervision of public affairs,
even those they have already passed, nor their claim that the school charges laboratory fees public issues and commentary programs so that they conform to the provisions
even if there are no laboratories in the school. No evidence was presented to prove the bases and standards of this code.
for these claims, at least in order to give semblance of good faith.
8. It shall be the responsibility of the newscaster, commentator, host and announcer to
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, protect public interest, general welfare and good order in the presentation of
defendant[s] singled out Dean Justita Lola who is said to be so old, with zero visibility public affairs and public issues.[36] (Emphasis supplied)
already. Dean Lola testified in court last Jan. 21, 1991, and was found to be 75 years old. xxx
Even older people prove to be effective teachers like Supreme Court Justices who are still The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down
very much in demand as law professors in their late years. Counsel for defendants is past 75 the code of ethical conduct governing practitioners in the radio broadcast industry. The Radio
but is found by this court to be still very sharp and effective. So is plaintiffs counsel. Code is a voluntary code of conduct imposed by the radio broadcast industry on its own
members. The Radio Code is a public warranty by the radio broadcast industry that radio
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, broadcast practitioners are subject to a code by which their conduct are measured for lapses,
but is still alert and docile. liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to
the code of conduct of their profession, just like other professionals. A professional code of
26

conduct provides the standards for determining whether a person has acted justly, honestly FBNI contends that since AMEC is not entitled to moral damages, there is no basis for
and with good faith in the exercise of his rights and performance of his duties as required by the award of attorneys fees. FBNI adds that the instant case does not fall under the
Article 19[37] of the Civil Code. A professional code of conduct also provides the standards enumeration in Article 2208[48] of the Civil Code.
for determining whether a person who willfully causes loss or injury to another has acted in a
manner contrary to morals or good customs under Article 21[38] of the Civil Code. The award of attorneys fees is not proper because AMEC failed to justify satisfactorily
its claim for attorneys fees. AMEC did not adduce evidence to warrant the award of attorneys
II. fees. Moreover, both the trial and appellate courts failed to explicitly state in their respective
Whether AMEC is entitled to moral damages decisions the rationale for the award of attorneys fees.[49] In Inter-Asia Investment
Industries, Inc. v. Court of Appeals,[50] we held that:
FBNI contends that AMEC is not entitled to moral damages because it is a [I]t is an accepted doctrine that the award thereof as an item of damages is the exception
corporation.[39] rather than the rule, and counsels fees are not to be awarded every time a party wins a
A juridical person is generally not entitled to moral damages because, unlike a natural suit. The power of the court to award attorneys fees under Article 2208 of the Civil Code
person, it cannot experience physical suffering or such sentiments as wounded feelings, demands factual, legal and equitable justification, without which the award is a
serious anxiety, mental anguish or moral shock.[40] The Court of Appeals cites Mambulao conclusion without a premise, its basis being improperly left to speculation and
Lumber Co. v. PNB, et al.[41] to justify the award of moral damages. However, the Courts conjecture. In all events, the court must explicitly state in the text of the decision, and not
statement in Mambulao that a corporation may have a good reputation which, if besmirched, only in the decretal portion thereof, the legal reason for the award of attorneys
may also be a ground for the award of moral damages is an obiter dictum.[42] fees.[51] (Emphasis supplied)
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219[43] of While it mentioned about the award of attorneys fees by stating that it lies within the
the Civil Code. This provision expressly authorizes the recovery of moral damages in cases of discretion of the court and depends upon the circumstances of each case, the Court of Appeals
libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the failed to point out any circumstance to justify the award.
plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation
can validly complain for libel or any other form of defamation and claim for moral IV.
damages.[44] Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a and costs of suit
case, evidence of an honest mistake or the want of character or reputation of the party libeled
goes only in mitigation of damages.[46] Neither in such a case is the plaintiff required to
introduce evidence of actual damages as a condition precedent to the recovery of some FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of
damages.[47] In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages and attorneys fees because it exercised due diligence in the selection and
damages. supervision of its employees, particularly Rima and Alegre. FBNI maintains that its
broadcasters, including Rima and Alegre, undergo a very regimented process before they are
However, we find the award of P300,000 moral damages unreasonable. The record
allowed to go on air. Those who apply for broadcaster are subjected to interviews,
shows that even though the broadcasts were libelous per se, AMEC has not suffered any
examinations and an apprenticeship program.
substantial or material damage to its reputation. Therefore, we reduce the award of moral
damages from P300,000 to P150,000. FBNI further argues that Alegres age and lack of training are irrelevant to his
competence as a broadcaster. FBNI points out that the minor deficiencies in the KBP
accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise the
III. diligence of a good father of a family in selecting and supervising them. Rimas accreditation
Whether the award of attorneys fees is proper lapsed due to his non-payment of the KBP annual fees while Alegres accreditation card was
27

delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that Significantly, membership in the KBP, while voluntary, indicates the broadcasters strong
membership in the KBP is merely voluntary and not required by any law or government commitment to observe the broadcast industrys rules and regulations. Clearly, these
regulation. circumstances show FBNIs lack of diligence in selecting and supervising Rima and Alegre.
Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.
FBNIs arguments do not persuade us.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable 1999 and Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151
for the tort which they commit.[52] Joint tort feasors are all the persons who command,
with the MODIFICATION that the award of moral damages is reduced from P300,000
instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission to P150,000 and the award of attorneys fees is deleted. Costs against petitioner.
of a tort, or who approve of it after it is done, if done for their benefit.[53] Thus, AMEC
correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil SO ORDERED.
Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable
to pay for damages arising from the libelous broadcasts. As stated by the Court of Appeals,
recovery for defamatory statements published by radio or television may be had from
the owner of the station, a licensee, the operator of the station, or a person who procures,
or participates in, the making of the defamatory statements.[54] An employer and employee are
solidarily liable for a defamatory statement by the employee within the course and scope of
his or her employment, at least when the employer authorizes or ratifies the defamation.[55] In
this case, Rima and Alegre were clearly performing their official duties as hosts of FBNIs
radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved that
Rima and Alegre went beyond the scope of their work at that time. There was likewise no
showing that FBNI did not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely
showed that it exercised diligence in the selection of its broadcasters without introducing any
evidence to prove that it observed the same diligence in the supervision of Rima and Alegre.
FBNI did not show how it exercised diligence in supervising its broadcasters. FBNIs alleged
constant reminder to its broadcasters to observe truth, fairness and objectivity and to refrain
from using libelous and indecent language is not enough to prove due diligence in the
supervision of its broadcasters. Adequate training of the broadcasters on the industrys code of
conduct, sufficient information on libel laws, and continuous evaluation of the broadcasters
performance are but a few of the many ways of showing diligence in the supervision of
broadcasters.
FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as
broadcasters, bearing in mind their qualifications. However, no clear and convincing evidence
shows that Rima and Alegre underwent FBNIs regimented process of application.
Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP
accreditation,[56] which is one of FBNIs requirements before it hires a broadcaster.
28

SEVENTH DAY ADVENTIST G.R. No. 150416 Respondents. Promulgated:


CONFERENCE CHURCH OF
SOUTHERN PHILIPPINES, INC., July 21, 2006
and/or represented by MANASSEH
C. ARRANGUEZ, BRIGIDO P.
GULAY, FRANCISCO M. LUCENARA,
DIONICES O. TIPGOS, LORESTO
x------------------------------------------x
C. MURILLON, ISRAEL C. NINAL,
GEORGE G. SOMOSOT, JESSIE
T. ORBISO, LORETO PAEL and
JOEL BACUBAS, DECISION
Petitioners, Present:
CORONA, J.:

PUNO, J., Chairperson,


SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA, This petition for review on certiorari assails the Court of Appeals (CA) decision[1] and
resolution[2] in CA-G.R. CV No. 41966 affirming, with modification, the decision of the
AZCUNA and Regional Trial Court (RTC) of Bayugan, Agusan del Sur, Branch 7 in Civil Case No. 63.
GARCIA, JJ.

This case involves a 1,069 sq. m. lot covered by Transfer Certificate of Title (TCT) No. 4468
in Bayugan, Agusan del Sur originally owned by Felix Cosio and his wife, Felisa Cuysona.

NORTHEASTERN MINDANAO
On April 21, 1959, the spouses Cosio donated the land to the South Philippine Union
MISSION OF SEVENTH DAY
Mission of Seventh Day Adventist Church of Bayugan Esperanza, Agusan(SPUM-
ADVENTIST, INC., and/or SDA Bayugan).[3] Part of the deed of donation read:

represented by JOSUE A. LAYON,


WENDELL M. SERRANO, FLORANTE
P. TY and JETHRO CALAHAT KNOW ALL MEN BY THESE PRESENTS:

and/or SEVENTH DAY ADVENTIST


CHURCH [OF] NORTHEASTERN That we Felix Cosio[,] 49 years of age[,] and Felisa Cuysona[,] 40 years of
age, [h]usband and wife, both are citizen[s] of the Philippines, and resident[s]
MINDANAO MISSION,* with post office address in the Barrio of Bayugan, Municipality of Esperanza,
29

Province of Agusan, Philippines, do hereby grant, convey and forever quit because, not having been incorporated yet, it had no juridical personality. Neither were
claim by way of Donation or gift unto the South Philippine [Union] Mission petitioners members of the local church then, hence, the donation could not have been made
of Seventh Day Adventist Church of Bayugan, Esperanza, Agusan, all the particularly to them.
rights, title, interest, claim and demand both at law and as well in possession
as in expectancy of in and to all the place of land and portion situated in the
Barrio of Bayugan, Municipality of Esperanza, Province of Agusan, On September 28, 1987, petitioners filed a case, docketed as Civil Case No. 63 (a suit for
Philippines, more particularly and bounded as follows, to wit: cancellation of title, quieting of ownership and possession, declaratory relief
and reconveyance with prayer for preliminary injunction and damages), in the RTC
of Bayugan, Agusan del Sur. After trial, the trial court rendered a decision[7] on November 20,
1. a parcel of land for Church Site purposes only. 1992 upholding the sale in favor of respondents.
2. situated [in Barrio Bayugan, Esperanza]. On appeal, the CA affirmed the RTC decision but deleted the award of moral
damages and attorneys fees.[8] Petitioners motion for reconsideration was likewise
3. Area: 30 meters wide and 30 meters length or 900 square denied. Thus, this petition.
meters.
The issue in this petition is simple: should SDA-NEMMs ownership of the lot
4. Lot No. 822-Pls-225. Homestead Application No. V-36704, covered by TCT No. 4468 be upheld?[9] We answer in the affirmative.
Title No. P-285.
The controversy between petitioners and respondents involves two supposed transfers
5. Bounded Areas of the lot previously owned by the spouses Cosio: (1) a donation to petitioners alleged
North by National High Way; East by Bricio Gerona; South predecessors-in-interest in 1959 and (2) a sale to respondents in 1980.
by Serapio Abijaron and West by Feliz Cosio xxx. [4] Donation is undeniably one of the modes of acquiring ownership of real property.
Likewise, ownership of a property may be transferred by tradition as a consequence of a
sale.

The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day Petitioners contend that the appellate court should not have ruled on the validity of
Adventist Church, on behalf of the donee. the donation since it was not among the issues raised on appeal. This is not correct because an
appeal generally opens the entire case for review.
We agree with the appellate court that the alleged donation to petitioners was void.
Twenty-one years later, however, on February 28, 1980, the same parcel of land was
sold by the spouses Cosio to the Seventh Day Adventist Church of Northeastern Mindanao
Mission (SDA-NEMM).[5] TCT No. 4468 was thereafter issued in the name of SDA-
NEMM.[6] Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in
favor of another person who accepts it. The donation could not have been made in favor of an
entity yet inexistent at the time it was made. Nor could it have been accepted as there was yet
no one to accept it.
Claiming to be the alleged donees successors-in-interest, petitioners asserted ownership over
the property. This was opposed by respondents who argued that at the time of the donation,
SPUM-SDA Bayugan could not legally be a donee
30

The deed of donation was not in favor of any informal group of SDA members but a The de facto doctrine thus effects a compromise between two conflicting
supposed SPUM-SDA Bayugan (the local church) which, at the time, had neither juridical public interest[s]the one opposed to an unauthorized assumption of corporate
personality nor capacity to accept such gift. privileges; the other in favor of doing justice to the parties and of establishing
a general assurance of security in business dealing with corporations.[17]

Declaring themselves a de facto corporation, petitioners allege that they should


benefit from the donation. Generally, the doctrine exists to protect the public dealing with
supposed corporate entities, not to favor the defective or non-existent
But there are stringent requirements before one can qualify as a de facto corporation: corporation.[18]
In view of the foregoing, petitioners arguments anchored on their supposed de
facto status hold no water. We are convinced that there was no donation to petitioners or their
supposed predecessor-in-interest.
(a) the existence of a valid law under which it may be incorporated;
On the other hand, there is sufficient basis to affirm the title of SDA-NEMM. The
(b) an attempt in good faith to incorporate; and factual findings of the trial court in this regard were not convincingly disputed. This Court is
not a trier of facts. Only questions of law are the proper subject of a petition for review on
(c) assumption of corporate powers.[10]
certiorari.[19]
While there existed the old Corporation Law (Act 1459),[11] a law under which SPUM-
SDA Bayugan could have been organized, there is no proof that there was an attempt to
incorporate at that time. Sustaining the validity of respondents title as well as their right of ownership over the
property, the trial court stated:

The filing of articles of incorporation and the issuance of the certificate of incorporation are
essential for the existence of a de facto corporation.[12] We have held that an organization not [W]hen Felix Cosio was shown the Absolute Deed of Sale during the hearing
registered with the Securities and Exchange Commission (SEC) cannot be considered a xxx he acknowledged that the same was his xxx but that it was not his
corporation in any concept, not even as a corporation de facto.[13] Petitioners themselves intention to sell the controverted property because he had previously donated
admitted that at the time of the donation, they were not registered with the SEC, nor did they the same lot to the South Philippine Union Mission of SDA
even attempt to organize[14] to comply with legal requirements. Church of Bayugan-Esperanza. Cosio avouched that had it been his
intendment to sell, he would not have disposed of it for a mere P2,000.00 in
Corporate existence begins only from the moment a certificate of incorporation is
two installments but for P50,000.00 or P60,000.00. According to him,
issued. No such certificate was ever issued to petitioners or their supposed predecessor-in-
the P2,000.00 was not a consideration of the sale but only a form of help
interest at the time of the donation. Petitioners obviously could not have claimed succession
extended.
to an entity that never came to exist. Neither could the principle of separate juridical
personality apply since there was never any corporation[15] to speak of. And, as already stated,
some of the representatives of petitioner Seventh Day Adventist Conference Church of
Southern Philippines, Inc. were not even members of the local church then, thus, they could A thorough analysis and perusal, nonetheless, of the Deed of Absolute
not even claim that the donation was particularly for them.[16] Sale disclosed that it has the essential requisites of contracts pursuant to
xxx Article 1318 of the Civil Code, except that the consideration
of P2,000.00 is somewhat insufficient for a [1,069-square meter] land. Would
then this inadequacy of the consideration render the contract invalid?
31

Article 1355 of the Civil Code provides: Here, transfer of ownership from the spouses Cosio to SDA-NEMM was made upon
constructive delivery of the property on February 28, 1980 when the sale was made through a
public instrument.[22] TCT No. 4468 was thereafter issued and it remains in the name of SDA-
Except in cases specified by law, lesion or NEMM.
inadequacy of cause shall not invalidate a
contract, unless there has been fraud,
mistake or undue influence. WHEREFORE, the petition is hereby DENIED.
Costs against petitioners.
No evidence [of fraud, mistake or undue influence] was adduced by
[petitioners].
SO ORDERED.

xxx

Well-entrenched is the rule that a Certificate of Title is generally a


conclusive evidence of [ownership] of the land. There is that strong and
solid presumption that titles were legally issued and that they are valid. It is
irrevocable and indefeasible and the duty of the Court is to see to it that the
title is maintained and respected unless challenged in a direct
proceeding. xxx The title shall be received as evidence in all the Courts and
shall be conclusive as to all matters contained therein.

[This action was instituted almost seven years after the certificate of title in
respondents name was issued in 1980.][20]

According to Art. 1477 of the Civil Code, the ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery thereof. On this, the noted
author Arturo Tolentino had this to say:

The execution of [a] public instrument xxx transfers the ownership


from the vendor to the vendee who may thereafter exercise the rights of an
owner over the same[21]
32

G.R. No. 174909, January 20, 2016 authorized to operate, own, maintain, install, and construct radio and television stations in the
Philippines.6 In its incorporation on March 8, 1966,7 it had an authorized capital stock of
MARCELINO M. FLORETE, JR., MARIA ELENA F. MUYCO AND RAUL A. P250,000.00 divided into 2,500 shares at PI00.00 par value per share.8
MUYCO, Petitioners, v. ROGELIO M. FLORETE, IMELDA C. FLORETE, DIAMEL
CORPORATION, ROGELIO C. FLORETE JR., AND MARGARET RUTH C. Twenty-five percent (25%) of the corporation's authorized capital stock were then subscribed
FLORETE, Respondents. to as follows:

G.R. NO. 177275 Stockholder Number of Shares

ROGELIO M. FLORETE SR., Petitioner, v. MARCELINO M. FLORETE, JR., Marcelino Florete, Sr. (Marcelino, Sr.) 250 shares
MARIA ELENA F. MUYCO AND RAUL A. MUYCO, Respondents.
Salome Florete (Salome) 100 shares
DECISION Ricardo Berlin (Berlin) 50 shares

LEONEN, J.: Pacifico Sudario (Sudario) 50 shares


Atty. Santiago Divinagracia (Divinagracia), now 50 shares10
A stockholder may suffer from a wrong done to or involving a corporation, but this does not
deceased9
vest in the aggrieved stockholder a sweeping license to sue in his or her own capacity. The
determination of the stockholder's appropriate remedy—whether it is an individual suit, a
class suit, or a derivative suit—hinges on the object of the wrong done. When the object of
the wrong done is the corporation itself or "the whole body of its stock and property without On November 17, 1967, Berlin and Sudario resigned from their positions as General Manager
any severance or distribution among individual holders,"1 it is a derivative suit, not an and Station Supervisor, respectively.11 Berlin and Sudario each transferred 20 shares to Raul
individual suit or class/representative suit, that a stockholder must resort to. Muyco and Estrella Mirasol.12chanroblesvirtuallawlibrary

This resolves consolidated cases involving a Complaint for Declaration of Nullity of Salome died on November 22, 1980.13 Marcelino, Sr. suffered a stroke on July 12, 1982,
Issuances, Transfers and Sale of Shares in People's Broadcasting Service, Inc. and All which left him paralyzed and bedridden until his death on October 3, 1990.14 After Marcelino,
Posterior Subscriptions and Increases thereto with Damages.2 The Complaint did not implead Sr.'s stroke, their son, Rogelio, Sr. started managing the affairs of People's
as parties the concerned corporation, some of the transferees, transferors and other parties Broadcasting.15chanroblesvirtuallawlibrary
involved in the assailed transactions. The Petition3 docketed as G.R. No. 174909 assails the
Court of Appeals Decision affirming the dismissal of the Complaint and sustaining the award In October 1993, People's Broadcasting sought the services of the accounting and auditing
of P25,000,000.00 as moral damages and P5,000,000.00 as exemplary damages in favor of firm Sycip Gorres Velayo and Co. in order to determine the ownership of equity in the
Rogelio Florete, Sr. The Petition4 docketed as G.R. No. 177275 assails the Court of Appeals corporation.16 On November 2, 1994, Sycip Gorres Velayo and Co. submitted a report
Decision that disallowed the immediate execution of the same award of damages. detailing the movements of the corporation's shares from November 23, 1967 to December 8,
1989.17 The relevant portion of this report reads:
Spouses Marcelino Florete, Sr. and Salome Florete (now both deceased) had four (4)
children: Marcelino Florete, Jr. (Marcelino, Jr.), Maria Elena Muyco (Ma. Elena), Rogelio B. PEOPLE'S BROADCASTING SERVICE, INC. (PBS)
Florete, Sr. (Rogelio, Sr.), and Teresita Menchavez (Teresita), now
deceased.5chanroblesvirtuallawlibrary The movements in the capital stock accounts (by beneficial stockholders) are as follows:

People's Broadcasting Service, Inc. (People's Broadcasting) is a private corporation


33

Beneficial Shareholdi Additiona Transf Transf Transf Increase Shareholdi Total 1,260 1,250 249,375. 251,875.00
Stockholder ngs Nov. l er of er of er of (F) ngs 00
27, Subscripti Shares Shares Shares Oct. 31,
1967 (A) on of of of 1993
Sept. 1, Stock Stock Stock (A) The People's Broadcasting Service, Inc. was incorporated in 1965 with an authorized
1982 (B) March (D) June capital stock of P250,000 divided into 2,500 shares at PI00 par value. As of
1, 5, November 23, 1967, the total subscribed shares of stock was [sic] 1,260. The 610
1983 1987 shares issued in the name of [Newsounds Broadcasting Network, Inc.] was [sic]
(C) (E) authorized by the Board of Directors in payment for the obligation of the Corporation
to [Newsounds Broadcasting Network, Inc.].
Marcelino 560 - 750 (680) - 62,344.1 62,974.19
M. Florete, 9 ....
Sr.
(B) On August 5, 1982, the Board of Directors passed Resolution No. 4 which authorized
Salome M. 30 (30) - - - Atty. Divinagracia to negotiate the purchase of two stations of Consolidated
Florete Broadcasting System, Inc. (CBS), DYMF and DXMF in Cebu and Davao,
respectively. In consideration thereof, [People's Broadcasting Service, Inc.] shall
Rogelio M. 20 5 1110 370 (5) 149,624. 151,124.75 issue 1,250 shares of stock in favor of [Consolidated Broadcasting System, Inc.]. In
Florete 75 pursuance thereof, on September 1, 1982, the Corporation issued the remaining 1,240
shares of unissued capital stock to [Consolidated Broadcasting System, Inc.]. To
Ma. Elena 20 5 - - (25) 2,493.68 2,493.68 complete the consideration of 1,250 shares, it was explained that [Salome] transferred
F. Muyco her 10 shares to [Consolidated Broadcasting System, Inc.] and distributed her
Teresita F. - 5 - 20 (25) 2,493.69 2,493.69 remaining 20 shares to her children, at 5 shares each.
Menchavez (C) On March 1, 1983, all the 610 shares of [Newsounds Broadcasting Network, Inc.]
Marcelino - 5 - 20 (20) 2,493.44 2,493.44 were transferred to [Rogelio, Sr.]. We were not able to determine the person who
M. Florete, endorsed the certificate in [sic] behalf [of] [Newsounds Broadcasting Network, Inc.]
Jr. as the certificate was not found on file. On the same day, the entire investment of
[Consolidated Broadcasting System, Inc.] were transferred to [Marcelino, Sr.] and
Santiago C. 20 - - 270 75 29,925.2 30,290.25 [Rogelio, Sr.] at the proportion of 750 shares and 500 shares, respectively. The
Divinagraci 5 cancelled certificates of [Consolidated Broadcasting System, Inc.] were endorsed by
a [Rogelio, Sr.] in [sic] its behalf.
Newsound 610 - (610) (D) On February 28 and August 1, 1983, [Marcelino, Sr.] transferred 680 shares from his
Broadcastin block to the following:
g18
Consolidate - 1,250 (1,250
d ) Transferee No. of Shares Date of Transfer
Broadcastin
g Rogelio M. Florete [Sr.] 370 February 28, 1983
34

Santiago C. Divinagracia 270 August 1, 1983 family.23chanroblesvirtuallawlibrary

Marcelino M. Florete, Jr. 20 August 1, 1983 As of April 27, 2002, the stockholders of record of People's Broadcasting were the
following:24chanroblesvirtuallawlibrary
Teresita F. Menchavez 20 August 1, 1983
Total 680 Stockholder No. of Shares
1. Diamel Corporation 30,000.00
2. Rogelio Florete [Sr.] 153,881.53
(E) On June 3, 1987, the Corporation effected the transfer of 75 shares to [Divinagracia]
by virtue of the deeds of sale executed by the transferors concerned in his favor. 3. Marcelino Florete, Jr. 18,240.99
(F) On December 8, 1989, the [Securities and Exchange Commission] approved the 4. Ma. Elena Muyco 18,227.23
application of the Corporation to increase the authorized capital stock to
P100,000,000.00 divided into 1,000,000 shares at P100 par value. Of the increase, 5. Santiago Divinagracia 30,289.25
249,375 shares were subscribed for P24,937,500 and P6,234,375 thereof was paid-up.
The subscribers to the increase were as indicated in the foregoing. 6. Imelda Florete 1,000.00
7. Rogelio Florete, Jr. 100.00
There were no other transactions affecting the interest of the beneficial stockholders up to
8. Margaret Ruth Florete 100.00
October 31, 1993 except transfers to and from designated
nominees[.]19chanroblesvirtuallawlibrary 9. Raul Muyco 10.00
Even as it tracked the movements of shares, Sycip Gorres Velayo and Co. declined to give a 10. Manuel Villa, Jr. 10.00
categorical statement on equity ownership as People's Broadcasting's corporate records were
incomplete.20 The report contained the following disclaimer on the findings regarding the 11 .Gregorio Rubias 1.00
corporation's capital structure: 12. Cyril Regaldao 1.00
Because the procedures included certain assumptions as represented by the corporate 13. Jose Mari Trenas 1.00
secretaries mentioned in Attachment I and we have not verified the documents supporting
some of the transactions, we do not express an opinion on the capital stock accounts of the 14. Enrico Jacomille 1.00
respective companies [including People's Broadcasting] as at October 31, 1993.21 (Emphasis
supplied) 15. Joseph Vincent Go 1.00
16. Jerry Trenas 1.00
On February 1, 1997, the Board of Directors of People's Broadcasting approved Sycip Gorres
Velayo and Co.'s report.22chanroblesvirtuallawlibrary 17. Efrain Trenas 10.00

In the meantime, Rogelio, Sr. transferred a portion of his shareholdings to the members of his
immediate family, namely: Imelda Florete, Rogelio Florete, Jr., and Margaret Ruth Florete, as On June 23, 2003, Marcelino, Jr., Ma. Elena, and Raul Muyco (Marcelino, Jr. Group) filed
well as to Diamel Corporation, a corporation owned by Rogelio, Sr.'s before the Regional Trial Court a Complaint25 for Declaration of Nullity of Issuances,
35

Transfers and Sale of Shares in People's Broadcasting Service, Inc. and All Posterior 2. FIVE MILLION PESOS (P5,000,000.00) as and for EXEMPLARY DAMAGES.
Subscriptions and Increases thereto with Damages26 against Diamel Corporation, Rogelio,
Sr., Imelda Florete, Margaret Florete, and Rogelio Florete, Jr. (Rogelio, Sr. Group). The "Counterclaim(s)" of the other defendants and the prayer for the recovery of attorney's
fees and litigation expenses of defendant Rogelio Florete, Sr. are hereby DISMISSED
On July 25, 2003, the Rogelio, Sr. Group filed their Answer with compulsory likewise for lack of merit.
counterclaim.27chanroblesvirtuallawlibrary
SO ORDERED.30chanrobleslaw
On August 2, 2005, the Regional Trial Court issued a Decision (which it called a "Placitum")
dismissing the Marcelino, Jr. Group's Complaint. It ruled that the Marcelino, Jr. Group did On August 15, 2005, Rogelio, Sr. filed a Motion for the immediate execution of the award of
not have a cause of action against the Rogelio, Sr. Group and that the former is estopped from moral and exemplary damages pursuant to Rule I, Section 431 of the Interim Rules of
questioning the assailed movement of shares of People's Broadcasting. It also ruled that Procedure Governing Intra-Corporate Controversies.32chanroblesvirtuallawlibrary
indispensible parties were not joined in their Complaint.
On September 8, 2005, the Marcelino, Jr. Group filed before the Court of Appeals a Petition
According to the trial court, the indispensable parties would include: for Review33 with a prayer for the issuance of a temporary restraining order and/or writ of
preliminary injunction to deter the immediate execution of the trial court Decision awarding
[Marcelino, Sr.] and/or his estate and/or his heirs, [Salome] and/or her estate and/or her heirs,
damages to Rogelio, Sr.34 The Court of Appeals issued a temporary restraining order and,
[Divinagracia] and/or his estate and/or his successors-in-interest, [Teresita] and/or her estate
subsequently, a writ of preliminary injunction.35chanroblesvirtuallawlibrary
and/or her own successors-in-interest, the other [People's Broadcasting Service, Inc.]
stockholders who may be actually beneficial owners and not purely nominees, all the so
In its Decision36 dated March 29, 2006, the Court of Appeals denied the Marcelino, Jr.
called nominal stockholders. . . [and] the various [People's Broadcasting Service, Inc.]
Group's Petition and affirmed the trial court Decision.37 It also lifted the temporary restraining
Corporate Secretaries[.]"28chanrobleslaw
order and writ of preliminary injunction.38chanroblesvirtuallawlibrary

The Regional Trial Court granted Rogelio, Sr.'s compulsory counterclaim for moral and The Court of Appeals ruled that the Marcelino, Jr. Group did not have a cause of action
exemplary damages amounting to P25,000,000.00 and P5,000,000.00, respectively, reasoning against those whom they have impleaded as defendants. It also noted that the principal
that Rogelio, Sr. suffered from the besmirching of his personal and commercial obligors in or perpetrators of the assailed transactions were persons other than those in the
reputation.29chanroblesvirtuallawlibrary Rogelio, Sr. Group who have not been impleaded as parties. Thus, the Court of Appeals
emphasized that the following parties were indispensable to the case: People's Broadcasting;
The dispositive portion of the Regional Trial Court Decision reads: Marcelino, Sr.; Consolidated Broadcasting System, Inc.; Salome; Divinagracia; Teresita; and
"other stockholders of [People's Broadcasting] to whom the shares were transferred or the
WHEREFORE, premises duly considered, the instant "Complaint" of the plaintiffs is hereby nominees of the stockholders."39chanroblesvirtuallawlibrary
DISMISSED for lack of merit.
The Court of Appeals further emphasized that the estates of Marcelino, Sr. and Salome had
The "Counterclaim" of defendant Rogelio Florete Sr. is hereby given DUE COURSE but only long been settled, with those in the Marcelino, Jr. Group participating (in their capacity as
insofar as the claims for moral and exemplary damages are concerned. Consequently, the heirs). As the Marcelino, Jr. Group failed to act to protect their supposed interests in shares
plaintiffs herein are hereby ordered to pay, jointly and severally, defendant Rogelio Florete originally accruing to Marcelino, Sr. and Salome, the group is estopped from questioning the
Sr., the following sums, to wit: distribution of Marcelino, Sr.'s and Salome's assets.40 Furthering the conclusion that the
Marcelino, Jr. Group was bound by estoppel, the Court of Appeals noted that the Marcelino,
1. TWENTY FIVE MILLION PESOS (P25,000,000.00) as and for MORAL DAMAGES; Jr. Group was well aware of the matters stated in the report furnished by Sycip Gorres Velayo
and, and Co. but failed to act on any supposed error in the report. Instead, the Marcelino, Jr. Group
waited ten (10) years before filing their Complaint. In the interim, they even participated in
36

the affairs of People's Broadcasting, voting their shares and electing members of the Board of that the case may be decided on the merits, whether the transfers of shares assailed by the
Directors.41chanroblesvirtuallawlibrary Marcelino, Jr. Group should be nullified; and

On April 26, 2006, the Marcelino, Jr. Group filed a Motion for Reconsideration dated April Lastly, whether the Regional Trial Court's award of moral and exemplary damages in favor of
24, 2006.42chanroblesvirtuallawlibrary Rogelio, Sr. may be executed at this juncture of the proceedings.

Pending resolution of the Marcelino, Jr. Group's Motion for Reconsideration, Rogelio, Sr. The Marcelino, Jr. Group insists that they have sufficiently established causes of action
filed before the Regional Trial Court a Motion to resolve his earlier motion for the immediate accruing to them and against the Rogelio, Sr. Group.55 They add that they have impleaded all
execution of the awards of moral and exemplary damages, which was filed on August 15, indispensable parties.56 Thus, they claim that it was an error for the Regional Trial Court to
2005.43 The Regional Trial Court granted the Motion in its Order dated May 18, 2006.44 On dismiss their Complaint. They assert that a resolution of the case on the merits must ensue.
May 23, 2006, a Writ of Execution was issued to enforce the award of moral and exemplary
damages.45chanroblesvirtuallawlibrary The Marcelino, Jr. Group seeks to nullify the following transactions on the shares of stock of
People's Broadcasting, as noted in the report of Sycip Gorres Velayo and Co.:
The Marcelino, Jr. Group filed a Petition for Certiorari46 before the Court of Appeals
questioning the Regional Trial Court Order to immediately execute its Decision.47 On June (a) Issuance of 1,240 shares to Consolidated Broadcasting System, Inc. on
13, 2006, the Court of Appeals issued a temporary restraining order and, subsequently, a writ September 1, 1982,
of preliminary injunction.48 The Court of Appeals reversed the trial court Order of immediate
execution in the Decision promulgated on November 28, 2006.49 It also annulled the writ of (b) Transfer of 10 shares from Salome to Consolidated Broadcasting System, Inc. on
execution issued pursuant to the Order of immediate execution. Rogelio, Sr. filed a Motion September 1, 1982,
for Reconsideration,50 but it was denied on February 23, 2007.51chanroblesvirtuallawlibrary
(c) Issuance of 610 shares to Newsounds Broadcasting Network, Inc. on November
On September 15, 2006, the Court of Appeals denied the Marcelino, Jr. Group's Motion for 17, 1967,
Reconsideration dated April 24, 2006.52chanroblesvirtuallawlibrary
(d) Transfer of 610 shares from Newsounds Broadcasting Network, Inc. to Rogelio,
53 Sr. on March 1, 1983,
Hence, on November 17, 2006, the Marcelino, Jr. Group filed the Petition docketed as GR.
No. 174909. (e) Transfer of 750 shares from Consolidated Broadcasting System, Inc. to
Marcelino, Sr. on March 1, 1983,
Since the Court of Appeals Decision disallowed the immediate execution of the Regional
Trial Court Decision, Rogelio, Sr. filed on May 7, 2007 the Petition54 docketed as GR. No. (f) Transfer of 500 shares from Consolidated Broadcasting System, Inc. to Rogelio,
177275. Sr.,

On March 16, 2009, this court ordered the consolidation of the Petitions docketed as GR. No. (g) Transfer of 680 shares from Marcelino, Sr. to the following: 370 shares to
174909 and GR. No. 177275. Rogelio, Sr., 270 shares to Divinagracia, 20 shares to Marcelino, Jr., and 20
shares to Teresita, and
For resolution are the following issues: (h) Increase in the authorized capital stock to PI00,000,000.00 divided into
1,000,000 shares with a par value of PI00.00 per share on December 8, 1989, and
First, whether it was proper for the Regional Trial Court to dismiss the Complaint filed by the the resulting subscriptions.57
Marcelino, Jr. Group;

Second, assuming that it was error for the Regional Trial Court to dismiss the Complaint and For the issuance of 1,250 shares to Consolidated Broadcasting System, Inc., the Marcelino,
37

Jr. Group argues that Board Resolution No. 4 dated August 5, 1982, the basis for the issuance
Beneficial Stockholder No. of Shares %
of the 1,250 shares in favor of Consolidated Broadcasting System, Inc., was a forgery: it was
simulated, unauthorized, and issued without a quorum as required under Section 25 of the Marcelino Florete, Sr. 660 81.48
Corporation Code.58 They add that Salome, who allegedly transferred her 10 shares to
complete the 1,250 share transfer, was already dead at the time of the alleged transfer on Salome Florete 100 12.35
September 1, 1982.59 The Marcelino, Jr. Group claims that no member of the Board attended
the meeting referred to in Board Resolution No. 4.60 They further allege that the signature of Santiago Divinagracia 50 6.17
Marcelino, Sr. in Board Resolution No. 4 is a forgery.61 They argue that Marcelino, Sr. could Total 810 100.00
not have attended the meeting on August 5, 1982 because from July 12, 1982 to August 26,
1982,62 he was confined in Gov. B. Lopez Memorial Hospital for quadriparesis and motor
aphasia.63 They also supplied the trial court with specimen signatures of Marcelino, Sr. to
prove that the signature appearing on Board Resolution No. 4 was The Marcelino, Jr. Group further claims that the award of moral and exemplary damages is
forged.64chanroblesvirtuallawlibrary erroneous.71 They add that the amounts of P25,000,000.00 as moral damages and
P5,000,000.00 as exemplary damages are excessive.72chanroblesvirtuallawlibrary
The Marcelino, Jr. Group alleges that from the time Marcelino, Sr. suffered a stroke on July
12, 1982 until his death on October 3, 1990, he was no longer capable of giving consent The Rogelio, Sr. Group seeks the denial of the Petition filed by the Marcelino, Jr. Group,
because of his quadriparesis and motor aphasia.65 As they emphasized, "[q]uadriparesis claiming that it raises factual questions that may not be taken cognizance of in a petition for
means weakness of the upper and lower extremities with spasticity and tremors. Motor review on certiorari under Rule 45.73chanroblesvirtuallawlibrary
aphasia means that the patient could not communicate, unable to talk, nor responds [sic] to
question or simple commands."66 Thus, they conclude that all of the issuances of shares in They further argue that the Marcelino, Jr. Group has no cause of action against them.74 They
favor of Marcelino, Sr. and all of the transfers of shares to and from Marcelino, Sr. from July insist that indispensable parties have not been impleaded75 and that the Marcelino Jr. Group's
12, 1982 are void for lack of consent. claims should have been raised during the settlement of the estates of deceased Spouses
Marcelino, Sr. and Salome Florete.76 They also argue that the Marcelino, Jr. Group is already
With respect to the issuance of 610 shares to Newsounds Broadcasting Network, Inc. and the estopped from questioning Sycip Gorres Velayo and Co.'s report because they allowed 10
subsequent transfer of 610 shares to Rogelio, Sr., the Marcelino, Jr. Group argues that there is years to lapse before questioning the truthfulness of the report. They add that the Marcelino,
no deed of conveyance to support the transfer and that the stock certificates representing the Jr. Group's members have been voting their shares since 1963 without making any
610 shares are missing. They conclude that because of the absence of the stock certificates, reservation.77chanroblesvirtuallawlibrary
there is no valid delivery and endorsement as required by Section 63 of the Corporation
Code.67 Hence, the transfer is invalid. In G.R. No. 177275, Rogelio, Sr. argues that the Court of Appeals erred in disallowing the
immediate execution of the Regional Trial Court Decision. He argues that the Petition filed
Regarding the increase in the authorized capital stock of People's Broadcasting, the by the Marcelino, Jr. Group before the Court of Appeals should not have been accepted
Marcelino, Jr. Group argues that the increase was procured by fraud because it was made "by because Rule 65 petitions require that there no longer be any appeal nor any plain, speedy,
the new Board of Directors who were elected by stockholders who were transferees of the and adequate remedy in the ordinary course of law.78 He alleges that when the Petition was
illegal, fraudulent and anomalous transfers, and therefore have no power and authority to filed by the Marcelino, Jr. Group, there was still a pending appeal before the Court of
procure such increase."68 They also pray that the subscriptions to the increase be Appeals to resolve the main case.79 Rogelio, Sr. adds that the filing of a new petition despite
nullified.69chanroblesvirtuallawlibrary the pendency of the main case is a violation of the rule against forum
shopping.80chanRoblesvirtualLawlibrary
After a declaration that the issuances and transfers are void, the Marcelino, Jr. Group prays
that the capital structure of People's Broadcasting System be corrected to reflect the I
following:70chanroblesvirtuallawlibrary
38

seek remedy. Because of the frequent occurrence of such a situation, the common law
The sufficiency of the Marcelino, Jr. Group's plea for relief, through their Complaint for gradually recognized the right of a stockholder to sue on behalf of a corporation in what
Declaration of Nullity of Issuances, Transfers and Sale of Shares in People's Broadcasting eventually became known as a "derivative suit." It has been proven to be an effective remedy
Service, Inc. and All Posterior Subscriptions and Increases thereto with Damages,81 hinges on of the minority against the abuses of management. Thus, an individual stockholder is
a characterization of the suit or action they initiated. This characterization requires a permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in
determination of the cause of action through which the Marcelino, Jr. Group came to court for order to protect or vindicate corporate rights, whenever officials of the corporation refuse to
relief. It will, thus, clarify the parties who must be included in their action and the procedural sue or are the ones to be sued or hold the control of the corporation. In such actions, the suing
and substantive requirements they must satisfy if their action is to prosper. stockholder is regarded as the nominal party, with the corporation as the party in
interest.87chanrobleslaw
A stockholder suing on account of wrongful or fraudulent corporate actions (undertaken
through directors, associates, officers, or other persons) may sue in any of three (3) The distinction between individual and class/representative suits on one hand and derivative
capacities: as an individual; as part of a group or specific class of stockholders; or as a suits on the other is crucial. These are not discretionary alternatives. The fact that
representative of the corporation. stockholders suffer from a wrong done to or involving a corporation does not vest in them a
sweeping license to sue in their own capacity. The recognition of derivative suits as a vehicle
Villamor v. Umale82 distinguished individual suits from class or representative suits: for redress distinct from individual and representative suits is an acknowledgment that certain
wrongs may be addressed only through acts brought for the corporation:
Individual suits are filed when the cause of action belongs to the individual stockholder
personally, and not to the stockholders as a group or to the corporation, e.g., denial of right to Although in most every case of wrong to the corporation, each stockholder is necessarily
inspection and denial of dividends to a stockholder. If the cause of action belongs to a group affected because the value of his interest therein would be impaired, this fact of itself is not
of stockholders, such as when the rights violated belong to preferred stockholders, a class or sufficient to give him an individual cause of action since the corporation is a person distinct
representative suit may be filed to protect the stockholders in the and separate from him, and can and should itself sue the wrongdoer.88chanrobleslaw
group.83chanroblesvirtuallawlibrary

In Asset Privatization Trust v. Court of Appeals,89 the reasons for disallowing a direct
Villamor further explained that a derivative suit "is an action filed by stockholders to enforce individual suit were further explained:
a corporate action."84 A derivative suit, therefore, concerns "a wrong to the corporation
itself."85 The real party in interest is the corporation, not the stockholders filing the suit. The The reasons given for not allowing direct individual suit are:
stockholders are technically nominal parties but are nonetheless the active persons who
pursue the action for and on behalf of the corporation. (1) . . . "the universally recognized doctrine that a stockholder in a corporation has no title
legal or equitable to the corporate property; that both of these are in the corporation itself for
Remedies through derivative suits are not expressly provided for in our statutes—more the benefit of the stockholders." In other words, to allow shareholders to sue separately would
specifically, in the Corporation Code and the Securities Regulation Code—but they are conflict with the separate corporate entity principle;
"impliedly recognized when the said laws make corporate directors or officers liable for
damages suffered by the corporation and its stockholders for violation of their fiduciary (2) . . . that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held
duties."86 They are intended to afford reliefs to stockholders in instances where those in the case of Evangelista v. Santos, that 'the stockholders may not directly claim those
responsible for running the affairs of a corporation would not otherwise act: damages for themselves for that would result in the appropriation by, and the distribution
among them of part of the corporate assets before the dissolution of the corporation and the
However, in cases of mismanagement where the wrongful acts are committed by the directors liquidation of its debts and liabilities, something which cannot be legally done in view of
or trustees themselves, a stockholder or member may find that he has no redress because the Section 16 of the Corporation Law...";
former are vested by law with the right to decide whether or not the corporation should sue,
and they will never be willing to sue themselves. The corporation would thus be helpless to
39

(3) the filing of such suits would conflict with the duty of the management to sue for the alleged that resulted from such loss of corporate profits "were incidental to the injury to the
protection of all concerned; corporation."93 (Emphasis supplied, citations omitted)

(4) it would produce wasteful multiplicity of suits; and Villamor recalls the requisites for filing derivative suits:
(5) it would involve confusion in ascertaining the effect of partial recovery by an individual Rule 8, Section 1 of the Interim Rules of Procedure for Intra Corporate Controversies
on the damages recoverable by the corporation for the same act.90chanrobleslaw (Interim Rules) provides the five (5) requisites for filing derivative
suits:ChanRoblesVirtualawlibrary
The avenues for relief are, thus, mutually exclusive. The determination of the appropriate SECTION 1. Derivative action.—A stockholder or member may bring an action in the name
remedy hinges on the object of the wrong done. When the object is a specific stockholder or a of a corporation or association, as the case may be, provided, that:
definite class of stockholders, an individual suit or class/representative suit must be resorted
to. When the object of the wrong done is the corporation itself or "the whole body of its stock (1) He was a stockholder or member at the time the acts or transactions subject of
and property without any severance or distribution among individual holders,"91 it is a the action occurred and at the time the action was filed;
derivative suit that a stockholder must resort to. In Cua, Jr. v.
Tan:92chanroblesvirtuallawlibrary (2) He exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation,
Indeed, the Court notes American jurisprudence to the effect that a derivative suit, on one by-laws, laws or rules governing the corporation or partnership to obtain the
hand, and individual and class suits, on the other, are mutually relief he desires;
exclusive, viz.:ChanRoblesVirtualawlibrary
As the Supreme Court has explained: "A shareholder's derivative suit seeks to recover for the (3) No appraisal rights are available for the act or acts complained of; and
benefit of the corporation and its whole body of shareholders when injury is caused to the
(4) The suit is not a nuisance or harassment suit.
corporation that may not otherwise be redressed because of failure of the corporation to
act. Thus, 'the action is derivative, i.e., in the corporate right, if the gravamen of the
complaint is injury to the corporation, or to the whole body of its stock and property without In case of nuisance or harassment suit, the court shall forthwith dismiss the case.
any severance or distribution among individual holders, or it seeks to recover assets for the The fifth requisite for filing derivative suits, while not included in the enumeration, is implied
corporation or to prevent the dissipation of its assets.'" In contrast, "a direct action [is one] in the first paragraph of Rule 8, Section 1 of the Interim Rules: The action brought by the
filed by the shareholder individually (or on behalf of a class of shareholders to which he or stockholder or member must be "in the name of [the] corporation or association. . . ." This
she belongs) for injury to his or her interest as a shareholder.. . . [T]he two actions are requirement has already been settled in jurisprudence.
mutually exclusive: i.e., the right of action and recovery belongs to either the shareholders
(direct action) or the corporation (derivative action)." Thus, in Western Institute of Technology, Inc., et al. v. Salas, et al, this court said that
"[a]mong the basic requirements for a derivative suit to prosper is that the minority
Thus, in Nelson v. Anderson, the minority shareholder alleged that the other shareholder of shareholder who is suing for and on behalf of the corporation must allege in his complaint
the corporation negligently managed the business, resulting in its total failure. The appellate before the proper forum that he is suing on a derivative cause of action on behalf of the
court concluded that the plaintiff could not maintain the suit as a direct action: "Because the corporation and all other shareholders similarly situated who wish to join [him]." ...
gravamen of the complaint is injury to the whole body of its stockholders, it was for the
corporation to institute and maintain a remedial action. A derivative action would have been Moreover, it is important that the corporation be made a party to the case.94 (Citations
appropriate if its responsible officials had refused or failed to act." The court went on to note omitted)
that the damages shown at trial were the loss of corporate profits. Since "[shareholders own
neither the property nor the earnings of the corporation," any damages that the plaintiff
II
40

Properties Development and Construction, Inc. (Distinction Properties), to fulfill its


The greater number of cases that sustained stockholders' recourse to derivative suits involved contractual obligations. The Complaint was filed in the wake of an agreement entered into by
corporate acts amounting to mismanagement by either the corporation's directors or officers Distinction Properties with the condominium corporation Phoenix Heights Condominium
in relations to third persons. Several cases serve as examples. Corporation (PHCC). PHCC "approved a settlement offer from [Distinction Properties] for
the set-off of the latter's association dues arrears with the assignment [from Distinction
Hi-Yield Realty v. Court of Appeals95 affirmed the Regional Trial Court's and Court of Properties] of title over [two saleable commercial units/spaces originally held by Distinction
Appeals' characterization of a Petition for Annulment of Real Estate Mortgage and Properties] and their conversion into common areas."103chanroblesvirtuallawlibrary
Foreclosure Sale96 as a derivative suit. The Petition was initiated by private respondent
Roberto H. Torres, a stockholder, on behalf of the corporation Honorio Torres & Sons, Inc. This court clarified that the true purpose of the petitioners' action was not to compel
Petitioner Hi-Yield Realty, Inc. was among the defendants to the Petition, along with the Distinction Properties to fulfill its contractual obligations. Instead, "petitioners [we]re
related parties, Leonora, Ma. Theresa, Glenn, and Stephanie, all surnamed Torres, as well as actually seeking to nullify and invalidate the duly constituted acts of PHCC - the April 29,
the Registers of Deeds of Marikina and of Quezon City. Against Hi-Yield Realty, Inc.'s 2005 Agreement entered into by PHCC with DPDCI and its Board Resolution which
claims, this court sustained the respondent's position that the Petition was "primarily a authorized the acceptance of the proposed offsetting/settlement of DPDCI's indebtedness and
derivative suit to redress the alleged unauthorized acts of its corporate officers and major approval of the conversion of certain units from saleable to common areas." This court
stockholders in connection with the lands."97chanroblesvirtuallawlibrary thereby concluded that "the cause of action rightfully pertains to PHCC [and that] [petitioners
cannot exercise the same except through a derivative suit."104chanroblesvirtuallawlibrary
Cua, Jr. considered two corporate acts to be valid objects of a derivative suit. The first was a
resolution of the Board of Directors of the corporation Philippine Racing Club, Inc. to acquire The prevalence of derivative suits arising from corporate actions taken in relation to third
up to 100% of the common shares of another corporation, JTH Davies Holdings, Inc., as well persons is to be expected. After all, it is easier to perceive the wrong done to a corporation
as to appoint Santiago Cua, Jr. "to act as attorney-in-fact and proxy who could vote all the when third persons unduly gain an advantage. However, this does not mean that derivative
shares of [Philippine Racing Club, Inc.] in [JTH Davies Holdings, Inc.], as well as nominate, suits cannot arise with respect to conflicts among a corporation's directors, officers, and
appoint, and vote into office directors and/or officers during regular and special stockholders stockholders.
meetings of [JTH Davies Holdings, Inc.]."98 The second was another resolution of Philippine
Racing Club, Inc.'s Board of Directors "approving the property-for-shares exchange between Ching and Wellington v. Subic Bay Golf and Country Club105 sustained the Regional Trial
Philippine] R[acing] C[lub], I[nc]. and [JTH Davies Holdings, Court's and Court of Appeals' characterization of the Complaint filed by stockholders against
Inc.]."99chanroblesvirtuallawlibrary officers of the corporation as a derivative suit. Nestor Ching and Andrew Wellington filed a
Complaint in their own names and in their right as individual stockholders assailing an
In Cua, Jr., the derivative suit grounded on the first was dismissed by this court for being amendment introduced into Subic Bay Golf and Country Club's articles of incorporation,
moot and academic.100The suit grounded on the second was similarly dismissed for failure to which supposedly "takes away the right of the shareholders to participate in the pro-rata
comply with one of the requisites for instituting a derivative suit. The plaintiffs "made no distribution of the assets of the corporation after its dissolution."106 They anchored their
mention at all of appraisal rights, which could or could not have been available to them[,]" action on Section 5(a) of Presidential Decree No. 902-A.107 They claimed that this statutory
thereby violating Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate provision "allows any a stockholder to file a complaint against the Board of Directors for
Controversies.101chanroblesvirtuallawlibrary employing devices or schemes amounting to fraud and misrepresentation which is detrimental
to the interest of the public and/or the stockholders."108chanroblesvirtuallawlibrary
As with Hi-Yield Realty and Cua, Go v. Distinction Properties Development and
Construction, Inc.102 concerned a corporate action taken in relation to a third person. This court did not sustain Nestor Ching's and Andrew Wellington's claim of a right to sue in
their own capacity. Concluding that the petitioners' action was a derivative suit, this court
Petitioners Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim filed before the Housing and explained:
Land Use Regulatory Board a Complaint, which they claimed was one for specific
performance intended to compel the developer of Phoenix Heights Condominium, Distinction
41

The reliefs sought in the Complaint, namely that of enjoining defendants from acting as a status quo ante.121chanroblesvirtuallawlibrary
officers and Board of Directors of the corporation, the appointment of a receiver, and the
prayer for damages in the amount of the decrease in the value of the shares of stock, clearly As with Ching and Wellington, the actions being assailed by the Marcelino, Jr. Group pertain
show that the Complaint was filed to curb the alleged mismanagement of [Subic Bay Gold to parties that are not extraneous to People's Broadcasting. They assail and seek to nullify acts
and Country Club]. The causes of action pleaded by petitioners do not accrue to a single taken by various iterations of People's Broadcasting's Board of Directors. All these acts and
shareholder or a class of shareholders but to the corporation itself.109 (Emphasis supplied) incidents concern the capital structure of People's Broadcasting. These acts reconfigured,
through redistribution and enlargement, the structure of People's Broadcasting's equity
We are mindful that in 1979, in Gamboa v. Victoriano,110 this court characterized an action to ownership. These acts also admitted into People's Broadcasting new equity holders such as
nullify the sale of 823 unissued shares on the ground of violating the plaintiffs' pre-emptive Consolidated Broadcasting System, Inc. and Newsounds Broadcasting Network, Inc.
rights and in violation of the voting requirement for the Board of Directors as not a derivative
suit. This court characterized the action as one in which "the plaintiffs are alleging and As Ching and Wellington exemplifies, the action should be a proper derivative suit even if the
vindicating their own individual interests or prejudice, and not that of the assailed acts do not pertain to a corporation's transactions with third persons. Cua,
corporation."111chanroblesvirtuallawlibrary Jr. established that the pivotal consideration is whether the wrong done as well as the cause
of action arising from it accrues to the corporation itself or to the whole body of its
This pronouncement cannot be considered as a binding precedent for holding actions of the stockholders. Ching and Wellington states that if "[t]he causes of action pleaded ... do not
sort filed by the plaintiffs therein to not be derivative suit. This point in Gamboa was mere accrue to a single shareholder or a class of shareholders but to the corporation itself,"122 the
obiter dictum. The main issue in Gamboa was the validity of the trial court's denial of the action should be deemed a derivative suit. Also, in Go, an action "seeking to nullify and
Motion to Dismiss filed by four of the seven defendants after the plaintiffs entered into a invalidate the duly constituted acts [of a corporation]" entails a cause of action that "rightfully
compromise agreement with the three other defendants. The resolution of this issue was pertains to [the corporation itself and which stockholders] cannot exercise . . . except through
contingent on the determination of whether the compromise amounted to the plaintiff's a derivative suit."123chanroblesvirtuallawlibrary
waiver and estoppel for having conceded the validity of the sale. Besides, this court itself
acknowledged that the statement it made characterizing the action brought by the plaintiffs These are the same conditions in this case. What the Marcelino, Jr. Group asks is the
was premature. Immediately after saying that "the plaintiffs are alleging and vindicating their complete reversal of a number of corporate acts undertaken by People' Broadcasting's
own individual interests or prejudice, and not that of the corporation[,]"112 this court stated: different boards of directors. These boards supposedly engaged in outright fraud or, at the
"At any rate, it is yet too early in the proceedings since the issues have not been very least, acted in such a manner that amounts to wanton mismanagement of People's
joined."113chanRoblesvirtualLawlibrary Broadcasting's affairs. The ultimate effect of the remedy they seek is the reconfiguration of
People's Broadcasting's capital structure.
III
The remedies that the Marcelino, Jr. Group seeks are for People's Broadcasting itself to avail.
In this case, the Marcelino, Jr. Group anchored their Complaint on violations of and liabilities Ordinarily, these reliefs may be unavailing because objecting stockholders such as those in
arising from the Corporation Code, specifically: Section 23114 (on corporate decision-making the Marcelino, Jr. Group do not hold the controlling interest in People's Broadcasting. This is
being vested in the board of directors), Section 25115 (quorum requirement for the transaction precisely the situation that the rule permitting derivative suits contemplates: minority
of corporate business), Sections 39116 and 102117 (both on stockholders' preemptive rights), shareholders having no other recourse "whenever the directors or officers of the corporation
Section 62118 (stipulating the consideration for which stocks must be issued), Section refuse to sue to vindicate the rights of the corporation or are the ones to be sued and are in
63119 (stipulating that no transfer of shares "shall be valid, except as between the parties, until control of the corporation."124chanroblesvirtuallawlibrary
the transfer is recorded in the books of the corporation"), and Section 65120 (on liabilities of
directors and officers "to the corporation and its creditors" for the issuance of watered stocks) The Marcelino, Jr. Group points to violations of specific provisions of the Corporation Code
in relation to provisions in People's Broadcasting's Articles of Incorporation and By-Laws as that supposedly attest to how their rights as stockholders have been besmirched. However,
regards conditions for issuances of and subscription to shares. The Marcelino, Jr. Group this is not enough to sustain a claim that the Marcelino, Jr. Group initiated a valid individual
ultimately prays that People's Broadcasting's entire capital structure be reconfigured to reflect or class suit. To reiterate, whether stockholders suffer from a wrong done to or involving a
42

corporation does not readily vest in them a sweeping license to sue in their own capacity. corporation in order that the corporation may get the benefit of the suit and may not bring a
subsequent suit against the same defendants for the same cause of action. In other words the
The specific provisions adverted to by the Marcelino, Jr. Group signify alleged wrongdoing corporation must be joined as party because it is its cause of action that is being litigated and
committed against the corporation itself and not uniquely to those stockholders who now because judgment must be a res ajudicata [sic] against it.126chanroblesvirtuallawlibrary
comprise the Marcelino, Jr. Group. A violation of Sections 23 and 25 of the Corporation
Code—on how decision-making is vested in the board of directors and on the board's quorum We have already discussed Go where this court concluded that an action brought by three
requirement—implies that a decision was wrongly made for the entire corporation, not just individual stockholders was, in truth, a derivative suit. There, this court further explained that
with respect to a handful of stockholders. Section 65 specifically mentions that a director's or a case cannot prosper when the proper party is not impleaded:
officer's liability for the issuance of watered stocks in violation of Section 62 is solidary "to
the corporation and its creditors," not to any specific stockholder. Transfers of shares made in As it is clear that the acts being assailed are those of PHHC, this case cannot prosper for
violation of the registration requirement in Section 63 are invalid and, thus, enable the failure to implead the proper party, PHCC.
corporation to impugn the transfer. Notably, those in the Marcelino, Jr. Group have not
shown any specific interest in, or unique entitlement or right to, the shares supposedly An indispensable party is defined as one who has such an interest in the controversy or
transferred in violation of Section 63. subject matter that a final adjudication cannot be made, in his absence, without injuring or
affecting that interest. In the recent case of Nagkakaisang Lakas ng Manggagawa sa Keihin
Also, the damage inflicted upon People's Broadcasting's individual stockholders, if any, was (NLMK-OLALIA-KMU) v. Keihin Philippines Corporation, the Court had the occasion to
indiscriminate. It was not unique to those in the Marcelino, Jr. Group. It pertained to "the state that:ChanRoblesVirtualawlibrary
whole body of [People's Broadcasting's] stock."125 Accordingly, it was upon People's Under Section 7, Rule 3 of the Rules of Court, "parties in interest without whom no final
Broadcasting itself that the causes of action now claimed by the Marcelino Jr. Group accrued. determination can be had of an action shall be joined as plaintiffs or defendants." If there is a
While stockholders in the Marcelino, Jr. Group were permitted to seek relief, they should failure to implead an indispensable party, any judgment rendered would have no
have done so not in their unique capacity as individuals or as a group of stockholders but in effectiveness. It is "precisely 'when an indispensable party is not before the court (that) an
place of the corporation itself through a derivative suit. As they, instead, sought relief in their action should be dismissed.' The absence of an indispensable party renders all subsequent
individual capacity, they did so bereft of a cause of action. Likewise, they did so without even actions of the court null and void for want of authority to act, not only as to the absent parties
the slightest averment that the requisites for the filing of a derivative suit, as spelled out in but even to those present." The purpose of the rules on joinder of indispensable parties is a
Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies, have complete determination of all issues not only between the parties themselves, but also as
been satisfied. Since the Complaint lacked a cause of action and failed to comply with the regards other persons who may be affected by the judgment. A decision valid on its face
requirements of the Marcelino, Jr. Group's vehicle for relief, it was only proper for the cannot attain real finality where there is want of indispensable parties.
Complaint to have been dismissed.chanRoblesvirtualLawlibrary
Similarly, in the case of Plasabas v. Court of Appeals, the Court held that a final decree
IV would necessarily affect the rights of indispensable parties so that the Court could not
proceed without their presence. In support thereof, the Court in Plasabas cited the following
Erroneously pursuing a derivative suit as a class suit not only meant that the Marcelino, Jr. authorities, thus:ChanRoblesVirtualawlibrary
Group lacked a cause of action; it also meant that they failed to implead an indispensable The general rule with reference to the making of parties in a civil action requires the joinder
party. of all indispensable parties under any and all conditions, their presence being a sine qua non
of the exercise of judicial power. For this reason, our Supreme Court has held that when it
In derivative suits, the corporation concerned must be impleaded as a party. As explained appears of record that there are other persons interested in the subject matter of the litigation,
in Asset Privatization Trust: who are not made parties to the action, it is the duty of the court to suspend the trial until such
parties are made either plaintiffs or defendants, x x x Where the petition failed to join as party
Not only is the corporation an indispensible party, but it is also the present rule that it must be defendant the person interested in sustaining the proceeding in the court, the same should be
served with process. The reason given is that the judgment must be made binding upon the dismissed, x x x When an indispensable party is not before the court, the action should be
43

dismissed. determine a cause, the right to act in a case.'"134chanroblesvirtuallawlibrary

Parties in interest without whom no final determination can be had of an action shall be In Divinagracia v. Parilla,135Macawadib v. Philippine National Police Directorate for
joined either as plaintiffs or defendants. The burden of procuring the presence of all Personnel and Records Management,136People v. Go,137 and Valdez-Tallorin v. Heirs of
indispensable parties is on the plaintiff. The evident purpose of the rule is to prevent the Tarona,138 among others, this court annulled judgments rendered by lower courts in the
multiplicity of suits by requiring the person arresting a right against the defendant to include absence of indispensible parties.
with him, either as co-plaintiffs or as co-defendants, all persons standing in the same position,
so that the whole matter in dispute may be determined once and for all in one litigation. The second consequence is unavailing in this case. While "[njeither misjoinder nor non-
From all indications, PHCC is an indispensable party and should have been impleaded, either joinder of parties is ground for dismissal of an action"139 and is, thus, not fatal to the
as a plaintiff or as a defendant, in the complaint filed before the HLURB as it would be Marcelino, Jr. Group's action, we have shown that they lack a cause of action. This warrants
directly and adversely affected by any determination therein. To belabor the point, the causes the dismissal of their Complaint.
of action, or the acts complained of, were the acts of PHCC as a corporate
body[.]127 (Citations omitted) The first consequence, however, is crucial. It determines the validity of the Regional Trial
Court's award of damages to Rogelio, Sr.

V Since the Regional Trial Court did not have jurisdiction, the decision awarding damages in
favor of Rogelio, Sr. is void.
There are two consequences of a finding on appeal that indispensable parties have not been
joined. First, all subsequent actions of the lower courts are null and void for lack of Apart from this, there is no basis in jurisprudence for awarding moral and exemplary
jurisdiction.128 Second, the case should be remanded to the trial court for the inclusion of damages in cases where individual suits that were erroneously filed were dismissed. In the
indispensable parties. It is only upon the plaintiff's refusal to comply with an order to join analogous cases that we previously discussed—Hi-Yield Realty, Cua, Jr., Go, and Ching and
indispensable parties that the case may be dismissed.129chanroblesvirtuallawlibrary Wellington—the dismissal alone of the erroneously filed complaints sufficed. This court
never saw the need to award moral and exemplary damages. This is in keeping with the Civil
All subsequent actions of lower courts are void as to both the absent and present parties.130 To Code provisions that stipulate when the award of such damages is proper. We find no reason
reiterate, the inclusion of an indispensable party is a jurisdictional requirement: to conclude that the Marcelino, Jr. Group acted in so malevolent, oppressive, or reckless a
manner that moral and exemplary damages must be awarded in such huge amounts as the
While the failure to implead an indispensable party is not per se a ground for the dismissal of Regional Trial Court did.
an action, considering that said party may still be added by order of the court, on motion of
the party or on its own initiative at any stage of the action and/or such times as are just, it From the conclusion that the Decision awarding damages is void and unwarranted, it
remains essential — as it is jurisdictional — that any indispensable party be impleaded in the necessarily follows that the Order of the Regional Trial Court to immediately execute its
proceedings before the court renders judgment. This is because the absence of such Decision is likewise null and void. In Arcelona, the Decision sought to be annulled was
indispensable party renders all subsequent actions of the court null and void for want of already being executed. However, this court found that the assailed Decision was
authority to act, not only as to the absent parties but even as to those present.131 (Emphasis promulgated without indispensable parties being impleaded. Hence, the Decision was ruled to
supplied, citation omitted) have been made without jurisdiction. This court nullified the judgment and declared:

In Metropolitan Bank and Trust Co. v. Alejo132 and Arcelona v. Court of Appeals,133 this court A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of any
clarified that the courts must first acquire jurisdiction over the person of an indispensable right nor the creator of any obligation. All acts performed pursuant to it and all claims
party. Any decision rendered by a court without first obtaining the required jurisdiction over emanating from it have no legal effect. Hence, it can never become final and any writ of
indispensable parties is null and void for want of jurisdiction: "the presence of indispensable execution based on it is void: x x x it may be said to be a lawless thing which can be treated
parties is necessary to vest the court with jurisdiction, which is 'the authority to hear and
44

as an outlaw and slain at sight, or ignored wherever and whenever it exhibits its
head.140 (Emphasis supplied)

Accordingly, the subsequent Order of the Decision's immediate execution is also void for
lack of jurisdiction. Contrary to Rogelio Sr.'s claim in its Petition, execution cannot ensue.
For this reason, the Petition docketed as G.R. No. 177275 must be denied.

WHEREFORE, the Petition docketed as G.R. No. 174909 is PARTLY GRANTED and the
Petition docketed as G.R. No. 177275 is DENIED.

The Complaint filed by Marcelino M. Florete, Jr., Maria Elena F. Muyco, and Raul A. Muyco
for Declaration of Nullity of Issuances, Transfers and Sale of Shares in People's Broadcasting
Service, Inc. and All Posterior Subscriptions and Increases thereto with Damages is dismissed
as the complainants have no cause of action. The award of P25,000,000.00 as moral damages
and P5,000,000.00 as exemplary damages in favor of Rogelio Florete, Sr. is deleted. The
Regional Trial Court Order dated May 18, 2006 ordering the immediate execution of its
Decision dated August 2, 2005 is set aside.

SO ORDERED.cralawlawlibrary
45

G.R. No. 194964-65, January 11, 2016


As proof of his authority to execute a real estate mortgage for University of Mindanao,
UNIVERSITY OF MINDANAO, INC., Petitioner, v. BANGKO SENTRAL PILIPINAS, Saturnino Petalcorin showed a Secretary's Certificate signed on April 13, 1982 by University
ET AL., Respondents. of Mindanao's Corporate Secretary, Aurora de Leon.11 The Secretary's Certificate
stated:chanRoblesvirtualLawlibrary
DECISION
That at the regular meeting' of the Board of Trustees of the aforesaid corporation [University
LEONEN, J.: of Mindanao] duly convened on March 30, 1982, at which a quorum was present, the
following resolution was unanimously adopted:chanRoblesvirtualLawlibrary
Acts of an officer that arc not authorized by the board of directors/trustees do not bind the
"Resolved that the University of Mindanao, Inc. be and is hereby authorized, to mortgage real
corporation unless the corporation ratifies the acts or holds the officer out as a person with
estate properties with the Central Bank of the Philippines to serve as security for the credit
authority to transact on its behalf.
facility of First Iligan Savings and Loan Association, hereby authorizing the President and/or
Vice-president for Finance, Saturnino R. Petalcorin of the University of Mindanao,- Inc. to
This is a Petition for Review on Certiorari1 of the Court of Appeals' December 17, 2009
sign, execute and deliver the covering mortgage document or any other documents which
Decision2 and December 20, 2010 Resolution.3 The Court of Appeals reversed the Cagayan
may be proper[l]y required."12
De Oro City trial court's and the Iligan City trial court's Decisions to nullify mortgage
contracts involving University of Mindanao's properties.4 cralawlawlibrary

University of Mindanao is an educational institution. For the year 1982, its Board of Trustees
was chaired by Guillermo B. Torres. His wife, Dolores P. Torres, sat as University of The Secretary's Certificate was supported by an excerpt from the minutes of the January 19,
Mindanao's Assistant Treasurer.5 1982 alleged meeting of University of Mindanao's Board of Trustees. The excerpt was
certified by Aurora de Leon on March 13, 1982 to be a true copy of University of Mindanao's
Before 1982, Guillermo B. Torres and Dolores P. Torres incorporated and operated two (2) records on file.13 The excerpt reads:chanRoblesvirtualLawlibrary
thrift banks: (1) First Iligan Savings & Loan Association, Inc. (FISLAI); and (2) Davao
Savings and Loan Association, Inc. (DSLAI). Guillermo B. Torres chaired both thrift banks. 3 - Other Matters:
He acted as FISLAI's President, while his wife, Dolores P. Torres, acted as DSLAI's
President and FISLAI's Treasurer.6 (a) Cagayan de Oro and Iligan properties:
Resolution No. 82-1-8
Upon Guillermo B. Torres' request, Bangko Sentral ng Pilipinas issued a P1.9 million standby
emergency credit to FISLAI. The release of standby emergency credit was evidenced by three
(3) promissory notes dated February 8, 1982, April 7, 1982, and May 4, 1982 in the amounts Authorizing the Chairman to appoint Saturnino R. Petalcorin, Vice-President for Finance, to
of P500,000.00, P600,000.00, and P800,000.00, respectively. All these promissory notes were represent the University of Mindanao to transact, transfer, convey, lease, mortgage, or
signed by Guillermo B. Torres, and were co-signed by either his wife, Dolores P. Torres, or otherwise hypothecate any or all of the following properties situated at Cagayan de Oro and
FISLAI's Special Assistant to the President, Edmundo G. Ramos, Jr.7 Iligan City and authorizing further Mr. Petalcorin to sign any or all documents relative
thereto:chanRoblesvirtualLawlibrary
On May 25, 1982, University of Mindanao's Vice President for Finance, Saturnino Petalcorin,
executed a deed of real estate mortgage over University of Mindanao's property in Cagayan 1. A parcel of land situated at Cagayan de Oro City, covered and technically
de Oro City (covered by Transfer Certificate of Title No. T-14345) in favor of Bangko described in TRANSFER CERTIFICATE OF TITLE No. T-14345 of the
Sentral ng Pilipinas.8 "The mortgage served as security for FISLAI's PI.9 Million loan[.]"9 It Registry of Deeds of Cagayan de Oro City;
was allegedly executed on University of Mindanao's behalf.10
46

2. A parcel of land situated at Iligan City, covered and technically described in


TRANSFER CERTIFICATE OF TITLE NO..T-15696 (a.t.) of the Registry Guillermo B. Torres died on March 2, 1989.22
of Deeds of Iligan City; and
MSLAI failed to recover from its losses and was liquidated on May 24, 1991.23
3. A parcel of land situated at Iligan City, covered and technically described in
TRANSFER CERTIFICATE OF TITLE NO. T-15697 (a.f.) of the Registry On June 18, 1999, Bangko Sentral ng Pilipinas sent a letter to University of Mindanao,
of Deeds of Iligan City.14 informing it that the bank would foreclose its properties if MSLAI's total outstanding
obligation of P12,534,907.73 remained unpaid.24
cralawlawlibrary
In its reply to Bangko Sentral ng Pilipinas' June 18, 1999 letter, University of Mindanao,
through its Vice President for Accounting, Gloria E. Detoya, denied that University of
Mindanao's properties were mortgaged. It also denied having received any loan proceeds
The mortgage deed executed by Saturnino Petalcorin in favor of Bangko Sentral ng Pilipinas
from Bangko Sentral ng Pilipinas.25cralawred
was annotated on the certificate of title of the Cagayan de Oro City property (Transfer
Certificate of Title No. 14345) on June 25, 1982. Aurora de Leon's'certification was also
On July 16, 1999, University of Mindanao filed two Complaints for nullification and
annotated on the Cagayan de Oro City property's certificate of title (Transfer Certificate of
cancellation of mortgage. One Complaint was filed before the Regional Trial Court of
Title No. 14345).15
Cagayan de Oro City, and the other Complaint was filed before the Regional Trial Court of
Iligan City.26
On October 21, 1982, Bangko Sentral ng Pilipinas granted FISLAI an additional loan of
P620,700.00. Guillermo B. Torres and Edmundo Ramos executed a promissory note on
University of Mindanao alleged in its Complaints that it did not obtain any loan from Bangko
October 21, 1982 to cover that amount.16
Sentral ng Pilipinas. It also did not receive any loan proceeds from the bank.27
On November 5, 1982, Saturnino Petalcorin executed another deed of real estate mortgage,
University of Mindanao also alleged that Aurora de Leon's certification was anomalous. It
allegedly on behalf of University of Mindanao, over its two properties in Iligan City. This
never authorized Saturnino Petalcorin to execute real estate mortgage contracts involving its
mortgage served as additional security for FISLAI's loans. The two Iligan City properties
properties to secure FISLAI's debts. It never ratified the execution of the mortgage contracts.
were covered by Transfer Certificates of Title Nos, T-15696 and T-15697.17
Moreover, as an educational institution, it cannot mortgage its properties to secure another
person's debts.28
On January 17, 1983, Bangko Sentral ng Pilipinas' mortgage lien over the Iligan City
properties and Aurora de Leon's certification were annotated on Transfer Certificates of Title
On November 23, 2001, the Regional Trial Court of Cagayan de Oro City rendered a
Nos. T-15696 and T-15697.18 On January 18, 1983, Bangko Sentral ng Pilipinas' mortgage
Decision in favor of University of Mindanao,29 thus:chanRoblesvirtualLawlibrary
lien over the Iligan City properties was also annotated on the tax declarations covering the
Iligan City properties.19
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and
against defendants:chanRoblesvirtualLawlibrary
Bangko Sentral ng Pilipinas also granted emergency advances to DSLAI on May 27, 1983
and on August 20, 1984 in the amounts of P1,633,900.00 and P6,489,000.00, respectively.20
1. DECLARING the real estate mortgage Saturnino R. Petalcorin executed in favor of
BANGKO SENTRAL NG PILIPINAS involving Lot 421-A located in Cagayan de Oro City
On January 11, 1985, FISLAI, DSLAI, and Land Bank of the Philippines entered into a
with an area of 482 square meters covered by TCT No. T-14345 as annuled [sic];
Memorandum of Agreement intended to rehabilitate the thrift banks, which had been
suffering from their depositors' heavy withdrawals. Among the terms of the agreement was
2. ORDERING the Register of Deeds of Cagayan de Oro City to cancel Entry No. 9951 and
the merger of FISLAI and DSLAI, with DSLAI as the surviving corporation. DSLAI later
Entry No. 9952 annotated at the back of said TCT No. T-14345, Registry of Deeds of
became known as Mindanao Savings and Loan Association, Inc. (MSLAI).21
47

Cagayan de Oro City; No. T-15696 and TCT No. T- 15697 with respect to the aforesaid Deed of Real Estate
Mortgage dated November 5, 1982 and all other entries related thereto;
Prayer for attorney's fee [sic] is hereby denied there being no proof that in demanding
payment of the emergency loan, defendant BANGKO SENTRAL NG PILIPINAS was 3. Ordering the defendant Bangko Sentral ng Pilipinas to return the owner's duplicate copies
motivated by evident bad faith, of TCT No. T-15696 and TCT No. 15697 to the plaintiff;

SO ORDERED.30 (Citation omitted)cralawlawlibrary 4. Nullifying the subject [foreclosure [proceedings and the [a]uction [s]ale conducted by
defendant Atty. Gerardo Paguio, Jr. on October 8, 1999 including all the acts subsequent
thereto and ordering the Register of Deeds of Iligan City not to register any Certificate of Sale
The Regional Trial Court of Cagayan de Oro City found that there was no board resolution pursuant to the said auction sale nor make any transfer of the corresponding titles, and if
giving Saturnino Petalcorin authority to execute mortgage contracts on behalf of University already registered and transferred, to cancel all the said entries in TCT No. T-15696 and TCT
of Mindanao. The Cagayan de Oro City trial court gave weight to Aurora de Leon's testimony No. T-15697 and/or cancel the corresponding new TCTs in the name of defendant Bangko
that University ofMindanao's Board of Trustees did not issue a board resolution that would Sentral ng Pilipinas;
support the Secretary's Certificate she issued. She testified that she signed the Secretary's
Certificate only upon Guillermo B. Torres' orders.31 5. Making the Preliminary Injunction per Order of this Court dated October 13, 2000
permanent.
Saturnino Petalcorin testified that he had no authority to execute a mortgage contract on
University ofMindanao's behalf. He merely executed the contract because of Guillermo B. No pronouncement as to costs.36 (Citation omitted)cralawlawlibrary
Torres' request.32

Bangko Sentral ng Pilipinas' witness Daciano Pagui, Jr. also admitted that there was no board The Iligan City trial court found that the Secretary's Certificate issued by Aurora de Leon was
resolution giving Saturnino Petalcorin authority to execute mortgage contracts on behalf of fictitious37and irregular for being unnumbered.38 It also did not specify the identity,
University of Mindanao.33 description, or location of the mortgaged properties.39

The Regional Trial Court of Cagayan de Oro City ruled that Saturnino Petalcorin was not The Iligan City trial court gave credence to Aurora de Leon's testimony that the University of
authorized to execute mortgage contracts for University of Mindanao. Hence, the mortgage of Mindanao's Board of Trustees did not take up the documents in its meetings. Saturnino
University ofMindanao's Cagayan de Oro City property was unenforceable. Saturnino Petalcorin corroborated her testimony.40
Petalcorin's unauthorized acts should be annulled.34
The Iligan City trial court ruled that the lack of a board resolution authorizing Saturnino
Similarly, the Regional Trial Court of Iligan City rendered a Decision on December 7, 2001 Petalcorin to execute documents of mortgage on behalf of University of Mindanao made the
in favor of University of Mindanao.35 The dispositive portion of the Decision real estate mortgage contract unenforceable under Article 140341 of the Civil Code.42 The
reads:chanRoblesvirtualLawlibrary mortgage contract and the subsequent acts of foreclosure and auction sale were void because
the mortgage contract was executed without University of Mindanao' s authority.43
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff
and against the defendants, as follows:chanRoblesvirtualLawlibrary The Iligan City trial court also ruled that the annotations on the titles of University of
Mindanao's properties do not operate as notice to the University because annotations only
1. Nullifying and canceling [sic] the subject Deed of Real Estate Mortgage dated November bind third parties and not owners.44 Further, Bangko Sentral ng Pilipinas' right to foreclose
5, 1982 for being unenforceable or void contract; the University of Mindanao's properties had already prescribed.45

2. Ordering the Office of the Register of Deeds of Iligan City to cancel the entries on TCT Bangko Sentral ng Pilipinas separately appealed the Decisions of both the Cagayan de Oro
48

City and the Iligan City trial courts.46


University of Mindanao and Bangko Sentral ng Pilipinas filed a Motion for
After consolidating both cases, the Court of Appeals issued a Decision on December 17, 2009 Reconsideration60 and Motion for Partial Reconsideration respectively of the Court of
in favor of Bangko Sentral ng Pilipinas, thus:chanRoblesvirtualLawlibrary Appeals' Decision. On December 20, 2010, the Court of Appeals issued a Resolution,
thus:chanRoblesvirtualLawlibrary
FOR THE REASONS STATED, the Decision dated 23 November 2001 of the Regional
Trial Court of Cagayan de Oro City, Branch 24 in Civil Case No. 99-414 and the Decision Acting on the foregoing incidents, the Court RESOLVES to:chanRoblesvirtualLawlibrary
dated 7 December 2001 of the Regional Trial Court of Iligan City, Branch 1 in Civil Case No.
4790 are REVERSED and SET ASIDE. The Complaints in both cases before the trial courts 1. GRANT the appellant's twin motions for extension of time to file
are DISMISSED. The Writ of Preliminary Injunction issued by the Regional Trial Court of comment/opposition and NOTE the Comment . on the appellee's
Iligan City, Branch 1 in Civil Case No. 4790 is LIFTED and SET ASIDE. Motion for Reconsideration it subsequently filed on June 23, 2010;

SO ORDERED.47cralawlawlibrary 2. GRANT the appellee's three (3) motions for extension of time to file
comment/opposition and NOTE the Comment on the appellant's
Motion for Partial Reconsideration it filed on July 26, 2010;
The Court of Appeals ruled that "[although BSP failed to prove that the UM Board of
Trustees actually passed a Board Resolution authorizing Petalcorin to mortgage the subject 3. NOTE the appellant's "Motion for Leave to File Attached Reply
real properties,"48 Aurora de Leon's Secretary's Certificate "clothed Petalcorin with apparent Dated August 11, 2010" filed on August 13, 2010 and DENY the
and ostensible authority to execute the mortgage deed on its behalf[.]"49 Bangko Sentral ng attached "Reply to Comment Dated July 26, 2010";
Pilipinas merely relied in good faith on the Secretary's Certificate.50 University of Mindanao
4. DENY the appellee's Motion for Reconsideration as it does' not offer
is estopped from denying Saturnino Petalcorin's authority.51
any arguments sufficiently meritorious to warrant modification or
reversal of the Court's 17 December 2009 Decision. The Court finds
Moreover, the Secretary's Certificate was notarized. This meant that it enjoyed the
that there is no compelling reason to reconsider its ruling; and
presumption of regularity as to the truth of its statements and authenticity of the
signatures.52 Thus, "BSP cannot be faulted for relying on the [Secretary's Certificate.]"53
5. GRANT the appellant's Motion for Partial Reconsideration, as the
Court finds it meritorious, considering that it ruled in its Decision
The Court of Appeals also ruled that since University of Mindanao's officers, Guillermo B.
that "BSP can still foreclose on the UM's real property in Cagayan de
Torres and his wife, Dolores P. Torres, signed the promissory notes, University of Mindanao
Oro City covered by TCT No. T- 14345." It then follows that the
was presumed to have knowledge of the transaction.54 Knowledge of an officer in relation to
injunctive writ issued by the RTC of Cagayan de Oro City, Branch
matters within the scope of his or her authority is notice to the corporation.55
24 must be lifted. The Court's 17 December 2009 Decision is
accordingly MODIFIED and AMENDED to read as
The annotations on University of Mindanao's certificates of title also operate as constructive
follows:chanRoblesvirtualLawlibrary
notice to it that its properties were mortgaged.56 Its failure to disown the mortgages for more
than a decade was implied ratification.57
"FOR THE REASONS STATED, the Decision dated 23
The Court of Appeals also ruled that Bangko Sentral ng Pilipinas' action for foreclosure had November 2001 of the Regional Trial Court of Cagayan de
not yet prescribed because the due date extensions that Bangko Sentral ng Pilipinas granted to Oro City, Branch 24 in Civil Case No. 99-414 and the
FISLAI extended the due date of payment to five (5) years from February 8, 1985.58 The Decision dated 7 December 2001 of the Regional Trial Court
bank's demand letter to Dolores P. Torres on June 18, 1999 also interrupted the prescriptive of Iligan City, Branch 1 in Civil Case No. 4790
period.59 are REVERSED and SET ASIDE. The Complaints in both
49

cases before the trial courts are DISMISSED. The Writs of subject to exceptions, after demands for payment were made by the creditor. Article 1169 of
Preliminary Injunction issued by the Regional Trial Court of the Civil Code provides:chanRoblesvirtualLawlibrary
Iligan City, Branch 1 in Civil Case No. 4790 and in the
Regional Trial Court of Cagayan de Oro City, Branch 24 in ART. 1169. Those obliged to deliver or to do something incur in delay from the time the
Civil Case No. 99-414 are LIFTED and SET ASIDE." obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may
exist:chanRoblesvirtualLawlibrary
SO ORDERED.61 (Citation omitted)
(1) When the obligation or the law expressly so declare; or
cralawlawlibrary
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was a
Hence, University of Mindanao filed this Petition for Review. The issues for resolution controlling motive for the establishment of the contract; or
are:chanRoblesvirtualLawlibrary
(3) When demand would be useless, as when the obligor has rendered it beyond his power to
First, whether respondent Bangko Sentral ng Pilipinas' action to foreclose the mortgaged perform.cralawlawlibrary
properties had already prescribed; and

Second, whether petitioner University of Mindanao is bound by the real estate mortgage
Article 1193 of the Civil'Code provides that an obligation is demandable only upon due date.
contracts executed by Saturnino Petalcorin.
It provides:chanRoblesvirtualLawlibrary
We grant the Petition. ART. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes.
I
Obligations with a resolutory period take effect at once, but terminate upon arrival of the day
Petitioner argues that respondent's action to foreclose its mortgaged properties had already
certain.
prescribed.
A day certain is understood to be that which must necessarily come, although it may not be
Petitioner is mistaken.
known when.
Prescription is the mode of acquiring or losing rights through the lapse of time.62 Its purpose
If the uncertainty consists in whether the day will come or not, the obligation is conditional,
is "to protect the diligent and vigilant, not those who sleep on their rights."63
and it shall be regulated by the rules of the preceding Section.cralawlawlibrary
The prescriptive period for actions on mortgages is ten (10) years from the day they may be
brought.64Actions on mortgages may be brought not upon the execution of the mortgage
contract but upon default in payment of the obligation secured by the mortgage.65 In other words, as a general rule, a person defaults and prescriptive period for action runs
when (1) the obligation becomes due and demandable; and (2) demand for payment has been
A debtor is considered in default when he or she fails to pay the obligation on due date and, made.
50

The prescriptive period neither runs from the date of the execution of a contract nor does the Assuming that demand was necessary, respondent's action was within the ten (10)-year
prescriptive period necessarily run on the date when the loan becomes due and prescriptive period. Respondent demanded payment of the loans in 1999 and filed an action
demandable.66 Prescriptive period runs from the date of demand,67 subject to certain in the same year.
exceptions.
II
In other words, ten (10) .years may lapse from the date of the execution of contract, without
barring a cause of action on the mortgage when there is a gap between the period of execution
of the contract and the due date or between the due date and the demand date in cases when Petitioner argues that the execution of the mortgage contract was ultra vires. As an
demand is necessary.68 educational institution, it may not secure the loans of third persons.73 Securing loans of third
persons is not among the purposes for which petitioner was established.74
The mortgage contracts in this case were executed by Saturnino Petalcorin in 1982. The
maturity dates of FISLAI's loans were repeatedly extended until the loans became due and Petitioner, is correct.
demandable only in 1990. Respondent informed petitioner of its decision to foreclose its
properties and demanded payment in 1999. Corporations are artificial entities granted legal personalities upon their creation by their
incorporators in accordance with law. Unlike natural persons, they have no inherent powers.
The running of the prescriptive period of respondent's action on the mortgages did not start Third persons dealing with corporations cannot assume that corporations have powers. It is up
when it executed the mortgage contracts with Saturnino Petalcorin in 1982. to those persons dealing with corporations to determine their competence as expressly defined
by the law and their articles of incorporation.75
The prescriptive period for filing an action may run either (1) from 1990 when the loan
became due, if the obligation was covered by the exceptions under Article 1169 of the Civil A corporation may exercise its powers only within those definitions. Corporate acts that are
Code; (2) or from 1999 when respondent demanded payment, if the obligation was not outside those express definitions under the law or articles of incorporation or those
covered by the exceptions under Article 1169 of the Civil Code. "committed outside the object for which a corporation is created"76 are ultra vires.

In either case, respondent's Complaint with cause of action based on the mortgage contract The only exception to this, rule is when acts are necessary and incidental to carry out a
was filed well within the prescriptive period. corporation's purposes, and to the exercise of powers conferred by the Corporation Code and
under a corporation's articles of incorporation.77 This exception is specifically included in the
Given the termination of all traces of FISLAI's existence,70 demand may have been rendered general powers of a corporation under Section 36 of the Corporation
unnecessary under Article 1169(3)71 of the Civil Code. Granting that this is the Code:chanRoblesvirtualLawlibrary
case,.respondent would have had ten (10) years from due date in 1990 or until 2000 to
institute an action on the mortgage contract. SEC. 36. Corporate powers and capacity.—Every corporation incorporated under this Code
has the power and capacity:chanRoblesvirtualLawlibrary
However, under Article 115572 of the Civil Code, prescription of actions may be interrupted
by (1) the filing of a court action; (2) a written extrajudicial demand; and (3) the written 1. To sue and be sued in its corporate name;
acknowledgment of the debt by the debtor. 2. Of succession by its corporate name for the period of time stated in the
articles of incorporation and the certificate of incorporation;
Therefore, the running of the prescriptive period was interrupted when respondent sent its 3. To adopt and use a corporate seal;
demand letter to petitioner on June 18, 1999. This eventually led to petitioner's filing of its 4. To amend its articles of incorporation in accordance with the provisions of
annulment of mortgage complaints before the Regional Trial Courts of Iligan City and this Code;
Cagayan De Oro City on July 16, 1999. 5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend
or repeal the same in accordance with this Code;
51

6. In case of stock corporations, to issue or sell stocks to subscribers and to sell a. To establish, conduct and operate a college or colleges, and/or university;
treasury stocks in accordance with the provisions of this Code; and to admit b. To acquire properties,, real and/or personal, in connection with the
members to the corporation if it be a non stock corporation; establishment and operation of such college or colleges;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, c. To do and perform the various and sundry acts and things permitted by the
mortgage and otherwise deal with such real and personal property, including laws of the Philippines unto corporations like classes and kinds;
securities and bonds of other corporations, as the transaction of the lawful d. To engage in agricultural, industrial, and/or commercial pursuits in line with
business of the corporation may reasonably and necessarily require, subject educational program of the corporation and to acquire all properties, real and
to the limitations prescribed by law and the Constitution; personal [,] necessary for the purposes[;]
8. To enter into merger or consolidation with other corporations as provided in e. To establish, operate, and/or acquire broadcasting and television stations also
this Code; in line with the educational program of the corporation and for such other
9. To make reasonable donations, including those for the public welfare or for purposes as the Board of Trustees may determine from time to time;
hospital, charitable, cultural, scientific, civic, or similar f. To undertake housing projects of faculty members and employees, and to
purposes: Provided, That no corporation, domestic or foreign, shall give acquire real estates for this purpose;
donations in aid of any political party or candidate or for purposes of partisan g. To establish, conduct and operate and/or invest in educational foundations;
political activity; [As amended on December 15, 1965][;]
10. To establish pension, retirement, and other plans for the benefit of its h. To establish, conduct and operate housing and dental schools, medical
directors, trustees, officers and employees; and facilities and other related undertakings;
11. To exercise such other powers as may be essential or necessary to carry out i. To invest in other corporations. [As amended on December 9, 1998].
its purpose or purposes as stated in its articles of incorporation. (Emphasis [Amended Articles of Incorporation of the University of Mindanao, Inc. - the
supplied) Petitioner].80

cralawlawlibrary cralawlawlibrary

Montelibano, et al. v. Bacolod-Murcia Milling Co., Inc.78 stated the test to determine if a Petitioner does not have the power to mortgage its properties in order to secure loans of other
corporate act is in accordance with its purposes:chanRoblesvirtualLawlibrary persons. As an educational institution, it is limited to developing human capital thrpugh
formal instruction. It is not a corporation engaged in the business of securing loans of others.
It is a question, therefore, in each case, of the logical relation of the act to the corporate
purpose expressed in the charter. If that act is one which is lawful in itself, and not otherwise Hiring professors, instructors, and personnel; acquiring equipment and real estate;
prohibited, is done for the purpose of serving corporate ends, and is reasonably tributary to establishing housing facilities for personnel and students; hiring a concessionaire; and other
the promotion of those ends, in a substantial, and not in a remote and fanciful, sense, it may activities that can be directly connected to the operations and conduct of the education
fairly be considered within charter powers. The test to be applied is whether the act in business may constitute the necessary and incidental acts of an educational institution.
question is in direct and immediate furtherance of the corporation's business, fairly incident
to the express powers and reasonably necessary to their exercise. If so, the corporation has Securing FISLAI's loans by mortgaging petitioner's properties does not appear to have even
the power to do it; otherwise, not.79 (Emphasis supplied)cralawlawlibrary the remotest connection to the operations of petitioner as an educational institution. Securing
loans is not an adjunct of the educational institution's conduct of business.81 It does not appear
that securing third-party loans was necessary to maintain petitioner's business of providing
As an educational institution, petitioner serves:chanRoblesvirtualLawlibrary instruction to individuals.

This court upheld the validity of corporate acts when those acts were shown to be clearly
52

within the corporation's powers or were connected to the corporation's purposes.

In Pirovano, et al. v. De la Rama Steamship Co.,82 this court declared valid the donation However, this should not be interpreted to mean that such presumption applies to all cases,
given to the children of a deceased person who contributed to the growth of the even when the act in question is on its face beyond the corporation's power to do or when the
corporation.83 This court found that this donation was within the broad scope of powers and evidence contradicts the presumption.
purposes of the corporation to "aid in any other manner any person . . . in which any interest
is held by this corporation or in the affairs or prosperity of which this corporation has a lawful Presumptions are "inference[s] as to the existence of a fact not actually known, arising from
interest."84 its usual connection with another which is known, or a conjecture based on past experience as
to what course human affairs ordinarily take."95 Presumptions embody values and revealed
In Twin Towers Condominium Corporation v. Court of Appeals, et al.,85 this court declared behavioral expectations under a given set of circumstances.
valid a rule by Twin Towers Condominium denying delinquent members the right to use
condominium facilities. This court ruled that the condominium's power to promulgate rules Presumptions may be conclusive96 or disputable.97
on the use of facilities and to enforce provisions of the Master Deed was clear in the
Condominium Act, Master Deed, and By-laws of the condominium.87Moreover, the Conclusive presumptions are presumptions that may not be overturned by evidence, however
promulgation of such rule was "reasonably necessary" to attain the purposes of the strong the evidence is.98 They are made conclusive not because there is an established
condominium project.88 uniformity in behavior whenever identified circumstances arise. They are conclusive because
they are declared as such under the law or the rules. Rule 131, Section 2 of the Rules of Court
This court has, in effect, created a presumption that corporate acts are valid if, on their face, identifies two (2) conclusive presumptions:chanRoblesvirtualLawlibrary
the acts were within the corporation's powers or purposes. This presumption was explained as
early as in 1915 in Coleman v. Hotel De France,89 where this court ruled that contracts SEC. 2. Conclusive presumptions.— The following are instances of conclusive
entered into by corporations in the exercise of their incidental powers are not ultra vires.90 presumptions:chanRoblesvirtualLawlibrary

Coleman involved a hotel's cancellation of an employment contract it executed with a (a) Whenever a party has, by his own declaration, act, or omission, intentionally and
gymnast. One of the hotel's contentions was the supposed ultra vires nature of the contract.- It deliberately led another to believe a particular thing true, and to act upon such belief, he
was executed outside its express and implied powers under the articles of incorporation.91 cannot, in any litigation arising out of such declaration, act or omission, be permitted to
falsify it;
In ruling in favor of the contract's validity, this court considered the incidental powers of the
hotel to include the execution of employment contracts with entertainers for the purpose of (b) The tenant is not permitted to deny the title of his landlord at the time of the
providing its guests entertainment and increasing patronage.92 commencement of the relation of landlord and tenant between them.cralawlawlibrary

This court ruled that a contract executed by a corporation shall be presumed valid if on its
face its execution was not beyond the powers of the corporation to On the other hand, disputable, presumptions are presumptions that may be overcome by
do.93 Thus:chanRoblesvirtualLawlibrary contrary evidence.99 They are disputable in recognition of the variability of human behavior.
Presumptions are not always true. They may be wrong under certain circumstances, and
When a contract is not on its face necessarily beyond the scope of the power of the courts are expected to apply them, keeping in mind the nuances of every experience that may
corporation by which it was made, it will, in the absence of proof to the contrary, be render the expectations wrong.
presumed to be valid. Corporations are presumed to contract within their powers. The
doctrine of ultra vires, when invoked for or against a corporation, should not be allowed to Thus, the application of disputable presumptions on a given circumstance must be based on
prevail where it would defeat the ends of justice or work a legal wrong.94cralawlawlibrary the existence of certain facts on which they are meant to operate. "[Presumptions are not
allegations, nor do they supply their absence[.]"100 Presumptions are conclusions. They do not
53

apply when there are no facts or allegations to support them.

If the facts exist to set in motion the operation of a disputable presumption, courts may accept Respondent argues that petitioner's act of mortgaging its properties to guarantee FISLAI's
the presumption. However, contrary evidence may be presented to rebut the presumption. loans was consistent with petitioner's business interests, since petitioner was presumably a
FISLAI shareholder whose officers and shareholders interlock with FISLAI. Respondent
Courts cannot disregard contrary evidence offered to rebut disputable presumptions. points out that petitioner and its key officers held substantial shares in MSLAI when DSLAI
Disputable presumptions apply only in the absence of contrary evidence or explanations. This and FISLAI merged. Therefore, it was safe to assume that when the mortgages were executed
court explained in Philippine Agila Satellite Inc. v. Usec. Trinidad- in 1982, petitioner held substantial shares in FISLAI.103
Lichauco:101chanroblesvirtuallawlibrary
Parties dealing with corporations cannot simply assume that their transaction is within the
We do not doubt the existence of the presumptions of "good faith" or "regular performance of corporate powers. The acts of a corporation are still limited by its powers and purposes as
official duty," yet these presumptions are disputable and may be contradicted and overcome provided in the law and its articles of incorporation.
by other evidence. Many civil actions are oriented towards overcoming any number of these
presumptions, and a cause of action can certainly be geared towards such effect. The very Acquiring shares in another corporation is not a means to create new powers for the acquiring
purpose of trial is to allow a party to present evidence to overcome the disputable corporation. Being a shareholder of another corporation does not automatically change the
presumptions involved. Otherwise, if trial is deemed irrelevant or unnecessary, owing to the nature and purpose of a corporation's business. Appropriate amendments must be made either
perceived indisputability of the presumptions, the judicial exercise would be relegated to a to the law or the articles of incorporation before a corporation can validly exercise powers
mere ascertainment of what presumptions apply in a given case, nothing more. Consequently, outside those provided in law or the articles of incorporation. In other words, without an
the entire Rules of Court is rendered as excess verbiage, save perhaps for the provisions amendment, what is ultra vires before a corporation acquires shares in other corporations is
laying down the legal presumptions. still ultra vires after such acquisition.

If this reasoning of the Court of Appeals were ever adopted as a jurisprudential rule, no Thus, regardless of the number of shares that petitioner had with FISLAI, DSLAI, or MSLAI,
public officer could ever be sued for acts executed beyond their official functions or securing loans of third persons is still beyond petitioner's power to do. It is still inconsistent
authority, or for tortious conduct or behavior, since such acts would "enjoy the presumption with its purposes under the law104 and its articles of incorporation.105
of good faith and in the regular performance of official duty." Indeed, few civil actions of any
nature would ever reach the trial stage, if a case can be adjudicated by a mere determination In attempting to show petitioner's interest in securing FISLAI's loans by adverting to their
from the complaint or answer as to which legal presumptions are applicable. For-example, the interlocking, directors and shareholders, respondent disregards petitioner's separate
presumption that a person is innocent of a wrong is a disputable presumption on the same personality from its officers, shareholders, and other juridical persons.
level as that of the regular performance of official duty. A civil complaint for damages
necessarily alleges that the defendant committed a wrongful act or omission that would serve The separate personality of corporations means that they are "vest[ed] [with] rights, powers,
as basis for the award of damages. With the rationale of the Court of Appeals, such complaint and attributes [of their own] as if they were natural persons[.]"106 Their assets and liabilities
can be dismissed upon a motion to dismiss solely on the ground that the presumption is that a are their own and not their officers', shareholders', or another corporation's. In the same vein,
person is innocent of a wrong.102 (Emphasis supplied, citations omitted)cralawlawlibrary the assets and liabilities of their officers and shareholders are not the corporations'.
Obligations incurred by corporations are not obligations of their officers and shareholders.
Obligations of officers and shareholders are not obligations of corporations.107 In other words,
In this case, the presumption that the execution of mortgage contracts was within petitioner's corporate interests are separate from the personal interests of the natural persons that
corporate powers does not apply. Securing third-party loans is not connected to petitioner's comprise corporations.
purposes as an educational institution.
Corporations are given separate personalities to allow natural persons to balance the risks of
III business as they accumulate capital. They are, however, given limited competence as a means
54

to protect the public from fraudulent acts that may be committed using the separate juridical its affairs are so conducted as to make it merely an instrumentality, agency, conduit or
personality given to corporations. adjunct of another corporation."110cralawlawlibrary

Petitioner's key officers, as shareholders of FISLAI, may have an interest in ensuring the
viability of FISLAI by obtaining a loan from respondent and securing it by whatever means. These instances have not been shown in this case. There is no evidence pointing to the
However, having interlocking officers and stockholders with FISLAI does not mean that possibility that petitioner used its separate personality to defraud third persons or commit
petitioner, as an educational institution, is or must necessarily be interested in the affairs of illegal acts. Neither is there evidence to show that petitioner was merely a farce of a
FISLAI. corporation. What has been shown instead was that petitioner, too, had been victimized by
fraudulent and unauthorized acts of its own officers and directors.
Since petitioner is an entity distinct and separate not only from its own officers and
shareholders but also from FISLAI, its interests as an educational institution may not be In this case, instead of guarding against fraud, we perpetuate fraud if we accept respondent's
consistent with FISLAI's. contentions.
Petitioner and FISLAI have different constituencies. Petitioner's constituents comprise IV
persons who have committed to developing skills and acquiring knowledge in their chosen
fields by availing the formal instruction provided by petitioner. On the other hand, FISLAI is
a thrift bank, which constituencies comprise investors. Petitioner argues that it did not authorize Saturnino Petalcorin to mortgage its properties on
its behalf. There was no board resolution to that effect. Thus, the mortgages executed by
While petitioner and FISLAI exist ultimately to benefit their stockholders, their Saturnino Petalcorin were unenforceable.111
constituencies affect the means by which they can maintain their existence. Their interests are
congruent with sustaining their constituents' needs because their existence depends on that. The mortgage contracts executed in favor of respondent do not bind petitioner. They were
Petitioner can exist only if it continues to provide for the kind and quality of instruction that executed without authority from petitioner.
is needed by its constituents. Its operations and existence are placed at risk when resources
are used on activities that are not geared toward the attainment of its purpose. Petitioner has Petitioner must exercise its.powers and conduct its business through its Board of Trustees.
no business in securing FISLAI, DSLAI, or MSLAI's loans. This activity is not compatible Section 23 of the Corporation Code provides:chanRoblesvirtualLawlibrary
with its business of providing quality instruction to its constituents.
SEC. 23. The board of directors or trustees—Unless otherwise provided in this Code, the
Indeed, there are instances when we disregard the separate corporate personalities of the corporate powers of all corporations formed under this Code shall be exercised, all business
corporation and its stockholders, directors, or officers. This is called piercing of the corporate conducted and all property of such corporations controlled and held by the board of directors
veil. or trustees to be elected from among the holders of stocks, or where there is no stock, from
among the members of the corporation, who shall hold office for one (1) year and until their
Corporate veil is pierced when the separate personality of the corporation is being used to successors are elected and qualified.cralawlawlibrary
perpetrate fraud, illegalities, and injustices.108 In Lanuza, Jr. v. BF
Corporation:109chanroblesvirtuallawlibrary

Piercing the corporate veil is warranted when "[the separate personality of a corporation] is Being a juridical person, petitioner cannot conduct its business, make decisions, or act in any
used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an manner without action from its Board of Trustees. The Board of Trustees must act as a body
existing obligation, the circumvention of statutes, or to confuse legitimate issues." It is also in order to exercise corporate powers. Individual trustees are not clothed with corporate
warranted in alter ego cases "where a corporation is merely a farce since it is a mere alter ego powers just by being a trustee. Hence, the individual trustee cannot bind the corporation by
or business conduit of a person, or where the corporation is so organized and controlled and himself or herself.
55

The corporation may, however, delegate through a board resolution its corporate powers or Consent of a person cannot be presumed from representations of another, especially if
functions to a representative, subject to limitations under the law and the corporation's articles obligations will be incurred as a result. Thus, authority is required to make actions made on
of incorporation.112 his or her behalf binding on a person. Contracts entered into by persons without authority
from the corporation shall generally be considered ultra vires and unenforceable117 against the
The relationship between a corporation and its representatives is governed by the general corporation.
principles of agency.113 Article 1317 of the Civil Code provides that there must be authority
from the principal before anyone can act in his or her name:chanRoblesvirtualLawlibrary Two trial courts118 found that the Secretary's Certificate and the board resolution were either
non-existent or fictitious. The trial courts based their findings on the testimony of the
ART. 1317. No one may contract in the name of another without being authorized by the Corporate Secretary, Aurora de Leon herself. She signed the Secretary's Certificate and the
latter, or unless he has by law a right to represent him.cralawlawlibrary excerpt of the minutes of the alleged board meeting purporting to authorize Saturnino
Petalcorin to mortgage petitioner's properties. There was no board meeting to that effect.
Guillermo B. Torres ordered the issuance of the Secretary's Certificate. Aurora de Leon's
Hence, without delegation by the board of directors or trustees, acts of a person—including testimony was corroborated by Saturnino Petalcorin.
those of the corporation's directors, trustees, shareholders, or officers—executed on behalf of
the corporation are generally not binding on the corporation.114 Even the Court of Appeals, which reversed the trial courts' decisions, recognized that "BSP
failed to prove that the UM Board of Trustees actually passed a Board Resolution authorizing
Contracts entered into in another's name without authority or valid legal representation are Petalcorin to mortgage the subject real properties[.]"119
generally unenforceable. The Civil Code provides:chanRoblesvirtualLawlibrary
Well-entrenched is the rule that this court, not being a trier of facts, is bound by the findings
ART. 1317. . . . of fact of the trial courts and the Court of Appeals when such findings are supported by
evidence on record.120 Hence, not having the proper board resolution to authorize Saturnino
A contract entered into in the name of another by one who has no authority or legal Petalcorin to execute the mortgage contracts for petitioner, the contracts he executed are
representation, or who has acted beyond his powers, shall be unenforceable, unless it is unenforceable against petitioner. They cannot bind petitioner.
ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it
is revoked by the other contracting party. However, personal liabilities may be incurred by directors who assented to such unauthorized
.... act121 and by the person who contracted in excess of the limits of his or her authority without
the corporation's knowledge.122
ART. 1403. The following contracts are unenforceable, unless they are
ratified:chanRoblesvirtualLawlibrary V

(1) Those entered into in the name of another person by one who has been given no authority
or legal representation, or who has acted beyond his powers[.]cralawlawlibrary Unauthorized acts that are merely beyond the powers of the corporation under its articles of
incorporation are not void ab initio.

In Pirovano, et al, this court explained that corporate acts may be ultra vires but not
The unenforceable status of contracts entered into by an unauthorized person on behalf of void.123 Corporate acts may be capable of ratification:124chanroblesvirtuallawlibrary
another is based on the basic principle that contracts must be consented to by both
parties.115 There is no contract without meeting of the minds as to the subject matter and [A] distinction should be made between corporate acts or contracts which are illegal and
cause of the obligations created under the contract.116 those which are merely ultra vires. The former contemplates the doing of an act which is
56

contrary to law, morals, or public order, or contravene some rules of public policy or public original contract. The theory of corporate ratification is predicated on the right of a
duty, and are, like similar transactions between individuals, void. They cannot serve as basis corporation to contract, and any ratification or adoption is equivalent to a grant of prior
of a court action, nor acquire validity by performance, ratification, or estoppel. Mere ultra authority."131 (Citations omitted)cralawlawlibrary
vires acts, on the other hand, or those which are not illegal and void ab initio, but are not
merely within the scope of the articles of incorporation, are merely voidable and may become
binding and enforceable when ratified by the stockholders.125cralawlawlibrary Implied ratification may take the form of silence, acquiescence, acts consistent with approval
of the act,, or acceptance or retention of benefits.132 However, silence, acquiescence, retention
of benefits, and acts that may be interpreted as approval of the act do not by themselves
Thus, even though a person did not give another person authority to act on his or her behalf, constitute implied ratification. For an act to constitute an implied ratification, there must be
the action may be enforced against him or her if it is shown that he or she ratified it or no acceptable explanation for the act-other than that there is an intention to adopt the act as
allowed the other person to act as if he or she had full authority to do so. The Civil Code his or her own.133 "[It] cannot be inferred from acts that a principal has a right to do
provides:chanRoblesvirtualLawlibrary independently of the unauthorized act of the agent."134

ART. 1910. The principal must comply with all the obligations which the agent may have No act by petitioner can be interpreted as anything close to ratification. It was not shown that
contracted within the scope of his authority. it issued a resolution ratifying the execution of the mortgage contracts. It was not shown that
it received proceeds of the loans secured by the mortgage contracts. There was also no
As for any obligation wherein the agent has exceeded his power, the principal is not bound showing that it received any consideration for the execution of the mortgage contracts. It even
except when he ratifies it expressly or tacitly. appears that petitioner was unaware of the mortgage contracts until respondent notified it of
its desire to foreclose the mortgaged properties.
ART. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable
with the agent if the former allowed the latter to act as though he had full powers.(Emphasis Ratification must be knowingly and voluntarily done.135 Petitioner's lack of knowledge about
supplied)cralawlawlibrary the mortgage executed in its name precludes an interpretation that there was any ratification
on its part.

Ratification is a voluntary and deliberate confirmation or adoption of a previous unauthorized Respondent further argues that petitioner is presumed to have knowledge of its transactions
act. It.converts the unauthorized act of an agent into an act of the principal.127 It cures the lack with respondent because its officers, the Spouses Guillermo and Dolores Torres, participated
of consent at the time of the execution of the contract entered into by the representative, in obtaining the loan.136
making the contract valid and enforceable.128 It is, in essence, consent belatedly given
through express or implied acts that are deemed a confirmation or waiver of the right to Indeed, a corporation, being a person created by mere fiction of law, can act only through
impugn the unauthorized act.129 Ratification has the effect of placing the principal in a natural persons such as its directors, officers, agents, and representatives. Hence, the general
position as if he or she signed the original contract. In Board of Liquidators v. Heirs ofM. rule is that knowledge of an officer is considered knowledge of the corporation.
Kalaw, et al.:130chanroblesvirtuallawlibrary
However, even though the Spouses Guillermo and Dolores Torres were officers of both the
Authorities, great in number, are one in the idea that "ratification by a corporation of an thrift banks and petitioner, their knowledge of the mortgage contracts cannot be considered as
unauthorized act or contract by its officers or others relates back to the time of the act or knowledge of the corporation.
contract ratified, and is equivalent to original authority;" and that "[t]he corporation and the
other party to the transaction are in precisely the same position as if the act or contract had The rule that knowledge of an officer is considered knowledge of the corporation applies only
been authorized at the time." The language of one case is expressive: "The adoption or when the officer is acting within the authority given to him or her by the corporation.
ratification of a contract by a corporation is nothing more nor less than the making of an In Francisco v. Government Service Insurance System:137chanroblesvirtuallawlibrary
57

Knowledge of facts acquired or possessed by an officer or agent of a corporation in the course the power or is clothed with the appearance of having the power to act for the corporation. A
of his employment, and in relation to matters within the scope of his authority, is notice to the finding that there is apparent authority is not the same as a finding that the corporate act in
corporation, whether he communicates such knowledge or not.138cralawlawlibrary question is within the corporation's limited powers.

The rule on apparent authority is based on the principle of estoppel. The Civil Code
The public should be able to rely on and be protected from the representations of a corporate provides:chanRoblesvirtualLawlibrary
representative acting within the scope of his or her authority. This is why an authorized
ART. 1431. Through estoppel an admission or representation is rendered conclusive upon the
officer's knowledge is considered knowledge of corporation. However, just as the public
person making it, and cannot be denied or disproved as against the person relying thereon.
should be able to rely on and be protected from corporate representations, corporations should
....
also be able to expect that they will not be bound by unauthorized actions made on their
account.
ART, 1869. Agency may be express, or implied from the acts of the principal, from his
silence or lack of action, or his failure to repudiate the agency, knowing that another person is
Thus, knowledge should be actually communicated to the corporation through its authorized
acting on his behalf without authority.
representatives. A corporation cannot be expected to act or not act on a knowledge that had
not been communicated to it through an authorized representative. There can be no implied
Agency may be oral, unless the law requires a specific form.cralawlawlibrary
ratification without actual communication. Knowledge of the existence of contract must be
brought to the corporation's representative who has authority to ratify it. Further, "the
circumstances must be shown from which such knowledge may be presumed."139
A corporation is estopped by its silence and acts of recognition because we recognize that
The Spouses Guillermo and Dolores Torres' knowledge cannot be interpreted as knowledge there is information asymmetry between third persons who have little to no information as to
of petitioner. Their knowledge was not obtained as petitioner's representatives. It was not what happens during corporate meetings, and the corporate officers, directors, and
shown that they were acting for and within the authority given by petitioner when they representatives who are insiders to corporate affairs.143
acquired knowledge of the loan transactions and the mortgages. The knowledge was obtained
in the interest of and as representatives of the thrift banks. In People's Air car go and Warehousing Co. Inc. v. Court of Appeals,144 this court held that
the contract entered into by the corporation's officer without a board resolution was binding
VI upon the corporation because it previously allowed the officer to contract on its behalf despite
the lack of board resolution.145

Respondent argues that Satnrnino Petalcorin was clothed with the authority to transact on In Francisco, this court ruled that Francisco's proposal for redemption of property was
behalf of petitioner, based on the board resolution dated March 30, 1982 and Aurora de accepted by and binding upon the Government Service Insurance System. This court did not
Leon's notarized Secretary's Certificate.140 According to respondent, petitioner is bound by appreciate the Government Service Insurance System's defense that since it was the Board
the mortgage contracts executed by Saturnino Petalcorin.141 Secretary and not the General Manager who sent Francisco the acceptance telegram, it could
not be made binding upon the Government Service Insurance System. It did not authorize the
This court has recognized presumed or apparent authority or capacity to bind corporate Board Secretary to sign for the General Manager. This court appreciated the Government
representatives in instances when the corporation, through its silence or other acts of Service Insurance System's failure to disown the telegram sent by the Board Secretary and its
recognition, allowed others to believe that persons, through their usual exercise of corporate silence while it accepted all payments made by Francisco for the redemption of property.146
powers, were conferred with authority to deal on the corporation's behalf.142
There can be no apparent authority and the corporation cannot be estopped from denying the
The doctrine of apparent authority does not go into the question of the corporation's binding affect of an act when there is no evidence pointing to similar acts and other
competence or power to do a particular act. It involves the question of whether the officer has circumstances that can be interpreted as the corporation holding out a representative as
58

having authority to contract on its behalf. In Advance Paper Corporation v. Arma Traders instrument himself. However, he admitted that he did not know Dionisio Z. Basilio personally
Corporation,147 this court had the occasion to say:chanRoblesvirtualLawlibrary to ascertain if the person who signed the document was actually Dionisio Z. Basilio himself,
or another person who stood in his place. He could not even recall whether the document had
The doctrine of apparent authority does not apply if the principal did not commit any acts or been executed in his office or not.
conduct which a third party knew and relied upon in good faith as a result of the exercise of
reasonable prudence. Moreover, the agent's acts or conduct must have produced a change of
Thus, considering the testimonies of various witnesses and a comparison of the signature in
position to the third party's detriment. (Citation omitted)cralawlawlibrary
question with admittedly genuine signatures, the Court is convinced that Dionisio Z. Basilio
did not execute the questioned deed of sale. Although the questioned deed of sale was a
public document having in its favor the presumption of regularity, such presumption was
Saturnino Petalcorin's authority to transact on behalf of petitioner cannot be presumed based adequately refuted by competent witnesses showing its forgery and the Court's own visual
on a Secretary's Certificate and excerpt from the minutes of the alleged board meeting that analysis of the document. (Emphasis supplied, citations omitted)cralawlawlibrary
were found to have been simulated. These documents cannot be considered as the corporate
acts that held out Saturnino Petalcorin as petitioner's authorized representative for mortgage
transactions. They were not supported by an actual board meeting.149
In Suntay v. Court of Appeals,156 this court held that a notarized deed of sale was void
because it was a mere sham.157 It was not intended to have any effect between the
VII
parties.158 This court said:chanRoblesvirtualLawlibrary

[I]t is not the intention nor the function of the notary public to validate and make binding' an
Respondent argues that it may rely on the Secretary's Certificate issued by Aurora de Leon
instrument never, in the first place, intended to have any binding legal effect upon the parties
because it was notarized.
thereto.159cralawlawlibrary

The Secretary's Certificate was void whether or not it was notarized. Since the notarized Secretary's Certificate was found to have been issued without a
supporting board resolution, it produced no effect. It is not binding upon petitioner. It should
not have been relied on by respondent especially given its status as a bank.
Notarization creates a presumption of regularity and authenticity on the document. This
presumption may be rebutted by "strong, complete and conclusive proof"150 to the contrary. VIII
While notarial acknowledgment "attaches full faith and credit to the document
concerned[,]"151 it does not give the document its validity or binding effect. When there is The banking institution is "impressed with public interest"160 such that the public's faith is "of
evidence showing that the document is invalid, the presumption of regularity or authenticity paramount importance."161 Thus, banks are required to exercise the highest degree of
is not applicable. diligence in their transactions.162 In China Banking Corporation v. Lagon,163 this court found
that the bank was not a mortgagee in good faith for its failure to question the due execution of
a Special Power of Attorney that was presented to it in relation to a mortgage contract.164 This
In Basilio v. Court of Appeals152 this court was convinced that the purported signatory on a court said:chanRoblesvirtualLawlibrary
deed of sale was not as represented, despite testimony from the notary public that the
signatory appeared before him and signed the instrument.153 Apart from finding that there was Though petitioner is not expected to conduct an exhaustive investigation on the history of the
forgery,154 this court noted:chanRoblesvirtualLawlibrary mortgagor's title, it cannot be excused from the duty of exercising the due diligence required
of a banking institution. Banks are expected to exercise more care and prudence than private
The notary public, Atty. Ruben Silvestre, testified that he was the one who notarized the individuals in their dealings, even those that involve registered lands, for their business is
document and that Dionisio Z. Basilio appeared personally before him and signed the. affected with public interest.165 (Citations omitted) cralawlawlibrary
59

December 17, 2009 is REVERSED and SET ASIDE. The Regional Trial Courts' Decisions
For its failure to exercise the degree of diligence required of banks, respondent cannot claim of November 23, 2001 and December 7, 2001 are REINSTATED.
good faith in the execution of the mortgage contracts with Saturnino Petalcorin. Respondent's
witness, Daciano Paguio, Jr., testified that there was no board resolution authorizing SO ORDERED.
Saturnino Petalcorin to act on behalf of petitioner.166 Respondent did not inquire further as to
Saturnino Petalcorin's authority.

Banks cannot rely on assumptions. This will be contrary to the high standard of diligence
required of them.

VI

According to respondent, the annotations of respondent's mortgage interests on the


certificates of titles of petitioner's properties operated as constructive notice to petitioner of
the existence of such interests.167Hence, petitioners are now estopped from claiming that they
did not know about the mortgage.

Annotations of adverse claims on certificates of title to properties operate as constructive


notice only to third parties—not to the court or the registered owner. In Sajonas v. Court of
Appeals:168chanroblesvirtuallawlibrary

[Annotation of an adverse claim is a measure designed to protect the interest of a person over
a piece of real property where the registration of such interest or right is not otherwise
provided for by the Land Registration Act or Act 496 (now [Presidential Decree No.] 1529 or
the Property Registration Decree), and serves a warning to third parties dealing with said
property that someone is claiming an interest on the same or a better right than that of the
registered owner thereof.169 (Emphasis supplied)cralawlawlibrary

Annotations are merely claims of interest or claims of the legal nature and incidents of
relationship between the person whose name appears on the document and the person who
caused the annotation. It does not say anything about the validity of the claim or convert a
defective claim or document into a valid one.170 These claims may be proved or disproved
during trial.

Thus, annotations are not conclusive upon courts or upon owners who may not have reason to
doubt the security of their claim as their properties' title holders.

WHEREFORE, the Petition is GRANTED. The Court of Appeals' Decision dated