Board of Directors EN BANC [G.R. No. L-45911. April 11, 1979.] JOHN GOKONGWEI, JR., petitioner, vs.

SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M. SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and EDUARDO R. VISAYA, respondents. De Santos, Balgos & Perez for petitioner. Angara, Abello, Concepcion, Regala, Cruz Law Offices for respondents Sorianos. Sequion Reyna, Montecillo & Ongsiako for respondent San Miguel Corporation. R. T. Capulong for respondent Eduardo R. Visaya. SYNOPSIS Petitioner (a) seeks to declare null and void the amended by-laws of respondent corporation which disqualifies any stockholder engaged in any business that competes with or is antagonistic to that of the corporation from being nominated or elected to the Board of Directors; (b) assails the order of the Securities and Exchange Commission denying his right to inspect the books of a wholly-owned subsidiary of respondent corporation; (c) assails the act of the Securities and Exchange Commission in allowing the stockholders of respondent corporation to ratify the investment of corporate funds in a foreign corporation. The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to examine the books and records of the wholly-owned subsidiary of respondent corporation. For lack of necessary votes the Court denied the petition insofar as it assails the validity of the by-laws and ratification of the foreign investment of respondent corporation. On the validity of the amended By-laws, six justices (Barredo, Makasiar, Antonio, Santos, Abad Santos and De Castro, JJ.) voted to sustain the validity per se of the amended by-laws and to dismiss the petition without prejudice to the question of petitioner's actual disqualification from running if elected from sitting as director of respondent corporation being decided, after a new and proper hearing by the Board of Directors of said corporation, whose decision shall be appealable to the respondent Securities and Exchange Commission and ultimately to the Supreme Court. The aforementioned six justices, together with Fernando, J., voted to declare the issue on the validity of the foreign investment of respondent corporation as moot. Fred Ruiz Castro, C.J., reserved his vote on the validity of the amended by-laws pending hearing by this Court on the applicability of section 13(5) of the Corporation law to petitioner. Fernando, J., reserved his vote on the validity of subject amendment to the bylaws but otherwise concurs in the result. Four Justices (Teehankee, Conception Jr., Fernandez and Guerrero, JJ.) in a separate opinion voted against the validity of the questioned amended by-laws and held that this question should properly be resolved first by the SEC as the agency of primary jurisdiction. They concur in the result that petitioner may be allowed to run for and sit as director in the scheduled election and subsequent elections until disqualified after proper hearing by the respondent's Board of Directors and petitioner's disqualification shall have been sustained by respondent SEC en banc and ultimately by final judgment of this Court. SYLLABUS

1. APPEAL; SUPREME COURT MAY RESOLVED CASE ON THE MERITS, INSTEAD OF REMANDING IT TO LOWER COURT. The Supreme Court always strives to settle the entire controversy in a single proceeding, "leaving no root or branch to bear the seeds of future litigation," and to decide a case on the merits instead of remanding it to the trial court for further proceedings (a) where the ends of justice would not be subserved by the remand of the case, or (b) where public interest demands an early disposition of the case; or (c) while the trial court had already received all the evidence presented by both parties and the Supreme Court is in a position, based upon said evidence, to decide the case on its merits. 2. ID.; ID.; QUESTION OF PRIMARY JURISDICTION HAS NO APPLICATION WHERE ONLY QUESTION OF LAW IS INVOLVED. The doctrine of primary jurisdiction has no application where only a question of law is involved. Because uniformity may be secured through review by a single Supreme Court questions of law may appropriately de determined in the first instance by courts. 3. ID.; VALIDITY OF BY-LAW OF CORPORATION IS A QUESTION OF LAW. The validity of reasonableness of a by-laws of a corporation, whether the bylaw is in conflict with the law of the land, or with the charter of the corporation, or is in a legal sense unreasonable and therefore unlawful is purely a question of law. This rule is subject, however, to the limitation that where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised their authority. 4. CORPORATIONS; POWER TO ADOPT BY-LAWS. Every corporation has the inherent power to adopt by-laws for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of it affairs. In the absence of positive legislative provisions limiting it, every private corporation has this inherent power as one of its necessary and inseparable legal incidents, independent of any specific enabling provision in its character or in general law, such power of self-government being essential to enable the corporation to accomplish the purposes of its creation. 5. ID.; ID.; QUALIFICATIONS OF OFFICERS AND EMPLOYEES. The term "qualifications" under section 21 of the Corporation Law which expressly empowers a corporation to prescribed in its by-laws the qualifications of directors must necessarily refer to qualifications in addition to that specified by section 30 of the Corporation law, which provides that "every director must own in his own right at least one share of the capital stock of the stock corporation of which he is a director." 6. ID.; STOCKHOLDERS MUST ABIDE BY RULE OF THE MAJORITY. Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law. To this extent the stockholder may be considered to have parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation, and surrendered it to the will of majority of his fellow incorporators. It cannot, therefore, be justly said that the contract, express or implied, between the corporation and the stockholders is infringed by any act of the former which is authorized by a majority. 7. ID.; ID.; AMENDMENT OF BY-LAWS; RIGHT OF DISSENTING MINORITY STOCKHOLDER. Where the articles of the incorporation or the by-laws of a corporation has been amended by the required number of votes as provided for

in the Corporation Law, and the amendment changes, diminishes or restricts the rights of the existing stockholders, the dissenting minority has only one right, viz.; to object thereto in writing and demand payment of his share. 8. ID.; STOCKHOLDER HAS NO VESTED RIGHT TO BE ELECTED DIRECTOR. A stockholder has no vested right to be elected director, where the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law will be subject to amendment, alteration and modification. 9. ID.; DIRECTOR STANDS IN A FIDUCIARY RELATION TO CORPORATION AND STOCKHOLDER. Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned. As agents entrusted with the management of the corporation for the collective benefit of the stockholders, "they occupy a fiduciary relation, and in this sense the relation is one of trust." The ordinary trust relationship of directors of a corporation and stockholders is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof. 10. ID.; BY-LAWS; QUALIFICATION OF DIRECTORS. Corporations have the power to make by-laws declaring a person employed in the service of a rival company to be ineligible for the corporation's Board of Directors. 11. ID.; ID.; ID.; CONFLICT OF INTERESTS. An amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a director if he be also a director in a corporation whose business is in competition with or is antagonistic to the other corporation is valid. This is based upon the principle that were the director also employed in the service of a rival company, he cannot serve both, but must betray one or the other. Thus, an officer of a corporation cannot engage in a business in direct competition with that of the corporation where he is a director by utilizing information he has received as such officer, under "the established law that a director or officer of a corporation may not enter into a competing enterprise which cripples or injuries the business of the corporation of which he is an officer or director." 12. ID.; ID.; DOCTRINE OF "CORPORATE OPPORTUNITY". Corporate officers are not permitted to the use their position of trust and confidence to further their interests. The doctrine of "corporate opportunity" is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests fundamentally of the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for protection. 13. ID.; MONOPOLIES. The Constitution and the law prohibit combinations in restraint of trade and unfair competition. Thus, section 2 of article XIV of the Constitution provides: "The State shall regulate or prohibit private monopolies when the public interest so requires. No combination in restraint of trade or unfair competition shall be allowed." These anti-trust laws or laws against monopolies or combinations in restraint of trade are aimed at raising levels of competition by improving the consumers' effectiveness as the final arbiter in free markets. They are designed to preserve free and unfettered competition as the rule of trade, and operate to forestall concentration of economic power. 14. ID.; ID.; NATURE AND DEFINITION OF MONOPOLY. A "monopoly" embraces any combination, the tendency of which is to prevent competition in

the broad and general sense, or to control prices to the detriment of the public. It is the concentration of business in the hands of a few. The material consideration in determining its existence is not that prices are raised and competition actually excluded, but that power exists to raise prices or exclude competition when desired. It includes a condition produced by the mere act of individuals. Its dominant thought is the notion of exclusiveness or unity, or the suppression of competition by the unification of interest or management, or thru agreement and concert of action. An express agreement is not necessary for the existence of a combination or conspiracy in restraint of trade. 15. ID.; ID.; STOCK OWNERSHIP IN AGRICULTURAL CORPORATIONS, LIMITATIONS. The election of the president and controlling shareholder of a corporation engaged in agriculture, to the board of another corporation, also engaged in agriculture, may constitute a violation of the prohibition contained in section 13 (5) of the Corporation Law which provides in part that "any stockholder of more than one corporation organized for the purpose of engaging in agriculture may hold his stock in such corporations solely for investment and not for the purpose of bringing about or attempting to bring about a combination to exercise control of such corporations." 16. ID.; BY-LAW; QUALIFICATION IF MEMBERS OF THE BOARD; EQUAL PROTECTION. If the by-law were to be applied in the case of one stockholder but waived in the case of another, then it could be reasonably claimed that the by-law was being applied in a discriminatory manner, but not if the by-law, by its terms, applies to all stockholders. The equal protection clause of the Constitution requires only that the by-law operate equally upon all persons of a class. Sound principles of public policy and management support the view that a by-law which disqualifies a competitor from election to the Board of Directors of another corporation is valid and reasonable. 17. ID.; ID.; PROTECTION OF LEGITIMATE CORPORATE INTERESTS. In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the corporation in adopting measures to protect legitimate corporate interests. 18. ID.; COMPETITION DEFINED. "Competition" implies a struggle for advantage between two or more forces, each possessing, in substantially similar if not identical degree, certain characteristics essential to the business sought. It means an independent endeavor of two or more persons to obtain the business patronage of a third by offering more advantageous terms as an inducement to secure trade. The test must be whether the business does in fact compete, not whether it is capable of an indirect and highly unsubstantial duplication of an isolated or non characteristic activity. 19. ID.; ID.; EXERCISE OF POWER TO DISQUALIFY A STOCKHOLDER FROM BEING MEMBER OF THE BOARD. The amended by-laws which grants the Board the power by 3/4 votes to bar a stockholder from his right to be elected as director where such stockholder is found to be engaged in a "competitive or antagonistic business" is valid. However, consonant with the requirement of due process, there must be due hearing at which the stockholder must be given the fullest opportunity to show that he is not covered by the disqualification. As trustees of the corporation and of the stockholders, it is the responsibility of directors to act with fairness to the stockholders. Pursuant to this obligation and to remove any suspicion that this power may be utilized by the incumbent members of the Board to perpetuate themselves in power, any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed by the Securities and Exchange Commission en banc and its decision shall be final unless reversed by the Supreme Court on certiorari. 20. ID.; REVIEW OF ACTION OF THE BOARD OF DIRECTORS. Where the action of a Board of Directors is an abuse of discretion, or forbidden by statute,

or is against public policy, or is ultra vires, or is a fraud upon minority stockholders or creditors, or will result in waste, dissipation or misapplication of the corporate assets, a court of equity has the power to grant appropriate relief. 21. ID.; STOCKHOLDER'S RIGHT; INSPECTION OF BOOKS. The stockholders' right of inspection of the corporation's books and records is based upon their ownership of the assets and property of the corporation. It is an incident of ownership of the corporate property, whether this ownership or interest be termed an equitable ownership, a beneficial ownership, or quasiownership. It is predicated upon the necessity of self-protection. 22. ID.; ID.; RIGHT MUST BE EXERCISED IN GOOD FAITH. Where a right is granted by statute to the stockholder, it is given to him as such and must be exercised by him with respect to his interest as stockholder and for some purpose germane thereto or in the interest of the corporation. In other words, the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful in character and not inimical to the interest of the corporation. It must be exercised in good faith, for specific and honest purpose, and not to gratify curiosity, or for speculative or vexatious purposes. 23. ID.; ID.; COURT MAY INQUIRE INTO MOTIVE OF STOCKHOLDER. On application for mandamus to enforce the right to examine the books of a corporation, it is proper for the court to inquire into and consider the stockholder's good faith and his purpose and motives in seeking inspection. The right given by the statute is not absolute and may be refused when the information is not sought in good faith or is used to the detriment of the corporation. 24. ID.; ID.; RIGHT TO EXAMINE BOOKS OF A WHOLLY OWNED SUBSIDIARY. While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law, the right of such stockholder to examine the books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing. Where a foreign subsidiary is wholly owned by respondent corporation and, therefore, under its control, it would be in accord with equity, good faith and fair dealing to construe the statutory right of a stockholder to inspect the books and records of the corporation as extending to books and records of such wholly owned subsidiary which are in respondent corporation's possession and control. 25. ID.; BOARD DIRECTORS; POWER TO INVEST FUNDS. Section 17-1/2 of the Corporation Law allows a corporation to "invest its fund in any corporation or business or for any purpose other than the main purpose for which it was organized" provided that its Board of Directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting power. If the investment is made in pursuance of the corporate purpose, it does not need the approval of the stockholders. It is only when the purchase of shares is done solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the stockholders holding shares entitling them to exercise at least two-thirds of the voting power is necessary. 26. ID.; ID.; RATIFICATION OF ACT OF BOARD OF DIRECTORS. Where the Board of Directors had no authority to make an investment, the corporation, like an individual, may ratify and thereby render binding upon it the originally unauthorized acts of its officers or other agents. Mere ultra vires acts 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. 27. ID.; ID.; INVESTMENT IN AID OF CORPORATE PURPOSE. The purchase of beer manufacturing facilities by San Miguel Corporation was an

investment in the same business as its main purpose in its Articles of Incorporation and is relevant to the corporate purpose. 28. ID.; ID.; SUBMISSION OF ASSAILED INVESTMENT FOR RATIFICATION BY STOCKHOLDERS. The mere fact that a corporation submits the assailed investment to the stockholders for its ratification at the annual meeting cannot be construed as an admission that the corporation had committed an ultra vires act, considering the common practices of corporations of periodically submitting for ratification of their stockholders the acts of their directors, officers and managers. BARREDO, J., concurring: 1. JUDGMENTS; DISMISSAL FOR LACK OF NECESSARY VOTES; LAW OF THE CASE. Where petitioner and respondents placed the issue of the validity of amended by-laws squarely before the Court for resolution and six justices voted in favor, while four justices voted against, its validity, thereby resulting in the dismissal, of the petition "insofar as it assails the validity of the amended by-laws . . . for lack of necessary votes," such dismissal is the law of the case as far as the parties are concerned albeit the majority of six against four justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent cases. This means that the petitioner and respondents are bound by the foregoing result, namely that the Court en banc has not found merit in the claim that the amended by-laws in question are invalid. In other words, the issue of the challenged amended by-laws is already a settled matter for the parties as the law of the case, and said amended by-law already enforceable in so far as the parties are concerned. Petitioner may not thereafter act on the assumption that he can revive the issue of validity whether in the Securities and Exchange Commission, the Supreme Court or in any other forum, unless, he proceeds on the basis of a different factual milieu from the setting of the case. Only the actual implementation of the impugned amended by-laws remained to be passed upon by the Securities and Exchange Commission. 2. ID.; ID.; DECISION ON THE MERITS. It is somewhat of a misreading and misconstruction of Section 11 of Rule 56, contrary to the well-known established norm observed by the Supreme Court, to state that the dismissal of a petition for lack of necessary votes does not amount to a decision on the merits. The Supreme Court is deemed to find no merit in a petition in two ways, namely, (1) when eight or more members vote expressly in that sense and (2) when the required number of justices needed to sustain the same cannot be had. DE CASTRO, J., concurring: 1. CORPORATION; STOCKHOLDERS; DISQUALIFICATION TO BE ELECTED DIRECTOR. If a person became a stockholder of a corporation and gets himself elected as a director, and while he is such a director, he forms his own corporation competitive or antagonistic to the corporation of which he is a director, and becomes Chairman of the Board and President of his own corporation, he may be removed from his position as director, admittedly one of trust and confidence. If this is so, a person controlling, and also the Chairman of the Board and President of, a corporation, may be barred form becoming a member of the Board of Directors of a competitive corporation. 2. ID.; AGRICULTURE, CORPORATION ENGAGED IN. The scope of the provision of Section 13(5) of the Philippine Corporation Law should be limited to corporations engaged in agriculture, only as the word "agriculture" refers to its more limited meaning as distinguished from its general and broad connotation. The term would then mean "farming" or raising the natural products of the soil, such as by cultivation, in the manner as is required by the Public Land Act in the acquisition of agricultural land, such as by homestead,

before the patent may be issued, but does not extend to poultry raising or piggery which may be included in the term "agriculture" in its broad sense. 3. JUDGMENTS; LAW OF THE CASE. Although only six votes are for upholding the validity of the by-laws, their validity is deemed upheld as constituting the "law of the case." It could not be otherwise, after the petition is dismissed with the relief sought do declare null and void the said by-laws being denied in effect. A vicious circle would be created should petitioner come against to the Court, raising the same question he raised in the present petition, unless the principle of the "law of the case" is applied. TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ.: Supplement to separate opinion. 1. JUDGMENTS; LAW OF THE CASE. The doctrine of the law of the case may be invoked only where there has been a final and conclusive determination of an issue in the first case later invoked as the law of the case. It has no application where the judgment in the first case is inconclusive, as where no final and conclusive determination could be reached on account of lack of necessary votes and the case was simply dismissed pursuant to Rule 56, Section 11. It cannot be contended that the Supreme Court in dismissing the petition for lack of necessary votes had directly ruled on the issue presented when it itself could not reach a final conclusive vote thereon. DECISION ANTONIO, J p: The instant petition for certiorari, mandamus and injunction, with prayer for issuance of writ of preliminary injunction, arose out of two cases filed by petitioner with the Securities and Exchange Commission, as follows: SEC CASE NO. 1375 On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation, filed with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by-laws, injunction and damages with prayer for a preliminary injunction" against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. The petition, entitled "John Gokongwei, Jr., vs. Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buao, Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and San Miguel Corporation", was docketed as SEC Case No. 1375. As a first cause of action, petitioner alleged that on September 18, 1976, individual respondents amended by bylaws of the corporation, basing their authority to do so on a resolution of the stockholders adopted on March 13, 1961, when the outstanding capital stock of respondent corporation was only P70,139.740.00, divided into 5,513,974 common shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the amendment, the outstanding and paid up shares totalled 30,127,043, with a total par value of P301,270,430.00. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid up capital stock of the corporation, which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. Since the amendment was based on the 1961 authorization, petitioner contended that the Board acted without authority and in usurpation of the power of the stockholders. As a second cause of action, it was alleged that the authority granted in 1961 had already been exercised in 1962 and 1963, after which the authority of the Board ceased to exist.

As a third cause of action, petitioner averred that the membership of the Board of Directors had changed since the authority was given in 1961, there being six (6) new directors. As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner had all the qualifications to be a director of respondent corporation, being a substantial stockholder thereof; that as a stockholder, petitioner had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, respondents purposely provided for petitioner's disqualification and deprived him of his vested right as afore-mentioned, hence the amended by-laws are null and void. 1 As additional causes of action, it was alleged that corporations have no inherent power to disqualify a stockholder from being elected as a director and, therefore, the questioned act is ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing other corporations, entered into contracts (specifically a management contract) with respondent corporation, which was avowed because the questioned amendment gave the Board itself the prerogative of determining whether they or other persons are engaged in competitive or antagonistic business; that the portion of the amended by-laws which states that in determining whether or not a person is engaged in competitive business, the Board may consider such factors as business and family relationship, is unreasonable and oppressive and, therefore, void; and that the portion of the amended by-laws which requires that "all nominations for election of directors . . . shall be submitted in writing to the Board of Directors at least five (5) working days before the date of the Annual Meeting" is likewise unreasonable and oppressive. It was, therefore, prayed that the amended by-laws be declared null and void and the certificate of filing thereof be cancelled, and that individual respondents be made to pay damages, in specified amounts, to petitioner. On October 28, 1976, in connection with the same case, petitioner filed with the Securities and Exchange Commission an "Urgent Motion for Production and Inspection of Documents", alleging that the Secretary of respondent corporation refused to allow him to inspect its records despite request made by petitioner for production of certain documents enumerated in the request, and that respondent corporation had been attempting to suppress information from its stockholders despite a negative reply by the SEC to its query regarding their authority to do so. Among the documents requested to be copied were (a) minutes of the stockholder's meeting held on March 13, 1961; (b) copy of the management contract between San Miguel Corporation and A. Soriano Corporation (ANSCOR); (c) latest balance sheet of San Miguel International, Inc.; (d) authority of the stockholders to invest the funds of respondent corporation in San Miguel International, Inc.; and (e) lists of salaries, allowances, bonuses, and other compensation, if any, received by Andres M. Soriano, Jr. and/or its successor-in-interest. The "Urgent Motion for Production and Inspection of Documents" was opposed by respondents, alleging, among others, that the motion has no legal basis; that the demand is not based on good faith; that the motion is premature since the materiality or relevance of the evidence sought cannot be determined until the issues are joined; that it fails to show good cause and constitutes continued harassment; and that some of the information sought are not part of the records of the corporation and, therefore, privileged. During the pendency of the motion for production, respondents San Miguel Corporation, Enrique Conde, Miguel Ortigas and Antonio Prieto filed their answer to the petition, denying the substantial allegations therein and stating, by way of affirmative defenses that "the action taken by the Board of Directors on September 18, 1976 resulting in the . . . amendments is valid and legal

because the power to 'amend, modify, repeal or adopt new By-laws' delegated to said Board on March 13, 1961 and long prior thereto has never been revoked, withdrawn or otherwise nullified by the stockholders of SMC"; that contrary to petitioner's claim, "the vote requirement for a valid delegation of the power to amend, repeal or adopt new by-laws is determined in relation to the total subscribed capital stock at the time the delegation of said power is made, not when the Board opts to exercise said delegated power"; that petitioner has not availed of his intra-corporate remedy for the nullification of the amendment, which is to secure its repeal by vote of the stockholders representing a majority of the subscribed capital stock at any regular or special meeting, as provided in Article VIII, section 1 of the by-laws and section 22 of the Corporation Law, hence the petition is premature; that petitioner is estopped from questioning the amendments on the ground of lack of authority of the Board, since he failed to object to other amendments made on the basis of the same 1961 authorization; that the power of the corporation to amend its by-laws is broad, subject only to the condition that the by-laws adopted should not be inconsistent with any existing law; that respondent corporation should not be precluded from adopting protective measures to minimize or eliminate situations where its directors might be tempted to put their personal interests over that of the corporation; that the questioned amended by-laws is a matter of internal policy and the judgment of the board should not be interfered with; that the by-laws, as amended, are valid and binding and are intended to prevent the possibility of violation of criminal and civil laws prohibiting combinations in restraint of trade; and that the petition states no cause of action. It was, therefore, prayed that the petition be dismissed and that petitioner be ordered to pay damages and attorney's fees to respondents. The application for writ of preliminary injunction was likewise on various grounds. Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed their opposition to the petition, denying the material averments thereof and stating, as part of their affirmative defenses, that in August 1972, the Universal Robina Corporation (Robina), a corporation engaged in business competitive to that of respondent corporation, began acquiring shares therein, until September 1976 when its total holding amounted to 622,987 shares; that in October 1972, the Consolidated Foods Corporation (CFC) likewise began acquiring shares in respondent corporation, until its total holdings amounted to P543,959.00 in September 1976; that on January 12, 1976, petitioner, who is president and controlling shareholder of Robina and CFC (both closed corporations) purchased 5,000 shares of stock of respondent corporation, and thereafter, in behalf of himself, CFC and Robina, "conducted malevolent and malicious publicity campaign against SMC" to generate support from the stockholder "in his effort to secure for himself and in representation of Robina and CFC interests, a seat in the Board of Directors of SMC", that in the stockholders' meeting of March 18, 1976, petitioner was rejected by the stockholders in his bid to secure a seat in the Board of Directors on the basic issue that petitioner was engaged in a competitive business and his securing a seat would have subjected respondent corporation to grave disadvantages; that "petitioner nevertheless vowed to secure a seat in the Board of Directors at the next annual meeting"; that thereafter the Board of Directors amended the by-laws as afore-stated. As counterclaims, actual damages, moral damages, exemplary damages, expenses of obligation and attorney's fees were presented against petitioner. Subsequently, a Joint Omnibus Motion for the striking out of the motion for production and inspection of documents was filed by all the respondents. This was duly opposed by petitioner. At this juncture, respondents Emigdio Tanjuatco, Sr. and Eduardo R. Visaya were allowed to intervene as oppositors and they accordingly filed their oppositions-in-intervention to the petition.

On December 29, 1976, the Securities and Exchange Commission resolved the motion for production and inspection of documents by issuing Order No. 26, Series of 1977, stating, in part as follows: "Considering the evidence submitted before the Commission by the petitioner and respondents in the above-entitled case, it is hereby ordered: 1. That respondents produce and permit the inspection, copying and photographing, by or on behalf of the petitioner-movant, John Gokongwei, Jr., of the minutes of the stockholders' meeting of the respondent San Miguel Corporation held on March 13, 1961, which are in the possession, custody and control of the said corporation, it appearing that the same is material and relevant to the issues involved in the main case. Accordingly, the respondents should allow petition-movant entry in the principal office of the respondent Corporation, San Miguel Corporation on January 14, 1977, at 9:30 o'clock in the morning for purposes of enforcing the rights herein granted; it being understood that the inspection, copying and photographing of the said documents shall be undertaken under the direct and strict supervision of this Commission. Provided, however, that other documents and/or papers not heretofore included are not covered by this Order and any inspection thereof shall require the prior permission of this Commission; 2. As to the Balance Sheet of San Miguel International, Inc. as well as the list of salaries, allowances, bonuses, compensation and/or remuneration received by respondent Jose M. Soriano, Jr. and Andres Soriano from San Miguel International, Inc. and/or its successors-in-interest, the Petition to produce and inspect the same is hereby DENIED, as petitioner-movant is not a stockholder of San Miguel International, Inc. and has, therefore, no inherent right to inspect said documents; 3. In view of the Manifestation of petitioner-movant dated November 29, 1976, withdrawing his request to copy and inspect the management contract between San Miguel Corporation and A. Soriano Corporation and the renewal and amendments thereof for the reason that he had already obtained the same, the Commission takes note thereof; and 4. Finally, the Commission holds in abeyance the resolution on the matter of production and inspection of the authority of the stockholders of San Miguel Corporation to invest the funds of respondent corporation in San Miguel International, Inc., until after the hearing on the merits of the principal issues in the above-entitled case. This Order is immediately executory upon its approval." 2 Dissatisfied with the foregoing Order, petitioner moved for its reconsideration. Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondent corporation issued a notice of special stockholders' meeting for the purpose of "ratification and confirmation of the amendment to the By-laws", setting such meeting for February 10, 1977. This prompted petitioner to ask respondent Commission for a summary judgment insofar as the first cause of action is concerned, for the alleged reason that by calling a special stockholders' meeting for the aforesaid purpose, private respondents admitted the invalidity of the amendments of September 18, 1976. The motion for summary judgment was opposed by private respondents. Pending action on the motion, petitioner filed an "Urgent Motion for the Issuance of a Temporary Restraining Order", praying that pending the determination of petitioner's application for the issuance of a preliminary injunction and or petitioner's motion for summary judgment, a temporary restraining order be issued, restraining respondents from holding the special stockholders' meeting as scheduled. This motion was duly opposed by respondents. On February 10, 1977, respondent Cremation issued an order denying the motion for issuance of temporary restraining order. After receipt of the order of denial, respondents conducted the special stockholders' meeting wherein the

amendments to the by-laws were ratified. On February 14, 1977, petitioner filed a consolidated motion for contempt and for nullification of the special stockholders' meeting. A motion for reconsideration of the order denying petitioner's motion for summary judgment was filed by petitioner before respondent Commission on March 10, 1977. Petitioner alleges that up to the time of the filing of the instant petition, the said motion had not yet been scheduled for hearing. Likewise, the motion for reconsideration of the order granting in part and denying in part petitioner's motion for production of records had not yet been resolved. In view of the fact that the annual stockholders' meeting of respondent corporation had been scheduled for May 10, 1977, petitioner filed with respondent Commission a Manifestation stating that he intended to run for the position of director of respondent corporation. Thereafter, respondents filed a Manifestation with respondent Commission, submitting a Resolution of the Board of Directors of respondent corporation disqualifying and precluding petitioner from being a candidate for director unless he could submit evidence on May 3, 1977 that he does not come within the disqualifications specified in the amendment to the by-laws, subject matter of SEC Case No. 1375. By reason thereof, petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of injunction, alleging that private respondents were seeking to nullify and render ineffectual the exercise of jurisdiction by the respondent Commission, to petitioner's irreparable damage and prejudice. Allegedly despite a subsequent Manifestation to prod respondent Commission to act, petitioner was not heard prior to the date of the stockholders' meeting. Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act, hence petitioner came to this Court. SEC CASE NO. 1423 Petitioner likewise alleges that, having discovered that respondent corporation has been investing corporate funds in other corporations and businesses outside of the primary purpose clause of the corporation, in violation of section 17-1/2 of the Corporation Law, he filed with respondent Commission, on January 20, 1977, a petition seeking to have private respondents Andres M. Soriano, Jr. and Jose M. Soriano, as well as the respondent corporation declared guilty of such violation, and ordered to account for such investments and to answer for damages. On February 4, 1977, motions to dismiss were filed by private respondents, to which a consolidated motion to strike and to declare individual respondents in default and an opposition ad abundantiorem cautelam were filed by petitioner. Despite the fact that said motions were filed as early as February 4, 1977, the Commission acted thereon only on April 25, 1977, when it denied respondents' motions to dismiss and gave them two (2) days within which to file their answer, and set the case for hearing on April 29 and May 3, 1977. Respondents issued notices of the annual stockholders' meeting, including in the Agenda thereof, the following: "6. Reaffirmation of the authorization to the Board of Directors by the stockholders at the meeting on March 20, 1972 to invest corporate funds in other companies or businesses or for purposes other than the main purpose for which the Corporation has been organized, and ratification of the investments thereafter made pursuant thereto." By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction to restrain private respondents from taking up Item 6 of the Agenda at the annual stockholders' meeting, requesting that the same be set for hearing on May 3, 1977, the date set for the second hearing of the case on the merits. Respondent Commission, however, cancelled the dates of hearing originally scheduled and

reset the same to May 16 and 17, 1977, or after the scheduled annual stockholders' meeting. For the purpose of urging the Commission to act, petitioner filed an urgent manifestation on May 3, 1977, but this notwithstanding, no action has been taken up to the date of the filing of the instant petition. With respect to the afore-mentioned SEC cases, it is petitioner's contention before this Court that respondent Commission gravely abused its discretion when it failed to act with deliberate dispatch on the motions of petitioner seeking to prevent illegal and/or arbitrary impositions or limitations upon his rights as stockholder of respondent corporation, and that respondent are acting oppressively against petitioner, in gross derogation of petitioner's rights to property and due process. He prayed that this Court direct respondent SEC to act on collateral incidents pending before it. On May 6, 1977, this Court issued a temporary restraining order restraining private respondents from disqualifying or preventing petitioner from running or from being voted as director of respondent corporation and from submitting for ratification or confirmation or from causing the ratification or confirmation of Item 6 of the Agenda of the annual stockholders' meeting on May 10, 1977, or from making effective the amended by-laws of respondent corporation, until further orders from this Court or until the Securities and Exchange Commission acts on the matters complained of in the instant petition. On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a restraining order had been issued by this Court, or on May 9, 1977, the respondent Commission served upon petitioner copies of the following orders: (1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner's motion for reconsideration, with its supplement, of the order of the Commission denying in part petitioner's motion for production of documents, petitioner's motion for reconsideration of the order denying the issuance of a temporary restraining order denying the issuance of a temporary restraining order, and petitioner's consolidated motion to declare respondents in contempt and to nullify the stockholders' meeting; (2) Order No. 450, Series of 1977 (SEC Case No. 1375), allowing petitioner to run as a director of respondent corporation but stating that he should not sit as such if elected, until such time that the Commission has decided the validity of the by-laws in dispute, and denying deferment of Item 6 of the Agenda for the annual stockholders' meeting; and (3) Order No. 451, Series of 1977 (SEC Case No. 1375), denying petitioner's motion for reconsideration of the order of respondent Commission denying petitioner's motion for summary judgment; It is petitioner's assertions, anent the foregoing orders, (1) that respondent Commission acted with indecent haste and without circumspection in issuing the aforesaid orders to petitioner's irreparable damage and injury; (2) that it acted without jurisdiction and in violation of petitioner's right to due process when it decided en banc an issue not raised before it and still pending before one of its Commissioners, and without hearing petitioner thereon despite petitioner's request to have the same calendared for hearing; and (3) that the respondents acted oppressively against the petitioner in violation of his rights as a stockholder, warranting immediate judicial intervention. It is prayed in the supplemental petition that the SEC orders complained of be declared null and void and that respondent Commission be ordered to allow petitioner to undertake discovery proceedings relative to San Miguel International, Inc. and thereafter to decide SEC Cases No. 1375 and 1423 on the merits. On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano filed their comment, alleging that the petition is without merit for the following reasons:

(1) that the petitioner and the interests he represents are engaged in businesses competitive and antagonistic to that of respondent San Miguel Corporation, it appearing that he owns and controls a greater portion of his SMC stock thru the Universal Robina Corporation and the Consolidated Foods Corporation, which corporations are engaged in businesses directly and substantially competing with the allied businesses of respondent SMC and of corporations in which SMC has substantial investments. Further, when CFC and Robina had accumulated shares in SMC, the Board of Directors of SMC realized the clear and present danger that competitors or antagonistic parties may be elected directors and thereby have easy and direct access to SMC's business and trade secrets and plans; (2) that the amended by-laws were adopted to preserve and protect respondent SMC from the clear and present danger that business competitors, if allowed to become directors, will illegally and unfairly utilize their direct access to its business secrets and plans for their own private gain to the irreparable prejudice of respondent SMC, and, ultimately, its stockholders. Further, it is asserted that membership of a competitor in the Board of Directors is a blatant disregard of no less than the Constitution and pertinent laws against combinations in restraint of trade; (3) that by-laws are valid and binding since a corporation has the inherent right and duty to preserve and protect itself by excluding competitors and antagonistic parties, under the law of self-preservation, and it should be allowed a wide latitude in the selection of means to preserve itself; (4) that the delay in the resolution and disposition of SEC Cases Nos. 1375 and 1423 was due to petitioner's own acts or omissions, since he failed to have the petition to suspend, pendente lite, the amended by-laws calendared for hearing. It was emphasized that it was only on April 29, 1977 that petitioner calendared the aforesaid petition for suspension (preliminary injunction) for hearing on May 3, 1977. The instant petition being dated May 4, 1977, it is apparent that respondent Commission was not given a chance to act "with deliberate dispatch"; and (5) that even assuming that the petition was meritorious, it has become moot and academic because respondent Commission has acted on the pending incidents complained of. It was, therefore, prayed that the petition be dismissed. On May 21, 1977, respondent Emigdio G. Tanjuatco, Sr. filed his comment, alleging that the petition has become moot and academic for the reason, among others, that the acts of private respondents sought to be enjoined have reference to the annual meeting of the stockholders of respondent San Miguel Corporation, which was held on May 10, 1977; that in said meeting, in compliance with the order of respondent Commission, petitioner was allowed to run and be voted for as director; and that in the same meeting, Item 6 of the Agenda was discussed, voted upon, ratified and confirmed. Further, it was averred that the questions and issues raised by petitioner are pending in the Securities and Exchange Commission which has acquired jurisdiction over the case, and no hearing on the merits has been had; hence the elevation of these issues before the Supreme Court is premature. Petitioner filed a reply to the aforesaid comments, stating that the petition presents justiciable questions for the determination of this Court because (1) the respondent Commission acted without circumspection, unfairly and oppressively against petitioner, warranting the intervention of this Court; (2) a derivative suit, such as the instant case, is not rendered academic by the act of a majority of stockholders, such that the discussion, ratification and confirmation of Item 6 of the Agenda of the annual stockholders' meeting of May 10, 1977 did not render the case moot; that the amendment to the bylaws

which specifically bars petitioner from being a director is void since it deprives him of his vested rights. Respondent Commission, thru the Solicitor General, filed a separate comment, alleging that after receiving a copy of the restraining order issued by this Court and noting that the restraining order did not foreclose action by it, the Commission en banc issued Orders Nos. 449, 450 and 451 in SEC Case No. 1375. In answer to the allegation in the supplemental petition, it states that Order No. 450 which denied deferment of Item 6 of the Agenda of the annual stockholders' meeting of respondent corporation, took into consideration an urgent manifestation filed with the Commission by petitioner on May 3, 1977 which prayed, among others, that the discussion of Item 6 of the Agenda be deferred. The reason given for denial of deferment was that "such action is within the authority of the corporation as well as falling within the sphere of stockholders' right to know, deliberate upon and/or to express their wishes regarding disposition of corporate funds considering that their investments are the ones directly affected." It was alleged that the main petition has, therefore, become moot and academic. On September 29, 1977, petitioner filed a second supplemental petition with prayer for preliminary injunction, alleging that the actuations of respondent SEC tended to deprive him of his right to due process, and "that all possible questions on the facts now pending before the respondent Commission are now before this Honorable Court which has the authority and the competence to act on them as it may see fit." (Rollo, pp. 927-928.) Petitioner, in his memorandum, submits the following issues for resolution; (1) Whether or not the provisions of the amended by-laws of respondent corporation, disqualifying a competitor from nomination or election to the Board of Directors are valid and reasonable; (2) whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation; and (3) whether or not respondent SEC committed grave abuse of discretion in allowing discussion of Item 6 of the Agenda of the Annual Stockholders' Meeting on May 10, 1977, and the ratification of the investment in a foreign corporation of the corporate funds, allegedly in violation of section 17-1/2 of the Corporation Law. I Whether or not amended by-laws are valid is purely a legal question, which public interest requires to be resolved It is the position of the petitioner that "it is not necessary to remand the case to respondent SEC for an appropriate ruling on the intrinsic validity of the amended by-laws in compliance with the principle of exhaustion of administrative remedies", considering that: first: "whether or not the provisions of the amended by-laws are intrinsically valid . . . is purely a legal question. There is no factual dispute as to what the provisions are and evidence is not necessary to determine whether such amended by-laws are valid as framed and approved . . ."; second: "it is for the interest and guidance of the public that an immediate and final ruling on the question be made . . ."; third: "petitioner was denied due process by SEC" when "Commissioner de Guzman had openly shown prejudice against petitioner . . .", and "Commissioner Sulit . . . approved the amended by-laws ex-parte and obviously found the same intrinsically valid"; and finally: "to remand the case to SEC would only entail delay rather than serve the ends of justice." Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that this Court resolve the legal issues raised by the parties in keeping with the "cherished rules of procedure" that "a court should always strive to settle the

entire controversy in a single proceeding leaving no root or branch to bear the seeds of future ligiation", citing Gayos v. Gayos. 3 To the same effect is the prayer of San Miguel Corporation that this Court resolve on the merits the validity of its amended by-laws and the rights and obligations of the parties thereunder, otherwise "the time spent and effort exerted by the parties concerned and, more importantly, by this Honorable Court, would have been for naught because the main question will come back to this Honorable Court for final resolution." Respondent Eduardo R. Visaya submits a similar appeal. It is only the Solicitor General who contends that the case should be remanded to the SEC for hearing and decision of the issues involved, invoking the latter's primary jurisdiction to hear and decide cases involving intra-corporate controversies. It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire controversy in a single proceeding, leaving no root or branch to bear the seeds of future litigation. 4 Thus, in Francisco v. City of Davao, 5 this Court resolved to decide the case on the merits instead of remanding it to the trial court for further proceedings since the ends of justice would not be subserved by the remand of the case. In Republic v. Security Credit and Acceptance Corporation, et al., 6 this Court, finding that the main issue is one of law, resolved to decide the case on the merits "because public interest demands an early disposition of the case", and in Republic v. Central Surety and Insurance Company, 7 this Court denied remand of the third-party complaint to the trial court for further proceedings, citing precedents where this Court, in similar situations, resolved to decide the cases on the merits, instead of remanding them to the trial court where (a) the ends of justice would not be subserved by the remand of the case; or (b) where public interest demands an early disposition of the case; or (c) where the trial court had already received all the evidence presented by both parties and the Supreme Court is now in a position, based upon said evidence, to decide the case on its merits. 8 It is settled that the doctrine of primary jurisdiction has no application where only a question of law is involved. 8a Because uniformity may be secured through review by a single Supreme Court, questions of law may appropriately be determined in the first instance by courts. 8b In the case at bar, there are facts which cannot be denied, viz: that the amended by-laws were adopted by the Board of Directors of the San Miguel Corporation in the exercise of the power delegated by the stockholders ostensibly pursuant to section 22 of the Corporation Law; that in a special meeting on February 10, 1977 held specially for that purpose, the amended by-laws were ratified by more than 80% of the stockholders of record; that the foreign investment in the Hongkong Brewery and Distillery, a beer manufacturing company in Hongkong, was made by the San Miguel Corporation in 1948; and that in the stockholders' annual meeting held in 1972 and 1977, all foreign investments and operations of San Miguel Corporation were ratified by the stockholders. II Whether or not the amended by-laws of SMC disqualifying a competitor from nomination or election to the Board of Directors of SMC are valid and reasonable The validity or reasonableness of a by-law of a corporation is purely a question of law. 9 Whether the by-law is in conflict with the law of the land, or with the charter of the corporation, or is in a legal sense unreasonable and therefore unlawful is a question of law. 10 This rule is subject, however, to the limitation that where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised their authority. 11

Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to suppress the minority and prevent them from having representation in the Board", at the same time depriving petitioner of his "vested right" to be voted for and to vote for a person of his choice as director. Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San Miguel Corporation content that exclusion of a competitor from the Board is legitimate corporate purpose, considering that being a competitor, petitioner cannot devote an unselfish and undivided loyalty to the corporation; that it is essentially a preventive measure to assure stockholders of San Miguel Corporation of reasonable protection from the unrestrained self-interest of those charged with the promotion of the corporate enterprise; that access to confidential information by a competitor may result either in the promotion of the interest of the competitor at the expense of the San Miguel Corporation, or the promotion of both the interests of petitioner and respondent San Miguel Corporation, which may, therefore, result in a combination or agreement in violation of Article 186 of the Revised Penal Code by destroying free competition to the detriment of the consuming public. It is further argued that there is not vested right of any stockholder under Philippine Law to be voted as director of a corporation. It is alleged that petitioner, as of May 6,1978, has exercised, personally or thru two corporations owned or controlled by him, control over the following shareholdings in San Miguel Corporation, vis.: (a) John Gokongwei, Jr. 6,325 shares; (b) Universal Robina Corporation 738,647 shares; (c) CFC Corporation 658,313 shares, or a total of 1,403,285 shares. Since the outstanding capital stock of San Miguel Corporation, as of the present date, is represented by 33,139,749 shares with a par value of P10.00, the total shares owned or controlled by petitioner represents 4.2344% of the total outstanding capital stock of San Miguel Corporation. It is also contended that petitioner is the president and substantial stockholder of Universal Robina Corporation and CFC Corporation, both of which are allegedly controlled by petitioner and members of his family. It is also claimed that both the Universal Robina Corporation and the CFC Corporation are engaged in businesses directly and substantially competing with the allied businesses of San Miguel Corporation, and of corporations in which SMC has substantial investments. ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND SAN MIGUEL CORPORATION According to respondent San Miguel Corporation, the areas of, competition are enumerated in its Board the areas of competition are enumerated in its Board Resolution dated April 28, 1978, thus: Product Line Estimated Market Share Total 1977 SMC Robina-CFC Table Eggs 0.6% 10.0% 10.6% Layer Pullets 33.0% 24.0% 57.0% Dressed Chicken 35.0% 14.0% 49.0% Poultry & Hog Feeds 40.0% 12.0% 52.0% Ice Cream 70.0% 13.0% 83.0% Instant Coffee 45.0% 40.0% 85.0% Woven Fabrics 17.5% 9.1% 26.6% Thus, according to respondent SMC, in 1976, the areas of competition affecting SMC involved product sales of over P400 million or more than 20% of the P2 billion total product sales of SMC. Significantly, the combined market shares of SMC and CFC-Robina in layer pullets, dressed chicken, poultry and hog feeds, ice cream, instant coffee and woven fabrics would result in a position of such dominance as to affect the prevailing market factors. It is further asserted that in 1977, the CFC-Robina group was in direct competition on product lines which, for SMC, represented sales amounting to

more than P478 million. In addition, CFC-Robina was directly competing in the sale of coffee with Filipino, a subsidiary of SMC, which product line represented sales for SMC amounting to more than P275 million. The CFCRobina group (Robitex, excluding Litton Mills recently acquired by petitioner) is purportedly also in direct competition with Ramie Textile, Inc., subsidiary of SMC, in product sales amounting to more than P95 million. The areas of competition between SMC and CFC-Robina in 1977 represented, therefore, for SMC, product sales of more than P849 million. According to private respondents, at the Annual Stockholders' Meeting of March 18, 1976, 9,894 stockholders, in person or by proxy, owning 23,436,754 shares in SMC, or more than 90% of the total outstanding shares of SMC, rejected petitioner's candidacy for the Board of Directors because they "realized the grave dangers to the corporation in the event a competitor gets a board seat in SMC." On September 18, 1978, the Board of Directors of SMC, by "virtue of powers delegated to it by the stockholders," approved the amendment to the by-laws in question. At the meeting of February 10, 1977, these amendments were confirmed and ratified by 5,716 shareholders owning 24,283,945 shares, or more than 80% of the total outstanding shares. Only 12 shareholders, representing 7,005 shares, opposed the confirmation and ratification. At the Annual Stockholders' Meeting of May 10, 1977, 11,349 shareholders, owning 27,257.014 shares, or more than 90% of the outstanding shares, rejected petitioner's candidacy, while 946 stockholders, representing 1,648,801 shares voted for him. On the May 9, 1978 Annual Stockholders' Meeting, 12,480 shareholders, owning more than 30 million shares, or more than 90% of the total outstanding shares, voted against petitioner. AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS EXPRESSLY CONFERRED BY LAW Private respondents contend that the disputed amended by-laws were adopted by the Board of Directors of San Miguel Corporation as a measure of selfdefense to protect the corporation from the clear and present danger that the election of a business competitor to the Board may cause upon the corporation and the other stockholders "irreparable prejudice." Submitted for resolution, therefore, is the issue whether or not respondent San Miguel Corporation could, as a measure of self-protection, disqualify a competitor from nomination and election to its Board of Directors. It is recognized by all authorities that 'every corporation has the inherent power to adopt by-laws 'for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs.'" 12 At common law, the rule was "that the power to make and adopt by-laws was inherent in every corporation as one of its necessary and inseparable legal incidents. And it is settled throughout the United States that in the absence of positive legislative provisions limiting it, every private corporation has this inherent power as one of its necessary and inseparable legal incidents, independent of any specific enabling provision in its charter or in general law, such power of selfgovernment being essential to enable the corporation to accomplish the purposes of its creation." 13 In this jurisdiction under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications, duties and compensation of directors, officers and employees . . ." This must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law, which provides that "every director must own in his right at least one share of the capital stock of the stock corporation of which he is a director . . ." In Government v. El Hogar, 14 the Court sustained the validity of a provision in the corporate by-law requiring that persons elected to the Board of Directors must be holders of shares of the paid up value of P5,000.00, which shall be

held as security for their action, on the ground that section 21 of the Corporation Law expressly gives the power to the corporation to provide in its by-laws for the qualifications of directors and is "highly prudent and in conformity with good practice." NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law." 15 To this extent, therefore, the stockholder may be considered to have "parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation, and surrendered it to the will of the majority of his fellow incorporators. . . . It can not therefore be justly said that the contract, express or implied, between the corporation and the stockholders is infringed . . . by any act of the former which is authorized by a majority . . ." 16 Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of incorporation by a vote or written assent of the stockholders representing at least two-thirds of the subscribed capital stock of the corporation. If the amendment changes, diminishes or restricts the rights of the existing shareholders, then the dissenting minority has only one right, viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the same law, the owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said, therefore, that petitioner has a vested right to be elected director, in the face of the fact that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be subject to amendment, alteration and modification. 17 It being settled that the corporation has the power to provide for the qualifications of its directors, the next question that must be considered is whether the disqualification of a competitor from being elected to the Board of Directors is a reasonable exercise of corporate authority. A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS SHAREHOLDERS Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned. As agents entrusted with the management of the corporation for the collective benefit of the stockholders, "they occupy a fiduciary relation, and in this sense the relation is one of trust." 18 "The ordinary trust relationship of directors of a corporation and stockholders", according to Ashaman v. Miller, 19 "is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof . . ." Justice Douglas, in Pepper v. Litton, 20 emphatically restated the standard of fiduciary obligation of the directors of corporations, thus: "A director is a fiduciary. . . . Their powers are powers in trust. . . . He who is in such fiduciary position cannot serve himself first and his cestuis second. . . . He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters. . . . He cannot utilize his inside information and strategic position for his own preferment. He cannot violate rules of fair play by doing indirectly through the

corporation what he could not do so directly. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly. He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement, preference, or advantage of the fiduciary to the exclusion or detriment of the cestuis." And in Cross v. West Virginia Cent, & P. R. R. Co., 21 it was said: ". . . A person cannot serve two hostile and adverse masters without detriment to one of them. A judge cannot be impartial if personally interested in the cause. No more can a director. Human nature is too weak for this. Take whatever statute provision you please giving power to stockholders to choose directors, and in none will you find any express prohibition against a discretion to select directors having the company's interest at heart, and it would simply be going far to deny by mere implication the existence of such a salutary power. ". . . If the by-law is to be held reasonable in disqualifying a stockholder in a competing company from being a director, the same reasoning would apply to disqualify the wife and immediate member of the family of such stockholder, on account of the supposed interest of the wife in her husband's affairs, and his supposed influence over her. It is perhaps true that such stockholders ought not to be condemned as selfish and dangerous to the best interest of the corporation until tried and tested. So it is also true that we cannot condemn as selfish and dangerous and unreasonable the action of the board in passing the by-law. The strife over the matter of control in this corporation as in many others is perhaps carried on not altogether in the spirit of brotherly love and affection. The only test that we can apply is as to whether or not the action of the Board is authorized and sanctioned by law. . . ." 22 These principles have been applied by this Court in previous cases. 23 AN AMENDMENT TO THE CORPORATE BY-LAW WHICH RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO DIRECTOR IN A CORPORATION WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER CORPORATION, HAS BEEN SUSTAINED AS VALID It is a settled state law in the United States, according to Fletcher, that corporations have the power to make by-laws declaring a person employed in the service of a rival company to be ineligible for the corporation's Board of Directors. ". . . (A)n amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a director in a corporation whose business is in competition with or is antagonistic to the other corporation is valid." 24 This is based upon the principle that where the director is so employed in the service of a rival company, he cannot serve both, but must betray one or the other. Such an amendment "advances the benefit of the corporation and is good." An exception exists in New Jersey, where the Supreme Court held that the Corporation Law in New Jersey prescribed the only qualification, and therefore the corporation was not empowered to add additional qualifications. 25 This is the exact opposite of the situation in the Philippines because as stated heretofore, section 21 of the Corporation Law expressly provides that a corporation may make by-laws for the qualifications of directors. Thus, it has been held that an officer of a corporation cannot engage in a business in direct competition with that of the corporation where he is a director by utilizing information he has received as such officer, under "the established law that a director or officer of a corporation may not enter into a competing enterprise which cripples or injures the business of the corporation of which he is an officer or director." 26

It is also well established that corporate officers "are not permitted to use their position of trust and confidence to further their private interests." 27 In a case where directors of a corporation cancelled a contract of the corporation for exclusive sale of a foreign firm's products, and after establishing a rival business, the directors entered into a new contract themselves with the foreign firm for exclusive sale of its products, the court held that equity would regard the new contract as an offshoot of the old contract and, therefore, for the benefit of the corporation, as a "faultless fiduciary may not reap the fruits of his misconduct to the exclusion of his principal. 28 The doctrine of "corporate opportunity" 29 is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for protection. 30 It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential information, such as: (a) marketing strategies and pricing structure; (b) budget for expansion and diversification; (c) research and development; and (d) sources of funding, availability of personnel, proposals of mergers or tie-ups with other firms. It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation, who is also the officer or owner of a competing corporation, from taking advantage of the information which he acquires as director to promote his individual or corporate interests to the prejudice of San Miguel Corporation and its stockholders, that the questioned amendment of the by-laws was made. Certainly, where two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns. Thus, in McKee & Co. v. First National Bank of San Diego, supra, the court sustained as valid and reasonable an amendment to the by-laws of a bank, requiring that its directors should not be directors, officers, employees, agents, nominees or attorneys of any other banking corporation, affiliate or subsidiary thereof. Chief Judge Parker, in McKee, explained the reasons of the court, thus: ". . . A bank director has access to a great deal of information concerning the business and plans of a bank which would likely be injurious to the bank if known to another bank, and it was reasonable and prudent to enlarge this minimum disqualification to include any director, officer, employee, agent, nominee, or attorney of any other bank in California. The Ashkins case, supra, specifically recognizes protection against rivals and others who might acquire information which might be used against the interests of the corporation as a legitimate object of by-law protection. With respect to attorneys or persons associated with a firm which is attorney for another bank, in addition to the direct conflict or potential conflict of interest, there is also the danger of inadvertent leakage of confidential information through casual office discussions or accessibility of files. Defendant's directors determined that its welfare was best protected if this opportunity for conflicting loyalties and potential misuse and leakage of confidential information was foreclosed." In McKee, the Court further listed qualificational by-laws upheld by the courts, as follows: "(1) A director shall not be directly or indirectly interested as a stockholder in any other firm, company, or association which competes with the subject corporation.

(2) A director shall not be the immediate member of the family of any stockholder in any other firm, company, or association which competes with the subject corporation. (3) A director shall not be an officer, agent, employee, attorney, or trustee in any other firm, company, or association which compete with the subject corporation. (4) A director shall be of good moral character as an essential qualification to holding office. (5) No person who is an attorney against the corporation in a law suit is eligible for service on the board." (At p. 7.) These are not based on theoretical abstractions but on human experience that a person cannot serve two hostile masters without detriment to one of them. The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage of his position as director of San Miguel Corporation, he would absent himself from meetings at which confidential matters would be discussed, would not detract from the validity and reasonableness of the bylaws here involved. Apart from the impractical results that would ensue from such arrangement, it would be inconsistent with petitioner's primary motive in running for board membership which is to protect his investments in San Miguel Corporation. More important, such a proposed norm of conduct would be against all accepted principles underlying a director's duty of fidelity to the corporation, for the policy of the law is to encourage and enforce responsible corporate management. As explained by Oleck: 31 "The law will not tolerate the passive attitude of directors . . . without active and conscientious participation in the managerial functions of the company. As directors, it is their duty to control and supervise the day to day business activities of the company or to promulgate definite policies and rules of guidance with a vigilant eye toward seeing to it that these policies are carried out. It is only then that directors may be said to have fulfilled their duty of fealty to the corporation." Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty of loyalty may well require that he disclose this information to a competitive rival. These dangers are enhanced considerably where the common director such as the petitioner is a controlling stockholder of two of the competing corporations. It would seem manifest that in such situations, the director has an economic incentive to appropriate for the benefit of his own corporation the corporate plans and policies of the corporation where he sits as director. Indeed, access by a competitor to confidential information regarding marketing strategies and pricing policies of San Miguel Corporation would subject the latter to a competitive disadvantage and unjustly enrich the competitor, for advance knowledge by the competitor of the strategies for the development of existing or new markets of existing or new products could enable said competitor to utilize such knowledge to his advantage. 32 There is another important consideration in determining whether or not the amended by-laws are reasonable. The Constitution and the law prohibit combinations in restraint of trade or unfair competition. Thus, section 2 of Article XIV of the Constitution provides: "The State shall regulate or prohibit private monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed." Article 186 of the Revised Penal Code also provides: "Art. 186. Monopolies and combinations in restraint of trade. The penalty of prision correccional in its minimum period or a fine ranging from two hundred to six thousand pesos, or both, shall be imposed upon: 1. Any person who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of a trust or otherwise, in

restraint of trade or commerce or to prevent by artificial means free competition in the market. 2. Any person who shall monopolize any merchandise or object of trade or commerce, or shall combine with any other person or persons to monopolize said merchandise or object in order to alter the price thereof by spreading false rumors or making use of any other artifice to restrain free competition in the market. 3. Any person who, being a manufacturer, producer, or processor of any merchandise or object of commerce or an importer of any merchandise or object of commerce from any foreign country, either as principal or agent, wholesale or retailer, shall combine, conspire or agree in any manner with any person likewise engaged in the manufacture, production, processing, assembling or importation of such merchandise or object of commerce or with any other persons not so similarly engaged for the purpose of making transactions prejudicial to lawful commerce, or of increasing the market price in any part of the Philippines, or any such merchandise or object of commerce manufactured, produced, processed, assembled in or imported into the Philippines, or of any article in the manufacture of which such manufactured, produced, processed, or imported merchandise or object of commerce is used." There are other legislation in this jurisdiction, which prohibit monopolies and combinations in restraint of trade. 33 Basically, these anti-trust laws or laws against monopolies or combinations in restraint of trade are aimed at raising levels of competition by improving the consumers' effectiveness as the final arbiter in free markets. These laws are designed to preserve free and unfettered competition as the rule of trade. "It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices and the highest quality . . ." 34 they operate to forestall concentration of economic power. 35 The law against monopolies and combinations in restraint of trade is aimed at contracts and combinations that, by reason of the inherent nature of the contemplated acts, prejudice the public interest by unduly restraining competition or unduly obstructing the course of trade. 36 The terms "monopoly", "combination in restraint of trade" and "unfair competition" appear to have a well defined meaning in other jurisdictions. A "monopoly" embraces any combination the tendency of which is to prevent competition in the broad and general sense, or to control prices to the detriment of the public. 37 In short, it is the concentration of business in the hands of a few. The material consideration in determining its existence is not that prices are raised and competition actually excluded, but that power exists to raise prices or exclude competition when desired. 38 Further, it must be considered that the idea of monopoly is now understood to include a condition produced by the mere act of individuals. Its dominant thought is the notion of exclusiveness or unity, or the suppression of competition by the unification of interest or management, or it may be thru agreement and concert of action. It is, in brief, unified tactics with regard to prices. 39 From the foregoing definitions, it is apparent that the contentions of petitioner are not in accord with reality. The election of petitioner to the Board of respondent Corporation can bring about an illegal situation. This is because an express agreement is not necessary for the existence of a combination or conspiracy in restraint of trade. 40 It is enough that a concert of action is contemplated and that the defendants conformed to the arrangements, 41 and what is to be considered is what the parties actually did and not the words they used. For instance, the Clayton Act prohibits a person from serving at the same time as a director in any two or more corporations, if such corporations are, by virtue of their business and location of operation, competitors so that the elimination of competition between them would constitute violation of any

provision of the anti-trust laws. 42 There is here a statutory recognition of the anti-competitive dangers which may arise when an individual simultaneously acts as a director of two or more competing corporations. A common director of two or more competing corporations would have access to confidential sales, pricing and marketing information and would be in a position to coordinate policies or to aid one corporation at the expense of another, thereby stifling competition. This situation has been aptly explained by Travers, thus: "The argument for prohibiting competing corporations from sharing even one director is that the interlock permits the coordination of policies between nominally independent firms to an extent that competition between them may be completely eliminated. Indeed, if a director, for example, is to be faithful to both corporations, some accommodation must result. Suppose X is a director of both Corporation A and Corporation B. X could hardly vote for a policy by A that would injure B without violating his duty of loyalty to B; at the same time he could hardly abstain from voting without depriving A of his best judgment. If the firms really do compete in the sense of vying for economic advantage at the expense of the other there can hardly be any reason for an interlock between competitors other than the suppression of competition." 43 (Emphasis supplied.) According to the Report of the House Judiciary Committee of the U. S. Congress on section 9 of the Clayton Act, it was established that: "By means of the interlocking directorates one man or group of men have been able to dominate and control a great number of corporations . . . to the detriment of the small ones dependent upon them and to the injury of the public." 44 Shared information on cost accounting may lead to price fixing. Certainly, shared information on production, orders, shipments, capacity and inventories may lead to control of production for the purpose of controlling prices. Obviously, if a competitor has access to the pricing policy and cost conditions of the products of San Miguel Corporation, the essence of competition in a free market for the purpose of serving the lowest priced goods to the consuming public would be frustrated. The competitor could so manipulate the prices of his products or vary its marketing strategies by region or by brand in order to get the most out of the consumers. Where the two competing firms control a substantial segment of the market this could lead to collusion and combination in restraint of trade. Reason and experience point to the inevitable conclusion that the inherent tendency of interlocking directorates between companies that are related to each other as competitors is to blunt the edge of rivalry between the corporations, to seek out ways of compromising opposing interests, and thus eliminate competition. As respondent SMC aptly observes, knowledge by CFC-Robina of SMC's costs in various industries and regions in the country will enable the former to practice price discrimination. CFC-Robina can segment the entire consuming population by geographical areas or income groups and change varying prices in order to maximize profits from every market segment. CFC-Robina could determine the most profitable volume at which it could produce for every product line in which it competes with SMC. Access to SMC pricing policy by CFC-Robina would in effect destroy free competition and deprive the consuming public of opportunity to buy goods of the highest possible quality at the lowest prices. Finally, considering that both Robina and SMC are, to a certain extent, engaged in agriculture, then the election of petitioner to the Board of SMC may constitute a violation of the prohibition contained in section 13(5) of the Corporation Law. Said section provides in part that "any stockholder of more than one corporation organized for the purpose of engaging in agriculture may hold his stock in such corporations solely for investment and not for the purpose of bringing about or attempting to bring about a combination to exercise control of such corporations . . .)."

Neither are We persuaded by the claim that the by-law was intended to prevent the candidacy of petitioner for election to the Board. If the by-law were to be applied in the case of one stockholder but waived in the case of another, then it could be reasonably claimed that the by-law was being applied in a discriminatory manner. However, the by-law, by its terms, applies to all stockholders. The equal protection clause of the Constitution requires only that the by-law operate equally upon all persons of a class. Besides, before petitioner can be declared ineligible to run for director, there must be hearing and evidence must be submitted to bring his case within the ambit of the disqualification. Sound principles of public policy and management, therefore, support the view that a by-law which disqualifies a competition from election to the Board of Directors of another corporation is valid and reasonable. In the absence of any legal prohibition or overriding public policy, wide latitude may be accorded to the corporation in adopting measures to protect legitimate corporate interests. Thus, "where the reasonableness of a by-law is a mere matter of judgment, and upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have expressed their authority." 45 Although it is asserted that the amended by-laws confer on the present Board powers to perpetuate themselves in power, such fears appear to be misplaced. This power, by its very nature, is subject to certain well established limitations. One of these is inherent in the very concept and definition of the terms "competition" and "competitor". "Competition" implies a struggle for advantage between two or more forces, each possessing, in substantially similar if not identical degree, certain characteristics essential to the business sought. It means an independent endeavor of two or more persons to obtain the business patronage of a third by offering more advantageous terms as an inducement to secure trade. 46 The test must be whether the business does in fact compete, not whether it is capable of an indirect and highly unsubstantial duplication of an isolated or non-characteristic activity. 47 It is, therefore, obvious that not every person or entity engaged in business of the same kind is a competitor. Such factors as quantum and place of business, identity of products and area of competition should be taken into consideration. It is, therefore, necessary to show that petitioner's business covers a substantial portion of the same markets for similar products to the extent of not less than 10% of respondent corporation's market for competing products. While We here sustain the validity of the amended by-laws, it does not follow as a necessary consequence that petitioner is ipso facto disqualified. Consonant with the requirement of due process, there must be due hearing at which the petitioner must be given the fullest opportunity to show that he is not covered by the disqualification. As trustees of the corporation and of the stockholders, it is the responsibility of directors to act with fairness to the stockholders. 48 Pursuant to this obligation and to remove any suspicion that this power may be utilized by the incumbent members of the Board to perpetuate themselves in power, any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed by the Securities and Exchange Commission en banc and its decision shall be final unless reversed by this Court on certiorari. 49 Indeed, it is a settled principle that where the action of a Board of Directors is an abuse of discretion, or forbidden by statute, or is against public policy, or is ultra vires, or is a fraud upon minority stockholders or creditors, or will result in waste, dissipation or misapplication of the corporation assets, a court of equity has the power to grant appropriate relief. 50 III

Whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation Respondent San Miguel Corporation stated in its memorandum that petitioner's claim that he was denied inspection rights as stockholder of SMC "was made in the teeth of undisputed facts that, over a specific period, petitioner had been furnished numerous documents and information," to wit: (1) a complete list of stockholders and their stockholdings; (2) a complete list of proxies given by the stockholders for use at the annual stockholders' meeting of May 18, 1975; (3) a copy of the minutes of the stockholders' meeting of March 18, 1976; (4) a breakdown of SMC's P186.6 million investment in associated companies and other companies as of December 31, 1975; (5) a listing of the salaries, allowances, bonuses and other compensation or remunerations received by the directors and corporate officers of SMC; (6) a copy of the US$100 million Euro-Dollar Loan Agreement of SMC; and (7) copies of the minutes of all meetings of the Board of Directors from January 1975 to May 1976, with deletions of sensitive data, which deletions were not objected to by petitioner. Further, it was averred that upon request, petitioner was informed in writing on September 18, 1976; (1) that SMC's foreign investments are handled by San Miguel International, Inc., incorporated in Bermuda and wholly owned by SMC; this was SMC's first venture abroad, having started in 1948 with an initial outlay of P500,000.00, augmented by a loan of Hongkong $6 million from a foreign bank under the personal guaranty of SMC's former President, the late Col. Andres Soriano; (2) that as of December 31, 1975, the estimated value of SMI would amount to almost P400 million; (3) that the total cash dividends received by SMC from SMI since 1953 has amount to US$9.4 million; and (4) that from 1972-1975, SMI did not declare cash or stock dividends, all earnings having been used in line with a program for the setting up of breweries by SMI. These averments are supported by the affidavit of the Corporate Secretary, enclosing photocopies of the afore-mentioned documents. 51 Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all business transactions of the corporation and minutes of any meeting shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours." The stockholder's right of inspection of the corporation's books and records is based upon their ownership of the assets and property of the corporation. It is, therefore, an incident of ownership of the corporate property, whether this ownership or interest be termed an equitable ownership, a beneficial ownership, or a quasi-ownership. 52 This right is predicated upon the necessity of self-protection. It is generally held by majority of the courts that where the right is granted by statute to the stockholder, it is given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the corporation. 53 In other words, the inspection has to be germane to the petitioner's interest as a stockholder, and has to be proper and lawful in character and not inimical to the interest of the corporation. 54 In Grey v. Insular Lumber, 55 this Court held that "the right to examine the books of the corporation must be exercised in good faith, for specific and honest purpose, and not to gratify curiosity, or for speculative or vexatious purposes." The weight of judicial opinion appears to be, that on application for mandamus to enforce the right, it is proper for the court to inquire into and consider the stockholder's good faith and his purpose and motives in seeking inspection. 56 Thus, it was held that "the right given by statute is not absolute and may be refused when the information is not sought in good faith or is used to the detriment of the corporation." 57 But the "impropriety of purpose such as will

defeat enforcement must be set up the corporation defensively if the Court is to take cognizance of it as a qualification. In other words, the specific provisions take from the stockholder the burden of showing propriety of purpose and place upon the corporation the burden of showing impropriety of purpose or motive." 58 It appears to be the "general rule that stockholders are entitled to full information as to the management of the corporation and the manner of expenditure of its funds, and to inspection to obtain such information, especially where it appears that the company is being mismanaged or that it is being managed for the personal benefit of officers or directors or certain of the stockholders to the exclusion of others." 59 While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law, the right of such stockholder to examine the books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing. Some state courts recognize the right under certain conditions, while others do not. Thus, it has been held that where a corporation owns approximately no property except the shares of stock of subsidiary corporations which are merely agents or instrumentalities of the holding company, the legal fiction of distinct corporate entities may be disregarded and the books, papers and documents of all the corporations may be required to be produced for examination, 60 and that a writ of mandamus may be granted, as the records of the subsidiary were, to all intents and purposes, the records of the parent even though the subsidiary was not named as a party. 61 Mandamus was likewise held proper to inspect both the subsidiary's and the parent corporation's books upon proof of sufficient control or dominion by the parent showing the relation of principal or agent or something similar thereto. 62 On the other hand, mandamus at the suit of a stockholder was refused where the subsidiary corporation is a separate and distinct corporation domiciled and with its books and records in another jurisdiction, and is not legally subject to the control of the parent company, although it owned a vast majority of the stock of the subsidiary. 63 Likewise, inspection of the books of an allied corporation by a stockholder of the parent company which owns all the stock of the subsidiary has been refused on the ground that the stockholder was not within the class of "persons having an interest." 64 In the Nash case, 65 The Supreme Court of New York held that the contractual right of former stockholders to inspect books and records of the corporation "included the right to inspect corporation's subsidiaries' books and records which were in corporation's possession and control in its office in New York." In the Bailey case, 66 stockholders of a corporation were held entitled to inspect the records of a controlled subsidiary corporation which used the same offices and had identical officers and directors. In his "Urgent Motion for Production and Inspection of Documents" before respondent SEC, petitioner contended that respondent corporation "had been attempting to suppress information from the stockholders" and that petitioner, "as stockholder of respondent corporation, is entitled to copies of some documents which for some reason or another, respondent corporation is very reluctant in revealing to the petitioner notwithstanding the fact that no harm would be caused thereby to the corporation." 67 There is no question that stockholders are entitled to inspect the books and records of a corporation in order to investigate the conduct of the management, determine the financial condition of the corporation, and generally take an account of the stewardship of the officers and directors. 68 In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San Miguel Corporation and, therefore, under its control, it would be more in accord with equity, good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of

the corporation as extending to books and records of such wholly owned subsidiary which are in respondent corporation's possession and control. IV Whether or not respondent SEC gravely abused its discretion in allowing the stockholders of respondent corporation to ratify the investment of corporate funds in a foreign corporation Petitioner reiterates his contention in SEC Case No. 1423 that respondent corporation invested corporate funds in SMI without prior authority of the stockholders, thus violating section 17-112 of the Corporation Law, and alleges that respondent SEC should have investigated the charge, being a statutory offense, instead of allowing ratification of the investment by the stockholders. Respondent SEC's position is that submission of the investment to the stockholders for ratification is a sound corporate practice and should not be thwarted but encouraged. Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other corporation or business or for any purpose other than the main purpose for which it was organized" provided that its Board of Directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting power. If the investment is made in pursuance of the corporate purpose, it does not need the approval of the stockholders. It is only when the purchase of shares is done solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the stockholders holding shares entitling them to exercise at least two-thirds of the voting power is necessary. 69 As stated by respondent corporation, the purchase of beer manufacturing facilities by SMC was an investment in the same business stated as its main purpose in its Articles of Incorporation, which is to manufacture and market beer. It appears that the original investment was made in 1947-1948, when SMC, then San Miguel Brewery, Inc., purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing of San Miguel beer thereat. Restructuring of the investment was made in 19701971 thru the organization of SMI in Bermuda as a tax free reorganization. Under these circumstances, the ruling in De la Rama v. Ma-ao Sugar Central Co., Inc., supra, appears relevant. In said case, one of the issues was the legality of an investment made by Ma-ao Sugar Central Co., Inc., without prior resolution approved by the affirmative vote of 2/3 of the stockholders' voting power, in the Philippine Fiber Processing Co., Inc., a company engaged in the manufacture of sugar bags. The lower court said that "there is more logic in the stand that if the investment is made in a corporation whose business is important to the investing corporation and would aid it in its purpose, to require authority of the stockholders would be to unduly curtail the power of the Board of Directors." This Court affirmed the ruling of the court a quo on the matter and, quoting Prof. Sulpicio S. Guevara, said: "'j. Power to acquire or dispose of shares or securities. A private corporation, in order to accomplish is purpose as stated in its articles of incorporation, and subject to the limitations imposed by the Corporation Law, has the power to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other evidences of indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval of stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation, the vote of approval of the stockholders is necessary. In any case, the purchase of such shares or securities must be subject to the limitations established by the Corporation law; namely, (a) that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation; or (b) that a non-agricultural or non-

mining corporation shall be restricted to own not more than 15% of the voting stock of any agricultural or mining corporation; and (c) that such holdings shall be solely for investment and not for the purpose of bringing about a monopoly in any line of commerce or combination in restraint of trade.' (The Philippine Corporation Law by Sulpicio S. Guevara, 1967 Ed., p. 89) (Emphasis ours.) "'40. Power to invest corporate funds. A private corporation has the power to invest its corporate funds "in any other corporation or business, or for any purpose other than the main purpose for which it was organized, provided that 'its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such a proposal at a stockholders' meeting called for that purpose,' and provided further, that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. When the investment is necessary to accomplish its purpose or purposes as stated in its articles of incorporation, the approval of the stockholders is not necessary."" (Id., p. 108.) (Emphasis ours.)" (pp. 258259.) Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed investment, there is no question that a corporation, like an individual, may ratify and thereby render binding upon it the originally unauthorized acts of its officers or other agents. 70 This is true because the questioned investment is neither contrary to law, morals, public order or public policy. It is a corporate transaction or contract which is within the corporate powers, but which is defective from a purported failure to observe in its execution the requirement of the law that the investment must be authorized by the affirmative vote of the stockholders holding two-thirds of the voting power. This requirement is for the benefit of the stockholders. The stockholders for whose benefit the requirement was enacted may, therefore, ratify the investment and its ratification by said stockholders obliterates any defect which it may have had at the outset. "Mere ultra vires acts", said this Court in Pirovano, 71 "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." Besides, the investment was for the purchase of beer manufacturing and marketing facilities which is apparently relevant to the corporate purpose. The mere fact that respondent corporation submitted the assailed investment to the stockholders for ratification at the annual meeting of May 10, 1977 cannot be construed as an admission that respondent corporation had committed an ultra vires act, considering the common practice of corporations of periodically submitting for the ratification of their stockholders the acts of their directors, officers and managers. WHEREFORE, judgment is hereby rendered as follows: The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed to examine the books and records of San Miguel International, Inc., as specified by him. On the matter of the validity of the amended by-laws of respondent San Miguel Corporation, six (6) Justices, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De Castro, voted to sustain the validity per se of the amended by-laws in question and to dismiss the petition without prejudice to the question of the actual disqualification of petitioner John Gokongwei, Jr. to run and if elected to sit as director of respondent San Miguel Corporation being decided, after a new and proper hearing by the Board of Directors of said corporation, whose decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc, and ultimately to

this Court. Unless disqualified in the manner herein provided, the prohibition in the afore-mentioned amended by-laws shall not apply to petitioner. The afore-mentioned six (6) Justices, together with Justice Fernando, voted to declare the issue on the validity of the foreign investment of respondent corporation as moot. Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws, pending hearing by this Court on the applicability of section 13(5) of the Corporation Law to petitioner. Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but otherwise concurs in the result. Four (4) Justices, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero filed a separate opinion, wherein they voted against the validity of the questioned amended by-laws and that this question should properly be resolved first by the SEC as the agency of primary jurisdiction. They concur in the result that petitioner may be allowed to run for and sit as director of respondent SMC in the scheduled May 6, 1979 election and subsequent elections until disqualified after proper hearing by the respondent's Board of Directors and petitioner's disqualification shall have been sustained by respondent SEC en banc and ultimately by final judgment of this Court. In resume, subject to the qualifications afore-stated, judgment is hereby rendered GRANTING the petition by allowing petitioner to examine the books and records of San Miguel International, Inc. as specified in the petition. The petition, * insofar as it assails the validity of the amended by-laws and the ratification of the foreign investment of respondent corporation, for lack of necessary votes, is hereby DISMISSED. No costs. Makasiar, Santos, Abad Santos and De Castro, JJ., concur. Castro, C J., reserves his right to file a separate opinion. Fernando, J., concurs in the result and reserves his right to file a separate opinion. Aquino, and Melencio Herrera, JJ., took no part. CERTIFICATION The undersigned hereby certifies that Justice VICENTE ABAD SANTOS concurred in the opinion of Justice FELIX Q. ANTONIO. Separate Opinions TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ., concurring: I As correctly stated in the main opinion of Mr. Justice Antonio, the Court is unanimous in its judgment granting the petitioner as stockholder of respondent San Miguel Corporation the right to inspect, examine and secure copies of the records of San Miguel International, Inc. (SMI), a wholly owned foreign subsidiary corporation of respondent San Miguel Corporation. Respondent commission's en banc Order No. 449, Series of 1977, denying petitioner's right of inspection for "not being a stockholder of San Miguel International, Inc." has been accordingly set aside. It need be only pointed out that: a) The commission's reasoning grossly disregards the fact that the stockholders of San Miguel Corporation are likewise the owners of San Miguel International, Inc. as the corporation's wholly owned foreign subsidiary and therefore have every right to have access to its books and records otherwise, the directors and management of any Philippine corporation by the simple device of organizing with the corporation's funds foreign subsidiaries would be granted complete immunity from the stockholders' scrutiny of its foreign operations and would have a conduit for dissipating, if not misappropriating, the corporate funds and assets by merely channeling them into foreign subsidiaries' operations; and

b) Petitioner's right of examination herein recognized refers to all books and records of the foreign subsidiary SMI which are "in respondent corporation's possession and control", 1 meaning to say regardless of whether or not such books and records are physically within the Philippines. All such books and records of SMI are legally within respondent corporation's "possession and control" and if any books or records are kept abroad, (e.g. in the foreign subsidiary's state of domicile, as is to be expected), then the respondent corporation's board and management are obliged under the Court's judgment to bring and make them (or true copies thereof) available within the Philippines for petitioner's examination and inspection. II On the other main issue of the validity of respondent San Miguel Corporation's amendment of its by-laws 2 whereby respondent corporation's board of directors under its resolution dated April 29, 1977 declared petitioner ineligible to be nominated or to be voted or to be elected as of the board of directors, the Court, composed of 12 members (since Mme. Justice Ameurfina Melencio Herrera inhibited herself from taking part herein, while Mr. Justice Ramon C. Aquino upon submittal of the main opinion of Mr. Justice Antonio decided not to take part), failed to reach a conclusive vote or the required majority of 8 votes to settle the issue one way or the other. Six members of the Court, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De Castro, considered the issue purely legal and voted to sustain the validity per se of the questioned amended by-laws but nevertheless voted that the prohibition and disqualification therein provided shall not apply to petitioner Gokongwei until and after he shall have been given "a new and proper hearing" by the corporation's board of directors and the board's decision of disqualification shall have been sustained on appeal by respondent Securities and Exchange Commission and ultimately by this Court. The undersigned Justices do not consider the issue as purely legal in the light of respondent commission's Order No. 451, Series of 1977, denying petitioner's "Motion for Summary Judgment" on the ground that "the Commission en banc finds that there (are) unresolved and genuine issues of fact" 3 as well as its position in this case thru the Solicitor General that the case at bar is "premature" and that the administrative remedies before the commission should first be availed of and exhausted. 4 We are of the opinion that the questioned amended by-laws, as they are, (adopted after almost a century of respondent corporation's existence as a public corporation with its shares freely purchased and traded in the open market without restriction and disqualification) which would bar petitioner from qualification, nomination and election as director and worse, grant the board by 3/4 vote the arbitrary power to bar any stockholder from his right to be elected as director by the simple expedient of declaring him to be engaged in a "competitive or antagonistic business" or declaring him as a "nominee" of the "competitive or antagonistic" stockholder are illegal, oppressive, arbitrary and unreasonable. We consider the questioned amended by-laws as being specifically tailored to discriminate against petitioner and depriving him in violation of substantive due process of his vested substantial rights as stockholder of respondent corporation. We further consider said amended by-laws as violating specific provisions of the Corporation Law which grant and recognize the right of a minority stockholder like petitioner to be elected director by the process of cumulative voting ordained by the Law (secs. 21 and 30) and the right of a minority director once elected not to be removed from office of director except for cause by vote of the stockholders holding 2/3 of the subscribed capital stock (sec. 31). If a minority stockholder could be disqualified by such a by-

laws amendment under the guise of providing for "qualifications," these mandates of the Corporation Law would have no meaning or purpose. These vested and substantial rights granted stockholders under the Corporation Law may not be diluted or defeated by the general authority granted by the Corporation Law itself to corporations to adopt their by-laws (in section 21) which deal principally with the procedures governing their internal business. The by-laws of any corporation must be always within the charter limits. What the Corporation Law has granted stockholders may not be taken away by the corporation's by-laws. The amendment is further an instrument of oppressiveness and arbitrariness in that the incumbent directors are thereby enabled to perpetuate themselves in office by the simple expedient of disqualifying any unwelcome candidate, no matter how many votes he may have. However, in view of the inconclusiveness of the vote, we sustain respondent commission's stand as expressed in its Orders Nos. 450 and 451, Series of 1977 that there are "unresolved and genuine issues of fact" and that it has yet to rule on and finally decide the validity of the disputed by-law provision", subject to appeal by either party to this Court. In view of prematurity of the proceedings here (as likewise expressed by Mr. Justice Fernando), the case should as a consequence be remanded to the Securities and Exchange Commission as the agency of primary jurisdiction for a full hearing and reception of evidence of all relevant facts (which should property be submitted to the commission instead of the piecemeal documents submitted as annexes to this Court which is not a trier of facts) concerning not only the petitioner but the members of the board of directors of respondent corporation as well, so that it may determine on the basis thereof the issue of the legality of the questioned amended by-laws, and assuming that it holds the same to be valid whether the same are arbitrarily and unreasonably applied to petitioner vis a vis other directors, who, petitioner claims, should in such event be likewise disqualified from sitting in the board of directors by virtue of conflict of interests or their being likewise engaged in "competitive or antagonistic business" with the corporation such as investment and finance, coconut oil mills, cement, milk and hotels. 5 It should be noted that while the petition may be dismissed in view of the inconclusiveness of the vote and the Court's failure to attain the required 8vote majority to resolve the issue, such as dismissal (for lack of necessary votes) is of no doctrinal value and does not in any manner resolve the issue of the validity of the questioned amended by-laws nor foreclose the same. The same should properly be determined in a proper case in the first instance by the Securities and Exchange Commission as the agency of primary jurisdiction, as above indicated. The Court is unanimous, therefore, in its judgment that petitioner Gokongwei may run for the office of, and if elected, sit as, member of the board of directors of respondent San Miguel Corporation as stated in the dispositive portion of the main opinion of Mr. Justice Antonio, to wit: Until and after petitioner has been given a "new and proper hearing by the board of directors of said corporation, whose decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court" and until "disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner." In other words, until and after petitioner shall have been given due process and proper hearing by the respondent board of directors as to the question of his qualification or disqualification under the questioned amended by-laws (assuming that the respondent Securities and Exchange Commission ultimately upholds the validity of said by-laws), and such disqualification shall have been sustained by respondent Securities and Exchange Commission and ultimately by final

judgment of this Court, petitioner is deemed eligible for all legal purposes and effects to be nominated and voted and if elected to sit as a member of the board of directors of respondent San Miguel Corporation. In view of the Court's unanimous judgment on this point, the portion of respondent commission's Order No. 450, Series of 1977 which imposed "the condition that he [petitioner] cannot sit as board member if elected until after the Commission shall have finally decided the validity of the disputed by-law provision" has been likewise accordingly set aside. III By way of recapitulation, so that the Court's decision and judgment may be clear and not subject to ambiguity, we state the following: 1. With the votes of the six Justices concurring unqualifiedly in the main opinion added to our four votes, plus the Chief Justice's vote and that of Mr. Justice Fernando, the Court has by twelve (12) votes unanimously rendered judgment granting petitioner's right to examine and secure copies of the books and records of San Miguel International, Inc. as a foreign subsidiary of respondent corporation and respondent commission's Order No. 449, Series of 1977, to the contrary is set aside: 2. With the same twelve (12) votes, the Court has also unanimously rendered judgment declaring that until and after petitioner shall have been given due process and proper hearing by the respondent board of directors as to the question of his disqualification under the questioned amended by-laws (assuming that the respondent Securities and Exchange Commission ultimately upholds the validity of said by-laws), and such disqualification shall have been sustained by respondent Securities and Exchange Commission and ultimately by final judgment of this Court petitioner is deemed eligible for all legal purposes and effect to be nominated and voted and if elected to sit as a member of the board of directors of respondent San Miguel Corporation. Accordingly, respondent commission's Order No. 450, Series of 1977 to the contrary has likewise been set aside; and 3. The Court's voting on the validity of respondent corporation's amendment of the by-laws (sec. 2, Art. III) is inconclusive without the required majority of eight votes to settle the issue one way or the other having been reached. No judgment is rendered by the Court thereon and the statements of the six Justices who have signed the main opinion on the legality thereof have no binding effect, much less doctrinal value. LLphil The dismissal of the petition insofar as the question of the validity of the disputed by-laws amendment is concerned is not by any judgment with the required eight votes but simply by force of Rule 56, section 11 of the Rules of Court, the pertinent portion of which provides that "where the court en banc is equally divided in opinion, or the necessary majority cannot be had, the case shall be reheard, and if on re-hearing no decision is reached, the action shall be dismissed if originally commenced in the court . . ." The end result is that the Court has thereby dismissed the petition which prayed that the Court bypass the commission and directly resolved the issue and therefore the respondent commission may now proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and receive all relevant evidence bearing on the issue as hereinabove indicated, and resolve the "unresolved and genuine issues of fact" (as per Order No. 451, Series of 1977) and the issues of legality of the disputed by-laws amendment. Guerrero, J., concurred. Fernandez, J., concurs. TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ., concurring: Supplement to separate opinion.

JUDGMENT; LAW OF THE CASE. The doctrine of the law of the case may be invoked only where there has been a final and conclusive determination of an issue in the first case later invoked as the law of the case. It has no application where the judgment in the first case is inconclusive, as where no final and conclusive determination could be reached on account of lack of necessary votes and the case was simply dismissed pursuant to Rule 56, Section 11. It cannot be contended that the Supreme Court is dismissing the petition for lack of necessary votes had directly ruled on the issue presented when it itself could not reach a final and conclusive vote thereon. This supplemental opinion is issued with reference to the advance separate opinion of Mr. Justice Barredo issued by him as to "certain misimpressions as to the import of the decision in this case" which might be produced by our joint separate opinion of April 11, 1979 and "urgent(ly) to clarify (his) position in respect to the rights of the parties resulting from the dismissal of the petition herein and the outline of the procedure by which the disqualification of petitioner Gokongwei can be made effective." 1. Mr. Justice Barredo's advances separate opinion "that as between the parties herein, the issue of the validity of the challenged by-laws is already settled" had, of course, no binding effect. The judgment of the Court is found on pages 59-61 of the decision of April 11, 1979, penned by Mr. Justice Antonio, wherein on the question of the validity of the amended by-laws the Court's inconclusive voting is set forth as follows: "Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws, pending hearing by this Court on the applicability of section 13(5) of the Corporation Law to petitioner. "Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but otherwise concurs in the result. "Four (4) Justices, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero filed a separate opinion, wherein they voted against the validity of the questioned amended by-laws and that this question should properly be resolved first by the SEC as the agency of primary jurisdiction . . ." 1 As stated in said judgment itself, for lack of the necessary votes, the petition, insofar as it assails the validity of the questioned by-laws, was dismissed. 2. Mr. Justice Barredo now contends contrary to the undersigned's understanding, as stated on pages 8 and 9 of our joint separate opinion of April 11, 1979 that the legal effect of the dismissal of the petition on the question of validity of the amended by-laws for lack of the necessary votes simply means that "the Court has thereby dismissed the petition which prayed that the Court by-pass the commission and directly resolve the issue and therefore the respondent commission may now proceed, as announced in its Order No. 450, Series of 1977, to hear the case before it and receive all relevant evidence bearing on the issue as hereinabove indicated, and resolve the 'unresolved and genuine issues of fact' (as per Order No. 451, Series of 1977) and the issue of legality of the disputed by-laws amendment," that such dismissal "has no other legal consequence than that it is the law of the case as far as the parties are concerned, albeit the majority of the opinion of six against four Justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent cases." We hold on our part that the doctrine of the law of the case invoked by Mr. Justice Barredo has no applicability for the following reasons: a) Our jurisprudence is quite clear that this doctrine may be invoked only where there has been a final and conclusive determination of an issue in the first case later invoked as the law of the case. Thus, in People vs. Olarte, 2 we held that "'Law of the case' has been defined as the opinion delivered on a former appeal. More specifically, it means that whatever is once irrevocably established as the

controlling legal rule or decision between the same parties in the same case continues to be the law of the case, whether correct on general principles or not, so long as the facts on which such decision was predicated continue to be the facts of the case before the court. . . . "It need not be stated that the Supreme Court, being the court of last resort, is the final arbiter of all legal questions properly brought before it and that its decision in any given case constitutes the law of that particular case. Once its judgment becomes final it is binding on all inferior courts, and hence beyond their power and authority to alter or modify (Kabigting vs. Acting Director of Prisons, G. R. No. L-15548, October 30, 1962). "'The decision of this Court on that appeal by the government from the order of dismissal, holding that said appeal did not place the appellants, including Absalon Bignay, in double jeopardy, signed and concurred in by six Justices as against three dissenters headed by the Chief Justice, promulgated way back in the year 1952, has long become the law of the case. It may be erroneous, judged by the law on double jeopardy as recently interpreted by this same Tribunal. Even so, it may not be disturbed and modified. Our recent interpretation of the law may be applied to new cases, but certainly not to an old one finally and conclusively determined. As already stated, the majority opinion in that appeal is now the law of the case.'" (People vs. Pinuila) The doctrine of the law of the case, therefore, has no applicability whatsoever herein insofar as the question of the validity or invalidity of the amended bylaws is concerned. The Court's judgment of April 11, 1979 clearly shows that the voting on this question was inconclusive with six against four Justices and two other Justices (the Chief Justice and Mr. Justice Fernando) expressly reserving their votes thereon, and Mr. Justice Aquino while taking no part in effect likewise expressly reserved his vote thereon. No final and conclusive determination could be reached on the issue and pursuant to the provisions of Rule 56, section 11, since this special civil action originally commenced in this Court, the action was simply dismissed with the result that no law of the case was laid down insofar as the issue of the validity or invalidity of the questioned by-laws is concerned, and the relief sought herein by petitioner that this Court by-pass the SEC which has yet to hear and determine the same issue pending before it below and that this Court itself directly resolve the said issue stands denied. b) The contention of Mr. Justice Barredo that the result of the dismissal of the case was that "petitioner Gokongwei may not hereafter act on the assumption that he can revive the issue of the validity whether in the Securities and Exchange Commission, in this Court or in any other forum, unless he proceeds on the basis of a factual milieu different from the setting of this case. Not even the Securities and Exchange Commission may pass on such question anymore at the instance of herein petitioner or anyone acting in his stead or on his behalf," appears to us to be untenable. The Court through the decision of April 11, 1979, by the unanimous votes of the twelve participating Justices headed by the Chief Justice, ruled that petitioner Gokongwei was entitled to a "new and proper hearing" by the SMC board of directors on the matter of his disqualification under the questioned by-laws and that the board's "decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court (and) unless disqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner." The entire Court, therefore, recognized that petitioner had not been given procedural due process by the SMC board on the matter of his disqualification and that he was entitled to a "new and proper hearing". It stands to reason that in such hearing, petitioner could raise not only questions of fact but questions

of law, particularly questions of law affecting the investing public and their right to representation on the board as provided by law not to mention that as borne out by the fact that no restriction whatsoever appears in the Court's decision, it was never contemplated that petitioner was to be limited to questions of fact and could not raise the fundamental questions of law bearing on the invalidity of the questioned amended by-laws at such hearing before the SMC board. Furthermore, it was expressly provided unanimously in the Court's decision that the SMC board's decision on the disqualification of petitioner ("assuming the board of directors of San Miguel Corporation should, after the proper hearing, disqualify him" as qualified in Mr. Justice Barredo's own separate opinion, at page 2) shall be appealable to respondent Securities and Exchange Commission "deliberating and acting en banc" and "untimately to this Court." Again, the Court's judgment as set forth in its decision of April 11, 1979 contains nothing that would warrant the opinion now expressed that respondent Securities and Exchange Commission may not pass anymore on the question of the invalidity of the amended by-laws. Certainly, it cannot be contended that the Court in dismissing the petition for lack of necessary votes actually by-passed the Securities and Exchange Commission and directly ruled itself on the invalidity of the questioned by-laws when it itself could not reach a final and conclusive vote (a minimum of eight votes) on the issue and three other Justices (the Chief Justice and Messrs. Justices Fernando and Aquino) had expressly reserved their vote until after further hearings (first before the Securities and Exchange Commission and ultimately in this Court). Such a view espoused by Mr. Justice Barredo could conceivably result in an incongruous situation where supposedly under the law of this case the questioned by-laws would be held valid as against petitioner Gokongwei and yet the same may be stricken off as invalid as to all other SMC shareholders in a proper case. 3. It need only be pointed out that Mr. Justice Barredo's advance separate opinion can in no way affect or modify the judgment of this Court as set forth in the decision of April 11, 1979 and discussed hereinabove. The same bears the unqualified concurrence of only three Justices out of the six Justices who originally voted for the validity per se of the questioned by-laws, namely, Messrs. Justices Antonio, Santos and De Castro. Messrs. Justices Fernando and Makasiar did not concur therein but they instead concurred with the limited concurrence of the Chief Justice touching on the law of the case which guardedly held that the Court has not found merit in the claim that the amended by-laws in question are invalid but without in any manner foreclosing the issue and as a matter of fact and law, without in any manner changing or modifying the above-quoted vote of the Chief Justice as officially rendered in the decision of April 11, 1979, wherein he precisely "reserved (his) vote on the validity of the amended by-laws." 4. A word on the separate opinion of Mr. Justice Pacifico de Castro attached to the advance separate opinion of Mr. Justice Barredo. Mr. Justice De Castro advances his interpretation as to a restrictive construction of section 13(5) of the Philippine Corporation Law, ignoring or disregarding the fact that during the Court's deliberations it was brought out that this prohibitory provision was and is not raised in issue in this case whether here or in the Securities and Exchange Commission below (outside of a passing argument by Messrs. Angara, Abello, Concepcion, Regala & Cruz, as counsels for respondent Sorianos in their Memorandum of June 26, 1978 that "(T)he disputed By-Laws does not prohibit petitioner from holding onto, or even increasing his SMC investment; it only restricts any shifting on the part of petitioner from passive investor to a director of the company." 3 As a consequence, the Court abandoned the idea of calling for another hearing wherein the parties could properly raise and discuss this question as a new

issue and instead rendered the decision in question, under which the question of section 13(5) could be raised at a new and proper hearing before the SMC board and in the Securities and Exchange Commission and in due course before this Court (but with the clear understanding that since both corporations, the Robina and SMC are engaged in agriculture as submitted by the Sorianos' counsel in their said memorandum, the issue could be raised likewise against SMC and its other shareholders, directors, if not against SMC itself. As expressly stated in the Chief Justice's reservation of his vote, the matter of the question of the applicability of the said section 13(5) to petitioner would be heard by this Court at the appropriate time after the proceedings below (and necessarily the question of the validity of the amended by-laws would be taken up anew and the Court would at that time be able to reach a final and conclusive vote). Mr. Justice De Castro's personal interpretation of the decision of April 11, 1979 that petitioner may be allowed to run for election despite adverse decision of both the SMC board and the Securities and Exchange Commission "only if he comes to this Court and obtains an injunction against the enforcement of the decision disqualifying him" is patently contradictory of his vote on the matter as expressly given in the judgment in the Court's decision of April 11, 1979 (at page 59) that petitioner could run and if elected, sit as director of the respondent SMC and could be disqualified only after a "new and proper hearing by the board of directors of said corporation, whose decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court. Unlessdisqualified in the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to petitioner." BARREDO, J., concurring: 1. JUDGMENTS; DISMISSAL FOR LACK OF NECESSARY VOTES; LAW OF THE CASE. Where petitioner and respondents placed the issue of the validity of amended by-laws squarely before the Court for resolution and six justices vote in favor, while four justices voted against, its validity, thereby resulting in the dismissal of the petition "insofar as it assails the validity of the amended by-laws . . . for lack of necessary votes," such dismissal is the law of the case as far as the parties are concerned, albeit the majority of six against four justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent cases. This means that the petitioner and respondents are bound by the foregoing result, namely, that the Court en banc has not found merit in the claims that the amended by-laws in question are invalid. In other words, the issue of the challenged amended by-laws is already a settled matter for the parties as the law of the case, and said amended bylaws already enforceable in so far as the parties are concerned. Petitioner may not thereafter act on the assumption that he can revive the issue of validity whether in the Securities and Exchange Commission, the Supreme Court or in any other forum, unless, he proceeds on the basis of a different factual milieu from the setting of the case. Only the actual implementation of the impugned amended by-laws remained to be passed upon by the Securities and Exchange Commission. 2. ID.; ID.; DECISION ON THE MERITS. It is somewhat of a misreading and misconstruction of Section 11 of Rule 56, contrary to the well-known established norm observed by the Supreme Court, to estate that the dismissal of a petition for lack of necessary votes does not amount to a decision on the merits. The Supreme Court is deemed to find no merit in a petition in two ways, namely, (1) when eight or more members vote expressly in that sense and (2) when the required number of justices needed to sustain the same cannot be had.

I reserved the filing of a separate opinion in order to state my own reasons for voting in favor of the validity of the amended by-laws in question. Regrettably, I have not yet finished preparing the same. In view, however, of the joint separate opinion of Justices Teehankee, Concepcion Jr., Fernandez and Guerrero, the full text of which has just come to my attention, and which I am afraid might produce certain misimpressions as to the import of the decision in this case, I consider it urgent to clarify my position in respect to the rights of the parties resulting from the dismissal of the petition herein and the outlining of the procedure by which the disqualification of petitioner Gokongwei can be made effective, hence this advance separate opinion. To start with, inasmuch as petitioner Gokongwei himself placed the issue of the validity of said amended by-laws squarely before the Court for resolution, because he feels, rightly or wrongly, he can no longer have due process or justice from the Securities and Exchange Commission, and the private respondents have joined with him in that respect, the six votes cast by Justices Makasiar, Antonio, Santos, Abad Santos, de Castro and this writer in favor of validity of the amended by-laws in question, with only four members of this Court, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero opining otherwise, and with Chief Justice Castro and Justice Fernando reserving their votes thereon, and Justices Aquino and Melencio Herrera not voting, thereby resulting in the dismissal of the petition "insofar as it assails the validity of the amended by-laws . . . for lack of necessary votes", has no other legal consequence than that it is the law of the case as far as the parties herein are concerned, albeit the majority opinion of six against four Justices is not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent cases. This means that petitioner Gokongwei and the respondents, including the Securities and Exchange Commission, are bound by the foregoing result, namely, that the Court en banc has not found merit in the claim that the amended by-laws in question are invalid. Indeed, it is one thing to say that dismissal of the case is not doctrinal and entirely another thing to maintain that such dismissal leaves the issue unsettled. It is somewhat of a misreading and misconstruction of Section 11 of Rule 56, contrary to the well-known established norm observed by this Court, to state that the dismissal of a petition for lack of the necessary votes does not amount to a decision on the merits. Unquestionably, the Court is deemed to find no merit in a petition in two ways, namely, (1) when eight or more members vote expressly in that sense and (2) when the required number of justices needed to sustain the same cannot be had. cdphil I reiterate, therefore, that as between the parties herein, the issue of validity of the challenged by-laws is already settled. From which it follows that the same are already enforceable insofar as they are concerned. Petitioner Gokongwei may not hereafter act on the assumption that he can revive the issue of validity whether in the Securities and Exchange Commission, in this Court or in any other forum, unless he proceeds on the basis of a factual milieu different from the setting of this case. Not even the Securities and Exchange Commission may pass on such question anymore at the instance of herein petitioner or anyone acting in his stead or on his behalf. The vote of four justices to remand the case thereto cannot alter the situation. It is very clear that under the decision herein, the issue of validity is a settled matter for the parties herein as the law of the case, and it is only the actual implementation of the impugned amended by-laws in the particular case of petitioner that remains to be passed upon by the Securities and Exchange Commission, and on appeal therefrom to Us, assuming the board of directors of San Miguel Corporation should, after the proper hearing, disqualify him. To be sure, the record is replete with substantial indications, nay admissions of petitioner himself, that he is a controlling stockholder of corporations which

are competitors of San Miguel Corporation. The very substantial areas of such competition involving hundreds of millions of pesos worth of businesses stand uncontroverted in the records hereof. In fact, petitioner has even offered, if he should be elected, as director, not to take part when the board takes up matters affecting the corresponding areas of competition between his corporation and San Miguel. Nonetheless, perhaps, it is best that such evidence be formally offered at the hearing contemplated in Our decision. As to whether or not petitioner may sit in the board, if he win, definitely, under the decision in this case, even if petitioner should win, he will have to immediately leave his position or should be ousted, the moment this Court settles the issue of his actual disqualification, either in a full blown decision or by denying the petition for review of corresponding decision of the Securities and Exchange Commission unfavorable to him. And, of course, as a matter of principle, it is to be expected that the matter of his disqualification should be resolved expeditiously and within the shortest possible time, so as to avoid as much juridical injury as possible, considering that the matter of the validity of the prohibition against competitors embodied in the amended by-laws is already unquestionable among the parties herein and to allow him to be in the board for sometime would create an obviously anomalous and legally incongruous situation that should not be tolerated. Thus, all the parties concerned must act promptly and expeditiously. Additionally, my reservation to explain my vote on the validity of the amended by-laws still stands. LLpr Castro, C.J., concurs in Justice Barredo's statement that the dismissal (for lack of necessary votes) of the petition to the extent that "it assails the validity of the amended by-laws," is the law of the case at bar, which means in effect that as far and only in so far as the parties and the Securities and Exchange Commission are concerned, the Court has not found merit in the claim that the amended by-laws in question are invalid. Antonio and Santos, JJ., concur. DE CASTRO, J., concurring: 1. CORPORATION; STOCKHOLDERS; DISQUALIFICATION TO BE ELECTED DIRECTOR. If a person becomes a stockholder of a corporation and gets himself elected as a director, and while he is such a director, he forms his own corporation competitive or antagonistic to the corporation of which he is a director, and becomes Chairman of the Board and President of his own corporation, he may be removed from his position as director, admittedly one of trust and confidence. If this is so, a person controlling, and also the Chairman of the Board and President of, a corporation, may be barred from becoming a member of the Board of Directors of a competitive corporation. 2. ID.; AGRICULTURE, CORPORATION ENGAGED IN. The scope of the provision of Section 13(5) of the Philippine Corporation Law should be limited to corporations engaged in agriculture, only as the word "agriculture" refers to its more limited meaning as distinguished from its general and broad connotation. The term would then mean "farming" or raising the natural products of the soil, such as by cultivation, in the manner as is required by the Public Land Act in the acquisition of agricultural land, such as by homestead, before the patent may be issued, but does not extend to poultry raising or piggery which may be included in the term "agriculture" in its broad sense. 3. JUDGMENT; LAW OF THE CASE. Although only six votes are for upholding the validity of the by-laws, their validity is deemed upheld as constituting the "law of the case." It could not be otherwise, after the petition is dismissed with the relief sought do declare null and void the said by-laws being denied in effect. A vicious circle would be created should petitioner come against to the Court, raising the same question he raised in the present petition, unless the principle of the "law of the case" is applied.

As stated in the decision penned by Justice Antonio, I voted to uphold the validity of the amendment to the by-laws in question. What induced me to this view is the practical consideration easily perceived in the following illustration: If a person becomes a stockholder of a corporation and gets himself elected as a director, and while he is such a director, he forms his own corporation competitive or antagonistic to the corporation of which he is a director, and becomes Chairman of the Board and President of his own corporation, he may be removed from his position as director, admittedly one of trust and confidence. If this is so, as seems undisputably to be the case, a person already controlling, and also the Chairman of the Board and President of, a corporation, may be barred from becoming a member of the board of directors of a competitive corporation. This is my view,. even as I am for a restrictive interpretation of Section 13(5) of the Philippine Corporation Law, under which I would limit the scope of the provision to corporations engaged in agricultural, but only as the word "agriculture" refers to its more limited meaning as distinguished from its general and broad connotation. The term would then mean "farming" or raising the natural products of the soil, such as by cultivation, in the manner as is required by the Public Land Act in the acquisition of agricultural land, such as by homestead, before the patent may be issued. It is my opinion that under the public land statute, the development of a certain portion of the land applied for as specified in the law as a condition precedent before the applicant may obtain a patent, is cultivation, not let us say, poultry raising or piggery, which may be included in the term "agriculture" in its broad sense. For under Section 13(5) of the Philippine Corporation Law, construed not in the strict way as I believe it should, because the provision is in derogation of property rights, the petitioner in this case would be disqualified from becoming an officer of either the San Miguel Corporation or his own supposedly agricultural corporations. It is thus beyond my comprehension why, feeling as though I am the only member of the Court for a restricted interpretation of Section 13(5) of Act 1459, doubt still seems to be in the minds of other members giving the cited provision an unrestricted interpretation, as to the validity of the amended by-laws in question, or even holding them null and void. I concur with the observation of Justice Barredo that despite that less than six votes are for upholding the validity of the by-laws, their validity is deemed upheld, as constituting the "law of the case." It could not be otherwise, after the present petition is dismissed with the relief sought to declare null and void the said by-laws being denied in effect. A vicious circle would be created if, should petitioner Gokongwei be barred or disqualified from running by the Board of Directors of San Miguel Corporation and the Securities and Exchange Commission sustain the Board, petitioner could come again to Us, raising the same question he has raised in the present petition, unless the principle of the "law of the case" is applied. Clarifying therefore, my position, I am of the opinion that with the validity of the by-laws in question standing unimpaired, it is now for petitioner to show that he does not come within the disqualification as therein provided, both to the Board and later to the Securities and Exchange Commission, it being a foregone conclusion that, unless petitioner disposes of his stockholdings in the so-called competitive corporations, San Miguel Corporation would apply the bylaws against him. His right, therefore, to run depends on what, on election day, May 8, 1979, the ruling of the Board and or the Securities and Exchange Commission on his qualification to run would be, certainly, not the final ruling of this Court in the event recourse thereto is made by the party feeling aggrieved, as intimated in the "Joint Separate Opinion" of Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero, that only after petitioner's "disqualification" has ultimately been passed upon by this Court should

petitioner not be allowed to run, Petitioner may be allowed to run, despite an adverse decision of both the Board and the Securities and Exchange Commission, only if he comes to this Court and obtain an injunction against the enforcement of the decision disqualifying him. Without such injunction being required, all that petitioner has to do is to take his time in coming to this Court, and in so doing, he would in the meantime, be allowed to run, and if he wins, to sit. This would, however, be contrary to the doctrine that gives binding, if not conclusive, effect of findings of facts of administrative bodies exercising quasi-judicial functions upon appellate courts, which should, accordingly, be enforced until reversed by this Tribunal. Fernando, J., concurs. Footnotes 1. The pertinent amendment reads as follows: RESOLVED, That Section 2, Article III of the By-laws of San Miguel Corporation, which reads as follows: SECTION 2. Any stockholder having at least five thousand shares registered in his name may be elected director, but he shall not be qualified to hold office unless he pledges said five thousand shares to the Corporation to answer for his conduct.' e, and the same hereby is, amended, to read as follows; SECTION 2. Any stockholder having at least five thousand shares registered in his name may be elected Director, provided, however, that no person shall qualify or be eligible for nomination or election to the Board of Directors if he is engaged in any business which competes with or is antagonistic to that of the Corporation. Without limiting the generality of the foregoing, a person shall be deemed to be so engaged: a) if he is an officer, manager or controlling person of, or the owner (either of record or beneficially) of 10% or more of any outstanding class of shares of, any corporation (other than one in which the corporation owns at least 30% of the capital stock) engaged in a business which the Board, by at least three fourths vote, determines to be competitive or antagonistic to that of the Corporation; or b) If he is an officer, manager or controlling person of, or the owner (either of record or beneficially) of 10% or more of any outstanding class of shares of, any other corporation or entity engaged in any time of business of the Corporation, when in the judgment of the Board, by at least three-fourths vote, the laws against combinations in restraint of trade shall be violated by such person's membership in the Board of Directors. c) If the Board, in the exercise of its judgment in good faith, determines by at least three-fourths vote that he is the nominee of any person set forth in (a) or (b). In determining whether or not a person is a controlling person, beneficial owner, or the nominee of another, the Board may take into account such factors as business and family relationship. For the proper implementation of this provision, all nominations for election of Directors by the stockholders shall be submitted in writing to the Board of Directors at least five working days before the date of the Annual Meeting.'" (Rollo, pp. 462-463.) 2. Annex "H", Petition, pp. 168-169, Rollo. 3. L-27812, September 26, 1975, 67 SCRA 146. 4. Gayos v. Gayos, ibid., citing Marquez v. Marquez, No. 47792, July 24, 1941, 73 Phil. 74, 78; Keramik Industries, Inc. v. Guerrero, L-38866, November 29, 1974, 61 SCRA 2S5. 5. L-20654, December 24, 1964, 12 SCRA 628. 6. L-20583, January 23, 1967, 19 SCRA 58. 7. L-27802, October 26, 1968, 25 SCRA 641.

8. Samal v. Court of Appeals, L-8579, May 25, 1956, 99 Phil. 230. 8a. 2 Am. Jur. 2d 696, 697. 8b. Pan American P. Corp. v. Supreme Court of Delaware, 336 US 656, 6 L. ed. 2d 584. 9. leischer v. Botica Nolasco Co., Inc., No. 23241, March 14, 1925, 47 Phil. 583, 590. 10. 18 C.J.S. Corporations, Sec. 189, p. 603. 11. People ex rel. Wildi v. Ittner, 165 Ill. App. 360, 367 (1911), cited in Fletcher, Cyclopedia Corporations, Sec. 4191. 12. McKee & Company v. First National Bank of San Diego, 265 F. Supp. 1 (1967), citing Olincy v. Merle Norman Cosmetics, Inc., 200 Cal. App. 20, 260, 19 Cal. Reptr. 387 (1962). 13. Fletcher, Cyclopedia Corporations, Sec. 4171, cited in McKee & Company, supra. 14. No. 26649, July 13, 1927, 50 Phil. 399, 441. 15. 6 Thompson 369, Sec. 4490. 16. Ibid. 17. Mobile Press Register, Inc. v. McGowan, 277 Ala. 414, 124 So. 2d 812; Brundage v. The New Jersey Zinc Co., 226 A 2d 585. 18. Fletcher, Cyclopedia Corporations, 1975 Ed., Vol. 3, p. 144, Sec. 838. 19. 101 Fed. 2d 85, cited in Aleck, Modern Corporation Law, Vol. 2, Sec. 959. 20. 308 U.S. 309; 84 L. ed. 281, 289-291. 21. 16 S.E. 587, 18 L.R.A. 582. 22. 265 F. Supp., pp. 8-9. 23. Barreto v. Tuason, No. 23923, Mar. 23, 1926, 50 Phil. 888; Severino v. Severino, No. 18058, Jan. 16, 1923, 44 Phil. 343; Thomas v. Pineda, L-2411, June 28, 1951, 89 Phil. 312, 326. 24. 2 Fletcher Cyclopedia Corporations, Sec. 297 (1969), p. 87. 25. Costello v. Thomas Cusack Co., 125 A. 15, 94 N.J. Eq. 923, (923). 26. Hall v. Dekker, 115 P. 2d 15, July 9, 1941. 27. Thaver v. Gaebler, 232 NW 563. 28. Sialkot Importing Corporation v. Berlin, 68 NE 2d 501, 503. 29. Schildberg Rock Products Co. v. Brooks, 140 NW 2d 132, 137. Chief Justice Garfield quotes the doctrine as follows: "(5) The doctrine 'corporate opportunity' is not new to the law and is but one phase of the cardinal rule of undivided loyalty on the part of the fiduciaries. 3 Fletcher Cyc. Corporations, Perm. Ed., 1965 Revised Volume, section 861.1, page 227; 19 Am Jur. 2d, Corporations, section 1311, page 717. Our own consideration of the quoted terms as such is mainly in Ontjes v. MacNider, supra, 232 Iowa 562, 579, 5 N.W., 2d 860, 869, which quotes at length with approval from Guth v. Loft, Inc., 23 Del. Ch. 255, 270, 5 A 2d 503, 511, a leading case in this area of the law. The quotation cites several precedents for this: '. . . if there is presented to a corporate officer or director a business opportunity which the corporation is financially able to undertake, is from its nature, in the line of the corporation's business and is of practical advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and by embracing the opportunity, the self-interest of the officer or director will be brought into conflict with that of his corporation, the law will not permit him to seize the opportunity for himself. And, if, in such circumstances, the interests of the corporation are betrayed, the corporation may elect to claim all of the benefits of the transaction for itself, and the law will impress a trust in favor of the corporation upon the property, interests and profits so acquired." 30. Paulman v. Kritzer, 74 III. App. 2d 284, 291 NE 2d 541; Tower Recreation, Inc. v. Beard, 141 Ind. App. 649, 231 NE 2d 154.

31. Oleck, Modern Corporation Law, Vol. 2, Section 960. 32. "The CFC and Robina companies, which are reportedly worth more than P500 Million, are principally owned and controlled by Mr. Gokongwei and are in substantial competition to San Miguel. As against his almost 100% ownership in these basically family companies, Mr. Gokongwei's holding in San Miguel are approximately 4% of the total shareholdings of your Company. As a consequence, One Peso (P1.00) of profit resulting from a sale by CFC and Robina in the lines competing with San Miguel, is earned almost completely by Mr. Gokongwei, his immediate family and close associates. On the other hand, the loss of that sale to San Miguel, resulting in a One Peso (P1.00) loss of profit to San Miguel, in the lines competing with CFC and Robina, would result in a loss in profit of only Four Centavos (P0.04) to Mr. Gokongwei." (Letter to stockholders of SMC, dated April 3, 1978, Annex "R", Memo for respondent San Miguel Corporation, rollo, p. 1867). 33. Article 28, Civil Code; Section 4, par. 5, of Rep. Act No. 5455: and Section 7 (g) of Rep. Act No. 6173. Cf. Section 17, paragraph 2. of the Judiciary Act. 34. Standard Oil Co. v. United States, 55 L. Ed. 619. 35. Blake & Jones, Contracts in Antitrust Theory, 65 Columbia L. Rev. 377, 383 (1965). 36. Filipinas Compania de Seguros v. Mandanas, L-19638, June 20, 1966, 17 SCRA 391. 37. Love v. Kozy Theater Co., 236 SW 243, 245, 26 ALR 364. 38. Aldea-Rochelle, Inc. v. American Society of Composers, Authors and Publishers, D.D.N.Y., 80 F. Suppl. 888, 893: . 39. National Cotton Oil Co. v. State of Texas, 25 S.T. 379, 383, 49 L. Ed. 689. 40. Norfolk Monument Co. v. Woodlawn Memorial Gardens, Inc., 394 U.S. 700; U.S. v. General Motors Corp., 384 U.S. 127. 41. U.S. v. Paramount Pictures, 334 U.S. 131. 42. Section 8, 15 U.S.C.A. 19. 43. Travers, Interlocks in Corporate Management and the Anti Trust Laws, 46 Texas L. Rev. 819, 840 (1968). 44. 51 Cong. Rec. 9091. 45. People ex rel. Wildi v. Ittner, supra, citing Thompson on Corporation, Section 1002 (2nd Ed.). 46. Schill v. Remington Putnam Book Co., 17 A 2d 175, 180, 179 Md. 83. 47. People ex rel. Broderick v. Goldfogle, 205 NYS 870, 877, 123 Misc. 399. 48. Swanson v. American Consumer Industries, Inc., 288 F. Supp. 60. 49. Sections 3 and 5 of Presidential Decree No. 902-A provides:. "SEC. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations . . . who are grantees of . . . license or permit issued by the government . . ." "SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with its as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: a) Devices or schemes employed by or any acts, of the board of directors, business associates, its officers or partners amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, members of associations or organizations registered with the Commission. b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they

are stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity; c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnership or associations." 50. Moore v. Keystone Macaroni Mfg. Co., 29 ALR 2d 1256. 51. Annex "A" of SMC's Comment on Supplemental Petition pp. 680-688, Rollo. 52. Fletcher Cyc, Private Corporations, Vol. 5, 1976 Rev. Ed. Section 2213, p. 693. 53. Fletcher, Ibid., Section 2218, p. 709. 54. Fletcher, Ibid., Section 2222, p. 725. 55. 40 O.G., 1st Suppl. 1. April 3, 1939, citing 14 C.J.S. 854, 855. 56. Fletcher, supra, p. 716. 57. State v. Monida & Yellowstone Stage Co., 110 Minn. 193, 124 NW 791, 125 NW 676; State v. Cities Service Co., 114 A 463. 58. Fletcher, supra, Section 2220, p. 717. 59. Fletcher, supra, Section 2223, p. 728. 60. Martin v. D. B. Martin Co., 10 Del. Ch. 211, 88 A. 612, 102 A. 373. 61. Woodward v. Old Second National Bank, 154 Mich. 459, 117 NW 893, 118 NW 581. 62. Martin v. D. B. Martin Co., supra. 63. State v. Sherman Oil Co., 1 W.W. Harr. (31 Del) 570, 117 A. 122. 64. Lisle v. Shipp, 96 Cal. App. 264, 273 P. 1103. 65. Nash v. Gay Apparel Corp., 193 NYS 2d 246. 66. Bailey v. Boxboard Products Co., 314 Pa. 45, 170 A. 127. 67. Rollo, pp. 50-51. 68. 18 Am. Jur. 2d 718. 69. De la Rama v. Ma-ao Sugar Central Co., Inc., L-17504 and 17506, February 28, 1969, 27 SCRA 247, 260. 70. Boyce v. Chemical Plastics, 175 F 2d 839, citing 13 Am. Jur., Section 972. 71. Pirovano v. De la Rama Steamship Co., L-53-7, 96 Phil. 335, December 29, 1954. * Includes the Supplemental petitions filed by petitioner. TEEHANKEE, CONCEPCION, JR., FERNANDEZ and GUERRERO, JJ., concurring: 1. Main opinion, p. 55. 2. Sec. 2, Art. III of respondent corporation's By-Laws, reproduced in footnote 1 of the main opinion pages 3 and 4. 3. Rollo, Vol. I, page 392-E. 4. SEC memo, pages 9 and 10. 5. Petitioner's memorandum in support of oral argument, pp. 18-20. TEEHANKEE, CONCEPCION, JR., FERNANDEZ and GUERRERO, JJ., concurring: 1. At p. 60; emphasis supplied. 2. 19 SCRA 494; citing People vs. Pinnila, L-11374, May 30, 1958, cited in Lee vs. Aligaen, 76 SCRA 416 (1977) per Antonio, J. 3. Soriano's Memorandum at page 94. THIRD DIVISION [G.R. No. 54330. January 13, 1989.] JULIO E. T. SALES and GEORGE V. AGONIAS, in their own behalf, and in behalf of SIPALAY MINING EXPLORATION CORPORATION, as minority stockholders thereof, and SIPALAY MINING EXPLORATION CORPORATION,

petitioners, vs. SECURITIES AND EXCHANGE COMMISSION, STATE INVESTMENT HOUSE, INC., represented by its President, ANSELMO TRINIDAD; ANSELMO TRINIDAD CO., INC., represented by its President, ANSELMO TRINIDAD; and VULCAN INDUSTRIAL AND MINING CORP., represented by its President, WALTER W. BROWN; ALFREDO C. RAMOS, ANNABELLE P. BROWN, WALTER W. BROWN, MANUEL C. DIAZ, and AUGUSTO B. SUNICO, respondents. Taada, Taada & Taada and Jose J. Roy & Associates for petitioners. Leveriza, Santana & Concepcion for respondent August B. Sunico. Angara, Abello, Concepcion, Regala & Cruz for respondent Vulcan. San Jose, Cristi, Enriquez & San Jose for respondent Anselmo Trinidad Co., Inc. Acsay & Associates & Arturo D. Guillermo for petitioners. Samuel T. Baez and Benigno F. Morales for respondent Walter W. Brown. SYLLABUS 1. COMMERCIAL LAW; CORPORATION LAW; SECURITIES AND EXCHANGE COMMISSION; JURISDICTION; POWER TO CREATE COMMITTEE TO SUPERVISE STOCKHOLDERS' ANNUAL MEETING. The order of the Securities and Exchange Commission creating a committee to supervise and control the conduct of the proceedings in the corporation's annual stockholders' meeting is allowed by P.D. No. 902-A. 2. ID.; ID.; ID.; ID.; PRAYER FOR EXCLUSION OF SHARES IS ONE ARISING OUT OF INTRA-CORPORATE RELATIONS. The prayer for the exclusion of the questioned shares from the annual stockholders' meeting may be considered either as one arising out of intra-corporate relations or one between and among the stockholders of the corporation, which falls within the original and exclusive jurisdiction of the SEC. 3. ID.; ID.; ID.; ID.; POWER TO COMPEL OFFICERS TO CALL STOCKHOLDERS' MEETING. Under Section 6(f) of P.D. No. 902-A, SEC has the power to compel the officers of a corporation to call a stockholders' meeting under its supervision. 4. ID.; ID.; RIGHT TO VOTE; STOCKHOLDERS' NOT DEPRIVED OF RIGHT EXCEPT UPON A CLEAR SHOWING OF LAWFUL DENIAL. The Court will not deprive a stockholder of his right to vote his shares in the annual stockholders' meeting, except upon a clear showing of its lawful denial under the articles of incorporation or by-laws of the corporation, as it is a right inherent in stock ownership. 5. REMEDIAL LAW; PROVISIONAL REMEDIES; INJUNCTION; WILL NOT ISSUE ON MERE ALLEGATION; PETITIONERS MUST ESTABLISH THEIR RIGHT. A mere allegation, in the absence of any support in the record, does not meet the standard of proof that would warrant the issuance of the injunctive writ. Petitioners must establish their right to the relief demanded, as would entitle them to the issuance of a writ of preliminary injunction. 6. ID.; ID.; ID.; ISSUANCE RESTS ON THE SOUND DISCRETION OF THE LOWER TRIBUNAL. The grant or denial of an injunction rests upon the sound discretion of the lower tribunal, in the exercise of which this Court will not interfere except in a clear case of abuse. DECISION CORTES, J p: Alleging grave abuse of discretion amounting to lack of jurisdiction, petitioners, in this petition for certiorari and prohibition with preliminary injunction, seek to have this Court set aside the orders of respondent Securities and Exchange Commission (hereinafter referred to as SEC) dated June 13, 1980 and July 17, 1980, and the issuance of an order: (1) restraining the SEC, its officers and agents from enforcing its order to create the committee to supervise and control the conduct of the proceedings in the annual stockholders' meeting of Sipalay

Mining Exploration Corporation and from stopping the Board of Directors and officers of Sipalay Mining from calling and conducting said meeting; and (2) restraining private respondent Vulcan Industrial and Mining Corporation (hereinafter referred to as VULCAN), its successors, assigns, representatives, nominees or substitutes from voting the disputed 198,500,000 shares of the capital stock of Sipalay Mining at the forthcoming regular annual stockholders' meeting. The undisputed facts, as culled from the numerous pleadings filed by the parties, are as follows: On or about June 13, 1974, respondent State Investment House, Inc. (formerly State Financing Center, Inc.) entered into a sales agreement with Sipalay Mining whereby the latter sold to the former 200,000,000 common shares of its capital stock in the amount of P2,600,000.00. The sales agreement between Sipalay Mining and State Investment contained the following terms and conditions: 1. That we shall dispose, sell or assign these shares to the general public through a duly licensed stockbroker after the approval of the registration and/or licensing of shares of the Corporation under terms and conditions and at the price determined by us; 2. That the stockbroker shall not sell more than 1,000,000 shares per buyer, to the extent practicable; 3. In the event you decide to make a public offering [of] additional shares in the future, whether with Sipalay Mining and Exploration Corporation or any other corporation organized by Sipalay Mining Exploration Corporation, you hereby grant us a right of first refusal to undertake the same; 4. The Corporation shall as soon as practicable after the offering period of our shares, apply for listing in the Stock Exchange in accordance with the rules and regulations of the Securities and Exchange Commission. The timing of the date of listing shall be mutually decided by us. 5. That State Financing Center, Inc. shall issue a voting trust in favor of the Board of Directors of Sipalay Mining Exploration Corporation which shall only be good up to the time the sale to the public of said shares has been effected. [Rollo, pp. 47-48.] The 200,000,000 shares of stock of Sipalay Mining, covered by ten certificates of stock, were delivered to State Investment. Subsequently, the restriction on the sale of the shares was modified. On October 19, 1974, the Board of Directors of Sipalay Mining approved the amendment of the sales agreement by allowing sale in blocks of 5,000,000 shares per buyer. LibLex On December 22, 1975, State Investment addressed a letter to Sipalay Mining requesting that the latter transfer the 200,000,000 shares to Anselmo Trinidad & Co., Inc. (hereinafter referred to as ATCO), to which it had sold the shares. Sipalay Mining complied with this request. During the time that ATCO held the shares, it voted them in the stockholders' meetings of Sipalay Mining. On July 17, 1978, or some two and a half years later, ATCO in turn sold 198,500,000 of the shares to respondent VULCAN. Sipalay Mining was requested by ATCO to transfer the 198,500,000 shares to the name of VULCAN. By resolution of the Board of Directors of Sipalay Mining, its President was directed to sign the certificate of stock that would effect the transfer. Eight days prior to the scheduled annual stockholders' meeting of Sipalay Mining on July 18, 1979, petitioners filed before the SEC a petition to nullify the sale of the shares to VULCAN, with a prayer for the issuance of a writ of preliminary injunction to enjoin VULCAN from voting the shares. In an order dated July 16, 1979, the SEC temporarily restrained VULCAN from voting its 198,500,000 shares at the 1979 annual stockholders' meeting

pending resolution of petitioners' petition for the issuance of a writ of preliminary injunction. The annual stockholders' meeting of Sipalay Mining proceeded on July 18, 1979 without the participation of VULCAN's 198,500,000 shares and the members of the Board of Directors were elected. Meanwhile, hearings on petitioners' petition for injunction continued. In the March 10, 1980 issue of the Bulletin Today, a Notice of Call was published, calling for the payment of twenty percent (20%) of unpaid subscriptions in Sipalay Mining on or before April 15, 1980. VULCAN immediately petitioned the SEC to issue a writ of injunction. On April 16, 1980, the SEC issued a temporary restraining order suspending the effects and implementation of the call. On June 13, 1980, the SEC issued the first of the questioned orders, the dispositive portion of which reads as follows: WHEREFORE, finding petitioners' application for the issuance of the writ of preliminary injunction and respondents' motion to dismiss to be both without merit, the same are hereby DENIED and, accordingly, the Restraining Order dated July 16, 1979 LIFTED and DISSOLVED. Considering that the annual stockholders' meeting of Sipalay for the year 1980 is forthcoming as prescribed in its By-laws, the Board of Directors and officers of the corporation are directed to call and hold said regular meeting as mandated in the corporation's By-laws. At said meeting, let the 198,500,000 shares in question be counted for quorum and allowed to vote and be voted for. To ensure an orderly stockholders' meeting and forestall possible controversy in the sending of notices, processing and validation of proxies and closing of the stock and transfer book, a Committee composed of one representative of the Securities and Exchange Commission, as Chairman, and one representative each from the respondents and the petitioners, as members, is hereby formed to supervise and control the conduct of the proceedings and perform the functions of the Corporate Secretary, including but not limited to, the following acts: a) closing of the stock and transfer book; b) sending of notices of the stockholders' meeting c) validation of proxies; d) certification of proper notice to stockholders; e) determination of presence of quorum; f) supervision of the casting and canvassing of the elections, including the determination of all issues related thereto; g) certification of the results of the elections; and h) such other acts and functions as the Committee may perform for the orderly and peaceful conduct of the stockholders' meeting. Accordingly, Atty. EUGENIO E. REYES, Supervising S.E. Specialist, is hereby appointed to act as Chairman of the Committee. The petitioners, as well as the respondents are hereby given a period of three (3) days upon receipt of this Order to submit to the Commission their respective representatives to the Committee. [Rollo, pp. 119-120.] On June 20, 1980, the SEC issued an order lifting its previous order dated April 16, 1980 which suspended the effect and implementation of the call. To this, VULCAN filed a motion for reconsideration. LLphil On July 17, 1980, the SEC issued the second questioned order, the dispositive portion of which states: WHEREFORE, the motion of respondent Vulcan seeking reconsideration of the Order of the Commission dated June 20, 1980 should be, as it is hereby DENIED and the Motion for Reconsideration filed by petitioners, through counsel, is likewise DENIED.

Let the stockholders' meeting set by Sipalay Mining Exploration Corporation for July 18, 1980 be cancelled and the Committee created under the Order dated June 13, 1980 be constituted. Petitioner is hereby directed to submit the name of its representative within five (5) days from receipt of this Order, otherwise, they shall be considered to have waived their right to be represented in said Committee. [Rollo, p. 124.] As the appeal of the assailed orders to the SEC en banc was not allowed under the rules of the Commission, * petitioners on July 23, 1980 filed the instant petition before this Court. On August 1, 1980, the Court issued a temporary restraining order enjoining the SEC from enforcing its orders dated June 13, 1980 and July 17, 1980, particularly from enforcing its order to create the committee to supervise and control the conduct of the proceeding in the annual stockholders' meeting of Sipalay Mining and from stopping the Board of Directors and officers of Sipalay Mining from calling and conducting said meeting; and respondent VULCAN from voting the questioned 198,500,000 shares of capital stock of Sipalay Mining at the forthcoming regular annual stockholders' meeting [Rollo, pp. 129-30.] Thereafter, respondent VULCAN filed its comment, which was adopted in toto by respondents Walter W. Brown, Annabelle P. Brown and Alfredo C. Ramos. Respondent August B. Sunico filed a comment adopting VULCAN's comment which included supplementary comments. On August 18, 1980, respondent VULCAN filed a manifestation alleging that it had received a Notice of Stockholders' Meeting from Sipalay Mining notifying its stockholders that the annual stockholders' meeting shall be held on August 21, 1980 and praying that the restraining order issued by the Court be lifted or that the annual stockholders' meeting of Sipalay Mining be enjoined pending resolution of the case. Accordingly, the Court on August 20, 1980 issued a temporary restraining order enjoining petitioners from holding the annual stockholders' meeting on August 21, 1980 [Rollo, pp. 202-03.] Thereafter, respondents ATCO, State Investment and the SEC filed their respective comments. Replies were filed by petitioners to the comments of respondents VULCAN and the SEC, to which rejoinders were filed by the latter. In a resolution dated July 27, 1987, the Court resolved to give due course to the petition and to consider the case submitted for decision on the basis of the pleadings already on file [Rollo, p. 407.] The question to be resolved by the Court is whether or not the SEC acted with grave abuse of discretion when it issued the two (2) questioned orders. However, for purposes of clarity, it may be divided into two (2) issues: (1) Whether or not the SEC acted arbitrarily and with grave abuse of discretion, tantamount to lack of jurisdiction, when it ordered the creation of the committee composed of the SEC representative, as Chairman, and one representative each from petitioners and private respondents, as members, to supervise and control the conduct of the proceedings and perform the functions of the Corporate Secretary, in relation to the regular annual stockholders' meeting of Sipalay Mining; and (2) Whether or not the SEC acted with grave abuse of discretion when it found that petitioners have not sufficiently shown that they are entitled to the injunctive relief prayed for in their petition and denied their prayer for the issuance of a writ of preliminary injunction. Each issue shall be discussed separately. A. Petitioners claim that the SEC acted arbitrarily and with grave abuse of discretion when it ordered the creation of the committee, on the grounds: (1) that the controversy is not one of those mentioned in Presidential Decree No. 902-A; and (2) that P.D. No. 902-A specifies that only in appropriate cases may

the SEC compel officers of any corporation or association registered by it to call meetings of stockholders or members thereof under its supervision. [Rollo, p. 4] 1. The Court finds that the order of the SEC creating the committee is fully supported by P.D. No. 902-A. P.D. No. 902-A, as amended by P.D. No. 1653 (1979), provides: xxx xxx xxx Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnerships or associations, who are the grantees of primary franchise and/or a license or permit issued by the government to operate in the Philippines; and in the exercise of its authority, it shall have the power to enlist the aid and support of any and all enforcement agencies of the government, civil or military. xxx xxx xxx Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: xxx xxx xxx b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity: c) Controversies in the election or appointments of directors, trustees, officers or managers of such corporations, partnerships or associations. xxx xxx xxx As correctly pointed out by the Solicitor General, the case before the SEC involves a controversy regarding the election of directors of a corporation: xxx xxx xxx It should be pointed out that in their amended petition in S.E.C. Case No. 1751, herein petitioners prayed, among other things, that a restraining order be issued enjoining Vulcan from exercising the rights of a stockholder over 198,500,000 shares of capital stock in Sipalay Mining, particularly, the right to vote in the then forthcoming regular annual stockholders' meeting of Sipalay Mining on July 18, 1979. Pursuant to said application of petitioners, respondent Commission issued a restraining order enjoining Vulcan from voting the questioned 198,500,000 shares at said meeting (Annex "B" Petition). In its answer to the petition, in SEC Case No. 1751, Vulcan alleged, as first compulsory counterclaim, that by reason of the restraining order issued by the Commission, it was prevented from voting its shares in the stockholders' meeting of Sipalay Mining held on July 18, 1979, and petitioners, thus, caused the "election" of a new set of members of the board of directors in the corporation. LexLib It is apparent from the foregoing that a controversy in the election of directors of Sipalay Mining came about because it was petitioners themselves who had asked the Commission not to allow the disputed 198,500,000 shares to be voted on at the July 18, 1979 annual stockholders' meeting of the corporation. Since said 198,500,000 shares of stock were not allowed to vote due to the restraining order of the Commission, petitioners were able to elect candidates from their group. It is this election of members of the board of directors on July 18, 1979, which is being questioned by respondent Vulcan in its answer in SEC Case No. 1751 wherein it prays that the stockholders' meeting on the aforementioned date be declared null and void. The controversy regarding the election of directors in Sipalay Mining was, thus, a natural consequence of the

relief sought by petitioners themselves that the shares of stocks of Vulcan aforementioned be barred from voting. Respondent Commission had to address itself to the controversy by issuing its questioned order dated June 13, 1980, directing the holding of the annual stockholders' meeting of Sipalay Mining for the year 1980 as mandated in its by-laws, and creating a committee to supervise and control the conduct of the proceedings to insure an orderly stockholders' meeting and forestall possible controversy in the sending of notices, processing and validation of proxies and closing of the stock and transfer book. Certainly, the Commission cannot be faulted, much less can it be said that it exceeded its jurisdiction, for having taken all proper measures to insure that an orderly meeting and election are held in Sipalay Mining in the light of the issues raised in SEC Case No. 1751 pending before the Commission. xxx xxx xxx [Rollo, pp. 400-401.] Sec. 5(c) of P.D. No. 902-A would, therefore, clothe the SEC with jurisdiction over the matter. From another vantage point, since petitioners, in their petition before the SEC, pray for the exclusion of the 198,500,000 shares of VULCAN from the annual stockholders' meeting, the controversy may be considered either as one arising out of intra-corporate relations or one between and among the stockholders of the corporation. In Union Glass & Container Corporation v. Securities and Exchange Commission G.R. No. 64013, November 28, 1983, 126 SCRA 31, the Court explained the jurisdiction of the SEC: This grant of jurisdiction must be viewed in the light of the nature and function of the SEC under the law. Section 3 of P.D. No. 902-A confers upon the latter "absolute jurisdiction, supervision, and control over all corporations, partnerships or associations, who are grantees of primary franchise and/or license or permit issued by the government to operate in the Philippines . . ." The principal function of the SEC is the supervision and control over corporations, partnerships and associations with the end in view that investment in these entities may be encouraged and protected, and their activities pursued for the promotion of economic development. It is in aid of this office that the adjudicative power of the SEC must be exercised. Thus the law explicitly specified and delimited its jurisdiction to matters intrinsically connected with the regulation of corporations, partnerships and associations and those dealing with the internal affairs of such corporations, partnerships or associations. Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to any of the following relationships: (a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or association and its stockholders, partners, members, or officers; (c) between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners or associates themselves. [at p. 38.] In a later decision, the Court expounded on what constitutes an intracorporate controversy: It has already been settled that an intra-corporate controversy would call for the jurisdiction of the Securities and Exchange Commission. (Philippine School of Business Administration v. Lanao, 127 SCRA 781, February 24, 1984). On the other hand, an intra-corporate controversy has been defined as "one which arises between a stockholder and the corporation. There is no distinction, qualification, nor any exemption whatsoever." (Philex Mining Corporation v. Reyes, 118 SCRA 605, November 19, 1982). This Court has also ruled that

cases of private respondents who are not stockholders of the corporation, cannot be a "controversy arising out of intra-corporate or partnership relations between and among stockholders, members or associates; between any or all of them and the corporation, partnership or association, of which they are stockholders, members or associates, respectively." (Sunset View Condominium Corporation v. Campos, Jr., 104 SCRA 303, April 27, 1981). [Rivera v. Florendo, G.R. No. 57586, October 8, 1986, 144 SCRA 643, 656.] But more recently, in a case where the respondents therein likewise sought to ultimately annul a transfer of shares of stock and, in the meantime, to prevent the shares from being registered in the name of the transferee, the Court held that the controversy fell within the jurisdiction of the SEC, to wit: The very complaint of the Bragas for the annulment of the sales and transfers as filed by them in the regular court questions the validity of the transfer and endorsement of the certificates of stock, claiming alleged pre-emptive rights in the case of the Abejos' shares and alleged loss of the certificates and lack of consent and consideration in the case of Virginia Braga's shares. Such dispute clearly involves controversies "between and among stockholders," as to the Abejos' right to sell and dispose of their shares to Teletronics, the validity of the latter's acquisition of Virginia Braga's shares, who between the Bragas and the Abejos' transferee should be recognized as the controlling shareholders of the corporation, with the right to elect the corporate officers and the management and control of its operations. Such a dispute and case clearly fall within the original and exclusive jurisdiction of the SEC to decide, under Section 5 of P.D. 902-A above quoted. [Abejo v. De la Cruz, G.R. No. 63558 and Pocket Bell Phils., Inc. v. Securities and Exchange Commission, G.R. Nos. 68450-51, May 19, 1987, 149 SCRA 654, 664.] LLphil Viewed from any angle, there is no denying that the controversy over the sale of the shares to VULCAN and the right to vote them in the annual stockholders' meeting squarely falls within the original and exclusive jurisdiction of the SEC. 2. The court likewise finds that it was within the powers of the SEC to compel the officers of Sipalay Mining to call a stockholders' meeting under its supervision. P.D. No. 902-A states: xxx xxx xxx Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: xxx xxx xxx f) To compel the officers of any corporation or association registered by it to call meetings of stockholders or members thereof under its supervision: xxx xxx xxx As discussed above, under Section 5 of P.D. No. 902-A, the SEC had original and exclusive jurisdiction over the controversy. It was "in order to effectively exercise such jurisdiction", to borrow the language of P.D. No. 902-A, that the SEC ordered the creation of the committee, in the exercise of its broad powers of control and supervision over corporations and its more specific power to compel the officers of a corporation to call meetings of stockholders under its supervision. The Court finds the functions delegated to the committee to be in accordance with the SEC's mandate. The powers delegated to the committee were all confined to the holding of the stockholders' meeting and the conduct of the election of directors in connection therewith [See pp. 5-6 of this Decision.] This displays the circumspect and cautious manner in which the SEC exercised its broad powers under P.D. No. 902-A. The Court, therefore, finds no basis to sustain petitioners' contention that the SEC acted arbitrarily and gravely abused its discretion when it ordered the

creation of a committee to supervise the stockholders' meeting and election of directors. B. Petitioners assail the SEC for finding that they have not shown convincingly that they are entitled to the injunctive relief and for denying their petition for the issuance of a writ of preliminary injunction. Petitioners raise two grounds for the invalidity of the sale of the 198,500,000 shares to VULCAN, which they contend should bar the shares from being voted, namely: (1) that the sale was violative of the condition in the sales agreement that the stockbroker shall not sell more than 5,000,000 shares per buyer; and (2) that VULCAN's ownership of the shares is contrary to the provisions of Section 13 (5-A) of the old Corporation Law. 1. Petitioners argue that 5,000,000 shares constitute the maximum number that may be sold to a single buyer, without any qualification, and consequently the sale to VULCAN is null and void for violating this proviso. They assert that, originally, the sales agreement provided that the stockbroker shall not sell more than 1,000,000 shares per buyer, to the extent practicable, but this condition was modified in a resolution of Sipalay Mining's Board of Directors increasing the maximum to 5,000,000 share per buyer, thus indicating the intent to make 5,000,000 shares the absolute maximum. Stated otherwise, the increase of the maximum number of shares that can be sold to a single buyer to 5,000,000 manifested the clear intent to limit the number of shares that may be sold to a single buyer to only 5,000,000, without any exception or qualification. Thus, in the letter of Sipalay Mining to State Financing Center, Inc. dated October 22, 1974, it is stated: xxx xxx xxx Also please be informed that by resolution of the Board of Directors of this Corporation, approved on October 19, 1974, it was agreed that the restriction on sales to the public of a maximum of 1-million shares be modified to make the maximum five (5) million shares per buyer. [Rollo, p. 49] It will be noted that the letter precisely used the term "five (5) million shares per buyer" without restating the previous qualification of "to the extent practicable." However, despite these facts, the SEC has found that petitioners have not established a clear right to the issuance of a writ of preliminary injunction: xxx xxx xxx From the pleadings on record, the Commission is convinced that petitioners have failed to show clearly that they are entitled as a matter of right to the injunctive relief prayed for. The fact remains that the questioned sales of stock had, as early as July 17, 1978, been perfected and afford the buyer thereof the presumption of validity until otherwise declared invalid and void. At this stage of the proceedings, it is but logical and reasonable to apply that presumption. It will be noted also that the questioned 198,500,000 shares while in the hands of respondent ATCO, were voted in previous stockholders' meetings which right was merely transferred to respondent Vulcan. Likewise, it would appear that to sustain the restraining order further or the issuance of preliminary injunction would necessarily cause greater damage to the respondents, particularly Vulcan, compared to the alleged injury which may be caused the petitioners. In the absence of clear and convincing evidence to merit the issuance of the preliminary injunction prayed for, the Commission is constrained to deny the same. xxx xxx xxx [Rollo, p. 118.] That the issuance of the writ was not forthcoming was reiterated by the SEC in the other questioned order dated July 17, 1980: xxx xxx xxx

The Commission is not bent to reconsider its ruling earlier issued and denying the issuance of a writ of preliminary injunction. The issue principally on the defect of transfer of said shares from ATCO to Vulcan is not sufficient basis to enjoin said shares from being voted in a stockholders' meeting. Considering that the questioned shares constitute the majority, it is more equitable that the same be allowed to vote rather than be enjoined. xxx xxx xxx [Rollo, p. 123.] After considering the facts and the arguments of the parties, the Court finds no grave abuse of discretion amounting to lack or excess of jurisdiction attributable to the respondent SEC. As stated in the first assailed resolution, the sale of the shares of stock had long been perfected and is presumed valid until declared otherwise. As against this presumption, petitioners' prayer for the issuance of a writ of preliminary injunction cannot prevail as the issue of the validity of the sale of the shares is still to be resolved by the SEC. Further, the directive of the Board of Directors of Sipalay Mining to its President to sign the stock certificate that would evidence the ownership of the shares by VULCAN militates against a finding that petitioners have established a case for injunction. Hence, it cannot be said that petitioners have established their right to the relief demanded, the whole or part of which consists in restraining the SEC of the act complained of, as would entitle them to the issuance of a writ of preliminary injunction. [See Sec. 3(c). Rule 58, Revised Rules of Court.] The Court is not at liberty to review whether or not the decision of the board to direct its President to sign the stock certificate was to the best interest of the corporation: Cdpr . . . It is a well known rule of law that questions of policy or of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment for the judgment of the board of directors; the board is the business manager of the corporation, and so long as it acts in good faith its orders are not reviewable by courts. [Montelibano v. Bacolod-Murcia Milling Co., Inc., G.R. No. L-15092, May 18, 1962, 5 SCRA 36, 42; Board of Liquidators v. Kalaw, G.R. No. L-18805, August 14, 1967, 20 SCRA 987, 1011, citing, Fletcher on Corporations, Vol. 2, p. 390.] Moreover, there is legal basis to support the SEC's view that "considering that the questioned shares constitute the majority, it is more equitable that the same be allowed to vote rather than be enjoined" [Rollo, p. 123.] The court has stated before that "the removal of a [majority] stockholder from the management of the corporation and/or the dissolution of a corporation in a suit filed by a minority stockholder is a drastic measure. It should be resorted to only when the necessity is clear . . ." [Chase v. Buencamino, Sr., G.R. No. L20395, May 13, 1985, 136 SCRA 365, 385.] With more reason, the Court will not deprive a stockholder of his right to vote his shares in the annual stockholders' meeting, except upon a clear showing of its lawful denial under the articles of incorporation or by-laws of the corporation, as it is a right inherent in stock ownership. 2. With regard to their second ground, the alleged violation of Section 13 (5A) of the Corporation Law, this Court finds that petitioners have not satisfactorily shown how respondent VULCAN committed the violation. Petitioners allege that VULCAN, by holding 198,500,000 shares of Sipalay Mining, has violated the following provision of Section 13 (5-A): Any domestic or foreign corporation, and its stockholders organized for the purpose of engaging in mining may acquire and hold not more than forty per centum of the capital stock then outstanding and entitled to vote of only one other corporation organized for the purpose of engaging in mining in the Philippines; Provided, that it shall likewise be unlawful for said latter

corporation to be in any wise interested in any other corporation organized for the purpose of engaging in mining . . . In their petition filed before this Court, petitioners merely made the general allegation that: xxx xxx xxx 5.10. While being the owner of 20% equity of Sipalay Mining, Vulcan Mining was likewise the holder of shares of stock outstanding and entitled to vote of some other corporations organized for the purpose of engaging in mining, in contravention of the injunction that as a corporation engaged in mining, it may acquire or hold not more than 40% of the capital stock outstanding and entitled to vote of only one other corporation organized for the purpose of engaging in mining. xxx xxx xxx [Rollo, p. 15.] which is but a restatement of the allegation in petitioners' amended petition filed before the SEC: xxx xxx xxx 15. During almost the whole length of time that the series of prohibited sales from STATE INVESTMENT to ATCO and from ATCO to VULCAN MINING took place, respondent VULCAN MINING was already an existing corporation organized for the purpose of engaging in mining. Consequently, its acquisition of the twenty percent (20%), more or less, of the capital stock then outstanding and entitled to vote of SIPALAY MINING is subject to the statutory restrictions prescribed in Section 13 (5-a) of the Corporation Law; that as the records of VULCAN MINING would show, it appears that during said period when it acquired by purchase in July, 1978, almost twenty percent (20%) of the total equity outstanding and entitled to vote of SIPALAY MINING, said VULCAN MINING was already the owner and holder of shares of stock outstanding and entitled to vote of some other corporations organized for the purpose of engaging in mining, in contravention of the aforementioned provision of the Corporation Law . . . xxx xxx xxx [Rollo, pp. 36-37.] Petitioners, however, have failed to even annex to their pleadings any document that would show the violation. Undoubtedly, a mere allegation, in the absence of any support in the record, does not meet the standard of proof that would warrant the issuance of the injunctive writ. Again, on this point, petitioners had failed to establish that they are entitled to the relief demanded [See Sec. 3(a), supra.] At this juncture, it would be helpful to review some basic principles underlying the issuance of a writ of preliminary injunction, if only to underscore why the SEC, given the circumstances, was virtually without any recourse but to deny the petition for the issuance of the writ. In the recent case of Buayan Cattle Co., Inc. v. Quintillan [G.R. No. L-26970, March 19, 1984, 128 SCRA 276], the Court summarized these principles, to wit: Two requisites are necessary if an injunction is to issue, namely, the existence of the right to be protected, and that the facts against which the injunction is to be directed are violative of said right. In particular, for a writ of preliminary injunction to issue, the existence of the right and the violation must appear in the allegation of the complaint. And We recall that the complaint for injunctive relief must be construed strictly against the pleader. xxx xxx xxx There is no power the exercise of which is more delicate which requires greater caution, deliberation and sound discretion, or (which is) more dangerous in a doubtful case than the issuing of an injunction; it is the strong arm of equity

that never ought to be extended unless to cases of great injury where courts of law cannot afford an adequate or commensurate remedy in damages. The right must be clear, the injury impending or threatened, so as to be averted only by the protecting preventive process of injunction. (Emphasis in the original) [at pp. 286-287.] As discussed above, petitioners have not only failed to establish a threatened violation of a right, but they have also failed to discharge the burden of clearly showing the right to be protected. Moreover, as pointed out by the SEC, the issuance of a writ of preliminary injunction "would necessarily cause greater damage to the respondents, particularly VULCAN, compared to the alleged injury which may be caused the petitioners" [Rollo, p. 118] considering that VULCAN would be deprived of its right to vote the shares it purchased from ATCO without the sale even being nullified. This is precisely the kind of mischief that is contemplated in the Court's caveat in the Buayan decision. cdll In view of the facts, the law and established jurisprudence, the Court is fully convinced that the SEC did not gravely abuse its discretion amounting to lack or excess of jurisdiction when it found that petitioners were not entitled to the writ. The rule is well established that the grant or denial of an injunction rests upon the sound discretion of the lower tribunal, in the exercise of which this Court will not interfere except in a clear case of abuse [Rodulfa v. Alfonso, 76 Phil. 225 (1946); Gregorio v. Mencias, G.R. No. L-16227, September 29, 1962, 6 SCRA 1124; Yaptinchay v. Torres, G.R. No. L-26462, June 9, 1969, 28 SCRA 489.] WHEREFORE, the petition is hereby DISMISSED and the temporary restraining orders issued by the Court on August 1, 1980 and on August 20, 1980 are LIFTED. SO ORDERED. Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur. Footnote * Rule XVI of the New Rules of Procedure in the Securities and Exchange Commission provides: Sec 1. Judgment, Order or Ruling Subject to Appeal. Only final judgments, rulings shall be subject to appeal to the commission en banc. No interlocutory or incidental judgment, order or ruling shall stay the progress of an action nor shall it be subject of appeal until final judgment, order or ruling is rendered for one party or the other. A party who has been declared in default may likewise appeal from the judgment rendered against him as contrary to the evidence or to the law. FIRST DIVISION [G.R. No. 91478. February 7, 1991.] ROSITA PEA, petitioner, vs. THE COURT OF APPEALS, SPOUSES RISING T. YAP and CATALINA YAP, PAMPANGA BUS CO., INC., JESUS DOMINGO, JOAQUIN BRIONES, SALVADOR BERNARDEZ, MARCELINO ENRIQUEZ and EDGARDO A. ZABAT, respondents. Cesar L. Villanueva for petitioner. Martin N. Roque for private respondents. DECISION GANCAYCO, J p: The validity of the redemption of a foreclosed real property is the center of this controversy. The facts as found by the respondent court are not disputed. "A reading of the records shows that [Pampanga Bus Co.] PAMBUSCO, original owners of the lots in question under TCT Nos. 4314, 4315 and 4316, mortgaged the same to the Development Bank of the Philippines (DBP) on

January 3, 1962 in consideration of the amount of P935,000.00. This mortgage was foreclosed. In the foreclosure sale under Act No. 3135 held on October 25, 1974, the said properties were awarded to Rosita Pea as highest bidder. A certificate of sale was issued in her favor by the Senior Deputy Sheriff of Pampanga, Edgardo A. Zabat, upon payment of the sum of P128,000.00 to the Office of the Provincial Sheriff (Exh. 23). The certificate of sale was registered on October 29, 1974 (Exh. G). "On November 19, 1974, the board of directors of PAMBUSCO, through three (3) out of its five (5) directors, resolved to assign its right of redemption over the aforesaid lots and authorized one of its members, Atty. Joaquin Briones, 'to execute and sign a Deed of Assignment for and in behalf of PAMBUSCO in favor of any interested party . . .' (Exh. 24). Consequently, on March 18, 1975, Briones executed a Deed of Assignment of PAMBUSCO's redemption right over the subject lots in favor of Marcelino Enriquez (Exh. 25). The latter then redeemed the said properties and a certificate of redemption dated August 15, 1975 was issued in his favor by Sheriff Zabat upon payment of the sum of one hundred forty thousand, four hundred seventy four pesos (P140,474.00) to the Office of the Provincial Sheriff of Pampanga (Exh. 26). cdrep "A day after the aforesaid certificate was issued, Enriquez executed a deed of absolute sale of the subject properties in favor of plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, for the sum of P140,000.00 (Exh. F). "On August 18, 1975, a levy on attachment in favor of Capitol Allied Trading was entered as an additional encumbrance on TCT Nos. 4314, 4315 and 4316 and a Notice of a pending consulta was also annotated on the same titles concerning the Allied Trading case entitled Dante Gutierrez, et al. vs. PAMBUSCO (Civil Case No. 4310) in which the registrability of the aforesaid lots in the name of the spouses Yap was sought to be resolved (Exh. 20-F). The certificate of sale issued by the Sheriff in favor of defendant Pea, the resolution of the PAMBUSCO's board of directors assigning its redemption rights to any interested party, the deed of assignment PAMBUSCO executed in favor of Marcelino B. Enriquez, the certificate of redemption issued by the Sheriff in favor of Enriquez as well as the deed of absolute sale of the subject lots executed by Enriquez in favor of the plaintiffs-appellants were all annotated on the same certificates of title likewise on August 18, 1975. Also, on the same date, the Office of the Provincial Sheriff of San Fernando, Pampanga informed defendant-appellee by registered mail 'that the properties under TCT Nos. 4314, 4315 and 4316 . . . were all redeemed by Mr. Marcelino B. Enriquez on August 15, 1975 . . .;' and that she may now get her money at the Sheriff's Office (Exh. J and J-1). "On September 8, 1975, Pea wrote the Sheriff notifying him that the redemption was not valid as it was made under a void deed of assignment. She then requested the recall of the said redemption and a restraint on any registration or transaction regarding the lots in question (Exh. 27). "On Sept. 10, 1975, the CFI Branch III, Pampanga in the aforementioned Civil Case No. 4310, entitled Dante Gutierrez, et al. vs. PAMBUSCO, et al., ordered the Register of Deeds of Pampanga . . . to desist from registering or noting in his registry of property . . . any of the following documents under contract, until further orders: '(a) Deed of Assignment dated March 18, 1975 executed by the defendant Pampanga Bus Company in virtue of a resolution of its Board of Directors in favor of defendant Marcelino Enriquez; '(b) A Certificate of Redemption issued by defendant Deputy Sheriff Edgardo Zabat in favor of defendant Marcelino Enriquez dated August 15, 1975; '(c) Deed of Sale dated August 16, 1975 executed by defendant Marcelino Enriquez in favor of defendant Rising Yap.' (Original Record, p. 244)

'On November 17, 1975, the Land Registration Commission opined under LRC Resolution No. 1029 that 'the levy on attachment in favor of Capitol Allied Trading (represented by Dante Gutierrez) should be carried over on the new title that would be issued in the name of Rising Yap in the event that he is able to present the owner's duplicates of the certificates of title herein involved' (Exh. G). 'Meanwhile, defendant Pea, through counsel, wrote the Sheriff asking for the execution of a deed of final sale in her favor on the ground that 'the one (1) year period of redemption has long elapsed without any valid redemption having been exercised;' hence she 'will now refuse to receive the redemption money . . .' (Exh. 28). On Dec. 30, 1977, plaintiff Yap wrote defendant Pea asking payment of back rentals in the amount of P42,750.00 'for the use and occupancy of the land and house located at Sta. Lucia, San Fernando, Pampanga,' and informing her of an increase in monthly rental to P2,000; otherwise, to vacate the premises or face an eviction cum collection suit (Exh. D). prLL In the meantime, the subject lots, formerly under TCT Nos. 4314, 4315 and 4316 were registered on June 16, 1978 in the name of the spouses Yap under TCT Nos. 148983-R, 148984-R and 148985-R, with an annotation of a levy on attachment in favor of Capitol Allied Trading. The LRC Resolution No. 1029 allowing the conditioned registration of the subject lots in the name of the spouses Yap was also annotated on TCT No. 4315 on June 16, 1978 and the notice of a pending consulta noted thereon on August 18, 1975 was cancelled on the same date. No Trial on the merits was held concerning Civil Case No. 4310. In an order dated February 17, 1983, the case was dismissed without prejudice. Despite the foregoing, defendant-appellee Pea remained in possession of the lots in question; hence, the spouses Yap were prompted to file the instant case." 1 The antecedents of the present petition are as follows: "Plaintiffs-appellants, the spouses Rising T. Yap and Catalina Lugue, are the registered owners of the lots in question under Transfer Certificate of Title (TCT) Nos. 148983 R, 148984-R, 148985-R. In the complaint filed on December 15, 1978, appellants sought to recover possession over the subject lands from defendants Rosita Pea and Washington Distillery on the ground that being registered owners, they have to enforce their right to possession against defendants who have been allegedly in unlawful possession thereof since October 1974 'when the previous owners assigned (their) right to collect rentals . . . in favor of plaintiffs' (Record, p. 5). The amount claimed as damages is pegged on the total amount of unpaid rentals from October 1974 (as taken from the allegations in the complaint) up to December 1978 at a monthly rate of P1,500.00 'and the further sum of P2,000.00 a month from January 1979 until the defendants finally vacate the . . . premises in question; with interest at the legal rate' (Record, p. 6). "In their answer, defendants Rosita Pea and Washington Distillery denied the material allegations of the complaint and by way of an affirmative and special defense asserted that Pea is now the legitimate owner of the subject lands for having purchased the same in a foreclosure proceeding instituted by the DBP . . . against PAMBUSCO . . . and no valid redemption having been effected within the period provided by law. It was contended that plaintiffs could not have acquired ownership over the subject properties under a deed of absolute sale executed in their favor by one Marcelino B. Enriquez who likewise could not have become [the] owner of the properties in question by redeeming the same on August 18, 1975 (Exh. 26) under an alleged[ly] void deed of assignment executed in his favor on March 18, 1975 by the original owners of the land in question, the PAMBUSCO. The defense was that since the deed of assignment

executed by PAMBUSCO in favor of Enriquez was void ab initio for being an ultra vires act of its board of directors and, for being without any valuable consideration, it could not have had any legal effect; hence, all the acts which flowed from it and all the rights and obligations which derived from the aforesaid void deed are likewise void and without any legal effect. "Further it was alleged in the same Answer that plaintiffs are buyers in bad faith because they have caused the titles of the subject properties with the Register of Deeds to be issued in their names despite an order from the then CFI, Br. III, Pampanga in Civil Case No. 4310, entitled Dante Gutierrez, et al. vs. Pampanga Bus Company, Inc., et al., to desist from registering or noting in his registry of property . . . any of the above-mentioned documents under contest, until further orders. (Record, p. 11). "For its part, defendant Washington Distillery stated that it has never occupied the subject lots; hence they should not have been impleaded in the complaint. cdll "The defendants, therefore, prayed that the complaint be dismissed; that the deed of assignment executed in favor of Marcelino Enriquez, the certificate of redemption issued by the Provincial Sheriff also in favor of Marcelino Enriquez, and the deed of sale of these parcels of land executed by Marcelino Enriquez in favor of the plaintiffs herein be all declared null and void; and further, that TCT Nos. 148983-R, 148984-R and 148985-R, covering these parcels issued in the plaintiffs name be cancelled and, in lieu thereof, corresponding certificates of title over these same parcels be issued in the name of defendant Rosita Pea. "Thereafter, the defendants with prior leave of court filed a third-party complaint third-party defendants PAMBUSCO, Jesus Domingo, Joaquin Briones, Salvador Bernardez (as members of the Board of Directors of PAMBUSCO), Marcelino Enriquez, and Deputy Sheriff Edgardo Zabat of Pampanga. All these third-party defendants, however, were declared as in default for failure to file their answer, except Edgardo Zabat who did file his answer but failed to appear at the pre-trial. "After trial, a decision was rendered by the court in favor of the defendantsappellees, to wit: "WHEREFORE, and in view of all the foregoing, judgment is hereby rendered dismissing the complaint filed by the plaintiffs against the defendants and declaring as null and void the following: '(a) The resolution of the Board of Directors of PAMBUSCO approved on November 19, 1974 assigning the PAMBUSCO's right of redemption concerning the parcels involved herein; '(b) The deed of assignment dated March 18, 1975 executed in favor of Marcelino Enriquez pursuant to the resolution referred to in the preceding paragraph; '(c) The certificate of redemption dated August 15, 1975 issued by Deputy Sheriff Edgardo Zabat in favor of Marcelino Enriquez concerning these parcels; '(d) The deed of absolute sale dated August 15, 1975 executed by Marcelino Enriquez in favor of the plaintiffs concerning the same parcels; and '(e) TCT Nos. 148983-R, 148984-R and 148985-R of the Register of Deeds of Pampanga in the name of the plaintiffs also covering these parcels. 'Third-party defendant Edgardo Zabat, in his capacity as Deputy Sheriff of Pampanga is directed to execute in favor of defendant Rosita Pea the corresponding certificate of final sale involving the parcels bought by her in the auction sale of October 25, 1974 for which a certificate of sale had been issued to her. 'Finally, the third-party defendants herein except Deputy Sheriff Edgardo Zabat are hereby ordered to pay the defendants/third party plaintiffs, jointly and severally, the amount of P10,000.00 as attorney's fees plus costs.' " 2

Thus, an appeal from said judgment of the trial court was interposed by private respondents to the Court of Appeals wherein in due course a decision was rendered on June 20, 1989, the dispositive part of which reads as follows: "WHEREFORE, premises considered, the judgment of the trial court on appeal is REVERSED. Defendant-appellee Pea is hereby ordered to vacate the lands in question and pay the plaintiffs-appellants the accrued rentals from October, 1974 in the amount of P1,500.00 per month up to December, 1978 and the amount of P2,000.00 per month thereafter, until appellee finally vacate (sic) the premises; with interest at the legal rate." "SO ORDERED." 3 A motion for reconsideration filed by the appellee was denied in a resolution dated December 27, 1989. LibLex Hence, this petition for review on certiorari of said decision and resolution of the appellate court predicated on the following assigned errors: "First Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT HAD NO JURISDICTION TO RULE ON THE VALIDITY OF THE QUESTIONED RESOLUTION AND TRANSFERS. Second Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS NO LEGAL STANDING TO ASSAIL THE VALIDITY OF THE QUESTIONED RESOLUTION AND THE SERIES OF SUCCEEDING TRANSACTIONS LEADING TO THE REGISTRATION OF THE SUBJECT PROPERTIES IN FAVOR OF THE RESPONDENTS YAP. Third Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE RESOLUTION OF RESPONDENT PAMBUSCO, ADOPTED ON 19 NOVEMBER 1974, ASSIGNING ITS RIGHT OF REDEMPTION IS NOT VOID OR AT THE VERY LEAST LEGALLY DEFECTIVE. Fourth Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT, DATED 8 MARCH 1975, IN FAVOR OF RESPONDENT ENRIQUEZ IS NOT VOID OR AT THE VERY LEAST VOIDABLE OR RESCISSIBLE. Fifth Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE QUESTIONED DEED OF ASSIGNMENT, DATED 8 MARCH 1975, WAS VOID AB INITIO FOR FAILING TO COMPLY WITH THE FORMALITIES MANDATORILY REQUIRED UNDER THE LAW FOR DONATIONS. Sixth Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENTS YAP ARE PURCHASERS IN GOOD FAITH AND IN FURTHER HOLDING THAT IT WAS TOO LATE FOR PETITIONER TO INTERPOSE THE ISSUE THAT RESPONDENTS YAP WERE PURCHASERS IN BAD FAITH. Seventh Assignment of Error THE RESPONDENT COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE TRIAL COURT." 4 The petition is impressed with merit. First, the preliminary issues. The respondent court ruled that the trial court has no jurisdiction to annul the board resolution as the matter falls within the jurisdiction of the Securities and Exchange Commission (SEC) and that petitioner did not have the proper standing to have the same declared null and void. In Philex Mining Corporation vs. Reyes, 5 this Court held that it is the fact of relationship between the parties that determines the proper and exclusive jurisdiction of the SEC to hear and decide intra-corporate disputes; that unless

the controversy has arisen between and among stockholders of the corporation, or between the stockholders and the officers of the corporation, then the case is not within the jurisdiction of the SEC. Where the issue involves a party who is neither a stockholder or officer of the corporation, the same is not within the jurisdiction of the SEC. LibLex In Union Glass & Container Corporation vs. Securities and Exchange Commission, 6 this Court defined the relationships which are covered within "intra-corporate disputes" under Presidential Decree No. 902-A, as amended, as follows: "Otherwise stated, in order that the SEC can take cognizance of a case, the controversy must pertain to any of the following relationships; (a) between the corporation, partnership or association and the public; (b) between the corporation, partnership or association and its stockholders, partners, members, or officers; (c) between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners or associates themselves." In this case, neither petitioner nor respondents Yap spouses are stockholders or officers of PAMBUSCO. Consequently, the issue of the validity of the series of transactions resulting in the subject properties being registered in the names of respondents Yap may be resolved only by the regular courts. Respondent court held that petitioner being a stranger to the questioned resolution and series of succeeding transactions has no legal standing to question their validity. In Teves vs. People's Homesite and Housing Corporation, 7 this Court held: "We note however, in reading the complaint that the plaintiff is seeking the declaration of the nullity of the deed of sale, not as a party in the deed, or because she is obliged principally or subsidiarily under the deed, but because she has an interest that is affected by the deed. This Court has held that a person who is not a party obliged principally or subsidiarily in a contract may exercise an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show the detriment which would positively result to him from the contract in which he had no intervention. Indeed, in the case now before Us, the complaint alleges facts which show that plaintiff suffered detriment as a result of the deed of sale entered into by and between defendant PHHC and defendant Melisenda L. Santos. We believe that the plaintiff should be given a chance to present evidence to establish that she suffered detriment and that she is entitled to relief." (Emphasis supplied.) There can be no question in this case that the questioned resolution and series of transactions resulting in the registration of the properties in the name of respondent Yap spouses adversely affected the rights of petitioner to the said properties. Consequently, petitioner has the legal standing to question the validity of said resolution and transactions. As to the question of validity of the board resolution of respondent PAMBUSCO adopted on November 19, 1974, Section 4, Article III of the amended by-laws of respondent PAMBUSCO, provides as follows: "Sec. 4. Notices of regular and special meetings of the Board of Directors shall be mailed to each Director not less than five days before any such meeting, and notices of special meeting shall state the purpose or purposes thereof Notices of regular meetings shall be sent by the Secretary and notices of special meetings by the President or Directors issuing the call. No failure or irregularity of notice of meeting shall invalidate any regular meeting or proceeding thereat; Provided a quorum of the Board is present, nor of any special meeting; Provided at least four Directors are present." (Emphasis supplied.) 8 The trial court in finding the resolution void held as follows:

"On the other hand, this Court finds merit in the position taken by the defendants that the questioned resolution should be declared invalid it having been approved in a meeting attended by only 3 of the 5 members of the Board of Directors of PAMBUSCO which attendance is short of the number required by the By-Laws of the corporation . . . Cdpr "In the meeting of November 19, 1974 when the questioned resolution was approved, the three members of the Board of Directors of PAMBUSCO who were present were Jesus Domingo, Joaquin Briones, and Salvador Bernardez. The remaining 2 others, namely: Judge Pio Marcos and Alfredo Mamuyac were both absent therefrom. As it becomes clear that the resolution approved on November 19, 1974 is null and void it having been approved by only 3 of the members of the Board of Directors who were the only ones present at the said meeting, the deed of assignment subsequently executed in favor of Marcelino Enriquez pursuant to this resolution also becomes null and void . . ." 9 However, the respondent court overturning said legal conclusions of the trial court made the following disquisition: "It should be noted that the provision in Section 4, Article III of PAMBUSCO's amended by-laws would apply only in case of a failure to notify the members of the board of directors on the holding of a special meeting, . . . In the instant case, however, there was no proof whatsoever, either by way of documentary or testimonial evidence, that there was such a failure or irregularity of notice as to make the aforecited provision apply. There was not even such an allegation in the Answer that should have necessitated a proof thereof. The fact alone that only three (3) out of five (5) members of the board of directors attended the subject special meeting, was not enough to declare the aforesaid proceeding void ab initio, much less the board resolution borne out of it, when there was no proof of irregularity nor failure of notice and when the defense made in the Answer did not touch upon the said failure of attendance. Therefore, the judgment declaring the nullity of the subject board resolution must be set aside for lack of proof. "Moreover, there is no categorical declaration in the by-laws that a failure to comply with the attendance requirement in a special meeting should make all the acts of the board therein null and void ab initio. A cursory reading of the subject provision, as aforequoted, would show that its framers only intended to make voidable a board meeting held without the necessary compliance with the attendance requirement in the by-laws. Just the use of the word 'invalidate' already denotes a legal imputation of validity to the questioned board meeting absent its invalidation in the proceedings prescribed by the corporation's bylaws and/or the general incorporation law. More significantly, it should be noted that even if the subject special meeting is itself declared void, it does not follow that the acts of the board therein are ipso facto void and without any legal effect. Without the declaration of nullity of the subject board proceedings, its validity should be maintained and the acts borne out of it should be presumed valid. Considering that the subject special board meeting has not been declared void in a proper proceeding, nor even in the trial by the court below, there is no reason why the acts of the board in the said special meeting should be treated as void ab initio . . ." 10 The Court disagrees. The by-laws of a corporation are its own private laws which substantially have the same effect as the laws of the corporation. They are in effect, written, into the charter. In this sense they become part of the fundamental law of the corporation with which the corporation and its directors and officers must comply. 11 Apparently, only three (3) out of five (5) members of the board of directors of respondent PAMBUSCO convened on November 19, 1974 by virtue of a prior

notice of a special meeting. There was no quorum to validly transact business since, under Section 4 of the amended by-laws hereinabove reproduced, at least four (4) members must be present to constitute a quorum in a special meeting of the board of directors of respondent PAMBUSCO. LexLib Under Section 25 of the Corporation Code of the Philippines, the articles of incorporation or by-laws of the corporation may fix a greater number than the majority of the number of board members to constitute the quorum necessary for the valid transaction of business. Any number less than the number provided in the articles or by-laws therein cannot constitute a quorum and any act therein would not bind the corporation; all that the attending directors could do is to adjourn. 12 Moreover, the records show that respondent PAMBUSCO ceased to operate as of November 15, 1949 as evidenced by a letter of the SEC to said corporation dated April 17, 1980. 13 Being a dormant corporation for several years, it was highly irregular, if not anomalous, for a group of three (3) individuals representing themselves to be the directors of respondent PAMBUSCO to pass a resolution disposing of the only remaining asset of the corporation in favor of a former corporate officer. As a matter of fact, the three (3) alleged directors who attended the special meeting on November 19, 1974 were not listed as directors of respondent PAMBUSCO in the latest general information sheet of respondent PAMBUSCO filed with the SEC dated 18 March 1951. 14 Similarly, the latest list of stockholders of respondent PAMBUSCO on file with the SEC does not show that the said alleged directors were among the stockholders of respondent PAMBUSCO. 15 Under Section 30 of the then applicable Corporation Law, only persons who own at least one (1) share in their own right may qualify to be directors of a corporation. Further, under Section 28 1/2 of the said law, the sale or disposition of all and/or substantially all properties of the corporation requires, in addition to a proper board resolution, the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose. No doubt, the questioned resolution was not confirmed at a subsequent stockholders meeting duly called for the purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation. The same requirement is found in Section 40 of the present Corporation Code. It is also undisputed that at the time of the passage of the questioned resolution, respondent PAMBUSCO was insolvent and its only remaining asset was its right of redemption over the subject properties. Since the disposition of said redemption right of respondent PAMBUSCO by virtue of the questioned resolution was not approved by the required number of stockholders under the law, the said resolution, as well as the subsequent assignment executed on March 8, 1975 assigning to respondent Enriquez the said right of redemption, should be struck down as null and void. Cdpr Respondent court, in upholding the questioned deed of assignment, which appears to be without any consideration at all, held that the consideration thereof is the liberality of the respondent PAMBUSCO in favor of its former corporate officer, respondent Enriquez, for services rendered. Assuming this to be so, then as correctly argued by petitioner, it is not just an ordinary deed of assignment, but is in fact a donation. Under Article 725 of the Civil Code, in order to be valid, such a donation must be made in a public document and the acceptance must be made in the same or in a separate instrument. In the latter case, the donor shall be notified of the acceptance in an authentic form and such step must be noted in both instruments. 16 Non-compliance with this requirement renders the donation null and void. 17 Since undeniably the deed of assignment dated March 8, 1975 in question, 18

shows that there was no acceptance of the donation in the same and in a separate document, the said deed of assignment is thus void ab initio and of no force and effect. WHEREFORE, the petition is GRANTED. The questioned decision of the respondent Court of Appeals dated June 20, 1989 and its resolution dated December 27, 1989 are hereby REVERSED AND SET ASIDE and another judgment is hereby rendered AFFIRMING in toto the decision of the trial court. SO ORDERED. Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur. Footnotes 1. Pages 38 to 40, Rollo. 2. Pages 35 to 38, Rollo. 3. Page 52, Rollo. 4. Pages 12 to 13, Rollo. 5. 118 SCRA 602 (1982). 6. 126 SCRA 31, 38 (1983). 7. 23 SCRA 1141, 1147 (1968). 8. Exhibit "4-A". 9. Pages 92 to 93, Rollo. 10. Pages 44 to 45, Rollo. 11. 8 Fletcher Cyclopedia of the Law of Private Corporations, Perm, Ed., pages 750 to 751. 12. Citing Ballantine, page 130. 13. Exhibit 19. 14. Exhibit 7. 15. Exhibit 8. 16. Article 749, Civil Code. 17. Uzon vs. Del Rosario, et al., L-4963, January 28, 1953 92 Phil. 530; Aldaba vs. Court of Appeals, 27 SCRA 263 (1969). 18. Exhibit 25. SECOND DIVISION [G.R. No. 69999. April 30, 1991.] LUZVIMINDA VISAYAN, BENJAMIN BORJA, PABLO AJERO, LORETO DEDOYCO, NESTOR GORGOLLO, DOMINGO METRAN, LITO MONTERON, ROMEO OMAGBON, BOMBOM PAUSAMOS, CIRILO RAMOS, MARCOS SISON, ERIC BONDOLO, REY ZAMORA, TERESA ANAVISO, EVELYN BACULINAO, MARIBEL BASAG, VIOLETA DAGUISA, ADELAIDA CANALDA, LAILA DIMLA, MACHAELA LUCERO, DIVINA MARIANO, EPIFANIA OBLIGADO, RAQUEL PONCIANO, ELLEN SACRAMENTO, GRACE SULLETA, FELY TAPAY, SUSAN VILLAMOR, ANAINO AMPLAYO, MARIO CHIONG, NESTOR ESTARES, ALELI ALEJO, ELVIE BAUTISTA, JANINA ESTARES, NORMA MENDOZA, LIGAYA SYDUA, & JANETTE VILLAREAL, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION) AND FUJIYAMA RESTAURANT AND HOTEL, INC. and its MANAGER/OPERATOR, respondents. Danilo S. Lorredo for petitioners. King, Capuchino, Banico & Associates for private respondent. SYLLABUS 1. COMMERCIAL LAW; CORPORATION CODE; BOARD OF DIRECTORS; A CORPORATION ACTS ONLY THROUGH ITS BOARD OF DIRECTORS. It is clear from Section 23 of B.P. 68, otherwise known as the Corporation Code of the Philippines that a corporation can act only through its board of directors. "The law is settled that contracts between a corporation and third persons must be made by or under the authority of its board of directors and not by its stockholders. Hence, the action of the stockholders in such matters is only advisory and not in any wise binding on the corporation." (De Leon, The

Corporation Code of the Philippines, 1989 edition, p. 168, citing the case of Barreto vs. La Previsora Filipina, 57 Phil. 649). 2. ID.; ID.; ID.; ABSENT AN AUTHORITY FROM THE BOARD OF DIRECTORS, NO PERSON, NOT EVEN THE OFFICERS CAN VALIDLY BIND THE CORPORATION. A corporation, like a natural person who may authorize another to do certain acts for and in his behalf, through its board of directors, may legally delegate some of its functions and powers to its officers, committees or agents appointed by it. (Campos & Campos, The Corporation Code Comments, Notes, and Selected cases, 1981 ed., p. 253). In the absence of an authority from the board of directors, no person, not even the officers of the corporation, can validly bind the corporation. Thus, the Supreme Court has made the following pronouncement in the case of Vicente vs. Geraldez, L-32473, 53 SCRA 210. 3. ID.; ID.; ID.; ID.; NO EMPLOYER-EMPLOYEE EXISTS BETWEEN EMPLOYER AND PERSONS HIRED WITHOUT AUTHORITY. It is not denied by both parties that the operation and management of the Fujiyama Hotel & Restaurant Corporation, including the control and possession of all its assets, were forcibly taken by Jureidini and Tsuchiya from the owners who composed the board of directors of said corporation by virtue of a writ of preliminary mandatory injunction issued by then Court of First Instance of Manila Branch XXXVI. The two managed and operated the latter apparently without any authority from the latter's board of directors. Thus, all acts done by them for and in behalf of respondent corporation, having been made without the requisite authority from the board of directors, were not binding upon the said corporation. One of these unauthorized acts was the unwarranted termination of the original employees of respondent corporation who were validly hired by its board of directors, vis-a-vis, the hiring of new employees, the petitioners in the case at bar, to replace the said original employees. Since said acts were not binding upon the corporation, no employer-employee existed between the Fujiyama Hotel & Restaurant, Inc. and the herein petitioners. 4. ID.; ID.; ID.; ID.; UNAUTHORIZED PERSONS WHO HIRED EMPLOYEES ARE RESPONSIBLE TO THE LATTER. It will be recalled that on August 21, 1981, this Court issued a writ of preliminary injunction in the case of Rivera, et al. vs. Judge Alfredo C. Florendo, et al., G.R. No. 57586, promulgated October 8, 1986, enjoining the enforcement of the writ of preliminary mandatory injunction issued by respondent judge therein. Despite the issuance of said writ, Jureidini and Tsuchiya refused to return the management of the corporation but continued managing and operating respondent corporation and in fact terminated the original employees of respondent corporation and hired new ones in place of those dismissed. The appointment papers of these new employees would show that they were hired only in one day, i.e., December 15, 1981, and that they were hired on a probationary basis. It follows that only Jureidini and Tsuchiya, being the ones who hired the petitioners, should be the ones responsible for the petitioners' claims. 5. ID.; NATIONAL LABOR RELATIONS COMMISSION; APPEAL; NLRC VESTED WITH BROAD POWERS TO AMEND OR WAIVE ANY ERROR, INJUSTICE, DEFECT OR IRREGULARITY. Since it would be most unfair and unjust to hold the respondent corporation liable for the claims of petitioners, even if respondent corporation's memorandum was filed beyond the 10-day reglementary period (note that the notice of appeal had been filed on time), We rule that the NLRC did not commit grave abuse of discretion in giving due course to respondent corporation's appeal and in reversing the Labor Arbiter's decision dated September 21, 1982. The NLRC is vested with broad powers by the Labor Code, particularly Art. 218 thereof, to correct, amend or waive any error, injustice, defect or irregularity whether in substance or in form; and in

adjudicating all cases brought before it, the NLRC is likewise empowered to use every and all reasonable means to ascertain the facts in each case expeditiously and objectively without regard to procedural technicalities. 6. ID.; ID.; ID.; RULES OF PROCEDURE ARE USED ONLY TO HELP SECURE AND NOT OVERRIDE SUBSTANTIAL JUSTICE. While it is true that an appeal within the meaning of the Labor Code must include the assignments of error, memorandum of arguments in support thereof and the reliefs prayed for such that a mere notice of appeal will not toll the running of the period for perfecting an appeal, and the general rule is that after a judgment has become final the appellate court loses jurisdiction to entertain the appeal, the aforementioned rules admit of exceptions too, because it is also well-settled that such rules of procedure are used only to help secure and not override substantial justice. DECISION PARAS, J p: Assailed in the instant petition is the Resolution of public respondent National Labor Relations Commission (NLRC, for brevity) promulgated January 15, 1985 for being contrary to law and jurisprudence and arrived at in grave abuse of discretion amounting to lack or in excess of jurisdiction. The facts are briefly stated as follows: Private respondent Fujiyama Hotel & Restaurant, Inc. was formally organized in April, 1978 with Aquilino Rivera holding a majority interest in the corporation. The rest of the four (4) incorporators composed the minority stockholders of respondent corporation. Upon organization in 1978, respondent corporation immediately opened a Japanese establishment, known as Fujiyama Hotel & Restaurant, located at 1413 M. Adriatico St., Ermita, Manila. In order to fully offer an authentic Japanese cuisine and traditional Japanese style of service, private respondent hired the services of Isamu Akasako as its chef and restaurant supervisor. (Private respondent's memorandum, p. 4). In June, 1980, Lourdes Jureidini and Milagros Tsuchiya, allegedly pretending to be stockholders of the corporation, filed a case with the then Court of First Instance of Manila, Branch XXXVI against Rivera and Akasako to wrest control over the establishment. In June, 1981, the said court issued a writ of preliminary mandatory injunction transferring possession of all the assets of the company and the management thereof to Jureidini and Tsuchiya. The stockholders and directors of the corporation were thereby excluded from the management and operation of the restaurant. Upon assuming management, Jureidini and Tsuchiya replaced almost all of the existing employees with new ones, majority of whom are the present petitioners in the instant case. Apparently, the new employees were extended probationary appointments for six (6) months from December 15, 1981 to June 15, 1982. LibLex In the meantime, Rivera and the rest of the stockholders elevated the civil case to the Supreme Court through a petition for certiorari assailing the ground for the issuance of the writ of preliminary mandatory injunction by the said Court of First Instance, which case was entitled Aquilino Rivera, et al. vs. Hon. Alfredo C. Florendo, et al., docketed as G.R. No. 57586. On motion of Rivera, et al. in the said case, this Court on August 21, 1981 issued a writ of preliminary injunction to enjoin enforcement of the June 23, 1981 writ of preliminary mandatory injunction issued by the said Court of First Instance. Since Jureidini and Tsuchiya disregarded the writ We had previously issued, We issued another resolution on May 26, 1982 directing both Jureidini and Tsuchiya to strictly and immediately comply with the Court's injunction. Thus, this Court ordered Jureidini and Tsuchiya, "their agents, representatives,

and/or any person or persons acting upon their orders or in their place or stead to refrain from further managing and/or interfering with the management of the business and assets of petitioner corporation and . . . to turn over all assets and the management of petitioner corporation, Fujiyama Hotel & Restaurant, Inc., to Aquilino Rivera and Isamu Akasako." (NLRC, Resolution, p. 4; Rollo, p. 116). Pursuant to the above-quoted resolution, Rivera and Akasako regained control and management of Fujiyama Hotel & Restaurant, Inc. Immediately upon assumption of the management of the corporation, Rivera et al., refused to recognize as employees of the corporation all persons that were hired by Jureidini and Tsuchiya during the one-year period that the latter had operated the company and reinstated the employees previously hired by them. This gave rise to the filing of the present case by the dismissed employees hired by Jureidini and Tsuchiya (some of whom had allegedly been hired by Rivera and Akasako even before Jureidini and Tsuchiya assumed management of the corporation) against Fujiyama Hotel & Restaurant, Inc. for illegal dismissal, which case was docketed as NLRC-NCR Case No. 6-4110-82. On motion of private respondent corporation, the Labor Arbiter included Jureidini and Tsuchiya as third-party respondents therein. Thereafter, the parties, except Jureidini and Tsuchiya, submitted their respective position papers and affidavits in support of their contentions. On the basis of said position papers and affidavits, the Labor Arbiter rendered a decision on September 21, 1982 ordering respondent company and/or Akasako, Jureidini and Tsuchiya to reinstate all the complainants to their former positions plus backwages and to pay jointly and severally the complainants their unpaid wages plus their share in the service charges. (NLRC Decision, pp. 4-5; Rollo, pp. 25-26). On October 12, 1982, the aforesaid decision of the Labor Arbiter was received by private respondent's counsel. Ten (10) days thereafter, or on October 22, 1982, said counsel filed a notice of appeal with an accompanying supersedeas bond in the sum of P80,000.00 as fixed by the Labor Arbiter. Notably, the memorandum of appeal was not filed until November 24, 1982 when the attention of private respondent's counsel was called by the filing on November 19, 1982 of a motion for execution of the September 21, 1982 decision by the complainants. Thus, upon motion of private respondent, the NLRC temporarily stayed execution and directed the Labor Arbiter to transmit the entire record of the case to the NLRC for appropriate action. LLpr On December 28, 1983, the NLRC resolved to deny the appeal of private respondent for having been filed out of time. Subsequently, a motion for reconsideration was seasonably filed by private respondent which became the basis of another resolution dated January 15, 1985 issued by the NLRC setting aside its previous resolution of December 28, 1983 as well as the Labor Arbiter's decision dated September 21 , 1982. The decretal portion of the January 15, 1982 NLRC Resolution is quoted, thus: "WHEREFORE, the Resolution sought to be reconsidered and the Decision appealed from are hereby SET ASIDE and a new Decision is entered, declaring respondents Lourdes Jureidini and Mila Tsuchiya as the previous employer of the complainants hired by them while operating the Fujiyama Restaurant & Hotel, Inc. Consequently, the establishment and its present operator, Isamu Akasako, is absolved of any liability to them but the entire record is remanded for further appropriate proceedings to determine who are the complainants hired by said Jureidini and Tsuchiya. SO ORDERED." (NLRC Resolution, pp. 19-20; Rollo, p. 7-8) The legal issues in the instant case are: (1) whether or not there is privity of contract between petitioners and private respondent as to establish an employer-employee relationship between the parties, and (2) whether or not the

respondent NLRC erred in giving due course to private respondent's appeal and in reversing the September 21, 1982 decision of the Labor Arbiter. Section 23 of B.P. 68, otherwise known as the "Corporation Code of the Philippines," expressly provides as follows: "Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1 ) year and until their successors are elected and qualified. xxx xxx xxx" It is clear from the above-quoted provision that a corporation can act only through its board of directors. "The law is settled that contracts between a corporation and third persons must be made by or under the authority of its board of directors and not by its stockholders. Hence, the action of the stockholders in such matters is only advisory and not in any wise binding on the corporation." (De Leon, The Corporation Code of the Philippines, 1989 edition, p. 168, citing the case of Barreto vs. La Previsora Filipina, 57 Phil. 649). A corporation, like a natural person who may authorize another to do certain acts for and in his behalf, through its board of directors, may legally delegate some of its functions and powers to its officers, committees or agents appointed by it. (Campos & Campos, The Corporation Code Comments, Notes, and Selected cases, 1981 ed., p. 253). In the absence of an authority from the board of directors, no person, not even the officers of the corporation, can validly bind the corporation. Thus, the Supreme Court has made the following pronouncement in the case of Vicente vs. Geraldez, L-32473, 53 SCRA 210: ". . . Whatever authority the officers or agents of a corporation may have is derived from the board of directors or other governing body, unless conferred by the charter of the corporation. A corporate officer's power as an agent of the corporation must therefore be sought from the statute, the charter, the bylaws, or in a delegation of authority to such officer, from the acts of the board of directors, formally expressed or implied from a habit or custom of doing business. In the case at bar no provision of the charter and by-laws of the corporation or any resolution or any other act of the board of directors has been cited from which we could reasonably infer that the administrative manager had been granted expressly or impliedly the power to bind the corporation or the authority to compromise the case. The signature of Atty. Cardenas on the Agreement would therefore be legally ineffectual". (Vicente vs Geraldez, L-32473, 52 SCRA 210, p. 227). (Respondent's Memorandum, p 11). Applying the aforesaid doctrines in the case at bar, We hold that all acts done solely by Jureidini and Tsuchiya allegedly, for and in behalf of private respondent during the period from June, 1981 up to May 31, 1982 were not binding upon respondent corporation. LibLex It is not denied by both parties that the operation and management of the Fujiyama Hotel & Restaurant Corporation, including the control and possession of all its assets, were forcibly taken by Jureidini and Tsuchiya from the owners thereof by virtue of a writ of preliminary mandatory injunction issued by then Court of First Instance of Manila, Branch XXXVI. These owners, the Rivera-Akasako group, composed the board of directors of respondent corporation during the one (1 ) year period that Jureidini and Tsuchiya controlled the respondent corporation, the former managed and operated the latter apparently without any authority from the latter's board of directors. As alleged by Rivera, et al., Jureidini and Tsuchiya were not even officers of respondent corporation as to be considered its agents, which fact prompted this tribunal to order said persons, under pain of contempt, to turn over the

management and assets of respondent corporation to Rivera et al., as shown by this Court's resolution of May 26, 1982. Thus, all acts done by Jureidini and Tsuchiya for and in behalf of respondent corporation, having been made without the requisite authority from the board of directors, were not binding upon the said corporation. One of these unauthorized acts was the unwarranted termination of the original employees of respondent corporation who were validly hired by its board of directors, vis-a-vis, the hiring of new employees, the petitioners in the case at bar, to replace the said original employees. Since said acts were not binding upon the corporation, no employer-employee existed between the Fujiyama Hotel & Restaurant, Inc. and the herein petitioners. We agree with private respondent that the act of the Rivera-Akasako group in admitting the original employees of respondent corporation after regaining control and management of the latter on May 31, 1982, having been made by the corporation's board of directors, was valid. Even if Jureidini and Tsuchiya took over the management and control of respondent corporation, the employer-employee relationship between the corporation and its original employees has not been severed for lack of authority on the part of Jureidini and Tsuchiya to dismiss said employees. Consequently, petitioners' claim of illegal dismissal is entirely mistaken as they were not hired by respondent corporation or its duly authorized officers or agents, hence, no employer-employee relationship ever existed between them. Jureidini and Tsuchiya, the persons who hired petitioners' services, are to be considered their employer, and not the private respondents. Neither may petitioners claim good faith or ignorance of the lack of authority on the part of Jureidini and Tsuchiya to legally hire them and bind the corporation because they were all informed by Isamu Tatewaki, respondent corporation's Assistant Manager, of such fact at the time they were hired. (Reply Brief of Isamu Tatewaki, Annex "10"). Besides, it was clearly shown that the appointments of the petitioners were on a probationary basis. Further, it will be recalled that on August 21, 1981, this Court issued a writ of preliminary injunction in the case of Rivera, et al. vs. Judge Alfredo C. Florendo, et al., G.R. No. 57586, promulgated October 8, 1986, enjoining the enforcement of the writ of preliminary mandatory injunction issued by respondent judge therein. Despite the issuance of said writ, Jureidini and Tsuchiya refused to return the management of the corporation but continued managing and operating respondent corporation and in fact terminated the original employees of respondent corporation and hired new ones in place of those dismissed. The appointment papers of these new employees would show that they were hired only in one day, i.e., December 15, 1981, and that they were hired on a probationary basis. It follows that only Jureidini and Tsuchiya, being the ones who hired the petitioners, should be the ones responsible for the petitioners' claims. cdll Since it would be most unfair and unjust to hold the respondent corporation liable for the claims of petitioners, even if respondent corporation's memorandum was filed beyond the 10-day reglementary period (note that the notice of appeal had been filed on time), We rule that the NLRC did not commit grave abuse of discretion in giving due course to respondent corporation's appeal and in reversing the Labor Arbiter's decision dated September 21, 1982. The NLRC is vested with broad powers by the Labor Code, particularly Art. 218 thereof, to correct, amend or waive any error, injustice, defect or irregularity whether in substance or in form; and in adjudicating all cases brought before it, the NLRC is likewise empowered to use every and all reasonable means to ascertain the facts in each case expeditiously and objectively without regard to procedural technicalities. Thus, Art. 221 of the Labor Code provides as follows:

"In any proceeding before the Commission or any of the Labor Arbiters, the rules of evidence prevailing in Courts of Law or equity shall not be controlling and it is the spirit and intention of this Code that the Commission and its members and the Labor Arbiters shall use every and all reasonable means to ascertain the facts in each case speedily and objectively and without regard to technicalities of law or procedure, all in the interest of due process. In any proceeding before the Commission or any Labor Arbiter to exercise complete control of the proceedings at all stages." The factual circumstances and substantial merits of the instant case justify the NLRC's exercise of its reserve powers granted by the aforequoted provision. Private respondent's appeal should be granted and entertained in order to prevent a manifest injustice upon said respondent. While it is true that an appeal within the meaning of the Labor Code must include the assignments of error, memorandum of arguments in support thereof and the reliefs prayed for such that a mere notice of appeal will not toll the running of the period for perfecting an appeal, and the general rule is that after a judgment has become final the appellate court loses jurisdiction to entertain the appeal, the aforementioned rules admit of exceptions too, because it is also well-settled that such rules of procedure are used only to help secure and not override substantial justice. "Litigations should, as much as possible, be decided on their merits and not on technicality, and under the circumstances obtaining in this case, We are reminded of what We said in the case of Gregorio vs. CA, 72 SCRA 120, 'Dismissal of appeals purely on technical grounds is frowned upon where the policy of the courts is to encourage hearings of appeals on their merits and the rules of procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override substantial justice. If a technical and rigid enforcement of the rules is made, their aim would be defeated." (American Home Insurance Co. vs. Court of Appeals, 109 SCRA 180) In the case at bar, the finding of the Labor Arbiter that there is an employeremployee relationship existing between petitioners and private respondent counteracts the provisions of the Corporation Code such that to strictly apply the procedural rules on appeal under the Labor Code would obviously result in patent and gross injustice upon private respondent's substantive rights. In relation to the peculiar factual background of the instant case, private respondent's defense of lack of privity of contract with petitioners merits greater consideration in the interest of substantial justice. LLpr It will be recalled that the Labor Arbiter's finding of illegal dismissal and order of reinstatement were anchored on an erroneous premise that Jureidini and Tsuchiya were duly authorized and legitimate officers of the corporation. The enforcement of said erroneous ruling will cause serious injustice, not only upon respondent corporation but also upon the corporation's original employees who were taken back by the Aquilino Rivera group when they regained possession and management of the corporation. If petitioners are reinstated, that would result in an absurd situation wherein the corporation will have employees very much more in excess of what the business would require. Besides, it is quite evident that private respondent seriously intended to appeal the Labor Arbiter's decision and We hereby quote a portion of the herein assailed NLRC Resolution: ". . . In fact, it even filed an urgent petition for reduction of supersedeas bond, praying that it be allowed to file a P50,000.00 bond but it was fixed at P80,000.00 by the Labor Arbiter which it filed with its notice of appeal. In the conference on 15 October 1982 called by the Labor Arbiter issuing his decision for the purpose of settling the case amicably, the respondent again manifested after no settlement was arrived at that it will file its appeal. With these in mind, We are convinced that respondent's failure to file its memorandum on appeal

with its notice of appeal was through excusable mistake only on the part of the messenger-clerk. Otherwise, it would not have gone through the burden of going through the rigors of having the supersedeas bond reduced and abiding with the amount fixed which entailed expenses. Consequently, in the interest of substantial justice and in line with the repeated rulings of the Supreme Court lately which abhors dismissal of cases based solely on technicalities, We set aside the Resolution sought to be reconsidered and give due course to the appeal." (pp. 15-16, Rollo) Finally, it is clear that petitioners were not abandoned by the NLRC as the latter ordered that the case be remanded to the Arbitration Branch for further proceedings to determine who among the petitioners were really hired by respondent corporation or by Jureidini, et al., in order to ultimately determine who is responsible for the settlement of petitioners' claims. Thus, petitioners are not without recourse relative to their claims. ACCORDINGLY, the instant petition is hereby DISMISSED for lack of merit and the assailed decision of the National Labor Relations Commission dated January 15, 1985 is AFFIRMED in toto. SO ORDERED. Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur. THIRD DIVISION [G.R. No. 93695. February 4, 1992.] RAMON C. LEE and ANTONIO DM. LACDAO, petitioners, vs. THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and TOMAS GONZALES, respondents. Cayanga, Zuniga & Angel Law Offices for petitioners. Timbol & Associates for private respondents. SYLLABUS 1. COMMERCIAL LAW; CORPORATIONS; VOTING TRUST; DEFINED. Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements, a more definite meaning may be gathered. The said provision partly reads: "Section 59. Voting Trusts One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not exceeding five (5) years at any one time: Provided, that in the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding (5) years but shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement." 2. ID.; ID.; VOTING TRUST AGREEMENT; DEFINED. By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in the assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the other attributes of ownership; (2)

that the voting rights granted are intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation. (5 Fletcher, Cylopedia of the Law on Private Corporations, section 2075 [1976] p. 331 citing Tankersly v. Albright, 374 F. Supp. 538) 3. ID.; ID.; ID.; EFFECT AS TO VOTING RIGHTS; CRITERIA TO DISTINGUISH IT FROM OTHER AGREEMENTS. The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory conditions and such other terms and conditions specified in the agreement. The five year-period may be extended in cases where the voting trust is executed pursuant to a loan agreement whereby the period is made contingent upon full payment of the loan. 4. ID.; ID.; ID.; LIMITATIONS THEREON. Under section 59 of the Corporation Code, supra, a voting trust agreement may confer upon a trustee not only the stockholder's voting rights but also other rights pertaining to his shares as long as the voting trust agreement is not entered "for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud." (section 59, 5th paragraph of the Corporation Code). Thus, the traditional concept of a voting trust agreement primarily intended to single out a stockholder's right to vote from his other rights as such and made irrevocable for a limited duration may in practice become a legal device whereby a transfer of the stockholders shares is effected subject to the specific provision of the voting trust agreement. The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable or beneficial ownership of the corporate shares of a stockholder, on the one hand, and the legal title thereto on the other hand. 5. ID.; ID.; ID.; EFFECT THEREOF ON THE STATUS OF TRANSFERRING STOCKHOLDERS. Both under the old and the new Corporation Codes there is no dispute as to the most immediate effect of a voting trust agreement on the status of a stockholder who is a party to its execution from legal title holder or owner of the shares subject of the voting trust agreement, he becomes the equitable or beneficial owner. (Salonga, Philippine Law on Private Corporations, 1958 ed., p. 268; Pineda and Carlos, the Law on Private Corporations and Corporate Practice, 1969 ed., p. 175; Campos and Lopez-Campos, The Corporation Code; Comments, Notes & Selected Cases, 1981 ed., p. 386; Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. 3, 1988 ed., p. 536. 6. ID.; ID.; ID.; RIGHTS GRANTED THEREIN AUTOMATICALLY EXPIRE AT THE END OF AGREED PERIOD. The 6th paragraph of section 59 of the new Corporation Code which reads: "Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period, and the voting trust certificates as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the transferors." 7. ID.; ID.; ID.; ELIGIBILITY OF A DIRECTOR UNDER THE OLD CORPORATION CODE AND UNDER THE NEW CORPORATION CODE. Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the simple act of such director being a party to a voting trust agreement inasmuch as he remains owner (although beneficial or equitable only) of the shares subject of the voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of the trustee is required (section 36 of the old Corporation Code). No disqualification arises by virtue of the phrase "in his own right" provided under the old Corporation Code. With

the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not the beneficial owners of the shares registered in their names on the books of the corporation becomes formally legalized (see Campos and Lopez-Campos, supra, p. 296). Hence, this is a clear indication that in order to be eligible as a director, what is material is the legal title to, not beneficial ownership of, the stock as appearing on the books of the corporation (2 Fletcher, Cyclopedia of the Law of Private Corporations, section 300, p. 92 [1969] citing People v. Lihme, 269 Ill. 351, 109 N.E. 1051). 8. ID.; ID.; REPRESENTATIVES THEREOF AUTHORIZED TO RECEIVE COURT PROCESSES ON ITS BEHALF; RATIONALE. Under section 13, Rule 14 of the Revised Rules of Court, it is provided that: "Section. 13. Service upon private domestic corporation or partnership. If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent or any of its directors. It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members who compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347 [1976]; Osias Academy v. Department of Labor and Employment, et al., G.R. Nos. 83257-58, December 21, 1990). Thus, the above role on service of processes on a corporation enumerates the representatives of a corporation who can validly receive court processes on its behalf. Not every stockholder or officer can bind the corporation considering the existence of a corporate entity separate from those who compose it. The rationale of the aforecited rule is that service must be made on a representative so integrated with the corporation sued as to make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him. (Far Corporation v. Francisco, 146 SCRA 197 1986] citing Villa Rey Transit, Inc. v. Far East Motor Corp., 81 SCRA 303 [1978]). 9. ID.; ID.; BOUND ONLY BY ACTS WITHIN THE SCOPE OF ITS OFFICER'S OR AGENT'S AUTHORITY. The general principle that a corporation can only be bound by such acts which are within the scope of its officers' or agents' authority. (see Vicente v. Geraldez, 52 SCRA 210 [1973]) DECISION GUTIERREZ, JR., J p: What is the nature of the voting trust agreement executed between two parties in this case? Who owns the stocks of the corporation under the terms of the voting trust agreement? How long can a voting trust agreement remain valid and effective? Did a director of the corporation cease to be such upon the creation of the voting trust agreement? These are the questions the answers to which are necessary in resolving the principal issue in this petition for certiorari whether or not there was proper service of summons on Alfa Integrated Textile Mills (ALFA, for short), through the petitioners as president and vice-president, allegedly, of the subject corporation after the execution of a voting trust agreement between ALFA and the Development Bank of the Philippines (DBP, for short). From the records of the instant case, the following antecedent facts appear: On November 15, 1985, a complaint for a sum of money was filed by the International Corporate Bank, Inc. against the private respondents who, in turn, filed a third party complaint against ALFA and the petitioners on March 17, 1986. On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint which the Regional Trial Court of Makati, Branch 58 denied in an Order dated June 27, 1988. On July 18, 1988, the petitioners filed their answer to the third party complaint.

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

On March 19, 1990, after the petitioners filed their answer to the private respondents' petition for certiorari, the public respondent rendered its decision, the dispositive portion of which reads: "WHEREFORE, in view of the foregoing, the orders of respondent judge dated April 25, 1989 and August 14, 1989 are hereby SET ASIDE and respondent corporation is ordered to file its answer within the reglementary period." (CA Decision, p. 8; Rollo, p. 24) On April 11, 1990, the petitioners moved for a reconsideration of the decision of the public respondent which resolved to deny the same on May 10, 1990. Hence, the petitioners filed this certiorari petition imputing grave abuse of discretion amounting to lack of jurisdiction on the part of the public respondent in reversing the questioned Orders dated April 25, 1989 and August 14, 1989 of the court a quo, thus, holding that there was proper service of summons on ALFA through the petitioners. In the meantime, the public respondent inadvertently made an entry of judgment on July 16, 1990 erroneously applying the rule that the period during which a motion for reconsideration has been pending must be deducted from the 15-day period to appeal. However, in its Resolution dated January 3, 1991, the public respondent set aside the aforestated entry of judgment after further considering that the rule it relied on applies to appeals from decisions of the Regional Trial Courts to the Court of Appeals, not to appeals from its decision to us pursuant to our ruling in the case of Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [1989]. (CA Rollo, pp. 249-250) In their memorandum, the petitioners present the following arguments, to wit: "(1) that the execution of the voting trust agreement by a stockholder whereby all his shares to the corporation have been transferred to the trustee deprives the stockholder of his position as director of the corporation; to rule otherwise, as the respondent Court of Appeals did, would be violative of section 23 of the Corporation Code (Rollo, pp. 270-273); and (2) that the petitioners were no longer acting or holding any of the positions provided under Rule 14, Section 13 of the Rules of Court authorized to receive service of summons for and in behalf of the private domestic corporation so that the service of summons on ALFA effected through the petitioners is not valid and ineffective; to maintain the respondent Court of Appeals' position that ALFA was properly served its summons through the petitioners would be contrary to the general principle that a corporation can only be bound by such acts which are within the scope of its officers' or agents' authority (Rollo, pp. 273-275) In resolving the issue of the propriety of the service of summons in the instant case, we dwell first on the nature of a voting trust agreement and the consequent effects upon its creation in the light of the provisions of the Corporation Code. A voting trust is defined in Ballentine's Law Dictionary as follows: "(a) trust created by an agreement between a group of the stockholders of a corporation and the trustee or by a group of identical agreements between individual stockholders and a common trustee, whereby it is provided that for a term of years, or for a period contingent upon a certain event, or until the agreement is terminated, control over the stock owned by such stockholders, either for certain purposes or for all purposes, is to be lodged in the trustee, either with or without a reservation to the owners, or persons designated by them, of the power to direct how such control shall be used. (98 ALR 2d. 379 sec. 1 [d]; 19 Am J 2d Corp. sec. 685)." Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements, a more definite meaning may be gathered. The said provision partly reads:

"Section 59. Voting Trusts. One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not exceeding five (5) years at any one time: Provided, that in the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding (5) years but shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement." By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in the assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation. (5 Fletcher, Cylopedia of the Law on Private Corporations, section 2075 [1976] p. 331 citing Tankersly v. Albright, 374 F. Supp. 538) Under Section 59 of the Corporation Code, supra, a voting trust agreement may confer upon a trustee not only the stockholder's voting rights but also other rights pertaining to his shares as long as the voting trust agreement is not entered "for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud." (section 59, 5th paragraph of the Corporation Code). Thus, the traditional concept of a voting trust agreement primarily intended to single out a stockholder's right to vote from his other rights as such and made irrevocable for a limited duration may in practice become a legal device whereby a transfer of the stockholder's shares is effected subject to the specific provision of the voting trust agreement. The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable or beneficial ownership of the corporate shares of a stockholder, on the one hand, and the legal title thereto on the other hand. The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory conditions and such other terms and conditions specified in the agreement. The five year-period may be extended in cases where the voting trust is executed pursuant to a loan agreement whereby the period is made contingent upon full payment of the loan. In the instant case, the point of controversy arises from the effects of the creation of the voting trust agreement. The petitioners maintain that with the execution of the voting trust agreement between them and the other stockholders of ALFA, as one party, and the DBP, as the other party, the former assigned and transferred all their shares in ALFA to DBP, as trustee. They argue that by virtue of the voting trust agreement the petitioners can no longer

be considered directors of ALFA. In support of their contention, the petitioners invoke section 23 of the Corporation Code which provides, in part, that: "Every director must own at least one (1) share of the capital stock of the corporation of which he is a director which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be director. x x x." (Rollo, p. 270) The private respondents, on the contrary, insist that the voting trust agreement between ALFA and the DBP had all the more safeguarded the petitioners' continuance as officers and directors of ALFA inasmuch as the general object of voting trust is to insure permanency of the tenure of the directors of a corporation. They cited the commentaries by Prof. Aguedo Agbayani on the right and status of the transferring stockholder, to wit: "The 'transferring stockholder', also called the 'depositing stockholder', is equitable owner of the stocks represented by the voting trust certificates and the stock reversible on termination of the trust by surrender. It is said that the voting trust agreement does not destroy the status of the transferring stockholders as such, and thus render them ineligible as directors. But a more accurate statement seems to be that for some purposes the depositing stockholder holding voting trust certificates in lieu of his stock and being the beneficial owner thereof, remains and is treated as a stockholder. It seems to be deducible from the case that he may sue as a stockholder if the suit is in equity or is of an equitable nature, such as, a technical stockholders' suit in right of the corporation. [Commercial Laws of the Philippines by Agbayani, Vol. 3, pp. 492-493, citing 5 Fletcher 326, 327]" (Rollo, p. 291) We find the petitioners' position meritorious. Both under the old and the new Corporation Codes there is no dispute as to the most immediate effect of a voting trust agreement on the status of a stockholder who is a party to its execution from legal title-holder or owner of the shares subject of the voting trust agreement, he becomes the equitable or beneficial owner. (Salonga, Philippine Law on Private Corporations, 1958 ed., p. 268; Pineda and Carlos, the Law on Private Corporations and Corporate Practice, 1969 ed., p. 175; Campos and Lopez-Campos, The Corporation Code; Comments, Notes & Selected Cases, 1981 ed., p. 386; Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. 3, 1988 ed., p. 536). The penultimate question, therefore, is whether the change in his status deprives the stockholder of the right to qualify as a director under section 23 of the present Corporation Code which deletes the phrase "in his own right." Section 30 of the old Code states that: "Every director must own in his own right at least one share of the capital stock of the stock corporation of which he is a director, which stock shall stand in his name on the books of the corporation. A director who ceases to be the owner of at least one share of the capital stock of a stock corporation of which is a director shall thereby cease to be a director . . .." (Underlining supplied) Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the simple act of such director being a party to a voting trust agreement inasmuch as he remains owner (although beneficial or equitable only) of the shares subject of the voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of the trustee is required (section 36 of the old Corporation Code). No disqualification arises by virtue of the phrase "in his own right" provided under the old Corporation Code. With the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not the beneficial owners of the shares registered in their names on the books of the corporation becomes formally legalized (see Campos and Lopez-Campos, supra, p. 296). Hence, this is a clear indication that in order to be eligible as a director, what is material is the legal title to, not

beneficial ownership of, the stock as appearing on the books of the corporation (2 Fletcher, Cyclopedia of the Law of Private Corporations, section 300, p. 92 [1969] citing People v. Lihme, 269 Ill. 351, 109 N.E. 1051). The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981 disposed of all their shares through assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners ceased to own at least one share standing in their names on the books of ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to do with the management of the enterprise. The petitioners ceased to be directors. Hence, the transfer of the petitioners' shares to the DBP created vacancies in their respective positions as directors of ALFA. The transfer of shares from the stockholders of ALFA to the DBP is the essence of the subject voting trust agreement as evident from the following stipulations: "1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of stocks owned by them respectively and shall do all things necessary for the transfer of their respective shares to the TRUSTEE on the books of ALFA. 2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of shares transferred, which shall be transferable in the same manner and with the same effect as certificates of stock subject to the provisions of this agreement; 3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or special, upon any resolution, matter or business that may be submitted to any such meeting, and shall possess in that respect the same powers as owners of the equitable as well as the legal title to the stock; 4. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose of qualifying such person as director of ALFA, and cause a certificate of stock evidencing the share so transferred to be issued in the name of such person; xxx xxx xxx 9. Any stockholder not entering into this agreement may transfer his shares to the same trustee, without the need of revising this agreement, and this agreement shall have the same force and effect upon that said stockholder." (CA Rollo, pp. 137-138; Underlining supplied) Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stocks covered by the agreement to the DBP as trustee, the latter became the stockholder of record with respect to the said shares of stocks. In the absence of a showing that the DBP had caused to be transferred in their names one share of stock for the purpose of qualifying as directors of ALFA, the petitioners can no longer be deemed to have retained their status as officers of ALFA which was the case before the execution of the subject voting trust agreement. There appears to be no dispute from the records that DBP has taken over full control and management of the firm. Moreover, in the Certification dated January 24, 1989 issued by the DBP through one Elsa A. Guevarra, Vice-President of its Special Accounts Department II, Remedial Management Group, the petitioners were no longer included in the list of officers of ALFA "as of April 1982". (CA Rollo, pp. 140142) Inasmuch as the private respondents in this case failed to substantiate their claim that the subject voting trust agreement did not deprive the petitioners of their position as directors of ALFA, the public respondent committed a reversible error when it ruled that: ". . . while the individual respondents (petitioners Lee and Lacdao) may have ceased to be president and vice-president, respectively, of the corporation at the time of service of summons on them on August 21, 1987, they were at least up to that time, still directors . . .".

The aforequoted statement is quite inaccurate in the light of the express terms of Stipulation No. 4 of the subject voting trust agreement. Both parties, ALFA and the DBP, were aware at the time of the execution of the agreement that by virtue of the transfer of shares of ALFA to the DBP, all the directors of ALFA were stripped of their positions as such. There can be no reliance on the inference that the five-year period of the voting trust agreement in question had lapsed in 1986 so that the legal title to the stocks covered by the said voting trust agreement ipso facto reverted to the petitioners as beneficial owners pursuant to the 6th paragraph of section 59 of the new Corporation Code which reads: "Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period, and the voting trust certificates as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the transferors." On the contrary, it is manifestly clear from the terms of the voting trust agreement between ALFA and the DBP that the duration of the agreement is contingent upon the fulfillment of certain obligations of ALFA with the DBP. This is shown by the following portions of the agreement. "WHEREAS, the TRUSTEE is one of the creditors of ALFA, and its credit is secured by a first mortgage on the manufacturing plant of said company; WHEREAS, ALFA is also indebted to other creditors for various financial accommodations and because of the burden of these obligations is encountering very serious difficulties in continuing with its operations. WHEREAS, in consideration of additional accommodations from the TRUSTEE, ALFA has offered and the TRUSTEE has accepted participation in the management and control of the company and to assure the aforesaid participation by the TRUSTEE, the TRUSTORS have agreed to execute a voting trust covering their shareholding in ALFA in favor of the TRUSTEE; AND WHEREAS, DBP, is willing to accept the trust for the purpose aforementioned. NOW, THEREFORE, it is hereby agreed as follows: xxx xxx xxx 6. This Agreement shall last for a period of Five (5) years, and is renewable for as long as the obligations of ALFA with DBP, or any portion thereof, remains outstanding;' (CA Rollo, pp. 137-138) Had the five-year period of the voting trust agreement expired in 1986, the DBP would not have transferred all its rights, titles and interests in ALFA "effective June 30, 1986" to the national government through the Asset Privatization Trust (APT) as attested to in a Certification dated January 24, 1989 of the Vice President of the DBP's Special Accounts Department II. In the same certification, it is stated that the DBP, from 1987 until 1989, had handled APT's account which included ALFA's assets pursuant to a management agreement by and between the DBP and APT. (CA Rollo, p. 142) Hence, there is evidence on record that at the time of the service of summons on ALFA through the petitioners on August 21, 1987, the voting trust agreement in question was not yet terminated so that the legal title to the stocks of ALFA, then, still belonged to the DBP. In view of the foregoing, the ultimate issue of whether or not there was proper service of summons on ALFA through the petitioners is readily answered in the negative. Under section 13, Rule 14 of the Revised Rules of Court, it is provided that: "Sec. 13. Service upon private domestic corporation or partnership. If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent or any of its directors."

It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members who compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347 [1976]; Osias Academy v. Department of Labor and Employment, et al., G.R. Nos. 83257-58, December 21, 1990). Thus, the above rule on service of processes on a corporation enumerates the representatives of a corporation who can validly receive court processes on its behalf. Not every stockholder or officer can bind the corporation considering the existence of a corporate entity separate from those who compose it. The rationale of the aforecited rule is that service must be made on a representative so integrated with the corporation sued as to make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him. (Far Corporation v. Francisco, 146 SCRA 197 1986] citing Villa Rey Transit, Inc. v. Far East Motor Corp., 81 SCRA 303 [1978]). The petitioners in this case do not fall under any of the enumerated officers. The service of summons upon ALFA, through the petitioners, therefore, is not valid. To rule otherwise, as correctly argued by the petitioners, will contravene the general principle that a corporation can only be bound by such acts which are within the scope of the officer's or agent's authority. (see Vicente v. Geraldez, 52 SCRA 210 [1973].) WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed decision dated March 19, 1990 and the Court of Appeals' resolution of May 10, 1990 are SET ASIDE and the Orders dated April 25, 1989 and October 17, 1989 issued by the Regional Trial Court of Makati, Branch 58 are REINSTATED. SO ORDERED. Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur. SECOND DIVISION [G.R. No. 102300. March 17, 1993.] CITIBANK, N.A., petitioner, vs. HON. SEGUNDINO G. CHUA, SANTIAGO M. KAPUNAN and LUIS L. VICTOR, ASSOCIATE JUSTICES OF THE HON. COURT OF APPEALS, THIRD DIVISION, MANILA, HON. LEONARDO B. CANARES, Judge of Regional, Trial Court of Cebu, Branch 10, and SPOUSES CRESENCIO AND ZENAIDA VELEZ, respondents. SYLLABUS 1. COMMERCIAL LAW; PRIVATE CORPORATIONS; LEVELS OF CONTROL IN CORPORATE HIERARCHY; BOARD OF DIRECTORS MAY VALIDLY DELEGATE SOME FUNCTIONS TO INDIVIDUAL OFFICERS OR AGENTS. In the corporate hierarchy, there are three levels of control: (1) the board of directors, which is responsible for corporate policies and the general management of the business affairs of the corporation; (2) the officers, who in theory execute the policies laid down by the board, but in practice often have wide latitude in determining the course of business operations; and (3) the stockholders who have the residual power over fundamental corporate changes, like amendments of the articles of incorporation. However, just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. 2. ID.; ID.; HOW CORPORATE POWERS CONFERRED UPON CORPORATE OFFICERS OR AGENTS; EXERCISE OF POWERS INCIDENTAL TO EXPRESS POWERS CONFERRED. Corporate powers may be directly conferred upon corporate officers or agents by statute, the articles of incorporation, the by-laws or by resolution or other act of the board of directors. In addition, an officer who is not a director may also appoint other agents when so authorized by the

by-laws or by the board of directors. Such are referred to as express powers. There are also powers incidental to express powers conferred. It is a fundamental principle in the law of agency that every delegation of authority, whether general or special, carries with it, unless the contrary be expressed, implied authority to do all of those acts, naturally and ordinarily done in such cases, which are reasonably necessary and proper to be done in order to carry into effect the main authority conferred. Since the by-laws are a source of authority for corporate officers and agents of the corporation, a resolution of the Board of Directors of Citibank appointing an attorney in fact to represent and bind it during the pre-trial conference of the case at bar is not necessary because its by-laws allow its officers, the Executing Officer and the Secretary Pro-Tem, to execute a power of attorney to a designated bank officer, William W. Ferguson in this case, clothing him with authority to direct and manage corporate affairs. 3. ID.; ID.; ADOPTION OF BY-LAWS; PROVISION OF SECTION 46 OF CORPORATION CODE REFERRING TO EFFECTIVITY OF CORPORATE BYLAWS APPLICABLE ONLY TO DOMESTIC CORPORATIONS. A corporation can submit its by-laws, prior to incorporation, or within one month after receipt of official notice of the issuance of its certificate of incorporation by the SEC. When the third paragraph of the above provision mentions "in all cases", it can only refer to these two options; i.e., whether adopted prior to incorporation or within one month after incorporation, the by-laws shall be effective only upon the approval of the SEC. But even more important, said provision starts with the phrase "Every corporation formed under this Code", which can only refer to corporations incorporated in the Philippines. Hence, Section 46, in so far as it refers to the effectivity of corporate by-laws, applies only to domestic corporations and not to foreign corporations. 4. ID.; FOREIGN CORPORATIONS; ISSUANCE OF LICENSE TO TRANSACT BUSINESS IN THE PHILIPPINES; REQUISITES; GRANT OF LICENSE IN EFFECT APPROVAL BY SEC OF FOREIGN CORPORATION'S BY-LAWS. Section 125 of the same Code requires that a foreign corporation applying for a license to transact business in the Philippines must submit, among other documents, to the SEC, a copy of its articles of incorporation and by-laws, certified in accordance with law. Unless these documents are submitted, the application cannot be acted upon by the SEC. In the following section, the Code specifies when the SEC can grant the license applied for. Section 126 provides in part: "SEC. 126. Issuance of a license. If the Securities and Exchange Commission is satisfied that the applicant has complied with all the requirements of this Code and other special laws, rules and regulations, the Commission shall issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such license . . ." Since the SEC will grant a license only when the foreign corporation has complied with all the requirements of law, it follows that when it decides to issue such license, it is satisfied that the applicant's by-laws, among the other documents, meet the legal requirements. This, in effect, is an approval of the foreign corporations by-laws. It may not have been made in express terms, still it is clearly an approval. Therefore, petitioner bank's by-laws, though originating from a foreign jurisdiction, are valid and effective in the Philippines. 5. CIVIL LAW; AGENCY; SPECIAL POWER OF ATTORNEY; WHEN POWER OF ATTORNEY COMPREHENSIVE ENOUGH TO INCLUDE AUTHORITY TO APPEAR AT PRE-TRIAL CONFERENCE. It is also error on the part of the Court of Appeals to state that the power of attorney given to the four (4) Citibank employees is not a special power of attorney as required in paragraph 3, Article 1878 of the Civil Code and Section 1 (a), Rule 20 of the Rules of Court. In the case of Tropical Homes, Inc. vs. Villaluz, the special power of attorney executed by petitioner bank therein contained the following pertinent

terms "to appear for and in its behalf in the above-entitled case in all circumstances where its appearance is required and to bind it in all said instances". The court ruled that: "Although the power of attorney in question does not specifically mention the authority of petitioner's counsel to appear and bind the petitioner at the pre-trial conference, the terms of said power of attorney are comprehensive enough as to include the authority to appear for the petitioner at the pre-trial conference." 6. ID.; ID.; ID.; LEGAL COUNSEL APPOINTED TO REPRESENT BANK IN COURT PURSUANT TO BY-LAW PROVISION CONSIDERED AN EMPLOYEE FOR A SPECIAL PURPOSE. Attorney was sufficient under the by-law provision authorizing Ferguson to delegate any of his functions to any one or more employees of the petitioner bank. A reasonable interpretation of this provision would include an appointment of a legal counsel to represent the bank in court, for, under the circumstances, such legal counsel can be considered, and in fact was considered by the petitioner bank, an employee for a special purpose. Furthermore, Ferguson, who heads the Philippine office thousands of miles away from its main office in the United States, must be understood to have sufficient powers to act promptly in order to protect the interests of his principal. 7. REMEDIAL LAW; CIVIL PROCEDURE; PRECIPITATE ORDERS OF DEFAULT FROWNED UPON BY SUPREME COURT; REASON THEREFOR; WHEN PARTY MAY BE PROPERLY DEFAULTED. We reiterate the previous admonitions of this Court against "precipitate orders of default as these have the effect of denying the litigant the chance to be heard. While there are instances, to be sure, when a party may be properly defaulted, these should be the exceptions rather than the rule and should be allowed only in clear cases of an obstinate refusal or inordinate neglect to comply with the orders of the court. Absent such a showing, the party must be given every reasonable opportunity to present his side and to refute the evidence of the adverse party in deference to due process of law". 8. LEGAL ETHICS; AUTHORITY OF ATTORNEYS TO BIND CLIENTS. Under Rule 138, Section 23 of the Rules of Court, an attorney has authority to bind his client in any case by an agreement in relation thereto made in writing, and this authority would include taking appeals and all matters of ordinary judicial procedure. But he cannot, without special authority, compromise his client's litigation or receive anything in discharge of a client's claim but the full amount in cash. The special powers of attorney separately executed by Florencia Tarriela and William W. Ferguson granted to J.P. Garcia & Associates are very explicit in their terms as to the counsel's authority in the case at bar. DECISION CAMPOS, JR., J p: Petitioner is a foreign commercial banking corporation duly licensed to do business in the Philippines. Private respondents, spouses Cresencio and Zenaida Velez, were good clients of petitioner bank's branch in Cebu until March 14, 1986 when they filed a complaint for specific performance and damages against it in Civil Case No. CEB-4751 before the Regional Trial Court of Cebu, Branch 10. Private respondents alleged in their complaint that the petitioner bank extended to them credit lines sufficiently secured with real estate and chattel mortgages on equipment. They claim that petitioner offered them special additional accommodation of Five Million Pesos (P5,000,000.00) to be availed of in the following manner: "a. Defendant would and did purchase check or checks from the plaintiffs by exchanging it with defendant's manager's check on a regular daily basis as reflected in the defendant's own ledger furnished to plaintiffs;

b. It was further agreed that on the following day, defendant CITIBANK would again purchase from the plaintiffs, check or checks, by exchanging the same with defendant's manager's check, which check, however, will be deposited by the plaintiffs with their other banks to cover the check or checks previously issued by the plaintiffs mentioned above; c. The same regular and agreed activity would be undertaken by the plaintiffs and defendant CITIBANK herein every banking day thereafter;" 1 This arrangement started on September 4, 1985 until March 11, 1986, when private respondents tried to exchange with petitioner bank six checks amounting to P3,095,000.00 but petitioner bank allegedly refused to continue with the arrangement even after repeated demands. Instead, petitioner bank suggested to private respondents that the total amount covered by the "arrangement be restructured to thirty (30) months with prevailing interest rate on the diminishing balance". 2 Private respondents agreed to such a proposal. Then as a sign of good faith, they issued and delivered a check for P75,000.00 in favor of petitioner bank which was refused by the latter demanding instead full payment of the entire amount. For the failure of petitioner bank to comply with this restructuring agreement private respondents sued for specific performance and damages. Petitioner bank has a different version of the business relationship that existed between it and private respondents. Thus: ". . . starting sometime on September 4 of 1985, he (private respondent Crescencio Velez) deposited his unfunded personal checks with his current account with the petitioner. But prior to depositing said checks, he would present his personal checks to a bank officer asking the latter to have his personal checks immediately credited as if it were a cash deposit and at the same time assuring the bank officer that his personal checks were fully funded. Having already gained the trust and confidence of the officers of the bank because of his past transactions, the bank's officer would always accommodate his request. After his requests are granted which is done by way of the bank officer affixing his signature on the personal checks, private respondent Cresencio Velez would then deposit his priorly approved personal checks to his current account and at the same time withdraw sums of money from said current account by way of petitioner bank's manager's check. Private respondent would then deposit petitioner bank's manager's check to his various current accounts in other commercial banks to cover his previously deposited unfunded personal checks with petitioner bank. Naturally, petitioner bank and its officers never discovered that his personal check deposits were unfunded. On the contrary, it gave the petitioner bank the false impression that private respondent's construction business was doing very well and that he was one big client who could be trusted. This deceptive and criminal scheme he did every banking day without fail from September 4, 1985 up to March 11, 1986. The amounts that he was depositing and withdrawing during this period (September 4, 1985 to March 11, 1986) progressively became bigger. It started at P46,000.00 on September 4, 1985 and on March 11, 1986 the amount of deposit and withdrawal already reached over P3,000,000.00. At this point in time (March 11, 1986), the private respondent Cresencio Velez presumably already feeling that sooner or later he would be caught and that he already wanted to cash in on his evil scheme, decided to run away with petitioner's money. On March 11, 1986, he deposited various unfunded personal checks totalling P3,095,000.00 and requested a bank officer that the same be credited as cash and after securing the approval of said bank officer, deposited his various personal checks in the amount of P3,095,000.00 with his current account and at the same time withdrew the sum of P3,244,000.00 in the form of petitioner's manager's check. Instead of using the proceeds of his withdrawals to cover his unfunded personal checks, he ran away with

petitioner bank's money. Thus, private respondent Cresencio Velez's personal checks deposited with petitioner bank on March 11, 1986 in the total aggregate amount of P3,095,000.00 bounced. The checks bounced after said personal checks were made the substantial basis of his withdrawing the sum of P3,244,000.00 from his current account with petitioner bank." 3 Subsequently, on August 19, 1986, petitioner bank filed a criminal complaint against private respondents for violation of Batas Pambansa Blg. 22 (Bouncing Checks Law) and estafa (six counts) under Article 315 par. 2(d) of the Revised Penal Code. On April 28, 1988, the investigating fiscal recommended the filing of an information against private respondents for violations of the mentioned laws. On June 13, 1989, petitioner bank submitted its answer to the complaint filed by private respondents. In the Order dated February 20, 1990, the case was set for pre-trial on March 30, 1990 and petitioner bank was directed to submit its pre-trial brief at least 3 days before the pre-trial conference. Petitioner bank only filed its pre-trial brief on March 30, 1990. On March 30, 1990, the date of the pre-trial conference, counsel for petitioner bank appeared, presenting a special power of attorney executed by Citibank officer Florencia Tarriela in favor of petitioner bank's counsel, the J.P. Garcia & Associates, to represent and bind petitioner bank at the pre-trial conference of the case at bar. Inspite of this special power of attorney, counsel for private respondents orally moved to declare petitioner bank as in default on the ground that the special power of attorney was not executed by the Board of Directors of Citibank. Petitioner bank was then required to file a written opposition to this oral motion to declare it as in default. In said opposition petitioner bank attached another special power of attorney made by William W. Ferguson, Vice President and highest ranking officer of Citibank, Philippines, constituting and appointing the J.P. Garcia & Associates to represent and bind the BANK at the pre-trial conference and/or trial of the case of "Cresencio Velez, et al. vs. Citibank, N.A.". 4 In an Order dated April 23, 1990, respondent judge denied private respondents' oral motion to declare petitioner bank as in default and set the continuation of the pre-trial conference for May 2, 1990. On the scheduled pre-trial conference, private respondents reiterated, by way of asking for reconsideration, their oral motion to declare petitioner bank as in default for its failure to appear through an authorized agent and that the documents presented are not in accordance with the requirements of the law. Petitioner bank again filed on May 14, 1990 its opposition thereto, stating as follows: ". . . While it has been the practice of Citibank to appoint its counsels as its attorney-in-fact in civil cases because it considers said counsels equivalent to a Citibank employee, yet, in order to avoid further arguments on the matter, the defendant Citibank will secure another power of attorney from Mr. William W. Ferguson in favor of its employee/s who will represent the defendant Citibank in the pre-trial conferences of this case. As soon as the said special power of attorney is secured, the defendant will present it before this Honorable Court and in pursuance therewith, the defendant hereby makes a reservation to present such document as soon as available." 5 In compliance with the above promise, petitioner bank filed a manifestation, dated May 23, 1990, attaching therewith a special power of attorney executed by William W. Ferguson in favor of Citibank employees to represent and bind Citibank on the pre-trial conference of the case at bar. 6 On August 15, 1990, respondent judge issued an order declaring petitioner bank as in default. This order, received by petitioner bank on September 27, 1990, cited the following as reason for the declaration of default:

"Defendant-bank, although a foreign corporation, is bound by Philippine laws when doing and conducting business in the Philippines (Sec. 129, B.P. Blg. 68), and its corporate powers could only be exercised by its Board of Directors (Sec. 23, B.P. Blg. 68). The exercise by the Board of Directors of such power could only be valid if it bears the approval of the majority of the Board (Sec. 25, par. 2, Corporation Code). The records does not show the requisite document. The alleged authority (Special Power of Attorney, Annex "A") executed by Mr. William W. Ferguson in favor of the alleged Citibank employees, assuming the same to be a delegable authority, to represent the defendant in the pre-trial conference, made no mention of J.P. Garcia & Associates as one of the employees of the defendant. It stands to reason therefore, that the defendant-bank has no proper representation during the pre-trial conference on May 2, 1990 for purposes of Sec. 2, Rule 20 of the Rules of Court." 7 On October 1, 1990, petitioner bank filed a motion for reconsideration of the above order but it was denied on December 10, 1990. Petitioner bank then filed a petition for certiorari, prohibition and mandamus with preliminary injunction and/or temporary restraining order with the Court of Appeals. On June 26, 1991, the Court of Appeals dismissed the petition on the following grounds: ". . . In the first place, petitioner admitted that it did not and could not present a Board resolution from the bank's Board of Directors appointing its counsel, Atty. Julius Z. Neri, as its attorney-in-fact to represent and bind it during the pre-trial conference of this case. This admission is contained on pages 12 and 13 of the instant petition. In the second place, the "By-Laws" of petitioner which on its face authorizes (sic) the appointment of an attorney-in-fact to represent it in any litigation, has not been approved by the Securities and Exchange Commission, as required by Section 46 of the Corporation Code of the Philippines. Apparently, the "ByLaws" in question was (sic) approved under the laws of the United States, but there is no showing that the same was given the required imprimatur by the Securities and Exchange Commission. Since petitioner is a foreign corporation doing business in the Philippines, it is bound by all laws, rules and regulations applicable to domestic corporations (Sec. 129, Corporation Code). In the third place, no special power of attorney was presented authorizing petitioner's counsel of record, Atty. Julius Neri and/or J.P. Garcia Associates, to appear for and in behalf of petitioner during the pre-trial. What petitioner exhibited to the court a quo was a general power of attorney given to one William W. Ferguson who in turn executed a power of attorney in favor of five (5) (sic) Citibank employees to act as attorney-in-fact in Civil Case No. CEB-4751. Yet, during the pre-trial not one of said employees appeared, except counsel who is not even a bank employee. Furthermore, even assuming the validity of the power of attorney issued by petitioner in favor of Ferguson as well as the power of attorney he issued to five (5) (sic) Citibank employees, said power of attorney has not been shown to be a Special Power of Attorney precisely intended not only to represent the bank at the pre-trial of the case on a certain date but also to enter into any compromise as required in paragraph 3, Article 1878 of the Civil Code and Section 1 (a), Rule 20, Rules of Court." 8 Hence, this instant petition. Petitioner bank contends that no board resolution was necessary for its legal counsel, Atty. Julius Z. Neri, or Citibank employees to act as its attorney-infact in the case at bar because petitioner bank's by-laws grant to its Executing Officer and Secretary Pro-Tem the power to delegate to a Citibank officer, in this case William W. Ferguson, the authority to represent and defend the bank and its interests.

Furthermore, it contends that the Court of Appeals erred in holding that the by-laws of petitioner bank cannot be given effect because it did not have the imprimatur of the Securities and Exchange Commission (SEC) as required by Section 46 of the Corporation Code of the Philippines. Private respondents refute both contentions. They assail the authority of petitioner bank's legal counsel to appear at the pre-trial conference on two grounds, namely: first, that the authority did not come from the Board of Directors which has the exclusive right to exercise corporate powers; and second, that the authority granted to the Executing Officer in the by-laws was ineffective because the same were not submitted to, nor approved by, the SEC. There are thus two issues in this case. First, whether a resolution of the board of directors of a corporation is always necessary for granting authority to an agent to represent the corporation in court cases. And second, whether the bylaws of the petitioner foreign corporation which has previously been granted a license to do business in the Philippines, are effective in this jurisdiction. If the by-laws are valid and a board resolution is not necessary as petitioner bank claims, then the declaration of default would have no basis. In the corporate hierarchy, there are three levels of control: (1) the board of directors, which is responsible for corporate policies and the general management of the business affairs of the corporation; (2) the officers, who in theory execute the policies laid down by the board, but in practice often have wide latitude in determining the course of business operations; and (3) the stockholders who have the residual power over fundamental corporate changes, like amendments of the articles of incorporation. However, just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Section 23 of the Corporation Code of the Philippines in part provides: "SEC. 23. The board of directors or trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified. xxx xxx xxx" (Emphasis supplied). Thus, although as a general rule, all corporate powers are to be exercised by the board of directors, exceptions are made where the Code provides otherwise. Section 25 of said Code provides that the directors of the corporation shall elect its corporate officers, and further provides as follows: "SEC. 25. Corporate officers; quorum. . . . The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and by the by-laws of the corporation . . ." Furthermore, Section 47 of the same Code enumerates what may be contained in the by-laws, among which is a provision for the "qualifications, duties and compensation of directors or trustees, officers and employees". (Emphasis supplied.) Taking all the above provisions of law together, it is clear that corporate powers may be directly conferred upon corporate officers or agents by statute, the articles of incorporation, the by-laws or by resolution or other act of the board of directors. In addition, an officer who is not a director may also appoint other agents when so authorized by the by-laws or by the board of directors. Such are referred to as express powers. 9 There are also powers incidental to express powers conferred. It is a fundamental principle in the law of agency that every delegation of authority, whether general or special, carries with it, unless the contrary be expressed, implied authority to do all of those acts, naturally and

ordinarily done in such cases, which are reasonably necessary and proper to be done in order to carry into effect the main authority conferred. 10 Since the by-laws are a source of authority for corporate officers and agents of the corporation, a resolution of the Board of Directors of Citibank appointing an attorney in fact to represent and bind it during the pre-trial conference of the case at bar is not necessary because its by-laws allow its officers, the Executing Officer and the Secretary Pro-Tem, ** to execute a power of attorney to a designated bank officer, William W. Ferguson in this case, clothing him with authority to direct and manage corporate affairs. The relevant provision in the general power of attorney granted to him are as follows: "A. That the Executing Officer and the Secretary Pro-Tem are of full age, competent to act in the premises, to me personally known, and that they are authorized to execute this instrument by virtue of the powers granted to them pursuant to the By-Laws of the Bank and the laws of the United States of America, and that the Executing Officer said that he, on the one hand, hereby revokes and cancels any instrument of power of attorney previously executed on behalf of the Bank for use in the PHILIPPINES, in favor of WILLIAM W. FERGUSON (hereinafter referred to as the "Attorney-in-fact"), of legal age, a Banker, and now residing in the PHILIPPINES, and that he (the Executing Officer), on the other hand, does hereby authorize and empower the Attorneyin-fact, acting in the name or on behalf of the Bank, or any of its Branches, or any interest it or they may have or represent, said revocation and authorization to be effective as of this date as follows: xxx xxx xxx XVII. To represent and defend the Bank and its interest before any and all judges and courts, of all classes and jurisdictions, in any action, suit or proceeding in which the Bank may be a party or may be interested in administrative, civil, criminal, contentious or contentious-administrative matters, and in all kinds of lawsuits, recourses or proceedings of any kind or nature, with complete and absolute representation of the Bank, whether as plaintiff or defendant, or as an interested party for any reason whatsoever . . . xxx xxx xxx XXI. To substitute or delegate this Power of Attorney in whole or in part in favor of such one or more employees of the Bank, as he may deem advisable, but without divesting himself of any of the powers granted to him by this Power of Attorney; and to grant and execute in favor of any one or more such employees, powers of attorney containing all or such authorizations, as he may deem advisable. . . " 11 Since paragraph XXI above specifically allows Ferguson to delegate his powers in whole or in part, there can be no doubt that the special power of attorney in favor, first, of J.P. Garcia & Associates and later, of the bank's employees, constitutes a valid delegation of Ferguson's express power (under paragraph XVII above) to represent petitioner bank in the pre-trial conference in the lower court. This brings us to the second query: whether petitioner bank's by-laws, which constitute the basis for Ferguson's special power of attorney in favor of petitioner bank's legal counsel are effective, considering that petitioner bank has been previously granted a license to do business in the Philippines. The Court of Appeals relied on Section 46 of the Corporation Code to support its conclusion that the by-laws in question are without effect because they were not approved by the SEC. Said section reads as follows: "SEC. 46. Adoption of by-laws. Every corporation formed under this Code must, within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt a code of by-laws for its government not inconsistent with this Code. For the adoption of by-laws by the corporation, the affirmative vote of the stockholders

representing at least a majority of the outstanding capital stock, or of at least a majority of the members in the case of non-stock corporations, shall be necessary. The by-laws shall be signed by the stockholders or members voting for them and shall be kept in the principal office of the corporation, subject to the inspection of the stockholders or members during office hours; and a copy thereof, duly certified to by a majority of the directors or trustees and countersigned by the secretary of the corporation, shall be filed with the Securities and Exchange Commission which shall be attached to the original articles of incorporation. Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to incorporation; in such case, such by-laws shall be approved and signed by all the incorporators and submitted to the Securities and Exchange Commission, together with the articles of incorporation. In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a certification that the by-laws are not inconsistent with this Code." A careful reading of the above provision would show that a corporation can submit its by-laws, prior to incorporation, or within one month after receipt of official notice of the issuance of its certificate of incorporation by the SEC. When the third paragraph of the above provision mentions "in all cases", it can only refer to these two options; i.e., whether adopted prior to incorporation or within one month after incorporation, the by-laws shall be effective only upon the approval of the SEC. But even more important, said provision starts with the phrase "Every corporation formed under this Code", which can only refer to corporations incorporated in the Philippines. Hence, Section 46, in so far as it refers to the effectivity of corporate by-laws, applies only to domestic corporations and not to foreign corporations. On the other hand, Section 125 of the same Code requires that a foreign corporation applying for a license to transact business in the Philippines must submit, among other documents, to the SEC, a copy of its articles of incorporation and by-laws, certified in accordance with law. Unless these documents are submitted, the application cannot be acted upon by the SEC. In the following section, the Code specifies when the SEC can grant the license applied for. Section 126 provides in part: "SEC. 126. Issuance of a license. If the Securities and Exchange Commission is satisfied that the applicant has complied with all the requirements of this Code and other special laws, rules and regulations, the Commission shall issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such license . . ." Since the SEC will grant a license only when the foreign corporation has complied with all the requirements of law, it follows that when it decides to issue such license, it is satisfied that the applicant's by-laws, among the other documents, meet the legal requirements. This, in effect, is an approval of the foreign corporations by-laws. It may not have been made in express terms, still it is clearly an approval. Therefore, petitioner bank's by-laws, though originating from a foreign jurisdiction, are valid and effective in the Philippines. In pursuance of the authority granted to him by petitioner bank's by-laws, its Executing Officer appointed William W. Ferguson, a resident of the Philippines, as its Attorney-in-Fact empowering the latter, among other things, to represent petitioner bank in court cases. In turn, William W. Ferguson executed a power of attorney in favor of J.P. Garcia & Associates (petitioner bank's counsel) to represent petitioner bank in the pre-trial conference before the lower court. This act of delegation is explicity authorized by paragraph XXI of his own appointment, which we have previously cited. It is also error for the Court of Appeals to insist that the special power of attorney, presented by petitioner bank authorizing its counsel, Atty. Julius Neri

and/or J.P. Garcia & Associates, to appear for and in behalf of petitioner bank during the pre-trial, is not valid. The records do not sustain this finding. We quote with approval the contention of petitioner bank as it is borne by the records, to wit: ". . . The records of this case would show that at the start, the petitioner, thru counsel, presented a special power of attorney executed by then Citibank Officer Florencio (sic) J. Tarriela which was marked as Exhibit "1" in the pretrial of this case . . . This is precisely the reason why the court denied, in an Order dated April 23, 1990 . . . the private respondent's oral motion to declare the defendant in fault. The said special power of attorney executed by Florencio (sic) J. Tarriela was granted by Mr. Rafael B. Buenaventura, who was then the Senior Vice-President of Citibank and the highest ranking office of Citibank in the Philippines. Considering that at the time of the presentation of the said special power of attorney Rafael B. Buenaventura was no longer connected with Citibank, the petitioner again presented another special power of attorney executed by William W. Ferguson in favor of J.P. Garcia & Associates, . . . Finding that the authority of William W. Ferguson to delegate his authority to act for and in behalf of the bank in any civil suit is limited to individuals who are employees of the bank the petitioner again on May 23, 1990 presented another special power of attorney dated May 16, 1990 wherein William W. Ferguson appointed as attorney-in-fact the following employees of petitioner, namely: Roberto Reyes, Nemesio Solomon, Aimee Yu and Tomas Yap. The said special power of attorney was filed and presented by the petitioner through its Manifestation filed in the Trial Court on May 23, 1990, . . ." 12 Under Rule 138, Section 23 of the Rules of Court, an attorney has authority to bind his client in any case by an agreement in relation thereto made in writing, and this authority would include taking appeals and all matters of ordinary judicial procedure. But he cannot, without special authority, compromise his client's litigation or receive anything in discharge of a client's claim but the full amount in cash. The special powers of attorney separately executed by Florencia Tarriela and William W. Ferguson granted to J.P. Garcia & Associates are very explicit in their terms as to the counsel's authority in the case at bar. We quote the relevant provisions of the special powers of attorney showing sufficient compliance with the requirements of Section 23, Rule 138, to wit: "That the BANK further authorized the said J.P. GARCIA & ASSOCIATES to enter into an amicable settlement, stipulation of facts and/or compromise agreement with the party or parties involved under such terms and conditions which the said J.P. GARCIA & ASSOCIATES may deem reasonable (under parameters previously defined by the principal) and execute and sign said documents as may be appropriate. HEREBY GIVING AND GRANTING unto J.P. GARCIA & ASSOCIATES full power and authority whatsoever requisite necessary or proper to be done in or about the premises, as fully to all intents and purposes as the BANK might or could lawfully do or cause to be done under and by virtue of these presents." 13 It is also error on the part of the Court of Appeals to state that the power of attorney given to the four (4) Citibank employees is not a special power of attorney as required in paragraph 3, Article 1878 of the Civil Code and Section 1 (a), Rule 20 of the Rules of Court. In the case of Tropical Homes, Inc. vs. Villaluz, 14 the special power of attorney executed by petitioner bank therein contained the following pertinent terms "to appear for and in its behalf in the above-entitled case in all circumstances where its appearance is required and to bind it in all said instances". The court ruled that: "Although the power of attorney in question does not specifically mention the authority of petitioner's counsel to appear and bind the petitioner at the pretrial conference, the terms of said power of attorney are comprehensive enough

as to include the authority to appear for the petitioner at the pre-trial conference." In the same manner, the power of attorney granted to petitioner bank's employees should be considered a special power of attorney. The relevant portion reads: "WHEREAS, the Bank is the Defendant in Civil Case No. CEB-4751, entitled "Cresencio Velez, et al. vs. Citibank, N.A.," pending before the Regional Trial Court of Cebu City, Branch X; NOW, THEREFORE, under and by virtue of Article XXI of the Power of Attorney executed by the Bank in favor of the Attorney-in-Fact (Annex "A"), which provision is quoted above, the Attorney-in-Fact has nominated, designated and appointed, as by these presents he nominates, designates and appoints, as his substitutes and delegates, with respect to the said Power of Attorney, ROBERTO REYES, Vice President and/or NEMESIO SOLOMON, JR., Manager, AIMEE YU, Assistant Vice President and/or TOMAS YAP, Assistant Manager (hereinafter referred to as the "DELEGATES"), all of legal age, citizens of the Republic of the Philippines and with business address at Citibank Center, Paseo de Roxas, Makati, Metro Manila, Philippines, the Attorney-in-Fact hereby granting, conferring and delegating such authorities and binding the Bank in the Pre-Trial Conference and/or Trial of the abovementioned case, pursuant to Rule 20 of the Revised Rules of Court, to the DELEGATES. The attorney-inFact furthermore hereby ratifying and confirming all that the DELEGATES shall lawfully do or cause to be done under and by virtue of these presents." 15 From the outset, petitioner bank showed a willingness, if not zeal, in pursuing and defending this case. It even acceded to private respondent's insistence on the question of proper representation during the pre-trial by presenting not just one, but three, special powers of attorney. Initially, the special power of attorney was executed by Florencia Tarriela in favor of J.P. Garcia & Associates, petitioner bank's counsel. Private respondents insisted that this was not proper authority required by law. To avoid further argument, a second special power of attorney was presented by petitioner bank, executed by William W. Fersugon, the highest ranking officer of Citibank in the Philippines, in favor of its counsel J.P. Garcia & Associates. But since the authority to delegate of William A. Fersugon in favor of an agent is limited to bank employees, another special power of attorney from William W. Fersugon in favor of the Citibank employees was presented. But the respondent trial court judge disregarded all these and issued the assailed default order. There is nothing to show that petitioner bank "miserably failed to oblige"; on the contrary, three special powers of attorney manifest prudence and diligence on petitioner bank's part. In fact, there was no need for the third power of attorney because we believe that the second power of attorney was sufficient under the by-law provision authorizing Fersugon to delegate any of his functions to any one or more employees of the petitioner bank. A reasonable interpretation of this provision would include an appointment of a legal counsel to represent the bank in court, for, under the circumstances, such legal counsel can be considered, and in fact was considered by the petitioner bank, an employee for a special purpose. Furthermore, Fersugon, who heads the Philippine office thousands of miles away from its main office in the United States, must be understood to have sufficient powers to act promptly in order to protect the interests of his principal. We reiterate the previous admonitions of this Court against "precipitate orders of default as these have the effect of denying the litigant the chance to be heard. While there are instances, to be sure, when a party may be properly defaulted, these should be the exceptions rather than the rule and should be

allowed only in clear cases of an obstinate refusal or inordinate neglect to comply with the orders of the court. Absent such a showing, the party must be given every reasonable opportunity to present his side and to refute the evidence of the adverse party in deference to due process of law". 16 Considering further that petitioner bank has a meritorious defense and that the amount in contest is substantial, the litigants should be allowed to settle their claims on the arena of the court based on a trial on the merits rather than on mere technicalities. WHEREFORE, in view of the foregoing, the petition is hereby GRANTED. The decision of the Court of Appeals dated June 26, 1991 and its resolution denying the motion for reconsideration of petitioner bank dated September 26, 1991 are both REVERSED and SET ASIDE. The order of default issued on August 15, 1990 in Civil Case CEB-4751 of the Regional Trial Court of Cebu is ANNULLED and SET ASIDE and the case is hereby REMANDED to the court of origin for further proceedings. SO ORDERED. Narvasa, C .J ., Padilla, Regalado and Nocon, JJ., concur. Footnotes 1. Annex "C" of Petition, pp. 1-2; Rollo, pp. 46-47. 2. Ibid., p. 48. 3. Petition, pp. 2-4; Rollo, pp. 4-6. 4. Annex "B" of Annex "F" of Petition, Rollo, p. 77. 5. Annex "H" of Petition, pp. 3-4; Rollo, pp. 91-92. 6. Roberto Reyes, Nemesio Solomon, Jr., Aimee Yu and Tomas Yap. Citibank employees duly constituted as attorneys-in-fact. 7. Order, Annex "J" of Petition, p. 2; Rollo, p. 98. 8. CA Decision, Annex "A" of Petition, pp. 4-5; Rollo, pp. 42-43. 9. FLETCHER, CYCLOPEDIA OF CORPORATIONS 320. 10. Id., p. 322. ** Jane Fuchs and Steinberg, respectively. 11. Annex "C" of Annex "F" of Petition, pp. 4-5; Rollo, pp. 177, 180-181. 12. Supra, note 3 at pp. 22-23; Rollo, pp. 24-25. 13. Rollo, pp. 69, 77. 14. 170 SCRA 577, 582 (1989). 15. Annex "A" of Annex "I" of Petition, p. 2; Rollo, p. 95. 16. Leyte vs. Cusi, Jr. 152 SCRA 496, 497 (1987), also cited in Tropical Homes, Inc. vs. Villaluz, supra, note 14. SECOND DIVISION [G.R. No. 108905. October 23, 1997.] GRACE CHRISTIAN HIGH SCHOOL, petitioner, vs. THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents. Padilla Law Office for petitioner. Racela, Manguera & Fabie for private respondents. SYNOPSIS Petitioner Grace Christian High School is an educational institution at the Grace Village in Quezon City while private respondent Grace Village Association, Inc., is an organization of lot and/or building owners, lessees and residents at Grace Village. On December 20, 1975, a committee of the board of directors of the Association prepared a draft of an amendment to the 1968 bylaws of the Association providing, among others, that "GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION," but the draft was never presented to the general membership for approval. Nevertheless, from 1975 to 1990, petitioner was given a permanent seat in the board of directors of the Association. However, on February 13, 1990, the

Association's committee on election informed the principal of the school that all directors should be elected by members of the Association and that making the School representative as a permanent director of the Association should be reexamined. The School then brought suit to compel the board of directors of the Association to recognize its right to a permanent seat in the board. The Corporation Law requires members of the boards of directors of corporations to be elected. The provision in question is contrary to law. The fact that for several years it has not been questioned but, on the contrary, appears to have been implemented by the members of the association, cannot forestall a later challenge to its validity. Nor can petitioner claim a vested right to sit in the board on the basis of "practice." DTEAHI SYLLABUS COMMERCIAL LAW; CORPORATION CODE; BOARD OF DIRECTORS; REQUIRED TO BE ELECTED; VIOLATION THEREOF FOR A LONG PERIOD CONSIDERED MERE TOLERANCE, CANNOT BE ACQUIESCED. Sections 28 and 29 of the Corporation Law require members of the boards of directors of corporations to be elected. The board of directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that the proposed amendment to the by-laws sought to give it one. Since the provision in question is contrary to law, the fact that for fifteen years it has not been questioned or challenged but, on the contrary, appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity. For that matter the members of the association may have formally adopted the provision in question, but their action would be of no avail because no provision of the by-laws can be adopted if it is contrary to law. It is probable that, in allowing petitioner's representative to sit on the board, the members of the association were not aware that this was contrary to law. It should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the number of directors from 11 to 15, but certainly not the allowance of petitioner's representative as an unelected member of the board of directors. It is more accurate to say that the members merely tolerated petitioner's representative and tolerance cannot be considered ratification. Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Even less tenable is petitioner's claim that its right is "coterminous with the existence of the association." SaIACT DECISION MENDOZA, J p: The question for decision in this case is the right of petitioner's representative to sit in the board of directors of respondent Grace Village Association, Inc. as a permanent member thereof. For fifteen years from 1975 until 1989 petitioner's representative had been recognized as a "permanent director" of the association. But on February 13, 1990, petitioner received notice from the association's committee on election that the latter was "reexamining" (actually, reconsidering) the right of petitioner's representative to continue as an unelected member of the board. As the board denied petitioner's request to be allowed representation without election, petitioner brought an action for

mandamus in the Home Insurance and Guaranty Corporation. Its action was dismissed by the hearing officer whose decision was subsequently affirmed by the appeals board. Petitioner appealed to the Court of Appeals, which in turn upheld the decision of the HIGC's appeals board. Hence this petition for review based on the following contentions: 1. The Petitioner herein has already acquired a vested right to a permanent seat in the Board of Directors of Grace Village Association; 2. The amended By-laws of the Association drafted and promulgated by a Committee on December 20, 1975 is valid and binding; and 3. The Practice of tolerating the automatic inclusion of petitioner as a permanent member of the Board of Directors of the Association without the benefit of election is allowed under the law. 1 Briefly stated, the facts are as follows: Petitioner Grace Christian High School is an educational institution offering preparatory, kindergarten and secondary courses at the Grace Village in Quezon City. Private respondent Grace Village Association, Inc., on the other hand, is an organization of lot and/or building owners, lessees and residents at Grace Village, while private respondents Alejandro G. Beltran and Ernesto L. Go were its president and chairman of the committee on election, respectively, in 1990, when this suit was brought. As adopted in 1968, the by-laws of the association provided in Article IV, as follows: The annual meeting of the members of the Association shall be held on the first Sunday of January in each calendar year at the principal office of the Association at 2:00 P.M. where they shall elect by plurality vote and by secret balloting, the Board of Directors, composed of eleven (11) members to serve for one year until their successors are duly elected and have qualified. 2 It appears, that on December 20, 1975, a committee of the board of directors prepared a draft of an amendment to the by-laws, reading as follows: 3 VI. ANNUAL MEETING The Annual Meeting of the members of the Association shall be held on the second Thursday of January of each year. Each Charter or Associate Member of the Association is entitled to vote. He shall be entitled to as many votes as he has acquired thru his monthly membership fees only computed on a ratio of TEN (P10.00) PESOS for one vote. The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. This draft was never presented to the general membership for approval. Nevertheless, from 1975, after it was presumably submitted to the board, up to 1990, petitioner was given a permanent seat in the board of directors of the association. On February 13, 1990, the association's committee on election in a letter informed James Tan, principal of the school, that "it was the sentiment that all directors should be elected by members of the association" because "to make a person or entity a permanent Director would deprive the right of voters to vote for fifteen (15) members of the Board," and "it is undemocratic for a person or entity to hold office in perpetuity." 4 For this reason, Tan was told that "the proposal to make the Grace Christian High School representative as a permanent director of the association, although previously tolerated in the past elections should be reexamined." Following this advice, notices were sent to the members of the association that the provision on election of directors of the 1968 by-laws of the association would be observed. Petitioner requested the chairman of the election committee to change the notice of election by following the procedure in previous elections, claiming that

the notice issued for the 1990 elections ran "counter to the practice in previous years" and was "in violation of the by-laws (of 1975)" and "unlawfully deprive[d] Grace Christian High School of its vested right [to] a permanent seat in the board." 5 As the association denied its request, the school brought suit for mandamus in the Home Insurance and Guaranty Corporation to compel the board of directors of the association to recognize its right to a permanent seat in the board. Petitioner based its claim on the following portion of the proposed amendment which, it contended, had become part of the by-laws of the association as Article VI, paragraph 2, thereof: The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. It appears that the opinion of the Securities and Exchange Commission on the validity of this provision was sought by the association and that in reply to the query, the SEC rendered an opinion to the effect that the practice of allowing unelected members in the board was contrary to the existing by-laws of the association and to 92 of the Corporation Code (B.P. Blg. 68). Private respondent association cited the SEC opinion in its answer. Additionally, the association contended that the basis of the petition for mandamus was merely "a proposed by-laws which has not yet been approved by competent authority nor registered with the SEC or HIGC." It argued that "the by-laws which was registered with the SEC on January 16, 1969 should be the prevailing by-laws of the association and not the proposed amended bylaws." 6 In reply, petitioner maintained that the "amended by-laws is valid and binding" and that the association was estopped from questioning the by-laws. 7 A preliminary conference was held on March 29, 1990 but nothing substantial was agreed upon. The parties merely agreed that the board of directors of the association should meet on April 17, 1990 and April 24, 1990 for the purpose of discussing the amendment of the by-laws and a possible amicable settlement of the case. A meeting was held on April 17, 1990, but the parties failed to reach an agreement. Instead, the board adopted a resolution declaring the 1975 provision null and void for lack of approval by members of the association and the 1968 by-laws to be effective. cdasia On June 20, 1990, the hearing officer of the HIGC rendered a decision dismissing petitioner's action. The hearing officer held that the amended bylaws, upon which petitioner based its claim, "[was] merely a proposed by-laws which, although implemented in the past, had not yet been ratified by the members of the association nor approved by competent authority"; that, on the contrary, in the meeting held on April 17, 1990, the directors of the association declared 'the proposed by-law dated December 20, 1975 prepared by the committee on by-laws . . . null and void" and the by-laws of December 17, 1968 as the "prevailing by-laws under which the association is to operate until such time that the proposed amendments to the by-laws are approved and ratified by a majority of the members of the association and duly filed and approved by the pertinent government agency." The hearing officer rejected petitioner's contention that it had acquired a vested right to a permanent seat in the board of directors. He held that past practice in election of directors could not give rise to a vested right and that departure from such practice was justified because it deprived members of association of their right to elect or to be voted in office, not to say that "allowing the automatic inclusion of a member representative of petitioner as permanent director [was] contrary to law and the registered by-laws of respondent association." 8

The appeals board of the HIGC affirmed the decision of the hearing officer in its resolution dated September 13, 1990. It cited the opinion of the SEC based on 92 of the Corporation Code which reads: 92. Election and term of trustees. Unless otherwise provided in the articles of incorporation or the by-laws, the board of trustees of non-stock corporations, which may be more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws, shall, as soon as organized, so classify themselves that the term of office of one-third (1/3) of the number shall expire every year; and subsequent elections of trustees comprising one-third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a term of three (3) years. Trustees thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period. The HIGC appeals board denied claims that the school "[was] being deprived of its right to be a member of the Board of Directors of respondent association," because the fact was that "it may nominate as many representatives to the Association's Board as it may deem appropriate." It said that "what is merely being upheld is the act of the incumbent directors of the Board of correcting a long standing practice which is not anchored upon any legal basis." 9 Petitioner appealed to the Court of Appeals but petitioner again lost as the appellate court on February 9, 1993, affirmed the decision of the HIGC. The Court of Appeals held that there was no valid amendment of the association's by-laws because of failure to comply with the requirement of its existing bylaws, prescribing the affirmative vote of the majority of the members of the association at a regular or special meeting called for the adoption of amendment to the by-laws. Article XIX of the by-laws provides: 10 The members of the Association by an affirmative vote of the majority at any regular or special meeting called for the purpose, may alter, amend, change or adopt any new by-laws. This provision of the by-laws actually implements 22 of the Corporation Law (Act No. 1459) which provides: 22. The owners of a majority of the subscribed capital stock, or a majority of the members if there be no capital stock, may, at a regular or special meeting duly called for the purpose, amend or repeal any by-law or adopt new by-laws. The owners of two-thirds of the subscribed capital stock, or two-thirds of the members if there be no capital stock, may delegate to the board of directors the power to amend or repeal any by-law or to adopt new by-laws: Provided, however, That any power delegated to the board of directors to amend or repeal any by-law or adopt new by-laws shall be considered as revoked whenever a majority of the stockholders or of the members of the corporation shall so vote at a regular or special meeting. And provided, further, That the Director of the Bureau of Commerce and Industry shall not hereafter file an amendment to the by-laws of any bank, banking institution or building and loan association, unless accompanied by certificate of the Bank Commissioner to the effect that such amendments are in accordance with law. The proposed amendment to the by-laws was never approved by the majority of the members of the association as required by these provisions of the law and by-laws. But petitioner contends that the members of the committee which prepared the proposed amendment were duly authorized to do so and that because the members of the association thereafter implemented the provision for fifteen years, the proposed amendment for all intents and purposes should be considered to have been ratified by them. Petitioner contends: 11 Considering, therefore, that the "agents" or committee were duly authorized to draft the amended by-laws and the acts done by the "agents" were in accordance with such authority, the acts of the "agents" from the very beginning were lawful and binding on the homeowners (the principals) per se

without need of any ratification or adoption. The more has the amended bylaws become binding on the homeowners when the homeowners followed and implemented the provisions of the amended by-laws. This is not merely tantamount to tacit ratification of the acts done by duly authorized "agents" but express approval and confirmation of what the "agents" did pursuant to the authority granted to them. Corollarily, petitioner claims that it has acquired a vested right to a permanent seat in the board. Says petitioner: The right of the petitioner to an automatic membership in the board of the Association was granted by the members of the Association themselves and this grant has been implemented by members of the board themselves all through the years. Outside the present membership of the board, not a single member of the Association has registered any desire to remove the right of herein petitioner to an automatic membership in the board. If there is anybody who has the right to take away such right of the petitioner, it would be the individual members of the Association through a referendum and not the present board some of the members of which are motivated by personal interest. Petitioner disputes the ruling that the provision in question, giving petitioner's representative a permanent seat in the board of the association, is contrary to law. Petitioner claims that that is not so because there is really no provision of law prohibiting unelected members of boards of directors of corporations. Referring to 92 of the present Corporation Code, petitioner says: It is clear that the above provision of the Corporation Code only provides for the manner of election of the members of the board of trustees of non-stock corporations which may be more than fifteen in number and which manner of election is even subject to what is provided in the articles of incorporation or by-laws of the association thus showing that the above provisions [are] not even mandatory. Even a careful perusal of the above provision of the Corporation Code would not show that it prohibits a non-stock corporation or association from granting one of its members a permanent seat in its board of directors or trustees. If there is no such legal prohibition then it is allowable provided it is so provided in the Articles of Incorporation or in the by-laws as in the instant case. xxx xxx xxx If fact, the truth is that this is allowed and is being practiced by some corporations duly organized and existing under the laws of the Philippines. One example is the Pius XII Catholic Center, Inc. Under the by-laws of this corporation, that whoever is the Archbishop of Manila is considered a member of the board of trustees without benefit of election. And not only that. He also automatically sits as the Chairman of the Board of Trustees, again without need of any election. Another concrete example is the Cardinal Santos Memorial Hospital, Inc. It is also provided in the by-laws of this corporation that whoever is the Archbishop of Manila is considered a member of the board of trustees year after year without benefit of any election and he also sits automatically as the Chairman of the Board of Trustees. It is actually 28 and 29 of the Corporation Law not 92 of the present law or 29 of the former one which require members of the boards of directors of corporations to be elected. These provisions read: 28. Unless otherwise provided in this Act, the corporate powers of all corporations formed under this Act shall be exercised, all business conducted and all property of such corporations controlled and held by a board of not less than five nor more than eleven directors to be elected from among the holders of stock or, where there is no stock, from the members of the corporation: Provided, however, That in corporations, other than banks, in which the United

States has or may have a vested interest, pursuant to the powers granted or delegated by the Trading with the Enemy Act, as amended, and similar Acts of Congress of the United States relating to the same subject, or by Executive Order No. 9095 of the President of the United States, as heretofore or hereafter amended, or both, the directors need not be elected from among the holders of the stock, or, where there is no stock from the members of the corporation. (emphasis added) 29. At the meeting for the adoption of the original by-laws, or at such subsequent meeting as may be then determined, directors shall be elected to hold their offices for one year and until their successors are elected and qualified. Thereafter the directors of the corporation shall be elected annually by the stockholders if it be a stock corporation or by the members if it be a nonstock corporation, and if no provision is made in the by-laws for the time of election the same shall be held on the first Tuesday after the first Monday in January. Unless otherwise provided in the by-laws, two weeks' notice of the election of directors must be given by publication in some newspaper of general circulation devoted to the publication of general news at the place where the principal office of the corporation is established or located, and by written notice deposited in the post-office, postage pre-paid, addressed to each stockholder, or, if there be no stockholders, then to each member, at his last known place of residence. If there be no newspaper published at the place where the principal office of the corporation is established or located, a notice of the election of directors shall be posted for a period of three weeks immediately preceding the election in at least three public places, in the place where the principal office of the corporation is established or located. (Emphasis added) The present Corporation Code (B.P. Blg. 68), which took effect on May 1, 1980, 12 similarly provides: 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified. (Emphasis added) These provisions of the former and present corporation law leave no room for doubt as to their meaning: the board of directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it one. Since the provision in question is contrary to law, the fact that for fifteen years it has not been questioned or challenged but, on the contrary, appears to have been implemented by the members of the association cannot forestall a later challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to waive its invalidity. For that matter the members of the association may have formally adopted the provision in question, but their action would be of no avail because no provision of the by-laws can be adopted if it is contrary to law. 13 It is probable that, in allowing petitioner's representative to sit on the board, the members of the association were not aware that this was contrary to law. It

should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the number of directors from 11 to 15, but certainly not the allowance of petitioner's representative as an unelected member of the board of directors. It is more accurate to say that the members merely tolerated petitioner's representative and tolerance cannot be considered ratification. cdtai Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Even less tenable is petitioner's claim that its right is "coterminous with the existence of the association." 14 Finally, petitioner questions the authority of the SEC to render an opinion on the validity of the provision in question. It contends that jurisdiction over this case is exclusively vested in the HIGC. But this case was not decided by the SEC but by the HIGC. The HIGC merely cited as authority for its ruling the opinion of the SEC chairman. The HIGC could have cited any other authority for the view that under the law members of the board of directors of a corporation must be elected and it would be none the worse for doing so. WHEREFORE, the decision of the Court of Appeals is AFFIRMED. SO ORDERED. Puno and Torres, Jr., JJ ., concur. Regalado, J ., on leave. Footnotes 1. Rollo, p. 12. 2. Id., p. 47. 3. Id., p. 136. 4. Id., p. 9. 5. Ibid. 6. Id., p. 149. 7. Ibid. 8. Id., pp. 148-154. 9. Id., pp. 155-157. 10. Id., p. 49. 11. Id., pp. 24-25. 12. Section 148, Batas Pambansa Bilang 68. 13. Viuda de Baretto v. La Previsora Filipina, 59 Phil. Reports 212 (1933); Fleischer v. Botica Nolasco, 47 Phil. Reports 583 (1925). 14. Petition, p. 23, Rollo, p. 29. THIRD DIVISION [G.R. No. 116123. March 13, 1997.] SERGIO F. NAGUIAT, doing business under the name and style SERGIO F. NAGUIAT ENT., INC., & CLARK FIELD TAXI, INC., petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION), NATIONAL ORGANIZATION OF WORKINGMEN and its members, LEONARDO T. GALANG, et al., respondents. Villanueva, De Leon, Hipolito & Associates Law Offices for petitioners. The Solicitor General for respondents. SYLLABUS 1. REMEDIAL LAW; SPECIAL CIVIL ACTIONS; CERTIORARI; WHEN A LABOR CASE MAY REACH THE SUPREME COURT; GROUNDS THEREOF. Firmly, we reiterate the rule that in a petition for certiorari filed pursuant to Rule 65 of the Rules of Court, which is the only way a labor case may reach the Supreme Court, the petitioner/s must clearly show that the NLRC acted without or in excess of jurisdiction or with grave abuse of discretion.

2. ID.; EVIDENCE; FINDINGS OF FACTS OF AN ADMINISTRATE AGENCY OR A QUASI-JUDICIAL BODY; BINDING UPON THE SUPREME COURT; EXCEPTION. Long-standing and well-settled in Philippine jurisprudence is the judicial dictum that findings of facts of administrative agencies and quasijudicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only great respect but even finality, and are binding upon this Court unless there is a showing of grave abuse of discretion, or where it is clearly shown that they were arrived at arbitrarily or in disregard of the evidence on record. Decisions, however concisely written, must distinctly and clearly set forth the facts and law upon which they are based. This rule applies as well to dispositions by quasi-judicial and administrative bodies. 3. LABOR AND SOCIAL LEGISLATION; LABOR CODE; RETRENCHMENT; WHEN A COMPANY MAY BE EXEMPTED FROM PAYMENT OF SEPARATION PAY; NOT APPLICABLE IN CASE AT BAR. Well-settled is the rule that business losses or financial reverses, in order to sustain retrenchment of personnel or closure of business and warrant exemption from payment of separation pay, must be proved with clear and satisfactory evidence. The records, however, are devoid of such evidence. The labor arbiter, as affirmed by NLRC, correctly found that petitioners stopped their taxi business within Clark Air Base because of the phase-out of U.S. military presence thereat. It was not due to any great financial loss because petitioners' taxi business was earning profitably at the time of its closure. With respect to the amount of separation pay that should be granted, Article 283 of the Labor Code provides: ". . . In case of retrenchment to prevent losses and in case of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half () month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be-considered one (1) whole year." 4. ID.; ID.; EMPLOYMENT; LABOR-ONLY CONTRACTING AND INDEPENDENT CONTRACTORS, DISTINGUISHED. Labor-only contracting exists where: (1) the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machinery, and work premises, among others; and (2) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer. Independent contractors, meanwhile, are those who exercise independent employment, contracting to do a piece of work according to their own methods without being subject to control of their employer except as to the result of their work. 5. COMMERCIAL LAW; CORPORATION; WHEN A STOCKHOLDER MAY BE HELD LIABLE FOR CORPORATE TORT; CASE AT BAR. Our jurisprudence is wanting as to the definite scope of "corporate tort." Essentially, "tort" consists in the violation of a right given or the omission of a duty imposed by law. Simply stated, tort is a breach of a legal duty. Article 283 of the Labor Code mandates the employer to grant separation pay to employees in case of closure or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, which is the condition obtaining at bar. CFTI failed to comply with this law-imposed duty or obligation. Consequently, its stockholder who was actively engaged in the management or operation of the business should be held personally liable. Furthermore, in MAM Realty Development vs. NLRC, 244 SCRA 797, June 2, 1995, the Court recognized that a director or officer may still be held solidarity liable with a corporation by specific provision of law. thus: ". . . A corporation, being a juridical entity, may act only through its directors, officers and employees. Obligations incurred by them, acting as such corporate agents, are not theirs but the direct

accountabilities of the corporation they represent. True, solidary liabilities may at times be incurred but only when exceptional circumstances warrant such as, generally, in the following cases: . . . 4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action." As pointed out earlier, the fifth paragraph of Section 100 of the Corporation Code specifically imposes personal liability upon the stockholder actively managing or operating the business and affairs of the close corporation. The Court here finds no application to the rule that a corporate officer cannot be held solidarity liable with a corporation in the absence of evidence that he had acted in bad faith or with malice. In the present case, Sergio Naguiat is held solidarily liable for corporate tort because he had actively engaged in the management and operation of CFTI, a close corporation. DECISION PANGANIBAN, J p: Are private respondent-employees of petitioner Clark Field Taxi, Inc., who were separated from service due to the closure of Clark Air Base, entitled to separation pay and, if so, in what amount? Are officers of corporations ipso facto liable jointly and severally with the companies they represent for the payment of separation pay? These questions are answered by the Court in resolving this petition for certiorari under Rule 65 of the Rules of Court assailing the Resolutions of the National Labor Relations Commission (Third Division) 1 promulgated on February 28, 1994, 2 and May 31, 1994. 3 The February 28, 1994 Resolution affirmed with modifications the decision 4 of Labor Arbiter Ariel C. Santos in NLRC Case No. RAB-III-12-2477-91. The second Resolution denied the motion for reconsideration of herein petitioners. The NLRC modified the decision of the labor arbiter by granting separation pay to herein individual respondents in the increased amount of US$120.00 for every year of service or its peso equivalent, and holding Sergio F. Naguiat Enterprises, Inc., Sergio F. Naguiat and Antolin T. Naguiat, jointly and severally liable with Clark Field Taxi, Inc. ("CFTI"). The Facts The following facts are derived from the records of the case: Petitioner CFTI held a concessionaire's contract with the Army Air Force Exchange Services ("AAFES") for the operation of taxi services within Clark Air Base. Sergio F. Naguiat was CFTI's president, while Antolin T. Naguiat was its vice-president. Like Sergio F. Naguiat Enterprises, Incorporated ("Naguiat Enterprises"), a trading firm, it was a family-owned corporation. Individual respondents were previously employed by CFTI as taxicab drivers. During their employment, they were required to pay a daily "boundary fee" in the amount of US$26.50 for those working from 1:00 a.m. to 12:00 noon, and US$27.00 for those working from 12:00 noon to 12:00 midnight. All incidental expenses for the maintenance of the vehicles they were driving were accounted against them, including gasoline expenses. The drivers worked at least three to four times a week, depending on the availability of taxicabs. They earned not less than US$15.00 daily. In excess of that amount, however, they were required to make cash deposits to the company, which they could later withdraw every fifteen days. Due to the phase-out of the US military bases in the Philippines, from which Clark Air Base was not spared, the AAFES was dissolved, and the services of individual respondents were officially terminated on November 26, 1991. The AAFES Taxi Drivers Association ("drivers' union"), through its local president, Eduardo Castillo, and CFTI held negotiations as regards separation benefits that should be awarded in favor of the drivers. They arrived at an agreement that the separated drivers will be given P500.00 for every year of service as severance pay. Most of the drivers accepted said amount in

December 1991 and January 1992. However, individual respondents herein refused to accept theirs. Instead, after disaffiliating themselves from the drivers' union, individual respondents, through the National Organization of Workingmen ("NOWM"), a labor organization which they subsequently joined, filed a complaint 5 against "Sergio F. Naguiat doing business under the name and style Sergio F. Naguiat Enterprises, Inc., Army-Air Force Exchange Services (AAFES) with Mark Hooper as Area Service Manager, Pacific Region, and AAFES Taxi Drivers Association with Eduardo Castillo as President," for payment of separation pay due to termination/phase-out. Said complaint was later amended 6 to include additional taxi drivers who were similarly situated as complainants, and CFTI with Antolin T. Naguiat as vice president and general manager, as party respondent. In their complaint, herein private respondents alleged that they were regular employees of Naguiat Enterprises, although their individual applications for employment were approved by CFTI. They claimed to have been assigned to Naguiat Enterprises after having been hired by CFTI, and that the former thence managed, controlled and supervised their employment. They averred further that they were entitled to separation pay based on their latest daily earnings of US$15.00 for working sixteen (16) days a month. In their position paper submitted to the labor arbiter, herein petitioners claimed that the cessation of business of CFTI on November 26, 1991, was due to "great financial losses and lost business opportunity" resulting from the phase-out of Clark Air Base brought about by the Mt. Pinatubo eruption and the expiration of the RP-US military bases agreement. They admitted that CFTI had agreed with the drivers' union, through its President Eduardo Castillo who claimed to have had blanket authority to negotiate with CFTI in behalf of union members, to grant its taxi driver-employees separation pay equivalent to P500.00 for every year of service. The labor arbiter, finding the individual complainants to be regular workers of CFTI, ordered the latter to pay them P1,200.00 for every year of service "for humanitarian consideration," setting aside the earlier agreement between CFTI and the drivers' union of P500.00 for every year of service. The labor arbiter rejected the allegation of CFTI that it was forced to close business due to "great financial losses and lost business opportunity" since, at the time it ceased operations, CFTI was profitably earning and the cessation of its business was due to the untimely closure of Clark Air Base. In not awarding separation pay in accordance with the Labor Code, the labor-arbiter explained: "To allow respondents exemption from its (sic) obligation to pay separation pay would be inhuman to complainants but to impose a monetary obligation to an employer whose profitable business was abruptly shot (sic) down by force majeure would be unfair and unjust to say the least." 7 and thus, simply awarded an amount for "humanitarian consideration." Herein individual private respondents appealed to the NLRC. In its Resolution, the NLRC modified the decision of the labor arbiter by granting separation pay to the private respondents. The concluding paragraphs of the NLRC Resolution read: "The contention of complainant is partly correct. One-half month salary should be US$120.00 but this amount can not be paid to the complainant in U.S. Dollar which is not the legal tender in the Philippines. Paras, in commenting on Art. 1249 of the New Civil Code, defines legal tender as 'that which a debtor may compel a creditor to accept in payment of the debt. The complainants who are the creditors in this instance can be compelled to accept the Philippine peso which is the legal tender, in which case, the table of conversion (exchange rate) at the time of payment or satisfaction of the judgment should be used. However, since the choice is left to the debtor, (respondents) they may choose

to pay in US dollar.' (Phoenix Assurance Co. vs. Macondray & Co. Inc., L25048, May 13, 1975) In discharging the above obligations, Sergio F. Naguiat Enterprises, which is headed by Sergio F. Naguiat and Antolin Naguiat, father and son at the same time the President and Vice-President and General Manager, respectively, should be joined as indispensable party whose liability is joint and several. (Sec. 7, Rule 3, Rules of Court)" 8 As mentioned earlier, the motion for reconsideration of herein petitioners was denied by the NLRC. Hence, this petition with prayer for issuance of a temporary restraining order. Upon posting by the petitioners of a surety bond, a temporary restraining order 9 was issued by this Court enjoining execution of the assailed Resolutions. Issues The petitioners raise the following issues before this Court for resolution: "I. Whether or not public respondent NLRC (3rd Div.) committed grave abuse of discretion amounting to lack of jurisdiction in issuing the appealed resolution; II. Whether or not Messrs. Teofilo Rafols and Romeo N. Lopez could validly represent herein private respondents; and, III. Whether or not the resolution issued by public respondent is contrary to law." 10 Petitioners also submit two additional issues by way of a supplement 11 to their petition, to Wit: that Petitioners Sergio F. Naguiat and Antolin Naguiat were denied due process; and that petitioners were not furnished copies of private respondents' appeal to the NLRC. As to the procedural lapse of insufficient copies of the appeal, the proper forum before which petitioners should have raised it is the NLRC. They, however, failed to question this in their motion for reconsideration. As a consequence, they are deemed to have waived the same and voluntarily submitted themselves to the jurisdiction of the appellate body. Anent the first issue raised in their original petition, petitioners contend that NLRC committed grave abuse of discretion amounting to lack or excess of jurisdiction in unilaterally increasing the amount of severance pay granted by the labor arbiter. They claim that this was not supported by substantial evidence since it was based simply on the self-serving allegation of respondents that their monthly take-home pay was not lower than $240.00. On the second issue, petitioners aver that NOWM cannot make legal representations in behalf of individual respondents who should, instead, be bound by the decision of the union (AAFES Taxi Drivers Association) of which they were members. As to the third issue, petitioners incessantly insist that Sergio F. Naguiat Enterprises, Inc. is a separate and distinct juridical entity which cannot be held jointly and severally liable for the obligations of CFTI. And similarly, Sergio F. Naguiat and Antolin Naguiat were merely officers and stockholders of CFTI and, thus, could not be held personally accountable for corporate debts. Lastly, Sergio and Antolin Naguiat assail the Resolution of NLRC holding them solidarily liable despite not having been impleaded as parties to the complaint. Individual respondents filed a comment separate from that of NOWM. In sum, both aver that petitioners had the opportunity but failed to refute, the taxi drivers' claim of having an average monthly earning of $240.00; that individual respondents became members of NOWM after disaffiliating themselves from the AAFES Taxi Drivers Association which, through the manipulations of its President Eduardo Castillo, unconscionably compromised their separation pay; and that Naguiat Enterprises, being their indirect employer, is solidarily liable under the law for violation of the Labor Code, in this case, for nonpayment of their separation pay.

The Solicitor General unqualifiedly supports the allegations of private respondents. In addition, he submits that the separate personalities of respondent corporations and their officers should be disregarded and considered one and the same as these were used to perpetrate injustice to their employees. The Court's Ruling As will be discussed below, the petition is partially meritorious. First Issue: Amount of Separation Pay Firmly, we reiterate the rule that in a petition for certiorari filed pursuant to Rule 65 of the Rules of Court, which is the only way a labor case may reach the Supreme Court, the petitioner/s must clearly show that the NLRC acted without or in excess of jurisdiction or with grave abuse of discretion. 12 Long-standing and well-settled in Philippine jurisprudence is the judicial dictum that findings of fact of administrative agencies and quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only great respect but even finality; and are binding upon this Court unless there is a showing of grave abuse of discretion, or where it is clearly shown that they were arrived at arbitrarily or in disregard of the evidence on record. 13 Nevertheless, this Court carefully perused the records of the instant case if only to determine whether public respondent committed grave abuse of discretion, amounting to lack of jurisdiction, in granting the clamor of private respondents that their separation pay should be based on the amount of $240.00, allegedly their minimum monthly earnings as taxi drivers of petitioners. In their amended complaint before the Regional Arbitration Branch in San Fernando, Pampanga, herein private respondents set forth in detail the work schedule and financial arrangement they had with their employer. Therefrom they inferred that their monthly take-home pay amounted to not less than $240.00. Herein petitioners did not bother to refute nor offer any evidence to controvert said allegations. Remaining undisputed, the labor arbiter adopted such facts in his decision. Petitioners did not even appeal from the decision of the labor arbiter nor manifest any error in his findings and conclusions. Thus, petitioners are in estoppel for not having questioned such facts when they had all opportunity to do so. Private respondents, like petitioners, are bound by the factual findings of Respondent Commission. Petitioners also claim that the closure of their taxi business was due to great financial losses brought about by the eruption of Mt. Pinatubo which made the roads practically impassable to their taxicabs. Likewise well-settled is the rule that business losses or financial reverses, in order to sustain retrenchment of personnel or closure of business and warrant exemption from payment of separation pay, must be proved with clear and satisfactory evidence. 14 The records, however, are devoid of such evidence. Cdasia The labor arbiter; as affirmed by NLRC, correctly found that petitioners stopped their taxi business within Clark Air Base because of the phase-out of U.S. military presence thereat. It was not due to any great financial loss because petitioners' taxi business was earning profitably at the time of its closure. With respect to the amount of separation pay that should be granted, Article 283 of the Labor Code provides: ". . . In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half () month pay for every year of service, whichever is higher. A fraction of at least six (6) months shall be considered one (1 ) whole year."

Considering the above, we find that NLRC did not commit grave abuse of discretion in ruling that individual respondents were entitled to separation pay 15 in the amount $120.00 (one-half of $240.00 monthly pay) or its peso equivalent for every year of service. Second Issue: NOWM's Personality to Represent Individual Respondents-Employees On the question of NOWM's authority to represent private respondents, we hold petitioners in estoppel for not having seasonably raised this issue before the labor arbiter or the NLRC. NOWM was already a party-litigant as the organization representing the taxi driver-complainants before the labor arbiter. But petitioners who were party-respondents in said complaint did not assail the juridical personality of NOWM and the validity of its representations in behalf of the complaining taxi drivers before the quasi-judicial bodies. Therefore, they are now estopped from raising such question before this Court. In any event, petitioners acknowledged before this Court that the taxi drivers allegedly represented by NOWM, are themselves parties in this case. 16 Third Issue: Liability of PetitionerCorporations and Their Respective Officers The resolution of this issue involves another factual finding that Naguiat Enterprises .actually managed, supervised and controlled employment terms of the taxi drivers, making it their indirect employer. As adverted to earlier, factual findings of quasi-judicial bodies are binding upon the court in the absence of a showing of grave abuse of discretion. Unfortunately, the NLRC did not discuss or give any explanation for holding Naguiat Enterprises and its officers jointly and severally liable in discharging CFTI's liability for payment of separation pay. We again remind those concerned that decisions, however concisely written, must distinctly and clearly set forth the facts and law upon which they are based. 17 This rule applies as well to dispositions by quasi-judicial and administrative bodies. Naguiat Enterprises Not Liable In impleading Naguiat Enterprises as solidarily liable for the obligations of CFTI, respondents rely on Articles 106, 18 107 19 and 109 20 of the Labor Code. Based on factual submissions of the parties, the labor arbiter, however, found that individual respondents were regular employees of CFTI who received wages on a boundary or commission basis. We find no reason to make a contrary finding. Labor-only contracting exists where: (1) the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machinery, and work premises, among others; and (2) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer. 21 Independent contractors, meanwhile, are those who exercise independent employment, contracting to do a piece of work according to their own methods without being subject to control of their employer except as to the result of their work. 22 From the evidence proffered by both parties, there is no substantial basis to hold that Naguiat Enterprises is an indirect employer of individual respondents much less a labor only contractor. On the contrary, petitioners submitted documents such as the drivers' applications for employment with CFTI, 23 and social security remittances 24 and payroll 25 of Naguiat Enterprises showing that none of the individual respondents were its employees. Moreover, in the contract 26 between CFTI and AAFES, the former, as concessionaire, agreed to purchase from AAFES for a certain amount within a specified period a fleet of vehicles to be "ke(pt) on the road" by CFTI, pursuant to their concessionaire's contract. This indicates that CFTI became the owner of the taxicabs which became the principal investment and asset of the company.

Private respondents failed to substantiate their claim that Naguiat Enterprises managed, supervised and controlled their employment. It appears that they were confused on the personalities of Sergio F. Naguiat as an individual who was the president of CFTI, and Sergio F. Naguiat Enterprises, Inc., as a separate corporate entity with a separate business. They presumed that Sergio F. Naguiat, who was at the same time a stockholder and director 27 of Sergio F. Naguiat Enterprises, Inc., was managing and controlling the taxi business on behalf of the latter. A closer scrutiny and analysis of the records, however, evince the truth of the matter: that Sergio F. Naguiat, in supervising the-taxi drivers and determining their employment terms, was rather carrying out his responsibilities as president of CFTI. Hence, Naguiat Enterprises as a separate corporation does not appear to be involved at all in the taxi business. To illustrate further, we refer to the testimony of a driver-claimant on cross examination. "Atty. Suarez Is it not true that you applied not with Sergio F. Naguiat but with Clark Field Taxi? Witness I applied for (sic) Sergio F. Naguiat Atty. Suarez Sergio F. Naguiat as an individual or the corporation? Witness 'Sergio F. Naguiat na tao.' Atty. Suarez Who is Sergio F. Naguiat? Witness He is the one managing the Sergio F. Naguiat Enterprises and he is the one whom we believe as our employer. Atty. Suarez What is exactly the position of Sergio F. Naguiat with the Sergio F. Naguiat Enterprises? Witness He is the owner, sir. Atty. Suarez How about with Clark Field Taxi Incorporated what is the position of Mr. Naguiat? Witness What I know is that he is a concessionaire. xxx xxx xxx Atty. Suarez But do you also know that Sergio F. Naguiat is the President of Clark Field Taxi, Incorporated? Witness Yes. sir. Atty. Suarez How about Mr. Antolin Naguiat what is his role in the taxi services, the operation of the Clark Field Taxi, Incorporated? Witness He is the vice president." 28 And, although the witness insisted that Naguiat Enterprises was his employer, he could not deny that he received his salary from the office of CFTI inside the base. 29 Another driver-claimant admitted, upon the prodding of counsel for the corporations, that Naguiat Enterprises was in the trading business while CFTI was in taxi services. 30

In addition, the Constitution 31 of CFTI-AAFES Taxi Drivers Association which, admittedly, was the union of individual respondents while still working at Clark Air Base, states that members thereof are the employees of CFTI and "(f)or collective bargaining purposes, the definite employer is the Clark Field Taxi Inc." From the foregoing, the ineludible conclusion is that CFTI was the actual and direct employer of individual respondents, and that Naguiat Enterprises was neither their indirect employer nor labor-only contractor. It was not involved at all in the taxi business. CFTI president solidarily liable Petitioner-corporations would likewise want to avoid the solidary liability of their officers. To bolster their position, Sergio F. Naguiat and Antolin T. Naguiat specifically aver that they were denied due process since they were not parties to the complaint below. 32 In the broader interest of justice, we, however, hold that Sergio F. Naguiat, in his capacity as president of CFTI, cannot be exonerated from joint and several liability in the payment of separation pay to individual respondents. A.C. Ransom Labor Union-CCLU vs. NLRC 33 is the case in point. A.C. Ransom Corporation was a family corporation, the stockholders of which were members of the Hernandez family. In 1973, it filed an application for clearance to close or cease operations, which was duly granted by the Ministry of Labor and Employment, without prejudice to the right of employees to seek redress of grievance, if any. Backwages of 22 employees, who engaged in a strike prior to the closure, were subsequently computed at P164,984.00. Up to September 1976, the union filed about ten (10) motions for execution against the corporation, but none could be implemented, presumably for failure to find leviable assets of said corporation. In its last motion for execution, the union asked that officers and agents of the company be held personally liable for payment of the backwages. This was granted by the labor arbiter. In the corporation's appeal to the NLRC, one of the issues raised was: "Is the judgment against a corporation to reinstate its dismissed employees with backwages, enforceable against its officer and agents, in their individual, private and personal capacities, who were not parties in the case where the judgment was rendered?" The NLRC answered in the negative, on the ground that officers of a corporation are not liable personally for official acts unless they exceeded the scope of their authority. On certiorari, this Court reversed the NLRC and upheld the labor arbiter. In imposing joint and several liability upon the company president, the Court, speaking through Mme. Justice Ameurfina Melencio-Herrera, ratiocinated this wise: "(b) How can the foregoing (Articles 265 and 273 of the Labor Code) provisions be implemented when the employer is a corporation? The answer is found in Article 212(c) of the Labor Code which provides: '(c) 'Employer' includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting as employer.' The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the 'person acting in the interest of (the) employer' RANSOM. The corporation, only in the technical sense, is the employer. The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for nonpayment of back wages. That is the policy of the law. . . .

(c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back wages. . . . (d) The record does not clearly identify 'the officer or officers' of RANSOM directly responsible for failure to pay the back wages of the 22 strikers. In the absence of definite proof in that regard, we believe it should be presumed that the responsible officer is the President of the corporation who can be deemed the chief operation officer thereof . Thus, in RA 602, criminal responsibility is with the 'Manager or in his default, the person acting as such.' In RANSOM, the President appears to be the Manager." (Emphasis supplied.) Sergio F. Naguiat, admittedly, was the president of CFTI who actively managed the business. Thus, applying the ruling in A. C. Ransom, he falls within the meaning of an "employer" as contemplated by the Labor Code, who may be held jointly and severally liable for the obligations of the corporation to its dismissed employees. Moreover, petitioners also conceded that both CFTI and Naguiat Enterprises were "close family corporations" 34 owned by the Naguiat family. Section 100, paragraph 5, (under Title XII on Close Corporations) of the Corporation Code, states: "(5) To the extent that the stockholders are actively engage(d) in the management or operation of the business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each other and among themselves. Said stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance." (emphasis supplied) Nothing in the records show whether CFTI obtained "reasonably adequate liability insurance;" thus, what remains is to determine whether there was corporate tort. Our jurisprudence is wanting as to the definite scope of "corporate tort." Essentially, "tort" consists in the violation of a right given or the omission of a duty imposed by law. 35 Simply stated, tort is a breach of a legal duty. 36 Article 283 of the Labor Code mandates the employer to grant separation pay to employees in case of closure or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, which is the condition obtaining at bar. CFTI failed to comply with this law-imposed duty or obligation. Consequently, its stockholder who was actively engaged in the management or operation of the business should be held personally liable. Furthermore, in MAM Realty Development vs. NLRC, 37 the Court recognized that a director or officer may still be held solidarily liable with a corporation by specific provision of law. Thus: ". . . A corporation, being a juridical entity, may act only through its directors, officers and employees. Obligations incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they represent. True, solidary liabilities may at times be incurred but only when exceptional circumstances warrant such as, generally, in the following cases: xxx xxx xxx 4. When a director, trustee or officer is made. by specific provision of law, personally liable for his corporate action." (footnotes omitted) As pointed out earlier, the fifth paragraph of Section 100 of the Corporation Code specifically imposes personal liability upon the stockholder actively managing or operating the business and affairs of the close corporation. In fact, in posting the surety bond required by this Court for the issuance of a temporary restraining order enjoining the execution of the assailed NLRC Resolutions, only Sergio F. Naguiat, in his individual and personal capacity, principally bound himself to comply with the obligation thereunder, i.e., "to guarantee the payment to private respondents of any damages which they may

incur by reason of the issuance of a temporary restraining order sought, if it should be finally adjudged that said principals were not entitled thereto." 38 The Court here finds no application to the rule that a corporate officer cannot be held solidarily liable with a corporation in the absence of evidence that he had acted in bad faith or with malice. 39 In the present case, Sergio Naguiat is held solidarily liable for corporate tort because he had actively engaged in the management and operation of CFTI, a close corporation. Antolin Naguiat not personally liable Antolin T. Naguiat was the vice president of the CFTI. Although he carried the title of "general manager" as well, it had not been shown that he had acted in such capacity. Furthermore, no evidence on the extent of his participation in the management or operation of the business was proffered. In this light, he cannot be held solidarily liable for the obligations of CFTI and Sergio Naguiat to the private respondents. Fourth Issue: No Denial of Due Process Lastly, in petitioners' Supplement to their original petition, they assail the NLRC Resolution holding Sergio F. Naguiat and Antolin T. Naguiat jointly and severally liable with petitioner-corporations in the payment of separation pay, averring denial of due process since the individual Naguiats were not impleaded as parties to the complaint. We advert to the case of A.C. Ransom once more. The officers of the corporation were not parties to the case when the judgment in favor of the employees was rendered. The corporate officers raised this issue when the labor arbiter granted the motion of the employees to enforce the judgment against them. In spite of this, the Court held the corporation president solidarily liable with the corporation. Furthermore, Sergio and Antolin Naguiat voluntarily submitted themselves to the jurisdiction of the labor arbiter when they, in their individual capacities, filed a position paper 40 together with CFTI, before the arbiter. They cannot now claim to have been denied due process since they availed of the opportunity to present their positions. WHEREFORE, the foregoing premises considered, the petition is PARTLY GRANTED. The assailed February 28, 1994 Resolution of the NLRC is hereby MODIFIED as follows: (1) Petitioner Clark Field Taxi, Incorporated, and Sergio F. Naguiat, president and co-owner thereof, are ORDERED to pay, jointly and severally, the individual respondents their separation pay computed at US$120.00 for every year of service, or its peso equivalent at the time of payment or satisfaction of the judgment; cdtai (2) Petitioner Sergio F. Naguiat Enterprises, Incorporated, and Antolin T. Naguiat are ABSOLVED from liability in the payment of separation pay to individual respondents. SO ORDERED. Narvasa, C .J ., Davide, Jr., Melo and Francisco, JJ ., concur. Footnotes 1. Composed of Comm. Ireneo B. Bernardo, ponente, with Comms. Lourdes C. Javier (presiding commissioner) and Joaquin A. Tanodra, concurring. 2. Rollo, pp. 69-73. 3. Ibid., p. 82. 4. Promulgated on June 4, 1993; Rollo, pp. 48-56. 5. Ibid., pp. 14-18. 6. Ibid., pp. 20-29. 7. Rollo, p. 56. 8. Rollo, pp. 72-73. 9. Rollo, pp. 131-132. 10. Ibid., p. 6.

11. Ibid., pp. 97-102. 12. Bordeos, et al. vs. NLRC, et al., G.R. Nos. 115314-23, September 26, 1996. 13. Maya Farms Employees Organization vs. NLRC, 239 SCRA 508, December 28, 1994. 14. See Revidad vs. NLRC, 245 SCRA 356, June 27, 1995; St. Gothard Disco Pub vs. NLRC, 218 SCRA 321, 334, February 1, 1993. 15. Mobil Employees Association vs. NLRC, 183 SCRA 737, March 28, 1990; See Catatista vs. NLRC, 247 SCRA 46, 1995; Shoppers Gain Supermart vs. NLRC G.R. No. 110731, July 26, 1996. 16. Petition for Certiorari, p. 2; Rollo, p. 3. 17. Del Mundo vs. Court of Appeals, 240 SCRA 348, January 20, 1995; Estoya vs. Abraham-Singson, 237 SCRA 1, September 26, 1994. 18. "Art. 106. Contractor or subcontractor. Whenever an employer enters into a contract with another person for the performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under this Code. In so prohibiting. or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered as the employer for the purposes of this Code, to prevent any violation or circumvention of any. provision of this Code. There is 'labor-only' contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered as merely an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him." 19. "Art. 107. Indirect employer. The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project." 20. "Art. 109. Solidary liability. The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers." 21. Neri vs. NLRC, 224 SCRA 717, July 23, 1993. 22. Villuga vs. NLRC, 225 SCRA 537, August 23, 1993. 23. Records, pp. 33-46. 24. Ibid., pp. 142-205. 25. Ibid., 206-230. 26. Annex "C" to Respondent CFTI's (petitioner herein) Appearance and Omnibus Motion; records, pp. 47-48. 27. Motion for Reconsideration, p. 6; Rollo, p. 79. 28. TSN, May 18, 1992, pp. 3-6. 29. Ibid., pp. 9-10.

30. 31. 32. 33. 34. 35. 36. 37. 38. 39. Bank 40.

TSN, May 29, 1992, pp. 8-9. Records, pp. 235-246. Rollo, p. 231. 142 SCRA 269, June 10, 1986. Motion for Reconsideration, p. 4; Records, p. 436. Words and Phrases, Permanent Edition, v. 41A, p. 503. Ibid.; Bouvier's Law Dictionary, Third Revision, v. 2. 244 SCRA 797, 802-803, June 2, 1995. Surety bond; Rollo, p. 105. See, Sunio vs. NLRC, 127 SCRA 390, January 31, 1984; and General and Trust Co. vs. Court of Appeals, 135 SCRA 569, April 9, 1985. Annex "C" to Petition; Rollo, pp. 31-36.

THIRD DIVISION [G.R. No. 53820. June 15, 1992.] YAO KA SIN TRADING, owned and operated by YAO KA SIN, petitioner, vs. HONORABLE COURT OF APPEALS and PRIME WHITE CEMENT CORPORATION, represented by its President-Chairman, CONSTANCIO B. MAGLANA, respondents. Leonardo A. Amores for petitioner. Lauro G. Noel co-counsel for petitioner. Constancio B. Maglana and Ireneo R. Clapano, Jr. for private respondent. SYLLABUS 1. REMEDIAL LAW; ACTIONS; PARTIES; SINGLE PROPRIETORSHIP, NEITHER A NATURAL NOR A JURIDICAL PERSON, HENCE, NOT AUTHORIZED BY LAW TO BRING SUIT IN COURT. Under Section 1, Rule 3 of the Rules of Court, only natural or juridical persons or entities authorized by law may be parties in a civil action. In Juasing Hardware vs. Mendoza, this Court held that a single proprietorship is neither a natural person nor a juridical person under Article 44 of the Civil Code; it is not an entity authorized by law to bring suit in court. 2. ID.; ID.; ID.; DEFECT IN THE DESIGNATION OF PARTIES, MERELY FORMAL; MAY BE SUMMARILY CORRECTED PROVIDED NO PREJUDICE IS CAUSED TO THE ADVERSE PARTY; CASE AT BAR. The proper party plaintiff/petitioner should be YAO KA SIN. The complaint then should have been amended to implead Yao Ka Sin as plaintiff in substitution of Yao Ka Sin Trading, however, it is now too late in the history of this case to dismiss this petition and, in effect, nullify all proceedings had before the trial court and the respondent Court on the sole ground of petitioner's lack of capacity to sue. Considering that private respondent did not pursue this issue before the respondent Court and this Court, that, as We held in Juasing, the defect is merely formal and not substantial, and an amendment to cure such defect is expressly authorized by Section 4, Rule 10 of the Rules of Court and that "[a] sole proprietorship does not, of course, possess any juridical personality separate and apart from the personality of the owner of the enterprise and the personality of the persons acting in the name of such proprietorship," (Jariol, Jr. vs. Sandiganbayan, 188 SCRA 475 [1990]) We hold and declare that Yao Ka Sin should be deemed as the plaintiff in Civil Case No. 5064 and the petitioner in the instant case. 3. MERCANTILE LAW; CORPORATION; ACTS ONLY THROUGH ITS OFFICERS AND AGENT. A corporation, such as the private respondent, can act only through its officers and agents, "all acts within the powers of said corporation may be performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a

corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents when once appointed, or members acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of individuals and private persons." (19 C.J.S. 455) 4. ID.; ID.; ID.; SCOPE OF REPRESENTATION. ". . . a corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred." (19 C.J.S. 456) 5. ID.; ID.; ID.; PRESUMED AUTHORITY OF THE PRESIDENT TO ENTER INTO CONTRACT NEGATED BY PRESENCE OF A GENERAL MANAGER. Although there is authority "that if the president is given general control and supervision over the affairs of the corporation, it will be presumed that he has authority to make contracts and do acts within the course of its ordinary business," (Fletcher, Cyclopedia of the Law of the Private Corporations, vol. 2 (Perm. Ed.), 1969 revised Volume, 614) We find such inapplicable in this case. We note that the private corporation has a general manager who, under its ByLaws has, inter alia, the following powers: "(a) to have the active and direct management of the business and operation of the corporation, conducting the same according to the order, directives or resolutions of the Board of Directors or of the president." It goes without saying then that Mr. Maglana did not have a direct and active hand in the management of the business and operations of the corporation. Besides, no evidence was adduced to show that Mr. Maglana had, in the past, entered into contracts similar to that of Exhibit "A" either with the petitioner or with other parties. 6. ID.; ID.; ID.; MAY BE ESTOPPED FROM ASSAILING AUTHORITY OF OFFICER OR AGENT. "[A]lthough an officer or agent acts without, or in excess of, his actual authority if he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where an officer is allowed to exercise a particular authority with respect to the business, or a particular branch of its continuously and publicly, for a considerable time." Also, "if a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that such apparent authority is real, as to innocent third persons dealing in good faith with such officers or agents." This "apparent authority may result from (1) the general manner by which the corporation holds out an officer or agent as having power to act or, in other words, the apparent authority with which it clothes him to act in general, or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or without the scope of his ordinary powers." 7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT ENTERED INTO BY THE PRESIDENT OF A CORPORATION WITHOUT THE REQUIRED APPROVAL OF THE BOARD OF DIRECTORS, UNFORCEABLE; CASE AT BAR. It was incumbent upon the petitioner to prove that indeed the private respondent had clothed Mr. Maglana with the apparent power to execute Exhibit "A" or any similar contract. This could have been easily done by evidence of similar acts executed either in its favor or in favor of other parties. Petitioner miserably failed to do that. Upon the other hand, private respondent's evidence overwhelmingly shows that no contract can be signed by

the president without first being approved by the Board of Directors; such approval may only be given after the contract passes through, at least, the comptroller, who is the NIDC representative, and the legal counsel. Exhibit "A" was effectively disapproved and rejected by the Board of directors. The inevtiable conclusion then is that Exhibit "A" is an unenforceable contract under Article 1317 of the Civil Code. 8. ID.; ID.; OPTION TO RENEW CONTRACT MUST BE WITH A CONSIDERATION; ABSENCE OF CONSIDERATION IN CASE AT BAR. Exhibit "A" being unenforceable, the option to renew it would have no leg to stand on. The river cannot rise higher than its source. In any event, the option granted in this case is without any consideration. Accordingly, even if it were accepted, it can not validly bind the private respondent. (Articles 1324 and 1749 of the New Civil Code) 9. REMEDIAL LAW; ACTIONS; ACTIONABLE DOCUMENTS; RULE THEREON NOT APPLICABLE TO PARTY NOT PRIVY TO CONTRACT. The petitioner is not a party to any of the documents attached to the private respondent's Answer. Thus, Section 8, Rule 8 of the Rules of Court is not applicable. DECISION DAVIDE, JR., J p: Assailed in this petition for review is the decision of the respondent Court of Appeals in C.A.-G.R. No. 61072-R, 1 promulgated on 21 December 1979, reversing the decision 2 of the then Court of First Instance (now Regional Trial Court) of Leyte dated 20 November 1975 in Civil Case No. 5064 entitled "Yao Ka Sin Trading versus Prime White Cement Corporation." The root of this controversy is the undated letter-offer of Constancio B. Maglana, President and Chairman of the Board private respondent Prime White Cement Corporation, hereinafter referred to as PWCC, to Yao Ka Sin Trading, hereinafter referred to as YKS, which describes itself as "a business concern of single proprietorship," 3 and is represented by its manager, Mr. Henry Yao, the letter reads as follows: "PRIME WHITE CEMENT CORPORATION 602 Cardinal Life Building Herran Street, Manila Yao Ka Sin Tacloban City Gentlemen: We have the pleasure to submit hereby our firm offer to you under the following quotations, terms, and conditions, to wit: 1) Commodity Prime White Cement 2) Price At your option: a) P24.30 per 94 lbs. bag net, FOB Cebu City; and b) P23.30 per 94 lbs. bag net, FOB Asturias Cebu. 3) Quality As fully specified in certificate No. 224-73 by Bureau of Public Works, Republic of the Philippines. 4) Quantity Forty-five Thousand (45,000) bags at 94 lbs. net per bag withdrawable in guaranteed monthly quantity of Fifteen Thousand (15,000) bags minimum effective from June, 1973 to August 1973. 5) Delivery Schedule Shipment be made within four (4) days upon receipt of your shipping instruction. 6) Bag/Container a) All be made of Standard Kraft (water resistant paper, 4 ply, with bursting strength of 220 pounds, and b) Breakage allowance additional four percent (4%) over the quantity of each shipment. 7) Terms of Payment Down payment of PESOS: TWO HUNDRED FORTY THREE THOUSAND (P243,000.00) payable on the signing of this contract and the balance to be paid upon presentation of corresponding shipping documents.

It is understood that in the event of a delay in our shipment, you hold the option to discount any price differential resulting from a lower market price visa-vis the contract price. In addition, grant (sic) you the option to extend this contract until the complete delivery of Forty Five Thousand (45,000) bags of 94 lbs. each is made by us. You are also hereby granted the option to renew this contract under the same price, terms and conditions. Please countersign on the space provided for below as your acknowledgement and confirmation of the above transaction. Thank You. Very truly yours, PRIME WHITE CEMENT CORPORATION BY: (SGD) CONSTANCIO B. MAGLANA President & Chairman CONFORME: YAO KA SIN TRADING BY: (SGD) HENRY YAO WITNESSES: (SGD) T. CATINDIG (SGD) ERNESTO LIM RECEIVED from Mr. Henry Yao of Yao Ka Sin Trading, in pursuance of the above offer, the sum of Pesos: TWO HUNDRED FORTY THREE THOUSAND ONLY (P243,000.00) in the form of Producers' Bank of the Philippines Check No. C-153576 dated June 7, 1973. PRIME WHITE CEMENT CORPORATION BY: (SGD) CONSTANCIO B. MAGLANA President & Chairman" 4 This letter-offer, hereinafter referred to as Exhibit "A", was prepared, typed and signed on 7 June 1973 in the office of Mr. Teodoro Catindig, Senior VicePresident of the Consolidated Bank and Trust Corporation (Solid Bank). 5 The principal issue raised in this case is whether or not the aforesaid letteroffer, as accepted by YKS, is a contract that binds the PWCC. The trial court ruled in favor of the petitioner, but the respondent Court held otherwise. The records disclose the following material operative facts: In its meeting in Cebu City on 30 June 1973, or twenty-three (23) days after the signing of Exhibit "A", the Board of Directors of PWCC disapproved the same, the rejection is evidenced by the following Minutes (Exhibit "10"): "the 10,000 bags of white cement sold to Yao Ka Sin Trading is sold not because of the alleged letter-contract adhered to by them, but must be understood as a new and separate contract, and has in no way to do with the letter-offer which they (sic) distinct consideration, as the letter-contract which they now hang on (sic) as consummated is by this resolution totally disapproved and is unacceptable to the corporation." On 5 July 1973, PWCC wrote a letter (Exhibit "1") to YKS informing it of the disapproval of Exhibit "A". Pursuant, however, to its decision with respect to the 10,000 bags of cement, it issued the corresponding delivery Order (Exhibit "4") and Official Receipt No. 0394 (Exhibit "5") for the payment of the same in the amount of P243,000.00. This is the same amount received and acknowledged by Maglana in Exhibit "A". YKS accepted without protest both the Delivery and Official Receipts. While YKS denied having received a copy of Exhibit "1", it was established that the original thereof was shown to Mr. Henry Yao; since no one would sign a receipt for it, the original was left at the latter's office and this, fact was duly noted in Exhibit "1" (Exhibit "1-A"). On 4 August 1973, PWCC wrote a letter (Exhibit "2") to YKS in answer to the latter's 4 August 1973 letter stating that it is "withdrawing or taking delivery of not less than 10,000 bags of white cement on August 6-7, 1973 at Asturias, Cebu, thru M/V Taurus." In said reply, PWCC reminded YKS of its (PWCC's) 5

July 1973 letter (Exhibit "1") and told the latter that PWCC "only committed to you and which you correspondingly paid 10,000 bags of white cement of which 4,150 bags were already delivered to you as of August 1, 1973." 6 Unfortunately, no copy of the said 4 August 1973 letter of YKS was presented in evidence. On 21 August 1973, PWCC wrote another letter (Exhibit "3") 7 to YKS in reply to the latter's letter of 15 August 1973. Enclosed in the reply was a copy of Exhibit "2". While the records reveal that YKS received this reply also on 21 August 1973 (Exhibit "3-A"), 8 it still denied having received it. Likewise, no copy of the so-called 15 August 1973 letter was presented in evidence. On 10 September 1973, YKS, through Henry Yao, wrote a letter 9 to PWCC as a follow-up to the letter of 15 August 1973; YKS insisted on the delivery of 45,000 bags of white cement. 10 On 12 September 1973, Henry Yao sent a letter (Exhibit "G") to PWCC calling the latter's attention to the statement of delivery dated 24 August 1973, particularly the price change from P23.30 to P24.30 per 94 lbs. bag net FOB Asturias, Cebu. 11 On 2 November 1973, YKS sent a telegram (Exhibit "C") 12 to PWCC insisting on the full compliance with the terms of Exhibit "A" and informing the letter that it is exercising the option therein stipulated. On 3 November 1973, YKS sent to PWCC a letter (Exhibit "D") as a follow-up to the 2 November 1973 telegram, but this was returned to sender as unclaimed. 13 As of 7 December 1973, PWCC had delivered only 9,775 bags of white cement. On 9 February 1974, YKS wrote PWCC a letter (Exhibit "H") requesting, for the last time, compliance by the latter with its obligation under Exhibit "A". 14 On 27 February 1974, PWCC sent an answer (Exhibit "7") to the aforementioned letter of 9 February 1974; PWCC reiterated the unenforceability of Exhibit "A". 15 On 4 March 1974, YKS filed with the then Court of First Instance of Leyte a complaint for Specific Performance with Damages against PWCC. The complaint 16 was based on Exhibit "A" and was docketed as Civil Case No. 5064. In its Answer with Counterclaim 17 filed on 1 July 1974, PWCC denied under oath the material averments in the complaint and alleged that: (a) YKS "has no legal personality to sue having no legal personality even by fiction to represent itself;" (b) Mr. Maglana, its President and Chairman, was lured into signing Exhibit "A"; (c) such signing was subject to the condition that Exhibit "A " be approved by the Board of Directors of PWCC, as corporate commitments are made through it; (d) the latter disapproved it, hence Exhibit "A" was never consummated and is not enforceable against PWCC; (e) it agreed to sell 10,000 bags of white cement, not under Exhibit "A", but under a separate contract prepared by the Board; (f) the rejection by the Board of Exhibit "A" was made known to YKS through various letters sent to it, copies of which were attached to the Answer as Annexes 1, 2 and 3; 18 (g) YKS knew, per Delivery Order 19 and Official Receipt 20 issued by PWCC, that only 10,000 bags were sold to it, without any terms or conditions, at P24.30 per bag FOB Asturias, Cebu, (h) YKS is solely to blame for the failure to take complete delivery of 10,000 bags for it did not send its boat or truck to PWCC's plant; and (i) YKS has, therefore, no cause of action. In its Counterclaim, PWCC asks for moral damages in the amount of not less than P10,000.00, exemplary damages in the sum of P500,000.00 and attorney's fees in the sum of P10,000.00. LLjur On 24 July 1974, YKS filed its Answer to the Counterclaim. 21 Issues having been joined, the trial court conducted a pre-trial. 22 On that occasion, the parties admitted that according to the By-Laws of PWCC, the

Chairman of the Board, who is also the President of the corporation, "has the power to execute and sign, for and in behalf of the corporation, all contracts or agreements which the corporation enters into," subject to the qualification that "all the president's actuations, prior to and after he had signed and executed said contracts, shall be given to the board of directors of defendant Corporation." Furthermore, it was likewise stated for the record "that the corporation is a semi-subsidiary of the government because of the NIDC participation in the same, and that all contracts of the corporation should meet the approval of the NIDC and/or the PNB Board because of an exposure and financial involvement of around P10 million therein." 23 During the trial, PWCC presented evidence to prove that Exhibit "A" is not binding upon it because Mr. Maglana was not authorized to make the offer and sign the contract in behalf of the corporation. Per its By-Laws (Exhibit "8"), only the Board of Directors has the power ". . . (7) To enter into (sic) agreement or contract of any kind with any person in the name and for and in behalf of the corporation through its President, subject only to the declared objects and purpose of the corporation and the existing provisions of law." 24 Among the powers of the President is "to operate and conduct the business of the corporation according to his own judgment and discretion, whenever the same is not expressly limited by such orders, directives or resolutions." 25 Per standard practice of the corporation, contracts should first pass through the marketing and intelligence unit before they are finalized. Because of its interest in the PWCC, the NIDC, through its comptroller, goes over contracts involving funds of and white cement produced by the PWCC. Finally, among the duties of its legal counsel is to review proposed contracts before they are submitted to the Board. While the president may be tasked with the preparation of a contract, it must first pass through the legal counsel and the comptroller of the corporation. 26 On 20 November 1975, after trial on the merits, the court handed down its decision in favor of herein petitioner, the dispositive portion of which reads: "WHEREFORE, in view of the foregoing, judgment is hereby rendered: (1) Ordering defendant to complete the delivery of 45,000 bags of prime white cement at 94 lbs. net per bag at the price agreed, with a breakage allowance of empty bags at 4% over the quantity agreed; (2) Ordering defendant to pay P50,000.00 as moral damages; P5,000.00 as exemplary damages; P3,000.00 as attorney's fees; and the costs of these proceedings. SO ORDERED." 27 In disregarding PWCC's theory, the trial court interpreted the provision of the By-Laws granting its Board of Directors the power to enter into an agreement or contract of any kind with any person through President to mean that the latter may enter into such contract or agreement at any time and that the same is not subject to the ratification of the board of directors but "subject only to the declared objects and purpose of the corporation and existing laws." It then concluded: "It is obvious therefore, that it is not the whole membership of the board of directors who actually enters into any contract with any person in the name and for and in behalf of the corporation, but only its president. It is likewise crystal clear that this automatic representation of the board by the president is limited only by the 'declared objects and purpose of the corporation and existing provisions of law.'" 28 It likewise interpreted the provision on the power of the president to "operate and conduct the business of the corporation according to the orders, directives or resolutions of the board of directors and according to his own judgment and discretion whenever the same is not expressly limited by such orders, directives and resolutions," to mean that the president can operate and conduct the

business of the corporation according to his own judgment and discretion as long as it is not expressly limited by the orders, directives or resolutions of the board of directors. 29 The trial court found no evidence that the board had set a prior limitation upon the exercise of such judgment and discretion; it further ruled that the By-Laws does not require that Exhibit "A" be approved by the Board of Directors. Finally, in the light of the Chairman's power to "execute and sign for and in behalf of the corporation all contracts or agreements which the corporation may enter into" (Exhibit "I-1"), it concluded that Mr. Maglana merely followed the By-Laws "presumably both as president and chairman of the board thereof." 30 Hence, Exhibit "A" was validly entered into by Maglana and thus binds the corporation. The trial court, however, ruled that the option to sell is not valid because it is not supported by any consideration distinct from the price; it was exercised before compliance with the original contract by PWCC; and the repudiation of the original contract by PWCC was deemed a withdrawal of the option before acceptance by the petitioner. Both parties appealed from the said decision to the respondent Court of Appeals before which petitioner presented the following Assignment of Errors: "I THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION TO RENEW THE CONTRACT OF SALE IS NOT ENFORCEABLE BECAUSE THE OPTION WAS MADE EVEN BEFORE THE COMPLIANCE OF (sic) THE ORIGINAL CONTRACT BY DEFENDANT AND THAT DEFENDANT'S PROMISE TO SELL IS NOT SUPPORTED BY ANY CONSIDERATION DISTINCT FROM THE PRICE. II THE TRIAL COURT ERRED IN NOT AWARDING TO THE PLAINTIFF ACTUAL DAMAGES, SUFFICIENT EXEMPLARY DAMAGES AND ATTORNEY'S FEES AS ALLEGED IN THE COMPLAINT AND PROVEN DURING THE TRIAL." 31 while the private respondent cited the following error: "I THE TRIAL COURT ERRED IN HOLDING THAT EXHIBIT "A" IS A VALID CONTRACT OR PLAINTIFF CAN CLAIM THAT THE PROPOSED LETTERCONTRACT, EXHIBIT "A" IS LEGALLY ENFORCEABLE, AS THE SAME IS A MERE UNACCEPTED PROPOSAL, NOT HAVING BEEN PREVIOUSLY AUTHORIZED TO BE ENTERED INTO OR LATER ON RATIFIED BY THE DEFENDANT'S BOARD OR DIRECTORS; IN FACT EXHIBIT "A" WAS TOTALLY REJECTED AND DISAPPROVED IN TOTO BY THE DEFENDANT'S BOARD OF DIRECTORS IN CLEAR, PLAIN LANGUAGE AND DULY INFORMED AND TRANSMITTED TO PLAINTIFF. II THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF CAN LEGALLY UTILIZE THE COURTS AS THE FORUM TO GIVE LIFE AND VALIDITY TO A TOTALLY UNENFORCEABLE OR NON-EXISTING CONTRACT. III THE TRIAL COURT ERRED IN ALLOWING YAO KA SIN TO IMPUGN AND CONTRADICT HIS VERY OWN ACTUATIONS AND REPUDIATE HIS ACCEPTANCE AND RECEIPTS OF BENEFITS FROM THE COUNTER-OFFER OF DEFENDANT FOR 10,000 BAGS OF CEMENT ONLY, UNDER THE PRICE, TERMS AND CONDITIONS TOTALLY FOREIGN TO AND WHOLLY DIFFERENT FROM THOSE WHICH APPEAR IN EXHIBIT "A". IV THE TRIAL COURT ERRED IN DISMISSING DEFENDANT'S COUNTER-CLAIMS AS THE SAME ARE DULY SUPPORTED BY CLEAR AND INDUBITABLE EVIDENCE." 32 In its decision 33 promulgated on 21 December 1979, the respondent Court reversed the decision of the trial court, thus:

"WHEREFORE, the judgment appealed from is REVERSED and set aside, Plaintiff's complaint is dismissed with costs. Plaintiff is ordered to pay defendant corporation P25,000.00 exemplary damages, and P10,000.00 attorney's fees. SO ORDERED." Such conclusion is based on its findings, to wit: "Before resolving the issue, it is helpful to bring out some preliminary facts. First, the defendant corporation is supervised and principally financed by the National Investment and Development Corporation (NIDC), a subsidiary investment of the Philippine National Bank (PNB), with cash financial exposure of some P10,000,000.00. PNB is a government financial institution whose Board is chairmaned (sic) by the Minister of National Defense. This fact is very material to the issue of whether defendant corporation's president can bind the corporation with his own act. Second, for failure to deny under oath the following actionable documents in support of defendant's counterclaim: 1. The resolution contained in defendant's letter to plaintiff dated July 5, 1973, on the 10,000 bags of white cement delivered to plaintiff was not by reason of the letter contract, Exhibit "A", which was totally disapproved by defendant corporation's board of directors" clearly stating that 'If within ten (10) days from date hereof, we will not hear from you but you will withdraw cement at P24.30 per bag from our plant, then we will deposit your check of P243,000.00 dated June 7, 1973 issued by the Producers Bank of the Philippines, per instruction of the Board.' (Annex "1" to defendant's Answer). 2. Letter of defendant to plaintiff dated August 4, 1973 that defendant only committed to you and which you accordingly paid 10,000 bags of white cement of which 4,150 bags were already delivered to you as of August 1, 1973' (Annex "2" of defendant's Answer). 3. Letter dated August 21, 1973 to plaintiff reiterating defendant's letter of August 4, 1973 (Annex "3" to defendant's Answer). 4. Letter to stores dated August 21, 1973, 5. Receipt from plaintiff (sic) P243,000.00 in payment of 10,000 bags of white cement at 24.30 per bag (Annex "5" to defendant's Answer). plaintiff is deemed to have admitted, not only the due execution and genuiness (sic) of said documents, (Rule 8, Sec 8, Rules of Court) but also the allegations therein (Rule 9, Sec. 1, Rules of Court). All of the foregoing documents tend to prove that the letter-offer, Exhibit "A", was rejected by defendant corporation's Board of Directors and plaintiff was duly notified thereof and that the P243,000.00 check was considered by both parties as payment of the 10,000 bags of cement under a separate transaction. As proof of which plaintiff did not complain nor protest until February 9, 1974, when he threatened legal action. Third. Maglana's signing the letter-offer prepared for him in the Solidbank was made clearly upon the condition that it was subject to the approval of the board of directors of defendant corporation. We find consistency herein because according to the Corporation Law, and the By-Laws of defendant corporation, all corporate commitments and business are conducted by, and contracts entered into through, the express authority of the Board of Directors (Sec. 28. Corp. Law, Exh "I" or "8"). Fourth. What Henry Yao and Maglana agreed upon as embodied in Exhibit "A", insofar as defendant corporation is concerned, was an unauthorized contract (Arts. 1317 and 1403 (1), Civil Code). And because Maglana was not authorized by the Board of Directors of defendant corporation nor was his actuation ratified by the Board, the agreement is unenforceable (Art. 1403 (1), Civil Code; Raquiza et al. vs. Lilles et al., 13 CA Rep. 343; Gana vs. Archbishop of Manila, 43 O.G. 3224).

While it may be true that Maglana is President of defendant corporation nowhere in the Articles of Incorporation nor in the By-Laws of said corporation was he empowered to enter into any contract all by himself and bind the corporation without first securing the authority and consent of the Board of Directors. Whatever authority Maglana may have must be derived from the Board of Directors of defendant corporation. A corporate officer's power as an agent must be sought from the law, the articles of incorporation and the ByLaws or from a resolution of the Board (Vicente vs. Geraldez, 52 SCRA 227, Board of Liquidators vs. Kalaw, 20 SCRA 987). Cdpr It clearly results from the foregoing that the judgment appealed from is untenable. Having no cause of action against defendant corporation, plaintiff is not entitled to any relief. We see no justification, therefore, for the court a quo's awards in its favor . . ." 34 Its motion for reconsideration having been denied by the respondent Court in its resolution 35 dated 15 April 1980, petitioner filed the instant petition based on the following grounds: "1. That the contract (Exh. "A") entered into by the President and Chairman of the Board of Directors Constancio B. Maglana in behalf of the respondent corporation binds the said corporation. 2. That the contract (Exh. "A") was never novated nor superceded (sic) by a subsequent contract. 3. That the option to renew the contract as contained in Exhibit "A" is enforceable. 4. That Sec. 8, Rule 8 of the Rules of Court only applies when the adverse party appear (sic) to be a party to the instrument but not to one who is not a party to the instrument and Sec. 1, Rule 9 of the said Rules with regards (sic) to denying under oath refers only to allegations of usury." 36 We gave due course 37 to the petition after private respondent filed its Comment 38 and required the parties to submit simultaneously their Memoranda, which the parties subsequently complied with. 39 Before going any further, this Court must first resolve an issue which, although raised in the Answer of private respondent, was neither pursued in its appeal before the respondent Court nor in its Comment and Memorandum in this case. It also eluded the attention of the trial court and the respondent Court. The issue, which is of paramount importance, concerns the lack of capacity of plaintiff/petitioner to sue. In the caption of both the complaint and the instant petition, the plaintiff and the petitioner, respectively, is: YAO KA SIN TRADING, owned and operated by YAO KA SIN. 40 and is described in the body thereof as "a business concern of single proprietorship owned and operated by Yao Ka Sin." 41 In the body of the petition, it is described as "a single proprietorship business concern." 42 It also appears that, as gathered from the decision of the trial court, no Yao Ka Sin testified. Instead, one Henry Yao took the witness stand and testified that he is the "manager of Yao Ka Sin Trading" and "it was in representation of the plaintiff" that he signed Exhibit "A". 43 Under Section 1, Rule 3 of the Rules of Court, only natural or juridical persons or entities authorized by law may be parties in a civil action. In Juasing Hardware vs. Mendoza, 44 this Court held that a single proprietorship is neither a natural person nor a juridical person under Article 44 of the Civil Code; it is not an entity authorized by law to bring suit in court: "The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual, and requires the proprietor or owner thereof to secure licenses and permits, register the business name, and pay taxes to the national government. It does not vest

juridical or legal personality upon the sole proprietorship nor empower it to file or defend an action in court." 45 Accordingly, the proper party plaintiff/petitioner should be YAO KA SIN. 46 The complaint then should have been amended to implead Yao Ka Sin as plaintiff in substitution of Yao Ka Sin Trading, however, it is now too late in the history of this case to dismiss this petition and, in effect, nullify all proceedings had before the trial court and the respondent Court on the sole ground of petitioner's lack of capacity to sue. Considering that private respondent did not pursue this issue before the respondent Court and this Court, that, as We held in Juasing, the defect is merely formal and not substantial, and an amendment to cure such defect is expressly authorized by Section 4, Rule 10 of the Rules of Court which provides that "[a] defect in the designation of the parties may be summarily corrected at any stage of the action provided no prejudice is caused thereby to the adverse party," and that "[a] sole proprietorship does not, of course, possess any juridical personality separate and apart from the personality of the owner of the enterprise and the personality of the persons acting in the name of such proprietorship," 47 We hold and declare that Yao Ka Sin should be deemed as the plaintiff in Civil Case No. 5064 and the petitioner in the instant case. As this Court stated nearly eighty (80) years ago in Alonzo vs. Villamor: 48 "No one has been misled by the error in the name of the party plaintiff. If we should by reason of this error send this case back for amendment and new trial, there would be on the retrial the same complaint, the same answer, the same defense, the same interests, the same witnesses, and the same evidence. The name of the plaintiff would constitute the only difference between the old trial and the new. In our judgment there is not enough in a name to justify such action." And now to the merits of the petition. The respondent Court correctly ruled that Exhibit "A" is not binding upon the private respondent. Mr. Maglana, its President and Chairman, was not empowered to execute it. Petitioner, on the other hand, maintains that it is a valid contract because Mr. Maglana has the power to enter into contracts for the corporation as implied from the following provisions of the By-Laws of private respondent: a) The power of the Board of Directors to ". . . enter into (sic) agreement or contract of any kind with any person in the name and for and in behalf of the corporation through its President, subject only to the declared objects and purpose of the corporation and the existing provisions of law" (Exhibit "8-A"); and b) The power of the Chairman of the Board of Directors to "execute and sign, for and in behalf of the corporation, all contracts or agreements which the corporation may enter into" (Exhibit "I-1"). And even admitting, for the sake of argument, that Mr. Maglana was not so authorized under the By-Laws, the private respondent, pursuant to the doctrine laid down by this Court in Francisco vs. Government Service Insurance System 49 and Board of Liquidators vs. Kalaw, 50 is still bound by his act for clothing him with apparent authority. LLpr We are not persuaded. Since a corporation, such as the private respondent, can act only through its officers and agents, "all acts within the powers of said corporation may be performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents when once appointed, or members acting in their stead, are subject to the same

rules, liabilities and incapacities as are agents of individuals and private persons." 51 Moreover, ". . . a corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that authority to do so has been conferred upon him, and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred." 52 While there can be no question that Mr. Maglana was an officer the President and Chairman of private respondent corporation at the time he signed Exhibit "A", the above provisions of said private respondent's By-Laws do not in any way confer upon the President the authority to enter into contracts for the corporation independently of the Board of Directors. That power is exclusively lodged in the latter. Nevertheless, to expedite or facilitate the execution of the contract, only the President and not all the members of the Board, or so much thereof as are required for the act shall sign it for the corporation. This is the import of the words through the president in Exhibit "8-A" and the clear intent of the power of the chairman "to execute and sign for and in behalf of the corporation all contracts and agreements which the corporation may enter into" in Exhibit "I-1". Both powers presuppose a prior act of the corporation exercised through the Board of Directors. No greater power can be implied from such express, but limited, delegated authority. Neither can it be logically claimed that any power greater than that expressly conferred is inherent in Mr. Maglana's position as president and chairman of the corporation. Although there is authority "that if the president is given general control and supervision over the affairs of the corporation, it will be presumed that he has authority to make contracts and do acts within the course of its ordinary business," 53 We find such inapplicable in this case. We note that the private corporation has a general manager who, under its By-Laws has, inter alia, the following powers: "(a) to have the active and direct management of the business and operation of the corporation, conducting the same according to the order, directives or resolutions of the Board of Directors or of the president." It goes without saying then that Mr. Maglana did not have a direct and active hand in the management of the business and operations of the corporation. Besides, no evidence was adduced to show that Mr. Maglana had, in the past, entered into contracts similar to that of Exhibit "A" either with the petitioner or with other parties. LLphil Petitioner's last refuge then is his alternative proposition, namely, that private respondent had clothed Mr. Maglana with the apparent power to act for it and had caused persons dealing with it to believe that he was conferred with such power. The rule is of course settled that "[a]lthough an officer or agent acts without, or in excess of, his actual authority if he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where an officer is allowed to exercise a particular authority with respect to the business, or a particular branch of its continuously and publicly, for a considerable time." 54 Also, "if a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that such apparent authority is real, as to innocent third persons dealing in good faith with such officers or agents." 55 This "apparent authority may result from (1) the general manner by which the corporation holds out an

officer or agent as having power to act or, in other words, the apparent authority with which it clothes him to act in general, or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or without the scope of his ordinary powers." 56 It was incumbent upon the petitioner to prove that indeed the private respondent had clothed Mr. Maglana with the apparent power to execute Exhibit "A" or any similar contract. This could have been easily done by evidence of similar acts executed either in its favor or in favor of other parties. Petitioner miserably failed to do that. Upon the other hand, private respondent's evidence overwhelmingly shows that no contract can be signed by the president without first being approved by the Board of Directors; such approval may only be given after the contract passes through, at least, the comptroller, who is the NIDC representative, and the legal counsel. The cases then of Francisco vs. GSIS and Board of Liquidators vs. Kalaw are hopelessly unavailing to the petitioner. In said cases, this Court found sufficient evidence, based on the conduct and actuations of the corporations concerned, of apparent authority conferred upon the officer involved which bound the corporations on the basis of ratification. In the first case, it was established that the offer of compromise made by plaintiff in the letter, Exhibit "A", was validly accepted by the GSIS. The terms of the offer were clear, and over the signature of defendant's general manager, Rodolfo Andal, plaintiff was informed telegraphically that her proposal had been accepted. It was sent by the GSIS' Board Secretary and defendant did not disown the same. Moreover, in a letter remitting the payment of P30,000 advanced by her father, plaintiff quoted verbatim the telegram of acceptance. This was in itself notice to the corporation of the terms of the allegedly unauthorized telegram. Notwithstanding this notice, GSIS pocketed the amount and kept silent about the telegram. This Court then ruled that: "This silence, taken together with the unconditional acceptance of three other subsequent remittances from plaintiff, constitutes in itself a binding ratification of the original agreement (Civil Code, Art. 1393). 'ART. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right.'" In the second case, this Court found: "In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence, practically laid aside the by-law requirement of prior approval. Under the given circumstances, the Kalaw contracts are valid corporate acts." The inevitable conclusion then is that Exhibit "A" is an unenforceable contract under Article 1317 of the Civil Code which provides as follows: "ARTICLE 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party." The second ground is based on a wrong premise. It assumes, contrary to Our conclusion above, that Exhibit "A" is a valid contract binding upon the private respondent. It was effectively disapproved and rejected by the Board of

Directors which, at the same time, considered the amount of P243,000.00 received by Maglana as payment for 10,000 bags of white cement, treated as an entirely different contract, and forthwith notified petitioner of its decision that "If within ten (10) days from date hereof we will not hear from you but you will withdraw cement at P24.30 per bag from our plant, then we will deposit your check of P243,000.00 dated June 7, 1973 issued by the Producers Bank of the Philippines, per instruction of the Board." 57 Petitioner received a copy of this notification and thereafter accepted without any protest the Delivery Receipt covering the 10,000 bags and the Official Receipt for the P243,000.00. The respondent Court thus correctly ruled that petitioner had in fact agreed to a new transaction involving only 10,000 bags of white cement. The third ground must likewise fail. Exhibit "A" being unenforceable, the option to renew it would have no leg to stand on. The river cannot rise higher than its source. In any event, the option granted in this case is without any consideration. Article 1324 of the Civil Code expressly provides that: "When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised." while Article 1749 of the same Code provides: "A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price." prLL Accordingly, even if it were accepted, it can not validly bind the private respondent. 58 The fourth ground is, however, meritorious. Section 8, Rule 8 of the Rules of Court provides: "SECTION 8. How to contest genuineness of such documents. When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts, but this provision does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused." It is clear that the petitioner is not a party to any the documents attached to the private respondent's Answer. Thus, the above quoted rule is not applicable. 59 While the respondent Court erred in holding otherwise, the challenged decision must, nevertheless, stand in view of the above disquisitions first to the third grounds of the petition. WHEREFORE, judgment is hereby rendered AFFIRMED the decision of respondent Court of Appeals in C.A.-G.R. No. 61072-R promulgated on 21 December 1979. Costs against petitioner. SO ORDERED. Gutierrez, Jr., Feliciano, Bidin and Romero, JJ., concur. Footnotes 1. Rollo, 114, et seq. Per Acting Presiding Justice Lourdes P. San Diego, concurred in by Associate Justices Samuel F. Reyes and Lino M. Patajo. 2. Id., 73. 3. Paragraph 1 of Complaint in Civil Case No. 5064, 2; Record on Appeal (Annex "A" of Petition); Rollo, 18.

4. Court of Appeals Decision, 2; Rollo, 115-117. This was marked and offered in evidence as Exhibit "A". 5. Record on Appeal, 76; Rollo, 92. 6. Record on Appeal, 77; Rollo, 93. 7. Id. 8. Id. 9. Rollo, 94. 10. Id. 11. Record on Appeal, 78. 12. Id. 13. Id. 14. Rollo, op. cit. 15. Record on Appeal, 78. 16. Id., 1-7. 17. Id., 7-20. 18. Marked as Exhibits "1", "2" and "3". 19. Annex "4" to Answer; also Exhibit "4". 20. Annex "5" to Answer; also Exhibit "5". 21. Record on Appeal, 20-21; Rollo, 36-37. 22. Id., 21-30. 23. Paragraph 13, Pre-Trial Order, Id., 24; Id., 40. 24. Exhibit "8-A". 25. Exhibit "8-B". 26. The trial court's summation of the testimonies of witnesses for PWCC, Record on Appeal, 81-82; Rollo, 97-98. 27. Record on Appeal, 92; Rollo, 107. 28. Id., 87; Id., 102. 29. Record on Appeal, 88; Rollo, 103. 30. Id., 90; Id., 105. 31. Brief for Plaintiff-Appellee, Annex "B" of Petition; Rollo, 111. 32. Brief for Defendant-Appellant, Annex "C" of Petition; Rollo, 112. 33. Annex "E" of Petition; Id., 114-122. 34. Rollo, 118-120. 35. Rollo, 143. 36. Id., 6. 37. Id., 56. 38. Id., 145, et seq. 39. Id., 170, et seq.; 188, et seq. 40. Rollo, 17; 2. 41. Id., 18. 42. Id., 2. 43. Id., 81. 44. 115 SCRA 783 [1982]. 45. At page 786. 46. Conformably with the instruction in the Juasing case, the descriptive words "doing business as `Yao Ka Sin Trading'" may be added in the title of the case. 47. Jariol, Jr. vs. Sandiganbayan, 188 SCRA 475 [1990]. 48. 16 Phil. 315 [1910]. 49. 7 SCRA 577 [1963]. 50. 20 SCRA 987 [1967]. 51. 19 C.J.S. 455. 52. 19 C.J.S. 456. 53. Fletcher, Cyclopedia of the Law of Private Corporations, vol. 2 (Perm. Ed.), 1969 Revised Volume, 614. 54. 19 C.J.S. 458.

55. 56. 57. 58. 59.

Fletcher, op. cit., 340. Id., 354. Exhibit "1". TOLENTINO, A., Civil Code of the Philippines, vol. IV, 1985 ed., 467. Gaw v. Court of Appeals, 191 SCRA 77 [1990].

THIRD DIVISION [G.R. No. 89070. May 18, 1992.] BENGUET ELECTRIC COOPERATIVE, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, PETER COSALAN and BOARD OF DIRECTORS OF BENGUET ELECTRIC COOPERATIVE, INC. * , respondents. Raymundo W. Celino for respondent Peter Cosalan. Reenan Orate for respondent Board of Directors of BENECO. SYLLABUS 1. REMEDIAL LAW; CIVIL PROCEDURE; TRANSMISSION THROUGH PRIVATE CARRIER NOT A RECOGNIZED MODE OF FILING PLEADINGS; DATE PLEADING DEEMED FILED. Respondent Board members' contention runs counter to the established rule that transmission through a private carrier or letter-forwarder -- instead of the Philippine Post Office -- is not a recognized mode of filing pleadings. The established rule is that the date of delivery of pleadings to a private letter-forwarding agency is not to be considered as the date of filing thereof in court, and that in such cases, the date of actual receipt by the court, and not the date of delivery to the private carrier, is deemed the date of filing of that pleading. 2. LABOR LAW; NATIONAL LABOR RELATIONS COMMISSION; APPEALS; TEN-DAY PERIOD TO PERFECT APPEAL MANDATORY AND JURISDICTIONAL; CASE AT BAR. There was, therefore, no reason grounded upon substantial justice and the prevention of serious miscarriage of justice that might have justified the NLRC in disregarding the ten-day reglementary period for perfection of an appeal by the respondent Board members. Accordingly, the applicable rule was that the ten-day reglementary period to perfect an appeal is mandatory and jurisdictional in nature, that failure to file an appeal within the reglementary period renders the assailed decision final and executory and no longer subject to review. The respondent Board members had thus lost their right to appeal from the decision of the Labor Arbiter and the NLRC should have forthwith dismissed their appeal memorandum. 3. ID.; ID.; ID.; APPEAL IN CASE AT BAR BEREFT OF MERIT; ILLEGAL SUSPENSION AND ILLEGAL DISMISSAL ESTABLISHED. There is another and more compelling reason why the respondent Board members' appeal should have been dismissed forthwith: that appeal was quite bereft of merit. Both the Labor Arbiter and the NLRC had found that the indefinite suspension and termination of services imposed by the respondent Board members upon petitioner Cosalan was illegal. That illegality flowed, firstly, from the fact that the suspension of Cosalan was continued long after expiration of the period of thirty (30) days, which is the maximum period of preventive suspension that could be lawfully imposed under Section 4, Rule XIV of the Omnibus Rules Implementing the Labor Code. Secondly, Cosalan had been deprived of procedural due process by the respondent Board members. He was never informed of the charges raised against him and was given no opportunity to meet those charges and present his side of whatever dispute existed; he was kept totally in the dark as to the reason or reasons why he had been suspended and effectively dismissed from the service of Beneco. Thirdly, respondent Board members failed to adduce any cause which could reasonably be regarded as lawful cause for the suspension and dismissal of respondent Cosalan from his position as General Manager of Beneco. Cosalan was, in other words, denied due process both procedural and substantive. Fourthly,

respondent Board members failed to obtain the prior approval of the NEA of their suspension and dismissal of Cosalan, which prior approval was required, inter alia, under the subsisting loan agreement between the NEA and Beneco. The requisite NEA approval was subsequently sought by the respondent Board members; no NEA approval was granted. . . . The major difficulty with the conclusion reached by the NLRC is that the NLRC clearly overlooked or disregarded the circumstances under which respondent Board members had in fact acted in the instant case. As noted earlier, the respondent Board members responded to the efforts of Cosalan to take seriously and implement the Audit Memoranda issued by the COA explicitly addressed to the petitioner Beneco, first by stripping Cosalan of the privileges and perquisites attached to his position as General Manager, then by suspending indefinitely and finally dismissing Cosalan from such position. As also noted earlier, respondent Board members offered no suggestion at all of any just or lawful cause that could sustain the suspension and dismissal of Cosalan. They obviously wanted to get rid of Cosalan and so acted, in the words of the NLRC itself, "with indecent haste" in removing him from his position and denying him substantive and procedural due process. Thus, the record showed strong indications that respondent Board members had illegally suspended and dismissed Cosalan precisely because he was trying to remedy the financial irregularities and violations of NEA regulations which the COA had brought to the attention of Beneco. The conclusion reached by the NLRC that "the records do not disclose that the individual Board members were motivated by malice or bad faith," flew in the face of the evidence of record. At the very least, a strong presumption had arisen, which it was incumbent upon respondent Board members to disprove, that they had acted in reprisal against respondent Cosalan and in an effort to suppress knowledge about and remedial measures against the financial irregularities the COA Audits had unearthed. That burden respondent Board members did not discharge. 4. COMMERCIAL LAW; PRIVATE CORPORATIONS; PROVISIONS OF CORPORATION CODE APPLICABLE IN SUPPLEMENTARY MANNER TO ALL CORPORATIONS; ELECTRIC COOPERATIVES ARE CORPORATIONS UNDER PRESIDENTIAL DECREE NO. 269. We agree with the Solicitor General, firstly, that Section 31 of the Corporation Code is applicable in respect of Beneco and other electric cooperatives similarly situated. Section 4 of the Corporation Code renders the provisions of that Code applicable in a supplementary manner to all corporations, including those with special or individual charters so long as those provisions are not inconsistent with such charters. We find no provision in P.D. No. 269, as amended, that would exclude expressly or by necessary implication the applicability of Section 31 of the Corporation Code in respect of members of the boards of directors of electric cooperatives. Indeed, P.D. No. 269 expressly describes these cooperatives as "corporations:" "Sec. 15. Organization and Purpose. Cooperative non-stock, non-profit membership corporations may be organized, and electric cooperative corporations heretofore formed or registered under the Philippine nonAgricultural Co-operative Act may as hereinafter provided be converted, under this Decree for the purpose of supplying, and of promoting and encouraging the fullest use of, service on an area coverage basis at the lowest cost consistent with sound economy and the prudent management of the business of such corporations." 5. ID.; ID.; LIABILITY OF DIRECTORS, TRUSTEES OR OFFICERS; BOARD MEMBERS AND OFFICERS ACTING IN GOOD FAITH WITHIN SCOPE OF THEIR AUTHORITY INCUR NO PERSONAL LIABILITY. The applicable general rule is clear enough. The Board members and officers of a corporation who purport to act for and in behalf of the corporation, keep within the lawful scope of their authority in so acting, and act in good faith, do not become

liable, whether civilly or otherwise, for the consequences of their acts. Those acts, when they are such a nature and are done under such circumstances, are properly attributed to the corporation alone and no personal liability is incurred by such officers and Board members. 6. ID.; ID.; ID.; GROSS NEGLIGENCE OR BAD FAITH OF BOARD MEMBERS IN DIRECTING CORPORATE AFFAIRS ESTABLISHED IN CASE AT BAR. We agree with the Solicitor General, secondly, that respondent Board members were guilty of "gross negligence or bad faith in directing the affairs of the corporation" in enacting the series of resolutions noted earlier indefinitely suspending and dismissing respondent Cosalan from the position of General Manager of Beneco. Respondent Board members, in so doing, acted beyond the scope of their authority as such Board members. The dismissal of an officer or employee in bad faith, without lawful cause and without the procedural due process, is an act that is contra legem. It cannot be supposed that members of boards of directors derive any authority to violate the express mandates of law or the clear legal rights of their officers and employees by simply purporting to act for the corporation they control. 7. ID.; ID.; ID.; CORPORATION NOT LIABLE FOR ULTRA VIRES ACTS OF DIRECTORS DONE IN BAD FAITH. We believe and so hold, further, that not only are Beneco and respondent Board members properly held solidarily liable for the awards made by the Labor Arbiter, but also that petitioner Beneco which was controlled by and which could act only through respondent Board members, has a right to be reimbursed for any amounts that Beneco may be compelled to pay to respondent Cosalan. Such right of reimbursement is essential if the innocent members of Beneco are not to be penalized for the acts of respondent Board members which were both done in bad faith and ultra vires. The liability-generating acts here are the personal and individual acts of respondent Board members, and are not properly attributed to Beneco itself. DECISION FELICIANO, J p: Private respondent Peter Cosalan was the General manager of petitioner Benguet Electric Cooperative, Inc. ("Beneco"), having been elected as such by the Board of Directors of Beneco, with the approval of the National Electrification Administrator, Mr. Pedro Dumol, effective 16 October 1982. On 3 November 1982, respondent Cosalan received Audit Memorandum No. 1 issued by the Commission on Audit ("COA"). This Memorandum noted that cash advances received by officers and employees of petitioner Beneco in the amount of P129,618.48 had been virtually written off in the books of Beneco. In the Audit Memorandum, the COA directed petitioner Beneco to secure the approval of the National Electrification Administration ("NEA") before writing off or condoning those cash advances, and recommended the adoption of remedial measures. LLphil On 12 November 1982, COA issued another Memorandum Audit Memorandum No. 2 addressed to respondent Peter Cosalan, inviting attention to the fact that the audit of per diems and allowances received by officials and members of the Board of Directors of Beneco showed substantial inconsistencies with the directives of the NEA. The Audit Memorandum once again directed the taking of immediate action in conformity with existing NEA regulations. prcd On 19 May 1983, petitioner Beneco received the COA Audit Report on the financial status and operations of Beneco for the eight (8) month period ended 30 September 1982. This Audit Report noted and enumerated irregularities in the utilization of funds amounting to P37 Million released by NEA to Beneco, and recommended that appropriate remedial action be taken. Having been made aware of the serious financial condition of Beneco and what appeared to be mismanagement, respondent Cosalan initiated implementation

of the remedial measures recommended by the COA. The respondent members of the Board of Beneco reacted by adopting a series of resolutions during the period from 23 June to 24 July 1984. These Board Resolutions abolished the housing allowance of respondent Cosalan; reduced his salary and his representation and commutable allowances; directed him to hold in abeyance all pending personnel disciplinary actions; and struck his name out as a principal signatory to transactions of petitioner Beneco. During the period from 28 July to 25 September 1984, the respondent Beneco Board of members adopted another series of resolutions which resulted in the ouster of respondent Cosalan as General Manager of Beneco and his exclusion from performance of his regular duties as such, as well as the withholding of his salary and allowances. These resolutions were as follows: "1. Resolution No. 91-4 dated 28 July 1984: '. . . that the services of Peter M. Cosalan as General Manager of BENECO is terminated upon approval of the National Electrification Administration:' 2. Resolution No. 151-84 dated September 15, 1984; '. . . that Peter M. Cosalan is hereby suspended from his position as General Manager of the Benguet Electric Cooperative, Inc. (BENECO) effective as of the start of the office hours on September 24, 1984, until a final decision has been reached by the NEA on his dismissal;' '. . . that GM Cosalan's suspension from office shall remain in full force and effect until such suspension is sooner lifted, revoked or rescinded by the Board of Directors; that all monies due him are withheld until cleared;' 3. Resolution No. 176-84 dated September 25, 1984; '. . . that Resolution No. 151-84, dated September 15, 1984 stands as preventive suspension for GM Peter M. Cosalan.'" 1 Respondent Cosalan nevertheless continued to work as General Manager of Beneco, in the belief that he could be suspended or removed only by duly authorized officials of NEA, in accordance with provisions of P.D. No. 269, as amended by P.D. No. 1645 (the statute creating the NEA, providing for its capitalization, powers and functions and organization), the loan agreement between NEA and petitioner Beneco2 and the NEA Memorandum of 2 July 1980.3 Accordingly, on 5 October and 10 November 1984, respondent Cosalan requested petitioner Beneco to release the compensation due him. Beneco, acting through respondent Board members, denied the written request of respondent Cosalan. Respondent Cosalan then filed a complaint with the National Labor Relations Commissions ("NLRC") on 5 December 1984 against respondent members of the Beneco Board, challenging the legality of the Board resolutions which ordered his suspension and termination from the service and demanding payment of his salaries and allowances. On 18 February 1985, Cosalan amended his complaint to implead petitioner Beneco and respondent Board members, the latter in their respective dual capacities as Directors and as private individuals. LibLex In the course of the proceedings before the Labor Arbiter, Cosalan filed a motion for reinstatement which, although opposed by petitioner Beneco, was granted on 23 October 1987 by Labor Arbiter Amado T. Adquilen. Petitioner Beneco complied with the Labor Arbiter's order on 28 October 1987 through Resolution No. 10-90. On 5 April 1988, the Labor Arbiter rendered a decision (a) confirming Cosalan's reinstatement; (b) ordering payment to Cosalan of his backwages and allowances by petitioner Beneco and respondent Board members, jointly and severally, for a period of three (3) years without deduction or qualification, amounting to P344,000.00; and (3) ordering the individual Board members to pay, jointly and severally, to Cosalan moral damages of P50,000.00 plus attorney's fees of ten percent (10%) of the wages and allowances awarded him.

Respondent Board members appealed to the NLRC, and there filed a Memorandum on Appeal. Petitioner Beneco did not appeal, but moved to dismiss the appeal filed by respondent Board members and for execution of judgment. By this time, petitioner Beneco had a new set of directors. In a decision dated 21 November 1988, public respondent NLRC modified the award rendered by the Labor Arbiter by declaring that petitioner Beneco alone, and not respondent Board members, was liable for respondent Cosalan's backwages and allowances, and by ruling that there was no legal basis for the award of moral damages and attorney's fees made by the Labor Arbiter. Beneco, through its new set of directors, moved for reconsideration of the NLRC decision, but without success. In the present Petition for Certiorari, Beneco's principal contentions are twofold: first, that the NLRC had acted with grave abuse of discretion in accepting and giving due course to respondent Board members' appeal although such appeal had been filed out of time; and second, that the NLRC had acted with grave abuse of discretion amounting to lack of jurisdiction in holding petitioner alone liable for payment of the backwages and allowances due to Cosalan and releasing respondent Board members from liability therefor. We consider that petitioner's first contention is meritorious. There is no dispute about the fact that the respondent Beneco Board members received the decision of the Labor Arbiter on 21 April 1988. Accordingly, and because 1 May 1988 was a legal holiday, they had only up to 2 May 1988 within which to perfect their appeal by filing their memorandum on appeal. It is also not disputed that the respondent Board members' memorandum on appeal was posted by registered mail on 3 May 1988 and received by the NLRC the following day. 4 Clearly, the memorandum on appeal was filed out of time. Respondent Board members, however, insist that their Memorandum on Appeal was filed on time because it was delivered for mailing on 1 May 1988 to the Garcia Communications Company, a licensed private letter carrier. The Board members in effect contend that the date of delivery to Garcia Communications was the date of filing of their appeal memorandum. Respondent Board members' contention runs counter to the established rule that transmission through a private carrier or letter-forwarder instead of the Philippine Post Office is not a recognized mode of filing pleadings. 5 The established rule is that the date of delivery of pleadings to a private letterforwarding agency is not to be considered as the date of filing thereof in court, and that in such cases, the date of actual receipt by the court, and not the date of delivery to the private carrier, is deemed the date of filing of the pleading. 6 There was, therefore, no reason grounded upon substantial justice and the prevention of serious miscarriage of justice that might have justified the NLRC in disregarding the ten-day reglementary period for perfection of an appeal by the respondent Board members. Accordingly, the applicable rule was that the ten-day reglementary period to perfect an appeal is mandatory and jurisdictional in nature, that failure to file an appeal within the reglementary period renders the assailed decision final and executory and no longer subject to review. 7 The respondent Board members had thus lost their right to appeal from the decision of the Labor Arbiter and the NLRC should have forthwith dismissed their appeal memorandum. cdrep There is another and more compelling reason why the respondent Board members' appeal should have been dismissed forthwith: that appeal was quite bereft of merit. Both the Labor Arbiter and the NLRC had found that the indefinite suspension and termination of services imposed by the respondent Board members upon petitioner Cosalan was illegal. That illegality flowed, firstly, from the fact that the suspension of Cosalan was continued long after expiration of the period of thirty (30) days, which is the maximum period of preventive suspension that could be lawfully imposed under Section 4, Rule

XIV of the Omnibus Rules Implementing the Labor Code. Secondly, Cosalan had been deprived of procedural due process by the respondent Board members. He was never informed of the charges raised against him and was given no opportunity to meet those charges and present his side of whatever dispute existed; he was kept totally in the dark as to the reason or reasons why he had been suspended and effectively dismissed from the service of Beneco. Thirdly, respondent Board members failed to adduce any cause which could reasonably be regarded as lawful cause for the suspension and dismissal of respondent Cosalan from his position as General Manager of Beneco. Cosalan was, in other words, denied due process both procedural and substantive. Fourthly, respondent Board members failed to obtain the prior approval of the NEA of their suspension and dismissal of Cosalan, which prior approval was required, inter alia, under the subsisting loan agreement between the NEA and Beneco. The requisite NEA approval was subsequently sought by the respondent Board members; no NEA approval was granted. In reversing the decision of the Labor Arbiter declaring petitioner Beneco and respondent Board members solidarily liable for the salary, allowances, damages and attorney's fees awarded to respondent Cosalan, the NLRC said: ". . . A perusal of the records show that the members of the Board never acted in their individual capacities. They were acting as a Board passing resolutions affecting their general manager. If these resolutions and resultant acts transgressed the law, then BENECO for which the Board was acting in behalf should bear responsibility. The records do not disclose that the individual Board members were motivated by malice or bad faith, rather, it reveals an intramural power play gone awry and misapprehension of its own rules and regulations. For this reason, the decision holding the individual board members jointly and severally liable with BENECO for Cosalan's backwages is untenable. The same goes for the award of damages which does not have the proverbial leg to stand on. The Labor Arbiter below should have heeded his own observation in his decision 'Respondent BENECO as an artificial person could not have, by itself, done anything to prevent it. But because the former have acted while in office and in the course of their official functions as directors of BENECO, . . .' Thus, the decision of the Labor Arbiter should be modified conformably with all the foregoing holding BENECO solely liable for backwages and releasing the appellant board members from any individual liabilities." 8 (Emphasis supplied). The applicable general rule is clear enough. The Board members and officers of a corporation who purport to act for and in behalf of the corporation, keep within the lawful scope of their authority in so acting, and act in good faith, do not become liable, whether civilly or otherwise, for the consequences of their acts. Those acts, when they are such a nature and are done under such circumstances, are properly attributed to the corporation alone and no personal liability is incurred by such officers and Board members. 9 The major difficulty with the conclusion reached by the NLRC is that the NLRC clearly overlooked or disregarded the circumstances under which respondent Board members had in fact acted in the instant case. As noted earlier, the respondent Board members responded to the efforts of Cosalan to take seriously and implement the Audit Memoranda issued by the COA explicitly addressed to the petitioner Beneco, first by stripping Cosalan of the privileges and perquisites attached to his position as General Manager, then by suspending indefinitely and finally dismissing Cosalan from such position. As also noted earlier, respondent Board members offered no suggestion at all of any just or lawful cause that could sustain the suspension and dismissal of Cosalan. They obviously wanted to get rid of Cosalan and so acted, in the

words of the NLRC itself, "with indecent haste" in removing him from his position and denying him substantive and procedural due process. Thus, the record showed strong indications that respondent Board members had illegally suspended and dismissed Cosalan precisely because he was trying to remedy the financial irregularities and violations of NEA regulations which the COA had brought to the attention of Beneco. The conclusion reached by the NLRC that "the records do not disclose that the individual Board members were motivated by malice or bad faith," flew in the face of the evidence of record. At the very least, a strong presumption had arisen, which it was incumbent upon respondent Board members to disprove, that they had acted in reprisal against respondent Cosalan and in an effort to suppress knowledge about and remedial measures against the financial irregularities the COA Audits had unearthed. That burden respondent Board members did not discharge. prcd The Solicitor General has urged that respondent Board members may be held liable for damages under the foregoing circumstance under Section 31 of the Corporation Code which reads as follows: "Sec. 31. Liability of directors, trustees or officers. Directors or trustees who 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 affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be jointly liable and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons . . ." (Emphasis supplied) We agree with the Solicitor General, firstly, that Section 31 of the Corporation Code is applicable in respect of Beneco and other electric cooperatives similarly situated. Section 4 of the Corporation Code renders the provisions of that Code applicable in a supplementary manner to all corporations, including those with special or individual charters so long as those provisions are not inconsistent with such charters. We find no provision in P.D. No. 269, as amended, that would exclude expressly or by necessary implication the applicability of Section 31 of the Corporation Code in respect of members of the boards of directors of electric cooperatives. Indeed, P.D. No. 269 expressly describes these cooperatives as "corporations:" "Sec. 15. Organization and Purpose. Cooperative non-stock, non-profit membership corporations may be organized, and electric cooperative corporations heretofore formed or registered under the Philippine nonAgricultural Co-operative Act may as hereinafter provided be converted, under this Decree for the purpose of supplying, and of promoting and encouraging the fullest use of, service on an area coverage basis at the lowest cost consistent with sound economy and the prudent management of the business of such corporations." 10 (Emphasis supplied) We agree with the Solicitor General, secondly, that respondent Board members were guilty of "gross negligence or bad faith in directing the affairs of the corporation" in enacting the series of resolutions noted earlier indefinitely suspending and dismissing respondent Cosalan from the position of General Manager of Beneco. Respondent Board members, in doing so, acted beyond the scope of their authority as such Board members. The dismissal of an officer or employee in bad faith, without lawful cause and without procedural due process, is an act that is contra legem. It cannot be supposed that members of boards of directors derive any authority to violate the express mandates of law or the clear legal rights of their officers and employees by simply purporting to act for the corporation they control. We believe and so hold, further, that not only are Beneco and respondent Board members properly held solidarily liable for the awards made by the Labor Arbiter, but also that petitioner Beneco which was controlled by and which could act only through respondent Board members, has a right to be

reimbursed for any amounts that Beneco may be compelled to pay to respondent Cosalan. Such right of reimbursement is essential if the innocent members of Beneco are not to be penalized for the acts of respondent Board members which were both done in bad faith and ultra vires. The liability generating acts here are the personal and individual acts of respondent Board members, and are not properly attributed to Beneco itself. WHEREFORE, the Petition for Certiorari is GIVEN DUE COURSE, the comment filed by the respondent Board members is TREATED as their answer, and the decision of the National Labor Relations Commission dated 21 November 1988 in NLRC Case No. RAB-1-0313-84 is hereby SET ASIDE and the decision dated 5 April 1988 of Labor Arbiter Amado T. Adquilen hereby REINSTATED in toto. In addition, respondent Board members are hereby ORDERED to reimburse petitioner Beneco any amounts that it may be compelled to pay to respondent Cosalan by virtue of the decision of Labor Arbiter Amado T. Adquilen. No pronouncement as to costs. SO ORDERED. Gutierrez, Jr. Bidin, Davide, Jr. and Romero, JJ., concur. Footnotes * The Board was composed of the following individuals: (1) Victor Laoyan; (2) Nicasio Aliping; (3) Abundio Awal; (4) Antonio Sudang Pan; and (5) Lorenzo Pilando. 1. Decision of the National Labor Relations Commission, pp. 1-2; Rollo, pp. 19-20. 2. Records, p. 53. 3. Id., p. 150. 4. Records, p. 322. 5. Section 1, Rule 13, Rules of Court. 6. See, e.g., Eslabon v. Spouses Ramon Magbanua, G.R. No. 76571, Resolution dated 1 April 1987; Pelonio v. Lebrillo, 83556, Resolution dated 8 November 1988. 7. E.g., Armigos v. Court of Appeals, 179 SCRA 1 (1989); Jocson v. Baguio, 179 SCRA 550 (1989); Chong Guan Trading v. National Labor Relations Commission, 172 SCRA 831 (1989). 8. Rollo, p. 36. 9. See Pabalan, et al. v. National Labor Relations Commission, et al., 184 SCRA 495 (1990). See also Garcia v. National Labor Relations Commission, 153 SCRA 639 (1987); Sunio v. National Labor Relations Commission, 127 SCRA 390 (1984); Mindanao Motors Line, Inc. v. Court of Industrial Relations, 6 SCRA 710 (1962):. 10. See also Section 17 of P.D. No. 269, as amended, which requires the members of electric cooperatives to include the abbreviation "INc." (in the name of the cooperative). Section 18 refers to the organizers of a cooperative as "Incorporators." Sections 19-27 of the same statute refer to "Articles of Incorporation of a Cooperative." Section 37 expressly incorporates the provision of limited liability of members (but not of directors or other officers) which is the hallmark of corporations:. "No member shall be liable or responsible for any debts of the cooperative and the property of the members shall not be subject to execution therefor.". The legislative intent to make applicable to directors and officers of cooperatives generally (i.e., electric cooperatives, agricultural cooperatives etc.) the provisions of Section 31 of the Corporation Code, was confirmed by Article 46 of the Philippine Cooperative Code (R.A. No. 6938, approved 10 March 1990). Article 46 of the Cooperative Code reads as follows:"Article 46. Liability of Directors, Officers and Committee Members. Directors, officers and committee members, who wilfully and knowingly vote for or assent to patently

unlawful acts or who are guilty of gross negligence or bad faith in directing the affairs of the cooperative or acquire any personal or pecuniary interest in conflict with their duty as such directors, officers or committee members shall be liable jointly and severally for all damages or profits resulting therefrom to the cooperative, members and other persons. When a director, officer or committee member attempts to acquire or acquires, in violation of his duty, any interest or equity adverse to the cooperative in respect to any matter which has been reposed in him in confidence, he shall, as a trustee for the cooperative, be liable for damages and for double the profits which otherwise would have accrued to the cooperative." Article 122 of the Cooperative Code states that "[e]lectric cooperatives shall be covered by this Code. . . ." Upon the other hand, Article 127 of the same Code provides that electric cooperatives which qualify under this Code "shall fall under the coverage of [P.D. No. 269 as amended]." The Cooperative Code is substantially a reproduction of the general provisions of the Corporation Code. EN BANC [A.M. No. MTJ-92-643. November 27, 1992.] LOUIS VUITTON S.A., complainant, vs. JUDGE FRANCISCO DIAZ VILLANUEVA, Presiding Judge, Branch 36, The Metropolitan Trial Court at Quezon City, Metro Manila. respondent. Quasha, Asperilla, Ancheta, Pea & Nolasco for complainant. SYLLABUS 1. CRIMINAL LAW; KNOWINGLY RENDERING UNJUST JUDGMENT; ELEMENTS. The Revised Penal Code holds a judge liable for knowingly rendering a manifestly unjust judgment. Article 204 thereof provides: Any judge who shall knowingly render an unjust judgment in a case submitted to him for decision shall be punished . . . . The law requires that the (a) offender is a judge; (b) he renders a judgment in a case submitted to him for decision; (c) the judgment is unjust; (d) he knew that said judgment is unjust. 2. ID.; UNFAIR COMPETITION; TEST TO DETERMINE EXISTENCE THEREOF; CASE AT BAR. In holding that there was no unfair competition, the respondent judge said that "the seized articles did not come close to the appearance of a genuine Louis Vuitton product". His pronouncement obviously had in mind the test to determine unfair competition which this Court had laid down in the case of U.S. vs. Manuel, to wit: ". . . whether certain goods have been clothed with an appearance which is likely to deceive the ordinary purchaser exercising ordinary care, . . . ." 3. JUDICIAL ETHICS; ADMINISTRATIVE CASE FOR KNOWINGLY RENDERING UNJUST JUDGMENT; PROOF REQUIRED; WHEN JUDGMENT UNJUST; CASE AT BAR. In some administrative cases decided by this Court, We have ruled that in order to hold a judge liable, it must be shown beyond reasonable doubt that the judgment is unjust and that it was made with conscious and deliberate intent to do an injustice. . . . A judgment is said to be unjust when it is contrary to the standards of conduct prescribed by law. The test to determine whether an order or judgment is unjust may be inferred from the circumstances that it is contrary to law or is not supported by evidence. 4. ID.; ID.; JUDGE LIABLE WHERE DECISION WAS RENDERED WITH MALICE AND DELIBERATE INTENT TO PERPETRATE INJUSTICE; JUDGE WHO ACTED IN GOOD FAITH NOT SUBJECT TO CIVIL CRIMINAL OR ADMINISTRATIVE LIABILITY FOR ERRONEOUS DECISION. We hereby quote the decision of this Honorable Court in Sta. Maria vs. Ubay, stating that: ". . . complainant failed to show any unmistakable indication that bad faith motivated the alleged unjust actuations of the respondent judge . . . . Absent, thus, any positive evidence on record that the respondent judge rendered

judgment in question with conscious and deliberate intent to do an injustice, the . . . charge of the complainant must fall." In Mendoza vs. Villaluz, this Court has also held: ". . . it is a fundamental rule of long standing that a judicial officer when required to exercise his judgment or discretion is not criminally liable for any error he commits provided he acts in good faith, that in the absence of malice or any wrongful conduct . . . the judge cannot be held administratively responsible . . . for no one, called upon to try the facts or interpret the law in the process of administering justice can be infallible in his judgment," and "to hold a judge administratively accountable for every erroneous ruling or decision he renders assuming that he has erred, would be nothing short of harassment or would make his position unbearable"." This pronouncement has been reiterated by Us in the case of Miranda vs. Judge Manalastas, where We said: "Well established is the rule that mere errors in the appreciation of evidence, unless so gross and patent as to produce an inference of ignorance or bad faith, or that the judge knowingly rendered an unjust decision, are irrelevant and immaterial in administrative proceedings against him. No one called upon to try the facts or interpret the law in the process of administering justice is infallible in his judgment. All that is expected of him is that he follows the rules prescribed to ensure a fair and impartial hearing, assess the different factors that emerge therefrom and bear on the issues presented, and on the basis of the conclusions he find established, with only his conscience and knowledge of the law to guide him, adjudicate the case accordingly. . . . If in the mind of the respondent, the evidence for the defense was entitled to more weight and credence, he cannot be held to account administratively for the result of his ratiocination. For that is the very essence of judicial inquiry: otherwise the burdens of judicial office will be intolerable." A judge cannot be subjected to liability civil, criminal, or administrative for any of his official acts, no matter how erroneous, as long as he acts in good faith. In Pabalan vs. Guevarra, the Supreme Court spoke of the rationale for this immunity. We held, thus: ". . . 'it is a general principle of the highest importance to the proper administration of justice that a judicial officer, in exercising the authority vested in him, shall be free to act upon his own convictions, without apprehension of personal consequences to himself.' This concept of judicial immunity rests upon consideration of public policy, its purpose being to preserve the integrity and independence of the judiciary." 5. ID.; RES IPSA LOQUITOR; EXPLAINED; DOCTRINE NOT APPLICABLE TO CASE AT BAR. That doctrine, however, is not applicable to the case at bar. In similar administrative cases separately filed against Judge Liwag and Judge Dizon, We have ruled that: "In these res ipsa loquitur resolutions, there was on the face of the assailed decisions, an inexplicable grave error bereft of any redeeming feature, a patent railroading of a case to bring about an unjust decision, or a manifestly deliberate intent to wreak (sic) an injustice against a hapless party. The facts themselves, previously proven or admitted, were of such a character as to give rise to a strong inference that evil intent was present. Such intent, in short, was clearly deducible from what was already of record. The res ipsa loquitur doctrine does not except or dispense with the necessity of proving the facts on which the inference of evil intent is based. It merely expresses the clearly sound and reasonable conclusion that when such facts are admitted or are already shown by the record, and no credible explanation that would negative the strong inference of evil intent is forthcoming, no further hearing to establish them to support a judgment as to the culpability of a respondent is necessary. Thus, when asked to explain the clearly gross ignorance of law or the grave misconduct irresistibly reflecting on their integrity, the respondent Judges were completely unable to give any credible explanation or to raise reasonable doubt . . . ." Thus, even granting that res ipsa loquitur is appreciable, complainant still has to present proof of

malice and bad faith. Respondent judge, on the other hand, may raise good faith as a defense. That good faith is a defense to the charge of knowingly rendering an unjust judgment remains to be the law. He is also given the chance to explain his acts and if such explanation is credible, the court may absolve him of the charge. In this case, We find that the facts and the explanation rendered by Judge Villanueva justify his absolution from the charge. However, while he is held to be not guilty, he should avoid acts which tend to cast doubt on his integrity. Moreover, his delay in the promulgation of this case deserves a reprimand from this Court as it is contrary to the mandate of our Constitution which enshrines the right of the litigants to a speedy disposition of their cases. 6. COMMERCIAL LAW; PRIVATE CORPORATIONS; PERSONALITY OF CORPORATION SEPARATE AND DISTINCT FROM THAT OF STOCKHOLDERS. A corporation is vested by law with a personality of its own, separate and distinct from that of its stockholders and from that of its officers who manage and run its affairs. Furthermore, Section 23 of the Corporation Code provides: . . . the corporate powers of all corporations formed under this code shall be exercised, all business conducted, and all property of such corporations controlled and held by the Board of Directors . . . . DECISION CAMPOS, JR., J p: This is a complaint filed by Louis Vuitton, S.A., represented by counsel, Quasha Asperilla Ancheta Pea and Nolasco Law Office, against Judge Francisco Diaz Villanueva of the Metropolitan Trial Court of Quezon City, Branch 36, on the ground that the latter knowingly rendered a manifestly unjust judgment. This Court finds the following facts as relevant: In Criminal Case No. XXXVI-62431, entitled "People of the Philippines vs. Jose V. Rosario", Louis Vuitton, S.A. accused the latter of unfair competition as defined by paragraph 1 of Article 189, Revised Penal Code. The information stated: ". . . the above named accused, as owner/proprietor of Manila COD Department Store . . . did then and there, wilfully, unlawfully and feloniously manufacture, distribute, sell and offer for sale lady's bags, should(sic) bags, wallets, purses and other similar goods made of leather with labels, trademarks and logo of 'LOUIS VUITTON' and 'LV', which are exclusive trademarks owned and registered with the Philippine Patent Office in the name of private complainant LOUIS VUITTON S.A. . . . thus, giving to them the general appearance of goods or products of said private complainant, or such appearance which would be likely to induce the public to believe that said goods offered are those of private complainant, in unfair competition and for the purpose of deceiving or defrauding it of its legitimate trade or the public in general . . . ." 1 On February 8, 1991, before judgment, prosecution filed the Prosecution's Memorandum with Motion found in Annex "A" of the Complaint, where the prosecution prayed: "Premises considered, it is most respectfully prayed that the accused Jose V. Rosario be declared guilty beyond reasonable doubt of having committed the offense described in the criminal information against him. In the alternative, if the accused cannot be held responsible for the criminal information against him, it is respectively moved that the accused be committed to answer for the proper offense of "giving other persons (the supposed concessionaire) a chance or opportunity to commit unfair competition" (Section 1, Article 189 of the Revised Penal Code in conjunction with Rule 119 of the 1985 Rules on Criminal Procedure)." 2 The trial court summarized its factual findings as follows:

"From the records of the case, the evidence presented and the arguments advanced by the parties, the Court finds that the complaining witness in this case is the representative and attorney-in-fact, counsel of Louis Vuitton, S.A. French Company with business address at Paris, France; that private complainant is suing the accused for the protection of the trade mark Louis Vuitton and the L.V. logo which are duly registered with the Philippine Patent Office; that on May 10, 1989, Atty. Felino Padlan of the Quasha Law Office brought a letter to the COD informing the latter to cease and desist from selling leather articles bearing the trade marks Louis Vuitton and L.V. logo as the same is the registered trade marks belonging to the private complainant which has not authorized any person in the Philippines to sell such articles; that on August 4, 1989, prosecution witness, Miguel Domingo bought at the COD ladies' bag bearing the trade mark and logo of Louis Vuitton . . .; that again on September 6, 1989, said Mr. Domingo again bought from the same store a wallet with a trade mark and logo of Louis Vuitton . . .; that on September 28, 1989, the NBI, upon the request of the Quasha Law Firm applied for a Search Warrant at the Metropolitan Trial Court in Quezon City; that the application was granted and the Search Warrant was issued against COD and was enforced on the same date; that from the implementation of the said Search Warrant, about seventy-two (72) leather products were seized; that the accused signed the inventory of the seized articles. The accused, on the other hand, claimed: that he is not the manufacturer or seller of the seized articles; that the said articles were sold in the store by a concessionaire by the name of Erlinda Tan who is doing business under the name of Hi-Tech bags and wallets." 3 In acquitting the accused, the trial court gave the following reasons: "From all the foregoing, considering that the accused denied being the manufacturer or seller of the seized articles, it is incumbent upon the prosecution to prove that said articles are owned and being sold by the accused. The prosecution relied as their evidence against the accused the inventory which was signed by him (accused) with a notation under his signature "owner/representative". An examination of the inventory . . . would show that the same was a prepared form of the NBI and that the accused was made to sign only on the space on the typewritten word owner/representative. Aside from this, no other evidence was presented by the prosecution to show that there is a link between the manufacturer of the seized goods and the accused. Further, when the case was filed with the Prosecutor's Office, it stated the name of the accused as the owner of the COD, but from the evidence presented, it appears that the accused is not the owner but the stockholder and the executive-vice president thereof. The prosecution evidence show that long before the raid of September 28, 1989, surveys have been caused to be made by the Quasha law Firm, not only at the COD but also in other department stores as far as Baguio City and Cebu City; that these seized products were being sold not only at COD but also in some big department(sic) store such as Cash and Carry. They could have easily verified from the Securities and Exchange Commission who the actual officers of the COD [are] to be charged, but the prosecution did not do this and relied only on the inventory of the seized goods prepared by the NBI agents with the typewritten word owner/representative. With respect to the seized goods, the test of unfair competition is whether the goods have been made to appear that will likely deceive the ordinary purchaser exercising ordinary care. The seized goods which were marked as exhibits and presented to the Court would easily show that there was no attempt on the part of the manufacturer or seller to pass these goods as products of Louis Vuitton. From the price tags attached to a seized bag, it could be seen that the article carried a price tag ONE HUNDRED FORTY-SEVEN (P147.00) PESOS,

whereas, upon examination of the expert witness presented by the prosecution, he testified that a genuine bag of Louis Vuitton would cost about FOUR THOUSAND (P4,000.00) PESOS to FIVE THOUSAND (P5,000.00) PESOS. It is apparent that the seized articles did not come close to the appearance of a genuine Louis Vuitton product. Further, the buckle of the bag also carries the logo of Gucci, another trade mark. From the appearance of all the seized goods, it is very apparent that these goods were roughly done. The quality and textures of the materials used are of low quality that an ordinary purchases(sic) exercising ordinary [care] will easily determine that they were locally manufactured and will not pass as a (sic) genuine Louis Vuitton products. From these, the Court finds that the prosecution failed to prove that the essential elements of unfair competition, to wit: a. That the offender gives his goods the general appearance of the goods of another manufacturer or dealer; b. That the general appearance is shown in the (1) goods themselves, or in the (2) wrapping of their packages, or in the (3) device or words therein, or in (4) any other feature of their a (sic) appearance. These elements, to the mind of the Court are absent in this case. Further finally, the prosecution filed this case against accused Jose V. Rosario in his personal capacity and not as an officer of the Manila COD Department Store, which is a corporation, and has a separate legal personality." 4 In the complaint, complainant pointed out that the respondent Judge did not consider the motion of February 11, 1990. This omission of respondent judge allegedly constituted a clear and gross violation of his ministerial duty in order to allow the accused to escape criminal liability. Furthermore, complainant claimed that the respondent judge's failure to resolve the motion exposed his gross ignorance of the law. Section 11, Rule 119 of the 1985 Rules on Criminal Procedure states: SECTION 11. When mistake has been made in charging the proper offense. When it becomes manifest at any time before judgment, that a mistake has been made in charging the proper offense, and the accused cannot be convicted of the offense charged, or of any offense necessarily included therein, the accused shall not be discharged, if there appears to be good cause to detain him. In such case, the court shall commit the accused to answer for the proper information charged. Complainant also assailed respondent judge's findings that there was no unfair competition because the elements of the crime were not met, and that the seized articles did not come close to the appearance of a genuine Louis Vuitton product, the counterfeit items having been poorly done. According to complainant, in making such conclusions, respondent judge ignored the ruling in Converse Rubber Corp. vs. Jacinto Rubber & Plastics Co., Inc., 5 that "the statute on unfair competition extends protection to the goodwill of a manufacturer or dealer". Thirdly, complainant criticized respondent judge for his failure to consider the alleged lack of credibility of Felix Lizardo, the lone witness for the defense, in rendering the assailed decision. Lastly, complainant pointed out that respondent judge violated the constitutional mandate that decisions should be rendered within three (3) months from submission of the case. It appeared that the decision was dated June 28, 1991 but it was promulgated only on October 25, 1991. In response to the foregoing accusations, respondent judge set forth in his comment that: 1. The evidence of the prosecution was not sufficient to sustain the conclusion that Jose V. Rosario was guilty beyond reasonable doubt. The evidence did not prove all the elements of the offense charged. He added that in deciding criminal cases, the trial court relies not on the weakness of the

accused's evidence but on the strength of the evidence submitted by the prosecution. 2. His alleged failure to act on the motion was due to the prosecutor's failure to point out to the court before judgment was rendered that a mistake was made in charging the proper offense. He also added that the prosecutor's evidence did not also manifest this mistake. cdrep Citing the conclusion of the Prosecution's Memorandum with Motion of the complainant, respondent judge averred that the private prosecutor himself, instead of showing to the court that the proper offense was not charged, clearly indicated that no such mistake was committed. The cited statement says: "It is respectfully submitted that the prosecution has fairly proven that the accused is guilty beyond reasonable doubt of having committed the offense outlined in the criminal Information against him. . . ." 6 3. The prayer contained in the Prosecution's Memorandum with Motion should have been placed in a proper pleading. He also said that the private prosecutor should have conferred with public prosecutor if the former believed that the proper offense of giving other persons a chance to commit unfair competition would be charged against Rosario. The failure of both public and private prosecutors to take the appropriate action provided no reason for respondent judge to commit the accused to answer for the proper information. The sole issue for consideration of this Court is whether or not respondent judge is guilty of knowingly rendering a manifestly unjust judgment. The Revised Penal Code holds a judge liable for knowingly rendering a manifestly unjust judgment. Article 204 thereof provides: Any judge who shall knowingly render an unjust judgment in a case submitted to him for decision shall be punished . . . . The law requires that the (a) offender is a judge; (b) he renders a judgment in a case submitted to him for decision; (c) the judgment is unjust; (d) he knew that said judgment is unjust. 7 In some administrative cases 8 decided by this Court, We have ruled that in order to hold a judge liable, it must be shown beyond reasonable doubt that the judgment is unjust and that it was made with conscious and deliberate intent to do an injustice. In this case, We are constrained to hold that complainant failed to substantiate its claims that respondent judge rendered an unjust judgment knowingly. It merely relied on the failure of respondent judge to mention the motion in the decision, on his alleged reliance on the testimony of defense witness and on the delay in the promulgation of the case. But they are not enough to show that the judgment was unjust and was maliciously rendered. A judgment is said to be unjust when it is contrary to the standards of conduct prescribed by law. 9 The test to determine whether an order or judgment is unjust may be inferred from the circumstances that it is contrary to law or is not supported by evidence. 10 The decision herein rests on two legal grounds: first, that there was no unfair competition because the elements of the crime were not sufficiently proven; second, that Jose V. Rosario who was accused as owner/proprietor of COD was not properly charged as his personality is distinct from that of the COD's. In holding that there was no unfair competition, the respondent judge said that "the seized articles did not come close to the appearance of a genuine Louis Vuitton product". 11 His pronouncement obviously had in mind the test to determine unfair competition which this Court had laid down in the case of U.S. vs. Manuel, 12 to wit: ". . . whether certain goods have been clothed with an appearance which is likely to deceive the ordinary purchaser exercising ordinary care, . . ." In so finding that the seized products did not come close to the appearance of genuine Louis Vuittons because they were poorly done, the court considered

not only their appearance but other factors as well, such as the price differences between the real and the fake products. Complainant, on the other hand, alleged that they were good workmanship. But, this Court is not in a position to review the evidence and thereafter conclude that the imitation was poorly or excellently done. The findings of fact of the trial court, if supported by substantial evidence, are binding on the Supreme Court. 13 Even on the assumption that the judicial officer has erred in the appraisal of evidence, he cannot be held administratively or civilly liable for his judicial action. 14 The second ground which was relied upon by the trial court in acquitting the accused finds basis in the well-settled doctrine that a corporation has a distinct personality from that of its stockholders/owners. A corporation is vested by law with a personality of its own, separate and distinct from that of its stockholders and from that of its officers who manage and run its affairs. 15 Furthermore, Section 23 of the Corporation Code provides: . . . the corporate powers of all corporations formed under this code shall be exercised, all business conducted, and all property of such corporations controlled and held by the Board of Directors . . . . This decision is assailed to be unjust mainly because it did not consider the Prosecution's Memorandum with Motion and Motion for Early Resolution filed by private prosecutor, herein complainant, on February 8, 1991 and February 11, 1991, respectively. According to complainant, had respondent judge taken the former motion into account, he would not have acquitted the accused, Jose V. Rosario. Instead, he would have been held guilty for giving others an opportunity to engage in unfair competition as prescribed by Article 189 of the Revised Penal Code. llcd Respondent judge's judgment cannot be rendered unjust by this alone. In the first place, it would not have made any difference because Jose v. Rosario was charged as owner/proprietor. COD is not a single proprietorship but one that is run and owned by a corporation, Rosario Bros., Inc., of which the accused is a stockholder and Executive Vice-President. A stockholder generally does not have a hand in the management of the corporate affairs. On the other hand, the Vice-President has no inherent power to bind the corporation. 16 As a general rule, his duties must be specified in the by-laws. 17 In the criminal case, the information did not specify his duties as Executive Vice-President. The trial court had no basis for holding that as such, the accused entered into a contract with the concessionaire thereby giving the latter an opportunity to practice unfair competition. Whereas, Section 23 of the Corporation Code is explicit that the directors, acting as a body, exercise corporate powers and conduct the corporation's business. The board has the sole power and responsibility to decide whether a corporation should enter into any contract or perform any act. 18 The amendment of the charge, as proposed by the private prosecutor, would not in any way affect the application of the doctrine that the corporation has a personality distinct from that of its owners. Moreover, the finding of the trial court that there is no unfair competition renders the consideration of the motions insignificant. If there was no unfair competition, so would there be no offense of giving others an opportunity to engage in unfair competition since there was no unfair competition to begin with. Herein complainant also failed to prove malice and deliberate intent on the part of respondent judge to perpetrate an unjustice. We hereby quote the decision of this Honorable Court in Sta. Maria vs. Ubay, 19 stating that: ". . . complainant failed to show any unmistakable indication that bad faith motivated the alleged unjust actuations of the respondent judge . . . . Absent, thus, any positive evidence on record that the respondent judge rendered judgment in question with conscious and deliberate intent to do an injustice, the . . . charge of the complainant must fall."

In Mendoza vs. Villaluz, 20 this Court has also held: ". . . it is a fundamental rule of long standing that a judicial officer when required to exercise his judgment or discretion is not criminally liable for any error he commits provided he acts in good faith, that in the absence of malice or any wrongful conduct . . . the judge cannot be held administratively responsible . . . for no one, called upon to try the facts or interpret the law in the process of administering justice can be infallible in his judgment," and "to hold a judge administratively accountable for every erroneous ruling or decision he renders assuming that he has erred, would be nothing short of harassment or would make his position unbearable"." This pronouncement has been reiterated by Us in the case of Miranda vs. Judge Manalastas, 21 where We said: "Well established is the rule that mere errors in the appreciation of evidence, unless so gross and patent as to produce an inference of ignorance or bad faith, or that the judge knowingly rendered an unjust decision, are irrelevant and immaterial in administrative proceedings against him. No one called upon to try the facts or interpret the law in the process of administering justice is infallible in his judgment. All that is expected of him is that he follows the rules prescribed to ensure a fair and impartial hearing, assess the different factors that emerge therefrom and bear on the issues presented, and on the basis of the conclusions he find established, with only his conscience and knowledge of the law to guide him, adjudicate the case accordingly. . . . If in the mind of the respondent, the evidence for the defense was entitled to more weight and credence, he cannot be held to account administratively for the result of his ratiocination. For that is the very essence of judicial inquiry: otherwise the burdens of judicial office will be intolerable." (emphasis supplied). A judge cannot be subjected to liability civil, criminal, or administrative for any of his official acts, no matter how erroneous, as long as he acts in good faith. 22 In Pabalan vs. Guevarra, 23 the Supreme Court spoke of the rationale for this immunity. We held, thus: ". . . 'it is a general principle of the highest importance to the proper administration of justice that a judicial officer, in exercising the authority vested in him, shall be free to act upon his own convictions, without apprehension of personal consequences to himself.' This concept of judicial immunity rests upon consideration of public policy, its purpose being to preserve the integrity and independence of the judiciary." Still, complainant wants Us to apply the Res Ipsa Loquitur Doctrine as applied by this Court in the cases of People vs. Valenzuela; 24 Cathay Pacific Airways vs. Romillo; 25 In Re: Wenceslao Laureta; 26 and Consolidated Bank and Trust Corporation vs. Capistrano. 27 That doctrine, however, is not applicable to the case at bar. In similar administrative cases separately filed against Judge Liwag 28 and Judge Dizon, 29 We have ruled that: "In these res ipsa loquitur resolutions, there was on the face of the assailed decisions, an inexplicable grave error bereft of any redeeming feature, a patent railroading of a case to bring about an unjust decision, or a manifestly deliberate intent to wreak (sic) an injustice against a hapless party. The facts themselves, previously proven or admitted, were of such a character as to give rise to a strong inference that evil intent was present. Such intent, in short, was clearly deducible from what was already of record. The res ipsa loquitur doctrine does not except or dispense with the necessity of proving the facts on which the inference of evil intent is based. It merely expresses the clearly sound and reasonable conclusion that when such facts are admitted or are already shown by the record, and no credible explanation that would negative the strong inference of evil intent is forthcoming, no further hearing to

establish them to support a judgment as to the culpability of a respondent is necessary. Thus, when asked to explain the clearly gross ignorance of law or the grave misconduct irresistibly reflecting on their integrity, the respondent Judges were completely unable to give any credible explanation or to raise reasonable doubt . . . ." (emphasis supplied). Thus, even granting that res ipsa loquitur is appreciable, complainant still has to present proof of malice and bad faith. Respondent judge, on the other hand, may raise good faith as a defense. That good faith is a defense to the charge of knowingly rendering an unjust judgment remains to be the law. 30 He is also given the chance to explain his acts and if such explanation is credible, the court may absolve him of the charge. In this case, We find that the facts and the explanation rendered by Judge Villanueva justify his absolution from the charge. However, while he is held to be not guilty, he should avoid acts which tend to cast doubt on his integrity. Moreover, his delay in the promulgation of this case deserves a reprimand from this Court as it is contrary to the mandate of our Constitution which enshrines the right of the litigants to a speedy disposition of their cases. WHEREFORE, in view of the foregoing, this complaint is hereby DISMISSED for lack of merit. Considering the delay in the promulgation of the decision of this case by respondent judge, a reprimand is in order. SO ORDERED. Narvasa, C .J ., Gutierrez, Jr., Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo and Melo, JJ ., concur. Footnotes 1. Complaint, p. 2. 2. Prosecution's Memorandum and Motion, p. 54. 3. MTC Decision, pp. 6-7. 4. Id., at pp. 7-8. 5. 97 SCRA 158 (1980). 6. Supra, note 2 at p. 53. 7. GUEVARRA, FUNDAMENTALS OF CRIMINAL LAW 426 (8th ed., 1988). 8. Pabalan vs. Guevarra, 74 SCRA 53 (1976); In Re: Rafael C. Climaco, 55 SCRA 107 (1974). 9. Buenavista, Jr. vs. Garcia, 187 SCRA 598 (1990). 10. Ibid. 11. Supra, note 2 at p. 8. 12. 7 Phil. 221 (1906). 13. FNCB Finance vs. Estavillo, 192 SCRA 514 (1990); People vs. Fernandez, 165 SCRA 302 (1988); Manahan vs. People, 167 SCRA 1 (1988). 14. Pabalan vs. Guevarra, supra, note 8. 15. Villanueva, et. al. vs. NLRC, G.R. 80374, June 17, 1991; Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347 (1976); De Borja vs. Vasquez, 74 Phil. 560 (1944). 16. SANTOS, CORPORATE MANAGEMENT AND LAW IN THE PHILIPPINES 76 (1987). 17. Ibid. 18. CAMPOS, JR. AND LOPEZ-CAMPOS, THE CORPORATION CODE 341 (v. 1, 1991). 19. 87 SCRA 179 (1978). 20. 106 SCRA 664 (1981). 21. A.M. MTJ-88-159, December 21, 1989, citing Vda. de Zabala vs. Hon. Manual Pamaran, 39 SCRA 430 (1971). 22. Valdez vs. Valera, 81 SCRA 246 (1978).

23. Supra, note 8, citing Alzua and Arnalot vs. Johnson, 21 Phil. 308, 337338 (1912) and Gammel vs. Ernst and Ernst, 245 Minn. 249, N.W. 2d. 364, 54 A.L.R. 2d. 316. 24. 135 SCRA 712 (1985). 25. 142 SCRA 262 (1986). 26. 149 SCRA 570 (1987). 27. 159 SCRA 47 (1988). 28. Pilipinas Bank vs. Tirona-Liwag, 190 SCRA 834 (1991). 29. In Re: Petition for the Dismissal from Service and/or Disbarment of Judge Baltazar R. Dizon, 173 SCRA 719 (1989). 30. Ibid. THIRD DIVISION [G.R. No. 91436. May 24, 1993.] METROPOLITAN BANK & TRUST COMPANY, petitioner, vs. QUILTS & ALL, INC., respondent. Balane, Barican, Cruz, Alampay Law Office for petitioner. Ranel L. Trinidad for private respondent. SYLLABUS 1. REMEDIAL LAW; CIVIL PROCEDURE; MOTION TO DISMISS; LACK OF CAUSE OF ACTION; THE COMPLAINT MERELY EXPRESSES LEGAL CONCLUSION, NOT AVERMENT OF ULTIMATE FACTS. An examination of the complaint shows that the allegations therein pertain mostly to the alleged ultra vires acts of Dizon and de los Santos. Paragraph 10 of the complaint, upon which both the trial court and the Court of Appeals premised a case against Metrobank, merely expresses legal conclusions, and is not an averment or allegation of ultimate facts. In the case of Alzua and Armalot vs. Johnson, (21 Phil. 308 [1912]), we stated: . . . neither legal conclusions, nor conclusions or inferences of facts from fact not stated, nor incorrect inferences or conclusions from facts stated, being admitted by a demurrer to a complaint, conclusions of this nature in no wise aid the pleading. The ultimate facts upon which such conclusions rest must be alleged, though merely probative or evidential facts may be and should be omitted. We agree with Metrobank that the complaint does not contain allegations that Metrobank had prior knowledge of, or could have known with the exercise of due diligence, that the recitals in the Secretary's Certificate were false. The complaint does not even allege specific overt acts which show that Metrobank acted in conspiracy with its codefendants to defraud Quilts. In the case of Bacolod-Murcia Milling Co., Inc. vs. First Farmers Milling Co., Inc. [103 SCRA 436 (1981)] we stated: . . . Granting, for the sake of argument, that, indeed, assistance in the 'illegal' act was rendered, the same, however, is not supported by well-pleaded averments of facts. Nowhere is it alleged that defendants-appellees had notice, information of knowledge of any flaw, much less any illegality, in their co-defendants' actuations, assuming that there was such a flaw or illegality. This absence is fatal and buoys up instead the PNB-NIDC's position of lack of cause of action. Although it is averred that the defendants' acts were done in bad faith, the Complaint does not contain any averment of facts showing that the acts were done in the manner alleged. Such a bare statement neither establishes any right or cause of action on the part of the plaintiff-appellant. It is a mere conclusion of law not sustained by declarations of facts, much less admitted by defendants-appellees. It does not, therefore, aid in any wise the complaint in setting forth a cause of action. DAVIDE, JR., J., separate opinion: THE COMPLAINT ADEQUATELY STATES VALID CAUSE OF ACTION AGAINST THE PETITIONER; THE TRIAL COURT DID NOT COMMIT ANY GRAVE ABUSE OF DISCRETION IN DENYING THE PETITIONER'S MOTION TO DISMISS. I

respectfully submit that paragraphs 4 to 10, inclusive, of the complaint in the said case, which are reproduced at pages 4 to 6 of the ponencia, adequately state a valid cause of action against the petitioner. It is clear therefrom that the petitioner acted with undue haste in accepting the real estate mortgage of the private respondent's property to secure a personal loan of the latter's President solely on the basis of an alleged certification of the Corporate Secretary to the effect that at a special meeting of the Board of Directors of the private respondent, its President was authorized and empowered to mortgage in favor of the petitioner a property belonging to the corporation. There is no showing that a copy of the Board Resolution is attached to the certification. It is likewise obvious that no special power of attorney was subsequently executed after the President was allegedly authorized to mortgage the private respondent's property to secure the personal loan of the President. A special power of attorney is necessary to create or convey real rights over immovable property; furthermore, the special power of attorney must appear in a public document (paragraph 12, Article 1878, in relation to paragraph 1, Article 1358, Civil Code). In the absence of such a public instrument, a person dealing with an agent would not know the limits or extent of the latter's authority. "It is HornBook law that a person dealing with an agent is put upon inquiry as to the power and authority of the agent" (Deen vs. Pacific Commercial Co., 42 Phil. 738, 747 [1922]). In the absence of a special power of attorney in favor of the President of the private respondent, no valid mortgage could have been executed in favor of the petitioner. Thus, on the face of the allegations in the complaint, the truth of which is hypothetically admitted for purposes of the motion to dismiss, a viable cause of action exists in favor of the private respondent; at the least, the ground for such a motion does not appear to be indubitable. The trial court did not then commit any grave abuse of discretion in denying the petitioner's motion to dismiss. DECISION MELO, J p: The petition for review before us was filed under Rule 45 of the Revised Rules of Court and seeks to set aside the decision of the Court of Appeals in CA-G.R. SP No. 18666 (Annex "L", pp. 98-104, Rollo) dated November 27, 1989, which disposed: WHEREFORE, judgment is hereby rendered giving due course to the petition and declaring that the Honorable respondent court is without jurisdiction to pass upon the issue against defendants Senen B. Dizon and Relita P. de los Santos anent the authority of Senen B. Dizon to enter into the mortgage contract as this falls within the original and exclusive jurisdiction of the Securities and Exchange Commission, and ordering the suspension of further proceedings in Civil Case No. 5570 until said issue shall have been resolved by the Securities and Exchange Commission. Without pronouncement as to costs. (p. 103, Rollo) On April 7, 1987, Relita P. de los Santos (de los Santos) then Corporate Secretary issued a Secretary's Certificate (Annex "A", p. 31, Rollo) which certified that in a special meeting of the Board of Directors of Quilts and All, Inc. (Quilts) its President, Mr. Senen B. Dizon (Dizon) was authorized and empowered to mortgage in favor of Metrobank, a property belonging to Quilts. LibLex On the basis of this Secretary's Certificate, Metrobank restructured Dizon's existing personal loan in the amount of P700,000.00 (Comment, p. 121, Rollo), secured by his house and lot at Angeles City and the property owned by Quilts covered by Transfer Certificate of Title No. 74172 (Annex "B", p. 32, Rollo). Aside from the mortgage lien, the Secretary's Certificate was likewise annotated on TCT No. 74172 on April 10, 1977.

On July 7, 1988, more than a year later, Metrobank received a letter from Atty. Cesar Villanueva, Quilt's counsel (Annex "D", p. 35, Rollo) offering the amount of P200,000.00 for the cancellation of the mortgage on the property owned by Quilts because, allegedly, "Mr. & Mrs. Senen Dizon had left the Philippines, leaving several creditors." Metrobank refused the offer since the amount offered did not approximate the appraised value of the mortgaged property. (Petition, p. 10, Rollo) On October 4, 1988, Atty. Ranel L. Trinidad, Quilt's new counsel wrote Metrobank. (Annex "C", p. 33, Rollo), reiterating the mortgage cancellation. In addition, counsel claimed that the alleged April 7, 1987 special meeting could not have taken place for lack of the requisite number of directors present to constitute a quorum since the Chairman and 2 other members of the Board of Directors were abroad on that date. On October 20, 1988, Quilts filed a complaint against Metrobank, Dizon and de los Santos for annulment and cancellation of mortgage (CC 5570, RTC-Br. 58, Angeles City) (Annex "E", p. 37, Rollo). On December 12, 1988, Metrobank moved to dismiss the complaint based on 1) lack of jurisdiction and 2) failure to state a cause of action. Judge Reynaldo B. Daway, granted the motion on February 9, 1989. (Annex "G", p. 51, Rollo). However, on August 4, 1989, upon Quilt's motion, Judge Daway issued an Order (Annex "J", p. 73, Rollo) reconsidering and setting aside the dismissal order because the grounds relied upon by Metrobank "did not appear to be indubitable", and deferred the determination of the motion until the trial. Metrobank filed an original petition for certiorari, prohibition or mandamus, contesting the reinstatement of the complaint and in the process reiterating as grounds lack of jurisdiction on the part of the trial court and failure of Quilt's complaint to state a cause of action. The Court of Appeals upheld the jurisdiction of the lower Court only with respect to Metrobank. It dismissed the case against Dizon and de los Santos, since the issue of whether or not these two persons had committed ultra vires acts is an intra-corporate matter which falls within the original and exclusive jurisdiction of the Securities and Exchange Commission (SEC) pursuant to Section 5 of Presidential Decree 902A, as amended. Pending the outcome of the case that would be filed in the SEC, however, the Court of Appeals directed the suspension of the proceedings against Metrobank. The appellate court also stated that paragraph 10 of Quilt's complaint was sufficient basis for Quilt's case against Metrobank. LexLib Hence, the instant petition in which the central and key issue is whether or not Quilt's complaint sufficiently states a cause of action against Metrobank. Pertinent allegations of Quilt's complaint are quoted below: 4. That sometime on 7 April 1987, defendant Relita P. Delos Santos issued and signed a secretary's certificate certifying that she was the incumbent corporate secretary of plaintiff corporation and that a special meeting of the Board of Directors thereof was held on the same date at its principal office and that a resolution was passed and approved authorizing and empowering Senen B. Dizon, the then president of plaintiff corporation as the latter's attorney-infact, to mortgage in favor of defendant Metropolitan Bank & Trust CompanyDau Branch the plaintiff corporation's real property located at the Riverside Subd., Angeles City, covered by Transfer Certificate of Title No. 74172, Registry of Deeds of Angeles City, containing an area of 823 square meters, as security for the loan of SEVEN HUNDRED THOUSAND (P700,000.00) Philippine Pesos obtained by Mr. Senen B. Dizon in his personal capacity from the said bank, with full power and authority for Mr. Senen B. Dizon to sign, execute, acknowledge and deliver, for and in behalf of the plaintiff corporation relating to the said loan. A machine copy of the said secretary's certificate is hereto attached as Annex "B" hereof;

5. That verifications made later by the stockholders and some members of the Board of Directors of the plaintiff corporation with the Registry of Deeds of Angeles City revealed that the parcel of land owned by the plaintiff corporation covered by TCT No. 74172 was mortgaged in favor of the defendant Metropolitan Bank & Trust Company to guaranty the personal obligation of defendant Senen B. Dizon in the principal amount of P700,000.00 (see Annex "A-2" hereof); 6. That on 7 April 1987, plaintiff corporation had for its Board of Directors five (5) members namely: Romeo V. Rosas, Arcadio R. Sarmiento, Jr., Romeo N. Pangilinan, Senen B. Dizon, and Relita P. Delos Santos, and for a quorum to be had, for purposes of holding a valid meeting of the Board of Directors, at least three (3) members thereof should be present thereat; 7. That on 7 April 1987, Mr. Romeo V. Rosas was in the United States of America while Mr. Arcadio R. Sarmiento, Jr. was then in New Zealand. Mr. Romeo N. Pangilinan, although in the country on the said date, was never informed and never attended a meeting of the plaintiff corporation's Board of Directors. With the absence of three (3) of plaintiff corporation's five (5) member Board of Directors, no valid meeting could have been held; 8. That a perusal of the Amended Articles of Incorporation of the plaintiff corporation, particularly under the primary and secondary purposes for which it was created, will reveal that the corporation can not hypothecate any of its properties to secure the personal obligations of any of its shareholders, directors or officers. A machine copy of the plaintiff corporation's Amended Articles of Incorporation is hereto attached as Annexes "C" to "C-8" for pages 1 to 9, respectively, hereof; 9. That a letter demanding for the immediate cancellation of the real estate mortgage constituted upon TCT No. 74172 in favor of defendant Metropolitan Bank & Trust Company have been sent to the latter through its Dau Branch Manager and Legal Department but the said bank failed and refused to comply with the valid demand of the plaintiff corporation. A copy of the said letter is hereto attached as Annexes "D" and "D-1" for pages 1 and 2, respectively, hereof; 10. That plaintiff corporation suffered and continue to suffer actual damages as a result of the illegal acts of defendants for which the former should be compensated in an amount to be proved during the trial of the instant cases. (pp. 38-40, Rollo) An examination of the complaint shows that the allegations therein pertain mostly to the alleged ultra vires acts of Dizon and de los Santos. Paragraph 10 of the complaint, upon which both the trial court and the Court of Appeals premised a case against Metrobank, merely expresses legal conclusions, and is not an averment or allegation of ultimate facts. In the case of Alzua and Armalot vs. Johnson, (21 Phil. 308 [1912], we stated: . . . neither legal conclusions, nor conclusions or inferences of facts from fact not stated, nor incorrect inferences or conclusions from facts stated, being admitted by a demurrer to a complaint, conclusions of this nature in no wise aid the pleading. The ultimate facts upon which such conclusions rest must be alleged, though merely probative or evidential facts may be and should be omitted. (at p. 381.) We agree with Metrobank that the complaint does not contain allegations that Metrobank had prior knowledge of, or could have known with the exercise of due diligence, that the recitals in the Secretary's Certificate were false. The complaint does not even allege specific overt acts which show that Metrobank acted in conspiracy with its co-defendants to defraud Quilts. In the case of Bacolod-Murcia Milling Co., Inc. vs. First Farmers Milling Co., Inc. [103 SCRA 436 (1981)] we stated:

. . . Granting, for the sake of argument, that, indeed, assistance in the 'illegal' act was rendered, the same, however, is not supported by well-pleaded averments of facts. Nowhere is it alleged that defendants-appellees had notice, information of knowledge of any flaw, much less any illegality, in their codefendants' actuations, assuming that there was such a flaw or illegality. This absence is fatal and buoys up instead the PNB-NIDC's position of lack of cause of action . . . (at pp. 441-442.) Although it is averred that the defendants' acts were done in bad faith, the Complaint does not contain any averment of facts showing that the acts were done in the manner alleged. Such a bare statement neither establishes any right or cause of action on the part of the plaintiff-appellant. It is a mere conclusion of law not sustained by declarations of facts, much less admitted by defendants-appellees. It does not, therefore, aid in any wise the complaint in setting forth a cause of action . . . (pp. 441-442.) LLjur On the other hand, Metrobank cannot be faulted for relying on the Secretary's Certificate. It did so in good faith, unaware of any flaw and on the presumption that the ordinary course of business had been followed (Sec. 5-q, Rule 131, Revised Rules of Court) and that the Corporate Secretary had regularly performed her duties. WHEREFORE, premises considered, the herein petition is GRANTED. The Resolution of the Court of Appeals in CA-G.R. SP No. 18666, dated November 27, 1989 is MODIFIED in that the Civil Case No. 5570 against Metrobank is hereby DISMISSED. No special pronouncement is made as to costs. SO ORDERED. Bidin and Romero, JJ ., concur. Separate Opinions DAVIDE, JR., J ., dissenting: I vote to DENY the petition. No reversible error was committed by the Court of Appeals in denying the petitioner's plea to set aside the order of Branch 58 of the Regional Trial Court at Angeles City denying the petitioner's motion to dismiss, on the ground of lack of a cause of action, in Civil Case No. 5570. I respectfully submit that paragraphs 4 to 10, inclusive, of the complaint in the said case, which are reproduced at pages 4 to 6 of the ponencia, adequately state a valid cause of action against the petitioner. It is clear therefrom that the petitioner acted with undue haste in accepting the real estate mortgage of the private respondent's property to secure a personal loan of the latter's President solely on the basis of an alleged certification of the Corporate Secretary to the effect that at a special meeting of the Board of Directors of the private respondent, its President was authorized and empowered to mortgage in favor of the petitioner a property belonging to the corporation. There is no showing that a copy of the Board Resolution is attached to the certification. It is likewise obvious that no special power of attorney was subsequently executed after the President was allegedly authorized to mortgage the private respondent's property to secure the personal loan of the President. A special power of attorney is necessary to create or convey real rights over immovable property; furthermore, the special power of attorney must appear in a public document (paragraph 12, Article 1878, in relation to paragraph 1, Article 1358, Civil Code). In the absence of such a public instrument, a person dealing with an agent would not know the limits or extent of the latter's authority. "It is HornBook law that a person dealing with an agent is put upon inquiry as to the power and authority of the agent" (Deen vs. Pacific Commercial Co., 42 Phil. 738, 747 [1922]). In the absence of a special power of attorney in favor of the President of the private respondent, no valid mortgage could have been executed in favor of the petitioner.

Thus, on the face of the allegations in the complaint, the truth of which is hypothetically admitted for purposes of the motion to dismiss, a viable cause of action exists in favor of the private respondent; at the least, the ground for such a motion does not appear to be indubitable. The trial court did not then commit any grave abuse of discretion in denying the petitioner's motion to dismiss. For lack of merit, the instant petition should be denied. Feliciano, J ., dissents. SECOND DIVISION [G.R. No. 76801. August 11, 1995.] LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES, petitioners, vs. FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LABOR RELATIONS COMMISSION, respondents. The Solicitor General for petitioners. Roberto B. Capoon, Jr. for private respondents. SYLLABUS 1. REMEDIAL LAW; ACTIONS; APPEAL; ISSUES CANNOT BE RAISED FOR THE FIRST TIME ON APPEAL. Indeed, it would be offensive to the basic rules of fair play and justice to allow petitioners to raise questions which have not been passed upon by the labor arbiter and the public respondent NLRC. It is well-settled that questions not raised in the lower courts cannot be raised for the first time on appeal. Hence, petitioners may not invoke any other ground, other than those it specified at the labor arbiter level, to impugn the validity of the subject resolutions. 2. COMMERCIAL LAW; CORPORATION LAW; CORPORATION; SHOULD ACT IN THE MANNER AND WITHIN THE FORMALITIES PRESCRIBED BY ITS CHARTER OR BY THE GENERAL LAW. The general rule is that a corporation, through its board of directors, should act in the manner and within the formalities, if any, prescribed by its charter or by the general law. Thus, directors must act as a body in a meeting called pursuant to the law or the corporation's by-laws, otherwise, any action taken therein may be questioned by any objecting director or shareholder. 3. ID.; ID.; ID.; ACTION OF THE BOARD OF DIRECTORS WITHOUT NOTICE MAY BE RATIFIED. Be that as it may, jurisprudence tells us that an action of the board of directors during a meeting, which was illegal for lack of notice, may be ratified either expressly, by the action of the directors in subsequent legal meeting, or impliedly, by the corporation's subsequent course of conduct. 4. ID.; ID.; ID.; ID.; BOARD RESOLUTION GRANTING GRATUITY PAY WITHOUT NOTICE TO MAJOR STOCKHOLDER; RATIFIED WHERE SAID MAJOR STOCKHOLDER SIGNED CASH VOUCHERS FOR GRATUITY PAY. In the case at bench, it was established that petitioner corporation did not issue any resolution revoking nor nullifying the board resolutions granting gratuity pay to private respondents. Instead, they paid the gratuity pay, particularly, the first two (2) installments thereof, of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista. Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the assailed resolutions were passed, we can glean from the records that she was aware of the corporation's obligation under the said resolutions. More importantly, she acquiesced thereto. As pointed out by private respondents, petitioner Asuncion Lopez Gonzales affixed her signature on Cash Voucher Nos. 81-10-510 and 81-10-506, both dated October 15, 1981, evidencing the 2nd installment of the gratuity pay of private respondents Mila Refuerzo and Florentina Fontecha. We hold, therefore, that the conduct of petitioners after

the passage of resolutions dated August 17, 1981 and September 1, 1981, had estopped them from assailing the validity of said board resolutions. 5. ID.; ID.; ID.; ULTRA VIRES, DEFINED. In legal parlance, "ultra vires" act refers to one which is not within the corporate powers conferred by the Corporation Code or articles of incorporation or not necessary or incidental in the exercise of the powers so conferred. 6. ID.; ID.; ID.; RESOLUTION GRANTING GRATUITY TO EMPLOYEES, NOT ULTRA VIRES. The assailed resolutions before us cover a subject which concerns the benefit and welfare of the company's employees. To stress, providing gratuity pay for its employees is one of the express powers of the corporation under the Corporation Code, hence, petitioners cannot invoke the doctrine of ultra vires to avoid any liability arising from the issuance the subject resolutions. 7. ID.; ID.; ID.; ID.; NEED NOT BE APPROVED IN THE ANNUAL STOCKHOLDERS' MEETING; CASE AT BENCH. Petitioners try to convince us that the subject resolutions had no force and effect in view of the nonapproval thereof during the Annual Stockholders' Meeting held on March 1, 1982. To strengthen their position, petitioners cite Section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). We are not persuaded. The cited provision is not applicable to the case at bench as it refers to the sale, lease, exchange or disposition of all or substantially all of the corporation's assets, including its goodwill. In such a case, the action taken by the board of directors requires the authorization of the stockholders on record. It will be observed that, except for Arturo Lopez, the stockholders of petitioner corporation also sit as members of the board of directors. Under the circumstances in field, it will be illogical and superfluous to require the stockholders' approval of the subject resolutions. Thus, even without the stockholders' approval of the subject resolutions, petitioners are still liable to pay private respondents' gratuity pay. DECISION PUNO, J p: The controversy at bench arose from a complaint filed by private respondents, 1 namely, Florentina Fontecha, Mila Refuerzo, Marcial Mamaril, Perfecto Bautista, Edward Mamaril, Marissa Pascual and Allan Pimentel, against their employer Lopez Realty Incorporated (petitioner) and its majority stockholder. Asuncion Lopez Gonzales, for alleged non-payment of their gratuity pay and other benefits. 2 The case was docketed as NLRC-NCR Case No. 2-2176-82. cdasia Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner Asuncion Lopez Gonzales is one of its majority shareholders. Her interest in the company vis-a-vis the other shareholders is as follows: 1. Asuncion Lopez Gonzales 7,831 shares 2. Teresita Lopez Marquez 7,830 shares 3. Arturo F. Lopez 7,830 shares 4. Rosendo de Leon 4 shares 5. Benjamin Bernardino 1 share 6. Leo Rivera 1 share Except for Arturo F. Lopez, the rest of the shareholders also sit as members of the Board of Directors. As found by the labor arbiter, 3 sometime in 1978, Arturo Lopez submitted a proposal relative to the distribution of certain assets of petitioner corporation among its three (3) main shareholders. The proposal had three (3) aspects, viz: (1) the sale of assets of the company to pay for its obligations; (2) the transfer of certain assets of the company to its three (3) main shareholders, while some other assets shall remain with the company; and (3) the reduction of employees with provision for their gratuity pay. The proposal was deliberated upon and

approved in a special meeting of the board of directors held on April 17, 1978. cdtai It appears that petitioner corporation approved two (2) resolutions providing for the gratuity pay of its employees, viz: (a) Resolution No. 6, Series of 1980, passed by the stockholders in a special meeting held on September 8, 1980, resolving to set aside, twice a year, a certain sum of money for the gratuity pay of its retiring employees and to create a Gratuity Fund for the said contingency; and (b) Resolution No. 10, Series of 1980, setting aside the amount of P157,750.00 as Gratuity Fund covering the period from 1950 up to 1980. Meanwhile, on July 28, 1981, board member and majority stockholder Teresita Lopez Marquez died. On August 17, 1981, except for Asuncion Lopez Gonzales who was then abroad, the remaining members of the Board of Directors, namely: Rosendo de Leon, Benjamin Bernardino, and Leo Rivera, convened a special meeting and passed a resolution which reads: cdt "Resolved, as it is hereby resolved that the gratuity (pay) of the employees be given as follows: (a) Those who will be laid off be given the full amount of gratuity; (b) Those who will be retained will receive 25% of their gratuity (pay) due on September 1, 1981, and another 25% on January 1, 1982, and 50% to be retained by the office in the meantime. (Emphasis supplied) aisadc Private respondents were the retained employees of petitioner corporation. In a letter, dated August 31, 1981, private respondents requested for the full payment of their gratuity pay. Their request was granted in a special meeting held on September 1, 1981. The relevant portion of the minutes of the said board meeting reads: "In view of the request of the employees contained in the letter dated August 31, 1981, it was also decided that all those remaining employees will receive another 25% (of their gratuity) on or before October 15, 1981 and another 25% on or before the end of November, 1981 of their respective gratuity." At that time, however, petitioner Asuncion Lopez Gonzales was still abroad. Allegedly, while she was still out of the country, she sent a cablegram to the corporation, objecting to certain matters taken up by the board in her absence, such as the sale of some of the assets of the corporation. Upon her return, she filed a derivative suit with the Securities and Exchange Commission (SEC) against majority shareholder Arturo F. Lopez. cdta Notwithstanding the "corporate squabble" between petitioner Asuncion Lopez Gonzales and Arturo Lopez, the first two (2) installments of the gratuity pay of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista were paid by petitioner corporation. Also, petitioner corporation had prepared the cash vouchers and checks for the third installments of gratuity pay of said private respondents (Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista). For some reason, said vouchers were cancelled by petitioner Asuncion Lopez Gonzales. Likewise, the first, second and third installments of gratuity pay of the rest of private respondents, particularly, Edward Mamaril, Marissa Pascual and Allan Pimentel, were prepared but cancelled by petitioner Asuncion Lopez Gonzales. Despite private respondents' repeated demands for their gratuity pay, petitioner corporation refused to pay the same. 4 cdtai On July 23, 1984, Labor Arbiter Raymundo R. Valenzuela rendered judgment in favor of private respondents. 5 Petitioners appealed the adverse ruling of the labor arbiter to public respondent National Labor Relations Commission. The appeal focused on the alleged nonratification and non-approval of the assailed August 17, 1981 and September 1, 1981 Board Resolutions during the Annual Stockholders' Meeting held on

March 1, 1982. Petitioners further insisted that the payment of the gratuity to some of the private respondents was a mere "mistake" on the part of petitioner corporation since, pursuant to Resolution No. 6, dated September 8, 1980, and Resolution No. 10, dated October 6, 1980, said gratuity pay should be given only upon the employees' retirement. On November 20, 1985, public respondent, through its Second Division, dismissed the appeal for lack of merit, the pertinent portion of which states: 6 cdasia "We cannot agree with the contention of respondents (petitioners) that the Labor Arbiter a quo committed abuse of discretion in his decision. "Respondents' (petitioners') contention that the two (2) resolutions dated 17 August 1981 and 1 September 1981 . . . which were not approved in the annual stockholders meeting had no force and effect, deserves scant consideration. The records show that the stockholders did not revoke nor nullify these resolutions granting gratuities to complainants. "On record, it appears that the said resolutions arose from the legitimate creation of the Board of Directors who steered the corporate affairs of the corporation. . . . cdtai "Respondents' (petitioners') allegation that the three (3) complainants, Mila E. Refuerzo, Marissa S. Pascual and Edward Mamaril, who had resigned after filing the complaint on February 8, 1992, were precluded to (sic) receive gratuity because the said resolutions referred to only retiring employee could not be given credence. A reading of Resolutions dated 17 August 1981 and 1 September 1981 disclosed that there were periods mentioned for the payment of complainants' gratuities. This disproves respondents' argument allowing gratuities upon retirement of employees. Additionally, the proposed distribution of assets (Exh. C-1) filed by Mr. Arturo F. Lopez also made mention of gratuity pay, '. . . (wherein) an employee who desires to resign from LRI will be given the gratuity pay he or she earned.' (Emphasis supplied) Let us be reminded, too, that complainants' resignation was not voluntary but it was pressurized (sic) due to 'power struggle' which is evident between Arturo Lopez and Asuncion Gonzales. "The respondents' (petitioners') contention of a mistake to have been committed in granting the first two (2) installments of gratuities to complainants Perfecto Bautista, Florentina Fontecha, Marcial Mamaril and Mila Refuerzo, (has) no legal leg to stand on. The record is bereft of any evidence that the Board of Directors had passed a resolution nor is there any minutes of whatever nature proving mistakes in the award of damages (sic). "With regard to the award of service incentive leave and others, the Commission finds no cogent reason to disturb the appealed decision. cdt "We affirm. "WHEREFORE, let the appealed decision be, as it is hereby, AFFIRMED and let the instant appeal (be) dismissed for lack of merit. "SO ORDERED." cdtai Petitioners reconsidered. 7 In their motion for reconsideration, petitioners assailed the validity of the board resolutions passed on August 17, 1981 and September 1, 1981, respectively, and claimed, for the first time, that petitioner Asuncion Lopez Gonzales was not notified of the special board meetings held on said dates. The motion for reconsideration was denied by the Second Division on July 24, 1986. On September 4, 1986, petitioners filed another motion for reconsideration. Again, the motion was denied by public respondent in a Minute Resolution dated November 19, 1986. 8 Hence, the petition. As prayed for, we issued a Temporary Restraining Order, 9 enjoining public respondent from enforcing or executing the Resolution, dated November 20, 1986 (sic), in NLRC-NCR-2-2176-82. 10 cdtai

The sole issue is whether or not public respondent acted with grave abuse of discretion in holding that private respondents are entitled to receive their gratuity pay under the assailed board resolutions dated August 17, 1981 and September 1, 1981. Petitioners contend that the board resolutions passed on August 17, 1981 and September 1, 1981, granting gratuity pay to their retained employees, are ultra vires on the around that petitioner Asuncion Lopez Gonzales was not duly notified of the said special meetings. They aver, further, that said board resolutions were not ratified by the stockholders of the corporation pursuant to Section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). They also insist that the gratuity pay must be given only to the retiring employees, to the exclusion of the retained employees or those who voluntarily resigned from their posts. At the outset, we note that petitioner's allegation on lack of notice to petitioner Asuncion Lopez Gonzales was raised for the first time in their motion for reconsideration filed before public respondent National Labor Relations Commission, or after said public respondent had affirmed the decision of the labor arbiter. To stress, in their appeal before the NLRC, petitioners never raised the issue of lack of notice to Asuncion Lopez Gonzales. The appeal dealt with (a) the failure of the stockholders to ratify the assailed resolutions and (b) the alleged "mistake" committed by petitioner corporation in giving the gratuity pay to some of its employees who are yet to retire from employment. aisadc In their Comment, 11 private respondents maintain that the new ground of lack of notice was not raised before the labor arbiter, hence, petitioners are barred from raising the same on appeal. Private respondents claim, further, that such failure on the part of petitioners, had deprived them the opportunity to present evidence that, in a subsequent special board meeting held on September 29, 1981, the subject resolution dated September 1, 1981, was unanimously approved by the board of directors of petitioner corporation, including petitioner Asuncion Lopez Gonzales. 12 Indeed, it would be offensive to the basic rules of fair play and justice to allow petitioners to raise questions which have not been passed upon by the labor arbiter and the public respondent NLRC. It is well settled that questions not raised in the lower courts cannot be raised for the first time on appeal. 13 Hence, petitioners may not invoke any other ground, other than those it specified at the labor arbiter level, to impugn the validity of the subject resolutions. We now come to petitioners' argument that the resolutions passed by the board of directors during the special meetings on August 17, 1981, and September 1, 1981, were ultra vires for lack of notice. cdta The general rule is that a corporation, through its board of directors, should act in the manner and within the formalities, if any, prescribed by its charter or by the general law. 14 Thus, directors must act as a body in a meeting called pursuant to the law or the corporation's by-laws, otherwise, any action taken therein may be questioned by any objecting director or shareholder. 15 Be that as it may, jurisprudence 16 tells us that an action of the board of directors during a meeting, which was illegal for lack of notice, may be ratified either expressly, by the action of the directors in subsequent legal meeting, or impliedly, by the corporation's subsequent course of conduct. Thus, in one case, 17 it was held: " . . . In 2 Fletcher, Cyclopedia of the Law of Private Corporations (Perm. Ed.) Sec. 429, at page 290, it is stated: cdtai 'Thus, acts of directors at a meeting which was illegal because of want of notice may be ratified by the directors at a subsequent legal meeting, or by the corporation's course of conduct . . .' "Fletcher, supra, further states in Sec. 762, at page 1073-1074:

'Ratification by directors may be by an express resolution or vote to that effect, or it may be implied from adoption of the act, acceptance or acquiescence. Ratification may be effected by a resolution or vote of the board of directors expressly ratifying previous acts either of corporate officers or agents; but it is not necessary, ordinarily, to show a meeting and formal action by the board of directors in order to establish a ratification.' cdt "In American Casualty Co., v. Dakota Tractor and Equipment. Co., 234 F. Supp. 606, 611 (D.N.D. 1964), the court stated: 'Moreover, the unauthorized acts of an officer of a corporation may be ratified by the corporation by conduct implying approval and adoption of the act in question. Such ratification may be express or may be inferred from silence and inaction.' In the case at, bench, it was established that petitioner corporation did not issue any resolution revoking nor nullifying the board resolutions granting gratuity pay to private respondents. Instead, they paid the gratuity pay, particularly, the first two (2) installments thereof, of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista. cdtai Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the assailed resolutions were passed, we can glean from the records that she was aware of the corporation's obligation under the said resolutions. More importantly, she acquiesced thereto. As pointed out by private respondents, petitioner Asuncion Lopez Gonzales affixed her signature on Cash Voucher Nos. 81-10-510 and 81-10-506, both dated October 15, 1981, evidencing the 2nd installment of the gratuity pay of private respondents Mila Refuerzo and Florentina Fontecha. 18 We hold, therefore, that the conduct of petitioners after the passage of resolutions dated August 17, 1981 and September 1, 1981, had estopped them from assailing the validity of said board resolutions. Assuming, arguendo, that there was no notice given to Asuncion Lopez Gonzales during the special meetings held on August 17, 1981 and September 1, 1981, it is erroneous to state that the resolutions passed by the board during the said meetings were ultra vires. In legal parlance, "ultra vires" act refers to one which is not within the corporate powers conferred by the Corporation Code or articles of incorporation or not necessary or incidental in the exercise of the powers so conferred. 19 cdasia The assailed resolutions before us cover a subject which concerns the benefit and welfare of the company's employees. To stress, providing gratuity pay for its employees is one of the express powers of the corporation under the Corporation Code, hence, petitioners cannot invoke the doctrine of ultra vires to avoid any liability arising from the issuance the subject resolutions. 20 We reject petitioners' allegation that private respondents, namely, Mila Refuerzo, Marissa Pascual and Edward Mamaril who resigned from petitioner corporation after the filing of the case, are precluded from receiving their gratuity pay. Pursuant to board resolutions dated August 17, 1981 and September 1, 1981, respectively, petitioner corporation obliged itself to give the gratuity pay of its retained employees in four (4) installments: on September 1, 1981; October 15, 1981; November, 1981; and January 1, 1982. Hence, at the time the aforenamed private respondents tendered their resignation, the aforementioned private respondents were already entitled to receive their gratuity pay. Petitioners try to convince us that the subject resolutions had no force and effect in view of the non-approval thereof during the Annual Stockholders' Meeting held on March 1, 1982. To strengthen their position, petitioners cite Section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). We are not persuaded. aisadc

The cited provision is not applicable to the case at bench as it refers to the sale, lease, exchange or disposition of all or substantially all of the corporation's assets, including its goodwill. In such a case, the action taken by the board of directors requires the authorization of the stockholders on record. It will be observed that, except for Arturo Lopez, the stockholders of petitioner corporation also sit as members of the board of directors. Under the circumstances in field, it will be illogical and superfluous to require the stockholders' approval of the subject resolutions. Thus, even without the stockholders' approval of the subject resolutions, petitioners are still liable to pay private respondents' gratuity pay. IN VIEW WHEREOF, the instant petition is DISMISSED for lack of merit and the temporary restraining order we issued on February 9, 1987 is LIFTED. Accordingly, the assailed resolution of the National Labor Relations Commission in NLRC-NCR-2-2176-82 is AFFIRMED. This decision is immediately executory. Costs against petitioners. cdtai SO ORDERED. Narvasa, C.J., Regalado, Mendoza and Francisco, JJ., concur. Footnotes 1. Private respondents' basic monthly salary and date of employment with said company are as follows:i Employee Date Employed Latest Salary Florentina U. Fontecha 10-03-68 P1,090.00 Mila C. Refuerzo 08-02-68 930.00 Marcial C. Mamaril 09-01-51 560.00 Perfecto Bautista 12-01-54 540.00 Edward S. Mamaril 10-01-80 540.00 Marissa S. Pascual 02-01-81 540.00 Allan M. Pimentel 03-01-81 540.00 2. The case was docketed as NLRC-NCR Case No. 2-2176-82. 3. See Decision, dated July 23, 1984, Rollo, pp. 20-35. 4. Decision, dated July 23, 1984, Rollo, pp. 20-35. cdtai 5. Rollo, pp. 20-35. 6. Rollo, p. 51. 7. See Annex "E'' of Petition, Rollo, pp. 56-61. 8. Annex "A" of Petition, Rollo, p. 19. cdtai 9. Resolution, dated February 9, 1987, Rollo, p. 72. 10. On November 20, 1985, the National Labor Relations Commission promulgated its Resolution, dismissing the appeal of petitioners, in NLRC-NCR2-2176-82, for lack of merit. The November 20, 1986 Resolution alluded to refers to the NLRC notice re: November 19, 1986 Resolution, dismissing the second motion for reconsideration of petitioners, dated September 4, 1986; Rollo, p. 19. 11. Rollo, pp. 98-113. 12. Ibid., p. 180. 13. Anchuelo v. IAC , G.R. No. 71391, January 29, 1987, 147 SCRA 434. cdtai 14. 19 C.J.S. 432-444. 15. cf.; Section 53 of the Corporation Code. 16. Johnson v. Community Development Corp., 222 N.W. 2d 847. 17. Ibid. 18. Rollo, p. 109. cdtai 19. Section 45 of the Corporation Code provides: "Sec. 45, Ultra vires acts of corporation. No corporation under this Code shall possess or exercise any corporate powers except those conferred by this Code or by it articles of incorporation and except such as are necessary or incidental to the exercise of the powers so conferred."

20. Section 36 (10) of the Corporation Code provides, inter alia, that a corporation has the power and capacity "to establish pension, retirement and other plans for the benefit of its directors, trustees, officers and employees. SECOND DIVISION [G.R. No. 96551. November 4, 1996.] PREMIUM MARBLE RESOURCES, INC., petitioner, vs. THE COURT OF APPEALS and INTERNATIONAL CORPORATE BANK, respondents. PRINTLINE CORPORATION, petitioner, vs. THE COURT OF APPEALS and INTERNATIONAL CORPORATE BANK, respondents. Arnulfo F. Dumadag for petitioner. Fe Magalino & Associates for private respondents. SYLLABUS 1. COMMERCIAL LAW; CORPORATION CODE; CORPORATIONS; POWER TO SUE AND BE SUED, LODGED WITH THE BOARD OF DIRECTORS. The power of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its powers. Thus, the issue of authority and the invalidity of plaintiff-appellant's subscription which is still pending, is a matter that is also addressed, considering the premises, to the sound judgment of the Securities & Exchange Commission. cdasia 2. ID.; ID.; ID.; REQUIRED TO SUBMIT TO SEC WITHIN 30 DAYS AMONG OTHERS, THE NAMES OF DIRECTORS, TRUSTEES AND OFFICERS ELECTED; PURPOSE. By the express mandate of the Corporation Code (Section 26), all corporations duly organized pursuant thereto are required to submit within the period therein stated (30 days) to the Securities and Exchange Commission the names, nationalities and residences of the directors, trustees and officers elected. Evidently, the objective sought to be achieved by Section 26 is to give the public information, under sanction of oath of responsible officers, of the nature of business, financial condition and operational status of the company together with information on its key officers or managers so that those dealing with it and those who intend to do business with it may know or have the means of knowing facts concerning the corporation's financial resources and business responsibility. 3. ID.; ID.; ID.; NO PERSON, IN THE ABSENCE OF AUTHORITY FROM THE BOARD OF DIRECTORS, CAN VALIDLY BIND THE CORPORATION; ACTION FOR DAMAGES FILED BY CORPORATION WITHOUT RESOLUTION OF THE BOARD OF DIRECTORS. The lower court finds that the officers represented by Atty. Dumadag do not as yet have the legal capacity to sue for and in behalf of the plaintiff corporation and/or the filing of the present action (Civil Case 14413) by them before Case No. 2688 of the SEC could be decided is a premature exercise of authority or assumption of legal capacity for and in behalf of plaintiff corporation. "The issues raised in Civil Case No. 14444 are similar to those raised in Civil Case No. 14413. This Court is of the opinion that before SEC Case No. 2688 could be decided, neither the set of officers represented by Atty. Dumadag nor that set represented by the Siguion Reyna, Montecillo and Ongsiako Law Office, may prosecute cases in the name of the plaintiff corporation. It is clear from the pleadings filed by the parties in these two cases that the existence of a cause of action against the defendants is dependent upon the resolution of the case involving intra-corporate controversy still pending before the SEC." On appeal, the Court of Appeals affirmed the trial court's Order which dismissed the consolidated cases. We agree with the finding of public respondent Court of Appeals, that "in the absence of any board resolution from its board of directors the [sic] authority to act for and in behalf of the corporation, the present action must necessarily fail. The claim of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the incumbent officers of Premium has not been fully substantiated. In the absence

of an authority from the board of directors, no person, not even the officers of the corporation, can validly bind the corporation. TcEAIH DECISION TORRES, JR., J p: Assailed in the instant petition for review is the decision 1 of the Court of Appeals in CA-G.R. CV No. 16810 dated September 28, 1990 which affirmed the trial court's dismissal of petitioner's complaint for damages. The antecedents: On July 18, 1986, Premium Marble Resources, Inc. (Premium for brevity), assisted by Atty. Arnulfo Dumadag as counsel, filed an action for damages against International Corporate Bank which was docketed as Civil Case No. 14413. The complaint states, inter alia: "3. Sometime in August to October 1982, Ayala Investment and Development Corporation issued three (3) checks [Nos. 097088, 097414 & 27884] in the aggregate amount of P31,663.88 payable to the plaintiff and drawn against Citibank; xxx xxx xxx "5. On or about August to October 1982, former officers of the plaintiff corporation headed by Saturnino G. Belen, Jr., without any authority whatsoever from the plaintiff deposited the above-mentioned checks to the current account of his conduit corporation, Intervest Merchant Finance (Intervest, for brevity) which the latter maintained with the defendant bank under account No. 0200-02027-8; 6. Although the checks were clearly payable to the plaintiff corporation and crossed on their face and for payee's account only, defendant bank accepted the checks to be deposited to the current account of Intervest and thereafter presented the same for collection from the drawee bank which subsequently cleared the same thus allowing Intervest to make use of the funds to the prejudice of the plaintiff; xxx xxx xxx "14. The plaintiff has demanded upon the defendant to restitute the amount representing the value of the checks but defendant refused and continue to refuse to honor plaintiff's demands up to the present; "15. As a result of the illegal and irregular acts perpetrated by the defendant bank, the plaintiff was damaged to the extent of the amount of P31,663.88;" Premium prayed that judgment be rendered ordering defendant bank to pay the amount of P31,663.88 representing the value of the checks plus interest, P100,000.00 as exemplary damages; and P30,000.00 as attorney's fees. In its Answer International Corporate Bank alleged, inter alia, that Premium has no capacity/personality/authority to sue in this instance and the complaint should, therefore, be dismissed for failure to state a cause of action. A few days after Premium filed the said case, Printline Corporation, a sister company of Premium also filed an action for damages against International Corporate Bank docketed as Civil Case No. 14444. Thereafter, both civil cases were consolidated. Meantime, the same corporation, i.e., Premium, but this time represented by Siguion Reyna, Montecillio and Ongsiako Law Office as counsel, filed a motion to dismiss on the ground that the filing of the case was without authority from its duly constituted board of directors as shown by the excerpt of the minutes of the Premium's board of directors' meeting. 2 In its opposition to the motion to dismiss, Premium thru Atty. Dumadag contended that the persons who signed the board resolution namely Belen, Jr., Nograles & Reyes, are not directors of the corporation and were allegedly former officers and stockholders of Premium who were dismissed for various irregularities and fraudulent acts; that Siguion Reyna Law office is the lawyer of Belen and Nograles and not of Premium and that the Articles of

Incorporation of Premium shows that Belen, Nograles and Reyes are not majority stockholders. On the other hand, Siguion Reyna Law firm as counsel of Premium in a rejoinder, asserted that it is the general information sheet filed with the Securities and Exchange Commission, among others, that is the best evidence that would show who are the stockholders of a corporation and not the Articles of Incorporation since the latter does not keep track of the many changes that take place after new stockholders subscribe to corporate shares of stocks. In the interim, defendant bank filed a manifestation that it is adopting in toto Premium's motion to dismiss and, therefore, joins it in praying for the dismissal of the present case on the ground that Premium lacks authority from its duly constituted board of directors to institute the action. In its Order, the lower court concluded that: "Considering that the officers (directors) of plaintiff corporation enumerated in the Articles of Incorporation, filed on November 9, 1979, were 'to serve until their successors are elected and qualified' and considering further that as of March 4, 1981, the officers of the plaintiff corporation were Alberto Nograles, Fernando Hilario, Augusto Galace, Jose L.R. Reyes, Pido Aguilar and Saturnino Belen, Jr., who presumably are the officers represented by the Siguion Reyna Law Firm, and that together with the defendants, they are moving for the dismissal of the above-entitled case, the Court finds that the officers represented by Atty. Dumadag do not as yet have the legal capacity to sue for and in behalf of the plaintiff corporation and/or the filing of the present action (Civil Case 14413) by them before Case No. 2688 of the SEC could be decided is a premature exercise of authority or assumption of legal capacity for and in behalf of plaintiff corporation. "The issues raised in Civil Case No. 14444 are similar to those raised in Civil Case No. 14413. This Court is of the opinion that before SEC Case No. 2688 could be decided, neither the set of officers represented by Atty. Dumadag nor that set represented by the Siguion Reyna, Montecillo and Ongsiako Law Office, may prosecute cases in the name of the plaintiff corporation. "It is clear from the pleadings filed by the parties in these two cases that the existence of a cause of action against the defendants is dependent upon the resolution of the case involving intra-corporate controversy still pending before the SEC." 3 On appeal, the Court of Appeals affirmed the trial court's Order 4 which dismissed the consolidated cases. Hence, this petition. Petitioner submits the following assignment of errors: I "The Court of Appeals erred in giving due course to the motion to dismiss filed by the Siguion Reyna Law Office when the said motion is clearly filed not in behalf of the petitioner but in behalf of the group of Belen who are the clients of the said law office II "The Court of Appeals erred in giving due course to the motion to dismiss filed by the Siguion Reyna Law Office in behalf of petitioner when the said law office had already appeared in other cases wherein the petitioner is the adverse party. III "The Court of Appeals erred when it ruled that undersigned counsel was not authorized by the Board of Directors to file Civil Case Nos. 14413 and 14444. IV "The Court of Appeals erred in concluding that under SEC Case No. 2688 the incumbent directors could not act for and in behalf of the corporation. V

"The Court of Appeals is without jurisdiction to prohibit the incumbent Board of Directors from acting and filing this case with the SEC where SEC Case No. 2688 is pending has not even made the prohibition." We find the petition without merit. The only issue in this case is whether or not the filing of the case for damages against private respondent was authorized by a duly constituted Board of Directors of the petitioner corporation. Petitioner, through the first set of officers, viz., Mario Zavalla, Oscar Gan, Lionel Pengson, Jose Ma. Silva, Aderito Yujuico and Rodolfo Millare, presented the Minutes 5 of the meeting of its Board of Directors held on April 1, 1982, as proof that the filing of the case against private respondent was authorized by the Board. On the other hand, the second set of officers, viz., Saturnino G. Belen, Jr., Alberto C. Nograles and Jose L.R. Reyes, presented a Resolution 6 dated July 30, 1986, to show that Premium did not authorize the filing in its behalf of any suit against the private respondent International Corporate Bank. Later on, petitioner submitted its Articles of Incorporation 7 dated November 6, 1979 with the following as Directors: Mario C. Zavalla, Pedro C. Celso, Oscar B. Gan, Lionel Pengson, and Jose Ma. Silva. However, it appears from the general information sheet and the Certification issued by the SEC on August 19, 1986 8 that as of March 4, 1981, the officers and members of the board of directors of the Premium Marble Resources, Inc. were: Alberto C. Nograles President/Director Fernando D. Hilario Vice President/Director Augusto I. Galace Treasurer Jose L.R. Reyes Secretary/Director Pido E. Aguilar Director Saturnino G. Belen, Jr. Chairman of the Board. While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly elected officers for the year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo Millare, petitioner failed to show proof that this election was reported to the SEC. In fact, the last entry in their General Information Sheet with the SEC, as of 1986 appears to be the set of officers elected in March 1981. We agree with the finding of public respondent Court of Appeals, that "in the absence of any board resolution from its board of directors the [sic] authority to act for and in behalf of the corporation, the present action must necessarily fail. The power of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. Thus, the issue of authority and the invalidity of plaintiff-appellant's subscription which is still pending, is a matter that is also addressed, considering the premises, to the sound judgment of the Securities & Exchange Commission." 9 By the express mandate of the Corporation Code (Section 6), all duly organized pursuant thereto are required to submit within the period therein stated (30 days) to the Securities and Exchange Commission the names, nationalities and residences of the directors, trustees and officers elected. Sec. 26 of the Corporation Code provides, thus: "Sec. 26. Report of election of directors, trustees and officers. Within thirty (30) days after the election of the directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, shall submit to the Securities and Exchange Commission, the names, nationalities and residences of the directors, trustees and officers elected. . ." Evidently, the objective sought to be achieved by Section 26 is to give the public information, under sanction of oath of responsible officers, of the nature of business, financial condition and operational status of the company together with information on its key officers or managers so that those dealing with it

and those who intend to do business with it may know or have the means of knowing facts concerning the corporation's financial resources and business responsibility. 10 The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the incumbent officers of Premium has not been fully substantiated. In the absence of an authority from the board of directors, no person, not even the officers of the corporation, can validly bind the corporation. 11 We find no reversible error in the decision sought to be reviewed. ACCORDINGLY, for lack of merit, the petition is hereby DENIED. SO ORDERED. Regalado, Romero, Puno, and Mendoza, JJ., concur. Footnotes 1. Thirteenth Division, Herrera, M., J., ponente, Bengzon, Rasul, JJ., concurring. 2. Rollo, p. 56. 3. Rollo, pp. 162-163. 4. Rollo, p. 160. 5. Rollo, pp. 108-109. 6. Rollo, p. 55. 7. Rollo, pp. 65-75. 8. Annexes "A" and "B" to reply to opposition to motion to dismiss; Order, p. 2, Rollo, p. 161. 9. Decision, pp. 4 & 5. 10. HB Humphrey Co. vs. Pollock Roller Runner Sled Co., 278 Mass 350, 180 NE 164; See also Lopez, R., Corporation Code of the Philippines, p. 446. 11. Visayan vs. NLRC, 196 SCRA 410, G.R. No. 69999, April 30, 1991. THIRD DIVISION [G.R. No. 119310. February 3, 1997.] JULIETA V. ESGUERRA, petitioner, vs. COURT OF APPEALS and SURESTE PROPERTIES, INC., respondents. SYLLABUS 1. CIVIL LAW; UNENFORCEABLE CONTRACT; DEFINED. The Civil Code provides that a contract is unenforceable when it is ". . . 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." (Article 1403, paragraph 1, Civil Code.) And that "(a) contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable." (Article 1317, paragraph 2, Civil Code.) 2. REMEDIAL LAW; CIVIL PROCEDURE; COMPROMISE AGREEMENT; EFFECT THEREOF; CASE AT BAR. As far as private respondent Sureste Properties, Inc. is concerned, the sale to it by VECCI was completely valid and legal because it was executed in accordance with the compromise agreement authorized not only by the parties thereto, who became co-principals in a contract of agency created thereby, but by the approving court, as well. Consequently, the sale of Sureste Properties, Inc. of Esguerra Building II cannot in any manner or guise be deemed unenforceable, as contended by petitioner. The mere fact that petitioner Julieta Esguerra was consulted by VECCI in a sale of Esguerra Building I did not affect nor vary the terms of the authority to sell granted the former as expressly spelled out in the judiciallyapproved compromise agreement because "a compromise once approved by final orders of the court has the force of res judicata between the parties and should not be disturbed except for vices of consent or forgery." (Republic vs. Sandiganbayan, 226 SCRA 314, 328, September 10, 1993). Hence, "a decision on a compromise agreement is final and executory, . . . ." (Casal vs.

Concepcion, Jr., 243 SCRA 369, 372, April 6, 1995) "It is a long established doctrine that the law does not relieve a party from the effects of an unwise, foolish, or disastrous contract, entered into with all the required formalities and will full awareness of what he was doing. Courts have no power to relieve parties from obligations voluntarily assumed, simply because their contracts turned out to be disastrous deals or unwise investments." It is a truism that "a compromise agreement entered into by party-litigants, when not contrary to law, public order, public policy, morals, or good custom is a valid contract which is the law, between the parties themselves. It follows, therefore, that a compromise agreement, not tainted with infirmity, irregularity, fraud, or illegality is the law between the parties who are duty bound to abide by it and observe strictly its terms and conditions" as in this case. 3. CIVIL LAW; PROPERTY; RIGHT OF FIRST REFUSAL; WHEN DEEMED WAIVED. The right of first refusal like other rights, may be waived as petitioner did waive it upon entering into the compromise agreement. Corollarily, the execution of the spouses' judicial compromise agreement necessitated the sale of the spouses' co-owned properties and its proceeds distributed fifty percent to each of them which, therefore, resulted in its partition. (Article 496 of the Civil Code provides that: "Partition may be made by agreement between the parties or by judicial proceedings. . . ." Article 498 of the Civil Code reads: "Whenever the thing is essentially indivisible and the coowners cannot agree that it be allotted to one of them who shall indemnify the others, it shall be sold and its proceeds distributed.") If petitioner wanted to keep such right of first refusal, she should have expressly reserved it in the compromise agreement. For her failure to do so, she must live with its consequences. 4. COMMERCIAL LAW; CORPORATION CODE; SALE OR OTHER DISPOSITION OF ASSETS (Sec. 40); REQUIREMENTS; COMPLIED WITH IN CASE AT BAR. VECCI's sale of all the properties mentioned in the judiciallyapproved compromise agreement was done on the basis of its Corporate Secretary's Certification of these two resolutions. The partial decision did not require any further board or stockholder resolutions to make VECCI's sale of these properties valid. Being regular on its face, the Secretary's Certification was sufficient for private respondent Sureste Properties, Inc., to rely on. It did not have to investigate the truth of the facts contained in such certification. Otherwise, business transactions of corporations would become tortuously slow and unnecessarily hampered. Ineluctably, VECCI's sale of Esguerra Building II to private respondent was not ultra vires but a valid execution of the trial court's partial decision. Based on the foregoing, the sale is also deemed to have satisfied the requirements of Section 40 of the Corporation Code. 5. REMEDIAL LAW; CIVIL PROCEDURE; NOTICE OF LIS PENDENS; EFFECT THEREOF. "Once a notice of lis pendens has been duly registered, any cancellation or issuance of the title of the land involved as well as any subsequent transaction affecting the same, would have to be subject to the outcome" of the suit. In other words, "a purchaser who buys registered land with full notice of the fact that it is in litigation between the vendor and a third party . . . stands in the shoes of his vendor and his title is subject to the incidents and results of the pending litigation . . ." 6. ID.; ID.; WITHOUT JURISDICTION AND GRAVE ABUSE OF DISCRETION; CONSTRUED. In the case of Alafriz vs. Nable, 72 Phil. 278, p. 280 (1941), this Court defined the phrases "without jurisdiction" and "grave abuse of discretion" as follows: 'without jurisdiction' means that the court acted with absolute want of jurisdiction. . . . 'Grave abuse of discretion' implies such capricious and a whimsical exercise of judgment as is equivalent to lack of jurisdiction, or, in other words where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be

so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law." 7. ID.; ID.; APPEAL; WHEN RULE 45 AVAILABLE; CASE AT BAR. Let it be emphasized that Rule 45 of the Rules of Court, under which the present petition was filed, authorizes only reversible errors of the appellate court as grounds for review, and not "grave abuse of discretion" which is provided for by Rule 65. It is basic that where Rule 45 is available and in fact availed of as a remedy as in this case recourse under Rule 65 cannot be allowed either as an add-on or as a substitute for appeal. DECISION PANGANIBAN, J p: May a co-owner contest as unenforceable a sale of a real property listed in and sold pursuant to the terms of a judicially-approved compromise agreement but without the knowledge of such co-owner? Is the corporate secretary's certification of the shareholders' and directors' resolution authorizing such sale sufficient, or does the buyer need to go behind such certification and investigate further the truth and veracity thereof? These questions are answered by this Court as it resolves the instant petition challenging the Decision 1 in CA-G.R. SP No. 33307 promulgated May 31, 1994 by the respondent Court, 2 reversing the judgment of the trial court. The Antecedent Facts The facts as found by the respondent Court of Appeals are as follows: "On 29 June 1984, (now herein Petitioner) Julieta Esguerra filed a complaint for administration of conjugal partnership or separation of property against her husband Vicente Esguerra, Jr. before (the trial) court. The said complaint was later amended on 31 October 1985 impleading V. Esguerra Construction Co., Inc. (VECCI for brevity) and other family corporations as defendants (Annex 'C', p. 23, Rollo). The parties entered into a compromise agreement which was submitted to the court. On the basis of the said agreement, the court on 11 January 1990 rendered two partial judgments: one between Vicente and (herein petitioner) and the other as between the latter and VECCI (Annex 'F' and 'G', pp. 26-27, Rollo). The compromise agreement between (herein petitioner) and VECCI provides in part: 'Plaintiff Julieta V. Esguerra and defendant V. Esguerra Construction Co., Inc., as assisted by their respective counsels, submitted to this Court on January 11, 1990 a 'Joint Motion for Partial Judgment Based on Compromise Agreement", pertinent provisions of which reads as follows: '1. Defendant V. Esguerra Construction Co., Inc., (VECCI) shall sell/alienate/transfer or dispose of in any lawful and convenient manner, and under the terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders, all the following properties: * real estate and building located at 140 Amorsolo Street, Legaspi Village, Makati, Metro Manila; * real estate and building located at 104 Amorsolo Street, Legaspi Village, Makati, Metro Manila: * real estate and improvements located at Barangay San Jose, Antipolo, Rizal; * real estate and improvements located at Barangay San Jose, Antipolo, Rizal; * real estate and improvements located at Kamagong Street, St. Anthony Subdivision, Cainta, Rizal; and * real estate and improvements located at Barangay Malaatis, San Mateo, Rizal. 2. After the above-mentioned properties shall have been sold/alienated/transferred or disposed of and funds are realized therefrom,

and after all the financial obligations of defendant VECCI (those specified in the enabling resolutions and such other obligations determined to be due and will become due) are completely paid and/or settled, defendant VECCI shall cause to be paid and/or remitted to the plaintiff such amount/sum equivalent to fifty percent (50%) of the (net) resulting balance of such funds.' By virtue of said agreement, Esguerra Bldg. I located at 140 Amorsolo St., Legaspi Village was sold and the net proceeds distributed according to the agreement. The controversy arose with respect to Esguerra Building II located at 104 Amorsolo St., Legaspi Village, Makati. (Herein petitioner) started claiming one-half of the rentals of the said building which VECCI refused. Thus, on 7 August 1990, (herein petitioner) filed a motion with respondent court praying that VECCI be ordered to remit one-half of the rentals to her effective January 1990 until the same be sold (p. 28, Id.). VECCI opposed said motion (p. 31, Rollo). On October 30, 1990 respondent (trial) court ruled in favor of (herein petitioner) (p. 34, Rollo) which was affirmed by this court in a decision dated 17 May 1991 in CA-G.R. SP. No. 2380. VECCI resorted to the Supreme Court which on 4 May 1992 in G.R. No. 100441 affirmed this court's decision the fallo of which reads: 'The petition is without merit. As correctly found by the respondent Court of Appeals, it can be deduced from the terms of the Compromise Agreement and from the nature of the action in the court a quo that the basis of the equal division of the proceeds of any sale or disposition of any of the subject properties is the acknowledged ownership of private respondent over one-half of the said assets. Considering that the other building has yet to be sold, it is but logical that pending its disposition and conformably with her one-half interest therein, private respondent should be entitled to half of its rentals which forms part of her share in the fruits of the assets. To accord a different interpretation of the Compromise Agreement would be prejudicial to the established rights of private respondent.' (p. 36, Rollo). Meanwhile, Esguerra Bldg. II was sold to (herein private respondent Sureste Properties, Inc.) for P150,000,000.00 (sic). On 17 June 1993, (Julieta V. Esguerra) filed a motion seeking the nullification of the sale before respondent (trial) court on the ground that VECCI is not the lawful and absolute owner thereof and that she has not been notified nor consulted as to the terms and conditions of the sale (p. 37, Rollo). Not being a party to the civil case, (private respondent Sureste) on 23 June 1993 filed a Manifestation concerning (herein petitioner's) motion to declare the sale void ab initio. In its Manifestation (Sureste) points out that in the compromise agreement executed by VECCI and (Julieta V. Esguerra), she gave her express consent to the sale of the said building (p. 38, Rollo). On 05 August 1993, respondent judge (who took over the case from Judge Buenaventura Guerrero, now Associate Justice of this court) issued an Omnibus Order denying among others, (Sureste's) motion, to which a motion for reconsideration was filed. 3 After trial on the merits, the Regional Trial Court of Makati, Branch 133, 4 rendered its order, the dispositive portion of which reads: "WHEREFORE, the Court resolves as it is resolved that: 1. The Omnibus Order of the Court issued on August 5, 1993 is hereby reconsidered and modified to the effect that: a. The Notice of Lis Pendens is annotated at the back of the Certificate of Title of Esguerra Bldg. II located at Amorsolo St., Legaspi Village, Makati, Metro Manila is delivered to be valid and subsisting, the cancellation of the same is hereby set aside; and, b. The sale of Esguerra Bldg. II to Sureste Properties, Inc. is declared valid with respect to one-half of the value thereof but ineffectual and unenforceable

with respect to the other half as the acknowledged owner of said portion was not consulted as to the terms and conditions of the sale The other provisions of said Omnibus Order remain undisturbed and are now deemed final and executory. 2. Sureste Properties, Inc. is hereby enjoined from pursuing further whatever Court action it has filed against plaintiff as well as plaintiff's tenants at Esguerra Bldg. II; 3. Plaintiff's Urgent Ex-parte Motion dated December 14, 1993 is hereby DENIED for being moot and academic. 4. Plaintiff is hereby directed to bring to Court, personally or through counsel, the subject shares of stocks on February 15, 1994 at 10:30 in the morning for the physical examination of defendant or counsel. SO ORDERED." 5 From the foregoing order, herein private respondent Sureste Properties, Inc. interposed an appeal with the Court of Appeals which ruled in its favor, viz.: "From the foregoing, it is clear that respondent judge abused his discretion when he rendered the sale of the property unenforceable with respect to onehalf. WHEREFORE, the petition is hereby GRANTED. The assailed order dated 1 February 1994 is hereby SET ASIDE. No pronouncement as to cost. SO ORDERED." 6 Julieta Esguerra's Motion for Reconsideration 7 dated June 15, 1994 was denied by the respondent Court in the second assailed Resolution 8 promulgated on February 23, 1995. Hence this petition. The Issues Petitioner submits the following assignment of errors: ". . . (I)n issuing the Decision (Annex 'A' of the petition) and the Resolution (Annex 'B' of the petition), the Court of Appeals decided questions of substance contrary to law and applicable jurisprudence and acted without jurisdiction and/or with grave abuse of discretion when: It validated the sale by VECCI to Sureste of the subject property without the knowledge and consent of the acknowledged co-owner thereof and in contravention of the terms of the compromise agreement as well as the Resolution of this Honorable Court in G.R. No. 100441 wherein this Honorable Court recognized herein petitioner's 'acknowledged ownership of one-half of the subject property; and, It held that the trial court acted without jurisdiction and/or abused its discretion when it held that the questioned sale of the property is ineffectual and unenforceable as to herein petitioner's one-half (1/2) ownership/interest in the property since the sale was made without her knowledge and consent. B E C A U S E: A. No proper corporate action of VECCI was made to effect such sale as required under the compromise agreement; B. The sale of the subject property was made in violation of the terms of the compromise agreement in that it was not made with the approval/consent of the acknowledged owner of 1/2 of the said asset; C. The prior sale of another property (the Esguerra Building I as distinguished from the subject property which is the Esguerra Building II) included in the said compromise agreement was made only after the prior approval/consent of petitioner and this procedure established a precedent that applied in the subsequent sale of the Esguerra Building II; and D. Respondent Sureste as purchaser pendente lite of the subject property covered by a notice of lis pendens was in law-deemed to have been duly notified of the aforesaid conditions required for a valid sale of the subject property as

well as of petitioner's 'acknowledged ownership over one-half' of the Esguerra Building II." 9 Simply put, petitioner (1) assails VECCI's sale of Esguerra Building II to private respondent as unenforceable to the extent of her one-half share, and (2) accuses the appellate court of "acting without jurisdiction or with grave abuse of discretion" in reversing the trial court's finding to that effect. The Court's Ruling The petition has no merit. First Issue: Is the Contract of Sale Unenforceable? The Civil Code provides that a contract is unenforceable when it is ". . . 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." 10 And that "(a) contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, . . ." 11 After a thorough review of the case at bench, the Court finds the sale of Esguerra Building II by VECCI to private respondent Sureste Properties, Inc. valid. The sale was expressly and clearly authorized under the judicially-approved compromise agreement freely consented to and voluntarily signed by petitioner Julieta Esguerra. Thus, petitioner's contention that the sale is unenforceable as to her share for being unauthorized is plainly incongruous with the express authority granted by the compromise agreement to VECCI, which specified no condition that the latter shall first consult with the former prior to selling any of the properties listed there. As astutely and correctly found by the appellate Court: "The compromise agreement entered between private respondent (Julieta Esguerra) and VECCI, which was approved by the court, expressly provides, among others, that the latter shall sell or otherwise dispose of certain properties, among them, Esguerra Bldgs. I and II, and fifty (50%) percent of the net proceeds thereof to be given to the former. Pursuant to said agreement, VECCI sold the buildings. . . . xxx xxx xxx The compromise agreement expressly authorizes VECCI to sell the subject properties, with the only condition that the sale be in a lawful and convenient manner and under the terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders. There is nothing in the said agreement requiring VECCI to consult the private respondent (Julieta Esguerra) before any sale (can be concluded). Thus, when VECCI sold the property to (Sureste Properties, Inc.) as agreed upon, it need not consult the private respondent." 12 Moreover, petitioner's contention runs counter to Article 1900 of the Civil Code which provides that: "So far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent." Thus, as far as private respondent Sureste Properties, Inc. is concerned, the sale to it by VECCI was completely valid and legal because it was executed in accordance with the compromise agreement, authorized not only by the parties thereto, who became co-principals in a contract of agency created thereby, but by the approving court as well. Consequently, the sale to Sureste Properties, Inc. of Esguerra Building II cannot in any manner or guise be deemed unenforceable, as contended by petitioner. Consultation in the Sale of Esguerra Building I Not a Binding Precedent

The petitioner further argues that VECCI's consulting her on the terms and conditions of its sale of Esguerra Building I set a binding precedent to be followed by the latter on subsequent sales. She adds that in failing to consult her on the sale of Esguerra Building II, VECCI "acted unfairly and unjustly" as evidenced by (a) the sale of said building for only P160,000,000.00 instead of P200,000,000.00, which is "the best price obtainable in the market," (b) payment of real estate broker's commission of 5% instead of just 2% as in the sale of Esguerra 1 building, and (c) the denial of petitioner's right of first refusal when her offer to purchase her one-half share for P80,000,000.00 as ordered by the trial court was totally ignored. 13 The Court is not persuaded. Petitioner's argument is debunked by the very nature of a compromise agreement. The mere fact that petitioner Julieta Esguerra was consulted by VECCI in the sale of Esguerra Building I did not affect nor vary the terms of the authority to sell granted the former as expressly spelled out in the judicially-approved compromise agreement because "a compromise once approved by final orders of the court has the force of res judicata between the parties and should not be disturbed except for vices of consent or forgery." 14 Hence, "a decision on a compromise agreement is final and executory, . . ." 15 Petitioner insists that had she been consulted in the sale of Esguerra Building II, better terms could have been obtained. This is plainly without legal basis since she already consented to the compromise agreement which authorized VECCI to sell the properties without the requirement of prior consultation with her. "It is a long established doctrine that the law does not relieve a party from the effects of an unwise, foolish, or disastrous contract, entered into with all the required formalities and with full awareness of what he was doing. Courts have no power to relieve parties from obligations voluntarily assumed, simply because their contracts turned out to be disastrous deals or unwise investments." 16 It is a truism that "a compromise agreement entered into by party-litigants, when not contrary to law, public order, public policy, morals, or good custom is a valid contract which is the law between the parties themselves. It follows, therefore, that a compromise agreement, not tainted with infirmity, irregularity, fraud or illegality is the law between the parties who are duty bound to abide by it and observe strictly its terms and conditions" 17 as in this case. Incidentally, private respondent Sureste Properties, Inc. submits that the petitioner offered to buy her one-half share for only P75,000,000.00, not P80,000,000.00. 18 She therefore valued the whole building only at P150,000,000.00 which amount is P10,000,000.00 less than the price of P160,000,000.00 paid by private respondent, the highest offer the market has produced in two and a half years the building was offered for sale. Even the 5% real estate broker's commission was not disparate with the standard practice in the real estate industry. Thus, the respondent Court aptly stated that: cdasia ". . . In affixing her signature on the compromise agreement, private respondent (Julieta Esguerra) has demonstrated her agreement to all the terms and conditions therein and have (sic) given expressly her consent to all acts that may be performed pursuant thereto. She can not later on repudiate the effects of her voluntary acts simply because it does not fit her. Her contention that she was not consulted as to the terms of the sale has no leg to stand on." 19 Parenthetically, the previous consultation can be deemed as no more than a mere courtesy extended voluntarily by VECCI. Besides, such previous consultation even assuming arguendo that it was a binding precedent cannot bind private respondent Sureste which was not a party thereto. To declare the sale as infirm or unenforceable is to heap unfairness upon Sureste Properties, Inc. and to undermine public faith in court decisions approving compromise agreements.

Right of First Refusal Waived The argument of petitioner that she was denied her right of first refusal is puerile. This alleged right, like other rights, may be waived 20 as petitioner did waive it upon entering into the compromise agreement. Corollarily, the execution of the spouses' judicial compromise agreement necessitated the sale of the spouses' co-owned properties and its proceeds distributed fifty percent to each of them which, therefor, resulted in its partition. 21 If petitioner wanted to keep such right of first refusal, she should have expressly reserved it in the compromise agreement. For her failure to do so, she must live with its consequences. VECCI'S Sale of Esguerra Building II A Valid Exercise of Corporate Power Petitioner contends that VECCI violated the condition in the compromise agreement requiring that the sale be made "under the terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders." 22 She rues that no shareholders' or directors' meeting, wherein these resolutions were passed, was actually held. She thus bewails this sale as improper for not having complied with the requirements mandated by Section 40 of the Corporation Code. 23 Petitioner's contention is plainly unmeritorious. The trial court's partial decision dated January 11, 1990 approving the compromise agreement clearly showed that the "enabling resolutions of its (VECCI's) board of directors and stockholders" referred to were those then already existing; to wit: (1) "the resolution of the stockholders of VECCI dated November 9, 1989, (where) the stockholders authorized VECCI to sell and/or disposed all or substantially all its property and assets upon such terms and conditions and for such consideration as the board of directors may deem expedient." 24 (2) the "resolution dated 9 November 1989, (where) the board of directors of VECCI authorized VECCI to sell and/or dispose all or substantially all the property and assets of the corporation, at the highest available price/s they could be sold or disposed of in cash, and in such manner as may be held convenient under the circumstances, and authorized the President Vicente B. Esguerra, Jr. to negotiate, contract, execute and sign such sale for and in behalf of the corporation." 25 VECCI's sale of all the properties mentioned in the judiciallyapproved compromise agreement was done on the basis of its Corporate Secretary's Certification of these two resolutions. The partial decision did not require any further board or stockholder resolutions to make VECCI's sale of these properties valid. Being regular on its face, the Secretary's Certification was sufficient for private respondent Sureste Properties, Inc. to rely on. It did not have to investigate the truth of the facts contained in such certification. Otherwise, business transactions of corporations would become tortuously slow and unnecessarily hampered. Ineluctably, VECCI's sale of Esguerra Building II to private respondent was not ultra vires but a valid execution of the trial court's partial decision. Based on the foregoing, the sale is also deemed to have satisfied the requirements of Section 40 of the Corporation Code. Furthermore, petitioner Julieta Esguerra is estopped from contesting the validity of VECCI's corporate action in selling Esguerra Building II on the basis of said resolutions and certification because she never raised this issue in VECCI's prior sales of the other properties sold including the Esguerra Building I. 26 The same identical resolutions and certification were used in such prior sales. Notice of Lis Pendens "Once a notice of lis pendens has been duly registered, any cancellation or issuance of the title of the land involved as well as any subsequent transaction affecting the same, would have to be subject to the outcome" 27 of the suit. In other words, "a purchaser who buys registered land with full notice of the fact

that it is in litigation between the vendor and a third party . . . stands in the shoes of his vendor and his title is subject to the incidents and result of the pending litigation . . ." 28 In the present case, the purchase made by private respondent Sureste Properties, Inc. of the property in controversy is subject to the notice of lis pendens annotated on its title. Thus, the private respondent's purchase remains subject to our decision in the instant case. The former is likewise deemed notified of all the incidents of this case including the terms and conditions for the sale contained in the compromise agreement. However, petitioner's inference that the private respondent is also deemed to have been notified that the manner of the sale of the properties contained in the compromise agreement should be "made only upon prior consent/conformity of the herein petitioner" is non sequitur. Nowhere in the compromise agreement was this inference expressly or impliedly stated. In the final analysis, the determination of this issue ultimately depends on this Court's disposition of this case. Appealed Decision Consistent with Previous Court of Appeals and Supreme Court Decisions Petitioner maintains that the trial court's ruling that "the sale of Esguerra Building II to Sureste is unenforceable to the extent of one-half share of petitioner in the property" is based on the Court of Appeals' decision in G.R. SP No. 23780 dated May 17, 1991, and the Supreme Court's decision in G.R. No. 100441 dated May 4, 1992 which both acknowledged petitioner's one-half ownership of said building. 29 She reasons that "(a)s co-owner her consent or conformity to the sale was necessary for the validity or effectivity thereof insofar as her 1/2 share/ownership was concerned." 30 The Court disagrees. As discussed previously, this repetitive contention is negated by her consent to the compromise agreement that authorized VECCI to sell the building without need of further consultation with her. Her co-ownership in the building was not inconsistent with her authorizing another, specifically VECCI, to sell her share in this property via an agency arrangement. As correctly stated by the respondent Court of Appeals, the only import of this Court's ruling in G.R. No. 100441 was as follows: "the only issue involved is whether or not private respondent is entitled to onehalf of the rentals of the subject property pending its sale. The rulings of the courts is (sic) therefore limited only to the issue of rental, there being no provision in the compromise agreement approved by the court for the rentals earned from the building pending its sale. Nowhere in the said rulings did it question nor assail the authority granted to VECCI to sell the said building. In fact, the decisions affirmed the authority granted to VECCI to sell the said building which invoked the compromise agreement of the parties as a basis of the decision (Manifestation, p. 38,. Rollo)." 31 Second Issue: Did the Appellate Court Act Without Jurisdiction or With Grave Abuse of Discretion? In the case of Alafriz vs. Nable, 32 this Court defined the phrases "without jurisdiction" and "grave abuse of discretion" as follows: "'Without jurisdiction' means that the court acted with absolute want of jurisdiction. . . . 'Grave abuse of discretion' implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, or, in other words where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law." Contrary to petitioner's asseverations, the Court finds that the respondent Court of Appeals judiciously, correctly and certainly acted within its jurisdiction in reversing the trial court's decision. As discussed, its decision is consistent with law and existing jurisprudence.

Let it be emphasized that Rule 45 of the Rules of Court, under which the present petition was filed, authorizes only reversible errors of the appellate court as grounds for review, and not "grave abuse of discretion" which is provided for by Rule 65. It is basic that where Rule 45 is available, and in fact availed of as a remedy as in this case recourse under Rule 65 cannot be allowed either as an add-on or as a substitute for appeal. Finally, "(c)ourts as a rule may not impose upon the parties a judgment different from their compromise agreement. It would be an abuse of discretion." 33 Hence, in this case, it is the trial court's decision which is tainted with grave abuse of discretion for having injudiciously added "prior consultation" to VECCI's authority to sell the properties, a condition not contained in the judicially-approved compromise agreement. WHEREFORE, the petition is hereby DENIED for lack of merit, no reversible error having been committed by respondent Court. The assailed Decision is AFFIRMED in toto. Costs against petitioner. SO ORDERED. Narvasa, C .J ., Davide, Jr., Melo and Francisco, JJ., concur. Footnotes 1. Rollo, pp. 44-51. 2. Second Division, composed of J. Antonio M. Martinez, ponente, and JJ. Quirino D. Abad Santos, Jr. and Godardo A. Jacinto. 3. Rollo, pp. 45-48. 4. Presided by Judge Ruben A. Mendiola. 5. Rollo, p. 117. 6. Ibid., p. 51. 7. Ibid., pp. 178-195 8. Ibid., pp. 53-55. 9. Memorandum for the Petitioner, pp. 11-12; Rollo, pp. 292-293. 10. Article 1403, paragraph 1, Civil Code. 11. Article 1317, paragraph 2, Supra. 12. Rollo, pp. 49-50. 13. Memorandum for the Petitioner, p. 25; Rollo, p. 306. 14. Republic vs. Sandiganbayan, 226 SCRA 314, 328, September 10, 1993; citing Araneta vs. Perez, 7 SCRA 923, April 30, 1963. 15. Casal vs. Concepcion, Jr., 243 SCRA 369, 372, April 6, 1995; Citing Master Tours and Travel Corporation vs. Court of Appeals, 219 SCRA 321, March 1, 1993, and Mobil Oil Philippines, Inc. vs. Court of First Instance of Rizal, Branch VI, 208 SCRA 523, May 8, 1992. 16. Republic vs. Sandiganbayan, supra.; citing Tanda vs. Aldaya, 89 Phil. 497, (1951), and Villacorte vs. Mariano, 89 Phil. 341, (1951). 17. Municipal Board of Cabanatuan City vs. Samahang Magsasaka, Inc., 62 SCRA 435, 438, February 25, 1975; citing Juan-Marcelo vs. Go Kim Pah, 22 SCRA 309, January 29, 1968. 18. Rollo, pp. 212 and 274; Comment, p. 8; Memorandum for Private Respondent, p. 13. 19. Rollo, pp. 49-50. 20. Article 6, Civil Code. 21. Article 496 of the Civil Code provides that: "Partition may be made by agreement between the parties or by judicial proceedings. . ." Article 498 of the Civil Code reads: "Whenever the thing is essentially indivisible and the co-owners cannot agree that it be allotted to one of them who shall indemnify the others, it shall be sold and its proceeds distributed." 22. Rollo, p. 293. 23. Ibid., p. 294. Section 40 of the Corporation Code provides:

"Sale or other disposition of assets. Subject to the provisions of existing laws on illegal combinations and monopolies, a corporation may, by a majority vote of its board of directors, or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon such terms and conditions and for such consideration, as its board of directors or trustees may deem expedient, when authorized by the vote of the stockholders representing at least twothirds (2/3) of the members, in a stockholders' or members' meeting duly called for the purpose. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage pre-paid, or served personally; Provided, That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code. . . ." 24. Ibid., p. 107. 25. Ibid.; Comment to the Motion for Reconsideration, dated 2 September 1993, filed by Sureste before the trial court. 26. Ibid. 27. Pea, Registration of Land Titles and Deeds, p. 391, 1994; citing J.P. Pellicer & Co., Inc. vs. Philippine Realty Corp., 87 Phil. 302 (1950). 28. Ibid.; citing Director of Lands vs. Reyes, 68 SCRA 177, November 28, 1975, and Alinsunurin vs. Director of Lands, 69 SCRA 415, February 27, 1976. 29. Rollo, p. 300. 30. Ibid. 31. Rollo, p. 50. 32. 72 Phil. 278, p. 280 (1941); citing Leung Ben vs. O'Brien, 38 Phil. 182 (1918), Salvador Campos y Cia vs. Del Rosario, 41 Phil. 45 (1920), Abad Santos vs. Province of Tarlac, 38 Off. Gaz. 830, and Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz. 62. See also San Sebastian College vs. Court of Appeals, 197 SCRA 444, 458, March 20, 1991; Sinon vs. Civil Service Commission, 215 SCRA 410, November 5, 1992; Bustamante vs. Commission on Audit, 216 SCRA 134, 136, November 27, 1992; Zarate vs. Olegario, G.R. No. 90655, October 7, 1966. 33. Tolentino, Arturo M., Commentaries and Jurisprudence on the Civil Code of the Philippines, p. 485, 1992; citing Municipal Board vs. Samahang Magsasaka, Supra, International Hotel vs. Asuncion, 63 SCRA 77, March 10, 1975, and Tac-an Dano vs. Court of Appeals, 137 SCRA 803, July 29, 1985. SECOND DIVISION [G.R. No. 93397. March 3, 1997.] TRADERS ROYAL BANK, petitioner, vs. COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL BANK of the PHILIPPINES, respondents. Gonzales, Sinense, Jimenez & Associates for petitioner. Jaime M. Cabiles for respondent Central Bank. Ruben L. Almadro for respondent Filriters. SYLLABUS 1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; FREEDOM OF NEGOTIABILITY; NOT PRESENT IN CERTIFICATE OF INDEBTEDNESS. The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchstone relating to the protection of holders in due course, and the freedom of negotiability is the foundation for the protection which the law throws around a holder in due course (11 Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a sum of money to a specified person or entity for a period of time.

2. ID.; CORPORATIONS; PIERCING THE VEIL OF CORPORATE ENTITY; ELABORATED; NOT PROPER IN CASE AT BAR. Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is merely an equitable remedy, and may be awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person. Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to or distinguishes one corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do this, the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine. Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a juridical personality separate from its stockholders and from other corporations may be disregarded, in the absence of such grounds, the general rule must be upheld. The fact that Philfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities. In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject certificate of indebtedness from Philfinance. 3. ID.; BANKS; CENTRAL BANK CIRCULAR NO. 769; REQUIREMENTS; NON COMPLIANCE THEREOF, FATAL; CASE AT BAR. Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements. An entity which deals with corporate agents within circumstances showing that the agents are acting in excess of corporate authority, may not hold the corporation liable. This is only fair, as everyone must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. The transfer made by Filriters to Philfinance did not conform to the said Central Bank Circular, which for all intents, is considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who had signed the deed of assignment from Filriters to Philfinance, purportedly for and in favor of Filriters was fictitious, and therefore void and inexistent, as there was no consideration for the same. This is fatal to the petitioner's cause, for then, Philfinance had no title over the subject certificate to convey to Traders Royal Bank. Nemo potest nisi quod de jure potest no man can do anything except what he can do lawfully. Concededly, the subject CBCI (Central Bank Certificate of Indebtedness) was acquired by Filriters to form part of its legal and capital reserves, which are required by law to be maintained at a mandated level. It cannot, therefore, be taken out of the said fund, without violating the requirements of the law. Thus, the unauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said corporation, not without the approval of its Board of Directors, and the maintenance of the required reserve fund. Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the claimed interest of Traders Royal Bank. DECISION TORRES, JR., J p: Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals dated January 29, 1990, 1 affirming the nullity of

the transfer of Central Bank Certificate of Indebtedness (CBCI) No. D891, 2 with a face value of P500,000.00 from the Philippine Underwriters Finance Corporation (Philfinance) to the petitioner Trader's Royal Bank (TRB), under a Repurchase Agreement 3 dated February 4, 1981, and a Detached Assignment 4 dated April 27, 1981. Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel the Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal Bank (TRB). In the said petition, TRB stated that: "3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a 'Detached Assignment' . . ., whereby Filriters, as registered owner, sold, transferred, assigned and delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and title to Central Bank Certificates of Indebtedness (CBCI) Nos. D890 to D896, inclusive, each in the denomination of PESOS: FIVE HUNDRED THOUSAND (P500,000.00) and having an aggregate value of PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00); 4. The aforesaid Detached Assignment (Annex "A") contains an express authorization executed by the transferor intended to complete the assignment through the registration of the transfer in the name of PhilFinance, which authorization is specifically phrased as follows: '(Filriters) hereby irrevocably authorized the said issuer (Central Bank) to transfer the said bond/certificates on the books of its fiscal agent; 5. On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance . . ., whereby, for and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND (P500,000.00), PhilFinance sold, transferred and delivered to petitioner CBCI 4-year, 8th series, Serial No. D891 with a face value of P500,000.00 . . ., which CBCI was among those previously acquired by PhilFinance from Filriters as averred in paragraph 3 of the Petition; 6. Pursuant to the aforesaid Repurchase Agreement (Annex 'B'), Philfinance agreed to repurchase CBCI Serial No. D891 (Annex 'C'), at the stipulated price of PESOS: FIVE HUNDRED NINETEEN THOUSAND THREE HUNDRED SIXTYONE & 11/100 (P519,361.11) on April 27, 1981; 7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981, when the checks it issued in favor of petitioner were dishonored for insufficient funds; 8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the Petitioner to enable the latter to have its title completed and registered in the books of the respondent. And by means of said Detachment Assignment, Philfinance transferred and assigned all its rights and title in the said CBCI (Annex 'C') to petitioner and, furthermore, it did thereby 'irrevocably authorize the said issuer (respondent herein) to transfer the said bond/certificate on the books of its fiscal agent.' . . . 9. Petitioner presented the CBCI (Annex 'C'), together with the two (2) aforementioned Detached Assignments (Annexes 'B' and 'D'), to the Securities Servicing Department of the respondent, and requested the latter to effect the transfer of the CBCI on its books and to issue a new certificate in the name of petitioner as absolute owner thereof; 10. Respondent failed and refused to register the transfer as requested, and continues to do so notwithstanding petitioner's valid and just title over the same and despite repeated demands in writing, the latest of which is hereto attached as Annex 'E' and made an integral part hereof;

11. The express provisions governing the transfer of the CBCI were substantially complied with in petitioner's request for registration, to wit: cdasia 'No transfer thereof shall be valid unless made at said office (where the Certificate has been registered) by the registered owner hereof, in person or by his attorney duly authorized in writing, and similarly noted hereon, and upon payment of a nominal transfer fee which may be required, a new Certificate shall be issued to the transferee of the registered holder thereof.' and, without a doubt, the Detached Assignments presented to respondent were sufficient authorizations in writing executed by the registered owner, Filriters, and its transferee, PhilFinance, as required by the above-quoted provision; 12. Upon such compliance with the aforesaid requirements, the ministerial duties of registering a transfer of ownership over the CBCI and issuing a new certificate to the transferee devolves upon the respondent;" Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its name. On December 4, 1984, the Regional Trial Court trying the case took cognizance of the defendant Central Bank of the Philippines' Motion for Admission of Amended Answer with Counter Claim for Interpleader, 6 thereby calling to fore the respondent Filriters Guaranty Assurance Corporation (Filriters), the registered owner of the subject CBCI as respondent. For its part, Filriters interjected as Special Defenses the following: "11. Respondent is the registered owner of CBCI No. 891; 12. The CBCI constitutes part of the reserve investment against liabilities required of respondent as an insurance company under the Insurance Code; 13. Without any consideration or benefit whatsoever to Filriters, in violation of law and the trust fund doctrine and to the prejudice of policyholders and to all who have present or future claim against policies issued by Filriters, Alfredo Banaria, then Senior Vice-President-Treasury of Filriters, without any board resolution, knowledge or consent of the board of directors of Filriters and without any clearance or authorization from the Insurance Commissioner, executed a detached assignment purportedly assigning CBCI No. 891 to Philfinance; xxx xxx xxx 14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller and Pilar Jacobe, Vice-President-Treasury of Filriters (both of whom were holding the same positions in Philfinance), without any consideration or benefit redounding to Filriters and to the grave prejudice of Filriters, its policy holders and all who have present or future claims against its policies, executed similar detached assignment forms transferring the CBCI to plaintiff; xxx xxx xxx 15. The detached assignment is patently void and inoperative because the assignment is without the knowledge and consent of directors of Filriters, and not duly authorized in writing by the Board, as required by Article V, Section 3 of CB Circular No. 769; 16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the corporate act of Filriters and as such null and void; a) The assignment was executed without consideration and for that reason, the assignment is void from the beginning (Article 1409, Civil Code); b) The assignment was executed without any knowledge and consent of the board of directors of Filriters; c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a requirement under the Insurance Code for its existence as an insurance company and the pursuit of its business operations. The assignment of the CBCI is illegal act, in the sense of malum in se or malum prohibitum, for anyone to make, either as corporate or personal act;

d) The transfer or diminution of reserve investments of Filriters is expressly prohibited by law, is immoral and against public policy; e) The assignment of the CBCI has resulted in the capital impairment and in the solvency deficiency of Filriters (and has in fact helped in placing Filriters under conservatorship), an inevitable result known to the officer who executed the detached assignment. 17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the assignment; a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is not payable to bearer but is registered in the name of Filriters; b) The provision on transfer of the CBCIs, provides that the Central Bank shall treat the registered owner as the absolute owner and that the value of the registered certificates shall be payable only to the registered owner; a sufficient notice to plaintiff that the assignments do not give them the registered owner's right as absolute owner of the CBCIs; c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that registered certificates are payable only to the registered owner (Article II, Section 1). 18. Plaintiff knew fully well that the assignment by Philfinance of CBCI No. 891 by Filriters is not a regular transaction made in the usual or ordinary course of business; a) The CBCI constitutes part of the reserve investments of Filriters against liabilities required by the Insurance Code and its assignment or transfer is expressly prohibited by law. There was no attempt to get any clearance or authorization from the Insurance Commissioner; b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular course of its business; c) The CBCI involved substantial amount and its assignment clearly constitutes disposition of 'all or substantially all' of the assets of Filriters, which requires the affirmative action of the stockholders (Section 40, Corporation [sic] Code). 7 In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXII found the assignment of CBCI No. D891 in favor of Philfinance, and the subsequent assignment of the same CBCI by Philfinance in favor of Traders Royal Bank null and void and of no force and effect. The dispositive portion of the decision reads: "ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty Assurance Corporation and against the plaintiff Traders Royal Bank: (a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the subsequent assignment of CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as null and void and of no force and effect; (b) Ordering the respondent Central Bank of the Philippines to disregard the said assignment and to pay the value of the proceeds of the CBCI No. D891 to the Filriters Guaranty Assurance Corporation; (c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance Corp. the sum of P10,000 as attorney's fees; and (d) to pay the costs. SO ORDERED." 9 The petitioner assailed the decision of the trial court in the Court of Appeals, 10 but their appeal likewise failed. The findings of fact of the said court are hereby reproduced: "The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under a deed of assignment dated November 27, 1971, Filriters transferred CBCI No. D891 to Philippine Underwriters Finance Corporation (Philfinance). Subsequently, Philfinance transferred CBCI No. D891, which was

still registered in the name of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made under a repurchase agreement dated February 4, 1981, granting Philfinance the right to repurchase the instrument on or before April 27, 1981. When Philfinance failed to buy back the note on maturity date, it executed a deed of assignment, dated April 27, 1981, conveying to appellant TRB all its rights and title to CBCI No. D891. Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No. D891 in its name before the Security and Servicing Department of the Central Bank (CB). Central Bank, however, refused to effect the transfer and registration in view of an adverse claim filed by defendant Filriters. Left with no other recourse, TRB filed a special civil action for mandamus against the Central Bank in the Regional Trial Court of Manila. The suit, however, was subsequently treated by the lower court as a case of interpleader when CB prayed in its amended answer that Filriters be impleaded as a respondent and the court adjudge which of them is entitled to the ownership of CBCI No. D891. Failing to get a favorable judgment. TRB now comes to this Court on appeal." 11 In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument, and having acquired the said certificate from Philfinance as a holder in due course, its possession of the same is thus free from any defect of title of prior parties and from any defense available to prior parties among themselves, and it may thus, enforce payment of the instrument for the full amount thereof against all parties liable thereon. 12 In ignoring said argument, the appellate court said that the CBCI is not a negotiable instrument, since the instrument clearly stated that it was payable to Filriters, the registered owner, whose name was inscribed thereon, and that the certificate lacked the words of negotiability which serve as an expression of consent that the instrument may be transferred by negotiation. Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having been made without consideration, and did not conform to Central Bank Circular No. 769, series of 1980, better known as the "Rules and Regulations Governing Central Bank Certificates of Indebtedness," which provided that any "assignment of registered certificates shall not be valid unless made . . . by the registered owner thereof in person or by his representative duly authorized in writing." Petitioner's claimed interest has no basis, since it was derived from Philfinance, whose interest was inexistent, having acquired the certificate through simulation. What happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation, to guarantee its financing operations. Said the Court: "In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. For lack of such authority, the assignment did not therefore bind Filriters and violated at the same time Central Bank Circular No. 769 which has the force and effect of a law, resulting in the nullity of the transfer (People v. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778). In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the Central Bank. WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-appellant. SO ORDERED." 13

Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriter's equity and the two corporations have identical corporate officers, thus demanding the application of the doctrine of piercing the veil of corporate fiction, as to give validity to the transfer of the CBCI from the registered owner to petitioner TRB. 14 This renders the payment by TRB to Philfinance for CBCI, as actual payment to Filriters. Thus, there is no merit to the lower courts' ruling that the transfer of the CBCI from Filriters to Philfinance was null and void for lack of consideration. cda Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of negotiability within the meaning of the negotiable instruments law (Act 2031). The pertinent portions of the subject CBCI read: xxx xxx xxx The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay to bearer, or if this Certificate of indebtedness be registered, to FILRITERS GUARANTY ASSURANCE CORPORATION, the registered owner hereof, the principal sum of FIVE HUNDRED THOUSAND PESOS. xxx xxx xxx Properly understood, a certificate of indebtedness pertains to certificates for the creation and maintenance of a permanent improvement revolving fund, is similar to a "bond," (82 Minn. 202). Being equivalent to a bond, it is properly understood as an acknowledgment of an obligation to pay a fixed sum of money. It is usually used for the purpose of long term loans. The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that: "As worded, the instrument provides a promise 'to pay Filriters Guaranty Assurance Corporation, the registered owner hereof.' Very clearly, the instrument is payable only to Filriters, the registered owner, whose name is inscribed thereon. It lacks the words of negotiability which should have served as an expression of consent that the instrument may be transferred by negotiation." 15 A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE CORPORATION, and to no one else, thus, discounting the petitioner's submission that the same is a negotiable instrument, and that it is a holder in due course of the certificate. The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchstone relating to the protection of holders in due course, and the freedom of negotiability is the foundation for the protection which the law throws around a holder in due course (11 Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a certificate of indebtedness as it merely acknowledges to pay a sum of money to a specified person or entity for a period of time. As held in Caltex (Philippines), Inc. vs. Court of Appeals 16 : "The accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words express, but what is the meaning of the words they have used. What the parties meant must be determined by what they said."

Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by the negotiable instruments law. The pertinent question then is, was the transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to have the CBCI registered in its name with the Central Bank? The following are the appellate court's pronouncements on the matter: "Clearly shown in the record is the fact that Philfinance's title over CBCI No. D891 is defective since it acquired the instrument from Filriters fictitiously. Although the deed of assignment stated that the transfer was for 'value received,' there was really no consideration involved. What happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation. Thus, for lack of any consideration, the assignment made is a complete nullity. What is more, We find that the transfer made by Filriters to Philfinance did not conform to Central Bank Circular No. 769, series of 1980, otherwise known as the 'Rules and Regulations Governing Central Bank Certificates of Indebtedness', under which the note was issued. Published in the Official Gazette on November 19, 1980, Section 3 thereof provides that 'any assignment of registered certificates shall not be valid unless made . . . by the registered owner thereof in person or by his representative duly authorized in writing.' In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on behalf of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. For lack of such authority, the assignment did not therefore bind Filriters and violated at the same time Central Bank Circular No. 769 which has the force and effect of a law, resulting in the nullity of the transfer (People vs. Que Po Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778). In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or transfer to Traders Royal Bank and which the latter can register with the Central Bank." Petitioner now argues that the transfer of the subject CBCI to TRB must be upheld, as the respondent Filriters and Philfinance, though separate corporate entities on paper, have used their corporate fiction to defraud TRB into purchasing the subject CBCI, which purchase now is refused registration by the Central Bank. Says the petitioner: "Since Philfinance owns about 90% of Filriters and the two companies have the same corporate officers, if the principle of piercing the veil of corporate entity were to be applied in this case, then TRB's payment to Philfinance for the CBCI purchased by it could just as well be considered a payment to Filriters, the registered owner of the CBCI as to bar the latter from claiming, as it has, that it never received any payment for that CBCI sold and that said CBCI was sold without its authority. xxx xxx xxx We respectfully submit that, considering that the Court of Appeals has held that the CBCI was merely borrowed by Philfinance from Filriters, a sister corporation, to guarantee its (Philfinance's) financing operations, if it were to be consistent therewith, on the issue raised by TRB that there was a piercing a veil of corporate entity, the Court of Appeals should have ruled that such veil of corporate entity was, in fact, pierced, and the payment by TRB to Philfinance should be construed as payment to Filriters." 17 We disagree with the Petitioner. Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is merely an equitable remedy, and may be awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect

fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person. 18 Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguishes one corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do this, the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third persons dealing with the corporate entity which the law aims to protect by this doctrine. The corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence on the contrary. For one, other than the allegation that Filriters is 90% owned by Philfinance, and the identity of one shall be maintained as to the other, there is nothing else which could lead the court under the circumstances to disregard their corporate personalities. cdasia Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a juridical personality separate from its stockholders and from other corporations may be disregarded, 19 in the absence of such grounds, the general rule must be upheld. The fact that Philfinance owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, 20 the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities. In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it acquired the subject certificate of indebtedness from Philfinance. On its face, the subject certificates state that it is registered in the name of Filriters. This should have put the petitioner on notice, and prompted it to inquire from Filriters as to Philfinance's title over the same or its authority to assign the certificate. As it is, there is no showing to the effect that petitioner had any dealings whatsoever with Filriters, nor did it make inquiries as to the ownership of the certificate. The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus: "TRANSFER: This Certificate shall pass by delivery unless it is registered in the owner's name at any office of the Bank or any agency duly authorized by the Bank, and such registration is noted hereon. After such registration no transfer thereof shall be valid unless made at said office (where the Certificate has been registered) by the registered owner hereof, in person, or by his attorney, duly authorized in writing and similarly noted hereon and upon payment of a nominal transfer fee which may be required, a new Certificate shall be issued to the transferee of the registered owner thereof. The bank or any agency duly authorized by the Bank may deem and treat the bearer of this Certificate, or if this Certificate is registered as herein authorized, the person in whose name the same is registered as the absolute owner of this Certificate, for the purpose of receiving payment hereof, or on account hereof, and for all other purpose whether or not this Certificate shall be overdue." This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require Philfinance to submit such an authorization from Filriters. Petitioner knew that Philfinance is not the registered owner of CBCI No. D891. The fact that a non-owner was disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify or inquire as to the title of Philfinance to dispose of the CBCI.

Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1980 21 , known as the Rules and Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which provides that: "SEC. 3. Assignment of Registered Certificates. Assignment of registered certificates shall not be valid unless made at the office where the same have been issued and registered or at the Securities Servicing Department, Central Bank of the Philippines, and by the registered owner thereof, in person or by his representative, duly authorized in writing. For this purpose, the transferee may be designated as the representative of the registered owner." Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements. An entity which deals with corporate agents within circumstances showing that the agents are acting in excess of corporate authority, may not hold the corporation liable. 22 This is only fair, as everyone must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. 23 The transfer made by Filriters to Philfinance did not conform to the said Central Bank Circular, which for all intents, is considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who had signed the deed of assignment from Filriters to Philfinance, purportedly for and in favor of Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to act for the latter. As it is, the sale from Filriters to Philfinance was fictitious, and therefore void and inexistent, as there was no consideration for the same. This is fatal to the petitioner's cause, for then, Philfinance had no title over the subject certificate to convey to Traders Royal Bank. Nemo potest nisi quod de jure potest no man can do anything except what he can do lawfully. Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital reserves, which are required by law 24 to be maintained at a mandated level. This was pointed out by Elias Garcia, Manager-in-Charge of respondent Filriters, in his testimony given before the court on May 30, 1986. "Q Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891 in the face value of P500,000.00 subject of this case? A Yes, sir. Q Why do you know this? A Well, this was the CBCI of the company sought to be examined by the Insurance Commission sometime in early 1981 and this CBCI No. 891 was among the CBCI's that were found to be missing. Q Let me take you back further before 1981. Did you have the knowledge of this CBCI No. 891 before 1981? A Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission as legal reserve of the company. Q Legal reserve for the purpose of what? A Well, you see, the Insurance companies are required to put up legal reserves under Section 213 of the Insurance Code equivalent to 40 percent of the premiums receipt and further, the Insurance Commission requires this reserve to be invested preferably in government securities or government bonds. This is how this CBCI came to be purchased by the company." It cannot, therefore, be taken out of the said fund, without violating the requirements of the law. Thus, the unauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said corporation, not without the approval of its Board of Directors, and the maintenance of the required reserve fund. Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the claimed interest of Traders Royal Bank.

ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, 1990 is hereby AFFIRMED. SO ORDERED. Regalado, Romero and Mendoza, JJ., concur. Puno, J., took no part. Footnotes 1. Justice Ricardo L. Pronove, Jr., ponente; concurred in by Justices Alfredo L. Benipayo and Serafin V.C. Guingona, p. 18, Rollo. 2. P. 143, Record. 3. Ibid., at p. 146. 4. Ibid., at p. 148. 5. P. 1, Record. 6. P. 75, Record. 7. Answer, p. 97, Record. 8. P. 315, Record. 9. Pp. 16-17, RTC Decision, p. 330, Rollo. 10. Annex "A", Petition, supra. 11. Court of Appeals Decision, pp. 18-19, Rollo. 12. Section 57, Negotiable Instruments Law. 13. Petition, Annex "A", pp. 21-22, Rollo. 14. Ibid. 15. Campos and Campos, Negotiable Instruments Law, p. 38, 1971 ed. 16. G.R. No. 97753, August 10, 1992, 212 SCRA 448. 17. Petition. 18. Yu vs. National Labor Relations Commission 245 SCRA 134. 19. Guatson International Travel and Tours, Inc. vs. National Labor Relations Commission, 230 SCRA 815. 20. 2 SCRA 632. 21. 76 Official Gazette 9370. 22. See Article 1883, Civil Code. 23. See Article 19, Civil Code. 24. Section 213. Every insurance company, other than life, shall maintain a reserve for unearned premiums on its policies in force, which shall be charged as a liability in any determination of its financial condition. Such reserve shall be equal to forty percentum of the gross premiums, less returns and cancellations, received on policies or risks having more than a year to run; Provided That for marine cargo risks, the reserve shall be equal to forty per centum of the premiums written in the policies upon yearly risks, and the full amount of premiums written during the last two months of the calendar year upon all other marine risks not terminated. Presidential Decree No. 612 (The Insurance Code of the Philippines). FIRST DIVISION [G.R. No. 113032. August 21, 1997.] WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS, DIMAS ENRIQUEZ, PRESTON F. VILLASIS & REGINALD F. VILLASIS, petitioners, vs. RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS & HON. JUDGE PORFIRIO PARIAN, respondents. Tranquilino R. Gale for petitioners. Quisumbing Torres & Evangelista for Western Institute of Technology. Teodulfo L.C. Castro for private respondents. SYNOPSIS Private respondents, majority and controlling members of the Board of Trustees of Western Institute of Technology, Inc. were acquitted of the crimes of estafa and falsification of public document. The falsification charge was anchored on

private respondents submission of the school's income statement for fiscal year 1985-1986 with the Securities and Exchange Commission reflecting therein the disbursement of corporate funds for the compensation of private respondents based on Resolution No. 4, series of 1986, and making it appear that the Resolution was passed by the board on March 30, 1986, when in truth the same was actually passed on June 1, 1986, a date not covered by the corporation's fiscal year. The charge of estafa is based on private respondent's having disbursed funds of the corporation by effecting payment of their retroactive salaries of P186,470.00 and subsequently paying themselves every 15th and 30th of the month starting June 15, 1986 in the amount of P19,500.00 per month. After trial, the court acquitted the private respondents on both counts without imposing any civil liability against them. The individual petitioners, minority stockholders of the corporation, thus seek to hold the private respondents civilly liable despite their acquittal based on the alleged illegal issuance by private respondents of Resolution No. 4, series of 1986, ordering the disbursement of corporate funds and that the grant of compensation to private respondents is proscribed under Sec. 30 of the Corporation Code. The Supreme Court held that the proscription against granting compensation to directors/trustees of a corporation is not a sweeping rule. The implication under Sec. 30 of the Corporation Code is that members of the board may receive compensation in addition to reasonable per diems when they render services to the corporation in a capacity other than as directors/trustees. Resolution No. 4 s. 1986 granted compensation to private respondents not in their capacity as members of the board but rather as officers of the corporation. The instant case which is merely an appeal on the civil aspect of the criminal cases for estafa and falsification of public document, is not a derivative suit. Even if the case is a derivative suit, the same was wrongfully filed in the regular court as the proper forum is the Securities and Exchange Commission which exercises original and exclusive jurisdiction over intracorporate disputes. The acquittal in the criminal cases is not merely based on reasonable doubt but rather on a finding that the accused-private respondents did not commit action ex delicto cannot prosper. Petition denied. cdtai SYLLABUS 1. COMMERCIAL LAW; CORPORATION LAW; BOARD OF DIRECTORS; GENERAL RULE ON COMPENSATION; EXCEPTION; CASE AT BAR. There is no argument that directors or trustees, as the case may be, are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office. This rule is founded upon a presumption that directors/trustees render service gratuitously, and that the return upon their shares adequately furnishes the motives for service, without compensation. Under the foregoing section, there are only two (2) ways by which members of the board can be granted compensation apart from reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation; and (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders' meeting agree to give it to them. The proscription, however, against granting compensation to directors/trustees of a corporation is not a sweeping rule. Worthy of note is the clear phraseology of Section 30 which states: " . . . [T]he directors shall not receive any compensation, as such directors, . . . ." The phrase as such directors is not without significance for it delimits the scope of the prohibition to compensation given to them for services performed purely in their capacity as directors or trustees. The unambiguous implication is that members of the board may receive compensation, in addition to reasonable per diems; when they render services to the corporation in a capacity other than as directors/

trustees. In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their capacity as members of the board, but rather as officers of the corporation, more particularly as Chairman, Vice Chairman, Treasurer and Secretary of Western Institute of Technology. Thus, the prohibition with respect to granting compensation to corporate directors/trustees as such under Section 30 is not violated in this particular case. HDCAaS 2. ID.; ID.; DERIVATIVE SUIT; NOT THE CASE AT BAR WHICH IS MERELY AN APPEAL ON THE CIVIL ASPECT OF A CRIMINAL CASE. A derivative suit is an action brought by minority shareholders in the name of the corporation to redress wrongs committed against it, for which the directors refuse to sue. It is a remedy designed by equity and has been the principal defense of the minority shareholders against abuses by the majority. Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public document. Among the basic requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the corporation must allege in his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders similarly situated who wish to join. This is necessary to vest jurisdiction upon the tribunal in line with the rule that it is the allegations in the complaint that vests jurisdiction upon the court or quasi-judicial body concerned over the subject matter and nature of the action. This was not complied with by the petitioners either in their complaint before the court a quo nor in the instant petition. By no amount of equity considerations, if at all deserve, can a mere appeal on the civil aspect of a criminal case be treated as a derivative suit. 3. ID.; ID.; ID.; JURISDICTION; SECURITIES AND EXCHANGE COMMISSION. Granting, for purposes of discussion, that this is a derivative suit, the same is outrightly dismissible for having been wrongfully filed in the regular court devoid of any jurisdiction to entertain the complaint. The case should have been filed with the Securities and Exchange Commission (SEC) which exercises original and exclusive jurisdiction over derivative suits, they being intra-corporate disputes, per Section 5(b) of P.D. No. 902-A.. Once the case is decided by the SEC, the losing party may file a petition for review before the Court of Appeals raising questions of fact, of law, or mixed questions of fact and law. It is only after the case has ran this course, and not earlier, can it be brought to us via a petition for review on certiorari under Rule 45 raising only pure questions of law. 4. REMEDIAL LAW; CRIMINAL PROCEDURE; ACQUITTAL FOR NOT COMMITTING CRIME IMPUTED BARS CIVIL ACTION. As an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 for falsification of public document and estafa, which this petition truly is, we have to deny the petition just the same. From the factual findings, which we find to be amply substantiated by the records, it is evident that there is simply no basis to hold the accused, private respondents herein, civilly liable. The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely based on reasonable doubt but rather on a finding that the accused-private respondents did not commit the criminal acts complained of. Thus, pursuant to Section 2(b) of Rule III of the New Rules on Criminal Procedure and last paragraph of Section 2, Rule 120, and settled jurisprudence, any civil action ex delicto cannot prosper. Acquittal in a criminal action bars the civil action arising therefrom where the judgment of acquittal holds that the accused did not commit the criminal acts imputed to them. ITDHSE DECISION HERMOSISIMA, JR., J p:

Up for review on certiorari are: (1) the Decision dated September 6, 1993 and (2) the Order dated November 23, 1993 of Branch 33 of the Regional Trial Court of Iloilo City in Criminal Cases Nos. 37097 and 37098 for estafa and falsification of a public document, respectively. The judgment acquitted the private respondents of both charges, but petitioners seek to hold them civilly liable. cdphil Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad SalasTubilleja, Antonio S. Salas, and Richard S. Salas, belonging to the same family, are the majority and controlling members of the Board of Trustees of Western Institute of Technology, Inc. (WIT, for short), a stock corporation engaged in the operation, among others, of an educational institution. According to petitioners, the minority stockholders of WIT, sometime on June 1, 1986 in the principal office of WIT at La Paz, Iloilo City, a Special Board Meeting was held. In attendance were other members of the Board including one of the petitioners Reginald Villasis. Prior to aforesaid Special Board Meeting, copies of notice thereof, dated May 24, 1986, were distributed to all Board Members. The notice allegedly indicated that the meeting to be held on June 1, 1986 included Item No. 6 which states: "Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of Western Institute of Technology, Inc. on compensation of all officers of the corporation." 1 In said meeting, the Board of Trustees passed Resolution No. 48, s. 1986, granting monthly compensation to the private respondents as corporate officers retroactive June 1, 1985, viz.: "Resolution No. 48 s. 1986. On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad Tubilleja (accused), it was unanimously resolved that: 'The Officers of the Corporation be granted monthly compensation for services rendered as follows: Chairman 9,000.00/month, Vice Chairman P3,500.00/month, Corporate Treasurer P3,500.00/month and Corporate Secretary P3,500.00/month, retroactive June 1, 1985 and the ten percentum of the net profits shall be distributed equally among the ten members of the Board of Trustees. This shall amend and superceed (sic) any previous resolution.' There were no other business. The Chairman declared the meeting adjourned at 5:11 P.M. This is to certify that the foregoing minutes of the regular meeting of the Board of Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is true and correct to the best of my knowledge and belief. (Sgd.) ANTONIO S. SALAS Corporate Secretary" 2 A few years later, that is, on March 13, 1991, petitioners Homero Villasis, Preston Villasis, Reginald Villasis and Dimas Enriquez filed an affidavitcomplaint against private respondents before the Office of the City Prosecutor of Iloilo, as a result of which two (2) separate criminal informations, one for falsification of a public document under Article 171 of the Revised Penal Code and the other for estafa under Article 315, par. 1(b) of the RPC, were filed before Branch 33 of the Regional Trial Court of Iloilo City. The charge for falsification of public document was anchored on the private respondents' submission of WIT's income statement for the fiscal year 1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the disbursement of corporate funds for the compensation of private respondents based on Resolution No. 4, series of 1986, making it appear that the same was passed by the board on March 30, 1986, when in truth, the same was actually passed on June 1, 1986, a date not covered by the corporation's fiscal year

1985-1986 (beginning May 1, 1995 and ending April 30, 1986). The Information for falsification of a public document states: "The undersigned City Prosecutor accuses RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS and RICHARD S. SALAS (whose dates and places of birth cannot be ascertained) of the crime of FALSIFICATION OF A PUBLIC DOCUMENT, Art. 171 of the Revised Penal Code, committed as follows: That on or about the 10th day of June, 1986, in the City of Iloilo, Philippines and within the jurisdiction of this Honorable Court, the above-named accused, being then the Chairman, Vice-Chairman, Treasurer, Secretary, and Trustee (who later became Secretary), respectively, of the board of trustees of the Western Institute of Technology, Inc., a corporation duly organized and existing under the laws of the Republic of the Philippines, conspiring and confederating together and mutually helping one another, to better realized (sic) their purpose, did then and there wilfully, unlawfully and criminally prepare and execute and subsequently cause to be submitted to the Securities and Exchange Commission an income statement of the corporation for the fiscal year 1985-1986, the same being required to be submitted every end of the corporation fiscal year by the aforesaid Commission, and therefore, a public document, including therein the disbursement of the retroactive compensation of accused corporate officers in the amount of P186,470.70, by then and there making it appear that the basis thereof Resolution No. 4, Series of 1986 was passed by the board of trustees on March 30, 1986, a date covered by the corporation's fiscal year 1985-1986, (i.e., from May 1, 1985 to April 30, 1986) when in truth and in fact, as said accused well knew, no such Resolution No. 48, Series of 1986 was passed on March 30, 1986. CONTRARY TO LAW. Iloilo City, Philippines, November 22, 1991." 3 [Emphasis ours]. The Information, on the other hand, for estafa reads: "The undersigned City Prosecutor accuses RICARDO SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS (whose dates and places of birth cannot be ascertained) of the crime of ESTAFA, Art. 315, par. 1 (b) of the Revised Penal Code, committed as follows: That on or about the 1st day of June, 1986, in the City of Iloilo, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, being then the Chairman, Vice-Chairman, Treasurer, Secretary, and Trustee (who later became Secretary), respectively, of the Board of Trustees of Western Institute of Technology, Inc., a corporation duly organized and existing under the laws of the Republic of the Philippines, conspiring and confederating together and mutually helping one another to better realize their purpose, did then and there wilfully, unlawfully and feloniously defraud the said corporation (and its stockholders) in the following manner, to wit: herein accused, knowing fully well that they have no sufficient authority to disburse let alone violation of applicable laws and jurisprudence, disbursed the funds of the corporation by effecting payment of their retroactive salaries in the amount of P186,470.00 and subsequently paying themselves every 15th and 30th of the month starting June 15, 1986 until the present, in the amount of P19,500.00 per month, as if the same were their own, and when herein accused were informed of the illegality of these disbursements by the minority stockholders by way of objections made in annual stockholders' meeting held on June 14, 1986 and every year thereafter, they refused, and still refuse, to rectify the same to the damage and prejudice of the corporation (and its stockholders) in the total sum of P1,453,970.79 as of November 15, 1991. CONTRARY TO LAW. Iloilo City, Philippines, November 22, 1991." 4 [Emphasis ours]

Thereafter, trial for the two criminal cases, docketed as Criminal Cases Nos. 37097 and 37098, was consolidated. After a full-blown hearing, Judge Porfirio Parian handed down a verdict of acquittal on both counts 5 dated September 6, 1993 without imposing any civil liability against the accused therein. cdpr Petitioners filed a Motion for Reconsideration 6 of the civil aspect of the RTC Decision which was, however, denied in an Order dated November 23 1993. 7 Hence, the instant petition. Significantly on December 8, 1994, a Motion for Intervention, dated December 2, 1994, was filed before this Court by Western Institute of Technology, Inc., supposedly one of the petitioners herein, disowning its inclusion in the petition and submitting that Atty. Tranquilino R. Gale, counsel for the other petitioners, had no authority whatsoever to represent the corporation in filing the petition. Intervenor likewise prayed for the dismissal of the petition for being utterly without merit. The Motion for Intervention was granted on January 16, 1995. 8 Petitioners would like us to hold private respondents civilly liable despite their acquittal in Criminal Cases Nos. 37097 and 37098. They base their claim on the alleged illegal issuance by private respondents of Resolution No. 48, series of 1986 ordering the disbursement of corporate funds in the amount of P186,470.70 representing retroactive compensation as of June 1, 1985 in favor of private respondents, board members of WIT, plus P1,453,970.79 for the subsequent collective salaries of private respondents every 15th and 30th of the month until the filing of the criminal complaints against them on March 1991. Petitioners maintain that this grant of compensation to private respondents is proscribed under Section 30 of the Corporation Code. Thus, private respondents are obliged to return these amount to the corporation with interest. We cannot sustain the petitioners. The pertinent section of the Corporation Code provides: "Sec. 30. Compensation of directors. In the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any compensation, as such directors, except for reasonable per diems: Provided, however, That any such compensation (other than per diems) may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders' meeting. In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year." [Emphasis ours] There is no argument that directors or trustees, as the case may be, are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office. This rule is founded upon a presumption that directors/trustees render service gratuitously, and that the return upon their shares adequately furnishes the motives for service, without compensation. 9 Under the foregoing section, there are only two (2) ways by which members of the board can be granted compensation apart from reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation; and (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders' meeting agree to give it to them. This proscription, however, against granting compensation to director/trustees of a corporation is not a sweeping rule. Worthy of note is the clear phraseology of Section 30 which state: ". . . [T]he directors shall not receive any compensation, as such directors, . . ." The phrase as such directors is not without significance for it delimits the scope of the prohibition to compensation given to them for services performed purely in their capacity as directors or trustees. The unambiguous implication is that members of the board may receive compensation, in addition to reasonable per diems, when they render

services to the corporation in a capacity other than as directors/trustees. 10 In the case at bench, resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their capacity as members of the board, but rather as officers of the corporation, more particularly as Chairman, Vice-Chairman, Treasurer and Secretary of Western Institute of Technology. We quote once more Resolution No. 48, s. 1986 for easy reference, viz.: "Resolution No. 48 s. 1986. On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad Tubilleja (accused), it was unanimously resolved that: 'The Officers of the Corporation be granted monthly compensation for services rendered as follows: Chairman 9,000.00/month, Vice Chairman P3,500.00/month, Corporate Treasurer P3,500.00/month and Corporate Secretary P3,500.00/month, retroactive June 1, 1985 and the ten percentum of the net profits shall be distributed equally among the ten members of the Board of Trustees. This shall amend and superceed (sic) any previous resolution.' There were no other business. The Chairman declared the meeting adjourned at 5:11 P.M. This is to certify that the foregoing minutes of the regular meeting of the Board of Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is true and correct to the best of my knowledge and belief. (Sgd.) ANTONIO S. SALAS Corporate Secretary" 11 [Emphasis ours] Clearly, therefore, the prohibition with respect to granting compensation to corporate directors/trustees as such under Section 30 is not violated in this particular case. Consequently, the last sentence of Section 30 which provides: ". . . In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year." [Emphasis ours] does not likewise find application in this case since the compensation is being given to private respondents in their capacity as officers of WIT and not as board members. Petitioners assert that the instant case is a derivative suit brought by them as minority shareholders of WIT for and behalf of the corporation to annul Resolution No. 48, s. 1986 which is prejudicial to the corporation. We are unpersuaded. A derivative suit is an action brought by minority shareholders in the name of the corporation to redress wrongs committed against it, for which the directors refuse to sue. 12 It is a remedy designed by equity and has been the principal defense of the minority shareholders against abuses by the majority. 13 Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public document. Among the basic requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the corporation must allege in his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders similarly situated who which to join. 14 This is necessary to vest jurisdiction upon the tribunal in line with the rule that it is the allegations in the complaint that vests jurisdiction upon the court or quasi-judicial body concerned over the subject matter and nature of the action. 15 This was not complied with by the petitioners either in their complaint before the court a quo nor in the instant petition which, in part, merely states that "this is a petition for review on certiorari on pure questions of law to set aside a portion of the RTC decision in Criminal Cases Nos. 37097 and 37098" 16 since the trial

court's judgment of acquittal failed to impose any civil liability against the private respondents. By no amount of equity considerations, if at all deserved, can a mere appeal on the civil aspect of a criminal case be treated as a derivative suit. prcd Granting, for purposes of discussion, that this is a derivative suit as insisted by petitioners, which it is not, the same is outrightly dismissible for having been wrongfully filed in the regular court devoid of any jurisdiction to entertain the complaint. The case should have been filed with the Securities and Exchange Commission (SEC) which exercises original and exclusive jurisdiction over derivative suits, they being intra-corporate disputes, per Section 5 (b) of P.D. No. 902-A: "In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: xxx xxx xxx b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the State insofar as it concerns their individual franchise or right to exist as such entity; xxx xxx xxx." [Emphasis ours] Once the case is decided by the SEC, the losing party may file a petition for review before the Court of Appeals raising questions of fact, of law, or mixed questions of fact and law. 17 It is only after the case has ran this course, and not earlier, can it be brought to us via a petition for review on certiorari under Rule 45 raising only pure questions of law. 18 Petitioners, in pleading that we treat the instant petition as a derivative suit, are trying to short-circuit the entire process which we cannot here sanction. As an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 for falsification of public document and estafa, which this petition truly is, we have to deny the petition just the same. It will be well to quote the respondent court's ratiocinations acquitting the private respondents on both counts: "The prosecution wants this Court to believe and agree that there is falsification of public document because, as claimed by the prosecution, Resolution No. 48, Series of 1986 (Exh. '1-E-1') was not taken up and passed during the Regular Meeting of the Board of Trustees of the Western Institute of Technology (WIT), Inc. on March 30, 1986, but on June 1, 1986 special meeting of the same board of trustees. This Court is reluctant to accept this claim of falsification. The prosecution omitted to submit the complete minutes of the regular meeting of the Board of Trustees on March 30, 1986. It only presented in evidence Exh. 'C' which is page 5 or the last page of the said minutes. Had the complete minutes (Exh. '1' ') consisting of five (5) pages, been submitted it can be readily seen and understood that Resolution No. 48, Series of 1986 (Exh. '1-E-1' ) giving compensation to corporate officers, was indeed included in Other Business, No. 6 of the Agenda, and was taken up and passed on March 30, 1986. The mere fact of existence of Exh. C also proves that it was passed on March 30, 1986 for Exh. C is part and parcel of the whole minutes of the Board of Trustees Regular Meeting on March 30, 1986. No better and more credible proof can be considered other than the Minutes (Exh. '1' ) itself of the Regular Meeting of the Board of Trustees on March 30, 1986. The imputation that said Resolution No. 48 was neither taken up nor passed on March 30, 1986 because the matter regarding compensation was not specifically stated or written in the Agenda

and that the words 'possible implementation of said Resolution No. 48, was expressly written in the Agenda for the Special Meeting of the Board on June 1, 1986, is simply an implication. This evidence by implication to the mind of the court cannot prevail over the Minutes (Exh. '1') and cannot ripen into proof beyond reasonable doubt which is demanded in all criminal prosecutions. This Court finds that under the Eleventh Article (Exh. '3-D-1') of the Articles of Incorporation (Exh. '3-B') of the Panay Educational Institution, Inc., now the Western Institute of Technology, Inc., the officers of the corporation shall receive such compensation as the Board of Directors may provide. These Articles of Incorporation was adopted on May 17, 1957 (Exh. '3-E'). The Officers of the corporation and their corresponding duties are enumerated and stated in Sections 1, 2, 3 and 4 of Art. III of the Amended By-Laws of the Corporation (Exh. '4-A') which was adopted on May 31, 1957. According to Sec. 6, Art. III of the same By-Laws, all officers shall receive such compensation as may be fixed by the Board of Directors. It is the perception of this Court that the grant of compensation or salary to the accused in their capacity as officers of the corporation, through Resolution No. 48, enacted on March 30, 1986 by the Board of Trustees, is authorized by both the Articles of Incorporation and the By-Laws of the corporation. To state otherwise is to depart from the clear terms of the said articles and by-laws. In their defense the accused have properly and rightly asserted that the grant of salary is not for directors, but for their being officers of the corporation who oversee the day to day activities and operations of the school. xxx xxx xxx . . . [O]n the question of whether or not the accused can be held liable for estafa under Sec. 1 (b) of Art. 315 of the Revised Penal Code, it is perceived by this Court that the receipt and the holding of the money by the accused as salary on basis of the authority granted by the Articles and By-Laws of the corporation are not tainted with abuse of confidence. The money that received belongs to them and cannot be said to have been converted and/or misappropriated by them. xxx xxx xxx." 19 [Emphasis ours] From the foregoing factual findings, which we find to be amply substantiated by the records, it is evident that there is simply no basis to hold the accused, private respondents herein, civilly liable. Section 2(b) of Rule 111 on the New Rules on Criminal Procedure provides: "SEC. 2. Institution of separate civil action. xxx xxx xxx (b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist." [Emphasis ours] Likewise, the last paragraph of Section 2, Rule 120 reads: "SEC. 2. Form and contents of judgment. xxx xxx xxx In case of acquittal, unless there is a clear showing that the act from which the civil liability might arise did not exist, the judgment shall make a finding on the civil liability of the accused in favor of the offended party." [Emphasis ours] The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely based on reasonable doubt but rather on a finding that the accused-private respondents did not commit the criminal acts complained of. Thus, pursuant to the above rule and settled jurisprudence, any civil action ex delicto cannot prosper. Acquittal in a criminal action bars the civil action arising therefrom where the judgment of acquittal holds that the accused did not commit the criminal acts imputed to them. 20 WHEREFORE, the instant petition is hereby DENIED with costs against petitioners. LLpr

SO ORDERED. Padilla, Bellosillo, Vitug and Kapunan, JJ ., concur. Footnotes 1. Annex "E"; Rollo, p. 92. 2. Annex "F"; Rollo, p. 93. 3. Annex "V"; Rollo, p. 237. 4. Annex "U"; Rollo, p. 233. 5. Decision, p. 11; Rollo, p. 64. 6. Annex "B"; Rollo, p. 66. 7. Rollo, p. 87. 8. Rollo, p. 403. 9. Agbayani, Aguedo F., Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. 3, 1988 ed., p. 259. 10. Ibid. 11. Annex "F"; Rollo, p. 93. 12. Agbayani, supra., p. 540. 13. Commart (Phils.) Inc. v. Securities & Exchange Commission, 198 SCRA 73, 80 [1991]. 14. Agbayani, supra., p. 543. 15. See Sarmiento v. Court of Appeals, 250 SCRA 108 [1995]; De Leon v. Court of Appeals, 245 SCRA 166 [1995]; Alleje v. Court of Appeals, 240 SCRA 495 [1995]. 16. Petition, p. 6; Rollo, p 13. 17. Sections 1 & 3, Circular No. 1-91; Sections 1 & 3, Revised Administrative Circular No. 1-95; Now incorporated in Sections 1 & 3, Rule 43 of the 1997 Rules of Civil Procedure. 18. Section 1, Rule 45. 19. Decision, pp. 9-11; Rollo, pp. 62-64. 20. Regalado, Florenz D., Remedial Law Compendium, Vol. II, 1995 ed., p. 287, citing Tan v. Standard Vacuum Oil Co., 91 Phil. 672. FIRST DIVISION [G.R. No. 123553. July 13, 1998.] [CA-G.R. No. 33291. July 13, 1998.] NORA A. BITONG, petitioner, vs. COURT OF APPEALS (FIFTH DIVISION) EUGENIA D. APOSTOL, JOSE A. APOSTOL, MR. & MS. PUBLISHING CO., LETTY J. MAGSANOC, AND ADORACION G. NUYDA, respondents. [CA-G.R. No. 33873. July 13, 1998.] NORA A. BITONG, petitioner, vs. COURT OF APPEALS (FIFTH DIVISION) and EDGARDO B. ESPIRITU, respondents. Castillo Zamora & Poblador for petitioner. SYNOPSIS Petitioner Nora A. Bitong filed a derivative suit before the Securities and Exchange Commission allegedly for the benefit of the private respondent Mr. & Ms. Publishing Co., Inc. (Mr. & Ms. hereafter), among others, to hold respondent spouses Eugenia D. Apostol and Jose A. Apostol liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and mismanagement in directing the affairs of Mr. & Ms. to the damage and prejudice of Mr. & Ms. and its stockholders, including petitioner. Petitioner testified at the trial that she became the registered and beneficial owner of 997 shares of stock of Mr. & Ms. out of the 4,088 total outstanding shares after she acquired them from JAKA through a deed of sale executed on 25 July 1983 and recorded in the Stock and Transfer Book of Mr. & Ms. under Certificate of Shares of Stock No. 008. After trial on the merits, the SEC Hearing Panel dismissed the derivative suit filed by petitioner. The Hearing Panel ruled that

there was no serious mismanagement of Mr. & Ms. which would warrant drastic corrective measures. Petitioner appealed to the SEC En Banc. The SEC En Banc reversed the decision of the Hearing Panel. Consequently, respondent Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms. filed a petition for review before respondent Court of Appeals. The appellate court rendered a decision reversing the SEC En Banc and held that from the evidence on record petitioner was not the owner of any share of stock in Mr. & Ms. and therefore not the real party-in-interest to prosecute the complaint she had instituted against private respondents. Hence, the present petition. The Supreme Court affirmed the decision of the Court of Appeals. The Court ruled that while there is no doubt that petitioner was an employee of JAKA as its managing officer, however, in the absence of a special authority from the board of directors of JAKA to institute a derivative suit for and in its behalf, petitioner is disqualified by law to sue in her own name. The basis of a stockholder's suit is always one in equity. It cannot prosper without first complying with the legal requisites for its institution. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation. Petitioner failed to establish said legal requisites. SYLLABUS 1. REMEDIAL LAW; EVIDENCE; ADMISSIONS; STATEMENTS OF PRIVATE RESPONDENTS IN THEIR ANSWER CANNOT BE CONSTRUED AS JUDICIAL ADMISSIONS. A party whose pleading is admitted as an admission against interest is entitled to overcome by evidence the apparent inconsistency, and it is competent for the party against whom the pleading is offered to show that the statements were inadvertently made or were made under a mistake of fact. In addition, a party against whom a single clause or paragraph of a pleading is offered may have the right to introduce other paragraphs which tend to destroy the admission in the paragraph offered by the adversary. The answer of private respondents shows that there was no judicial admission that petitioner was a stockholder of Mr. & Ms. to entitle her to file a derivative suit on behalf of the corporation. Where the statements of the private respondents were qualified with phrases such as, "insofar as they are limited, qualified and/or expanded by," "the truth being as stated in the Affirmative Allegations/Defenses of this Answer" they cannot be considered definite and certain enough, cannot be construed as judicial admissions. 2. ID.; ID.; ID.; EVERY ALLEGED ADMISSION IS TAKEN AS AN ENTIRETY OF THE FACT WHICH MAKES IT FOR THE ONE SIDE WITH THE QUALIFICATIONS WHICH LIMIT, MODIFY OR DESTROY ITS EFFECT ON THE OTHER SIDE; REASON. When taken in its totality, the Amended Answer to the Amended Petition, or even the Answer to the Amended Petition alone, clearly raises an issue as to the legal personality of petitioner to file the complaint. Every alleged admission is taken as an entirety of the fact which makes for the one side with the qualifications which limit, modify or destroy its effect on the other side. The reason for this is, where part of a statement of a party is used against him as an admission, the court should weigh any other portion connected with the statement, which tends to neutralize or explain the portion which is against interest. In other words, while the admission is admissible in evidence, its probative value is to be determined from the whole statement and others intimately related or connected therewith as an integrated unit. Although acts or facts admitted do not require proof and cannot be contradicted, however, evidence aliunde can be presented to show that the admission was made through palpable mistake. The rule is always in favor of liberality in construction of pleadings so that the real matter in dispute may be submitted to the judgment of the court.

3. ID.; CIVIL PROCEDURE.; APPEAL; PRIVATE RESPONDENTS NOT ESTOPPED FROM QUESTIONING PETITIONER'S PERSONALITY; THE 06 DECEMBER 1990 ORDER CLEARLY AN INTERLOCUTORY ORDER AND AS SUCH, NOT APPEALABLE. Petitioner also argues that since private respondents failed to appeal the 6 December 1990 Order and the 3 August 1993 Decision of the SEC Hearing Panel declaring that she was the real partyin-interest and had legal personality to sue, they are now estopped from questioning her personality. Not quite. The 6 December 1990 Order is clearly an interlocutory order which cannot be considered as having finally resolved on the merits the issue of legal capacity of petitioner. The SEC Hearing Panel discussed the issue of legal capacity solely for the purpose of ruling on the application for writ of preliminary injunction as an incident to the main issues raised in the complaint. Being a mere interlocutory order, it is not appealable. For, an interlocutory order refers to something between the commencement and end of the suit which decides some point or matter but it is not the final decision of the whole controversy. Thus, even though the 6 December 1990 Order was adverse to private respondents, they had the legal right and option not to elevate the same to the SEC En Banc but rather to await the decision which resolves all the issues raised by the parties and to appeal therefrom by assigning all errors that might have been committed by the Hearing Panel. 4. COMMERCIAL LAW; CORPORATION CODE; SECTION 63 THEREOF; CERTIFICATE OF STOCK AND TRANSFER OF SHARES CONSTRUED. Section 63 of the Corporation Code envisions a formal certificate of stock which can be issued only upon compliance with certain requisites. First, the certificates must be signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation. A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock. Second, delivery of the certificate is an essential element of its issuance. Hence, there is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted therein has no control over the books of the company. Third, the par value, as to par value shares, or the full subscription as to no par value shares, must first be fully paid. Fourth, the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder. The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the contrary. However, this presumption may be rebutted. Similarly, books and records of a corporation which include even the stock and transfer book are generally admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters including one's status as a stockholder. They are ordinarily the best evidence of corporate acts and proceedings. However, the books and records of a corporation are not conclusive even against the corporation but are prima facie evidence only. Parol evidence may be admitted to supply omissions in the records, explain ambiguities, or show what transpired where no records were kept, or in some cases where such records were contradicted. The effect of entries in the books of the corporation which purport to be regular records of the proceedings of its board of directors or stockholders can be destroyed by testimony of a more conclusive character than mere suspicion that there was an irregularity in the manner in which the books were kept. The foregoing considerations are founded on the basic principle that stock issued without authority and in violation of law is void and confers no rights on the person to whom it is issued and subjects him to no liabilities. Where there is an inherent

lack of power in the corporation to issue the stock, neither the corporation nor the person to whom the stock is issued is estopped to question its validity since an estoppel cannot operate to create stock which under the law cannot have existence. 5. ID.; ID.; ID.; FORMAL CERTIFICATE OF STOCK COULD NOT BE CONSIDERED ISSUED IN CONTEMPLATION OF LAW UNLESS SIGNED BY THE PRESIDENT AND COUNTERSIGNED BY THE SECRETARY OR ASSISTANT SECRETARY; CASE AT BAR. Based on the admission of petitioner, there is no truth to the statement written in Certificate of Stock No. 008 that the same was issued and signed on 95 July 1983 by its duly authorized officers specifically the President and Corporate Secretary because the actual date of signing thereof was 17 March 1989. Verily, a formal certificate of stock could not be considered issued in contemplation of law unless signed by the president or vice-president and countersigned by the secretary or assistant secretary. In this case, contrary to petitioner's submission, the Certificate of Stock No. 008 was only legally issued on 17 March 1989 when it w as actually signed by the President of the corporation, and not before that date. While a certificate of stock is not necessary to make one a stockholder, e.g., where he is an incorporator and listed as stockholder in the articles of incorporation although no certificate of stock has yet been issued, it is supposed to serve as paper representative of the stock itself and of the owner's interest therein. Hence, when Certificate of Stock No. 008 was admittedly signed and issued only on 17 March 1989 and not on 25 July 1983, even as it indicates that petitioner owns 997 shares of stock of Mr. & Ms., the certificate has no evidentiary value for the purpose of proving that petitioner was a stockholder since 1983 up to 1989. 6. ID.; ID.; ID.; REQUIREMENTS FOR A VALID TRANSFER OF STOCKS, NOT SATISFIED IN CASE AT BAR. The rule is that the endorsement of the certificate of stock by the owner or his attorney-in-fact or any other person legally authorized to make the transfer shall be sufficient to effect the transfer of shares only if the same is coupled with delivery. The delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the new transferee. Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-infact or other persons legally authorized to make the transfer; and, (c) to be valid against third parties, the transfer must be recorded in the books of the corporation. At most, in the instant case, petitioner has satisfied only the third requirement. Compliance with the first two requisites has not been clearly and sufficiently shown. 7. ID.; ID.; ID.; RULE ON PRESUMPTION OF REGULARITY CANNOT BE APPLIED IN CASE AT BAR. Considering that the requirements provided under Sec. 63 of The Corporation Code should be mandatorily complied with, the rule on presumption of regularity cannot apply. The regularity and validity of the transfer must be proved. As it is, even the credibility of the stock and transfer book and the entries thereon relied upon by petitioner to show compliance with the third requisite to prove that she was a stockholder since 1983 is highly doubtful. 8. ID.; ID.; BASIS OF STOCKHOLDER'S RIGHT TO INSTITUTE A DERIVATIVE SUIT IS ONE IN EQUITY; LEGAL REQUISITES FOR ITS INSTITUTION MUST BE STRICTLY COMPLIED WITH. It is well settled in this jurisdiction that where corporate directors are guilty of a "breach of trust, not of mere error of judgment or abuse of discretion, and intracorporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon

the stockholders. The stockholder's right to institute a derivative suit is not based on any express provision of The Corporation Code but is impliedly recognized when the law makes corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a special injury to him for which he is otherwise without redress. In effect, the suit is an action for specific performance of an obligation owed by the corporation to the stockholders to assist its rights of action when the corporation has been put in default by the wrongful refusal of the directors or management to make suitable measures for its protection. The basis of a stockholder's suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation. DECISION BELLOSILLO, J p: These twin cases originated from a derivative suit 1 filed by petitioner Nora A. Bitong before the Securities and Exchange Commission (SEC hereafter) allegedly for the benefit of private respondent Mr. & Ms. Publishing Co., Inc. (Mr. & Ms. hereafter), among others, to hold respondent spouses Eugenia D. Apostol and Jose A. Apostol 2 liable for fraud, misrepresentation, disloyalty, evident bad faith, conflict of interest and mismanagement in directing the affairs of Mr. & Ms. to the damage and prejudice of Mr. & Ms. and its stockholders, including petitioner. LexLib Alleging before the SEC that she had been the Treasurer and a Member of the Board of Directors of Mr. & Ms. from the time it was incorporated on 29 October 1976 to 11 April 1989, and was the registered owner of 1,000 shares of stock out of the 4,088 total outstanding shares, petitioner complained of irregularities committed from 1983 to 1987 by Eugenia D. Apostol, President and Chairperson of the Board of Directors. Petitioner claimed that except for the sale of the name Philippine Inquirer to Philippine Daily Inquirer (PDI hereafter) all other transactions and agreements entered into by Mr. & Ms. with PDI were not supported by any bond and/or stockholders' resolution. And, upon instructions of Eugenia D. Apostol, Mr. & Ms. made several cash advances to PDI on various occasions amounting to P3.276 million. On some of these borrowings PDI paid no interest whatsoever. Despite the fact that the advances made by Mr. & Ms. to PDI were booked as advances to an affiliate, there existed no board or stockholders' resolution, contract nor any other document which could legally authorize the creation of and support to an affiliate. Petitioner further alleged that respondents Eugenia and Jose Apostol were stockholders, directors and officers in both Mr. & Ms. and PDI. In fact on 2 May 1986 respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda subscribed to PDI shares of stock at P50,000.00 each or a total of P150,000.00. The stock subscriptions were paid for by Mr. & Ms. and initially treated as receivables from officers and employees. But, no payments were ever received from respondents, Magsanoc and Nuyda. The petition principally sought to (a) enjoin respondents Eugenia D. Apostol and Jose A. Apostol from further acting as president-director and director, respectively, of Mr. & Ms. and disbursing any money or funds except for the payment of salaries and similar expenses in the ordinary course of business, and from disposing of their Mr. & Ms. shares; (b) enjoin respondents Apostol spouses, Magsanoc and Nuyda from disposing of the PDI shares of stock registered in their names; (c) compel respondents Eugenia and Jose Apostol to

account for and reconvey all profits and benefits accruing to them as a result of their improper and fraudulent acts; (d) compel respondents Magsanoc and Nuyda to account for and reconvey to Mr. & Ms. all shares of stock paid from cash advances from it and all accessions or fruits thereof; (e) hold respondents Eugenia and Jose Apostol liable for damages suffered by Mr. & Ms. and the other stockholders, including petitioner, by reason of their improper and fraudulent acts; (f) appoint a management committee for Mr. & Ms. during the pendency of the suit to prevent further dissipation and loss of its assets and funds as well as paralyzation of business operations; and, (g) direct the management committee for Mr. & Ms. to file the necessary action to enforce its rights against PDI and other third parties. Private respondents Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms., on the other hand, refuted the allegations of petitioner by starting with a narration of the beginnings of Mr. & Ms. They recounted that on 9 March 1976 Ex Libris Publishing Co., Inc. (Ex Libris hereafter) was incorporated for the purpose of publishing a weekly magazine. Its original principal stockholders were spouses Senator Juan Ponce Enrile (then Minister of National Defense) and Cristina Ponce Enrile through Jaka Investments Corporation (JAKA hereafter), and respondents Eugenia and Jose Apostol. When Ex Libris suffered financial difficulties, JAKA and the Apostols, together with new investors Luis Villafuerte and Ramon Siy, restructured Ex Libris by organizing a new corporation known as Mr. & Ms. The original stockholders of Mr. & Ms., i.e., JAKA, Luis Villafuerte, Ramon Siy, the Apostols and Ex Libris continued to be virtually the same up to 1989. Thereafter it was agreed among them that, they being close friends, Mr. & Ms. would be operated as a partnership or a close corporation; respondent Eugenia D. Apostol would manage the affairs of Mr. & Ms.; and, no shares of stock would be sold to third parties without first offering the shares to the other stockholders so that transfers would be limited to and only among the original stockholders. Private respondents also asserted that respondent Eugenia D. Apostol had been informing her business partners of her actions as manager, and obtaining their advice and consent. Consequently the other stockholders consented, either expressly or impliedly, to her management. They offered no objections. As a result, the business prospered. Thus, as shown in a statement prepared by the accounting firm Punongbayan and Araullo, there were increases from 1976 to 1988 in the total assets of Mr. & Ms. from P457,569.00 to P10,143,046.00; in the total stockholders' equity from P203,378.00 to P2,324,954.00; and, in the net sales, from P301,489.00 to P16,325,610.00. Likewise, cash dividends were distributed and received by the stockholders. Private respondents further contended that petitioner, being merely a holderin-trust of JAKA shares, only represented and continued to represent JAKA in the board. In the beginning, petitioner cooperated with and assisted the management until mid-1986 when relations between her and her principals on one hand, and respondent Eugenia D. Apostol on the other, became strained due to political differences. Hence from mid-1986 to mid-1988 petitioner refused to speak with respondent Eugenia D. Apostol, and in 1988 the former became openly critical of the management of the latter. Nevertheless, respondent Eugenia D. Apostol always made available to petitioner and her representatives all the books of the corporation. Private respondents averred that all the PDI shares owned by respondents Eugenia and Jose Apostol were acquired through their own private funds and that the loan of P750,000.00 by PDI from Mr. & Ms. had been fully paid with 20% interest per annum. And, it was PDI, not Mr. & Ms., which loaned off P250,000.00 each to respondents Magsanoc and Nuyda. Private respondents further argued that petitioner was not the true party to this case, the real party

being JAKA which continued to be the true stockholder of Mr. & Ms.; hence, petitioner did not have the personality to initiate and prosecute the derivative suit which, consequently, must be dismissed. On 6 December 1990, the SEC Hearing Panel 3 issued a writ of preliminary injunction enjoining private respondents from disbursing any money except for the payment of salaries and other similar expenses in the regular course of business. The Hearing Panel also enjoined respondent Apostol spouses, Nuyda and Magsanoc from disposing of their PDI shares, and further ruled . . . respondents' contention that petitioner is not entitled to the provisional reliefs prayed for because she is not the real party in interest . . . is bereft of any merit. No less than respondents' Amended Answer, specifically paragraph V, No. 8 on Affirmative Allegations/Defenses states that 'The petitioner being herself a minor stockholder and holder-in-trust of JAKA shares represented and continues to represent JAKA in the Board.' This statement refers to petitioner sitting in the board of directors of Mr. & Ms. in two capacities, one as a minor stockholder and the other as the holder in trust of the shares of JAKA in Mr. & Ms. Such reference alluded to by the respondents indicates an admission on respondents' part of the petitioner's legal personality to file a derivative suit for the benefit of the respondent Mr. & Ms. Publishing Co., Inc. The Hearing Panel however denied petitioner's prayer for the constitution of a management committee. On 25 March 1991 private respondents filed a Motion to Amend Pleadings to Conform to Evidence alleging that the issue of whether petitioner is the real party-in-interest had been tried by express or implied consent of the parties through the admission of documentary exhibits presented by private respondents proving that the real party-in-interest was JAKA, not petitioner Bitong. As such, No. 8, par. V (Affirmative Allegations/Defenses), Answer to the Amended Petition, was stipulated due to inadvertence and excusable mistake and should be amended. On 10 October 1991 the Hearing Panel denied the motion for amendment. Petitioner testified at the trial that she became the registered and beneficial owner of 997 shares of stock of Mr. & Ms. out of the 4,088 total outstanding shares after she acquired them from JAKA through a deed of sale executed on 25 July 1983 and recorded in the Stock and Transfer Book of Mr. & Ms. under Certificate of Shares of Stock No. 008. She pointed out that Senator Enrile decided that JAKA should completely divest itself of its holdings in Mr. & Ms. and this resulted in the sale to her of JAKA's interest and holdings in that publishing firm. Private respondents refuted the statement of petitioner that she was a stockholder of Mr. & Ms. since 25 July 1983 as respondent Eugenia D. Apostol signed Certificate of Stock No. 008 only on 17 March 1989, and not on 25 July 1983. Respondent Eugenia D. Apostol explained that she stopped using her long signature (Eugenia D. Apostol) in 1987 and changed it to E.D. Apostol, the signature which appeared on the face of Certificate of Stock No. 008 bearing the date 25 July 1983. And, since the Stock and Transfer Book which petitioner presented in evidence was not registered with the SEC, the entries therein including Certificate of Stock No. 008 were fraudulent. Respondent Eugenia D. Apostol claimed that she had not seen the Stock and Transfer Book at any time until 21 March 1989 when it was delivered by petitioner herself to the office of Mr. & Ms., and that petitioner repeatedly referred to Senator Enrile as "my principal" during the Mr. & Ms. board meeting of 22 September 1988, seven (7) times no less. On 3 August 1993, after trial on the merits, the SEC Hearing Panel dismissed the derivative suit filed by petitioner and dissolved the writ of preliminary injunction barring private respondents from disposing of their PDI shares and any of Mr. & Ms. assets. The Hearing Panel ruled that there was no serious

mismanagement of Mr. & Ms. which would warrant drastic corrective measures. It gave credence to the assertion of respondent Eugenia D. Apostol that Mr. & Ms., was operated like a close corporation where important matters were discussed and approved through informal consultations at breakfast conferences. The Hearing Panel also concluded that while the evidence presented tended to show that the real party-in-interest indeed was JAKA and/or Senator Enrile, it viewed the real issue to be the alleged mismanagement, fraud and conflict of interest on the part of respondent Eugenia D. Apostol, and allowed petitioner to prosecute the derivative suit if only to resolve the real issues. Hence, for this purpose, the Hearing Panel considered petitioner to be the real party-in-interest. On 19 August 1993 respondent Apostol spouses sold the PDI shares registered in the name of their holding company, JAED Management Corporation, to Edgardo B. Espiritu. On 25 August 1993 petitioner Bitong appealed to the SEC En Banc. On 24 January 1994 the SEC En Banc 4 reversed the decision of the Hearing Panel and, among others, ordered private respondents to account for, return and deliver to Mr. & Ms. any and all funds and assets that they disbursed from the coffers of the corporation including shares of stock, profits, dividends and/or fruits that they might have received as a result of their investment in PDI, including those arising from the P150,000.00 advanced to respondents Eugenia D. Apostol, Leticia J. Magsanoc and Adoracion G. Nuyda; account for and return any profits and fruits of all amounts irregularly or unlawfully advanced to PDI and other third persons; and, cease and desist from managing the affairs of Mr. & Ms. for reasons of fraud, mismanagement, disloyalty and conflict of interest. The SEC En Banc also declared the 19 August 1993 sale of the PDI shares of JAED Management Corporation to Edgardo B. Espiritu to be tainted with fraud, hence, null and void, and considered Mr. & Ms. as the true and lawful owner of all the PDI shares acquired by respondents Eugenia D. Apostol, Magsanoc and Nuyda. It also declared all subsequent transferees of such shares as trustees for the benefit of Mr. & Ms. and ordered them to forthwith deliver said shares to Mr. & Ms. Consequently, respondent Apostol spouses, Magsanoc, Nuyda, and Mr. & Ms. filed a petition for review before respondent Court of Appeals, docketed as CAGR No. SP 33291, while respondent Edgardo B. Espiritu filed a petition for certiorari and prohibition also before respondent Court of Appeals, docketed as CA-GR No. SP 33873. On 8 December 1994 the two (2) petitions were consolidated. On 31 August 1995 respondent appellate court rendered a decision reversing the SEC En Banc and held that from the evidence on record petitioner was not the owner of any share of stock in Mr. & Ms. and therefore not the real partyin-interest to prosecute the complaint she had instituted against private respondents. Accordingly, petitioner alone and by herself as an agent could not file a derivative suit in behalf of her principal. For not being the real party-ininterest, petitioner's complaint did not state a cause of action, a defense which was never waived; hence, her petition should have been dismissed. Respondent appellate court ruled that the assailed orders of the SEC were issued in excess of jurisdiction, or want of it, and thus were null and void. 5 On 18 January 1996, petitioner's motion for reconsideration was denied for lack of merit. Before this Court, petitioner submits that in paragraph 1 under the caption "I. The Parties" of her Amended Petition before the SEC, she stated that she was a stockholder and director of Mr. & Ms. In par. 1 under the caption "II. The Facts" she declared that she "is the registered owner of 1,000 shares of stock of Mr. & Ms. out of the latter's 4,088 total outstanding shares" and that she was a member of the Board of Directors of Mr. & Ms. and treasurer from its inception

until 11 April 1989. Petitioner contends that private respondents did not deny the above allegations in their answer and therefore they are conclusively bound by this judicial admission. Consequently, private respondents' admission that petitioner has 1,000 shares of stock registered in her name in the books of Mr. & Ms. forecloses any question on her status and right to bring a derivative suit on behalf of Mr. & Ms. Not necessarily. A party whose pleading is admitted as an admission against interest is entitled to overcome by evidence the apparent inconsistency, and it is competent for the party against whom the pleading is offered to show that the statements were inadvertently made or were made under a mistake of fact. In addition, a party against whom a single clause or paragraph of a pleading is offered may have the right to introduce other paragraphs which tend to destroy the admission in the paragraph offered by the adversary. 6 The Amended Petition before the SEC alleges I. THE PARTIES 1. Petitioner is a stockholder and director of Mr. & Ms. . . . II. THE FACTS 1. Petitioner is the registered owner of 1,000 shares of stock of Mr. & Ms. out of the latter's 4,088 total outstanding shares. Petitioner, at all times material to this petition, is a member of the Board of Directors of Mr. & Ms. and from the inception of Mr. & Ms. until 11 April 1989 was its treasurer . . . On the other hand, the Amended Answer to the Amended Petition states I. PARTIES 1. Respondents admit the allegations contained in Caption I, pars. 1 to 4 of the Petition referring to the personality, addresses and capacity of the parties to the petition except . . . but qualify said admission insofar as they are limited, qualified and/or expanded by allegations in the Affirmative Allegations/Defenses . . . II. THE FACTS 1. Respondents admit paragraph 1 of the Petition, but qualify said admission as to the beneficial ownership of the shares of stock registered in the name of the petitioner, the truth being as stated in the Affirmative Allegations/Defenses of this Answer . . . V. AFFIRMATIVE ALLEGATIONS/DEFENSES Respondents respectfully allege by way of Affirmative Allegations/Defenses, that . . . 3. Fortunately, respondent Apostol was able to convince Mr. Luis Villafuerte to take interest in the business and he, together with the original investors, restructured the Ex Libris Publishing Company by organizing a new corporation known as Mr. & Ms. Publishing Co., Inc. . . . Mr. Luis Villafuerte contributed his own P100,000.00. JAKA and respondent Jose Z. Apostol, original investors of Ex Libris contributed P100,000.00 each; Ex Libris Publishing Company was paid 800 shares for the name of Mr. & Ms. magazine and goodwill. Thus, the original stockholders of respondent Mr. & Ms. were: Cert./No./Date Name of Stockholder No. of Shares % 001-9-15-76 JAKA Investments Corp. 1,000 21% 002-9-15-76 Luis Villafuerte 1,000 21% 003-9-15-76 Ramon L. Siy 1,000 21% 004-9-15-76 Jose Z. Apostol 1,000 21% 005-9-15-76 Ex Libris Publishing Co. 800 16% 4,800 96% 4. The above-named original stockholders of respondent Mr. & Ms. continue to be virtually the same stockholders up to this date . . . 8. The petitioner being herself a minor stockholder and holder-in-trust of JAKA shares, represented and continues to represent JAKA in the Board . . .

21. Petitioner Nora A. Bitong is not the true party to this case, the true party being JAKA Investments Corporation which continues to be the true stockholder of respondent Mr. & Ms. Publishing Co., Inc., consequently, she does not have the personality to initiate and prosecute this derivative suit, and should therefore be dismissed . . . The answer of private respondents shows that there was no judicial admission that petitioner was a stockholder of Mr. & Ms. to entitle her to file a derivative suit on behalf of the corporation. Where the statements of the private respondents were qualified with phrases such as, "insofar as they are limited, qualified and/or expanded by," "the truth being as stated in the Affirmative Allegations/Defenses of this Answer" they cannot be considered definite and certain enough, cannot be construed as judicial admissions. 7 More so, the affirmative defenses of private respondents directly refute the representation of petitioner that she is a true and genuine stockholder, of Mr. & Ms. by stating unequivocally that petitioner is not the true party to the case but JAKA which continues to be the true stockholder of Mr. & Ms. In fact, one of the reliefs which private respondents prayed for was the dismissal of the petition on the ground that petitioner did not have the legal interest to initiate and prosecute the same. When taken in its totality, the Amended Answer to the Amended Petition or even the Answer to the Amended Petition alone, clearly raises an issue as to the legal personality of petitioner to file the complaint. Every alleged admission is taken as an entirety of the fact which makes for the one side with the qualifications which limit, modify or destroy its effect on the other side. The reason for this is, where part of a statement of a party is used against him as an admission, the court should weigh any other portion connected with the statement, which tends to neutralize or explain the portion which is against interest. prcd In other words, while the admission is admissible in evidence, its probative value is to be determined from the whole statement and others intimately related or connected therewith as an integrated unit. Although acts or facts admitted do not require proof and cannot be contradicted, however, evidence aliunde can be presented to show that the admission was made through palpable mistake. 8 The rule is always in favor of liberality in construction of pleadings so that the real matter in dispute may be submitted to the judgment of the court. 9 Petitioner also argues that since private respondents failed to appeal the 6 December 1990 Order and the 3 August 1993 Decision of the SEC Hearing Panel declaring that she was the real party-in-interest and had legal personality to sue, they are now estopped from questioning her personality. Not quite. The 6 December 1990 Order is clearly an interlocutory order which cannot be considered as having finally resolved on the merits the issue of legal capacity of petitioner. The SEC Hearing Panel discussed the issue of legal capacity solely for the purpose of ruling on the application for writ of preliminary injunction as an incident to the main issues raised in the complaint. Being a mere interlocutory order, it is not appealable. For, an interlocutory order refers to something between the commencement and end of the suit which decides some point or matter but it is not the final decision of the whole controversy. 10 Thus, even though the 6 December 1990 Order was adverse to private respondents, they had the legal right and option not to elevate the same to the SEC En Banc but rather to await the decision which resolves all the issues raised by the parties and to appeal therefrom by assigning all errors that might have been committed by the Hearing Panel. On the other hand, the 3 August 1993 Decision of the Hearing Panel dismissing the derivative suit for failure to prove the charges of mismanagement, fraud, disloyalty and conflict of interest and dissolving the

writ of preliminary injunction, was favorable to private respondents. Hence, they were not expected to appeal therefrom. In fact, in the 3 August 1993 Decision, the Hearing Panel categorically stated that the evidence presented showed that the real party-in-interest was not petitioner Bitong but JAKA and/or Senator Enrile. Petitioner was merely allowed to prosecute her complaint so as not to sidetrack "the real issue to be resolved (which) was the allegation of mismanagement, fraud and conflict of interest allegedly committed by respondent Eugenia D. Apostol." It was only for this reason that petitioner was considered to be capacitated and competent to file the petition. Accordingly, with the dismissal of the complaint of petitioner against private respondents, there was no compelling reason for, the latter to appeal to the SEC En Banc. It was in fact petitioner's turn as the aggrieved party to exercise her right to appeal from the decision. It is worthy to note that even during the appeal of petitioner before the SEC En Banc private respondents maintained their vigorous objection to the appeal and reiterated petitioner's lack of legal capacity to sue before the SEC. Petitioner then contends that she was a holder of the proper certificates of shares of stock and that the transfer was recorded in the Stock and Transfer Book of Mr. & Ms. She invokes Sec. 63 of The Corporation Code which provides that no transfer shall be valid except as between the parties until the transfer is recorded in the books of the corporation, and upon its recording the corporation is bound by it and is estopped to deny the fact of transfer of said shares. Petitioner alleges that even in the absence of a stock certificate, a stockholder solely on the strength of the recording in the stock and transfer book can exercise all the rights as stockholder, including the right to file a derivative suit in the name of the corporation. And, she need not present a separate deed of sale or transfer in her favor to prove ownership of stock. Section 63 of The Corporation Code expressly provides Sec. 63. Certificate of stock and transfer of shares. The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer however shall be valid except as between the parties until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred . . . This provision above quoted envisions a formal certificate of stock which can be issued only upon compliance with certain requisites. First, the certificates must be signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation. A mere typewritten statement advising a stockholder of the extent of his ownership in a corporation without qualification and/or authentication cannot be considered as a formal certificate of stock. 11 Second, delivery of the certificate is an essential element of its issuance. Hence, there is no issuance of a stock certificate where it is never detached from the stock books although blanks therein are properly filled up if the person whose name is inserted therein has no control over the books of the company. 12 Third, the par value, as to par value shares, or the full subscription as to no par value shares, must first be fully paid. Fourth, the original certificate must be surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder.

The certificate of stock itself once issued is a continuing affirmation or representation that the stock described therein is valid and genuine and is at least prima facie evidence that it was legally issued in the absence of evidence to the contrary. However this presumption may be rebutted. 13 Similarly, books and records of a corporation which include even the stock and transfer book are generally admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters including one's status as a stockholder. They are ordinarily the best evidence of corporate acts and proceedings. However, the books and records of a corporation are not conclusive even against the corporation but are prima facie evidence only. Parol evidence may be admitted to supply omissions in the records, explain ambiguities, or show what transpired where no records were kept, or in some cases where such records were contradicted. 14 The effect of entries in the books of the corporation which purport to be regular records of the proceedings of its board of directors or stockholders can be destroyed by testimony of a more conclusive character than mere suspicion that there was an irregularity in the manner in which the books were kept. 15 The foregoing considerations are founded on the basic principle that stock issued without authority and in violation of law is void and confers no rights on the person to whom it is issued and subjects him to no liabilities. 16 Where there is an inherent lack of power in the corporation to issue the stock, neither the corporation nor the person to whom the stock is issued is estopped to question its validity since an estoppel cannot operate to create stock which under the law cannot have existence. 17 As found by the Hearing Panel and affirmed by respondent Court of Appeals, there is overwhelming evidence that despite what appears on the certificate of stock and stock and transfer book, petitioner was not a bona fide stockholder of Mr. & Ms. before March 1989 or at the time the complained acts were committed to qualify her to institute a stockholder's derivative suit against private respondents. Aside from petitioner's own admissions, several corporate documents disclose that the true party-in-interest is not petitioner but JAKA. Thus, while petitioner asserts in her petition that Certificate of Stock No. 008 dated 25 July 1983 was issued in her name, private respondents argue that this certificate was signed by respondent Eugenia D. Apostol as President only in 1989 and was fraudulently antedated by petitioner who had possession of the Certificate Book and the Stock and Transfer Book. Private respondents stress that petitioner's counsel entered into a stipulation on record before the Hearing Panel that the certificate was indeed signed by respondent Apostol only in 1989 and not in 1983. In her reply, petitioner admits that while respondent Eugenia D. Apostol signed the Certificate of Stock No. 008 in petitioner's name only in 1989, it was issued by the corporate secretary in 1983 and that the other certificates covering shares in Mr. & Ms. had not yet been signed by respondent Eugenia D. Apostol at the time of the filing of the complaint with the SEC although they were issued years before. Based on the foregoing admission of petitioner, there is no truth to the statement written in Certificate of Stock No. 008 that the same was issued and signed on 25 July 1983 by its duly authorized officers specifically the President and Corporate Secretary because the actual date of signing thereof was 17 March 1989. Verily, a formal certificate of stock could not be considered issued in contemplation of law unless signed by the president or vice-president and countersigned by the secretary or assistant secretary. In this case, contrary to petitioner's submission, the Certificate of Stock No. 008 was only legally issued on 17 March 1989 when it was actually signed by the President of the corporation, and not before that date. While a certificate of

stock is not necessary to make one a stockholder, e.g., where he is an incorporator and listed as stockholder in the articles of incorporation although no certificate of stock has yet been issued, it is supposed to serve as paper representative of the stock itself and of the owner's interest therein. Hence, when Certificate of Stock No. 008 was admittedly signed and issued only on 17 March 1989 and not on 25 July 1983, even as it indicates that petitioner owns 997 shares of stock of Mr. & Ms., the certificate has no evidentiary value for the purpose of proving that petitioner was a stockholder since 1983 up to 1989. And even the factual antecedents of the alleged ownership by petitioner in 1983 of shares of stock of Mr. & Ms. are indistinctive if not enshrouded in inconsistencies. In her testimony before the Hearing Panel, petitioner said that early in 1983, to relieve Mr. & Ms. from political pressure, Senator Enrile decided to divest the family holdings in Mr. & Ms. as he was then part of the government and Mr. & Ms. was evolving to be an opposition newspaper. The JAKA shares numbering 1,000 covered by Certificate of Stock No. 001 were thus transferred to respondent Eugenia D. Apostol in trust or in blank. 18 Petitioner now claims that a few days after JAKA's shares were transferred to respondent Eugenia D. Apostol, Senator Enrile sold to petitioner 997 shares of JAKA. For this purpose, a deed of sale was executed and antedated to 10 May 1983. 19 This submission of petitioner is however contradicted by the records which show that a deed of sale was executed by JAKA transferring 1,000 shares of Mr. & Ms. to respondent Apostol on 10 May 1983 and not to petitioner. 20 Then Senator Enrile testified that in May or June 1983 he was asked at a media interview if his family owned shares of stock in Mr. & Ms. Although he and his family were stockholders at that time he denied it so as not to embarrass the magazine. He called up petitioner and instructed her to work out the documentation of the transfer of shares from JAKA to respondent Apostol to be covered by a declaration of trust. His instruction was to transfer the shares of JAKA in Mr. & Ms. and Ex Libris to respondent Apostol as a nominal holder. He then finally decided to transfer the shareholdings to petitioner. 21 When asked if there was any document or any written evidence of that divestment in favor of petitioner, Senator Enrile answered that there was an endorsement of the shares of stock. He said that there was no other document evidencing the assignment to petitioner because the stocks were personal property that could be transferred even orally. 22 Contrary to Senator Enrile's testimony, however, petitioner maintains that Senator Enrile executed a deed of sale in her favor. LLphil A careful perusal of the records shows that neither the alleged endorsement of Certificate of Stock No. 001 in the name of JAKA nor the alleged deed of sale executed by Senator Enrile directly in favor of petitioner could have legally transferred or assigned on 25 July 1983 the shares of stock in favor of petitioner because as of 10 May 1983 Certificate of Stock No. 001 in the name of JAKA was already cancelled and a new one, Certificate of Stock No. 007, issued in favor of respondent Apostol by virtue of a Declaration of Trust and Deed of Sale. 23 It should be emphasized that on 10 May 1983 JAKA executed a deed of sale over 1,000 Mr. & Ms. shares in favor of respondent Eugenio D. Apostol. On the same day, respondent Apostol signed a declaration of trust stating that she was the registered owner of 1,000 Mr. & Ms. shares covered by Certificate of Stock No. 007. The declaration of trust further showed that although respondent Apostol was the registered owner, she held the shares of stock and dividends which might be paid in connection therewith solely in trust for the benefit of JAKA, her principal. It was also stated therein that being a trustee, respondent Apostol

agreed, on written request of the principal, to assign and transfer the shares of stock and any and all such distributions or dividends unto the principal or such other person as the principal would nominate or appoint. Petitioner was well aware of this trust, being the person in charge of this documentation and being one of the witnesses to the execution of this document. 24 Hence, the mere alleged endorsement of Certificate of Stock No. 001 by Senator Enrile or by a duly authorized officer of JAKA to effect the transfer of shares of JAKA to petitioner could not have been legally feasible because Certificate of Stock No. 001 was already canceled by virtue of the deed of sale to respondent Apostol. And, there is nothing in the records which shows that JAKA had revoked the trust it reposed on respondent Eugenia D. Apostol. Neither was there any evidence that the principal had requested her to assign and transfer the shares of stock to petitioner. If it was true that the shares of stock covered by Certificate of Stock No. 007 had been transferred to petitioner, the person who could legally endorse the certificate was private respondent Eugenia D. Apostol, she being the registered owner and trustee of the shares of stock covered by Certificate of Stock No. 007. It is a settled rule that the trustee should endorse the stock certificate to validate the cancellation of her share and to have the transfer recorded in the books of the corporation. 25 In fine, the records are unclear on how petitioner allegedly acquired the shares of stock of JAKA. Petitioner being the chief executive officer of JAKA and the sole person in charge of all business and financial transactions and affairs of JAKA 26 was supposed to be in the best position to show convincing evidence on the alleged transfer of shares to her, if indeed there was a transfer. Considering that petitioner's status is being questioned and several factual circumstances have been presented by private respondents disproving petitioner's claim, it was incumbent upon her to submit rebuttal evidence on the manner by which she allegedly became a stockholder. Her failure to do so taken in the light of several substantial inconsistencies in her evidence is fatal to her case. The rule is that the endorsement of the certificate of stock by the owner or his attorney-in-fact or any other person legally authorized to make the transfer shall be sufficient to effect the transfer of shares only if the same is coupled with delivery. The delivery of the stock certificate duly endorsed by the owner is the operative act of transfer of shares from the lawful owner to the new transferee. Thus, for a valid transfer of stocks, the requirements are as follows: (a) There must be delivery of the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and, (c) to be valid against third parties, the transfer must be recorded in the books of the corporation. 27 At most, in the instant case, petitioner has satisfied only the third requirement. Compliance with the first two requisites has not been clearly and sufficiently shown. Considering that the requirements provided under Sec. 63 of The Corporation Code should be mandatorily complied with, the rule on presumption of regularity cannot apply. The regularity and validity of the transfer must be proved. As it is, even the credibility of the stock and transfer book and the entries thereon relied upon by petitioner to show compliance with the third requisite to prove that she was a stockholder since 1983 is highly doubtful. The records show that the original stock and transfer book and the stock certificate book of Mr. & Ms. were in the possession of petitioner before their custody was transferred to the Corporate Secretary, Atty. Augusto San Pedro. 28 On 25 May 1988, Assistant Corporate Secretary Renato Jose Unson wrote Mr. & Ms. about the lost stock and transfer book which was also noted by the corporation's external auditors, Punongbayan and Araullo, in their audit. Atty.

Unson even informed respondent Eugenia D. Apostol as President of Mr. & Ms. that steps would be undertaken to prepare and register a new Stock and Transfer Book with the SEC. Incidentally, perhaps strangely, upon verification with the SEC, it was discovered that the general file of the corporation with the SEC was missing. Hence, it was even possible that the original Stock and Transfer Book might not have been registered at all. On 20 October 1988 respondent Eugenia D. Apostol wrote Atty. Augusto San Pedro noting the changes he had made in the Stock and Transfer Book without prior notice to the corporate officers. 29 In the 27 October 1988 directors' meeting, respondent Eugenia D. Apostol asked about the documentation to support the changes in the Stock and Transfer Book with regard to the JAKA shares. Petitioner answered that Atty. San Pedro made the changes upon her instructions conformably with established practice. 30 This simply shows that as of 1988 there still existed certain issues affecting the ownership of the JAKA shares, thus raising doubts whether the alleged transactions recorded in the Stock and Transfer Book were proper, regular and authorized. Then, as if to magnify and compound the uncertainties in the ownership of the shares of stock in question, when the corporate secretary resigned, the Stock and Transfer Book was delivered not to the corporate office where the book should be kept but to petitioner. 31 That JAKA retained its ownership of its Mr. & Ms. shares was clearly shown by its receipt of the dividends issued in December 1986. 32 This only means, very obviously, that Mr. & Ms. shares in question still belonged to JAKA and not to petitioner. For, dividends are distributed to stockholders pursuant to their right to share in corporate profits. When a dividend is declared, it belongs to the person who is the substantial and beneficial owner of the stock at the time regardless of when the distribution profit was earned. 33 Finally, this Court takes notice of the glaring and open admissions of petitioner made, not just seven (7) but nine (9) times, during the 22 September 1988 meeting of the board of directors that the Enriles were her principals or shareholders, as shown by the minutes thereof which she duly signed 34 5. Mrs. E. Apostol explained to the Directors that through her efforts, the asset base of the Company has improved and profits were realized. It is for this reason that the Company has declared a 100% cash dividend in 1986. She said that it is up for the Board to decide based on this performance whether she should continue to act as Board Chairman or not. In this regard, Ms. N.A. Bitong expressed her recollection of how Ex-Libris/Mr. & Ms. were organized and her participation for and on behalf of her principals, as follows: She recalled that her principals were invited by Mrs. E. Apostol to invest in ExLibris and eventually Mr. & Ms. The relationship between her principals and Mrs. E. Apostol made it possible for the latter to have access to several information concerning certain political events and issues. In many instances, her principals supplied first hand and newsworthy information that made Mr. & Ms. a popular paper . . . 6. According to Ms. Bitong, her principals were instrumental in helping Mr. & Ms. survive during those years that it was cash strapped . . . Ms. N.A. Bitong pointed out that the practice of using the former Minister's influence and stature in the government is one thing which her principals themselves are strongly against . . . 7. . . . At this point, Ms. N. Bitong again expressed her recollection of the subject matter as follows: (a) Mrs. E. Apostol, she remembers, brought up the concept of a cooperative-ran newspaper company in one of her breakfast session with her principals sometime during the end of 1985. Her principals when asked for an opinion, said that they recognized the concept as something very noble and visible . . . Then Ms. Bitong asked a very specific question

"When you conceptualized Ex-Libris and Mr. & Ms., did you not think of my shareholders the Ponce Enrile as liabilities? How come you associated yourself with them then and not now? What is the difference?" Mrs. Apostol did not answer the question. The admissions of a party against his interest inscribed upon the record books of a corporation are competent and persuasive evidence against him. 35 These admissions render nugatory any argument that petitioner is a bona fide stockholder of Mr. & Ms. at any time before 1988 or at the time the acts complained of were committed. There is no doubt that petitioner was an employee of JAKA as its managing officer, as testified to by Senator Enrile himself. 36 However, in the absence of a special authority from the board of directors of JAKA to institute a derivative suit for and in its behalf, petitioner is disqualified by law to sue in her own name. The power to sue and be sued in any court by a corporation even as a stockholder is lodged in the board of directors that exercises its corporate powers and not in the president or officer thereof. 37 It is well settled in this jurisdiction that where corporate directors are guilty of a breach of trust, not of mere error of judgment or abuse of discretion, and intra-corporate remedy is futile or useless, a stockholder may institute a suit in behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong inflicted directly upon the corporation and indirectly upon the stockholders. 38 The stockholder's right to institute a derivative suit is not based on any express provision of The Corporation Code but is impliedly recognized when the law makes corporate directors or officers liable for damages suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a special injury to him for which he is otherwise without redress. 39 In effect, the suit is an action for specific performance of an obligation owed by the corporation to the stockholders to assist its rights of action when the corporation has been put in default by the wrongful refusal of the directors or management to make suitable measures for its protection. 40 The basis of a stockholder's suit is always one in equity. However, it cannot prosper without first complying with the legal requisites for its institution. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the corporation. 41 WHEREFORE, the petition is DENIED. The 31 August 1995 Decision of the Court of Appeals dismissing the complaint of petitioner Nora A. Bitong in CAG.R. No. SP 33291, and granting the petition for certiorari and prohibition filed by respondent Edgardo B. Espiritu as well as annulling the 5 November 1993, 24 January 1994 and 18 February 1994 Orders of the SEC En Banc in CAG.R. No. SP 33873, is AFFIRMED. Costs against petitioner. SO ORDERED. LLphil Davide, Jr., Vitug and Quisumbing, JJ ., concur. Panganiban, J ., took no part; participated, as a former practising lawyer, in negotiations to buy subject shares. Footnotes 1. The derivative suit, docketed as SEC Case No. 03604, was commenced on 5 July 1989 through a petition for injunction, accounting and damages with prayer for the appointment of a management committee and for a writ of preliminary injunction and a temporary retraining order. 2. The name of respondent Jose Apostol has been interchangeably designated in the records as "Jose A. Apostol" and as "Jose Z. Apostol." For uniformity, "Jose A. Apostol" or simply "Jose Apostol" is used in this Decision.

3. The SEC Hearing Panel was composed of hearing Officers Josefina L. Pasay-Paz, Antonio M. Esteves and Manuel P. Perea. 4. Associate Commissioners Rodolfo L. Samarista, Merle O. Manuel, Fe Eloisa C. Gloria and Perfecto R. Yasay, Jr., concurred in the Order, while Chairman Rosario N. Lopez did not participate. 5. CA Decision penned by Associate Justice Pedro A. Ramirez, Chairman of the Eighth Division (Division of Five), with Associate Justices Jaime M. Lantin and Cancio C. Garcia concurring, and Associate Justices Lourdes K. TayaoJaguros and Eugenio S. Labitoria dissenting. 6. 29A AmJur 2d, p. 143. 7. Almer v. Hobart Corp. (Mo App) 849 SW2d 135, CCH Prod Liab Rep 13550 cited in 29A Amjur 2d, p. 137. 8. Granada v. PNB, No. L-20745, 2 September 1966, 18 SCRA 1. 9. Gaspar v. Dorado, No. L-17884, 29 November 1965, 15 SCRA 331. 10. Black's Law Dictionary, Fifth Edition, p. 731. 11. SEC Opinion, 20 October 1970 in Sehwani Investment & Management Co., cited in Lopez, R., The Corporation Code of the Philippines, Vol. 2, 1994 Ed. 12. Tuason v. La Previsora Filipina, 67 Phil. 36 [1938]. 13. Fletcher, William Meade, Encyclopedia of the Law of Private Corporations, Vol. V, p. 5768. 14. 18 Amjur 2d 706. 15. Id., p. 707. 16. See Note 13, p. 5765. 17. Id., p. 5774. 18. TSN, 24 August 1989, pp. 38-39; 6 April 1990, pp. 10-11. 19. Petition for Review on Certiorari before this Court, p, 10; Rollo, p. 87. 20. Exh. "21" for petitioner. 21. TSN, 20 August 1990, pp. 5-18. 22. Id., p. 40. 23. Exhs. 21 and 21-A for Private Respondents. 24. Rollo, p. 201. 25. Lopez, Rosario, The Corporation Code of the Philippines, vol. II, 1994 ed., p. 824. 26. TSN, 20 August 1990, pp. 31-34. 27. See Note 25, pp. 803-807. 28. Exh. "35" for private respondents. 29. Exh. "30" for private respondents. 30. Exh. "31 "for private respondents. 31. Exh. "36" for private respondents. 32. Exh. "26-B" for private respondents. 33. Agbayani, Aguedo F., Commercial Laws of the Philippines, Vol. III, 1988 Ed., p. 409. 34. Exh. "F" for petitioner. 35. See Note 25. 36. See Note 26. 37. See Note 33, citing RP v. Phil. Resources Development Corp., G.R. No. 10141, 31 January 1958. 38. Pascual v. Del Sanz Orozeo, 19 Phil. 82 (1911). 39. See Note 11, p. 853, citing Mimnaugh v. Atlantic City Electric Co., 7 NJ Super 310, Super 310, 70A (2d) 904. 40. Ashwander v. Tennessee Valley Authority, 297 US 728, 80 L Ed 1011, 56 Sup Ct 588. 41. SMC, represented by Eduardo de los Angeles v. Kahn, G.R. No. 85339, 11 August 1989, 176 SCRA 461.

SECOND DIVISION [G.R. No. 122452. January 29, 2001.] TAM WING TAK, petitioner, vs. HON. RAMON P. MAKASIAR (in his Capacity as Presiding Judge of the Regional Trial Court of Manila, Branch 35) and ZENON DE GUIA (in his capacity as Chief State Prosecutor), respondents. Sycip, Salazar, Hernandez & Gatmaitan Law Office for petitioner. The Solicitor General for respondents. SYNOPSIS Petitioner Tam Wing Tak, in his capacity as director of Concord-World Properties, Inc., (Concord for brevity), a domestic corporation, filed an affidavitcomplaint with the Quezon City Prosecutor's Office, charging Vic Ang Siong with violation of B.P. Blg. 22. The City Prosecutor issued a resolution dismissing the complaint. A copy of the City Prosecutor's resolution was sent by registered mail to petitioner in the address he indicated in his complaintaffidavit. Notwithstanding that petitioner was represented by counsel, the latter was not furnished a copy of the resolution. Petitioner appealed the dismissal of his complaint by the City Prosecutor to the Chief State Prosecutor. The Chief State Prosecutor dismissed the appeal for having been filed out of time. Petitioner's lawyer received a copy of the letter-resolution dismissing the appeal on January 20, 1995. Respondent Chief State Prosecutor denied the motion for reconsideration. Petitioner then filed Civil Case No. 95-74394 for mandamus with the Regional Trial Court of Quezon City to compel the Chief State Prosecutor to file or cause the filing of an information charging Vic Ang Siong with violation of B.P. Blg. 22. The trial court dismissed the petition. Petitioner moved for reconsideration, but was denied. Hence, the present petition. Petitioner alleged that there is no such "generally accepted practice" which gives a tribunal the option of serving pleadings, orders, resolutions, and other papers to either the opposing party himself or his counsel. Petitioner insisted that the fundamental rule in this jurisdiction is that if a party appears by counsel, then service can only be validly made upon counsel, and service upon the party himself becomes invalid and without effect. Petitioner relied upon Rule 13, Section 2 of the Rules of Court and the Supreme Court's ruling in J.M. Javier Logging Corp. v. Mardo, 24 SCRA 776 (1968) to support his stand. The Supreme Court dismissed the petition. The Court ruled that there was valid service upon petitioner pursuant to Section 2 of Department of Justice Order No. 223. The holding of a preliminary investigation is a function of the Executive Department and not of the Judiciary. Thus, the rule on service provided for in the Rules of Court cannot be made to apply to the service of resolutions by public prosecutors, especially as the agency concerned, in this case, the Department of Justice, has its own procedural rules governing said service. A plain reading of Section 2 of DOJ Order No. 223 clearly showed that in a preliminary investigation, service can be made upon the party himself or through his counsel. It must be assumed that when the Justice Department crafted the said section, it was done with knowledge of the pertinent rule in the Rules of Court and of jurisprudence interpreting it. The DOJ could have just adopted the rule on service provided for in the Rules of Court, but did not. Instead, it opted to word Section 2 of DOJ Order No. 223 in such a way as to leave no doubt that in preliminary investigations, service of resolutions of public prosecutors could be made upon either the party or his counsel. SYLLABUS 1. REMEDIAL LAW; CRIMINAL PROCEDURE; PRELIMINARY INVESTIGATION; HOLDING OF PRELIMINARY INVESTIGATION IS A FUNCTION OF THE EXECUTIVE AND NOT OF THE JUDICIARY; RULE ON SERVICE PROVIDED FOR IN THE RULES OF COURT CANNOT BE MADE TO APPLY TO THE SERVICE OF RESOLUTIONS BY PUBLIC PROSECUTORS, ESPECIALLY AS THE AGENCY CONCERNED, IN THE PRESENT CASE, THE

DEPARTMENT OF JUSTICE, HAS ITS OWN PROCEDURAL RULES GOVERNING SERVICE. The Rules of Court were promulgated by this Court pursuant to Section 13, Article VII of the 1935 Constitution (now Section 5 [5], Article VIII of the Constitution) to govern "pleadings, practice and procedure in all courts of the Philippines." The purpose of the Rules is clear and does not need any interpretation. The Rules were meant to govern court (stress supplied) procedures and pleadings. As correctly pointed out by the Solicitor General, a preliminary investigation, notwithstanding its judicial nature, is not a court proceeding. The holding of a preliminary investigation is a function of the Executive Department and not of the Judiciary. Thus, the rule on service provided for in the Rules of Court cannot be made to apply to the service of resolutions by public prosecutors, especially as the agency concerned, in this case, the Department of Justice, has its own procedural rules governing said service. 2. ID.; ID.; ID.; ID.; SERVICE OF RESOLUTIONS UNDER SECTION 2 OF DEPARTMENT OF JUSTICE ORDER NO. 223 COULD BE MADE UPON EITHER THE PARTY OR HIS COUNSEL. A plain reading of Section 2 of DOJ Order No. 223 clearly shows that in preliminary investigation, service can be made upon the party himself or through his counsel. It must be assumed that when the Justice Department crafted the said section, it was done with knowledge of the pertinent rule in the Rules of Court and of jurisprudence interpreting it. The DOJ could have just adopted the rule on service provided for in the Rules of Court, but did not. Instead, it opted to word Section 2 of DOJ Order No. 223 in such a way as to leave no doubt that in preliminary investigations, service of resolutions of public prosecutors could be made upon either the party or his counsel. Moreover, the Constitution provides that "Rules of procedure of special courts and quasi judicial bodies shall remain effective unless disapproved by the Supreme Court." There is naught in the records to show that we have disapproved and nullified Section 2 of DOJ Order No. 223 and since its validity is not an issue in the instant case, we shall refrain from ruling upon its validity. We hold that there was valid service upon petitioner pursuant to Section 2 of DOJ Order No. 223. 3. ID.; SPECIAL CIVIL ACTIONS; MANDAMUS; NO REVERSIBLE ERROR MAY BE ATTRIBUTED TO THE COURT A QUO WHEN IT DISMISSED PETITIONER'S SPECIAL CIVIL ACTION FOR MANDAMUS; REASON. Respondent Chief State Prosecutor in refusing to order the filing of an information for violation of B.P. Blg. 22 against Vic Ang Siong did not act without or in excess of jurisdiction or with grave abuse of discretion. First, with respect to the agreement between Concord and Victor Ang Siong to amicably settle their difference, we find this resort to an alternative dispute settlement mechanism as not contrary to law, public policy, or public order. Efforts of parties to solve their disputes outside of the courts are looked on with favor, in view of the clogged dockets of the judiciary. Second, it is not disputed in the instant case that Concord, a domestic corporation, was the payee of the bum check, not petitioner. Therefore, it is Concord, as payee of the bounced check, which is the injured party. Since petitioner was neither a payee nor a holder of the bad check, he had neither the personality to sue nor a cause of action against Vic Ang Siong. Under Section 36 of the Corporation Code, read in relation to Section 23, it is clear that where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees. Note that petitioner failed to show any proof that he was authorized or deputized or granted specific powers by Concord's board of directors to sue Victor Ang Siong for and on behalf of the firm. Clearly, petitioner as a minority stockholder and member of the board of directors had no such power or authority to sue on Concord's behalf. Nor can we uphold his act as a derivative suit. For a derivative suit to prosper, it is required that the minority stockholder suing for

and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. There is no showing that petitioner has complied with the foregoing requisites. It is obvious that petitioner has not shown any clear legal right which would warrant the overturning of the decision of public respondents to dismiss the complaint against Vic Ang Siong. A public prosecutor, by the nature of his office, is under no compulsion to file a criminal information where no clear legal justification has been shown, and no sufficient evidence of guilt nor prima facie case has been presented by the petitioner. No reversible error may be attributed to the court a quo when it dismissed petitioner's special civil action for mandamus. DECISION QUISUMBING, J p: This is a petition for review on certiorari of the decision of the Regional Trial Court of Manila, Branch 35, dated September 14, 1995, which dismissed herein petitioner's special civil action for mandamus and sustained the LetterOrder of respondent Chief State Prosecutor. The latter dismissed petitioner's appeal from the resolution of the City Prosecutor of Quezon City, which, in turn, dismissed petitioner's complaint against Vic Ang Siong for violation of the Bouncing Checks Law or B.P. Blg. 22. HcSaTI The factual background of this case is as follows: On November 11, 1992, petitioner, in his capacity as director of Concord-World Properties, Inc., (Concord for brevity), a domestic corporation, filed an affidavitcomplaint with the Quezon City Prosecutor's Office, charging Vic Ang Siong with violation of B.P. Blg. 22. Docketed by the prosecutor as I.S. No. 93-15886, the complaint alleged that a check for the amount of P83,550,000.00, issued by Vic Ang Siong in favor of Concord, was dishonored when presented for encashment. Vic Ang Siong sought the dismissal of the case on two grounds: First, that petitioner had no authority to file the case on behalf of Concord, the payee of the dishonored check, since the firm's board of directors had not empowered him to act on its behalf. Second, he and Concord had already agreed to amicably settle the issue after he made a partial payment of P19,000,000.00 on the dishonored check. On March 23, 1994, the City Prosecutor dismissed I.S. No. 93-15886 on the following grounds: (1) that petitioner lacked the requisite authority to initiate the criminal complaint for and on Concord's behalf; and (2) that Concord and Vic Ang Siong had already agreed upon the payment of the latter's balance on the dishonored check. A copy of the City Prosecutor's resolution was sent by registered mail to petitioner in the address he indicated in his complaint-affidavit. Notwithstanding that petitioner was represented by counsel, the latter was not furnished a copy of the resolution. On June 27, 1994, petitioner's counsel was able to secure a copy of the resolution dismissing I.S. No. 93-15886. Counting his 15-day appeal period from said date, petitioner moved for reconsideration on July 7, 1994. On October 21, 1994, the City Prosecutor denied petitioner's motion for reconsideration. Petitioner's counsel received a copy of the denial order on November 3, 1994. On November 7, 1994, petitioner's lawyer filed a motion to extend the period to appeal by an additional 15 days counted from November 3, 1994 with the Chief State Prosecutor. He manifested that it would take time to communicate with petitioner who is a Hong Kong resident and enable the latter to verify the appeal as procedurally required.

On November 8, 1994, petitioner appealed the dismissal of his complaint by the City Prosecutor to the Chief State Prosecutor. The appeal was signed by petitioner's attorney only and was not verified by petitioner until November 23, 1994. On December 8, 1994, the Chief State Prosecutor dismissed the appeal for having been filed out of time. Petitioner's lawyer received a copy of the letterresolution dismissing the appeal on January 20, 1995. On January 30, 1995, petitioner moved for reconsideration. On March 9, 1995, respondent Chief State Prosecutor denied the motion for reconsideration. Petitioner then filed Civil Case No. 95-74394 for mandamus with the Regional Trial Court of Quezon City to compel the Chief State Prosecutor to file or cause the filing of an information charging Vic Ang Siong with violation of B.P. Blg. 22. On September 14, 1995, the trial court disposed of the action as follows: WHEREFORE, for utter lack of merit, the petition for mandamus of petitioner is DENIED and DISMISSED. SO ORDERED. 1 Petitioner moved for reconsideration, but the trial court denied this motion in its order dated October 24, 1995. Hence, the instant petition. Before this Court, petitioner claims respondent judge committed grave errors of law in sustaining respondent Chief State Prosecutor whose action flagrantly contravenes: (1) the established rule on service of pleadings and orders upon parties represented by counsel; (b) the basic principle that except in private crimes, any competent person may initiate a criminal case; and (3) the B.P. Blg. 22 requirement that arrangement for full payment of a bounced check must be made by the drawer with the drawee within five (5) banking days from notification of the check's dishonor. 2 We find pertinent for our resolution the following issues: EHTADa (1) Was there valid service of the City Prosecutor's resolution upon petitioner? (2) Will mandamus lie to compel the City Prosecutor to file the necessary information in court? In upholding respondent Chief State Prosecutor, the court a quo held: It is a generally accepted principle in the service of orders, resolutions, processes and other papers to serve them on the party or his counsel, either in his office, if known, or else in the residence, also if known. As the party or his counsel is not expected to be present at all times in his office or residence, service is allowed to be made with a person in charge of the office, or with a person of sufficient discretion to receive the same in the residence. In the case under consideration, it is not disputed that the controverted Resolution dismissing the complaint of the petitioner against Vic Ang Siong was served on the former by registered mail and was actually delivered by the postmaster on April 9, 1994 at said petitioner's given address in the record at No. 5 Kayumanggi Street, West Triangle, Quezon City. The registered mail was in fact received by S. Ferraro. The service then was complete and the period for filing a motion for reconsideration or appeal began to toll from that date. It expired on April 24, 1994. Considering that his motion for reconsideration was filed only on July 7, 1994, the same was filed beyond the prescribed period, thereby precluding further appeal to the Office of the respondent. 3 Petitioner, before us, submits that there is no such "generally accepted practice" which gives a tribunal the option of serving pleadings, orders, resolutions, and other papers to either the opposing party himself or his counsel. Petitioner insists that the fundamental rule in this jurisdiction is that it a party appears by counsel, then service can only be validly made upon

counsel and service upon the party himself becomes invalid and without effect. Petitioner relies upon Rule 13, Section 2 of the Rules of Court 4 and our ruling in J.M. Javier Logging Corp. v. Mardo, 24 SCRA 776 (1968) to support his stand. In the J.M. Javier case, we held: [W]here a party appears by attorney, notice to the former is not a notice in law, unless service upon the party himself is ordered by the court. . . . 5 The Solicitor General, for respondents, contends that the applicable rule on service in the present case is Section 2 of the Department of Justice (DOJ) Order No. 223, 6 which allows service to be made upon either party or his counsel. Respondents argue that while a preliminary investigation has been considered as partaking of the nature of a judicial proceeding, 7 nonetheless, it is not a court proceeding and hence, falls outside of the ambit of the Rules of Court. We agree with petitioner that there is no "generally accepted practice" in the service of orders, resolutions, and processes, which allows service upon either the litigant or his lawyer. As a rule, notice or service made upon a party who is represented by counsel is a nullity. 8 However, said rule admits of exceptions, as when the court or tribunal orders service upon the party 9 or when the technical defect is waived. 10 To resolve the issue on validity of service, we must make a determination as to which is the applicable rule the rule on service in the Rules of Court, as petitioner insists or the rule on service in DOJ Order No. 223? The Rules of Court were promulgated by this Court pursuant to Section 13, Article VII of the 1935 Constitution 11 (now Section 5 [5], Article VIII of the Constitution) 12 to govern "pleadings, practice and procedure in all courts of the Philippines." The purpose of the Rules is clear and does not need any interpretation. The Rules were meant to govern court (stress supplied) procedures and pleadings. As correctly pointed out by the Solicitor General, a preliminary investigation, notwithstanding its judicial nature, is not a court proceeding. The holding of a preliminary investigation is a function of the Executive Department and not of the Judiciary. 13 Thus, the rule on service provided for in the Rules of Court cannot be made to apply to the service of resolutions by public prosecutors, especially as the agency concerned, in this case, the Department of Justice, has its own procedural rules governing said service. A plain reading of Section 2 of DOJ Order No. 223 clearly shows that in preliminary investigation, service can be made upon the party himself or through his counsel. It must be assumed that when the Justice Department crafted the said section, it was done with knowledge of the pertinent rule in the Rules of Court and of jurisprudence interpreting it. The DOJ could have just adopted the rule on service provided for in the Rules of Court, but did not. Instead, it opted to word Section 2 of DOJ Order No. 223 in such a way as to leave no doubt that in preliminary investigations, service of resolutions of public prosecutors could be made upon either the party or his counsel. DHAcET Moreover, the Constitution provides that "Rules of procedure of special courts and quasi-judicial bodies shall remain effective unless disapproved by the Supreme Court." 14 There is naught in the records to show that we have disapproved and nullified Section 2 of DOJ Order No. 223 and since its validity is not an issue in the instant case, we shall refrain from ruling upon its validity. We hold that there was valid service upon petitioner pursuant to Section 2 of DOJ Order No. 223. On the issue of whether mandamus will lie. In general, mandamus may be resorted to only where one's right is founded clearly in law and not when it is doubtful. 15 The exception is to be found in criminal cases where mandamus is

available to compel the performance by the public prosecutor of an ostensibly discretionary function, where by reason of grave abuse of discretion on his part, he willfully refuses to perform a duty mandated by law. 16 Thus, mandamus may issue to compel a prosecutor to file an information when he refused to do so in spite of the prima facie evidence of guilt. 17 Petitioner takes the stance that it was grave abuse for discretion on the part of respondent Chief State Prosecutor to sustain the dismissal of I.S. No. 93-15886 on the grounds that: (1) Vic Ang Siong's obligation which gave rise to the bounced check had already been extinguished by partial payment and agreement to amicably settle balance, and (2) petitioner had no standing to file the criminal complaint since he was neither the payee nor holder of the bad check. Petitioner opines that neither ground justifies dismissal of his complaint. Petitioner's stand is unavailing. Respondent Chief State Prosecutor in refusing to order the filing of an information for violation of B.P. Blg. 22 against Vic Ang Siong did not act without or in excess of jurisdiction or with grave abuse of discretion. First, with respect to the agreement between Concord and Victor Ang Siong to amicably settle their difference, we find this resort to an alternative dispute settlement mechanism as not contrary to law, public policy, or public order. Efforts of parties to solve their disputes outside of the courts are looked on with favor, in view of the clogged dockets of the judiciary. Second, it is not disputed in the instant case that Concord, a domestic corporation, was the payee of the bum check, not petitioner. Therefore, it is Concord, as payee of the bounced check, which is the injured party. Since petitioner was neither a payee nor a holder of the bad check, he had neither the personality to sue nor a cause of action against Vic Ang Siong. Under Section 36 of the Corporation Code 18 , read in relation to Section 23, 19 it is clear that where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees. 20 Note that petitioner failed to show any proof that he was authorized or deputized or granted specific powers by Concord's board of director to sue Victor Ang Siong for and on behalf of the firm. Clearly, petitioner as a minority stockholder and member of the board of directors had no such power or authority to sue on Concord's behalf. Nor can we uphold his act as a derivative suit. For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. 21 There is no showing that petitioner has complied with the foregoing requisites. It is obvious that petitioner has not shown any clear legal right which would warrant the overturning of the decision of public respondents to dismiss the complaint against Vic Ang Siong. A public prosecutor, by the nature of his office, is under no compulsion to file a criminal information where no clear legal justification has been shown, and no sufficient evidence of guilt nor prima facie case has been presented by the petitioner. 22 No reversible error may be attributed to the court a quo when it dismissed petitioner's special civil action for mandamus. WHEREFORE, the instant petition is DISMISSED for lack of merit. Costs against petitioner. SO ORDERED. Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur. Footnotes 1. Rollo, p. 33. 2. Id. at 6-7. 3. Id. at 32.

4. Said provision reads: SECTION 2. Papers to be filed and served. Every order required by its terms to be served, every pleading subsequent to the complaint, every written motion other than one which be heard ex parte, and every written notice, appearance, demand, offer of judgment or similar papers shall be filed with the court and served upon the parties affected thereby. If any of such parties has appeared by an attorney or attorneys, service upon him shall be made upon his attorneys or one of them, unless service upon the party himself is ordered by the court. When one attorney appears for several parties, he shall only be entitled to one copy of any paper served upon him by the opposite side. 5. 24 SCRA 779 (1968) citing Vivero v. Santos, 98 Phil. 500, 504 (1956); Chavani v. Tancinco, 90 Phil. 862, 864 (1952), San Jacinto v. San Jacinto, 52 Off. Gaz. 2582. 6. The provision reads: "The appeal must be filed within a period of fifteen (15) days from receipt of the questioned resolution by the party or his counsel. The period shall be interrupted only by the filing of a motion for resolution within ten (10) days from receipt of the resolution and shall continue to run from the time the resolution denying the counsel has been received by the movant or his counsel." Note that DOJ Order No. 223 dated June 30, 1993 has already been superseded by DOJ Circular No. 70 (2000 NPS) dated July 3, 2000, which took effect on September 1, 2000. 7. Cojuangco, Jr., v. Presidential Commission on Good Government, 190 SCRA 226, 243 (1990). 8. Antonio v. Court of Appeals, 153 SCRA 592, 600 (1987) citing Republic of the Philippines v. Arro, 150 SCRA 625 (1987). 9. Jalover v. Ytorriaga, 80 SCRA 100, 106 (1977) citing J.M. Javier Logging Corp. v. Mardo, supra; Elli, et al., v. Ditan, et al., 5 SCRA 503 (1962); McGrath v. Collector of Internal Revenue, 1 SCRA 639 (1961). 10. National Lumber & Hardware Co. v. Velasco, 106 Phil. 1098, 1101 (1960). 11. "The Supreme Court shall have the power to promulgate rules concerning pleading, practice and procedure in all courts, and the admission to the practice of law. Said rules shall be uniform for all courts of the same grade and shall not diminish, increase, or modify substantive rights. The existing laws on pleading, practice and procedure are hereby repealed as statutes, and are declared Rules of Court, subject to the power of the Supreme Court to alter and modify the same. The Congress shall have the power to repeal, alter or supplement the rules concerning pleading, practice and procedure and the admission to the practice of law in the Philippines." 12. "The Supreme Court shall have the following powers: xxx xxx xxx [5] Promulgate rules concerning the protection and enforcement of constitutional rights, pleading, practice, and procedure in all courts, the admission to the practice of law, the Integrated Bar, and legal assistance to the underprivileged. Such rules shall provide a simplified and inexpensive procedure for the speedy disposition of cases, shall be uniform for all courts of the same grade, and shall not diminish, increase, or modify substantive rights. Rules of procedure of special courts and quasi-judicial bodies shall remain effective unless disapproved by the Supreme Court. 13. Larranaga v. Court of Appeals, 287 SCRA 581, 594-595 (1998); People v. Navarro, 270 SCRA 393, 400 (1997). 14. CONST. art. viii, sec. 5(5). 15. Garces v. Court of Appeals, 259 SCRA 99, 105-106 (1996). 16. REGALADO, I REMEDIAL LAW COMPENDIUM (5th ed.) 464 (1988). 17. People v. Orais, 65 Phil. 744, 757 (1938).

18. SEC. 36. Corporate powers and capacities. Every corporation incorporated under this Code has the power and capacity: 1. To sue and be sued in its corporate name. xxx xxx xxx 19. SEC. 23. The board of directors or trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised . . . by the board of directors or trustees to be elected from among the holders of stock, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified. 20. Premium Marble Resources, Inc. v. Court of Appeals, 264 SCRA 11, 17 (1996). 21. Western Institute of Technology, Inc. v. Salas, 278 SCRA 216, 225 (1997). 22. D.M. Consunji, Inc. v. Esguerra, 260 SCRA 74, 86 (1996). FIRST DIVISION [G.R. No. 126200. August 16, 2001.] DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES CORPORATION, respondents. Office of the Legal Counsel for petitioner. P.C. Nolasco & Associates for private respondents. SYNOPSIS In 1984, when Marinduque Mining and Industrial Corporation (MMIC) failed to settle its loan obligations, PNB and DBP foreclosed and eventually acquired MMIC's mortgaged properties. PNB and DBP then assigned their rights to the properties to Nonoc Mining, Maricalum Mining and Island Cement. Meantime, however, between 1982 to 1983, MMIC purchased construction materials from Remington Corp. which remained unpaid as of 1984. Remington Corp. thus filed "a collection case against MMIC and later included therein PNB and DBP, then Nonoc Mining, Maricalum Mining, and Island Cement. Remington Corp. asserted that the transfer of MMIC properties to the three newly created entities practically owned wholly by PNB and DBP, were made in fraud of creditors. The defendant corporations must be treated as one and the same entity by disregarding the veil of corporate fiction. caIEAD The Court found no fraud on the part of MMIC and its transferees to warrant the piercing of the corporate veil. PNB and DBP foreclosed the mortgaged properties by mandate of PD 385, when the past due account of MMIC incurred arrearages of more than 20% of the total outstanding obligation. The establishment of the three new corporations were by necessity since DBP is not authorized to engage in mining business. The hiring of MMIC's personnel and the maintaining of business at MMIC's premises are both incidental. Lastly, DBP cannot be held liable for the obligation of MMIC in the absence of liquidation proceedings. SYLLABUS 1. COMMERCIAL LAW; MORTGAGES; (PD 385) LAW ON MANDATORY FORECLOSURE. It bears stressing that PNB and DBP are mandated by Section 1 of Presidential Decree No. 385 (The Law on Mandatory Foreclosure) to foreclose on the mortgage when the past due account had incurred arrearages of more than 20% of the total outstanding obligation. Thus, PNB and DBP did not only have a right, but the duty under said law, to foreclose upon the subject properties. The banks had no choice but to obey the statutory command. 2. ID.; CORPORATIONS; PIERCING THE VEIL OF CORPORATE FICTION. The doctrine of piercing the veil of corporate fiction applies only when such

corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed. In this case the Court finds that Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining and its transferees in the mortgage and foreclosure of the subject properties to justify the piercing of the corporate veil. aIAcCH 3. CIVIL LAW; CONCURRENCE AND PREFERENCE OF CREDITS; CLASSIFICATION OF CREDITS; LIEN OF CREDITOR OVER SPECIFIC PROPERTY OF DEBTOR CANNOT BE ENFORCED AGAINST THE TRANSFEREE IN THE ABSENCE OF LIQUIDATION PROCEEDINGS. Under Article 2241 of the Civil Code, with reference to specific movable property, in the absence of liquidation proceedings, the claim of creditor Remington from MMIC cannot be enforced against its transferee, DBP. Thus, as the extrajudicial foreclosure instituted by PNB and DBP is not the liquidation proceeding contemplated by the Civil Code, Remington cannot claim its pro rata share from DBP. DECISION KAPUNAN, J p: Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking a review of the Decision of the Court of Appeals dated October 6, 1995 and the Resolution of the same court dated August 29, 1996. The facts are as follows: Marinduque Mining Industrial Corporation (Marinduque Mining), a corporation engaged in the manufacture of pure and refined nickel, nickel and cobalt in mixed sulfides, copper ore/concentrates, cement and pyrite conc., obtained from the Philippine National Bank (PNB) various loan accommodations. To secure the loans, Marinduque Mining executed on October 9, 1978 a Deed of Real Estate Mortgage and Chattel Mortgage in favor of PNB. The mortgage covered all of Marinduque Mining's real properties, located at Surigao del Norte, Sipalay, Negros Occidental, and at Antipolo, Rizal, including the improvements thereon. As of November 20, 1980, the loans extended by PNB amounted to P4 Billion, exclusive of interest and charges. 1 On July 13, 1981, Marinduque Mining executed in favor of PNB and the Development Bank of the Philippines (DBP) a second Mortgage Trust Agreement. In said agreement, Marinduque Mining mortgaged to PNB and DBP all its real properties located at Surigao del Norte, Sipalay, Negros Occidental, and Antipolo, Rizal, including the improvements thereon. The mortgage also covered all of Marinduque Mining's chattels, as well as assets of whatever kind, nature and description which Marinduque Mining may subsequently acquire in substitution or replenishment or in addition to the properties covered by the previous Deed of Real and Chattel Mortgage dated October 7, 1978. Apparently, Marinduque Mining had also obtained loans totaling P2 Billion from DBP, exclusive of interest and charges. 2 TCIEcH On April 27, 1984, Marinduque Mining executed in favor of PNB and DBP an Amendment to Mortgage Trust Agreement by virtue of which Marinduque Mining mortgaged in favor of PNB and DBP all other real and personal properties and other real rights subsequently acquired by Marinduque Mining. 3 For failure of Marinduque Mining to settle its loan obligations, PNB and DBP instituted sometime on July and August 1984 extrajudicial foreclosure proceedings over the mortgaged properties. The events following the foreclosure are narrated by DBP in its petition, as follows: In the ensuing public auction sale conducted on August 31, 1984, PNB and DBP emerged and were declared the highest bidders over the foreclosed real

properties, buildings, mining claims, leasehold rights together with the improvements thereon as well as machineries [sic] and equipments [sic] of MMIC located at Nonoc Nickel Refinery Plant at Surigao del Norte for a bid price of P14,238,048,150.00 [and] [o]ver the foreclosed chattels of MMIC located at Nonoc Refinery Plant at Surigao del Norte, PNB and DBP as highest bidders, bidded for P170,577,610.00 (Exhs. "5" to "5-A", "6", "7" to "7-AA-" PNB/DBP). For the foreclosed real properties together with all the buildings, major machineries & equipment and other improvements of MMIC located at Antipolo, Rizal, likewise held on August 31, 1984, were sold to PNB and DBP as highest bidders in the sum of P1,107,167,950.00 (Exhs. "10" to "10-X"PNB/DBP). At the auction sale conducted on September 7, 1984[,] over the foreclosed real properties, buildings, & machineries/equipment of MMIC located at Sipalay, Negros Occidental were sold to PNB and DBP, as highest bidders, in the amount of P2,383,534,000.00 and P543,040.000.00 respectively (Exhs. "8" to "8-BB", "9" to "90-GGGGGG"PNB/DBP). Finally, at the public auction sale conducted on September 18, 1984 on the foreclosed personal properties of MMIC, the same were sold to PNB and DBP as the highest bidder in the sum of P678,772,000.00 (Exhs. "11" and "12QQQQQ"PNB). TaCDcE PNB and DBP thereafter thru a Deed of Transfer dated August 31, 1984, purposely, in order to ensure the continued operation of the Nickel refinery plant and to prevent the deterioration of the assets foreclosed, assigned and transferred to Nonoc Mining and Industrial Corporation all their rights, interest and participation over the foreclosed properties of MMIC located at Nonoc Island, Surigao del Norte for an initial consideration of P14,361,000,000.00 (Exh. "13"-PNB). Likewise, thru [sic] a Deed of Transfer dated June 6, 1984, PNB and DBP assigned and transferred in favor of Maricalum Mining Corp. all its rights, interest and participation over the foreclosed properties of MMIC at Sipalay, Negros Occidental for an initial consideration of P325,800,000.00 (Exh. "14" PNB/DBP). On February 27, 1987, PNB and DBP, pursuant to Proclamation No. 50 as amended, again assigned, transferred and conveyed to the National Government thru [sic] the Asset Privatization Trust (APT) all its existing rights and interest over the assets of MMIC, earlier assigned to Nonoc Mining and Industrial Corporation, Maricalum Mining Corporation and Island Cement Corporation (Exh. "15" & "15-A" PNB/DBP). 4 In the meantime, between July 16, 1982 to October 4, 1983, Marinduque Mining purchased and caused to be delivered construction materials and other merchandise from Remington Industrial Sales Corporation (Remington) worth P921,755.95. The purchases remained unpaid as of August 1, 1984 when Remington filed a complaint for a sum of money and damages against Marinduque Mining for the value of the unpaid construction materials and other merchandise purchased by Marinduque Mining, as well as interest, attorney's fees and the costs of suit. On September 7, 1984, Remington's original complaint was amended to include PNB and DBP as co-defendants in view of the foreclosure by the latter of the real and chattel mortgages on the real and personal properties, chattels, mining claims, machinery, equipment and other assets of Marinduque Mining. 5 DaIAcC On September 13, 1984, Remington filed a second amended complaint to include as additional defendant, the Nonoc Mining and Industrial Corporation (Nonoc Mining). Nonoc Mining is the assignee of all real and personal properties, chattels, machinery, equipment and all other assets of Marinduque Mining at its Nonoc Nickel Factory in Surigao del Norte. 6

On March 26, 1986, Remington filed a third amended complaint including the Maricalum Mining Corporation (Maricalum Mining) and Island Cement Corporation (Island Cement) as co-defendants. Remington asserted that Marinduque Mining, PNB, DBP, Nonoc Mining, Maricalum Mining and Island Cement must be treated in law as one and the same entity by disregarding the veil of corporate fiction since: 1. Co-defendants NMIC, Maricalum and Island Cement which are newly created entities are practically owned wholly by defendants PNB and DBP, and managed by their officers, aside from the fact that the aforesaid co-defendants NMIC, Maricalum and Island Cement were organized in such a hurry and in such suspicious circumstances by co-defendants PNB and DBP after the supposed extrajudicial foreclosure of MMIC's assets as to make their supposed projects assets, machineries and equipment which were originally owned by codefendant MMIC beyond the reach of creditors of the latter. 2. The personnel, key officers and rank-and-file workers and employees of co-defendants NMIC, Maricalum and Island Cement creations of co-defendants PNB and DBP were the personnel of co-defendant MMIC such that . . . practically there has only been a change of name for all legal purpose and intents. 3. The places of business not to mention the mining claims and project premises of co-defendants NMIC, Maricalum and Island Cement likewise used to be the places of business, mining claims and project premises of codefendant MMIC as to make the aforesaid co-defendants NMIC, Maricalum and Island Cement mere adjuncts and subsidiaries of co-defendants PNB and DBP, and subject to their control and management. SHaATC On top of everything, co-defendants PNB, DBP NMIC, Maricalum and Island Cement being all corporations created by the government in the pursuit of business ventures should not be allowed to ignore, . . . or obliterate with impunity nay illegally, the financial obligations of . . . MMIC whose operations co-defendants PNB and DBP had highly financed before the alleged extrajudicial foreclosure of defendant MMIC's assets, machineries and equipment to the extent that major policies of co-defendant MMIC were being decided upon by co-defendants PNB and DBP as major financiers who were represented in its board of directors forming part of the majority thereof which through the alleged extrajudicial foreclosure culminated in a complete takeover by co-defendants PNB and DBP bringing about the organization of their co-defendants NMIC, Maricalum and Island Cement to which were transferred all the assets, machineries and pieces of equipment of co-defendant MMIC used in its nickel mining project in Surigao del Norte, copper mining operation in Sipalay, Negros Occidental and cement factory in Antipolo, Rizal to the prejudice of creditors of co-defendant MMIC such as plaintiff Remington Industrial Sales Corporation whose stockholders, officers and rank-and-file workers in the legitimate pursuit of its business activities, invested considerable time, sweat and private money to supply, among others, codefendant MMIC with some of its vital needs for its operation, which codefendant MMIC during the time of the transactions material to this case became . . . co-defendants PNB and DBP's instrumentality, business conduit, alter ego, agency (sic), subsidiary or auxiliary corporation, by virtue of which it becomes doubly necessary to disregard the corporation fiction that codefendants PNB, DBP, MMIC, NMIC, Maricalum and Island Cement, six (6) distinct and separate entities, when in fact and in law, they should be treated as one and the same at least as far as plaintiff's transactions with co-defendant MMIC are concerned, so as not to defeat public convenience, justify wrong, subvert justice, protect fraud or confuse legitimate issues involving creditors such as plaintiff, a fact which all defendants were as (sic) still are aware of during all the time material to the transactions subject of this case. 7

On April 3, 1989, Remington filed a motion for leave to file a fourth amended complaint impleading the Asset Privatization Trust (APT) as co-defendant. Said fourth amended complaint was admitted by the lower court in its Order dated April 29, 1989. ECDAcS On April 10, 1990, the Regional Trial Court (RTC) rendered a decision in favor of Remington, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the defendants Marinduque Mining & Industrial Corporation, Philippine National Bank, Development Bank of the Philippines, Nonoc Mining and Industrial Corporation, Maricalum Mining Corporation, Island Cement Corporation and Asset Privatization Trust to pay, jointly and severally, the sum of P920,755.95, representing the principal obligation, including the stipulated interest as of June 22, 1984, plus ten percent (10%) surcharge per annum by way of penalty, until the amount is fully paid; the sum equivalent to 10% of the amount due as and for attorney's fees; and to pay the costs. 8 Upon appeal by PNB, DBP, Nonoc Mining, Maricalum Mining, Island Cement and APT, the Court of Appeals, in its Decision dated October 6, 1995, affirmed the decision of the RTC. Petitioner filed a Motion for Reconsideration, which was denied in the Resolution dated August 29, 1996. Hence, this petition, DBP maintaining that Remington has no cause of action against it or PNB, nor against their transferees, Nonoc Mining, Island Cement, Maricalum Mining, and the APT. On the other hand, private respondent Remington submits that the transfer of the properties was made in fraud of creditors. The presence of fraud, according to Remington, warrants the piercing of the corporate veil such that Marinduque Mining and its transferees could be considered as one and the same corporation. The transferees, therefore, are also liable for the value of Marinduque Mining's purchases. In Yutivo Sons Hardware vs. Court of Tax Appeals, 9 cited by the Court of Appeals in its decision, 10 this Court declared: It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons or in case of two corporations, merge them into one". (Koppel [Phils.], Inc., vs. Yatco, 71 Phil. 496, citing 1 Fletcher Encyclopedia of Corporation, Permanent Ed., pp. 135-136; U.S. vs. Milwaukee Refrigeration Transit Co., 142 Fed., 247, 255 per Sanborn, J.). . . . IDTHcA In accordance with the foregoing rule, this Court has disregarded the separate personality of the corporation where the corporate entity was used to escape liability to third parties. 11 In this case, however, we do not find any fraud on the part of Marinduque Mining and its transferees to warrant the piercing of the corporate veil. It bears stressing that PNB and DBP are mandated to foreclose on the mortgage when the past due account had incurred arrearages of more than 20% of the total outstanding obligation. Section 1 of Presidential Decree No. 385 (The Law on Mandatory Foreclosure) provides: It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of this decree, to foreclose the collateral and/or securities for any loan, credit accommodation, and/or guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other charges, as appearing in the books of account and/or related records of the financial institution concerned. This shall be without prejudice to the exercise by the government

financial institution of such rights and/or remedies available to them under their respective contracts with their debtors, including the right to foreclose on loans, credits, accommodations and/or guarantees on which the arrearages are less than twenty (20%) percent. Thus, PNB and DBP did not only have a right, but the duty under said law, to foreclose upon the subject properties. The banks had no choice but to obey the statutory command. acAIES The import of this mandate was lost on the Court of Appeals, which reasoned that under Article 19 of the Civil Code, "Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." The appellate court, however, did not point to any fact evidencing bad faith on the part of the Marinduque Mining and its transferees. Indeed, it skirted the issue entirely by holding that the question of actual fraudulent intent on the part of the interlocking directors of DBP and Marinduque Mining was irrelevant because: As aptly stated by the appellee in its brief, ". . . where the corporations have directors and officers in common, there may be circumstances under which their interest as officers in one company may disqualify them in equity from representing both corporations in transactions between the two. Thus, where one corporation was 'insolvent and indebted to another, it has been held that the directors of the creditor corporation were disqualified, by reason of selfinterest, from acting as directors of the debtor corporation in the authorization of a mortgage or deed of trust to the former to secure such indebtedness . . ." (page 105 of the Appellee's Brief). In the same manner that ". . . when the corporation is insolvent, its directors who are its creditors can not secure to themselves any advantage or preference over other creditors. They can not thus take advantage of their fiduciary relation and deal directly with themselves, to the injury of others in equal right. If they do, equity will set aside the transaction at the suit of creditors of the corporation or their representatives, without reference to the question of any actual fraudulent intent on the part of the directors, for the right of the creditors does not depend upon fraud in fact, but upon the violation of the fiduciary relation to the directors." . . . . (page 106 of the Appellee's Brief) We also concede that ". . . directors of insolvent corporation, who are creditors of the company, can not secure to themselves any preference or advantage over other creditors in the payment of their claims. It is not good morals or good law. The governing body of officers thereof are charged with the duty of conducting its affairs strictly in the interest of its existing creditors, and it would be a breach of such trust for them to undertake to give any one of its members any advantage over any other creditors in securing the payment of his debts in preference to all others. When validity of these mortgages, to secure debts upon which the directors were indorsers, was questioned by other creditors of the corporation, they should have been classed as instruments rendered void by the legal principle which prevents directors of an insolvent corporation from giving themselves a preference over outside creditors. . . . " (page 106-107 of the Appellee's Brief.) 12 The Court of Appeals made reference to two principles in corporation law. The first pertains to transactions between corporations with interlocking directors resulting in the prejudice to one of the corporations. This rule does not apply in this case, however, since the corporation allegedly prejudiced (Remington) is a third party, not one of the corporations with interlocking directors (Marinduque Mining and DBP). IEHDAT The second principle invoked by respondent court involves "directors . . . who are creditors" which is also inapplicable herein. Here, the creditor of Marinduque Mining is DBP, not the directors of Marinduque Mining.

Neither do we discern any bad faith on the part of DBP by its creation of Nonoc Mining, Maricalum and Island Cement. As Remington itself concedes, DBP is not authorized by its charter to engage in the mining business. 13 The creation of the three corporations was necessary to manage and operate the assets acquired in the foreclosure sale lest they deteriorate from non-use and lose their value. In the absence of any entity willing to purchase these assets from the bank, what else would it do with these properties in the meantime? Sound business practice required that they be utilized for the purposes for which they were intended. Remington also asserted in its third amended complaint that the use of Nonoc Mining, Maricalum and Island Cement of the premises of Marinduque Mining and the hiring of the latter's officers and personnel also constitute badges of bad faith. Assuming that the premises of Marinduque Mining were not among those acquired by DBP in the foreclosure sale, convenience and practicality dictated that the corporations so created occupy the premises where these assets were found instead of relocating them. No doubt, many of these assets are heavy equipment and it may have been impossible to move them. The same reasons of convenience and practicality, not to mention efficiency, justified the hiring by Nonoc Mining, Maricalum and Island Cement of Marinduque Mining's personnel to manage and operate the properties and to maintain the continuity of the mining operations. EACTSH To reiterate, the doctrine of piercing the veil of corporate fiction applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime. 14 To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed. 15 In this case, the Court finds that Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining and its transferees in the mortgage and foreclosure of the subject properties to justify the piercing of the corporate veil. The Court of Appeals also held that there exists in Remington's favor a "lien" on the unpaid purchases of Marinduque Mining, and as transferee of these purchases, DBP should be held liable for the value thereof. In the absence of liquidation proceedings, however, the claim of Remington cannot be enforced against DBP. Article 2241 of the Civil Code provides: ARTICLE 2241. With reference to specific movable property of the debtor, the following claims or liens shall be preferred: xxx xxx xxx (3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to the value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form, substance and identity, neither is the right lost by the sale of the thing together with other property for a lump sum, when the price thereof can be determined proportionally; (4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a chattel mortgage, upon the things pledged or mortgaged, up to the value thereof; xxx xxx xxx In Barretto vs. Villanueva, 16 the Court had occasion to construe Article 2242, governing claims or liens over specific immovable property. The facts that gave rise to the case were summarized by this Court in its resolution as follows: acCETD . . . Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot herein involved to Pura L. Villanueva for P19,000.00. The purchaser paid P1,500 in advance, and executed a promissory

note for the balance of P17,500.00. However, the buyer could only pay P5,500 on account of the note, for which reason the vendor obtained judgment for the unpaid balance. In the meantime, the buyer Villanueva was able to secure a clean certificate of title (No. 32626), and mortgaged the property to appellant Magdalena C. Barretto, married to Jose C. Baretto, to secure a loan of P30,000.03, said mortgage having been duly recorded. Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the mortgage in her favor, obtained judgment, and upon its becoming final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a motion for recognition for her "vendor's lien" in the amount of P12,000.00, plus legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing, the court below ordered the "lien" annotated on the back of Certificate of Title No. 32526, with the proviso that in case of sale under the foreclosure decree the vendor's lien and the mortgage credit of appellant Barretto should be paid pro rata from the proceeds. Our original decision affirmed this order of the Court of First Instance of Manila. In its decision upholding the order of the lower court, the Court ratiocinated thus: Article 2242 of the new Civil Code enumerates the claims, mortgages and liens that constitute an encumbrance on specific immovable property, and among them are: "(2) For the unpaid price of real property sold, upon the immovable sold"; and "(5) Mortgage credits recorded in the Registry of Property." Article 2249 of the same Code provides that "if there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro-rata, after the payment of the taxes and assessments upon the immovable property or real rights." aHDTAI Application of the above-quoted provisions to the case at bar would mean that the herein appellee Rosario Cruzado as an unpaid vendor of the property in question has the right to share pro-rata with the appellants the proceeds of the foreclosure sale. xxx xxx xxx As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable only to the insolvent debtor, suffice it to say that nothing in the law shows any such limitation. If we are to interpret this portion of the Code as intended only for insolvency cases, then other creditordebtor relationships where there are concurrence of credits would be left without any rules to govern them, and it would render purposeless the special laws on insolvency. 17 Upon motion by appellants, however, the Court reconsidered its decision. Justice J.B.L. Reyes, speaking for the Court, explained the reasons for the reversal: A. The previous decision failed to take fully into account the radical changes introduced by the Civil Code of the Philippines into the system of priorities among creditors ordained by the Civil Code of 1889. Pursuant to the former Code, conflicts among creditors entitled to preference as to specific real property under Article 1923 were to be resolved according to an order of priorities established by Article 1927, whereby one class of creditors could exclude the creditors of lower order until the claims of the former were fully satisfied out of the proceeds of the sale of the real property subject of the preference, and could even exhaust proceeds if necessary. Under the system of the Civil Code of the Philippines, however, only taxes enjoy a similar absolute preference. All the remaining thirteen classes of preferred creditors under Article 2242 enjoy no priority among themselves, but must be paid pro rata, i.e., in proportion to the amount of the respective credits. Thus, Article 2249 provides:

"If there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro rata, after the payment of the taxes and assessments upon the immovable property or real rights." ECAaTS But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of Article 2242 (or such of them as have credits outstanding) must necessarily be convened, and the import of their claims ascertained. It is thus apparent that the full application of Articles 2249 and 2242 demands that there must be first some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of decedent's estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import. This explains the rule of Article 2243 of the new Civil Code that "The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency . . . (Italics supplied). And the rule is further clarified in the Report of the Code Commission, as follows: "The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by this Article (2243). The preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency Law." (Italics supplied) Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in the case now before us) is not the proceeding contemplated by law for the enforcement of preferences under Article 2242, unless the claimant were enforcing a credit for taxes that enjoy absolute priority. If none of the claims is for taxes, a dispute between two creditors will not enable the Court to ascertain the pro rata dividend corresponding to each, because the rights of the other creditors likewise enjoying preference under Article 2242 can not be ascertained. Wherefore, the order of the Court of First Instance of Manila now appealed from, decreeing that the proceeds of the foreclosure sale be apportioned only between appellant and appellee, is incorrect, and must be reversed. [Italics supplied] cTACIa The ruling in Barretto was reiterated in Phil. Savings Bank vs. Hon. Lantin, Jr., etc., et al., 18 and in two cases both entitled Development Bank of the Philippines vs. NLRC. 19 Although Barretto involved specific immovable property, the ruling therein should apply equally in this case where specific movable property is involved. As the extrajudicial foreclosure instituted by PNB and DBP is not the liquidation proceeding contemplated by the Civil Code, Remington cannot claim its pro rata share from DBP. WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated October 6, 1995 and its Resolution promulgated on August 29, 1996 is REVERSED and SET ASIDE. The original complaint filed in the Regional Trial Court in CV Case No. 84-25858 is hereby DISMISSED. SEIcHa SO ORDERED. Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur. Footnotes 1. Rollo, pp. 61-62. 2. Id., at 62. 3. Id. 4. Rollo, pp. 62-63. Underscoring in the original. 5. Id., at 90. 6. Id. 7. Id., at 91-92. 8. Id., at 89. 9. 1 SCRA 160 (1961).

10. Rollo, p. 102. 11. Tan Bonn Bee & Co. vs. Jarencio, 163 SCRA 205 (1988); Claparols, et al. vs. Court of Industrial Relations, 65 SCRA 613 (1975); Villa Rey Transit, Inc. vs. Eusebio E. Ferrer, 25 SCRA 849 (1968); National Marketing Corporation vs. Associated Financing Company, et al., 19 SCRA 962 (1967); Palacio, et al. vs. Fely Transportation Company, 5 SCRA 1011 (1962): McConnel. et al. vs. Court of Appeals, et al., 1 SCRA 721 (1961). 12. Rollo, p. 107. Italics in the original. 13. Id., at 232. 14. Union Bank of the Philippines vs. Court of Appeals, 290 SCRA 198 (1998). 15. Complex Electronics Employees Association vs. NLRC, 310 SCRA 403 (1990); Luxuria Homes, Inc. vs. Court of Appeals, 302 SCRA 315 (1999); Matuguina Integrated Wood Products vs. Court of Appeals, 263 SCRA 490 (1996). 16. 1 SCRA 288 (1961). 17. Id., at 292-294. 18. 209 SCRA 383 (1983). 19. 183 SCRA 328 (1990), 186 SCRA 841 (1990). THIRD DIVISION [G.R. No. 111448. January 16, 2002.] AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners, vs. DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS DEVELOPMENT CORPORATION, respondents. Benito Fabie for petitioners. Abello Concepcion Regala & Cruz for private respondent Midas Development Corp. Tagoc & Tagoc Law Office for private respondents Dieselman Freight Services, Co., and M.C. Cruz, Jr. SYNOPSIS Dieselman Freight Services Co. is the registered owner of a commercial lot and Manuel C. Cruz, Jr. is a member of its board of directors. Although Cruz has no written authority from Dieselman to sell the lot, he issued a letter authorizing Cristeta N. Politan to look for a buyer at P3,000.00 per square meter or P6,282,000.00. Politan, in turn, authorized Felicisima Noble to sell the same lot. Noble then offered the lot to AF Realty & Development, Inc. at P2,500.00 per square meter. Zenaida Ranullo, a board member and vicepresident of AF Realty, accepted the offer and issued a check in the amount of P330,000.00 payable to Dieselman. Cruz, as president of Dieselman, acknowledged receipt of the check only as earnest money and required AF Realty to finalize the sale at P4,000.00 per square meter. Later on, Cruz terminated the offer and demanded the return of the title of the lot earlier delivered. AF Realty, claiming that the contract was already perfected, filed a complaint for specific performance against Dieselman and Cruz. Meanwhile, Dieselman and Midas Development Corporation executed a deed of absolute sale of the same property at an agreed price of P2,800.00 per square meter and thereafter filed a motion for leave to intervene in the case. After trial, the lower court held that the acts of Cruz bound Dieselman in the sale of the lot to AF Realty. Consequently, the perfected contract of sale between Dieselman and AF Realty barred Midas's intervention. Dissatisfied, all parties appealed to the Court of Appeals. The Court of Appeals reversed the decision of the trial court. It held that since Cruz was not authorized in writing to sell the subject property to AF Realty, the sale was not perfected. It also held that the Deed of Absolute Sale between Dieselman and Midas is valid. Hence, petitioner filed the instant petition. The focal issue for consideration by the Supreme Court is who

between petitioner AF Realty and respondent Midas has a right over the subject lot. TDCAHE The decision of the Court of Appeals was affirmed by the Supreme Court. According to the Court, considering that respondent Cruz, Polintan and Noble were not authorized by respondent Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is not susceptible of ratification by clear mandate of the Civil Code. On the other hand, the validity of the sale of the subject lot to respondent Midas was unquestionable. The sale was authorized by the board resolution of respondent Dieselman. SYLLABUS 1. COMMERCIAL LAW; CORPORATION CODE; CORPORATE POWERS OF ALL CORPORATIONS SHALL BE EXERCISED BY THE BOARD OF DIRECTORS; RATIONALE. Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are held not binding on the corporation. 2. CIVIL LAW; AGENCY; SALE OF LAND THROUGH AN AGENT REQUIRES AUTHORITY TO BE IN WRITING; EFFECT OF ABSENCE THEREOF; CASE AT BAR. Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil Code takes precedence. This is well stressed in Yao Ka Sin Trading vs. Court of Appeals: "Since a corporation, such as the private respondent, can act only through its officers and agents, all acts within the powers of said corporation may be performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents when once appointed, of members acting in their stead, are subject to the same rules, liabilities, and incapacities as are agents of individuals and private persons." Pertinently, Article 1874 of the same Code provides: "ART. 1874. When a sale of piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void." Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized by respondent Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is not susceptible of ratification by clear mandate of Article 1409 of the Civil Code, thus: "ART. 1409. The following contracts are inexistent and void from the very beginning: . . . (7) Those expressly prohibited or declared void by law. "These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived." Upon the other hand, the validity of the sale of the subject lot to respondent Midas is unquestionable. As aptly noted by the Court of Appeals, the sale was authorized by a board resolution of respondent Dieselman dated May 27, 1988. EHTISC DECISION SANDOVAL-GUTIERREZ, Jp: Petition for review on certiorari assailing the Decision dated December 10, 1992 and the Resolution (Amending Decision) dated August 5, 1993 of the Court of Appeals in CA-G.R. CV No. 30133.

Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a registered owner of a parcel of commercial lot consisting of 2,094 square meters, located at 104 E. Rodriguez Avenue, Barrio Ugong, Pasig City, Metro Manila. The property is covered by Transfer Certificate of Title No. 39849 issued by the Registry of Deeds of the Province of Rizal. 1 On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued a letter denominated as "Authority To Sell Real Estate" 2 to Cristeta N. Polintan, a real estate broker of the CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a buyer/buyers and negotiate the sale" of the lot at P3,000.00 per square meter, or a total of P6,282,000.00. Cruz, Jr. has no written authority from Dieselman to sell the lot. In turn, Cristeta Polintan, through a letter 3 dated May 19, 1988, authorized Felicisima ("Mimi") Noble 4 to sell the same lot. Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF Realty) at P2,500.00 per square meter. 5 Zenaida Ranullo, board member and vice-president of AF Realty, accepted the offer and issued a check in the amount of P300,000.00 payable to the order of Dieselman. Polintan received the check and signed an "Acknowledgment Receipt" 6 indicating that the amount of P300,000.00 represents the partial payment of the property but refundable within two weeks should AF Realty disapprove Ranullo's action on the matter. On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked Polintan for the board resolution of Dieselman authorizing the sale of the property. However, Polintan could only give Ranullo the original copy of TCT No. 39849, the tax declaration and tax receipt for the lot, and a photocopy of the Articles of Incorporation of Dieselman. 7 On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the said P300,000.00 as "earnest money" but required AF Realty to finalize the sale at P4,000.00 per square meter. 8 AF Realty replied that it has paid an initial down payment of P300,000.00 and is willing to pay the balance. 9 However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty the return of the title of the lot earlier delivered by Polintan. 10 Claiming that there was a perfected contract of sale between them, AF Realty filed with the Regional Trial Court, Branch 160, Pasig City a complaint for specific performance (Civil Case No. 56278) against Dieselman and Cruz, Jr. The complaint prays that Dieselman be ordered to execute and deliver a final deed of sale in favor of AF Realty. 11 In its amended complaint, 12 AF Realty asked for payment of P1,500,000.00 as compensatory damages; P400,000.00 as attorney's fees; and P500,000.00 as exemplary damages. In its answer, Dieselman alleged that there was no meeting of the minds between the parties in the sale of the property and that it did not authorize any person to enter into such transaction on its behalf. Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas) executed a Deed of Absolute Sale 13 of the same property. The agreed price was P2,800.00 per square meter. Midas delivered to Dieselman P500,000.00 as down payment and deposited the balance of P5,300,000.00 in escrow account with the PCIBank. Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion for Leave to Intervene in Civil Case No. 56278. Midas alleged that it has purchased the property and took possession thereof, hence Dieselman cannot be compelled to sell and convey it to AF Realty. The trial court granted Midas' motion. After trial, the lower court rendered the challenged Decision holding that the acts of Cruz, Jr. bound Dieselman in the sale of the lot to AF Realty. 14

Consequently, the perfected contract of sale between Dieselman and AF Realty bars Midas' intervention. The trial court also held that Midas acted in bad faith when it initially paid Dieselman P500,000.00 even without seeing the latter's title to the property. Moreover, the notarial report of the sale was not submitted to the Clerk of Court of the Quezon City RTC and the balance of P5,300,000.00 purportedly deposited in escrow by Midas with a bank was not established. The dispositive portion of the trial court's Decision reads: "WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendant to execute and deliver to plaintiffs the final deed of sale of the property covered by the Transfer Certificate of Title No. 39849 of the Registry of Deed of Rizal, Metro Manila District II, including the improvements thereon, and ordering defendants to pay plaintiffs attorney's fees in the amount of P50,000.00 and to pay the costs. "The counterclaim of defendants is necessarily dismissed. "The counterclaim and/or the complaint in intervention are likewise dismissed "SO ORDERED." 15 Dissatisfied, all the parties appealed to the Court of Appeals. AF Realty alleged that the trial court erred in not holding Dieselman liable for moral, compensatory and exemplary damages, and in dismissing its counterclaim against Midas. Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding that a contract of sale between Dieselman and AF Realty was perfected. Midas further averred that there was no bad faith on its part when it purchased the lot from Dieselman. In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment of the trial court holding that since Cruz, Jr. was not authorized in writing by Dieselman to sell the subject property to AF Realty, the sale was not perfected; and that the Deed of Absolute Sale between Dieselman and Midas is valid, there being no bad faith on the part of the latter. The Court of Appeals then declared Dieselman and Cruz, Jr. jointly and severally liable to AF Realty for P100,000.00 as moral damages; P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees. 16 On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by the parties, promulgated an Amending Decision, the dispositive portion of which reads: "WHEREFORE, The Decision promulgated on October 10, 1992, is hereby AMENDED in the sense that only defendant Mr. Manuel Cruz, Jr. should be made liable to pay the plaintiffs the damages and attorney's fees awarded therein, plus the amount of P300,000.00 unless, in the case of the said P300,000.00, the same is still deposited with the Court which should be restituted to plaintiffs. "SO ORDERED." 17 AF Realty now comes to this Court via the instant petition alleging that the Court of Appeals committed errors of law. The focal issue for consideration by this Court is who between petitioner AF Realty and respondent Midas has a right over the subject lot. The Court of Appeals, in reversing the judgment of the trial court, made the following ratiocination: "From the foregoing scenario, the fact that the board of directors of Dieselman never authorized, verbally and in writing, Cruz, Jr. to sell the property in question or to look for buyers and negotiate the sale of the subject property is undeniable. "While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and negotiate the sale of the subject property, it should be noted that Cruz, Jr. could not confer on Polintan any authority which he himself did not have. Nemo dat quod non habet. In the same manner, Felicisima Noble could not

have possessed authority broader in scope, being a mere extension of Polintan's purported authority, for it is a legal truism in our jurisdiction that a spring cannot rise higher than its source. Succinctly stated, the alleged sale of the subject property was effected through persons who were absolutely without any authority whatsoever from Dieselman. "The argument that Dieselman ratified the contract by accepting the P300,000.00 as partial payment of the purchase price of the subject property is equally untenable. The sale of land through an agent without any written authority is void. xxx xxx xxx "On the contrary, anent the sale of the subject property by Dieselman to intervenor Midas, the records bear out that Midas purchased the same from Dieselman on 30 July 1988. The notice of lis pendens was subsequently annotated on the title of the property by plaintiffs on 15 August 1988. However, this subsequent annotation of the notice of lis pendens certainly operated prospectively and did not retroact to make the previous sale of the property to Midas a conveyance in bad faith. A subsequently registered notice of lis pendens surely is not proof of bad faith. It must therefore be borne in mind that the 30 July 1988 deed of sale between Midas and Dieselman is a document duly certified by notary public under his hand and seal. . . .. Such a deed of sale being public document acknowledged before a notary public is admissible as to the date and fact of its execution without further proof of its due execution and delivery (Bael vs. Intermediate Appellate Court, 169 SCRA 617; Joson vs. Baltazar, 194 SCRA 114) and to prove the defects and lack of consent in the execution thereof, the evidence must be strong and not merely preponderant . . .. " 18 We agree with the Court of Appeals. Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. 19 Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. 20 Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are held not binding on the corporation. 21 In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority from the board of directors of respondent Dieselman to sell or to negotiate the sale of the lot, much less to appoint other persons for the same purpose. Respondent Cruz, Jr.'s lack of such authority precludes him from conferring any authority to Polintan involving the subject realty. Necessarily, neither could Polintan authorize Felicisima Noble. Clearly, the collective acts of respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman in the purported contract of sale. AHcCDI Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be ratified where, as here, there is acceptance of the benefits involved. In this case the receipt by respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial payment of the lot effectively binds respondent Dieselman. 22 We are not persuaded. Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil Code takes precedence. This is well stressed in Yao Ka Sin Trading vs. Court of Appeals: 23 "Since a corporation, such as the private respondent, can act only through its officers and agents, all acts within the powers of said corporation may be

performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents when once appointed, or members acting in their stead, are subject to the same rules, liabilities, and incapacities as are agents of individuals and private persons." (Italics supplied) Pertinently, Article 1874 of the same Code provides: "ART. 1874. When a sale of piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void." (Italics supplied) Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized by respondent Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is not susceptible of ratification by clear mandate of Article 1409 of the Civil Code, thus: "ART. 1409. The following contracts are inexistent and void from the very beginning: xxx xxx xxx (7) Those expressly prohibited or declared void by law. "These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived." (Italics supplied) Upon the other hand, the validity of the sale of the subject lot to respondent Midas is unquestionable. As aptly noted by the Court of Appeals, 24 the sale was authorized by a board resolution of respondent Dieselman dated May 27, 1988. The Court of Appeals awarded attorney's fees and moral and exemplary damages in favor of petitioner AF Realty and against respondent Cruz, Jr. The award was made by reason of a breach of contract imputable to respondent Cruz, Jr. for having acted in bad faith. We are not persuaded. It bears stressing that petitioner Zenaida Ranullo, board member and vice-president of petitioner AF Realty who accepted the offer to sell the property, admitted in her testimony, 25 that a board resolution from respondent Dieselman authorizing the sale is necessary to bind the latter in the transaction; and that respondent Cruz, Jr. has no such written authority. In fact, despite demand, such written authority was not presented to her. 26 This notwithstanding, petitioner Ranullo tendered a partial payment for the unauthorized transaction. Clearly, respondent Cruz, Jr. should not be held liable for damages and attorney's fees. WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby AFFIRMED with MODIFICATION in the sense that the award of damages and attorney's fees is deleted. Respondent Dieselman is ordered to return to petitioner AF Realty its partial payment of P300,000.00. Costs against petitioners. SO ORDERED. Melo, Vitug, Panganiban and Carpio, JJ., concur. Footnotes 1. Rollo, p. 129. 2. Exhibit "J", Records of RTC, p. 112. 3. Exhibit "I", Ibid., p. 111. 4. A real estate broker of Noblehaus Realty and Marketing. 5. Exhibit "A", Ibid., p. 102. 6. Exhibit "C", Ibid., p. 104. 7. Transcript of Stenographic Notes (TSN), December 7, 1988, p. 18. 8. Exhibit "F", Records of RTC, p. 107. 9. Exhibit "G", Ibid., p. 108. 10. Exhibit "4", Ibid., p. 242.

11. Records of RTC, p. 6. 12. Ibid., pp. 11-17. 13. Exhibit "M", Ibid., p. 193. 14. Rollo, pp. 13-15. 15. Ibid., pp. 17-18. 16. Rollo, pp. 51-71. 17. Ibid., pp. 15-16. 18. Ibid., pp. 12-13. 19. Citibank, N. A. vs. Chua, 220 SCRA 75 (1993). 20. Baretto vs. La Previsora Filipina, 57 Phil. 649 (1932). 21. Mendezona vs. Philippine Sugar Estates Development Co., 41 Phil. 475 (1921). 22. Rollo, pp. 22 and 24. 23. 209 SCRA 763 (1992). 24. See assailed Resolution (Amending Decision) dated August 5, 1993, p. 12; Rollo, p. 84. 25. TSN, December 7, 1988, pp. 18-20; pp. 53-54. 26. Ibid. FIRST DIVISION [G.R. No. 161886. March 16, 2007.] FILIPINAS PORT SERVICES, INC., represented by stockholders, ELIODORO C. CRUZ and MINDANAO TERMINAL AND BROKERAGE SERVICES, INC., petitioners, vs. VICTORIANO S. GO, ARSENIO LOPEZ CHUA, EDGAR C. TRINIDAD, HERMENEGILDO M. TRINIDAD, JESUS SYBICO, MARY JEAN D. CO, HENRY CHUA, JOSELITO S. JAYME, ERNESTO S. JAYME, and ELIEZER B. DE JESUS, respondents. DECISION GARCIA, J p: Assailed and sought to be set aside in this petition for review on certiorari is the Decision 1 dated 19 January 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 73827, reversing an earlier decision of the Regional Trial Court (RTC) of Davao City and accordingly dismissing the derivative suit instituted by petitioner Eliodoro C. Cruz for and in behalf of the stockholders of co-petitioner Filipinas Port Services, Inc. (Filport, hereafter). HAICcD The case is actually an intra-corporate dispute involving Filport, a domestic corporation engaged in stevedoring services with principal office in Davao City. It was initially instituted with the Securities and Exchange Commission (SEC) where the case hibernated and remained unresolved for several years until it was overtaken by the enactment into law, on 19 July 2000, of Republic Act (R.A.) No. 8799, otherwise known as the Securities Regulation Code. From the SEC and consistent with R.A. No. 8799, the case was transferred to the RTC of Manila, Branch 14, sitting as a corporate court. Subsequently, upon respondents' motion, the case eventually landed at the RTC of Davao City where it was docketed as Civil Case No. 28,552-2001. RTC-Davao City, Branch 10, ruled in favor of the petitioners prompting respondents to go to the CA in CA-G.R. CV No. 73827. This time, the respondents prevailed, hence, this petition for review by the petitioners. The relevant facts: On 4 September 1992, petitioner Eliodoro C. Cruz, Filport's president from 1968 until he lost his bid for reelection as Filport's president during the general stockholders' meeting in 1991, wrote a letter 2 to the corporation's Board of Directors questioning the board's creation of the following positions with a monthly remuneration of P13,050.00 each, and the election thereto of certain members of the board, to wit:

Asst. Vice-President for Corporate Planning Edgar C. Trinidad (Director) Asst. Vice-President for Operations Eliezer B. de Jesus (Director) Asst. Vice-President for Finance Mary Jean D. Co (Director) Asst. Vice-President for Administration Henry Chua (Director) Special Asst. to the Chairman Arsenio Lopez Chua (Director) Special Asst. to the President Fortunato V. de Castro In his aforesaid letter, Cruz requested the board to take necessary action/actions to recover from those elected to the aforementioned positions the salaries they have received. On 15 September 1992, the board met and took up Cruz's letter. The records do not show what specific action/actions the board had taken on the letter. Evidently, whatever action/actions the board took did not sit well with Cruz. On 14 June 1993, Cruz, purportedly in representation of Filport and its stockholders, among which is herein co-petitioner Mindanao Terminal and Brokerage Services, Inc. (Minterbro), filed with the SEC a petition 3 which he describes as a derivative suit against the herein respondents who were then the incumbent members of Filport's Board of Directors, for alleged acts of mismanagement detrimental to the interest of the corporation and its shareholders at large, namely: 1. creation of an executive committee in 1991 composed of seven (7) members of the board with compensation of P500.00 for each member per meeting, an office which, to Cruz, is not provided for in the by-laws of the corporation and whose function merely duplicates those of the President and General Manager; ATcEDS 2. increase in the emoluments of the Chairman, Vice-President, Treasurer and Assistant General Manager which increases are greatly disproportionate to the volume and character of the work of the directors holding said positions; 3. re-creation of the positions of Assistant Vice-Presidents (AVPs) for Corporate Planning, Operations, Finance and Administration, and the election thereto of board members Edgar C. Trinidad, Eliezer de Jesus, Mary Jean D. Co and Henry Chua, respectively; and 4. creation of the additional positions of Special Assistants to the President and the Board Chairman, with Fortunato V. de Castro and Arsenio Lopez Chua elected to the same, the directors elected/appointed thereto not doing any work to deserve the monthly remuneration of P13,050.00 each. In the same petition, docketed as SEC Case No. 06-93-4491, Cruz alleged that despite demands made upon the respondent members of the board of directors to desist from creating the positions in question and to account for the amounts incurred in creating the same, the demands were unheeded. Cruz thus prayed that the respondent members of the board of directors be made to pay Filport, jointly and severally, the sums of money variedly representing the damages incurred as a result of the creation of the offices/positions complained of and the aggregate amount of the questioned increased salaries. In their common Answer with Counterclaim, 4 the respondents denied the allegations of mismanagement and materially averred as follows: 1. the creation of the executive committee and the grant of per diems for the attendance of each member are allowed under the by-laws of the corporation; 2. the increases in the salaries/emoluments of the Chairman, VicePresident, Treasurer and Assistant General Manager were well within the financial capacity of the corporation and well-deserved by the officers elected thereto; and 3. the positions of AVPs for Corporate Planning, Operations, Finance and Administration were already in existence during the tenure of Cruz as president of the corporation, and were merely recreated by the Board, adding that all those appointed to said positions of Assistant Vice Presidents, as well

as the additional position of Special Assistants to the Chairman and the President, rendered services to deserve their compensation. In the same Answer, respondents further averred that Cruz and his copetitioner Minterbro, while admittedly stockholders of Filport, have no authority nor standing to bring the so-called "derivative suit" for and in behalf of the corporation; that respondent Mary Jean D. Co has already ceased to be a corporate director and so with Fortunato V. de Castro, one of those holding an assailed position; and that no demand to cease and desist from further committing the acts complained of was made upon the board. By way of affirmative defenses, respondents asserted that (1) the petition is not duly verified by petitioner Filport which is the real party-in-interest; (2) Filport, as represented by Cruz and Minterbro, failed to exhaust remedies for redress within the corporation before bringing the suit; and (3) the petition does not show that the stockholders bringing the suit are joined as nominal parties. In support of their counterclaim, respondents averred that Cruz filed the alleged derivative suit in bad faith and purely for harassment purposes on account of his non-reelection to the board in the 1991 general stockholders' meeting. As earlier narrated, the derivative suit (SEC Case No. 06-93-4491) hibernated with the SEC for a long period of time. With the enactment of R.A. No. 8799, the case was first turned over to the RTC of Manila, Branch 14, sitting as a corporate court. Thereafter, on respondents' motion, it was eventually transferred to the RTC of Davao City whereat it was docketed as Civil Case No. 28,552-2001 and raffled to Branch 10 thereof. DISHEA On 10 December 2001, RTC-Davao City rendered its decision 5 in the case. Even as it found that (1) Filport's Board of Directors has the power to create positions not provided for in the by-laws of the corporation since the board is the governing body; and (2) the increases in the salaries of the board chairman, vice-president, treasurer and assistant general manager are reasonable, the trial court nonetheless rendered judgment against the respondents by ordering the directors holding the positions of Assistant Vice President for Corporate Planning, Special Assistant to the President and Special Assistant to the Board Chairman to refund to the corporation the salaries they have received as such officers "considering that Filipinas Port Services is not a big corporation requiring multiple executive positions" and that said positions "were just created for accommodation." We quote the fallo of the trial court's decision. WHEREFORE, judgment is rendered ordering: Edgar C. Trinidad under the third and fourth causes of action to restore to the corporation the total amount of salaries he received as assistant vice president for corporate planning; and likewise ordering Fortunato V. de Castro and Arsenio Lopez Chua under the fourth cause of action to restore to the corporation the salaries they each received as special assistants respectively to the president and board chairman. In case of insolvency of any or all of them, the members of the board who created their positions are subsidiarily liable. The counter claim is dismissed. From the adverse decision of the trial court, herein respondents went on appeal to the CA in CA-G.R. CV No. 73827. In its decision 6 of 19 January 2004, the CA, taking exceptions to the findings of the trial court that the creation of the positions of Assistant Vice President for Corporate Planning, Special Assistant to the President and Special Assistant to the Board Chairman was merely for accommodation purposes, granted the respondents' appeal, reversed and set aside the appealed decision of the trial court and accordingly dismissed the so-called derivative suit filed by Cruz, et al., thus: IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged decision is REVERSED and SET ASIDE, and a new one entered DISMISSING Civil Case No. 28,552-2001 with no pronouncement as to costs.

SO ORDERED. Intrigued, and quite understandably, by the fact that, in its decision, the CA, before proceeding to address the merits of the appeal, prefaced its disposition with the statement reading "[T]he appeal is bereft of merit," 7 thereby contradicting the very fallo of its own decision and the discussions made in the body thereof, respondents filed with the appellate court a Motion For Nunc Pro Tunc Order, 8 thereunder praying that the phrase "[T]he appeal is bereft of merit," be corrected to read "[T]he appeal is impressed with merit." In its resolution 9 of 23 April 2004, the CA granted the respondents' motion and accordingly effected the desired correction. DHEACI Hence, petitioners' present recourse. Petitioners assigned four (4) errors allegedly committed by the CA. For clarity, we shall formulate the issues as follows: 1. Whether the CA erred in holding that Filport's Board of Directors acted within its powers in creating the executive committee and the positions of AVPs for Corporate Planning, Operations, Finance and Administration, and those of the Special Assistants to the President and the Board Chairman, each with corresponding remuneration, and in increasing the salaries of the positions of Board Chairman, Vice-President, Treasurer and Assistant General Manager; and 2. Whether the CA erred in finding that no evidence exists to prove that (a) the positions of AVP for Corporate Planning, Special Assistant to the President and Special Assistant to the Board Chairman were created merely for accommodation, and (b) the salaries/emoluments corresponding to said positions were actually paid to and received by the directors appointed thereto. For their part, respondents, aside from questioning the propriety of the instant petition as the same allegedly raises only questions of fact and not of law, also put in issue the purported derivative nature of the main suit initiated by petitioner Eliodoro C. Cruz allegedly in representation of and in behalf of Filport and its stockholders. The petition is bereft of merit. It is axiomatic that in petitions for review on certiorari under Rule 45 of the Rules of Court, only questions of law may be raised and passed upon by the Court. Factual findings of the CA are binding and conclusive and will not be reviewed or disturbed on appeal. 10 Of course, the rule is not cast in stone; it admits of certain exceptions, such as when the findings of fact of the appellate court are at variance with those of the trial court, 11 as here. For this reason, and for a proper and complete resolution of the case, we shall delve into the records and reexamine the same. The governing body of a corporation is its board of directors. Section 23 of the Corporation Code 12 explicitly provides that unless otherwise provided therein, the corporate powers of all corporations formed under the Code shall be exercised, all business conducted and all property of the corporation shall be controlled and held by a board of directors. Thus, with the exception only of some powers expressly granted by law to stockholders (or members, in case of non-stock corporations), the board of directors (or trustees, in case of nonstock corporations) has the sole authority to determine policies, enter into contracts, and conduct the ordinary business of the corporation within the scope of its charter, i.e., its articles of incorporation, by-laws and relevant provisions of law. Verily, the authority of the board of directors is restricted to the management of the regular business affairs of the corporation, unless more extensive power is expressly conferred. The raison d'etre behind the conferment of corporate powers on the board of directors is not lost on the Court. Indeed, the concentration in the board of the powers of control of corporate business and of appointment of corporate officers and managers is necessary for efficiency in any large organization.

Stockholders are too numerous, scattered and unfamiliar with the business of a corporation to conduct its business directly. And so the plan of corporate organization is for the stockholders to choose the directors who shall control and supervise the conduct of corporate business. 13 In the present case, the board's creation of the positions of Assistant Vice Presidents for Corporate Planning, Operations, Finance and Administration, and those of the Special Assistants to the President and the Board Chairman, was in accordance with the regular business operations of Filport as it is authorized to do so by the corporation's by-laws, pursuant to the Corporation Code. The election of officers of a corporation is provided for under Section 25 of the Code which reads: Sec. 25. Corporate officers, quorum. Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. (Emphasis supplied.) In turn, the amended Bylaws of Filport 14 provides the following: Officers of the corporation, as provided for by the by-laws, shall be elected by the board of directors at their first meeting after the election of Directors. . . . The officers of the corporation shall be a Chairman of the Board, President, a Vice-President, a Secretary, a Treasurer, a General Manager and such other officers as the Board of Directors may from time to time provide, and these officers shall be elected to hold office until their successors are elected and qualified. (Emphasis supplied.) Likewise, the fixing of the corresponding remuneration for the positions in question is provided for in the same by-laws of the corporation, viz: . . . The Board of Directors shall fix the compensation of the officers and agents of the corporation. (Emphasis supplied.) Unfortunately, the bylaws of the corporation are silent as to the creation by its board of directors of an executive committee. Under Section 35 15 of the Corporation Code, the creation of an executive committee must be provided for in the bylaws of the corporation. Notwithstanding the silence of Filport's bylaws on the matter, we cannot rule that the creation of the executive committee by the board of directors is illegal or unlawful. One reason is the absence of a showing as to the true nature and functions of said executive committee considering that the "executive committee," referred to in Section 35 of the Corporation Code which is as powerful as the board of directors and in effect acting for the board itself, should be distinguished from other committees which are within the competency of the board to create at anytime and whose actions require ratification and confirmation by the board. 16 Another reason is that, ratiocinated by both the two (2) courts below, the Board of Directors has the power to create positions not provided for in Filport's bylaws since the board is the corporation's governing body, clearly upholding the power of its board to exercise its prerogatives in managing the business affairs of the corporation. aDHCcE As well, it may not be amiss to point out that, as testified to and admitted by petitioner Cruz himself, it was during his incumbency as Filport president that the executive committee in question was created, and that he was even the one who moved for the creation of the positions of the AVPs for Operations, Finance and Administration. By his acquiescence and/or ratification of the creation of the aforesaid offices, Cruz is virtually precluded from suing to declare such acts of the board as invalid or illegal. And it makes no difference that he sues in behalf of himself and of the other stockholders. Indeed, as his voice was not heard in protest when he was still Filport's president, raising a hue and cry

only now leads to the inevitable conclusion that he did so out of spite and resentment for his non-reelection as president of the corporation. With regard to the increased emoluments of the Board Chairman, VicePresident, Treasurer and Assistant General Manager which are supposedly disproportionate to the volume and nature of their work, the Court, after a judicious scrutiny of the increase vis--vis the value of the services rendered to the corporation by the officers concerned, agrees with the findings of both the trial and appellate courts as to the reasonableness and fairness thereof. Continuing, petitioners contend that the CA did not appreciate their evidence as to the alleged acts of mismanagement by the then incumbent board. A perusal of the records, however, reveals that petitioners merely relied on the testimony of Cruz in support of their bold claim of mismanagement. To the mind of the Court, Cruz' testimony on the matter of mismanagement is bereft of any foundation. As it were, his testimony consists merely of insinuations of alleged wrongdoings on the part of the board. Without more, petitioners' posture of mismanagement must fall and with it goes their prayer to hold the respondents liable therefor. But even assuming, in gratia argumenti, that there was mismanagement resulting to corporate damages and/or business losses, still the respondents may not be held liable in the absence, as here, of a showing of bad faith in doing the acts complained of. If the cause of the losses is merely error in business judgment, not amounting to bad faith or negligence, directors and/or officers are not liable. 17 For them to be held accountable, the mismanagement and the resulting losses on account thereof are not the only matters to be proven; it is likewise necessary to show that the directors and/or officers acted in bad faith and with malice in doing the assailed acts. Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill-will partaking of the nature of fraud. 18 We have searched the records and nowhere do we find a "dishonest purpose" or "some moral obliquity," or "conscious doing of a wrong" on the part of the respondents that "partakes of the nature of fraud." We thus extend concurrence to the following findings of the CA, affirmatory of those of the trial court: . . . As a matter of fact, it was during the term of appellee Cruz, as president and director, that the executive committee was created. What is more, it was appellee himself who moved for the creation of the positions of assistant vice presidents for operations, for finance, and for administration. He should not be heard to complain thereafter for similar corporate acts. The increase in the salaries of the board chairman, president, treasurer, and assistant general manager are indeed reasonable enough in view of the responsibilities assigned to them, and the special knowledge required, to be able to effectively discharge their respective functions and duties. Surely, factual findings of trial courts, especially when affirmed by the CA, are binding and conclusive on this Court. There is, however, a factual matter over which the CA and the trial court parted ways. We refer to the accommodation angle. The trial court was with petitioner Cruz in saying that the creation of the positions of the three (3) AVPs for Corporate Planning, Special Assistant to the President and Special Assistant to the Board Chairman, each with a salary of P13,050.00 a month, was merely for accommodation purposes considering that Filport is not a big corporation requiring multiple executive positions. Hence, the trial court's order for said officers to return the amounts they received as compensation.

On the other hand, the CA took issue with the trial court and ruled that Cruz's accommodation theory is not based on facts and without any evidentiary substantiation. We concur with the line of the appellate court. For truly, aside from Cruz's bare and self-serving testimony, no other evidence was presented to show the fact of "accommodation." By itself, the testimony of Cruz is not enough to support his claim that accommodation was the underlying factor behind the creation of the aforementioned three (3) positions. cCTIaS It is elementary in procedural law that bare allegations do not constitute evidence adequate to support a conclusion. It is basic in the rule of evidence that he who alleges a fact bears the burden of proving it by the quantum of proof required. Bare allegations, unsubstantiated by evidence, are not equivalent to proof under the Rules of Court. 19 The party having the burden of proof must establish his case by a preponderance of evidence. 20 Besides, the determination of the necessity for additional offices and/or positions in a corporation is a management prerogative which courts are not wont to review in the absence of any proof that such prerogative was exercised in bad faith or with malice. Indeed, it would be an improper judicial intrusion into the internal affairs of Filport were the Court to determine the propriety or impropriety of the creation of offices therein and the grant of salary increases to officers thereof. Such are corporate and/or business decisions which only the corporation's Board of Directors can determine. So it is that in Philippine Stock Exchange, Inc. v. CA, 21 the Court unequivocally held: Questions of policy or of management are left solely to the honest decision of the board as the business manager of the corporation, and the court is without authority to substitute its judgment for that of the board, and as long as it acts in good faith and in the exercise of honest judgment in the interest of the corporation, its orders are not reviewable by the courts. In a last-ditch attempt to salvage their cause, petitioners assert that the CA went beyond the issues raised in the court of origin when it ruled on the absence of receipt of actual payment of the salaries/emoluments pertaining to the positions of Assistant Vice-President for Corporate Planning, Special Assistant to the Board Chairman and Special Assistant to the President. Petitioners insist that the issue of nonpayment was never raised by the respondents before the trial court, as in fact, the latter allegedly admitted the same in their Answer With Counterclaim. We are not persuaded. By claiming that Filport suffered damages because the directors appointed to the assailed positions are not doing anything to deserve their compensation, petitioners are saddled with the burden of proving that salaries were actually paid. Since the trial court, in effect, found that the petitioners successfully proved payment of the salaries when it directed the reimbursements of the same, respondents necessarily have to raise the issue on appeal. And the CA rightly resolved the issue when it found that no evidence of actual payment of the salaries in question was actually adduced. Respondents' alleged admission of the fact of payment cannot be inferred from a reading of the pertinent portions of the parties' respective initiatory pleadings. Respondents' allegations in their Answer With Counterclaim that the officers corresponding to the positions created "performed the work called for in their positions" or "deserve their compensation," cannot be interpreted to mean that they were "actually paid" such compensation. Directly put, the averment that "one deserves one's compensation" does not necessarily carry the implication that "such compensation was actually remitted or received." And because payment was

not duly proven, there is no evidentiary or factual basis for the trial court to direct respondents to make reimbursements thereof to the corporation. This brings us to the respondents' claim that the case filed by the petitioners before the SEC, which eventually landed in RTC-Davao City as Civil Case No. 28,552-2001, is not a derivative suit, as maintained by the petitioners. We sustain the petitioners. Under the Corporation Code, where a corporation is an injured party, its power to sue is lodged with its board of directors or trustees. But an individual stockholder may be permitted to institute a derivative suit in behalf of the corporation in order to protect or vindicate corporate rights whenever the officials of the corporation refuse to sue, or when a demand upon them to file the necessary action would be futile because they are the ones to be sued, or because they hold control of the corporation. 22 In such actions, the corporation is the real party-in-interest while the suing stockholder, in behalf of the corporation, is only a nominal party. 23 Here, the action below is principally for damages resulting from alleged mismanagement of the affairs of Filport by its directors/officers, it being alleged that the acts of mismanagement are detrimental to the interests of Filport. Thus, the injury complained of primarily pertains to the corporation so that the suit for relief should be by the corporation. However, since the ones to be sued are the directors/officers of the corporation itself, a stockholder, like petitioner Cruz, may validly institute a "derivative suit" to vindicate the alleged corporate injury, in which case Cruz is only a nominal party while Filport is the real party-in-interest. For sure, in the prayer portion of petitioners' petition before the SEC, the reliefs prayed were asked to be made in favor of Filport. Besides, the requisites before a derivative suit can be filed by a stockholder are present in this case, to wit: a) the party bringing suit should be a shareholder as of the time of the act or transaction complained of, the number of his shares not being material; b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for the appropriate relief but the latter has failed or refused to heed his plea; and c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being caused to the corporation and not to the particular stockholder bringing the suit. 24 Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2) he sought without success to have its board of directors remedy what he perceived as wrong when he wrote a letter requesting the board to do the necessary action in his complaint; and (3) the alleged wrong was in truth a wrong against the stockholders of the corporation generally, and not against Cruz or Minterbro, in particular. In the end, it is Filport, not Cruz which directly stands to benefit from the suit. And while it is true that the complaining stockholder must show to the satisfaction of the court that he has exhausted all the means within his reach to attain within the corporation itself the redress for his grievances, or actions in conformity to his wishes, nonetheless, where the corporation is under the complete control of the principal defendants, as here, there is no necessity of making a demand upon the directors. The reason is obvious: a demand upon the board to institute an action and prosecute the same effectively would have been useless and an exercise in futility. In fine, we rule and so hold that the petition filed with the SEC at the instance of Cruz, which ultimately found its way to the RTC of Davao City as Civil Case No. 28,5522001, is a derivative suit of which Cruz has the necessary legal standing to institute. HcTSDa WHEREFORE, the petition is DENIED and the challenged decision of the CA is AFFIRMED in all respects. No pronouncement as to costs.

SO ORDERED. Puno, C.J., Sandoval-Gutierrez, Corona and Azcuna, JJ., concur. Footnotes 1. Penned by Associate Justice Conrado M. Vasquez, Jr., and concurred in by Associate Justices Bienvenido L. Reyes and Arsenio J. Magpale; Rollo, pp. 29-37. 2. Id. at 56-57. 3. Id. at 38-44. 4. Id. at 45-51. 5. Id. at 109-114. 6. Supra at note 1 7. CA decision, p. 5; Rollo, p. 33. 8. Id. at 292-293. 9. Id. at 305-306. 10. Bank of the Philippine Islands v. Carlos Leobrera, G.R. No. 137147, November 18, 2003, 416 SCRA 15, 18. 11. Id. 12. Batas Pambasa Blg. 68. 13. Aguedo Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Phils., 1980 ed., Vol. III. 14. Rollo, pp. 120-130. 15. Sec. 35. Executive committee. The by-laws of a corporation may create an executive committee, composed of not less than three members of the board to be appointed by the board. Said committee may act, by majority vote of all its members, on such specific matters within the competence of the board, as may be delegated to it in the by-laws or on a majority vote of the board, except with respect to: . . . 16. H. de Leon, The Corporation Code of the Phils., 2002 ed., pp. 310-311. 17. Board of Liquidators v. Heirs of Maximo M. Kalaw, et al., G.R. No. L18805, August 15, 1967, 20 SCRA 987. 18. Philippine Stock Exchange v. CA, G.R. No. 125469, October 27, 1997, 281 SCRA 232. 19. Garcia v. De Vera, A.C. No. 6052, December 11, 2003, 418 SCRA 27. 20. Pastor v. PNB, G.R. No. 141316, November 20, 2003, 416 SCRA 283. 21. Supra. 22. Chua v. CA, G.R. No. 150793, November 19, 2004, 443 SCRA 259, 267. 23. Asset Privatization Trust v. CA, 360 Phil. 768, 804-805 (1998). 24. San Miguel Corporation, represented by Eduardo De Los Angeles v. Ernest Khan, G.R. No. 85339, August 11, 1989, 176 SCRA 447, 462. THIRD DIVISION [G.R. No. 148444. July 14, 2008.] ASSOCIATED BANK (now UNITED OVERSEAS BANK [PHILS.]), petitioner, vs. SPOUSES RAFAEL and MONALIZA PRONSTROLLER, respondents. DECISION NACHURA, J p: This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by petitioner Associated Bank (now United Overseas Bank [Phils.]) assailing the Court of Appeals (CA) Decision 1 dated February 27, 2001, which in turn affirmed the Regional Trial Court 2 (RTC) Decision 3 dated November 14, 1997 in Civil Case No. 94-3298 for Specific Performance. Likewise assailed is the appellate court's Resolution 4 dated May 31, 2001 denying petitioner's motion for reconsideration. AcHaTE The facts of the case are as follows: On April 21, 1988, the spouses Eduardo and Ma. Pilar Vaca (spouses Vaca) executed a Real Estate Mortgage (REM) in favor of the petitioner 5 over their

parcel of residential land with an area of 953 sq. m. and the house constructed thereon, located at No. 18, Lovebird Street, Green Meadows Subdivision 1, Quezon City (herein referred to as the subject property). For failure of the spouses Vaca to pay their obligation, the subject property was sold at public auction with the petitioner as the highest bidder. Transfer Certificate of Title (TCT) No. 254504, in the name of spouses Vaca, was cancelled and a new one TCT No. 52593 was issued in the name of the petitioner. 6 The spouses Vaca, however, commenced an action for the nullification of the real estate mortgage and the foreclosure sale. Petitioner, on the other hand, filed a petition for the issuance of a writ of possession which was denied by the RTC. Petitioner, thereafter, obtained a favorable judgment when the CA granted its petition but the spouses Vaca questioned the CA decision before this Court in the case docketed as G.R. No. 109672. 7 During the pendency of the aforesaid cases, petitioner advertised the subject property for sale to interested buyers for P9,700,000.00. 8 Respondents Rafael and Monaliza Pronstroller offered to purchase the property for P7,500,000.00. Said offer was made through Atty. Jose Soluta, Jr. (Atty. Soluta), petitioner's Vice-President, Corporate Secretary and a member of its Board of Directors. 9 Petitioner accepted respondents' offer of P7.5 million. Consequently, respondents paid petitioner P750,000.00, or 10% of the purchase price, as down payment. 10 On March 18, 1993, petitioner, through Atty. Soluta, and respondents, executed a Letter-Agreement setting forth therein the terms and conditions of the sale, to wit: EaHIDC 1. Selling price shall be at P7,500,000.00 payable as follows: a. 10% deposit and balance of P6,750,000.00 to be deposited under escrow agreement. Said escrow deposit shall be applied as payment upon delivery of the aforesaid property to the buyers free from occupants. b. The deposit shall be made within ninety (90) days from date hereof. Any interest earned on the aforesaid investment shall be for the buyer's account. However, the 10% deposit is non-interest earning. 11 Prior to the expiration of the 90-day period within which to make the escrow deposit, in view of the pendency of the case between the spouses Vaca and petitioner involving the subject property, 12 respondents requested that the balance of the purchase price be made payable only upon service on them of a final decision or resolution of this Court affirming petitioner's right to possess the subject property. Atty. Soluta referred respondents' proposal to petitioner's Asset Recovery and Remedial Management Committee (ARRMC) but the latter deferred action thereon. 13 CEDScA On July 14, 1993, a month after they made the request and after the payment deadline had lapsed, respondents and Atty. Soluta, acting for the petitioner, executed another Letter-Agreement allowing the former to pay the balance of the purchase price upon receipt of a final order from this Court (in the Vaca case) and/or the delivery of the property to them free from occupants. 14 Towards the end of 1993, or in early 1994, petitioner reorganized its management. Atty. Braulio Dayday (Atty. Dayday) became petitioner's Assistant Vice-President and Head of the Documentation Section, while Atty. Soluta was relieved of his responsibilities. Atty. Dayday reviewed petitioner's records of its outstanding accounts and discovered that respondents failed to deposit the balance of the purchase price of the subject property. He, likewise, found that respondents requested for an extension of time within which to pay. The matter was then resubmitted to the ARRMC during its meeting on March 4, 1994, and it was disapproved. ARRMC, thus, referred the matter to petitioner's Legal Department for rescission or cancellation of the contract due to respondents' breach thereof. 15

On May 5, 1994, Atty. Dayday informed respondents that their request for extension was disapproved by ARRMC and, in view of their breach of the contract, petitioner was rescinding the same and forfeiting their deposit. Petitioner added that if respondents were still interested in buying the subject property, they had to submit their new proposal. 16 Respondents went to the petitioner's office, talked to Atty. Dayday and gave him the Letter-Agreement of July 14, 1993 to show that they were granted an extension. However, Atty. Dayday claimed that the letter was a mistake and that Atty. Soluta was not authorized to give such extension. 17 DSETac On June 6, 1994, respondents proposed to pay the balance of the purchase price as follows: P3,000,000.00 upon the approval of their proposal and the balance after six (6) months. 18 However, the proposal was disapproved by the petitioner's President. In a letter dated June 9, 1994, petitioner advised respondents that the former would accept the latter's proposal only if they would pay interest at the rate of 24.5% per annum on the unpaid balance. Petitioner also allowed respondents a refund of their deposit of P750,000.00 if they would not agree to petitioner's new proposal. 19 For failure of the parties to reach an agreement, respondents, through their counsel, informed petitioner that they would be enforcing their agreement dated July 14, 1993. 20 Petitioner countered that it was not aware of the existence of the July 14 agreement and that Atty. Soluta was not authorized to sign for and on behalf of the bank. It, likewise, reiterated the rescission of their previous agreement because of the breach committed by respondents. 21 On July 14, 1994, in the Vaca case, this Court upheld petitioner's right to possess the subject property. On July 28, 1994, respondents commenced the instant suit by filing a Complaint for Specific Performance before the RTC of Antipolo, Rizal. 22 The case was raffled to Branch 72 and was docketed as Civil Case No. 94-3298. Respondents prayed that petitioner be ordered to sell the subject property to them in accordance with their letter-agreement of July 14, 1993. They, likewise, caused the annotation of a notice of lis pendens at the dorsal portion of TCT No. 52593. ATCEIc For its part, petitioner contended that their contract had already been rescinded because of respondents' failure to deposit in escrow the balance of the purchase price within the stipulated period. 23 During the pendency of the case, petitioner sold the subject property to the spouses Vaca, who eventually registered the sale; and on the basis thereof, TCT No. 52593 was cancelled and TCT No. 158082 was issued in their names. 24 As new owners, the spouses Vaca started demolishing the house on the subject property which, however, was not completed by virtue of the writ of preliminary injunction issued by the court. 25 On November 14, 1997, the trial court finally resolved the matter in favor of respondents, disposing, as follows: WHEREFORE, premises considered, the Court finds defendant's rescission of the Agreement to Sell to be null and void for being contrary to law and public policy. ACCORDINGLY, defendant bank is hereby ordered to accept plaintiffs' payment of the balance of the purchase price in the amount of Six Million Seven Hundred Fifty Thousand Pesos (P6,750,000.00) and to deliver the title and possession to subject property, free from all liens and encumbrances upon receipt of said payment. Likewise, defendant bank is ordered to pay plaintiffs moral damages and attorney's fees in the amount of One Hundred Thirty Thousand Pesos (P130,000.00) and expenses of litigation in the amount of Twenty Thousand Pesos (P20,000.00). TcCSIa SO ORDERED. 26

Applying the rule of "apparent authority". 27 the court upheld the validity of the July 14, 1993 Letter-Agreement where the respondents were given an extension within which to make payment. Consequently, respondents did not incur in delay, and thus, the court concluded that the rescission of the contract was without basis and contrary to law. 28 On appeal, the CA affirmed the RTC decision and upheld Atty. Soluta's authority to represent the petitioner. It further ruled that petitioner had no right to unilaterally rescind the contract; otherwise, it would give the bank officers license to continuously review and eventually rescind contracts entered into by previous officers. As to whether respondents were estopped from enforcing the July 14, 1993 Letter-Agreement, the appellate court ruled in the negative. It found, instead, that petitioners were estopped from questioning the efficacy of the July 14 agreement because of its failure to repudiate the same for a period of one year. 29 Thus, the court said in its decision: TIHDAa 1. The Appellant (Westmont Bank) is hereby ordered to execute a "Deed of Absolute Sale" in favor of the Appellees over the property covered by Transfer Certificate of Title No. 52593, including the improvement thereon, and secure, from the Register of Deeds, a Torrens Title over the said property free from all liens, claims or encumbrances upon the payment by the Appellees of the balance of the purchase price of the property in the amount of P6,750,000.00; 2. The Register of Deeds is hereby ordered to cancel Transfer Certificate of Title No. 158082 under the names of the Spouses Eduardo [and Ma. Pilar] Vaca and to issue another under the names of the Appellees as stated in the preceding paragraph; 3. The appellant is hereby ordered to pay to the appellee Rafael Pronstroller the amount of P100,000.00 as and by way of moral damages and to pay to the Appellees the amount of P30,000.00 as and by way of attorney's fees and the amount of P20,000.00 for litigation expense. ACcEHI 4. The counterclaims of the Appellant are dismissed. SO ORDERED. 30 Petitioner's motion for reconsideration was denied on May 31, 2001. Hence, the present petition raising the following issues: I. THE NARRATION OR STATEMENT OF THE FACTS OF THE CASE BY THE HONORABLE COURT OF APPEALS IS TOTALLY BEREFT OF EVIDENTIARY SUPPORT, CONTRARY TO THE EVIDENCE ON RECORD AND PURELY BASED ON ERRONEOUS ASSUMPTIONS, PRESUMPTIONS, SURMISES, AND CONJECTURES. II. THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN MERELY RELYING UPON THE MANIFESTLY ERRONEOUS FINDING OF THE HONORABLE TRIAL COURT ON THE ALLEGED APPARENT AUTHORITY OF ATTY. JOSE SOLUTA, JR. IN THAT THE LATTER'S FINDING IS CONTRARY TO THE UNDISPUTED FACTS AND THE EVIDENCE ON RECORD. SEIaHT III. THE HONORABLE COURT OF APPEALS' OWN FINDING THAT ATTY. JOSE SOLUTA, JR. HAD AUTHORITY TO SELL THE SUBJECT PROPERTY ON HIS OWN (EVEN WITHOUT THE COMMITTEE'S APPROVAL) IS LIKEWISE GROSSLY ERRONEOUS, FINDS NO EVIDENTIARY SUPPORT AND IS EVEN CONTRARY TO THE EVIDENCE ON RECORD IN THAT A.) AT NO TIME DID PETITIONER ADMIT THAT ATTY. JOSE SOLUTA, JR. IS AUTHORIZED TO SELL THE SUBJECT PROPERTY ON HIS OWN; B.) THE AUTHORITY OF ATTY. JOSE SOLUTA, JR. CANNOT BE PRESUMED FROM HIS DESIGNATIONS OR TITLES; AND

C.) RESPONDENTS FULLY KNEW OR HAD KNOWLEDGE OF THE LACK OF AUTHORITY OF ATTY. JOSE SOLUTA, JR. TO SELL THE SUBJECT PROPERTY ON HIS OWN. DcITaC IV. THE HONORABLE TRIAL COURT AND THE HONORABLE COURT OF APPEALS GROSSLY MISAPPLIED THE DOCTRINE OF APPARENT AUTHORITY IN THE PRESENT CASE. V. THE HONORABLE TRIAL COURT AND THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN NOT HOLDING THAT THE CONTRACT TO SELL CONTAINED IN THE MARCH 18, 1993 LETTER WAS VALIDLY RESCINDED BY PETITIONER. VI. THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN NOT HOLDING RESPONDENTS ESTOPPED FROM DENYING THE VALIDITY OF THE RESCISSION OF THE CONTRACT TO SELL AS EMBODIED IN THE MARCH 18, 1993 LETTER AND THE LACK OF AUTHORITY OF ATTY. SOLUTA, JR. TO GRANT THE EXTENSION AS CONTAINED IN HIS LETTER OF JULY 14, 1993 AFTER THEY VOLUNTARILY SUBMITTED WITH FULL KNOWLEDGE OF ITS IMPORT AND IMPLICATION A NEW OFFER TO PURCHASE THE SUBJECT PROPERTY CONTAINED IN THEIR LETTER DATED JUNE 6, 1994. IECcaA VII. IN ANY EVENT, THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONTRACT TO SELL UNDER THE LETTER OF MARCH 18, 1993 AND THE LETTER OF JULY 14, 1993 HAD BEEN VACATED WHEN RESPONDENTS VOLUNTARILY SUBMITTED WITH FULL KNOWLEDGE OF ITS IMPORT AND IMPLICATION THEIR NEW OFFER CONTAINED IN THEIR LETTER OF JUNE 6, 1994 WITHOUT ANY CONDITION OR RESERVATION WHATSOEVER. VIII. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER ESTOPPED FROM QUESTIONING THE VALIDITY OF THE JULY 14, 1993 LETTER SIGNED BY ATTY. JOSE SOLUTA, JR. CTHDcE IX. THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN HOLDING THAT PETITIONER ALLEGEDLY ACTED FRAUDULENTLY AND IN BAD FAITH IN ITS DEALINGS WITH RESPONDENTS. X. THE ORDER OF THE HONORABLE COURT OF APPEALS TO CANCEL TCT NO. 158082 UNDER THE NAMES OF SPS. VACA IS A COLLATERAL ATTACK AGAINST THE SAID CERTIFICATE OF TITLE WHICH IS PROSCRIBED BY SECTION 48 OF P.D. 1529. XI. THE HONORABLE COURT OF APPEALS ERRED IN AWARDING MORAL DAMAGES, ATTORNEY'S FEES, AND EXPENSES OF LITIGATION IN FAVOR OF RESPONDENTS. 31 Reduced to bare essentials, the decision on the instant petition hinges on the resolution of the following specific questions: 1) Is the petitioner bound by the July 14, 1993 Letter-Agreement signed by Atty. Soluta under the doctrine of apparent authority? 2) Was there a valid rescission of the March 18, 1993 and/or July 14, 1993 Letter-Agreement? 3) Are the respondents estopped from enforcing the July 14 Letter-Agreement because of their June 6, 1994 "new" proposal? 4) Is the petitioner estopped from questioning the validity of the July 14 letter because of its failure to repudiate the same and 5) Is the instant case a collateral attack on TCT No. 158082 in the name of the spouses Vaca? TcEaAS

The petition is unmeritorious. Well-settled is the rule that the findings of the RTC, as affirmed by the appellate court, are binding on this Court. In a petition for review on certiorari under Rule 45 of the Rules of Court, as in this case, this Court may not review the findings of fact all over again. It must be stressed that this Court is not a trier of facts, and it is not its function to re-examine and weigh anew the respective evidence of the parties. 32 The findings of the CA are conclusive on the parties and carry even more weight when these coincide with the factual findings of the trial court, unless the factual findings are not supported by the evidence on record. 33 Petitioner failed to show why the above doctrine should not be applied to the instant case. cHESAD Contrary to petitioner's contention that the CA's factual findings are not supported by the evidence on record, the assailed decision clearly shows that the appellate court not only relied on the RTC's findings but made its own analysis of the record of the case. The CA decision contains specific details drawn from the contents of the pleadings filed by both parties, from the testimonies of the witnesses and from the documentary evidence submitted. It was from all these that the appellate court drew its own conclusion using applicable legal principles and jurisprudential rules. The Court notes that the March 18, 1993 Letter-Agreement was written on a paper with petitioner's letterhead. It was signed by Atty. Soluta with the conformity of respondents. The authority of Atty. Soluta to act for and on behalf of petitioner was not reflected in said letter or on a separate paper attached to it. Yet, petitioner recognized Atty. Soluta's authority to sign the same and, thus, acknowledged its binding effect. On the other hand, the July 14, 1993 letter was written on the same type of paper with the same letterhead and of the same form as the earlier letter. It was also signed by the same person with the conformity of the same respondents. Again, nowhere in said letter did petitioner specifically authorize Atty. Soluta to sign it for and on its behalf. This time, however, petitioner questioned the validity and binding effect of the agreement, arguing that Atty. Soluta was not authorized to modify the earlier terms of the contract and could not in any way bind the petitioner. HSCAIT We beg to differ. The general rule is that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. The power and responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board of directors. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board may validly delegate some of its functions and powers to officers, committees and agents. The authority of such individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly, by habit, custom, or acquiescence, in the general course of business. 34 The authority of a corporate officer or agent in dealing with third persons may be actual or apparent. The doctrine of "apparent authority", with special reference to banks, had long been recognized in this jurisdiction. 35 Apparent authority is derived not merely from practice. Its existence may be ascertained through 1) the general manner in which the corporation holds out an officer or agent as having the power to act, or in other words, the apparent authority to act in general, with which it clothes him; or 2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers. 36 DSHTaC Accordingly, the authority to act for and to bind a corporation may be presumed from acts of recognition in other instances, wherein the power was exercised without any objection from its board or shareholders. Undoubtedly,

petitioner had previously allowed Atty. Soluta to enter into the first agreement without a board resolution expressly authorizing him; thus, it had clothed him with apparent authority to modify the same via the second letter-agreement. It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation. 37 Naturally, the third person has little or no information as to what occurs in corporate meetings; and he must necessarily rely upon the external manifestations of corporate consent. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law. 38 What transpires in the corporate board room is entirely an internal matter. Hence, petitioner may not impute negligence on the part of the respondents in failing to find out the scope of Atty. Soluta's authority. Indeed, the public has the right to rely on the trustworthiness of bank officers and their acts. 39 HDICSa As early as June 1993, or prior to the 90-day period within which to make the full payment, respondents already requested a modification of the earlier agreement such that the full payment should be made upon receipt of this Court's decision confirming petitioner's right to the subject property. The matter was brought to the petitioner's attention and was in fact discussed by the members of the Board. Instead of acting on said request (considering that the 90-day period was about to expire), the board deferred action on the request. It was only after one year and after the bank's reorganization that the board rejected respondents' request. We cannot therefore blame the respondents in relying on the July 14, 1993 Letter-Agreement. Petitioner's inaction, coupled with the apparent authority of Atty. Soluta to act on behalf of the corporation, validates the July 14 agreement and thus binds the corporation. All these taken together, lead to no other conclusion than that the petitioner attempted to defraud the respondents. This is bolstered by the fact that it forged another contract involving the same property, with another buyer, the spouses Vaca, notwithstanding the pendency of the instant case. cAHDES We would like to emphasize that if a corporation knowingly permits its officer, or any other agent, to perform acts within the scope of an apparent authority, holding him out to the public as possessing power to do those acts, the corporation will, as against any person who has dealt in good faith with the corporation through such agent, be estopped from denying such authority. 40 Petitioner further insists that specific performance is not available to respondents because the Letter-Agreements had already been rescinded the March 18 agreement because of the breach committed by the respondents; and the July 14 letter because of the new offer of the respondents which was not approved by petitioner. EHSADc Again, the argument is misplaced. Basic is the rule that a contract constitutes the law between the parties. Concededly, parties may validly stipulate the unilateral rescission of a contract. 41 This is usually in the form of a stipulation granting the seller the right to forfeit installments or deposits made by the buyer in case of the latter's failure to make full payment on the stipulated date. While the petitioner in the instant case may have the right, under the March 18 agreement, to unilaterally rescind the contract in case of respondents' failure to comply with the terms of the contract, 42 the execution of the July 14 Agreement prevented petitioner from exercising the right to rescind. This is so because there was in the first place, no breach of contract, as the date of full payment had already been modified by the later agreement. ScHADI Neither can the July 14, 1993 agreement be considered abandoned by respondents' act of making a new offer, which was unfortunately rejected by petitioner. A careful reading of the June 6, 1994 letter of respondents impels

this Court to believe that such offer was made only to demonstrate their capacity to purchase the subject property. 43 Besides, even if it was a valid new offer, they did so only due to the fraudulent misrepresentation made by petitioner that their earlier contracts had already been rescinded. Considering respondents' capacity to pay and their continuing interest in the subject property, 44 to abandon their right to the contract and to the property, absent any form of protection, is contrary to human nature. The presumption that a person takes ordinary care of his concerns applies and remains unrebutted. 45 Obviously therefore, respondents made the new offer without abandoning the previous contract. Since there was never a perfected new contract, the July 14, 1993 agreement was still in effect and there was no abandonment to speak of. STaCcA In its final attempt to prevent respondents from attaining a favorable result, petitioner argues that the instant case should not prosper because the cancellation of TCT No. 158082 is a collateral attack on the title which is proscribed by law. Such contention is baseless. Admittedly, during the pendency of the case, respondents timely registered a notice of lis pendens to warn the whole world that the property was the subject of a pending litigation. Lis pendens, which literally means pending suit, refers to the jurisdiction, power or control which a court acquires over property involved in a suit, pending the continuance of the action, and until final judgment. Founded upon public policy and necessity, lis pendens is intended to keep the properties in litigation within the power of the court until the litigation is terminated, and to prevent the defeat of the judgment or decree by subsequent alienation. Its notice is an announcement to the whole world that a particular property is in litigation and serves as a warning that one who acquires an interest over said property does so at his own risk or that he gambles on the result of the litigation over said property. 46 HEacDA The filing of a notice of lis pendens has a twofold effect: (1) to keep the subject matter of the litigation within the power of the court until the entry of the final judgment to prevent the defeat of the final judgment by successive alienations; and (2) to bind a purchaser, bona fide or not, of the land subject of the litigation to the judgment or decree that the court will promulgate subsequently. 47 This registration, therefore, gives the court clear authority to cancel the title of the spouses Vaca, since the sale of the subject property was made after the notice of lis pendens. Settled is the rule that the notice is not considered a collateral attack on the title, 48 for the indefeasibility of the title shall not be used to defraud another especially if the latter performs acts to protect his rights such as the timely registration of a notice of lis pendens. As to the liability for moral damages, attorney's fees and expenses of litigation, we affirm in toto the appellate court's conclusion. Article 2220 49 of the New Civil Code allows the recovery of moral damages in breaches of contract where the party acted fraudulently and in bad faith. As found by the CA, petitioner undoubtedly acted fraudulently and in bad faith in breaching the letteragreements. Despite the pendency of the case in the RTC, it sold the subject property to the spouses Vaca and allowed the demolition of the house even if there was already a writ of preliminary injunction lawfully issued by the court. This is apart from its act of unilaterally rescinding the subject contract. Clearly, petitioner's acts are brazen attempts to frustrate the decision that the court may render in favor of respondents. 50 It is, likewise, apparent that because of petitioner's acts, respondents were compelled to litigate justifying the award of attorney's fees and expenses of litigation. AECDHS

WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals dated February 27, 2001 and its Resolution dated May 31, 2001 in CA-G.R. CV No. 60315 are AFFIRMED. SO ORDERED. Ynares-Santiago, Austria-Martinez, Chico-Nazario and Reyes, JJ., concur. Footnotes 1. Penned by Associate Justice Romeo J. Callejo, Sr. (now retired Supreme Court Justice), with Associate Justices Renato C. Dacudao and Josefina Guevara-Salonga, concurring; rollo, pp. 10-29. HTCAED 2. Branch 72, Antipolo, Rizal. 3. Penned by Presiding Judge Rogelio L. Angeles; records, pp. 456-463. 4. CA rollo, p. 742. 5. Associated Bank which eventually became "Westmont Bank" and now known as "United Overseas Bank". 6. CA rollo, p. 600. 7. The Court finally resolved the matter on July 14, 1994, 234 SCRA 146. 8. Exhibit "A", folder of exhibits, p. 1. 9. CA rollo, p. 601. 10. Payment was made on March 8, 1993; Exhibit "D", folder of exhibits, p. 4. 11. Exhibit "B", folder of exhibits, pp. 2-3. 12. And, thus, petitioner will not be able to deliver the same free from any occupants. SHAcID 13. CA rollo, p. 602. 14. Exhibit "E", folder of exhibits, p. 5. 15. CA rollo, pp. 602-603. 16. Id. at 603. 17. Id. at 604. 18. Exhibit "F", folder of exhibits, p. 6. 19. Exhibit "G", folder of exhibits, p. 7. 20. Exhibit "H", folder of exhibits, pp. 8-9. 21. Exhibit "I", folder of exhibits, pp. 10-12. SEDIaH 22. Records, pp. 1-5. 23. Id. at 11-18. 24. CA rollo, p. 606. 25. Id. 26. Records, p. 463. 27. The doctrine states that although an officer or agent acts without or in excess of his actual authority, if he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound thereby in favor of a person who deals with him in good faith. CacEID 28. Records, pp. 461-462. 29. CA rollo, pp. 608-617. 30. Id. at 618. 31. Rollo, pp. 54-56. 32. Valdez v. Reyes, G.R. No. 152251, August 17, 2006, 499 SCRA 212, 214215, citing Pleyto v. Lomboy, 432 SCRA 329, 336 (2004). 33. Valdez v. Reyes, supra; Mindanao State University v. Roblett Industrial and Construction Corp., G.R. No. 138700, June 9, 2004, 431 SCRA 458, 466. 34. Inter-Asia Investments Ind., Inc. v. Court of Appeals, 451 Phil. 554, 559560 (2003), citing People's Aircargo and Warehousing Co., Inc. v. CA, 357 Phil. 850 (1998); Lipat v. Pacific Banking Corp., 450 Phil. 401, 414 (2003). cDCaHA 35. First Philippine International Bank v. CA, 322 Phil. 280, 319-320 (1996). 36. Emphasis supplied.

37. Inter-Asia Investments Ind., Inc. v. Court of Appeals, supra note 34, at 560, citing People's Aircargo and Warehousing Co., Inc. v. CA, 357 Phil. 850 (1998); Lipat v. Pacific Banking Corp., supra note 34. 38. BPI Family Savings Bank, Inc. v. First Metro Investment Corporation, G.R. No. 132390, May 21, 2004, 429 SCRA 30, 38; Rural Bank of Milaor (Camarines Sur) v. Ocfemia, 381 Phil. 911, 925 (2000). 39. BPI Family Savings Bank, Inc. v. First Metro Investment Corporation, supra, at 38. 40. BPI Family Savings Bank, Inc. v. First Metro Investment Corporation, supra note 38, at 37; Lipat v. Pacific Banking Corp., supra note 34, at 415; Rural Bank of Milaor (Camarines Sur) v. Ocfemia, supra note 38; People's Aircargo and Warehousing Co., Inc. v. CA, supra note 34, at 865. 41. See Go v. Pura V. Kalaw, Inc., G.R. No. 131408, July 31, 2006, 497 SCRA 154; see also Multinational Village Homeowners Association, Inc. v. Ara Security & Surveillance Agency, Inc., G.R. No. 154852, October 21, 2004, 441 SCRA 126. TacESD 42. The March 18 Letter-Agreement reads: We are pleased to inform you that your offer to purchase our property . . . has been accepted by the Bank under the following terms and conditions: xxx xxx xxx 4. Forfeiture of deposit in case of your default in complying with the terms and conditions herein set forth. (Exhibit "B", folder of exhibits, p. 2.) 43. Rollo, p. 558. 44. As they never slept on their rights showed by their repeated follow up of the results of the pending case involving the subject matter and negotiation with the petitioner through its officers, for the payment and delivery of the property. AICEDc 45. Revised Rules on Evidence, Rule 131, Sec. 3 (d). 46. Romero v. Court of Appeals, G.R. No. 142406, May 16, 2005, 458 SCRA 483, 492. 47. Id. at 492-493; Heirs of Eugenio Lopez, Sr. v. Enriquez, G.R. No. 146262, January 21, 2005, 449 SCRA 173, 186. 48. Id. at 495; Spouses Lim v. Vera Cruz, 408 Phil. 503, 509 (2001). 49. Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. cTIESD 50. Rollo, p. 27. FIRST DIVISION [G.R. No. 160273. January 18, 2008.] CEBU COUNTRY CLUB, INC., SABINO R. DAPAT, RUBEN D. ALMENDRAS, JULIUS Z. NERI, DOUGLAS L. LUYM, CESAR T. LIBI, RAMONTITO * E. GARCIA and JOSE B. SALA, petitioners, vs. RICARDO F. ELIZAGAQUE, respondent. DECISION SANDOVAL-GUTIERREZ, J p: For our resolution is the instant Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the Decision 1 dated January 31, 2003 and Resolution dated October 2, 2003 of the Court of Appeals in CA-G.R. CV No. 71506. ESHAcI The facts are: Cebu Country Club, Inc. (CCCI), petitioner, is a domestic corporation operating as a non-profit and non-stock private membership club, having its principal

place of business in Banilad, Cebu City. Petitioners herein are members of its Board of Directors. Sometime in 1987, San Miguel Corporation, a special company proprietary member of CCCI, designated respondent Ricardo F. Elizagaque, its Senior Vice President and Operations Manager for the Visayas and Mindanao, as a special non-proprietary member. The designation was thereafter approved by the CCCI's Board of Directors. In 1996, respondent filed with CCCI an application for proprietary membership. The application was indorsed by CCCI's two (2) proprietary members, namely: Edmundo T. Misa and Silvano Ludo. ESCacI As the price of a proprietary share was around the P5 million range, Benito Unchuan, then president of CCCI, offered to sell respondent a share for only P3.5 million. Respondent, however, purchased the share of a certain Dr. Butalid for only P3 million. Consequently, on September 6, 1996, CCCI issued Proprietary Ownership Certificate No. 1446 to respondent. During the meetings dated April 4, 1997 and May 30, 1997 of the CCCI Board of Directors, action on respondent's application for proprietary membership was deferred. In another Board meeting held on July 30, 1997, respondent's application was voted upon. Subsequently, or on August 1, 1997, respondent received a letter from Julius Z. Neri, CCCI's corporate secretary, informing him that the Board disapproved his application for proprietary membership. On August 6, 1997, Edmundo T. Misa, on behalf of respondent, wrote CCCI a letter of reconsideration. As CCCI did not answer, respondent, on October 7, 1997, wrote another letter of reconsideration. Still, CCCI kept silent. On November 5, 1997, respondent again sent CCCI a letter inquiring whether any member of the Board objected to his application. Again, CCCI did not reply. Consequently, on December 23, 1998, respondent filed with the Regional Trial Court (RTC), Branch 71, Pasig City a complaint for damages against petitioners, docketed as Civil Case No. 67190. After trial, the RTC rendered its Decision dated February 14, 2001 in favor of respondent, thus: WHEREFORE, judgment is hereby rendered in favor of plaintiff: 1. Ordering defendants to pay, jointly and severally, plaintiff the amount of P2,340,000.00 as actual or compensatory damages. 2. Ordering defendants to pay, jointly and severally, plaintiff the amount of P5,000,000.00 as moral damages. acHDTA 3. Ordering defendants to pay, jointly and severally, plaintiff the amount of P1,000,000.00 as exemplary damages. 4. Ordering defendants to pay, jointly and severally, plaintiff the amount of P1,000,000.00 as and by way of attorney's fees and P80,000.00 as litigation expenses. 5. Costs of suit. Counterclaims are hereby DISMISSED for lack of merit. SO ORDERED. 2 On appeal by petitioners, the Court of Appeals, in its Decision dated January 31, 2003, affirmed the trial court's Decision with modification, thus: WHEREFORE, premises considered, the assailed Decision dated February 14, 2001 of the Regional Trial Court, Branch 71, Pasig City in Civil Case No. 67190 is hereby AFFIRMED with MODIFICATION as follows: 1. Ordering defendants-appellants to pay, jointly and severally, plaintiffappellee the amount of P2,000,000.00 as moral damages; 2. Ordering defendants-appellants to pay, jointly and severally, plaintiffappellee the amount of P1,000,000.00 as exemplary damages; 3. Ordering defendants-appellants to pay, jointly and severally, plaintiffappellee the amount of P500,000.00 as attorney's fees and P50,000.00 as litigation expenses; and

4. Costs of the suit. The counterclaims are DISMISSED for lack of merit. SO ORDERED. 3 On March 3, 2003, petitioners filed a motion for reconsideration and motion for leave to set the motion for oral arguments. In its Resolution 4 dated October 2, 2003, the appellate court denied the motions for lack of merit. cTDaEH Hence, the present petition. The issue for our resolution is whether in disapproving respondent's application for proprietary membership with CCCI, petitioners are liable to respondent for damages, and if so, whether their liability is joint and several. Petitioners contend, inter alia, that the Court of Appeals erred in awarding exorbitant damages to respondent despite the lack of evidence that they acted in bad faith in disapproving the latter's application; and in disregarding their defense of damnum absque injuria. For his part, respondent maintains that the petition lacks merit, hence, should be denied. CCCI's Articles of Incorporation provide in part: SEVENTH: That this is a non-stock corporation and membership therein as well as the right of participation in its assets shall be limited to qualified persons who are duly accredited owners of Proprietary Ownership Certificates issued by the corporation in accordance with its By-Laws. Corollary, Section 3, Article 1 of CCCI's Amended By-Laws provides: SECTION 3. HOW MEMBERS ARE ELECTED The procedure for the admission of new members of the Club shall be as follows: (a) Any proprietary member, seconded by another voting proprietary member, shall submit to the Secretary a written proposal for the admission of a candidate to the "Eligible-for-Membership List"; (b) Such proposal shall be posted by the Secretary for a period of thirty (30) days on the Club bulletin board during which time any member may interpose objections to the admission of the applicant by communicating the same to the Board of Directors; cHAaCE (c) After the expiration of the aforesaid thirty (30) days, if no objections have been filed or if there are, the Board considers the objections unmeritorious, the candidate shall be qualified for inclusion in the "Eligible-for-Membership List"; (d) Once included in the "Eligible-for-Membership List" and after the candidate shall have acquired in his name a valid POC duly recorded in the books of the corporation as his own, he shall become a Proprietary Member, upon a non-refundable admission fee of P1,000.00, provided that admission fees will only be collected once from any person. On March 1, 1978, Section 3 (c) was amended to read as follows: (c) After the expiration of the aforesaid thirty (30) days, the Board may, by unanimous vote of all directors present at a regular or special meeting, approve the inclusion of the candidate in the "Eligible-for-Membership List". As shown by the records, the Board adopted a secret balloting known as the "black ball system" of voting wherein each member will drop a ball in the ballot box. A white ball represents conformity to the admission of an applicant, while a black ball means disapproval. Pursuant to Section 3 (c), as amended, cited above, a unanimous vote of the directors is required. When respondent's application for proprietary membership was voted upon during the Board meeting on July 30, 1997, the ballot box contained one (1) black ball. Thus, for lack of unanimity, his application was disapproved. Obviously, the CCCI Board of Directors, under its Articles of Incorporation, has the right to approve or disapprove an application for proprietary membership. But such right should not be exercised arbitrarily. Articles 19 and 21 of the Civil Code on the Chapter on Human Relations provide restrictions, thus: DECcAS

Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. In GF Equity, Inc. v. Valenzona, 5 we expounded Article 19 and correlated it with Article 21, thus: This article, known to contain what is commonly referred to as the principle of abuse of rights, sets certain standards which must be observed not only in the exercise of one's rights but also in the performance of one's duties. These standards are the following: to act with justice; to give everyone his due; and to observe honesty and good faith. The law, therefore, recognizes a primordial limitation on all rights; that in their exercise, the norms of human conduct set forth in Article 19 must be observed. A right, though by itself legal because recognized or granted by law as such, may nevertheless become the source of some illegality. When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be held responsible. But while Article 19 lays down a rule of conduct for the government of human relations and for the maintenance of social order, it does not provide a remedy for its violation. Generally, an action for damages under either Article 20 or Article 21 would be proper. (Emphasis in the original) In rejecting respondent's application for proprietary membership, we find that petitioners violated the rules governing human relations, the basic principles to be observed for the rightful relationship between human beings and for the stability of social order. The trial court and the Court of Appeals aptly held that petitioners committed fraud and evident bad faith in disapproving respondent's applications. This is contrary to morals, good customs or public policy. Hence, petitioners are liable for damages pursuant to Article 19 in relation to Article 21 of the same Code. ACTESI It bears stressing that the amendment to Section 3 (c) of CCCI's Amended ByLaws requiring the unanimous vote of the directors present at a special or regular meeting was not printed on the application form respondent filled and submitted to CCCI. What was printed thereon was the original provision of Section 3 (c) which was silent on the required number of votes needed for admission of an applicant as a proprietary member. Petitioners explained that the amendment was not printed on the application form due to economic reasons. We find this excuse flimsy and unconvincing. Such amendment, aside from being extremely significant, was introduced way back in 1978 or almost twenty (20) years before respondent filed his application. We cannot fathom why such a prestigious and exclusive golf country club, like the CCCI, whose members are all affluent, did not have enough money to cause the printing of an updated application form. It is thus clear that respondent was left groping in the dark wondering why his application was disapproved. He was not even informed that a unanimous vote of the Board members was required. When he sent a letter for reconsideration and an inquiry whether there was an objection to his application, petitioners apparently ignored him. Certainly, respondent did not deserve this kind of treatment. Having been designated by San Miguel Corporation as a special non-proprietary member of CCCI, he should have been treated by petitioners with courtesy and civility. At the very least, they should have informed him why his application was disapproved. The exercise of a right, though legal by itself, must nonetheless be in accordance with the proper norm. When the right is exercised arbitrarily, unjustly or excessively and results in damage to another, a legal wrong is

committed for which the wrongdoer must be held responsible. 6 It bears reiterating that the trial court and the Court of Appeals held that petitioners' disapproval of respondent's application is characterized by bad faith. EcHIDT As to petitioners' reliance on the principle of damnum absque injuria, or damage without injury, suffice it to state that the same is misplaced. In Amonoy v. Gutierrez, 7 we held that this principle does not apply when there is an abuse of a person's right, as in this case. As to the appellate court's award to respondent of moral damages, we find the same in order. Under Article 2219 of the New Civil Code, moral damages may be recovered, among others, in acts and actions referred to in Article 21. We believe respondent's testimony that he suffered mental anguish, social humiliation and wounded feelings as a result of the arbitrary denial of his application. However, the amount of P2,000,000.00 is excessive. While there is no hard-and-fast rule in determining what would be a fair and reasonable amount of moral damages, the same should not be palpably and scandalously excessive. Moral damages are not intended to impose a penalty to the wrongdoer, neither to enrich the claimant at the expense of the defendant. 8 Taking into consideration the attending circumstances here, we hold that an award to respondent of P50,000.00, instead of P2,000,000.00, as moral damages is reasonable. Anent the award of exemplary damages, Article 2229 allows it by way of example or correction for the public good. Nonetheless, since exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions, 9 we reduce the amount from P1,000,000.00 to P25,000.00 only. On the matter of attorney's fees and litigation expenses, Article 2208 of the same Code provides, among others, that attorney's fees and expenses of litigation may be recovered in cases when exemplary damages are awarded and where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered, as in this case. In any event, however, such award must be reasonable, just and equitable. Thus, we reduce the amount of attorney's fees (P500,000.00) and litigation expenses (P50,000.00) to P50,000.00 and P25,000.00, respectively. IHEDAT Lastly, petitioners' argument that they could not be held jointly and severally liable for damages because only one (1) voted for the disapproval of respondent's application lacks merit. Section 31 of the Corporation Code provides: SEC. 31. Liability of directors, trustees or officers. Directors or trustees who 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 affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. (Emphasis ours) WHEREFORE, we DENY the petition. The challenged Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 71506 are AFFIRMED with modification in the sense that (a) the award of moral damages is reduced from P2,000,000.00 to P50,000.00; (b) the award of exemplary damages is reduced from P1,000,000.00 to P25,000.00; and (c) the award of attorney's fees and litigation expenses is reduced from P500,000.00 and P50,000.00 to P50,000.00 and P25,000.00, respectively. HEISca Costs against petitioners. SO ORDERED. Puno, C.J., Corona, Azcuna and Leonardo-de Castro, JJ., concur. Footnotes

* Also referred to as "Ramonito" in the records of the case. 1. Penned by Associate Justice Remedios A. Salazar-Fernando and concurred in by then Associate Justice Ruben T. Reyes (now a member of this Court) and Associate Justice Edgardo F. Sundiam. 2. Annex "C" of the petition, rollo, pp. 65-91. 3. Annex "A" of the petition, id., pp. 40-62. 4. Annex "B" of the petition, id., pp. 63-64. 5. G.R. No. 156841, June 30, 2005, 462 SCRA 466. 6. Solidbank Corporation v. Mindanao Ferroalloy Corporation, G.R. No. 153535, July 28, 2005, 464 SCRA 409, 428, citing Metropolitan Waterworks and Sewerage System v. Act Theater, Inc., 432 SCRA 418, 422 (2004). 7. G.R. No. 140420, February 15, 2001, 351 SCRA 731. 8. Lamis v. Ong, G.R. No. 148923, August 11, 2005, 466 SCRA 510, 519. 9. Country Bankers Insurance Corporation v. Lianga Bay and Community Multi-Purpose Cooperative, Inc., G.R. No. 136914, January 25, 2002, 374 SCRA 653. THIRD DIVISION [G.R. No. 168918. March 2, 2009.] PEOPLE OF THE PHILIPPINES, petitioner, vs. HERMENEGILDO DUMLAO y CASTILIANO and EMILIO LA'O y GONZALES, respondents. DECISION CHICO-NAZARIO, J p: On appeal is the Resolution 1 of the Sandiganbayan in Criminal Case No. 16699 dated 14 July 2005 which granted the Motion to Dismiss/Quash of respondent Hermenegildo C. Dumlao and dismissed the case against him. The Sandiganbayan likewise ordered the case against respondent Emilio G. La'o archived. The dispositive portion of the resolution reads: CSIHDA WHEREFORE, finding the Motion to Dismiss/Quash filed by accused Hermenegildo C. Dumlao to be meritorious this case as against him is hereby ordered DISMISSED. The cash bond posted by him is hereby cancelled and accused Dumlao is allowed to withdraw the same from the Cashier's Office of this Court. The hold departure order issued by this Court against herein accused Dumlao is lifted and set aside. The Commissioner of the Bureau of Immigration and Deportation is ordered to cancel the name of accused Hermenegildo C. Dumlao from the Bureau's Hold Departure List. This case as against Emilio La'o who is still at large is ordered archived. 2 ECcTaH On 19 July 1991, an Amended Information was filed before the Sandiganbayan charging respondents Dumlao and La'o, Aber P. Canlas, Jacobo C. Clave, Roman A. Cruz, Jr. and Fabian C. Ver with violation of Section 3 (g) of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act. The case was docketed as Criminal Case No. 16699. The accusatory portion of the information reads: That on or about May 10, 1982, or for sometime prior or subsequent thereto, in Manila, Philippines, and within the jurisdiction of this Honorable Court, the accused Hermenegildo C. Dumlao, Aber Canlas, Jacobo C. Clave, Roman A. Cruz, Jr., and Fabian C. Ver, being then the members of the Board of Trustees of the Government Service Insurance System (GSIS) which is a government corporation and therefore all public officers, conspiring and confederating together and mutually helping one another, while in the performance of their official functions, did then and there willfully, unlawfully and criminally enter into contract of lease-purchase with Emilio G. La'o, a private person whereby the GSIS agreed to sell to said Emilio G. La'o, a GSIS acquired property

consisting of three parcels of land with an area of 821 square meters together with a 5-storey building situated at 1203 A. Mabini St., Ermita, Manila, known as the Government Counsel Centre for the sum of P2,000,000.00 with a down payment of P200,000.00 with the balance payable in fifteen years at 12% interest per annum compounded yearly, with a yearly amortization of P264,278.37 including principal and interest granting Emilio G. La'o the right to sub-lease the ground floor for his own account during the period of lease, from which he collected yearly rentals in excess of the yearly amortization which contract is manifestly and grossly disadvantageous to the government. 3 EAHcCT When arraigned on 9 November 2004, respondent Dumlao, with the assistance of counsel de parte, pleaded "not guilty" to the offense charged. 4 As agreed upon by the prosecution and respondent Dumlao, a Joint Stipulation of Facts and Admission of Exhibits was submitted to the court on 10 January 2005. 5 On the basis thereof, the court issued on 19 January 2005 the following PreTrial Order: PRE-TRIAL ORDER The Prosecution and Accused Hermenegildo C. Dumlao, as assisted by counsel, submitted their "JOINT STIPULATION OF FACTS AND ADMISSION OF EXHIBITS" dated December 21, 2004, quoted hereunder: CAcDTI I. STIPULATION OF FACTS 2009jur The Prosecution and Accused Dumlao jointly stipulate on the following: 1. That at the time material to this case, the following were members of the Board of Trustees of the Government Service Insurance System (GSIS): a. Hermenegildo C. Dumlao b. Aber P. Canlas c. Jacobo C. Clave d. Roman A. Cruz e. Fabian C. Ver f. Leonilo M. Ocampo and g. Benjamin C. Morales; 2. That Emilio Gonzales La'o is a private person; 3. That GSIS was the owner of a property consisting of three (3) parcels of land with an area of 821 square meters, together with a 5-storey building situated as 1203 A. Mabini Street, Ermita, Manila known as the Government Counsel Centre; cTADCH 4. That on June 22, 1978, the GSIS entered into a Lease-Purchase Agreement with the Republic of the Philippines through the Office of the Government Corporate Counsel (OGCC) involving the property described under paragraph 3 above, for a consideration of P1.5 million payable in equal yearly amortizations for a period of fifteen (15) years with zero interest. The period should commence after the GSIS shall have renovated the building according to the specification of the OGCC; 5. That in accordance with the June 22, 1978 Lease-Purchase Agreement, the 5-storey building was renovated. Thereafter, the OGCC occupied the same; 2009jur 6. That Ferdinand E. Marcos was, at all-times material hereto, the President of the Republic of the Philippines; 7. That then President was at all times material hereto, legislating through the issuance of Presidential Decrees, Executive Orders and the like; DASEac 8. That among the three Members of the Board who signed the Minutes only accused Dumlao was charged in this case; 9. That there are only seven (7) members of the Board of Trustees of the GSIS present during the board meeting held on April 23, 1982; 10. Exhibit "A" and "1" entitled Agreement was signed by Luis A. Javellana, for and in behalf of the GSIS, Felipe S. Aldaa, for and [in] behalf of the

Republic of the Philippines thru Government Corporate Counsel, and Emilio Gonzales La'o, as buyer. II. DOCUMENTARY EVIDENCE The Prosecution and Accused Dumlao admitted the authenticity and due execution of the following documentary evidence: aITECD EXHIBITS DESCRIPTION "A" (also Exhibit "1" The Agreement executed by and for accused Dumlao among the GSIS, the Republic of the Philippines, through OGCC and accused Emilio Gonzales La'o on May 10, 1982, consisting of 11 pages; "B" (also Exhibit "2" The pertinent portion, including for accused Dumlao) the signature page, of Minutes of Meeting No. 14 of the GSIS Board of Trustees held on April 23, 1982, specifically containing item no. 326 regarding the approval of the proposed Agreement by and among the GSIS, the Republic of the Philippines through the OGCC and accused Emilio Gonzales La'o, consisting of 5 pages. III. RESERVATION The Prosecution and Accused Dumlao reserve the right to mark and offer in evidence the documents mentioned in their respective Pre-Trial Briefs, as well as to present the witnesses listed therein. IHaSED IV. ISSUE Whether or not accused Dumlao is liable for violation of Section 3 (g), RA 3019. WHEREFORE, with the submission by the parties of their Joint Stipulation of Facts, the pre-trial is deemed terminated. Let the above-mentioned joint stipulation as recited in this pre-trial order bind the parties, limit the trial to matters not disposed of, and control the course of the proceedings in this case unless modified by the Court to prevent manifest injustice. 6 On 21 February 2005, respondent Dumlao filed a Motion to Dismiss/Quash on the ground that the facts charged do not constitute an offense. 7 He stated that the prosecution's main thrust against him was the alleged approval by the Government Service Insurance System (GSIS) Board of Trustees of which he was a member of the Lease-Purchase Agreement entered into by and among the GSIS, the Office of the Government Corporate Counsel (OGCC) and respondent La'o. He argued that the allegedly approved Board Resolution was not in fact approved by the GSIS Board of Trustees, contrary to the allegations in the information. Since the signatures of Fabian Ver, Roman Cruz, Aber Canlas and Jacobo Clave did not appear in the minutes of the meeting held on 23 April 1982, he said it was safe to conclude that these people did not participate in the alleged approval of the Lease-Purchase Agreement. This being the case, he maintained that there was no quorum of the board to approve the supposed resolution authorizing the sale of the GSIS property. There being no approval by the majority of the Board of Trustees, there can be no resolution approving the Lease-Purchase Agreement. The unapproved resolution, he added, proved his innocence. He further contended that the person to be charged should be Atty. Luis Javellana, who sold the subject property to respondent La'o without the proper authority. He likewise wondered why he alone was charged without including the other two signatories in the minutes of the meeting held on 23 April 1982. ICTaEH

On 14 July 2005, the Sandiganbayan issued the assailed resolution. It ruled: The Court finds the motion meritorious. The minutes of the meeting held on April 23, 1982 of the Board of Trustees of GSIS shows that the Board failed to approve the Lease-Purchase Agreement in question. As stipulated upon by both parties out of the seven (7) members of GSIS Board of Trustees only three (3) members signed the minutes, the others did not. In order to validly pass a resolution at least a majority of four (4) members of the Board of Trustees must sign and approve the same. No amount of evidence can change the fact that Resolution dated April 23, 1982 was not validly passed by the Board of Trustees of GSIS since it was only signed by three (3) members of the Board. Thus, it never had the force and effect of a valid resolution and did not in effect approve the Lease and Purchase Agreement subject matter hereof. Therefore, the prosecution has no cause of action against herein movant-accused Hermenegildo C. Dumlao. 8 ACHEaI On 2 September 2005, the People of the Philippines, represented by the Office of the Ombudsman, thru the Office of the Special Prosecutor, filed a petition for certiorari 9 under Rule 45 of the Rules of Court seeking the reversal and setting aside of the Sandiganbayan Resolution dismissing the case against respondent Dumlao. Petitioner raises the following issues: I) WHETHER OR NOT THE COURT A QUO ACTED IN ACCORDANCE WITH LAW AND JURISPRUDENCE WHEN IT RESOLVED TO DISMISS CRIMINAL CASE NO. 16699 AS AGAINST RESPONDENT DUMLAO AFTER THE PRETRIAL AND BEFORE THE PETITIONER COULD PRESENT ITS WITNESSES AND FORMALLY OFFER ITS EXHIBITS. DCIEac II) WHETHER OR NOT THE SIGNATURES OF THE MAJORITY OF THE GSIS BOARD OF TRUSTEES ARE NECESSARY ON THE MINUTES OF MEETING NO. 14 DATED 23 APRIL 1982 TO GIVE FORCE AND EFFECT TO RESOLUTION NO. 326 APPROVING THE PROPOSED AGREEMENT BY AND AMONG THE GSIS, THE OGCC AND RESPONDENT EMILIO LA'O. III) WHETHER OR NOT THE VALIDITY OF THE CONTRACT IS AN ESSENTIAL ELEMENT OF VIOLATION OF SECTION 3(G), RA 3019. IV) WHETHER OR NOT THE COURT A QUO ACTED IN ACCORDANCE WITH LAW AND JURISPRUDENCE WHEN IT RESOLVED TO ARCHIVE THE CASE AGAINST RESPONDENT LA'O. IcDCaT On the other hand, respondent Dumlao proffers the following grounds to support the dismissal of the case against him: 1. TO GIVE DUE COURSE TO THE OMBUDSMAN'S PETITION IS TO PLACE DUMLAO IN DOUBLE JEOPARDY, IN VIOLATION OF HIS CONSTITUTIONAL RIGHTS; 2. THE SANDIGANBAYAN COULD NOT BE SAID TO HAVE GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OF JURISDICTION BECAUSE IT MERELY FOLLOWED THE RULE ON PRE-TRIAL AND DECIDED THE CASE ON THE BASIS OF THE FACTS STIPULATED IN THE PRE-TRIAL; 3. THE FACTS AS AGREE (SIC) BY THE PROSECUTION AND RESPONDENT DUMLAO IN THEIR PRE-TRIAL STIPULATION AND AS APPROVED BY THE SANDIGANBAYAN SHOWED THAT HE DID NOT COMMIT ANY CRIME; AND 4. CONTINUALLY PROSECUTING DUMLAO, TO THE EXCLUSION OF OTHER GSIS TRUSTEES, UNDER THE CIRCUMSTANCES OBTAINING, CONSTITUTES UNFAIR DISCRIMINATION AND VIOLATION OF HIS CONSTITUTIONAL RIGHT TO EQUAL PROTECTION OF THE LAW. 10 IcDCaT Petitioner argues it was denied its right to due process when the court a quo dismissed the case against respondent Dumlao after pre-trial and before it could present its witnesses and formally offer its exhibits. The court a quo deprived it of the opportunity to prove its case that the Resolution dated 23 April 1982 was passed by the GSIS Board of Trustees and that the Lease-

Purchase Agreement was grossly and manifestly disadvantageous to the government. Respondent Dumlao was charged, he being one of the members of the GSIS Board of Trustees who allegedly approved the lease-purchase of the subject GSIS properties consisting of three parcels of land with an area of 821 square meters, together with a five-storey building, in favor of respondent La'o, which lease-purchase agreement was deemed by the Office of the Ombudsman to be grossly disadvantageous to the government. A review of the Motion to Dismiss/Quash filed by respondent Dumlao reveals that the ground he invoked was that "the facts charged do not constitute an offense". He contends that the alleged approved Board Resolution was not approved by the GSIS Board of Trustees, contrary to the allegation in the information. Since the signatures of four out of the seven members of the board did not appear in the minutes of the meeting held on 23 April 1982, there was no quorum present or no majority that approved the supposed resolution. This being the case, he asserts that there was no resolution adopted by the GSIS Board of Trustees approving the sale of the subject properties to respondent La'o. aSTHDc The Sandiganbayan, basing its resolution on the Pre-trial Stipulation entered into by the prosecution and respondent Dumlao, dismissed the case against the latter, since it found that the GSIS Board of Trustees failed to approve or validly pass the Lease-Purchase Agreement, because only three out of the seven members of the Board signed the minutes of the meeting held on 23 April 1982. It explained that, "no amount of evidence can change the fact that the Resolution dated April 23, 1982 was not validly passed by the Board of Trustees of GSIS since it was only signed by three members of the Board. Thus, it never had the force and effect of a valid resolution and did not in effect approve the Lease and Purchase Agreement subject matter hereof. Therefore, the prosecution has no cause of action against herein movant-accused Hermenegildo C. Dumlao". DCSTAH The ground raised by respondent Dumlao in his Motion to Quash/Dismiss is that the facts charged do not constitute an offense. The fundamental test in determining the sufficiency of the material averments of an information is whether the facts alleged therein, which are hypothetically admitted, would establish the essentials elements of the crime defined by law. Evidence aliunde, or matters extrinsic of the Information, are not be considered. 11 The elements of the crime under Section 3 (g) of Republic Act No. 3019 are as follows: (1) that the accused is a public officer; (2) that he entered into a contract or transaction on behalf of the government; and (3) that such contract or transaction is grossly and manifestly disadvantageous to the government. 12 After examining the information, we find that the facts alleged therein, if hypothetically admitted, will prove all the elements of Section 3 (g) as against respondent Dumlao. CHEDAc It can be gathered from the resolution of the Sandiganbayan that it did consider the ground invoked by Dumlao (that the facts charged do not constitute an offense); otherwise, it could have denied respondent Dumlao's motion. From the reasoning given by the Sandiganbayan, it is clear that it dismissed the case because of insufficiency of evidence. Insufficiency of evidence is not one of the grounds of a Motion to Quash. The grounds, as enumerated in Section 3, Rule 117 of the Revised Rules of Criminal Procedure, are as follows: (a) That the facts charged do not constitute an offense; (b) That the court trying the case has no jurisdiction over the offense charged; (c) That the court trying the case has no jurisdiction over the person of the accused; SHEIDC

(d) That the officer who filed the information had no authority to do so; (e) That it does not conform substantially to the prescribed form; (f) That more than one offense is charged except when a single punishment for various offenses is prescribed by law; (g) That the criminal action or liability has been extinguished; (h) That it contains averments which, if true, would constitute a legal excuse or justification; and (i) That the accused has been previously convicted or acquitted of the offense charged, or the case against him was dismissed or otherwise terminated without his express consent. HSIDTE Insufficiency of evidence is a ground for dismissal of an action only after the prosecution rests its case. Section 23, Rule 119 of the Revised Rules of Criminal Procedure provides: Sec. 23. Demurrer to evidence. After the prosecution rests its case, the court may dismiss the action on the ground of insufficiency of evidence (1) on its own initiative after giving the prosecution the opportunity to be heard or (2) upon demurrer to evidence filed by the accused with or without leave of court. In the case under consideration, the Sandiganbayan dismissed the case against respondent for insufficiency of evidence, even without giving the prosecution the opportunity to present its evidence. In so doing, it violated the prosecution's right to due process. It deprived the prosecution of its opportunity to prosecute its case and to prove the accused's culpability. aETAHD It was therefore erroneous for the Sandiganbayan to dismiss the case under the premises. Not only did it not consider the ground invoked by respondent Dumlao; it even dismissed the case on a ground not raised by him, and not at the appropriate time. The dismissal was thus without basis and untimely. On the second issue raised by petitioner, it maintains that the Sandiganbayan erred in equating, or confusing, the minutes of the meeting of 23 April 1982 with Resolution No. 326, which allegedly approved the lease-purchase agreement on the GSIS properties, entered into with respondent La'o. It argues that the Sandiganbayan incorrectly ruled that the Resolution dated 23 April 1982 regarding the lease-purchase of the GSIS properties was not approved, because only three out of the seven members of the GSIS Board of Trustees signed the minutes of the meeting of 23 April 1982. HSaIDc We agree with petitioner that the Sandiganbayan erred in equating the minutes of the meeting with the supposed resolution of the GSIS Board of Trustees. A resolution is distinct and different from the minutes of the meeting. A board resolution is a formal action by a corporate board of directors or other corporate body authorizing a particular act, transaction, or appointment. 13 It is ordinarily special and limited in its operation, applying usually to some single specific act or affair of the corporation; or to some specific person, situation or occasion. 14 On the other hand, minutes are a brief statement not only of what transpired at a meeting, usually of stockholders/members or directors/trustees, but also at a meeting of an executive committee. The minutes are usually kept in a book specially designed for that purpose, but they may also be kept in the form of memoranda or in any other manner in which they can be identified as minutes of a meeting. 15 The Sandiganbayan concluded that since only three members out of seven signed the minutes of the meeting of 23 April 1982, the resolution approving the Lease-Purchase Agreement was not passed by the GSIS Board of Trustees. Such conclusion is erroneous. The non-signing by the majority of the members of the GSIS Board of Trustees of the said minutes does not necessarily mean that the supposed resolution was not approved by the board. The signing of the minutes by all the members of the board is not required. There is no provision

in the Corporation Code of the Philippines 16 that requires that the minutes of the meeting should be signed by all the members of the board. cASTED The proper custodian of the books, minutes and official records of a corporation is usually the corporate secretary. Being the custodian of corporate records, the corporate secretary has the duty to record and prepare the minutes of the meeting. The signature of the corporate secretary gives the minutes of the meeting probative value and credibility. 17 In this case, Antonio Eduardo B. Nachura, 18 Deputy Corporate Secretary, recorded, prepared and certified the correctness of the minutes of the meeting of 23 April 1982; and the same was confirmed by Leonilo M. Ocampo, Chairman of the GSIS Board of Trustees. Said minutes contained the statement that the board approved the sale of the properties, subject matter of this case, to respondent La'o. The minutes of the meeting of 23 April 1982 were prepared by the Deputy Corporate Secretary of the GSIS Board of Trustees. Having been made by a public officer, the minutes carry the presumption of regularity in the performance of his functions and duties. Moreover, the entries contained in the minutes are prima facie evidence of what actually took place during the meeting, pursuant to Section 44, Rule 130 of the Revised Rule on Evidence. 19 This being the case, the Sandiganbayan erred in dismissing the case, because there was evidence, at that time, when it dismissed the case against respondent Dumlao. The dismissal by the lower court of the case against respondent Dumlao was indeed premature. It should have given the prosecution the opportunity to fully present its case and to establish reasonable doubt on the alleged approval by the GSIS Board of Trustees of the lease-purchase of the GSIS properties. SCaEcD Petitioner likewise faults the Sandiganbayan for archiving the case against respondent La'o, arguing that since he had already been arraigned, it should have ordered the prosecution to adduce evidence against him. 2009jur We agree. However, said issue has already been mooted by the death of respondent La'o. 20 The death of an accused prior to final judgment terminates his criminal as well as civil liability based solely thereon. 21 Accordingly, the case against respondent La'o was dismissed. 22 In support of the dismissal of the case against him, respondent Dumlao contends that to give due course to the Ombudsman's petition would place him in double jeopardy, in violation of his constitutional rights. Respondent Dumlao asserts that all the elements of double jeopardy are present in the case at bar. Citing Heirs of Tito Rillorta v. Firme, 23 he added: "[A]ssuming arguendo that the Sandiganbayan committed an error, whatever error may have been committed by the Sandiganbayan was merely an error of judgment and not of jurisdiction. It did not affect the intrinsic validity of the decision. This is the kind of error that can no longer be rectified on appeal by the prosecution, no matter how obvious the error may be". DHIaTS To raise the defense of double jeopardy, three requisites must be present: (1) a first jeopardy must have attached prior to the second; (2) the first jeopardy must have been validly terminated; and (3) the second jeopardy must be for the same offense as that in the first. 24 The first jeopardy attaches attaches only (1) upon a valid indictment; (2) before a competent court; (3) after arraignment; (4) when a valid plea has been entered; and (5) when the defendant was convicted or acquitted, or the case was dismissed or otherwise terminated without the express consent of the accused. 25 We do not agree. In the instant case, double jeopardy has not yet set in. The first jeopardy has not yet attached. There is no question that four of the five elements of legal jeopardy are present. However, we find the last element valid conviction, acquittal, dismissal or termination of the case wanting. As previously discussed, the Sandiganbayan violated the prosecution's right to due process. The prosecution was deprived of its opportunity to prosecute its

case and to prove the accused's culpability. The dismissal was made in a capricious and whimsical manner. The trial court dismissed the case on a ground not invoked by the respondent. The Sandiganbayan dismissed the case for insufficiency of evidence, while the ground invoked by the respondent was that the facts charged did not constitute an offense. The dismissal was clearly premature, because any dismissal based on insufficiency of evidence may only be made after the prosecution rests its case and not at any time before then. 26 A purely capricious dismissal of an information deprives the State of a fair opportunity to prosecute and convict. It denies the prosecution a day in court. It is void and cannot be the basis of double jeopardy. 27 TIESCA The cardinal precept is that where there is a violation of basic constitutional rights, courts are ousted of their jurisdiction. Where the denial of the fundamental right to due process is apparent, a decision in disregard of the right is void for lack of jurisdiction. 28 In the instant case, there was no error of judgment but a denial of due process resulting in loss of jurisdiction. Respondent Dumlao would not be placed in double jeopardy because, from the very beginning, the Sandiganbayan had acted without jurisdiction. Precisely, any ruling issued without jurisdiction is, in legal contemplation, necessarily null and void and does not exist. 29 Otherwise put, the dismissal of the case below was invalid for lack of a fundamental prerequisite, that is, due process. In rendering the judgment of dismissal, the trial court acted without or in excess of jurisdiction, for a judgment which is void for lack of due process is equivalent to excess or lack of jurisdiction. 30 This being the case, the prosecution is allowed to appeal because it was not given its day in court. As heretofore explained, the Sandiganbayan gravely abused its discretion amounting to lack of jurisdiction when it dismissed the case against respondent Dumlao based only on the stipulations made by the parties during pre-trial. The erroneous equation of the number of members who signed the minutes of the meeting with the number of members who approved the alleged resolution necessarily led to the Sandiganbayan's faulty conclusion that there was no evidence showing that the GSIS Board of Trustees approved the alleged Lease-Purchase Agreement. As we have said, the minutes issued by the Depute Corporate Secretary were enough, at that time, to set the case for trial and to allow the prosecution to prove its case and to present all its witnesses and evidence. cSIHCA Respondent Dumlao claims that the GSIS has not been prejudiced because it still owns the properties subject matter of this case. This Court cannot rule on this claim, the same being a factual issue and a defense he is raising. The appreciation of this claim is not proper in this forum and is better left to the trial court, since the Supreme Court is not a trier of facts. 31 2009jur Respondent Dumlao maintains he was charged with conspiring with the other GSIS Board Members in approving the Lease-Purchase Agreement. However, of the seven members, two died, two were acquitted and the other two were not charged. He was left alone. He argues that since a conspiracy requires two or more persons agreeing to commit a crime, he can no longer be charged because he was left alone to face a charge of conspiracy. His assumption that he can no longer be charged because he was left alone since the co-conspirators have either died, have been acquitted or were not charged is wrong. A conspiracy is in its nature a joint offense. One person cannot conspire alone. The crime depends upon the joint act or intent of two or more person. Yet, it does not follow that one person cannot be convicted of conspiracy. As long as the acquittal or death of a co-conspirator does not remove the basis of a charge of conspiracy, one defendant may be found guilty of the offense. 32 In the case at bar, the absence or presence of conspiracy is again factual in nature and involves evidentiary matters. The same is better left

ventilated before the trial court during trial, where the parties can adduce evidence to prove or disprove its presence. CSHDTE Lastly, respondent Dumlao submits that his prosecution, to the exclusion of others, constitutes unfair discrimination and violates his constitutional right to equal protection of the law. He says that the dismissal of the case against his co-accused Canlas and Clave were not appealed by the prosecution; and the two government officials who signed the Lease-Purchase Agreement, and the two other members (Ocampo and Morales) of the GSIS Board of Trustees who signed the minutes were not charged. We are not convinced that respondent Dumlao was unfairly discriminated against and his constitutional right to equal protection violated. It must be remembered that the manner in which the prosecution of the case is handled is within the sound discretion of the prosecutor, and the non-inclusion of other guilty persons is irrelevant to the case against the accused. 33 We find that there was no clear and intentional discrimination in charging respondent Dumlao. A discriminatory purpose is never presumed. 34 It must be remembered that it was not solely respondent who was charged, but also five of the seven board members. If, indeed, there were discrimination, respondent Dumlao alone could have been charged. But this was not the case. Further, the fact that the dismissal of the case against his co-accused Canlas and Clave was not appealed is not sufficient to cry discrimination. This is likewise true for the non-inclusion of the two government officials who signed the Lease-Purchase Agreement and the other two board members. Mere speculation, unsupported by convincing evidence, cannot establish discrimination on the part of the prosecution and the denial to respondent of the equal protection of the laws. cAIDEa In Santos v. People, 35 citing People v. Dela Piedra, 36 the Court explained: The prosecution of one guilty person while others equally guilty are not prosecuted, however, is not, by itself, a denial of the equal protection of the laws. Where the official action purports to be in conformity to the statutory classification, an erroneous or mistaken performance of the statutory duty, although a violation of the statute, is not without more a denial of the equal protection of the laws. The unlawful administration by officers of a statute fair on its face, resulting in its unequal application to those who are entitled to be treated alike, is not a denial of equal protection unless there is shown to be present in it an element of intentional or purposeful discrimination. This may appear on the face of the action taken with respect to a particular class or person, or it may only be shown by extrinsic evidence showing a discriminatory design over another not to be inferred from the action itself. But a discriminatory purpose is not presumed, there must be a showing of "clear and intentional discrimination". Appellant has failed to show that, in charging appellant in court, that there was a "clear and intentional discrimination" on the part of the prosecuting officials. The discretion of who to prosecute depends on the prosecution's sound assessment whether the evidence before it can justify a reasonable belief that a person has committed an offense. The presumption is that the prosecuting officers regularly performed their duties, and this presumption can be overcome only by proof to the contrary, not by mere speculation. Indeed, appellant has not presented any evidence to overcome this presumption. The mere allegation that appellant, a Cebuana, was charged with the commission of a crime, while a Zamboanguea, the guilty party in appellant's eyes, was not, is insufficient to support a conclusion that the prosecution officers denied appellant equal protection of the laws. DaTICE There is also common sense practicality in sustaining appellant's prosecution. While all persons accused of crime are to be treated on a basis of equality before the law, it does not follow that they are to be protected in the

commission of crime. It would be unconscionable, for instance, to excuse a defendant guilty of murder because others have murdered with impunity. The remedy for unequal enforcement of the law in such instances does not lie in the exoneration of the guilty at the expense of society . . . . Protection of the law will be extended to all persons equally in the pursuit of their lawful occupations, but no person has the right to demand protection of the law in the commission of a crime. Likewise, [i]f the failure of prosecutors to enforce the criminal laws as to some persons should be converted into a defense for others charged with crime, the result would be that the trial of the district attorney for nonfeasance would become an issue in the trial of many persons charged with heinous crimes and the enforcement of law would suffer a complete breakdown. (Emphases ours.) HcACTE WHEREFORE, premises considered, the instant petition is GRANTED. The resolution of the Sandiganbayan in Criminal Case No. 16699 dated 14 July 2005 granting the Motion to Dismiss/Quash of respondent Hermenegildo C. Dumlao, is hereby REVERSED and SET ASIDE. The Sandiganbayan is forthwith DIRECTED to set the case for the reception of evidence for the prosecution. As to respondent Emilio G. La'o, on account of his demise, the case against him is DISMISSED. ECDHIc SO ORDERED. Carpio *** and Peralta, JJ., concur. 2009jur Puno, C.J., * took no part due to acquaintance with party. Quisumbing, J., ** I dissent. Accused's motion is meritorious. GSIS Resolution invalid, no cause of action here. Footnotes 1. Penned by Associate Justice Godofredo L. Legaspi with Associate Justices Efren N. de la Cruz and Norberto Y. Geraldez, concurring; rollo, pp. 13-19. 2. Id. at 19. 2009jur 3. Records, Vol. 1, pp. 204-205. 4. Records, Vol. 7, p. 250. Emilio La'o was arraigned on 7 August 1991 (Records, Vol. I, pp. 249251). The case against him was dismissed because of his death. SEDaAH The cases against Roman A. Cruz, Jr. and Fabian C. Ver were likewise dismissed on the account of their deaths. (Records, Vol. VI, p. 125.) Aber P. Canlas and Jacobo C. Clave were arraigned on 20 January 2004. (Records, Vol. VI, pp. 505-506). The cases against them were dismissed on 4 October 2004. (Records, Vol. VII, pp. 233-241). 5. Id. at 306-311. 6. Id. at 313-315. 7. Id. at 322-327. 8. Rollo, p. 18. 9. Same was filed after this Court granted the Office of the Special Prosecutor's motion for extension within which to file the petition for review on certiorari. (Rollo, pp. 25-233.) cSATEH 10. Id. at 259. 11. Go v. Fifth Division, Sandiganbayan, G.R. No. 172602, 13 April 2007, 521 SCRA 270, 291. 12. Dans, Jr. and Marcos v. Sandiganbayan, 349 Phil. 434, 460 (1998). 13. Black's Law Dictionary (Eighth Edition, 2004), p. 1337. 14. Fletcher Cyclopedia Corporations (Permanent Edition), Vol. 8, 4167, p. 625. AICTcE 15. The Corporation Code of the Philippines Annotated (1994) by Rosario N. Lopez, Vol. 2, p. 871.

16. Batas Pambansa Blg. 68 which took effect on 1 May 1980. 17. Union of Supervisors (R.B.)-NATU v. Secretary of Labor, 195 Phil. 691, 711 (1981). 18. Now Associate Justice of the Supreme Court. 19. Sec. 44. Entries in official records. Entries in official records made in the performance of his duty by a public officer of the Philippines, or by a person in the performance of a duty specially enjoined by law, are prima facie evidence of the facts therein stated. HaIESC 20. Certificate of Death of Emilio Gonzalez La'o; rollo, p. 335. 21. Republic v. Desierto, G.R. No. 131966, 31 August 2005, 468 SCRA 458, 469. 22. Rollo, pp. 338-339. 23. G.R. No. 54904, 29 January 1988, 157 SCRA 518. 24. Dimayacyac v. Court of Appeals, G.R. No. 136264, 28 May 2004, 430 SCRA 121, 129. CHEIcS 25. Benares v. Lim, G.R. No. 173421, 14 December 2006, 511 SCRA 100, 107. 26. Section 23, Rule 119, Revised Rules of Criminal Procedure. 27. People v. Gomez, 126 Phil. 640, 645 (1967). 28. People v. Bocar, G.R. No. L-27935, 16 August 1985, 138 SCRA 166, 171. 29. People v. Velasco, 394 Phil. 517, 559 (2000). 30. Merciales v. Court of Appeals, 429 Phil. 70, 81 (2002). ADTCaI 31. Francisco, Jr. v. Fernando, G.R. No. 166501, 16 November 2006, 507 SCRA 173, 179. 32. Aquino, The Revised Penal Code (1997 Edition), Vol. 1, p. 125, citing United States v. Remigio, 37 Phil. 599, 612 (1918). 33. People v. Nazareno, 329 Phil. 16, 20-23 (1996). 34. People v. Dela Piedra, 403 Phil. 31 (2001). 35. G.R. No. 173176, 26 August 2008. 36. Supra note 34 at 54-56. HAISEa * Per raffle dated 23 February 2009, Chief Justice Reynato S. Puno was designated to sit as an additional member in place of Associate Justice Antonio Eduardo B. Nachura. AcICTS ** Per Special Order No. 564 dated 12 February 2009, signed by Chief Justice Reynato S. Puno, designating Associate Justice Leonardo A. Quisumbing to replace Associate Justice Consuelo Ynares-Santiago, who is on official leave under the Court's Wellness Program. 2009jur *** Per Special Order No. 568 dated 12 February 2009, signed by Chief Justice Reynato S. Puno, designating Associate Justice Antonio T. Carpio to replace Associate Justice Ma. Alicia Austria-Martinez, who is on official leave under the Court's Wellness Program. TIESCA SECOND DIVISION [G.R. No. 123650. March 23, 2009.] WESTMONT BANK (formerly ASSOCIATED CITIZENS BANK and now UNITED OVERSEAS BANK, PHILS.) AND THE PROVINCIAL SHERIFF OF RIZAL, petitioners, vs. INLAND CONSTRUCTION AND DEVELOPMENT CORP., respondent. [G.R. No. 123822. March 23, 2009.] WESTMONT BANK (formerly ASSOCIATED CITIZENS BANK and now UNITED OVERSEAS BANK, PHILS.), petitioner, vs. COURT OF APPEALS and INLAND CONSTRUCTION AND DEVELOPMENT CORP., respondents. DECISION CARPIO MORALES, J p: Inland Construction and Development Corp. (Inland) obtained various loans and other credit accommodations from petitioner, then known as Associated

Citizens Bank ([the bank] which later became United Overseas Bank, Phils., and still later Westmost Bank) in 1977. AHEDaI To secure the payment of its obligations, Inland executed real estate mortgages over three real properties in Pasig City covered by Transfer Certificates of Title Nos. 4820, 4821 and 4822. 1 Inland likewise issued promissory notes in favor of the bank, viz.: Promissory Note No. BD-2739-77 Amount: P155,000.00 Due Date: January 2, 1978 2 Promissory Note No. BD-2884-77 Amount: P880,000.00 Due Date: February 23, 1978 3 Promissory Note No. BD-2997 Amount: P60,000.00 Due Date: March 22, 1978 4 (Emphasis supplied) EaTCSA When the first and second promissory notes fell due, Inland defaulted in its payments. It, however, authorized the bank to debit P350,000 from its savings account to partially satisfy its obligations. 5 2009jur It appears that by a Deed of Assignment, Conveyance and Release dated May 2, 1978, Felix Aranda, President of Inland, assigned and conveyed all his rights and interests at Hanil-Gonzales Construction & Development (Phils.) Corporation (Hanil-Gonzales Corporation) in favor of Horacio Abrantes (Abrantes), Executive Vice-President and General Manager of Hanil-Gonzales Corporation. Under the same Deed of Assignment, it appears that Abrantes assumed, among other obligations of Inland and Aranda, Promissory Note No. BD-2884-77 in the amount of P800,000 as shown in the May 26, 1978 Deed of Assignment of Obligation in which Aranda and Inland, on one hand, and Abrantes and Hanil-Gonzales Corporation, on the other, forged as follows: SaETCI xxx xxx xxx. WHEREAS, among the obligations assumed by Mr. HORACIO C. ABRANTES [in the May 2, 1978 Deed] is the account of the FIRST PARTY (Aranda and Inland) in favor of the ASSOCIATED CITIZENS BANK as evidenced by Promissory Note No. BD-2884-77 in the amount of EIGHT HUNDRED EIGHTY THOUSAND (P880,000.00) PESOS, . . . .; WHEREAS, the parties herein have agreed to obtain the conformity of the ASSOCIATED CITIZENS BANK to the foregoing arrangement . . . .; NOW, THEREFORE, the herein parties have mutually agreed that the SECOND PARTY (Abrantes and Hanil-Gonzalez) shall assume full and complete liability and responsibility for the payment to ASSOCIATED CITIZENS BANK Promissory Note No. BD-2884-77 . . . . . THE SECOND PARTY shall make such necessary arrangements with the ASSOCIATED CITIZENS BANK for the full liquidation of said account, . . . . . AIDTHC xxx xxx xxx. (Emphasis and underscoring supplied) The bank's Account Officer, Lionel Calo Jr. (Calo), signed for its conformity to the deed. 6 On December 14, 1979, Inland was served a Notice of Sheriff's Sale foreclosing the real estate mortgages over its real properties, prompting it to file a complaint for injunction against the bank and the Provincial Sheriff of Rizal at the Regional Trial Court (RTC) of Pasig City. 7 This complaint was later amended. 8 Answering the amended complaint, the bank underscored that it "had no knowledge, much less did it give its conformity to the alleged assignment of the obligation covered by PN# BD-2884 [-77]." 9

The trial court found that the bank ratified the act of its account officer Calo, thus: ICHDca . . . . Culled from the evidence on record, the Court finds that the defendant Bank ratified the act of Calo when its Executive Committee failed to repudiate the assignment within a reasonable time and even approved the request for a restructuring of Liberty Const. & Dev. Corp./Hanil-Gonzales Construction & Development Corp.'s obligations, which included the P880,000.00 loan (Exhibit "U" to "X", and its submarkings). Clearly, the assumption of the loan was very well known to the defendant Bank and the latter posed no objection to it. In fact, the positive act on the part of the defendant in restructuring the loan of the assignee attest to its consent in the said transaction. The evidence on record conveys the fact that the Hanil-Gonzales Const. and Development Corp. assumed the obligation of the plaintiff on the SECOND NOTE. Later, it asked the defendant for a restructuring of its loan, including the P880,000.00 loan. Thereafter, payments were made by the assignee to the defendant Bank. The preponderance of evidence tilts heavily in favor of the plaintiff claiming that a case of delegacion occurs. 10 (Emphasis and italics supplied; Underscoring in the original) It accordingly rendered judgment in favor of Inland by Decision 11 of March 31, 1992, the dispositive portion of which reads: SAHIaD WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, permanently, perpetually and forever restraining and enjoining the defendants Associated Citizens Bank and the Sheriff of this Court from proceeding with the foreclosure of and conducting an auction sale on the real estate covered by and embraced in Transfer Certificates of Title Nos. 4820, 4821 and 4822 of the Register of Deeds of Rizal (now Pasig, Metro Manila) and to refund to plaintiff the amount of P8,866.89, with legal interest thereon from the filing of the complaint until full payment, with costs. SO ORDERED. (Emphasis and underscoring supplied) The bank appealed the trial court's decision to the Court of Appeals which, by Decision 12 of May 31, 1995, modified the same, disposing as follows: 13 WHEREFORE, the decision appealed from is hereby AFFIRMED only insofar as it finds appellant Associated Bank to have ratified the Deed of Assignment (Exhibit "O"), but REVERSED in all other respects, and judgment is accordingly rendered ordering the plaintiff-appellee Inland Construction and Development Corporation to pay defendant-appellant Associated Bank the sum of One Hundred Eighty Six Thousand Two Hundred Forty One Pesos and Eighty Six Centavos (P186,241.86) with legal interest thereon computed from December 21, 1979 until the same is fully paid. THADEI No pronouncement as to costs. SO ORDERED. (Underscoring supplied) In affirming the observation of the trial court that the bank ratified the assignment of Inland's Promissory Note No. BD-2884-77, the appellate court discoursed as follows: aIETCA In the instant case, both the assignors (Aranda and Inland) and assignees (Abrantes and Hanil-Gonzales) in the subject deed of assignment have been major clients of Associated Bank for several years with accounts amounting to millions of pesos. For several years, Associated Bank had, either intentionally or negligently, been habitually clothing Calo with the apparent powers to perform acts in behalf of the bank. . . . . . xxx xxx xxx. Calo signed the subject deed of assignment on or about May 26, 1978. The principal obligation covered by the deed involved a hefty sum of eight hundred eighty thousand pesos (P880,000.00). Despite the enormity of the amount involved, Associated Bank never made any attempt to repudiate the act of Calo until almost seven (7) years later, when Mitos C. Olivares, Manager of the Cash

Department of Associated Bank, issued an INTER-OFFICE MEMORANDUM dated May 20, 1985 which pertinently reads: CHIEDS "2) Conforme of Associated Bank signed by Lionel Calo Jr. has no bearing since he has no authority to sign for the bank as he was only an account officer with no signing authority; xxx xxx xxx. 5) I suggest, Mr. Calo be asked to be present at court hearings to explain why he signed for the bank, knowing his limitations" The abovequoted inter-office memorandum is addressed internally to the other offices within Associated Bank. It is not addressed to Inland or any outsider for that matter. Worse, it was not even offered in evidence by Associated Bank to give Inland the opportunity to object to or comment on the said document, but was merely attached as one of the annexes to the bank's MEMORANDUM FOR DEFENDANTS. Obviously, no evidentiary weight may be attached to said interoffice memorandum, which is even self serving. In fact, it ought not to be considered at all. (Emphasis and underscoring supplied) 2009jur The appellate court, however, specifically mentioned that the "lower court erred when it rendered a decision which 'permanently, perpetually and forever' restrains the sheriff from proceeding with the threatened foreclosure auction sale of the subject mortgage properties." 14 HDATSI The bank moved for partial reconsideration of the appellate court's decision on the aspect of its ratification of the Deed of Assignment but the same was denied by Resolution 15 of January 24, 1996. The bank, via two different counsels, 16 filed before this Court separate petitions for review, G.R. No. 123650, Associated Citizens Bank, et al. v. Court of Appeals, et al.; and G.R. No. 123822, Westmont Bank (formerly Associated Bank) v. Inland Construction & Development Corp., assailing the same appellate court's decision. Owing to a series of oversight, 17 the petition in G.R. 123650 was initially dismissed but was later reinstated by Resolution of June 21, 1999. The records 18 show that Inland failed to file its comment and memorandum on the petitions. Both petitions for review impute error on the part of the appellate court in . . . AFFIRMING THE FINDING OF THE TRIAL COURT THAT PETITIONER HAVE [SIC] RATIFIED THE DEED OF ASSIGNMENT (EXH. "O"). TCHEDA The bank, which had, as reflected early on, become known as Westmont Bank (petitioner), maintains that Calo had no authority to bind it in the Deed of Assignment and that a single, isolated unauthorized act of its agent is not sufficient to establish that it clothed him with apparent authority. Petitioner adds that the records fail to disclose evidence of similar acts of Calo executed either in its favor or in favor of other parties. 19 Moreover, petitioner reasserts that the unauthorized act of Calo never came to its knowledge, hence, it is not estopped from repudiating the Deed of Assignment. 20 The petitions fail. The general rule remains that, in the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. 21 If a corporation, however, consciously lets one of its officers, or any other agent, to act within the scope of an apparent authority, it will be estopped from denying such officer's authority. 22 HTDcCE The records show that Calo was the one assigned to transact on petitioner's behalf respecting the loan transactions and arrangements of Inland as well as those of Hanil-Gonzales and Abrantes. Since it conducted business through Calo, who is an Account Officer, it is presumed that he had authority to sign for the bank in the Deed of Assignment. Petitioner cannot feign ignorance of the May 26, 1978 Deed of Assignment, the pertinent portion of which was quoted above. Notably, assignee Abrantes

notified petitioner about his assumption of Inland's obligation. Thus, in his July 26, 1979 letter to petitioner, he wrote: 2009jur This refers to the accounts of Liberty Construction and Development Corporation (LCDC) and our sister-company, Hanil-Gonzalez Construction & Development Corporation (HGCDC) which as of July 31, 1979 was computed at P1,814,442.40, inclusive of interest, penalties and fees, net of marginal deposits. This includes the account of Inland Construction & Development Corporation which had been assumed by HGCDC. 23 (Emphasis and underscoring supplied) That petitioner sent the following reply-letter, dated November 29, 1982, to the above-quoted letter to it of assignee Abrantes indicates that it had full and complete knowledge of the assumption by Abrantes of Inland's obligation: cEAaIS We are pleased to advise you that our Executive Committee in its meeting last November 25, 1982, has approved your request for the restructuring of your outstanding obligations . . . . . 24 (Underscoring supplied) Respecting this reply-letter of the bank granting Hanil-Gonzales' request to restructure its loans, petitioner, as a banking institution, is expected to have exercised the highest degree of diligence and meticulousness in the conduct of its business. When it received the loan restructuring request, with specific mention of Inland's Promissory Note No. BD-2884-77, petitioner-bank was under obligation to fastidiously scrutinize such loan account. And since it clearly approved the request for restructuring, any "uncertainty" that its replyletter approving such request may not thus work to prejudice Hanil-Gonzales or Inland. Petitioner relies heavily, however, on the Court's pronouncement in Yao Ka Sin Trading that it was incumbent upon, in this case, Inland to prove that petitioner had clothed its account officer with apparent power to conform to the Deed of Assignment. 25 CDScaT Petitioner's simplistic reading of Yao Ka Sin Trading v. Court of Appeals 26 does not impress. In Yao Ka Sin Trading, the therein respondent cement company had shown by clear and convincing evidence that its president was not authorized to undertake a particular transaction. It presented its by-laws stating that only its board of directors has the power to enter into an agreement or contract of any kind. The company's board of directors even forthwith issued a resolution to repudiate the contract. Thus, it was only after the company successfully discharged its burden that the other party, the therein petitioner Yao Ka Sin Trading, had to prove that indeed the cement company had clothed its president with the apparent power to execute the contract by evidence of similar acts executed in its favor or in favor of other parties. Unmistakably, the Court's directive in Yao Ka Sin Trading is that a corporation should first prove by clear evidence that its corporate officer is not in fact authorized to act on its behalf before the burden of evidence shifts to the other party to prove, by previous specific acts, that an officer was clothed by the corporation with apparent authority. aSIATD It bears noting that in Westmont Bank v. Pronstroller, 27 the therein petitioner Westmont Bank, through a management committee, proved that it rejected the letter-agreement entered into by its assistant vice-president. Consequently, the therein respondent had to prove by citing other instances of the said officer's apparent authority to bind the bank-therein petitioner. In the present petitions, petitioner-bank failed to discharge its primary burden of proving that Calo was not authorized to bind it, as it did not present proof that Calo was unauthorized. It did not present, much less cite, any Resolution from its Board of Directors or its Charter or By-laws from which the Court could reasonably infer that he indeed had no authority to sign in its behalf or

bind it in the Deed of Assignment. The May 20, 1985 inter-office memorandum 28 stating that Calo had "no signing authority" remains self-serving as it does not even form part of petitioner's body of evidence. Thus, the assertion that the petitioner cannot be faulted for its delay in repudiating the apparent authority of Calo is similarly flawed, there being no evidence on record that it had actually repudiated such apparent authority. It should be noted that it was the bank which pleaded that defense in the first place. What is extant in the records is a reasonable certainty that the bank had ratified the Deed of Assignment. AECacT The assumption that a ruling on the issue of ratification would affect any and all foreclosure proceedings on the mortgaged properties remains unfounded. For the challenged appellate court's Decision 29 still mentioned the possibility of foreclosing on the mortgaged properties as Inland was still indebted to the bank in the amount of P186,241.86 covering the other two promissory notes (No. BD-2739-77 and No. BD-2997) and other obligations that Inland was not able to satisfy upon maturity. Both the trial court's and the appellate court's inferences and conclusion that petitioner ratified its account officer's act are thus rationally based on evidence and circumstances duly highlighted in their respective decisions. Absent any serious abuse or evident lack of basis or capriciousness of any kind, the lower courts' findings of fact are conclusive upon this Court. 30 WHEREFORE, the petitions are DENIED. The decision of the Court of Appeals in CA-G.R. CV No. 39634 is AFFIRMED. EHSTDA Costs against petitioner. SO ORDERED. Quisumbing, Velasco, Jr. and Nachura, * JJ., concur. Brion, J., I dissent. 2009jur Separate Opinions BRION, J., dissenting: I dissent based on three points. First, the ponencia misappreciated the rule on burden of proof and burden of evidence by blaming the bank for the failure to prove that Calo had the authority to bind it. Second, as the lower courts did, the ponencia glossed over evidence on record that would lead to a contrary conclusion. Third, on very thin evidentiary support, the ponencia rushed to the conclusion that there was a novation that resulted in the substitution of debtor in the petitioner's loan agreement with respondent. IDAaCc The present case is rooted in the complaint for injunction filed by Inland against the bank when the latter foreclosed on the real estate mortgage that the former had constituted on its properties to secure the payment of its loan from the bank. Among others, Inland based its complaint on a Deed of Assignment (dated May 26, 1978) of its loan of P880,000.00 to Hanil-Gonzales and Abrantes (collectively referred to as Hanil-Gonzales). The trial court concluded that the . . . defendant bank ratified the act of Calo when its Executive Committee failed to repudiate the assignment within a reasonable time and even approved the request for a restructuring of Liberty Construction/Hanil-Gonzales Construction & Development Corp.'s obligation which included the P880,000.00 loan. DCISAE The Court of Appeals (CA) decision practically parroted this line when it noted that "[f]or several years Associated Bank had, either intentionally or negligently, been habitually clothing Calo with apparent powers to perform acts in behalf of the bank", and that "Associated Bank never made any attempt to repudiate the act of Calo, until seven (7) years later", citing an internal bank memorandum that it ironically observed "was not even offered in evidence by Associated Bank". The ponencia, on the other hand, maintained the position that the Deed of Assignment is valid and binding on the bank based on its

finding that (a) Calo, as the bank's representative, had the required authority to enter into the transaction; and (b) the bank's subsequent acts showed its knowledge and conformity with the subject assignment when it agreed to restructure Hanil-Gonzales' loan obligations with the bank. On my first point, Inland's case for injunction was anchored on the Deed of Assignment, the actionable document it cited and attached to its amended complaint for injunction. The ultimate issue for Inland was whether there was basis to prevent the bank for foreclosing on the mortgage. It claimed that no basis exists because it had been freed from the obligation to pay because Hanil-Gonzales assumed the obligation under a Deed of Assignment and that the bank consented to the substitution of debtor. In its answer, the bank immediately and properly denied that it was a party to the Deed; it expressly stated that its alleged consent was given by Calo, an officer who did not have the authority to sign for and bind the bank. ISHaTA Under this situation, it was for Inland to convince the trier of facts that indeed the Deed of Assignment exists and that the bank gave its consent to this deed; thus it had been freed from the obligation to pay the loan it secured from the bank. Under this claim, Calo's authority to act in behalf of the bank was an affirmative allegation on the part of Inland; it therefore had the burden to present clear and convincing evidence to prove that the bank gave its consent because Calo had the necessary authority to bind the bank. 1 If Inland fails to discharge this burden, the bank need not even present refuting evidence. I note that the Deed of Assignment was essentially a bi-partite agreement between the assignor (Aranda and Inland) and the assignee (Abrantes and Hanil-Gonzales) who agreed "to obtain the conformity of the ASSOCIATED CITIZENS BANK to the foregoing arrangement". 2 The Deed was duly notarized with the parties, other than Calo, signing the notarial acknowledgment. Notably, Calo merely signed to give conformity; he was not a direct party to the deed, and he did not likewise indicate or attache proof of his authority to sign for the bank. Thus, on the face of this Deed, Inland had the burden to prove that there was valid consent by the bank so that it (Inland) could be freed of liability, i.e., by proving that Calo had the authority to sign and bind the bank. This is highlighted by the fact that the bank placed its binding participation in the Deed in issue. In the absence of any direct evidence of such authority, Inland could have proven this authority only by proof that the bank had given Calo apparent authority. Under the doctrine of apparent authority, the principal is liable only as to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none has been given. AIcECS Significantly, there was no reference in the ponencia to past acts of the bank sufficient to create the impression that Calo was clothed with apparent authority, i.e., specific instances in the past showing that the bank allowed Calo, as a bank officer, to act with authority to bind the corporation, and that he did so without the bank's objection. Such apparent authority may be established by proof of the course of business, the usages and practices of the bank and by the knowledge which the board of directors had, or must be presumed to have, of acts of Calo in and about the bank's affairs. 3 Interestingly, the ponencia could only name Calo as the officer in charge of the accounts of Inland and Hanil-Gonzales with the bank, and point out that he signed the deed of assignment. Thus, the inevitable question was: what was the extent of Calo's duties as an account officer? If these involve merely the ordinary, routine administrative aspects of handling the accounts of the bank's clients (as opposed to managerial and discretionary transactions), then there is no basis to recognize in Calo the authority to consent a substitution of debtors that would novate Inland's and the bank's loan and accessory security

agreements. What this authority really was, the local courts and the ponencia did not say. SaIACT To reiterate, in the absence of proof of the bank's consent given through an officer expressly or impliedly and adduced at the first instance by Inland to support its plea to restrain the bank from foreclosing on the mortgage given, then no burden of evidence shifts to the bank to prove anything, particularly the fact that Calo was not authorized to sign for the bank and bind the bank. Apparently, the lower courts duly recognized that no evidentiary basis existed to recognize Calo's binding authority; hence, the lower courts simply relied on evidence that the bank ratified the assignment Inland made, thus freeing Inland from the obligation to pay the bank. CacEIS The issue of ratification brings me to my second point that there exists no evidence that there had been ratification of any agreement substituting HanilGonzales as the new debtor bound to pay for Inland's obligation to the bank. In the first place, it is not correct to say that the bank did not immediately repudiate the Deed of Assignment and Calo's consent. To arrive at the point of repudiating the assignment, it must be first shown that the deed officially came to the knowledge of the bank. Other than Calo's alleged participation, I see no proof in the record or one cited in the ponencia to show that there had been official notice to the bank. On the contrary, the evidence on record shows that after the Deed of Assignment on May 26, 1978, Inland was still paying its indebtedness to the bank. In fact, the Amended Complaint itself acknowledges that as of December 29, 1978, Inland still paid the bank P104,000.68, evidenced by an attached photocopy of the receipt the bank issued; and on November 7, 1979, Inland paid and was duly receipted for P100,000.00. The foreclosure came only in December 1979. Under these facts, admitted no less by Inland, can it be concluded that there was effective notice on the bank that Inland was no longer liable? It may well be asked what is there to ratify when the parties to the loan agreement themselves showed that they recognized the loan to be subsisting at the time of the foreclosure and of the filing of the complaint for injunction? CHcETA The act of ratification that the lower courts pointed to and which the ponencia itself recognized was the alleged approval by the bank's Executive Committee of the re-structuring of the loans of Hanil-Gonzales that included Inland's loan of P880,000.00. I find the recognition of ratification questionable for several reasons. The cited Executive Board action came only in 1982, 4 or way after the foreclosure transpired (in December 1979). Thus, it was not a defense that could have been available at the time the foreclosure was made. The alleged ratification, too, was only a part of the re-structuring of the loans of Liberty Construction and Development Corporation and its sister-company, HanilGonzales Construction and Development Corporation. It mentioned only that "[t]his includes the account of Inland Construction & Development Corporation which had been assumed by HGCDC." In other words, it was not a transaction between the bank, on the one hand, and HGCDC and Inland, on the other, relating specifically to Inland's loan and security obligations. The only legitimate conclusion that may be derived from these facts is that HGCDC undertook to pay the indebtedness of Inland. There was no reference in any way to the Deed of Assignment that was allegedly being ratified. No statement indicated the terms, as between HGCDC and Inland, of the assumption of liability. Specifically, there was no indication that the Executive Committee was accepting that HGCDC was henceforth the debtor in substitution of Inland, and that the latter's accessory mortgage obligation had been waived by the bank. The plain reality that spoke for itself, even at that time, was that there was no such substitution and no waiver of the mortgage that Inland constituted over its properties; otherwise, the present case which was then pending would have already been settled. Thus, I could not avoid

concluding that the lower courts' and the ponencia's conclusion that there had been ratification was propped up by very meager evidentiary support and that, if at all, the ponencia drew the wrong conclusions from the given facts. IcDCaT My last cause for dissent is a legal point relating to novation or the substitution of debtors in a loan transaction. There are two ways to effect novation: expressly, when it is explicitly stated and declared in unequivocal terms, or impliedly, when the two obligations are incompatible on every point. 5 The Court declared in Ajax Marketing and Development Corporation v. Court of Appeals: 6 [T]o effect a subjective novation by a change in the person of the debtor, it is necessary that the old debtor be released expressly from the obligation, and the third person or new debtor assumes his place in the relation. There is no novation without such release as the third person who has assumed the debtor's obligation becomes merely a co-debtor or surety. . . . Novation arising from a purported change in the person of the debtor must be clear and express . . . . THIECD Taking the above principles and Article 1293 of the Civil Code 7 together, two things must thus exist for there to be a valid novation by substitution of the debtor: clear and express release of the original debtor from the obligation upon the assumption by the new debtor of the obligation, and the consent of the creditor thereto. In this case, the deed of assignment cannot be considered as expressly novating Inland's promissory note. Although the terms of the deed declare that Hanil-Gonzales assumes full and complete liability to pay the loan obligation of Inland under its promissory note, there was no effective consent by the creditor to the substitution of the debtor. Calo's authority to bind the Bank the issue presented before the Court for adjudication has been discredited by the failure to show Calo's authority, or at the very least, to attribute prior conduct by the bank holding out Calo's authority to sign and bind the bank. HTaSEA Neither can it be convincingly declared that implied novation took place when the bank agreed to restructure Hanil-Gonzales' loan that included Inland's. There is no irreconcilable incompatibility between the obligation of Inland under its promissory note and that of Hanil-Gonzales' under the loan restructuring agreement. That a creditor agrees to accept payment by a third person of the debt does not constitute an implied acceptance of the substitution of the debtor, absent any agreement expressly releasing the original debtor; the creditor may still enforce the obligation against the original debtor. 8 Nothing in the agreement to restructure the loan declared that Inland was released from its obligation under its promissory notes; in fact, as earlier mentioned, the prior foreclosure proceedings instituted by the bank precluded this inference. Although the bank clearly consented to the restructuring of the loan, this cannot be presumed to include the consent to release the original debtor from the obligation. Without such release, there is no novation; the third person who assumed the obligation of the debtor merely becomes either a codebtor or a surety depending on the circumstances: if there is no agreement as to solidarity, the first and the new debtors are considered obligated jointly. 9 CIHTac I rest my dissent on these considerations of facts and law. Footnotes 1. Records, pp. 2-3. EcSaHA 2. Id. at 248; Exhibit "B". 3. Id. at 250; Exhibit "C". 4. Id. at 252; Exhibit "D". 5. Id. at 256. 6. Ibid. at 260; Exhibit "O-1". cADaIH

7. Id. at 2-8. 8. Id. at 237-247. 9. Id. at 307-308. 10. Id. at 568-569. 11. Id. at 562-577. 12. Rollo (G.R. No. 123650), pp. 29-54. IHCDAS 13. Penned by Associate Justice Cancio C. Garcia and concurred in by Associate Justices Arturo B. Buena and Delilah V. Magtolis. 14. Rollo (G.R. No. 123822), p. 68. 15. Rollo (G.R. No. 123650), p. 55. 16. Agulto Hilao and Associates in G.R. No. 123650 and Villanueva Ebora & Caa Law Offices in G.R. No. 123822. DHAcET 17. Rollo (G.R. No. 123822), pp. 288-289; In the Status Report of August 18, 2005 by Atty. Enriqueta Esguerra-Vidal, First Division clerk of court, it was stated that The motion for extension of time to file petition was denied in G.R. No. 123650 for failure to submit proof of service. The motion for extension of time in G.R. No. 123822 was granted. However, the petition for review intended for G.R. No. 123822 was attached to G.R. No. 123650. This was eventually dismissed in the resolution of June 17, 1996 in G.R. No. 123650 for non-compliance with the statement of material dates and for late filing. On August 1, 1996, the entry of judgment was issued in G.R. No. 123650. Respondent Inland Construction and Development Corporation, through its counsel, Atty. Honesto Cueva filed a motion to remand case to the court of origin. CcTHaD Owing to this confusion, counsel for G.R. No. 123822 filed a motion for clarification with prayer that the petition in G.R. No. 123650 be admitted as part of the records of G.R. No. 123822. Several other pleadings were filed to seek correction of this mistake such as the motion to resolve another motion for clarification and motion for reconsideration. Eventually, on June 21, 1999, the Court granted the reconsideration, reinstated the petition and required the respondent corporation to comment. 18. Ibid.; Mrs. Corazon Aranda, wife of Felix Aranda, President of respondent corporation filed a letter informing the court of the formal withdrawal of the respondent corporation's counsel and of the death of her husband and requesting for time to look for another lawyer. In the resolution September 8, 1999, the Court required respondent corporation to submit the name and address of lawyer. This resolution was served on Mrs. Aranda but unserved on respondent corporation. DAHCaI Petitioner was required to submit the new address of respondent corporation but submitted the same address as before. Despite the lack of comment on the petition, the case was given due course and the parties were required to file memoranda on August 2, 2000. The due course resolution mentioned of a comment being considered but the Division Clerk of Court explained that this was merely an inadvertence as the format due course resolution was used. Petitioner filed its memorandum but respondent corporation has no memorandum up to this date for the reason that resolutions sent to it have all returned unserved. 19. Rollo (G.R. No. 123822), p. 221. cIaHDA 20. Id. at 222-223. 21. Premium Marble Resources v. Court of Appeals, G.R. No. 96551, 264 SCRA 11, 18 citing Visayan v. NLRC, G.R. No. 69999, April 30, 1991, 196 SCRA 410. 22. People's Aircargo and Warehousing Co. v. Court of Appeals, G.R. No. 117847, October 7, 1998, 297 SCRA 170, 184-185 citing Francisco v. GSIS, 7 SCRA 577, 583 (1963). CETDHA

23. 24. 25. 26. 27. 28. 29. xxx

Rollo (G.R. No. 123822), pp. 17-18. Ibid. at 17. Id. at 784. G.R. No. 53820, June 15, 1992, 209 SCRA 763. G.R. No. 148444, July 14, 2008. Records, p. 557. Part of the CA Decision reads: xxx xxx. It is uncontroverted that Inland obtained numerous and separate credit accommodations from [Westmont Bank]. The obligation under Promissory Note No. BD-2884-77 is only the tip-of-the-iceberg of Inland's numerous obligations to [Westmont Bank]. If Inland fails to pay the obligations incurred under Promissory Note No. BD-2884-77, [Westmont Bank] may not foreclose the subject mortgaged properties on that ground alone. However, if Inland defaults on its other obligations to [Westmont Bank], the latter is justified in foreclosing the subject mortgaged properties, . . . . EScAID 30. Cang v. Court of Appeals, G.R. No. 105308, 357 Phil. 129, 146 (1998) citing Del Mundo v. Court of Appeals, 327 Phil. 463, 471 (1996). * Additional member per Special Order No. 571 dated February 12, 2009 in lieu of Justice Dante O. Tinga who is on official leave. BRION, J., dissenting: 1. See: San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, G.R. No. 129459, September 29, 1998, 296 SCRA 631. CHIaTc 2. Ponencia, p. 3. 3. Rural Bank of Milaor (Camarines Sur) v. Ocfemia, G.R. No. 137686, February 8, 2000, 235 SCRA 901. 4. See: ponencia, pp. 8-9. 5. National Power Corporation v. Dayrit, G.R. Nos. L-62845 to 46, November 26, 1983, 125 SCRA 849; California Bus Lines, Inc. v. State Investment House, Inc., G.R. No. 147950, December 11, 2003, 418 SCRA 297. IDaEHS 6. G.R. No. 118585, September 14, 1995, 248 SCRA 223. 7. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor . . . . [Emphasis supplied]. 8. Magdalena Estates Inc. v. Rodriguez, 125 Phil. 151 (1966), citing Pacific Commercial Company v. Sotto, 34 Phil. 237 (1916); Quinto v. People, G.R. No. 126712, April 14, 1999, 305 SCRA 708. CaATDE 9. Servicewide Specialists v. Intermediate Appellate Court, G.R. No. 74553, June 8, 1989, 174 SCRA 80. 2009jur