Republic of the Philippines Supreme Court Manila SECOND DIVISION

The Calabaca lot was purchased by the Iglesia on July 18, 1973 from Basilio Parale who inherited it from his father Simeon. It used to be coconut land. Simeon possessed the lot since 1920 and used it for residential purposes. He paid realty taxes on the land. The Iglesia and its predecessors claimed to have actual, public, peaceful, continuous and uninterrupted possession of the two lots in the concept of an owner for more than thirty years preceding the filing of the application. No realty taxes were paid by the Iglesia because it is an exempt corporation. The Director of Lands opposed the application. The trial court in its decision of April 30, 1982 granted it, confirmed the title of the applicant and ordered the lands registered in the name of Iglesia ni Cristo, with its Executive Minister Erao G. Manalo, as corporation sole, with office and postal address at corner Central and Don Mariano Marcos Avenues, Diliman, Quezon City, Metro Manila. The Republic appealed under Republic Act No. 5440 in relation to Rule 45 of the Rules of Court. The trial court found, and it is a matter of judicial notice, that the Iglesia is a duly registered corporation sole (Exhs. E and F). As the application is for confirmation of an imperfect or incomplete title, that application is necessarily subject to the following provisions of the Public Land Law, Commonwealth Act No. 141: SEC. 48. The following described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for confirmation of their claims and the issuance of a certificate of title therefor, unless the Land Registration Act, to wit: (a) . . . (b) Those who by themselves or through their predecessors in interest have been in open, continuous, exclusive, and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, for at least thirty years immediately preceding the filing of the application for confirmation of title except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter. (c) . . .

G.R. No. L-61145

February 20, 1984

REPUBLIC OF THE PHILIPPINES (Director of Lands), petitioner, vs. IGLESIA NI CRISTO and JUDGE DOMINGO M. ANGELES, Branch I, Court of First Instance of Camarines Norte, respondents.

DECISION AQUINO, J.: This case is about the same issue which was resolved against the Iglesia ni Cristo and is, therefore, res judicata: that, as a corporation sole, (1) it is not entitled to register lands under Section 48(b) of the Public Land Law, which refers only to Filipino citizens, and (2) that it is disqualified under Section 11, Article XIV of the Constitution to hold alienable public lands except by lease. (Republic vs. Villanueva, G.R. No. 55289, June 29, 1982, 114 SCRA 875; Republic vs. Gonong, G.R. No. 56025, November 25, 1982, 118 SCRA 729; Republic vs. Court of Appeals, G.R. No. 59447 and Republic vs. Cendaa, G.R. No. 60188, December 27, 1982, 119 SCRA 449 and Republic vs. Court of First Instance of Nueva Ecija, L-35273, July 25, 1983, 123 SCRA 516.) The Iglesia on November 6, 1976 filed an application for confirmation and registration of its title over two parcels of land located at Barrio Calabaca and the poblacion of Capalonga, Camarines Norte with areas of 300 and 599 square meters used as sites of its chapels. The town lot was purchased by the Iglesia on May 30, 1955 from Josefina Diezmo who in turn purchased it from Esteban Arcea who had used the lot for residential purposes since 1920. The realty taxes had been paid up to the time Diezmo possessed the lot.

Sec. 49. No person claiming title to lands of the public domain not in possession of the qualifications specified in the last preceding section may apply for the benefits of this chapter. The Iglesia is not a Filipino citizen, the lands in question are still public lands until registered (Heirs of Pelagio Zara vs. Director of Lands, 127 Phil. 8). Moreover, under the aforecited Section 11 of Article XIV, it is disqualified as a corporation to hold lands of the public domain except by lease. (Manila Electric Company vs. Castro Bartolome, L-49623, June 29, 182, 114 SCRA 799; Director of Lands, vs. Lood, L-32521, September 2, 1983, 124 SCRA 460). The Iglesia in its appellees brief has not shown that it is not covered by the said constitutional and statutory provisions. Its statement on page 2 of its brief that it is not a religious corporation when it filed its application is belied by the facts. It contends that it is entitled to register the lands as a trustee. This contention is erroneous. The unarguable fact is that it is a corporation sole governed by Section 109 et sequitur of the Corporation Code. It did not apply for registration as a trustee. As stated at the outset, the matter is subject to the governing principle of stare decisis et non quieta movere (follow past precedents and do not disturb what has been settled). WHEREFORE, the trial courts decision is reversed and set aside and the Iglesias application is dismissed with costs against it.

G.R. No. L-11442

May 23, 1958

MANUELA T. VDA. DE SALVATIERRA, petitioner, vs. HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte, Branch II, and SEGUNDINO REFUERZO, respondents. Jimenez, Tantuico, Jr. and Tolete for petitioner. Francisco Astilla for respondent Segundino Refuerzo. FELIX, J.: This is a petition for certiorari filed by Manuela T. Vda. de Salvatierra seeking to nullify the order of the Court of First Instance of Leyte in Civil Case No. 1912, dated March 21, 1956, relieving Segundino Refuerzo of liability for the contract entered into between the former and the Philippine Fibers Producers Co., Inc., of which Refuerzo is the president. The facts of the case are as follows: Manuela T. Vda. de Salvatierra appeared to be the owner of a parcel of land located at Maghobas, Poblacion, Burauen, Teyte. On March 7, 1954, said landholder entered into a contract of lease with the Philippine Fibers Producers Co., Inc., allegedly a corporation "duly organized and existing under the laws of the Philippines, domiciled at Burauen, Leyte, Philippines, and with business address therein, represented in this instance by Mr. Segundino Q. Refuerzo, the President". It was provided in said contract, among other things, that the lifetime of the lease would be for a period of 10 years; that the land would be planted to kenaf, ramie or other crops suitable to the soil; that the lessor would be entitled to 30 per cent of the net income accruing from the harvest of any, crop without being responsible for the cost of production thereof; and that after every harvest, the lessee was bound to declare at the earliest possible time the income derived therefrom and to deliver the corresponding share due the lessor. Apparently, the aforementioned obligations imposed on the alleged corporation were not complied with because on April 5, 1955, Alanuela T. Vda, de Salvatierra filed with the Court of First Instance of Leyte a complaint against the Philippine Fibers Producers Co., Inc., and Segundino Q. Refuerzo, for accounting, rescission and damages (Civil Case No. 1912). She averred that sometime in April, 1954, defendants planted kenaf on 3 hectares of the leased property which crop was, at the time of the commencement of the action, already harvested, processed and sold by defendants; that notwithstanding that fact, defendants refused to render an accounting of the income derived therefrom and to deliver the lessor's share; that the estimated gross income was P4,500, and the deductible expenses amounted to P1,000; that as defendants' refusal to undertake such task was in violation of the terms of the covenant entered into between the plaintiff and defendant corporation, a rescission was but proper.

As defendants apparently failed to file their answer to the complaint, of which they were allegedly notified, the Court declared them in default and proceeded to receive plaintiff's evidence. On June 8, 1955, the lower Court rendered judgment granting plaintiff's prayer, and required defendants to render a complete accounting of the harvest of the land subject of the proceeding within 15 days from receipt of the decision and to deliver 30 per cent of the net income realized from the last harvest to plaintiff, with legal interest from the date defendants received payment for said crop. It was further provide that upon defendants' failure to abide by the said requirement, the gross income would be fixed at P4,200 or a net income of P3,200 after deducting the expenses for production, 30 per cent of which or P960 was held to be due the plaintiff pursuant to the aforementioned contract of lease, which was declared rescinded. No appeal therefrom having been perfected within the reglementary period, the Court, upon motion of plaintiff, issued a writ of execution, in virtue of which the Provincial Sheriff of Leyte caused the attachment of 3 parcels of land registered in the name of Segundino Refuerzo. No property of the Philippine Fibers Producers Co., Inc., was found available for attachment. On January 31, 1956, defendant Segundino Refuerzo filed a motion claiming that the decision rendered in said Civil Case No. 1912 was null and void with respect to him, there being no allegation in the complaint pointing to his personal liability and thus prayed that an order be issued limiting such liability to defendant corporation. Over plaintiff's opposition, the Court a quo granted the same and ordered the Provincial Sheriff of Leyte to release all properties belonging to the movant that might have already been attached, after finding that the evidence on record made no mention or referred to any fact which might hold movant personally liable therein. As plaintiff's petition for relief from said order was denied, Manuela T. Vda. de Salvatierra instituted the instant action asserting that the trial Judge in issuing the order complained of, acted with grave abuse of discretion and prayed that same be declared a nullity. From the foregoing narration of facts, it is clear that the order sought to be nullified was issued by tile respondent Judge upon motion of defendant Refuerzo, obviously pursuant to Rule 38 of the Rules of Court. Section 3 of said Rule, however, in providing for the period within which such a motion may be filed, prescribes that: SEC. 3. WHEN PETITION FILED; CONTENTS AND VERIFICATION. A petition provided for in either of the preceding sections of this rule must be verified, filed within sixty days after the petitioner learns of the judgment, order, or other proceeding to be set aside, and not more than six months after such judgment or order was entered, or such proceeding was taken; and must be must be accompanied with affidavit showing the fraud, accident, mistake, or excusable negligence relied upon, and the facts constituting the petitioner is good and substantial cause of action or defense, as the case may be, which he may prove if his petition be granted". (Rule 38)

The aforequoted provision treats of 2 periods, i.e., 60 days after petitioner learns of the judgment, and not more than 6 months after the judgment or order was rendered, both of which must be satisfied. As the decision in the case at bar was under date of June 8, 1955, whereas the motion filed by respondent Refuerzo was dated January 31, 1956, or after the lapse of 7 months and 23 days, the filing of the aforementioned motion was clearly made beyond the prescriptive period provided for by the rules. The remedy allowed by Rule 38 to a party adversely affected by a decision or order is certainly an alert of grace or benevolence intended to afford said litigant a penultimate opportunity to protect his interest. Considering the nature of such relief and the purpose behind it, the periods fixed by said rule are non-extendible and never interrupted; nor could it be subjected to any condition or contingency because it is of itself devised to meet a condition or contingency (Palomares vs. Jimenez, * G.R. No. L-4513, January 31, 1952). On this score alone, therefore, the petition for a writ of certiorari filed herein may be granted. However, taking note of the question presented by the motion for relief involved herein, We deem it wise to delve in and pass upon the merit of the same. Refuerzo, in praying for his exoneration from any liability resulting from the nonfulfillment of the obligation imposed on defendant Philippine Fibers Producers Co., Inc., interposed the defense that the complaint filed with the lower court contained no allegation which would hold him liable personally, for while it was stated therein that he was a signatory to the lease contract, he did so in his capacity as president of the corporation. And this allegation was found by the Court a quo to be supported by the records. Plaintiff on the other hand tried to refute this averment by contending that her failure to specify defendant's personal liability was due to the fact that all the time she was under the impression that the Philippine Fibers Producers Co., Inc., represented by Refuerzo was a duly registered corporation as appearing in the contract, but a subsequent inquiry from the Securities and Exchange Commission yielded otherwise. While as a general rule a person who has contracted or dealt with an association in such a way as to recognize its existence as a corporate body is estopped from denying the same in an action arising out of such transaction or dealing, (Asia Banking Corporation vs. Standard Products Co., 46 Phil., 114; Compania Agricola de Ultramar vs. Reyes, 4 Phil., 1; Ohta Development Co.; vs. Steamship Pompey, 49 Phil., 117), yet this doctrine may not be held to be applicable where fraud takes a part in the said transaction. In the instant case, on plaintiff's charge that she was unaware of the fact that the Philippine Fibers Producers Co., Inc., had no juridical personality, defendant Refuerzo gave no confirmation or denial and the circumstances surrounding the execution of the contract lead to the inescapable conclusion that plaintiff Manuela T. Vda. de Salvatierra was really made to believe that such corporation was duly organized in accordance with law. There can be no question that a corporation with registered has a juridical personality separate and distinct from its component members or stockholders and officers such that a corporation cannot be held liable for the personal indebtedness of a stockholder even if he should be its president (Walter A. Smith Co. vs. Ford, SCG.R. No. 42420) and conversely, a stockholder or member cannot be held personally

liable for any financial obligation be, the corporation in excess of his unpaid subscription. But this rule is understood to refer merely to registered corporations and cannot be made applicable to the liability of members of an unincorporated association. The reason behind this doctrine is obvious-since an organization which before the law is non-existent has no personality and would be incompetent to act and appropriate for itself the powers and attribute of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the rights and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and comes personally liable for contracts entered into or for other acts performed as such, agent (Fay vs. Noble, 7 Cushing [Mass.] 188. Cited in II Tolentino's Commercial Laws of the Philippines, Fifth Ed., P. 689-690). Considering that defendant Refuerzo, as president of the unregistered corporation Philippine Fibers Producers Co., Inc., was the moving spirit behind the consummation of the lease agreement by acting as its representative, his liability cannot be limited or restricted that imposed upon corporate shareholders. In acting on behalf of a corporation which he knew to be unregistered, he assumed the risk of reaping the consequential damages or resultant rights, if any, arising out of such transaction. Wherefore, the order of the lower Court of March 21, 1956, amending its previous decision on this matter and ordering the Provincial Sheriff of Leyte to release any and all properties of movant therein which might have been attached in the execution of such judgment, is hereby set aside and nullified as if it had never been issued. With costs against respondent Segundino Refuerzo. It is so ordered.

G.R. No. 93073 December 21, 1992 REPUBLIC PLANTERS BANK, petitioner, vs. COURT OF APPEALS and FERMIN CANLAS, respondents.

Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly Worldwide) is ordered to pay the plaintiff bank the sum of P140,000.00 with interest at 16% per annum from November 27, 1980 until fully paid. Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the sum of P231,120.81 with interest at 12% per annum from July 1, 1981, until fully paid and the sum of P331,870.97 with interest from March 28, 1981, until fully paid. All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum of P100,000.00 as and for reasonable attorney's fee and the further sum equivalent to 3% per annum of the respective principal sums from the dates above stated as penalty charge until fully paid, plus one percent (1%) of the principal sums as service charge. With costs against the defendants.

CAMPOS, JR., J.: This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of Appeals in CA G.R. CV No. 07302, entitled "Republic Planters Bank.Plaintiff-Appellee vs. Pinch Manufacturing Corporation, et al., Defendants, and Fermin Canlas, Defendant-Appellant", which affirmed the decision ** in Civil Case No. 82-5448 except that it completely absolved Fermin Canlas from liability under the promissory notes and reduced the award for damages and attorney's fees. The RTC decision, rendered on June 20, 1985, is quoted hereunder: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Republic Planters Bank, ordering defendant Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and defendants Shozo Yamaguchi and Fermin Canlas to pay, jointly and severally, the plaintiff bank the following sums with interest thereon at 16% per annum from the dates indicated, to wit: Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from January 29, 1981 until fully paid; under promissory note (Exhibit "B"), the sum of P40,000.00 with interest from November 27, 1980; under the promissory note (Exhibit "C"), the sum of P166,466.00 which interest from January 29, 1981; under the promissory note (Exhibit "E"), the sum of P86,130.31 with interest from January 29, 1981; under the promissory note (Exhibit "G"), the sum of P12,703.70 with interest from November 27, 1980; under the promissory note (Exhibit "H"), the sum of P281,875.91 with interest from January 29, 1981; and under the promissory note (Exhibit "I"), the sum of P200,000.00 with interest from January 29, 1981. Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation (formerly named Worldwide Garment Manufacturing, Inc.), and Shozo Yamaguchi are ordered to pay jointly and severally, the plaintiff bank the sum of P367,000.00 with interest of 16% per annum from January 29, 1980 until fully paid

SO ORDERED. 1 From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court (now the Court Appeals). His contention was that inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide Garment Manufacturing, Inc, he should not be held personally liable for such authorized corporate acts that he performed. It is now the contention of the petitioner Republic Planters Bank that having unconditionally signed the nine (9) promissory notes with Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas is solidarity liable with Shozo Yamaguchi on each of the nine notes. We find merit in this appeal. From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent Fermin Canlas were President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.. By virtue of Board Resolution No.1 dated August 1, 1979, defendant Shozo Yamaguchi and private respondent Fermin Canlas were authorized to apply for credit facilities with the petitioner Republic Planters Bank in the forms of export advances and letters of credit/trust receipts accommodations. Petitioner bank issued nine promissory notes, marked as Exhibits A to I inclusive, each of which were uniformly worded in the following manner: ___________, after date, for value received, I/we, jointly and severaIly promise to pay to the ORDER of the REPUBLIC

PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________ PESOS(....) Philippine Currency... On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin Canlas above their printed names with the phrase "and (in) his personal capacity" typewritten below. At the bottom of the promissory notes appeared: "Please credit proceeds of this note to: ________ Savings Account ______XX Current Account No. 1372-00257-6 of WORLDWIDE GARMENT MFG. CORP. These entries were separated from the text of the notes with a bold line which ran horizontally across the pages. In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing, Inc. was apparently rubber stamped above the signatures of defendant and private respondent. On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate name to Pinch Manufacturing Corporation. On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered among others, by the nine promissory notes with interest thereon, plus attorney's fees and penalty charges. The complainant was originally brought against Worldwide Garment Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide Manufacturing, Inc. as defendant and substitute Pinch Manufacturing Corporation it its place. Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference despite due notice. Only private respondent Fermin Canlas filed an Amended Answer wherein he, denied having issued the promissory notes in question since according to him, he was not an officer of Pinch Manufacturing Corporation, but instead of Worldwide Garment Manufacturing, Inc., and that when he issued said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the same were in blank, the typewritten entries not appearing therein prior to the time he affixed his signature. In the mind of this Court, the only issue material to the resolution of this appeal is whether private respondent Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory notes.

We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature for the following reasons: The promissory motes are negotiable instruments and must be governed by the Negotiable Instruments Law. 2 Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are liable as such. 3 By signing the notes, the maker promises to pay to the order of the payee or any holder 4 according to the tenor thereof. 5 Based on the above provisions of law, there is no denying that private respondent Fermin Canlas is one of the co-makers of the promissory notes. As such, he cannot escape liability arising therefrom. Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. 6 An instrument which begins" with "I" ,We" , or "Either of us" promise to, pay, when signed by two or more persons, makes them solidarily liable. 7 The fact that the singular pronoun is used indicates that the promise is individual as to each other; meaning that each of the co-signers is deemed to have made an independent singular promise to pay the notes in full. In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason for ambiguity, by the presence of the phrase "joint and several" as describing the unconditional promise to pay to the order of Republic Planters Bank. A joint and several note is one in which the makers bind themselves both jointly and individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit. 8 A joint and several obligation in common law corresponds to a civil law solidary obligation; that is, one of several debtors bound in such wise that each is liable for the entire amount, and not merely for his proportionate share. 9 By making a joint and several promise to pay to the order of Republic Planters Bank, private respondent Fermin Canlas assumed the solidary liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi and Pinch Manufacturing Corporation as solidary debtors. As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the makers in the notes will affect the liability of the makers, We do not find it necessary to resolve and decide, because it is immaterial and will not affect to the liability of private respondent Fermin Canlas as a joint and several debtor of the notes. With or without the presence of said phrase, private respondent Fermin Canlas is primarily liable as a co-maker of each of the notes and his liability is that of a solidary debtor. Finally, the respondent Court made a grave error in holding that an amendment in a corporation's Articles of Incorporation effecting a change of corporate name, in this

case from Worldwide Garment manufacturing Inc to Pinch Manufacturing Corporation extinguished the personality of the original corporation. The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the original corporation. It is the same corporation with a different name, and its character is in no respect changed. 10 A change in the corporate name does not make a new corporation, and whether effected by special act or under a general law, has no affect on the identity of the corporation, or on its property, rights, or liabilities. 11 The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had previously contracted or incurred. 12 As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity as agent of the old corporation and the change of name meant only the continuation of the old juridical entity, the corporation bearing the same name is still bound by the acts of its agents if authorized by the Board. Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically provided for as follows: Sec. 20. Liability of a person signing as agent and so forth . Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal , or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability. Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a representative capacity or the name of the third party for whom he might have acted as agent, the agent is personally liable to take holder of the instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or extrinsic evidence is not admissible to avoid the agent's personal liability. 13 On the private respondent's contention that the promissory notes were delivered to him in blank for his signature, we rule otherwise. A careful examination of the notes in question shows that they are the stereotype printed form of promissory notes generally used by commercial banking institutions to be signed by their clients in obtaining loans. Such printed notes are incomplete because there are blank spaces to be filled up on material particulars such as payee's name, amount of the loan, rate of interest, date of issue and the maturity date. The terms and conditions of the loan are printed on the note for the borrower-debtor 's perusal. An incomplete instrument

which has been delivered to the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law which provides, in so far as relevant to this case, thus: Sec. 14. Blanks: when may be filled. Where the instrument is wanting in any material particular, the person in possesion thereof has a prima facie authority to complete it by filling up the blanks therein. ... In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time... Proof that the notes were signed in blank was only the self-serving testimony of private respondent Fermin Canlas, as determined by the trial court, so that the trial court ''doubts the defendant (Canlas) signed in blank the promissory notes". We chose to believe the bank's testimony that the notes were filled up before they were given to private respondent Fermin Canlas and defendant Shozo Yamaguchi for their signatures as joint and several promissors. For signing the notes above their typewritten names, they bound themselves as unconditional makers. We take judicial notice of the customary procedure of commercial banks of requiring their clientele to sign promissory notes prepared by the banks in printed form with blank spaces already filled up as per agreed terms of the loan, leaving the borrowers-debtors to do nothing but read the terms and conditions therein printed and to sign as makers or comakers. When the notes were given to private respondent Fermin Canlas for his signature, the notes were complete in the sense that the spaces for the material particular had been filled up by the bank as per agreement. The notes were not incomplete instruments; neither were they given to private respondent Fermin Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable. The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest rate on the promissory notes from 16% to 12% per annum does not squarely apply to the instant petition. In the abovecited case, the rate of 12% was applied to forebearances of money, goods or credit and court judgemets thereon, only in the absence of any stipulation between the parties. In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum, which interest rate the plaintiff may at any time without notice, raise within the limits allowed law. And so, as of February 16, 1984 , the plaintiff had fixed the interest at 16% per annum. This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116, are applicable only to interests by way of compensation for the use or forebearance of money. Article 2209 of the Civil Code, on the other hand, governs interests by way of damages. 15 This fine distinction was not taken into consideration

by the appellate court, which instead made a general statement that the interest rate be at 12% per annum. Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling prescribed by the Usury Law, the appellate court erred in limiting the interest rates at 12% per annum. Central Bank Circular No. 905, Series of 1982 removed the Usury Law ceiling on interest rates. 16 In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence on the matter, the decision of the respondent: Court of Appeals absolving private respondent Fermin Canlas is REVERSED and SET ASIDE. Judgement is hereby rendered declaring private respondent Fermin Canlas jointly and severally liable on all the nine promissory notes with the following sums and at 16% interest per annum from the dates indicated, to wit: Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January 29, 1981 until fully paid; under promissory note marked as Exhibit B, the sum of P40,000.00 with interest from November 27, 1980: under the promissory note denominated as Exhibit C, the amount of P166,466.00 with interest from January 29, 1981; under the promissory note denominated as Exhibit D, the amount of P367,000.00 with interest from January 29, 1981 until fully paid; under the promissory note marked as Exhibit E, the amount of P86,130.31 with interest from January 29, 1981; under the promissory note marked as Exhibit F, the sum of P140,000.00 with interest from November 27, 1980 until fully paid; under the promissory note marked as Exhibit G, the amount of P12,703.70 with interest from November 27, 1980; the promissory note marked as Exhibit H, the sum of P281,875.91 with interest from January 29, 1981; and the promissory note marked as Exhibit I, the sum of P200,000.00 with interest on January 29, 1981. The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and Shozo Yamaguchi, for not having appealed from the decision of the trial court, shall be adjudged in accordance with the judgment rendered by the Court a quo. With respect to attorney's fees, and penalty and service charges, the private respondent Fermin Canlas is hereby held jointly and solidarity liable with defendants for the amounts found, by the Court a quo. With costs against private respondent.

[G.R. No. 117188. August 7, 1997] LOYOLA GRAND VILLAS HOMEOWNERS (SOUTH) ASSOCIATION, INC., petitioner, vs. HON. COURT OF APPEALS, HOME INSURANCE AND GUARANTY CORPORATION, EMDEN ENCARNACION and HORATIO AYCARDO, respondents. DECISION ROMERO, J.: May the failure of a corporation to file its by-laws within one month from the date of its incorporation, as mandated by Section 46 of the Corporation Code, result in its automatic dissolution? This is the issue raised in this petition for review on certiorari of the Decisioni[1] of the Court of Appeals affirming the decision of the Home Insurance and Guaranty Corporation (HIGC). This quasi-judicial body recognized Loyola Grand Villas Homeowners Association (LGVHA) as the sole homeowners association in Loyola Grand Villas, a duly registered subdivision in Quezon City and Marikina City that was owned and developed by Solid Homes, Inc. It revoked the certificates of registration issued to Loyola Grand Villas Homeowners (North) Association Incorporated (the North Association for brevity) and Loyola Grand Villas Homeowners (South) Association Incorporated (the South Association). LGVHAI was organized on February 8, 1983 as the association of homeowners and residents of the Loyola Grand Villas. It was registered with the Home Financing Corporation, the predecessor of herein respondent HIGC, as the sole homeowners organization in the said subdivision under Certificate of Registration No. 04-197. It was organized by the developer of the subdivision and its first president was Victorio V. Soliven, himself the owner of the developer. For unknown reasons, however, LGVHAI did not file its corporate by-laws. Sometime in 1988, the officers of the LGVHAI tried to register its by-laws. They failed to do so.ii[2] To the officers consternation, they discovered that there were two other organizations within the subdivision the North Association and the South Association. According to private respondents, a non-resident and Soliven himself, respectively headed these associations. They also discovered that these associations had five (5) registered homeowners each who were also the incorporators, directors and officers thereof. None of the members of the LGVHAI was listed as member of the North Association while three (3) members of LGVHAI were listed as members of the South Association.iii[3] The North Association was registered with the HIGC on February 13, 1989 under Certificate of Registration No. 04-1160 covering Phases West II, East III, West III and East IV. It submitted its by-laws on December 20, 1988.

In July, 1989, when Soliven inquired about the status of LGVHAI, Atty. Joaquin A. Bautista, the head of the legal department of the HIGC, informed him that LGVHAI had been automatically dissolved for two reasons. First, it did not submit its by-laws within the period required by the Corporation Code and, second, there was non-user of corporate charter because HIGC had not received any report on the associations activities. Apparently, this information resulted in the registration of the South Association with the HIGC on July 27, 1989 covering Phases West I, East I and East 11. It filed its by-laws on July 26, 1989. These developments prompted the officers of the LGVHAI to lodge a complaint with the HIGC. They questioned the revocation of LGVHAIs certificate of registration without due notice and hearing and concomitantly prayed for the cancellation of the certificates of registration of the North and South Associations by reason of the earlier issuance of a certificate of registration in favor of LGVHAI. On January 26, 1993, after due notice and hearing, private respondents obtained a favorable ruling from HIGC Hearing Officer Danilo C. Javier who disposed of HIGC Case No. RRM-5-89 as follows: WHEREFORE, judgment is hereby rendered recognizing the Loyola Grand Villas Homeowners Association, Inc., under Certificate of Registration No. 04-197 as the duly registered and existing homeowners association for Loyola Grand Villas homeowners, and declaring the Certificates of Registration of Loyola Grand Villas Homeowners (North) Association, Inc. and Loyola Grand Villas Homeowners (South) Association, Inc. as hereby revoked or cancelled; that the receivership be terminated and the Receiver is hereby ordered to render an accounting and turn-over to Loyola Grand Villas Homeowners Association, Inc., all assets and records of the Association now under his custody and possession. The South Association appealed to the Appeals Board of the HIGC. In its Resolution of September 8, 1993, the Boardiv[4] dismissed the appeal for lack of merit. Rebuffed, the South Association in turn appealed to the Court of Appeals, raising two issues. First, whether or not LGVHAIs failure to file its by-laws within the period prescribed by Section 46 of the Corporation Code resulted in the automatic dissolution of LGVHAI. Second, whether or not two homeowners associations may be authorized by the HIGC in one sprawling subdivision. However, in the Decision of August 23, 1994 being assailed here, the Court of Appeals affirmed the Resolution of the HIGC Appeals Board. In resolving the first issue, the Court of Appeals held that under the Corporation Code, a private corporation commences to have corporate existence and juridical personality from the date the Securities and Exchange Commission (SEC) issues a certificate of incorporation under its official seal. The requirement for the filing of

by-laws under Section 46 of the Corporation Code within one month from official notice of the issuance of the certificate of incorporation presupposes that it is already incorporated, although it may file its by-laws with its articles of incorporation. Elucidating on the effect of a delayed filing of by-laws, the Court of Appeals said: We also find nothing in the provisions cited by the petitioner, i.e., Sections 46 and 22, Corporation Code, or in any other provision of the Code and other laws which provide or at least imply that failure to file the by-laws results in an automatic dissolution of the corporation. While Section 46, in prescribing that by-laws must be adopted within the period prescribed therein, may be interpreted as a mandatory provision, particularly because of the use of the word must, its meaning cannot be stretched to support the argument that automatic dissolution results from noncompliance. We realize that Section 46 or other provisions of the Corporation Code are silent on the result of the failure to adopt and file the by-laws within the required period. Thus, Section 46 and other related provisions of the Corporation Code are to be construed with Section 6 (1) of P.D. 902-A. This section empowers the SEC to suspend or revoke certificates of registration on the grounds listed therein. Among the grounds stated is the failure to file by-laws (see also II Campos: The Corporation Code, 1990 ed., pp. 124-125). Such suspension or revocation, the same section provides, should be made upon proper notice and hearing. Although P.D. 902-A refers to the SEC, the same principles and procedures apply to the public respondent HIGC as it exercises its power to revoke or suspend the certificates of registration or homeowners associations. (Section 2 [a], E.O. 535, series 1979, transferred the powers and authorities of the SEC over homeowners associations to the HIGC.) We also do not agree with the petitioners interpretation that Section 46, Corporation Code prevails over Section 6, P.D. 902-A and that the latter is invalid because it contravenes the former. There is no basis for such interpretation considering that these two provisions are not inconsistent with each other. They are, in fact, complementary to each other so that one cannot be considered as invalidating the other. The Court of Appeals added that, as there was no showing that the registration of LGVHAI had been validly revoked, it continued to be the duly registered homeowners association in the Loyola Grand Villas. More importantly, the South Association did not dispute the fact that LGVHAI had been organized and that, thereafter, it transacted business within the period prescribed by law. On the second issue, the Court of Appeals reiterated its previous rulingv[5] that the HIGC has the authority to order the holding of a referendum to determine which of two contending associations should represent the entire community, village or subdivision.

Undaunted, the South Association filed the instant petition for review on certiorari. It elevates as sole issue for resolution the first issue it had raised before the Court of Appeals, i.e., whether or not the LGVHAIs failure to file its by-laws within the period prescribed by Section 46 of the Corporation Code had the effect of automatically dissolving the said corporation. Petitioner contends that, since Section 46 uses the word must with respect to the filing of by-laws, noncompliance therewith would result in self-extinction either due to non-occurrence of a suspensive condition or the occurrence of a resolutory condition under the hypothesis that (by) the issuance of the certificate of registration alone the corporate personality is deemed already formed. It asserts that the Corporation Code provides for a gradation of violations of requirements. Hence, Section 22 mandates that the corporation must be formally organized and should commence transactions within two years from date of incorporation. Otherwise, the corporation would be deemed dissolved. On the other hand, if the corporation commences operations but becomes continuously inoperative for five years, then it may be suspended or its corporate franchise revoked. Petitioner concedes that Section 46 and the other provisions of the Corporation Code do not provide for sanctions for non-filing of the by-laws. However, it insists that no sanction need be provided because the mandatory nature of the provision i s so clear that there can be no doubt about its being an essential attribute of corporate birth. To petitioner, its submission is buttressed by the facts that the period for compliance is spelled out distinctly; that the certification of the SEC/HIGC must show that the by-laws are not inconsistent with the Code, and that a copy of the by-laws has to be attached to the articles of incorporation. Moreover, no sanction is provided for because in the first place, no corporate identity has been completed. Petitioner asserts that non-provision for remedy or sanction is itself the tacit proclamation that non-compliance is fatal and no corporate existence had yet evolved, and therefore, there was no need to proclaim its demise. vi[6] In a bid to convince the Court of its arguments, petitioner stresses that: x x x the word MUST is used in Sec. 46 in its universal literal meaning and corollary human implication its compulsion is integrated in its very essence MUST is always enforceable by the inevitable consequence that is, OR ELSE. The use of the word MUST in Sec. 46 is no exception it means file the by-laws within one month after notice of issuance of certificate of registration OR ELSE. The OR ELSE, though not specified, is inextricably a part of MUST. Do this or if you do not you are Kaput. The importance of the by-laws to corporate existence compels such meaning for as decreed the by-laws is `the government of the corporation. Indeed, how can the corporation do any lawful act as such without bylaws. Surely, no law is intended to create chaos.vii[7] Petitioner asserts that P.D. No. 902-A cannot exceed the scope and power of the Corporation Code which itself does not provide sanctions for non-filing of by-

laws. For the petitioner, it is not proper to assess the true meaning of Sec. 46 x x x on an unauthorized provision on such matter contained in the said decree. In their comment on the petition, private respondents counter that the requirement of adoption of by-laws is not mandatory. They point to P.D. No. 902-A as having resolved the issue of whether said requirement is mandatory or merely directory. Citing Chung Ka Bio v. Intermediate Appellate Court,viii[8] private respondents contend that Section 6(I) of that decree provides that non-filing of by-laws is only a ground for suspension or revocation of the certificate of registration of corporations and, therefore, it may not result in automatic dissolution of the corporation. Moreover, the adoption and filing of by-laws is a condition subsequent which does not affect the corporate personality of a corporation like the LGVHAI. This is so because Section 9 of the Corporation Code provides that the corporate existence and juridical personality of a corporation begins from the date the SEC issues a certificate of incorporation under its official seal. Consequently, even if the by-laws have not yet been filed, a corporation may be considered a de facto corporation. To emphasize the fact the LGVHAI was registered as the sole homeowners association in the Loyola Grand Villas, private respondents point out that membership in the LGVHAI was an unconditional restriction in the deeds of sale signed by lot buyers. In its reply to private respondents comment on the p etition, petitioner reiterates its argument that the word must in Section 46 of the Corporation Code is mandatory. It adds that, before the ruling in Chung Ka Bio v. Intermediate Appellate Court could be applied to this case, this Court must first resolve the issue of whether or not the provisions of P.D. No. 902-A prescribing the rules and regulations to implement the Corporation Code can rise above and change the substantive provisions of the Code. The pertinent provision of the Corporation Code that is the focal point of controversy in this case states: 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 bylaws 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 stockholders or members voting for them and shall be kept in the principal office of the corporation, subject to inspection of the stockholders or members during office hours; and a copy thereof, 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. The Securities and Exchange Commission shall not accept for filing the by-laws or any amendment thereto of any bank, banking institution, building and loan association, trust company, insurance company, public utility, educational institution or other special corporations governed by special laws, unless accompanied by a certificate of the appropriate government agency to the effect that such by-laws or amendments are in accordance with law. As correctly postulated by the petitioner, interpretation of this provision of law begins with the determination of the meaning and import of the word must in this section. Ordinarily, the word must connotes an imperative act or operates to impose a duty which may be enforced.ix[9] It is synonymous with ought which connotes compulsion or mandatoriness.x[10] However, the word must in a statute, like shall, is not always imperative. It may be consistent with an exercise of discretion. In this jurisdiction, the tendency has been to interpret shall as the context or a reasonable construction of the statute in which it is used demands or requires.xi[11] This is equally true as regards the word must. Thus, if the language of a statute considered as a whole and with due regard to its nature and object reveals that the legislature intended to use the words shall and must to be directory, they should be given that meaning.xii[12] In this respect, the following portions of the deliberations of the Batasang Pambansa No. 68 are illuminating: MR. FUENTEBELLA. Thank you, Mr. Speaker. On page 34, referring to the adoption of by-laws, are we made to understand here, Mr. Speaker, that by-laws must immediately be filed within one month after the issuance? In other words, would this be mandatory or directory in character? MR. MENDOZA. This is mandatory. MR. FUENTEBELLA. It being mandatory, Mr. Speaker, what would be the effect of the failure of the corporation to file these by-laws within one month? MR. MENDOZA. There is a provision in the latter part of the Code which identifies and describes the consequences of violations of any provision of this Code.

One such consequence is the dissolution of the corporation for its inability, or perhaps, incurring certain penalties. MR. FUENTEBELLA. But it will not automatically amount to a dissolution of the corporation by merely failing to file the by-laws within one month. Supposing the corporation was late, say, five days, what would be the mandatory penalty? MR. MENDOZA. I do not think it will necessarily result in the automatic or ipso facto dissolution of the corporation. Perhaps, as in the case, as you suggested, in the case of El Hogar Filipino where a quo warranto action is brought, one takes into account the gravity of the violation committed. If the by-laws were late the filing of the by-laws were late by, perhaps, a day or two, I would suppose that might be a tolerable delay, but if they are delayed over a period of months as is happening now because of the absence of a clear requirement that by-laws must be completed within a specified period of time, the corporation must suffer certain consequences.xiii[13] This exchange of views demonstrates clearly that automatic corporate dissolution for failure to file the by-laws on time was never the intention of the legislature. Moreover, even without resorting to the records of deliberations of the Batasang Pambansa, the law itself provides the answer to the issue propounded by petitioner. Taken as a whole and under the principle that the best interpreter of a statute is the statute itself (optima statuli interpretatix est ipsum statutum ),xiv[14] Section 46 aforequoted reveals the legislative intent to attach a directory, and not mandatory, meaning for the word must in the first sentence thereof. Note should be taken of the second paragraph of the law which allows the filing of the by-laws even prior to incorporation. This provision in the same section of the Code rules out mandatory compliance with the requirement of filing the by-laws within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission. It necessarily follows that failure to file the by-laws within that period does not imply the demise of the corporation. By-laws may be necessary for the government of the corporation but these are subordinate to the articles of incorporation as well as to the Corporation Code and related statutes.xv[15] There are in fact cases where by-laws are unnecessary to corporate existence or to the valid exercise of corporate powers, thus: In the absence of charter or statutory provisions to the contrary, by -laws are not necessary either to the existence of a corporation or to the valid exercise of the powers conferred upon it, certainly in all cases where the charter sufficiently provides for the government of the body; and even where the governing statute in express terms confers upon the corporation the power to adopt by-laws, the failure to exercise the power will be ascribed to mere nonaction which will not render void any acts of the corporation which would otherwise be valid. xvi[16] (Italics supplied.)

As Fletcher aptly puts it: It has been said that the by-laws of a corporation are the rule of its life, and that until by-laws have been adopted the corporation may not be able to act for the purposes of its creation, and that the first and most important duty of the members is to adopt them. This would seem to follow as a matter of principle from the office and functions of by-laws. Viewed in this light, the adoption of by-laws is a matter of practical, if not one of legal, necessity. Moreover, the peculiar circumstances attending the formation of a corporation may impose the obligation to adopt certain by-laws, as in the case of a close corporation organized for specific purposes. And the statute or general laws from which the corporation derives its corporate existence may expressly require it to make and adopt by-laws and specify to some extent what they shall contain and the manner of their adoption. The mere fact, however, of the existence of power in the corporation to adopt by-laws does not ordinarily and of necessity make the exercise of such power essential to its corporate life, or to the validity of any of its acts.xvii[17] Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the consequences of the non-filing of the same within the period provided for in Section 46. However, such omission has been rectified by Presidential Decree No. 902-A, the pertinent provisions on the jurisdiction of the SEC of which state: SEC. 6. In order to effectively exercise such jurisdiction, the Commiss ion shall possess the following powers: xxx xxx xxx xxx

(l) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following: xxx xxx xxx xxx

5. Failure to file by-laws within the required period; xxx xxx xxx xxx

In the exercise of the foregoing authority and jurisdiction of the Commissions or by a Commissioner or by such other bodies, boards, committees and/or any officer as may be created or designated by the Commission for the purpose. The decision, ruling or order of any such Commissioner, bodies, boards, committees and/or officer may be appealed to the Commission sitting en banc within thirty (30) days after receipt by the appellant of notice of such decision, ruling or order. The Commission shall

promulgate rules of procedures to govern the proceedings, hearings and appeals of cases falling within its jurisdiction. The aggrieved party may appeal the order, decision or ruling of the Commission sitting en banc to the Supreme Court by petition for review in accordance with the pertinent provisions of the Rules of Court. Even under the foregoing express grant of power and authority, there can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-laws embodied in Section 46 of the Corporation Code. There is no outright demise of corporate existence. Proper notice and hearing are cardinal components of due process in any democratic institution, agency or society. In other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same. That the failure to file by-laws is not provided for by the Corporation Code but in another law is of no moment. P.D. No. 902-A, which took effect immediately after its promulgation on March 11, 1976, is very much apposite to the Code. Accordingly, the provisions abovequoted supply the law governing the situation in the case at bar, inasmuch as the Corporation Code and P.D. No. 902-A are statutes in pari materia. Interpretare et concordare legibus est optimus interpretandi. Every statute must be so construed and harmonized with other statutes as to form a uniform system of jurisprudence.xviii[18] As the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it,xix[19] by-laws are indispensable to corporations in this jurisdiction. These may not be essential to corporate birth but certainly, these are required by law for an orderly governance and management of corporations. Nonetheless, failure to file them within the period required by law by no means tolls the automatic dissolution of a corporation. In this regard, private respondents are correct in relying on the pronouncements of this Court in Chung Ka Bio v. Intermediate Appellate Court,xx[20] as follows: x x x. Moreover, failure to file the by-laws does not automatically operate to dissolve a corporation but is now considered only a ground for such dissolution. Section 19 of the Corporation Law, part of which is now Section 22 of the Corporation Code, provided that the powers of the corporation would cease if it did not formally organize and commence the transaction of its business or the continuation of its works within two years from date of its incorporation. Section 20, which has been reproduced with some modifications in Section 46 of the Corporation Code, expressly declared that every corporation formed under this Act,

must within one month after the filing of the articles of incorporation with the Securities and Exchange Commission, adopt a code of by-laws. Whether this provision should be given mandatory or only directory effect remained a controversial question until it became academic with the adoption of PD 902-A. Under this decree, it is now clear that the failure to file by-laws within the required period is only a ground for suspension or revocation of the certificate of registration of corporations. Non-filing of the by-laws will not result in automatic dissolution of the corporation. Under Section 6(I) of PD 902-A, the SEC is empowered to suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of a corporatio n on the ground inter alia of failure to file by-laws within the required period. It is clear from this provision that there must first of all be a hearing to determine the existence of the ground, and secondly, assuming such finding, the penalty is not necessarily revocation but may be only suspension of the charter. In fact, under the rules and regulations of the SEC, failure to file the by-laws on time may be penalized merely with the imposition of an administrative fine without affecting the corporate existence of the erring firm. It should be stressed in this connection that substantial compliance with conditions subsequent will suffice to perfect corporate personality. Organization and commencement of transaction of corporate business are but conditions subsequent and not prerequisites for acquisition of corporate personality. The adoption and filing of by-laws is also a condition subsequent. Under Section 19 of the Corporation Code, a corporation commences its corporate existence and juridical personality and is deemed incorporated from the date the Securities and Exchange Commission issues certificate of incorporation under its official seal. This may be done even before the filing of the by-laws, which under Section 46 of the Corporation Code, must be adopted within one month after receipt of official notice of the issuance of its certificate of incorporation. xxi[21] That the corporation involved herein is under the supervision of the HIGC does not alter the result of this case. The HIGC has taken over the specialized functions of the former Home Financing Corporation by virtue of Executive Order No. 90 dated December 17, 1986.xxii[22] With respect to homeowners associations, the HIGC shall exercise all the powers, authorities and responsibilities that are vested on the Securities and Exchange Commission x x x, the provision of Act 1459, as amended by P.D. 902-A, to the contrary notwithstanding. xxiii[23] WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned Decision of the Court of Appeals AFFIRMED. This Decision is immediately executory. Costs against petitioner.

G.R. No. L-32473 July 31, 1973 IGNACIO VICENTE and MOISES ANGELES, petitioners, vs. HON. AMBROSIO M. GERALDEZ, as Judge of the Court of First Instance of Bulacan, Branch V (Sta. Maria), and HI CEMENT CORPORATION, respondents G.R. No. L-32483 July 31, 1973 JUAN BERNABE, petitioner, vs. HI CEMENT CORPORATION and THE HON. AMBROSIO M. GERALDEZ, Presiding Judge, Branch V, Court of First Instance of Bulacan, respondents. Librado S. Correa for petitioners Ignacio Vicente and Moises Angeles. Francisco R. Capistrano and Andreciano F. Caballero for petitioner Juan Bernabe. Renato L. Cayetano and Jesus G. Diaz for respondent HI Cement Corporation.

Ignacio Vicente (about two hectares) and Moises Angeles (about one-fourth hectare); that the plaintiff had, on several occasions, informed the defendants, thru its representatives, of the plaintiff's acquisition of the aforesaid placer mining claims which included the areas occupied by them; that the plaintiff had requested the defendants to allow its workers to enter the area in question for exploration and development purposes as well as for the extraction of minerals therefrom, promising to pay the defendants reasonable amounts as damages, but the defendants refused to allow entry of the plaintiff's representatives; that the defendants were threatening the plaintiff's workers with bodily harm if they entered the premises, for which reason the plaintiff had suffered irreparable damages due to its failure to work on and develop its claims and to extract minerals therefrom, resulting in its inability to comply with its contractual commitments, for all of which reasons the plaintiff prayed the court to issue preliminary writs of mandatory injunction perpetually restraining the defendants and those cooperating with them from the commission or continuance of the acts complained of, ordering defendants to allow plaintiff, or its agents and workers, to enter, develop and extract minerals from the areas claimed by defendants, to declare the injunction permanent after hearing, and to order the defendants to pay damages to the plaintiff in the amount of P200,000.00, attorney's fees, expenses of litigation and costs. On September 12, 1967 the trial court issued a restraining order and required the defendants to file their answers. The defendants filed their respective answers, which contained the usual admissions and denials and interposed special and affirmative defenses, namely, among others, that they are rightful owners of certain portions of the land covered by the supposed mining claims of the plaintiff; that it was the plaintiff and its workers who had committed acts of force and violence when they entered into and intruded upon the defendants' lands; and that the complaint failed to state a cause of action. The defendants set up counter-claims against the plaintiff for actual and moral damages, as well as for attorney's fees. In another pleading filed on the same date, defendant Juan Bernabe opposed the issuance of a writ of preliminary mandatory or prohibitory injunction. In its Order dated September 30, 1967, the trial court, however, directed the issuance of a writ of preliminary mandatory injunction upon the plaintiff's posting of a bond in the amount of P100,000.00. In its order, the court suggested the relocation of the boundaries of the plaintiff's claims in relation to the properties of the defendants, and to this end named as Commissioner, a Surveyor from the Office of the District Engineer of Bulacan to relocate the boundaries of the plaintiff's mining claims, to show in a survey plan the location of the areas thereof in conflict with the portions whose ownership is claimed by the defendants and to submit his report thereof to the court on or before October 31, 1967. The court also directed the parties to send their representatives to the place of the survey on the date thereof and to furnish the surveyor with copies of their titles. The Commissioner submitted his report to the Court on November 24, 1967 containing the following findings:

ANTONIO, J.: There are two original actions of certiorari with prayer for preliminary injunction wherein petitioners seek to annul the orders dated April 24, May 18, and July 18, 1970 of respondent Judge of the Court of First Instance of Bulacan in Civil Case No. SM-201 (Hi Cement Corporation vs. Juan Bernabe, Ignacio Vicente and Moises Angeles). The two cases are herein decided jointly because they proceed from the same case and involve in substance the same question of law. On September 9, 1967 herein private respondent Hi Cement Corporation filed with the Court of First Instance of Bulacan a complaint for injunction and damages against herein petitioners Juan Bernabe, Ignacio Vicente and Moises Angeles. In said complaint the plaintiff alleged that it had acquired on October 27, 1965, Placer Lease Contract No. V-90, from the Banahaw Shale Mining Association, under a deed of sale and transfer which was duly registered with the Office of the Mining Recorder of Bulacan on November 4, 1965 and duly approved by the Secretary of Agriculture and Natural Resources on December 15, 1965; that the said Placer Lease Contract No. V-90 was for a period of twenty-five years commencing from August 1, 1960 and covered two mining claims (Red Star VIII & IX) with a combined area of about fifty-one hectares; that within the limits of Placer Mining Claim Red Star VIII are three parcels of land claimed by the defendants Juan Bernabe (about two hectares),

1. In the attached survey plan, the area covered and embraced full and heavy lines is the Placer Mining Claims of the Plaintiff containing an area of 107 hectares while the area bounded by finebroken lines are the properties of the Defendants. 2. The property of the Defendant MOISES ANGELES, consisting of two (2) parcels known as Lot 1-B and Lot 2 of Psu-103374, both described in O.C.T. No. O-1769 with a total area of 34,984 square meters were totally covered by the Claims of the Plaintiff. 3. The property of the Defendant IGNACIO VICENTE, containing an area of 32,619 square meters, is also inside the Claims of the Plaintiff. 4. The property of the defendant JUAN BERNABE known as Psu178969, described in O.C.T. No. 0-2050 is partially covered by the Claims of the Plaintiff and the area affected is 57,539 square meters. In an Order issued on December 14, 1967, the court approved the report "with the conformity of all the parties in this case." Thereafter, on April 2, 1968 plaintiff HI Cement Corporation filed a motion to amend the complaint "so as to conform to the facts brought out and/or impliedly admitted in the pre-trial. This motion was granted by the court on April 6, 1968. Accordingly, on October 21, 1968, the plaintiff filed its amended complaint. The amendments consisted in the statement of the correct areas of the land belonging to defendants Bernabe (57,539 square meters), Vicente (32,619 square meters) and Angles (34,984 square meters), as well as the addition of allegations to the effect, among others, that at the pre-trial the defendants Angeles and Vicente declared their willingness to sell to the plaintiff their properties covered by the plaintiff's mining claims for P10.00 per square meter, and that when the plaintiff offered to pay only P0.90 per square meter, the said defendants stated that they were willing to go to trial on the issue of what would be the reasonable price for the properties of defendants sought to be taken by plaintiff. With particular reference to defendant Bernabe, the amended complaint alleged that the said defendant neither protested against nor prohibited the predecessor-in-interest of the plaintiff from prospecting, discovering, locating and contracting minerals from the aforementioned claims, or from conducting the survey thereon, or filed any opposition against the application for lease by the Red Star Mining Association, and that as a result of the failure of said defendant to object to the acts of possession or occupation over the said property by plaintiff, defendant is now estopped from claiming that plaintiff committed acts of usurpation on said property. The plaintiff prayed the court, among other things, to fix the reasonable value of the defendants' properties as reasonable compensation for any resulting damage.

Defendant Bernabe filed an amended answer substantially reproducing his original answer and denying the averments concerning him in the amended complaint. The respective counsels of the parties then conferred among themselves on the possibility of terminating the case by compromise, the defendants having previously signified their willingness to sell to the plaintiff their respective properties at reasonable prices. On January 30, 1969 the counsels of the parties executed and submitted to the court for its approval the following Compromise Agreement: COMPROMISE AGREEMENT COME NOW the plaintiff and the defendants, represented by their respective counsel, and respectfully submit the following agreement: 1. That the plaintiff is willing to buy the properties subject of litigation, and the defendants are willing to sell their respective properties; 2. That this Honorable Court authorizes the plaintiff and the defendants to appoint their respective commissioners, that is, one for the plaintiff and one for each defendant; 3. That the parties hereby agree to abide by the decision of the Court based on the findings of the Commissioners; 4. That the fees of the Commissioners shall be paid as follows: For those appointed by the parties shall be paid by them respectively; and for the one appointed by the Court, his fees shall be paid pro-rata by the parties; 5. That the names of the Commissioners to be appointed by the parties shall be submitted to the Court on or before February 8, 1969. WHEREFORE, the undersigned respectfully pray that the foregoing agreement be approved. Sta. Maria, Bulacan, January 30, 1969.

For the Plaintiff: (Sgd. ) FRANCISCO VENTURA t/ FRANCISCO VENTURA. (Sgd.) FLORENTINO V. CARDENAS t/ FLORENTINO V. CARDENAS (Sgd.) ENRIQUETO I. MAGPANTAY t/ ENRIQUETO I. MAGPANTAY For Juan Bernabe: (Sgd.) ANDRECIANO F. CABALLERO t/ ANDRECIANO F. CABALLERO For Ignacio Vicente and Moises Angeles: (Sgd.) CONRADO MANZANO t/ CONRADO MANZANO The Clerk of Court CFI, Sta. Maria, Bulacan GREETINGS: Please submit the foregoing Compromise Agreement to the Honorable Court for the consideration and approval immediately upon receipt hereof. VENTURA, CARDENAS & MAGPANTAY By: (Sgd.) FRANCISCO VENTURA t/ FRANCISCO VENTURA On the same date, the foregoing Compromise Agreement was approved by the trial court, which enjoined the parties to comply with the terms and conditions thereof.

Pursuant to the terms of the said compromise agreement the counsels of both parties submitted the names of the persons designated by them as their respective commissioners, and in conformity therewith, the trial court, in its Order dated February 26, 1969, appointed the following as Commissioners: Mr. Larry G. Marquez, to represent the plaintiff; Mr. Demetrio M. Aquino, to represent defendant Bernabe; Mr. Moises Correa, to represent defendant Angeles; Mr. Santiago Cabungcal, to represent defendant Vicente; and Mr. Liberato Barrameda, to represent the court, and directed that said Commissioners should appear before the court on March 17, 1969, to take their oath and qualify as such Commissioners, and then meet on March 31, 1969 in the court for their first session and to submit their report not later than April 30, 1969. On September 15, 1969, Commissioner Liberato Barrameda submitted to the court for its approval a Consolidated Report, containing the three reports of the Commissioners of the plaintiff and the three defendants, together with an analysis of the said reports and a summary of the important facts and conclusions. The following unit prices for the three defendants' properties were recommended in the Consolidated Report: A JUAN BERNABE at P12.00 per square meter, wherefrom plaintiff has been extracting its first output, and would still continue to extract therefrom as the property consists of a mountain of limestone and shale; B IGNACIO VICENTE: a) 60% or 19,571.4 sq. m. (mineral land) at P12.00 per sq. m. b) 40% or 13,047.6 sq. m. (riceland) at P8.00 per sq. m. C MOISES ANGELES (riceland) at P8.00 per sq. m. It is worthy of note that in the individual report of the Commissioner nominated by plaintiff HI Cement Corporation, the price recommended for defendant Juan Bernabe's property was P0.60 per square meter, while in the individual report of the Commissioner nominated by the said defendant, the price recommended was P50.00 per square meter. The Commissioners named by defendants Vicente and Angeles recommended was P15.00 per square meter for the lands owned by the said two defendants, while the Commissioners named by the said two defendants, while the Commissioner named by the plaintiff recommended P0.65 per square meter for Vicente's land, and P0.55 per square meter for Angeles' land. On October 21, 1969, Atty. Francisco Ventura, one of the three lawyers for plaintiff HI Cement Corporation, filed with the trial court a manifestation stating that on September 1, 1969 he sent a copy of the Compromise Agreement to Mr. Antonio

Diokno, President of the corporation, requesting the latter to intercede with the Board of Directors for the confirmation or approval of the commitment made by the plaintiff's lawyers to abide by the decision of the Court based on the reports of the Commissioners; and that on October 15, 1969 he received a letter from Mr. Diokno, a copy of which was attached to the manifestation. In that letter Mr. Diokno said: While I realize your interest in cooperating with the Court in its desire to expedite the disposition of the case, this commitment would deprive us of the right to appeal if we do not agree with the valuation set by the Court. Our Board, therefore, cannot waive its rights; only when it knows the value set by the Court on the properties can it decide whether to abide by it or appeal therefrom. I would like to stress that, under the law, the compromise agreement requires the express approval of our Board of Directors to be binding on our corporation. Such an approval, I regret to say, cannot be obtained at this time. On November 5, 1969, defendant Bernabe filed an answer to Atty. Ventura's manifestation, praying the court to ignore, disregard and, if possible, order striken from the record, the plaintiff's manifestation on the following grounds: that its filing after the Consolidated Report of the Commissioners had been submitted and approved, and long after the signing of the Compromise Agreement on January 30, 1969, cast suspicion on the sincerity of the plaintiff's motive; that when the Compromise Agreement was being considered, the court inquired from the parties and their respective lawyers if all the attorneys appearing in the case had been duly authorized and/or empowered to enter into a compromise agreement, and the three lawyers for the plaintiff answered in the affirmative; that in fact it was Atty. Ventura himself who prepared the draft of the Compromise Agreement in his own handwriting and was the first to sign the agreement; that one of the three lawyers for the plaintiff, Atty. Florentino V. Cardenas, who also signed the Compromise Agreement, was the official representative, indeed was an executive official, of plaintiff corporation; that the Compromise Agreement, having been executed pursuant to a pre-trial conference, partakes the nature of a stipulation of facts mutually agreed upon by the parties and approved by the court, hence, was binding and conclusive upon the parties; and that the nomination by the plaintiff of Mr. Larry G. Marquez as its Commissioner pursuant to the Compromise Agreement, was a clear indication of the plaintiff's tacit approval of the terms and conditions of the Compromise Agreement, if not an implied ratification of Atty. Ventura's acts. On March 13, 1970 the court rendered a decision in which the terms and conditions of the Compromise Agreement are reproduced, and the Consolidated Report of the Commissioners is extensively quoted. The rationale and dispositive portion of the decision read: What is fair and just compensation?

"Just compensation includes all elements of value that inheres in the property, but it does not exceed market value fairly determined. The sum required to be paid the owner does not depend upon the usage to which he has devoted his land but is to be arrived at upon just consideration of all the uses for which it is suitable. The highest and most profitable use for which the property is adoptable and needed or likely to be needed in the reasonably near future is to be considered, not necessarily as the measure of value, but to the full extent that the prospect of demand for such use affects the market value while the property is privately held." The term fair and just compensation as applied in expropriation or eminent domain proceedings need not necessarily be applied in the present case. In expropriation proceedings the government is the party involved and its use is for public purpose. In the instant case, however, private parties are involved and the use of the land is a private venture and for profit. It appears that defendants' properties are practically adjacent to plaintiff's plant site. It also appears that practically all the surrounding areas were acquired by the plaintiff by purchase. In the report submitted by the commissioner representing the plaintiff, it is claimed that the surrounding areas were acquired thru purchase by the plaintiff in the amount of less than P1.00 per square meter. On the other hand, it appears from the reports submitted by the commissioners representing the defendants that there were some recorded sales around the area from P20.00 to P25.00 per square meter and there were subdivision lots which command even higher prices. The properties are reported to consist of mineral land which are rocky and barren containing limestone and shale. From viewpoint of the owners their property which is described as rocky and barren mineral land must necessarily command a higher price, and this Court believes that the plaintiff will adopt the same attitude from the viewpoint of its business. While it may be true that the plaintiff acquired properties within the area in question at a low price, we cannot overlook the fact that this was so at the time when plaintiff corporation was not yet in operation and that the land owners were not as yet aware of the potential value of their landholdings.

Irrespective of the different classifications of the properties owned by the defendants, and considering the benefits that will enure to the plaintiff and bearing in mind the property rights and privileges to which the property owners are entitled both under the constitution and the mining law, coupled with the fact that the plaintiff had already taken advantage of the properties even long before the rightful acquisition of the same, this Court believes that the just and fair market value of the land should be in the amount P15.00 per square meter. In view of the above findings, the plaintiff pursuant to the compromise agreement, is hereby ordered to pay the defendants the amount of P15.00 per square meter for the subject properties, and upon full payment, the restraining order earlier issued by this Court shall be deemed lifted. On March 23, 1970 defendant Juan Bernabe filed an urgent motion for execution of judgment anchored on the proposition that the judgment, being based on a compromise agreement, is not appealable and is, on the other hand, immediately executory. The other two defendants, Moises Angeles and Ignacio Vicente, likewise filed their respective motions for execution. These motions were granted by the court in its Order of April 14, 1970. On April 17, 1970 the plaintiff filed a motion for reconsideration of the April 14, 1970 Order, alleging that it had an opposition to the defendants' motions for execution, and that the Compromise Agreement had been repudiated by the plaintiff corporation through its Vice President, as earlier manifested by the plaintiff. The plaintiff prayed for ten days from the date of the hearing of the motion within which to file its written opposition to the motions for execution. Defendant Juan Bernabe filed an opposition to the plaintiff's motion on April 21, 1970. On April 22, 1970 the plaintiff filed with the court a motion for new trial on the ground that the decision of the court dated March 13, 1970 is null and void because it was based on the Compromise Agreement of January 30, 1969 which was itself null and void for want of a special authority by the plaintiff's lawyers to enter into the said agreement. The plaintiff also prayed that the decision dated March 13, 1970 and the Order dated April 14, 1970 granting the defendants' motions for execution, be set aside. Defendant Juan Bernabe filed on April 27, 1970 an opposition to the plaintiff's motion on the grounds that the decision of the court is in accordance with law, for three lawyers for the plaintiff signed the Compromise Agreement, and one of them, Atty. Cardenas, was an official representative of plaintiff corporation, hence, when he signed the Compromise Agreement, he did so in the dual capacity of lawyer and representative of the management of the corporation; that the plaintiff itself pursued, enforced and implemented the agreement by appointing Mr. Larry Marquez as its duly accredited Commissioner; and that the plaintiff is conclusively bound by the acts of its lawyers in entering into the Compromise Agreement.

In the meantime, or on April 24, 1970, the court issued an Order setting aside its Order of April 14, 1970 under which the defendants' motions for execution of judgment had been granted, and gave the plaintiff ten days within which to file an opposition to the defendants' motions for execution. On May 9, 1970 the plaintiff filed an opposition to the motions for execution of judgment, on the grounds that the decision dated March 13, 1970 is contrary to law for it is based on a compromise agreement executed by the plaintiff's lawyers who had no special power of attorney as required by Article 1878 of the Civil Code, or any special authority as required by Section 23, Rule 138 of the Rules of Court; and that the judgment is void for lack of jurisdiction of the court because the same is based on a void compromise agreement. On May 18, 1970 the court issued an Order setting aside its decision dated March 13, 1970, denying the defendants' motions for execution of judgment, and setting for June 23, 1970 a pre-trial conference in the case. The three defendants moved for reconsideration, but their motions were denied in an Order dated July 18, 1970. It is in these factual premises that the defendants in Civil Case No. SM-201 came to this Court by means of the present petitions. In G.R. No. L-32473, petitioners Vicente and Angeles pray this Court to issue a writ of preliminary injunction, and, after hearing, to annul and set aside the Order dated May 18,1970 issued by respondent Judge setting aside the decision dated March 13, 1970; to declare the said decision legal, effective and immediately executory; to dissolve the writ of preliminary mandatory injunction issued by respondent Judge on September 30, 1967 commanding petitioners to allow private respondent to enter their respective properties and excavate thereon; to make the preliminary injunction permanent; and to award treble costs in favor of petitioners and against private respondent. In G.R. No. L-32483, petitioner Juan Bernabe prays this Court to issue a writ of preliminary injunction or, at least a temporary restraining order, and, after hearing, to annul and set aside the Order dated April 24, 1970 issued by respondent Judge setting aside his Order of April 14, 1970 and allowing private respondent to file an opposition to petitioners' motion for execution, the Order dated May 18, 1970, and the Order dated July 18, 1970. Petitioner Bernabe also seeks the reinstatement of the trial court's decision dated May 13, 1970 and its Order dated April 14, 1970 granting his motion for execution of judgment, and an award in his favor of attorney's fees and of actual, moral and exemplary damages. At issue is whether the respondent court, in setting aside its decision of March 13, 1970 and denying the motions for execution of said decision, had acted without or in excess of its jurisdiction or with grave abuse of discretion. We hold that said court did not, in view of the following considerations: 1. Special powers of attorney are necessary, among other cases, in the following: to compromise and to renounce the right to appeal from a judgment. 1 Attorneys have

authority to bind their clients in any case by any agreement in relation thereto made in writing, and in taking appeals, and in all matters of ordinary judicial procedure, but they cannot, without special authority, compromise their clients' litigation, or receive anything in discharge of their clients' claims but the full amount in cash. 2 The Compromise Agreement dated January 30, 1969 was signed only by the lawyers for petitioners and by the lawyers for private respondent corporation. It is not disputed that the lawyers of respondent corporation had not submitted to the Court any written authority from their client to enter into a compromise. This Court has said that the Rules 3 "require, for attorneys to compromise the litigation of their clients, a special authority. And while the same does not state that the special authority be in writing the court has every reason to expect that, if not in writing, the same be duly established by evidence other than the self-serving assertion of counsel himself that such authority was verbally given him." 4 2. The law specifically requires that "juridical persons may compromise only in the form and with the requisites which may be necessary to alienate their property." 5 Under the corporation law the power to compromise or settle claims in favor of or against the corporation is ordinarily and primarily committed to the Board of Directors. The right of the Directors "to compromise a disputed claim against the corporation rests upon their right to manage the affairs of the corporation according to their honest and informed judgment and discretion as to what is for the best interests of the corporation." 6 This power may however be delegated either expressly or impliedly to other corporate officials or agents. Thus it has been stated, that as a general rule an officer or agent of the corporation has no power to compromise or settle a claim by or against the corporation, except to the extent that such power is given to him either expressly or by reasonable implication from the circumstances. 7 It is therefore necessary to ascertain whether from the relevant facts it could be reasonably concluded that the Board of Directors of the HI Cement Corporation had authorized its lawyers to enter into the said compromise agreement. Petitioners claim that private respondent's attorneys admitted twice in open court on January 30, 1969, that they were authorized to compromise their client's case, which according to them, was never denied by the said lawyers in any of the pleadings filed by them in the case. The claim is unsupported by evidence. On the contrary, in private respondent's "Reply to Defendant Bernabe's Answer Dated November 8, 1969," said counsels categorically denied that they ever represented to the court that they were authorized to enter into a compromise. Indeed, the complete transcript of stenographic notes taken at the proceedings on January 30, 1969 are before Us, and nowhere does it appear therein that respondent corporation's lawyers ever made such a representation. In any event, assuming arguendo that they did, such a self-serving assertion cannot properly be the basis for the conclusion that the respondent corporation had in fact authorized its lawyers to compromise the litigation.

3. Petitioners however insist that there was tacit ratification on the part of the corporation, because it nominated Mr. Larry Marquez as its commissioner pursuant to the agreement, paid his services therefor, and Atty. Florentino V. Cardenas, respondent corporation's administrative manager, not only did not object but even affixed his signature to the agreement. It is also argued that respondent corporation having represented, through its lawyers, to the court and to petitioners that said lawyers had authority to bind the corporation and having induced by such representations the petitioners to sign the compromise agreement, said respondent is now estopped from questioning the same. The infirmity of these arguments is in their assumption that Atty. Cerdenas as administrative manager had authority to bind the corporation or to compromise the case. 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 corporation officer's power as an agent of the corporation must therefore be sought from the statute, the charter, the by-laws, or in a delegation of authority to such officer, from the acts of board of directors, formally expressed or implied from a habit or custom of doing business. 8 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 of HI Cement Corporation 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. Absent such authority to enter into the compromise, the signature of Atty. Cardenas on the agreement would be legally ineffectual. 4. As regards the nomination of Mr. Marquez as commissioner, counsel for respondent corporation has explained and this has not been disproven that Atty. Cardenas, apparently on his own, submitted the same to the court. There is no iota of proof that at the time of the submission to the Court, on February 26, 1969, of the name of Mr. Marquez, respondent corporation knew of the contents of the compromise agreement. As matter of fact, according to the manifestation of Atty. Ventura to the court, it was only on September 1, 1969 that he sent to Mr. Antonio Diokno, Vice-President of the corporation, a copy of the compromise agreement for the approval by the board of directors and on October 22, 1969, Mr. Diokno informed him that the approval of the Board cannot be obtained, as under the agreement the corporation is deprived of its right to appeal from the judgement. In the absence of any proof that the governing body of respondent corporation had knowledge, either actual or constructive, or the contents of the compromise agreement before September 1, 1969, why should the nomination of Mr. Marquez as commissioner, by Attys. Ventura, Cardenas and Magpantay, on February 26, 1969, be considered as a form of tacit ratification of the compromise agreement by the corporation? In order to ratify the unauthorized act of an agent and make it binding on the corporation, it must be shown that the governing body or officer authorized to ratify had full and complete knowledge of all the material facts connected with the transaction to which it relates. 9 It cannot be assumed also that Atty. Cardenas, as

administrative manager of the corporation, had authority to ratify. For ratification can never be made "on the part of the corporation by the same persons who wrongfully assume the power to make the contract, but the ratification must be by the officer or governing body having authority to make such contract and, as we have seen, must be with full knowledge." 10 5. Equally inapposite is petitioners' invocation of the principle of estoppel. In the case at bar, except those made by Attys. Ventura, Cardenas and Magpantay, petitioners have not demonstrated any act or declaration of the corporation amounting to false representation or concealment of material facts calculated to mislead said petitioners. The acts or conduct for which the corporation may be liable under the doctrine of estoppel must be those of the corporation, its governing body or authorized officers, and not those of the purported agent who is himself responsible for the misrepresentation. 11 It having been found by the trial court that "the counsel for the plaintiff entered into the compromise agreement without the written authority of his client and the latter did not ratify, on the contrary it repudiated and disowned the same ...", 12 We therefore declare that the orders of the court a quo subject of these two petitions, have not been issued in excess of its jurisdictional authority or in grave abuse of its discretion. WHEREFORE, the petitions in these two cases are hereby dismissed. Costs against the petitioners.

G.R. No. L-48237 June 30, 1987 MADRIGAL & COMPANY, INC., petitioner, vs. HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS, THE HON. SECRETARY OF LABOR, and MADRIGAL CENTRAL OFFICE EMPLOYEES UNION, respondents. No. L-49023 June 30, 1987 MADRIGAL & COMPANY, INC., petitioner, vs. HON. MINISTER OF LABOR and MADRIGAL CENTRAL OFFICE EMPLOYEES UNION, respondents.

Commission on a complaint for unfair labor practice. 9 In due time, the petitioner filed its position paper, 10 alleging operational losses. Pending the resolution of Case No. LR-5415, the petitioner, in a letter dated November 17, 1975, 11 informed the Secretary of Labor that Rizal Cement Co., Inc., "from which it derives income" 12 "as the General Manager or Agent" 13 had "ceased operating temporarily." 14 "In addition, "because of the desire of the stockholders to phase out the operations of the Madrigal & Co., Inc. due to lack of business incentives and prospects, and in order to prevent further losses," 15 it had to reduce its capital stock on two occasions "As the situation, therefore, now stands, the Madrigal & Co., Inc. is without substantial income to speak of, necessitating a reorganization, by way of retrenchment, of its employees and operations." 16 The petitioner then requested that it "be allowed to effect said reorganization gradually considering all the circumstances, by phasing out in at least three (3) stages, or in a manner the Company deems just, equitable and convenient to all concerned, about which your good office will be apprised accordingly." 17 The letter, however, was not verified and neither was it accompanied by the proper supporting papers. For this reason, the Department of Labor took no action on the petitioner's request. On January 19, 1976, the labor arbiter rendered a decision 18 granting, among other things, a general wage increase of P200.00 a month beginning March 1, 1974 plus a monthly living allowance of P100.00 monthly in favor of the petitioner's employees. The arbiter specifically found that the petitioner "had been making substantial profits in its operation" 19 since 1972 through 1975. The petitioner appealed. On January 29, 1976, the petitioner applied for clearance to terminate the services of a number of employees pursuant supposedly to its retrenchment program. On February 3, 1976, the petitioner applied for clearance to terminate 18 employees more. 20 On the same date, the respondent union went to the Regional Office (No. IV) of the Department of Labor (NLRC Case No. R04-2-1432-76) to complain of illegal lockout against the petitioner. 21 Acting on this complaint, the Secretary of 22 Labor, in a decision dated December 14, 1976, 22 found the dismissals "to be contrary to law" 23 and ordered the petitioner to reinstate some 40 employees, 37 of them with backwages. 24 The petitioner then moved for reconsideration, which the Acting Labor Secretary, Amado Inciong, denied. 25 Thereafter, the petitioner filed an appeal to the Office of the President. The respondent, the Presidential Assistant on Legal Affairs, affirmed with modification the Labor Department's decision, thus: xxx xxx xxx 1. Eliseo Dizon, Eugenio Evangelista and Benjamin Victorio are excluded from the order of reinstatement.

SARMIENTO, J.: These are two petitions for certiorari and prohibition filed by the petitioner, the Madrigal & Co., Inc. The facts are undisputed. The petitioner was engaged, among several other corporate objectives, in the management of Rizal Cement Co., Inc. 1 Admittedly, the petitioner and Rizal Cement Co., Inc. are sister companies. 2 Both are owned by the same or practically the same stockholders. 3 On December 28, 1973, the respondent, the Madrigal Central Office Employees Union, sought for the renewal of its collective bargaining agreement with the petitioner, which was due to expire on February 28, 1974. 4 Specifically, it proposed a wage increase of P200.00 a month, an allowance of P100.00 a month, and other economic benefits. 5 The petitioner, however, requested for a deferment in the negotiations. On July 29, 1974, by an alleged resolution of its stockholders, the petitioner reduced its capital stock from 765,000 shares to 267,366 shares. 6 This was effected through the distribution of the marketable securities owned by the petitioner to its stockholders in exchange for their shares in an equivalent amount in the corporation.
7

On August 22, 1975, by yet another alleged stockholders' action, the petitioner reduced its authorized capitalization from 267,366 shares to 110,085 shares, again, through the same scheme. 8 After the petitioner's failure to sit down with the respondent union, the latter, on August 28, 1974, commenced Case No. LR-5415 with the National Labor Relations

2. Rogelio Meneses and Roberto Taladro who appear to have voluntarily retired and paid their retirement pay, their cases are left to the judgment of the Secretary of Labor who is in a better position to assess appellant's allegation as to their retirement. 3. The rest are hereby reinstated with six (6) months backwages, except Aleli Contreras, Teresita Eusebio and Norma Parlade who are to be reinstated without backwages. SO ORDERED. 26 xxx xxx xxx On May 15, 1978, the petitioner came to this court. (G.R. No. 48237.) Meanwhile, on May 25, 1977, the National Labor Relations Commission rendered a decision affirming the labor arbiter's judgment in Case No. LR-5415. 27 The petitioner appealed to the Secretary of Labor. On June 9, 1978, the Secretary of Labor dismissed the appeal. 28 Following these successive reversals, the petitioner came anew to this court. (G.R. No. 49023.) By our resolution dated October 9, 1978, we consolidated G.R. No. 48237 with G.R. No. 49023. 29 We likewise issued temporary restraining orders. 30 In G.R. No. 48237, the petitioner argues, that. xxx xxx xxx I. SAID RESPONDENTS ERRED IN HOLDING THAT THERE WAS NO VALID COMPLIANCE WITH THE CLEARANCE REQUIREMENT. II. SAID RESPONDENTS ERRED IN NOT HOLDING THAT THERE IS NO LOCKOUT HERE IN LEGAL CONTEMPLATION, MUCH LESS FOR UNIONBUSTING PURPOSES. III. RESPONDENT PRESIDENTIAL ASSISTANT ERRED IN ORDERING THE REINSTATEMENT OF THE REST OF AFFECTED MEMBERS OF RESPONDENT UNION WITH SIX (6) MONTHS BACKWAGES, EXCEPT ALELI CONTRERAS, TERESITA EUSEBIO AND NORMA PARLADE WHO ARE TO BE REINSTATED WITHOUT BACKWAGES. IV. RESPONDENT PRESIDENTIAL ASSISTANT ERRED IN LEAVING TO THE JUDGMENT OF RESPONDENT SECRETARY THE CASES OF ROGELIO

MENESES AND ROBERTO TALADRO WHO HAD VOLUNTARILY RETIRED AND PAID THEIR RETIREMENT PAY. 31 xxx xxx xxx while in G.R. No. 49023, it submits that: xxx xxx xxx 1. RESPONDENT MINISTER ERRED IN AFFIRMING THE DECISION EN BANC OF THE NATIONAL LABOR RELATIONS COMMISSION DESPITE CLEAR INDICATIONS IN THE RECORD THAT THE AWARD WAS PREMATURE IN THE ABSENCE OF A DEADLOCK IN NEGOTIATION AND THE FAILURE ON THE PART OF THE LABOR ARBITER TO RESOLVE THE MAIN IF NOT ONLY ISSUE OF REFUSAL TO BARGAIN, THEREBY DEPRIVING PETITIONER OF ITS RIGHT TO DUE PROCESS. 2. ASSUMING ARGUENDO THAT THERE WAS A DEADLOCK IN NEGOTIATION, RESPONDENT MINISTER ERRED NEVERTHELESS IN NOT FINDING THAT THE ECONOMIC BENEFITS GRANTED IN THE FORM OF SALARY INCREASES ARE UNFAIR AND VIOLATIVE OF THE MANDATORY GUIDELINES PRESCRIBED UNDER PRESIDENTIAL DECREE NO. 525 AND IGNORING THE UNDISPUTED FACT THAT PETITIONER HAD VIRTUALLY CEASED OPERATIONS AFTER HAVING TWICE DECREASED ITS CAPITAL STOCKS AND, THEREFORE, NOT FINANCIALLY CAPABLE TO ABSORB SUCH AWARD OF BENEFITS. 32 xxx xxx xxx There is no merit in these two (2) petitions. As a general rule, the findings of administrative agencies are accorded not only respect but even finality. 33 This is especially true with respect to the Department of Labor, which performs not only a statutory function but carries out a Constitutional mandate as well. 34 Our jurisdiction, as a rule, is confined to cases of grave abuse of discretion. 35 But for certiorari to lie, there must be such arbitrary and whimsical exercise of power, or that discretion was exercised despotically. 36 In no way can the questioned decisions be seen as arbitrary. The decisions themselves show why. Anent Case No. R04-2-1432-76 (G.R. No. 48237), we are satisfied with the correctness of the respondent Presidential Assistant for Legal Affairs' findings. We quote:

xxx xxx xxx In urging reversal of the appealed decision, appellant contends that (1) its letter dated November 17, 1975, constitute "substantial compliance with the clearance requirement to terminate;" and (2) individual appellees' dismissal had no relation to any union activities, but was the result of an honest-to-goodness retrenchment policy occasioned by loss of income due to cessation of operation. We find the first contention to be without merit. Aside from the fact that the controversial letter was unverified, with not even a single document submitted in support thereof, the same failed to specify the individual employees to be affected by the intended retrenchment. Not only this, but the letter is so vague and indefinite regarding the manner of effecting appellant's retrenchment plan as to provide the Secretary of (sic) a reasonable basis on which to determine whether the request for retrenchment was valid or otherwise, and whether the mechanics in giving effect thereto was just or unjust to the employees concerned. In fact, to be clearly implied from the letter is that the implementary measures needed to give effect to the intended retrenchment are yet to be thought of or concretized in the indefinite future, measures about which the office of the Secretary "will be apprised accordingly." All these, and more, as correctly found by the Acting Secretary, cannot but show that the letter is insufficient in form and substance to constitute a valid compliance with the clearance requirement. That being so, it matters little whether or not complainant union or any of its members failed to interpose any opposition thereto. It cannot be over-emphasized that the purpose in requiring a prior clearance by the Secretary of Labor, in cases of shutdown or dismissal of employees, is to afford said official ample opportunity to examine and determine the reasonableness of the request. This is made imperative in order to give meaning and substance to the constitutional mandate that the State must "afford protection to labor," and guarantee their "security of tenure." Indeed, the rules require that the application for clearance be filed ten (10) days before the intended shutdown or dismissal, serving a copy thereof to the employees affected in order that the latter may register their own individual objections against the grant of the clearance. But how could this requirement of notice to the employees have been complied with, when, as observed by the Acting Secretary in his modificatory decision dated June 30, 1977 "the latter of November 17, 1975 does not even state definitely the employees involved" upon whom service could be made.

With respect to appellant's second contention, we agree with the Acting Secretary's findings that individual appellee's dismissal was an offshoot of the union's demand for a renegotiation of the then validly existing collective bargaining Agreement. xxx xxx xxx The pattern of appellant's acts after the decision of the Labor Arbiter in Case No. LR-5415 has convinced us that its sole objective was to render moot and academic the desire of the union to exercise its right to bargain collectively with management, especially so when it is considered in the light of the fact that under the said decision the demand by the union for wage increase and allowances was granted. What renders appellant's motive suspect was its haste in terminating the services of individual appellees, without waiting the outcome of its appeal in Case No. LR-5415. The amount involved by its offer to pay double separation could very well have been used to pay the salaries of those employees whose services were sought to be terminated, until the resolution of its appeal with the NLRC, since anyway, if its planned retrenchment is found to be justifiable and done in good faith, its only liability is to answer for the separation pay provided by law. By and large, therefore, we agree with the Acting Secretary that, under the circumstances obtaining in this case, "respondent's action [was] a systematic and deliberate attempt to get rid of complainants because of their union activities. We now come to the individual cases of Aleli Contreras, Teresita Eusebio and Norma Parlade. It is appellant's claim that these three (3) should not be reinstated inasmuch as they have abandoned their work by their continued absences, and moreover in the case of Contreras, she failed to oppose the application for clearance filed against her on October 24, 1975. However, appellant's payrolls for December 16-31, 1975, January 1-15, 1976 and January 16-31, 1976, show that the three (3) were "on leave without pay." As correctly appreciated by the Acting Secretary, these "payrolls prove, first, that "leave" has been granted to these employees, and, second, that it is a practice in the company to grant "leaves without pay" without loss of employment status, to those who have exhausted their authorized leaves." As regards, Norma Parlade, the records show that she "truly incurred illness and actually underwent surgery in Oct., 1975." As to Aleli Contreras, there is no showing that the Secretary of Labor or appellant ever acted on the clearance. If we were to follow the logic of appellant, Contreras should not have been included in the application for clearance filed on Feb. 3, 1976. The fact that she was included

shows that up to that time, she was still considered as a regular employee. It was for these reasons, coupled with the length of service that these employees have rendered appellant, that the Acting Secretary ordered their reinstatement but without backwages. 37 xxx xxx xxx With respect Lo Case No. LR-5415 (G.R. No. 49023), we are likewise content with the findings of the National Labor Relations Commission. Thus: xxx xxx xxx Appellant now points that the only issue certified to compulsory arbitration is "refusal to bargain" and it is, therefore, premature to dictate the terms of the CBA on the assumption that there was already a deadlock in negotiation. Appellant further contends that, assuming there was deadlock in negotiation, the economic benefits granted are unreasonable and violative of the guideline prescribed by P.D. 525. On the other hand, it is the union's stance that its economic demands are justified by, the persistent increase in the cost of living and the substantial earnings of the company from 1971 to 1975. It bears to stress that although the union's petition was precipitated by the company's refusal to bargain, there are glaring circumstances pointing out that the parties also submitted "deadlock" to arbitration. The petition itself is couched in general terms, praying for arbitration of the union's "dispute" with the respondent concerning proposed changes in the collective bargaining agreement." It is supported with a copy of the proposed changes which just goes to show that the union, aside from the issue concerning respondent's refusal to bargain, sought determination of the merit of its proposals. On the part of the appellant company, it pleaded financial incapacity to absorb the proposed economic benefits during the initial stage of the proceedings below. Even the evidence and arguments proferred below by both parties are relevant to deadlock issue. In the face of these factual environment, it is our view that the Labor Arbiter below did not commit a reversible error in rendering judgment on the proposed CBA changes. At any rate, the minimum requirements of due process was satisfied because as heretofore stated, the appellant was given Opportunity, and had in fact,

presented evidence and argument in avoidance of the proposed CBA changes. We do not also subscribe to appellant's argument that by reducing its capital, it is made evident that it is phasing out its operations. On the contrary, whatever may be the reason behind such reductions, it is indicative of an intention to keep the company a going concern. So much so that until now almost four (4) years later, it is still very much in existence and operational as before. We now come to the question concerning the equitableness of the economic benefits granted below. It requires no evidence to show that the employees concerned deserve some degree of upliftment due to the unabated increase in the cost of living especially in Metro Manila. Of course the company would like us to believe that it is losing and is therefore not financially capable of improving the present CBA to favor its employees. In support of such assertion, the company points that the profits reflected in its yearly Statement of Income and Expenses are dividends from security holdings. We, however, reject as puerile its suggestion to dissociate the dividends it received from security holdings on the pretext that they belong exclusively to its stockholders. The dividends received by the company are corporate earnings arising from corporate investment which no doubt are attended to by the employees involved in this proceedings. Otherwise. it would not have been reflected as part of profits in the company's yearly financial statements. In determining the reasonableness of the economic grants below, we have, therefore, scrutinized the company's Statement of Income and Expenses from 1972 to 1975 and after equating the welfare of the employees with the substantial earnings of the company, we find the award to be predicated on valid justifications. The salary increase we herein sanction is also in keeping with the rational that made imperative the enactment of the Termination Pay Law since in case the respondent company really closes down, the employees will receive higher separation pay or retirement benefits to tide them over while seeking another employment. 38 What clearly emerges from the recorded facts is that the petitioner, awash with profits from its business operations but confronted with the demand of the union for wage increases, decided to evade its responsibility towards the employees by a devised capital reduction. While the reduction in capital stock created an apparent need for retrenchment, it was, by all indications, just a mask for the purge of union members, who, by then, had agitated for wage increases. In the face of the petitioner company's piling profits, the unionists had the right to demand for such salary adjustments.

That the petitioner made quite handsome profits is clear from the records. The labor arbiter stated in his decision in the collective agreement case (Case No. LR-5415): xxx xxx xxx A clear scrutiny of the financial reports of the respondent [herein petitioner] reveals that it had been making substantial profits in the operation. In 1972, when it still had 765,000 common shares, of which 305,000 were unissued and 459,000 outstanding capitalized at P16,830,000.00, the respondent made a net profit of P2,403,211.58. Its total assets were P70,821,317.81. In 1973, based on the same capitalization, its profit increased to P2,724,465.33. Its total assets increased to P83,240,473.73. In 1974, although its capitalization was reduced from P16,830,000.00 to P11,230,459.36, its profits were further increased to P2,922,349.70. Its assets were P78,842,175.75. The reduction in its assets by P4,398,297.98 was due to the fact that its capital stock was reduced by the amount of P5,599,540.54. In 1975, for the period of only six months, the respondent reported a net profit of P547,414.72, which when added to the surplus of P5,591.214.19, makes a total surplus of P6,138,628.91 as of June 30, 1975. 39 xxx xxx xxx The petitioner would, however, have us believe that it in fact sustained losses. Whatever profits it earned, so it claims were in the nature of dividends "declared on its shareholdings in other companies in the earning of which the employees had no participation whatsoever." 40 "Cash dividends," according to it, "are the absolute property of the stockholders and cannot be made available for disposition if only to meet the employees' economic demands." 41 There is no merit in this contention. We agree with the National Labor Relations Commission that "[t]he dividends received by the company are corporate earnings arising from corporate investment." 42 Indeed, as found by the Commission, the petitioner had entered such earnings in its financial statements as profits, which it would not have done if they were not in fact profits. 43

Moreover, it is incorrect to say that such profits in the form of dividends are beyond the reach of the petitioner's creditors since the petitioner had received them as compensation for its management services in favor of the companies it managed as a shareholder thereof. As such shareholder, the dividends paid to it were its own money, which may then be available for wage increments. It is not a case of a corporation distributing dividends in favor of its stockholders, in which case, such dividends would be the absolute property of the stockholders and hence, out of reach by creditors of the corporation. Here, the petitioner was acting as stockholder itself, and in that case, the right to a share in such dividends, by way of salary increases, may not be denied its employees. Accordingly, this court is convinced that the petitioner's capital reduction efforts were, to begin with, a subterfuge, a deception as it were, to camouflage the fact that it had been making profits, and consequently, to justify the mass layoff in its employee ranks, especially of union members. They were nothing but a premature and plain distribution of corporate assets to obviate a just sharing to labor of the vast profits obtained by its joint efforts with capital through the years. Surely, we can neither countenance nor condone this. It is an unfair labor practice. As we observed in People's Bank and Trust Company v. People's Bank and Trust Co. Employees Union: 44 xxx xxx xxx As has been held by this Court in Insular Lumber Company vs. CA, et al., L-23875, August 29, 1969, 29 SCRA 371, retrenchment can only be availed of if the company is losing or meeting financial reverses in its operation, which certainly is not the case at bar. Undisputed is the fact, that the Bank "at no time incurred losses. " As a matter of fact, "the net earnings of the Bank would be in the average of P2,000,000.00 a year from 1960 to 1969 and, during this period of nine (9) years, the Bank continuously declared dividends to its stockholders." Thus the mass lay-off or dismissal of the 65 employees under the guise of retrenchment policy of the Bank is a lame excuse and a veritable smoke-screen of its scheme to bust the Union and thus unduly disturb the employment tenure of the employees concerned, which act is certainly an unfair labor practice. 45 Yet, at the same tune, the petitioner would claim that "the phasing out of its operations which brought about the retrenchment of the affected employees was mainly dictated be the necessity of its stockholders in their capacity as heirs of the late Don Vicente Madrigal to partition the estate left by him." 46 It must be noted, however, that the labor cases were tried on the theory of losses the petitioner was supposed to have incurred to justify retrenchment. The petitioner cannot change its

theory in the Supreme Court. Moreover, there is nothing in the records that will substantiate this claim. But what is more important is the fact that it is not impossible to partition the Madrigal estate assuming that the estate is up for partition without the petitioner's business closing shop and inevitably, without the petitioner laying off its employees. As regards the question whether or not the petitioner's letter dated November 17, 1975 47 was in substantial compliance with legal clearance requirements, suffice it to state that apart from the Secretary of Labor's valid observation that the same "did not constitute a sufficient clearance as contemplated by law, " 48 the factual circumstances show that the letter in question was itself a part of the "systematic and deliberate attempt to get rid of [the union members] because of their union activities." 49 Hence, whether or not the said letter complied with the legal formalities is beside the point since under the circumstances, retrenchment was, in all events, unjustified. Parenthetically, the clearance required under Presidential Decree No. 850 has been done away with by Batas Blg. 130, approved on August 21, 1981. During the pendency of these petitions, the petitioner submitted manifestations to the effect that certain employees have accepted retirement benefits pursuant to its retrenchment scheme. 50 This is a matter of defense that should be raised before the National Labor Relations Commission. To do away with the protracted process of determining the earnings acquired by the employees as a result of ad interim employment, and to erase any doubt as to the amount of backwages due them, this court, in line with the precedent set in Mercury Drug Co., Inc. v. Court of Industrial Relations, 51 affirmed in a long line of decisions that came later, 52 hereby fixes the amount of backwages at three (3) years pay reckoned at the increased rates decreed by the labor arbiter in Case No. LR-5415 without deduction or qualification. WHEREFORE, the petitions are hereby DISMISSED. Subject to the modification as to the amount of backwages hereby awarded, the challenged decisions are AFFIRMED. The temporary restraining orders are LIFTED. With costs against the petitioner. This decision is IMMEDIATELY EXECUTORY.

G.R. No. L-48930

February 23, 1944

ANTONIO VAZQUEZ, petitioner, vs. FRANCISCO DE BORJA, respondent. x---------------------------------------------------------x G.R. No. L-48931 February 23, 1944

FRANCISCO DE BORJA, petitioner, vs. ANTONIO VAZQUEZ, respondent. OZAETA, J.: This action was commenced in the Court of First Instance of Manila by Francisco de Borja against Antonio Vazquez and Fernando Busuego to recover from them jointly and severally the total sum of P4,702.70 upon three alleged causes of action, to wit: First, that in or about the month of January, 1932, the defendants jointly and severally obligated themselves to sell to the plaintiff 4,000 cavans of palay at P2.10 per cavan, to be delivered during the month of February, 1932, the said defendants having subsequently received from the plaintiff in virtue of said agreement the sum of P8,400; that the defendants delivered to the plaintiff during the months of February, March, and April, 1932, only 2,488 cavans of palay of the value of P5,224.80 and refused to deliver the balance of 1,512 cavans of the value of P3,175.20 notwithstanding repeated demands. Second, that because of defendants' refusal to deliver to the plaintiff the said 1,512 cavans of palay within the period above mentioned, the plaintiff suffered damages in the sum of P1,000. And, third, that on account of the agreement above mentioned the plaintiff delivered to the defendants 4,000 empty sacks, of which they returned to the plaintiff only 2,490 and refused to deliver to the plaintiff the balance of 1,510 sacks or to pay their value amounting to P377.50; and that on account of such refusal the plaintiff suffered damages in the sum of P150.

The defendant Antonio Vazquez answered the complaint, denying having entered into the contract mentioned in the first cause of action in his own individual and personal capacity, either solely or together with his codefendant Fernando Busuego, and alleging that the agreement for the purchase of 4,000 cavans of palay and the payment of the price of P8,400 were made by the plaintiff with and to the Natividad-Vasquez Sabani Development Co., Inc., a corporation organized and existing under the laws of the Philippines, of which the defendant Antonio Vazquez was the acting manager at the time the transaction took place. By way of counterclaim, the said defendant alleged that he suffered damages in the sum of P1,000 on account of the filing of this action against him by the plaintiff with full knowledge that the said defendant had nothing to do whatever with any and all of the transactions mentioned in the complaint in his own individual and personal capacity. The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to the plaintiff the sum of P3,175.20 plus the sum of P377.50, with legal interest on both sums, and absolving the defendant Fernando Busuego (treasurer of the corporation) from the complaint and the plaintiff from the defendant Antonio Vazquez' counterclaim. Upon appeal to the Court of Appeals, the latter modified that judgment by reducing it to the total sum of P3,314.78, with legal interest thereon and the costs. But by a subsequent resolution upon the defendant's motion for reconsideration, the Court of Appeals set aside its judgment and ordered that the case be remanded to the court of origin for further proceedings. The defendant Vazquez, not being agreeable to that result, filed the present petition for certiorari (G.R. No. 48930) to review and reverse the judgment of the Court of Appeals; and the plaintiff Francisco de Borja, excepting to the resolution of the Court of Appeals whereby its original judgment was set aside and the case was ordered remanded to the court of origin for further proceedings, filed a cross-petition for certiorari (G.R. No. 48931) to maintain the original judgment of the Court of Appeals. The original decision of the Court of Appeals and its subsequent resolutions on reconsideration read as follows:

Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-apelante vendio al demandante 4,000 cavanes de palay al precio de P2.10 el cavan, de los cuales, dicho demandante solamente recibio 2,583 cavanes; y que asimismo recibio para su envase 4,000 sacos vacios. Esta provbado que de dichos 4,000 sacos vacios solamente se entregaron, 2,583 quedando en poder del demandado el resto, y cuyo valor es el de P0.24 cada uno. Presentada la demanda contra los demandados Antonio Vazquez y Fernando Busuego para el pago de la cantidad de P4,702.70, con sus intereses legales desde el 1.o de marzo de 1932 hasta su completo pago y las costas, el Juzgado de Primera Instancia de Manila el asunto condenando a Antonio Vazquez a pagar al demandante la cantidad de P3,175.20, mas la cantidad de P377.50, con sus intereses legales, absolviendo al demandado Fernando Busuego de la demanda y al demandante de la reconvencion de los demandados, sin especial pronunciamiento en cuanto a las costas. De dicha decision apelo el demandado Antonio Vazquez, apuntado como principal error el de que el habia sido condenado personalmente, y no la corporacion por el representada. Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a favor de Francisco de Borja de los 4,000 cavanes de palay fue en su capacidad de Presidente interino y Manager de la corporacion Natividad-Vazquez Sabani Development Co., Inc. Asi resulta del Exh. 1, que es la copia al carbon del recibo otorgado por el demandado Vazquez, y cuyo original lo habia perdido el demandante, segun el. Asi tambien consta en los libros de la corporacion arriba mencionada, puesto que en los mismos se ha asentado tanto la entrada de los P8,400, precio del palay, como su envio al gobierno en pago de los alquileres de la Hacienda Sabani. Asi mismo lo admitio Francisco de Borja al abogado Sr. Jacinto Tomacruz, posterior presidente de la corporacion sucesora en el arrendamiento de la Sabani Estate, cuando el solicito sus buenos oficios para el cobro del precio del palay no entregado. Asi igualmente lo declaro el que hizo entrega de parte del palay a Borja, Felipe Veneracion, cuyo testimonio no ha sido refutado. Y asi se

deduce de la misma demanda, cuando se incluyo en ella a Fernando Busuego, tesorero de la Natividad-Vazquez Sabani Development Co., Inc. Siendo esto asi, la principal responsable debe ser la NatividadVazquez Sabani Development Co., Inc., que quedo insolvente y dejo de existir. El Juez sentenciador declaro, sin embargo, al demandado Vazquez responsable del pago de la cantidad reclamada por su negligencia al vender los referidos 4,000 cavanes de palay sin averiguar antes si o no dicha cantidad existia en las bodegas de la corporacion. Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a Francisco de Borja, el mismo demandado vendio a Kwong Ah Phoy 1,500 cavanes al precio de P2.00 el cavan, y decimos 'despues' porque esta ultima venta aparece asentada despues de la primera. Segun esto, el apelante no solamente obro con negligencia, sino interviniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago de la cantidad objecto de la demanda. En meritos de todo lo expuesto, se confirma la decision apelada con la modificacion de que el apelante debe pagar al apelado la suma de P2,295.70 como valor de los 1,417 cavanes de palay que dejo de entregar al demandante, mas la suma de P339.08 como importe de los 1,417 sacos vacios, que dejo de devolver, a razon de P0.24 el saco, total P3,314.78, con sus intereses legales desde la interposicion de la demanda y las costas de ambas instancias. Vista la mocion de reconsideracion de nuestra decision de fecha 13 de Octubre de 1942, y alegandose en la misma que cuando el apelante vendio los 1,500 cavanes de palay a Ah Phoy, la corporacion todavia tenia bastante existencia de dicho grano, y no estando dicho extremo suficientemente discutido y probado, y pudiendo variar el resultado del asunto, dejamos sin efecto nuestra citada decision, y ordenamos la devolucion de la

causa al Juzgado de origen para que reciba pruebas al efecto y dicte despues la decision correspondiente. Upon consideration of the motion of the attorney for the plaintiff-appellee in case CA-G.R. No. 8676, Francisco de Borja vs. Antonio Vasquez et al., praying, for the reasons therein given, that the resolution of December 22, 1942, be reconsidered: Considering that said resolution remanding the case to the lower court is for the benefit of the plaintiffappellee to afford him opportunity to refute the contention of the defendant-appellant Antonio Vazquez, motion denied. The action is on a contract, and the only issue pleaded and tried is whether the plaintiff entered into the contract with the defendant Antonio Vazquez in his personal capacity or as manager of the Natividad-Vazquez Sabani Development Co., Inc. The Court of Appeals found that according to the preponderance of the evidence "the sale made by Antonio Vazquez in favor of Francisco de Borja of 4,000 cavans of palay was in his capacity as acting president and manager of the corporation Natividad-Vazquez Sabani Development Co., Inc." That finding of fact is final and, it resolving the only issue involved, should be determinative of the result. The Court of Appeals doubly erred in ordering that the cause be remanded to the court of origin for further trial to determine whether the corporation had sufficient stock of palay at the time appellant sold, 1500 cavans of palay to Kwong Ah Phoy. First, if that point was material to the issue, it should have been proven during the trial; and the statement of the court that it had not been sufficiently discussed and proven was no justification for ordering a new trial, which, by the way, neither party had solicited but against which, on the contrary, both parties now vehemently protest. Second, the point is, in any event, beside the issue, and this we shall now discuss in connection with the original judgment of the Court of Appeals which the plaintiff cross-petitioner seeks to maintain. The action being on a contract, and it appearing from the preponderance of the evidence that the party liable on the contract is the Natividad-Vazquez Sabani Development Co., Inc. which is not a

party herein, the complaint should have been dismissed. Counsel for the plaintiff, in his brief as respondent, argues that altho by the preponderance of the evidence the trial court and the Court of Appeals found that Vazquez celebrated the contract in his capacity as acting president of the corporation and altho it was the latter, thru Vazquez, with which the plaintiff had contracted and which, thru Vazquez, had received the sum of P8,400 from Borja, and altho that was true from the point of view of a legal fiction, "ello no impede que tambien sea verdad lo alegado en la demanda de que la misma persona de Vasquez fue la que contrato con Borja y que la misma persona de Vasquez fue quien recibio la suma de P8,400." But such argument is invalid and insufficient to show that the president of the corporation is personally liable on the contract duly and lawfully entered into by him in its behalf. It is well known that a corporation is an artificial being invested 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. The mere fact that its personality is owing to a legal fiction and that it necessarily has to act thru its agents, does not make the latter personally liable on a contract duly entered into, or for an act lawfully performed, by them for an in its behalf. The legal fiction by which the personality of a corporation is created is a practical reality and necessity. Without it no corporate entities may exists and no corporate business may be transacted. Such legal fiction may be disregarded only when an attempt is made to use it as a cloak to hide an unlawful or fraudulent purpose. No such thing has been alleged or proven in this case. It has not been alleged nor even intimated that Vazquez personally benefited by the contract of sale in question and that he is merely invoking the legal fiction to avoid personal liability. Neither is it contended that he entered into said contract for the corporation in bad faith and with intent to defraud the plaintiff. We find no legal and factual basis upon which to hold him liable on the contract either principally or subsidiarily. The trial court found him guilty of negligence in the performance of the contract and held him personally liable on that account. On the other hand, the Court of Appeals found that he "no solamente obro con negligencia, sino interveniendo culpa de su parte, por lo que de

acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable subsidiariamente del pago de la cantidad objeto de la demanda." We think both the trial court and the Court of Appeals erred in law in so holding. They have manifestly failed to distinguish a contractual from an extracontractual obligation, or an obligation arising from contract from an obligation arising from culpa aquiliana. The fault and negligence referred to in articles 1101-1104 of the Civil Code are those incidental to the fulfillment or nonfullfillment of a contractual obligation; while the fault or negligence referred to in article 1902 is the culpa aquiliana of the civil law, homologous but not identical to tort of the common law, which gives rise to an obligation independently of any contract. (Cf. Manila R.R. Co. vs. Cia. Trasatlantica, 38 Phil., 875, 887-890; Cangco vs. Manila R.R. Co., 38 Phil. 768.) The fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence in the fulfillment of the contract, did not make Vazquez principally or even subsidiarily liable for such negligence. Since it was the corporation's contract, its nonfulfillment, whether due to negligence or fault or to any other cause, made the corporation and not its agent liable. On the other hand if independently of the contract Vazquez by his fault or negligence cause damaged to the plaintiff, he would be liable to the latter under article 1902 of the Civil Code. But then the plaintiff's cause of action should be based on culpa aquiliana and not on the contract alleged in his complaint herein; and Vazquez' liability would be principal and not merely subsidiary, as the Court of Appeals has erroneously held. No such cause of action was alleged in the complaint or tried by express or implied consent of the parties by virtue of section 4 of Rule 17. Hence the trial court had no jurisdiction over the issue and could not adjudicate upon it (Reyes vs. Diaz, G.R. No. 48754.) Consequently it was error for the Court of Appeals to remand the case to the trial court to try and decide such issue. It only remains for us to consider petitioner's second assignment of error referring to the lower courts' refusal to entertain his counterclaim for damages against the respondent Borja arising from the bringing of this action. The lower courts having sustained plaintiff's action. The finding of the Court of Appeals that according to the preponderance of the evidence the defendant Vazquez celebrated the contract not in his

personal capacity but as acting president and manager of the corporation, does not warrant his contention that the suit against him is malicious and tortious; and since we have to decide defendant's counterclaim upon the facts found by the Court of Appeals, we find no sufficient basis upon which to sustain said counterclaim. Indeed, we feel that as a matter of moral justice we ought to state here that the indignant attitude adopted by the defendant towards the plaintiff for having brought this action against him is in our estimation not wholly right. Altho from the legal point of view he was not personally liable for the fulfillment of the contract entered into by him on behalf of the corporation of which he was the acting president and manager, we think it was his moral duty towards the party with whom he contracted in said capacity to see to it that the corporation represented by him fulfilled the contract by delivering the palay it had sold, the price of which it had already received. Recreant to such duty as a moral person, he has no legitimate cause for indignation. We feel that under the circumstances he not only has no cause of action against the plaintiff for damages but is not even entitled to costs. The judgment of the Court of Appeals is reversed, and the complaint is hereby dismissed, without any finding as to costs.