action must necessarily fail. The claim of petitioners as represented by Atty.

Dumadag,
that Zaballa, et al., are the incumbent officers of Premium has not been fully substantiated.
In the absence of an authority from the board of directors, no person, not even the officers
of the corporation, can validly bind the corporation.

SECOND DIVISION

Assailed in the instant petition for review is the decision 1 of the Court of Appeals in CA-G.R. CV
No. 16810 dated September 28, 1990 which affirmed the trial court's dismissal of petitioners'
complaint for damages.

[G.R. No. 96551. November 4, 1996]

PREMIUM MARBLE RESOURCES, INC., petitioner, vs. THE COURT OF APPEALS and
INTERNATIONAL CORPORATE BANK, respondents.
PRINTLINE
CORPORATION, petitioner,
vs. THE
COURT
INTERNATIONAL CORPORATE BANK, respondents.

OF

APPEALS

and

SYLLABUS

1. COMMERCIAL LAW; CORPORATION CODE; CORPORATIONS; POWER TO SUE AND BE

SUED, LODGED WITH THE BOARD OF DIRECTORS. The power of the corporation to
sue and be sued in any court is lodged with the board of directors that exercises its
powers. Thus, the issue of authority and the invalidity of plaintiff-appellants subscription
which is still pending, is a matter that is also addressed, considering the premises, to the
sound judgment of the Securities & Exchange Commission.
2. ID.; ID.; ID.; REQUIRED TO SUBMIT TO SEC WITHIN 30 DAYS AMONG OTHERS, THE
NAMES OF DIRECTORS, TRUSTEES AND OFFICERS ELECTED; PURPOSE. By the
express mandate of the Corporation Code (Section 26), all corporations duly organized
pursuant thereto are required to submit within the period therein stated (30 days) to the
Securities and Exchange Commission the names, nationalities and residences of the
directors, trustees and officers elected. Evidently, the objective sought to be achieved by
Section 26 is to give the public information, under sanction of oath of responsible officers,
of the nature of business, financial condition and operational status of the company
together with information on its key officers or managers so that those dealing with it and
those who intend to do business with it may know or have the means of knowing facts
concerning the corporations financial resources and business responsibility.
3. ID.; ID.; ID.; NO PERSON, IN THE ABSENCE OF AUTHORITY FROM THE BOARD OF
DIRECTORS, CAN VALIDLY BIND THE CORPORATION; ACTION FOR DAMAGES
FILED BY CORPORATION WITHOUT RESOLUTION OF THE BOARD OF DIRECTORS.
The lower court finds that the officers represented by Atty. Dumadag do not as yet have
the legal capacity to sue for and in behalf of the plaintiff corporation and/or the filing of the
present action (Civil Case 14413) by them before Case No. 2688 of the SEC could be
decided is a premature exercise of authority or assumption of legal capacity for and in
behalf of plaintiff corporation. The issues raised in Civil Case No. 14444 are similar to
those raised in Civil Case No. 14413. This Court is of the opinion that before SEC Case
No. 2688 could be decided, neither the set of officers represented by Atty. Dumadag nor
that set represented by the Siguion Reyna, Montecillo and Ongsiako Law Office, may
prosecute cases in the name of the plaintiff corporation. It is clear from the pleadings filed
by the parties in these two cases that the existence of a cause of action against the
defendants is dependent upon the resolution of the case involving intra-corporate
controversy still pending before the SEC. On appeal, the Court of Appeals affirmed the
trial courts Order which dismissed the consolidated cases. We agree with the finding of
public respondent Court of Appeals, that in the absence of any board resolution from its
board of directors the [sic] authority to act for and in behalf of the corporation, the present

The antecedents:
On July 18, 1986, Premium Marble Resources, Inc. (Premium for brevity), assisted by Atty.
Arnulfo Dumadag as counsel, filed an action for damages against International Corporate Bank
which was docketed as Civil Case No. 14413. The complaint states, inter alia:
3. Sometime in August to October 1982, Ayala Investment and
Development Corporation issued three (3) checks [Nos. 097088, 097414 &
27884] in the aggregate amount of P31,663.88 payable to the plaintiff and
drawn against Citibank;
xxx xxx xxx
5. On or about August to October 1982, former officers of the plaintiff
corporation headed by Saturnino G. Belen, Jr., without any authority
whatsoever from the plaintiff deposited the above-mentioned checks to the
current account of his conduit corporation, Intervest Merchant Finance
(Intervest, for brevity) which the latter maintained with the defendant bank
under account No. 0200-02027-8;
6. Although the checks were clearly payable to the plaintiff corporation and
crossed on their face and for payee's account only, defendant bank
accepted the checks to be deposited to the current account of Intervest and
thereafter presented the same for collection from the drawee bank which
subsequently cleared the same thus allowing Intervest to make use of the
funds to the prejudice of the plaintiff;
xxx xxx xxx
14. The plaintiff has demanded upon the defendant to restitute the amount
representing the value of the checks but defendant refused and continue to
refuse to honor plaintiff's demands up to the present;
15. As a result of the illegal and irregular acts perpetrated by the defendant
bank, the plaintiff was damaged to the extent of the amount of P31,663.88;
Premium prayed that judgment be rendered ordering defendant bank to pay the
amount of P31,663.88 representing the value of the checks plus interest, P100,000.00
as exemplary damages; and P30,000.00 as attorney's fees.
In its Answer International Corporate Bank alleged, inter alia, that Premium has no
capacity/personality/authority to sue in this instance and the complaint should, therefore, be
dismissed for failure to state a cause of action.

A few days after Premium filed the said case, Printline Corporation, a sister company of
Premium also filed an action for damages against International Corporate Bank docketed as
Civil Case No. 14444. Thereafter, both civil cases were consolidated.

On appeal, the Court of Appeals affirmed the trial court's Order 4 which dismissed the
consolidated cases. Hence, this petition.
Petitioner submits the following assignment of errors:

Meantime, the same corporation, i.e., Premium, but this time represented by Siguion Reyna,
Montecillio and Ongsiako Law Office as counsel, filed a motion to dismiss on the ground that the
filing of the case was without authority from its duly constituted board of directors as shown by
the excerpt of the minutes of the Premium's board of directors' meeting. 2
In its opposition to the motion to dismiss, Premium thru Atty. Dumadag contended that the
persons who signed the board resolution namely Belen, Jr., Nograles & Reyes, are not directors
of the corporation and were allegedly former officers and stockholders of Premium who were
dismissed for various irregularities and fraudulent acts; that Siguion Reyna Law office is the
lawyer of Belen and Nograles and not of Premium and that the Articles of Incorporation of
Premium shows that Belen, Nograles and Reyes are not majority stockholders.
On the other hand, Siguion Reyna Law firm as counsel of Premium in a rejoinder, asserted that
it is the general information sheet filed with the Securities and Exchange Commission, among
others, that is the best evidence that would show who are the stockholders of a corporation and
not the Articles of Incorporation since the latter does not keep track of the many changes that
take place after new stockholders subscribe to corporate shares of stocks.
In the interim, defendant bank filed a manifestation that it is adopting in toto Premium's motion to
dismiss and, therefore, joins it in the praying for the dismissal of the present case on the ground
that Premium lacks authority from its duly constituted board of directors to institute the action.

I
The Court of Appeals erred in giving due course to the motion to dismiss
filed by the Siguion Reyna Law Office when the said motion is clearly filed
not in behalf of the petitioner but in behalf of the group of Belen who are the
clients of the said law office.
II
The Court of Appeals erred in giving due course to the motion to dismiss
filed by the Siguion Reyna Law Office in behalf of petitioner when the said
law office had already appeared in other cases wherein the petitioner is the
adverse party.
III
The Court of Appeals erred when it ruled that undersigned counsel was not
authorized by the Board of Directors to file Civil Case Nos. 14413 and
14444.

In its Order, the lower court concluded that:

Considering that the officers (directors) of plaintiff corporation enumerated
in the Articles of Incorporation, filed on November 9, 1979, were "to serve
until their successors are elected and qualified" and considering further that
as of March 4, 1981, the officers of the plaintiff corporation were Alberto
Nograles, Fernando Hilario, Augusto Galace, Jose L.R. Reyes, Pido Aguilar
and Saturnino Belen, Jr., who presumably are the officers represented by
the Siguion Reyna Law Firm, and that together with the defendants, they
are moving for the dismissal of the above-entitled case, the Court finds that
the officers represented by Atty. Dumadag do not as yet have the legal
capacity to sue for and in behalf of the plaintiff corporation and/or the filing
of the present action (Civil Case 14413) by them before Case No. 2688 of
the SEC could be decided is a premature exercise of authority or
assumption of legal capacity for and in behalf of plaintiff corporation.
The issues raised in Civil Case No. 14444 are similar to those raised in Civil
Case No. 14413. This Court is of the opinion that before SEC Case No.
2688 could be decided, neither the set of officers represented by Atty.
Dumadag nor that set represented by the Siguion Reyna, Montecillo and
Ongsiako Law Office, may prosecute cases in the name of the plaintiff
corporation.
It is clear from the pleadings filed by the parties in these two cases that the
existence of a cause of action against the defendants is dependent upon
the resolution of the case involving intra-corporate controversy still pending
before the SEC. 3

IV
The Court of Appeals erred in concluding that under SEC Case No. 2688
the incumbent directors could not act for and in behalf of the corporation.
V
The Court of Appeals is without jurisdiction to prohibit the incumbent Board
of Directors from acting and filing this case when the SEC where SEC Case
No. 2688 is pending has not even made the prohibition.
We find the petition without merit.
The only issue in this case is whether or not the filing of the case for damages against private
respondent was authorized by a duly constituted Board of Directors of the petitioner corporation.
Petitioner, through the first set of officers, viz., Mario Zavalla, Oscar Gan, Lionel Pengson, Jose
Ma. Silva, Aderito Yujuico and Rodolfo Millare, presented the Minutes 5 of the meeting of its
Board of Directors held on April 1, 1982, as proof that the filing of the case against private
respondent was authorized by the Board. On the other hand, the second set of officers, viz.,
Saturnino G. Belen, Jr., Alberto C. Nograles and Jose L.R. Reyes, presented a
Resolution 6 dated July 30, 1986, to show that Premium did not authorize the filing in its behalf of
any suit against the private respondent International Corporate Bank.

Later on, petitioner submitted its Articles of Incorporation 7 dated November 6, 1979 with the
following as Directors: Mario C. Zavalla, Pedro C. Celso, Oscar B. Gan, Lionel Pengson, and
Jose Ma. Silva.

the
corporation. 11
We find no reversible error in the decision sought to be reviewed.

However, it appears from the general information sheet and the Certification issued by the SEC
on August 19, 1986 8 that as of March 4, 1981, the officers and members of the board of
directors of the Premium Marble Resources, Inc. were:
Alberto C. Nograles President/Director
Fernando D. Hilario Vice President/Director
Augusto I. Galace Treasurer
Jose L.R. Reyes Secretary/Director
Pido E. Aquilar Director
Saturnino G. Belen, Jr. Chairman of the Board.

ACCORDINGLY, for lack of merit, the petition is hereby DENIED.

SO ORDERED.

While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly elected
officers for the year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo Millare,
petitioner failed to show proof that this election was reported to the SEC. In fact, the last entry in
their General Information Sheet with the SEC, as of 1986 appears to be the set of officers
elected in March 1981.
We agree with the finding of public respondent Court of Appeals, that "in the absence of /any
board resolution from its board of directors the [sic] authority to act for and in behalf of the
corporation, the present action must necessarily fail. The power of the corporation to sue and be
sued in any court is lodged with the board of directors that exercises its corporate powers. Thus,
the issue of authority and the invalidity of plaintiff-appellant 's subscription which is still pending,
is a matter that is also addressed, considering the premises, to the sound judgment of the
Securities & Exchange Commission." 9
By the express mandate of the Corporation Code (Section 26), all corporations duly organized
pursuant thereto are required to submit within the period therein stated (30 days) to the
Securities and Exchange Commission the names, nationalities and residences of the directors,
trustees and officers elected.
Sec. 26 of the Corporation Code provides, thus:
Sec. 26. Report of election of directors, trustees and officers. Within thirty
(30) days after the election of the directors, trustees and officers of the
corporation, the secretary, or any other officer of the corporation, shall
submit to the Securities and Exchange Commission, the names,
nationalities and residences of the directors, trustees and officers elected. . .
.
Evidently, the objective sought to be achieved by Section 26 is to give the public information,
under sanction of oath of responsible officers, of the nature of business, financial condition and
operational status of the company together with information on its key officers or managers so
that those dealing with it and those who intend to do business with it may know or have the
means of knowing facts concerning the corporation's financial resources and business
responsibility. 10
The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the
incumbent officers of Premium has not been fully substantiated. In the absence of an authority
from the board of directors, no person, not even the officers of the corporation, can validly bind

the members of the corporation, who shall hold office for one (1) year until their successors are
elected and qualified.
G.R. No. 151969

September 4, 2009

VALLE VERDE COUNTRY CLUB, INC., ERNESTO VILLALUNA, RAY GAMBOA, AMADO M.
SANTIAGO, JR., FORTUNATO DEE, AUGUSTO SUNICO, VICTOR SALTA, FRANCISCO
ORTIGAS III, ERIC ROXAS, in their capacities as members of the Board of Directors of
Valle Verde Country Club, Inc., and JOSE RAMIREZ,Petitioners,
vs.
VICTOR AFRICA, Respondent.
DECISION
BRION, J.:
In this petition for review on certiorari,1 the parties raise a legal question on corporate
governance: Can the members of a corporations board of directors elect another director to fill
in a vacancy caused by the resignation of a hold-over director?
THE FACTUAL ANTECEDENTS
On February 27, 1996, during the Annual Stockholders Meeting of petitioner Valle Verde
Country Club, Inc. (VVCC), the following were elected as members of the VVCC Board of
Directors: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal (Makalintal),
Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and
Ray Gamboa.2 In the years 1997, 1998, 1999, 2000, and 2001, however, the requisite quorum
for the holding of the stockholders meeting could not be obtained. Consequently, the abovenamed directors continued to serve in the VVCC Board in a hold-over capacity.
On September 1, 1998, Dinglasan resigned from his position as member of the VVCC Board. In
a meeting held on October 6, 1998, the remaining directors, still constituting a quorum of
VVCCs nine-member board, elected Eric Roxas (Roxas) to fill in the vacancy created by the
resignation of Dinglasan.

xxxx
Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board
of directors or trustees other than by removal by the stockholders or members or by expiration of
term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still
constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular
or special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall
be elected only for the unexpired term of his predecessor in office. xxx. [Emphasis supplied.]
Africa claimed that a year after Makalintals election as member of the VVCC Board in 1996, his
[Makalintals] term as well as those of the other members of the VVCC Board should be
considered to have already expired. Thus, according to Africa, the resulting vacancy should
have been filled by the stockholders in a regular or special meeting called for that purpose, and
not by the remaining members of the VVCC Board, as was done in this case.
Africa additionally contends that for the members to exercise the authority to fill in vacancies in
the board of directors, Section 29 requires, among others, that there should be an unexpired
term during which the successor-member shall serve. Since Makalintals term had already
expired with the lapse of the one-year term provided in Section 23, there is no more "unexpired
term" during which Ramirez could serve.
Through a partial decision4 promulgated on January 23, 2002, the RTC ruled in favor of Africa
and declared the election of Ramirez, as Makalintals replacement, to the VVCC Board as null
and void.
Incidentally, the SEC issued a similar ruling on June 3, 2003, nullifying the election of Roxas as
member of the VVCC Board, vice hold-over director Dinglasan. While VVCC manifested its
intent to appeal from the SECs ruling, no petition was actually filed with the Court of Appeals;
thus, the appellate court considered the case closed and terminated and the SECs ruling final
and executory.5
THE PETITION

A year later, or on November 10, 1998, Makalintal also resigned as member of the VVCC Board.
He was replaced by Jose Ramirez (Ramirez), who was elected by the remaining members of the
VVCC Board on March 6, 2001.
Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez
as members of the VVCC Board with the Securities and Exchange Commission (SEC) and the
Regional Trial Court (RTC), respectively. The SEC case questioning the validity of Roxas
appointment was docketed as SEC Case No. 01-99-6177. The RTC case questioning the
validity of Ramirez appointment was docketed as Civil Case No. 68726.

VVCC now appeals to the Court to assail the RTCs January 23, 2002 partial decision for being
contrary to law and jurisprudence. VVCC made a direct resort to the Court via a petition for
review on certiorari, claiming that the sole issue in the present case involves a purely legal
question.
As framed by VVCC, the issue for resolution is whether the remaining directors of the
corporations Board, still constituting a quorum, can elect another director to fill in a vacancy
caused by the resignation of a hold-over director.

In his nullification complaint3 before the RTC, Africa alleged that the election of Roxas was
contrary to Section 29, in relation to Section 23, of the Corporation Code of the Philippines
(Corporation Code). These provisions read:

Citing law and jurisprudence, VVCC posits that the power to fill in a vacancy created by the
resignation of a hold-over director is expressly granted to the remaining members of the
corporations board of directors.

Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where there is no stock, from among

Under the above-quoted Section 29 of the Corporation Code, a vacancy occurring in the board
of directors caused by the expiration of a members term shall be filled by the corporations
stockholders. Correlating Section 29 with Section 23 of the same law, VVCC alleges that a

members term shall be for one year and until his successor is elected and
qualified; otherwise stated, a members term expires only when his successor to the Board is
elected and qualified. Thus, "until such time as [a successor is] elected or qualified in an annual
election where a quorum is present," VVCC contends that "the term of [a member] of the board
of directors has yet not expired."
As the vacancy in this case was caused by Makalintals resignation, not by the expiration of his
term, VVCC insists that the board rightfully appointed Ramirez to fill in the vacancy.
In support of its arguments, VVCC cites the Courts ruling in the 1927 El Hogar6 case which
states:
Owing to the failure of a quorum at most of the general meetings since the respondent has been
in existence, it has been the practice of the directors to fill in vacancies in the directorate by
choosing suitable persons from among the stockholders. This custom finds its sanction in Article
71 of the By-Laws, which reads as follows:
Art. 71. The directors shall elect from among the shareholders members to fill the vacancies that
may occur in the board of directors until the election at the general meeting.
xxxx
Upon failure of a quorum at any annual meeting the directorate naturally holds over and
continues to function until another directorate is chosen and qualified. Unless the law or the
charter of a corporation expressly provides that an office shall become vacant at the expiration
of the term of office for which the officer was elected, the general rule is to allow the officer to
hold over until his successor is duly qualified. Mere failure of a corporation to elect officers does
not terminate the terms of existing officers nor dissolve the corporation. The doctrine above
stated finds expression in article 66 of the by-laws of the respondent which declares in so many
words that directors shall hold office "for the term of one year or until their successors shall have
been elected and taken possession of their offices." xxx.
It results that the practice of the directorate of filling vacancies by the action of the
directors themselves is valid. Nor can any exception be taken to the personality of the
individuals chosen by the directors to fill vacancies in the body. [Emphasis supplied.]
Africa, in opposing VVCCs contentions, raises the same arguments that he did before the trial
court.
THE COURTS RULING
We are not persuaded by VVCCs arguments and, thus, find its petition unmeritorious.
To repeat, the issue for the Court to resolve is whether the remaining directors of a corporations
Board, still constituting a quorum, can elect another director to fill in a vacancy caused by the
resignation of a hold-over director. The resolution of this legal issue is significantly hinged on the
determination of what constitutes a directors term of office.
The holdover period is not part of the term of office of a member of the board of directors

The word "term" has acquired a definite meaning in jurisprudence. In several cases, we have
defined "term" as the time during which the officer may claim to hold the office as of right, and
fixes the interval after which the several incumbents shall succeed one another.7 The term of
office is not affected by the holdover.8 The term is fixed by statute and it does not change simply
because the office may have become vacant, nor because the incumbent holds over in office
beyond the end of the term due to the fact that a successor has not been elected and has failed
to qualify.
Term is distinguished from tenure in that an officers "tenure" represents the term during which
the incumbent actually holds office. The tenure may be shorter (or, in case of holdover, longer)
than the term for reasons within or beyond the power of the incumbent.
Based on the above discussion, when Section 239 of the Corporation Code declares that "the
board of directorsshall hold office for one (1) year until their successors are elected and
qualified," we construe the provision to mean that the term of the members of the board of
directors shall be only for one year; their term expires one year after election to the office. The
holdover period that time from the lapse of one year from a members election to the Board
and until his successors election and qualification is not part of the directors original term of
office, nor is it a new term; the holdover period, however, constitutes part of his tenure.
Corollary, when an incumbent member of the board of directors continues to serve in a holdover
capacity, it implies that the office has a fixed term, which has expired, and the incumbent is
holding the succeeding term.10
After the lapse of one year from his election as member of the VVCC Board in 1996, Makalintals
term of office is deemed to have already expired. That he continued to serve in the VVCC Board
in a holdover capacity cannot be considered as extending his term. To be precise, Makalintals
term of office began in 1996 and expired in 1997, but, by virtue of the holdover doctrine in
Section 23 of the Corporation Code, he continued to hold office until his resignation on
November 10, 1998. This holdover period, however, is not to be considered as part of his term,
which, as declared, had already expired.
With the expiration of Makalintals term of office, a vacancy resulted which, by the terms of
Section 2911 of the Corporation Code, must be filled by the stockholders of VVCC in a regular or
special meeting called for the purpose. To assume as VVCC does that the vacancy is
caused by Makalintals resignation in 1998, not by the expiration of his term in 1997, is both
illogical and unreasonable. His resignation as a holdover director did not change the nature of
the vacancy; the vacancy due to the expiration of Makalintals term had been created long
before his resignation.
The powers of the corporations board of directors emanate from its stockholders
VVCCs construction of Section 29 of the Corporation Code on the authority to fill up vacancies
in the board of directors, in relation to Section 23 thereof, effectively weakens the stockholders
power to participate in the corporate governance by electing their representatives to the board of
directors. The board of directors is the directing and controlling body of the corporation. It is a
creation of the stockholders and derives its power to control and direct the affairs of the
corporation from them. The board of directors, in drawing to themselves the powers of the
corporation, occupies a position of trusteeship in relation to the stockholders, in the sense that
the board should exercise not only care and diligence, but utmost good faith in the management
of corporate affairs.12
The underlying policy of the Corporation Code is that the business and affairs of a corporation
must be governed by a board of directors whose members have stood for election, and who
have actually been elected by the stockholders, on an annual basis. Only in that way can the
directors' continued accountability to shareholders, and the legitimacy of their decisions that bind

the corporation's stockholders, be assured. The shareholder vote is critical to the theory that
legitimizes the exercise of power by the directors or officers over properties that they do not
own.13
This theory of delegated power of the board of directors similarly explains why, under Section 29
of the Corporation Code, in cases where the vacancy in the corporations board of directors is
caused not by the expiration of a members term, the successor "so elected to fill in a vacancy
shall be elected only for the unexpired term of the his predecessor in office." The law has
authorized the remaining members of the board to fill in a vacancy only in specified instances,
so as not to retard or impair the corporations operations; yet, in recognition of the stockholders
right to elect the members of the board, it limited the period during which the successor shall
serve only to the "unexpired term of his predecessor in office."
While the Court in El Hogar approved of the practice of the directors to fill vacancies in the
directorate, we point out that this ruling was made before the present Corporation Code was
enacted14 and before its Section 29 limited the instances when the remaining directors can fill in
vacancies in the board, i.e., when the remaining directors still constitute a quorum and when the
vacancy is caused for reasons other than by removal by the stockholders or by expiration of the
term.1avvphi1
It also bears noting that the vacancy referred to in Section 29 contemplates a vacancy occurring
within the directors term of office. When a vacancy is created by the expiration of a term,
logically, there is no more unexpired term to speak of. Hence, Section 29 declares that it shall be
the corporations stockholders who shall possess the authority to fill in a vacancy caused by the
expiration of a members term.
As correctly pointed out by the RTC, when remaining members of the VVCC Board elected
Ramirez to replace Makalintal, there was no more unexpired term to speak of, as Makalintals
one-year term had already expired. Pursuant to law, the authority to fill in the vacancy caused by
Makalintals leaving lies with the VVCCs stockholders, not the remaining members of its board
of directors.
WHEREFORE, we DENY the petitioners petition for review on certiorari, and AFFIRM the partial
decision of the Regional Trial Court, Branch 152, Manila, promulgated on January 23, 2002, in
Civil Case No. 68726. Costs against the petitioners.
SO ORDERED.

G.R. No. 153413

The corporation acting thru its Board of Directors can validly remove its corporate officers,
particularly complainant Nectarina S. Raniel as corporate secretary, treasurer and administrator
of the Dialysis Clinic.

March 1, 2007

NECTARINA S. RANIEL and MA. VICTORIA R. PAG-ONG, Petitioners,

vs.
PAUL JOCHICO, JOHN STEFFENS and SURYA VIRIYA, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Assailed in the present Petition for Review on Certiorari is the Decision1 of the Court of Appeals
(CA) dated April 30, 2002, affirming with modification the Decision dated October 27, 2000
rendered by the Securities and Exchange Commission (SEC) which held as valid the removal of
petitioners Ma. Victoria R. Pag-ong (Pag-ong) as director and Nectarina S. Raniel (Raniel) as
director and corporate officer of Nephro Systems Dialysis Center (Nephro).
Petitioners first questioned their removal in SEC Case No. 02-98-5902 for Declaration of Nullity
of the Illegal Acts of Respondents, Damages and Injunction. Petitioners, together with
respondents Paul Jochico (Jochico), John Steffens and Surya Viriya, were incorporators and
directors of Nephro, with Raniel acting as Corporate Secretary and Administrator. The conflict
started when petitioners questioned respondents' plan to enter into a joint venture with the
Butuan Doctors' Hospital and College, Inc. sometime in December 1997. Because of this,
petitioners claim that respondents tried to compel them to waive and assign their shares with
Nephro but they refused. Thereafter, Raniel sought an indefinite leave of absence due to stress,
but this was denied by Jochico, as Nephro President. Raniel, nevertheless, did not report for
work, causing Jochico to demand an explanation from her why she should not be removed as
Administrator and Corporate Secretary. Raniel replied, expressing her sentiments over the
disapproval of her request for leave and respondents' decision with regard to the Butuan
venture.
On January 30, 1998, Jochico issued a Notice of Special Board Meeting on February 2, 1998.
Despite receipt of the notice, petitioners did not attend the board meeting. In said meeting, the
Board passed several resolutions ratifying the disapproval of Raniel's request for leave,
dismissing her as Administrator of Nephro, declaring the position of Corporate Secretary vacant,
appointing Otelio Jochico as the new Corporate Secretary and authorizing the call of a Special
Stockholders' Meeting on February 16, 1998 for the purpose of the removal of petitioners as
directors of Nephro.
Otelio Jochico issued the corresponding notices for the Special Stockholders' Meeting to be held
on February 16, 1998 which were received by petitioners on February 2, 1998. Again, they did
not attend the meeting. The stockholders who were present removed the petitioners as directors
of Nephro. Thus, petitioners filed SEC Case No. 02-98-5902.

Also, the Commission cannot grant the relief prayed for by complainants in restraining the
respondents from interfering in the administration of the Dialysis Clinic owned by the corporation
and the use of corporate funds.
The administration of the Dialysis Clinic of the corporation and the use of corporate funds,
rightfully belong to the officers of the corporation, which in this case are the respondents.
The counterclaim of respondents to return or assign back the complainants' shares in favor of
respondent Paul Jochico or his nominee is hereby denied for lack of merit.
The respondents failed to show any clear and convincing evidence to rebut the presumption of
the validity and truthfulness of documents submitted to the Commission in the grant of corporate
license.
The claim for attorney's fees and damages of both parties are likewise denied for lack of merit,
as neither party should be punished for vindicating a right, which he/she believes should be
protected or enforced.
SO ORDERED.2
Dissatisfied, petitioners filed a petition for review with the CA.
On April 30, 2002, the CA rendered the assailed Decision, with the following dispositive portion:
WHEREFORE, in light of the foregoing discussions, the appealed decision of the Securities and
Exchange Commission is hereby AFFIRMED with the MODIFICATION that the renewal of
petitioners as directors of Nephro is declared valid.
SO ORDERED.3
Respondents filed a Manifestation and Motion to Correct Typographical Error, stating that the
term "renewal" as provided in the CA Decision should be "removal."4 Petitioners, on the other
hand, filed the present petition for review on certiorari.
On November 20, 2002, the CA issued a Resolution resolving to refrain from acting on all
pending incidents before it in view of the filing of the petition with the Court.5
In the present petition, petitioners raised basically the same argument they had before the SEC
and the CA, i.e., their removal from Nephro was not valid.

On October 27, 2000, the SEC rendered its Decision, the dispositive portion of which reads:
WHEREFORE, the Commission so holds that complainants cannot be awarded the reliefs
prayed for in reinstating Nectarina S. Raniel as secretary and administrator.

Both the SEC and the CA held that Pag-ong's removal as director and Raniel's removal as
director and officer of Nephro were valid. For its part, the SEC ruled that the Board of Directors
had sufficient ground to remove Raniel as officer due to loss of trust and confidence, as her
abrupt and unauthorized leave of absence exhibited her disregard of her responsibilities as an
officer of the corporation and disrupted the operations of Nephro. The SEC also held that the
Special Board Meeting held on February 2, 1998 was valid and the resolutions adopted therein
are binding on petitioners.6

The CA upheld the SEC's conclusions, adding further that the special stockholders' meeting on
February 16, 1998 was likewise validly held. The CA also ruled that Pag-ong's removal as
director of Nephro was justified as it was due to her "undenied delay in the release of Nephro's
medical supplies from the warehouse of the Fly-High Brokerage where she was an officer, on
top of her and her co-petitioner Raniel's absence from the aforementioned directors' and
stockholders' meetings of Nephro despite due notice."7
It is well to stress the settled rule that the findings of fact of administrative bodies, such as the
SEC, will not be interfered with by the courts in the absence of grave abuse of discretion on the
part of said agencies, or unless the aforementioned findings are not supported by substantial
evidence. They carry even more weight when affirmed by the CA.8 Such findings are accorded
not only great respect but even finality, and are binding upon this Court, unless it is shown that it
had arbitrarily disregarded or misapprehended evidence before it to such an extent as to compel
a contrary conclusion had such evidence been properly appreciated.9 This rule is rooted in the
doctrine that this Court is not a trier of facts, as well as in the respect to be accorded the
determinations made by administrative bodies in general on matters falling within their
respective fields of specialization or expertise.10
A review of the petition failed to demonstrate any reversible error committed by the two tribunals,
hence, the petition must be denied. It does not present any argument which convinces the Court
that the SEC and the CA made any misappreciation of the facts and the applicable laws such
that their decisions should be overturned.
A corporation exercises its powers through its board of directors and/or its duly authorized
officers and agents, except in instances where the Corporation Code requires stockholders
approval for certain specific acts.11
Based on Section 23 of the Corporation Code which provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees x x x.
a corporations board of directors is understood to be that body which (1) exercises all powers
provided for under the Corporation Code; (2) conducts all business of the corporation; and (3)
controls and holds all property of the corporation. Its members have been characterized as
trustees or directors clothed with a fiduciary character. 12Moreover, the directors may appoint
officers and agents and as incident to this power of appointment, they may discharge those
appointed.13
In this case, petitioner Raniel was removed as a corporate officer through the resolution of
Nephro's Board of Directors adopted in a special meeting on February 2, 1998. As correctly
ruled by the SEC, petitioners' removal was a valid exercise of the powers of Nephro's Board of
Directors, viz.:
In the instant complaint, do respondents have sufficient grounds to cause the removal of Raniel
from her positions as Corporate Secretary, Treasurer and Administrator of the Dialysis Clinic?
Based on the facts proven during the hearing of this case, the answer is in the affirmative.
Raniel's letter of January 26, 1998 speaks for itself. Her request for an indefinite leave,
immediately effective yet without prior notice, reveals a disregard of the critical responsibilities
pertaining to the sensitive positions she held in the corporation. Prior to her hasty departure,

Raniel did not make a proper turn-over of her duties and had to be expressly requested to hand
over documents and records, including keys to the office and the cabinets (Exh. 15).
xxxx
Since Raniel occupied all three positions in Nephro, it is not difficult to foresee the disruption that
her immediate and indefinite absence can inflict on the operations of the company. By leaving
abruptly, Raniel abandoned the positions she is now trying to reclaim. Raniel's actuation has
been sufficiently proven to warrant loss of the Board's confidence.14
The SEC also correctly concluded that petitioner Raniel was removed as an officer of Nephro in
compliance with established procedure, thus:
The resolutions of the Board dismissing complainant Raniel from her various positions in Nephro
are valid. Notwithstanding the absence of complainants from the meeting, a quorum was validly
constituted. x x x.
xxxx
Based on its articles of incorporation, Nephro has five directors two of the positions were
occupied by complainants and the remaining three are held by respondents. This being the
case, the presence of all three respondents in the Special Meeting of the Board on February 2,
1998 established a quorum for the conduct of business. The unanimous resolutions carried by
the Board during such meeting are therefore valid and binding against complainants.
It bears emphasis that Raniel was given sufficient opportunity to be heard. Jochico's letters of
January 26, 1998 and January 27, 1998, albeit adversarial, recognized her right to explain
herself and gave her the chance to do so. In fact, Raniel did respond to Jochico's letter on
January 28, 1998 and took the occasion to voice her opinions about Jochico's alleged "practice
of using others for your own benefit, without cost." (Exh. 14). Moreover, the Special Meeting of
the Board could have been the appropriate venue for Raniel to air her side. Had Raniel decided
to grace the meeting with her presence, she could have explained herself before the board and
tried to convince them to allow her to keep her posts.15
Petitioners Raniel and Pag-ong's removal as members of Nephro's Board of Directors was
likewise valid.
Only stockholders or members have the power to remove the directors or trustees elected by
them, as laid down inSection 28 of the Corporation Code,16 which provides in part:
SEC. 28. Removal of directors or trustees. -- Any director or trustee of a corporation may be
removed from office by a vote of the stockholders holding or representing at least twothirds (2/3) of the outstanding capital stock, or if the corporation be a non-stock corporation,
by a vote of at least two-thirds (2/3) of the members entitled to vote: Provided, that such removal
shall take place either at a regular meeting of the corporation or at a special meeting called for
the purpose, and in either case, after previous notice to stockholders or members of the
corporation of the intention to propose such removal at the meeting. A special meeting of the
stockholders or members of a corporation for the purpose of removal of directors or trustees or
any of them, must be called by the secretary on order of the president or on the written demand
of the stockholders representing or holding at least a majority of the outstanding capital stock, or
if it be a non-stock corporation, on the written demand of a majority of the members entitled to
vote. x x x Notice of the time and place of such meeting, as well as of the intention to propose
such removal, must be given by publication or by written notice as prescribed in this Code. x x

x Removal may be with or without cause: Provided, That removal without cause may not be
used to deprive minority stockholders or members of the right of representation to which they
may be entitled under Section 24 of this Code. (Emphasis supplied)
Petitioners do not dispute that the stockholders' meeting was held in accordance with Nephro's
By-Laws. The ownership of Nephro's outstanding capital stock is distributed as follows: Jochico 200 shares; Steffens - 100 shares; Viriya - 100 shares; Raniel - 75 shares; and Pag-ong - 25
shares,17 or a total of 500 shares. A two-thirds vote of Nephro's outstanding capital stock would
be 333.33 shares, and during the Stockholders' Special Meeting held on February 16, 1998, 400
shares voted for petitioners' removal. Said number of votes is more than enough to oust
petitioners from their respective positions as members of the board, with or without cause.
Verily therefore, there is no cogent reason to grant the present petition.
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.

We find merit in the petition.

G.R. No. 79762 January 24, 1991
FORTUNE CEMENT CORPORATION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (First Division) and ANTONIO M.
LAGDAMEO, respondents.
De Leon, Diokno & Associates Law Offices for petitioner.
Romarie G. Villonco and George C. Nograles for private respondent.

GRIO-AQUINO, J.:p
This is a petition for certiorari with prayer to annul the resolution dated May 29, 1987 of
respondent National Labor Relations Commission (NLRC) reversing the order dated December
3, 1985 of the Labor Arbiter which dismissed private respondent Antonio M. Lagdameo's
(Lagdameo for brevity) complaint for Illegal Dismissal (NLRC NCR Case No. 1-228-85) against
petitioner Fortune Cement Corporation (FCC for brevity) for lack of jurisdiction.
Lagdameo is a registered stockholder of FCC.
On October 14, 1975, at the FCC Board of Directors' regular monthly meeting, he was elected
Executive Vice-President of FCC effective November 1, 1975 (p. 3, Rollo).
Some eight (8) years later, or on February 10, 1983, during a regular meeting, the FCC Board
resolved that all of its incumbent corporate officers, including Lagdameo, would be "deemed"
retained in their respective positions without necessity of yearly reappointments, unless they
resigned or were terminated by the Board (p. 4, Rollo).
At subsequent regular meetings held on June 14 and 21, 1983, the FCC Board approved and
adopted a resolution dismissing Lagdameo as Executive Vice-President of the company,
effective immediately, for loss of trust and confidence (p. 4, Rollo).
On June 21, 1983, Lagdameo filed with the National Labor Relations Commission (NLRC),
National Capital Region, a complaint for illegal dismissal against FCC (NLRC-NCR Case No. 1228-85) alleging that his dismissal was done without a formal hearing and investigation and,
therefore, without due process (p. 63, Rollo).
On August 5, 1985, FCC moved to dismiss Lagdameo's complaint on the ground that his
dismiss as a corporate officer is a purely intra-corporate controversy over which the Securities
and Exchange Commission (SEC) has original and exclusive jurisdiction.
The Labor Arbiter granted the motion to dismiss (p. 22, Rollo). On appeal, however, the NLRC
set aside the Labor Arbiter's order and remanded the case to the Arbitration Branch "for
appropriate proceedings" (NLRC Resolution dated April 30, 1987). The NLRC denied FCC's
motion for reconsideration (p. 5, Rollo). Dissatisfied, FCC filed this petition for certiorari.

The sole issue to be resolved is whether or not the NLRC has jurisdiction over a complaint filed
by a corporate executive vice-president for illegal dismissal, resulting from a board resolution
dismissing him as such officer.
Section 5 of Presidential Decree No. 902-A vests in the SEC original and exclusive jurisdiction
over this controversy:
Sec. 5. In addition to the regulatory and adjudicative functions of the
Securities and Exchange Commission over corporations, partnerships and
other forms of associations registered with it as expressly granted under
existing laws and decrees, it shall have original and exclusive jurisdiction to
hear and decide cases involving:
a) Devices and schemes employed by or any acts, of the board of
directors, business associates, its officers or partners, amounting to fraud
and misrepresentation which may be detrimental to the interest of the public
and/or stockholders, partners, members of associations or organization
registered with the Commission;
b) Controversies arising out of intra-corporate or partnership relations,
between and among stockholders, members, or associates; between any or
all of them and the corporation, partnership or association of which they are
stockholders, members or associates, respectively; and between such
corporation, partnership or association and the state insofar as it concerns
their individual franchise or right to exist as such entity;
c) Controversies in the election or appointments of directors, trustees,
officers or managers of such corporations, partnership or associations."
(Section 5, P.D. 902-A; Emphasis supplied.)
In reversing the decision of Labor Arbiter Porfirio E. Villanueva, respondent NLRC held:
. . . . It is not disputed that complainant Lagdameo was an employee of
respondent Fortune Cement Corporation, being then the Executive VicePresident. For having been dismissed for alleged loss of trust and
confidence, complainant questioned his dismissal on such ground and the
manner in which he was dismissed, claiming that no investigation was
conducted, hence, there was and is denial of due process. Predicated on
the above facts, it is clear to Us that a labor dispute had arisen between the
appellant and the respondent corporation, a dispute which falls within the
original and exclusive jurisdiction of the NLRC. A labor dispute as defined in
the Labor Code includes any controversy or matter concerning terms or
conditions of employment or the association or representation of persons in
negotiating, fixing, maintaining, changing or arranging the terms and
conditions of employment regardless of whether or not the disputants stand
in the proximate relations of employers and employees." (pp. 16-17, Rollo).
The Solicitor General, declining to defend public respondent in its pleading entitled
"Manifestation in Lieu of Comment," aptly observed:

10

The position of "Executive Vice-President," from which private respondent

Lagdameo claims to have been illegally dismissed, is an elective corporate
office. He himself acquired that position through election by the
corporation's Board of Directors, although he also lost the same as a
consequence of the latter's resolution.
Indeed the election, appointment and/or removal of an executive vicepresident is a prerogative vested upon a corporate board.
And it must be, not only because it is a practice observed in petitioner
Fortune Cement Corporation, but more so, because of an express mandate
of law. (p. 65, Rollo.)

might be said, of the corporation, is not a simple labor problem but a matter
that comes within the area of corporate affairs and management, and is in
fact a corporate controversy in contemplation of the Corporation Code.
(Emphasis ours.)
WHEREFORE, the questioned Resolution of the NLRC reversing the decision of the Labor
Arbiter, having been rendered without jurisdiction, is hereby reversed and set aside. The
decision of the Labor Arbiter dated December 3, 1985 dismissing NLRC-NCR Case No. 1-22885 is affirmed, without prejudice to private respondent Antonio M. Lagdameo's seeking recourse
in the appropriate forum. No costs.
SO ORDERED.

The Solicitor General pointed out that "a corporate officer's dismissal is always a corporate act
and/or intra-corporate controversy and that nature is not altered by the reason or wisdom which
the Board of Directors may have in taking such action." The dispute between petitioner and
Lagdameo is of the class described in Section 5, par. (c) of Presidential Decree No. 902-A,
hence, within the original and exclusive jurisdiction of the SEC. The Solicitor General
recommended that the petition be granted and NLRC-NCR Case No. 1-228-85 be dismissed by
respondent NLRC for lack of jurisdiction (p. 95, Rollo).
In PSBA vs. Leao (127 SCRA 778), this Court, confronted with a similar controversy, ruled that
the SEC, not the NLRC, has jurisdiction:
This is not a case of dismissal. The situation is that of a corporate office
having been declared vacant, and of Tan's not having been elected
thereafter. The matter of whom to elect is a prerogative that belongs to the
Board, and involves the exercise of deliberate choice and the faculty of
discriminative selection. Generally speaking, the relationship of a person to
a corporation, whether as officer or as agent or employee is not determined
by the nature of the services performed, but by the incidents of the
relationship as they actually exist.
Lagdameo claims that his dismissal was wrongful, illegal, and arbitrary, because the
"irregularities" charged against him were not investigated (p. 85, Rollo); that the case of PSBA
vs. Leao (supra) cited by the Labor Arbiter finds no application to his case because it is not a
matter of corporate office having been declared vacant but one where a corporate officer was
dismissed without legal and factual basis and without due process; that the power of dismissal
should not be confused with the manner of exercising the same; that even a corporate officer
enjoys security of tenure regardless of his rank (p. 97, Rollo); and that the SEC is without power
to grant the reliefs prayed for in his complaint (p. 106, Rollo).
The issue of the SEC's power or jurisdiction is decisive and renders unnecessary a
consideration of the other questions raised by Lagdameo. Thus did this Court rule in the case
of Dy vs. National Labor Relations Commission (145 SCRA 211) which involved a similar
situation:
It is of no moment that Vailoces, in his amended complaint, seeks other
reliefs which would seemingly fall under the jurisdiction of the Labor Arbiter,
because a closer look at these underpayment of salary and non-payment
of living allowance shows that they are actually part of the perquisites of
his elective position, hence, intimately linked with his relations with the
corporation. The question of remuneration, involving as it does, a person
who is not a mere employee but a stockholder and officer, an integral part, it

11

It appears, that on December 20, 1975, a committee of the board of directors prepared a draft of
an amendment to the by-laws, reading as follows: 3
G.R. No. 108905 October 23, 1997
GRACE CHRISTIAN HIGH SCHOOL, petitioner,
vs.
THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G.
BELTRAN, and ERNESTO L. GO, respondents.

MENDOZA, J.:
The question for decision in this case is the right of petitioner's representative to sit in the board
of directors of respondent Grace Village Association, Inc. as a permanent member thereof. For
fifteen years from 1975 until 1989 petitioner's representative had been recognized as a
"permanent director" of the association. But on February 13, 1990, petitioner received notice
from the association's committee on election that the latter was "reexamining" (actually,
reconsidering) the right of petitioner's representative to continue as an unelected member of the
board. As the board denied petitioner's request to be allowed representation without election,
petitioner brought an action for mandamus in the Home Insurance and Guaranty Corporation. Its
action was dismissed by the hearing officer whose decision was subsequently affirmed by the
appeals board. Petitioner appealed to the Court of Appeals, which in turn upheld the decision of
the HIGC's appeals board. Hence this petition for review based on the following contentions:
1. The Petitioner herein has already acquired a vested right to a permanent
seat in the Board of Directors of Grace Village Association;
2. The amended By-laws of the Association drafted and promulgated by a
Committee on December 20, 1975 is valid and binding; and
3. The Practice of tolerating the automatic inclusion of petitioner as a
permanent member of the Board of Directors of the Association without the
benefit of election is allowed under the law. 1
Briefly stated, the facts are as follows:
Petitioner Grace Christian High School is an educational institution offering preparatory,
kindergarten and secondary courses at the Grace Village in Quezon City. Private respondent
Grace Village Association, Inc., on the other hand, is an organization of lot and/or building
owners, lessees and residents at Grace Village, while private respondents Alejandro G. Beltran
and Ernesto L. Go were its president and chairman of the committee on election, respectively, in
1990, when this suit was brought.
As adopted in 1968, the by-laws of the association provided in Article IV, as follows:
The annual meeting of the members of the Association shall be held on the
first Sunday of January in each calendar year at the principal office of the
Association at 2:00 P.M. where they shall elect by plurality vote and by
secret balloting, the Board of Directors, composed of eleven (11) members
to serve for one (1) year until their successors are duly elected and have
qualified. 2

VI. ANNUAL MEETING

The Annual Meeting of the members of the Association shall be held on
the second Thursday of January of each year. Each Charter or
Associate Member of the Association is entitled to vote. He shall be entitled
to as many votes as he has acquired thru his monthly membership fees
onlycomputed on a ratio of TEN (P10.00) PESOS for one vote.
The Charter and Associate Members shall elect the Directors of the
Association. The candidates receiving the first fourteen (14) highest number
of votes shall be declared and proclaimed elected until their successors are
elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative
is a permanent Director of the ASSOCIATION.
This draft was never presented to the general membership for approval. Nevertheless, from
1975, after it was presumably submitted to the board, up to 1990, petitioner was given a
permanent seat in the board of directors of the association. On February 13, 1990, the
association's committee on election in a letter informed James Tan, principal of the school, that
"it was the sentiment that all directors should be elected by members of the association"
because "to make a person or entity a permanent Director would deprive the right of voters to
vote for fifteen (15) members of the Board," and "it is undemocratic for a person or entity to hold
office in perpetuity." 4 For this reason, Tan was told that "the proposal to make the Grace
Christian High School representative as a permanent director of the association, although
previously tolerated in the past elections should be reexamined." Following this advice, notices
were sent to the members of the association that the provision on election of directors of the
1968 by-laws of the association would be observed.
Petitioner requested the chairman of the election committee to change the notice of election by
following the procedure in previous elections, claiming that the notice issued for the 1990
elections ran "counter to the practice in previous years" and was "in violation of the by-laws (of
1975)" and "unlawfully deprive[d] Grace Christian High School of its vested right [to] a
permanent seat in the board." 5
As the association denied its request, the school brought suit for mandamus in the Home
Insurance and Guaranty Corporation to compel the board of directors of the association to
recognize its right to a permanent seat in the board. Petitioner based its claim on the following
portion of the proposed amendment which, it contended, had become part of the by-laws of the
association as Article VI, paragraph 2, thereof:
The Charter and Associate Members shall elect the Directors of the
Association. The candidates receiving the first fourteen (14) highest number
of votes shall be declared and proclaimed elected until their successors are
elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative
is a permanent Director of the ASSOCIATION.
It appears that the opinion of the Securities and Exchange Commission on the validity of this
provision was sought by the association and that in reply to the query, the SEC rendered an
opinion to the effect that the practice of allowing unelected members in the board was contrary
to the existing by-laws of the association and to 92 of the Corporation Code (B.P. Blg. 68).

12

Private respondent association cited the SEC opinion in its answer. Additionally, the association
contended that the basis of the petition for mandamus was merely "a proposed by-laws which
has not yet been approved by competent authority nor registered with the SEC or HIGC." It
argued that "the by-laws which was registered with the SEC on January 16, 1969 should be the
prevailing by-laws of the association and not the proposed amended by-laws." 6
In reply, petitioner maintained that the "amended by-laws is valid and binding" and that the
association was estopped from questioning the by-laws. 7
A preliminary conference was held on March 29, 1990 but nothing substantial was agreed upon.
The parties merely agreed that the board of directors of the association should meet on April 17,
1990 and April 24, 1990 for the purpose of discussing the amendment of the by-laws and a
possible amicable settlement of the case. A meeting was held on April 17, 1990, but the parties
failed to reach an agreement. Instead, the board adopted a resolution declaring the 1975
provision null and void for lack of approval by members of the association and the 1968 by-laws
to be effective.
On June 20, 1990, the hearing officer of the HIGC rendered a decision dismissing petitioner's
action. The hearing officer held that the amended by-laws, upon which petitioner based its claim,
"[was] merely a proposed by-laws which, although implemented in the past, had not yet been
ratified by the members of the association nor approved by competent authority"; that, on the
contrary, in the meeting held on April 17, 1990, the directors of the association declared "the
proposed by-law dated December 20, 1975 prepared by the committee on by-laws . . . null and
void" and the by-laws of December 17, 1968 as the "prevailing by-laws under which the
association is to operate until such time that the proposed amendments to the by-laws are
approved and ratified by a majority of the members of the association and duly filed and
approved by the pertinent government agency." The hearing officer rejected petitioner's
contention that it had acquired a vested right to a permanent seat in the board of directors. He
held that past practice in election of directors could not give rise to a vested right and that
departure from such practice was justified because it deprived members of association of their
right to elect or to be voted in office, not to say that "allowing the automatic inclusion of a
member representative of petitioner as permanent director [was] contrary to law and the
registered by-laws of respondent association." 8
The appeals board of the HIGC affirmed the decision of the hearing officer in its resolution dated
September 13, 1990. It cited the opinion of the SEC based on 92 of the Corporation Code
which reads:
92. Election and term of trustees. Unless otherwise provided in the
articles of incorporation or the by-laws, the board of trustees of non-stock
corporations, which may be more than fifteen (15) in number as may be
fixed in their articles of incorporation or by-laws, shall, as soon as
organized, so classify themselves that the term of office of one-third (1/3) of
the number shall expire every year; and subsequent elections of trustees
comprising one-third (1/3) of the board of trustees shall be held annually
and trustees so elected shall have a term of three (3) years. Trustees
thereafter elected to fill vacancies occurring before the expiration of a
particular term shall hold office only for the unexpired period.
The HIGC appeals board denied claims that the school "[was] being deprived of its
right to be a member of the Board of Directors of respondent association," because
the fact was that "it may nominate as many representatives to the Association's Board
as it may deem appropriate." It said that "what is merely being upheld is the act of the
incumbent directors of the Board of correcting a long standing practice which is not
anchored upon any legal basis." 9

Petitioner appealed to the Court of Appeals but petitioner again lost as the appellate court on
February 9, 1993, affirmed the decision of the HIGC. The Court of Appeals held that there was
no valid amendment of the association's by-laws because of failure to comply with the
requirement of its existing by-laws, prescribing the affirmative vote of the majority of the
members of the association at a regular or special meeting called for the adoption of
amendment to the by-laws. Article XIX of the by-laws provides: 10
The members of the Association by an affirmative vote of the majority at any
regular or special meeting called for the purpose, may alter, amend, change
or adopt any new by-laws.
This provision of the by-laws actually implements 22 of the Corporation Law (Act No. 1459)
which provides:
22. The owners of a majority of the subscribed capital stock, or a majority
of the members if there be no capital stock, may, at a regular or special
meeting duly called for the purpose, amend or repeal any by-law or adopt
new by-laws. The owners of two-thirds of the subscribed capital stock, or
two-thirds of the members if there be no capital stock, may delegate to the
board of directors the power to amend or repeal any by-law or to adopt new
by-laws: Provided, however, That any power delegated to the board of
directors to amend or repeal any by-law or adopt new by-laws shall be
considered as revoked whenever a majority of the stockholders or of the
members of the corporation shall so vote at a regular or special
meeting. And provided, further, That the Director of the Bureau of
Commerce and Industry shall not hereafter file an amendment to the bylaws of any bank, banking institution or building and loan association, unless
accompanied by certificate of the Bank Commissioner to the effect that such
amendments are in accordance with law.
The proposed amendment to the by-laws was never approved by the majority of the members of
the association as required by these provisions of the law and by-laws. But petitioner contends
that the members of the committee which prepared the proposed amendment were duly
authorized to do so and that because the members of the association thereafter implemented
the provision for fifteen years, the proposed amendment for all intents and purposes should be
considered to have been ratified by them. Petitioner contends: 11
Considering, therefore, that the "agents" or committee were duly authorized
to draft the amended by-laws and the acts done by the "agents" were in
accordance with such authority, the acts of the "agents" from the very
beginning were lawful and binding on the homeowners (the principals) per
sewithout need of any ratification or adoption. The more has the amended
by-laws become binding on the homeowners when the homeowners
followed and implemented the provisions of the amended by-laws. This is
not merely tantamount to tacit ratification of the acts done by duly
authorized "agents" but express approval and confirmation of what the
"agents" did pursuant to the authority granted to them.
Corollarily, petitioner claims that it has acquired a vested right to a permanent seat in the board.
Says petitioner:
The right of the petitioner to an automatic membership in the board of the
Association was granted by the members of the Association themselves and
this grant has been implemented by members of the board themselves all
through the years. Outside the present membership of the board, not a

13

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

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

14

It is probable that, in allowing petitioner's representative to sit on the board, the members of the
association were not aware that this was contrary to law. It should be noted that they did not
actually implement the provision in question except perhaps insofar as it increased the number
of directors from 11 to 15, but certainly not the allowance of petitioner's representative as an
unelected member of the board of directors. It is more accurate to say that the members merely
tolerated petitioner's representative and tolerance cannot be considered ratification.
Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no
matter how long continued, cannot give rise to any vested right if it is contrary to law. Even less
tenable is petitioner's claim that its right is "coterminus with the existence of the association." 14
Finally, petitioner questions the authority of the SEC to render an opinion on the validity of the
provision in question. It contends that jurisdiction over this case is exclusively vested in the
HIGC.
But this case was not decided by the SEC but by the HIGC. The HIGC merely cited as authority
for its ruling the opinion of the SEC chairman. The HIGC could have cited any other authority for
the view that under the law members of the board of directors of a corporation must be elected
and it would be none the worse for doing so.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.

15

The Chairman declared the meeting adjourned at 5:11 P.M.

G.R. No. 113032 August 21, 1997
WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L. VILLASIS, DIMAS ENRIQUEZ,
PRESTON F. VILLASIS & REGINALD F. VILLASIS, petitioner,
vs.
RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S.
SALAS, RICHARD S. SALAS & HON. JUDGE PORFIRIO PARIAN, respondents.

HERMOSISIMA, JR., J.:

Up for review on certiorari are: (1) the Decision dated September 6, 1993 and (2) the Order
dated November 23, 1993 of Branch 33 of the Regional Trial Court of Iloilo City in Criminal
Cases Nos. 37097 and 37098 for estafa and falsification of a public document, respectively. The
judgment acquitted the private respondents of both charges, but petitioners seek to hold them
civilly liable.
Private respondents Ricardo T. Salas, Salvador T. Salas, Soledad Salas-Tubilleja, Antonio S.
Salas, and Richard S. Salas, belonging to the same family, are the majority and controlling
members of the Board of Trustees of Western Institute of Technology, Inc. (WIT, for short), a
stock corporation engaged in the operation, among others, of an educational institution.
According to petitioners, the minority stockholders of WIT, sometime on June 1, 1986 in the
principal office of WIT at La Paz, Iloilo City, a Special Board Meeting was held. In attendance
were other members of the Board including one of the petitioners Reginald Villasis. Prior to
aforesaid Special Board Meeting, copies of notice thereof, dated May 24, 1986, were distributed
to all Board Members. The notice allegedly indicated that the meeting to be held on June 1,
1986 included Item No. 6 which states:
Possible implementation of Art. III, Sec. 6 of the Amended By-Laws of Western
Institute of Technology, Inc. on compensation of all officers of the corporation. 1
In said meeting, the Board of Trustees passed Resolution No. 48, s. 1986, granting monthly
compensation to the private respondents as corporate officers retroactive June 1, 1985, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad
Tubilleja (accused), it was unanimously resolved that:
The Officers of the Corporation be granted monthly compensation
for services rendered as follows: Chairman P9,000.00/month,
Vice Chairman P3,500.00/month, Corporate Treasurer
P3,500.00/month and Corporate Secretary P3,500.00/month,
retroactive June 1, 1985 and the ten per centum of the net profits
shall be distributed equally among the ten members of the Board
of Trustees. This shall amend and superceed (sic) any previous
resolution.
There were no other business.

This is to certify that the foregoing minutes of the regular meeting of the Board of
Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is true and
correct to the best of my knowledge and belief.

(Sgd)
ANTONIO
SALAS
Corpora
Secretar
A few years later, that is, on March 13, 1991, petitioners Homero Villasis, Prestod Villasis,
Reginald Villasis and Dimas Enriquez filed an affidavit-complaint against private respondents
before the Office of the City Prosecutor of Iloilo, as a result of which two (2) separate criminal
informations, one for falsification of a public document under Article 171 of the Revised Penal
Code and the other for estafa under Article 315, par. 1(b) of the RPC, were filed before Branch
33 of the Regional Trial Court of Iloilo City. The charge for falsification of public document was
anchored on the private respondents' submission of WIT's income statement for the fiscal year
1985-1986 with the Securities and Exchange Commission (SEC) reflecting therein the
disbursement of corporate funds for the compensation of private respondents based on
Resolution No. 4, series of 1986, making it appear that the same was passed by the board on
March 30, 1986, when in truth, the same was actually passed on June 1, 1986, a date not
covered by the corporation's fiscal year 1985-1986 (beginning May 1, 1985 and ending April 30,
1986). The Information for falsification of a public document states:
The undersigned City Prosecutor accuses RICARDO T. SALAS, SALVADOR T.
SALAS, SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS and RICHARD S.
SALAS (whose dates and places of birth cannot be ascertained) of the crime of
FALSIFICATION OF A PUBLIC DOCUMENT, Art. 171 of the Revised Penal Code,
committed as follows:
That on or about the 10th day of June, 1986, in the City of Iloilo,
Philippines and within the jurisdiction of this Honorable Court, the
above-named accused, being then the Chairman, Vice-Chairman,
Treasurer, Secretary, and Trustee (who later became Secretary),
respectively, of the board of trustees of the Western Institute of
Technology, Inc., a corporation duly organized and existing under
the laws of the Republic of the Philippines, conspiring and
confederating together and mutually helping one another, to
better realized (sic) their purpose, did then and there wilfully,
unlawfully and criminally prepare and execute and subsequently
cause to be submitted to the Securities and Exchange
Commission an income statement of the corporation for the fiscal
year 1985-1986, the same being required to be submitted every
end of the corporation fiscal year by the aforesaid Commission,
and therefore, a public document, including therein the
disbursement of the retroactive compensation of accused
corporate officers in the amount of P186,470.70, by then and
there making it appear that the basis thereof Resolution No. 4,
Series of 1986 was passed by the board of trustees on March 30,
1986, a date covered by the corporation's fiscal year 1985-1986
(i.e., from May 1, 1985 to April 30, 1986), when in truth and in
fact, as said accused well knew, no such Resolution No. 48,
Series of 1986 was passed on March 30, 1986.

16

CONTRARY TO LAW.
Iloilo City, Philippines, November 22, 1991. 3 [Emphasis ours].
The Information, on the other hand, for estafa reads:
The undersigned City Prosecutor accuses RICARDO SALAS, SALVADOR T. SALAS,
SOLEDAD SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S. SALAS (whose
dates and places of birth cannot be ascertained) of the crime of ESTAFA, Art. 315,
par. 1 (b) of the Revised Penal Code, committed as follows:
That on or about the 1st day of June, 1986, in the City of Iloilo,
Philippines, and within the jurisdiction of this Honorable Court, the
above-named accused, being then the Chairman, Vice-Chairman,
Treasurer, Secretary, and Trustee (who later became Secretary),
respectively; of the Board of Trustees of Western Institute of
Technology, Inc., a corporation duly organized and existing under
the laws of the Republic of the Philippines, conspiring and
confederating together and mutually helping one another to better
realize their purpose, did then and there wilfully, unlawfully and
feloniously defraud the said corporation (and its stockholders) in
the following manner, to wit: herein accused, knowing fully well
that they have no sufficient, lawful authority to disburse let
alone violation of applicable laws and jurisprudence, disbursed
the funds of the corporation by effecting payment of their
retroactive salaries in the amount of P186,470.00 and
subsequently paying themselves every 15th and 30th of the
month starting June 15, 1986 until the present, in the amount of
P19,500.00 per month, as if the same were their own, and when
herein accused were informed of the illegality of these
disbursements by the minority stockholders by way of objections
made in an annual stockholders' meeting held on June 14, 1986
and every year thereafter, they refused, and still refuse, to rectify
the same to the damage and prejudice of the corporation (and its
stockholders) in the total sum of P1,453,970.79 as of November
15, 1991.
CONTRARY TO LAW.
Iloilo City, Philippines, November 22, 1991. 4 [Emphasis ours]
Thereafter, trial for the two criminal cases, docketed as Criminal Cases Nos. 37097 and 37098,
was consolidated. After a full-blown hearing, Judge Porfirio Parian handed down a verdict of
acquittal on both counts 5 dated September 6, 1993 without imposing any civil liability against the
accused therein.
Petitioners filed a Motion for Reconsideration 6 of the civil aspect of the RTC Decision which was,
however, denied in an Order dated November 23, 1993. 7
Hence, the instant petition.
Significantly on December 8, 1994, a Motion for Intervention, dated December 2, 1994, was filed
before this Court by Western Institute of Technology, Inc., supposedly one of the petitioners

herein, disowning its inclusion in the petition and submitting that Atty. Tranquilino R. Gale,
counsel for the other petitioners, had no authority whatsoever to represent the corporation in
filing the petition. Intervenor likewise prayed for the dismissal of the petition for being utterly
without merit. The Motion for Intervention was granted on January 16, 1995. 8
Petitioners would like us to hold private respondents civilly liable despite their acquittal in
Criminal Cases Nos. 37097 and 37098. They base their claim on the alleged illegal issuance by
private respondents of Resolution No. 48, series of 1986 ordering the disbursement of corporate
funds in the amount of P186,470.70 representing retroactive compensation as of June 1, 1985 in
favor of private respondents, board members of WIT, plus P1,453,970.79 for the subsequent
collective salaries of private respondents every 15th and 30th of the month until the filing of the
criminal complaints against them on March 1991. Petitioners maintain that this grant of
compensation to private respondents is proscribed under Section 30 of the Corporation Code.
Thus, private respondents are obliged to return these amounts to the corporation with interest.
We cannot sustain the petitioners. The pertinent section of the Corporation Code provides:
Sec. 30. Compensation of directors In the absence of any provision in the by-laws
fixing their compensation, the directors shall not receive any compensation, as such
directors, except for reasonable per diems: Provided, however, That any such
compensation (other than per diems) may be granted to directors by the vote of the
stockholders representing at least a majority of the outstanding capital stock at a
regular or special stockholders' meeting. In no case shall the total yearly
compensation of directors, as such directors, exceed ten (10%) percent of the net
income before income tax of the corporation during the preceding year. [Emphasis
ours]
There is no argument that directors or trustees, as the case may be, are not entitled to salary or
other compensation when they perform nothing more than the usual and ordinary duties of their
office. This rule is founded upon a presumption that directors/trustees render service
gratuitously, and that the return upon their shares adequately furnishes the motives for service,
without compensation. 9 Under the foregoing section, there are only two (2) ways by which
members of the board can be granted compensation apart from reasonable per diems: (1) when
there is a provision in the by-laws fixing their compensation; and (2) when the stockholders
representing a majority of the outstanding capital stock at a regular or special stockholders'
meeting agree to give it to them.
This proscription, however, against granting compensation to directors/trustees of a corporation
is not a sweeping rule. Worthy of note is the clear phraseology of Section 30 which states: ". . .
[T]he directors shall not receive any compensation, as such directors, . . . ." The phrase as such
directors is not without significance for it delimits the scope of the prohibition to compensation
given to them for services performed purely in their capacity as directors or trustees. The
unambiguous implication is that members of the board may receive compensation, in addition to
reasonable per diems, when they render services to the corporation in a capacity other than as
directors/trustees.10 In the case at bench, Resolution No. 48, s. 1986 granted monthly
compensation to private respondents not in their capacity as members of the board, but rather
as officers of the corporation, more particularly as Chairman, Vice-Chairman, Treasurer and
Secretary of Western Institute of Technology. We quote once more Resolution No. 48, s. 1986
for easy reference, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly seconded by Mrs. Soledad
Tubilleja (accused), it was unanimously resolved that:

17

The Officers of the Corporation be granted monthly compensation

for services rendered as follows: Chairman P9,000.00/month,
Vice Chairman P3,500.00/month, Corporate Treasurer
P3,500.00/month and Corporate Secretary P3,500.00/month,
retroactive June 1, 1985 and the ten per centum of the net profits
shall be distributed equally among the ten members of the Board
of Trustees. This shall amend and superceed (sic) any previous
resolution.
There were no other business.

private respondents. By no amount of equity considerations, if at all deserved, can a mere

appeal on the civil aspect of a criminal case be treated as a derivative suit.
Granting, for purposes of discussion, that this is a derivative suit as insisted by petitioners, which
it is not, the same is outrightly dismissible for having been wrongfully filed in the regular court
devoid of any jurisdiction to entertain the complaint. The ease should have been filed with the
Securities and Exchange Commission (SEC) which exercises original and exclusive jurisdiction
over derivative suits, they being intra-corporate disputes, per Section 5 (b) of P.D. No. 902-A:
In addition to the regulatory and adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:

The Chairman declared the meeting adjourned at 5:11 P.M.

This is to certify that the foregoing minutes of the regular meeting of the Board of
Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is true and
correct to the best of my knowledge and belief.
(Sgd) ANTONIO S.
SALAS
Corporate
Secretary 11 [Emphasis
ours]
Clearly, therefore, the prohibition with respect to granting compensation to corporate
directors/trustees as suchunder Section 30 is not violated in this particular case. Consequently,
the last sentence of Section 30 which provides:
. . . . . . . In no case shall the total yearly compensation of directors, as such directors,
exceed ten (10%) percent of the net income before income tax of the corporation
during the preceding year. (Emphasis ours]
does not likewise find application in this case since the compensation is being given to private
respondents in their capacity as officers of WIT and not as board members.
Petitioners assert that the instant case is a derivative suit brought by them as minority
shareholders of WIT for and on behalf of the corporation to annul Resolution No. 48, s. 1986
which is prejudicial to the corporation.
We are unpersuaded. A derivative suit is an action brought by minority shareholders in the name
of the corporation to redress wrongs committed against it, for which the directors refuse to
sue. 12 It is a remedy designed by equity and has been the principal defense of the minority
shareholders against abuses by the majority. 13 Here, however, the case is not a derivative suit
but is merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 filed with
the RTC of Iloilo for estafa and falsification of public document. Among the basic requirements
for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of
the corporation must allege in his complaint before the proper forum that he is suing on a
derivative cause of action on behalf of the corporation and all other shareholders similarly
situated who wish to join. 14 This is necessary to vest jurisdiction upon the tribunal in line with the
rule that it is the allegations in the complaint that vests jurisdiction upon the court or quasijudicial body concerned over the subject matter and nature of the action. 15 This was not
complied with by the petitioners either in their complaint before the court a quo nor in the instant
petition which, in part, merely states that "this is a petition for review on certiorari on pure
questions of law to set aside a portion of the RTC decision in Criminal Cases Nos. 37097 and
37098" 16 since the trial court's judgment of acquittal failed to impose any civil liability against the

xxx xxx xxx

b) Controversies arising out of intra-corporate or partnership relations, between and
among stockholders, members, or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association
and the State insofar as it concerns their individual franchise or right to exist as such
entity;
xxx xxx xxx
[Emphasis ours]
Once the case is decided by the SEC, the losing party may file a petition for review before the
Court of Appeals raising questions of fact, of law, or mixed questions of fact and law. 17 It is only
after the case has ran this course, and not earlier, can it be brought to us via a petition for review
on certiorari under Rule 45 raising only pure questions of law. 18Petitioners, in pleading that we
treat the instant petition as a derivative suit, are trying to short-circuit the entire process which
we cannot here sanction.
As an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 for falsification of
public document and estafa, which this petition truly is, we have to deny the petition just the
same. It will be well to quote the respondent court's ratiocinations acquitting the private
respondents on both counts:
The prosecution wants this Court to believe and agree that there is falsification of
public document because, as claimed by the prosecution, Resolution No. 48, Series of
1986 (Exh. "1-E-1") was not taken up and passed during the Regular Meeting of the
Board of Trustees of the Western Institute of Technology (WIT), Inc. on March 30,
1986, but on June 1, 1986 special meeting of the same board of trustees.
This Court is reluctant to accept this claim of falsification. The prosecution omitted to
submit the complete minutes of the regular meeting of the Board of Trustees on March
30, 1986. It only presented in evidence Exh. "C", which is page 5 or the last page of
the said minutes. Had the complete minutes (Exh. "1") consisting of five (5) pages,
been submitted, it can be readily seen and understood that Resolution No. 48, Series
of 1986 (Exh. "1-E-1") giving compensation to corporate officers, was indeed included
in Other Business, No. 6 of the Agenda, and was taken up and passed on March 30,
1986. The mere fact of existence of Exh. "C" also proves that it was passed on March

18

30, 1986 for Exh. "C" is part and parcel of the whole minutes of the Board of Trustees
Regular Meeting on March 30, 1986. No better and more credible proof can be
considered other than the Minutes (Exh. "1") itself of the Regular Meeting of the Board
of Trustees on March 30, 1986. The imputation that said Resolution No. 48 was
neither taken up nor passed on March 30, 1986 because the matter regarding
compensation was not specifically stated or written in the Agenda and that the words
"possible implementation of said Resolution No. 48, was expressly written in the
Agenda for the Special Meeting of the Board on June 1, 1986, is simply an implication.
This evidence by implication to the mind of the court cannot prevail over the Minutes
(Exh. "1") and cannot ripen into proof beyond reasonable doubt which is demanded in
all criminal prosecutions.
This Court finds that under the Eleventh Article (Exh. "3-D-1") of the Articles of
Incorporation (Exh. "3-B") of the Panay Educational Institution, Inc., now the Western
Institute of Technology, Inc., the officers of the corporation shall receive such
compensation as the Board of Directors may provide. These Articles of Incorporation
was adopted on May 17, 1957 (Exh. "3-E"). The Officers of the corporation and their
corresponding duties are enumerated and stated in Sections 1, 2, 3 and 4 of Art. III of
the Amended By-Laws of the Corporation (Exh. "4-A") which was adopted on May 31,
1957. According to Sec. 6, Art. III of the same By-Laws, all officers shall receive such
compensation as may be fixed by the Board of Directors.
It is the perception of this Court that the grant of compensation or salary to the
accused in their capacity as officers of the corporation, through Resolution No. 48,
enacted on March 30, 1986 by the Board of Trustees, is authorized by both the
Articles of Incorporation and the By-Laws of the corporation. To state otherwise is to
depart from the clear terms of the said articles and by-laws. In their defense the
accused have properly and rightly asserted that the grant of salary is not for directors,
but for their being officers of the corporation who oversee the day to day activities and
operations of the school.

(b) Extinction of the penal action does not carry with it extinction of the civil, unless the
extinction proceeds from a declaration in a final judgment that the fact from which the
civil might arise did not exist. [Emphasis ours]
Likewise, the last paragraph of Section 2, Rule 120 reads:
Sec. 2. Form and contents of judgment.
xxx xxx xxx
In case of acquittal, unless there is a clear showing that the act from which the civil
liability might arise did not exist, the judgment shall make a finding on the civil liability
of the accused in favor of the offended party. [Emphasis ours]
The acquittal in Criminal Cases Nos. 37097 and 37098 is not merely based on reasonable doubt
but rather on a finding that the accused-private respondents did not commit the criminal acts
complained of. Thus, pursuant to the above rule and settled jurisprudence, any civil action ex
delicto cannot prosper. Acquittal in a criminal action bars the civil action arising therefrom where
the judgment of acquittal holds that the accused did not commit the criminal acts imputed to
them. 20
WHEREFORE, the instant petition is hereby DENIED with costs against petitioners.
SO ORDERED.

xxx xxx xxx

. . .[O]n the question of whether or not the accused can be held liable for estafa under
Sec. 1 (b) of Art. 315 of the Revised Penal Code, it is perceived by this Court that the
receipt and the holding of the money by the accused as salary on basis of the
authority granted by the Articles and By-Laws of the corporation are not tainted with
abuse of confidence. The money they received belongs to them and cannot be said to
have been converted and/or misappropriated by them.
xxx xxx xxx 19
[Emphasis ours]
From the foregoing factual findings, which we find to be amply substantiated by the records, it is
evident that there is simply no basis to hold the accused, private respondents herein, civilly
liable. Section 2(b) of Rule 111 on the New Rules on Criminal Procedure provides:
Sec. 2. Institution of separate civil action.
xxx xxx xxx

19

Corporate Audit Office I, and the COA Resolution No. 2003-115, [4] dated July 31, 2003, which denied
EN BANC
GABRIEL C. SINGSON, ANDRE NAVATO, EDGARDO P.
ZIALCITA, ARACELI E. VILLANUEVA, TYRONE M.
REYES, JOSE CLEMENTE, JR., FEDERICO PASCUAL,
ALEJANDRA C. CLEMENTE, ALBERT P. FENIX, JR., and
MELPIN A. GONZAGA,
Petitioners,

-versus-

COMMISSION ON AUDIT,
Respondent.

petitioners motion for reconsideration thereof and upheld the disallowance of petitioners Representation
G.R. No. 159355

and Transportation Allowance (RATA) in the total amount of P1,565,000.00 under Notice of

Present:

Disallowance No. 99-001-101 (96-96) dated June 7, 1999.

CORONA, C.J.,
CARPIO,
CARPIO MORALES,
VELASCO, JR.,*
NACHURA,
LEONARDO-DE CASTRO,
BRION,**
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ, and
MENDOZA, JJ.
Promulgated:
August 9, 2010

The antecedents are as follows:

The Philippine International Convention Center, Inc. (PICCI) is a government corporation

whose sole stockholder is the Bangko Sentral ng Pilipinas (BSP). Petitioner Araceli E. Villanueva was
then a member of the PICCI Board of Directors and Officer-in-Charge (OIC) of PICCI, while copetitioners Gabriel C. Singson, Andre Navato, Edgardo P. Zialcita, and Melpin A. Gonzaga, Alejandra C.
Clemente, Jose Clemente, Jr., Federico Pascual, Albert P. Fenix, Jr., and Tyrone M. Reyes were then
members of the PICCI Board of Directors and officials of the BSP. By virtue of the PICCI By-Laws,
petitioners were authorized to receive P1,000.00 per diem each for every meeting attended. Pursuant to its
Monetary Board (MB) Resolution No. 15[5] dated January 5, 1994, as amended by MB Resolution No. 34
dated January 12, 1994, the BSP MB granted additional monthly RATA, in the amount of P1,500.00, to
each of the petitioners, as members of the Board of Directors of PICCI. Consequently, from January 1996
to December 1998, petitioners received their corresponding RATA in the total amount ofP1,565,000.00.
On June 7, 1999, then PICCI Corporate Auditor Adelaida A. Aldovino issued Notice of
Disallowance No. 99-001-101 (96-98),[6] addressed to petitioner Araceli E. Villanueva (through then OIC
Susan M. Galang of the Accounting Division of PICCI), disallowing in audit the payment of petitioners

x-----------------------------------------------------------------------------------------x

DECISION

RATA in the total amount ofP1,565,000.00,[7] and directing them to settle immediately the said
disallowances, due to the following reasons: (a) As to petitioner Araceli E. Villanueva, there was double
payment of RATA to her as member of the PICCI Board and as OIC of PICCI, which was in violation of

PERALTA, J.:

Section 8, Article IX-B of the 1987 Constitution and, moreover, Compensation Policy Guideline No. 6
provides that an official already granted commutable RATA and designated by competent authority to

Before the Court is a petition for certiorari seeking to set aside Decision No. 2002-081,[1] dated

perform duties in concurrent capacity as OIC of another position whether or not in the same agency and

April 23, 2002, of the Commission on Audit (COA), which affirmed the Decision No. 2000-008,[2] dated

entitled to similar benefits, shall not be granted said similar benefits, except where said similar allowances

June 1, 2000, and the Resolution in CAO I Decision No. 2000-012, [3] dated August 11, 2000, of the

are higher in rates than those of his regular position, in which case he may be allowed to collect the
difference thereof; and (b) As to petitioners Gabriel Singson, Andre Navato, Edgardo Zialcita, Melpin

20

Gonzaga, Alejandra Clemente, Jose Clemente, Jr., Federico Pascual, Albert P. Fenix, Jr., and Tyrone M.

would have the effect of amending the PICCI By-laws, and may render the grant of RATA valid, such

Reyes, there was double payment of RATA to them as members of the PICCI Board and as officers of

amendment, however, had no effect because it failed to comply with the procedural requirements set forth

BSP, which was in violation of Section 8, Article IX-B of the 1987 Constitution and PICCI By-laws and,

under Section 48 of the Corporation Code.[12]

further, the contemplation of the constitutional provisions which authorized double compensation is
construed to mean statutes passed by the national legislative body and does not include resolutions passed
by governing boards, i.e., Section 229 of the Government Accounting and Auditing Manual.

On August 11, 2000, Director Sunico issued a Resolution in CAO I Decision No. 2000-012,
affirming the disallowance of the RATA received by the petitioners in their capacity as directors in the

In a letter[8] dated September 27, 1999, petitioners, through Board Member and OIC of PICCI

total amount ofP1,565,000.00.

Araceli E. Villanueva, sought reconsideration of the Notice of Disallowance No. 99-001-01 (96-98) dated
June 7, 1999.

On petition for review by petitioners, the COA rendered the assailed COA Decision No. 2002081 datedApril 23, 2002, affirming CAO I Decision No. 2000-008 dated June 1, 2000 and Notice of

In a letter[9] dated October 14, 1999, PICCI Corporate Auditor Aldovino denied petitioners
motion for reconsideration and, on February 18, 2000, petitioners filed their Notice of Appeal

[10]

and

Appeal Memorandum. [11]

Disallowance No. 99-001-101 (96-98) dated June 7, 1999. It also directed the Auditor to determine the
amounts to be refunded by petitioners and to enforce and monitor their settlement. It ruled that
petitioners receipt of the P1,500.00 RATA from the BSP for every meeting they attended as members of
the PICCI Board of Directors was not valid.

On June 1, 2000, Director Crescencio S. Sunico of the Corporate Audit Office I, COA,
rendered a Decision in CAO I Decision No. 2000-208 affirming the disallowance of the RATA received

In COA Decision No. 2003-115, dated July 31, 2003, the COA issued a Resolution denying

by petitioners in their capacity as Directors of the PICCI Board. He stated that except for per diems,

petitioners motion for reconsideration and upheld the disallowance of the petitioners RATA amounting

Section 8, Article III of the PICCI By-Laws prohibits the payment of salary to directors in the form of

to P1,565,000.00.

compensation or reimbursement of expenses, based upon the principle expression unius est exclusio
alterius (the express mention of one thing in a law means the exclusion of others not expressly

Hence, this present petition for certiorari raising the following grounds:

mentioned). Neither can the payment of RATA be legally founded on Section 30 of the Corporation Code
which states that in the absence of any provision in the by-laws fixing their compensation, the directors
shall not receive any compensation as such directors, except for reasonable per diems; provided, however,
that any such compensation (other than per diems) may be granted to directors by the vote of the

I.
THE RESPONDENT COA COMMITTED GRAVE ABUSE OF DISCRETION IN
FINDING THAT THE PETITIONERS VIOLATED ITS BY-LAWS WHEN
SECTION 30 OF THE CORPORATION CODE AUTHORIZES THE
STOCKHOLDERS TO GRANT COMPENSATION TO ITS DIRECTORS.

stockholders representing at least a majority of the outstanding capital stock at a regular or special
stockholders' meeting. The power to fix the compensation which the directors shall receive, if any, is left
to the corporation, to be determined in its by-laws or by the vote of stockholders. The PICC By-Laws
allows only the payment of per diem to the directors. Thus, the BSP board resolution granting RATA
of P1,500.00 to petitioners violated the PICCI By-Laws. Director Sunico also explained that although MB
Resolution No. 15, dated January 5, 1994, as amended by MB Resolution No. 34, dated January 12, 1994,

II.
THE RESPONDENT COA COMMITTED GRAVE ABUSE OF DISCRETION IN
FINDING THAT THE PAYMENT OF RATA TO BSP OFFICIALS WHO ARE
MEMBERS OF THE PICCI BOARD VIOLATED ITEM NO. 4 OF NATIONAL
COMPENSATION CIRCULAR (NCC) NO. 67 DATED JANUARY [1], 1992
ISSUED BY THE DEPARTMENT OF BUDGET AND MANAGEMENT (DBM)
AS SAID NCC SPECIFICALLY APPLIES ONLY TO NATIONAL
GOVERNMENT OFFICIALS AND EMPLOYEES.

21

diems. The two instances where the directors are to be entitled to compensation shall be when it is fixed
III.
THE RESPONDENT COA COMMITTED GRAVE ABUSE OF DISCRETION IN
DIRECTING THE AUDITOR TO ENFORCE REFUND OF THE PAYMENTS
TO THE PETITIONERS [WHO ARE] DIRECTORS AS THE PETITIONERS
ENJOY THE PRESUMPTION OF GOOD FAITH AND ARE CONVINCED
THAT THEY ARE LEGALLY ENTITLED THERETO IN THE LIGHT OF THE
SUPREME COURT DECISION IN ASSOCIATION OF DEDICATED
EMPLOYEES OF THE PHILIPPINE TOURISM AUTHORITY (ADEPT) VS.
COA, 295 SCRA 366.[13]

by the corporations by-laws or when the stockholders, representing at least a majority of the outstanding
capital stock, vote to grant the same at a regular or special stockholders meeting, subject to the
qualification that, in any of the two situations, the total yearly compensation of directors, as such directors,
shall in no case exceed ten (10%) percent of the net income before income tax of the corporation during
the preceding year.

Petitioners contend that since PICCI was incorporated with the Securities and Exchange
Commission (SEC) (SEC Regulation No. 68840) and has no original charter, it should be governed by

Section 8 of the Amended By-Laws of PICCI, [14] in consonance with Section 30 of the

Section 30 of the Corporation Code. According to petitioners, their receipt of RATA as directors of

Corporation

Code,

PICCI was sanctioned by PICCIs sole stockholder, BSP (through its own governing body, the Monetary

diem at P1,000.00:

restricted

the

scope

of

petitioners

compensation

by

fixing

their per

Board), per MB Resolution No. 15 dated January 5, 1994, as amended by MB Resolution No. 34
dated January 12, 1994.

Respondent counters that said provision does not apply to petitioners as Section 8 of the PICCI
By-laws provides that the compensation of the members of the PICCI Board of Directors shall be given
only through per diems.

Section 30 of the Corporation Code, which authorizes the stockholders to grant compensation
to its directors, states:

Sec. 8. Compensation. Directors, as such, shall not receive

any salary for their services but shall receive aper diem of one thousand
pesos (P1,000.00) per meeting actually attended; Provided, that the Board
of Directors at a regular and special meeting may increase and decrease, as
circumstances shall warrant, such per diems to be received. Nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any capacity and receiving compensation therefor.[15]

The nomenclature for the compensation of the directors used herein is per diems, and not salary or any
other words of similar import. Thus, petitioners are allowed to receive only per diems of P1,000.00 for
every meeting that they actually attended. However, the Board of Directors may increase or decrease the

Sec. 30. Compensation of Directors. In the absence of any provision in

the by-laws fixing their compensation, the directors shall not receive any
compensation, as such directors, except for reasonable per diems; Provided,
however, that any such compensation (other than per diems) may be granted to
directors by the vote of the stockholders representing at least a majority of the
outstanding capital stock at a regular or special stockholders meeting. In no case
shall the total yearly compensation of directors, as such directors, exceed ten (10%)
percent of the net income before income tax of the corporation during the preceding
year.

In construing the said provision, it bears stressing that the directors of a corporation shall not
receive any compensation for being members of the board of directors, except for reasonable per

amount of per diems, when the prevailing circumstances shall warrant. No other compensation may be
given to them, except only when they serve the corporation in another capacity.

Petitioners justify their entitlement to P1,500.00 RATA from the PICCI, on the theory that:
[T]he purpose in issuing NCC No. 67 is to ensure uniformity and consistency
of actions on claims for RATA which is granted by law to national government
officials and employees to cover expenses incurred in the discharge or performance
of their duties and responsibilities. Moreover, Item 2 of NCC 67 enumerated the
national government officials and employees that are covered by the Circular, to
wit:

22

[1] Those whose positions are listed under Service

Code 18 of the Index of Occupational Services issued by the
Department of Budget and Management (DBM), pursuant to
NCC No. 57, except for the positions of the President, VicePresident, Lupon Member and Lupon Chairman and
positions under the Local Executives Group;
[2] Those whose positions are identified as chiefs of
division in the Personal Services Itemization;
[3]
Those whose positions are determined by the
DBM to be of equivalent rank with the officials and
employees enumerated under Section 2.1 and 2.2 hereof x x
x; and
[4]
Those who are duly designated by competent
authority to perform the full-time duties and responsibilities,
whether or not in concurrent capacity, as Officers-in-Charge
for one (1) final calendar month or more of the positions
enumerated in Sections 2.1, 2.2 and 2.3 hereof.
The PICCI is not an originally chartered corporation, but a subsidiary
corporation of BSP organized in accordance with the Corporation Code of
the Philippines. The Articles of Incorporation of PICCI was registered on July 29,
1976 in the Securities and Exchange Commission. As such, PICCI does not fall
within the coverage of NCC No. 67. As a matter of fact, by virtue of P.D. [No.]
520, PICCI is exempt from the coverage of the civil service law and regulations
(and Constitution defining coverage of civil service as limited to those with original
[charter] (TUCP v. NHA, G.R. No. 49677, May 4, 1089, Article IX-B, Sec.
1). Certainly, if PICCI is not part of the National Government, but a mere
subsidiary of a government-owned and/or controlled corporation (BSP), its
officers, and more importantly, its directors, are not covered by the term national
government officials and employees to which NCC No. 67 finds application.
Even the BSP, which is the sole stockholder of PICCI, is not covered by
NCC No. 67, not only for the same reasons stated above but for the reason that it
enjoys fiscal and administrative autonomy, which is defined as the guarantee of
full flexibility to allocate and utilize their resources with the wisdom and dispatch
that their needs require (Bengzon v. Drilon, 208 SCRA 133).[16]

incompatible, when an officer accepts a second office, he can draw the salary attached to such second
office only when he is specifically authorized by law which does not exist in the present case.

In her letter, dated October 14, 1999, to petitioner Araceli E. Villanueva, Corporate Auditor
Adelaida A. Aldovino reiterated her decision disallowing disbursements for RATA of PICCI directors for
the reasons set forth in Notice of Disallowance No. 99-001-101 (96-98). Thus,
Moreover, while the directors are not strictly speaking Officers-inCharge, but because they are doing duties in concurrent capacities and are already
receiving RATA from their principal office, Budget Compensation Policy
Guideline No. 6, dated September 1, 1982, is applicable.
No. 3.0 of the guideline provides:
3.1 An Official/employee already entitled/granted commutable
transportation/representation allowances and designated by competent authority to
perform duties and responsibilities in concurrent capacity as Officer-in-Charge of
another position(s), whether CES or non-CES, whether or not in the same
ministry/bureau/office or agency and entitled to similar benefits/allowances,
whether commutable or reimbursable, except where similar allowances are higher
in rates than those of his regular position, in which case he may be allowed to
collect the difference thereof, provided the period of his temporary stewardship is
not less than one month on a reimbursable basis.
In view of the foregoing, we are reiterating our decision disallowing
disbursement for RATA of PICCI directors for reasons stated in our Notice of
Disallowance No. 99-001-01 (96-98).
Further, please be reminded that disallowance not appealed within six (6)
months as prescribed under Section 48, 50 and 51 of PD 1445 shall become final
and executory.[17]

Respondent maintains that petitioners receipt of RATA from PICCI, in addition to their per

In COA Decision No. 2002-081 dated April 23, 2002, respondent concluded that the payment

diem of P1,000 per meeting, and another RATA from BSP, violates the rule against double compensation;

of RATA to petitioners violated Item No. 4 of National Compensation Circular (NCC) No. 67, dated

that as former officers of the BSP, petitioners Gabriel P. Singson, Araceli E. Villanueva, Andre Navato,

January 1, 1992, issued by the DBM, as the petitioners were already drawing RATA from their mother

Edgardo P. Zialcita, and Melpin A. Gonzaga were also receiving RATA from the BSP, in addition to the

agencies and, hence, their receipt of RATA from PICCI was without legal basis and constituted double

RATA granted to them as PICCI Directors; that there is double payment of RATA, since petitioners

compensation of RATA which is prohibited under the Constitution. It also explained that under the By-

membership in the PICCI Board is a mere adjunct of their positions as BSP officials; that double

Laws of PICCI, the compensation of its directors should be in the form of per diem and not RATA, and as

compensation refers to two sets of compensations for two different offices held concurrently by one

the By-Laws have the same force and effect of law as the corporate charter, its directors and officers are

officer; and that while there is no general prohibition against holding two offices which are not

under obligation to comply therewith.

23

Section 8, Article IX-B of the Constitution provides that no elective or appointive public
officer or employee shall receive additional, double or indirect compensation, unless specifically
authorized by law, nor accept without the consent of the Congress, any present emolument, office or title
of any kind from any foreign government. Pensions and gratuities shall not be considered as additional,
double or indirect compensation.

This provision, however, does not apply to the present case as there was no double
compensation of RATA to the petitioners.

In Leynes v. Commission on Audit,[18] the Court clarified that what National Compensation
Circular (NCC) No. 67 seeks to prevent is the dual collection of RATA by a national official from the
budgets of more than one national agency. In the said case, the interpretation was that NCC No. 67
cannot be construed as nullifying the power of therein local government units to grant allowances to

construed and given effect as a whole. A provision or section which is unclear by

itself may be clarified by reading and construing it in relation to the whole statute.
Taking NCC No. 67 as a whole then, what it seeks to prevent is the dual
collection of RATA by a national official from the budgets of more than one
national agency. We emphasize that the other source referred to in the prohibition
isanother national agency. This can be gleaned from the fact that the sentence no
one shall be allowed to collect RATA from more than one source (the
controversial prohibition) immediately follows the sentence that RATA shall be
paid from the budget of the national agency where the concerned national officials
and employees draw their salaries. The fact that the other source is another national
agency is supported by RA 7645 (the GAA of 1993) invoked by respondent COA
itself and, in fact, by all subsequent GAAs for that matter, because the GAAs all
essentially provide that (1) the RATA of national officials shall be payable from the
budgets of their respective national agencies and (2) those officials on detail with
other national agencies shall be paid their RATA only from the budget of their
parent national agency:
xxx

xxx

xxx

xxx

Clearly therefore, the prohibition in NCC No. 67 is only against the

dual or multiple collection of RATA by a national official from the budgets of two
or more national agencies. Stated otherwise, when a national official is on detail
with another national agency, he should get his RATA only from his parent national
agency and not from the other national agency he is detailed to. [19] (Italics
supplied.)

judges under the Local Government Code of 1991. Further, NCC No. 67 applies only to the national funds
administered by the DBM, not the local funds of the local government units. Thus,

Moreover, Section 6 of Republic Act No. 7653 (The New Central Bank Act) defines that the
powers and functions of the BSP shall be exercised by the BSP Monetary Board, which is composed of

The pertinent provisions of NCC No. 67 read:

seven (7) members appointed by the President of the Philippines for a term of six (6) years. MB

3. Rules and Regulations:

Resolution No. 15,[20] dated January 5, 1994, as amended by MB Resolution No. 34, dated January 12,

3.1.1 Payment of RATA, whether commutable or reimbursable, shall

be in accordance with the rates prescribed for each of the following
officials and employees and those of equivalent ranks, and the
conditions enumerated under the pertinent sections of the General
Provisions of the annual General Appropriations Act (GAA):
xxx

xxx

xxx

4. Funding Source:
In all cases, commutable and reimbursable RATA
shall be paid from the amount appropriated for the purpose
and other personal services savings of the agency or project
from where the officials and employees covered under this
Circular draw their salaries. No one shall be allowed to
collect RATA from more than one source. (Italics ours)
In construing NCC No. 67, we apply the principle in statutory
construction that force and effect should not be narrowly given to isolated and
disjoined clauses of the law but to its spirit, broadly taking all its provisions
together in one rational view. Because a statute is enacted as a whole and not in
parts or sections, that is, one part is as important as the others, the statute should be

1994, are valid corporate acts of petitioners that became the bases for granting them additional monthly
RATA of P1,500.00, as members of the Board of Directors of PICCI. The RATA is distinct from salary
(as a form of compensation). Unlike salary which is paid for services rendered, the RATA is a form of
allowance intended to defray expenses deemed unavoidable in the discharge of office. Hence, the RATA
is paid only to certain officials who, by the nature of their offices, incur representation and transportation
expenses.[21] Indeed, aside from the RATA that they have been receiving from the BSP, the grant
of P1,500.00 RATA to each of the petitioners for every board meeting they attended, in their capacity as
members of the Board of Directors of PICCI, in addition to their P1,000.00 per diem, does not run afoul
the constitutional proscription against double compensation.

24

circumstances. The officials and chiefs of offices concerned

disbursed such incentive benefits in the honest belief that the
amounts given were due to the recipients and the latter
accepted the same with gratitude, confident that they richly
deserve such benefits.

Petitioners invoke the ruling of ADEPT v. COA[22] whereby the Court took into consideration the
good faith of therein petitioners and, thus, allowed them to retain the incentive benefits they had received
for the year 1992.

This ruling in Blaquera applies to the instant case. Petitioners here

received the additional allowances and bonuses in good faith under the honest belief
that LWUA Board Resolution No. 313 authorized such payment. At the time
petitioners received the additional allowances and bonuses, the Court had not yet
decided Baybay Water District [v. Commission on Audit].[26] Petitioners had no
knowledge that such payment was without legal basis. Thus, being in good faith,
petitioners need not refund the allowances and bonuses they received but
disallowed by the COA.[27]

Respondent points out that the records of the case do not support petitioners claim of good
faith, because they themselves were the authors of the By-Laws of PICCI which prohibit the receipt of
compensation other thanper diems and, therefore, should have been conversant with the constitutional
prohibition on double compensation.

In subsequent cases,[28] the Court took into account the good faith of the recipients of the
The Court upholds the findings of respondent that petitioners right to compensation as
members of the PICCI Board of Directors is limited only to per diem of P1,000.00 for every meeting

allowances, bonuses, and other benefits disallowed by respondent and ruled that they need not refund the
same.

attended, by virtue of the PICCI By-Laws. In the same vein, we also clarify that there has been no double
compensation despite the fact that, apart from the RATA they have been receiving from the BSP,

As petitioners believed in good faith that they are entitled to the RATA of P1,500.00 for every

petitioners have been granted the RATA ofP1,500.00 for every board meeting they attended, in their

board meeting they attended, in their capacity as members of the Board of Directors of PICCI, pursuant to

capacity as members of the Board of Directors of PICCI, pursuant to MB Resolution No. 15

[23]

dated

MB Resolution No. 15[29] dated January 5, 1994, as amended by MB Resolution No. 34 dated January 12,

January 5, 1994, as amended by MB Resolution No. 34 dated January 12, 1994, of the Bangko Sentral ng

1994, of the BSP, the Court sees no need for them to refund their RATA respectively, in the total amount

Pilipinas. In this regard, we take into consideration the good faith of petitioners.

of P1,565,000.00, covering the period from 1996-1998.

The ruling in Blaquera, to which the cited case of ADEPT v. COA was consolidated with, is

WHEREFORE, the petition is DISMISSED. Decision No. 2002-081, dated April 23, 2002,

applicable to the present case as petitioners acted in good faith. The disposition in De Jesus v.

of the Commission on Audit and its Resolution No. 2003-115, dated July 31, 2003, which denied

[24]

Commission on Audit,

which cited Blaquera, is instructive:

petitioners motion for reconsideration thereof and upheld the disallowance of petitioners Representation
and Transportation Allowance (RATA) in the total amount of P1,565,000.00 under Notice of
Disallowance

Nevertheless,
our
pronouncement
in Blaquera
v.
Alcala[25] supports petitioners position on the refund of the benefits they received.
In Blaquera, the officials and employees of several government departments and
agencies were paid incentive benefits which the COA disallowed on the ground that
Administrative Order No. 29 dated 19 January 1993prohibited payment of these
benefits. While the Court sustained the COA on the disallowance, it nevertheless
declared that:
Considering, however, that all the parties here
acted in good faith, we cannot countenance the refund of
subject incentive benefits for the year 1992, which amounts
the petitioners have already received. Indeed, noindicia of
bad faith can be detected under the attendant facts and

No.

99-001-101

(96-96)

dated

June

7,

1999,

are AFFIRMED

WITH

MODIFICATION. Petitioners need not refund the Representation and Transportation Allowance
(RATA) they received pursuant to Monetary Board Resolution No. 15 [30] dated January 5, 1994, as
amended by Monetary Board Resolution No. 34 dated January 12, 1994, of the Bangko Sentral ng
Pilipinas granting each of them an additional monthly RATA of P1,500.00, for every meeting attended, in
their capacity as members of the Board of Directors of Philippine International Convention Center, Inc.
(PICCI), or in the total amount of P1,565,000.00, covering the period from 1996-1998.

25

SO ORDERED.

26

G.R. No. L-32991 June 29, 1972

SALVADOR P. LOPEZ, President of the University of the Philippines; BOARD OF
REGENTS, University of the Philippines; and OSEAS DEL ROSARIO, Officer-in-Charge,
College of Education, University of the Philippines, petitioners,
vs.
HON. VICENTE ERICTA, Judge of the Court of First Instance of Rizal, Branch XVIII
(Quezon City), and DR. CONSUELO S. BLANCO, respondents.
Office of the Solicitor General Felix Q. Antonio, Assistant Solicitor General Jaime M. Lantin and
Special Counsel Jose Espinosa for petitioners.
Sison, Dominguez & Magno for respondents.

The case is before this Court on appeal by certiorari taken by the President and the Board of
Regents of the University and by Oseas A. del Rosario, respondents below, the last as officer-incharge appointed to discharge the duties and functions of the office of Dean of the College of
Education. 1 The petition for review was filed on January 5, 1971. On January 11, 1971 this
Court, pursuant to its resolution of January 7, issued a writ of preliminary injunction to stop the
immediate execution of the judgment appealed from, as ordered by respondent Judge.
The facts and circumstances surrounding the ad interim appointment of Dr. Consuelo S. Blanco
and the action taken thereon by the Board of Regents have a material bearing on the question at
issue. The first such appointment was extended on April 27, 1970, "effective May 1, 1970 until
April 30, 1971, unless sooner terminated and subject to the appproval of the Board of Regents
and to pertinent University regulations." Pursuant thereto Dr. Blanco assumed office as ad
interim Dean on May 1, 1970.
The only provisions of the U.P. Charter (Act No. 1870) which may have a bearing on the
question at issue read as follows:
SEC. 7. A quorum of the Board of Regents shall consist a majority of all the
members holding office at the time the meeting of the Board is called. All
processes against the Board of Regents shall be served on the president or
secretary thereof.

MAKALINTAL, J.:p
This case presents the question of whether or not respondent Dr. Consuelo S. Blanco was duly
elected Dean of the College of Education, University of the Philippines, in the meeting of the
Board of Regents on July 9, 1970, at which her ad interim appointment by University President
Salvador P. Lopez, one of the petitioners here, was submitted for consideration.
The question was originally ventilated in a petition for certiorari filed by Dr. Blanco in the Court of
First Instance of Quezon City, presided by respondent Judge Vicente Ericta, who decided the
question affirmatively on December 3, 1970. The dispositive portion of the decision was
amended three days later, or on December 6, to read as follows:
WHEREFORE, the Court renders judgment:
(1) Declaring petitioner, CONSUELO S. BLANCO, the duly elected Dean of
the College of Education, University of the Philippines, and as such entitled
to occupy the position with a three-year term of office from May 1, 1970 to
April 30, 1973;
(2) Declaring null and void the appointment of respondent Oseas A. del
Rosario as Officer-in-Charge of the College of Education, University of the
Philippines; and
(3) Issuing a permanent injunction (a) commanding respondent Oseas A.
del Rosario to desist from further exercising the functions and duties
pertaining to the Office of the Dean of the College of Education, University
of the Philippines, and (b) commanding respondent Board of Regents from
further proceeding in the matter of the appointment or election of another
person as Dean of said college.

SEC. 10. The body of instructors of each college shall constitute its faculty,
and as presiding officer of each faculty, there shall be a dean elected from
the members of such faculty by the Board of Regents on nomination by the
President of the University.
Article 78 of the Revised Code of the University provides:
Art. 78. For each college or school, there shall be a Dean or Director who
shall be elected by the Board of Regents from the members of the faculty of
the University unit concerned, on nomination by the President of the
University.
The Board of Regents met on May 26, 1970, and President Lopez submitted to it the ad
interim appointment of Dr. Blanco for reconsideration. The minutes of that meeting disclose that
"the Board voted to defer action on the matter in view of the objections cited by Regent Kalaw
(Senator Eva Estrada Kalaw) based on the petition against the appointment, addressed to the
Board, from a majority of the faculty and from a number of alumni ..." The "deferment for further
study" having been approved, the matter was referred to the Committee on Personnel, which
was thereupon reconstituted with the following composition: Regent Ambrosio F. Tangco,
chairman; Regent Pio Pedrosa and Regent Liceria B. Soriano, members. The opinion was then
expressed by the Chairman of the Board that in view of its decision to defer action, Dr. Blanco's
appointment had lapsed, but (on the President's query) that there should be no objection to
another ad interim appointment in favor of Dr. Blanco pending final action by the Board.
Accordingly, on the same day, May 26, 1970, President Lopez extended another ad
interim appointment to her, effective from May 26, 1970 to April 30, 1971, with the same
conditions as the first, namely, "unless sooner terminated, and subject to the approval of the
Board of Regents and to pertinent University regulations."
The next meeting of the Board of Regents was held on July 9, 1970. The minutes show:

xxx xxx xxx

27

xxx xxx xxx

a petition for certiorari and prohibition with preliminary injunction, the decision wherein is the
subject of the present appeal.

2. Deanship of the College, the President having issued an ad

interim appointment for Dr. Consuelo Blanco as Dean effective May 26,
1970:
Note: The Personnel Committee, to which this case
was referred, recommended that the Board request the
President of the University to review his nomination for
the Deanship of the College of Education in the light of
the testimonies received and discussions held during
the Commitee's meeting on June 4 and June 11, 1970
on this matter.
Chairman Tangco asked that the documents received
by the Committee on the matter be entered in the
official record, the same attached hereto as Appendix
"A" pages 57 to 179.
Board action: Following some discussion on what
Regent Tangco explained to be the rationale or
intention (i.e., that the President would discuss with Dr.
Consuelo S. Blanco a proposal to withdraw her
appointment as Dean) behind the wording of the
Personnel Committee's recommendation and in view of
some uncertainty over whether the Board would be
acting upon the recommendation as "diplomatically"
stated in the agenda or as really intended according to
Regent Tangco's explanation, the Personnel
Committee withdrew its recommendation as stated in
the Agenda. The Chairman took a roll-call vote on the
appointment of Dr. Blanco as Dean. The Chairman
having ruled that Dr. Blanco had not obtained the
necessary number of votes, the Board agreed to
expunge the result of the voting, and, on motion of
Regent Agbayani duly seconded, suspended action on
the ad interim appointment of Dr. Blanco. The Chair
stated that this decision of the Board would in effect
render the case subject to further thinking and give the
Board more time on the question of the deanship the of
the College of Education, and, since the Board had not
taken action on the appointment of Dr. Blanco either
adversely or favorably, her ad interim appointment as
Dean effective May 26, 1970 terminated as of July 9,
1970.
The roll-call voting on which the Chairman of the Board of Regents based his ruling aforesaid
gave the following results: five (5) votes in favor of Dr. Blanco's ad interim appointment, three (3)
votes against, and four (4) abstentions all the twelve constituting the total membership of the
Board of the time. 2 The next day, July 10, 1970, Dr. Blanco addressed a letter to the Board
requesting "a reconsideration of the interpretation made by the Board as to the legal effect of the
vote of five in favor, three against and four abstentions on my ad interim appointment." On
August 18, 1970 Dr. Blanco wrote the President of the University, protesting the appointment of
Oseas A. del Rosario as Officer-in-Charge of the College of Education. Neither communication
having elicited any official reply, Dr. Blanco went to the Court of First Instance of Quezon City on

Considerable arguments have been adduced by the parties on the legal effect and implications
of the 5-3-4 vote of the Board of Regents. Authorities, mostly judicial precedents in the American
jurisdictions, are cited in support of either side of the belabored question as to whether an
abstention should be counted as an affirmative or as a negative vote or a particular proposition
that is being voted on. Thus it is submitted, on the part of the petitioners, that if the abstentions
were considered as affirmative votes a situation might arise wherein a nominee (for the office of
Dean as in this case) is elected by only one affirmative vote with eleven members of the Board
abstaining; and, on the part of the respondent, that according to the prevailing view "an
abstention vote should be recorded in the affirmative on the theory that refusal to vote indicates
acquiescence in the action of those who vote;" ... that "the silence of the members present, but
abstaining, is construed to be acquiescence so far as any construction is necessary." A logician
could make a creditable case for either proposition. It does seem absurd that a minority even
only one of the twelve members of the Board of Regents who are present could elect a Dean
just because the others abstain. On the other hand, there is no lack of logic either in saying that
a majority vote of those voting will be sufficient to decide an issue on the ground that if
construction is at all necessary the silence of the members who abstain should be construed as
an indication of acquiescence in the action of those who vote affirmatively. This apparent
dichotomy, indeed, accounts for the conflict in the American court decisions, from which both
parties here have drawn extensively in support of their respective positions.
In the present case, however, this Court does not find itself confronted with an ineluctable choice
between the two legal theories. It should be noted that an abstention, according to the
respondents' citations, is counted as an affirmative vote insofar as it may be construed as an
acquiescence in the action of those who vote affirmatively. This manner of counting is obviously
based on what is deemed to be a presumption as to the intent of the one abstaining, namely, to
acquiesce in the action of those who vote affirmatively, but which presumption, being
merelyprima facie, would not hold in the face of clear evidence to the contrary. It is pertinent,
therefore, to inquire into the facts and circumstances which attended the voting by the members
of the Board of Regents on the ad interimappointment of Dr. Blanco in order to determine
whether or not such a construction would govern. The transcript of the proceedings in the
meeting of July 9, 1970 show the following statements by the Regents who participated in the
discussion:
Regent Tangco: Mr. Chairman, I would like to put on
record that this statement here is a compromise
statement. The Committee, after hearing the
testimonies and going over the materials presented to
the Committee, was in favor of recommending to the
Board that the nomination of Professor Blanco cannot
be accepted by the Board, but it was felt that it should
be presented in a more diplomatic way to avoid any
embarrassment on the part of both the appointee and
the President. And so means were studied as to how it
could be done and it was felt that it could be done in
such a way that the appointee could request relief from
the appointment, that it would be the best to save
embarrassment all around. And so the final decision
was to ask the President to review the matter, but with
the understanding that he will talk this over with Dean
Blanco and for the appointment to be withdrawn. So
actually although this statement here is not in that light,
again that is the decision of the Committee. Inasmuch
as apparently either the meaning of thedecision was not

28

made clear or maybe was not understood very well, I

would like to put that on the record.

diplomatic cover, according to Regent Kalaw, for the

reaction of the Committee, and Regent Tangco
requests that we act not on the Committee
recommendation in this form as presented in the
Agenda but in terms of the gentleman's agreement.

Regent Kalaw: I would like to take note of the

comments of Dr. Tangco here on aprevious agreement.
I understand that while the Committee recommended
the disapproval of the appointment of Dr. Blanco, the
Committee felt that it was more tactfuland diplomatic to
present the motion to this level but premised by the
findings of the Committee that the President would
make an agreement with Dean Blanco to make a
withdrawal ... .

Chairman: In brief, Regent Tangco informs the Board of

the action that the Committee was to request the
President to call Dr. Blanco and prevail upon her to
withdraw.
Regent Escobar: On what basis?

Regent Tangco: Mr. Chairman, I wish to just make a

correction that the decision was to ask the President for
her to request relief and not to consult. I want to put
that on record now. It was only that we wanted to avoid
anything on this on the record of the Board to save
embarrassment. But inasmuch as that statement has
been made, I want to make it of record that the
agreement was for the President to ask her to submit or
better ask herto the withdrawal.

Regent Tangco: On the testimonies presented to us

and also to avoid further embarrassment on the part of
the appointee. The decision of the Committee was to
ask Dean Blanco because there will be too much
embarrassment which I think is not going to gain any
matter one way or the other.
Chairman: We have to make a ruling. I think that we
cannot act on the gentlemen's agreement because we
do not have that gentlemen's agreement before us.

Regent Pedrosa: Mr. Chairman, in order to cut this

matter once and for all, may I suggest that the
members of the Committee inhibit themselves from
voting in this matter. I don't think it would affect the
majority vote or whatever the rest of the members of
the Board decide.

Regent Pedrosa: Mr. Chairman, may I interrupt you. In

view of the fact that I have announced that I would
desist from participating in the Board and Regent
Tangco has done likewise then I presume the President
will not also participate. Why doesn't the Board proceed
to the decision of whether ...

Regent Tangco: Mr. Chairman, I was going to inhibit

myself from the start.

Chairman: Yes, I am saying, Mr. Regent, there is a

ruling that this Board will have to act on the Committee
recommendation presented here, unless the
Committee withdraws this recommendation.

Regent Pedrosa: And I am inhibiting myself . We are

only two members now; Dr. Soriano is not here, so that
we leave the votation on this matter to the other
members of the Board.

Regent Tangco: The Committee is so doing, Mr.

Chairman.

Regent Kalaw: Mr. Chairman, what is the votation for?

Chairman: The Committee will widthdraw this

recommendation, in which case the issue is simply we
only have to act on the issue of to confirm or not to
confirm the ad interim appointment issued to Dr.
Blanco.

Chairman: The question before this Board is

the Comittee recommendation. Incidentally, if the Board
accepts the Committee recommendation it is also a
lack of confirmation of the ad interim appointment of
Dean Blanco ... .
xxx xxx xxx

xxx xxx xxx

Chairman: There is only one more question before this
Board to discuss fully, I believe. The question is, the
Chairman asks the Board to vote on the Committee
action in the form of a recommendation as presented in
the Agenda. Regent Tangco, the Chairman of that
Committee, says that this is merely a polite cover, a

Chairman: The Committee is withdrawing this

recommendation.

29

Regent Silva: Per se, as it is written. But I think the

Committee, if I get it right, is actually putting a
recommendation for non-confirmation.
Regent Kalaw: Since the Committee is withdrawing the
recomendation and the Board would act on it per se, I
think Regent Silva is right. (Emphasis supplied)

Chairman: The meeting is resumed. Mr. Regent?

(Addressing Regent Agbayani)
Regent Agbayani: Mr. Chairman, I move that we do not
proceed with the action now on this matter.
Chairman: To suspend in effect the action of the
Board?

The voting which followed shows the following result:

Regent Agbayani: The result brings us back to the
previous status, that no action has been taken.

Affirmative votes:
Regent Fonacier
" Escobar
" Barican
" Lopez
" Agbayani

Chairman: There is a motion to suspend action; that is

to say, to suspend the voting of the Board on this
matter with the effect, first, to return the case to its
original status to render the case subject to further
thinking and second, that the Board has not
confirmed the appointment. The appointment, in other
words, will be good from May 26 up to today.

Negative votes:

Regent Agbayani: Mr. Chairman, the Board did not

confirm exactly. It cannot be said that the Board
confirmed or did not confirm, but the appointment
terminates. The ad interimappointment terminates when
the Board meets, just like in Congress, where the ad
interim appointment is good only up to the first day of
the session.

Regent Kalaw
" Silva
" Corpuz
Abstentions:
Regent Tangco
" Leocadio (Substituting for Regent Soriano)
" Pedrosa
" Virata
Regent Leonides Virata, who was not a member of the Personnel Committee, made the
following explanation before casting his vote:
A. I abstain, but I want to say this. There must be some
other way of solving this problem. I am at sea in this,
because although I have been reading all these
documents here, but a decision is being asked now that
I am not ready myself.
After the result of the voting was known the Board Chairman Secretary Corpuz, announced that
"the vote is not a majority ... (and that) there is no ruling in the Code of the University on the
counting of votes and the treatment of abstention."
What transpired immediately afterwards appears in the transcript of the proceedings, as follows:
Regent Agbayani: Mr. Chairman, could I ask for another
one minute recess?

Chairman: So in effect, suspending action on this

matter now, the Board in effect gives itself time to study
the question not of Dean Blanco but the question of the
deanship of the College, and the Board has not taken
action on the confirmation either adversely or favorably,
but that the ad interim appointment has terminated
today.
Regent Escobar: Mr. Chairman, does it mean that all
the deliberations regarding to this matter should be
erased from the record? Because the record of the
voting is there.
Chairman: Well, it follows.
Regent Escobar: It follows suit, because we are now
asking for a reconsideration of any deliberations to the
effect that if there was a voting it should be banned
from appearing in the record.
Regent Silva: We have made statements here today.

(ONE-MINUTE RECESS AT THIS POINT)

30

Chairman: The record of the voting, which is incomplete

by the way because there was no circulation to
consider, will not appear in the record.
Regent Silva: The result of the votes; the deliberations
regarding this matter.
Regent Agbayani: I have no objection.
Chairman: The record of the voting will not appear. Any
objection to the motion for reconsideration? No
objection, approved.
From the foregoing record of the meeting of the Board of Regents it is very clear: (1) that the
Personnel Committee, to which the matter of Dr. Blanco's appointment had been referred for
study, was for recommending that it be rejected; (2) that, however, the rejection should be done
in a diplomatic way "to avoid any embarrassment on the part of both the appointee and the
President;" and (3) that the "final decision" of the committee was to ask the President of the
University to talk to Dr. Blanco "for the appointment to be withdrawn." That decision, as
announced by Regent Tangco, Chairman of the Personnel Committee, was restated and
clarified by Regent Kalaw, and then reiterated first by Regent Tangco and then by the Chairman.
On that note Regent Pedrosa suggested that the members of the Personnel Committee, as well
as the President, should inhibit themselves from voting. When the matter was actually submitted
to a vote, however, the definition of the issue became somewhat equivocal. Regent Tangco
announced that the committee was withdrawing its recommendation, whereupon the Chairman
stated that the issue was "to confirm or not to confirm the ad interim appointment issued to Dr.
Blanco." This was then followed by a remark from Regent Silva that the withdrawal by the
committee referred to the recommendation " per se, as it is written," but that the committee, he
thought, was "actually putting a recommendation for non-confirmation." Regent Kalaw thereupon
expressed her concurrence with Regent Silva's opinion.
The votes of abstention, viewed in their setting, can in no way be construed as votes for
confirmation of the appointment. There can be no doubt whatsoever as to the decision and
recommendation of the three members of the Personnel Committee: it was for rejection of the
appointment. If the committee opted to withdraw the recommendation it was on the
understanding (also referred to in the record as gentlemen's agreement) that the President
would talk to Dr. Blanco for the purpose of having her appointment withdrawn in order to save
them from embarrassment. No inference can be drawn from this that the members of the
Personnel Committee, by their abstention, intended to acquiesce in the action taken by those
who voted affirmatively. Neither, for that matter, can such inference be drawn from the
abstention that he was abstaining because he was not then ready to make a decision.

Indeed the formal decision of the Board was that all deliberations on the matter should not
appear in the record. And it cannot be seriously argued that the Board had no authority to do
what it did: the meeting had not yet been adjourned, the subject of the deliberations had not yet
been closed, and as in the case of any deliberative body the Board had the right to reconsider its
action. No title to the office of Dean of the College of Education had yet vested in respondent
Blanco at the time of such reconsideration.
One of the prayers of Dr. Blanco in her petition below is that she be declared duly elected as
Dean of the College of Education and, as such, legally entitled to the said position with a 3-year
tenure of office as provided in the Revised Code of the University of the Philippines (Art. 79, Ch.
6, Title Two). Obviously this prayer is not in order inasmuch as she has not been elected to said
position. On the other hand, Dr. Blanco does not ask that she be recognized as Dean by virtue
of her ad interim appointment dated May 26, 1970, effective up to April 30, 1971. Aside from the
fact that the point has become moot, since the tenure has expired, it is seriously to be doubted
whether such an appointment is authorized under the law and regulations. It should be noted
that both under the Charter (See. 10) and under the Revised Code of the University (Art. 78) the
Dean of a college is elected by the Board of Regents on nomination by the President of the
University. In other words the President's function is only to nominate, not to extend an
appointment, even if only ad interim; and the power of the Board of Regents is not merely to
confirm, but to elect or appoint. At any rate the ad interim appointment extended to Dr. Blanco
on May 26, 1970, although made effective until April 30, 1971, was subject to the following
condition: "unless sooner terminated and subject to the approval of the Board of Regents." The
Board, as has been shown, not only did not elect Dr. Blanco in its meeting of July 9, 1970, but
declared the appointment terminated as of that day.
WHEREFORE, the decision appealed from is reversed and set aside; the petition of respondent
Consuelo S. Blanco for certiorari and prohibition before respondent Court is ordered dismissed;
and the writ of preliminary injunctton issued by this Court is made permanent, without
pronouncement as to costs.
Concepcion, C.J., Zaldivar, Castro, Fernando, Teehankee and Makasiar, JJ., concur.
Reyes, J.B.L. and Antonio, JJ., took no part.

All arguments on the legal question of how an abstention should be treated, all authorities cited
in support of one or the other position, become academic and purposeless in the face of the fact
that respondent Dr. Blanco was clearly not the choice of a majority of the members of the Board
of Regents, as unequivocally demonstrated by the transcript of the proceedings. This fact cannot
be ignored simply because the Chairman, in submitting the question to the actual vote, did not
frame it as accurately as the preceding discussion called for, such that two of the Regents
present (Silva and Kalaw) had to make some kind of clarification.
In any event, in the same meeting of July 9, 1970, before it adjourned, the Board of Regents
resolved, without a vote of dissent, to cancel the action which had been taken, including the
result of the voting, and "to return the case to its original status to render the case subject to
further thinking." In effect, as announced by the Chairman, "the Board has not acted on the
confirmation either adversely or favorably, but that the ad interimappointment has terminated."

31

Meanwhile, on July 28, 1981, board member and majority stockholder Teresita Lopez
Marquez died.
G.R. No. 76801 August 11, 1995
LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES, petitioners,
vs.
FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LABOR RELATIONS
COMMISSION, respondents.

On August 17, 1981, except for Asuncion Lopez Gonzales who was then abroad, the
remaining members of the Board of Directors, namely: Rosendo de Leon, Benjamin
Bernardino, and Leo Rivera, convened a special meeting and passed a resolution
which reads:
Resolved, as it is hereby resolved that the gratuity (pay) of the employees
be given as follows:
(a) Those who will be laid off be given the full amount of gratuity;

PUNO, J.:
The controversy at bench arose from a complaint filed by private respondents, 1 namely,
Florentina Fontecha, Mila Refuerzo, Marcial Mamaril, Perfecto Bautista, Edward Mamaril,
Marissa Pascual and Allan Pimentel, against their employer Lopez Realty Incorporated
(petitioner) and its majority stockholder, Asuncion Lopez Gonzales, for alleged non-payment of
their gratuity pay and other benefits. 2 The case was docketed as NLRC-NCR Case No. 2-217682.
Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner Asuncion
Lopez Gonzales is one of its majority shareholders. Her interest in the company vis-a-vis the
other shareholders is as follows:
1

Asuncion Lopez Gonzales

2 Teresita Lopez Marquez

3 Arturo F. Lopez

7831

shares

7830

shares

7830

shares

4 Rosendo de Leon

shares

5 Benjamin Bernardino

share

6 Leo Rivera

share

Except for Arturo F. Lopez, the rest of the shareholders also sit as members of the
Board of Directors.
3

As found by the Labor arbiter. sometime in 1978, Arturo Lopez submitted a proposal
relative to the distribution of certain assets of petitioner corporation among its three (3)
main shareholders. The proposal had three (3) aspects,viz: (1) the sale of assets of
the company to pay for its obligations; (2) the transfer of certain assets of the
company to its three (3) main shareholders, while some other assets shall remain with
the company; and (3) the reduction of employees with provision for their gratuity pay.
The proposal was deliberated upon and approved in a special meeting of the board of
directors held on April 17, 1978.
It appears that petitioner corporation approved two (2) resolutions providing for the
gratuity pay of its employees, viz: (a) Resolution No. 6, Series of 1980, passed by the
stockholders in a special meeting held on September 8, 1980, resolving to set aside,
twice a year, a certain sum of money for the gratuity pay of itsretiring employees and
to create a Gratuity Fund for the said contingency; and (b) Resolution No. 10,Series of
1980, setting aside the amount of P157,750.00 as Gratuity Fund covering the period
from 1950 up to 1980.

(b) Those who will be retained will receive 25% of their gratuity (pay) due on
September 1, 1981, and another 25% on January 1, 1982, and 50% to be
retained by the office in the meantime. (emphasis supplied)
Private respondents were the retained employees of petitioner corporation. In a letter,
dated August 31, 1981, private respondents requested for the full payment of their
gratuity pay. Their request was granted in a special meeting held on September 1,
1981. The relevant, portion of the minutes of the said board meeting reads:
In view of the request of the employees contained in the letter dated August
31, 1981, it was also decided that, all those remaining employees will
receive another 25% (of their gratuity) on or before October 15, 1981 and
another 25% on or before the end of November, 1981 of their respective
gratuity.
At that, time, however, petitioner Asuncion Lopez Gonzales was still abroad.
Allegedly, while she was still out of the country, she sent a cablegram to the
corporation, objecting to certain matters taken up by the board in her absence, such
as the sale of some of the assets of the corporation. Upon her return, she flied a
derivative suit with the Securities and Exchange Commission (SEC) against majority
shareholder Arturo F. Lopez.
Notwithstanding the "corporate squabble" between petitioner Asuncion Lopez
Gonzales and Arturo Lopez, the first two (2) installments of the gratuity pay of private
respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto
Bautista were paid by petitioner corporation.
Also, petitioner corporation had prepared the cash vouchers and checks for the third
installments of gratuity pay of said private respondents (Florentina Fontecha, Mila
Refuerzo, Marcial Mamaril and Perfecto Bautista). For some reason, said vouchers
were cancelled by petitioner Asuncion Lopez Gonzales.
Likewise, the first, second and third installments of gratuity pay of the rest of private
respondents, particularly, Edward Mamaril, Marissa Pascual and Allan Pimentel, were
prepared but cancelled by petitioner Asuncion Lopez Gonzales. Despite private
respondents' repeated demands for their gratuity pay, corporation refused to pay the
same. 4

32

On July 23, 1984, Labor Arbiter Raymundo R. Valenzuela rendered judgment in favor
of private respondents. 5

With regard to the award of service incentive leave and others, the
Commission finds no cogent reason to disturb the appealed decision.

Petitioners appealed the adverse ruling of the Labor arbiter to public respondent
National Labor Relations Commission. The appeal focused on the alleged nonratification and non-approval of the assailed August 17, 1981 and September 1, 1981
Board Resolutions during the Annual Stockholders' Meeting held on March 1, 1982.
Petitioners further insisted that the payment of the gratuity to some of the private
respondents was a mere "mistake" on the part of petitioner corporation since,
pursuant to Resolution No. 6, dated September 8, 1980, and Resolution No. 10, dated
October 6, 1980, said gratuity pay should be given only upon the employees'
retirement.

We affirm.

On November 20, 1985, public respondent, through its Second Division, dismissed the
appeal for lack of merit, the pertinent portion of which states: 6
We cannot agree with the contention of respondents (petitioners') that the
Labor Arbiter a quo committed abuse of discretion in his decision.
Respondents' (petitioners') contention that, the two (2) resolutions dated 17
August 1981 and 1 September 1981 . . . which were not approved in the
annual stockholders meeting had no force and effect, deserves scant
consideration. The records show that the stockholders did not revoke nor
nullify these resolutions granting gratuities to complainants.

WHEREFORE, let the appealed decision be, as it is hereby, AFFIRMED

and let the instant appeal (be) dismissed for lack of merit.
SO ORDERED.
Petitioners reconsidered. 7 In their motion for reconsideration, petitioners assailed the
validity of the board resolutions passed on August 17, 1981 and September 1, 1981,
respectively, and claimed, for the first time, that petitioner Asuncion Lopez Gonzales
was not notified of the special board meetings held on said dates. The motion for
reconsideration was denied by the Second Division on July 24, 1986.
On September 4, 1986, petitioners filed another motion for reconsideration. Again, the
motion was denied by public respondent in a Minute Resolution dated November 19,
1986. 8
Hence, the petition. As prayed for, we issued a Temporary Restraining
Order, 9 enjoining public respondent from enforcing or executing the Resolution, dated
November 20, 1986 (sic), in NLRC-NCR-2-2176-82. 10

On record, it appears that the said resolutions arose from the legitimate
creation of the Board of Directors who steered the corporate affairs of the
corporation. . . .

The sole issue is whether or not public respondent acted with grave abuse of
discretion in holding that private respondents are entitled to receive their gratuity pay
under the assailed board resolutions dated August 17, 1951 and September 1, 1981.

Respondents' (petitioners') allegation that the three (3) complainants, Mila

E. Refuerzo, Marissa S. Pascual and Edward Mamaril, who had resigned
after filing the complaint on February 8, 1982, were precluded to (sic)
receive gratuity because the said resolutions referred to
only retiring employee could not be given credence. A reading of
Resolutions dated 17 August 1981 and 1 September 1981 disclosed that
there were periods mentioned for the payment of complainants' gratuities.
This disproves respondents' argument allowing gratuities upon retirement of
employees. Additionally, the proposed distribution of assets (Exh. C-1) filed
by Mr. Arturo F. Lopez also made mention of gratuity pay, " . . .
(wherein) an employee who desires to resign from the LRI will be given the
gratuity pay he or she earned." (Emphasis supplied) Let us be reminded,
too, that the complainants' resignation was not voluntary but it was
pressurized (sic) due to "power struggle" which was evident between Arturo
Lopez and Asuncion Gonzales.

Petitioners contend that the board resolutions passed on August 17, 1981 and
September 1, 1981, granting gratuity pay to their retained employees, are ultra
vires on the ground that petitioner Asuncion Lopez Gonzales was not duly notified of
the said special meetings. They aver, further, that said board resolutions were not
ratified by the stockholders of the corporation pursuant to Section 28 1/2 of the
Corporation Law (Section 40 of the Corporation Code). They also insist that the
gratuity pay must be given only to the retiring employees, to the exclusion of the
retained employees or those who voluntarily resigned from their posts.

The respondents' (petitioners') contention of a mistake to have been

committed in granting the first two (2) installments of gratuities to
complainants Perfecto Bautista, Florentina Fontecha, Marcial Mamaril and
Mila Refuerzo, (has) no legal leg to stand on. The record is bereft of any
evidence that the Board of Directors had passed a resolution nor is there
any minutes of whatever nature proving mistakes in the award of damages
(sic).

At the outset, we note that petitioners allegation on lack of notice to petitioner

Asuncion Lopez Gonzales was raised for the first time in the in their motion for
reconsideration filed before public respondent National Labor Relations Commission,
or after said public respondent had affirmed the decision of the labor arbiter. To
stress, in their appeal before the NLRC, petitioners never raised the issue of lack of
notice to Asuncion Lopez Gonzales. The appeal dealt with (a) the failure of the
stockholders to ratify the assailed resolutions and (b) the alleged "mistake" committed
by petitioner corporation in giving the gratuity pay to some of its employees who are
yet to retire from employment.
In their comment, 11 private respondents maintain that the new ground of lack of notice
was not raised before the labor arbiter, hence, petitioners are barred from raising the
same on appeal. Private respondents claim, further, that such failure on the part of
petitioners, had deprived them the opportunity to present evidence that, in a
subsequent special board meeting held on September 29, 1981, the subject resolution

33

dated September 1, 1981, was unanimously approved by the board of directors of

petitioner corporation, including petitioner Asuncion Lopez Gonzales. 12
Indeed, it would be offensive to the basic rules of fair play and justice to allow
petitioners to raise questions which have not been passed upon by the labor arbiter
and the public respondent NLRC. It is well settled that questions not raised in the
lower courts cannot, be raised for the first time on appeal. 13 Hence, petitioners may
not invoke any other ground, other than those it specified at the labor arbiter level, to
impugn the validity of the subject resolutions.
We now come to petitioners' argument that the resolutions passed by the board of
directors during the special meetings on August 1, 1981, and September 1, 1981,
were ultra vires for lack of notice.
The general rule is that a corporation, through its board of directors, should act in the
manner and within the formalities, if any, prescribed by its charter or by the general
law. 14 Thus, directors must act as a body in a meeting called pursuant to the law or
the corporation's by-laws, otherwise, any action taken therein may be questioned by
any objecting director or shareholder. 15
Be that as it may, jurisprudence 16 tells us that an action of the board of directors
during a meeting, which was illegal for lack of notice, may be ratified either expressly,
by the action of the directors in subsequent legal meeting, or impliedly, by the
corporation's subsequent course of conduct. Thus, in one case, 17 it was held:
. . . In 2 Fletcher, Cyclopedia of the Law of Private Corporations (Perm. Ed.)
sec. 429, at page 290, it is stated:
Thus, acts of directors at a meeting which was illegal
because of want of notice may be ratified by the
directors at a subsequent legal meeting, or by the
corporations course of conduct
...
Fletcher, supra, further states in sec. 762, at page 1073-1074:
Ratification by directors may be by an express
resolution or vote to that effect, or it may be implied
from adoption of the act, acceptance or acquiescence.
Ratification may be effected by a resolution or vote of
the board of directors expressly ratifying previous acts
either of corporate officers or agents; but it is not
necessary, ordinarily, to show a meeting and formal
action by the board of directors in order to establish a
ratification.
In American Casualty Co., v. Dakota Tractor and Equipment Co., 234 F.
Supp. 606, 611 (D.N.D. 1964), the court stated:
Moreover, the unauthorized acts of an officer of a
corporation may be ratified by the corporation by
conduct implying approval and adoption of the act in

question. Such ratification may be express or may be

inferred from silence and inaction.
In the case at bench, it was established that petitioner corporation did not issue any
resolution revoking nor nullifying the board resolutions granting gratuity pay to private
respondents. Instead, they paid the gratuity pay, particularly, the first two (2)
installments thereof, of private respondents Florentina Fontecha, Mila Refuerzo,
Marcial Mamaril and Perfecto Bautista.
Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time
the assailed resolutions were passed, we can glean from the records that she was
aware of the corporation's obligation under the said resolutions. More importantly, she
acquiesced thereto. As pointed out by private respondents, petitioner Asuncion Lopez
Gonzales affixed her signature on Cash Voucher Nos. 81-10-510 and 81-10-506, both
dated October 15, 1981, evidencing the 2nd installment of the gratuity pay of private
respondents Mila Refuerzo and Florentina Fontecha. 18
We hold, therefore, that the conduct of petitioners after the passage of resolutions
dated August, 17, 1951 and September 1, 1981, had estopped them from assailing
the validity of said board resolutions.
Assuming, arguendo, that there was no notice given to Asuncion Lopez Gonzalez
during the special meetings held on August 17, 1981 and September 1, 1981, it is
erroneous to state that the resolutions passed by the board during the said meetings
were ultra vires. In legal parlance, "ultra vires" act refers to one which is not within the
corporate powers conferred by the Corporation Code or articles of incorporation or not
necessary or incidental in the exercise of the powers so conferred. 19
The assailed resolutions before us cover a subject which concerns the benefit and
welfare of the company's employees. To stress, providing gratuity pay for its
employees is one of the express powers of the corporation under the Corporation
Code, hence, petitioners cannot invoke the doctrine of ultra vires to avoid any liability
arising from the issuance the subject resolutions. 20
We reject petitioners' allegation that private respondents, namely, Mila Refuerzo,
Marissa Pascual and Edward Mamaril who resigned from petitioner corporation after
the filing of the case, are precluded from receiving their gratuity pay. Pursuant to
board resolutions dated August 17, 1981 and September 1, 1981, respectively,
petitioner corporation obliged itself to give the gratuity pay of its retained employees in
four (4) installments: on September 1, 1981; October 15, 1981; November, 1981; and
January 1, 1982. Hence, at the time the aforenamed private respondents tendered
their resignation, the aforementioned private respondents were already entitled to
receive their gratuity pay.
Petitioners try to convince us that the subject resolutions had no force and effect in
view of the non-approval thereof during the Annual Stockholders' Meeting held on
March 1, 1982. To strengthen their position, petitioners cite section 28 1/2 of the
Corporation Law (Section 40 of the Corporation Code). We are not persuaded.
The cited provision is not applicable to the case at bench as it refers to the sale, lease,
exchange or disposition of all or substantially all of the corporation's assets, including
its goodwill. In such a case, the action taken by the board of directors requires the
authorization of the stockholders on record.

34

It will be observed that, except far Arturo Lopez, the stockholders of petitioner
corporation also sit as members of the board of directors. Under the circumstances in
field, it will be illogical and superfluous to require the stockholders' approval of the
subject resolutions. Thus, even without the stockholders' approval of the subject
resolutions, petitioners are still liable to pay private respondents' gratuity pay.
IN VIEW WHEREOF, the instant petition is DISMISSED for lack of merit and the
temporary restraining order we issued on February 9, 1987 is LIFTED. Accordingly,
the assailed resolution of the National Labor Relations Commission in NLRC-NCR2176-82 is AFFIRMED. This decision is immediately executory. Costs against
petitioners.
SO ORDERED.

35

collected yearly rentals in excess of the yearly amortization which contract is manifestly and
grossly disadvantageous to the government.3
G.R. No. 168918

March 2, 2009

PEOPLE OF THE PHILIPPINES, Petitioner,

vs.
HERMENEGILDO DUMLAO y CASTILIANO and EMILIO LA'O y GONZALES, Respondents.

When arraigned on 9 November 2004, respondent Dumlao, with the assistance of counsel de
parte, pleaded "not guilty" to the offense charged.4 As agreed upon by the prosecution and
respondent Dumlao, a Joint Stipulation of Facts and Admission of Exhibits was submitted to the
court on 10 January 2005.5 On the basis thereof, the court issued on 19 January 2005 the
following Pre-Trial Order:

DECISION
CHICO-NAZARIO, J.:
On appeal is the Resolution1 of the Sandiganbayan in Criminal Case No. 16699 dated 14 July
2005 which granted the Motion to Dismiss/Quash of respondent Hermenegildo C. Dumlao and
dismissed the case against him. The Sandiganbayan likewise ordered the case against
respondent Emilio G. Lao archived. The dispositive portion of the resolution reads:
WHEREFORE, finding the Motion to Dismiss/Quash filed by accused Hermenegildo C. Dumlao
to be meritorious this case as against him is hereby ordered DISMISSED.
The cash bond posted by him is hereby cancelled and accused Dumlao is allowed to withdraw
the same from the Cashiers Office of this Court.
The hold departure order issued by this Court against herein accused Dumlao is lifted and set
aside.
The Commissioner of the Bureau of Immigration and Deportation is ordered to cancel the name
of accused Hermenegildo C. Dumlao from the Bureaus Hold Departure List.

PRE-TRIAL ORDER
The Prosecution and Accused Hermenegildo C. Dumlao, as assisted by counsel, submitted their
"JOINT STIPULATION OF FACTS AND ADMISSION OF EXHIBITS" dated December 21, 2004,
quoted hereunder:
I. STIPULATION OF FACTS
The Prosecution and Accused Dumlao jointly stipulate on the following:
1. That at the time material to this case, the following were members of the Board of
Trustees of the Government Service Insurance System (GSIS):
a. Hermenegildo C. Dumlao
b. Aber P. Canlas
c. Jacobo C. Clave
d. Roman A. Cruz

This case as against Emilio Lao who is still at large is ordered archived.2
e. Fabian C. Ver
On 19 July 1991, an Amended Information was filed before the Sandiganbayan charging
respondents Dumlao and Lao, Aber P. Canlas, Jacobo C. Clave, Roman A. Cruz, Jr. and
Fabian C. Ver with violation of Section 3(g) of Republic Act No. 3019, as amended, otherwise
known as the Anti-Graft and Corrupt Practices Act. The case was docketed as Criminal Case
No. 16699. The accusatory portion of the information reads:
That on or about May 10, 1982, or for sometime prior or subsequent thereto, in Manila,
Philippines, and within the jurisdiction of this Honorable Court, the accused Hermenegildo C.
Dumlao, Aber Canlas, Jacobo C. Clave, Roman A. Cruz, Jr., and Fabian C. Ver, being then the
members of the Board of Trustees of the Government Service Insurance System (GSIS) which
is a government corporation and therefore all public officers, conspiring and confederating
together and mutually helping one another, while in the performance of their official functions,
did then and there willfully, unlawfully and criminally enter into contract of lease-purchase with
Emilio G. Lao, a private person whereby the GSIS agreed to sell to said Emilio G. Lao, a GSIS
acquired property consisting of three parcels of land with an area of 821 square meters together
with a 5-storey building situated at 1203 A. Mabini St., Ermita, Manila, known as the
Government Counsel Centre for the sum of P2,000,000.00 with a down payment ofP200,000.00
with the balance payable in fifteen years at 12% interest per annum compounded yearly, with a
yearly amortization of P264,278.37 including principal and interest granting Emilio G. Lao the
right to sub-lease the ground floor for his own account during the period of lease, from which he

f. Leonilo M. Ocampo and

g. Benjamin C. Morales;
2. That Emilio Gonzales Lao is a private person;
3. That GSIS was the owner of a property consisting of three (3) parcels of land with
an area of 821 square meters, together with a 5-storey building situated as 1203 A.
Mabini Street, Ermita, Manila known as the Government Counsel Centre;
4. That on June 22, 1978, the GSIS entered into a Lease-Purchase Agreement with
the Republic of the Philippines through the Office of the Government Corporate
Counsel (OGCC) involving the property described under paragraph 3 above, for a
consideration of P1.5 million payable in equal yearly amortizations for a period of
fifteen (15) years with zero interest. The period should commence after the GSIS shall
have renovated the building according to the specification of the OGCC;

36

5. That in accordance with the June 22, 1978 Lease-Purchase Agreement, the 5storey building was renovated. Thereafter, the OGCC occupied the same;
6. That Ferdinand E. Marcos was, at all-times material hereto, the President of the
Republic of the Philippines;
7. That then President was at all times material hereto, legislating through the
issuance of Presidential Decrees, Executive Orders and the like;
8. That among the three Members of the Board who signed the Minutes only accused
Dumlao was charged in this case;
9. That there are only seven (7) members of the Board of Trustees of the GSIS
present during the board meeting held on April 23, 1982;
10. Exhibit "A" and "1" entitled Agreement was signed by Luis A. Javellana, for and in
behalf of the GSIS, Felipe S. Aldaa, for and [in] behalf of the Republic of the
Philippines thru Government Corporate Counsel, and Emilio Gonzales Lao, as buyer.
II. DOCUMENTARY EVIDENCE
The Prosecution and Accused Dumlao admitted the authenticity and due execution of the
following documentary evidence:
EXHIBITS
"A" (also Exhibit "1" for accused
Dumlao

"B" (also Exhibit "2" for accused

Dumlao)

WHEREFORE, with the submission by the parties of their Joint Stipulation of Facts, the pre-trial
is deemed terminated. Let the above-mentioned joint stipulation as recited in this pre-trial order
bind the parties, limit the trial to matters not disposed of, and control the course of the
proceedings in this case unless modified by the Court to prevent manifest injustice.6
On 21 February 2005, respondent Dumlao filed a Motion to Dismiss/Quash on the ground that
the facts charged do not constitute an offense.7 He stated that the prosecutions main thrust
against him was the alleged approval by the Government Service Insurance System (GSIS)
Board of Trustees -- of which he was a member -- of the Lease-Purchase Agreement entered
into by and among the GSIS, the Office of the Government Corporate Counsel (OGCC) and
respondent Lao. He argued that the allegedly approved Board Resolution was not in fact
approved by the GSIS Board of Trustees, contrary to the allegations in the information. Since
the signatures of Fabian Ver, Roman Cruz, Aber Canlas and Jacobo Clave did not appear in the
minutes of the meeting held on 23 April 1982, he said it was safe to conclude that these people
did not participate in the alleged approval of the Lease-Purchase Agreement. This being the
case, he maintained that there was no quorum of the board to approve the supposed resolution
authorizing the sale of the GSIS property. There being no approval by the majority of the Board
of Trustees, there can be no resolution approving the Lease-Purchase Agreement. The
unapproved resolution, he added, proved his innocence. He further contended that the person to
be charged should be Atty. Luis Javellana, who sold the subject property to respondent Lao
without the proper authority. He likewise wondered why he alone was charged without including
the other two signatories in the minutes of the meeting held on 23 April 1982.
On 14 July 2005, the Sandiganbayan issued the assailed resolution. It ruled:

The Court finds the motion meritorious. The minutes of the meeting held on April 23, 1982 of the
Board of Trustees of GSIS shows that the Board failed to approve the Lease-Purchase
Agreement in question. As stipulated upon by both parties out of the seven (7) members of
DESCRIPTION
GSIS Board of Trustees only three (3) members signed the minutes, the others did not. In order
The Agreement executed by and among the GSIS, theto validly pass a resolution at least a majority of four (4) members of the Board of Trustees must
Republic of the Philippines, through OGCC and accused
sign and approve the same.1avvphi1
Emilio Gonzales Lao on May 10, 1982, consisting of 11
pages;
No amount of evidence can change the fact that Resolution dated April 23, 1982 was not validly
passed by the Board of Trustees of GSIS since it was only signed by three (3) members of the
Board. Thus, it never had the force and effect of a valid resolution and did not in effect approve
The pertinent portion, including the signature page, of the Lease and Purchase Agreement subject matter hereof. Therefore, the prosecution has no
Minutes of Meeting No. 14 of the GSIS Board of Trustees
cause of action against herein movant-accused Hermenegildo C. Dumlao. 8
held on April 23, 1982, specifically containing item no. 326
regarding the approval of the proposed Agreement by and
Onthe
2 September 2005, the People of the Philippines, represented by the Office of the
among the GSIS, the Republic of the Philippines through
Ombudsman,
thru the Office of the Special Prosecutor, filed a petition for certiorari9 under Rule
OGCC and accused Emilio Gonzales Lao, consisting of
5
45
of
the
Rules
of Court seeking the reversal and setting aside of the Sandiganbayan Resolution
pages.
dismissing the case against respondent Dumlao. Petitioner raises the following issues:

III. RESERVATION
The Prosecution and Accused Dumlao reserve the right to mark and offer in evidence the
documents mentioned in their respective Pre-Trial Briefs, as well as to present the witnesses
listed therein.
IV. ISSUE
Whether or not accused Dumlao is liable for violation of Section 3(g), RA 3019.

I) WHETHER OR NOT THE COURT A QUO ACTED IN ACCORDANCE WITH LAW AND
JURISPRUDENCE WHEN IT RESOLVED TO DISMISS CRIMINAL CASE NO. 16699 AS
AGAINST RESPONDENT DUMLAO AFTER THE PRE-TRIAL AND BEFORE THE
PETITIONER COULD PRESENT ITS WITNESSES AND FORMALLY OFFER ITS EXHIBITS.
II) WHETHER OR NOT THE SIGNATURES OF THE MAJORITY OF THE GSIS BOARD OF
TRUSTEES ARE NECESSARY ON THE MINUTES OF MEETING NO. 14 DATED 23 APRIL
1982 TO GIVE FORCE AND EFFECT TO RESOLUTION NO. 326 APPROVING THE
PROPOSED AGREEMENT BY AND AMONG THE GSIS, THE OGCC AND RESPONDENT
EMILIO LAO.

37

III) WHETHER OR NOT THE VALIDITY OF THE CONTRACT IS AN ESSENTIAL ELEMENT

OF VIOLATION OF SECTION 3(G), RA 3019.
IV) WHETHER OR NOT THE COURT A QUO ACTED IN ACCORDANCE WITH LAW AND
JURISPRUDENCE WHEN IT RESOLVED TO ARCHIVE THE CASE AGAINST RESPONDENT
LAO.
On the other hand, respondent Dumlao proffers the following grounds to support the dismissal of
the case against him:
1. TO GIVE DUE COURSE TO THE OMBUDSMANS PETITION IS TO PLACE DUMLAO IN
DOUBLE JEOPARDY, IN VIOLATION OF HIS CONSTITUTIONAL RIGHTS;
2. THE SANDIGANBAYAN COULD NOT BE SAID TO HAVE GRAVELY ABUSED ITS
DISCRETION AMOUNTING TO LACK OF JURISDICTION BECAUSE IT MERELY FOLLOWED
THE RULE ON PRE-TRIAL AND DECIDED THE CASE ON THE BASIS OF THE FACTS
STIPULATED IN THE PRE-TRIAL;
3. THE FACTS AS AGREE (SIC) BY THE PROSECUTION AND RESPONDENT DUMLAO IN
THEIR PRE-TRIAL STIPULATION AND AS APPROVED BY THE SANDIGANBAYAN SHOWED
THAT HE DID NOT COMMIT ANY CRIME; AND
4. CONTINUALLY PROSECUTING DUMLAO, TO THE EXCLUSION OF OTHER GSIS
TRUSTEES, UNDER THE CIRCUMSTANCES OBTAINING, CONSTITUTES UNFAIR
DISCRIMINATION AND VIOLATION OF HIS CONSTITUTIONAL RIGHT TO EQUAL
PROTECTION OF THE LAW.10
Petitioner argues it was denied its right to due process when the court a quo dismissed the case
against respondent Dumlao after pre-trial and before it could present its witnesses and formally
offer its exhibits. The court a quo deprived it of the opportunity to prove its case that the
Resolution dated 23 April 1982 was passed by the GSIS Board of Trustees and that the LeasePurchase Agreement was grossly and manifestly disadvantageous to the government.

Resolution dated April 23, 1982 was not validly passed by the Board of Trustees of GSIS since it
was only signed by three members of the Board. Thus, it never had the force and effect of a
valid resolution and did not in effect approve the Lease and Purchase Agreement subject matter
hereof. Therefore, the prosecution has no cause of action against herein movant-accused
Hermenegildo C. Dumlao."
The ground raised by respondent Dumlao in his Motion to Quash/Dismiss is that the facts
charged do not constitute an offense. The fundamental test in determining the sufficiency of the
material averments of an information is whether the facts alleged therein, which are
hypothetically admitted, would establish the essentials elements of the crime defined by law.
Evidence aliunde, or matters extrinsic of the Information, are not be considered.11
The elements of the crime under Section 3(g) of Republic Act No. 3019 are as follows: (1) that
the accused is a public officer; (2) that he entered into a contract or transaction on behalf of the
government; and (3) that such contract or transaction is grossly and manifestly disadvantageous
to the government.12
After examining the information, we find that the facts alleged therein, if hypothetically admitted,
will prove all the elements of Section 3(g) as against respondent Dumlao.
It can be gathered from the resolution of the Sandiganbayan that it did consider the ground
invoked by Dumlao (that the facts charged do not constitute an offense); otherwise, it could have
denied respondent Dumlaos motion. From the reasoning given by the Sandiganbayan, it is clear
that it dismissed the case because of insufficiency of evidence.
Insufficiency of evidence is not one of the grounds of a Motion to Quash. The grounds, as
enumerated in Section 3, Rule 117 of the Revised Rules of Criminal Procedure, are as follows:
(a) That the facts charged do not constitute an offense;
(b) That the court trying the case has no jurisdiction over the offense charged;
(c) That the court trying the case has no jurisdiction over the person of the accused;

Respondent Dumlao was charged, he being one of the members of the GSIS Board of Trustees
who allegedly approved the lease-purchase of the subject GSIS properties consisting of three
parcels of land with an area of 821 square meters, together with a five-storey building, in favor of
respondent Lao, which lease-purchase agreement was deemed by the Office of the
Ombudsman to be grossly disadvantageous to the government.

(d) That the officer who filed the information had no authority to do so;
(e) That it does not conform substantially to the prescribed form;

A review of the Motion to Dismiss/Quash filed by respondent Dumlao reveals that the ground he
invoked was that "the facts charged do not constitute an offense." He contends that the alleged
approved Board Resolution was not approved by the GSIS Board of Trustees, contrary to the
allegation in the information. Since the signatures of four out of the seven members of the board
did not appear in the minutes of the meeting held on 23 April 1982, there was no quorum
present or no majority that approved the supposed resolution. This being the case, he asserts
that there was no resolution adopted by the GSIS Board of Trustees approving the sale of the
subject properties to respondent Lao.

(f) That more than one offense is charged except when a single punishment for
various offenses is prescribed by law;

The Sandiganbayan, basing its resolution on the Pre-trial Stipulation entered into by the
prosecution and respondent Dumlao, dismissed the case against the latter, since it found that
the GSIS Board of Trustees failed to approve or validly pass the Lease-Purchase Agreement,
because only three out of the seven members of the Board signed the minutes of the meeting
held on 23 April 1982. It explained that, "no amount of evidence can change the fact that the

(i) That the accused has been previously convicted or acquitted of the offense
charged, or the case against him was dismissed or otherwise terminated without his
express consent.

(g) That the criminal action or liability has been extinguished;

(h) That it contains averments which, if true, would constitute a legal excuse or
justification; and

38

Insufficiency of evidence is a ground for dismissal of an action only after the prosecution rests its
case. Section 23, Rule 119 of the Revised Rules of Criminal Procedure provides:
Sec. 23. Demurrer to evidence. After the prosecution rests its case, the court may dismiss the
action on the ground of insufficiency of evidence (1) on its own initiative after giving the
prosecution the opportunity to be heard or (2) upon demurrer to evidence filed by the accused
with or without leave of court.
In the case under consideration, the Sandiganbayan dismissed the case against respondent for
insufficiency of evidence, even without giving the prosecution the opportunity to present its
evidence. In so doing, it violated the prosecutions right to due process. It deprived the
prosecution of its opportunity to prosecute its case and to prove the accuseds culpability.
It was therefore erroneous for the Sandiganbayan to dismiss the case under the premises. Not
only did it not consider the ground invoked by respondent Dumlao; it even dismissed the case
on a ground not raised by him, and not at the appropriate time. The dismissal was thus without
basis and untimely.
On the second issue raised by petitioner, it maintains that the Sandiganbayan erred in equating,
or confusing, the minutes of the meeting of 23 April 1982 with Resolution No. 326, which
allegedly approved the lease-purchase agreement on the GSIS properties, entered into with
respondent Lao. It argues that the Sandiganbayan incorrectly ruled that the Resolution dated 23
April 1982 regarding the lease-purchase of the GSIS properties was not approved, because only
three out of the seven members of the GSIS Board of Trustees signed the minutes of the
meeting of 23 April 1982.
We agree with petitioner that the Sandiganbayan erred in equating the minutes of the meeting
with the supposed resolution of the GSIS Board of Trustees. A resolution is distinct and different
from the minutes of the meeting. A board resolution is a formal action by a corporate board of
directors or other corporate body authorizing a particular act, transaction, or appointment. 13 It is
ordinarily special and limited in its operation, applying usually to some single specific act or affair
of the corporation; or to some specific person, situation or occasion.14 On the other hand,
minutes are a brief statement not only of what transpired at a meeting, usually of
stockholders/members or directors/trustees, but also at a meeting of an executive committee.
The minutes are usually kept in a book specially designed for that purpose, but they may also be
kept in the form of memoranda or in any other manner in which they can be identified as minutes
of a meeting.15
The Sandiganbayan concluded that since only three members out of seven signed the minutes
of the meeting of 23 April 1982, the resolution approving the Lease-Purchase Agreement was
not passed by the GSIS Board of Trustees. Such conclusion is erroneous. The non-signing by
the majority of the members of the GSIS Board of Trustees of the said minutes does not
necessarily mean that the supposed resolution was not approved by the board. The signing of
the minutes by all the members of the board is not required. There is no provision in the
Corporation Code of the Philippines16 that requires that the minutes of the meeting should be
signed by all the members of the board.
The proper custodian of the books, minutes and official records of a corporation is usually the
corporate secretary. Being the custodian of corporate records, the corporate secretary has the
duty to record and prepare the minutes of the meeting. The signature of the corporate secretary
gives the minutes of the meeting probative value and credibility. 17 In this case, Antonio Eduardo
B. Nachura,18 Deputy Corporate Secretary, recorded, prepared and certified the correctness of
the minutes of the meeting of 23 April 1982; and the same was confirmed by Leonilo M.
Ocampo, Chairman of the GSIS Board of Trustees. Said minutes contained the statement that
the board approved the sale of the properties, subject matter of this case, to respondent Lao.

The minutes of the meeting of 23 April 1982 were prepared by the Deputy Corporate Secretary
of the GSIS Board of Trustees. Having been made by a public officer, the minutes carry the
presumption of regularity in the performance of his functions and duties. Moreover, the entries
contained in the minutes are prima facie evidence of what actually took place during the
meeting, pursuant to Section 44, Rule 130 of the Revised Rule on Evidence.19 This being the
case, the Sandiganbayan erred in dismissing the case, because there was evidence, at that
time, when it dismissed the case against respondent Dumlao. The dismissal by the lower court
of the case against respondent Dumlao was indeed premature. It should have given the
prosecution the opportunity to fully present its case and to establish reasonable doubt on the
alleged approval by the GSIS Board of Trustees of the lease-purchase of the GSIS properties.
Petitioner likewise faults the Sandiganbayan for archiving the case against respondent Lao,
arguing that since he had already been arraigned, it should have ordered the prosecution to
adduce evidence against him.
We agree. However, said issue has already been mooted by the death of respondent Lao.20 The
death of an accused prior to final judgment terminates his criminal as well as civil liability based
solely thereon.21 Accordingly, the case against respondent Lao was dismissed.22
In support of the dismissal of the case against him, respondent Dumlao contends that to give
due course to the Ombudsmans petition would place him in double jeopardy, in violation of his
constitutional rights. Respondent Dumlao asserts that all the elements of double jeopardy are
present in the case at bar. Citing Heirs of Tito Rillorta v. Firme,23 he added: "[A]ssuming
arguendo that the Sandiganbayan committed an error, whatever error may have been
committed by the Sandiganbayan was merely an error of judgment and not of jurisdiction. It did
not affect the intrinsic validity of the decision. This is the kind of error that can no longer be
rectified on appeal by the prosecution, no matter how obvious the error may be."
To raise the defense of double jeopardy, three requisites must be present: (1) a first jeopardy
must have attached prior to the second; (2) the first jeopardy must have been validly terminated;
and (3) the second jeopardy must be for the same offense as that in the first. 24 The first jeopardy
attaches attaches only (1) upon a valid indictment; (2) before a competent court; (3) after
arraignment; (4) when a valid plea has been entered; and (5) when the defendant was convicted
or acquitted, or the case was dismissed or otherwise terminated without the express consent of
the accused.25
We do not agree. In the instant case, double jeopardy has not yet set in. The first jeopardy has
not yet attached. There is no question that four of the five elements of legal jeopardy are
present. However, we find the last element valid conviction, acquittal, dismissal or termination
of the case wanting. As previously discussed, the Sandignabayan violated the prosecutions
right to due process. The prosecution was deprived of its opportunity to prosecute its case and
to prove the accuseds culpability. The dismissal was made in a capricious and whimsical
manner. The trial court dismissed the case on a ground not invoked by the respondent. The
Sandiganbayan dismissed the case for insufficiency of evidence, while the ground invoked by
the respondent was that the facts charged did not constitute an offense. The dismissal was
clearly premature, because any dismissal based on insufficiency of evidence may only be made
after the prosecution rests its case and not at any time before then.26A purely capricious
dismissal of an information deprives the State of a fair opportunity to prosecute and convict. It
denies the prosecution a day in court. It is void and cannot be the basis of double jeopardy. 27
The cardinal precept is that where there is a violation of basic constitutional rights, courts are
ousted of their jurisdiction. Where the denial of the fundamental right to due process is apparent,
a decision in disregard of the right is void for lack of jurisdiction.28 In the instant case, there
was no error of judgment but a denial of due process resulting in loss of jurisdiction.
Respondent Dumlao would not be placed in double jeopardy because, from the very beginning,

39

the Sandiganbayan had acted without jurisdiction. Precisely, any ruling issued without
jurisdiction is, in legal contemplation, necessarily null and void and does not exist. 29 Otherwise
put, the dismissal of the case below was invalid for lack of a fundamental prerequisite, that is,
due process. In rendering the judgment of dismissal, the trial court acted without or in excess of
jurisdiction, for a judgment which is void for lack of due process is equivalent to excess or lack of
jurisdiction.30 This being the case, the prosecution is allowed to appeal because it was not given
its day in court.
As heretofore explained, the Sandiganbayan gravely abused its discretion amounting to lack of
jurisdiction when it dismissed the case against respondent Dumlao based only on the
stipulations made by the parties during pre-trial. The erroneous equation of the number of
members who signed the minutes of the meeting with the number of members who approved
the alleged resolution necessarily led to the Sandiganbayans faulty conclusion that there was
no evidence showing that the GSIS Board of Trustees approved the alleged Lease-Purchase
Agreement. As we have said, the minutes issued by the Depute Corporate Secretary were
enough, at that time, to set the case for trial and to allow the prosecution to prove its case and to
present all its witnesses and evidence.
Respondent Dumlao claims that the GSIS has not been prejudiced because it still owns the
properties subject matter of this case. This Court cannot rule on this claim, the same being a
factual issue and a defense he is raising. The appreciation of this claim is not proper in this
forum and is better left to the trial court, since the Supreme Court is not a trier of facts.31
Respondent Dumlao maintains he was charged with conspiring with the other GSIS Board
Members in approving the Lease-Purchase Agreement. However, of the seven members, two
died, two were acquitted and the other two were not charged. He was left alone. He argues that
since a conspiracy requires two or more persons agreeing to commit a crime, he can no longer
be charged because he was left alone to face a charge of conspiracy.
His assumption that he can no longer be charged because he was left alone -- since the coconspirators have either died, have been acquitted or were not charged -- is wrong. A
conspiracy is in its nature a joint offense. One person cannot conspire alone. The crime depends
upon the joint act or intent of two or more person. Yet, it does not follow that one person cannot
be convicted of conspiracy. As long as the acquittal or death of a co-conspirator does not
remove the basis of a charge of conspiracy, one defendant may be found guilty of the
offense.32 In the case at bar, the absence or presence of conspiracy is again factual in nature
and involves evidentiary matters. The same is better left ventilated before the trial court during
trial, where the parties can adduce evidence to prove or disprove its presence.
Lastly, respondent Dumlao submits that his prosecution, to the exclusion of others, constitutes
unfair discrimination and violates his constitutional right to equal protection of the law. He says
that the dismissal of the case against his co-accused Canlas and Clave were not appealed by
the prosecution; and the two government officials who signed the Lease-Purchase Agreement,
and the two other members (Ocampo and Morales) of the GSIS Board of Trustees who signed
the minutes were not charged.
We are not convinced that respondent Dumlao was unfairly discriminated against and his
constitutional right to equal protection violated. It must be remembered that the manner in which
the prosecution of the case is handled is within the sound discretion of the prosecutor, and the
non-inclusion of other guilty persons is irrelevant to the case against the accused. 33 We find that
there was no clear and intentional discrimination in charging respondent Dumlao. A
discriminatory purpose is never presumed.34 It must be remembered that it was not solely
respondent who was charged, but also five of the seven board members. If, indeed, there were
discrimination, respondent Dumlao alone could have been charged. But this was not the case.
Further, the fact that the dismissal of the case against his co-accused Canlas and Clave was not

appealed is not sufficient to cry discrimination. This is likewise true for the non-inclusion of the
two government officials who signed the Lease-Purchase Agreement and the other two board
members. Mere speculation, unsupported by convincing evidence, cannot establish
discrimination on the part of the prosecution and the denial to respondent of the equal protection
of the laws.
In Santos v. People,35 citing People v. Dela Piedra,36 the Court explained:
The prosecution of one guilty person while others equally guilty are not prosecuted, however, is
not, by itself, a denial of the equal protection of the laws. Where the official action purports to be
in conformity to the statutory classification, an erroneous or mistaken performance of the
statutory duty, although a violation of the statute, is not without more a denial of the equal
protection of the laws. The unlawful administration by officers of a statute fair on its face,
resulting in its unequal application to those who are entitled to be treated alike, is not a denial of
equal protection unless there is shown to be present in it an element of intentional or purposeful
discrimination. This may appear on the face of the action taken with respect to a particular class
or person, or it may only be shown by extrinsic evidence showing a discriminatory design over
another not to be inferred from the action itself.But a discriminatory purpose is not
presumed, there must be a showing of "clear and intentional discrimination." Appellant
has failed to show that, in charging appellant in court, that there was a "clear and intentional
discrimination" on the part of the prosecuting officials.
The discretion of who to prosecute depends on the prosecutions sound assessment whether
the evidence before it can justify a reasonable belief that a person has committed an
offense. The presumption is that the prosecuting officers regularly performed their duties,
and this presumption can be overcome only by proof to the contrary, not by mere
speculation. Indeed, appellant has not presented any evidence to overcome this presumption.
The mere allegation that appellant, a Cebuana, was charged with the commission of a crime,
while a Zamboanguea, the guilty party in appellants eyes, was not, is insufficient to support a
conclusion that the prosecution officers denied appellant equal protection of the laws.
There is also common sense practicality in sustaining appellants prosecution.
While all persons accused of crime are to be treated on a basis of equality before the law,
it does not follow that they are to be protected in the commission of crime. It would be
unconscionable, for instance, to excuse a defendant guilty of murder because others have
murdered with impunity. The remedy for unequal enforcement of the law in such instances
does not lie in the exoneration of the guilty at the expense of society x x x. Protection of the
law will be extended to all persons equally in the pursuit of their lawful occupations, but no
person has the right to demand protection of the law in the commission of a crime.
Likewise, [i]f the failure of prosecutors to enforce the criminal laws as to some persons should
be converted into a defense for others charged with crime, the result would be that the trial of
the district attorney for nonfeasance would become an issue in the trial of many persons
charged with heinous crimes and the enforcement of law would suffer a complete breakdown.
(Emphases ours.)
WHEREFORE, premises considered, the instant petition is GRANTED. The resolution of the
Sandiganbayan in Criminal Case No. 16699 dated 14 July 2005 granting the Motion to
Dismiss/Quash of respondent Hermenegildo C. Dumlao, is hereby REVERSED and SET ASIDE.
The Sandiganbayan is forthwith DIRECTED to set the case for the reception of evidence for the
prosecution.
As to respondent Emilio G. Lao, on account of his demise, the case against him is DISMISSED.

40

SO ORDERED.
G.R. No. 171805

of SEVENTY[-]EIGHT THOUSAND ONE HUNDRED EIGHTY[-]FIVE SQUARE METERS

(78,185) more or less. x x x" covered by Transfer Certificate of Title No. 8921 in the name of
Rural Insurance & Surety Co., Inc.";

May 30, 2011

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE L. AZNAR (deceased), represented by
his heirs; RAMON A. BARCENILLA; ROSARIO T. BARCENILLA; JOSE B. ENAD
(deceased), represented by his heirs; and RICARDO GABUYA (deceased), represented by
his heirs, Respondents.

"A parcel of land (Lot 7380 of the Talisay Minglanilla Estate, G.L.R.O. Record No. 3732),
situated in the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx containing an area
of THREE HUNDRED TWENTY[-]NINE THOUSAND FIVE HUNDRED FORTY[-]SEVEN
SQUARE METERS (329,547), more or less. xxx" covered by Transfer Certificate of Title No.
8922 in the name of Rural Insurance & Surety Co., Inc." and
"A parcel of land (Lot 1323 of the subdivision plan Psd-No. 5988), situated in the District of
Lahug, City of Cebu, Island of Cebu. xxx containing an area of FIFTY[-]FIVE THOUSAND SIX
HUNDRED FIFTY[-]THREE (55,653) SQUARE METERS, more or less." covered by Transfer
Certificate of Title No. 24576 in the name of Rural Insurance & Surety Co., Inc."

x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 172021
MERELO B. AZNAR and MATIAS B. AZNAR III, Petitioners,
vs.
PHILIPPINE NATIONAL BANK, Respondent.

After the purchase of the above lots, titles were issued in the name of RISCO. The amount
contributed by plaintiffs constituted as liens and encumbrances on the aforementioned
properties as annotated in the titles of said lots. Such annotation was made pursuant to the
Minutes of the Special Meeting of the Board of Directors of RISCO (hereinafter referred to as the
"Minutes") on March 14, 1961, pertinent portion of which states:

DECISION
LEONARDO-DE CASTRO, J.:
Before the Court are two petitions for review on certiorari under Rule 45 of the Rules of Court
both seeking to annul and set aside the Decision1 dated September 29, 2005 as well as the
Resolution2 dated March 6, 2006 of the Court of Appeals in CA-G.R. CV No. 75744, entitled
"Merelo B. Aznar, Matias B. Aznar III, Jose L. Aznar (deceased) represented by his heirs,
Ramon A. Barcenilla (deceased) represented by his heirs, Rosario T. Barcenilla, Jose B. Enad
(deceased) represented by his heirs, and Ricardo Gabuya (deceased) represented by his heirs
v. Philippine National Bank, Jose Garrido and Register of Deeds of Cebu City." The September
29, 2005 Decision of the Court of Appeals set aside the Decision3 dated November 18, 1998 of
the Regional Trial Court (RTC) of Cebu City, Branch 17, in Civil Case No. CEB-21511.
Furthermore, it ordered the Philippine National Bank (PNB) to pay Merelo B. Aznar; Matias B.
Aznar III; Jose L. Aznar (deceased), represented by his heirs; Ramon A. Barcenilla (deceased),
represented by his heirs; Rosario T. Barcenilla; Jose B. Enad (deceased), represented by his
heirs; and Ricardo Gabuya (deceased), represented by his heirs (Aznar, et al.), the amount of
their lien based on the Minutes of the Special Meeting of the Board of Directors4 (Minutes) of the
defunct Rural Insurance and Surety Company, Inc. (RISCO) duly annotated on the titles of three
parcels of land, plus legal interests from the time of PNBs acquisition of the subject properties
until the finality of the judgment but dismissing all other claims of Aznar, et al. On the other hand,
the March 6, 2006 Resolution of the Court of Appeals denied the Motion for Reconsideration
subsequently filed by each party.
The facts of this case, as stated in the Decision dated September 29, 2005 of the Court of
Appeals, are as follows:
In 1958, RISCO ceased operation due to business reverses. In plaintiffs desire to rehabilitate
RISCO, they contributed a total amount of P212,720.00 which was used in the purchase of the
three (3) parcels of land described as follows:
"A parcel of land (Lot No. 3597 of the Talisay-Minglanilla Estate, G.L.R.O. Record No. 3732)
situated in the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx containing an area

xxxx
3. The President then explained that in a special meeting of the stockholders previously called
for the purpose of putting up certain amount of P212,720.00 for the rehabilitation of the
Company, the following stockholders contributed the amounts indicated opposite their names:
CONTRIBUTED SURPLUS
MERELO B. AZNAR

P50,000.00

MATIAS B. AZNAR

50,000.00

JOSE L. AZNAR

27,720.00

RAMON A. BARCENILLA

25,000.00

ROSARIO T. BARCENILLA

25,000.00

JOSE B. ENAD

17,500.00

RICARDO GABUYA

17,500.00
212,720.00

xxxx
And that the respective contributions above-mentioned shall constitute as their lien or interest on
the property described above, if and when said property are titled in the name of RURAL
INSURANCE & SURETY CO., INC., subject to registration as their adverse claim in pursuance
of the Provisions of Land Registration Act, (Act No. 496, as amended) until such time their
respective contributions are refunded to them completely.

41

x x x x"

(Same as the annotations on TCT 8921)

Thereafter, various subsequent annotations were made on the same titles, including the Notice
of Attachment and Writ of Execution both dated August 3, 1962 in favor of herein defendant
PNB, to wit:

On TCT No. 24576 for Lot 1328 (Corrected to Lot 1323-c per court order):

On TCT No. 8921 for Lot 3597:

Entry No. 7416-V-4-D.B. Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case
No. 47725, Court of First Instance of Manila, entitled "Philippine National Bank, Plaintiff, versus
Iluminada Gonzales, et al., Defendants", attaching all rights, interest and participation of the
defendant Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of the two parcels of land
covered by T.C.T. Nos. 8921, Attachment No. 330 and 185.
Date of Instrument August 3, 1962.
Date of Inscription August 3, 1962, 3:00 P.M.
Entry No. 7417-V-4-D.B. Writ of Execution By the Court of First Instance of Manila,
commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants, to
make the sum of Seventy[-]One Thousand Three Hundred Pesos (P71,300.00) plus interest
etc., in connection with Civil Case No. 47725, File No. T-8021.
Date of Instrument July 21, 1962.
Date of Inscription August 3, 1962, 3:00 P.M.
Entry No. 7512-V-4-D.B. Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case
Nos. IV-74065, 73929, 74129, 72818, in the Municipal Court of the City of Manila, entitled "Jose
Garrido, Plaintiff, versus Rural Insurance & Surety Co., Inc., et als., Defendants", attaching all
rights, interests and participation of the defendants, to the parcels of land covered by T.C.T.
Nos. 8921 & 8922 Attachment No. 186, File No. T-8921.
Date of the Instrument August 16, 1962.
Date of Inscription August 16, 1962, 2:50 P.M.
Entry No. 7513-V-4-D.B. Writ of Execution By the Municipal Court of the City of Manila,
commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants, to
make the sum of Three Thousand Pesos (P3,000.00), with interest at 12% per annum from July
20, 1959, in connection with Civil Case Nos. IV-74065, 73929, 74613 annotated above.
File No. T-8921
Date of the Instrument August 11, 1962.
Date of the Inscription August 16, 1962, 2:50 P.M.
On TCT No. 8922 for Lot 7380:

Entry No. 1660-V-7-D.B. Notice of Attachment by the Provincial Sheriff of Cebu, Civil Case
No. 47725, Court of First Instance of Manila, entitled "Philippine National Bank, Plaintiff, versus,
Iluminada Gonzales, et al., Defendants", attaching all rights, interest, and participation of the
defendants Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of the parcel of land
herein described.
Attachment No. 330 & 185.
Date of Instrument August 3, 1962.
Date of Inscription August 3, 1962, 3:00 P.M.
Entry No. 1661-V-7-D.B. Writ of Execution by the Court of First Instance of Manila
commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants to make
the sum of Seventy[-]One Thousand Three Hundred Pesos (P71,300.00), plus interest, etc., in
connection with Civil Case No. 47725.
File No. T-8921.
Date of the Instrument July 21, 1962.
Date of the Inscription August 3, 1962 3:00 P.M.
Entry No. 1861-V-7-D.B. - Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case
Nos. IV-74065, 73929, 74129, 72613 & 72871, in the Municipal Court of the City of Manila,
entitled "Jose Garrido, Plaintiff, versus Rural Insurance & Surety Co., Inc., et als., Defendants",
attaching all rights, interest and participation of the defendants, to the parcel of land herein
described.
Attachment No. 186.
File No. T-8921.
Date of the Instrument August 16, 1962.
Date of the Instription August 16, 1962 2:50 P.M.
Entry No. 1862-V-7-D.B. Writ of Execution by the Municipal Court of Manila, commanding
the Provincial Sheriff of Cebu, of the lands and buildings of the Defendants, to make the sum of
Three Thousand Pesos (P3,000.00), with interest at 12% per annum from July 20, 1959, in
connection with Civil Case Nos. IV-74065, 73929, 74129, 72613 & 72871 annotated above.
File No. T-8921.
Date of the Instrument August 11, 1962.

42

Date of the Inscription August 16, 1962 at 2:50 P.M.

As a result, a Certificate of Sale was issued in favor of Philippine National Bank, being the lone
and highest bidder of the three (3) parcels of land known as Lot Nos. 3597 and 7380, covered
by T.C.T. Nos. 8921 and 8922, respectively, both situated at Talisay, Cebu, and Lot No. 1328-C
covered by T.C.T. No. 24576 situated at Cebu City, for the amount of Thirty-One Thousand Four
Hundred Thirty Pesos (P31,430.00). Thereafter, a Final Deed of Sale dated May 27, 1991 in
favor of the Philippine National Bank was also issued and Transfer Certificate of Title No. 24576
for Lot 1328-C (corrected to 1323-C) was cancelled and a new certificate of title, TCT 119848
was issued in the name of PNB on August 26, 1991.
This prompted plaintiffs-appellees to file the instant complaint seeking the quieting of their
supposed title to the subject properties, declaratory relief, cancellation of TCT and reconveyance
with temporary restraining order and preliminary injunction. Plaintiffs alleged that the subsequent
annotations on the titles are subject to the prior annotation of their liens and encumbrances.
Plaintiffs further contended that the subsequent writs and processes annotated on the titles are
all null and void for want of valid service upon RISCO and on them, as stockholders. They
argued that the Final Deed of Sale and TCT No. 119848 are null and void as these were issued
only after 28 years and that any right which PNB may have over the properties had long become
stale.
Defendant PNB on the other hand countered that plaintiffs have no right of action for quieting of
title since the order of the court directing the issuance of titles to PNB had already become final
and executory and their validity cannot be attacked except in a direct proceeding for their
annulment. Defendant further asserted that plaintiffs, as mere stockholders of RISCO do not
have any legal or equitable right over the properties of the corporation. PNB posited that even if
plaintiffs monetary lien had not expired, their only recourse was to require the reimbursement or
refund of their contribution.51awphi1
Aznar, et al., filed a Manifestation and Motion for Judgment on the Pleadings6 on October 5,
1998. Thus, the trial court rendered the November 18, 1998 Decision, which ruled against PNB
on the basis that there was an express trust created over the subject properties whereby RISCO
was the trustee and the stockholders, Aznar, et al., were the beneficiaries or the cestui que trust.
The dispositive portion of the said ruling reads:
WHEREFORE, judgment is hereby rendered as follows:
a) Declaring the Minutes of the Special Meeting of the Board of Directors of RISCO
approved on March 14, 1961 (Annex "E," Complaint) annotated on the titles to subject
properties on May 15, 1962 as an express trust whereby RISCO was a mere trustee
and the above-mentioned stockholders as beneficiaries being the true and lawful
owners of Lots 3597, 7380 and 1323;
b) Declaring all the subsequent annotations of court writs and processes, to wit: Entry
No. 7416-V-4-D.B., 7417-V-4-D.B., 7512-V-4-D.B., and 7513-V-4-D.B. in TCT No.
8921 for Lot 3597 and TCT No. 8922 for Lot 7380; Entry No. 1660-V-7-D.B., Entry No.
1661-V-7-D.B., Entry No. 1861-V-7-D.B., Entry No. 1862-V-7-D.B., Entry No. 4329-V7-D.B., Entry No. 3761-V-7-D.B. and Entry No. 26522 v. 34, D.B. on TCT No. 24576
for Lot 1323-C, and all other subsequent annotations thereon in favor of third persons,
as null and void;
c) Directing the Register of Deeds of the Province of Cebu and/or the Register of
Deeds of Cebu City, as the case may be, to cancel all these annotations mentioned in
paragraph b) above the titles;

d) Directing the Register of Deeds of the Province of Cebu to cancel and/or annul
TCTs Nos. 8921 and 8922 in the name of RISCO, and to issue another titles in the
names of the plaintiffs; and
e) Directing Philippine National Bank to reconvey TCT No. 119848 in favor of the
plaintiffs.7
PNB appealed the adverse ruling to the Court of Appeals which, in its September 29, 2005
Decision, set aside the judgment of the trial court. Although the Court of Appeals agreed with the
trial court that a judgment on the pleadings was proper, the appellate court opined that the
monetary contributions made by Aznar, et al., to RISCO can only be characterized as a loan
secured by a lien on the subject lots, rather than an express trust. Thus, it directed PNB to pay
Aznar, et al., the amount of their contributions plus legal interest from the time of acquisition of
the property until finality of judgment.lawphil The dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Judgment is hereby SET ASIDE.
A new judgment is rendered ordering Philippine National Bank to pay plaintiffs-appellees the
amount of their lien based on the Minutes of the Special Meeting of the Board of Directors duly
annotated on the titles, plus legal interests from the time of appellants acquisition of the subject
properties until the finality of this judgment.
All other claims of the plaintiffs-appellees are hereby DISMISSED. 8
Both parties moved for reconsideration but these were denied by the Court of Appeals. Hence,
each party filed with this Court their respective petitions for review on certiorari under Rule 45 of
the Rules of Court, which were consolidated in a Resolution9 dated October 2, 2006.
In PNBs petition, docketed as G.R. No. 171805, the following assignment of errors were raised:
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE FINDINGS OF THE TRIAL
COURT THAT A JUDGMENT ON THE PLEADINGS WAS WARRANTED DESPITE
THE EXISTENCE OF GENUINE ISSUES OF FACTS ALLEGED IN PETITIONER
PNBS ANSWER.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT
OF RESPONDENTS TO REFUND OR REPAYMENT OF THEIR CONTRIBUTIONS
HAD NOT PRESCRIBED AND/OR THAT THE MINUTES OF THE SPECIAL
MEETING OF THE BOARD OF DIRECTORS OF RISCO CONSTITUTED AS AN
EFFECTIVE ADVERSE CLAIM.
III
THE COURT OF APPEALS ERRED IN NOT CONSIDERING THE DISMISSAL OF
THE COMPLAINT ON GROUNDS OF RES JUDICATA AND LACK OF CAUSE OF
ACTION ALLEGED BY PETITIONER IN ITS ANSWER.10

43

On the other hand, Aznar, et al.s petition, docketed as G.R. No. 172021, raised the following
issue:
THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE CONTRIBUTIONS MADE
BY THE STOCKHOLDERS OF RISCO WERE MERELY A LOAN SECURED BY THEIR LIEN
OVER THE PROPERTIES, SUBJECT TO REIMBURSEMENT OR REFUND, RATHER THAN
AN EXPRESS TRUST.11

aliunde.14 However, when it appears that not all the material allegations of the complaint were
admitted in the answer for some of them were either denied or disputed, and the defendant has
set up certain special defenses which, if proven, would have the effect of nullifying plaintiffs
main cause of action, judgment on the pleadings cannot be rendered.15
In the case at bar, the Court of Appeals justified the trial courts resort to a judgment on the
pleadings in the following manner:
Complaint (Aznar, et al.)

Answer (PNB)

11. That these subsequent annotations on the titles of the properties in

question are subject to the prior annotation of liens and encumbrances of
the above-named stockholders per Entry No. 458-V-7-D.B. inscribed on
TCT No. 24576 on May 15, 1962 and per Entry No. 6966-V-4-D.B. on
TCT No. 8921 and TCT No. 8922 on May 15, 1962;

10) Par. 11 is denied as the loan from the

stockholders to pay part of the purchase price
of the properties was a personal obligation of
RISCO and was thus not a claim adverse to
the ownership rights of the corporation;

12. That these writs and processes annotated on the titles are all null and
void for total want of valid service upon RISCO and the above-named
stockholders considering that as early as sometime in 1958, RISCO
ceased operations as earlier stated, and as early as May 15, 1962, the
liens and encumbrances of the above-named stockholders were
annotated in the titles of subject properties;

11) Par. 12 is denied as in fact notice to

RISCO had been sent to its last known
address at Plaza Goite, Manila;

13. That more particularly, the Final Deed of Sale (Annex "G") and TCT
No. 119848 are null and void as these were issued only after 28 years
and 5 months (in the case of the Final Deed of Sale) and 28 years, 6
months and 29 days (in the case of TCT 119848) from the invalid auction
sale on December 27, 1962, hence, any right, if any, which PNB had over
subject properties had long become stale;

12) Par. 13 is denied for no law requires the

final deed of sale to be executed immediately
after the end of the redemption period.
Moreover, another court of competent
jurisdiction has already ruled that PNB was
entitled to a final deed of sale;

14. That plaintiffs continue to have possession of subject properties and

of their corresponding titles, but they never received any process
concerning the petition filed by PNB to have TCT 24576 over Lot 1323-C
surrendered and/or cancelled;

13) Par. 14 is denied as plaintiffs are not in

actual possession of the land and if they were,
their possession was as trustee for the
creditors of RISCO like PNB;

15. That there is a cloud created on the aforementioned titles of RISCO

by reason of the annotate writs, processes and proceedings caused by
Jose Garrido and PNB which were apparently valid or effective, but which
are in truth and in fact invalid and ineffective, and prejudicial to said titles
and to the rights of the plaintiffs, which should be removed and the titles
quieted.17

14) Par. 15 is denied as the court orders

directing the issuance of titles to PNB in lieu of
TCT 24576 and TCT 8922 are valid judgments
which cannot be set aside in a collateral
proceeding like the instant case.18

Anent the first issue raised in G.R. No. 171805, PNB argues that a judgment on the pleadings
was not proper because its Answer,12 which it filed during the trial court proceedings of this case,
tendered genuine issues of fact since it did not only deny material allegations in Aznar, et al.s
Complaint13 but also set up special and affirmative defenses. Furthermore, PNB maintains that,
by virtue of the trial courts judgment on the pleadings, it was denied its right to present evidence
and, therefore, it was denied due process.
The contention is meritorious.
The legal basis for rendering a judgment on the pleadings can be found in Section 1, Rule 34 of
the Rules of Court which states that "[w]here an answer fails to tender an issue, or otherwise
admits the material allegations of the adverse partys pleading, the court may, on motion of that
party, direct judgment on such pleading. x x x."
Judgment on the pleadings is, therefore, based exclusively upon the allegations appearing in the
pleadings of the parties and the annexes, if any, without consideration of any evidence

Perusal of the complaint, particularly, Paragraph 7 thereof reveals:

"7. That in their desire to rehabilitate RISCO, the above-named stockholders contributed a total
amount of PhP212,720.00 which was used in the purchase of the above-described parcels of
land, which amount constituted liens and encumbrances on subject properties in favor of the
above-named stockholders as annotated in the titles adverted to above, pursuant to the Minutes
of the Special Meeting of the Board of Directors of RISCO approved on March 14, 1961, a copy
of which is hereto attached as Annex "E".
On the other hand, defendant in its Answer, admitted the aforequoted allegation with the
qualification that the amount put up by the stockholders was "used as part payment" for the
properties. Defendant further averred that plaintiffs liens and encumbrances annotated on the
titles issued to RISCO constituted as "loan from the stockholders to pay part of the purchase
price of the properties" and "was a personal obligation of RISCO and was thus not a claim
adverse to the ownership rights of the corporation." With these averments, We do not find error
on the part of the trial court in rendering a judgment on the pleadings. For one, the qualification
made by defendant in its answer is not sufficient to controvert the allegations raised in the

44

complaint. As to defendants contention that the money contributed by plaintiffs was in fact a
"loan" from the stockholders, reference can be made to the Minutes of the Special Meeting of
the Board of Directors, from which plaintiffs-appellees anchored their complaint, in order to
ascertain the true nature of their claim over the properties. Thus, the issues raised by the parties
can be resolved on the basis of their respective pleadings and the annexes attached thereto and
do not require further presentation of evidence aliunde.16
However, a careful reading of Aznar, et al.s Complaint and of PNBs Answer would reveal that
both parties raised several claims and defenses, respectively, other than what was cited by the
Court of Appeals, which requires the presentation of evidence for resolution, to wit:
Furthermore, apart from refuting the aforecited material allegations made by Aznar, et al., PNB
also indicated in its Answer the special and affirmative defenses of (a) prescription; (b) res
judicata; (c) Aznar, et al., having no right of action for quieting of title; (d) Aznar, et al.s lien
being ineffective and not binding to PNB; and (e) Aznar, et al.s having no personality to file the
suit.19
From the foregoing, it is indubitably clear that it was error for the trial court to render a judgment
on the pleadings and, in effect, resulted in a denial of due process on the part of PNB because it
was denied its right to present evidence. A remand of this case would ordinarily be the
appropriate course of action. However, in the interest of justice and in order to expedite the
resolution of this case which was filed with the trial court way back in 1998, the Court finds it
proper to already resolve the present controversy in light of the existence of legal grounds that
would dispose of the case at bar without necessity of presentation of further evidence on the
other disputed factual claims and defenses of the parties.
A thorough and comprehensive scrutiny of the records would reveal that this case should be
dismissed because Aznar, et al., have no title to quiet over the subject properties and their true
cause of action is already barred by prescription.
At the outset, the Court agrees with the Court of Appeals that the agreement contained in the
Minutes of the Special Meeting of the RISCO Board of Directors held on March 14, 1961 was a
loan by the therein named stockholders to RISCO. We quote with approval the following
discussion from the Court of Appeals Decision dated September 29, 2005:
Careful perusal of the Minutes relied upon by plaintiffs-appellees in their claim, showed that their
contributions shall constitute as "lien or interest on the property" if and when said properties are
titled in the name of RISCO, subject to registration of their adverse claim under the Land
Registration Act, until such time their respective contributions are refunded to them completely.
It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation
shall control. When the language of the contract is explicit leaving no doubt as to the intention of
the drafters thereof, the courts may not read into it any other intention that would contradict its
plain import.
The term lien as used in the Minutes is defined as "a discharge on property usually for the
payment of some debt or obligation. A lien is a qualified right or a proprietary interest which may
be exercised over the property of another. It is a right which the law gives to have a debt
satisfied out of a particular thing. It signifies a legal claim or charge on property; whether real or
personal, as a collateral or security for the payment of some debt or obligation." Hence, from
the use of the word "lien" in the Minutes, We find that the money contributed by plaintiffsappellees was in the nature of a loan, secured by their liens and interests duly annotated on the

titles. The annotation of their lien serves only as collateral and does not in any way vest
ownership of property to plaintiffs.20(Emphases supplied.)
We are not persuaded by the contention of Aznar, et al., that the language of the subject
Minutes created an express trust.
Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in
another. It is a fiduciary relationship that obliges the trustee to deal with the property for the
benefit of the beneficiary. Trust relations between parties may either be express or implied. An
express trust is created by the intention of the trustor or of the parties. An implied trust comes
into being by operation of law.21
Express trusts, sometimes referred to as direct trusts, are intentionally created by the direct and
positive acts of the settlor or the trustor - by some writing, deed, or will or oral declaration. It is
created not necessarily by some written words, but by the direct and positive acts of the
parties.22 This is in consonance with Article 1444 of the Civil Code, which states that "[n]o
particular words are required for the creation of an express trust, it being sufficient that a trust is
clearly intended."
In other words, the creation of an express trust must be manifested with reasonable certainty
and cannot be inferred from loose and vague declarations or from ambiguous circumstances
susceptible of other interpretations.23
No such reasonable certitude in the creation of an express trust obtains in the case at bar. In
fact, a careful scrutiny of the plain and ordinary meaning of the terms used in the Minutes does
not offer any indication that the parties thereto intended that Aznar, et al., become beneficiaries
under an express trust and that RISCO serve as trustor.
Indeed, we find that Aznar, et al., have no right to ask for the quieting of title of the properties at
issue because they have no legal and/or equitable rights over the properties that are derived
from the previous registered owner which is RISCO, the pertinent provision of the law is Section
2 of the Corporation Code (Batas Pambansa Blg. 68), which states that "[a] corporation is an
artificial being created by operation of law, having the right of succession and the powers,
attributes and properties expressly authorized by law or incident to its existence."
As a consequence thereof, a corporation has a personality separate and distinct from those of
its stockholders and other corporations to which it may be connected.24 Thus, we had previously
ruled in Magsaysay-Labrador v. Court of Appeals25 that the interest of the stockholders over the
properties of the corporation is merely inchoate and therefore does not entitle them to intervene
in litigation involving corporate property, to wit:
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the corporation and to share in the profits
thereof and in the properties and assets thereof on dissolution, after payment of the corporate
debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the property,
his interest in the corporate property being equitable or beneficial in nature. Shareholders are in
no legal sense the owners of corporate property, which is owned by the corporation as a distinct
legal person.26

45

In the case at bar, there is no allegation, much less any proof, that the corporate existence of
RISCO has ceased and the corporate property has been liquidated and distributed to the
stockholders. The records only indicate that, as per Securities and Exchange Commission
(SEC) Certification27 dated June 18, 1997, the SEC merely suspended RISCOs Certificate of
Registration beginning on September 5, 1988 due to its non-submission of SEC required reports
and its failure to operate for a continuous period of at least five years.
Verily, Aznar, et al., who are stockholders of RISCO, cannot claim ownership over the properties
at issue in this case on the strength of the Minutes which, at most, is merely evidence of a loan
agreement between them and the company. There is no indication or even a suggestion that the
ownership of said properties were transferred to them which would require no less that the said
properties be registered under their names. For this reason, the complaint should be dismissed
since Aznar, et al., have no cause to seek a quieting of title over the subject properties.
At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to RISCO.
Unfortunately, the right to seek repayment or reimbursement of their contributions used to
purchase the subject properties is already barred by prescription.
Section 1, Rule 9 of the Rules of Court provides that when it appears from the pleadings or the
evidence on record that the action is already barred by the statute of limitations, the court shall
dismiss the claim, to wit:
Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed
waived. However, when it appears from the pleadings or the evidence on record that the court
has no jurisdiction over the subject matter, that there is another action pending between the
same parties for the same cause, or that the action is barred by a prior judgment or by statute
of limitations, the court shall dismiss the claim. (Emphasis supplied.)
In Feliciano v. Canoza,28 we held:
We have ruled that trial courts have authority and discretion to dismiss an action on the ground
of prescription when the parties pleadings or other facts on record show it to be indeed timebarred x x x; and it may do so on the basis of a motion to dismiss, or an answer which sets up
such ground as an affirmative defense; or even if the ground is alleged after judgment on the
merits, as in a motion for reconsideration; or even if the defense has not been asserted at all, as
where no statement thereof is found in the pleadings, or where a defendant has been declared
in default. What is essential only, to repeat, is that the facts demonstrating the lapse of the
prescriptive period, be otherwise sufficiently and satisfactorily apparent on the record;
either in the averments of the plaintiffs complaint, or otherwise established by the
evidence.29 (Emphasis supplied.)

Moreover, in Nielson & Co., Inc. v. Lepanto Consolidated Mining Co.,30 we held that the term
"written contract" includes the minutes of the meeting of the board of directors of a corporation,
which minutes were adopted by the parties although not signed by them, to wit:
Coming now to the question of prescription raised by defendant Lepanto, it is contended by the
latter that the period to be considered for the prescription of the claim regarding participation in
the profits is only four years, because the modification of the sharing embodied in the
management contract is merely verbal, no written document to that effect having been
presented. This contention is untenable. The modification appears in the minutes of the special
meeting of the Board of Directors of Lepanto held on August 21, 1940, it having been made
upon the authority of its President, and in said minutes the terms of modification had been
specified. This is sufficient to have the agreement considered, for the purpose of applying the
statute of limitations, as a written contract even if the minutes were not signed by the parties (3
A.L.R., 2d, p. 831). It has been held that a writing containing the terms of a contract if adopted
by two persons may constitute a contract in writing even if the same is not signed by either of
the parties (3 A.L.R., 2d, pp. 812-813). Another authority says that an unsigned agreement the
terms of which are embodied in a document unconditionally accepted by both parties is a written
contract (Corbin on Contracts, Vol. I, p. 85).31
Applied to the case at bar, the Minutes which was approved on March 14, 1961 is considered as
a written contract between Aznar, et al., and RISCO for the reimbursement of the contributions
of the former. As such, the former had a period of ten (10) years from 1961 within which to
enforce the said written contract. However, it does not appear that Aznar, et al., filed any action
for reimbursement or refund of their contributions against RISCO or even against PNB. Instead
the suit that Aznar, et al., brought before the trial court only on January 28, 1998 was one to
quiet title over the properties purchased by RISCO with their contributions. It is unmistakable
that their right of action to claim for refund or payment of their contributions had long prescribed.
Thus, it was reversible error for the Court of Appeals to order PNB to pay Aznar, et al., the
amount of their liens based on the Minutes with legal interests from the time of PNBs acquisition
of the subject properties.
In view of the foregoing, it is unnecessary for the Court to pass upon the other issues raised by
the parties.
WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for lack of merit. The
petition of PNB in G.R. No. 171805 is GRANTED. The Complaint, docketed as Civil Case No.
CEB-21511, filed by Aznar, et al., is hereby DISMISSED. No costs.
SO ORDERED.

The pertinent Civil Code provision on prescription which is applicable to the issue at hand is
Article 1144(1), to wit:
The following actions must be brought within ten years from the time the right of action accrues:
1. Upon a written contract;
2. Upon an obligation created by law;
3. Upon a judgment. (Emphasis supplied.)

46

complaint filed against them was only an afterthought as the same was filed after petitioners
learned that a complaint for illegal dismissal was already instituted against them.
G.R. No. 171118

September 10, 2012

PARK HOTEL, J's PLAYHOUSE BURGOS CORP., INC., and/or GREGG HARBUTT, General
Manager, ATTY. ROBERTO ENRIQUEZ, President, and BILL PERCY, Petitioners,
vs.
MANOLO SORIANO, LESTER GONZALES, and YOLANDA BADILLA, Respondents.
DECISION

On September 27, 1998, the LA rendered a Decision11 finding that respondents were illegally
dismissed because the alleged violations they were charged with were not reduced in writing
and were not made known to them, thus, denying them due process. The LA found that
respondents did not actually receive the memoranda allegedly issued by petitioners, and that the
same were mere afterthought to conceal the illegal dismissal. The dispositive portion of the
Decision reads:
WHEREFORE, premises all considered, respondents (petitioners herein) are hereby ordered,
jointly and severally:

PERALTA, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to set aside the Decision1 and the Resolution2 of the Court of Appeals (CA) in CA-G.R.
SP No. 67766.
The antecedents are as follows:
Petitioner Park Hotel3 is a corporation engaged in the hotel business. Petitioners Gregg
Harbutt4 (Harbutt) and Bill Percy5 (Percy) are the General Manager and owner, respectively, of
Park Hotel. Percy, Harbutt and Atty. Roberto Enriquez are also the officers and stockholders of
Burgos Corporation (Burgos),6 a sister company of Park Hotel.
Respondent Manolo Soriano (Soriano) was hired by Park Hotel in July 1990 as Maintenance
Electrician, and then transferred to Burgos in 1992. Respondent Lester Gonzales (Gonzales)
was employed by Burgos as Doorman, and later promoted as Supervisor. Respondent Yolanda
Badilla (Badilla) was a bartender of J's Playhouse operated by Burgos.
In October of 1997, Soriano, Gonzales and Badilla7 were dismissed from work for allegedly
stealing company properties. As a result, respondents filed complaints for illegal dismissal,
unfair labor practice, and payment of moral and exemplary damages and attorney's fees, before
the Labor Arbiter (LA). In their complaints, respondents alleged that the real reason for their
dismissal was that they were organizing a union for the company's employees.

a. To reinstate within ten (10) days herein complainants to their former positions without loss of
seniority rights with full backwages from actual dismissal to actual reinstatement;
b. To declare the respondents (petitioners herein) guilty of unfair labor practice for terminating
complainants due to their union activities, which is union-busting, and to pay a fine of Ten
Thousand Pesos (P 10,000.00) pursuant to Article 288 of the Labor Code, as amended, payable
to the Commission;
c. To pay the amount of One Hundred Fifty Thousand [Pesos] (P 150,000.00) each to
complainants by way of moral and exemplary damages, plus ten percent (10%) attorney's fees
of the total award, chargeable to the respondents (petitioners herein).
SO ORDERED.12
Unsatisfied with the LA's decision, petitioners appealed to the National Labor Relations
Commission (NLRC). On August 31, 1999, the NLRC, First Division, rendered a
Decision13 remanding the case to the arbitration branch of origin for further proceedings. 14 On
August 3, 2000, the LA rendered a new Decision, the dispositive portion of which reads as
follows:
WHEREFORE, premises all considered, respondents (petitioners herein) are hereby
ORDERED, jointly and severally:

On the other hand, petitioners alleged that aside from the charge of theft, Soriano and Gonzales
have violated various company rules and regulations8 contained in several memoranda issued to
them. After dismissing respondents, Burgos filed a case for qualified theft against Soriano and
Gonzales before the Makati City Prosecutor's Office, but the case was dismissed for
insufficiency of evidence.

a. to reinstate within ten (10) days herein three (3) complainants to their former positions without
loss of seniority rights with full backwages from actual dismissal to actual reinstatement; to pay
complainant Soriano his unpaid wages for seven (7) days in the amount of P 1,680.00, his five
(5) days incentive leave pay in the amount of P 1,200,00 (P 240x5), unpaid proportionate
13th month pay in the amount of P 4,992.00, plus other benefits;

In his Affidavit,9 Soriano claimed that on October 4, 1997, he was barred from entering the
company premises and that the following day, Harbutt shouted at him for having participated in
the formation of a union. He was later dismissed from work. For his part, Gonzales averred that
he was coerced to resign by Percy and Harbutt in the presence of their goons. Badilla 10 claimed
that she was also forced by Percy and Harbutt to sign a resignation letter, but she refused to do
so because she was innocent of the charges against her. She was nevertheless dismissed from
service.

b. to cease and desist from committing unfair labor practice against the complainant and to pay
a fine of Ten Thousand (P 10,000.00) Pesos pursuant to Art. 288 of the Labor Code, payable to
the Commission; and

The three (3) respondents averred that they never received the memoranda containing their
alleged violation of company rules and they argued that these memoranda were fabricated to
give a semblance of cause to their termination. Soriano and Gonzales further claimed that the

c. to pay the amount of P 150,000.0015 each to the complainants by way of moral and exemplary
damages, plus ten percent (10%) attorney's fees of the total award, chargeable to the
respondents (petitioners herein).
SO ORDERED.16

47

Discontented with the LA's decision, petitioners again appealed to the NLRC. On February 1,
2001, the NLRC affirmed the LA's decision and dismissed the appeal for lack of
merit.17 Petitioners filed a motion for reconsideration, but it was denied for lack of merit. 18
Undaunted, Park Hotel, Percy, and Harbutt filed a petition for certiorari with the CA ascribing
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the NLRC in
holding Park Hotel, Harbutt and Percy jointly and severally liable to respondents.
On January 24, 2005, the CA rendered a Decision19 dismissing the petition and affirming with
modification the ruling of the NLRC, the dispositive portion of which states:
WHEREFORE, the instant Petition is DISMISSED for lack of merit and the assailed Decision
dated 1 February 2001 of the 1st Division of the NLRC is hereby AFFIRMED with
MODIFICATION in that the award of damages is reduced to P 100,000.00 in favor of each of the
Private Respondents, including 10% of the total amount of wages to be received as attorney's
fees.
SO ORDERED.20
The CA ruled that petitioners failed to observe the mandatory requirements provided by law in
the conduct of terminating respondents, i.e., lack of due process and just cause. The CA also
found that petitioners' primary objective in terminating respondents' employment was to
suppress their right to self-organization.
Petitioners filed a Motion for Reconsideration, but was denied in the Resolution 21 dated January
13, 2006.
Hence, the instant petition assigning the following errors:
I
THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION AND ACTED
WITHOUT AUTHORITY IN FINDING PARK HOTEL, BILL PERCY AND [GREGORY]
HARBUTT, TOGETHER WITH BURGOS CORPORATION AND ITS PRESIDENT, AS ONE
AND THE SAME ENTITY.
II
THE HONORABLE COURT OF APPEALS COMMITTED ERROR WHEN IT OVERLOOKED
MATERIAL CIRCUMSTANCES AND FACTS, WHICH IF TAKEN INTO ACCOUNT, WOULD
ALTER THE RESULTS OF ITS DECISION, PARTICULARLY IN FINDING [THAT] THE SAID
ENTITIES WERE FORMED IN PURSUANCE TO THE COMMISSION OF FRAUD.
III
THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION AND ACTED
WITHOUT AUTHORITY IN FINDING PARK HOTEL, BILL PERCY AND GREGORY HARBUTT,
TOGETHER WITH BURGOS CORPORATION AND ITS PRESIDENT, GUILTY OF UNFAIR
LABOR PRACTICE.22

For brevity and clarity, the issues in this case may be re-stated and simplified as follows: (1)
whether the respondents were validly dismissed; and (2) if petitioners are liable, whether Park
Hotel, Percy and Harbutt are jointly and severally liable with Burgos for the dismissal of
respondents.
Park Hotel argued that it is not liable on the ground that respondents were not its employees. On
the other hand, Percy and Harbutt argued that the CA committed error in piercing the corporate
veil between them and respondent corporations, thereby making them all solidarily liable to the
respondents.
To begin with, it is significant to note that the LA, the NLRC and the CA were unanimous in their
findings that respondents were dismissed without just cause and due process. They were also in
agreement that unfair labor practice was committed against respondents. We reiterate the rule
that findings of fact of the Court of Appeals, particularly where it is in absolute agreement with
that of the NLRC and the LA, as in this case, are accorded not only respect but even finality and
are deemed binding upon this Court so long as they are supported by substantial
evidence.23 The function of this Court is limited to the review of the appellate courts alleged
errors of law. It is not required to weigh all over again the factual evidence already considered in
the proceedings below.24In any event, we found no compelling reason to disturb the unanimous
findings and conclusions of the CA, the NLRC and the LA with respect to the finding of illegal
dismissal.
The requisites for a valid dismissal are: (a) the employee must be afforded due process, i.e., he
must be given an opportunity to be heard and defend himself; and (b) the dismissal must be for
a valid cause as provided in Article 282 of the Labor Code, or for any of the authorized causes
under Articles 283 and 284 of the same Code.25 In the case before us, both elements are
completely lacking. Respondents were dismissed without any just or authorized cause and
without being given the opportunity to be heard and defend themselves. The law mandates that
the burden of proving the validity of the termination of employment rests with the employer.
Failure to discharge this evidentiary burden would necessarily mean that the dismissal was not
justified and, therefore, illegal. Unsubstantiated suspicions, accusations, and conclusions of
employers do not provide for legal justification for dismissing employees. In case of doubt, such
cases should be resolved in favor of labor, pursuant to the social justice policy of labor laws and
the Constitution.26
Anent the unfair labor practice, Article 248 (a) of the Labor Code27 considers it an unfair labor
practice when an employer interferes, restrains or coerces employees in the exercise of their
right to self-organization or the right to form an association.28 In order to show that the employer
committed unfair labor practice under the Labor Code, substantial evidence is required to
support the claim. Substantial evidence has been defined as such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion.29 In the case at bar,
respondents were indeed unceremoniously dismissed from work by reason of their intent to form
and organize a union. As found by the LA:
The immediate impulse of respondents (petitioners herein), as in the case at bar, was to
terminate the organizers. Respondents (petitioners herein) have to cripple the union at sight, to
frustrate attempts of employees from joining or supporting it, preventing them, at all cost and to
frustrate the employees bid to exercise their right to self-organization. x x x30
Having settled that respondents were illegally dismissed and were victims of unfair labor
practice, the question that comes to fore is who are liable for the illegal dismissal and unfair
labor practice?
A perusal of the records would show that Burgos is the respondents' employer at the time they
were dismissed. Notwithstanding, the CA held that despite Soriano's transfer to Burgos in 1992,

48

he was still an employee of Park Hotel at the time of his dismissal in 1997. The Court, however,
rules that the CA's finding is clearly contrary to the evidence presented. From the documents
presented by Soriano, it appears that Soriano's payroll passbook31contained withdrawals and
deposits, made in 1991, and that Soriano's payslip32 issued by Park Hotel covered the period
from September to October 1990. Hence, these documents merely show that Soriano was
employed by Park Hotel before he was transferred to Burgos in 1992. Nowhere in these
documents does it state that Soriano continued to work for Park Hotel in 1992 and onwards.
Clearly therefore, Park Hotel cannot be made liable for illegal dismissal as it no longer had
Soriano in its employ at the time he was dismissed from work.
As to whether Park Hotel may be held solidarily liable with Burgos, the Court rules that before a
corporation can be held accountable for the corporate liabilities of another, the veil of corporate
fiction must first be pierced.33 Thus, before Park Hotel can be held answerable for the obligations
of Burgos to its employees, it must be sufficiently established that the two companies are
actually a single corporate entity, such that the liability of one is the liability of the other.34
A corporation is an artificial being invested by law with a personality separate and distinct from
that of its stockholders and from that of other corporations to which it may be connected.35 While
a corporation may exist for any lawful purpose, the law will regard it as an association of persons
or, in case of two corporations, merge them into one, when its corporate legal entity is used as a
cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The
doctrine applies only when such corporate fiction is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate
issues, or where a corporation is the mere alter ego or business conduit of a person, or where
the corporation is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation.36 To disregard the
separate juridical personality of a corporation, the wrongdoing must be established clearly and
convincingly. It cannot be presumed.37
In the case at bar, respondents utterly failed to prove by competent evidence that Park Hotel
was a mere instrumentality, agency, conduit or adjunct of Burgos, or that its separate corporate
veil had been used to cover any fraud or illegality committed by Burgos against the respondents.
Accordingly, Park Hotel and Burgos cannot be considered as one and the same entity, and Park
Hotel cannot be held solidary liable with Burgos.
Nonetheless, although the corporate veil between Park Hotel and Burgos cannot be pierced, it
does not necessarily mean that Percy and Harbutt are exempt from liability towards
respondents. Verily, a corporation, being a juridical entity, may act only through its directors,
officers and employees. Obligations incurred by them, while acting as corporate agents, are not
their personal liability but the direct accountability of the corporation they represent.38 However,
corporate officers may be deemed solidarily liable with the corporation for the termination of
employees if they acted with malice or bad faith.39 In the present case, the lower tribunals
unanimously found that Percy and Harbutt, in their capacity as corporate officers of Burgos,
acted maliciously in terminating the services of respondents without any valid ground and in
order to suppress their right to self-organization.

other benefits or their monetary equivalent from the time the compensation was withheld up to
the time of actual reinstatement.41
In the case at bar, the Court finds that it would be best to award separation pay instead of
reinstatement, in view of the passage of a long period of time since respondents' dismissal.
In St. Luke's Medical Center, Inc. v. Notario,42the Court held that if reinstatement proves
impracticable, and hardly in the best interest of the parties, due to the lapse of time since the
employee's dismissal, the latter should be awarded separation pay in lieu of reinstatement.
In view of the foregoing, respondents are entitled to the payment of full backwages, inclusive of
allowances, and other benefits or their monetary equivalent, and separation pay in lieu of
reinstatement equivalent to one month salary for every year of service. 43 The awards of
separation pay and backwages are not mutually exclusive, and both may be given to
respondents.44
The awards of moral and exemplary damages45 in favor of respondents are also in order. Moral
damages may be recovered where the dismissal of the employee was tainted by bad faith or
fraud, or where it constituted an act oppressive to labor, and done in a manner contrary to
morals, good customs or public policy, while exemplary damages are recoverable only if the
dismissal was done in a wanton, oppressive, or malevolent manner. 46 The grant of attorney's
fees is likewise proper. Attorney's fees may likewise be awarded to respondents who were
illegally dismissed in bad faith and were compelled to litigate or incur expenses to protect their
rights by reason of the oppressive acts47 of petitioners. The unjustified act of petitioners had
obviously compelled respondents to institute an action primarily to protect their rights and
interests which warrants the granting of the award.
WHEREFORE, the Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 67766,
dated January 24, 2005 and January 13, 2006, respectively, are AFFIRMED with the
following MODIFICATIONS: (a) Petitioner Park Hotel is exonerated from any liability to
respondents; and (b) The award of reinstatement is deleted, and in lieu thereof, respondents are
awarded separation pay.
The case is REMANDED to the Labor Arbiter for the purpose of computing respondents' full
backwages, inclusive of allowances, and other benefits or their monetary equivalent, computed
from the date of their dismissal up to the finality of the decision, and separation pay in lieu of
reinstatement equivalent to one month salary for every year of service, computed from the time
of their engagement up to the finality of this Decision.
SO ORDERED:

Section 3140 of the Corporation Code makes a director personally liable for corporate debts if he
willfully and knowingly votes for or assents to patently unlawful acts of the corporation. It also
makes a director personally liable if he is guilty of gross negligence or bad faith in directing the
affairs of the corporation.1wphi1 Thus, Percy and Harbutt, having acted in bad faith in directing
the affairs of Burgos, are jointly and severally liable with the latter for respondents' dismissal.
In cases when an employee is unjustly dismissed from work, he shall be entitled to
reinstatement without loss of seniority rights and other privileges, inclusive of allowances, and

49

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