G.R. No.

L-31061 August 17, 1976

SULO NG BAYAN INC., plaintiff-appellant,

vs.
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS &
SEWERAGE AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF DEEDS OF
BULACAN, defendants-appellees.

Hill & Associates Law Offices for appellant.

Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc.

Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc.

Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of the Government Corporate
Counsel for appellee National Waterworks & Sewerage Authority.

Candido G. del Rosario for appellee Hacienda Caretas, Inc.

ANTONIO, J.:

The issue posed in this appeal is whether or not plaintiff corporation (non- stock may institute an action in
behalf of its individual members for the recovery of certain parcels of land allegedly owned by said
members; for the nullification of the transfer certificates of title issued in favor of defendants appellees
covering the aforesaid parcels of land; for a declaration of "plaintiff's members as absolute owners of the
property" and the issuance of the corresponding certificate of title; and for damages.

On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of
First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against defendants-appellees to
recover the ownership and possession of a large tract of land in San Jose del Monte, Bulacan, containing an
area of 27,982,250 square meters, more or less, registered under the Torrens System in the name of
defendants-appellees' predecessors-in-interest. 1 The complaint, as amended on June 13, 1966, specifically
alleged that plaintiff is a corporation organized and existing under the laws of the Philippines, with its
principal office and place of business at San Jose del Monte, Bulacan; that its membership is composed of
natural persons residing at San Jose del Monte, Bulacan; that the members of the plaintiff corporation,
through themselves and their predecessors-in-interest, had pioneered in the clearing of the fore-mentioned
tract of land, cultivated the same since the Spanish regime and continuously possessed the said property
openly and public under concept of ownership adverse against the whole world; that defendant-appellee
Gregorio Araneta, Inc., sometime in the year 1958, through force and intimidation, ejected the members of
the plaintiff corporation fro their possession of the aforementioned vast tract of land; that upon investigation
conducted by the members and officers of plaintiff corporation, they found out for the first time in the year
1961 that the land in question "had been either fraudelently or erroneously included, by direct or
constructive fraud, in Original Certificate of Title No. 466 of the Land of Records of the province of
Bulacan", issued on May 11, 1916, which title is fictitious, non-existent and devoid of legal efficacy due to
the fact that "no original survey nor plan whatsoever" appears to have been submitted as a basis thereof and
that the Court of First Instance of Bulacan which issued the decree of registration did not acquire jurisdiction
over the land registration case because no notice of such proceeding was given to the members of the
plaintiff corporation who were then in actual possession of said properties; that as a consequence of the
nullity of the original title, all subsequent titles derived therefrom, such as Transfer Certificate of Title No.
4903 issued in favor of Gregorio Araneta and Carmen Zaragoza, which was subsequently cancelled by
Transfer Certificate of Title No. 7573 in the name of Gregorio Araneta, Inc., Transfer Certificate of Title
No. 4988 issued in the name of, the National Waterworks & Sewerage Authority (NWSA), Transfer
Certificate of Title No. 4986 issued in the name of Hacienda Caretas, Inc., and another transfer certificate of
title in the name of Paradise Farms, Inc., are therefore void. Plaintiff-appellant consequently prayed (1) that
Original Certificate of Title No. 466, as well as all transfer certificates of title issued and derived therefrom,
be nullified; (2) that "plaintiff's members" be declared as absolute owners in common of said property and
that the corresponding certificate of title be issued to plaintiff; and (3) that defendant-appellee Gregorio
Araneta, Inc. be ordered to pay to plaintiff the damages therein specified.

On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the amended
complaint on the grounds that (1) the complaint states no cause of action; and (2) the cause of action, if any,
is barred by prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to
dismiss based on the same grounds. Appellee National Waterworks & Sewerage Authority did not file any
motion to dismiss. However, it pleaded in its answer as special and affirmative defenses lack of cause of
action by the plaintiff-appellant and the barring of such action by prescription and laches.

During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7, 1966,
praying that the case be transferred to another branch of the Court of First Instance sitting at Malolos,
Bulacan, According to defendants-appellees, they were not furnished a copy of said motion, hence, on
October 14, 1966, the lower court issued an Order requiring plaintiff-appellant to furnish the appellees copy
of said motion, hence, on October 14, 1966, defendant-appellant's motion dated October 7, 1966 and,
consequently, prayed that the said motion be denied for lack of notice and for failure of the plaintiff-
appellant to comply with the Order of October 14, 1966. Similarly, defendant-appellee paradise Farms, Inc.
filed, on December 2, 1966, a manifestation information the court that it also did not receive a copy of the
afore-mentioned of appellant. On January 24, 1967, the trial court issued an Order dismissing the amended
complaint.

On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the grounds that the
court had no jurisdiction to issue the Order of dismissal, because its request for the transfer of the case from
the Valenzuela Branch of the Court of First Instance to the Malolos Branch of the said court has been
approved by the Department of Justice; that the complaint states a sufficient cause of action because the
subject matter of the controversy in one of common interest to the members of the corporation who are so
numerous that the present complaint should be treated as a class suit; and that the action is not barred by the
statute of limitations because (a) an action for the reconveyance of property registered through fraud does
not prescribe, and (b) an action to impugn a void judgment may be brought any time. This motion was
denied by the trial court in its Order dated February 22, 1967. From the afore-mentioned Order of dismissal
and the Order denying its motion for reconsideration, plaintiff-appellant appealed to the Court of Appeals.

On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved in the
appeal but only questions of law and jurisdiction, certified this case to this Court for resolution of the legal
issues involved in the controversy.

Appellant contends, as a first assignment of error, that the trial court acted without authority and jurisdiction
in dismissing the amended complaint when the Secretary of Justice had already approved the transfer of the
case to any one of the two branches of the Court of First Instance of Malolos, Bulacan.

Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of cases in the
different branches of the same Court of First Instance. Jurisdiction implies the power of the court to decide a
case, while venue the place of action. There is no question that respondent court has jurisdiction over the
case. The venue of actions in the Court of First Instance is prescribed in Section 2, Rule 4 of the Revised
Rules of Court. The laying of venue is not left to the caprice of plaintiff, but must be in accordance with the
aforesaid provision of the rules. 2The mere fact that a request for the transfer of a case to another branch of
the same court has been approved by the Secretary of Justice does not divest the court originally taking
cognizance thereof of its jurisdiction, much less does it change the venue of the action. As correctly
observed by the trial court, the indorsement of the Undersecretary of Justice did not order the transfer of the
case to the Malolos Branch of the Bulacan Court of First Instance, but only "authorized" it for the reason
given by plaintiff's counsel that the transfer would be convenient for the parties. The trial court is not
without power to either grant or deny the motion, especially in the light of a strong opposition thereto filed
by the defendant. We hold that the court a quo acted within its authority in denying the motion for the
transfer the case to Malolos notwithstanding the authorization" of the same by the Secretary of Justice.

II

Let us now consider the substantive aspect of the Order of dismissal.

In dismissing the amended complaint, the court a quo said:

The issue of lack of cause of action raised in the motions to dismiss refer to the lack of
personality of plaintiff to file the instant action. Essentially, the term 'cause of action' is
composed of two elements: (1) the right of the plaintiff and (2) the violation of such right by
the defendant. (Moran, Vol. 1, p. 111). For these reasons, the rules require that every action
must be prosecuted and defended in the name of the real party in interest and that all persons
having an interest in the subject of the action and in obtaining the relief demanded shall be
joined as plaintiffs (Sec. 2, Rule 3). In the amended complaint, the people whose rights were
alleged to have been violated by being deprived and dispossessed of their land are the
members of the corporation and not the corporation itself. The corporation has a separate. and
distinct personality from its members, and this is not a mere technicality but a matter of
substantive law. There is no allegation that the members have assigned their rights to the
corporation or any showing that the corporation has in any way or manner succeeded to such
rights. The corporation evidently did not have any rights violated by the defendants for which
it could seek redress. Even if the Court should find against the defendants, therefore, the
plaintiff corporation would not be entitled to the reliefs prayed for, which are recoveries of
ownership and possession of the land, issuance of the corresponding title in its name, and
payment of damages. Neither can such reliefs be awarded to the members allegedly deprived
of their land, since they are not parties to the suit. It appearing clearly that the action has not
been filed in the names of the real parties in interest, the complaint must be dismissed on the
ground of lack of cause of action. 3

Viewed in the light of existing law and jurisprudence, We find that the trial court correctly dismissed the
amended complaint.

It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal
entity to be considered as separate and apart from the individual stockholders or members who compose it,
and is not affected by the personal rights, obligations and transactions of its stockholders or members. 4 The
property of the corporation is its property and not that of the stockholders, as owners, although they have
equities in it. Properties registered in the name of the corporation are owned by it as an entity separate and
distinct from its members. 5Conversely, a corporation ordinarily has no interest in the individual property of
its stockholders unless transferred to the corporation, "even in the case of a one-man corporation. 6 The mere
fact that one is president of a corporation does not render the property which he owns or possesses the
property of the corporation, since the president, as individual, and the corporation are separate
similarities. 7 Similarly, stockholders in a corporation engaged in buying and dealing in real estate whose
certificates of stock entitled the holder thereof to an allotment in the distribution of the land of the
corporation upon surrender of their stock certificates were considered not to have such legal or equitable title
or interest in the land, as would support a suit for title, especially against parties other than the corporation. 8
It must be noted, however, that the juridical personality of the corporation, as separate and distinct from the
persons composing it, is but a legal fiction introduced for the purpose of convenience and to subserve the
ends of justice. 9 This separate personality of the corporation may be disregarded, or the veil of corporate
fiction pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work -an injustice, or
where necessary to achieve equity. 10

Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, ... the law will regard the corporation as an association of persons, or in the case of two
corporations, merge them into one, the one being merely regarded as part or instrumentality of the
other. 11 The same is true where a corporation is a dummy and serves no business purpose and is intended
only as a blind, or an alter ego or business conduit for the sole benefit of the stockholders. 12 This doctrine of
disregarding the distinct personality of the corporation has been applied by the courts in those cases when
the corporate entity is used for the evasion of taxes 13 or when the veil of corporate fiction is used to confuse
legitimate issue of employer-employee relationship, 14 or when necessary for the protection of creditors, in
which case the veil of corporate fiction may be pierced and the funds of the corporation may be garnished to
satisfy the debts of a principal stockholder. 15 The aforecited principle is resorted to by the courts as a
measure protection for third parties to prevent fraud, illegality or injustice. 16

It has not been claimed that the members have assigned or transferred whatever rights they may have on the
land in question to the plaintiff corporation. Absent any showing of interest, therefore, a corporation, like
plaintiff-appellant herein, has no personality to bring an action for and in behalf of its stockholders or
members for the purpose of recovering property which belongs to said stockholders or members in their
personal capacities.

It is fundamental that there cannot be a cause of action 'without an antecedent primary legal right conferred'
by law upon a person. 17 Evidently, there can be no wrong without a corresponding right, and no breach of
duty by one person without a corresponding right belonging to some other person. 18 Thus, the essential
elements of a cause of action are legal right of the plaintiff, correlative obligation of the defendant, an act or
omission of the defendant in violation of the aforesaid legal right. 19 Clearly, no right of action exists in
favor of plaintiff corporation, for as shown heretofore it does not have any interest in the subject matter of
the case which is material and, direct so as to entitle it to file the suit as a real party in interest.

III

Appellant maintains, however, that the amended complaint may be treated as a class suit, pursuant to
Section 12 of Rule 3 of the Revised Rules of Court.

In order that a class suit may prosper, the following requisites must be present: (1) that the subject matter of
the controversy is one of common or general interest to many persons; and (2) that the parties are so
numerous that it is impracticable to bring them all before the court. 20

Under the first requisite, the person who sues must have an interest in the controversy, common with those
for whom he sues, and there must be that unity of interest between him and all such other persons which
would entitle them to maintain the action if suit was brought by them jointly. 21

As to what constitutes common interest in the subject matter of the controversy, it has been explained
in Scott v. Donald 22 thus:

The interest that will allow parties to join in a bill of complaint, or that will enable the court
to dispense with the presence of all the parties, when numerous, except a determinate
number, is not only an interest in the question, but one in common in the subject Matter of the
suit; ... a community of interest growing out of the nature and condition of the right in
dispute; for, although there may not be any privity between the numerous parties, there is
 a common title out of which the question arises, and which lies at the foundation of the
proceedings ... [here] the only matter in common among the plaintiffs, or between them and
the defendants, is an interest in the Question involved which alone cannot lay a foundation
for the joinder of parties. There is scarcely a suit at law, or in equity which settles a Principle
or applies a principle to a given state of facts, or in which a general statute is interpreted, that
does not involved a Question in which other parties are interested. ... (Emphasis supplied )

Here, there is only one party plaintiff, and the plaintiff corporation does not even have an interest in the
subject matter of the controversy, and cannot, therefore, represent its members or stockholders who claim to
own in their individual capacities ownership of the said property. Moreover, as correctly stated by the
appellees, a class suit does not lie in actions for the recovery of property where several persons claim
Partnership of their respective portions of the property, as each one could alleged and prove his respective
right in a different way for each portion of the land, so that they cannot all be held to have Identical title
through acquisition prescription. 23

Having shown that no cause of action in favor of the plaintiff exists and that the action in the lower court
cannot be considered as a class suit, it would be unnecessary and an Idle exercise for this Court to resolve
the remaining issue of whether or not the plaintiffs action for reconveyance of real property based upon
constructive or implied trust had already prescribed.

ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant.
 [G.R. No. 125986. January 28, 1999]

LUXURIA HOMES, INC., and/or AIDA M. POSADAS, petitioners, vs. HONORABLE COURT OF
APPEALS, JAMES BUILDER CONSTRUCTION and/or JAIME T. BRAVO, respondents.

DECISION
MARTINEZ, J.:

This petition for review assails the decision of the respondent Court of Appeals dated March 15,
1996,[1] which affirmed with modification the judgment of default rendered by the Regional Trial Court of
Muntinlupa, Branch 276, in Civil Case No. 92-2592 granting all the reliefs prayed for in the complaint of
private respondent James Builder Construction and/or Jaime T. Bravo.
As culled from the record, the facts are as follows:
Petitioner Aida M. Posadas and her two (2) minor children co-owned a 1.6 hectare property in Sucat,
Muntinlupa, which was occupied by squatters. Petitioner Posadas entered into negotiations with private
respondent Jaime T. Bravo regarding the development of the said property into a residential subdivision. On
May 3, 1989, she authorized private respondent to negotiate with the squatters to leave the said
property. With a written authorization, respondent Bravo buckled down to work and started negotiations
with the squatters.
Meanwhile, some seven (7) months later, on December 11, 1989, petitioner Posadas and her two (2)
children, through a Deed of Assignment, assigned the said property to petitioner Luxuria Homes, Inc.,
purportedly for organizational and tax avoidance purposes. Respondent Bravo signed as one of the witnesses
to the execution of the Deed of Assignment and the Articles of Incorporation of petitioner Luxuria Homes,
Inc.
Then sometime in 1992, the harmonious and congenial relationship of petitioner Posadas and
respondent Bravo turned sour when the former supposedly could not accept the management contracts to
develop the 1.6 hectare property into a residential subdivision, the latter was proposing. In retaliation,
respondent Bravo demanded payment for services rendered in connection with the development of the
land. In his statement of account dated 21 August 1991[2] respondent demanded the payment
of P1,708,489.00 for various services rendered, i.e., relocation of squatters, preparation of the architectural
design and site development plan, survey and fencing.
Petitioner Posadas refused to pay the amount demanded. Thus, in September 1992, private respondents
James Builder Construction and Jaime T. Bravo instituted a complaint for specific performance before the
trial court against petitioners Posadas and Luxuria Homes, Inc. Private respondents alleged therein that
petitioner Posadas asked them to clear the subject parcel of land of squatters for a fee of P1,100,000.00 for
which they were partially paid the amount of P461,511.50, leaving a balance of P638,488.50. They were
also supposedly asked to prepare a site development plan and an architectural design for a contract price
of P450,000.00 for which they were partially paid the amount of P25,000.00, leaving a balance
of P425,000.00. And in anticipation of the signing of the land development contract, they had to construct a
bunkhouse and warehouse on the property which amounted to P300,000.00, and a hollow blocks factory
for P60,000.00. Private respondents also claimed that petitioner Posadas agreed that private respondents will
develop the land into a first class subdivision thru a management contract and that petitioner Posadas is
unjustly refusing to comply with her obligation to finalize the said management contract.
The prayer in the complaint of the private respondents before the trial court reads as follows:

WHEREFORE, premises considered, it is respectfully prayed of this Honorable Court that after hearing/trial
judgment be rendered ordering defendant to:
a) Comply with its obligation to deliver/finalize Management Contract of its land in Sucat, Muntinlupa,
Metro Manila and to pay plaintiff its balance in the amount of P1,708,489.00;

b) Pay plaintiff moral and exemplary damages in the amount of P500,000.00;

c) Pay plaintiff actual damages in the amount of P500,000.00 (Bunkhouse/warehouse P300,000.00, Hollow-
block factory P60,000.00, lumber, cement, etc., P120,000.00, guard P20,000.00);

d) Pay plaintiff attorneys fee of P50,000 plus P700 per appearance in court and 5% of that which may be
awarded by the court to plaintiff re its monetary claims;

e) Pay cost of this suit.[3]

On September 27, 1993, the trial court declared petitioner Posadas in default and allowed the private
respondents to present their evidence ex-parte. On March 8, 1994, it ordered petitioner Posadas, jointly and
in solidum with petitioner Luxuria Homes, Inc., to pay private respondents as follows:

1. x x x the balance of the payment for the various services performed by Plaintiff with respect to the land
covered by TCT NO. 167895 previously No. 158290 in the total amount of P1,708,489.00.

2. x x x actual damages incurred for the construction of the warehouses/bunks, and for the materials used in
the total sum of P1,500,000.00.

3. Moral and exemplary damages of P500,000.00.

4. Attorneys fee of P50,000.00.

5. And cost of this proceedings.

Defendant Aida Posadas as the Representative of the Corporation Luxuria Homes, Incorporated, is further
directed to execute the management contract she committed to do, also in consideration of the various
undertakings that Plaintiff rendered for her.[4]

Aggrieved by the aforecited decision, petitioners appealed to respondent Court of Appeals, which, as
aforestated, affirmed with modification the decision of the trial court. The appellate court deleted the award
of moral damages on the ground that respondent James Builder Construction is a corporation and hence
could not experience physical suffering and mental anguish. It also reduced the award of exemplary
damages. The dispositive portion of the decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED with the modification that the award of
moral damages is ordered deleted and the award of exemplary damages to the plaintiffs-appellee should only
be in the amount of FIFTY THOUSAND (P50,000.00) PESOS.[5]

Petitioners motion for reconsideration was denied, prompting the filing of this petition for review before
this Court.
On January 15, 1997, the Third Division of this Court denied due course to this petition for failing to
show convincingly any reversible error on the part of the Court of Appeals. This Court however deleted the
grant of exemplary damages and attorneys fees. The Court also reduced the trial courts award of actual
damages from P1,500,000.00 to P500,000.00 reasoning that the grant should not exceed the amount prayed
for in the complaint. In the prayer in the complaint respondents asked for actual damages in the amount
of P500,000.00 only.
 Still feeling aggrieved with the resolution of this Court, petitioners filed a motion for
reconsideration. On March 17, 1997, this Court found merit in the petitioners motion for reconsideration and
reinstated this petition for review.
From their petition for review and motion for reconsideration before this Court, we now synthesize the
issues as follows:
1. Were private respondents able to present ex-parte sufficient evidence to substantiate the
allegations in their complaint and entitle them to their prayers?
2. Can petitioner Luxuria Homes, Inc., be held liable to private respondents for the transactions
supposedly entered into between petitioner Posadas and private respondents?
3. Can petitioners be compelled to enter into a management contract with private respondents?
Petitioners who were declared in default assert that the private respondents who presented their
evidence ex-parte nonetheless utterly failed to substantiate the allegations in their complaint and as such
cannot be entitled to the reliefs prayed for.
A perusal of the record shows that petitioner Posadas contracted respondents Bravo to render various
services for the initial development of the property as shown by vouchers evidencing payments made by
petitioner Posadas to respondents Bravo for squatter relocation, architectural design, survey and fencing.
Respondents prepared the architectural design, site development plan and survey in connection with
petitioner Posadas application with the Housing and Land Regulatory Board (HLRUB) for the issuance of
the Development Permit, Preliminary Approval and Locational Clearance. [6] Petitioner benefited from said
services as the Development Permit and the Locational Clearance were eventually issued by the HLURB in
her favor. Petitioner Posadas is therefore liable to pay for these services rendered by respondents. The
contract price for the survey of the land is P140,000.00. Petitioner made partial payments
totaling P130,000.00 leaving a payable balance of P10,000.00.
In his testimony,[7] he alleged that the agreed price for the preparation of the site development plan
is P500,000.00 and that the preparation of the architectural designs is for P450,000, or a total of P950,000.00
for the two contracts. In his complaint however, respondent Bravo alleged that he was asked to prepare the
site development plan and the architectural designs x x x for a contract price of P450,000.00 x x x.[8] The
discrepancy or inconsistency was never reconciled and clarified.
We reiterate that we cannot award an amount higher than what was claimed in the
complaint. Consequently for the preparation of both the architectural design and site development plan,
respondent is entitled to the amount of P450,000.00 less partial payments made in the amount
of P25,000.00. In Policarpio v. RTC of Quezon City,[9] it was held that a court is bereft of jurisdiction to
award, in a judgment by default, a relief other than that specifically prayed for in the complaint.
As regards the contracts for the ejectment of squatters and fencing, we believe however that respondents
failed to show proof that they actually fulfilled their commitments therein. Aside from the bare testimony of
respondent Bravo, no other evidence was presented to show that all the squatter were ejected from the
property.Respondent Bravo failed to show how many shanties or structures were actually occupying the
property before he entered the same, to serve as basis for concluding whether the task was finished or
not. His testimony alone that he successfully negotiated for the ejectment of all the squatters from the
property will not suffice.
Likewise, in the case of fencing, there is no proof that it was accomplished as alleged. Respondent
Bravo claims that he finished sixty percent (60%) of the fencing project but he failed to present evidence
showing the area sought to be fenced and the actual area fenced by him. We therefore have no basis to
determining the veracity respondents allegations. We cannot assume that the said services rendered for it
will be unfair to require petitioner to pay the full amount claimed in case the respondents obligations were
not completely fulfilled.
 For respondents failure to show proof of accomplishment of the aforesaid services, their claims cannot
be granted. In P.T. Cerna Corp. v. Court of Appeals,[10] we ruled that in civil cases, the burden of proof
rests upon the party who, as determined by the pleadings or the nature of the case, asserts the affirmative of
an issue. In this case the burden lies on the complainant, who is duty bound to prove the allegations in the
complaint. As this Court has held, he who alleges a fact has the burden of proving it and A MERE
ALLEGATION IS NOT EVIDENCE.
And the rules do not change even if the defendant is declared in default. In the leading case of Lopez v.
Mendezona,[11] this Court ruled that after entry of judgment in default against a defendant who has neither
appeared nor answered, and before final judgment in favor of the plaintiff, the latter must establish by
competent evidence all the material allegations of his complaint upon which he bases his prayer for
relief. In De los Santos v. De la Cruz[12] this Court declared that a judgment by default against a defendant
does not imply a waiver of rights except that of being heard and of presenting evidence in his favor. It does
not imply admission by the defendant of the facts and causes of action of the plaintiff, because the codal
section requires the latter to adduce his evidence in support of his allegations as an indispensable condition
before final judgment could be given in his favor. Nor could it be interpreted as an admission by the
defendant that the plaintiffs causes of action finds support in the law or that the latter is entitled to the relief
prayed for.
We explained the rule in judgments by default in Pascua v. Florendo,[13] where we said that nowhere is
it stated that the complainants are automatically entitled to the relief prayed for, once the defendants are
declared in default. Favorable relief can be granted only after the court has ascertained that the evidence
offered and the facts proven by the presenting party warrant the grant of the same. Otherwise it would be
meaningless to require presentation of evidence if everytime the other party is declared in default, a decision
would automatically be rendered in favor of the non-defaulting party and exactly according to the tenor of
his prayer. In Lim Tanhu v. Ramolete[14] we elaborated and said that a defaulted defendant is not actually
thrown out of court. The rules see to it that any judgment against him must be in accordance with law. The
evidence to support the plaintiffs cause is, of course, presented in his absence, but the court is not supposed
to admit that which is basically incompetent. Although the defendant would not be in a position to object,
elementary justice requires that only legal evidence should be considered against him. If the evidence
presented should not be sufficient to justify a judgment for the plaintiff, the complaint must be
dismissed. And if an unfavorable judgment should be justifiable, it cannot exceed the amount or be different
in kind from what is prayed for in the complaint.
The prayer for actual damages in the amount of P500,000.00, supposedly for the bunkhouse/warehouse,
hollow-block factory, lumber, cement, guard, etc., which the trial court granted and even increased
to P1,500,000.00, and which this Court would have rightly reduced to the amount prayed for in the
complaint, was not established, as shown upon further review of the record. No receipts or vouchers were
presented by private respondents to show that they actually spent the amount. In Salas v. Court of
Appeals,[15] we said that the burden of proof of the damages suffered is on the party claiming the same. It his
duty to present evidence to support his claim for actual damages. If he failed to do so, he has only himself to
blame if no award for actual damages is handed down.
In fine, as we declared in PNOC Shipping & Transport Corp. v. Court of Appeals,[16] basic is the rule
that to recover actual damages, the amount of loss must not only be capable of proof but must actually be
proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of
the actual amount thereof.
We go to the second issue of whether Luxuria Homes, Inc., was a party to the transactions entered into
by petitioner Posadas and private respondents and thus could be held jointly and severally with petitioner
Posadas. Private respondents contend that petitioner Posadas surreptitiously formed Luxuria Homes, Inc.,
and transferred the subject parcel of land to it to evade payment and defraud creditors, including private
respondents. This allegation does not find support in the evidence on record.
On the contrary we hold that respondents Court of Appeals committed a reversible error when it upheld
the factual finding of the trial court that petitioners liability was aggravated by the fact that Luxuria Homes,
Inc., was formed by petitioner Posadas after demand for payment had been made, evidently for her to evade
payment of her obligation, thereby showing that the transfer of her property to Luxuria Homes, Inc., was in
fraud of creditors.
We easily glean from the record that private respondents sent demand letters on 21 August 1991 and 14
September 1991, or more than a year and a half after the execution of the Deed of Assignment on 11
December 1989, and the issuance of the Articles of Incorporation of petitioner Luxuria Homes on 26
January 1990. And, the transfer was made at the time the relationship between petitioner Posadas and private
respondents was supposedly very pleasant. In fact the Deed of Assignment dated 11 December 1989 and the
Articles of Incorporation of Luxuria Homes, Inc., issued 26 January 1990 were both signed by respondent
Bravo himself as witness. It cannot be said then that the incorporation of petitioner Luxuria Homes and the
eventual transfer of the subject property to it were in fraud of private respondent as such were done with the
full knowledge of respondent Bravo himself.
Besides petitioner Posadas is not the majority stockholder of petitioner Luxuria Homes, Inc., as
erroneously stated by the lower court. The Articles of Incorporation of petitioner Luxuria Homes, Inc.,
clearly show that petitioner Posadas owns approximately 33% only of the capital stock. Hence petitioner
Posadas cannot be considered as an alter ego of petitioner Luxuria Homes, Inc.
To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and
convincingly established. It cannot be presumed. This is elementary.Thus in Bayer-Roxas v. Court of
Appeals,[17] we said that the separate personality of the corporation may be disregarded only when the
corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary for the
protection of the creditors. Accordingly in Del Rosario v. NLRC,[18] where the Philsa International
Placement and Services Corp. was organized and registered with the POEA in 1981, several years before the
complainant was filed a case in 1985, we held that this cannot imply fraud.
Obviously in the instant case, private respondents failed to show proof that petitioner Posadas acted in
bad faith. Consequently since private respondents failed to show that petitioner Luxuria Homes, Inc., was a
party to any of the supposed transactions, not even to the agreement to negotiate with and relocate the
squatters, it cannot be held liable, nay jointly and in solidum, to pay private respondents. In this case since it
was petitioner Aida M. Posadas who contracted respondent Bravo to render the subject services, only she is
liable to pay the amounts adjudged herein.
We now resolved the third and final issue. Private respondents urge the court to compel petitioners to
execute a management contract with them on the basis of the authorization letter dated May 3, 1989. The
full text of Exh D reads:

I hereby certify that we have duly authorized the bearer, Engineer Bravo to negotiate, in our behalf, the
ejectment of squatters from our property of 1.6 hectares, more or less, in Sucat, Muntinlupa. This authority
is extended to him as the representatives of the Managers, under our agreement for them to undertake the
development of said area and the construction of housing units intended to convert the land into a first class
subdivision.

The aforecited document is nothing more than a to-whom-it-may-concern authorization letter to

negotiate with the squatters. Although it appears that there was an agreement for the development of the
area, there is no showing that same was never perfected and finalized. Private respondents presented in
evidence only drafts of a proposed management contract with petitioners handwritten marginal notes but the
management contract was not put in its final form. The reason why there was no final uncorrected draft was
because the parties could not agree on the stipulations of said contract, which even the private respondents
admitted as found by the trial court.[19] As a consequence the management drafts submitted by the private
respondents should at best be considered as mere unaccepted offers. We find no cogent reason, considering
that the parties no longer are in a harmonious relationship, for the execution of a contract to develop a
subdivision.
 It is fundamental that there can be no contract in the true sense in the absence of the element of
agreement, or of mutual assent of the parties. To compel petitioner Posadas, whether as representatives of
petitioners Luxuria Homes or in her personal capacity, to execute a management contract under the terms
and conditions of private respondents would be to violate the principle of consensuality of
contracts. In Philippine National bank v. Court of Appeals,[20] we held that if the assent is wanting on the
part of one who contracts, his act has no more efficacy than if it had been done under duress or by a person
of unsound mind. In ordering petitioner Posadas to execute a management contract with private respondents,
the trial court in effect is putting her under duress.
The parties are bound to fulfill the stipulations in a contract only upon its perfection. At anytime prior to
the perfection of a contract, unaccepted offers and proposals remain as such and cannot be considered as
binding commitments; hence not demandable.
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed decision dated March 15, 1996,
of respondent Honorable Court of Appeals and its Resolution dated August 12, 1996, are MODIFIED
ordering PETITIONER AIDA M. POSADAS to pay PRIVATE RESPONDENTS the amount
of P435,000.00 as balance for the preparation of the architectural design, site development plan and
survey. All other claims of respondents are hereby DENIED for lack of merit.
SO ORDERED
 [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.

DECISION
MENDOZA, J.:

The question for decision in this case is the right of petitioners 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 petitioners representative had been recognized as a permanent director of the
association. But on February 13, 1990, petitioner received notice from the associations committee on
election that the latter was reexamining (actually, reconsidering) the right of petitioners representative to
continue as an unelected member of the board. As the board denied petitioners 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 HIGCs 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]

It appears, that on December 20, 1975, a committee of the board of directors prepared a draft of an
amendment to the by-laws, reading as follows:[3]
 VI. ANNUAL MEETING

The Annual Meeting of the members of the Association shall be held on the second Thursday of January of
each year. Each Charter or Associate Member of the Association is entitled to vote. He shall be entitled to as
many votes as he has acquired thru his monthly membership fees only computed on a ratio of TEN (P10.00)
PESOS for one vote.

The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving
the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors
are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of
the ASSOCIATION.

This draft was never presented to the general membership for approval. Nevertheless, from 1975, after
it was presumably submitted to the board, up to 1990, petitioner was given a permanent seat in the board of
directors of the association. On February 13, 1990, the associations committee on election in a letter
informed James Tan, principal of the school, that it was the sentiment that all directors should be elected by
members of the association because to make a person or entity a permanent Director would deprive the right
of voters to vote for fifteen (15) members of the Board, and it is undemocratic for a person or entity to hold
office in perpetuity.[4] For this reason, Tan was told that the proposal to make the Grace Christian High
School representative as a permanent director of the association, although previously tolerated in the past
elections should be reexamined. Following this advice, notices were sent to the members of the association
that the provision on election of directors of the 1968 by-laws of the association would be observed.
Petitioner requested the chairman of the election committee to change the notice of election by
following the procedure in previous elections, claiming that the notice issued for the 1990 elections ran
counter to the practice in previous years and was in violation of the by-laws (of 1975) and unlawfully
deprive[d] Grace Christian High School of its vested right [to] a permanent seat in the board.[5]
As the association denied its request, the school brought suit for mandamus in the Home Insurance and
Guaranty Corporation to compel the board of directors of the association to recognize its right to a
permanent seat in the board. Petitioner based its claim on the following portion of the proposed amendment
which, it contended, had become part of the by-laws of the association as Article VI, paragraph 2, thereof:

The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving
the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors
are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of
the ASSOCIATION.

It appears that the opinion of the Securities and Exchange Commission on the validity of this provision
was sought by the association and that in reply to the query, the SEC rendered an opinion to the effect that
the practice of allowing unelected members in the board was contrary to the existing by-laws of the
association and to 92 of the Corporation Code (B.P. Blg. 68).
Private respondent association cited the SEC opinion in its answer. Additionally, the association
contended that the basis of the petition for mandamuswas 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 petitioners 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 petitioners 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 Associations 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 associations 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 by-laws of any bank, banking institution or building and loan association, unless
accompanied by certificate of the Bank Commissioner to the effect that such amendments are in accordance
with law.

The proposed amendment to the by-laws was never approved by the majority of the members of the
association as required by these provisions of the law and by-laws. But petitioner contends that the members
of the committee which prepared the proposed amendment were duly authorized to do so and that because
the members of the association thereafter implemented the provision for fifteen years, the proposed
amendment for all intents and purposes should be considered to have been ratified by them. Petitioner
contends:[11]

Considering, therefore, that the agents or committee were duly authorized to draft the amended by-laws and
the acts done by the agents were in accordance with such authority, the acts of the agents from the very
beginning were lawful and binding on the homeowners (the principals) per se without need of any
ratification or adoption. The more has the amended 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 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 petitioners 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.

....

If fact, the truth is that this is allowed and is being practiced by some corporations duly organized and
existing under the laws of the Philippines.
One example is the Pius XII Catholic Center, Inc. Under the by-laws of this corporation, that whoever is the
Archbishop of Manila is considered a member of the board of trustees without benefit of election. And not
only that. He also automatically sits as the Chairman of the Board of Trustees, again without need of any
election.

Another concrete example is the Cardinal Santos Memorial Hospital, Inc. It is also provided in the by-laws
of this corporation that whoever is the Archbishop of Manila is considered a member of the board of trustees
year after year without benefit of any election and he also sits automatically as the Chairman of the Board of
Trustees.

It is actually 28 and 29 of the Corporation Law not 92 of the present law or 29 of the former one which
require members of the boards of directors of corporations to be elected. These provisions read:

28. Unless otherwise provided in this Act, the corporate powers of all corporations formed under this Act
shall be exercised, all business conducted and all property of such corporations controlled and held by a
board of not less than five nor more than eleven directors to be elected from among the holders of stock or,
where there is no stock, from the members of the corporation: Provided, however, That in corporations,
other than banks, in which the United States has or may have a vested interest, pursuant to the powers
granted or delegated by the Trading with the Enemy Act, as amended, and similar Acts of Congress of the
United States relating to the same subject, or by Executive Order No. 9095 of the President of the United
States, as heretofore or hereafter amended, or both, the directors need not be elected from among the holders
of the stock, or, where there is no stock from the members of the corporation. (emphasis added)

29. At the meeting for the adoption of the original by-laws, or at such subsequent meeting as may be then
determined, directors shall be elected to hold their offices for one year and until their successors are elected
and qualified. Thereafter the directors of the corporation shall be elected annually by the stockholders if it be
a stock corporation or by the members if it be a nonstock corporation, and if no provision is made in the by-
laws for the time of election the same shall be held on the first Tuesday after the first Monday in
January. Unless otherwise provided in the by-laws, two weeks notice of the election of directors must be
given by publication in some newspaper of general circulation devoted to the publication of general news at
the place where the principal office of the corporation is established or located, and by written notice
deposited in the post-office, postage pre-paid, addressed to each stockholder, or, if there be no stockholders,
then to each member, at his last known place of residence. If there be no newspaper published at the place
where the principal office of the corporation is established or located, a notice of the election of directors
shall be posted for a period of three weeks immediately preceding the election in at least three public places,
in the place where the principal office of the corporation is established or located. (Emphasis added)

The present Corporation Code (B.P. Blg. 68), which took effect on May 1, 1980,[12] similarly provides:

23. The Board of Directors or Trustees. - Unless otherwise provided in this Code, the corporate powers of
all corporations formed under this Code shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees to be elected from among the holders
of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for
one (1) year and until their successors are elected and qualified. (Emphasis added)

These provisions of the former and present corporation law leave no room for doubt as to their meaning:
the board of directors of corporations must be elected from among the stockholders or members. There may
be corporations in which there are unelected members in the board but it is clear that in the examples cited
by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a
particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat
in the board. Nor does petitioner claim a right to such seat by virtue of an office held. In fact it was not given
such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws sought to give it
one.
 Since the provision in question is contrary to law, the fact that for fifteen years it has not been
questioned or challenged but, on the contrary, appears to have been implemented by the members of the
association cannot forestall a later challenge to its validity. Neither can it attain validity through
acquiescence because, if it is contrary to law, it is beyond the power of the members of the association to
waive its invalidity. For that matter the members of the association may have formally adopted the provision
in question, but their action would be of no avail because no provision of the by-laws can be adopted if it is
contrary to law.[13]
It is probable that, in allowing petitioners 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 petitioners representative as an unelected member of the board of
directors. It is more accurate to say that the members merely tolerated petitioners 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
petitioners 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.
 [G.R. No. 150978. April 3, 2003]

POWTON CONGLOMERATE[1], INC., and PHILIP C. CHIEN, petitioners, vs. JOHNNY

AGCOLICOL, respondent.

DECISION
YNARES-SANTIAGO, J.:

In a contract to build a structure or any other work for a stipulated price, the contractor cannot demand
an increase in the contract price on account of higher cost of labor or materials, unless there has been a
change in the plan and specification which was authorized in writing by the other party and the price has
been agreed upon in writing by both parties.[2]
This is a petition for review on certiorari assailing the September 3, 2001 Decision [3] of the Court of
Appeals in CA-G.R. CV No. 65100, and its December 5, 2001 Resolution[4] denying petitioners motion for
reconsideration.
Sometime in November 1990, respondent Johnny Agcolicol, proprietor of Japerson Engineering,
entered into an Electrical Installation Contract with Powton Conglomerate, Inc. (Powton), thru its President
and Chairman of the Board, Philip C. Chien. For a contract price of P5,300,000.00, respondent undertook to
provide electrical works as well as the necessary labor and materials for the installation of electrical facilities
at the Ciano Plaza Building owned by Powton, located along M. Reyes Street, corner G. Mascardo Street,
Bangkal, Makati, Metro Manila.[5] In August 1992, the City Engineers Office of Makati inspected the
electrical installations at the Ciano Plaza Building and certified that the same were in good condition. Hence,
it issued the corresponding certificate of electrical inspection.
On December 16, 1994, respondent filed with the Regional Trial Court of Pasay City, Branch 115, the
instant complaint for sum of money against the petitioners.[6] He alleged that despite the completion of the
electrical works at Ciano Plaza Building, the latter only paid the amount of P5,031,860.40, which is
equivalent to more than 95% of the total contract price, thereby leaving a balance of
P268,139.80. Respondent likewise claimed the amount of P722,730.38 as additional electrical works which
were necessitated by the alleged revisions in the structural design of the building.[7]
In their answer, petitioners contended that they cannot be obliged to pay the balance of the contract
price because the electrical installations were defective and were completed beyond the agreed
period.[8] During the trial, petitioner Chien testified that they should not be held liable for the additional
electrical works allegedly performed by the petitioner because they never authorized the same.[9]
At the pre-trial conference, the parties stipulated, inter alia, that the unpaid balance claimed by the
respondent is P268,139.60 and the cost of additional work is P722,730.38.[10]
On August 16, 1999, a decision was rendered awarding the respondent the total award of P990,867.38
representing the unpaid balance and the costs of additional works. The dispositive portion thereof reads:

Wherefore, this Court renders its judgment in favor of the plaintiff and orders the defendants Powton
Congolmerate and Philip C. Chien to pay the plaintiff, jointly and severally, the amount of P990,867.38
representing their total unpaid obligations plus legal interest from the time of the filing of this complaint. No
pronouncement as to costs.

SO ORDERED.[11]

Aggrieved, petitioners appealed to the Court of Appeals which, however, affirmed the decision of the
trial court.[12] The motion for reconsideration was likewise denied.[13]
 Hence, the instant petition.
Is the petitioner liable to pay the balance of the contract price and the increase in costs brought about by
the revision of the structural design of the Ciano Plaza Building?
The petition is partly meritorious.
We agree with the findings of both the trial court and the Court of Appeals that petitioners failed to
show that the installations made by respondent were defective and completed beyond the agreed period. The
justification cited by petitioners for not paying the balance of the contract price is the self-serving allegation
of petitioner Chien. Pertinent portion of his testimony, reads:
COURT:
Q: You are telling the Court that you did not accept the job because it is not yet complete. That is
[a] general statement.
ATTY. FLORENCIO:
Q: Why did you say that the job was not yet complete?
COURT: Specify.
WITNESS:
A: I am not an electrical engineer but my menwe also get independent engineer to certify that the
job was not complete, your Honor.
COURT:
Q: You mean to say you hired an independent electrical engineer and he certified that the job is not
yet complete and there is danger?
WITNESS:
A: Yes, your Honor.
COURT:
Q: You have to present that engineer.
ATTY. FLORENCIO:
A: Yes, your Honor.[14]
Notwithstanding the above promise, petitioners never presented the engineer or any other competent
witness to testify on the matter of delay and defects. Having failed to present sufficient proof, petitioners
bare assertion of unsatisfactory and delayed installation will not justify their non-payment of the balance of
the contract price. Hence, we affirm the ruling of the trial court and the Court of Appeals ordering
petitioners to pay the balance of P268,139.80.
In awarding additional costs to respondent, both the trial court and the Court of Appeals sweepingly
applied the principle of unjust enrichment without discussing the relevance in the instant case of Article
1724 of the Civil Code, which provides:

Art. 1724. The contractor who undertakes to build a structure or any other work for a stipulated price, in
conformity with plans and specifications agreed upon with the landowner, can neither withdraw from the
contract nor demand an increase in the price on account of the higher cost of labor or materials, save when
there has been a change in the plans and specifications, provided:

(1) Such change has been authorized by the proprietor in writing; and
(2) The additional price to be paid to the contractor has been determined in writing by both parties.

Article 1724 of the Civil Code was copied from Article 1593 of the Spanish Civil Code,[15] which
provided as follows:

No architect or contractor who, for a lump sum, undertakes the construction of a building, or any other work
to be done in accordance with a plan agreed upon with the owner of the ground, may demand an increase of
the price, even if the costs of the materials or labor has increased; but he may do so when any change
increasing the work is made in the plans, provided the owner has given his consent thereto.[16]

The present Civil Code added substantive requisites before recovery of the contractor may be validly
had. It will be noted that while under the precursor provision, recovery for additional costs may be allowed
if consent to make such additions can be proved, the present provision clearly requires that the changes
should be authorized, such authorization by the proprietor in writing. The evident purpose of the amendment
is to prevent litigation for additional costs incurred by reason of additions or changes in the original
plan. Undoubtedly, it was adopted to serve as a safeguard or a substantive condition precedent to
recovery.[17]
In Weldon Construction Corporation v. Court of Appeals,[18] involving a contract of supervision of
construction of a theater, we denied the contractors claim to recover costs for additional works. It was held
that the contract entered into by the parties was one for a piece of work for a stipulated price, wherein the
right of the contractor to recover the cost of additional works is governed by Article 1724 of the Civil
Code. Thus

In addition to the owner's authorization for any change in the plans and specifications, Article 1724 requires
that the additional price to be paid for the contractor be likewise reduced in writing. Compliance with the
two requisites in Article 1724, a specific provision governing additional works, is a condition precedent to
recovery (San Diego v. Sayson, supra.). The absence of one or the other bars the recovery of additional
costs. Neither the authority for the changes made nor the additional price to be paid therefor may be proved
by any other evidence for purposes of recovery.

In the case before this Court, the records do not yield any written authority for the changes made on the
plans and specifications of the Gay Theater building. Neither can there be found any written agreement on
the additional price to be paid for said "extra works." While the trial court may have found in the instant case
that the private respondent admitted his having requested the "extra works" done by the contractor (Record
on Appeal, p. 66 [C.F.I. Decision]), this does not save the day for the petitioner. The private respondent
claims that the contractor agreed to make the additions without additional cost. Expectedly, the petitioner
vigorously denies said claim of the private respondent. This is precisely a misunderstanding between parties
to a construction agreement which the lawmakers sought to avoid in prescribing the two requisites under
Article 1724 (Report of the Code Commission, p. 148). And this case is a perfect example of a tedious
litigation which had ensued between the parties as a result of such misunderstanding. Again, this is what the
law endeavors to prevent (San Diego v. Sayson, supra.)

In the absence of a written authority by the owner for the changes in the plans and specifications of the
building and of a written agreement between the parties on the additional price to be paid to the contractor,
as required by Article 1724, the claim for the cost of additional works on the Gay Theater building must be
denied.[19]

In the instant case, the parties entered into a contract for the execution of all the electrical works at the
Ciano Plaza as shown and described in the plans and specification prepared by RCG Consult (hereinafter
referred to as the ARCHITECT/ENGINEER).[20] The contract was for a fixed price of P5,300,000, with the
stipulation that any addition or reduction in the cost of work shall be mutually agreed in writing by both
the OWNER and [the] CONTRACTOR upon recommendation/advisement of the
ARCHITEC/ENGINEERS before execution.[21] As admitted by both parties, several revisions and
deviations from the original plan and specification of the building were introduced during the construction
thereof.[22] It appears, however, that though respondent was aware of such revisions and of the consequent
increase in the cost of the electrical works, he nevertheless completed the installation of electrical facilities
in the constructed building without first entering into a written agreement with the petitioners for the
increase in costs. The fact that petitioner Chien testified[23] that his Engineer/Architect, the R.C. Gaite &
Associates, recommended payment of the increase in costs, does not prove that he was informed of such
increase before the job was completed.[24] The records reveal that the demand letter which in effect notified
the petitioners of the increase in the costs of electrical installations was sent by the respondent to petitioners
after the completion of the project.[25] This was clearly not in accord with the express stipulation of the
parties requiring a prior written agreement authorizing the increased costs, as well as with the provisions of
Article 1724.
It must be stressed that the change in the plans and specifications referred to in Article 1724 pertains to
the very contract entered into by the owner of the building and the contractor. While there is a revision of
plan and specification in the instant case, the same pertains to the structural design of the building and not to
the electrical installation contract of the parties. The consent given by the petitioners to the revision of the
former will not necessarily extend to the latter. As emphasized in Weldon Construction Corporation, the
issue of consent to the higher cost could have been determined with facility had the respondent complied
with the requirement of a written agreement for additional costs as mandated not only by their contract but
also by Article 1724 of the Civil Code. The written consent of the owner to the increased costs sought by the
respondent is not a mere formal requisite, but a vital precondition to the validity of a subsequent contract
authorizing a higher or additional contract price. Moreover, the safeguards enshrined in the provisions of
Article 1724 are not only intended to obviate future misunderstandings but also to give the parties a chance
to decide whether to bind ones self to or withdraw from a contract. Had the increase in costs of the electrical
installations been disclosed before completion of the project, petitioners could have opted to bargain with
the respondent or hire another contractor for a cheaper price. Respondent, on the other hand, could have
gladly accepted the bargain or simply backed out from the contract instead of gambling on the consequences
of assuming the increased costs without the prior written authorization of the petitioners. Indeed, the
principle of unjust enrichment cannot be validly invoked by the respondent who, through his own act or
omission, took the risk of being denied payment for additional costs by not giving the petitioners prior notice
of such costs and/or by not securing their written consent thereto, as required by law and their contract.
Finally, we note that the trial court held petitioner Chien solidarily liable with petitioner Powton. The
settled rule is that, a corporation is invested by law with a personality separate and distinct from those of the
persons composing it, such that, save for certain exceptions, corporate officers who entered into contracts in
behalf of the corporation cannot be held personally liable for the liabilities of the latter. Personal liability of
a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly
attach, as a rule, only when (1) he assents to a patently unlawful act of the corporation, or when he is guilty
of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in
damages to the corporation, its stockholders or other persons; (2) he consents to the issuance of watered
down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his
written objection thereto; (3) he agrees to hold himself personally and solidarily liable with the corporation;
or (4) he is made by a specific provision of law personally answerable for his corporate
action.[26] Considering that none of the foregoing exceptions was established in the case at bar, petitioner
Chien, who entered into a contract with respondent in his capacity as President and Chairman of the Board
of Powton, cannot be held solidarily liable with the latter.
WHEREFORE, in view of all the foregoing, the instant petition is PARTIALLY GRANTED. The
Decision of the Court of Appeals in CA-G.R. CV No. 65100 is MODIFIED. Petitioner Powton
Conglomerate, Inc. is ordered to pay respondent Johnny Agcolicol the sum of P268,139.60 representing the
unpaid balance in the Electrical Installation Contract between them. Petitioner Philip C. Chien, President
and Chairman of the Board of Powton Conglomerate, Inc. is absolved from personal liability.
SO ORDERED