negotiations between the APT and KAWASAKI, they agreed that the latter's right of first
G.R. No. 124293 January 31, 2005
J.G. SUMMIT HOLDINGS, INC., petitioner,
vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and Members;
ASSET PRIVATIZATION TRUST; and PHILYARDS HOLDINGS, INC., respondents.
RESOLUTION
PUNO, J.:
For resolution before this Court are two motions filed by the petitioner, J.G. Summit Holdings,
Inc. for reconsideration of our Resolution dated September 24, 2003 and to elevate this case
to the Court En Banc. The petitioner questions the Resolution which reversed our Decision of
November 20, 2000, which in turn reversed and set aside a Decision of the Court of Appeals
promulgated on July 18, 1995.
I. Facts
The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are as
follows:
On January 27, 1997, the National Investment and Development Corporation (NIDC), a
government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy
Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and management
of the Subic National Shipyard, Inc. (SNS) which subsequently became the Philippine
Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC and
KAWASAKI will contribute P330 million for the capitalization of PHILSECO in the proportion of
60%-40% respectively. One of its salient features is the grant to the parties of the right of first
refusal should either of them decide to sell, assign or transfer its interest in the joint venture,
viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO]
to any third party without giving the other under the same terms the right of first refusal. This
provision shall not apply if the transferee is a corporation owned or controlled by the
GOVERNMENT or by a KAWASAKI affiliate.
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the
Philippine National Bank (PNB). Such interests were subsequently transferred to the National
Government pursuant to Administrative Order No. 14. On December 8, 1986, President
Corazon C. Aquino issued Proclamation No. 50 establishing the Committee on Privatization
(COP) and the Asset Privatization Trust (APT) to take title to, and possession of, conserve,
manage and dispose of non-performing assets of the National Government. Thereafter, on
February 27, 1987, a trust agreement was entered into between the National Government and
the APT wherein the latter was named the trustee of the National Government's share in
PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO to settle its huge
obligations to PNB, the National Government's shareholdings in PHILSECO increased to
97.41% thereby reducing KAWASAKI's shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and the APT deemed it
best to sell the National Government's share in PHILSECO to private entities. After a series of
refusal under the JVA be "exchanged" for the right to top by five percent (5%) the highest bid
for the said shares. They further agreed that KAWASAKI would be entitled to name a company
in which it was a stockholder, which could exercise the right to top. On September 7, 1990,
KAWASAKI informed APT that Philyards Holdings, Inc. (PHI)1 would exercise its right to top.
At the pre-bidding conference held on September 18, 1993, interested bidders were given
copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules
(ASBR) drafted for the National Government's 87.6% equity share in PHILSECO. The
provisions of the ASBR were explained to the interested bidders who were notified that the
bidding would be held on December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the
National Government's equity in PHILSECO consisting of 896,869,942 shares of stock
(representing 87.67% of PHILSECO's outstanding capital stock), which will be sold as a whole
block in accordance with the rules herein enumerated.
xxx xxx xxx
2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT
Board of Trustees and the Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set
for the National Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE
HUNDRED MILLION (P1,300,000,000.00).
xxx xxx xxx
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular
meeting following the bidding, for the purpose of determining whether or not it should be
endorsed by the APT Board of Trustees to the COP, and the latter approves the same. The
APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings,
Inc., that the highest bid is acceptable to the National Government. Kawasaki Heavy
Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30)
calendar days from the date of receipt of such advice from APT within which to exercise their
"Option to Top the Highest Bid" by offering a bid equivalent to the highest bid plus five (5%)
percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise their
"Option to Top the Highest Bid," they shall so notify the APT about such exercise of their
option and deposit with APT the amount equivalent to ten percent (10%) of the highest bid plus
five percent (5%) thereof within the thirty (30)-day period mentioned in paragraph 6.0 above.
APT will then serve notice upon Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. declaring them as the preferred bidder and they shall have a period of ninety
(90) days from the receipt of the APT's notice within which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to exercise
their "Option to Top the Highest Bid" within the thirty (30)-day period, APT will declare the
highest bidder as the winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with appropriate care these rules,
the official bid forms, including any addenda or amendments thereto issued during the bidding
period. The bidder shall likewise be responsible for informing itself with respect to any and all
conditions concerning the PHILSECO Shares which may, in any manner, affect the bidder's
proposal. Failure on the part of the bidder to so examine and inform itself shall be its sole risk
and no relief for error or omission will be given by APT or COP. . . .
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc.2 submitted a bid of
Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgment of
KAWASAKI/[PHILYARDS'] right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act
on APT's recommendation based on the result of this bidding. Should the COP approve the
highest bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee,
[PHILYARDS] Holdings, Inc. that the highest bid is acceptable to the National Government.
Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period
of thirty (30) calendar days from the date of receipt of such advice from APT within which to
exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the highest bid
plus five (5%) percent thereof.
As petitioner was declared the highest bidder, the COP approved the sale on December 3,
1993 "subject to the right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to
top JGSMI's bid by 5% as specified in the bidding rules."
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top
its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of KAWASAKI,
[PHILYARDS], Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because
the last four (4) companies were the losing bidders thereby circumventing the law and
prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c)
giving the same option to top to PHI constituted unwarranted benefit to a third party; (d) no
right of first refusal can be exercised in a public bidding or auction sale; and (e) the JG Summit
consortium was not estopped from questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the
purchase price of the subject bidding. On February 7, 1994, the APT notified petitioner that
PHI had exercised its option to top the highest bid and that the COP had approved the same
on January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock Purchase
Agreement. Consequently, petitioner filed with this Court a Petition for Mandamus under G.R.
No. 114057. On May 11, 1994, said petition was referred to the Court of Appeals. On July 18,
1995, the Court of Appeals denied the same for lack of merit. It ruled that the petition for
mandamus was not the proper remedy to question the constitutionality or legality of the right of
first refusal and the right to top that was exercised by KAWASAKI/PHI, and that the matter
must be brought "by the proper party in the proper forum at the proper time and threshed out
in a full blown trial." The Court of Appeals further ruled that the right of first refusal and the
right to top are prima facie legal and that the petitioner, "by participating in the public bidding,
with full knowledge of the right to top granted to KAWASAKI/[PHILYARDS] is…estopped from
questioning the validity of the award given to [PHILYARDS] after the latter exercised the right
to top and had paid in full the purchase price of the subject shares, pursuant to the ASBR."
Petitioner filed a Motion for Reconsideration of said Decision which was denied on March 15,
1996. Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of
discretion on the part of the appellate court.
On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the
Court of Appeals erred when it dismissed the petition on the sole ground of the impropriety of
the special civil action of mandamus because the petition was also one of certiorari. It further
ruled that a shipyard like PHILSECO is a public utility whose capitalization must be sixty
percent (60%) Filipino-owned. Consequently, the right to top granted to KAWASAKI under the
Asset Specific Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the National
Government in PHILSECO is illegal — not only because it violates the rules on competitive
bidding — but more so, because it allows foreign corporations to own more than 40% equity in
the shipyard. It also held that "although the petitioner had the opportunity to examine the
ASBR before it participated in the bidding, it cannot be estopped from questioning the
unconstitutional, illegal and inequitable provisions thereof." Thus, this Court voided the transfer
of the national government's 87.67% share in PHILSECO to Philyard[s] Holdings, Inc., and
upheld the right of JG Summit, as the highest bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision
and Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered
to pay to APT its bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00), less its bid
deposit plus interests upon the finality of this Decision. In turn, APT is ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from
petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of stocks representing
87.6% of PHILSECO's total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-
One Million Five Hundred Thousand Pesos (P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED.
In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x x
resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA,
KAWASAKI can exercise its right of first refusal only up to 40% of the total capitalization of
PHILSECO; and (3) Whether the right to top granted to KAWASAKI violates the principles of
competitive bidding.3 (citations omitted)
In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On the
first issue, we held that Philippine Shipyard and Engineering Corporation (PHILSECO) is not a
public utility, as by nature, a shipyard is not a public utility4 and that no law declares a shipyard
to be a public utility.5 On the second issue, we found nothing in the 1977 Joint Venture
Agreement (JVA) which prevents Kawasaki Heavy Industries, Ltd. of Kobe, Japan
(KAWASAKI) from acquiring more than 40% of PHILSECO’s total capitalization.6 On the final
issue, we held that the right to top granted to KAWASAKI in exchange for its right of first
refusal did not violate the principles of competitive bidding.7
On October 20, 2003, the petitioner filed a Motion for Reconsideration 8 and a Motion to
Elevate This Case to the Court En Banc.9 Public respondents Committee on Privatization
(COP) and Asset Privatization Trust (APT), and private respondent Philyards Holdings, Inc.
(PHILYARDS) filed their Comments on J.G. Summit Holdings, Inc.’s (JG Summit’s) Motion for
Reconsideration and Motion to Elevate This Case to the Court En Banc on January 29, 2004
and February 3, 2004, respectively.
II. Issues
Based on the foregoing, the relevant issues to resolve to end this litigation are the following:
1. Whether there are sufficient bases to elevate the case at bar to the Court en
banc.
2. Whether the motion for reconsideration raises any new matter or cogent reason to
warrant a reconsideration of this Court’s Resolution of September 24, 2003.
Motion to Elevate this Case to the
Court En Banc
The petitioner prays for the elevation of the case to the Court en banc on the following
grounds:
1. The main issue of the propriety of the bidding process involved in the present
case has been confused with the policy issue of the supposed fate of the shipping
industry which has never been an issue that is determinative of this case.10
2. The present case may be considered under the Supreme Court Resolution dated
February 23, 1984 which included among en banc cases those involving a novel
question of law and those where a doctrine or principle laid down by the Court en
banc or in division may be modified or reversed.11
3. There was clear executive interference in the judicial functions of the Court when
the Honorable Jose Isidro Camacho, Secretary of Finance, forwarded to Chief
Justice Davide, a memorandum dated November 5, 2001, attaching a copy of the
Foreign Chambers Report dated October 17, 2001, which matter was placed in the
agenda of the Court and noted by it in a formal resolution dated November 28,
2001.12
Opposing J.G. Summit’s motion to elevate the case en banc, PHILYARDS points out the
petitioner’s inconsistency in previously opposing PHILYARDS’ Motion to Refer the Case to
the Court En Banc. PHILYARDS contends that J.G. Summit should now be estopped from
asking that the case be referred to the Court en banc. PHILYARDS further contends that the
Supreme Court en banc is not an appellate court to which decisions or resolutions of its
divisions may be appealed citing Supreme Court Circular No. 2-89 dated February 7, 1989. 13
PHILYARDS also alleges that there is no novel question of law involved in the present case as
the assailed Resolution was based on well-settled jurisprudence. Likewise, PHILYARDS
stresses that the Resolution was merely an outcome of the motions for reconsideration filed by
it and the COP and APT and is "consistent with the inherent power of courts to ‘amend and
control its process and orders so as to make them conformable to law and justice.’ (Rule 135,
sec. 5)"14 Private respondent belittles the petitioner’s allegations regarding the change in
ponente and the alleged executive interference as shown by former Secretary of Finance Jose
Isidro Camacho’s memorandum dated November 5, 2001 arguing that these do not justify a
referral of the present case to the Court en banc.
In insisting that its Motion to Elevate This Case to the Court En Banc should be granted, J.G.
Summit further argued that: its Opposition to the Office of the Solicitor General’s Motion to
Refer is different from its own Motion to Elevate; different grounds are invoked by the two
motions; there was unwarranted "executive interference"; and the change in ponente is merely
noted in asserting that this case should be decided by the Court en banc.15
We find no merit in petitioner’s contention that the propriety of the bidding process involved in
the present case has been confused with the policy issue of the fate of the shipping industry
which, petitioner maintains, has never been an issue that is determinative of this case. The
Court’s Resolution of September 24, 2003 reveals a clear and definitive ruling on the propriety
of the bidding process. In discussing whether the right to top granted to KAWASAKI in
exchange for its right of first refusal violates the principles of competitive bidding, we made an
exhaustive discourse on the rules and principles of public bidding and whether they were
complied with in the case at bar.16 This Court categorically ruled on the petitioner’s argument
that PHILSECO, as a shipyard, is a public utility which should maintain a 60%-40% Filipino-
foreign equity ratio, as it was a pivotal issue. In doing so, we recognized the impact of our
ruling on the shipbuilding industry which was beyond avoidance.17
We reject petitioner’s argument that the present case may be considered under the Supreme
Court Resolution dated February 23, 1984 which included among en banc cases those
involving a novel question of law and those where a doctrine or principle laid down by the court
en banc or in division may be modified or reversed. The case was resolved based on basic
principles of the right of first refusal in commercial law and estoppel in civil law. Contractual
obligations arising from rights of first refusal are not new in this jurisdiction and have been
recognized in numerous cases.18 Estoppel is too known a civil law concept to require an
elongated discussion. Fundamental principles on public bidding were likewise used to resolve
the issues raised by the petitioner. To be sure, petitioner leans on the right to top in a public
bidding in arguing that the case at bar involves a novel issue. We are not swayed. The right to
top was merely a condition or a reservation made in the bidding rules which was fully disclosed
to all bidding parties. In Bureau Veritas, represented by Theodor H. Hunermann v. Office
of the President, et al., 19 we dealt with this conditionality, viz:
x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L-
18751, 28 April 1962, 4 SCRA 1245), that in an "invitation to bid, there is a condition
imposed upon the bidders to the effect that the bidding shall be subject to the right of
the government to reject any and all bids subject to its discretion. In the case at bar, the
government has made its choice and unless an unfairness or injustice is shown, the
losing bidders have no cause to complain nor right to dispute that choice. This is a
well-settled doctrine in this jurisdiction and elsewhere."
The discretion to accept or reject a bid and award contracts is vested in the Government
agencies entrusted with that function. The discretion given to the authorities on this matter is of
such wide latitude that the Courts will not interfere therewith, unless it is apparent that it is
used as a shield to a fraudulent award (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x The
exercise of this discretion is a policy decision that necessitates prior inquiry, investigation,
comparison, evaluation, and deliberation. This task can best be discharged by the Government
agencies concerned, not by the Courts. The role of the Courts is to ascertain whether a branch
or instrumentality of the Government has transgressed its constitutional boundaries. But the
Courts will not interfere with executive or legislative discretion exercised within those
boundaries. Otherwise, it strays into the realm of policy decision-making.
It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the
award of a contract made by a government entity. Grave abuse of discretion implies a
capricious, arbitrary and whimsical exercise of power (Filinvest Credit Corp. v. Intermediate
Appellate Court, No. 65935, 30 September 1988, 166 SCRA 155). The abuse of discretion
must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal
to perform a duty enjoined by law, as to act at all in contemplation of law, where the power is
exercised in an arbitrary and despotic manner by reason of passion or hostility (Litton Mills,
Inc. v. Galleon Trader, Inc., et al[.], L-40867, 26 July 1988, 163 SCRA 489).
The facts in this case do not indicate any such grave abuse of discretion on the part of public
respondents when they awarded the CISS contract to Respondent SGS. In the "Invitation to
Prequalify and Bid" (Annex "C," supra), the CISS Committee made an express reservation
of the right of the Government to "reject any or all bids or any part thereof or waive any
defects contained thereon and accept an offer most advantageous to the Government."
It is a well-settled rule that where such reservation is made in an Invitation to Bid, the
highest or lowest bidder, as the case may be, is not entitled to an award as a matter of
right (C & C Commercial Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112). Even
the lowest Bid or any Bid may be rejected or, in the exercise of sound discretion, the award
may be made to another than the lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing
43 Am. Jur., 788). (emphases supplied)1awphi1.nét
Like the condition in the Bureau Veritas case, the right to top was a condition imposed by the
government in the bidding rules which was made known to all parties. It was a condition
imposed on all bidders equally, based on the APT’s exercise of its discretion in
deciding on how best to privatize the government’s shares in PHILSECO. It was not a
whimsical or arbitrary condition plucked from the ether and inserted in the bidding rules but a
condition which the APT approved as the best way the government could comply with its
contractual obligations to KAWASAKI under the JVA and its mandate of getting the most
advantageous deal for the government. The right to top had its history in the mutual right of
first refusal in the JVA and was reached by agreement of the government and KAWASAKI.
Further, there is no "executive interference" in the functions of this Court by the mere filing of a
memorandum by Secretary of Finance Jose Isidro Camacho. The memorandum was merely
"noted" to acknowledge its filing. It had no further legal significance. Notably too, the assailed
Resolution dated September 24, 2003 was decided unanimously by the Special First
Division in favor of the respondents.
Again, we emphasize that a decision or resolution of a Division is that of the Supreme Court 20
and the Court en banc is not an appellate court to which decisions or resolutions of a Division
may be appealed.21
For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.
Motion for Reconsideration
Three principal arguments were raised in the petitioner’s Motion for Reconsideration. First, that
a fair resolution of the case should be based on contract law, not on policy considerations; the
contracts do not authorize the right to top to be derived from the right of first refusal.22 Second,
that neither the right of first refusal nor the right to top can be legally exercised by the
consortium which is not the proper party granted such right under either the JVA or the Asset
Specific Bidding Rules (ASBR).23 Third, that the maintenance of the 60%-40% relationship
between the National Investment and Development Corporation (NIDC) and KAWASAKI
arises from contract and from the Constitution because PHILSECO is a landholding
corporation and need not be a public utility to be bound by the 60%-40% constitutional
limitation.24
On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been
able to show compelling reasons to warrant a reconsideration of the Decision of the Court.25
PHILYARDS denies that the Decision is based mainly on policy considerations and points out
that it is premised on principles governing obligations and contracts and corporate law such as
the rule requiring respect for contractual stipulations, upholding rights of first refusal, and
recognizing the assignable nature of contracts rights.26 Also, the ruling that shipyards are not
public utilities relies on established case law and fundamental rules of statutory construction.
PHILYARDS stresses that KAWASAKI’s right of first refusal or even the right to top is not
limited to the 40% equity of the latter.27 On the landholding issue raised by J.G. Summit,
PHILYARDS emphasizes that this is a non-issue and even involves a question of fact. Even
assuming that this Court can take cognizance of such question of fact even without the benefit
of a trial, PHILYARDS opines that landholding by PHILSECO at the time of the bidding is
irrelevant because what is essential is that ultimately a qualified entity would eventually hold
PHILSECO’s real estate properties.28 Further, given the assignable nature of the right of first
refusal, any applicable nationality restrictions, including landholding limitations, would not
affect the right of first refusal itself, but only the manner of its exercise.29 Also, PHILYARDS
argues that if this Court takes cognizance of J.G. Summit’s allegations of fact regarding
PHILSECO’s landholding, it must also recognize PHILYARDS’ assertions that PHILSECO’s
landholdings were sold to another corporation.30 As regards the right of first refusal, private
respondent explains that KAWASAKI’s reduced shareholdings (from 40% to 2.59%) did not
translate to a deprivation or loss of its contractually granted right of first refusal. 31 Also, the
bidding was valid because PHILYARDS exercised the right to top and it was of no moment
that losing bidders later joined PHILYARDS in raising the purchase price.32
In cadence with the private respondent PHILYARDS, public respondents COP and APT
contend:
1. The conversion of the right of first refusal into a right to top by 5% does not violate
any provision in the JVA between NIDC and KAWASAKI.
2. PHILSECO is not a public utility and therefore not governed by the constitutional
restriction on foreign ownership.
3. The petitioner is legally estopped from assailing the validity of the proceedings of
the public bidding as it voluntarily submitted itself to the terms of the ASBR which
included the provision on the right to top.
4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI and
the fact that PHILYARDS formed a consortium to raise the required amount to
exercise the right to top the highest bid by 5% does not violate the JVA or the ASBR.
5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of
lands does not apply to PHILSECO because as admitted by petitioner itself,
PHILSECO no longer owns real property.
6. Petitioner’s motion to elevate the case to the Court en banc is baseless and would
only delay the termination of this case.33
In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of
the public and private respondents in this wise:
1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with
losing bidders through the exercise of a right to top, which is contrary to law and the
constitution is null and void for being violative of substantive due process and the
abuse of right provision in the Civil Code.
a. The bidders[’] right to top was actually exercised by losing bidders.
b. The right to top or the right of first refusal cannot co-exist with a genuine
competitive bidding.
c. The benefits derived from the right to top were unwarranted.
2. The landholding issue has been a legitimate issue since the start of this case but
is shamelessly ignored by the respondents.
a. The landholding issue is not a non-issue.
b. The landholding issue does not pose questions of fact.
c. That PHILSECO owned land at the time that the right of first refusal was
agreed upon and at the time of the bidding are most relevant.
d. Whether a shipyard is a public utility is not the core issue in this case.
3. Fraud and bad faith attend the alleged conversion of an inexistent right of first
refusal to the right to top.
a. The history behind the birth of the right to top shows fraud and bad
faith.
b. The right of first refusal was, indeed, "effectively useless."
4. Petitioner is not legally estopped to challenge the right to top in this case.
a. Estoppel is unavailing as it would stamp validity to an act that is
prohibited by law or against public policy.
b. Deception was patent; the right to top was an attractive nuisance.
c. The 10% bid deposit was placed in escrow.
J.G. Summit’s insistence that the right to top cannot be sourced from the right of first refusal is
not new and we have already ruled on the issue in our Resolution of September 24, 2003. We
upheld the mutual right of first refusal in the JVA.34 We also ruled that nothing in the JVA
prevents KAWASAKI from acquiring more than 40% of PHILSECO’s total capitalization.35
Likewise, nothing in the JVA or ASBR bars the conversion of the right of first refusal to the
right to top. In sum, nothing new and of significance in the petitioner’s pleading warrants a
reconsideration of our ruling.
Likewise, we already disposed of the argument that neither the right of first refusal nor the right
to top can legally be exercised by the consortium which is not the proper party granted such
right under either the JVA or the ASBR. Thus, we held:
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular
Life Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's effort to raise P2.131
billion necessary in exercising the right to top is not contrary to law, public policy or public
morals. There is nothing in the ASBR that bars the losing bidders from joining either the
winning bidder (should the right to top is not exercised) or KAWASAKI/PHI (should it exercise
its right to top as it did), to raise the purchase price. The petitioner did not allege, nor was it
shown by competent evidence, that the participation of the losing bidders in the public bidding
was done with fraudulent intent. Absent any proof of fraud, the formation by [PHILYARDS] of a
consortium is legitimate in a free enterprise system. The appellate court is thus correct in
holding the petitioner estopped from questioning the validity of the transfer of the National
Government's shares in PHILSECO to respondent.36
Further, we see no inherent illegality on PHILYARDS’ act in seeking funding from parties who
were losing bidders. This is a purely commercial decision over which the State should not
interfere absent any legal infirmity. It is emphasized that the case at bar involves the
disposition of shares in a corporation which the government sought to privatize. As such, the
persons with whom PHILYARDS desired to enter into business with in order to raise funds to
purchase the shares are basically its business. This is in contrast to a case involving a contract
for the operation of or construction of a government infrastructure where the identity of the
buyer/bidder or financier constitutes an important consideration. In such cases, the
government would have to take utmost precaution to protect public interest by ensuring that
the parties with which it is contracting have the ability to satisfactorily construct or operate the
infrastructure.
On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding
company, KAWASAKI could exercise its right of first refusal only up to 40% of the shares of
PHILSECO due to the constitutional prohibition on landholding by corporations with more than
40% foreign-owned equity. It further argues that since KAWASAKI already held at least 40%
equity in PHILSECO, the right of first refusal was inutile and as such, could not subsequently
be converted into the right to top. 37 Petitioner also asserts that, at present, PHILSECO
continues to violate the constitutional provision on landholdings as its shares are more than
40% foreign-owned.38 PHILYARDS admits that it may have previously held land but had
already divested such landholdings.39 It contends, however, that even if PHILSECO owned
land, this would not affect the right of first refusal but only the exercise thereof. If the land is
retained, the right of first refusal, being a property right, could be assigned to a qualified party.
In the alternative, the land could be divested before the exercise of the right of first refusal. In
the case at bar, respondents assert that since the right of first refusal was validly converted
into a right to top, which was exercised not by KAWASAKI, but by PHILYARDS which is a
Filipino corporation (i.e., 60% of its shares are owned by Filipinos), then there is no violation of
the Constitution.40 At first, it would seem that questions of fact beyond cognizance by this
Court were involved in the issue. However, the records show that PHILYARDS admits it had
owned land up until the time of the bidding.41 Hence, the only issue is whether
KAWASAKI had a valid right of first refusal over PHILSECO shares under the JVA
considering that PHILSECO owned land until the time of the bidding and KAWASAKI
already held 40% of PHILSECO’s equity.
We uphold the validity of the mutual rights of first refusal under the JVA between KAWASAKI [A]liens are not completely excluded by the Constitution from the use of lands for residential
and NIDC. First of all, the right of first refusal is a property right of PHILSECO shareholders, purposes. Since their residence in the Philippines is temporary, they may be granted
KAWASAKI and NIDC, under the terms of their JVA. This right allows them to purchase the temporary rights such as a lease contract which is not forbidden by the Constitution. Should
shares of their co-shareholder before they are offered to a third party. The agreement of co- they desire to remain here forever and share our fortunes and misfortunes, Filipino citizenship
shareholders to mutually grant this right to each other, by itself, does not constitute a is not impossible to acquire.
violation of the provisions of the Constitution limiting land ownership to Filipinos and
Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO still owns land, the right
But if an alien is given not only a lease of, but also an option to buy, a piece of land, by
of first refusal can be validly assigned to a qualified Filipino entity in order to maintain the 60%-
virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this
40% ratio. This transfer, by itself, does not amount to a violation of the Anti-Dummy Laws,
to last for 50 years, then it becomes clear that the arrangement is a virtual transfer of
absent proof of any fraudulent intent. The transfer could be made either to a nominee or such
ownership whereby the owner divests himself in stages not only of the right to enjoy
other party which the holder of the right of first refusal feels it can comfortably do business
the land (jus possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to
with. Alternatively, PHILSECO may divest of its landholdings, in which case KAWASAKI, in
dispose of it (jus disponendi) — rights the sum total of which make up ownership. It is
exercising its right of first refusal, can exceed 40% of PHILSECO’s equity. In fact, it can even
just as if today the possession is transferred, tomorrow, the use, the next day, the
be said that if the foreign shareholdings of a landholding corporation exceeds 40%, it is
disposition, and so on, until ultimately all the rights of which ownership is made up are
not the foreign stockholders’ ownership of the shares which is adversely affected but
consolidated in an alien. And yet this is just exactly what the parties in this case did within this
the capacity of the corporation to own land – that is, the corporation becomes disqualified
pace of one year, with the result that Justina Santos'[s] ownership of her property was reduced
to own land. This finds support under the basic corporate law principle that the corporation and
to a hollow concept. If this can be done, then the Constitutional ban against alien landholding
its stockholders are separate juridical entities. In this vein, the right of first refusal over shares
in the Philippines, as announced in Krivenko vs. Register of Deeds, is indeed in grave
pertains to the shareholders whereas the capacity to own land pertains to the corporation.
peril.44 (emphases supplied; Citations omitted)
Hence, the fact that PHILSECO owns land cannot deprive stockholders of their right of first
refusal. No law disqualifies a person from purchasing shares in a landholding
corporation even if the latter will exceed the allowed foreign equity, what the law In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of
disqualifies is the corporation from owning land. This is the clear import of the following ownership as the owner could not sell or dispose of his properties. The contract in Lui She
provisions in the Constitution: prohibited the owner of the land from selling, donating, mortgaging, or encumbering the
property during the 50-year period of the option to buy. This is not so in the case at bar where
the mutual right of first refusal in favor of NIDC and KAWASAKI does not amount to a virtual
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral
transfer of land to a non-Filipino. In fact, the case at bar involves a right of first refusal over
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
shares of stock while the Lui She case involves an option to buy the land itself. As
other natural resources are owned by the State. With the exception of agricultural lands, all
discussed earlier, there is a distinction between the shareholder’s ownership of shares and the
other natural resources shall not be alienated. The exploration, development, and utilization of
corporation’s ownership of land arising from the separate juridical personalities of the
natural resources shall be under the full control and supervision of the State. The State may
corporation and its shareholders.
directly undertake such activities, or it may enter into co-production, joint venture, or
production-sharing agreements with Filipino citizens, or corporations or associations at
least sixty per centum of whose capital is owned by such citizens. Such agreements may We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO continues
be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, to violate the Constitution as its foreign equity is above 40% and yet owns long-term
and under such terms and conditions as may be provided by law. In cases of water rights for leasehold rights which are real rights.45 It cites Article 415 of the Civil Code which includes
irrigation, water supply, fisheries, or industrial uses other than the development of water in the definition of immovable property, "contracts for public works, and servitudes and other
power, beneficial use may be the measure and limit of the grant. real rights over immovable property."46 Any existing landholding, however, is denied by
PHILYARDS citing its recent financial statements.47 First, these are questions of fact, the
veracity of which would require introduction of evidence. The Court needs to validate these
xxx xxx xxx
factual allegations based on competent and reliable evidence. As such, the Court cannot
resolve the questions they pose. Second, J.G. Summit misreads the provisions of the
Section 7. Save in cases of hereditary succession, no private lands shall be transferred or Constitution cited in its own pleadings, to wit:
conveyed except to individuals, corporations, or associations qualified to acquire or
hold lands of the public domain.42 (emphases supplied)
29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%-
40% corporation, and this violates the Constitution x x x The violation continues to this day
The petitioner further argues that "an option to buy land is void in itself (Philippine Banking because under the law, it continues to own real property…
Corporation v. Lui She, 21 SCRA 52 [1967]). The right of first refusal granted to KAWASAKI, a
Japanese corporation, is similarly void. Hence, the right to top, sourced from the right of first
xxx xxx xxx
refusal, is also void."43 Contrary to the contention of petitioner, the case of Lui She did not that
say "an option to buy land is void in itself," for we ruled as follows:
32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973
Constitution (the JVA was signed in 1977), provided:
x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option
giving an alien the right to buy real property on condition that he is granted Philippine
citizenship. As this Court said in Krivenko vs. Register of Deeds:
"Save in cases of hereditary succession, no private lands shall be transferred or conveyed
except to individuals, corporations, or associations qualified to acquire or hold lands of the
public domain."

32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.

32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the public
domain are corporations at least 60% of which is owned by Filipino citizens (Sec. 22,
Commonwealth Act 141, as amended). (emphases supplied)

As correctly observed by the public respondents, the prohibition in the Constitution applies
only to ownership of land.48 It does not extend to immovable or real property as defined
under Article 415 of the Civil Code. Otherwise, we would have a strange situation where the
ownership of immovable property such as trees, plants and growing fruit attached to the land49
would be limited to Filipinos and Filipino corporations only.

III.

WHEREFORE, in view of the foregoing, the petitioner’s Motion for Reconsideration is DENIED
WITH FINALITY and the decision appealed from is AFFIRMED. The Motion to Elevate This
Case to the Court En Banc is likewise DENIED for lack of merit.

SO ORDERED.
 filed, through a new counsel, a third motion for extension of time to submit a responsive
pleading.
G.R. No. 104175 June 25, 1993
On August 19, 1988, the trial court declared Roxas in default. The order of default was,
YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners, however, lifted upon motion of Roxas.
vs.
THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION) AND GEORGE
On August 22, 1988, Roxas filed a motion to dismiss on the grounds that:
CHIONG ROXAS, respondents.

1. The complaint did not state a cause of action due to non-joinder of

Angara, Abello, Concepcion, Regala & Cruz for petitioners.
indispensable parties;

Antonio Nuyles for private respondent.

2. The claim or demand set forth in the complaint had been waived,
abandoned or otherwise extinguished; and

3. The venue was improperly laid (Rollo, p. 299).

QUIASON, J.:
After a hearing, wherein testimonial and documentary evidence were presented by both
parties, the trial court in an Order dated February 8, 1991 denied Roxas' motion to dismiss.
Petitioners seek to set aside the decision of respondent Court of Appeals in CA-G.R. SP No.
After receiving said order, Roxas filed another motion for extension of time to submit his
25237, which reversed the Order dated February 8, 1991 issued by the Regional Trial Court,
answer. He also filed a motion for reconsideration, which the trial court denied in its Order
Branch 11, Cebu City in Civil Case No. CEB 6967. The order of the trial court denied the
dated April 10, 1991 for being pro-forma (Rollo, p. 17). Roxas was again declared in default,
motion to dismiss filed by respondent George C. Roxas of the complaint for collection filed by
on the ground that his motion for reconsideration did not toll the running of the period to file his
petitioners.
answer.

It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc. (YASCO)
On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not
represented by Nemesio Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their
accompanied with the required affidavit or merit. But without waiting for the resolution of the
shares of stock in Consolidated Marketing & Development Corporation (CMDC) to Roxas. The
motion, he filed a petition for certiorari with the Court of Appeals.
purchase price was P8,000,000.00 payable as follows: a downpayment of P4,000,000.00 and
the balance of P4,000,000.00 in four post dated checks of P1,000,000.00 each.
The Court of Appeals sustained the findings of the trial court with regard to the first two
grounds raised in the motion to dismiss but ordered the dismissal of the complaint on the
Immediately after the execution of the agreement, Roxas took full control of the four markets of
ground of improper venue (Rollo, p. 49).
CMDC. However, the vendors held on to the stock certificates of CMDC as security pending
full payment of the balance of the purchase price.
A subsequent motion for reconsideration by petitioner was to no avail.
The first check of P4,000,000.00, representing the down-payment, was honored by the drawee
bank but the four other checks representing the balance of P4,000,000.00 were dishonored. In Petitioners now come before us, alleging that the Court of Appeals
the meantime, Roxas sold one of the markets to a third party. Out of the proceeds of the sale, erred in:
YASCO received P600,000.00, leaving a balance of P3,400,000.00 (Rollo, p. 176).
1. holding the venue should be in Pasay City, and not in Cebu City (where
Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds both petitioners/plaintiffs are residents;
of the sale of the CMDC shares to Nemesio Garcia.
2. not finding that Roxas is estopped from questioning the choice of venue
On June 10, 1988, petitioners filed a complaint against Roxas in the Regional Trial Court, (Rollo, p. 19).
Branch 11, Cebu City, praying that Roxas be ordered to pay petitioners the sum of
P3,400,00.00 or that full control of the three markets be turned over to YASCO and Garcia.
The petition is meritorious.
The complaint also prayed for the forfeiture of the partial payment of P4,600,000.00 and the
payment of attorney's fees and costs (Rollo, p. 290).
In holding that the venue was improperly laid in Cebu City, the Court of Appeals relied on the
address of YASCO, as appearing in the Deed of Sale dated October 28, 1987, which is "No.
Roxas filed two motions for extension of time to submit his answer. But despite said motion, he
1708 Dominga Street, Pasay City." This was the same address written in YASCO's letters and
failed to do so causing petitioners to file a motion to have him declared in default. Roxas then
several commercial documents in the possession of Roxas (Decision, p. 12; Rollo, p. 48).
In the case of Garcia, the Court of Appeals said that he gave Pasay City as his address in With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its
three letters which he sent to Roxas' brothers and sisters (Decision, p. 12; Rollo, p. 47). The principal place of business is located, it becomes unnecessary to decide whether Garcia is
appellate court held that Roxas was led by petitioners to believe that their residence is in also a resident of Cebu City and whether Roxas was in estoppel from questioning the choice
Pasay City and that he had relied upon those representations (Decision, p. 12, Rollo, p. 47). of Cebu City as the venue.

The Court of Appeals erred in holding that the venue was improperly laid in Cebu City. WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals appealed from
is SET ASIDE and the Order dated February 8, 1991 of the Regional Trial Court is
REINSTATED.
In the Regional Trial Courts, all personal actions are commenced and tried in the province or
city where the defendant or any of the defendants resides or may be found, or where the
plaintiff or any of the plaintiffs resides, at the election of the plaintiff [Sec. 2(b) Rule 4, Revised SO ORDERED.
Rules of Court].

There are two plaintiffs in the case at bench: a natural person and a domestic corporation.
Both plaintiffs aver in their complaint that they are residents of Cebu City, thus:

1.1. Plaintiff Young Auto Supply Co., Inc., ("YASCO") is a domestic

corporation duly organized and existing under Philippine laws with
principal place of business at M. J. Cuenco Avenue, Cebu City. It also has
a branch office at 1708 Dominga Street, Pasay City, Metro Manila.

Plaintiff Nemesio Garcia is of legal age, married, Filipino citizen and with
business address at Young Auto Supply Co., Inc., M. J. Cuenco Avenue,
Cebu City. . . . (Complaint, p. 1; Rollo, p. 81).

The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:

THIRD That the place where the principal office of the corporation is to be
established or located is at Cebu City, Philippines (as amended on
December 20, 1980 and further amended on December 20, 1984) (Rollo,
p. 273).

A corporation has no residence in the same sense in which this term is applied to a natural
person. But for practical purposes, a corporation is in a metaphysical sense a resident of the
place where its principal office is located as stated in the articles of incorporation (Cohen v.
Benguet Commercial Co., Ltd., 34 Phil. 256 [1916] Clavecilla Radio System v. Antillon, 19
SCRA 379 [1967]). The Corporation Code precisely requires each corporation to specify in its
articles of incorporation the "place where the principal office of the corporation is to be located
which must be within the Philippines" (Sec. 14 [3]). The purpose of this requirement is to fix the
residence of a corporation in a definite place, instead of allowing it to be ambulatory.

In Clavencilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained why
actions cannot be filed against a corporation in any place where the corporation maintains its
branch offices. The Court ruled that to allow an action to be instituted in any place where the
corporation has branch offices, would create confusion and work untold inconvenience to said
entity. By the same token, a corporation cannot be allowed to file personal actions in a place
other than its principal place of business unless such a place is also the residence of a co-
plaintiff or a defendant.

If it was Roxas who sued YASCO in Pasay City and the latter questioned the venue on the
ground that its principal place of business was in Cebu City, Roxas could argue that YASCO
was in estoppel because it misled Roxas to believe that Pasay City was its principal place of
business. But this is not the case before us.

REPUBLIC PLANTERS BANK, petitioner,
vs.
HON. ENRIQUE A. AGANA, SR., as Presiding Judge, Court of First Instance of Rizal,
Branch XXVIII, Pasay City, ROBES-FRANCISCO REALTY & DEVELOPMENT
CORPORATION and ADALIA F. ROBES, respondents.
HERMOSISIMA, JR., J.:
This is a petition for certiorari seeking the annulment of the Decision 1 of the then Court of First
Instance of Rizal 2 for having been rendered in grave abuse of discretion. Private respondents
Robes-Francisco Realty and Development Corporation (hereafter, "the Corporation") and
Adalia F. Robes filed in the court a quo, an action for specific performance to compel petitioner
to redeem 800 preferred shares of stock with a face value of P8,000.00 and to pay 1%
quarterly interest thereon as quarterly dividend owing them under the terms and conditions of
the certificates of stock.
The court a quo rendered judgment in favor of private respondents; hence, this instant petition.
Herein parties debate only legal issues, no issues of fact having been raised by them in the
court a quo. For ready reference, however, the following narration of pertinent transactions and
events is in order:
On September 18, 1961, private respondent Corporation secured a loan from petitioner in the
amount of P120,000.00. As part of the proceeds of the loan, preferred shares of stocks were
issued to private respondent Corporation, through its officers then, private respondent Adalia
F. Robes and one Carlos F. Robes. In other words, instead of giving the legal tender totaling to
the full amount of the loan, which is P120,000.00, petitioner lent such amount partially in the
form of money and partially in the form of stock certificates numbered 3204 and 3205, each for
400 shares with a par value of P10.00 per share, or for P4,000.00 each, for a total of
P8,000.00. Said stock certificates were in the name of private respondent Adalia F. Robes and
Carlos F. Robes, who subsequently, however, endorsed his shares in favor of Adalia F.
Robes.
Said certificates of stock bear the following terms and conditions:
The Preferred Stock shall have the following rights, preferences,
qualifications and limitations, to wit:
1. Of the right to receive a quarterly dividend of One Per Centum (1%),
cumulative and participating.
xxx xxx xxx
2. That such preferred shares may be redeemed, by the system of
drawing lots, at any time after two (2) years from the date of issue at the
option of the Corporation. . . .
On January 31, 1979, private respondents proceeded against petitioner and filed a Complaint
anchored on private respondents' alleged rights to collect dividends under the preferred shares
in question and to have petitioner redeem the same under the terms and conditions of the
stock certificates. Private respondents attached to their complaint, a letter-demand dated
January 5, 1979 which, significantly, was not formally offered in evidence.
Petitioner filed a Motion to Dismiss 3 private respondents' Complaint on the following grounds:
(1) that the trial court had no jurisdiction over the subject-matter of the action; (2) that the
action was unenforceable under substantive law; and (3) that the action was barred by the
statute of limitations and/or laches.
Petitioner's Motion to Dismiss was denied by the trial court in an Order dated March 16, 1979. 4
Petitioner then filed its Answer on May 2, 1979. 5 Thereafter, the trial court gave the parties ten
(10) days from July 30, 1979 to submit their respective memoranda after the submission of
which the case would be deemed submitted for resolution. 6
On September 7, 1979, the trial court rendered the herein assailed decision in favor of private
respondents. In ordering petitioner to pay private respondents the face value of the stock
certificates as redemption price, plus 1% quarterly interest thereon until full payment, the trial
court ruled:
There being no issue of fact raised by either of the parties who filed their
respective memoranda delineating their respective contentions, a
judgment on the pleadings, conformably with an earlier order of the Court,
appears to be in order.
From a further perusal of the pleadings, it appears that the provision of the
stock certificates in question to the effect that the plaintiffs shall have the
right to receive a quarterly dividend of One Per Centum (1%), cumulative
and participating, clearly and unequivocably [sic] indicates that the same
are "interest bearing stocks" which are stocks issued by a corporation
under an agreement to pay a certain rate of interest thereon (5 Thompson,
Sec. 3439). As such, plaintiffs become entitled to the payment thereof as
a matter of right without necessity of a prior declaration of dividend.
On the question of the redemption by the defendant of said preferred
shares of stock, the very wordings of the terms and conditions in said
stock certificates clearly allows the same.
To allow the herein defendant not to redeem said preferred shares of
stock and/or pay the interest due thereon despite the clear import of said
provisions by the mere invocation of alleged Central Bank Circulars
prohibiting the same is tantamount to an impairment of the obligation of
contracts enshrined in no less than the fundamental law itself.
Moreover, the herein defendant is considered in estoppel from taking
shelter behind a General Banking Act provision to the effect that it cannot
buy its own shares of stocks considering that the very terms and
conditions in said stock certificates allowing their redemption are its own
handiwork.
 As to the claim by the defendant that plaintiffs' cause of action is barred by
prescription, suffice it to state that the running of the prescriptive period
was considered interrupted by the written extrajudicial demands made by
the plaintiffs from the defendant. 7
Aggrieved by the decision of the trial court, petitioner elevated the case before us essentially
on pure questions of law. Petitioner's statement of the issues that it submits for us to
adjudicate upon, is as follows:
A. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN ORDERING PETITIONER TO PAY RESPONDENT ADALIA F. ROBES
THE AMOUNT OF P8213.69 AS INTERESTS FROM 1961 TO 1979 ON
HER PREFERRED SHARES.
B. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN ORDERING PETITIONER TO REDEEM RESPONDENT ADALIA F.
ROBES' PREFERRED SHARES FOR P8,000.00.
C. RESPONDENT JUDGE COMMITTED A GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN DISREGARDING THE ORDER OF THE CENTRAL BANK TO
PETITIONER TO DESIST FROM REDEEMING ITS PREFERRED
SHARES AND FROM PAYING DIVIDENDS THEREON . . . .
D. THE TRIAL COURT ERRED IN NOT HOLDING THAT THE
COMPLAINT DOES NOT STATE A CAUSE OF ACTION.
E. THE TRIAL COURT ERRED IN NOT HOLDING THAT THE CLAIM OF
RESPONDENT ADALIA F. ROBES IS BARRED BY PRESCRIPTION OR
LACHES. 8
The petition is meritorious.
Before passing upon the merits of this petition, it may be pertinent to provide an overview on
the nature of preferred shares and the redemption thereof, considering that these issues lie at
the heart of the dispute.
A preferred share of stock, on one hand, is one which entitles the holder thereof to certain
preferences over the holders of common stock. The preferences are designed to induce
persons to subscribe for shares of a corporation. 9 Preferred shares take a multiplicity of forms.
The most common forms may be classified into two: (1) preferred shares as to assets; and (2)
preferred shares as to dividends. The former is a share which gives the holder thereof
preference in the distribution of the assets of the corporation in case of liquidation; 10 the latter
is a share the holder of which is entitled to receive dividends on said share to the extent
agreed upon before any dividends at all are paid to the holders of common stock. 11 There is
no guaranty, however, that the share will receive any dividends. Under the old Corporation
Law in force at the time the contract between the petitioner and the private respondents was
entered into, it was provided that "no corporation shall make or declare any dividend except
from the surplus profits arising from its business, or distribute its capital stock or property other
than actual profits among its members or stockholders until after the payment of its debts and
the termination of its existence by limitation or lawful dissolution." 12 Similarly, the present
Corporation Code 13 provides that the board of directors of a stock corporation may declare
dividends only out of unrestricted retained earnings. 14 The Code, in Section 43, adopting the
change made in accounting terminology, substituted the phrase "unrestricted retained
earnings," which may be a more precise term, in place of "surplus profits arising from its
business" in the former law. Thus, the declaration of dividends is dependent upon the
availability of surplus profit or unrestricted retained earnings, as the case may be. Preferences
granted to preferred stockholders, moreover, do not give them a lien upon the property of the
corporation nor make them creditors of the corporation, the right of the former being always
subordinate to the latter. Dividends are thus payable only when there are profits earned by the
corporation and as a general rule, even if there are existing profits, the board of directors has
the discretion to determine whether or not dividends are to be declared. 15 Shareholders, both
common and preferred, are considered risk takers who invest capital in the business and who
can look only to what is left after corporate debts and liabilities are fully paid. 16
Redeemable shares, on the other hand, are shares usually preferred, which by their terms are
redeemable at a fixed date, or at the option of either issuing corporation, or the stockholder, or
both at a certain redemption price. 17 A redemption by the corporation of its stock is, in a sense,
a repurchase of it for cancellation. 18 The present Code allows redemption of shares even if
there are no unrestricted retained earnings on the books of the corporation. This is a new
provision which in effect qualifies the general rule that the corporation cannot purchase its own
shares except out of current retained earnings. 19 However, while redeemable shares may be
redeemed regardless of the existence of unrestricted retained earnings, this is subject to the
condition that the corporation has, after such redemption, assets in its books to cover debts
and liabilities inclusive of capital stock. Redemption, therefore, may not be made where the
corporation is insolvent or if such redemption will cause insolvency or inability of the
corporation to meet its debts as they mature. 20
We come now to the merits of the case. The petitioner argues that it cannot be compelled to
redeem the preferred shares issued to the private respondent. We agree. Respondent judge,
in ruling that petitioner must redeem the shares in question, stated that:
On the question of the redemption by the defendant of said preferred
shares of stock, the very wordings of the terms and conditions in said
stock certificates clearly allows the same. 21
What respondent judge failed to recognize was that while the stock certificate does
allow redemption, the option to do so was clearly vested in the petitioner bank. The
redemption therefore is clearly the type known as "optional". Thus, except as
otherwise provided in the stock certificate, the redemption rests entirely with the
corporation and the stockholder is without right to either compel or refuse the
redemption of its stock. 22 Furthermore, the terms and conditions set forth therein
use the word "may". It is a settled doctrine in statutory construction that the word
"may" denotes discretion, and cannot be construed as having a mandatory effect.
We fail to see how respondent judge can ignore what, in his words, are the "very
wordings of the terms and conditions in said stock certificates" and construe what is
clearly a mere option to be his legal basis for compelling the petitioner to redeem the
shares in question.
The redemption of said shares cannot be allowed. As pointed out by the petitioner, the Central
Bank made a finding that said petitioner has been suffering from chronic reserve deficiency, 23
and that such finding resulted in a directive, issued on January 31, 1973 by then Gov. G.S.
Licaros of the Central Bank, to the President and Acting Chairman of the Board of the
petitioner bank prohibiting the latter from redeeming any preferred share, on the ground that
said redemption would reduce the assets of the Bank to the prejudice of its depositors and private respondents been vigilant in asserting their rights, the redemption could have been
creditors. 24 Redemption of preferred shares was prohibited for a just and valid reason. The effected at a time when the petitioner bank was not suffering from any financial crisis.
directive issued by the Central Bank Governor was obviously meant to preserve the status
quo, and to prevent the financial ruin of a banking institution that would have resulted in
WHEREFORE, the instant petition, being impressed with merit, is hereby GRANTED. The
adverse repercussions, not only to its depositors and creditors, but also to the banking industry
challenged decision of respondent judge is set aside and the complaint against the petitioner is
as a whole. The directive, in limiting the exercise of a right granted by law to a corporate entity,
dismissed.
may thus be considered as an exercise of police power. The respondent judge insists that the
directive constitutes an impairment of the obligation of contracts. It has, however, been settled
that the Constitutional guaranty of non-impairment of obligations of contract is limited by the Costs against the private respondents.
exercise of the police power of the state, the reason being that public welfare is superior to
private rights. 25
SO ORDERED.

The respondent judge also stated that since the stock certificate granted the private
respondents the right to receive a quarterly dividend of One Per Centum (1%) cumulative and
participating, it "clearly and unequivocably (sic) indicates that the same are "interest bearing
stocks" or stocks issued by a corporation under an agreement to pay a certain rate of interest
thereon. As such, plaintiffs (private respondents herein) become entitled to the payment
thereof as a matter of right without necessity of a prior declaration of dividend." 26 There is no
legal basis for this observation. Both Sec. 16 of the Corporation Law and Sec. 43 of the
present Corporation Code prohibit the issuance of any stock dividend without the approval of
stockholders, representing not less than two-thirds (2/3) of the outstanding capital stock at a
regular or special meeting duly called for the purpose. These provisions underscore the fact
that payment of dividends to a stockholder is not a matter of right but a matter of consensus.
Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to pay
interest before dividends are paid to common stockholders, is legal only when construed as
requiring payment of interest as dividends from net earnings or surplus only. 27 Clearly, the
respondent judge, in compelling the petitioner to redeem the shares in question and to pay the
corresponding dividends, committed grave abuse of discretion amounting to lack or excess of
jurisdiction in ignoring both the terms and conditions specified in the stock certificate, as well
as the clear mandate of the law.

Anent the issue of prescription, this Court so holds that the claim of private respondent is
already barred by prescription as well as laches. Art. 1144 of the New Civil Code provides that
a right of action that is founded upon a written contract prescribes in ten (10) years. The letter-
demand made by the private respondents to the petitioner was made only on January 5, 1979,
or almost eighteen years after receipt of the written contract in the form of the stock certificate.
As noted earlier, this letter-demand, significantly, was not formally offered in evidence, nor
were any other evidence of demand presented. Therefore, we conclude that the only time the
private respondents saw it fit to assert their rights, if any, to the preferred shares of stock, was
after the lapse of almost eighteen years. The same clearly indicates that the right of the private
respondents to any relief under the law has already prescribed. Moreover, the claim of the
private respondents is also barred by laches. Laches has been defined as the failure or
neglect, for an unreasonable length of time, to do that which by exercising due diligence could
or should have been done earlier; it is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it either has
abandoned it or declined to assert it. 28

Considering that the terms and conditions set forth in the stock certificate clearly indicate that
redemption of the preferred shares may be made at any time after the lapse of two years from
the date of issue, private respondents should have taken it upon themselves, after the lapse of
the said period, to inquire from the petitioner the reason why the said shares have not been
redeemed. As it is, not only two years had lapsed, as agreed upon, but an additional sixteen
years passed before the private respondents saw it fit to demand their right. The petitioner, at
the time it issued said preferred shares to the private respondents in 1961, could not have
known that it would be suffering from chronic reserve deficiency twelve years later. Had the

G.R. No. 150976 October 18, 2004
CECILIA CASTILLO, OSCAR DEL ROSARIO, ARTURO S. FLORES, XERXES NAVARRO,
MARIA ANTONIA TEMPLO and MEDICAL CENTER PARAÑAQUE, INC., petitioners,
vs.
ANGELES BALINGHASAY, RENATO BERNABE, ALODIA DEL ROSARIO, ROMEO
FUNTILA, TERESITA GAYANILO, RUSTICO JIMENEZ, ARACELI** JO, ESMERALDA
MEDINA, CECILIA MONTALBAN, VIRGILIO OBLEPIAS, CARMENCITA PARRENO,
CESAR REYES, REYNALDO SAVET, SERAPIO TACCAD, VICENTE VALDEZ,
SALVACION VILLAMORA, and HUMBERTO VILLAREAL, respondents.
DECISION
QUISUMBING, J.:
For review on certiorari is the Partial Judgment1 dated November 26, 2001 in Civil Case No.
01-0140, of the Regional Trial Court (RTC) of Parañaque City, Branch 258. The trial court
declared the February 9, 2001, election of the board of directors of the Medical Center
Parañaque, Inc. (MCPI) valid. The Partial Judgment dismissed petitioners’ first cause of action,
specifically, to annul said election for depriving petitioners their voting rights and to be voted on
as members of the board.
The facts, as culled from records, are as follows:
Petitioners and the respondents are stockholders of MCPI, with the former holding
Class "B" shares and the latter owning Class "A" shares.
MCPI is a domestic corporation with offices at Dr. A. Santos Avenue, Sucat, Parañaque City. It
was organized sometime in September 1977. At the time of its incorporation, Act No. 1459, the
old Corporation Law was still in force and effect. Article VII of MCPI’s original Articles of
Incorporation, as approved by the Securities and Exchange Commission (SEC) on October 26,
1977, reads as follows:
SEVENTH. That the authorized capital stock of the corporation is TWO MILLION
(P2,000,000.00) PESOS, Philippine Currency, divided into TWO THOUSAND
(2,000) SHARES at a par value of P100 each share, whereby the ONE THOUSAND
SHARES issued to, and subscribed by, the incorporating stockholders shall be
classified as Class A shares while the other ONE THOUSAND unissued shares
shall be considered as Class B shares. Only holders of Class A shares can have the
right to vote and the right to be elected as directors or as corporate officers. 2 (Stress
supplied)
On July 31, 1981, Article VII of the Articles of Incorporation of MCPI was amended, to read
thus:
SEVENTH. That the authorized capital stock of the corporation is FIVE MILLION
(P5,000,000.00) PESOS, divided as follows:
CLASS NO. OF SHARES PAR VALUE
"A" 1,000 P1,000.00
"B" 4,000 P1,000.00
Only holders of Class A shares have the right to vote and the right to be elected as
directors or as corporate officers.3 (Emphasis supplied)
The foregoing amendment was approved by the SEC on June 7, 1983. While the amendment
granted the right to vote and to be elected as directors or corporate officers only to holders of
Class "A" shares, holders of Class "B" stocks were granted the same rights and privileges as
holders of Class "A" stocks with respect to the payment of dividends.
On September 9, 1992, Article VII was again amended to provide as follows:
SEVENTH: That the authorized capital stock of the corporation is THIRTY TWO
MILLION PESOS (P32,000,000.00) divided as follows:
CLASS NO. OF SHARES PAR VALUE
"A" 1,000 P1,000.00
"B" 31,000 1,000.00
Except when otherwise provided by law, only holders of Class "A" shares have the
right to vote and the right to be elected as directors or as corporate officers 4 (Stress
and underscoring supplied).
The SEC approved the foregoing amendment on September 22, 1993.
On February 9, 2001, the shareholders of MCPI held their annual stockholders’ meeting and
election for directors. During the course of the proceedings, respondent Rustico Jimenez,
citing Article VII, as amended, and notwithstanding MCPI’s history, declared over the
objections of herein petitioners, that no Class "B" shareholder was qualified to run or be voted
upon as a director. In the past, MCPI had seen holders of Class "B" shares voted for and serve
as members of the corporate board and some Class "B" share owners were in fact nominated
for election as board members. Nonetheless, Jimenez went on to announce that the
candidates holding Class "A" shares were the winners of all seats in the corporate board. The
petitioners protested, claiming that Article VII was null and void for depriving them, as Class
"B" shareholders, of their right to vote and to be voted upon, in violation of the Corporation
Code (Batas Pambansa Blg. 68), as amended.
On March 22, 2001, after their protest was given short shrift, herein petitioners filed a
Complaint for Injunction, Accounting and Damages, docketed as Civil Case No. CV-01-0140
before the RTC of Parañaque City, Branch 258. Said complaint was founded on two (2)
principal causes of action, namely:
a. Annulment of the declaration of directors of the MCPI made during the February
9, 2001 Annual Stockholders’ Meeting, and for the conduct of an election whereat all
stockholders, irrespective of the classification of the shares they hold, should be
afforded their right to vote and be voted for; and
 b. Stockholders’ derivative suit challenging the validity of a contract entered into by
the Board of Directors of MCPI for the operation of the ultrasound unit.5
Subsequently, the complaint was amended to implead MCPI as party-plaintiff for purposes
only of the second cause of action.
Before the trial court, the herein petitioners alleged that they were deprived of their right to vote
and to be voted on as directors at the annual stockholders’ meeting held on February 9, 2001,
because respondents had erroneously relied on Article VII of the Articles of Incorporation of
MCPI, despite Article VII being contrary to the Corporation Code, thus null and void.
Additionally, respondents were in estoppel, because in the past, petitioners were allowed to
vote and to be elected as members of the board. They further claimed that the privilege
granted to the Class "A" shareholders was more in the nature of a right granted to founder’s
shares.
In their Answer, the respondents averred that the provisions of Article VII clearly and
categorically state that only holders of Class "A" shares have the exclusive right to vote and be
elected as directors and officers of the corporation. They denied that the exclusivity was
intended only as a privilege granted to founder’s shares, as no such proviso is found in the
Articles of Incorporation. The respondents further claimed that the exclusivity of the right
granted to Class "A" holders cannot be defeated or impaired by any subsequent legislative
enactment, e.g. the New Corporation Code, as the Articles of Incorporation is an intra-
corporate contract between the corporation and its members; between the corporation and its
stockholders; and among the stockholders. They submit that to allow Class "B" shareholders
to vote and be elected as directors would constitute a violation of MCPI’s franchise or charter
as granted by the State.
At the pre-trial, the trial court ruled that a partial judgment could be rendered on the first cause
of action and required the parties to submit their respective position papers or memoranda.
On November 26, 2001, the RTC rendered the Partial Judgment, the dispositive portion of
which reads:
WHEREFORE, viewed in the light of the foregoing, the election held on February 9,
2001 is VALID as the holders of CLASS "B" shares are not entitled to vote and be
voted for and this case based on the First Cause of Action is DISMISSED.
SO ORDERED.6
In finding for the respondents, the trial court ruled that corporations had the power to classify
their shares of stocks, such as "voting and non-voting" shares, conformably with Section 67 of
the Corporation Code of the Philippines. It pointed out that Article VII of both the original and
amended Articles of Incorporation clearly provided that only Class "A" shareholders could vote
and be voted for to the exclusion of Class "B" shareholders, the exception being in instances
provided by law, such as those enumerated in Section 6, paragraph 6 of the Corporation
Code. The RTC found merit in the respondents’ theory that the Articles of Incorporation, which
defines the rights and limitations of all its shareholders, is a contract between MCPI and its
shareholders. It is thus the law between the parties and should be strictly enforced as to them.
It brushed aside the petitioners’ claim that the Class "A" shareholders were in estoppel, as the
election of Class "B" shareholders to the corporate board may be deemed as a mere act of
benevolence on the part of the officers. Finally, the court brushed aside the "founder’s shares"
theory of the petitioners for lack of factual basis.
Hence, this petition submitting the sole legal issue of whether or not the Court a quo, in
rendering the Partial Judgment dated November 26, 2001, has decided a question of
substance in a way not in accord with law and jurisprudence considering that:
1. Under the Corporation Code, the exclusive voting right and right to be voted
granted by the Articles of Incorporation of the MCPI to Class A shareholders is null
and void, or already extinguished;
2. Hence, the declaration of directors made during the February 9, 2001 Annual
Stockholders’ Meeting on the basis of the purported exclusive voting rights is null
and void for having been done without the benefit of an election and in violation of
the rights of plaintiffs and Class B shareholders; and
3. Perforce, another election should be conducted to elect the directors of the MCPI,
this time affording the holders of Class B shares full voting right and the right to be
voted.8
The issue for our resolution is whether or not holders of Class "B" shares of the MCPI may be
deprived of the right to vote and be voted for as directors in MCPI.
Before us, petitioners assert that Article VII of the Articles of Incorporation of MCPI, which
denied them voting rights, is null and void for being contrary to Section 6 of the Corporation
Code. They point out that Section 6 prohibits the deprivation of voting rights except as to
preferred and redeemable shares only. Hence, under the present law on corporations, all
shareholders, regardless of classification, other than holders of preferred or redeemable
shares, are entitled to vote and to be elected as corporate directors or officers. Since the Class
"B" shareholders are not classified as holders of either preferred or redeemable shares, then it
necessarily follows that they are entitled to vote and to be voted for as directors or officers.
The respondents, in turn, maintain that the grant of exclusive voting rights to Class "A" shares
is clearly provided in the Articles of Incorporation and is in accord with Section 59 of the
Corporation Law (Act No. 1459), which was the prevailing law when MCPI was incorporated in
1977. They likewise submit that as the Articles of Incorporation of MCPI is in the nature of a
contract between the corporation and its shareholders and Section 6 of the Corporation Code
could not retroactively apply to it without violating the non-impairment clause10 of the
Constitution.
We find merit in the petition.
When Article VII of the Articles of Incorporation of MCPI was amended in 1992, the phrase
"except when otherwise provided by law" was inserted in the provision governing the grant of
voting powers to Class "A" shareholders. This particular amendment is relevant for it speaks of
a law providing for exceptions to the exclusive grant of voting rights to Class "A" stockholders.
Which law was the amendment referring to? The determination of which law to apply is
necessary. There are two laws being cited and relied upon by the parties in this case. In this
instance, the law in force at the time of the 1992 amendment was the Corporation Code (B.P.
Blg. 68), not the Corporation Law (Act No. 1459), which had been repealed by then.
We find and so hold that the law referred to in the amendment to Article VII refers to the
Corporation Code and no other law. At the time of the incorporation of MCPI in 1977, the right
of a corporation to classify its shares of stock was sanctioned by Section 5 of Act No. 1459.
The law repealing Act No. 1459, B.P. Blg. 68, retained the same grant of right of classification
of stock shares to corporations, but with a significant change. Under Section 6 of B.P. Blg. 68,
the requirements and restrictions on voting rights were explicitly provided for, such that "no
share may be deprived of voting rights except those classified and issued as "preferred" or
"redeemable" shares, unless otherwise provided in this Code" and that "there shall always be
a class or series of shares which have complete voting rights." Section 6 of the Corporation
Code being deemed written into Article VII of the Articles of Incorporation of MCPI, it
necessarily follows that unless Class "B" shares of MCPI stocks are clearly categorized to be
"preferred" or "redeemable" shares, the holders of said Class "B" shares may not be deprived
of their voting rights. Note that there is nothing in the Articles of Incorporation nor an iota of
evidence on record to show that Class "B" shares were categorized as either "preferred" or
"redeemable" shares. The only possible conclusion is that Class "B" shares fall under neither
category and thus, under the law, are allowed to exercise voting rights.

One of the rights of a stockholder is the right to participate in the control and management of
the corporation that is exercised through his vote. The right to vote is a right inherent in and
incidental to the ownership of corporate stock, and as such is a property right. The stockholder
cannot be deprived of the right to vote his stock nor may the right be essentially impaired,
either by the legislature or by the corporation, without his consent, through amending the
charter, or the by-laws.11

Neither do we find merit in respondents’ position that Section 6 of the Corporation Code
cannot apply to MCPI without running afoul of the non-impairment clause of the Bill of Rights.
Section 14812 of the Corporation Code expressly provides that it shall apply to corporations in
existence at the time of the effectivity of the Code. Hence, the non-impairment clause is
inapplicable in this instance. When Article VII of the Articles of Incorporation of MCPI were
amended in 1992, the board of directors and stockholders must have been aware of Section 6
of the Corporation Code and intended that Article VII be construed in harmony with the Code,
which was then already in force and effect. Since Section 6 of the Corporation Code expressly
prohibits the deprivation of voting rights, except as to "preferred" and "redeemable" shares,
then Article VII of the Articles of Incorporation cannot be construed as granting exclusive
voting rights to Class "A" shareholders, to the prejudice of Class "B" shareholders, without
running afoul of the letter and spirit of the Corporation Code.

The respondents then take the tack that the phrase "except when otherwise provided by law"
found in the amended Articles is only a handwritten insertion and could have been inserted by
anybody and that no board resolution was ever passed authorizing or approving said
amendment.

Said contention is not for this Court to pass upon, involving as it does a factual question, which
is not proper in this petition. In an appeal via certiorari, only questions of law may be
reviewed.13 Besides, respondents did not adduce persuasive evidence, but only bare
allegations, to support their suspicion. The presumption that in the amendment process, the
ordinary course of business has been followed14 and that official duty has been regularly
performed15 on the part of the SEC, applies in this case.

WHEREFORE, the petition is GRANTED. The Partial Judgment dated November 26, 2001 of
the Regional Trial Court of Parañaque City, Branch 258, in Civil Case No. 01-0140 is
REVERSED AND SET ASIDE. No pronouncement as to costs.

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.
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
It appears, that on December 20, 1975, a committee of the board of directors prepared a draft
of an amendment to the by-laws, reading as follows: 3
VI. ANNUAL MEETING
The Annual Meeting of the members of the Association shall be held on
the second Thursday of January of each year. Each Charter or Associate
Member of the Association is entitled to vote. He shall be entitled to as
many votes as he has acquired thru his monthly membership fees only
computed on a ratio of TEN (P10.00) PESOS for one vote.
The Charter and Associate Members shall elect the Directors of the
Association. The candidates receiving the first fourteen (14) highest
number of votes shall be declared and proclaimed elected until their
successors are elected and qualified. GRACE CHRISTIAN HIGH
SCHOOL representative is a permanent Director of the ASSOCIATION.
This draft was never presented to the general membership for approval. Nevertheless, from
1975, after it was presumably submitted to the board, up to 1990, petitioner was given a
permanent seat in the board of directors of the association. On February 13, 1990, the
association's committee on election in a letter informed James Tan, principal of the school,
that "it was the sentiment that all directors should be elected by members of the association"
because "to make a person or entity a permanent Director would deprive the right of voters to
vote for fifteen (15) members of the Board," and "it is undemocratic for a person or entity to
hold office in perpetuity." 4 For this reason, Tan was told that "the proposal to make the Grace
Christian High School representative as a permanent director of the association, although
previously tolerated in the past elections should be reexamined." Following this advice, notices
were sent to the members of the association that the provision on election of directors of the
1968 by-laws of the association would be observed.
Petitioner requested the chairman of the election committee to change the notice of election by
following the procedure in previous elections, claiming that the notice issued for the 1990
elections ran "counter to the practice in previous years" and was "in violation of the by-laws (of
1975)" and "unlawfully deprive[d] Grace Christian High School of its vested right [to] a
permanent seat in the board." 5
As the association denied its request, the school brought suit for mandamus in the Home
Insurance and Guaranty Corporation to compel the board of directors of the association to
recognize its right to a permanent seat in the board. Petitioner based its claim on the following
portion of the proposed amendment which, it contended, had become part of the by-laws of
the association as Article VI, paragraph 2, thereof:
The Charter and Associate Members shall elect the Directors of the
Association. The candidates receiving the first fourteen (14) highest
number of votes shall be declared and proclaimed elected until their
successors are elected and qualified. GRACE CHRISTIAN HIGH
SCHOOL representative is a permanent Director of the ASSOCIATION.
It appears that the opinion of the Securities and Exchange Commission on the validity of this
provision was sought by the association and that in reply to the query, the SEC rendered an
opinion to the effect that the practice of allowing unelected members in the board was contrary
to the existing by-laws of the association and to §92 of the Corporation Code (B.P. Blg. 68).
Private respondent association cited the SEC opinion in its answer. Additionally, the
association contended that the basis of the petition for mandamus was merely "a proposed by-
laws which has not yet been approved by competent authority nor registered with the SEC or
HIGC." It argued that "the by-laws which was registered with the SEC on January 16, 1969
should be the prevailing by-laws of the association and not the proposed amended 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 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 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)
12
The present Corporation Code (B.P. Blg. 68), which took effect on May 1, 1980, similarly
provides:
§23. The Board of Directors or Trustees. — Unless otherwise provided in
this Code, the corporate powers of all corporations formed under this
Code shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees to be
elected from among the holders of stocks, or where there is no stock, from
among the members of the corporation, who shall hold office for one (1)
year and until their successors are elected and qualified. (Emphasis
added)
These provisions of the former and present corporation law leave no room for doubt as to their
meaning: the board of directors of corporations must be elected from among the stockholders
or members. There may be corporations in which there are unelected members in the board
but it is clear that in the examples cited by petitioner the unelected members sit as ex officio
members, i.e., by virtue of and for as long as they hold a particular office. But in the case of
petitioner, there is no reason at all for its representative to be given a seat in the board. Nor
does petitioner claim a right to such seat by virtue of an office held. In fact it was not given
such seat in the beginning. It was only in 1975 that a proposed amendment to the by-laws
sought to give it one.

Since the provision in question is contrary to law, the fact that for fifteen years it has not been
questioned or challenged but, on the contrary, appears to have been implemented by the
members of the association cannot forestall a later challenge to its validity. Neither can it attain
validity through acquiescence because, if it is contrary to law, it is beyond the power of the
members of the association to waive its invalidity. For that matter the members of the
association may have formally adopted the provision in question, but their action would be of
no avail because no provision of the by-laws can be adopted if it is contrary to law. 13

It is probable that, in allowing petitioner's representative to sit on the board, the members of
the association were not aware that this was contrary to law. It should be noted that they did
not actually implement the provision in question except perhaps insofar as it increased the
number of directors from 11 to 15, but certainly not the allowance of petitioner's representative
as an unelected member of the board of directors. It is more accurate to say that the members
merely tolerated petitioner's representative and tolerance cannot be considered ratification.

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.

G.R. No. L-45911 April 11, 1979
JOHN GOKONGWEI, JR., petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M.
SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B.
CONDE, MIGUEL ORTIGAS, ANTONIO PRIETO, SAN MIGUEL CORPORATION, EMIGDIO
TANJUATCO, SR., and EDUARDO R. VISAYA, respondents.
ANTONIO, J.:
The instant petition for certiorari, mandamus and injunction, with prayer for issuance of writ of
preliminary injunction, arose out of two cases filed by petitioner with the Securities and
Exchange Commission, as follows:
SEC CASE NO 1375
On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation, filed
with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of
amended by-laws, cancellation of certificate of filing of amended by- laws, injunction and
damages with prayer for a preliminary injunction" against the majority of the members of the
Board of Directors and San Miguel Corporation as an unwilling petitioner. The petition, entitled
"John Gokongwei Jr. vs. Andres Soriano, Jr., Jose M. Soriano, Enrique Zobel, Antonio Roxas,
Emeterio Bunao, Walthrode B. Conde, Miguel Ortigas, Antonio Prieto and San Miguel
Corporation", was docketed as SEC Case No. 1375.
As a first cause of action, petitioner alleged that on September 18, 1976, individual
respondents amended by bylaws of the corporation, basing their authority to do so on a
resolution of the stockholders adopted on March 13, 1961, when the outstanding capital stock
of respondent corporation was only P70,139.740.00, divided into 5,513,974 common shares at
P10.00 per share and 150,000 preferred shares at P100.00 per share. At the time of the
amendment, the outstanding and paid up shares totalled 30,127,047 with a total par value of
P301,270,430.00. It was contended that according to section 22 of the Corporation Law and
Article VIII of the by-laws of the corporation, the power to amend, modify, repeal or adopt new
by-laws may be delegated to the Board of Directors only by the affirmative vote of stockholders
representing not less than 2/3 of the subscribed and paid up capital stock of the corporation,
which 2/3 should have been computed on the basis of the capitalization at the time of the
amendment. Since the amendment was based on the 1961 authorization, petitioner contended
that the Board acted without authority and in usurpation of the power of the stockholders.
As a second cause of action, it was alleged that the authority granted in 1961 had already
been exercised in 1962 and 1963, after which the authority of the Board ceased to exist.
As a third cause of action, petitioner averred that the membership of the Board of Directors
had changed since the authority was given in 1961, there being six (6) new directors.
As a fourth cause of action, it was claimed that prior to the questioned amendment, petitioner
had all the qualifications to be a director of respondent corporation, being a Substantial
stockholder thereof; that as a stockholder, petitioner had acquired rights inherent in stock
ownership, such as the rights to vote and to be voted upon in the election of directors; and that
in amending the by-laws, respondents purposely provided for petitioner's disqualification and
deprived him of his vested right as afore-mentioned hence the amended by-laws are null and
void. 1
As additional causes of action, it was alleged that corporations have no inherent power to
disqualify a stockholder from being elected as a director and, therefore, the questioned act is
ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while representing
other corporations, entered into contracts (specifically a management contract) with
respondent corporation, which was allowed because the questioned amendment gave the
Board itself the prerogative of determining whether they or other persons are engaged in
competitive or antagonistic business; that the portion of the amended bylaws which states that
in determining whether or not a person is engaged in competitive business, the Board may
consider such factors as business and family relationship, is unreasonable and oppressive
and, therefore, void; and that the portion of the amended by-laws which requires that "all
nominations for election of directors ... shall be submitted in writing to the Board of Directors at
least five (5) working days before the date of the Annual Meeting" is likewise unreasonable
and oppressive.
It was, therefore, prayed that the amended by-laws be declared null and void and the
certificate of filing thereof be cancelled, and that individual respondents be made to pay
damages, in specified amounts, to petitioner.
On October 28, 1976, in connection with the same case, petitioner filed with the Securities and
Exchange Commission an "Urgent Motion for Production and Inspection of Documents",
alleging that the Secretary of respondent corporation refused to allow him to inspect its records
despite request made by petitioner for production of certain documents enumerated in the
request, and that respondent corporation had been attempting to suppress information from its
stockholders despite a negative reply by the SEC to its query regarding their authority to do so.
Among the documents requested to be copied were (a) minutes of the stockholder's meeting
field on March 13, 1961, (b) copy of the management contract between San Miguel
Corporation and A. Soriano Corporation (ANSCOR); (c) latest balance sheet of San Miguel
International, Inc.; (d) authority of the stockholders to invest the funds of respondent
corporation in San Miguel International, Inc.; and (e) lists of salaries, allowances, bonuses, and
other compensation, if any, received by Andres M. Soriano, Jr. and/or its successor-in-interest.
The "Urgent Motion for Production and Inspection of Documents" was opposed by
respondents, alleging, among others that the motion has no legal basis; that the demand is not
based on good faith; that the motion is premature since the materiality or relevance of the
evidence sought cannot be determined until the issues are joined, that it fails to show good
cause and constitutes continued harrasment, and that some of the information sought are not
part of the records of the corporation and, therefore, privileged.
During the pendency of the motion for production, respondents San Miguel Corporation,
Enrique Conde, Miguel Ortigas and Antonio Prieto filed their answer to the petition, denying
the substantial allegations therein and stating, by way of affirmative defenses that "the action
taken by the Board of Directors on September 18, 1976 resulting in the ... amendments is valid
and legal because the power to "amend, modify, repeal or adopt new By-laws" delegated to
said Board on March 13, 1961 and long prior thereto has never been revoked of SMC"; that
contrary to petitioner's claim, "the vote requirement for a valid delegation of the power to
amend, repeal or adopt new by-laws is determined in relation to the total subscribed capital
stock at the time the delegation of said power is made, not when the Board opts to exercise
said delegated power"; that petitioner has not availed of his intra-corporate remedy for the
nullification of the amendment, which is to secure its repeal by vote of the stockholders
representing a majority of the subscribed capital stock at any regular or special meeting, as
provided in Article VIII, section I of the by-laws and section 22 of the Corporation law, hence
the, petition is premature; that petitioner is estopped from questioning the amendments on the
ground of lack of authority of the Board. since he failed, to object to other amendments made
on the basis of the same 1961 authorization: that the power of the corporation to amend its by-
laws is broad, subject only to the condition that the by-laws adopted should not be respondent
corporation inconsistent with any existing law; that respondent corporation should not be
precluded from adopting protective measures to minimize or eliminate situations where its
directors might be tempted to put their personal interests over t I hat of the corporation; that
the questioned amended by-laws is a matter of internal policy and the judgment of the board
should not be interfered with: That the by-laws, as amended, are valid and binding and are
intended to prevent the possibility of violation of criminal and civil laws prohibiting
combinations in restraint of trade; and that the petition states no cause of action. It was,
therefore, prayed that the petition be dismissed and that petitioner be ordered to pay damages
and attorney's fees to respondents. The application for writ of preliminary injunction was
likewise on various grounds.
Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed their opposition to the petition,
denying the material averments thereof and stating, as part of their affirmative defenses, that
in August 1972, the Universal Robina Corporation (Robina), a corporation engaged in
business competitive to that of respondent corporation, began acquiring shares therein. until
September 1976 when its total holding amounted to 622,987 shares: that in October 1972, the
Consolidated Foods Corporation (CFC) likewise began acquiring shares in respondent
(corporation. until its total holdings amounted to P543,959.00 in September 1976; that on
January 12, 1976, petitioner, who is president and controlling shareholder of Robina and CFC
(both closed corporations) purchased 5,000 shares of stock of respondent corporation, and
thereafter, in behalf of himself, CFC and Robina, "conducted malevolent and malicious
publicity campaign against SMC" to generate support from the stockholder "in his effort to
secure for himself and in representation of Robina and CFC interests, a seat in the Board of
Directors of SMC", that in the stockholders' meeting of March 18, 1976, petitioner was rejected
by the stockholders in his bid to secure a seat in the Board of Directors on the basic issue that
petitioner was engaged in a competitive business and his securing a seat would have
subjected respondent corporation to grave disadvantages; that "petitioner nevertheless vowed
to secure a seat in the Board of Directors at the next annual meeting; that thereafter the Board
of Directors amended the by-laws as afore-stated.
As counterclaims, actual damages, moral damages, exemplary damages, expenses of
litigation and attorney's fees were presented against petitioner.
Subsequently, a Joint Omnibus Motion for the striking out of the motion for production and
inspection of documents was filed by all the respondents. This was duly opposed by petitioner.
At this juncture, respondents Emigdio Tanjuatco, Sr. and Eduardo R. Visaya were allowed to
intervene as oppositors and they accordingly filed their oppositions-intervention to the petition.
On December 29, 1976, the Securities and Exchange Commission resolved the motion for
production and inspection of documents by issuing Order No. 26, Series of 1977, stating, in
part as follows:
Considering the evidence submitted before the Commission by the
petitioner and respondents in the above-entitled case, it is hereby ordered:
1. That respondents produce and permit the inspection, copying and
photographing, by or on behalf of the petitioner-movant, John Gokongwei,
Jr., of the minutes of the stockholders' meeting of the respondent San
Miguel Corporation held on March 13, 1961, which are in the possession,
custody and control of the said corporation, it appearing that the same is
material and relevant to the issues involved in the main case. Accordingly,
the respondents should allow petitioner-movant entry in the principal office
of the respondent Corporation, San Miguel Corporation on January 14,
1977, at 9:30 o'clock in the morning for purposes of enforcing the rights
herein granted; it being understood that the inspection, copying and
photographing of the said documents shall be undertaken under the direct
and strict supervision of this Commission. Provided, however, that other
documents and/or papers not heretofore included are not covered by this
Order and any inspection thereof shall require the prior permission of this
Commission;
2. As to the Balance Sheet of San Miguel International, Inc. as well as the
list of salaries, allowances, bonuses, compensation and/or remuneration
received by respondent Jose M. Soriano, Jr. and Andres Soriano from
San Miguel International, Inc. and/or its successors-in- interest, the
Petition to produce and inspect the same is hereby DENIED, as petitioner-
movant is not a stockholder of San Miguel International, Inc. and has,
therefore, no inherent right to inspect said documents;
3. In view of the Manifestation of petitioner-movant dated November 29,
1976, withdrawing his request to copy and inspect the management
contract between San Miguel Corporation and A. Soriano Corporation and
the renewal and amendments thereof for the reason that he had already
obtained the same, the Commission takes note thereof; and
4. Finally, the Commission holds in abeyance the resolution on the matter
of production and inspection of the authority of the stockholders of San
Miguel Corporation to invest the funds of respondent corporation in San
Miguel International, Inc., until after the hearing on the merits of the
principal issues in the above-entitled case.
This Order is immediately executory upon its approval. 2
Dissatisfied with the foregoing Order, petitioner moved for its reconsideration.
Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondent
corporation issued a notice of special stockholders' meeting for the purpose of "ratification and
confirmation of the amendment to the By-laws", setting such meeting for February 10, 1977.
This prompted petitioner to ask respondent Commission for a summary judgment insofar as
the first cause of action is concerned, for the alleged reason that by calling a special
stockholders' meeting for the aforesaid purpose, private respondents admitted the invalidity of
the amendments of September 18, 1976. The motion for summary judgment was opposed by
private respondents. Pending action on the motion, petitioner filed an "Urgent Motion for the
Issuance of a Temporary Restraining Order", praying that pending the determination of
petitioner's application for the issuance of a preliminary injunction and/or petitioner's motion for
summary judgment, a temporary restraining order be issued, restraining respondents from
holding the special stockholder's meeting as scheduled. This motion was duly opposed by
respondents.
On February 10, 1977, respondent Commission issued an order denying the motion for
issuance of temporary restraining order. After receipt of the order of denial, respondents
conducted the special stockholders' meeting wherein the amendments to the by-laws were
ratified. On February 14, 1977, petitioner filed a consolidated motion for contempt and for
nullification of the special stockholders' meeting.
A motion for reconsideration of the order denying petitioner's motion for summary judgment
was filed by petitioner before respondent Commission on March 10, 1977. Petitioner alleges
that up to the time of the filing of the instant petition, the said motion had not yet been
scheduled for hearing. Likewise, the motion for reconsideration of the order granting in part
and denying in part petitioner's motion for production of record had not yet been resolved.
By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an urgent motion for
the issuance of a writ of preliminary injunction to restrain private respondents from taking up
Item 6 of the Agenda at the annual stockholders' meeting, requesting that the same be set for
hearing on May 3, 1977, the date set for the second hearing of the case on the merits.
Respondent Commission, however, cancelled the dates of hearing originally scheduled and
reset the same to May 16 and 17, 1977, or after the scheduled annual stockholders' meeting.
For the purpose of urging the Commission to act, petitioner filed an urgent manifestation on
May 3, 1977, but this notwithstanding, no action has been taken up to the date of the filing of
the instant petition.

In view of the fact that the annul stockholders' meeting of respondent corporation had been
With respect to the afore-mentioned SEC cases, it is petitioner's contention before this Court
scheduled for May 10, 1977, petitioner filed with respondent Commission a Manifestation
that respondent Commission gravely abused its discretion when it failed to act with deliberate
stating that he intended to run for the position of director of respondent corporation. Thereafter,
dispatch on the motions of petitioner seeking to prevent illegal and/or arbitrary impositions or
respondents filed a Manifestation with respondent Commission, submitting a Resolution of the
limitations upon his rights as stockholder of respondent corporation, and that respondent are
Board of Directors of respondent corporation disqualifying and precluding petitioner from being
acting oppressively against petitioner, in gross derogation of petitioner's rights to property and
a candidate for director unless he could submit evidence on May 3, 1977 that he does not
due process. He prayed that this Court direct respondent SEC to act on collateral incidents
come within the disqualifications specified in the amendment to the by-laws, subject matter of
pending before it.
SEC Case No. 1375. By reason thereof, petitioner filed a manifestation and motion to resolve
pending incidents in the case and to issue a writ of injunction, alleging that private respondents
were seeking to nullify and render ineffectual the exercise of jurisdiction by the respondent On May 6, 1977, this Court issued a temporary restraining order restraining private
Commission, to petitioner's irreparable damage and prejudice, Allegedly despite a subsequent respondents from disqualifying or preventing petitioner from running or from being voted as
Manifestation to prod respondent Commission to act, petitioner was not heard prior to the date director of respondent corporation and from submitting for ratification or confirmation or from
of the stockholders' meeting. causing the ratification or confirmation of Item 6 of the Agenda of the annual stockholders'
meeting on May 10, 1977, or from Making effective the amended by-laws of respondent
corporation, until further orders from this Court or until the Securities and Ex-change
Petitioner alleges that there appears a deliberate and concerted inability on the part of the
Commission acts on the matters complained of in the instant petition.
SEC to act hence petitioner came to this Court.

On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a restraining order
SEC. CASE NO. 1423
had been issued by this Court, or on May 9, 1977, the respondent Commission served upon
petitioner copies of the following orders:
Petitioner likewise alleges that, having discovered that respondent corporation has been
investing corporate funds in other corporations and businesses outside of the primary purpose
(1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner's motion for
clause of the corporation, in violation of section 17 1/2 of the Corporation Law, he filed with
reconsideration, with its supplement, of the order of the Commission denying in part
respondent Commission, on January 20, 1977, a petition seeking to have private respondents
petitioner's motion for production of documents, petitioner's motion for reconsideration of the
Andres M. Soriano, Jr. and Jose M. Soriano, as well as the respondent corporation declared
order denying the issuance of a temporary restraining order denying the issuance of a
guilty of such violation, and ordered to account for such investments and to answer for
temporary restraining order, and petitioner's consolidated motion to declare respondents in
damages.
contempt and to nullify the stockholders' meeting;

On February 4, 1977, motions to dismiss were filed by private respondents, to which a

(2) Order No. 450, Series of 1977 (SEC Case No. 1375), allowing petitioner to run as a
consolidated motion to strike and to declare individual respondents in default and an
director of respondent corporation but stating that he should not sit as such if elected, until
opposition ad abundantiorem cautelam were filed by petitioner. Despite the fact that said
such time that the Commission has decided the validity of the bylaws in dispute, and denying
motions were filed as early as February 4, 1977, the commission acted thereon only on April
deferment of Item 6 of the Agenda for the annual stockholders' meeting; and
25, 1977, when it denied respondents' motion to dismiss and gave them two (2) days within
which to file their answer, and set the case for hearing on April 29 and May 3, 1977.
(3) Order No. 451, Series of 1977 (SEC Case No. 1375), denying petitioner's motion for
reconsideration of the order of respondent Commission denying petitioner's motion for
Respondents issued notices of the annual stockholders' meeting, including in the Agenda
summary judgment;
thereof, the following:

It is petitioner's assertions, anent the foregoing orders, (1) that respondent Commission acted
6. Re-affirmation of the authorization to the Board of Directors by the
with indecent haste and without circumspection in issuing the aforesaid orders to petitioner's
stockholders at the meeting on March 20, 1972 to invest corporate funds
irreparable damage and injury; (2) that it acted without jurisdiction and in violation of
in other companies or businesses or for purposes other than the main
petitioner's right to due process when it decided en banc an issue not raised before it and still
purpose for which the Corporation has been organized, and ratification of
pending before one of its Commissioners, and without hearing petitioner thereon despite
the investments thereafter made pursuant thereto.
petitioner's request to have the same calendared for hearing , and (3) that the respondents
acted oppressively against the petitioner in violation of his rights as a stockholder, warranting upon, ratified and confirmed. Further it was averred that the questions and issues raised by
immediate judicial intervention. petitioner are pending in the Securities and Exchange Commission which has acquired
jurisdiction over the case, and no hearing on the merits has been had; hence the elevation of
these issues before the Supreme Court is premature.
It is prayed in the supplemental petition that the SEC orders complained of be declared null
and void and that respondent Commission be ordered to allow petitioner to undertake
discovery proceedings relative to San Miguel International. Inc. and thereafter to decide SEC Petitioner filed a reply to the aforesaid comments, stating that the petition presents justiciable
Cases No. 1375 and 1423 on the merits. questions for the determination of this Court because (1) the respondent Commission acted
without circumspection, unfairly and oppresively against petitioner, warranting the intervention
of this Court; (2) a derivative suit, such as the instant case, is not rendered academic by the
On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano filed their
act of a majority of stockholders, such that the discussion, ratification and confirmation of Item
comment, alleging that the petition is without merit for the following reasons:
6 of the Agenda of the annual stockholders' meeting of May 10, 1977 did not render the case
moot; that the amendment to the bylaws which specifically bars petitioner from being a director
(1) that the petitioner the interest he represents are engaged in business competitive and is void since it deprives him of his vested rights.
antagonistic to that of respondent San Miguel Corporation, it appearing that the owns and
controls a greater portion of his SMC stock thru the Universal Robina Corporation and the
Respondent Commission, thru the Solicitor General, filed a separate comment, alleging that
Consolidated Foods Corporation, which corporations are engaged in business directly and
after receiving a copy of the restraining order issued by this Court and noting that the
substantially competing with the allied businesses of respondent SMC and of corporations in
restraining order did not foreclose action by it, the Commission en banc issued Orders Nos.
which SMC has substantial investments. Further, when CFC and Robina had accumulated
449, 450 and 451 in SEC Case No. 1375.
investments. Further, when CFC and Robina had accumulated shares in SMC, the Board of
Directors of SMC realized the clear and present danger that competitors or antagonistic parties
may be elected directors and thereby have easy and direct access to SMC's business and In answer to the allegation in the supplemental petition, it states that Order No. 450 which
trade secrets and plans; denied deferment of Item 6 of the Agenda of the annual stockholders' meeting of respondent
corporation, took into consideration an urgent manifestation filed with the Commission by
petitioner on May 3, 1977 which prayed, among others, that the discussion of Item 6 of the
(2) that the amended by law were adopted to preserve and protect respondent SMC from the
Agenda be deferred. The reason given for denial of deferment was that "such action is within
clear and present danger that business competitors, if allowed to become directors, will
the authority of the corporation as well as falling within the sphere of stockholders' right to
illegally and unfairly utilize their direct access to its business secrets and plans for their own
know, deliberate upon and/or to express their wishes regarding disposition of corporate funds
private gain to the irreparable prejudice of respondent SMC, and, ultimately, its stockholders.
considering that their investments are the ones directly affected." It was alleged that the main
Further, it is asserted that membership of a competitor in the Board of Directors is a blatant
petition has, therefore, become moot and academic.
disregard of no less that the Constitution and pertinent laws against combinations in restraint
of trade;
On September 29,1977, petitioner filed a second supplemental petition with prayer for
preliminary injunction, alleging that the actuations of respondent SEC tended to deprive him of
(3) that by laws are valid and binding since a corporation has the inherent right and duty to
his right to due process, and "that all possible questions on the facts now pending before the
preserve and protect itself by excluding competitors and antogonistic parties, under the law of
respondent Commission are now before this Honorable Court which has the authority and the
self-preservation, and it should be allowed a wide latitude in the selection of means to
competence to act on them as it may see fit." (Reno, pp. 927-928.)
preserve itself;

Petitioner, in his memorandum, submits the following issues for resolution;

(4) that the delay in the resolution and disposition of SEC Cases Nos. 1375 and 1423 was due
to petitioner's own acts or omissions, since he failed to have the petition to suspend, pendente
lite the amended by-laws calendared for hearing. It was emphasized that it was only on April (1) whether or not the provisions of the amended by-laws of respondent corporation,
29, 1977 that petitioner calendared the aforesaid petition for suspension (preliminary disqualifying a competitor from nomination or election to the Board of Directors are valid and
injunction) for hearing on May 3, 1977. The instant petition being dated May 4, 1977, it is reasonable;
apparent that respondent Commission was not given a chance to act "with deliberate
dispatch", and
(2) whether or not respondent SEC gravely abused its discretion in denying petitioner's
request for an examination of the records of San Miguel International, Inc., a fully owned
(5) that, even assuming that the petition was meritorious was, it has become moot and subsidiary of San Miguel Corporation; and
academic because respondent Commission has acted on the pending incidents, complained
of. It was, therefore, prayed that the petition be dismissed.
(3) whether or not respondent SEC committed grave abuse of discretion in allowing discussion
of Item 6 of the Agenda of the Annual Stockholders' Meeting on May 10, 1977, and the
On May 21, 1977, respondent Emigdio G, Tanjuatco, Sr. filed his comment, alleging that the ratification of the investment in a foreign corporation of the corporate funds, allegedly in
petition has become moot and academic for the reason, among others that the acts of private violation of section 17-1/2 of the Corporation Law.
respondent sought to be enjoined have reference to the annual meeting of the stockholders of
respondent San Miguel Corporation, which was held on may 10, 1977; that in said meeting, in
I
compliance with the order of respondent Commission, petitioner was allowed to run and be
voted for as director; and that in the same meeting, Item 6 of the Agenda was discussed, voted
Whether or not amended by-laws are valid is purely a legal question which public interest and 1977, all foreign investments and operations of San Miguel Corporation were ratified by
requires to be resolved — the stockholders.

It is the position of the petitioner that "it is not necessary to remand the case to respondent II
SEC for an appropriate ruling on the intrinsic validity of the amended by-laws in compliance
with the principle of exhaustion of administrative remedies", considering that: first: "whether or
Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or
not the provisions of the amended by-laws are intrinsically valid ... is purely a legal question.
election to the Board of Directors of SMC are valid and reasonable —
There is no factual dispute as to what the provisions are and evidence is not necessary to
determine whether such amended by-laws are valid as framed and approved ... "; second: "it is
for the interest and guidance of the public that an immediate and final ruling on the question be The validity or reasonableness of a by-law of a corporation in purely a question of law. 9
made ... "; third: "petitioner was denied due process by SEC" when "Commissioner de Whether the by-law is in conflict with the law of the land, or with the charter of the corporation,
Guzman had openly shown prejudice against petitioner ... ", and "Commissioner Sulit ... or is in a legal sense unreasonable and therefore unlawful is a question of law. 10 This rule is
approved the amended by-laws ex-parte and obviously found the same intrinsically valid; and subject, however, to the limitation that where the reasonableness of a by-law is a mere matter
finally: "to remand the case to SEC would only entail delay rather than serve the ends of of judgment, and one upon which reasonable minds must necessarily differ, a court would not
justice." be warranted in substituting its judgment instead of the judgment of those who are authorized
to make by-laws and who have exercised their authority. 11
Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that this Court resolve
the legal issues raised by the parties in keeping with the "cherished rules of procedure" that "a Petitioner claims that the amended by-laws are invalid and unreasonable because they were
court should always strive to settle the entire controversy in a single proceeding leaving no tailored to suppress the minority and prevent them from having representation in the Board", at
root or branch to bear the seeds of future ligiation", citing Gayong v. Gayos. 3 To the same the same time depriving petitioner of his "vested right" to be voted for and to vote for a person
effect is the prayer of San Miguel Corporation that this Court resolve on the merits the validity of his choice as director.
of its amended by laws and the rights and obligations of the parties thereunder, otherwise "the
time spent and effort exerted by the parties concerned and, more importantly, by this
Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San Miguel
Honorable Court, would have been for naught because the main question will come back to
Corporation content that ex. conclusion of a competitor from the Board is legitimate corporate
this Honorable Court for final resolution." Respondent Eduardo R. Visaya submits a similar
purpose, considering that being a competitor, petitioner cannot devote an unselfish and
appeal.
undivided Loyalty to the corporation; that it is essentially a preventive measure to assure
stockholders of San Miguel Corporation of reasonable protective from the unrestrained self-
It is only the Solicitor General who contends that the case should be remanded to the SEC for interest of those charged with the promotion of the corporate enterprise; that access to
hearing and decision of the issues involved, invoking the latter's primary jurisdiction to hear confidential information by a competitor may result either in the promotion of the interest of the
and decide case involving intra-corporate controversies. competitor at the expense of the San Miguel Corporation, or the promotion of both the
interests of petitioner and respondent San Miguel Corporation, which may, therefore, result in
a combination or agreement in violation of Article 186 of the Revised Penal Code by
It is an accepted rule of procedure that the Supreme Court should always strive to settle the
destroying free competition to the detriment of the consuming public. It is further argued that
entire controversy in a single proceeding, leaving nor root or branch to bear the seeds of future
there is not vested right of any stockholder under Philippine Law to be voted as director of a
litigation. 4 Thus, in Francisco v. City of Davao, 5 this Court resolved to decide the case on the
corporation. It is alleged that petitioner, as of May 6, 1978, has exercised, personally or thru
merits instead of remanding it to the trial court for further proceedings since the ends of justice
two corporations owned or controlled by him, control over the following shareholdings in San
would not be subserved by the remand of the case. In Republic v. Security Credit and
Miguel Corporation, vis.: (a) John Gokongwei, Jr. — 6,325 shares; (b) Universal Robina
Acceptance Corporation, et al., 6 this Court, finding that the main issue is one of law, resolved
Corporation — 738,647 shares; (c) CFC Corporation — 658,313 shares, or a total of
to decide the case on the merits "because public interest demands an early disposition of the
1,403,285 shares. Since the outstanding capital stock of San Miguel Corporation, as of the
case", and in Republic v. Central Surety and Insurance Company, 7 this Court denied remand
present date, is represented by 33,139,749 shares with a par value of P10.00, the total shares
of the third-party complaint to the trial court for further proceedings, citing precedent where this
owned or controlled by petitioner represents 4.2344% of the total outstanding capital stock of
Court, in similar situations resolved to decide the cases on the merits, instead of remanding
San Miguel Corporation. It is also contended that petitioner is the president and substantial
them to the trial court where (a) the ends of justice would not be subserved by the remand of
stockholder of Universal Robina Corporation and CFC Corporation, both of which are allegedly
the case; or (b) where public interest demand an early disposition of the case; or (c) where the
controlled by petitioner and members of his family. It is also claimed that both the Universal
trial court had already received all the evidence presented by both parties and the Supreme
Robina Corporation and the CFC Corporation are engaged in businesses directly and
Court is now in a position, based upon said evidence, to decide the case on its merits. 8 It is
substantially competing with the alleged businesses of San Miguel Corporation, and of
settled that the doctrine of primary jurisdiction has no application where only a question of law
corporations in which SMC has substantial investments.
is involved. 8a Because uniformity may be secured through review by a single Supreme Court,
questions of law may appropriately be determined in the first instance by courts. 8b In the case
at bar, there are facts which cannot be denied, viz.: that the amended by-laws were adopted ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND
by the Board of Directors of the San Miguel Corporation in the exercise of the power delegated SAN MIGUEL CORPORATION
by the stockholders ostensibly pursuant to section 22 of the Corporation Law; that in a special
meeting on February 10, 1977 held specially for that purpose, the amended by-laws were
According to respondent San Miguel Corporation, the areas of, competition are enumerated in
ratified by more than 80% of the stockholders of record; that the foreign investment in the
its Board the areas of competition are enumerated in its Board Resolution dated April 28,
Hongkong Brewery and Distellery, a beer manufacturing company in Hongkong, was made by
1978, thus:
the San Miguel Corporation in 1948; and that in the stockholders' annual meeting held in 1972
 Product Line Estimated Market Share Total It is recognized by an authorities that 'every corporation has the inherent power to adopt by-
1977 SMC Robina-CFC laws 'for its internal government, and to regulate the conduct and prescribe the rights and
duties of its members towards itself and among themselves in reference to the management of
its affairs. 12 At common law, the rule was "that the power to make and adopt by-laws was
Table Eggs 0.6% 10.0% 10.6%
inherent in every corporation as one of its necessary and inseparable legal incidents. And it is
Layer Pullets 33.0% 24.0% 57.0%
settled throughout the United States that in the absence of positive legislative provisions
Dressed Chicken 35.0% 14.0% 49.0%
limiting it, every private corporation has this inherent power as one of its necessary and
Poultry & Hog Feeds 40.0% 12.0% 52.0%
inseparable legal incidents, independent of any specific enabling provision in its charter or in
Ice Cream 70.0% 13.0% 83.0%
general law, such power of self-government being essential to enable the corporation to
Instant Coffee 45.0% 40.0% 85.0%
accomplish the purposes of its creation. 13
Woven Fabrics 17.5% 9.1% 26.6%

Thus, according to respondent SMC, in 1976, the areas of competition affecting SMC involved
product sales of over P400 million or more than 20% of the P2 billion total product sales of
SMC. Significantly, the combined market shares of SMC and CFC-Robina in layer pullets
dressed chicken, poultry and hog feeds ice cream, instant coffee and woven fabrics would
result in a position of such dominance as to affect the prevailing market factors.
It is further asserted that in 1977, the CFC-Robina group was in direct competition on product
lines which, for SMC, represented sales amounting to more than ?478 million. In addition,
CFC-Robina was directly competing in the sale of coffee with Filipro, a subsidiary of SMC,
which product line represented sales for SMC amounting to more than P275 million. The CFC-
Robina group (Robitex, excluding Litton Mills recently acquired by petitioner) is purportedly
also in direct competition with Ramie Textile, Inc., subsidiary of SMC, in product sales
amounting to more than P95 million. The areas of competition between SMC and CFC-Robina
in 1977 represented, therefore, for SMC, product sales of more than P849 million.
According to private respondents, at the Annual Stockholders' Meeting of March 18, 1976,
9,894 stockholders, in person or by proxy, owning 23,436,754 shares in SMC, or more than
90% of the total outstanding shares of SMC, rejected petitioner's candidacy for the Board of
Directors because they "realized the grave dangers to the corporation in the event a
competitor gets a board seat in SMC." On September 18, 1978, the Board of Directors of
SMC, by "virtue of powers delegated to it by the stockholders," approved the amendment to '
he by-laws in question. At the meeting of February 10, 1977, these amendments were
confirmed and ratified by 5,716 shareholders owning 24,283,945 shares, or more than 80% of
the total outstanding shares. Only 12 shareholders, representing 7,005 shares, opposed the
confirmation and ratification. At the Annual Stockholders' Meeting of May 10, 1977, 11,349
shareholders, owning 27,257.014 shares, or more than 90% of the outstanding shares,
rejected petitioner's candidacy, while 946 stockholders, representing 1,648,801 shares voted
for him. On the May 9, 1978 Annual Stockholders' Meeting, 12,480 shareholders, owning more
than 30 million shares, or more than 90% of the total outstanding shares. voted against
petitioner.
AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF DIRECTORS
EXPRESSLY CONFERRED BY LAW
In this jurisdiction, under section 21 of the Corporation Law, a corporation may prescribe in its
by-laws "the qualifications, duties and compensation of directors, officers and employees ... "
This must necessarily refer to a qualification in addition to that specified by section 30 of the
Corporation Law, which provides that "every director must own in his right at least one share of
the capital stock of the stock corporation of which he is a director ... " In Government v. El
Hogar, 14 the Court sustained the validity of a provision in the corporate by-law requiring that
persons elected to the Board of Directors must be holders of shares of the paid up value of
P5,000.00, which shall be held as security for their action, on the ground that section 21 of the
Corporation Law expressly gives the power to the corporation to provide in its by-laws for the
qualifications of directors and is "highly prudent and in conformity with good practice. "
NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR
Any person "who buys stock in a corporation does so with the knowledge that its affairs are
dominated by a majority of the stockholders and that he impliedly contracts that the will of the
majority shall govern in all matters within the limits of the act of incorporation and lawfully
enacted by-laws and not forbidden by law." 15 To this extent, therefore, the stockholder may be
considered to have "parted with his personal right or privilege to regulate the disposition of his
property which he has invested in the capital stock of the corporation, and surrendered it to the
will of the majority of his fellow incorporators. ... It cannot therefore be justly said that the
contract, express or implied, between the corporation and the stockholders is infringed ... by
any act of the former which is authorized by a majority ... ." 16
Pursuant to section 18 of the Corporation Law, any corporation may amend its articles of
incorporation by a vote or written assent of the stockholders representing at least two-thirds of
the subscribed capital stock of the corporation If the amendment changes, diminishes or
restricts the rights of the existing shareholders then the disenting minority has only one right,
viz.: "to object thereto in writing and demand payment for his share." Under section 22 of the
same law, the owners of the majority of the subscribed capital stock may amend or repeal any
by-law or adopt new by-laws. It cannot be said, therefore, that petitioner has a vested right to
be elected director, in the face of the fact that the law at the time such right as stockholder was
acquired contained the prescription that the corporate charter and the by-law shall be subject
to amendment, alteration and modification. 17

It being settled that the corporation has the power to provide for the qualifications of its
Private respondents contend that the disputed amended by laws were adopted by the Board of
directors, the next question that must be considered is whether the disqualification of a
Directors of San Miguel Corporation a-, a measure of self-defense to protect the corporation
competitor from being elected to the Board of Directors is a reasonable exercise of corporate
from the clear and present danger that the election of a business competitor to the Board may
authority.
cause upon the corporation and the other stockholders inseparable prejudice. Submitted for
resolution, therefore, is the issue — whether or not respondent San Miguel Corporation could,
as a measure of self- protection, disqualify a competitor from nomination and election to its A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS
Board of Directors. SHAREHOLDERS
Although in the strict and technical sense, directors of a private corporation are not regarded
as trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the
corporation and the stockholders as a body are concerned. As agents entrusted with the
management of the corporation for the collective benefit of the stockholders, "they occupy a
fiduciary relation, and in this sense the relation is one of trust." 18 "The ordinary trust
relationship of directors of a corporation and stockholders", according to Ashaman v. Miller, 19
"is not a matter of statutory or technical law. It springs from the fact that directors have the
control and guidance of corporate affairs and property and hence of the property interests of
the stockholders. Equity recognizes that stockholders are the proprietors of the corporate
interests and are ultimately the only beneficiaries thereof * * *.
Justice Douglas, in Pepper v. Litton, 20 emphatically restated the standard of fiduciary
obligation of the directors of corporations, thus:
A director is a fiduciary. ... Their powers are powers in trust. ... He who is
in such fiduciary position cannot serve himself first and his cestuis second.
... He cannot manipulate the affairs of his corporation to their detriment
and in disregard of the standards of common decency. He cannot by the
intervention of a corporate entity violate the ancient precept against
serving two masters ... He cannot utilize his inside information and
strategic position for his own preferment. He cannot violate rules of fair
play by doing indirectly through the corporation what he could not do so
directly. He cannot violate rules of fair play by doing indirectly though the
corporation what he could not do so directly. He cannot use his power for
his personal advantage and to the detriment of the stockholders and
creditors no matter how absolute in terms that power may be and no
matter how meticulous he is to satisfy technical requirements. For that
power is at all times subject to the equitable limitation that it may not be
exercised for the aggrandizement, preference or advantage of the
fiduciary to the exclusion or detriment of the cestuis.
21
And in Cross v. West Virginia Cent, & P. R. R. Co., it was said:
... A person cannot serve two hostile and adverse master, without
detriment to one of them. A judge cannot be impartial if personally
interested in the cause. No more can a director. Human nature is too
weak -for this. Take whatever statute provision you please giving power to
stockholders to choose directors, and in none will you find any express
prohibition against a discretion to select directors having the company's
interest at heart, and it would simply be going far to deny by mere
implication the existence of such a salutary power
... If the by-law is to be held reasonable in disqualifying a stockholder in a competing company
from being a director, the same reasoning would apply to disqualify the wife and immediate
member of the family of such stockholder, on account of the supposed interest of the wife in
her husband's affairs, and his suppose influence over her. It is perhaps true that such
stockholders ought not to be condemned as selfish and dangerous to the best interest of the
corporation until tried and tested. So it is also true that we cannot condemn as selfish and
dangerous and unreasonable the action of the board in passing the by-law. The strife over the
matter of control in this corporation as in many others is perhaps carried on not altogether in
the spirit of brotherly love and affection. The only test that we can apply is as to whether or not
the action of the Board is authorized and sanctioned by law. ... . 22
These principles have been applied by this Court in previous cases. 23
AN AMENDMENT TO THE CORPORATION BY-LAW WHICH RENDERS A STOCKHOLDER
INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO DIRECTOR IN A CORPORATION WHOSE
BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER CORPORATION, HAS BEEN
SUSTAINED AS VALID
It is a settled state law in the United States, according to Fletcher, that corporations have the
power to make by-laws declaring a person employed in the service of a rival company to be
ineligible for the corporation's Board of Directors. ... (A)n amendment which renders ineligible,
or if elected, subjects to removal, a director if he be also a director in a corporation whose
business is in competition with or is antagonistic to the other corporation is valid." 24 This is
based upon the principle that where the director is so employed in the service of a rival
company, he cannot serve both, but must betray one or the other. Such an amendment
"advances the benefit of the corporation and is good." An exception exists in New Jersey,
where the Supreme Court held that the Corporation Law in New Jersey prescribed the only
qualification, and therefore the corporation was not empowered to add additional qualifications.
25
This is the exact opposite of the situation in the Philippines because as stated heretofore,
section 21 of the Corporation Law expressly provides that a corporation may make by-laws for
the qualifications of directors. Thus, it has been held that an officer of a corporation cannot
engage in a business in direct competition with that of the corporation where he is a director by
utilizing information he has received as such officer, under "the established law that a director
or officer of a corporation may not enter into a competing enterprise which cripples or injures
the business of the corporation of which he is an officer or director. 26
It is also well established that corporate officers "are not permitted to use their position of trust
and confidence to further their private interests." 27 In a case where directors of a corporation
cancelled a contract of the corporation for exclusive sale of a foreign firm's products, and after
establishing a rival business, the directors entered into a new contract themselves with the
foreign firm for exclusive sale of its products, the court held that equity would regard the new
contract as an offshoot of the old contract and, therefore, for the benefit of the corporation, as
a "faultless fiduciary may not reap the fruits of his misconduct to the exclusion of his principal.
28
The doctrine of "corporate opportunity" 29 is precisely a recognition by the courts that the
fiduciary standards could not be upheld where the fiduciary was acting for two entities with
competing interests. This doctrine rests fundamentally on the unfairness, in particular
circumstances, of an officer or director taking advantage of an opportunity for his own personal
profit when the interest of the corporation justly calls for protection. 30
It is not denied that a member of the Board of Directors of the San Miguel Corporation has
access to sensitive and highly confidential information, such as: (a) marketing strategies and
pricing structure; (b) budget for expansion and diversification; (c) research and development;
and (d) sources of funding, availability of personnel, proposals of mergers or tie-ups with other
firms.
It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel
Corporation, who is also the officer or owner of a competing corporation, from taking
advantage of the information which he acquires as director to promote his individual or
corporate interests to the prejudice of San Miguel Corporation and its stockholders, that the
questioned amendment of the by-laws was made. Certainly, where two corporations are
competitive in a substantial sense, it would seem improbable, if not impossible, for the director,
if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place
the performance of his corporation duties above his personal concerns.
Thus, in McKee & Co. v. First National Bank of San Diego, supra the court sustained as valid
and reasonable an amendment to the by-laws of a bank, requiring that its directors should not
be directors, officers, employees, agents, nominees or attorneys of any other banking
corporation, affiliate or subsidiary thereof. Chief Judge Parker, in McKee, explained the
reasons of the court, thus:
... A bank director has access to a great deal of information concerning
the business and plans of a bank which would likely be injurious to the
bank if known to another bank, and it was reasonable and prudent to
enlarge this minimum disqualification to include any director, officer,
employee, agent, nominee, or attorney of any other bank in California.
The Ashkins case, supra, specifically recognizes protection against rivals
and others who might acquire information which might be used against the
interests of the corporation as a legitimate object of by-law protection.
With respect to attorneys or persons associated with a firm which is
attorney for another bank, in addition to the direct conflict or potential
conflict of interest, there is also the danger of inadvertent leakage of
confidential information through casual office discussions or accessibility
of files. Defendant's directors determined that its welfare was best
protected if this opportunity for conflicting loyalties and potential misuse
and leakage of confidential information was foreclosed.
In McKee the Court further listed qualificational by-laws upheld by the courts, as follows:
(1) A director shall not be directly or indirectly interested as a stockholder
in any other firm, company, or association which competes with the
subject corporation.
(2) A director shall not be the immediate member of the family of any
stockholder in any other firm, company, or association which competes
with the subject corporation,
(3) A director shall not be an officer, agent, employee, attorney, or trustee
in any other firm, company, or association which compete with the subject
corporation.
(4) A director shall be of good moral character as an essential qualification
to holding office.
(5) No person who is an attorney against the corporation in a law suit is
eligible for service on the board. (At p. 7.)
These are not based on theorical abstractions but on human experience — that a person
cannot serve two hostile masters without detriment to one of them.
The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage
of his position as director of San Miguel Corporation, he would absent himself from meetings
at which confidential matters would be discussed, would not detract from the validity and
reasonableness of the by-laws here involved. Apart from the impractical results that would
ensue from such arrangement, it would be inconsistent with petitioner's primary motive in
running for board membership — which is to protect his investments in San Miguel
Corporation. More important, such a proposed norm of conduct would be against all accepted
principles underlying a director's duty of fidelity to the corporation, for the policy of the law is to
encourage and enforce responsible corporate management. As explained by Oleck: 31 "The
law win not tolerate the passive attitude of directors ... without active and conscientious
participation in the managerial functions of the company. As directors, it is their duty to control
and supervise the day to day business activities of the company or to promulgate definite
policies and rules of guidance with a vigilant eye toward seeing to it that these policies are
carried out. It is only then that directors may be said to have fulfilled their duty of fealty to the
corporation."
Sound principles of corporate management counsel against sharing sensitive information with
a director whose fiduciary duty of loyalty may well require that he disclose this information to a
competitive arrival. These dangers are enhanced considerably where the common director
such as the petitioner is a controlling stockholder of two of the competing corporations. It
would seem manifest that in such situations, the director has an economic incentive to
appropriate for the benefit of his own corporation the corporate plans and policies of the
corporation where he sits as director.
Indeed, access by a competitor to confidential information regarding marketing strategies and
pricing policies of San Miguel Corporation would subject the latter to a competitive
disadvantage and unjustly enrich the competitor, for advance knowledge by the competitor of
the strategies for the development of existing or new markets of existing or new products could
enable said competitor to utilize such knowledge to his advantage. 32
There is another important consideration in determining whether or not the amended by-laws
are reasonable. The Constitution and the law prohibit combinations in restraint of trade or
unfair competition. Thus, section 2 of Article XIV of the Constitution provides: "The State shall
regulate or prohibit private monopolies when the public interest so requires. No combinations
in restraint of trade or unfair competition shall be snowed."
Article 186 of the Revised Penal Code also provides:
Art. 186. Monopolies and combinations in restraint of trade. —The penalty
of prision correccional in its minimum period or a fine ranging from two
hundred to six thousand pesos, or both, shall be imposed upon:
1. Any person who shall enter into any contract or agreement or shall take
part in any conspiracy or combination in the form of a trust or otherwise, in
restraint of trade or commerce or to prevent by artificial means free
competition in the market.
2. Any person who shag monopolize any merchandise or object of trade
or commerce, or shall combine with any other person or persons to
monopolize said merchandise or object in order to alter the price thereof
by spreading false rumors or making use of any other artifice to restrain
free competition in the market.
3. Any person who, being a manufacturer, producer, or processor of any
merchandise or object of commerce or an importer of any merchandise or
object of commerce from any foreign country, either as principal or agent,
wholesale or retailer, shall combine, conspire or agree in any manner with
any person likewise engaged in the manufacture, production, processing,
assembling or importation of such merchandise or object of commerce or
with any other persons not so similarly engaged for the purpose of making
 transactions prejudicial to lawful commerce, or of increasing the market
price in any part of the Philippines, or any such merchandise or object of
commerce manufactured, produced, processed, assembled in or imported
into the Philippines, or of any article in the manufacture of which such
manufactured, produced, processed, or imported merchandise or object of
commerce is used.
There are other legislation in this jurisdiction, which prohibit monopolies and combinations in
restraint of trade. 33
Basically, these anti-trust laws or laws against monopolies or combinations in restraint of trade
are aimed at raising levels of competition by improving the consumers' effectiveness as the
final arbiter in free markets. These laws are designed to preserve free and unfettered
competition as the rule of trade. "It rests on the premise that the unrestrained interaction of
competitive forces will yield the best allocation of our economic resources, the lowest prices
and the highest quality ... ." 34 they operate to forestall concentration of economic power. 35 The
law against monopolies and combinations in restraint of trade is aimed at contracts and
combinations that, by reason of the inherent nature of the contemplated acts, prejudice the
public interest by unduly restraining competition or unduly obstructing the course of trade. 36
The terms "monopoly", "combination in restraint of trade" and "unfair competition" appear to
have a well defined meaning in other jurisdictions. A "monopoly" embraces any combination
the tendency of which is to prevent competition in the broad and general sense, or to control
prices to the detriment of the public. 37 In short, it is the concentration of business in the hands
of a few. The material consideration in determining its existence is not that prices are raised
and competition actually excluded, but that power exists to raise prices or exclude competition
when desired. 38 Further, it must be considered that the Idea of monopoly is now understood to
include a condition produced by the mere act of individuals. Its dominant thought is the notion
of exclusiveness or unity, or the suppression of competition by the qualification of interest or
management, or it may be thru agreement and concert of action. It is, in brief, unified tactics
with regard to prices. 39
From the foregoing definitions, it is apparent that the contentions of petitioner are not in accord
with reality. The election of petitioner to the Board of respondent Corporation can bring about
an illegal situation. This is because an express agreement is not necessary for the existence of
a combination or conspiracy in restraint of trade. 40 It is enough that a concert of action is
contemplated and that the defendants conformed to the arrangements, 41 and what is to be
considered is what the parties actually did and not the words they used. For instance, the
Clayton Act prohibits a person from serving at the same time as a director in any two or more
corporations, if such corporations are, by virtue of their business and location of operation,
competitors so that the elimination of competition between them would constitute violation of
any provision of the anti-trust laws. 42 There is here a statutory recognition of the anti-
competitive dangers which may arise when an individual simultaneously acts as a director of
two or more competing corporations. A common director of two or more competing
corporations would have access to confidential sales, pricing and marketing information and
would be in a position to coordinate policies or to aid one corporation at the expense of
another, thereby stifling competition. This situation has been aptly explained by Travers, thus:
The argument for prohibiting competing corporations from sharing even
one director is that the interlock permits the coordination of policies
between nominally independent firms to an extent that competition
between them may be completely eliminated. Indeed, if a director, for
example, is to be faithful to both corporations, some accommodation must
result. Suppose X is a director of both Corporation A and Corporation B. X
could hardly vote for a policy by A that would injure B without violating his
duty of loyalty to B at the same time he could hardly abstain from voting
without depriving A of his best judgment. If the firms really do compete —
in the sense of vying for economic advantage at the expense of the other
— there can hardly be any reason for an interlock between competitors
other than the suppression of competition. 43 (Emphasis supplied.)
According to the Report of the House Judiciary Committee of the U. S. Congress on section 9
of the Clayton Act, it was established that: "By means of the interlocking directorates one man
or group of men have been able to dominate and control a great number of corporations ... to
the detriment of the small ones dependent upon them and to the injury of the public. 44
Shared information on cost accounting may lead to price fixing. Certainly, shared information
on production, orders, shipments, capacity and inventories may lead to control of production
for the purpose of controlling prices.
Obviously, if a competitor has access to the pricing policy and cost conditions of the products
of San Miguel Corporation, the essence of competition in a free market for the purpose of
serving the lowest priced goods to the consuming public would be frustrated, The competitor
could so manipulate the prices of his products or vary its marketing strategies by region or by
brand in order to get the most out of the consumers. Where the two competing firms control a
substantial segment of the market this could lead to collusion and combination in restraint of
trade. Reason and experience point to the inevitable conclusion that the inherent tendency of
interlocking directorates between companies that are related to each other as competitors is to
blunt the edge of rivalry between the corporations, to seek out ways of compromising opposing
interests, and thus eliminate competition. As respondent SMC aptly observes, knowledge by
CFC-Robina of SMC's costs in various industries and regions in the country win enable the
former to practice price discrimination. CFC-Robina can segment the entire consuming
population by geographical areas or income groups and change varying prices in order to
maximize profits from every market segment. CFC-Robina could determine the most profitable
volume at which it could produce for every product line in which it competes with SMC. Access
to SMC pricing policy by CFC-Robina would in effect destroy free competition and deprive the
consuming public of opportunity to buy goods of the highest possible quality at the lowest
prices.
Finally, considering that both Robina and SMC are, to a certain extent, engaged in agriculture,
then the election of petitioner to the Board of SMC may constitute a violation of the prohibition
contained in section 13(5) of the Corporation Law. Said section provides in part that "any
stockholder of more than one corporation organized for the purpose of engaging in agriculture
may hold his stock in such corporations solely for investment and not for the purpose of
bringing about or attempting to bring about a combination to exercise control of
incorporations ... ."
Neither are We persuaded by the claim that the by-law was Intended to prevent the candidacy
of petitioner for election to the Board. If the by-law were to be applied in the case of one
stockholder but waived in the case of another, then it could be reasonably claimed that the by-
law was being applied in a discriminatory manner. However, the by law, by its terms, applies to
all stockholders. The equal protection clause of the Constitution requires only that the by-law
operate equally upon all persons of a class. Besides, before petitioner can be declared
ineligible to run for director, there must be hearing and evidence must be submitted to bring his
case within the ambit of the disqualification. Sound principles of public policy and
management, therefore, support the view that a by-law which disqualifies a competition from
election to the Board of Directors of another corporation is valid and reasonable.
In the absence of any legal prohibition or overriding public policy, wide latitude may be
accorded to the corporation in adopting measures to protect legitimate corporation interests.
Thus, "where the reasonableness of a by-law is a mere matter of judgment, and upon which
reasonable minds must necessarily differ, a court would not be warranted in substituting its
judgment instead of the judgment of those who are authorized to make by-laws and who have
expressed their authority. 45
Although it is asserted that the amended by-laws confer on the present Board powers to
perpetua themselves in power such fears appear to be misplaced. This power, but is very
nature, is subject to certain well established limitations. One of these is inherent in the very
convert and definition of the terms "competition" and "competitor". "Competition" implies a
struggle for advantage between two or more forces, each possessing, in substantially similar if
not Identical degree, certain characteristics essential to the business sought. It means an
independent endeavor of two or more persons to obtain the business patronage of a third by
offering more advantageous terms as an inducement to secure trade. 46 The test must be
whether the business does in fact compete, not whether it is capable of an indirect and highly
unsubstantial duplication of an isolated or non-characteristics activity. 47 It is, therefore,
obvious that not every person or entity engaged in business of the same kind is a competitor.
Such factors as quantum and place of business, Identity of products and area of competition
should be taken into consideration. It is, therefore, necessary to show that petitioner's
business covers a substantial portion of the same markets for similar products to the extent of
not less than 10% of respondent corporation's market for competing products. While We here
sustain the validity of the amended by-laws, it does not follow as a necessary consequence
that petitioner is ipso facto disqualified. Consonant with the requirement of due process, there
must be due hearing at which the petitioner must be given the fullest opportunity to show that
he is not covered by the disqualification. As trustees of the corporation and of the
stockholders, it is the responsibility of directors to act with fairness to the stockholders. 48
Pursuant to this obligation and to remove any suspicion that this power may be utilized by the
incumbent members of the Board to perpetuate themselves in power, any decision of the
Board to disqualify a candidate for the Board of Directors should be reviewed by the Securities
behind Exchange Commission en banc and its decision shall be final unless reversed by this
Court on certiorari. 49 Indeed, it is a settled principle that where the action of a Board of
Directors is an abuse of discretion, or forbidden by statute, or is against public policy, or is ultra
vires, or is a fraud upon minority stockholders or creditors, or will result in waste, dissipation or
misapplication of the corporation assets, a court of equity has the power to grant appropriate
relief. 50
III
Whether or not respondent SEC gravely abused its discretion in denying petitioner's request
for an examination of the records of San Miguel International Inc., a fully owned subsidiary of
San Miguel Corporation —
Respondent San Miguel Corporation stated in its memorandum that petitioner's claim that he
was denied inspection rights as stockholder of SMC "was made in the teeth of undisputed
facts that, over a specific period, petitioner had been furnished numerous documents and
information," to wit: (1) a complete list of stockholders and their stockholdings; (2) a complete
list of proxies given by the stockholders for use at the annual stockholders' meeting of May 18,
1975; (3) a copy of the minutes of the stockholders' meeting of March 18,1976; (4) a
breakdown of SMC's P186.6 million investment in associated companies and other companies
as of December 31, 1975; (5) a listing of the salaries, allowances, bonuses and other
compensation or remunerations received by the directors and corporate officers of SMC; (6) a
copy of the US $100 million Euro-Dollar Loan Agreement of SMC; and (7) copies of the
minutes of all meetings of the Board of Directors from January 1975 to May 1976, with
deletions of sensitive data, which deletions were not objected to by petitioner.
Further, it was averred that upon request, petitioner was informed in writing on September 18,
1976; (1) that SMC's foreign investments are handled by San Miguel International, Inc.,
incorporated in Bermuda and wholly owned by SMC; this was SMC's first venture abroad,
having started in 1948 with an initial outlay of ?500,000.00, augmented by a loan of Hongkong
$6 million from a foreign bank under the personal guaranty of SMC's former President, the late
Col. Andres Soriano; (2) that as of December 31, 1975, the estimated value of SMI would
amount to almost P400 million (3) that the total cash dividends received by SMC from SMI
since 1953 has amount to US $ 9.4 million; and (4) that from 1972-1975, SMI did not declare
cash or stock dividends, all earnings having been used in line with a program for the setting up
of breweries by SMI
These averments are supported by the affidavit of the Corporate Secretary, enclosing
photocopies of the afore-mentioned documents. 51
Pursuant to the second paragraph of section 51 of the Corporation Law, "(t)he record of all
business transactions of the corporation and minutes of any meeting shall be open to the
inspection of any director, member or stockholder of the corporation at reasonable hours."
The stockholder's right of inspection of the corporation's books and records is based upon their
ownership of the assets and property of the corporation. It is, therefore, an incident of
ownership of the corporate property, whether this ownership or interest be termed an equitable
ownership, a beneficial ownership, or a ownership. 52 This right is predicated upon the
necessity of self-protection. It is generally held by majority of the courts that where the right is
granted by statute to the stockholder, it is given to him as such and must be exercised by him
with respect to his interest as a stockholder and for some purpose germane thereto or in the
interest of the corporation. 53 In other words, the inspection has to be germane to the
petitioner's interest as a stockholder, and has to be proper and lawful in character and not
inimical to the interest of the corporation. 54 In Grey v. Insular Lumber, 55 this Court held that
"the right to examine the books of the corporation must be exercised in good faith, for specific
and honest purpose, and not to gratify curiosity, or for specific and honest purpose, and not to
gratify curiosity, or for speculative or vexatious purposes. The weight of judicial opinion
appears to be, that on application for mandamus to enforce the right, it is proper for the court
to inquire into and consider the stockholder's good faith and his purpose and motives in
seeking inspection. 56 Thus, it was held that "the right given by statute is not absolute and may
be refused when the information is not sought in good faith or is used to the detriment of the
corporation." 57 But the "impropriety of purpose such as will defeat enforcement must be set up
the corporation defensively if the Court is to take cognizance of it as a qualification. In other
words, the specific provisions take from the stockholder the burden of showing propriety of
purpose and place upon the corporation the burden of showing impropriety of purpose or
motive. 58 It appears to be the general rule that stockholders are entitled to full information as
to the management of the corporation and the manner of expenditure of its funds, and to
inspection to obtain such information, especially where it appears that the company is being
mismanaged or that it is being managed for the personal benefit of officers or directors or
certain of the stockholders to the exclusion of others." 59
While the right of a stockholder to examine the books and records of a corporation for a lawful
purpose is a matter of law, the right of such stockholder to examine the books and records of a
wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing.
Some state courts recognize the right under certain conditions, while others do not. Thus, it
has been held that where a corporation owns approximately no property except the shares of
stock of subsidiary corporations which are merely agents or instrumentalities of the holding
company, the legal fiction of distinct corporate entities may be disregarded and the books,
papers and documents of all the corporations may be required to be produced for examination,
60
and that a writ of mandamus, may be granted, as the records of the subsidiary were, to all
incontents and purposes, the records of the parent even though subsidiary was not named as
a party. 61 mandamus was likewise held proper to inspect both the subsidiary's and the parent
corporation's books upon proof of sufficient control or dominion by the parent showing the
relation of principal or agent or something similar thereto. 62
On the other hand, mandamus at the suit of a stockholder was refused where the subsidiary
corporation is a separate and distinct corporation domiciled and with its books and records in
another jurisdiction, and is not legally subject to the control of the parent company, although it
owned a vast majority of the stock of the subsidiary. 63 Likewise, inspection of the books of an
allied corporation by stockholder of the parent company which owns all the stock of the
subsidiary has been refused on the ground that the stockholder was not within the class of
"persons having an interest." 64
In the Nash case, 65 The Supreme Court of New York held that the contractual right of former
stockholders to inspect books and records of the corporation included the right to inspect
corporation's subsidiaries' books and records which were in corporation's possession and
control in its office in New York."
In the Bailey case, 66 stockholders of a corporation were held entitled to inspect the records of
a controlled subsidiary corporation which used the same offices and had Identical officers and
directors.
In his "Urgent Motion for Production and Inspection of Documents" before respondent SEC,
petitioner contended that respondent corporation "had been attempting to suppress
information for the stockholders" and that petitioner, "as stockholder of respondent corporation,
is entitled to copies of some documents which for some reason or another, respondent
corporation is very reluctant in revealing to the petitioner notwithstanding the fact that no harm
would be caused thereby to the corporation." 67 There is no question that stockholders are
entitled to inspect the books and records of a corporation in order to investigate the conduct of
the management, determine the financial condition of the corporation, and generally take an
account of the stewardship of the officers and directors. 68
In the case at bar, considering that the foreign subsidiary is wholly owned by respondent San
Miguel Corporation and, therefore, under its control, it would be more in accord with equity,
good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect
the books and records of the corporation as extending to books and records of such wholly
subsidiary which are in respondent corporation's possession and control.
IV
Whether or not respondent SEC gravely abused its discretion in allowing the stockholders of
respondent corporation to ratify the investment of corporate funds in a foreign corporation
Petitioner reiterates his contention in SEC Case No. 1423 that respondent corporation
invested corporate funds in SMI without prior authority of the stockholders, thus violating
section 17-1/2 of the Corporation Law, and alleges that respondent SEC should have
investigated the charge, being a statutory offense, instead of allowing ratification of the
investment by the stockholders.
Respondent SEC's position is that submission of the investment to the stockholders for
ratification is a sound corporate practice and should not be thwarted but encouraged.
Section 17-1/2 of the Corporation Law allows a corporation to "invest its funds in any other
corporation or business or for any purpose other than the main purpose for which it was
organized" provided that its Board of Directors has been so authorized by the affirmative vote
of stockholders holding shares entitling them to exercise at least two-thirds of the voting
power. If the investment is made in pursuance of the corporate purpose, it does not need the
approval of the stockholders. It is only when the purchase of shares is done solely for
investment and not to accomplish the purpose of its incorporation that the vote of approval of
the stockholders holding shares entitling them to exercise at least two-thirds of the voting
power is necessary. 69
As stated by respondent corporation, the purchase of beer manufacturing facilities by SMC
was an investment in the same business stated as its main purpose in its Articles of
Incorporation, which is to manufacture and market beer. It appears that the original investment
was made in 1947-1948, when SMC, then San Miguel Brewery, Inc., purchased a beer
brewery in Hongkong (Hongkong Brewery & Distillery, Ltd.) for the manufacture and marketing
of San Miguel beer thereat. Restructuring of the investment was made in 1970-1971 thru the
organization of SMI in Bermuda as a tax free reorganization.
Under these circumstances, the ruling in De la Rama v. Manao Sugar Central Co., Inc., supra,
appears relevant. In said case, one of the issues was the legality of an investment made by
Manao Sugar Central Co., Inc., without prior resolution approved by the affirmative vote of 2/3
of the stockholders' voting power, in the Philippine Fiber Processing Co., Inc., a company
engaged in the manufacture of sugar bags. The lower court said that "there is more logic in the
stand that if the investment is made in a corporation whose business is important to the
investing corporation and would aid it in its purpose, to require authority of the stockholders
would be to unduly curtail the power of the Board of Directors." This Court affirmed the ruling
of the court a quo on the matter and, quoting Prof. Sulpicio S. Guevara, said:
"j. Power to acquire or dispose of shares or securities. — A private
corporation, in order to accomplish is purpose as stated in its articles of
incorporation, and subject to the limitations imposed by the Corporation
Law, has the power to acquire, hold, mortgage, pledge or dispose of
shares, bonds, securities, and other evidence of indebtedness of any
domestic or foreign corporation. Such an act, if done in pursuance of the
corporate purpose, does not need the approval of stockholders; but when
the purchase of shares of another corporation is done solely for
investment and not to accomplish the purpose of its incorporation, the
vote of approval of the stockholders is necessary. In any case, the
purchase of such shares or securities must be subject to the limitations
established by the Corporations law; namely, (a) that no agricultural or
mining corporation shall be restricted to own not more than 15% of the
voting stock of nay agricultural or mining corporation; and (c) that such
holdings shall be solely for investment and not for the purpose of bringing
about a monopoly in any line of commerce of combination in restraint of
trade." The Philippine Corporation Law by Sulpicio S. Guevara, 1967 Ed.,
p. 89) (Emphasis supplied.)
40. Power to invest corporate funds. — A private corporation has the
power to invest its corporate funds "in any other corporation or business,
or for any purpose other than the main purpose for which it was
organized, provide that 'its board of directors has been so authorized in a
resolution by the affirmative vote of stockholders holding shares in the
corporation entitling them to exercise at least two-thirds of the voting
power on such a propose at a stockholders' meeting called for that
purpose,' and provided further, that no agricultural or mining corporation
 shall in anywise be interested in any other agricultural or mining
corporation. When the investment is necessary to accomplish its purpose
or purposes as stated in its articles of incorporation the approval of the
stockholders is not necessary."" (Id., p. 108) (Emphasis ours.) (pp. 258-
259).
Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed
investment, there is no question that a corporation, like an individual, may ratify and thereby
render binding upon it the originally unauthorized acts of its officers or other agents. 70 This is
true because the questioned investment is neither contrary to law, morals, public order or
public policy. It is a corporate transaction or contract which is within the corporate powers, but
which is defective from a supported failure to observe in its execution the. requirement of the
law that the investment must be authorized by the affirmative vote of the stockholders holding
two-thirds of the voting power. This requirement is for the benefit of the stockholders. The
stockholders for whose benefit the requirement was enacted may, therefore, ratify the
investment and its ratification by said stockholders obliterates any defect which it may have
had at the outset. "Mere ultra vires acts", said this Court in Pirovano, 71 "or those which are not
illegal and void ab initio, but are not merely within the scope of the articles of incorporation, are
merely voidable and may become binding and enforceable when ratified by the stockholders.
Besides, the investment was for the purchase of beer manufacturing and marketing facilities
which is apparently relevant to the corporate purpose. The mere fact that respondent
corporation submitted the assailed investment to the stockholders for ratification at the annual
meeting of May 10, 1977 cannot be construed as an admission that respondent corporation
had committed an ultra vires act, considering the common practice of corporations of
periodically submitting for the gratification of their stockholders the acts of their directors,
officers and managers.
WHEREFORE, judgment is hereby rendered as follows:
The Court voted unanimously to grant the petition insofar as it prays that petitioner be allowed
to examine the books and records of San Miguel International, Inc., as specified by him.
On the matter of the validity of the amended by-laws of respondent San Miguel Corporation,
six (6) Justices, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De
Castro, voted to sustain the validity per se of the amended by-laws in question and to dismiss
the petition without prejudice to the question of the actual disqualification of petitioner John
Gokongwei, Jr. to run and if elected to sit as director of respondent San Miguel Corporation
being decided, after a new and proper hearing by the Board of Directors of said corporation,
whose decision shall be appealable to the respondent Securities and Exchange Commission
deliberating and acting en banc and ultimately to this Court. Unless disqualified in the manner
herein provided, the prohibition in the afore-mentioned amended by-laws shall not apply to
petitioner.
The afore-mentioned six (6) Justices, together with Justice Fernando, voted to declare the
issue on the validity of the foreign investment of respondent corporation as moot.
Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws,
pending hearing by this Court on the applicability of section 13(5) of the Corporation Law to
petitioner.
Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but
otherwise concurs in the result.
Four (4) Justices, namely, Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero filed
a separate opinion, wherein they voted against the validity of the questioned amended bylaws
and that this question should properly be resolved first by the SEC as the agency of primary
jurisdiction. They concur in the result that petitioner may be allowed to run for and sit as
director of respondent SMC in the scheduled May 6, 1979 election and subsequent elections
until disqualified after proper hearing by the respondent's Board of Directors and petitioner's
disqualification shall have been sustained by respondent SEC en banc and ultimately by final
judgment of this Court.
In resume, subject to the qualifications aforestated judgment is hereby rendered GRANTING
the petition by allowing petitioner to examine the books and records of San Miguel
International, Inc. as specified in the petition. The petition, insofar as it assails the validity of
the amended by- laws and the ratification of the foreign investment of respondent corporation,
for lack of necessary votes, is hereby DISMISSED. No costs.
Makasiar, Santos Abad Santos and De Castro, JJ., concur.
Aquino, and Melencio Herrera JJ., took no part.
Separate Opinions
TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ., concurring:
I
As correctly stated in the main opinion of Mr. Justice Antonio, the Court is unanimous in its judgment
granting the petitioner as stockholder of respondent San Miguel Corporation the right to inspect, examine
and secure copies of the records of San Miguel International, inc. (SMI), a wholly owned foreign subsidiary
corporation of respondent San Miguel Corporation. Respondent commissions en banc Order No. 449,
Series of 19 7 7, denying petitioner's right of inspection for "not being a stockholder of San Miguel
International, Inc." has been accordingly set aside. It need be only pointed out that:
a) The commission's reasoning grossly disregards the fact that the stockholders of
San Miguel Corporation are likewise the owners of San Miguel International, Inc. as
the corporation's wholly owned foreign subsidiary and therefore have every right to
have access to its books and records. otherwise, the directors and management of
any Philippine corporation by the simple device of organizing with the corporation's
funds foreign subsidiaries would be granted complete immunity from the
stockholders' scrutiny of its foreign operations and would have a conduit for
dissipating, if not misappropriating, the corporation funds and assets by merely
channeling them into foreign subsidiaries' operations; and
b) Petitioner's right of examination herein recognized refers to all books and records
of the foreign subsidiary SMI which are which are " in respondent corporation's
possession and control" 1, meaning to say regardless of whether or not such books
and records are physically within the Philippines. all such books and records of SMI
are legally within respondent corporation's "possession and control" and if nay books
or records are kept abroad, (e.g. in the foreign subsidiary's state of domicile, as is to
be expected), then the respondent corporation's board and management are obliged
under the Court's judgment to bring and make them (or true copies thereof available
within the Philippines for petitioner's examination and inspection.
II
On the other main issue of the Validity of respondent San Miguel Corporation's amendment of its by-laws 2
whereby respondent corporation's board of directors under its resolution dated April 29, 1977 declared
petitioner ineligible to be nominated or to be voted or to be elected as of the board of directors, the Court,
composed of 12 members (since Mme. Justice Ameurfina Melencio Herrera inhibited herself from taking
part herein, while Mr. Justice Ramon C. Aquino upon submittal of the main opinion of Mr. Justice Antonio
decided not to take part), failed to reach a conclusive vote or, the required majority of 8 votes to settle the
issue one way or the other.
Six members of the Court, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De
Castro, considered the issue purely legal and voted to sustain the validity per se of the questioned amended
by-laws but nevertheless voted that the prohibition and disqualification therein provided shall not apply to
petitioner Gokongwei until and after he shall have been given a new and proper hearing" by the
corporation's board of directors and the board's decision of disqualification she'll have been sustained on
appeal by respondent Securities and Exchange Commission and ultimately by this Court.
The undersigned Justices do not consider the issue as purely legal in the light of respondent commission's
Order No. 451, Series of 1977, denying petitioner's "Motion for Summary Judgment" on the ground that "the
Commission en banc finds that there (are) unresolved and genuine issues of fact" 3 as well as its position in
this case to the Solicitor General that the case at bar is "premature" and that the administrative remedies
before the commission should first be availed of and exhausted. 4
We are of the opinion that the questioned amended by-laws, as they are, (adopted after almost a century of
respondent corporation's existence as a public corporation with its shares freely purchased and traded in the
open market without restriction and disqualification) which would bar petitioner from qualification, nomination
and election as director and worse, grant the board by 3/4 vote the arbitrary power to bar any stockholder
from his right to be elected as director by the simple expedient of declaring him to be engaged in a
"competitive or antagonistic business" or declaring him as a "nominee" of the competitive or antagonistic"
stockholder are illegal, oppressive, arbitrary and unreasonable.
We consider the questioned amended by-laws as being specifically tailored to discriminate against petitioner
and depriving him in violation of substantive due process of his vested substantial rights as stockholder of
respondent corporation. We further consider said amended by-laws as violating specific provisions of the
Corporation Law which grant and recognize the right of a minority stockholder like petitioner to be elected
director by the process of cumulative voting ordained by the Law (secs 21 and 30) and the right of a minority
director once elected not to be removed from office of director except for cause by vote of the stockholders
holding 2/3 of the subscribed capital stock (sec. 31). If a minority stockholder could be disqualified by such a
by-laws amendment under the guise of providing for "qualifications," these mandates of the Corporation Law
would have no meaning or purpose.
These vested and substantial rights granted stockholders under the Corporation Law may not be diluted or
defeated by the general authority granted by the Corporation Law itself to corporations to adopt their by-laws
(in section 21) which deal principally with the procedures governing their internal business. The by-laws of
any corporation must, be always within the character limits. What the Corporation Law has granted
stockholders may not be taken away by the corporation's by-laws. The amendment is further an instrument
of oppressiveness and arbitrariness in that the incumbent directors are thereby enabled to perpetuate
themselves in office by the simple expedient of disqualifying any unwelcome candidate, no matter how many
votes he may have.
However, in view of the inconclusiveness of the vote, we sustain respondent commission's stand as
expressed in its Orders Nos. 450 and 451, Series of 1977 that there are unresolved and genuine issues of
fact" and that it has yet to rule on and finally decide the validity of the disputed by-law provision", subject to
appeal by either party to this Court.
In view of prematurity of the proceedings here (as likewise expressed by Mr. Justice Fernando), the case
should as a consequence be remanded to the Securities and Exchange Commission as the agency of
primary jurisdiction for a full hearing and reception of evidence of all relevant facts (which should property be
submitted to the commission instead of the piecemeal documents submitted as annexes to this Court which
is not a trier of facts) concerning not only the petitioner but the members of the board of directors of
respondent corporation as well, so that it may determine on the basis thereof the issue of the legality of the
questioned amended by-laws, and assuming Chat it holds the same to be valid whether the same are
arbitrarily and unreasonably applied to petitioner vis a vis other directors, who, petitioner claims, should in
such event be likewise disqualified from sitting in the board of directors by virtue of conflict of interests or
their being likewise engaged in competitive or antagonistic business" with the corporation such as
investment and finance, coconut oil mills cement, milk and hotels. 5
It should be noted that while the petition may be dismissed in view of the inconclusiveness of the vote and
the Court's failure to affair, the required 8-vote majority to resolve the issue, such as dismissal (for lack of
necessary votes) is of no doctrine value and does not in any manner resolve the issue of the validity of the
questioned amended by-laws nor foreclose the same. The same should properly be determined in a proper
case in the first instance by the Securities and Exchange Commission as the agency of primary jurisdiction,
as above indicated.
The Court is unanimous, therefore, in its judgment that petitioner Gokongwei may run for the office of, and if
elected, sit as, member of the board of directors of respondent San Miguel Corporation as stated in the
dispositive portion of the main opinion of Mr. Justice Antonio, to wit: Until and after petitioner has been given
a "new and proper hearing by the board of directors of said corporation, whose decision shall be appealable
Lo the respondent Securities and Exchange Commission deliverating and acting en banc and ultimately to
this Court" and until ' disqualified in the manner herein provided, the prohibition in the aforementioned
amended by-laws shall not apply to petitioner," In other words, until and after petitioner shall have been
given due process and proper hearing by the respondent board of directors as to the question of his
qualification or disqualification under the questioned amended by-laws (assuming that the respondent
Securities and Exchange C commission ultimately upholds the validity of said by laws), and such
disqualification shall have been sustained by respondent Securities and Exchange Commission and
ultimately by final judgment of this Court, petitioner is deemed eligible for all legal purposes and effects to be
nominated and voted and if elected to sit as a member of the hoard of directors of respondent San Miguel
Corporation.
In view of the Court's unanimous judgment on this point the portion of respondent commission's Order No.
450, Series of 977 which imposed "the condition that he [petitioner] cannot sit as board member if elected
until after the Commission shall have finally decided the validity of the disputed by-law provision" has been
likewise accordingly set aside.
III
By way of recapitulation, so that the Court's decision and judgment may be clear and not subject to
ambiguity, we state the following.
1. With the votes of the six Justices concurring unqualifiedly in the main opinion added to our four votes,
plus the Chief Justice's vote and that of Mr. Justice Fernando, the Court has by twelve (12) votes
unanimously rendered judgment granting petitioner's right to examine and secure copies of the books and
records of San Miguel International, Inc. as a foreign subsidiary of respondent corporation and respondent
commission's Order No. 449, Series of 1977, to the contrary is set aside:
2. With the same twelve (12) votes, the Court has also unanimously rendered judgment declaring that until
and after petitioner shall have been given due process and proper hearing by the respondent board of
directors as to the question of his disqualification under the questioned amended by- laws (assuming that
the respondent Securities and Exchange Commission ultimately upholds the validity of said by laws), and
such disqualification shall have been sustained by respondent Securities and Exchange Commission and
ultimately by final judgment of this Court petitioner is deemed eligible for all legal purposes and effect to be
nominated and voted and if elected to sit as a member of the board of directors of respondent San Miguel
Corporation. Accordingly, respondent commission's Order No. 450, Series of 1977 to the contrary has
likewise been set aside; and
3. The Court's voting on the validity of respondent corporation's amendment of the by-laws (sec. 2, Art. 111)
is inconclusive without the required majority of eight votes to settle the issue one way or the other having
been reached. No judgment is rendered by the Court thereon and the statements of the six Justices who
have signed the main opinion on the legality thereof have no binding effect, much less doctrinal value.
The dismissal of the petition insofar as the question of the validity of the disputed by-laws amendment is
concerned is not by an judgment with the required eight votes but simply by force of Rule 56, section II of
the Rules of Court, the pertinent portion of which provides that "where the court en banc is equally divided in
opinion, or the necessary majority cannot be had, the case shall be reheard, and if on re-hearing no decision
is reached, the action shall be dismissed if originally commenced in the court ...." The end result is that the
Court has thereby dismissed the petition which prayed that the Court bypass the commission and directly
resolved the issue and therefore the respondent commission may now proceed, as announced in its Order
No. 450, Series of 1977, to hear the case before it and receive all relevant evidence bearing on the issue as
hereinabove indicated, and resolve the "unresolved and genuine issues of fact" (as per Order No. 451,
Series of 1977) and the issues of legality of the disputed by-laws amendment.
Teehankee, Concepcion, Jr., and Fernandez, JJ., concur.
Guerrero, J., concurred.
TEEHANKEE, CONCEPCION JR.,
FERNANDEZ and GUERRERO, JJ., concurring:
This supplemental opinion is issued with reference to the advance separate opinion of Mr. Justice Barredo
issued by him as to "certain misimpressions as to the import of the decision in this case" which might be
produced by our joint separate opinion of April 11, 1979 and "urgent(ly) to clarify (his) position in respect to
the rights of the parties resulting from the dismissal of the petition herein and the outline of the procedure by
which the disqualification of petitioner Gokongwei can be made effective."
1. Mr. Justice Barredo's advances separate opinion "that as between the parties herein, the issue of the
validity of the challenged by-laws is already settled" had, of course, no binding effect. The judgment of the
Court is found on pages 59-61 of the decision of April 11, 1979, penned by Mr. Justice Antonio, wherein on
the question of the validity of the amended by-laws the Court's inconclusive voting is set forth as follows:
Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-
laws, pending hearing by this Court on the applicability of section 13(5) of the
Corporation Law to petitioner.
Justice Fernando reserved his vote on the validity of subject amendment to the by-
laws but otherwise concurs in the result.
Four (4) Justices, namely, Justices Teehankee, Concepcion Jr., Fernandez and
Guerrero filed a separate opinion, wherein they voted against the validity of the
questioned amended by-laws and that this question should properly be resolved first
by the SEC as the agency of primary jurisdiction ... 1
As stated in said judgment itself, for lack of the necessary votes, the petition, insofar as it assails the validity
of the questioned by-laws, was dismissed.
2. Mr. Justice Barredo now contends contrary to the undersigned's understanding, as stated on pages 8 and
9 of our joint separate opinion of April 11, 1979 that the legal effect of the dismissal of the petition on the
question of validity of the amended by-laws for lack of the necessary votes simply means that "the Court has
thereby dismissed the petition which prayed that the Court by-pass the commission and directly resolve the
issue and therefore the respondent commission may now proceed, as announced in its Order No. 450,
Series of 1977, to hear the case before it and receive all relevant evidence bearing on the issue as
hereinabove indicated, and resolve the 'unresolved and genuine issues of fact' (as per Order No. 451,
Series of 1977) and the issue of legality of the disputed by-laws amendment," that such dismissal "has no
other legal consequence than that it is the law of the case as far as the parties are concerned, albeit the
majority of the opinion of six against four Justices is not doctrinal in the sense that it cannot be cited as
necessarily a precedent for subsequent cases."
We hold on our part that the doctrine of the law of the case invoked by Mr. Justice Barredo has no
applicability for the following reasons:
a) Our jurisprudence is quite clear that this doctrine may be invoked only where there has been a final and
conclusive determination of an issue in the first case later invoked as the law of the case.
Thus, in People vs. Olarte, 2 we held that
"Law of the case" has been defined as the opinion delivered on a former appeal
More specifically, it means that whatever is once irrevocably established as the
controlling legal rule of decision between the same parties in the same case
continues to he the law of the case, whether correct on general principles or not, so
long as the facts on which such decision was predicated continue to be the facts of
the case before the court. ...
It need not be stated that the Supreme Court, being the court of last resort, is the
final arbiter of all legal questions properly brought before it and that its decision in
any given case constitutes the law of that particular case. Once its judgment
becomes final it is binding on all inferior courts, and hence beyond their power and
authority to alter or modify Kabigting vs. Acting Director of Prisons, G. R. No. L-
15548, October 30, 1962).
The decision of this Court on that appeal by the government from the order of
dismissal, holding that said appeal did not place the appellants, including Absalon
Bignay, in double jeopardy, signed and concurred in by six Justices as against three
dissenters headed by the Chief Justice, promulgated way back in the year 1952, has
long become the law of the case. It may be erroneous, judged by the law on double
jeopardy as recently interpreted by this same Tribunal Even so, it may not be
disturbed and modified. Our recent interpretation of the law may be applied to new
cases, but certainly not to an old one finally and conclusively determined. As already
stated, the majority opinion in that appeal is now the law of the case. (People vs.
Pinuila)
The doctrine of the law of the case, therefore, has no applicability whatsoever herein insofar as the question
of the validity or invalidity of the amended by-laws is concerned. The Court's judgment of April 11, 1979
clearly shows that the voting on this question was inconclusive with six against four Justices and two other
Justices (the Chief Justice and Mr. Justice Fernando) expressly reserving their votes thereon, and Mr.
Justice Aquino while taking no part in effect likewise expressly reserved his vote thereon. No final and
conclusive determination could be reached on the issue and pursuant to the provisions of Rule 56, section
11, since this special civil action originally commenced in this Court, the action was simply dismissed with
the result that no law of the case was laid down insofar as the issue of the validity or invalidity of the
questioned by-laws is concerned, and the relief sought herein by petitioner that this Court by-pass the SEC
which has yet to hear and determine the same issue pending before it below and that this Court itself
directly resolve the said issue stands denied.
b) The contention of Mr. Justice Barredo that the result of the dismiss of the case was that "petitioner
Gokongwei may not hereafter act on the assumption that he can revive the issue of the validity whether in
the Securities and Exchange Commission, in this Court or in any other forum, unless he proceeds on the
basis of a factual milieu different from the setting of this case Not even the Securities and Exchange
Commission may pass on such question anymore at the instance of herein petitioner or anyone acting in his
stead or on his behalf, " appears to us to be untenable.
The Court through the decision of April 11, 1979, by the unanimous votes of the twelve participating Justices
headed by the Chief Justice, ruled that petitioner Gokongwei was entitled to a "new and proper hearing" by
the SMC board of directors on the matter of his disqualification under the questioned by-laws and that the
board's "decision shall be appealable to the respondent Securities and Exchange Commission deliberating
and acting en banc and ultimately to this Court (and) unless disqualified in the manner herein provided, the
prohibition in the aforementioned amended by-laws shall not apply to petitioner."
The entire Court, therefore, recognized that petitioner had not been given procedural due process by the
SMC board on the matter of his disqualification and that he was entitled to a "new and proper hearing". It
stands to reason that in such hearing, petitioner could raise not only questions of fact but questions of law,
particularly questions of law affecting the investing public and their right to representation on the board as
provided by law — not to mention that as borne out by the fact that no restriction whatsoever appears in the
court's decision, it was never contemplated that petitioner was to be limited to questions of fact and could
not raise the fundamental questions of law bearing on the invalidity of the questioned amended by-laws at
such hearing before the SMC board. Furthermore, it was expressly provided unanimously in the Court's
decision that the SMC board's decision on the disqualification of petitioner ("assuming the board of directors
of San Miguel Corporation should, after the proper hearing, disqualify him" as qualified in Mr. Justice
Barredo's own separate opinion, at page 2) shall be appealable to respondent Securities and Exchange
Commission "deliberating and acting en banc and "untimately to this Court." Again, the Court's judgment as
set forth in its decision of April 11, 1979 contains nothing that would warrant the opinion now expressed that
respondent Securities and Exchange Commission may not pass anymore on the question of the invalidity of
the amended by-laws. Certainly, it cannot be contended that the Court in dismissing the petition for lack of
necessary votes actually by-passed the Securities and Exchange Commission and directly ruled itself on the
invalidity of the questioned by-laws when it itself could not reach a final and conclusive vote (a minimum of
eight votes) on the issue and three other Justices (the Chief Justice and Messrs. Justices Fernando and
Aquino) had expressly reserved their vote until after further hearings (first before the Securities and
Exchange Commission and ultimately in this Court).
Such a view espoused by Mr. Justice Barredo could conceivably result in an incongruous situation where
supposedly under the law of this case the questioned by-laws would be held valid as against petitioner
Gokongwei and yet the same may be stricken off as invalid as to all other SMC shareholders in a proper
case.
3. It need only be pointed out that Mr. Justice Barredo's advance separate opinion can in no way affect or
modify the judgment of this Court as set forth in the decision of April 11, 1979 and discussed hereinabove.
The same bears the unqualified concurrence of only three Justices out of the six Justices who originally
voted for the validity per se of the questioned by-laws, namely, Messrs. Justices Antonio, Santos and De
Castro. Messrs. Justices Fernando and Makasiar did not concur therein but they instead concurred with the
limited concurrence of the Chief Justice touching on the law of the case which guardedly held that the Court
has not found merit in the claim that the amended bylaws in question are invalid but without in any manner
foreclosing the issue and as a matter of fact and law, without in any manner changing or modifying the
above-quoted vote of the Chief Justice as officially rendered in the decision of April 11, 1979, wherein he
precisely "reserved (his) vote on the validity of the amended by-laws."
4. A word on the separate opinion of Mr. Justice Pacifico de Castro attached to the advance separate
opinion of Mr. Justice Barredo. Mr. Justice De Castro advances his interpretation as to a restrictive
construction of section 13(5) of the Philippine Corporation Law, ignoring or disregarding the fact that during
the Court's deliberations it was brought out that this prohibitory provision was and is not raised in issue in
this case whether here or in the Securities and Exchange Commission below (outside of a passing
argument by Messrs. Angara, Abello, Concepcion, Regala & Cruz, as counsels for respondent Sorianos in
their Memorandum of June 26, 1978 that "(T)he disputed By-Laws does not prohibit petitioner from holding
onto, or even increasing his SMC investment; it only restricts any shifting on the part of petitioner from
passive investor to a director of the company." 3
As a consequence, the Court abandoned the Idea of calling for another hearing wherein the parties could
properly raise and discuss this question as a new issue and instead rendered the decision in question,
under which the question of section 13(5) could be raised at a new and proper hearing before the SMC
board and in the Securities and Exchange Commission and in due course before this Court (but with the
clear understanding that since both corporations, the Robina and SMC are engaged in agriculture as
submitted by the Sorianos' counsel in their said memorandum, the issue could be raised likewise against
SMC and its other shareholders, directors, if not against SMC itself. As expressly stated in the Chief
Justices reservation of his vote, the matter of the question of the applicability of the said section 13(5) to
petitioner would be heard by this Court at the appropriate time after the proceedings below (and necessarily
the question of the validity of the amended by-laws would be taken up anew and the Court would at that
time be able to reach a final and conclusive vote).
Mr. Justice De Castro's personal interpretation of the decision of April 11, 1979 that petitioner may be
allowed to run for election despite adverse decision of both the SMC board and the Securities and
Exchange Commission "only if he comes to this Court and obtains an injunction against the enforcement of
the decision disqualifying him" is patently contradictory of his vote on the matter as expressly given in the
judgment in the Court's decision of April 11, 1979 (at page 59) that petitioner could run and if elected, sit as
director of the respondent SMC and could be disqualified only after a "new and proper hearing by the board
of directors of said corporation, whose decision shall be appealable to the respondent Securities and
Exchange Commission deliberating and acting en banc and ultimately to this Court. Unless-disqualified in
the manner herein provided, the prohibition in the aforementioned amended by-laws shall not apply to
petitioner."
Teehankee, Concepcion Jr., Fernandez and Guerrero, JJ., concur.
BARREDO, J., concurring:
I reserved the filing of a separate opinion in order to state my own reasons for voting in favor of the validity
of the amended by-laws in question. Regrettably, I have not yet finished preparing the same. In view,
however, of the joint separate opinion of Justices Teehankee, Concepcion Jr., Fernandez and Guerrero, the
full text of which has just come to my attention, and which I am afraid might produce certain misimpressions
as to the import of the decision in this case, I consider it urgent to clarify my position in respect to the rights
of the parties resulting from the dismissal of the petition herein and the outlining of the procedure by which
the disqualification of petitioner Gokongwei can be made effective, hence this advance separate opinion.
To start with, inasmuch as petitioner Gokongwei himself placed the issue of the validity of said amended by-
laws squarely before the Court for resolution, because he feels, rightly or wrongly, he can no longer have
due process or justice from the Securities and Exchange Commission, and the private respondents have
joined with him in that respect, the six votes cast by Justices Makasiar, Antonio, Santos, Abad Santos, de
Castro and this writer in favor of validity of the amended by-laws in question, with only four members of this
Court, namely, Justices Teehankee, Concepcion Jr., Fernandez and Guerrero opining otherwise, and with
Chief Justice Castro and Justice Fernando reserving their votes thereon, and Justices Aquino and Melencio
Herrera not voting, thereby resulting in the dismissal of the petition "insofar as it assails the validity of the
amended by- laws ... for lack of necessary votes", has no other legal consequence than that it is the law of
the case as far as the parties herein are concerned, albeit the majority opinion of six against four Justices is
not doctrinal in the sense that it cannot be cited as necessarily a precedent for subsequent cases. This
means that petitioner Gokongwei and the respondents, including the Securities and Exchange Commission,
are bound by the foregoing result, namely, that the Court en banc has not found merit in the claim that the
amended by-laws in question are invalid. Indeed, it is one thing to say that dismissal of the case is not
doctrinal and entirely another thing to maintain that such dismissal leaves the issue unsettled. It is
somewhat of a misreading and misconstruction of Section 11 of Rule 56, contrary to the well-known
established norm observed by this Court, to state that the dismissal of a petition for lack of the necessary
votes does not amount to a decision on the merits. Unquestionably, the Court is deemed to find no merit in a
petition in two ways, namely, (1) when eight or more members vote expressly in that sense and (2) when the
required number of justices needed to sustain the same cannot be had.
I reiterate, therefore, that as between the parties herein, the issue of validity of the challenged by-laws is
already settled. From which it follows that the same are already enforceable-insofar as they are concerned.
Petitioner Gokongwei may not hereafter act on the assumption that he can revive the issue of validity
whether in the Securities and Exchange Commission, in this Court or in any other forum, unless he
proceeds on the basis of a factual milieu different from the setting of this case. Not even the Securities and
Exchange Commission may pass on such question anymore at the instance of herein petitioner or anyone
acting in his stead or on his behalf. The vote of four justices to remand the case thereto cannot alter the
situation.
It is very clear that under the decision herein, the issue of validity is a settled matter for the parties herein as
the law of the case, and it is only the actual implementation of the impugned amended by-laws in the
particular case of petitioner that remains to be passed upon by the Securities and Exchange Commission,
and on appeal therefrom to Us, assuming the board of directors of San Miguel Corporation should, after the
proper hearing, disqualify him.
To be sure, the record is replete with substantial indications, nay admissions of petitioner himself, that he is
a controlling stockholder of corporations which are competitors of San Miguel Corporation. The very
substantial areas of such competition involving hundreds of millions of pesos worth of businesses stand
uncontroverted in the records hereof. In fact, petitioner has even offered, if he should be elected, as director,
not to take part when the board takes up matters affecting the corresponding areas of competition between
his corporation and San Miguel. Nonetheless, perhaps, it is best that such evidence be formally offered at
the hearing contemplated in Our decision.
As to whether or not petitioner may sit in the board if he wins, definitely, under the decision in this case,
even if petitioner should win, he will have to immediately leave his position or should be ousted the moment
this Court settles the issue of his actual disqualification, either in a full blown decision or by denying the
petition for review of corresponding decision of the Securities and Exchange Commission unfavorable to
him. And, of course, as a matter of principle, it is to be expected that the matter of his disqualification should
be resolved expeditiously and within the shortest possible time, so as to avoid as much juridical injury as
possible, considering that the matter of the validity of the prohibition against competitors embodied in the
amended by-laws is already unquestionable among the parties herein and to allow him to be in the board for
sometime would create an obviously anomalous and legally incongruous situation that should not be
tolerated. Thus, all the parties concerned must act promptly and expeditiously.
Additionally, my reservation to explain my vote on the validity of the amended by-laws still stands.
Castro, C.J., concurs in Justice Barredo's statement that the dismissal (for lack of necessary votes) of the
petition to the extent that "it assails the validity of the amended by laws," is the law of the case at bar, which
means in effect that as far and only in so far as the parties and the Securities and Exchange Commission
are concerned, the Court has not found merit in the claim that the amended by-laws in question are invalid.
Antonio and Santos, JJ., concur.
DE CASTRO, J., concurring:
As stated in the decision penned by Justice Antonio, I voted to uphold the validity of the amendment to the
by-laws in question. What induced me to this view is the practical consideration easily perceived in the
following illustration: If a person becomes a stockholder of a corporation and gets himself elected as a
director, and while he is such a director, he forms his own corporation competitive or antagonistic to the
corporation of which he is a director, and becomes Chairman of the Board and President of his own
corporation, he may be removed from his position as director, admittedly one of trust and confidence. If this
is so, as seems undisputably to be the case, a person already controlling, and also the Chairman of the
Board and President of, a corporation, may be barred from becoming a member of the board of directors of
a competitive corporation. This is my view, even as I am for a restrictive interpretation of Section 13(5) of the
Philippine Corporation Law, under which I would limit the scope of the provision to corporations engaged in
agriculture, but only as the word agriculture" refers to its more stated meaning as distinguished from its
general and broad connotation. The term would then mean "farming" or raising the natural products of the
soil, such as by cultivation, in the manner as is required by the Public Land Act in the acquisition of
agricultural land, such as by homestead, before the patent may be issued. It is my opinion that under the
public land statute, the development of a certain portion of the land applied for as specified in the law as a
condition precedent before the applicant may obtain a patent, is cultivation, not let us say, poultry raising or
piggery, which may be included in the term Is agriculture" in its broad sense. For under Section 13(5) of the
Philippine Corporation Law, construed not in the strict way as I believe it should, because the provision is in
derogation of property rights, the petitioner in this case would be disqualified from becoming an officer of
either the San Miguel Corporation or his own supposedly agricultural corporations. It is thus beyond my
comprehension why, feeling as though I am the only member of the Court for a restricted interpretation of
Section 13(5) of Act 1459, doubt still seems to be in the minds of other members giving the cited provision
an unrestricted interpretation, as to the validity of the amended by-laws in question, or even holding them
null and void.
I concur with the observation of Justice Barredo that despite that less than six votes are for upholding the
validity of the by-laws, their validity is deemed upheld, as constituting the "law of the case." It could not be
otherwise, after the present petition is dismissed with the relief sought to declare null and void the said by-
laws being denied in effect. A vicious circle would be created if, should petitioner Gokongwei be barred or
disqualified from running by the Board of Directors of San Miguel Corporation and the Securities and
Exchange Commission sustain the Board, petitioner could come again to Us, raising the same question he
has raised in the present petition, unless the principle of the "law of the case" is applied.
Clarifying therefore, my position, I am of the opinion that with the validity of the by-laws in question standing
unimpaired it is now for petitioner to show that he does not come within the disqualification as therein
provided, both to the Board and later to the Securities and Exchange Commission, it being a foregone
conclusion that, unless petitioner disposes of his stockholdings in the so-called competitive corporations,
San Miguel Corporation would apply the by-laws against him, His right, therefore, to run depends on what,
on election day, May 8, 1979, the ruling of the Board and/or the Securities and Exchange Commission on
his qualification to run would be, certainly, not the final ruling of this Court in the event recourse thereto is
made by the party feeling aggrieved, as intimated in the "Joint Separate Opinion" of Justices Teehankee,
Concepcion, Jr., Fernandez and Guerrero, that only after petitioner's "disqualification" has ultimately been
passed upon by this Court should petitioner, not be allowed to run. Petitioner may be allowed to run, despite
an adverse decision of both the Board and the Securities and Exchange Commission, only if he comes to
this Court and obtain an injunction against the enforcement of the decision disqualifying him. Without such
injunction being required, all that petitioner has to do is to take his time in coming to this Court, and in so
doing, he would in the meantime, be allowed to run, and if he wins, to sit. This would, however, be contrary
to the doctrine that gives binding, if not conclusive, effect of findings of facts of administrative bodies
exercising quasi-judicial functions upon appellate courts, which should, accordingly, be enforced until
reversed by this Tribunal.
Fernando and Makasiar, JJ., concurs.
Antonio and Santos, JJ., concur
DE CASTRO, J.: concurring:
As stated in the decision penned by Justice Antonio, I voted to uphold the validity of the amendment to the
by-laws in question. What induced me to this view is the practical consideration easily perceived in the
following illustration: If a person becomes a stockholder of a corporation and gets himself elected as a
director, and while he is such a director, he forms his own corporation competitive or antagonistic to the
corporation of which he is a director, and becomes Chairman of the Board and President of his own
corporation, he may be removed from his position as director, admittedly one of trust case, a person already
controlling, and also the Chairman of the Board and President of, a corporation, may be barred from
becoming a member of the board of directors of a competitive corporation. This is my view, even as I am for
restrictive interpretation of Section 13(5) of the Philippine Corporation Law, under which I would limit the
scope of the provision to corporations engaged in agriculture, but only as the word "agriculture" refers to its
more limited meaning as distinguished from its general and broad connotation. The term would then mean
"farming" or raising the natural products of the soil, such as by cultivation, in the manner as in required by
the Public Land Act in the acquisition of agricultural land, such as by homestead, before the patent may be
issued. It is my opinion that under the public land statute, the development of a certain portion of the land
applied for as specified in the law as a condition precedent before the applicant may obtain a patent, is
cultivation, not let us say, poultry raising or peggery, whch may be included in the term "agriculture" in its
broad sense. For under Section 13(5) of the Philippine Corporation Law, construed not in the strict way as I
believe it should, because the provision is in derogation of property rights, the petitioner in this case would
be disqualified from becoming an officer of either the San Miguel Corporation or his own supposedly
agricultural corporations. It is thus beyond my comprehension why, feeling as though I am the only members
of the Court for a restricted interpretation of Section 13(5) of Act 1459, doubt still seems to be in the minds
of other members giving the cited provision an unrestricted interpretation, as to the validity of the amended
by-laws in question, or even holding them null and void.
I concur with the observation of Justice Barredo that despite that less than six votes are for upholding the
validity of the by-laws, their validity is deemed upheld, as constituting the "law of the case." It could not be
otherwise, after the present petition is dimissed with the relief sought to declare null and void the said by-
laws being denied in effect. A vicious circle would be created if, should petitioner Gokongwei be barred or
disqualified from running by the Board, petitioner could come again to Us, raising the same question he has
raised in the present petition, unless the principle of the "law of the case" is applied.
Clarifying therefore, my position, I am of the opinion that with the validity of the by-laws in question standing
unimpaired, it is nowfor petitioner to show that he does not come paired, it is now for petitioner to show that
he does not come within the disqualification as therein provided, both to the Board and later to the Securities
and Exhange Commission, it being a foregone conclusion that, unless petitioner disposes of his
stockholdings in the so-called competitive corporations, San Miguel Corporation would apply the by-laws
against him. His right, therefore, to run depends on what, on election day, May 8, 1979, the ruling of the
Board and/or the Securities and Exchange Commission on his qualification to run would be, certainly, not
the final ruling of this Court in the event recourse thereto is made by the party feeling aggrieved, as
intimated in the "Joint Separate Opinion" of Justices Teehankee, Concepcion, Jr., Fernandez and Guerrero,
that only after petitioner's "disqualification" has ultimately been passed upon by this Court should petitioner
not be allowed to run. Petitioner may be allowed to run, despite anadverse decision of both the Board and
the Securities and Exchange Commission, only if he comes to this Court and obtain an injunction against
the enforcement of the decision disqualifying him. Without such injunction being required, all that petitioner
has to do is to take his time in coming to this Court, and in so doing, he would in the meantime, be allowed
to run, and if he wins, to sit. This would, however, be contrary to the doctrine that gives binding, if not
conclusive, effect of findings of facts of administrative bodies exercising quasi-judicial functions upon
appellate courts, which should, accordingly, be enforced until reversed by this Tribunal.
Separate Opinions
TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO, JJ., concurring:
I
As correctly stated in the main opinion of Mr. Justice Antonio, the Court is unanimous in its judgment
granting the petitioner as stockholder of respondent San Miguel Corporation the right to inspect, examine
and secure copies of the records of San Miguel International, inc. (SMI), a wholly owned foreign subsidiary
corporation of respondent San Miguel Corporation. Respondent commissions en banc Order No. 449,
Series of 19 7 7, denying petitioner's right of inspection for "not being a stockholder of San Miguel
International, Inc." has been accordingly set aside. It need be only pointed out that:
a) The commission's reasoning grossly disregards the fact that the stockholders of
San Miguel Corporation are likewise the owners of San Miguel International, Inc. as
the corporation's wholly owned foreign subsidiary and therefore have every right to
have access to its books and records. otherwise, the directors and management of
any Philippine corporation by the simple device of organizing with the corporation's
funds foreign subsidiaries would be granted complete immunity from the
stockholders' scrutiny of its foreign operations and would have a conduit for
dissipating, if not misappropriating, the corporation funds and assets by merely
channeling them into foreign subsidiaries' operations; and
b) Petitioner's right of examination herein recognized refers to all books and records
of the foreign subsidiary SMI which are which are " in respondent corporation's
possession and control" 1, meaning to say regardless of whether or not such books
and records are physically within the Philippines. all such books and records of SMI
are legally within respondent corporation's "possession and control" and if nay books
or records are kept abroad, (e.g. in the foreign subsidiary's state of domicile, as is to
be expected), then the respondent corporation's board and management are obliged
under the Court's judgment to bring and make them (or true copies thereof available
within the Philippines for petitioner's examination and inspection.
II
On the other main issue of the Validity of respondent San Miguel Corporation's amendment of its by-laws 2
whereby respondent corporation's board of directors under its resolution dated April 29, 1977 declared
petitioner ineligible to be nominated or to be voted or to be elected as of the board of directors, the Court,
composed of 12 members (since Mme. Justice Ameurfina Melencio Herrera inhibited herself from taking
part herein, while Mr. Justice Ramon C. Aquino upon submittal of the main opinion of Mr. Justice Antonio
decided not to take part), failed to reach a conclusive vote or, the required majority of 8 votes to settle the
issue one way or the other.
Six members of the Court, namely, Justices Barredo, Makasiar, Antonio, Santos, Abad Santos and De
Castro, considered the issue purely legal and voted to sustain the validity per se of the questioned amended
by-laws but nevertheless voted that the prohibition and disqualification therein provided shall not apply to
petitioner Gokongwei until and after he shall have been given a new and proper hearing" by the
corporation's board of directors and the board's decision of disqualification she'll have been sustained on
appeal by respondent Securities and Exchange Commission and ultimately by this Court.
The undersigned Justices do not consider the issue as purely legal in the light of respondent commission's
Order No. 451, Series of 1977, denying petitioner's "Motion for Summary Judgment" on the ground that "the
Commission en banc finds that there (are) unresolved and genuine issues of fact" 3 as well as its position in
this case to the Solicitor General that the case at bar is "premature" and that the administrative remedies
before the commission should first be availed of and exhausted. 4
We are of the opinion that the questioned amended by-laws, as they are, (adopted after almost a century of
respondent corporation's existence as a public corporation with its shares freely purchased and traded in the
open market without restriction and disqualification) which would bar petitioner from qualification, nomination
and election as director and worse, grant the board by 3/4 vote the arbitrary power to bar any stockholder
from his right to be elected as director by the simple expedient of declaring him to be engaged in a
"competitive or antagonistic business" or declaring him as a "nominee" of the competitive or antagonistic"
stockholder are illegal, oppressive, arbitrary and unreasonable.
We consider the questioned amended by-laws as being specifically tailored to discriminate against petitioner
and depriving him in violation of substantive due process of his vested substantial rights as stockholder of
respondent corporation. We further consider said amended by-laws as violating specific provisions of the
Corporation Law which grant and recognize the right of a minority stockholder like petitioner to be elected
director by the process of cumulative voting ordained by the Law (secs 21 and 30) and the right of a minority
director once elected not to be removed from office of director except for cause by vote of the stockholders
holding 2/3 of the subscribed capital stock (sec. 31). If a minority stockholder could be disqualified by such a
by-laws amendment under the guise of providing for "qualifications," these mandates of the Corporation Law
would have no meaning or purpose.
These vested and substantial rights granted stockholders under the Corporation Law may not be diluted or
defeated by the general authority granted by the Corporation Law itself to corporations to adopt their by-laws
(in section 21) which deal principally with the procedures governing their internal business. The by-laws of
any corporation must, be always within the character limits. What the Corporation Law has granted
stockholders may not be taken away by the corporation's by-laws. The amendment is further an instrument
of oppressiveness and arbitrariness in that the incumbent directors are thereby enabled to perpetuate
themselves in office by the simple expedient of disqualifying any unwelcome candidate, no matter how many
votes he may have.
However, in view of the inconclusiveness of the vote, we sustain respondent commission's stand as
expressed in its Orders Nos. 450 and 451, Series of 1977 that there are unresolved and genuine issues of
fact" and that it has yet to rule on and finally decide the validity of the disputed by-law provision", subject to
appeal by either party to this Court.
In view of prematurity of the proceedings here (as likewise expressed by Mr. Justice Fernando), the case
should as a consequence be remanded to the Securities and Exchange Commission as the agency of
primary jurisdiction for a full hearing and reception of evidence of all relevant facts (which should property be
submitted to the commission instead of the piecemeal documents submitted as annexes to this Court which
is not a trier of facts) concerning not only the petitioner but the members of the board of directors of
respondent corporation as well, so that it may determine on the basis thereof the issue of the legality of the
questioned amended by-laws, and assuming Chat it holds the same to be valid whether the same are
arbitrarily and unreasonably applied to petitioner vis a vis other directors, who, petitioner claims, should in
such event be likewise disqualified from sitting in the board of directors by virtue of conflict of interests or
their being likewise engaged in competitive or antagonistic business" with the corporation such as
investment and finance, coconut oil mills cement, milk and hotels. 5
It should be noted that while the petition may be dismissed in view of the inconclusiveness of the vote and
the Court's failure to affair, the required 8-vote majority to resolve the issue, such as dismissal (for lack of
necessary votes) is of no doctrine value and does not in any manner resolve the issue of the validity of the
questioned amended by-laws nor foreclose the same. The same should properly be determined in a proper hereinabove indicated, and resolve the "unresolved and genuine issues of fact" (as per Order No. 451,
case in the first instance by the Securities and Exchange Commission as the agency of primary jurisdiction, Series of 1977) and the issues of legality of the disputed by-laws amendment.
as above indicated.

Teehankee, Concepcion, Jr., and Fernandez, JJ., concur.

The Court is unanimous, therefore, in its judgment that petitioner Gokongwei may run for the office of, and if
elected, sit as, member of the board of directors of respondent San Miguel Corporation as stated in the
dispositive portion of the main opinion of Mr. Justice Antonio, to wit: Until and after petitioner has been given
a "new and proper hearing by the board of directors of said corporation, whose decision shall be appealable
Lo the respondent Securities and Exchange Commission deliverating and acting en banc and ultimately to
this Court" and until ' disqualified in the manner herein provided, the prohibition in the aforementioned
amended by-laws shall not apply to petitioner," In other words, until and after petitioner shall have been
given due process and proper hearing by the respondent board of directors as to the question of his
qualification or disqualification under the questioned amended by-laws (assuming that the respondent
Securities and Exchange C commission ultimately upholds the validity of said by laws), and such
disqualification shall have been sustained by respondent Securities and Exchange Commission and
ultimately by final judgment of this Court, petitioner is deemed eligible for all legal purposes and effects to be
nominated and voted and if elected to sit as a member of the hoard of directors of respondent San Miguel
Corporation.

In view of the Court's unanimous judgment on this point the portion of respondent commission's Order No.
450, Series of 977 which imposed "the condition that he [petitioner] cannot sit as board member if elected
until after the Commission shall have finally decided the validity of the disputed by-law provision" has been
likewise accordingly set aside.

III

By way of recapitulation, so that the Court's decision and judgment may be clear and not subject to
ambiguity, we state the following.

1. With the votes of the six Justices concurring unqualifiedly in the main opinion added to our four votes,
plus the Chief Justice's vote and that of Mr. Justice Fernando, the Court has by twelve (12) votes
unanimously rendered judgment granting petitioner's right to examine and secure copies of the books and
records of San Miguel International, Inc. as a foreign subsidiary of respondent corporation and respondent
commission's Order No. 449, Series of 1977, to the contrary is set aside:

2. With the same twelve (12) votes, the Court has also unanimously rendered judgment declaring that until
and after petitioner shall have been given due process and proper hearing by the respondent board of
directors as to the question of his disqualification under the questioned amended by- laws (assuming that
the respondent Securities and Exchange Commission ultimately upholds the validity of said by laws), and
such disqualification shall have been sustained by respondent Securities and Exchange Commission and
ultimately by final judgment of this Court petitioner is deemed eligible for all legal purposes and effect to be
nominated and voted and if elected to sit as a member of the board of directors of respondent San Miguel
Corporation. Accordingly, respondent commission's Order No. 450, Series of 1977 to the contrary has
likewise been set aside; and

3. The Court's voting on the validity of respondent corporation's amendment of the by-laws (sec. 2, Art. 111)
is inconclusive without the required majority of eight votes to settle the issue one way or the other having
been reached. No judgment is rendered by the Court thereon and the statements of the six Justices who
have signed the main opinion on the legality thereof have no binding effect, much less doctrinal value.

The dismissal of the petition insofar as the question of the validity of the disputed by-laws amendment is
concerned is not by an judgment with the required eight votes but simply by force of Rule 56, section II of
the Rules of Court, the pertinent portion of which provides that "where the court en banc is equally divided in
opinion, or the necessary majority cannot be had, the case shall be reheard, and if on re-hearing no decision
is reached, the action shall be dismissed if originally commenced in the court ...." The end result is that the
Court has thereby dismissed the petition which prayed that the Court bypass the commission and directly
resolved the issue and therefore the respondent commission may now proceed, as announced in its Order
No. 450, Series of 1977, to hear the case before it and receive all relevant evidence bearing on the issue as

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.
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) ANTO
S. SA
Corporate
Secretary 2
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.
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:
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.
The Chairman declared the meeting adjourned at 5:11 P.M.
This is to certify that the foregoing minutes of the regular meeting of the Board of
Trustees of Western Institute of Technology, Inc. held on March 30, 1986 is true and
correct to the best of my knowledge and belief.
(Sgd) ANTONIO S.
SALAS
Corporate Secretary 11
[Emphasis ours]
Clearly, therefore, the prohibition with respect to granting compensation to corporate
directors/trustees as such under Section 30 is not violated in this particular case.
Consequently, the last sentence of Section 30 which provides:
. . . . . . . In no case shall the total yearly compensation of directors, as such
directors, exceed ten (10%) percent of the net income before income tax of the
corporation during the preceding year. (Emphasis ours]
does not likewise find application in this case since the compensation is being given to private
respondents in their capacity as officers of WIT and not as board members.
Petitioners assert that the instant case is a derivative suit brought by them as minority
shareholders of WIT for and 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 quasi-
judicial body concerned over the subject matter and nature of the action. 15 This was not
complied with by the petitioners either in their complaint before the court a quo nor in the
instant petition which, in part, merely states that "this is a petition for review on certiorari on
pure questions of law to set aside a portion of the RTC decision in Criminal Cases Nos. 37097
and 37098" 16 since the trial court's judgment of acquittal failed to impose any civil liability
against the private respondents. By no amount of equity considerations, if at all deserved, can
a mere appeal on the civil aspect of a criminal case be treated as a derivative suit.
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:
xxx xxx xxx
b) Controversies arising out of intra-corporate or partnership relations, between and
among stockholders, members, or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association
and the State insofar as it concerns their individual franchise or right to exist as such
entity;
xxx xxx xxx
[Emphasis ours]
Once the case is decided by the SEC, the losing party may file a petition for review before the
Court of Appeals raising questions of fact, of law, or mixed questions of fact and law. 17 It is
only after the case has ran this course, and not earlier, can it be brought to us via a petition for
review on certiorari under Rule 45 raising only pure questions of law. 18 Petitioners, in pleading
that we treat the instant petition as a derivative suit, are trying to short-circuit the entire
process which we cannot here sanction.
As an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 for falsification of
public document and estafa, which this petition truly is, we have to deny the petition just the
same. It will be well to quote the respondent court's ratiocinations acquitting the private
respondents on both counts:
The prosecution wants this Court to believe and agree that there is falsification of xxx xxx xxx 19
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
[Emphasis ours]
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.
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
This Court is reluctant to accept this claim of falsification. The prosecution omitted to
liable. Section 2(b) of Rule 111 on the New Rules on Criminal Procedure provides:
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) Sec. 2. Institution of separate civil action.
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
xxx xxx xxx
indeed included in Other Business, No. 6 of the Agenda, and was taken up and
passed on March 30, 1986. The mere fact of existence of Exh. "C" also proves that it
was passed on March 30, 1986 for Exh. "C" is part and parcel of the whole minutes (b) Extinction of the penal action does not carry with it extinction of the civil, unless
of the Board of Trustees Regular Meeting on March 30, 1986. No better and more the extinction proceeds from a declaration in a final judgment that the fact from
credible proof can be considered other than the Minutes (Exh. "1") itself of the which the civil might arise did not exist. [Emphasis ours]
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 Likewise, the last paragraph of Section 2, Rule 120 reads:
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, Sec. 2. Form and contents of judgment.
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. xxx xxx xxx

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.
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.

G.R. No. 144767 March 21, 2002
DILY DANY NACPIL, petitioner,
vs.
INTERNATIONAL BROADCASTING CORPORATION, respondent.
KAPUNAN, J.:
This is a petition for review on certiorari under Rule 45, assailing the Decision of the Court of
Appeals dated November 23, 1999 in CA-G.R. SP No. 52755 1 and the Resolution dated
August 31, 2000 denying petitioner Dily Dany Nacpil's motion for reconsideration. The Court of
Appeals reversed the decisions promulgated by the Labor Arbiter and the National Labor
Relations Commission (NLRC), which consistently ruled in favor of petitioner.
Petitioner states that he was Assistant General Manager for Finance/Administration and
Comptroller of private respondent Intercontinental Broadcasting Corporation (IBC) from 1996
until April 1997. According to petitioner, when Emiliano Templo was appointed to replace IBC
President Tomas Gomez III sometime in March 1997, the former told the Board of Directors
that as soon as he assumes the IBC presidency, he would terminate the services of petitioner.
Apparently, Templo blamed petitioner, along with a certain Mr. Basilio and Mr. Gomez, for the
prior mismanagement of IBC. Upon his assumption of the IBC presidency, Templo allegedly
harassed, insulted, humiliated and pressured petitioner into resigning until the latter was forced
to retire. However, Templo refused to pay him his retirement benefits, allegedly because he
had not yet secured the clearances from the Presidential Commission on Good Government
and the Commission on Audit. Furthermore, Templo allegedly refused to recognize petitioner's
employment, claiming that petitioner was not the Assistant General Manager/Comptroller of
IBC but merely usurped the powers of the Comptroller. Hence, in 1997, petitioner filed with the
Labor Arbiter a complaint for illegal dismissal and non-payment of benefits.1âwphi1.nêt
Instead of filing its position paper, IBC filed a motion to dismiss alleging that the Labor Arbiter
had no jurisdiction over the case. IBC contended that petitioner was a corporate officer who
was duly elected by the Board of Directors of IBC; hence, the case qualifies as an intra-
corporate dispute falling within the jurisdiction of the Securities and Exchange Commission
(SEC). However, the motion was denied by the Labor Arbiter in an Order dated April 22,
1998.2
On August 21, 1998, the Labor Arbiter rendered a Decision stating that petitioner had been
illegally dismissed. The dispositive portion thereof reads:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of
the complainant and against all the respondents, jointly and severally, ordering the
latter:
1. To reinstate complainant to his former position without diminution of
salary or loss of seniority rights, and with full backwages computed from
the time of his illegal dismissal on May 16, 1997 up to the time of his
actual reinstatement which is tentatively computed as of the date of this
decision on August 21, 1998 in the amount of P1,231,750.00 (i.e.,
P75,000.00 a month x 15.16 months = P1,137,000.00 plus 13th month pay
equivalent to 1/12 of P 1,137,000.00 = P94,750.00 or the total amount of
P 1,231,750.00). Should complainant be not reinstated within ten (10)
days from receipt of this decision, he shall be entitled to additional
backwages until actually reinstated.
2. Likewise, to pay complainant the following:
a) P 2 Million as and for moral damages;
b) P500,000.00 as and for exemplary damages; plus and (sic)
c) Ten (10%) percent thereof as and for attorney's fees.
SO ORDERED.3
IBC appealed to the NLRC, but the same was dismissed in a Resolution dated March 2, 1999,
for its failure to file the required appeal bond in accordance with Article 223 of the Labor
Code.4 IBC then filed a motion for reconsideration that was likewise denied in a Resolution
dated April 26, 1999.5
IBC then filed with the Court of Appeals a petition for certiorari under Rule 65, which petition
was granted by the appellate court in its Decision dated November 23, 1999. The dispositive
portion of said decision states:
WHEREFORE, premises considered, the petition for Certiorari is GRANTED. The
assailed decisions of the Labor Arbiter and the NLRC are REVERSED and SET
ASIDE and the complaint is DISMISSED without prejudice.
SO ORDERED.6
Petitioner then filed a motion for reconsideration, which was denied by the appellate court in a
Resolution dated August 31, 2000.
Hence, this petition.
Petitioner Nacpil submits that:
I.
THE COURT OF APPEALS ERRED IN FINDING THAT PETITIONER WAS
APPOINTED BY RESPONDENT'S BOARD OF DIRECTORS AS COMPTROLLER.
THIS FINDING IS CONTRARY TO THE COMMON, CONSISTENT POSITION AND
ADMISSION OF BOTH PARTIES. FURTHER, RESPONDENT'S BY-LAWS DOES
NOT INCLUDE COMPTROLLER AS ONE OF ITS CORPORATE OFFICERS.
II.
THE COURT OF APPEALS WENT BEYOND THE ISSUE OF THE CASE WHEN IT
SUBSTITUTED THE NATIONAL LABOR RELATIONS COMMISSION'S DECISION
 TO APPLY THE APPEAL BOND REQUIREMENT STRICTLY IN THE INSTANT
CASE. THE ONLY ISSUE FOR ITS DETERMINATION IS WHETHER NLRC
COMMITTED GRAVE ABUSE OF DISCRETION IN DOING THE SAME.7
The issue to be resolved is whether the Labor Arbiter had jurisdiction over the case for illegal
dismissal and non-payment of benefits filed by petitioner. The Court finds that the Labor
Arbiter had no jurisdiction over the same.
Under Presidential Decree No. 902-A (the Revised Securities Act), the law in force when the
complaint for illegal dismissal was instituted by petitioner in 1997, the following cases fall
under the exclusive of the SEC:
a) Devices or schemes employed by or any acts of the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which
may be detrimental to the interest of the public and/or of the stockholders, partners,
members of associations or organizations registered with the Commission;
b) Controversies arising out of intra-corporate or partnership relations, between and
among stockholders, members or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association
and the State insofar as it concerns their individual franchise or right to exist as such
entity;
c) Controversies in the election or appointment of directors, trustees, officers,
or managers of such corporations, partnerships or associations;
d) Petitions of corporations, partnerships, or associations to be declared in the state
of suspension of payments in cases where the corporation, partnership or
association possesses property to cover all of its debts but foresees the impossibility
of meeting them when they respectively fall due or in cases where the corporation,
partnership or association has no sufficient assets to cover its liabilities, but is under
the Management Committee created pursuant to this decree. (Emphasis supplied.)
The Court has consistently held that there are two elements to be considered in determining
whether the SEC has jurisdiction over the controversy, to wit: (1) the status or relationship of
the parties; and (2) the nature of the question that is the subject of their controversy.8
Petitioner argues that he is not a corporate officer of the IBC but an employee thereof since he
had not been elected nor appointed as Comptroller and Assistant Manager by the IBC's Board
of Directors. He points out that he had actually been appointed as such on January 11, 1995
by the IBC's General Manager, Ceferino Basilio. In support of his argument, petitioner
underscores the fact that the IBC's By-Laws does not even include the position of comptroller
in its roster of corporate officers.9 He therefore contends that his dismissal is a controversy
falling within the jurisdiction of the labor courts.10
Petitioner's argument is untenable. Even assuming that he was in fact appointed by the
General Manager, such appointment was subsequently approved by the Board of Directors of
the IBC.11 That the position of Comptroller is not expressly mentioned among the officers of the
IBC in the By-Laws is of no moment, because the IBC's Board of Directors is empowered
under Section 25 of the Corporation Code12 and under the corporation's By-Laws to appoint
such other officers as it may deem necessary. The By-Laws of the IBC categorically provides:
XII. OFFICERS
The officers of the corporation shall consist of a President, a Vice-President, a
Secretary-Treasurer, a General Manager, and such other officers as the Board of
Directors may from time to time does fit to provide for. Said officers shall be
elected by majority vote of the Board of Directors and shall have such powers
and duties as shall hereinafter provide (Emphasis supplied).13
The Court has held that in most cases the "by-laws may and usually do provide for such other
officers,"14 and that where a corporate office is not specifically indicated in the roster of
corporate offices in the by-laws of a corporation, the board of directors may also be
empowered under the by-laws to create additional officers as may be necessary.15
An "office" has been defined as a creation of the charter of a corporation, while an "officer" as
a person elected by the directors or stockholders. On the other hand, an "employee" occupies
no office and is generally employed not by action of the directors and stockholders but by the
managing officer of the corporation who also determines the compensation to be paid to such
employee.16
As petitioner's appointment as comptroller required the approval and formal action of the IBC's
Board of Directors to become valid,17 it is clear therefore holds that petitioner is a corporate
officer whose dismissal may be the subject of a controversy cognizable by the SEC under
Section 5(c) of P.D. 902-A which includes controversies involving both election and
appointment of corporate directors, trustees, officers, and managers.18 Had petitioner been an
ordinary employee, such board action would not have been required.
Thus, the Court of Appeals correctly held that:
Since complainant's appointment was approved unanimously by the Board of
Directors of the corporation, he is therefore considered a corporate officer and his
claim of illegal dismissal is a controversy that falls under the jurisdiction of the SEC
as contemplated by Section 5 of P.D. 902-A. The rule is that dismissal or non-
appointment of a corporate officer is clearly an intra-corporate matter and jurisdiction
over the case properly belongs to the SEC, not to the NLRC.19
As to petitioner's argument that the nature of his functions is recommendatory thereby making
him a mere managerial officer, the Court has previously held that the relationship of a person
to a corporation, whether as officer or agent or employee is not determined by the nature of
the services performed, but instead by the incidents of the relationship as they actually exist.20
It is likewise of no consequence that petitioner's complaint for illegal dismissal includes money
claims, for such claims are actually part of the perquisites of his position in, and therefore
linked with his relations with, the corporation. The inclusion of such money claims does not
convert the issue into a simple labor problem. Clearly, the issues raised by petitioner against
the IBC are matters that come within the area of corporate affairs and management, and
constitute a corporate controversy in contemplation of the Corporation Code.21
Petitioner further argues that the IBC failed to perfect its appeal from the Labor Arbiter's
Decision for its non-payment of the appeal bond as required under Article 223 of the Labor
Code, since compliance with the requirement of posting of a cash or surety bond in an amount
equivalent to the monetary award in the judgment appealed from has been held to be both
mandatory and jurisdictional.22 Hence, the Decision of the Labor Arbiter had long become final
and executory and thus, the Court of Appeals acted with grave abuse of discretion amounting
to lack or excess of jurisdiction in giving due course to the IBC's petition for certiorari, and in
deciding the case on the merits.

The IBC's failure to post an appeal bond within the period mandated under Article 223 of the
Labor Code has been rendered immaterial by the fact that the Labor Arbiter did not have
jurisdiction over the case since as stated earlier, the same is in the nature of an intra-corporate
controversy. The Court has consistently held that where there is a finding that any decision
was rendered without jurisdiction, the action shall be dismissed. Such defense can be
interposed at any time, during appeal or even after final judgment.23 It is a well-settled rule that
jurisdiction is conferred only by the Constitution or by law. It cannot be fixed by the will of the
parties; it cannot be acquired through, enlarged or diminished by, any act or omission of the
parties.24

Considering the foregoing, the Court holds that no error was committed by the Court of
Appeals in dismissing the case filed before the Labor Arbiter, without prejudice to the filing of
an appropriate action in the proper court. 1âwphi1.nêt

It must be noted that under Section 5.2 of the Securities Regulation Code (Republic Act No.
8799) which was signed into law by then President Joseph Ejercito Estrada on July 19, 2000,
the SEC's jurisdiction over all cases enumerated in Section 5 of P.D. 902-A has been
transferred to the Regional Trial Courts.25

WHEREFORE, the petition is hereby DISMISSED and the Decision of the Court of Appeals in
CA-G.R. SP No. 52755 is AFFIRMED.

SO ORDERED.
 Petitioner is a domestic corporation, which was organized in the middle of 1986 to operate a
customs bonded warehouse at the old Manila International Airport in Pasay City. 6
G.R. No. 117847 October 7, 1998
To obtain a license for the corporation from the Bureau of Customs, Antonio Punsalan Jr., the
PEOPLE'S AIRCARGO AND WAREHOUSING CO. INC., petitioner, corporation president, solicited a proposal from private respondent for the preparation of a
vs. feasibility study. 7 Private respondent submitted a letter-proposal dated October 17, 1986
COURT OF APPEALS and STEFANI SAÑO, respondents. ("First Contract" hereafter) to Punsalan, which is reproduced hereunder: 8

Dear Mr. Punsalan:

With reference to your request for professional engineering consultancy

PANGANIBAN, J.:
services for your proposed MIA Warehousing Project may we offer the
following outputs and the corresponding rate and terms of agreement:
Contracts entered into by a corporate president without express prior board approval bind the
corporation, when such officer's apparent authority is estabished and when these contracts are
=======================================
ratified by the corporation.

Project Feasibility Study consisting of

The Case

Market Study
This principle is stressed by the Court in rejecting the Petition for Review of the February 28,
1994 Decision and the October 28, 1994 Resolution of the Court of Appeals in CA-GR CV No.
30670. Technical Study

In a collection case 1 filed by Stefani Saño against People's Aircargo and Warehousing Co., Financial Feasibility Study
Inc., the Regional Trial Court (RTC) of Pasay City, Branch 110, rendered a Decision 2 dated
October 26, 1990, the dispositive portion of which reads: 3
Preparation of pertinent documentation requirements
for the application
WHEREFORE, in light of all the foregoing, Judgment is hereby rendered,
ordering [petitioner] to pay [private respondent] the amount of sixty
___________________________________________
thousand (P60,000.00) pesos representing payment of [private
__
respondents] services in preparing the manual of operations and in the
conduct of a seminar for [petitioner]. The Counterclaim is hereby
dismissed. The above services will be provided for a fee of [p]esos 350,000.00
payable according to the following schedule:
Aggrieved by what he considered a minuscule award of P60,000, private respondent appealed
to the Court of Appeals 4 (CA) which, in its Decision promulgated February 28, 1994, granted =====================================================
his prayer for P400,000, as follows: 5
Fifty percent (50%) upon confirmation of the agreement
WHEREFORE, PREMISES CONSIDERED, the appealed judgment is
hereby MODIFIED in that [petitioner] is ordered to pay [private
respondent] the amount of four hundred thousand pesos (P400,000.00) Twenty-five percent (25%) 15 days after the confirmation of the
representing payment of [private respondent's] services in preparing the agreement
manual of operations and in the conduct of a seminar for [petitioner].
Twenty-five percent (25%) upon submission of the specified outputs
As no new ground was raised by petitioner, reconsideration of the above-mentioned Decision
was denied in the Resolution promulgated on October 28, 1994. The outputs will be completed and submitted within 30 days upon
confirmation of the agreement and receipt by us of the first fifty percent
The Facts payment.

---------------------------------------------------------------------------------
 Thank you. (P100,000.00), this 17th day of October, 1986

Yours truly, CONFORME: as 1st Installment payment of the service agreement

(S)STEFANI C. SAÑO (S)ANTONIO C. PUNSALAN, JR. dated October 13, 1986.

(T)STEFANI C. SAÑO (T)ANTONIO C. PUNSALAN, JR. (S)STEFANI C. SAÑO

Consultant for President, PAIRCARGO (T)STEFANI C. SAÑO

Industrial Engineering
Initially, Cheng Yong, the majority stockholder of petitioner, objected to private respondent's
offer, as another company priced a similar proposal at only P15,000. 9 However, Punsalan
preferred private respondent's service because of the latter's membership in the task force,
which was supervising the transition of the Bureau of Customs from the Marcos government to
the Aquino administration. 10
Accordingly, private respondent prepared a feasibility study for petitioner which eventually paid
him the balance of the contract price, although not according to the schedule agreed upon. 11
On December 4, 1986, upon Punsalan's request, private respondent sent petitioner another
letter-proposal ("Second Contract" hereafter), which reads:
People's Air Cargo & Warehousing Co., Inc.

On October 17, 1986, pertitioner, through Punsalan, sent private respondent a letter,
Old MIA Compound, Metro Manila
confirming their agreement as follows:

Attention: Mr. ANTONIO PUN[S]ALAN, JR.

Dear Mr. Saño:

President
With regard to the services offered by your company in your letter dated
13 October 1986, for the preparation of the necessary study and
documentations to support our Application for Authority to Operate a Dear Mr. Pun[s]alan:
public Customs Bonded Warehouse located at the old MIA Compound in
Pasay City, please be informed that our company is willing to hire your
This is to formalize our proposal for consultancy services to your company
services and will pay the amount of THREE HUNDRED FIFTY
the scope of which is defined in the attached service description.
THOUSAND PESOS (P350,000.00) as follows:

The total service you have decided to avail . . . would be available upon
P100,000.00 — uppon signing of the agreement;
signing of the conforme below and would come [in] the amount of FOUR
HUNDRED THOUSAND PESOS (P400,000.00) payable at the schedule
150,000.00 — on or before October 31, 1986, with the favorable defined as follows (with the balance covered by post-dated cheques):
Recommendation of the CBW on our application.
Downpayment upon signing conforme P80,000.00
100,000.00 — upon receipt of the study in final form.
15 January 1987 53,333.00
Very truly yours,
30 January 1987 53,333.00
(S)ANTONIO C. PUNSALAN
15 February 1987 53,333.00

28 February 1987 53,333.00

CONFORME & RECEIVED from PAIRCARGO, the
15 March1987 53,333.00
amount of ONE HUNDRED THOUSAND PESOS
 30 March 1987 53,333.00 On January 10, 1987, Andy Villaceren, vice president of petitioner, received the operations
manual prepared by private respondent. 12 Petitioner submitted said operations manual to the
Bureau of Customs is connection with the former's application to operate a bonded
With is package, you are assured of the highest service quality as our
warehouse; thereafter, in May 1987, the Bureau issued to it a license to operate, enabling it to
performance record shows we always deliver no less.
become one of the three public bonded warehouses at the international airport. 13 Private
respondent also conducted, in the third week of January 1987 in the warehouse of petitioner, a
Thank you very much. three-day training seminar for the latter's employees. 14

Yours truly, On March 25, 1987, private respondent joined the Bureau of Customs as special assistant to
then Commissioner Alex Padilla, a position he held until he became technical assitant to then
Commissioner Miriam Defensor-Santiago on March 7, 1988. 15 Meanwhile, Punsalan sold his
(S)STEFANI C. SAÑO shares in petitioner-corporation and resigned as its president in 1987. 16

(T)STEFANI C. SAÑO On February 9, 1988, private respondent filed a collection suit against petitioner. He allege that
he had prepared an operations manual for petitioner, conducted a seminar-workshop for its
Industrial Engineering Consultant employees and delivered to it a computer program; but that, despite demand, petitioner
refused to pay him for his services.
CONFORME:
Petitioner, in its answer, denied that private respondent had prepared an operations manual
and a computer program or conducted a seminar-workshop for its employees. It further alleged
(S)ANTONIO C. PUNSALAN JR. that the letter-agreement was signed by Punsalan without authority, "in collusion with [private
respondent] in order to unlawfully get some money from [petitioner]," and despite his
(T)PAIRCARGO CO. INC. knowledge that a group of employees of the company had been commissioned by the board of
directors to prepare an operations manual. 17
During the trial, the lower court observed that the Second Contract bore, at the lower right
portion of the letter, the following notations in pencil: The trial court declared the Second Contract unenforceable or simulated. However, since
private respondent had actually prepared the operations manual and conducted a training
seminar for petitioner and its employees, the trial court awarded P60,000 to the former, on the
1. Operations Manual ground that no one should be unjustly enriched at the expense of another (Article 2142, Civil
Code). The trial court determined the amount "in light of the evidence presented by defendant
2. Seminar/workshop for your employees on the usual charges made by a leading consultancy firm on similar services." 18

P400,000 — package deal The Ruling of the Court of Appeals

50% upon completion of seminar/workshop
50% upon approval by the Commissioner
The Manual has already been approved by the Commissioner but
payment has not yet been made.
The lower left corner of the letter also contained the following notations:
1st letter — 4 Dec. 1986
2nd letter — 15 June 1987 with
"Hinanakit".
To Respondent Court, the pivotal issue of private respondent's appeal was the enforceability
of the Second Contract. It noted that petitioner did not appeal the Decision of the trial court,
implying that it had agreed to pay the P60,000 award. If the contract was valid and
enforceable, then petitioner should be held liable for the full amount stated therein, not
P60,000 as held by the lower court.
Rejecting the finding of the trial court that the December 4, 1986 contract was simulated or
unenforceable, the CA ruled in favor of its validity and enforceability. According to the Court of
Appeals, the evidence on record shows that the president of petititoner-corporation had
entered into the First Contract, which was similar to the Second Contract. Thus, petitioner had
clothed its president with apparent authority to enter into the disputed agreement. As it had
also become the practice of the petitioner-corporation to allow its president to negotiate and
execute contracts necessary to secure its license as a customs bonded warehouse without
prior board approval, the board itself, by its acts and through acquiescence, practically laid
aside the normal requirement of prior express approval. The Second Contract was declared
valid and binding on the petitioner, which was held liable to private respondent in the full
amount of P400,000.

Disagreeing with the CA, petitioner lodged this petition before us. 19
 The Issues
Instead of alleging reversible errors, petitioner imputes "grave abuse of discretion" to the Court
of Appeals, viz.: 20
I. . . . [I]n ruling that the subject letter-agreement for services was binding
on the corporation simply because it was entered into by its president[;]
II. . . . [I]n ruling that the subject letter-agreement for services was binding
on the corporation notwithstanding the lack of any board authority since it
was the purported "practice" to allow the president to enter into contracts
of said nature (citing one previous instance of a similar contract)[;] and
III. . . . [I]n ruling that the subject letter-agreement for services was a valid
contract and not merely simulated.
The Court will overlook the lapse of petitioner in alleging grave abuse of discretion as its
ground for seeking reversal of the assailed Decision. Although the Rules of Court specify
"reversible errors" as grounds for a petition for review under Rule 45, the Court will lay aside
for the nonce this procedural lapse and consider the allegations of "grave abuse" as
statements of reversible errors of law.
Petitioner does not contest its liability; it merely disputes the amount of such accountability.
Hence, the resolution of this petition rests on the sole issue of the enforceability and validity of
the Second Contract, more specifically: (1) whether the president of the petitioner-corporation
had apparent authority to bind petitioner to the Second Contract; and (2) whether the said
contract was valid and not merely simulated.
The Court's Ruling
The petition is not meritorious.
First Issue:
Apparent Authority of a Corporate President
Petitioner argues that the disputed contract is unenforceable, because Punsalan, its president,
was not authorized by its board of directors to enter into said contract.
The general rule is that, in the absence of authority from the board of directors, no person, not
even its officers, can validly bind a corporation. 21 A corporation is a juridical person, separate
and distinct from its stockholders and members, "having . . . powers, attributes and properties
expressly authorized by law or incident to its existence." 22
Being a juridical entity, a corporation may board of directors, which exercises almost all
corporate powers, lays down all corporate business policies and is responsible for the
efficiency of management, 23 as provided in Section 23 of the Corporation Code of the
Philippines:
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 . . . .
Under this provision, the power and the responsibility to decide whether the corporation should
enter into a contract that will bind the corporation is lodged in the board, subject to the articles
of incorporaration, bylaws, or relevant provisions of law. 24 Howeever, just as a natural person
may authorize another to do certain acts for and on his behalf, the board of directors may
validly delegate some of its functions and powers to officers, committees or agents. The
authority of such individuals to bind the corporation is generally derived from law, corporate
bylaws or authorization from the board, either expressly or impliedly by habit, custom or
acquiescence in the general course of business, viz.: 25
A corporate officer or agent may represent and bind the corporation in
transactions with third persons to the extent that [the] authority to do so
has been conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual course of
the particular business, are incidental to, or may be implied from, the
powers intentionally conferred, powers added by custom and usage, as
usually pertaining to the particular officer or agent, and such apparent
powers as the corporation has caused persons dealing with the officer or
agent to believe that it has conferred.
Accordingly, the appellate court ruled in this case that the authority to act for and to bind a
corporation may be presumed from acts of recognition in other instances, wherein the power
was in fact exercised without any objection from its board or shareholders. Petitioner had
previously allowed its president to enter into the First Contract with private respondent without
a board resolution expressly authorizing him; thus, it had clothed its president with apparent
authority to execute the subject contract.
Petitioner rebuts, arguing that a single isolated agreement prior to the subject contract does
not constitute corporate practice, which Webster defines as "frequent or custmary action." It
cites Board of Liquidators v. Kalaw, 26 in which the practice of NACOCO allowing its general
manager to negotiate and execute contract in its copra trading activities for and on its behalf,
without prior board approval, was inferred from sixty contract — not one, as in present case —
previously entered into by the corporation without such board resolution.
Petitioner's argument is not persuasive. Apparent authority is derived not merely from practice.
Its existence may be ascertained through (1) the general manner in which the corporation
holds out an officer or agent as having the power to act or, in other words, the apparent
authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, whether within or beyond the
scope of his ordinary powers. 27 It requires presentation of evidence of similar act(s) executed
either in its favor or in favor of other parties. 28 It is not the quantity of similar acts which
establishes apparent authority, but the vesting of a corporale officer with the power to bind the
corporation.
In the case at bar, petitioner, through its president Antonio Punsalan Jr., entered into the First
Contract without first securing board approval. Despite such lack of board approval, petitioner
did not object to or repudiate said contract, thus "clothing" its president with the power to bind
the corporation. The grant of apparent authority to Punsalan is evident in the testimony of
Yong — senior vice president, treasurer and major stockholder of petitioner. Testifying on the
First Contract, he said: 29
 A: Mr. [Punsalan] told me that he prefer[s] Mr. Saño
because Mr. Saño is very influential with the Collector
of Customs[s]. Because the Collector of Custom[s]
will be the one to approve our project study and I
objected to that, sir. And I said it [was an exorbitant]
price. And Mr. Punsalan he is the [p]resident, so he
[gets] his way.
Q: And so did the company eventually pay this
P350,000.00 to Mr. Saño?
A: Yes, sir.
The First Contract was consummated, implemented and paid without a hitch.
Hence, private respondent should not be faulted for believing that Punsalan's conformity to the
contract in dispute was also binding on petitioner. It is familiar doctrine that if a corporation
knowingly permits one of its officers, or any other agent, to act within the scope of an apparent
authority, it holds him out to the public as possessing the power to do those acts; and thus, the
corporation will, as against anyone who has in good faith dealt with it through such agent, be
estopped from denying the agent's authority. 30
Furthermore, private respondent prepared an operations manual and conducted a seminar for
the employees of petitioner in accordance with their contract. Petitioner accepted the
operations manual, submitted it to the Bureau of Customs and allowed the seminar for its
employees. As a result of its aforementioned actions, petitioner was given by the Bureau of
Customs a license to operate a bonded warehouse. Granting arguendo then that the Second
Contract was outside the usual powers of the president, petitioner's ratification of said contract
and acceptance of benefits have made it binding, nonetheless. The enforceability of contracts
under Article 1403(2) is ratified "by the acceptance of benefits under them" under Article 1405.
Inasmuch as a corporate president is often given general supervision and control over
corporate operations, the strict rule that said officer has no inherent power to act for the
corporation is slowly giving way to the realization that such officer has certain limited powers in
the transaction of the usual and ordinary business of the corporation. 31 In the absence of a
charter or bylaw provision to the contrary, the president is presumed to have the authority to
act within the domain of the general objectives of its business and within the scope of his or
her usual duties. 32
Hence, it has been held in other jurisdictions that the president of a corporation possesses the
power to enter into a contract for the corporation, when the "conduct on the part of both the
president and the corporation [shows] that he had been in the habit of acting in similar matters
on behalf of the company and that the company had authorized him so to act and had
recognized, approved and ratified his former and similar actions." 33 Furthermore, a party
dealing with the president of a corporation is entitled to assume that he has the authority to
enter, on behalf of the corporation, into contracts that are within the scope of the powers of
said corporation and that do not violate any statute or rule on public policy. 34
Second Issue:
Alleged Simulation of the First Contract
As an alternative position, petitioner seeks to pare down its liabilities by limiting its exposure
from P400,000 to only P60,000, the amount awarded by the RTC. Petitioner capitalizes on the
"badges of fraud" cited by the trial court in declaring said contract either simulated or
unenforceable, viz.:
. . . The October 1986 transaction with [private respondent] involved
P350,000. The same was embodied in a letter which bore therein not only
the conformity of [petitioner's] then President Punsalan but also drew a
letter-confirmation from the latter for, indeed, he was clothed with authority
to enter into the contract after the same was brought to the attention and
consideration of [petitioner]. Not only that, a [down payment] was made. In
the alleged agreement of December 4, 1986 subject of the present case,
the amount is even bigger - P400,000.00. Yet, the alleged letter-
agreement drew no letter of confirmation. And no [down payment] and
postdated checks were given. Until the filing of the present case in
February 1988, no written demand for payment was sent to [petitioner].
[Private respondent's] claim that he sent one in writing, and one was sent
by his counsel who manifested that "[h]e was looking for a copy in [his]
files" fails in light of his failure to present any such copy. These and the
following considerations, to wit:
1) Despite the fact that no [down payment] and/or postdated checks
[partial payments] (as purportedly stipulated in the alleged contract) [was
given, private respondent] went ahead with the services[;]
2) [There was a delay in the filing of the present suit, more than a year
after [private respondent] allegedly completed his services or eight months
after the alleged last verbal demand for payment made on Punsalan in
June 1987;
3) Does not Punsalan's writing allegedly in June 1987 on the alleged
letter-agreement of "your employees[,]" when it should have been "our
employees", as he was then still connected with [petitioner], indicate that
the letter-agreement was signed by Punsalan when he was no longer
connected with [petitioner] or, as claimed by [petitioner], that Punsalan
signed it without [petitioner's] authority and must have been done "in
collusion with plaintiff in order to unlawfully get some money from
[petitioner]?
4) If, as [private respondent] claims, the letter was returned by Punsalan
after affixing thereon his conformity, how come . . . when Punsalan
allegedly visited [private respondent] in his office at the Bureau of
Customs, in June 1987, Punsalan "brought" (again?) the letter (with the
pencil [notation] at the left bottom portion allegedly already written)?
5) How come . . . [private respondent] did not even keep a copy of the
alleged service contract allegedly attached to the letter-agreement?
6) Was not the letter-agreement a mere draft, it bearing the corrections
made by Punsalan of his name (the letter "n" is inserted before the last
letter "o" in Antonio) and of the spelling of his family name (Punsalan, not
Punzalan)?
 7) Why was not Punsalan impleaded in the case?

The issue of whether the contract is simulated or real is factual in nature, and the Court
eschews factual examinanon in a petition for review under Rule 45 of the Rules of Court. 35
This rule, however, admits of exceptions, one of which is a conflict between the factual findings
of the lower and of the appellate courts 36 as in the case at bar.

After judicious deliberation, the Court agrees with the appellate court that the alleged "badges
of fraud" mentioned earlier have not affected in any manner the perfection thereof. First, the
lack of payment (whether down, partial or full payment), even after completion of private
respondent's obligations, imports only a defect in the performance of the contract on the part
of petitioner. Second, the delay in the filing of action was not fatal to private respondent's
cause. Despite the lapse of one year after private respondent completed his services or eight
months after the alleged last demand for payment in June 1987, the action was still filed within
the allowable period, considering that an action based on a written contract prescribes only
after ten years from the time the right of action accrues. 37 Third, a misspelling in the contract
does not establish vitiation of consent, cause or object of the contract. Fourth, a confirmation
letter is not an essential element of a contract, neither is it necessary to perfect one. Fifth,
private respondent's failure to implead the corporate president does not establish collusion
between them. Petitioner could have easily filed a third-party claim against Punsalan if it
believed that it had recourse against the latter. Lastly, the mere fact that the contract price was
six times the alleged going rate does not invalidate it. 38 In short, these "badges" do not
establish simulation of said contract.

A fictitious and simulated agreement lacks consent which is essential to a valid and
enforceable contract. 39 A contract is simulated if the parties do not intend to be bound at all
(absolutely simulated), 40 or if the parties conceal their true agreement (relatively simulated). 41
In the case at bar, petitioner received from private respondent a letter-offer containing the
terms of the former, including a stipulation of the consideration for the latter's services.
Punsalan's conformity, as well as the receipt and use of the operations manual, shows
petitioner's consent to or, at the very least, ratification of the contract. To repeat, petitioner
even submitted the manual to the Bureau of Customs and allowed private respondent to
conduct the seminar for its employees. Private respondent heard no objection from the
petitioner, until he claimed payment for the services he had rendered.

Contemporaneous and subsequent acts are also principal factors in the determination of the
will of the contracting parties. 42 The circumstances outlined above do not establish any
intention to simulate the contract in dispute. On the contrary, the legal presumption is always
on the validity of contracts. A corporation, by accepting benefits of a transaction entered into
without authority, has ratified the agreement and is, therefore, bound by it. 43

WHEREFORE, the petition is hereby DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.

SO ORDERED.

G.R. No. L-68555 March 19, 1993
PRIME WHITE CEMENT CORPORATION, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT and ALEJANDRO TE, respondents.
De Jesus & Associates for petitioner.
Padlan, Sutton, Mendoza & Associates for private respondent.
CAMPOS, JR., J.:
Before Us is a Petition for Review on Certiorari filed by petitioner Prime White Cement
Corporation seeking the reversal of the decision * of the then Intermediate Appellate Court, the
dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing, the judgment appealed from is
hereby affirmed in toto. 1
The facts, as found by the trial court and as adopted by the respondent Court are hereby
quoted, to wit:
On or about the 16th day of July, 1969, plaintiff and defendant corporation
thru its President, Mr. Zosimo Falcon and Justo C. Trazo, as Chairman of
the Board, entered into a dealership agreement (Exhibit A) whereby said
plaintiff was obligated to act as the exclusive dealer and/or distributor of
the said defendant corporation of its cement products in the entire
Mindanao area for a term of five (5) years and proving (sic) among others
that:
a. The corporation shall, commencing September,
1970, sell to and supply the plaintiff, as dealer with
20,000 bags (94 lbs/bag) of white cement per month;
b. The plaintiff shall pay the defendant corporation
P9.70, Philippine Currency, per bag of white cement,
FOB Davao and Cagayan de Oro ports;
c. The plaintiff shall, every time the defendant
corporation is ready to deliver the good, open with
any bank or banking institution a confirmed,
unconditional, and irrevocable letter of credit in favor
of the corporation and that upon certification by the
boat captain on the bill of lading that the goods have
been loaded on board the vessel bound for Davao the
said bank or banking institution shall release the
corresponding amount as payment of the goods so
shipped.
Right after the plaintiff entered into the aforesaid dealership agreement,
he placed an advertisement in a national, circulating newspaper the fact of
his being the exclusive dealer of the defendant corporation's white cement
products in Mindanao area, more particularly, in the Manila Chronicle
dated August 16, 1969 (Exhibits R and R-1) and was even congratulated
by his business associates, so much so, he was asked by some of his
businessmen friends and close associates if they can be his
sub-dealer in the Mindanao area.
Relying heavily on the dealership agreement, plaintiff sometime in the
months of September, October, and December, 1969, entered into a
written agreement with several hardware stores dealing in buying and
selling white cement in the Cities of Davao and Cagayan de Oro which
would thus enable him to sell his allocation of 20,000 bags regular supply
of the said commodity, by September, 1970 (Exhibits O, O-1, O-2, P, P-1,
P-2, Q, Q-1 and Q-2). After the plaintiff was assured by his supposed
buyer that his allocation of 20,000 bags of white cement can be disposed
of, he informed the defendant corporation in his letter dated August 18,
1970 that he is making the necessary preparation for the opening of the
requisite letter of credit to cover the price of the due initial delivery for the
month of September, 1970 (Exhibit B), looking forward to the defendant
corporation's duty to comply with the dealership agreement. In reply to the
aforesaid letter of the plaintiff, the defendant corporation thru its corporate
secretary, replied that the board of directors of the said defendant decided
to impose the following conditions:
a. Delivery of white cement shall commence at the
end of November, 1970;
b. Only 8,000 bags of white cement per month for
only a period of three (3) months will be delivered;
c. The price of white cement was priced at P13.30 per
bag;
d. The price of white cement is subject to
readjustment unilaterally on the part of the defendant;
e. The place of delivery of white cement shall be
Austurias (sic);
f. The letter of credit may be opened only with the
Prudential Bank, Makati Branch;
g. Payment of white cement shall be made in
advance and which payment shall be used by the
defendant as guaranty in the opening of a foreign
letter of credit to cover costs and expenses in the
 procurement of materials in the manufacture of white
cement. (Exhibit C).
xxx xxx xxx
Several demands to comply with the dealership agreement (Exhibits D, E,
G, I, R, L, and N) were made by the plaintiff to the defendant, however,
defendant refused to comply with the same, and plaintiff by force of
circumstances was constrained to cancel his agreement for the supply of
white cement with third parties, which were concluded in anticipation of,
and pursuant to the said dealership agreement.
Notwithstanding that the dealership agreement between the plaintiff and
defendant was in force and subsisting, the defendant corporation, in
violation of, and with evident intention not to be bound by the terms and
conditions thereof, entered into an exclusive dealership agreement with a
certain Napoleon Co for the marketing of white cement in Mindanao
(Exhibit T) hence, this suit. (Plaintiff's Record on Appeal, pp. 86-90). 2
After trial, the trial court adjudged the corporation liable to Alejandro Te in the amount of
P3,302,400.00 as actual damages, P100,000.00 as moral damages, and P10,000.00 as and
for attorney's fees and costs. The appellate court affirmed the said decision mainly on the
following basis, and We quote:
There is no dispute that when Zosimo R. Falcon and Justo B. Trazo
signed the dealership agreement Exhibit "A", they were the President and
Chairman of the Board, respectively, of defendant-appellant corporation.
Neither is the genuineness of the said agreement contested. As a matter
of fact, it appears on the face of the contract itself that both officers were
duly authorized to enter into the said agreement and signed the same for
and in behalf of the corporation. When they, therefore, entered into the
said transaction they created the impression that they were duly clothed
with the authority to do so. It cannot now be said that the disputed
agreement which possesses all the essential requisites of a valid contract
was never intended to bind the corporation as this avoidance is barred by
the principle of estoppel. 3
In this petition for review, petitioner Prime White Cement Corporation made the following
assignment of errors. 4
I
THE DECISION AND RESOLUTION OF THE INTERMEDIATE
APPELLATE COURT ARE UNPRECEDENTED DEPARTURES FROM
THE CODIFIED PRINCIPLE THAT CORPORATE OFFICERS COULD
ENTER INTO CONTRACTS IN BEHALF OF THE CORPORATION ONLY
WITH PRIOR APPROVAL OF THE BOARD OF DIRECTORS.
II
THE DECISION AND RESOLUTION OF THE INTERMEDIATE
APPELLATE COURT ARE CONTRARY TO THE ESTABLISHED
JURISPRUDENCE, PRINCIPLE AND RULE ON FIDUCIARY DUTY OF
DIRECTORS AND OFFICERS OF THE CORPORATION.
III
THE DECISION AND RESOLUTION OF THE INTERMEDIATE
APPELLATE COURT DISREGARDED THE PRINCIPLE AND
JURISPRUDENCE, PRINCIPLE AND RULE ON UNENFORCEABLE
CONTRACTS AS PROVIDED IN ARTICLE 1317 OF THE NEW CIVIL
CODE.
IV
THE DECISION AND RESOLUTION OF THE INTERMEDIATE
APPELLATE COURT DISREGARDED THE PRINCIPLE AND
JURISPRUDENCE AS TO WHEN AWARD OF ACTUAL AND MORAL
DAMAGES IS PROPER.
V
IN NOT AWARDING PETITIONER'S CAUSE OF ACTION AS STATED IN
ITS ANSWER WITH SPECIAL AND AFFIRMATIVE DEFENSES WITH
COUNTERCLAIM THE INTERMEDIATE APPELLATE COURT HAS
CLEARLY DEPARTED FROM THE ACCEPTED USUAL, COURSE OF
JUDICIAL PROCEEDINGS.
There is only one legal issue to be resolved by this Court: whether or not the "dealership
agreement" referred by the President and Chairman of the Board of petitioner corporation is a
valid and enforceable contract. We do not agree with the conclusion of the respondent Court
that it is.
Under the Corporation Law, which was then in force at the time this case arose, 5 as well as
under the present Corporation Code, all corporate powers shall be exercised by the Board of
Directors, except as otherwise provided by law. 6 Although it cannot completely abdicate its
power and responsibility to act for the juridical entity, the Board may expressly delegate
specific powers to its President or any of its officers. In the absence of such express
delegation, a contract entered into by its President, on behalf of the corporation, may still bind
the corporation if the board should ratify the same expressly or impliedly. Implied ratification
may take various forms — like silence or acquiescence; by acts showing approval or adoption
of the contract; or by acceptance and retention of benefits flowing therefrom. 7 Furthermore,
even in the absence of express or implied authority by ratification, the President as such may,
as a general rule, bind the corporation by a contract in the ordinary course of business,
provided the same is reasonable under the circumstances. 8 These rules are basic, but are all
general and thus quite flexible. They apply where the President or other officer, purportedly
acting for the corporation, is dealing with a third person, i. e., a person outside the corporation.
The situation is quite different where a director or officer is dealing with his own corporation. In
the instant case respondent Te was not an ordinary stockholder; he was a member of the
Board of Directors and Auditor of the corporation as well. He was what is often referred to as a
"self-dealing" director.
A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his
corporation. 9 In case his interests conflict with those of the corporation, he cannot sacrifice the
latter to his own advantage and benefit. As corporate managers, directors are committed to
seek the maximum amount of profits for the corporation. This trust relationship "is not a matter
of statutory or technical law. It springs from the fact that directors have the control and
guidance of corporate affairs and property and hence of the property interests of the
stockholders." 10 In the case of Gokongwei v. Securities and Exchange Commission, this Court
quoted with favor from Pepper v. Litton, 11 thus:
. . . He cannot by the intervention of a corporate entity violate the ancient
precept against serving two masters. . . . He cannot utilize his inside
information and his strategic position for his own preferment. He cannot
violate rules of fair play by doing indirectly through the corporation what he
could not do directly. He cannot use his power for his personal advantage
and to the detriment of the stockholders and creditors no matter how
absolute in terms that power may be and no matter how meticulous he is
to satisfy technical requirements. For that power is at all times subject to
the equitable limitation that it may not be exercised for the
aggrandizement, preference, or advantage of the fiduciary to the exclusion
or detriment of the cestuis. . . . .
On the other hand, a director's contract with his corporation is not in all instances void or
voidable. If the contract is fair and reasonable under the circumstances, it may be ratified by
the stockholders provided a full disclosure of his adverse interest is made. Section 32 of the
Corporation Code provides, thus:
Sec. 32. Dealings of directors, trustees or officers with the corporation. —
A contract of the corporation with one or more of its directors or trustees
or officers is voidable, at the option of such corporation, unless all the
following conditions are present:
1. That the presence of such director or trustee in the board meeting in
which the contract was approved was not necessary to constitute a
quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the
approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in the case of an officer, the contract with the officer has been
previously authorized by the Board of Directors.
Where any of the first two conditions set forth in the preceding paragraph
is absent, in the case of a contract with a director or trustee, such contract
may be ratified by the vote of the stockholders representing at least two-
thirds (2/3) of the outstanding capital stock or of two-thirds (2/3) of the
members in a meeting called for the purpose: Provided, That full
disclosure of the adverse interest of the directors or trustees involved is
made at such meeting: Provided, however, That the contract is fair and
reasonable under the circumstances.
Although the old Corporation Law which governs the instant case did not contain a similar
provision, yet the cited provision substantially incorporates well-settled principles in corporate
law. 12
Granting arguendo that the "dealership agreement" involved here would be valid and
enforceable if entered into with a person other than a director or officer of the corporation, the
fact that the other party to the contract was a Director and Auditor of the petitioner corporation
changes the whole situation. First of all, We believe that the contract was neither fair nor
reasonable. The "dealership agreement" entered into in July, 1969, was to sell and supply to
respondent Te 20,000 bags of white cement per month, for five years starting September,
1970, at the fixed price of P9.70 per bag. Respondent Te is a businessman himself and must
have known, or at least must be presumed to know, that at that time, prices of commodities in
general, and white cement in particular, were not stable and were expected to rise. At the time
of the contract, petitioner corporation had not even commenced the manufacture of white
cement, the reason why delivery was not to begin until 14 months later. He must have known
that within that period of six years, there would be a considerable rise in the price of white
cement. In fact, respondent Te's own Memorandum shows that in September, 1970, the price
per bag was P14.50, and by the middle of 1975, it was already P37.50 per bag. Despite this,
no provision was made in the "dealership agreement" to allow for an increase in price mutually
acceptable to the parties. Instead, the price was pegged at P9.70 per bag for the whole five
years of the contract. Fairness on his part as a director of the corporation from whom he was
to buy the cement, would require such a provision. In fact, this unfairness in the contract is
also a basis which renders a contract entered into by the President, without authority from the
Board of Directors, void or voidable, although it may have been in the ordinary course of
business. We believe that the fixed price of P9.70 per bag for a period of five years was not
fair and reasonable. Respondent Te, himself, when he subsequently entered into contracts to
resell the cement to his "new dealers" Henry Wee 13 and Gaudencio Galang 14 stipulated as
follows:
The price of white cement shall be mutually determined by us but in no
case shall the same be less than P14.00 per bag (94 lbs).
The contract with Henry Wee was on September 15, 1969, and that with Gaudencio Galang,
on October 13, 1967. A similar contract with Prudencio Lim was made on December 29, 1969.
15
All of these contracts were entered into soon after his "dealership agreement" with petitioner
corporation, and in each one of them he protected himself from any increase in the market
price of white cement. Yet, except for the contract with Henry Wee, the contracts were for only
two years from October, 1970. Why did he not protect the corporation in the same manner
when he entered into the "dealership agreement"? For that matter, why did the President and
the Chairman of the Board not do so either? As director, specially since he was the other party
in interest, respondent Te's bounden duty was to act in such manner as not to unduly
prejudice the corporation. In the light of the circumstances of this case, it is to Us quite clear
that he was guilty of disloyalty to the corporation; he was attempting in effect, to enrich himself
at the expense of the corporation. There is no showing that the stockholders ratified the
"dealership agreement" or that they were fully aware of its provisions. The contract was
therefore not valid and this Court cannot allow him to reap the fruits of his disloyalty.
As a result of this action which has been proven to be without legal basis, petitioner
corporation's reputation and goodwill have been prejudiced. However, there can be no award
for moral damages under Article 2217 and succeeding articles on Section 1 of Chapter 3 of
Title XVIII of the Civil Code in favor of a corporation.
In view of the foregoing, the Decision and Resolution of the Intermediate Appellate Court dated
March 30, 1984 and August 6, 1984, respectively, are hereby SET ASIDE. Private respondent
Alejandro Te is hereby ordered to pay petitioner corporation the sum of P20,000.00 for
attorney's fees, plus the cost of suit and expenses of litigation.

SO ORDERED.
 The claim was not heeded; on 20 October 1986, private respondent filed with the NLRC
Regional Arbitration, Branch No. V, in Legazpi City, a complaint for illegal dismissal, unpaid
G.R. No. 101699 March 13, 1996 salaries, 13th month pay, overtime pay, separation pay and incentive leave pay against MMDC
and its two top officials, namely, herein petitioner Benjamin A. Santos (the President) and
Rodillano A. Velasquez (the executive vice-president). in his complaint-affidavit (position
BENJAMIN A. SANTOS, petitioner,
paper), submitted on 27 October 1986, Millena alleged, among other things, that his dismissal
vs.
was merely an offshoot of his letter of 12 August 1986 to Abaño about the company's inability
NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR ARBITER FRUCTUOSO T.
to pay its workers and to remit withholding taxes to the BIR. 4
AURELLANO and MELVIN D. MILLENA, respondents.

A copy of the notice and summons was served on therein respondents (MMDC, Santos and
Velasquez) on 29 October 1986. 5 At the initial hearing on 14 November 1986 before the Labor
Arbiter, only the complainant, Millena, appeared; however, Atty. Romeo Perez, in
representation of the respondents, requested by telegram that the hearing be reset to 01
VITUG, J.:p
December 1986. Although the request was granted by the Labor Arbiter, private respondent
was allowed, nevertheless, to present his evidence ex parte at that initial hearing.
In a petition for certiorari under Rule 65 of the Rules of Court, petitioner Benjamin A. Santos,
former President of the Mana Mining and Development Corporation ("MMDC"), questions the
The scheduled 01st December 1986 hearing was itself later reset to 19 December 1986. On
resolution of the National Labor Relations Commission ("NLRC") affirming the decision of
05 December 1986, the NLRC in Legazpi City again received a telegram from Atty. Perez
Labor Arbiter Fructuoso T. Aurellano who, having held illegal the termination of employment of
asking for fifteen (15) days within which to submit the respondents' position paper. On 19
private respondent Melvin D. Millena, has ordered petitioner MMDC, as well as its president
December 1986, Atty. Perez sent yet another telegram seeking a further postponement of the
(herein petitioner) and the executive vice-president in their personal capacities, to pay Millena
hearing and asking for a period until 15 January 1987 within which to submit the position
his monetary claims.
paper.

Private respondent, on 01 October 1985, was hired to be the project accountant for MMDC's
On 15 January 1987, Atty. Perez advised the NLRC in Legazpi City that the position paper had
mining operations in Gatbo, Bacon, Sorsogon. On 12 August 1986, private respondent sent to
finally been transmitted through the mail and that he was submitting the case for resolution
Mr. Gil Abaño, the MMDC corporate treasurer, a memorandum calling the latter's attention to
without further hearing. The position paper was received by the Legazpi City NLRC office on
the failure of the company to comply with the withholding tax requirements of, and to make the
19 January 1987. Complainant Millena filed, on 26 February 1987, his rejoinder to the position
corresponding monthly remittances to, the Bureau of Internal Revenue ("BIR") on account of
paper.
delayed payments of accrued salaries to the company's laborers and employees. 1

On 27 July 1988, Labor Arbiter Fructuoso T. Aurellano, finding no valid cause for terminating
In a letter, dated 08 September 1986, Abaño advised private respondent thusly:
complainant's employment, ruled, citing this Court's pronouncement in Construction &
Development Corporation of the Philippines vs. Leogardo, Jr. 6 that a partial closure of an
Regarding Gatbo operations, as you also are aware, the rainy season is establishment due to losses was a retrenchment measure that rendered the employer liable for
now upon us and the peace and order condition in Sorsogon has unpaid salaries and other monetary claims. The Labor Arbiter adjudged
deteriorated. It is therefore, the board's decision that it would be useless
for us to continue operations, especially if we will always be in the "hole,"
WHEREFORE, the respondents are hereby ordered to pay the petitioner
so to speak. Our first funds receipts will be used to pay all our debts. We
the amount of P37,132.25 corresponding to the latter's unpaid salaries
will stop production until the advent of the dry season, and until the
and advances; P5,400.00 for petitioner's 13th month pay; P3,340.95 as
insurgency problem clears. We will undertake only necessary
service incentive leave pay; and P5,400.00 as separation pay. The
maintenance and repair work and will keep our overhead down to the
respondents are further ordered to pay the petitioner 10% of the monetary
minimum manageable level. Until we resume full-scale operations, we will
awards as attorney's fees.
not need a project accountant as there will be very little paper work at the
site, which can be easily handled at Makati.
All other claims are dismissed for lack of sufficient evidence.
We appreciate the work you have done for Mana and we will not hesitate
to take you back when we resume work at Gatbo. However it would be SO ORDERED. 7
unfair to you if we kept you in the payroll and deprive you of the
opportunity to earn more, during this period of Mana's crisis. 2
Alleging abuse of discretion by the Labor Arbiter, the company and its co-respondents filed a
"motion for reconsideration and/or appeal. 8 The motion/appeal was forthwith indorsed to the
Private respondent expressed "shock" over the termination of his employment. He complained Executive Director of the NLRC in Manila.
that he would not have resigned from the Sycip, Gorres & Velayo accounting firm, where he
was already a senior staff auditor, had it not been for the assurance of a "continuous job" by
In a resolution, dated 04 September 1989, the NLRC 9 affirmed the decision of the Labor
MMDC's Engr. Rodillano E. Velasquez. Private respondent requested that he be reimbursed
Arbiter. It held that the reasons relied upon by MMDC and its co-respondents in the dismissal
the "advances" he had made for the company and be paid his "accrued salaries/claims. 3
of Millena, i.e., the rainy season, deteriorating peace and order situation and little paperwork,
were "not causes mentioned under Article 282 of the Labor Code of the Philippines" and that
Millena, being a regular employee, was "shielded by the tenurial clause mandated under the
law. 10
A writ of execution correspondingly issued; however, it was returned unsatisfied for the failure
of the sheriff to locate the offices of the corporation in the address indicated. Another writ of
execution and an order of garnishment was thereupon served on petitioner at his residence.
Contending that he had been denied due process, petitioner filed a motion for reconsideration
of the NLRC's resolution along with a prayer for the quashal of the writ of execution and order
of garnishment. He averred that he had never received any notice, summons or even a copy of
the complaint; hence, he said, the Labor Arbiter at no time had acquired jurisdiction over him.
On 16 August 1991, the NLRC 11 dismissed the motion for reconsideration. Citing Section 2,
Rule 13, 12 and Section 13, Rule 14, 13 of the Rules of Court, it ruled that the Regional
Arbitration office had not, in fact, been remiss in the observance of the legal processes for
acquiring jurisdiction over the case and over the persons of the respondents therein. The
NLRC was also convinced that Atty. Perez had been the authorized counsel of MMDC and its
two most ranking officers.
In holding petitioner personally liable for private respondent's claim, the NLRC cited Article 289
14
of the Labor Code and the ruling in A.C. Ransom Labor Union-CCLU vs. NLRC 15 to the
effect that "(t)he responsible officer of an employer corporation (could) be held personally, not
to say even criminally, liable for non-payment of backwages," and that of Gudez vs. NLRC 16
which amplified that "where the employer corporation (was) no longer existing and unable to
satisfy the judgment in favor of the employee, the officer should be liable for acting on behalf of
the corporation.
evidence. 23 Petitioner was not just an ordinary official of the MMDC; he was the President of
the company.
Petitioner, in any event, argues that public respondents have gravely abused their discretion
"in finding petitioner solidarily liable with MMDC even (in) the absence of bad faith and malice
on his part." 24 There is merit in this plea.
A corporation is a juridical entity with legal personality separate and distinct from those acting
for and in its behalf and, in general, from the people comprising it. The rule is that obligations
incurred by the corporation, acting through its directors, officers and employees, are its sole
liabilities. Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can
exist to warrant, albeit done sparingly, the disregard of its independent being and the lifting of
the corporate veil. 25 As a rule, this situation might arise when a corporation is used to evade a
just and due obligation or to justify a wrong, 26 to shield or perpetrate fraud, 27 to carry out
similar other unjustifable aims or intentions, or as a subterfuge to commit injustice and so
circumvent the law. 28 In Tramat Mercantile, Inc., vs. Court of Appeals, 29 the Court has collated
the settled instances when, without necessarily piercing the veil of corporate fiction, personal
civil liability can also be said to lawfully attach to a corporate director, trustee or officer; to wit:
When —
(1) He assents (a) to a patently unlawful act of the corporation, or (b) for
bad faith or gross negligence in directing its affairs, or (c) for conflict of
interest, resulting in damages to the corporation, its stockholders or other
persons;
(2) He consents to the issuance of watered stocks or who, having
knowledge thereof, does not forthwith file with the corporate secretary his
written objection thereto;

In the instant petition for certiorari, petitioner Santos reiterates that he should not have been (3) He agrees to hold himself personally and solidarily liable with the
adjudged personally liable by public respondents, the latter not having validly acquired corporation; or
jurisdiction over his person whether by personal service of summons or by substituted service
under Rule 19 of the Rules of Court.
(4) He is made, by a specific provision of law, to personally answer for his
corporate action.
Petitioner's contention is unacceptable. The fact that Atty. Romeo B. Perez has been able to
timely ask for a deferment of the initial hearing on 14 November 1986, coupled with his
The case of petitioner is way off these exceptional instances. It is not even shown
subsequent active participation in the proceedings, should disprove the supposed want of
that petitioner has had a direct hand in the dismissal of private respondent enough
service of legal process. Although as a rule, modes of service of summons are strictly followed
to attribute to him (petitioner) a patently unlawful act while acting for the corporation.
in order that the court may acquire jurisdiction over the person of a defendant, 17 such
Neither can Article 289 30 of the Labor Code be applied since this law specifically
procedural modes, however, are liberally construed in quasi-judicial proceedings, substantial
refers only to the imposition of penalties under the Code. It is undisputed that the
compliance with the same being considered adequate. 18 Moreover, jurisdiction over the
termination of petitioner's employment has, instead, been due, collectively, to the
person of the defendant in civil cases is acquired not only by service of summons but also by
need for a further mitigation of losses, the onset of the rainy season, the insurgency
voluntary appearance in court and submission to its authority. 19 "Appearance" by a legal
problem in Sorsogon and the lack of funds to further support the mining operation in
advocate is such "voluntary submission to a court's jurisdiction." 20 It may be made not only by
Gatbo.
actual physical appearance but likewise by the submission of pleadings in compliance with the
order of the court or tribunal.
It is true, there were various cases when corporate officers were themselves held by the Court
21 to be personally accountable for the payment of wages and money claims to its employees. In
To say that petitioner did not authorize Atty. Perez to represent him in the case is to unduly
A.C. Ransom Labor Union-CCLU vs. NLRC, 31 for instance, the Court ruled that under the
tax credulity. Like the Solicitor General, the Court likewise considers it unlikely that Atty. Perez
Minimum Wage Law, the responsible officer of an employer corporation could be held
would have been so irresponsible as to represent petitioner if he were not, in fact, authorized.
22 personally liable for nonpayment of backwages for "(i)f the policy of the law were otherwise,
Atty. Perez is an officer of the court, and he must be presumed to have acted with due
the corporation employer (would) have devious ways for evading payment of back wages." In
propriety. The employment of a counsel or the authority to employ an attorney, it might be
the absence of a clear identification of the officer directly responsible for failure to pay the
pointed out, need not be proved in writing; such fact could be inferred from circumstantial
backwages, the Court considered the President of the corporation as such officer. The case
was cited in Chua vs. NLRC 32 in holding personally liable the vice-president of the company,
being the highest and most ranking official of the corporation next to the President who was
dismissed, for the latter's claim for unpaid wages.

A review of the above exceptional cases would readily disclose the attendance of facts and
circumstances that could rightly sanction personal liability an the part of the company officer. In
A.C. Ransom, the corporate entity was a family corporation and execution against it could not
be implemented because of the disposition posthaste of its leviable assets evidently in order to
evade its just and due obligations. The doctrine of "piercing the veil of corporate fiction" was
thus clearly appropriate. Chua likewise involved another family corporation, and this time the
conflict was between two brothers occupying the highest ranking positions in the company.
There were incontrovertible facts which pointed to extreme personal animosity that resulted,
evidently in bad faith, in the easing out from the company of one of the brothers by the other.

The basic rule is still that which can be deduced from the Court's pronouncement in Sunio vs.
National Labor Relations Commission; 33 thus:

We come now to the personal liability of petitioner, Sunio, who was made
jointly and severally responsible with petitioner company and CIPI for the
payment of the backwages of private respondents. This is reversible error.
The Assistant Regional Director's Decision failed to disclose the reason
why he was made personally liable. Respondents, however, alleged as
grounds thereof, his the being owner of one-half (1/2) interest of said
corporation, and his alleged arbitrary dismissal of private respondents.

Petitioner Sunio was impleaded in the Complaint in his capacity as

General Manager of petitioner corporation. There appears to be no
evidence on record that he acted maliciously or in bad faith in terminating
the services of private respondents. His act, therefore, was within the
scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate

and distinct from those of the persons composing it as well as from that of
any other legal entity to which it may be related. Mere ownership by a
single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality. Petitioner Sunio,
therefore, should not have been made personally answerable for the
payment of private respondents' back salaries.

The Court, to be sure, did appear to have deviated somewhat in Gudez vs. NLRC; 34 however,
it should be clear from our recent pronouncement in Mam Realty Development Corporation
and Manuel Centeno vs. NLRC 35 that the Sunio doctrine still prevails.

WHEREFORE, the instant petition for certiorari is given DUE COURSE and the decision of the
Labor Arbiter, affirmed by the NLRC, is hereby MODIFIED insofar as it holds herein petitioner
Benjamin Santos personally liable with Mana Mining and Development Corporation, which
portion of the questioned judgment is now SET ASIDE. In all other respects, the questioned
decision remains unaffected. No costs.
 AWARD

G.R. No. 159795 July 30, 2004

In summary, award is hereby made in favor of the Quiambaos against the Respondents, jointly
and severally, as follows:
SPOUSES ROBERTO & EVELYN DAVID and COORDINATED GROUP, INC., petitioners,
vs.
CONSTRUCTION INDUSTRY AND ARBITRATION COMMISSION and SPS. NARCISO & Lost Rentals - P1,680,000.00
AIDA QUIAMBAO, respondents.
Cost to Complete, Rectification, etc. - 2,281,028.71
PUNO, J.:
Damages due to erroneous staking - 117,000.00

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, assailing Professional fees for geodetic surveys, etc. - 72,500.00
the Decision and Resolution of the Court of Appeals, dated June 30, 2003 and August 27,
2003, respectively, in CA-G.R. SP No. 72736. Misc. expenses/ professional fees of engineers - 118,642.50

Petitioner COORDINATED GROUP, INC. (CGI) is a corporation engaged in the construction Bills for water and electricity, PLDT - 15,247.68
business, with petitioner-spouses ROBERTO and EVELYN DAVID as its President and
Treasurer, respectively. Attorney’s Fees - 100,000.00

Moral Damages - 250,000.00

The records reveal that on October 7, 1997, respondent-spouses NARCISO and AIDA
QUIAMBAO engaged the services of petitioner CGI to design and construct a five-storey
concrete office/residential building on their land in Tondo, Manila. The Design/Build Contract of Exemplary Damages - 250,000.00
the parties provided that: (a) petitioner CGI shall prepare the working drawings for the
construction project; (b) respondents shall pay petitioner CGI the sum of Seven Million Three TOTAL P4,884,418.89
Hundred Nine Thousand Eight Hundred Twenty-One and 51/100 Pesos (P7,309,821.51) for
the construction of the building, including the costs of labor, materials and equipment, and Two
Hundred Thousand Pesos (P200,000.00) for the cost of the design; and (c) the construction of There is likewise an award in favor of the Respondents (petitioners herein) and against the
the building shall be completed within nine (9) months after securing the building permit. Claimants (respondents herein) for the value of the materials and equipment left at (the) site
(in) the amount of P238,372.75. Respondent CGI is likewise credited with an 80%
accomplishment having a total value of P5,847,857.20.
The completion of the construction was initially scheduled on or before July 16, 1998 but was
extended to November 15, 1998 upon agreement of the parties. It appears, however, that
petitioners failed to follow the specifications and plans as previously agreed upon. All other claims and counterclaims are hereby dismissed for lack of merit.
Respondents demanded the correction of the errors but petitioners failed to act on their
complaint. Consequently, respondents rescinded the contract on October 31, 1998, after
paying 74.84% of the cost of construction. To recapitulate:

Payments already made to CGI - P5,275,041.00

Respondents then engaged the services of another contractor, RRA and Associates, to
inspect the project and assess the actual accomplishment of petitioners in the construction of
the building. It was found that petitioners revised and deviated from the structural plan of the Amount awarded above to Claimants - 4,864,418.89
building without notice to or approval by the respondents.1
Total 10,159,459.89
Respondents filed a case for breach of contract against petitioners before the Regional Trial
Payments due CGI for 80% work
Court (RTC) of Manila. At the pre-trial conference, the parties agreed to submit the case for
accomplishment P5,847,857.20 -
arbitration to the CONSTRUCTION INDUSTRY ARBITRATION COMMISSION (CIAC).
Respondents filed a request2 for arbitration with the CIAC and nominated Atty. Custodio O.
Parlade as arbitrator. Atty. Parlade was appointed by the CIAC as sole arbitrator to resolve the Cost of materials and equipment 238,372.75 -
dispute. With the agreement of the parties, Atty. Parlade designated Engr. Loreto C. Aquino to
assist him in assessing the technical aspect of the case. The RTC of Manila then dismissed Total : P6,086,299.95
the case and transmitted its records to the CIAC.3

Deducting this amount of P6,086,229.95 from P10,159,459.89, the result is a net award in
After conducting hearings and two (2) ocular inspections of the construction site, the arbitrator favor the Claimants of (sic) the amount of P4,073,229.94.
rendered judgment against petitioners, thus:
WHEREFORE, the Respondents are hereby ordered to pay, jointly and severally, the
Claimants the amount of P4,073,229.94 with interest at 6% per annum from the date of the
promulgation of this Award, and 12% per annum of the net award, including accrued interest,
from the time it becomes final and executory until it is fully paid.
Each party is hereby directed to pay to the Commission P15,000.00 as such party’s share in
the expert’s fees paid to Engr. Loreto C. Aquino.
SO ORDERED.4
Petitioners appealed to the Court of Appeals which affirmed the arbitrator’s Decision but
deleted the award for lost rentals.5
Unsatisfied, petitioners filed this petition for review on certiorari, raising the following issues:
I. THERE WAS NO BASIS, IN FACT AND IN LAW, TO ALLOW RESPONDENTS
TO UNILATERALLY RESCIND THE DESIGN/BUILT CONTRACT, AFTER
PETITIONERS HAVE (SIC) SUBSTANTIALLY PERFORMED THEIR OBLIGATION
UNDER THE SAID CONTRACT.
II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS
JOINTLY AND SEVERALLY LIABLE WITH CO-PETITIONER COORDINATED
(GROUP, INC.), IN CLEAR VIOLATION OF THE DOCTRINE OF SEPARATE
JURIDICAL PERSONALITY.
We find no merit in the petition.
Executive Order No. 1008 entitled, "Construction Industry Arbitration Law" provided for an
arbitration mechanism for the speedy resolution of construction disputes other than by court
litigation. It recognized the role of the construction industry in the country’s economic progress
as it utilizes a large segment of the labor force and contributes substantially to the gross
national product of the country.6 Thus, E.O. No. 1008 vests on the Construction Industry
Arbitration Commission (CIAC) original and exclusive jurisdiction over disputes arising from or
connected with construction contracts entered into by parties who have agreed to submit their
case to voluntary arbitration. Section 19 of E.O. No. 1008 provides that its arbitral award
shall be appealable to the Supreme Court only on questions of law.7
There is a question of law when the doubt or difference in a given case arises as to what the
law is on a certain set of facts, and there is a question of fact when the doubt arises as to the
truth or falsity of the alleged facts.8 Thus, for a question to be one of law, it must not involve an
examination of the probative value of the evidence presented by the parties and there must be
no doubt as to the veracity or falsehood of the facts alleged.9
In the case at bar, it is readily apparent that petitioners are raising questions of fact. In their
first assigned error, petitioners claim that at the time of rescission, they had completed 80% of
the construction work and still have 15 days to finish the project. They likewise insist that they
constructed the building in accordance with the contract and any modification on the plan was
with the consent of the respondents.
These claims of petitioners are refuted by the evidence on record. In holding that respondents
were justified in rescinding the contract, the Court of Appeals upheld the factual findings of
the sole arbitrator, thus:
xxx
(A)s the Building was taking shape, they noticed deviations from the approved
plans and specifications for the Building. Most noticeable were two (2)
concrete columns in the middle of the basement which effectively and
permanently obstructed the basement for the parking of vehicles x x x. In
addition, three (3) additional concrete columns were constructed from the
ground floor to the roof deck x x x which affected the overall dimension of the
building such as altering the specified beam depths, passageways and
windows. In addition, Mrs. Quiambao provided a virtual litany of alleged defects, to
wit: (a) the Building was not vertically plumbed xxx; (b) provisions for many
architectural members were not provided for, such as, (i) the recesses for window
plant boxes are lacking xxx, (ii) provisions for precast molding are lacking xxx, (iii)
canopies are also lacking x x x; (c) misaligned walls, ugly discrepancies and gaps;
(d) skewed walls to floors/landings; (e) low head clearances and truncated beams x
x x; (f) narrow and disproportionate stairs xxx one (1) instead of two (2) windows at
the fire exit x x x, (g) absence of water-proofing along the basement wall x x x and at
the roof deck which caused leaks that damages the mezzanine floor x x x; (h) the
use of smaller diagonal steel trusses at the penthouse. x x x There were others
which were shown during the site inspection such as: (1) L-shaped kitchen counters
instead of the required U-shaped counters x x x; (2) failure to provide marble tops for
the kitchen counters; (3) installation of single-tub sinks where the plans called for
double-type stainless kitchen sinks x x x; (4) installation of much smaller windows
than those required; (5) misaligned window easements to wall, (6) floors were
damaged by roof leaks, (6) poor floor finish, misaligned tiles, floors with "kapak" and
disproportionate drawers and cabinets. A more comprehensive list of alleged
defects, deviations and complaints of the Quiambaos is found in a report marked
Exhibit C-144. Many of these defects were seen during the site inspection and
the only defense and comment of CGI was that these were punch-list items
which could have been corrected prior to completion and turn-over of the
Building had the Contract not been terminated by the Claimants (respondents
here). x x x Thus, x x x (petitioner) CGI argued that: "In any construction work,
before a contractor turns-over the project to the owner, punchlisting of defects is
done so as to ensure compliance and satisfaction of both the contractor and the
owner. Punch listing means that the contractor will list all major and minor defects
and rectifies them before the turnover of the project to the owner. After all defects
had been arranged, the project is now turned over to the owner. For this particular
project, no turn over was made by the contractor to the owner yet. Actually, we were
already pinpointing these defects for punch listing before we were terminated
illegally. As alleged by the owner, the deficiencies mentioned are stubouts of water
closets at toilets, roofing and framing, doors, cabinets, ceiling and stairs and other
were not yet completed and rectified by us. In fact we were counting on our project
engineer in charge x x x to do this in as much as this is one of his duties to do for
the company. x x x" Confirmatory of this assertion of CGI that it was willing to
undertake the appropriate corrective works (whether or not the items are punch-list
items) is Exhibit C-88 which is a letter prepared by CGI’s Windell F. Vizconde,
checked by CGI’s Gary M. Garcia and noted by CGI’s Benjie Lipardo, addressed to
the Quiambaos which stated that:
"As per our discussion during the last meeting dated Sept. 28, 1998 the following
items was (sic) confirmed and clarified. These are described as follows:
"1. All ceiling cornices shall be installed as per plan specification which is 1" x 4" in
size.
"2. All baseboards shall be installed as per plan specification which is wood 1" x 4"
in size.
"3. Electrical Meter center and main panel breaker should be retained to its present
location.
"4. Elevation of office, dining and stair lobby of ground floor shall be 4" higher than
the elevation of parking area (subject for verification).
"5. All door jambs at C.R. has (sic) to be replaced with concrete framing jambs.
"6. All ceilings mailers should be 2 x 2 in size.
"7. All plywood ceiling that was damaged by rain water shall be replaced.
"8. Provide a pipe chase for the enclosure of soil stack pipe and water line pipe at
the ground floor level between grid line 3-4 along the light well area.
"9. Front side elevation view shall be follow (sic) as per plan specialy (sic) at 4th flr.
"10. One column at basement floor along grid line 2# B has to be verified by the
structural designer if ever it is safe to removed (sic) the column and what will be
their (sic) recommendation to support the load.
"11. Existing doors D-2 and D-3 shall be replaced a (sic) new one."
While Mrs. Quiambao appeared not to have given her conformity, this document
from CGI is an admission by CGI of the deficiencies in the construction of the
Building which needed to be corrected.
It appears that concrete samples taken from the basement, ground floor,
mezzanine and 2nd floor of the Building were subjected to a concrete core test
by Geotesting International, Inc., geotechnical and materials testing
engineers. A report dated January 20, 1999 x x x showed x x x that (5) samples x x
x failed the test. Sample S2 while it showed a comprehensive strength of 3147 psi,
the corrective strength in psi was below the specified comprehensive strength of
3000 psi. CGI failed to produce evidence of similar tests during the construction of
the Building although it is normal construction practice for the contractor to provide
samples for concrete core tests.
Deformed reinforcing steel bar specimens from the building were subjected to
physical tests. These tests were conducted at the Materials Testing Laboratory of
the Department of Civil Engineering, College of Engineering, University of the
Philippines. x x x There were 18 samples and x x x 8 failed the test although all of
them passed the cold bend test. x x x CGI submitted Quality Test Certificates issued
by Steel Asia certifying to the mechanical test results and chemical composition of
the steel materials tested x x x. However, the samples were provided by the
manufacturer, not by CGI, to Steel Asia, and there is no showing that the materials
supplied by the manufacturer to CGI for the Building formed part of the steel
materials, part of which was tested.
xxx
Regarding the additional columns at the basement and at the first floor to the
roof deck of the Building, which effectively restricted the use of the basement
as a parking area, and likewise reduced the area which could be used by the
Quiambaos in the different floors of the Building, Engr. Roberto J. David
admitted that these represented a design change which was made and
implemented by CGI without the conformnity of the Claimants. The Contract
specifically provided in Article II that "the CONTRACTOR shall submit to the
OWNER all designs for the OWNER’S approval." This implies necessarily that all
changes in the approved design shall likewise be submitted to the OWNER for
approval. This change, in my view, is the single most serious breach of the
Contract committed by CGI which justified the decision of the Claimants to
terminate the Contract. x x x (T)here is no evidence to show that the Quiambaos
approved the revision of the structural plans to provide for the construction of the
additional columns. x x x
x x x Engr. Villasenor defended his structural design as adequate. He admitted that
the revision of the plans which resulted in the construction of additional
columns was in pursuance of the request of Engr. David to revise the
structural plans to provide for a significant reduction of the cost of
construction. When Engr. David was asked for the justification for the revision
for the plans, he confirmed that he wanted to reduce the cost of construction.
In any case, whether the cause of revision of the plans was the under-design
of the foundation or for reasons of economy, it is CGI which is at fault. CGI
prepared the structural plans and quoted the price for constructing the
Building. The Quiambaos accepted both the plans and the price. If CGI made a
mistake in designing the foundation or in estimating the cost of construction,
it was at fault. It cannot correct that mistake by revising the plans and
implementing the revisions without informing the Quiambaos and obtaining
their unequivocal approval of such changes.
In addition, CGI admitted that no relocation survey was made by it prior to the
construction of the Building. Consequently, a one-meter portion of the Building was
constructed beyond the property line. In justification, Engr. Barba V. Santos declared
that CGI made the layout of the proposed structure based on the existing fence. x x
x (I)t is understood that a contractor, in constructing a building, must first conduct a
relocation survey before construction precisely to avoid the situation which
developed here, that the Building was not properly constructed within the owner’s
property line. x x x This resulted in the under-utilization of the property, small as it is,
and the exposure of the Quiambaos to substantial damages to the owner of the
adjoining property encroached upon.
A third major contested issue concerned the construction of the cistern. x x x
A cistern is an underground tank used to collect water for drinking purposes.
The contentious points regarding the construction of the cistern are: first, that the
cistern was designed to accumulate up to 10,000 gallons of water; as
constructed, its capacity was less than the design capacity. Second, there is
no internal partition separating the cistern from the sump pit. x x x
 Considering that the cistern is a receptacle for the collection of drinking water,
it is incomprehensible why the Respondents (herein petitioners), in the design
and construction of the cistern, has (sic) not taken the necessary measures to
make certain that the water in the cistern will be free from contamination. x x x
Thus, granting the arguments of the Respondents (herein petitioners) that the
observed defects in the Building could be corrected before turn-over and acceptance
of the Building if CGI had been allowed to complete its construction, the
construction of additional columns, the construction of the Building such that
part of it is outside the property line established a sufficient legal and factual
basis for the decision of the Quiambaos to terminate the Contract. The fact
that five (5) of nine (9) the (sic) concrete samples subjected to a core test, and
eight (8) of eighteen (18) deformed reinforcing steel bar specifics subjected to
physical tests failed the tests and the under-design of the cistern was
established after the Contract was terminated also served to confirm the
justified suspicion of the Quiambaos that the Building was defective or was
not constructed according to approved plans and specifications.10 (emphases
supplied)
These are technical findings of fact made by expert witnesses and affirmed by the arbitrator.
They were also affirmed by the Court of Appeals. We find no reason to revise them.
The second assigned error likewise involves a question of fact. It is contended that
petitioner-spouses David cannot be held jointly and severally liable with petitioner CGI in the
payment of the arbitral award as they are merely its corporate officers.
At first glance, the issue may appear to be a question of law as it would call for application of
the law on the separate liability of a corporation. However, the law can be applied only after
establishing a factual basis, i.e., whether petitioner-spouses as corporate officers were grossly
negligent in ordering the revisions on the construction plan without the knowledge and consent
of the respondent-spouses. On this issue, the Court of Appeals again affirmed the factual
findings of the arbitrator, thus:
As a general rule, the officers of a corporation are not personally liable for their official
acts unless it is shown that they have exceeded their authority. However, the personal
liability of a corporate director, trustee or officer, along with corporation, may so
validly attach when he assents to a patently unlawful act of the corporation or for
bad faith or gross negligence in directing its affairs.
The following findings of public respondent (CIAC) would support its ruling in holding
petitioners severally and jointly liable with the Corporation:
" x x x When asked whether the Building was underdesigned considering the poor
quality of the soil, Engr. Villasenor defended his structural design as adequate.
He admitted that the revision of the plans which resulted in the construction
of additional columns was in pursuance of the request of Engr. David to
revise the structural plans to provide for a significant reduction of the cost
of construction. When Engr. David was asked for the justification for the
revision of the plans, he confirmed that he wanted to reduce the cost of
construction. x x x" (emphases supplied)11
Clearly, the case at bar does not raise any genuine issue of law. We reiterate the rule that
factual findings of construction arbitrators are final and conclusive and not reviewable by this
Court on appeal, except when the petitioner proves affirmatively that: (1) the award was
procured by corruption, fraud or other undue means; (2) there was evident partiality or
corruption of the arbitrators or of any of them; (3) the arbitrators were guilty of misconduct in
refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence
pertinent and material to the controversy; (4) one or more of the arbitrators were disqualified to
act as such under section nine of Republic Act No. 876 and willfully refrained from disclosing
such disqualifications or of any other misbehavior by which the rights of any party have been
materially prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly executed
them, that a mutual, final and definite award upon the subject matter submitted to them was
not made.12 Petitioners failed to show that any of these exceptions applies to the case at
bar.
Finally, it bears to remind petitioners of this Court’s ruling in the 1993 case of Hi-Precision
Steel Center, Inc. vs. Lim Kim Steel Builders, Inc.13 which emphasized the rationale for
limiting appeal to legal questions in construction cases resolved through arbitration, thus:
x x x Consideration of the animating purpose of voluntary arbitration in general, and
arbitration under the aegis of the CIAC in particular, requires us to apply rigorously the
above principle embodied in Section 19 that the Arbitral Tribunal’s findings of fact shall
be final and inappealable (sic).
Voluntary arbitration involves the reference of a dispute to an impartial body, the
members of which are chosen by the parties themselves, which parties freely consent
in advance to abide by the arbitral award issued after proceedings where both parties
had the opportunity to be heard. The basic objective is to provide a speedy and
inexpensive method of settling disputes by allowing the parties to avoid the
formalities, delay, expense and aggravation which commonly accompany
ordinary litigation, especially litigation which goes through the entire hierarchy
of courts. Executive Order No. 1008 created an arbitration facility to which the
construction industry in the Philippines can have recourse. The Executive Order was
enacted to encourage the early and expeditious settlement of disputes in the
construction industry, a public policy the implementation of which is necessary and
important for the realization of the national development goals.
Aware of the objective of voluntary arbitration in the labor field, in the construction
industry, and in other area for that matter, the Court will not assist one or the other or
even both parties in any effort to subvert or defeat that objective for their private
purposes. The Court will not review the factual findings of an arbitral tribunal upon the
artful allegation that such body had "misapprehended facts" and will not pass upon
issues which are, at bottom, issues of fact, no matter how cleverly disguised they might
be as "legal questions." The parties here had recourse to arbitration and chose the
arbitrators themselves; they must have had confidence in such arbitrators. The Court
will not, therefore, permit the parties to relitigate before it the issues of facts
previously presented and argued before the Arbitral Tribunal, save only where a
clear showing is made that, in reaching its factual conclusions, the Arbitral
Tribunal committed an error so egregious and hurtful to one party as to
constitute a grave abuse of discretion resulting in lack or loss of jurisdiction.
Prototypical examples would be factual conclusions of the Tribunal which resulted in
deprivation of one or the other party of a fair opportunity to present its position before
the Arbitral Tribunal, and an award obtained through fraud or the corruption of
arbitrators. Any other more relaxed rule would result in setting at naught the basic
objective of a voluntary arbitration and would reduce arbitration to a largely inutile
institution. (emphases supplied) IN VIEW WHEREOF, the petition is DISMISSED for
lack of merit. Costs against petitioners. SO ORDERED.
 DIMACUNA, ERNA DUGTONG, FLORDELISA DIGMA, VIRGILIO DADIOS, LOLITA DAGTA, ADELAIDA DORADO, CELSA DATUMANONG, VIRGINIA DOCTOLERO, EDNA SAN
DIEGO, JULIETA DANG, JULIETA DORANTINAO, LOLITA DAGANO, JUDITH DIAZ, MARIA ENICANE, MARITA ESCARDE, ENRIMITA ESMAYOR, ROSARIO EPIRITU, REMEDIOS
EMBOLTORIO, IRENE ESTUITA, TERESITA ERESE, ERMELINDA ELEZO, MARIA ESTAREJA, MERLITA ESQUERRA, YOLANDA FELICITAS, FRUTO FRANCIA, MARTHA FRUTO,
G.R. No. 113907 April 20, 2001 LILIA FLORES, SALVACION FORTALESA, JUDITH FAJARDO, SUSANA FERNANDO, EDWIN FRANCISCO, NENITA GREGORY, ROSA CAMILO, MARIVIC GERRARDO, CHARITA
GOREMBALEM, NORMA GRANDE, DOLORES GUTIERREZ, CHARLIE GARCIA, LUZ GALVEZ, ADELAIDA GAMILLA, LUZ GAPULTOS, ERLINDA GARCIA, HELEN GARCIA,
ERLINDA GAUDIA, FRANCISCA GUILING, MINTA HERRERA, ASUNCION HONOA, JUAN HERNANDEZ, LUCERIA ANNA MAE HERNANDEZ, JULIANA HERNANDEZ, EDITHA
IGNACIO, ANITA INOCENCIO, EULALIA INSORIO, ESTELITA IRLANDA, MILAGROS IGNACIO, LINDA JABONILLO, ADELIMA JAEL, ROWENA JARABJO, ROBERT JAVILINAR,
CLARITA JOSE, CARMENCITA JUNDEZ, SOFIA LALUCIS, GLORIA LABITORIA, ANGELITA LODES, ERLINDA LATOGA, EVELYN LEGASPI, ROMEO LIMCHOCO, JESUS LARA,
ESTRELLA DE LUNA, LORETA LAREZA, JOSEPHINE ALSCO, MERCY DE LEON, CONSOLACION LIBAO, MARILYN LIWAG, TERESITA LIZAZO, LILIA MACAPAGAL, SALVACION
MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD (MSMG-UWP), MACAREZA, AMALIA MADO, TERESITA MADRIAGA, JOVITA MAGNAYE, JEAN MALABAD, FRANCISCA MENDOZA, NELCITA MANGANTANG, TERESITA NELLA, GENEROZA

ITS PRESIDENT BEDA MAGDALENA VILLANUEVA, MARIO DAGANIO, DONATO GUERRERO, BELLA P. SANCHEZ, ELENA MERCADO, CRISTETA MOJANA, BERNARDA MONGADO, LYDIA MIRANDA, ELISA MADRILEJOS, LOIDA MAGSINO, AMELIA MALTO, JULITA MAHIBA, MYRNA MAYORES,
LUISA MARAIG, FLORENCIA MARAIG, EMMA MONZON, IMELDA MAGDANGAN, VICTORIA MARTIN, NOEMI MANGUILLO, BASILIZA MEDINA, VICTORIO MERCADO, ESTELA
TOBIS, RHODA TAMAYO, LIWAYWAY MALLILIN, ELOISA SANTOS, DOMINADOR REBULLO, JOSE IRLAND, TEOFILA QUEJADA, VICENTE SAMONTINA, FELICITAS DURIAN, MAYPA, EMILIA MENDOZA, LINA MAGPANTAY, FELICIANA MANLOLO, ELENA MANACOP, WILMA MORENO, JUANA MENDOZA, EVELYN DEL MUNDO, ROSIE MATUTINA,
ANTONIO POLDO, ANGELINA TUGNA, SALVADOR PENALOSA, LUZVIMINDA TUBIG, ILUMINADA RIVERA, ROMULO SUMILANG, NENITA BARBELONIA, LEVI BASILIA, MATILDE MANALO, TERESITA MENDEZ, FELIPINA MAGONCIA, MARIA MANZANO, LIGAYA MANALO, LETICIA MARCHA, MARINA MANDIGMA, LETICIA MANDASOC,
RICARDO PALAGA, MERCY ROBLES, LEODEGARIO GARIN, DOMINGO ECLARINAL, MELCHOR GALLARDO, MARCELO GARIN, ROSALINA BAUTISTA, MARY ANN PRESCILLA MARTINEZ, JULIA MENDOZA, PACITA MAGALLANES, ANGELINA MARJES, SHIRLEY MELIGRITO, IRENE MERCADO, ELISA MAATUBANG, MARCELINA NICOLAS,
TALIGATOS, ALEJANDRO SANTOS, ANTONIO FRAGA, LUZ GAPULTOS, MAGDALENA URSUA, EUGENIO ORDAN, LIGAYA MANALO, PEPITO DELA PAZ, PERLITA AGUSTINA NICOLAS, ROSA NOLASCO, WILMA NILAYE, VIOLETA ORACION, ANGELA OSTAYA, JUANITA OSAYOS, MAGDALENA OCAMPO, MARDIANA OCTA, ROSELA
DIMAQUIAT, MYRNA VASQUEZ, FLORENTINA SAMPAGA, ARACELI FRAGA, MAXIMINA FAUSTINO, MARINA TAN, OLIGARIO LOMO, PRECILA EUSEBIO, SUSAN ABOGANO, OPAO, LIBRADA OCAMPO, YOLANDA OLIVER, MARCIA ORLANDA, PAGDUNAN, RITA PABILONA, MYRA PALACA, BETHLEHEM PALINES, GINA PALIGAR, NORMA PALIGAR,
CAROLINA MANINANG, GINA GLIFONIA, OSCAR SOTTO, CELEDONA MALIGAYA, EFREN VELASQUEZ, DELIA ANOVER, JOSEPHINE TALIMORO, MAGDALENA TABOR, DELMA PEREZ, CLAUDIA PRADO, JULIE PUTONG, LUDIVINA PAGSALINGAN, MERLYN PANALIGAN, VIOLETA PANAMBITAN, NOREN PAR, ERLINDA PARAGAS, MILA
NARCISA SARMIENTO, SUSAN MACASIEB, FELICIDAD SISON, PRICELA CARTA, MILA MACAHILIG, CORAZON NUNALA, VISITACION ELAMBRE, ELIZABETH INOFRE, PARINO, REBECCA PENAFLOR, IMELDA PENAMORA, JERMICILLIN PERALTA, REBECCA PIAPES, EDITHA PILAR, MAROBETH PILLADO, DISCORO PIMENTEL, AURORA LAS
VIOLETA BARTE, LUZVIMINDA VILLOSA, NORMA SALVADOR, ELIZABETH BOGATE, MERLYN BALBOA, EUFRECINA SARMIENTO, SIMPLICIA BORLEO, MATERNIDAD DAVID, PINAS, EVANGELINA PINON, MA. NITA PONDOC, MA. MERCEDES PODPOD, ANGELITO PANDEZ, LIGAYA PIGTAIN, LEONILA QUIAMBAO, ELENA QUINO, MARITESS
LAILA JOP, POTENCIANA CULALA, LUCIVITA NAVARRO, ROLANDO BOTIN, AMELITA MAGALONA, AGNES CENA, NOLI BARTOLAY, DANTE AQUINO, HERMINIA RILLON, QUIJANO, CHOLITA REBUENO, LOLITA REYES, JOCELYN RAMOS, ROSITA RAMIREZ, ELINORA RAMOS, ISABEL RAMOS, ANNABELLE RESURRECCION, EMMA REYES,
CANDIDA APARIJADO, LYDIA JIMENEZ, ELIZABETH ANOCHE, ALDA MURO, TERESA VILLANUEVA, TERESITA RECUENCO, ELIZA SERRANO, ESTELLA POLINAR, ALILY ROXAS, MARY GRACE DELOS REYES, JOCELYN DEL ROSARIO, JOSEFINA RABUSA, ANGELITA ROTAIRO, SAMCETA ROSETA, EDERLINA RUIZ, ZENAIDA ROSARIO,
GERTRUDES NUNEZ, FELIPE BADIOLA, ROSLYN FERNANDEZ, OSCAR PAGUTA, NATIVIDAD BALIWAS, ELIZABETH BARCIBAL, CYNTHIA ESTELLER, TEODORA SANTOS, BENITA REBOLA, ROSITA REVILLA, ROSITA SANTOS, ROWENA SALAZAR, EMILYN SARMIENTO, ANA SENIS, ELOISA SANTOS, NARCISA SONGLIAD, ELMA SONGALIA,
ALICIA PILAR, MILA PATENO, GLORIA CATRIZ, MILA MACAHILIG, ADELAIDA DE LEON, ROSENDO EDILO, ARSENIA ESPIRITU, NUMERIANO CABRERA, CONCEPCION AMPARA SABIO, JESSIE SANCHEZ, VIVIAN SAMILO, GLORIA SUMALINOG, ROSALINA DELOS SANTOS, MARIETA SOMBRERO, HELEN SERRETARIO, TEODORO SULIT,
ARRIOLA, PAULINA DIMAPASOK, ANGELA SANGCO, PRESILA ARIAS, ZENAIDA NUNES, EDITHA IGNACIO, ROSA GUIRON, TERESITA CANETA, ALICIA ARRO, TEOFILO BELLA SONGUINES, LINDA SARANTAN, ESTELLA SALABAR, MILAGROS SISON, GLORIA TALIDAGA, CECILIA TEODORO, ROMILLA TUAZON, AMELITA TABULAO, MACARIA
RUWETAS, CARLING AGCAOILI, ROSA NOLASCO, GERLIE PALALON, CLAUDIO DIRAS, LETICIA ALBOS, AURORA ALUBOG, LOLITA ACALEN, GREGORIO ALIVIO, TORRES, LUTGARDA TUSI, ESTELLA TORREJOS, VICTORIA TAN, MERLITA DELA VEGA, WEVINA ORENCIA, REMEDIOS BALECHA, TERESITA TIBAR, LACHICA LEONORA,
GUILLERMO ANICETA, ANGELIE ANDRADA, SUSAN ANGELES, ISABELITA AURIN, MANUELA AVELINA, CARLING AGCAOILI, TERESITA ALANO, LOLITA AURIN, EMMABETH JULITA YBUT, JOSEFINA ZABALA, WINNIE ZALDARIAGA, BENHUR ANTENERO, MARCELINA ANTENERO, ANTONINA ALAPAN, EDITHA ANTOZO, ROWENA ARABIT, ANDRA
ARCIAGA, CRESENCIA ACUNA, LUZVMINDA ABINES, FLORENCIA ADALID, OLIVIA AGUSTIN, EVANGELINE ALCORAN, ROSALINA ALFERES, LORNA AMANTE, FLORENTINA AQUINO, TERESITA ANGULO, MARIA ANGLO, MYRNA ALBOS, ELENITA AUSTRIA, ANNA ABRIGUE, VIRGINIA ADOBAS, VICTORIA ANTIPUESTO, REMEDIOS BOLECHE,
AMBITO, JULIETA AMANONCO, CARMEN AMARILLO, JOSEFINA AMBAGAN, ZENAIDA ANALYA, MARIA ANGLO, EDITHA ANTA ZO, MARY JANE ANTE, ANDREA AQUINO, MACARIA BARRIOS, THELMA BELEN, ESTELLA BARRETTO, JOCELYN CHAVEZ, VIRGINIA CAPISTRANO, BENEDICTA CINCO, YOLLY CATPANG, REINA CUEVAS, VICTORIA
ROWENA ARABIT, MARIETA ARAGON, REBECCA ARCENA, LYDIA ARCIDO, FERNANDO ARENAS, GREGORIO ARGUELLES, EDITHA ARRIOLA, EMMA ATIENZA, EMMA CALANZA, FE CASERO, ROBERTA CATALBAS, LOURDES CAPANANG, CLEMENCIA CRUZ, JOCELYN COSTO, MERCEDITA CASTILLO, EDITHA DEE, LUCITA DONATO,
ATIENZA, TEODY ATIENZA, ELIZABETH AUSTRIA, DIOSA AZARES, SOLIDA AZAINA, MILAGROS BUAG, MARIA BANADERA, EDNALYN BRAGA, OFELIA BITANGA, NORMA ESPIRIDION, LORETA FERNANDEZ, AURORA FRANCISCO, VILMA FAJARDO, MODESTA GABRENTINA, TERESITA GABRIEL, SALVACION GAMBOA, JOSEPHINE
FREDISMINDA BUGUIS, VIOLETA BALLESTEROS, ROSARIO BALLADJAY BETTY BORIO, ROMANA BAUTISTA, SUSARA BRAVO, LILIA BAHINGTING, ENIETA BALDOZA, IGNACIO, SUSAN IBARRA, ESPERANZA JABSON, OSCAR JAMBARO, ROSANNA JARDIN, CORAZON JALOCON, ZENAIDA LEGASPI, DELLA LAGRAMADA, ROSITA
DAMIANA BANGCORE, HERMINIA BARIL, PETRONA BARRIOS, MILAGROS BARRAMEDA, PERLA BAUTISTA, CLARITA BAUTISTA, ROSALINA BAUTISTA, ADELINA BELGA, LIBRANDO, LIGAYA LUMAYOT, DELIA LUMBIS, LEONORA LANCHICA, RELAGIA LACSI, JOSEFINA LUMBO, VIOLETA DE LUNA, EVELYN MADRID, TERESITA MORILLA,
CONSOLACION BENAS, MARIA BEREZO, MERCEDES BEREBER, VIOLETA BISCOCHO, ERNESTO BRIONES, ALVINA BROSOTO, AGUSTINA BUNYI, CARMEN BUGNOT, GEMMA MAGPANTAY, EMILY MENDOZA IRENEA MEDINA, NARCISA MABEZA, ROSANNA MEDINA, DELIA MARTINEZ, ROSARIO MAG-ISA, EDITHA MENDOZA, EDILBERTA
ERLINDA BUENAFLOR, LITA BAQUIN, CONSEJO BABOL, CRISANTA BACOLOD, CELIA DE BACTAT, MAZIMA BAGA, ELENA BALADAD, ROSARIO BALADJAY, AMALIA MENDOZA, FIDELA PANGANIBAN, OFELIA PANGANIBAN, AZUCENA POSTOO, LOURDES PACHECO, LILIA PADILLA, MARISSA PEREZ, FLORDELIZA PUMARES, LUZ REYES,
BALAGTAS, ANITA BALAGTAS, MARIA BALAKIT, RUFINA BALATAN, REBECCA BALDERAMA, AMELIA BALLESTER, BELEN BARQUIO, BERNANDITA BASILIDES, HELEN NORMA RACELIS, LEONOR RIZALDO, JOSIE SUMASAR, NANCY SAMALA, EMERLITA SOLAYAO, MERCEDITA SAMANIEGO, BLANDINA SIMBULAN, JOCELYN SENDING,
BATO, HELEN BAUTISTA, ROMANA BAUTISTA, ALMEDA BAYTA, AVELINA BELAYON, NORMA DE BELEN, THELMA DE BELEN, JOCELYN BELTRAN, ELENA BENITEZ, LUISITA TABERRERO, TERESITA TIBAR, ESTERLINA VALDEZ, GLORIA VEJERANO, ILUMINADA VALENCIA, MERLITA DELA VEGA, VIRGIE LAITAN, JULIET VILLARAMA,
VIRGINIA BERNARDINO, MERLINA BINUYAG, LINA BINUYA, BLESILDA BISNAR, SHIRLEY BOLIVAR, CRESENTACION MEDLO, JOCELYN BONIFACIO, AMELIA BORBE, LUISISTA OCAMPO, NARIO ANDRES, ANSELMA TULFO, GLORIA MATEO, FLANIA MENDOZA, CONNIE CANGO, EDITHA SALAZAR, MYRNA DELOS SANTOS, TERESITA
AMALIA BOROMEO, ZENAIDA BRAVO, RODRIGO BEULDA, TERESITA MENDEZ, ELENA CAMAN, LALIANE CANDELARIA, MARRY CARUJANO, REVELINA CORANES, SERGIO, CHARITO GILLA, FLORENTINA HERNAEZ, BERNARDINO VIRGINIA, AMPO ANACORITA, SYLVIA POASADAS, ESTRELLA ESPIRITU, CONCORDIA LUZURIAGA,
MARITESS CABRERA, JUSTINA CLAZADA, APOLONIA DELA CRUZ, VICTORIA CRUZ, JOSEFINA DELA CRUZ, MARITESS CATANGHAL, EDNA CRUZ, LUCIA DE CASTRO, MARINA CERBITO, EMMA REYES, NOEMI PENISALES, CLARITA POLICARPIO, BELEN BANGUIO, HERMINIA ADVINCULA, LILIA MORTA, REGINA LAPIDARIO, LORNA LARGA,
JOSIE CARIASO, OFELIA CERVANTES, MEDITA CORTADO, AMALIA CASAJEROS, LUCINA CASTILIO, EMMA CARPIO, ANACORITA CABALES, YOLANDA CAMO, MILA TERESITA VINLUAN, MARITA TENOSO, NILDS SAYAT, THELMA SARONG, DELMA REGALIS, SUSAN RAFAULO, ELENA RONDINA, MYRNA PIENDA, VIOLETA DUMELINA,
CAMAZUELA, ANITA CANTO, ESTELA CANCERAN, FEMENCIA CANCIO, CYNTHIA CAPALAD, MERLE CASTILLO, JESUSA CASTRO, CECILIA CASTILLO, SILVERITA FLORENCIA ADALID, FILMA MELAYA, ERLINDA DE BAUTISTA, MATILDE DE BLAS, DOLORES FACUNDO, REBECCA LEDAMA, MA. FE MACATANGAY, EMELITA MINON,
CASTRODES, VIVIAN CELLANO, NORMA CELINO, TERESITA CELSO, GLORIA COLINA, EFIPANIA CONSTANTINO, SALVACION CONSULTA, MEDITA CORTADO, AIDA CRUZ, NORMA PAGUIO, ELIZA VASQUEZ, GLORIA VILLARINO, MA. JESUS FRANCISCO, TERESITA GURPIDO, LIGAYA MANALO, FE PINEDA, MIRIAM OCMAR, LUISA SEGOVIA,
MARISSA DELA CRUZ, EDITO CORCILLES, JELYNE CRUZ, ROSA CORPOS, ROSITA CUGONA, ELSIE CABELLES, EMMA CADUT, VICTORIA CALANZA, BARBARA CALATA, TEODY ATIENZA, SOLEDA AZCURE, CARMEN DELA CRUZ, DMETRIA ESTONELO, MA. FLORIDA LOAZNO, IMELDA MAHIYA, EDILBERTA MENDOZA, SYLVIA POSADAS,
IMELDA CALDERON, CRISTINA CALIDGUID, EMMALINDA CAMALON, MARIA CAMERINO, CARMENCITA CAMPO, CONNIE CANEZO, LOURDES CAPANANG, MA. MILAGROS SUSANA ORTEGA, JOSEPHINE D. TALIMORO, TERESITA LORECA, ARSENIA TISOY, LIGAYA MANALO, TERESITA GURPIO, FE PINEDA, and MARIA JESUS FRANCISCO,
CAPILI, MYRNA T. CAPIRAL, FLOR SAMPAGA, SUSAN B. CARINO, ROSARIO CARIZON, VIRGINIA DEL CARMEN, EMMA CARPIO, PRESCILA CARTA, FE CASERO, LUZ DE petitioners,
CASTRO, ANNA CATARONGAN, JOSEFINA CASTISIMO, JOY MANALO, EMMIE CAWALING, JOVITA CARA, MARINA CERBITO, MARY CAREJANO, ESTELA R. CHAVEZ,
CONCEPCION PARAJA, GINA CLAUDIO, FLORDELIZA CORALES, EDITO CORCIELER, ROSA C. CORROS, AMELIA CRUZ, JELYNE CRUZ, WILFREDO DELA CRUZ, REINA vs.
CUEVAS, MARILOU DEJECES, JOSEPHINE DESACULA, EDITHA DEE, EDITHA DIAZ, VIRGIE DOMONDON, CELSA DOROPAW, VIOLETA DUMELINA, MARIBEL DIMATATAC,
ELBERTO DAGANIO, LETECIA DAGOHOY, DINDO DALUZ, ANGELITA DANTES, GLORIA DAYO, LUCIA DE CASTRO, CARLITA DE GUZMAN, CARMEN DELA CRUZ, MERCY DE HON. CRESENCIO J. RAMOS, NATIONAL LABOR RELATIONS COMMISSION, M. GREENFIELD
LEON, MARY DELOS REYES, MARIETA DEPITO, MATILDE DIBLAS, JULIETA DIMAYUGA, TEODORA DIMAYUGA, YOLANDA DOMDOM, LUCITA DONATO, NELMA DORADO, (B), INC., SAUL TAWIL, CARLOS T. JAVELOSA, RENATO C. PUANGCO, WINCEL LIGOT, MARCIANO HALOG, GODOFREDO PACENO, SR.,
RITA DORADO, SUSAN DUNTON, HERMINIA SAN ESTEBAN, AMALI EUGENIO, OLIVIA EUSOYA, ERNESTO ESCOBIN, EVELYN ESCUREL, LYDIA ESCOBIN, VICENTE E. GERVACIO CASILLANO, LORENZO ITAOC, ATTY. GODOFREDO PACENO, JR., MARGARITO CABRERA, GAUDENCIO RACHO, SANTIAGO
ELOIDA, ELENA EGAR, GLORIA ERENO, NORMA ESPIRIDION, ARSENIA ESPIRITU, AURORA ESTACIO, DEMETRIA ESTONELO, MILAGROS FONSEGA, LYDIA FLORENTINO,
JULIA FARABIER, TRINIDAD FATALLA, IMELDA FLORES, JESSINA FRANCO, MA. CRISTINA FRIJAS, ESPECTACION FERRER, BERDENA FLORES, LEONILA FRANCISCO, IBANEZ, AND RODRIGO AGUILING, respondents.
BERNARDA FAUSTINO, DOLORES FACUNDO, CRESTITA FAMILARAN, EMELITA FIGUERAS, MA. VIRGINIA FLORENDO, AURORA FRANCISCO, MA. JESUSA FRANCISCO,
NENITA FUENTES, MARILOU GOLINGAN, JUANITA GUERRERO, LYDIA GUEVARRA, SOCORRO GONZAGA, PATRICIA GOMEO, ROSALINDA GALAPIN, CARMELITA GALVEZ,
TERESA GLE, SONIA GONZALES, PRIMITA GOMEZ, THERESA GALUA, JOSEFINA GELUA, BRENDA GONZAGA, FLORA GALLARDO, LUCINDA GRACILLA, VICTORIA GOZUM,
NENITA GAMAO, EDNA GARCIA, DANILO GARCIA, ROSARIO GIRAY, ARACELI GOMEZ, JOEMARIE GONZAGA, NELIA GONZAGA, MARY GRANCE GOZON, CARMEN
GONZALES, MERLITA GREGORIO, HERMINIA GONZALES, CARLITA DE GUZMAN, MODESTA GABRENTINA, EDITHA GADDI, SALVACIO GALIAS, MERLINDA GALIDO,
MELINDA GAMIT, JULIETA GARCIA, EMELITA GAVINO, CHARITO GILLIA, GENERA GONEDA, CRESTITA GONZALES, HERMINIA GONZALES, FRANCISCA GUILING, JULIAN GONZAGA-REYES, J.:
HERNANDEZ, GLECERIA HERRADURA, SUSANA HIPOLITO, NERISSA HAZ, SUSAN HERNAEZ, APOLONIA ISON, SUSAN IBARRA, LUDIVINA IGNACIO, CHOLITA INFANTE,
JULIETA ITURRIOS, ANITA IBO, MIRASOL INGALLA, JULIO JARDINIANO, MERLITA JULAO, JULIETA JULIAN, MARIBETH DE JOSE, JOSEPHINE JENER, IMELDA JATAP,
JULIETA JAVIER, SALOME JAVIER, VICTORIA JAVIER, SALVACION JOMOLO, EDNA JARNE, LYDIA JIMENEZ, TERESITA DE JUAN, MARILYN LUARCA, ROSITA LOSITO,
ROSALINA LUMAYAG, LORNA LARGA, CRESTETA DE LEON, ZENAIDA LEGASPI, ADELAIDA LEON, IMELDA DE LEON, MELITINA LUMABI, LYDIA LUMABI, ASUNCION
LUMACANG, REGINA LAPIADRIO, MELANIA LUBUGUAN, EVANGELINE LACAP, PELAGIA LACSI, LORNA LAGUI, VIRGIE LAITAN, VIRGINIA LEE, CRESTELITA DE LEON, Before us is petitioners' motion for partial reconsideration of our decision dated February 28,
FELICISIMA LEONERO, DIOSA LOPE, ANGELITA LOPEZ, TERESITA LORICA, JUANITA MENDIETA, JUANITA MARANQUEZ, JANET MALIFERO, INAS MORADOS, MELANIE
MANING, LUCENA MABANGLO, CLARITA MEJIA, IRENE MENDOZA, LILIA MORTA, VIGINIA MARAY, CHARITO MASINAHON, FILMA MALAYA, LILIA MORTA, VIRGINIA MARAY, 2000,1 the dispositive portion of which reads:2
CHARITO MASINAHON, FILMA MALAYA, LILIA MORTA, ROSITA MATIBAG, LORENZA MLINA, SABINA DEL MUNDO, EDITHA MUYCO, NARCISA MABEZA, MA. FE
MACATANGAY, CONCEPCION MAGDARAOG, IMELDA MAHIYA, ELSA MALLARI, LIGAYA MANAHAN, SOLEDA MANLAPAS, VIRGINIA MAPA, JOSEI MARCOS, LIBRADA
MARQUEZ, VIRGINIA MAZA, JULIANITA MENDIETA, EDILBERTA MENDOZA, IRENE MERCADO, HELEN MEROY, CRISTINA MEJARES, CECILIA MILLET, EMELITA MINON,
JOSEPHINE MIRANA, PERLITA MIRANO, EVANGELINE MISBAL, ELEANOR MORALES, TERESITA MORILLA, LYDIA NUDO, MYRIAM NAVAL, CAROLINA NOLIA, ALICIA NUNEZ,
MAGDALENA NAGUIDA, ELSA NICOL, LILIA NACIONALES, MA. LIZA MABO, REMEDIOS NIEVES, MARGARITA NUYLAN, TERESITA NIEVES, PORFERIA NARAG, RHODORA "WHEREFORE, the petition is GRANTED; the decision of the National Labor
NUCASA, CORAZON OCRAY, LILIA OLIMPO, VERONA OVERENCIA, FERMIN OSENA, FLORENCIA OLIVAROS, SOLEDAD OBEAS, NARISSA OLIVEROS, PELAGIA ORTEGA,
SUSAN ORTEGA, CRISTINA PRENCIPE, PURITA PENGSON, REBECCA PACERAN, EDNA PARINA, MARIETA PINAT, EPIFANIA PAJERLAN, ROSALINA PASIBE, CECILIA DELA Relations Commission in Case No. NCR-00-09-04199-89 is REVERSED and SET
PAZ, LORETA PENA, APOLONIA PALCONIT, FRANCISCO PAGUIO, LYDIA PAMINTAHON, ELSIE PACALDO, TERESITA PADILLA, MYRNA PINEDA, MERCEIDTA PEREZ,
NOVENA PORLUCAS, TERESITA PODPOD, ADORACION PORNOBI, ALICIA PERILLO, HELEN JOY PENDAL, LOURDES PACHECO, LUZVIMINDA PAGALA, LORETA ASIDE; and the respondent company is hereby ordered to immediately reinstate the
PAGAPULAN, FRANCISCO PAGUIO, PRISCO PALACA, FLORA PAMINTUAN, NOEMI PARISALES, JOSEPHINE PATRICIO, CRISTINA PE BENITO, ANGELA PECO, ANGELITA
PENA, ESTER PENONES, NORMA PEREZ, MAURA PERSEVERANCIA, MARINA PETILLA, JOSIE PIA, ZULVILITA PIODO, REBECCA PACERAN, CLARITA POLICARPIO, MAXIMO petitioners to their respective positions. Should reinstatement be not feasible, month
POTENTO, PORFIRIO POTENTO, FLORDELIZA PUMARAS, FERNANDO QUEVEDO, JULIANA QUINDOZA, CHARITO QUIROZ, CARMELITA ROSINO, RODELIA RAYONDOYON,
FLORENCIA RAGOS, REBECCA ROSALES, ROSALYN RIVERO, FRANCISCO RUIZ, FRANCIA ROSERO, EMELY RUBIO, EDILBERTO RUIO, JUANA RUBY, RAQUEL REYES, salary for every year of service. Since petitioners least 30 days prior to their
MERCY ROBLES, ESTELA RELANO, ROSITA REYES NIMFA RENDON, EPIFANIO RAMIRO, MURIEL REALCO, BERNARDITA RED, LEONITA RODIL, BENITA REBOLA, DELMA
REGALARIO, LENY REDILLAS, JULIETA DELA ROSA, FELICITAS DELA ROSA, SUSAN RAFALLO, ELENA RONDINA, NORMA RACELIS, JOSEPHINE RAGEL, ESPERANZA
termination, following the recent ruling in the case of Ruben Serrano vs. National
RAMIREZ, LUZVIMINDA RANADA, CRISTINA RAPINSAN, JOCELYN RED, ORLANDO REYES, TERESITA REYES, ANGELITA ROBERTO, DELIA ROCHA, EDLTRUDES ROMERO,
MELECIA ROSALES, ZENAIDA ROTAO, BELEN RUBIS, FE RUEDA, SYLVIA SONGCAYAWON, CRISTINA SANANO, NERCISA SARMIENTO, HELEN SIBAL, ESTELITA SANTOS,
Labor Relations Commission and Isetann Department Store, the respondent
NORMA SILVESTRE, DARLITA SINGSON, EUFROCINA SARMIENTO, MYRNA SAMSON, EMERLINA SADIA, LORNA SALAZAR, AVELINA SALVADOR, NACIFORA SALAZAR,
TITA SEUS, MARIFE SANTOS, GRACIA SARMIENTO, ANGELITA SUMANGIL, ELIZABETH SICAT, MA. VICTORIA SIDELA, ANALITA SALVADOR, MARITES SANTOS, VIRGINIA
company is hereby ordered to pay full backwages to petitioner-employees while the
SANTOS, THELMA SARONG, NILDA SAYAT, FANCITA SEGUNDO, FYNAIDA SAGUI, EDITHA SALAZAR, EDNA SALZAR, EMMA SALENDARIO, SOLEDAD SAMSON, EDNA SAN
DIEGO, TERESITA SAN GABRIEL, GERTRUDES SAN JOSE, EGLECERIA OSANCHEZ, ESTRELLA SANCHEZ, CECILIA DELOS SANTOS, LUISA SEGOVIA, JOCELYN SENDING
Federation is also ordered to pay full backwages to petitioner-union officers who
ELENA SONGALIA, FELICITAS SORIANO, OFELIA TIBAYAN, AIDA TIRNIDA, MONICA TIBAYAN, CRISTETA TAMBARAN, GLORIA TACDA, NENVINA, FELINA TEVES, ANTONINA
DELA TORRE, MAXIMA TANILON, NENA TABAT, ZOSIMA TOLOSA, MARITA TENOSO, IMELDA TANIO, LUZ TANIO, EVANGELINE TAYO, JOSEFINA TINGTING, ARSENIA TISOY,
were dismissed upon its instigation. Since the dismissal of petitioners was without
MAGDALENA TRAJANO, JOSEFINA UBALDE, GINA UMALI, IRMA VALENZUELA, FELY VALDEZ, PAULINA VALEZ, ROSELITA VALLENTE, LOURDES VELASCO, AIDA VILLA,
FRANCISCA VILLARITO, ZENAIDA VISMONTE, DELIA VILLAMIEL, NENITA VASQUEZ, JOCELYN VILLASIS, FERMARGARITA VARGAS, CELIA VALLE, MILA CONCEPCION
cause, backwages shall be computed from the time the herein petitioner employees
VIRAY, DOMINGA VALDEZ, LUZVIMINDA VOCINA, MADELINE VIVERO, RUFINA VELASCO, AUREA VIDALEON, GLORIA DEL VALLE, THELMA VALLOYAS, CYNTHIA DELA
VEGA, ADELA VILLAGOMEZ, TERESITA VINLUAN, EUFEMIA VITAN, GLORIA VILLAFLORES, EDORACION VALDEZ, ANGELITA VALDEZ, ILUMINADA VALENCI, MYRNA
and union officers were dismissed until their actual reinstatement. Should
VASQUEZ, EVELYN VEJERAMO, TEODORA VELASQUEZ, EDAN VILLANUEVA, PURITA VILLASENOR, SALVADOR WILSON, EMELINA YU, ADELFA YU, ANA ABRIGUE,
VIRGINIA ADOBAS, VICTORIA ANTIPUESTO, MERCEDITA CASTILLO, JOCELYN CASTRO, CREMENIA DELA CRUZ, JOSEPHINE IGNACIO, MELITA ILILANGOS, LIGAYA
reinstatement be not feasible, their backwages shall be computed from the time
LUMAYAT, DELIA LUMBES, ROSITA LIBRADO, DELIA LAGRAMADA, GEMMA MAGPANTAY, EMILY MENDOZA, FIDELA PANGANIBAN, LEONOR RIZALDO, ILUMINDA RIVERA,
DIVINA SAMBAYAN, ELMERITA SOLAYAO, NANCY SAMALA, JOSIE SUMARAN, LUZVIMINDA ABINES, ALMA ACOL, ROBERTO ADRIATICO, GLORIA AGUINALDO, ROSARIO
petitioners were terminated until the finality of this decision. Costs against the
ALEYO, CRISTETA ALEJANDRO, LILIA ALMOGUERA, CARMEN AMARILLO, TRINIDAD ARDANIEL, CERINA AVENTAJADO, ZENAIDA AVAYA, LOLITA ARABIS, MARIA
ARSENIA, SOFIA AGUINALDO, SALVE ABAD, JOSEFINA AMBANGAN EMILIA AQUINO, JOSEFINA AQUINO, JULIANA AUSAN, AMERCIANA ACOSTA, CONCEPCION ALEROZA,
respondent company.1âwphi1.nêt
DIANA ADOVOS, FELY ADVINCULA, SEOMINTA ARIAS, JOSEPHINE ARCEDE, NORMA AMISTOSO, PRESENTACION ALONOS, EMMA ATIENZA, LEONIDA AQUINO, ANITA
ARILLON, ADELAIDA ARELLANO, NORMA AMISTOSO, JOSEPHINE ARCEDE, SEMIONITA ARIAS, JOSEFINA BANTUG, LOLITA BARTE, HERMINIA BASCO, MARGARITA
BOTARDO, RUFINO BUGNOT, LOLITA BUSTILLO, ISABEL BALAKIT, ROSARIO BARRERO, TESSIE BALBOS, NORMA BENISANO, GUILLERMA BRUGES, BERNADETTE
BARTOLOME, SHIRLEY BELMONTE, MERONA BELZA, AZUCENA BERNALES, JOSE BASCO, NIMPHA BANTOG, BENILDA BUBAN, REGINA BUBAN, SALOME BARRAMEDA,
IRENE BISCO, FELICITAS BAUTISTA, VIOLETA BURA, LINA BINUYA, BIBIANA BAARDE, ELSA BAES, ANASTACIA BELONZO, SONIA BENOYO, ELIZABETH BACUNGAN,
SO ORDERED."
PATRICIA BARRAMEDA, ERLINDA BARCELONA, EMMA BANICO, APOLONIA BUNAO, LUCITA BOLEA, PACIFICA BARCELONA, EDITHA BASIJAN, RENITA BADAMA, ELENA
BALADAD, CRESENCIA BAJO, BERNADITA BASILID, MELINDA BEATO, YOLANDA BATANES, EDITHA BORILLA, ANITA BAS, ELSA CALIPUNDAN, MARIA CAMERINO,
VIRGINIA CAMPOSANO, MILAGROS CAPILI, CARINA CARINO, EUFEMIA CASIHAN, NENITA CASTRO, FLORENCIA CASUBUAN, GIRLIE CENTENO, MARIANITA CHIQUITO,
IMELDA DELA CRUZ, TEODOSIA CONG, TEOFILA CARACOL, TERESITA CANTA, IRENEA CUNANAN, JULITA CANDILOSAS, VIOLETA CIERES, MILAGROS DELA CRUZ,
FLOREPES CAPULONG, CARMENCITA CAMPO, MARILYN CARILLO, RUTH DELA CRUZ, RITA CIJAS, LYDIA CASTOR, VIRGIE CALUBAD, EMELITA CABERA, CRISTETA CRUZ,
Petitioners allege that this Court committed patent and palpable error in holding the "the
ERLINDA COGADAS, IMELDA CALDERON, SUSIE LUZ CEZAR, ESTELA CHAVEZ, NORMA CABRERA, ELDA DAGATAN, LEONISA DIMACUNA, ELDA DAGATAN, LEONISA respondent company officials cannot be held personally liable for damages on account of
employees' dismissal because the employer corporation has a personality separate and
distinct from its officers who merely acted as its agents" whereas the records clearly
established that respondent company officers Saul Tawil, Carlos T. Javelosa and Renato C.
Puangco have caused the hasty, arbitrary and unlawful dismissal of petitioners from work; that
as top officials of the respondent company who handed down the decision dismissing the
petitioners, they are responsible for acts of unfair labor practice; that these respondent
corporate officers should not be considered as mere agents of the company but the
wrongdoers. Petitioners further contend that while the case was pending before the public
respondents, the respondent company, in the early part of February 1990, began removing its
machineries and equipment from its plant located at Merville Park, Paranaque and began
diverting jobs intended for the regular employees to its sub-contractor/satellite branches;3 that
the respondent company officials are also the officers and incorporators of these satellite
companies as shown in their articles of incorporation and the general information sheet. They
added that during their ocular inspection of the plant site of the respondent company, they
found that the same is being used by other unnamed business entities also engaged in the
manufacture of garments. Petitioners further claim that the respondent company no longer
operates its plant site as M. Greenfield thus it will be very difficult for them to fully enforce and
implement the court's decision. In their subsequent motion filed on the same day, petitioners
also pray for the (A) inclusion of the names of employees listed in Annex "D" of the petition
which they inadvertently omitted in the caption of the case, to wit: (1) Amores, Imelda (2)
Andres, Josefina (3) Aragon, Felicidad (4) Arias, Genevive (5) Arroyo, Salvacion (6) Arceo,
Elizabeth (7) Anonuevo, Monica (8) Abellada, Josefina (9) Advincula, Harmelina (10) Ajayo,
Rosario (11) Alilay, Marilyn (12) Almario, Anliza (13) Almario, Angelita (14) Almazan, Marilou
(15) Almonte, Rosalina (16) Alvaran, Marites (17) Alvarez, Edna (18) Ampo, Anacorita (19)
Aquino, Leonisa (20) Bactat, Celia (21) Carpio, Azucena G. (22) Cruz, Amelia (23) Glifonia,
Eugenia (24) Escurel, Evelyn F. (25) Hilario, Bonifacio G. (26) Payuan, Adoracion (27) Perez,
Mercedita (28) Rempis, Zenaida (29) Rosario, Margie del (30) Salvador, Norma (31)
Sambayanan, Olivia (32) Tiaga, Aida (33) Torbela, Maria (34) Trono, Nenevina (35) Varona,
Asuncion (36) Vasquez, Elisa M. (37) Villanueva, Milagros (38) Villapondo, Eva C. (39) Villon,
Adeliza T.; (B) correction of their own typographical errors of the names of employees
appearing in the caption, which should be as follows: Manuela Avelin, Belen Barquio, Lita
Buquid, Violeta C. Ciervo, Marilou Dejocos, Maximina Faustino, Primitiva Gomez, Myrna
Palaca, Mercedita Perez, Rebecca Poceran, Amorlita Rotairo, Emma Saludario, Tita Senis,
Salvacion Wilson,4 Anita Ahillon, Gregoria Arguelles, Tessie Balbis, Betty Borja, Rodrigo
Buella, Celsa Doropan, Maria Enicame, Josephine Lasco, Julita Maniba, Juanita Osuyos,
Juana Overencio, Azucena Postigo, Cristina Rapinan, Roselyn Rivero, Edeltrudes Romero,
Rodelia Royandoyon, Fausta Segundo, Teodora Sulit, Elena Tebis, Paulina Valdez,5 Susan
Abogona, Diana Adovas, Carmen Rosimo Basco, Macaria Barrion, Maria Fe Berezo, Matilde
de Blas, Rufina Bugnot, Aurora Bravo, Jovita Cera, Precila Carta, Amalia Eugenio, Milagros
Fonseca, Jose Irlanda, Rowena Jarabejo, Regina Lapidario, Josie Marcos, Shirley Melegrito,
Noemi Menguillo, Teresita Nierves, Ricardo Paloga, Florenia Ragos, Leonila Rodil, Emma
Saludario, Narcisa Songuad, Josie Sumarsar, Evangeline Tayco;6 {C) inclusion of other
employees similarly situated whose names were not included in Annex "D" or in the caption of
the case, to wit: (1) Dionisa Aban, (2) Alicia Aragon, (3) Vicky Francia, (4) Nelita F. Gelongos,
(5) Erlinda San Juan, (6) Erlinda Baby Patungan Manalo, (7) Jenette Patungan, 7 (8) Blandina
Simbahan,8 (9) Asuncion Varona,9 (10) Josefina Andres, (11) Teresita Arales, (12) Alice
Artikulo, (13) Esther Cometa, (14) Eliza Cabiting, (15) Erlinda Dalut, (16) Edna Fernandez,
(17) Emily Inocencio, (18) Esperanza Jalocon, (19) Imelda Jarabe, (20) Mercedes Pabadora,
(21) Venerado Pastoral, (22) Cristina Perlas, (23) Margie del Rosario.10
In their Comment, the Solicitor General interposes no objection to petitioners' prayer for the
inclusion of omitted and similarly situated employees and the correction of employees' names
in the caption of the case.
On the other hand, private respondent company officials Carlos Javelosa arid Remedios
Caoleng, in their Comment, state that considering that petitioners admitted having knowledge
of the fact that private respondent officers are also holding key positions in the alleged satellite
companies, they should have presented the pertinent evidence with the public respondents;
thus it is too late for petitioners to require this Court to admit and evaluate evidence not
presented during the trial; that the supposed proof of satellite companies hardly constitute
newly discovered evidence. Respondent officials interpose no objection to the inclusion of
employees inadvertently excluded in the caption of the case but object to the inclusion of
employees who were allegedly similarly situated for the reason that these employees had not
been parties to the case, hence should not be granted any relief from the court. Respondent
company failed to file its comment.11
Petitioners' contention that respondent company officials should be made personally liable for
damages on account of petitioners' dismissal is not impressed with merit. A corporation is a
juridical entity with legal personality separate and distinct from those acting for and in its behalf
and, in general from the people comprising it.12 The rule is that obligations incurred by the
corporation, acting through its directors, officers and employees are its sole liabilities.13 True,
solidary liabilities may at times be incurred but only when exceptional circumstances warrant
such as, generally, in the following cases:14
1. When directors and trustees or, in appropriate cases, the officers of a corporation
(a) Vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the corporate
affairs;
(c) are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons.15
(2) When a director or officer has consented to the issuance of watered stocks or
who, having knowledge thereof, did not forthwith file with the corporate secretary his
written objection thereto.16
(3) When a director, trustee or officer as contractually agreed or stipulated to hold
himself personally and solidarily liable with the Corporation.17
(4) When a director, trustee or officer is made, by specific provision of law,
personally liable for his corporate action.18
In labor cases, particularly, the Court has held corporate directors and officers solidarily liable
with the corporation for the termination of employment of corporate employees done with
malice or in bad faith.19 Bad faith or negligence is a question of fact and is evidentiary.20 It has
been held that bad faith does not connote bad judgement or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong; it means breach of known duty
thru some motive or interest or ill will; it partakes of the nature of fraud.21
In the instant case, there is nothing substantial on record to show that respondent officers
acted in patent bad faith or were guilty of gross negligence in terminating the services of
petitioners so as to warrant personal liability. As held in Sunio vs. NLRC,22
"We now come to the personal liability of petitioner, Sunio, who was made jointly
and severally responsible with petitioner company and CIPI for the payment of the
 backwages of private respondents. This is reversible error. The Assistant Regional
Director's Decision failed to disclose the reason why he was made personally liable.
Respondents, however, alleged as grounds thereof, his being the owner of one half
(1/2) interest of said corporation, and his alleged arbitrary dismissal of private
respondents.
Petitioner Sunio was impleaded in the Complaint in his capacity as several Manager
of petitioner corporation. There appears to be no evidence on record that he acted
maliciously or in bad faith in terminating the services of private respondents. His act,
therefore, was within the scope of his authority and was a corporate act.
It is basic that a corporation is invested by law with a personality separate and
distinct from those of the persons composing it as well as from that of any other
legal entity to which it may be related. Mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is not of
itself sufficient ground for disregarding the separate corporate personality. Petitioner
Sunio, therefore, should nor have been made personally answerable for the
payment of private respondents ' back salaries."
Petitioners' claim that the jobs intended for the respondent company's regular employees were
diverted, to its satellite companies where the respondent company officers are holding key
positions is not substantiated and was raised for the first time in this motion for
reconsideration. Even assuming that the respondent company officials are also officers and
incorporators of the satellite companies, such circumstance does not in itself amount to fraud.
The documents attached to petitioners' motion for reconsideration show that these satellite
companies23 were established prior to the filing of petitioners' complaint against private
respondents with the Department of Labor and Employment on September 6, 1989 and that
these corporations have different sets of incorporators aside from the respondent officers and
are holding their principal offices at different locations. Substantial identity of incorporators
between respondent company and these satellite companies does not necessarily imply
fraud.24 In such a case, respondent company's corporate personality remains inviolable.25
Although there were earlier decisions of this Court in labor cases where corporate officers
were held to be personally liable for the payment of wages and other money claims to its
employees, we find those rulings inapplicable to this case. In La Campana Coffee Factory, Inc.
vs. Kaisahan ng Manggagawa sa La Campana (KKM},26 La Campana Coffee Factory, Inc. and
La Campana Gaugau Packing were substantially owned by the same person. They had one
office, one management, and a single payroll for both businesses. The laborers of the gaugau
factory and the coffee factory were also interchangeable, i.e., the workers in one factory
worked also in the other factory.
In Claparols vs. Court of Industrial Relations,27 , the Claparol Steel and Nail Plant which was
ordered to pay its workers backwages, ceased operations on June 30, 1957 and was
succeeded on the next day, July 1, 1957 by the Claparols Steel Corporation. Both corporations
were substantially owned and controlled by the same person and there was no break or
cessation in operations. Moreover, all the assets of the steel and nail pant were transferred to
the new corporation.
Notably, in the above-mentioned cases, a new corporation was created, owned by the same
family, engaged in the same business and operating in the same compound, a situation which
is not obtaining in the instant case.
In AC Ransom Labor Union-CCLU vs. NLRC,28 the Court ruled that under the Minimum Wage
Law, the responsible officer of an employer corporation can be held personally liable for non-
payment of backwages for "if the policy of the law were otherwise, the corporation employer
would have devious ways for evading of back wages." This Court said:
"In the instant case, it would appear that RANSOM; in 1969, foreseeing the
possibility or probability of payment of backwages to the 22 strikers, organized
ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22
strikers win their case. RANSOM actually ceased operations on May 1, 1973, after
the December 19, 1972 Decision of the Court of Industrial Relations was
promulgated against RANSOM."
Clearly, the situation in AC Ransom does not obtain in this case, where the alleged satellite
companies were established even prior to the filing of petitioners' complaint with the
Department of Labor.
Petitioners' prayer for the inclusion of employees listed in Annex "D" whose names were
admittedly inadvertently excluded in the caption of the case and for the correction of
typographical errors of the employees' names appearing in the caption, is well taken and is
hereby granted. However, petitioners' prayer for the inclusion of other employees allegedly
similarly situated but whose names were not included either in Annex "D" or in the caption of
the case must be denied. A judgment cannot bind persons who are not parties to the action.29
It is elementary that strangers to a case are not bound by the judgment rendered by the court
and such judgment is not available as an adjudication either against or in favor of such other
person.30 Petitioners failed to explain why these employees allegedly similarly situated were
not included in the submitted list filed before us. Such inclusion would be tantamount to a
substantial amendment which cannot be allowed at this late stage of the proceedings as it will
definitely work to the prejudice and disadvantage of the private respondents.31
WHEREFORE, petitioners' motion for reconsideration is partially granted so as to include the
names of employees listed in Annex "D" which petitioners inadvertently omitted in the caption
of this case, to wit: (1) Amores, Imelda (2) Andres, Josefina (3)Aragon, Felicidad (4) Arias,
Genevive (5) Arroyo, Salvacion (6) Arceo, Elizabeth (7) Anonuevo, Monica (8) Abellada,
Josefina (9) Advincula, Harmelina (10) Ajayo, Rosario (11) Alilay, Marilyn (12) Almario, An1iza
(13) A1mario, Angelita (14) Almazan, Marilou (15) Almonte, Rosalina (16) Alvaran, Marites
(17) Alvarez, Edna (18) Ampo, Anacorita (19) Aquino , Leonisa (20) Bactat, Celia (21) Carpio,
Azucena G. (22) Cruz, Amelia (23) Glifonia, Eugenia (24) Escurel, Evelyn F. (25) Hilario,
Bonifacio G. (26) Payuan, Adoracion (27) Perez, Mercedita (28) Rempis, Zenaida (29)
Rosario, Margie del (30) Salvador, Norma (31) Sambayanan, Olivia (32) Tiaga, Aida (33)
Torbela, Maria (34) Trono, Nenevina (35) Varona, Asuncion (36) Vasquez, Elisa M. (37)
Villanueva, Milagros (38) Villapondo, Eva C. (39) Villon, Adeliza T.; and to correct the
typographical errors of the names of employees appearing in the caption, as follows: Manuela
Avelin, Belen Barquio, Lita Buquid, Violeta C. Ciervo, Marilou Dejocos, Maximina Faustino,
Primitiva Gomez, Myrna Palaca, Mercedita Perez, Rebecca Poceran, Amorlita Rotairo, Emma
Saludario, Tita Senis, Salvacion Wilson, Anita Ahillon, Gregoria Arguelles, Tessie Balbis, Betty
Borja, Rodrigo Buella, Celsa Doropan, Maria Enicame, Josephine Lasco, Julita Maniba,
Juanita Osuyos, Juana Overencio, Azucena Postigo, Cristina Rapinan, Roselyn Rivero,
Edeltrudes Romero, Rodelia Royandoyon, Fausta Segundo, Teodora Sulit, Elena Tebis,
Paulina Valdez, Susan Abogona, Diana Adovas, Carmen Rosimo Basco, Macaria Barrion,
Maria Fe Berezo, Matilde de Blas, Rufina Bugnot, Aurora Bravo, Jovita Cera, Precila Carta,
Amalia Eugenio, Milagros Fonseca, Jose Irlanda, Rowena Jarabejo, Regina Lapidario, Josie
Marcos, Shirley Melegrito, Noemi Menguillo, Teresita Nierves, Ricardo Paloga, Florenia
Ragos, Leonila Rodil, Emma Saludario, Narcisa Songuad, Josie Sumarsar, Evangeline Tayco.
SO ORDERED.
 purchase price and accordingly set up a counterclaim. Finding for Asia Industries, the trial
Summary: Inter-Asia Investments Industries vs. Court of Appeals (GR 125778, 10 June
court rendered on 27 November 1991 a Decision, ordering Inter-Asia to pay Asia Industries the
2003)
sum of P4,853,503.00 plus interest thereon at the legal rate from the filing of the complaint
Inter-Asia Investments Industries vs. Court of Appeals until fully paid, the sum of P30,000.00 as attorney's fees and the costs of suit; and (b)
[GR 125778, 10 June 2003] dismissing the counterclaim. On appeal to the Court of Appeals, and by Decision of 25
Third Division, Carpio Morales (J): 4 concur January 1996, the Court of Appeals affirmed the trial court's decision. Inter-Asia's motion for
reconsideration of the decision having been denied by the Court of Appeals by Resolution of
Facts: On 1 September 1978, Inter-Asia Industries, Inc. (Inter-Asia), by a Stock Purchase 11 July 1996, Inter-Asia filed the petition for review on certiorari.
Agreement (the Agreement), sold to Asia Industries, Inc. (Asia Industries) for and in
consideration of the sum of P19,500,000.00 all its right, title and interest in and to all the Issue: Whether the 24 January 1980 letter signed by Inter-Asia’s president is valid and
outstanding shares of stock of FARMACOR, INC. (FARMACOR). The Agreement was signed binding.
by Leonides P. Gonzales and Jesus J. Vergara, presidents of Inter-Asia and Asia Industries,
Held: The 24 January 1980 letter signed by Inter-Asia's president is valid and binding. As held
respectively. Under paragraph 7 of the Agreement, Inter-Asia as seller made warranties and
in the case of People's Aircargo and Warehousing Co., Inc. v. Court of Appeals, the general
representations. The Agreement was later amended with respect to the "Closing Date,"
rule is that, in the absence of authority from the board of directors, no person, not even its
originally set up at 10:00 a.m. of 30 September 1978, which was moved to 31 October 1978,
officers, can validly bind a corporation. A corporation is a juridical person, separate and distinct
and to the mode of payment of the purchase price. The Agreement, as amended, provided that
from its stockholders and members, "having . . . powers, attributes and properties expressly
pending submission by SGV of FARMACOR's audited financial statements as of 31 October
authorized by law or incident to its existence." Being a juridical entity, a corporation may act
1978, Asia Industries may retain the sum of P7,500,000.00 out of the stipulated purchase price
through its board of directors, which exercises almost all corporate powers, lays down all
of P19,500,000.00; that from this retained amount of P7,500,000.00, Asia Industries may
corporate business policies and is responsible for the efficiency of management, as provided
deduct any shortfall on the Minimum Guaranteed Net Worth of P12,000,000.00; and that if the
in Section 23 of the Corporation Code of the Philippines. Under this provision, the power and
amount retained is not sufficient to make up for the deficiency in the Minimum Guaranteed Net
responsibility to decide whether the corporation should enter into a contract that will bind the
Worth, Inter-Asia shall pay the difference within 5 days from date of receipt of the audited
corporation is lodged in the board, subject to the articles of incorporation, bylaws, or relevant
financial statements. Asia Industries paid Inter-Asia a total amount of P12,000,000.00:
provisions of law. However, just as a natural person may authorize another to do certain acts
P5,000,000.00 upon the signing of the Agreement, and P7,000,000.00 on 2 November 1978.
for and on his behalf, the board of directors may validly delegate some of its functions and
From the STATEMENT OF INCOME AND DEFICIT attached to the financial report dated 28
powers to officers, committees or agents. The authority of such individuals to bind the
November 1978 submitted by SGV, it appears that FARMACOR had, for the 10 months ended
corporation is generally derived from law, corporate bylaws or authorization from the board,
31 October 1978, a deficit of P11,244,225.00. Since the stockholder's equity amounted to
either expressly or impliedly by habit, custom or acquiescence in the general course of
P10,000,000.00, FARMACOR had a net worth deficiency of P1,244,225.00. The guaranteed
business, viz: "A corporate officer or agent may represent and bind the corporation in
net worth shortfall thus amounted to P13,244,225.00 after adding the net worth deficiency of
transactions with third persons to the extent that [the] authority to do so has been conferred
P1,244,225.00 to the Minimum Guaranteed Net Worth of P12,000,000.00. The adjusted
upon him, and this includes powers as, in the usual course of the particular business, are
contract price, therefore, amounted to P6,225,775.00 which is the difference between the
incidental to, or may be implied from, the powers intentionally conferred, powers added by
contract price of P19,500,000.00 and the shortfall in the guaranteed net worth of
custom and usage, as usually pertaining to the particular officer or agent, and such apparent
P13,224,225.00. Asia Industries having already paid Inter-Asia P12,000,000.00, it was entitled
powers as the corporation has caused person dealing with the officer or agent to believe that it
to a refund of P5,744,225.00. Inter-Asia thereafter proposed, by letter of 24 January 1980,
has conferred.... [A]pparent authority is derived not merely from practice. Its existence may be
signed by its president, that Asia Industries's claim for refund be reduced to P4,093,993.00, it
ascertained through (1) the general manner in which the corporation holds out an officer or
promising to pay the cost of the Northern Cotabato Industries, Inc. (NOCOSII) superstructures
agent as having the power to act or, in other words the apparent authority to act in general,
in the amount of P759,570.00. To the proposal respondent agreed. Inter-Asia, however,
with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual
welched on its promise. Inter-Asia's total liability thus stood at P4,853,503.00 (P4,093,993.00
or constructive knowledge thereof, within or beyond the scope of his ordinary powers. It
plus P759,570.00) exclusive of interest. On 5 April 1983, Asia Industries filed a complaint
requires presentation of evidence of similar acts executed either in its favor or in favor of other
against Inter-Asia with the Regional Trial Court of Makati, one of two causes of action of which
parties. It is not the quantity of similar acts which establishes apparent authority, but the
was for the recovery of above-said amount of P4,853,503.00 17 plus interest. Denying Asia
vesting of a corporate officer with the power to bind the corporation." Hence, an officer of a
Industries's claim, Inter-Asia countered that Asia Industries failed to pay the balance of the
corporation who is authorized to purchase the stock of another corporation has the implied
power to perform all other obligations arising therefrom, such as payment of the shares of
stock. By allowing its president to sign the Agreement on its behalf, Inter-Asia clothed him with
apparent capacity to perform all acts which are expressly, impliedly and inherently stated
therein.
 that the respondent Bank fully knew that the loans contracted were made in petitioner Tan’s
personal capacity and for his own use and that the petitioner Foundation never benefited,
directly or indirectly, therefrom. The petitioner Foundation then interposed a cross-claim
against petitioner Tan alleging that he, having exceeded his authority, should be solely liable
[G.R. No. 126006. January 29, 2004] for said loans, and a counterclaim against the respondent Bank for damages and attorney’s
fees.

LAPULAPU FOUNDATION, INC. and ELIAS Q. TAN, petitioners, vs. COURT OF
APPEALS (Seventeenth Division) and ALLIED BANKING CORP., respondents
DECISION
For his part, petitioner Tan admitted that he contracted the loans from the respondent
Bank in his personal capacity. The parties, however, agreed that the loans were to be paid
from the proceeds of petitioner Tan’s shares of common stocks in the Lapulapu Industries
Corporation, a real estate firm. The loans were covered by promissory notes which were
automatically renewable (“rolled-over”) every year at an amount including unpaid interests,
until such time as petitioner Tan was able to pay the same from the proceeds of his aforesaid
shares.

CALLEJO, SR., J.: According to petitioner Tan, the respondent Bank’s employee required him to affix two
signatures on every promissory note, assuring him that the loan documents would be filled out
in accordance with their agreement. However, after he signed and delivered the loan
Before the Court is the petition for review on certiorari filed by the Lapulapu Foundation, documents to the respondent Bank, these were filled out in a manner not in accord with their
Inc. and Elias Q. Tan seeking to reverse and set aside the Decision1[1] dated June 26, 1996 of agreement, such that the petitioner Foundation was included as party thereto. Further, prior to
the Court of Appeals (CA) in CA-G.R. CV No. 37162 ordering the petitioners, jointly and its filing of the complaint, the respondent Bank made no demand on him.
solidarily, to pay the respondent Allied Banking Corporation the amount of P493,566.61 plus
interests and other charges. Likewise, sought to be reversed and set aside is the appellate After due trial, the court a quo rendered judgment the dispositive portion of which reads:
court’s Resolution dated August 19, 1996 denying the petitioners’ motion for reconsideration. WHEREFORE, in view of the foregoing evidences [sic], arguments and
The case stemmed from the following facts: considerations, this court hereby finds the preponderance of evidence in favor of
the plaintiff and hereby renders judgment as follows:
Sometime in 1977, petitioner Elias Q. Tan, then President of the co-petitioner Lapulapu
Foundation, Inc., obtained four loans from the respondent Allied Banking Corporation covered “1. Requiring the defendants Elias Q. Tan and
by four promissory notes in the amounts of P100,000 each. The details of the promissory Lapulapu Foundation, Inc. [the petitioners herein] to pay jointly and
notes are as follows: solidarily to the plaintiff Allied Banking Corporation [the respondent
herein] the amount of P493,566.61 as principal obligation for the four
P/N No. Date of P/N Maturity Date Amount as of promissory notes, including all other charges included in the same,
1/23/79 with interest at 14% per annum, computed from January 24, 1979,
until the same are fully paid, plus 2% service charges and 1% monthly
BD No. 504 Nov. 7, 1977 Feb. 5, 1978 P123,377.76 penalty charges.
BD No. 621 Nov. 28, 1977 Mar. 28, 1978 P123,411.10 “2. Requiring the defendants Elias Q. Tan and
Lapulapu Foundation, Inc., to pay jointly and solidarily, attorney’s fees
BD No. 716 Dec. 12, 1977 Apr. 11, 1978 P122,322.21 in the equivalent amount of 25% of the total amount due from the
defendants on the promissory notes, including all charges;
BD No. 839 Jan. 5, 1978 May 5, 1978 P120,455.542[2]
“3. Requiring the defendants Elias Q. Tan and
As of January 23, 1979, the entire obligation amounted to P493,566.61 and despite
Lapulapu Foundation, Inc., to pay jointly and solidarily litigation
demands made on them by the respondent Bank, the petitioners failed to pay the same. The
expenses of P1,000.00 plus costs of the suit.”3[3]
respondent Bank was constrained to file with the Regional Trial Court of Cebu City, Branch 15,
a complaint seeking payment by the petitioners, jointly and solidarily, of the sum of On appeal, the CA affirmed with modification the judgment of the court a quo by deleting
P493,566.61 representing their loan obligation, exclusive of interests, penalty charges, the award of attorney’s fees in favor of the respondent Bank for being without basis.
attorney’s fees and costs.
The appellate court disbelieved petitioner Tan’s claim that the loans were his personal
In its answer to the complaint, the petitioner Foundation denied incurring indebtedness loans as the promissory notes evidencing them showed upon their faces that these were
from the respondent Bank alleging that the loans were obtained by petitioner Tan in his obligations of the petitioner Foundation, as contracted by petitioner Tan himself in his “official
personal capacity, for his own use and benefit and on the strength of the personal information and personal character.” Applying the parol evidence rule, the CA likewise rejected petitioner
he furnished the respondent Bank. The petitioner Foundation maintained that it never Tan’s assertion that there was an unwritten agreement between him and the respondent Bank
authorized petitioner Tan to co-sign in his capacity as its President any promissory note and that he would pay the loans from the proceeds of his shares of stocks in the Lapulapu
Industries Corp.
1

2 3
 Further, the CA found that demand had been made by the respondent Bank on the
petitioners prior to the filing of the complaint a quo. It noted that the two letters of demand
dated January 3, 19794[4] and January 30, 19795[5] asking settlement of the obligation were sent
by the respondent Bank. These were received by the petitioners as shown by the registry
return cards6[6] presented during trial in the court a quo.
Finally, like the court a quo, the CA applied the doctrine of piercing the veil of corporate
entity in holding the petitioners jointly and solidarily liable. The evidence showed that petitioner
Tan had represented himself as the President of the petitioner Foundation, opened savings
and current accounts in its behalf, and signed the loan documents for and in behalf of the
latter. The CA, likewise, found that the petitioner Foundation had allowed petitioner Tan to act
as though he had the authority to contract the loans in its behalf. On the other hand, petitioner
Tan could not escape liability as he had used the petitioner Foundation for his benefit.
Aggrieved, the petitioners now come to the Court alleging that:
I. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE
LOANS SUBJECT MATTER OF THE INSTANT PETITION ARE ALREADY
DUE AND DEMANDABLE DESPITE ABSENCE OF PRIOR DEMAND.
II. THE COURT OF APPEALS GRAVELY ERRED IN APPLYING THE PAROL
EVIDENCE RULE AND THE DOCTRINE OF PIERCING THE VEIL OF
CORPORATE ENTITY AS BASIS FOR ADJUDGING JOINT AND SOLIDARY
LIABILITY ON THE PART OF PETITIONERS ELIAS Q. TAN AND
LAPULAPU FOUNDATION, INC.7[7]
The petitioners assail the appellate court’s finding that the loans had become due and
demandable in view of the two demand letters sent to them by the respondent Bank. The
petitioners insist that there was no prior demand as they vigorously deny receiving those
letters. According to petitioner Tan, the signatures on the registry return cards were not his.
The petitioners’ denial of receipt of the demand letters was rightfully given scant
consideration by the CA as it held:
Exhibits “R” and “S” are two letters of demand, respectively dated January
3, 1979 and January 30, 1979, asking settlement of the obligations covered by the
promissory notes. The first letter was written by Ben Tio Peng Seng, Vice-
President of the bank, and addressed to Lapulapu Foundation, Inc., attention of
Mr. Elias Q. Tan, President, while the second was a final demand written by the
appellee’s counsel, addressed to both defendants-appellants, and giving them five
(5) days from receipt within which to settle or judicial action would be instituted
against them. Both letters were duly received by the defendants, as shown by the
registry return cards, marked as Exhibits “R-2” and “S-1,” respectively. The
allegation of Tan that he does not know who signed the said registry return
receipts merits scant consideration, for there is no showing that the addresses
thereon were wrong. Hence, the disputable presumption “that a letter duly directed
and mailed was received in the regular course of mail” (per par. V, Section 3, Rule
131 of the Revised Rules on Evidence) still holds.8[8]
There is no dispute that the promissory notes had already matured. However, the
4 12
5 13
6 14
7 15
8 16
petitioners insist that the loans had not become due and demandable as they deny receipt of
the respondent Bank’s demand letters. When presented the registry return cards during the
trial, petitioner Tan claimed that he did not recognize the signatures thereon. The petitioners’
allegation and denial are self-serving. They cannot prevail over the registry return cards which
constitute documentary evidence and which enjoy the presumption that, absent clear and
convincing evidence to the contrary, these were regularly issued by the postal officials in the
performance of their official duty and that they acted in good faith.9[9] Further, as the CA
correctly opined, mails are presumed to have been properly delivered and received by the
addressee “in the regular course of the mail.”10[10] As the CA noted, there is no showing that the
addresses on the registry return cards were wrong. It is the petitioners’ burden to overcome
the presumptions by sufficient evidence, and other than their barefaced denial, the petitioners
failed to support their claim that they did not receive the demand letters; therefore, no prior
demand was made on them by the respondent Bank.
Having established that the loans had become due and demandable, the Court shall
now resolve the issue of whether the CA correctly held the petitioners jointly and solidarily
liable therefor.
In disclaiming any liability for the loans, the petitioner Foundation maintains that these
were contracted by petitioner Tan in his personal capacity and that it did not benefit therefrom.
On the other hand, while admitting that the loans were his personal obligation, petitioner Tan
avers that he had an unwritten agreement with the respondent Bank that these loans would be
renewed on a year-to-year basis and paid from the proceeds of his shares of stock in the
Lapulapu Industries Corp.
These contentions are untenable.
The Court particularly finds as incredulous petitioner Tan’s allegation that he was made
to sign blank loan documents and that the phrase “IN MY OFFICIAL/PERSONAL CAPACITY”
was superimposed by the respondent Bank’s employee despite petitioner Tan’s protestation.
The Court is hard pressed to believe that a businessman of petitioner Tan’s stature could have
been so careless as to sign blank loan documents.
In contrast, as found by the CA, the promissory notes11[11] clearly showed upon their
faces that they are the obligation of the petitioner Foundation, as contracted by petitioner Tan
“in his official and personal capacity.”12[12] Moreover, the application for credit accommodation,13
[13]
the signature cards of the two accounts in the name of petitioner Foundation,14[14] as well as
New Current Account Record,15[15] all accompanying the promissory notes, were signed by
petitioner Tan for and in the name of the petitioner Foundation.16[16] These documentary
evidence unequivocally and categorically establish that the loans were solidarily contracted by
the petitioner Foundation and petitioner Tan.
As a corollary, the parol evidence rule likewise constrains this Court to reject petitioner
Tan’s claim regarding the purported unwritten agreement between him and the respondent
Bank on the payment of the obligation. Section 9, Rule 130 of the of the Revised Rules of
9
10
11
Court provides that “[w]hen the terms of an agreement have been reduced to writing, it is to be In fine, there is no cogent reason to deviate from the CA’s ruling that the petitioners are
considered as containing all the terms agreed upon and there can be, between the parties and jointly and solidarily liable for the loans contracted with the respondent Bank.
their successors-in-interest, no evidence of such terms other than the contents of the written
agreement.”17[17] WHEREFORE, premises considered, the petition is DENIED and the Decision dated
June 26, 1996 and Resolution dated August 19, 1996 of the Court of Appeals in CA-G.R. CV
In this case, the promissory notes are the law between the petitioners and the No. 37162 are AFFIRMED in toto.
respondent Bank. These promissory notes contained maturity dates as follows: February 5,
1978, March 28, 1978, April 11, 1978 and May 5, 1978, respectively. That these notes were to SO ORDERED.
be paid on these dates is clear and explicit. Nowhere was it stated therein that they would be
renewed on a year-to-year basis or “rolled-over” annually until paid from the proceeds of
petitioner Tan’s shares in the Lapulapu Industries Corp. Accordingly, this purported unwritten
agreement could not be made to vary or contradict the terms and conditions in the promissory
notes.

Evidence of a prior or contemporaneous verbal agreement is generally not admissible to

vary, contradict or defeat the operation of a valid contract.18[18] While parol evidence is
admissible to explain the meaning of written contracts, it cannot serve the purpose of
incorporating into the contract additional contemporaneous conditions which are not
mentioned at all in writing, unless there has been fraud or mistake.19[19] No such allegation had
been made by the petitioners in this case.

Finally, the appellate court did not err in holding the petitioners jointly and solidarily liable
as it applied the doctrine of piercing the veil of corporate entity. The petitioner Foundation
asserts that it has a personality separate and distinct from that of its President, petitioner Tan,
and that it cannot be held solidarily liable for the loans of the latter.

The Court agrees with the CA that the petitioners cannot hide behind the corporate veil
under the following circumstances:

The evidence shows that Tan has been representing himself as the
President of Lapulapu Foundation, Inc. He opened a savings account and a
current account in the names of the corporation, and signed the application form
as well as the necessary specimen signature cards (Exhibits “A,” “B” and “C”)
twice, for himself and for the foundation. He submitted a notarized Secretary’s
Certificate (Exhibit “G”) from the corporation, attesting that he has been
authorized, inter alia, to sign for and in behalf of the Lapulapu Foundation any and
all checks, drafts or other orders with respect to the bank; to transact business
with the Bank, negotiate loans, agreements, obligations, promissory notes and
other commercial documents; and to initially obtain a loan for P100,000.00 from
any bank (Exhibits “G-1” and “G-2”). Under these circumstances, the defendant
corporation is liable for the transactions entered into by Tan on its behalf.20[20]

Per its Secretary’s Certificate, the petitioner Foundation had given its President,
petitioner Tan, ostensible and apparent authority to inter alia deal with the respondent Bank.
Accordingly, the petitioner Foundation is estopped from questioning petitioner Tan’s authority
to obtain the subject loans from the respondent Bank. It is a familiar doctrine that if a
corporation knowingly permits one of its officers, or any other agent, to act within the scope of
an apparent authority, it holds him out to the public as possessing the power to do those acts;
and thus, the corporation will, as against anyone who has in good faith dealt with it through
such agent, be estopped from denying the agent’s authority.21[21]

17

18

19

20

21
 component at the fixed exchange rate of P7.3735 to US$1.00 instead of the prevailing
exchange rate.
G.R. No. 160215 November 10, 2004
Upon completion of the project, a final reconciliation of the total entitlement of Hydro to the
HYDRO RESOURCES CONTRACTORS CORPORATION, petitioner, foreign currency component of the contract was made. The result of this final reconciliation
vs. showed that the total entitlement of Hydro to the foreign currency component of the contract
NATIONAL IRRIGATION ADMINISTRATION, respondent. exceeded the amount of US dollars required by Hydro to repay the advances made by NIA for
its account in the importation of new equipment, spare parts and tools. Hydro then requested a
full and final payment due to the underpayment of the foreign exchange portion caused by
YNARES-SANTIAGO, J.:
price escalations and extra work orders. In 1983, NIA and Hydro prepared a joint computation
denominated as the "MPI-C-2 Dollar Rate Differential on Foreign Component of Escalation." 10
Based on said joint computation, Hydro was still entitled to a foreign exchange differential of
Challenged in this petition for review on certiorari under Rule 45 is the Decision of the Court of
US$1,353,771.79 equivalent to P10,898,391.17.
Appeals1 dated October 29, 2002 and its Resolution dated September 24, 20032 in CA-G.R.
SP No. 44527,3 reversing the judgment of the Construction Industry Arbitration Commission
(CIAC) dated June 10, 19974 in CIAC Case No. 14-98 in favor of petitioner Hydro Resources Hydro then presented its claim for said foreign exchange differential to NIA on August 12,
Contractors Corporation. 198311 but the latter refused to honor the same. Hydro made several 12 demands to recover its
claim until the same was turned down with finality by then NIA Administrator Federico N.
Alday, Jr. on January 6, 1987.13
The facts are undisputed and are matters of record.

On December 7, 1994, Hydro filed a request for arbitration with the Construction Industry
In a competitive bidding conducted by the National Irrigation Administration (NIA) sometime in
Arbitration Commission (CIAC).14 In the said request, Hydro nominated six (6) arbitrators. The
August 1978, Hydro Resources Contractors Corporation (Hydro) was awarded Contract MPI-
case was docketed as CIAC Case No. 18-94.
C-25 involving the main civil work of the Magat River Multi-Purpose Project. The contract price
for the work was pegged at P1,489,146,473.72 with the peso component thereof amounting to
P1,041,884,766.99 and the US$ component valued at $60,657,992.37 at the exchange rate of NIA filed its Answer with Compulsory Counterclaim15 raising laches, estoppel and lack of
P7.3735 to the dollar or P447,361,706.73. jurisdiction by CIAC as its special defenses. NIA also submitted its six (6) nominees to the
panel of arbitrators. After appointment of the arbitrators, both parties agreed on the Terms of
Reference16 as well as the issues submitted for arbitration.
On November 6, 1978, the parties signed Amendment No. 16 of the contract whereby NIA
agreed to increase the foreign currency allocation for equipment financing from
US$28,000,000.00 for the first and second years of the contract to US$38,000,000.00, to be On March 13, 1995, NIA filed a Motion to Dismiss 17 questioning CIAC's jurisdiction to take
made available in full during the first year of the contract to enable the contractor to purchase cognizance of the case. The latter, however, deferred resolution of the motion and set the case
the needed equipment and spare parts, as approved by NIA, for the construction of the project. for hearing for the reception of evidence.18 NIA moved19 for reconsideration but the same was
On April 9, 1980, the parties entered into a Memorandum of Agreement 7 (MOA) whereby they denied by CIAC in an Order dated April 25, 1995.20
agreed that Hydro may directly avail of the foreign currency component of the contract for the
sole purpose of purchasing necessary spare parts and equipment for the project. This was
Dissatisfied, NIA filed a petition for certiorari and prohibition with the Court of Appeals where
made in order for the contractor to avoid further delays in the procurement of the said spare
the same was docketed as CA-G.R. SP No. 37180,21 which dismissed the petition in a
parts and equipment.
Resolution dated June 28, 1996.22

A few months after the MOA was signed, NIA and Hydro entered into a Supplemental
NIA challenged the resolution of the Court of Appeals before this Court in a special civil action
Memorandum of Agreement (Supplemental MOA) to include among the items to be financed
for certiorari, docketed as G.R. No. 129169.23
out of the foreign currency portion of the Contract "construction materials, supplies and
services as well as equipment and materials for incorporation in the permanent works of the
Project."8 Meanwhile, on June 10, 1997, the CIAC promulgated a decision in favor of Hydro.24 NIA filed a
Petition for Review on Appeal before the Court of Appeals, which was docketed as CA-G.R.
SP No. 44527.25
Work on the project progressed steadily until Hydro substantially completed the project in 1982
and the final acceptance was made by NIA on February 14, 1984.9
During the pendency of CA-G.R. SP No. 44527 before the Court of Appeals, this Court
dismissed special civil action for certiorari docketed as G.R. No. 129169 on the ground that
During the period of the execution of the contract, the foreign exchange value of the peso
CIAC had jurisdiction over the dispute and directed the Court of Appeals to proceed with
against the US dollar declined and steadily deteriorated. Whenever Hydro's availment of the
reasonable dispatch in the disposition of CA-G.R. SP No. 44527. NIA did not move for
foreign currency component exceeded the amount of the foreign currency payable to Hydro for
reconsideration of the said decision, hence, the same became final and executory on
a particular period, NIA charged interest in dollars based on the prevailing exchange rate
December 15, 1999.26
instead of the fixed exchange rate of P7.3735 to the dollar. Yet when Hydro received
payments from NIA in Philippine Pesos, NIA made deductions from Hydro's foreign currency
Thereafter, the Court of Appeals rendered the challenged decision in CA-G.R. SP No. 44527,
reversing the judgment of the CIAC on the grounds that: (1) Hydro's claim has prescribed; (2)
assuming that Hydro was entitled to its claim, the rate of exchange should be based on a fixed
rate; (3) Hydro's claim is contrary to R.A. No. 529; 27 (4) NIA's Certification of Non-Forum-
Shopping was proper even if the same was signed only by counsel and not by NIA's
authorized representative; and (5) NIA did not engage in forum-shopping.
Hydro's Motion for Reconsideration was denied in Resolution of September 24, 2003.
Hence, this petition.
Addressing first the issue of prescription, the Court of Appeals, in ruling that Hydro's claim had
prescribed, reasoned thus:
Nevertheless, We find good reason to apply the principle of prescription against
HRCC. It is well to note that Section 25 of the General Conditions of the subject
contract provides (CIAC Decision, p. 15, Rollo, p. 57):
Any controversy or dispute arising out of or relating to this Contract which cannot be
resolved by mutual agreement shall be decided by the Administrator within thirty
(30) calendar days from receipt of a written notice from Contractor and who shall
furnish Contractor a written copy of this decision. Such decision shall be final and
conclusive unless within thirty (30) calendar days from the date of receipt thereof,
Contractor shall deliver to NIA a written notice addressed to the Administrator that
he desires that the dispute be submitted to arbitration. Pending decision from
arbitration, Contractor shall proceed diligently with the performance of the Contract
and in accordance with the decision of the Administrator. (Emphasis and
Underscoring Ours)
Both parties admit the existence of this provision in the Contract (Petition, p. 4;
Comment, p. 16; Rollo, pp. 12 and 131). Apropos, the following matters are clear:
(1) any controversy or dispute between the parties arising from the subject contract
shall be governed by the provisions of the contract; (2) upon the failure to arrive at a
mutual agreement, the contractor shall submit the dispute to the Administrator of
NIA for determination; and (3) the decision of the Administrator shall become final
and conclusive, unless within thirty (30) calendar days from the date of receipt
thereof, the Contractor shall deliver to NIA a written notice addressed to the
Administrator that he desires that the dispute be submitted for arbitration.
Prescinding from the foregoing matters, We find that the CIAC erred in granting
HRCC's claim considering that the latter's right to make such demand had clearly
prescribed. To begin with, on January 7, 1986, Cesar L. Tech (NIA's Administrator at
the time) informed HRCC in writing that after a review of the additional points raised
by the latter, NIA confirms its original recommendation not to allow the said claim
(Annex "F"; Rollo, p. 81; CIAC Decision, p. 11; Rollo, p. 53). This should have
propelled private respondent to notify and signify to NIA of intention to submit the
dispute to arbitration pursuant to the provision of the contract. Yet, it did not. Instead
it persisted to send several letters to NIA reiterating the reason for its rejected claim
(CIAC Decision, p. 11; Rollo, p. 53).28
We disagree for the following reasons:
First, the appellate court clearly overlooked the fact that NIA, through then Administrator
Fedrico N. Alday, Jr., denied "with finality" Hydro's claim only on January 6, 1987 in a letter
bearing the same date29 which reads:
This refers to your letter dated November 7, 1986 requesting reconsideration on
your claim for payment of the Dollar Rate Differential of Price Escalation in Contract
No. MPI-C-2.
We have reviewed the relevant facts and issues as presented and the additional
points raised in the abovementioned letter in the context of the Contract Documents
and we find no strong and valid reason to reverse the earlier decision of NIA's
previous management denying your claim. Therefore, we regret that we have to
reiterate the earlier official stand of NIA under its letter dated January 7, 1986, that
confirms the original recommendation which had earlier been presented in our 4th
Indorsement dated February 5, 1985 to your office.
In view hereof, we regret to say with finality that the claim cannot be given favorable
consideration. (Emphasis and italics supplied)
Hydro received the above-mentioned letter on January 27, 1987.30 Pursuant to Section 25 of
the Contract's General Conditions (GC-25), Hydro had thirty (30) days from receipt of said
denial, or until February 26, 1987, within which to notify NIA of its desire to submit the dispute
to arbitration.
On February 18, 1987, Hydro sent a letter31 to NIA, addressed to then NIA Administrator
Federico N. Alday, Jr., manifesting its desire to submit the dispute to arbitration. The letter was
received by NIA on February 19, 1987, which was within the thirty-day prescriptive period.
Moreover, a circumspect scrutiny of the wording of GC-25 with regard to the thirty-day
prescriptive period shows that said proviso is intended to apply to disputes which arose during
the actual construction of the project and not for controversies which occured after the project
is completed. The rationale for such a stipulation was aptly explained thus by the CIAC in its
Decision in CIAC Case No. 18-94:
In construction contracts, there is invariably a provision for interim settlement of
disputes. The right to settle disputes is given to the owner or his representative,
either an architect or engineer, designated as "owner's representative," only for the
purpose of avoiding delay in the completion of the project. In this particular contract,
that right was reserved to the NIA Administrator. The types of disputes contemplated
were those which may have otherwise affected the progress of the work. It is very
clear that this is the purpose of the limiting periods in this clause that the dispute
shall be resolved by the Administrator within 30 days from receipt of a written notice
from the Contractor and that the Contractor may submit to arbitration this dispute if it
does not agree with the decision of the Administrator, and "Pending decision from
arbitration, Contractor shall proceed diligently with the performance of the Contract
and in accordance with the decision of the Administrator."
In this case, the dispute had arisen after completion of the Project. The reason for
the 30-day limitation no longer applies, and we find no legal basis for applying it.
Moreover, in Exhibit "B," NIA Administrator Cesar L. Tech had, instead of rendering
an adverse decision, by signing the document with HRCC's Onofre B. Banson,
implicitly approved the payment of the foreign exchange differential, but this
 payment could not be made because of the opinion of Auditor Saldua and later of
the Commission on Audit.32
Second, as early as April 1983, Hydro and NIA, through its Administrator Cesar L. Tech,
prepared the Joint Computation which shows that Hydro is entitled to the foreign currency
differential.33 As correctly found by the CIAC, this computation constitutes a written
acknowledgment of the debt by the debtor under Article 1155 of the Civil Code, which states:
ART. 1155. The prescription of actions is interrupted when they are filed before the
court, when there is a written extrajudicial demand by the creditors, and when there
is any written acknowledgment of the debt by the debtor. (Emphasis and italics
supplied)
Instead of upholding the CIAC's findings on this point, the Court of Appeals ruled that Cesar L.
Tech's act of signing the Joint Computation was an ultra vires act. This again is patent error. It
must be noted that the Administrator is the highest officer of the NIA. Furthermore, Hydro has
been dealing with NIA through its Administrator in all of its transactions with respect to the
contract and subsequently the foreign currency differential claim. The NIA Administrator is
empowered by the Contract to grant or deny foreign currency differential claims. It would be
preposterous for the NIA Administrator to have the power of granting claims without the
authority to verify the computation of such claims. Finally, the records of the case will show
that NIA itself never disputed its Administrator's capacity to sign the Joint Computation
because it knew that the Administrator, in fact, had such capacity.
Even assuming for the sake of argument that the Administrator had no authority to bind NIA,
the latter is already estopped after repeatedly representing to Hydro that the Administrator had
such authority. A corporation may be held in estoppel from denying as against third persons
the authority of its officers or agents who have been clothed by it with ostensible or apparent
authority.34 Indeed –
. . . The rule is of course settled that "[a]lthough an officer or agent acts without, or in
excess of, his actual authority if he acts within the scope of an apparent authority
with which the corporation has clothed him by holding him out or permitting him to
appear as having such authority, the corporation is bound thereby in favor of a
person who deals with him in good faith in reliance on such apparent authority, as
where an officer is allowed to exercise a particular authority with respect to the
business, or a particular branch of it, continuously and publicly, for a considerable
time.". . .35
Third, NIA has clearly waived the prescriptive period when it continued to entertain Hydro's
claim regarding new matters raised by the latter in its letters to NIA and then issuing rulings
thereon. In this regard, Article 1112 of the Civil Code provides that:
ART. 1112. Persons with capacity to alienate property may renounce prescription
already obtained, but not the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the renunciation results
from acts which imply the abandonment of the right acquired. (Emphasis and italics
supplied)
Certainly, when a party has renounced a right acquired by prescription through its actions, it
can no longer claim prescription as a defense.36
Fourth, even assuming that NIA did not waive the thirty-day prescriptive period, it clearly
waived the effects of such period when it actively participated in arbitration proceedings
through the following acts:
a) On January 6, 1995, NIA voluntarily filed its written appearance, readily submitted
its Answer and asserted its own Counterclaims;
b) In the Compliance which accompanied the Answer, NIA also submitted its six
nominees to the Arbitral Tribunal to be constituted, among of which one was
eventually appointed to the tribunal;
c) NIA also actively participated in the deliberations for and the formulation of the
Terms of Reference during the preliminary conference set by CIAC; and
d) For the purpose of obviating the introduction of testimonial evidence on the
authenticity and due execution of its documentary evidence, NIA even had
examined, upon prior request to Hydro, all of the documents which the latter
intended to present as evidentiary exhibits for the said arbitration case.
We now come to the issue of whether or not the provisions of R.A. No. 529, otherwise known
as an Act To Assure Uniform Value to Philippine Coin And Currency, is applicable to Hydro's
claim.
The Contract between NIA and Hydro is an internationally tendered contract considering that it
was funded by the International Bank for Reconstruction and Development (IBRD). As a
contract funded by an international organization, particularly one recognized by the
Philippines,37 the contract is exempt from the provisions of R.A. No. 529. R.A. No. 4100
amended the provisions of R.A. 529 thus:
SECTION 1. Section one of Republic Act Numbered Five hundred and twenty-nine,
entitled "An Act to Assure Uniform Value of Philippine Coin and Currency," is hereby
amended to read as follows:
Sec. 1. Every provision contained in, or made with respect to, any
domestic obligation to wit, any obligation contracted in the Philippines
which provisions purports to give the obligee the right to require payment
in gold or in a particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines measured thereby,
be as it is hereby declared against public policy, and null, void, and of no
effect, and no such provision shall be contained in, or made with respect
to, any obligation hereafter incurred. The above prohibition shall not apply
to (a) transactions where the funds involved are the proceeds of loans or
investments made directly or indirectly, through bona fide intermediaries
or agents, by foreign governments, their agencies and instrumentalities,
and international financial and banking institutions so long as the funds
are identifiable, as having emanated from the sources enumerated above;
(b) transactions affecting high-priority economic projects for agricultural,
industrial and power development as may be determined by the National
Economic Council which are financed by or through foreign funds; (c)
forward exchange transaction entered into between banks or between
banks and individuals or juridical persons; (d) import-export and other
international banking, financial investment and industrial transactions.
With the exception of the cases enumerated in items (a), (b), (c) and (d) in
 the foregoing provisions, in which bases the terms of the parties' When the MOA41 and the Supplemental MOA42 were in effect, there were instances when the
agreement shall apply, every other domestic obligation heretofore or foreign currency availed of by Hydro exceeded the foreign currency payable to it for that
hereafter incurred, whether or not any such provision as to payment is particular Progress Payment. In instances like these, NIA actually charged Hydro interest in
contained therein or made with respect thereto, shall be discharged upon foreign currency computed at the prevailing exchange rate and not at the fixed rate. NIA now
payment in any coin or currency which at the time of payment is legal insists that the exchange rate should be computed according to the fixed rate and not the
tender for public and private debts: Provided, That if the obligation was escalating rate it actually charged Hydro.
incurred prior to the enactment of this Act and required payment in a
particular kind of coin or currency other than Philippine currency, it shall
Suffice it to state that this flip-flopping stance of NIA of adopting and discarding positions to
be discharged in Philippine currency measured at the prevailing rates of
suit its convenience cannot be countenanced. A person who, by his deed or conduct has
exchange at the time the obligation was incurred, except in case of a loan
induced another to act in a particular manner, is barred from adopting an inconsistent position,
made in a foreign currency stipulated to be payable in the same currency
attitude or course of conduct that thereby causes loss or injury to another.43 Indeed, the
in which case the rate of exchange prevailing at the time of the stipulated
application of the principle of estoppel is proper and timely in heading off NIA's efforts at
date of payment shall prevail. All coin and currency, including Central
renouncing its previous acts to the prejudice of Hydro which had dealt with it honestly and in
Bank notes, heretofore and hereafter issued and declared by the
good faith.
Government of the Philippines shall be legal tender for all debts, public
and private.
. . . A principle of equity and natural justice, this is expressly adopted under Article
1431 of the Civil Code, and pronounced as one of the conclusive presumptions
SECTION 2. This Act shall take effect upon its approval. (Emphasis and italics
under Rule 131, Section 3(a) of the Rules of Court, as follows:
supplied)

Even assuming ex gratia argumenti that R.A. No. 529 is applicable, it is still erroneous for the
Court of Appeals to deny Hydro's claim because Section 1 of R.A. No. 529 states that only the
stipulation requiring payment in foreign currency is void, but not the obligation to make
payment. This can be gleaned from the provision that "every other domestic obligation
heretofore or hereafter incurred" shall be "discharged upon payment in any coin and currency
which at the time is legal tender for public and private debts." In Republic Resources and
Development Corporation v. Court of Appeals,38 it was held:
. . . it is clear from Section 1 of R.A. No. 529 that what is declared null and void is
the "provision contained in, or made with respect to, any domestic obligation to wit,
any obligation contracted in the Philippines which provision purports to give the
obligee the right to require payment in gold or in a particular kind of coin or currency
other than Philippine currency or in an amount of money of the Philippines
measured thereby" and not the contract or agreement which contains such
proscribed provision. (Emphasis supplied)
More succinctly, we held in San Buenaventura v. Court of Appeals39 that –
Whenever a party has, by his own declaration, act or omission, intentionally and
deliberately led another to believe a particular thing to be true, and to act upon such
a belief he cannot, in any litigation arising out of such declaration, act or omission,
be permitted to falsify it.
Petitioner, having performed affirmative acts upon which the respondents based
their subsequent actions, cannot thereafter refute his acts or renege on the effects of
the same, to the prejudice of the latter. To allow him to do so would be tantamount
to conferring upon him the liberty to limit his liability at his whim and caprice, which is
against the very principles of equity and natural justice…44
NIA is, therefore, estopped from invoking the contractual stipulation providing for the fixed rate
to justify a lower computation than that claimed by Hydro. It cannot be allowed to hide behind
the very provision which it itself continuously violated.45 An admission or representation is
rendered conclusive upon the person making it and cannot be denied or disproved as against
the person relying thereon.46 A party may not go back on his own acts and representations to
the prejudice of the other party who relied upon them.47

NIA was guilty of forum-shopping. Forum-shopping refers to the act of availing oneself of
It is to be noted under the foregoing provision that while an agreement to pay an
several judicial remedies in different courts, either simultaneously or successively,
obligation in a currency other than Philippine currency is null and void as contrary to
substantially founded on the same transaction and identical material facts and circumstances,
public policy, what the law specifically prohibits is payment in currency other than
raising basically the like issues either pending in, or already resolved by, some other court.48
legal tender but does not defeat a creditor's claim for payment. A contrary rule would
allow a person to profit or enrich himself inequitably at another's expense.
(Emphasis supplied) It has been characterized as an act of malpractice that is prohibited and condemned as trifling
with the courts and abusing their processes. It constitutes improper conduct which tends to
degrade the administration of justice. It has also been described as deplorable because it adds
It is thus erroneous for the Court of Appeals to disallow petitioner's claim for foreign currency
to the congestion of the heavily burdened dockets of the courts. 49 The test in determining the
differential because NIA's obligation should be converted to Philippine Pesos which was legal
presence of this pernicious practice is whether in the two or more cases pending, there is
tender at the time.40
identity of: (a) parties; (b) rights or causes of action; and (c) reliefs sought.50

The next issue to be resolved is whether or not Hydro's claim should be computed at the fixed
Applying the foregoing yardstick to the instant case, it is clear that NIA violated the prohibition
rate of exchange.
against forum-shopping. Besides filing CA-G.R. SP No. 44527 wherein the Court of Appeals'
decision is the subject of appeal in this proceeding, NIA previously filed CA-G.R. SP No.
37180 and G.R. No. 129169 which is a special civil action for certiorari. In all three cases, the
parties are invariably Hydro and NIA. In all three petitions, NIA raised practically the same
issues51 and in all of them, NIA's prayer was the same: to nullify the proceedings commenced
at the CIAC.

It must be pointed out in this regard that the first two petitions namely, CA-G.R. SP No. 37180
and G.R. No. 129169 are both original actions. Since NIA failed to file a petition for review on
certiorari under Rule 45 of the Rules of Court challenging the decision of the appellate court in
CA-G.R. SP No. 37180 dismissing its petition, it opted to file an original action for certiorari
under Rule 65 with this Court where the same was docketed as G.R. No. 129169. For its
failure to appeal the judgments in CA-G.R. SP No. 37180 and G.R. No. 129169, NIA is
necessarily bound by the effects of those decisions. The filing of CA-G.R. SP No. 44527,
which raises the issues already passed upon in both cases is a clear case of forum-shopping
which merits outright dismissal.

The issue of whether or not the Certification of Non-Forum Shopping is valid despite that it was
signed by NIA's counsel must be answered in the negative. Applicable is the ruling in
Mariveles Shipyard Corp. v. Court of Appeals, et al.:52

It is settled that the requirement in the Rules that the certification of non-forum
shopping should be executed and signed by the plaintiff or the principal means that
counsel cannot sign said certification unless clothed with special authority to do so.
The reason for this is that the plaintiff or principal knows better than anyone else
whether a petition has previously been filed involving the same case or substantially
the same issues. Hence, a certification signed by counsel alone is defective and
constitutes a valid cause for dismissal of the petition. In the case of natural persons,
the Rule requires the parties themselves to sign the certificate of non-forum
shopping. However, in the case of the corporations, the physical act of signing may
be performed, on behalf of the corporate entity, only by specifically authorized
individuals for the simple reason that corporations, as artificial persons, cannot
personally do the task themselves. . . It cannot be gainsaid that obedience to the
requirements of procedural rule[s] is needed if we are to expect fair results
therefrom. Utter disregard of the rules cannot justly be rationalized by harking on the
policy of liberal construction. (Emphasis and italics supplied)

In this connection, the lawyer must be "specifically authorized" in order to validly sign the
certification.53

In closing, we restate the rule that the courts will not interfere in matters which are addressed
to the sound discretion of government agencies entrusted with the regulation of activities
coming under the special technical knowledge and training of such agencies.54

An action by an administrative agency may be set aside by the judicial department only if there
is an error of law, abuse of power, lack of jurisdiction or grave abuse of discretion clearly
conflicting with the letter and spirit of the law.55 In the case at bar, there is no cogent reason to
depart from the general rule because the action of the CIAC conforms rather than conflicts with
the governing statutes and controlling case law on the matter.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP
No. 44527 dated October 29, 2002 and the Resolution dated September 24, 2003 are
REVERSED and SET ASIDE. The Decision of the Construction Industry Arbitration
Commission dated June 10, 1997 in CIAC Case No. 18-94 is REINSTATED.

SO ORDERED.
 Executive Vice President, to breed and maintain fighting cocks in his personal capacity at
Hacienda San Antonio.5
G.R. No. 152542 July 8, 2004
In 1997, the group of Antonio Monfort III, through force and intimidation, allegedly took
MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, as possession of the 4 Haciendas, the produce thereon and the motor vehicle and tractors, as
represented by MA. ANTONIA M. SALVATIERRA, petitioner, well as the fighting cocks of Ramon H. Monfort.
vs.
ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT,
In G.R. No. 155472:
ALFREDO B. MONFORT, CARLOS M. RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ,
ENCARNACION CECILIA R. PAYLADO, JOSE MARTIN M. RODRIGUEZ and COURT OF
APPEALS, respondents. On April 10, 1997, the Corporation, represented by its President, Ma. Antonia M. Salvatierra,
and Ramon H. Monfort, in his personal capacity, filed against the group of Antonio Monfort III,
a complaint6 for delivery of motor vehicle, tractors and 378 fighting cocks, with prayer for
G.R. No. 155472 July 8, 2004
injunction and damages, docketed as Civil Case No. 506-C, before the Regional Trial Court of
Negros Occidental, Branch 60.
ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT,
ALFREDO B. MONFORT, CARLOS M. RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ,
The group of Antonio Monfort III filed a motion to dismiss contending, inter alia, that Ma.
ENCARNACION CECILIA R. PAYLADO, JOSE MARTIN M. RODRIGUEZ, petitioners,
Antonia M. Salvatierra has no capacity to sue on behalf of the Corporation because the March
vs.
31, 1997 Board Resolution7 authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort
HON. COURT OF APPEALS, MONFORT HERMANOS AGRICULTURAL DEVELOPMENT
to represent the Corporation is void as the purported Members of the Board who passed the
CORPORATION, as represented by MA. ANTONIA M. SALVATIERRA, and RAMON H.
same were not validly elected officers of the Corporation.
MONFORT, respondents.

On May 4, 1998, the trial court denied the motion to dismiss.8 The group of Antonio Monfort III
filed a petition for certiorari with the Court of Appeals but the same was dismissed on June 7,
2002.9 The Special Former Thirteenth Division of the appellate court did not resolve the validity
of the March 31, 1997 Board Resolution and the election of the officers who signed it,
DECISION
ratiocinating that the determination of said question is within the competence of the trial court.

The motion for reconsideration filed by the group of Antonio Monfort III was denied.10 Hence,
they instituted a petition for review with this Court, docketed as G.R. No. 155472.
YNARES-SANTIAGO, J.:
In G.R. No. 152542:
Before the Court are consolidated petitions for review of the decisions of the Court of Appeals
in the complaints for forcible entry and replevin filed by Monfort Hermanos Agricultural
On April 21, 1997, Ma. Antonia M. Salvatierra filed on behalf of the Corporation a complaint for
Development Corporation (Corporation) and Ramon H. Monfort against the children, nephews,
forcible entry, preliminary mandatory injunction with temporary restraining order and damages
and nieces of its original incorporators (collectively known as "the group of Antonio Monfort
against the group of Antonio Monfort III, before the Municipal Trial Court (MTC) of Cadiz City. 11
III").
It contended that the latter through force and intimidation, unlawfully took possession of the 4
Haciendas and deprived the Corporation of the produce thereon.
The petition in G.R. No. 152542, assails the October 5, 2001 Decision1 of the Special Tenth
Division of the Court of Appeals in CA-G.R. SP No. 53652, which ruled that Ma. Antonia M.
In their answer,12 the group of Antonio Monfort III alleged that they are possessing and
Salvatierra has no legal capacity to represent the Corporation in the forcible entry case
controlling the Haciendas and harvesting the produce therein on behalf of the corporation and
docketed as Civil Case No. 534-C, before the Municipal Trial Court of Cadiz City. On the other
not for themselves. They likewise raised the affirmative defense of lack of legal capacity of Ma.
hand, the petition in G.R. No. 155472, seeks to set aside the June 7, 2002 Decision2 rendered
Antonia M. Salvatierra to sue on behalf of the Corporation.
by the Special Former Thirteenth Division of the Court of Appeals in CA-G.R. SP No. 49251,
where it refused to address, on jurisdictional considerations, the issue of Ma. Antonia M.
Salvatierra's capacity to file a complaint for replevin on behalf of the Corporation in Civil Case On February 18, 1998, the MTC of Cadiz City rendered a decision dismissing the complaint.13
No. 506-C before the Regional Trial Court of Cadiz City, Branch 60. On appeal, the Regional Trial Court of Negros Occidental, Branch 60, reversed the Decision of
the MTCC and remanded the case for further proceedings.14
Monfort Hermanos Agricultural Development Corporation, a domestic private corporation, is
the registered owner of a farm, fishpond and sugar cane plantation known as Haciendas San Aggrieved, the group of Antonio Monfort III filed a petition for review with the Court of Appeals.
Antonio II, Marapara, Pinanoag and Tinampa-an, all situated in Cadiz City.3 It also owns one On October 5, 2001, the Special Tenth Division set aside the judgment of the RTC and
unit of motor vehicle and two units of tractors.4 The same allowed Ramon H. Monfort, its dismissed the complaint for forcible entry for lack of capacity of Ma. Antonia M. Salvatierra to
represent the Corporation.15 The motion for reconsideration filed by the latter was denied by Antonia M. Salvatierra, President; Ramon H. Monfort, Executive Vice President; Directors Paul
the appellate court.16 M. Monfort, Yvete M. Benedicto and Jaqueline M. Yusay; and Ester S. Monfort, Secretary.19
However, the names of the last four (4) signatories to the said Board Resolution do not appear
in the 1996 General Information Sheet submitted by the Corporation with the SEC. Under said
Unfazed, the Corporation filed a petition for review with this Court, docketed as G.R. No.
General Information Sheet the composition of the Board is as follows:
152542 which was consolidated with G.R. No. 155472 per Resolution dated January 21,
2004.17
1. Ma. Antonia M. Salvatierra (Chairman);
2. Ramon H. Monfort (Member);
The focal issue in these consolidated petitions is whether or not Ma. Antonia M. Salvatierra
3. Antonio H. Monfort, Jr., (Member);
has the legal capacity to sue on behalf of the Corporation.
4. Joaquin H. Monfort (Member);
5. Francisco H. Monfort (Member) and
The group of Antonio Monfort III claims that the March 31, 1997 Board Resolution authorizing 6. Jesus Antonio H. Monfort (Member).20
Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent the Corporation is void
because the purported Members of the Board who passed the same were not validly elected
There is thus a doubt as to whether Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay
officers of the Corporation.
and Ester S. Monfort, were indeed duly elected Members of the Board legally constituted to
bring suit in behalf of the Corporation.21
A corporation has no power except those expressly conferred on it by the Corporation Code
and those that are implied or incidental to its existence. In turn, a corporation exercises said
In Premium Marble Resources, Inc. v. Court of Appeals,22 the Court was confronted with the
powers through its board of directors and/or its duly authorized officers and agents. Thus, it
similar issue of capacity to sue of the officers of the corporation who filed a complaint for
has been observed that the power of a corporation to sue and be sued in any court is lodged
damages. In the said case, we sustained the dismissal of the complaint because it was not
with the board of directors that exercises its corporate powers. In turn, physical acts of the
established that the Members of the Board who authorized the filing of the complaint were the
corporation, like the signing of documents, can be performed only by natural persons duly
lawfully elected officers of the corporation. Thus –
authorized for the purpose by corporate by-laws or by a specific act of the board of directors.18

Corollary thereto, corporations are required under Section 26 of the Corporation Code to
submit to the SEC within thirty (30) days after the election the names, nationalities and
residences of the elected directors, trustees and officers of the Corporation. In order to keep
stockholders and the public transacting business with domestic corporations properly informed
of their organizational operational status, the SEC issued the following rules:
xxx xxx xxx
2. A General Information Sheet shall be filed with this Commission within thirty (30)
days following the date of the annual stockholders' meeting. No extension of said
period shall be allowed, except for very justifiable reasons stated in writing by the
President, Secretary, Treasurer or other officers, upon which the Commission may
grant an extension for not more than ten (10) days.
2.A. Should a director, trustee or officer die, resign or in any manner,
cease to hold office, the corporation shall report such fact to the
Commission with fifteen (15) days after such death, resignation or
cessation of office.
3. If for any justifiable reason, the annual meeting has to be postponed, the
company should notify the Commission in writing of such postponement.
The General Information Sheet shall state, among others, the names of the
elected directors and officers, together with their corresponding position
title… (Emphasis supplied)
In the instant case, the six signatories to the March 31, 1997 Board Resolution authorizing Ma.
Antonia M. Salvatierra and/or Ramon H. Monfort to represent the Corporation, were: Ma.
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 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 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 dated November 6, 1979
with the following as Directors: Mario C. Zavalla, Pedro C. Celso, Oscar B. Gan,
Lionel Pengson, and Jose Ma. Silva.
However, it appears from the general information sheet and the Certification issued
by the SEC on August 19, 1986 that as of March 4, 1981, the officers and members
of the board of directors of the Premium Marble Resources, Inc. were:
Alberto C. Nograles — President/Director
Fernando D. Hilario — Vice President/Director
Augusto I. Galace — Treasurer
Jose L.R. Reyes — Secretary/Director
Pido E. Aguilar — Director
Saturnino G. Belen, Jr. — Chairman of the Board.
 While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly
elected officers for the year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico
and Rodolfo Millare, petitioner failed to show proof that this election was reported to
the SEC. In fact, the last entry in their General Information Sheet with the SEC, as of
1986 appears to be the set of officers elected in March 1981.
We agree with the finding of public respondent Court of Appeals, that "in the
absence of any board resolution from its board of directors the [sic] authority to act
for and in behalf of the corporation, the present action must necessarily fail. The
power of the corporation to sue and be sued in any court is lodged with the board of
directors that exercises its corporate powers. Thus, the issue of authority and the
invalidity of plaintiff-appellant's subscription which is still pending, is a matter that is
also addressed, considering the premises, to the sound judgment of the Securities &
Exchange Commission."
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.
xxx"
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.
The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa,
et al., are the incumbent officers of Premium has not been fully substantiated. In the
absence of an authority from the board of directors, no person, not even the officers
of the corporation, can validly bind the corporation.
In the case at bar, the fact that four of the six Members of the Board listed in the 1996 General
Information Sheet23 are already dead24 at the time the March 31, 1997 Board Resolution was
issued, does not automatically make the four signatories (i.e., Paul M. Monfort, Yvete M.
Benedicto, Jaqueline M. Yusay and Ester S. Monfort) to the said Board Resolution (whose
name do not appear in the 1996 General Information Sheet) as among the incumbent
Members of the Board. This is because it was not established that they were duly elected to
replace the said deceased Board Members.
To correct the alleged error in the General Information Sheet, the retained accountant of the
Corporation informed the SEC in its November 11, 1998 letter that the non-inclusion of the
lawfully elected directors in the 1996 General Information Sheet was attributable to its
oversight and not the fault of the Corporation.25 This belated attempt, however, did not erase
the doubt as to whether an election was indeed held. As previously stated, a corporation is
mandated to inform the SEC of the names and the change in the composition of its officers
and board of directors within 30 days after election if one was held, or 15 days after the death,
resignation or cessation of office of any of its director, trustee or officer if any of them died,
resigned or in any manner, ceased to hold office. This, the Corporation failed to do. The
alleged election of the directors and officers who signed the March 31, 1997 Board Resolution
was held on October 16, 1996, but the SEC was informed thereof more than two years later, or
on November 11, 1998. The 4 Directors appearing in the 1996 General Information Sheet died
between the years 1984 – 1987,26 but the records do not show if such demise was reported to
the SEC.
What further militates against the purported election of those who signed the March 31, 1997
Board Resolution was the belated submission of the alleged Minutes of the October 16, 1996
meeting where the questioned officers were elected. The issue of legal capacity of Ma. Antonia
M. Salvatierra was raised before the lower court by the group of Antonio Monfort III as early as
1997, but the Minutes of said October 16, 1996 meeting was presented by the Corporation
only in its September 29, 1999 Comment before the Court of Appeals.27 Moreover, the
Corporation failed to prove that the same October 16, 1996 Minutes was submitted to the
SEC. In fact, the 1997 General Information Sheet28 submitted by the Corporation does not
reflect the names of the 4 Directors claimed to be elected on October 16, 1996.
Considering the foregoing, we find that Ma. Antonia M. Salvatierra failed to prove that four of
those who authorized her to represent the Corporation were the lawfully elected Members of
the Board of the Corporation. As such, they cannot confer valid authority for her to sue on
behalf of the corporation.
The Court notes that the complaint in Civil Case No. 506-C, for replevin before the Regional
Trial Court of Negros Occidental, Branch 60, has 2 causes of action, i.e., unlawful detention of
the Corporation's motor vehicle and tractors, and the unlawful detention of the of 387 fighting
cocks of Ramon H. Monfort. Since Ramon sought redress of the latter cause of action in his
personal capacity, the dismissal of the complaint for lack of capacity to sue on behalf of the
corporation should be limited only to the corporation's cause of action for delivery of motor
vehicle and tractors. In view, however, of the demise of Ramon on June 25, 1999, 29
substitution by his heirs is proper.
WHEREFORE, in view of all the foregoing, the petition in G.R. No. 152542 is DENIED. The
October 5, 2001 Decision of the Special Tenth Division of the Court of Appeals in CA-G.R. SP
No. 53652, which set aside the August 14, 1998 Decision of the Regional Trial Court of Negros
Occidental, Branch 60 in Civil Case No. 822, is AFFIRMED.
In G.R. No. 155472, the petition is GRANTED and the June 7, 2002 Decision rendered by the
Special Former Thirteenth Division of the Court of Appeals in CA-G.R. SP No. 49251,
dismissing the petition filed by the group of Antonio Monfort III, is REVERSED and SET
ASIDE.
The complaint for forcible entry docketed as Civil Case No. 822 before the Municipal Trial
Court of Cadiz City is DISMISSED. In Civil Case No. 506-C with the Regional Trial Court of
Negros Occidental, Branch 60, the action for delivery of personal property filed by Monfort
Hermanos Agricultural Development Corporation is likewise DISMISSED. With respect to the
action filed by Ramon H. Monfort for the delivery of 387 fighting cocks, the Regional Trial Court
of Negros Occidental, Branch 60, is ordered to effect the corresponding substitution of parties.
No costs.
SO ORDERED.

G.R. No. 146667 January 23, 2007
JOHN F. McLEOD, Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (First Division), FILIPINAS SYNTHETIC
FIBER CORPORATION (FILSYN), FAR EASTERN TEXTILE MILLS, INC., STA. ROSA
TEXTILES, INC., (PEGGY MILLS, INC.), PATRICIO L. LIM, and ERIC HU, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review1 to set aside the Decision2 dated 15 June 2000 and the Resolution3
dated 27 December 2000 of the Court of Appeals in CA-G.R. SP No. 55130. The Court of
Appeals affirmed with modification the 29 December 1998 Decision 4 of the National Labor
Relations Commission (NLRC) in NLRC NCR 02-00949-95.
The Facts
The facts, as summarized by the Labor Arbiter and adopted by the NLRC and the Court of
Appeals, are as follows:
On February 2, 1995, John F. McLeod filed a complaint for retirement benefits, vacation and
sick leave benefits, non-payment of unused airline tickets, holiday pay, underpayment of salary
and 13th month pay, moral and exemplary damages, attorney’s fees plus interest against
Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc.,
Patricio Lim and Eric Hu.
In his Position Paper, complainant alleged that he is an expert in textile manufacturing
process; that as early as 1956 he was hired as the Assistant Spinning Manager of Universal
Textiles, Inc. (UTEX); that he was promoted to Senior Manager and worked for UTEX till 1980
under its President, respondent Patricio Lim; that in 1978 Patricio Lim formed Peggy Mills, Inc.
with respondent Filsyn having controlling interest; that complainant was absorbed by Peggy
Mills as its Vice President and Plant Manager of the plant at Sta. Rosa, Laguna; that at the
time of his retirement complainant was receiving P60,000.00 monthly with vacation and sick
leave benefits; 13th month pay, holiday pay and two round trip business class tickets on a
Manila-London-Manila itinerary every three years which is convertible to cas[h] if unused; that
in January 1986, respondents failed to pay vacation and leave credits and requested
complainant to wait as it was short of funds but the same remain unpaid at present; that
complainant is entitled to such benefit as per CBA provision (Annex "A"); that respondents
likewise failed to pay complainant’s holiday pay up to the present; that complainant is entitled
to such benefits as per CBA provision (Annex "B"); that in 1989 the plant union staged a strike
and in 1993 was found guilty of staging an illegal strike; that from 1989 to 1992 complainant
was entitled to 4 round trip business class plane tickets on a Manila-London-Manila itinerary
but this benefit not (sic) its monetary equivalent was not given; that on August 1990 the
respondents reduced complainant’s monthly salary of P60,000.00 by P9,900.00 till November
1993 or a period of 39 months; that in 1991 Filsyn sold Peggy Mills, Inc. to Far Eastern Textile
Mills, Inc. as per agreement (Annex "D") and this was renamed as Sta. Rosa Textile with
Patricio Lim as Chairman and President; that complainant worked for Sta. Rosa until
November 30 that from time to time the owners of Far Eastern consulted with complainant on
technical aspects of reoperation of the plant as per correspondence (Annexes "D-1" and "D-
2"); that when complainant reached and applied retirement age at the end of 1993, he was
only given a reduced 13th month pay of P44,183.63, leaving a balance of P15,816.87; that
thereafter the owners of Far Eastern Textiles decided for cessation of operations of Sta. Rosa
Textiles; that on two occasions, complainant wrote letters (Annexes "E-1" to "E-2") to Patricio
Lim requesting for his retirement and other benefits; that in the last quarter of 1994
respondents offered complainant compromise settlement of only P300,000.00 which
complainant rejected; that again complainant wrote a letter (Annex "F") reiterating his demand
for full payment of all benefits and to no avail, hence this complaint; and that he is entitled to all
his money claims pursuant to law.
On the other hand, respondents in their Position Paper alleged that complainant was the
former Vice-President and Plant Manager of Peggy Mills, Inc.; that he was hired in June 1980
and Peggy Mills closed operations due to irreversible losses at the end of July 1992 but the
corporation still exists at present; that its assets were acquired by Sta. Rosa Textile
Corporation which was established in April 1992 but still remains non-operational at present;
that complainant was hired as consultant by Sta. Rosa Textile in November 1992 but he
resigned on November 30, 1993; that Filsyn and Far Eastern Textiles are separate legal
entities and have no employer relationship with complainant; that respondent Patricio Lim is
the President and Board Chairman of Sta. Rosa Textile Corporation; that respondent Eric Hu
is a Taiwanese and is Director of Sta. Rosa Textiles, Inc.; that complainant has no cause of
action against Filsyn, Far Eastern Textile Ltd., Sta. Rosa Textile Corporation and Eric Hu; that
Sta. Rosa only acquired the assets and not the liabilities of Peggy Mills, Inc.; that Patricio Lim
was only impleaded as Board Chairman of Sta. Rosa Textile and not as private individual; that
while complainant was Vice President and Plant Manager of Peggy Mills, the union staged a
strike up to July 1992 resulting in closure of operations due to irreversible losses as per Notice
(Annex "1"); that complainant was relied upon to settle the labor problem but due to his lack of
attention and absence the strike continued resulting in closure of the company; and losses to
Sta. Rosa which acquired its assets as per their financial statements (Annexes "2" and "3");
that the attendance records of complainant from April 1992 to November 1993 (Annexes "4"
and "5") show that he was either absent or worked at most two hours a day; that Sta. Rosa
and Peggy Mills are interposing counterclaims for damages in the total amount of P36,757.00
against complainant; that complainant’s monthly salary at Peggy Mills was P50,495.00 and not
P60,000.00; that Peggy Mills, does not have a retirement program; that whatever amount
complainant is entitled should be offset with the counterclaims; that complainant worked only
for 12 years from 1980 to 1992; that complainant was only hired as a consultant and not an
employee by Sta. Rosa Textile; that complainant’s attendance record of absence and two
hours daily work during the period of the strike wipes out any vacation/sick leave he may have
accumulated; that there is no basis for complainant’s claim of two (2) business class airline
tickets; that complainant’s pay already included the holiday pay; that he is entitled to holiday
pay as consultant by Sta. Rosa; that he has waived this benefit in his 12 years of work with
Peggy Mills; that he is not entitled to 13th month pay as consultant; and that he is not entitled
to moral and exemplary damages and attorney’s fees.
In his Reply, complainant alleged that all respondents being one and the same entities are
solidarily liable for all salaries and benefits and complainant is entitled to; that all respondents
have the same address at 12/F B.A. Lepanto Building, Makati City; that their counsel holds
office in the same address; that all respondents have the same offices and key personnel such
as Patricio Lim and Eric Hu; that respondents’ Position Paper is verified by Marialen C. Corpuz
who knows all the corporate officers of all respondents; that the veil of corporate fiction may be
pierced if it is used as a shield to perpetuate fraud and confuse legitimate issues; that
complainant never accepted the change in his position from Vice-President and Plant Manger
to consultant and it is incumbent upon respondents to prove that he was only a consultant; that
the Deed of Dation in Payment with Lease (Annex "C") proves that Sta. Rosa took over the
assets of Peggy Mills as early as June 15, 1992 and not 1995 as alleged by respondents; that 6/80 - 11/30/93 = 14 years
complainant never resigned from his job but applied for retirement as per letters (Annexes "E-
1", "E-2" and "F"); that documents "G", "H" and "I" show that Eric Hu is a top official of Peggy
P60,000 x 14.0 mos. …………………… P840,000.00
Mills that the closure of Peggy Mills cannot be the fault of complainant; that the strike was
staged on the issue of CBA negotiations which is not part of the usual duties and
responsibilities as Plant Manager; that complainant is a British national and is prohibited by Vacation and Sick Leave (3 yrs.)
law in engaging in union activities; that as per Resolution (Annex "3") of the NLRC in the
proper case, complainant testified in favor of management; that the alleged attendance record
P2,000.00 x 22 days x 3 yrs. …………… 132,000.00
of complainant was lifted from the logbook of a security agency and is hearsay evidence; that
in the other attendance record it shows that complainant was reporting daily and even on
Saturdays; that his limited hours was due to the strike and cessation of operations; that as Underpayment of Salaries (3 yrs.)
plant manager complainant was on call 24 hours a day; that respondents must pay
complainant the unpaid portion of his salaries and his retirement benefits that cash voucher
No. 17015 (Annex "K") shows that complainant drew the monthly salary of P60,000.00 which P60,000 - P50,495 = P9,505
was reduced to P50,495.00 in August 1990 and therefore without the consent of complainant;
that complainant was assured that he will be paid the deduction as soon as the company P 9,505 x 36.0 mos. …………………... 342,180.00
improved its financial standing but this assurance was never fulfilled; that Patricio Lim
promised complainant his retirement pay as per the latter’s letters (Annexes "E-1", "E-2" and
"F"); that the law itself provides for retirement benefits; that Patricio Lim by way of Holiday Pay (3 yrs.)
Memorandum (Annex "M") approved vacation and sick leave benefits of 22 days per year
effective 1986; that Peggy Mills required monthly paid employees to sign an acknowledgement P2,000 x 30 days ………………………. 60,000.00
that their monthly compensation includes holiday pay; that complainant was not made to sign
this undertaking precisely because he is entitled to holiday pay over and above his monthly
pay; that the company paid for complainant’s two (2) round trip tickets to London in 1983 and Underpayment of 13th month pay (1993) ……... 15,816.87
1986 as reflected in the complainant’s passport (Annex "N"); that respondents claim that
complainant is not entitled to 13th month pay but paid in 1993 and all the past 13 years; that Moral Damages ……………………………….. 3,000,000.00
complainant is entitled to moral and exemplary damages and attorney’s fees; that all doubts
must be resolved in favor of complainant; and that complainant reserved the right to file perjury
cases against those concerned. Exemplary Damages ………………………….. 1,000,000.00

In their Reply, respondents alleged that except for Peggy Mills, the other respondents are not 10% Attorney’s Fees …………………………. 138,999.68
proper persons in interest due to the lack of employer-employee relationship between them
and complainant; that undersigned counsel does not represent Peggy Mills, Inc. TOTAL P5,528,996.55

In a separate Position Paper, respondent Peggy Mills alleged that complainant was hired on Unused Airline Tickets (3 yrs.)
February 10, 1991 as per Board Minutes (Annex "A"); that on August 19, 1987, the workers
staged an illegal strike causing cessation of operations on July 21, 1992; that respondent filed
a Notice of Closure with the DOLE (Annex "B"); that all employees were given separation pay (To be converted in Peso upon payment)
except for complainant whose task was extended to December 31, 1992 to wind up the affairs
of the company as per vouchers (Annexes "C" and "C-1"); that respondent offered complainant $2,450.00 x 3.0 [yrs.]..……………… $7,350.00
his retirement benefits under RA 7641 but complainant refused; that the regular salaries of
complainant from closure up to December 31, 1992 have offset whatever vacation and sick
leaves he accumulated; that his claim for unused plane tickets from 1989 to 1992 has no SO ORDERED.6
policy basis, the company’s formula of employees monthly rate x 314 days over 12 months
already included holiday pay; that complainant’s unpaid portion of the 13th month pay in 1993 Filipinas Synthetic Fiber Corporation (Filsyn), Far Eastern Textile Mills, Inc. (FETMI), Sta.
has no basis because he was only an employee up to December 31, 1992; that the 13th Rosa Textiles, Inc. (SRTI), Patricio L. Lim (Patricio), and Eric Hu appealed to the NLRC. The
month pay was based on his last salary; and that complainant is not entitled to damages.5 NLRC rendered its decision on 29 December 1998, thus:

On 3 April 1998, the Labor Arbiter rendered his decision with the following dispositive portion: WHEREFORE, the Decision dated 3 April 1998 is hereby REVERSED and SET ASIDE and a
new one is entered ORDERING respondent Peggy Mills, Inc. to pay complainant his
WHEREFORE, premises considered, We hold all respondents as jointly and solidarily liable for retirement pay equivalent to 22.5 days for every year of service for his twelve (12) years of
complainant’s money claims as adjudicated above and computed below as follows: service from 1980 to 1992 based on a salary rate of P50,495.00 a month.

Retirement Benefits (one month salary for every year of service) All other claims are DISMISSED for lack of merit.
SO ORDERED.7
John F. McLeod (McLeod) filed a motion for reconsideration which the NLRC denied in its
Resolution of 30 June 1999.8 McLeod thus filed a petition for certiorari before the Court of
Appeals assailing the decision and resolution of the NLRC.9
The Ruling of the Court of Appeals
On 15 June 2000, the Court of Appeals rendered judgment as follows:
WHEREFORE, the decision dated December 29, 1998 of the NLRC is hereby AFFIRMED with
the MODIFICATION that respondent Patricio Lim is jointly and solidarily liable with Peggy
Mills, Inc., to pay the following amounts to petitioner John F. McLeod:
1. retirement pay equivalent to 22.5 days for every year of service for his twelve (12)
years of service from 1980 to 1992 based on a salary rate of P50,495, a month;
2. moral damages in the amount of one hundred thousand (P100,000.00) Pesos;
3. exemplary damages in the amount of fifty thousand (P50,000.00) Pesos; and
4. attorney’s fees equivalent to 10% of the total award.
No costs is awarded.
SO ORDERED.10
The Court of Appeals rejected McLeod’s theory that all respondent corporations are the same
corporate entity which should be held solidarily liable for the payment of his monetary claims.
The Court of Appeals ruled that the fact that (1) all respondent corporations have the same
address; (2) all were represented by the same counsel, Atty. Isidro S. Escano; (3) Atty. Escano
holds office at respondent corporations’ address; and (4) all respondent corporations have
common officers and key personnel, would not justify the application of the doctrine of piercing
the veil of corporate fiction.
The Court of Appeals held that there should be clear and convincing evidence that SRTI,
FETMI, and Filsyn were being used as alter ego, adjunct or business conduit for the sole
benefit of Peggy Mills, Inc. (PMI), otherwise, said corporations should be treated as distinct
and separate from each other.
The Court of Appeals pointed out that the Articles of Incorporation of PMI show that it has six
incorporators, namely, Patricio, Jose Yulo, Jr., Carlos Palanca, Jr., Cesar R. Concio, Jr., E. A.
Picasso, and Walter Euyang. On the other hand, the Articles of Incorporation of Filsyn show
that it has 10 incorporators, namely, Jesus Y. Yujuico, Carlos Palanca, Jr., Patricio, Ang Beng
Uh, Ramon A. Yulo, Honorio Poblador, Jr., Cipriano Azada, Manuel Tomacruz, Ismael
Maningas, and Benigno Zialcita, Jr.
The Court of Appeals pointed out that PMI and Filsyn have only two interlocking incorporators
and directors, namely, Patricio and Carlos Palanca, Jr.
Reiterating the ruling of this Court in Laguio v. NLRC,11 the Court of Appeals held that mere
substantial identity of the incorporators of two corporations does not necessarily imply fraud,
nor warrant the piercing of the veil of corporate fiction.
The Court of Appeals also pointed out that when SRTI and PMI executed the Dation in
Payment with Lease, it was clear that SRTI did not assume the liabilities PMI incurred before
the execution of the contract.
The Court of Appeals held that McLeod failed to substantiate his claim that all respondent
corporations should be treated as one corporate
entity. The Court of Appeals thus upheld the NLRC’s finding that no employer-employee
relationship existed between McLeod and respondent corporations except PMI.
The Court of Appeals ruled that Eric Hu, as an officer of PMI, should be exonerated from any
liability, there being no proof of malice or bad faith on his part. The Court of Appeals, however,
ruled that McLeod was entitled to recover from PMI and Patricio, the company’s Chairman and
President.
The Court of Appeals pointed out that Patricio deliberately and maliciously evaded PMI’s
financial obligation to McLeod. The Court of Appeals stated that, on several occasions, despite
his approval, Patricio refused and ignored to pay McLeod’s retirement benefits. The Court of
Appeals stated that the delay lasted for one year prompting McLeod to initiate legal action. The
Court of Appeals stated that although PMI offered to pay McLeod his retirement benefits, this
offer for P300,000 was still below the "floor limits" provided by law. The Court of Appeals held
that an employee could demand payment of retirement benefits as a matter of right.
The Court of Appeals stated that considering that PMI was no longer in operation, its "officer
should be held liable for acting on behalf of the corporation."
The Court of Appeals also ruled that since PMI did not have a retirement program providing for
retirement benefits of its employees, Article 287 of the Labor Code must be followed. The
Court of Appeals thus upheld the NLRC’s finding that McLeod was entitled to retirement pay
equivalent to 22.5 days for every year of service from 1980 to 1992 based on a salary rate of
P50,495 a month.
The Court of Appeals held that McLeod was not entitled to payment of vacation, sick leave and
holiday pay because as Vice President and Plant Manager, McLeod is a managerial employee
who, under Article 82 of the Labor Code, is not entitled to these benefits.
The Court of Appeals stated that for McLeod to be entitled to payment of service incentive
leave and holidays, there must be an agreement to that effect between him and his employer.
Moreover, the Court of Appeals rejected McLeod’s argument that since PMI paid for his two
round-trip tickets Manila-London in 1983 and 1986, he was also "entitled to unused airline
tickets." The Court of Appeals stated that the fact that PMI granted McLeod "free transport to
and from Manila and London for the year 1983 and 1986 does not ipso facto characterize it as
regular that would establish a prevailing company policy."
The Court of Appeals also denied McLeod’s claims for underpayment of salaries and his 13th
month pay for the year 1994. The Court of Appeals upheld the NLRC’s ruling that it could be
deduced from McLeod’s own narration of facts that he agreed to the reduction of his
compensation from P60,000 to P50,495 in August 1990 to November 1993.
The Court of Appeals found the award of moral damages for P50,000 in order because of the
"stubborn refusal" of PMI and Patricio to respect McLeod’s valid claims.
The Court of Appeals also ruled that attorney’s fees equivalent to 10% of the total award
should be given to McLeod under Article 2208, paragraph 2 of the Civil Code.12
Hence, this petition.
The Issues
McLeod submits the following issues for our consideration:
1. Whether the challenged Decision and Resolution of the 14th Division of the Court
of Appeals promulgated on 15 June 2000 and 27 December 2000, respectively, in
CA-G.R. SP No. 55130 are in accord with law and jurisprudence;
2. Whether an employer-employee relationship exists between the private
respondents and the petitioner for purposes of determining employer liability to the
petitioner;
3. Whether the private respondents may avoid their financial obligations to the
petitioner by invoking the veil of corporate fiction;
4. Whether petitioner is entitled to the relief he seeks against the private
respondents;
5. Whether the ruling of [this] Court in Special Police and Watchman Association
(PLUM) Federation v. National Labor Relations Commission cited by the Office of
the Solicitor General is applicable to the case of petitioner; and
6. Whether the appeal taken by the private respondents from the Decision of the
labor arbiter meets the mandatory requirements recited in the Labor Code of the
Philippines, as amended.13
The Court’s Ruling
The petition must fail.
McLeod asserts that the Court of Appeals should not have upheld the NLRC’s findings that he
was a managerial employee of PMI from 20 June 1980 to 31 December 1992, and then a
consultant of SRTI up to 30 November 1993. McLeod asserts that if only for this "brazen
assumption," the Court of Appeals should not have sustained the NLRC’s ruling that his cause
of action was only against PMI.
These assertions do not deserve serious consideration.
Records disclose that McLeod was an employee only of PMI.14 PMI hired McLeod as its acting
Vice President and General Manager on 20 June 1980.15 PMI confirmed McLeod’s
appointment as Vice President/Plant Manager in the Special Meeting of its Board of Directors
on 10 February 1981.16 McLeod himself testified during the hearing before the Labor Arbiter
that his "regular employment" was with PMI.17
When PMI’s rank-and-file employees staged a strike on 19 August 1989 to July 1992, PMI
incurred serious business losses.18 This prompted PMI to stop permanently plant operations
and to send a notice of closure to the Department of Labor and Employment on 21 July 1992.19
PMI informed its employees, including McLeod, of the closure.20 PMI paid its employees,
including managerial employees, except McLeod, their unpaid wages, sick leave, vacation
leave, prorated 13th month pay, and separation pay. Under the compromise agreement
between PMI and its employees, the employer-employee relationship between them ended on
25 November 1992.21
Records also disclose that PMI extended McLeod’s service up to 31 December 1992 "to wind
up some affairs" of the company.22 McLeod testified on cross-examination that he received his
last salary from PMI in December 1992.23
It is thus clear that McLeod was a managerial employee of PMI from 20 June 1980 to 31
December 1992.
However, McLeod claims that after FETMI purchased PMI in January 1993, he "continued to
work at the same plant with the same responsibilities" until 30 November 1993. McLeod claims
that FETMI merely renamed PMI as SRTI. McLeod asserts that it was for this reason that
when he reached the retirement age in 1993, he asked all the respondents for the payment of
his benefits.24
These assertions deserve scant consideration.
What took place between PMI and SRTI was dation in payment with lease. Pertinent portions
of the contract that PMI and SRTI executed on 15 June 1992 read:
WHEREAS, PMI is indebted to the Development Bank of the Philippines ("DBP") and as
security for such debts (the "Obligations") has mortgaged its real properties covered by TCT
Nos. T-38647, T-37136, and T-37135, together with all machineries and improvements found
thereat, a complete listing of which is hereto attached as Annex "A" (the "Assets");
WHEREAS, by virtue of an inter-governmental agency arrangement, DBP transferred the
Obligations, including the Assets, to the Asset Privatization Trust ("APT") and the latter has
received payment for the Obligations from PMI, under APT’s Direct Debt Buy-Out ("DDBO")
program thereby causing APT to completely discharge and cancel the mortgage in the Assets
and to release the titles of the Assets back to PMI;
WHEREAS, PMI obtained cash advances from SRTC in the total amount of TWO HUNDRED
TEN MILLION PESOS (P210,000,000.00) (the "Advances") to enable PMI to consummate the
DDBO with APT, with SRTC subrogating APT as PMI’s creditor thereby;
WHEREAS, in payment to SRTC for PMI’s liability, PMI has agreed to transfer all its rights, title
and interests in the Assets by way of a dation in payment to SRTC, provided that simultaneous
with the dation in payment, SRTC shall grant unto PMI the right to lease the Assets under
terms and conditions stated hereunder;
xxxx
In the present case, there is no showing that the subject dation in payment involved any
corporate merger or consolidation. Neither is there any showing of those indicative factors that
SRTI is a mere instrumentality of PMI.
Moreover, SRTI did not expressly or impliedly agree to assume any of PMI’s debts. Pertinent
portions of the subject Deed of Dation in Payment with Lease provide, thus:

NOW THEREFORE, for and in consideration of the foregoing premises, and of the terms and 2. WARRANTIES AND REPRESENTATIONS. PMI hereby warrants and represents the
conditions hereinafter set forth, the parties hereby agree as follows: following:

1. CESSION. In consideration of the amount of TWO HUNDRED TEN MILLION PESOS xxxx
(P210,000,000.00), PMI hereby cedes, conveys and transfers to SRTC all of its rights, title and
interest in and to the Assets by way of a dation in payment.25 (Emphasis supplied)
(e) PMI shall warrant that it will hold SRTC or its assigns, free and harmless from any liability
for claims of PMI’s creditors, laborers, and workers and for physical injury or injury to property
As a rule, a corporation that purchases the assets of another will not be liable for the debts of arising from PMI’s custody, possession, care, repairs, maintenance, use or operation of the
the selling corporation, provided the former acted in good faith and paid adequate Assets except ordinary wear and tear;28 (Emphasis supplied)
consideration for such assets, except when any of the following circumstances is present: (1)
where the purchaser expressly or impliedly agrees to assume the debts, (2) where the
Also, McLeod did not present any evidence to show the alleged renaming of "Peggy Mills, Inc."
transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing
to "Sta. Rosa Textiles, Inc."
corporation is merely a continuation of the selling corporation, and (4) where the selling
corporation fraudulently enters into the transaction to escape liability for those debts.26
Hence, it is not correct for McLeod to treat PMI and SRTI as the same entity.
None of the foregoing exceptions is present in this case.
Respondent corporations assert that SRTI hired McLeod as consultant after PMI stopped
operations.29 On the other hand, McLeod asserts that he was respondent corporations’
Here, PMI transferred its assets to SRTI to settle its obligation to SRTI in the sum of
employee from 1980 to 30 November 1993.30 However, McLeod failed to present any proof of
P210,000,000. We are not convinced that PMI fraudulently transferred these assets to escape
employer-employee relationship between him and Filsyn, SRTI, or FETMI. McLeod testified,
its liability for any of its debts. PMI had already paid its employees, except McLeod, their
thus:
money claims.

ATTY. ESCANO:
There was also no merger or consolidation of PMI and SRTI.

Do you have any employment contract with Far Eastern Textile?

Consolidation is the union of two or more existing corporations to form a new corporation
called the consolidated corporation. It is a combination by agreement between two or more
corporations by which their rights, franchises, and property are united and become those of a WITNESS:
single, new corporation, composed generally, although not necessarily, of the stockholders of
the original corporations.
It is my belief up the present time.

Merger, on the other hand, is a union whereby one corporation absorbs one or more existing
ATTY. AVECILLA:
corporations, and the absorbing corporation survives and continues the combined business.

May I request that the witness be allowed to go through his Annexes, Your Honor.
The parties to a merger or consolidation are called constituent corporations. In consolidation,
all the constituents are dissolved and absorbed by the new consolidated enterprise. In merger,
all constituents, except the surviving corporation, are dissolved. In both cases, however, there ATTY. ESCANO:
is no liquidation of the assets of the dissolved corporations, and the surviving or consolidated
corporation acquires all their properties, rights and franchises and their stockholders usually
become its stockholders. Yes, but I want a precise answer to that question. If he has an employment contract with Far
Eastern Textile?

The surviving or consolidated corporation assumes automatically the liabilities of the dissolved
corporations, regardless of whether the creditors have consented or not to such merger or WITNESS:
consolidation.27
Can I answer it this way, sir? There is not a valid contract but I was under the impression WITNESS:
taking into consideration that the closeness that I had at Far Eastern Textile is enough during
that period of time of the development of Peggy Mills to reorganize a staff. I was under the
There is no document, sir.31
basic impression that they might still retain my status as Vice President and Plant Manager of
the company.
xxxx
ATTY. ESCANO:
ATTY. ESCANO:
But the answer is still, there is no employment contract in your possession appointing you in
any capacity by Far Eastern? Q Yes. Let me be more specific, Mr. McLeod. Do you have a contract of employment from Far
Eastern Textiles, Inc.?
WITNESS:
A No, sir.
There was no written contract, sir.
Q What about Sta. Rosa Textile Mills, do you have an employment contract from this
company?
xxxx

A No, sir.
ATTY. ESCANO:

xxxx
So, there is proof that you were in fact really employed by Peggy Mills?

Q And what about respondent Eric Hu. Have you had any contract of employment from Mr.
WITNESS:
Eric Hu?

Yes, sir.
A Not a direct contract but I was taken in and I told to take over this from Mr. Eric Hu.
Automatically, it confirms that Mr. Eric Hu, in other words, was under the control of Mr. Patricio
ATTY. ESCANO: Lim at that period of time.

Of course, my interest now is to whether or not there is a similar document to present that you Q No documents to show, Mr. McLeod?
were employed by the other respondents like Filsyn Corporation?
A No. No documents, sir.32
WITNESS:
McLeod could have presented evidence to support his allegation of employer-employee
I have no document, sir. relationship between him and any of Filsyn, SRTI, and FETMI, but he did not. Appointment
letters or employment contracts, payrolls, organization charts, SSS registration, personnel list,
as well as testimony of co-employees, may serve as evidence of employee status.33
ATTY. ESCANO:

It is a basic rule in evidence that parties must prove their affirmative allegations. While
What about Far Eastern Textile Mills?
technical rules are not strictly followed in the NLRC, this does not mean that the rules on
proving allegations are entirely ignored. Bare allegations are not enough. They must be
WITNESS: supported by substantial evidence at the very least.34

I have no document, sir. However, McLeod claims that "for purposes of determining employer liability, all private
respondents are one and the same employer" because: (1) they have the same address; (2)
they are all engaged in the same business; and (3) they have interlocking directors and
ATTY. ESCANO: officers.35

And Sta. Rosa Textile Mills? This assertion is untenable.

A corporation is an artificial being invested by law with a personality separate and distinct from Eric Hu, on the other hand, was Director of Filsyn and SRTI.49 He was never an officer of PMI.
that of its stockholders and from that of other corporations to which it may be connected.36
Marialen C. Corpuz, Filsyn’s Finance Officer,50 testified on cross-examination that (1) among
While a corporation may exist for any lawful purpose, the law will regard it as an association of all of Filsyn’s officers, only she was the one involved in the management of PMI; (2) only she
persons or, in case of two corporations, merge them into one, when its corporate legal entity is and Patricio were the common officers between Filsyn and PMI; and (3) Filsyn and PMI are
used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate "two separate companies."51
fiction. The doctrine applies only when such corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime,37 or when it is made as a shield to
Apolinario L. Posio, PMI’s Chief Accountant, testified that "SRTI is a different corporation from
confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit
PMI."52
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.38 At any rate, the existence of interlocking incorporators, directors, and officers is not enough
justification to pierce the veil of corporate fiction, in the absence of fraud or other public policy
considerations.53
To disregard the separate juridical personality of a corporation, the wrongdoing must be
established clearly and convincingly. It cannot be presumed.39
In Del Rosario v. NLRC,54 the Court ruled that substantial identity of the incorporators of
corporations does not necessarily imply fraud.
Here, we do not find any of the evils sought to be prevented by the doctrine of piercing the
corporate veil.
In light of the foregoing, and there being no proof of employer-employee relationship between
McLeod and respondent corporations and Eric Hu, McLeod’s cause of action is only against
Respondent corporations may be engaged in the same business as that of PMI, but this fact
his former employer, PMI.
alone is not enough reason to pierce the veil of corporate fiction.40

On Patricio’s personal liability, it is settled that in the absence of malice, bad faith, or specific
In Indophil Textile Mill Workers Union v. Calica,41 the Court ruled, thus:
provision of law, a stockholder or an officer of a corporation cannot be made personally liable
for corporate liabilities.55
In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that
the creation of the corporation is a devise to evade the application of the CBA between
To reiterate, a corporation is a juridical entity with legal personality separate and distinct from
petitioner Union and private respondent Company. While we do not discount the possibility of
those acting for and in its behalf and, in general, from the people comprising it. The rule is that
the similarities of the businesses of private respondent and Acrylic, neither are we inclined to
obligations incurred by the corporation, acting through its directors, officers, and employees,
apply the doctrine invoked by petitioner in granting the relief sought. The fact that the
are its sole liabilities.56
businesses of private respondent and Acrylic are related, that some of the employees of the
private respondent are the same persons manning and providing for auxiliary services to the
units of Acrylic, and that the physical plants, offices and facilities are situated in the same Personal liability of corporate directors, trustees or officers attaches only when (1) they assent
compound, it is our considered opinion that these facts are not sufficient to justify the piercing to a patently unlawful act of the corporation, or when they are guilty of bad faith or gross
of the corporate veil of Acrylic.42 (Emphasis supplied) 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) they consent to the issuance of watered
down stocks or when, having knowledge of such issuance, do not forthwith file with the
Also, the fact that SRTI and PMI shared the same address, i.e., 11/F BA-Lepanto Bldg., Paseo
corporate secretary their written objection; (3) they agree to hold themselves personally and
de Roxas, Makati City,43 can be explained by the two companies’ stipulation in their Deed of
solidarily liable with the corporation; or (4) they are made by specific provision of law
Dation in Payment with Lease that "simultaneous with the dation in payment, SRTC shall grant
personally answerable for their corporate action.57
unto PMI the right to lease the Assets under terms and conditions stated hereunder."44

Considering that McLeod failed to prove any of the foregoing exceptions in the present case,
As for the addresses of Filsyn and FETMI, Filsyn held office at 12th Floor, BA-Lepanto Bldg.,
McLeod cannot hold Patricio solidarily liable with PMI.
Paseo de Roxas, Makati City,45 while FETMI held office at 18F, Tun Nan Commercial Building,
333 Tun Hwa South Road, Sec. 2, Taipei, Taiwan, R.O.C.46 Hence, they did not have the
same address as that of PMI. The records are bereft of any evidence that Patricio acted with malice or bad faith. Bad faith is
a question of fact and is evidentiary. Bad faith does not connote bad judgment or negligence. It
imports a dishonest purpose or some moral obliquity and conscious wrongdoing. It means
That respondent corporations have interlocking incorporators, directors, and officers is of no
breach of a known duty through some ill motive or interest. It partakes of the nature of fraud.58
moment.

In the present case, there is nothing substantial on record to show that Patricio acted in bad
The only interlocking incorporators of PMI and Filsyn were Patricio and Carlos Palanca, Jr.47
faith in terminating McLeod’s services to warrant Patricio’s personal liability. PMI had no other
While Patricio was Director and Board Chairman of Filsyn, SRTI, and PMI, 48 he was never an
choice but to stop plant operations. The work stoppage therefore was by necessity. The
officer of FETMI.
company could no longer continue with its plant operations because of the serious business
losses that it had suffered. The mere fact that Patricio was president and director of PMI is not
a ground to conclude that he should be held solidarily liable with PMI for McLeod’s money
claims.
The ruling in A.C. Ransom Labor Union-CCLU v. NLRC,59 which the Court of Appeals cited,
does not apply to this case. We quote pertinent portions of the ruling, thus:
(a) Article 265 of the Labor Code, in part, expressly provides:
"Any worker whose employment has been terminated as a consequence of an unlawful
lockout shall be entitled to reinstatement with full backwages."
Article 273 of the Code provides that:
"Any person violating any of the provisions of Article 265 of this Code shall be punished by a
fine of not exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor
more than six (6) months."
(b) How can the foregoing provisions be implemented when the employer is a corporation?
The answer is found in Article 212 (c) of the Labor Code which provides:
"(c) ‘Employer’ includes any person acting in the interest of an employer, directly or indirectly.
The term shall not include any labor organization or any of its officers or agents except when
acting as employer.".
The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM
is an artificial person, it must have an officer who can be presumed to be the employer, being
the "person acting in the interest of (the) employer" RANSOM. The corporation, only in the
technical sense, is the employer.
The responsible officer of an employer corporation can be held personally, not to say even
criminally, liable for non-payment of back wages. That is the policy of the law.
xxxx
(c) If the policy of the law were otherwise, the corporation employer can have devious ways for
evading payment of back wages. In the instant case, it would appear that RANSOM, in
1969, foreseeing the possibility or probability of payment of back wages to the 22
strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually
phased out if the 22 strikers win their case. RANSOM actually ceased operations on May 1,
1973, after the December 19, 1972 Decision of the Court of Industrial Relations was
promulgated against RANSOM.60 (Emphasis supplied)
Clearly, in A.C. Ransom, RANSOM, through its President, organized ROSARIO to evade
payment of backwages to the 22 strikers. This situation, or anything similar showing malice or
bad faith on the part of Patricio, does not obtain in the present case. In Santos v. NLRC,61 the
Court held, thus:
It is true, there were various cases when corporate officers were themselves held by the Court
to be personally accountable for the payment of wages and money claims to its employees. In
A.C. Ransom Labor Union-CCLU vs. NLRC, for instance, the Court ruled that under the
Minimum Wage Law, the responsible officer of an employer corporation could be held
personally liable for nonpayment of backwages for "(i)f the policy of the law were otherwise,
the corporation employer (would) have devious ways for evading payment of backwages." In
the absence of a clear identification of the officer directly responsible for failure to pay the
backwages, the Court considered the President of the corporation as such officer. The case
was cited in Chua vs. NLRC in holding personally liable the vice-president of the company,
being the highest and most ranking official of the corporation next to the President who was
dismissed for the latter’s claim for unpaid wages.
A review of the above exceptional cases would readily disclose the attendance of facts and
circumstances that could rightly sanction personal liability on the part of the company officer. In
A.C. Ransom, the corporate entity was a family corporation and execution against it could not
be implemented because of the disposition posthaste of its leviable assets evidently in order to
evade its just and due obligations. The doctrine of "piercing the veil of corporate fiction" was
thus clearly appropriate. Chua likewise involved another family corporation, and this time the
conflict was between two brothers occupying the highest ranking positions in the company.
There were incontrovertible facts which pointed to extreme personal animosity that resulted,
evidently in bad faith, in the easing out from the company of one of the brothers by the other.
The basic rule is still that which can be deduced from the Court’s pronouncement in Sunio vs.
National Labor Relations Commission; thus:
We come now to the personal liability of petitioner, Sunio, who was made jointly and severally
responsible with petitioner company and CIPI for the payment of the backwages of private
respondents. This is reversible error. The Assistant Regional Director’s Decision failed to
disclose the reason why he was made personally liable. Respondents, however, alleged as
grounds thereof, his being the owner of one-half (½) interest of said corporation, and his
alleged arbitrary dismissal of private respondents.
Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of
petitioner corporation. There appears to be no evidence on record that he acted maliciously or
in bad faith in terminating the services of private respondents. His act, therefore, was within
the scope of his authority and was a corporate act.
It is basic that a corporation is invested by law with a personality separate and distinct from
those of the persons composing it as well as from that of any other legal entity to which it may
be related. Mere ownership by a single stockholder or by another corporation of all or nearly all
of the capital stock of a corporation is not of itself sufficient ground for disregarding the
separate corporate personality. Petitioner Sunio, therefore, should not have been made
personally answerable for the payment of private respondents’ back salaries.62 (Emphasis
supplied)
Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend
crime. In the absence of malice, bad faith, or a specific provision of law making a corporate
officer liable, such corporate officer cannot be made personally liable for corporate liabilities.
Neither Article 212(c) nor Article 273 (now 272) of the Labor Code expressly makes any
corporate officer personally liable for the debts of the corporation. As this Court ruled in H.L.
Carlos Construction, Inc. v. Marina Properties Corporation:63
We concur with the CA that these two respondents are not liable. Section 31 of the
Corporation Code (Batas Pambansa Blg. 68) provides:
"Section 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and once. To be considered a "regular practice," the giving of the benefits should have been done
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of over a long period, and must be shown to have been consistent and deliberate.72
gross negligence or bad faith ... shall be liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders and other persons."
In American Wire and Cable Daily Rated Employees Union v. American Wire and Cable Co.,
Inc.,73 the Court held that for a bonus to be enforceable, the employer must have promised it,
The personal liability of corporate officers validly attaches only when (a) they assent to a and the parties must have expressly agreed upon it, or it must have had a fixed amount and
patently unlawful act of the corporation; or (b) they are guilty of bad faith or gross negligence in had been a long and regular practice on the part of the employer.
directing its affairs; or (c) they incur conflict of interest, resulting in damages to the corporation,
its stockholders or other persons.
In the present case, there is no showing that PMI ever promised McLeod that it would continue
to grant him the benefit in question. Neither is there any proof that PMI and McLeod had
The records are bereft of any evidence that Typoco acted in bad faith with gross or expressly agreed upon the giving of that benefit.
inexcusable negligence, or that he acted outside the scope of his authority as company
president. The unilateral termination of the Contract during the existence of the TRO was
McLeod’s reliance on Annex M74 can hardly carry the day for him. Annex M, which is McLeod’s
indeed contemptible – for which MPC should have merely been cited for contempt of court at
letter addressed to "Philip Lim, VP Administration," merely contains McLeod’s proposals for
the most – and a preliminary injunction would have then stopped work by the second
the grant of some benefits to supervisory and confidential employees. Contrary to McLeod’s
contractor. Besides, there is no showing that the unilateral termination of the Contract was null
allegation, Patricio did not sign the letter. Hence, the letter does not embody any agreement
and void.64
between McLeod and the management that would entitle McLeod to his money claims.

McLeod is not entitled to payment of vacation leave and sick leave as well as to holiday pay.
Neither can McLeod’s assertions find support in Annex U.75 Annex U is the Agreement which
Article 82, Title I, Book Three of the Labor Code, on Working Conditions and Rest Periods,
McLeod and Universal Textile Mills, Inc. executed in 1959. The Agreement merely contains the
provides:
renewal of the service agreement which the parties signed in 1956.

Coverage. ─ The provisions of this title shall apply to employees in all establishments and
McLeod cannot successfully pretend that his monthly salary of P60,000 was reduced without
undertakings whether for profit or not, but not to government employees, managerial
his consent.
employees, field personnel, members of the family of the employer who are dependent on him
for support, domestic helpers, persons in the personal service of another, and workers who are
paid by results as determined by the Secretary of Labor in appropriate regulations. McLeod testified that in 1990, Philip Lim explained to him why his salary would have to be
reduced. McLeod said that Philip told him that "they were short in finances; that it would be
repaid."76 Were McLeod not amenable to that reduction in salary, he could have immediately
As used herein, "managerial employees" refer to those whose primary duty consists of the
resigned from his work in PMI.
management of the establishment in which they are employed or of a department or
subdivision thereof, and to other officers or members of the managerial staff. (Emphasis
supplied) McLeod knew that PMI was then suffering from serious business losses. In fact, McLeod
testified that PMI was not able to operate from August 1989 to 1992 because of the strike.
Even before 1989, as Vice President of PMI, McLeod was aware that the company had
As Vice President/Plant Manager, McLeod is a managerial employee who is excluded from the
incurred "huge loans from DBP."77 As it happened, McLeod continued to work with PMI. We
coverage of Title I, Book Three of the Labor Code. McLeod is entitled to payment of vacation
find it pertinent to quote some portions of Apolinario Posio’s testimony, to wit:
leave and sick leave only if he and PMI had agreed on it. The payment of vacation leave and
sick leave depends on the policy of the employer or the agreement between the employer and
employee.65 In the present case, there is no showing that McLeod and PMI had an agreement Q You also stated that before the period of the strike as shown by annex "K" of the reply filed
concerning payment of these benefits. by the complainant which was I think a voucher, the salary of Mr. McLeod was roughly
P60,000.00 a month?
McLeod’s assertion of underpayment of his 13th month pay in December 1993 is unavailing.66
As already stated, PMI stopped plant operations in 1992. McLeod himself testified that he A Yes, sir.
received his last salary from PMI in December 1992. After the termination of the employer-
employee relationship between McLeod and PMI, SRTI hired McLeod as consultant and not as
Q And as shown by their annex "L" to their reply, that this was reduced to roughly P50,000.00
employee. Since McLeod was no longer an employee, he was not entitled to the 13th month
a month?
pay.67 Besides, there is no evidence on record that McLeod indeed received his alleged
"reduced 13th month pay of P44,183.63" in December 1993.68
A Yes, sir.
Also unavailing is McLeod’s claim that he was entitled to the "unpaid monetary equivalent of
unused plane tickets for the period covering 1989 to 1992 in the amount of P279,300.00."69 Q You stated that this was indeed upon the instruction by the Vice-President of Peggy Mills at
PMI has no company policy granting its officers and employees expenses for trips abroad.70 that time and that was Mr. Philip Lim, would you not?
That at one time PMI reimbursed McLeod for his and his wife’s plane tickets in a vacation to
London71 could not be deemed as an established practice considering that it happened only
A Yes, sir.
Q Of your own personal knowledge, can you say if this was, in fact, by agreement between Mr.
Philip Lim or any other officers of Peggy Mills and Mr. McLeod?
A If I recall it correctly, I assume it was an agreement, verbal agreement with, between Mr.
Philip Lim and Mr. McLeod, because the voucher that we prepared was actually acknowledged
by Mr. McLeod, the reduced amount was acknowledged by Mr. McLeod thru the voucher that
we prepared.
Q In other words, Mr. Witness, you mean to tell us that Mr. McLeod continuously received the
reduced amount of P50,000.00 by signing the voucher and receiving the amount in question?
A Yes, sir.
Q As far as you remember, Mr. Posio, was there any complaint by Mr. McLeod because of this
reduced amount of his salary at that time?
A I don’t have any personal knowledge of any complaint, sir.
Q At least, that is in so far as you were concerned, he said nothing when he signed the
voucher in question?
A Yes, sir.
Q Now, you also stated that the reason for what appears to be an agreement between Peggy
Mills and Mr. McLeod in so far as the reduction of his salary from P60,000.00 to P50,000.00 a
month was because he would have a reduced number of working days in view of the strike at
Peggy Mills, is that right?
A Yes, sir.
Q And that this was so because on account of the strike, there was no work to be done in the
company?
A Yes, sir.78
xxxx
Q Now, you also stated if you remember during the first time that you testified that in the
beginning, the monthly salary of the complainant was P60,000.00, is that correct?
A Yes, sir.
Q And because of the long period of the strike, when there was no work to be done, by
agreement with the complainant, his monthly salary was adjusted to only P50,495 because he
would not have to report for work on Saturday. Do you remember having made that
explanation?
A Yes, sir.
Q You also stated that the complainant continuously received his monthly salary in the
adjusted amount of P50,495.00 monthly signing the necessary vouchers or pay slips for that
without complaining, is that not right, Mr. Posio?
A Yes, sir.79
Since the last salary that McLeod received from PMI was P50,495, that amount should be the
basis in computing his retirement benefits. McLeod must be credited only with his service to
PMI as it had a juridical personality separate and distinct from that of the other respondent
corporations.
Since PMI has no retirement plan,80 we apply Section 5, Rule II of the Rules Implementing the
New Retirement Law which provides:
5.1 In the absence of an applicable agreement or retirement plan, an employee who retires
pursuant to the Act shall be entitled to retirement pay equivalent to at least one-half (1/2)
month salary for every year of service, a fraction of at least six (6) months being considered as
one whole year.
5.2 Components of One-half (1/2) Month Salary. ─ For the purpose of determining the
minimum retirement pay due an employee under this Rule, the term "one-half month salary"
shall include all of the following:
(a) Fifteen (15) days salary of the employee based on his latest salary rate. x x x
With McLeod having worked with PMI for 12 years, from 1980 to 1992, he is entitled to a
retirement pay equivalent to ½ month salary for every year of service based on his latest
salary rate of P50,495 a month.
There is no basis for the award of moral damages.
Moral damages are recoverable only if the defendant has acted fraudulently or in bad faith, or
is guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual
obligations. The breach must be wanton, reckless, malicious, or in bad faith, oppressive or
abusive.81 From the records of the case, the Court finds no ultimate facts to support a
conclusion of bad faith on the part of PMI.
Records disclose that PMI had long offered to pay McLeod his money claims. In their
Comment, respondents assert that they offered to pay McLeod the sum of P840,000, as
"separation benefits, and not P300,000, if only to buy peace and to forestall any complaint"
that McLeod may initiate before the NLRC. McLeod admitted at the hearing before the Labor
Arbiter that PMI has made this offer ─
ATTY. ESCANO:
x x x According to your own statement in your Position Paper and I am referring to page 8,
your unpaid retirement benefit for fourteen (14) years of service at P60,000.00 per year is
P840,000.00, is that correct?
WITNESS: Not on the concept without all the basic benefits due me, I will refuse.82

That is correct, sir. xxxx

ATTY. ESCANO: ATTY. ROXAS:

And this amount is correct P840,000.00, according to your Position Paper? Q You mentioned in the cross-examination of Atty. Escano that you were offered the
separation pay in 1994, is that correct, Mr. Witness?
WITNESS:
WITNESS:
That is correct, sir.
A I was offered a settlement of P300,000.00 for complete settlement and that was I think in
January or February 1994, sir.
ATTY. ESCANO:

ATTY. ESCANO:
The question I want to ask is, are you aware that this amount was offered to you sometime last
year through your own lawyer, my good friend, Atty. Avecilla, who is right here with us?
No. What was mentioned was the amount of P840,000.00.
WITNESS:
WITNESS:
I was aware, sir.
What did you say, Atty. Escano?
ATTY. ESCANO:
ATTY. ESCANO:
So this was offered to you, is that correct?
The amount that I mentioned was P840,000.00 corresponding to the . . . . . . .
WITNESS:
WITNESS:
I was told that a fixed sum of P840,000.00 was offered.
May I ask that the question be clarified, your Honor?
ATTY. ESCANO:
ATTY. ROXAS:
And , of course, the reason, if I may assume, that you declined this offer was that, according to
you, there are other claims which you would like to raise against the Respondents which, by Q You mentioned that you were offered for the settlement of your claims in 1994 for
your impression, they were not willing to pay in addition to this particular amount? P840,000.00, is that right, Mr. Witness?

WITNESS: A During that period in time, while the petition in this case was ongoing, we already filed a
case at that period of time, sir. There was a discussion. To the best of my knowledge, they are
willing to settle for P840,000.00 and based on what the Attorney told me, I refused to accept
Yes, sir.
because I believe that my position was not in anyway due to a compromise situation to the
benefits I am entitled to.83
ATTY. ESCANO:
Hence, the awards for exemplary damages and attorney’s fees are not proper in the present
The question now is, if the same amount is offered to you by way of retirement which is exactly case.84
what you stated in your own Position Paper, would you accept it or not?
That respondent corporations, in their appeal to the NLRC, did not serve a copy of their
WITNESS: memorandum of appeal upon PMI is of no moment. Section 3(a), Rule VI of the NLRC New
Rules of Procedure provides:
Requisites for Perfection of Appeal. ─ (a) The appeal shall be filed within the reglementary
period as provided in Section 1 of this Rule; shall be under oath with proof of payment of the
required appeal fee and the posting of a cash or surety bond as provided in Section 5 of this
Rule; shall be accompanied by a memorandum of appeal x x x and proof of service on the
other party of such appeal. (Emphasis supplied)

The "other party" mentioned in the Rule obviously refers to the adverse party, in this case,
McLeod. Besides, Section 3, Rule VI of the Rules which requires, among others, proof of
service of the memorandum of appeal on the other party, is merely a rundown of the contents
of the required memorandum of appeal to be submitted by the appellant. These are not
jurisdictional requirements.85

WHEREFORE, we DENY the petition and AFFIRM the Decision of the Court of Appeals in CA-
G.R. SP No. 55130, with the following MODIFICATIONS: (a) the retirement pay of John F.
McLeod should be computed at ½ month salary for every year of service for 12 years based
on his salary rate of P50,495 a month; (b) Patricio L. Lim is absolved from personal liability;
and (c) the awards for moral and exemplary damages and attorney’s fees are deleted. No
pronouncement as to costs.

SO ORDERED.

G.R. No. 147590 April 2, 2007
ANTONIO C. CARAG, Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ISABEL G. PANGANIBAN-ORTIGUERRA,
as Executive Labor Arbiter, NAFLU, and MARIVELES APPAREL CORPORATION LABOR
UNION, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari1 assailing the Decision dated 29 February 20002 and
the Resolution dated 27 March 20013 of the Court of Appeals (appellate court) in CA-G.R. SP
Nos. 54404-06. The appellate court affirmed the decision dated 17 June 19944 of Labor Arbiter
Isabel Panganiban-Ortiguerra (Arbiter Ortiguerra) in RAB-III-08-5198-93 and the resolution
dated 5 January 19955 of the National Labor Relations Commission (NLRC) in NLRC CA No.
L-007731-94.
Arbiter Ortiguerra held that Mariveles Apparel Corporation (MAC), MAC's Chairman of the
Board Antonio Carag (Carag), and MAC's President Armando David (David) (collectively,
respondents) are guilty of illegal closure and are solidarily liable for the separation pay of
MAC's rank and file employees. The NLRC denied the motion to reduce bond filed by MAC
and Carag.
The Facts
National Federation of Labor Unions (NAFLU) and Mariveles Apparel Corporation Labor Union
(MACLU) (collectively, complainants), on behalf of all of MAC's rank and file employees, filed a
complaint against MAC for illegal dismissal brought about by its illegal closure of business. In
their complaint dated 12 August 1993, complainants alleged the following:
2. Complainant NAFLU is the sole and exclusive bargaining agent representing all
rank and file employees of [MAC]. That there is an existing valid Collective
Bargaining Agreement (CBA) executed by the parties and that at the time of the
cause of action herein below discussed happened there was no labor dispute
between the Union and Management except cases pending in courts filed by one
against the other.
3. That on July 8, 1993, without notice of any kind filed in accordance with pertinent
provisions of the Labor Code, [MAC], for reasons known only by herself [sic] ceased
operations with the intention of completely closing its shop or factory. Such
intentions [sic] was manifested in a letter, allegedly claimed by [MAC] as its notice
filed only on the same day that the operations closed.
4. That at the time of closure, employees who have rendered one to two weeks work
were not paid their corresponding salaries/wages, which remain unpaid until time
[sic] of this writing.
5. That there are other benefits than those above-mentioned which have been
unpaid by [MAC] at the time it decided to cease operations, benefits gained by the
workers both by and under the CBA and by operations [sic] of law.
6. That the closure made by [MAC] in the manner and style done is perce [sic]
illegal, and had caused tremendous prejudice to all of the employees, who suffered
both mental and financial anguish and who in view thereof merits [sic] award of all
damages (actual, exemplary and moral), [illegible] to set [an] example to firms who
in the future will [illegible] the idea of simply prematurely closing without complying
[with] the basic requirement of Notice of Closure.6 (Emphasis supplied)
Upon receipt of the records of the case, Arbiter Ortiguerra summoned the parties to explore
options for possible settlement. The non-appearance of respondents prompted Arbiter
Ortiguerra to declare the case submitted for resolution "based on the extant pleadings."
In their position paper dated 3 January 1994, complainants moved to implead Carag and
David, as follows:
x x x x In the present case, it is unfortunate for respondents that the records and evidence
clearly demonstrate that the individual complainants are entitled to the reliefs prayed for in
their complaint. However, any favorable judgment the Honorable Labor Arbiter may render in
favor of herein complainants will go to naught should the Office fails [sic] to appreciate the
glaring fact that the respondents [sic] corporation is no longer existing as it suddenly stopped
business operation since [sic] 8 July 1993. Under this given circumstance, the complainants
have no option left but to implead Atty. ANTONIO CARAG, in his official capacity as Chairman
of the Board along with MR. ARMANDO DAVID as President. Both are also owners of the
respondent corporation with office address at 10th Floor, Gamon Centre, Alfaro Street,
Salcedo Village[,] Makati[,] Metro Manila although they may be collectively served with
summons and other legal processes through counsel of record Atty. Joshua Pastores of 8th
Floor, Hanston Bldg., Emerald Avenue, Ortigas[,] Pasig, Metro Manila. This inclusion of
individual respondents as party respondents in the present case is to guarantee the
satisfaction of any judgment award on the basis of Article 212(c) of the Philippine Labor Code,
as amended, which says:
"Employer includes any person acting in the interest of an employer, directly or indirectly. It
does not, however, include any labor organization or any of its officers or agents except when
acting as employer."
The provision was culled from Section 2, Republic Act 602, the Minimum Wage Act. If the
employer is an artificial person, it must have an officer who can be presumed to be the
employer, being "the person acting in the interest of the employer." The corporation is the
employer, only in the technical sense. (A.C. Ransom Labor Union CCLU VS. NLRC, G.R.
69494, June 10, 1986). Where the employer-corporation, AS IN THE PRESENT CASE, is no
longer existing and unable to satisfy the judgment in favor of the employee, the officer should
be held liable for acting on behalf of the corporation. (Gudez vs. NLRC, G.R. 83023, March 22,
1990). Also in the recent celebrated case of Camelcraft Corporation vs. NLRC, G.R. 90634-35
(June 6, 1990), Carmen contends that she is not liable for the acts of the company, assuming
it had [acted] illegally, because Camelcraft in a distinct and separate entity with a legal
personality of its own. She claims that she is only an agent of the company carrying out the
decisions of its board of directors, "We do not agree," said the Supreme Court. "She is, in fact
and legal effect, the corporation, being not only its president and general manager but also its
owner." The responsible officer of an employer can be held personally liable not to say even
criminally liable for nonpayment of backwages. This is the policy of the law. If it were
otherwise, corporate employers would have devious ways to evade paying backwages. (A.C.
Ransom Labor Union-CCLU V. NLRC, G.R. 69494, June 10, 1986). If no definite proof exists
as to who is the responsible officer, the president of the corporation who can be deemed to be
its chief operation officer shall be presumed to be the responsible officer. In Republic Act 602,
for example, criminal responsibility is with the "manager" or in his default, the person acting as
such (Ibid.)7 (Emphasis supplied)
Atty. Joshua L. Pastores (Atty. Pastores), as counsel for respondents, submitted a position
paper dated 21 February 1994 and stated that complainants should not have impleaded Carag
and David because MAC is actually owned by a consortium of banks. Carag and David own
shares in MAC only to qualify them to serve as MAC's officers.
Without any further proceedings, Arbiter Ortiguerra rendered her Decision dated 17 June 1994
granting the motion to implead Carag and David. In the same Decision, Arbiter Ortiguerra
declared Carag and David solidarily liable with MAC to complainants.
the judgment, should a decision favorable to them be rendered. In support of their claims, the
complainants invoked the ruling laid down by the Supreme Court in the case of A.C. Ransom
Labor Union CCLU vs. NLRC, G.R. No. 69494, June 10, 1986 where it was held that [a]
corporate officer can be held liable for acting on behalf of the corporation when the latter is no
longer in existence and there are valid claims of workers that must be satisfied.
The complainants pray for the declaration of the illegality of the closure of respondents'
business. Consequently, their reinstatement must be ordered and their backwages must be
paid. Should reinstatement be not feasible, the complainants pray that they be paid their
separation pay in accordance with the computation provided for in the CBA. Computations of
separation pay due to individual complainants were adduced in evidence (Annexes "C" to "C-
44", Complainants' Position Paper). The complainants also pray for the award to them of
attorney's fee[s].
The respondents on the other hand by way of controversion maintain that the present
complaint was filed prematurely. The respondents deny having totally closed and insist that
respondent company is only on a temporary shut-down occasioned by the pending labor
unrest. There being no permanent closure any claim for separation pay must not be given due
course.

The Ruling of the Labor Arbiter Respondents opposed the impleader of Atty. Antonio C. Carag and Mr. Armando David saying
that they are not the owners of Mariveles Apparel Corporation and they are only minority
stockholders holding qualifying shares. Piercing the veil of corporate fiction cannot be done in
In her Decision dated 17 June 1994, Arbiter Ortiguerra ruled as follows:
the present case for such remedy can only be availed of in case of closed or family owned
corporations.
This is a complaint for illegal dismissal brought about by the illegal closure and cessation of
business filed by NAFLU and Mariveles Apparel Corporation Labor Union for and in behalf of
Respondents pray for the dismissal of the present complaint and the denial of complainants'
all rank and file employees against respondents Mariveles Apparel Corporation, Antonio Carag
motion to implead Atty. Antonio C. Carag and Mr. Armando David as party respondents.
and Armando David [who are] its owners, Chairman of the Board and President, respectively.

This Office is now called upon to resolve the following issues:

This case was originally raffled to the sala of Labor Arbiter Adolfo V. Creencia. When the latter
went on sick leave, his cases were re-raffled and the instant case was assigned to the sala of
the undersigned. Upon receipt of the record of the case, the parties were summoned for them 1. Whether or not the respondents are guilty of illegal closure;
to be able to explore options for settlement. The respondents however did not appear
prompting this Office to submit the case for resolution based on extant pleadings, thus this
2. Whether or not individual respondents could be held personally liable; and
decision.

3. Whether or not the complainants are entitled to an award of attorney's fees.

The complainants claim that on July 8, 1993 without notice of any kind the company ceased its
operation as a prelude to a final closing of the firm. The complainants allege that up to the
present the company has remained closed. After a judicious and impartial consideration of the record, this Office is of the firm belief that
the complainants must prevail.
The complainants bewail that at the time of the closure, employees who have rendered one to
two weeks of work were not given their salaries and the same have remained unpaid. The respondents described the cessation of operations in its premises as a temporary shut-
down. While such posturing may have been initially true, it is not so anymore. The cessation of
operations has clearly exceeded the six months period fixed in Article 286 of the Labor Code.
The complainants aver that respondent company prior to its closure did not even bother to
The temporary shutdown has ripened into a closure or cessation of operations for causes not
serve written notice to employees and to the Department of Labor and Employment at least
due to serious business losses or financial reverses. Consequently, the respondents must pay
one month before the intended date of closure. The respondents did not even establish that its
the displaced employees separation pay in accordance with the computation prescribed in the
closure was done in good faith. Moreover, the respondents did not pay the affected employees
CBA, to wit, one month pay for every year of service. It must be stressed that respondents did
separation pay, the amount of which is provided in the existing Collective Bargaining
not controvert the verity of the CBA provided computation.
Agreement between the complainants and the respondents.

The complainants claim that Atty. Antonio Carag and Mr. Armando David should be held jointly
The complainants pray that they be allowed to implead Atty. Antonio Carag and Mr. Armando
and severally liable with respondent corporation. This bid is premised on the belief that the
David[,] owners and responsible officer[s] of respondent company to assure the satisfaction of
impleader of the aforesaid officers will guarantee payment of whatever may be adjudged in 2.3 MAC is not a family[-]owned corporation, that in case of a close [sic] corporation,
complainants' favor by virtue of this case. It is a basic principle in law that corporations have piercing the corporate veil its [sic] possible to hold the stockholders liable for the
personality distinct and separate from the stockholders. This concept is known as corporate corporation's liabilities;
fiction. Normally, officers acting for and in behalf of a corporation are not held personally liable
for the obligation of the corporation. In instances where corporate officers dismissed
2.4 MAC is a corporation with a distinct and separate personality from that of the
employees in bad faith or wantonly violate labor standard laws or when the company had
stockholders; piercing the corporate veil to hold the stockholders liable for corporate
already ceased operations and there is no way by which a judgment in favor of employees
liabilities is only true [for] close corporations (family corporations); this is not the
could be satisfied, corporate officers can be held jointly and severally liable with the company.
prevailing situation in MAC;
This Office after a careful consideration of the factual backdrop of the case is inclined to grant
complainants' prayer for the impleader of Atty. Antonio Carag and Mr. Armando David, to
assure that valid claims of employees would not be defeated by the closure of respondent 2.5 Atty. Antonio Carag and Mr. Armando David are professional managers and the
company. extension of shares to them are just qualifying shares to enable them to occupy
subject position.9
The complainants pray for the award to them of moral and exemplary damages, suffice it to
state that they failed to establish their entitlement to aforesaid reliefs when they did not adduce Respondents also filed separate motions to reduce bond.
persuasive evidence on the matter.
The Ruling of the NLRC
The claim for attorney's fee[s] will be as it is hereby resolved in complainants' favor. As a
consequence of the illegal closure of respondent company, the complainants were compelled
In a Resolution promulgated on 5 January 1995, the NLRC Third Division denied the motions
to litigate to secure benefits due them under pertinent laws. For this purpose, they secured the
to reduce bond. The NLRC stated that to grant a reduction of bond on the ground that the
services of a counsel to assist them in the course of the litigation. It is but just and proper to
appeal is meritorious would be tantamount to ruling on the merits of the appeal. The
order the respondents who are responsible for the closure and subsequent filing of the case to
dispositive portion of the Resolution of the NLRC Third Division reads, thus:
pay attorney's fee[s].

PREMISES CONSIDERED, Motions to Reduce Bond for both respondents are hereby
WHEREFORE, premises considered, judgment is hereby rendered declaring respondents
DISMISSED for lack of merit. Respondents are directed to post cash or surety bond in the
jointly and severally guilty of illegal closure and they are hereby ordered as follows:
amount of forty eight million one hundred one thousand six hundred twenty one pesos
(P48,101,621.00) within an unextendible period of fifteen (15) days from receipt hereof.
1. To pay complainants separation pay computed on the basis of one (1) month for
every year of service, a fraction of six (6) months to be considered as one (1) year in
No further Motions for Reconsideration shall be entertained.
the total amount of P49,101,621.00; and

SO ORDERED.10
2. To pay complainants attorney's fee in an amount equivalent to 10% of the
judgment award.
Respondents filed separate petitions for certiorari before this Court under Rule 65 of the 1964
Rules of Court. Carag filed his petition, docketed as G.R. No. 118820, on 13 February 1995. In
The claims for moral, actual and exemplary damages are dismissed for lack of evidence.
the meantime, we granted MAC's prayer for the issuance of a temporary restraining order to
enjoin the NLRC from enforcing Arbiter Ortiguerra's Decision. On 31 May 1995, we granted
SO ORDERED.8 (Emphasis supplied) complainants' motion for consolidation of G.R. No. 118820 with G.R. No. 118839 (MAC v.
NLRC, et al.) and G.R. No. 118880 (David v. Arbiter Ortiguerra, et al.). On 12 July 1999, after
all the parties had filed their memoranda, we referred the consolidated cases to the appellate
MAC, Carag, and David, through Atty. Pastores, filed their Memorandum before the NLRC on
court in accordance with our decision in St. Martin Funeral Home v. NLRC.11 Respondents
26 August 1994. Carag, through a separate counsel, filed an appeal dated 30 August 1994
filed separate petitions before the appellate court.
before the NLRC. Carag reiterated the arguments in respondents' position paper filed before
Arbiter Ortiguerra, stating that:
The Ruling of the Appellate Court
2.1 While Atty. Antonio C. Carag is the Chairman of the Board of MAC and Mr.
Armando David is the President, they are not the owners of MAC; On 29 February 2000, the appellate court issued a joint decision on the separate petitions. The
appellate court identified two issues as essential: (1) whether Arbiter Ortiguerra properly held
Carag and David, in their capacities as corporate officers, jointly and severally liable with MAC
2.2 MAC is owned by a consortium of banks, as stockholders, and Atty. Antonio C.
for the money claims of the employees; and (2) whether the NLRC abused its discretion in
Carag and Mr. Armando David are only minority stockholders of the corporation,
denying the separate motions to reduce bond filed by MAC and Carag.
owning only qualifying shares;

The appellate court held that the absence of a formal hearing before the Labor Arbiter is not a
cause for Carag and David to impute grave abuse of discretion. The appellate court found that
Carag and David, as the most ranking officers of MAC, had a direct hand at the time in the 3. Did the NLRC commit grave abuse of discretion in denying petitioner's motion to
illegal dismissal of MAC's employees. The failure of Carag and David to observe the notice reduce appeal bond?14
requirement in closing the company shows malice and bad faith, which justifies their solidary
liability with MAC. The appellate court also found that the circumstances of the present case
The Ruling of the Court
do not warrant a reduction of the appeal bond. Thus:

We find the petition meritorious.

IN VIEW WHEREOF, the petitions are DISMISSED. The decision of Labor Arbiter Isabel
Panganiban-Ortiguerra dated June 17, 1994, and the Resolution dated January 5, 1995,
issued by the National Labor Relations Commission are hereby AFFIRMED. As a On Denial of Due Process to Carag and David
consequence of dismissal, the temporary restraining order issued on March 2, 1995, by the
Third Division of the Supreme Court is LIFTED. Costs against petitioners.
Carag asserts that Arbiter Ortiguerra rendered her Decision of 17 June 1994 without issuing
summons on him, without requiring him to submit his position paper, without setting any
12
SO ORDERED. (Emphasis in the original) hearing, without giving him notice to present his evidence, and without informing him that the
case had been submitted for decision - in violation of Sections 2,15 3,16 4,17 5(b),18 and 11(c) 19
of Rule V of The New Rules of Procedure of the NLRC.20
The appellate court denied respondents' separate motions for reconsideration.13

It is clear from the narration in Arbiter Ortiguerra's Decision that she only summoned
In a resolution dated 20 June 2001, this Court's First Division denied the petition for Carag's
complainants and MAC, and not Carag, to a conference for possible settlement. In her
failure to show sufficiently that the appellate court committed any reversible error to warrant
Decision, Arbiter Ortiguerra stated that she scheduled the conference "upon receipt of the
the exercise of our discretionary appellate jurisdiction. Carag filed a motion for reconsideration
record of the case." At the time of the conference, complainants had not yet submitted their
of our resolution denying his petition. In a resolution dated 13 August 2001, this Court's First
position paper which contained the motion to implead Carag. Complainants could not have
Division denied Carag's reconsideration with finality.
submitted their position paper before the conference since procedurally the Arbiter directs the
submission of position papers only after the conference.21 Complainants submitted their
Despite our 13 August 2001 resolution, Carag filed a second motion for reconsideration with position paper only on 10 January 1994, five months after filing the complaint. In short, at the
an omnibus motion for leave to file a second motion for reconsideration. This Court's First time of the conference, Carag was not yet a party to the case. Thus, Arbiter Ortiguerra could
Division referred the motion to the Court En Banc. In a resolution dated 25 June 2002, the not have possibly summoned Carag to the conference.
Court En Banc resolved to grant the omnibus motion for leave to file a second motion for
reconsideration, reinstated the petition, and required respondents to comment on the petition.
Carag vigorously denied receiving summons to the conference, and complainants have not
On 25 November 2003, the Court En Banc resolved to suspend the rules to allow the second
produced any order of Arbiter Ortiguerra summoning Carag to the conference. A thorough
motion for reconsideration. This Court's First Division referred the petition to the Court En
search of the records of this case fails to show any order of Arbiter Ortiguerra directing Carag
Banc on 14 July 2004, and the Court En Banc accepted the referral on 15 March 2005.
to attend the conference. Clearly, Arbiter Ortiguerra did not summon Carag to the conference.

The Issues
Carag questions the appellate court's decision of 29 February 2000 by raising the following
issues before this Court:
1. Has petitioner Carag's right to due process been blatantly violated by holding him
personally liable for over P50 million of the corporation's liability, merely as board
chairman and solely on the basis of the motion to implead him in midstream of the
proceedings as additional respondent, without affording him the right to present
evidence and in violation of the accepted procedure prescribed by Rule V of the
NLRC Rules of Procedure, as to render the ruling null and void?
2. Assuming, arguendo, that he had been accorded due process, is the decision
holding him solidarily liable supported by evidence when the only pleadings (not
evidence) before the Labor Arbiter and that of the Court of Appeals are the labor
union's motion to implead him as respondent and his opposition thereto, without
position papers, without evidence submitted, and without hearing on the issue of
personal liability, and even when bad faith or malice, as the only legal basis for
personal liability, was expressly found absent and wanting by [the] Labor Arbiter, as
to render said decision null and void?
When MAC failed to appear at the conference, Arbiter Ortiguerra declared the case submitted
for resolution. In her Decision, Arbiter Ortiguerra granted complainants' motion to implead
Carag and at the same time, in the same Decision, found Carag personally liable for the debts
of MAC consisting of P49,101,621 in separation pay to complainants. Arbiter Ortiguerra never
issued summons to Carag, never called him to a conference for possible settlement, never
required him to submit a position paper, never set the case for hearing, never notified him to
present his evidence, and never informed him that the case was submitted for decision - all in
violation of Sections 2, 3, 4, 5(b), and 11(c) of Rule V of The New Rules of Procedure of the
NLRC.
Indisputably, there was utter absence of due process to Carag at the arbitration level. The
procedure adopted by Arbiter Ortiguerra completely prevented Carag from explaining his side
and presenting his evidence. This alone renders Arbiter Ortiguerra's Decision a nullity insofar
as Carag is concerned. While labor arbiters are not required to conduct a formal hearing or
trial, they have no license to dispense with the basic requirements of due process such as
affording respondents the opportunity to be heard. In Habana v. NLRC,22 we held:
The sole issue to be resolved is whether private respondents OMANFIL and HYUNDAI were
denied due process when the Labor Arbiter decided the case solely on the basis of the
position paper and supporting documents submitted in evidence by Habana and De Guzman.
We rule in the affirmative. The manner in which this case was decided by the Labor Arbiter left
much to be desired in terms of respect for the right of private respondents to due process -
First, there was only one conciliatory conference held in this case. This was on 10
May 1996. During the conference, the parties did not discuss at all the possibility of
amicable settlement due to petitioner's stubborn insistence that private respondents
be declared in default.
Second, the parties agreed to submit their respective motions - petitioner's motion to
declare respondents in default and private respondents' motion for bill of particulars
- for the consideration of the Labor Arbiter. The Labor Arbitration Associate, one Ms.
Gloria Vivar, then informed the parties that they would be notified of the action of the
Labor Arbiter on the pending motions.
xxx
Third, since the conference on 10 May 1996 no order or notice as to what action
was taken by the Labor Arbiter in disposing the pending motions was ever received
by private respondents. They were not declared in default by the Labor Arbiter nor
was petitioner required to submit a bill of particulars.
Fourth, neither was there any order or notice requiring private respondents to file
their position paper, nor an order informing the parties that the case was already
submitted for decision. What private respondents received was the assailed decision
adverse to them.
It is clear from the foregoing that there was an utter absence of opportunity to be heard at the
arbitration level, as the procedure adopted by the Labor Arbiter virtually prevented private
respondents from explaining matters fully and presenting their side of the controversy. They
had no chance whatsoever to at least acquaint the Labor Arbiter with whatever defenses they
might have to the charge that they illegally dismissed petitioner. In fact, private respondents
presented their position paper and documentary evidence only for the first time on appeal to
the NLRC.
The essence of due process is that a party be afforded a reasonable opportunity to be heard
and to submit any evidence he may have in support of his defense. Where, as in this case,
sufficient opportunity to be heard either through oral arguments or position paper and other
pleadings is not accorded a party to a case, there is undoubtedly a denial of due process.
It is true that Labor Arbiters are not bound by strict rules of evidence and of procedure. The
manner by which Arbiters dispose of cases before them is concededly a matter of discretion.
However, that discretion must be exercised regularly, legally and within the confines of due
process. They are mandated to use every reasonable means to ascertain the facts of each
case, speedily, objectively and without regard to technicalities of law or procedure, all in the
interest of justice and for the purpose of accuracy and correctness in adjudicating the
monetary awards.
In this case, Carag was in a far worse situation. Here, Carag was not issued summons, not
accorded a conciliatory conference, not ordered to submit a position paper, not accorded a
hearing, not given an opportunity to present his evidence, and not notified that the case was
submitted for resolution. Thus, we hold that Arbiter Ortiguerra's Decision is void as against
Carag for utter absence of due process. It was error for the NLRC and the Court of Appeals to
uphold Arbiter Ortiguerra's decision as against Carag.
On the Liability of Directors for Corporate Debts
This case also raises this issue: when is a director personally liable for the debts of the
corporation? The rule is that a director is not personally liable for the debts of the corporation,
which has a separate legal personality of its own. Section 31 of the Corporation Code lays
down the exceptions to the rule, as follows:
Liability of directors, trustees or officers. - Directors or trustees who wilfully and knowingly vote
for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence
or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary
interest in conflict with their duty as such directors or trustees shall be liable jointly and
severally for all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons.
xxxx
Section 31 makes a director personally liable for corporate debts if he wilfully and knowingly
votes for or assents to patently unlawful acts of the corporation. Section 31 also makes a
director personally liable if he is guilty of gross negligence or bad faith in directing the affairs of
the corporation.
Complainants did not allege in their complaint that Carag wilfully and knowingly voted for or
assented to any patently unlawful act of MAC. Complainants did not present any evidence
showing that Carag wilfully and knowingly voted for or assented to any patently unlawful act of
MAC. Neither did Arbiter Ortiguerra make any finding to this effect in her Decision.
Complainants did not also allege that Carag is guilty of gross negligence or bad faith in
directing the affairs of MAC. Complainants did not present any evidence showing that Carag is
guilty of gross negligence or bad faith in directing the affairs of MAC. Neither did Arbiter
Ortiguerra make any finding to this effect in her Decision.
Arbiter Ortiguerra stated in her Decision that:
In instances where corporate officers dismissed employees in bad faith or wantonly violate
labor standard laws or when the company had already ceased operations and there is no way
by which a judgment in favor of employees could be satisfied, corporate officers can be held
jointly and severally liable with the company.23
After stating what she believed is the law on the matter, Arbiter Ortiguerra stopped there and
did not make any finding that Carag is guilty of bad faith or of wanton violation of labor
standard laws. Arbiter Ortiguerra did not specify what act of bad faith Carag committed, or
what particular labor standard laws he violated.
To hold a director personally liable for debts of the corporation, and thus pierce the veil of
corporate fiction, the bad faith or wrongdoing of the director must be established clearly and
convincingly.24 Bad faith is never presumed.25 Bad faith does not connote bad judgment or
negligence. Bad faith imports a dishonest purpose. Bad faith means breach of a known duty
through some ill motive or interest. Bad faith partakes of the nature of fraud.26 In Businessday
Information Systems and Services, Inc. v. NLRC,27 we held:
There is merit in the contention of petitioner Raul Locsin that the complaint against him should
be dismissed. A corporate officer is not personally liable for the money claims of discharged
corporate employees unless he acted with evident malice and bad faith in terminating their
employment. There is no evidence in this case that Locsin acted in bad faith or with malice in
carrying out the retrenchment and eventual closure of the company (Garcia vs. NLRC, 153
SCRA 640), hence, he may not be held personally and solidarily liable with the company for
the satisfaction of the judgment in favor of the retrenched employees.
Neither does bad faith arise automatically just because a corporation fails to comply with the
notice requirement of labor laws on company closure or dismissal of employees. The failure to
give notice is not an unlawful act because the law does not define such failure as unlawful.
Such failure to give notice is a violation of procedural due process but does not amount to an
unlawful or criminal act. Such procedural defect is called illegal dismissal because it fails to
comply with mandatory procedural requirements, but it is not illegal in the sense that it
constitutes an unlawful or criminal act.
For a wrongdoing to make a director personally liable for debts of the corporation, the
wrongdoing approved or assented to by the director must be a patently unlawful act. Mere
failure to comply with the notice requirement of labor laws on company closure or dismissal of
employees does not amount to a patently unlawful act. Patently unlawful acts are those
declared unlawful by law which imposes penalties for commission of such unlawful acts. There
must be a law declaring the act unlawful and penalizing the act.
'Employer' includes any person acting in the interest of an employer, directly or indirectly. The
term shall not include any labor organization or any of its officers or agents except when acting
as employer. (Emphasis supplied)
Indeed, complainants seek to hold Carag personally liable for the debts of MAC based solely
on Article 212(e) of the Labor Code. This is the specific legal ground cited by complainants,
and used by Arbiter Ortiguerra, in holding Carag personally liable for the debts of MAC.
We have already ruled in McLeod v. NLRC29 and Spouses Santos v. NLRC30 that Article
212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the
debts of the corporation. The governing law on personal liability of directors for debts of the
corporation is still Section 31 of the Corporation Code. Thus, we explained in McLeod:
Personal liability of corporate directors, trustees or officers attaches only when (1) they assent
to a patently unlawful act of the corporation, or when they are 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) they consent to the issuance of watered
down stocks or when, having knowledge of such issuance, do not forthwith file with the
corporate secretary their written objection; (3) they agree to hold themselves personally and
solidarily liable with the corporation; or (4) they are made by specific provision of law
personally answerable for their corporate action.
http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan200
7.zip%3E9,df%7C2007/jan2007/146667.htm -
xxx

An example of a patently unlawful act is violation of Article 287 of the Labor Code, which
The ruling in A.C. Ransom Labor Union-CCLU v.
states that "[V]iolation of this provision is hereby declared unlawful and subject to the penal
NLRC,http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/
provisions provided under Article 288 of this Code." Likewise, Article 288 of the Labor Code on
jan2007.zip%3E9,df%7C2007/jan2007/146667.htm - which the Court of Appeals cited, does
Penal Provisions and Liabilities, provides that "any violation of the provision of this Code
not apply to this case. We quote pertinent portions of the ruling, thus:
declared unlawful or penal in nature shall be punished with a fine of not less than One
Thousand Pesos (P1,000.00) nor more than Ten Thousand Pesos (P10,000.00), or
imprisonment of not less than three months nor more than three years, or both such fine and (a) Article 265 of the Labor Code, in part, expressly provides:
imprisonment at the discretion of the court."
"Any worker whose employment has been terminated as a consequence of an unlawful
In this case, Article 28328 of the Labor Code, requiring a one-month prior notice to employees lockout shall be entitled to reinstatement with full backwages."
and the Department of Labor and Employment before any permanent closure of a company,
does not state that non-compliance with the notice is an unlawful act punishable under the
Article 273 of the Code provides that:
Code. There is no provision in any other Article of the Labor Code declaring failure to give
such notice an unlawful act and providing for its penalty.
"Any person violating any of the provisions of Article 265 of this Code shall be punished by a
fine of not exceeding five hundred pesos and/or imprisonment for not less than one (1)
Complainants did not allege or prove, and Arbiter Ortiguerra did not make any finding, that
day nor more than six (6) months."
Carag approved or assented to any patently unlawful act to which the law attaches a penalty
for its commission. On this score alone, Carag cannot be held personally liable for the
separation pay of complainants. (b) How can the foregoing provisions be implemented when the employer is a corporation?
The answer is found in Article 212 (c) of the Labor Code which provides:
This leaves us with Arbiter Ortiguerra's assertion that "when the company had already ceased
operations and there is no way by which a judgment in favor of employees could be satisfied, "(c) 'Employer' includes any person acting in the interest of an employer, directly or indirectly.
corporate officers can be held jointly and severally liable with the company." This assertion The term shall not include any labor organization or any of its officers or agents except when
echoes the complainants' claim that Carag is personally liable for MAC's debts to complainants acting as employer."
"on the basis of Article 212(e) of the Labor Code, as amended," which says:
The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM
is an artificial person, it must have an officer who can be presumed to be the employer, being
the "person acting in the interest of (the) employer" RANSOM. The corporation, only in the
technical sense, is the employer.
The responsible officer of an employer corporation can be held personally, not to say even
criminally, liable for non-payment of back wages. That is the policy of the law.
xxxx
(c) If the policy of the law were otherwise, the corporation employer can have devious ways for
evading payment of back wages. In the instant case, it would appear that RANSOM, in
1969, foreseeing the possibility or probability of payment of back wages to the 22
strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually
phased out if the 22 strikers win their case. RANSOM actually ceased operations on May 1,
1973, after the December 19, 1972 Decision of the Court of Industrial Relations was
promulgated against RANSOM.
http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan200
7.zip%3E9,df%7C2007/jan2007/146667.htm - (Emphasis supplied)
Clearly, in A.C. Ransom, RANSOM, through its President, organized ROSARIO to evade
payment of backwages to the 22 strikers. This situation, or anything similar showing malice or
bad faith on the part of Patricio, does not obtain in the present case. In Santos v. NLRC,
http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/2007/jan200
7.zip%3E9,df%7C2007/jan2007/146667.htm - the Court held, thus:
It is true, there were various cases when corporate officers were themselves held by the Court
to be personally accountable for the payment of wages and money claims to its employees. In
A.C. Ransom Labor Union-CCLU vs. NLRC, for instance, the Court ruled that under the
Minimum Wage Law, the responsible officer of an employer corporation could be held
personally liable for nonpayment of backwages for "(i)f the policy of the law were otherwise,
the corporation employer (would) have devious ways for evading payment of backwages." In
the absence of a clear identification of the officer directly responsible for failure to pay the
backwages, the Court considered the President of the corporation as such officer. The case
was cited in Chua vs. NLRC in holding personally liable the vice-president of the company,
being the highest and most ranking official of the corporation next to the President who was
dismissed for the latter's claim for unpaid wages.
A review of the above exceptional cases would readily disclose the attendance of facts and
circumstances that could rightly sanction personal liability on the part of the company officer. In
A.C. Ransom, the corporate entity was a family corporation and execution against it could
not be implemented because of the disposition posthaste of its leviable assets
evidently in order to evade its just and due obligations. The doctrine of "piercing the
veil of corporate fiction" was thus clearly appropriate. Chua likewise involved another
family corporation, and this time the conflict was between two brothers occupying the highest
ranking positions in the company. There were incontrovertible facts which pointed to extreme
personal animosity that resulted, evidently in bad faith, in the easing out from the company of
one of the brothers by the other.
The basic rule is still that which can be deduced from the Court's pronouncement in Sunio vs.
National Labor Relations Commission, thus:
We come now to the personal liability of petitioner, Sunio, who was made jointly and severally
responsible with petitioner company and CIPI for the payment of the backwages of private
respondents. This is reversible error. The Assistant Regional Director's Decision failed to
disclose the reason why he was made personally liable. Respondents, however, alleged as
grounds thereof, his being the owner of one-half (½) interest of said corporation, and his
alleged arbitrary dismissal of private respondents.
Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of
petitioner corporation. There appears to be no evidence on record that he acted maliciously or
in bad faith in terminating the services of private respondents. His act, therefore, was within
the scope of his authority and was a corporate act.
It is basic that a corporation is invested by law with a personality separate and distinct from
those of the persons composing it as well as from that of any other legal entity to which it may
be related. Mere ownership by a single stockholder or by another corporation of all or nearly all
of the capital stock of a corporation is not of itself sufficient ground for disregarding the
separate corporate personality. Petitioner Sunio, therefore, should not have been made
personally answerable for the payment of private respondents' back
salaries.http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/200
7/jan2007.zip%3E9,df%7C2007/jan2007/146667.htm -
Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend
crime. In the absence of malice, bad faith, or a specific provision of law making a corporate
officer liable, such corporate officer cannot be made personally liable for corporate liabilities.
Neither Article 212[e] nor Article 273 (now 272) of the Labor Code expressly makes any
corporate officer personally liable for the debts of the corporation. As this Court ruled in H.L.
Carlos Construction, Inc. v. Marina Properties
Corporation:http://elibrary.supremecourt.gov.ph/DOCUMENTS/SUPREME_COURT/Decisions/
2007/jan2007.zip%3E9,df%7C2007/jan2007/146667.htm -
We concur with the CA that these two respondents are not liable. Section 31 of the
Corporation Code (Batas Pambansa Blg. 68) provides:
"Section 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith ... shall be liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders and other persons."
The personal liability of corporate officers validly attaches only when (a) they assent to a
patently unlawful act of the corporation; or (b) they are guilty of bad faith or gross negligence in
directing its affairs; or (c) they incur conflict of interest, resulting in damages to the corporation,
its stockholders or other persons.31 (Boldfacing in the original; boldfacing with underscoring
supplied)
Thus, it was error for Arbiter Ortiguerra, the NLRC, and the Court of Appeals to hold Carag
personally liable for the separation pay owed by MAC to complainants based alone on Article
212(e) of the Labor Code. Article 212(e) does not state that corporate officers are personally
liable for the unpaid salaries or separation pay of employees of the corporation. The liability of
corporate officers for corporate debts remains governed by Section 31 of the Corporation
Code.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 29 February 2000
and the Resolution dated 27 March 2001 of the Court of Appeals in CA-G.R. SP Nos. 54404-
06 insofar as petitioner Antonio Carag is concerned.
SO ORDERED.