DETECTIVE & PROTECTIVE BUREAU, INC., petitioner, vs.

THE HONORABLE GAUDENCIO CLORIBEL, in his capacity as Presiding Judge of Branch VI, Court of First Instance of Manila, and FAUSTINO S. ALBERTO, respondents. Crispin D. Biazas and Associates and Jose S. Sarte for petitioner. Gaudencio T. Bocobo for respondents. ZALDIVAR, J.: The complaint, in Civil Case No. 56949 of the Court of First Instance of Manila, dated May 4, 1964, filed by Detective and Protective Bureau, Inc., therein plaintiff (petitioner herein) against Fausto S. Alberto, therein defendant (respondent herein), for accounting with preliminary injunction and receivership, alleged that plaintiff was a corporation duly organized and existing under the laws of the Philippines; that defendant was managing director of plaintiff corporation from 1952 until January 14, 1964; that in June, 1963, defendant illegally seized and took control of all the assets as well as the books, records, vouchers and receipts of the corporation from the accountant-cashier, concealed them illegally and refused to allow any member of the corporation to see and examine the same; that on January 14, 1964, the stockholders, in a meeting, removed defendant as managing director and elected Jose de la Rosa in his stead; that defendant not only had refused to vacate his office and to deliver the assets and books to Jose de la Rosa, but also continued to perform unauthorized acts for and in behalf of plaintiff corporation; that defendant had been required to submit a financial statement and to render an accounting of his administration from 1952 but defendant has failed to do so; that defendant, contrary to a resolution adopted by the Board of Directors on November 24, 1963, had been illegally disposing of corporate funds; that defendant, unless immediately restrained ex-parte, would continue discharging the functions of managing director; and that it was necessary to appoint a receiver to take charge of the assets and receive the income of the corporation. Plaintiff prayed that a preliminary injunction ex-parte be issued restraining defendant from exercising the functions of managing director and from disbursing and disposing of its funds; that Jose M. Barredo be appointed receiver; that, after judgment, the injunction be made permanent and defendant be ordered to render an accounting. Herein respondent Judge, the Honorable Gaudencio Cloribel, set for hearing plaintiff's prayer for ancillary relief and required the parties to submit their respective memoranda. On June 18, 1964, respondent Judge granted the writ of preliminary injunction prayed for, conditioned upon plaintiff's filing a bond of P5,000.00. Plaintiff filed the bond, but while the same was pending approval defendant Fausto S. Alberto filed, on July 1, 1964, a motion to admit a counter-bond for the purpose of lifting the order granting the writ of preliminary injunction. Inspite of the opposition filed by plaintiff, respondent Judge issued, on August 5, 1964, an order admitting the counterbond and setting aside the writ of preliminary injunction. On the belief that the order approving the counter-bond and lifting the writ of preliminary injunction was contrary to law and the act of respondent Judge constituted a grave abuse of discretion, and that there was no plain, speedy and adequate remedy available to it, plaintiff filed with this Court the instant petition for certiorari, praying that a writ of preliminary injunction enjoining defendant Fausto S. Albert from exercising the functions of managing director be issued, and that the order dated August 5, 1964 of respondent Judge approving the counter-bond and lifting the writ of preliminary injunction he had previously issued be set aside and declared null and void. The Court gave due course to the petition but did not issue a preliminary injunction. In his answer, now respondent Fausto S. Alberto traversed the material allegations of the petition, justified the order complained of, and prayed for the dismissal of the petition. From the pleadings, it appears that the only issue to be resolved is whether the order of respondent Judge dated August 5, 1964, admitting and approving the counter-bond of P5,000 and setting aside the writ of preliminary injunction granted in his order dated June 18, 164, was issued contrary to law and with grave abuse of discretion. Now petitioner contends that the setting aside of the order granting the writ was contrary to law and was done with a grave abuse of discretion, because: (1) the motion to admit defendant's counter-bond was not supported by affidavits showing why the counterbond should be admitted, as required by Section 6 of Rule 58; (2) the preliminary injunction was not issued ex-parte but after hearing, and the admission of the counter-bond rendered said writ ineffective; (3) the writ was granted in accordance with Rule 58 of the Rules of Court and established precedents' (4) public interest required that the writ be not set aside because respondent had arrogated unto himself all the powers of petitioning corporation, to the irreparable damage of the corporation; and that (5) the counter-bond could not compensate petitioner's damage. 1. The first reason given by petitioner in support of its contention that the dissolution of the writ of preliminary injunction was contrary to law is that the motion to admit respondent's counter-bond for the dissolution of the writ was not supported by affidavits as required by section 6 of Rule 58 of the Rules of Court. The controverted motion, however, does not appear in the record. However, the record shows that respondent Alberto had filed a verified answer to the complaint and a verified opposition to the issuance of the writ of preliminary injunction. Regarding the necessity of verification of the motion for dissolution of a writ of preliminary injunction, this Court has ruled that the requirement of verification is not absolute but is dependent on the circumstances obtaining in a particular case. In the case of Sy 1 Sam Bio, et al. vs. Barrios and Buyson Lampa, the only question raised was whether the respondent Judge exceeded his jurisdiction and abused his discretion in setting aside an order directing the issuance of a writ of preliminary injunction. In maintaining the affirmative, petitioners in that case alleged that the questioned order was issued in violation of the provisions of Section 169 of Act 190(which is one of the sources of Sec. 6 of Rule 58 of the revised Rules of Court)inasmuch as the Judge set aside said order and directed the dissolution of the preliminary injunction without any formal petition of the parties and without having followed the procedure prescribed by the statute. There was, however, a verbal application for the dissolution of the writ, based upon the ground of the in suficiency of the complaint which was the basis of the application for the issuance of said writ of preliminary injunction. This Court said: Section 169 of Act 1909 does not prescribe the manner of filing the application to annul or modify a writ of preliminary injunction. It simply states that if a temporary injunction be granted without notice, the defendant, at any time before trial, may apply, upon reasonable notice to the adverse party, to the judge who granted the injunction, or to the judge of the court of which the action was brought, to dissolve or modify the same. 2 On the strength of the decision in the above-cited case, this Court in Caluya, et al. vs. Ramos, et al., said; Petitioners' criticism that the motion to dissolve filed by the defendants in Civil Case No. 4634 was not verified, is also groundless inasmuch as even an indirect verbal application for the dissolution of an ex parteorder of preliminary injunction has been held to be a sufficient compliance with the provisions of Section 6 of Rule 60 (Moran, Comments on the Rules of Court, Second Edition, Vol. II,

p. 65, citing the case of Sy Yam Bio v. Barrios, etc., 63 Phil. 206), the obvious reason being that said rule does not prescribe the form by which an application for the dissolution or modification of an order of preliminary injunction should be presented. If according to the above rulings, Section 6 of Rule 60 (now sec. 6, Rule 58) of the Rules of Court did not require any form for the application for the dissolution of the writ of preliminary injunction, then respondent Fausto Alberto's motion to lift the preliminary injunction in the court below need not be verified, and much less must the motion be supported by affidavits, as urged by petitioner. 3 However, in Canlas, et al. vs. Aquino, et al., this Court ruled that a motion for the dissolution of a writ of preliminary injunction should be verified. In that case, respondent Tayag filed an unverified motion for the dissolution of a writ of preliminary injunction, alleging that the same "would work great damage to the defendant who had already spend a considerable sum of money" and that petitioners "can be fully compensated for any damages that they may suffer." The court granted the motion and dissolved the preliminary injunction. In an original action for a writ of certiorari filed with this Court to annual said order, this Court remarked in part: Petitioners herein are entitled to the writ prayed for. The motion of respondent Tayag for the dissolution of the writ of preliminary injunction issued on October 22, 1959, was unverified.... From the precedents quoted above, as well as from the terminology of Section 6 of Rule 58 of the new Rules of Court, it is evident that whether the application for the dissolution of the writ of preliminary injunction must be verified or not depends upon the ground upon which such application is based. If the application is based on the insufficiency of the complaint, the motion need not be verified. If the motion is based on the ground that the injunction would cause great damage to defendant while the plaintiff can be fully compensated for such damages as he may suffer, the motion should be verified. In the instant case, it is alleged by petitioner that the motion for the dissolution of the writ of preliminary injunction was not verified. This allegation was not denied in the answer. But because said motion does not appear in the record of the case now before this Court, We cannot determine what are the grounds for the dissolution that are alleged therein, and so We cannot rule on whether the motion should have been verified or not. This Court, therefore, has to rely on the order of respondent Judge, dated August 5, 1964, which states that "the filing of the counter-bond is in accordance with law." Consequently, the first ground alleged by petitioner must be brushed aside. 2. The second and third reasons alleged by petitioner in its petition for certiorari assume that a preliminary injunction issued after hearing and in accordance with Rule 58 cannot be set aside. This contention is untenable. The provision of Section 6 of Rule 58 that "the injunction may be refused, or, if granted ex parte, may be dissolved" can not be construed as putting beyond the reach of the court the dissolution of an injunction which was granted after hearing. The reason is because a writ of preliminary injunction is an interlocutory order, and as such it is always under the control of the court before final judgment. Thus, in Caluya, et al. vs. Ramos, et 4 al., this Court said: The first contention of the petitioners is that, as said injunction was issued after a hearing, the same cannot be dissolved, specially on the strength of an unverified motion for dissolution and in the absence to support it. Reliance is placed on Section 6 of Rule 60 of the Rules of Court which provides that "the injunction may be reduced, or, if granted ex parte, maybe dissolved," thereby arguing that if an injunction is not issued ex parte the same cannot be dissolved. The contention is clearly erroneous. Although said section prescribes the grounds for objecting to, or for moving the dissolution of, a preliminary injunction prior to its issuance or after its granting ex parte, it does not thereby outlaw a dissolution if the injunction has been issued after a hearing. This is to be so, because a writ of preliminary injunction is an interlocutory order which is always under the control of the court before final judgment. (Manila Electric Company vs. Artiaga and Green, 50 Phil. 144, 147). This Court has also ruled that the dissolution of a writ of preliminary injunction issued after hearing, even if the dissolution is ordered without giving the other party an opportunity to be heard, does not constitute an abuse of discretion and may be cured not 5 by certiorari but by appeal. In Clarke vs. Philippine Ready Mix Concrete Co., Inc., et al., one of the issues presented was whether a writ of preliminary injunction granted the plaintiff by a trial court after hearing, might be dissolved upon an ex parte application by the defendant, and this Court ruled that: The action of a trial court in dissolving a writ of preliminary injunction already issued after hearing, without giving petitioner an opportunity to be heard, does not constitute lack or excess of jurisdiction or an abuse of discretion, and any irregularity committed by the trial court on this score may be cured not by certiorari but by appeal. 3. The fourth reason alleged by petitioner in support of its stand is that public interest demanded that the writ enjoining respondent Fausto Alberto from exercising the functions of managing director be maintained. Petitioner contended that respondent Alberto had arrogated to himself the power of the Board of Directors of the corporation because he refused to vacate the office and surrender the same to Jose de la Rosa who had been elected managing director by the Board to succeed him. This assertion, however, was disputed by respondent Alberto who stated that Jose de la Rosa could not be elected managing director because he did not own any stock in the corporation. There is in the record no showing that Jose de la Rosa owned a share of stock in the corporation. If he did not own any share of stock, certainly he could not be a director pursuant to the mandatory provision of Section 30 of the Corporation Law, which in part provides: There is in the record no showing that Jose de la Rosa owned a share of stock in the corporation. If he did not own any share of stock, certainly he could not be a director pursuant to the mandatory provision of Section 30 of the Corporation Law, which in part provides: Sec. 30. Every director must own in his own right at least one share of the capital stock of the stock corporation of which he is a director, which stock shall stand in his name on the books of the corporations.... If he could not be a director, he could also not be a managing director of the corporation, pursuant to Article V, Section 3 of the ByLaws of the Corporation which provides that: The manager shall be elected by the Board of Directors from among its members.... (Record, p. 48) If the managing director-elect was not qualified to become managing director, respondent Fausto Alberto could not be compelled to vacate his office and cede the same to the managing director-elect because the by-laws of the corporation provides in Article IV, Section 1 that "Directors shall serve until the election and qualification of their duly qualified successor." 4. The fifth reason alleged by herein petitioner in support of its contention that respondent Judge gravely abused his discretion when he lifted the preliminary injunction upon the filing of the counter-bond was that said counter-bond could not compensate for the irreparable damage that the corporation would suffer by reason of the continuance of respondent Fausto Alberto as managing director of the corporation. Respondent Alberto, on the contrary, contended that he really was the owner of the controlling interest

in the business carried on the name of the petitioner, having invested therein a total of P57,727.29 as against the sum of P4,000 only invested by one other director, Jose M. Barredo. We find that there was a question as to who own the controlling interest in the corporation. Where ownership is in dispute, the party in control or possession of the disputed interest is presumed to have the better right until the contrary is adjudged, and hence that party should not be deprived of the control or possession until the court is 6 prepared to adjudicate the controverted right in favor of the other party. Should it be the truth that respondent Alberto is the controlling stockholder, then the damages said respondent would suffer would be the same, if not more, as the damages that the corporation would suffer if the injunction were maintained. If the bond of P5,000 filed by petitioner for the injunction would be sufficient to answer for the damages that would be suffered by respondent Alberto by reason of the injunction, there seems to be no reason why the same amount would not be sufficient to answer for the damages that might be suffered by the petitioning corporation by reason of the lifting of the injunction. The following ruling of this Court has a persuasive application in this case: The rule that a court should not, by means of a preliminary injunction, transfer property in litigation from the possession of one party to another is more particularly applicable where the legal title is in dispute and the party having possession asserts ownership 7 in himself. Let it be stated, in relation to all the reason given by petitioner, that it is a settled rule that the issuance of the writ of preliminary injunction as an ancillary or preventive remedy to secure the rights of a party in a pending case is entirely within the discretion of the court taking cognizance of the case the only limitation being that this discretion should be exercised based upon the grounds and 8 in the manner provided by law, and it is equally well settled that a wide latitude is given under Section 7 of Rule 58 of the Rules of Court to the trial court to modify or dissolve the injunction as justice may require. The court which is to exercise that discretion is the 9 trial court, not the appellate court. The exercise of sound judicial discretion by the lower court in injunctive matters should not be 10 interfered with except in cases of manifest abuse. In the instant case, We find that petitioner failed to show manifest abuse of discretion by respondent Judge in setting aside the writ of preliminary injunction. There is, however, one vital reason why the instant petition for certiorari should be denied. And it is, that from the order dissolving the writ of preliminary injunction, the petitioner has gone directly to this Court without giving the respondent Judge (or trial court) a chance or opportunity to correct his error, if any, in an appropriate motion for reconsideration. An omission to comply with this 11 procedural requirement justifies a denial of the writ applied for. The instant case is not one of the exceptions in the application of this rule, which are: where the questions of jurisdiction has been squarely raised, argued before, submitted to, and met and decided by the respondent court; where the questioned order is a patent 12 nullity; and where there is a deprivation of the petitioner's fundamental right to due process. It being our considered view that respondent Judge had not committed grave abuse of discretion in issuing the order dated August 5, 1964 lifting the writ of preliminary injunction which had previously been granted in the order dated June 18, 1964, and the herein petition for certiorari having been filed without previously complying with a well settled procedural requirement, there is no alternative for this Court but to order its dismissal. WHEREFORE, the instant petition for certiorari with preliminary injunction is dismissed, with costs againsts the petitioner. It is so ordered.

THE DIRECTOR OF LANDS, petitioner, vs. THE HONORABLE COURT OF APPEALS and IGLESIA NI CRISTO, respondents. The Solicitor General for petitioner. Cruz, Esguerra, Tafalla, Peren Castillo & Associates for respondents. FERNAN, J.: A complaint often heard from parties-litigants is the delay in the resolution of their cases. This is one instance where the delay will perhaps be regarded, at least by one of the parties, as a welcome occurrence for had the case at bar been resolved earlier, the result obtained may have been diametrically and extremely different. This is one of the several cases * involving the qualification of private respondent Iglesia ni Cristo, a corporation sole, to have an alleged alienable piece of public land registered in its name under the 1973 Constitution. The antecedents are as follows: On November 28, 1973, private respondent Iglesia ni Cristo filed an application with the then Court of First Instance of Cavite for registration in its name of a parcel of land with an area of 379 square meters located at Poblacion, Municipality of Amadeo, Cavite. In said application, private respondent alleged inter alia that it was the owner in fee simple of the land afore-described, having acquired title thereto by virtue of a Deed of Absolute Sale executed in 1947 by Aquelina de la Cruz in its favor and that applicant and its predecessors-in-interest had been in actual, continuous, public, peaceful and adverse possession and occupation of said land in the concept of owner for more than thirty [30] years. Private respondent prayed that should the Land Registration Act not be applicable, the provisions of Chapter VIII of Commonwealth Act No. 141, as amended by Republic Act No. 6236 be applied as applicant and its predecessors-in-interest had been in possession of the land for more than thirty [30] years and had introduced 1 improvements thereon, including the fencing thereof on all sides. The Republic of the Philippines, represented by the Director of Lands, opposed the application on the following grounds: 1] the applicant and its predecessors-in-interest did not possess sufficient title to acquire ownership in fee simple of the parcel of land applied for; 2] neither the applicant nor its predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of the land in question; and, 3] the subject parcel of land is a portion of the public domain belonging to 2 the Republic of the Philippines not subject to private appropriation. After trial, the Court of First Instance of Cavite rendered judgment granting private respondent's application for registration of title. It found that private respondent and its predecessors-in-interest had been in continuous, open and adverse possession of the subject property in the concept of owner for more than forty [40] years and that the land was not within any military and naval reservation, nor covered by any kind of public land application or patent, as it is within the proposed alienable or disposable block of 3 the proposed LC Project No. 5-A of Amadeo, Cavite. Believing that private respondent did not sufficiently Identify the land in question by reason of its failure to submit the original tracing cloth plan thereof and that private respondent was disqualified from holding, except by lease, alienable lands of the public domain under Section 11, Article XIV of the 1973 Constitution, the Director of Lands appealed the decision of the land registration court to the Court of Appeals. The appellate court, however, affirmed in toto the assailed decision. Hence, this petition for review on certiorari, petitioner Director of Lands reiterating as basis therefor the two [2] issues previously raised before the appellate court. We affirm. No reversible error was committed by the appellate court in ruling that Exhibit "O", the true certified copy of the white paper plan, was sufficient for the purpose of Identifying the land in question. Exhibit "O" was found by the appellate court to reflect the land as surveyed by a geodetic engineer. It bore the approval of the Land Registration Commission, and was reverified and approved by the Bureau of Lands on April 25,1974 pursuant to the provisions of P.D. No. 239 withdrawing from the Land Registration Commission the authority to approve original survey plans. It contained the following material data: the barrio [poblacion], municipality [Amadeo] and province [Cavite] where the subject land is located, its area of 379 square meters, the land as plotted, its technical descriptions and its natural boundaries. Exhibit "O" was further supported by the Technical 4 Descriptions signed by a geodetic surveyor and attested by the Land Registration Commission. In fine, Exhibit "O" contained all the details and information necessary for a proper and definite Identification of the land sought to be registered, thereby serving the purpose for which the original tracing cloth plan is required. The fact therefore that the original survey plan was recorded on white paper instead of a tracing cloth should not detract from the probative value thereof. As observed by the appellate court: Now, just because the law requires the filing of a tracing cloth of the plan, that We should be too technical about it that the submission of the certified copy of the white paper plan instead of the original of the tracing cloth of the plan would compel Us to deny the registration? The object of the law in requiring the submission of a tracing cloth of the plan duly approved by the Bureau of Lands is to establish the true identitythe location of the land, in terms of degrees and minutes in order that there is an assurance that it does not overlap a land or portion of land already covered by a previous land registration, or that there will be no possibility that it will be overlapped by a subsequent survey of any adjoining land. In the case at bar, such Identity can be well-established by the white paper plan. To Us, it would not matter if the plan introduced to establish the Identity of the land is made of cloth or is made of paper. For one thing, a tracing cloth of the plan is required to be 5 submitted to the Bureau of Lands. It must have a file copy of the same. Petitioner's heavy reliance on the case of Director of lands v. Reyes, 68 SCRA 177, is misplaced. The original tracing cloth plan was deemed essential in that case as the lands involved were vast tracts of uncultivated, mountainous and thickly forested lands which were necessarily difficult to Identify, unlike the land subject matter of the instant registration case which is more readily Identifiable by reason of its location, its comparatively smaller size of 379 square meters as well as the chapel constructed thereon by private respondent in 1968. Moreover, the documentary evidence presented therein consisting in the blue-prints of two [2] survey plans were not approved by the Director of Lands unlike Exhibit "O" which bore the approval of the Land Registration Commission at the time it was empowered by law to approve original survey plans and which was re- verified and approved by the Bureau of Lands when the authority to approve original survey plans was withdrawn from the Land Registration Commission by P.D. No. 239. As observed at the outset, had this case been resolved immediately after it was submitted for decision, the result may have been quite adverse to private respondent. For the rule then prevailing under the case of Manila Electric Company v. Castro-Bartolome et al., 114 SCRA 799, reiterated in Republic v. Villanueva, 114 SCRA 875 as well as the other subsequent cases involving private respondent adverted to above', is that a juridical person, private respondent in particular, is disqualified under the 1973 Constitution from applying for registration in its name alienable public land, as such land ceases to be public land "only upon the issuance of title

to any Filipino citizen claiming it under section 48[b]" of Commonwealth Act No. 141, as amended. These are precisely the cases cited by petitioner in support of its theory of disqualification. Since then, however, this Court had occasion to re-examine the rulings in these cases vis-a-vis the earlier cases of Carino v. Insular Government, 41 Phil. 935, Susi v. Razon, 48 Phil. 424 and Herico v. Dar, 95 SCRA 437, among others. Thus, in the recent case of Director of Lands v. Intermediate Appellate Court, 146 SCRA 509, We categorically stated that the majority ruling in Meralco is "no longer deemed to be binding precedent", and that "[T]he correct rule, ... is that alienable public land held by a possessor, personally or through his predecessors-in-interest, openly, continuously and exclusively for the prescribed statutory period [30 years under the 6 Public Land Act, as amended] is converted to private property by mere lapse or completion of said period, ipso jure." We further reiterated therein the timehonored principle of non-impairment of vested rights. The crucial factor to be determined therefore is the length of time private respondent and its predecessors-in-interest had been in possession of the land in question prior to the institution of the instant registration proceedings. The land under consideration was acquired by private respondent from Aquelina de la Cruz in 1947, who, in turn, acquired by same by purchase from the Ramos brothers and sisters, namely: Eusebia, Eulalia, Mercedes, Santos and Agapito, in 1936. Under section 48[b] of Commonwealth Act No. 141, as amended, "those who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition or ownership, for at least thirty years immediately preceding the filing of the application for confirmation of title except when prevented by war or force majeure" may apply to the Court of First Instance of the province where the land is located for confirmation of their claims, and the issuance of a certificate of title therefor, under the Land Registration Act. Said paragraph [b] further provides that "these shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter." Taking the year 1936 as the reckoning point, there being no showing as to when the Ramoses first took possession and occupation of the land in question, the 30-year period of open, continuous, exclusive and notorious possession and occupation required by law was completed in 1966. The completion by private respondent of this statutory 30-year period has dual significance in the light of Section 48[b] of Commonwealth Act No. 141, as amended and prevailing jurisprudence: [1] at this point, the land in question ceased by operation of law to be part of the public domain; and [2] private respondent could have its title thereto confirmed through the appropriate proceedings as under the Constitution then in force, private corporations or associations were not prohibited from acquiring public lands, but merely prohibited from acquiring, holding or leasing such type of land in excess of 1,024 hectares. If in 1966, the land in question was converted ipso jure into private land, it remained so in 1974 when the registration proceedings were commenced. This being the case, the prohibition under the 1973 Constitution would have no application. Otherwise construed, if in 1966, private respondent could have its title to the land confirmed, then it had acquired a vested right thereto, which 7 the 1973 Constitution can neither impair nor defeat. WHEREFORE, the instant petition for review on certiorari is hereby DENIED. The decision of the Court of appeals in CA-G.R. No. 63498-R is AFFIRMED IN TOTO. This decision is immediately executory. No pronouncement as to costs. SO ORDERED.

MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND NEPOMUCENO REDOVAN, petitioners, vs. THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A. TORRES, JR., MARIA THERESA V. VELOSO AND CASTRENSE C. VELOSO, respondents. Virgilio E. Dulay for petitioners. Torres, Tobias, Azura & Jocson for private respondents. NOCON, J.: 1 2 This is a petition for review on certiorari to annul and set aside the decision of the Court of Appeals affirming the decision of the Regional Trial Court of Pasay, Branch 114 Civil Cases Nos. 8198-P, and 2880-P, the dispositive portion of which reads, as follows: Wherefore, in view of all the foregoing considerations, in this Court hereby renders judgment, as follows: In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay for annulment or declaration of nullity of the decision of the Metropolitan Trial Court, Branch 46, Pasay City, in its Civil Case No. 38-81 entitled "Edgardo D. Pabalan, et al., vs. Spouses Florentino Manalastas, et al.," is dismissed for lack of merits; In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay Enterprises, Inc. for cancellation of title of Manuel A. Torres, Jr. (TCT No. 24799 of the Register of Deeds of Pasay City) and reconveyance, is dismissed for lack or merit, and, In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay are ordered to surrender and deliver possession of the parcel of land, together with all the improvements thereon, described in Transfer Certificate of Title No. 24799 of the Register of Deeds of Pasay City, in favor of therein plaintiffs Manuel A. Torres, Jr. as owner and Edgardo D. Pabalan as real estate administrator of said Manuel A. Torres, Jr.; to account for and return to said plaintiffs the rentals from dwelling unit No. 8-A of the apartment building (Dulay Apartment) from June 1980 up to the present, to indemnify plaintiffs, jointly and severally, expenses of litigation in the amount of P4,000.00 and attorney's fees in the sum of P6,000.00, for all the three (3) cases. Co-defendant Nepomuceno Redovan is ordered to pay the current and subsequent rentals on the premises leased by him to plaintiffs. The counterclaim of defendants Virgilio E. Dulay and Manuel R. Dulay Enterprises, Inc. and N. Redovan, dismissed for lack of merit. 3 With costs against the three (3) aforenamed defendants. The facts as found by the trial court are as follows: Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as members of its Board of Directors: Manuel R. Dulay with 19,960 shares and designated as president, treasurer and general manager, Atty. Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. Dulay with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 4 shares and designated as secretary, owned a property covered by TCT No. 17880 and known as Dulay Apartment consisting of sixteen (16) apartment units on a six hundred eighty-nine (689) square meters lot, more or less, located at Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay City. Petitioner corporation through its president, Manuel Dulay, obtained various loans for the construction of its hotel project, Dulay Continental Hotel (now Frederick Hotel). It even had to borrow money from petitioner Virgilio Dulay to be able to continue the hotel project. As a result of said loan, petitioner Virgilio Dulay occupied one of the unit apartments of the subject property since property since 1973 while at the same time managing the Dulay Apartment at his shareholdings in the corporation was subsequently 5 increased by his father. On December 23, 1976, Manuel Dulay by virtue of Board Resolution 6 No 18 of petitioner corporation sold the subject property to private respondents spouses Maria Theresa and Castrense Veloso in 7 the amount of P300,000.00 as evidenced by the Deed of Absolute Sale. Thereafter, TCT No. 17880 was cancelled and TCT No. 8 23225 was issued to private respondent Maria Theresa Veloso. Subsequently, Manuel Dulay and private respondents spouses 9 Veloso executed a Memorandum to the Deed of Absolute Sale of December 23, 1976 dated December 9, 1977 giving Manuel Dulay within (2) years or until December 9, 1979 to repurchase the subject property for P200,000.00 which was, however, not annotated either in TCT No. 17880 or TCT No. 23225. On December 24, 1976, private respondent Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject property 10 to private respondent Manuel A. Torres for a loan of P250,000.00 which was duly annotated as Entry No. 68139 in TCT No. 23225. Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the subject property was sold on April 5, 1978 to private respondent Torres as the highest bidder in an extrajudicial foreclosure sale as evidenced by the Certificate of 11 Sheriff's Sale issued on April 20, 1978. 12 On July 20, 1978, private respondent Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem in favor of Manuel Dulay assigning her right to repurchase the subject property from private respondent Torres as a result of the extra sale held on April 25, 1978. As neither private respondent Maria Veloso nor her assignee Manuel Dulay was able to redeem the subject property within the one 13 year statutory period for redemption, private respondent Torres filed an Affidavit of Consolidation of Ownership with the Registry 14 of Deeds of Pasay City and TCT No. 24799 was subsequently issued to private respondent Manuel Torres on April 23, 1979. On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of possession against private respondents spouses Veloso and Manuel Dulay in LRC Case No. 1742-P. However, when petitioner Virgilio Dulay was never authorized by the petitioner corporation to sell or mortgage the subject property, the trial court ordered private respondent Torres to implead petitioner corporation as an indispensable party but the latter moved for the dismissal of his petition which was granted in an Order dated April 8, 1980. On June 20, 1980, private respondent Torres and Edgardo Pabalan, real estate administrator of Torres, filed an action against petitioner corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay Apartment Unit No. 8-A for the recovery of possession, sum of money and damages with preliminary injunction in Civil Case, No. 8198-P with the then Court of First Instance of Rizal. On July 21, 1980, petitioner corporation filed an action against private respondents spouses Veloso and Torres for the cancellation of the Certificate of Sheriff's Sale and TCT No. 24799 in Civil Case No. 8278-P with the then Court of First Instance of Rizal. On January 29, 1981, private respondents Pabalan and Torres filed an action against spouses Florentino and Elvira Manalastas, a tenant of Dulay Apartment Unit No. 7-B, with petitioner corporation as intervenor for ejectment in Civil Case No. 38-81 with the Metropolitan Trial Court of Pasay City which rendered a decision on April 25, 1985, dispositive portion of which reads, as follows: Wherefore, judgment is hereby rendered in favor of the plaintiff (herein private respondents) and against the defendants:

1. Ordering the defendants and all persons claiming possession under them to vacate the premises. 2. Ordering the defendants to pay the rents in the sum of P500.000 a month from May, 1979 until they shall have vacated the premises with interest at the legal rate; 3. Ordering the defendants to pay attorney's fees in the sum of P2,000.00 and P1,000.00 as other expenses of litigation and for them 15 to pay the costs of the suit. Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed an action against the presiding judge of the Metropolitan Trial Court of Pasay City, private respondents Pabalan and Torres for the annulment of said decision with the Regional Trial Court of Pasay in Civil Case No. 2880-P. Thereafter, the three (3) cases were jointly tried and the trial court rendered a decision in favor of private respondents. Not satisfied with said decision, petitioners appealed to the Court of Appeals which rendered a decision on October 23, 1989, the dispositive portion of which reads, as follows: 16 PREMISES CONSIDERED, the decision being appealed should be as it is hereby AFFIRMED in full. On November 8, 1989, petitioners filed a Motion for Reconsideration which was denied on January 26, 1990. Hence, this petition. 17 During the pendency of this petition, private respondent Torres died on April 3, 1991 as shown in his death certificate and named 18 Torres-Pabalan Realty & Development Corporation as his heir in his holographic will dated October 31, 1986. Petitioners contend that the respondent court had acted with grave abuse of discretion when it applied the doctrine of piercing the veil of corporate entity in the instant case considering that the sale of the subject property between private respondents spouses Veloso and Manuel Dulay has no binding effect on petitioner corporation as Board Resolution No. 18 which authorized the sale of the subject property was resolved without the approval of all the members of the board of directors and said Board Resolution was prepared by a person not designated by the corporation to be its secretary. We do not agree. Section 101 of the Corporation Code of the Philippines provides: Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide otherwise, any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if: 1. Before or after such action is taken, written consent thereto is signed by all the directors, or 2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing; or 3. The directors are accustomed to take informal action with the express or implied acquiese of all the stockholders, or 4. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing. If a directors' meeting is held without call or notice, an action taken therein within the corporate powers is deemed ratified by a director who failed to attend, unless he promptly files his written objection with the secretary of the corporation after having knowledge thereof. In the instant case, petitioner corporation is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president. At any rate, corporate action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting which, in his case, petitioner Virgilio Dulay failed to do. It is relevant to note that although a corporation is an entity which has a personality distinct and separate from its individual 19 stockholders or members, the veil of corporate fiction may be pierced when it is used to defeat public convenience justify wrong, 20 protect fraud or defend crime. The privilege of being treated as an entity distinct and separate from its stockholder or members is therefore confined to its legitimate uses and is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act. When the corporation is used merely as an alter ego or business conduit of a person, the law will regard the corporation 21 as the act of that person. The Supreme Court had repeatedly disregarded the separate personality of the corporation where the corporate entity was used to annul a valid contract executed by one of its members. Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to private respondents spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed without the knowledge and consent of the other members of the board of directors cannot be sustained. As correctly pointed out by the respondent Court of Appeals: Appellant Virgilio E. Dulay's protestations of complete innocence to the effect that he never participated nor was even aware of any meeting or resolution authorizing the mortgage or sale of the subject premises (see par. 8, affidavit of Virgilio E. Dulay, dated May 31, 1984, p. 14, Exh. "21") is difficult to believe. On the contrary, he is very much privy to the transactions involved. To begin with, he is a incorporator and one of the board of directors designated at the time of the organization of Manuel R. Dulay Enterprise, Inc. In ordinary parlance, the said entity is loosely referred to as a "family corporation". The nomenclature, if imprecise, however, fairly reflects the cohesiveness of a group and the parochial instincts of the individual members of such an aggrupation of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its incorporators being close relatives namely, three (3) children and their father 22 whose name identifies their corporation (Articles of Incorporation of Manuel R. Dulay Enterprises, Inc. Exh. "31-A"). 23 Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed an affidavit that he was a signatory witness to the execution of the post-dated Deed of Absolute Sale of the subject property in favor of private respondent Torres indicates that he was aware of the transaction executed between his father and private respondents and had, therefore, adequate knowledge about the sale of the subject property to private respondents. Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject property to private respondents by Manuel Dulay is valid and binding. As stated by the trial court: . . . the sale between Manuel R. Dulay Enterprises, Inc. and the spouses Maria Theresa V. Veloso and Castrense C. Veloso, was a corporate act of the former and not a personal transaction of Manuel R. Dulay. This is so because Manuel R. Dulay was not only president and treasurer but also the general manager of the corporation. The corporation was a closed family corporation and the only non-relative in the board of directors was Atty. Plaridel C. Jose who appeared on paper as the secretary. There is no denying the fact, however, that Maria Socorro R. Dulay at times acted as secretary. . . ., the Court can not lose sight of the fact that the Manuel R. Dulay Enterprises, Inc. is a closed family corporation where the incorporators and directors belong to one single family. It cannot be concealed that Manuel R. Dulay as president, treasurer and general manager almost had absolute control over the business and 24 affairs of the corporation.

Moreover, the appellate courts will not disturb the findings of the trial judge unless he has plainly overlooked certain facts of 25 substance and value that, if considered, might affect the result of the case, which is not present in the instant case. Petitioners' contention that private respondent Torres never acquired ownership over the subject property since the latter was never in actual possession of the subject property nor was the property ever delivered to him is also without merit. Paragraph 1, Article 1498 of the New Civil Code provides: When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary do not appear or cannot clearly be inferred. Under the aforementioned article, the mere execution of the deed of sale in a public document is equivalent to the delivery of the property. Likewise, this Court had held that: It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during the period of one year after the registration of the sale. As such, he is entitled to the possession of the said property and can demand it at any time following the consolidation of ownership in his name and the issuance to him of a new transfer certificate of title. The buyer can in fact demand possession of the land even during the redemption period except that he has to post a bond in accordance with Section 7 of Act No. 3133 as amended. No such bond is required after the redemption period if the property is not 26 redeemed. Possession of the land then becomes an absolute right of the purchaser as confirmed owner. Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of Sale in deemed equivalent to delivery. Finally, we hold that the respondent appellate court did not err in denying petitioner's motion for reconsideration despite the fact that private respondents failed to submit their comment to said motion as required by the respondent appellate court from resolving petitioners' motion for reconsideration without the comment of the private respondent which was required merely to aid the court in the disposition of the motion. The courts are as much interested as the parties in the early disposition of cases before them. To require otherwise would unnecessarily clog the courts' dockets. WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED. SO ORDERED.

E. B. VILLAROSA & PARTNER CO., LTD., petitioner, vs. HON. HERMINIO I. BENITO, in his capacity as Presiding Judge, RTC, Branch 132, Makati City and IMPERIAL DEVELOPMENT CORPORATION, respondent. DECISION GONZAGA-REYES, J.: Before this Court is a petition for certiorari and prohibition with prayer for the issuance of a temporary restraining order and/or writ of preliminary injunction seeking to annul and set aside the Orders dated August 5, 1998 and November 20, 1998 of the public respondent Judge Herminio I. Benito of the Regional Trial Court of Makati City, Branch 132 and praying that the public respondent court be ordered to desist from further proceeding with Civil Case No. 98-824. Petitioner E.B. Villarosa & Partner Co., Ltd. is a limited partnership with principal office address at 102 Juan Luna St., Davao City and with branch offices at 2492 Bay View Drive, Tambo, Paraaque, Metro Manila and Kolambog, Lapasan, Cagayan de Oro City. Petitioner and private respondent executed a Deed of Sale with Development Agreement wherein the former agreed to develop certain parcels of land located at Barrio Carmen, Cagayan de Oro belonging to the latter into a housing subdivision for the construction of low cost housing units. They further agreed that in case of litigation regarding any dispute arising therefrom, the venue shall be in the proper courts of Makati. On April 3, 1998, private respondent, as plaintiff, filed a Complaint for Breach of Contract and Damages against petitioner, as defendant, before the Regional Trial Court of Makati allegedly for failure of the latter to comply with its contractual obligation in [1] that, other than a few unfinished low cost houses, there were no substantial developments therein. Summons, together with the complaint, were served upon the defendant, through its Branch Manager Engr. Wendell Sabulbero at [2] [3] the stated address at Kolambog, Lapasan, Cagayan de Oro City but the Sheriffs Return of Service stated that the summons was duly served upon defendant E. B. Villarosa & Partner Co., Ltd. thru its Branch Manager Engr. WENDELL SALBULBERO on May 5, 1998 at their new office Villa Gonzalo, Nazareth, Cagayan de Oro City, and evidenced by the signature on the face of the original copy of the summons. [4] On June 9, 1998, defendant filed a Special Appearance with Motion to Dismiss alleging that on May 6, 1998, summons intended for defendant was served upon Engr. Wendell Sabulbero, an employee of defendant at its branch office at Cagayan de Oro City. Defendant prayed for the dismissal of the complaint on the ground of improper service of summons and for lack of jurisdiction over the person of the defendant. Defendant contends that the trial court did not acquire jurisdiction over its person since the summons was improperly served upon its employee in its branch office at Cagayan de Oro City who is not one of those persons named in Section 11, Rule 14 of the 1997 Rules of Civil Procedure upon whom service of summons may be made. [5] Meanwhile, on June 10, 1998, plaintiff filed a Motion to Declare Defendant in Default alleging that defendant has failed to file an Answer despite its receipt allegedly on May 5, 1998 of the summons and the complaint, as shown in the Sheriffs Return. [6] On June 22, 1998, plaintiff filed an Opposition to Defendants Motion to Dismiss alleging that the records show that defendant, through its branch manager, Engr. Wendell Sabulbero actually received the summons and the complaint on May 8, 1998 as evidenced by the signature appearing on the copy of the summons and not on May 5, 1998 as stated in the Sheriffs Return nor on May 6, 1998 as stated in the motion to dismiss; that defendant has transferred its office from Kolambog, Lapasan, Cagayan de Oro to its new office address at Villa Gonzalo, Nazareth, Cagayan de Oro; and that the purpose of the rule is to bring home to the corporation notice of the filing of the action. [7] On August 5, 1998, the trial court issued an Order denying defendants Motion to Dismiss as well as plaintiffs Motion to Declare Defendant in Default. Defendant was given ten (10) days within which to file a responsive pleading. The trial court stated that since the summons and copy of the complaint were in fact received by the corporation through its branch manager Wendell Sabulbero, there was substantial compliance with the rule on service of summons and consequently, it validly acquired jurisdiction over the person of the defendant. [8] On August 19, 1998, defendant, by Special Appearance, filed a Motion for Reconsideration alleging that Section 11, Rule 14 of the new Rules did not liberalize but, on the contrary, restricted the service of summons on persons enumerated therein; and that the new provision is very specific and clear in that the word manager was changed to general manager, secretary to corporate secretary, and excluding therefrom agent and director. [9] On August 27, 1998, plaintiff filed an Opposition to defendants Motion for Reconsideration alleging that defendants branch manager did bring home to the defendant-corporation the notice of the filing of the action and by virtue of which a motion to dismiss was filed; and that it was one (1) month after receipt of the summons and the complaint that defendant chose to file a motion to dismiss. [10] On September 4, 1998, defendant, by Special Appearance, filed a Reply contending that the changes in the new rules are substantial and not just general semantics. [11] Defendants Motion for Reconsideration was denied in the Order dated November 20, 1998. Hence, the present petition alleging that respondent court gravely abused its discretion tantamount to lack or in excess of jurisdiction in denying petitioners motions to dismiss and for reconsideration, despite the fact that the trial court did not acquire jurisdiction over the person of petitioner because the summons intended for it was improperly served. Petitioner invokes Section 11 of Rule 14 of the 1997 Rules of Civil Procedure. Private respondent filed its Comment to the petition citing the cases of Kanlaon Construction Enterprises Co., Inc. vs. [12] [13] NLRC wherein it was held that service upon a construction project manager is valid and in Gesulgon vs. NLRC which held that a corporation is bound by the service of summons upon its assistant manager. The only issue for resolution is whether or not the trial court acquired jurisdiction over the person of petitioner upon service of summons on its Branch Manager. [14] When the complaint was filed by Petitioner on April 3, 1998, the 1997 Rules of Civil Procedure was already in force. Section 11, Rule 14 of the 1997 Rules of Civil Procedure provides that: When the defendant is a corporation, partnership or association organized under the laws of the Philippines with a juridical personality, service may be made on the president, managing partner, general manager, corporate secretary, treasurer, or in-house counsel. (underscoring supplied). This provision revised the former Section 13, Rule 14 of the Rules of Court which provided that: SEC. 13. Service upon private domestic corporation or partnership. If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent, or any of its directors. (underscoring supplied).

Petitioner contends that the enumeration of persons to whom summons may be served is restricted, limited and exclusive following the rule on statutory construction expressio unios est exclusio alterius and argues that if the Rules of Court Revision Committee intended to liberalize the rule on service of summons, it could have easily done so by clear and concise language. We agree with petitioner. [15] [16] Earlier cases have uphold service of summons upon a construction project manager ; a corporations assistant manager ; [17] [18] [19] ordinary clerk of a corporation ; private secretary of corporate executives ; retained counsel ; officials who had charge or [20] control of the operations of the corporation, like the assistant general manager ; or the corporations Chief Finance and [21] Administrative Officer . In these cases, these persons were considered as agent within the contemplation of the old [22] rule. Notably, under the new Rules, service of summons upon an agent of the corporation is no longer authorized. The cases cited by private respondent are therefore not in point. In the Kanlaon case, this Court ruled that under the NLRC Rules of Procedure, summons on the respondent shall be served personally or by registered mail on the party himself; if the party is represented by counsel or any other authorized representative or agent, summons shall be served on such person. In said case, summons was served on one Engr. Estacio who managed and supervised the construction project in Iligan City (although the principal address of the corporation is in Quezon City) and supervised the work of the employees. It was held that as manager, he had sufficient responsibility and discretion to realize the importance of the legal papers served on him and to relay the same to the president or other responsible officer of petitioner such that summons for petitioner was validly served on him as agent and authorized representative of petitioner. Also in the Gesulgon case cited by private respondent, the summons was received by the clerk in the office of the Assistant Manager (at principal office address) and under Section 13 of Rule 14 (old rule), summons may be made upon the clerk who is regarded as agent within the contemplation of the rule. The designation of persons or officers who are authorized to accept summons for a domestic corporation or partnership is now limited and more clearly specified in Section 11, Rule 14 of the 1997 Rules of Civil Procedure. The rule now states general manager instead of only manager; corporate secretary instead of secretary; and treasurer instead of cashier. The phrase agent, or any of its directors is conspicuously deleted in the new rule. [23] The particular revision under Section 11 of Rule 14 was explained by retired Supreme Court Justice Florenz Regalado, thus: x x x the then Sec. 13 of this Rule allowed service upon a defendant corporation to be made on the president, manager, secretary, cashier, agent or any of its directors. The aforesaid terms were obviously ambiguous and susceptible of broad and sometimes illogical interpretations, especially the word agent of the corporation. The Filoil case, involving the litigation lawyer of the corporation who precisely appeared to challenge the validity of service of summons but whose very appearance for that purpose was seized upon to validate the defective service, is an illustration of the need for this revised section with limited scope and specific terminology. Thus the absurd result in the Filoil case necessitated the amendment permitting service only on the in-house counsel of the corporation who is in effect an employee of the corporation, as distinguished from an independent practitioner. (underscoring supplied) Retired Justice Oscar Herrera, who is also a consultant of the Rules of Court Revision Committee, stated that (T)he rule must be [24] strictly observed. Service must be made to one named in (the) statute x x x. It should be noted that even prior to the effectivity of the 1997 Rules of Civil Procedure, strict compliance with the rules has been [25] enjoined. In the case of Delta Motor Sales Corporation vs. Mangosing, the Court held: A strict compliance with the mode of service is necessary to confer jurisdiction of the court over a corporation. The officer upon whom service is made must be one who is named in the statute; otherwise the service is insufficient. x x x. The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice in an action against it or to insure that the summons be served on a representative so integrated with the corporation that such person will know what to do with the legal papers served on him. In other words, to bring home to the corporation notice of the filing of the action. x x x. The liberal construction rule cannot be invoked and utilized as a substitute for the plain legal requirements as to the manner in which summons should be served on a domestic corporation. x x x. (underscoring supplied). [26] Service of summons upon persons other than those mentioned in Section 13 of Rule 14 (old rule) has been held as improper. Even under the old rule, service upon a general manager of a firms branch office has been held as improper as summons should have [27] been served at the firms principal office. In First Integrated Bonding & Ins. Co., Inc. vs. Dizon, it was held that the service of summons on the general manager of the insurance firms Cebu branch was improper; default order could have been obviated had the summons been served at the firms principal office. [28] And in the case of Solar Team Entertainment, Inc. vs. Hon. Helen Bautista Ricafort, et al. the Court succinctly clarified that, for the guidance of the Bench and Bar, strictest compliance with Section 11 of Rule 13 of the 1997 Rules of Civil Procedure (on Priorities in modes of service and filing) is mandated and the Court cannot rule otherwise, lest we allow circumvention of the innovation by the 1997 Rules in order to obviate delay in the administration of justice. Accordingly, we rule that the service of summons upon the branch manager of petitioner at its branch office at Cagayan de Oro, instead of upon the general manager at its principal office at Davao City is improper. Consequently, the trial court did not acquire jurisdiction over the person of the petitioner. The fact that defendant filed a belated motion to dismiss did not operate to confer jurisdiction upon its person. There is no question [29] that the defendants voluntary appearance in the action is equivalent to service of summons. Before, the rule was that a party may challenge the jurisdiction of the court over his person by making a special appearance through a motion to dismiss and if in the same motion, the movant raised other grounds or invoked affirmative relief which necessarily involves the exercise of the [30] jurisdiction of the court, the party is deemed to have submitted himself to the jurisdiction of the court. This doctrine has been [31] abandoned in the case of La Naval Drug Corporation vs. Court of Appeals, et al., which became the basis of the adoption of a new provision in the former Section 23, which is now Section 20 of Rule 14 of the 1997 Rules. Section 20 now provides that the inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance. The emplacement of this rule clearly underscores the purpose to enforce strict enforcement of the rules on summons. Accordingly, the filing of a motion to dismiss, whether or not belatedly filed by the defendant, his authorized agent or attorney, precisely objecting to the jurisdiction of the court over the person of the defendant can by no means be deemed a submission to the jurisdiction of the court. There being no proper service of summons, the trial court cannot take cognizance of a case for lack of jurisdiction over the person of the defendant. Any proceeding undertaken by the trial court will consequently be null [32] and void.

WHEREFORE, the petition is hereby GRANTED. The assailed Orders of the public respondent trial court are ANNULLED and SET ASIDE. The public respondent Regional Trial Court of Makati, Branch 132 is declared without jurisdiction to take cognizance of Civil Case No. 98-824, and all its orders and issuances in connection therewith are hereby ANNULLED and SET ASIDE. SO ORDERED.

THE EDWARD J. NELL COMPANY, petitioner, vs. PACIFIC FARMS, INC., respondent. Agrava & Agrava for petitioner. Araneta, Mendoza & Papa for respondent. CONCEPCION, J.: Appeal by certiorari, taken by Edward J. Nell Co. hereinafter referred to as appellant from a decision of the Court of Appeals. On October 9, 1958, appellant secured in Civil Case No. 58579 of the Municipal Court of Manila against Insular Farms, Inc. hereinafter referred to as Insular Farms a judgment for the sum of P1,853.80 representing the unpaid balance of the price of a pump sold by appellant to Insular Farms with interest on said sum, plus P125.00 as attorney's fees and P84.00 as costs. A writ of execution, issued after the judgment had become final, was, on August 14, 1959, returned unsatisfied, stating that Insular Farms had no leviable property. Soon thereafter, or on November 13, 1959, appellant filed with said court the present action against Pacific Farms, Inc. hereinafter referred to as appellee for the collection of the judgment aforementioned, upon the theory that appellee is the alter ego of Insular Farms, which appellee has denied. In due course, the municipal court rendered judgment dismissing appellant's complaint. Appellant appealed, with the same result, to the court of first instance and, subsequently, to the Court of Appeals. Hence this appeal by certiorari, upon the ground that the Court of Appeals had erred: (1) in not holding the appellee liable for said unpaid obligation of the Insular Farms; and (2) in not granting attorney's fees to appellant. With respect to the first ground, it should be noted that appellant's complaint in the municipal court was anchored upon the theory that appellee is an alter ego of Insular Farms, because the former had purchased all or substantially all of the shares of stock, as well as the real and personal properties of the latter, including the pumping equipment sold by appellant to Insular Farms. The record shows that, on March 21, 1958, appellee purchased 1,000 shares of stock of Insular Farms for P285,126.99; that, thereupon, appellee sold said shares of stock to certain individuals, who forthwith reorganized said corporation; and that the board of directors thereof, as reorganized, then caused its assets, including its leasehold rights over a public land in Bolinao, Pangasinan, to be sold to herein appellee for P10,000.00. We agree with the Court of Appeals that these facts do not prove that the appellee is an alter ego of Insular Farms, or is liable for its debts. The rule is set forth in Fletcher Cyclopedia Corporations, Vol. 15, Sec. 7122, pp. 160-161, as follows: Generally where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor, except: (1) where the purchaser expressly or impliedly agrees to assume such debts; (2) where the transaction amounts to a consolidation or merger of the corporations; (3) where the purchasing corporation is merely a continuation of the selling corporation; and (4) where the transaction is entered into fraudulently in order to escape liability for such debts. In the case at bar, there is neither proof nor allegation that appellee had expressly or impliedly agreed to assume the debt of Insular Farms in favor of appellant herein, or that the appellee is a continuation of Insular Farms, or that the sale of either the shares of stock or the assets of Insular Farms to the appellee has been entered into fraudulently, in order to escape liability for the debt of the Insular Farms in favor of appellant herein. In fact, these sales took place (March, 1958) not only over six (6) months before the rendition of the judgment (October 9, 1958) sought to be collected in the present action, but, also, over a month before the filing of the case (May 29, 1958) in which said judgment was rendered. Moreover, appellee purchased the shares of stock of Insular Farms as thehighest bidder at an auction sale held at the instance of a bank to which said shares had been pledged as security for an obligation of Insular Farms in favor of said bank. It has, also, been established that the appellee had paid P285,126.99 for said shares of stock, apart from the sum of P10,000.00 it, likewise, paid for the other assets of Insular Farms. Neither is it claimed that these transactions have resulted in the consolidation or merger of the Insular Farms and appellee herein. On the contrary, appellant's theory to the effect that appellee is an alter ego of the Insular Farms negates such consolidation or merger, for a corporation cannot be its own alter ego. It is urged, however, that said P10,000.00 paid by appellee for other assets of Insular Farms is a grossly inadequate price, because, appellant now claims, said assets were worth around P285,126.99, and that, consequently, the sale must be considered fraudulent. However, the sale was submitted to and approved by the Securities and Exchange Commission. It must be presumed, therefore, that the price paid was fair and reasonable. Moreover, the only issue raised in the court of origin was whether or not appellee is an alter ego of Insular Farms. The question of whether the aforementioned sale of assets for P10,000.00 was fraudulent or not, had not been put in issue in said court. Hence, it may, not be raised on appeal. Being a mere consequence of the first assignment of error, which is thus clearly untenable, appellant's second assignment of error needs no discussion. WHEREFORE, the decision appealed from is hereby affirmed, with costs against the appellant. It is so ordered.

EDWARD A. KELLER & CO., LTD., petitioner-appellant, vs. COB GROUP MARKETING, INC., JOSE E. BAX, FRANCISCO C. DE CASTRO, JOHNNY DE LA FUENTE, SERGIO C. ORDOEZ, TRINIDAD C. ORDOEZ, MAGNO C. ORDOEZ, ADORACION C. ORDOEZ, TOMAS C. LORENZO, JR., LUIZ M. AGUILA-ADAO, MOISES P. ADAO, ASUNCION MANAHAN and INTERMEDIATE APPELLATE COURT, respondents-appellees. Sycip, Salazar, Feliciano & Hernandez Law Office for petitioner. Vicente G. Gregorio for private respondents. Roberto P. Vega for respondent Asuncion Manahan. AQUINO, C.J.: This case is about the liability of a marketing distributor under its sales agreements with the owner of the products. The petitioner presented its evidence before Judges Castro Bartolome and Benipayo. Respondents presented their evidence before Judge Tamayo who decided the case. A review of the record shows that Judge Tamayo acted under a misapprehension of facts and his findings are contradicted by the evidence. The Appellate Court adopted the findings of Judge Tamayo. This is a case where this Court is not bound by the factual findings of the Appellate Court. (See Director of Lands vs. Zartiga, L-46068-69, September 30, 1982, 117 SCRA 346, 355). Edward A. Keller & Co., Ltd. appointed COB Group Marketing, Inc. as exclusive distributor of its household products, Brite and Nuvan in Panay and Negros, as shown in the sales agreement dated March 14, 1970 (32-33 RA). Under that agreement Keller sold on credit its products to COB Group Marketing. As security for COB Group Marketing's credit purchases up to the amount of P35,000, one Asuncion Manahan mortgaged her land to Keller. Manahan assumed solidarily with COB Group Marketing the faithful performance of all the terms and conditions of the sales agreement (Exh. D). In July, 1970 the parties executed a second sales agreement whereby COB Group Marketing's territory was extended to Northern and Southern Luzon. As security for the credit purchases up to P25,000 of COB Group Marketing for that area, Tomas C. Lorenzo, Jr. and his father Tomas, Sr. (now deceased) executed a mortgage on their land in Nueva Ecija. Like Manahan, the Lorenzos were solidarily liable with COB Group Marketing for its obligations under the sales agreement (Exh. E). The credit purchases of COB Group Marketing, which started on October 15, 1969, limited up to January 22, 1971. On May 8, the board of directors of COB Group Marketing were apprised by Jose E. Bax the firm's president and general manager, that the firm owed Keller about P179,000. Bax was authorized to negotiate with Keller for the settlement of his firm's liability (Exh. 1, minutes of the meeting). On the same day, May 8, Bax and R. Oefeli of Keller signed the conditions for the settlement of COB Group Marketing's liability, Exhibit J, reproduced as follows: This formalizes our conditions for the settlement of C.O.B.'s account with Edward Keller Ltd. 1. Increase of mortgaged collaterals to the full market value (estimated by Edak at P90,000.00). 2. Turn-over of receivables (estimated outstandings P70,000.00 to P80,000.00). 3. Turn-over of 4 (four) trucks for outright sale to Edak, to be credited against C.0.B.'s account. 4. Remaining 8 (eight) trucks to be assigned to Edak, C.O.B will continue operation with these 8 trucks. They win be returned to COB after settlement of full account. 5. C.O.B has to put up securities totalling P200,000.00. P100,000.00 has to be liquidated within one year. The remaining P100,000.00 has to be settled within the second year. 6. Edak wig agree to allow C.O.B. to buy goods to the value of the difference between P200,000.00 and their outstandings, provided C.O.B. is in a position to put up securities amounting to P200,000.00. Discussion held on May 8, 1971. Twelve days later, or on May 20, COB Group Marketing, through Bax executed two second chattel mortgages over its 12 trucks (already mortgaged to Northern Motors, Inc.) as security for its obligation to Keller amounting to P179,185.16 as of April 30, 1971 (Exh. PP and QQ). However, the second mortgages did not become effective because the first mortgagee, Northern Motors, did not give its consent. But the second mortgages served the purpose of being admissions of the liability COB Group Marketing to Keller. The stockholders of COB Group Marketing, Moises P. Adao and Tomas C. Lorenzo, Jr., in a letter dated July 24, 1971 to Keller's counsel, proposed to pay Keller P5,000 on November 30, 1971 and thereafter every thirtieth day of the month for three years until COB Group Marketing's mortgage obligation had been fully satisfied. They also proposed to substitute the Manahan mortgage with a mortgage on Adao's lot at 72 7th Avenue, Cubao, Quezon City (Exh. L). These pieces of documentary evidence are sufficient to prove the liability of COB Group Marketing and to justify the foreclosure of the two mortgages executed by Manahan and Lorenzo (Exh. D and E). Section 22, Rule 130 of the Rules of Court provides that the act, declaration or omission of a party as to a relevant fact may be given in evidence against him "as admissions of a party". The admissions of Bax are supported by the documentary evidence. It is noteworthy that all the invoices, with delivery receipts, were presented in evidence by Keller, Exhibits KK-1 to KK-277-a and N to N-149-a, together with a tabulation thereof, Exhibit KK, covering the period from October 15, 1969 to January 22, 1971. Victor A. Mayo, Keller's finance manager, submitted a statement of account showing that COB Group Marketing owed Keller P184,509.60 as of July 31, 1971 (Exh. JJ). That amount is reflected in the customer's ledger, Exhibit M. On the other hand, Bax although not an accountant, presented his own reconciliation statements wherein he showed that COB Group Marketing overpaid Keller P100,596.72 (Exh. 7 and 8). He claimed overpayment although in his answer he did not allege at all that there was an overpayment to Keller. The statement of the Appellate Court that COB Group Marketing alleged in its answer that it overpaid Keller P100,596.72 is manifestly erroneous first, because COB Group Marketing did not file any answer, having been declared in default, and second, because Bax and the other stockholders, who filed an answer, did not allege any overpayment. As already stated, even before they filed their answer, Bax admitted that COB Group Marketing owed Keller around P179,000 (Exh. 1). Keller sued on September 16, 1971 COB Group Marketing, its stockholders and the mortgagors, Manahan and Lorenzo. COB Group Marketing, Trinidad C. Ordonez and Johnny de la Fuente were declared in default (290 Record on Appeal).

After trial, the lower court (1) dismissed the complaint; (2) ordered Keller to pay COB Group Marketing the sum of P100,596.72 with 6% interest a year from August 1, 1971 until the amount is fully paid: (3) ordered Keller to pay P100,000 as moral damages to be allocated among the stockholders of COB Group Marketing in proportion to their unpaid capital subscriptions; (4) ordered the petitioner to pay Manahan P20,000 as moral damages; (5) ordered the petitioner to pay P20,000 as attomey's fees to be divided among the lawyers of all the answering defendants and to pay the costs of the suit; (6) declared void the mortgages executed by Manahan and Lorenzo and the cancellation of the annotation of said mortgages on the Torrens titles thereof, and (7) dismissed Manahan's cross-claim for lack of merit. The petitioner appealed. The Appellate Court affirmed said judgment except the award of P20,000 as moral damages which it eliminated. The petitioner appealed to this Court. Bax and the other respondents quoted the six assignments of error made by the petitioner in the Appellate Court, not the four assignments of error in its brief herein. Manahan did not file any appellee's brief. We find that the lower courts erred in nullifying the admissions of liability made in 1971 by Bax as president and general manager of COB Group Marketing and in giving credence to the alleged overpayment computed by Bax . The lower courts not only allowed Bax to nullify his admissions as to the liability of COB Group Marketing but they also erroneously rendered judgment in its favor in the amount of its supposed overpayment in the sum of P100,596.72 (Exh. 8-A), in spite of the fact that COB Group Marketing was declared in default and did not file any counterclaim for the supposed overpayment. The lower courts harped on Keller's alleged failure to thresh out with representatives of COB Group Marketing their "diverse statements of credits and payments". This contention has no factual basis. In Exhibit J, quoted above, it is stated by Bax and Keller's Oefeli that "discussion (was) held on May 8, 1971." That means that there was a conference on the COB Group Marketing's liability. Bax in that discussion did not present his reconciliation statements to show overpayment. His Exhibits 7 and 8 were an afterthought. He presented them long after the case was filed. The petitioner regards them as "fabricated" (p. 28, Appellant's Brief). Bax admitted that Keller sent his company monthly statements of accounts (20-21 tsn, September 2, 1976) but he could not produce any formal protest against the supposed inaccuracy of the said statements (22). He lamely explained that he would have to dig up his company's records for the formal protest (23-24). He did not make any written demand for reconciliation of accounts (27-28). As to the liability of the stockholders, it is settled that a stockholder is personally liable for the financial obligations of a corporation to the extent of his unpaid subscription (Vda. de Salvatierra vs. Garlitos 103 Phil. 757, 763; 18 CJs 1311-2). While the evidence shows that the amount due from COB Group Marketing is P184,509.60 as of July 31, 1971 or P186,354.70 as of August 31, 1971 (Exh. JJ), the amount prayed for in Keller's complaint is P182,994.60 as of July 31, 1971 (18-19 Record on Appeal). This latter amount should be the one awarded to Keller because a judgment entered against a party in default cannot exceed the amount prayed for (Sec. 5, Rule 18, Rules of Court). WHEREFORE, the decisions of the trial court and the Appellate Court are reversed and set aside. COB Group marketing, Inc. is ordered to pay Edward A. Keller & Co., Ltd. the sum of P182,994.60 with 12% interest per annum from August 1, 1971 up to the date of payment plus P20,000 as attorney's fees. Asuncion Manahan and Tomas C. Lorenzo, Jr. are ordered to pay solidarity with COB Group Marketing the sums of P35,000 and P25,000, respectively. The following respondents are solidarity liable with COB Group Marketing up to the amounts of their unpaid subscription to be applied to the company's liability herein: Jose E. Bax P36,000; Francisco C. de Castro, P36,000; Johnny de la Fuente, P12,000; Sergio C. Ordonez, P12,000; Trinidad C. Ordonez, P3,000; Magno C. Ordonez, P3,000; Adoracion C. Ordonez P3,000; Tomas C. Lorenzo, Jr., P3,000 and Luz M. Aguilar-Adao, P6,000. If after ninety (90) days from notice of the finality of the judgment in this case the judgment against COB Group Marketing has not been satisfied fully, then the mortgages executed by Manahan and Lorenzo should be foreclosed and the proceeds of the sales applied to the obligation of COB Group Marketing. Said mortgage obligations should bear six percent legal interest per annum after the expiration of the said 90-day period. Costs against the private respondents. SO ORDERED.

EMBASSY FARMS, INC., petitioner, vs. HON. COURT OF APPEALS (INTERMEDIATE APPELLATE COURT), HON. ZENAIDA S. BALTAZAR, Judge of the Regional Trial Court, Branch CLVIII, (158), Pasig, Metro Manila, VOLTAIRE B. CRUZ, Deputy Sheriff, Branch CLVIII, Regional Trial Court, Pasig, Metro Manila and EDUARDO B. EVANGELISTA, respondents. Romeo Z. Comia for petitioner. Manuel Y Macias for private respondents. PARAS, J.: This is a petition for certiorari and prohibition with preliminary injunction seeking to set aside the resolution * dated October 13, 1987 in CA-G.R. SP No. 12817 entitled "Eduardo B. Evangelists v. Honorable Camilo O. Montesa, et al." and CA G.R. SP No. 12834 entitled "Embassy Farms, Inc. v. Hon. Zenaida S. Baltazar, et al." lifting the restraining order dated September 22, 1987, and the resolution dated November 3, 1987 denying petitioner's motion for reconsideration. It appears on record that sometime on August 2, 1984, Alexander G. Asuncion (AGA for short) and Eduardo B. Evangelists (EBE for short) entered into a Memorandum of Agreement (Annex "A" of the petition). Under said agreement EBE obligated himself to transfer to AGA 19 parcels of agricultural land registered in his name with an aggregate area of 104,447 square meters located in Loma de Gato, Marilao, Bulacan, together with the stocks, equipment and facilities of a piggery farm owned by Embassy Farms, Inc., a registered corporation wherein ninety (90) per cent of its shares of stock is owned by EBE. EBE also obligated himself to cede, transfer and convey "in a manner absolute and irrevocable any and all of his shares of stocks" in Embassy Farins Inc. to AGA or his nominees "until the total of said shares of stock so transferred shall constitute 90% of the paid-in-equity of said corporation" within a reasonable time from signing of the document. Likewise, EBE obligated to turnover to AGA the effective control and management of the piggery upon the signing of the agreement. On the other hand, AGA obligated himself, upon signing of the agreement to pay to EBE the total sum of close to P8,630,000.00. Within reasonable time from signing of the agreement AGA obligated himself to organize and register a new corporation with an authorized capital stock of P10,000,000.00 which upon registration will take over all the rights and liabilities of AGA. Pursuant to clause 8 of the Memorandum of Agreement, on August 2, 1984, EBE turned over to AGA the effective control and management of the piggery at Embassy Farms. Likewise, in accordance with clause 15 of the Memorandum of Agreement EBE served as President and Chief Executive of the Embassy Farms with a monthly salary of P15,000. EBE also endorsed in blank all his shares of stock including that of his wife and three nominees with minor holdings in Embassy Farms Inc. Out of the total 3,125 shares of stocks EBE has 2,725 shares, his wife Epifania has 250 shares, while Angel Santos, Armando Martin and Teofilo Mesina had 50 shares, each registered in their names. Said shares of 3,125 correspond to the paid subscription because as reflected in the Articles of Incorporation (Annexes "B") EBE subscribed 10,900 shares, Epifania Evangelista 1,000 shares, while Angel Santos, Armando Martin and Teofilo Mesina had 200 shares each subscription in the capital stocks of the corporation. However, despite the indorsement, EBE retained possession of said shares and opted to deliver to AGA only upon full compliance of the latter of his obligations under the Memorandum of Agreement. Notwithstanding the non-delivery of the shares of stocks, in a Deed of Transfer of Shares of Stock dated August 1984, but notarized on June 20, 1985, AGA transferred a total of 8,602 shares to several persons. For failure to comply with his obligations, EBE intimated the institution of appropriate legal action. On April 10, 1986, AGA preempted EBE by filing an action for rescission of the Memorandum of Agreement with damages. The case was docketed as Civil Case No. 53335 and assigned to Branch CLVIII, Regional Trial Court, National Capital Judicial Region, Pasig, Metro Manila alleging among others, EBE's misrepresentation on the piggery business since said business is actually losing and EBE's failure to execute the deeds of conveyance of the 19 parcels of land. The Pasig Court in its order dated July 30, 1987, granted a writ of preliminary injunction the dispositive portion of which reads, viz: WHEREFORE, this Court hereby orders the issuance of a writ of preliminary injunction whereby restraining the plaintiff, his nominees, agents, security guards, employees and all persons claiming under him from disposing of in any manner removing and carrying away the stocks including rights sucklings, equipment and other facilities in Embassy Farms, Inc. in Bo. Loma de Gato, Marilao, Bulacan; from harrassing defendant and his employees and associates; and preventing defendant, assisted by his said employees and associates from discharging, performing and exercising his duties, prerogatives as director, president and chief executive of Embassy Farms, Inc. until further orders from this Court subject to defendant's filing a bond with this Court in the amount of P1,750,000.00 executed in favor of herein plaintiff, Alexander G. Asuncion, conditioned upon defendant's payment to such plaintiff Asuncion of all damages which the latter may sustain by reason of this injunction in the event the Court shall finally decide otherwise and in case said plaintiff, Alexander G. Asuncion is adjudged entitled to such damages. SO ORDERED.(p. 258, Rollo) On September 14, 1987, the Pasig Court on EBE's motion issued an order to break open the premises of Embassy Farms to enforce the writ of preliminary injunction dated July 30, 1987. On September 18, 1987, Embassy Farms, Inc. filed a petition with the Court of Appeals for prohibition with preliminary injunction. The case was docketed as CA-G.R. 12834 and entitled "Embassy Farms, Inc. v. the Hon. Zenaida S. Baltazar, et al." In its resolution dated September 22, 1987, the Fifth Division of the Court of Appeals enjoined the enforcement of the Pasig Court's order dated July 30, 1987. Meanwhile, on July 30, 1987, Embassy Farms Incorporated instituted an action for Injunction with damages against EBE. In its complaint it alleged that sometime on July 11, 1987, EBE forced his way inside the Embassy Farms and while inside took some cash and cheek amounting to P423,275.45. The case was docketed as Civil Case No. 348-11-89 and raffled to Branch 19, Regional Trial Court's 3rd Judicial Region, Malolos, Bulacan. On August 10, 1987, upon a motion to dismiss filed by EBE, the Malolos Court issued an order, the dispositive portion provides, viz: WHEREFORE, the motion to dismiss is hereby denied for lack of merit, and a writ of preliminary injunction is hereby issued enjoining defendant, his agent and/or any person claiming right under him to refrain or desist from interfering in the management and operation of Embassy Farms, Inc. at Barangay Loma de Gato Marilao, Bulacan, until further orders from this Court, subject to plaintiffs filing of a bond in the amount of P150,000.00 executed in favor of defendant conditioned for the payment of all damages which the latter may sustain by reason of this injunction and in case said defendant is adjudged entitled thereto. SO ORDERED. (p. 296, Rollo)

On August 27, 1987, EBE filed a motion for the reconsideration of the order dated August 10, 1987 of the Malolos Court. On September 15, 1987, without awaiting the resolution of his motion for reconsideration, EBE filed a Petition forcertiorari and Prohibition with preliminary injunction with the Court of Appeals, docketed as CA-G.R. No. 12817. On October 13, 1987, the Fifth Division of the Court of Appeals issued a consolidated resolution in CA-G.R. Nos. 12817 and 12834 sustaining the order dated July 30, 1987 of the Pasig Court. Accordingly, it set aside and lifted the restraining order dated September 22, 1987 it issued in CA-G.R. SP No. 12834. The appellate court based its resolution on its findings in the hearing that the Board of Directors of Embassy Farms are nominees of AGA so that it considered AGA and Embassy Farms as one and the same person. It noted that EBE has not delivered the certificate of stock outstanding in his name in the books of the corporation to AGA because the latter allegedly has not complied with the terms and conditions of the memorandum of agreement. Also the appellate court opined that "(I)n the instant case, it will appear that no transfer of shares of stock has been made by Evangelista to Asuncion as there had been no delivery of the certificate in order to produce or effect the transfer of such shares of stock." (Rollo, pp. 231-232) Embassy Farms filed a motion for reconsideration thereto but it was denied in the resolution dated November 5, 1987 of the appellate court. Hence, this petition. The primary issue for resolution is whether or not the appellate court committed a reversible error when it sustained the order dated July 13, 1987 of the Pasig Court and lifted the restraining order it had issued in CA-G.R. SP No. 12834. It is the contention of Petitioner that the appellate court acted without jurisdiction or in excess of jurisdiction and/or gravely abused its discretion when it sustained the order dated July 30, 1987 of the Pasig Court and lifted the restraining order it had issued on September 22, 1987 in CA-G.R. SP No. 12834. Petititioner argued that the Pasig Court has no jurisdiction to hear and decide EBE's application for the issuance of a writ of preliminary injunction in Civil Case No. 53335 because the ouster of EBE and his reinstatement as President and Chief Executive Officer of Embassy Farms is an intra-corporate matter within the exclusive and original jurisdiction of the Securities and Exchange Commission. Petitioner also claimed that the Pasig Court did not acquire jurisdiction over Embassy Farms because it was not made a party in Civil Case No. 53335. Neither could the orders of the Pasig Court be enforced at Loma de Gato, Marilao Bulacan, the principal office of the corporatin, because it is located outside of the National Capital Judicial Region. Petitioner likewise claimed that the writ of preliminary injunction issued in Civil Case No. 53335 was irregularly issued because it was issued one day ahead of the injunction bond. We do not agree with the petitioner. It must be stressed at the outset that the case at bar is merely an offshoot of a controversy yet to be decided on the merits by the Pasig Court. The action for rescission filed by AGA in Civil Case No. 53335 now pending before the Pasig Court will ultimately settle the controversy as to whether it is AGA or EBE or both parties who have reneged on their obligations under the memorandum of agreement. We do not want to pre-empt the Pasig Court on the main case. From the pleadings submitted by the parties it is clear that although EBE has indorsed in blank the shares outstanding in his name he has not delivered the certificate of stocks to AGA because the latter has not fully complied with his obligations under the memorandum of agreement. There being no delivery of the indorsed shares of stock AGA cannot therefore effectively transfer to other person or his nominees the undelivered shares of stock. For an effective transfer of shares of stock the mode and manner of transfer as prescribed by law must be followed (Navea v. Peers Marketing Corp., 74 SCRA 65). As provided under Section 3 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines, shares of stock may be transferred by delivery to the transferree of the certificate properly indorsed. Title may be vested in the transferree by the delivery of the duly indorsed certificate of stock (18 C.J.S. 928, cited in Rivera v. Florendo, 144 SCRA 643). However, no transfer shall be valid, except as between the parties until the transfer is properly recorded in the books of the corporation (Sec. 63, Corporation Code of the Philippines). In the case at bar the indorsed certificate of stock was not actually delivered to AGA so that EBE is still the controlling stockholder of Embassy Farms despite the execution of the memorandum of agreement and the turn over of control and management of the Embassy Farms to AGA on August 2, 1984. When AGA filed on April 10, 1986 an action for the rescission of contracts with damages the Pasig Court merely restored and established the status quo prior to the execution of the memorandum of agreement by the issuance of a restraining order on July 10, 1987 and the writ of preliminary injunction on July 30, 1987. It would be unjust and unfair to allow AGA and his nominees to control and manage the Embassy Farms despite the fact that AGA who is the source of their supposed shares of stock in the corporation is not asking for the delivery of the indorsed certificate of stock but for the rescission of the memorandum of agreement. Rescission would result in mutual restitution (Magdalena Estate v. Myrick, 71 Phil. 344) so it is but proper to allow EBE to manage the farm. Compared to AGA or his nominees EBE would be more interested in the preservation of the assets, equipment and facilities of Embassy Farms during the pendency of the main case. Contrary to petitioner's contention the dispute at bar is not an intracorporate controversy within the exclusive and original jurisdiction of the Securities and Exchange Commission under Presidential Decree No. 902-A as amended by Presidential Decree No. 1758. To be an intracorporate controversy it must pertain to any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or associates themselves (Union Glass and Container Corp. v. SEC, 126 SCRA 31; DMRC Enterprises v. Este Del Sol Mountain Reserve Inc., 132 SCRA 293; Rivera v. Florendo, 144 SCRA 643; Abeijo v. De la Cruz, 149 SCRA 654). Basically the conflict here is between AGA and EBE arising from a contract denominated as a memorandum of agreement. Here the controversy in reality involves the contractual rights and obligations of AGA and EBE under the memorandum of agreement and not to the enforcement of rights and obligations under the corporation code or the internal or intracorporate affairs of the corporation. AGA or his nominees are not even the lawful stockholders of Embassy Farms because EBE for a justifiable reason has withheld the delivery of the indorsed certificate of stocks so that the supposed transfer by virtue of the memorandum of agreement could not be properly recorded in the book of the corporation. The dispute therefore does not fall within the special jurisdiction of the Securities and Exchange Commission but with regular Courts. AGA or his nominees unduly dragged the petitioner Embassy Farms in order to resist the order of the Pasig Court and to confuse the real and legitimate issue in the case at bar. On the enforceability of the order of the Pasig Court, We see no cogent reason to depart from the ruling of the trial court which was sustained by the Court of Appeals. Generally, an injunction under Section 21 of Batas Pambansa Bilang 129 is enforceable within the region. The reason is that the trial court has no jurisdiction to issue a writ of preliminary injunction to enjoin acts being performed or about to be performed outside its territorial boundaries. (C.F. Tan vs. Sarmiento, L,24971, June 20, 1975). However, to avoid an

irreparable prejudice We allowed in Dagupan Electric Corporation et al. v. Pano (95 SCRA 693) the enforcement of an injunction to restrain acts committed outside the territorial jurisdiction of the issuing court. In Dagupan case We ruled that a Court of First Instance has jurisdiction to try a case although the acts sought be restrained are committed outside its territorial jurisdiction where the principal business addresses of the parties and the decisions on the acts to be restrained are located and originated within the Court's jurisdiction. Here to avoid an injustice and irreparable injury We apply the exception rather than the general rule. Both parties are residents of the National Capital Region. AGA is a resident of 7-A Lake Street, San Juan, Metro Manila while EBE is residing at 113 R. Tirona Street, BF Homes, Paraaque, Metro Manila. AGA filed the case with the Pasig Court and the injunction as an equitable remedy intended to preserve the status quo is directed against AGA, his nominees and agents. Besides, as noted by the Pasig Court all orders to be enforced and executed at Embassy Farms in Loma de Gato, Marilao, Bulacan emanated from its main office which is located at the 2nd Floor, Agora Complex, Domingo Street, San Juan, Metro Manila. Finally, on the issue whether or not the writ of injunction was irregularly issued as it was issued on July 30, 1987 one day ahead of the injunction bond, suffice it to say that aside from the factual findings of the Court of Appeals that the date July 31, 1987, appearing on the bond is a typographical error it must be pointed out that with the injunction bond the party enjoined is amply protected against loss or damage in case it is finally decided that the injunction ought not to have been granted. WHEREFORE, the instant petition is hereby DENIED for lack of merit. SO ORDERED.

ERIKS PTE. LTD., petitioner, vs. COURT OF APPEALS and DELFIN F. ENRIQUEZ, JR., respondents. DECISION PANGANIBAN, J.: Is a foreign corporation which sold its products sixteen times over a five-month period to the same Filipino buyer without first obtaining a license to do business in the Philippines, prohibited from maintaining an action to collect payment therefor in Philippine courts? In other words, is such foreign corporation doing business in the Philippines without the required license and thus barred access to our court system? [1] This is the main issue presented for resolution in the instant petition for review, which seeks the reversal of the Decision of the Court of Appeals, Seventh Division, promulgated on January 25, 1995, in CA-G.R. CV No. 41275 which affirmed, for want of capacity to sue, the trial courts dismissal of the collection suit instituted by petitioner. The Facts Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation engaged in the manufacture and sale of elements used in sealing pumps, valves and pipes for industrial purposes, valves and control equipment used for industrial fluid control and PVC pipes and [2] fittings for industrial uses. In its complaint, it alleged that: (I)t is a corporation duly organized and existing under the laws of the Republic of Singapore with address at 18 Pasir Panjang Road #09-01, PSA Multi-Storey Complex, Singapore 0511. It is not licensed to do business in the Philippines and i(s) not so engaged and is suing on an isolated transaction for which it has capacity to sue x x x. (par. 1, Complaint; p. 1, Record) On various dates covering the period January 17 -- August 16, 1989, private respondent Delfin Enriquez, Jr., doing business under the name and style of Delrene EB Controls Center and/or EB Karmine Commercial, ordered and received from petitioner various elements used in sealing pumps, valves, pipes and control equipment, PVC pipes and fittings. The ordered materials were delivered [3] via airfreight under the following invoices: Date Invoice No. AWB No. Amount 17 Jan 89 27065 618-7496-2941 S$ 5,010.59 24 Feb 89 27738 618-7553-6672 14,402.13 02 Mar 89 27855 (freight & hand1,164.18 ling charges per 03 Mar 89 27876 Inv. 27738) 1,394.32 03 Mar 89 27877 618-7553-7501 1,641.57 10 Mar 89 28046 618-7553-7501 7,854.60 618-7578-3256/ 21 Mar 89 28258 618-7578-3481 27.72 14 Apr 89 28901 618-7578-4634 2,756.53 19 Apr 89 29001 618-7741-7631 458.80 16 Aug 89 31669 Self-collect 1,862.00 (handcarried by buyer) -------------------S$36,392.44 21 Mar 89 28257 618-7578-4634 415.50 04 Apr 89 28601 618-7741-7605 884.09 14 Apr 89 28900 618-7741-7631 1,269.50 25 Apr 89 29127 618-7741-9720 883.80 02 May 89 29232 (By seafreight) 120.00 05 May 89 29332 618-7796-3255 1,198.40 15 May 89 29497 (Freight & hand111.94 ling charges per -------------------Inv. 29127) S$ 4,989.29 31 May 89 29844 545.70 618-7796-5646 -------------------S$ 545.70 -------------------Total S$ 41,927.43 =========== The transfers of goods were perfected in Singapore, for private respondents account, F.O.B. Singapore, with a 90-day credit term. Subsequently, demands were made by petitioner upon private respondent to settle his account, but the latter failed/refused to do so. [4] On August 28, 1991, petitioner corporation filed with the Regional Trial Court of Makati, Branch 138, Civil Case No. 91-2373 entitledEriks Pte. Ltd. vs. Delfin Enriquez, Jr. for the recovery of S$41,939.63 or its equivalent in Philippine currency, plus interest thereon and damages. Private respondent responded with a Motion to Dismiss, contending that petitioner corporation had no legal [5] capacity to sue. In an Order dated March 8, 1993, the trial court dismissed the action on the ground that petitioner is a foreign [6] corporation doing business in the Philippines without a license. The dispositive portion of said order reads: WHEREFORE, in view of the foregoing, the motion to dismiss is hereby GRANTED and accordingly, the above-entitled case is hereby DISMISSED. SO ORDERED. On appeal, respondent Court affirmed said order as it deemed the series of transactions between petitioner corporation and private respondent not to be an isolated or casual transaction. Thus, respondent Court likewise found petitioner to be without legal [7] capacity to sue, and disposed of the appeal as follows: WHEREFORE, the appealed Order should be, as it is hereby AFFIRMED. The complaint is dismissed. No costs. SO ORDERED. Hence, this petition. The Issue

The main issue in this petition is whether petitioner-corporation may maintain an action in Philippine courts considering that it has no license to do business in the country. The resolution of this issue depends on whether petitioners business with private respondent may be treated as isolated transactions. Petitioner insists that the series of sales made to private respondent would still constitute isolated transactions despite the number of invoices covering several separate and distinct items sold and shipped over a span of four to five months, and that an affirmation of respondent Courts ruling would result in injustice and unjust enrichment. Private respondent counters that to declare petitioner as possessing capacity to sue will render nugatory the provisions of the Corporation Code and constitute a gross violation of our laws. Thus, he argues, petitioner is undeserving of legal protection. The Courts Ruling The petition has no merit. The Concept of Doing Business The Corporation Code provides: Sec. 133. Doing business without a license. - No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. The aforementioned provision prohibits, not merely absence of the prescribed license, but it also bars a foreign corporation doing [8] business in the Philippines without such license access to our courts. A foreign corporation without such license is not ipso facto incapacitated from bringing an action. A license is necessary only if it is transacting or doing business in the country. However, there is no definitive rule on what constitutes doing, engaging in, or transacting business. The Corporation Code itself does not define such terms. To fill the gap, the evolution of its statutory definition has produced a rather all-encompassing [9] concept in Republic Act No. 7042 in this wise: SEC. 3. Definitions. - As used in this Act: xxx xxx xxx (d) the phrase doing business shall include soliciting orders, service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred eight(y) (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase doing business shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account. (underscoring supplied) In the durable case of The Mentholatum Co. vs. Mangaliman, this Court discoursed on the test to determine whether a foreign [10] company is doing business in the Philippines, thus: x x x The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. (Traction Cos. v. Collectors of Int. Revenue [C.C.A., Ohio], 223 F. 984, 987.] The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization.+ (sic) (Griffin v. Implement Dealers Mut. Fire Ins. Co., 241 N.W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. 111; Automotive Material Co. v. American Standard Metal Products Corp., 158 N.E. 698, 703, 327 III. 367.) [11] The accepted rule in jurisprudence is that each case must be judged in the light of its own environmental circumstances. It should be kept in mind that the purpose of the law is to subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts. It is not to prevent the foreign corporation from performing single or isolated acts, but to bar it from acquiring a domicile for the purpose of business without first taking the steps necessary to render it amenable to suits in the local courts. [12] The trial court held that petitioner-corporation was doing business without a license, finding that: The invoices and delivery receipts covering the period of (sic) from January 17, 1989 to August 16, 1989 cannot be treated to mean a singular and isolated business transaction that is temporary in character. Granting that there is no distributorship agreement between herein parties, yet by the mere fact that plaintiff, each time that the defendant posts an order delivers the items as evidenced by the several invoices and receipts of various dates only indicates that plaintiff has the intention and desire to repeat the (sic) said transaction in the future in pursuit of its ordinary business. Furthermore, and if the corporation is doing that for which it was created, the amount or volume of the business done is immaterial and a single act of that character may constitute doing business. (See p. 603, Corp. Code, De Leon - 1986 Ed.). [13] Respondent Court affirmed this finding in its assailed Decision with this explanation: x x x Considering the factual background as laid out above, the transaction cannot be considered as an isolated one. Note that there were 17 orders and deliveries (only sixteen per our count) over a four-month period. The appellee (private respondent) made separate orders at various dates. The transactions did not consist of separate deliveries for one single order. In the case at bar, the transactions entered into by the appellant with the appellee are a series of commercial dealings which would signify an intent on the part of the appellant (petitioner) to do business in the Philippines and could not by any stretch of the imagination be considered an isolated one, thus would fall under the category of doing business. Even if We were to view, as contended by the appellant, that the transactions which occurred between January to August 1989, constitute a single act or isolated business transaction, this being the ordinary business of appellant corporation, it can be said to be illegally doing or transacting business without a license. x x x Here it can be clearly gleaned from the four-month period of transactions between appellant and appellee that it was a continuing business relationship, which would, without doubt, constitute doing business without a license. For all intents and purposes, appellant corporation is doing or transacting business in the Philippines without a license and that, therefore, in accordance with the specific mandate of Section 144 of the Corporation Code, it has no capacity to sue. (addition ours)

We find no reason to disagree with both lower courts. More than the sheer number of transactions entered into, a clear and unmistakable intention on the part of petitioner to continue the body of its business in the Philippines is more than apparent. As alleged in its complaint, it is engaged in the manufacture and sale of elements used in sealing pumps, valves, and pipes for industrial purposes, valves and control equipment used for industrial fluid control and PVC pipes and fittings for industrial use. Thus, the sale by petitioner of the items covered by the receipts, which are part and parcel of its main product line, was actually carried out in the progressive prosecution of commercial gain and the pursuit of the purpose and object of its business, pure and simple. Further, its grant and extension of 90-day credit terms to private respondent for every purchase made, unarguably shows an intention to continue transacting with private respondent, since in the usual course of commercial transactions, credit is extended only to customers in good standing or to those on whom there is an intention to maintain long-term relationship. This being so, the existence of a distributorship agreement between the parties, as alleged but not proven by private respondent, would, if duly established by competent evidence, be merely corroborative, and failure to sufficiently prove said allegation will not significantly affect the finding of the courts below. Nor our own ruling. It is precisely upon the set of facts above-detailed that we concur with respondent Court that petitioner corporation was doing business in the country. Equally important is the absence of any fact or circumstance which might tend even remotely to negate such intention to continue the progressive prosecution of petitioners business activities in this country. Had private respondent not turned out to be a bad risk, in all likelihood petitioner would have indefinitely continued its commercial transactions with him, and not surprisingly, in ever increasing volumes. Thus, we hold that the series of transactions in question could not have been isolated or casual transactions. What is determinative of doing business is not really the number or the quantity of the transactions, but more importantly, the intention of an entity to continue the body of its business in the country. The number and quantity are merely evidence of such intention. The phrase isolated transaction has a definite and fixed meaning, i.e. a transaction or series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of the business organization. Whether a foreign corporation is doing business does not necessarily depend upon the frequency of [14] its transactions, but more upon the nature and character of the transactions. Given the facts of this case, we cannot see how petitioners business dealings will fit the category of isolated transactions considering that its intention to continue and pursue the corpus of its business in the country had been clearly established. It has not presented any convincing argument with equally convincing evidence for us to rule otherwise. Incapacitated to Maintain Suit Accordingly and ineluctably, petitioner must be held to be incapacitated to maintain the action a quo against private respondent. It was never the intent of the legislature to bar court access to a foreign corporation or entity which happens to obtain an isolated [15] order for business in the Philippines. Neither, did it intend to shield debtors from their legitimate liabilities or obligations. But it cannot allow foreign corporations or entities which conduct regular business any access to courts without the fulfillment by such corporations of the necessary requisites to be subjected to our governments regulation and authority. By securing a license, the foreign entity would be giving assurance that it will abide by the decisions of our courts, even if adverse to it. Other Remedy Still Available By this judgment, we are not foreclosing petitioners right to collect payment. Res judicata does not set in a case dismissed for lack [16] of capacity to sue, because there has been no determination on the merits. Moreover, this Court has ruled that subsequent [17] acquisition of the license will cure the lack of capacity at the time of the execution of the contract. The requirement of a license is not meant to put foreign corporations at a disadvantage. Rather, the doctrine of lack of capacity to [18] [19] sue is based on considerations of sound public policy. Thus, it has been ruled in Home Insurance that: x x x The primary purpose of our statute is to compel a foreign corporation desiring to do business within the state to submit itself to the jurisdiction of the courts of this state. The statute was not intended to exclude foreign corporations from the state. x x x x The better reason, the wiser and fairer policy, and the greater weight lie with those decisions which hold that where, as here, there is a prohibition with a penalty, with no express or implied declarations respecting the validity of enforceability of contracts made by qualified foreign corporations, the contracts x x x are enforceable x x x upon compliance with the law.(Peter & Burghard Stone Co. v. Carper, 172 N.E. 319 *1930+.) While we agree with petitioner that the country needs to develop trade relations and foster friendly commercial relations with other states, we also need to enforce our laws that regulate the conduct of foreigners who desire to do business here. Such strangers must follow our laws and must subject themselves to reasonable regulation by our government. WHEREFORE, premises considered, the instant petition is hereby DENIED and the assailed Decision is AFFIRMED. SO ORDERED.

JULIETA V. ESGUERRA, petitioner, vs. COURT OF APPEALS and SURESTE PROPERTIES, INC., respondents PANGANIBAN, J.: May a co-owner contest as unenforceable a sale of a real property listed in and sold pursuant to the terms of a judicially-approved compromise agreement but without the knowledge of such co-owner? Is the corporate secretary's certification of the shareholders' and directors resolution authorizing such sale sufficient, or does the buyer need to go behind such certification and investigate further the truth and veracity thereof? 1 These questions are answered by this Court as it resolves the instant petition challenging the Decision in CA-G.R. SP No. 33307 2 promulgated May 31, 1994 by the respondent Court, reversing the judgment of the trial court. The Antecedent Facts The facts as found by the respondent Court of Appeals are as follows: On 29 June 1984, (now herein Petitioner) Julieta Esguerra filed a complaint for administration of conjugal partnership or separation of property against her husband Vicente Esguerra, Jr. before (the trial) court. The said complaint was later amended on 31 October 1985 impleading V. Esguerra Construction Co., Inc. (VECCI for brevity) and other family corporations as defendants (Annex "C", p. 23, Rollo). The parties entered into a compromise agreement which was submitted to the court.' On the basis of the said agreement, the court on 11 January 1990 rendered two partial judgments: one between Vicente and (herein petitioner) and the other as between the latter and VECCI (Annex "F" and "G", pp. 26-27, Rollo). The compromise agreement between (herein petitioner) and VECCI provides in part: "Plaintiff Julieta V. Esguerra and defendant V. Esguerra Construction Co., Inc., as assisted by their respective counsels, submitted to this Court on January 11, 1990 a "Joint Motion for Partial Judgment Based on Compromise Agreement", pertinent provisions of which reads as follows: "1. Defendant V. Esguerra Construction Co., Inc., (VECCI) shall sell/alienate/transfer or dispose of in any lawful and convenient manner, and under the terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders, all the following properties: * real estate and building located at 140 Amorsolo Street, Legaspi Village, Makati, Metro Manila; * real estate and building located at 104 Amorsolo Street, Legaspi Village, Makati, Metro Manila; * real estate and improvements located at Barangay San Jose, Antipolo, Rizal; * real estate and improvements located at Barangay San Jose, Antipolo, Rizal; * real estate and improvements located at Kamagong Street, St. Anthony Subdivision, Cainta, Rizal; and * real estate and improvements located at Barangay Malaatis, San Mateo, Rizal. 2. After the above-mentioned properties shall have been sold/alienated/transferred or disposed of and funds are realized therefrom, and after all the financial obligations of defendant VECCI (those specified in the enabling resolutions and such other obligations determined to be due and will become due) are completely paid and/or settled, defendant VECCI shall cause to be paid and/or remitted to the plaintiff such amount/sum equivalent to fifty percent (50%) of the (net) resulting balance of such funds. By virtue of said agreement, Esguerra Bldg. I located at 140 Amorsolo St., Legaspi Village was sold and the net proceeds distributed according to the agreement. The controversy arose with respect to Esguerra Building II located at 104 Amorsolo St., Legaspi Village, Makati. (Herein petitioner) started claiming one-half of the rentals of the said building which VECCI refused. Thus, on 7 August 1990, (herein petitioner) filed a motion with respondent court praying that VECCI be ordered to remit one-half of the rentals to her effective January 1990 until the same be sold (p. 28, id.). VECCI opposed said motion (p. 31, Rollo). On October 30, 1990 respondent (trial) court ruled in favor of (herein petitioner) (p. 34, Rollo) which was affirmed by this court in a decision dated 17 May 1991 in CA-G.R. SP. No. 2380. VECCI resorted to the Supreme Court which on 4 May 1992 in G.R. No. 100441 affirmed this court's decision the fallo of which reads: "The petition is without merit. As correctly found by the respondent Court of Appeals, it can, be deduced from the terms of the Compromise Agreement and from the nature of the action in the court a quo that the basis of the equal division of the proceeds of any sale or disposition of any of the subject properties is the acknowledged ownership of private respondent over one-half of the said assets. Considering that the other building has yet to be sold, it is but logical that pending its disposition and conformably with her one-half interest therein, private respondent should be entitled to half of its rentals which forms part of her share in the fruits of the assets. To accord a different interpretation of the Compromise Agreement would be prejudicial to the established rights of private respondent." (p. 36, Rollo). Meanwhile, Esguerra Bldg. II was sold to (herein private respondent Sureste Properties. Inc.) for P150,000,000.00 (sic). On 17 June 1993, (Julieta V. Esguerra) filed a motion seeking the nullification of the sale before respondent (trial) court on the ground that VECCI is not the lawful and absolute owner thereof and that she has not been notified nor consulted as to the terms and conditions of the sale (p. 37, Rollo). Not being a party to the civil case, (private respondent Sureste) on 23 June 1993 filed a Manifestation concerning (herein petitioner's) motion to declare the sale void ab initio. In its Manifestation (Sureste) points out that in the compromise agreement executed by VECCI and (Julieta V. Esguerra), she gave her express consent to the sale of the said building (p. 38, Rollo). On 05 August 1993, respondent judge (who took over the case from Judge Buenaventura Guerrero, now Associate Justice of this 3 court) issued an Omnibus Order denying among others, (Sureste's) motion, to which a motion for reconsideration was filed. 4 After trial on the merits, the Regional Trial Court of Makati, Branch 133, rendered its order, the dispositive portion of which reads: WHEREFORE, the Court resolves as it is resolved that: 1. The Omnibus Order of the Court issued on August 5, 1993 is hereby reconsidered and modified to the effect that: a. The Notice of Lis Pendens is annotated at the back of the Certificate of Title of Esguerra Bldg. II located at Amorsolo St., Legaspi Village, Makati, Metro Manila is delivered to be valid and subsisting, the cancellation of the same is hereby set aside; and, b. The sale of Esguerra Bldg. II to Sureste Properties, Inc. is declared valid with respect to one-half of the value thereof but ineffectual and unenforceable with respect to the other half as the acknowledged owner of said portion was not consulted as to the terms and conditions of the sale. The other provisions of said Omnibus Order remain undisturbed and are now deemed final and executory.

2. Sureste Properties, Inc. is hereby enjoined from pursuing further whatever Court action it has filed against plaintiff as well as plaintiffs tenants at Esguerra Bldg. II; 3. Plaintiffs Urgent Ex-parte Motion dated December 14, 1993 is hereby DENIED for being moot and academic. 4. Plaintiff is hereby directed to bring to Court, personally or through counsel, the subject shares of stocks on February 15, 1994 at 10:30 in the morning for the physical examination of defendant or counsel. 5 SO ORDERED. From the foregoing order, herein private respondent Sureste Properties, Inc. interposed an appeal with the Court of Appeals which ruled in its favor, viz.: From the foregoing, it is clear that respondent judge abused his discretion when he rendered the sale of the property unenforceable with respect to one-half. WHEREFORE, the petition is hereby GRANTED. The assailed order dated 1 February 1994 is hereby SET ASIDE. No pronouncement as to cost. 6 SO ORDERED. 7 Julieta Esguerra's Motion for Reconsideration dated June 15, 1994 was denied by the respondent Court in the second assailed 8 Resolutions promulgated on February 23, 1995. Hence this petition. The Issues Petitioner submits the following assignment of errors: . . . (I)n issuing the Decision (Annex "A" of the petition) and the Resolution (Annex "B" of the petition), the Court of Appeals decided questions of substance contrary to law and applicable jurisprudence and acted without jurisdiction and/or with grave abuse of discretion when: It validated the sale by VECCI to Sureste of the subject property without the knowledge and consent of the acknowledged co-owner thereof and in contravention of the terms of the compromise agreement as well as the Resolution of this Honorable Court in G.R. No. 100441 wherein this Honorable Court recognized herein petitioner's 'acknowledged ownership of one-half of the subject property; and, It held that the trial court acted without jurisdiction and!or abused its discretion when it held that the questioned sale of the property is ineffectual and unenforceable as to herein petitioner's one-half (1/2) ownership/interest in the property since the sale was made without her knowledge and consent. BECAUSE: A. No proper corporate action of VECCI was made to effect such sale as required under the compromise agreement; B. The sale of the subject property was made in violation of the terms of the compromise agreement in that it was not made with the approval/consent of the acknowledged owner of 1/2 of the said asset; C. The prior sale of another property (the Esguerra Building I as distinguished from the subject property which is the Esguerra Building II) included in the said compromise agreement was made only after the prior approval/consent of petitioner and this procedure established a precedent that applied in the subsequent sale of the Esguerra Building II; and D. Respondent Sureste as purchaser pendente lite of the subject property covered by a notice of lis pendenswas in law deemed to have been duly notified of the aforesaid conditions required for a valid sale of the subject property as well as of petitioner's 9 "acknowledged ownership over one-half" of the Esguerra Building II. Simply put, petitioner (1) assails VECCI's sale of Esguerra Building II to private respondent as unenforceable to the extent of her onehalf share, and (2) accuses the appellate court of "acting without jurisdiction or with grave abuse of discretion" in reversing the trial court's finding to that effect. The Court's Ruling The petition has no merit. First Issue: Is the Contract of Sale Unenforceable? The Civil Code provides that a contract is unenforceable when it is ". . . entered into in the name of another person by one who has 10 been given no authority or legal representation, or who has acted beyond his powers." And that "(a) contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, . 11 . ." After a thorough review of the case at bench, the Court finds the sale of Esguerra Building II by VECCI to private respondent Sureste Properties, Inc. valid. The sale was expressly and clearly authorized under the judicially-approved compromise agreement freely consented to and voluntarily signed by petitioner Julieta Esguerra. Thus, petitioner's contention that the sale is unenforceable as to her share for being unauthorized is plainly incongruous with the express authority granted by the compromise agreement to VECCI, which specified no condition that the latter shall first consult with the former prior to selling any of the properties listed there. As astutely and correctly found by the appellate Court: The compromise agreement entered between private respondent (Julieta Esguerra) and VECCI, which was approved by the court, expressly provides, among others, that the latter shall sell or otherwise dispose of certain properties, among them, Esguerra Bldgs. I and II, and fifty (50%) percent of the net proceeds thereof to be given to the former. Pursuant to said agreement, VECCI sold the buildings. . . . xxx xxx xxx . . . The compromise agreement expressly authorizes VECCI to sell the subject properties, with the only condition that the sale be in a lawful and convenient manner and under the terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders. There is nothing in the said agreement requiring VECCI to consult the private respondent (Julieta Esguerra) before any sale (can be concluded). Thus, when VECCI sold the property to (Sureste Properties, Inc.) as agreed upon, it need not consult the 2 private respondent. Moreover, petitioner's contention runs counter to Article 1900 of the Civil Code which provides that: So far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent. Thus, as far as private respondent Sureste Properties, Inc. is concerned, the sale to it by VECCI was completely valid and legal because it was executed in accordance with the compromise agreement, authorized not only by the parties thereto, who became

co-principals in a contract of agency created thereby, but by the approving court as well. Consequently, the sale to Sureste Properties, Inc. of Esguerra Building II cannot in any manner or guise be deemed unenforceable, as contended by petitioner. Consultation in the Sale of Esguerra Building I Not a Binding Precedent The petitioner further argues that VECCI's consulting her on the terms and conditions of its sale of Esguerra Building I set a binding precedent to be followed by the latter on subsequent sales. She adds that in failing to consult her on the sale of Esguerra Building II, VECCI "acted unfairly and unjustly" as evidenced by (a) the sale of said building for only P160,000,000.00 instead of P200,000,000.00, which is "the best price obtainable in the market," (b) payment of real estate broker's commission of 5% instead of just 2% as in the sale of Esguerra 1 building, and (c) the denial of petitioner's right of first refusal when her offer to purchase her 13 one-half share for P80,000,000.00 as ordered by the trial court was totally ignored. The Court is not persuaded. Petitioner's argument is debunked by the very nature of a compromise agreement. The mere fact that petitioner Julieta Esguerra was consulted by VECCI in the sale of Esguerra Building I did not affect nor vary the terms of the authority to sell granted the former as expressly spelled out in the judicially-approved compromise agreement because "a compromise once approved by final orders of the court has the force of res judicata between the parties and should not be disturbed except for vices 14 15 of consent or forgery." Hence, "a decision on a compromise agreement is final and executory, . . . Petitioner insists that had she been consulted in the sale of Esguerra Building II, better terms could have been obtained. This is plainly without legal basis since she already consented to the compromise agreement which authorized VECCI to sell the properties without the requirement of prior consultation with her. "It is a long established doctrine that the law does not relieve a party from the effects of an unwise, foolish, or disastrous contract, entered into with all the required formalities and with full awareness of what he was doing. Courts have no power to relieve parties from obligations voluntarily assumed, simply because their contracts 16 turned out to be disastrous deals or unwise investments." It is a truism that "a compromise agreement entered into by partylitigants, when not contrary to law, public order, public policy, morals, or good custom is a valid contract which is the law between the parties themselves. It follows, therefore, that a compromise agreement, not tainted with infirmity, irregularity, fraud or illegality 17 is the law between the parties who are duty bound to abide by it and observe strictly its terms and conditions as in this case. Incidentally, private respondent Sureste Properties, Inc. submits that the petitioner offered to buy her one-half share for only 18 P75,000,000.00, not P80,000,000.00. She therefore valued the whole building only at P150,000,000.00 which amount is P10,000,000.00 less than the price of P160,000,000.00 paid by private respondent, the highest offer the market has produced in two and a half years the building was offered for sale. Even the 5% real estate broker's commission was not disparate with the standard practice in the real estate industry. Thus, the respondent Court aptly stated that: . . . In affixing her signature on the compromise agreement, private respondent (Julieta Esguerra) has demonstrated her agreement to all the terms and conditions therein and have (sic) given expressly her consent to all acts that may be performed pursuant thereto. She can not later on repudiate the effects of her voluntary acts simply because it does not fit her. Her contention that she 19 was not consulted as to the terms of the sale has no leg to stand on. Parenthetically, the previous consultation can be deemed as no more than a mere courtesy extended voluntarily by VECCI. Besides, such previous consultation even assuming arguendo that it was a binding precedent cannot bind private respondent Sureste which was not a party thereto. To declare the sale as infirm or unenforceable is to heap unfairness upon Sureste Properties, Inc. and to undermine public faith in court decisions approving compromise agreements. Right of First Refusal Waived The argument of petitioner that she was denied her right of first refusal is puerile. This alleged right, like other rights, may be 20 waived as petitioner did waive it upon entering into the compromise agreement. Corollarily, the execution of the spouses' judicial compromise agreement necessitated the sale of the spouses' co-owned properties and its proceeds distributed fifty percent to each of them which, therefor, resulted in its partition.21 If petitioner wanted to keep such right of first refusal, she should have expressly reserved it in the compromise agreement. For her failure to do so, she must live with its consequences. VECCI'S Sale of Esguerra Building II A Valid Exercise of Corporate Power Petitioner contends that VECCI violated the condition in the compromise agreement requiring that the sale be made "under the 22 terms and conditions recited in the enabling resolutions of its Board of Directors and stockholders. She rues that no shareholders' or directors' meeting, wherein these resolutions were passed, was actually held. She thus bewails this sale as improper for not 23 having complied with the requirements mandated by Section 40 of the Corporation Code. Petitioner's contention is plainly unmeritorious. The trial court's partial decision dated January 11, 1990 approving the compromise agreement clearly showed that the "enabling resolutions of its (VECCI's) board of directors and stockholders" referred to were those then already existing; to wit: (1) "the resolution of the stockholders of VECCI dated November 9, 1989, (where) the stockholders authorized VECCI to sell and/or disposed all or substantially all its property and assets upon such terms and conditions and for such 24 consideration as the board of directors may deem expedient." (2) the "resolution dated 9 November 1989, (where) the board of directors of VECCI authorized VECCI to sell and/or dispose all or substantially all the property and assets of the corporation, at the highest available price/s they could be sold or disposed of in cash, and in such manner as may be held convenientunder the circumstances, and authorized the President Vicente B. Esguerra. Jr. to negotiate. contract, execute and sign such sale for and in 25 behalf of the corporation." VECCI's sale of all the properties mentioned in the judicially-approved compromise agreement was done on the basis of its Corporate Secretary's Certification of these two resolutions. The partial decision did not require any further board or stockholder resolutions to make VECCI's sale of these properties valid. Being regular on its face, the Secretary's Certification was sufficient for private respondent Sureste Properties, Inc. to rely on. It did not have to investigate the truth of the facts contained in such certification. Otherwise, business transactions of corporations would become tortuously slow and unnecessarily hampered. Ineluctably, VECCI's sale of Esguerra Building II to private respondent was not ultra viresbut a valid execution of the trial court's partial decision. Based on the foregoing, the sale is also deemed to have satisfied the requirements of Section 40 of the Corporation Code. Furthermore, petitioner Julieta Esguerra is estopped from contesting the validity of VECCI's corporate action in selling Esguerra Building II on the basis of said resolutions and certification because she never raised this issue in VECCI's prior sales of the other 26 properties sold including the Esguerra Building I. The same identical resolutions and certification were used in such prior sales. Notice of Lis Pendens

"Once a notice of lis pendens has been duly registered, any cancellation or issuance of the title of the land involved as well as any 27 subsequent transaction affecting the same, would have to be subject to the outcome" of the suit. In other words, "a purchaser who buys registered land with full notice of the fact that it is in litigation between the vendor and a third party . . . stands in the 28 shoes of his vendor and his title is subject to the incidents and result of the pending litigation . . . In the present case, the purchase made by private respondent Sureste Properties, Inc. of the property in controversy is subject to the notice of lis pendens annotated on its title. Thus, the private respondent's purchase remains subject to our decision in the instant case. The former is likewise deemed notified of all the incidents of this case including the terms and conditions for the sale contained in the compromise agreement. However, petitioner's inference that the private respondent is also deemed to have been notified that the manner of the sale of the properties contained in the compromise agreement should be "made only upon prior consent/conformity of the herein petitioner" is non sequitur. Nowhere in the compromise agreement was this inference expressly or impliedly stated. In the final analysis, the determination of this issue ultimately depends on this Court's disposition of this case. Appealed Decision Consistent with Previous Court of Appeals and Supreme Court Decisions Petitioner maintains that the trial court's ruling that "the sale of Esguerra Building II to Sureste is unenforceable to the extent of onehalf share of petitioner in the property" is based on the Court of Appeals' decision in G.R. SP No. 23780 dated May 17, 1991, and the Supreme Court's decision in G.R. No. 100441 dated May 4, 1992 which both acknowledged petitioner's one-half ownership of said 29 building. She reasons that "(a)s co-owner her consent or conformity to the sale was necessary for the validity or effectivity thereof 30 insofar as her 1/2 share/ownership was concerned." The Court disagrees. As discussed previously, this repetitive contention is negated by her consent to the compromise agreement that authorized VECCI to sell the building without need of further consultation with her. Her co-ownership in the building was not inconsistent with her authorizing another, specifically VECCI, to sell her share in this property via an agency arrangement. As correctly stated by the respondent Court of Appeals, the only import of this Court's ruling in G.R. No. 100441 was as follows: the only issue involved is whether or not private respondent is entitled to one-half of the rentals of the subject property pending its sale. The rulings of the courts is (sic) therefore limited only to the issue of rental, there being no provision in the compromise agreement approved by the court for the rentals earned from the building pending its sale. Nowhere in the said rulings did it question nor assail the authority granted to VECCI to sell the said building. In fact, the decisions affirmed the authority granted to VECCI to sell the said building which invoked the compromise agreement of the parties as a basis of the decision (Manifestation, p. 31 38,. Rollo). Second Issue: Did the Appellate Court Act Without Jurisdiction or With Grave Abuse of Discretion? 32 In the case of Alafriz vs. Nable, this Court defined the phrases "without jurisdiction" and "grave abuse of discretion" as follows: "Without jurisdiction" means that the court acted with absolute want of jurisdiction. . . . "Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, or, in other words where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. Contrary to petitioner's asseverations, the Court finds that the respondent Court of Appeals judiciously, correctly and certainly acted within its jurisdiction in reversing the trial court's decision. As discussed, its decision is consistent with law and existing jurisprudence. Let it be emphasized that Rule 45 of the Rules of Court, under which the present petition was filed, authorizes only reversible errors of the appellate court as grounds for review, and not "grave abuse of discretion" which is provided for by Rule 65. It is basic that where Rule 45 is available, and in fact availed of as a remedy -- as in this case recourse under Rule 65 cannot be allowed either as an add-on or as a substitute for appeal. Finally, "(c)ourts as a rule may not impose upon the parties a judgment different from their compromise agreement. It would be an abuse of 33 discretion." Hence, in this case, it is the trial court's decision which is tainted with grave abuse of discretion for having injudiciously added "prior consultation" to VECCI's authority to sell the properties, a condition not contained in the judicially-approved compromise agreement. WHEREFORE, the petition is hereby DENIED for lack of merit, no reversible error having been committed by respondent Court. The assailed Decision is AFFIRMED in toto. Costs against petitioner. SO ORDERED.

HARRIE S. EVERETT, CRAL G. CLIFFORD, ELLIS H. TEAL and GEORGE W. ROBINSON, plaintiffs-appellants, vs. THE ASIA BANKING CORPORATION, NICHOLAS E. MULLEN, ERIC BARCLAY, ALFRED F. KELLY, JOHN W. MEARS and CHARLES D. MACINTOSH, defendants-appellees. Thomas Cary Welch for appellants. Gibbs and McDonough for appellees. OSTRAND, J.: This is an appeal from a decision of the Court of First Instance of Manila, sustaining a demurrer to the complaint. The plaintiffs declined to amend and judgment was rendered dismissing the case. The complaint in question reads as follows: The above named plaintiffs, by Thomas Cary Welch, their attorney, complain of the above-named defendants and for cause of action against them allege: 1st. That at al times in this complaint mentioned the plaintiffs Harrie S. Everett, Ellis H. Teal and George W. Robinson were and now are residents of the City of Manila, Philippine Islands. That the plaintiff Carl G. Clifford was formerly a resident of said City of Manila and now is the resident of the City of Washington, District of Columbia. 2nd. That at all times in this complaint mentioned the defendant the Asia Banking Corporation hereinafter called "the Bank", was and now is a foreign banking corporation duly licensed to transact banking business in the Philippine Islands, having, its principal office and place of business at Manila aforesaid and that said Asia Banking Corporation never has been empowered by law or licensed to do any business other than commercial banking in the Philippine Islands. That the defendants Nicholas E. Mullen, Alfred F. Kelly, John W. Mears, and Charles D. Macintosh were residents of said City of Manila and were officers, agents and employees of the said Asia Banking Corporation, the said Mullen being the General Manager thereof in said City; That: the defendant Eric Barclay is a now a resident of Los Angeles, California, and the defendant Mcintosh is also residing in the United States, his exact residence being unknown. 3rd. That at all times in this complaint mentioned Teal and Company hereinafter called the Company, was and now is a domestic corporation duly incorporated under the laws of the Philippine Islands and having its principal office and place of business at Manila aforesaid. That during said times the plaintiffs Everett, Clifford, Teal and Robinson were the principal stockholders in the Company owning a total of 4,478 shares therein and that the defendant Barclay was the only other stockholder, owning one share thereof. 4th. That in the year 1921, the said Teal and Company has become indebted to the firm of H. W. Peabody and Company in about the sum of P300,000, being for tractors, plows and parts which had been ordered and delivered, the Bank and other banks in Manila held drafts accepted by the Company under said H. W. Peabody and Company's guarantee. That said tractors having become unsailable by reason of the financial and agricultural depression that had overtaken the Islands, the said tractors were all returned to the said H. W. Peabody and Company and as these plaintiffs are informed and verily believes were by it returned to the United States, and while the events herein set forth were taking place the Company made payments on its indebtedness through the Bank to H. W. Peabody and Company, amounting to the sum of at least P150,000. that at about the same time the Company had ordered another lot of tractors, etc., from a business house in the United States, known as Smith, Kirkpatrick and Co., under a commercial letter of credit which the Company had from the Bank in New York City, but that shipment of such tractors had been delayed until the credit had been rescinded by the Bank and that upon such rescission Smith, Kirkpatrick and Co., had been advised by telegraph that the order was cancelled and not to ship the tractors. That nevertheless and contrary to such advise the said Smith, Kirkpatrick and Co. did ship the tractors doing so under D/A drafts therefor and that when said tractors arrived in Manila and in order, if possible to save Smith, Kirkpatrick and Co. from additional loss, the Company at the request and on the advice of the said Bank accepted the drafts and stored the same in a warehouse in Manila rented by it and gave receipts therefor. 5th. That thereafter and on or about March 1921, the Bank persuaded the Company and the said H. W. Peabody and Co. and Smith, Kirkpatrick and Co. to enter into a so called "creditors agreement" with itself, wherein it was mutually agreed that neither of the parties should take action to collect its debts from the Company for the term of two years after the date thereof. That these plaintiffs have no copy of said agreement but beg leave to refer to the original of same, in possession of the Bank, for greater certainty. 6th. That the business of said Company consisted mainly in the merchandising of automobiles, trucks, tractors, spare parts and accessories therefor, and the repairing thereof. That on the 29th day of December, 1922, said company was solvent and in the enjoyment of a large, growing, and lucrative business and in the possession of a valuable reputation and good-will. That since its, organization in May, 1919, it had done its banking business and financing almost exclusively thru and with the Bank and by reason of such continued relations the officers of the Company had acquired trust and confidence in the integrity and good intentions of the said bank and its officers and the other defendants in their friendliness to themselves and the Company. 7th. That on said 29th day of December, 1922, the said Company was indebted to the Bank in about the sum of P750,000, which said sum was secured by mortgage on its personal property and the improvements upon the real estate occupied by it, which real estate was held under a ninety-nine years lease upon very favorable terms and which lease was a valuable asset and constantly increasing in value, and that the said Bank held acceptances, warehouse receipts or pledges for such other indebtedness, as was not covered by the last mentioned mortgage, which said security was ample to cover the amount of the indebtedness. 8th. That toward the end of the year 1922, the Bank, through its manager the defendant Mullen represented to the Company and its managers that for the protection both of the Bank and the Company it was advisable for them both that the Bank should temporarily obtain control of the management and affairs of the Company in order that the affairs of the Company could be conducted by the Bank without interference or hindrance from outside, and to this end that it would be necessary for the stockholders in the Company to place their shares therein in a Voting Trust to be held by the Bank would then finance the Company under its own supervision and that if and when the same were successful and in position to resume independent operation the said trust would be terminated and the stock returned to its true owners, and further represented that in case at any time the Bank decided to discontinue operation under the said trust that then the stock also would be so returned. 9th. That it was further represented by the Bank and the said Mullen that in order to protect the mutual interests of the Bank and the Company it was necessary to carry into effect the said proposed voting trust without the knowledge of the creditors above named and thereby place the Bank in an advantageous position with regard to them. That relying upon the previous friendly relations between the bank and the Company and between the individual defendants and these plaintiffs and relying upon the

promise and representations of the defendants, these plaintiffs were induced to sign and did sign and deliver to the Bank simultaneously a so-called "Voting Trust Agreement," executed by the plaintiff stockholders and a Memorandum of Agreement executed by the Company, both dated and executed and delivered the 29th day of December, 1922, the two forming one document and a copy of which is hereto attached and marked Exhibit A. 10th. That by reason of the facts above set forth and of their reliance upon the good faith and good-will of the defendants these plaintiffs were induced to sign the "Memorandum of Agreement," and "Voting Trust Agreement," Exhibit A, understanding from the defendant that the same were intended for the protection of all parties thereto from outside creditors, but that they were not intended to be enforced according to the letter thereof, and that they did not contain the true agreement between the Bank and the Company which was to finance the Company without interference from the above named creditors, to hold the voting trust as a protection to the bank as against the said creditors and for its own advances, and the further agreement that in case in the Bank did not operate under the said voting trust because of the disapproval by its New York headquarters of such action, or for any other cause, the said trust would be cancelled and the stock in and control of the Company returned to its true owners. 11th. That shortly subsequent to the execution and delivery of the voting trust and memorandum of agreement hereinabove described, in violation of the obligations and duties imposed by law upon the trustee and in pursuance of a scheme to defraud these plaintiffs hereinbelow more fully set forth, the said voting trustee, the defendant Mullen, caused and procured, by virtue of the powers delegated in the said voting trust, the displacement and removal from the Board of Directors of the Company of each and every person who was at the time of the execution of the said voting trust a stockholder in the Company and the substitution in their places as such directors, of the above named persons defendant, or of other persons at the time employees and servants of the Bank, that thereafter and at no subsequent time did the said trustee allow or permit to act as a Director of the Company any person who was in fact a stockholder in the Company; that no one of the so-called directors so placed in ostensible office, at any time has ever purchased from any stockholder of the Company a single share of the capital stock thereof, or paid to any stockholder or the Company any money or consideration whatsoever for the stock by virtue of the assumed ownership of which he has assumed to be a director of the Company and that at all time since, the Company has been exclusively controlled and managed by the said defendants none of whom had any legal or equitable right to a voice in the control or management thereof. 12th. That in pursuance of the above-mentioned and hereinafter described scheme to defraud these plaintiffs, the new so-called directors proceeded to remove from office the Secretary of the Company, and to discharge from employment all of the old responsible managers and foremen in the office and shops who were total to the Company and to these plaintiffs as the strockholders thereof and to displace them substitute for them creatures of their own choosing whose interest consisted wholly in pleasing themselves and the Bank, and who were wholly foreign to the stockholders, these plaintiffs who were and are the real owners of the Company. That thereafter said defendants conducted the business of the Company without consulting the stockholders thereof and denied to the stockholders any knowledge or information as to their actions, or the business of the Company, and at all times thereafter carried on the business and management in all respects as if they and the Bank were the real stockholders and owners thereof and in utter and entire disregard of the rights and interests of these plaintiffs who were and are the real owners. That the said individual defendants, as such pretended stockholders and directors as aforesaid, from time to time gave new mortgages upon the properties of the Company to the Bank as if from time to time required and without regard to the interest of the Company and looking solely to the advantage of the Bank whose employees and henchmen all of them were and are. 13th. That after excluding the real owners from voice in the management or knowledge of the affairs of the Company, the said individual defendants and or the Bank by agreement among themselves or because the individual defendants as employees were coerced by the Bank, the said defendants gave pledges and mortgages from the Company to the Bank and entered into contracts as directed by the Bank, and permitted the Bank to foreclose the same and to sell the property of the Company at such times and in such manners as to be solely to the interests of the Bank of themselves, and wholly without regard to the best interests of the Company itself in disregard to the duties and obligations of a trustee, and permitted the Bank to bring suits or suits against the Company, in which the Company was not represented by anyone having its interest at heart and in which by reason of the above set forth relation of the Company to the Bank, the Bank in truth occupied the position of both plaintiff and defendant and tricked and deluded the courts into giving judgments in which the rights of the real parties were concealed and unknown to the courts. 14th. That on or about the 18th day of August, 1923, in order more effectually to plunder the Company and to defraud these plaintiffs the said defendants, Mullen, Barclay, Mears and Mcintosh, made, executed and filed in the Bureau of Commerce and Industry of the Philippine Islands, articles of incorporation of a corporation called the "Philippine Motors Corporation," having its principal office in the City of Manila, a capital stock of P25,000, of which the sum of P5,000, was alleged to have been subscribed and paid as follows: the defendant Barclay P200, defendant Mears P1,200, defendant Kelly P1,200, defendant Mcintosh P1,200, defendant Mullen P1,200, the treasurer thereof being the defendant Mears. And these plaintiffs beg leave to refer to the original articles of Incorporation on file in the said Bureau for greater certainty. That at the time of such incorporation each and every one of the last above named defendants was an officer or employee of the defendant Bank. That these plaintiffs have nor information nor means of obtaining information as to whether the money alleged to have been described by them for their shares of stock was of their personal funds and property or whether it was money furnished them by the Bank of purpose moneys such incorporation was a fraud upon these plaintiffs for the reason that it was intended for the sole purpose of taking over the assets of the Company and said defendants were enabled to effectuate such intent by reason of their positions as officers and employees of the Bank and because each and every one of them were nominally and de facto directors of the Company, by reason of their appointments as such by the defendant Mullen, the Voting Trustee, under the Voting Trust hereinabove set forth, of which facts each and every one of said defendant incorporators were at the time fully informed as these plaintiffs verily believe. 15th. That after the incorporation described in the last preceding paragraph the said Bank turned over to the Philippine Motors Corporation all of the business and assets of the company of every name nature and description and with the connivance and consent of the individual defendants acting in their double capacity as directors of both corporations, permitted and assisted the said Philippine Motors Corporation to enter and possess itself of the premises and good will of the Company and to continue and carry on the business for the sole benefit of the new corporation and to collect the debts owing to the Company and convert the advantages, profits and proceeds thereof to itself. And that at all times since the said Philippine Motors Corporation has continued to conduct and advantage itself of the business of the Company to the disregard of and detriment to the rights of these plaintiffs and to their damage.

16th. That these plaintiffs, by reason of the facts hereinabove set forth were and are ignorant of the exact relations that have existed and do exist between the Bank and the said Philippine Motors Corporation, or between the Bank and the individual defendants as ostensible stockholders thereof and that the Bank has prevented these plaintiffs from obtaining any such information by refusing after demand to return to these plaintiffs their stock in the Company or to dissolve the Voting Trust or in any wise to allow them to regain control of what is left of the Company or its records and has endeavored to forestall and prevent any action toward regaining such control or enforcement of their rights by bringing suit against one of the principal stockholders in the Company, the plaintiff Everett, based on an alteration and falsification of the books of the Company and by threat of proceedings against another principal stockholder in the Company, the plaintiff Clifford, to collect a large sum of money as and for an alleged non payment of a subscription to the stock of the Company, which the records of the Company plainly show does not exist and has no foundation in equity or in law. That by the reason of ignorance, so generated and maintained, of facts wholly within the knowledge of defendants and concealed from these plaintiffs, they are unable to allege positively and therefore must charge as they do charge in the alternative; (a) That the said Philippine Motors Corporation is a fictitious entity brought into semblance of being by the Bank through the control of its employees the above named individual defendants acting as pretended incorporators, stockholders and directors, when in truth and in fact the said individuals had and have no personal property interest therein, and that in case of foregoing is found to be the fact the said Philippine Motors Corporations never obtained and has now no legal existence for the reason that it was and is the Bank itself operating under a disguise and because said Bank, under its license to do business in the Philippine Islands, is without power or authority to engage in the business assumed by the Philippine Motors Corporation, and because said corporation so pretendedly created by the Bank is in violation of its duties and obligations assumed by it as Trustee of the stockholders of the Company, Or (b) That in case the individual defendants as individuals created the said, the Philippine Motors Corporation, and the same is the property of themselves as stockholders and bona fide investors of their own money in the stock of the same, then such creation and all subsequent operations of the said Corporation were a fraud upon these plaintiffs because such incorporation and subsequent acts of the Corporation were caused and procured by said individual defendants the defendant Mullen being the voting trustee of the Company and at the same time being the Manager in the Philippine Islands of the Bank, and by virtue of the power so focused and concentrated in himself together with the powers of the others individual defendants as agents and employees of the Bank, and simultaneously as officers and directors of the Company enabled the said individual defendants to take advantage of their position in respect to the Company and the Bank and to sue the same to the defraudation of these plaintiffs. 17th. That the return to the above named individual plaintiffs by the Trustee of the stock in the Company, transferred to it by said Voting Trust Agreement, has been demanded and refused. 18th. That by reason of the facts above alleged these plaintiffs have been kept and are in ignorance of accurate knowledge of the actions of the defendants and of the amount of damage thereby caused these plaintiffs and represent to the court what accurate information can only be obtained by a discovery by the defendants and each of them of all and every fact relevant to this cause. 19th. That these plaintiffs are credibly informed and verily believe that the defendants are now confabulating among themselves further to conceal the facts and to damage these plaintiffs by a sale of the Philippine Motors Corporation and all its assets tangible and intangible to a new purchaser, in which new purchaser the said defendants will have interests, and that in case such sale should be made it will damage these plaintiffs in a manner for which there is no adequate remedy and will cause and produce a multiplicity of actions. Wherefore these plaintiffs demand the decrees and judgment of this court: 1st. Enjoining and restraining the defendants and each of them from transferring the corporation called Philippine Motors Corporation or any of the capital stock therein to any person or corporation during the pendency of this action. 2nd. Ordering the said defendants at once to cancel the said Voting trust and to return to these plaintiffs their shares of the stock of Teal and Company, taken under said trust and to return to them all the books and records of every kind and nature of said Teal and Company, and to regain to these defendants their pretended positions in and control of Teal and Company. 3rd. Decreeing that the defendants and each of them make full and true discovery of all the facts in relation to the formation, incorporation, and ownership of the Philippine Motors Corporation and of all dealings and transactions between the defendant Asia Banking Corporation and said Philippine Motors Corporation to the end that the court and these plaintiffs shall have information whether said Philippine Motors Corporation is in fact the Asia Banking Corporation operating under a disguise or is the creation of the individual defendants availing themselves of their connections with and positions in the said Bank in order to take advantage of these plaintiffs and of Teal and Company. 4th. Decreeing that the said defendants make discovery of all and every one of their acts and transactions with respect to Teal and Company since the same was taken by them adding and including a full and true discovery of all sales of the property of Teal and Company of every kind and nature with the full and true consideration received in every case, the amount received from any compromise entered into by them in the name of Teal and Company and the true consideration therefor. 5th. In case it be found that the said Philippine Motors Corporations is in fact the Asia Banking Corporation that a decree be entered ordering the said Bank immediately to dissolve the same and to account to these plaintiffs for all profits made thereby since its organization. 6th. For judgment against said defendants jointly and severally for the damages caused by their acts aforesaid which the plaintiffs charged to be not less than P500,000. 7th. For such other or further relief, or both, in the premises as to this court may seem just and equitable. To this complaint the defendants demurred on the grounds (1) that it is ambiguous, unintelligible and uncertain; (2) that the plaintiffs have not the legal capacity to bring this action; (3) that the complaint does not state facts sufficient to constitute a cause of action, and (4) that there is a defect or misjoinder of parties defendant. The court below sustained the demurrer on all four grounds and held that the complaint, especially in its paragraphs 4 and 5, is ambiguous, confusing, unintelligible and vague; that Teal and Company should have been joined as a party plaintiff; that, as far as the Philippine Motors Corporation is concerned, the plaintiffs, not being stockholders in that corporation, had no legal right to proceed against it in this case; and that the court could not be called upon to act as investigator of the facts referred to in paragraphs 3 and 4 of the complaint, but that such investigations fall within the duty of the interested party, the Attorney-General, the Insular Auditor or the Insular Treasurer. I

If this were an ordinary action at law, the ruling of the court below would be correct in most respects; it must be conceded that the complaint violates at least three of the four principal rules as to the manner or stating facts in complaints in such actions. It suffers from duplicity, the facts are not stated with certainty, and the statement is sometimes indirect and partly in the alternative.lawphil.net But we are not here dealing with a complaint in an action at law; this is in effect a bill of discovery and the proceeding is primarily one for equitable relief, though it may eventually develop into an action at law. In such proceedings considerable latitude in the manner of stating facts in the pleadings is allowed. The minute and varied statements of the probative facts, the charge to anticipate a defense, and the interrogatories, become necessary in the equity practice, because bills are for discovery as well as for relief, and in order to search the conscience of the defendant, he is treated, in the pleading, somewhat as though placed upon the stand and examined as an unwilling witness. (Bliss on Code Pleading, 3rd edition, section 319.) Counsel for the defendants argue that there is no express provision in the Code of Civil Procedure for a proceeding such as the present, and that, therefore, proceedings for discovery must be considered limited to the taking of depositions under subsection 1 of section 355 of the Code and the compulsory attendance of witnesses by means of subpoena. But, upon a moment's reflection, it becomes evident that the means of discovery suggested by counsel are not always available or adequate. Before they can be utilized there must be an action pending, or, in other words, a complaint must have been filed and summons served upon the defendants. Now, there are cases where facts, essential to the plaintiffs cause of action, are within the knowledge of the defendants, but of which the plaintiff is so imperfectly informed that he cannot state them with certainty, even on information and belief. He may, however, known that one out of two or more sets of facts is true without knowing which of them is true. In such circumstances the plaintiff cannot, of course, state any of the facts with certainty and it stands to reason that he cannot be required to plead with certainty facts which he does not definitely believe to be true. But the facts being essential to this cause of action, he must state them in one form or another and cannot very well file his complaint before so doing. And if he cannot file his complaint, he cannot, as we have already stated, avail himself of the remedy, provided for in subsection 1 of section 355, supra. It seems clear that, in such a case, the proper procedure is for the plaintiff to state the facts within his knowledge with certainty, but to plead in the alternative the, to him, doubtful facts, which are wholly within the defendant's knowledge and call upon the defendant to make a full disclosure of these facts. That is exactly what the plaintiffs have done in the present case, and bearing in mind the purpose of the action, their complaint seems sufficiently intelligible and free from ambiguity. The fact that there is no special express provision in the Code of Civil Procedure for bills of discovery of this character does not necessarily signify that the remedy does not exist in this jurisdiction. The maxim of equity that "Equity will not permit a wrong without a remedy" still holds good, and our liberal Code of Civil Procedure is, if properly interpreted, sufficiently broad and flexible to enable the courts to apply all necessary remedies, both legal and equitable. II Invoking the well-known rule that shareholders cannot ordinarily sue in equity to redress wrongs done to the corporation, but that the action must be brought by the Board of Directors, the appellees argue and the court below held that the corporation Teal and Company is a necessary party plaintiff and that the plaintiff stockholders, not having made any demand on the Board to bring the action, are not the proper parties plaintiff. But, like most rules, the rule in question has its exceptions. It is alleged in the complaint and, consequently, admitted through the demurrer that the corporation Teal and Company is under the complete control of the principal defendants in the case, and, in these circumstances, it is obvious that a demand upon the Board of Directors to institute an action and prosecute the same effectively would have been useless, and the law does not require litigants to perform useless acts. (Exchange bank of Wewoka vs. Bailey, 29 Okla., 246; Fleming and Hewins vs. Black Warrior Copper Co., 15 Ariz., 1; Wickersham vs. Crittenden, 106 Cal., 329; Glenn vs. Kittaning Brewing Co., 259 Pa., 510; Hawes vs. Contra Costa Water Company, 104 U. S., 450.) III The conclusion of the court below that the plaintiffs, not being stockholders in the Philippine Motors Corporation, had no legal right to proceed against that corporation in the manner suggested in the complaint evidently rest upon a misconception of the character of the action. In this proceeding it was necessary for the plaintiffs to set forth in full the history of the various transactions which eventually led to the alleged loss of their property and, in making a full disclosure, references to the Philippine Motors Corporation appear to have been inevitable. It is to be noted that the plaintiffs seek no judgment against the corporation itself at this stage of the proceedings. IV The court below also erred in holding that the investigation of the transaction referred to in the complaint is not within the province of the courts, but should be conducted by some other agency. That discovery, such as that demanded in the present action, is one of the functions of a court of equity is so well established as to require no discussion. In our opinion the plaintiffs state a good cause of action for equitable relief and their complaint is not in any respect fatally defective. The judgment of the court below is therefore reversed, the defendants demurrer is overruled, and it is ordered that the return of the record to the Court within ten days from the return of the record to the Court of First Instance. So ordered.

THE EXECUTIVE SECRETARY, THE SECRETARY OF JUSTICE, THE SECRETARY OF LABOR AND EMPLOYMENT, AND THE SECRETARY OF FOREIGN AFFAIRS, OWWA PUNO, ADMINISTRATOR, and POEA ADMINISTRATOR, petitioners, vs. THE HON. COURT OF APPEALS and ASIAN RECRUITMENT COUNCIL PHILIPPINE CHAPTER (ARCO-PHIL.), INC., representing its members: Worldcare Services Internationale, Inc., Steadfast International Recruitment Corporation, Dragon International Manpower Services Corporation, Verdant Manpower Mobilization Corporation, Brent Overseas Personnel, Inc., ARL Manpower Services, Inc., Dahlzhen International Services, Inc., Interworld Placement Center, Inc., Lakas Tao Contract Services, Ltd. Co., and SSC Multiservices, respondents. DECISION CALLEJO, SR., J.: In this petition for review on certiorari, the Executive Secretary of the President of the Philippines, the Secretary of Justice, the Secretary of Foreign Affairs, the Secretary of Labor and Employment, the POEA Administrator and the OWWA Administrator, 1 through the Office of the Solicitor General, assail the Decision of the Court of Appeals in CA-G.R. SP No. 38815 affirming the 2 Order of the Regional Trial Court of Quezon City dated August 21, 1995 in Civil Case No. Q-95-24401, granting the plea of the petitioners therein for a writ of preliminary injunction and of the writ of preliminary injunction issued by the trial court on August 24, 1995. The Antecedents Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995, took effect on July 15, 1995. The Omnibus Rules and Regulations Implementing the Migrant Workers and Overseas Filipino Act of 1995 was, thereafter, published in the April 7, 1996 issue of the Manila Bulletin. However, even before the law took effect, the Asian Recruitment Council Philippine Chapter, Inc. (ARCO-Phil.) filed, on July 17, 1995, a petition for declaratory relief under Rule 63 of the Rules of Court with the Regional Trial Court of Quezon City to declare as unconstitutional Section 2, paragraph (g), Section 6, paragraphs (a) to (j), (l) and (m), Section 7, paragraphs (a) and (b), and Sections 9 and 10 of the law, with a plea for the issuance of a temporary restraining order and/or writ of preliminary injunction enjoining the respondents therein from enforcing the assailed provisions of the law. In a supplement to its petition, the ARCO-Phil. alleged that Rep. Act No. 8042 was self-executory and that no implementing rules were needed. It prayed that the court issue a temporary restraining order to enjoin the enforcement of Section 6, paragraphs (a) to (m) on illegal recruitment, Section 7 on penalties for illegal recruitment, and Section 9 on venue of criminal actions for illegal recruitments, viz: Viewed in the light of the foregoing discussions, there appears to be urgent an imperative need for this Honorable Court to maintain the status quo by enjoining the implementation or effectivity of the questioned provisions of RA 8042, by way of a restraining order otherwise, the member recruitment agencies of the petitioner will suffer grave or irreparable damage or injury. With the effectivity of RA 8042, a great majority of the duly licensed recruitment agencies have stopped or suspended their operations for fear of being prosecuted under the provisions of a law that are unjust and unconstitutional. This Honorable Court may take judicial notice of the fact that processing of deployment papers of overseas workers for the past weeks have come to a standstill at the POEA and this has affected thousands of workers everyday just because of the enactment of RA 8042. Indeed, this has far reaching effects not only to survival of the overseas manpower supply industry and the active participating recruitment agencies, the countrys economy which has survived mainly due to the dollar remittances of the overseas workers but more importantly, to the poor and the needy who are in dire need of income-generating jobs which can only be obtained from abroad. The loss or injury that the recruitment agencies will suffer will then be immeasurable and irreparable. As of now, even foreign employers have already reduced their manpower requirements from the Philippines due to their knowledge that RA 8042 prejudiced and adversely affected the local recruitment 3 agencies. On August 1, 1995, the trial court issued a temporary restraining order effective for a period of only twenty (20) days therefrom. After the petitioners filed their comment on the petition, the ARCO-Phil. filed an amended petition, the amendments consisting in the inclusion in the caption thereof eleven (11) other corporations which it alleged were its members and which it represented in the suit, and a plea for a temporary restraining order enjoining the respondents from enforcing Section 6 subsection (i), Section 6 subsection (k) and paragraphs 15 and 16 thereof, Section 8, Section 10, paragraphs 1 and 2, and Sections 11 and 40 of Rep. Act No. 8042. The respondent ARCO-Phil. assailed Section 2(g) and (i), Section 6 subsection (a) to (m), Section 7(a) to (b), and Section 10 paragraphs (1) and (2), quoted as follows: (g) THE STATE RECOGNIZES THAT THE ULTIMATE PROTECTION TO ALL MIGRANT WORKERS IS THE POSSESSION OF SKILLS. PURSUANT TO THIS AND AS SOON AS PRACTICABLE, THE GOVERNMENT SHALL DEPLOY AND/OR ALLOW THE DEPLOYMENT ONLY OF SKILLED 4 FILIPINO WORKERS. Sec. 2 subsection (i, 2nd par.) Nonetheless, the deployment of Filipino overseas workers, whether land-based or sea-based, by local service contractors and manning agents employing them shall be encourages (sic). Appropriate incentives may be extended to them. II. ILLEGAL RECRUITMENT SEC. 6. Definition. For purposes of this Act, illegal recruitment shall mean any act of canvassing, enlisting, contracting, transporting, utilizing, hiring, or procuring workers and includes referring, contract services, promising or advertising for employment abroad, whether for profit or not, when undertaken by a non-licensee or non-holder of authority contemplated under Article 13(f) of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines: Provided, That any such nonlicensee or non-holder who, in any manner, offers or promises for a fee employment abroad to two or more persons shall be deemed so engaged. It shall, likewise, include the following acts, whether committed by any person, whether a non-licensee, nonholder, licensee or holder of authority: (a) To charge or accept directly or indirectly any amount greater than that specified in the schedule of allowable fees prescribed by the Secretary of Labor and Employment, or to make a worker pay any amount greater than that actually received by him as a loan or advance; (b) To furnish or publish any false notice or information or document in relation to recruitment or employment; (c) To give any false notice, testimony, information or document or commit any act of misrepresentation for the purpose of securing a license or authority under the Labor Code;

(d) To induce or attempt to induce a worker already employed to quit his employment in order to offer him another unless the transfer is designed to liberate a worker from oppressive terms and conditions of employment; (e) To influence or attempt to influence any person or entity not to employ any worker who has not applied for employment through his agency; (f) To engage in the recruitment or placement of workers in jobs harmful to public health or morality or to the dignity of the Republic of the Philippines; (g) To obstruct or attempt to obstruct inspection by the Secretary of Labor and Employment or by his duly authorized representative; (h) To fail to submit reports on the status of employment, placement vacancies, remittance of foreign exchange earnings, separation from jobs, departures and such other matters or information as may be required by the Secretary of Labor and Employment; (i) To substitute or alter to the prejudice of the worker, employment contracts approved and verified by the Department of Labor and Employment from the time of actual signing thereof by the parties up to and including the period of the expiration of the same without the approval of the Department of Labor and Employment; (j) For an officer or agent of a recruitment or placement agency to become an officer or member of the Board of any corporation engaged in travel agency or to be engaged directly or indirectly in the management of a travel agency; (k) To withhold or deny travel documents from applicant workers before departure for monetary or financial considerations other than those authorized under the Labor Code and its implementing rules and regulations; (l) Failure to actually deploy without valid reason as determined by the Department of Labor and Employment; and (m) Failure to reimburse expenses incurred by the worker in connection with his documentation and processing for purposes of deployment, in cases where the deployment does not actually take place without the workers fault. Illegal recruitment when committed by a syndicate or in large scale shall be considered an offense involving economic sabotage. Illegal recruitment is deemed committed by a syndicate if carried out by a group of three (3) or more persons conspiring or confederating with one another. It is deemed committed in large scale if committed against three (3) or more persons individually or as a group. The persons criminally liable for the above offenses are the principals, accomplices and accessories. In case of juridical persons, the officers having control, management or direction of their business shall be liable. SEC. 7. Penalties. (a) Any person found guilty of illegal recruitment shall suffer the penalty of imprisonment of not less than six (6) years and one (1) day but not more than twelve (12) years and a fine of not less than two hundred thousand pesos (P200,000.00) nor more than five hundred thousand pesos (P500,000.00). (b) The penalty of life imprisonment and a fine of not less than five hundred thousand pesos (P500,000.00) nor more than one million pesos (P1,000,000.00) shall be imposed if illegal recruitment constitutes economic sabotage as defined herein. Provided, however, That the maximum penalty shall be imposed if the person illegally recruited is less than eighteen (18) years of age or committed by a non-licensee or non-holder of authority. Sec. 8. Prohibition on Officials and Employees. It shall be unlawful for any official or employee of the Department of Labor and Employment, the Philippine Overseas Employment Administration (POEA), or the Overseas Workers Welfare Administration (OWWA), or the Department of Foreign Affairs, or other government agencies involved in the implementation of this Act, or their relatives within the fourth civil degree of consanguinity or affinity, to engage, directly or indirectly, in the business of recruiting migrant workers as defined in this Act. The penalties provided in the immediate preceding paragraph shall be imposed upon them. (underscoring supplied) Sec. 10, pars. 1 & 2. Money Claims. Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide,within ninety (90) calendar days after the filing of the complaint, the claims arising out of an employer-employee relationship or by virtue of any law or contract involving Filipino workers for overseas deployment including claims for actual, moral, exemplary and other forms of damages. The liability of the principal/employer and the recruitment/placement agency for any and all claims under this section shall be joint and several. This provision shall be incorporated in the contract for overseas employment and shall be a condition precedent for its approval. The performance bond to be filed by the recruitment/placement agency, as provided by law, shall be answerable for all money claims or damages that may be awarded to the workers. If the recruitment/placement agency is a juridical being, the corporate officers and directors and partners as the case may be, shall themselves be jointly and solidarily liable with the corporation or partnership for the aforesaid claims and damages. SEC. 11. Mandatory Periods for Resolution of Illegal Recruitment Cases. The preliminary investigations of cases under this Act shall be terminated within a period of thirty (30) calendar days from the date of their filing. Where the preliminary investigation is conducted by a prosecution officer and a prima facie case is established, the corresponding information shall be filed in court within twenty-four (24) hours from the termination of the investigation. If the preliminary investigation is conducted by a judge and a prima facie case is found to exist, the corresponding information shall be filed by the proper prosecution officer within forty-eight (48) hours from the date of receipt of the records of the case. The respondent averred that the aforequoted provisions of Rep. Act No. 8042 violate Section 1, Article III of the 5 Constitution. According to the respondent, Section 6(g) and (i) discriminated against unskilled workers and their families and, as 6 7 such, violated the equal protection clause, as well as Article II, Section 12 and Article XV, Sections 1 and 3(3) of the 8 Constitution. As the law encouraged the deployment of skilled Filipino workers, only overseas skilled workers are granted rights. The respondent stressed that unskilled workers also have the right to seek employment abroad. According to the respondent, the right of unskilled workers to due process is violated because they are prevented from finding employment and earning a living abroad. It cannot be argued that skilled workers are immune from abuses by employers, while unskilled workers are merely prone to such abuses. It was pointed out that both skilled and unskilled workers are subjected to abuses by foreign employers. Furthermore, the prohibition of the deployment of unskilled workers abroad would only encourage fly-by-night illegal recruiters.

According to the respondent, the grant of incentives to service contractors and manning agencies to the exclusion of all other licensed and authorized recruiters is an invalid classification. Licensed and authorized recruiters are thus deprived of their right to property and due process and to the "equality of the person." It is understandable for the law to prohibit illegal recruiters, but to discriminate against licensed and registered recruiters is unconstitutional. The respondent, likewise, alleged that Section 6, subsections (a) to (m) is unconstitutional because licensed and authorized recruitment agencies are placed on equal footing with illegal recruiters. It contended that while the Labor Code distinguished between recruiters who are holders of licenses and non-holders thereof in the imposition of penalties, Rep. Act No. 8042 does not make any distinction. The penalties in Section 7(a) and (b) being based on an invalid classification are, therefore, repugnant to the equal protection clause, besides being excessive; hence, such penalties are violative of Section 19(1), Article III of the 9 Constitution. It was also pointed out that the penalty for officers/officials/employees of recruitment agencies who are found guilty of economic sabotage or large-scale illegal recruitment under Rep. Act No. 8042 is life imprisonment. Since recruitment agencies usually operate with a manpower of more than three persons, such agencies are forced to shut down, lest their officers and/or employees be charged with large scale illegal recruitment or economic sabotage and sentenced to life imprisonment. Thus, the penalty imposed by law, being disproportionate to the prohibited acts, discourages the business of licensed and registered recruitment agencies. The respondent also posited that Section 6(m) and paragraphs (15) and (16), Sections 8, 9 and 10, paragraph 2 of the law violate 10 Section 22, Article III of the Constitution prohibiting ex-post facto laws and bills of attainder. This is because the provisions presume that a licensed and registered recruitment agency is guilty of illegal recruitment involving economic sabotage, upon a finding that it committed any of the prohibited acts under the law. Furthermore, officials, employees and their relatives are presumed guilty of illegal recruitment involving economic sabotage upon such finding that they committed any of the said prohibited acts. The respondent further argued that the 90-day period in Section 10, paragraph (1) within which a labor arbiter should decide a money claim is relatively short, and could deprive licensed and registered recruiters of their right to due process. The period within which the summons and the complaint would be served on foreign employees and, thereafter, the filing of the answer to the complaint would take more than 90 days. This would thereby shift on local licensed and authorized recruiters the burden of proving the defense of foreign employers. Furthermore, the respondent asserted, Section 10, paragraph 2 of the law, which provides for the joint and several liability of the officers and employees, is a bill of attainder and a violation of the right of the said corporate officers and employees to due process. Considering that such corporate officers and employees act with prior approval of the board of directors of such corporation, they should not be liable, jointly and severally, for such corporate acts. The respondent asserted that the following provisions of the law are unconstitutional: SEC. 9. Venue. A criminal action arising from illegal recruitment as defined herein shall be filed with the Regional Trial Court of the province or city where the offense was committed or where the offended party actually resides at the time of the commission of the offense: Provided, That the court where the criminal action is first filed shall acquire jurisdiction to the exclusion of other courts: Provided, however, That the aforestated provisions shall also apply to those criminal actions that have already been filed in court at the time of the effectivity of this Act. SEC. 10. Money Claims. Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within ninety (90) calendar days after the filing of the complaint, the claims arising out of an employer-employee relationship or by virtue of any law or contract involving Filipino workers for overseas deployment including claims for actual, moral, exemplary and other forms of damages. Sec. 40. The departments and agencies charged with carrying out the provisions of this Act shall, within ninety (90) days after the effectiviy of this Act, formulate the necessary rules and regulations for its effective implementation. 11 According to the respondent, the said provisions violate Section 5(5), Article VIII of the Constitution because they impair the power of the Supreme Court to promulgate rules of procedure. In their answer to the petition, the petitioners alleged, inter alia, that (a) the respondent has no cause of action for a declaratory relief; (b) the petition was premature as the rules implementing Rep. Act No. 8042 not having been released as yet; (c) the assailed provisions do not violate any provisions of the Constitution; and, (d) the law was approved by Congress in the exercise of the police power of the State. In opposition to the respondents plea for injunctive relief, the petitioners averred that: As earlier shown, the amended petition for declaratory relief is devoid of merit for failure of petitioner to demonstrate convincingly that the assailed law is unconstitutional, apart from the defect and impropriety of the petition. One who attacks a statute, alleging unconstitutionality must prove its invalidity beyond reasonable doubt (Caleon v. Agus Development Corporation, 207 SCRA 748). All reasonable doubts should be resolved in favor of the constitutionality of a statute (People v. Vera, 65 Phil. 56). This presumption of constitutionality is based on the doctrine of separation of powers which enjoin upon each department a becoming respect for the acts of the other departments (Garcia vs. Executive Secretary, 204 SCRA 516 [1991]). Necessarily, the ancillary remedy of a temporary restraining order and/or a writ of preliminary injunction prayed for must fall. Besides, an act of legislature approved by 12 the executive is presumed to be within constitutional bounds (National Press Club v. Commission on Elections, 207 SCRA 1). After the respective counsels of the parties were heard on oral arguments, the trial court issued on August 21, 1995, an order granting the petitioners plea for a writ of preliminary injunction upon a bond of P50,000. The petitioner posted the requisite bond and on August 24, 1995, the trial court issued a writ of preliminary injunction enjoining the enforcement of the following provisions of Rep. Act No. 8042 pending the termination of the proceedings: Section 2, subsections (g) and (i, 2nd par.); Section 6, subsections (a) to (m), and pars. 15 & 16; Section 7, subsections (a) & (b); Section 8; Section 9; Section 10; pars. 1 & 2; Section 11; and Section 40 of Republic Act No. 8042, otherwise known as the Migrant 13 Workers and Overseas Filipinos Act of 1995. The petitioners filed a petition for certiorari with the Court of Appeals assailing the order and the writ of preliminary injunction issued by the trial court on the following grounds: 1. Respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its member-agencies to be protected by the injunctive relief and/or violation of said rights by the enforcement of the assailed sections of R.A. 8042; 2. Respondent Judge fixed a P50,000 injunction bond which is grossly inadequate to answer for the damage which petitioner-officials 14 may sustain, should respondent ARCO-PHIL. be finally adjudged as not being entitled thereto.

The petitioners asserted that the respondent is not the real party-in-interest as petitioner in the trial court. It is inconceivable how the respondent, a non-stock and non-profit corporation, could sustain direct injury as a result of the enforcement of the law. They argued that if, at all, any damage would result in the implementation of the law, it is the licensed and registered recruitment agencies and/or the unskilled Filipino migrant workers discriminated against who would sustain the said injury or damage, not the respondent. The respondent, as petitioner in the trial court, was burdened to adduce preponderant evidence of such irreparable injury, but failed to do so. The petitioners further insisted that the petition a quo was premature since the rules and regulations implementing the law had yet to be promulgated when such petition was filed. Finally, the petitioners averred that the respondent failed to establish the requisites for the issuance of a writ of preliminary injunction against the enforcement of the law and the rules and regulations issued implementing the same. On December 5, 1997, the appellate court came out with a four-page decision dismissing the petition and affirming the assailed order and writ of preliminary injunction issued by the trial court. The appellate court, likewise, denied the petitioners motion for reconsideration of the said decision. The petitioners now come to this Court in a petition for review on certiorari on the following grounds: 1. Private respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its member-agencies to be protected by the injunctive relief and/or violation of said rights by the enforcement of the assailed sections of R.A. 8042; 2. The P50,000 injunction bond fixed by the court a quo and sustained by the Court of Appeals is grossly inadequate to answer for the damage which petitioners-officials may sustain, should private respondent ARCO-PHIL. be finally adjudged as not being entitled 15 thereto. On February 16, 1998, this Court issued a temporary restraining order enjoining the respondents from enforcing the assailed order and writ of preliminary injunction. The Issues The core issue in this case is whether or not the trial court committed grave abuse of its discretion amounting to excess or lack of jurisdiction in issuing the assailed order and the writ of preliminary injunction on a bond of onlyP50,000 and whether or not the appellate court erred in affirming the trial courts order and the writ of preliminary injunction issued by it. The petitioners contend that the respondent has no locus standi. It is a non-stock, non-profit organization; hence, not the real partyin-interest as petitioner in the action. Although the respondent filed the petition in the Regional Trial Court in behalf of licensed and registered recruitment agencies, it failed to adduce in evidence a certified copy of its Articles of Incorporation and the resolutions of the said members authorizing it to represent the said agencies in the proceedings. Neither is the suit of the respondent a class suit so as to vest in it a personality to assail Rep. Act No. 8042; the respondent is service-oriented while the recruitment agencies it purports to represent are profit-oriented. The petitioners assert that the law is presumed constitutional and, as such, the respondent was burdened to make a case strong enough to overcome such presumption and establish a clear right to injunctive relief. The petitioners bewail the P50,000 bond fixed by the trial court for the issuance of a writ of preliminary injunction and affirmed by the appellate court. They assert that the amount is grossly inadequate to answer for any damages that the general public may suffer by reason of the non-enforcement of the assailed provisions of the law. The trial court committed a grave abuse of its discretion in granting the respondents plea for injunctive relief, and the appellate court erred in affirming the order and the writ of preliminary injunction issued by the trial court. The respondent, for its part, asserts that it has duly established its locus standi and its right to injunctive relief as gleaned from its pleadings and the appendages thereto. Under Section 5, Rule 58 of the Rules of Court, it was incumbent on the petitioners, as respondents in the RTC, to show cause why no injunction should issue. It avers that the injunction bond posted by the respondent was more than adequate to answer for any injury or damage the petitioners may suffer, if any, by reason of the writ of preliminary injunction issued by the RTC. In any event, the assailed provisions of Rep. Act No. 8042 exposed its members to the immediate and irreparable damage of being deprived of their right to a livelihood without due process, a property right protected under the Constitution. The respondent contends that the commendable purpose of the law to eradicate illegal recruiters should not be done at the expense and to the prejudice of licensed and authorized recruitment agencies. The writ of preliminary injunction was necessitated by the great number of duly licensed recruitment agencies that had stopped or suspended their business operations for fear that their officers and employees would be indicted and prosecuted under the assailed oppressive penal provisions of the law, and meted excessive penalties. The respondent, likewise, urges that the Court should take judicial notice that the processing of deployment papers of overseas workers have come to a virtual standstill at the POEA. The Courts Ruling The petition is meritorious. The Respondent Has Locus Standi To File the Petition in the RTC in Representation of the Eleven Licensed and Registered Recruitment Agencies Impleaded in the Amended Petition The modern view is that an association has standing to complain of injuries to its members. This view fuses the legal identity of an 16 association with that of its members. An association has standing to file suit for its workers despite its lack of direct interest if its 17 members are affected by the action. An organization has standing to assert the concerns of its constituents. 18 In Telecommunications and Broadcast Attorneys of the Philippines v. Commission on Elections, we held that standing jus tertii would be recognized only if it can be shown that the party suing has some substantial relation to the third party, or that the right of the third party would be diluted unless the party in court is allowed to espouse the third partys constitutional claims. In this case, the respondent filed the petition for declaratory relief under Rule 64 of the Rules of Court for and in behalf of its eleven (11) licensed and registered recruitment agencies which are its members, and which approved separate resolutions expressly authorizing the respondent to file the said suit for and in their behalf. We note that, under its Articles of Incorporation, the respondent was organized for the purposes inter alia of promoting and supporting the growth and development of the manpower recruitment industry, both in the local and international levels; providing, creating and exploring employment opportunities for the exclusive benefit of its general membership; enhancing and promoting the general welfare and protection of Filipino workers; and, to act as the representative of any individual, company, entity or association on matters related to the manpower recruitment industry, and to perform other acts and activities necessary to accomplish the purposes embodied therein. The respondent is, thus, the appropriate party to assert the rights of its members, because it and its members are in every practical sense identical. The

respondent asserts that the assailed provisions violate the constitutional rights of its members and the officers and employees thereof. The respondent is but the medium through which its individual members seek to make more effective the expression of 19 their voices and the redress of their grievances. However, the respondent has no locus standi to file the petition for and in behalf of unskilled workers. We note that it even failed to implead any unskilled workers in its petition. Furthermore, in failing to implead, as parties-petitioners, the eleven licensed and 20 registered recruitment agencies it claimed to represent, the respondent failed to comply with Section 2 of Rule 63 of the Rules of Court. Nevertheless, since the eleven licensed and registered recruitment agencies for which the respondent filed the suit are 21 specifically named in the petition, the amended petition is deemed amended to avoid multiplicity of suits. The Assailed Order and Writ of Preliminary Injunction Is Mooted By Case Law The respondent justified its plea for injunctive relief on the allegation in its amended petition that its members are exposed to the immediate and irreparable danger of being deprived of their right to a livelihood and other constitutional rights without due process, on its claim that a great number of duly licensed recruitment agencies have stopped or suspended their operations for fear that (a) their officers and employees would be prosecuted under the unjust and unconstitutional penal provisions of Rep. Act No. 8042 and meted equally unjust and excessive penalties, including life imprisonment, for illegal recruitment and large scale illegal recruitment without regard to whether the recruitment agencies involved are licensed and/or authorized; and, (b) if the members of the respondent, which are licensed and authorized, decide to continue with their businesses, they face the stigma and the curse of being labeled "illegal recruiters." In granting the respondents plea for a writ of preliminary injunction, the trial court held, without stating the factual and legal basis therefor, that the enforcement of Rep. Act No. 8042, pendente lite, would cause grave and irreparable injury to the respondent until the case is decided on its merits. We note, however, that since Rep. Act No. 8042 took effect on July 15, 1995, the Court had, in a catena of cases, applied the penal provisions in Section 6, including paragraph (m) thereof, and the last two paragraphs therein defining large scale illegal recruitment committed by officers and/or employees of recruitment agencies by themselves and in connivance with private individuals, and 22 imposed the penalties provided in Section 7 thereof, including the penalty of life imprisonment. The Informations therein were filed after preliminary investigations as provided for in Section 11 of Rep. Act No. 8042 and in venues as provided for in Section 9 of 23 the said act. InPeople v. Chowdury, we held that illegal recruitment is a crime of economic sabotage and must be enforced. 24 In People v. Diaz, we held that Rep. Act No. 8042 is but an amendment of the Labor Code of the Philippines and is not an ex-post 25 facto law because it is not applied retroactively. In JMM Promotion and Management, Inc. v. Court of Appeals, the issue of the extent of the police power of the State to regulate a business, profession or calling vis--vis the equal protection clause and the nonimpairment clause of the Constitution were raised and we held, thus: A profession, trade or calling is a property right within the meaning of our constitutional guarantees. One cannot be deprived of the right to work and the right to make a living because these rights are property rights, the arbitrary and unwarranted deprivation of which normally constitutes an actionable wrong. Nevertheless, no right is absolute, and the proper regulation of a profession, calling, business or trade has always been upheld as a legitimate subject of a valid exercise of the police power by the state particularly when their conduct affects either the execution of legitimate governmental functions, the preservation of the State, the public health and welfare and public morals. According to the maxim, sic utere tuo ut alienum non laedas, it must of course be within the legitimate range of legislative action to define the mode and manner in which every one may so use his own property so as not to pose injury to himself or others. In any case, where the liberty curtailed affects at most the rights of property, the permissible scope of regulatory measures is certainly much wider. To pretend that licensing or accreditation requirements violates the due process clause is to ignore the settled practice, under the mantle of the police power, of regulating entry to the practice of various trades or professions. Professionals leaving for abroad are required to pass rigid written and practical exams before they are deemed fit to practice their trade. Seamen are required to take tests determining their seamanship. Locally, the Professional Regulation Commission has begun to require previously licensed doctors and other professionals to furnish documentary proof that they had either re-trained or had undertaken continuing education courses as a requirement for renewal of their licenses. It is not claimed that these requirements pose an unwarranted deprivation of a property right under the due process clause. So long as professionals and other workers meet reasonable regulatory standards no such deprivation exists. Finally, it is a futile gesture on the part of petitioners to invoke the non-impairment clause of the Constitution to support their argument that the government cannot enact the assailed regulatory measures because they abridge the freedom to contract. In Philippine Association of Service Exporters, Inc. vs. Drilon, we held that "[t]he non-impairment clause of the Constitution must yield to the loftier purposes targeted by the government." Equally important, into every contract is read provisions of existing law, and always, a reservation of the police power for so long as the agreement deals with a subject impressed with the public welfare. A last point. Petitioners suggest that the singling out of entertainers and performing artists under the assailed department orders constitutes class legislation which violates the equal protection clause of the Constitution. We do not agree. The equal protection clause is directed principally against undue favor and individual or class privilege. It is not intended to prohibit legislation which is limited to the object to which it is directed or by the territory in which it is to operate. It does not require absolute equality, but merely that all persons be treated alike under like conditions both as to privileges conferred and liabilities imposed. We have held, time and again, that the equal protection clause of the Constitution does not forbid classification for so long as such classification is based on real and substantial differences having a reasonable relation to the subject of the particular legislation. If classification is germane to the purpose of the law, concerns all members of the class, and applies equally to present 26 and future conditions, the classification does not violate the equal protection guarantee. The validity of Section 6 of R.A. No. 8042 which provides that employees of recruitment agencies may be criminally liable for illegal 27 recruitment has been upheld in People v. Chowdury: As stated in the first sentence of Section 6 of RA 8042, the persons who may be held liable for illegal recruitment are the principals, accomplices and accessories. An employee of a company or corporation engaged in illegal recruitment may be held liable as principal, together with his employer, if it is shown that he actively and consciously participated in illegal recruitment. It has been held that the existence of the corporate entity does not shield from prosecution the corporate agent who knowingly and intentionally causes the corporation to commit a crime. The corporation obviously acts, and can act, only by and through its human agents, and it is their conduct which the law must deter. The employee or agent of a corporation engaged in unlawful business

naturally aids and abets in the carrying on of such business and will be prosecuted as principal if, with knowledge of the business, its 28 purpose and effect, he consciously contributes his efforts to its conduct and promotion, however slight his contribution may be. By its rulings, the Court thereby affirmed the validity of the assailed penal and procedural provisions of Rep. Act No. 8042, including the imposable penalties therefor. Until the Court, by final judgment, declares that the said provisions are unconstitutional, the enforcement of the said provisions cannot be enjoined. The RTC Committed Grave Abuse of Its Discretion Amounting to Excess or Lack of Jurisdiction in Issuing the Assailed Order and the Writ of Preliminary Injunction The matter of whether to issue a writ of preliminary injunction or not is addressed to the sound discretion of the trial court. However, if the court commits grave abuse of its discretion in issuing the said writ amounting to excess or lack of jurisdiction, the same may be nullified via a writ of certiorari and prohibition. 29 In Social Security Commission v. Judge Bayona, we ruled that a law is presumed constitutional until otherwise declared by judicial interpretation. The suspension of the operation of the law is a matter of extreme delicacy because it is an interference with the official acts not only of the duly elected representatives of the people but also of the highest magistrate of the land. 30 In Younger v. Harris, Jr., the Supreme Court of the United States emphasized, thus: Federal injunctions against state criminal statutes, either in their entirety or with respect to their separate and distinct prohibitions, are not to be granted as a matter of course, even if such statutes are unconstitutional. No citizen or member of the community is immune from prosecution, in good faith, for his alleged criminal acts. The imminence of such a prosecution even though alleged to be unauthorized and, hence, unlawful is not alone ground for relief in equity which exerts its extraordinary powers only to prevent irreparable injury to the plaintiff who seeks its aid. 752 Beal v. Missouri Pacific Railroad Corp., 312 U.S. 45, 49, 61 S.Ct. 418, 420, 85 L.Ed. 577. And similarly, in Douglas, supra, we made clear, after reaffirming this rule, that: "It does not appear from the record that petitioners have been threatened with any injury other than that incidental to every 31 criminal proceeding brought lawfully and in good faith " 319 U.S., at 164, 63 S.Ct., at 881. The possible unconstitutionality of a statute, on its face, does not of itself justify an injunction against good faith attempts to enforce 32 it, unless there is a showing of bad faith, harassment, or any other unusual circumstance that would call for equitable relief. The "on its face" invalidation of statutes has been described as "manifestly strong medicine," to be employed "sparingly and only as a 33 last resort," and is generally disfavored. To be entitled to a preliminary injunction to enjoin the enforcement of a law assailed to be unconstitutional, the party must establish that it will suffer irreparable harm in the absence of injunctive relief and must demonstrate that it is likely to succeed on the merits, or that there are sufficiently serious questions going to the merits and the balance of hardships tips decidedly in its 34 favor. The higher standard reflects judicial deference toward "legislation or regulations developed through presumptively reasoned democratic processes." Moreover, an injunction will alter, rather than maintain, the status quo, or will provide the movant with substantially all the relief sought and that relief cannot be undone even if the defendant prevails at a trial on the 35 merits. Considering that injunction is an exercise of equitable relief and authority, in assessing whether to issue a preliminary 36 injunction, the courts must sensitively assess all the equities of the situation, including the public interest. In litigations between governmental and private parties, courts go much further both to give and withhold relief in furtherance of public interest than they 37 are accustomed to go when only private interests are involved. Before the plaintiff may be entitled to injunction against future 38 enforcement, he is burdened to show some substantial hardship. The fear or chilling-effect of the assailed penal provisions of the law on the members of the respondent does not by itself justify prohibiting the State from enforcing them against those whom the State believes in good faith to be punishable under the laws: Just as the incidental "chilling effect" of such statutes does not automatically render them unconstitutional, so the chilling effect that admittedly can result from the very existence of certain laws on the statute books does not in itself justify prohibiting the State from carrying out the important and necessary task of enforcing these laws against socially harmful conduct that the State believes 39 in good faith to be punishable under its laws and the Constitution. It must be borne in mind that subject to constitutional limitations, Congress is empowered to define what acts or omissions shall 40 constitute a crime and to prescribe punishments therefor. The power is inherent in Congress and is part of the sovereign power of the State to maintain peace and order. Whatever views may be entertained regarding the severity of punishment, whether one 41 believes in its efficiency or its futility, these are peculiarly questions of legislative policy. The comparative gravity of crimes and 42 whether their consequences are more or less injurious are matters for the State and Congress itself to determine. Specification of 43 penalties involves questions of legislative policy. Due process prohibits criminal stability from shifting the burden of proof to the accused, punishing wholly passive conduct, defining 44 crimes in vague or overbroad language and failing to grant fair warning of illegal conduct. Class legislation is such legislation which denies rights to one which are accorded to others, or inflicts upon one individual a more severe penalty than is imposed upon 45 another in like case offending. Bills of attainder are legislative acts which inflict punishment on individuals or members of a particular group without a judicial trial. Essential to a bill of attainder are a specification of certain individuals or a group of 46 individuals, the imposition of a punishment, penal or otherwise, and the lack of judicial trial. Penalizing unlicensed and licensed recruitment agencies and their officers and employees and their relatives employed in government agencies charged with the enforcement of the law for illegal recruitment and imposing life imprisonment for those who commit large scale illegal recruitment is not offensive to the Constitution. The accused may be convicted of illegal recruitment and 47 large scale illegal recruitment only if, after trial, the prosecution is able to prove all the elements of the crime charged. The possibility that the officers and employees of the recruitment agencies, which are members of the respondent, and their relatives who are employed in the government agencies charged in the enforcement of the law, would be indicted for illegal recruitment and, if convicted sentenced to life imprisonment for large scale illegal recruitment, absent proof of irreparable injury, is not sufficient on which to base the issuance of a writ of preliminary injunction to suspend the enforcement of the penal provisions 48 of Rep. Act No. 8042 and avert any indictments under the law. The normal course of criminal prosecutions cannot be blocked on 49 the basis of allegations which amount to speculations about the future. There is no allegation in the amended petition or evidence adduced by the respondent that the officers and/or employees of its members had been threatened with any indictments for violations of the penal provisions of Rep. Act No. 8042. Neither is there any allegation therein that any of its members and/or their officers and employees committed any of the acts enumerated in Section 6(a) to (m) of the law for which they could be indicted. Neither did the respondent adduce any evidence in the RTC that any or all of

its members or a great number of other duly licensed and registered recruitment agencies had to stop their business operations because of fear of indictments under Sections 6 and 7 of Rep. Act No. 8042. The respondent merely speculated and surmised that licensed and registered recruitment agencies would close shop and stop business operations because of the assailed penal provisions of the law. A writ of preliminary injunction to enjoin the enforcement of penal laws cannot be based on such conjectures or speculations. The Court cannot take judicial notice that the processing of deployment papers of overseas workers have come to a virtual standstill at the POEA because of the assailed provisions of Rep. Act No. 8042. The respondent must adduce evidence to prove its allegation, and the petitioners accorded a chance to adduce controverting evidence. The respondent even failed to adduce any evidence to prove irreparable injury because of the enforcement of Section 10(1)(2) of Rep. Act No. 8042. Its fear or apprehension that, because of time constraints, its members would have to defend foreign employees in cases before the Labor Arbiter is based on speculations. Even if true, such inconvenience or difficulty is hardly irreparable injury. The trial court even ignored the public interest involved in suspending the enforcement of Rep. Act No. 8042 vis--vis the eleven 50 licensed and registered recruitment agencies represented by the respondent. In People v. Gamboa, we emphasized the primary aim of Rep. Act No. 8042: Preliminarily, the proliferation of illegal job recruiters and syndicates preying on innocent people anxious to obtain employment abroad is one of the primary considerations that led to the enactment of The Migrant Workers and Overseas Filipinos Act of 1995. Aimed at affording greater protection to overseas Filipino workers, it is a significant improvement on existing laws in the recruitment and placement of workers for overseas employment. Otherwise known as the Magna Carta of OFWs, it broadened the concept of illegal recruitment under the Labor Code and provided stiffer penalties thereto, especially those that constitute economic 51 sabotage, i.e., Illegal Recruitment in Large Scale and Illegal Recruitment Committed by a Syndicate. By issuing the writ of preliminary injunction against the petitioners sans any evidence, the trial court frustrated, albeit temporarily, the prosecution of illegal recruiters and allowed them to continue victimizing hapless and innocent people desiring to obtain 52 employment abroad as overseas workers, and blocked the attainment of the salutary policies embedded in Rep. Act No. 8042. It bears stressing that overseas workers, land-based and sea-based, had been remitting to the Philippines billions of dollars which over the years had propped the economy. In issuing the writ of preliminary injunction, the trial court considered paramount the interests of the eleven licensed and registered recruitment agencies represented by the respondent, and capriciously overturned the presumption of the constitutionality of the assailed provisions on the barefaced claim of the respondent that the assailed provisions of Rep. Act No. 8042 are unconstitutional. The trial court committed a grave abuse of its discretion amounting to excess or lack of jurisdiction in issuing the assailed order and writ of preliminary injunction. It is for this reason that the Court issued a temporary restraining order enjoining the enforcement of the writ of preliminary injunction issued by the trial court. IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed decision of the appellate court isREVERSED AND SET ASIDE. The Order of the Regional Trial Court dated August 21, 1995 in Civil Case No. Q-95-24401 and the Writ of Preliminary Injunction issued by it in the said case on August 24, 1995 are NULLIFIED. No costs. SO ORDERED.

FACILITIES MANAGEMENT CORPORATION, J. S. DREYER, and J. V. CATUIRA, petitioners, vs. LEONARDO DE LA ROSA AND THE HONORABLE COURT OF INDUSTRIAL RELATIONS, respondents. Sycip, Salazar, Feliciano & Associates for petitioners. Benjamin M. Mendoza for respondent Court. MAKASIAR, J: Petition for review on certiorari of the decision of the Court of Industrial Relations, dated February 14, 1972, ordering petitioners herein to pay private respondent Leonardo de la Osa his overtime compensation, as wen as his swing shift and graveyard shift premiums at the rate of fifty (50%) per cent of his basic sa (Annex E, p. 31, rollo). The aforesaid decision was based on a report submitted by the Hearing Examiner, CIR (Dagupan City Branch), the pertinent portions of which are quoted hereinbelow::: In a petition filed on July 1, 1967, Leonardo dela Osa sought his reinstatement. with full backwages, as well as the recovery of his overtime compensation, swing shift and graveyard shift differentials. Petitioner alleged that he was employed by respondents as follows: (1) painter with an hourly rate of $1.25 from March, 1964 to November, 1964, inclusive; (2) houseboy with an hourly rate of $1.26 from December, 1964 to November, 1965, inclusive; (3) houseboy with an hourly rate of $1.33 from December, 1965 to August, 1966, inclusive; and (4) cashier with an hourly rate of $1.40 from August, 1966 to March 27, 1967, inclusive. He further averred that from December, 1965 to August, 1966, inclusive, he rendered overtime services daily and that this entire period was divided into swing and graveyard shifts to which he was assigned, but he was not paid both overtime and night shift premiums despite his repeated demands from respondents. Respondents filed on August 7, 1967 their letter- answer without substantially denying the material allegations of the basic petition but interposed the following special defenses, namely: That respondents Facilities Management Corporation and J. S. Dreyer are domiciled in Wake Island which is beyond the territorial jurisdiction of the Philippine Government; that respondent J. V. Catuira, though an employee of respondent corporation presently stationed in Manila, is without power and authority of legal representation; and that the employment contract between petitioner and respondent corporation carries -the approval of the Department of Labor of the Philippines. Subsequently on May 3, 1968. respondents filed a motion to dismiss the subject petition on the ground that this Court has no Jurisdiction over the instant case, and on May 24, 1968, petitioner interposed an opposition thereto. Said motion was denied by this Court in its Order issued on July 12, 1968 sustaining jurisdiction in accordance with the prevailing doctrine of the Supreme Court in similar cases. xxx xxx xxx But before we consider and discuss the foregoing issues, let us first ascertain if this Court could acquire jurisdiction over the case at bar, it having been contended by respondents that they are domiciled in Wake Island which is beyond the territorial jurisdiction of the Philippine Government. To this incidental question, it may be stated that while it is true the site of work is Identified as Wake Island, it is equally true the place of hire is established in Manila (See Section B, Filipino Employment Contract, Exhibit '1'). Moreover, what is important is the fact that the contract of employment between the parties litigant was shown to have been originally executed and subsequently renewed in Manila, as asserted by petitioner and not denied by respondents. Hence, any dispute arising therefrom should necessarily be determined in the place or venue where it was contracted. xxx xxx xxx From the evidence on hand, it has been proven beyond doubt that petitioner canvas assigned to and performed work in respondent company at slight time which consisted of two different schedules, namely, swing shift and graveyard shifts, particularly during his tenure as houseboy for the second period and as cashier. Petitioner's testimony to this effect was not contradicted, much less rebutted, by respondents, as revealed by the records. Since petitioner actually rendered night time services as required by respondents, and considering the physical, moral and sociological effects arising from the performance of such nocturnal duties, we think and honestly believe that petitioner should be compensated at least fifty percent (50%) more than his basic wage rate. This night shift premium pay would indeed be at par with the overtime compensation stipulated at one and one-half (1 ) times of the straight time rate. xxx xxx xxx (pp. 31-36, rollo). Apropos before this Court were filed three (3) other cases involving the same petitioner, all of which had been finally dispoded of, as follows: G.R. No Date of Filing Disposition 1. L-37117 July 30, 1973 Petition denied for lack of merit on Sept. 13, 1973. Motion for Reconsideration denied lack of merit, Nov. 20,1973. 2. L-38781 June 17,1974 Petition denied for lack of merit on June 21,1974. 3. L-39111-12 Sept. 2,1974 Case dismissed on Feb. 6, 1976, pursuant to voluntary manifesta tion of private respon dent Inocente R. Riel that his claims had all been settled to his entire satisfaction.

Incidentally, in connection with G.R. No. L-39111-12 (No. 3 above), WE found strong evidence that petitioner therein, which is also the petitioner in the case at bar, "twisted the arm" of private respondent, when the latter in his Manifestation dated July 3, 1975, stated: 3. ... Furthermore, since petitioner FMC is a foreign corporation domiciled in California, U.S.A. and has never been engaged in business in the Philippines, nor does it have an agent or an office in this country, there exists no valid reason for me to participate in the continuation and/or prosecution of this case (p. 194, rollo). as if jurisdiction depends on the will of the parties to a case. At any rate, considering that petitioner paid the claims of private respondent, the case had become moot and academic. Besides, the fact of such payment amounts to an acknowledgment on the part of petitioner of the jurisdiction of the court over it. WE have also noted that the principal question involved in each of the above-numbered three (3) cases is more or less Identical, to wit: Is the mere act by a non-resident foreign corporation of recruiting Filipino workers for its own use abroad, in law doing business in the Philippines? In the case at bar, which was filed with this Court on June 3, 1974, petitioners presented, inter alia, the following issue: ... can the CIR validly affirm a judgment against persons domiciled outside and not doing business in the Philippines, and over whom it did not acquire jurisdiction') While it is true that the issues presented in the decided cases are worded differently from the principal issue raised in the case at bar, the fact remains that they all boil down to one and the same issue, which was aptly formulated and ably resolved by Mr. Justice Ramon C. Fernandez, then with the Court of Appeals and now a member of this Court, in CA-G.R. No. SP-01485-R, later elevated to this Court on appeal by certiorari in Case G.R. No. L-37117 this case, the majority opinion of the Court of Appeals, which was penned by Justice Fernandez and which WE hereby adopt, runs as follows: The principal issue presented in this special civil action is whether petitioner has been 'doing business in the Philippines' so that the service of summons upon its agent in the Philippines vested the Court of First Instance of Manila with jurisdiction. From the facts of record, the petitioner may be considered as doing busuness un the Philippines within the the scope of Section 14, Rule 14 of the Rules of the Court which provide: SEC 14. Service upon private foreign corporations. If the defendant is a foreign corporation or a non-resident joint stock company or association: doing business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose or, if there be no such agent, on the government official designated by law to that effect, or on any of its officers or agents within the Philippines. Indeed, the petitioner, in compliance with Act 2486 as implemented by Department of Labor Order No. IV dated May 20, 1968 had to appoint Jaime V. Catuira, 1322 A. Mabini, Ermita, Manila as agent for FMC with authority to execute Employment Contracts and receive, in behalf of that corporation, legal services from and be bound by processes of the Philippine Courts of Justice, for as long as he remains an employee of FMC (Annex 'I', rollo, p. 56). It is a fact that when the summons for the petitioner was served on Jaime V. Catuira he was still in the employ of the FMC. In his motion to dismiss Annex B', p. 19, Rollo), petitioner admits that Mr. Catuira represented it in this country 'for the purpose of making arrangements for the approval by the Department of Labor of the employment of Filipinos who are recruited by the Company as its own employees for assignment abroad.' In effect, Mr. Catuira was a on officer representing petitioner in the Philippines. Under the rules and regulations promulgated by the Board of Investments which took effect Feb. 3, 1969, implementing Rep. Act No. 5455, which took effect Sept. 30, 1968, the phrase 'doing business' has been exemption with illustrations, among them being as follows: xxx xxx xxx (f) the performance within the Philippines of any act or combination of acts enumerated in section l(l) of the Act shall constitute 'doing business' therein. in particular, 'doing business includes: (1) Soliciting orders, purchases (sales) or service contracts. Concrete and specific solicitations by a foreign firm, not acting independently of the foreign firm amounting to negotiation or fixing of the terms and conditions of sales or service contracts, regardless of whether the contracts are actually reduced to writing, shall constitute doing business even if the enterprise has no office or fixed place of business in the Philippines. xxx (2) Appointing a representative or distributor who is dociled in the Philippines, unless said representative or distributor has an independent status, i.e., it transacts business in its name and for its own account, and not in the name or for the account of the principal. xxx xxx xxx (4) Opening offices, whether called 'liaison'offices, agencies or branches, unless proved otherwise. xxx xxx xxx (10) Any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, or in the progressive prosecution of, commercial gain or of the purpose and objective of the business organization (54 O.G. 53). Recently decided by this Court again thru Mr. Justice Ramon C. Fernandez which is similar to the case at bar, is G.R. No. L26809, entitled Aetna Casualty & Curety Company, plaintiff- appellant versus Pacific Star Line, the Bradman Co., Inc., Manila Port Service and/or Manila Railroad Company, Inc., defendants-appellees." The case is an appeal from the decision of the Court of First Instance of Manila, Branch XVI, in its Civil Case No. 53074, entitled Aetna Casualty & Surety Company vs. Pacific Star Lines, The Bradman Co., Inc., Manila Port Service and/or Manila Railroad Company, Inc." dismissing the complaint on the ground that the plaintiff has no legal capacity to bring the suit. It appears that on February 11, 1963, Smith Bell & Co. (Philippines), Inc. and Aetna Casualty & Surety Co., Inc., as subrogee instituted Civil Case No. 53074 in the Court of First Instance of Manila against Pacific Star Line, The Bradman Co., Inc., Manila Port Service and/or Manila Railroad Company, Inc. to recover the amount of US$2,300.00 representing the value of stolen and damaged cargo plus litigation expenses and exemplary damages in the amounts of P1,000.00 and P2,000.00, respectively, with legal interest thereon from the filing of the suit and costs. After all the defendants had filed their answer, the defendants Manila Port Service and Manila Railroad Company, Inc. amended their answer to allege that the plaintiff, Aetna Casualty & Surety Company, is a foreign corporation not duly licensed to do business in the Philippines and, therefore, without capacity to sue and be sued.

After the parties submitted a partial stipulation of facts and additional documentary evidence, the case was submitted for decision of the trial court, which dismissed the complaint on the ground that the plaintiff insurance company is subject to the requirements of Sections 68 and 69 of Act 1459, as amended, and for its failure to comply therewith, it has no legal capacity to bring suit in this jurisdiction. Plaintiff appealed to this Court. The main issue involved in the appeal is whether or not the plaintiff appellant has been doing business in the Philippines, considering the fact that it has no license to transact business in the Philippines as a foreign corporation. WE ruled: The object of Sections 68 and 69 of the Corporation Law was not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts. It was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business from the Philippines, from securing redress in the Philippine courts (Marshall Co. vs. Elser & Co., 46 Phil 70,75). In Mentholatum Co., Inc., et al vs- M Court rules thatNo general rule or governing principle can be laid down as to what constitutes 'doing' or 'engaging in' or 'transacting' business. Indeed, each case must be judged in the light of its peculiar environmental circumstances. The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another. (Traction Cos. v. Collectors of Int Revenue [C.C.A Ohio], 223 F. 984, 987). The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization (Griffin v. Implement Dealers' Mut. Fire Ins. Co., 241 N.W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P. 851, 852, 118 Okl. III; Automotive Material Co. vs. American Standard Metal Products Corp., 158 N.E. 698, 703, 327 III. 367)'. 72 Phil. 524, 528-529. And in Eastboard Navigation, Ltd., et al. vs. Juan Ysmael & Co., Inc., this Court held: (d) While plaintiff is a foreign corporation without license to transact business in the Philippines, it does not follow that it has no capacity to bring the present action. Such license is not necessary because it is not engaged in business in the Philippines. In fact, the transaction herein involved is the first business undertaken by plaintiff in the Philippines, although on a previous occasion plaintiff's vessel was chartered by the National Rice and Corn Corporation to carry rice cargo from abroad to the Philippines. These two isolated transactions do not constitute engaging in business in the Philippines within the purview of Sections 68 and 69 of the Corporation Law so as to bar plaintiff from seeking redress in our courts. (Marshall Wens Co. vs. Henry W. Elser & Co. 49 Phil., 70; Pacific Vegetable Oil Corporation vs. Angel O. Singson, G.R. No. L-7917, April 29, 1955)'. 102 Phil., pp. 1, 18. Based on the rulings laid down in the foregoing cases, it cannot be said that the Aetna Casualty & Surety Company is transacting business of insurance in the Philippines for which it must have a license. The Contract of insurance was entered into in New York, U.S.A., and payment was made to the consignee in its New York branch. It appears from the list of cases issued by the Clerk of Court of the Court of First Instance of Manila that all the actions, except two (2) cases filed by Smith, Beer & Co., Inc. against the Aetna Casualty & Surety Company, are claims against the shipper and the arrastre operators just like the case at bar. Consequently, since the appellant Aetna Casualty & Surety Company is not engaged in the business of insurance in the Philippines but is merely collecting a claim assigned to it by the consignee, it is not barred from filing the instant case although it has not secured a license to transact insurance business in the Philippines. Indeed, if a foreign corporation, not engaged in business in the Philippines, is not banned from seeking redress from courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being sued in Philippine courts for acts done against a person or persons in the Philippines. WHEREFORE, THE PETITION IS HEREBY DENIED WITH COSTS AGAINST THE PETITIONERS. SO ORDERED.

FAR EAST INTERNATIONAL IMPORT and EXPORT CORPORATION, plaintiff-appellee, vs. NANKAI KOGYO CO. LTD., ET AL., defendants, NANKAI KOGYO CO., LTD., defendant-appellant. Protasio Canalita, Jesus Ocampo and Gonzalo D. David for plaintiff-appellee. Marcial Ranola and Fernandez and Benedicto for defendant-appellant. PAREDES, J.: On December 26, 1956, the Far East International Import & Export Corporation, Far East for short, organized under Philippine Laws, entered into a Contract of Sale of Steel Scrap with the Nankai Kogyo Co., Ltd., Nankai for short, a foreign corporation organized under Japanese Laws with address at Osaka, Japan. The buyer sign in Japan and the seller in Manila, Philippines. The pertinent provisions of the agreement are represented below 1. Quantity: Approximately 5,000 (five thousand) metric tons 10% more or less. xxx xxx xxx 10. Payments: BUYER shall establish an irrevocable without recourse Letter of Credit in the amount of U.S. $312,500.00 with China Banking Corp. in Manila, not later than 30 days upon receipt of SELLERS' confirmation about the availability of export permit, and shall be subject to the following terms and conditions: a. This Letter of Credit shall be drawable 90% of quantity been shipped uponpresentation of: xxx xxx xxx b. the remaining balance of 10% of the shipment shall be adjusted between BUYER and SELLER immediately after the discharge is completed at the port of destination, and shall be drawable by the SELLER upon presentation of: xxx xxx xxx 13. Force Majeure: the execution of this agrrement is subject to any and allGovernment restrictions prohibiting or penalizing in whole or in part theexport of Iron & Steel Scrap from the Philippines, and the Seller shall not be responsible for delay in or failure of shipment or delivery or delays in transportation due to force majeure, strikes, dfferences with workmen, accidents, fires, flood, mobilizations, wars, foreign wars, riots, revolutions, regulations and restrictions or to any conditions beyond thecontrol of the SELLER whether the nature herein stated or not. 14. Dispute: In case of disputes, Board of Arbitration may be formed in Japan. Decision by the board of Arbitration shall be final and binding on both BUYER AND SELLER. Upon perfection of the contract and after having been informed of the readiness to ship and that the Export License was to expire on March 18, 1957,Nankai opened a letter for credit (No. 38/80049) with the China BankingCorporation, issued by the Nippon Kangyo, Ltd., Tokyo, Japan, in the amountof $312,500.00 on January 30, 1957. On March 15, 1957, only four (4) daysbefore the expiration of the Far East licence, three (3) boats sent by Nankai arrived in the Philippines, one to load in Manila, the other two at Poro Point, San Fernando, La Union, and Tacloban, Leyte, respectively. On March 19, 1957, the expiration of the export license, only 1,058.6 metric tonsof scrap steel was loaded on the SS Mina (loading in Manila). The loading wasaccordingly stopped. The boat at Poro Point was also unloaded of the 200 metric tons, for the same reason. An agreement was reached wherby the Far East would seek an extension of the license. However, the untimely death of President Magsaysay and the taking over by President Garcia changed the picture, for the latter and/or his agents refused to extend the license. The two boats sailed to Japan without any cargo, the third (SS Mina) only 1,058.6 metric tons. On April 27, 1957, Nankai confirmed and acknowleged delivery of the 1,058.6 metric tons of steel scrap, but asked for damages amounting to $148,135.00 consisting of dead freight charges, damages, bank charges, phone and cable expenses (Exh. F). On May 4, 1957, Far East wrote the Everett Steamship Corporation, requesting the issuance of a complete set of the Bill of Lading for the shipment, in order that payment thereof be effected against the Letter of Credit. Under date of May 7, 1957, the Everett informed Far East that they were not in a position to comply because the Bill of Lading was issued and signed in Tokyo by the Master of the boat, upon request of the Charterer, defendant herein. As repeated requests, both against the shipping agent and the buyers (Nankai), for the issuance of the of Bill Lading were ignored, Far East filed on May 16, 1957, the present complaint for Specific Performance, damages, a writ of preliminiry mandatory injunction directed against Nankai and the shipping company, to issue and deliver to the plaintiff, a complete set of negotiable of Lading for the 1,058.6 metric tons of scrap and a writ of preliminary injunction against the China Banking Corporation and the Nankai to maintain the Letter Credit. The lower court issued on May 17, 1957 an ex parte writ of preliminary injunction, after Far East had posted a bond in the amount of P50,000.00. By Special Apperance, defendant Nankai filed a Motion to Dismiss the complaint and dissolve the preliminary mandatory injunction on the followinggrounds: lack of jurisdiction over the person of the defendant and the subject matter: and failure to state a cause of action against the said defendant. On June 8, 1957 plaintiff Far East opposed the Special Appearance and Motion to Dismiss. Before the Special Appearance, Motions to Dismiss and Dissolve Preliminary Mandatory Injunction could be ruled upon by the court a quo, plaintiff filed a Motion to file amended complaint, it appearing that Nankai had already taken the Bill of Lading for the shipment from the Master of the SS Mina and used the same to secure the delivery of the 1,058.6 metric tons of scrap. The most important amendments introduced are the allegation that defendantis doing business in the Philippines with office address at R-517 Luneta Hotel, Manila, represented by Mr. Issei Ishida and Mr. Tominaga, and the additional prayer to order the defendant Nankai to pay plaintiff the price of the scrapamounting to $68,809.00 or its equivalent in Philippine currency. The motions to dismiss the complaint and to dissolve the Writ of Preliminary Mandatory Injunction were denied, the Court holding that the grounds therefor "do not appear to be indubitable". On June 26, 1957, the defendant Nankai presented an opposition to the motion to admit amended complaint, stating that the same is belated and an unfair and unjust attempt to establish by allegation, a semblance of jurisdiction of the Court over the person of the defendant Nankai and the subject matter. Under date of June 29, 1957, the motion to file an amended complaint was denied. A motion for reconsideration of the order was presented on July 31, 1957, plaintiff alleging that the amended complaint contained facts which are necessary and indispensable for the complete resolution of the issues between the parties and that the amendment is a matter of right, since defendants have not yet filed a responsive pleading (Sec. 1, Rule 17, Rules of Court). An opposition was registered by defendant. Before resolution on the reconsideration could be issued, defendant filed its Answer to the original complaint containing the customary admissions and

denials. As Special Defenses, it reiterated the grounds contained in the Motion to Dismiss Complaint and Dissolve the Writ of Preliminary Mandatory Injunction and the arguments invoked in the oppositions, replies, etc. On August 20, 1957, the Amended Complaint was ordered admitted and on September 30, 1957, Nankai presented its Answer, which is identical to the Answer to the original complaint. At the trial, plaintiff Far East, thru the testimony of its Secretary Pablo Ocampo, showed that the transaction in question was intended to be the beginning of business to be undertaken by Nankai, as in fact, the representatives of the company had made inquiries as to the operation of mines and mining rights in this jurisdiction; (Nankai) thru its representatives, Messrs. Ishida and Tominaga, established a temporary office at Room 517 Luneta Hotel and manifested their intention to put up one at the Madrigal building, which did not materialize, to the belated confirmation of the head office; that in spite of the repeated demands and actual receipt of the delivery of the 1,056.8 metric tons of scrap steel, Nankai and the steamship company failed and consistently refused to issue the Bill of Lading, which acts prevented plaintiff from collecting the price of the scrap from theChina Banking Corporation against the Letter of Credit. Defendant Everett Steamship Company and the China Banking Corporation also presented evidence, both oral and documentary. Defendant Nankai presented Francisco Santos, accountant of the Luneta Hotel, to prove that it has not established an office at Room 517 of said Hotel; Nabuo Yoshida, chief of the Import Section of defendant Nankai show that it has not established a branch office in the Philippines and that the buying of the scrap was the only transiction of the defendant had in the Philippines; Tan Tiong Tick, the financier of the exportation in behalf of appellee, and Tan Tia Cuan, the contact man, to prove that the real party in interest is not the plaintiff Far East but the Delta Enterprises, and that the plaintiffwas merely the holder of the Export License but had no scrap. The lower court rendered judgment absolving, defendants Everett Steamship Company and China Banking Corporation from liability and denied the claim for damages, both actual and moral, of the parties; found that the question of jurisdiction over the person of defendant and the subject matter has become moot and . . . hereby renders judgment in favor of the plaintiff and against defendant Nankai Kogyo Co., Ltd., sentencing said defendant to pay plaintiff the amount of U.S. $67,710.50, or its equivalent in pesos, with interest thereon at the legal rate from the date of filing of plaintiff's complaint until fully paid, plus the sum of P1,000.00 as attorney's fees, and to pay the costs. Defendant assigned six (6) errors allegedly committed by the lower court, which may be consolidated into two propositions: to wit (1) Whether or not the trial court acquired jurisdiction over the subject matter and over the person of the defendant-appellant; and (2) the propriety of the award. Defendant contends that Philippine Courts have no jurisdiction to take cognizance of the case because the Nankai is not doing business in the islands; and that while it has entered into the transaction in question, same, however, does not constitute "doing business", so as to make it amenable to summons and subject it to the Court's jurisdiction. It bolstered this claim by a provision in the contract which provides that "In case of disputes, Board of Arbitration may be formed in Japan. Decision of the Board of Arbitration shall be final and binding on both BUYER and SELLER". The rule pertinent to the questions in issue provides SEC. 14. Service upon private foreign corporations. If the defendant is a foreign corporation, or a non-resident joint stock company or association, doing business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any officer or agent within the Philipines. (Rule 7). The above rule indicates three modes of effecting service of summons upon a private, foreign corporation, viz: (1) by serving upon the agent designated in accordance with law to accept service of summons; (2) if there is no resident agent, by service on the government cial designated by law to that effect; and (3) by serving on anyofficer or agent of said corporation with Philippines. The plaintiff complied with the third stated above, for it has been shown that Mr. Ishida, who personally signed the contract for the purchase of the scrap in question in behalf of the Nankai Kogyo, the Trade Manager of said Company, Mr. Tominaga the Chief of the Petroleum Section of the same company and Mr. Yoshida was the man-in-charge of the Import Section of the company's Tokyo Branch. All these three, including the first two who were served with Summons, were officers of the defendant company. It is true that the defendant entered a Special Appearance, wherein it contested the jurisdiction of the Philippines Courts to take cognizance of the case on grounds contained in the various pleadings presented by it. The motion to dismiss on the ground of lack of jurisdiction had been overruled because it did not appear indubitable. Subsequently, however, the defendant filed its Answer and invoked defenses and grounds for dismissal of complaint other than lack of jurisdiction (See pars. 12 & 13 of Answer to Amended Complaint), which circumstance vested upon the Court jurisdiction to take cognizance of the case. Even though the defendant objects to the jurisdiction of the court, if at thesame time he alleges any non-jurisdictional ground for dismissing the action, the Court acquires jurisdiction over him. Even though he does not intend to confer jurisdiction upon the court, his appearance for some other purpose than to object to the jurisdiction subjects him to jurisdiction of the court.Even though he does not wish to submit to the jurisdiction of the court, he cannot ask the court to act upon any question except the question of jurisdiction, without conferring jurisdiction upon the court. Thus though a Special appearance to object to the jurisdiction is not a submission, if it is followed by a motion to dismiss or to quash the motion invokes the jurisdiction of Court to decide the issue raised by the motion; and a decision of that issue binds the defendant. Therefore if the decision of the motion is based upon a finding of facts necessary to jurisdiction, this finding binds the defendant and the court acquires jurisdiction to determine the merits of the case. . . . . Undoubtedly if after his objection to the jurisdiction is wrongly overruled, a defendant files a cross complaint demanding affirmative relief, he cannot thereafter claim that the court had no jurisdiction over him. (p. 352.) (I Conflict of Laws, Beale and authorities cited therein.) Not only did appellant allege non-jurisdictional grounds in its pleadings to have the complaint dismissed, but it also went into trial on the merits and presented evidence destined to resist appellee's claim. Verily, there could not be a better situation of acquired jurisdiction based on consent. Consequently, the provision of the contract wherein it was agreed that disputes should be submitted to a Board of Arbitration which may be formed in Japan (in the supposition that it can apply to the matter in dispute - payment of the scrap), seems to have been waived with appellant's voluntary submission. Apart from the fact that the clause employs the word "may". The appellant alleges that the lower court did not acquire jurisdiction, because it was not doing business in the Philippines and the requirement of summons had not been fulfilled. It is difficult to lay down any rule of universal application to determine when a

foreign corporation is doing business. Each case must turn upon its own peculiar facts and upon the language of the statute applicable. But from the proven facts obtaining in this particular case, the appellant's defense of lack of jurisdiction appears unavailing. The case of Pacific Micronesian Line, Inc. v. Baens del Rosario, et al., G.R. No. L-7154, October 23, 1954, relied upon in the Motion to Dismiss and other pleadings presented by defendant-appellant, stand on a different footing. Therein, We made the following pronouncements: . . . . And the only act it did here was to secure the services of Luceno Pelingon to act as cook and chief steward in one of its vessels authorizing to that effect the Luzon Stevedoring Co., Inc., a domestic corporation, and the contract of employment was entered into on July 18, 1951. It further appears that petitioner has never sent its ships to the Philippines nor has it transported nor even solicited the transportation passengers and cargoes to and from the Philippines. In words, petitioner engaged the services of Pelingon not as part of the operation of its business but merely to employ him as member of the crew in one of its ships. That act apparently is an isolated one, incidental, or casual, and "not of a character to indicate a purpose to engage in business" within the meaning of the rule. (Emphasis ours.) In the instant case, the testimony of Atty. Pablo Ocampo that appellant was doing business in the Philippines corroborated by no less than Nabuo Yoshida, one of appellant's officers, that he was sent to the Philippines by his company to look into the operation of mines, thereby revealing the defendant's desire to continue engaging in business here, after receiving the shipment of the iron under consideration, making the Philippines a base thereof. The rule stated in the preceding section that the doing of a single act doesnot constitute business within the meaning of statutes prescribing the conditions to be complied with the foreign corporations must be qualified to this extent, that a single act may bring the corporation. In such a case, the single act of transaction is not merly incidental or casual, but is of such character as distinctly to indicate a purpose on the part of the foreign corporation to do other business in the state, and to make the state a basis of operations for the conduct of a part of corporation's ordinary business. (17 Fletchers Cyc. of Corporations, sec. 8470, pp. 572-573, and authorities cited therein.) (Emphasis ours.) It is finally noted that when defendant's motion to dismiss in the Micronesian case was denied, it immediately brought the matter to this Court on Prohibition seeking to restrain the Workmen's Compensation mission from exercising jurisdiction over the controversy. In the present case, the defendant, while entering a Special Appearance to contest the jurisdiction of the Court, pursued its defense further by filing its Answer and going into trial. There is no appeal on the lower court's findings that the failure of the appellee herein to make full shipment of the scrap was due, not to the fault of said appellee, but to the action and intervention of the Philippine Government, which was beyond the control of the plaintiff. This aspect of the case is particularly covered by paragraph 13 of the contract, heretofore reproduced.. WHEREFORE, the judgment appealed from is hereby affirmed, with costs against defendant-appellant Nankai Kogyo.

FCY CONSTRUCTION GROUP, INC., and FRANCIS C. YU, Petitioners, v. THE COURT OF APPEALS, THE HON. JOSE C. DE LA RAMA, Presiding Judge, Branch 139, Regional Trial Court, NCJR, Makati City, Metro Manila, and LEY CONSTRUCTION AND DEVELOPMENT CORPORATION, Respondents. DECISION YNARES_SANTIAGO, J.: On June 29, 1993, private respondent Ley Construction and Development Corporation filed a Complaint for collection of a sum of money with application for preliminary attachment against petitioner FCY Construction Group, Inc. and Francis C. Yu with the Makati Regional Trial Court which was docketed as Civil Case No. 93-2112. Private respondent alleged that it had a joint venture agreement with petitioner FCY Construction Group, Inc. (wherein petitioner Francis C. Yu served as President) over the Tandang Sora Commonwealth Flyover government project for which it had provided funds and construction materials. The Complaint was filed in order to compel petitioners to pay its half share in the collections received in the project as well as those yet to be received therein. In support of its application for a writ of attachment, private respondent alleged that petitioners were guilty of fraud in incurring the obligation and had fraudulently misapplied or converted the money paid them, to which it had an equal share. On July 6, 1993, following an ex-parte hearing, the lower court issued an Order for the issuance of a writ of preliminary attachment, conditioned upon the filing of a P7,000,000.00 attachment bond. Petitioners moved for the lifting of the writ of preliminary attachment on the following grounds: (1) the attachment was heard, issued and implemented even before service of summons upon them; (2) failure of the attaching officer to serve a copy of the affidavit of merit upon them; and (3) that there was no fraud in incurring the obligation. As an alternative prayer in their Motion, petitioners prayed that the attachment be limited to their receivables with the Department of Public Works and Highways. This alternative prayer was later withdrawn by petitioners in a Manifestation and Motion. 1 On May 25, 1994, the lower court issued another Order denying petitioners' Motion to Lift Attachment. It, however, reduced and confined the attachment to receivables due petitioners from the Tandang Sora commonwealth Flyover project. 2 Subsequently, petitioners filed a Motion for Reconsideration as well as an Omnibus Motion for Leave to file Amended Answer 3 and/or to delete Francis C. Yu as party-defendant. 4 With the denial of both Motions by the lower court on September 4, 1994, petitioners filed a Petition for Certioraribefore the Court 5 6 of Appeals on September 16, 1994. The Petition was, however, denied on July 31, 1995; so was petitioners' Motion for 7 Reconsideration. Hence, the instant Petition. It is evident that the questioned writ of attachment was anchored upon Section 1(d), Rule 57 of the Revised Rules of Court, to wit "SECTION 1. Grounds upon which attachment may issue. - A plaintiff or any proper party may, at the commencement of the action or at any time thereafter, have the property of the adverse party attached as security for the satisfaction of any judgment that may be recovered in the following cases: xxx. (d) In an action against a party who has been guilty of a fraud in contracting the debt or incurring the obligation upon which the action is brought, or in concealing or disposing of the property for the taking, detention or conversion of which the action is brought; x x x ." Petitioners, however, insist that the writ of preliminary attachment was irregularly issued inasmuch as there was no evidence of fraud in incurring the obligations sued upon. In support of their stand, petitioners alleged that private respondent's principal witness admitted that it was the Department of Public Works and Highways (DPWH) that induced it to deliver materials and cash for the Tandang Sora Commonwealth Flyover project, to wit COURT: Now . . . as of January 5, 1993 you delivered to him (referring to defendant FCY corporation) in cash and in kind amounting to Fifteen Million Pesos (P15,000,000.00), now why did you keep on delivering cash and materials to him if you were not paid a single centavo? A Because of every need for the project, and the Public Works official assured me that I will be given a new project after the Tandang Sora will be finished. Q Who is this public official that promised you? A Director Pendosa, Teodoro Encarnacion and Secretary de Jesus your Honor. (TSN, 6 July 1993, pp. 47-48) xxx Q What about these officials of the Department of Public Highways, what would they do to project their sub alleged project? A Secretary de Jesus is no longer connected there, your Honor. Q At the time? A At that time, he resigned. Q Before he resigned. 8 A He gave me assurance that they will soon give assurance, they will soon give me another project . . . (TSN, 6 July 1993, p. 55) A cursory reading of the above-cited testimony, however, readily shows that said reassurance from the DPWH officials came, not at the inception of the obligation or contract, but during its performance. On the other hand, the fraud of which petitioners are accused of and which was the basis for the issuance of the questioned attachment, is fraud alleged to have been committed upon contracting the obligation sued upon. Thus, petitioners argument that "the inducement was the mouth-watering temptation of a DPWH promise of a 'new project after the Tandang Sora Flyover project will be finished"' is clearly off-tangent as such inducement, if any, came not at the inception of the obligation. Similarly, petitioners' arguments that it was private respondent who admittedly prepared the letter embodying the alleged joint 9 venture agreement and had petitioner Francis Yu sign it must fail. The written agreement referred to was signed by petitioner Francis Yu only on January 5, 1993, long after the project had commenced. Thus, It was only a written confirmation of an arrangement that had already been existing and operational. Similarly then, such written confirmation did not occur at the inception of the obligation sued upon. 10 In Liberty Insurance Corporation vs. Court of Appeals, this Court, discussing Section 1(d), Rule 57, cautioned as follows -To sustain an attachment on this ground, it must be shown that the debtor in contracting the debt or incurring the obligation intended to defraud the creditor. The fraud must relate to the execution of the agreement and must have been the reason which induced the other party into giving consent which he would not have otherwise given. To constitute a ground for attachment in

Section 1 (d), Rule 57 of the Rules of Court, fraud should be committed upon contracting the obligation sued upon. A debt is fraudulently contracted if at the time of contracting it the debtor has a preconceived plan or intention not to pay, as it is in this case. Fraud is a state of mind and need not be proved by direct evidence but may be inferred from the circumstances attendant in each case. (Republic v. Gonzales, 13 SCRA 633). From the foregoing, therefore, the alleged inducement by the DPWH officials upon private respondent as well as the circumstances surrounding the execution of the joint venture agreement, both appear immaterial as they were not committed upon contracting the obligation sued upon but occurred long after the obligation has been established. The fact that petitioners have paid a substantial amount of money to private respondent cannot save the day for them either. As per 11 their own accounting, such payments were for accounts payable for labor supplied, construction materials and cash advances. It is not denied that no payment of profits has been given to private respondent, which is precisely what it is suing for. Finally, considering that the writ of preliminary attachment has been issued on account of allegations of fraud in contracting the obligation upon which the action is brought petitioners' efforts to have the writ of preliminary attachment dissolved on the ground that it was improperly or irregularly issued is in vain. Indeed, in Liberty Insurance Corporation, supra, which cited Mindanao Savings and Loan Assoc. vs. Court of Appeals (172 SCRA 480), we ruled "x x x, when the preliminary attachment is issued upon a ground which is at the same time the applicant's cause of action: e.g., x x x an action against a party who has been guilty of fraud in contracting the debt or incurring the obligation upon which the action is brought, the defendant is not allowed to file a motion to dissolve the attachment under Section 13 of Rule 57 by offering to show the falsity of the factual averments in the plaintiffs application and affidavits on which the writ was based and consequently that the writ based therein had been improperly or irregularly issued - the reason being that the hearing on such motion for dissolution of the writ would be tantamount to a trial on the merits. In other words, the merits of the action would be ventilated at a mere hearing of a motion; instead of the regular trial. Therefore, when the writ of attachment is of this nature, the only way it can be dissolved is by a counterbond." We now come to the issue of whether or not petitioner Francis Yu should remain as party-defendant. Petitioners argue that since the transactions were corporation to corporation only, petitioner Francis Yu should be dropped as party-defendant considering the hornbook law that corporate personality is a shield against personal liability of its officers. We agree that petitioner Francis Yu cannot be made liable in his individual capacity if he indeed entered into and signed the contract in his official capacity as President, in the absence of stipulation to that effect, due to the personality of the corporation being separate and distinct from the persons 12 composing it. However, while we agree that petitioner Francis Yu cannot be held solidarily liable with petitioner corporation merely because he is the President thereof and was involved in the transactions with private corporation, we also note that there exists instances when corporate officers may be held personally liable for corporate acts. Such exceptions were outlined inTramat 13 Mercantile, Inc. vs. Court of Appeals, as follows -"Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when 1. He assents (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 down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; 3. He agrees to hold himself personally and solidarily liable with the corporation; or 4. He is made, by a specific provision of law, to personally answer for his corporate action." The attendance of these circumstances, however, cannot be determined at this stage and should properly be threshed out during the trial on the merits. Stated differently, whether or not petitioner Francis Yu should be held personally and solidarily liable with petitioner corporation is a matter that should be left to the trial court's discretion, dependent as it is on evidence during trial. WHEREFORE, in view of the foregoing, the instant Petition is hereby DISMISSED. No pronouncement as to costs. SO ORDERED.

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and MERCURIO RIVERA, petitioners, vs. COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE JANOLO, respondents. DECISION PANGANIBAN, J.: In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of letters and/or in a meeting with the buyers constitute a perfected and enforceable contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of apparent authority apply in this case? If so, may the Central Bank-appointed conservator of Producers Bank (now First Philippine International Bank) repudiate such apparent authority after said contract has been deemed perfected? During the pendency of a suit for specific performance, does the filing of a derivative suit by the majority shareholders and directors of the distressed bank to prevent the enforcement or implementation of the sale violate the ban against forum-shopping? Simply stated, these are the major questions brought before this Court in the instant Petition for review on certiorari under Rule 45 [1] of the Rules of Court, to set aside the Decision promulgated January 14, 1994 of the respondent Court of Appeals in CA-G.R. CV No. 35756 and the Resolution promulgated June 14, 1994 denying the motion for reconsideration. The dispositive portion of the said Decision reads: WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the reduction of the award in paragraph 5 thereof to P75,000.00, to be assessed against defendant bank. In all other aspects, said decision is hereby AFFIRMED. All references to the original plaintiffs in the decision and its dispositive portion are deemed, herein and hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito. Costs against appellant bank. [2] The dispositive portion of the trial courts decision dated July 10, 1991, on the other hand, is as follows: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows: 1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less, covered by and embraced in Transfer Certificates of Title Nos. T-106932 to T106937, inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant Producers Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos; 2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and receipt from the plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a deed of absolute sale over the aforementioned six (6) parcels of land, and to immediately deliver to the plaintiffs the owners copies of T.C.T. Nos. T-106932 to T-106937, inclusive, for purposes of registration of the same deed and transfer of the six (6) titles in the names of the plaintiffs; 3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio Demetria the sums of P 200,000.00 each in moral damages; 4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P 100,000.00 as exemplary damages; 5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of P400,000.00 for and by way of attorneys fees; 6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate damages in the amount of P20,000.00; With costs against the defendants. After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the petition was given due course in a Resolution dated January 18, 1995. Thence, the parties filed their respective memoranda and reply memoranda. The First Division transferred this case to the Third Division per resolution dated October 23, 1995. After carefully deliberating on the aforesaid submissions, the Court assigned the case to the undersigned ponente for the writing of this Decision. The Parties Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank, for brevity) is a banking institution organized and existing under the laws of the Republic of the Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all times material to this case, Head Manager of the Property Management Department of the petitioner Bank. Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original plaintiffs-appellees Demetrio Demetria and Jose Janolo. Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside through this petition. The Facts [3] The facts of this case are summarized in the respondent Courts Decision, as follows: (1) In the course of its banking operations, the defendant Producer Bank of the Philippines acquired six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rosa, Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. The property used to be owned by BYME Investment and Development Corporation which had them mortgaged with the bank as collateral fora loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated negotiations for that purpose. (2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME Investments legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property Management Department of the defendant bank. The meeting was held pursuant to plaintiffs plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant Rivera, made a formal purchase offer to the bank through a letter dated August 30, 1987 (Exh. B), as follows: August 30, 1987 The Producers Bank of the Philippines Makati, Metro Manila Attn. Mr. Mercurio Q. Rivera Manager, Property Management Dept. Gentlemen: I have the honor to submit my formal offer to purchase your properties covered by titles listed hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less. TCT NO. AREA T-106932 113,580 sq.m. T-106933 70,899 sq.m.

T-106934 52,246 sq.m. T-106935 96,768 sq.m. T-106936 187,114 sq.m. T-106937 481,481 sq.m. My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in cash. Kindly contact me at Telephone Number 921-1344. (3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter which is hereunder quoted (Exh. C): September 1, 1987 J-P M-P GUTIERREZ ENTERPRISES 142 Charisma St., Doa Andres II Rosario, Pasig, Metro Manila Attention: JOSE O. JANOLO Dear Sir: Dear Sir: Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna (formerly owned by Byme industrial Corp.). Please be informed however that the banks counter-offer is at P5.5 million for more than 101 hectares on lot basis. We shall be very glad to hear your position on the matter. Best regards. (4)On September 17, 1987, plaintiff Janolo, responding to Riveras aforequoted reply, wrote (Exh. September 17, 1987 Producers Bank Paseo de Roxas Makati, Metro Manila Attention: Mr. Mercurio Rivera Gentlemen: In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa Laguna, I would like to amend my previous offer and I now propose to buy the said lot at P4.250 million in CASH. Hoping that this proposal meets your satisfaction. (5) There was no reply to Janolos foregoing letter of September 17, 1987. What took place was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended the meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent to the bank, through Rivera, the following letter (Exh. E): The Producers Bank of the Philippines Paseo de Roxas, Makati Metro Manila Attention: Mr. Mercurio Rivera Re: 101 Hectares of Land in Sta. Rosa, Laguna Gentlemen: Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are accepting your offer for us to purchase the property at Sta. Rosa, Laguna, formerly owned by Byme In-vestment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND (P5,500,000.00). Thank you. (6) On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by the Central Bank since 1984) was replaced by an Acting Conservator in the person of defendant Leonida T. Encarnacion. On November 4, 1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. F): Attention: Atty. Demetrio Demetria Dear Sir: Your proposal to buy the properties the bank foreclosed from Byme Investment Corp. located at Sta. Rosa, Laguna is under study yet as of this time by the newly created committee for submission to the newly designated Acting Conservator of the bank. For your information. (7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what plaintiff considered as a perfected contract of sale, which demands were in one form or another refused by the bank. As detailed by the trial court in its decision, on November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit G) tendered payment of the amount of P5.5 million pursuant to (our) perfected sale agreement. Defendants refused to receive both the payment and the letter. Instead, the parcels of land involved in the transaction were advertised by the bank for sale to any interested buyer (Exhs. H and H-1). Plaintiffs demanded the execution by the bank of the documents on what was considered as a perfected agreement. Thus: Mr. Mercurio Rivera Manager, Producers Bank Paseo de Roxas, Makati Metro Manila Dear Mr. Rivera: This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to 106937. From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this same lot in the amount of P5.5 million was accepted by our client thru a letter dated September 30, 1987 and was received by you on October 5, 1987. In view of the above circumstances, we believe that an agreement has been perfected. We were also informed that despite repeated follow-up to consummate the purchase, you now refuse to honor your commitment. Instead, you have advertised for sale the same lot to others.

In behalf of our client, therefore, we are making this formal demand upon you to consummate and execute the necessary actions/documentation within three (3) days from your receipt hereof We are ready to remit the agreed amount of P5.5 million at your advice. Otherwise, we shall be constrained to file the necessary court action to protect the interest of our client. We trust that you will be guided accordingly. (8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter and stated, in its communication of December 2, 1987 (Exh. I), that said letter has been referred x x x to the office of our Conservator for proper disposition. However, no response came from the Acting Conservator. On December 14, 1987, the plaintiffs made a second tender of payment (Exhs. L and L-1), this time through the Acting Conservator, defendant Encarnacion. Plaintiffs letter reads: PRODUCERS BANK OF THE PHILIPPINES Paseo de Roxas, Makati, Metro Manila Attn.: Atty. NIDA ENCARNACION Central Bank Conservator Gentlemen: We are sending you herewith, in-behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No. 258387 in the amount of P5.5 million as our agreed purchase price of the 101-hectare lot covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and 106937 and registered under Producers Bank. This is in connection with the perfected agreement consequent from your offer of P5.5 Million as the purchase price of the said lots. Please inform us of the date of documentation of the sale immediately. Kindly acknowledge receipt of our payment. (9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988, plaintiff, through counsel, made a final demand for compliance by the bank with its obligations under the considered perfected contract of sale (Exhibit N). As recounted by the trial court (Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex 4 of defendants answer to amended complaint), the defendants through Acting Conservator Encarnacion repudiated the authority of defendant Rivera and claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5 Million are unauthorized or illegal. On that basis, the defendants justified the refusal of the tenders of payment and the non-compliance with the obligations under what the plaintiffs considered to be a perfected contract of sale. (10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the bank, its Manager Rivera and Acting Conservator Encarnacion. The basis of the suit was that the transaction had with the bank resulted in a perfected contract of sale. The defendants took the position that there was no such perfected sale because the defendant Rivera is not authorized to sell the property, and that there was no meeting of the minds as to the price. On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as owner of 80% of the Banks outstanding shares of stock, he had a substantial interest in resisting the complaint. On July 8, 1991, the trial court issued an order denying the motion to intervene on the ground that it was filed after trial had already been concluded. It also denied a motion for reconsideration filed thereafter. From the trial courts decision, the Bank, petitioner Rivera and conservator Encarnacion appealed to the Court of Appeals which subsequently affirmed with modification the said judgment. Henry Co did not appeal the denial of his motion for intervention. In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of Demetria and Janolo, in view of the assignment of the latters rights in the matter in litigation to said private respondent. On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several other stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an action (hereafter, the Second Case) -purportedly a derivative suit - with the Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo to declare any perfected sale of the property as unenforceable and to stop Ejercito from enforcing or [4] implementing the sale. In his answer, Janolo argued that the Second Case was barred by litis pendentia by virtue of the case then pending in the Court of Appeals. During the pre-trial conference in the Second Case, plaintiffs filed a Motion for Leave of Court to Dismiss the Case Without Prejudice. Private respondent opposed this motion on the ground, among others, that plaintiffs act of [5] forum shopping justifies the dismissal of both cases, with prejudice. Private respondent, in his memorandum, averred that this motion is still pending in the Makati RTC. [6] [7] In their Petition and Memorandum, petitioners summarized their position as follows: I. The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito (in substitution of Demetria and Janolo) and the bank. II. The Court of Appeals erred in declaring the existence of an enforceable contract of sale between the parties. III. The Court of Appeals erred in declaring that the conservator does not have the power to overrule or revoke acts of previous management. IV. The findings and conclusions of the Court of Appeals do not conform to the evidence on record. [8] On the other hand, private respondents prayed for dismissal of the instant suit on the ground that: I. Petitioners have engaged in forum shopping. II. The factual findings and conclusions of the Court of Appeals are supported by the evidence on record and may no longer be questioned in this case. III. The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo (substituted by respondent Ejercito) and the bank. IV.

The Court of Appeals has correctly held that the conservator, apart from being estopped from repudiating the agency and the contract, has no authority to revoke the contract of sale. The Issues From the foregoing positions of the parties, the issues in this case may be summed up as follows: 1) Was there forum-shopping on the part of petitioner Bank? 2) Was there a perfected contract of sale between the parties? 3) Assuming there was, was the said contract enforceable under the statute of frauds? 4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers and/or to revoke the said contract? 5) Did the respondent Court commit any reversible error in its findings of facts? The First Issue: Was There Forum-Shopping? In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised Circular No. 28-91 requiring that a party must certify under oath x x x *that+ (a) he has not (t)heretofore commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no such action or proceeding is pending in said courts or agencies. A violation of the said circular entails sanctions that include the summary dismissal of the multiple petitions or complaints. To be sure, petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating for the record(,) the pendency of Civil Case No. 92-1606 before the Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by stockholders of petitioner Bank against the conservator and [9] other defendants but which is the subject of a pending Motion to Dismiss Without Prejudice. Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of actual forum shopping because the instant petition pending before this Court involves identical parties or interests represented, rights asserted and reliefs sought (as that) currently pending before the Regional Trial Court, Makati Branch 134 in the Second Case. In fact, the issues in the [10] two cases are so intertwined that a judgment or resolution in either case will constitute res judicata in the other. [11] On the other hand, petitioners explain that there is no forum-shopping because: 1) In the earlier or First Case from which this proceeding arose, the Bank was impleaded as a defendant, whereas in the Second Case (assuming the Bank is the real party in interest in a derivative suit), it was the plaintiff; 2) The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances; 3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and attached to the Petition identifies the action as a derivative suit, it does not mean that it is one and (t)hat is a legal question for the courts to decide; 4) Petitioners did not hide the Second Case as they mentioned it in the said VERIFICATION/CERTIFICATION. We rule for private respondent. [12] To begin with, forum-shopping originated as a concept in private international law, where non-resident litigants are given the option to choose the forum or place wherein to bring their suit for various reasons or excuses, including to secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. To combat these less than honorable excuses, the principle of forum non conveniens was developed whereby a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most convenient or available forum and the parties are not precluded from seeking remedies elsewhere. [13] In this light, Blacks Law Dictionary says that forum-shopping occurs when a party attempts to have his action tried in a particular court or jurisdiction where he feels he will receive the most favorable judgment or verdict. Hence, according to Words and [14] Phrases, a litigant is open to the charge of forum shopping whenever he chooses a forum with slight connection to factual circumstances surrounding his suit, and litigants should be encouraged to attempt to settle their differences without imposing undue expense and vexatious situations on the courts. In the Philippines, forum-shopping has acquired a connotation encompassing not only a choice of venues, as it was originally understood in conflicts of laws, but also to a choice of remedies. As to the first (choice of venues), the Rules of Court, for example, allow a plaintiff to commence personal actions 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 (Rule 4, Sec. 2 *b+). As to remedies, aggrieved parties, for example, are given a choice of pursuing civil liabilities independently of the criminal, arising from the same set of facts. A passenger of a public utility vehicle involved in a vehicular accident may sue on culpa contractual, culpa aquiliana or culpa criminal - each remedy being available independently of the others - although he cannot recover more than once. In either of these situations (choice of venue or choice of remedy), the litigant actually shops for a forum of his action. This was the original concept of the term forum shopping. Eventually, however, instead of actually making a choice of the forum of their actions, litigants, through the encouragement of their lawyers, file their actions in all available courts, or invoke all relevant remedies simultaneously. This practice had not only resulted to (sic) conflicting adjudications among different courts and consequent confusion enimical (sic) to an orderly administration of justice. It had created extreme inconvenience to some of the parties to the action. Thus, forum-shopping had acquired a different concept - which is unethical professional legal practice. And this necessitated or [15] had given rise to the formulation of rules and canons discouraging or altogether prohibiting the practice. What therefore originally started both in conflicts of laws and in our domestic law as a legitimate device for solving problems has been abused and misused to assure scheming litigants of dubious reliefs. To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned, promulgated Circular 28-91. And even before that, the Court had proscribed it in the Interim Rules and Guidelines issued on January 11, 1983 and had [16] struck down in several cases the inveterate use of this insidious malpractice. Forum-shopping as the filing of repetitious suits in different courts has been condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of Natural Resources, et al. vs. [17] Heirs of Orval Hughes, et al., as a reprehensible manipulation of court processes and proceedings x x x. When does forumshopping take place? There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies not only with respect to suits filed in the courts but also in connection with litigations commenced in the courts while an administrative proceeding is pending, as in this case, in order to defeat administrative processes and in anticipation of an unfavorable administrative ruling and a favorable court ruling. This is specially so, as in this case, [18] where the court in which the second suit was brought, has no jurisdiction

The test for determining whether a party violated the rule against forum-shopping has been laid down in the 1986 case of Buan vs. [19] Lopez, also by Chief Justice Narvasa, and that is, forum-shopping exists where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in the other, as follows: There thus exists between the action before this Court and RTC Case No. 86-36563 identity of parties, or at least such parties as represent the same interests in both actions, as well as identity of rights asserted and relief prayed for, the relief being founded on the same facts, and the identity on the two preceding particulars is such that any judgment rendered in the other action, will, regardless of which party is successful, amount to res adjudicata in the action under consideration: all the requisites, in fine, of auter action pendant. xxx xxx xxx As already observed, there is between the action at bar and RTC Case No. 86-36563, an identity as regards parties, or interests represented, rights asserted and relief sought, as well as basis thereof, to a degree sufficient to give rise to the ground for dismissal known as auter action pendant or lis pendens. That same identity puts into operation the sanction of twin dismissals just mentioned. The application of this sanction will prevent any further delay in the settlement of the controversy which might ensue from attempts to seek reconsideration of or to appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563 promulgated on July 15, 1986, which dismissed the petition upon grounds which appear persuasive. Consequently, where a litigant (or one representing the same interest or person) sues the same party against whom another action or actions for the alleged violation of the same right and the enforcement of the same relief is/are still pending, the defense of litis pendencia in one case is a bar to the others; and, a final judgment in one would constitute res judicata and thus would cause the dismissal of the rest. In either case, forum shopping could be cited by the other party as a ground to ask for summary dismissal of [20] the two (or more) complaints or petitions, and for the imposition of the other sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action against the erring lawyer. Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious that there exist identity of parties or interests represented, identity of rights or causes and identity of reliefs sought. Very simply stated, the original complaint in the court a quo which gave rise to the instant petition was filed by the buyer (herein private respondent and his predecessors-in-interest) against the seller (herein petitioners) to enforce the alleged perfected sale of [21] real estate. On the other hand, the complaint in the Second Case seeks to declare such purported sale involving the same real property as unenforceable as against the Bank, which is the petitioner herein. In other words, in the Second Case, the majority stockholders, in representation of the Bank, are seeking to accomplish what the Bank itself failed to do in the original case in the trial court. In brief, the objective or the relief being sought, though worded differently, is the same, namely, to enable the petitioner Bank [22] to escape from the obligation to sell the property to respondent. InDanville Maritime, Inc. vs. Commission on Audit, this Court ruled that the filing by a party of two apparently different actions, but with thesame objective, constituted forum shopping: In the attempt to make the two actions appear to be different, petitioner impleaded different respondents therein - PNOC in the case before the lower court and the COA in the case before this Court and sought what seems to be different reliefs. Petitioner asks this Court to set aside the questioned letter-directive of the COA dated October 10, 1988 and to direct said body to approve the Memorandum of Agreement entered into by and between the PNOC and petitioner, while in the complaint before the lower court petitioner seeks to enjoin the PNOC from conducting a rebidding and from selling to other parties the vessel T/T Andres Bonifacio, and for an extension of time for it to comply with the paragraph 1 of the memorandum of agreement and damages. One can see that although the relief prayed for in the two (2) actions are ostensibly different, the ultimate objective in both actions is the same, that is, the approval of the sale of vessel in favor of petitioner, and to overturn the letter-directive of the COA of October 10, 1988 disapproving the sale. (italics supplied) [23] In an earlier case, but with the same logic and vigor, we held: In other words, the filing by the petitioners of the instant special civil action for certiorari and prohibition in this Court despite the pendency of their action in the Makati Regional Trial Court, is a species of forum-shopping. Both actions unquestionably involve the same transactions, the same essential facts and circumstances. The petitioners claim of absence of identity simply because the PCGG had not been impleaded in the RTC suit, and the suit did not involve certain acts which transpired after its commencement, is specious. In the RTC action, as in the action before this Court, the validity of the contract to purchase and sell of September 1, 1986, i.e., whether or not it had been efficaciously rescinded, and the propriety of implementing the same (by paying the pledgee banks the amount of their loans, obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the relief was the same: the prevention of such implementation and/or the restoration of the status quo ante. When the acts sought to be restrained took place anyway despite the issuance by the Trial Court of a temporary restraining order, the RTC suit did not become functus oflcio. It remained an effective vehicle for obtention of relief; and petitioners remedy in the premises was plain and patent: the filing of an amended and supplemental pleading in the RTC suit, so as to include the PCGG as defendant and seek nullification of the acts sought to be enjoined but nonetheless done. The remedy was certainly not the institution of another action in another forum based on essentially the same facts. The adoption of this latter recourse renders the petitioners amenable to disciplinary action and both their actions, in this Court as well as in the Court a quo, dismissible. In the instant case before us, there is also identity of parties, or at least, of interests represented. Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not name parties in the First Case, they represent the same interest and entity, namely, petitioner Bank, because: Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the matter in controversy. They are not principally or even subsidiarily liable; much less are they direct parties in the assailed contract of sale; and Secondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a derivative suit. In the [24] caption itself, petitioners claim to have brought suit for and in behalf of the Producers Bank of the Philippines. Indeed, this is the very essence of a derivative suit: An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]; italics supplied). In the face of the damaging admissions taken from the complaint in the Second Case, petitioners, quite strangely, sought to deny that the Second Case was a derivative suit, reasoning that it was brought, not by the minority shareholders, but by Henry Co et al., who not only own, hold or control over 80% of the outstanding capital stock, but also constitute the majority in the Board of

Directors of petitioner Bank. That being so, then they really represent the Bank. So, whether they sued derivatively or directly, there is undeniably an identity of interests/entity represented. Petitioner also tried to seek refuge in the corporate fiction that the personality of the Bank is separate and distinct from its shareholders. But the rulings of this Court are consistent: When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the [25] members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals. [26] In addition to the many cases where the corporate fiction has been disregarded, we now add the instant case, and declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum-shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a derivative suit, cannot be allowed to trifle with court processes, particularly where, as in this case, the corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and in using and applying remedies available to it. To rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules against forum shopping. Finally, petitioner Bank argued that there cannot be any forum shopping, even assuming arguendo that there is identity of parties, causes of action and reliefs sought, because it (the Bank) was the defendant in the (first) case while it was the plaintiff in the other [27] (Second Case), citing as authority Victronics Computers, Inc. vs. Regional Trial Court, Branch 63, Makati, etc. et al., where the Court held: The rule has not been extended to a defendant who, for reasons known only to him, commences a new action against the plaintiff instead of filing a responsive pleading in the other case - setting forth therein, as causes of action, specific denials, special and affirmative defenses or even counterclaims. Thus, Velhagens and Kings motion to dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping as such did not exist in the first place. (italics supplied) Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen the forum in said case. Respondent, on the other hand, replied that there is a difference in factual setting between Victronics and the present suit. In the former, as underscored in the above-quoted Court ruling, the defendants did not file any responsive pleading in the first case. In other words, they did not make any denial or raise any defense or counter-claim therein. In the case before us however, petitioners filed a responsive pleading to the complaint - as a result of which, the issues were joined. Indeed, by praying for affirmative reliefs and interposing counter-claims in their responsive pleadings, the petitioners became plaintiffs themselves in the original case, giving unto themselves the very remedies they repeated in the Second Case. Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is the vexation caused the courts and parties-litigant by a party who asks different courts and/or administrative agencies to rule on the same or related causes and/or to grant the same or substantially the same reliefs, in the process creating the possibility of conflicting decisions being rendered by the different fora upon the same issue. In this case, this is exactly the problem: a decision recognizing the perfection and directing the enforcement of the contract of sale will directly conflict with a possible decision in the Second Case barring the [28] parties from enforcing or implementing the said sale. Indeed, a final decision in one would constitute res judicata in the other. The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction possible now is the dismissal of both cases with prejudice, as the other sanctions cannot be imposed because petitioners present counsel entered their appearance only during the proceedings in this Court, and the Petitions VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of the Second Case to show good faith in observing Circular 28-91. The lawyers who filed the Second Case are not before us; thus the rudiments of due process prevent us from motu propio imposing disciplinary measures against them in this Decision. However, petitioners themselves (and particularly Henry Co, et al.) as litigants are admonished to strictly follow the rules against forum-shopping and not to trifle with court proceedings and processes. They are warned that a repetition of the same will be dealt with more severely. Having said that, let it be emphasized that this petition should be dismissed not merely because of forum-shopping but also because of the substantive issues raised, as will be discussed shortly. The Second Issue: Was The Contract Perfected? The respondent Court correctly treated the question of whether or not there was, on the basis of the facts established, a perfected contract of sale as the ultimate issue. Holding that a valid contract has been established, respondent Court stated: There is no dispute that the object of the transaction is that property owned by the defendant bank as acquired assets consisting of six (6) parcels of land specifically identified under Transfer Certificates of Title Nos. T-106932 to T-106937. It is likewise beyond cavil that the bank intended to sell the property. As testified to by the Banks Deputy Conservator, Jose Entereso, the bank was looking for buyers of the property. It is definite that the plaintiffs wanted to purchase the property and it was precisely for this purpose that they met with defendant Rivera, Manager of the Property Management Department of the defendant bank, in early August 1987. The procedure in the sale of acquired assets as well as the nature and scope of the authority of Rivera on the matter is clearly delineated in the testimony of Rivera himself, which testimony was relied upon by both the bank and by Rivera in their appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20): A: The procedure runs this way: Acquired assets was turned over to me and then I published it in the form of an inter-office memorandum distributed to all branches that these are acquired assets for sale. I was instructed to advertise acquired assets for sale so on that basis, I have to entertain offer; to accept offer, formal offer and upon having been offered, I present it to the Committee. I provide the Committee with necessary information about the property such as original loan of the borrower, bid price during the foreclosure, total claim of the bank, the appraised value at the time the property is being offered for sale and then the information which are relative to the evaluation of the bank to buy which the Committee considers and it is the Committee that evaluate as against the exposure of the bank and it is also the Committee that submit to the Conservator for final approval and once approved, we have to execute the deed of sale and it is the Conservator that sign the deed of sale, sir. The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the property, dealt with and talked to the right person. Necessarily, the agenda was the price of the property, and plaintiffs were dealing with the bank official authorized to entertain offers, to accept offers and to present the offer to the Committee before which the said official is authorized to discuss information relative to price determination. Necessarily, too, it being inherent in his authority, Rivera is the officer from whom official information regarding the price, as determined by the Committee and approved by the Conservator, can be had. And Rivera confirmed his authority when he talked with the plaintiff in August 1987. The testimony of plaintiff Demetria is clear on this point (TSN of May 31, 1990, pp. 27-28):

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him point-blank his authority to sell any property? A: No, sir. Not point blank although it came from him. (W)hen I asked him how long it would take because he was saying that the matter of pricing will be passed upon by the committee. And when I asked him how long it will take for the committee to decide and he said the committee meets every week. If I am not mistaken Wednesday and in about two weeks (sic) time, in effect what he was saying he was not the one who was to decide. But he would refer it to the committee and he would relay the decision of the committee to me. Q: Please answer the question. A: He did not say that he had the authority(.) But he said he would refer the matter to the committee and he would relay the decision to me and he did just like that. Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was the Head, with Jose Entereso as one of the members. What transpired after the meeting of early August 1987 are consistent with the authority and the duties of Rivera and the banks internal procedure in the matter of the sale of banks assets. As advised by Rivera, the plaintiffs made a formal offer by a letter dated August 20, 1987 stating that they would buy at the price of P3.5 Million in cash. The letter was for the attention of Mercurio Rivera who was tasked to convey and accept such offers. Considering an aspect of the official duty of Rivera as some sort of intermediary between the plaintiffs-buyers with their proposed buying price on one hand, and the bank Committee, the Conservator and ultimately the bank itself with the set price on the other, and considering further the discussion of price at the meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that the banks counter-offer is at P5.5 Million for more than 101 hectares on lot basis, such counter-offer price had been determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs offer for discussion by the Committee of such matters as original loan of borrower, bid price during foreclosure, total claim of the bank, and market value. Tersely put, under the established facts, the price of P5.5 Million was, as clearly worded in Riveras letter (Exh. E), the official and definitive price at which the bank was selling the property. There were averments by defendants below, as well as before this Court, that the P5.5 Million price was not discussed by the Committee and that it was merely quoted to start negotiations regarding the price. As correctly characterized by the trial court, this is not credible. The testimonies of Luis Co and Jose Entereso on this point are at best equivocal and considering the gratuitous and self-serving character of these declarations, the banks submission on this point does not inspire belief. Both Co and Entereso, as members of the Past Due Committee of the bank, claim that the offer of the plaintiff was never discussed by the Committee. In the same vein, both Co and Entereso openly admit that they seldom attend the meetings of the Committee. It is important to note that negotiations on the price had started in early August and the plaintiffs had already offered an amount as purchase price, having been made to understand by Rivera, the official in charge of the negotiation, that the price will be submitted for approval by the bank and that the banks decision will be relayed to plaintiffs. From the facts, the amount of P5.5 Million has a definite significance. It is the official bank price. At any rate, the bank placed its official, Rivera, in a position of authority to accept offers to buy and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn around and later say, as it now does, that what Rivera states as the banks action on the matter is not in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, he estopped from denying his authority (Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14, [29] 1993). Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by Transfer Certificates of Title Nos. T-106932 to T106937. There is, however, a dispute on the first and third requisites. Petitioners allege that there is no counter-offer made by the Bank, and any supposed counter-offer which Rivera (or Co) may have made is unauthorized. Since there was no counter-offer by the Bank, there was nothing for Ejercito (in substitution of Demetria and [30] Janolo) to accept. They disputed the factual basis of the respondent Courts findings that there was an offer made by Janolo for P3.5 million, to which the Bank counter-offered P5.5 million. We have perused the evidence but cannot find fault with the said Courts findings of fact. Verily, in a petition under Rule 45 such as this, errors of fact -if there be any - are, as a rule, not reviewable. The mere fact that respondent Court (and the trial court as well) chose to believe the evidence presented by respondent more than that presented by petitioners is not by itself a reversible error. in fact, such findings merit serious consideration by this Court, particularly where, as in this case, said courts carefully and meticulously discussed their findings. This is basic. Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review the question of Riveras authority to act and petitioners allegations that the P5.5 million counter-offer was extinguished by the P4.25 million revised offer of Janolo. Here, there are questions of law which could be drawn from the factual findings of the respondent Court. They also delve into the contractual elements of consent and cause. The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of apparent authority, [31] with special reference to banks, was laid out in Prudential Bank vs. Court of Appeals, where it was held that: Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the agent. The agents apparent representation yields to the principals true representation and the contract is considered as entered into between the principal and the third person (citing National Food Authority vs. Intermediate Appellate Court, 184 SCRA 166). A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scope of their authority (9 C.J.S., p. 417). A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the

particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021). Application of these principles is especially necessary because banks have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their depositors. From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or implied authority to act for the Bank in the matter of selling its acquired assets. This evidence includes the following: (a) The petition itself in par. II-1 (p. 3) states that Rivera was at all times material to this case, Manager of the Property Management Department of the Bank. By his own admission, Rivera was already the person in charge of the Banks acquired assets (TSN, August 6, 1990, pp. 8-9); (b) As observed by respondent Court, the land was definitely being sold by the Bank. And during the initial meeting between the buyers and Rivera, the latter suggested that the buyers offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17); (c) Rivera received the buyers letter dated August 30, 1987 offering P3.5 million (TSN, 30 July 1990, p. 11); (d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5 million (TSN, July 30, p. 11); (e) Rivera received the letter dated September 17, 1987 containing the buyers proposal to buy the property for P4.25 million (TSN, July 30, 1990, p. 12); (f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the Bank (TSN, January 16, 1990, p. 18); (g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1987, during which the Banks offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting, Co, a major shareholder and officer of the Bank, confirmed Riveras statement as to the finality of the Banks counter-offer of P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35); (h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the officer acting for the Bank in relation to parties interested in buying assets owned/acquired by the Bank. In fact, Rivera was the officer mentioned in the Banks advertisements offering for sale the property in question (cf. Exhs. S and S-I). [32] In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et al., the Court, through Justice Jose A. R. Melo, affirmed the doctrine of apparent authority as it held that the apparent authority of the officer of the Bank of P.I. in charge of acquired assets is borne out by similar circumstances surrounding his dealings with buyers. To be sure, petitioners attempted to repudiate Riveras apparent authority through documents and testimony which seek to establish Riveras actual authority. These pieces of evidence, however, are inherently weak as they consist of Riveras self-serving testimony and various inter-office memoranda that purport to show his limited actual authority, of which private respondent cannot be charged with knowledge. In any event, since the issue is apparent authority, the existence of which is borne out by the [33] respondent Courts findings, the evidence of actual authority is immaterial insofar as the liability of a corporation is concerned. Petitioners also argued that since Demetria and Janolo were experienced lawyers and their law firm had once acted for the Bank in three criminal cases, they should be charged with actual knowledge of Riveras limited authority. But the Court of Appeals in its Decision (p. 12) had already made a factual finding that the buyers had no notice of Riveras actual authority prior to the sale. In fact, the Bank has not shown that they acted as its counsel in respect to any acquired assets; on the other hand, respondent has proven that Demetria and Janolo merely associated with a loose aggrupation of lawyers (not a professional partnership), one of whose members (Atty. Susana Parker) acted in said criminal cases. Petitioners also alleged that Demetrias and Janolos P4.25 million counter-offer in the letter dated September 17, 1987 extinguished [34] the Banks offer of P5.5 million. They disputed the respondent Courts finding that there was a meeting of minds when on 30 September 1987 Demetria and Janolo through Annex L (letter dated September 30, 1987) accepted Riveras counter offer of P5.5 [35] [36] million under Annex J (letter dated September 17, 1987), citing the late Justice Paras, Art. 1319 of the Civil Code and related [37] Supreme Court rulings starting withBeaumont vs. Prieto. However, the above-cited authorities and precedents cannot apply in the instant case because, as found by the respondent Court which reviewed the testimonies on this point, what was accepted by Janolo in his letter dated September 30, 1987 was the Banks offer of P5.5 million as confirmed and reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their meeting on September 28, 1987. Note that the said letter of September 30, 1987 begins with (p)ursuant to our discussion last 28 September 1987 x x x. Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that the September 28, [38] 1987 meeting was meant to have the offerors improve on their position of P5.5 million. However, both the trial court and the Court of Appeals found petitioners testimonial evidence not credible, and we find no basis for changing this finding of fact. Indeed, we see no reason to disturb the lower courts (both the RTC and the CA) common finding that private respondents evidence is more in keeping with truth and logic - that during the meeting on September 28, 1987, Luis Co and Rivera confirmed that the P5.5 [39] million price has been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35). Hence, assuming arguendo that the counter-offer of P4.25 million extinguished the offer of P5.5 million, Luis Cos reiteration of the said P5.5 million price during the September 28, 1987 meeting revived the said offer. And by virtue of the September 30, 1987 letter accepting this revived offer, there was a meeting of the minds, as the acceptance in said letter was absolute and unqualified. We note that the Banks repudiation, through Conservator Encarnacion, of Riveras authority and action, particularly the latters counter-offer of P5.5 million, as being unauthorized and illegal came only on May 12, 1988 or more than seven (7) months after Janolos acceptance. Such delay, and the absence of any circumstance which might have justifiably prevented the Bank from acting earlier, clearly characterizes the repudiation as nothing more than a last-minute attempt on the Banks part to get out of a binding contractual obligation. Taken together, the factual findings of the respondent Court point to an implied admission on the part of the petitioners that the written offer made on September 1, 1987 was carried through during the meeting of September 28, 1987. This is the conclusion consistent with human experience, truth and good faith. It also bears noting that this issue of extinguishment of the Banks offer of P5.5 million was raised for the first time on appeal and should thus be disregarded.

This Court in several decisions has repeatedly adhered to the principle that points of law, theories, issues of fact and arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as [40] they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145 SCRA 592). xxx It is settled jurisprudence that an issue which was neither averred in the complaint nor raised during the trial in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA [41] 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990). Since the issue was not raised in the pleadings as an affirmative defense, private respondent was not given an opportunity in the trial court to controvert the same through opposing evidence. Indeed, this is a matter of due process. But we passed upon the issue anyway, if only to avoid deciding the case on purely procedural grounds, and we repeat that, on the basis of the evidence already in the record and as appreciated by the lower courts, the inevitable conclusion is simply that there was a perfected contract of sale. The Third Issue: Is the Contract Enforceable? [42] The petition alleged: Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the meeting of 28 September 1987, and it was this verbal offer that Demetria and Janolo accepted with their letter of 30 September 1987, the contract produced thereby would be unenforceable by action - there being no note, memorandum or writing subscribed by the Bank to evidence such contract. (Please see Article 1403*2+, Civil Code.) Upon the other hand, the respondent Court in its Decision (p. 14) stated: x x x Of course, the banks letter of September 1, 1987 on the official price and the plaintiffs acceptance of the price on September 30, 1987, are not, in themselves, formal contracts of sale. They are however clear embodiments of the fact that a contract of sale was perfected between the parties, such contract being binding in whatever form it may have been entered into (case citations omitted). Stated simply, the banks letter of September 1, 1987, taken together with plaintiffs letter dated September 30, 1987, constitute in law a sufficient memorandum of a perfected contract of sale. The respondent Court could have added that the written communications commenced not only from September 1, 1987 but from JanolosAugust 20, 1987 letter. We agree that, taken together, these letters constitute sufficient memoranda - since they include the names of the parties, the terms and conditions of the contract, the price and a description of the property as the object of the contract. But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did constitute a new offer which was accepted by Janolo on September 30, 1987. Still, the statute of frauds will not apply by reason of the failure of petitioners to object to oral testimony proving petitioner Banks counter-offer of P5.5 million. Hence, petitioners - by such utter failure to object are deemed to have waived any defects of the contract under the statute of frauds, pursuant to Article 1405 of the Civil Code: Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them. As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-offer of P5.5 million is aplenty -and the silence of petitioners all throughout the presentation makes the evidence binding on them thus: A - Yes, sir. I think it was September 28, 1987 and I was again present because Atty. Demetria told me to accompany him and we were able to meet Luis Co at the Bank. xxx xxx xxx Q - Now, what transpired during this meeting with Luis Co of the Producers Bank? A - Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir. Q - What price? A - The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the final price and that is the price they intends (sic) to have, sir. Q - What do you mean? A - That is the amount they want, sir. Q - What is the reaction of the plaintiff Demetria to Luis Cos statment (sic) that the defendant Riveras counter-offer of 5.5 million was the defendants bank (sic) final offer? A - He said in a day or two, he will make final acceptance, sir. Q - What is the response of Mr. Luis Co? A - He said he will wait for the position of Atty. Demetria, sir. [Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.] ----0---Q - What transpired during that meeting between you and Mr. Luis Co of the defendant Bank? A - We went straight to the point because he being a busy person, I told him if the amount of P5.5 million could still be reduced and he said that was already passed upon by the committee. What the bank expects which was contrary to what Mr. Rivera stated. And he told me that is the final offer of the bank P5.5 million and we should indicate our position as soon as possible. Q - What was your response to the answer of Mr. Luis Co? A - I said that we are going to give him our answer in a few days and he said that was it. Atty. Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his office. Q - For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office in Producers Bank Building during this meeting? A - Mr. Co himself, Mr. Rivera, Atty. Fajardo and I. Q - By Mr. Co you are referring to? A - Mr. Luis Co. Q - After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter offer by the bank? A - Yes, sir, we did. Two days thereafter we sent our acceptance to the bank which offer we accepted, the offer of the bank which is P5.5 million. [Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.] ---- 0 ----

Q - According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the Committee and it is not within his power to reduce this amount. What can you say to that statement that the amount of P5.5 million was reached by the Committee? A - It was not discussed by the Committee but it was discussed initially by Luis Co and the group of Atty. Demetrio Demetria and Atty. Pajardo (sic), in that September 28, 1987 meeting, sir. [Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.] The Fourth Issue: May the Conservator Revoke the Perfected and Enforceable Contract? It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the Philippines during the time that the negotiation and perfection of the contract of sale took place. Petitioners energetically contended that the conservator has the power to revoke or overrule actions of the management or the board of directors of a bank, under Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act) as follows: Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary Board finds that a bank or a non-bank financial intermediary performing quasi - banking functions is in a state of continuing inability or unwillingness to maintain a state of liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a conservator to take charge of the assets, liabilities, and the management of that institution, collect all monies and debts due said institution and exercise all powers necessary to preserve the assets of the institution, reorganize the management thereof, and restore its viability. He shall have the power to overrule or revoke the actions of the previous management and board of directors of the bank or non-bank financial intermediary performing quasi-banking functions, any provision of law to the contrary notwithstanding, and such other powers as the Monetary Board shall deem necessary. In the first place, this issue of the Conservators alleged authority to revoke or repudiate the perfected contract of sale was raised for the first time in this Petition - as this was not litigated in the trial court or Court of Appeals. As already stated earlier, issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals, cannot be raised for the first time on appeal as it would [43] be offensive to the basic rules of fair play, justice and due process. In the second place, there is absolutely no evidence that the Conservator, at the time the contract was perfected, actually repudiated or overruled said contract of sale. The Banks acting conservator at the time, Rodolfo Romey, never objected to the sale of the property to Demetria and Janolo. What petitioners are really referring to is the letter of Conservator Encarnacion, who took over from Romey after the sale was perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated - not the contract - but the authority of Rivera to make a binding offer - and which unarguably came months after the perfection of the contract. Said letter dated May 12, 1988 is reproduced hereunder: May 12, 1988 Atty. Noe C. Zarate Zarate Carandang Perlas & Ass. Suite 323 Rufino Building Ayala Avenue, Makati, Metro Manila Dear Atty. Zarate: This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria regarding the six (6) parcels of land located at Sta. Rosa, Laguna. We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor perfected a contract to sell and buy with any of them for the following reasons. In the Inter-Office Memorandum dated April 25, 1986 addressed to and approved by former Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua detailed the functions of Property Management Department (PMD) staff and officers (Annex A), you will immediately read that Manager Mr. Mercurio Rivera or any of his subordinates has no authority, power or right to make any alleged counter-offer. In short, your lawyer-clients did not deal with the authorized officers of the bank. Moreover, under Secs. 23 and 36 of the Corporation Code of the Philippines (Batas Pambansa Blg. 68) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended), only the Board of Directors/Conservator may authorize the sale of any property of the corporation/bank. Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank conservators (starting January, 1984) to sell the aforesaid property to any of your clients. Apparently, what took place were just preliminary discussions/ consultations between him and your clients, which everyone knows cannot bind the Banks Board or Conservator. We are, therefore, constrained to refuse any tender of payment by your clients, as the same is patently violative of corporate and banking laws. We believe that this is more than sufficient legal justification for refusing said alleged tender. Rest assured that we have nothing personal against your clients. All our acts are official, legal and in accordance with law. We also have no personal interest in any of the properties of the Bank. Please be advised accordingly. Very truly yours, (Sgd.) Leonida T. Encarnacion LEONIDA T. ENCARNACION Acting Conservator In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a bank, it must be pointed out that such powers must be related to the (preservation of) the assets of the bank, (the reorganization of) the management thereof and (the restoration of) its viability. Such powers, enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the [44] Constitution. If the legislature itself cannot revoke an existing valid contract, how can it delegate such non-existent powers to the conservator under Section 28-A of said law? Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing law, deemed to be defective - i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a banks board of directors. What the said board cannot do - such as repudiating a contract validly entered into under the doctrine of implied authority - the conservator cannot do either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail such contracts - as he has already done so in the instant case. A contrary understanding of the law would simply not be permitted by the Constitution. Neither by common sense. To rule otherwise

would be to enable a failing bank to become solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke all previous dealings which had one way or another come to be considered unfavorable to the Bank, yielding nothing to perfected contractual rights nor vested interests of the third parties who had dealt with the Bank. The Fifth Issue: Were There Reversible Errors of Fact? Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the Court of Appeals are not [45] reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover & Trust Corporation, we held: x x x. The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus: The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule 45 of the Revised Rules of Court. The jurisdiction of the Supreme Court in cases brought to it from the Court of Appeals is limited to reviewing and revising the errors of law imputed to it, its findings of the fact being conclusive *Chan vs. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions+. This Court has emphatically declared that it is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court (Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G.R. No. L-47531, February 20, 1984, 127 SCRA 596). Barring, therefore, a showing that the findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this Court is not expected or required to examine or contrast the oral and documentary evidence submitted by the parties *Santa Ana, Jr. vs. Hernandez, G.R. No. L-16394, December 17, 1966, 18 SCRA 973] [at pp. 144-145.+ [46] Likewise, in Bernardo vs. Court of Appeals, we held: The resolution of this petition invites us to closely scrutinize the facts of the case, relating to the sufficiency of evidence and the credibility of witnesses presented. This Court so held that it is not the function of the Supreme Court to analyze or weigh such evidence all over again. The Supreme Courts jurisdiction is limited to reviewing errors of law that may have been committed by the lower court. The Supreme Court is not a trier of facts. x x x [47] As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and Development Corp.: The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts below. In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance Company, Inc. vs. Hon. Court of [48] Appeals, et al. is equally applicable to the present case: We see no valid reason to discard the factual conclusions of the appellate court. x x x (I)t is not the function of this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide. (italics supplied) Petitioners, however, assailed the respondent Courts Decision as fraught with findings and conclusions which were not only contrary to the evidence on record but have no bases at all, specifically the findings that (1) the Banks counter-offer price of P5.5 million had been determined by the past due committee and approved by conservator Romey, after Rivera presented the same for discussion and (2) the meeting with Co was not to scale down the price and start negotiations anew, but a meeting on the [49] already determined price of P5.5 million. Hence, citing Philippine National Bank vs. Court of Appeals, petitioners are asking us to review and reverse such factual findings. [50] The first point was clearly passed upon by the Court of Appeals, thus: There can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that the banks counter-offer is at P5.5 Million for more than 101 hectares on lot basis, such counter-offer price had been determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs offer for discussion by the Committee x x x. Tersely put, under the established fact, the price of P5.5 Million was, as clearly worded in Riveras letter (Exh. E), the official and definitive price at which the bank was selling the property. (p. 11, CA Decision) xxx xxx xxx xxx. The argument deserves scant consideration. As pointed out by plaintiff, during the meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the senior vice-president of the bank, where the topic was the possible lowering of the price, the bank official refused it and confirmed that the P5.5 Million price had been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision). The respondent Court did not believe the evidence of the petitioners on this point, characterizing it as not credible and at best equivocal, and considering the gratuitous and self-serving character of these declarations, the banks submissions on this point do not inspire belief. To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo Romey to testify on their behalf, [51] as he would have been in the best position to establish their thesis. Under the rules on evidence, such suppression gives rise to the presumption that his testimony would have been adverse, if produced. The second point was squarely raised in the Court of Appeals, but petitioners evidence was deemed insufficient by both the trial court and the respondent Court, and instead, it was respondents submissions that were believed and became bases of the conclusions arrived at. In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts are valid and correct. But the petitioners are now asking this Court to disturb these findings to fit the conclusion they are espousing. This we cannot do. [52] To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by the Court of Appeals. We have studied both the records and the CA Decision and we find no such exceptions in this case. On the contrary, the findings of the said Court are supported by a preponderance of competent and credible evidence. The inferences and conclusions are reasonably based on evidence duly identified in the Decision. Indeed, the appellate court patiently traversed and dissected the issues presented before it, lending credibility and dependability to its findings. The best that can be said in favor of petitioners on this point is that the

factual findings of respondent Court did not correspond to petitioners claims, but were closer to the evidence as presented in the trial court by private respondent. But this alone is no reason to reverse or ignore such factual findings, particularly where, as in this case, the trial court and the appellate court were in common agreement thereon. Indeed, conclusions of fact of a trial judge - as affirmed by the Court of Appeals - are conclusive upon this Court, absent any serious abuse or evident lack of basis or capriciousness of any kind, because the trial court is in a better position to observe the demeanor of the witnesses and their courtroom manner as well as to examine the real evidence presented. Epilogue In summary, there are two procedural issues involved - forum-shopping and the raising of issues for the first time on appeal [viz., the extinguishment of the Banks offer of P5.5 million and the conservators powers to repudiate contracts entered into by the Banks officers] - which per se could justify the dismissal of the present case. We did not limit ourselves thereto, but delved as well into the substantive issues - the perfection of the contract of sale and its enforceability, which required the determination of questions of fact. While the Supreme Court is not a trier of facts and as a rule we are not required to look into the factual bases of respondent Courts decisions and resolutions, we did so just the same, if only to find out whether there is reason to disturb any of its factual findings, for we are only too aware of the depth, magnitude and vigor by which the parties, through their respective eloquent counsel, argued their positions before this Court. We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a government-appointed conservator and there is need to rehabilitate the Bank in order to get it back on its feet x x x as many people depend on (it) for investments, deposits and well as employment. As of June 1987, the Banks overdraft with the Central Bank had already reached [53] P1.023 billion x x x and there were (other) offers to buy the subject properties for a substantial amount of money. While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot emotionally close its eyes to overriding considerations of substantive and procedural law, like respect for perfected contracts, non-impairment of obligations and sanctions against forum-shopping, which must be upheld under the rule of law and blind justice. This Court cannot just gloss over private respondents submission that, while the subject properties may currently command a much higher price, it is equally true that at the time of the transaction in 1987, the price agreed upon of P5.5 million was reasonable, [54] considering that the Bank acquired these properties at a foreclosure sale for no more than P 3.5 million. That the Bank procrastinated and refused to honor its commitment to sell cannot now be used by it to promote its own advantage, to enable it to escape its binding obligation and to reap the benefits of the increase in land values. To rule in favor of the Bank simply because the property in question has algebraically accelerated in price during the long period of litigation is to reward lawlessness and delays in the fulfillment of binding contracts. Certainly, the Court cannot stamp its imprimatur on such outrageous proposition. WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court hereby DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in forum-shopping and WARNED that a repetition of the same or similar acts will be dealt with more severely. Costs against petitioners. SO ORDERED.

HENRY FLEISCHER, plaintiff-appellee, vs. BOTICA NOLASCO CO., INC., defendant-appellant. Antonio Gonzalez for appellant. Emilio M. Javier for appellee. JOHNSON, J.: This action was commenced in the Court of First Instance of the Province of Oriental Negros on the 14th day of August, 1923, against the board of directors of the Botica Nolasco, Inc., a corporation duly organized and existing under the laws of the Philippine Islands. The plaintiff prayed that said board of directors be ordered to register in the books of the corporation five shares of its stock in the name of Henry Fleischer, the plaintiff, and to pay him the sum of P500 for damages sustained by him resulting from the refusal of said body to register the shares of stock in question. The defendant filed a demurrer on the ground that the facts alleged in the complaint did not constitute sufficient cause of action, and that the action was not brought against the proper party, which was the Botica Nolasco, Inc. The demurrer was sustained, and the plaintiff was granted five days to amend his complaint. On November 15, 1923, the plaintiff filed an amended complaint against the Botica Nolasco, Inc., alleging that he became the owner of five shares of stock of said corporation, by purchase from their original owner, one Manuel Gonzalez; that the said shares were fully paid; and that the defendant refused to register said shares in his name in the books of the corporation in spite of repeated demands to that effect made by him upon said corporation, which refusal caused him damages amounting to P500. Plaintiff prayed for a judgment ordering the Botica Nolasco, Inc. to register in his name in the books of the corporation the five shares of stock recorded in said books in the name of Manuel Gonzalez, and to indemnify him in the sum of P500 as damages, and to pay the costs. The defendant again filed a demurrer on the ground that the amended complaint did not state facts sufficient to constitute a cause of action, and that said amended complaint was ambiguous, unintelligible, uncertain, which demurrer was overruled by the court. The defendant answered the amended complaint denying generally and specifically each and every one of the material allegations thereof, and, as a special defense, alleged that the defendant, pursuant to article 12 of its by-laws, had preferential right to buy from the plaintiff said shares at the par value of P100 a share, plus P90 as dividends corresponding to the year 1922, and that said offer was refused by the plaintiff. The defendant prayed for a judgment absolving it from all liability under the complaint and directing the plaintiff to deliver to the defendant the five shares of stock in question, and to pay damages in the sum of P500, and the costs. Upon the issue presented by the pleadings above stated, the cause was brought on for trial, at the conclusion of which, and on August 21, 1924, the Honorable N. Capistrano, judge, held that, in his opinion, article 12 of the by-laws of the corporation which gives it preferential right to buy its shares from retiring stockholders, is in conflict with Act No. 1459 (Corporation Law), especially with section 35 thereof; and rendered a judgment ordering the defendant corporation, through its board of directors, to register in the books of said corporation the said five shares of stock in the name of the plaintiff, Henry Fleischer, as the shareholder or owner thereof, instead of the original owner, Manuel Gonzalez, with costs against the defendant. The defendant appealed from said judgment, and now makes several assignment of error, all of which, in substance, raise the question whether or not article 12 of the by-laws of the corporation is in conflict with the provisions of the Corporation Law (Act No. 1459). There is no controversy as to the facts of the present case. They are simple and may be stated as follows: That Manuel Gonzalez was the original owner of the five shares of stock in question, Nos. 16, 17, 18, 19 and 20 of the Botica Nolasco, Inc.; that on March 11, 1923, he assigned and delivered said five shares to the plaintiff, Henry Fleischer, by accomplishing the form of endorsement provided on the back thereof, together with other credits, in consideration of a large sum of money owed by Gonzalez to Fleischer (Exhibits A, B, B-1, B-2, B-3, B-4); that on March 13, 1923, Dr. Eduardo Miciano, who was the secretarytreasurer of said corporation, offered to buy from Henry Fleischer, on behalf of the corporation, said shares of stock, at their par value of P100 a share, for P500; that by virtue of article 12 of the by-laws of Botica Nolasco, Inc., said corporation had the preferential right to buy from Manuel Gonzalez said shares (Exhibit 2); that the plaintiff refused to sell them to the defendant; that the plaintiff requested Doctor Miciano to register said shares in his name; that Doctor Miciano refused to do so, saying that it would be in contravention of the by-laws of the corporation. It also appears from the record that on the 13th day of March, 1923, two days after the assignment of the shares to the plaintiff, Manuel Gonzales made a written statement to the Botica Nolasco, Inc., requesting that the five shares of stock sold by him to Henry Fleischer be noted transferred to Fleischer's name. He also acknowledged in said written statement the preferential right of the corporation to buy said five shares (Exhibit 3). On June 14, 1923, Gonzalez wrote a letter to the Botica Nolasco, withdrawing and cancelling his written statement of March 13, 1923 (Exhibit C), to which letter the Botica Nolasco on June 15, 1923, replied, declaring that his written statement was in conformity with the by-laws of the corporation; that his letter of June 14th was of no effect, and that the shares in question had been registered in the name of the Botica Nolasco, Inc., (Exhibit X). As indicated above, the important question raised in this appeal is whether or not article 12 of the by-laws of the Botica Nolasco, Inc., is in conflict with the provisions of the Corporation Law (Act No. 1459). Appellant invoked said article as its ground for denying the request of the plaintiff that the shares in question be registered in his (plaintiff's) name, and for claiming that it (Botica Nolasco, Inc.) had the preferential right to buy said shares from Gonzalez. Appellant now contends that article 12 of the said by-laws is in conformity with the provisions of Act No. 1459. Said article is as follows: ART. 12. Las acciones de la Corporacion pueden ser transferidas a otra persona, pero para que estas transferencias tengan validez legal, deben constar en los registros de la Corporacion con el debido endoso del accionista a cuyo nombre se ha expedido la accion o acciones que se transfieran, o un documento de transferencia. Entendiendose que, ningun accionista transferira accion alguna a otra persona sin participar antes por escrito al Secretario-Tesorero. En igualdad de condiciones, la sociedad tendra el derecho de adquirir para si la accion o acciones que se traten de transferir. (Exhibit 2.) The above-quoted article constitutes a by-law or regulation adopted by the Botica Nolasco, Inc., governing the transfer of shares of stock of said corporation. The latter part of said article creates in favor of the Botica Nolasco, Inc., a preferential right to buy, under the same conditions, the share or shares of stock of a retiring shareholder. Has said corporation any power, under the Corporation Law (Act. No. 1459), to adopt such by-law? The particular provisions of the Corporation Law referring to transfer of shares of stock are as follows: SEC. 13. Every corporation has the power: xxx xxx xxx

(7) To make by-laws, not inconsistent with any existing law, for the fixing or changing of the number of its officers and directors within the limits prescribed by law, and for the transferring of its stock, the administration of its corporate affairs, etc. xxx xxx xxx SEC. 35. The capital stock of stock corporations shall de divided into shares for which certificates signed by the president or the vicepresident, countersigned by the secretary or clerk and sealed with the seal of the corporation, shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate indorsed by the owner or his attorney in fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the corporation so as to show the names of the parties to the transaction, that date of the transfer, the number of the certificate, and the number of shares transferred. No share of stock against which the corporation holds any unpaid claim shall be transferable on the books of the corporation. Section 13, paragraph 7, above-quoted, empowers a corporation to make by-laws, not inconsistent with any existing law, for the transferring of its stock. It follows from said provision, that a by-law adopted by a corporation relating to transfer of stock should be in harmony with the law on the subject of transfer of stock. The law on this subject is found in section 35 of Act No. 1459 above quoted. Said section specifically provides that the shares of stock "are personal property and may be transferred by delivery of the certificate indorsed by the owner, etc." Said section 35 defines the nature, character and transferability of shares of stock. Under said section they are personal property and may be transferred as therein provided. Said section contemplates no restriction as to whom they may be transferred or sold. It does not suggest that any discrimination may be created by the corporation in favor or against a certain purchaser. The holder of shares, as owner of personal property, is at liberty, under said section, to dispose of them in favor of whomsoever he pleases, without any other limitation in this respect, than the general provisions of law. Therefore, a stock corporation in adopting a by-law governing transfer of shares of stock should take into consideration the specific provisions of section 35 of Act No. 1459, and said by-law should be made to harmonize with said provisions. It should not be inconsistent therewith. The by-law now in question was adopted under the power conferred upon the corporation by section 13, paragraph 7, above quoted; but in adopting said by-law the corporation has transcended the limits fixed by law in the same section, and has not taken into consideration the provisions of section 35 of Act No. 1459. As a general rule, the by-laws of a corporation are valid if they are reasonable and calculated to carry into effect the objects of the corporation, and are not contradictory to the general policy of the laws of the land. (Supreme Commandery of the Knights of the Golden Rule vs. Ainsworth, 71 Ala., 436; 46 Am. Rep., 332.) On the other hand, it is equally well settled that by-laws of a corporation must be reasonable and for a corporate purpose, and always within the charter limits. They must always be strictly subordinate to the constitution and the general laws of the land. They must not infringe the policy of the state, nor be hostile to public welfare. (46 Am. Rep., 332.) They must not disturb vested rights or impair the obligation of a contract, take away or abridge the substantial rights of stockholder or member, affect rights of property or create obligations unknown to the law. (People's Home Savings Bank vs. Superior Court, 104 Cal., 649; 43 Am. St. Rep., 147; Ireland vs. Globe Milling Co., 79 Am. St. Rep., 769.) The validity of the by-law of a corporation is purely a question of law. (South Florida Railroad Co. vs. Rhodes, 25 Fla., 40.) The power to enact by-laws restraining the sale and transfer of stock must be found in the governing statute or the charter. Restrictions upon the traffic in stock must have their source in legislative enactment, as the corporation itself cannot create such impediments. By-law are intended merely for the protection of the corporation, and prescribe regulation and not restriction; they are always subject to the charter of the corporation. The corporation, in the absence of such a power, cannot ordinarily inquire into or pass upon the legality of the transaction by which its stock passes from one person to another, nor can it question the consideration upon which a sale is based. A by-law cannot take away or abridge the substantial rights of stockholder. Under a statute authorizing by- laws for the transfer of stock, a corporation can do no more than prescribe a general mode of transfer on the corporate books and cannot justify an unreasonable restriction upon the right of sale. (4 Thompson on Corporations, sec. 4137, p. 674. The right of unrestrained transfer of shares inheres in the very nature of a corporation, and courts will carefully scrutinize any attempt to impose restrictions or limitations upon the right of stockholders to sell and assign their stock. The right to impose any restraint in this respect must be conferred upon the corporation either by the governing statute or by the articles of the corporation. It cannot be done by a by-law without statutory or charter authority. (4 Thompson on Corporations, sec. 4334, pp. 818, 819.) The jus disponendi, being an incident of the ownership of property, the general rule (subject to exceptions hereafter pointed out and discussed) is that every owner of corporate shares has the same uncontrollable right to alien them which attaches to the ownership of any other species of property. A shareholder is under no obligation to refrain from selling his shares at the sacrifice of his personal interest, in order to secure the welfare of the corporation, or to enable another shareholder to make gains and profits. (10 Cyc., p. 577.) It follows from the foregoing that a corporation has no power to prevent or to restrain transfers of its shares, unless such power is expressly conferred in its charter or governing statute. This conclusion follows from the further consideration that by-laws or other regulations restraining such transfers, unless derived from authority expressly granted by the legislature, would be regarded as impositions in restraint of trade. (10 Cyc., p. 578.) The foregoing authorities go farther than the stand we are taking on this question. They hold that the power of a corporation to enact by-laws restraining the sale and transfer of shares, should not only be in harmony with the law or charter of the corporation, but such power should be expressly granted in said law or charter. The only restraint imposed by the Corporation Law upon transfer of shares is found in section 35 of Act No. 1459, quoted above, as follows: "No transfer, however, shall be valid, except as between the parties, until the transfer is entered and noted upon the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate, and the number of shares transferred." This restriction is necessary in order that the officers of the corporation may know who are the stockholders, which is essential in conducting elections of officers, in calling meeting of stockholders, and for other purposes. but any restriction of the nature of that imposed in the by-law now in question, is ultra vires, violative of the property rights of shareholders, and in restraint of trade. And moreover, the by-laws now in question cannot have any effect on the appellee. He had no knowledge of such by-law when the shares were assigned to him. He obtained them in good faith and for a valuable consideration. He was not a privy to the contract

created by said by-law between the shareholder Manuel Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his rights as a purchaser. An unauthorized by-law forbidding a shareholder to sell his shares without first offering them to the corporation for a period of thirty days is not binding upon an assignee of the stock as a personal contract, although his assignor knew of the by-law and took part in its adoption. (10 Cyc., 579; Ireland vs. Globe Milling Co., 21 R.I., 9.) When no restriction is placed by public law on the transfer of corporate stock, a purchaser is not affected by any contractual restriction of which he had no notice. (Brinkerhoff-Farris Trust and Savings Co. vs. Home Lumber Co., 118 Mo., 447.) The assignment of shares of stock in a corporation by one who has assented to an unauthorized by-law has only the effect of a contract by, and enforceable against, the assignor; the assignee is not bound by such by-law by virtue of the assignment alone. (Ireland vs. Globe Milling Co., 21 R.I., 9.) A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the board of directors, while it may be enforced as a reasonable regulation for the protection of the corporation against worthless stockholders, cannot be made available to defeat the rights of third persons. (Farmers' and Merchants' Bank of Lineville vs. Wasson, 48 Iowa, 336.) Counsel for defendant incidentally argues in his brief, that the plaintiff does not have any right of action against the defendant corporation, but against the president and secretary thereof, inasmuch as the signing and registration of shares is incumbent upon said officers pursuant to section 35 of the Corporation Law. This contention cannot be sustained now. The question should have been raised in the lower court. It is too late to raise it now in this appeal. Besides, as stated above, the corporation was made defendant in this action upon the demurrer of the attorney of the original defendant in the lower court, who contended that the Botica Nolasco, Inc., should be made the party defendant in this action. Accordingly, upon order of the court, the complaint was amended and the said corporation was made the party defendant. Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus will lie to compel the officers of the corporation to transfer said stock upon the books of the corporation. (26 Cyc. 347; Hager vs. Bryan, 19 Phil., 138.) In view of all the foregoing, we are of the opinion, and so hold, that the decision of the lower court is in accordance with law and should be and is hereby affirmed, with costs. So ordered. Malcolm, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.

FRANCISCO MOTORS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA MANUEL, respondents. DECISION QUISUMBING, J.: [1] This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the decision of the Court of Appeals in C.A. G.R. CV No. 10014 affirming the decision rendered by Branch 135, Regional Trial Court of Makati, Metro Manila. The procedural antecedents of this petition are as follows: [2] On January 23, 1985, petitioner filed a complaint against private respondents to recover three thousand four hundred twelve and six centavos (P3,412.06), representing the balance of the jeep body purchased by the Manuels from petitioner; an additional sum of twenty thousand four hundred fifty-four and eighty centavos (P20,454.80) representing the unpaid balance on the cost of repair of [3] the vehicle; and six thousand pesos (P6,000.00) for cost of suit and attorneys fees. To the original balance on the price of jeep [4] body were added the costs of repair. In their answer, private respondents interposed a counterclaim for unpaid legal services by Gregorio Manuel in the amount of fifty thousand pesos (P50,000) which was not paid by the incorporators, directors and officers of the petitioner. The trial court decided the case on June 26, 1985, in favor of petitioner in regard to the petitioners claim for money, but also allowed the counter-claim of private respondents. Both parties appealed. On April 15, 1991, the Court of Appeals sustained [5] the trial courts decision. Hence, the present petition. For our review in particular is the propriety of the permissive counterclaim which private respondents filed together with their answer to petitioners complaint for a sum of money. Private respondent Gregorio Manuel alleged as an affirmative defense that, while he was petitioners Assistant Legal Officer, he represented members of the Francisco family in the intestate estate proceedings of the late Benita Trinidad. However, even after the termination of the proceedings, his services were not paid. Said family members, he said, were also incorporators, directors and officers of petitioner. Hence to counter petitioners collection suit, he filed [6] a permissive counterclaim for the unpaid attorneys fees. For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on this score, and evidence exparte was presented on the counterclaim. The trial court ruled in favor of private respondents and found that Gregorio Manuel indeed rendered legal services to the Francisco family in Special Proceedings Number 7803- In the Matter of Intestate Estate of Benita Trinidad. Said court also found that his legal services were not compensated despite repeated demands, and thus ordered [7] petitioner to pay him the amount of fifty thousand (P50,000.00) pesos. Dissatisfied with the trial courts order, petitioner elevated the matter to the Court of Appeals, posing the following issues: I. WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS NULL AND VOID AS IT NEVER ACQUIRED JURISDICTION OVER THE PERSON OF THE DEFENDANT. II. WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE ALLEGED PERMISSIVE COUNTERCLAIM SHOULD BE HELD LIABLE TO THE CLAIM OF DEFENDANT-APPELLEES. III. WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-APPELLANT TO ANSWER THE ALLEGED PERMISSIVE [8] COUNTERCLAIM. Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was validly served on it together with the copy of the answer containing the permissive counterclaim. Further, petitioner questions the propriety of its being made party to the case because it was not the real party in interest but the individual members of the Francisco family concerned with the intestate case. In its assailed decision now before us for review, respondent Court of Appeals held that a counterclaim must be answered in ten (10) days, pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere does it state in the Rules that a party still needed to be summoned anew if a counterclaim was set up against him. Failure to serve summons, said respondent court, did not effectively negate trial courts jurisdiction over petitioner in the matter of the counterclaim. It likewise pointed out that there was no reason for petitioner to be excused from answering the counterclaim. Court records showed that its former counsel, Nicanor G. Alvarez, received the copy of the answer with counterclaim two (2) days prior to his withdrawal as counsel for petitioner. Moreover when petitioners new counsel, Jose N. Aquino, entered his appearance, three (3) days still remained within the period to file an answer to [9] the counterclaim. Having failed to answer, petitioner was correctly considered in default by the trial court. Even assuming that the trial court acquired no jurisdiction over petitioner, respondent court also said, but having filed a motion for reconsideration seeking [10] relief from the said order of default, petitioner was estopped from further questioning the trial courts jurisdiction. On the question of its liability for attorneys fees owing to private respondent Gregorio Manuel, petitioner argued that being a corporation, it should not be held liable therefor because these fees were owed by the incorporators, directors and officers of the corporation in their personal capacity as heirs of Benita Trinidad. Petitioner stressed that the personality of the corporation, vis--vis [11] the individual persons who hired the services of private respondent, is separate and distinct, hence, the liability of said individuals did not become an obligation chargeable against petitioner. Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows: However, this distinct and separate personality is merely a fiction created by law for convenience and to promote justice. Accordingly, this separate personality of the corporation may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or cover for found (sic) illegality, or to work an injustice, or where necessary to achieve equity or when necessary for the protection of creditors. (Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are composed of natural persons and the legal fiction of a separate corporate personality is not a shield for the commission of injustice and inequity. (Chemplex Philippines, Inc. vs. Pamatian, 57 SCRA 408) In the instant case, evidence shows that the plaintiff-appellant Francisco Motors Corporation is composed of the heirs of the late Benita Trinidad as directors and incorporators for whom defendant Gregorio Manuel rendered legal services in the intestate estate case of their deceased mother. Considering the aforestated principles and circumstances established in this case, equity and justice demands plaintiff-appellants veil of corporate identity should be pierced and the defendant be compensated for legal services [12] rendered to the heirs, who are directors of the plaintiff-appellant corporation. Now before us, petitioner assigns the following errors: I.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY. II. THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS JURISDICTION OVER PETITIONER WITH RESPECT TO THE [13] COUNTERCLAIM. Petitioner submits that respondent court should not have resorted to piercing the veil of corporate fiction because the transaction concerned only respondent Gregorio Manuel and the heirs of the late Benita Trinidad. According to petitioner, there was no cause of action by said respondent against petitioner; personal concerns of the heirs should be distinguished from those involving corporate affairs. Petitioner further contends that the present case does not fall among the instances wherein the courts may look beyond the distinct personality of a corporation. According to petitioner, the services for which respondent Gregorio Manuel seeks to collect fees from petitioner are personal in nature. Hence, it avers the heirs should have been sued in their personal capacity, and [14] not involve the corporation. With regard to the permissive counterclaim, petitioner also insists that there was no proper service of the answer containing the permissive counterclaim. It claims that the counterclaim is a separate case which can only be properly served upon the opposing party through summons. Further petitioner states that by nature, a permissive counterclaim is one which does not arise out of nor is necessarily connected with the subject of the opposing partys claim. Petitioner avers that since there was no service of summons upon it with regard to the counterclaim, then the court did not acquire jurisdiction over petitioner. Since a counterclaim is considered an action independent from the answer, according to petitioner, then in effect there should be two simultaneous actions [15] between the same parties: each party is at the same time both plaintiff and defendant with respect to the other, requiring in each case separate summonses. In their Comment, private respondents focus on the two questions raised by petitioner. They defend the propriety of piercing the veil of corporate fiction, but deny the necessity of serving separate summonses on petitioner in regard to their permissive counterclaim contained in the answer. Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel was employed as assistant legal officer of petitioner corporation, and that his services were solicited by the incorporators, directors and members to handle and represent them in Special Proceedings No. 7803, concerning the Intestate Estate of the late Benita Trinidad. They assert that the members of petitioner corporation took advantage of their positions by not compensating respondent Gregorio Manuel after the termination of the estate proceedings despite his repeated demands for payment of his services. They cite findings of the appellate court that support piercing the veil of corporate identity in this particular case. They assert that the corporate veil may be disregarded when it is used to defeat public convenience, justify wrong, protect fraud, and defend crime. It may also be pierced, according to them, where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity. In these instances, they aver, the corporation should be treated merely as an [16] association of individual persons. Private respondents dispute petitioners claim that its right to due process was violated when respondents counterclaim was granted due course, although no summons was served upon it. They claim that no provision in the Rules of Court requires service of summons upon a defendant in a counterclaim. Private respondents argue that when the petitioner filed its complaint before the trial court it voluntarily submitted itself to the jurisdiction of the court. As a consequence, the issuance of summons on it was no longer necessary. Private respondents say they served a copy of their answer with affirmative defenses and counterclaim on petitioners former counsel, Nicanor G. Alvarez. While petitioner would have the Court believe that respondents served said copy upon Alvarez after he had withdrawn his appearance as counsel for the petitioner, private respondents assert that this contention is utterly baseless. Records disclose that the answer was received two (2) days before the former counsel for petitioner withdrew his appearance, according to private respondents. They maintain that the present petition is but a form of dilatory appeal, to set off petitioners obligations to the respondents by running up more interest it could recover from them. Private respondents therefore [17] claim damages against petitioner. To resolve the issues in this case, we must first determine the propriety of piercing the veil of corporate fiction. Basic in corporation law is the principle that a corporation has a separate personality distinct from its stockholders and from other [18] corporations to which it may be connected. However, under the doctrine of piercing the veil of corporate entity, the corporations separate juridical personality may be disregarded, for example, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or defend crime. Also, where the corporation is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, [19] agency, conduit or adjunct of another corporation, then its distinct personality may be ignored. In these circumstances, the courts will treat the corporation as a mere aggrupation of persons and the liability will directly attach to them. The legal fiction of a separate corporate personality in those cited instances, for reasons of public policy and in the interest of justice, will be justifiably set aside. In our view, however, given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no relevant application here. Respondent court erred in permitting the trial courts resort to this doctrine. The rationale behind piercing a corporations identity in a given case is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities. However, in the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individual directors, officers and incorporators concerned. Hence, it appears to us that the doctrine has been turned upside down because of its erroneous invocation. Note that according to private respondent Gregorio Manuel his services were solicited as counsel for members of the Francisco family to represent them in the intestate proceedings over Benita Trinidads estate. These estate proceedings did not involve any business of petitioner. Note also that he sought to collect legal fees not just from certain Francisco family members but also from petitioner corporation on the claims that its management had requested his services and he acceded thereto as an employee of petitioner from whom it could be deduced he was also receiving a salary. His move to recover unpaid legal fees through a counterclaim against Francisco Motors Corporation, to offset the unpaid balance of the purchase and repair of a jeep body could only result from an obvious misapprehension that petitioners corporate assets could be used to answer for the liabilities of its individual directors, officers, and incorporators. Such result if permitted could easily prejudice the corporation, its own creditors, and even other stockholders; hence, clearly inequitous to petitioner.

Furthermore, considering the nature of the legal services involved, whatever obligation said incorporators, directors and officers of the corporation had incurred, it was incurred in their personal capacity. When directors and officers of a corporation are unable to compensate a party for a personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting injustice, and be thereby held liable therefor by piercing its corporate veil. While there are no hard and fast rules on disregarding separate corporate identity, we must always be mindful of its function and purpose. A court should be careful in assessing the milieu where the doctrine of piercing the corporate veil may be applied. Otherwise an injustice, although unintended, may result from its erroneous application. The personality of the corporation and those of its incorporators, directors and officers in their personal capacities ought to be kept separate in this case. The claim for legal fees against the concerned individual incorporators, officers and directors could not be properly directed against the corporation without violating basic principles governing corporations. Moreover, every action [20] including a counterclaim must be prosecuted or defended in the name of the real party in interest. It is plainly an error to lay the claim for legal fees of private respondent Gregorio Manuel at the door of petitioner (FMC) rather than individual members of the Francisco family. However, with regard to the procedural issue raised by petitioners allegation, that it needed to be summoned anew in order for the court to acquire jurisdiction over it, we agree with respondent courts view to the contrary. Section 4, Rule 11 of the Rules of Court provides that a counterclaim or cross-claim must be answered within ten (10) days from service. Nothing in the Rules of Court says that summons should first be served on the defendant before an answer to counterclaim must be made. The purpose of a summons is to enable the court to acquire jurisdiction over the person of the defendant. Although a counterclaim is treated as an entirely distinct and independent action, the defendant in the counterclaim, being the plaintiff in the original complaint, has already [21] submitted to the jurisdiction of the court. Following Rule 9, Section 3 of the 1997 Rules of Civil Procedure, if a defendant (herein petitioner) fails to answer the counterclaim, then upon motion of plaintiff, the defendant may be declared in default. This is what happened to petitioner in this case, and this Court finds no procedural error in the disposition of the appellate court on this particular issue. Moreover, as noted by the respondent court, when petitioner filed its motion seeking to set aside the order of default, in effect it submitted itself to the jurisdiction of the court. As well said by respondent court: Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show that upon its request, plaintiff-appellant was granted time to file a motion for reconsideration of the disputed decision. Plaintiff-appellant did file its motion for reconsideration to set aside the order of default and the judgment rendered on the counterclaim. Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the counterclaim, as it vigorously insists, plaintiffappellant is considered to have submitted to the courts jurisdiction when it filed the motion for reconsideration seeking relief from the court. (Soriano vs. Palacio, 12 SCRA 447). A party is estopped from assailing the jurisdiction of a court after voluntarily submitting himself to its jurisdiction. (Tejones vs. Gironella, 159 SCRA 100). Estoppel is a bar against any claims of lack of [22] jurisdiction. (Balais vs. Balais, 159 SCRA 37). WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED insofar only as it held Francisco Motors Corporation liable for the legal obligation owing to private respondent Gregorio Manuel; but this decision is without prejudice to his filing the proper suit against the concerned members of the Francisco family in their personal capacity. No pronouncement as to costs. SO ORDERED.

TRINIDAD J. FRANCISCO, plaintiff-appellee, vs. GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant. ----------------------------G.R. No. L-18155 March 30, 1963 TRINIDAD J. FRANCISCO, plaintiff-appellant, vs. GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellee. Vicente J. Francisco for plaintiff-appellee. The Government Corporate Counsel for defendant-appellant. REYES, J.B.L., J.: Appeal by the Government Service Insurance System from the decision of the Court of First Instance of Rizal (Hon. Angel H. Mojica, presiding), in its Civil Case No. 2088-P, entitled "Trinidad J. Francisco, plaintiff, vs. Government Service Insurance System, defendant", the dispositive part of which reads as follows: WHEREFORE, judgment is hereby rendered: (a) Declaring null and void the consolidation in the name of the defendant, Government Service Insurance System, of the title of the VIC-MARI Compound; said title shall be restored to the plaintiff; and all payments made by the plaintiff, after her offer had been accepted by the defendant, must be credited as amortizations on her loan; and (b) Ordering the defendant to abide by the terms of the contract created by plaintiff's offer and it's unconditional acceptance, with costs against the defendant. The plaintiff, Trinidad J. Francisco, likewise appealed separately (L-18155), because the trial court did not award the P535,000.00 damages and attorney's fees she claimed. Both appeals are, therefore, jointly treated in this decision. The following facts are admitted by the parties: On 10 October 1956, the plaintiff, Trinidad J. Francisco, in consideration of a loan in the amount of P400,000.00, out of which the sum of P336,100.00 was released to her, mortgaged in favor of the defendant, Government Service Insurance System (hereinafter referred to as the System) a parcel of land containing an area of 18,232 square meters, with twenty-one (21) bungalows, known as Vic-Mari Compound, located at Baesa, Quezon City, payable within ten (10) years in monthly installments of P3,902.41, and with interest of 7% per annum compounded monthly. On 6 January 1959, the System extrajudicially foreclosed the mortgage on the ground that up to that date the plaintiff-mortgagor was in arrears on her monthly installments in the amount of P52,000.00. Payments made by the plaintiff at the time of foreclosure amounted to P130,000.00. The System itself was the buyer of the property in the foreclosure sale. On 20 February 1959, the plaintiff's father, Atty. Vicente J. Francisco, sent a letter to the general manager of the defendant corporation, Mr. Rodolfo P. Andal, the material portion of which recited as follows: Yesterday, I was finally able to collect what the Government owed me and I now propose to pay said amount of P30,000 to the GSIS if it would agree that after such payment the foreclosure of my daughter's mortgage would be set aside. I am aware that the amount of P30,000 which I offer to pay will not cover the total arrearage of P52,000 but as regards the balance, I propose this arrangement: for the GSIS to take over the administration of the mortgaged property and to collect the monthly installments, amounting to about P5,000, due on the unpaid purchase price of more than 31 lots and houses therein and the monthly installments collected shall be applied to the payment of Miss Francisco's arrearage until the same is fully covered. It is requested, however, that from the amount of the monthly installments collected, the sum of P350.00 be deducted for necessary expenses, such as to pay the security guard, the street-caretaker, the Meralco Bill for the street lights and sundry items. It will be noted that the collectible income each month from the mortgaged property, which as I said consists of installments amounting to about P5,000, is more than enough to cover the monthly amortization on Miss Francisco's loan. Indeed, had she not encountered difficulties, due to unforeseen circumstances, in collecting the said installments, she could have paid the amortizations as they fell due and there would have been really no need for the GSIS to resort to foreclosure. The proposed administration by the GSIS of the mortgaged property will continue even after Miss Francisco's account shall have been kept up to date. However, once the arrears shall have been paid, whatever amount of the monthly installments collected in excess of the amortization due on the loan will be turned over to Miss Francisco. I make the foregoing proposal to show Francisco's sincere desire to work out any fair arrangement for the settlement of her obligation. I trust that the GSIS, under the broadminded policies of your administration, would give it serious consideration. Sincerely,. s/ Vicente J. Francisco t/ VICENTE J. FRANCISCO On the same date, 20 February 1959, Atty. Francisco received the following telegram:. VICENTE FRANCISCO SAMANILLO BLDG. ESCOLTA. GSIS BOARD APPROVED YOUR REQUEST RE REDEMPTION OF FORECLOSED PROPERTY OF YOUR DAUGHTER ANDAL" On 28 February 1959, Atty. Francisco remitted to the System, through Andal, a check for P30,000.00, with an accompanying letter, which reads: I am sending you herewith BPI Check No. B-299484 for Thirty Thousand Pesos (P30,000.00) in accordance with my letter of February 20th and your reply thereto of the same date, which reads: GSIS BOARD APPROVED YOUR REQUEST RE REDEMPTION OF FORECLOSED PROPERTY OF YOUR DAUGHTER xxx xxx xxx The defendant received the amount of P30,000.00, and issued therefor its official receipt No. 1209874, dated 4 March 1959. It did not, however, take over the administration of the compound. In the meantime, the plaintiff received the monthly payments of some of the occupants thereat; then on 4 March 1960, she remitted, through her father, the amount of P44,121.29, representing the total monthly installments that she received from the occupants for the period from March to December 1959 and January to February 1960, minus expenses and real estate taxes. The defendant also received this amount, and issued the corresponding official receipt. Remittances, all accompanied by letters, corresponding to the months of March, April, May, and June, 1960 and totalling P24,604.81 were also sent by the plaintiff to the defendant from time to time, all of which were received and duly receipted for.

Then the System sent three (3) letters, one dated 29 January 1960, which was signed by its assistant general manager, and the other two letters, dated 19 and 26 February 1960, respectively, which were signed by Andal, asking the plaintiff for a proposal for the payment of her indebtedness, since according to the System the one-year period for redemption had expired. In reply, Atty. Francisco sent a letter, dated 11 March 1960, protesting against the System's request for proposal of payment and inviting its attention to the concluded contract generated by his offer of 20 February 1959, and its acceptance by telegram of the same date, the compliance of the terms of the offer already commenced by the plaintiff, and the misapplication by the System of the remittances she had made, and requesting the proper corrections. By letter, dated 31 May 1960, the defendant countered the preceding protest that, by all means, the plaintiff should pay attorney's fees of P35,644.14, publication expenses, filing fee of P301.00, and surcharge of P23.64 for the foreclosure work done; that the telegram should be disregarded in view of its failure to express the contents of the board resolution due to the error of its minor employees in couching the correct wording of the telegram. A copy of the excerpts of the resolution of the Board of Directors (No. 380, February 20, 1959) was attached to the letter, showing the approval of Francisco's offer ... subject to the condition that Mr. Vicente J. Francisco shall pay all expenses incurred by the GSIS in the foreclosure of the mortgage. Inasmuch as, according to the defendant, the remittances previously made by Atty. Francisco were allegedly not sufficient to pay off her daughter's arrears, including attorney's fees incurred by the defendant in foreclosing the mortgage, and the one-year period for redemption has expired, said defendant, on 5 July 1960, consolidated the title to the compound in its name, and gave notice thereof to the plaintiff on 26 July 1960 and to each occupant of the compound. Hence, the plaintiff instituted the present suit, for specific performance and damages. The defendant answered, pleading that the binding acceptance of Francisco's offer was the resolution of the Board, and that Andal's telegram, being erroneous, should be disregarded. After trial, the court below found that the offer of Atty. Francisco, dated 20 February 1959, made on behalf of his daughter, had been unqualifiedly accepted, and was binding, and rendered judgment as noted at the start of this opinion. The defendant-appellant corporation assigns six (6) errors allegedly committed by the lower court, all of which, however, are resolvable on the single issue as to whether or not the telegram generated a contract that is valid and binding upon the parties. Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1wph1.t We find no reason for altering the conclusion reached by the court below that the offer of compromise made by plaintiff in the letter, Exhibit "A", had been validly accepted, and was binding on the defendant. The terms of the offer were clear, and over the signature of defendant's general manager, Rodolfo Andal, plaintiff was informed telegraphically that her proposal had been accepted. There was nothing in the telegram that hinted at any anomaly, or gave ground to suspect its veracity, and the plaintiff, therefore, can not be blamed for relying upon it. There is no denying that the telegram was within Andal's apparent authority, but the defense is that he did not sign it, but that it was sent by the Board Secretary in his name and without his knowledge. Assuming this to be true, how was appellee to know it? Corporate transactions would speedily come to a standstill were every person dealing with a corporation held duty-bound to disbelieve every act of its responsible officers, no matter how regular they should appear on their face. This Court has observed in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655, that In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it presents itself to the third party with whom the contract is made. Naturally he can have little or no information as to what occurs in corporate meetings; and he must necessarily rely upon the external manifestations of corporate consent. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law; and we would be sorry to announce a doctrine which would permit the property of a man in the city of Paris to be whisked out of his hands and carried into a remote quarter of the earth without recourse against the corporation whose name and authority had been used in the manner disclosed in this case. As already observed, it is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, be estopped from denying his authority; and where it is said "if the corporation permits" this means the same as "if the thing is permitted by the directing power of the corporation." It has also been decided that A very large part of the business of the country is carried on by corporations. It certainly is not the practice of persons dealing with officers or agents who assume to act for such entities to insist on being shown the resolution of the board of directors authorizing the particular officer or agent to transact the particular business which he assumes to conduct. A person who knows that the officer or agent of the corporation habitually transacts certain kinds of business for such corporation under circumstances which necessarily show knowledge on the part of those charged with the conduct of the corporate business assumes, as he has the right to assume, that such agent or officer is acting within the scope of his authority. (Curtis Land & Loan Co. vs. Interior Land Co., 137 Wis. 341, 118 N.W. 853, 129 Am. St. Rep. 1068; as cited in 2 Fletcher's Encyclopedia, Priv. Corp. 263, perm. Ed.) Indeed, it is well-settled that If a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that such apparent authority is real, as to innocent third persons dealing in good faith with such officers or agents. (2 Fletcher's Encyclopedia, Priv. Corp. 255, Perm. Ed.) Hence, even if it were the board secretary who sent the telegram, the corporation could not evade the binding effect produced by the telegram.. The defendant-appellant does not disown the telegram, and even asserts that it came from its offices, as may be gleaned from the letter, dated 31 May 1960, to Atty. Francisco, and signed "R. P. Andal, general manager by Leovigildo Monasterial, legal counsel", wherein these phrases occur: "the telegram sent ... by this office" and "the telegram we sent your" (emphasis supplied), but it alleges mistake in couching the correct wording. This alleged mistake cannot be taken seriously, because while the telegram is dated 20 February 1959, the defendant informed Atty. Francisco of the alleged mistake only on 31 May 1960, and all the while it accepted the various other remittances, starting on 28 February 1959, sent by the plaintiff to it in compliance with her performance of her part of the new contract. The inequity of permitting the System to deny its acceptance become more patent when account is taken of the fact that in remitting the payment of P30,000 advanced by her father, plaintiff's letter to Mr. Andal quoted verbatim the telegram of acceptance. This was in itself notice to the corporation of the terms of the allegedly unauthorized telegram, for as Ballentine says:

Knowledge of facts acquired or possessed by an officer or agent of a corporation in the course of his employment, and in relation to matters within the scope of his authority, is notice to the corporation, whether he communicates such knowledge or not. (Ballentine, Law on Corporations, section 112.) since a corporation cannot see, or know, anything except through its officers. Yet, notwithstanding this notice, the defendant System pocketed the amount, and kept silent about the telegram not being in accordance with the true facts, as it now alleges. This silence, taken together with the unconditional acceptance of three other subsequent remittances from plaintiff, constitutes in itself a binding ratification of the original agreement (Civil Code, Art. 1393). ART. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. Nowhere else do the circumstances call more insistently for the application of the equitable maxim that between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss.. The defendant's assertion that the telegram came from it but that it was incorrectly worded renders unnecessary to resolve the other point on controversy as to whether the said telegram constitutes an actionable document.. Since the terms offered by the plaintiff in the letter of 20 February 1959 (Exhibit "A") provided for the setting aside of the foreclosure effected by the defendant System, the acceptance of the offer left the account of plaintiff in the same condition as if no foreclosure had taken place. It follows, as the lower court has correctly held, that the right of the System to collect attorneys' fees equivalent to 10% of the due (P35,694.14) and the expenses and charges of P3,300.00 may no longer be enforced, since by the express terms of the mortgage contract, these sums were collectible only "in the event of foreclosure." The court a quo also called attention to the unconscionability of defendant's charging the attorney's fees, totalling over P35,000.00; and this point appears well-taken, considering that the foreclosure was merely extra-judicial, and the attorneys' work was limited to requiring the sheriff to effectuate the foreclosure. However, in view of the parties' agreement to set the same aside, with the consequential elimination of such incidental charges, the matter of unreasonableness of the counsel fees need not be labored further. Turning now to the plaintiff's separate appeal (Case G.R. No. L-18155): Her prayer for an award of actual or compensatory damages for P83,333.33 is predicated on her alleged unrealized profits due to her inability to sell the compound for the price of P750,000.00 offered by one Vicente Alunan, which sale was allegedly blocked because the System consolidated the title to the property in its name. Plaintiff reckons the amount of P83,333.33 by placing the actual value of the property at P666,666.67, a figure arrived at by assuming that the System's loan of P400,000.00 constitutes 60% of the actual value of the security. The court a quo correctly refused to award such actual or compensatory damages because it could not determine with reasonable certainty the difference between the offered price and the actual value of the property, for lack of competent evidence. Without proof we cannot assume, or take judicial notice, as suggested by the plaintiff, that the practice of lending institutions in the country is to give out as loan 60% of the actual value of the collateral. Nor should we lose sight of the fact that the price offered by Alunan was payable in installments covering five years, so that it may not actually represent true market values. Nor was there error in the appealed decision in denying moral damages, not only on account of the plaintiff's failure to take the witness stand and testify to her social humiliation, wounded feelings, anxiety, etc., as the decision holds, but primarily because a breach of contract like that of defendant, not being malicious or fraudulent, does not warrant the award of moral damages under Article 2220 of the Civil Code (Ventanilla vs. Centeno, L-14333, 28 Jan. 1961; Fores vs. Miranda, L-12163, 4 March 1959). There is no basis for awarding exemplary damages either, because this species of damages is only allowed in addition to moral, temperate, liquidated, or compensatory damages, none of which have been allowed in this case, for reasons herein before discussed (Art. 2234, Civil Code; Velayo vs. Shell Co. of P.I., L-7817, Res. July 30, 1957; Singson, et al. vs. Aragon and Lorza, L-5164, Jan. 27, 1953, 49 O.G. No. 2, 515). As to attorneys' fees, we agree with the trial court's stand that in view of the absence of gross and evident bad faith in defendant's refusal to satisfy the plaintiff's claim, and there being none of the other grounds enumerated in Article 2208 of the Civil Code, such absence precludes a recovery. The award of attorneys' fees is essentially discretionary in the trial court, and no abuse of discretion has been shown. FOR THE FOREGOING REASONS, the appealed decision is hereby affirmed, with costs against the defendant Government Service Insurance System, in G.R. No.L-18287.

ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION, petitioners, vs. RITA C. MEJIA, as Executrix of Testate Estate of ANDREA CORDOVA VDA. DE GUTERREZ, respondent. GONZAGA-REYES,J.: In this petition for review by certiorari, petitioners pray for the setting aside of the Decision of the Court Appeals promulgated on 13 April 1999 and its 15 December 1999 Resolution in CA-G.R. CV No. 19281. As culled from the decisions of the lower courts and the pleadings of the parties, the factual background of this case is as set out herein: Andrea Cordova Vda. de Gutierrez (Gutierrez) was the registered owner of a parcel of land in Camarin, Caloocan City known as Lot 861 of the Tala Estate. The land had an aggregate area of twenty-five (25) hectares and was covered by Transfer Certificate of Title (TCT) No. 5779 of the Registry of Deeds of Caloocan City. The property was later subdivided into five lots with an area of five hectares each and pursuant thereto, TCT No. 5779 was cancelled and five new transfer certificates of title were issued in the name of Gutierrez, namely TCT No. 7123 covering Lot 861-A, TCT No. 7124 covering Lot 861-B, TCT No. 7125 covering Lot 861-C, TCT No. 7126 covering Lot 861-D and TCT No. 7127 covering Lot 861-E. On 21 December 1964, Gutierrez and Cardale Financing and Realty Corporation (Cardale) executed a Deed of Sale with Mortgage relating to the lots covered by TCT Nos. 7124, 7125, 7126 and 7127, for the consideration of P800,000.00. Upon the execution of the deed, Cardale paid Gutierrez P171,000.00. It was agreed that the balance of P629,000.00 would be paid in several installments within five years from the date of the deed, at an interest of nine percent per annum "based on the successive unpaid principal balances." Thereafter, the titles of Gutierrez were cancelled and in lieu thereof TCT Nos. 7531 to 7534 were issued in favor of Cardale. To secure payment of the balance of the purchase price, Cardale constituted a mortgage on three of the four parcels of land covered 1 by TCT Nos. 7531, 7532 and 7533, encompassing fifteen hectares of land. The encumbrance was annotated upon the certificates of title and the owner's duplicate certificates. The owner's duplicates were retained by Gutierrez. On 26 August 1968, owing to Cardale's failure to settle its mortgage obligation, Gutierrez filed a complaint for rescission of the 2 contract with the Quezon City Regional Trial Court (RTC), which was docketed as Civil Case No. Q-12366. On 20 October 1969, during the pendency of the rescission case, Gutierrez died and was substituted by her executrix, respondent Rita C. Mejia (Mejia). In 1971, plaintiff's presentation of evidence was terminated. However, Cardale, which was represented by petitioner Adalia B. Francisco (Francisco) in her capacity as Vice-President and Treasurer of Cardale, lost interest in proceeding with the presentation of its evidence and the case lapsed into inactive status for a period of about fourteen years. In the meantime, the mortgaged parcels of land covered by TCT Nos. 7532 and 7533 became delinquent in the payment of real estate taxes in the amount of P102,300.00, while the other mortgaged property covered by TCT No. 7531 became delinquent in the amount of P89,231.37, which culminated in their levy and auction sale on 1 and 12 September 1983, in satisfaction of the tax arrears. The highest bidder for the three parcels of land was petitioner Merryland Development Corporation (Merryland), whose President and majority stockholder is Francisco. A memorandum based upon the certificate of sale was then made upon the original copies of TCT Nos. 7531 to 7533. On 13 August 1984, before the expiration of the one year redemption period, Mejia filed a Motion for Decision with the trial court. The hearing of said motion was deferred, however, due to a Motion for Postponement filed by Cardale through Francisco, who signed the motion in her capacity as "officer-in-charge," claiming that Cardale needed time to hire new counsel. However, Francisco did not mention the tax delinquencies and sale in favor of Merryland. Subsequently, the redemption period expired and Merryland, 3 4 acting through Francisco, filed petitions for consolidation of title, which culminated in the issuance of certain orders decreeing the cancellation of Cardales' TCT Nos. 7531 to 7533 and the issuance of new transfer certificates of title "free from any encumbrance or third-party claim whatsoever" in favor of Merryland. Pursuant to such orders, the Register of Deeds of Caloocan City issued new transfer certificates of title in the name of Merryland which did not bear a memorandum of the mortgage liens in favor of Gutierrez. Thereafter, sometime in June 1985, Francisco filed in Civil Case No. Q-12366 an undated Manifestation to the effect that the properties subject of the mortgage and covered by TCT Nos. 7531 to 7533 had been levied upon by the local government of Caloocan City and sold at a tax delinquency sale. Francisco further claimed that the delinquency sale had rendered the issues in Civil Case No. Q-12366 moot and academic. Agreeing with Francisco, the trial court dismissed the case, explaining that since the properties mortgaged to Cardale had been transferred to Merryland which was not a party to the case for rescission, it would be more appropriate for the parties to resolve their controversy in another action. On 14 January 1987, Mejia, in her capacity as executrix of the Estate of Gutierrez, filed with the RTC of Quezon City a complaint for damages with prayer for preliminary attachment against Francisco, Merryland and the Register of Deeds of Caloocan City. The case 5 was docketed as Civil Case No. Q-49766. On 15 April 1988, the trial court rendered a decision in favor of the defendants, dismissing the complaint for damages filed by Mejia. It was held that plaintiff Mejia, as executrix of Gutierrez's estate, failed to establish by clear and convincing evidence her allegations that Francisco controlled Cardale and Merryland and that she had employed fraud by intentionally causing Cardale to default in its payment of real property taxes on the mortgaged properties so that Merryland could purchase the same by means of a tax delinquency sale. Moreover, according to the trial court, the failure to recover the property subject of the Deed of Sale with Mortgage was due to Mejia's failure to actively pursue the action for rescission (Civil Case No. 12366), allowing the case to drag on for eighteen years. Thus, it ruled that xxx xxx xxx The act of not paying or failing to pay taxes due the government by the defendant Adalia B. Francisco, as treasurer of Cardale Financing and Realty Corporation do not, per se, constitute perpetration of fraud or an illegal act. It do [sic] not also constitute an act of evasion of an existing obligation (to plaintiff) if there is no clear showing that such an act of non-payment of taxes was deliberately made despite its (Cardale's) solvency and capability to pay. There is no evidence showing that Cardale Financing and Realty Corporation was financially capable of paying said taxes at the time. "There are times when the corporate fiction will be disregarded: (1) where all the members or stockholders commit illegal act; (2) where the corporation is used as dummy to commit fraud or wrong; (3) where the corporation is an agency for a parent corporation; and (4) where the stock of a corporation is owned by one person." (I, Fletcher, 58, 59, 61 and 63). None of the foregoing reasons can be applied to the incidents in this case: (1) there appears no illegal act committed by the stockholders of defendant Merryland Development Corporation and Cardale Financing and Realty Corporation; (2) the incidents proven by evidence of the plaintiff as well as that of the defendants do not show that either or both corporations were used as dummies by defendant Adalia B. Francisco to

commit fraud or wrong. To be used as [a] dummy, there has to be a showing that the dummy corporation is controlled by the person using it. The evidence of plaintiff failed to prove that defendant Adalia B. Francisco has controlling interest in either or both corporations. On the other hand, the evidence of defendants clearly show that defendant Francisco has no control over either of the two corporations; (3) none of the two corporations appears to be an agency for a parent (the other) corporation; and (4) the stock of either of the two corporation [sic] is not owned by one person (defendant Adalia B. Francisco). Except for defendant Adalia B. Francisco, the incorporators and stockholders of one corporation are different from the other. xxx xxx xxx The said case (Civil Case No. 12366) remained pending for almost 18 years before the then Court of First Instance, now the Regional Trial Court. Even if the trial of the said case became protracted on account of the retirement and/or promotion of the presiding judge, as well as the transfer of the case from one sala to another, and as claimed by the plaintiff "that the defendant lost interest", (which allegation is unusual, so to speak), the court believe [sic] that it would not have taken that long to dispose [of] said case had plaintiff not slept on her rights, and her duty and obligation to see to it that the case is always set for hearing so that it may be adjudicated [at] the earliest possible time. This duty pertains to both parties, but plaintiff should have been more assertive, as it was her obligation, similar to the obligation of plaintiff relative to the service of summons in other cases. The fact that Cardale Financing and Realty Corporation did not perform its obligation as provided in the said "Deed of Sale with Mortgage" (Exhibit"A") is very clear. Likewise, the fact that Andrea Cordova, the contracting party, represented by the plaintiff in this case, did not also perform her duties and/or obligation provided in the said contract is also clear. This could have been the reason why the plaintiff in said case (Exhibit "E") slept on her rights and allowed the same to remain pending for almost 18 years. However, and irrespective of any other reason behind the same, the court believes that plaintiff, indeed, is the one to blame for the failure of the testate estate of the late Andrea Cordova Vda. de Gutierrez to recover the money or property due it on the basis of Exhibit "A". xxx xxx xxx . . . Had the plaintiff not slept on her rights and had it not been for her failure to perform her commensurate duty to pursue vigorously her case against Cardale Financing and Realty Corporation in said Civil Case No. 12366, she could have easily known said non-payment of realty taxes on the said properties by said Cardale Financing and Realty Corporation, or, at least the auction sales that followed, and from which she could have redeemed said properties within the one year period provided by law, or, have availed of remedies at the time to protect the interest of the testate estate of the late Andrea Cordova Vda. de Gutierrez. xxx xxx xxx The dispositive portion of the trial court's decision states WHEREFORE, in view of all the foregoing consideration, the court hereby renders judgment in favor of the defendants Register of Deeds of Caloocan City, Merryland Development Corporation and Adalia B. Francisco, and against plaintiff Rita C. Mejia, as Executrix of the Testate Estate of Andrea Cordova Vda. De Gutierrez, and hereby orders: 1. That this case for damages be dismissed, at the same time, plaintiffs motion for reconsideration dated September 23, 1987 is denied; 2. Plaintiff pay the defendants Merryland Development Corporation and the Register of Deeds the sum of P20,000.00, and another sum of P20,000.00 to the defendant Adalia B. Francisco, as and for attorney's fees and litigation expenses, and pay the costs of the proceedings. SO ORDERED. 6 7 The Court of Appeals, in its decision promulgated on 13 April 1999, reversed the trial court, holding that the corporate veil of Cardale and Merryland must be pierced in order to hold Francisco and Merryland solidarily liable since these two corporations were used as dummies by Francisco, who employed fraud in allowing Cardale to default on the realty taxes for the properties mortgaged to Gutierrez so that Merryland could acquire the same free from all liens and encumbrances in the tax delinquency sale and, as a consequence thereof, frustrating Gutierrez's rights as a mortgagee over the subject properties. Thus, the Court of Appeals premised its findings of fraud on the following circumstances xxx xxx xxx . . . Appellee Francisco knew that Cardale of which she was vice-president and treasurer had an outstanding obligation to Gutierrez for the unpaid balance of the real properties covered by TCT Nos. 7531 to 7533, which Cardale purchased from Gutierrez which account, as of December 1988, already amounted to P4,414,271.43 (Exh. K, pp. 39-44, record); she also knew that Gutierrez had a mortgage lien on the said properties to secure payment of the aforesaid obligation; she likewise knew that the said mortgaged properties were under litigation in Civil Case No. Q-12366 which was an action filed by Gutierrez against Cardale for rescission of the sale and/or recovery of said properties (Exh. E). Despite such knowledge, appellee Francisco did not inform Gutierrez's Estate or the Executrix (herein appellant) as well as the trial court that the mortgaged properties had incurred tax delinquencies, and that Final Notices dated July 9, 1982 had been sent by the City Treasurer of Caloocan demanding payment of such tax arrears within ten (10) days from receipt thereof (Exhs. J & J-1, pp. 37-38, record). Both notices which were addressed to Cardale Financing & Realty Corporation c/o Merryland Development Corporation and sent to appellee Francisco's address at 83 Katipunan Road, White Plains, Quezon City, gave warning that if the taxes were not paid within the aforesaid period, the properties would be sold at public auction to satisfy the tax delinquencies. To reiterate, notwithstanding receipt of the aforesaid notices, appellee Francisco did not inform the Estate of Gutierrez or her executrix about the tax delinquencies and of the impending auction sale of the said properties. Even a modicum of good faith and fair play should have encouraged appellee Francisco to at least advise Gutierrez's Estate through her executrix (herein appellant) and the trial court which was hearing the complaint for rescission and recovery of said properties of such fact, so that the Estate of Gutierrez, which had a real interest on the properties as mortgagee and as plaintiff in the rescission and recovery suit, could at least take steps to forestall the auction sale and thereby preserve the properties and protect its interests thereon. And not only did appellee Francisco allow the auction sale to take place, but she used her other corporation (Merryland) in participating in the auction sale and in acquiring the very properties which her first corporation (Cardale) had mortgaged to Gutierrez. Again, appellee Francisco did not thereafter inform the Estate of Gutierrez or its executrix (herein appellant) about the auction sale, thus precluding the Estate from exercising its right of redemption. And it was only after the expiration of the redemption period that appellee Francisco filed a Manifestation in Civil Case No. Q-12366 (Exh. 1, p. 36, record), in which she disclosed for the first time to the trial court and appellant that the properties subject of the case and on which Gutierrez or her Estate had a mortgage lien, had been sold in a tax delinquency sale. And in order to further conceal her deceptive maneuver, appellee Francisco did not divulge in her aforesaid Manifestation that it was her other corporation (Merryland) that acquired the properties in the auction sale.

We are not impressed by appellee's submission that no evidence was adduced to prove that Cardale had the capacity to pay the tax arrears and therefore she or Cardale may not be faulted for the tax delinquency sale of the properties in question. Appellee Francisco's bad faith or deception did not necessarily lie in Cardale's or her failure to settle the tax deliquencies in question, but in not disclosing to Gutierrez's estate or its executrix (herein appellant) which had a mortgage lien on said properties the tax delinquencies and the impending auction sale of the encumbered properties. Appellee Francisco's deception is further shown by her concealment of the tax delinquency sale of the properties from the estate or its executrix, thus preventing the latter from availing of the right of redemption of said properties. That appellee Francisco divulged the auction sale of the properties only after such redemption period had lapsed clearly betrays her intention to keep Gutierrez's Estate or its Executrix from availing of such right. And as the evidence would further show, appellee Francisco had a hand in securing for Merryland consolidation of its ownership of the properties and in seeing to it that Merryland's torrens certificates for the properties were free from liens and encumbrances. All these appellee Francisco did even as she was fully aware that Gutierrez or her estate had a valid and subsisting mortgage lien on the said properties. It is likewise worthy of note that early on appellee Francisco had testified in the action for rescission of sale and recovery of possession and ownership of the properties which Gutierrez filed against Cardale (Civil Case No. Q-12366) in her capacity as defendant Cardale's vice-president and treasurer. But then, for no plausible reason whatsoever, she lost interest in continuing with the presentation of evidence for defendant Cardale. And then, when appellant Mejia as executrix of Gutierrez's Estate filed on August 13, 1984 a Motion for Decision in the aforesaid case, appellee Francisco moved to defer consideration of appellant's Motion on the pretext that defendant Cardale needed time to employ another counsel. Significantly, in her aforesaid Motion for Postponement dated August 16, 1984 which appellee Francisco personally signed as Officer-in-Charge of Cardale, she also did not disclose the fact that the properties subject matter of the case had long been sold at a tax delinquency sale and acquired by her other corporation Merryland. And as if what she had already accomplished were not enough fraudulence, appellee Francisco, acting in behalf of Merryland, caused the issuance of new transfer certificates of title in the name of Merryland, which did not anymore bear the mortgage lien in favor of Gutierrez. In the meantime, to further avoid payment of the mortgage indebtedness owing to Gutierrez's estate, Cardale corporation was dissolved. Finally, to put the properties beyond the reach of the mortgagee, Gutierrez's estate, Merryland caused the subdivision of such properties, which were subsequently sold on installment basis. In its petition for certiorari, petitioners argue that there is no law requiring the mortgagor to inform the mortgagee of the tax delinquencies, if any, of the mortgaged properties. Moreover, petitioners claim that Cardale's failure to pay the realty taxes, per se, does not constitute fraud since it was not proven that Cardale was capable of paying the taxes' Petitioners also contend that if Mejia, as executrix of Gutierrez's estate, was not remiss in her duty to pursue Civil Case No. 12366, she could have easily learned of the non-payment of realty taxes on the subject properties and of the auction sale that followed and thus, have redeemed the properties or availed of some other remedy to conserve the estate of Gutierrez. In addition, Mejia could have annotated a notice oflis pendens on the titles of the mortgaged properties, but she failed to do so. It is the stand of petitioners that respondent has not adduced any proof that Francisco controlled both Cardale and Merryland and that she used these two corporations to perpetuate a fraud upon Gutierrez or her estate. Petitioners maintain that the "evidence shows that, apart form the meager share of petitioner Francisco, the stockholdings of both corporations comprise other shareholders, and the stockholders of either of them, aside from petitioner Francisco, are composed of different persons." As to Civil Case No. 12366, petitioners insist that the decision of the trial 8 court in that case constitutesres judicata to the instant case. It is dicta in corporation law that a corporation is a juridical person with a separate and distinct personality from mat of the 9 stockholders or members who compose it However, when the legal fiction of the separate corporate personality is abused, such as when the same is used for fraudulent or wrongful ends, the courts have not hesitated to pierce the corporate veil. One of the earliest formulations of this doctrine of piercing the corporate veil was made in the American case ofUnited States v. Milwaukee 10 Refrigerator Transit Co. If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. 11 Since then a good number of cases have firmly implanted this doctrine in Philippine jurisprudence. One such case isUmali v. Court 12 of Appeals wherein the Court declared that Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. In such cases, the corporation will be considered as a mere association of persons. The members or stockholders of the corporation will be considered as the corporation, that is, liability will attach directly to the officers and stockholders. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the merealter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. With specific regard to corporate officers, the general rule is that the officer cannot be held personally liable with the corporation, whether civilly or otherwise, for the consequences of his acts, if he acted for and in behalf of the corporation, within the scope of his 13 authority and in good faith. In such cases, the officer's acts are properly attributed to the corporation. However, if it is proven that 14 the officer has used the corporate fiction to defraud a third party, or that he has acted negligently, maliciously or in bad 15 faith, then the corporate veil shall be lifted and he shall be held personally liable for the particular corporate obligation involved. The Court, after an assiduous study of this case, is convinced that the totality of the circumstances appertaining conduce to the inevitable conclusion that petitioner Francisco acted in bad faith. The events leading up to the loss by the Gutierrez estate of its mortgage security attest to this. It has been established that Cardale failed to comply with its obligation to pay the balance of the purchase price for the four parcels of land it bought from Gutierrez covered by TCT Nos. 7531 to 7534, which obligation was secured by a mortgage upon the lands covered by TCT Nos. 7531, 7532 and 7533. This prompted Gutierrez to file an action for rescission of the Deed of Sale with Mortgage (Civil Case No. Q-12366), but the case dragged on for about fourteen years when Cardale, as 16 represented by Francisco, who was Vice-President and Treasurer of the same, lost interest in completing its presentation of evidence.

Even before 1984 when Mejia, in her capacity as executrix of Gutierrez's estate, filed a Motion for Decision with the trial court, there is no question that Francisco knew that the properties subject of the mortgage had become tax delinquent. In fact, as treasurer of Cardale, Francisco herself was the officer charged with the responsibility of paying the realty taxes on the corporation's properties. 17 This was admitted by the trial court in its decision. In addition, notices dated 9 July 1982 from the City Treasurer of Caloocan demanding payment of the tax arrears on the subject properties and giving warning that if the realty taxes were not paid within the given period then such properties would be sold at public auction to satisfy the tax delinquencies were sent directly to Francisco's 18 address in White Plains, Quezon City. Thus, as early as 1982, Francisco could have informed the Gutierrez estate or the trial court in Civil Case No. Q-12366 of the tax arrears and of the notice from the City Treasurer so that the estate could have taken the necessary steps to prevent the auction sale and to protect its interests in the mortgaged properties, but she did no such thing. Finally, in 1983, the properties were levied upon and sold at public auction wherein Merryland a corporation where Francisco is a 19 20 stockholder and concurrently acts as President and director was the highest bidder. 21 When Mejia filed the Motion for Decision in Civil Case No. Q-12366, the period for redeeming the properties subject of the tax sale 22 23 24 had not yet expired. Under the Realty Property Tax Code, pursuant to which the tax levy and sale were prosecuted, both the delinquent taxpayer and in his absence, any person holding a lien or claim over the property shall have the right to redeem the 25 property within one year from the date of registration of the sale. However, if these persons fail to redeem the property within the 26 time provided, then the purchaser acquires the property "free from any encumbrance or third party claim whatsoever." Cardale made no attempts to redeem the mortgaged property during this time. Moreover, instead of informing Mejia or the trial court in Q27 12366 about the tax sale, the records show that Francisco filed a Motion for Postponement in behalf of Cardale even signing the motion in her capacity as "officer-in-charge" which worked to defer the hearing of Mejia's Motion for Decision. No mention was made by Francisco of the tax sale in the motion for postponement. Only after the redemption period had expired did Francisco decide to reveal what had transpired by filing a Manifestation stating that the properties subject of the mortgage in favor of Gutierrez had been sold at a tax delinquency sale; however, Francisco failed to mention that it was Merryland that acquired the properties since she was probably afraid that if she did so the court would see behind her fraudulent scheme. In this regard, it is also significant to note that it was Francisco herself who filed the petitions for consolidation of title and who helped secure for Merryland titles over the subject properties "free from any encumbrance or third-party claim whatsoever." It is exceedingly apparent to the Court that the totality of Francisco's actions clearly betray an intention to conceal the tax delinquencies, levy and public auction of the subject properties from the estate of Gutierrez and the trial court in Civil Case No. Q12366 until after the expiration of the redemption period when the remotest possibility for the recovery of the properties would be 28 extinguished. Consequently, Francisco had effectively deprived the estate of Gutierrez of its rights as mortgagee over the three parcels of land which were sold to Cardale. If Francisco was acting in good faith, then she should have disclosed the status of the mortgaged properties to the trial court in Civil Case No. Q-12366 especially after Mejia had filed a Motion for Decision, in response to which she filed a motion for postponement wherein she could easily have mentioned the tax sale since this action directly affected such properties which were the subject of both the sale and mortgage. That Merryland acquired the property at the public auction only serves to shed more light upon Francisco's fraudulent purposes. 29 Based on the findings of the Court of Appeals, Francisco is the controlling stockholder and President of Merryland. Thus, aside from the instrumental role she played as an officer of Cardale, in evading that corporation's legitimate obligations to Gutierrez, it appears that Francisco's actions were also oriented towards securing advantages for another corporation in which she had a substantial interest. We cannot agree, however, with the Court of Appeals' decision to hold Merryland solidarily liable with Francisco. The only act imputable to Merryland in relation to the mortgaged properties is that it purchased the same and this by itself is not a fraudulent or wrongful act. No evidence has been adduced to establish that Merryland was a mere alter ego or business conduit of Francisco. Time and again it has been reiterated that mere ownership by a single stockholder or by another corporation of all or nearly all of 30 the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. Neither has it been alleged or proven that Merryland is so organized and controlled and its affairs are so conducted as to make it merely an 31 instrumentality, agency, conduit or adjunct of Cardale. Even assuming that the businesses of Cardale and Merryland are interrelated, this alone is not justification for disregarding their separate personalities, absent any showing that Merryland was 32 purposely used as a shield to defraud creditors and third persons of their rights. Thus, Merryland's separate juridical personality must be upheld. Based on a statement of account submitted by Mejia, the Court of Appeals awarded P4,314,271.43 in favor of the estate of Gutierrez which represents the unpaid balance of the purchase price in the amount of P629,000.00 with an interest rate of nine percent (9% ) 33 per annum, in accordance with the agreement of the parties under the Deed of Sale with Mortgage, as of December 34 1988. Therefore, in addition to the amount awarded by the appellate court, Francisco should pay the estate of Gutierrez interest on the unpaid balance of the purchase price (in the amount of P629,000.00) at the rate of nine percent (9%) per annum computed from January, 1989 until fully satisfied. Finally, contrary to petitioner's assertions, we agree with the Court of Appeals that the decision of the trial court in Civil Case No. Q12366 does not constituteres judicata insofar as the present case is concerned because the decision in the first case was not a judgment on the merits. Rather, it was merely based upon the premise that since Cardale had been dissolved and the property acquired by another corporation, the action for rescission would not prosper. As a matter of fact, it was even expressly stated by the trial court that the parties should ventilate their issues in another action. WHEREFORE, the 13 April 1999 Decision of the Court of Appeals is hereby accordingly MODIFIED so as to hold ADALIA FRANCISCO solely liable to the estate of Gutierrez for the amount of P4,314,271.43 and for interest on the unpaid balance of the purchase price (in the amount of P629,000.00) at the rate of nine percent (9%) per annum computed from January, 1989 until fully satisfied. MERRYLAND is hereby absolved from all liability. SO ORDERED. FRENCH OIL MILL MACHINERY CO., INC., petitioner, vs. REGIONAL TRIAL COURT [RTC], CEBU CITY, BR. 11, and LUDO & LUYM OLEOCHEMICAL CO.), respondents. RESOLUTION MARTINEZ, J.: Private respondent filed a complaint for breach of contract with damages against petitioner foreign corporation and the latters alleged Philippine agent Trans-World Trading Company. The complaint states in part that:

1.2 Defendant French Oil Mill Machinery (FOMMCO) is a corporation with principal office at, Piqua, Ohio, United States of America, engaged in business in the Philippines through its agent Trans-World Trading Company. FOMMCO may be served with summons and other court processes through its agent, Trans-World Trading Company. 1.3 Defendant Trans-World Trading Company (Trans-World) is the agent of FOMMCO in the Philippines, with office at Don Pablo [1] Building, 144 Amorsolo St., Makati, Metro Manila, where it may be served with summons and other court processes. Summons was served on Trans-World which moved to dismiss the complaint arguing that it is not petitioners agent. Petitioner itself filed a special appearance with motion to dismiss contending that the court had no jurisdiction over its person due to improper service of summons. It argued that (a) it is not doing business in the Philippines and (b) Trans-World is not its agent, therefore the [2] [3] procedure in Sections 14 and 17 , Rule 14 should have been observed. The court a quoinitially dismissed the complaint for lack of [4] jurisdiction over petitioner but on private respondents motion for reconsideration, said court reversed the order of dismissal and ruled that summons was properly served on petitioner whom it found doing business in the Philippines with Trans-World as its agent. Petitioner elevated the case to the Court of Appeals (CA) via petition for certiorari and prohibition but to no avail. Not [5] satisfied, petitioner filed this petition under Rule 45 which was initially dismissed for being filed late but on petitioners motion for [6] reconsideration was reinstated by the Court. Petitioner contends that it is not doing business in the Philippines and that Trans-World is not its agent, and thus, the summons served on the latter has no effect on the former. The contention is not meritorious. It is not enough to merely allege in the complaint that a defendant foreign corporation is doing business. For purposes of the rule on [7] summons, the fact of doing business must first be "established by appropriate allegations in the complaint" and the court in [8] determining such fact need not go beyond the allegations therein. In this case, the allegations that petitioner entered into a contract with private respondent to supply and install various machineries and equipments for the use of the latter's oil mill [9] [10] factory and that the first shipment of machineries from petitioner was received by private respondent are sufficient allegations that petitioner is doing business for purposes of Section 14, Rule 14. In any case, the determination that a foreign corporation is doing business is merely tentative and only to enable the local court to acquire jurisdiction over the person of the foreign [11] corporation through service of summons. It does not foreclose a subsequent finding to the contrary depending on the evidence. Having determined the issue of doing business, the Court will now inquire on whether petitioner was validly served with summons. Under the Rules of Court, if the defendant is a foreign corporation doing business in the Philippines, summons may be served on (a) its resident agent designated in accordance with law; (b) if there is no resident agent, the government official designated by law to [12] that effect, or (c) any of its officer or agent within the Philippines. Private respondent alleged in its complaint that Trans-World is petitioners agent, so that the service was made on the latter. Such general allegation is insufficient to show the agency relationship between petitioner and Trans-World. However, although there is no requirement to first substantiate the allegation of agency yet it is necessary that there must be specific allegations in the complaint that establishes the connection between the principal foreign corporation and its alleged agent with respect to the transaction in question. Nowhere in the case of Signetics Corporation v. [13] CA, cited by both parties, did the court say that if the complaint alleges that defendant has an agent in the Philippines, summons can validly be served thereto even without prior evidence of the truth of such factual allegation. It is only in the headnote of the [14] reporter where the quoted statement appears. Certainly a portion of the decision was paraphrase to convey that statement which is never meant nor mentioned in the ponencia and thus, was a misinterpretation of the scope of the decision. The headnote or syllabi is not the work of the court, nor does it state its decision. It is simply the work of the reporter, who gives his understanding [15] of the decision, and is prepared for the convenience of the profession in the examination of the reports. A headnote is not a part of the courts decision. For purposes of the rules on summons, the determination of principal-agent relationship from the allegations in the complaint is only preliminary and is not even conclusive as to liability. Nothing bars the court from later making a different finding after the parties had substantiated their respective allegations with respect to agency should the same be disputed. As found by both courts [16] below, petitioner treated Trans-World as its Philippine agent in the assailed transaction. Such factual assessment is binding on this [17] [18] [19] Court and will not be disturbed as no exceptional circumstances nor cogent reasons were shown to justify its reversal. For it is well-settled that factual findings of the trial court are respected on appeal when it is supported by substantial evidence on [20] [21] record and carry more weight when affirmed by the appellate court, absent any proof that significant facts or circumstances [22] were overlooked or disregarded which would have varied the outcome of the case. Finally, petitioner fears that it could no longer contest the jurisdiction of the court once it files an answer instead of a motion to [23] dismiss, as the filing of the former amounts to voluntary appearance. Suffice it to say that the filing of an answer per se should not be automatically treated as voluntary appearance by the defendant for purposes of summons. It should be noted that when the appearance of defendant is precisely to object to the jurisdiction of the court over his person, it cannot be considered as appearance [24] in court. The foregoing, however, need not be further discussed in this case as petitioner did not file any answer. ACCORDINGLY, the petition is DENIED for lack of merit. SO ORDERED.

FUA CUN (alias Tua Cun), plaintiff-appellee, vs. RICARDO SUMMERS, in his capacity as Sheriff ex-oficio of the City of Manila, and the CHINA BANKING CORPORATION, defendantsappellants. Araneta and Zaragoza for appellants. Canillas and Cardenas for appellee. OSTRAND, J.: It appears from the evidence that on August 26, 1920, one Chua Soco subscribed for five hundred shares of stock of the defendant Banking Corporation at a par value of P100 per share, paying the sum of P25,000, one-half of the subscription price, in cash, for which a receipt was issued in the following terms: This is to certify, That Chua Soco, a subscriber for five hundred shares of the capital stock of the China Banking Corporation at its par value of P100 per share, has paid into the Treasury of the Corporation, on account of said subscription and in accordance with its terms, the sum of twenty-five thousand pesos (P25,000), Philippine currency. Upon receipt of the balance of said subscription in accordance with the terms of the calls of the Board of Directors, and surrender of this certificate, duly executed certificates for said five hundred shares of stock will be issued to the order of the subscriber. It is expressly understood that the total number of shares specified in this receipt is subject to sale by theChina Banking Corporation for the payment of any unpaid subscriptions, should the subscriber fail to pay the whole or any part of the balance of his subscription upon 30 days' notice issued therefor by the Board of Directors. Witness our official signatures at Manila, P. I., this 25th day of August, 1920. (Sgd.) MERVIN WEBSTER Cashier (Sgd.) DEE C. CHUAN President On May 18, 1921, Chua Soco executed a promissory note in favor of the plaintiff Fua Cun for the sum of P25,000 payable in ninety days and drawing interest at the rate of 1 per cent per month, securing the note with a chattel mortgage on the shares of stock subscribed for by Chua Soco, who also endorsed the receipt above mentioned and delivered it to the mortgagee. The plaintiff thereupon took the receipt to the manager of the defendant Bank and informed him of the transaction with Chua Soco, but was told to await action upon the matter by the Board of Directors. In the meantime Chua Soco appears to have become indebted to the China Banking Corporation in the sum of P37,731.68 for dishonored acceptances of commercial paper and in an action brought against him to recover this amount, Chua Soco's interest in the five hundred shares subscribed for was attached and the receipt seized by the sheriff. The attachment was levied after the defendant bank had received notice of the facts that the receipt had been endorsed over to the plaintiff. Fua Cun thereupon brought the present action maintaining that by virtue of the payment of the one-half of the subscription price of five hundred shares Chua Soco in effect became the owner of two hundred and fifty shares and praying that his, the plaintiff's, lien on said shares, by virtue of the chattel mortgage, be declared to hold priority over the claim of the defendant Banking Corporation; that the defendants be ordered to deliver the receipt in question to him; and that he be awarded the sum of P5,000 in damages for wrongful attachment. The trial court rendered judgment in favor of the plaintiff declaring that Chua Soco, through the payment of the P25,000, acquired the right to two hundred and fifty shares fully paid up, upon which shares the plaintiff holds a lien superior to that of the defendant Banking Corporation and ordering that the receipt be returned to said plaintiff. From this judgment the defendants appeal. Though the court below erred in holding that Chua Soco, by paying one-half of the subscription price of five hundred shares, in effect became the owner of two hundred and fifty shares, the judgment appealed from is in the main correct. The claim of the defendant Banking Corporation upon which it brought the action in which the writ of attachment was issued, was for the non-payment of drafts accepted by Chua Soco and had no direct connection with the shares of stock in question. At common law a corporation has no lien upon the shares of stockholders for any indebtedness to the corporation (Jones on Liens, 3d ed., sec. 375) and our attention has not been called to any statute creating such lien here. On the contrary, section 120 of the Corporation Act provides that "no bank organized under this Act shall make any loan or discount on the security of the shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchase shall be necessary to prevent loss upon a debt previously contracted in good faith, and stock so purchased or acquired shall, within six months from the time of its purchase, be sold or disposed of at public or private sale, or, in default thereof, a receiver may be appointed to close up the business of the bank in accordance with law." Section 35 of the United States National Banking Act of 1864 contains a similar provision and it has been held in various decisions of the United States Supreme Court that a bank organized under that Act can have no lien on its own stock for the indebtedness of the stockholders even when the by-laws provide that the shares shall be transferable only on the books of the corporation and that no such transfer shall be made if the holder of the shares is indebted to the corporation. (Jones on Liens, 3d ed., sec. 384; First National Bank of South Bend vs.Lanier and Handy, 11 Wall., 369; Bullard vs. National Eagle Bank, 18 Wall., 589; First National Bank of Xenia vs.Stewart and McMillan, 107 U.S., 676.) The reasons for this doctrine are obvious; if banking corporations were given a lien on their own stock for the indebtedness of the stockholders, the prohibition against granting loans or discounts upon the security of the stock would become largely ineffective. Turning now to the rights of the plaintiff in the stock in question, it is argued that the interest held by Chua Soco was merely an equity which could not be made the subject of a chattel mortgage. Though the courts have uniformly held that chattel mortgages on shares of stock and other choses in action are valid as between the parties, there is still much to be said in favor of the defendants' contention that the chattel mortgage here in question would not prevail over liens of third parties without notice; an equity in shares of stock is of such an intangible character that it is somewhat difficult to see how it can be treated as a chattel and mortgaged in such a manner that the recording of the mortgage will furnish constructive notice to third parties. As said by the court in the case of Spalding vs. Paine's Adm'r. (81 Ky., 416), in regard to a chattel mortgage of shares of stock: These certificates of stock are in the pockets of the owner, and go with him where he may happen to locate, as choses in action, or evidence of his right, without any means on the part of those with whom he proposes to deal on the faith of such a security of ascertaining whether or not this stock is in pledge or mortgaged to others. He finds the name of the owner on the books of the company as a subscriber of paid-up stock, amounting to 180 shares, with the certificates in his possession, pays for these certificates

their full value, and has the transfer to him made on the books of the company, thereby obtaining a perfect title. What other inquiry is he to make, so as to make his investment certain and secure? Where is he to look, in order to ascertain whether or not this stock has been mortgaged? The chief office of the company may be at one place to-day and at another tomorrow. The owner may have no fixed or permanent abode, and with his notes in one pocket and his certificates of stock in the other the one evidencing the extent of his interest in the stock of the corporation, the other his right to money owing him by his debtor, we are asked to say that the mortgage is effectual as to the one and inoperative as to the other. But a determination of this question is not essential in the present case. There can be no doubt that an equity in shares of stock may be assigned and that the assignment is valid as between the parties and as to persons to whom notice is brought home. Such an assignment exists here, though it was made for the purpose of securing a debt. The endorsement to the plaintiff of the receipt above mentioned reads: For value received, I assign all my rights in these shares in favor of Mr. Tua Cun. Manila, P. I., May 18, 1921. (Sgd.) CHUA SOCO This endorsement was accompanied by the delivery of the receipt to the plaintiff and further strengthened by the execution of the chattel mortgage, which mortgage, at least, operated as a conditional equitable assignment. As against the rights of the plaintiff the defendant bank had, as we have seen, no lien unless by virtue of the attachment. But the attachment was levied after the bank had received notice of the assignment of Chua Soco's interests to the plaintiff and was therefore subject to the rights of the latter. It follows that as against these rights the defendant bank holds no lien whatever. As we have already stated, the court erred in holding the plaintiff as the owner of two hundred and fifty shares of stock; "the plaintiff's rights consist in an equity in five hundred shares and upon payment of the unpaid portion of the subscription price he becomes entitled to the issuance of certificate for said five hundred shares in his favor." The judgment appealed from is modified accordingly, and in all other respects it is affirmed, with the costs against the appellants Banking Corporation. So ordered.

GAMBOA VS TEVES The Case This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific). The Antecedents The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company (PLDT), are as 1 follows: On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right to engage in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an American company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared 2 by this Court to be owned by the Republic of the Philippines. In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the public bidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510 million. Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the 111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February 2007 deadline set by IPC and instead, yielded its right to PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares. On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, with the Philippine Government for the price of P25,217,556,000 or US$510,580,189. The sale was completed on 28 February 2007. Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT. With the sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership 3 of the capital of a public utility to not more than 40 percent. On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and PCGG Commissioner Ricardo Abcede allege the following relevant facts: On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC held 26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on the other hand, was incorporated in 1977, and became the owner of 111,415 PTIC shares or 46.125 percent of the outstanding capital stock of PTIC by virtue of three Deeds of Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were sequestered by the PCGG, and subsequently declared by this Court as part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered PTIC shares were reconveyed to the Republic of the Philippines in accordance with this Courts 4 decision which became final and executory on 8 August 2006. The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding common shares of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC), composed of the Department of Finance and the PCGG, as the disposing entity. An invitation to bid was published in seven different newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid conference was held, and the original deadline for bidding scheduled on 4 December 2006 was reset to 8 December 2006. The extension was published in nine different newspapers. During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid of P25,217,556,000. The government notified First Pacific, the majority owner of PTIC shares, of the bidding results and gave First Pacific until 1 February 2007 to exercise its right of first refusal in accordance with PTICs Articles of Incorporation. First Pacific announced its intention to match Parallaxs bid. On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public hearing on the particulars of the then impending sale of the 111,415 PTIC shares. Respondents Teves and Sevilla were among those who attended the public hearing. The HR Committee Report No. 2270 concluded that: (a) the auction of the governments 111,415 PTIC shares bore due diligence, transparency and conformity with existing legal procedures; and (b) First Pacifics intended acquisition of the governments 111,415 PTIC shares resulting in First Pacifics 100% ownership of PTIC will not violate the 40 percent constitutional limit on foreign ownership of a public utility since PTIC holds only 13.847 percent of the total outstanding common shares of 5 PLDT. On 28 February 2007, First Pacific completed the acquisition of the 111,415 shares of stock of PTIC.

Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of 111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC shares was already owned by First Pacific and its affiliates); (b) Parallax offered the highest bid amounting to P25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted in PTICs Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the highest bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares. Respondent Pangilinandenies the other allegations of facts of petitioner. On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration of nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the 111,415 PTIC shares would result in an increase in First Pacifics common shareholdings in PLDT from 30.7 percent to 37 percent, and this, combined with Japanese NTT DoCoMos common shareholdings in PLDT, would result to a total foreign common shareholdings in PLDT of 51.56 percent 6 which is over the 40 percent constitutional limit. Petitioner asserts: If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to 37.0 percent of its common or voting- stockholdings, x xx. Hence, the consummation of the sale will put the two largest foreign investors in PLDT First Pacific and Japans NTT DoCoMo, which is the worlds largest wireless telecommunications firm, owning 51.56 percent of PLDT common equity. x x x With the completion of the sale, data culled from the official website of the New York Stock Exchange (www.nyse.com) showed that those foreign entities, which own at least five percent of common equity, will collectively own 81.47 percent of PLDTs common equity. x x x x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted to the New York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entities breached the constitutional limit of 7 40 percent ownership as early as 2003. x x x Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign ownership of a public utility; (2) whether public respondents committed grave abuse of discretion in allowing the sale of the 111,415 PTIC shares to First Pacific; and (3) whether the sale of common shares to foreigners in excess of 40 percent of the entire subscribed common capital stock violates the constitutional limit on foreign 8 ownership of a public utility. On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit Attached Petition-inIntervention. In the Resolution of 28 August 2007, the Court granted the motion and noted the Petition-in-Intervention. Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify the sale by respondents of the 111,415 PTIC shares to First Pacific or assignee. Petitioners-in-intervention claim that, as PLDT subscribers, they have a stake in the outcome of the controversy x x x where the Philippine Government is completing the sale of government owned assets in [PLDT], unquestionably a public utility, in violation of the nationality restrictions of the Philippine Constitution. The Issue 9 This Court is not a trier of facts. Factual questions such as those raised by petitioner, which indisputably demand a thorough examination of the evidence of the parties, are generally beyond this Courts jurisdiction. Adhering to this well-settled principle, the Court shall confine the resolution of the instant controversy solely on the threshold and purely legal issue of whether the term capital in Section 11, Article XII of the Constitution refers to the total common shares only or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public utility. The Ruling of the Court The petition is partly meritorious. Petition for declaratory relief treated as petition for mandamus At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition for prohibition is within the original jurisdiction of this court, which however is not exclusive but is concurrent with the Regional Trial Court and the 10 Court of Appeals. The actions for declaratory relief, injunction, and annulment of sale are not embraced within the original jurisdiction of the Supreme Court. On this ground alone, the petition could have been dismissed outright. While direct resort to this Court may be justified in a petition for prohibition, the Court shall nevertheless refrain from discussing the grounds in support of the petition for prohibition since on 28 February 2007, the questioned sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares. However, since the threshold and purely legal issue on the definition of the term capital in Section 11, Article XII of the Constitution has far-reaching implications to the national economy, the Court treats the petition for declaratory relief as one for 12 mandamus. In Salvacion v. Central Bank of the Philippines, the Court treated the petition for declaratory relief as one for mandamus considering the grave injustice that would result in the interpretation of a banking law. In that case, which involved the crime of rape committed by a foreign tourist against a Filipino minor and the execution of the final judgment in the civil case for damages on the tourists dollar deposit with a local bank, the Court declared Section 113 of Central Bank Circular No. 960, exempting foreign currency deposits from attachment, garnishment or any other order or process of any court, inapplicable due to the peculiar circumstances of the case. The Court held that injustice would result especially to a citizen aggrieved by a foreign guest like accused
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x x x that would negate Article 10 of the Civil Code which provides that in case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right and justice to prevail. The Court therefore required respondents Central Bank of the Philippines, the local bank, and the accused to comply with the writ of execution issued in the civil case for damages and to release the dollar deposit of the accused to satisfy the judgment. In Alliance of Government Workers v. Minister of Labor, the Court similarly brushed aside the procedural infirmity of the petition for declaratory relief and treated the same as one for mandamus. In Alliance, the issue was whether the government unlawfully excluded petitioners, who were government employees, from the enjoyment of rights to which they were entitled under the law. Specifically, the question was: Are the branches, agencies, subdivisions, and instrumentalities of the Government, including government owned or controlled corporations included among the four employers under Presidential Decree No. 851 which are required to pay their employees x x x a thirteenth (13th) month pay x x x ? The Constitutional principle involved therein affected all government employees, clearly justifying a relaxation of the technical rules of procedure, and certainly requiring the interpretation of the assailed presidential decree. In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue involved has farreaching implications. As this Court held in Salvacion: The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However, exceptions to this rule have been recognized. Thus, where the petition has far-reaching implications and raises questions that should be resolved, it may be treated 15 as one for mandamus. (Emphasis supplied)
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In the present case, petitioner seeks primarily the interpretation of the term capital in Section 11, Article XII of the Constitution. He prays that this Court declare that the term capital refers to common shares only, and that such shares constitute the sole basis in determining foreign equity in a public utility. Petitioner further asks this Court to declare any ruling inconsistent with such interpretation unconstitutional. The interpretation of the term capital in Section 11, Article XII of the Constitution has far-reaching implications to the national economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or second class citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have effective control of the national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation, and to future generations of Filipinos, it is the threshhold legal issue presented in this case. The Court first encountered the issue on the definition of the term capital in Section 11, Article XII of the Constitution in the case 16 ofFernandez v. Cojuangco, docketed as G.R. No. 157360. That case involved the same public utility (PLDT) and substantially the same private respondents. Despite the importance and novelty of the constitutional issue raised therein and despite the fact that the petition involved a purely legal question, the Court declined to resolve the case on the merits, and instead denied the same for 17 disregarding the hierarchy of courts. There, petitioner Fernandez assailed on a pure question of law the Regional Trial Courts Decision of 21 February 2003 via a petition for review under Rule 45. The Courts Resolution, denying the petition, became final on 21 December 2004. The instant petition therefore presents the Court with another opportunity to finally settle this purely legal issue which is of transcendental importance to the national economy and a fundamental requirement to a faithful adherence to our Constitution. The Court must forthwith seize such opportunity, not only for the benefit of the litigants, but more significantly for the benefit of the entire Filipino people, to ensure, in the words of the Constitution, a self-reliant and independent national economy effectively 18 controlled by Filipinos. Besides, in the light of vague and confusing positions taken by government agencies on this purely legal issue, present and future foreign investors in this country deserve, as a matter of basic fairness, a categorical ruling from this Court on the extent of their participation in the capital of public utilities and other nationalized businesses. Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for over 75 years since the 1935 Constitution. There is no reason for this Court to evade this ever recurring fundamental issue and delay again defining the term capital, which appears not only in Section 11, Article XII of the Constitution, but also in Section 2, Article XII on co-production 19 and joint venture agreements for the development of our natural resources, in Section 7, Article XII on ownership of private 20 21 lands, in Section 10, Article XII on the reservation of certain investments to Filipino citizens, in Section 4(2), Article XIV on the 22 23 ownership of educational institutions, and in Section 11(2), Article XVI on the ownership of advertising companies.

Petitioner has locus standi There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject sale, which he claims to violate the nationality requirement prescribed in Section 11, Article XII of the Constitution. If the sale indeed violates the Constitution, then there is a possibility that PLDTs franchise could be revoked, a dire consequence directly affecting petitioners interest as a stockholder. More importantly, there is no question that the instant petition raises matters of transcendental importance to the public. The fundamental and threshold legal issue in this case, involving the national economy and the economic welfare of the Filipino people, far outweighs any perceived impediment in the legal personality of the petitioner to bring this action. In Chavez v. PCGG, the Court upheld the right of a citizen to bring a suit on matters of transcendental importance to the public, thus:
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In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of mandamus is to obtain the enforcement of a public duty, the people are regarded as the real parties in interest; and because it is sufficient that petitioner is a citizen and as such is interested in the execution of the laws, he need not show that he has any legal or special interest in the result of the action. In the aforesaid case, the petitioners sought to enforce their right to be informed on matters of public concern, a right then recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws in order to be valid and enforceable must be published in the Official Gazette or otherwise effectively promulgated. In ruling for the petitioners legal standing, the Court declared that the right they sought to be enforced is a public right recognized by no less than the fundamental law of the land. Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a mandamus proceeding involves the assertion of a public right, the requirement of personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the general public which possesses the right. Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under the questioned contract for the development, management and operation of the Manila International Container Terminal, public interest [was] definitely involved considering the important role [of the subject contract] . . . in the economic development of the country and the magnitude of the financial consideration involved. We concluded that, as a consequence, the disclosure provision in the Constitution would constitute sufficient authority for upholding the petitioners standing. (Emphasis supplied) Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the petitioner has the requisite locus standi. Definition of the Term Capital in Section 11, Article XII of the 1987 Constitution Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public utilities, to wit: Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. (Emphasis supplied) The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus: Section 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the National Assembly when the public interest so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis supplied) The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz: Section 8. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or other entities organized under the laws of the Philippines sixty per centum of the capital of which is owned by citizens of the Philippines, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. No franchise or right shall be granted to any individual, firm, or corporation, except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the public interest so requires. (Emphasis supplied)

Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that the Filipinization provision 25 in the 1987 Constitution is one of the products of the spirit of nationalism which gripped the 1935 Constitutional Convention. The 1987 Constitution provides for the Filipinization of public utilities by requiring that any form of authorization for the operation of public utilities should be granted only to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens. The provision is [an express] recognition of the 26 sensitive and vital position of public utilities both in the national economy and for national security. The evident purpose of the citizenship requirement is to prevent aliens from assuming control of public utilities, which may be inimical to the national 27 interest. This specific provision explicitly reserves to Filipino citizens control of public utilities, pursuant to an overriding economic 28 goal of the 1987 Constitution: to conserve and develop our patrimony and ensure a self-reliant and independent national 29 economy effectivelycontrolled by Filipinos. Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted authority to operate a public utility, at least 60 percent of its capital must be owned by Filipino citizens.

The crux of the controversy is the definition of the term capital. Does the term capital in Section 11, Article XII of the Constitution refer to common shares or to the total outstanding capital stock (combined total of common and non-voting preferred shares)? Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common shares because such shares are entitled to vote and it is through voting that control over a corporation is exercised. Petitioner posits that the term capital in Section 11, Article XII of the Constitution refers to the ownership of common capital stock subscribed and outstanding, which class of shares alone, under the corporate set-up of PLDT, can vote and elect members of the board of directors. It is 30 undisputed that PLDTs non-voting preferred shares are held mostly by Filipino citizens. This arose from Presidential Decree No. 31 217, issued on 16 June 1973 by then President Ferdinand Marcos, requiring every applicant of a PLDT telephone line to subscribe 32 to non-voting preferred shares to pay for the investment cost of installing the telephone line. Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners definition of the term 33 capital. Petitioners-in-intervention allege that the approximate foreign ownership of common capital stock of PLDT x x x already amounts to at least 63.54% of the total outstanding common stock, which means that foreigners exercise significant control over PLDT, patently violating the 40 percent foreign equity limitation in public utilities prescribed by the Constitution. Respondents, on the other hand, do not offer any definition of the term capital in Section 11, Article XII of the Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT do not dispute that more than 40 percent of the common shares of PLDT are held by foreigners. In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the procedural infirmities of the petition and the supposed violation of the due process rights of the affected foreign common shareholders. Respondent Nazareno does not deny petitioners allegation of foreigners dominating the common shareholdings of PLDT. Nazareno stressed mainly that the petition seeks to divest foreign common shareholders purportedly exceeding 40% of the total common shareholdings in PLDT of their ownership over their shares. Thus, the foreign natural and juridical PLDT 34 shareholders must be impleaded in this suit so that they can be heard. Essentially, Nazareno invokes denial of due process on behalf of the foreign common shareholders. While Nazareno does not introduce any definition of the term capital, he states that among the factual assertions that need to be established to counter petitioners allegations is the uniform interpretation by government agencies (such as the SEC), institutions and corporations (such as the Philippine National Oil Company-Energy Development Corporation or PNOC-EDC) of including both preferred shares and common shares in controlling interest in view of testing compliance with the 40% 35 constitutional limitation on foreign ownership in public utilities. Similarly, respondent Manuel V. Pangilinan does not define the term capital in Section 11, Article XII of the Constitution. Neither does he refute petitioners claim of foreigners holding more than 40 percent of PLDTs common shares. Instead, respondent Pangilinanfocuses on the procedural flaws of the petition and the alleged violation of the due process rights of foreigners. Respondent Pangilinanemphasizes in his Memorandum (1) the absence of this Courts jurisdiction over the petition; (2) petitioners lack of standing; (3)mootness of the petition; (4) non-availability of declaratory relief; and (5) the denial of due process rights. Moreover, respondentPangilinan alleges that the issue should be whether owners of shares in PLDT as well as owners of shares in companies holding shares in PLDT may be required to relinquish their shares in PLDT and in those companies without any law requiring them to surrender their shares and also without notice and trial. Respondent Pangilinan further asserts that Section 11, [Article XII of the Constitution] imposes no nationality requirement on the shareholders of the utility company as a condition for keeping their shares in the utility company. According to him, Section 11 does not authorize taking one persons property (the shareholders stock in the utility company) on the basis of another partys alleged failure to satisfy a requirement that is a condition only for that other partys retention of another piece of property (the 36 utility company being at least 60% Filipino-owned to keep its franchise). The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla, Commissioner Ricardo Abcede, 37 and Chairman Fe Barin, is likewise silent on the definition of the term capital. In its Memorandum dated 24 September 2007, the OSG also limits its discussion on the supposed procedural defects of the petition, i.e. lack of standing, lack of jurisdiction, noninclusion of interested parties, and lack of basis for injunction. The OSG does not present any definition or interpretation of the term capital in Section 11, Article XII of the Constitution. The OSG contends that the petition actually partakes of a collateral attack on PLDTs franchise as a public utility, which in effect requires a full-blown trial where all the parties in interest are given their day in 38 court. Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock Exchange (PSE), does not also define the term capital and seeks the dismissal of the petition on the following grounds: (1) failure to state a cause of action against Lim; (2) the PSE allegedly implemented its rules and required all listed companies, including PLDT, to make proper and timely disclosures; and (3) the reliefs prayed for in the petition would adversely impact the stock market. In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record of PLDT, contended that the term capital in the 1987 Constitution refers to shares entitled to vote or the common shares. Fernandez explained thus: The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares, considering that it is through voting that control is being exercised. x x x Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized and partially nationalized activities is for Filipino nationals to be always in control of the corporation undertaking said activities. Otherwise, if the Trial Courts ruling upholding respondents arguments were to be given credence, it would be possible for the ownership structure

of a public utility corporation to be divided into one percent (1%) common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial Courts ruling adopting respondents arguments, the common shares can be owned entirely by foreigners thus creating an absurd situation wherein foreigners, who are supposed to be minority shareholders, control the public utility corporation. Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the controlling interest. Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record of shares will not suffice but it must be shown that the legal and beneficial ownership rests in the hands of Filipino citizens. Consequently, in the case of petitioner PLDT, since it is already admitted that the voting interests of foreigners which would gain entry to petitioner PLDT by the acquisition of SMART shares through the Questioned Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign principals and the Filipino owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution. Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the proposition that the meaning of the word capital as used in Section 11, Article XII of the Constitution allegedly refers to the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is immaterial how the stock is classified, whether as common or preferred, cannot stand in the face of a clear legislative policy as stated in the FIA which took effect in 1991 or way after said opinions were rendered, and as clarified by the above-quoted Amendments. In this regard, suffice it to state that as between the law and an opinion rendered by an administrative agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and cannot prevail over the clear intent of the framers of the Constitution. In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best merely advisory for it is the courts that 39 finally determine what a law means. On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued that the term capital in Section 11, Article XII of the Constitution includes preferred shares since the Constitution does not distinguish among classes of stock, thus: 16. The Constitution applies its foreign ownership limitation on the corporations capital, without distinction as to classes of shares. x x x In this connection, the Corporation Code which was already in force at the time the present (1987) Constitution was drafted defined outstanding capital stock as follows: Section 137. Outstanding capital stock defined. The term outstanding capital stock, as used in this Code, means the total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares. Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor exclude either class of shares, in determining the outstanding capital stock (the capital) of a corporation. Consequently, petitioners suggestion to reckon PLDTs foreign equity only on the basis of PLDTs outstanding common shares is without legal basis. The language of the Constitution should be understood in the sense it has in common use. xxxx 17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is nothing in the Record of the Constitutional Commission (Vol. III) which petitioner misleadingly cited in the Petition x x x which supports petitioners view that only common shares should form the basis for computing a public utilitys foreign equity. xxx 18. In addition, the SEC the government agency primarily responsible for implementing the Corporation Code, and which also has the responsibility of ensuring compliance with the Constitutions foreign equity restrictions as regards nationalized activities x x x has categorically ruled that both common and preferred shares are properly considered in determining outstanding capital stock and 40 the nationality composition thereof. We agree with petitioner and petitioners-in-intervention. The term capital in Section 11, Article XII of the Constitution refers only 41 to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock comprising both common and non-voting preferred shares. 42 The Corporation Code of the Philippines classifies shares as common or preferred, thus: Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation: Provided, 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: Provided, further, That there shall always be a class or series of shares which have complete voting rights. Any or all of the shares or series of shares may have a par value or have no par value as may be provided for in the articles of incorporation: Provided, however, That banks, trust companies, insurance companies, public utilities, and building and loan associations shall not be permitted to issue no-par value shares of stock. Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the corporation in case of liquidation and in the distribution of dividends, or such other preferences as may be stated in the articles of incorporation which are not violative of the provisions of this Code: Provided, That preferred shares of stock may be issued only with a stated par value. The Board of Directors, where authorized in the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any series thereof: Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange Commission.

Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares without par value may not be issued for a consideration less than the value of five (P5.00) pesos per share: Provided, further, That the entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends. A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal requirements. Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects to every other share. Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall nevertheless be entitled to vote on the following matters: 1. Amendment of the articles of incorporation; 2. Adoption and amendment of by-laws; 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property; 4. Incurring, creating or increasing bonded indebtedness; 5. Increase or decrease of capital stock; 6. Merger or consolidation of the corporation with another corporation or other corporations; 7. Investment of corporate funds in another corporation or business in accordance with this Code; and 8. Dissolution of the corporation. Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights.
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Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation. This is exercised through his vote in the election of directors because it is the board of directors that controls or manages the 44 corporation. In the absence of provisions in the articles of incorporation denying voting rights to preferred shares, preferred shares have the same voting rights as common shares. However, preferred shareholders are often excluded from any control, that is, deprived of the right to vote in the election of directors and on other matters, on the theory that the preferred shareholders are 45 merely investors in the corporation for income in the same manner as bondholders. In fact, under the Corporation Code only 46 preferred or redeemable shares can be deprived of the right to vote. Common shares cannot be deprived of the right to vote in any corporate meeting, and any provision in the articles of incorporation restricting the right of common shareholders to vote is 47 invalid. Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no voting rights, the term capital in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term capital shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In short, the term capital in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors. This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens the control and management of public utilities. As revealed in the deliberations of the Constitutional Commission, capital refers to the voting stock orcontrolling interest of a corporation, to wit: MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15. MR. VILLEGAS. That is right. MR. NOLLEDO. In teaching law, we are always faced with this question: Where do we base the equity requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation? Will the Committee please enlighten me on this? MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who provided us a draft. The phrase that is contained here which we adopted from the UP draft is 60 percent of voting stock. MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be entitled to vote. MR. VILLEGAS. That is right. MR. NOLLEDO. Thank you. With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather rule? MR. VILLEGAS. Yes, that is the understanding of the Committee. MR. NOLLEDO. Therefore, we need additional Filipino capital? 48 MR. VILLEGAS. Yes. xxxx MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee. MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase voting stock or controlling interest.

MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: corporations or associations at least sixty percent of whose CAPITAL is owned by such citizens. MR. VILLEGAS. Yes. MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by citizens. MR. VILLEGAS. That is right. MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent of the capital is owned by them, but it is the voting capital, whereas, the Filipinos own the nonvoting shares. So we can have a situation where the corporation is controlled by foreigners despite being the minority because they have the voting capital. That is the anomaly that would result here. MR. BENGZON. No, the reason we eliminated the word stock as stated in the 1973 and 1935 Constitutions is that according to Commissioner Rodrigo, there are associations that do not have stocks. That is why we say CAPITAL. MR. AZCUNA. We should not eliminate the phrase controlling interest. 49 MR. BENGZON. In the case of stock corporations, it is assumed. (Emphasis supplied) Thus, 60 percent of the capital assumes, or should result in, controlling interest in the corporation. Reinforcing this interpretation of the term capital, as referring to controlling interest or shares entitled to vote, is the definition of a Philippine 50 national in the Foreign Investments Act of 1991, to wit: SEC. 3. Definitions. - As used in this Act: a. The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstandingand entitled to vote is owned and held by citizens of the Philippines; or a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of both corporations must be citizens of the Philippines, in order that the corporation, shall be considered a Philippine national. (Emphasis supplied) In explaining the definition of a Philippine national, the Implementing Rules and Regulations of the Foreign Investments Act of 1991 provide: b. Philippine national shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by the citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to the benefit of the Philippine nationals; Provided, that where a corporation its non-Filipino stockholders own stocks in a Securities and Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding and entitled to vote of both corporations must be owned and held by citizens of the Philippines and at least sixty percent [60%] of the members of the Board of Directors of each of both corporation must be citizens of the Philippines, in order that the corporation shall be considered a Philippine national. The control test shall be applied for this purpose. Compliance with the required Filipino ownership of a corporation shall be determined on the basis of outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled to vote are considered. For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals. Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-Philippine nationals. (Emphasis supplied) Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required in the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is considered as non-Philippine national*s+. Under Section 10, Article XII of the Constitution, Congress may reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments. Thus, in numerous laws Congress has reserved certain areas of investments to Filipino citizens or to corporations at least sixty percent of the capital of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term capital in Section 11, Article XII of the Constitution is also used in the same context in numerous laws reserving certain areas of investments to Filipino citizens. To construe broadly the term capital as the total outstanding capital stock, including both common and non-voting preferred shares, grossly contravenes the intent and letter of the Constitution that the State shall develop a self-reliant and independent national economyeffectively controlled by Filipinos. A broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the public utility. We shall illustrate the glaring anomaly in giving a broad definition to the term capital. Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share having a par value of one peso (P1.00) per share. Under the broad definition of the term capital, such corporation would be considered compliant with the 40 percent constitutional limit on foreign equity of public utilities since the overwhelming majority, or more than 99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the election of directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence, have no control over the public utility. This starkly circumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, to place the control of public utilities in the hands of Filipinos. It also renders illusory the State policy of an independent national economyeffectively controlled by Filipinos. The example given is not theoretical but can be found in the real world, and in fact exists in the present case. Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs Articles of Incorporation expressly state that the holders of Serial Preferred Stock shall not be entitled to vote at any meeting of the stockholders for the election of directors or for any other purpose or otherwise participate in any action taken by the corporation or its stockholders, or 51 to receive notice of any meeting of stockholders. On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDTs Articles of 52 Incorporation state that each holder of Common Capital Stock shall have one vote in respect of each share of such stock held by him on all matters voted upon by the stockholders, and the holders of Common Capital Stock shall have the exclusive right to vote 53 for the election of directors and for all other purposes. In short, only holders of common shares can vote in the election of directors, meaning only common shareholders exercise control over PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of directors, do not have any control over PLDT. In fact, under PLDTs Articles of Incorporation, holders of common shares have voting rights for all purposes, while holders of preferred shares have no voting right for any purpose whatsoever. It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact, based 54 on PLDTs 2010 General Information Sheet (GIS), which is a document required to be submitted annually to the Securities and 55 Exchange Commission, foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common 56 shares. In other words, foreigners hold 64.27% of the total number of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution. 57 58 Moreover, the Dividend Declarations of PLDT for 2009, as submitted to the SEC, shows that per share the SIP preferred shares earn a pittance in dividends compared to the common shares. PLDT declared dividends for the common shares at P70.00 per share, 59 while the declared dividends for the preferred shares amounted to a measly P1.00 per share. So the preferred shares not only cannot vote in the election of directors, they also have very little and obviously negligible dividend earning capacity compared to common shares. 60 As shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned 61 by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred shares constitute 77.85% of the 62 authorized capital stock of PLDT while common shares constitute only 22.15%. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the States grant of authority to operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility. In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that *n+o franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to x x x corporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens x x x. To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no 63 voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn; (5) preferred shares have twice the par value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution. Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value of P2,328.00 per 64 share, while PLDT preferred shares with a par value of P10.00 per share have a current stock market value ranging from only P10.92 65 toP11.06 per share, is a glaring confirmation by the market that control and beneficial ownership of PLDT rest with the common shares, not with the preferred shares. Indisputably, construing the term capital in Section 11, Article XII of the Constitution to include both voting and non-voting shares will result in the abject surrender of our telecommunications industry to foreigners, amounting to a clear abdication of the States constitutional duty to limit control of public utilities to Filipino citizens. Such an interpretation certainly runs counter to the constitutional provision reserving certain areas of investment to Filipino citizens, such as the exploitation of natural resources as well as the ownership of land, educational institutions and advertising businesses. The Court should never open to foreign control what the Constitution has expressly reserved to Filipinos for that would be a betrayal of the Constitution and of the national interest. The Court must perform its solemn duty to defend and uphold the intent and letter of the Constitution to ensure, in the words of the Constitution, a self-reliant and independent national economy effectively controlled by Filipinos. Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to Filipinos specific areas of investment, such as the development of natural resources and ownership of land, educational institutions and advertising business,

is self-executing. There is no need for legislation to implement these self-executing provisions of the Constitution. The rationale why 66 these constitutional provisions are self-executing was explained in Manila Prince Hotel v. GSIS, thus: x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional mandate, the presumption now is that all provisions of the constitution are self-executing. If the constitutional provisions are treated as requiring legislation instead of self-executing, the legislature would have the power to ignore and practically nullify the mandate of the fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has always been, that . . . in case of doubt, the Constitution should be considered self-executing rather than non-self-executing. . . . Unless the contrary is clearly intended, the provisions of the Constitution should be considered self-executing, as a contrary rule would give the legislature discretion to determine when, or whether, they shall be effective. These provisions would be subordinated to the will of the lawmaking body, which could make them entirely meaningless by simply refusing to pass the needed implementing statute. (Emphasis supplied) In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief Justice, agreed that constitutional provisions are presumed to be self-executing. Justice Puno stated: Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future legislation for their enforcement. The reason is not difficult to discern. For if they are not treated as self-executing, the mandate of the fundamental law ratified by the sovereign people can be easily ignored and nullified by Congress. Suffused with wisdom of the ages is the unyielding rule that legislative actions may give breath to constitutional rights but congressional inaction should not suffocate them. Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and seizures, the rights of a person under custodial investigation, the rights of an accused, and the privilege against self-incrimination. It is recognized that legislation is unnecessary to enable courts to effectuate constitutional provisions guaranteeing the fundamental rights of life, liberty and the protection of property. The same treatment is accorded to constitutional provisions forbidding the taking or damaging of property for public use without just compensation. (Emphasis supplied) 67 Thus, in numerous cases, this Court, even in the absence of implementing legislation, applied directly the provisions of the 1935, 68 1973 and 1987 Constitutions limiting land ownership to Filipinos. In Soriano v. Ong Hoo, this Court ruled: x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien, and as both the citizen and the alien have violated the law, none of them should have a recourse against the other, and it should only be the State that should be allowed to intervene and determine what is to be done with the property subject of the violation. We have said that what the State should do or could do in such matters is a matter of public policy, entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While the legislature has not definitely decided what policy should be followed in cases of violations against the constitutional prohibition, courts of justice cannot go beyond by declaring the disposition to be null and void as violative of the Constitution. x x x (Emphasis supplied) To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935 Constitution, or over the last 75 years, not one of the constitutional provisions expressly reserving specific areas of investments to corporations, at least 60 percent of the capital of which is owned by Filipinos, was enforceable. In short, the framers of the 1935, 1973 and 1987 Constitutions miserably failed to effectively reserve to Filipinos specific areas of investment, like the operation by corporations of public utilities, the exploitation by corporations of mineral resources, the ownership by corporations of real estate, and the ownership of educational institutions. All the legislatures that convened since 1935 also miserably failed to enact legislations to implement these vital constitutional provisions that determine who will effectively control the national economy, Filipinos or foreigners. This Court cannot allow such an absurd interpretation of the Constitution. 69 This Court has held that the SEC has both regulatory and adjudicative functions. Under its regulatory functions, the SEC can be compelled by mandamus to perform its statutory duty when it unlawfully neglects to perform the same. Under its adjudicative or quasi-judicial functions, the SEC can be also be compelled by mandamus to hear and decide a possible violation of any law it administers or enforces when it is mandated by law to investigate such violation. 70 Under Section 17(4) of the Corporation Code, the SEC has the regulatory function to reject or disapprove the Articles of Incorporation of any corporation where the required percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution. Thus, the SEC is the government agency tasked with the statutory duty to enforce the nationality requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities. This Court, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, can direct the SEC to perform its statutory duty under the law, a duty that the SEC has apparently unlawfully neglected to do based on the 2010 GIS that respondent PLDT submitted to the SEC. 71 Under Section 5(m) of the Securities Regulation Code, the SEC is vested with the power and function to suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law. The SEC is mandated under Section 5(d) of the same Code with the power and function to investigate x x x the activities of persons to ensure compliance with the laws and regulations that SEC administers or enforces. The GIS that all corporations are required to submit to SEC annually should put the SEC on guard against violations of the nationality requirement prescribed in the Constitution and existing laws. This Court can compel the SEC, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, to hear and decide a possible violation of Section 11, Article XII of the Constitution in view of the ownership structure of PLDTs voting shares, as admitted by respondents and as stated in PLDTs 2010 GIS that PLdT submitted to SEC. WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition of the term capital in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law SO ORDERED.

RICARDO L. GAMBOA, LYDIA R. GAMBOA, HONORIO DE 1A RAMA, EDUARDO DE LA RAMA, and the HEIRS OF MERCEDES DE LA RAMA-BORROMEO, petitioners, vs. HON. OSCAR R. VICTORIANO as Presiding Judge of the Court of First Instance of Negros Occidental, Branch II, BENJAMIN LOPUE, SR., BENJAMIN LOPUE, JR., LEONITO LOPUE, and LUISA U. DACLESrespondents. Exequiel T. A Alejandro for petitioners. Acua, Lirazan & Associates for private respondents. CONCEPCION JR., J,: Petition for certiorari to review the order of the respondent judge, dated January 2, 1975, denying the petitioners' motion to dismiss the complaint filed in Civil Case No. 10257 of the Court of First Instance of Negros Occidental, entitled, "Benjamin Lopue Sr., et al., plaintiffs, versus Ricardo Gamboa, et al., defendants," as well as the order dated April 4, 1975, denying the motion for the reconsideration of Said order. In the aforementioned Civil Case No. 10257 of the Court of First Instance of Negros Occidental, the herein petitioners, Ricardo L. Gamboa, Lydia R. Gamboa, Honorio de la Rama, Eduardo de la Rama, and the late Mercedes de la Rama-Borromeo, now represented by her heirs, as well as Ramon de la Rama, Paz de la Rama-Battistuzzi, and Enzo Battistuzzi, were sued by the herein private respondents, Benjamin Lopue, Sr., Benjamin Lopue, Jr., Leonito Lopue, and Luisa U. Dacles to nullify the issuance of 823 shares of stock of the Inocentes de la Rama, Inc. in favor of the said defendants. The gist of the complaint, filed on April 4, 1972, is that the plaintiffs, with the exception of Anastacio Dacles who was joined as a formal party, are the owners of 1,328 shares of stock of the Inocentes de la Rama, Inc., a domestic corporation, with an authorized capital stock of 3,000 shares, with a par value of P100.00 per share, 2,177 of which were subscribed and issued, thus leaving 823 shares unissued; that upon the plaintiffs' acquisition of the shares of stock held by Rafael Ledesma and Jose Sicangco, Jr., then President and Vice-President of the corporation, respectively, the defendants Mercedes R. Borromeo, Honorio de la Rama, and Ricardo Gamboa, remaining members of the board of directors of the corporation, in order to forestall the takeover by the plaintiffs of the afore-named corporation, surreptitiously met and elected Ricardo L. Gamboa and Honorio de la Rama as president and vice-president of the corporation, respectively, and thereafter passed a resolution authorizing the sale of the 823 unissued shares of the corporation to the defendants, Ricardo L. Gamboa, Lydia R. Gamboa, Honorio de la Rama, Ramon de la Rama, Paz R. Battistuzzi Eduardo de la Rama, and Mercedes R. Borromeo, at par value, after which the defendants Honorio de la Rama, Lydia de la Rama-Gamboa, and Enzo Battistuzzi were elected to the board of directors of the corporation; that the sale of the unissued 823 shares of stock of the corporation was in violation of the plaintiffs' and pre-emptive rights and made without the approval of the board of directors representing 2/3 of the outstanding capital stock, and is in disregard of the strictest relation of trust existing between the defendants, as stockholders thereof; and that the defendants Lydia de la Rama-Gamboa, Honorio de la Rama, and Enzo Battistuzzi were not legally elected to the board of directors of the said corporation and has unlawfully usurped or intruded into said office to the prejudice of the plaintiffs. Wherefore, they prayed that a writ of preliminary injunction be issued restraining the defendants from committing, or continuing the performance of an act tending to prejudice, diminish or otherwise injure the plaintiffs' rights in the corporate properties and funds of the corporation, and from disposing, transferring, selling, or otherwise impairing the value of the 823 shares of stock illegally issued by the defendants; that a receiver be appointed to preserve and administer the property and funds of the corporation; that defendants Lydia de la Rama-Gamboa, Honorio de la Rama, and Enzo Battistuzzi be declared as usurpers or intruders into the office of director in the corporation and, consequently, ousting them therefrom and declare Luisa U. Dacles as a legally elected director of the corporation; that the sale of 823 shares of stock of the corporation be declared null and void; and that 1 the defendants be ordered to pay damages and attorney's fees, as well as the costs of suit . Acting upon the complaint, the respondent judge, after proper hearing, directed the clerk of court "to issue the corresponding writ of preliminary injunction restraining the defendants and/or their representatives, agents, or persons acting in their behalf from the commission or continuance of any act tending in any way to prejudice, diminish or otherwise injure plaintiffs' rights in the corporate properties and funds of the corporation Inocentes de la Rama, Inc.' and from disposing, transferring, selling or otherwise impairing the value of the certificates of stock allegedly issued illegally in their names on February 11, 1972, or at any date thereafter, and ordering them to deposit with the Clerk of Court the corresponding certificates of stock for the 823 shares issued to said defendants on February 11, 1972, upon plaintiffs' posting a bond in the sum of P50,000.00, to answer for any damages and costs that may be 2 sustained by the defendants by reason of the issuance of the writ, copy of the bond to be furnished to the defendants. " Pursuant thereto, the defendants deposited with the clerk of court the corporation's certificates of stock Nos. 80 to 86, inclusive, representing 3 the disputed 823 shares of stock of the corporation. On October 31, 1972, the plaintiffs therein, now private respondents, entered into a compromise agreement with the defendants 4 Ramon de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi , whereby the contracting parties withdrew their respective claims against each other and the aforenamed defendants waived and transferred their rights and interests over the questioned 823 shares of stock in favor of the plaintiffs, as follows: 3. That the defendants Ramon L. de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi will waive, cede, transfer or other wise convey, as they hereby waive, cede, transfer and convey, free from all liens and encumbrances unto the plaintiffs, in such proportion as the plaintiffs may among themselves determine, all of the rights, interests, participations or title that the defendants Ramon L. de la Rama, Paz de la Rama Battistuzzi Enzo Battistuzzi now have or may have in the eight hundred twenty-three (823) shares in the capital stock of the corporation INOCENTES DELA RAMA, INC.' which were issued in the names of the defendants in the aboveentitled case on or about February 11, 1972, or at any date thereafter and which shares are the subject-matter of the present suit. 5 The compromise agreement was approved by the trial court on December 4, 1972, As a result, the defendants filed a motion to dismiss the complaint, on November 19, 1974, upon the grounds: (1) that the plaintiffs' cause of action had been waived or abandoned; and (2) that they were estopped from further prosecuting the case since they have, in effect, acknowledged the validity 6 of the issuance of the disputed 823 shares of stock. The motion was denied on January 2, 1975. The defendants also filed a motion to declare the defendants Ramon L. de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi in contempt of court, for having violated the writ of preliminary injunction when they entered into the aforesaid compromise 7 agreement with the plaintiffs, but the respondent judge denied the said motion for lack of merit. On February 10, 1975, the defendants filed a motion for the reconsideration of the order denying their motion to dismiss the complaint' and subsequently, an Addendum thereto, claiming that the respondent court has no jurisdiction to interfere with the

management of the corporation by the board of directors, and the enactment of a resolution by the defendants, as members of the board of directors of the corporation, allowing the sale of the 823 shares of stock to the defendants was purely a management concern which the courts could not interfere with. When the trial court denied said motion and its addendum, the defendants filed the instant petition for certiorari for the review of said orders. The petition is without merit. The questioned order denying the petitioners' motion to dismiss the complaint is merely interlocutory and cannot be the subject of a petition for certiorari. The proper procedure to be followed in such a case is to continue with the trial of the case on the merits and, if the decision is adverse, to reiterate the issue on appeal. It would be a breach of orderly procedure to allow a party to come before this Court every time an order is issued with which he does not agree. Besides, the order denying the petitioners' motion to dismiss the complaint was not capriciously, arbitrarily, or whimsically issued, or that the respondent court lacked jurisdiction over the cause as to warrant the issuance of the writ prayed for. As found by the respondent judge, the petitioners have not waived their cause of action against the petitioners by entering into a compromise agreement with the other defendants in view of the express provision of the compromise agreement that the same "shall not in any way constitute or be considered a waiver or abandonment of any claim or cause of action against the other defendants." There is also no estoppel because there is nothing in the agreement which could be construed as an affirmative admission by the plaintiff of the validity of the resolution of the defendants which is now sought to be judicially declared null and void. The foregoing circumstances and the fact that no consideration was mentioned in the agreement for the transfer of rights to the said shares of stock to the plaintiffs are sufficient to show that the agreement was merely an admission by the defendants Ramon de la Rama, Paz de la Rama Battistuzzi and Enzo Battistuzzi of the validity of the claim of the plaintiffs. The claim of the petitioners, in their Addendum to the motion for reconsideration of the order denying the motion to dismiss the complaint, questioning the trial court's jurisdiction on matters affecting the management of the corporation, is without merit. The well-known rule is that courts cannot undertake to control the discretion of the board of directors about administrative matters as 10 to which they have legitimate power of, action and contractsintra vires entered into by the board of directors are binding upon the corporation and courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to a wanton 11 destruction of the rights of the minority. In the instant case, the plaintiffs aver that the defendants have concluded a transaction among themselves as will result to serious injury to the interests of the plaintiffs, so that the trial court has jurisdiction over the case. The petitioners further contend that the proper remedy of the plaintiffs would be to institute a derivative suit against the petitioners in the name of the corporation in order to secure a binding relief after exhausting all the possible remedies available within the corporation. An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real 12 party in interest. In the case at bar, however, the plaintiffs are alleging and vindicating their own individual interests or prejudice, and not that of the corporation. At any rate, it is yet too early in the proceedings since the issues have not been joined. Besides, 13 misjoinder of parties is not a ground to dismiss an action. WHEREFORE, the petition should be, as it is hereby DISMISSED for lack of merit. With costs against the petitioners. SO ORDERED.

NEMESIO GARCIA, petitioner, vs. NICOLAS JOMOUAD, Ex-officio Provincial Sheriff of Cebu and SPOUSES JOSE ATINON & SALLY ATINON,respondents. KAPUNAN, J.: In this petition for review on certiorari, Nemesio Garcia (herein petitioner) seeks the reversal of the Decision, dated 27 October 1997, of the Court of Appeals in CA G.R. CV No. 52255 and its Resolution, dated 22 April 1998, denying petitioner's motion for reconsideration of said decision. Petitioner filed with the Regional Trial Court, Branch 23 of Cebu, an action for injunction with prayer for preliminary injunction against respondents spouses Jose and Sally Atinon and Nicolas Jomouad, ex-officio sheriff of Cebu. Said action stemmed from an earlier case for collection of sum of money, docketed as Civil Case No. CEB-10433, before the RTC, Branch 10 of Cebu, filed by the spouses Atinon against Jaime Dico. In that case (collection of sum of money), the trial court rendered judgment ordering Dico to pay the spouses Atinon the sum of P900,000.00 plus interests. After said judgment became final and executory, respondent sheriff proceeded with its execution. In the course thereof, the Proprietary Ownership Certificate (POC) No. 0668 in the Cebu Country Club, which was in the name of Dico, was levied on and scheduled for public auction. Claiming ownership over the subject certificate, petitioner filed the aforesaid action for injunction with prayer for preliminary injunction to enjoin respondents from proceeding with the auction. After trial, the lower court rendered its Decision, dated 28 July 1995, dismissing petitioner's complaint for injunction for lack of merit. On appeal, the CA affirmed in toto the decision of the RTC upon finding that it committed no reversible error in rendering the same. Hence, this petition.1wphi1.nt Petitioner avers that Dico, the judgment debtor of the spouses Atinon, was employed as manager of his (petitioner's) Young Auto Supply. In order to assist him in entertaining clients, petitioner "lent" his POC, then bearing the number 1459, in the Cebu Country Club to Dico so the latter could enjoy the "signing" privileges of its members. The Club issued POC No. 0668 in the name of Dico. Thereafter, Dico resigned as manager of petitioner's business. Upon demand of petitioner, Dico returned POC No. 0668 to him. Dico then executed a Deed of Transfer, dated 18 November 1992, covering the subject certificate in favor of petitioner. The Club was furnished with a copy of said deed but the transfer was not recorded in the books of the Club because petitioner failed to present proof of payment of the requisite capital gains tax. In assailing the decision of the CA, petitioner mainly argues that the appellate court erroneously relied on Section 63 of the Corporation Code in upholding the levy on the subject certificate to satisfy the judgment debt of Dico in Civil Case No. CEB-14033. Petitioner contends that the subject stock of certificate, albeit in the name of Dico, cannot be levied upon the execution to satisfy his judgment debt because even prior to the institution of the case for collection of sum of money against him: 1. The spouses Atinon had knowledge that Dico already conveyed back the ownership of the subject, certificate to petitioner; 2. Dico executed a deed of transfer, dated 18 November 1992, covering the subject certificate in favor of petitioner and the Club was furnished with a copy thereof; and 3. Dico resigned as a proprietary member of the Club and his resignation was accepted by the board of directors at their meeting on 4 May 1993. The petition is without merit. Sec. 63 of the Corporation Code reads: Sec. 63 Certificate of stock and transfer of shares. The capital stock of corporations shall be divided into shares for which certificates signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation. 1 The sole issue in this case is similar to that raised in Uson vs. Diosomito, i.e., "whether a bona fide transfer of the shares of a corporation, not registered or noted in the books of the corporation, is valid as against a subsequent lawful attachment of said 2 shares, regardless of whether the attaching creditor had actual notice of said transfer or not." In that case, we held that the attachment prevails over the unrecorded transfer stating thus [w]e think that the true meaning of the language is, and the obvious intention of the legislature in using it was, that all transfers of shares should be entered, as here required, on the books of the corporation. And it is equally clear to us that all transfers of shares not so entered are invalid as to attaching or execution creditors of the assignors, as well as to the corporation and to subsequent purchasers in good faith, and, indeed, as to all persons interested, except the parties to such transfers. All transfers not so entered on the books of the corporation are absolutely void; not because they are without notice or fraudulent in law or fact, but because 3 they are made so void by statute. Applying the foregoing jurisprudence in this case, we hold that the transfer of the subject certificate made by Dico to petitioner was not valid as to the spouses Atinon, the judgment creditors, as the same still stood in the name of Dico, the judgment debtor, at the time of the levy on execution. In addition, as correctly ruled by the CA, the entry in the minutes of the meeting of the Club's board of directors noting the resignation of Dico as proprietary member thereof does not constitute compliance with Section 63 of the Corporation Code. Said provision of law strictly requires the recording of the transfer in the books of the corporation, and not elsewhere, to be valid as against third parties. Accordingly, the CA committed no reversible error in rendering the assailed decision. IN VIEW OF THE FOREGOING, the Court RESOLVED to DENY the petition. SO ORDERED.1wphi1.nt

TIRSO GARCIA, in his capacity as receiver of the Mercantile Bank of China, plaintiff-appellee, vs. LIM CHU SING, defendant-appellant. Marcelino Lontok for appellant. Nicolas Santiago for appellee. Villareal, J.: This is an appeal taken by the defendant Lim Chu Sing from the judgment rendered by the Court of First Instance of Manila, the dispositive part of which reads as follows: Wherefore, judgment is rendered sentencing the defendant to pay the sum of P9,105.17 with interest thereon at the rate of six per cent per annum from September 1, 1932, until fully paid, plus the sum of P910.51, as attorneys fees, with the costs of this suit. In conformity with the stipulation, this judgment shall be subject to execution after ninety (90) days. So ordered. In support of his appeal, the appellant assigns the following alleged errors as committed by the courta quo in its decision, to wit: 1. In denying the motion dated December 27, 1932, praying for the inclusion of Lim Cuan Sy, being the principal debtor, as party to this suit. 2. In holding as improper the compensation of the defendants debt of P9,106.17, claimed in the complaint, with his credit amounting to P10,000 with the Mercantile Bank of China. 3. In not ordering that after the compensation the plaintiff-appellee, as receiver of the Mercantile Bank of China, should liquidate the dividends of the defendant-appellants shares. 4. In sentencing the defendant-appellant to pay to the plaintiff-appellee the sum of P910.51 as attorneys fees, plus interest at 6 per cent per annum on the sum of P9,105.17, with costs. 5. In denying the motion for a new trial. When the case was called for hearing, the parties submitted the following stipulation of facts for the consideration of the trial court, to wit: Come now both parties and to this Honorable Court respectfully submit the following stipulation: 1. The defendant admits the facts alleged in the complaint. 2. The plaintiff admits the allegations in the answer, particularly with reference to the fact that the defendant is the owner of two hundred shares at a par value of fifty pesos (P50) each, that is (Pl0,000). 3. The court may render judgment in accordance with this stipulation, but the same shall be subject to execution after ninety (90) days. Wherefore, they respectfully submit this stipulation and pray that judgment be rendered in accordance therewith. The facts alleged in the complaint and admitted by both parties under the above quoted stipulation of facts are as follows: On June 20, 1930, the defendant-appellant Lim Chu Sing executed and delivered to the Mercantile Bank of China promissory note for the sum of P19,605.17 with interest thereon at 6 per cent per annum, payable monthly as follows: P1,000 on July 1, 1930; P500 on August 1, 1930; and P500 on the first of every month thereafter until the amount of the promissory note together with the interest thereon is fully paid (Exhibit A). One of the conditions stipulated in said promissory note is that in case of defendants default in the payment of any of the monthly installments, as they become due, the entire amount or the unpaid balance thereof together with interest thereon at 6 per cent per annum, shall become due and payable on demand. The defendant had been, making several partial payments thereon, leaving an unpaid balance of P9,105.17. However, he defaulted in the payment of several installments by reason of which the unpaid balance of P9,105.17 on the promissory note has ipso facto become due and demandable. The facts alleged in the answer and admitted by both parties under the same stipulation of facts are as follows: The debt which is the subject matter of the complaint was not really an indebtedness of the defendant but of Lim Cuan Sy, who had an account with the plaintiff bank in the form of trust receipts guaranteed by the defendant as surety and with chattel mortgage securities. The plaintiff bank, without the knowledge and consent of the defendant, foreclosed the chattel mortgage and privately sold the property covered thereby. Inasmuch as Lim Cuan Sy failed to comply with his obligations, the plaintiff required the defendant, as surety, to sign a promissory note for the sum of P19,105.17 payable in the manner hereinbefore stated (Exhibit A). The defendant had been paying the corresponding installments until the debt was reduced to the sum of P9,105.17 claimed in the complaint. The defendant is the owner of shares of stock of the plaintiff Mercantile Bank of China amounting to P10,000. The plaintiff bank is now under liquidation. On December 27, 1932, the defendant-appellant Lim Chu Sing filed a motion praying for the inclusion of the principal debtor Lim Cuan Sy as party defendant so that he could avail himself of the benefit of the exhaustion of the property of said Lim Cuan Sy. Said motion was denied in open court by the presiding judge without the defendant-appellant having excepted to such order of denial. The proceeds of the sale of the mortgaged chattels together with other payments made were applied to the amount of the promissory note in question, leaving the balance which the plaintiff now seeks to collect. The first question to be decided in this appeal is whether or not the court a quo erred in denying the motion for inclusion of a party a defendant, filed by the defendant-appellant. According to the provisions of section 141 of the Code of Civil Procedure, . . . Rulings of the court upon minor matters, such as adjournments, postponements of trials, the extension of time for filing pleadings or motions, and other matters addressed to the discretion of the court in the performance of its duty, shall not be subject to exception. But exception may be taken to any other ruling, order, or judgment of the court made during the pendency of the action in the Court of First Instance. An `exception has been defined as an objection taken to the decision of the trial court upon a matter of law, and is a notice that the party taking it preserves for the consideration of the appellate court a ruling deemed erroneous. (8 Am. Enc. P. and P., 157.) `Errors in a judgment or decree will not be noticed on appeal in the absence of objections and exceptions taken below, and they should be sufficiently specific to direct the attention of the court to the alleged defects. (8 Enc. Pl and Pr., 289.) (Garcia de Lara vs. Gonzales de Lara, 2 Phil. 297.) Inasmuch as an exception is an objection taken to the decision of the trial court upon a matter of law and is a notice that the party taking it will submit for the consideration of the appellate court the ruling deemed erroneous, failure to interpose it deprived the appellant of the right to raise the question whether or not the court a quo committed the alleged error attributed to it in its ruling which had not been excepted to by the said appellant. The inclusion in, or exclusion from an action of a certain party is a question of law. The herein defendant-appellant, not having excepted to the order of the Court of First Instance of Manila denying his motion for the inclusion of Lim Cuan Sy as party defendant, is estopped from raising such question upon appeal

(Roman Catholic Bishop of Lipa vs. Municipality of San Jose, 27 Phil. 571; Vergara vs. Laciapag, 28 Phil. 439; Andrews vs. Morente Rosario, 9 Phil. 634). The second question to be decided is whether or not it is proper to compensate the defendant-appellants indebtedness of P9,105.17, which is claimed in the complaint, with the sum of P10,000 representing the value of his shares of stock with the plaintiff entity, the Mercantile Bank of China. According to the weight of authority, a share of stock or the certificate thereof is not an indebtedness to the owner nor evidence of indebtedness and, therefore, it is not a credit (14 Corpus Juris, p. 388, see. 511). Stockholders, as such, are not creditors of the corporation (14 Corpus Juris, p. 848, Sec. 1289). It is the prevailing doctrine of the American courts, repeatedly asserted in the broadest terms, that the capital stock of a corporation is a trust fund to be used more particularly for the security of creditors of the corporation, who presumably deal with it on the credit of its capital stock (14 Corpus Juris, p. 383, sec. 505). Therefore, the defendant-appellant Lim Chu Sing not being a creditor of the Mercantile Bank of China, although the latter is a creditor of the former, there is no sufficient ground to justify a compensation (art. 1195, Civil Code; Acua Co Chongco vs. Dievas, 12 Phil. 250). The third question to be decided in this appeal is whether or not the court a quo erred in sentencing the said defendant-appellant to pay the sum of P910.51 as attorneys fees in addition to interest at 6 per cent per annum on the amount sought in the complaint. The pertinent clause of the promissory note Exhibit A reads as follows: In case of default of any of the above installments, the total amount of the balance still unpaid of this note will become due and payable on demand plus interest thereon at the rate of 6 per cent per annum from date of this note until payment is made. And I further agree to pay an additional sum equivalent to 10 per cent of the said note to cover cost and attorneys fees for collection. The stipulation relative to the payment of interest at the rate of 6 per cent per annum on the unpaid balance of the promissory note Exhibit A refers to the capital and the 10 per cent stipulated for costs and attorneys fees cannot be considered as interest but an indemnity for damages occasioned by the collection of the indebtedness through judicial process. Therefore the two rates in question cannot be combined and considered usurious interest. With reference to the costs, the 10 per cent stipulated in the promissory note is for costs and attorneys fees which may be incurred in the collection of the indebtedness through judicial process. Therefore, the defendant-appellant should not again be made to pay for them (Bank of the Philippine Islands vs. Yulo, 31 Phil. 476). In view of the foregoing, this court is of the opinion and so holds: (1) That failure to file an exception to a ruling rendered in open court denying a motion for the inclusion of a party as defendant deprives the petitioner, upon appeal of the right to raise the question whether such denial proper or improper; (2) that the shares of a banking corporation do not constitute an indebtedness of the corporation to the stockholder and, therefore, the latter is not a creditor of the former for such shares; (3) that the indebtedness of a shareholder to a banking corporation cannot be compensated with the amount of his shares therein, there being no relation of creditor and debtor with respect to such shares; and (4) that the percentage stipulated in a contract, for costs and attorneys fees for the collection of an indebtedness, includes judicial costs. Wherefore, with the sole modification that the costs be eliminated from the appealed judgment, the same is hereby affirmed, without special pronouncement as to costs of this instance. So ordered. Malcolm, Hull, Imperial, and Goddard, JJ., concur.

GERARDO GARCIA, plaintiff-appellee, vs. ANGEL SUAREZ, defendant-appellant. Sotto and Sotto for appellant. Ramirez and Ortigas for appellee. CONCEPCION, J.: On October 4, 1924, the appellant subscribed to sixteen shares of the capital stock of the Compaia Hispano-Filipina, Inc., a corporation which is duly formed and organized. Of the sixteen subscribed shares, at the par value of P100 each, the appellant only paid P400, the value of four shares. On June 5, 1931, the plaintiff-appellee was appointed by the court receiver of the Compaia Hispano-Filipina, Inc., to collect all the credits of said corporation, pay its debts and dispose of the remainder of its assets and of its properties. On June 18, 1931, the plaintiff-appellee in vain made demand upon the defendant-appellant to pay the balance of his subscription. On July 10, 1933, the plaintiff, as receiver, brought an action in the Court of First Instance of Manila to recover from the defendant-appellant and other shareholders the balance of their subscriptions, but the complaint was dismissed for lack of prosecution. On October 10, 1935, a similar complaint was filed against the appellant, and after trial, judgment was rendered therein ordering the said defendant to pay to the plaintiff, as receiver of Compaia Hispano-Filipina, Inc., the sum of P1,200, with legal interest thereon from October 4, 1924, and the costs. The defendant appealed and in this instance contends that the trial court erred in holding that the action of the plaintiff-appellee has not prescribed, and that the appellant has not been released from his obligation to pay the balance of his subscription. The first alleged error is based on the ground that the obligation contracted by the appellant to pay the value of his subscription was demandable, according to him, from the date of subscription in the absence of any stipulation to the contrary, and he says that from the date of his subscription, October 4, 1924, until the filing of the complaint on October 10, 1935, more than ten years have elapsed, a period which is more than sufficient for the prescription of the action against the appellant. In support of his contention, the appellant cites section 37 of the Corporation Law, amended by Act No. 3518, according to which subscribers for stock shall pay to the corporation quarterly on all unpaid subscription interest, from the date of subscription, at the rate of six per centum per annum unless otherwise provided in the by-laws. From this legal provision the appellant infers that the subscriber is bound to pay the total amount of the subscription from the perfection of the contract, there being, as there is none of this case, any stipulation to the contrary in the by-laws of the corporation or in the contract of subscription. The premise of the argument is wrong because it confuses two distinct obligations: the obligation to pay interest and that to pay the amount of the subscription. The said section 37 of the Corporation Law provides when the obligation to pay interest arises and when payment should be made, but it is absolutely silent as to when the subscription to a stock should be paid. Of course, the obligation to pay arises from the date of the subscription, but the coming into being of an obligation should not be confused with the time when it becomes demandable. In a loan for example, the obligation to pay arises from the time the loan is taken; but the maturity of that obligation, the date when the debtor can be compelled to pay, is not the date itself of the loan, because this would be absurd. The date when payment can be demanded is necessarily distinct from and subsequent to that the obligation is contracted. By the same token, the subscription to the capital stock of the corporation, unless otherwise stipulation, is not payable at the moment of the subscription but on a subsequent date which may be fixed by the corporation. Hence, section 38 of the Corporation Law, amended by Act No. 3518, provides that: The board of directors or trustees of any stock corporation formed, organized, or existing under this Act may at any time declare due and payable to the corporation unpaid subscriptions to the capital stock . . . . The board of directors of the Compaia Hispano-Filipino, Inc., not having declared due and payable the stock subscribed by the appellant, the prescriptive period of the action for the collection thereof only commenced to run from June 18, 1931 when the plaintiff, in his capacity as receiver and in the exercise of the power conferred upon him by the said section 38 of the Corporation Law, demanded of the appellant to pay the balance of his subscription. The present action having been filed on October 10, 1935, the defense of prescription is entirely without basis. The second alleged error of the court assigned by the appellant consists in not holding that he was released from the obligation to pay the balance of his subscription. In support of his connection, the appellant adduced as evidence a letter, allegedly signed by R. Pando, acting president of the corporation Compaia Hispano-Filipina, Inc., wherein the appellant was released by Pando from all obligation with respect to the payment of his subscription in consideration of his transfer of his shares to the corporation. The very citation of authorities made by the appellant in his brief destroys his contention. It says: Released of subscribers by the corporation. There can be no doubt that a corporation may effectually release a subscriber from liability on his subscription, in whole or in part, or allow him to modify his contract, if all the stockholders expressly or impliedly consent . . . . The agents or officers of the corporation have no such power, however, unless it is expressly conferred upon them by the charter or statute, or by the stockholders by a by-law or otherwise. . . . (Thomas vs. Wentworth Hotel Co., 117 Pac., 1041; Fletcher, Encyc. of Private Corporations, sec. 638). (Emphasis supplied.) It has not been established that the stockholders of the Compaia Hispano-Filipina, Inc., have in any wise consented to release the appellant from his obligation, or that the acting president, R. Pando, was expressly authorized by the stockholders, or was authorized by the by-laws of the corporation, to release the appellant from his obligation. Against the contention of the appellant, this court has held that: A corporation has no legal capacity to release a subscriber to its capital stock from the obligation to pay for his shares; and any agreement to this effect is invalid.(Velasco vs. Poizat, 37 Phil., 802.) A corporation has no power to release an original subscriber to its capital stock from the obligation of paying for his shares, without a valuable consideration for such release; . . . . (Philippine Trust Co. vs. Rivera, 44 Phil., 469.) A stock subscription is a contract between the corporation and the subscriber, and courts will enforce it for or against either. A corporation has no legal capacity to release a subscriber to its capital stock from the obligation to pay for his shares, and any agreement to this effect is invalid. (Velasco vs. Poizat, 37 Phil., 802.) (Miranda vs. Tarlac Rice Mill Co., 57 Phil., 619.) The appealed judgment is affirmed, with costs to the appellant. So ordered.

CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO, petitioners, vs. THE HONORABLE COURT OF APPEALS and INSULAR SAWMILL, INC., respondents. DE CASTRO, J.: Private respondent Insular Sawmill, Inc. is a corporation organized on September 17, 1945 with a corporate life of fifty (50) years, or up to September 17, 1995, with the primary purpose of carrying on a general lumber and sawmill business. To carry on this business, private respondent leased the paraphernal property of petitioner-wife Guillermina M. Gelano at the corner of Canonigo and Otis, Paco, Manila for P1,200.00 a month. It was while private respondent was leasing the aforesaid property that its officers and directors had come to know petitioner-husband Carlos Gelano who received from the corporation cash advances on account of rentals to be paid by the corporation on the land. Between November 19, 1947 to December 26, 1950 petitioner Carlos Gelano obtained from private respondent cash advances of P25,950.00. The said sum was taken and received by petitioner Carlos Gelano on the agreement that private respondent could deduct the same from the monthly rentals of the leased premises until said cash advances are fully paid. Out of the aforementioned cash advances in the total sum of P25,950.00, petitioner Carlos Gelano was able to pay only P5,950.00 thereby leaving an unpaid balance of P20,000.00 which he refused to pay despite repeated demands by private respondent. Petitioner Guillermina M. Gelano refused to pay on the ground that said amount was for the personal account of her husband asked for by, and given to him, without her knowledge and consent and did not benefit the family. On various occasions from May 4, 1948 to September 11, 1949 petitioners husband and wife also made credit purchases of lumber materials from private respondent with a total price of P1,120.46 in connection with the repair and improvement of petitioners' residence. On November 9, 1949 partial payment was made by petitioners in the amount of P91.00 and in view of the cash discount in favor of petitioners in the amount of P83.00, the amount due private respondent on account of credit purchases of lumber materials is P946.46 which petitioners failed to pay. On July 14, 1952, in order to accommodate and help petitioners renew previous loans obtained by them from the China Banking Corporation, private respondent, through Joseph Tan Yoc Su, executed a joint and several promissory note with Carlos Gelano in favor of said bank in the amount of P8,000.00 payable in sixty (60) days. For failure of Carlos Gelano to pay the promissory note upon maturity, the bank collected from the respondent corporation the amount of P9,106.00 including interests, by debiting it from the corporation's current account with the bank. Petitioner Carlos Gelano was able to pay private respondent the amount of P5,000.00 but the balance of P4,106.00 remained unsettled. Guillermina M. Gelano refused to pay on the ground that she had no knowledge about the accommodation made by the corporation in favor of her husband. On May 29, 1959 the corporation, thru Atty. German Lee, filed a complaint for collection against herein petitioners before the Court of First Instance of Manila. Trial was held and when the case was at the stage of submitting memorandum, Atty. Lee retired from active law practice and Atty. Eduardo F. Elizalde took over and prepared the memorandum. In the meantime, private respondent amended its Articles of Incorporation to shorten its term of existence up to December 31, 1960 only. The amended Articles of Incorporation was filed with, and approved by the Securities and Exchange Commission, but the trial court was not notified of the amendment shortening the corporate existence and no substitution of party was ever made. On November 20, 1964 and almost four (4) years after the dissolution of the corporation, the trial court rendered a decision in favor of private respondent the dispositive portion of which reads as follows: WHEREFORE, judgment is rendered, ordering: 1. Defendant Carlos Gelano to pay plaintiff the sum of: (a) P19,650.00 with interest thereon at the legal rate from the date of the filing of the complaint on May 29, 1959, until said sum is fully paid; (b) P4,106.00, with interest thereon at the legal rate from the date of the filing of the complaint until said sum is fully paid; 2. Defendants Carlos Gelano and Guillermina Mendoza to pay jointly and severally the sum of: (a) P946.46, with interest thereon, at the agreed rate of 12% per annum from October 6, 1946, until said sum is fully paid; (b) P550.00, with interest thereon at the legal rate from the date of the filing of the complaint until the said sum is fully paid; (c) Costs of the suit; and 3. Defendant Carlos Gelano to pay the plaintiff the sum of P2,000.00 attorney's fees. The Countered of defendants are dismissed. 1 SO ORDERED. Both parties appealed to the Court of Appeals, private respondent also appealing because it insisted that both Carlos Gelano and Guillermina Gelano should be held liable for the substantial portion of the claim. On August 23, 1973, the Court of Appeals rendered a decision modifying the judgment of the trial court by holding petitioner spouses jointly and severally liable on private respondent's claim and increasing the award of P4,106.00. The dispositive portion of the decision reads as follows: WHEREFORE, modified in the sense that the amount of P4,160.00 under paragraph 1 (b) is raised to P8,160.00 and the clarification that the conjugal partnership of the spouses is jointly and severally liable for the obligations adjudged against defendant Carlos 2 Gelano, the judgment appealed from is affirmed in all other respects. After petitioners received a copy of the decision on August 24, 1973, they came to know that the Insular Sawmill Inc. was dissolved way back on December 31, 1960. Hence, petitioners filed a motion to dismiss the case and/or reconsideration of the decision of the Court of Appeals on grounds that the case was prosecuted even after dissolution of private respondent as a corporation and that a defunct corporation cannot maintain any suit for or against it without first complying with the requirements of the winding up of the affairs of the corporation and the assignment of its property rights within the required period. Incidentally, after receipt of petitioners' motion to dismiss and/or reconsideration or on October 28, 1973, private respondent thru its former directors filed a Petition for Receivership before the Court of First Instance of Manila, docketed as Special Proceedings No. 3 92303, which petition is still pending before said court. On November 5, 1973, private respondent filed comment on the motion to dismiss and or reconsideration and after the parties have 4 filed reply and rejoinder, the Court of Appeals on July 5, 1974 issued a resolution denying the aforesaid motion. Hence, the present petition for review, petitioners assigning the following errors: I

THE "RESPONDENT COURT" ERRED IN DENYING PETlTIONERS MOTION TO DISMISS THIS CASE DESPITE THE CLEAR FINDING THAT "RESPONDENT" HAD ALREADY CEASED TO EXIST AS A CORPORATION SINCE DECEMBER 31, 1960 YET. II THE "RESPONDENT COURT" ERRED IN NOT HOLDING THAT ACTIONS PENDING FOR OR AGAINST A DEFUNCT CORPORATION ARE DEEMED ABATED. III THE "RESPONDENT COURT" ERRED IN HOLDING INSTEAD THAT EVEN IF THERE WAS NO COMPLIANCE WITH SECTIONS 77 AND 78 OF THE CORPORATION LAW FOR THE WINDING UP OF THE AFFAIRS OF THE CORPORATION BY THE CONVEYANCE OF CORPORATE PROPERTY AND PROPERTY RIGHTS TO AN ASSIGNEE, OR TRUSTEE OR THE APPOINTMENT OF A RECEIVER WITHIN THREE YEARS FROM THE DISSOLUTION OF SUCH CORPORATION, ANY LITIGATION FILED BY OR AGAINST THE DISSOLVED CORPORATION, INSTITUTED WITHIN THREE YEARS AFTER SUCH DISSOLUTION BUT WHICH COULD NOT BE TERMINATED WITHIN SAID PERIOD, MAY STILL BE CONTINUED AS IT IS NOT DEEMED ABATED. IV THE "RESPONDENT COURT" ERRED IN THE APPLICATION TO THIS CASE OF ITS RULING IN PASAY CREDIT AND FINANCE CORPORATION, VERSUS LAZARO, ET AL., 46 O.G. (11) 5528, AND IN OVERLOOKING THE DISTINCTION LAID DOWN BY THIS HONORABLE COURT IN NUMEROUS DECIDED CASES THAT ONLY CASES FILED IN THE NAME OF ASSIGNEES, TRUSTEES OR RECEIVERS (FOR A DEFUNCT CORPORATION), AI)POINTED WITHIN THREE YEARS FROM ITS DISSOLUTION, MAY BE PROSECUTED BEYOND THE SAID THREE YEAR PERIOD, AND THAT, ALL OTHERS ARE DEEMED ABATED. V THE "RESPONDENT COURT" ERRED IN HOLDING THAT WITH THE FILING OF SPECIAL PROCEEDINGS NO. 92303 IN THE COURT OF FIRST INSTANCE OF MANILA BY FORMER DIRECTORS OF "PRIVATE RESPONDENT" ON OCTOBER 23,1973, OR, THIRTEEN YEARS AFTER ITS DISSOLUTION, A LEGAL, PERSONALITY WILL BE APPOINTED TO REPRESENT THE CORPORATION. VI THE "RESPONDENT COURT" ERRED IN PRACTICALLY RULING THAT THE THREE-YEAR PERIOD PROVIDED FOR BY THE CORPORATION LAW WITHIN WHICH ASSIGNEES, TRUSTEES FOR RECEIVERS MAY BE APPOINTED MAY BE EXTENDED. VII THE "RESPONDENT COURT" ERRED IN NOT HOLDING THAT THE FAILURE OF "PRIVATE RESPONDENT" OR ITS AUTHORIZED COUNSEL TO NOTIFY THE TRIAL COURT OF ITS DISSOLUTION OR OF ITS "CIVIL DEATH" MAY BE CONSIDERED AS AN ABANDONMENT OF ITS CAUSE OF ACTION AMOUNTING TO A FAILURE TO PROSECUTE AND RESULTING IN THE ABATEMENT OF THE SUIT. VIII THE "RESPONDENT COURT" ERRED IN RECOGNIZING THE PERSONALITY OF COUNSEL APPEARING FOR PRIVATE RESPONDENT' DESPITE HIS ADMISSION THAT HE DOES NOT KNOW THE "PRIVATE RESPONDENT" NOR HAS HE MET ANY OF ITS DIRECTORS AND OFFICERS. IX THE "RESPONDENT COURT" ERRED IN AFFIRMING THE DECISION OF THE TRIAL COURT HOLDING IN FAVOR OF "PRIVATE RESPONDENT". X THE "RESPONDENT COURT" ERRED IN MODIFYING THE TRIAL COURT'S DECISION AND HOLDING EVEN THE CONJUGAL PARTNERSHIP OF PETITIONERS JOINTLY AND SEVERALLY LIABLE FOR THE OBLIGATION ADJUDGED AGAINST PETITIONER-HUSBAND, CARLOS GELANO. The main issue raised by petitioner is whether a corporation, whose corporate life had ceased by the expiration of its term of existence, could still continue prosecuting and defending suits after its dissolution and beyond the period of three years provided for under Act No. 1459, otherwise known as the Corporation law, to wind up its affairs, without having undertaken any step to transfer its assets to a trustee or assignee. The complaint in this case was filed on May 29, 1959 when private respondent Insular Sawmill, Inc. was still existing. While the case was being tried, the stockholders amended its Articles of Incorporation by shortening the term of its existence from December 31, 1995 to December 31, 1960, which was approved by the Securities and Exchange Commission. In American corporate law, upon which our Corporation Law was patterned, it is well settled that, unless the statutes otherwise 5 provide, all pending suits and actions by and against a corporation are abated by a dissolution of the corporation. Section 77 of the Corporation Law provides that the corporation shall "be continued as a body corporate for three (3) years after the time when it would have been ... dissolved, for the purpose of prosecuting and defending suits By or against it ...," so that, thereafter, it shall no longer enjoy corporate existence for such purpose. For this reason, Section 78 of the same law authorizes the corporation, "at any time during said three years ... to convey all of its property to trustees for the benefit of members, Stockholders, creditors and other interested," evidently for the purpose, among others, of enabling said trustees to prosecute and defend suits by or against the 6 corporation begun before the expiration of said period. Commenting on said sections, Justice Fisher said: It is to be noted that the time during which the corporation, through its own officers, may conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the period of dissolution commences; but that there is no time limited within which the trustees must complete a liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78) that the conveyance to the trustees must be made within the three-year period. It may be found impossible to complete the work of liquidation within the three-year period or to reduce disputed claims to judgment. The authorities are to the effect that suits by or against a corporation abate when it ceased to be an entity capable of suing or being sued (7 R.C.L. Corps., Par. 750); but trustees to whom the corporate assets have been conveyed pursuant to the authority of Section 78 may sue and be sued as such in all matters connected with the liquidation. By the terms of the statute the effect of the conveyance is to make the trustees the legal owners of 7 the property conveyed, subject to the beneficial interest therein of creditors and stockholders. When Insular Sawmill, Inc. was dissolved on December 31, 1960, under Section 77 of the Corporation Law, it stin has the right until December 31, 1963 to prosecute in its name the present case. After the expiration of said period, the corporation ceased to exist for 8 all purposes and it can no longer sue or be sued. However, a corporation that has a pending action and which cannot be terminated within the three-year period after its dissolution is authorized under Section 78 to convey all its property to trustees to enable it to prosecute and defend suits by or against the corporation beyond the Three-year period although private respondent (did not appoint any trustee, yet the counsel who

prosecuted and defended the interest of the corporation in the instant case and who in fact appeared in behalf of the corporation may be considered a trustee of the corporation at least with respect to the matter in litigation only. Said counsel had been handling the case when the same was pending before the trial court until it was appealed before the Court of Appeals and finally to this Court. We therefore hold that there was a substantial compliance with Section 78 of the Corporation Law and as such, private respondent Insular Sawmill, Inc. could still continue prosecuting the present case even beyond the period of three (3) years from the time of its dissolution. From the above quoted commentary of Justice Fisher, the trustee may commence a suit which can proceed to final judgment even beyond the three-year period. No reason can be conceived why a suit already commenced By the corporation itself during its existence, not by a mere trustee who, by fiction, merely continues the legal personality of the dissolved corporation should not be accorded similar treatment allowed to proceed to final judgment and execution thereof. The word "trustee" as sued in the corporation statute must be understood in its general concept which could include the counsel to whom was entrusted in the instant case, the prosecution of the suit filed by the corporation. The purpose in the transfer of the assets of the corporation to a trustee upon its dissolution is more for the protection of its creditor and stockholders. Debtors like the petitioners herein may not take advantage of the failure of the corporation to transfer its assets to a trustee, assuming it has any to transfer which petitioner has failed to show, in the first place. To sustain petitioners' contention would be to allow them to enrich themselves at the expense of another, which all enlightened legal systems condemn. The observation of the Court of Appeals on the issue now before Us that: Under Section 77 of the Corporation Law, when the corporate existence is terminated in any legal manner, the corporation shall nevertheless continue as a body corporate for three (3) years after the time when it would have been dissolved, for the purpose of prosecuting and defending suits by or against it. According to authorities, the corporation "becomes incapable of making contracts or receiving a grant. It does not, however, cease to be a body corporate for all purposes." In the case ofPasay Credit and Finance Corp. vs. Isidro Lazaro and others, 46 OG (11) 5528, this Court held that "a corporation may continue a pending 'litigation even after the lapse of the 3-year period granted by Section 77 of Act 1459 to corporation subsequent to their dissolution to continue its corporate existence for the purpose of winding up their affairs and settling all the claims by and against same." We note that the plaintiff Insular Sawmill, Inc. ceased as a corporation on December 30, 1960 but the case at bar was instituted on May 29, 1959, during the time when the corporation was still very much alive. Accordingly, it is our view that "any litigation filed by or against it instituted within the period, but which could not be terminated, must necessarily prolong that period until the final termination of said litigation as otherwise corporations in liquidation would lose what should justly belong to them or would be exempt from the payment of just obligations through a mere technicality, something that courts should prevent" (Philippine Commercial Laws by Martin, 1962 Ed., Vol. 2, p. 1716). merits the approval of this Court. The last two assigned errors refer to the disposition of the main case. Petitioners contend that the obligations contracted by petitioner Carlos Gelano from November 19, 1947 until August 18, 1950 (before the effectivity of the New Civil Code) and from December 26, 1950 until July 14, 1952 (during the effectivity of the New Civil Code) were his personal obligations, hence, petitioners should not be held jointly and severally liable. As regards the said issues, suffice it to say that with the findings of the Court of Appeals that the obligation contracted by petitioner-husband Carlos Gelano redounded to the benefit of the family, the inevitable 9 conclusion is that the conjugal property is liable for his debt pursuant to paragraph 1, Article 1408, Civil Code of 1889 which 10 provision incidentally can still be found in paragraph 1, Article 161 of the New Civil Code. Only the conjugal partnership is liable, not joint and several as erroneously described by the Court of Appeals, the conjugal partnership being only a single entity. WHEREFORE, with the modification that only the conjugal partnership is liable, the appealed decision is hereby affirmed in all other respects. Without pronouncement as to costs. SO ORDERED.

GEORG GROTJAHN GMBH & CO., petitioner, vs. HON. LUCIA VIOLAGO ISNANI, Presiding Judge, Regional Trial Court, Makati, Br. 59; ROMANA R. LANCHINEBRE; and TEOFILO A. LANCHINEBRE, respondents. A.M. Sison, Jr. & Associates for petitioner. Pedro L. Laso for private respondents. PUNO, J.: Petitioner impugns the dismissal of its Complaint for a sum of money by the respondent judge for lack of jurisdiction and lack of capacity to sue. The records show that petitioner is a multinational company organized and existing under the laws of the Federal Republic of 1 Germany. On July 6, 1983, petitioner filed an application, dated July 2, 1983, with the Securities and Exchange Commission (SEC) for the establishment of a regional or area headquarters in the Philippines, pursuant to Presidential Decree No. 218. The application was approved by the Board of Investments (BOI) on September 6, 1983. Consequently, on September 20, 1983, the SEC issued a 2 Certificate of Registration and License to petitioner. Private respondent Romana R. Lanchinebre was a sales representative of petitioner from 1983 to mid-1992. On March 12, 1992, she secured a loan of twenty-five thousand pesos (P25,000.00) from petitioner. On March 26 and June 10, 1992, she made additional cash advances in the sum of ten thousand pesos (P10,000.00). Of the total amount, twelve thousand one hundred seventy pesos and thirty-seven centavos (P12,170.37) remained unpaid. Despite demand, private respondent Romana failed to settle her obligation with petitioner. On July 22, 1992, private respondent Romana Lanchinebre filed with the Arbitration Branch of the National Labor Relations Commission (NLRC) in Manila, a Complaint for illegal suspension, dismissal and non-payment of commissions against petitioner. On August 18, 1992, petitioner in turn filed against private respondent a Complaint for damages amounting to one hundred twenty 3 thousand pesos (P120,000.00) also with the NLRC Arbitration Branch (Manila). The two cases were consolidated. On September 2, 1992, petitioner filed another Complaint for collection of sum of money against private respondents spouses Romana and Teofilo Lanchinebre which was docketed as Civil Case No. 92-2486 and raffled to the sala of respondent judge. Instead of filing their Answer, private respondents moved to dismiss the Complaint. This was opposed by petitioner. On December 21, 1992, respondent judge issued the first impugned Order, granting the motion to dismiss. She held, viz: Jurisdiction over the subject matter or nature of the action is conferred by law and not subject to the whims and caprices of the parties. Under Article 217 of the Labor Code of the Philippines, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision, the following cases involving all workers, whether agricultural or non-agricultural: (4) claims for actual, moral, exemplary and other forms of damages arising from an employer-employee relations. xxx xxx xxx (6) Except claims for employees compensation, social security, medicare and maternity benefits, all other claims arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether or not accompanied with a claim for reinstatement. In its complaint, the plaintiff (petitioner herein) seeks to recover alleged cash advances made by defendant (private respondent herein) Romana Lanchinebre while the latter was in the employ of the former. Obviously the said cash advances were made pursuant to the employer-employee relationship between the (petitioner) and the said (private respondent) and as such, within the original and exclusive jurisdiction of the National Labor Relations Commission. Again, it is not disputed that the Certificate of Registration and License issued to the (petitioner) by the Securities and Exchange Commission was merely "for the establishment of a regional or area headquarters in the Philippines, pursuant to Presidential Decree No. 218 and its implementing rules and regulations." It does not include a license to do business in the Philippines. There is no allegation in the complaint moreover that (petitioner) is suing under an isolated transaction. It must be considered that under Section 4, Rule 8 of the Revised Rules of Court, facts showing the capacity of a party to sue or be sued or the authority of a party to sue or be sued in a representative capacity or the legal existence of an organized association of persons that is made a party must be averred. There is no averment in the complaint regarding (petitioner's) capacity to sue or be sued. Finally, (petitioner's) claim being clearly incidental to the occupation or exercise of (respondent) Romana Lanchinebre's profession, 4 (respondent) husband should not be joined as party defendant. On March 8, 1993, the respondent judge issued a minute Order denying petitioner's Motion for Reconsideration. Petitioner now raises the following assignments of errors: I THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE REGULAR COURTS HAVE NO JURISDICTION OVER DISPUTES BETWEEN AN EMPLOYER AND AN EMPLOYEE INVOLVING THE APPLICATION PURELY OF THE GENERAL CIVIL LAW. II THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT PETITIONER HAS NO CAPACITY TO SUE AND BE SUED IN THE PHILIPPINES DESPITE THE FACT THAT PETITIONER IS DULY LICENSED BY THE SECURITIES AND EXCHANGE COMMISSION TO SET UP AND OPERATE A REGIONAL OR AREA HEADQUARTERS IN THE COUNTRY AND THAT IT HAS CONTINUOUSLY OPERATED AS SUCH FOR THE LAST NINE (9) YEARS. III THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE ERRONEOUS INCLUSION OF THE HUSBAND IN A COMPLAINT IS A FATAL DEFECT THAT SHALL RESULT IN THE OUTRIGHT DISMISSAL OF THE COMPLAINT. IV THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE HUSBAND IS NOT REQUIRED BY THE RULES TO BE JOINED AS A DEFENDANT IN A COMPLAINT AGAINST THE WIFE. There is merit to the petition.

Firstly, the trial court should not have held itself without jurisdiction over Civil Case No. 92-2486. It is true that the loan and cash advances sought to be recovered by petitioner were contracted by private respondent Romana Lanchinebre while she was still in the employ of petitioner. Nonetheless, it does not follow that Article 217 of the Labor Code covers their relationship. Not every dispute between an employer and employee involves matters that only labor arbiters and the NLRC can resolve in the exercise of their adjudicatory or quasi-judicial powers. The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code is limited to disputes arising from an employer-employee relationship which can only be resolved by reference to the Labor Code, other labor statutes, or their collective bargaining agreement. In this regard, we held in the earlier case of Molave Motor Sales, Inc. vs. Laron, 129 SCRA 485 (1984), viz: Before the enactment of BP Blg. 227 on June 1, 1982, Labor Arbiters, under paragraph 5 of Article 217 of the Labor Code had jurisdiction over "all other cases arising from employer-employee relation, unless expressly excluded by this Code." Even then, the principal followed by this Court was that, although a controversy is between an employer and an employee, the Labor Arbiters have no jurisdiction if the Labor Code is not involved. In Medina vs. Castro-Bartolome, 116 SCRA 597, 604 in negating jurisdiction of the Labor Arbiter, although the parties were an employer and two employees, Mr. Justice Abad Santos stated: The pivotal question to Our mind is whether or not the Labor Code has any relevance to the reliefs sought by plaintiffs. For if the Labor Code has no relevance, any discussion concerning the statutes amending it and whether or not they have retroactive effect is unnecessary. xxx xxx xxx And in Singapore Airlines Limited vs. Pao, 122 SCRA 671, 677, the following was said: Stated differently, petitioner seeks protection under the civil laws and claims no benefits under the Labor Code. The primary relief sought is for liquidated damages for breach of a contractual obligation. The other items demanded are not labor benefits demanded by workers generally taken cognizance of in labor disputes, such as payment of wages, overtime compensation or separation pay. The items claimed are the natural consequences flowing from breach of an obligation, intrinsically a civil dispute. xxx xxx xxx In San Miguel Corporation vs. NLRC, 161 SCRA 719 (1988), we crystallized the doctrines set forth in the Medina, Singapore Airlines, and Molave Motors cases, thus: . . . The important principle that runs through these three (3) cases is that where the claim to the principal relief sought is to be resolved not by reference to the Labor Code or other labor relations statute or a collective bargaining agreement but by the general civil law, the jurisdiction over the dispute belongs to the regular courts of justice and not to the Labor Arbiter and the NLRC. In such situations, resolutions of the dispute requires expertise, not in labor management relations nor in wage structures and other terms and conditions of employment, but rather in the application of the general civil law. Clearly, such claims fall outside the area of competence or expertise ordinarily ascribed to Labor Arbiters and the NLRC and the rationale for granting jurisdiction over such claims to these agencies disappears. Civil Case No. 92-2486 is a simple collection of a sum of money brought by petitioner, as creditor, against private respondent Romana Lanchinebre, as debtor. The fact that they were employer and employee at the time of the transaction does not negate the civil jurisdiction of the trial court. The case does not involve adjudication of a labor dispute but recovery of a sum of money based on our civil laws on obligation and contract. Secondly, the trial court erred in holding that petitioner does not have capacity to sue in the Philippines. It is clear that petitioner is a foreign corporation doing business in the Philippines. Petitioner is covered by the Omnibus Investment Code of 1987. Said law defines "doing business," as follows: . . . shall include soliciting orders, purchases, service contracts, opening offices, whether called "liaison" offices or branches; appointing representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period or periods totalling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines, and any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions 5 normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization. There is no general rule or governing principle as to what constitutes "doing" or "engaging in" or "transacting" business in the 6 Philippines. Each case must be judged in the light of its peculiar circumstances. In the case at bench, petitioner does not engage in commercial dealings or activities in the country because it is precluded from doing so by P.D. No. 218, under which it was 7 established. Nonetheless, it has been continuously, since 1983, acting as a supervision, communications and coordination center for its home office's affiliates in Singapore, and in the process has named its local agent and has employed Philippine nationals like private respondent Romana Lanchinebre. From this uninterrupted performance by petitioner of acts pursuant to its primary purposes and functions as a regional/area headquarters for its home office, it is clear that petitioner is doing business in the country. Moreover, private respondents are estopped from assailing the personality of petitioner. So we held inMerrill Lynch Futures, Inc. vs. Court of Appeals, 211 SCRA 824, 837 (1992): The rule is that a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it. And the "doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic corporations;" "one who has dealth with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity." The principle "will be applied to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes chiefly in cases where such person has received the benefits of the contract, . . . (Citations omitted.) Finally, the trial court erred when it dismissed Civil Case No. 92-2486 on what it found to be the misjoinder of private respondent Teofilo Lanchinebre as party defendant. It is a basic rule that "(m)isjoinder or parties is not ground for dismissal of an 8 action." Moreover, the Order of the trial court is based on Section 4(h), Rule 3 of the Revised Rules of Court, which provides: A married woman may not . . . be sued alone without joining her husband, except . . . if the litigation is incidental to the profession, occupation or business in which she is engaged, Whether or not the subject loan was incurred by private respondent as an incident to her profession, occupation or business is a question of fact. In the absence of relevant evidence, the issue cannot be resolved in a motion to dismiss. IN VIEW WHEREOF, the instant Petition is GRANTED. The Orders, dated December 21, 1992 and March 8, 1993, in Civil Case No. 922486 are REVERSED AND SET ASIDE. The RTC of Makati, Br. 59, is hereby ordered to hear the reinstated case on its merits. No costs. SO ORDERED.

VIRGINIA O. GOCHAN, FELIX Y. GOCHAN III, MAE GOCHAN EFANN, LOUISE Y. GOCHAN, ESTEBAN Y. GOCHAN JR., DOMINIC Y.GOCHAN, FELIX 0. GOCHAN III, MERCEDES R. GOCHAN, ALFREDO R. GOCHAN, ANGELINA R. GOCHAN-HERNAEZ, MARIA MERCED R. GOCHAN, CRISPO R. GOCHAN JR., MARION R. GOCHAN, MACTAN REALTY DEVELOPMENT CORPORATION and FELIX GOCHAN & SONS REALTY CORPORATION, petitioner, vs. RICHARD G. YOUNG, DAVID G. YOUNG, JANE G. YOUNG-LLABAN, JOHN D. YOUNG JR., MARY G. YOUNG-HSU and ALEXANDER THOMAS G. YOUNG as heirs of Alice Gochan; the INTESTATE ESTATE OF JOHN D. YOUNG SR.; and CECILIA GOCHAN-UY and MIGUEL C. UY, for themselves and on behalf and for the benefit of FELIX GOCHAN & SONS REALTY CORPORATION, respondents. PANGANIBAN, J.: A court or tribunal's jurisdiction over the subject matter is determined by the allegations in the complaint. The fact that certain persons are not registered as stockholders in the books of the corporation will not bar them from filing a derivative suit, if it is evident from the allegations in the complaint that they are bona fide stockholders. In view of RA 8799, intra-corporate controversies are now within the jurisdiction of courts of general jurisdiction, no longer of the Securities and Exchange Commission. 1wphi1.nt The Case Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. The Petition assails the February 28, 1996 1 Decision of the Court of Appeals (CA), as well as its December 18, 1997 Resolution denying petitioner's Motion for Reconsideration. The dispositive part of the CA Decision reads as follows: "WHEREFORE, the petition as far as the heirs of Alice Gochan, is DISMISSED, without prejudice to filing the same in the regular courts. 2 SO ORDERED." In dismissing the Complaint before the SEC regarding only Alice Gochan's heirs but not the other complainants, the CA effectively 3 modified the December 9, 1994 Order of the hearing officer of the Securities and Exchange Commission (SEC). The Order, which was affirmed in full by the SEC en banc, dismissed the entire case. The Facts The undisputed facts are summarized by the Court of Appeals as follows: "Felix Gochan and Sons Realty Corporation (Gochan Realty, for brevity) was registered with the SEC on June, 1951, with Felix Gochan, Sr., Maria Pan Nuy Go Tiong, Pedro Gochan, Tomasa Gochan, Esteban Gochan and Crispo Gochan as its incorporators. "Felix Gochan Sr.'s daughter, Alice, mother of [herein respondents], inherited 50 shares of stock in Gochan Realty from the former. "Alice died in 1955, leaving the 50 shares to her husband, John Young, Sr. "In 1962, the Regional Trial Court of Cebu adjudicated 6/14 of these shares to her children, herein [respondents] Richard Young, David Young, Jane Young Llaban, John Young Jr., Mary Young Hsu and Alexander Thomas Young. "Having earned dividends, these stocks numbered 179 by 20 September 1979. "Five days later (25 September), at which time all the children had reached the age of majority, their father John Sr., requested Gochan Realty to partition the shares of his late wife by cancelling the stock certificates in his name and issuing in lieu thereof, new stock certificates in the names of [herein respondents]. "On 17 October 1979, respondent Gochan Realty refused, citing as reason, the right of first refusal granted to the remaining stockholders by the Articles of Incorporation. "On 21, 1990, [sic] John, Sr. died, leaving the shares to the [respondents]. "On 8 February 1994, [respondents] Cecilia Gochan Uy and Miguel Uy filed a complaint with the SEC for issuance of shares of stock to the rightful owners, nullification of shares of stock, reconveyance of property impressed with trust, accounting, removal of officers and directors and damages against respondents. A Notice of Lis Pendens was annotated as [sic] real properties of the corporation. "On 16 March 1994, [herein petitioners] moved to dismiss the complaint alleging that: (1) the SEC ha[d] no jurisdiction over the nature of the action; (2) the [respondents] [were] not the real parties-in-interest and ha[d] no capacity to sue; and (3) [respondents'] causes of action [were] barred by the Statute of Limitations. "The motion was opposed by herein [respondents]. "On 29 March 1994, [petitioners'] filed a Motion for cancellation of Notice of Lis Pendens. [Respondents] opposed the said motion. "On 9 December 1994, the SEC, through its Hearing Officer, granted the motion to dismiss and ordered the cancellation of the notice of lis pendens annotated upon the titles of the corporate lands. In its order, the SEC opined: 'In the instant case, the complaint admits that complainants Richard G. Young, David G. Young, Jane G. Young Llaban, John D. Young, Jr., Mary G. Young Hsu and Alexander Thomas G. Young, who are the children of the late Alice T. Gochan and the late John D. Young, Sr. are suing in their own right and as heirs of and/or as the beneficial owners of the shares in the capital stock of FGSRC held in trust for them during his lifetime by the late John D. Young. Moreover, it has been shown that said complainants ha[d] never been x x x stockholder[s] of record of FGSRC to confer them with the legal capacity to bring and maintain their action. Conformably, the case cannot be considered as an intra-corporate controversy within the jurisdiction of this Commission. 'The complainant heirs base what they perceived to be their stockholders' rights upon the fact of their succession to all the rights, property and interest of their father, John D. Young, Sr. While their heirship is not disputed, their right to compel the corporation to register John D. Young's Sr. shares of stock in their names cannot go unchallenged because the devolution of property to the heirs by operation of law in succession is subject to just obligations of the deceased before such property passes to the heirs. Conformably, until therefore the estate is settled and the payment of the debts of the deceased is accomplished, the heirs cannot as a matter of right compel the delivery of the shares of stock to them and register such transfer in the books of the corporation to recognize them as stockholders. The complainant heirs succeed to the estate of [the] deceased John D. Young, Sr. but they do not thereby become stockholders of the corporation. 'Moreover, John D. [Young Sr.'s] shares of stocks form part of his estate which is the subject of Special Proceedings No. 3694-CEB in the Regional Trial Court of Cebu, Branch VIII, [par. 4 of the complaint]. As complainants clearly claim[,] the Intestate Estate of John D. Young, Sr. has an interest in the subject matter of the instant case. However, actions for the recovery or protection of the property [such as the shares of stock in question] may be brought or defended not by the heirs but by the executor or administrator thereof. 'Complainants further contend that the alleged wrongful acts of the corporation and its directors constitute fraudulent devices or schemes which may be detrimental to the stockholders. Again, the injury [is] perceived[,] as is alleged[,] to have been suffered by

complainants as stockholders, which they are not. Admittedly, the SEC has no jurisdiction over a controversy wherein one of the parties involved is not or not yet a stockholder of the corporation. [SEC vs. CA, 201 SCRA 134]. 'Further, by the express allegation of the complaint, herein complainants bring this action as [a] derivative suit on their own behalf and on behalf of respondent FGSRC. 'Section 5, Rule III of the Revised Rules of Procedure in the Securities and Exchange Commission provides: 'Section 5. Derivative Suit. No action shall be brought by stockholder in the right of a corporation unless the complainant was a stockholder at the time the questioned transaction occurred as well as at the time the action was filed and remains a stockholder during the pendency of the action. x x x.' 'The rule is in accord with well settled jurisprudence holding that a stockholder bringing a derivative action must have been [so] at the time the transaction or act complained of [took] place. (Pascual vs. Orozco, 19 Phil. 82; Republic vs. Cuaderno, 19 SCRA 671; San Miguel Corporation vs. Khan, 176 SCRA 462-463) The language of the rule is mandatory, strict compliance with the terms thereof thus being a condition precedent, a jurisdictional requirement to the filing of the instant action. 'Otherwise stated, proof of compliance with the requirement must be sufficiently established for the action to be given due course by this Commission. The failure to comply with this jurisdictional requirement on derivative action must necessarily result in the dismissal of the instant complaint.' (pp. 77-79, Rollo) "[Respondents] moved for a reconsideration but the same was denied for being pro-forma. "[Respondents] appealed to the SEC en banc, contending, among others, that the SEC ha[d] jurisdiction over the case. "[Petitioners], on the other hand, contend that the appeal was 97 days late, beyond the 30-day period for appeals. "On 3 March 1995, the SEC en banc ruled for the [petitioners,] holding that the [respondents'] motion for reconsideration did not 4 interrupt the 30-day period for appeal because said motion was pro-forma." Aggrieved, herein respondents then filed a Petition for Review with the Court of Appeals. Ruling of the Court of Appeals The Court of Appeals ruled that the SEC had no jurisdiction over the case as far as the heirs of Alice Gochan were concerned, because they were not yet stockholders of the corporation. On the other hand, it upheld the capacity of Respondents Cecilia Gochan Uy and her spouse, Miguel Uy. It also held that the Intestate Estate of John Young Sr. was an indispensable party. The appellate court further ruled that the cancellation of the notice of lis pendens on the titles of the corporate real estate was not justified. Moreover, it declared that respondents' Motion for Reconsideration before the SEC was not pro forma; thus, its filing tolled the appeal period. 5 Hence, this Petition. The Issues These are the issues presented before us: "A. Whether or not the Spouses Uy have the personality to file an action before the SEC against Gochan Realty Corporation. "B. Whether or not the Spouses Uy could properly bring a derivative suit in the name of Gochan Realty to redress wrongs allegedly committed against it for which the directors refused to sue. "C. Whether or not the intestate estate of John D. Young Sr. is an indispensable party in the SEC case considering that the individual heirs' shares are still in the decedent stockholder's name. "D. Whether or not the cancellation of [the] notice of lis pendens was justified considering that the suit did not involve real 6 properties owned by Gochan Realty." 7 In addition, the Court will determine the effect of Republic Act No.8799 on this case. The Court's Ruling The Petition has no merit. In view of the effectivity of RA 8799, however, the case should be remanded to the proper regional trial court, not to the Securities and Exchange Commission. First Issue: Personality of the Spouses Uy to File a Suit Before the SEC Petitioners argue that Spouses Cecilia and Miguel Uy had no capacity or legal standing to bring the suit before the SEC on February 8, 1994, because the latter were no longer stockholders at the time. Allegedly, the stocks had already been purchased by the corporation. Petitioners further assert that, being allegedly a simple contract of sale cognizable by the regular courts, the purchase by Gochan Realty of Cecilia Gochan Uy's 210 shares does not come within the purview of an intra-corporate controversy. As a general rule, the jurisdiction of a court or tribunal over the subject matter is determined by the allegations in the 8 complaint. For purposes of resolving a motion to dismiss, Cecilia Uy's averment in the Complaint -that the purchase of her stocks by the corporation was null and void ab initio - is deemed admitted. It is elementary that a void contract produces no effect either 9 against or in favor of anyone; it cannot create, modify or extinguish the juridical relation to which it refers. Thus, Cecilia remains a stockholder of the corporation in view of the nullity of the Contract of Sale. Although she was no longer registered as a stockholder in the corporate records as of the filing of the case before the SEC, the admitted allegations in the Complaint made her still a bona fide stockholder of Felix Gochan & Sons Realty Corporation (FGSRC), as between said parties. In any event, the present controversy, whether intra-corporate or not, is no longer cognizable by the SEC, in view of RA 8799, which transferred to regional trial courts the former's jurisdiction over cases involving intra-corporate disputes. Action Has Not Prescribed Petitioners contend that the statute of limitations already bars the Uy spouses' action, be it one for annulment of a voidable contract or one based upon a written contract. The Complaint, however, contains respondents' allegation that the sale of the shares of stock was not merely voidable, but was void ab initio. Below we quote its relevant portion: "38. That on November 21, 1979, respondent Felix Gochan & Sons Realty Corporation did not have unrestricted retained earnings in its books to cover the purchase price of the 208 shares of stock it was then buying from complainant Cecilia Gochan Uy, thereby rendering said purchase null and void ab initio for being violative of the trust fund doctrine and contrary to law, morals good customs, public order and public policy;" Necessarily, petitioners' contention that the action has prescribed cannot be sustained. Prescription cannot be invoked as a ground 10 if the contract is alleged to be void ab initio. It is axiomatic that the action or defense for the declaration of nullity of a contract 11 does not prescribe. Second Issue: Derivative Suit and the Spouses Uy

Petitioners also contend that the action filed by the Spouses Uy was not a derivative suit, because the spouses and not the corporation were the injured parties. The Court is not convinced. The following quoted portions of the Complaint readily shows allegations of injury to the corporation itself: "16. That on information and belief, in further pursuance of the said conspiracy and for the fraudulent purpose of depressing the value of the stock of the Corporation and to induce the minority stockholders to sell their shares of stock for an inadequate consideration as aforesaid, respondent Esteban T. Gochan . . ., in violation of their duties as directors and officers of the Corporation . . ., unlawfully and fraudulently appropriated [for] themselves the funds of the Corporation by drawing excessive amounts in the form of salaries and cash advances. . . and by otherwise charging their purely personal expenses to the Corporation." xxx xxx xxx "41. That the payment of P1,200,000.00 by the Corporation to complainant Cecilia Gochan Uy for her shares of stock constituted an unlawful, premature and partial liquidation and distribution of assets to a stockholder, resulting in the impairment of the capital of the Corporation and prevented it from otherwise utilizing said amount for its regular and lawful business, to the damage and 12 prejudice of the Corporation, its creditors, and of complainants as minority stockholders;" As early as 1911, this Court has recognized the right of a single stockholder to file derivative suits. In its words: "[W]here corporate directors have committed a breach of trust either by their frauds, ultra vires acts, or negligence, and the corporation is unable or unwilling to institute suit to remedy the wrong, a single stockholder may institute that suit, suing on behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong done directly to the 13 corporation and indirectly to the stockholders." In the present case, the Complaint alleges all the components of a derivative suit. The allegations of injury to the Spouses Uy can coexist with those pertaining to the corporation. The personal injury suffered by the spouses cannot disqualify them from filing a derivative suit on behalf of the corporation. It merely gives rise to an additional cause of action for damages against the erring directors. This cause of action is also included in the Complaint filed before the SEC. The Spouses Uy have the capacity to file a derivative suit in behalf of and for the benefit of the corporation. The reason is that, as earlier discussed, the allegations of the Complaint make them out as stockholders at the time the questioned transaction occurred, as well as at the time the action was filed and during the pendency of the action. Third Issue: Capacity of the Intestate Estate of John D. Young Sr. Petitioners contend that the Intestate Estate of John D. Young Sr. is not an indispensable party, as there is no showing that it stands to be benefited or injured by any court judgement. It would be useful to point out at this juncture that one of the causes of action stated in the Complaint filed with the SEC refers to the registration, in the name of the other heirs of Alice Gochan Young, of 6/14th of the shares still registered under the name of John D. Young Sr. Since all the shares that belonged to Alice are still in his name, no final determination can be had without his estate being impleaded in the suit. His estate is thus an indispensable party with respect to the cause of action dealing with the registration of the shares in the names of the heirs of Alice. Petitioners further claim that the Estate of John Young Sr. was not properly represented. They claim that "when the estate is under administration, suits for the recovery or protection of the property or rights of the deceased may be brought only by the 14 administrator or executor as approved by the court." The rules relative to this matter do not, however, make any such categorical and confining statement. Section 3 of Rule 3 of the Rules of Court, which is cited by petitioners in support of their position, reads: "Sec. 3. Representatives as parties. - Where the action is allowed to be prosecuted or defended by a representative or someone acting in a fiduciary capacity, the beneficiary shall be included in the title of the case and shall be deemed to be the real party in interest. A representative may be a trustee of an express trust, a guardian, an executor or administrator, or a party authorized by law or these Rules. An agent acting in his own name and for the benefit of an undisclosed principal may sue or be sued without joining the principal except when the contract involves things belonging to the principal." Section 2 of Rule 87 of the same Rules, which also deals with administrators, states: "Sec. 2. Executor or administrator may bring or defend actions which survive. -For the recovery or protection of the property or rights of the deceased, an executor or administrator may bring or defend, in the right of the deceased, actions for causes which survive." The above-quoted rules, while permitting an executor or administrator to represent or to bring suits on behalf of the deceased, do not prohibit the heirs from representing the deceased. These rules are easily applicable to cases in which an administrator has already been appointed. But no rule categorically addresses the situation in which special proceedings for the settlement of an estate have already been instituted, yet no administrator has been appointed. In such instances, the heirs cannot be expected to wait for the appointment of an administrator; then wait further to see if the administrator appointed would care enough to file a suit to protect the rights and the interests of the deceased; and in the meantime do nothing while the rights and the properties of the decedent are violated or dissipated.1wphi1.nt The Rules are to be interpreted liberally in order to promote their objective of securing a just, speedy and inexpensive disposition of 15 every action and proceeding. They cannot be interpreted in such a way as to unnecessarily put undue hardships on litigants. For 16 the protection of the interests of the decedent, this Court has in previous instances recognized the heirs as proper representatives of the decedent, even when there is already an administrator appointed by the court. When no administrator has been appointed, as in this case, there is all the more reason to recognize the heirs as the proper representatives of the deceased. Since the Rules do not specifically prohibit them from representing the deceased, and since no administrator had as yet been appointed at the time of the institution of the Complaint with the SEC, we see nothing wrong with the fact that it was the heirs of John D. Young Sr. who represented his estate in the case filed before the SEC. Fourth Issue Notice of Lis Pendens On the issue of the annotation of the Notice of Lis Pendens on the titles of the properties of the corporation and the other respondents, we still find no reason to disturb the ruling of the Court of Appeals. Under the third, fourth and fifth causes of action of the Complaint, there are allegations of breach of trust and confidence and usurpation of business opportunities in conflict with petitioners' fiduciary duties to the corporation, resulting in damage to the Corporation. Under these causes of action, respondents are asking for the delivery to the Corporation of possession of the parcels of

land and their corresponding certificates of title. Hence, the suit necessarily affects the title to or right of possession of the real 17 property sought to be reconveyed. The Rules of Court allows the annotation of a notice of lis pendens in actions affecting the title 18 or right of possession of real property. Thus, the Court of Appeals was correct in reversing the SEC Order for the cancellation of the notice oflis pendens. The fact that respondents are not stockholders of the Mactan Realty Development Corporation and the Lapu-Lapu Real Estate Corporation does not make them non-parties to this case. To repeat, the jurisdiction of a court or tribunal over the subject matter is determined by the allegations in the Complaint. In this case, it is alleged that the aforementioned corporations are mere alter egos of the directors-petitioners, and that the former acquired the properties sought to be re conveyed to FGSRC in violation of the directors-petitioners' fiduciary duty to FGSRC. The notion of corporate entity will be pierced or disregarded and the individuals 19 composing it will be treated as identical if, as alleged in the present case, the corporate entity is being used as a cloak or cover for fraud or illegality; as a justification for a wrong; or as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders. Effect of RA 8799 While we sustain the appellate court, the case can no longer be remanded to the SEC. As earlier stated, RA 8799, which became effective on August 8, 2000, transferred SEC's jurisdiction over cases involving intra-corporate disputes to courts of general 20 jurisdiction or to the regional trial courtS. Section 5.2 thereof reads as follows: "5.2. The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed." 21 In the light of the Resolution issued by this Court in AM No. 00-8-10-SC, the Court Administrator and the Securities and Exchange Commission should be directed to cause the transfer of the records of SEC Case No. 02-94-4674 to the appropriate court of general jurisdiction. WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED, subject to the modification that the case be remanded to the proper regional trial court. The December 9, 1994 Order of Securities and Exchange Commission hearing officer dismissing the Complaint and directing the cancellation of the notice of lis pendens, as well as the March 3, 1995 Order denying complainants' motion for reconsideration are REVERSEDand SET ASIDE. Pursuant to AM No. 00-8-10-SC, the Office of the Court Administrator and the SEC areDIRECTED to cause the actual transfer of the records of SEC Case No.02-94-467 4 to the appropriate regional trial court.

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. De Santos, Balgos & Perez for petitioner. Angara, Abello, Concepcion, Regala, Cruz Law Offices for respondents Sorianos Siguion Reyna, Montecillo & Ongsiako for respondent San Miguel Corporation. R. T Capulong for respondent Eduardo R. Visaya. 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 1 hence the amended by-laws are null and void. 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. 2 This Order is immediately executory upon its approval. 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 bylaws 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. In view of the fact that the annul stockholders' meeting of respondent corporation had been scheduled for May 10, 1977, petitioner filed with respondent Commission a Manifestation stating that he intended to run for the position of director of respondent corporation. Thereafter, respondents filed a Manifestation with respondent Commission, submitting a Resolution of the Board of Directors of respondent corporation disqualifying and precluding petitioner from being a candidate for director unless he could submit evidence on May 3, 1977 that he does not come within the disqualifications specified in the amendment to the by-laws, subject matter of SEC Case No. 1375. By reason thereof, petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of injunction, alleging that private respondents were seeking to nullify and render ineffectual the exercise of jurisdiction by the respondent Commission, to petitioner's irreparable damage and prejudice, Allegedly despite a subsequent Manifestation to prod respondent Commission to act, petitioner was not heard prior to the date of the stockholders' meeting. Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act hence petitioner came to this Court. SEC. CASE NO. 1423 Petitioner likewise alleges that, having discovered that respondent corporation has been investing corporate funds in other corporations and businesses outside of the primary purpose clause of the corporation, in violation of section 17 1/2 of the Corporation Law, he filed with respondent Commission, on January 20, 1977, a petition seeking to have private respondents Andres M. Soriano, Jr. and Jose M. Soriano, as well as the respondent corporation declared guilty of such violation, and ordered to account for such investments and to answer for damages. On February 4, 1977, motions to dismiss were filed by private respondents, to which a consolidated motion to strike and to declare individual respondents in default and an opposition ad abundantiorem cautelam were filed by petitioner. Despite the fact that said motions were filed as early as February 4, 1977, the commission acted thereon only on April 25, 1977, when it denied respondents' 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. Respondents issued notices of the annual stockholders' meeting, including in the Agenda thereof, the following: 6. Re-affirmation of the authorization to the Board of Directors by the stockholders at the meeting on March 20, 1972 to invest corporate funds in other companies or businesses or for purposes other than the main purpose for which the Corporation has been organized, and ratification of the investments thereafter made pursuant thereto. By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an urgent motion for the issuance of a writ of preliminary injunction to restrain private respondents from taking up Item 6 of the Agenda at the annual stockholders' meeting, requesting that the same be set for hearing on May 3, 1977, the date set for the second hearing of the case on the merits. Respondent Commission, however, cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17, 1977, or after the scheduled annual stockholders' meeting. For the purpose of urging the Commission to act, petitioner filed an urgent manifestation on May 3, 1977, but this notwithstanding, no action has been taken up to the date of the filing of the instant petition. With respect to the afore-mentioned SEC cases, it is petitioner's contention before this Court that respondent Commission gravely abused its discretion when it failed to act with deliberate dispatch on the motions of petitioner seeking to prevent illegal and/or arbitrary impositions or limitations upon his rights as stockholder of respondent corporation, and that respondent are acting oppressively against petitioner, in gross derogation of petitioner's rights to property and due process. He prayed that this Court direct respondent SEC to act on collateral incidents pending before it. On May 6, 1977, this Court issued a temporary restraining order restraining private respondents from disqualifying or preventing petitioner from running or from being voted as director of respondent corporation and from submitting for ratification or confirmation or from causing the ratification or confirmation of Item 6 of the Agenda of the annual stockholders' meeting on May 10, 1977, or from Making effective the amended by-laws of respondent corporation, until further orders from this Court or until the Securities and Ex-change Commission acts on the matters complained of in the instant petition. On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after a restraining order had been issued by this Court, or on May 9, 1977, the respondent Commission served upon petitioner copies of the following orders: (1) Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner's motion for reconsideration, with its supplement, of the order of the Commission denying in part petitioner's motion for production of documents, petitioner's motion for reconsideration of the order denying the issuance of a temporary restraining order denying the issuance of a temporary restraining order, and petitioner's consolidated motion to declare respondents in contempt and to nullify the stockholders' meeting; (2) Order No. 450, Series of 1977 (SEC Case No. 1375), allowing petitioner to run as a director of respondent corporation but stating that he should not sit as such if elected, until such time that the Commission has decided the validity of the bylaws in dispute, and denying deferment of Item 6 of the Agenda for the annual stockholders' meeting; and (3) Order No. 451, Series of 1977 (SEC Case No. 1375), denying petitioner's motion for reconsideration of the order of respondent Commission denying petitioner's motion for summary judgment; It is petitioner's assertions, anent the foregoing orders, (1) that respondent Commission acted with indecent haste and without circumspection in issuing the aforesaid orders to petitioner's irreparable damage and injury; (2) that it acted without jurisdiction and in violation of petitioner's right to due process when it decided en banc an issue not raised before it and still pending before one of its Commissioners, and without hearing petitioner thereon despite petitioner's request to have the same calendared for hearing , and (3) that the respondents acted oppressively against the petitioner in violation of his rights as a stockholder, warranting immediate judicial intervention. It is prayed in the supplemental petition that the SEC orders complained of be declared null and void and that respondent Commission be ordered to allow petitioner to undertake discovery proceedings relative to San Miguel International. Inc. and thereafter to decide SEC Cases No. 1375 and 1423 on the merits. On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano filed their comment, alleging that the petition is without merit for the following reasons: (1) that the petitioner the interest he represents are engaged in business competitive and 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 Consolidated Foods Corporation, which corporations are engaged in business directly and substantially

competing with the allied businesses of respondent SMC and of corporations in which SMC has substantial investments. Further, when CFC and Robina had accumulated investments. Further, when CFC and Robina had accumulated shares in SMC, the Board of Directors of SMC realized the clear and present danger that competitors or antagonistic parties may be elected directors and thereby have easy and direct access to SMC's business and trade secrets and plans; (2) that the amended by law were adopted to preserve and protect respondent SMC from the clear and present danger that business competitors, if allowed to become directors, will illegally and unfairly utilize their direct access to its business secrets and plans for their own private gain to the irreparable prejudice of respondent SMC, and, ultimately, its stockholders. Further, it is asserted that membership of a competitor in the Board of Directors is a blatant disregard of no less that the Constitution and pertinent laws against combinations in restraint of trade; (3) that by laws are valid and binding since a corporation has the inherent right and duty to preserve and protect itself by excluding competitors and antogonistic parties, under the law of self-preservation, and it should be allowed a wide latitude in the selection of means to preserve itself; (4) that the delay in the resolution and disposition of SEC Cases Nos. 1375 and 1423 was due to petitioner's own acts or omissions, since he failed to have the petition to suspend, pendente lite the amended by-laws calendared for hearing. It was emphasized that it was only on April 29, 1977 that petitioner calendared the aforesaid petition for suspension (preliminary injunction) for hearing on May 3, 1977. The instant petition being dated May 4, 1977, it is apparent that respondent Commission was not given a chance to act "with deliberate dispatch", and (5) that, even assuming that the petition was meritorious was, it has become moot and academic because respondent Commission has acted on the pending incidents, complained of. It was, therefore, prayed that the petition be dismissed. On May 21, 1977, respondent Emigdio G, Tanjuatco, Sr. filed his comment, alleging that the petition has become moot and academic for the reason, among others that the acts of private 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 compliance with the order of respondent Commission, petitioner was allowed to run and be voted for as director; and that in the same meeting, Item 6 of the Agenda was discussed, voted upon, ratified and confirmed. Further it was averred that the questions and issues raised by petitioner are pending in the Securities and Exchange Commission which has acquired jurisdiction over the case, and no hearing on the merits has been had; hence the elevation of these issues before the Supreme Court is premature. Petitioner filed a reply to the aforesaid comments, stating that the petition presents justiciable questions for the determination of this Court because (1) the respondent Commission acted without circumspection, unfairly and oppresively against petitioner, warranting the intervention of this Court; (2) a derivative suit, such as the instant case, is not rendered academic by the act of a majority of stockholders, such that the discussion, ratification and confirmation of Item 6 of the Agenda of the annual stockholders' meeting of May 10, 1977 did not render the case moot; that the amendment to the bylaws which specifically bars petitioner from being a director is void since it deprives him of his vested rights. Respondent Commission, thru the Solicitor General, filed a separate comment, alleging that after receiving a copy of the restraining order issued by this Court and noting that the restraining order did not foreclose action by it, the Commission en banc issued Orders Nos. 449, 450 and 451 in SEC Case No. 1375. In answer to the allegation in the supplemental petition, it states that Order No. 450 which denied deferment of Item 6 of the Agenda of the annual stockholders' meeting of respondent corporation, took into consideration an urgent manifestation filed with the Commission by petitioner on May 3, 1977 which prayed, among others, that the discussion of Item 6 of the Agenda be deferred. The reason given for denial of deferment was that "such action is within the authority of the corporation as well as falling within the sphere of stockholders' right to know, deliberate upon and/or to express their wishes regarding disposition of corporate funds considering that their investments are the ones directly affected." It was alleged that the main petition has, therefore, become moot and academic. On September 29,1977, petitioner filed a second supplemental petition with prayer for preliminary injunction, alleging that the actuations of respondent SEC tended to deprive him of his right to due process, and "that all possible questions on the facts now pending before the respondent Commission are now before this Honorable Court which has the authority and the competence to act on them as it may see fit." (Reno, pp. 927-928.) Petitioner, in his memorandum, submits the following issues for resolution; (1) whether or not the provisions of the amended by-laws of respondent corporation, disqualifying a competitor from nomination or election to the Board of Directors are valid and reasonable; (2) whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel Corporation; and (3) whether or not respondent SEC committed grave abuse of discretion in allowing discussion of Item 6 of the Agenda of the Annual Stockholders' Meeting on May 10, 1977, and the ratification of the investment in a foreign corporation of the corporate funds, allegedly in violation of section 17-1/2 of the Corporation Law. I Whether or not amended by-laws are valid is purely a legal question which public interest requires to be resolved It is the position of the petitioner that "it is not necessary to remand the case to respondent SEC for an appropriate ruling on the intrinsic validity of the amended by-laws in compliance with the principle of exhaustion of administrative remedies", considering that: first: "whether or not the provisions of the amended by-laws are intrinsically valid ... is purely a legal question. There is no factual dispute as to what the provisions are and evidence is not necessary to determine whether such amended by-laws are valid as framed and approved ... "; second: "it is for the interest and guidance of the public that an immediate and final ruling on the question be made ... "; third: "petitioner was denied due process by SEC" when "Commissioner de Guzman had openly shown prejudice against petitioner ... ", and "Commissioner Sulit ... approved the amended by-laws ex-parte and obviously found the same intrinsically valid; and finally: "to remand the case to SEC would only entail delay rather than serve the ends of justice." Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that this Court resolve the legal issues raised by the parties in keeping with the "cherished rules of procedure" that "a court should always strive to settle the entire controversy in a single 3 proceeding leaving no root or branch to bear the seeds of future ligiation", citingGayong v. Gayos. To the same effect is the prayer of San Miguel Corporation that this Court resolve on the merits the validity of its amended by laws and the rights and obligations of the parties thereunder, otherwise "the time spent and effort exerted by the parties concerned and, more importantly, by this

Honorable Court, would have been for naught because the main question will come back to this Honorable Court for final resolution." Respondent Eduardo R. Visaya submits a similar appeal. It is only the Solicitor General who contends that the case should be remanded to the SEC for hearing and decision of the issues involved, invoking the latter's primary jurisdiction to hear and decide case involving intra-corporate controversies. It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire controversy in a single 4 5 proceeding, leaving nor root or branch to bear the seeds of future litigation. Thus, in Francisco v. City of Davao, this Court resolved to decide the case on the merits instead of remanding it to the trial court for further proceedings since the ends of justice 6 would not be subserved by the remand of the case. In Republic v. Security Credit and Acceptance Corporation, et al., this Court, finding that the main issue is one of law, resolved to decide the case on the merits "because public interest demands an early 7 disposition of the case", and in Republic v. Central Surety and Insurance Company, this Court denied remand of the third-party complaint to the trial court for further proceedings, citing precedent where this Court, in similar situations resolved to decide the cases on the merits, instead of remanding them to the trial court where (a) the ends of justice would not be subserved by the remand of the case; or (b) where public interest demand an early disposition of the case; or (c) where the trial court had already received all the evidence presented by both parties and the Supreme Court is now in a position, based upon said evidence, to decide 8 the case on its merits. It is settled that the doctrine of primary jurisdiction has no application where only a question of law is 8 involved. a Because uniformity may be secured through review by a single Supreme Court, questions of law may appropriately be 8 determined in the first instance by courts. b In the case at bar, there are facts which cannot be denied, viz.: that the amended bylaws were adopted by the Board of Directors of the San Miguel Corporation in the exercise of the power delegated by the stockholders ostensibly pursuant to section 22 of the Corporation Law; that in a special meeting on February 10, 1977 held specially for that purpose, the amended by-laws were ratified by more than 80% of the stockholders of record; that the foreign investment in the Hongkong Brewery and Distellery, a beer manufacturing company in Hongkong, was made by the San Miguel Corporation in 1948; and that in the stockholders' annual meeting held in 1972 and 1977, all foreign investments and operations of San Miguel Corporation were ratified by the stockholders. II Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or election to the Board of Directors of SMC are valid and reasonable 9 The validity or reasonableness of a by-law of a corporation in purely a question of law. Whether the by-law is in conflict with the law of the land, or with the charter of the corporation, or is in a legal sense unreasonable and therefore unlawful is a question of 10 law. This rule is subject, however, to the limitation that where the reasonableness of a by-law is a mere matter of judgment, and one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the 11 judgment of those who are authorized to make by-laws and who have exercised their authority. Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to suppress the minority and prevent them from having representation in the Board", at the same time depriving petitioner of his "vested right" to be voted for and to vote for a person of his choice as director. Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and San Miguel Corporation content that ex. conclusion of a competitor from the Board is legitimate corporate purpose, considering that being a competitor, petitioner cannot devote an unselfish and undivided Loyalty to the corporation; that it is essentially a preventive measure to assure stockholders of San Miguel Corporation of reasonable protective from the unrestrained self-interest of those charged with the promotion of the corporate enterprise; that access to confidential information by a competitor may result either in the promotion of the interest of the competitor at the expense of the San Miguel Corporation, or the promotion of both the interests of petitioner and respondent San Miguel Corporation, which may, therefore, result in a combination or agreement in violation of Article 186 of the Revised Penal Code by destroying free competition to the detriment of the consuming public. It is further argued that there is not vested right of any stockholder under Philippine Law to be voted as director of a corporation. It is alleged that petitioner, as of May 6, 1978, has exercised, personally or thru two corporations owned or controlled by him, control over the following shareholdings in San Miguel Corporation, vis.: (a) John Gokongwei, Jr. 6,325 shares; (b) Universal Robina Corporation 738,647 shares; (c) CFC Corporation 658,313 shares, or a total of 1,403,285 shares. Since the outstanding capital stock of San Miguel Corporation, as of the present date, is represented by 33,139,749 shares with a par value of P10.00, the total shares owned or controlled by petitioner represents 4.2344% of the total outstanding capital stock of San Miguel Corporation. It is also contended that petitioner is the president and substantial stockholder of Universal Robina Corporation and CFC Corporation, both of which are allegedly controlled by petitioner and members of his family. It is also claimed that both the Universal Robina Corporation and the CFC Corporation are engaged in businesses directly and substantially competing with the alleged businesses of San Miguel Corporation, and of corporations in which SMC has substantial investments. ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND SAN MIGUEL CORPORATION According to respondent San Miguel Corporation, the areas of, competition are enumerated in its Board the areas of competition are enumerated in its Board Resolution dated April 28, 1978, thus: Product Line Estimated Market Share Total 1977 SMC Robina-CFC Table Eggs 0.6% 10.0% 10.6% Layer Pullets 33.0% 24.0% 57.0% Dressed Chicken 35.0% 14.0% 49.0% Poultry & Hog Feeds 40.0% 12.0% 52.0% Ice Cream 70.0% 13.0% 83.0% Instant Coffee 45.0% 40.0% 85.0% Woven Fabrics 17.5% 9.1% 26.6% Thus, according to respondent SMC, in 1976, the areas of competition affecting SMC involved product sales of over P400 million or more than 20% of the P2 billion total product sales of SMC. Significantly, the combined market shares of SMC and CFC-Robina in layer pullets dressed chicken, poultry and hog feeds ice cream, instant coffee and woven fabrics would result in a position of such dominance as to affect the prevailing market factors. It is further asserted that in 1977, the CFC-Robina group was in direct competition on product lines which, for SMC, represented sales amounting to more than ?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 Private respondents contend that the disputed amended by laws were adopted by the Board of Directors of San Miguel Corporation a-, a measure of self-defense to protect the corporation from the clear and present danger that the election of a business competitor to the Board may cause upon the corporation and the other stockholders 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 Board of Directors. It is recognized by an authorities that 'every corporation has the inherent power to adopt by-laws 'for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the 12 management of its affairs. At common law, the rule was "that the power to make and adopt by-laws was inherent in every corporation as one of its necessary and inseparable legal incidents. And it is settled throughout the United States that in the absence of positive legislative provisions limiting it, every private corporation has this inherent power as one of its necessary and inseparable legal incidents, independent of any specific enabling provision in its charter or in general law, such power of self-government being 13 essential to enable the corporation to accomplish the purposes of its creation. 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 14 the stock corporation of which he is a director ... " InGovernment v. El Hogar, 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 15 incorporation and lawfully enacted by-laws and not forbidden by law." 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 16 former which is authorized by a majority ... ." 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 17 that the corporate charter and the by-law shall be subject to amendment, alteration and modification. It being settled that the corporation has the power to provide for the qualifications of its directors, the next question that must be considered is whether the disqualification of a competitor from being elected to the Board of Directors is a reasonable exercise of corporate authority. A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS SHAREHOLDERS Although in the strict and technical sense, directors of a private corporation are not regarded as trustees, there cannot be any doubt that their character is that of a fiduciary insofar as the corporation and the stockholders as a body are concerned. As agents entrusted with the management of the corporation for the collective benefit of the stockholders, "they occupy a fiduciary relation, 18 and in this sense the relation is one of trust." "The ordinary trust relationship of directors of a corporation and stockholders", 19 according to Ashaman v. Miller, "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 * * *. 20 Justice Douglas, in Pepper v. Litton, 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 22 only test that we can apply is as to whether or not the action of the Board is authorized and sanctioned by law. ... . 23 These principles have been applied by this Court in previous cases. 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 24 competition with or is antagonistic to the other corporation is valid." 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 25 qualifications. 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 26 enter into a competing enterprise which cripples or injures the business of the corporation of which he is an officer or director. It is also well established that corporate officers "are not permitted to use their position of trust and confidence to further their 27 private interests." 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 28 principal. 29 The doctrine of "corporate opportunity" is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest 30 of the corporation justly calls for protection. 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 bylaws 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 31 management. As explained by Oleck: "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 32 competitor to utilize such knowledge to his advantage. 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. 33 There are other legislation in this jurisdiction, which prohibit monopolies and combinations in restraint of trade. 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 34 yield the best allocation of our economic resources, the lowest prices and the highest quality ... ." they operate to forestall 35 concentration of economic power. 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 36 competition or unduly obstructing the course of trade. 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 37 sense, or to control prices to the detriment of the public. 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 38 that power exists to raise prices or exclude competition when desired. 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 39 of action. It is, in brief, unified tactics with regard to prices. 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 40 necessary for the existence of a combination or conspiracy in restraint of trade. It is enough that a concert of action is 41 contemplated and that the defendants conformed to the arrangements, 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 42 elimination of competition between them would constitute violation of any provision of the anti-trust laws. 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 43 competitors other than the suppression of competition. (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 44 of corporations ... to the detriment of the small ones dependent upon them and to the injury of the public. 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 45 judgment of those who are authorized to make by-laws and who have expressed their authority. 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 46 more advantageous terms as an inducement to secure trade. The test must be whether the business does in fact compete, not 47 whether it is capable of an indirect and highly unsubstantial duplication of an isolated or non-characteristics activity. 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 48 stockholders. Pursuant to this obligation and to remove any suspicion that this power may be utilized by the incumbent members of the Board to perpetuate themselves in power, any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed by the Securities behind Exchange Commission en banc and its decision shall be final unless reversed by this 49 Court on certiorari. 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 50 waste, dissipation or misapplication of the corporation assets, a court of equity has the power to grant appropriate relief. 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 51 documents. 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 52 be termed an equitable ownership, a beneficial ownership, or a ownership. This right is predicated upon the necessity of selfprotection. 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 53 the interest of the corporation. In other words, the inspection has to be germane to the petitioner's interest as a stockholder, and 54 55 has to be proper and lawful in character and not inimical to the interest of the corporation. In Grey v. Insular Lumber, 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 56 into and consider the stockholder's good faith and his purpose and motives in seeking inspection. 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 57 the corporation." 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 58 showing propriety of purpose and place upon the corporation the burden of showing impropriety of purpose or motive. 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 59 exclusion of others." 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 60 all the corporations may be required to be produced for examination, 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 61 party. mandamus was likewise held proper to inspect both the subsidiary's and the parent corporation's books upon proof of 62 sufficient control or dominion by the parent showing the relation of principal or agent or something similar thereto. 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 63 company, although it owned a vast majority of the stock of the subsidiary. 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 64 the stockholder was not within the class of "persons having an interest." 65 In the Nash case, 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." 66 In the Bailey case, 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 67 revealing to the petitioner notwithstanding the fact that no harm would be caused thereby to the corporation." 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 68 and directors. 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 69 stockholders holding shares entitling them to exercise at least two-thirds of the voting power is necessary. 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 70 agents. 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 71 it may have had at the outset. "Mere ultra vires acts", said this Court in Pirovano, "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.

RAMON A. GONZALES, petitioner, vs. THE PHILIPPINE NATIONAL BANK, respondent. Ramon A. Gonzales in his own behalf. Juan Diaz for respondent. VASQUEZ, J.: Petitioner Ramon A. Gonzales instituted in the erstwhile Court of First Instance of Manila a special civil action for mandamus against the herein respondent praying that the latter be ordered to allow him to look into the books and records of the respondent bank in order to satisfy himself as to the truth of the published reports that the respondent has guaranteed the obligation of Southern Negros Development Corporation in the purchase of a US$ 23 million sugar-mill to be financed by Japanese suppliers and financiers; that the respondent is financing the construction of the P 21 million Cebu-Mactan Bridge to be constructed by V.C. Ponce, Inc., and the construction of Passi Sugar Mill at Iloilo by the Honiron Philippines, Inc., as well as to inquire into the validity of Id transactions. The petitioner has alleged hat his written request for such examination was denied by the respondent. The trial court having dismissed the petition for mandamus, the instant appeal to review the said dismissal was filed. The facts that gave rise to the subject controversy have been set forth by the trial court in the decision herein sought to be reviewed, as follows: Briefly stated, the following facts gathered from the stipulation of the parties served as the backdrop of this proceeding. Previous to the present action, the petitioner instituted several cases in this Court questioning different transactions entered into by the Bark with other parties. First among them is Civil Case No. 69345 filed on April 27, 1967, by petitioner as a taxpayer versus Sec. Antonio Raquiza of Public Works and Communications, the Commissioner of Public Highways, the Bank, Continental Ore Phil., Inc., Continental Ore, Huber Corporation, Allis Chalmers and General Motors Corporation In the course of the hearing of said case on August 3, 1967, the personality of herein petitioner to sue the bank and question the letters of credit it has extended for the importation by the Republic of the Philippines of public works equipment intended for the massive development program of the President was raised. In view thereof, he expressed and made known his intention to acquire one share of stock from Congressman Justiniano Montano which, on the following day, August 30, 1967, was transferred in his name in the books of the Bank. Subsequent to his aforementioned acquisition of one share of stock of the Bank, petitioner, in his dual capacity as a taxpayer and stockholder, filed the following cases involving the bank or the members of its Board of Directors to wit: l. On October l8,1967, Civil Case No. 71044 versus the Board of Directors of the Bank; the National Investment and Development Corp., Marubeni Iida Co., Ltd., and Agro-Inc. Dev. Co. or Saravia; 2. On May 11, 1968, Civil Case No. 72936 versus Roberto Benedicto and other Directors of the Bank, Passi (Iloilo) Sugar Central, Inc., Calinog-Lambunao Sugar Mill Integrated Farming, Inc., Talog sugar Milling Co., Inc., Safary Central, Inc., and Batangas Sugar Central Inc.; 3. On May 8, 1969, Civil Case No. 76427 versus Alfredo Montelibano and the Directors of both the PNB and DBP; On January 11, 1969, however, petitioner addressed a letter to the President of the Bank (Annex A, Pet.), requesting submission to look into the records of its transactions covering the purchase of a sugar central by the Southern Negros Development Corp. to be financed by Japanese suppliers and financiers; its financing of the Cebu-Mactan Bridge to be constructed by V.C. Ponce, Inc. and the construction of the Passi Sugar Mills in Iloilo. On January 23, 1969, the Asst. Vice-President and Legal Counsel of the Bank answered petitioner's letter denying his request for being not germane to his interest as a one-share stockholder and for the cloud of doubt as to his real intention and purpose in acquiring said share. (Annex B, Pet.) In view of the Bank's refusal the petitioner instituted this action.' (Rollo, pp. 16-18.) The petitioner has adopted the above finding of facts made by the trial court in its brief which he characterized as having been "correctly stated." (Petitioner-Appellant"s Brief, pp. 57.) The court a quo denied the prayer of the petitioner that he be allowed to examine and inspect the books and records of the respondent bank regarding the transactions mentioned on the grounds that the right of a stockholder to inspect the record of the business transactions of a corporation granted under Section 51 of the former Corporation Law (Act No. 1459, as amended) is not absolute, but is limited to purposes reasonably related to the interest of the stockholder, must be asked for in good faith for a specific and honest purpose and not gratify curiosity or for speculative or vicious purposes; that such examination would violate the confidentiality of the records of the respondent bank as provided in Section 16 of its charter, Republic Act No. 1300, as amended; and that the petitioner has not exhausted his administrative remedies. Assailing the conclusions of the lower court, the petitioner has assigned the single error to the lower court of having ruled that his alleged improper motive in asking for an examination of the books and records of the respondent bank disqualifies him to exercise the right of a stockholder to such inspection under Section 51 of Act No. 1459, as amended. Said provision reads in part as follows: Sec. 51. ... The record of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director, member or stockholder of the corporation at reasonable hours. Petitioner maintains that the above-quoted provision does not justify the qualification made by the lower court that the inspection of corporate records may be denied on the ground that it is intended for an improper motive or purpose, the law having granted such right to a stockholder in clear and unconditional terms. He further argues that, assuming that a proper motive or purpose for the desired examination is necessary for its exercise, there is nothing improper in his purpose for asking for the examination and inspection herein involved. Petitioner may no longer insist on his interpretation of Section 51 of Act No. 1459, as amended, regarding the right of a stockholder to inspect and examine the books and records of a corporation. The former Corporation Law (Act No. 1459, as amended) has been replaced by Batas Pambansa Blg. 68, otherwise known as the "Corporation Code of the Philippines." The right of inspection granted to a stockholder under Section 51 of Act No. 1459 has been retained, but with some modifications. The second and third paragraphs of Section 74 of Batas Pambansa Blg. 68 provide the following: The records of all business transactions of the corporation and the minutes of any meeting shag be open to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records or minutes, at his expense. Any officer or agent of the corporation who shall refuse to allow any director, trustee, stockholder or member of the corporation to examine and copy excerpts from its records or minutes, in accordance with the provisions of this Code, shall be liable to such

director, trustee, stockholder or member for damages, and in addition, shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided, That if such refusal is made pursuant to a resolution or order of the board of directors or trustees, the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal; and Provided, further, That it shall be a defense to any action under this section that the person demanding to examine and copy excerpts from the corporation's records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand. As may be noted from the above-quoted provisions, among the changes introduced in the new Code with respect to the right of inspection granted to a stockholder are the following the records must be kept at the principal office of the corporation; the inspection must be made on business days; the stockholder may demand a copy of the excerpts of the records or minutes; and the refusal to allow such inspection shall subject the erring officer or agent of the corporation to civil and criminal liabilities. However, while seemingly enlarging the right of inspection, the new Code has prescribed limitations to the same. It is now expressly required as a condition for such examination that the one requesting it must not have been guilty of using improperly any information through a prior examination, and that the person asking for such examination must be "acting in good faith and for a legitimate purpose in making his demand." The unqualified provision on the right of inspection previously contained in Section 51, Act No. 1459, as amended, no longer holds true under the provisions of the present law. The argument of the petitioner that the right granted to him under Section 51 of the former Corporation Law should not be dependent on the propriety of his motive or purpose in asking for the inspection of the books of the respondent bank loses whatever validity it might have had before the amendment of the law. If there is any doubt in the correctness of the ruling of the trial court that the right of inspection granted under Section 51 of the old Corporation Law must be dependent on a showing of proper motive on the part of the stockholder demanding the same, it is now dissipated by the clear language of the pertinent provision contained in Section 74 of Batas Pambansa Blg. 68. Although the petitioner has claimed that he has justifiable motives in seeking the inspection of the books of the respondent bank, he has not set forth the reasons and the purposes for which he desires such inspection, except to satisfy himself as to the truth of published reports regarding certain transactions entered into by the respondent bank and to inquire into their validity. The circumstances under which he acquired one share of stock in the respondent bank purposely to exercise the right of inspection do not argue in favor of his good faith and proper motivation. Admittedly he sought to be a stockholder in order to pry into transactions entered into by the respondent bank even before he became a stockholder. His obvious purpose was to arm himself with materials which he can use against the respondent bank for acts done by the latter when the petitioner was a total stranger to the same. He could have been impelled by a laudable sense of civic consciousness, but it could not be said that his purpose is germane to his interest as a stockholder. We also find merit in the contention of the respondent bank that the inspection sought to be exercised by the petitioner would be violative of the provisions of its charter. (Republic Act No. 1300, as amended.) Sections 15, 16 and 30 of the said charter provide respectively as follows: Sec. 15. Inspection by Department of Supervision and Examination of the Central Bank. The National Bank shall be subject to inspection by the Department of Supervision and Examination of the Central Bank' Sec. 16. Confidential information. The Superintendent of Banks and the Auditor General, or other officers designated by law to inspect or investigate the condition of the National Bank, shall not reveal to any person other than the President of the Philippines, the Secretary of Finance, and the Board of Directors the details of the inspection or investigation, nor shall they give any information relative to the funds in its custody, its current accounts or deposits belonging to private individuals, corporations, or any other entity, except by order of a Court of competent jurisdiction,' Sec. 30. Penalties for violation of the provisions of this Act. Any director, officer, employee, or agent of the Bank, who violates or permits the violation of any of the provisions of this Act, or any person aiding or abetting the violations of any of the provisions of this Act, shall be punished by a fine not to exceed ten thousand pesos or by imprisonment of not more than five years, or both such fine and imprisonment. The Philippine National Bank is not an ordinary corporation. Having a charter of its own, it is not governed, as a rule, by the Corporation Code of the Philippines. Section 4 of the said Code provides: SEC. 4. Corporations created by special laws or charters. Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them. supplemented by the provisions of this Code, insofar as they are applicable. The provision of Section 74 of Batas Pambansa Blg. 68 of the new Corporation Code with respect to the right of a stockholder to demand an inspection or examination of the books of the corporation may not be reconciled with the abovequoted provisions of the charter of the respondent bank. It is not correct to claim, therefore, that the right of inspection under Section 74 of the new Corporation Code may apply in a supplementary capacity to the charter of the respondent bank. WHEREFORE, the petition is hereby DISMISSED, without costs.

THE GOVERNMENT OF THE PHILIPPINE ISLANDS (on relation of the Attorney-General), plaintiff, vs. EL HOGAR FILIPINO, defendant. Attorney-General Jaranilla and Solicitor-General Reyes for plaintiff. Fisher, DeWitt, Perkins and Brady; Camus, Delgado and Recto and Antonio Sanz for defendant. Wm. J. Rohde as amicus curiae. STREET, J.: This is a quo warranto proceeding instituted originally in this court by the Government of the Philippine Islands on the relation of the Attorney-General against the building and loan association known as El Hogar Filipino, for the purpose of depriving it of its corporate franchise, excluding it from all corporate rights and privileges, and effecting a final dissolution of said corporation. The complaint enumerates seventeen distinct causes of action, to all of which the defendant has answered upon the merits, first admitting the averments of the first paragraph in the statement of the first cause of action, wherein it is alleged that the defendant was organized in the year 1911 as a building and loan association under the laws of the Philippine Islands, and that, since its organization, the corporation has been doing business in the Philippine Islands, with its principal office in the City of Manila. Other facts alleged in the various causes of action in the complaint are either denied in the answer or controverted in legal effect by other facts. After issue had been thus joined upon the merits, the attorneys entered into an elaborate agreement as to the fact, thereby removing from the field of dispute such matters of fact as are necessary to the solution of the controversy. It follows that we are here confronted only with the legal questions arising upon the agreed statement. On March 1, 1906, the Philippine Commission enacted what is known as the Corporation Law (Act No. 1459) effective upon April 1 of the same year. Section 171 to 190, inclusive, of this Act are devoted to the subject of building and loan associations, defining their objects making various provisions governing their organization and administration, and providing for the supervision to be exercised over them. These provisions appear to be adopted from American statutes governing building and loan associations and they of course reflect the ideals and principles found in American law relative to such associations. The respondent, El Hogar Filipino, was apparently the first corporation organized in the Philippine Islands under the provisions cited, and the association has been favored with extraordinary success. The articles of incorporation bear the date of December 28, 1910, at which time capital stock in the association had been subscribed to the amount of P150,000 of which the sum of P10,620 had been paid in. Under the law as it then stood, the capital of the Association was not permitted to exceed P3,000,000, but by Act No. 2092, passed December 23, 1911, the statute was so amended as to permit the capitalization of building and loan associations to the amount of ten millions. Soon thereafter the association took advantage of this enactment by amending its articles so as to provide that the capital should be in an amount not exceeding the then lawful limit. From the time of its first organization the number of shareholders has constantly increased, with the result that on December 31, 1925, the association had 5,826 shareholders holding 125,750 shares, with a total paid-up value of P8,703,602.25. During the period of its existence prior to the date last above-mentioned the association paid to withdrawing stockholders the amount of P7,618,257,.72; and in the same period it distributed in the form of dividends among its stockholders the sum of P7,621,565.81. First cause of action. The first cause of action is based upon the alleged illegal holding by the respondent of the title to real property for a period in excess of five years after the property had been bought in by the respondent at one of its own foreclosure sales. The provision of law relevant to the matter is found in section 75 of Act of Congress of July 1, 1902 (repeated in subsection 5 of section 13 of the Corporation Law.) In both of these provisions it is in substance declared that while corporations may loan funds upon real estate security and purchase real estate when necessary for the collection of loans, they shall dispose of real estate so obtained within five years after receiving the title. In this connection it appears that in the year 1920 El Hogar Filipino was the holder of a recorded mortgage upon a tract of land in the municipality of San Clemente, Province of Tarlac, as security for a loan of P24,000 to the shareholders of El Hogar Filipino who were the owners of said property. The borrowers having defaulted in their payments, El Hogar Filipino foreclosed the mortgage and purchased the land at the foreclosure sale for the net amount of the indebtedness, namely, the sum of P23,744.18. The auction sale of the mortgaged property took place November 18, 1920, and the deed conveying the property to El Hogar Filipino was executed and delivered December 22, 1920. On December 27, 1920, the deed conveying the property to El Hogar Filipino was sent to the register of deeds of the Province of Tarlac, with the request that the certificate of title then standing in the name of the former owners be cancelled and that a new certificate of title be issued in the name of El Hogar Filipino. Said deed was received in the office of the register of deeds of Tarlac on December 28, 1920, together with the old certificate of title, and thereupon the register made upon the said deed the following annotation: The foregoing document was received in this office at 4.10 p. m., December 28, 1920, according to entry 1898, page 50 of Book One of the Day Book and registered on the back of certificate of title No. 2211 and its duplicate, folio 193 of Book A-10 of the register of original certificate. Tarlac, Tarlac, January 12, 1921. (Sgd.) SILVINO LOPEZ DE JESUS, Register of Deeds. For months no reply was received by El Hogar Filipino from the register of deeds of Tarlac, and letters were written to him by El Hogar Filipino on the subject in March and April, 1921, requesting action. No answer having been received to these letters, a complaint was made by El Hogar Filipino to the Chief of the General Land Registration Office; and on May 7, 1921, the certificate of title to the San Clemente land was received by El Hogar Filipino from the register of deeds of Tarlac. On March 10, 1921, the board of directors of El Hogar Filipino adopted a resolution authorizing Vicente Bengzon, an agent of the corporation, to endeavor to find a buyer for the San Clemente land. On July 27, 1921, El Hogar Filipino authorized one Jose Laguardia to endeavor to find a purchaser for the San Clemente land for the sum of P23,000 undertaking to pay the said Laguardia a commission of 5 per centum of the selling price for his services, but no offers to purchase were obtained through this agent or through the agent Bengzon. In July, 1923, plans of the San Clemente land were sent to Mr. Luis Gomez, Mr. J. Gonzalez and Mr. Alfonso de Castelvi, as prospective purchasers, but no offers were received from them. In January, 1926, the agent not having succeeded in finding a buyer, the San Clemente land was advertised for sale by El Hogar Filipino in El Debate, La Vanguardia and Taliba, three newspapers of general circulation in the Philippine Islands published in the City of Manila. On March 16, 1926, the first offer for the purchase of the San Clemente land was received by El Hogar Filipino. This offer was made to it in writing by one Alcantara, who offered to buy it for the sum of P4,000, Philippine currency, payable P500 in cash, and the remainder within thirty days. Alcantara's offer having been reported by the manager of El Hogar Filipino to its board of directors, it was decided, by a resolution adopted at a meeting of the board held on March 25, 1926, to accept the offer, and this acceptance was communicated to the prospective buyer. Alcantara was given successive extensions of the time, the last of which expired April 30,

1926, within which to make the payment agreed upon; and upon his failure to do so El Hogar Filipino treated the contract with him as rescinded, and efforts were made at once to find another buyer. Finally the land was sold to Doa Felipa Alberto for P6,000 by a public instrument executed before a notary public at Manila, P. I., on July 30, 1926. Upon consideration of the facts above set forth it is evident that the strict letter of the law was violated by the respondent; but it is equally obvious that its conduct has not been characterized by obduracy or pertinacity in contempt of the law. Moreover, several facts connected with the incident tend to mitigate the offense. The Attorney-General points out that the respondent acquired title on December 22, 1920, when the deed was executed and delivered, by which the property was conveyed to it as purchaser at its foreclosure sale, and this title remained in it until July 30, 1926, when the property was finally sold to Felipa Alberto. The interval between these two conveyances is thus more than five years; and it is contended that the five year period did not begin to run against the respondent until May 7, 1921, when the register of deeds of Tarlac delivered the new certificate of title to the respondent pursuant to the deed by which the property was acquired. As an equitable consideration affecting the case this contention, though not decisive, is in our opinion more than respectable. It has been held by this court that a purchaser of land registered under the Torrens system cannot acquire the status of an innocent purchaser for value unless his vendor is able to place in his hands an owner's duplicate showing the title of such land to be in the vendor (Director of Lands vs. Addison, 49, Phil., 19; 1 Rodriguez vs. Llorente, G. R. No. 26615 ). It results that prior to May 7, 1921, El Hogar Filipino was not really in a position to pass an indefeasible title to any purchaser. In this connection it will be noted that section 75 of the Act of Congress of July 1, 1902, and the similar provision in section 13 of the Corporation Law, allow the corporation "five years after receiving the title," within which to dispose of the property. A fair interpretation of these provisions would seem to indicate that the date of the receiving of the title in this case was the date when the respondent received the owner's certificate, or May 7, 1921, for it was only after that date that the respondent had an unequivocal and unquestionable power to pass a complete title. The failure of the respondent to receive the certificate sooner was not due in any wise to its fault, but to unexplained delay on the part of the register of deeds. For this delay the respondent cannot be held accountable. Again, it is urged for the respondent that the period between March 25, 1926, and April 30, 1926, should not be counted as part of the five-year period. This was the period during which the respondent was under obligation to sell the property to Alcantara, prior to the rescission of the contract by reason of Alcantara's failure to make the stipulated first payment. Upon this point the contention of the respondent is, in our opinion, well founded. The acceptance by it of Alcantara's offer obligated the respondent to Alcantara; and if it had not been for the default of Alcantara, the effective sale of the property would have resulted. The respondent was not at all chargeable with the collapse of these negotiations; and hence in any equitable application of the law this period should be deducted from the five-year period within which the respondent ought to have made the sale. Another circumstance explanatory of the respondent's delay in selling the property is found in the fact that it purchased the property for the full amount of the indebtedness due to it from the former owner, which was nearly P24,000. It was subsequently found that the property was not salable for anything like that amount and in the end it had to be sold for P6,000, notwithstanding energetic efforts on the part of the respondent to find a purchaser upon better terms. The question then arises whether the failure of the respondent to get rid of the San Clemente property within five years after it first acquired the deed thereto, even supposing the five-year period to be properly counted from that date, is such a violation of law as should work a forfeiture of its franchise and require a judgment to be entered for its dissolution in this action of quo warranto. Upon this point we do not hesitate to say that in our opinion the corporation has not been shown to have offended against the law in a manner that should entail a forfeiture of its charter. Certainly no court with any discretion to use in the matter would visit upon the respondent and its thousands of shareholders the extreme penalty of the law as a consequence of the delinquency here shown to have been committed. The law applicable to the case is in our opinion found in section 212 of the Code of Civil Procedure, as applied by this court in Government of the Philippine Islands vs. Philippine Sugar Estates Development Co. (38 Phil., 15). This section (212), in prescribing the judgment to be rendered against a corporation in an action of quo warranto, among other things says: . . . When it is found and adjudged that a corporation has offended in any matter or manner which does not by law work as a surrender or forfeiture, or has misused a franchise or exercised a power not conferred by law, but not of such a character as to work a surrender or forfeiture of its franchise, judgment shall be rendered that it be outset from the continuance of such offense or the exercise of such power. This provision clearly shows that the court has a discretion with respect to the infliction of capital punishment upon corporation and that there are certain misdemeanors and misuses of franchises which should not be recognized as requiring their dissolution. In Government of the Philippine Islands vs. Philippine Sugar Estates Development Co. (38 Phil., 15), it was found that the offending corporation had been largely (though indirectly) engaged in the buying and holding or real property for speculative purposes in contravention of its charter and contrary to the express provisions of law. Moreover, in that case the offending corporation was found to be still interested in the properties so purchased for speculative at the time the action was brought. Nevertheless, instead of making an absolute and unconditional order for the dissolution of the corporation, the judgment of ouster was made conditional upon the failure of the corporation to discontinue its unlawful conduct within six months after final decision. In the case before us the respondent appears to have rid itself of the San Clemente property many months prior to the institution of this action. It is evident from this that the dissolution of the respondent would not be an appropriate remedy in this case. We do not of course undertake to say that a corporation might not be dissolved for offenses of this nature perpetrated in the past, especially if its conduct had exhibited a willful obduracy and contempt of law. We content ourselves with holding that upon the facts here before us the penalty of dissolution would be excessively severe and fraught with consequences altogether disproportionate to the offense committed. The evident purpose behind the law restricting the rights of corporations with respect to the tenure of land was to prevent the revival of the entail (mayorazgo) or other similar institution by which land could be fettered and its alienation hampered over long periods of time. In the case before us the respondent corporation has in good faith disposed of the piece of property which appears to have been in its hands at the expiration of the period fixed by law, and a fair explanation is given of its failure to dispose of it sooner. Under these circumstances the destruction of the corporation would bring irreparable loss upon the thousand of innocent shareholders of the corporation without any corresponding benefit to the public. The discretion permitted to this court in the application of the remedy of quo warranto forbids so radical a use of the remedy. But the case for the plaintiff supposes that the discretion of this court in matters like that now before us has been expressly taken away by the third section of Act No. 2792, and that the dissolution of the corporation is obligatory upon the court a mere finding

that the respondent has violated the provision of the Corporation Law in any respect. This makes necessary to examine the Act last above-mentioned with some care. Upon referring thereto, we find that it consists of three sections under the following style: No. 2792. An Act to amend certain sections of the Corporation Law, Act Numbered Fourteen hundred and fifty-nine, providing for the publication of the assets and liabilities of corporations registering in the Bureau of Commerce and Industry, determining the liability of the officers of corporations with regard to the issuance of stock or bonus, establishing penalties for certain things, and for other purposes. The first two section contain amendments to the Corporation Law with respect to matters with which we are not here concurred. The third section contains anew enactment to be inserted as section 190 (A) in the corporation Law immediately following section 190. This new section reads as follows: SEC. 190. (A). Penalties. The violation of any of the provisions of this Act and its amendments not otherwise penalized therein, shall be punished by a fine of not more than one thousand pesos, or by imprisonment for not more than five years, or both, in the discretion of the court. If the violation being proved, be dissolved by quo warranto proceedings instituted by the Attorney-General or by any provincial fiscal, by order of said Attorney-General: Provided, That nothing in this section provided shall be construed to repeal the other causes for the dissolution of corporation prescribed by existing law, and the remedy provided for in this section shall be considered as additional to the remedies already existing. The contention for the plaintiff is to the effect that the second sentence in this enactment has entirely abrogated the discretion of this court with respect to the application of the remedy of qou warranto, as expressed in section 212 of the Code of Civil Procedure, and that it is now mandatory upon us to dissolved any corporation whenever we find that it has committed any violation of the Corporation Law, however trivial. In our opinion in this radical view of the meaning of the enactment is untenable. When the statute says, "If the violation is committed by a corporation, the same shall, upon such violation being proved, be dissolved by quo warranto proceedings . . .," the intention was to indicate that the remedy against the corporation shall be by action of quo warranto. There was no intention to define the principles governing said remedy, and it must be understood that in applying the remedy the court is still controlled by the principles established in immemorial jurisprudence. The interpretation placed upon this language in the brief of the Attorney-General would be dangerous in the extreme, since it would actually place the life of all corporate investments in the official. No corporate enterprise of any moment can be conducted perpetually without some trivial misdemeanor against corporate law being committed by some one or other of its numerous employees. As illustrations of the preposterous effects of the provision, in the sense contended for by the Attorney-General, the attorneys for the respondent have called attention to the fact that under section 52 of the Corporation Law, a business corporation is required to keep a stock book and a transfer book in which the names of stockholders shall kept in alphabetical order. Again, under section 94, railroad corporations are required to cause all employees working on passenger trains or at a station for passengers to wear a badge on his cap or hat which will indicate his office. Can it be supposed that the Legislature intended to penalize the violation of such provisions as these by dissolution of the corporation involved? Evidently such could not have been the intention; and the only way to avoid the consequence suggested is to hold, as we now hold, that the provision now under consideration has not impaired the discretion of this court in applying the writ of quo warranto. Another way to put the same conclusion is to say that the expression "shall be dissolved by quo warrantoproceedings" means in effect, "may be dissolved by quo warranto proceedings in the discretion of the court." The proposition that the word "shall" may be construed as "may", when addressed by the Legislature to the courts, is well supported in jurisprudence. In the case of Becker vs. Lebanon and M. St. Ry. Co., (188 Pa., 484), the Supreme Court of Pennsylvania had under consideration a statute providing as follows: It shall be the duty of the court . . . to examine, inquire and ascertain whether such corporation does in fact posses the right or franchise to do the act from which such alleged injury to private rights or to the rights and franchises of other corporations results; and if such rights or franchises have not been conferred upon such corporations, such courts, it exercising equitable power, shall, by injunction, at suit of the private parties or other corporations, restrain such injurious acts. In an action based on this statute the plaintiff claimed injunctive relief as a matter of right. But this was denied the court saying: Notwithstanding, therefore, the use of the imperative "shall" the injunction is not to be granted unless a proper case for injunction be made out, in accordance with the principles and practice of equity. The word "shall" when used by the legislature to a court, is usually a grant of authority and means "may", and even if it be intended to be mandatory it must be subject to the necessary limitation that a proper case has been made out for the exercise of the power. Other authorities amply sustain this view (People vs. Nusebaum, 66 N. Y. Supp., 129, 133; West Wisconsin R. Co.vs. Foley, 94 U. S., 100, 103; 24 Law. Ed., 71; Clancy vs. McElroy, 30 Wash., 567; 70 Pac., 1095; State vs. West, 3 Ohio State, 509, 511; In re Lent, 40 N. Y. Supp., 570, 572; 16 Misc. Rep., 606; Ludlow vs. Ludlow's Executors, 4 N. J. Law [1 Sothard], 387, 394; Whipple vs. Eddy, 161 Ill., 114;43 N. E., 789, 790; Borkheim vs. Fireman's Fund Ins. Co., 38 Cal., 505, 506; Beasley vs. People, 89 Ill., 571, 575; Donnelly vs. Smith, 128 Iowa, 257; 103 N. W., 776). But section 3 of Act No. 2792 is challenged by the respondent on the ground that the subject-matter of this section is not expressed in the title of the Act, with the result that the section is invalid. This criticism is in our opinion well founded. Section 3 of our organic law (Jones Bill) declares, among other things, that "No bill which may be enacted into law shall embrace more than one subject, and that subject shall be expressed in the title of the bill." Any law or part of a law passed by the Philippine Legislature since this provision went into effect and offending against its requirement is necessarily void. Upon examining the entire Act (No. 2792), we find that it is directed to three ends which are successively dealt with in the first three sections of the Act. But it will be noted that these three matters all relate to the Corporation Law; and it is at once apparent that they might properly have been embodied in a single Act if a title of sufficient unity and generality had been prefixed thereto. Furthermore, it is obvious, even upon casual inspection, that the subject-matter of each of the first two sections is expressed and defined with sufficient precision in the title. With respect to the subject-matter of section 3 the only words in the title which can be taken to refer to the subject-matter of said section are these, "An Act . . . establishing penalties for certain things, and for other purposes." These words undoubtedly have sufficient generality to cover the subject-matter of section 3 of the Act. But this is not enough. The Jones Law requires that the subject-matter of the bill "shall be expressed in the title of the bill." When reference is had to the expression "establishing penalties for certain things," it is obvious that these words express nothing. The constitutional provision was undoubtedly adopted in order that the public might be informed as to what the Legislature is about while bills are in process of passage. The expression "establishing penalties for certain things" would give no definite information to anybody as to the project of legislation intended under this expression. An examination of the decided cases shows that courts have

always been indulgent of the practices of the Legislature with respect to the form and generality of title, for if extreme refinements were indulged by the courts, the work of legislation would be unnecessarily hampered. But, as has been observed by the California court, there must be some reasonable limit to the generality of titles that will be allowed. The measure of legality is whether the title is sufficient to give notice of the general subject of the proposed legislation to the persons and interests likely to be affected. In Lewis vs. Dunne (134 Cal., 291), the court had before it a statute entitled "An Act to revise the Code of Civil Procedure of the State of California, by amending certain sections, repealing others, and adding certain new sections." This title was held to embrace more than one subject, which were not sufficiently expressed in the title. In discussing the question the court said: * * * It is apparent that the language of the title of the act in question, in and of itself, express no subject whatever. No one could tell from the title alone what subject of legislation was dealt with in the body of the act; such subject so far as the title of the act informs us, might have been entirely different from anything to be found in the act itself. We cannot agree with the contention of some of respondent's counsel apparently to some extent countenanced by a few authorities that the provision of the constitution in question can be entirely avoided by the simple device of putting into the title of an act words which denote a subject "broad" enough to cover everything. Under that view, the title, "An act concerning the laws of the state," would be good, and the convention and people who framed and adopted the constitution would be convicted of the folly of elaborately constructing a grave constitutional limitation of legislative power upon a most important subject, which the legislature could at once circumvent by a mere verbal trick. The word "subject" is used in the constitution embrace but "one subject" it necessarily implies what everybody knows that there are numerous subjects of the legislation, and declares that only one of these subjects shall embraced in any one act. All subjects cannot be conjured into one subject by the mere magic of a word in a title. In Rader vs. Township of Union (39 N. J. L., 509, 515), the Supreme Court of New Jersey made the following observation: * * * It is true, that it may be difficult to indicate, by a formula, how specialized the title of a statute must be; but it is not difficult to conclude that it must mean something in the way of being a notice of what is doing. Unless it does not enough that it embraces the legislative purpose it must express it; and where the language is too general, it will accomplish the former, but not the latter. Thus, a law entitled "An act for a certain purpose," would embrace any subject, but would express none, and, consequently, it would not stand the constitutional test. The doctrine properly applicable in matters of this kind is, we think, fairly summed up in a current repository of jurisprudence in the following language: * * * While it may be difficult to formulate a rule by which to determine the extent to which the title of a bill must specialize its object, it may be safely assumed that the title must not only embrace the subject of proposed legislation, but also express it clearly and fully enough to give notice of the legislative purpose. (25 R. C. L., p. 853.) In dealing with the problem now before us the words "and for other purposes "found at the end of the caption of Act No. 2792, must be laid completely out of consideration. They express nothing, and amount to nothing as a compliance with the constitutional requirement to which attention has been directed. This expression "(for other purposes") is frequently found in the title of acts adopted by the Philippine Legislature; and its presence in our laws is due to the adoption by our Legislature of the style used in Congression allegation. But it must be remembered that the legislation of Congress is subject to no constitutional restriction with respect to the title of bills. Consequently, in Congressional legislation the words "and for other purposes" at least serve the purpose of admonishing the public that the bill whose heading contains these words contains legislation upon other subjects than that expressed in the title. Now, so long as the Philippine Legislature was subject to no restriction with respect to the title of bills intended for enactment into general laws, the expression "for other purposes" could be appropriately used in titles, not precisely for the purpose of conveying information as to the matter legislated upon, but for the purpose ad admonishing the public that any bill containing such words in the title might contain other subjects than that expressed in the definitive part of the title. But, when congress adopted the Jones Law, the restriction with which we are now dealing became effective here and the words "for other purposes" could no longer be appropriately used in the title of legislative bills. Nevertheless, the custom of using these words has still been followed, although they can no longer serve to cover matter not germane to the bill in the title of which they are used. But the futility of adding these words to the style of any act is now obvious (Cooley, Const. Lims., 8th ed., p. 302) In the brief for the plaintiff it is intimated that the constitutional restriction which we have been discussing is more or less of a dead letter in this jurisdiction; and it seems to be taken for granted that no court would ever presume to hold a legislative act or part of a legislative act invalid for non-compliance with the requirement. This is a mistake; and no utterance of this court can be cited as giving currency to any such notion. On the contrary the discussion contained in Central Capiz vs. Ramirez (40 Phil., 883), shows that when a case arises where a violation of the restriction is apparent, the court has no alternative but to declare the legislation affected thereby to be invalid. Second cause of action. The second cause of action is based upon a charge that the respondent is owning and holding a business lot, with the structure thereon, in the financial district of the City of Manila is excess of its reasonable requirements and in contravention of subsection 5 of section 13 of the corporation Law. The facts on which this charge is based appear to be these: On August 28, 1913, the respondent purchased 1,413 square meters of land at the corner of Juan Luna Street and the Muelle de la Industria, in the City of Manila, immediately adjacent to the building then occupied by the Hongkong and Shanghai Banking Corporation. At the time the respondent acquired this lot there stood upon it a building, then nearly fifty years old, which was occupied in part by the offices of an importing firm and in part by warehouses of the same firm. The material used in the construction was Guadalupe stone and hewn timber, and the building contained none of the facilities usually found in a modern office building. In purchase of a design which had been formed prior to the purchase of the property, the directors of the El Hogar Filipino caused the old building to be demolished; and they erected thereon a modern reinforced concrete office building. As at first constructed the new building was three stories high in the main, but in 1920, in order to obtain greater advantage from the use of the land, an additional story was added to the building, making a structure of four stories except in one corner where an additional story was place, making it five stories high over an area of 117.52 square meters. It is admitted in the plaintiffs brief that this "noble and imposing structure" to use the words of the Attorney-General "has greatly improved the aspect of the banking and commercial district of Manila and has greatly contributed to the movement and campaign for the Manila Beautiful." It is also admitted that the competed building is reasonably proportionate in value and revenue producing capacity to the value of the land upon which it stands. The total outlay of the respondent for the land and the improvements thereon was P690,000 and at this valuation the property is carried on the books of the company, while the assessed valuation of the land and improvements is at P786,478.

Since the new building was completed the respondent has used about 324 square meters of floor space for its own offices and has rented the remainder of the office space in said building, consisting of about 3,175 square meters, to other persons and entities. In the second cause of action of the complaint it is supposed that the acquisition of this lot, the construction of the new office building thereon, and the subsequent renting of the same in great part to third persons, are ultra vires acts on the part of the corporation, and that the proper penalty to be enforced against it in this action is that if dissolution. With this contention we are unable to agree. Under subsection 5 of section 13 of the Corporation Law, every corporation has the power to purchase, hold and lease such real property as the transaction of the lawful business of the corporation may reasonably and necessarily require. When this property was acquired in 1916, the business of El Hogar Filipino had developed to such an extent, and its prospects for the future were such as to justify its directors in acquiring a lot in the financial district of the City of Manila and in constructing thereon a suitable building as the site of its offices; and it cannot be fairly said that the area of the lot 1,413 square meters was in excess of its reasonable requirements. The law expressly declares that corporations may acquire such real estate as is reasonably necessary to enable them to carry out the purposes for which they were created; and we are of the opinion that the owning of a business lot upon which to construct and maintain its offices is reasonably necessary to a building and loan association such as the respondent was at the time this property was acquired. A different ruling on this point would compel important enterprises to conduct their business exclusively in leased offices a result which could serve no useful end but would retard industrial growth and be inimical to the best interests of society. We are furthermore of the opinion that, inasmuch as the lot referred to was lawfully acquired by the respondent, it is entitled to the full beneficial use thereof. No legitimate principle can discovered which would deny to one owner the right to enjoy his (or its) property to the same extent that is conceded to any other owner; and an intention to discriminate between owners in this respect is not lightly to be imputed to the Legislature. The point here involved has been the subject of consideration in many decisions of American courts under statutes even more restrictive than that which prevails in this jurisdiction; and the conclusion has uniformly been that a corporations whose business may properly be conducted in a populous center may acquire an appropriate lot and construct thereon an edifice with facilities in excess of its own immediate requirements. Thus in People vs. Pullman's Palace-Car Co. (175 Ill., 125; 64 L. R. A., 366), it appeared that the respondent corporation owned and controlled a large ten-story business block in the City of Chicago, worth $2,000,000, and that it occupied only about one-fourth thereof for its own purposes, leasing the remainder to others at heavy rentals. The corporate charter merely permitted the holding of such real estate by the respondent as might be necessary for the successful prosecution of its business. An attempt was made to obtain the dissolution of the corporation in a quo warranto proceeding similar to that now before us, but the remedy was denied. In Rector vs. Hartford Deposit Co., a question was raised as to the power of the Deposit Company to erect and own a fourteen-story building containing eight storerooms, one hundred suites of offices, and one safety deposit vault, under a statute authorizing the corporation to possess so much real estate "as shall be necessary for the transaction of their business." The court said: That the appellee company possessed ample power to acquire real property and construct a building thereon for the purpose of transacting therein the legitimate business of the corporation is beyond the range of debate. Nor is the contrary contended, but the insistence is that, under the guise of erecting a building for corporate purposes, the appellee company purposely constructed a much larger building than its business required, containing many rooms intended to be rented to others for offices and business purposes, among them, the basement rooms contracted to be leased to the appellant, and that in so doing it designedly exceeded its corporate powers. The position off appellant therefore is that the appellee corporation has flagrantly abused its general power to acquire real estate and construct a building thereon . . . It was within the general scope of the express powers of the appellee corporation to own and possess a building necessary for its proper corporate purposes. In planning and constructing such a building, as was said in People vs. Pullman's Palace Car Co., supra, the corporation should not necessarily be restricted to a building containing the precise number of rooms its then business might require, and no more, but that the future probable growth and volume of its business might be considered and anticipated, and a larger building, and one containing more rooms than the present volume of business required be erected, and the rooms not needed might be rented by the corporation, provided, of course, such course should be taken in good faith, and not as a mere evasion of the public law and the policy of the state relative to the ownership of real estate by corporations. In such state of case the question is whether the corporation has abused or excessively and unjustifiably used the power and authority granted it by the state to construct buildings and own real estate necessary for its corporate purposes. In Home savings building Association vs. Driver (129 Ky., 754), one of the questions before the court was precisely the same as that now before us. Upon this the Supreme Court of Kentucky said: The third question is, has the association the right to erect, remodel, or own a building of more than sufficient capacity to accommodate its own business and to rent out the excess? There is nothing in the Constitution, charter of the association, or statutes placing any limitation upon the character of a building which a corporation may erect as a home in which to conduct its business. A corporation conducting a business of the character of that in which appellant is engaged naturally expects its business to grow and expand from time to time, and, in building a home it would be exercising but a short-sighted judgment if it did not make provision for the future by building a home large enough to take care of its expanding business, and hence, even if it should build a house larger and roomier than its present needs or interests require, it would be acting clearly with the exercise of its corporate right and power. The limitation which the statute imposes is that proper conduct of its business, but it does not attempt to place any restriction or limitation upon the right of the corporation or association as to the character of building it shall erect on said real estate; and, while the Constitution and the statutes provide that no corporation shall engage in any business other than that expressly authorized by its charter, we are of opinion that, in renting out the unoccupied and unused portions of the building so erected, the association could not be said to engaged in any other business than that authorized by its charter. The renting of the unused portions of the building is a mere incident in the conduct of its real business. We would not say that a building association might embark in the business of building houses and renting or leasing them, but there is quite a difference in building or renting a house in which to conduct its own business and leasing the unused portion thereof for the time being, or until such time as they may be needed by the association, and in building houses for the purpose of renting or leasing them. The one might properly be said to be the proper exercise of a power incident to the conduct of its legitimate business, whereas the other would be a clear violation of that provision of the statute which denies to any corporation the right to conduct any business other than that authorized by its charter. To hold otherwise would be to charge most of the banking institutions, trust companies and other corporations, such as title guaranty companies, etc., doing with violating the law; for it is known that there are few of such institutions that do not, at times, rent out or lease the unneeded portions of the building occupied by them as homes. We do not think that in so doing they are

violating any provisions of the law, but that the renting out of the unused or unoccupied portions of their buildings is but an incident in the conduct of their business. In Wingert vs. First National Bank of Hagerstown, Md. (175 Fed., 739, 741), a stockholder sought to enjoin the bank from building a six-story building owned by the bank in the commercial district of Hagerstown of which only the first story was to be used by the bank, the remaining stories to be rented out for offices and places of business, on the theory that such action was ultra vires and in violation of the provisions of the national banking act confining such corporations to the holding, only, of such real estate "as shall be necessary for its immediate accommodation in the transaction of its business." The injunction was denied, the court adopting the opinion of the lower court in which the following was said: 'The other ground urged by the complainant is that the proposed action is violative of the restriction which permits a national bank to hold only such real estate as shall be necessary for its immediate accommodation in the transaction of its business, and that, therefore, the erection of a building which will contain offices not necessary for the business of the bank is not permitted by the law, although that method of improving the lot may be the most beneficial use that can be made of it. It is matter of common knowledge that the actual practice of national banks is to the contrary. Where ground is valuable, it may probably be truly said that the majority of national bank buildings are built with accommodations in excess of the needs of the bank for the purpose of lessening the bank's expense by renting out the unused portion. If that were not allowable, many smaller banks in cities would be driven to become tenants as the great cost of the lot would be prohibitive of using it exclusively for the banking accommodation of a single bank. As indicative of the interpretation of the law commonly received and acted upon, reference may be made to the reply of the Comptroller of the Currency to the injury by the bank in this case asking whether the law forbids the bank constructing such a building as was contemplated. 'The reply was follows: "Your letter of the 9th instant received, stating that the directors contemplate making improvements in the bank building and inquiring if there is anything in the national banking laws prohibiting the construction of a building which will contain floors for offices to be rented out by the bank as well as the banking room. Your attention is called to the case of Brown vs. Schleier, 118 Fed., 981 [55 C. C. A, 475], in which the court held that: 'If the land which a national bank purchases or leases for the accommodation of its business is very valuable it may exercise the same rights that belong to other landowners of improving it in a way that will yield the largest income, lessen its own rent, and render that part of its funds which are invested in realty most productive.'" This seems to be the common sense interpretation of the act of Congress and is the one which prevails.' It would seem to be unnecessary to extend the opinion by lengthy citations upon the point under consideration, butBrown vs. Schleier (118 Fed., 981), may be cited as being in harmony with the foregoing authorities. In dealing with the powers of a national bank the court, in this case, said: When an occasion arises for an investment in real property for either of the purposes specified in the statute the national bank act permits banking associations to act as any prudent person would act in making an investment in real estate, and to exercise the same measure of judgment and discretion. The act ought not to be construed in such as way as to compel a national bank, when it acquires real property for a legitimate purpose, to deal with it otherwise than a prudent land owner would ordinarily deal with such property. In the brief of the Attorney-General reliance is place almost entirely upon two Illinois cases, namely Africani Home Purchase and Loan Association vs. Carroll (267 Ill., 380), and First Methodist Episcopal Church of Chicago vs. Dixon (178 Ill., 260). In our opinion these cases are either distinguishable from that now before us, or they reflect a view of the law which is incorrect. At any rate the weight of judicial opinion is so overwhelmingly in favor of sustaining the validity of the acts alleged in the second cause of action to have been done by the respondent in excess of its powers that we refrain from commenting at any length upon said cases. The ground stated in the second cause of action is in our opinion without merit. Third cause of action. Under the third cause of action the respondent is charged with engaging in activities foreign to the purposes for which the corporation was created and not reasonable necessary to its legitimate ends. The specifications under this cause of action relate to three different sorts of activities. The first consist of the administration of the offices in the El Hogar building not used by the respondent itself and the renting of such offices to the public. As stated in the discussion connected with the second cause of action, the respondent uses only about ten per cent of the office space in the El Hogar building for its own purposes, and it leases the remainder to strangers. In the years 1924 and 1925 the respondent received as rent for the leased portions of the building the sums of P75,395.06 and P58,259.27, respectively. The activities here criticized clearly fall within the legitimate powers of the respondent, as shown in what we have said above relative to the second cause of action. This matter will therefore no longer detain us. If the respondent had the power to acquire the lot, construct the edifice and hold it beneficially, as there decided, the beneficial administration by it of such parts of the building as are let to others must necessarily be lawful. The second specification under the third cause of action has reference to the administration and management of properties belonging to delinquent shareholders of the association. In this connection it appears that in case of delinquency on the part of its shareholders in the payment of interest, premium, and dues, the association has been accustomed (pursuant to clause 8 of its standard mortgage) to take over and manage the mortgaged property for the purpose of applying the income to the obligations of the debtor party. For these services the respondent charges a commission at the rate of 2 per centum on sums collected. The case for the government supposes that the only remedy which the respondent has in case of default on the part of its shareholders is to proceed to enforce collection of the whole loan in the manner contemplated in section 185 of the Corporation Law. It will be noted, however, that, according to said section, the association may treat the whole indebtedness as due, "at the option of the board of directors," and this remedy is not made exclusive. We see no reason to doubt the validity of the clause giving the association the right to take over the property which constitutes the security for the delinquent debt and to manage it with a view to the satisfaction of the obligations due to the debtor than the immediate enforcement of the entire obligation, and the validity of the clause allowing this course to be taken appears to us to be not open to doubt. The second specification under this cause of action is therefore without merit, as was true of the first. The third specification under this cause of action relates to certain activities which are described in the following paragraphs contained in the agreed statements of facts:. El Hogar Filipino has undertaken the management of some parcels of improved real estate situated in Manila not under mortgage to it, but owned by shareholders, and has held itself out by advertisement as prepared to do so. The number of properties so managed during the years 1921 to 1925, inclusive, was as follows: 1921 eight properties 1922 six properties

1923 ten properties 1924 fourteen properties 1925 fourteen properties. This service is limited to shareholders; but some of the persons whose properties are so managed for them became shareholders only to enable them to take advantage thereof. The services rendered in the management of such improved real estate by El Hogar Filipino consist in the renting of the same, the payment of real estate taxes and insurance for the account of the owner, causing the necessary repairs for upkeep to be made, and collecting rents due from tenants. For the services so rendered in the management of such properties El Hogar Filipino receives compensation in the form of commissions upon the gross receipts from such properties at rates varying from two and one-half per centum to five per centum of the sums so collected, according to the location of the property and the effort involved in its management. The work of managing real estate belonging to non-borrowing shareholders administered by El Hogar Filipino is carried on by the same members of the staff who attend to the details of the management of properties administered by the manager of El Hogar Filipino under the provisions of paragraph 8 of the standard mortgage form, and of properties bought in on foreclosure of mortgage. The practice described in the passage above quoted from the agreed facts is in our opinion unauthorized by law. Such was the view taken by the bank examiner of the Treasury Bureau in his report to the Insular Treasurer on December 21, 1925, wherein the practice in question was criticized. The administration of property in the manner described is more befitting to the business of a real estate agent or trust company than to the business of a building and loan association. The practice to which this criticism is directed relates of course solely to the management and administration of properties which are not mortgaged to the association. The circumstance that the owner of the property may have been required to subscribe to one or more shares of the association with a view to qualifying him to receive this service is of no significance. It is a general rule of law that corporations possess only such express powers. The management and administration of the property of the shareholders of the corporation is not expressly authorized by law, and we are unable to see that, upon any fair construction of the law, these activities are necessary to the exercise of any of the granted powers. The corporation, upon the point now under the criticism, has clearly extended itself beyond the legitimate range of its powers. But it does not result that the dissolution of the corporation is in order, and it will merely be enjoined from further activities of this sort. Fourth cause of action. It appears that among the by laws of the association there is an article (No. 10) which reads as follows: The board of directors of the association, by the vote of an absolute majority of its members, is empowered to cancel shares and to return to the owner thereof the balance resulting from the liquidation thereof whenever, by reason of their conduct, or for any other motive, the continuation as members of the owners of such shares is not desirable. This by-law is of course a patent nullity, since it is in direct conflict with the latter part of section 187 of the Corporation Law, which expressly declares that the board of directors shall not have the power to force the surrender and withdrawal of unmatured stock except in case of liquidation of the corporation or of forfeiture of the stock for delinquency. It is agreed that this provision of the bylaws has never been enforced, and in fact no attempt has ever been made by the board of directors to make use of the power therein conferred. In November, 1923, the Acting Insular Treasurer addressed a letter to El Hogar Filipino, calling attention to article 10 of its by-laws and expressing the view that said article was invalid. It was therefore suggested that the article in question should be eliminated from the by-laws. At the next meeting of the board of directors the matter was called to their attention and it was resolved to recommend to the shareholders that in their next annual meeting the article in question be abrogated. It appears, however, that no annual meeting of the shareholders called since that date has been attended by a sufficient number of shareholders to constitute a quorum, with the result that the provision referred to has no been eliminated from the by-laws, and it still stands among the by-laws of the association, notwithstanding its patent conflict with the law. It is supposed, in the fourth cause of action, that the existence of this article among the by-laws of the association is a misdemeanor on the part of the respondent which justifies its dissolution. In this view we are unable to concur. The obnoxious by-law, as it stands, is a mere nullity, and could not be enforced even if the directors were to attempt to do so. There is no provision of law making it a misdemeanor to incorporate an invalid provision in the by-laws of a corporation; and if there were such, the hazards incident to corporate effort would certainly be largely increased. There is no merit in this cause of action. Fifth cause of action. In section 31 of the Corporation Law it is declared that, "at all elections of directors there must be present, either in person or by representative authorized to act by written proxy, the owners of the majority of the subscribed capital stock entitled to vote. . . ." Conformably with this requirement it is declared in article 61 of the by-laws of El Hogar Filipino that, "the attendance in person or by proxy of shareholders owning one-half plus one of the shareholders shall be necessary to constitute a quorum for the election of directors. At the general annual meetings of the El Hogar Filipino held in the years 1911 and 1912, there was a quorum of shares present or represented at the meetings and directors were duly elected accordingly. As the corporation has grown, however, it has been fond increasingly difficult to get together a quorum of the shareholders, or their proxies, at the annual meetings; and with the exception of the annual meeting held in 1917, when a new directorate was elected, the meetings have failed for lack of quorum. It has been foreseen by the officials in charge of the respondent that this condition of affairs would lead to embarrassment, and a special effort was made by the management to induce a sufficient number of shareholders to attend the annual meeting for February, 1923. In addition to the publication of notices in the newspapers, as required by the by-laws, a letter of notification was sent to every shareholder at his last known address, together with a blank form of proxy to be used in the event the shareholder could not personally attend the meeting. Notwithstanding these special efforts the meeting was attended only by shareholders, in person and by proxy, representing 3,889 shares, out of a total of 106,491 then outstanding and entitled to vote. Owing to the failure of a quorum at most of the general meetings since the respondent has been in existence, it has been the practice of the directors to fill vacancies in the directorate by choosing suitable persons from among the stockholders. This custom finds its sanction in article 71 of the by-laws, which reads as follows: ART. 71. The directors shall elect from among the shareholders members to fill the vacancies that may occur in the board of directors until the election at the general meeting. The person thus chosen to fill vacancies in the directorate have, it is admitted, uniformly been experienced and successful business and professional men of means, enjoying earned incomes of from P12,000 to P50,000 per annum, with an annual average of P30,000 in addition to such income as they derive from their properties. Moreover, it appears that several of the individuals constituting the original directorate and persons chosen to supply vacancies therein belong to prominent Filipino families, and that

they are more or less related to each other by blood or marriage. In addition to this it appears that it has been the policy of the directorate to keep thereon some member or another of a single prominent American law firm in the city. It is supposed in the statement of the fifth cause of action in the complaint that the failure of the corporation to hold annual meetings and the filling of vacancies in the directorate in the manner described constitute misdemeanors on the part of the respondent which justify the resumption of the franchise by the Government and dissolution of the corporation; and in this connection it is charge that the board of directors of the respondent has become a permanent and self perpetuating body composed of wealthy men instead of wage earners and persons of moderate means. We are unable to see the slightest merit in the charge. No fault can be imputed to the corporation on account of the failure of the shareholders to attend the annual meetings; and their nonattendance at such meetings is doubtless to be interpreted in part as expressing their satisfaction of the way in which things have been conducted. Upon failure of a quorum at any annual meeting the directorate naturally holds over and continues to function until another directorate is chosen and qualified. Unless the law or the charter of a corporation expressly provides that an office shall become vacant at the expiration of the term of office for which the officer was elected, the general rule is to allow the officer to holdover until his successor is duly qualified. Mere failure of a corporation to elect officers does not terminate the terms of existing officers nor dissolve the corporation (Quitman Oil Company vs. Peacock, 14 Ga. App., 550; Jenkins vs. Baxter, 160 Pa. State, 199; New York B. & E. Ry. Co. vs. Motil, 81 Conn., 466; Hatch vs. Lucky Bill Mining Company, 71 Pac., 865; Youree vs. Home Town Matual Ins. Company, 180 Missouri, 153; Cassell vs. Lexington, H. and P. Turnpike Road Co., 10 Ky. L. R., 486). The doctrine above stated finds expressions in article 66 of the by-laws of the respondent which declares in so many words that directors shall hold office "for the term of one year on until their successors shall have been elected and taken possession of their offices." It result that the practice of the directorate of filling vacancies by the action of the directors themselves is valid. Nor can any exception be taken to then personality of the individuals chosen by the directors to fill vacancies in the body. Certainly it is no fair criticism to say that they have chosen competent businessmen of financial responsibility instead of electing poor persons to so responsible a position. The possession of means does not disqualify a man for filling positions of responsibility in corporate affairs. Sixth cause of action. Under the sixth cause of action it is alleged that the directors of El Hogar Filipino, instead of serving without pay, or receiving nominal pay or a fixed salary, as the complaint supposes would be proper, have been receiving large compensation, varying in amount from time to time, out of the profits of the respondent. The facts relating to this cause of action are in substance these: Under section 92 of the by-laws of El Hogar Filipino 5 per centum of the net profit shown by the annual balance sheet is distributed to the directors in proportion to their attendance at meetings of the board. The compensation paid to the directors from time to time since the organization was organized in 1910 to the end of the year 1925, together with the number of meetings of the board held each year, is exhibited in the following table: Year Compensation paid directors as a whole Number of meetings held 25 29 27 27 25 28 26 20 21 28 25 25 27 26 26 Rate per meeting as a whole P 166.71 362.47 573.30 709.80 961.31 983.55 1,204.88 1,642.91 1,729.46 2,268.46 1,472.61 1,725.34 1,473.09 1,486.61 1,373.81

1911 .................................. P 4,167.96 1912 .................................. 10,511.87 1913 .................................. 15,479.29 1914 .................................. 19,164.72 1915 .................................. 24,032.85 1916 .................................. 27,539.50 1917 .................................. 31,327.00 1918 .................................. 32,858.35 1919 .................................. 36,318.78 1920 .................................. 63,517.01 1921 .................................. 36,815.33 1922 .................................. 43,133.73 1923 .................................. 39,773.61 1924 .................................. 38,651.92 1925 .................................. 35,719.27

It will be note that the compensation above indicated as accruing to the directorate as a whole has been divided among the members actually present at the different meetings. As a result of this practice, and the liberal measure of compensation adopted, we find that the attendance of the membership at the board meetings has been extraordinarily good. Thus, during the years 1920 to 1925, inclusive, when the board was composed of nine members, the attendance has regularly been eight meeting with the exception of two years when the average attendance was seven. It is insisted in the brief for the Attorney-General that the payment of the compensation indicated is excessive and prejudicial to he interests of the shareholders at large. For the respondent, attention is directed to the fact that the liberal policy adopted by the association with respect to the compensation of the directors has had highly beneficial results, not only in securing a constant attendance on the part of the membership, but in obtaining their intelligent attention to the affairs of the association. Certainly, in this connection, the following words from the report of the government examiners for 1918 to the Insular Treasurer contain matter worthy of consideration:

The management of the association is entrusted to men of recognized ability in financial affairs and it is believed that they have long foreseen all possible future contingencies and that under such men the interests of the stockholders are duly protected. The steps taken by the directorate to curtail the influx of unnecessary capital into the association's coffers, as mentioned above, reveals how the men at grasp the situation and to apply the necessary remedy as the circumstances were found in the same excellent condition as in the previous examination. In so far as this court is concerned the question here before us is not one concerning the propriety and wisdom of the measure of compensation adopted by the respondent but rather the question of the validity of the measure. Upon this point there can, it seems to us, be no difference of intelligent opinion. The Corporation Law does not undertake to prescribe the rate of compensation for the directors of corporations. The power to fixed the compensation they shall receive, if any, is left to the corporation, to be determined in its by-laws(Act No. 1459, sec. 21). Pursuant to this authority the compensation for the directors of El Hogar Filipino has been fixed in section 92 of its by-laws, as already stated. The justice and property of this provision was a proper matter for the shareholders when the by-laws were framed; and the circumstance that, with the growth of the corporation, the amount paid as compensation to the directors has increased beyond what would probably be necessary to secure adequate service from them is matter that cannot be corrected in this action; nor can it properly be made a basis for depriving the respondent of its franchise, or even for enjoining it from compliance with the provisions of its own by-laws. If a mistake has been made, or the rule adopted in the by-laws meeting to change the rule. The remedy, if any, seems to lie rather in publicity and competition, rather than in a court proceeding. The sixth cause of action is in our opinion without merit. Seventh cause of action. It appears that the promoter and organizer of El Hogar Filipino was Mr. Antonio Melian, and in the early stages of the organization of the association the board of directors authorized the association to make a contract with him with regard to the services him therefor. Pursuant to this authority the president of the corporation, on January 11, 1911, entered into a written agreement with Mr. Melian, which is reproduced in the agreed statement of facts and of which the important clauses are these: 1. The corporation "El Hogar Filipino Sociedad Mutua de Construccion y Prestamos," and on its behalf its president, Don Antonio R. Roxas, hereby confers on Don Antonio Melian the office of manager of said association for the period of one year from the date of this contract. 2. Don Antonio Melian accepts said office and undertakes to render the services thereto corresponding for the period of one year, as prescribed by the by-laws of the corporation, without salary. 3. Don Antonio Melian furthermore undertakes to pay for his own account, all the expenses incurred in the organization of the corporation. 4. Don Antonio Melian further undertakes to lend to the corporation, without interest the sum of six thousand pesos (P6,000), Philippine Currency, for the purpose of meeting the expense of rent, office supplies, etcetera, until such time as the association has sufficient funds of its own with which to return this loan:Provided, nevertheless, That the maximum period thereof shall not exceed three (3) years. 5. Don Antonio Melian undertakes that the capital of the association shall amount to the sum of four hundred thousand pesos (P400,000), Philippine currency, par value, during the first year of its duration. 6. In compensation of the studies made and services rendered by Don Antonio Melian for its organization, the expenses incurred by him to that end, and in further consideration of the said loan of six thousand pesos (P6,000), and of the services to be rendered by him as manager, and of the obligation assumed by him that the nominal value of the capital of the association shall reach the sum of four hundred thousand pesos (P400,000) during the first year of its duration, the corporation 'El Hogar Filipino Sociedad Mutua de Construccion y Prestamos' hereby grants him five per centum (5%) of the net profits to be earned by it in each year during the period fixed for the duration of the association by its articles of incorporation; Provided, that this participation in the profits shall be transmitted to the heirs of Seor Melian in the event of his death;And provided further, that the performance of all the obligations assumed by Seor Melian in favor of the association, in accordance with this contract, shall and does constitute a condition precedent to the acquisition by Seor Melian of the right to the said participation in the profits of the association, unless the nonperformance of such obligations shall be due to a fortuitous event or force majeure. In conformity with this agreement there was inserted in section 92 of the by-laws of the association a provision recognizing the rights of Melian, as founder, to 5 per centum of the net profits shown by the annual balance sheet, payment of the same to be made to him or his heirs during the life of the association. It is declared in said article that this portion of the earnings of the association is conceded to him in compensation for the studies, work and contributions made by him for the organization of El Hogar Filipino and the performance on his part of the contract of January 11, 1911, above quoted. During the whole life of the association, thus far, it has complied with the obligations assumed by it in the contract above- mentioned; and during the years 1911 to 1925, inclusive, it paid to him as founder's royalty the sum of P459,011.19, in addition to compensation received from the association by him in to remuneration of services to the association in various official capacities. As a seventh cause of action it is alleged in the complaint that this royalty of the founder is "unconscionable, excessive and out of all proportion to the services rendered, besides being contrary to and incompatible with the spirit and purpose of building and loan associations." It is not alleged that the making of this contract was beyond the powers of the association (ultra vires); nor it alleged that it is vitiated by fraud of any kind in its procurement. Nevertheless, it is pretended that in making and observing said contract the respondent committed an offense requiring its dissolution, or, as is otherwise suggested, that the association should be enjoined from performing the agreement. It is our opinion that this contention is entirely without merit. Stated in its true simplicity, the primary question here is whether the making of a (possibly) indiscreet contract is a capital offense in a corporation, a question which answers itself. No possible doubt exists as to the power of a corporation to contract for services rendered and to be rendered by a promoter in connection with organizing and maintaining the corporation. It is true that contracts with promoters must be characterized by good faith; but could it be said with certainty, in the light of facts existing at the time this contract was made, that the compensation therein provided was excessive? If the amount of the compensation now appears to be a subject of legitimate criticism, this must be due to the extraordinary development of the association in recent years. If the Melian contract had been clearly ultra vires which is not charged and is certainly untrue its continued performance might conceivably be enjoined in such a proceeding as this; but if the defect from which it suffers is mere matter for an action because Melian is not a party. It is rudimentary in law that an action to annul a contract cannot be maintained without joining both the

contracting parties as defendants. Moreover, the proper party to bring such an action is either the corporation itself, or some shareholder who has an interest to protect. The mere fact that the compensation paid under this contract is in excess of what, in the full light of history, may be considered appropriate is not a proper consideration for this court, and supplies no ground for interfering with its performance. In the case of El Hogar Filipino vs. Rafferty (37 Phil., 995), which was before this court nearly ten years ago, this court held that the El Hogar Filipino is contract with Mr. Melian did not affect the association's legal character. The inference is that the contract under consideration was then considered binding, and it occurred to no one that it was invalid. It would be a radical step indeed for a court to attempt to substitute its judgment for the judgment of the contracting parties and to hold, as we are invited to hold under this cause of action, that the making of such a contract as this removes the respondent association from the pale of the law. The majority of the court is of the opinion that our traditional respect for the sanctity of the contract obligation should prevail over the radical and innovating tendencies which find acceptance with some and which, if given full rein, would go far to sink legitimate enterprise in the Islands into the pit of populism and bolshevism. The seventh count is not sustainable. Eight cause of action. Under the fourth cause of action we had case where the alleged ground for the revocation of the respondent's charter was based upon the presence in the by-laws of article 10 that was found to be inconsistent with the express provisions of law. Under the eight cause of action the alleged ground for putting an end to the corporate life of the respondent is found in the presence of other articles in the by-laws, namely, articles 70 and 76, which are alleged to be unlawful but which, as will presently be seen, are entirely valid. Article 70 of the by-laws in effect requires that persons elected to the board of directors must be holders of shares of the paid up value of P5,000 which shall be held as security may be put up in the behalf of any director by some other holder of shares in the amount stated. Article 76 of the by-laws declares that the directors waive their right as shareholders to receive loans from the association. It is asserted, under the eight cause of action, that article 70 is objectionable in that, under the requirement for security, a poor member, or wage-earner, cannot serve as director, irrespective of other qualifications and that as a matter of fact only men of means actually sit on the board. Article 76 is criticized on the ground that the provision requiring directors to renounce their right to loans unreasonably limits their rights and privileges as members. There is nothing of value in either of theses suggestions. 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 the requirement of security from them for the proper discharge of the duties of their office, in the manner prescribed in article 70, is highly prudent and in conformity with good practice. Article 76, prohibiting directors from making loans to themselves, is of course designed to prevent the possibility of the looting of the corporation by unscrupulous directors. A more discreet provision to insert in the by-laws of a building and loan association would be hard to imagine. Clearly, the eighth cause of action cannot be sustained. Ninth cause of action. The specification under this head is in effect that the respondent has abused its franchise in issuing "special" shares. The issuance of these shares is allege to be illegal and inconsistent with the plan and purposes of building and loan associations; and in particular, it is alleged and inconsistent with the plan and purposes of building and loan associations; and in particular, it is alleged that they are, in the main, held by well-to-wage-earners for accumulating their modest savings for the building of homes. In the articles of incorporation we find the special shares described as follows: "Special" shares shall be issued upon the payment of 80 per cent of their par value in cash, or in monthly dues of P10. The 20 per cent remaining of the par value of such shares shall be completed by the accumulation thereto of their proportionate part of the profits of the corporation. At the end of each quarter the holders of special shares shall be entitled to receive in cash such part of the net profits of the corporation corresponding to the amount on such date paid in by the holders of special shares, on account thereof, as shall be determined by the directors, and at the end of each year the full amount of the net profits available for distribution corresponding to the special shares. The directors shall apply such part as they deem advisable to the amortization of the subscription to capital with respect to shares not fully paid up, and the remainder of the profits, if any, corresponding to such shares, shall be delivered to the holders thereof in accordance with the provision of the by-laws. The ground for supposing the issuance of the "special" shares to be unlawful is that special shares are not mentioned in the Corporation Law as one of the forms of security which may be issued by the association. In the agreed statement of facts it is said that special shares are issued upon two plans. By the second, the shareholder, upon subscribing, pays in cash P10 for each share taken, and undertakes to pay P10 a month, as dues, until the total so paid in amounts to P160 per share. On December 31, 1925, there were outstanding 20,844 special shares of a total paid value (including accumulations ) of P3,680,162.51. The practice of El Hogar Filipino, since 1915, has been to accumulate to each special share, at the end of the year, one-tenth of the divident declared and to pay the remainder of the divident in cash to the holders of shares. Since the same year dividend have been declared on the special and common shares at the rate of 10 per centum per annum. When the amount paid in upon any special share plus the accumulated dividends accruing to it, amounts to the par value of the share (P200), such share matures and ceases to participate further in the earning. The amount of the par value of the share (P200) is then returned to the shareholder and the share cancelled. Holders of special and ordinary shares participate ratably in the dividends declared and distributed, the part pertaining to each share being computed on the basis of the capital paid in, plus the accumulated dividends pertaining to each share at the end of the year. The total number of shares of El Hogar Filipino outstanding on December 31, 1925, was 125,750, owned by 5,826 shareholders, and dividend into classes as follows: Preferred shares .................................. 1,503 Special shares ..................................... Ordinary shares .................................. 20,884 103,363

The matter of the propriety of the issuance of special shares by El Hogar Filipino has been before this court in two earlier cases, in both of which the question has received the fullest consideration from this court. In El Hogar Filipino vs. Rafferty (37 Phil., 995), it was insisted that the issuance of such shares constituted a departure on the part of the association from the principle of mutuality; and it was claimed by the Collector of Internal Revenue that this rendered the association liable for the income tax to which other corporate entities are subject. It was held that this contention was untenable and that El Hogar Filipino was a legitimate building and 2 loan association notwithstanding the issuance of said shares. In Sevireno vs. El Hogar Filipino (G. R. No. 24926), and the related cases of Gervasio Miraflores and Gil Lopes against the same entity, it was asserted by the plaintiffs that the emission of special shares deprived the herein responded of the privileges and immunities of a building and loan association and that as a consequence

the loans that had been made to the plaintiffs in those cases were usurious. Upon an elaborate review of the authorities, the court, though divided, adhered to the principle announced in the earlier case and held that the issuance of the special shares did not affect the respondent's character as a building and loan association nor make its loans usurious. In view of the lengthy discussion contained in the decisions above-mentioned, it would appear to be an act of supererogation on our part to go over the same ground again. The discussion will therefore not be repeated, and what is now to be said should be considered supplemental thereto. Upon examination of the nature of the special shares in the light of American usage, it will be found that said shares are precisely the same kind of shares that, in some American jurisdictions, are generally known as advance payment shares; in if close attention be paid to the language used in the last sentence of section 178 of the Corporation Law, it will be found that special shares where evidently created for the purpose of meeting the condition cause by the prepayment of dues that is there permitted. The language of this provision is as follow "payment of dues or interest may be made in advance, but the corporation shall not allow interest on such advance payment at a greater rate than six per centum per annum nor for a longer period than one year." In one sort of special shares the dues are prepaid to the extent of P160 per share; in the other sort prepayment is made in the amount of P10 per share, and the subscribers assume the obligation to pay P10 monthly until P160 shall have been paid. It will escape notice that the provision quoted say that interest shall not be allowed on the advance payments at a greater rate than six per centum per annum nor for a longer period than one year. The word "interest " as there used must be taken in its true sense of compensation for the used of money loaned, and it not must not be confused with the dues upon which it is contemplated that the interest may be paid. Now, in the absence of any showing to the contrary, we infer that no interest is ever paid by the association in any amount for the advance payments made on these shares; and the reason is to be found in the fact that the participation of the special shares in the earnings of the corporation, in accordance with section 188 of the Corporation Law, sufficiently compensates the shareholder for the advance payments made by him; and no other incentive is necessary to induce inventors to purchase the stock. It will be observed that the final 20 per centum of the par value of each special share is not paid for by the shareholder with funds out of the pocket. The amount is satisfied by applying a portion of the shareholder's participation in the annual earnings. But as the right of every shareholder to such participation in the earnings is undeniable, the portion thus annually applied is as much the property of the shareholder as if it were in fact taken out of his pocket. It follows that the mission of the special shares does not involve any violation of the principle that the shares must be sold at par. From what has been said it will be seen that there is express authority, even in the very letter of the law, for the emission of advance-payment or "special" shares, and the argument that these shares are invalid is seen to be baseless. In addition to this it is satisfactorily demonstrated in Severino vs. El Hogar Filipino, supra, that even assuming that the statute has not expressly authorized such shares, yet the association has implied authority to issue them. The complaint consequently fails also as regards the stated in the ninth cause of action. Tenth cause of action. Under this head of the complaint it is alleged that the defendant is pursuing a policy of depreciating, at the rate of 10 per centum per annum, the value of the real properties acquired by it at its sales; and it is alleged that this rate is excessive. From the agreed statement it appears that since its organization in 1910 El Hogar Filipino, prior to the end of the year 1925, had made 1,373 loans to its shareholders secured by first mortgages on real estate as well as by the pledge of the shares of the borrowers. In the same period the association has purchased at foreclosure sales the real estate constituting the security for 54 of the aforesaid loans. In making these purchases the association has always bid the full amount due to it from the debtor, after deducting the withdrawal value of the shares pledged as collateral, with the result that in no case has the shareholder been called upon to pay a deficiency judgement on foreclosure. El Hogar Filipino places real estate so purchased in its inventory at actual cost, as determined by the amount bid on foreclosure sale; and thereafter until sold the book value of such real estate is depreciated at the rate fixed by the directors in accordance with their judgment as to each parcel, the annual average depreciation having varied from nothing to a maximum of 14.138 per cent. The sales thereof, but sales are made for the best prices obtainable, whether greater or less than the book value. It is alleged in the complaint that depreciation is charged by the association at the rate of 10 per centum per annum. The agreed statement of facts on this point shows that the annual average varies from nothing to a maximum of something over 14 per centum. We are thus left in the dark as to the precise depreciation allowed from year to year. It is not claimed for the Government that the association is without power to allow some depreciation; and it is quite clear that the board of directors possesses a discretion in this matter. There is no positive provision of law prohibiting the association from writing off a reasonable amount for depreciation on its assets for the purpose of determining its real profits; and article 74 of its by-laws expressly authorizes the board of directors to determine each year the amount to be written down upon the expenses of installation and the property of the corporation. There can be no question that the power to adopt such a by-law is embraced within the power to make by-laws for the administration of the corporate affairs of the association and for the management of its business, as well as the care, control and disposition of its property (Act No. 1459, sec. 13 [7]). But the Attorney-General questions the exercise of the direction confided to the board; and it is insisted that the excessive depreciation of the property of the association is objectionable in several respects, but mainly because it tends to increase unduly the reserves of the association, thereby frustrating the right of the shareholders to participate annually and equally in the earnings of the association. This count for the complaint proceeds, in our opinion, upon an erroneous notion as to what a court may do in determining the internal policy of a business corporation. If the criticism contained in the brief of the Attorney-General upon the practice of the respondent association with respect to depreciation be well founded, the Legislature should supply the remedy by defining the extent to which depreciation may be allowed by building and loan associations. Certainly this court cannot undertake to control the discretion of the board of directors of the association about an administrative matter as to which they have legitimate power of action. The tenth cause of action is therefore not well founded. Eleventh and twelfth causes of action. The same comment is appropriate with respect to the eleventh and twelfth causes of action, which are treated together in the briefs, and will be here combined. The specification in the eleventh cause of action is that the respondent maintains excessive reserve funds, and in the twelfth cause of action that the board of directors has settled upon the unlawful policy of paying a straight annual dividend of 10 per centum, regardless of losses suffered and profits made by the corporation and in contravention of the requirements of section 188 of the Corporation Law. The facts relating to these two counts in the complaint, as set forth in the stipulation, are these: In article 92 of the by-laws of El Hogar Filipino it is provided that 5 per centum of the net profits earned each year, as shown by the annual balance sheet shall be carried to a reserve fund. The fund so created is called the General Reserve. Article 93 of the by-laws

authorizes the directors to carry funds to a special reserve, whenever in their judgment it is advisable to do so, provided that the annual dividend in the year in which funds are carried to special reserve exceeds 8 per centum. It appears to have been the policy of the board of directors for several years past to place in the special reserve any balance in the profit and loss account after the satisfaction of preferential charges and the payment of a dividend of 10 per centum to all special and ordinary shares (with accumulated dividends). As things stood in 1926 the general reserve contained an amount equivalent to about 5 per centum of the paid-in value of shared. This fund has never been drawn upon for the purpose of maintaining the regular annual dividend; but recourse has been had to the special reserve on three different occasions to make good the amount necessary to pay dividends. It appears that in the last five years the reserves have declined from something over 9 per cent to something over 7. It is insisted in the brief of the Attorney-General that the maintenance of reserve funds is unnecessary in the case of building and loan associations, and at any rate the keeping of reserves is inconsistent with section 188 of the Corporation Law. Moreover, it is said that the practice of the association in declaring regularly a 10 per cent dividend is in effect a guaranty by the association of a fixed dividend which is contrary to the intention of the statute. Upon careful consideration of the questions involved we find no reason to doubt the right of the respondent to maintain these reserves. It is true that the corporation law does not expressly grant this power, but we think it is to be implied. It is a fact of common observation that all commercial enterprises encounter periods when earnings fall below the average, and the prudent manager makes provision for such contingencies. To regard all surplus as profit is to neglect one of the primary canons of good business practice. Building and loan associations, though among the most solid of financial institutions, are nevertheless subject to vicissitudes. Fluctuations in the dividend rate are highly detrimental to any fiscal institutions, while uniformity in the payments of dividends, continued over long periods, supplies the surest foundations of public confidence. The question now under consideration is not new in jurisprudence, for the American courts have been called upon more than once to consider the legality of the maintenance of reserves by institutions of this or similar character. In Greeff vs. Equitable Life Assurance Society, the court had under consideration a charter provision of a life insurance company, organized on the mutual plan, in its relation to the power of the company to provide reserves. There the statute provided that "the officers of the company, within sixty days from the expiration of the first five years, from December 31, 1859, and within the first sixty days of every subsequent period of five years, shall cause a balance to be struck of the affairs of the company, which shall exhibit its assets and liabilities, both present and contingent, and also the net surplus, after deducting a sufficient amount to cover all outstanding risks and other obligations. Each policy holder shall be credited with an equitable share of the said surplus." The court said: No prudent person would be inclined to take a policy in a company which had so improvidently conducted its affairs that it only retained a fund barely sufficient to pay its present liabilities, and, therefore, was in a condition where any change by the reduction of interest upon, or depreciation in, the value of its securities, or any increase of mortality, would render it insolvent and subject to be placed in the hands of a receiver. The evident purpose of the provisions of the defendant's charter and policy relating to this subject was to vest in the directors of the corporation a discretion to determine the proportion of its surplus which should be dividend each year. In a friendly suit tried in a circuit court of Wisconsin in 1916, entitled Boheman Bldg. and Loan Association vs. Knolt, the court, in commenting on the nature of these reserves, said: The apparent function of this fund is to insure the stockholders against losses. Its purpose is not unlike that of the various forms of insurance now in such common use. This contribution is as legitimate an item of expense as are the premiums paid on any insurance policy. (See Clarks and Chase, Building and Loan Association, footnote, page 344.) In commenting on the necessity of such funds, Sundheim says: It is optional with the association whether to maintain such a fund or not, but justice and good business policy seem to require it. The retiring stockholder must be paid the value of his stock in cash and leave for those remaining a large number of securities and perhaps some real estate purchased to protect the associations interest. How much will be realized on these securities, or real estate, no human foresight can tell. Further, the realizing on these securities may entail considerable litigation and expense. There are many other contingencies which might cause a shrinkage in the association's assets, such as defective titles, undisclosed defalcations on the part of an officer, a miscalculation of assets and liabilities, and many other errors and omissions which must always be reckoned within the conduct of human affairs. The contingent fund is merely insurance against possible loss. That losses may occur from time to time seems almost inevitable and it is, therefore, inequitable that the remaining stockholders should be compelled to accept all securities at par, so, to say the least, the maintenance of this fund is justified. The association teaches the duty of providing for the proverbial rainy day. Why should it not provide for the hour of adversity? The reserve fund has protected the maturing or withdrawing member during the period of his membership. In case of loss it has or would have reimbursed him and, at all times, it has protected him and given strength and standing to the association. Losses may occur, after his membership ceases, that arose from some mistake or mismanagement committed during the period of his membership, and in fairness and equity the remaining members should have some protection against this. (Sundheim, Law of Building and Loan Association, sec. 53.) The government insists, we thing, upon an interpretation of section 188 of the Corporation Law that is altogether too strict and literal. From the fact that the statute provides that profits and losses shall be annually apportioned among the shareholders it is argued that all earnings should be distributed without carrying anything to the reserve. But it will be noted that it is provided in the same section that the profits and losses shall be determined by the board of directors: and this means that they shall exercise the usual discretion of good businessmen in allocating a portion of the annual profits to purposes needful to the welfare of the association. The law contemplates the distribution of earnings and losses after other legitimate obligations have been met. Our conclusion is that the respondent has the power to maintain the reserves criticized in the eleventh and twelfth counts of the complaint; and at any rate, if it be supposed that the reserves referred to have become excessive, the remedy is in the hands of the Legislature. It is no proper function of the court to arrogate to itself the control of administrative matters which have been confided to the discretion of the board of directors. The causes of action under discussion must be pronounced to be without merit. Thirteenth cause of action. The specification under this head is, in effect, that the respondent association has made loans which, to the knowledge of the associations officers were intended to be used by the borrowers for other purposes than the building of homes. In this connection it appears that, though loans have been made by the association exclusively to its shareholders, no attempt has been made by it to control the borrowers with respect to the use made of the borrowed funds, the association being content to see that the security given for the loan in each case is sufficient. On December 31, 1925, the respondent had five hundred

forty-four loans outstanding secured by mortgages upon real estate and by the pledge of the borrowers' shares in an amount sufficient at maturity to amortize the loans. With respect to the nature of the real estate upon which these loans were made it appears that three hundred fifty-one loans were secured by mortgages upon city residences, seven by mortgages upon commercial building in cities, and three mortgages upon unimproved city lots. At the same time one hundred eighty-three of the loans were secured by mortgages upon groves, sugar land, and rice land, with a total area of about 7,558 hectares. From information gathered by the association from voluntary statements of borrowers given at the time of application with respect to the use intended to be made of the borrowed funds, it appears that the amount of P693,200 was borrowed to redeem real property from existing mortgages or pactos de retro, P280,800 to buy real estate, P449,100 to erect buildings, P24,000 to improve and repair buildings, P1,480,900 for agricultural purposes, while the amount of P5,763,700 was borrowed for purposes not disclosed. Upon these facts an elaborate argument has been constructed in behalf of the plaintiff to the effect that in making loans for other purposes than the building of residential houses the association has illegally departed from its character and made itself amenable to the penalty of dissolution. Aside from being directly opposed to the decision of this court in Lopez and Javelona vs. El Hogar Filipino and Registrar of Deeds of Occidental Negros (47 Phil., 249), this contention finds no substantial support in the prevailing decisions made in American courts; and our attention has not been directed to a single case wherein the dissolution of a building and loan association has been decreed in a quo warranto proceeding because the association allowed its borrowers to use the loans for other purposes than the acquisition of homes. The case principally relied upon for the Government appears to be Pfeister vs. Wheeling Building Association (19 W. Va., 676, 716),which involved the question whether a building and loan association could recover the full amount of a note given to it by a member and secured by a mortgage from a stranger. At the time the case arose there was a statute in force in the State of West Virginia expressly forbidding building and loan associations to use or direct their funds for or to any other object or purpose than the buying of lots or houses or in building and repairing houses, and it was declared that in case the funds should be improperly directed to other objects, the offending association should forfeit all rights and privileges as a corporation. Under the statute so worded the court held that the plaintiff could only recover the amount actually advanced by it with lawful interest and fines, without premium; and judgment was given accordingly. The suggestion in that case that the result would have been the same even in the absence of statute was mere dictum and is not supported by respectable authority. Reliance is also placed in the plaintiff's brief upon McCauley vs. Building & Saving Association. The statute in force in the State of Tennessee at the time this action arose provided that all loans should be made to the members of the association at open stated meetings and that the money should be lent to the highest bidder. Inconsistently with this provision, there was inserted in the bylaws of the association a provision to the effect that no loan should be made at a greater premium than 30 per cent, nor at a less premium than 29 7/8 per cent. It was held that this by-law made free and open competition impossible and that it in effect established a fixed premium. It was accordingly held, in the case cited, that an association could not recover such part of the loan as had been applied by it to the satisfaction of a premium of 30 per centum. We have no criticism to make upon the result reached in either of the two decisions cited, but it is apparent that much of the discussion contained in the opinions in those cases does not reflect the doctrine now prevailing in the United States; and much less are those decisions applicable in this jurisdiction. There is no statute here expressly declaring that loans may be made by these associations solely for the purpose of building homes. On the contrary, the building of homes is mentioned in section 171 of the Corporation Law as only one among several ends which building and loan associations are designed to promote. Furthermore, section 181 of the Corporation Law expressly authorities the Board of directors of the association from time to time to fix the premium to be charged. In the brief of the plaintiff a number of excerpts from textbooks and decisions have been collated in which the idea is developed that the primary design of building and loan associations should be to help poor people to procure homes of their own. This beneficent end is undoubtedly served by these associations, and it is not to be denied that they have been generally fostered with this end in view. But in this jurisdiction at least the lawmaker has taken care not to limit the activities of building and loan associations in an exclusive manner, and the exercise of the broader powers must in the end approve itself to the business community. Judging from the past history of these institutions it can be truly said that they have done more to encourage thrift, economy and saving among the people at large than any other institution of modern times, not excepting even the saving banks. In this connection Mr. Sundheim, in a late treatise upon the subject of the law of building and loan associations, makes the following comment: They have grown to such an extent in recent years that they no longer restrict their money to the home buyer, but loan their money to the mere investor or dealer in real estate. They are the holder of large mortgages secured upon farms, factories and other business properties and rows of stores and dwellings. This is not an abuse of their powers or departure from their main purposes, but only a natural and proper expansion along healthy and legitimate lines. (Sundheim, Building and Loan Associations, sec. 7.) Speaking of the purpose for which loans may be made, the same author adds: Loans are made for the purpose of purchasing a homestead, or other real estate, or for any lawful purpose or business, but there is no duty or obligation of the association to inquire for what purpose the loan is obtained, or to require any stipulation from the borrower as to what use he will make of the money, or in any manner to supervise or control its disbursement. (Sundheim, Building and Loan Association, sec. 111.) In Lopez and Javelona vs. El Hogar Filipino and Registrar of Deeds of Occidental Negros, this court had before it the question whether a loan made by the respondent association upon the security of a mortgage upon agricultural land, where the loan was doubtless used for agricultural purposes, was usurious or not; and the case turned upon the point whether, in making such loans, the association had violated the law and departed from its fundamental purposes. The conclusion of the court was that the loan was valid and could be lawfully enforced by a nonjudicial foreclosure in conformity with the terms of the contract between the association and the borrowing member. We now find no reason to depart from the conclusion reached in that case, and it is unnecessary to repeat what was then said. The thirteenth cause of action must therefore be pronounced unfounded. Fourteenth cause of action. The specification under this head is that the loans made by the defendant for purposes other than building or acquiring homes have been extended in extremely large amounts and to wealthy persons and large companies. In this connection attention is directed to eight loans made at different times in the last several years to different persons or entities, ranging in amounts from P120,000 to P390,000 and to two large loans made to the Roxas Estate and to the Pacific Warehouse Company in the amounts of P1,122,000 and P2,320,000, respectively. In connection with the larger of the two after this loan was made the available funds of El Hogar Filipino were reduced to the point that the association was compelled to take advantage of certain provisions of its by-laws authorizing the postponement of the payment of claims resulting from withdrawals, whereas

previously the association had always settled these claims promptly from current funds. At no time was there apparently any delay in the payment of matured shares; but in four or five cases there was as much as ten months delay in the payment of withdrawal applications. There is little that can be said upon the legal aspects of this cause of action. In so far, as it relates to the purposes for which these loans were made, the matter is covered by what was said above with reference to the thirteenth cause of action; and in so far as it relates to the personality of the borrowers, the question belongs more directly to the discussion under the sixteenth cause of action, which will be found below. The point, then, which remains for consideration here is whether it is a suicidal act on the part of a building and loan association to make loans in large amount. If the loans which are here the subject of criticism had been made upon inadequate security, especially in case of the largest two, the consequences certainly would have been disastrous to the association in the extreme; but no such fact is alleged; and it is to be assumed that none of the ten borrowers have defaulted in their contracts. Now, it must be admitted that two of these loans at least are of a very large size, considering the average range of financial transaction in this country; and the making of the largest loan was followed, as we have already see, with unpleasant consequences to the association in dealing with current claims. Nevertheless the agreed statement of facts shoes that all of the loan referred to are only ten out of a total of five hundred forty-four outstanding on December 31, 1925; and the average of all the loans taken together is modest enough. It appears that the chief examiner of banks and corporations of the Philippine Treasury, after his examination of El Hogar Filipino at the end of the year 1925, made a report concerning this association as of January 31, 1926, in which he criticized the Pacific Warehouse Company loan as being so large that it temporarily crippled the lending power of the association for some time. This criticism was apparently justified as proper comment on the activities of the association; but the question for use here to decide is whether the making of this and the other large loans constitutes such a misuser of the franchise as would justify us in depriving the association of its corporate life. This question appears to us to be so simple as almost to answer itself. The law states no limit with respect to the size of the loans to be made by the association. That matter is confided to the discretion of the board of directors; and this court cannot arrogate to itself a control over the discretion of the chosen officials of the company. If it should be thought wise in the future to put a limit upon the amount of loans to be made to a single person or entity, resort should be had to the Legislature; it is not a matter amenable to judicial control. The fourteenth cause of action is therefore obviously without merit. Fifteenth cause of action. The criticism here comes back to the supposed misdemeanor of the respondent in maintaining its reserve funds, a matter already discussed under the eleventh and twelfth causes of action. Under the fifteenth cause of action it is claimed that upon the expiration of the franchise of the association through the effluxion of time, or earlier liquidation of its business, the accumulated reserves and other properties will accrue to the founder, or his heirs, and the then directors of the corporation and to those persons who may at that time to be holders of the ordinary and special shares of the corporation. In this connection we note that article 95 of the by-laws reads as follows: ART. 95. The funds obtained by the liquidation of the association shall be applied in the first place to the repayment of shares and the balance, if any, shall be distribute in accordance with the system established for the distribution of annual profits. It will be noted that the cause of action with which we are now concerned is not directed to any positive misdemeanor supposed to have been committed by the association. It has exclusive relation to what may happen some thirty-five years hence when the franchise expires, supposing of course that the corporation should not be reorganized and continued after that date. There is nothing in article 95 of the by-laws which is, in our opinion, subject to criticism. The real point of criticism is that upon the final liquidation of the corporation years hence there may be in existence a reserve fund out of all proportion to the requirements that may then fall upon it in the liquidation of the company. It seems to us that this is matter that may be left to the prevision of the directors or to legislative action if it should be deemed expedient to require the gradual suppression of the reserve funds as the time for dissolution approaches. It is no matter for judicial interference, and much less could the resumption of the franchise on this ground be justified. There is no merit in the fifteenth cause of action. Sixteenth cause of action. This part of the complaint assigns as cause of action that various loans now outstanding have been made by the respondent to corporations and partnerships, and that these entities have in some instances subscribed to shares in the respondent for the sole purpose of obtaining such loans. In this connection it appears from the stipulation of facts that of the 5,826 shareholders of El Hogar Filipino, which composed its membership on December 31, 1925, twenty-eight are juridical entities, comprising sixteen corporations and fourteen partnerships; while of the five hundred forty-four loans of the association outstanding on the same date, nine had been made to corporations an five to partnerships. It is also admitted that some of these juridical entities became shareholders merely for the purpose of qualifying themselves to take loans from the association, and the same is said with respect to many natural persons who have taken shares in the association. Nothing is said in the agreed statement of facts on the point whether the corporations and partnerships that have taken loans from the respondent are qualified by law governing their own organization to enter into these contracts with the respondent. In section 173 of the Corporation Law it is declared that "any person" may become a stockholder in building and loan associations. The word "person" appears to be here used in its general sense, and there is nothing in the context to indicate that the expression is used in the restricted sense of both natural and artificial persons, as indicated in section 2 of the Administrative Code. We would not say that the word "person" or persons," is to be taken in this broad sense in every part of the Corporation Law. For instance, it would seem reasonable to say that the incorporators of a corporation ought to be natural persons, although in section 6 it is said that five or more "persons", although in section 6 it is said that five or more "persons," not exceeding fifteen, may form a private corporation. But the context there, as well as the common sense of the situation, suggests that natural persons are meant. When it is said, however, in section 173, that "any person" may become a stockholder in a building and loan association, no reason is seen why the phrase may not be taken in its proper broad sense of either a natural or artificial person. At any rate the question whether these loans and the attendant subscriptions were properly made involves a consideration of the power of the subscribing corporations and partnerships to own the stock and take the loans; and it is not alleged in the complaint that they were without power in the premises. Of course the mere motive with which subscriptions are made, whether to qualify the stockholders to take a loan or for some other reason, is of no moment in determining whether the subscribers were competent to make the contracts. The result is that we find nothing in the allegations of the sixteenth cause of action, or in the facts developed in connection therewith, that would justify us in granting the relief. Seventeenth cause of action. Under the seventeenth cause of action, it is charged that in disposing of real estates purchased by it in the collection of its loans, the defendant has no various occasions sold some of the said real estate on credit, transferring the title thereto to the purchaser; that the properties sold are then mortgaged to the defendant to secure the payment of the purchase price, said amount being considered as a loan, and carried as such in the books of the defendant, and that several such obligations

are still outstanding. It is further charged that the persons and entities to which said properties are sold under the condition charged are not members or shareholders nor are they made members or shareholders of the defendant. This part of the complaint is based upon a mere technicality of bookkeeping. The central idea involved in the discussion is the provision of the Corporation Law requiring loans to be stockholders only and on the security of real estate and shares in the corporation, or of shares alone. It seems to be supposed that, when the respondent sells property acquired at its own foreclosure sales and takes a mortgage to secure the deferred payments, the obligation of the purchaser is a true loan, and hence prohibited. But in requiring the respondent to sell real estate which it acquires in connection with the collection of its loans within five years after receiving title to the same, the law does not prescribe that the property must be sold for cash or that the purchaser shall be a shareholder in the corporation. Such sales can of course be made upon terms and conditions approved by the parties; and when the association takes a mortgage to secure the deferred payments, the obligation of the purchaser cannot be fairly described as arising out of a loan. Nor does the fact that it is carried as a loan on the books of the respondent make it a loan on the books of the respondent make it a loan in law. The contention of the Government under this head is untenable. In conclusion, the respondent is enjoined in the future from administering real property not owned by itself, except as may be permitted to it by contract when a borrowing shareholder defaults in his obligation. In all other respects the complaint is dismissed, without costs. So ordered.

GRACE CHRISTIAN HIGH SCHOOL, petitioner, vs. THE COURT OF APPEALS, GRACE VILLAGE ASSOCIATION, INC., ALEJANDRO G. BELTRAN, and ERNESTO L. GO, respondents. DECISION MENDOZA, J.: The question for decision in this case is the right of petitioners representative to sit in the board of directors of respondent Grace Village Association, Inc. as a permanent member thereof. For fifteen years from 1975 until 1989 petitioners representative had been recognized as a permanent director of the association. But on February 13, 1990, petitioner received notice from the associations committee on election that the latter was reexamining (actually, reconsidering) the right of petitioners representative to continue as an unelected member of the board. As the board denied petitioners request to be allowed representation without election, petitioner brought an action for mandamus in the Home Insurance and Guaranty Corporation. Its action was dismissed by the hearing officer whose decision was subsequently affirmed by the appeals board. Petitioner appealed to the Court of Appeals, which in turn upheld the decision of the HIGCs appeals board. Hence this petition for review based on the following contentions: 1. The Petitioner herein has already acquired a vested right to a permanent seat in the Board of Directors of Grace Village Association; 2. The amended By-laws of the Association drafted and promulgated by a Committee on December 20, 1975 is valid and binding; and 3. The Practice of tolerating the automatic inclusion of petitioner as a permanent member of the Board of Directors of the [1] Association without the benefit of election is allowed under the law. 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, [2] composed of eleven (11) members to serve for one (1) year until their successors are duly elected and have qualified. It appears, that on December 20, 1975, a committee of the board of directors prepared a draft of an amendment to the by-laws, [3] reading as follows: VI. ANNUAL MEETING The Annual Meeting of the members of the Association shall be held on the second Thursday of January of each year. Each Charter or Associate Member of the Association is entitled to vote. He shall be entitled to as many votes as he has acquired thru his monthly membership fees only computed on a ratio of TEN (P10.00) PESOS for one vote. The Charter and Associate Members shall elect the Directors of the Association. The candidates receiving the first fourteen (14) highest number of votes shall be declared and proclaimed elected until their successors are elected and qualified. GRACE CHRISTIAN HIGH SCHOOL representative is a permanent Director of the ASSOCIATION. This draft was never presented to the general membership for approval. Nevertheless, from 1975, after it was presumably submitted to the board, up to 1990, petitioner was given a permanent seat in the board of directors of the association. On February 13, 1990, the associations committee on election in a letter informed James Tan, principal of the school, that it was the sentiment that all directors should be elected by members of the association because to make a person or entity a permanent Director would deprive the right of voters to vote for fifteen (15) members of the Board, and it is undemocratic for a person or entity to hold [4] office in perpetuity. 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 [5] board. 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 formandamus 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 [6] by-laws of the association and not the proposed amended by-laws. In reply, petitioner maintained that the amended by-laws is valid and binding and that the association was estopped from [7] questioning the by-laws. A preliminary conference was held on March 29, 1990 but nothing substantial was agreed upon. The parties merely agreed that the board of directors of the association should meet on April 17, 1990 and April 24, 1990 for the purpose of discussing the amendment of the by-laws and a possible amicable settlement of the case. A meeting was held on April 17, 1990, but the parties failed to reach

an agreement. Instead, the board adopted a resolution declaring the 1975 provision null and void for lack of approval by members of the association and the 1968 by-laws to be effective. On June 20, 1990, the hearing officer of the HIGC rendered a decision dismissing petitioners action. The hearing officer held that the amended by-laws, upon which petitioner based its claim, *was+ merely a proposed by-laws which, although implemented in the past, had not yet been ratified by the members of the association nor approved by competent authority; that, on the contrary, in the meeting held on April 17, 1990, the directors of the association declared the proposed by-law dated December 20, 1975 prepared by the committee on by-laws . . . null and void and the by-laws of December 17, 1968 as the prevailing by-laws under which the association is to operate until such time that the proposed amendments to the by-laws are approved and ratified by a majority of the members of the association and duly filed and approved by the pertinent government agency. The hearing officer rejected petitioners contention that it had acquired a vested right to a permanent seat in the board of directors. He held that past practice in election of directors could not give rise to a vested right and that departure from such practice was justified because it deprived members of association of their right to elect or to be voted in office, not to say that allowing the automatic inclusion of a member representative of petitioner as permanent director [was] contrary to law and the registered by-laws of respondent [8] association. 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 bylaws, shall, as soon as organized, so classify themselves that the term of office of one-third (1/3) of the number shall expire every year; and subsequent elections of trustees comprising one-third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a term of three (3) years. Trustees thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the unexpired period. The HIGC appeals board denied claims that the school *was+ being deprived of its right to be a member of the Board of Directors of respondent association, because the fact was that it may nominate as many representatives to the Associations Board as it may deem appropriate. It said that what is merely being upheld is the act of the incumbent directors of the Board of correcting a long [9] standing practice which is not anchored upon any legal basis. Petitioner appealed to the Court of Appeals but petitioner again lost as the appellate court on February 9, 1993, affirmed the decision of the HIGC. The Court of Appeals held that there was no valid amendment of the associations by-laws because of failure to comply with the requirement of its existing by-laws, prescribing the affirmative vote of the majority of the members of the association at a regular or special meeting called for the adoption of amendment to the by-laws. Article XIX of the by-laws [10] provides: 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 [11] them. Petitioner contends: Considering, therefore, that the agents or committee were duly authorized to draft the amended by-laws and the acts done by the agents were in accordance with such authority, the acts of the agents from the very beginning were lawful and binding on the homeowners (the principals) per se without need of any ratification or adoption. The more has the amended by-laws become binding on the homeowners when the homeowners followed and implemented the provisions of the amended by-laws. This is not merely tantamount to tacit ratification of the acts done by duly authorized agents but express approval and confirmation of what the agents did pursuant to the authority granted to them. Corollarily, petitioner claims that it has acquired a vested right to a permanent seat in the board. Says petitioner: The right of the petitioner to an automatic membership in the board of the Association was granted by the members of the Association themselves and this grant has been implemented by members of the board themselves all through the years. Outside the present membership of the board, not a single member of the Association has registered any desire to remove the right of herein petitioner to an automatic membership in the board. If there is anybody who has the right to take away such right of the petitioner, it would be the individual members of the Association through a referendum and not the present board some of the members of which are motivated by personal interest. Petitioner disputes the ruling that the provision in question, giving petitioners representative a permanent seat in the board of the association, is contrary to law. Petitioner claims that that is not so because there is really no provision of law prohibiting unelected members of boards of directors of corporations. Referring to 92 of the present Corporation Code, petitioner says: It is clear that the above provision of the Corporation Code only provides for the manner of election of the members of the board of trustees of non-stock corporations which may be more than fifteen in number and which manner of election is even subject to what is provided in the articles of incorporation or by-laws of the association thus showing that the above provisions [are] not even mandatory.

Even a careful perusal of the above provision of the Corporation Code would not show that it prohibits a non-stock corporation or association from granting one of its members a permanent seat in its board of directors or trustees. If there is no such legal prohibition then it is allowable provided it is so provided in the Articles of Incorporation or in the by-laws as in the instant case. .... If fact, the truth is that this is allowed and is being practiced by some corporations duly organized and existing under the laws of the Philippines. One example is the Pius XII Catholic Center, Inc. Under the by-laws of this corporation, that whoever is the Archbishop of Manila is considered a member of the board of trustees without benefit of election. And not only that. He also automatically sits as the Chairman of the Board of Trustees, again without need of any election. Another concrete example is the Cardinal Santos Memorial Hospital, Inc. It is also provided in the by-laws of this corporation that whoever is the Archbishop of Manila is considered a member of the board of trustees year after year without benefit of any election and he also sits automatically as the Chairman of the Board of Trustees. It is actually 28 and 29 of the Corporation Law not 92 of the present law or 29 of the former one which require members of the boards of directors of corporations to be elected. These provisions read: 28. Unless otherwise provided in this Act, the corporate powers of all corporations formed under this Act shall be exercised, all business conducted and all property of such corporations controlled and held by a board of not less than five nor more than eleven directors to be elected from among the holders of stock or, where there is no stock, from the members of the corporation: Provided, however, That in corporations, other than banks, in which the United States has or may have a vested interest, pursuant to the powers granted or delegated by the Trading with the Enemy Act, as amended, and similar Acts of Congress of the United States relating to the same subject, or by Executive Order No. 9095 of the President of the United States, as heretofore or hereafter amended, or both, the directors need not be elected from among the holders of the stock, or, where there is no stock from the members of the corporation. (emphasis added) 29. At the meeting for the adoption of the original by-laws, or at such subsequent meeting as may be then determined, directors shall be elected to hold their offices for one year and until their successors are elected and qualified. Thereafter the directors of the corporation shall be elected annually by the stockholders if it be a stock corporation or by the members if it be a nonstock corporation, and if no provision is made in the by-laws for the time of election the same shall be held on the first Tuesday after the first Monday in January. Unless otherwise provided in the by-laws, two weeks notice of the election of directors must be given by publication in some newspaper of general circulation devoted to the publication of general news at the place where the principal office of the corporation is established or located, and by written notice deposited in the post-office, postage pre-paid, addressed to each stockholder, or, if there be no stockholders, then to each member, at his last known place of residence. If there be no newspaper published at the place where the principal office of the corporation is established or located, a notice of the election of directors shall be posted for a period of three weeks immediately preceding the election in at least three public places, in the place where the principal office of the corporation is established or located. (Emphasis added) [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 [13] question, but their action would be of no avail because no provision of the by-laws can be adopted if it is contrary to law. It is probable that, in allowing petitioners representative to sit on the board, the members of the association were not aware that this was contrary to law. It should be noted that they did not actually implement the provision in question except perhaps insofar as it increased the number of directors from 11 to 15, but certainly not the allowance of petitioners representative as an unelected member of the board of directors. It is more accurate to say that the members merely tolerated petitioners representative and tolerance cannot be considered ratification. Nor can petitioner claim a vested right to sit in the board on the basis of practice. Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Even less tenable is petitioners claim that its right is coterminus with the [14] existence of the association. 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.

C. ARNOLD HALL and BRADLEY P. HALL, petitioners, vs. EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN, EMMA BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and Commercial Co., Inc.,respondents. Claro M. Recto for petitioners. Ramon Diokno and Jose W. Diokno for respondents. BENGZON, J.: This is petition to set aside all the proceedings had in civil case No. 381 of the Court of First Instance of Leyte and to enjoin the respondent judge from further acting upon the same. Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged in Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber business to carry on as general contractors, operators and managers, etc. Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock had been subscribed and fully paid with certain properties transferred to the corporation described in a list appended thereto. (2) Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with the adoption of by-laws and the election of its officers. (3) On December 2, 1947, the said articles of incorporation were filed in the office of the Securities and Exchange Commissioner, for the issuance of the corresponding certificate of incorporation. (4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed before the Court of First Instance of Leyte the civil case numbered 381, entitled "Fred Brown et al. vs. Arnold C. Hall et al.", alleging among other things that the Far Eastern Lumber and Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of bitter dissension among the members, mismanagement and fraud by the managers and heavy financial losses. (5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting the court's jurisdiction and the sufficiently of the cause of action. (6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and at the request of plaintiffs, appointed of the properties thereof, upon the filing of a P20,000 bond. (7) The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the receiver, but the respondent judge refused to accept the offer and to discharge the receiver. Whereupon, the present special civil action was instituted in this court. It is based upon two main propositions, to wit: (a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company, because it being ade facto corporation, dissolution thereof may only be ordered in a quo warranto proceeding instituted in accordance with section 19 of the Corporation Law. (b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of incorporation but only a partnership. Discussion: The second proposition may at once be dismissed. All the parties are informed that the Securities and Exchange Commission has not, so far, issued the corresponding certificate of incorporation. All of them know, or sought to know, that the personality of a corporation begins to exist only from the moment such certificate is issued not before (sec. 11, Corporation Law). The complaining associates have not represented to the others that they were incorporated any more than the latter had made similar representations to them. And as nobody was led to believe anything to his prejudice and damage, the principle of estoppel does not apply. Obviously this is not an instance requiring the enforcement of contracts with the corporation through the rule of estoppel. The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern Lumber and Commercial Co., is a de facto corporation, section 19 of the Corporation Law applies, and therefore the court had not jurisdiction to take cognizance of said civil case number 381. Section 19 reads as follows: . . . The due incorporation of any corporations claiming in good faith to be a corporation under this Act and its right to exercise corporate powers shall not be inquired into collaterally in any private suit to which the corporation may be a party, but such inquiry may be had at the suit of the Insular Government on information of the Attorney-General. There are least two reasons why this section does not govern the situation. Not having obtained the certificate of incorporation, the Far Eastern Lumber and Commercial Co. even its stockholders may not probably claim "in good faith" to be a corporation. Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a certificate of incorporation by the Director of the Bureau of Commerce and Industry which calls a corporation into being. The immunity if collateral attack is granted to corporations "claiming in good faith to be a corporation under this act." Such a claim is compatible with the existence of errors and irregularities; but not with a total or substantial disregard of the law. Unless there has been an evident attempt to comply with the law the claim to be a corporation "under this act" could not be made "in good faith." (Fisher on the Philippine Law of Stock Corporations, p. 75. See also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.) Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de jure corporation may be terminated in a private suit for its dissolution between stockholders, without the intervention of the state. 1 There might be room for argument on the right of minority stockholders to sue for dissolution; but that question does not affect the court's jurisdiction, and is a matter for decision by the judge, subject to review on appeal. Whkch brings us to one principal reason why this petition may not prosper, namely: the petitioners have their remedy by appealing the order of dissolution at the proper time. There is a secondary issue in connection with the appointment of a receiver. But it must be admitted that receivership is proper in proceedings for dissolution of a company or corporation, and it was no error to reject the counter-bond, the court having declared the dissolution. As to the amount of the bond to be demanded of the receiver, much depends upon the discretion of the trial court, which in this instance we do not believe has been clearly abused. Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction heretofore issued will be dissolved.

H.B. ZACHRY COMPANY INTERNATIONAL, petitioner, vs. HON. COURT OF and VINNEL-BELVOIR CORPORATION, respondents. G.R. No. 107124 May 10, 1994 VINNEL-BELVOIR CORPORATION, petitioner, vs. THE COURT OF APPEALS and H.B. ZACHRY COMPANY INTERNATIONAL, respondents. Quisumbing, Torres & Evangelista for H.B. Zachry Co. Feria, Feria, Lustu & La O' for Vinnel Belvoir Corp.

DAVIDE, JR., J.: 1 Challenged in these petitions for review, which were ordered consolidated on 9 December 1992, is the decision of the Court of 2 Appeals in CA-G.R. SP No. 24174, promulgated on 1 July 1992, the dispositive portion of which reads: WHEREFORE, premises considered, this Petition for Certiorari and Prohibition is hereby granted in so far as it prayed for the dissolution of the writ of preliminary attachment inasmuch as it was issued prior to the service of summons and a copy of the complaint on petitioner. The writ of preliminary attachment issued by respondent Court on March 21, 1990 is hereby ordered lifted and dissolved as having been issued in grave abuse of discretion by respondent Court. With respect to the issue of whether or not parties should submit the instant dispute [to] arbitration, We hereby order public respondent to conduct a hearing for the determination of the proper interpretation of the provisions of the Subcontract Agreement. 3 No pronouncement as to costs. 4 and its 2 September 1992 Resolution which denied the motion for partial reconsideration of H.B. Zachry Company International (hereinafter Zachry) and the motion for reconsideration of Vinnel-Belvoir Corporation (hereinafter VBC). The pleadings of the parties and the challenged decision disclose the following material facts: 5 On 17 July 1987, VBC entered into a written Subcontract Agreement with Zachry, a foreign corporation. The latter had been engaged by the United States Navy to design and construct 264 Family Housing Units at the US Naval Base at Subic, Zambales. Under the agreement, specifically under Section 3 on Payment, VBC was to perform all the construction work on the housing project and would be paid "for the performance of the work the sum of Six Million Four Hundred Sixty-eight Thousand U.S. Dollars (U.S. $6,468,000.00), subject to additions and deductions for changes as hereinafter provided." This "lump sum price is based on CONTRACTOR'S proposal, dated 21 May 1987 (including drawings), submitted to OWNER for Alternate Design-Apartments." It was also provided "that substantial differences between the proposal and the final drawings and Specification approved by the OWNER may be grounds for an equitable adjustment in price and/or time of performance if requested by either party in accordance with 6 Section 6 [on] Changes." Section 27 of the agreement reads: Section 27. DISPUTES PROCEDURE A. In case of any dispute, except those that are specifically provided for in this SUBCONTRACT, between the SUBCONTRACTOR and the CONTRACTOR, the SUBCONTRACTOR agrees to be bound to the CONTRACTOR to the same extent that the CONTRACTOR is bound to the OWNER by the terms of the GENERAL CONTRACT and by any and all decisions or determinations made thereunder by the party or boards so authorized in the GENERAL CONTRACT. The SUBCONTRACTOR, on items or issues relating or attributable to the SUBCONTRACTOR, also agrees to be bound to the CONTRACTOR to the same extent that the CONTRACTOR is bound to the OWNER by the final decision of a court of competent jurisdiction, whether or not the SUBCONTRACTOR is a party to such proceeding. If such a dispute is prosecuted or defended by the CONTRACTOR against the OWNER under the terms of the GENERAL CONTRACT or in court action, the SUBCONTRACTOR agrees to furnish all documents, statements, witnesses and other information required by the CONTRACTOR for such purpose. It is expressly understood that as to any and all work done and agreed to be done by the CONTRACTOR and as to any and all materials, equipment or services furnished or agreed to be furnished by the SUBCONTRACTOR, and as to any and all damages incurred by the SUBCONTRACTOR in connection with this SUBCONTRACT, the CONTRACTOR shall not be liable to the SUBCONTRACTOR to any greater extent than the OWNER is liable to and pays the CONTRACTOR for the use and benefit of the SUBCONTRACTOR for such claims, except those claims arising from acts of the CONTRACTOR. No dispute shall interfere with the progress of the WORK and the SUBCONTRACTOR agrees to proceed with his WORK as directed, despite any disputes it may have with the CONTRACTOR, the OWNER, or other parties. B. If at any time any controversy should arise between the CONTRACTOR and the SUBCONTRACTOR, with respect to any matter or thing involved in, related to or arising out of this SUBCONTRACT, which controversy is not controlled or determined by subparagraph 27.A. above or other provisions in this SUBCONTRACT, then said controversy shall be decided as follows: 1. The SUBCONTRACTOR shall be conclusively bound and abide by the CONTRACTOR'S written decision respecting said controversy, unless the SUBCONTRACTOR shall commence arbitration proceedings as hereinafter provided within thirty (30) days following receipt of such written decision. 2. If the SUBCONTRACTOR decides to appeal from the written decision of the CONTRACTOR, then the controversy shall be decided by arbitration in accordance with the then current rules of the Construction Industry Arbitration Rules of the American Arbitration Association, and the arbitration decision shall be final and binding on both parties; provided, however, that proceedings before the American Arbitration Association shall be commenced by the SUBCONTRACTOR not later than thirty (30) days following the CONTRACTOR'S written decision pursuant to subparagraph 27.B.1 above. If the SUBCONTRACTOR does not file a demand for arbitration with the American Arbitration Association and CONTRACTOR within this thirty (30) day period, then the CONTRACTOR'S written decision is final and binding. 7 3. This agreement to arbitrate shall be specifically enforceable. When VBC had almost completed the project, Zachry complained of the quality of work, making it a reason for its decision to take over the management of the project, which paragraph c, Section 7 of the Subcontract Agreement authorized. However, prior to such 8 take-over, the parties executed on 18 December 1989 a Supplemental Agreement, pertinent portions of which read as follows: 2. All funds for progress as computed by the schedule of prices under the subcontract will be retained by ZACHRY to insure sufficiency of funds to finish the lump sum project as scoped by the subcontract. However, one month after the date of this agreement, when ZACHRY shall have determined the cost to complete the subcontract, ZACHRY shall as appropriate, release to VBC the corresponding portion of the amounts retained.

xxx xxx xxx 7. All costs incurred by ZACHRY chargeable to VBC under the subcontract from the date of the takeover to complete the scope of the subcontract will be to the account of VBC and/or its sureties. Zachry will advise both VBC and its sureties on a periodic basis as to progress and accumulated costs. xxx xxx xxx 9. VBC will be invited to participate in negotiations with the Navy in Change Orders concerning its scope of work. VBC will accept as final, without recourse against ZACHRY the Navy's decision regarding its interest in these Change Orders or modifications. In accordance with the above conditions, VBC submitted to Zachry on 10 January 1990 a detailed computation of the cost to complete the subcontract on the housing project. According to VBC's computation, there remains a balance of $1,103,000.00 due in its favor as of 18 January 1990. This amount includes the sum of $200,000.00 allegedly withheld by Zachry and the labor escalation adjustment granted earlier by the US Navy in the amount of $282,000.00 due VBC. Zachry, however, not only refused to acknowledge the indebtedness but continually failed to submit to VBC a statement of accumulated costs, as a result of which VBC was prevented from checking the accuracy of the said costs. On 2 March 1990, VBC wrote Zachry a letter demanding compliance 9 with its obligations. Zachry still failed to do so. VBC made representations to pursue its claim, including a formal claim with the 10 Officer-in-Charge of Construction, NAVFAC Contracts, Southwest Pacific, which also failed. 11 Hence, on 20 March 1990, VBC filed a Complaint with the Regional Trial Court (RTC) of Makati against Zachry for the collection of the payments due it with a prayer for a writ of preliminary attachment over Zachry's bank account in Subic Base and over the remaining thirty-one undelivered housing units which were to be turned over to the US Navy by Zachry on 30 March 1990. The case was docketed as Civil Case No. 90-772 and was raffled to Branch 142 of the said court presided over by Judge Salvador P. de Guzman, Jr. Paragraph 2 of the Complaint alleges that defendant Zachry "is a foreign corporation with address at 527 Longwood Street, San Antonio, Texas, U.S.A. and has some of its officers working at U.S. Naval Base, Subic Bay, Zambales where it may be served with summons." On 21 March 1990, the trial court issued an order granting the application for the issuance of the writ of preliminary attachment and 12 fixing the attachment bond at P24,266,000.00. VBC put up the required bond and on 26 March 1990, the trial court issued the writ 13 of attachment, which was served, together with the summons, a copy of the complaint with annexes, the bond, and a copy of the 14 order of attachment, on 27 March 1990 in the manner described in the Sheriff's Partial Return of 29 March 1990: upon defendant H.B. Zachry Company (International) at its field office in U.S. Naval Base, Subic Bay, Zambales thru Ruby Apostol who acknowledged receipt thereof. Mr. James M. Cupit, defendant's authorized officer was in their Manila office at the time of service. The return further states: That on March 28, 1990, the undersigned sheriff went to the office of defendant H. B. Zachry Company (International) at c/o A.M. Oreta & Co. at 5th Floor, Ermita Building, Arquiza corner Alhambra streets, Ermita, Manila to serve the Court's processes but was informed by Atty. Felix Lobiro of A.M. Oreta & Co., that defendant H.B. Zachry Company has its own office at Room 600, 6th Floor of the same building (Ermita Building). However, said defendant's office was closed and defendant company (ZACHRY) only holds office during Mondays and Tuesdays of the week as per information gathered from the adjacent office. 15 On 27 March 1990, VBC filed an Amended Complaint in Civil Case No. 90-772 to implead as additional defendants the US Navy Treasury Office-Subic Naval Base and Captain A.L. Wynn, an officer of the US Navy, against whom VBC prayed for a restraining order or preliminary injunction to restrain the latter from preparing the treasury warrant checks to be paid to Zachry and the former from signing the said checks and to restrain both from making any further payments to Zachry. It also amended paragraph 2 on the status and circumstances of Zachry as follows: 2. Defendant, H.B. Zachry Co. (International) . . . is a foreign corporation with address at 527 Longwood Street, San Antonio, Texas, U.S.A. and may be served with summons and all other legal processes at the following addresses: a) H.B. Zachry Company (International), U.S. Naval Base, Subic Bay, Zambales; and b) H.B. Zachry Company (International) c/o A.M. Oreta & Co., 5th Floor 16 Ermita Building, Arquiza corner Alhambra Streets, Ermita, Manila, through its authorized officer James C. Cupit. 17 On 6 April 1990, Zachry filed a motion to dismiss the complaint on the ground of lack of jurisdiction over its person because the summons was not validly served on it. It alleges that it is a foreign corporation duly licensed on 13 November 1989 by the Securities 18 and Exchange Commission to do business in the Philippines and, pursuant to Section 128 of the Corporation Code of the 19 Philippines, had appointed Atty. Lucas Nunag as its resident agent on whom any summons and legal processes against it may be served. Atty. Nunag's address is at the 10th Floor, Shell House, 156 Valero St., Makati, Metro Manila. Summons and a copy of the Amended Complaint were served on 24 April 1990 on Zachry through Atty. Nunag as shown in the 20 sheriff's return dated 24 April 1990. 21 On 26 April 1990, VBC filed a Manifestation to inform the court of the above service of summons on Zachry which it claimed rendered moot and academic the motion to dismiss. 22 On 24 May 1990, Zachry filed an Omnibus Motion (a) to dismiss the complaint for lack of jurisdiction over its person since the subsequent service of summons did not cure the jurisdictional defect it earlier pointed out and, in the alternative, to dismiss the case or suspend the proceedings therein for failure of the plaintiff to submit the controversy in question to arbitration as provided for in its contract with Zachry; and (b) to dissolve the writ of attachment of 26 March 1990 "for having been issued without jurisdiction, having been issued prior to the service of summons." The arbitration provision referred to is Section 27.B of the Subcontract Agreement quoted earlier. In support of its alternative prayer for the suspension of proceedings, it cited Section 7 of R.A. No. 876, otherwise known as the Arbitration Act which provides: Sec. 7. Stay of Civil Action If any suit or proceeding be brought upon an issue, arising out of an agreement providing for the arbitration thereof, the Court in which such suit or proceeding is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration, shall stay the action or proceeding until an arbitration has been had in accordance with the terms of the agreement. . . . This provision is almost identical with Section 3 of the United States Arbitration Act. 23 As to the invalidity of the writ of attachment, Zachry avails of the decision in Sievert vs. Court of Appeals wherein this Court said: Attachment is an ancillary remedy. It is not sought for its own sake but rather to enable the attaching party to realize upon relief sought and expected to be granted in the main or principal action. A court which has not acquired jurisdiction over the person of the defendant, cannot bind that defendant whether in the main case or in any ancillary proceeding such as attachment proceedings. The service of a petition for preliminary attachment without the prior or simultaneous service of summons and a copy of the complaint

in the main case and that is what happened in this casedoes not of course confer jurisdiction upon the issuing court over the 24 person of the defendant. 25 VBC opposed the Omnibus Motion. Pleadings related to the Omnibus Motion were subsequently filed. 26 In its Order of 19 September 1990, the trial court resolved the Omnibus Motion and the related incidents by declaring that "the merits of the case can only [be] reached after due presentation of evidence." Hence, it denied the motion and directed the defendants to file their answer within the period provided by law. 27 On 8 October 1990, Zachry filed a motion for the reconsideration of the above order assailing the court's inaction on the second and third issues raised in its Omnibus Motion, viz., the necessity of arbitration and the invalidity of the writ of attachment. VBC 28 opposed the motion. On 9 January 1991, the court issued an order denying the motion for reconsideration by ruling that the writ of preliminary attachment was regularly issued and that the violations of the Subcontract Agreement can be "tranced [sic] only after the case is heard on the merits." Dissatisfied with the denial, Zachry filed with the Court of Appeals on 14 February 1991 a petition forcertiorari and 29 prohibition, which was docketed as CA-G.R. SP No. 24174. Zachry contends therein that: 1. The proceedings before respondent trial court should be suspended, pending submission of the dispute to arbitration pursuant to Section 27-B of the Subcontract Agreement; 2. Alternatively, the complaint should be dismissed, pending arbitration pursuant to Section 27-B of the Subcontract Agreement; 3. As a third alternative, the complaint should be dismissed, because the dispute has been resolved with finality under Section 27-B of the Subcontract Agreement; and 4. The writ of preliminary attachment should be dissolved, as having been outside, or in excess of respondent court's jurisdiction, having been issued prior to the service of summons on petitioner. It then prays that (a) the orders of the trial court of 19 September 1990 and 9 January 1991 be annulled for having been issued without or in excess of jurisdiction or with grave abuse of discretion; and (b) the trial court be directed to immediately suspend the proceedings in Civil Case No. 90-772 pending arbitration proceedings in accordance with the terms of Section 27.B of the Subcontract Agreement or, alternatively, to dismiss the amended complaint and dissolve the writ of attachment. It also prays for the issuance of a temporary restraining order and a writ of preliminary injunction to restrain the trial court from proceeding further in Civil Case No. 90-772. 30 On 18 February 1991, the Court of Appeals issued a temporary restraining order. 31 On 1 July 1991, the Court of Appeals promulgated the challenged decision dissolving the writ of preliminary attachment issued by the trial court and ordering it to conduct a hearing to determine the proper interpretation of the provisions of the Subcontract Agreement. As to the writ of attachment, the Court of Appeals held that summons was served on Zachry only on 24 April 1990; 32 hence, applyingSievert vs. Court of Appeals, the trial court "had no authority yet to act coercively against the defendant" when it issued the writ of attachment on 21 March 1990. As to arbitration, it ruled: We are of the reasoned opinion that unlike in the factual situation in the cases cited by petitioner, the contract involved in the case at bar is, with respect to its arbitration clause, vogue [sic] and uncertain. Section 27.B which is the provision upon which petitioner anchors its claims is ambiguous in its terminology when it states that "if at anytime any controversy should arise between the contractor and the subcontractor . . . which controversy is not controlled or determined by Section 27.A above or other provision of this subcontract . . . ." This provision states that only when a controversy arises between the contractor and the subcontractor which is not covered by Section 27.A or any provision of the Subcontract Agreement will the parties submit to arbitration. As to what controversies fall under Section 27.B, it is not clear from a mere perusal of the provisions. It is therefore not correct for petitioner to say that any and all dispute arising between the contracting parties should be resolved by arbitration prior to a filing of a suit in 33 court. 34 VBC and Zachry filed a motion for reconsideration and a partial motion for reconsideration, respectively. The former urged the Court of Appeals to consider the decision of this Court of 29 November 1991 in Davao Light & Power Co. vs. Court of 35 Appeals wherein this Court ruled that a writ of preliminary attachment may be issued ex-parte prior to the service of summons and a copy of the complaint on the defendants. On the other hand, Zachry insists that "[t]here is nothing 'vague' or 'ambiguous about' " the provision on dispute procedures set forth in Subsections 27.B.1 to 27.B.3 of the Subcontract Agreement. 36 In its Resolution of 2 September 1992, the Court of Appeals denied the above motions of the parties. 37 Hence, these petitions which were given due course in this Court's Resolution of 8 March 1993. In G.R. No. 106989, petitioner Zachry reiterates all the issues it raised before the Court of Appeals, except that regarding the validity of the writ of attachment which was decided in its favor. In G.R. No. 107124, petitioner VBC raises the following issues: A. WHETHER THE ISSUANCE OF THE WRIT OF PRELIMINARY ATTACHMENT PRIOR TO THE SERVICE OF THE SUMMONS AND A COPY OF THE AMENDED COMPLAINT ON THE RESPONDENT IS VALID. B. WHETHER RESORT TO ARBITRATION PRIOR TO FILING A SUIT IN COURT IS REQUIRED BY THE SUBCONTRACT AGREEMENT UNDER THE FACTS OBTAINING IN THE PRESENT CASES. 38 As to the first issue, VBC takes refuge in the ruling in Davao Light & Power Co. vs. Court of Appeals and argues that the issuance of the writ of attachment on 21 March 1990, although before the service of the summons, was valid. Its issuance and implementation are two different and separate things; the first is not affected by any defect in the implementation which may be corrected. Moreover, assumingarguendo that the initial service of summons was defective, it was cured by the numerous pleadings thereafter filed. Finally, whatever doubts existed on the effectiveness of the implementation of the writ was erased by its re-service on the resident agent of Zachry. As to the issue on arbitration, VBC maintains that arbitration is not required under the facts obtaining in the present case because the applicable provision of the Subcontract Agreement is Section 3 on Payment and not Section 27.B on Arbitration. Zachry's fraudulent actuations and gross violation of the Subcontract Agreement render prior resort to arbitration futile and useless. The preliminary attachment, which was essential to secure the interest of the petitioner, could not have been obtained through arbitration proceedings. 39 Zachry, in its Comment, contends that pursuant to the Sievert and Davao Light rulings, the issuance of the writ of attachment before the service of summons on Zachry's resident agent was invalid and that the various pleadings filed by the parties did not cure its invalidity. It argues that the arbitration procedure is set forth in Section 27.B of the Subcontract Agreement. It further maintains 40 that pursuant to General Insurance vs. Union Insurance, the alleged fraudulent actuations which relate to the merits of the case

may be properly addressed to the arbitrators and that there is no merit to the claim that arbitration would be useless since the arbitration proceeding would be presided over by an independent and competent arbitral tribunal. The issues in these petitions are properly defined by VBC in G.R. No. 107124. We find for petitioner VBC. It was error for the Court of Appeals to declare, on the ground of grave abuse of discretion, the nullity of the writ of attachment issued by the trial court on 21 March 1990. In the first place, the writ was in fact issued only on 26 March 1990 and served, together with the summons, copy of the complaint, the Order of 21 March 1990, and the bond, on 27 March 1990 on Zachry at its field office in Subic Bay, Zambales, through one Ruby Apostol. What the Court of Appeals referred to as having been issued on 21 March 1990 is the order granting the application for the issuance of a writ of preliminary attachment upon the posting of a bond of 41 P24,266,000.00. In the second place, even granting arguendo that the Court of Appeals had indeed in mind the 26 March 1990 writ of attachment, its issuance, as well as the issuance of the 21 March 1990 Order, did not suffer from any procedural or jurisdictional defect; the trial court could validly issue both. However, the writ of attachment cannot be validly enforced through the levy of Zachry's property before the court had acquired 42 jurisdiction over Zachry's person either through its voluntary appearance or the valid service of summons upon it. To put it in another way, a distinction should be made between the issuance and the enforcement of the writ. The trial court has unlimited power to issue the writ upon the commencement of the action even before it acquires jurisdiction over the person of the defendant, but enforcement thereof can only be validly done after it shall have acquired such jurisdiction. This is the rule enunciated in Davao Light & Power Co. vs. Court of 43 Appeals. In that case, this Court stated: The question is whether or not a writ of preliminary attachment may issue ex parte against a defendant before acquisition of jurisdiction of the latter's person by service of summons or his voluntary submission to the Court's authority. The Court rules that the question must be answered in the affirmative and that consequently, the petition for review will have to be granted. It is incorrect to theorize that after an action or proceeding has been commenced and jurisdiction over the person of the plaintiff has been vested in the court, but before the acquisition of jurisdiction over the person of the defendant (either by service of summons or his voluntary submission to the court's authority), nothing can be validly done by the plaintiff or the court. It is wrong to assume that the validity of acts done during this period should be dependent on, or held in suspension until, the actual obtention of jurisdiction over the defendant's person. The obtention by the court of jurisdiction over the person of the defendant is one thing; quite another is the acquisition of jurisdiction over the person of the plaintiff or over the subject-matter or nature of the action, or the res or 44 object thereof. xxx xxx xxx A preliminary attachment may be defined, paraphrasing the Rules of Court, as the provisional remedy in virtue of which a plaintiff or other proper party may, at the commencement of the action or at any time thereafter, have the property of the adverse party taken into the custody of the court as security for the satisfaction of any judgment that may be recovered. It is a remedy which is purely statutory in respect of which the law requires a strict construction of the provisions granting it. Withal no principle, statutory or jurisprudential, prohibits its issuance by any court before acquisition of jurisdiction over the person of the defendant. Rule 57 in fact speaks of the grant of the remedy "at the commencement of the action or at any time thereafter." The phrase "at the commencement of the action," obviously refers to the date of the filing of the complaint which, as above pointed out, is the date that marks "the commencement of the action;" and the reference plainly is to a time before summons is served on the defendant, or even before summons issues. What the rule is saying quite clearly is that after an action is properly commenced by the filing of the complaint and the payment of all requisite docket and other fees the plaintiff may apply for and obtain a writ of preliminary attachment upon fulfillment of the pertinent requisites laid down by law, and that he may do so at any time, either before or after service of summons on the defendant. And this indeed, has been the immemorial practice sanctioned by the courts: for the plaintiff or other proper party to incorporate the application for attachment in the complaint or other appropriate pleading (counterclaim, cross-claim, third-party claim) and for the Trial Court to issue the writ ex-parte at the commencement of the action if it finds the 45 application otherwise sufficient in form and substance. xxx xxx xxx It goes without saying that whatever be the acts done by the Court prior to the acquisition of jurisdiction over the person of the defendant, as above indicated issuance of summons, order of attachment and writ of attachment (and/or appointment of guardian ad litem, or grant of authority to the plaintiff to prosecute the suit as a pauper litigant, or amendment of the complaint by the plaintiff as a matter of right without leave of court) and however valid and proper they might otherwise be, these do not and cannot bind and affect the defendant until and unless jurisdiction over his person is eventually obtained by the court, either by service on him of summons or other coercive process or his voluntary submission to the court's authority. Hence, when the sheriff or other proper officer commences implementation of the writ of attachment, it is essential that he serve on the defendant not only a copy of the applicant's affidavit and attachment bond, and of the order of attachment, as explicitly required by Section 5 of Rule 57, but also the summons addressed to said defendant as well as a copy of the complaint and order for appointment of guardian ad litem, if any, as also explicitly directed by Section 3, Rule 14 of the Rules of Court. Service of all such documents is indispensable not only for the acquisition of jurisdiction over the person of the defendant, but also upon considerations of fairness, to apprise the defendant of the complaint against him, of the issuance of a writ of preliminary attachment and the grounds therefor and thus accord him the opportunity to prevent attachment of his property by the posting of a counterbond in an amount equal to the plaintiff's claim in the complaint pursuant to Section 5 (or Section 12), Rule 57, or dissolving it by causing dismissal of the complaint itself on any of the grounds set forth in Rule 16, or demonstrating the insufficiency of the applicant's affidavit or bond in accordance 46 with Section 13, Rule 57. xxx xxx xxx For the guidance of all concerned, the Court reiterates and reaffirms the proposition that writs of attachment may properly issue ex parte provided that the Court is satisfied that the relevant requisites therefor have been fulfilled by the applicant, although it may, in its discretion, require prior hearing on the application with notice to the defendant; but that levy on property pursuant to the writ thus issued may not be validly effected unless preceded, or contemporaneously accompanied, by service on the defendant of summons, a copy of the complaint (and of the appointment of guardian ad litem, if any), the application for attachment (if not 47 incorporated in but submitted separately from the complaint), the order of attachment, and the plaintiff's attachment bond.

We reiterated the rule laid down in Davao Light in the subsequent case of Cuartero vs. Court of Appeals wherein we stated: It must be emphasized that the grant of the provisional remedy of attachment practically involves three stages: first, the court issues the order granting the application; second, the writ of attachment issues pursuant to the order granting the writ; and third, the writ is implemented. For the initial two stages, it is not necessary that jurisdiction over the person of the defendant should first be obtained. However, once the implementation commences, it is required that the court must have acquired jurisdiction over the person of the defendant for without such jurisdiction, the court has no power and authority to act in any manner against the defendant. Any order issuing from the Court will not bind the defendant. The validity then of the order granting the application for a writ of preliminary attachment on 21 March 1990 and of the issuance of the writ of preliminary attachment on 26 March 1990 is beyond dispute. However, the enforcement of the preliminary attachment on 27 March 1990, although simultaneous with the service of the summons and a copy of the complaint, did not bind Zachry because the service of the summons was not validly made. When a foreign corporation has designated a person to receive service of summons pursuant to the Corporation Code, that designation is exclusive and service of summons on any other person is 49 inefficacious. The valid service of summons and a copy of the amended complaint was only made upon it on 24 April 1990, and it was only then that the trial court acquired jurisdiction over Zachry's person. Accordingly, the levy on attachment made by the sheriff on 27 April 1990 was invalid. However, the writ of preliminary attachment may be validly served anew. As to the second issue of arbitration, we find that although the order of the trial court denying the motion to dismiss did not clearly state so, it is evident that the trial court perceived the ground of the motion to be not indubitable; hence, it could defer its resolution thereon until the trial of the case. In deciding a motion to dismiss, Section 3, Rule 16 of the Rules of Court grants the court four options: (1) to deny the motion, (2) to grant the motion, (3) to allow amendment of pleadings, or (4) to defer the hearing and determination of the motion until the trial, if the ground alleged therein does not appear to be indubitable. Under the fourth option, the court is under no obligation to immediately hold a hearing on the motion; it is vested with discretion to defer such hearing and 50 the determination of the motion until the trial of the case. The lack of indubitability of the ground involved in Zachry's motion to dismiss is confirmed by the Court of Appeals when it declared: Section 27. B which is the provision upon which petitioner [Zachry] anchors its claim is ambiguous in its terminology when it states that "if at any time any controversy should arise between the contractor and the subcontractor . . . which controversy is not controlled or determined by Section 27.A above or other provisions of this subcontract' . . . . This provision states that only when a controversy arises between the contractor and subcontractor which is not covered by Section 27.A or any provision of the Subcontract will the parties submit to arbitration. As to what controversies fall under Section 27.B, it is not clear from a mere perusal of the provisions. Indeed, the parties could not even agree on what controversies fall within Section 27.B, and, perhaps, rightly so because the said Section 27.B excludes controversies controlled or determined by Section 27.A and other provisions of the Subcontract Agreement, which are themselves unclear. For that reason, VBC insists that its cause of action in Civil Case No. 90-772 is based on Section 3 of the Subcontract Agreement. It may further be emphasized that VBC's complaint was precipitated by Zachry's refusal to comply with the Supplemental Agreement. Evidently, Section 3 of the Subcontract Agreement and the Supplemental Agreement are excluded by Section 27.B. The trial court was, therefore, correct in denying Zachry's motion to dismiss. However, we cannot give our assent to the Court of Appeals' order directing the trial court to conduct a hearing for the determination of the proper interpretation of the provisions of the Subcontract Agreement. It would re-open the motion to dismiss which, upon the trial court's exercise of its discretion, was properly denied for lack of indubitability of the ground invoked and thereby unduly interfere with the trial court's discretion. The proper interpretation could only be done by the trial court after presentation of evidence during trial on the merits pursuant to the tenor of its order denying the motion to dismiss. If the trial court should find that, indeed, arbitration is in order, then it could apply Section 7 of R.A. No. 876 which reads as follows: Sec. 7. Stay of civil action. If any suit or proceeding be brought upon an issue arising out of an agreement providing for the arbitration thereof, the court in which such suit or proceeding is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration, shall stay the action or proceeding until an arbitration has been had in accordance with the terms of the agreement: Provided, That the applicant for the stay is not in default in proceeding with such arbitration. WHEREFORE, the petition in G.R. No. 107124 is GRANTED while that in G.R. No. 106989 is DENIED for lack of merit. The challenged Decision of 1 July 1992 and Resolution of 2 September 1992 are hereby SET ASIDE. The orders of Branch 142 of the Regional Trial Court of Makati in Civil Case No. 90-772 of 19 September 1990 denying the motion to dismiss and of 8 October 1990 denying the motion to reconsider the former are REINSTATED. However, the service of the writ of preliminary attachment on 26 March 1990 is hereby declared invalid. The writ may, nevertheless, be served anew. No pronouncement as to costs. SO ORDERED.

48

HEIRS OF TRINIDAD DE LEON VDA. DE ROXAS, petitioners, vs. COURT OF APPEALS and MAGUESUN MANAGEMENT AND DEVELOPMENT CORPORATION, respondents. DECISION CARPIO, J.: The Case This is a petition to cite for indirect contempt the officers of Meycauayan Central Realty Corporation (Meycauayan) for defying the final and executory Decision and Resolution of this Court in G.R. No. 118436 entitled Heirs of Manuel A. Roxas and Trinidad de Leon [1] Vda. De Roxas v. Court of Appeals and Maguesun Management & Development Corporation (G.R. No. 118436). The Antecedents This petition stems from a case filed by Trinidad de Leon Vda. De Roxas to set aside the decree of registration over two unregistered parcels of land in Tagaytay City granted to Maguesun Management and Development Corporation (Maguesun) before the Regional Trial Court on the ground of actual fraud. The trial court dismissed the petition to set aside the decree of registration. On appeal, the Court of Appeals denied the petition for review and affirmed the findings of the trial court. On 21 March 1997, this Court reversed the appellate courts decision in G.R. No. 118436. The dispositive portion reads: WHEREFORE, the instant petition is hereby GRANTED. The Decision of the Court of Appeals in C.A. G.R. CV No. 38328 (Trinidad de Leon Vda. de Roxas v. Maguesun Management & Development Corporation, et al.) promulgated on December 8, 1994 is hereby REVERSED AND SET ASIDE. Accordingly, registration of title over the subject parcels of land, described in Plan AS-04-000108, Lot Nos. 7231 and 7239, with an area of 3,461 and 10,674 square meters, respectively, as shown and supported by the corresponding technical descriptions now forming part of the Records of LRC No. TG-373, is awarded to herein petitioner Trinidad de Leon vda. de Roxas and her heirs, herein substituted as petitioners. Upon finality of this Decision, the Land Registration Authority is hereby directed to ISSUE with reasonable dispatch the corresponding decree of registration and certificate of title pursuant to Section 39 of [2] Presidential Decree No. 1529. On 22 May 1997, Meycauayan filed a Petition for Intervention in G.R. No. 118436. Meycauayan alleged that on 14 May 1992, it purchased three parcels of land from Maguesun which form part of the property awarded to the heirs of Trinidad de Leon Vda. De Roxas (Roxas heirs). Meycauayan contended that since it is a purchaser in good faith and for value, the Court should afford it the opportunity to be heard. Meycauayan contends that the adverse decision in G.R. No. 118436 cannot impair its rights as a purchaser in good faith and for value. On 25 June 1997, this Court denied the Petition for Intervention. This Court also denied the Motion for Reconsideration filed by Maguesun. Thus, on 21 August 1997, the Decision dated 21 March 1997 in G.R. No. 118436 became final and executory. On 13 April 1998, the Land Registration Authority (LRA) submitted a Report to the Regional Trial Court of Tagaytay City, Branch 18 (land registration court), in LR Case No. TG-373, praying that the land registration court: a) Order the LRA to cancel Decree No. N-197092 in the name of Maguesun to enable it to issue another decree in favor of the heirs of Manuel A. Roxas and Trinidad de Leon Vda. de Roxas; b) Order the Register of Deeds to cancel OCT No. 0-515 and all its derivative titles; and c) Order the issuance of the Decree with respect to the decision of the Supreme Court dated 21 March 1997. Meycauayan filed with the land registration court a Motion For Leave To Intervene And For Period Of Time To File Opposition To The Report Dated March 25, 1998 Filed By The LRA And To File Complaint-in-Intervention. On 4 June 1998, the Roxas heirs filed a Motion for Clarification with this Court raising the following issues: a) Whether it is necessary for the trial court to first order the LRA to cancel Decree No. N-197092 in the name of Maguesun Management and Development Corporation to enable (the LRA) to issue another decree in favor of the Heirs of Manuel A. Roxas and Trinidad de Leon Vda. de Roxas? Or is that order necessarily included in the dispositive portion of the Supreme Court decision directing the LRA to issue with reasonable dispatch the corresponding decree of registration and certificate of title in favor of the Roxas heirs? Please note that this necessary implication is a consequence of the Supreme Court finding that thedecree in favor of Maguesun was wrongfully issued because it was not entitled to the registration decree as it had no registrable title, since Zenaida Melliza (from whom Maguesun supposedly bought the lots) conveyed no title over the subject parcels of land to Maguesun Corporation as she was not the owner thereof. b) Whether an order from the trial court is necessary for the Register of Deeds concerned to cancel OCT No. 0-515 and all its derivative titles? Or is that order necessarily included in the dispositive portion of the Supreme Court decision directing the LRA to issue the corresponding decree of registration andcertificate of title in favor of the Roxas heirs, considering that the original certificate of title issued to Maguesun was based on an illegal decree of registration as found by this Honorable Court. Further, the unconditional order of the Supreme Court to LRA to issue the corresponding certificate of title to the Roxas heirs necessarily implies that the OCT issued to Maguesun and its derivative titles shall be canceled, for it cannot [be] assumed that the Supreme Court intended that the same parcel of land shall be covered by more than one certificate of title. c) Whether an order from the trial court is necessary before the LRA can comply with the Supreme Court decision directing the LRA to issue with reasonable dispatch the corresponding decree of registration and certificate of title in favor of the Roxas heirs? On 23 June 1998, the Roxas heirs filed a Supplement to Motion for Clarification, the pertinent portions of which are: 1. In petitioners Motion for Clarification, one of the items sought to be clarified is whether the derivative titles (i.e., the titles derived from Maguesun Management and Development Corporations *Maguesun+ Original Certificate of Title No. 0-515 and issued to Meycauayan Central Realty Corp.) should be canceled, together with Maguesuns certificates of title, so that new decree of registration and certificate of title can be issued to petitioners, as ordered in the decision of this Honorable Court dated 21 March 1997, which has become final and executory? 2. From the Petition for Intervention filed by Meycauayan Central Realty Corporation (Meycauayan) with this Honorable Court on 22 May 1997, the following statements, among others, are alleged: a. That on May 14, 1992, the intervenor purchased for value several parcels of real property from private respondent Maguesun Management and Development Corp. covered by TCT Nos. 24294, 24295 and 24296 containing an area of 2,019 square meters each, more or less. b. That prior to paying the agreed purchase price in full to respondent Maguesun, an investigation with the Tagaytay City Office of the Register of Deeds was made to determine and ascertain the authenticity, status and condition of the titles of Maguesun over the aforesaid properties.

c. That investigation made by the intervenor with the Office of Register of Deeds of Tagaytay City showed that in all the certified true copies of the titles to the properties above-mentioned which were registered in the name of Maguesun, the last entry which appeared was the following, to wit: x x x. d. Appearing that the properties to be purchased by the herein intervenor from respondent Maguesun have no existing liens and/or encumbrances and considering that the properties do not appear to be the subject of a pending case which would affect the titles of those who may subsequently purchase the same, the herein intervenor proceeded to pay, in full, the total amount of ONE MILLION FIVE HUNDRED THOUSAND PESOS (P1,500,000.00) to Maguesun. Immediately thereafter, Maguesun, through its duly authorized officer, executed the corresponding Deeds of Absolute Sale. e. That after the corresponding taxes and/or fees were paid by herein intervenor, the aforementioned TCT Nos. T-24294, 24295 and 24296, were canceled and in lieu thereof, new titles in the name of intervenor were issued by the Register of Deeds of Tagaytay City. f. That on March 25, 1997, an officer of the intervenor corporation was informed of a newspaper report stating, in big bold letters, the following sub-headline, to wit: SC RULES ON ROXAS FAMILY LAND ROW IN TAGAYTAY. g. The President of herein intervenor right after secured from the Tagaytay City Office of the Register of Deeds certified true copies of torrens titles over its Tagaytay City properties. h. That only then, after it secured certified true copies of the titles mentioned in the preceding paragraph from the Office of the Register of Deeds of Tagaytay City, did intervenor come to know of the existence of a case involving the properties sold to it by respondent Maguesun on May 14, 1992. 3. Meycauayans Petition for Intervention was denied by this Honorable Court in its Resolution dated 25 June 1997, a denial that has since become final and executory. However, as stated in petitioners Motion for Clarification, Meycauayan committed the proscribed act of forum-shopping by filing with the trial court a motion for leave to intervene raising again the issue of its alleged ownership of portions of the land. 4. In order to settle once and for all Meycauayans allegation that it was a buyer in good faith, and to show that its derivative titles should be declared void and canceled by this Honorable Court, petitioners will show herein that the sale to Meycauayan was spurious or, at the very least, it was a buyer in bad faith. In a Resolution dated 29 July 1998, this Court acted favorably on the Roxas heirs Motion for Clarification and its Supplement. The pertinent portions of the Resolution read: Upon careful consideration of the points made by petitioners in their motions, this Court finds the same meritorious and, hence, a clarification is in order. We, therefore, declare that our directive on the LRA to issue with reasonable dispatch the corresponding decree of registration and certificate of title also includes, as part thereof, the cancellation, without need of an order of the land registration court, of Decree No. N-197092, as well as OCT No. 0-515, and all its derivative titles. This is a necessary consequence of the Courts earlier finding that the foregoing documents were illegally issued in the name of respondent. But in light of Section 39 of Presidential Decree No. 1529 (the Property Registration Decree), Decree No. N-197092 which originated from the LRA must be cancelled by the LRA itself. On account of this cancellation, it is now incumbent upon the LRA to issue in lieu of the cancelled decree a new one in the name of petitioners as well as the corresponding original certificate of title. Cancellation of OCT No. 0-515, on the other hand, properly devolves upon the Register of Deeds who, under Section 40 of P.D. No. 1529, has earlier entered a copy thereof in his record book. OCT No. 0-515 having been nullified, all titles derived therefrom must also be considered void it appearing that there had been no intervening rights of an innocent purchaser for value involving the lots in dispute. ACCORDINGLY, the Court hereby resolves to GRANT petitioners Motion for Clarification together with the Supplement thereto. For this reason, the dispositive portion of our decision dated March 21, 1997 is clarified, thus: First, the Register of Deeds shall CANCEL OCT No. 0-515 and all its derivative titles, namely, TCT Nos. T-25625, T-25626, T-25627, T25628, T-25688, T-25689, and T-25690, the latter three being already in the name of Meycauayan Realty and Development Corporation (also designated as Meycauayan Central Realty, Inc. and Meycauayan Realty Corporation). Thereafter, the Land Registration Authority shall: (a) CANCEL Decree No. N-197092 originally issued in the name of Maguesun Management and Development Corporation without need of an order from the land registration court; and (b) ISSUE with reasonable dispatch a new decree of registration and a new original certificate of title (OCT) in favor of petitioners pursuant to Section 39 of Presidential Decree No. 1529. (Emphasis added) On 11 December 1998, the land registration court issued an order denying the LRA Report dated 25 March 1998 and the Motion for Leave to Intervene filed by Meycauayan since the Supreme Court Resolution of 29 July 1998 had rendered them moot. The Register of Deeds of Tagaytay City then canceled TCT Nos. T-25626, T-25627, T-25628, T-25688, T-25689, T-25690 and T[3] 27390. TCT Nos. T-25688, T-25689, T-25690 and T-27390 were derivative titles already in the name of Meycauayan. On 5 April 1999, the Roxas heirs filed a Motion for Issuance of Writ of Possession with the land registration court. On 20 April 1999, Meycauayan filed a Complaint for reconveyance, damages and quieting of title with the trial court entitled Meycauayan Central Realty Corp. v. Heirs of Manuel A. Roxas and Trinidad de Leon Vda. de Roxas, Maguesun Management and [4] Development Corp., Register of Deeds of Tagaytay City, City Assessor of Tagaytay City and Land Registration Authority. The Complaint is almost an exact reproduction of the Petition for Intervention filed by Meycauayan before this Court. The Complaint prayed for judgment: 1. Ordering the defendants Land Registration Authority and the Register of Deeds of Tagaytay City to cancel the titles and decree of registration they issued in lieu of TCT Nos. 25688, 25689, 25690 and 27390 registered in the name of plaintiff Meycauayan Central Realty Corporation and reconvey said properties to the plaintiff corporation by reinstating the said cancelled titles or if the same not be possible, cause the issuance of new decrees and titles thereto; 2. Ordering the defendant City Assessor of Tagaytay City to reinstate the Assessments for real estate taxes it previously cancelled covering the properties of plaintiff; 3. Ordering the defendants Roxas and Maguesun to jointly and solidarily pay the plaintiff actual and/or compensatory damages in the total amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00); 4. Ordering the defendants Roxas and Maguesun to jointly and solidarily pay the plaintiff the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) as and by way of nominal damages;

5. Ordering the defendants Roxas and Maguesun to jointly and solidarily pay the plaintiff exemplary damages in the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00); 6. Ordering the defendants Roxas and Maguesun to jointly and solidarily pay the plaintiff Attorneys fees in the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00); and [5] 7. Ordering the defendants Roxas and Maguesun to jointly and solidarily pay the plaintiff the costs of suit. On 6 May 1999, Meycauayan filed a Special Appearance Questioning Court Jurisdiction and Opposition to the Motion for Issuance of Writ of Possession Against Meycauayan Central Realty Corporation with the land registration court. On 2 September 1999, the land registration court issued an order, the dispositive portion of which reads: WHEREFORE, in the light of the foregoing, let a Writ of Possession be issued against Maguesun Management and Development Corporation in these cases. However, insofar as Meycauayan Central Realty is concerned, let a resolution of the motion filed by the movants herein be deferred until the Supreme Court had resolved with finality the petition for contempt of herein movant in G.R. No. 138660. On 7 March 2000, the trial court dismissed for lack of merit Meycauayans complaint for reconveyance, damages and quieting of title. The trial court held that (1) the nullity of OCT No. 0-515, which is the source of Meycauayans titles, is now res judicata; (2) the complaints prayer for the trial court to annul the decision of the Supreme Court in G.R. No. 118436 is beyond the trial courts [6] jurisdiction; and (3) Meycauayan is guilty of forum shopping. The trial court likewise denied Meycauayans Motion for [7] Reconsideration in an Order dated 20 June 2000. On 24 August 2000, Meycauayan filed a petition for certiorari under Rule 65 of the Rules of Court with the Court of Appeals assailing the trial courts dismissal of the complaint. Meanwhile, the Roxas heirs filed on 2 June 1999 this petition to cite for indirect contempt the officers of Meycauayan. The Issues The parties raised the following issues: 1. Whether this Courts Decision and Resolution in G.R. No. 118436 bind Meycauayan; 2. Whether Meycauayans act of filing with the trial court a complaint for reconveyance, damages and quieting of title involving parcels of land, which were the subject of this Courts Decision and Resolution in G.R. No. 118436, constitutes indirect contempt under Section 3, Rule 71 of the Rules of Civil Procedure; and 3. Whether Meycauayan is guilty of forum shopping. The Courts Ruling The petition is meritorious. We find Meycauayans Executive Vice-President Juan M. Lamson, Jr. guilty of indirect contempt. We also find that Meycauayan committed forum shopping, and thus Meycauayan and its Executive Vice President Juan M. Lamson, Jr. are guilty of direct contempt. The Roxas heirs allege that the following acts of Meycauayan constitute indirect contempt under Section 3, Rule 71 of the Rules of Civil Procedure: (1)Meycauayans defiance of the final and executory Decision and Resolution of this Court in G.R. No. 118436; (2) its act of filing pleadings before the land registration court to prevent execution of the Decision and Resolution; (3) its act of filing a Complaint raising the same issues in its Petition for Intervention which this Court had already denied and urging the trial court to ignore and countermand the orders of this Court. On the other hand, Meycauayan alleges that the Decision in G.R. No. 118436 does not bind Meycauayan because it was not a party in the case. According to Meycauayan, the Decision in G.R. No. 118436 may be enforced against Maguesun but not against Meycauayan which is a stranger to the case. Meycauayan insists that as a purchaser in good faith and for value its rights cannot be prejudiced by the alleged fraudulent acquisition by Maguesun of the subject properties. Meycauayan, therefore, is not liable for contempt of court for filing an action for reconveyance, quieting of title and damages. The issue of whether the Decision in G.R. No. 118436 binds Meycauayan was already addressed by this Court when it denied Meycauayans Petition for Intervention. Furthermore, this Courts Resolution dated 29 July 1998 clarified the Decision dated 21 March 1997 by ordering the Register of Deeds to CANCEL OCT No. 0-515 and all its derivative titles, namely, TCT Nos. T-25625, T25626, T-25627, T-25628, T-25688, T-25689, and T-25690, the latter three already in the name of Meycauayan Realty and Development Corporation (also designated as Meycauayan Central Realty, Inc. and Meycauayan Realty Corporation). This Court also found that there had been no intervening rights of an innocent purchaser for value involving the lots in dispute. Indirect Contempt Meycauayans obstinate refusal to abide by the Courts Decision in G.R. No. 118436 has no basis in view of this Courts clear pronouncement to the contrary. The fact that this Court specifically ordered the cancelation of Meycauayans titles to the disputed parcels of land in the Resolution dated 29 July 1998 should have laid to rest the issue of whether the Decision and Resolution in G.R. No. 118436 is binding on Meycauayan. Clearly, Meycauayans defiance of this Courts Decision and Resolution by filing an action for reconveyance, quieting of title and damages involving the same parcels of land which this Court already decided with finality constitutes indirect contempt under Section 3(d), Rule 71 of the Rules of Civil Procedure. Section 3(d) of Rule 71 reads: SEC. 3. Indirect contempt to be punished after charge and hearing. After a charge in writing has been filed, and an opportunity given to the respondent to comment thereon within such period as may be fixed by the court and to be heard by himself or counsel, a person guilty of any of the following acts may be punished for indirect contempt: xxx (d) Any improper conduct tending, directly or indirectly, to impede, obstruct, or degrade the administration of justice; [8] In Halili, et al. v. CIR, et al., this Court explained the concept of contempt of court: Contempt of court is a defiance of the authority, justice or dignity of the court; such conduct as tends to bring the authority and administration of the law into disrespect or to interfere with or prejudice parties litigant or their witnesses during litigation (12 Am. Jur. 389, cited in 14 SCRA 813). Contempt of court is defined as a disobedience to the Court by acting in opposition to its authority, justice and dignity. It signifies not only a willful disregard or disobedience of the courts orders, but such conduct as tends to bring the authority of the court and the administration of law into disrepute or in some manner to impede the due administration of justice (17 C.J.S. 4). This Court has thus repeatedly declared that the power to punish for contempt is inherent in all courts and is essential to the preservation of order in judicial proceedings and to the enforcement of judgments, orders, and mandates of the court, and consequently, to the due administration of justice (Slade Perkins vs. Director of Prisons, 58 Phil. 271; In re Kelly, 35 Phil. 944; Commissioner of Immigration vs. Cloribel, 20 SCRA 1241; Montalban vs. Canonoy, 38 SCRA 1).

Meycauayans continuing resistance to this Courts judgment is an affront to the Court and to the sovereign dignity with which it is [9] clothed. Meycauayans persistent attempts to raise issues long since laid to rest by a final and executory judgment of no less than the highest tribunal of the land constitute contumacious defiance of the authority of this Court and impede the speedy [10] administration of justice. Well-settled is the rule that when a court of competent jurisdiction has tried and decided a right or fact, so long as the decision [11] remains unreversed, it is conclusive on the parties and those in privity with them. More so where the Supreme Court has already [12] decided the issue since the Court is the final arbiter of all justiciable controversies properly brought before it. As held in Buaya v. [13] Stronghold Insurance Co., Inc.: x x x An existing final judgment or decree rendered upon the merits, without fraud or collusion, by a court of competent jurisdiction acting upon a matter within its authority is conclusive of the rights of the parties and their privies. This ruling holds in all other actions or suits, in the same or any other judicial tribunal of concurrent jurisdiction, touching on the points or matters in issue in the first suit. xxx Courts will simply refuse to reopen what has been decided. They will not allow the same parties or their privies to litigate anew a question, once it has been considered and decided with finality. Litigations must end and terminate sometime and somewhere. The effective and efficient administration of justice requires that once a judgment has become final, the prevailing party should not be deprived of the fruits of the verdict by subsequent suits on the same issues filed by the same parties. This is in accordance with the doctrine of res judicata which has the following elements: (1) the former judgment must be final; (2) the court which rendered it had jurisdiction over the subject matter and the parties; (3) the judgment must be on the merits; and (4) [14] there must be between the first and the second actions, identity of parties, subject matter and causes of action. The application [15] of the doctrine of res judicata does not require absolute identity of parties but merely substantial identity of parties. There is substantial identity of parties when there is community of interest or privity of interest between a party in the first and a party in [16] the second case even if the first case did not implead the latter. The Court ruled in G.R. No. 118436 that Meycauayans predecessor-in-interest, Maguesun, committed actual fraud in obtaining the decree of registration of the subject properties. The Decision in G.R. No. 118436 binds Meycauayan under the principle of privity of interest since it was a successor-in-interest of Maguesun. Meycauayan, however, insists that it was a purchaser in good faith because it had no knowledge of any pending case involving the lots. Meycauayan claims that the trial court had already canceled the notice of lis pendens on the titles when it purchased the lots from Maguesun. In its Memorandum, Meycauayan stresses that to ensure the authenticity of the titles and the annotations appearing on the titles, particularly the cancelation of the notice of lis [17] pendens, Meycauayan checked with the Register of Deeds and the Regional Trial Court of Tagaytay City. Since Meycauayan checked with the Regional Trial Court of Tagaytay City, Meycauayan then had actual knowledge, before it purchased the lots, of the pending case involving the lots despite the cancelation of the notice of lis pendens on the titles. Furthermore, as found by this Court in G.R. No. 118436, the Roxas family has been in possession of the property uninterruptedly [18] through their caretaker, Jose Ramirez, who resided on the property. Where the land sold is in the possession of a person other than the vendor, the purchaser must go beyond the certificates of title and make inquiries concerning the rights of the actual [19] possessor. Meycauayan therefore cannot invoke the right of a purchaser in good faith and could not have acquired a better right than its predecessor-in-interest. This Court has already rejected Meycauayans claim that it was a purchaser in good faith when it ruled in G.R. No. 118436 that there had been no intervening rights of an innocent purchaser for value involving the lots in dispute. [20] As held in Heirs of Pael v. Court of Appeals: In the case of Santiago Land Development Corporation vs. Court of Appeals (G.R. No. 106194, 276 SCRA 674 [1997]), petitioner maintained that as a purchaser pendente lite of the land in litigation, it had a right to intervene under Rule 12, Section 2. We rejected this position and said that since petitioner is not a stranger to the action between Quisumbing and the PNB, petitioner in fact having stepped into the shoes of PNB in a manner of speaking, it follows that it cannot claim any further right to intervene in the action. As in the instant Petition, it was argued that the denial of the Motion to Intervene would be a denial likewise of due process. But this, too, was struck down in Santiago Land where we held that petitioner is not really denied protection. It is represented in the action by its predecessor in interest. Indeed, since petitioner is a transferee pendente lite with notice of the pending litigation between Reyes and private respondent Carreon, petitioner stands exactly in the shoes of Reyes and is bound by any judgment or decree which may be rendered for or against the latter. Indeed, one who buys property with full knowledge of the flaws and defects of the title of his vendor and of a pending litigation over [21] the property gambles on the result of the litigation and is bound by the outcome of his indifference. A purchaser cannot close his eyes to facts which should put a reasonable man on guard and then claim that he acted in good faith believing that there was no [22] defect in the title of the vendor. For the penalty for indirect contempt, Section 7 of Rule 71 of the Rules of Court provides: SEC. 7. Punishment for indirect contempt. If the respondent is adjudged guilty of indirect contempt committed against a Regional Trial Court or a court of equivalent or higher rank, he may be punished by a fine not exceeding thirty thousand pesos or imprisonment not exceeding six (6) months or both. x x x In this case, Meycauayan Executive Vice President Juan M. Lamson, Jr. caused the preparation and the filing of the Petition for [23] Intervention in G.R. No. 118436 and the Complaint for Reconveyance, Damages and Quieting of Title with the trial court. Juan M. Lamson, Jr. signed the verification and certification of non-forum shopping for the Petition for Intervention and the Complaint for Reconveyance, Damages and Quieting of Title. Even though a judgment, decree, or order is addressed to the corporation only, the officers, as well as the corporation itself, may be punished for contempt for disobedience to its terms, at least if they knowingly [24] disobey the courts mandate, since a lawful judicial command to a corporation is in effect a command to the officers. Thus, for improper conduct tending to impede the orderly administration of justice, Meycauayan Executive Vice President Juan M. Lamson, Jr. [25] should be fined ten thousand pesos (P10,000). Direct Contempt Meycauayans act of filing a Complaint for Reconveyance, Quieting of Title and Damages raising the same issues in its Petition for Intervention, which this Court had already denied, also constitutes forum shopping. Forum shopping is the act of a party against whom an adverse judgment has been rendered in one forum, seeking another and possibly favorable opinion in another forum other than by appeal or special civil action of certiorari. There is also forum shopping when a party institutes two or more actions [26] based on the same cause on the expectation that one or the other court might look with favor on the party.

In this case, the Court had already rejected Meycauayans claim on the subject lots when the Court denied Meycauayans Petition for Intervention in G.R. No. 118436. The Court ruled that there had been no intervening rights of an innocent purchaser for value involving the lots in dispute. The Decision of this Court in G.R. No. 118436 is already final and executory. The filing by Meycauayan of an action to re-litigate the title to the same property, which this Court had already adjudicated with finality, is an abuse of the courts processes and constitutes direct contempt. Section 5 of Rule 7 of the Rules of Court provides that if the acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the same shall be a ground for summary dismissal with prejudice and shall constitute direct contempt, as well as a cause for administrative sanctions. The fact that Meycauayan did mention in its certification of non-forum shopping its attempt to [27] intervene in G.R. No. 118436, which this Court denied, does not negate the existence of forum shopping. This disclosure does not exculpate Meycauayan for deliberately seeking a friendlier forum for its case and re-litigating an issue which this Court had already [28] decided with finality. The general rule is that a corporation and its officers and agents may be held liable for contempt. A corporation and those who are officially responsible for the conduct of its affairs may be punished for contempt in disobeying judgments, decrees, or orders of a [29] court made in a case within its jurisdiction. Under Section 1 of Rule 71 of the Rules of Court, direct contempt is punishable by a fine not exceeding two thousand pesos (P2,000) or imprisonment not exceeding ten (10) days, or both, if committed against a Regional Trial Court or a court of equivalent or higher [30] rank. Hence, Meycauayan and its Executive Vice President Juan M. Lamson, Jr. are each fined P2,000 for direct contempt of court for forum shopping. WHEREFORE, we find Meycauayan Central Realty Corporations Executive Vice President Juan M. Lamson, Jr. GUILTY of INDIRECT CONTEMPT and FINE him TEN THOUSAND PESOS (P10,000). Furthermore, we find Meycauayan Central Realty Corporation and its Executive Vice President Juan M. Lamson, Jr. GUILTY of DIRECT CONTEMPT for forum shopping and FINE them TWO THOUSAND PESOS (P2,000) each. The Court warns them that a repetition of the same or similar offense shall merit a more severe penalty.

THE HEIRS OF THE LATE PANFILO V. PAJARILLO, Petitioners, vs. THE HON. COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION and SAMAHAN NG MGA MANGGAGAWA NG PANFILO V. PAJARILLO, ALFREDO HOYOHOY, HERMINIO CASTILLO, BERNARDO ROCO, RODOLFO TORRES, JULIAN JORVINA, LOURDES ROCO, FLORITA YAPOC, MARLON ALDANA, PARALUMAN ULANG, TOLENTINO SANHI, JOHNNY SORIANO, ANDRES CALAQUE, ROBERTO LAVAREZ, FRANCISCO MORALES, SALVACION PERINA, ANTONIO ABALA, ROMEO SALONGA, AUGUR M. MANIPOL, BIENVENIDA TEQUIL, MARIO ELEP, ALADINO LATIGO, BERNARDINE BANSAL, PEDRO DE BAGUIO, RICARDO CALICA, LAURA CO, VICENTE RECANA, ELENA TOLLEDO, ALFREDO PLAZA, SR., HERMINIO BALDONO, FELIPE YAPOC, ARISTON NIPA, and ALFONSO C. BALDOMAR, Respondents. DECISION CHICO-NAZARIO, J.: 1 In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, petitioners, heirs of Panfilo V. Pajarillo, seek to set aside 2 3 the Decision, and Resolution, dated 12 March 2002 and 28 August 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 4 54330 and CA-G.R. SP No. 54331, reversing the two Per Curiam Orders dated 28 October 1996 and 10 January 1997, of the National Labor Relations Commission (NLRC) in NLRC NCR Cases No. 08-03013-87 and 01-00331-88. Stripped of the non-essentials, the facts are as follows: Panfilo V. Pajarillo (Panfilo) was the owner and operator of several buses plying certain routes in Metro Manila. He used the name "PVP Liner" in his buses. Private respondents were employed as drivers, conductors and conductresses by Panfilo. During their employment with Panfilo, private respondents worked at least four times a week or for an average of fifteen working days per month. They were required to observe a work schedule starting from 4:00 in the morning up to 10:00 in the evening on a straight time basis. Private respondent drivers were paid a daily commission of 10%, while private respondent conductors and conductresses received a daily commission of 7%. In sum, each of the private respondents earned an average daily commission of about P150.00 a day. They were not given emergency cost of living allowance (ECOLA), 13th month pay, legal holiday pay and 5 service incentive leave pay. The following were deducted from the private respondents daily commissions: (a) costs of washing the assigned buses; (b) terminal fees; (c) fees for sweeping the assigned buses; (d) fees paid to the barangay tanod at bus terminals; and (e) rental fees for the use of 6 stereo in the assigned buses. Any employee who refused such deductions were either barred from working or dismissed from work. Thereafter, private respondents and several co-employees formed a union called "SAMAHAN NG MGA MANGGAGAWA NG PANFILO V. PAJARILLO" (respondent union). The Department of Labor and Employment (DOLE) issued a Certificate of Registration in favor of 7 the respondent union. Upon learning of the formation of respondent union, Panfilo and his children ordered some of the private respondents to sign a document affirming their trust and confidence in Panfilo and denying any irregularities on his part. Other private respondents were directed to sign a blank document which turned out to be a resignation letter. Private respondents refused to sign the said documents, hence, they were barred from working or were dismissed without hearing and notice. Panfilo and his children and 8 relatives also formed a company union where they acted as its directors and officers. On 25 August 1987, respondent union and several employees filed a Complaint for unfair labor practice and illegal deduction before the Labor Arbiter with "Panfilo V. Pajarillo Liner" as party-respondent. This was docketed as NLRC/NCR Case No. 00-08-030139 87. On 28 September 1987, the respondent union filed an Amended Complaint alleging this time not only unfair labor practice and 10 illegal deduction but also illegal dismissal. On 20 January 1988, respondent union and several employees filed another Complaint for violation of labor standard laws claiming non-payment of (1) ECOLA, (2) 13th month pay, (3) overtime pay, (4) legal holiday pay, (5) premium pay, and (6) service incentive leave. The party-respondents in this complaint were "PVP LINER INC. and PANFILO V. PAJARILLO, as its General Manager/Operator." 11 This was docketed as NLRC Case No. 00-01-00331-88. Notifications and summons with respect to NLRC/NCR Case No. 00-08-03013-87 were addressed and sent to "PANFILO V. PAJARILLO, President/Manager, Panfilo V. Pajarillo Liner, Pasig Line St., Sta. Ana, Manila" on 31 August 1987. The Registry Return Receipt dated 4 September 1987 was addressed to Panfilo V. Pajarillo, and a signature therein appears on top of the signature of the name of the 12 addressee. With regard to NLRC Case No. 00-01-00331-88, notifications and summonses were addressed and sent to "THE PRESIDENT/MANAGER, PVP Liner Inc. and Panfilo V. Pajarillo, 2175 Zamora Street, Sta. Ana, Manila" on 25 January 1988. The Registry Return Receipt dated 4 February 1988 was addressed to "PVP Liner Inc." and was signed by a certain "Irene G. Pajarillo" as 13 the addressees agent. Panfilo denied the charges in the complaints. He maintained that private respondents were not dismissed from work on account of their union activities; that private respondents and several of their co-employees either resigned or were separated from work, or simply abandoned their employment long before the respondent union was organized and registered with the DOLE; that the private respondents are not entitled to ECOLA and 13th month pay because they received wages above the minimum provided by law; that the private respondents are not entitled to overtime and legal holiday pay because these are already included in their daily commissions; that the private respondents are not entitled to five days incentive leave pay because they work only four days a week; that no deductions were made in the daily commissions of the private respondents; that the private respondents voluntarily and directly paid certain individuals for barangay protection and for the cleaning of the assigned buses; that he had no participation in these activities/arrangements; that the private respondents were not dismissed from work; and that the private respondents 14 either abandoned their jobs or voluntarily resigned from work. Upon motion of Panfilo, the complaints in NLRC/NCR Case No. 00-08-03013-87 and NLRC Case No. 00-01-00331-88 were 15 16 consolidated. On 29 January 1991, Panfilo died. After hearing and submission by both parties of their respective position papers and memoranda, Labor Arbiter Manuel P. Asuncion 17 (Arbiter Asuncion) rendered a Decision dated 28 December 1992, dismissing the consolidated complaints for lack of merit. Thus: IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS, the complaint should be as it is hereby dismissed for lack of merit. Respondent union appealed to the NLRC. On 18 June 1996, the NLRC reversed the decision of Arbiter Asuncion and ordered the reinstatement of, and payment of backwages, ECOLA, 13th month pay, legal holiday pay and service incentive leave pay to, private 18 respondents. The dispositive portion of the NLRC decision reads: Wherefore, the appealed decision is hereby set aside. Accordingly, judgment is hereby rendered directing:

(1) The respondent, PVP Liner, Inc. to reinstate to their former positions, without loss of seniority rights and other benefits, the following complainants: Alfredo [Hoyohoy], Bernardo Roco, Rodolfo Torres, Julian Jorvina, Florita Yapoc, Marlon Aldana, Paraluman Ulang, Tolentino Sanhi, Johnny Soriano, Andres Calaque, Roberto Lavarez, Francisco Morales, Salvacion Perina, Antonio Abala, Alfonso Baldomar, Jr., Romeo Salonga, Augur Manipol, Bienvenida Tequil, Mario Elep, Aladino Latigo, Bernardine Bansal, Pedro de Baguio, Ricardo Calica, Laura Co, Vicente Recana, Elena Tolledo, Alfredo Plaza, Sr., Herminio Baldono, Felioe Yapoc, Ariston Nipa and Herminia Castillo and to pay them their backwages corresponding to a period of three (3) years without qualifications and deductions; (2) The same respondent PVP Liner, Inc. to pay amounts to be computed in a hearing called for said purpose by the Arbitration Branch of Origin, the aforesaid complainants their claims for emergency cost of living allowance (ECOLA), 13th month pay, legal holiday pay and service incentive leave benefits subject to the three-year prescriptive period provided under Article 291 of the Labor Code, as amended; (3) The dismissal of the claims on alleged illegal deductions of the respondents for lack of merits; and (4) The dismissal of the case of Lourdes Roco due to prescription. All other claims of the complainants and the respondents are likewise DISMISSED, for being without merit. The Arbitration Branch of Origin is hereby directed to enforce this decision. Panfilos counsel filed a motion for reconsideration which was partially granted by the NLRC in its Order dated 28 October 1996, to wit: Dictated, however, by the imperatives of due process, we find it more judicious to just remand this case for further hearing on key questions of: 1) whether or not PVP Liner Inc. was properly impleaded as party respondent in the consolidated cases below; 2) whether or not summons was properly served on said corporation below; and 3) whether or not the subject cases can be considered as principally money claims which have to be litigated in intestate/testate proceedings involving the estate of the late Panfilo V. Pajarillo. WHEREFORE, our decision dated June 18, 1996 is hereby set aside. Let this case be remanded to the NCR Arbitration Branch for 19 further hearing on the questions above-mentioned. Respondent union filed a motion for reconsideration of the above-stated Order, but this was denied by the NLRC in its Order dated 20 10 January 1997. Thus, respondent union filed a Petition for Certiorari under Rule 65 before this Court. Pursuant, however, to our 21 ruling in St. Martin Funeral Home v. National Labor Relations Commission, we remanded the petition to the Court of Appeals for proper disposition. On 12 March 2002, the Court of Appeals rendered a Decision granting the respondent unions petition and nullifying the Orders 22 dated 28 October 1996 and 10 January 1997 of the NLRC. It also reinstated the Decision dated 18 June 1986 of the NLRC. The appellate court decreed: WHEREFORE, premises considered, the PETITION FOR CERTIORARI is hereby GRANTED. Accordingly, the Order dated October 28 1996 and January 10, 1997 of the NLRC are hereby NULLIFIED and its Decision dated 18 June 1986 be REINSTATED. Panfilos counsel filed a motion for reconsideration of the said decision but this was denied by the appellate court in its Resolution 23 dated 28 August 2002. Herein petitioners, as heirs of Panfilo, filed the instant petition before this Court assigning the following errors: I. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ARRIVING AT THE CONCLUSION THAT PVP LINER INC. WAS PROPERLY MISPLEADED, WHICH IS A NON-EXISTING CORPORATION. II. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT CONSIDERING THAT THERE WAS NO PROPER AND EFFECTIVE SERVICE OF SUMMONS. III. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN PIERCING THE VEIL OF CORPORATE ENTITY OF PVP PAJARILLO LINER INC. IV. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN REINSTATING THE ORDER OF THE NLRC DATED JUNE 18, 1996, WHICH 24 DECLARED THAT PRIVATE RESPONDENTS WERE ILLEGALLY DISMISSED. Anent the first issue, petitioners alleged that the Decision dated 18 June 1996 of the NLRC, ordered PVP Liner Inc. to reinstate private respondents and pay their backwages, ECOLA, 13th month pay, legal holiday pay and service incentive leave pay; that there was no such entity as PVP Liner Inc. organized and existing in the Philippines; that it was not possible for Arbiter Asuncion and the NLRC to acquire jurisdiction over a non-existing company; that there can never be a service of summons or notice to a non-existent entity; that the true employer of private respondents was Panfilo as the sole proprietor/operator of passenger buses doing business under the tradename, PVP Liner, and not PVP Liner Inc. which was non-existent; that Panfilo never used PVP Liner Inc. as his tradename; that the present operator of PVP Liner buses is P.V. PAJARILLO LINER, a corporation duly registered with the Securities and Exchange Commission; that at the time the instant case was filed before Arbiter Asuncion in 1987, the latter did not have jurisdiction over P.V. PAJARILLO LINER because it was organized and duly registered only on 22 January 1990; that P.V. PAJARILLO LINER has a separate and distinct personality from Panfilo as the sole operator of PVP Liner buses; that, therefore, P.V. PAJARILLO LINER cannot be made a party or impleaded in the present case; that the amended complaint in NLRC/NCR Case No. 00-08-03013-87 impleaded as party-respondent "PANFILO V. PAJARILLO LINER and PANFILO V. PAJARILLO, as operator and responsible officer"; that PVP Liner Inc. was not impleaded in the instant case; and that no summons was ever served on PVP Liner Inc. in NLRC/NCR Case No. 25 00-08-03013-87. The contentions are bereft of merit. In the Complaint dated 20 January 1988, PVP Liner Inc. and Panfilo were impleaded as party-respondents, thus: That respondent PVP Liner, Inc., is a private business entity, engaged in transportation of passengers, duly organized and existing pursuant to law and for this purpose maintains its principal office at 2175, Zamora Street, Sta. Ana, Manila; while individual respondent [Panfilo] is the General Manager/Operator and may be served with summons, notices and other processes at the 26 aforementioned principal office. Panfilo did not question in his position paper or in his motion for consolidation of the complaints the foregoing allegations. Neither did he assail the inclusion of PVP Liner Inc. as party-respondent in respondent unions position paper dated 6 June 1988.

In Panfilos position paper as well as in the records of the proceedings before Arbiter Asuncion, there is nothing that shows that Panfilo challenged the jurisdiction of Arbiter Asuncion over PVP Liner Inc. When Arbiter Asuncion decided in favor of Panfilo, the latter said nothing about the inclusion of PVP Liner Inc. as party respondent and the lack of jurisdiction of Arbiter Asuncion over the same. It was only when the NLRC rendered a Decision adverse to Panfilo that the latter alleged the non-existence of PVP Liner Inc. and the fact that Arbiter Asuncion and the NLRC had no jurisdiction over it. Petitioners are now precluded from questioning the inclusion of PVP Liner Inc. as party-respondent as well as the jurisdiction of Arbiter Asuncion and the NLRC over them under the principle of estoppel. It is settled that the active participation of a party against whom the action was brought, coupled with his failure to object to the jurisdiction of the court or quasi-judicial body where the action is pending, is tantamount to an invocation of that jurisdiction and a willingness to abide by the resolution of the case and will 27 bar said party from later on impugning the court or bodys jurisdiction. This Court has time and again frowned upon the undesirable practice of a party submitting his case for decision and then accepting the judgment only if favorable, and attacking it 28 for lack of jurisdiction when adverse. It is apparent that Panfilo V. Pajarillo Liner and PVP Liner Inc. are one and the same entity belonging to one and the same person, Panfilo. When PVP Liner Inc. and Panfilo V. Pajarillo Liner were impleaded as party-respondents, it was Panfilo, through counsel, who answered the complaints and filed the position papers, motions for reconsideration and appeals. It was also Panfilo, through counsel, who participated in the hearings and proceedings. In fact, Abel Pajarillo (Abel), son of Panfilo, testified before Arbiter 29 Asuncion that he was the operations manager of PVP Liner Inc. Further, both Panfilo and PVP Liner Inc. were charged jointly and severally in the aforesaid complaints. Apropos the second issue, petitioners alleged that the notices and summons were received by a certain Irene G. Pajarillo (Irene) for and in behalf of the PVP Liner Inc.; that Irene was neither and could not have been the President/Manager of PVP Liner Inc., the 30 latter being non-existent; and that Irene was not an officer of P.V. Pajarillo Liner. Sections 4 and 5 of Rule IV of the Revised Rules of Procedure of the NLRC provides the rule for the service of summonses and notices in NLRC cases, viz: Sec. 4. Service of notices and resolutions. a) Notices or summons and copies of orders, resolutions or decisions shall be served personally by the bailiff or the duly authorized public officer or by registered mail on the parties to the case within five (5) days from receipt thereof by the serving officer. Sec. 5. Proof and completeness of service. The return is prima facie proof of the facts indicated therein. Service by registered mail 31 is complete upon receipt by the addressee or his agent. Records show that Irene received the summons for NLRC Case No. 00-01-00331-88 on 4 February 1988 in behalf of PVP Liner Inc. These summonses were addressed and sent to "THE PRESIDENT/MANAGER, PVP Liner Inc. and Panfilo V. Pajarillo, 2175 Zamora Street, Sta. Ana, Manila" on 25 January 1988. The Registry Return Receipt dated 4 February 1988 was addressed to "PVP Liner Inc." 32 and was signed by Irene as the addressees agent. Abel, one of the heirs of Panfilo and the Operations Manager of PVP Liner Inc., 33 testified during the hearing before Arbiter Asuncion that Irene was one of the secretaries of PVP Liner Inc. Hence, there was a valid service of summons. Regarding the third issue, petitioners posited that P.V. Pajarillo Liner Inc. is an independent corporation and cannot be considered as an adjunct or extension of Panfilo as the sole operator of PVP Liner buses; and that at the time P.V. Pajarillo Liner Inc. was 34 established, it had no liability or obligation which it tried to shield or circumvent. It is a fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. However, this separate and distinct personality of a corporation is merely a fiction created by law for convenience and to promote justice. Hence, when the notion of separate juridical personality is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat labor laws, this separate personality of the corporation may be disregarded or the veil of the corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation. The corporate mask may be lifted and 35 the corporate veil may be pierced when a corporation is but the alter ego of a person or another corporation. It is apparent that Panfilo started his transportation business as the sole owner and operator of passenger buses utilizing the name PVP Liner for his buses. After being charged by respondent union of unfair labor practice, illegal deductions, illegal dismissal and violation of labor standard laws, Panfilo transformed his transportation business into a family corporation, namely, P.V. Pajarillo Liner Inc. He and petitioners were the incorporators, stockholders and officers therein. P.V. Pajarillo Inc. and the sole proprietorship of Panfilo have the same business address. P.V. Pajarillo Inc. also uses the name "PVP Liner" in its buses. Further, the license to operate or franchise of the sole proprietorship was merely transferred to P.V. Pajarillo Liner Inc. The testimony of Abel during the hearing before Arbiter Asuncion is revealing, thus: Q: Mr. Pajarillo, when did you start assuming the functions of operations manager of PVP Liner? A: Seven years from now, sometime in the year 1984 or 1985, sir. Q: Do you have any written appointment as Operations Manager? A: No, sir. Q: I noticed that your surname is Pajarillo you are one way or another related to Mr. Panfilo V. Pajarillo, is that correct? Witness: A: I am the son of Panfilo Pajarillo, sir. Q: In so far as PVP Liner is concerned and being the operations manager, are you aware if it is a single proprietor or a corporation? A: At the start it was a single proprietorship, lately, it has become a family corporation. Atty. Flores, Jr. (to witness) Q: When you became the Operations Manager of PVP Liner, is it a single proprietor or a family Corporation? A: It was a single proprietorship. Q: Mr. Witness, since PVP Liner is a transportation business it has a license to operate these buses? A: Yes, there is, sir. Atty. Flores, Jr. (to witness) Q: In whose name was it registered? A: Before it was with my father Panfilo V. Pajarillo, sir. Q: Do I understand that the licensing of this transportation company was transferred to another person? 36 A: It was never transferred to another person, except now, that it has been transferred to a corporation.

It is clear from the foregoing that P.V. Pajarillo Liner Inc. was a mere continuation and successor of the sole proprietorship of Panfilo. It is also quite obvious that Panfilo transformed his sole proprietorship into a family corporation in a surreptitious attempt to evade the charges of respondent union. Given these considerations, Panfilo and P.V. Pajarillo Liner Inc. should be treated as one and the 37 same person for purposes of liability. Finally, petitioners averred that no unfair labor practice was committed, and that private respondents were not illegally dismissed from work. In its Decision dated 18 June 1996, the NLRC made an exhaustive discussion of the allegations and evidence of both parties as regards unfair labor practice and illegal dismissal. It concluded that private respondents, officers and members of respondent union were dismissed by reason of their union activities and that there was no compliance with substantial and procedural due process in terminating their services. It also held that the private respondents who were not members of the respondent union were also dismissed without just or valid cause, and that they were denied due process. These factual findings and conclusions were supported by substantial evidence comprised of affidavits, sworn statements, testimonies of witnesses during hearings before Arbiter Asuncion, and other documentary evidence. These findings were sustained by the Court of Appeals. The rule is that findings of fact of quasi-judicial agencies like the NLRC are accorded by this Court not only respect but even finality if they are supported by substantial evidence, or that amount of relevant evidence which a reasonable mind might accept as adequate 38 to justify a conclusion. We find no compelling reason to deviate from such findings of the NLRC as affirmed by the Court of Appeals. Consequently, the private respondents are entitled to reinstatement, backwages and other privileges and benefits under Article 279 of the Labor Code. Separation pay may be given in lieu of reinstatement if the employee concerned occupies a position of trust and confidence. In the case at bar, however, the private respondents, as former bus drivers, conductors and conductresses of 39 petitioners, do not hold the position of trust and confidence. Nonetheless, it appears from the records that some of the private respondents, namely, Augur Manipol, Rodolfo Torres, Ricardo Calica, Paraluman Ulang, Edith Chua, Alfredo Hoyohoy, Johnny Soriano, Bernardo Roco, Tolentino Sanhi, Salvacion Perina, Pedro L. de Baguio, Ariston Nipa, Felipe Yapoc, Laura Co, Bienvenida Tequil, Roberto Lavarez, Francisco Morales and Herminio Castillo, had executed a Quitclaim/Release discharging petitioners "from any and all claims by way of unpaid wages, separation pay, overtime 40 pay, differential pay, ECOLA, 13th month pay, holiday pay, service incentive leave pay or otherwise." Generally, deeds of release, waivers, or quitclaims cannot bar employees from demanding benefits to which they are legally entitled or from contesting the legality of their dismissal, since quitclaims are looked upon with disfavor and are frowned upon as contrary to public policy. Where, however, the person making the waiver has done so voluntarily, with a full understanding thereof, and the consideration for the quitclaim is credible and reasonable, the transaction must be recognized as being a valid and binding 41 undertaking. There is no showing that the executions of these quitclaims were tainted with deceit or coercion. On the contrary, each of the private respondents Sinumpaang Salaysay, which accompanied the quitclaims, evinces voluntariness and full understanding of the execution and consequence of the quitclaim. In their said Sinumpaang Salaysay, the private respondents stated that their lawyer had extensively explained to them the computation and the actual amount of consideration they would receive; that they were not 42 forced or tricked by their lawyer in accepting the same; and that they already received the amount of consideration. Further, the considerations received by the private respondents were credible and reasonable because they were not grossly 43 disproportionate to the computation by the NLRC of the amount of backwages and other money claims. Given these circumstances, the quitclaims should be considered as binding on the private respondents who executed them. It is settled that a legitimate waiver which represents a voluntary and reasonable settlement of a workers claim should be respected as 44 the law between the parties. Accordingly, the private respondents who made such quitclaims are already precluded from claiming TH reinstatement, backwages, ECOLA, 13 month pay, legal holiday pay, service incentive leave pay, and other monetary claims. With regard to the other private respondents who did not execute such quitclaims, they are entitled to reinstatement, backwages, TH ECOLA, 13 month pay, legal holiday pay and service incentive leave pay in accordance with the computation of the NLRC. WHEREFORE, the petition is hereby DENIED. The Decision and Resolution dated 12 March 2002 and 28 August 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 54330 and CA-G.R. SP No. 54331, are hereby AFFIRMED with the following MODIFICATIONS: (1) Private respondents Augur Manipol, Rodolfo M. Torres, Ricardo Calica, Paraluman Ulang, Edith Chua, Alfredo Hoyohoy, Johnny Soriano, Bernardo Roco, Tolentino Sanhi, Salvacion Perina, Pedro L. de Baguio, Ariston Nipa, Felipe Yapoc, Laura Co, Bienvenida Tequil, Roberto Lavarez, Francisco Morales and Herminio Castillo are hereby precluded from claiming reinstatement, backwages, TH ECOLA, 13 month pay, legal holiday pay and service incentive leave pay by reason of their respective quitclaims; (2) Petitioners are hereby ordered to reinstate private respondents Julian Jorvina, Florita Yapoc, Marlon Aldana, Andres Calaque, Antonio Abala, Alfonso Baldomar, Romeo Salonga, Mario Elep, Aladino Latigo, Bernardine Bansal, Vicente Recana, Elena Tolledo and Alfredo Plaza, Sr., and to pay these respondents backwages from the time of their dismissal up to the finality of this Decision. Petitioners are also TH ordered to pay the foregoing private respondents ECOLA, 13 month pay, legal holiday pay and service incentive leave pay in accordance with the computation of the NLRC. Costs against petitioners. SO ORDERED.

THE HOME INSURANCE COMPANY, petitioner, vs. EASTERN SHIPPING LINES and/or ANGEL JOSE TRANSPORTATION, INC. and HON. A. MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, Branch XVII, respondents. G.R. No. L-34383 July 20, 1983 THE HOME INSURANCE COMPANY, petitioner, vs. N. V. NEDLLOYD LIJNEN; COLUMBIAN PHILIPPINES, INC., and/or GUACODS, INC., and HON. A. MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, Branch XVII, respondents. No. L-34382. Zapa Law Office for petitioner. Bito, Misa & Lozada Law Office for respondents. No. L-34383. Zapa Law Office for petitioner. Ross, Salcedo, Del Rosario, Bito & Misa Law office for respondents. GUTIERREZ, JR., J.: Questioned in these consolidated petitions for review on certiorari are the decisions of the Court of First Instance of Manila, Branch XVII, dismissing the complaints in Civil Case No. 71923 and in Civil Case No. 71694, on the ground that plaintiff therein, now appellant, had failed to prove its capacity to sue. There is no dispute over the facts of these cases for recovery of maritime damages. In L-34382, the facts are found in the decision of the respondent court which stated: On or about January 13, 1967, S. Kajita & Co., on behalf of Atlas Consolidated Mining & Development Corporation, shipped on board the SS "Eastern Jupiter' from Osaka, Japan, 2,361 coils of "Black Hot Rolled Copper Wire Rods." The said VESSEL is owned and operated by defendant Eastern Shipping Lines (CARRIER). The shipment was covered by Bill of Lading No. O-MA-9, with arrival notice to Phelps Dodge Copper Products Corporation of the Philippines (CONSIGNEE) at Manila. The shipment was insured with plaintiff against all risks in the amount of P1,580,105.06 under its Insurance Policy No. AS-73633. xxx xxx xxx The coils discharged from the VESSEL numbered 2,361, of which 53 were in bad order. What the CONSIGNEE ultimately received at its warehouse was the same number of 2,361 coils with 73 coils loose and partly cut, and 28 coils entangled, partly cut, and which had to be considered as scrap. Upon weighing at CONSIGNEE's warehouse, the 2,361 coils were found to weight 263,940.85 kilos as against its invoiced weight of 264,534.00 kilos or a net loss/shortage of 593.15 kilos, according to Exhibit "A", or 1,209,56 lbs., according to the claims presented by the consignee against the plaintiff (Exhibit "D-1"), the CARRIER (Exhibit "J-1"), and the TRANSPORTATION COMPANY (Exhibit "K- l"). For the loss/damage suffered by the cargo, plaintiff paid the consignee under its insurance policy the amount of P3,260.44, by virtue of which plaintiff became subrogated to the rights and actions of the CONSIGNEE. Plaintiff made demands for payment against the CARRIER and the TRANSPORTATION COMPANY for reimbursement of the aforesaid amount but each refused to pay the same. ... The facts of L-34383 are found in the decision of the lower court as follows: On or about December 22, 1966, the Hansa Transport Kontor shipped from Bremen, Germany, 30 packages of Service Parts of Farm Equipment and Implements on board the VESSEL, SS "NEDER RIJN" owned by the defendant, N. V. Nedlloyd Lijnen, and represented in the Philippines by its local agent, the defendant Columbian Philippines, Inc. (CARRIER). The shipment was covered by Bill of Lading No. 22 for transportation to, and delivery at, Manila, in favor of the consignee, international Harvester Macleod, Inc. (CONSIGNEE). The shipment was insured with plaintiff company under its Cargo Policy No. AS-73735 "with average terms" for P98,567.79. xxx xxx xxx The packages discharged from the VESSEL numbered 29, of which seven packages were found to be in bad order. What the CONSIGNEE ultimately received at its warehouse was the same number of 29 packages with 9 packages in bad order. Out of these 9 packages, 1 package was accepted by the CONSIGNEE in good order due to the negligible damages sustained. Upon inspection at the consignee's warehouse, the contents of 3 out of the 8 cases were also found to be complete and intact, leaving 5 cases in bad order. The contents of these 5 packages showed several items missing in the total amount of $131.14; while the contents of the undelivered 1 package were valued at $394.66, or a total of $525.80 or P2,426.98. For the short-delivery of 1 package and the missing items in 5 other packages, plaintiff paid the CONSIGNEE under its Insurance Cargo Policy the amount of P2,426.98, by virtue of which plaintiff became subrogated to the rights and actions of the CONSIGNEE. Demands were made on defendants CARRIER and CONSIGNEE for reimbursement thereof but they failed and refused to pay the same. In both cases, the petitioner-appellant made the following averment regarding its capacity to sue: The plaintiff is a foreign insurance company duly authorized to do business in the Philippines through its agent, Mr. VICTOR H. BELLO, of legal age and with office address at Oledan Building, Ayala Avenue, Makati, Rizal. In L-34382, the respondent-appellee Eastern Shipping Lines, Inc., filed its answer and alleged that it: Denies the allegations of Paragraph I which refer to plaintiff's capacity to sue for lack of knowledge or information sufficient to form a belief as to the truth thereof. Respondent-appellee, Angel Jose Transportation, Inc., in turn filed its answer admitting the allegations of the complaint, regarding the capacity of plaintiff-appellant. The pertinent paragraph of this answer reads as follows: Angel Jose Admits the jurisdictional averments in paragraphs 1, 2, and 3 of the heading Parties. In L-34383, the respondents-appellees N. V. Nedlloyd Lijhen, Columbian Philippines, Inc. and Guacods, Inc., filed their answers. They denied the petitioner-appellant's capacity to sue for lack of knowledge or information sufficient to form a belief as to the truth thereof. As earlier stated, the respondent court dismissed the complaints in the two cases on the same ground, that the plaintiff failed to prove its capacity to sue. The court reasoned as follows: In the opinion of the Court, if plaintiff had the capacity to sue, the Court should hold that a) defendant Eastern Shipping Lines should pay plaintiff the sum of P1,630.22 with interest at the legal rate from January 5, 1968, the date of the institution of the Complaint,

until fully paid; b) defendant Angel Jose Transportation, Inc. should pay plaintiff the sum of P1,630.22 also with interest at the legal rate from January 5, 1968 until fully paid; c) the counterclaim of defendant Angel Jose transportation, Inc. should be ordered dismissed; and d) each defendant to pay one-half of the costs. The Court is of the opinion that Section 68 of the Corporation Law reflects a policy designed to protect the public interest. Hence, although defendants have not raised the question of plaintiff's compliance with that provision of law, the Court has resolved to take the matter into account. A suing foreign corporation, like plaintiff, has to plead affirmatively and prove either that the transaction upon which it bases its complaint is an isolated one, or that it is licensed to transact business in this country, failing which, it will be deemed that it has no valid cause of action (Atlantic Mutual Ins. Co. vs. Cebu Stevedoring Co., Inc., 17 SCRA 1037). In view of the number of cases filed by plaintiff before this Court, of which judicial cognizance can be taken, and under the ruling in Far East International Import and Export Corporation vs. Hankai Koayo Co., 6 SCRA 725, it has to be held that plaintiff is doing business in the Philippines. Consequently, it must have a license under Section 68 of the Corporation Law before it can be allowed to sue. The situation of plaintiff under said Section 68 has been described as follows in Civil Case No. 71923 of this Court, entitled 'Home Insurance Co. vs. N. V. Nedlloyd Lijnen, of which judicial cognizance can also be taken: Exhibit "R",presented by plaintiff is a certified copy of a license, dated July 1, 1967, issued by the Office of the Insurance Commissioner authorizing plaintiff to transact insurance business in this country. By virtue of Section 176 of the Insurance Law, it has to be presumed that a license to transact business under Section 68 of the Corporation Law had previously been issued to plaintiff. No copy thereof, however, was submitted for a reason unknown. The date of that license must not have been much anterior to July 1, 1967. The preponderance of the evidence would therefore call for the finding that the insurance contract involved in this case, which was executed at Makati, Rizal, on February 8, 1967, was contracted before plaintiff was licensed to transact business in the Philippines. This Court views Section 68 of the Corporation Law as reflective of a basic public policy. Hence, it is of the opinion that, in the eyes of Philippine law, the insurance contract involved in this case must be held void under the provisions of Article 1409 (1) of the Civil Code, and could not be validated by subsequent procurement of the license. That view of the Court finds support in the following citation: According to many authorities, a constitutional or statutory prohibition against a foreign corporation doing business in the state, unless such corporation has complied with conditions prescribed, is effective to make the contracts of such corporation void, or at least unenforceable, and prevents the maintenance by the corporation of any action on such contracts. Although the usual construction is to the contrary, and to the effect that only the remedy for enforcement is affected thereby, a statute prohibiting a non-complying corporation from suing in the state courts on any contract has been held by some courts to render the contract void and unenforceable by the corporation, even after its has complied with the statute." (36 Am. Jur. 2d 299-300). xxx xxx xxx The said Civil Case No. 71923 was dismissed by this Court. As the insurance contract involved herein was executed on January 20, 1967, the instant case should also be dismissed. We resolved to consolidate the two cases when we gave due course to the petition. The petitioner raised the following assignments of errors: First Assignment of Error THE HONORABLE TRIAL COURT ERRED IN CONSIDERING AS AN ISSUE THE LEGAL EXISTENCE OR CAPACITY OF PLAINTIFF-APPELLANT. Second Assignment of Error THE HONORABLE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ON THE FINDING THAT PLAINTIFF-APPELLANT HAS NO CAPACITY TO SUE. On the basis of factual and equitable considerations, there is no question that the private respondents should pay the obligations found by the trial court as owing to the petitioner. Only the question of validity of the contracts in relation to lack of capacity to sue stands in the way of the petitioner being given the affirmative relief it seeks. Whether or not the petitioner was engaged in single acts or solitary transactions and not engaged in business is likewise not in issue. The petitioner was engaged in business without a license. The private respondents' obligation to pay under the terms of the contracts has been proved. When the complaints in these two cases were filed, the petitioner had already secured the necessary license to conduct its insurance business in the Philippines. It could already filed suits. Petitioner was, therefore, telling the truth when it averred in its complaints that it was a foreign insurance company duly authorized to do business in the Philippines through its agent Mr. Victor H. Bello. However, when the insurance contracts which formed the basis of these cases were executed, the petitioner had not yet secured the necessary licenses and authority. The lower court, therefore, declared that pursuant to the basic public policy reflected in the Corporation Law, the insurance contracts executed before a license was secured must be held null and void. The court ruled that the contracts could not be validated by the subsequent procurement of the license. The applicable provisions of the old Corporation Law, Act 1459, as amended are: Sec. 68. No foreign corporation or corporations formed, organized, or existing under any laws other than those of the Philippine Islands shall be permitted to transact business in the Philippine Islands until after it shall have obtained a license for that purpose from the chief of the Mercantile Register of the Bureau of Commerce and Industry, (Now Securities and Exchange Commission. See RA 5455) upon order of the Secretary of Finance (Now Monetary Board) in case of banks, savings, and loan banks, trust corporations, and banking institutions of all kinds, and upon order of the Secretary of Commerce and Communications (Now Secretary of Trade. See 5455, section 4 for other requirements) in case of all other foreign corporations. ... xxx xxx xxx Sec. 69. No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippine Islands shall be permitted to transact business in the Philippine Islands or maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in the section immediately preceding. Any officer, director, or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shag be punished by imprisonment for not less than six months nor more than two years or by a fine of not less than two hundred pesos nor more than one thousand pesos, or by both such imprisonment and fine, in the discretion of the court. As early as 1924, this Court ruled in the leading case of Marshall Wells Co. v. Henry W. Elser & Co. (46 Phil. 70) that the object of Sections 68 and 69 of the Corporation Law was to subject the foreign corporation doing business in the Philippines to the jurisdiction

of our courts. The Marshall Wells Co. decision referred to a litigation over an isolated act for the unpaid balance on a bill of goods but the philosophy behind the law applies to the factual circumstances of these cases. The Court stated: xxx xxx xxx Defendant isolates a portion of one sentence of section 69 of the Corporation Law and asks the court to give it a literal meaning Counsel would have the law read thus: "No foreign corporation shall be permitted to maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in section 68 of the law." Plaintiff, on the contrary, desires for the court to consider the particular point under discussion with reference to all the law, and thereafter to give the law a common sense interpretation. The object of the statute was to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts. The object of the statute was not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts. The implication of the law is that it was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business from the Philippines, from securing redress in the Philippine courts, and thus, in effect, to permit persons to avoid their contracts made with such foreign corporations. The effect of the statute preventing foreign corporations from doing business and from bringing actions in the local courts, except on compliance with elaborate requirements, must not be unduly extended or improperly applied. It should not be construed to extend beyond the plain meaning of its terms, considered in connection with its object, and in connection with the spirit of the entire law. (State vs. American Book Co. [1904], 69 Kan, 1; American De Forest Wireless Telegraph Co. vs. Superior Court of City & Country of San Francisco and Hebbard [1908], 153 Cal., 533; 5 Thompson on Corporations, 2d ed., chap. 184.) Confronted with the option of giving to the Corporation Law a harsh interpretation, which would disastrously embarrass trade, or of giving to the law a reasonable interpretation, which would markedly help in the development of trade; confronted with the option of barring from the courts foreign litigants with good causes of action or of assuming jurisdiction of their cases; confronted with the option of construing the law to mean that any corporation in the United States, which might want to sell to a person in the Philippines must send some representative to the Islands before the sale, and go through the complicated formulae provided by the Corporation Law with regard to the obtaining of the license, before the sale was made, in order to avoid being swindled by Philippine citizens, or of construing the law to mean that no foreign corporation doing business in the Philippines can maintain any suit until it shall possess the necessary license;-confronted with these options, can anyone doubt what our decision will be? The law simply means that no foreign corporation shall be permitted "to transact business in the Philippine Islands," as this phrase is known in corporation law, unless it shall have the license required by law, and, until it complies with the law, shall not be permitted to maintain any suit in the local courts. A contrary holding would bring the law to the verge of unconstitutionality, a result which should be and can be easily avoided. (Sioux Remedy Co. vs. Cope and Cope, supra;Perkins, Philippine Business Law, p. 264.) To repeat, the objective of the law was to subject the foreign corporation to the jurisdiction of our courts. The Corporation Law must be given a reasonable, not an unduly harsh, interpretation which does not hamper the development of trade relations and which fosters friendly commercial intercourse among countries. The objectives enunciated in the 1924 decision are even more relevant today when we view commercial relations in terms of a world economy, when the tendency is to re-examine the political boundaries separating one nation from another insofar as they define business requirements or restrict marketing conditions. We distinguish between the denial of a right to take remedial action and the penal sanction for non-registration. Insofar as transacting business without a license is concerned, Section 69 of the Corporation Law imposed a penal sanctionimprisonment for not less than six months nor more than two years or payment of a fine not less than P200.00 nor more than P1,000.00 or both in the discretion of the court. There is a penalty for transacting business without registration. And insofar as litigation is concerned, the foreign corporation or its assignee may not maintain any suit for the recovery of any debt, claim, or demand whatever. The Corporation Law is silent on whether or not the contract executed by a foreign corporation with no capacity to sue is null and void ab initio. We are not unaware of the conflicting schools of thought both here and abroad which are divided on whether such contracts are void or merely voidable. Professor Sulpicio Guevarra in his book Corporation Law (Philippine Jurisprudence Series, U.P. Law Center, pp. 233-234) cites an Illinois decision which holds the contracts void and a Michigan statute and decision declaring them merely voidable: xxx xxx xxx Where a contract which is entered into by a foreign corporation without complying with the local requirements of doing business is rendered void either by the express terms of a statute or by statutory construction, a subsequent compliance with the statute by the corporation will not enable it to maintain an action on the contract. (Perkins Mfg. Co. v. Clinton Const. Co., 295 P. 1 [1930]. See also Diamond Glue Co. v. U.S. Glue Co., supra see note 18.) But where the statute merely prohibits the maintenance of a suit on such contract (without expressly declaring the contract "void"), it was held that a failure to comply with the statute rendered the contract voidable and not void, and compliance at any time before suit was sufficient. (Perkins Mfg. Co. v. Clinton Const. Co., supra.) Notwithstanding the above decision, the Illinois statute provides, among other things that a foreign corporation that fails to comply with the conditions of doing business in that state cannot maintain a suit or action, etc. The court said: 'The contract upon which this suit was brought, having been entered into in this state when appellant was not permitted to transact business in this state, is in violation of the plain provisions of the statute, and is therefore null and void, and no action can be maintained thereon at any time, even if the corporation shall, at some time after the making of the contract, qualify itself to transact business in this state by a compliance with our laws in reference to foreign corporations that desire to engage in business here. (United Lead Co. v. J.M. Ready Elevator Mfg. Co., 222 Ill. 199, 73 N.N. 567 [1906].) A Michigan statute provides: "No foreign corporation subject to the provisions of this Act, shall maintain any action in this state upon any contract made by it in this state after the taking effect of this Act, until it shall have fully complied with the requirement of this Act, and procured a certificate to that effect from the Secretary of State," It was held that the above statute does not render contracts of a foreign corporation that fails to comply with the statute void, but they may be enforced only after compliance therewith. (Hastings Industrial Co. v. Moral, 143 Mich. 679,107 N.E. 706 [1906]; Kuennan v. U.S. Fidelity & G. Co., Mich. 122; 123 N.W. 799 [1909]; Despres, Bridges & Noel v. Zierleyn, 163 Mich. 399, 128 N.W. 769 [1910]). It has also been held that where the law provided that a corporation which has not complied with the statutory requirements "shall not maintain an action until such compliance". "At the commencement of this action the plaintiff had not filed the certified copy

with the country clerk of Madera County, but it did file with the officer several months before the defendant filed his amended answer, setting up this defense, as that at the time this defense was pleaded by the defendant the plaintiff had complied with the statute. The defense pleaded by the defendant was therefore unavailable to him to prevent the plaintiff from thereafter maintaining the action. Section 299 does not declare that the plaintiff shall not commence an action in any county unless it has filed a certified copy in the office of the county clerk, but merely declares that it shall not maintain an action until it has filled it. To maintain an action is not the same as to commence an action, but implies that the action has already been commenced." (See also Kendrick & Roberts Inc. v. Warren Bros. Co., 110 Md. 47, 72 A. 461 [1909]). In another case, the court said: "The very fact that the prohibition against maintaining an action in the courts of the state was inserted in the statute ought to be conclusive proof that the legislature did not intend or understand that contracts made without compliance with the law were void. The statute does not fix any time within which foreign corporations shall comply with the Act. If such contracts were void, no suits could be prosecuted on them in any court. ... The primary purpose of our statute is to compel a foreign corporation desiring to do business within the state to submit itself to the jurisdiction of the courts of this state. The statute was not intended to exclude foreign corporations from the state. It does not, in terms, render invalid contracts made in this state by non-complying corporations. The better reason, the wiser and fairer policy, and the greater weight lie with those decisions which hold that where, as here, there is a prohibition with a penalty, with no express or implied declarations respecting the validity of enforceability of contracts made by qualified foreign corporations, the contracts ... are enforceable ... upon compliance with the law." (Peter & Burghard Stone Co. v. Carper, 172 N.E. 319 [1930].) Our jurisprudence leans towards the later view. Apart from the objectives earlier cited from Marshall Wells Co. v. Henry W. Elser & Co (supra), it has long been the rule that a foreign corporation actually doing business in the Philippines without license to do so may be sued in our courts. The defendant American corporation in General Corporation of the Philippines v. Union Insurance Society of Canton Ltd et al. (87 Phil. 313) entered into insurance contracts without the necessary license or authority. When summons was served on the agent, the defendant had not yet been registered and authorized to do business. The registration and authority came a little less than two months later. This Court ruled: Counsel for appellant contends that at the time of the service of summons, the appellant had not yet been authorized to do business. But, as already stated, section 14, Rule 7 of the Rules of Court makes no distinction as to corporations with or without authority to do business in the Philippines. The test is whether a foreign corporation was actually doing business here. Otherwise, a foreign corporation illegally doing business here because of its refusal or neglect to obtain the corresponding license and authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts. It would indeed be anomalous and quite prejudicial, even disastrous, to the citizens in this jurisdiction who in all good faith and in the regular course of business accept and pay for shipments of goods from America, relying for their protection on duly executed foreign marine insurance policies made payable in Manila and duly endorsed and delivered to them, that when they go to court to enforce said policies, the insurer who all along has been engaging in this business of issuing similar marine policies, serenely pleads immunity to local jurisdiction because of its refusal or neglect to obtain the corresponding license to do business here thereby compelling the consignees or purchasers of the goods insured to go to America and sue in its courts for redress. There is no question that the contracts are enforceable. The requirement of registration affects only the remedy. Significantly, Batas Pambansa Blg. 68, the Corporation Code of the Philippines has corrected the ambiguity caused by the wording of Section 69 of the old Corporation Law. Section 133 of the present Corporation Code provides: SEC. 133. Doing business without a license.-No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shag be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency in the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. The old Section 69 has been reworded in terms of non-access to courts and administrative agencies in order to maintain or intervene in any action or proceeding. The prohibition against doing business without first securing a license is now given penal sanction which is also applicable to other violations of the Corporation Code under the general provisions of Section 144 of the Code. It is, therefore, not necessary to declare the contract nun and void even as against the erring foreign corporation. The penal sanction for the violation and the denial of access to our courts and administrative bodies are sufficient from the viewpoint of legislative policy. Our ruling that the lack of capacity at the time of the execution of the contracts was cured by the subsequent registration is also strengthened by the procedural aspects of these cases. The petitioner averred in its complaints that it is a foreign insurance company, that it is authorized to do business in the Philippines, that its agent is Mr. Victor H. Bello, and that its office address is the Oledan Building at Ayala Avenue, Makati. These are all the averments required by Section 4, Rule 8 of the Rules of Court. The petitioner sufficiently alleged its capacity to sue. The private respondents countered either with an admission of the plaintiff's jurisdictional averments or with a general denial based on lack of knowledge or information sufficient to form a belief as to the truth of the averments. We find the general denials inadequate to attack the foreign corporations lack of capacity to sue in the light of its positive averment that it is authorized to do so. Section 4, Rule 8 requires that "a party desiring to raise an issue as to the legal existence of any party or the capacity of any party to sue or be sued in a representative capacity shall do so by specific denial, which shag include such supporting particulars as are particularly within the pleader's knowledge. At the very least, the private respondents should have stated particulars in their answers upon which a specific denial of the petitioner's capacity to sue could have been based or which could have supported its denial for lack of knowledge. And yet, even if the plaintiff's lack of capacity to sue was not properly raised as an issue by the answers, the petitioner introduced documentary evidence that it had the authority to engage in the insurance business at the time it filed the complaints. WHEREFORE, the petitions are hereby granted. The decisions of the respondent court are reversed and set aside. In L-34382, respondent Eastern Shipping Lines is ordered to pay the petitioner the sum of P1,630.22 with interest at the legal rate from January 5, 1968 until fully paid and respondent Angel Jose Transportation Inc. is ordered to pay the petitioner the sum of P1,630.22 also with interest at the legal rate from January 5, 1968 until fully paid. Each respondent shall pay one-half of the costs. The counterclaim of Angel Jose Transportation Inc. is dismissed.

In L-34383, respondent N. V. Nedlloyd Lijnen, or its agent Columbian Phil. Inc. is ordered to pay the petitioner the sum of P2,426.98 with interest at the legal rate from February 1, 1968 until fully paid, the sum of P500.00 attorney's fees, and costs, The complaint against Guacods, Inc. is dismissed. SO ORDERED.

HUTCHISON PORTS PHILIPPINES LIMITED, petitioner, vs. SUBIC BAY METROPOLITAN AUTHORITY, INTERNATIONAL CONTAINER TERMINAL SERVICES INC., ROYAL PORT SERVICES INC. and the EXECUTIVE SECRETARY, respondents. DECISION YNARES-SANTIAGO, J.: On February 12, 1996, the Subic Bay Metropolitan Authority (or SBMA) advertised in leading national daily newspapers and in one 1 international publication, an invitation offering to the private sector the opportunity to develop and operate a modern marine container terminal within the Subic Bay Freeport Zone. Out of seven bidders who responded to the published invitation, three were declared by the SBMA as qualified bidders after passing the pre-qualification evaluation conducted by the SBMAs Technical Evaluation Committee (or SBMA-TEC). These are: (1) International Container Terminal Services, Inc. (or ICTSI); (2) a consortium consisting of Royal Port Services, Inc. and HPC Hamburg Port Consulting GMBH (or RPSI); and (3) Hutchison Ports Philippines Limited (or HPPL), representing a consortium composed of HPPL, Guoco Holdings (Phils.), Inc. and Unicol Management Services, Inc. All three qualified bidders were required to submit their respective formal bid package on or before July 1, 1996 by the SBMAs Prequalification, Bids and Awards Committee (or SBMA-PBAC). 2 Thereafter, the services of three (3) international consultants recommended by the World Bank for their expertise were hired by SBMA to evaluate the business plans submitted by each of the bidders, and to ensure that there would be a transparent and comprehensive review of the submitted bids. The SBMA also hired the firm of Davis, Langdon and Seah Philippines, Inc. to assist in the evaluation of the bids and in the negotiation process after the winning bidder is chosen. All the consultants, after such review 3 and evaluation unanimously concluded that HPPLs Business Plan was "far superior to that of the two other bidders." However, even before the sealed envelopes containing the bidders proposed royalty fees could be opened at the appointed time and place, RPSI formally protested that ICTSI is legally barred from operating a second port in the Philippines based on Executive Order No. 212 and Department of Transportation and Communication (DOTC) Order 95-863. RPSI thus requested that the financial 4 bid of ICTSI should be set aside. Nevertheless, the opening of the sealed financial bids proceeded "under advisement" relative to the protest signified by RPSI. The financial bids, more particularly the proposed royalty fee of each bidder, was as follows: ICTSI ------------US$57.80 TEU HPPL ------------US$20.50 TEU RPSI -------------US$15.08 TEU The SBMA-PBAC decided to suspend the announcement of the winning bid, however, and instead gave ICTSI seven (7) days within which to respond to the letter-protest lodged by RPSI. The HPPL joined in RPSIs protest, stating that ICTSI should be disqualified because it was already operating the Manila International Container Port (or MICP), which would give rise to inevitable conflict of 5 interest between the MICP and the Subic Bay Container Terminal facility. On August 15, 1996, the SBMA-PBAC issued a resolution rejecting the bid of ICTSI because "said bid does not comply with the requirements of the tender documents and the laws of the Philippines." The said resolution also declared that: RESOLVED FURTHER, that the winning bid be awarded to HUTCHISON PORTS PHILIPPINES LIMITED (HPPL) and that negotiations commence immediately with HPPL (HUTCHISON) with a view to concluding an acceptable agreement within 45 days of this date failing which negotiations with RPSI (ROYAL) will commence with a view to concluding an acceptable agreement within 45 days 6 thereafter failing which there will be declared a failure of bids. (Underscoring supplied) The following day, ICTSI filed a letter-appeal with SBMAs Board of Directors requesting the nullification and reversal of the abovequoted resolution rejecting ICTSIs bid while awarding the same to HPPL. But even before the SBMA Board could act on the appeal, 7 ICTSI filed a similar appeal before the Office of the President. On August 30, 1996, then Chief Presidential Legal Counsel (CPLC) Renato L. Cayetano submitted a memorandum to then President Fidel V. Ramos, containing the following recommendations: We therefore suggest that the President direct SBMA Chairman Gordon to consider option number 4 that is to re-evaluate the financial bids submitted by the parties, taking into consideration all the following factors: 1. Reinstate ICTSIs bid; 2. Disregard all arguments relating to "monopoly"; 3. The re-evaluation must be limited to the parties financial bids. 3.1 Considering that the parties business have been accepted (passed), strictly follow the criteria for bid evaluation provided for in pars. (c) and (d), Part B (1) of the Tender Document. 4. In the re-evaluation, the COA should actively participate to determine which of the financial bids is more advantageous. 5. In addition, all the parties should be given ample opportunity to elucidate or clarify the components/justification for their respective financial bids in order to ensure fair play and transparency in the proceedings. 8 6. The Presidents authority to review the final award shall remain." (Underscoring supplied) The recommendation of CPLC Cayetano was approved by President Ramos, and a copy of President Ramos handwritten approval was sent to the SBMA Board of Directors. Accordingly, the SBMA Board, with the concurrence of representatives of the Commission on Audit, agreed to focus the reevaluation of the bids in accordance with the evaluation criteria and the detailed components contained in the Tender Document, including all relevant information gleaned from the bidding documents, as well as the reports of the three international experts and the consultancy firm hired by the SBMA. On September 19, 1996, the SBMA Board issued a Resolution, declaring: NOW, THEREFORE, IT IS HEREBY RESOLVED that the bid that conforms to the Invitation to Tender, that has a realistic Business Plan offering the greatest financial return to SBMA, the best possible offer and the most advantageous to the government is that of HPPL and HPPL is accordingly selected as the winning bidder and ishereby awarded the concession for the operation and development of 9 the Subic Bay Container Terminal. (Underscoring supplied) In a letter dated September 24, 1996, the SBMA Board of Directors submitted to the Office of the President the results of the reevaluation of the bid proposals, to wit: SBMA, through the unanimous vote of all the Board Members, excluding the Chairman of the Board who voluntarily inhibited himself from participating in the re-evaluation, selected the HPPL bid as the winning bid, being: the conforming bid with a realistic Business Plan offering the greatest financial return to the SBMA; the best possible offer in the market, and the most advantageous 10 to the government in accordance with the Tender Document.

Notwithstanding the SBMA Boards recommendations and action awarding the project to HPPL, then Executive Secretary Ruben Torres submitted a memorandum to the Office of the President recommending that another rebidding be 11 conducted. Consequently, the Office of the President issued a Memorandum directing the SBMA Board of Directors to refrain from 12 signing the Concession Contract with HPPL and to conduct a rebidding of the project. In the meantime, the Resident Ombudsman for the DOTC filed a complaint against members of the SBMA-PBAC before the Office of the Ombudsman for alleged violation of Section 3(e) of Republic Act No. 3019 for awarding the contract to HPPL. On April 16, 1997, the Evaluation and Preliminary Investigation Bureau of the Office of the Ombudsman issued a Resolution absolving the members of the SBMA-PBAC of any liability and dismissing the complaint against them, ruling thus: After an assiduous study of the respective contentions of both parties, we are inclined to hold, as it is hereby held, that there is no proof on record pinpointing respondents to have acted in excess of their discretion when they awarded the bid to HPPL. Records revealed that respondents, in the exercise of their discretion in determining the financial packages offered by the applicants, were guided by the expert report of Davis, Langdon and Seah (DLS) that fairly evaluated which of the bidders tender the greatest financial return to the government. There is no showing that respondents had abused their prerogatives. As succinctly set forth in the DLS report it stated, among others, that, "in assessing the full financial return to SBMA offered by the bidders, it is necessary to consider the following critical matters: 1. Royalty fees 2. Volume of TEUs as affected by: a. Tariff rates; b. Marketing strategy; c. Port facilities; and d. Efficient reliable services. With the preceding parameters for the evaluation of bidders business plan, the respondents were fairly guided by, as they aligned their judgment in congruence with, the opinion of the panel of experts and the SBMAs Technical Evaluation Committee to the effect that HPPLs business is superior while that of ICTSIs appeared to be unrealistically high which may eventually hinder the competitiveness of the SBMA port with the rest of the world. Respondents averred that the panel of World Bank experts noted that ICTSIs high tariff rates at U.S. $119.00 per TEU is already higher by 37% through HPPL, which could further increase by 20% in the first two (2) years and by 5% hike thereafter. In short, high tariffs would discourage potential customers which may be translated into low cargo volume that will eventually reduce financial return to SBMA. Respondents asserted that HPPLs business plan offers the greatest financial return which could be equated that over the five years, HPPL offers 1.25 billion pesos while ICTSI offers P0.859 billion, and RPSI offers P.420 billion. Over the first ten years HPPL gives P2.430 billion, ICTSI tenders P2.197 billion and RPSI has P1.632 billion. Viewed from this perspective alongside with the evidence on record, the undersigned panel does not find respondents to have exceeded their discretion in awarding the bid to HPPL. Consequently, it could not be said that respondents act had placed the 13 government at a grossly disadvantageous plight that could have jeopardized the interest of the Republic of the Philippines. On July 7, 1997, the HPPL, feeling aggrieved by the SBMAs failure and refusal to commence negotiations and to execute the 14 Concession Agreement despite its earlier pronouncements that HPPL was the winning bidder, filed a complaint against SBMA before the Regional Trial Court (RTC) of Olongapo City, Branch 75, for specific performance, mandatory injunction and damages. In 15 due time, ICTSI, RPSI and the Office of the President filed separate Answers-in-Intervention to the complaint opposing the reliefs sought by complainant HPPL. Complainant HPPL alleged and argued therein that a binding and legally enforceable contract had been established between HPPL and defendant SBMA under Article 1305 of the Civil Code, considering that SBMA had repeatedly declared and confirmed that HPPL was the winning bidder. Having accepted HPPLs offer to operate and develop the proposed container terminal, defendant SBMA is duty-bound to comply with its obligation by commencing negotiations and drawing up a Concession Agreement with plaintiff HPPL. HPPL also pointed out that the bidding procedure followed by the SBMA faithfully complied with existing laws and rules established by SBMA itself; thus, when HPPL was declared the winning bidder it acquired the exclusive right to negotiate with the SBMA. Consequently, plaintiff HPPL posited that SBMA should be: (1) barred from conducting a re-bidding of the proposed project and/or performing any such acts relating thereto; and (2) prohibited from negotiating with any party other than plaintiff HPPL until negotiations between HPPL and SBMA have been concluded or in the event that no acceptable agreement could be arrived at. Plaintiff HPPL also alleged that SBMAs continued refusal to negotiate the Concession Contract is a substantial infringement of its proprietary rights, and caused damage and prejudice to plaintiff HPPL. Hence, HPPL prayed that: (1) Upon the filing of this complaint, hearings be scheduled to determine the propriety of plaintiffs mandatory injunction application which seeks to order defendant or any of its appropriate officers or committees to forthwith specify the date as well as to perform any and all such acts (e.g. laying the ground rules for discussion) for the commencement of negotiations with plaintiff with the view to signing at the earliest possible time a Concession Agreement for the development and operation of the Subic Bay Container Terminal. (2) Thereafter, judgment be rendered in favor of plaintiff and against defendant: 2.1. Making permanent the preliminary mandatory injunction it had issued; 2.2. Ordering defendant to implement the Concession Agreement it had executed with plaintiff in respect of the development and operation of the proposed Subic Bay Container Terminal; 2.3. Ordering defendant to pay for the cost of plaintiffs attorneys fees in the amount of P500,000.00, or as otherwise proven during the trial. 16 Plaintiff prays for other equitable reliefs. During the pre-trial hearing, one of the issues raised and submitted for resolution was whether or not the Office of the President can set aside the award made by SBMA in favor of plaintiff HPPL and if so, can the Office of the President direct the SBMA to conduct a re-bidding of the proposed project. While the case before the trial court was pending litigation, on August 4, 1997, the SBMA sent notices to plaintiff HPPL, ICTSI and 17 RPSI requesting them to declare their interest in participating in a rebidding of the proposed project. On October 20, 1997, plaintiff HPPL received a copy of the minutes of the pre-bid conference which stated that the winning bidder would be announced on

December 5, 1997. Then on November 4, 1997, plaintiff HPPL learned that the SBMA had accepted the bids of ICTSI and RPSI who were the only bidders who qualified. 19 In order to enjoin the rebidding while the case was still pending, plaintiff HPPL filed a motion for maintenance of thestatus quo on October 28, 1997. The said motion was denied by the court a quo in an Order dated November 3, 1997, to wit: Plaintiff maintains that by voluntarily participating in this proceedings, the defendant and the intervenors "have unqualifiedly agreed to submit the issue of the propriety, legality and validity of the Office of the Presidents directive that the SBMA effect a rebidding" of its concession contract or the operation of the Subic Bay Container Terminal. As such, the status quo must be maintained in order not to thwart the courts ability to resolve the issues presented. Further, the ethics of the profession require that counsel should discontinue any act which tends to render the issues academic. The Opposition is anchored on lack of jurisdiction since the issuance of a cease-and-desist order would be tantamount to the issuance of a Temporary Restraining Order or a Writ of Injunction which this Court cannot do in light of the provision of Section 21 of R.A. 7227 which states: Section 21. Injunction and Restraining Order. The implementation of the projects for the conversion into alternative productive uses of the military reservations are urgent and necessary and shall not be restrained or enjoined except by an order issued by the Supreme Court of the Philippines. During the hearing on October 30, 1997, SBMAs counsel revealed that there is no law or administrative rule or regulation which requires that a bidding be accomplished within a definite time frame. Truly, the matter of the deferment of the re-bidding on November 4, 1997 rests on the sound discretion of the SBMA. For this Court to issue a cease-and-desist order would be tantamount to an issuance of a Temporary Restraining Order or a Writ of Preliminary Injunction. (Prado v. Veridiano II, G.R. No. 98118, December 6, 1991). The Court notes that the Office of the President has not been heard fully on the issues. Moreover, one of the intervenors is of the view that the issue of jurisdiction must be resolved first, ahead of all the other issues. WHEREFORE, and viewed from the foregoing considerations, plaintiffs motion is DENIED. 20 SO ORDERED. (Underscoring supplied) Hence, this petition filed by petitioner (plaintiff below) HPPL against respondents SBMA, ICTSI, RPSI and the Executive Secretary seeking to obtain a prohibitory injunction. The grounds relied upon by petitioner HPPL to justify the filing of the instant petition are summed up as follows: 29. It is respectfully submitted that to allow or for this Honorable Court to otherwise refrain from restraining SBMA, during the pendency of this suit, from committing the aforementioned act(s) which will certainly occur on 5 December 1997 such action (or inaction) will work an injustice upon petitioner which has validly been announced as the winning bidder for the operation of the Subic Bay Container Terminal. 30. To allow or for this Honorable Court to otherwise refrain from restraining SBMA, during the pendency of this suit, from committing the aforementioned threatened acts would be in violation of petitioners rights in respect of the action it had filed before the RTC of Olongapo City in Civil Case No. 243-O-97, and could render any judgment which may be reached by said Court moot and ineffectual. As stated, the legal issues raised by the parties in that proceedings are of far reaching importance to the national pride and prestige, and they impact on the integrity of government agencies engaged in international bidding of privatization projects. Its resolution on the merits by the trial court below and, thereafter, any further action to be taken by the 21 parties before the appellate courts will certainly benefit respondents and the entire Filipino people. WHEREFORE, petitioner HPPL sought relief praying that: a) Upon the filing of this petition, the same be given due course and a temporary restraining order and/or writ of preliminary injunction be issued ex parte, restraining SBMA or any of its committees, or other persons acting under its control or direction or upon its instruction, from declaring any winner on 5 December 1997or at any other date thereafter, in connection with the rebidding for the privatization of the Subic Bay Container Terminal and/or for any, some or all of the respondents to perform any such act(s) in pursuance thereof, until further orders from this Honorable Court; b) After appropriate proceedings, judgment be rendered in favor of petitioner and against respondents -(1) Ordering SBMA to desist from conducting any rebidding or in declaring the winner of any such rebidding in respect of the development and operation of the Subic Bay Container Terminal until the judgment which the RTC of Olongapo City may render in Civil Case No. 243-O-97 is resolved with finality; (2) Declaring null and void any award which SBMA may announce or issue on 5 December 1997; and (3) Ordering respondents to pay for the cost of suit. 22 Petitioner prays for other equitable reliefs. The instant petition seeks the issuance of an injunctive writ for the sole purpose of holding in abeyance the conduct by respondent SBMA of a rebidding of the proposed SBICT project until the case for specific performance is resolved by the trial court. In other words, petitioner HPPL prays that the status quo be preserved until the issues raised in the main case are litigated and finally determined. Petitioner was constrained to invoke this Courts exclusive jurisdiction and authority by virtue of the above-quoted Republic Act 7227, Section 21. On December 3, 1997, this Court granted petitioner HPPLs application for a temporary restraining order "enjoining the respondent SBMA or any of its committees, or other persons acting under its control or direction or upon its instruction, from declaring any winner on December 5, 1997 or at any other date thereafter, in connection with the rebidding for the privatization of the Subic Bay 23 Container Terminal and/or for any, some or all of the respondents to perform any such act or acts in pursuance thereof." There is no doubt that since this controversy arose, precious time has been lost and a vital infrastructure project has in essense been "mothballed" to the detriment of all parties involved, not the least of which is the Philippine Government, through its officials and agencies, who serve the interest of the nation. It is, therefore, imperative that the issues raised herein and in the court a quo be resolved without further delay so as not to exacerbate an already untenable situation. 24 At the outset, the application for the injunctive writ is only a provisional remedy, a mere adjunct to the main suit. Thus, it is not uncommon that the issues in the main action are closely intertwined, if not identical, to the allegations and counter allegations propounded by the opposing parties in support of their contrary positions concerning the propriety or impropriety of the injunctive writ. While it is not our intention to preempt the trial courts determination of the issues in the main action for specific performance, this Court has a bounden duty to perform; that is, to resolve the matters before this Court in a manner that gives essence to justice, equity and good conscience.

18

While our pronouncements are for the purpose only of determining whether or not the circumstances warrant the issuance of the writ of injunction, it is inevitable that it may have some impact on the main action pending before the trial court. Nevertheless, without delving into the merits of the main case, our findings herein shall be confined to the necessary issues attendant to the application for an injunctive writ. For an injunctive writ to be issued, the following requisites must be proven: First. That the petitioner/applicant must have a clear and unmistakable right. Second. That there is a material and substantial invasion of such right. 25 Third. That there is an urgent and permanent necessity for the writ to prevent serious damage. To our mind, petitioner HPPL has not sufficiently shown that it has a clear and unmistakable right to be declared the winning bidder with finality, such that the SBMA can be compelled to negotiate a Concession Contract. Though the SBMA Board of Directors, by resolution, may have declared HPPL as the winning bidder, said award cannot be said to be final and unassailable. The SBMA Board of Directors and other officers are subject to the control and supervision of the Office of the President. All projects undertaken by SBMA require the approval of the President of the Philippines under Letter of Instruction No. 620, which places the SBMA under its ambit as an instrumentality, defined in Section 10 thereof as an "agency of the national government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory 26 agencies, chartered institutions and government owned and controlled corporations." (Underscoring supplied) As a chartered institution, the SBMA is always under the direct control of the Office of the President, particularly when contracts and/or projects undertaken by the SBMA entail substantial amounts of money. Specifically, Letter of Instruction No. 620 dated October 27, 1997 mandates that the approval of the President is required in all contracts of the national government offices, agencies and instrumentalities, including government-owned or controlled corporations involving two million pesos (P2,000,000.00) and above, awarded through public bidding or negotiation. The President may, within his authority, overturn or reverse any award made by the SBMA Board of Directors for justifiable reasons. It is well-established that the discretion to accept or reject any bid, or even recall the award thereof, is of such wide latitude that the courts will not generally interfere with the exercise thereof by the executive department, unless it is apparent that such exercise of discretion is used to shield unfairness or injustice. When the President issued the memorandum setting aside the award previously declared by the SBMA in favor of HPPL and directing that a rebidding be conducted, the same was, within the authority of the President and was a valid exercise of his prerogative. Consequently, petitioner HPPL acquired no clear and unmistakable right as the award announced by the SBMA prior to the Presidents revocation thereof was not final and binding. There being no clear and unmistakable right on the part of petitioner HPPL, the rebidding of the proposed project can no longer be enjoined as there is no material and substantial invasion to speak of. Thus, there is no longer any urgent or permanent necessity for the writ to prevent any perceived serious damage. In fine, since the requisites for the issuance of the writ of injunction are not 27 present in the instant case, petitioners application must be denied for lack of merit. Finally, we focus on the matter of whether or not petitioner HPPL has the legal capacity to even seek redress from this Court.1wphi1 Admittedly, petitioner HPPL is a foreign corporation, organized and existing under the laws of the British Virgin Islands. While the actual bidder was a consortium composed of petitioner, and two other corporations, namely, Guoco Holdings (Phils.) Inc. and Unicol Management Servises, Inc., it is only petitioner HPPL that has brought the controversy before the Court, arguing that it is suing only on an isolated transaction to evade the legal requirement that foreign corporations must be licensed to do business in the Philippines to be able to file and prosecute an action before Philippines courts. The maelstrom of this issue is whether participating in the bidding is a mere isolated transaction, or did it constitute "engaging in" or "transacting" business in the Philippines such that petitioner HPPL needed a license to do business in the Philippines before it could come to court. There is no general rule or governing principle laid down as to what constitutes "doing" or "engaging in" or "transacting" business in 28 the Philippines. Each case must be judged in the light of its peculiar circumstances. Thus, it has often been held that a single act or transaction may be considered as "doing business" when a corporation performs acts for which it was created or exercises some of the functions for which it was organized. The amount or volume of the business is of no moment, for even a singular act cannot be 29 merely incidental or casual if it indicates the foreign corporations intention to do business. Participating in the bidding process constitutes "doing business" because it shows the foreign corporations intention to engage in business here. The bidding for the concession contract is but an exercise of the corporations reason for creation or existence. Thus, it has been held that "a foreign company invited to bid for IBRD and ADB international projects in the Philippines will be considered as doing business in the Philippines for which a license is required." In this regard, it is the performance by a foreign corporation of the acts for which it was created, regardless of volume of business, that determines whether a foreign corporation needs a license or 30 not. The primary purpose of the license requirement is to compel a foreign corporation desiring to do business within the Philippines to submit itself to the jurisdiction of the courts of the state and to enable the government to exercise jurisdiction over them for the 31 regulation of their activities in this country. If a foreign corporation operates a business in the Philippines without a license, and thus does not submit itself to Philippine laws, it is only just that said foreign corporation be not allowed to invoke them in our courts when the need arises. "While foreign investors are always welcome in this land to collaborate with us for our mutual benefit, they must be prepared as an indispensable condition to respect and be bound by Philippine law in proper cases, as in the one at 32 bar." The requirement of a license is not intended to put foreign corporations at a disadvantage, for the doctrine of lack of capacity 33 to sue is based on considerations of sound public policy. Accordingly, petitioner HPPL must be held to be incapacitated to bring this petition for injunction before this Court for it is a foreign corporation doing business in the Philippines without the requisite license. WHEREFORE, in view of all the foregoing, the instant petition is hereby DISMISSED for lack of merit. Further, the temporary restraining order issued on December 3, 1997 is LIFTED and SET ASIDE. No costs. SO ORDERED.

IGLESIA EVANGELICA METODISTA EN LAS ISLAS FILIPINAS (IEMELIF) (Corporation Sole), INC., REV. NESTOR PINEDA, REV. ROBERTO BACANI, BENJAMIN BORLONGAN, JR., DANILO SAUR, RICHARD PONTI, ALFREDO MATABANG and all the other members of the IEMELIF TONDO CONGREGATION of the IEMELIF CORPORATION SOLE, Petitioners, vs. BISHOP NATHANAEL LAZARO, REVERENDS HONORIO RIVERA, DANIEL MADUCDOC, FERDINAND MERCADO, ARCADIO CABILDO, DOMINGO GONZALES, ARTURO LAPUZ, ADORABLE MANGALINDAN, DANIEL VICTORIA and DAKILA CRUZ, and LAY LEADER LINGKOD MADUCDOC and CESAR DOMINGO, acting individually and as members of the Supreme Consistory of Elders and those claiming under the Corporation Aggregate, Respondents. DECISION ABAD, J.: The present dispute resolves the issue of whether or not a corporation may change its character as a corporation sole into a corporation aggregate by mere amendment of its articles of incorporation without first going through the process of dissolution. The Facts and the Case In 1909, Bishop Nicolas Zamora established the petitioner Iglesia Evangelica Metodista En Las Islas Filipinas, Inc. (IEMELIF) as a corporation sole with Bishop Zamora acting as its "General Superintendent." Thirty-nine years later in 1948, the IEMELIF enacted and registered a by-laws that established a Supreme Consistory of Elders (the Consistory), made up of church ministers, who were to serve for four years. The by-laws empowered the Consistory to elect a General Superintendent, a General Secretary, a General Evangelist, and a Treasurer General who would manage the affairs of the organization. For all intents and purposes, the Consistory served as the IEMELIFs board of directors. Apparently, although the IEMELIF remained a corporation sole on paper (with all corporate powers theoretically lodged in the hands of one member, the General Superintendent), it had always acted like a corporation aggregate. The Consistory exercised IEMELIFs decision-making powers without ever being challenged. Subsequently, during its 1973 General Conference, the general membership voted to put things right by changing IEMELIFs organizational structure from a corporation sole to a corporation aggregate. On May 7, 1973 the Securities and Exchange Commission (SEC) approved the vote. For some reasons, however, the corporate papers of the IEMELIF remained unaltered as a corporation sole. Only in 2001, about 28 years later, did the issue reemerge. In answer to a query from the IEMELIF, the SEC replied on April 3, 2001 that, although the SEC Commissioner did not in 1948 object to the conversion of the IEMELIF into a corporation aggregate, that conversion was not properly carried out and documented. The SEC said that the IEMELIF needed to amend its articles of 1 incorporation for that purpose. Acting on this advice, the Consistory resolved to convert the IEMELIF to a corporation aggregate. Respondent Bishop Nathanael Lazaro, its General Superintendent, instructed all their congregations to take up the matter with their respective members for resolution. Subsequently, the general membership approved the conversion, prompting the IEMELIF to file amended articles of 2 incorporation with the SEC. Bishop Lazaro filed an affidavit-certification in support of the conversion. Petitioners Reverend Nestor Pineda, et al., which belonged to a faction that did not support the conversion, filed a civil case for "Enforcement of Property Rights of Corporation Sole, Declaration of Nullity of Amended Articles of Incorporation from Corporation Sole to Corporation Aggregate with Application for Preliminary Injunction and/or Temporary Restraining Order" in IEMELIFs name 3 against respondent members of its Consistory before the Regional Trial Court (RTC) of Manila. Petitioners claim that a complete shift from IEMELIFs status as a corporation sole to a corporation aggregate required, not just an amendment of the IEMELIFs articles of incorporation, but a complete dissolution of the existing corporation sole followed by a re-incorporation. 4 Unimpressed, the RTC dismissed the action in its October 19, 2005 decision. It held that, while the Corporation Code on Religious Corporations (Chapter II, Title XIII) has no provision governing the amendment of the articles of incorporation of a corporation sole, its Section 109 provides that religious corporations shall be governed additionally "by the provisions on non-stock corporations 5 insofar as they may be applicable." The RTC thus held that Section 16 of the Code that governed amendments of the articles of incorporation of non-stock corporations applied to corporations sole as well. What IEMELIF needed to authorize the amendment was merely the vote or written assent of at least two-thirds of the IEMELIF membership. 6 Petitioners Pineda, et al. appealed the RTC decision to the Court of Appeals (CA). On October 31, 2007 the CA rendered a 7 decision, affirming that of the RTC. Petitioners moved for reconsideration, but the CA denied it by its resolution of August 1, 8 2008, hence, the present petition for review before this Court. The Issue Presented The only issue presented in this case is whether or not the CA erred in affirming the RTC ruling that a corporation sole may be converted into a corporation aggregate by mere amendment of its articles of incorporation. The Courts Ruling Petitioners Pineda, et al. insist that, since the Corporation Code does not have any provision that allows a corporation sole to convert into a corporation aggregate by mere amendment of its articles of incorporation, the conversion can take place only by first dissolving IEMELIF, the corporation sole, and afterwards by creating a new corporation in its place. Religious corporations are governed by Sections 109 through 116 of the Corporation Code. In a 2009 case involving IEMELIF, the 9 Court distinguished a corporation sole from a corporation aggregate. Citing Section 110 of the Corporation Code, the Court said that a corporation sole is "one formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of a religious denomination, sect, or church, for the purpose of administering or managing, as trustee, the affairs, properties and temporalities of such religious denomination, sect or church." A corporation aggregate formed for the same purpose, on the other hand, consists of two or more persons. True, the Corporation Code provides no specific mechanism for amending the articles of incorporation of a corporation sole. But, as the RTC correctly held, Section 109 of the Corporation Code allows the application to religious corporations of the general provisions governing non-stock corporations. For non-stock corporations, the power to amend its articles of incorporation lies in its members. The code requires two-thirds of their votes for the approval of such an amendment. So how will this requirement apply to a corporation sole that has technically but one member (the head of the religious organization) who holds in his hands its broad corporate powers over the properties, rights, and interests of his religious organization? Although a non-stock corporation has a personality that is distinct from those of its members who established it, its articles of incorporation cannot be amended solely through the action of its board of trustees. The amendment needs the concurrence of at

least two-thirds of its membership. If such approval mechanism is made to operate in a corporation sole, its one member in whom all the powers of the corporation technically belongs, needs to get the concurrence of two-thirds of its membership. The one member, here the General Superintendent, is but a trustee, according to Section 110 of the Corporation Code, of its membership.1avvphi1 There is no point to dissolving the corporation sole of one member to enable the corporation aggregate to emerge from it. Whether it is a non-stock corporation or a corporation sole, the corporate being remains distinct from its members, whatever be their number. The increase in the number of its corporate membership does not change the complexion of its corporate responsibility to third parties. The one member, with the concurrence of two-thirds of the membership of the organization for whom he acts as trustee, can self-will the amendment. He can, with membership concurrence, increase the technical number of the members of the corporation from "sole" or one to the greater number authorized by its amended articles. Here, the evidence shows that the IEMELIFs General Superintendent, respondent Bishop Lazaro, who embodied the corporation sole, had obtained, not only the approval of the Consistory that drew up corporate policies, but also that of the required two-thirds vote of its membership.1avvphi1 The amendment of the articles of incorporation, as correctly put by the CA, requires merely that a) the amendment is not contrary to any provision or requirement under the Corporation Code, and that b) it is for a legitimate purpose. Section 17 of the Corporation 10 Code provides that amendment shall be disapproved if, among others, the prescribed form of the articles of incorporation or amendment to it is not observed, or if the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and regulations, or if the required percentage of ownership is not complied with. These impediments do not appear in the case of IEMELIF. Besides, as the CA noted, the IEMELIF worked out the amendment of its articles of incorporation upon the initiative and advice of the SEC. The latters interpretation and application of the Corporation Code is entitled to respect and recognition, barring any divergence from applicable laws. Considering its experience and specialized capabilities in the area of corporation law, the SECs prior action on the IEMELIF issue should be accorded great weight. WHEREFORE, the Court DENIES the petition and AFFIRMS the October 31, 2007 decision and August 1, 2008 resolution of the Court of Appeals in CA-G.R. SP 92640. SO ORDERED.

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, respondents. DECISION KAPUNAN, J.: On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its managing director, wrote a letter to the Philippine Football Federation (Federation), through its president private respondent Henri Kahn, wherein the former offered its 1 services as a travel agency to the latter. The offer was accepted. Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala Lumpur as well as various other trips to the People's Republic of China and Brisbane. The total cost of the tickets amounted to P449,654.83. For the tickets received, the Federation made two partial payments, both in September of 1989, in the total amount of 2 P176,467.50. On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for the amount of 3 4 P265,894.33. On 30 October 1989, the Federation, through the Project Gintong Alay, paid the amount of P31,603.00. On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the outstanding balance 5 of the Federation. Thereafter, no further payments were made despite repeated demands. This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner sued Henri Kahn in his personal capacity and as President of the Federation and impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly 6 guaranteed the said obligation. Henri Kahn filed his answer with counterclaim. While not denying the allegation that the Federation owed the amount P207,524.20, representing the unpaid balance for the plane tickets, he averred that the petitioner has no cause of action against him either in his personal capacity or in his official capacity as president of the Federation. He maintained that he did not guarantee payment but 7 merely acted as an agent of the Federation which has a separate and distinct juridical personality. 8 On the other hand, the Federation failed to file its answer, hence, was declared in default by the trial court. In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn personally liable for the unpaid obligation of the Federation. In arriving at the said ruling, the trial court rationalized: Defendant Henri Kahn would have been correct in his contentions had it been duly established that defendant Federation is a corporation. The trouble, however, is that neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving the corporate existence of the defendant Federation. In paragraph 2 of its complaint, plaintiff asserted that "Defendant Philippine Football Federation is a sports association xxx." This has not been denied by defendant Henri Kahn in his Answer. Being the President of defendant Federation, its corporate existence is within the personal knowledge of defendant Henri Kahn. He could have easily denied specifically the assertion of the plaintiff that it is a mere sports association, if it were a domestic corporation. But he did not. xxx A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify, a contract. The contract entered into by its officers or agents on behalf of such association is not binding on, or enforceable against it. The officers or agents are themselves personally liable. 9 xxx The dispositive portion of the trial court's decision reads: WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal sum of P207,524.20, plus the interest thereon at the legal rate computed from July 5, 1990, the date the complaint was filed, until the principal obligation is fully liquidated; and another sum of P15,000.00 for attorney's fees. The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the defendant Henri Kahn are hereby dismissed. 10 With the costs against defendant Henri Kahn. Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the respondent court rendered a decision reversing the trial court, the decretal portion of said decision reads: WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE and another one is rendered 11 dismissing the complaint against defendant Henri S. Kahn. In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the Federation. It rationalized that since petitioner failed to prove that Henri Kahn guaranteed the obligation of the Federation, he should not be held liable for the same as said entity has a separate and distinct personality from its officers. Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation be held liable for the unpaid obligation. The same was denied by the appellate court in its resolution of 8 February 1995, where it stated that: As to the alternative prayer for the Modification of the Decision by expressly declaring in the dispositive portion thereof the Philippine Football Federation (PFF) as liable for the unpaid obligation, it should be remembered that the trial court dismissed the complaint against the Philippine Football Federation, and the plaintiff did not appeal from this decision. Hence, the Philippine Football Federation is not a party to this appeal and consequently, no judgment may be pronounced by this Court against the PFF without violating the due process clause, let alone the fact that the judgment dismissing the complaint against it, had already 12 become final by virtue of the plaintiff's failure to appeal therefrom. The alternative prayer is therefore similarly DENIED. 13 Petitioner now seeks recourse to this Court and alleges that the respondent court committed the following assigned errors: A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD DEALT WITH THE PHILIPPINE FOOTBALL FEDERATION (PFF) AS A CORPORATE ENTITY AND IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI KAHN WAS THE ONE WHO REPRESENTED THE PFF AS HAVING A CORPORATE PERSONALITY. B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF THE UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL PAYMENT AND ASSURED PETITIONER OF FULLY SETTLING THE OBLIGATION. C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY LIABLE, THE HONORABLE COURT OF APPEALS ERRED IN NOT EXPRESSLY DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE FOR THE OBLIGATION.

The resolution of the case at bar hinges on the determination of the existence of the Philippine Football Federation as a juridical person. In the assailed decision, the appellate court recognized the existence of the Federation. In support of this, the CA cited Republic Act 3135, otherwise known as the Revised Charter of the Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the laws from which said Federation derives its existence. As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports associations. This may be gleaned from the powers and functions granted to these associations. Section 14 of R.A. 3135 provides: SEC. 14. Functions, powers and duties of Associations. - The National Sports' Association shall have the following functions, powers and duties: 1. To adopt a constitution and by-laws for their internal organization and government; 2. To raise funds by donations, benefits, and other means for their purposes. 3. To purchase, sell, lease or otherwise encumber property both real and personal, for the accomplishment of their purpose; 4. To affiliate with international or regional sports' Associations after due consultation with the executive committee; xxx 13. To perform such other acts as may be necessary for the proper accomplishment of their purposes and not inconsistent with this Act. Section 8 of P.D. 604, grants similar functions to these sports associations: SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National sports associations shall have the following functions, powers, and duties: 1. Adopt a Constitution and By-Laws for their internal organization and government which shall be submitted to the Department and any amendment thereto shall take effect upon approval by the Department: Provided, however, That no team, school, club, organization, or entity shall be admitted as a voting member of an association unless 60 per cent of the athletes composing said team, school, club, organization, or entity are Filipino citizens; 2. Raise funds by donations, benefits, and other means for their purpose subject to the approval of the Department; 3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the accomplishment of their purpose; 4. Conduct local, interport, and international competitions, other than the Olympic and Asian Games, for the promotion of their sport; 5. Affiliate with international or regional sports associations after due consultation with the Department; xxx 13. Perform such other functions as may be provided by law. The above powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical personality. The power to purchase, sell, lease and encumber property are acts which may only be done by persons, whether natural or artificial, with juridical capacity. However, while we agree with the appellate court that national sports associations may be accorded corporate status, such does not automatically take place by the mere passage of these laws. It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act. We cannot agree with the view of the appellate court and the private respondent that the Philippine Football Federation came into existence upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation. These laws merely recognized the existence of national sports associations and provided the manner by which these entities may acquire juridical personality. Section 11 of R.A. 3135 provides: SEC. 11. National Sports' Association; organization and recognition. - A National Association shall be organized for each individual sports in the Philippines in the manner hereinafter provided to constitute the Philippine Amateur Athletic Federation. Applications for recognition as a National Sports' Association shall be filed with the executive committee together with, among others, a copy of the constitution and by-laws and a list of the members of the proposed association, and a filing fee of ten pesos. The Executive Committee shall give the recognition applied for if it is satisfied that said association will promote the purposes of this Act and particularly section three thereof. No application shall be held pending for more than three months after the filing thereof without any action having been taken thereon by the executive committee. Should the application be rejected, the reasons for such rejection shall be clearly stated in a written communication to the applicant. Failure to specify the reasons for the rejection shall not affect the application which shall be considered as unacted upon: Provided, however, That until the executive committee herein provided shall have been formed, applications for recognition shall be passed upon by the duly elected members of the present executive committee of the Philippine Amateur Athletic Federation. The said executive committee shall be dissolved upon the organization of the executive committee herein provided: Provided, further, That the functioning executive committee is charged with the responsibility of seeing to it that the National Sports' Associations are formed and organized within six months from and after the passage of this Act. Section 7 of P.D. 604, similarly provides: SEC. 7. National Sports Associations. - Application for accreditation or recognition as a national sports association for each individual sport in the Philippines shall be filed with the Department together with, among others, a copy of the Constitution and By-Laws and a list of the members of the proposed association. The Department shall give the recognition applied for if it is satisfied that the national sports association to be organized will promote the objectives of this Decree and has substantially complied with the rules and regulations of the Department: Provided, That the Department may withdraw accreditation or recognition for violation of this Decree and such rules and regulations formulated by it. The Department shall supervise the national sports association: Provided, That the latter shall have exclusive technical control over the development and promotion of the particular sport for which they are organized. Clearly the above cited provisions require that before an entity may be considered as a national sports association, such entity must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604. This fact of recognition, however, Henri Kahn failed to substantiate. In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his motion for reconsideration before the trial court a copy of the constitution and by-laws of the Philippine Football Federation. Unfortunately, the same does not prove that said Federation has indeed been recognized and accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports Development. Accordingly, we rule that the Philippine Football Federation is not a national sports association within the purview of the aforementioned laws and does not have corporate existence of its own.

Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for 14 other acts performed as such agent. As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation. We cannot subscribe to the position taken by the appellate court that even assuming that the Federation was defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it 15 had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence. The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective 16 incorporation. In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract. WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the Regional Trial Court of Manila, Branch 35, in Civil Case No. 90-53595 is hereby REINSTATED. SO ORDERED.

ISLAMIC DIRECTORATE OF THE PHILIPPINES, MANUEL F. PEREA and SECURITIES & EXCHANGE COMMISSION, petitioners, vs. COURT OF APPEALS and IGLESIA NI CRISTO, respondents. DECISION HERMOSISIMA, JR., J.: [1] The subject of this petition for review is the Decision of the public respondent Court of Appeals, dated October 28, 1994, setting aside the portion of the Decision of the Securities and Exchange Commission (SEC, for short) in SEC Case No. 4012 which declared null and void the sale of two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by and between private respondent Iglesia Ni Cristo (INC, for short) and the Islamic Directorate of the Philippines, Inc., Carpizo Group, (IDP, for short). The following facts appear of record. Petitioner IDP-Tamano Group alleges that sometime in 1971, Islamic leaders of all Muslim major tribal groups in the Philippines headed by Dean Cesar Adib Majul organized and incorporated the ISLAMIC DIRECTORATE OF THE PHILIPPINES (IDP), the primary purpose of which is to establish an Islamic Center in Quezon City for the construction of a Mosque (prayer place), Madrasah (Arabic [2] School), and other religious infrastructures so as to facilitate the effective practice of Islamic faith in the area. Towards this end, that is, in the same year, the Libyan government donated money to the IDP to purchase land at Culiat, Tandang Sora, Quezon City, to be used as a Center for the Islamic populace. The land, with an area of 49,652 square meters, was covered by [3] [4] two titles: Transfer Certificate of Title Nos. RT-26520 (176616) and RT-26521 (170567), both registered in the name of IDP. It appears that in 1971, the Board of Trustees of the IDP was composed of the following per Article 6 of its Articles of Incorporation: [5] Senator Mamintal Tamano Congressman Ali Dimaporo Congressman Salipada Pendatun Dean Cesar Adib Majul Sultan Harun Al-Rashid Lucman Delegate Ahmad Alonto Commissioner Datu Mama Sinsuat [6] Mayor Aminkadra Abubakar According to the petitioner, in 1972, after the purchase of the land by the Libyan government in the name of IDP, Martial Law was declared by the late President Ferdinand Marcos. Most of the members of the 1971 Board of Trustees like Senators Mamintal Tamano, Salipada Pendatun, Ahmad Alonto, and Congressman Al-Rashid Lucman flew to the Middle East to escape political persecution. Thereafter, two Muslim groups sprung, the Carpizo Group, headed by Engineer Farouk Carpizo, and the Abbas Group, led by Mrs. Zorayda Tamano and Atty. Firdaussi Abbas. Both groups claimed to be the legitimate IDP. Significantly, on October 3, 1986, the SEC, in a suit between these two contending groups, came out with a Decision in SEC Case No. 2687 declaring the election of both the Carpizo Group and the Abbas Group as IDP board members to be null and void. The dispositive portion of the SEC Decision reads: [7] [8] WHEREFORE, judgment is hereby rendered declaring the elections of both the petitioners and respondents as null and void for being violative of the Articles of Incorporation of petitioner corporation. With the nullification of the election of the respondents, the approved by-laws which they certified to this Commission as members of the Board of Trustees must necessarily be likewise declared null and void. However, before any election of the members of the Board of Trustees could be conducted, there must be an approved by-laws to govern the internal government of the association including the conduct of election. And since the election of both petitioners and respondents have been declared null and void, a vacuum is created as to who should adopt the by-laws and certify its adoption. To remedy this unfortunate situation that the association has found itself in, the members of the petitioning corporation are hereby authorized to prepare and adopt their by-laws for submission to the Commission. Once approved, an election of the members of the Board of Trustees shall immediately be called pursuant to the approved by-laws. [9] SO ORDERED. Neither group, however, took the necessary steps prescribed by the SEC in its October 3, 1986 Decision, and, thus, no valid election [10] of the members of the Board of Trustees of IDP was ever called. Although the Carpizo Group attempted to submit a set of bylaws, the SEC found that, aside from Engineer Farouk Carpizo and Atty. Musib Buat, those who prepared and adopted the by-laws were not bona fide members of the IDP, thus rendering the adoption of the by-laws likewise null and void. On April 20, 1989, without having been properly elected as new members of the Board of Trustees of IDP, the Carpizo Group caused [11] to be signed an alleged Board Resolution of the IDP, authorizing the sale of the subject two parcels of land to the private [12] respondent INC for a consideration of P22,343,400.00, which sale was evidenced by a Deed of Absolute Sale dated April 20, 1989. On May 30, 1991, the petitioner 1971 IDP Board of Trustees headed by former Senator Mamintal Tamano, or the Tamano Group, filed a petition before the SEC, docketed as SEC Case No. 4012, seeking to declare null and void the Deed of Absolute Sale signed by the Carpizo Group and the INC since the group of Engineer Carpizo was not the legitimate Board of Trustees of the IDP. Meanwhile, private respondent INC, pursuant to the Deed of Absolute Sale executed in its favor, filed an action for Specific Performance with Damages against the vendor, Carpizo Group, before Branch 81 of the Regional Trial Court of Quezon City, docketed as Civil Case No. Q-90-6937, to compel said group to clear the property of squatters and deliver complete and full physical possession thereof to INC. Likewise, INC filed a motion in the same case to compel one Mrs. Leticia P. Ligon to produce and surrender to the Register of Deeds of Quezon City the owners duplicate copy of TCT Nos. RT-26521 and RT-26520 covering the aforementioned two parcels of land, so that the sale in INCs favor may be registered and new titles issued in the name of INC. Mrs. Ligon was alleged to be the mortgagee of the two parcels of land executed in her favor by certain Abdulrahman R.T. Linzag and Rowaida Busran-Sampaco claimed to be in behalf of the Carpizo Group. The IDP-Tamano Group, on June 11, 1991, sought to intervene in Civil Case No. Q-90-6937 averring, inter alia: xxx xxx xxx 2. That the Intervenor has filed a case before the Securities and Exchange Commission (SEC) against Mr. Farouk Carpizo, et, al., who, through false schemes and machinations, succeeded in executing the Deed of Sale between the IDP and the Iglesia Ni Kristo (plaintiff in the instant case) and which Deed of Sale is the subject of the case at bar; 3. That the said case before the SEC is docketed as Case No. 04012, the main issue of which is whether or not the aforesaid Deed of Sale between IDP and the Iglesia ni Kristo is null and void, hence, Intervenors legal interest in the instant case. A copy of the said case is hereto attached as Annex A;

4. That, furthermore, Intervenor herein is the duly constituted body which can lawfully and legally represent the Islamic Directorate of the Philippines; [13] xxx xxx xxx. Private respondent INC opposed the motion arguing, inter alia, that the issue sought to be litigated by way of intervention is an [14] intra-corporate dispute which falls under the jurisdiction of the SEC. Judge Celia Lipana-Reyes of Branch 81, Regional Trial Court of Quezon City, denied petitioners motion to intervene on the ground of lack of juridical personality of the IDP-Tamano Group and that the issues being raised by way of intervention are intra-corporate in [15] nature, jurisdiction thereto properly pertaining to the SEC. Apprised of the pendency of SEC Case No. 4012 involving the controverted status of the IDP-Carpizo Group but without waiting for the outcome of said case, Judge Reyes, on September 12, 1991, rendered Partial Judgment in Civil Case No. Q-90-6937 ordering the IDP-Carpizo Group to comply with its obligation under the Deed of Sale of clearing the subject lots of squatters and of delivering the [16] actual possession thereof to INC. Thereupon, Judge Reyes in another Order, dated March 2, 1992, pertaining also to Civil Case No. Q-90-6937, treated INC as the rightful owner of the real properties and disposed as follows: [17] WHEREFORE, Leticia P. Ligon is hereby ordered to produce and/or surrender to plaintiff the owners copy of RT-26521 (170567) and RT-26520 (176616) in open court for the registration of the Deed of Absolute Sale in the latters name and the annotation of the mortgage executed in her favor by herein defendant Islamic Directorate of the Philippines on the new transfer certificate of title to be issued to plaintiff. [18] SO ORDERED. On April 6, 1992, the above Order was amended by Judge Reyes directing Ligon to deliver the owners duplicate copies of TCT Nos. RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City for the purposes stated in the Order of [19] March 2, 1992. Mortgagee Ligon went to the Court of Appeals, thru a petition for certiorari, docketed as CA-G.R. No. SP-27973, assailing the [20] foregoing Orders of Judge Reyes. The appellate court dismissed her petition on October 28, 1992. Undaunted, Ligon filed a petition for review before the Supreme Court which was docketed as G.R. No. 107751. In the meantime, the SEC, on July 5, 1993, finally came out with a Decision in SEC Case No. 4012 in this wise: [21] 1. Declaring the by-laws submitted by the respondents as unauthorized, and hence, null and void. 2. Declaring the sale of the two (2) parcels of land in Quezon City covered by the Deed of Absolute Sale entered into by Iglesia ni [22] Kristo and the Islamic Directorate of the Philippines, Inc. null and void. [23] 3. Declaring the election of the Board of Directors of the corporation from 1986 to 1991 as null and void; 4. Declaring the acceptance of the respondents, except Farouk Carpizo and Musnib Buat, as members of the IDP null and void. No pronouncement as to cost. [24] SO ORDERED. Private respondent INC filed a Motion for Intervention, dated September 7, 1993, in SEC Case No. 4012, but the same was denied on [25] account of the fact that the decision of the case had become final and executory, no appeal having been taken therefrom. INC elevated SEC Case No. 4012 to the public respondent Court of Appeals by way of a special civil action for certiorari, docketed as CA-G.R. SP No. 33295. On October 28, 1994, the court a quo promulgated a Decision in CA-G.R. SP No. 33295 granting INCs petition. The portion of the SEC Decision in SEC Case No. 4012 which declared the sale of the two (2) lots in question to INC as void was ordered set aside by the Court of Appeals. Thus, the IDP-Tamano Group brought the instant petition for review, dated December 21, 1994, submitting that the Court of Appeals gravely erred in: 1) Not upholding the jurisdiction of the SEC to declare the nullity of the sale; 2) Encouraging multiplicity of suits; and [26] 3) Not applying the principles of estoppel and laches. While the above petition was pending, however, the Supreme Court rendered judgment in G.R. No. 107751 on the petition filed by Mrs. Leticia P. Ligon. The Decision, dated June 1, 1995, denied the Ligon petition and affirmed the October 28, 1992 Decision of the Court of Appeals in CA-G.R. No. SP-27973 which sustained the Order of Judge Reyes compelling mortgagee Ligon to surrender the owners duplicate copies of TCT Nos. RT-26521 (170567) and RT-26520 (176616) to the Register of Deeds of Quezon City so that the Deed of Absolute Sale in INCs favor may be properly registered. Before we rule upon the main issue posited in this petition, we would like to point out that our disposition in G.R. No. 107751 entitled, Ligon v. Court of Appeals, promulgated on June 1, 1995, in no wise constitutes res judicata such that the petition under consideration would be barred if it were the case. Quite the contrary, the requisites of res judicata do not obtain in the case at bench. Section 49, Rule 39 of the Revised Rules of Court lays down the dual aspects of res judicata in actions in personam, to wit: Effect of judgment. - The effect of a judgment or final order rendered by a court or judge of the Philippines, having jurisdiction to pronounce the judgment or order, may be as follows: xxx xxx xxx (b) In other cases the judgment or order is, with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto, conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity; (c) In any other litigation between the same parties or their successors in interest, that only is deemed to have been adjudged in a former judgment which appears upon its face to have been so adjudged, or which was actually and necessarily included therein or necessary thereto. Section 49(b) enunciates the first concept of res judicata known as bar by prior judgment, whereas, Section 49(c) is referred to as conclusiveness of judgment. There is bar by former judgment when, between the first case where the judgment was rendered, and the second case where such judgment is invoked, there is identity of parties, subject matter and cause of action. When the three identities are present, the judgment on the merits rendered in the first constitutes an absolute bar to the subsequent action. But where between the first case wherein judgment is rendered and the second case wherein such judgment is invoked, there is only identity of parties but there is no

identity of cause of action, the judgment is conclusive in the second case, only as to those matters actually and directly controverted [27] and determined, and not as to matters merely involved therein. This is what is termed conclusiveness of judgment. Neither of these concepts of res judicata find relevant application in the case at bench. While there may be identity of subject matter (IDP property) in both cases, there is no identity of parties. The principal parties in G.R. No. 107751 were mortgagee Leticia P. Ligon, as petitioner, and the Iglesia Ni Cristo, as private respondent. The IDP, as represented by the 1971 Board of Trustees or the [28] Tamano Group, was only made an ancillary party in G.R. No. 107751 as intervenor. It was never originally a principal party thereto. It must be noted that intervention is not an independent action, but is merely collateral, accessory, or ancillary to the principal action. It is just an interlocutory proceeding dependent on or subsidiary to the case between the original [29] parties. Indeed, the IDP-Tamano Group cannot be considered a principal party in G.R. No. 107751 for purposes of applying the principle of res judicata since the contrary goes against the true import of the action of intervention as a mere subsidiary proceeding without an independent life apart from the principal action as well as the intrinsic character of the intervenor as a mere subordinate [30] party in the main case whose right may be said to be only in aid of the right of the original party. It is only in the present case, actually, where the IDP-Tamano Group became a principal party, as petitioner, with the Iglesia Ni Cristo, as private respondent. Clearly, there is no identity of parties in both cases. In this connection, although it is true that Civil Case No. Q-90-6937, which gave rise to G.R. No. 107751, was entitled, Iglesia Ni [31] Kristo, Plaintiff v. Islamic Directorate of the Philippines, Defendant, the IDP can not be considered essentially a formal party thereto for the simple reason that it was not duly represented by a legitimate Board of Trustees in that case. As a necessary consequence, Civil Case No. Q-90-6937, a case for Specific Performance with Damages, a mere action in personam, did not become final and executory insofar as the true IDP is concerned since petitioner corporation, for want of legitimate representation, was effectively deprived of its day in court in said case. Res inter alios judicatae nullum aliis praejudicium faciunt. Matters adjudged in a [32] cause do not prejudice those who were not parties to it. Elsewise put, no person (natural or juridical) shall be affected by a [33] proceeding to which he is a stranger. Granting arguendo, that IDP may be considered a principal party in Ligon, res judicata as a bar by former judgment will still not set in on the ground that the cause of action in the two cases are different. The cause of action in G.R. No. 107751 is the surrender of the owners duplicate copy of the transfer certificates of title to the rightful possessor thereof, whereas the cause of action in the present case is the validity of the Carpizo Group-INC Deed of Absolute Sale. Res Judicata in the form of conclusiveness of judgment cannot likewise apply for the reason that any mention at all in Ligon as to the validity of the disputed Carpizo Board-INC sale may only be deemed incidental to the resolution of the primary issue posed in said case which is: Who between Ligon and INC has the better right of possession over the owners duplicate copy of the TCTs covering the IDP property? G.R. No. 107751 cannot be considered determinative and conclusive on the matter of the validity of the sale for this particular issue was not the principal thrust of Ligon. To rule otherwise would be to cause grave and irreparable injustice to IDP which never gave its consent to the sale, thru a legitimate Board of Trustees. In any case, while it is true that the principle of res judicata is a fundamental component of our judicial system, it should be [34] disregarded if its rigid application would involve the sacrifice of justice to technicality. The main question though in this petition is: Did the Court of Appeals commit reversible error in setting aside that portion of the SECs Decision in SEC Case No. 4012 which declared the sale of two (2) parcels of land in Quezon City between the IDP-Carpizo Group and private respondent INC null and void? We rule in the affirmative. There can be no question as to the authority of the SEC to pass upon the issue as to who among the different contending groups is the legitimate Board of Trustees of the IDP since this is a matter properly falling within the original and exclusive jurisdiction of the SEC by virtue of Sections 3 and 5(c) of Presidential Decree No. 902-A: Section 3. The Commission shall have absolute jurisdiction, supervision and control over all corporations, partnerships or associations, who are the grantees of primary franchises and/or a license or permit issued by the government to operate in the Philippines xxx xxx. xxx xxx xxx Section 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: xxx xxx xxx c) Controversies in the selection or appointment of directors, trustees, officers, or managers of such corporations, partnerships or associations. x x x. If the SEC can declare who is the legitimate IDP Board, then by parity of reasoning, it can also declare who is not the legitimate IDP Board. This is precisely what the SEC did in SEC Case No. 4012 when it adjudged the election of the Carpizo Group to the IDP Board [35] of Trustees to be null and void. By this ruling, the SEC in effect made the unequivocal finding that the IDP-Carpizo Group is a bogus Board of Trustees. Consequently, the Carpizo Group is bereft of any authority whatsoever to bind IDP in any kind of transaction including the sale or disposition of IDP property. It must be noted that SEC Case No. 4012 is not the first case wherein the SEC had the opportunity to pass upon the status of the [36] Carpizo Group. As far back as October 3, 1986, the SEC, in Case No. 2687, in a suit between the Carpizo Group and the Abbas Group, already declared the election of the Carpizo Group (as well as the Abbas Group) to the IDP Board as null and void for being [37] violative of the Articles of Incorporation. Nothing thus becomes more settled than that the IDP-Carpizo Group with whom private respondent INC contracted is a fake Board. Premises considered, all acts carried out by the Carpizo Board, particularly the sale of the Tandang Sora property, allegedly in the name of the IDP, have to be struck down for having been done without the consent of the IDP thru a legitimate Board of Trustees. Article 1318 of the New Civil Code lays down the essential requisites of contracts: There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. All these elements must be present to constitute a valid contract. For, where even one is absent, the contract is void. As succinctly [38] put by Tolentino, consent is essential for the existence of a contract, and where it is wanting, the contract is non-existent. In this

case, the IDP, owner of the subject parcels of land, never gave its consent, thru a legitimate Board of Trustees, to the disputed Deed of Absolute Sale executed in favor of INC. This is, therefore, a case not only of vitiated consent, but one where consent on the part of one of the supposed contracting parties is totally wanting. Ineluctably, the subject sale is void and produces no effect whatsoever. The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo Groups failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or substantially all assets of the corporation: Sec. 40. Sale or other disposition of assets. - Subject to the provisions of existing laws on illegal combinations and monopolies, a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon terms and conditions and for such consideration, which may be money, stocks, bonds or other instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem expedient, when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock; or in case of non-stock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholders or members meeting duly called for the purpose. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code. A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. xxx xxx x x x. The Tandang Sora property, it appears from the records, constitutes the only property of the IDP. Hence, its sale to a third-party is a sale or disposition of all the corporate property and assets of IDP falling squarely within the contemplation of the foregoing section. For the sale to be valid, the majority vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the corporation should have been obtained. These twin requirements were not met as the Carpizo Group which voted to sell the Tandang Sora property was a fake Board of Trustees, and those whose names and signatures were affixed by the Carpizo Group together with the sham Board Resolution authorizing the negotiation for the sale were, from all indications, not bona fide members of the IDP as they were made to appear to be. Apparently, there are only fifteen (15) official members of the [39] petitioner corporation including the eight (8) members of the Board of Trustees. All told, the disputed Deed of Absolute Sale executed by the fake Carpizo Board and private respondent INC was intrinsically void ab initio. Private respondent INC nevertheless questions the authority of the SEC to nullify the sale for being made outside of its jurisdiction, the same not being an intra-corporate dispute. The resolution of the question as to whether or not the SEC had jurisdiction to declare the subject sale null and void is rendered moot and academic by the inherent nullity of the highly dubious sale due to lack of consent of the IDP, owner of the subject property. No end of substantial justice will be served if we reverse the SECs conclusion on the matter, and remand the case to the regular courts for further litigation over an issue which is already determinable based on what we have in the records. It is unfortunate that private respondent INC opposed the motion for intervention filed by the 1971 Board of Trustees in Civil Case No. Q-90-6937, a case for Specific Performance with Damages between INC and the Carpizo Group on the subject Deed of Absolute Sale. The legitimate IDP Board could have been granted ample opportunity before the regional trial court to shed light on the true status of the Carpizo Board and settled the matter as to the validity of the sale then and there. But INC, wanting to acquire the property at all costs and threatened by the participation of the legitimate IDP Board in the civil suit, argued for the denial of the motion averring, inter alia, that the issue sought to be litigated by the movant is intra-corporate in nature and outside the [40] jurisdiction of the regional trial court. As a result, the motion for intervention was denied. When the Decision in SEC Case No. 4012, came out nullifying the sale, INC came forward, this time, quibbling over the issue that it is the regional trial court, and not the SEC, which has jurisdiction to rule on the validity of the sale. INC is here trifling with the courts. We cannot put a premium on this clever legal maneuverings of private respondent which, if countenanced, would result in a failure of justice. Furthermore, the Court observed that the INC bought the questioned property from the Carpizo Group without even seeing the owners duplicate copy of the titles covering the property. This is very strange considering that the subject lot is a large piece of real property in Quezon City worth millions, and that under the Torrens System of Registration, the minimum requirement for one to be [41] a good faith buyer for value is that the vendee at least sees the owners duplicate copy of the title and relies upon the same. The private respondent presumably knowledgeable on the aforesaid working of the Torrens System, did not take heed of this and nevertheless went through with the sale with undue haste. The unexplained eagerness of INC to buy this valuable piece of land in Quezon City without even being presented with the owners copy of the titles casts very serious doubt on the rightfulness of its position as vendee in the transaction. WHEREFORE, the petition is GRANTED. The Decision of the public respondent Court of Appeals dated October 28, 1994 in CA-G.R. SP No. 33295 is SET ASIDE. The Decision of the Securities and Exchange Commission dated July 5, 1993 in SEC Case No. 4012 is REINSTATED. The Register of Deeds of Quezon City is hereby ordered to cancel the registration of the Deed of Absolute Sale in the name of respondent Iglesia Ni Cristo, if one has already been made. If new titles have been issued in the name of Iglesia Ni Cristo, the register of Deeds is hereby ordered to cancel the same, and issue new ones in the name of petitioner Islamic Directorate of the Philippines. Petitioner corporation is ordered to return to private respondent whatever amount has been initially paid by INC as consideration for the property with legal interest, if the same was actually received by IDP. Otherwise, INC may run after Engineer Farouk Carpizo and his group for the amount of money paid. SO ORDERED.

ABELARDO JAVELLANA, TOMAS JONCO, RUDICO HABANA, EXEQUIEL GOLEZ, ALFREDO ANG, and FILIPINAS SOLEDAD, in their capacities as Councilors of the Municipal Municipality of Buenavista, Province of Iloilo, petitioners appellees, vs. SUSANO TAYO, as Mayor of the Municipal Municipality of Buenavista, Iloilo, respondent-appellant. Ramon A. Gonzales for petitioners-appellees. Rico & Tia for respondent-appellant. BARRERA, J.: This is a direct appeal taken by respondent Susano Tayo (Mayor of the Municipality of Buenavista, Iloilo) from the decision of the Court of First Instance of Iloilo (in Civil Case No. 5558, for mandamus) declaring legal and validity the regular session held by petitioners Abelardo Javellano Tomas Jonco, Rudico Habana, Exequiel Golez, Alfredo Ang, and Filipinas Soledad, constituting a majority of the elected councilors of said municipality, and ordering respondent to give due course to the resolutions and or ordinances passed thereat, and to sign the payrolls corresponding to the session days of June 1, June 15, July 6, July 20, August 3, August 17, September 7, and September 21, 1960 for payment of the per diems of petitioner as councilors; to pay said Councilor Golez the sum of P100.00 as moral damages; and to pay P100.00 as attorney' fees plus costs. The case was submitted on the following Stipulation of Facts: I That the petitioners are duly elected and qualified a members of the Municipal Council of the Municipality of Buenavista, Province of Iloilo, Philippines; and that the respondent at the time the acts hereinbelow complained of took place, was and still is the dulyelected and qualified Mayor of the Municipality of Buenavista, Province of Iloilo Philippines where he resides and may be served with summons. II On February 8, 1960. the Municipal Council of the Municipality of Buenavista, Iloilo, unanimously approved Resolution No. 5, Series of 1960, dated February 8, 1960, a copy of which is hereto attached to form an integral part hereon as Annex 'A', which set the regular sessions of the Municipality Council of Buenavista on every first and third Wednesday of every month, and which resolution was duly approved by the respondent, in his capacity as Mayor of the Municipality of Buenavista. III That on June 1, 1960, at the time and place set for the regular session of the Municipal Council, the Mayor, Vice-Mayor, No. 1 and No. 2 Councilors, and the Secretary were absent. IV That the six councilors, who are the petitioners in this case, were present and they proceeded to elect among themselves a temporary presiding officer and Acting Secretary to take notes of the proceedings. Having thus elected a temporary presiding officer and a secretary of the Council, they proceeded to do business. V That on June 15. 1960, at the time and place designated in Resolution No. 5, series of 1960, dated February 8, 1960 above referred to, the petitioners acting as duly elected and qualified councilors were present and again, in view of the absence of the Mayor, ViceMayor said to councilor and the Secretary proceeded to elect a temporary presiding officer and temporary secretary from among them, and did business as a Municipal Council of Buenavista. VI That again on July 6, and July 21, 1960, on August 3, and August 17, September 7, and on September 21, 1960, the petitioners met at the place and time designated in Resolution No. 5, series of 1960, and proceeded to elect a temporary Secretary among themselves, and did business as the Municipal Council of Buenavista, in view again of the absence of the Mayor Vice-Mayor, 2 councilors, and the Secretary. VII That when the minutes of the proceedings of June 1, June 15. July 6, July 20, August 17, September 7, and September 21, 1960 of the Municipal Council were presented to the respondent for action, the respondent Mayor refused to act upon said minutes, or particularly to approve or disapprove the resolution as approved by the municipal Council, the Mayor declaring the sessions above referred to as null and void and not in accordance with. VIII That the petitioners made repeated demands for payment of their per diems for the of June 1, June 15, July 6, July 20, August 3, August 17, September 7, 1960, by representing the payrolls; Provincial Forms No. 38(A) to the respondent Mayor for the latter signature, but that the respondent refused to affix his signature to the payrolls thus presented, covering the per diems of the petitioner alleging that the proceedings were illegal due to his absence. IX That the petitioners, acting through Atty. Bartolome T. Tina, addressed a letter dated August 8, 1960 to the Honorable Provincial Fiscal of the Province of Iloilo, asking of the latter's opinion on the validity of the acts of the herein petitioners, acting as the Municipal Council in the absence of the Mayor, Vice-Mayor, said two councilors and the secretary, a copy which letter is herewith attached as Annex 'B' and made an integral part of this petition. X That on August 9, 1960, the Honorable Provincial Fiscal of the Province of Iloilo in his indorsement, rendered an opinion upholding the validity of the controverted sessions of the Municipal Council, a copy, of which communication is, likewise attached herein is Annex 'C' and made an integral part of this petition. XI That despite the opinion of the Provincial Fiscal, the respondent Mayor refused and still refuses to act upon the resolution petitions presented to him and to sign the payrolls covering the per diems of the herein petitioners. XII That the respondent brought the matter to the attention of the Provincial Board, of the Province of Iloilo, by means of a letter questioning the legality of the minutes of the regular possession of the Municipal Council without his presence individual that the Provincial Board resolved on September 23, 1960 to return the minutes of the regular session of the Municipal Council of Buenavista, Iloilo, informing the Mayor that per the opinion of the Legal Assistant, said minutes is legal. XIII

That despite the resolution of the Provincial Board, the Mayor refused and still refuses to recognize the validity of the acts of the Municipal Council and the legality of its regular session held in his absence. On the basis of the foregoing Stipulation of Facts (plus the testimony of Councilor Exequiel Golez), the trial court (on July 26, 1961) rendered the decision above adverted to, partly stating: This Court, after perusal of all the records of this case has reached the conclusion that the sessions held by the petitioner during the absence of the respondent Mayor were perfectly valid and legal. The attendance of the Mayor is not essential to the validity of the session as long as there is quorum constituted in accordance with law. To declare that the proceedings of the petitioners were null and void, is to encourage recalcitrant public officials who would frustrate valid session for political end or consideration. Public interest will immensely suffer, if a mayor who belongs to one political group refuses to call or attend a session, because the Council is controlled by another political group. In a democrats the minority should respect the majority and inasmuch as the petitioners constitute the majority political group, it is but natural that they could validly hold a valid session, in order to devise means for public interest. The respondent here as Municipal Mayor should have given good example, by calling and attending regular session on the dates fixed by the Council. In the discharge of his of official duty, he should consider the Session Hall of the Municipal Council as the sanctuary and depository of public interest and public welfare. Any member of the Council should enter the Session Hall, not as a representative of any political part or group, but as a representative of the people of the municipality whose interest and welfare should be safeguarded by the Council. In entering this Hall, he must lay aside his political affiliation, interest, and consideration, because it is the sworn duty of every councilor to perform his duty with justice and impartiality. Not to attend a meeting, constitutes an abandonment of the people's welfare. One may be in the minority group, but he can discharge his duty with honor and prestige as a fiscalizer, to fiscalize the doings and actuations of the majority. He may be overwhelmed in his plan or project by superior numerical majority but if he could adduce good reasons and arguments in favor of the welfare of the people, his task as a fiscalizer is thereby attained. There is no fear on attending any session because if your project is not carried out, you may have the remedy, either by administrative or judicial relief, by questioning and ordinance or resolution passed by the majority, which may be null and void because they are excessive and unreasonable. So, there is no reason why the respondent in this case had refused to attend the session of the Council. Petitioners here claim moral damages pursuant to the provisions of Article 2219, in connection with Article 21 and Article 27 of the new Civil Code. Said Article 27 provides as follows: 'Any person suffering material or moral loss because a public servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for damages and other relief against the latter, without prejudice to any disciplinary administrative action that my be taken.'lawphil.net But in support of the allegations in the petition, only petitioner Exequiel Golez was presented as a witness who prove moral damages he suffered as a consequence of the refusal the respondent Susano Tayo to perform his official duty. such, of all the petitioners, only Exequiel Golez is entitled receive moral damages in the sum of P100.00. IN VIEW OF THE FOREGOING, the petition for a writ of mandamus is hereby granted, and the respondent is here ordered to give due course to the resolutions and ordinance passed by the petitioners in the regular sessions during the absence of the respondent, to give due course and sign the payrolls covering the periods of June 1, June 15, July 6, July 20, August 3, August 17, September 7, and September 21, 196 for the payment of per diems of the petitioners as Municipal Councilors; to pay to said Exequiel Golez, the sum of P100.00 as moral damage, to pay the sum of P100.00 as attorney's fee and to pay the costs of the proceeding. SO ORDERED. Respondent-appellant claims, in this appeal, that the trial court erred in holding that the sessions held by petitioners-appellees during his absence and during the absence of his Vice-Mayor and the No. 1 and No. 2 Councilors the Municipal Council of Buenavista, Iloilo were valid an legal. The claim is untenable. In the first place, there is no question that the sessions at issue were held on the days set for regular sessions of the council, as authorized an approved in a previous resolution. Secondly, it is not disputed that a majority of the members of the council (six out of ten) were present in these sessions. Consequently, pursuant to Section 2221 of the Revised Administrative Code which provides: SEC. 2221. Quorum of council Enforcing Attendance of absent members. The majority of the council elected shall constitute a quorum to do business; .... there was a quorum to do business in all the sessions in question. The term "quorum" has been defined as that number of members of the body which, when legally as assembled in their proper places, will enable the body to transact its proper business, or, in other words, that number that makes a lawful body and gives it power to pass a law or ordinance or do any other valid corporate act. (4 McQuillin, Municipal Corporation [3rd Ed 478]; see also State vs. Wilkesville Tp., 20 Ohio St. 288). Appellant, however asserts that while under Section 2221 of the Revised Administrative Code, the majority of the members of the council constitutes a quorum to do business, the council "shall be presided by the Mayor and no one else", inasmuch as it is one of the duties imposed upon him under Section 2194(d) of the Revised Administrative Code. 1 The argument would be correct if the mayor (herein appellant) were present at the sessions in question and was prevented from presiding therein, but not where, as in the instant case, he absented himself therefrom. Appellant likewise invokes Section 7 (third paragraph) of Republic Act No. 9264, 2 in support of his view that the sessions in question were null and void, as they were not presided by him or by his Vice-Mayor, or by the councilor who obtained the largest number of votes.lawphil.net It is true that this section mentions only the vice-mayor, or in his place, the councilor who obtained the largest number of votes who could perform the duties of the mayor, in the event of the latter's temporary incapacity to do so, except the power to appoint, suspend, or dismiss employees. Ordinarily, this enumeration would be in interpreted as exclusive, following the general principle of inclusio unius, est exclusio alterius, but there are cogent reasons to disregard this rule in this case, since to adopt it would cause inconvenience, hardship, and injury to public interest, as it would place in the hands of mayor, vice-mayor, and the councilor receiving the highest number of votes an instrument to defeat the law investing the legislative power in the municipal council, by simply boycotting, as they continuously did for 4 months, regular sessions of the council. It is to be noted that same section 7 of Republic Act No. 2264 invoked by appellant provides, in case of permanent incapacity of mayor, vice-mayor, and the councilor obtaining the largest number of votes, to assume and perform the duties of mayor, the councilor receiving the next largest number of votes, and so on, can assume and perform such duties. We see no strong reason why the same procedure should not be followed

in case of temporary incapacity, there being no express prohibition against its observance. The legal provision being therefore susceptible of two in interpretations, we adopt the one in consonance with the resumed intention of the legislature to give its enactmentthe most reasonable and beneficial construction, the that will render them operative and effective and harmonious with other provisions of law. This is imperative because, as already pointed out heretofore, under the law "the majority of the council elected shall constitute a quorum to do business", and this would be defeated if adopt the literal interpretation of appellant that only mayor, vice-mayor, or the councilor receiving the largest number of votes could preside the council's meeting, to legal, irrespective of the presence of a quorum or majority of the councilors elected. Such an interpretation would, indeed, be fraught with dangerous consequences. For it would, in effect, deprive the municipal council its function, namely, the enactment of ordinances design for the general welfare of its inhabitants. As the trial court aptly observed, "To declare that the proceedings of thepetitioners (herein appellees) were null and void, is to encourage recalcitrant public officials who would frustrate valid sessions for political end or consideration. Public interest will immensely suffer, if a mayor who belong to one political group refused to call or attend a session because the council is controlled by another political group." Lastly, appellant contests the award of moral damage to appellee councilor Exequiel Golez. We find said award proper under Article 27 of the new Civil Code, 3 considering that according to the trial court, he (Golez) was able to prove that he suffered the same, as a consequence of appellant's refusal to perform his official duty, not withstanding the action taken by the Provincial Fiscal an the Provincial Board upholding the validity of the session in question. WHEREFORE, the decision appealed from is hereby affirmed with costs against respondent-appellant. So ordered.

RENE KNECHT and KNECHT, INC., petitioners, vs. UNITED CIGARETTE CORP., represented by ENCARNACION GONZALES WONG, and EDUARDO BOLIMA, Sheriff, Regional Trial Court, Branch 151, Pasig City, respondents. DECISION SANDOVAL-GUTIERREZ, J.: [1] Before us is a petition for review on certiorari seeking to set aside the Decision dated May 19, 1999 of the Court of Appeals in CAG.R. SP No. 47978 upholding the validity of the Orders dated June 27, 1997 and May 12, 1998 issued by the Regional Trial Court, Branch 151, Pasig City in Civil Case No. 9165. The facts are: Rose Packing Company, Inc. (Rose Packing), a domestic corporation, owns three (3) parcels of land with a total area of 31, 842 square meters situated in Sto. Domingo, Cainta, Rizal. The largest among these parcels has an area of 31,447 square meters covered by Transfer Certificate of Title (TCT) No. 73620 of the Registry of Deeds of Rizal. The other two remaining parcels are unregistered. The area covered by TCT No. 73620 is mortgaged with the Philippine Commercial and Industrial Bank (PCIB). On October 26, 1965, Rose Packing, through its President Rene Knecht, sold to the United Cigarette Corporation (UCC), a domestic [2] corporation, the said parcels of land, with all the buildings and improvements thereon, for P800,000.00. Rose Packing made a warranty that the lots are free from all liens and encumbrances, except the real estate mortgage constituted over the area covered by TCT No. 73620. For its part, UCC promised to pay the purchase price under the following terms and conditions: (a) a P250,000.00 down payment must be made upon signing of the deed of sale with mortgage; (b) it will assume Rose Packings P250,000.00 overdraft line obligation with the PCIB, subject to the latters approval; and (c) the balance of P300,000.00 shall be paid in two annual installments at P150,000.00 each (within 12 and 14 months) from the date of sale, with 10% annual interest. To secure the deal, UCC initially paid Rose Packing P80,000.00 as earnest money. Before the deed of sale could be executed, the parties found that Rose Packings actual obligation with the PCIB far exceeded theP250,000.00 which UCC assumed to pay under their agreement. So the PCIB demanded additional collateral from UCC as a condition precedent for the approval of the sale of the mortgaged property. However, UCC did not comply. Meanwhile, Rose Packing again offered to sell the same lots to other prospective buyers without the knowledge of UCC and without [3] returning to the latter the earnest money it earlier paid. Aggrieved, UCC, on March 2, 1966, filed with the then Court of First Instance (CFI) of Rizal, Branch I, a complaint against Rose Packing and Rene Knecht for specific performance and recovery of damages, docketed as Civil Case No. 9165. On July 15, 1969, the CFI rendered a Decision holding that Rose Packing was in bad faith when it did not inform UCC the amount of its actual obligation with the PCIB. Considering that UCC agreed to assume the overdraft line obligation of Rose Packing with the PCIB only to the extent of P250,000.00, it (UCC) cannot be compelled to assume the excess obligation. The dispositive portion of the CFI Decision reads: PREMISES CONSIDERED, this Court orders defendants Rose Packing Companys, Inc. and its President, Rene Knecht to convey and deliver to plaintiff, United Cigarette Corporation, the three parcels of land object of the complaint, together with all the buildings and improvements thereon, with the exception of machines for canning factory, and to execute the corresponding deed of sale with mortgage covering said properties for the purchase price of P800,000.00 under the following terms and conditions: P250,000.00 as down payment upon the signing of the Deed of Sale with Mortgage, less the P80,000.00 which plaintiff had paid to defendant company as earnest money and less the amount in excess of the P250,000.00 overdraft line obligation of defendant corporation with Philippine Commercial and Industrial Bank which the parties had agreed will be assumed by the plaintiff; assumption by the plaintiff of the total of the overdraft line obligation of defendant corporation to the Philippine Commercial and & Industrial Bank for which the properties are answerable; and the balance of P300,000.00 to be paid in two equal installments payable 12 months and 24 months from date of sale with 10% annual interest each installment to be covered by draft accepted by the Philippine Bank of Commerce; provided, that, together with the P80,000.00 earnest money paid by plaintiff to defendant, should the sum of defendant corporations overdraft line obligation to the Philippine Commercial and Industrial Bank (which obligation will be assumed by plaintiff) total more than P420,000.00, which is the total of the P170,000.00 still due as down payment and the P250,000.00 agreed portion of the obligation to the Philippine Commercial and Industrial Bank to be assumed by plaintiff, the excess over said amount of P420,000.00, as well as the other amounts which plaintiff may have to pay for existing attachments and other encumbrances nd authorized by existing orders and the expenses in connection with the same, shall be insufficient from the 2 installment as well. Should the total balance of P720,000.00 of the purchase price be insufficient to free the properties from the obligation of defendant corporation for which they are or have been made answerable, defendant corporation is hereby ordered to reimburse plaintiff the amount of the excess and to execute the appropriate and effective deed without mortgage transferring and conveying the subject properties to plaintiff. Defendant Rose Packing Company, Inc., is also ordered to pay plaintiff the amount of P10,000.00 in moral damages and to indemnify plaintiff United Cigarette Corporation in the amount of P20,000.00 as litigation expenses which include the costs of this suit and attorneys fees. [4] SO ORDERED. Rose Packing interposed an appeal to the Court of Appeals (CA), docketed as CA-G.R. No. 45525-R. On March 30, 1973 and during [5] the pendency of this appeal, UCCs corporate life expired. Alberto Wong, one of UCCs major stockholders, was appointed [6] trustee/liquidator of the dissolved corporation. He then represented UCC in the proceedings in Civil Case 9165. On June 26, 1976, the CA affirmed the CFI Decision with modification in the sense that the award of moral damages was deleted. This prompted Rose Packing and Rene Knecht to file with this Court a petition for review on certiorari, docketed as G.R. No. [7] L-44977. In a Resolution dated January 5, 1977, this Court denied the petition for lack of merit. They filed a motion for [8] reconsideration but was denied. On March 23, 1977, this Courts Decision became final and executory. Unfortunately, several supervening incidents hampered the due execution of the CFI Decision. The records show that on July 15, 1968, even before the trial court could render its Decision in Civil Case No 9165, Rose Packing filed Civil Case No. 11015 with Branch 2 of the same CFI, praying among others, to enjoin the PCIB from proceeding with the foreclosure sale of the land covered by TCT No. 73620. The CFI denied the application for injunction. Thus, the foreclosure sale proceeded and title over the subject lot was consolidated in the name of the PCIB through the issuance of TCT No. 286176 by the Registry of Deeds [9] of Rizal. On appeal by Rose Packing, docketed as CA-G.R. No. 43198-R, the Court of Appeals upheld the validity of the foreclosure sale but declared void ab initio the consolidation of ownership in the name of PCIB over the subject property for being

premature. The appellate court granted Rose Packing a 60-day period within which to redeem the foreclosed property. Unsatisfied, [10] Rose Packing filed a petition for review on certiorari with this Court, docketed as G.R. No. L.-33084. [11] On November 14, 1988, this Court rendered a Decision in G.R. No. L.-33084 declaring the foreclosure sale void and remanding Civil Case No. 11015 to the lower court for further proceedings to determine the exact amount of Rose Packings liability with the PCIB. In effect, ownership over the subject property reverted to Rose Packing. At that time, however, Rose Packing (like UCC) had been dissolved with the expiration of its corporate charter on June 10, 1986. Thereupon, Knecht, Inc., a domestic corporation, undertook the liquidation of Rose Packings assets as well as the winding-up of its pending affairs. Subsequently, on July 19, 1990, UCC, through its liquidator Alberto Wong, filed with the CFI, Branch 2 a motion for leave to intervene and to admit its complaint-in-intervention in Civil Case No. 11015, which case was then absorbed by Branch 152 of the Regional Trial [12] Court (RTC), Pasig City pursuant to the implementation of Batas Pambansa Blg. 129 (the Judiciary Reorganization Act of 1981). The complaint-in-intervention sought to compel Rose Packing to comply with the Decision in Civil Case No. 9165 and prayed that a writ of execution be issued to enforce that decision. Rose Packing, through its liquidator/trustee, Knecht, Inc., opposed the motion claiming that the Decision in Civil Case No. 9165 which became final on March 23, 1977 can no longer be enforced since more than [13] ten (10) years had elapsed from its finality. Despite the opposition, the RTC of Pasig (Branch 152), in an Order dated December 10, 1990, granted UCCs motion for leave to intervene and admitted its complaint-in-intervention. On October 10, 1991, the same court issued an Order granting the writ of execution prayed for by UCC to enforce the Decision in Civil Case No. 9165. Rose Packing, through Knecht, Inc. then questioned the validity of these twin orders via a petition for certiorari with the CA, [14] docketed as CA-G.R. SP No. 26545. The CA, in its Decision dated March 5, 1992, nullified the CFI Orders dated December 10, 1990 and October 10, 1991, holding that UCCs intervention in Civil Case No. 11015 is not warranted since the only purpose is to execute the judgment obtained by UCC against petitioner (Rose Packing) in Civil Case No. 9165. Thus, the RTC of Pasig City (Branch 152) has no jurisdiction to admit the complaint-in-intervention and to issue the assailed writ of execution. While it nullified the Orders dated December 10, 1990 and October 10, 1991, the CA nonetheless stressed that UCCs right to execute the judgment in Civil Case No. 9165 has not yet prescribed insofar as the parcel of land covered by TCT No. 73620 is concernedbecause this land was involved in Civil Case No. 11015. Its execution can be availed of in Branch 151, not in Branch 152, of the RTC, Pasig City. As regards the two other unregistered parcels of land, the judgment has already prescribed because these properties were not involved in Civil Case No. 11015, hence, UCC should have then sought the execution of the judgment with respect to said properties. [15] Pursuant to the CA Decision in CA-G.R. SP No. 26545, the RTC of Pasig City (Branch 151) issued an Order on June 17, 1992 granting UCCs motion for the issuance of a writ of execution of the judgment in Civil Case No. 9165 with respect to the land covered by TCT 73620 (then still in the name of PCIB under TCT No. 286176). In seeking the annulment of this order, Rose Packing, through Knecht, Inc. and Rene Knecht, filed with the CA CA-G.R. SP No. 28333 for certiorari. For the second time, it assailed the validity of the judgment in Civil Case No. 9165 and reiterated its position that UCCs right to enforce that judgment had already prescribed. [16] On March 18, 1993, the CA rendered a Decision in CA-G.R. SP No. 28333 reiterating its ruling in CA-G.R. No. 26545 that UCCs right to file a motion for execution of the Decision in Civil Case No. 9165 has not yet prescribed insofar as the titled land is concerned, and that Rose Packing could no longer re-litigate Civil Case No. 9165 which had long become final and executory. Forthwith, Rose Packing filed a petition for review on certiorari with this Court, docketed as G.R. No. 109385. On August 30, 1993, [17] this Court denied the petition on the ground that no reversible error was committed by the CA in rendering the questioned decision in CA-G.R. SP No. 28333. Rose Packing filed a motion for reconsideration but it was denied with finality by this Court in a Resolution dated October 20, 1993. On November 14, 1993, Knecht, Inc. and Rene Knecht, claiming that they had just discovered UCCs dissolution on April 10, 1973 and that the three-year period to liquidate its affairs had already expired, again questioned before the RTC of Pasig City, Branch 151, the validity of the June 17, 1992 Order granting the writ of execution in Civil Case No. 9165. They averred that upon its dissolution, UCC may no longer move for execution. [18] On March 24, 1994, the trial court ordered the issuance of an alias writ of execution in favor of UCC. The alias writ was subsequently issued on April 19, 1994. When the alias writ was about to be implemented, Rose Packing, through Knecht, Inc. and Rene Knecht, instituted another petition [19] with the CA, docketed as CA-G.R. SP No. 33852. They assailed the validity of the writ, reiterating that the judgment in Civil Case No. 9165 which had become final and executory in 1977 cannot be enforced in favor of UCC due to the latters dissolution in 1973. [20] The CA, on October 25, 1994, dismissed the petition. It ruled that the validity and propriety of the enforcement of the Decision in Civil Case No. 9165 had been resolved with finality in CA-G.R. SP No. 26545 and CA-G.R. SP No 28333, and affirmed by this Court in G.R. No. 109385. Aggrieved, Knecht, Inc. and Rene Knecht again filed a petition with this Court, docketed as G.R. Nos. 118183-84, questioning the Decision of the Court of Appeals in CA-G.R. SP No. 33852. In a Resolution dated January 30, 1995, this Court denied the petition for [21] being technically infirm. Their motion for reconsideration was denied with finality on March 15, 1995. On July 15, 1995, UCC, thru Encarnacion Gonzales Wong, its new trustee/liquidation, filed a motion for the issuance of a second alias writ of execution to enforce the decision in Civil Case No. 9165 insofar as the land covered by TCT No. 73620 is concerned. Surprisingly, for unknown reasons, title over the subject realty (then already substituted by TCT No. 286176 in the name [22] of PCIB) underwent an anomalous transfer in the name of Knecht, Inc under TCT No. 613113. [23] On November 8, 1995, upon UCCs motion, the trial court issued a Second Alias Writ of Execution. To further derail the implementation of the second alias writ of execution over the property covered by TCT No. 613113, Knecht, Inc. and Rene Knecht filed a petition with the CA, docketed as CA G.R. SP No. 39003. They contended anew that Civil Case No. 9165 can no longer be enforced for having been rendered moot and academic because of UCCs dissolution in 1973 and that of Rose Packing [24] in 1986. Finding the contention devoid of merit, the CA in its Decision dated May 8, 1996, dismissed the petition. It held that the three-year period allowed to a dissolved corporation for liquidating its assets and winding up of its affairs can be extended under certain circumstances where, as here, the suit filed by UCC during its corporate existence necessarily prolonged that period. Moreover, mere dissolution of a corporation cannot be invoked by Rose Packing to unjustly enrich itself at the expense of the dissolved corporation.

Knecht, Inc. and Rene Knecht filed with this Court a petition for review, docketed as G.R. No. 124983, questioning the CA Decision in CA-G.R. SP No. 39003. In a Resolution dated August 26, 1996, this Court dismissed the petition for petitioners failure to pay the prescribed docketing and other fees within the reglementary period. On November 11, 1996, their motion for reconsideration was [25] denied with finality. [26] [27] Thereafter, the trial court, upon motion by UCC, issued an Order dated June 27, 1997 directing Sheriff Eduardo L. Bolima of Branch 151, RTC, Pasig City to execute the corresponding deed of sale with mortgage in compliance with the judgment in Civil Case No. 9165. [28] Rene Knecht filed a motion for reconsideration insisting that the execution of the judgment in Civil Case No. 9165 cannot be availed of anymore whether against Rose Packing or in favor of UCC because both corporations had been dissolved. This motion was [29] denied by the trial court in an Order dated May 12, 1998. Undaunted, Rene Knecht and Knecht, Inc. filed a petition with the CA, docketed as CA-G.R. SP No. 47978, assailing the trial courts jurisdiction to issue the June 27, 1997 and May 12, 1998 Orders. They impleaded as respondents Hon. Deogracias O. Felizardo (Judge, RTC, Branch 151, Pasig City), Sheriff Eduardo L. Bolima and UCC. Pending resolution of this petition, Sheriff Bolima executed [30] a Sheriffs Deed of Absolute Sale dated June 16, 1998 transferring to UCC the parcel of land covered by TCT No. 613113 for a consideration of P720,000.00 (which is the difference between the agreed purchase price of P800,000.00 and the amount of P80,000.00 paid by UCC as earnest money). UCC deposited the P720,000.00 with the Cashier of the Clerk of Court, RTC, Pasig City. [31] On May 10, 1999, the CA rendered the now questioned Decision, upholding the twin orders of the trial court dated June 27, 1997 and May 12, 1998. The CA emphasized that all the issues raised in the petition including the validity of the enforcement of the decision and the corresponding writ of execution issued in Civil Case No. 9165 in favor of UCC had already been finally decided and judicially laid to rest in the several certiorari proceedings filed by Rene Knecht and Knecht, Inc. with the Court of Appeals and this court. These issues cannot be reopened and re-litigated without violating the rule on res judicata. Furthermore, the certiorari proceedings directed against the enforcement of the same decision and writ of execution constitute forum-shopping which, in essence, degrades the administration of justice. Upon denial by the CA of their motion for reconsideration, Rene Knecht and Knecht, Inc. filed the present petition for review on certiorari assailing the Decision in CA-G.R. SP No. 47978. In the main, petitioners vehemently aver that the absence of a statutory authority for the extension of the life of UCC for the purpose of pursuing Civil Case No. 9165 after its dissolution rendered void the July 15, 1969 Decision of the trial court in that case. A void decision can be attacked any time either directly or collaterally without violating the rules on res judicata and non-forum shopping. Necessarily, the writs of execution and all other orders issued by the trial court to implement that void decision are [32] likewise void. In support of this contention, petitioners cite Sumera vs. Valencia, National Abaca and Other Fibers Corporation vs. [33] [34] Pore and Board of Liquidators vs. Kalaw. Furthermore, petitioners claim that the November 8, 1995 second alias writ of execution cannot be implemented by the June 27, 1997 Order of the trial court because: (1) the second alias writ varied the terms of the judgment in Civil Case No. 9165 resulting in the deprivation of petitioner Knecht, Inc. of its property without due process; and (2) the said writ having expired, became functus officio. The petition lacks merit. Viewed from the facts stated above, it appears that petitioners have filed a total of eight (8) appeals and/or petitions (including the present petition) with this Court and the CA, all geared towards frustrating the execution of the judgment in Civil Case No. 9165, to wit: 1. CA-G.R. SP No. 28333 Petition for certiorari filed with the CA to annul the June 17, 1992 Order of the RTC, Branch 151, Pasig City allowing the issuance of a writ of execution to enforce the decision in Civil Case No. 9165 (in accordance with the Decision of the CA in CA-G.R. SP No. 26545). Petitioners insisted that the judgment in Civil Case No. 9165 cannot be enforced due to prescription. The CA dismissed the petition and upheld the questioned order of the trial court; 2. G.R. No. 109385 Petition for review on certiorari filed with this Court questioning the CA Decision in CA-G.R. SP No. 28333. This Court found no reversible error on the part of the CA; 3. CA-G.R. SP No. 33852 Petition for certiorari filed with the CA seeking to enjoin the enforcement of an alias writ of execution issued by the trial court on April 19, 1994. Petitioners interposed the new argument that the judgment in Civil Case No. 9165 cannot be enforced due to the dissolution of UCC on March 30, 1973. The CA dismissed the petition; 4. G.R. Nos. 118183 and 118184 Petition for review on certiorari filed with this Court questioning the CA Decision in CA-G.R. SP No. 33852. This Court dismissed the petition in a Resolution dated January 30, 1995; 5. CA-G.R. SP No. 39003 Petition for certiorari and prohibition with prayer for the issuance of temporary restraining order filed with the CA seeking, among others, the annulment of the second alias writ of execution issued by the trial court on November 8, 1995. Petitioners reiterated that the judgment in Civil Case No. 9165 cannot anymore be enforced for having been rendered moot and academic by the dissolution of UCC. The CA denied this petition for lack of merit and upheld the validity of the second alias writ of execution; 6. G.R. No. 124983 Petition for review on certiorari filed with this Court questioning the CA Decision in CA-G.R. SP No. 39003. This Court denied the petition in a Resolution dated August 26, 1996; 7. CA-G.R. SP No. 47978 Petition for certiorari filed with the CA seeking to annul the June 27, 1997 Order of the trial court directing Sheriff Eduardo L. Bolima of Branch 151, RTC, Pasig City to execute the corresponding deed of sale with mortgage in compliance with the judgment and the second alias writ of execution issued in Civil Case No. 9165. Petitioners persistently claimed that the decision in Civil Case No. 9165 is voided by the expiration of UCCs three-year period of liquidation from its dissolution. Furthermore, they theorized that the second alias writ of execution is improper because it varied the terms of the judgment and also deprived Knecht, Inc. of its property without due process of law. The CA denied this petition and cited petitioners guilty of forum shopping; 8. G.R. No. 139370 The present petition for review filed with this Court questioning the decision of the CA in CA-G.R. SP No. 47978. Petitioners basis in filing these multiple petitions is the expiration of UCCs corporate existence. There is no doubt that the judgment in Civil Case No. 9165 became final and executory on March 23, 1977. That this judgment is still enforceable was decided with finality by this Court in G.R. No. 109385. [35] In Reburiano vs. Court of Appeals, a case with similar facts, this Court held: the trustee (of a dissolved corporation) may commence a suit which can proceed to final judgment even beyond the three-year period (of liquidation) x x x, no reason can be conceived why a suit already commenced by the corporation itself during its

existence, not by a mere trustee who, by fiction, merely continues the legal personality of the dissolved corporation, should not be accorded similar treatment to proceed to final judgment and execution thereof. (Emphasis ours) Indeed, the rights of a corporation (dissolved pending litigation) are accorded protection by law. This is clear from Section 145 of the Corporation Code, thus: Section 145. Amendment or repeal. No right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof. (Emphasis ours) The dissolution of UCC itself, or the expiration of its three-year liquidation period, should not be a bar to the enforcement of its rights as a corporation. One of these rights, to be sure, includes the UCCs right to seek from the court the execution of a valid and final judgment in Civil Case No. 9165 through its trustee/liquidator Encarnacion Gonzales Wong for the benefit of its stockholders, creditors and any other person who may have legal claims against it. To hold otherwise would be to allow petitioners to unjustly enrich themselves at the expense of UCC. This, in effect, renders nugatory all the efforts and expenses of UCC in its quest to secure justice, not to mention the undue delay in disposing of this case prejudicial to the administration of justice. Next, petitioners aver that the November 8, 1995 second alias writ of execution, implemented in the June 27, 1997 Order of the trial court, varied the judgment in Civil Case No. 9165 resulting in the deprivation of their property without due process. Their argument is fallacious. Suffice it to state that the final decision sought to be enforced in the alias writ only pertains to the area covered by TCT No. 73620, not to the other two unregistered lots. The said writ was intended only for the execution of the judgment respecting one and the same parcel of land which, as elucidated earlier, underwent series of transfer from Rose Packing (TCT No. 73620) to PCIB (TCT No. 286176) and later to petitioner Knecht, Inc. (TCT No. 613113). As aptly found by the CA: x x x what is being commanded to be conveyed in the judgment is Lot 2, Parcel 20, Plan 11-8099, Amd-2, formerly covered by TCT No. 73620, Book No. T-645, Page No. 20 of the Registry of Deeds of Rizal, presently covered by TCT No. 613113, due to what respondent UCC claims to be anomalous transfers. Verily, not because the title to a parcel of land is cancelled and replaced by a [36] new one makes it a new or different lot. Lastly, petitioners submit that the November 8, 1995 second alias writ of execution cannot be implemented by the June 27, 1997 Order of the trial court on the ground that the said writ had already expired and, therefore, had become functus officio pursuant to former Section 11, Rule 39 of the Rules of Civil Procedure. We quote with approval the following disquisition of the CA in rejecting petitioners argument: Petitioners protestation that the second alias writ of execution dated November 8, 1995 could no longer be enforced after its life span of (sixty) 60 days is incorrect. At the present times, the life span of a writ of execution is without limit for as long as the judgment has not been satisfied, although it is returnable to the court issuing it immediately after the judgment has been satisfied in part or in full. If the judgment cannot be satisfied in full within thirty (30) days after receipt of the writ, the officers duty is to report to the court and state the reason therefor (Section 14, Rule 39, 1997 Rules). There is, therefore, no more need to ask an alias writ of [37] execution under the new Rules. To be sure, the expiration of the second alias writ is attributable to petitioners alone who deliberately caused the filing of numerous and unmeritorious petitions with the CA and this Court to thwart the long-delayed execution of the final and executory Decision in Civil Case No. 9165. It may now be trite, but apt, to stress that the Rules of Court shall be liberally construed in order to promote their objective of [38] securing a just, speedy and inexpensive disposition of every action and proceeding. They are mere tools designed to facilitate the attainment of justice. Any rigid application of the rules which would tend to frustrate, rather than promote, substantial justice is [39] abhorred. Every litigation must come to an end. While a litigants right to initiate an action in court is fully respected, however, once his case has been adjudicated by a competent court in a valid final judgment, he should not be permitted to initiate similar suits hoping to secure a favorable ruling, for this will result to endless litigations detrimental to the administration of justice, as in this case. WHEREFORE, the instant petition is DENIED and the assailed Decision of the Court of Appeals in CA-G.R. SP No. 47978 is AFFIRMED. Treble costs against petitioners. SO ORDERED.

LA CHEMISE LACOSTE, S. A., petitioner, vs. HON. OSCAR C. FERNANDEZ, Presiding Judge of Branch XLIX, Regional Trial Court, National Capital Judicial Region, Manila and GOBINDRAM HEMANDAS, respondents. G.R. No. L-65659 May 2l, 1984 GOBINDRAM HEMANDAS SUJANANI, petitioner, vs. HON. ROBERTO V. ONGPIN, in his capacity as Minister of Trade and Industry, and HON. CESAR SAN DIEGO, in his capacity as Director of Patents, respondents. Castillo, Laman, Tan & Pantaleon for petitioners in 63796-97. Ramon C. Fernandez for private respondent in 63796-97 and petitioner in 65659. GUTIERREZ, JR., J.: It is among this Court's concerns that the Philippines should not acquire an unbecoming reputation among the manufacturing and trading centers of the world as a haven for intellectual pirates imitating and illegally profiting from trademarks and tradenames which have established themselves in international or foreign trade. Before this Court is a petition for certiorari with preliminary injunction filed by La Chemise Lacoste, S.A., a well known European manufacturer of clothings and sporting apparels sold in the international market and bearing the trademarks "LACOSTE" "CHEMISE LACOSTE", "CROCODILE DEVICE" and a composite mark consisting of the word "LACOSTE" and a representation of a crocodile/alligator. The petitioner asks us to set aside as null and void, the order of judge Oscar C. Fernandez, of Branch XLIX, Regional Trial Court, National Capital Judicial Region, granting the motion to quash the search warrants previously issued by him and ordering the return of the seized items. The facts are not seriously disputed. The petitioner is a foreign corporation, organized and existing under the laws of France and not doing business in the Philippines, It is undeniable from the records that it is the actual owner of the abovementioned trademarks used on clothings and other goods specifically sporting apparels sold in many parts of the world and which have been marketed in the Philippines since 1964, The main basis of the private respondent's case is its claim of alleged prior registration. In 1975, Hemandas & Co., a duly licensed domestic firm applied for and was issued Reg. No. SR-2225 (SR stands for Supplemental Register) for the trademark "CHEMISE LACOSTE & CROCODILE DEVICE" by the Philippine Patent Office for use on T-shirts, sportswear and other garment products of the company. Two years later, it applied for the registration of the same trademark under the Principal Register. The Patent Office eventually issued an order dated March 3, 1977 which states that: xxx xxx xxx ... Considering that the mark was already registered in the Supplemental Register in favor of herein applicant, the Office has no other recourse but to allow the application, however, Reg. No. SR-2225 is now being contested in a Petition for Cancellation docketed as IPC No. 1046, still registrant is presumed to be the owner of the mark until after the registration is declared cancelled. Thereafter, Hemandas & Co. assigned to respondent Gobindram Hemandas all rights, title, and interest in the trademark "CHEMISE LACOSTE & DEVICE". On November 21, 1980, the petitioner filed its application for registration of the trademark "Crocodile Device" (Application Serial No. 43242) and "Lacoste" (Application Serial No. 43241).The former was approved for publication while the latter was opposed by Games and Garments in Inter Partes Case No. 1658. In 1982, the petitioner filed a Petition for the Cancellation of Reg. No. SR-2225 docketed as Inter Partes Case No. 1689. Both cases have now been considered by this Court in Hemandas v. Hon. Roberto Ongpin (G.R. No. 65659). On March 21, 1983, the petitioner filed with the National Bureau of Investigation (NBI) a letter-complaint alleging therein the acts of unfair competition being committed by Hemandas and requesting their assistance in his apprehension and prosecution. The NBI conducted an investigation and subsequently filed with the respondent court two applications for the issuance of search warrants which would authorize the search of the premises used and occupied by the Lacoste Sports Center and Games and Garments both owned and operated by Hemandas. The respondent court issued Search Warrant Nos. 83-128 and 83-129 for violation of Article 189 of the Revised Penal Code, "it appearing to the satisfaction of the judge after examining under oath applicant and his witnesses that there are good and sufficient reasons to believe that Gobindram Hemandas ... has in his control and possession in his premises the ... properties subject of the offense," (Rollo, pp. 67 and 69) The NBI agents executed the two search warrants and as a result of the search found and seized various goods and articles described in the warrants. Hemandas filed a motion to quash the search warrants alleging that the trademark used by him was different from petitioner's trademark and that pending the resolution of IPC No. 1658 before the Patent Office, any criminal or civil action on the same subject matter and between the same parties would be premature. The petitioner filed its opposition to the motion arguing that the motion to quash was fatally defective as it cited no valid ground for the quashal of the search warrants and that the grounds alleged in the motion were absolutely without merit. The State Prosecutor likewise filed his opposition on the grounds that the goods seized were instrument of a crime and necessary for the resolution of the case on preliminary investigation and that the release of the said goods would be fatal to the case of the People should prosecution follow in court. The respondent court was, however, convinced that there was no probable cause to justify the issuance of the search warrants. Thus, in its order dated March 22, 1983, the search warrants were recalled and set aside and the NBI agents or officers in custody of the seized items were ordered to return the same to Hemandas. (Rollo, p. 25) The petitioner anchors the present petition on the following issues: Did respondent judge act with grave abuse of discretion amounting to lack of jurisdiction, (i) in reversing the finding of probable cause which he himself had made in issuing the search warrants, upon allegations which are matters of defense and as such can be raised and resolved only upon trial on the merits; and (ii) in finding that the issuance of the search warrants is premature in the face of the fact that (a) Lacoste's registration of the subject trademarks is still pending with the Patent Office with opposition from Hemandas; and (b) the subject trademarks had been earlier registered by Hemandas in his name in the Supplemental Register of the Philippine Patent Office? Respondent, on the other hand, centers his arguments on the following issues:

I THE PETITIONER HAS NO CAPACITY TO SUE BEFORE PHILIPPINE COURTS. II THE RESPONDENT JUDGE DID NOT COMMIT A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OF JURISDICTION IN ISSUING THE ORDER DATED APRIL 22, 1983. Hemandas argues in his comment on the petition for certiorari that the petitioner being a foreign corporation failed to allege essential facts bearing upon its capacity to sue before Philippine courts. He states that not only is the petitioner not doing business in the Philippines but it also is not licensed to do business in the Philippines. He also cites the case of Leviton Industries v. Salvador (114 SCRA 420) to support his contention The Leviton case, however, involved a complaint for unfair competition under Section 21-A of Republic Act No. 166 which provides: Sec. 21 A. Any foreign corporation or juristic person to which a mark or tradename has been registered or assigned under this Act may bring an action hereunder for infringement, for unfair competition, or false designation of origin and false description, whether or not it has been licensed to do business in the Philippines under Act numbered Fourteen Hundred and Fifty-Nine, as amended, otherwise known as the Corporation Law, at the time it brings the complaint; Provided, That the country of which the said foreign corporation or juristic person is a citizen, or in which it is domiciled, by treaty, convention or law, grants a similar privilege to corporate or juristic persons of the Philippines. We held that it was not enough for Leviton, a foreign corporation organized and existing under the laws of the State of New York, United States of America, to merely allege that it is a foreign corporation. It averred in Paragraph 2 of its complaint that its action was being filed under the provisions of Section 21-A of Republic Act No. 166, as amended. Compliance with the requirements imposed by the abovecited provision was necessary because Section 21-A of Republic Act No. 166 having explicitly laid down certain conditions in a specific proviso, the same must be expressly averred before a successful prosecution may ensue. It is therefore, necessary for the foreign corporation to comply with these requirements or aver why it should be exempted from them, if such was the case. The foreign corporation may have the right to sue before Philippine courts, but our rules on pleadings require that the qualifying circumstances necessary for the assertion of such right should first be affirmatively pleaded. In contradistinction, the present case involves a complaint for violation of Article 189 of the Revised Penal Code. The Leviton case is not applicable. Asserting a distinctly different position from the Leviton argument, Hemandas argued in his brief that the petitioner was doing business in the Philippines but was not licensed to do so. To support this argument, he states that the applicable ruling is the case of Mentholatum Co., Inc. v. Mangaliman: (72 Phil. 524) where Mentholatum Co. Inc., a foreign corporation and Philippine-American Drug Co., the former's exclusive distributing agent in the Philippines filed a complaint for infringement of trademark and unfair competition against the Mangalimans. The argument has no merit. The Mentholatum case is distinct from and inapplicable to the case at bar. Philippine American Drug Co., Inc., was admittedly selling products of its principal Mentholatum Co., Inc., in the latter's name or for the latter's account. Thus, this Court held that "whatever transactions the Philippine-American Drug Co., Inc. had executed in view of the law, the Mentholatum Co., Inc., did it itself. And, the Mentholatum Co., Inc., being a foreign doing business in the Philippines without the license required by Section 68 of the Corporation Law, it may not prosecute this action for violation of trademark and unfair competition." In the present case, however, the petitioner is a foreign corporation not doing business in the Philippines. The marketing of its products in the Philippines is done through an exclusive distributor, Rustan Commercial Corporation The latter is an independent entity which buys and then markets not only products of the petitioner but also many other products bearing equally well-known and established trademarks and tradenames. in other words, Rustan is not a mere agent or conduit of the petitioner. The rules and regulations promulgated by the Board of Investments pursuant to its rule-making power under Presidential Decree No. 1789, otherwise known as the Omnibus Investment Code, support a finding that the petitioner is not doing business in the Philippines. Rule I, Sec. 1 (g) of said rules and regulations defines "doing business" as one" which includes, inter alia: (1) ... A foreign firm which does business through middlemen acting on their own names, such as indentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines. (2) Appointing a representative or distributor who is domiciled in the Philippines, unless said representative or distributor has an independent status, i.e., it transacts business in its name and for its account, and not in the name or for the account of a principal Thus, where a foreign firm is represented by a person or local company which does not act in its name but in the name of the foreign firm the latter is doing business in the Philippines. xxx xxx xxx Applying the above provisions to the facts of this case, we find and conclude that the petitioner is not doing business in the Philippines. Rustan is actually a middleman acting and transacting business in its own name and or its own account and not in the name or for the account of the petitioner. But even assuming the truth of the private respondent's allegation that the petitioner failed to allege material facts in its petition relative to capacity to sue, the petitioner may still maintain the present suit against respondent Hemandas. As early as 1927, this Court was, and it still is, of the view that a foreign corporation not doing business in the Philippines needs no license to sue before Philippine courts for infringement of trademark and unfair competition. Thus, in Western Equipment and Supply Co. v. Reyes (51 Phil. 115), this Court held that a foreign corporation which has never done any business in the Philippines and which is unlicensed and unregistered to do business here, but is widely and favorably known in the Philippines through the use therein of its products bearing its corporate and tradename, has a legal right to maintain an action in the Philippines to restrain the residents and inhabitants thereof from organizing a corporation therein bearing the same name as the foreign corporation, when it appears that they have personal knowledge of the existence of such a foreign corporation, and it is apparent that the purpose of the proposed domestic corporation is to deal and trade in the same goods as those of the foreign corporation. We further held: xxx xxx xxx ... That company is not here seeking to enforce any legal or control rights arising from, or growing out of, any business which it has transacted in the Philippine Islands. The sole purpose of the action:

Is to protect its reputation, its corporate name, its goodwill, whenever that reputation, corporate name or goodwill have, through the natural development of its trade, established themselves.' And it contends that its rights to the use of its corporate and trade name: Is a property right, a right in rem, which it may assert and protect against all the world, in any of the courts of the world-even in jurisdictions where it does not transact business-just the same as it may protect its tangible property, real or personal, against trespass, or conversion. Citing sec. 10, Nims on Unfair Competition and TradeMarks and cases cited; secs. 21-22, Hopkins on TradeMarks, Trade Names and Unfair Competition and cases cited.' That point is sustained by the authorities, and is well stated in Hanover Star Mining Co. v. Allen and Wheeler Co. (208 Fed., 513). in which the syllabus says: Since it is the trade and not the mark that is to be protected, a trade-mark acknowledges no territorial boundaries of municipalities or states or nations, but extends to every market where the trader's goods have become known and Identified by the use of the mark. Our recognizing the capacity of the petitioner to sue is not by any means novel or precedent setting. Our jurisprudence is replete with cases illustrating instances when foreign corporations not doing business in the Philippines may nonetheless sue in our courts. In East Board Navigation Ltd, v. Ysmael and Co., Inc. (102 Phil. 1), we recognized a right of foreign corporation to sue on isolated transactions. In General Garments Corp. v. Director of Patents (41 SCRA 50), we sustained the right of Puritan Sportswear Corp., a foreign corporation not licensed to do and not doing business in the Philippines, to file a petition for cancellation of a trademark before the Patent Office. More important is the nature of the case which led to this petition. What preceded this petition for certiorari was a letter complaint filed before the NBI charging Hemandas with a criminal offense, i.e., violation of Article 189 of the Revised Penal Code. If prosecution follows after the completion of the preliminary investigation being conducted by the Special Prosecutor the information shall be in the name of the People of the Philippines and no longer the petitioner which is only an aggrieved party since a criminal offense is essentially an act against the State. It is the latter which is principally the injured party although there is a private right violated. Petitioner's capacity to sue would become, therefore, of not much significance in the main case. We cannot snow a possible violator of our criminal statutes to escape prosecution upon a far-fetched contention that the aggrieved party or victim of a crime has no standing to sue. In upholding the right of the petitioner to maintain the present suit before our courts for unfair competition or infringement of trademarks of a foreign corporation, we are moreover recognizing our duties and the rights of foreign states under the Paris Convention for the Protection of Industrial Property to which the Philippines and France are parties. We are simply interpreting and enforcing a solemn international commitment of the Philippines embodied in a multilateral treaty to which we are a party and which we entered into because it is in our national interest to do so. The Paris Convention provides in part that: ARTICLE 1 (1) The countries to which the present Convention applies constitute themselves into a Union for the protection of industrial property. (2) The protection of industrial property is concerned with patents, utility models, industrial designs, trademarks service marks, trade names, and indications of source or appellations of origin, and the repression of unfair competition. xxx xxx xxx ARTICLE 2 (2) Nationals of each of the countries of the Union shall as regards the protection of industrial property, enjoy in all the other countries of the Union the advantages that their respective laws now grant, or may hereafter grant, to nationals, without prejudice to the rights specially provided by the present Convention. Consequently, they shall have the same protection as the latter, and the same legal remedy against any infringement of their rights, provided they observe the conditions and formalities imposed upon nationals. xxx xxx xxx ARTICLE 6 (1) The countries of the Union undertake, either administratively if their legislation so permits, or at the request of an interested party, to refuse or to cancel the registration and to prohibit the use of a trademark which constitutes a reproduction, imitation or translation, liable to create confusion, of a mark considered by the competent authority of the country of registration or use to be well-known in that country as being already the mark of a person entitled to the benefits of the present Convention and used for Identical or similar goods. These provisions shall also apply when the essential part of the mark constitutes a reproduction of any such well-known mark or an imitation liable to create confusion therewith. xxx xxx xxx ARTICLE 8 A trade name shall be protected in all the countries of the Union without the obligation of filing or registration, whether or not it forms part of a trademark. xxx xxx xxx ARTICLE 10bis (1) The countries of the Union are bound to assure to persons entitled to the benefits of the Union effective protection against unfair competition. xxx xxx xxx ARTICLE 10ter (1) The countries of the Union undertake to assure to nationals of the other countries of the Union appropriate legal remedies to repress effectively all the acts referred to in Articles 9, 10 and l0bis. (2) They undertake, further, to provide measures to permit syndicates and associations which represent the industrialists, producers or traders concerned and the existence of which is not contrary to the laws of their countries, to take action in the Courts or before the administrative authorities, with a view to the repression of the acts referred to in Articles 9, 10 and 10bis, in so far as the law of the country in which protection is claimed allows such action by the syndicates and associations of that country. xxx xxx xxx ARTICLE 17

Every country party to this Convention undertakes to adopt, in accordance with its constitution, the measures necessary to ensure the application of this Convention. It is understood that at the time an instrument of ratification or accession is deposited on behalf of a country; such country will be in a position under its domestic law to give effect to the provisions of this Convention. (61 O.G. 8010) xxx xxx xxx In Vanity Fair Mills, Inc. v. T Eaton Co. (234 F. 2d 633) the United States Circuit Court of Appeals had occasion to comment on the extraterritorial application of the Paris Convention It said that: [11] The International Convention is essentially a compact between the various member countries to accord in their own countries to citizens of the other contracting parties trademark and other rights comparable to those accorded their own citizens by their domestic law. The underlying principle is that foreign nationals should be given the same treatment in each of the member countries as that country makes available to its own citizens. In addition, the Convention sought to create uniformity in certain respects by obligating each member nation 'to assure to nationals of countries of the Union an effective protection against unfair competition.' [12] The Convention is not premised upon the Idea that the trade-mark and related laws of each member nation shall be given extraterritorial application, but on exactly the converse principle that each nation's law shall have only territorial application. Thus a foreign national of a member nation using his trademark in commerce in the United States is accorded extensive protection here against infringement and other types of unfair competition by virtue of United States membership in the Convention. But that protection has its source in, and is subject to the limitations of, American law, not the law of the foreign national's own country. ... By the same token, the petitioner should be given the same treatment in the Philippines as we make available to our own citizens. We are obligated to assure to nationals of "countries of the Union" an effective protection against unfair competition in the same way that they are obligated to similarly protect Filipino citizens and firms. Pursuant to this obligation, the Ministry of Trade on November 20, 1980 issued a memorandum addressed to the Director of the Patents Office directing the latter: xxx xxx xxx ... to reject all pending applications for Philippine registration of signature and other world famous trademarks by applicants other than its original owners or users. The conflicting claims over internationally known trademarks involve such name brands as Lacoste, Jordache, Gloria Vanderbilt, Sasson, Fila, Pierre Cardin, Gucci, Christian Dior, Oscar de la Renta, Calvin Klein, Givenchy, Ralph Lauren, Geoffrey Beene, Lanvin and Ted Lapidus. It is further directed that, in cases where warranted, Philippine registrants of such trademarks should be asked to surrender their certificates of registration, if any, to avoid suits for damages and other legal action by the trademarks' foreign or local owners or original users. The memorandum is a clear manifestation of our avowed adherence to a policy of cooperation and amity with all nations. It is not, as wrongly alleged by the private respondent, a personal policy of Minister Luis Villafuerte which expires once he leaves the Ministry of Trade. For a treaty or convention is not a mere moral obligation to be enforced or not at the whims of an incumbent head of a Ministry. It creates a legally binding obligation on the parties founded on the generally accepted principle of international law of pacta sunt servanda which has been adopted as part of the law of our land. (Constitution, Art. II, Sec. 3). The memorandum reminds the Director of Patents of his legal duty to obey both law and treaty. It must also be obeyed. Hemandas further contends that the respondent court did not commit grave abuse of discretion in issuing the questioned order of April 22, 1983. A review of the grounds invoked by Hemandas in his motion to quash the search warrants reveals the fact that they are not appropriate for quashing a warrant. They are matters of defense which should be ventilated during the trial on the merits of the case. For instance, on the basis of the facts before the Judge, we fail to understand how he could treat a bare allegation that the respondent's trademark is different from the petitioner's trademark as a sufficient basis to grant the motion to quash. We will treat the issue of prejudicial question later. Granting that respondent Hemandas was only trying to show the absence of probable cause, we, nonetheless, hold the arguments to be untenable. As a mandatory requirement for the issuance of a valid search warrant, the Constitution requires in no uncertain terms the determination of probable cause by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce (Constitution, Art. IV, Sec. 3). Probable cause has traditionally meant such facts and circumstances antecedent to the issuance of the warrant that are in themselves sufficient to induce a cautious man to rely upon them and act in pursuance thereof (People v. Sy Juco, 64 Phil. 667). This concept of probable cause was amplified and modified by our ruling in Stonehill v. Diokno, (20 SCRA 383) that probable cause "presupposes the introduction of competent proof that the party against whom it is sought has performed particular acts, or committed specific omissions, violating a given provision of our criminal laws." The question of whether or not probable cause exists is one which must be decided in the light of the conditions obtaining in given situations (Central Bank v. Morfe, 20 SCRA 507). We agree that there is no general formula or fixed rule for the determination of the existence of probable cause since, as we have recognized in Luna v. Plaza(26 SCRA 310), the existence depends to a large degree upon the finding or opinion of the judge conducting the examination. However, the findings of the judge should not disregard the facts before him nor run counter to the clear dictates of reason. More so it is plain that our country's ability to abide by international commitments is at stake. The records show that the NBI agents at the hearing of the application for the warrants before respondent court presented three witnesses under oath, sworn statements, and various exhibits in the form of clothing apparels manufactured by Hemandas but carrying the trademark Lacoste. The respondent court personally interrogated Ramon Esguerra, Samuel Fiji, and Mamerto Espatero by means of searching questions. After hearing the testimonies and examining the documentary evidence, the respondent court was convinced that there were good and sufficient reasons for the issuance of the warrant. And it then issued the warrant. The respondent court, therefore, complied with the constitutional and statutory requirements for the issuance of a valid search warrant. At that point in time, it was fully convinced that there existed probable cause. But after hearing the motion to quash and the oppositions thereto, the respondent court executed a complete turnabout and declared that there was no probable cause to justify its earlier issuance of the warrants. True, the lower court should be given the opportunity to correct its errors, if there be any, but the rectification must, as earlier stated be based on sound and valid grounds. In this case, there was no compelling justification for the about face. The allegation that

vital facts were deliberately suppressed or concealed by the petitioner should have been assessed more carefully because the object of the quashal was the return of items already seized and easily examined by the court. The items were alleged to be fake and quite obviously would be needed as evidence in the criminal prosecution. Moreover, an application for a search warrant is heard ex parte. It is neither a trial nor a part of the trial. Action on these applications must be expedited for time is of the essence. Great reliance has to be accorded by the judge to the testimonies under oath of the complainant and the witnesses. The allegation of Hemandas that the applicant withheld information from the respondent court was clearly no basis to order the return of the seized items. Hemandas relied heavily below and before us on the argument that it is the holder of a certificate of registration of the trademark "CHEMISE LACOSTE & CROCODILE DEVICE". Significantly, such registration is only in the Supplemental Register. A certificate of registration in the Supplemental Register is not prima facie evidence of the validity of registration, of the registrant's exclusive right to use the same in connection with the goods, business, or services specified in the certificate. Such a certificate of registration cannot be filed, with effect, with the Bureau of Customs in order to exclude from the Philippines, foreign goods bearing infringement marks or trade names (Rule 124, Revised Rules of Practice Before the Phil. Pat. Off. in Trademark Cases; Martin, Philippine Commercial Laws, 1981, Vol. 2, pp.513-515). Section 19-A of Republic Act 166 as amended not only provides for the keeping of the supplemental register in addition to the principal register but specifically directs that: xxx xxx xxx The certificates of registration for marks and trade names registered on the supplemental register shall be conspicuously different from certificates issued for marks and trade names on the principal register. xxx xxx xxx The reason is explained by a leading commentator on Philippine Commercial Laws: The registration of a mark upon the supplemental register is not, as in the case of the principal register, prima facie evidence of (1) the validity of registration; (2) registrant's ownership of the mark; and (3) registrant's exclusive right to use the mark. It is not subject to opposition, although it may be cancelled after its issuance. Neither may it be the subject of interference proceedings. Registration on the supplemental register is not constructive notice of registrant's claim of ownership. A supplemental register is provided for the registration of marks which are not registrable on the principal register because of some defects (conversely, defects which make a mark unregistrable on the principal register, yet do not bar them from the supplemental register.) (Agbayani, II Commercial Laws of the Philippines, 1978, p. 514, citing Uy Hong Mo v. Titay & Co., et al., Dec. No. 254 of Director of Patents, Apr. 30, 1963); Registration in the Supplemental Register, therefore, serves as notice that the registrant is using or has appropriated the trademark. By the very fact that the trademark cannot as yet be entered in the Principal Register, all who deal with it should be on guard that there are certain defects, some obstacles which the user must Still overcome before he can claim legal ownership of the mark or ask the courts to vindicate his claims of an exclusive right to the use of the same. It would be deceptive for a party with nothing more than a registration in the Supplemental Register to posture before courts of justice as if the registration is in the Principal Register. The reliance of the private respondent on the last sentence of the Patent office action on application Serial No. 30954 that "registrant is presumed to be the owner of the mark until after the registration is declared cancelled" is, therefore, misplaced and grounded on shaky foundation, The supposed presumption not only runs counter to the precept embodied in Rule 124 of the Revised Rules of Practice before the Philippine Patent Office in Trademark Cases but considering all the facts ventilated before us in the four interrelated petitions involving the petitioner and the respondent, it is devoid of factual basis. And even in cases where presumption and precept may factually be reconciled, we have held that the presumption is rebuttable, not conclusive, (People v. Lim Hoa, G.R. No. L10612, May 30, 1958, Unreported). One may be declared an unfair competitor even if his competing trademark is registered (Parke, Davis & Co. v. Kiu Foo & Co., et al., 60 Phil. 928; La Yebana Co. v. Chua Seco & Co., 14 Phil. 534). By the same token, the argument that the application was premature in view of the pending case before the Patent Office is likewise without legal basis. The proceedings pending before the Patent Office involving IPC Co. 1658 do not partake of the nature of a prejudicial question which must first be definitely resolved. Section 5 of Rule 111 of the Rules of Court provides that: A petition for the suspension of the criminal action based upon the pendency of a pre-judicial question in a civil case, may only be presented by any party before or during the trial of the criminal action. The case which suspends the criminal prosecution must be a civil case which is determinative of the innocence or, subject to the availability of other defenses, the guilt of the accused. The pending case before the Patent Office is an administrative proceeding and not a civil case. The decision of the Patent Office cannot be finally determinative of the private respondent's innocence of the charges against him. In Flordelis v. Castillo (58 SCRA 301), we held that: As clearly delineated in the aforecited provisions of the new Civil Code and the Rules of Court, and as uniformly applied in numerous decisions of this Court, (Berbari v. Concepcion, 40 Phil. 837 (1920); Aleria v. Mendoza, 83 Phil. 427 (1949); People v. Aragon, 94 Phil. 357 (1954); Brito-Sy v. Malate Taxicab & Garage, Inc., 102 Phil 482 (1957); Mendiola v. Macadael, 1 SCRA 593; Benitez v. Concepcion, 2 SCRA 178; Zapante v. Montesa, 4 SCRA 510; Jimenez v. Averia, 22 SCRA 1380.) In Buenaventura v. Ocampo (55 SCRA 271) the doctrine of prejudicial question was held inapplicable because no criminal case but merely an administrative case and a civil suit were involved. The Court, however, held that, in view of the peculiar circumstances of that case, the respondents' suit for damages in the lower court was premature as it was filed during the pendency of an administrative case against the respondents before the POLCOM. 'The possibility cannot be overlooked,' said the Court, 'that the POLCOM may hand down a decision adverse to the respondents, in which case the damage suit will become unfounded and baseless for wanting in cause of action.') the doctrine of pre-judicial question comes into play generally in a situation where a civil action and a criminal action both penned and there exists in the former an issue which must be preemptively resolved before the criminal action may proceed, because howsoever the issue raised in the civil action is resolved would be determinative juris et de jure of the guilt or innocence of the accused in the criminal case. In the present case, no civil action pends nor has any been instituted. What was pending was an administrative case before the Patent Office.

Even assuming that there could be an administrative proceeding with exceptional or special circumstances which render a criminal prosecution premature pending the promulgation of the administrative decision, no such peculiar circumstances are present in this case. Moreover, we take note of the action taken by the Patents Office and the Minister of Trade and affirmed by the Intermediate Appellate Court in the case of La Chemise Lacoste S. A. v. Ram Sadhwani (AC-G.R. No. SP-13356, June 17, 1983). The same November 20, 1980 memorandum of the Minister of Trade discussed in this decision was involved in the appellate court's decision. The Minister as the "implementing authority" under Article 6bis of the Paris Convention for the protection of Industrial Property instructed the Director of Patents to reject applications for Philippine registration of signature and other world famous trademarks by applicants other than its original owners or users. The brand "Lacoste" was specifically cited together with Jordache, Gloria Vanderbilt, Sasson, Fila, Pierre Cardin, Gucci, Christian Dior, Oscar dela Renta, Calvin Klein, Givenchy, Ralph Laurence, Geoffrey Beene, Lanvin, and Ted Lapidus. The Director of Patents was likewise ordered to require Philippine registrants of such trademarks to surrender their certificates of registration. Compliance by the Director of Patents was challenged. The Intermediate Appellate Court, in the La Chemise Lacoste S.A. v. Sadhwani decision which we cite with approval sustained the power of the Minister of Trade to issue the implementing memorandum and, after going over the evidence in the records, affirmed the decision of the Director of Patents declaring La Chemise Lacoste &A. the owner of the disputed trademark and crocodile or alligator device. The Intermediate Appellate Court speaking through Mr. Justice Vicente V. Mendoza stated: In the case at bar, the Minister of Trade, as 'the competent authority of the country of registration,' has found that among other well-known trademarks 'Lacoste' is the subject of conflicting claims. For this reason, applications for its registration must be rejected or refused, pursuant to the treaty obligation of the Philippines. Apart from this finding, the annexes to the opposition, which La Chemise Lacoste S.A. filed in the Patent Office, show that it is the owner of the trademark 'Lacoste' and the device consisting of a representation of a crocodile or alligator by the prior adoption and use of such mark and device on clothing, sports apparel and the like. La Chemise Lacoste S.A, obtained registration of these mark and device and was in fact issued renewal certificates by the French National Industry Property Office. xxx xxx xxx Indeed, due process is a rule of reason. In the case at bar the order of the Patent Office is based not only on the undisputed fact of ownership of the trademark by the appellee but on a prior determination by the Minister of Trade, as the competent authority under the Paris Convention, that the trademark and device sought to be registered by the appellant are well-known marks which the Philippines, as party to the Convention, is bound to protect in favor of its owners. it would be to exalt form over substance to say that under the circumstances, due process requires that a hearing should be held before the application is acted upon. The appellant cites section 9 of Republic Act No. 166, which requires notice and hearing whenever an opposition to the registration of a trademark is made. This provision does not apply, however, to situations covered by the Paris Convention, where the appropriate authorities have determined that a well-known trademark is already that of another person. In such cases, the countries signatories to the Convention are obliged to refuse or to cancel the registration of the mark by any other person or authority. In this case, it is not disputed that the trademark Lacoste is such a well-known mark that a hearing, such as that provided in Republic Act No. 166, would be superfluous. The issue of due process was raised and fully discussed in the appellate court's decision. The court ruled that due process was not violated. In the light of the foregoing it is quite plain that the prejudicial question argument is without merit. We have carefully gone over the records of all the cases filed in this Court and find more than enough evidence to sustain a finding that the petitioner is the owner of the trademarks "LACOSTE", "CHEMISE LACOSTE", the crocodile or alligator device, and the composite mark of LACOSTE and the representation of the crocodile or alligator. Any pretensions of the private respondent that he is the owner are absolutely without basis. Any further ventilation of the issue of ownership before the Patent Office will be a superfluity and a dilatory tactic. The issue of whether or not the trademark used by the private respondent is different from the petitioner's trade mark is a matter of defense and will be better resolved in the criminal proceedings before a court of justice instead of raising it as a preliminary matter in an administrative proceeding. The purpose of the law protecting a trademark cannot be overemphasized. They are to point out distinctly the origin or ownership of the article to which it is affixed, to secure to him, who has been instrumental in bringing into market a superior article of merchandise, the fruit of his industry and skill, and to prevent fraud and imposition (Etepha v. Director of Patents, 16 SCRA 495). The legislature has enacted laws to regulate the use of trademarks and provide for the protection thereof. Modern trade and commerce demands that depredations on legitimate trade marks of non-nationals including those who have not shown prior registration thereof should not be countenanced. The law against such depredations is not only for the protection of the owner of the trademark but also, and more importantly, for the protection of purchasers from confusion, mistake, or deception as to the goods they are buying. (Asari Yoko Co., Ltd. v. Kee Boc, 1 SCRA 1; General Garments Corporation v. Director of Patents, 41 SCRA 50). The law on trademarks and tradenames is based on the principle of business integrity and common justice' This law, both in letter and spirit, is laid upon the premise that, while it encourages fair trade in every way and aims to foster, and not to hamper, competition, no one, especially a trader, is justified in damaging or jeopardizing another's business by fraud, deceipt, trickery or unfair methods of any sort. This necessarily precludes the trading by one dealer upon the good name and reputation built up by another (Baltimore v. Moses, 182 Md 229, 34 A (2d) 338). The records show that the goodwill and reputation of the petitioner's products bearing the trademark LACOSTE date back even before 1964 when LACOSTE clothing apparels were first marketed in the Philippines. To allow Hemandas to continue using the trademark Lacoste for the simple reason that he was the first registrant in the Supplemental Register of a trademark used in international commerce and not belonging to him is to render nugatory the very essence of the law on trademarks and tradenames. We now proceed to the consideration of the petition in Gobindram Hemandas Suianani u. Hon. Roberto V Ongpin,et al. (G.R. No. 65659). Actually, three other petitions involving the same trademark and device have been filed with this Court. In Hemandas & Co. v. Intermediate Appellate Court, et al. (G.R. No. 63504) the petitioner asked for the following relief: IN VIEW OF ALL THE FOREGOING, it is respectfully prayed (a) that the Resolutions of the respondent Court of January 3, 1983 and February 24, 1983 be nullified; and that the Decision of the same respondent Court of June 30, 1983 be declared to be the law

on the matter; (b) that the Director of Patents be directed to issue the corresponding registration certificate in the Principal Register; and (c) granting upon the petitioner such other legal and equitable remedies as are justified by the premises. On December 5, 1983, we issued the following resolution: Considering the allegations contained, issues raised and the arguments adduced in the petition for review, the respondent's comment thereon, and petitioner's reply to said comment, the Court Resolved to DENY the petition for lack of merit. The Court further Resolved to CALL the attention of the Philippine Patent Office to the pendency in this Court of G.R. No. 563796-97 entitled 'La Chemise Lacoste, S.A. v. Hon. Oscar C. Fernandez and Gobindram Hemandas' which was given due course on June 14, 1983 and to the fact that G.R. No. 63928-29 entitled 'Gobindram Hemandas v. La Chemise Lacoste, S.A., et al.' filed on May 9, 1983 was dismissed for lack of merit on September 12, 1983. Both petitions involve the same dispute over the use of the trademark 'Chemise Lacoste'. The second case of Gobindram Hemandas vs. La Chemise Lacoste, S.A., et al. (G.R. No. 63928-29) prayed for the following: I. On the petition for issuance of writ of preliminary injunction, an order be issued after due hearing: l. Enjoining and restraining respondents Company, attorneys-in-fact, and Estanislao Granados from further proceedings in the unfair competition charges pending with the Ministry of Justice filed against petitioner; 2. Enjoining and restraining respondents Company and its attorneys-in-fact from causing undue publication in newspapers of general circulation on their unwarranted claim that petitioner's products are FAKE pending proceedings hereof; and 3. Enjoining and restraining respondents Company and its attorneys-in-fact from sending further threatening letters to petitioner's customers unjustly stating that petitioner's products they are dealing in are FAKE and threatening them with confiscation and seizure thereof. II. On the main petition, judgment be rendered: l. Awarding and granting the issuance of the Writ of Prohibition, prohibiting, stopping, and restraining respondents from further committing the acts complained of; 2. Awarding and granting the issuance of the Writ of Mandamus, ordering and compelling respondents National Bureau of Investigation, its aforenamed agents, and State Prosecutor Estanislao Granados to immediately comply with the Order of the Regional Trial Court, National Capital Judicial Region, Branch XLIX, Manila, dated April 22, 1983, which directs the immediate return of the seized items under Search Warrants Nos. 83-128 and 83-129; 3. Making permanent any writ of injunction that may have been previously issued by this Honorable Court in the petition at bar: and 4. Awarding such other and further relief as may be just and equitable in the premises. As earlier stated, this petition was dismissed for lack of merit on September 12, 1983. Acting on a motion for reconsideration, the Court on November 23, 1983 resolved to deny the motion for lack of merit and declared the denial to be final. Hemandas v. Hon. Roberto Ongpin (G.R. No. 65659) is the third petition. In this last petition, the petitioner prays for the setting aside as null and void and for the prohibiting of the enforcement of the following memorandum of respondent Minister Roberto Ongpin: MEMORANDUM: FOR: THE DIRECTOR OF PATENTS Philippine Patent Office xxx xxx xxx Pursuant to Executive Order No. 913 dated 7 October 1983 which strengthens the rule-making and adjudicatory powers of the Minister of Trade and Industry and provides inter alia, that 'such rule-making and adjudicatory powers should be revitalized in order that the Minister of Trade and Industry can ...apply more swift and effective solutions and remedies to old and new problems ... such as the infringement of internationally-known tradenames and trademarks ...'and in view of the decision of the Intermediate Appellate Court in the case of LA CHEMISE LACOSTE, S.A., versus RAM SADWHANI [AC-G.R. Sp. No. 13359 (17) June 1983] which affirms the validity of the MEMORANDUM of then Minister Luis R. Villafuerte dated 20 November 1980 confirming our obligations under the PARIS CONVENTION FOR THE PROTECTION OF INDUSTRIAL PROPERTY to which the Republic of the Philippines is a signatory, you are hereby directed to implement measures necessary to effect compliance with our obligations under said convention in general, and, more specifically, to honor our commitment under Section 6 bisthereof, as follows: 1. Whether the trademark under consideration is well-known in the Philippines or is a mark already belonging to a person entitled to the benefits of the CONVENTION, this should be established, pursuant to Philippine Patent Office procedures in inter partes and ex parte cases, according to any of the following criteria or any combination thereof: (a) a declaration by the Minister of Trade and Industry that' the trademark being considered is already well-known in the Philippines such that permission for its use by other than its original owner will constitute a reproduction, imitation, translation or other infringement; (b) that the trademark is used in commerce internationally, supported by proof that goods bearing the trademark are sold on an international scale, advertisements, the establishment of factories, sales offices, distributorships, and the like, in different countries, including volume or other measure of international trade and commerce; (c) that the trademark is duly registered in the industrial property office(s) of another country or countries, taking into consideration the dates of such registration; (d) that the trademark has been long established and obtained goodwill and general international consumer recognition as belonging to one owner or source; (e) that the trademark actually belongs to a party claiming ownership and has the right to registration under the provisions of the aforestated PARIS CONVENTION. 2. The word trademark, as used in this MEMORANDUM, shall include tradenames, service marks, logos, signs, emblems, insignia or other similar devices used for Identification and recognition by consumers. 3. The Philippine Patent Office shall refuse all applications for, or cancel the registration of, trademarks which constitute a reproduction, translation or imitation of a trademark owned by a person, natural or corporate, who is a citizen of a country signatory to the PARIS CONVENTION FOR THE PROTECTION OF INDUSTRIAL PROPERTY. 4. The Philippine Patent Office shall give due course to the Opposition in cases already or hereafter filed against the registration of trademarks entitled to protection of Section 6 bis of said PARIS CONVENTION as outlined above, by remanding applications filed by one not entitled to such protection for final disallowance by the Examination Division.

5. All pending applications for Philippine registration of signature and other world famous trademarks filed by applicants other than their original owners or users shall be rejected forthwith. Where such applicants have already obtained registration contrary to the abovementioned PARIS CONVENTION and/or Philippine Law, they shall be directed to surrender their Certificates of Registration to the Philippine Patent Office for immediate cancellation proceedings. 6. Consistent with the foregoing, you are hereby directed to expedite the hearing and to decide without delay the following cases pending before your Office: 1. INTER PARTES CASE NO. 1689-Petition filed by La Chemise Lacoste, S.A. for the cancellation of Certificate of Registration No. SR2225 issued to Gobindram Hemandas, assignee of Hemandas and Company; 2. INTER PARTES CASE NO. 1658-Opposition filed by Games and Garments Co. against the registration of the trademark Lacoste sought by La Chemise Lacoste, S.A.; 3. INTER PARTES CASE NO. 1786-Opposition filed by La Chemise Lacoste, S.A. against the registration of trademark Crocodile Device and Skiva sought by one Wilson Chua. Considering our discussions in G.R. Nos. 63796-97, we find the petition in G.R. No. 65659 to be patently without merit and accordingly deny it due course. In complying with the order to decide without delay the cases specified in the memorandum, the Director of Patents shall limit himself to the ascertainment of facts in issues not resolved by this decision and apply the law as expounded by this Court to those facts. One final point. It is essential that we stress our concern at the seeming inability of law enforcement officials to stem the tide of fake and counterfeit consumer items flooding the Philippine market or exported abroad from our country. The greater victim is not so much the manufacturer whose product is being faked but the Filipino consuming public and in the case of exportations, our image abroad. No less than the President, in issuing Executive Order No. 913 dated October 7, 1983 to strengthen the powers of the Minister of Trade and Industry for the protection of consumers, stated that, among other acts, the dumping of substandard, imitated, hazardous, and cheap goods, the infringement of internationally known tradenames and trademarks, and the unfair trade practices of business firms has reached such proportions as to constitute economic sabotage. We buy a kitchen appliance, a household tool, perfume, face powder, other toilet articles, watches, brandy or whisky, and items of clothing like jeans, T-shirts, neck, ties, etc. the list is quite length and pay good money relying on the brand name as guarantee of its quality and genuine nature only to explode in bitter frustration and genuine nature on helpless anger because the purchased item turns out to be a shoddy imitation, albeit a clever looking counterfeit, of the quality product. Judges all over the country are well advised to remember that court processes should not be used as instruments to, unwittingly or otherwise, aid counterfeiters and intellectual pirates, tie the hands of the law as it seeks to protect the Filipino consuming public and frustrate executive and administrative implementation of solemn commitments pursuant to international conventions and treaties. WHEREFORE, the petition in G.R. NOS. 63797-97 is hereby GRANTED. The order dated April 22, 1983 of the respondent regional trial court is REVERSED and SET ASIDE. Our Temporary Restraining Order dated April 29, 1983 is ma(i.e. PERMANENT. The petition in G.R. NO. 65659 is DENIED due course for lack of merit. Our Temporary Restraining Order dated December 5, 1983 is LIFTED and SET ASIDE, effective immediately. SO ORDERED.

SOL LAGUIO, RENE LAOLAO, ANNALIZA ENSANDO, EDELIZA ASAS, LILIA MARAY, EVELYN UNTALAN, ROSARIO CHICO, REYNALDO GARCIA, MERLITA DE LOS SANTOS,* JOSEPHINE DERONG,* GEMMA TIBALAO BANTOLO, LUCY ALMONTE,* CRISPINA VANQUARDIA, NARCISA VENZON, NORMA ELEGANTE,* AMELIA MORENO,* ABNER PETILOS, NARCISO HILAPO, DOLORES OLAES, MELINDA LLADOC, ERNA AZARCON, and APRIL TOY, INC. WORKERS UNION ALAB, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, WELL WORLD TOYS, INC., APRIL TOYS, INC., YU SHENG LING, JENN L. WANG, EUCLIFF CHENG, CHI SHENG LIN, NENITA C. AGUIRRE, MA. THERESA R. CADIENTE and GLICERIA R. AGUIRRE, respondents. RESOLUTION FRANCISCO, J.: Private respondent April Toy, Inc. (April for brevity) is a domestic corporation incorporated on January 6, 1989, for the purpose of [1] manufacturing, importing, exporting, buying, selling, sub-contracting or otherwise dealing in, at wholesale and retail, stuffed toys, with principal place of business at Paraaque, Manila. On December 20, 1989, or after almost a year of operation, April posted [2] a memorandum within its premises and circulated a copy of the same among its employees informing them of its dire financial [3] condition. To avert further business reverses, April decided to shorten its corporate term up to February 28, 1990, submitted a notice of dissolution to the Securities and Exchange Commission and published the same in a newspaper of general [4] [5] [6] circulation . April also notified its employees, the Department of Labor and Employment, the Social Security System, the Board [7] [8] of Investments, the Bureau of Internal Revenue, and the Municipality ofParaaque of its dissolution. In view of Aprils cessation of operations, petitioners who initially composed of seventy-seven employees below filed a complaint for [9] illegal shutdown/retrenchment/dismissal and unfair labor practice. On June 21, 1990, petitioners amended their complaint to implead private respondent private respondent Well World Toys, Inc. (Well World for brevity), a corporation also engaged in the manufacture of stuffed toys for export with principal office located at Las Pias, Manila. [10] In their complaint, petitioners basically alleged that they were original probationary emplyees of Well World but were later laid [11] off in 1989 for starting to organize themselves into a union. They applied with and were thereafter hired by April. On February 2, 1990, and while under the employ of April, petitioners conducted a certification election where their union, Alyansang Likha ng mga Anak ng Bayan (ALAB), won as the exclusive bargaining agent for the workers. Petitioners thereafter submitted a Collective Bargaining Agreement proposal which April rejected in view of its cessation of operation. The closure, petitioners declared, is Aprils [12] clever ploy to defeat their right to self organization. Petitioners further alleged that the original incorporators and principal officers of April were likewise the original incorporators of Well World, thus both corporations should be treated as one corporation liable for their claims. In his decision dated December 20, 1991, the Labor Arbiter found as valid the closure of April, and treated April and Well World as two distinct corporations. While the seventy-seven complainants were ruled to be the employees of April, the Labor Arbiter, nevertheless, ordered Well World to give financial assistance to its former forty-nine probationary employees who were found to have been laid off in 1989 due to business losses. April was likewise ordered to pay its separated employees their separation pay and, together with Well World, assessed for attorneys fees. Petitioners appealed before the National Labor Relations Commission (NLRC), but to no avail. Hence, this petition, supported by the Office of the Solicitor General, anchored solely on the NLRCs purported grave abuse of discretion in not finding April and Well World as one corporation liable for their grievances. To bolster their claim that April and Well World are one and the same corporation, petitioners argue that both corporations have the same set of incorporators. Thus: Incorporators of Well World Incorporators of April Name Citizenship No. of Name Citizenship No, of Shares Shares Eucliff Cheng Filipino 148 Nenita C. Filipino 2,797 Aguirre Jenn Li Wang Chinese 25 Matheresa Filipino 800 Cadiente Yu-Sheng Chinese 25 Gliceria R. Filipino 400 Ling Aguirre Chia-Sheng Chinese 25 Pacifico R. Filipino 1 Lin Cadiente Chia-Yu-Yen Chinese 25 Emalyn A. Filipino 1 Lin Fernandez MaTheresa Filipino 1 Erlinda M. Filipino 1 Cadiente Hizon Gliceria Filipino 1 Aguirre 250 4,000 (Petition, pp. 4-5; Rollo, pp. 5-6; Memorandum, pp. 7-8, Rollo, 242-243.) [13] Petitioners also insist that the two corporations are being managed by Mr. Jean Li Wang and that their articles of incorporation, general information sheets and certificates of increase of capital stock were notarized by the same Notary Public. Additionally, petitioners aver that when some of them transferred from Well World to April they were not given their separation pay, a factor which presumably proves that April is a mere conduit of Well World. Petitioners likewise assert that their transfer from one corporation to another was made at the time that they were on the process of organizing a union. Finally, petitioners allege that April and Well World were engaged in the same line of business, with the latter also supplying the former raw materials and machineries. These circumstances, petitioners claim, make their case akin to the case of La Campana Coffee Factory Inc. v. Kaisahan ng mga Mangagawa sa La Campana (KKM), 93 Phil. 160, where the Court considered two corporations, i.e., La Campana Coffee Factory, Inc. and La Campana Gaugau Packing, as one and the same. We are not persuaded. A cursory examination of the composition of April and Well Worlds incorporators and the number of shares they own hardly supports petitioners asseveration. In fact, petitioners allegation that both corporations were managed by a single individual, Mr. Jen Li Weng, contradicts paragraphs 7 and 8 of their petition which state:

7. Respondents Yu-Sheng Ling, Jen Li Weng (Alias James Wang), Eucliff Cheng and Chia Sheng Lin are the President, Managing Director, Treasurer and Secretary respectively of respondent Well World Toy, Inc., all of whom are holding office at 399-B Real St., Talon, Las Pinas, Metro Manila. x x x. 8. Respondents Nenita C. Aguirre, Ma. Theresa R. Cadiente and Gliceria R. Aguirre are the President, Treasurer and Secretary, respectively of respondent April Toy, Inc. all of whom are holding office at No. 6-C Ascie Avenue, Severina Industrial Estate, Km. 16 [14] South Superhighway Paranaque. x x x. What clearly appears therefrom is that the two corporations have two different set of officers managing their respective affairs in two separate offices. 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 substantial identity of the incorporators of the two [15] corporations does not necessarily imply fraud, nor warrant the piercing of the veil of corporation fiction. In the absence of clear and convincing evidence that Apriland Well Worlds corporate personalities were used to perpetuate fraud, or circumvent the law said corporations were rightly treated as distinct and separate from each other. Further, petitioners emphatic reliance with the case of La Campana is misplaced. In La Campana, unlike in this case, the two corporations, i.e., La Campana Coffee Factory, Inc. and La Campana Gaugau Packing, were not only owned by the same person, but moreover have a single management, business office and a single payroll for both businesses. Indeed, the workers of La Campana Gaugau Packing were interchangeable, that is, the [16] laborers from gaugau factory were sometimes transferred to the coffee factory and vice-versa. We thus quote with approval the observation made by the Labor Arbiter as follows: We can not fully subscribe to the above contention of the complainants. We do not believe that the circumstances related by the complainants are sufficient indicia that the two corporations are one and the same corporation although it appears that the two of the original incorporators and stockholders of April Toy, Inc. were incorporators and minority stockholders of Well-World Toy, Inc. Hence it does not mean that the two (2) corporations are adjunct and conduit. There is not express provision under the Corporation law prohibiting stockholders or incorporators of a corporation to be a stockholder or incorporator of another corporation. The fiction that a corporation was a distinct and separate personality shall not be used as a subterfuge to commit injustice and circumvent the law does not apply in the present case. There is no conclusive evidence to convince us that respondent April Toy, Inc. was established and later on closed to defeat the rights of the workers of Well-World Toy, Inc. which would otherwise support [17] the charge of unfair labor practice. Hence, we find that the two (2) corporations are separate and distinct entities. and, on appeal, by public respondent NLRC, thus: *R+elative to the closure of April Toy, it is clear from the records that as early as December 1989 or long before a certification election was conducted among its rank-and-file employees on February 2, 1990, the employees were already aware that April Toy was suffering from financial crisis. It further appearing that April Toy continued to suffer losses as evidenced by its financial statements ending December 31, 1989 and its balance sheet ending March 31, 1990, the Labor Arbiter a quo correctly ruled that the eventual closure of its business on February 27, 1990, is valid. Anent the question of whether or not April Toy and Well- World Toy are one and the same, with the facts and circumstances showing that the owners of April Toy are different from those of Well-World, the management of one being different from the other, and the office of April Toy is situated more than ten kilometers away from Well-World, plus the fact that the closure of April Toy was for valid reasons, the Labor Arbiter likewise correctly opined that the two corporations are separate and distinct form each [18] other, and that there is no basis for piercing the veil of corporate fiction. Furthermore, the petition hinges on the factual findings of both the Labor Arbiter and the NLRC. It should be stressed that the factual findings of quasi-judicial agencies like the NLRC are generally accorded not only respect but, at times, finality if such are [19] supported by substantial evidence . Judicial review by this Court in labor cases does not go so far as to require this Court to evaluate the sufficiency of the evidence upon which the Labor Arbiter and respondent NLRC based their determination as our review is limited to issues of jurisdiction or grave abuse of discretion. In the instant suit, the findings of the Labor Arbiter was duly affirmed by respondent NLRC, findings amply supported by substantial evidence on record. We find no cogent reason, as none was presented, to deviate from the same. ACCORDINGLY, finding no grave abuse of discretion on the part of respondent NLRC in rendering the assailed resolution, the instant petition is hereby DISMISSED for lack of merit. SO ORDERED.

LEON J. LAMBERT, plaintiff-appellant, vs. T. J. FOX, defendant-appellee. O'Brien and DeWitt and C. W. Ney, for appellant. J. C. Hixon, for appellee. MORELAND, J.: This is an action brought to recover a penalty prescribed on a contract as punishment for the breach thereof. Early in 1911 the firm known as John R. Edgar & Co., engaged in the retail book and stationery business, found itself in such condition financially that its creditors, including the plaintiff and the defendant, together with many others, agreed to take over the business, incorporate it and accept stock therein in payment of their respective credits. This was done, the plaintiff and the defendant becoming the two largest stockholders in the new corporation called John R. Edgar & Co., Incorporated. A few days after the incorporation was completed plaintiff and defendant entered into the following agreement: Whereas the undersigned are, respectively, owners of large amounts of stock in John R. Edgar and Co, Inc; and, Whereas it is recognized that the success of said corporation depends, now and for at least one year next following, in the larger stockholders retaining their respective interests in the business of said corporation: Therefore, the undersigned mutually and reciprocally agree not to sell, transfer, or otherwise dispose of any part of their present holdings of stock in said John R. Edgar & Co. Inc., till after one year from the date hereof. Either party violating this agreement shall pay to the other the sum of one thousand (P1,000) pesos as liquidated damages, unless previous consent in writing to such sale, transfer, or other disposition be obtained. Notwithstanding this contract the defendant Fox on October 19, 1911, sold his stock in the said corporation to E. C. McCullough of the firm of E. C. McCullough & Co. of Manila, a strong competitor of the said John R. Edgar & Co., Inc. This sale was made by the defendant against the protest of the plaintiff and with the warning that he would be held liable under the contract hereinabove set forth and in accordance with its terms. In fact, the defendant Foz offered to sell his shares of stock to the plaintiff for the same sum that McCullough was paying them less P1,000, the penalty specified in the contract. The learned trial court decided the case in favor of the defendant upon the ground that the intention of the parties as it appeared from the contract in question was to the effect that the agreement should be good and continue only until the corporation reached a sound financial basis, and that that event having occurred some time before the expiration of the year mentioned in the contract, the purpose for which the contract was made and had been fulfilled and the defendant accordingly discharged of his obligation thereunder. The complaint was dismissed upon the merits. It is argued here that the court erred in its construction of the contract. We are of the opinion that the contention is sound. The intention of parties to a contract must be determined, in the first instance, from the words of the contract itself. It is to be presumed that persons mean what they say when they speak plain English. Interpretation and construction should by the instruments last resorted to by a court in determining what the parties agreed to. Where the language used by the parties is plain, then construction and interpretation are unnecessary and, if used, result in making a contract for the parties. (Lizarraga Hermanos vs. Yap Tico, 24 Phil. Rep., 504.) In the case cited the court said with reference to the construction and interpretation of statutes: "As for us, we do not construe or interpret this law. It does not need it. We apply it. By applying the law, we conserve both provisions for the benefit of litigants. The first and fundamental duty of courts, in our judgment, is to apply the law. Construction and interpretation come only after it has been demonstrated that application is impossible or inadequate without them. They are the very last functions which a court should exercise. The majority of the law need no interpretation or construction. They require only application, and if there were more application and less construction, there would be more stability in the law, and more people would know what the law is." What we said in that case is equally applicable to contracts between persons. In the case at bar the parties expressly stipulated that the contract should last one year. No reason is shown for saying that it shall last only nine months. Whatever the object was in specifying the year, it was their agreement that the contract should last a year and it was their judgment and conviction that their purposes would not be subversed in any less time. What reason can give for refusing to follow the plain words of the men who made the contract? We see none. The appellee urges that the plaintiff cannot recover for the reason that he did not prove damages, and cites numerous American authorities to the effect that because stipulations for liquidated damages are generally in excess of actual damages and so work a hardship upon the party in default, courts are strongly inclined to treat all such agreements as imposing a penalty and to allow a recovery for actual damages only. He also cites authorities holding that a penalty, as such, will not be enforced and that the party suing, in spite of the penalty assigned, will be put to his proof to demonstrate the damages actually suffered by reason of defendants wrongful act or omission. In this jurisdiction penalties provided in contracts of this character are enforced . It is the rule that parties who are competent to contract may make such agreements within the limitations of the law and public policy as they desire, and that the courts will enforce them according to their terms. (Civil Code, articles 1152, 1153, 1154, and 1155; Fornow vs. Hoffmeister, 6 Phil. Rep., 33; Palacios vs. Municipality of Cavite, 12 Phil. Rep., 140; Gsell vs. Koch, 16 Phil. Rep., 1.) The only case recognized by the Civil Code in which the court is authorized to intervene for the purpose of reducing a penalty stipulated in the contract is when the principal obligation has been partly or irregularly fulfilled and the court can see that the person demanding the penalty has received the benefit of such or irregular performance. In such case the court is authorized to reduce the penalty to the extent of the benefits received by the party enforcing the penalty. In this jurisdiction, there is no difference between a penalty and liquidated damages, so far as legal results are concerned. Whatever differences exists between them as a matter of language, they are treated the same legally. In either case the party to whom payment is to be made is entitled to recover the sum stipulated without the necessity of proving damages. Indeed one of the primary purposes in fixing a penalty or in liquidating damages, is to avoid such necessity. It is also urged by the appelle in this case that the stipulation in the contract suspending the power to sell the stock referred to therein is an illegal stipulation, is in restraint of trade and, therefore, offends public policy. We do not so regard it. The suspension of the power to sell has a beneficial purpose, results in the protection of the corporation as well as of the individual parties to the contract, and is reasonable as to the length of time of the suspension. We do not here undertake to discuss the limitations to the power to suspend the right of alienation of stock, limiting ourselves to the statement that the suspension in this particular case is legal and valid.

The judgment is reversed, the case remanded with instructions to enter a judgment in favor of the plaintiff and against the defendant for P1,000, with interest; without costs in this instance.

LAND BANK OF THE PHILIPPINES, petitioner, vs. THE COURT OF APPEALS, ECO MANAGEMENT CORPORATION and EMMANUEL C. OATE, respondents. QUISUMBING, J.: 1 This petition for review on certiorari seeks to reverse and set aside the decision promulgated on June 17, 1996 in CA-GR No. CV2 3 43239 of public respondent and its resolution dated November 29, 1996 denying petitioners motion for reconsideration. The facts of this case as found by the Court of Appeals and which we find supported by the records are as follows: On various dates in September, October, and November, 1980, appellant Land Bank of the Philippines (LBP) extended a series of credit accommodations to appellee ECO, using the trust funds of the Philippine Virginia Tobacco Administration (PVTA) in the aggregate amount of P26,109,000.00. The proceeds of the credit accommodations were received on behalf of ECO by appellee Oate. On the respective maturity dates of the loans, ECO failed to pay the same. Oral and written demands were made, but ECO was unable to pay. ECO claims that the company was in financial difficulty for it was unable to collect its investments with companies which were affected by the financial crisis brought about by the Dewey Dee scandal. xxx On October 20, 1981, ECO proposed and submitted to LBP a "Plan of Payment" whereby the former would set up a financing company which would absorb the loan obligations. It was proposed that LBP would participate in the scheme through the conversion of P9,000,000.00 which was part of the total loan, into equity. On March 4, 1982, LBP informed ECO of the action taken by the formers Trust Committee concerning the "Plan of Payment" which reads in part, as follows: xxx Please be informed that the Banks Trust Committee has deliberated on the plan of payment during its meetings on November 6, 1981 and February 23, 1982. The Committee arrived at a decision that you may proceed with your Plan of Payment provided Land Bank shall not participate in the undertaking in any manner whatsoever. In view thereof, may we advise you to make necessary revision in the proposed Plan of Payment and submit the same to us as soon as possible. (Records, p. 428) On May 5, 1982, ECO submitted to LBP a "Revised Plan of Payment" deleting the latters participation in the proposed financing company. The Trust Committee deliberated on the "Revised Plan of Payment" and resolved to reject it. LBP then sent a letter to the PVTA for the latters comments. The letter stated that if LBP did not hear from PVTA within five (5) days from the latters receipt of the letter, such silence would be construed to be an approval of LBPs intention to file suit against ECO and its corporate officers. PVTA did not respond to the letter. On June 28, 1982, Landbank filed a complaint for Collection of Sum of Money against ECO and Emmanuel C. Oate before the Regional Trial Court of Manila, Branch 50. After trial on the merits, a judgment was rendered in favor of LBP; however, appellee Oate was absolved from personal liability for insufficiency of evidence. Dissatisfied, both parties filed their respective Motions for Reconsideration. LBP claimed that there was an error in computation in the amounts to be paid. LBP also questioned the dismissal of the case with regard to Oate. On the other hand, ECO questioned its being held liable for the amount of the loan. Upon order of the court, both parties submitted Supplemental Motions for Reconsideration and their respective Oppositions to each others Motions. On February 3, 1993, the trial court rendered an Amended Decision, the dispositive portion of which reads as follows: ACCORDINGLY, the Decision, dated December 3, 1990, is hereby modified to read as follows: WHEREFORE, judgment is rendered ordering defendant Eco Management Corporation to pay plaintiff Land Bank of the Philippines: A. The sum of P26,109,000.00 representing the total amount of the ten (10) loan accommodations plus 16% interest per annum computed from the dates of their respective maturities until fully paid, broken down as follows: 1. the principal amount of P4,000,000.00 with interest at 16% computed from September 18, 1981; 2. the principal amount of P5,000,000.00 with interest at 16% computed from September 21, 1981; 3. the principal amount of P1,000,000.00 with interest rate at 16% computed from September 28, 1981; 4. the principal amount of P1,000,000.00 with interest at 15% computed from October 5, 1981; 5. the principal amount of P2,000,000.00 with interest rate at of 16% computed from October 8, 1981; 6. the principal amount of P2,000,000.00 with interest rate at of 16% from October 23, 1981; 7. the principal amount of P814,000.00 with interest rate at of 16% computed from November 1, 1981; 8. the principal amount of P2,295,000.00 with interest rate at of 16% computed from November 6, 1981; 9. the principal amount of P3,000,000.00 with interest rate at of 16% computed from November 7, 1981; 10. the principal amount of P5,000,000.00 with interest rate at 16% computed from November 9, 1981; B. The sum of P260,000.00 as attorneys fees; and C. The costs of the suit. The case as against defendant Emmanuel Oate is dismissed for insufficiency of evidence. 4 SO ORDERED. (Records, p. 608) 5 The Court of Appeals affirmed in toto the amended decision of the trial court. On June 9, 1996, petitioner filed a motion for reconsideration, which was denied in a resolution dated November 29, 1996. Hence, this present petition, assigning the following errors allegedly committed by the Court of Appeals: A THE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT BASED ON THE FACTS AS ESTABLISHED BY EVIDENCE, THERE EXISTS A SUBSTANTIAL AND JUSTIFIABLE GROUND UPON WHICH THE LEGAL NOTION OF THE CORPORATE FICTION OF RESPONDENT ECO MANAGEMENT CORPORATION MAY BE PIERCED. B THE COURT OF APPEALS GRAVELY ERRED IN NOT A[T]TACHING LIABILITY TO RESPONDENT EMMANUEL C. OATE JOINTLY AND SEVERALLY WITH RESPONDENT ECO MANAGEMENT CORPORATION FOR THE PRINCIPAL SUM OF P26 M PLUS INTEREST THEREON. C

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF THE LOWER COURT THE SAME NOT BEING SUPPORTED BY 6 THE EVIDENCE AND APPLICABLE LAWS AND JURISPRUDENCE. The primary issues for resolution here are (1) whether or not the corporate veil of ECO Management Corporation should be pierced; and (2) whether or not Emmanuel C. Oate should be held jointly and severally liable with ECO Management Corporation for the loans incurred from Land Bank. Petitioner contends that the personalities of Emmanuel Oate and of ECO Management Corporation should be treated as one, for the particular purpose of holding respondent Oate liable for the loans incurred by corporate respondent ECO from Land Bank. According to petitioner, the said corporation was formed ostensibly to allow Oate to acquire loans from Land Bank which he used for his personal advantage. Petitioner submits the following arguments to support its stand: (1) Respondent Oate owns the majority of the interest holdings in respondent corporation, specifically during the crucial time when appellees applied for and obtained the loan from LANDBANK, sometime in September to November, 1980. (2) The acronym ECO stands for the initials of Emmanuel C. Oate, which is the logical, sensible and concrete explanation for the name ECO, in the absence of evidence to the contrary. (3) Respondent Oate has always referred to himself as the debtor, not merely as an officer or a representative of respondent corporation. (4) Respondent Oate personally paid P1 Million taken from trust accounts in his name. (5) Respondent Oate made a personal offering to pay his personal obligation. (6) Respondent Oate controlled respondent corporation by simultaneously holding two (2) corporate positions, viz., as Chairman and as treasurer, beginning from the time of respondent corporations incorporation and continuously thereafter without benefit of election. (7) Respondent corporation had not held any meeting of the stockholders or of the Board of Directors, as shown by the fact that no proceeding of such corporate activities was filed with or borne by the record of the Securities and Exchange Commission (SEC). The only corporate records respondent corporation filed with the SEC were the following: Articles of 7 Incorporation, Treasurers Affidavit, Undertaking to Change Corporate Name, Statement of Assets and Liabilities. Private respondents, in turn, contend that Oates only participation in the transaction between petitioner and respondent ECO was his execution of the loan agreements and promissory notes as Chairman of the corporations Board of Directors. There was nothing in the loan agreement nor in the promissory notes which would indicate that Oate was binding himself jointly and severally with ECO. Respondents likewise deny that ECO stands for Emmanuel C. Oate. Respondents also note that Oate is no longer a majority stockholder of ECO and that the payment by a third person of the debt of another is allowed under the Civil Code. They also alleged that there was no fraud and/or bad faith in the transactions between them and Land Bank. Hence, private respondents conclude, 8 there is no legal ground to pierce the veil of respondent corporations personality. At the outset, we find the matters raised by petitioner in his argumentation are mainly questions of fact which are not proper in a 9 petition of this nature. Petitioner is basically questioning the evaluation made by the Court of Appeals of the evidence submitted at the trial. The Court of Appeals had found that petitioners evidence was not sufficient to justify the piercing of ECOs corporate 10 personality. Petitioner contended otherwise. It is basic that where what is being questioned is the sufficiency of evidence, it is a 11 question of fact. Nevertheless, even if we regard these matters as tendering an issue of law, we still find no reason to reverse the findings of the Court of Appeals. A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those persons composing 12 it as well as from any other legal entity to which it may be related. By this attribute, a stockholder may not, generally, be made to 13 answer for acts or liabilities of the said corporation, and vice versa. This separate and distinct personality is, however, merely a 14 fiction created by law for convenience and to promote the ends of justice. For this reason, it may not be used or invoked for ends 15 subversive to the policy and purpose behind its creation or which could not have been intended by law to which it owes its 16 being. This is particularly true when the fiction is used to defeat public convenience, justify wrong, protect fraud, defend 17 18 19 crime, confuse legitimate legal or judicial issues, perpetrate deception or otherwise circumvent the law. This is likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit for the sole benefit of the stockholders or of 20 another corporate entity. In all these cases, the notion of corporate entity will be pierced or disregarded with reference to the 21 particular transaction involved. The burden is on petitioner to prove that the corporation and its stockholders are, in fact, using the personality of the corporation as a means to perpetrate fraud and/or escape a liability and responsibility demanded by law. In order to disregard the separate juridical 22 personality of a corporation, the wrongdoing must be clearly and convincingly established. In the absence of any malice or bad 23 faith, a stockholder or an officer of a corporation cannot be made personally liable for corporate liabilities. The mere fact that Oate owned the majority of the shares of ECO is not a ground to conclude that Oate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of the capital stock of a corporation is not by itself sufficient reason 24 for disregarding the fiction of separate corporate personalities. Neither is the fact that the name "ECO" represents the first three letters of Oates name sufficient reason to pierce the veil. Even if it did, it does not mean that the said corporation is merely a dummy of Oate. A corporation may assume any name provided it is lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials of one of its shareholders. That respondent corporation in this case was being used as a mere alter ego of Oate to obtain the loans had not been shown. Bad faith or fraud on the part of ECO and Oate was not also shown. As the Court of Appeals observed, if shareholders of ECO meant to defraud petitioner, then they could have just easily absconded instead of going out of their way to propose "Plans of 25 26 Payment." Likewise, Oate volunteered to pay a portion of the corporations debt. This offer demonstrated good faith on his part to ease the debt of the corporation of which he was a part. It is understandable that a shareholder would want to help his corporation and in the process, assure that his stakes in the said corporation are secured. In this case, it was established that the P1 27 Million did not come solely from Oate. It was taken from a trust account which was owned by Oate and other investors. It was 28 likewise proved that the P1 Million was a loan granted by Oate and his co-depositors to alleviate the plight of ECO. This circumstance should not be construed as an admission that he was really the debtor and not ECO. In sum, we agree with the Court of Appeals conclusion that the evidence presented by the petitioner does not suffice to hold respondent Oate personally liable for the debt of co-respondent ECO. No reversible error could be attributed to respondent courts decision and resolution which petitioner assails. WHEREFORE, the petition is DENIED for lack of merit. The decision and resolution of the Court of Appeals in CA-G.R. CV No. 43239 are AFFIRMED. Costs against petitioner. SO ORDERED.

JESUS V. LANUZA, MAGADYA REYES, BAYANI REYES and ARIEL REYES, petitioners, vs. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION, DOLORES ONRUBIA, ELENITA NOLASCO, JUAN O. NOLASCO III, ESTATE OF FAUSTINA M. ONRUBIA, PHILIPPINE MERCHANT MARINE SCHOOL, INC., respondents. DECISION TINGA, J.: Presented in the case at bar is the apparently straight-forward but complicated question: What should be the basis of quorum for a stockholders meetingthe outstanding capital stock as indicated in the articles of incorporation or that contained in the companys stock and transfer book? [1] Petitioners seek to nullify the Court of Appeals Decision in CAG.R. SP No. 41473 promulgated on 18 August 1997, affirming the [2] SECOrder dated 20 June 1996, and the Resolution of the Court of Appeals dated 31 October 1997 which denied petitioners motion for reconsideration. The antecedents are not disputed. In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred (700) founders shares and seventy-six (76) common shares as its initial capital stock subscription reflected in the articles of incorporation. However, private respondents and their predecessors who were in control of PMMSI registered the companys stock and transfer book for the first time in 1978, recording thirty-three (33) common shares as the only issued and outstanding shares of PMMSI. Sometime in 1979, a special stockholders meeting was called and held on the basis of what was considered as a quorum of twenty-seven (27) common shares, representing more than two-thirds (2/3) of the common shares issued and outstanding. In 1982, the heirs of one of the original incorporators, Juan Acayan, filed a petition with the Securities and Exchange Commission (SEC) for the registration of their property rights over one hundred (120) founders shares and twelve (12) common shares owned by their father. The SEC hearing officer held that the heirs of Acayan were entitled to the claimed shares and called for a special [3] stockholders meeting to elect a new set of officers. The SEC En Banc affirmed the decision. As a result, the shares of Acayan were recorded in the stock and transfer book. On 06 May 1992, a special stockholders meeting was held to elect a new set of directors. Private respondents thereafter filed a petition with the SEC questioning the validity of the 06 May 1992 stockholders meeting, alleging that the quorum for the said meeting should not be based on the 165 issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation. The petition [4] was dismissed. Appeal was made to the SEC En Banc, which granted said appeal, holding that the shares of the deceased incorporators should be duly represented by their respective administrators or heirs concerned. The SEC directed the parties to call for a stockholders meeting on the basis of the stockholdings reflected in the articles of incorporation for the purpose of electing a [5] new set of officers for the corporation. [6] Petitioners, who are PMMSI stockholders, filed a petition for review with the Court of Appeals. Rebecca Acayan, Jayne O. Abuid, Willie O. Abuid and Renato Cervantes, stockholders and directors of PMMSI, earlier filed another petition for review of the same [7] SEC En Bancs orders. The petitions were thereafter consolidated. The consolidated petitions essentially raised the following issues, viz: (a) whether the basis the outstanding capital stock and accordingly also for determining the quorum at stockholders meetings it should be the 1978 stock and transfer book or if it should be the 1952 articles of incorporation; and (b) whether the [8] Court of Appeals gravely erred in applying the Espejo Decision to the benefit of respondents. The Espejo Decision is the decision of the SEC en banc in SEC Case No. 2289 which ordered the recording of the shares of Jose Acayan in the stock and transfer book. The Court of Appeals held that for purposes of transacting business, the quorum should be based on the outstanding capital stock as [9] found in the articles of incorporation. As to the second issue, the Court of Appeals held that the ruling in the Acayan case would ipso facto benefit the private respondents, since to require a separate judicial declaration to recognize the shares of the original incorporators would entail unnecessary delay and expense. Besides, the Court of Appeals added, the incorporators have [10] already proved their stockholdings through the provisions of the articles of incorporation. In the instant petition, petitioners claim that the 1992 stockholders meeting was valid and legal. They submit that reliance on the 1952 articles of incorporation for determining the quorum negates the existence and validity of the stock and transfer book which private respondents themselves prepared. In addition, they posit that private respondents cannot avail of the benefits secured by the heirs of Acayan, as private respondents must show and prove entitlement to the founders and common shares in a separate and independent action/proceeding. [11] In private respondents Memorandum dated 08 March 2000, they point out that the instant petition raises the same facts and [12] issues as those raised in G.R. No. 131315 , which was denied by the First Division of this Court on 18 January 1999 for failure to show that the Court of Appeals committed any reversible error. They add that as a logical consequence, the instant petition should be dismissed on the ground ofres judicata. Furthermore, private respondents claim that in view of the applicability of the rule [13] on res judicata, petitioners counsel should be cited for contempt for violating the rule against forum-shopping. For their part, petitioners claim that the principle of res judicata does not apply to the instant case. They argue that the instant petition is separate and distinct from G.R. No. 131315, there being no identity of parties, and more importantly, the parties in the two petitions have their own distinct rights and interests in relation to the subject matter in litigation. For the same reasons, they [14] claim that counsel for petitioners cannot be found guilty of forum-shopping. [15] In their Manifestation and Motion dated 22 September 2004, private respondents moved for the dismissal of the instant petition [16] in view of the dismissal of G.R. No. 131315. Attached to the said manifestation is a copy of the Entry of Judgment issued by the First Division dated 01 December 1999. The petition must be denied, not on res judicata, but on the ground that like the petition in G.R. No. 131315 it fails to impute reversible error to the challenged Court of Appeals Decision. Res judicata does not apply in the case at bar. [17] Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or matter settled by judgment. The doctrine ofres judicata provides that a final judgment, on the merits rendered by a court of competent jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an absolute bar to subsequent actions involving the same claim, demand, [18] or cause of action. The elements of res judicata are (a) identity of parties or at least such as representing the same interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (c) the identity in the

two (2) particulars is such that any judgment which may be rendered in the other action will, regardless of which party is successful, [19] amount to res judicata in the action under consideration. There is no dispute as to the identity of subject matter since the crucial point in both cases is the propriety of including the still unproven shares of respondents for purposes of determining the quorum. Petitioners, however, deny that there is identity of parties and causes of actions between the two petitions. The test often used in determining whether causes of action are identical is to ascertain whether the same facts or evidence would [20] support and establish the former and present causes of action. More significantly, there is identity of causes of action when the [21] judgment sought will be inconsistent with the prior judgment. In both petitions, petitioners assert that the Court of Appeals Decision effectively negates the existence and validity of the stock and transfer book, as well as automatically grants private respondents shares of stocks which they do not own, or the ownership of which remains to be unproved. Petitioners in the two petitions rely on the entries in the stock and transfer book as the proper basis for computing the quorum, and consequently determine the degree of control one has over the company. Essentially, the affirmance of the SEC Order had the effect of diminishing their control and interests in the company, as it allowed the participation of the individual private respondents in the election of officers of the corporation. Absolute identity of parties is not a condition sine qua non for res judicata to applya shared identity of interest is sufficient to [22] invoke the coverage of the principle. However, there is no identity of parties between the two cases. The parties in the two petitions have their own rights and interests in relation to the subject matter in litigation. As stated by petitioners in their Reply to [23] Respondents Memorandum, there are no two separate actions filed, but rather, two separate petitions for review on certiorari filed by two distinct parties with the Court and represented by their own counsels, arising from an adverse consolidated [24] decision promulgated by the Court of Appeals in one action or proceeding. As such, res judicata is not present in the instant case. Likewise, there is no basis for declaring petitioners or their counsel guilty of violating the rules against forum-shopping. In [25] theVerification/Certification portion of the petition, petitioners clearly stated that there was then a pending motion for reconsideration of the 18 August 1997 Decision of the Court of Appeals in the consolidated cases (CA-G.R. SP No. 41473 and CA-G.R. SP No. 41403) filed by the Abuids, as well as a motion for clarification. Moreover, the records indicate that petitioners filed [26] their Manifestation dated 20 January 1998, informing the Court of their receipt of the petition in G.R. No. 131315 in compliance with their duty to inform the Court of the pendency of another similar petition. The Court finds that petitioners substantially complied with the rules against forum-shopping. The Decision of the Court of Appeals must be upheld. The petition in this case involves the same facts and substantially the same issues and arguments as those in G.R. No. 131315 which the First Division has long denied with finality. The First Division found the petition before it inadequate in failing to raise any reversible error on the part of the Court of Appeals. We reach a similar conclusion as regards the present petition. The crucial issue in this case is whether it is the companys stock and transfer book, or its 1952 Articles of Incorporation, which determines stockholders shareholdings, and provides the basis for computing the quorum. We agree with the Court of Appeals. The articles of incorporation has been described as one that defines the charter of the corporation and the contractual relationships [27] between the State and the corporation, the stockholders and the State, and between the corporation and its stockholders. When PMMSI was incorporated, the prevailing law was Act No. 1459, otherwise known as The Corporation Law. Section 6 thereof states: Sec. 6. Five or more persons, not exceeding fifteen, a majority of whom are residents of the Philippines, may form a private corporation for any lawful purpose or purposes by filing with the Securities and Exchange Commission articles of incorporation duly executed and acknowledged before a notary public, setting forth: .... (7) If it be a stock corporation, the amount of its capital stock, in lawful money of the Philippines, and the number of shares into which it is divided, and if such stock be in whole or in part without par value then such fact shall be stated; Provided, however, That as to stock without par value the articles of incorporation need only state the number of shares into which said capital stock is divided. (8) If it be a stock corporation, the amount of capital stock or number of shares of no-par stock actually subscribed, the amount or [28] number of shares of no-par stock subscribed by each and the sum paid by each on his subscription. . . . [29] A review of PMMSIs articles of incorporation shows that the corporation complied with the requirements laid down by Act No. 1459. It provides in part: 7. That the capital stock of the said corporation is NINETY THOUSAND PESOS (P90,000.00) divided into two classes, namely: FOUNDERS STOCK - 1,000 shares at P20 par value- P 20,000.00 COMMON STOCK700 shares at P 100 par value P 70,000.00 TOTAL ---------------------1,700 shares----------------------------P 90,000.00 .... 8. That the amount of the entire capital stock which has been actually subscribed is TWENTY ONE THOUSAND SIX HUNDRED PESOS (P21,600.00) and the following persons have subscribed for the number of shares and amount of capital stock set out after their respective names: SUBSCRIBER SUBSCRIBED AMOUNT SUBSCRIBED No. of Shares Crispulo J. Onrubia Juan H. Acayan Martin P. Sagarbarria Mauricio G. Gallaga Luis Renteria Faustina M. de Onrubia 120 Founders 120 " 100 " 50 " 50 " 140 " Par Value P 2,400.00 2, 400.00 2, 000.00 1, 000.00 1, 000.00 2, 800.00

Mrs. Ramon Araneta Carlos M. Onrubia

40 " 80 " 700 SUBSCRIBED No. of Shares

800.00 1,600.00 P 14,000.00 AMOUNT SUBSCRIBED Par Value

SUBSCRIBER

Crispulo J. Onrubia Juan H. Acayan Martin P. Sagarbarria Mauricio G. Gallaga Luis Renteria Faustina M. de Onrubia Mrs. Ramon Araneta Carlos M. Onrubia

12 Common 12 " 8 " 8 " 8 " 12 "

P 1,200.00 1,200.00 800.00 800.00 800.00 1,200.00

8 " 800.00 8 " 800.00 [30] 76 P 7,600.00 There is no gainsaying that the contents of the articles of incorporation are binding, not only on the corporation, but also on its shareholders. In the instant case, the articles of incorporation indicate that at the time of incorporation, the incorporators were bona fide stockholders of seven hundred (700) founders shares and seventy-six (76) common shares. Hence, at that time, the corporation had 776 issued and outstanding shares. On the other hand, a stock and transfer book is the book which records the names and addresses of all stockholders arranged alphabetically, the installments paid and unpaid on all stock for which subscription has been made, and the date of payment thereof; a statement of every alienation, sale or transfer of stock made, the date thereof and by and to whom made; and such other entries [31] as may be prescribed by law. A stock and transfer book is necessary as a measure of precaution, expediency and convenience since it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing [32] the ownership of stock and like matters. However, a stock and transfer book, like other corporate books and records, is not in any sense a public record, and thus is not exclusive evidence of the matters and things which ordinarily are or should be written [33] therein. In fact, it is generally held that the records and minutes of a corporation are not conclusive even against the corporation [34] [35] but are prima facie evidence only, and may be impeached or even contradicted by other competent evidence. Thus, parol [36] evidence may be admitted to supply omissions in the records or explain ambiguities, or to contradict such records. In 1980, Batas Pambansa Blg. 68, otherwise known as The Corporation Code of the Philippines supplanted Act No. 1459. BP Blg. 68 provides: Sec. 24. Election of directors or trustees.At all elections of directors or trustees, there must be present, either in person or by representative authorized to act by written proxy, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote. . . . Sec. 52. Quorum in meetings.- Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of the stockholders representing a majority of the outstanding capital stock or majority of the members in the case of non-stock corporation. Outstanding capital stock, on the other hand, is defined by the Code as: Sec. 137. Outstanding capital stock defined. The term outstanding capital stock as used in this code, means the total shares of stock issued to subscribers or stockholders whether or not fully or partially paid (as long as there is binding subscription agreement) except treasury shares. Thus, quorum is based on the totality of the shares which have been subscribed and issued, whether it be founders shares or [37] common shares. In the instant case, two figures are being pitted against each other those contained in the articles of incorporation, and those listed in the stock and transfer book. To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and transfer book, and completely disregarding the issued and outstanding shares as indicated in the articles of incorporation would work injustice to the owners and/or successors in interest of the said shares. This case is one instance where resort to documents other than the stock and transfer books is necessary. The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does not reflect the totality of shares which have been subscribed, more so when the articles of incorporation show a significantly larger amount of shares issued and outstanding as compared to that listed in the stock and transfer book. As aptly stated by the SEC [38] in its Order dated 15 July 1996: It is to be explained, that if at the onset of incorporation a corporation has 771 shares subscribed, the Stock and Transfer Book should likewise reflect 771 shares. Any sale, disposition or even reacquisition of the company of its own shares, in which it becomes treasury shares, would not affect the total number of shares in the Stock and Transfer Book. All that will change are the entries as to the owners of the shares but not as to the amount of shares already subscribed. This is precisely the reason why the Stock and Transfer Book was not given probative value. Did the shares, which were not [39] recorded in the Stock and Transfer Book, but were recorded in the Articles of Iincorporation just vanish into thin air? . . . . As shown above, at the time the corporation was set-up, there were already seven hundred seventy-six (776) issued and outstanding shares as reflected in the articles of incorporation. No proof was adduced as to any transaction effected on these shares from the time PMMSI was incorporated up to the time the instant petition was filed, except for the thirty-three (33) shares which were recorded in the stock and transfer book in 1978, and the additional one hundred thirty-two (132) in 1982. But obviously, the shares so ordered recorded in the stock and transfer book are among the shares reflected in the articles of incorporation as the shares subscribed to by the incorporators named therein.

One who is actually a stockholder cannot be denied his right to vote by the corporation merely because the corporate officers failed [40] [41] to keep its records accurately. A corporations records are not the only evidence of the ownership of stock in a corporation. In [42] an American case, persons claiming shareholders status in a professional corporation were listed as stockholders in the amendment to the articles of incorporation. On that basis, they were in all respects treated as shareholders. In fact, the acts and [43] conduct of the parties may even constitute sufficient evidence of ones status as a shareholder or member. In the instant case, no less than the articles of incorporation declare the incorporators to have in their name the founders and several common shares. Thus, to disregard the contents of the articles of incorporation would be to pretend that the basic document which legally triggered the creation of the corporation does not exist and accordingly to allow great injustice to be caused to the incorporators and their heirs. Petitioners argue that the Court of Appeals gravely erred in applying the Espejo decision to the benefit of respondents. The Court believes that the more precise statement of the issue is whether in its assailed Decision, the Court of Appeals can declare private respondents as the heirs of the incorporators, and consequently register the founders shares in their name. However, this issue as recast is not actually determinative of the present controversy as explained below. Petitioners claim that the Decision of the Court of Appeals unilaterally divested them of their shares in PMMSI as recorded in the stock and transfer book and instantly created inexistent shares in favor of private respondents. We do not agree. The assailed Decision merely declared that a separate judicial declaration to recognize the shares of the original incorporators would entail unnecessary delay and expense on the part of the litigants, considering that the incorporators had already proved ownership [44] of such shares as shown in the articles of incorporation. There was no declaration of who the individual owners of these shares were on the date of the promulgation of the Decision. As properly stated by the SEC in its Order dated 20 June 1996, to which the appellate courts Decision should be related, if at all, the ownership of these shares should only be subjected to the proper judicial (probate) or extrajudicial proceedings in order to determine the respective shares of the legal heirs of the deceased [45] incorporators. WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioners. SO ORDERED.

LINA LIM LAO, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents. DECISION PANGANIBAN, J.: May an employee who, as part of her regular duties, signs blank corporate checks -- with the name of the payee and the amount drawn to be filled later by another signatory -- and, therefore, does so without actual knowledge of whether such checks are funded, be held criminally liable for violation of Batas Pambansa Bilang 22 (B.P. 22), when checks so signed are dishonored due to insufficiency of funds? Does a notice of dishonor sent to the main office of the corporation constitute a valid notice to the said employee who holds office in a separate branch and who had no actual knowledge thereof? In other words, is constructive knowledge of the corporation, but not of the signatory-employee, sufficient? [1] These are the questions raised in the petition filed on March 21, 1995 assailing the Decision of Respondent Court of [2] Appeals promulgated on December 9, 1994 in CA-G.R. CR No. 14240 dismissing the appeal of petitioner and affirming the decision dated September 26, 1990 in Criminal Case Nos. 84-26967 to 84-26969 of the Regional Trial Court of Manila, Branch 33. The [3] dispositive portion of the said RTC decision affirmed by the respondent appellate court reads: WHEREFORE, after a careful consideration of the evidence presented by the prosecution and that of the defense, the Court renders judgment as follows: In Criminal Case No. 84-26969 where no evidence was presented by the prosecution notwithstanding the fact that there was an agreement that the cases be tried jointly and also the fact that the accused Lina Lim Lao was already arraigned, for failure of the prosecution to adduce evidence against the accused, the Court hereby declares her innocent of the crime charged and she is hereby acquitted with cost de oficio. For Criminal Case No. 84-26967, the Court finds the accused Lina Lim Lao guilty beyond reasonable doubt of the crime charged and is hereby sentenced to suffer the penalty of ONE (1) YEAR imprisonment and to pay a fine of P150,000.00 without subsidiary imprisonment in case of insolvency. For Criminal Case No. 84-26968, the Court finds the accused Lina Lim Lao guilty beyond reasonable doubt of the crime charged and is hereby sentenced to suffer the penalty of ONE (1) YEAR imprisonment and to pay a fine of P150,000.00 without subsidiary imprisonment in case of of (sic) insolvency. For the two cases the accused is ordered to pay the cost of suit. The cash bond put up by the accused for her provisional liberty in Criminal Case No. 84-26969 where she is declared acquitted is hereby ordered cancelled (sic). With reference to the accused Teodulo Asprec who has remained at large, in order that the cases as against him may not remain pending in the docket for an indefinite period, let the same be archived without prejudice to its subsequent prosecution as soon as said accused is finally apprehended. Let a warrant issue for the arrest of the accused Teodulo Asprec which warrant need not be returned to this Court until the accused is finally arrested. SO ORDERED. The Facts Version of the Prosecution The facts are not disputed. We thus lift them from the assailed Decision, as follows: Appellant (and now Petitioner Lina Lim Lao) was a junior officer of Premiere Investment House (Premiere) in its Binondo Branch. As such officer, she was authorized to sign checks for and in behalf of the corporation (TSN, August 16, 1990, p. 6). In the course of the business, she met complainant Father Artelijo Pelijo, the provincial treasurer of the Society of the Divine Word through Mrs. Rosemarie Lachenal, a trader for Premiere. Father Palijo was authorized to invest donations to the society and had been investing the societys money with Premiere (TSN, June 23, 1987, pp. 5, 9-10). Father Palijo had invested a total ofP514,484.04, as evidenced by the Confirmation of Sale No. 82-6994 (Exh A) dated July 8, 1993. Father Palijo was also issued Traders Royal Bank (TRB) checks in payment of interest, as follows: Check Date Amount 299961 Oct. 7, 1993 (sic) P150,000.00 (Exh. B) 299962 Oct. 7, 1983 P150,000.00 (Exh. C) 323835 Oct. 7, 1983 P 26,010.73 All the checks were issued in favor of Artelijo A. Palijo and signed by appellant (herein petitioner) and Teodulo Asprec, who was the head of operations. Further evidence of the transaction was the acknowledgment of postdated checks dated July 8, 1983 (Exh . D) and the cash disbursement voucher (Exh. F, TSN, supra, at pp. 11-16). When Father Palijo presented the checks for encashment, the same were dishonored for the reason Drawn Against Insufficient Funds (DAIF). Father Palijo immediately made demands on premiere to pay him the necessary amounts. He first went to the Binondo Branch but was referred to the Cubao Main Branch where he was able to talk with the President, Mr. Cario. For his efforts, he was paid P5,000.00. Since no other payments followed, Father Palijo wrote Premiere a formal letter of [4] demand. Subsequently, Premiere was placed under receivership (TSN, supra, at pp. 16-19). Thereafter, on January 24, 1984, Private Complainant Palijo filed an affidavit-complaint against Petitioner Lina Lim Lao and Teodulo [5] Asprec for violation of B.P. 22. After preliminary investigation, three Informations charging Lao and Asprec with the offense defined in the first paragraph of Section 1, B.P. 22 were filed by Assistant Fiscal Felix S. Caballes before the trial court on May 11, [6] 1984, worded as follows: 1. In Criminal Case No. 84-26967: That on or about October 7, 1983 in the City of Manila, Philippines, the said accused did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account or for value a Traders Royal Bank Check No. 299962 for P150,000.00 payable to Fr. Artelijo A. Palijo dated October 7, 1983 well knowing that at the time of issue he/she did not have sufficient funds in or credit with the drawee bank for full payment of the said check upon its presentment as in fact the said check, when presented within ninety (90) days from the date thereof, was dishonored by the drawee bank for the reason: Insufficient Funds; that despite notice of such dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of the same within five (5) banking days from receipt of said notice. CONTRARY TO LAW. 2. In Criminal Case No. 84-26968:

That on or about October 7, 1983 in the City of Manila, Philippines, the said accused did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account or for value a Traders Royal Bank Check No. 299961 for P150,000.00 payable to Fr. Artelijo A. Palijo dated October 7, 83 well knowing that at the time of issue he/she did not have sufficient funds in or credit with the drawee bank for full payment of the said check upon its presentment as in fact the said check, when presented within ninety (90) days from the date thereof, was dishonored by the drawee bank for the reason: Insuficient Funds; that despite notice of such dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of the same within five (5) banking days from receipt of said notice. CONTRARY TO LAW. 3. And finally in Criminal Case No. 84-26969: That on or about July 8, 1983 in the City of Manila, Philippines, the said accused did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account for value a Traders Royal Bank Check No. 323835 for P26,010.03 payable to Fr. Artelijo A. Palijo dated October 7, 1983 well knowing that at the time of issue he/she did not have sufficient funds in or credit with the drawee bank for full payment of the said check upon its presentment as in fact the said check, when presented within ninety (90) days from the date thereof, was dishonored by the drawee bank for the reason: Insufficient Funds; that despite notice of such dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of the same within five (5) banking days from receipt of said notice. CONTRARY TO LAW. Upon being arraigned, petitioner assisted by counsel pleaded not guilty. Asprec was not arrested; he has remained at large since the trial, and even now on appeal. After due trial, the Regional Trial Court convicted Petitioner Lina Lim Lao in Criminal Case Nos. 84-26967 and 84-26968 but acquitted [7] her in Criminal Case No. 84-26969. On appeal, the Court of Appeals affirmed the decision of the trial court. Version of the Defense Petitioner aptly summarized her version of the facts of the case thus: Petitioner Lina Lim Lao was, in 1983, an employee of Premiere Financing Corporation (hereinafter referred to as the Corporation), a corporation engaged in investment management, with principal business office at Miami, Cubao, Quezon City. She was a junior officer at the corporation who was, however, assigned not at its main branch but at the corporations extension office in (Binondo) Manila. (Ocampo, T.S.N., 16 August 1990, p. 14) In the regular course of her duties as a junior officer, she was required to co-sign checks drawn against the account of the corporation. The other co-signor was her head of office, Mr. Teodulo Asprec. Since part of her duties required her to be mostly in the field and out of the office, it was normal procedure for her to sign the checks in blank, that is, without the names of the payees, the amounts and the dates of maturity. It was likewise Mr. Asprec, as head of office, who alone decided to whom the checks were to be ultimately issued and delivered. (Lao, T.S.N., 28 September 1989, pp. 9-11, 17, 19.) In signing the checks as part of her duties as junior officer of the corporation, petitioner had no knowledge of the actual funds available in the corporate account. (Lao, T.S.N., 28 September 1989, p. 21) The power, duty and responsibility of monitoring and assessing the balances against the checks issued, and funding the checks thus issued, devolved on the corporations Treasury Department in its main office in Cubao, Quezon City, headed then by the Treasurer, Ms. Veronilyn Ocampo. (Ocampo, T.S.N., 19 July 1990, p. 4; Lao, T.S.N., 28 September 1989, pp. 21-23) All bank statements regarding the corporate checking account were likewise sent to the main branch in Cubao, Quezon City, and not in Binondo, Manila, where petitioner was holding office. (Ocampo, T.S.N., 19 July 1990, p. 24; Marqueses, T.S.N., 22 November 1988, p. 8) The foregoing circumstances attended the issuance of the checks subject of the instant prosecution. The checks were issued to guarantee payment of investments placed by private complainant Palijo with Premiere Financing Corporation. In his transactions with the corporation, private complainant dealt exclusively with one Rosemarie Lachenal, a trader connected with the corporation, and he never knew nor in any way dealt with petitioner Lina Lim Lao at any time before or during the issuance of the delivery of the checks. (Palijo, T.S.N., 23 June 1987, pp. 28-29, 32-34; Lao, T.S.N., 15 May 1990, p. 6; Ocampo, T.S.N., p. 5) Petitioner Lina Lim Lao was not in any way involved in the transaction which led to the issuance of the checks. When the checks were co-signed by petitioner, they were signed in advance and in blank, delivered to the Head of Operations, Mr. Teodulo Asprec, who subsequently filled in the names of the payee, the amounts and the corresponding dates of maturity. After Mr. Asprec signed the checks, they were delivered to private complainant Palijo. (Lao, T.S.N., 28 September 1989, pp. 8-11, 17, 19; note also that the trial court in its decision fully accepted the testimony of petitioner [Decision of the Regional Trial Court, p. 12], and that the Court of Appeals affirmed said decision in toto) Petitioner Lina Lim Lao was not in any way involved in the completion, and the subsequent delivery of the check to private complainant Palijo. At the time petitioner signed the checks, she had no knowledge of the sufficiency or insufficiency of the funds of the corporate account. (Lao, T.S.N., 28 September 1989, p. 21) It was not within her powers, duties or responsibilities to monitor and assess the balances against the issuance; much less was it within her (duties and responsibilities) to make sure that the checks were funded. Premiere Financing Corporation had a Treasury Department headed by a Treasurer, Ms. Veronilyn Ocampo, which alone had access to information as to account balances and which alone was responsible for funding the issued checks. (Ocampo, T.S.N., 19 July 1990, p. 4; Lao, T.S.N., 28 September 1990, p. 23) All statements of account were sent to the Treasury Department located at the main office in Cubao, Quezon City. Petitioner was holding office at the extension in Binondo Manila. (Lao, T.S.N., 28 September 1989, p. 24-25) Petitioner Lina Lim Lao did not have knowledge of the insufficiency of the funds in the corporate account against which the checks were drawn. When the checks were subsequently dishonored, private complainant sent a notice of said dishonor to Premier Financing Corporation at its head office in Cubao, Quezon City. (Please refer to Exh. E; Palijo, T.S.N., 23 June 1987, p. 51) Private complainant did not send notice of dishonor to petitioner. (Palijo, T.S.N., 24 July 1987, p. 10) He did not follow up his investment with petitioner. (Id.) Private complainant never contacted, never informed, and never talked with, petitioner after the checks had bounced. (Id., at p. 29) Petitioner never had notice of the dishonor of the checks subject of the instant prosecution. The Treasurer of Premiere Financing Corporation, Ms. Veronilyn Ocampo testified that it was the head office in Cubao, Quezon City, which received notice of dishonor of the bounced checks. (Ocampo, T.S.N., 19 July 1990, pp. 7-8) The dishonor of the check came in the wake of the assassination of the late Sen. Benigno Aquino, as a consequence of which event a majority of the corporations clients pre-terminated their investments. A period of extreme illiquidity and financial distress followed, which ultimately led to the

corporations being placed under receivership by the Securities and Exchange Commission. (Ocampo, T.S.N., 16 August 1990, p. 8, 19; Lao, T.S.N., 28 September 1989, pp. 25-26; Please refer also to Exhibit 1, the order of receivership issued by the Securities and Exchange Commission) Despite the Treasury Departments and (Ms. Ocampos) knowledge of the dishonor of the checks, however, the main office in Cubao, Quezon City never informed petitioner Lina Lim Lao or anybody in the Binondo office for that matter. (Ocampo, T.S.N., 16 August 1990, pp. 9-10) In her testimony, she justified her omission by saying that the checks were actually the responsibility of the main office (Ocampo, T.S.N., 19 July 1990, p. 6) and that, at that time of panic withdrawals and massive pre-termination of clients investments, it was futile to inform the Binondo office since the main office was strapped for cash and in deep financial distress. (Id., at pp. 7-9) Moreover, the confusion which came in the wake of the Aquino assassination and the consequent panic withdrawals caused them to lose direct communication with the Binondo office. (Ocampo, T.S.N., 16 August 1990, p. 9-10) As a result of the financial crisis and distress, the Securities and Exchange Commission placed Premier Financing Corporation under receivership, appointing a rehabilitation receiver for the purpose of settling claims against the corporation. (Exh. 1) As he himself admits, private complainant filed a claim for the payment of the bounced check before and even after the corporation had been placed under receivership. (Palijo, T.S.N., 24 July 1987, p. 10-17) A check was prepared by the receiver in favor of the private complainant but the same was not claimed by him. (Lao, T.S.N., 15 May 1990, p. 18) Private complainant then filed the instant criminal action. On 26 September 1990, the Regional Trial Court of Manila, Branch 33, rendered a decision convicting petitioner, and sentencing the latter to suffer the aggregate penalty of two (2) years and to pay a fine [8] in the total amount of P300,000.00. On appeal, the Court of Appeals affirmed said decision. Hence, this petition for review. The Issue In the main, petitioner contends that the public respondent committed a reversible error in concluding that lack of actual knowledge of insufficiency of funds was not a defense in a prosecution for violation of B.P. 22. Additionally, the petitioner argues that the notice of dishonor sent to the main office of the corporation, and not to petitioner herself who holds office in that corporations branch office, does not constitute the notice mandated in Section 2 of BP 22; thus, there can be no prima facie presumption that she had knowledge of the insufficiency of funds. The Courts Ruling The petition is meritorious. Strict Interpretation of Penal Statutes It is well-settled in this jurisdiction that penal statutes are strictly construed against the state and liberally for the accused, so much so that the scope of a penal statute cannot be extended by good intention, implication, or even equity consideration. Thus, for Petitioner Lina Lim Laos acts to be penalized under the Bouncing Checks Law or B.P. 22, they must come clearly within both the [9] spirit and the letter of the statute. The salient portions of B.P. 22 read: SECTION 1. Checks without sufficient funds. -- Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or by a fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two hundred thousand pesos, or both such fine and imprisonment at the discretion of the court. The same penalty shall be imposed upon any person who having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit or to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank. Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act. SECTION 2. Evidence of knowledge of insufficient funds. -- The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. This Court listed the elements of the offense penalized under B.P. 22, as follows: (1) the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, [10] without any valid cause, ordered the bank to stop payment. Justice Luis B. Reyes, an eminent authority in criminal law, also enumerated the elements of the offense defined in the first paragraph of Section 1 of B.P. 22, thus: 1. That a person makes or draws and issues any check. 2. That the check is made or drawn and issued to apply on account or for value. 3. That the person who makes or draws and issues the check knows at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment. 4. That the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or would have been [11] dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment. Crux of the Petition Petitioner raised as defense before the Court of Appeals her lack of actual knowledge of the insufficiency of funds at the time of the issuance of the checks, and lack of personal notice of dishonor to her. The respondent appellate court, however, affirmed the RTC decision, reasoning that the makers knowledge of the insufficiency of funds is legally presumed from the dishonor of his checks for [12] insufficiency of funds. (People vs. Laggui, 171 SCRA 305; Nieras vs. Hon. Auxencio C. Dacuycuy, 181 SCRA 1) The Court of Appeals also stated that her alleged lack of knowledge or intent to issue a bum check would not exculpate her from any responsibility under

B.P. Blg. 22, since the act of making and issuing a worthless check is a malum prohibitum. In the words of the Solicitor General, [14] (s)uch alleged lack of knowledge is not material for petitioners liability under B.P.Blg. 22. Lack of Actual Knowledge of Insufficiency of Funds Knowledge of insufficiency of funds or credit in the drawee bank for the payment of a check upon its presentment is an essential [15] element of the offense. There is a prima facie presumption of the existence of this element from the fact of drawing, issuing or making a check, the payment of which was subsequently refused for insufficiency of funds. It is important to stress, however, that this is not a conclusive presumption that forecloses or precludes the presentation of evidence to the contrary. In the present case, the fact alone that petitioner was a signatory to the checks that were subsequently dishonored merely engenders theprima facie presumption that she knew of the insufficiency of funds, but it does not render her automatically guilty under B.P. 22. The prosecution has a duty to prove all the elements of the crime, including the acts that give rise to the prima [16] facie presumption; petitioner, on the other hand, has a right to rebut the prima facie presumption. Therefore, if such knowledge of insufficiency of funds is proven to be actually absent or non-existent, the accused should not be held liable for the offense defined under the first paragraph of Section 1 of B.P. 22. Although the offense charged is a malum prohibitum, the prosecution is not thereby excused from its responsibility of proving beyond reasonable doubt all the elements of the offense, one of which is knowledge of the insufficiency of funds. After a thorough review of the case at bar, the Court finds that Petitioner Lina Lim Lao did not have actual knowledge of the insufficiency of funds in the corporate accounts at the time she affixed her signature to the checks involved in this case, at the time the same were issued, and even at the time the checks were subsequently dishonored by the drawee bank. The scope of petitioners duties and responsibilities did not encompass the funding of the corporations checks; her duties were [17] limited to the marketing department of the Binondo branch. Under the organizational structure of Premiere Financing Corporation, funding of checks was the sole responsibility of the Treasury Department. Veronilyn Ocampo, former Treasurer of Premiere, testified thus: Q Will you please tell us whose (sic) responsible for the funding of checks in Premiere? A The one in charge is the Treasury Division up to the Treasury Disbursement and then they give it directly to Jose Cabacan, [18] President of Premiere. Furthermore, the Regional Trial Court itself found that, since Petitioner Lina Lim Lao was often out in the field taking charge of the marketing department of the Binondo branch, she signed the checks in blank as to name of the payee and the amount to be drawn, [19] and without knowledge of the transaction for which they were issued. As a matter of company practice, her signature was required in addition to that of Teodulo Asprec, who alone placed the name of the payee and the amount to be drawn thereon. This is clear from her testimony: q x x x Will you please or will you be able to tell us the condition of this check when you signed this or when you first saw this check? Witness a I signed the check in blank. There were no payee. No amount, no date, sir. q Why did you sign this check in blank when there was no payee, no amount and no date? a It is in order to facilitate the transaction, sir. xxx xxx xxx COURT (to witness) q Is that your practice? Witness a Procedure, Your Honor. COURT That is quiet (sic) unusual. That is why I am asking that last question if that is a practice of your office. a As a co-signer, I sign first, sir. q So the check cannot be encashed without your signature, co-signature? a Yes, sir. Atty. Gonzales (to witness) q Now, you said that you sign first, after you sign, who signs the check? a Mr. Teodoro Asprec, sir. q Is this Teodoro Asprec the same Teodoro Asprec, one of the accused in all these cases? a Yes, sir. q Now, in the distribution or issuance of checks which according to you, as a co-signee, you sign. Who determines to whom to issue or to whom to pay the check after Teodoro Asprec signs the check? Witness a He is the one. Atty. Gonzales q Mr. Asprec is the one in-charge in . . . are you telling the Honorable Court that it was Teodoro Asprec who determines to whom to issue the check? Does he do that all the time? Court q Does he all the time? (to witness) a Yes, Your Honor. q So the check can be negotiated? So, the check can be good only upon his signing? Without his signing or signature the check cannot be good? a Yes, Your Honor. Atty. Gonzales (to witness)

[13]

q You made reference to a transaction which according to you, you signed this check in order to facilitate the transaction . . . I withdraw that question. I will reform. COURT (for clarification to witness) Witness may answer. q Only to facilitate your business transaction, so you signed the other checks? Witness a Yes, Your Honor. q So that when ever there is a transaction all is needed . . . all that is needed is for the other co-signee to sign? a Yes, Your Honor. COURT (To counsel) Proceed. Atty. Gonzales (to witness) q Why is it necessary for you to sign? a Because most of the time I am out in the field in the afternoon, so, in order to facilitate the transaction I sign so if I am not [20] around they can issue the check. Petitioner did not have any knowledge either of the identity of the payee or the transaction which gave rise to the issuance of the checks. It was her co-signatory, Teodulo Asprec, who alone filled in the blanks, completed and issued the checks. That Petitioner Lina Lim Lao did not have any knowledge or connection with the checks payee, Artelijo Palijo, is clearly evident even from the latters testimony, viz.: ATTY. GONZALES: Q When did you come to know the accused Lina Lim Lao? A I cannot remember the exact date because in their office Binondo, -COURT: (before witness could finish) Q More or less? A It must have been late 1983. ATTY. GONZALES: Q And that must or that was after the transactions involving alleged checks marked in evidence as Exhibits B and C? A After the transactions. Q And that was also before the transaction involving that confirmation of sale marked in evidence as Exhibit A? A It was also. Q And so you came to know the accused Lina Lim Lao when all those transactions were already consummated? A Yes, sir. Q And there has never been any occasion where you transacted with accused Lina Lim Lao, is that correct? A None, sir, there was no occasion. Q And your coming to know Lina Lim Lao the accused in these cases was by chance when you happened to drop by in the office at Binondo of the Premier Finance Corporation, is that what you mean? A Yes, sir. Q You indicated to the Court that you were introduced to the accused Lina Lim Lao, is that correct? A I was introduced. xxx xxx xxx Q After that plain introduction there was nothing which transpired between you and the accused Lina Lim Lao? [21] A There was none. Since Petitioner Lina Lim Lao signed the checks without knowledge of the insufficiency of funds, knowledge she was not expected or obliged to possess under the organizational structure of the corporation, she may not be held liable under B.P. 22. For in the final analysis, penal statutes such as B.P. 22 must be construed with such strictness as to carefully safeguard the rights of the [22] defendant x x x. The element of knowledge of insufficiency of funds having been proven to be absent, petitioner is therefore entitled to an acquittal. [23] This position finds support in Dingle vs. Intermediate Appellate Court where we stressed that knowledge of insufficiency of funds at the time of the issuance of the check was an essential requisite for the offense penalized under B.P. 22. In that case, the spouses Paz and Nestor Dingle owned a family business known as PMD Enterprises. Nestor transacted the sale of 400 tons of silica sand to the buyer Ernesto Ang who paid for the same. Nestor failed to deliver. Thus, he issued to Ernesto two checks, signed by him and his wife as authorized signatories for PMD Enterprises, to represent the value of the undelivered silica sand. These checks were dishonored for having been drawn against insufficient funds. Nestor thereafter issued to Ernesto another check, signed by him and his wife Paz, which was likewise subsequently dishonored. No payment was ever made; hence, the spouses were charged with a violation of B.P. 22 before the trial court which found them both guilty. Paz appealed the judgment to the then Intermediate Appellate Court which modified the same by reducing the penalty of imprisonment to thirty days. Not satisfied, Paz filed an appeal to this Court insisting on her innocence and contending that she did not incur any criminal liability under B.P. 22 because she had no knowledge of the dishonor of the checks issued by her husband and, for that matter, even the transaction of her husband with Ang. The Court ruled in Dingle as follows: The Solicitor General in his Memorandum recommended that petitioner be acquitted of the instant charge because from the testimony of the sole prosecution witness Ernesto Ang, it was established that he dealt exclusively with Nestor Dingle. Nowhere in his testimony is the name of Paz Dingle ever mentioned in connection with the transaction and with the issuance of the check. In fact, Ang categorically stated that it was Nestor Dingle who received his two (2) letters of demand. This lends credence to the testimony of Paz Dingle that she signed the questioned checks in blank together with her husband without any knowledge of its issuance, much less of the transaction and the fact of dishonor. In the case of Florentino Lozano vs. Hon. Martinez, promulgated December 18, 1986, it was held that an essential element of the offense is knowledge on the part of the maker or drawer of the check of the insufficiency of his funds.

WHEREFORE, on reasonable doubt, the assailed decision of the Intermediate Appellate Court (now the Court of Appeals) is hereby [24] SET ASIDE and a new one is hereby rendered ACQUITTING petitioner on reasonable doubt." In rejecting the defense of herein petitioner and ruling that knowledge of the insufficiency of funds is legally presumed from the [25] dishonor of the checks for insufficiency of funds, Respondent Court of Appeals cited People vs. Laggui and Nierras vs. [26] Dacuycuy. These, however, are inapplicable here. The accused in both cases issued personal -- not corporate -- checks and did not aver lack of knowledge of insufficiency of funds or absence of personal notice of the checks dishonor. Furthermore, in People vs. [27] Laggui the Court ruled mainly on the adequacy of an information which alleged lack of knowledge of insufficiency of funds at the [28] time the check was issued and not at the time of its presentment. On the other hand, the Court in Nierras vs. Dacuycuy held mainly that an accused may be charged under B.P. 22 and Article 315 of the Revised Penal Code for the same act of issuing a bouncing check. The statement in the two cases -- that mere issuance of a dishonored check gives rise to the presumption of knowledge on the part of the drawer that he issued the same without funds -- does not support the CA Decision. As observed earlier, there is here only a prima faciepresumption which does not preclude the presentation of contrary evidence. On the contrary, People vs. Laggui clearly spells out as an element of the offense the fact that the drawer must have knowledge of the insufficiency of funds in, or of credit with, the drawee bank for the payment of the same in full on presentment; hence, it even supports the petitioners position. Lack of Adequate Notice of Dishonor There is another equally cogent reason for the acquittal of the accused. There can be no prima facie evidence of knowledge of insufficiency of funds in the instant case because no notice of dishonor was actually sent to or received by the petitioner. The notice of dishonor may be sent by the offended party or the drawee bank. The trial court itself found absent a personal notice of dishonor to Petitioner Lina Lim Lao by the drawee bank based on the unrebutted testimony of Ocampo (t)hat the checks bounced when presented with the drawee bank but she did not inform anymore the Binondo branch and Lina Lim Lao as there was [29] no need to inform them as the corporation was in distress. The Court of Appeals affirmed this factual finding. Pursuant to [30] prevailing jurisprudence, this finding is binding on this Court. Indeed, this factual matter is borne by the records. The records show that the notice of dishonor was addressed to Premiere Financing Corporation and sent to its main office in Cubao, Quezon City. Furthermore, the same had not been transmitted to Premieres Binondo Office where petitioner had been holding office. Likewise no notice of dishonor from the offended party was actually sent to or received by Petitioner Lao. Her testimony on this point is as follows: Atty. Gonzales q Will you please tell us if Father Artelejo Palejo (sic) ever notified you of the bouncing of the check or the two (2) checks marked as Exhibit B or C for the prosecution? Witness a No, sir. q What do you mean no, sir? a I was never given a notice. I was never given notice from Father Palejo (sic). COURT (to witness) q Notice of what? [31] a Of the bouncing check, Your Honor. Because no notice of dishonor was actually sent to and received by the petitioner, the prima facie presumption that she knew about the insufficiency of funds cannot apply. Section 2 of B.P. 22 clearly provides that this presumption arises not from the mere fact of drawing, making and issuing a bum check; there must also be a showing that, within five banking days from receipt of the notice of dishonor, such maker or drawer failed to pay the holder of the check the amount due thereon or to make arrangement for its payment in full by the drawee of such check. It has been observed that the State, under this statute, actually offers the violator a compromise by allowing him to perform some act which operates to preempt the criminal action, and if he opts to perform it the action is abated. This was also compared to [32] certain laws allowing illegal possessors of firearms a certain period of time to surrender the illegally possessed firearms to the [33] Government, without incurring any criminal liability. In this light, the full payment of the amount appearing in the check within [34] five banking days from notice of dishonor is a complete defense. The absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude a criminal prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to demand -- and the basic postulates of fairness require -- that the notice of dishonor be actually sent to and received by her to afford her the opportunity to avert prosecution under B.P. 22. In this light, the postulate of Respondent Court of Appeals that (d)emand on the Corporation constitutes demand on appellant [35] (herein petitioner), is erroneous. Premiere has no obligation to forward the notice addressed to it to the employee concerned, especially because the corporation itself incurs no criminal liability under B.P. 22 for the issuance of a bouncing check. Responsibility under B.P. 22 is personal to the accused; hence, personal knowledge of the notice of dishonor is necessary. Consequently, constructive notice to the corporation is not enough to satisfy due process. Moreover, it is petitioner, as an officer of the corporation, who is the latters agent for purposes of receiving notices and other documents, and not the other way around. It is but axiomatic that notice to the corporation, which has a personality distinct and separate from the petitioner, does not constitute notice to the latter. Epilogue In granting this appeal, the Court is not unaware of B.P. 22s intent to inculcate public respect for and trust in checks which, although not legal tender, are deemed convenient substitutes for currency. B.P. 22 was intended by the legislature to enhance commercial and financial transactions in the Philippines by penalizing makers and issuers of worthless checks. The public interest behind B.P. 22 [36] is thus clearly palpable from its intended purpose. At the same time, this Court deeply cherishes and is in fact bound by duty to protect our peoples constitutional rights to due [37] process and to be presumed innocent until the contrary is proven. These rights must be read into any interpretation and application of B.P. 22. Verily, the public policy to uphold civil liberties embodied in the Bill of Rights necessarily outweighs the public policy to build confidence in the issuance of checks. The first is a basic human right while the second is only proprietary in [38] nature. Important to remember also is B.P. 22s requirements that the check issuer must know at the time of issue that he does

not have sufficient funds in or credit with the drawee bank and that he must receive notice that such check has not been paid by the drawee. Hence, B.P. 22 must not be applied in a manner which contravenes an accuseds constitutional and statutory rights. There is also a social justice dimension in this case. Lina Lim Lao is only a minor employee who had nothing to do with the issuance, funding and delivery of checks. Why she was required by her employer to countersign checks escapes us. Her signature is completely unnecessary for it serves no fathomable purpose at all in protecting the employer from unauthorized disbursements. Because of the pendency of this case, Lina Lim Lao stood in jeopardy -- for over a decade -- of losing her liberty and suffering the wrenching pain and loneliness of imprisonment, not to mention the stigma of prosecution on her career and family life as a young mother, as well as the expenses, effort and aches in defending her innocence. Upon the other hand, the senior official -Teodulo Asprec -- who appears responsible for the issuance, funding and delivery of the worthless checks has escaped criminal prosecution simply because he could not be located by the authorities. The case against him has been archived while the awesome prosecutory might of the government and the knuckled ire of the private complainant were all focused on poor petitioner. Thus, this Court exhorts the prosecutors and the police authorities concerned to exert their best to arrest and prosecute Asprec so that justice in its pristine essence can be achieved in all fairness to the complainant, Fr. Artelijo Palijo, and the People of the Philippines. By this Decision, the Court enjoins the Secretary of Justice and the Secretary of Interior and Local Government to see that essential justice is done and the real culprit(s) duly-prosecuted and punished. WHEREFORE, the questioned Decision of the Court of Appeals affirming that of the Regional Trial Court, is hereby REVERSED and SET ASIDE. Petitioner Lina Lim Lao is ACQUITTED. The Clerk of Court is hereby ORDERED to furnish the Secretary of Justice and the Secretary of Interior and Local Government with copies of this Decision. No costs. SO ORDERED.

LAUREANO INVESTMENT & DEVELOPMENT CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS and BORMAHECO, INC., respondents. DECISION PANGANIBAN, J.: May a plaintiff/petitioner which purports to be a corporation validly bring suit under a name other than that registered with the Securities and Exchange Commission? [1] In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner seeks the reversal of the Decision of the [2] Court of Appeals in CA-G.R. SP No. 22763, promulgated on February 28, 1991, which resolved the above question in the negative; [3] and its Resolution promulgated on June 10, 1991, denying petitioners motion for reconsideration. The assailed Decision upheld [4] the following questioned orders of the Regional Trial Court of Makati, Branch 141: (1) the Order dated September 8, 1989, ruling that Lideco Corporation (the name under which herein petitioner represented itself before the trial court) lacked personality to [5] intervene; (2) the Order dated May 7, 1990, denying the motion of petitioner to take the place of Lideco Corporation as party[6] intervenor and adopt the latters complaint in intervention and other pleadings; and (3) the Order dated August 8, 1990, which [7] denied the motion for reconsideration of petitioner. The Facts The antecedents of this petition are summarized by the Respondent Court as follows: The records show that spouses Reynaldo Laureano and Florence Laureano are majority stockholders of petitioner Corporation who entered into a series of loan and credit transactions with Philippine National Cooperative Bank (PNCB for short). To secure payment of the loans, they executed Deeds of Real Estate Mortgage dated December 11, 1962, January 9, 1963, July 2, 1963 and September 5, 1964, for the following amounts: P100,000.00,P20,000.00, P70,000.00 and P13,424.04, respectively. In view of their failure to pay their indebtedness, PNCB applied for extrajudicial foreclosure of the real estate mortgages. The bank was the purchaser of the properties in question in the foreclosure sale and titles thereof were consolidated in PNCBs name on February 20, 1984. PNCB did not secure a writ of possession nor did it file ejectment proceedings against the Laureano spouses, because there were then pending cases, such as x x x involving the titles of ownership of subject two lots, which are situated at Bel-Air Subdivision[,] Makati, Metro Manila. Private respondent Bormaheco, Inc. became the successor of the obligations and liabilities of PNCB over subject lots by virtue of a Deed of Sale/Assignment on September 26, 1988 wherein Bormaheco bought from PNCB under a bulk sale 114 titled and untitled properties including the two parcels of land in question, formerly registered in the name of the Laureano spouses. Transfer Certificate of Title Nos. 157724 and 157725 over the lots in question were issued on October 12, 1988 in the name of Bormaheco. Five (5) days after securing titles over the said properties, Bormaheco filed an Ex-Parte Petition for the Issuance of Writ of Possession of Lots 4 and 5, Block 4 situated at Bel-Air Village, Makati, Metro Manila and embraced in TCT Nos. 157724 and 157725 of the Registry of Deeds of Makati, Metro Manila, docketed as LRC Case No. M-1530 before respondent Court. Petitioner Corporation filed on January 18, 1989 its Motion for Intervention and to Admit Attached Complaint in Intervention in said case. After an exchange of pleadings, respondent Court issued its order dated February 9, 1988, which reads: There being a prima facie showing in the attached complaint in intervention that herein intervenor LIDECO CORPORATION has an interest which may eventually and adversely be affected in whatever decision the Court may render in the instant case; to enable the parties concerned to properly ventilate and litigate all the issues involving the subject property thereby avoid multiplicity of suits, and in the interest of justice, the Motion for Intervention, filed by LIDECO CORPORATION is hereby GRANTED; and the attached complaint in intervention ADMITTED. On July 26, 1989, respondent Bormaheco filed its Motion to Strike out the Complaint in Intervention and all related pleadings filed by LIDECO Corporation. The motion was granted in the first questioned order dated September 8, 1989, which reads: x x x On the instant motion, the records show that LIDECO Corporation appeared thru counsel and filed its complaint in intervention, representing therein that it is a corporation duly organized and registered in accordance with law. The Corporation Code explicitly provides that the use of the word corporation presupposes that an entity is duly registered (with the SEC) in accordance with law. Intervening in the instant petition, with the use of the name LIDECO Corporation, the latter, in effect, represents to this court that it is a corporation whose personality is distinct and separate from its stockholders and/or any other corporation bearing different names. Hence, herein intervenor LIDECO Corporation and LAUREANO INVESTMENT AND DEVELOPMENT CORPORATION, to the mind of this Court, are two (2) separate and distinct entities. Inasmuch as the documents in support of its complaint in intervention -- tax declarations -- are in the names of Laureano Investment and Development Corporation, and it appearing that LIDECO Corporation is not a corporation or partnership duly organized and registered with the SEC, there is, therefore, no way whatsoever that LIDECO Corporations interests will be adversely affected by the outcome of the instant case. WHEREFORE, for intervenors lack of personality to intervene in the instant proceedings, petitioners motion to strike out complaint in intervention is hereby GRANTED. Accordingly, all pleadings filed relative thereto are ordered expunged from the records. x x x After the issuance of the above-cited order, petitioner Corporation filed on October 4, 1989, its Urgent Motion to Substitute Party Intervenor and to Adopt Complaint in Intervention and All Pleadings. An opposition thereto was filed by BORMAHECO, after which the lower court issued its second questioned order quoted below: x x x The court has painstakingly examined the two (2) tax declarations and has found out that the said tax declarations refer to two houses erected on Lot 3, Block 4 and Lot 3, Block 4 of the Bel-Air Village, Makati, Metro Manila. On the other hand, the subject matter of the instant petition are Lot 4, Block 4 and Lot 5, Block 4 of Bel-Air Village, Makati, Metro Manila. Clearly, therefore, the properties upon which the herein movant-corporation has interests refer to properties different from those subject of the instant petition. Not only that. As correctly pointed out by the petitioner, the afore-mentioned tax declarations according to the records of the Makati Assessors Office were canceled on July 22, 1982 or five (5) years, two (2) months and four (4) days before the petitioner (BORMAHECO) purchased from the Philippine National Cooperative Bank the two (2) lots and the improvements found thereon

evidenced by the copies of Tax Declaration Nos. A-002-00512 and 6103 attached as Annexes A and B respectively to the petitioners rejoinder dated October 26, 1989. The movant-corporation not having shown documentary evidence showing that it has interest on the two lots subject of the complaint and the improvements found therein, it has, therefore, no personality to file the instant motion. x x x There is yet another reason why the motion should not be granted. The movant corporations request to be substituted as party intervenor is not one of the instances provided for in Sec. 20, Rule 3 of the Rules of Court. Substitution of party litigant may be requested in the following: (a) When a party dies and the claim is not extinguished, upon proper motion, the Honorable Court may order the legal representative of the deceased to appear and to be substituted for the deceased within the period of thirty (30) days or within such time as may be granted. (Sec. 17, Rule 3, Rules of Court) (b) In case of any transfer of interest, upon motion, the Honorable Court may direct the person to whom the interest is transferred to be substituted in the action or joined with the original party. (Sec. 20, Rule 30 [should be Rule 3], supra.) which is not so in the case. x x x WHEREFORE, in view of the foregoing considerations, the motions under consideration are hereby DENIED. A Motion for Reconsideration of the above-cited order was denied by respondent Court in its third questioned order dated August 8, [8] 1990, x x x In likewise denying the petition of Laureano Investment and Development Corporation (petitioner corporation), Respondent Court ratiocinated: Petitioner Corporation contends that respondent Bormahecos motion to strike out the complaint in intervention and all related pleadings filed by LIDECO Corporation was based on misleading and confusing assertions that LIDECO Corporation is not a registered corporation despite its admission and/or use of the word LIDECO as acronym for Laureano Investment and Development Corporation. The contention is untenable. BORMAHECO has shown that LIDECO Corporation is not organized and existing under Philippine laws. Neither has it been registered with the Securities and Exchange Commission. In support of said claim, BORMAHECO presented a certification to the effect that the records of the Commission do not show the registration of LIDECO, INC. either as a corporation or as partnership. Petitioner also contends that the motion x x x should have been denied outright because it was filed in bad faith and without legal and factual basis. On the contrary, from the very first motion and pleading filed by petitioner in LRC No. M-1530 pending before respondent Court, it is very clear that the intervenor therein is LIDECO Corporation. Nowhere in its complaint does it appear that LIDECO Corporation is the brevity or acronym for Laureano Investment and Development Corporation. The claim that Lideco Corporation is the name of a corporation which is duly registered and organized in accordance with law has been belied by the absence of SEC record showing the registration of Lideco, Inc. either as corporation or as a partnership. It was only when intervenor (petitioner herein) filed its opposition to the motion to strike out that it clarified that Lideco Corporation is the acronym for Laureano Investment and Development Corporation. xxx xxx xxx Moreover, even assuming that Lideco Corporation and Laureano Investment and Development Corporation are one and the same, it was found by respondent Court that the properties being claimed by petitioner are different from those for which private [9] respondent is seeking the issuance of a writ of possession; hence, the complaint in intervention was correctly dismissed. In conclusion, the appellate court said: We, therefore, fail to see the alleged grave abuse of discretion on the part of respondent Court in issuing the questioned orders, as they were issued after the Court had considered the arguments of the parties and the evidence on record. Clearly, the lower court [10] acted within its authority and sound discretion in issuing the said orders. Petitioners motion for reconsideration of the above ruling was, as earlier stated, denied by Respondent Court in its [11] Resolution promulgated on June 10, 1991. Hence, this petition. Issues Petitioner raises for resolution the following questions: 1. Whether Respondent Bormaheco, Inc. is estopped from contesting the legal personality to sue of Lideco Corporation; 2. Whether bad faith attended the filing of private respondents motion to strike out the complaint in intervention and related [12] pleadings. Petitioner contends that private respondent is estopped from, and is in bad faith for, denying its knowledge that Lideco Corporation and Laureano Investment and Development Corporation are one and the same entity since it has previously used LIDECO as an acronym for the latter corporation. [13] Private respondent submitted a lengthy (sixty-page) amended comment to the petition, giving a detailed background to the instant case including various actions allegedly commenced by the Spouses Laureano questioning the foreclosure of the subject properties. In sum, Bormaheco, Inc. maintains that Respondent Court did not commit reversible error in disallowing Lideco Corporation to intervene for the reason that said entity did not satisfy the essential requisites for being a party to an action, to wit: (1) natural or juridical personality; (2) legal capacity to sue or be sued, i.e., having all the qualifications and none of the [14] disqualifications provided for by law; and (3) real interest in the subject matter of the action. Private respondent adds that petitioner corporation is merely an alter ego of the Laureano spouses who have lost their rights over the subject properties in favor of Bormahecos predecessor-in-interest, the Philippine National Cooperative Bank (PNCB), by virtue of extrajudicial foreclosures. Petitioners motion to intervene in the case below is just another ploy of the spouses to prevent subsequent owners from effectively exercising their rights of ownership over the properties. [15] Private respondent also filed before us a motion to declare petitioner as engaged in forum shopping and to resolve the instant petition. In support of its motion, private respondent enumerates a string of civil actions allegedly commenced by the Laureano spouses before the trial court as well as petitions before the appellate court concerning the properties in question. As a result, Bormaheco claims, an issue which could have been laid to rest in 1967 is still being litigated. Furthermore, in an omnibus [16] motion filed on February 11, 1997, private respondent claims that it is being unduly deprived of rental income by as much as P40,000.00 a month for each property, or a total of eight million pesos since 1988. On the other hand, it claims to have been assessed for and to have actually paid real estate taxes and Bel-Air Village Association dues since such date. The Courts Ruling

The petition is not meritorious. Petitioners Issues: Estoppel Petitioner contends that it was private respondent which first made use of LIDECO as a shorter term for Laureano Investment and [17] Development Corporation when it filed its first motion to strike dated January 9, 1989, prior to the filing by Lideco Corporation [18] of its motion for intervention and complaint in intervention on January 18, 1989. Hence, private respondent should be considered estopped from denying that petitioner and Lideco Corporation are one and the same corporation. [19] The equitable doctrine of estoppel was explained by this Court in Caltex (Philippines), Inc. vs. Court of Appeals: Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. A party may not go back on his own acts and representations to the prejudice of the other party who relied upon them. In the law of evidence, whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it. (footnotes omitted) [20] We elaborated in Maneclang vs. Baun In estoppel by pais, as related to the party sought to be estopped, it is necessary that there be a concurrence of the following requisites: (a) conduct amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (b) intent, or at least expectation that this conduct shall be acted upon, or at least influenced by the other party; and (c) knowledge, actual or constructive of the actual facts. (citing Kalalo vs. Luz, 34 SCRA 337, 1974) [21] Examining the records of the case, we observe that the motion adverted to indeed made use of LIDECO as an acronym for Laureano Investment and Development Corporation. But said motion distinctly specified that LIDECO was the shorter term for Laureano Investment and Development Corporation. It is obvious that no false representation or concealment can be attributed to private respondent. Neither can it be charged with conveying the impression that the facts are other than, or inconsistent with, those which it now asserts since LIDECO, as an acronym, is clearly different from Lideco Corporation which represented itself as a [22] corporation duly registered and organized in accordance with law. Nor can it be logically inferred that petitioner relied or acted upon such representation of private respondent in thereafter referring to itself as Lideco Corporation; for petitioner is presumed to know by which name it is registered, and the legal provisions on the use of its corporate name. Section 1, Rule 3 of the Rules of Court provides that only natural or juridical persons or entities authorized by law may be parties to a civil action. Under the Civil Code, a corporation has a legal personality of its own (Article 44), and may sue or be sued in its name, in [23] conformity with the laws and regulations of its organization (Article 46). Additionally, Article 36 of the Corporation Code similarly provides: Article 36. Corporate powers and capacity. -- Every corporation incorporated under this Code has the power and capacity: 1. To sue and be sued in its corporate name; x x x (underscoring supplied) As the trial and appellate courts have held, Lideco Corporation had no personality to intervene since it had not been duly registered as a corporation. If petitioner legally and truly wanted to intervene, it should have used its corporate name as the law requires and not another name which it had not registered. Indeed, as the Respondent Court found, nowhere in the motion for intervention and complaint in intervention does it appear that Lideco Corporation stands for Laureano Investment and Development Corporation. Bormaheco, Inc., thus, was not estopped from questioning the juridical personality of Lideco Corporation, even after the trial court had allowed it to intervene in the case. Granting arguendo that the name Lideco Corporation could be used by petitioner corporation in its motion, there is an even more cogent reason for denying the petition. The trial court concluded, and we have no reason to disagree, that the intervention of Lideco or petitioner corporation was not proper because neither had any legal interest in the subject of litigation. The evidence (tax declarations) attached to the petition for intervention and the complaint for intervention pertained to properties not being litigated in the instant case. Lideco and petitioner corporation both claimed to have an interest in two houses constructed in Lot 3, Block 4 in [24] Bel Air Village, Makati. The subject matter of the instant petition, on the other hand, are Lots 4 and 5, Block 4, of Bel Air Village. This factual finding was affirmed by the Court of Appeals. Since the conclusion of the trial and appellate courts is based on facts, and since the Supreme Court is not a trier of facts -- our function not being to examine and evaluate the evidence presented to the concerned tribunal which formed the basis of its [25] questioned decision, resolution or order -- it is clear that we cannot review such holding. We note further that petitioner has failed to show that the factual findings of the trial and appellate courts were arbitrary and/or constituted one of the exceptions [26] allowing review by this Court. Bad Faith (B)ad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; x x x bad [27] faith contemplates a state of mind affirmatively operating with furtive design or ill will. Other than its bare allegations that private respondent acted in bad faith, petitioner failed to show that the former acted consciously and deliberately to achieve a dishonest purpose or moral obliquity, or was motivated by ill will. Rather, as discussed above, no false representation was contrived nor concealment made by private respondent. Neither did it deliberately convey facts other than, or inconsistent with, what it now asserts and upon which petitioner had relied or acted upon due to the representations of private respondent. Hence, we hold that petitioner failed to demonstrate that private respondent acted in bad faith in filing its assailed second motion. Private Respondents Issue: Forum Shopping Private respondent, in turn, accuses petitioner and/or its chairman of the board and majority stockholder, Reynaldo Laureano, of forum shopping, alleging that both have improperly instituted a string of cases through deliberate splitting of causes of action thereby trifling with the courts and abusing their processes. There is forum shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than [28] [29] appeal orcertiorari) in another, raising identical causes of action, subject matter, and issues. However, private respondent, [30] other than the enumeration in its motion of the case number and titles, nature of the actions and decisions therein, failed to substantiate its allegations. It did not show convincingly that the cases enumerated had identical causes of action, subject matter

and issues. From its bare assertions, the Court cannot intelligently make a valid finding of whether petitioner, indeed, engaged in forum shopping. In any event, a ruling on this issue is not necessary to the final resolution of the entire case. WHEREFORE, premises considered, the petition is hereby DENIED for its failure to show any reversible error on the part of Respondent Court. The questioned Decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED.

RAMON C. LEE and ANTONIO DM. LACDAO, petitioners, vs. THE HON. COURT OF APPEALS, SACOBA MANUFACTURING CORP., PABLO GONZALES, JR. and THOMAS GONZALES, respondents. Cayanga, Zuniga & Angel Law Offices for petitioners. Timbol & Associates for private respondents. GUTIERREZ, JR., J.: What is the nature of the voting trust agreement executed between two parties in this case? Who owns the stocks of the corporation under the terms of the voting trust agreement? How long can a voting trust agreement remain valid and effective? Did a director of the corporation cease to be such upon the creation of the voting trust agreement? These are the questions the answers to which are necessary in resolving the principal issue in this petition for certiorari whether or not there was proper service of summons on Alfa Integrated Textile Mills (ALFA, for short) through the petitioners as president and vice-president, allegedly, of the subject corporation after the execution of a voting trust agreement between ALFA and the Development Bank of the Philippines (DBP, for short). From the records of the instant case, the following antecedent facts appear: On November 15, 1985, a complaint for a sum of money was filed by the International Corporate Bank, Inc. against the private respondents who, in turn, filed a third party complaint against ALFA and the petitioners on March 17, 1986. On September 17, 1987, the petitioners filed a motion to dismiss the third party complaint which the Regional Trial Court of Makati, Branch 58 denied in an Order dated June 27, 1988. On July 18, 1988, the petitioners filed their answer to the third party complaint. Meanwhile, on July 12, 1988, the trial court issued an order requiring the issuance of an alias summons upon ALFA through the DBP as a consequence of the petitioner's letter informing the court that the summons for ALFA was erroneously served upon them considering that the management of ALFA had been transferred to the DBP. In a manifestation dated July 22, 1988, the DBP claimed that it was not authorized to receive summons on behalf of ALFA since the DBP had not taken over the company which has a separate and distinct corporate personality and existence. On August 4, 1988, the trial court issued an order advising the private respondents to take the appropriate steps to serve the summons to ALFA. On August 16, 1988, the private respondents filed a Manifestation and Motion for the Declaration of Proper Service of Summons which the trial court granted on August 17, 1988. On September 12, 1988, the petitioners filed a motion for reconsideration submitting that Rule 14, section 13 of the Revised Rules of Court is not applicable since they were no longer officers of ALFA and that the private respondents should have availed of another mode of service under Rule 14, Section 16 of the said Rules, i.e.,through publication to effect proper service upon ALFA. In their Comment to the Motion for Reconsideration dated September 27, 1988, the private respondents argued that the voting trust agreement dated March 11, 1981 did not divest the petitioners of their positions as president and executive vice-president of ALFA so that service of summons upon ALFA through the petitioners as corporate officers was proper. On January 2, 1989, the trial court upheld the validity of the service of summons on ALFA through the petitioners, thus, denying the latter's motion for reconsideration and requiring ALFA to filed its answer through the petitioners as its corporate officers. On January 19, 1989, a second motion for reconsideration was filed by the petitioners reiterating their stand that by virtue of the voting trust agreement they ceased to be officers and directors of ALFA, hence, they could no longer receive summons or any court processes for or on behalf of ALFA. In support of their second motion for reconsideration, the petitioners attached thereto a copy of the voting trust agreement between all the stockholders of ALFA (the petitioners included), on the one hand, and the DBP, on the other hand, whereby the management and control of ALFA became vested upon the DBP. On April 25, 1989, the trial court reversed itself by setting aside its previous Order dated January 2, 1989 and declared that service upon the petitioners who were no longer corporate officers of ALFA cannot be considered as proper service of summons on ALFA. On May 15, 1989, the private respondents moved for a reconsideration of the above Order which was affirmed by the court in its Order dated August 14, 1989 denying the private respondent's motion for reconsideration. On September 18, 1989, a petition for certiorari was belatedly submitted by the private respondent before the public respondent which, nonetheless, resolved to give due course thereto on September 21, 1989. On October 17, 1989, the trial court, not having been notified of the pending petition for certiorari with public respondent issued an Order declaring as final the Order dated April 25, 1989. The private respondents in the said Order were required to take positive steps in prosecuting the third party complaint in order that the court would not be constrained to dismiss the same for failure to prosecute. Subsequently, on October 25, 1989 the private respondents filed a motion for reconsideration on which the trial court took no further action. On March 19, 1990, after the petitioners filed their answer to the private respondents' petition for certiorari, the public respondent rendered its decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, the orders of respondent judge dated April 25, 1989 and August 14, 1989 are hereby SET ASIDE and respondent corporation is ordered to file its answer within the reglementary period. (CA Decision, p. 8; Rollo, p. 24) On April 11, 1990, the petitioners moved for a reconsideration of the decision of the public respondent which resolved to deny the same on May 10, 1990. Hence, the petitioners filed this certiorari petition imputing grave abuse of discretion amounting to lack of jurisdiction on the part of the public respondent in reversing the questioned Orders dated April 25, 1989 and August 14, 1989 of the court a quo, thus, holding that there was proper service of summons on ALFA through the petitioners. In the meantime, the public respondent inadvertently made an entry of judgment on July 16, 1990 erroneously applying the rule that the period during which a motion for reconsideration has been pending must be deducted from the 15-day period to appeal. However, in its Resolution dated January 3, 1991, the public respondent set aside the aforestated entry of judgment after further considering that the rule it relied on applies to appeals from decisions of the Regional Trial Courts to the Court of Appeals, not to appeals from its decision to us pursuant to our ruling in the case of Refractories Corporation of the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [1989]. (CA Rollo, pp. 249-250) In their memorandum, the petitioners present the following arguments, to wit:

(1) that the execution of the voting trust agreement by a stockholders whereby all his shares to the corporation have been transferred to the trustee deprives the stockholders of his position as director of the corporation; to rule otherwise, as the respondent Court of Appeals did, would be violative of section 23 of the Corporation Code ( Rollo, pp. 270-3273); and (2) that the petitioners were no longer acting or holding any of the positions provided under Rule 14, Section 13 of the Rules of Court authorized to receive service of summons for and in behalf of the private domestic corporation so that the service of summons on ALFA effected through the petitioners is not valid and ineffective; to maintain the respondent Court of Appeals' position that ALFA was properly served its summons through the petitioners would be contrary to the general principle that a corporation can only be bound by such acts which are within the scope of its officers' or agents' authority (Rollo, pp. 273-275) In resolving the issue of the propriety of the service of summons in the instant case, we dwell first on the nature of a voting trust agreement and the consequent effects upon its creation in the light of the provisions of the Corporation Code. A voting trust is defined in Ballentine's Law Dictionary as follows: (a) trust created by an agreement between a group of the stockholders of a corporation and the trustee or by a group of identical agreements between individual stockholders and a common trustee, whereby it is provided that for a term of years, or for a period contingent upon a certain event, or until the agreement is terminated, control over the stock owned by such stockholders, either for certain purposes or for all purposes, is to be lodged in the trustee, either with or without a reservation to the owners, or persons designated by them, of the power to direct how such control shall be used. (98 ALR 2d. 379 sec. 1 [d]; 19 Am J 2d Corp. sec. 685). Under Section 59 of the new Corporation Code which expressly recognizes voting trust agreements, a more definitive meaning may be gathered. The said provision partly reads: Sec. 59. Voting Trusts One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the share for a period rights pertaining to the shares for a period not exceeding five (5) years at any one time: Provided, that in the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding (5) years but shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement. By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in the assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation. (5 Fletcher, Cyclopedia of the Law on Private Corporations, section 2075 [1976] p. 331citing Tankersly v. Albright, 374 F. Supp. 538) Under section 59 of the Corporation Code, supra, a voting trust agreement may confer upon a trustee not only the stockholder's voting rights but also other rights pertaining to his shares as long as the voting trust agreement is not entered "for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud." (section 59, 5th paragraph of the Corporation Code) Thus, the traditional concept of a voting trust agreement primarily intended to single out a stockholder's right to vote from his other rights as such and made irrevocable for a limited duration may in practice become a legal device whereby a transfer of the stockholder's shares is effected subject to the specific provision of the voting trust agreement. The execution of a voting trust agreement, therefore, may create a dichotomy between the equitable or beneficial ownership of the corporate shares of a stockholders, on the one hand, and the legal title thereto on the other hand. The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory conditions and such other terms and conditions specified in the agreement. The five year-period may be extended in cases where the voting trust is executed pursuant to a loan agreement whereby the period is made contingent upon full payment of the loan. In the instant case, the point of controversy arises from the effects of the creation of the voting trust agreement. The petitioners maintain that with the execution of the voting trust agreement between them and the other stockholders of ALFA, as one party, and the DBP, as the other party, the former assigned and transferred all their shares in ALFA to DBP, as trustee. They argue that by virtue to of the voting trust agreement the petitioners can no longer be considered directors of ALFA. In support of their contention, the petitioners invoke section 23 of the Corporation Code which provides, in part, that: Every director must own at least one (1) share of the capital stock of the corporation of which he is a director which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be director . . . (Rollo, p. 270) The private respondents, on the contrary, insist that the voting trust agreement between ALFA and the DBP had all the more safeguarded the petitioners' continuance as officers and directors of ALFA inasmuch as the general object of voting trust is to insure permanency of the tenure of the directors of a corporation. They cited the commentaries by Prof. Aguedo Agbayani on the right and status of the transferring stockholders, to wit: The "transferring stockholder", also called the "depositing stockholder", is equitable owner for the stocks represented by the voting trust certificates and the stock reversible on termination of the trust by surrender. It is said that the voting trust agreement does not destroy the status of the transferring stockholders as such, and thus render them ineligible as directors. But a more accurate statement seems to be that for some purposes the depositing stockholder holding voting trust certificates in lieu of his stock and being the beneficial owner thereof, remains and is treated as a stockholder. It seems to be deducible from the case that he may sue as a stockholder if the suit is in equity or is of an equitable nature, such as, a technical stockholders' suit in right of the corporation. [Commercial Laws of the Philippines by Agbayani, Vol. 3 pp. 492-493, citing 5 Fletcher 326, 327] (Rollo, p. 291) We find the petitioners' position meritorious.

Both under the old and the new Corporation Codes there is no dispute as to the most immediate effect of a voting trust agreement on the status of a stockholder who is a party to its execution from legal titleholder or owner of the shares subject of the voting trust agreement, he becomes the equitable or beneficial owner. (Salonga,Philippine Law on Private Corporations, 1958 ed., p. 268; Pineda and Carlos, The Law on Private Corporations and Corporate Practice, 1969 ed., p. 175; Campos and Lopez-Campos, The Corporation Code; Comments, Notes & Selected Cases, 1981, ed., p. 386; Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. 3, 1988 ed., p. 536). The penultimate question, therefore, is whether the change in his status deprives the stockholder of the right to qualify as a director under section 23 of the present Corporation Code which deletes the phrase "in his own right." Section 30 of the old Code states that: Every director must own in his own right at least one share of the capital stock of the stock corporation of which he is a director, which stock shall stand in his name on the books of the corporation. A director who ceases to be the owner of at least one share of the capital stock of a stock corporation of which is a director shall thereby cease to be a director . . . (Emphasis supplied) Under the old Corporation Code, the eligibility of a director, strictly speaking, cannot be adversely affected by the simple act of such director being a party to a voting trust agreement inasmuch as he remains owner (although beneficial or equitable only) of the shares subject of the voting trust agreement pursuant to which a transfer of the stockholder's shares in favor of the trustee is required (section 36 of the old Corporation Code). No disqualification arises by virtue of the phrase "in his own right" provided under the old Corporation Code. With the omission of the phrase "in his own right" the election of trustees and other persons who in fact are not beneficial owners of the shares registered in their names on the books of the corporation becomes formally legalized (see Campos and LopezCampos, supra, p. 296) Hence, this is a clear indication that in order to be eligible as a director, what is material is the legal title to, not beneficial ownership of, the stock as appearing on the books of the corporation (2 Fletcher, Cyclopedia of the Law of Private Corporations, section 300, p. 92 [1969]citing People v. Lihme, 269 Ill. 351, 109 N.E. 1051). The facts of this case show that the petitioners, by virtue of the voting trust agreement executed in 1981 disposed of all their shares through assignment and delivery in favor of the DBP, as trustee. Consequently, the petitioners ceased to own at least one share standing in their names on the books of ALFA as required under Section 23 of the new Corporation Code. They also ceased to have anything to do with the management of the enterprise. The petitioners ceased to be directors. Hence, the transfer of the petitioners' shares to the DBP created vacancies in their respective positions as directors of ALFA. The transfer of shares from the stockholder of ALFA to the DBP is the essence of the subject voting trust agreement as evident from the following stipulations: 1. The TRUSTORS hereby assign and deliver to the TRUSTEE the certificate of the shares of the stocks owned by them respectively and shall do all things necessary for the transfer of their respective shares to the TRUSTEE on the books of ALFA. 2. The TRUSTEE shall issue to each of the TRUSTORS a trust certificate for the number of shares transferred, which shall be transferrable in the same manner and with the same effect as certificates of stock subject to the provisions of this agreement; 3. The TRUSTEE shall vote upon the shares of stock at all meetings of ALFA, annual or special, upon any resolution, matter or business that may be submitted to any such meeting, and shall possess in that respect the same powers as owners of the equitable as well as the legal title to the stock; 4. The TRUSTEE may cause to be transferred to any person one share of stock for the purpose of qualifying such person as director of ALFA, and cause a certificate of stock evidencing the share so transferred to be issued in the name of such person; xxx xxx xxx 9. Any stockholder not entering into this agreement may transfer his shares to the same trustees without the need of revising this agreement, and this agreement shall have the same force and effect upon that said stockholder. (CA Rollo, pp. 137-138; Emphasis supplied) Considering that the voting trust agreement between ALFA and the DBP transferred legal ownership of the stock covered by the agreement to the DBP as trustee, the latter became the stockholder of record with respect to the said shares of stocks. In the absence of a showing that the DBP had caused to be transferred in their names one share of stock for the purpose of qualifying as directors of ALFA, the petitioners can no longer be deemed to have retained their status as officers of ALFA which was the case before the execution of the subject voting trust agreement. There appears to be no dispute from the records that DBP has taken over full control and management of the firm. Moreover, in the Certification dated January 24, 1989 issued by the DBP through one Elsa A. Guevarra, Vice-President of its Special Accounts Department II, Remedial Management Group, the petitioners were no longer included in the list of officers of ALFA "as of April 1982." (CA Rollo, pp. 140-142) Inasmuch as the private respondents in this case failed to substantiate their claim that the subject voting trust agreement did not deprive the petitioners of their position as directors of ALFA, the public respondent committed a reversible error when it ruled that: . . . while the individual respondents (petitioners Lee and Lacdao) may have ceased to be president and vice-president, respectively, of the corporation at the time of service of summons on them on August 21, 1987, they were at least up to that time, still directors . .. The aforequoted statement is quite inaccurate in the light of the express terms of Stipulation No. 4 of the subject voting trust agreement. Both parties, ALFA and the DBP, were aware at the time of the execution of the agreement that by virtue of the transfer of shares of ALFA to the DBP, all the directors of ALFA were stripped of their positions as such. There can be no reliance on the inference that the five-year period of the voting trust agreement in question had lapsed in 1986 so that the legal title to the stocks covered by the said voting trust agreement ipso facto reverted to the petitioners as beneficial owners pursuant to the 6th paragraph of section 59 of the new Corporation Code which reads: Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period, and the voting trust certificate as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the transferors. On the contrary, it is manifestly clear from the terms of the voting trust agreement between ALFA and the DBP that the duration of the agreement is contingent upon the fulfillment of certain obligations of ALFA with the DBP. This is shown by the following portions of the agreement. WHEREAS, the TRUSTEE is one of the creditors of ALFA, and its credit is secured by a first mortgage on the manufacturing plant of said company; WHEREAS, ALFA is also indebted to other creditors for various financial accomodations and because of the burden of these obligations is encountering very serious difficulties in continuing with its operations.

WHEREAS, in consideration of additional accommodations from the TRUSTEE, ALFA had offered and the TRUSTEE has accepted participation in the management and control of the company and to assure the aforesaid participation by the TRUSTEE, the TRUSTORS have agreed to execute a voting trust covering their shareholding in ALFA in favor of the TRUSTEE; AND WHEREAS, DBP is willing to accept the trust for the purpose aforementioned. NOW, THEREFORE, it is hereby agreed as follows: xxx xxx xxx 6. This Agreement shall last for a period of Five (5) years, and is renewable for as long as the obligations of ALFA with DBP, or any portion thereof, remains outstanding; (CA Rollo, pp. 137-138) Had the five-year period of the voting trust agreement expired in 1986, the DBP would not have transferred all its rights, titles and interests in ALFA "effective June 30, 1986" to the national government through the Asset Privatization Trust (APT) as attested to in a Certification dated January 24, 1989 of the Vice President of the DBP's Special Accounts Department II. In the same certification, it is stated that the DBP, from 1987 until 1989, had handled APT's account which included ALFA's assets pursuant to a management agreement by and between the DBP and APT (CA Rollo, p. 142) Hence, there is evidence on record that at the time of the service of summons on ALFA through the petitioners on August 21, 1987, the voting trust agreement in question was not yet terminated so that the legal title to the stocks of ALFA, then, still belonged to the DBP. In view of the foregoing, the ultimate issue of whether or not there was proper service of summons on ALFA through the petitioners is readily answered in the negative. Under section 13, Rule 14 of the Revised Rules of Court, it is provided that: Sec. 13. Service upon private domestic corporation or partnership. If the defendant is a corporation organized under the laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier, agent or any of its directors. It is a basic principle in Corporation Law that a corporation has a personality separate and distinct from the officers or members who compose it. (See Sulo ng Bayan Inc. v. Araneta, Inc., 72 SCRA 347 [1976]; Osias Academy v. Department of Labor and Employment, et al., G.R. Nos. 83257-58, December 21, 1990). Thus, the above rule on service of processes of a corporation enumerates the representatives of a corporation who can validly receive court processes on its behalf. Not every stockholder or officer can bind the corporation considering the existence of a corporate entity separate from those who compose it. The rationale of the aforecited rule is that service must be made on a representative so integrated with the corporation sued as to make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him. (Far Corporation v. Francisco, 146 SCRA 197 [1986] citing Villa Rey Transit, Inc. v. Far East Motor Corp. 81 SCRA 303 [1978]). The petitioners in this case do not fall under any of the enumerated officers. The service of summons upon ALFA, through the petitioners, therefore, is not valid. To rule otherwise, as correctly argued by the petitioners, will contravene the general principle that a corporation can only be bound by such acts which are within the scope of the officer's or agent's authority. (see Vicente v. Geraldez, 52 SCRA 210 [1973]). WHEREFORE, premises considered, the petition is hereby GRANTED. The appealed decision dated March 19, 1990 and the Court of Appeals' resolution of May 10, 1990 are SET ASIDE and the Orders dated April 25, 1989 and October 17, 1989 issued by the Regional Trial Court of Makati, Branch 58 are REINSTATED. SO ORDERED.

DANTE V. LIBAN, REYNALDO M. BERNARDO, and SALVADOR M. VIARI, Petitioners, vs. RICHARD J. GORDON, Respondent. DECISION CARPIO, J.: The Case This is a petition to declare Senator Richard J. Gordon (respondent) as having forfeited his seat in the Senate. The Facts Petitioners Dante V. Liban, Reynaldo M. Bernardo, and Salvador M. Viari (petitioners) filed with this Court a Petition to Declare Richard J. Gordon as Having Forfeited His Seat in the Senate. Petitioners are officers of the Board of Directors of the Quezon City Red Cross Chapter while respondent is Chairman of the Philippine National Red Cross (PNRC) Board of Governors. 1 During respondents incumbency as a member of the Senate of the Philippines, he was elected Chairman of the PNRC during the 23 February 2006 meeting of the PNRC Board of Governors. Petitioners allege that by accepting the chairmanship of the PNRC Board of Governors, respondent has ceased to be a member of the Senate as provided in Section 13, Article VI of the Constitution, which reads: SEC. 13. No Senator or Member of the House of Representatives may hold any other office or employment in the Government, or any subdivision, agency, or instrumentality thereof, including government-owned or controlled corporations or their subsidiaries, during his term without forfeiting his seat. Neither shall he be appointed to any office which may have been created or the emoluments thereof increased during the term for which he was elected. 2 Petitioners cite Camporedondo v. NLRC, which held that the PNRC is a government-owned or controlled corporation. Petitioners claim that in accepting and holding the position of Chairman of the PNRC Board of Governors, respondent has automatically 3 forfeited his seat in the Senate, pursuant to Flores v. Drilon, which held that incumbent national legislators lose their elective posts upon their appointment to another government office. In his Comment, respondent asserts that petitioners have no standing to file this petition which appears to be an action for quo warranto, since the petition alleges that respondent committed an act which, by provision of law, constitutes a ground for forfeiture of his public office. Petitioners do not claim to be entitled to the Senate office of respondent. Under Section 5, Rule 66 of the Rules of Civil Procedure, only a person claiming to be entitled to a public office usurped or unlawfully held by another may bring an action for quo warranto in his own name. If the petition is one for quo warranto, it is already barred by prescription since under Section 11, Rule 66 of the Rules of Civil Procedure, the action should be commenced within one year after the cause of the public officers forfeiture of office. In this case, respondent has been working as a Red Cross volunteer for the past 40 years. Respondent was already Chairman of the PNRC Board of Governors when he was elected Senator in May 2004, having been elected Chairman in 2003 and re-elected in 2005. Respondent contends that even if the present petition is treated as a taxpayers suit, petitioners cannot be allowed to raise a constitutional question in the absence of any claim that they suffered some actual damage or threatened injury as a result of the allegedly illegal act of respondent. Furthermore, taxpayers are allowed to sue only when there is a claim of illegal disbursement of public funds, or that public money is being diverted to any improper purpose, or where petitioners seek to restrain respondent from enforcing an invalid law that results in wastage of public funds. Respondent also maintains that if the petition is treated as one for declaratory relief, this Court would have no jurisdiction since original jurisdiction for declaratory relief lies with the Regional Trial Court. Respondent further insists that the PNRC is not a government-owned or controlled corporation and that the prohibition under Section 13, Article VI of the Constitution does not apply in the present case since volunteer service to the PNRC is neither an office nor an employment. In their Reply, petitioners claim that their petition is neither an action for quo warranto nor an action for declaratory relief. Petitioners maintain that the present petition is a taxpayers suit questioning the unlawful disbursement of funds, considering that respondent has been drawing his salaries and other compensation as a Senator even if he is no longer entitled to his office. Petitioners point out that this Court has jurisdiction over this petition since it involves a legal or constitutional issue which is of transcendental importance. The Issues Petitioners raise the following issues: 1. Whether the Philippine National Red Cross (PNRC) is a government- owned or controlled corporation; 2. Whether Section 13, Article VI of the Philippine Constitution applies to the case of respondent who is Chairman of the PNRC and at the same time a Member of the Senate; 3. Whether respondent should be automatically removed as a Senator pursuant to Section 13, Article VI of the Philippine Constitution; and 4 4. Whether petitioners may legally institute this petition against respondent. The substantial issue boils down to whether the office of the PNRC Chairman is a government office or an office in a governmentowned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the Constitution. The Courts Ruling We find the petition without merit. Petitioners Have No Standing to File this Petition A careful reading of the petition reveals that it is an action for quo warranto. Section 1, Rule 66 of the Rules of Court provides: Section 1. Action by Government against individuals. An action for the usurpation of a public office, position or franchise may be commenced by a verified petition brought in the name of the Republic of the Philippines against: (a) A person who usurps, intrudes into, or unlawfully holds or exercises a public office, position or franchise; (b) A public officer who does or suffers an act which by provision of law, constitutes a ground for the forfeiture of his office; or (c) An association which acts as a corporation within the Philippines without being legally incorporated or without lawful authority so to act. (Emphasis supplied) Petitioners allege in their petition that:

4. Respondent became the Chairman of the PNRC when he was elected as such during the First Regular Luncheon-Meeting of the Board of Governors of the PNRC held on February 23, 2006, the minutes of which is hereto attached and made integral part hereof as Annex "A." 5. Respondent was elected as Chairman of the PNRC Board of Governors, during his incumbency as a Member of the House of Senate of the Congress of the Philippines, having been elected as such during the national elections last May 2004. 6. Since his election as Chairman of the PNRC Board of Governors, which position he duly accepted, respondent has been exercising the powers and discharging the functions and duties of said office, despite the fact that he is still a senator. 7. It is the respectful submission of the petitioner[s] that by accepting the chairmanship of the Board of Governors of the PNRC, respondent has ceased to be a Member of the House of Senate as provided in Section 13, Article VI of the Philippine Constitution, x x x xxxx 10. It is respectfully submitted that in accepting the position of Chairman of the Board of Governors of the PNRC on February 23, 2006, respondent has automatically forfeited his seat in the House of Senate and, therefore, has long ceased to be a Senator, pursuant to the ruling of this Honorable Court in the case of FLORES, ET AL. VS. DRILON AND GORDON, G.R. No. 104732, x x x 11. Despite the fact that he is no longer a senator, respondent continues to act as such and still performs the powers, functions and duties of a senator, contrary to the constitution, law and jurisprudence. 12. Unless restrained, therefore, respondent will continue to falsely act and represent himself as a senator or member of the House of Senate, collecting the salaries, emoluments and other compensations, benefits and privileges appertaining and due only to the 5 legitimate senators, to the damage, great and irreparable injury of the Government and the Filipino people. (Emphasis supplied) Thus, petitioners are alleging that by accepting the position of Chairman of the PNRC Board of Governors, respondent has automatically forfeited his seat in the Senate. In short, petitioners filed an action for usurpation of public office against respondent, a public officer who allegedly committed an act which constitutes a ground for the forfeiture of his public office. Clearly, such an action is for quo warranto, specifically under Section 1(b), Rule 66 of the Rules of Court. Quo warranto is generally commenced by the Government as the proper party plaintiff. However, under Section 5, Rule 66 of the Rules of Court, an individual may commence such an action if he claims to be entitled to the public office allegedly usurped by another, in which case he can bring the action in his own name. The person instituting quo warranto proceedings in his own behalf 6 must claim and be able to show that he is entitled to the office in dispute, otherwise the action may be dismissed at any stage. In the present case, petitioners do not claim to be entitled to the Senate office of respondent. Clearly, petitioners have no standing to file the present petition. Even if the Court disregards the infirmities of the petition and treats it as a taxpayers suit, the petition would still fail on the merits. PNRC is a Private Organization Performing Public Functions 7 On 22 March 1947, President Manuel A. Roxas signed Republic Act No. 95, otherwise known as the PNRC Charter. The PNRC is a non-profit, donor-funded, voluntary, humanitarian organization, whose mission is to bring timely, effective, and compassionate humanitarian assistance for the most vulnerable without consideration of nationality, race, religion, gender, social status, or political 8 affiliation. The PNRC provides six major services: Blood Services, Disaster Management, Safety Services, Community Health and 9 Nursing, Social Services and Voluntary Service. The Republic of the Philippines, adhering to the Geneva Conventions, established the PNRC as a voluntary organization for the 10 purpose contemplated in the Geneva Convention of 27 July 1929. The Whereas clauses of the PNRC Charter read: WHEREAS, there was developed at Geneva, Switzerland, on August 22, 1864, a convention by which the nations of the world were invited to join together in diminishing, so far lies within their power, the evils inherent in war; WHEREAS, more than sixty nations of the world have ratified or adhered to the subsequent revision of said convention, namely the "Convention of Geneva of July 29 [sic], 1929 for the Amelioration of the Condition of the Wounded and Sick of Armies in the Field" (referred to in this Charter as the Geneva Red Cross Convention); WHEREAS, the Geneva Red Cross Convention envisages the establishment in each country of a voluntary organization to assist in caring for the wounded and sick of the armed forces and to furnish supplies for that purpose; WHEREAS, the Republic of the Philippines became an independent nation on July 4, 1946 and proclaimed its adherence to the Geneva Red Cross Convention on February 14, 1947, and by that action indicated its desire to participate with the nations of the world in mitigating the suffering caused by war and to establish in the Philippines a voluntary organization for that purpose as contemplated by the Geneva Red Cross Convention; WHEREAS, there existed in the Philippines since 1917 a Charter of the American National Red Cross which must be terminated in view of the independence of the Philippines; and WHEREAS, the volunteer organizations established in the other countries which have ratified or adhered to the Geneva Red Cross Convention assist in promoting the health and welfare of their people in peace and in war, and through their mutual assistance and cooperation directly and through their international organizations promote better understanding and sympathy among the peoples of the world. (Emphasis supplied) The PNRC is a member National Society of the International Red Cross and Red Crescent Movement (Movement), which is composed of the International Committee of the Red Cross (ICRC), the International Federation of Red Cross and Red Crescent Societies (International Federation), and the National Red Cross and Red Crescent Societies (National Societies). The Movement is united and guided by its seven Fundamental Principles: 1. HUMANITY The International Red Cross and Red Crescent Movement, born of a desire to bring assistance without discrimination to the wounded on the battlefield, endeavors, in its international and national capacity, to prevent and alleviate human suffering wherever it may be found. Its purpose is to protect life and health and to ensure respect for the human being. It promotes mutual understanding, friendship, cooperation and lasting peace amongst all peoples. 2. IMPARTIALITY It makes no discrimination as to nationality, race, religious beliefs, class or political opinions. It endeavors to relieve the suffering of individuals, being guided solely by their needs, and to give priority to the most urgent cases of distress. 3. NEUTRALITY In order to continue to enjoy the confidence of all, the Movement may not take sides in hostilities or engage at any time in controversies of a political, racial, religious or ideological nature. 4. INDEPENDENCE The Movement is independent. The National Societies, while auxiliaries in the humanitarian services of their governments and subject to the laws of their respective countries, must always maintain their autonomy so that they may be able at all times to act in accordance with the principles of the Movement.

5. VOLUNTARY SERVICE It is a voluntary relief movement not prompted in any manner by desire for gain. 6. UNITY There can be only one Red Cross or one Red Crescent Society in any one country. It must be open to all. It must carry on its humanitarian work throughout its territory. 7. UNIVERSALITY The International Red Cross and Red Crescent Movement, in which all Societies have equal status and share equal responsibilities and duties in helping each other, is worldwide. (Emphasis supplied) The Fundamental Principles provide a universal standard of reference for all members of the Movement. The PNRC, as a member National Society of the Movement, has the duty to uphold the Fundamental Principles and ideals of the Movement. In order to be recognized as a National Society, the PNRC has to be autonomous and must operate in conformity with the Fundamental Principles 11 of the Movement. The reason for this autonomy is fundamental. To be accepted by warring belligerents as neutral workers during international or internal armed conflicts, the PNRC volunteers must not be seen as belonging to any side of the armed conflict. In the Philippines where there is a communist insurgency and a Muslim separatist rebellion, the PNRC cannot be seen as government-owned or controlled, and neither can the PNRC volunteers be identified as government personnel or as instruments of government policy. Otherwise, the insurgents or separatists will treat PNRC volunteers as enemies when the volunteers tend to the wounded in the battlefield or the displaced civilians in conflict areas. Thus, the PNRC must not only be, but must also be seen to be, autonomous, neutral and independent in order to conduct its activities in accordance with the Fundamental Principles. The PNRC must not appear to be an instrument or agency that implements government policy; otherwise, it cannot merit the trust of all and cannot effectively carry out its mission as a National Red Cross 12 Society. It is imperative that the PNRC must be autonomous, neutral, and independent in relation to the State. To ensure and maintain its autonomy, neutrality, and independence, the PNRC cannot be owned or controlled by the government. Indeed, the Philippine government does not own the PNRC. The PNRC does not have government assets and does not receive any 13 appropriation from the Philippine Congress. The PNRC is financed primarily by contributions from private individuals and private entities obtained through solicitation campaigns organized by its Board of Governors, as provided under Section 11 of the PNRC Charter: SECTION 11. As a national voluntary organization, the Philippine National Red Cross shall be financed primarily by contributions obtained through solicitation campaigns throughout the year which shall be organized by the Board of Governors and conducted by the Chapters in their respective jurisdictions. These fund raising campaigns shall be conducted independently of other fund drives by other organizations. (Emphasis supplied) The government does not control the PNRC. Under the PNRC Charter, as amended, only six of the thirty members of the PNRC Board of Governors are appointed by the President of the Philippines. Thus, twenty-four members, or four-fifths (4/5), of the PNRC Board of Governors are not appointed by the President. Section 6 of the PNRC Charter, as amended, provides: SECTION 6. The governing powers and authority shall be vested in a Board of Governors composed of thirty members, six of whom shall be appointed by the President of the Philippines, eighteen shall be elected by chapter delegates in biennial conventions and the remaining six shall be selected by the twenty-four members of the Board already chosen. x x x. Thus, of the twenty-four members of the PNRC Board, eighteen are elected by the chapter delegates of the PNRC, and six are elected by the twenty-four members already chosen a select group where the private sector members have three-fourths majority. Clearly, an overwhelming majority of four-fifths of the PNRC Board are elected or chosen by the private sector members of the PNRC. The PNRC Board of Governors, which exercises all corporate powers of the PNRC, elects the PNRC Chairman and all other officers of the PNRC. The incumbent Chairman of PNRC, respondent Senator Gordon, was elected, as all PNRC Chairmen are elected, by a private sector-controlled PNRC Board four-fifths of whom are private sector members of the PNRC. The PNRC Chairman is not appointed by the President or by any subordinate government official. 14 Under Section 16, Article VII of the Constitution, the President appoints all officials and employees in the Executive branch whose appointments are vested in the President by the Constitution or by law. The President also appoints those whose appointments are not otherwise provided by law. Under this Section 16, the law may also authorize the "heads of departments, agencies, commissions, or boards" to appoint officers lower in rank than such heads of departments, agencies, commissions or 15 16 boards. In Rufino v. Endriga, the Court explained appointments under Section 16 in this wise: Under Section 16, Article VII of the 1987 Constitution, the President appoints three groups of officers. The first group refers to the heads of the Executive departments, ambassadors, other public ministers and consuls, officers of the armed forces from the rank of colonel or naval captain, and other officers whose appointments are vested in the President by the Constitution. The second group refers to those whom the President may be authorized by law to appoint. The third group refers to all other officers of the Government whose appointments are not otherwise provided by law. Under the same Section 16, there is a fourth group of lower-ranked officers whose appointments Congress may by law vest in the heads of departments, agencies, commissions, or boards. x x x xxx In a department in the Executive branch, the head is the Secretary. The law may not authorize the Undersecretary, acting as such Undersecretary, to appoint lower-ranked officers in the Executive department. In an agency, the power is vested in the head of the agency for it would be preposterous to vest it in the agency itself. In a commission, the head is the chairperson of the commission. In a board, the head is also the chairperson of the board. In the last three situations, the law may not also authorize officers other than the heads of the agency, commission, or board to appoint lower-ranked officers. xxx The Constitution authorizes Congress to vest the power to appoint lower-ranked officers specifically in the "heads" of the specified offices, and in no other person. The word "heads" refers to the chairpersons of the commissions or boards and not to their members, for several reasons. The President does not appoint the Chairman of the PNRC. Neither does the head of any department, agency, commission or board appoint the PNRC Chairman. Thus, the PNRC Chairman is not an official or employee of the Executive branch since his appointment does not fall under Section 16, Article VII of the Constitution. Certainly, the PNRC Chairman is not an official or employee of the Judiciary or Legislature. This leads us to the obvious conclusion that the PNRC Chairman is not an official or employee of the Philippine Government. Not being a government official or employee, the PNRC Chairman, as such, does not hold a government office or employment.

Under Section 17, Article VII of the Constitution, the President exercises control over all government offices in the Executive branch. If an office is legally not under the control of the President, then such office is not part of the Executive branch. In Rufino 18 v. Endriga, the Court explained the Presidents power of control over all government offices as follows: Every government office, entity, or agency must fall under the Executive, Legislative, or Judicial branches, or must belong to one of the independent constitutional bodies, or must be a quasi-judicial body or local government unit. Otherwise, such government office, entity, or agency has no legal and constitutional basis for its existence. The CCP does not fall under the Legislative or Judicial branches of government. The CCP is also not one of the independent constitutional bodies. Neither is the CCP a quasi-judicial body nor a local government unit. Thus, the CCP must fall under the Executive branch. Under the Revised Administrative Code of 1987, any agency "not placed by law or order creating them under any specific department" falls "under the Office of the President." Since the President exercises control over "all the executive departments, bureaus, and offices," the President necessarily exercises control over the CCP which is an office in the Executive branch. In mandating that the President "shall have control of all executive . . . offices," Section 17, Article VII of the 1987 Constitution does not exempt any executive office one performing executive functions outside of the independent constitutional bodies from the Presidents power of control. There is no dispute that the CCP performs executive, and not legislative, judicial, or quasi-judicial functions. The Presidents power of control applies to the acts or decisions of all officers in the Executive branch. This is true whether such officers are appointed by the President or by heads of departments, agencies, commissions, or boards. The power of control means the power to revise or reverse the acts or decisions of a subordinate officer involving the exercise of discretion. In short, the President sits at the apex of the Executive branch, and exercises "control of all the executive departments, bureaus, and offices." There can be no instance under the Constitution where an officer of the Executive branch is outside the control of the President. The Executive branch is unitary since there is only one President vested with executive power exercising control over the entire Executive branch. Any office in the Executive branch that is not under the control of the President is a lost command whose existence is without any legal or constitutional basis. (Emphasis supplied) An overwhelming four-fifths majority of the PNRC Board are private sector individuals elected to the PNRC Board by the private sector members of the PNRC. The PNRC Board exercises all corporate powers of the PNRC. The PNRC is controlled by private sector individuals. Decisions or actions of the PNRC Board are not reviewable by the President. The President cannot reverse or modify the decisions or actions of the PNRC Board. Neither can the President reverse or modify the decisions or actions of the PNRC Chairman. It is the PNRC Board that can review, reverse or modify the decisions or actions of the PNRC Chairman. This proves again that the office of the PNRC Chairman is a private office, not a government office.1avvphi1 Although the State is often represented in the governing bodies of a National Society, this can be justified by the need for proper coordination with the public authorities, and the government representatives may take part in decision-making within a National Society. However, the freely-elected representatives of a National Societys active members must remain in a large majority in a 19 National Societys governing bodies. The PNRC is not government-owned but privately owned. The vast majority of the thousands of PNRC members are private individuals, including students. Under the PNRC Charter, those who contribute to the annual fund campaign of the PNRC are entitled to membership in the PNRC for one year. Thus, any one between 6 and 65 years of age can be a PNRC member for one year upon 20 contributing P35, P100, P300, P500 or P1,000 for the year. Even foreigners, whether residents or not, can be members of the 21 PNRC. Section 5 of the PNRC Charter, as amended by Presidential Decree No. 1264, reads: SEC. 5. Membership in the Philippine National Red Cross shall be open to the entire population in the Philippines regardless of citizenship. Any contribution to the Philippine National Red Cross Annual Fund Campaign shall entitle the contributor to membership for one year and said contribution shall be deductible in full for taxation purposes. Thus, the PNRC is a privately owned, privately funded, and privately run charitable organization. The PNRC is not a governmentowned or controlled corporation. 22 Petitioners anchor their petition on the 1999 case of Camporedondo v. NLRC, which ruled that the PNRC is a government-owned or controlled corporation. In ruling that the PNRC is a government-owned or controlled corporation, the simple test used was whether the corporation was created by its own special charter for the exercise of a public function or by incorporation under the general corporation law. Since the PNRC was created under a special charter, the Court then ruled that it is a government corporation. However, the Camporedondoruling failed to consider the definition of a government-owned or controlled corporation as provided under Section 2(13) of the Introductory Provisions of the Administrative Code of 1987: SEC. 2. General Terms Defined. x x x (13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: Provided, That government-owned or controlled corporations may be further categorized by the Department of the Budget, the Civil Service Commission, and the Commission on Audit for purposes of the exercise and discharge of their respective powers, functions and responsibilities with respect to such corporations.(Boldfacing and underscoring supplied) A government-owned or controlled corporation must be owned by the government, and in the case of a stock corporation, at least a majority of its capital stock must be owned by the government. In the case of a non-stock corporation, by analogy at least a majority of the members must be government officials holding such membership by appointment or designation by the government. Under this criterion, and as discussed earlier, the government does not own or control PNRC. The PNRC Charter is Violative of the Constitutional Proscription against the Creation of Private Corporations by Special Law The 1935 Constitution, as amended, was in force when the PNRC was created by special charter on 22 March 1947. Section 7, Article XIV of the 1935 Constitution, as amended, reads: SEC. 7. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof. The subsequent 1973 and 1987 Constitutions contain similar provisions prohibiting Congress from creating private corporations except by general law. Section 1 of the PNRC Charter, as amended, creates the PNRC as a "body corporate and politic," thus: SECTION 1. There is hereby created in the Republic of the Philippines a body corporate and politic to be the voluntary organization officially designated to assist the Republic of the Philippines in discharging the obligations set forth in the Geneva Conventions and

17

to perform such other duties as are inherent upon a National Red Cross Society. The national headquarters of this Corporation shall be located in Metropolitan Manila. (Emphasis supplied) 23 In Feliciano v. Commission on Audit, the Court explained the constitutional provision prohibiting Congress from creating private corporations in this wise: We begin by explaining the general framework under the fundamental law. The Constitution recognizes two classes of corporations. The first refers to private corporations created under a general law. The second refers to government-owned or controlled corporations created by special charters. Section 16, Article XII of the Constitution provides: Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. The Constitution emphatically prohibits the creation of private corporations except by general law applicable to all citizens. The purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain individuals, families or groups special privileges denied to other citizens. In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be unconstitutional. Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist under a general law. Stated differently, only corporations created under a general law can qualify as private corporations. Under existing laws, the general law is the Corporation Code, except that the Cooperative Code governs the incorporation of cooperatives. The Constitution authorizes Congress to create government-owned or controlled corporations through special charters. Since private corporations cannot have special charters, it follows that Congress can create corporations with special charters only if such 24 corporations are government-owned or controlled. (Emphasis supplied) In Feliciano, the Court held that the Local Water Districts are government-owned or controlled corporations since they exist by virtue of Presidential Decree No. 198, which constitutes their special charter. The seed capital assets of the Local Water Districts, such as waterworks and sewerage facilities, were public property which were managed, operated by or under the control of the city, municipality or province before the assets were transferred to the Local Water Districts. The Local Water Districts also receive 25 subsidies and loans from the Local Water Utilities Administration (LWUA). In fact, under the 2009 General Appropriations Act, the 26 LWUA has a budget amounting to P400,000,000 for its subsidy requirements. There is no private capital invested in the Local Water Districts. The capital assets and operating funds of the Local Water Districts all come from the government, either through transfer of assets, loans, subsidies or the income from such assets or funds. The government also controls the Local Water Districts because the municipal or city mayor, or the provincial governor, appoints all the board directors of the Local Water Districts. Furthermore, the board directors and other personnel of the Local Water Districts are government employees subject to civil service laws and anti-graft laws. Clearly, the Local Water Districts are considered government-owned or controlled corporations not only because of their creation by special charter but also because the government in fact owns and controls the Local Water Districts. Just like the Local Water Districts, the PNRC was created through a special charter. However, unlike the Local Water Districts, the elements of government ownership and control are clearly lacking in the PNRC. Thus, although the PNRC is created by a special charter, it cannot be considered a government-owned or controlled corporation in the absence of the essential elements of ownership and control by the government. In creating the PNRC as a corporate entity, Congress was in fact creating a private corporation. However, the constitutional prohibition against the creation of private corporations by special charters provides no exception even for non-profit or charitable corporations. Consequently, the PNRC Charter, insofar as it creates the PNRC as a private 27 corporation and grants it corporate powers, is void for being unconstitutional. Thus, Sections 28 29 30 31 32 33 34 35 36 37 38 39 40 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the PNRC Charter, as amended, are void. 41 The other provisions of the PNRC Charter remain valid as they can be considered as a recognition by the State that the unincorporated PNRC is the local National Society of the International Red Cross and Red Crescent Movement, and thus entitled to the benefits, exemptions and privileges set forth in the PNRC Charter. The other provisions of the PNRC Charter implement the Philippine Governments treaty obligations under Article 4(5) of the Statutes of the International Red Cross and Red Crescent Movement, which provides that to be recognized as a National Society, the Society must be "duly recognized by the legal government of its country on the basis of the Geneva Conventions and of the national legislation as a voluntary aid society, auxiliary to the public authorities in the humanitarian field." In sum, we hold that the office of the PNRC Chairman is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. However, since the PNRC Charter is void insofar as it creates the PNRC as a private corporation, the PNRC should incorporate under the Corporation Code and register with the Securities and Exchange Commission if it wants to be a private corporation. WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID because they create the PNRC as a private corporation or grant it corporate powers. SO ORDERED

DANTE V. LIBAN, REYNALDO M. BERNARDO and SALVADOR M. VIARI, Petitioners, vs. RICHARD J. GORDON, Respondent. PHILIPPINE NATIONAL RED CROSS, Intervenor. RESOLUTION LEONARDO-DE CASTRO, J.: 1 This resolves the Motion for Clarification and/or for Reconsideration filed on August 10, 2009 by respondent Richard J. Gordon 2 (respondent) of the Decision promulgated by this Court on July 15, 2009 (the Decision), the Motion for Partial Reconsideration filed on August 27, 2009 by movant-intervenor Philippine National Red Cross (PNRC), and the latters Manifestation and Motion to Admit 3 Attached Position Paper filed on December 23, 2009. 4 In the Decision, the Court held that respondent did not forfeit his seat in the Senate when he accepted the chairmanship of the PNRC Board of Governors, as "the office of the PNRC Chairman is not a government office or an office in a government-owned or 5 controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution." The Decision, however, further declared void the PNRC Charter "insofar as it creates the PNRC as a private corporation" and consequently ruled that "the PNRC should incorporate under the Corporation Code and register with the Securities and Exchange Commission if it wants to be a 6 private corporation." The dispositive portion of the Decision reads as follows: WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID because they create the PNRC as a private 7 corporation or grant it corporate powers. In his Motion for Clarification and/or for Reconsideration, respondent raises the following grounds: (1) as the issue of constitutionality of Republic Act (R.A.) No. 95 was not raised by the parties, the Court went beyond the case in deciding such issue; and (2) as the Court decided that Petitioners did not have standing to file the instant Petition, the pronouncement of the Court on 8 the validity of R.A. No. 95 should be considered obiter. Respondent argues that the validity of R.A. No. 95 was a non-issue; therefore, it was unnecessary for the Court to decide on that 9 question. Respondent cites Laurel v. Garcia, wherein the Court said that it "will not pass upon a constitutional question although properly presented by the record if the case can be disposed of on some other ground" and goes on to claim that since this Court, in the Decision, disposed of the petition on some other ground, i.e., lack of standing of petitioners, there was no need for it to delve into the validity of R.A. No. 95, and the rest of the judgment should be deemed obiter. In its Motion for Partial Reconsideration, PNRC prays that the Court sustain the constitutionality of its Charter on the following grounds: A. THE ASSAILED DECISION DECLARING UNCONSTITUTIONAL REPUBLIC ACT NO. 95 AS AMENDED DEPRIVED INTERVENOR PNRC OF ITS CONSTITUTIONAL RIGHT TO DUE PROCESS. 1. INTERVENOR PNRC WAS NEVER A PARTY TO THE INSTANT CONTROVERSY. 2. THE CONSTITUTIONALITY OF REPUBLIC ACT NO. 95, AS AMENDED WAS NEVER AN ISSUE IN THIS CASE. B. THE CURRENT CHARTER OF PNRC IS PRESIDENTIAL DECREE NO. 1264 AND NOT REPUBLIC ACT NO. 95. PRESIDENTIAL DECREE NO. 1264 WAS NOT A CREATION OF CONGRESS. C. PNRCS STRUCTURE IS SUI GENERIS; IT IS A CLASS OF ITS OWN. WHILE IT IS PERFORMING HUMANITARIAN FUNCTIONS AS AN AUXILIARY TO GOVERNMENT, IT IS A NEUTRAL ENTITY SEPARATE AND INDEPENDENT OF GOVERNMENT CONTROL, YET IT DOES NOT QUALIFY AS STRICTLY PRIVATE IN CHARACTER. 10 In his Comment and Manifestation filed on November 9, 2009, respondent manifests: (1) that he agrees with the position taken by the PNRC in its Motion for Partial Reconsideration dated August 27, 2009; and (2) as of the writing of said Comment and Manifestation, there was pending before the Congress of the Philippines a proposed bill entitled "An Act Recognizing the PNRC as an Independent, Autonomous, Non-Governmental Organization Auxiliary to the Authorities of the Republic of the Philippines in the 11 Humanitarian Field, to be Known as The Philippine Red Cross." After a thorough study of the arguments and points raised by the respondent as well as those of movant-intervenor in their respective motions, we have reconsidered our pronouncements in our Decision dated July 15, 2009 with regard to the nature of the PNRC and the constitutionality of some provisions of the PNRC Charter, R.A. No. 95, as amended. As correctly pointed out in respondents Motion, the issue of constitutionality of R.A. No. 95 was not raised by the parties, and was not among the issues defined in the body of the Decision; thus, it was not the very lis mota of the case. We have reiterated the rule 12 as to when the Court will consider the issue of constitutionality in Alvarez v. PICOP Resources, Inc., thus: This Court will not touch the issue of unconstitutionality unless it is the very lis mota. It is a well-established rule that a court should not pass upon a constitutional question and decide a law to be unconstitutional or invalid, unless such question is raised by the parties and that when it is raised, if the record also presents some other ground upon which the court may [rest] its judgment, that 13 course will be adopted and the constitutional question will be left for consideration until such question will be unavoidable. Under the rule quoted above, therefore, this Court should not have declared void certain sections of R.A. No. 95, as amended by Presidential Decree (P.D.) Nos. 1264 and 1643, the PNRC Charter. Instead, the Court should have exercised judicial restraint on this matter, especially since there was some other ground upon which the Court could have based its judgment. Furthermore, the PNRC, the entity most adversely affected by this declaration of unconstitutionality, which was not even originally a party to this case, was being compelled, as a consequence of the Decision, to suddenly reorganize and incorporate under the Corporation Code, after more than sixty (60) years of existence in this country. Its existence as a chartered corporation remained unchallenged on ground of unconstitutionality notwithstanding that R.A. No. 95 was enacted on March 22, 1947 during the effectivity of the 1935 Constitution, which provided for a proscription against the creation of private corporations by special law, to wit: SEC. 7. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned and controlled by the Government or any subdivision or instrumentality thereof. (Art. XIV, 1935 Constitution.)

Similar provisions are found in Article XIV, Section 4 of the 1973 Constitution and Article XII, Section 16 of the 1987 Constitution. The latter reads: SECTION 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. Since its enactment, the PNRC Charter was amended several times, particularly on June 11, 1953, August 16, 1971, December 15, 1977, and October 1, 1979, by virtue of R.A. No. 855, R.A. No. 6373, P.D. No. 1264, and P.D. No. 1643, respectively. The passage of several laws relating to the PNRCs corporate existence notwithstanding the effectivity of the constitutional proscription on the creation of private corporations by law, is a recognition that the PNRC is not strictly in the nature of a private corporation contemplated by the aforesaid constitutional ban. A closer look at the nature of the PNRC would show that there is none like it not just in terms of structure, but also in terms of history, public service and official status accorded to it by the State and the international community. There is merit in PNRCs contention that its structure is sui generis. The PNRC succeeded the chapter of the American Red Cross which was in existence in the Philippines since 1917. It was created by an Act of Congress after the Republic of the Philippines became an independent nation on July 6, 1946 and proclaimed on February 14, 1947 its adherence to the Convention of Geneva of July 29, 1929 for the Amelioration of the Condition of the Wounded and Sick of Armies in the Field (the "Geneva Red Cross Convention"). By that action the Philippines indicated its desire to participate with the nations of the world in mitigating the suffering caused by war and to establish in the Philippines a voluntary organization for that purpose and like other volunteer organizations established in other countries which have ratified the Geneva Conventions, to 14 promote the health and welfare of the people in peace and in war. The provisions of R.A. No. 95, as amended by R.A. Nos. 855 and 6373, and further amended by P.D. Nos. 1264 and 1643, show the historical background and legal basis of the creation of the PNRC by legislative fiat, as a voluntary organization impressed with public interest. Pertinently R.A. No. 95, as amended by P.D. 1264, provides: WHEREAS, during the meeting in Geneva, Switzerland, on 22 August 1894, the nations of the world unanimously agreed to diminish within their power the evils inherent in war; WHEREAS, more than one hundred forty nations of the world have ratified or adhered to the Geneva Conventions of August 12, 1949 for the Amelioration of the Condition of the Wounded and Sick of Armed Forces in the Field and at Sea, The Prisoners of War, and The Civilian Population in Time of War referred to in this Charter as the Geneva Conventions; WHEREAS, the Republic of the Philippines became an independent nation on July 4, 1946, and proclaimed on February 14, 1947 its adherence to the Geneva Conventions of 1929, and by the action, indicated its desire to participate with the nations of the world in mitigating the suffering caused by war and to establish in the Philippines a voluntary organization for that purpose as contemplated by the Geneva Conventions; WHEREAS, there existed in the Philippines since 1917 a chapter of the American National Red Cross which was terminated in view of the independence of the Philippines; and WHEREAS, the volunteer organizations established in other countries which have ratified or adhered to the Geneva Conventions assist in promoting the health and welfare of their people in peace and in war, and through their mutual assistance and cooperation directly and through their international organizations promote better understanding and sympathy among the people of the world; NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution as Commander-in-Chief of all the Armed Forces of the Philippines and pursuant to Proclamation No. 1081 dated September 21, 1972, and General Order No. 1 dated September 22, 1972, do hereby decree and order that Republic Act No. 95, Charter of the Philippine National Red Cross (PNRC) as amended by Republic Acts No. 855 and 6373, be further amended as follows: Section 1. There is hereby created in the Republic of the Philippines a body corporate and politic to be the voluntary organization officially designated to assist the Republic of the Philippines in discharging the obligations set forth in the Geneva Conventions and to perform such other duties as are inherent upon a national Red Cross Society. The national headquarters of this Corporation shall be located in Metropolitan Manila. (Emphasis supplied.) The significant public service rendered by the PNRC can be gleaned from Section 3 of its Charter, which provides: Section 3. That the purposes of this Corporation shall be as follows: (a) To provide volunteer aid to the sick and wounded of armed forces in time of war, in accordance with the spirit of and under the conditions prescribed by the Geneva Conventions to which the Republic of the Philippines proclaimed its adherence; (b) For the purposes mentioned in the preceding sub-section, to perform all duties devolving upon the Corporation as a result of the adherence of the Republic of the Philippines to the said Convention; (c) To act in matters of voluntary relief and in accordance with the authorities of the armed forces as a medium of communication between people of the Republic of the Philippines and their Armed Forces, in time of peace and in time of war, and to act in such matters between similar national societies of other governments and the Governments and people and the Armed Forces of the Republic of the Philippines; (d) To establish and maintain a system of national and international relief in time of peace and in time of war and apply the same in meeting and emergency needs caused by typhoons, flood, fires, earthquakes, and other natural disasters and to devise and carry on measures for minimizing the suffering caused by such disasters; (e) To devise and promote such other services in time of peace and in time of war as may be found desirable in improving the health, safety and welfare of the Filipino people; (f) To devise such means as to make every citizen and/or resident of the Philippines a member of the Red Cross. The PNRC is one of the National Red Cross and Red Crescent Societies, which, together with the International Committee of the Red Cross (ICRC) and the IFRC and RCS, make up the International Red Cross and Red Crescent Movement (the Movement). They constitute a worldwide humanitarian movement, whose mission is: [T]o prevent and alleviate human suffering wherever it may be found, to protect life and health and ensure respect for the human being, in particular in times of armed conflict and other emergencies, to work for the prevention of disease and for the promotion of health and social welfare, to encourage voluntary service and a constant readiness to give help by the members of the Movement, 15 and a universal sense of solidarity towards all those in need of its protection and assistance. The PNRC works closely with the ICRC and has been involved in humanitarian activities in the Philippines since 1982. Among others, these activities in the country include:

1. Giving protection and assistance to civilians displaced or otherwise affected by armed clashes between the government and armed opposition groups, primarily in Mindanao; 2. Working to minimize the effects of armed hostilities and violence on the population; 3. Visiting detainees; and 16 4. Promoting awareness of international humanitarian law in the public and private sectors. National Societies such as the PNRC act as auxiliaries to the public authorities of their own countries in the humanitarian field and provide a range of services including disaster relief and health and social programmes. 17 The International Federation of Red Cross (IFRC) and Red Crescent Societies (RCS) Position Paper, submitted by the PNRC, is instructive with regard to the elements of the specific nature of the National Societies such as the PNRC, to wit: National Societies, such as the Philippine National Red Cross and its sister Red Cross and Red Crescent Societies, have certain specificities deriving from the 1949 Geneva Convention and the Statutes of the International Red Cross and Red Crescent Movement (the Movement). They are also guided by the seven Fundamental Principles of the Red Cross and Red Crescent Movement: Humanity, Impartiality, Neutrality, Independence, Voluntary Service, Unity and Universality. A National Society partakes of a sui generis character. It is a protected component of the Red Cross movement under Articles 24 and 26 of the First Geneva Convention, especially in times of armed conflict. These provisions require that the staff of a National Society shall be respected and protected in all circumstances. Such protection is not ordinarily afforded by an international treaty to ordinary private entities or even non-governmental organisations (NGOs). This sui generis character is also emphasized by the Fourth Geneva Convention which holds that an Occupying Power cannot require any change in the personnel or structure of a National Society. National societies are therefore organizations that are directly regulated by international humanitarian law, in contrast to other ordinary private entities, including NGOs. xxxx In addition, National Societies are not only officially recognized by their public authorities as voluntary aid societies, auxiliary to the public authorities in the humanitarian field, but also benefit from recognition at the International level. This is considered to be an element distinguishing National Societies from other organisations (mainly NGOs) and other forms of humanitarian response. x x x. No other organisation belongs to a world-wide Movement in which all Societies have equal status and share equal responsibilities and duties in helping each other. This is considered to be the essence of the Fundamental Principle of Universality. Furthermore, the National Societies are considered to be auxiliaries to the public authorities in the humanitarian field. x x x. The auxiliary status of [a] Red Cross Society means that it is at one and the same time a private institution and a public service organization because the very nature of its work implies cooperation with the authorities, a link with the State. In carrying out their major functions, Red Cross Societies give their humanitarian support to official bodies, in general having larger resources than the Societies, working towards comparable ends in a given sector. 18 x x x No other organization has a duty to be its governments humanitarian partner while remaining independent. (Emphases ours.) It is in recognition of this sui generis character of the PNRC that R.A. No. 95 has remained valid and effective from the time of its enactment in March 22, 1947 under the 1935 Constitution and during the effectivity of the 1973 Constitution and the 1987 Constitution. The PNRC Charter and its amendatory laws have not been questioned or challenged on constitutional grounds, not even in this case before the Court now. 19 In the Decision, the Court, citing Feliciano v. Commission on Audit, explained that the purpose of the constitutional provision prohibiting Congress from creating private corporations was to prevent the granting of special privileges to certain individuals, families, or groups, which were denied to other groups. Based on the above discussion, it can be seen that the PNRC Charter does not come within the spirit of this constitutional provision, as it does not grant special privileges to a particular individual, family, or group, but creates an entity that strives to serve the common good. Furthermore, a strict and mechanical interpretation of Article XII, Section 16 of the 1987 Constitution will hinder the State in adopting measures that will serve the public good or national interest. It should be noted that a special law, R.A. No. 9520, the Philippine Cooperative Code of 2008, and not the general corporation code, vests corporate power and capacities upon cooperatives which are private corporations, in order to implement the States avowed policy. In the Decision of July 15, 2009, the Court recognized the public service rendered by the PNRC as the governments partner in the observance of its international commitments, to wit: The PNRC is a non-profit, donor-funded, voluntary, humanitarian organization, whose mission is to bring timely, effective, and compassionate humanitarian assistance for the most vulnerable without consideration of nationality, race, religion, gender, social status, or political affiliation. The PNRC provides six major services: Blood Services, Disaster Management, Safety Services, Community Health and Nursing, Social Services and Voluntary Service. The Republic of the Philippines, adhering to the Geneva Conventions, established the PNRC as a voluntary organization for the 20 purpose contemplated in the Geneva Convention of 27 July 1929. x x x. (Citations omitted.) So must this Court recognize too the countrys adherence to the Geneva Convention and respect the unique status of the PNRC in 21 consonance with its treaty obligations. The Geneva Convention has the force and effect of law. Under the Constitution, the 22 Philippines adopts the generally accepted principles of international law as part of the law of the land. This constitutional provision must be reconciled and harmonized with Article XII, Section 16 of the Constitution, instead of using the latter to negate the former. By requiring the PNRC to organize under the Corporation Code just like any other private corporation, the Decision of July 15, 2009 lost sight of the PNRCs special status under international humanitarian law and as an auxiliary of the State, designated to assist it in discharging its obligations under the Geneva Conventions. Although the PNRC is called to be independent under its Fundamental Principles, it interprets such independence as inclusive of its duty to be the governments humanitarian partner. To be recognized in the International Committee, the PNRC must have an autonomous status, and carry out its humanitarian mission in a neutral and impartial manner. However, in accordance with the Fundamental Principle of Voluntary Service of National Societies of the Movement, the PNRC must be distinguished from private and profit-making entities. It is the main characteristic of National Societies that they "are not inspired by the desire for financial gain but by individual commitment and devotion to a humanitarian purpose freely chosen or accepted as 23 part of the service that National Societies through its volunteers and/or members render to the Community."

The PNRC, as a National Society of the International Red Cross and Red Crescent Movement, can neither "be classified as an instrumentality of the State, so as not to lose its character of neutrality" as well as its independence, nor strictly as a private 24 corporation since it is regulated by international humanitarian law and is treated as an auxiliary of the State. Based on the above, the sui generis status of the PNRC is now sufficiently established. Although it is neither a subdivision, agency, or instrumentality of the government, nor a government-owned or -controlled corporation or a subsidiary thereof, as succinctly explained in the Decision of July 15, 2009, so much so that respondent, under the Decision, was correctly allowed to hold his position as Chairman thereof concurrently while he served as a Senator, such a conclusion does not ipso facto imply that the PNRC is a "private corporation" within the contemplation of the provision of the Constitution, that must be organized under the Corporation Code. As correctly mentioned by Justice Roberto A. Abad, the sui generis character of PNRC requires us to approach controversies involving the PNRC on a case-to-case basis. In sum, the PNRC enjoys a special status as an important ally and auxiliary of the government in the humanitarian field in accordance with its commitments under international law. This Court cannot all of a sudden refuse to recognize its existence, especially since the issue of the constitutionality of the PNRC Charter was never raised by the parties. It bears emphasizing that the PNRC has responded to almost all national disasters since 1947, and is widely known to provide a substantial portion of the countrys blood requirements. Its humanitarian work is unparalleled. The Court should not shake its existence to the core in an untimely and drastic manner that would not only have negative consequences to those who depend on it in times of disaster and armed hostilities but also have adverse effects on the image of the Philippines in the international community. The sections of the PNRC Charter that were declared void must therefore stay. WHEREFORE, premises considered, respondent Richard J. Gordons Motion for Clarification and/or for Reconsideration and movantintervenor PNRCs Motion for Partial Reconsideration of the Decision in G.R. No. 175352 dated July 15, 2009 are GRANTED. The constitutionality of R.A. No. 95, as amended, the charter of the Philippine National Red Cross, was not raised by the parties as an issue and should not have been passed upon by this Court. The structure of the PNRC is sui generis being neither strictly private nor public in nature. R.A. No. 95 remains valid and constitutional in its entirety. The dispositive portion of the Decision should therefore be MODIFIED by deleting the second sentence, to now read as follows: WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. SO ORDERED.

G.R. No. 126891 August 5, 1998 LIM TAY, petitioner, vs. COURT OF APPEALS, GO FAY AND CO. INC., SY GUIOK, and THE ESTATE OF ALFONSO LIM, respondents. PANGANIBAN, J.: The duty of a corporate secretary to record transfers of stocks is ministerial. However, he cannot be compelled to do so when the transferee's title to said shares has no prima facie validity or is uncertain. More specifically, a pledgor, prior to foreclosure and sale, does not acquire ownership rights over the pledged shares and thus cannot compel the corporate secretary to record his alleged ownership of such shares on the basis merely of the contract of pledge. Similarly, the SEC does not acquire jurisdiction over a dispute when a party's claim to being a shareholder is, on the face of the complaint, invalid or inadequate or is otherwise negated by the very allegations of such complaint. Mandamus will not issue to establish a right, but only to enforce one that is already established. Statement of the Case There are the principles, used by this Court in resolving this Petition for Review on Certiorari before us, assailing the October 24, 1 2 1996 Decision of the Court of Appeals in CA-GR SP No. 40832, the dispositive portion of which reads: IN THE LIGHT OF ALL THE FOREGOING, the Petition at bench is DENIED DUE COURSE and is hereby DISMISSED. With costs against the 3 [p]etitioner. 4 By the foregoing disposition, the Court of Appeals effectively affirmed the March 7, 1996 Decision of the Securities and Exchange Commission (SEC) en banc: WHEREFORE, in view of all the foregoing, judgment is hereby rendered dismissing the appeal on the ground that mandamus will only issue upon a clear showing of ownership over the assailed shares of stock, [t]he determination of which, on the basis of the 5 foregoing facts, is within the jurisdiction of the regular courts and not with the SEC. 6 The SEC en banc upheld the August 16, 1993 Decision of SEC Hearing Officer Rolando C. Malabonga, which dismissed the action for mandamus filed by petitioner. The Facts As found by the Court of Appeals, the facts of the case are as follows: . . . On January 8, 1980, Respondent-Appellee Sy Guiok secured a loan from the [p]etitioner in the amount of P40,000 payable within six (6) months. To secure the payment of the aforesaid loan and interest thereon, Respondent Guiok executed a Contract of Pledge in favor of the [p]etitioner whereby he pledged his three hundred (300) shares of stock in the Go Fay & Company Inc., Respondent Corporation, for brevity's sake. Respondent Guiok obliged himself to pay interest on said loan at the rate of 10% per annum from the date of said contract of pledge. On the same date, Alfonso Sy Lim secured a loan from the [p]etitioner in the amount of P40,000 payable in six (6) months. To secure the payment of his loan, Sy Lim executed a "Contract of Pledge" covering his three hundred (300) shares of stock in Respondent Corporation. Under said contract, Sy Lim obliged himself to pay interest on his loan at the rate of 10% per annum from the date of the execution of said contract. Under said "Contracts of Pledge," Respondent[s] Guiok and Sy Lim covenanted, inter alia, that: 3. In the event of the failure of the PLEDGOR to pay the amount within a period of six (6) months from the date hereof, the PLEDGEE is hereby authorized to foreclose the pledge upon the said shares of stock hereby created by selling the same at public or private sale with or without notice to the PLEDGOR, at which sale the PLEDGEE may be the purchaser at his option; and the PLEDGEE is hereby authorized and empowered at his option to transfer the said shares of stock on the books of the corporation to his own name and to hold the certificate issued in lieu thereof under the terms of this pledge, and to sell the said shares to issue to him and to apply the proceeds of the sale to the payment of the said sum and interest, in the manner hereinabove provided; 4. In the event of the foreclosure of this pledge and the sale of the pledged certificate, any surplus remaining in the hands of the PLEDGEE after the payment of the said sum and interest, and the expenses, if any, connected with the foreclosure sale, shall be paid by the PLEDGEE to the PLEDGOR; 5. Upon payment of the said amount and interest in full, the PLEDGEE will, on demand of the PLEDGOR, redeliver to him the said shares of stock by surrendering the certificate delivered to him by the PLEDGOR or by retransferring each share to the PLEDGOR, in the event that the PLEDGEE, under the option hereby granted, shall have caused such shares to be transferred to him upon the books of the issuing company."(idem, supra) 7 Respondent Guiok and Sy Lim endorsed their respective shares of stock in blank and delivered the same to the [p]etitioner. However, Respondent Guiok and Sy Lim failed to pay their respective loans and the accrued interests thereon to the [p]etitioner. In October, 1990, the [p]etitioner filed a "Petition for Mandamus" against Respondent Corporation, with the SEC entitled "Lim Tay versus Go Fay & Company. Inc., SEC Case No. 03894", praying that: PRAYER WHEREFORE, premises considered, it is respectfully prayed that an order be issued directing the corporate secretary of [R]espondent Go Fay & Co., Inc. to register the stock transfers and issue new certificates in favor of Lim Tay. It is likewise prayed that [R]espondent Go Fay & Co., Inc[.] be ordered to pay all dividends due and unclaimed on the said certificates to [P]laintiff Lim Tay. Plaintiff further prays for such other relief just and equitable in the premises. ( page 34,Rollo) The [p]etitioner alleged, inter alia, in his Petition that the controversy between him as stockholder and the Respondent Corporation was intra-corporate in view of the obstinate refusal of the corporate secretary of Respondent Corporation to record the transfer of the shares of stock of Respondent Guiok and Sy Lim in favor of and under the name of the [p]etitioner and to issue new certificates of stock to the [p]etitioner. The Respondent Corporation filed its Answer to the Complaint and alleged, as Affirmative Defense, that: AFFIRMATIVE DEFENSE 7. Respondent repleads and incorporates herein by reference the foregoing allegations. 8. The Complaint states no cause of action against [r]espondent. 9. Complainant is not a stockholder of [r]espondent. Hence, the Honorable Commission has no jurisdiction to enter the present controversy since their [sic] is no intracorporate relationship between complainant and respondent.

10. Granting arguendo that a pledge was constituted over the shareholdings of Sy Guiok in favor of the complainant and that the former defaulted in the payment of his obligations to the latter, the same did not automatically vest [i]n complainant ownership of the pledged shares. ( pace 37, Rollo) In the interim, Sy Lim died. Respondents Guiok and the Intestate Estate of Alfonso Sy Lim, represented by Conchita Lim, filed their Answer-In-Intervention with the SEC alleging, inter alia, that: xxx xxx xxx 3. Deny specifically the allegation under paragraph 5 of the Complaint that, failure to pay the loan within the contract period automatically foreclosed the pledged shares of stocks and that the share of stocks are automatically purchased by the plaintiff, for being false and distorted, the truth being that pursuant to the [sic] paragraph 3 of the contract of pledges, Annexes "A" and "B", it is clear that upon failure to pay the amount within the stipulated period, the pledgee is authorized to foreclose the pledge and thereafter, to sell the same to satisfy the loan. [H]owever, to this point in time, plaintiff has not performed any operative act of foreclosing the shares of stocks of [i]ntervenors in accordance with the Chattel Mortgage law, [n]either was there any sale of stocks by way of public or private auction made after foreclosure in favor of the plaintiff to speak about, and therefore, the respondent company could not be force[d] to [sic] by way of mandamus, to transfer the subject shares of stocks from the name of your [i]ntervenors to that of the plaintiff in the absence of clear and legal basis for such; 4. DENY specifically the allegations under paragraphs 6, 7 and 8 of the complaint as to the existence of the alleged intracorporate dispute between plaintiff and company for being without proper and legal basis. In the first place, plaintiff is not a stockholder of the respondent corporation; there was no foreclosure of shares executed in accordance with the Chattel Mortgage Law whatsoever; there were no sales consummated that would transfer to the plaintiff the subject shares of stocks and therefore, any demand to transfer the shares of stocks to the name of the plaintiff has no legal basis. In the second place, [i]ntervenors had been in the past negotiating possible compromise and at the same time, had tendered payment of the loan secured by the subject pledges but plaintiff refused unjustifiably to oblige and accept payment o[r] even agree on the computation of the principal amount of the loan and interest on top of a substantial amount offered just to settle and compromise the indebtedness of [i]ntervenors; II. SPECIAL AFFIRMATIVE DEFENSES Intervenors replead by way of reference all the foregoing allegations to form part of the special affirmative defenses; 5. This Honorable Commission has no jurisdiction over the person of the respondent and nature of the action, plaintiff having no personality at all to compel respondent by way of mandamus to perform certain corporate function[s]; 6. The complaint states no cause of action; 7. That respondent is not [a] real party in interest; 8. The appropriation of the subject shares of stocks by plaintiff, without compliance with the formality of law, amounted to "[p]actum commis[s]orium" therefore, null and void; 9. Granting for the sake of argument only that there was a valid foreclosure and sale of the subject st[o]cks in favor of the plaintiff which [i]ntervenors deny still paragraph 5 of the contract allows redemption, for which intervenors are willing to redeem the share of stocks pledged; 10. Even the Chattel Mortgage law allowed redemption of the [c]hattel foreclosed; 11. As a matter of fact, on several occasions, [i]ntervenors had made representations with the plaintiff for the compromise and settlement of all the obligations secured by the subject pledges even offering to pay compensation over and above the value of the obligations, interest[s] and dividends accruing to the share of stocks but, plaintiff unjustly refused to accept the offer of payment; ( pages 39-42, Rollo) The [r]espondents-[i]ntervenors prayed the SEC that judgment be rendered in their favor, as follows: IV. PRAYER It is respectfully prayed to this Honorable Commission after due hearing, to dismiss the case for lack of merit, ordering plaintiff to accept payment for the loans secured by the subject shares of stocks and to pay plaintiff: 1. The sum of P50,000.00, as moral damages; 2. the sum of P50,000.00, as attorneys fees; and, 3. costs of suit. Other reliefs just and equitable [are] likewise prayed for. ( pages 42-43, Rollo) After due proceedings, the [h]earing [o]fficer promulgated a Decision dismissing [p]etitioner's Complaint on the ground that although the SEC had jurisdiction over the action, pursuant to the Decision of the Supreme Court in the case of "Rural Bank of Salinas, et al. vs. Court of Appeals, et al., 210 SCRA 510", he failed to prove the legal basis for the secretary of the Respondent Corporation to be compelled to register stock transfers in favor of the [p]etitioner and to issue new certificates of stock under his name ( pages 67-77, Rollo). The [p]etitioner appealed the Decision of the [h]earing [o]fficer to the SEC, but, on March 7, 1996, the SEC promulgated a Decision, dismissing [p]etitioner's appeal on the grounds that: (a) the issue between the [p]etitioner and the [r]espondents being one involving the ownership of the shares of stock pledged by Respondent Guiok and Sy Lim, the SEC had no jurisdiction over the action filed by the [p]etitioner; (b) the latter had no cause of action for mandamus against the Respondent Corporation, the right of ownership of the [p]etitioner over the 300 shares of stock pledged by Respondent Guiok and Sy Lim not having been as yet, established, preparatory to the institution of said Petition for Mandamus with the SEC. Ruling of the Court of Appeals On the issue of jurisdiction, the Court of Appeals ruled: In ascertaining whether or not the SEC had exclusive jurisdiction over [p]etitioner's action, the [a]ppellate [c]ourt must delve into and ascertain: (a) whether or not there is a need to enlist the expertise and technical know-how of the SEC in resolving the issue of the ownership of the shares of stock; (b) the status of the relationships of the parties; [and] (c) the nature of the question that is the subject of the controversy. Where the controversy is purely a civil matter resoluble by civil law principles and there is no need for the application of the expertise and technical know-how of the SEC, then the regular courts have jurisdiction over the 8 action. [citations omitted] On the issue of whether mandamus can be availed of by the petitioner, the Court of Appeals agreed with the SEC,viz.: . . . [T]he [p]etitioner failed to establish a clear and legal right to the writ of mandamus prayed for by him. . . . Mandamus will not issue to enforce a right which is in substantial dispute or to which a substantial doubt exists . . . . The principal function of the writ of

mandamus is to command and expedite, and not to inquire and adjudicate and, therefore it is not the purpose of the writ to 9 establish a legal right, but to enforce one which has already been established. [citations omitted] The Court of Appeals debunked petitioner's claim that he had acquired ownership over the shares by virtue of novation, holding that respondents' indorsement and delivery of the shares were pursuant to Articles 2093 and 2095 of the Civil Code and that petitioner's receipt of dividends was in compliance with Article 2102 of the same Code. Petitioner's claim that he had acquired ownership of the shares by virtue of prescription was likewise dismissed by Respondent Court in this wise: The prescriptive period for the action of Respondent[s] Guiok and Sy Lim to recover the shares of stock from the [p]etitioner accrued 10 only from the time they paid their loans and the interests thereon and [made] a demand for their return. 11 Hence, the petitioner brought before us this Petition for Review on Certiorari in accordance with Rule 45 of the Rules of Court. Assignment of Errors 12 Petitioner submits, for the consideration of this Court, these issues: (a) Whether the Securities and Exchange Commission had jurisdiction over the complaint filed by the petitioner; and (b) Whether the petitioner is entitled to the relief of mandamus as against the respondent Go Fay & Co., Inc. In addition, petitioner contends that it has acquired ownership of the shares "through extraordinary prescription," pursuant to Article 1132 of the Civil Code, and through respondents' subsequent acts, which amounted to a novation of the contracts of pledge. Petitioner also claims that there was dacion en pago, in which the shares of stock were deemed sold to petitioner, the consideration for which was the extinguishment of the loans and the interests thereon. Petitioner likewise claims that laches bars respondents from recovering the subject shares. The Court's Ruling The petition has no merit. First Issue: Jurisdiction of the SEC Claiming that the present controversy is intra-corporate and falls within the exclusive jurisdiction of the SEC, petitioner relies heavily 13 on Abejo v. De la Cruz, which upheld the jurisdiction of the SEC over a suit filed by an unregistered stockholder seeking to enforce 14 his rights. He also seeks support from Rural Bank of Salinas, Inc. v. Court of Appeals, which ruled that the right of a transferee or an assignee to have stocks transferred to his name was an inherent right flowing from his ownership of the said stocks. The registration of shares in a stockholder's name, the issuance of stock certificates, and the right to receive dividends which pertain to the said shares are all rights that flow from ownership. The determination of whether or not a shareholder is entitled to exercise the above-mentioned rights falls within the jurisdiction of the SEC. However, if ownership of the shares is not clearly established and is still unresolved at the time the action for mandamus is filed, then jurisdiction lies with the regular courts. Sec. 5 of Presidential Decree No. 902-A sets forth the jurisdiction of the SEC as follows: Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: (a) Devices 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 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 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 15 liabilities, but is under the Management Committee created pursuant to this decree. 16 Thus, a controversy "among stockholders, partners or associates themselves" is intra-corporate in nature and falls within the jurisdiction of the SEC. As a general rule, the jurisdiction of a court or tribunal over the subject matter is determined by the allegations in the 17 complaint. In the present case, however, petitioner's claim that he was the owner of the shares of stock in question has no prima facie basis. In his Complaint, petitioner alleged that, pursuant to the contracts of pledge, he became the owner of the shares when the term for the loans expired. The Complaint contained the following pertinent averments: xxx xxx xxx 3. On [J]anuary 8, 1990, under a Contract of Pledge, Lim Tay received three hundred (300) shares of stock of Go Fay & Co., Inc., from Sy Guiok as security for the payment of a loan of [f]orty [t]housand [p]esos (P40,000.00) Philippine currency, the sum of which was payable within six (6) months [with interest] at ten percentum (10%) per annum from the date of the execution of the contract; a copy of this Contract of Pledge is attached as Annex "A" and made part hereof; 4. On the same date January 8, 1980, under a similar Contract of Pledge, Lim Tay received three hundred (300) shares of stock of Go Pay & Co., Inc. from Alfonso Sy Lim as security for the payment of a loan of [f]orty [t]housand [p]esos (P40,000.00) Philippine currency, the sum of which was payable within six (6) months [with interest] at ten percentum (10%) per annum from the date of the execution of the contract; a copy of this Contract of Pledge is attached as Annex "B" and made part hereof; 5. By the express terms of the agreements, upon failure of the borrowers to pay the stated amounts within the contract period, the pledge is foreclosed and the shares of stock are purchased by [p]laintiff, who is expressly authorized and empowered to transfer the 18 duly endorsed shares of stock on the books of the corporation to his own name; . . . (emphasis supplied) However, the contracts of pledge, which were made integral parts of the Complaint, contain this common proviso: 3. In the event of the failure of the PLEDGOR to pay the amount within a period of six (6) months from the date hereof, the PLEDGEE is hereby authorized to foreclose the pledge upon the said shares of stock hereby created by selling the same at public or private sale with or without notice to the PLEDGOR, at which sale the PLEDGEE may be the purchaser at his option; and the PLEDGEE is hereby authorized and empowered at his option, to transfer the said shares of stock on the books of the corporation to his own

name and to hold the certificate issued in lieu thereof under the terms of this pledge, and to sell the said shares to issue to him and to apply the proceeds of the sale to the payment of the said sum and interest, in the manner hereinabove provided; This contractual stipulation, which was part of the Complaint, shows that plaintiff was merely authorized to foreclose the pledge upon maturity of the loans, not to own them. Such foreclosure is not automatic, for it must be done in a public or private sale. Nowhere did the Complaint mention that petitioner had in fact foreclosed the pledge and purchased the shares after such foreclosure. His status as a mere pledgee does not, under civil law, entitle him to ownership of the subject shares. It is also noteworthy that petitioner's Complaint did not aver that said shares were acquired through extraordinary prescription, novation or laches. Moreover, petitioner's claim, subsequent to the filing of the Complaint, that he acquired ownership of the said shares through these three modes is not indubitable and still has to be resolved. In fact, as will be shown, such allegation-has no merit. Manifestly, the Complaint by itself did not contain any prima facie showing that petitioner was the owner of the shares of stocks. Quite the contrary, it demonstrated that he was merely a pledgee, not an owner. Accordingly, it failed to lay down a sufficient basis for the SEC to exercise jurisdiction over the controversy. In fact, the very allegations of the Complaint and its annexes negated the jurisdiction of the SEC. Petitioner's reliance on the doctrines set forth in Abejo v. De la Cruz and Rural Bank of Salinas, Inc. v. Court of Appeals is misplaced. In Abejo, he Abejo spouses sold to Telectronic Systems, Inc. shares of stock in Pocket Bell Philippines, Inc. Subsequent to such contract of sale, the corporate secretary, Norberto Braga, refused to record the transfer of the shares in the corporate books and instead asked for the annulment of the sale, claiming that he and his wife had a preemptive right over some of the shares, and that his wife's shares were sold without consideration or consent. At the time the Bragas questioned the validity of the sale, the contract had already been perfected, thereby demonstrating that Telectronic Systems, Inc. was already the prima facie owner of the shares and, consequently, a stockholder of Pocket Bell Philippines, Inc. Even if the sale were to be annulled later on, Telectronic Systems, Inc. had, in the meantime, title over the shares from the time the sale was perfected until the time such sale was annulled. The effects of an annulment operate prospectively and do not, as a rule, retroact to the time the sale was made. Therefore, at the time the Bragas questioned the validity of the tranfers made by the Abejos, Telectronic Systems, Inc. was already a prima facie shareholder of the corporation, thus making the dispute between the Bragas and the Abejos "intra-corporate" in nature. Hence, the Court held that "the issue is not on ownership of shares but rather the non-performance by the corporate secretary of the ministerial duty of recording transfers of shares of stock of the 19 corporation of which he is secretary." Unlike Abejo, however, petitioner's ownership over the shares in this case was not yet perfected when the Complaint was filed. The contract of pledge certainly does not make him the owner of the shares pledged. Further, whether prescription effectively transferred ownership of the shares, whether there was a novation of the contracts of pledge, and whether laches had set in were difficult legal issues, which were unpleaded and unresolved when herein petitioner asked the corporate secretary of Go Fay to effect the transfer, in his favor, of the shares pledged to him. In Rural Bank of Salinas, Melenia Guerrero executed deeds of assignment for the shares in favor of the respondents in that case. When the corporate secretary refused to register the transfer, an action for mandamus was instituted. Subsequently, a motion for intervention was filed, seeking the annulment of the deeds of assignment on the grounds that the same were fictitious and antedated, and that they were in fact donations because the considerations therefor were below the book value of the shares. Like the Abejo spouses, the respondents in Rural Bank of Salinas were already prima facie shareholders when the deeds of assignment were questioned. If the said deeds were to be annulled later on, respondents would still be considered shareholders of the corporation from the time of the assignment until the annulment of such contracts. Second Issue: Mandamus Will Not Issue to Establish a Right Petitioner prays for the issuance of a writ of mandamus, directing the corporate secretary of respondent corporation to have the shares transferred to his name in the corporate books, to issue new certificates of stock and to deliver the corresponding dividends 20 to him. In order that a writ of mandamus may issue, it is essential that the person petitioning for the same has a clear legal right to the thing demanded and that it is the imperative duty of the respondent to perform the act required. It neither confers powers nor imposes duties and is never issued in doubtful cases. It is simply a command to exercise a power already possessed and to perform a duty 21 already imposed. In the present case, petitioner has failed to establish a clear legal right. Petitioner's contention that he is the owner of the said shares is completely without merit. Quite the contrary and as already shown, he does not have any ownership rights at all. At the time petitioner instituted his suit at the SEC, his ownership claim had no prima facieleg to stand on. At best, his contention was disputable and uncertain Mandamus will not issue to establish a legal right, but only to enforce one that is already clearly established. Without Foreclosure and Purchase at Auction, Pledgor Is Not the Owner of Pledged Shares Petitioner initially argued that ownership of the shares pledged had passed to him, upon Respondents Sy Guiok and Sy Lim's failure to pay their respective loans. But on appeal, petitioner claimed that ownership over the shares had passed to him, not via the contracts of pledge, but by virtue of prescription and by respondents' subsequent acts which amounted to a novation of the contracts of pledge. We do not agree. At the outset, it must be underscored that petitioner did not acquire ownership of the shares by virtue of the contracts of pledge. Article 2112 of the Civil Code states: The creditor to whom the credit has not been satisfied in due time, may proceed before a Notary Public to the sale of the thing pledged. This sale shall be made at a public auction, and with notification to the debtor and the owner of the thing pledged in a proper case, stating the amount for which the public sale is to be held. If at the first auction the thing is not sold, a second one with the same formalities shall be held; and if at the second auction there is no sale either, the creditor may appropriate the thing pledged. In this case he shall be obliged to give an acquittance for his entire claim. Furthermore, the contracts of pledge contained a common proviso, which we quote again for the sake of clarity: 3. In the event of the failure of the PLEDGOR to pay the amount within a period of six (6) months from the date hereof, the PLEDGEE is hereby authorized to foreclose the pledge upon the said shares of stock hereby created by selling the same at public or private

sale with or without notice to the PLEDGOR, at which sale the PLEDGEE may be the purchaser at his option; and "the PLEDGEE is hereby authorized and empowered at his option to transfer the said shares of stock on the books of the corporation to his own name, and to hold the certificate issued in lieu thereof under the terms of this pledge, and to sell the said shares to issue to him and to apply the proceeds of the sale to the payment of the said sum and interest, in the manner hereinabove 22 provided; There is no showing that petitioner made any attempt to foreclose or sell the shares through public or private auction, as stipulated in the contracts of pledge and as required by Article 2112 of the Civil Code. Therefore, ownership of the shares could not have passed to him. The pledgor remains the owner during the pendency of the pledge and prior to foreclosure and sale, as explicitly provided by Article 2103 of the same Code: Unless the thing pledged is expropriated, the debtor continues to be the owner thereof. Nevertheless, the creditor may bring the actions which pertain to the owner of the thing pledged in order to recover it from, or defend it against a third person. No Ownership by Prescription Petitioner did not acquire the shares by prescription either. The period of prescription of any cause of action is reckoned only from the date the cause of action accrued. Since a cause of action requires as an essential element not only a legal right of the plaintiff and a correlative obligation of the defendant, but also an act or omission of the defendant in violation of said legal right, the cause of action does not accrue until the 23 party obligated refuses, expressly or impliedly, to comply with its duty." Accordingly, a cause of action on a written contract accrues when a breach or violation thereof occurs. Under the contracts of pledge, private respondents would have a right to ask for the redelivery of their certificates of stock upon payment of their debts to petitioner, consonant with Article 2105 of the Civil Code, which reads: The debtor cannot ask for the return of the thing pledged against the will of the creditor, unless and until he has paid the debt and 24 its interest, with expenses in a proper case. Thus, the right to recover the shares based on the written contract of pledge between petitioner and respondents would arise only upon payment of their respective loans. Therefore, the prescriptive period within which to demand the return of the thing pledged should begin to run only after the payment of the loan and a demand for the thing has been made, because it is only then that respondents acquire a cause of action for the return of the thing pledged. Prescription should not begin to run on the action to demand the return of the thing pledged while the loan still exists. This is because the right to ask for the return of the thing pledged will not arise so long as the loan subsists. In the present case, the prescriptive period did not begin to run when the loan became due. On the other hand, it is petitioner's right to demand payment that may be in danger of prescription. Petitioner contends that he can be deemed to have acquired ownership over the certificates of stock through extraordinary prescription, as provided for in Article 1132 of the Civil Code which states: Art. 1132. The ownership of movables prescribes through uninterrupted possession for four years in good faith. The ownership of personal property also prescribes through uninterrupted possession for eight years, without need of any other condition. . . . . Petitioner's argument is untenable. What is required by Article 1132 is possession in the concept of an owner. In the present case, petitioner's possession of the stock certificates came about because they were delivered to him pursuant to the contracts of pledge. His possession as a pledgee cannot ripen into ownership by prescription. As aptly pointed out by Justice Jose C. Vitug: Acquisitive prescription is a mode of acquiring ownership by a possessor through the requisite lapse of time. In order to ripen into ownership, possession must be in the concept of an owner, public, peaceful and uninterrupted. Thus, possession with a juridical title, such as by a usufructory, a trustee, a lessee, agent or a pledgee, not being in the concept of an owner, cannot ripen into ownership by acquisitive prescription unless the juridical relation is first expressly repudiated and such repudiation has been 25 communicated to the other party. Petitioner expressly repudiated the pledge, only when he filed his Complaint and claimed that he was not a mere pledgee, but that he was already the owner of the shares. Based on the foregoing, petitioner has not acquired the certificates of stock through extraordinary prescription. No Novation in Favor of Petitioner Neither did petitioner acquire the shares by virtue of a novation of the contract of pledge. Novation is defined as "the extinguishment of an obligation by a subsequent one which terminates it, either by changing its object or principal conditions, by 26 substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor." Novation of a contract must not be presumed. "In the absence of an express agreement, novation takes place only when the old and the new 27 obligations are incompatible on every point." In the present case, novation cannot be presumed by (a) respondents' indorsement and delivery of the certificates of stock covering the 600 shares, (b) petitioner's receipt of dividends from 1980 to 1983, and (c) the fact that respondents have not instituted any action to recover the shares since 1980. Respondents' indorsement and delivery of the certificates of stock were pursuant to paragraph 2 of the contract of pledge which reads: 2. The said certificates had been delivered by the PLEDGOR endorsed in blank to be held by the PLEDGEE under the pledge as security for the payment of the aforementioned sum and interest thereon 28 accruing. This stipulation did not effect the transfer of ownership to petitioner. It was merely in compliance with Article 2093 of the Civil 29 Code, which requires that the thing pledged be placed in the possession of the creditor or a third person of common agreement; 30 and Article 2095, which states that if the thing pledged are shares of stock, then the "instrument proving the right pledged" must be delivered to the creditor. Moreover, the fact that respondents allowed the petitioner to receive dividends pertaining to the shares was not meant to relinquish ownership thereof. As stated by respondent corporation, the same was done pursuant to an agreement between the petitioner and Respondents Sy Guiok and Sy Lim, following Article 2102 of the civil Code which provides:

It the pledge earns or produces fruits, income, dividends, or interests, the creditor shall compensate what he receives with those which are owing him; but if none are owing him, or insofar as the amount may exceed that which is due, he shall apply it to the principal. Unless there is a stipulation to the contrary, the pledge shall extend to the interest and the earnings of the right pledged. Novation cannot be inferred from the mere fact that petitioner has not, since 1980, instituted any action to recover the shares. Such action is in fact premature, as the loan is still outstanding. Besides, as already pointed out, novation is never presumed or inferred. No Dacion en Pago in Favor of Petitioner Neither can there be dacion en pago, in which the certificates of stock are deemed sold to petitioner, the consideration for which is the extinguishment of the loans and the accrued interests thereon. Dacion en pago is a form of novation in which a change takes place in the object involved in the original contract. Absent an explicit agreement, petitioner cannot simply presume dacion en pago. Laches Not a Bar to Petitioner Petitioner submits that "the inaction of the individual respondents with respect to the recovery of the shares of stock serves to bar 31 them from asserting rights over said shares on the basis of 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 32 presumption that the party entitled to assert it either has abandoned it or declined to assert it." In this case, it is in fact petitioner who may be guilty of laches. Petitioner had all the time to demand payment of the debt. More important, under the contracts of pledge, petitioner could have foreclosed the pledges as soon as the loans became due. But for still unknown or unexplained reasons, he failed to do so, preferring instead to pursue his baseless claim to ownership. WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. Costs against petitioner. SO ORDERED.

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent. DECISION PANGANIBAN, J.: A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a "common fund." Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being partners, they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an unincorporated association or ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract.
The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals in [1] CA-GR CV 41477, which disposed as follows: [2] WHEREFORE, *there being+ no reversible error in the appealed decision, the same is hereby affirmed. The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as follows: WHEREFORE, the Court rules: 1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990; 2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made by reason of the special and unique facts and circumstances and the proceedings that transpired during the trial of this case; a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00 representing the unpaid price of the floats not covered by said Agreement; b. 12% interest per annum counted from date of plaintiffs invoices and computed on their respective amounts as follows: i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990; ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990; iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990; c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in court; d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale); e. Cost of suit. With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount of P600,045.00, this Court noted that these items were attached to guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further deterioration of the nets during the pendency of this case, it was ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any judgment that plaintiff may be able to secure in this case with the ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in the public auction sale. It has also been noted that ownership of the nets [was] retained by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered the attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of defendants. From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case will have to be satisfied from the amount ofP900,000.00 as this amount replaced the attached nets and floats. Considering, however, that the total judgment obligation as computed above would amount to only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the defendants who are not entitled to damages and who did not put up a single centavo to raise the amount of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason, the defendants are hereby relieved from any and all liabilities arising from the monetary judgment obligation enumerated above and for plaintiff to retain possession and ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court. [3] SO ORDERED.
The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The [4] total price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation. The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as general partners, on the allegation that Ocean Quest Fishing Corporation was a nonexistent corporation as shown by [5] a Certification from the Securities and Exchange Commission. On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila. Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for [6] the lifting of the Writ of Attachment. The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales [7] proceeds ofP900,000. On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of [8] Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented [9] and (2) on a Compromise Agreement executed by the three in Civil Case No. 1492-MN which Chua and Yao had brought against

Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a [10] declaration of ownership of fishing boats; (d) an injunction and (e) damages. The Compromise Agreement provided: a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00 including the fishing net. ThisP5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim; b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao; c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered and paid [11] to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be [12] presumed from the equal distribution of the profit and loss. Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC. Ruling of the Court of Appeals In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court ruled: The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a specific undertaking, that is for commercial fishing x x x. Obviously, the ultimate undertaking of the defendants was to divide the profits among themselves which is what a partnership essentially is x x x. By a contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among [13] themselves (Article 1767, New Civil Code). [14] Hence, petitioner brought this recourse before this Court.
The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds: I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM. II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL. III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIMS GOODS. In determining whether petitioner may be held liable for the fishing nets and floats purchased from respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.
This Courts Ruling

The Petition is devoid of merit.

First and Second Issues: Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease" dated February 1, 1990, showed that he had merely leased to the two the main asset of the purported partnership -- the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat. We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides: Article 1767 - By the contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. [15] Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings: (1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua was already Yaos partner; (2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million; (3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture. (4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim; (5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and other expenses for the boats would be shouldered by Chua and Yao; (6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim. (7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name. (8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages. (9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of which are already enumerated above. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioners brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term common fund under Article 1767. The contribution to such fund need not be cash or fixed assets; it

could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a partnership. Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business could not have proceeded. Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing business. They purchased the boats, which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and operations thereof would be divided among them. We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the present action is embraced by one [16] of the exceptions to the rule. In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership was the Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but an embodiment of the relationship extant among the parties prior to its execution. A proper adjudication of claimants rights mandates that courts must review and thoroughly appraise all relevant facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In implying that the lower courts have decided on the basis of one piece of document alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the document and explored all the possible consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts factual findings mentioned above nullified petitioners argument that the existence of a partnership was based only on the Compromise Agreement.
Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioners argument that he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing that he was the owner of the boats, including F/B Lourdes where the nets were found. His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership among all three. Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in their fishing business. The sale of the boats, as well as the division among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim. We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a debt he did not incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him. Again, we disagree. Section 21 of the Corporation Code of the Philippines provides: Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality. One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation. Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its corporate existence. The reason behind this doctrine is obvious - an unincorporated association has no personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations [17] and becomes personally liable for contracts entered into or for other acts performed as such agent. The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits. On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of. There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The only [18] question here is whether petitioner should be held jointly liable with Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his name does not appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be held liable.

Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier been proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel. It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners. Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said association [19] and is covered by the scope of the doctrine of corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor: A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position , entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then, brushing aside as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapiers thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities.
Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court of Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of petitioner, only to assure payment of the debt he and his partners owed. The nets and the floats were specifically manufactured and tailor-made according to their own design, and were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full payment thereof. WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED.

RUFINA LUY LIM petitioner, v. COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, SPEED DISTRIBUTING, INC., ACTIVE DISTRIBUTORS, ALLIANCE MARKETING CORPORATION, ACTION COMPANY, INC. Respondents. DECISION BUENA, J.: May a corporation, in its universality, be the proper subject of and be included in the inventory of the estate of a deceased person? 1 Petitioner disputes before us through the instant petition for review on certiorari, the decision of the Court of Appeals promulgated 2 3 on 18 April 1996, in CA-GR SP No. 38617, which nullified and set aside the orders dated 04 July 1995 , 12 September 1995 and 15 4 September 1995 of the Regional Trial Court of Quezon City, Branch 93, sitting as a probate court. Petitioner Rufina Luy Lim is the surviving spouse of the late Pastor Y. Lim whose estate is the subject of probate proceedings in Special Proceedings Q-95-23334, entitled, "In Re: Intestate Estate of Pastor Y. Lim Rufina Luy Lim, represented by George Luy, Petitioner". Private respondents Auto Truck Corporation, Alliance Marketing Corporation, Speed Distributing, Inc., Active Distributing, Inc. and Action Company are corporations formed, organized and existing under Philippine laws and which owned real properties covered under the Torrens system. On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse and duly represented by her nephew George 5 Luy, filed on 17 March 1995, a joint petition for the administration of the estate of Pastor Y. Lim before the Regional Trial Court of Quezon City. Private respondent corporations, whose properties were included in the inventory of the estate of Pastor Y. Lim, then filed a 6 7 motion for the lifting of lis pendens and motion for exclusion of certain properties from the estate of the decedent. 8 In an order dated 08 June 1995, the Regional Trial Court of Quezon City, Branch 93, sitting as a probate court, granted the private respondents twin motions, in this wise: "Wherefore, the Register of Deeds of Quezon City is hereby ordered to lift, expunge or delete the annotation of lis pendens on Transfer Certificates of Title Nos. 116716, 116717, 116718, 116719 and 5182 and it is hereby further ordered that the properties covered by the same titles as well as those properties by (sic) Transfer Certificate of Title Nos. 613494, 363123, 236236 and 263236 are excluded from these proceedings. SO ORDERED." 9 Subsequently, Rufina Luy Lim filed a verified amended petition which contained the following averments: "3. The late Pastor Y. Lim personally owned during his lifetime the following business entities, to wit: Business Entity Address: XXXX Alliance Marketing ,Inc. Block 3, Lot 6, Dacca BF Homes, Paraaque, Metro Manila. XXXX Speed Distributing Inc. 910 Barrio Niog, Aguinaldo Highway, Bacoor, Cavite. XXXX Auto Truck TBA Corp. 2251 Roosevelt Avenue, Quezon City. XXXX Active Distributors, Inc. Block 3, Lot 6, Dacca BF Homes, Paraaque, Metro Manila. XXXX Action Company 100 20th Avenue Murphy, Quezon City or 92-D Mc-Arthur Highway Valenzuela Bulacan. "3.1 Although the above business entities dealt and engaged in business with the public as corporations, all their capital, assets and equity were however, personally owned by the late Pastor Y Lim. Hence the alleged stockholders and officers appearing in the respective articles of incorporation of the above business entities were mere dummies of Pastor Y. Lim, and they were listed therein only for purposes of registration with the Securities and Exchange Commission. "4. Pastor Lim, likewise, had Time, Savings and Current Deposits with the following banks: (a) Metrobank, Grace Park, Caloocan City and Quezon Avenue, Quezon City Branches and (b) First Intestate Bank (formerly Producers Bank), Rizal Commercial Banking Corporation and in other banks whose identities are yet to be determined. "5. That the following real properties, although registered in the name of the above entities, were actually acquired by Pastor Y. Lim during his marriage with petitioner, to wit: Corporation Title Location XXXX k. Auto Truck TCT No. 617726 Sto. Domingo TBA Corporation Cainta, Rizal q. Alliance Marketing TCT No. 27896 Prance, Metro Manila Copies of the above-mentioned Transfer Certificate of Title and/or Tax Declarations are hereto attached as Annexes "C" to "W". XXXX "7. The aforementioned properties and/or real interests left by the late Pastor Y. Lim, are all conjugal in nature, having been acquired by him during the existence of his marriage with petitioner.

"8. There are other real and personal properties owned by Pastor Y. Lim which petitioner could not as yet identify. Petitioner, however will submit to this Honorable Court the identities thereof and the necessary documents covering the same as soon as possible." 10 On 04 July 1995, the Regional Trial Court acting on petitioners motion issued an order , thus: "Wherefore, the order dated 08 June 1995 is hereby set aside and the Registry of Deeds of Quezon City is hereby directed to reinstate the annotation of lis pendens in case said annotation had already been deleted and/or cancelled said TCT Nos. 116716, 116717, 116718, 116719 and 51282. Further more (sic), said properties covered by TCT Nos. 613494, 365123, 236256 and 236237 by virtue of the petitioner are included in the instant petition. SO ORDERED." 11 On 04 September 1995, the probate court appointed Rufina Lim as special administrator and Miguel Lim and Lawyer Donald Lee, as co-special administrators of the estate of Pastor Y. Lim, after which letters of administration were accordingly issued. 12 In an order dated 12 September 1995, the probate court denied anew private respondents motion for exclusion, in this wise: "The issue precisely raised by the petitioner in her petition is whether the corporations are the mere alter egos or instrumentalities of Pastor Lim, Otherwise (sic) stated, the issue involves the piercing of the corporate veil, a matter that is clearly within the jurisdiction of this Honorable Court and not the Securities and Exchange Commission. Thus, in the case of Cease vs. Court of Appeals, 93 SCRA 483, the crucial issue decided by the regular court was whether the corporation involved therein was the mere extension of the decedent. After finding in the affirmative, the Court ruled that the assets of the corporation are also assets of the estate. A reading of P.D. 902, the law relied upon by oppositors, shows that the SECs exclusive (sic) applies only to intra-corporate controversy. It is simply a suit to settle the intestate estate of a deceased person who, during his lifetime, acquired several properties and put up corporations as his instrumentalities. SO ORDERED." 13 On 15 September 1995, the probate court acting on an ex parte motion filed by petitioner, issued an order the dispositive portion of which reads: "Wherefore, the parties and the following banks concerned herein under enumerated are hereby ordered to comply strictly with this order and to produce and submit to the special administrators , through this Honorable Court within (5) five days from receipt of this order their respective records of the savings/current accounts/time deposits and other deposits in the names of Pastor Lim and/or corporations above-mentioned, showing all the transactions made or done concerning savings /current accounts from January 1994 up to their receipt of this court order. XXX XXX XXX SO ORDERED." 14 Private respondent filed a special civil action for certiorari , with an urgent prayer for a restraining order or writ of preliminary injunction, before the Court of Appeals questioning the orders of the Regional Trial Court, sitting as a probate court. 15 On 18 April 1996, the Court of Appeals, finding in favor of herein private respondents, rendered the assailed decision , the decretal portion of which declares: "Wherefore, premises considered, the instant special civil action for certiorari is hereby granted, The impugned orders issued by respondent court on July 4,1995 and September 12, 1995 are hereby nullified and set aside. The impugned order issued by respondent on September 15, 1995 is nullified insofar as petitioner corporations" bank accounts and records are concerned. SO ORDERED." Through the expediency of Rule 45 of the Rules of Court, herein petitioner Rufina Luy Lim now comes before us with a lone 16 assignment of error : "The respondent Court of Appeals erred in reversing the orders of the lower court which merely allowed the preliminary or provisional inclusion of the private respondents as part of the estate of the late deceased (sic) Pastor Y. Lim with the respondent Court of Appeals arrogating unto itself the power to repeal, to disobey or to ignore the clear and explicit provisions of Rules 81,83,84 and 87 of the Rules of Court and thereby preventing the petitioner, from performing her duty as special administrator of the estate as expressly provided in the said Rules." Petitioners contentions tread on perilous grounds. In the instant petition for review, petitioner prays that we affirm the orders issued by the probate court which were subsequently set aside by the Court of Appeals. Yet, before we delve into the merits of the case, a review of the rules on jurisdiction over probate proceedings is indeed in order. 17 The provisions of Republic Act 7691 , which introduced amendments to Batas Pambansa Blg. 129, are pertinent: "Section 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the "Judiciary Reorganization Act of 1980", is hereby amended to read as follows: Section 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive jurisdiction: xxx xxx xxx (4) In all matters of probate, both testate and intestate, where the gross value of the estate exceeds One Hundred Thousand Pesos (P100,000) or, in probate matters in Metro Manila, where such gross value exceeds Two Hundred Thousand Pesos (P200,000); xxx xxx xxx Section 3. Section 33 of the same law is hereby amended to read as follows: Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in Civil Cases.Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts shall exercise: 1. Exclusive original jurisdiction over civil actions and probate proceedings, testate and intestate, including the grant of provisional remedies in proper cases, where the value of the personal property, estate or amount of the demand does not exceed One Hundred Thousand Pesos(P100,000) or, in Metro Manila where such personal property, estate or amount of the demand does not exceed Two Hundred Thousand Pesos (P200,000), exclusive of interest, damages of whatever kind, attorneys fees, litigation expenses and costs, the amount of which must be specifically alleged, Provided, that interest, damages of whatever kind, attorneys, litigation expenses and costs shall be included in the determination of the filing fees, Provided further, that where there are several claims or causes of actions between the same or different parties, embodied in the same complaint, the amount of the demand shall be the totality of the claims in all the causes of action, irrespective of whether the causes of action arose out of the same or different transactions;

xxx xxx xxx" Simply put, the determination of which court exercises jurisdiction over matters of probate depends upon the gross value of the estate of the decedent. As to the power and authority of the probate court, petitioner relies heavily on the principle that a probate court may pass upon title to certain properties, albeit provisionally, for the purpose of determining whether a certain property should or should not be included in the inventory. In a litany of cases, We defined the parameters by which the court may extend its probing arms in the determination of the question of title in probate proceedings. 18 This Court, in PASTOR, JR. vs. COURT OF APPEALS, held: "X X X As a rule, the question of ownership is an extraneous matter which the probate court cannot resolve with finality. Thus, for the purpose of determining whether a certain property should or should not be included in the inventory of estate properties, the Probate Court may pass upon the title thereto, but such determination is provisional, not conclusive, and is subject to the final decision in a separate action to resolve title." 19 We reiterated the rule in PEREIRA vs. COURT OF APPEALS : "X X X The function of resolving whether or not a certain property should be included in the inventory or list of properties to be administered by the administrator is one clearly within the competence of the probate court. However, the courts determination is only provisional in character, not conclusive, and is subject to the final decision in a separate action which may be instituted by the parties." 20 21 Further, in MORALES vs. CFI OF CAVITE citing CUIZON vs. RAMOLETE , We made an exposition on the probate courts limited jurisdiction: "It is a well-settled rule that a probate court or one in charge of proceedings whether testate or intestate cannot adjudicate or determine title to properties claimed to be a part of the estate and which are equally claimed to belong to outside parties. All that the said court could do as regards said properties is to determine whether they should or should not be included in the inventory or list of properties to be administered by the administrator. If there is no dispute, well and good; but if there is, then the parties, the administrator and the opposing parties have to resort to an ordinary action for a final determination of the conflicting claims of title because the probate court cannot do so." 22 23 Again, in VALERA vs. INSERTO , We had occasion to elucidate, through Mr. Justice Andres Narvasa : "Settled is the rule that a Court of First Instance (now Regional Trial Court), acting as a probate court, exercises but limited jurisdiction, and thus has no power to take cognizance of and determine the issue of title to property claimed by a third person adversely to the decedent, unless the claimant and all other parties having legal interest in the property consent, expressly or impliedly, to the submission of the question to the probate court for adjudgment, or the interests of third persons are not thereby prejudiced, the reason for the exception being that the question of whether or not a particular matter should be resolved by the court in the exercise of its general jurisdiction or of its limited jurisdiction as a special court (e.g. probate, land registration, etc.), is in reality not a jurisdictional but in essence of procedural one, involving a mode of practice which may be waived. x x x x x x. These considerations assume greater cogency where, as here, the Torrens title is not in the decedents name but in others, a situation on which this Court has already had occasion to rule x x x."(emphasis Ours) Petitioner, in the present case, argues that the parcels of land covered under the Torrens system and registered in the name of private respondent corporations should be included in the inventory of the estate of the decedent Pastor Y. Lim, alleging that after all the determination by the probate court of whether these properties should be included or not is merely provisional in nature, thus, not conclusive and subject to a final determination in a separate action brought for the purpose of adjudging once and for all the issue of title. Yet, under the peculiar circumstances, where the parcels of land are registered in the name of private respondent corporations, the 24 jurisprudence pronounced in BOLISAY vs., ALCID is of great essence and finds applicability, thus: "It does not matter that respondent-administratrix has evidence purporting to support her claim of ownership, for, on the other hand, petitioners have a Torrens title in their favor, which under the law is endowed with incontestability until after it has been set aside in the manner indicated in the law itself, which, of course, does not include, bringing up the matter as a mere incident in special proceedings for the settlement of the estate of deceased persons. x x x" "x x x. In regard to such incident of inclusion or exclusion, We hold that if a property covered by Torrens title is involved, the presumptive conclusiveness of such title should be given due weight, and in the absence of strong compelling evidence to the contrary, the holder thereof should be considered as the owner of the property in controversy until his title is nullified or modified in an appropriate ordinary action, particularly, when as in the case at bar, possession of the property itself is in the persons named in the title. x x x" A perusal of the records would reveal that no strong compelling evidence was ever presented by petitioner to bolster her bare assertions as to the title of the deceased Pastor Y. Lim over the properties. Even so, P.D. 1529, otherwise known as, " The Property Registration Decree", proscribes collateral attack on Torrens Title, hence: "xxx xxx xxx Section 48. Certificate not subject to collateral attack. - A certificate of title shall not be subject to collateral attack. It cannot be altered, modified or cancelled except in a direct proceeding in accordance with law." In CUIZON vs. RAMOLETE, where similarly as in the case at bar, the property subject of the controversy was duly registered under the Torrens system, We categorically stated: "x x x Having been apprised of the fact that the property in question was in the possession of third parties and more important, covered by a transfer certificate of title issued in the name of such third parties, the respondent court should have denied the motion of the respondent administrator and excluded the property in question from the inventory of the property of the estate. It had no authority to deprive such third persons of their possession and ownership of the property. x x x" Inasmuch as the real properties included in the inventory of the estate of the late Pastor Y. Lim are in the possession of and are registered in the name of private respondent corporations, which under the law possess a personality separate and distinct from their stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of private respondents should stand undisturbed.

Accordingly, the probate court was remiss in denying private respondents motion for exclusion. While it may be true that the Regional Trial Court, acting in a restricted capacity and exercising limited jurisdiction as a probate court, is competent to issue orders involving inclusion or exclusion of certain properties in the inventory of the estate of the decedent, and to adjudge, albeit, provisionally the question of title over properties, it is no less true that such authority conferred upon by law and reinforced by jurisprudence, should be exercised judiciously, with due regard and caution to the peculiar circumstances of each individual case. Notwithstanding that the real properties were duly registered under the Torrens system in the name of private respondents, and as such were to be afforded the presumptive conclusiveness of title, the probate court obviously opted to shut its eyes to this gleamy fact and still proceeded to issue the impugned orders. By its denial of the motion for exclusion, the probate court in effect acted in utter disregard of the presumption of conclusiveness of title in favor of private respondents. Certainly, the probate court through such brazen act transgressed the clear provisions of law and infringed settled jurisprudence on this matter. Moreover, petitioner urges that not only the properties of private respondent corporations are properly part of the decedents estate but also the private respondent corporations themselves. To rivet such flimsy contention, petitioner cited that the late Pastor Y. Lim during his lifetime, organized and wholly-owned the five corporations, which are the private respondents in the instant 25 26 27 case. Petitioner thus attached as Annexes "F" and "G" of the petition for review affidavits executed by Teresa Lim and Lani Wenceslao which among others, contained averments that the incorporators of Uniwide Distributing, Inc. included on the list had no actual participation in the organization and incorporation of the said corporation. The affiants added that the persons whose names appeared on the articles of incorporation of Uniwide Distributing, Inc., as incorporators thereof, are mere dummies since they have not actually contributed any amount to the capital stock of the corporation and have been merely asked by the late Pastor Y. Lim to affix their respective signatures thereon. It is settled that a corporation is clothed with personality separate and distinct from that of the persons composing it. It may not generally be held liable for that of the persons composing it. It may not be held liable for the personal indebtedness of its 28 stockholders or those of the entities connected with it. Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate from its stockholders or members. In the same vein, a corporation by legal fiction and convenience is an entity shielded by a protective mantle and imbued by law with a character alien to the persons comprising it. 29 Nonetheless, the shield is not at all times invincible. Thus, in FIRST PHILIPPINE INTERNATIONAL BANK vs. COURT OF APPEALS , We enunciated: "x x x When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals. x x x" Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguishes one corporation from a seemingly separate one, were it not for 30 the existing corporate fiction. The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just but the alter ego of a person or of another corporation. Where badges of fraud exist, where public convenience is defeated; where a wrong is sought to be justified 31 thereby, the corporate fiction or the notion of legal entity should come to naught. Further, the test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal right; and (3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any of these elements 32 prevent "piercing the corporate veil". 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 33 itself a sufficient reason for disregarding the fiction of separate corporate personalities. Moreover, to disregard the separate juridical personality of a corporation, the wrong-doing must be clearly and convincingly 34 established. It cannot be presumed. Granting arguendo that the Regional Trial Court in this case was not merely acting in a limited capacity as a probate court, petitioner nonetheless failed to adduce competent evidence that would have justified the court to impale the veil of corporate fiction. Truly, the reliance reposed by petitioner on the affidavits executed by Teresa Lim and Lani Wenceslao is unavailing considering that the aforementioned documents possess no weighty probative value pursuant to the hearsay rule. Besides it is imperative for us to stress that such affidavits are inadmissible in evidence inasmuch as the affiants were not at all presented during the course of the proceedings in the lower court. To put it differently, for this Court to uphold the admissibility of said documents would be to relegate from Our duty to apply such basic rule of evidence in a manner consistent with the law and jurisprudence. 35 Our pronouncement in PEOPLE BANK AND TRUST COMPANY vs. LEONIDAS finds pertinence: "Affidavits are classified as hearsay evidence since they are not generally prepared by the affiant but by another who uses his own language in writing the affiants statements, which may thus be either omitted or misunderstood by the one writing them. Moreover, the adverse party is deprived of the opportunity to cross-examine the affiants. For this reason, affidavits are generally rejected for being hearsay, unless the affiant themselves are placed on the witness stand to testify thereon." 36 As to the order of the lower court, dated 15 September 1995, the Court of Appeals correctly observed that the Regional Trial Court, Branch 93 acted without jurisdiction in issuing said order; The probate court had no authority to demand the production of bank accounts in the name of the private respondent corporations. WHEREFORE, in view of the foregoing disquisitions, the instant petition is hereby DISMISSED for lack of merit and the decision of the Court of Appeals which nullified and set aside the orders issued by the Regional Trial Court, Branch 93, acting as a probate court, dated 04 July 1995 and 12 September 1995 is AFFIRMED. SO ORDERED.

GILDA C. LIM, WILHELMINA V. JOVEN and DITAS A. LERIOS, petitioners, vs. PATRICIA LIM-YU, in her capacity as a minority stockholder of LIMPAN INVESTMENT CORPORATION,respondent. PANGANIBAN, J.: A suit to enforce preemptive rights in a corporation is not a derivative suit. Thus, a temporary restraining order enjoining a person from representing the corporation will not bar such action, because it is instituted on behalf and for the benefit of the shareholder, not the corporation. Statement of the Case 1 2 3 Petitioners seek the reversal, under Rule 45 of the Rules of Court, of the July 31, 1998 Decision of the Court of Appeals (CA) in CA4 GR SP No. 46292 and of its March 25, 1999 Resolution denying reconsideration. The decretal portion of the appealed Decision, which affirmed the Securities and Exchange Commission (SEC), reads as follows: "WHEREFORE, judgment is hereby rendered DISMISSING the Petition for lack of merit. The preliminary injunction previously issued is 5 hereby LIFTED." The Facts The undisputed facts are summarized by the Court of Appeals as follows: "At a special meeting on 07 October 1994, the Board of Directors of Limpan Investment Corporation (LIMPAN) approved a resolution of the following tenor: 'RESOLVED that the corporation make a partial payment [for] the legal services of Gilda C. Lim in the handling of various cases on behalf of, or involving the corporation in the amount of P1,551,500.00 to be paid in equivalent value in shares of stock of the corporation totaling 15,515 shares, the same being found to be reasonable, and there being no available funds to pay the same.1wphi1.nt 'RESOLVED FURTHER, that the Corporate Secretary be authorized, as he is hereby authorized, to secure and comply with necessary requirements of the law for the issuance of said shares.' "On 18 October 1994, the Corporate Secretary Jaime G. Manzano filed a request before the Corporate and legal Affairs Department of the SEC asking for the exemption of the 15,515 shares from the registration requirements of the Revised Securities Act; the request was granted in a Resolution dated 14 November 1994. Due to the issuance of the unsubscribed shares to the petitioner GILDA C. LIM (LIM), all of LIMPAN's authorized capital stock became fully subscribed, with LIM ending up controlling 62.5% of the shares. "In July 1996, the private respondent PATRICIA LIM YU (YU), a sister of the petitioner, LIM, filed a complaint against the members of the Board of Directors of LIMPAN who approved the aforesaid resolution (GILDA C. LIM, WILHEIMINA V. JOVEN, DITAS A. LERIOS, AUGUSTO R. BUNDANG, TERESITA C. VELEZ and JAIME MANZANO). The action was docketed as SEC Case No. 07-95-5114. "BUNDANG, VELEZ, and MANZANO filed an Answer, asserting as affirmative defenses that the complaint failed to state a cause of action against them; that YU had no legal capacity to sue; and that the issuance of the shares in LIM's favor was bona fide and valid pursuant to law and LIMPAN's By-laws. In turn, the herein petitioners LIM, JOVEN and LERIOS filed a Motion to Dismiss on the following grounds: that YU had no legal capacity to sue; that the complaint failed to state a cause of action against JOVEN and LERIOS, and that no earnest efforts were exerted towards a compromise, YU and LIM being siblings. "In support of their ground that YU ha[d] no legal capacity to sue, the petitioners pointed out that LIM had previously filed a petition for guardianship before the Regional Trial Court of Manila, docketed as Special proceeding No. 94-71010, praying for the issuance of letters of guardianship over YU. On 14 July 1994, the Presiding Judge of Branch 48, the Hon. Demetrio M. Batario, Jr., issued an Order, the relevant portion of which enjoined YU 'from entering into, or signing, contracts or documents on her behalf or on behalf of others' x x x.' On 16 August 1994, LIM was appointed [as] YU's general guardian, and the former took her oath as such on the same day. YU appealed LIM's appointment to the Supreme Court ("Patricia C. Lim-Yu, et al. v. Hon. Judge Demetrio M. Batario, Jr., et al.,' G.R. No.116926). On 27 February 1994, the High Court issued a Resolution giving due course to YU's petition. It likewise issued a temporary restraining order, the (pertinent portion of which is quoted hereunder: '(b) to ISSUE the TEMPORARY RESTRAINING ORDER prayed for, limited however, to the 'Writ of Preliminary Injunction' dated 22 August 1994 and the order dated 14 July 1994 both issued in SP Proceeding No. 94-71010 which in the opinion of the Court are all too encompassing and should be limited in scope and subject to the conditions set forth in the resolution of September 28, 1994 that, '(D)uring the effectivity of the temporary restraining order, petitioner Patricia C. Lim, her attorneys, representatives, agents and any other persons assisting petitioner Patricia C. Lim will be able to act, enter into or sign contracts or documents solely for and on behalf of Patricia C. Lim; said actions, contracts or documents should not in any way bind or affect the interests of her parents, Isabelo P. Lim an Purificacion C. Lim, her brothers and sisters and any family owned or controlled corporation in particular, the Limpan Investment Corporation.' 'NOW THEREFORE, You (Respondent Hon. Judge Demetrio M. Batario, Jr.), your agents, representatives, and/or any person or persons, acting upon your orders or in your place or stead, are hereby RESTRAINED and ENJOINED from enforcing and carrying out the Writ of Preliminary Injunction dated 22 August 1994 and the Order dated 14 July 1994 both issued by respondent Judge In SP Proceeding No. 94-71010.' (underscoring supplied) "The petitioners argued that, under the aforesaid order YU [was] incapacitated from filing a derivative suit. YU naturally espoused the opposite view. "Acting on the petitioners' Motion to Dismiss, the Hearing Officer, Atty. Manuel Perea, issued an Order dated 05 January 1996, holding in abeyance the resolution of the motion to dismiss, which reads as follows: 'Before this Commission is the motion to dismiss filed by respondents Gilda C. Lim, et al., as well as the opposition thereto. 'In view of the conflicting interpretation of the order issued by the Supreme Court in Sp. Proc. No. 94-70010 regarding the legal capacity of the plaintiff [--] x x x who is allegedly under guardianship [-- to file the instant action] either or both parties are directed to file a motion for clarification of the orders invoked by respondent Gilda C. Lim, et al. The desired clarification is perceived to settle the issue of plaintiff's capacity to file the instant action. 'Meanwhile, resolution of the pending incident shall be held in abeyance until the parties shall have secured the desired interpretation/opinion of the Supreme Court on the matter.' "Yu filed a Motion for Reconsideration dated 08 April 1996, which was denied in an Order dated 25 April 1996, on the ground that it was filed beyond the ten-day period allowed for seeking reconsideration. Yu filed a Motion for Leave to Admit Second Motion for Reconsideration dated 02 July 1996 which the Hearing Officer also denied.

"From the denial of her second motion for reconsideration, Yu filed a petition for certiorari before the SEC En Banc seeking to set aside the Order of 05 January 1994. On 04 February 1994, the SEC En Banc issued the first assailed order granting the petition for certiorari, and ordering the Securities Investigation & Clearing Department (SICD) to hear the other grounds of the Motion to Dismiss and to continue the case until its final determination. A motion for reconsideration filed by L[im] having been denied, the instant 6 petition for review was instituted before this Court. x x x." Ruling of the Court of Appeal Ruling that the Supreme Court's TRO was clear, the CA agreed with the SEC that, pending clarification thereof, there was no need for the hearing officer to defer ruling on the Motion to Dismiss. The appellate court stated that the TRO did not prohibit herein Respondent Patricia Lim-Yu from acting or entering into contracts on her own behalf or from protecting her rights. The root of the present controversy -- the Complaint she filed before the SEC -- relates to a denial of her preemptive right as a shareholder. Thus, her capacity to file the suit must be sustained. Finally, on the question of the timeliness of respondent's Petition for Certiorari. before the SEC, the CA ruled that adherence to strict technical rules should be relaxed to prevent palpable injustice. 7 Hence, this recourse. Issues 8 In their Memorandum, petitioners raise the following issues: "I The Honorable Court of Appeals erred in sustaining the respondent's legal capacity to sue the petitioners by relying solely on the first half of this Honorable Court's TRO and without considering the second half of said TRO. "II The Honorable Court of Appeals erred in disregarding the sole power/authority of the Supreme Court to enforce/clarify its own resolutions/orders under the Rules of Court. "III The Honorable Court of Appeals in effect allowed the Securities and Exchange Commission (SEC) to maintain two conflicting positions on similar matters before it (SEC) when it upheld the SEC's position that clarification of this Honorable Court's TRO was not needed in SEC Case No. 07-95-5114. "IV. The Honorable Court of Appeals failed to consider that herein respondent had been repeatedly and notoriously guilty of laches. Simply put, the main issue is whether respondent had the legal capacity to file her Complaint before the SEC. The others are merely incidental to this main point. The Court's Ruling The Petition has no merit. First Issue: Legal Capacity to Sue Petitioners point out that both the SEC and the Court of Appeals considered only the first part of the Supreme Court TRO and completely ignored the second part. Supposedly, the latter part barred respondent from entering into agreements that would affect her family and the corporation. Hence, they claim that the TRO, taken as a whole, proscribed respondent's "derivative suit," which sought to "enjoin herein [P]etitioner Gilda C. Lim from further voting or exercising any and all rights arising from the issuance to her 9 of 15,515 shares of stock of the corporation." We do not agree. The pertinent portion of the TRO issued by this Court reads as follows: "(b) to ISSUE the TEMPORARY RESTRAINING ORDER prayed for, limited however, to the 'Writ of Preliminary Injunction' dated 22 August 1994 and the Order dated 14 July 1994 both issued in SP Proceeding No. 94-71010 which in the opinion of the Court are all too encompassing and should be limited in scope and subject to the conditions set forth in the Resolution of September 28, 1994 that, '(D)uring the effectivity of the Temporary Restraining Order, petitioner Patricia C. Lim, her attorneys, representatives, agents and any other persons assisting petitioner Patricia C. Lim will be able to act, enter into or sign contracts or documents solely for and on behalf of Patricia C. Lim; said actions, contracts or documents should not in any way bind or affect the interests of her parents, Isabelo P. Lim and Purificacion C. Lim, her brothers and sisters and any family owned or controlled corporation in particular, the Limpan Investment Corporation." Simply put, the TRO allows Respondent Patricia Lim-Yu to act for herself and to enter into any contract on her own behalf. However, she cannot transact in representation of or for the benefit of her parents, brothers or sisters, or the Limpan Investment Corporation. Contrary to what petitioners suggest, all that is prohibited is any action that will bind them. In short, she can act only on and in her own behalf, not that of petitioners or the Corporation. There appears to be a confusion on the nature of the suit initiated before the SEC. Petitioners describe it as a derivative suit, which has been defined as "an action brought by minority shareholders in the name of the corporation to redress wrongs committed against it, for which the directors refuse to sue. It is a remedy designed by equity and has been the principal defense of the minority 10 shareholders against abuses by the majority." In a derivative action, the real party in interest is the corporation itself, I not the shareholder(s) who actually instituted it. "If the suit filed by respondent was indeed derivative in character, then respondent may not have the capacity to sue. The reason is that she would be acting in representation of the corporation, an act which the TRO enjoins her from doing. We hold, however, that the suit of respondent cannot be characterized as derivative, because she was complaining only of the 11 violation of her preemptive right under Section 39 of the Corporation Code. She was merely praying that she be allowed to subscribe to the additional issuances of stocks in proportion to her shareholdings to enable her to preserve her percentage of ownership in the corporation. She was therefore not acting for the benefit of the corporation. Quite the contrary, she was suing on her own behalf, out of a desire to protect and preserve her preemptive rights. Unquestionably, the TRO did not prevent her from pursuing that action. To repeat, the TRO issued by this Court had two components: (1) it allowed respondent to enter into agreements on her own behalf; and (2) it clarified that respondent's acts could not bind or affect the interests of her parents, brothers or sisters, or Limpan. In other words, respondent was, as a rule, allowed to act; but, as an exception, was prohibited from doing anything that would bind the corporation or any of the above-named persons.

In this light, the TRO did not prohibit respondent from filing, on and in her own behalf; a suit for the alleged violation of her preemptive rights to purchase additional stock subscriptions. In other words, it did not restrain respondent from acting and enforcing her own rights. It merely barred her from acting in representation of the corporation. Petitioners fail to appreciate the distinction between the act itself and its net result. The act of filing the suit did not in any way bind the corporation. The result of such act affected it, however. Similarly, respondent can sell her shares to the corporation or make a will and designate her parents, for example, as beneficiaries. It would be quite far-fetched to say that these acts are prohibited by the TRO, even if they will definitely affect the corporation and her parents. 12 Section 2 of Rule 3 of the Rules of Court defines a real party in interest - as one who is entitled to the avails of any judgment rendered in a suit, or who stands to be benefited or injured by it. In the present case, it is clear that respondent was suing on her own behalf in order to enforce her preemptive rights. Nothing, not the TRO, barred her from filing that suit.1wphi1.nt Incidental Issues Power to Clarify Own Resolutions Petitioners also assail the ruling of the Court of Appeals that the SEC hearing officer "was bound to interpret the Supreme Court's order instead of burdening [it] with the responsibility of 'clarifying' what already appears to be a clear order." Citing Section 5 (5) of 13 14 Article VIII of the Constitution and Section 5 of Rule 135, petitioners contend that the ruling disregarded the Supreme Court's power to control and to clarify its own orders, as granted by the Constitution. The argument must be rejected outright. First, as stated earlier the TRO was very clear. In such instances, it was axiomatic that there 15 was no need for interpretation, only for application. Hence, there was no reason for the SEC hearing officer to rely on the rules of statutory construction or for this Court to clarify its Order. Second, even assuming that there was a need to interpret the TRO, the hearing officer was duty-bound to do so. Indeed, the mandate to apply and interpret pertinent laws and rulings is necessarily 16 17 included in the "adjudicative functions" of the SEC or of any other quasi-judicial body for that matter. Verily, the power of this Court to clarify its own orders does not divest the SEC of its function to apply those orders to cases before it. If parties disagree with the SEC, they can file the proper suit in a regular court in accordance with law." In any event, the seeming obscurity or ambiguity of a TRO is not an excuse for a quasi-judicial body, or any regular court or judge, to shirk from the 18 responsibility of applying and interpreting it. Alleged Conflicting Positions of the SEC Petitioners further contend that the CA effectively allowed the SEC to maintain contradictory positions on similar matters. They cite Philippine Commercial International Bank v. Aquaventures Corporation, docketed as SEC En Banc Case No. 455, in "which the SEC 19 referred a TRO to this Court for clarification. This argument is untenable. The alleged contradictory SEC ruling in the said case is irrelevant and unnecessary to the resolution of the present one. Petitioners do not claim that the factual milieu of the former is similar to that of the latter. Moreover, the actions of the SEC in the above-mentioned, case have not been put at issue by the proper parties in these proceedings. In any event, they are neither binding nor conclusive on appeal. They may be the subject of the Court's review in accordance with the applicable provisions of the Rules of Court. Laches Petitioners further contend that the CA failed to appreciate that respondent had been "repeatedly and notoriously guilty of laches." They point out that she filed a Motion for Reconsideration of the SEC hearing officer's Order almost four months late. They further 20 allege that it took her another two and a half months to file a Motion for Leave to Admit Second Motion for Reconsideration. We reject this argument. It has been held that it is the better rule that courts, under the principle of equity, shall not be bound 21 strictly by the doctrine of laches, when a manifest wrong or injustice would result. To rule that respondent can no longer question the hearing officer would deprive her of the opportunity to sue in order to enforce her preemptive rights, an act that is not proscribed by this Court's TRO. WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioners. SO ORDERED.

LINGAYEN GULF ELECTRIC POWER COMPANY, INC., plaintiff-appellant, vs. IRINEO BALTAZAR, defendant-appellee. x---------------------------------------------------------x G.R. No. L-6244 June 30, 1953 LINGAYEN GULF ELECTRIC POWER COMPANY, INC., plaintiff-appellee, vs. IRINEO BALTAZAR, defendant and appellant. Manuel L. Fernandez for appellant. Sofronio C. Quimson and daniel C. Macaraeg for appellee. MONTEMAYOR, J.: These two cases here on appeal stem from the same case, that of civil case No. 10944 of the Court of First Instance of Pangasinan. From the trial court's decision, plaintiff Lingayen Gulf Electric Power Company, Inc. appealed directly to this court under G.R. No. L4824. Defendant Irineo Baltazar appealed to the Court of Appeals. By a resolution of that appellate tribunal, the appeal was certified to this court pursuant to section 17, (5) and (6) of the Judiciary Act of 1948, and is now listed here under G.R. No. L-6344. The main facts of the case are not disputed, and we are reproducing and making our own the relation of facts contained in the decision appealed from. The plaintiff, Lingayen Gulf Electric Power Company is a domestic corporation with an authorized capital stock of P300,000 divided into 3,000 shares with a par value of P100 per share. The defendant, Irineo Baltazar appears to have subscribed for 600 shares on account of which he had paid upon the organization of the corporation the sum of P15,000. (See Exhibit A, page 2). After incorporation, the defendant made further payments on account of his subscription, leaving a balance of P18,500 unpaid for, which amount, the plaintiff now claims in this action. On July 23, 1946, a majority of the stockholders of the corporation, among them the herein defendant, held a meeting and adopted stockholders' resolution No. 17. By said resolution, it was agreed upon by the stockholders present to call the balance of all unpaid subscribed capital stock as of July 23, 1946, the first 50 per cent payable within 60 days beginnning August 1, 1946, and the remaining 50 per cent payable within 60 days beginning October 1, 1946. The resolution also provided, that all unpaid subscription after the due dates of both calls would be subject to 12 per cent interest per annum. Lastly, the resolution provided, that after the expiration of 60 days' grace which would be on December 1, 1946, for the first call, and on February 1, 1947, for the second call, all subscribed stocks remaining unpaid would revert to the corporation. (See Exhibit F and Exhibit I). On September 22, 1946, the plaintiff corporation wrote a letter to the defendant reminding him that the first 50 per cent of his unpaid subscription would be due on October 1, 1946. The plaintiff requested the defendant to "kindly advise the company thru the undersigned your decision regarding this matter." (See Exhibit 4). The defendant answered on September 25, 1946, asking the corporation that he be allowed to pay his unpaid subscription by February 1, 1947. In his answer, the defendant also agreed that if he could not pay the balance of his subscription by February 1, 1947, his unpaid subscription would be reverted to the corporation. (See Exhibit 5). On December 19, 1947, the defendant wrote another letter to the members of the Board of Directors of the plaintiff corporation, offering to withdraw completely from the corporation by selling out to the corporation all his shares of stock in the total amount of P23,000. (See Exhibit 8). Apparently this offer of the defendant was left unacted upon by the plaintiff. On April 17, 1948, the Board of Directors of the plaintiff corporation held a meeting, and in the course of the said meeting they adopted Resolution No. 17. This resolution in effect set aside the stockholders resolution approved on June 23, 1946 (Exhibit D), on the ground that said stockholders' resolution was null and void, and because the plaintiff corporation was not in a financial position to absorb the unpaid balance of the subscribed capital stock. At the said meeting the directors also decided to call 50 per cent of the unpaid subscription within 30 days from April 17, 1948, the call payable within 60 days from receipt of notice from the SecretaryTreasurer. This resolution also authorized legal counsel of the company to take all the necessary legal steps for the collection of the payment of the call. (See Exhibit E-2). On June 10, 1949, the stockholders of the corporation held another meeting in which the stockholders were all present, either in person or by proxy. At such meeting, the stockholders adopted resolution No. 4, whereby it was agreed to revalue the stocks and assets of the company so as to attract outside investors to put in money for the rehabilitation of the company. The president was authorized to make all arrangement for such appraisal and the Secretary to call a meeting upon completion of the reassessment. (See Exhibit 2). It was admitted by the defendant that he received notice from the Secretary-Treasurer of the company, demanding payment of the unpaid balance of his subscription. It was agreed by the parties that the call of the Board of Directors was not published in a newspaper of general circulation as required by section 40 of the Corporation Law. On September 28, 1949, the legal counsel of the plaintiff corporation wrote a letter to the defendant, demanding the payment of the unpaid balance of his subscription amounting to P18,500. Copy of this letter was sent by registered mail to the defendant on September 29,1 949. (See Exhibit G). The defendant ignored the said demand. Hence this action. The defendant, in his answer, disclaims liability tot he plaintiff corporation on the following grounds: 1. That the plaintiffs' action is premature because there was no valid call; and 2. That granting that there was a valid call, he was released from the obligation of the balance of his subscription by stockholders' resolution No. 17 and No. 4. By way of counterclaim, the defendant also claims from the plaintiff a reasonable compensation at the rate of P700 per month as president of the company, for the period from March 1, 1946 to December 31, 1948. In the light of the foregoing undisputed facts, the only questions are as follows: 1. Was the call Exhibit E-2 valid? 2. Was the defendant released from the obligation of the unpaid balance of his subscription by virtue of stockholders' resolution Nos. 17 and 4? 3. Is the defendant entitled to compensation as president of the plaintiff corporation? In an exhaustive and well prepared decision, Judge M. Mejia of the lower court found that the call for payment embodied in resolution No. 17 of July 23, 1946 was null and void for lack of publication; consequently, he dismissed the complaint as premature. He further held said resolution null and void in so far as it tried to relieve the defend- ant from liability on his unpaid subscription, on

the ground that the resolution was not approved by all the stockholders of the corporation. He also dismissed the defendant's counterclaim for compensation as president of the corporation. Inasmuch as in the two appeals, the assignment of errors are related to each other, and because they refer to the same case, we propose to determine both appeals in one single decision. We agree with the lower court that the law requires that notice of any call for the payment of unpaid subscription should be made not only personally but also by publication. This is clear from the provisions of section 40 of the Corporation Law, Act No. 1459, as amended, which reads as follows: SEC. 40. Notice of call for unpaid subscriptions must be either personally served upon each stockholder or deposited in the post office, postage prepaid, addressed to him at his place of residence, if known, and if not known, addressed to the place where the principal office of the corporation is situated. The notice must also be published once a week for four successive weeks in some newspaper of general circulation devoted to the publication of general news published at the place where the principal office of the corporation is established or located, and posted in some prominent place at the works of the corporation if any such there be. If there be no newspaper published at the place where the principal office of the corporation is established or located, then such notice may be published in any newspaper of general news in the Philippines. It will be noted that section 40 is mandatory as regards publication, using the word "must". As correctly stated by the trial court, the reason for the mandatory provision is not only to assure notice to all subscribers, but also to assure equality and uniformity in the assessment on stockholders. (14 C.J. 639). This rule finds support in authorities on corporation law, such as, Thompson on Corporations, Vol. 5, 3rd edition, pages 588-590, from which we make the following quotation: SEC. 3744. Provisions requiring notice of calls. The governing statute, charter or by-laws usually require that notice of calls be given the subscriber or stockholder. If any particular notice or demand is required by either of these, or by the contract of subscription, then such notice or demand must be given, and must be alleged and proved in order to maintain an action for the call. xxx xxx xxx SEC. 3745. Notice. Compliance with requirements-From what has preceded it is clear that where any particular form or kind of notice is required, such form or kind must be given-the requirement must be complied with. Thus, where the charter expressly required notice to be given in certain newspapers for a certain number of days, the corporation must show compliance with the conditions before recovery on the call. An action is ordinarily made effective by notice thereof to the subscribers, in accordance with the by-laws or general regulations of the corporation in that regard. So, where there are statutory or other regulations as to the form and sufficiency of the notice, these must be followed. Thus, where such a notice was required to be signed by the directors, a notice with the names of the directors signed by a clerk, was held insufficient. These cases and others proceed on the theory that where the manner of giving notice is prescribed by law every condition precedent must be strictly and literally complied with. (Thompson on Corporations, Vol. 5, 3rd ed.) This view is shared by Justice Fisher. In his book "The Philippine Law on Stock Corporations" he says: "Not only must personal notice be given in one of these manners, but the notice must also be published once a week, for four consecutive weeks, in some newspaper." (p. 110.). We find the citation of authorities made by the plaintiff and appellant inapplicable. In the case of Velasco vs. Poizat(37 Phil. 805), the corporation involved was insolvent, in which case all unpaid stock subscriptions become payable on demand and are immediately recoverable in an action instituted by the assignee. Said the court in that case: . . . . it is now quite well settled that when the corporation becomes insolvent, with proceedings instituted by creditors to wind up and distribute its assets, no call or assessment is necessary before the institution of suits to collect unpaid balance on subscription. But when the corporation is a solvent concern, the rule is: It is again insisted that plaintiffs cannot recover because the suit was not proceeded by a call or assessment against the defendant as a subscriber, and that until this is done no right of action accrues. In a suit by a solvent going corporation to collect a subscription, and in certain suits provided by statute this would be true;. . . . . (Id.) Going to the claim of defendant and appellant that Resolution No. 17 of 1946 released him from the obligation to pay for his unpaid subscription, the authorities are generally agreed that in order to effect the release, there must be unanimous consent of the stockholders of the corporation. We quote some authorities: Subject to certain exceptions, considered in subdivision (3) of this section, the general rule is that a valid and binding subscription for stock of a corporation cannot be cancelled so as to release the subscriber from liability thereon without the consent of all the stockholders or subscribers. Furthermore, a subscription cannot be cancelled by the company, even under a secret or collateral agreement for cancellation made with the subscriber at the time of the subscription, as against persons who subsequently subscribed or purchased without notice of such agreement. (18 C.J.S. 874). (3) Exceptions. In particular circumstances, as where it is given pursuant to a bona fide compromise, or to set off a debt due from the corporation, a release, supported by consideration, will be effectual as against dissenting stockholders and subsequent and existing creditors. A release which might originally have been held invalid may be sustained after a considerable lapse of time. (18 C.J.S. 874). In the present case, the release claimed by defendant and appellant does not fall under the exception above referred to, because it was not given pursuant to a bona fide compromise, or to set off a debt due from the corporation, and there was no consideration for it. Another authority: SEC. 850. Unanimous consent of stockholders necessary to release subscriber. It may be asserted as the first rule under this proposition that, after a valid subscription to the capital stock of a corporation has been made and accepted, there can be no cancellation or release from the obligation without the consent of the corporation and all the stockholders; . . . . (2 Thompson on Corporation, p. 186). He states the reason for the rule as follows: SEC. 855. Right to withdraw as against subscribers. A contract of subscription is, at least in the sense which creates as estoppel, a contract among the several subscribers. For this reason no one of the subscribers can withdraw from the contract without the consent of all the others, and thereby diminish, without the universal consent, the common fund in which all have acquired an interest. . . . (2 Thompson on Corporations, p. 194.).

As already found by the trial court, the release attempted in Resolution No. 17 of 1946 was not valid for lack of a unanimous vote. If found that at least seven stockholders were absent from the meeting when said resolution was approved. Defendant and appellant, however, contends that after dismissing the complaint for being premature, there was no necessity or reason for the trial court to go further and say that defendant was not validly released from the payment for his unpaid subscription. It must be borne in mind, however, that this was one of the principal issues involved in the case and the trial court was called upon to pass upon it, because unless so passed upon and deter- mined, it might decisively affect the case on appeal. Supposing that on appeal the appellate court decides that the call was valid, then it would be important to know whether or not in spite of the validity of the call, defendant was nevertheless not liable because he had been validly released by a resolution of the corporation. If that question was not decided by the trial court, and naturally was not touched upon in the appeal, then the appellate court would have no occasion to pass upon it, and it might be necessary to bring another action to determine the point, which means multiplicity of suits. Moreover, the authority given to the courts to render judgments for declaratory relief in order to determine the rights or duties of parties over a certain transaction or under a certain written instrument, or to remove the uncertainty or controversy over the same (Rule 66 of the Rules of Court), justified the trial court in passing upon this question of release. As regards the compensation of President claimed by defendant and appellant, it is clear that he is not entitled to the same. The bylaws of the company are silent as to the salary of the President. And, while resolutions of the incorporators and stockholders (Exhibits G-1 and I-1) provide salaries for the general manager, secretary-treasurer and other employees, there was no provision for the salary of the President. On the other hand, other resolutions (Exhibits H-1 and J-3) provide for per diems to be paid to the President and the directors of each meeting attended, P10 for the President and P8 for each director, which were later increased to P25 and P15, respectively. This leads to the conclusions that the President and the board of directors were expected to serve without salary, and that the per diems paid to them were sufficient compensation for their services. Furthermore, for defendant's several years of service as President and up to the filing of the action against him, he never filed a claim for salary. He thought of claiming it only when this suit was brought against him. In conclusion we hold that under the Corporation Law, notice of call for payment for unpaid subscribed stock must be published, except when the corporation is insolvent, in which case, payment is immediately demandable. We also rule that release from such payment must be made by all the stockholders. In view of the foregoing and finding no reversible error in the decision appealed, the same is hereby affirmed. No pronouncement as to costs.

LIRAG TEXTILE MILLS, INC., and BASILIO L. LIRAG, petitioners, vs. SOCIAL SECURITY SYSTEM, and HON. PACIFICO DE CASTRO, respondents. FERNAN, J.: This is an appeal by certiorari involving purely questions of law from the decision rendered by respondent judge in Civil Case No. Q12275 entitled "Social Security System versus Lirag Textile Mills, Inc. and Basilio L. Lirag." The antecedent facts, as stipulated by the parties during the trial, are as follows: 1. That on September 4, 1961, the plaintiff [herein respondent Social Security System] and the defendants [herein petitioners] Lirag Textile Mills, Inc. and Basilio Lirag entered into a Purchase Agreement under which the plaintiff agreed to purchase from the said defendant preferred shares of stock worth ONE MILLION PESOS [P1,000,000.00] subject to the conditions set forth in such agreement;... 2. That pursuant to the Purchase Agreement of September 4, 1961, the plaintiff, on January 31, 1962, paid the defendant Lirag Textile Mills, Inc. the sum of FIVE HUNDRED THOUSAND PESOS [P500,000.00] for which the said defendant issued to plaintiff 5,000 preferred shares with a par value of one hundred pesos [P10000] per share as evidenced by stock Certificate No. 128, ... 3. That further in pursuance of the Purchase Agreement of September 4, 1961, the plaintiff paid to the Lirag Textile Mills, Inc. the sum of FIVE UNDRED THOUSAND PESOS [P500,000.00] for which the said defendant issued to plaintiff 5,000 preferred shares with a par value of one hundred pesos [P100.00] per share as evidenced by Stock Certificate No. 139, ... 4. That in accordance with paragraph 3 of the Purchase Agreement of September 4, 1961 which provides for the repurchase by the Lirag Textile Mills, Inc. of the shares of stock at regular intervals of one year beginning with the 4th year following the date of issue, Stock Certificates Nos. 128 and 139 were to be repurchased by the Lirag Textile Mills, Inc. thus: CERT. No. AMOUNT DATE OF REDEMPTION 128 P100,000.00 February 14, 1965 100,000.00 February 14, 1966 100,000.00 February 14, 1967 100,000.00 February 14, 1968 100,000.00 February 14, 1969 139 P100,000.00 July 3, 1966 100,000.00 July 3,1967 100,000.00 July 3,1968 100,000.00 July 3, 1969 100,000.00 July 3,1970 5. That to guarantee the redemption of the stocks purchased by the plaintiff, the payment of dividends, as well as the other obligations of the Lirag Textile Mills, Inc., defendants Basilio L. Lirag signed the Purchase Agreement of September 4, 1961 not only as president of the defendant corporation, but also as surety so that should the Lirag Textile Mills, Inc. fail to perform any of its obligations in the said Purchase Agreement, the surety shall immediately pay to the vendee the amounts then outstanding pursuant to Condition No. 4, to wit: To guarantee the redemption of the stocks herein purchased, the payment of the dividends, as well as other obligations of the VENDOR herein, the SURETY hereby binds himself jointly and severally liable with the VENDOR so that should the VENDOR fail to perform any of its obligations hereunder, the SURETY shall immediately pay to the VENDEE the amounts then outstanding. ' 6. That defendant corporation failed to redeem certificates of Stock Nos. 128 and 139 by payment of the amounts mentioned in paragraph 4 above; 7. That the Lirag Textile Mills, lnc. has not paid dividends in the amounts and within the period set forth in paragraph 10 of the complaint;* 8. That letters of demands have been sent by the plaintiff to the defendant to redeem the foregoing stock certificates and pay the dividends set forth in paragraph 10 of the complaint, but the Lirag Textile Mills, Inc. has not made such redemption nor made such dividend payments; 9. That defendant Basilio L. Lirag likewise received letters of demand from the plaintiff requiring him to make good his obligation as surety; 10. That notwithstanding such letters of demand to the defendant Basilio L. Lirag, Stock Certificates Nos. 128 and 139 issued to plaintiff are still unredeemed and no dividends have been paid on said stock certificates; 11. That paragraph 5 of the Purchase Agreement provides that should the Lirag Textile Mills, Inc. fail to effect any of the redemptions stipulated therein, the entire obligation shall immediately become due and demandable and the Lirag Textile Mills, Inc., shall, furthermore, be liable to the plaintiff in an amount equivalent to twelve per cent [12%] of the amount then outstanding as liquidated damages; 12. That the failure of the Lirag Textile Mills, Inc. to redeem the foregoing certificates of stock and pay dividends thereon were due to financial reverses, to wit: [a] Unrestrained smuggling into the country of textiles from the United States and other countries; [b] Unrestricted entry of supposed remmants which competed with textiles of domestic produce to the disadvantage and economic prejudice of the latter; [c] Scarcity of money and the unavailability of financing facilities; [d] Payment of interest on matured loans extended to defendant corporation; [e] Construction of the Montalban plant of the defendant corporation financed largely through reparation benefits; [f] Labor problems occasioned by the fact that the defendant company is financial (sic) unable to improve, in a substantial way, the economic plight of its workers as a result of which two costly strikes had occurred, one in 1965 and another in 1968; and [g] The occurrence of a fire which destroyed more than 1 million worth of raw cotton, paralyzed operations partially, increased overhead costs and wiped out any expected profits that year; 13. That it has been the policy of the plaintiff to be represented in the board of directors of the corporation or entity which has obtained financial assistance from the System be it in terms of loans, mortgages or equity investments. Thus, pursuant to paragraph 6 of the Purchase Agreement of September 4, 1961 which provides as follows:

The VENDEE shall be allowed to have a representative in the Board of Directors of the VENDOR with the right to participate in the discussions and to vote therein; 14. That Messrs. Rene Espina, Bernardino Abes and Heber Catalan were each issued one common share of stock as a qualifying share to their election to the Board of Directors of the Lirag Textiles Mills, Inc.; 15. That Messrs. Rene Espina, Bernardino Abes and Heber Catalan, during their respective tenure as member of the Board of Directors of the Lirag Textile Mills, Inc. attended the meetings of the said Board, received per diems for their attendance therein in the same manner and in the same amount as any other member of the Board of Directors, participated in the deliberations therein and freely exercised their right to vote in such meetings. However, the per diems received by the SSS representative do not go to the coffers of the System but personally to the representative in the said board of directors. 1 For failure of Lirag Textile Mills, Inc. and Basilio L. Lirag to comply with the terms of the Purchase Agreement, the SSS filed an action for specific performance and damages before the then Court of First Instance of Rizal, Quezon City, praying that therein defendants Lirag Textile Mills, Inc. and Basilio L. Lirag be adjudged liable for [1] the entire obligation of P1M which became due and demandable upon defendants' failure to repurchase the stocks as scheduled; [21 dividends in the amount of P220,000.00; [31 liquidated damages in an amount equivalent to twelve percent (12%) of the amount then outstanding; [4] exemplary damages in the amount of P100,000.00 and [5] attorney's fees of P20,000.00. Lirag Textile Mills, Inc. and Basilio L. Lirag moved for the dismissal of the complaint, but were denied the relief sought. Thus, they filed their answer with counterclaim, denying the existence of any obligation on their part to redeem the preferred stocks, on the ground that the SSS became and still is a preferred stockholder of the corporation so that redemption of the shares purchased depended upon the financial ability of said corporation. Insofar as defendant Basilio Lirag is concerned, it was alleged that his liability arises only if the corporation is liable and does not perform its obligations under the Purchase Agreement. They further contended that no liability on their part has arisen because of the financial condition of the corporation upon which such liability was made to depend, particularly the non-realization of any profit or earned surplus. Thus, the other claims for dividends, liquidated damages and exemplary damages are allegedly without basis. After entering into the Stipulation of Facts above-quoted, the parties filed their respective memoranda and submitted the case for decision. The lower court, ruling that the purchase agreement was a debt instrument, decided in favor of SSS and sentenced Lirag Textile Mills, Inc. and Basilio L. Lirag to pay SSS jointly and severally P1,000,000.00 plus legal interest until the said amount is fully paid; P220,000.00 representing the 8% per annum dividends on the preferred shares plus legal interest up to the time of actual payment; P146,400.00 as liquidated damages; and P10,000.00 as attorney's fees. The counterclaim of Lirag Textile Mills, Inc. and Basilio L. Lirag was dismissed. Hence, this petition. Petitioners assign the following errors: 1. The trial court erred in deciding that the Purchase Agreement is a debt instrument; 2. Respondent judge erred in holding petitioner corporation liable for the payment of the 8% preferred and cumulative dividends on the preferred shares since the purchase agreement provides that said dividends shall be paid from the net profits and earned surplus of petitioner corporation and respondent SSS has admitted that due to losses sustained since -1964, no dividends had been and can be declared by petitioner corporation; 3. Respondent judge erred in sentencing petitioners to pay P146,400.00 in liquidated damages; 4. Respondent judge erred in sentencing petitioners to pay P10,000.00 by way of attorney's fees; 5. Respondent judge erred in sentencing petitioners to pay interest from the time of firing the complaint u to the time of full payment both on the P1,000,000.00 invested by respondent SSS in petitioner's corporation and on the P220,000.00 which the SSS claims as dividends due on its investments; 6. Respondent judge erred in holding that petitioner Lirag is liable to redeem the P1,000,000.00 worth of preferred shares purchased by respondent SSS from petitioner corporation and the 8% cumulative dividend, it appearing that Lirag was merely a surety and not an insurer of the obligation; 7. Respondent judge erred in dismissing the counterclaim of petitioners. The fundamental issue in this case is whether or not the Purchase Agreement entered into by petitioners and respondent SSS is a debt instrument. Petitioners claim that respondent SSS merely became and still is a preferred stockholder of the petitioner corporation, the redemption of the shares purchased by said respondent being dependent upon the financial ability of petitioner corporation. Petitioner corporation, thus, has no obligation to redeem the preferred stocks. On the other hand, respondent SSS claims that the Purchase Agreement is a debt instrument, imposing upon the petitioners the obligation to pay the amount owed, and creating as between them the relation of creditor and debtor, not that of a stockholder and a corporation. We uphold the lower court's finding that the Purchase Agreement is, indeed, a debt instrument. Its terms and conditions unmistakably show that the parties intended the repurchase of the preferred shares on the respective scheduled dates to be an absolute obligation which does not depend upon the financial ability of petitioner corporation. This absolute obligation on the part of petitioner corporation is made manifest by the fact that a surety was required to see to it that the obligation is fulfilled in the event of the principal debtor's inability to do so. The unconditional undertaking of petitioner corporation to redeem the preferred shares at the specified dates constitutes a debt which is defined "as an obligation to pay money at some fixed future time, or at a time which becomes definite and fixed by acts of either party and which they expressly or impliedly, agree to perform in the 2 contract. A stockholder sinks or swims with the corporation and there is no obligation to return the value of his shares by means of repurchase if the corporation incurs losses and financial reverses, much less guarantee such repurchase through a surety. As private respondent rightly contends, if the parties intended it [SSS] to be merely a stockholder of petitioner corporation, it would have been sufficient that Preferred Certificates Nos. 128 and 139 were issued in its name as the preferred certificates contained all the rights of a stockholder as well as certain obligations on the part of petitioner corporation. However, the parties did in fact execute the Purchase Agreement, at the same time that the petitioner corporation issued its preferred stock to the respondent SSS. The Purchase Agreement serves to define the rights and obligations of the parties and to establish firmly the liability of petitioners in case of breach of contract. The Certificates of Preferred Stock serve as additional evidence of the agreement between the parties,

though the precise terms and conditions thereof must be read together with, and regarded as qualified by the terms and conditions of the Purchase Agreement. The rights given by the Purchase Agreement to respondent SSS are rights not enjoyed by ordinary stockholders. This fact could only lead to the conclusion made by the trial court that: The aforementioned rights specially stipulated for the benefit of the plaintiff [respondent SSS] suggest eloquently an intention on the part of the plaintiff [respondent SSS] to facilitate a loan to the defendant corporation upon the latter's request. In order to afford protection to the plaintiff which otherwise is provided by means of collaterals, as the plaintiff exacts in its grants of loans in its ordinary transactions of this kind, as it is looked upon more as a lending institution rather than as an investing agency, the purchase agreement supplied these protective rights which would otherwise be furnished by collaterals to the loan. Thus, the membership in the board is to have a watchdog in the operation of the business of the corporation, so as to insure against mismanagement which may result in losses not entirely unavoidable since payment for purposes of redemption as well as the dividends is expressly stipulated to come from profits and/or surplus. Such a right is never exacted by an ordinary stockholder merely investing in the 3 corporation. Moreover, the Purchase Agreement provided that failure on the part of petitioner to repurchase the preferred shares on the scheduled due dates renders the entire obligation due and demandable, with petitioner in such eventuality liable to pay 12% of the then outstanding obligation as liquidated damages. These features of the Purchase Agreement, taken collectively, clearly show the intent of the parties to be bound therein as debtor and creditor, and not as corporation and stockholder. Petitioners' contention that it is beyond the power and competence of petitioner corporation to redeem the preferred shares or pay the accrued dividends due to financial reverses can not serve as legal justification for their failure to perform under the Purchase Agreement. The Purchase Agreement constitutes the law between the parties and obligations arising ex contractu must be fulfilled 4 in accordance with the stipulations. Besides, it was precisely this eventuality that was sought to be avoided when respondent SSS required a surety for the obligation. Thus, it follows that petitioner Basilio L. Lirag cannot deny liability for petitioner corporation's default. As surety, Basilio L. Lirag is bound immediately to pay respondent SSS the amount then outstanding. The obligation of a surety differs from that of a guarantor in that the surety insures the debt, whereas the guarantor merely insures solvency of the debtor; and the surety undertakes to pay if the principal does not pay, whereas a guarantor merely binds itself to pay 5 if the principal is unable to pay. On the liability of petitioners to pay 8% cumulative dividend, We agree with the observation of the lower court that the dividends 6 stipulated by the parties served evidently as interests. The amount thereof was fixed at 8% per annum and was not made to depend upon or to fluctuate with the amount of profits or surplus realized, a clear indication that the parties intended to give a sure and fixed earnings on the principal loan. The fact that the dividends were supposed to be paid out of net profits and earned surplus, of which there were none, does not excuse petitioners from the payment thereof, again for the reason that the undertaking of petitioner Basilio L. Lirag as surety, included the payment of dividends and other obligations then outstanding. The award of the sum of P146,400.00 in liquidated damages representing 12% of the amount then outstanding is correct, considering that petitioners in the stipulation of facts admitted having failed to fulfill their obligations under the Purchase Agreement. The grant of liquidated damages in the amount stated is expressly provided for in the Purchase Agreement in case of contractual breach. The pronouncement of the lower court for the payment of interests on both the unredeemed shares and unpaid dividends is also in order. Per stipulation of facts, petitioners did not deny the fact of non-payment of dividends nor their failure to purchase the preferred shares. Since these involve sums of money which are overdue, they are bound to earn legal interest from the time of demand, in this case, judicial, i.e., the time of filing the action. Petitioner Basilio L. Lirag is precluded from denying his liability under the- Purchase Agreement. After his firm representation to "pay immediately to the VENDEE the amounts then outstanding" evidencing his commitment as SURETY, he is estopped from denying the same. His signature in the agreement carries with it the official imprimatur as petitioner corporation's president, in his personal capacity as majority stockholder, as surety and as solidary obligor. The essence of his obligation as surety is to pay immediately without qualification whatsoever if petitioner corporation does not pay. To have another interpretation of petitioner Lirag's liability as surety would violate the integrity of the Purchase Agreement as well as the clear and unmistakable intent of the parties to the same. WHEREFORE, the decision in Civil Case No. Q-12275 entitled "Social Security System vs. Lirag Textile Mills, Inc. and Basilio L. Lirag" is hereby affirmed in toto. Costs against petitioners. SO ORDERED.

ANTONIO LITONJUA and ARNOLD LITONJUA, petitioners, vs. THE HON. COURT OF APPEALS, EIGHT DIVISION, WACK WACK GOLF AND COUNTRY CLUB, BENIGNO CUA, ALFONSO CU-UNJIENG, VIVENCIO TINIO, EDUARDO C. LIM, BONIFACIO SISON, AMBROSIO VALDEZ and DANILO DIMAYUGA, in their capacity as members of the Membership Committee, Wack Wack Golf and Country Club, and ED UNSON, BENITO CUA, AGAPITO ROXAS and HENRY TAN, in their capacity as members of the Board of Directors of Wack Wack Golf and Country Club, respondents. KAPUNAN, J.: In this petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioners assail the decision of the Court of Appeals dated 23 March 1995 in CA-G.R. SP No. 26269 which reversed and set aside the Order of the Securities and Exchange Commission en banc dated 13 August 1991 in SEC-AC No. 301. Similarly assailed is the Resolution of the Court of Appeals dated 15 May 1995 denying, for lack of merit, petitioners' motion for reconsideration. Respondent Wack Wack Golf and Country Club is a non-profit corporation which offers sports, recreational and social activities to its members. Petitioner Antonio Litonjua is an Associate Member of said corporation and his son, co-petitioner Arnold Litonjua, is a Junior Member thereof. The individual respondents are the members of the Board of Directors and Membership Committee of Wack Wack. The misunderstanding between the petitioners and respondent corporation stemmed from the following facts: On 10 January 1985, pursuant to its by-laws, respondent club posted the monthly list of delinquent members on its premises. Included therein was petitioner Antonio Litonjua. On 13 January 1985, after Antonio Litonjua discovered that his name was on the January 1985 delinquent list, he proceeded to the Cashier's Office of the club and was informed therein that the reason behind his delinquency was his failure to pay his November 1984 dues (which should have been paid before the end of December 1984 as provided in the corporate by-laws). Antonio Litonjua alleged that he was not able to pay his monthly bill on time because he has not received his statement of account for November 1984. As proof, he presented a sealed envelope which he allegedly presumed to be the November 1984 bill (but was actually the December 1984 statement of account) and explained that he received it only on 12 January 1985. A check with the accounting office, however, revealed that the November 1984 statement of account had already been delivered to Antonio Litonjua's office and was received by his employee allegedly named "Aquino." Petitioner asserted that, he did not receive said account and had no employee by the name of "Aquino." Based on the foregoing, Antonio Litonjua was able to convince the auxiliary clerks in the Cashier's Office to delete his name from the list of delinquent members. Consequently, Antonio Litonjua continued to avail of the club facilities. On 10 February 1985, as Antonio Litonjua was about to tee off at the club's golf course, he was informed by Mr. Ador Rallos, an employee of Wack Wack, that his name was included in the February 1985 delinquent list. Thereupon, he paid his account by presenting Mr. Rallos a blank check and requesting the latter to fill in the amount of his outstanding balance which came up to P4,784.30. On 13 February 1985, Antonio Litonjua was advised of another outstanding balance in the amount of P9,414.00. Again, he issued a check in payment thereof. As a result, his name was deleted from the February 1985 list of delinquent members. However, on the same day Antonio Litonjua received a letter dated 9 February 1985 from the General Manager of Wack Wack, Atty. Vicente F. Felix, informing him of the Membership Committee's decision to suspend him for a period of sixty (60) days, effective 3 February 1985. He allegedly violated Sec. 34(d) of the club's by-laws when he availed of club privileges while listed as a delinquent member. The contents of the suspension letter is hereunder reproduced: February 9, 1985 Mr. Antonio K. Litonjua 370 Aglipay Street Mandaluyong, Metro Manila Dear Mr. Litonjua: I have been instructed by the Membership Committee to advise and remind you of the following Section under our By-Laws, to wit: Sec. 34(d). A member in the delinquent list who, in violation of the rule in Section 34 (a) prohibiting delinquent members from enjoying the privileges of the Club, proceeds to enjoy any Club privileges shall be deemed automatically suspended for a period of 60 days from the date of the violation and if during the automatic suspension period he again proceeds to enjoy any Club privileges the Board shall immediately order the expulsion of said member from the Club. Payment of the delinquent account during the suspension period shall not have the effect of lifting said suspension. On 03 February, and again, on 07 February 1985, you availed or the Club food services and facilities while listed as delinquent, in violation of the above. In view of the foregoing, the Membership Committee has decided and it is with regrets that I have to inform you of their decision to suspend you for sixty (60) days, effective as of 03 February 1985, as provided for in the applicable provision of our Club By-Laws. With equal regrets, I must inform you that the Club employees who were negligent in their duties by accommodating you will also have to be penalized. Very truly yours, FOR THE MEMBERSHIP COMMITTEE (SIGNED) ATTY. VICENTE F. FELIX General Manager cc: The President The Chairman, Membership Committee The Chairman, House Committee Members, Membership Committee 1 File Immediately after receipt of the aforequoted letter, Antonio Litonjua wrote the President of Wack Wack to explain his side and to request that the decision of the Membership Committee be reconsidered. The latter stated: February 13, 1985 WACK WACK GOLF & COUNTRY CLUB Mandaluyong, Metro Manila

Attention: Mr. Ed Unson, President Dear Sir: This has reference to the 9th February letter which I received re- 60 days suspension issued by the Membership Committee to me and for which I would like to clarify the events that transpired prior to my being included in the Delinquent List for November 1984 outstanding account, for your evaluation and reconsideration. 1. Sometime last January 13th, I went to the club cashier's office and presented to Leddy and Jessie a sealed Wack Wack envelope which I presumed contained the November statement of account. I advised the club cashier that same letter was delivered to my office on the 12th January but my name was already posted in the Delinquent List as of January 10. 2. During my conversation with the club cashier, I requested Leddy and Jessie to refer the matter of delayed delivery of statements to the club General Manager to avoid repetition of similar incident. 3. On the 7th of February, having received no reply to my complaint, I went back to the club cashier to inquire on the action/response of the club administration to the matter referred. There was no reply given and instead the same statement of account was return to me, which I found out refers to the December statement. 4. I advised Leddy that the statement handed to me on the 7th February (Thursday) will be process the following day (Friday) and will be ready for delivery by the messenger on the 11th February (Monday). This was acknowledged by Leddy. 5. On the 10th February (Sunday), when I was about to tee-off, my attention was called to the fact that my name is posted in the Delinquent List. I requested an audience with your goodself but unfortunately, you were in the Philippine Open Golf meeting. Unable to see you, I search my wallet for a blank personal check which fortunately I had and tendered the P4,784.30 payment for the November bills. It was allegedly received by a certain Aquino as per delivery receipt shown by Ms. Emma Castillo but we don't have any Aquino in our employ. 6. Considering my payment on the 13th of January in the amount of P9,414.18 and 10th of February, my account as of today is fully paid including the January chits, the statement of which I have not received. In view of the foregoing, I would like to underscore the fact that I did not receive the November statement of account for which my name was posted in the Delinquent List and the attention of the cashier's office was immediately called. Although the November account was reflected in the December statement, the same was delivered only on the 12th of January and my name was posted as early as January 10th or 11th. In the light of the above circumstances, I would like to request you and the Membership Committee to reconsider your decision. Trusting you will extend your consideration on this matter. Thank you. Very truly yours, (Signed) A.J. LITONJUA cc: Chairman, Membership Committee 2 Atty. Vicente F. Felix On 18 February 1985, Antonio Litonjua received a memorandum reiterating his 60-day suspension from "all privileges accorded (his) 3 membership, (his) dependents and guests on the use of the golf course and other club facilities." Thus, co-petitioner Arnold Litonjua, Antonio Litonjua's son, and a junior member of the club was, likewise, prevented from enjoying the club's facilities. On 25 February 1985, Antonio Litonjua sent the President of Wack Wack another letter contesting his and his son's suspension. He claimed that the whole affair had caused them humiliation and thus they reserve the right to seek restitution from Wack Wack for 4 actual and moral damages. On 5 March 1985, Atty. Vicente F. Felix wrote the Board of Directors of Wack Wack the following letter: 5 March 1985 The Board of Directors Wack Wack Golf & Country Club Mandaluyong, Metro Manila Gentlemen: On March 1, 1985, Mr. Antonio K. Litonjua came to my office, again trying to thresh out and clarify the true facts that transpired, which resulted in his suspension by the Membership Committee which was subsequently approved by the Board of Directors. Attached herewith are his two (2) letters dated February 13 and 25, 1985, which are self-explanatory. He requested us to conduct a more detailed investigation on the delay in the delivery of his Statement of Account for the month of November which was delivered and received on January 12, 1985, per attached photocopy of the delivery receipt. He further requested for verification on his statement that he requested Oscar Santos to temporary delete his name from the delinquent list. Subsequently on February 10, 1985, he issued a blank check which he supposed was to be payment of the account in question. All the allegations contained in the letter of Mr. Antonio K. Litonjua has been verified and including Oscar Santos, Leddie Santos and Ador Rallos affirmed to the truthfulness of such statement, when inquiries was made with the Cashier's Office. It was verified that Mr. Antonio K. Litonjua's name was really deleted from the delinquent list of November as requested and therefore the Club & employees could no way know that Mr. Litonjua was in delinquency. He is requesting for reconsideration of the Board's decision. Very truly yours, (Signed) VICENTE F. FELIX 5 General Manager On 28 March 1985, petitioners sent a letter to Wack Wack demanding restitution in the sum of P5,000,000.00 for their "wrongful 6 and arbitrary suspension." When Wack Wack failed to respond, petitioners filed a complaint with the Securities and Exchange Commission (SEC) for the nullification of their suspension and for actual, moral and exemplary damages. On 24 June 1985, petitioners filed an amended complaint to include as party respondents the members of both the Board of Directors and Membership Committee of Wack Wack. On 26 March 1990, SEC Hearing Officer Antonio M. Esteves rendered his decision in favor of petitioners. The dispositive portion thus read: WHEREFORE, finding the evidence for the complainants preponderant, this Commission hereby declares the suspension of complainants illegal and orders respondents, jointly and severally, to pay the complainants the sum of FOUR MILLION (P4,000,000.00) PESOS, as moral damages, ONE HUNDRED TEN THOUSAND (P110,000.00) PESOS as actual and compensatory damages and FIVE HUNDRED THOUSAND (P500,000.00) PESOS as and by way of attorney's fees.

SO ORDERED. Private respondents filed a motion for reconsideration which, however, was denied in the Order of Hearing Officer Esteves dated 31 May 1990. Private respondents' next recourse was to appeal to the SEC en banc. However, the latter, in its Order dated 13 August 1990, affirmed the findings of Hearing Officer Esteves but reduced the amount of damages awarded. The dispositive portion of the Order stated thus: WHEREFORE, the Commission hereby declares the suspension of complainants illegal and orders respondent directors, jointly and severally, to pay the complainants the sum of ONE HUNDRED THOUSAND (P100,000.000) PESOS as moral damages, TWENTY FIVE THOUSAND (P25,000.00) PESOS as exemplary damages, and TWENTY FIVE THOUSAND (P25,000.00) PESOS by way of attorney' s fees. 8 SO ORDERED. Unfazed by their twin setbacks, private respondents filed a petition for review with the Court of Appeals. Thereafter, on 23 March 1995, the Court of Appeals rendered its decision reversing the order of the SEC en bancand upholding the suspension of petitioners. The Court of Appeals declared: WHEREFORE, judgment is hereby rendered, REVERSING and SETTING ASIDE the Decision of August 13, 1991 of the SEC en banc in SEC-AC No. 301, and DECLARING the suspension of respondents Antonio Litonjua and Arnold Litonjua as members of the Wack Wack Golf and Country Club lawful, being in accordance with its By-Laws. 9 IT IS SO ORDERED. Petitioners' motion for reconsideration was denied for lack of merit in the Court of Appeals' resolution dated 15 May 1995. Hence, this petition which contains the following assignment of errors: A RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS WERE VALIDLY SUSPENDED DESPITE SUBSTANTIAL EVIDENCE TO THE CONTRARY. B RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER ANTONIO LITONJUA HAD BEEN DULY SERVED WITH THE 10 STATEMENT OF ACCOUNT DESPITE SUBSTANTIAL EVIDENCE TO THE CONTRARY. The question that must primarily be answered is whether or not the statement of account for November 1984 was duly delivered to and received by Antonio Litonjua's office on 12 December 1984. Obviously, this is a factual issue but the Court is constrained to resolve the same due to the incongruent findings of the SEC and the Court of Appeals The maxim that the factual findings of the Court of Appeals are binding on the Supreme Court is not absolute. There are various exceptions to the rule, one of which is when the factual findings of the Court of Appeals are contrary to those of 11 the trial court (or administrative body, as the case may be). Private respondents maintain that Antonio Litonjua's bill for November 1984 was duly delivered to his office at 370 Blumentritt St., Mandaluyong by Mr. Victor Limbo of Varied Services, Inc. the messengerial service contracted by Wack Wack to deliver various mail matter to its members) and was duly received by one of his employees on 12 December 1984, as indicated on the Special by Delivery 12 Receipt that private respondents presented in evidence. Antonio Litonjua, on the other hand, vehemently contends that he did not receive his November 1984 statement of account from Wack Wack on 12 December 1984. He disparages the testimony of the messenger, Mr. Victor Limbo, for his failure to recall during the trial the face and the gender of the person who received the statement of account. What is more damaging, he adds, is that at the beginning said witness testified that he delivered the monthly bill to Antonio Litonjua himself. He, likewise, asserts that he has no employee by the name of "Aquino," the signature that was on the Special Delivery Receipt. Petitioners aver that the factual findings of the SEC Hearing Officer, affirmed by the SEC en banc, were based on substantial evidence duly proven during the trial. They thus sum up their arguments by quoting the fundamental rule that "conclusions and findings of fact by a trial court are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons because the trial court is in a better 13 position to examine real evidence, as well as to observe the demeanor of the witnesses while testifying in the case." Petitioners' claims are unfounded. The SEC, in the 26 March 1990 decision of its Hearing Officer, "gravely doubted," and consequently discredited Mr. Limbo's testimony due to his alleged inconsistent statements. According to the SEC, Mr. Limbo testified that he delivered the statement of account directly to Antonio Litonjua but later contradicted himself by saying that he could no longer remember the gender of the 14 person who received the bill. The SEC committed an error in apprehending the facts. We have judiciously studied Mr. Limbo's testimony on record and we failed to find therein any statement that he delivered the November 1984 account to Antonio Litonjua himself. Mr. Limbo was consistent in his testimony to the effect that on 12 December 1984 he delivered the November 1984 statement of account at the office of 15 Antonio Litonjua and it was received by an employee of the latter who signed the Special Delivery Receipt. On cross-examination, Mr. Limbo did not waver from his testimony that Antonio Litonjua's November 1984 bill was duly received by the latter's employee: xxx xxx xxx ATTY. DAMASO Q When you delivered this, did you ask for the name of the person receiving it? A I cannot remember any more. Q You did not inquire whether he is an employee of Mr. Litonjua or not? A I asked and he said he is an employee. Q So, you asked him. This person is a man, are you very sure of that? A I cannot remember any more. Q You cannot remember if he is a man or a woman but you know that you asked him if he is an employee? 16 A Yes, Sir. xxx xxx xxx As to Mr. Limbo's failure to recall the face and gender of the person who received the statement of account, we concur with the findings of the Court of Appeals: . . . The failure to recall whether the employee was male or female is not significant, and may be naturally attributed to lapse of memory on the part of the messenger. The delivery of the mail matter took place in December 1984 and the witness testified in July

1989; besides the messenger must have delivered mail matters for Wack-Wack to so many of its members, such that it would be next to impossibility for him to remember distinctly the specific genders of the individual persons receiving the mail matters from him. We thus hold that the minor lapse in the testimony of the messenger, a fourth grader, should not detract from his credibility as 17 a truthful witness. Against the testimony of Mr. Victor Limbo, coupled with documentary evidence in the form of the signed Special Delivery Receipt, petitioners presented no proof other than the bare denial of Antonio Litonjua that he never received his statement of account for November 1984 and that he has no "Aquino" in his employ. Petitioners could have readily offered in evidence a record or list of Antonio Litonjua's employees to prove that he has no employee by the name of "Aquino" but, strangely, beyond his mere say-so no 18 such evidence was adduced. In Trans-Pacific Industrial Supplies, Inc. v. CA, we ruled in this wise: . . . As for the records, there is actually none submitted by petitioner to prove that the contested amount,i.e., the interest, has been paid in full. In civil cases, the party that alleges a fact has the burden of proving it (Imperial Victory Shipping Agency vs. NLRC, 200 SCRA 178 [1991]). Petitioner could have easily adduced the receipts corresponding to the amounts paid inclusive of the interest to prove that it has fully discharged its obligation but it did not. Mr. Victor Limbo has been delivering various mail matter for Wack Wack to the members of the latter in Mandaluyong (including 19 Antonio Litonjua) in the regular performance of his duties as messenger of Varied Services, Inc. Petitioners' bare denial, no matter how staunch, cannot thus prevail over the straightforward testimony of Mr. Limbo as supported by the signed Special Delivery Receipt. It is clear from the foregoing discussion that the factual findings of the SEC are not supported by substantial evidence. Hence, it is the exception, rather than the general rule that factual findings of administrative agencies are binding upon the courts, that should 20 apply. The exceptions are well-stated in Datu Tagoranao Benito v. SEC: Well-settled is the rule that the findings of facts of administrative bodies will not be interfered with by the courts in the absence of grave abuse of discretion on the part of said agencies, or unless the aforementioned findings are not supported by substantial evidence. (Gokongwei, Jr. vs. SEC, 97 SCRA 78.) In a long string of cases, the Supreme Court has consistently adhered to the rule that decisions of administrative officers are not to be disturbed by the courts except when the former have acted without or in excess of their jurisdiction or with grave abuse of discretion (Sichangco vs. Board of Commissioners of Immigration, 94 SCRA 61). Thus, in the case of Deluao vs. Casteel (L-21906, Dec. 24, 1968, 26 SCRA 475, 496, citing Pajo vs. Ago, et al., L-15414, June 30, 1960) and Genitano vs. Secretary of Agriculture and Natural Resources, et al., (L-21167, March 31, 1966), the Supreme Court held that: . . . Findings of fact by an administrative board or official, following a hearing, are binding upon the courts and will not be disturbed except where the board or official has gone beyond his statutory authority, exercised unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave abuse of discretion. . . . (Emphasis ours.) Similarly, in Tabaco v. CA, 21 we declared: . . . Almost as well-recognized as the general rule is the exception that the factual findings of the trial court may nonetheless be reversed by the Court of Appeals if by the evidence on record, or lack of it, it appears that the trial court erred. . . . In the case at bar, therefore, the Court of Appeals was justified in setting aside the findings of the SEC. We now proceed to the main issue. Petitioners, in support of their contention that they were illegally suspended by Wack Wack, ratiocinated as follows: 1. Petitioners' 60-day suspension is illegal and; therefore, void. Section 34 of respondent Club's By-Laws states: . . . (a) The Treasurer shall bill the members monthly. As soon as possible after the end of every month, a statement showing the account or bill of a member for said amount will be prepared and sent to him. If the bill of any member remains unpaid by the end of the month following that in which the bill was incurred, his name will be posted as delinquent the following day and while posted, he will not be allowed to enjoy the privileges of the club. A member cannot avail of his deposit to pay his bill unless he resigns. xxx xxx xxx (d) A member in the delinquent list who, in violation of the rule in Section 34 (a) prohibiting delinquent members from enjoying the privileges of the club, proceeds to enjoy any club privileges shall be deemed automatically suspended for a period of 60 days from the date of the violation, and if during the automatic suspension period he again proceeds to enjoy the club privileges, the Board shall immediately order the expulsion of said member from the club. Payment of the delinquent account during the suspension period shall not have the effect of lifting said suspension. (Emphasis supplied; Exh. "K-15") Since the member's act of enjoying Club privileges while his name is posted in the delinquent list merits a 60-daysuspension, it follows that if his name is no longer in such list, the 60-day suspension cannot be validly imposed. "As correctly pointed out by the Hearing Officer, (f)ailure of a member to pay his club dues does not automatically expose him to sanctions expressly provided for in the corporation's by-laws. In other words, it is a condition sine qua non that he must first be posted as delinquent before any 22 sanction may be imposed upon him." (SEC en banc's Decision dated 13 August 1991 [Annex "D"], p. 11) Following this framework that a member must first be posted in the delinquent list before he may be suspended for violating the prohibition against using club facilities while delinquent the SEC in its 13 August 1991 Order, found that on 13 January 1985 23 Antonio Litonjua's name was indeed deleted from the posted list of delinquent members for January 1985. Most telling was the letter of Atty. Vicente F. Felix, General Manager of Wack Wack, to the Board of Directors dated 5 March 1985, the pertinent portion of which states that: All the allegations contained in the letter of Mr. Antonio K. Litonjua has been verified and including Oscar Santos, Leddie Santos and Ador Rallos affirmed to the truthfulness of such statement, when inquiries was made with the Cashier's Office. It was verified that Mr. Antonio K. Litonjua's name was really deleted from the delinquent list of November as requested and therefore the Club & 24 employees could no way know that Mr. Litonjua was in delinquency. He is requesting for reconsideration of the Board's decision. Hence, the Commission concluded, Sec. 34(d) of the club's by-laws, which metes out an automatic 60-day suspension on members on the delinquent list who continue to avail of club privileges, does not apply to petitioners because when Antonio Litonjua used the club facilities on 3 and 7 February 1985, he was no longer included in the posted list of delinquent members. Consequently, the 25 automatic suspension imposed by Wack Wack on Antonio Litonjua (including his son Arnold Litonjua), was illegal. We disagree with the SEC on the ground that its ruling focused solely on the factual deletion of Antonio Litonjua's name from the list of delinquent club members. The Commission's approach was too rigid and blindly technical. That the auxiliary clerks in the Cashier's office of Wack Wack actually crossed out Antonio Litonjua's name from the delinquent list is not in dispute. However, the SEC should have considered and delved deeper into the reason and the circumstances behind the deletion.

As correctly determined by the Court of Appeals, it was through misrepresentation that Antonio Litonjua was able to have his name deleted from the list of delinquent members. He insisted that he did not receive his statement of account for November 1984 on 12 December 1984. As previously discussed, however, this claim turned out to be unsubstantiated. Another indication of Antonio Litonjua' s duplicity is the sealed envelope he presented at the Cashier's office on 13 January 1985, the same day he found out he was on the January 1985 delinquent list. He told the auxiliary clerks that he received his account (contained in the sealed envelope) only the day before or on 12 January 1985 and, therefore, since the bill was delivered late he should not be included in the posted list of delinquent members. With this explanation coupled with the sealed envelope Antonio Litonjua turned in, he managed to persuade the clerks to cross out his name from the delinquent list. Later, however, when the sealed envelope was opened, it was discovered that it contained not the statement of account for November 1984 but the bill for December 1984. We view with skepticism Antonio Litonjua's claim that he was unaware that the sealed envelope contained his December 1984 bill and that he simply presumed it to contain his account for November 1984. It must be recalled that at the accounting office of Wack Wack, he was informed that his November 1984 bill was delivered to his office in Mandaluyong. If he thought that the sealed envelope contained his November 1984 bill, he could have simply opened said envelope at the presence of the auxiliary clerks to prove, right there and then, the veracity of his claims. But, strangely, he did not. Hence, since it was under false pretenses that Antonio Litonjua managed to have his name deleted from the list of delinquent members the same has no force and effect. Consequently, being a delinquent member in the posted list and having used club facilities while posted as such, the imposition of suspension by respondents on Antonio Litonjua (and his son Arnold Litonjua) pursuant to Sec. 34 (d) of the club by-laws, was valid and legal. In view of the foregoing, it is immaterial to discuss whether or not the auxiliary clerks have the authority to delete Antonio Litonjua's name from the list of delinquent members. As testified to by Mr. Jessie Casiguran, one of the auxiliary clerks of Wack Wack, it is their standard operating procedure that when a member pays his overdue account in full, they delete the member's name from the delinquent list even without the prior authorization of the Membership Committee and the Board of Directors which is the required 26 procedure in the club's by-laws. Nonetheless, even if the auxiliary clerks have this authority, their deletion of Antonio Litonjua's name in the case at bar was invalid for having been accomplished through false representation. On the suspension of Arnold Litonjua, a Junior Member of Wack Wack, petitioners aver that: 5.1 The only restriction on the rights and privileges of a Junior Member is that contained in Section 6 (g) of the Revised By-Laws, which states that: ". . . when parents cease to be members, the junior membership of their children is likewise terminated." No similar provision exists with regard to suspension. It cannot be claimed that the provision applies to suspension of the parentmembers because the reasonable interpretation of any ambiguity should always be for the least restriction of rights. Clearly, 27 petitioner Arnold Litonjua was unlawfully and arbitrarily suspended. On this particular matter, the SEC en banc in its 13 August 1991 Order, ruled as follows: The third issue is whether or not the suspension of an associate member automatically results in the suspension of a junior member. This particular issue may be resolved through an examination of the By-laws of Wack Wack Golf and Country Club. Under the Bylaws, a junior member is the son or daughter of a proprietary member or an associate member in good standing whose age is between 10 to 22, single and elected as such by the Board. Moreover, junior membership ceases upon the termination of membership of parents. It is clear that one of the requisites for junior membership is that the parent's membership is in good standing. This requirement seems to be a condition imposed upon junior membership such that when an associate or proprietary member is suspended, the junior membership attached thereto is likewise suspended because the parent membership cannot be deemed in good standing. To subject the By-laws to another interpretation would open the door to possible circumvention of the suspension meted upon the proprietary or associate member. If a junior member is allowed to avail of his club privileges when either of his parents is suspended, then the latter may avail of club privileges through the former thereby rendering the suspension nugatory. Nevertheless, the fact that the suspension of Antonio Litonjua is hereby declared illegal renders the suspension of Arnold 28 Litonjua moot and academic. We see no reason to disturb the findings of the Commission. From the definition of a junior member in Section 6(f) of the club's by29 laws, it is logical to conclude that the children's membership, as junior members, is dependent upon the membership of their parents. Hence, if the parent member is suspended, the suspension includes their children who are junior members. This "dependency" was admitted by Arnold Litonjua who testified as follows: xxx xxx xxx Q You said that you get separate billing once a month? A Yes, sir. Q And in whose name is this billings issued? A Mr. Antonio K. Litonjua. Q In the name of your father? A Yes. Q When you say separate billings, you mean to say that your father has his own billings? A Yes. Q Both billings are in the name of your father? A Yes, sir. Q And it is your father who has to pay these billings which pertains to you? 30 A Yes, sir. All told, for lack of merit, the petition must fail. WHEREFORE, premises considered, this petition for review is hereby DENIED and the Decision of the Court of Appeals dated 23 March 1995 is hereby AFFIRMED. SO ORDERED.

RICARDO A. LLAMADO, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES,respondent. DECISION TORRES, JR., J.: [1] Before us is a petition to review the decision of the Court of Appeals which affirmed the decision of the Regional Trial Court of Manila in Criminal Case No. 85-38653 convicting petitioner of Violation of Batas Pambansa Blg. 22, otherwise known as the Bouncing Checks Law, and sentencing him to suffer imprisonment of one (1) year of prision correccional and to pay a fine of P200,000.00 with subsidiary imprisonment in case of insolvency, and to reimburse Leon Gaw the amount of P186,500.00 plus the costs of suit. The facts of the case, as found by the Court of Appeals, are as follows: Accused-appellant, Ricardo Llamado, together with Jacinto Pascual, was charged with violation of Batas Pambansa Blg. 22 and pleaded not guilty of the crime charged. Accused Jacinto Pascual remained at large. Thus trial on the merits was conducted against accused-appellant, Ricardo Llamado, only. Accused Ricardo Llamado and his co-accused Jacinto Pascual were the Treasurer and President, respectively, of the Pan Asia Finance Corporation. As found by the trial court, private complainant, Leon Gaw, delivered to accused the amount of P180,000.00, with the assurance of Aida Tan, the secretary of the accused in the corporation, that it will be repaid on 4 November 1983, plus interests thereon at 12% plus a share in the profits of the corporation, if any. Upon delivery of the money, accused Ricardo Llamado took it and placed it inside a deposit box. Accused Jacinto Pascual and Ricardo Llamado signed Philippine Trust Company Check No. 047809, postdated 4 November 1983, in the amount of P186,500.00 in the presence of private complainant. The aforesaid check was issued in payment of the cash money delivered to the accused by private complainant, plus interests thereon for sixty (60) days in the amount of P6,500.00. On 4 November 1983, private complainant deposited the check in his current account with the Equitable Banking Corporation which later informed the complainant that said check was dishonored by the drawee bank because payment was stopped, and that the check was drawn against insufficient funds. Private complainant was also notified by the Equitable Banking Corporation that his current account was debited for the amount of P186,500.00 because of the dishonor of the said check. Private complainant returned to Aida Tan to inform her of the dishonor of the check. Aida Tan received the check from private complainant with the assurance that she will have said check changed with cash. However, upon his return to Aida Tan, the latter informed him that she had nothing to do with the check. Thereupon, private complainant went to accused Ricardo Llamado on 11 November 1983 to inform him of the dishonor of the check. Accused offered in writing to pay private complainant a portion of the amount equivalent to 10% thereof on 14 or 15 November 1983, and the balance to be rolled over for a period of ninety (90) days. This offer was accepted by private complainant. Accused, however, failed to remit to private complainant the aforesaid 10% on or before 15 November 1983 and to roll over the balance of the money. Private complainant then demanded from the accused the payment of P186,500.00 but accused failed to pay and instead, accused offered to return to private complainant only 30% of his money which was refused by the latter. Thus, the filing of the complaint for [2] violation of Batas Pambansa No. 22 against the accused. On the other hand, petitioners version of the relevant facts, is as follows: It was the practice in the corporation for petitioner to sign blank checks and leave them with Pascual so that Pascual could make disbursements and enter into transactions even in the absence of petitioner. One of the checks which petitioner signed in blank and gave to Pascual is the check in question, Exhibit A. The check was later issued to private complainant, filled up with the amount P186,500.00 and date November 4, 1983. The check was dishonored on November 7, 1983 when private complainant presented it for payment because its payment had been stopped (Exhibits A-6 and A-7). However, there were also no sufficient funds in the account to cover the amount of the check. Private complainant went to see Aida Tan, the Secretary of Pan-Asia Finance Corporation, about the dishonor of the check because she was the one who handled *sic+ the check and gave it to me. He returned the check to Aida Tan who gave him a receipt for it (Exhibit C), and promised to return the cash money. However, she did not do so. Instead, she returned the check to private complainant (pp. 9-11, tsn, January 6, 1986; p. 9, tsn, January 6, 1986). On November 11, 1983, private complainant entered into an agreement (Exhibit H) with petitioner whereby Pan-Asia Finance Corporation would pay private complainant 10% of the P186,500.00 by November 14, or 15, and the balance will be rolled over for 90 days (pp. 1-4, tsn, June 30, 1986). Private respondent was not however paid as agreed upon. [3] In late 1985, petitioner was charged with violation of BP 22 under the following Information: xxx After trial on the merits, the trial court rendered judgment convicting the accused of violation of Batas Pambansa No. 22, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered finding the Accused Ricardo A. Llamado guilty of Violation of Batas Pambansa No. 22 and hereby sentences him to suffer imprisonment for a period of one (1) year of prision correccional and to pay a fine of P200,000.00, with subsidiary imprisonment in case of insolvency. The Accused is likewise condemned to reimburse Leon Gaw the aforesaid amount of P186,500.00 plus the costs of suit. SO ORDERED. On appeal, the Court of Appeals affirmed the trial courts decision. In this petition, petitioner alleges that: 1. respondent Court of Appeals erred because it convicted petitioner of the charge of violation of Batas Pambansa Blg. 22 although the check was only a contingent payment for investment which had not been proven to be successful, thus the check was not issued to apply on account or for value within the contemplation of the batas; 2. respondent Court of Appeals erred because it convicted petitioner of the charge for merely signing the check in question without being actually involved in the transaction for which the check was issued, in disregard of the pronouncement of this Court in Dingle vs. IAC, 148 SCRA 595; 3. respondent Court of Appeals erred because it refused to apply the novation theory recognized by this Court in Ong v. Court of Appeals, 124 SCRA 578, and Guingona, Jr. v. City Fiscal of Manila, 128 SCRA 577, despite admission by private complainant that

before the charge was filed in court or even the prosecutor he had entered into a new agreement with petitioner supplanting the check in question; 4. respondent Court of Appeals erred because it held petitioner personally liable for the amount of the check in question, although it was a check of the Pan Asia Finance Corporation and he signed the same in his capacity as Treasurer of the corporation. The petition is without merit. For clarity, petitioners second allegation shall be discussed first. Petitioner argues that respondent court erred in disregarding the [4] pronouncement in Dingle vs. IAC, that absent knowledge by the maker or drawer of the issuance of a check much less of the transaction and the fact of dishonor, the accused should be acquitted. The respondent court did not err. In Dingle vs. IAC, the petitioner was acquitted because: 1.) from the testimony of the sole prosecution witness, it was established that he dealt exclusively with petitioners co-signatory; 2.) nowhere in the prosecution witness testimony was the name of petitioner ever mentioned in connection with the transaction and the issuance of the check; and, 3.) the prosecution witness therein categorically stated that it was Nestor Dingle, petitioners co-signatory who received his two letters of demand. These lent credence to the testimony of petitioner that she signed the questioned checks in blank together with her husband without any knowledge of its issuance, much less of the transaction and the fact of dishonor. Moreover, while Paz Dingle and her husband Nestor Dingle owned the business, the business was managed by Nestor, petitioner Pazs co-signatory. The above circumstances in Dingle vs. IAC do not obtain in the case at bar. Here, the private complainant testified that upon delivery of the money, petitioner took it and placed it inside a deposit box; that Jacinto Pascual and petitioner Ricardo Llamado signed the questioned check, postdated November 4, 1983, in the amount of P186,500.00 in the presence of private complainant; [5] notice of the fact of dishonor of the check was made on petitioner, who offered in writing to pay private complainant a portion of the amount equivalent to 10% thereof on 14 or 15 November 1983, and the balance to be rolled over for a period of 90 days. Petitioner denies knowledge of the issuance of the check without sufficient funds and involvement in the transaction with private complainant. However, knowledge involves a state of mind difficult to establish. Thus, the statute itself creates a prima facie presumption, i.e., that the drawer had knowledge of the insufficiency of his funds in or credit with the bank at the time of the [6] issuance and on the checks presentment for payment. Petitioner failed to rebut the presumption by paying the amount of the [7] check within five (5) banking days from notice of the dishonor. His claim that he signed the check in blank which allegedly is common business practice, is hardly a defense. If as he claims, he signed the check in blank, he made himself prone to being charged with violation of BP 22. It became incumbent upon him to prove his defenses. As Treasurer of the corporation who signed the check in his capacity as an officer of the corporation, lack of involvement in the negotiation for the transaction is not a defense. Petitioner alleges that the respondent court erred when it convicted petitioner of violation of BP 22 when the check was only a contingent payment for investment which had not been proven to be successful, thus the check was not issued to apply on account or for value within the contemplation of the batas. This contention is untenable. The check was issued for an actual valuable consideration of P180,000.00, which private complainant handed to Aida Tan, a secretary in petitioners office. In fact, petitioner admits that private complainant made an investment in said amount with Pan-Asia Finance Corporation. Petitioner contends that the money which private complainant gave the corporation was intended for investment which they agreed will be returned to private complainant with interests, only if the project became successful. But then, if this were true, the check need not have been issued because a receipt and their written agreement would have sufficed. True, it is common practice in commercial transactions to require debtors to issue checks on which creditors must rely as guarantee of payment, or as evidence of indebtedness, if not a mode of payment. But to determine the reason for which checks are issued, or the terms and conditions for their issuance, will greatly erode the faith the public reposes in the stability and commercial value of [8] checks as currency substitutes, and bring about havoc in trade and in banking communities. So, what the law punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating to its issuance. The [9] mere act of issuing a worthless check is malum prohibitum. With regard to petitioners third allegation, the novation theory recognized by this Court in certain cases, does not apply in the case at bar. While private complainant agreed to petitioners offer to pay him 10% of the amount of the check on November 14 or 15, 1983 and the balance to be rolled over for 90 days, this turned out to be only an empty promise which effectively delayed private complainants filing of a case for Violation of BP 22 against petitioner and his co-accused. As admitted by petitioner in his Memorandum, private complainant was never paid as agreed upon. Petitioners argument that he should not be held personally liable for the amount of the check because it was a check of the Pan Asia Finance Corporation and he signed the same in his capacity as Treasurer of the corporation, is also untenable. The third paragraph of Section 1 of BP Blg. 22 states: Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act. IN VIEW WHEREOF, the petition is hereby DENIED and the decision of respondent court AFFIRMED in toto. SO ORDERED.

LOPEZ REALTY, INC., AND ASUNCION LOPEZ GONZALES, petitioners, vs. FLORENTINA FONTECHA, ET AL., AND THE NATIONAL LABOR RELATIONS COMMISSION, respondents. PUNO, J.: 1 The controversy at bench arose from a complaint filed by private respondents, namely, Florentina Fontecha, Mila Refuerzo, Marcial Mamaril, Perfecto Bautista, Edward Mamaril, Marissa Pascual and Allan Pimentel, against their employer Lopez Realty Incorporated (petitioner) and its majority stockholder, Asuncion Lopez Gonzales, for alleged non-payment of their gratuity pay and other 2 benefits. The case was docketed as NLRC-NCR Case No. 2-2176-82. Lopez Realty, Inc., is a corporation engaged in real estate business, while petitioner Asuncion Lopez Gonzales is one of its majority shareholders. Her interest in the company vis-a-vis the other shareholders is as follows: 1 Asuncion Lopez Gonzales 7831 shares 2 3 4 5 Teresita Lopez Marquez Arturo F. Lopez Rosendo de Leon Benjamin Bernardino 7830 7830 4 1 shares shares shares share

6 Leo Rivera 1 share Except for Arturo F. Lopez, the rest of the shareholders also sit as members of the Board of Directors. 3 As found by the Labor arbiter. sometime in 1978, Arturo Lopez submitted a proposal relative to the distribution of certain assets of petitioner corporation among its three (3) main shareholders. The proposal had three (3) aspects, viz: (1) the sale of assets of the company to pay for its obligations; (2) the transfer of certain assets of the company to its three (3) main shareholders, while some other assets shall remain with the company; and (3) the reduction of employees with provision for their gratuity pay. The proposal was deliberated upon and approved in a special meeting of the board of directors held on April 17, 1978. It appears that petitioner corporation approved two (2) resolutions providing for the gratuity pay of its employees, viz: (a) Resolution No. 6, Series of 1980, passed by the stockholders in a special meeting held on September 8, 1980, resolving to set aside, twice a year, a certain sum of money for the gratuity pay of itsretiring employees and to create a Gratuity Fund for the said contingency; and (b) Resolution No. 10,Series of 1980, setting aside the amount of P157,750.00 as Gratuity Fund covering the period from 1950 up to 1980. Meanwhile, on July 28, 1981, board member and majority stockholder Teresita Lopez Marquez died. On August 17, 1981, except for Asuncion Lopez Gonzales who was then abroad, the remaining members of the Board of Directors, namely: Rosendo de Leon, Benjamin Bernardino, and Leo Rivera, convened a special meeting and passed a resolution which reads: Resolved, as it is hereby resolved that the gratuity (pay) of the employees be given as follows: (a) Those who will be laid off be given the full amount of gratuity; (b) Those who will be retained will receive 25% of their gratuity (pay) due on September 1, 1981, and another 25% on January 1, 1982, and 50% to be retained by the office in the meantime. (emphasis supplied) Private respondents were the retained employees of petitioner corporation. In a letter, dated August 31, 1981, private respondents requested for the full payment of their gratuity pay. Their request was granted in a special meeting held on September 1, 1981. The relevant, portion of the minutes of the said board meeting reads: In view of the request of the employees contained in the letter dated August 31, 1981, it was also decided that, all those remaining employees will receive another 25% (of their gratuity) on or before October 15, 1981 and another 25% on or before the end of November, 1981 of their respective gratuity. At that, time, however, petitioner Asuncion Lopez Gonzales was still abroad. Allegedly, while she was still out of the country, she sent a cablegram to the corporation, objecting to certain matters taken up by the board in her absence, such as the sale of some of the assets of the corporation. Upon her return, she flied a derivative suit with the Securities and Exchange Commission (SEC) against majority shareholder Arturo F. Lopez. Notwithstanding the "corporate squabble" between petitioner Asuncion Lopez Gonzales and Arturo Lopez, the first two (2) installments of the gratuity pay of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista were paid by petitioner corporation. Also, petitioner corporation had prepared the cash vouchers and checks for the third installments of gratuity pay of said private respondents (Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista). For some reason, said vouchers were cancelled by petitioner Asuncion Lopez Gonzales. Likewise, the first, second and third installments of gratuity pay of the rest of private respondents, particularly, Edward Mamaril, Marissa Pascual and Allan Pimentel, were prepared but cancelled by petitioner Asuncion Lopez Gonzales. Despite private 4 respondents' repeated demands for their gratuity pay, corporation refused to pay the same. 5 On July 23, 1984, Labor Arbiter Raymundo R. Valenzuela rendered judgment in favor of private respondents. Petitioners appealed the adverse ruling of the Labor arbiter to public respondent National Labor Relations Commission. The appeal focused on the alleged non-ratification and non-approval of the assailed August 17, 1981 and September 1, 1981 Board Resolutions during the Annual Stockholders' Meeting held on March 1, 1982. Petitioners further insisted that the payment of the gratuity to some of the private respondents was a mere "mistake" on the part of petitioner corporation since, pursuant to Resolution No. 6, dated September 8, 1980, and Resolution No. 10, dated October 6, 1980, said gratuity pay should be given only upon the employees' retirement. On November 20, 1985, public respondent, through its Second Division, dismissed the appeal for lack of merit, the pertinent portion 6 of which states: We cannot agree with the contention of respondents (petitioners') that the Labor Arbiter a quocommitted abuse of discretion in his decision. Respondents' (petitioners') contention that, the two (2) resolutions dated 17 August 1981 and 1 September 1981 . . . which were not approved in the annual stockholders meeting had no force and effect, deserves scant consideration. The records show that the stockholders did not revoke nor nullify these resolutions granting gratuities to complainants.

On record, it appears that the said resolutions arose from the legitimate creation of the Board of Directors who steered the corporate affairs of the corporation. . . . Respondents' (petitioners') allegation that the three (3) complainants, Mila E. Refuerzo, Marissa S. Pascual and Edward Mamaril, who had resigned after filing the complaint on February 8, 1982, were precluded to (sic) receive gratuity because the said resolutions referred to only retiring employee could not be given credence. A reading of Resolutions dated 17 August 1981 and 1 September 1981 disclosed that there were periods mentioned for the payment of complainants' gratuities. This disproves respondents' argument allowing gratuities upon retirement of employees. Additionally, the proposed distribution of assets (Exh. C-1) filed by Mr. Arturo F. Lopez also made mention of gratuity pay, " . . . (wherein) an employee who desires to resign from the LRI will be given the gratuity pay he or she earned." (Emphasis supplied) Let us be reminded, too, that the complainants' resignation was not voluntary but it was pressurized (sic) due to "power struggle" which was evident between Arturo Lopez and Asuncion Gonzales. The respondents' (petitioners') contention of a mistake to have been committed in granting the first two (2) installments of gratuities to complainants Perfecto Bautista, Florentina Fontecha, Marcial Mamaril and Mila Refuerzo, (has) no legal leg to stand on. The record is bereft of any evidence that the Board of Directors had passed a resolution nor is there any minutes of whatever nature proving mistakes in the award of damages (sic). With regard to the award of service incentive leave and others, the Commission finds no cogent reason to disturb the appealed decision. We affirm. WHEREFORE, let the appealed decision be, as it is hereby, AFFIRMED and let the instant appeal (be) dismissed for lack of merit. SO ORDERED. 7 Petitioners reconsidered. In their motion for reconsideration, petitioners assailed the validity of the board resolutions passed on August 17, 1981 and September 1, 1981, respectively, and claimed, for the first time, that petitioner Asuncion Lopez Gonzales was not notified of the special board meetings held on said dates. The motion for reconsideration was denied by the Second Division on July 24, 1986. On September 4, 1986, petitioners filed another motion for reconsideration. Again, the motion was denied by public respondent in a 8 Minute Resolution dated November 19, 1986. 9 Hence, the petition. As prayed for, we issued a Temporary Restraining Order, enjoining public respondent from enforcing or 10 executing the Resolution, dated November 20, 1986 (sic), in NLRC-NCR-2-2176-82. The sole issue is whether or not public respondent acted with grave abuse of discretion in holding that private respondents are entitled to receive their gratuity pay under the assailed board resolutions dated August 17, 1951 and September 1, 1981. Petitioners contend that the board resolutions passed on August 17, 1981 and September 1, 1981, granting gratuity pay to their retained employees, are ultra vires on the ground that petitioner Asuncion Lopez Gonzales was not duly notified of the said special meetings. They aver, further, that said board resolutions were not ratified by the stockholders of the corporation pursuant to Section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). They also insist that the gratuity pay must be given only to the retiring employees, to the exclusion of the retained employees or those who voluntarily resigned from their posts. At the outset, we note that petitioners allegation on lack of notice to petitioner Asuncion Lopez Gonzales was raised for the first time in the in their motion for reconsideration filed before public respondent National Labor Relations Commission, or after said public respondent had affirmed the decision of the labor arbiter. To stress, in their appeal before the NLRC, petitioners never raised the issue of lack of notice to Asuncion Lopez Gonzales. The appeal dealt with (a) the failure of the stockholders to ratify the assailed resolutions and (b) the alleged "mistake" committed by petitioner corporation in giving the gratuity pay to some of its employees who are yet to retire from employment. 11 In their comment, private respondents maintain that the new ground of lack of notice was not raised before the labor arbiter, hence, petitioners are barred from raising the same on appeal. Private respondents claim, further, that such failure on the part of petitioners, had deprived them the opportunity to present evidence that, in a subsequent special board meeting held on September 29, 1981, the subject resolution dated September 1, 1981, was unanimously approved by the board of directors of petitioner 12 corporation, including petitioner Asuncion Lopez Gonzales. Indeed, it would be offensive to the basic rules of fair play and justice to allow petitioners to raise questions which have not been passed upon by the labor arbiter and the public respondent NLRC. It is well settled that questions not raised in the lower courts 13 cannot, be raised for the first time on appeal. Hence, petitioners may not invoke any other ground, other than those it specified at the labor arbiter level, to impugn the validity of the subject resolutions. We now come to petitioners' argument that the resolutions passed by the board of directors during the special meetings on August 1, 1981, and September 1, 1981, were ultra vires for lack of notice. The general rule is that a corporation, through its board of directors, should act in the manner and within the formalities, if any, 14 prescribed by its charter or by the general law. Thus, directors must act as a body in a meeting called pursuant to the law or the 15 corporation's by-laws, otherwise, any action taken therein may be questioned by any objecting director or shareholder. 16 Be that as it may, jurisprudence tells us that an action of the board of directors during a meeting, which was illegal for lack of notice, may be ratified either expressly, by the action of the directors in subsequent legal meeting, or impliedly, by the corporation's 17 subsequent course of conduct. Thus, in one case, it was held: . . . In 2 Fletcher, Cyclopedia of the Law of Private Corporations (Perm. Ed.) sec. 429, at page 290, it is stated: Thus, acts of directors at a meeting which was illegal because of want of notice may be ratified by the directors at a subsequent legal meeting, or by the corporations course of conduct ... Fletcher, supra, further states in sec. 762, at page 1073-1074: Ratification by directors may be by an express resolution or vote to that effect, or it may be implied from adoption of the act, acceptance or acquiescence. Ratification may be effected by a resolution or vote of the board of directors expressly ratifying previous acts either of corporate officers or agents; but it is not necessary, ordinarily, to show a meeting and formal action by the board of directors in order to establish a ratification. In American Casualty Co., v. Dakota Tractor and Equipment Co., 234 F. Supp. 606, 611 (D.N.D. 1964), the court stated: Moreover, the unauthorized acts of an officer of a corporation may be ratified by the corporation by conduct implying approval and adoption of the act in question. Such ratification may be express or may be inferred from silence and inaction.

In the case at bench, it was established that petitioner corporation did not issue any resolution revoking nor nullifying the board resolutions granting gratuity pay to private respondents. Instead, they paid the gratuity pay, particularly, the first two (2) installments thereof, of private respondents Florentina Fontecha, Mila Refuerzo, Marcial Mamaril and Perfecto Bautista. Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the assailed resolutions were passed, we can glean from the records that she was aware of the corporation's obligation under the said resolutions. More importantly, she acquiesced thereto. As pointed out by private respondents, petitioner Asuncion Lopez Gonzales affixed her signature on Cash Voucher Nos. 81-10-510 and 81-10-506, both dated October 15, 1981, evidencing the 2nd installment of the gratuity pay of private 18 respondents Mila Refuerzo and Florentina Fontecha. We hold, therefore, that the conduct of petitioners after the passage of resolutions dated August, 17, 1951 and September 1, 1981, had estopped them from assailing the validity of said board resolutions. Assuming, arguendo, that there was no notice given to Asuncion Lopez Gonzalez during the special meetings held on August 17, 1981 and September 1, 1981, it is erroneous to state that the resolutions passed by the board during the said meetings were ultra vires. In legal parlance, "ultra vires" act refers to one which is not within the corporate powers conferred by the Corporation Code or 19 articles of incorporation or not necessary or incidental in the exercise of the powers so conferred. The assailed resolutions before us cover a subject which concerns the benefit and welfare of the company's employees. To stress, providing gratuity pay for its employees is one of the express powers of the corporation under the Corporation Code, hence, 20 petitioners cannot invoke the doctrine of ultra vires to avoid any liability arising from the issuance the subject resolutions. We reject petitioners' allegation that private respondents, namely, Mila Refuerzo, Marissa Pascual and Edward Mamaril who resigned from petitioner corporation after the filing of the case, are precluded from receiving their gratuity pay. Pursuant to board resolutions dated August 17, 1981 and September 1, 1981, respectively, petitioner corporation obliged itself to give the gratuity pay of its retained employees in four (4) installments: on September 1, 1981; October 15, 1981; November, 1981; and January 1, 1982. Hence, at the time the aforenamed private respondents tendered their resignation, the aforementioned private respondents were already entitled to receive their gratuity pay. Petitioners try to convince us that the subject resolutions had no force and effect in view of the non-approval thereof during the Annual Stockholders' Meeting held on March 1, 1982. To strengthen their position, petitioners cite section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). We are not persuaded. The cited provision is not applicable to the case at bench as it refers to the sale, lease, exchange or disposition of all or substantially all of the corporation's assets, including its goodwill. In such a case, the action taken by the board of directors requires the authorization of the stockholders on record. It will be observed that, except far Arturo Lopez, the stockholders of petitioner corporation also sit as members of the board of directors. Under the circumstances in field, it will be illogical and superfluous to require the stockholders' approval of the subject resolutions. Thus, even without the stockholders' approval of the subject resolutions, petitioners are still liable to pay private respondents' gratuity pay. IN VIEW WHEREOF, the instant petition is DISMISSED for lack of merit and the temporary restraining order we issued on February 9, 1987 is LIFTED. Accordingly, the assailed resolution of the National Labor Relations Commission in NLRC-NCR-2176-82 is AFFIRMED. This decision is immediately executory. Costs against petitioners. SO ORDERED.

BENITO H. LOPEZ, petitioner, vs. THE COURT OF APPEALS and THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., respondents. GUERRERO, J.: On June 2, 1959, petitioner Benito H. Lopez obtained a loan in the amount of P20,000.00 from the Prudential Bank and Trust Company. On the same date, he executed a promissory note for the same amount, in favor of the said Bank, binding himself to repay the said sum one (1) year after the said date, with interest at the rate of 10% per annum. In addition to said promissory note, he executed Surety Bond No. 14164 in which he, as principal, and Philippine American General Insurance Co., Inc. (PHILAMGEN) as surety, bound themselves jointly and severally in favor of Prudential Bank for the payment of the sum of P20,000.00. On the same occasion, Lopez also executed in favor of Philamgen an indemnity agreement whereby he agreed "to indemnify the Company and keep it indemnified and hold the same harmless from and against any and all damages, losses, costs, stamps, taxes, penalties, charges and expenses of whatever kind and nature which the Company shall or may at any time sustain or incur in 1 consequence of having become surety upon the bond." At the same time, Lopez executed a deed of assignment of 4,000 shares of the Baguio Military Institution entitled "Stock Assignment Separate from Certificate", which reads: This deed of assignment executed by BENITO H. LOPEZ, Filipino, of legal age, married and with residence and postal address at Baguio City, Philippines, now and hereinafter called the "ASSIGNOR", in favor of the PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal offices at Wilson Building, Juan Luna, Manila, Philippines, now and hereinafter called the "ASSIGNEE-SURETY COMPANY" WITNESSETH That for and in consideration of the obligations undertaken by the ASSIGNEE-SURETY COMPANY under the terms and conditions of SURETY BOND NO. 14164, issued on behalf of said BENITO H. LOPEZ and in favor of the PRUDENTIAL BANK & TRUST COMPANY, Manila, Philippines, in the amount of TWENTY THOUSAND PESOS ONLY (P20,000.00), Philippine Currency, and for value received, the ASSIGNOR hereby sells, assigns, and transfers unto THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Four Thousand (4,000) shares of the Baguio military Institute, Inc. standing in the name of said Assignor on the books of said Baguio Military Institute, Inc. represented by Certificate No. 44 herewith and do hereby irrevocably constitutes and appoints THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. as attorney to transfer the said stock on the books of the within named military institute 2 with full power of substitution in the premises. With the execution of this deed of assignment, Lopez endorsed the stock certificate and delivered it to Philamgen. It appears from the evidence on record that the loan of P20,000.00 was approved conditioned upon the posting of a surety bond of a bonding company acceptable to the bank. Thus, Lopez persuaded Emilio Abello, Assistant Executive Vice-President of Philamgen and member of the Bond Under writing Committee to request Atty. Timoteo J. Sumawang, Assistant Vice- President and Manager of the Bonding Department, to accommodate him in putting up the bond against the security of his shares of stock with the Baguio Military Institute, Inc. It was their understanding that if he could not pay the loan, Vice-President Abello and Pio Pedrosa of the Prudential Bank would buy the shares of stocks and out of the proceeds thereof, the loan would be paid to the Prudential Bank. On June 2, 1960, Lopez' obligation matured without it being settled. Thus, the Prudential Bank made demands for payment both upon Lopez and Philamgen. In turn, Philamgen sent Lopez several written demands for the latter to pay his note (Exhibit H, H-1 & H2), but Lopez did not comply with said demands. Hence, the Prudential Bank sometime in August, 1961 filed a case against them to enforce payment on the promissory note plus interest. Upon receipt of the copies of complaint, Atty. Sumawang confronted Emilio Abello and Pio Pedrosa regarding their commitment to buy the shares of stock of Lopez in the event that the latter failed to pay his obligations to the Prudential Bank. Vice-President Abello then instructed Atty. Sumawang to transfer the shares of stock to Philamgen and made a commitment that thereafter he (Abello) and Pio Pedrosa will buy the shares of stock from it so that the proceeds could be paid to the bank, and in the meantime Philamgen 3 will not pay the bank because it did not want payment under the terms of the bank. Due to said commitment and instruction of Vice-President Abello, Assistant Treasurer Marcial C. Cruz requested the transfer of Stock Certificate No. 44 for 4,000 shares to Philamgen in a letter dated October 31, 1961. Stock Certificate No. 44 in the name of Lopez was accordingly cancelled and in lieu thereof Stock Certificate No. 171 was issued by the Baguio Military Institute in the name of Philamgen on November 17, 1961. The complaint was thereafter dismissed. But when no payment was still made by the principal debtor or by the surety, the Prudential Bank filed on November 8, 1963 another complaint for the recovery of the P20,000.00. On November 18, 1963, after being informed of said complaint, Lopez addressed the following letter to Philamgen: Dear Mr. Sumawang: This is with reference to yours of the 13th instant advising me of a complaint filed against us by Prudential Bank & Trust Co. regarding my loan of P20,000.00. In this connection, I would like to know what happened to my shares of stocks of Baguio Military Academy which were pledged to your goodselves to secure said obligation. These shares of stock I think are more than enough to 4 answer for said obligation. On December 9, 1963, Philamgen was forced to pay the Prudential Bank the sum of P27,785.89 which included the principal loan and accumulated interest and the Prudential Bank executed a subrogation receipt on the same date. On March 18, 1965, Philamgen brought an action in the Court of First Instance of Manila (Civil Case No. 60272, "The Philippine American General Insurance Co., Inc. vs. Benito H. Lopez") for reimbursement of the said amount. After hearing, the said court rendered judgment dismissing the complaint holding: The contention of the plaintiff that the stock of the defendant were merely pledged to it by the defendant is not borne out by the evidence. On the contrary, it appears to be contradicted by the facts of the case. The shares of stock of the defendant were actually transferred to the plaintiff when it became clear after the plaintiff and the defendant had been sued by the Prudential Bank that plaintiff would be compelled to make the payment to the Prudential Bank, in view of the inability of the defendant Benito H. Lopez to pay his said obligation. The certificate bearing No. 44 was cancelled and upon request of the plaintiff to the Baguio Military Institute a new certificate of stock was issued in the name of the plaintiff bearing No. 171, by means of which plaintiff became the registered owner of the 4,000 shares originally belonging to the defendant. It is noteworthy that the transfer of the stocks of the defendant in the name of the plaintiff company was made at the instance of Messrs. Abello and Pedrosa, who promised to buy the same from the plaintiff. Now that these shares of stock of the defendant had

already been transferred in the name of the plaintiff, the defendant has already divested himself of the said stocks, and it would seem that the remedy of the plaintiff is to go after Messrs. Abello and Pedrosa on their promise to pay for the said stocks. To go after the defendant after the plaintiff had already become the owner of his shares of stock and compel him to pay his obligation to the Prudential Bank would be most unfair, unjust and illogical for it would amount to double payment on his part. After the plaintiff had already appropriated the said shares of stock, it has already lost its right to recover anything from the defendant, for the reason that the transfer of the said stocks was made without qualification. This transfer takes the form of a reimbursement of what plaintiff 5 had paid to the Prudential Bank, thereby depriving the plaintiff of its right to go after the defendant herein. Philamgen appealed to the Court of Appeals raising these assignments of errors: I The lower court erred in finding that the evidence does not bear out the contention of plaintiff that the shares of stock belonging to defendant were transferred by him to plaintiff by way of pledge. II The lower court erred in finding that plaintiff company appropriated unto itself the shares of stock pledged to it by defendant Benito Lopez and in finding that, with the transfer of the stock in the name of plaintiff company, the latter has already been paid or reimbursed what it paid to Prudential Bank. III The lower court erred in not finding that the instant case is one where the pledge has abandoned the security and elected instead to 6 enforce his claim against the pledgor by ordinary action. On December 17, 1970, the Court of Appeals promulgated a decision in favor of the Philamgen, thereby upholding the foregoing assignments of errors. It declared that the stock assignment was a mere pledge that the transfer of the stocks in the name of Philamgen was not intended to make it the owner thereof; that assuming that Philamgen had appropriated the stocks, this appropriation is null and void as a stipulation authorizing it is a pactum commissorium; and that pending payment, Philamgen is merely holding the stock as a security for the payment of Lopez' obligation. The dispositive portion of the said decision states: WHEREFORE, the decision of the lower court is hereby reversed, and another one is hereby entered ordering the defendant to pay the plaintiff the sum of P27,785.89 with interest at the rate of 12% per annum from December 9, 1963, 10% of the P27,785.89 as 7 attorney's fees and the costs of the suit. The motion for reconsideration with prayer to set the same for oral argument having been denied, Lopez brought this petition for review on certiorari presenting for resolution these questions: a) Where, as in this case, a party "sells, assigns and transfers" and delivers shares of stock to another, duly endorsed in blank, in consideration of a contingent obligation of the former to the latter, and, the obligations having arisen, the latter causes the shares of stock to be transferred in its name, what is the juridical nature of the transaction-a dation in payment or a pledge? b) Where, as in this case, the debtor assigns the shares of stock to the creditor under an agreement between the latter and determinate third persons that the latter would buy the shares of stock so that the obligations could be paid out of the proceeds, 8 was there a novation of the obligation by substitution of debtor? Philamgen failed to file its comment on the petition for review on certiorari within the extended period which expired on March 19, 9 1971. This Court thereby resolved to require Lopez to file his brief. Under the first assignment of error, Lopez argues in his brief: That the Court of Appeals erred in holding that when petitioner "sold, assigned, transferred" and delivered shares of stock, duly endorsed in blank, to private respondent in consideration of a contingent obligation of the former to the latter and the obligation having thereafter arisen, the latter caused the shares of stock to be transferred to it, taking a new certificate of stock in its name, the 10 transaction was a pledge, and in not holding instead that it was a dation in payment. Considering the explicit terms of the deed denominated "Stock Assignment Separate from Certificate", hereinbefore copied verbatim, Lopez sold, assigned and transferred unto Philamgen the stocks involved "for and in consideration of the obligations undertaken" by Philamgen "under the terms and conditions of the surety bond executed by it in favor of the Prudential Bank" and "for value received". On its face, it is neither pledge nor dation in payment. The document speaks of an outright sale as there is a complete and unconditional divestiture of the incorporeal property consisting of stocks from Lopez to Philamgen. The transfer appears to have been an absolute conveyance of the stocks to Philamgen whether or not Lopez defaults in the payment of P20,000.00 to Prudential Bank. While it is a conveyance in consideration of a contingent obligation, it is not itself a conditional conveyance. It is true that if Lopez should "well and truly perform and fulfill all the undertakings, covenants, terms, conditions, and agreements stipulated" in his promissory note to Prudential Bank, the obligation of Philamgen under the surety bond would become null and void. Corollarily, the stock assignment, which is predicated on the obligation of Philamgen under the surety bond, would necessarily become null and void likewise, for want of cause or consideration under Article 1352 of the New Civil Code. But this is not the case here because aside from the obligations undertaken by Philamgen under the surety bond, the stock assignment had other considerations referred to therein as "value received". Hence, based on the manifest terms thereof, it is an absolute transfer. Notwithstanding the express terms of the "Stock Assignment Separate from Certificate", however, We hold and rule that the transaction should not be regarded as an absolute conveyance in view of the circumstances obtaining at the time of the execution thereof. It should be remembered that on June 2, 1959, the day Lopez obtained a loan of P20,000.00 from Prudential Bank, Lopez executed a promissory note for ?20,000.00, plus interest at the rate of ten (10%) per cent per annum, in favor of said Bank. He likewise posted a surety bond to secure his full and faithful performance of his obligation under the promissory note with Philamgen as his surety. In return for the undertaking of Philamgen under the surety bond, Lopez executed on the same day not only an indemnity agreement but also a stock assignment. The indemnity agreement and the stock assignment must be considered together as related transactions because in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. (Article 1371, New Civil Code). Thus, considering that the indemnity agreement connotes a continuing obligation of Lopez towards Philamgen while the stock assignment indicates a complete discharge of the same obligation, the existence of the indemnity agreement whereby Lopez had to pay a premium of P1,000.00 for a period of one year and agreed at all times to indemnify Philamgen of any and all kinds of losses which the latter might sustain by reason of it becoming a surety, is inconsistent with the theory of an absolute sale for and in consideration of the same undertaking of Philamgen. There would have been no necessity for the execution of the

indemnity agreement if the stock assignment was really intended as an absolute conveyance. Hence, there are strong and cogent reasons to conclude that the parties intended said stock assignment to complement the indemnity agreement and thereby sufficiently guarantee the indemnification of Philamgen should it be required to pay Lopez' loan to Prudential Bank. The character of the transaction between the parties is to be determined by their intention, regardless of what language was used or what the form of the transfer was. If it was intended to secure the payment of money, it must be construed as a pledge; but if there was some other intention, it is not a pledge. However, even though a transfer, if regarded by itself, appears to have been absolute, its object and character might still be qualified and explained by a contemporaneous writing declaring it to have been a deposit of the property as collateral security. It has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as a pledge if the debt continues in existence and is not discharged by the transfer, and that accordingly, the use of the terms ordinarily importing conveyance, of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of clear and unambiguous language or other circumstances excluding an intent to 11 pledge. We agree with the holding of the respondent Court of Appeals that the stock assignment, Exhibit C, is in truth and in fact, a pledge. Indeed, the facts and circumstances leading to the execution of the stock assignment, Exhibit C, and the admission of Lopez prove that it is in fact a pledge. The appellate court is correct in ruling that the following requirements of a contract of pledge have been satisfied: (1) that it be constituted to secure the fulfillment of a principal obligation; (2) that the pledgor be the absolute owner of the thing pledged; and (3) that the person constituting the pledge has the free disposal of the property, and in the absence thereof, that he be legally authorized for the purpose. (Article 2085, New Civil Code). Article 2087 of the New Civil Code providing that it is also the essence of these contracts (pledge, mortgage, and antichresis) that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor, further supports the appellate court's ruling, which We also affirm. On this point further, the Court of Appeals correctly ruled: In addition to the requisites prescribed in article 2085, it is necessary, in order to constitute the contract of pledge, that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement. (Art. 2093, N.C.C.) Incorporeal rights, including shares of stock may also be pledged (Art. 2095, N.C.C.) All these requisites are found in the transaction between the parties leading to the execution of the Stock Assignment, Exhibit C. And that it is a pledge was admitted by the defendant in his letter of November 18, 1963, Exhibit G, already quoted above, where he asked what had happened to his shares of stock "which were pledged to your goodselves to secure the said obligation". The testimony of the defendant-appellee that it was their agreement or understanding that if he would be unable to pay the loan to the Prudential Bank, plaintiff could sell the shares of stock or appropriate the same in full payment of its debt is a mere after-thought, conceived after he learned of the transfer of his stock to the plaintiff in the books of the Baguio Military Institute. We also do not agree with the contention of petitioner that "petitioner's 'sale assignment and transfer' unto private respondent of the shares of stock, coupled with their endorsement in blank and delivery, comes exactly under the Civil Code's definition of dation in payment, a long recognized and deeply rooted concept in Civil Law denominated by Spanish commentators as 'adjudicacion en pago'". According to Article 1245 of the New Civil Code, dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. Speaking of the concept of dation in payment, it is well to cite that: Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. (2 Castan 525; 8 Manresa, 324) The property given may consist, not only of a thing, but also of a real right (such as a usufruct) or of a credit against a third person. (Perez Gonzales & Alguer :2-I Enneccerus, Kipp & Wolff 317). Thus, it has been held that the assignment to the creditor of the interest of the debtor in an inheritance in payment of his debt, is valid and extinguishes the debt. (Ignacio vs. Martinez, 33 Phil. 576) The modern concept of dation in payment considers it as a novation by change of the object, and this is to our mind the more juridically correct view. Our Civil Code, however, provides in this article that, where the debt is in money, the law on sales shall govern; in this case, the act is deemed to be a sale, with the amount of the obligation to the extent that it is extinguished being considered as the price. Does this mean that there can be no dation in payment if the debt is not in money? We do not think so. It is precisely in obligations which are not money debts, in which the true juridical nature of dation in payment becomes manifest. There is a real novation with immediate performance of the new obligation. The fact that there must be a prior agreement of the parties on the delivery of the thing in lieu of the original prestation shows that there is a novation which, extinguishes the original obligation, and the delivery is a mere performance of the new obligation. The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished. (8 Manresa 324; 3 Valverde 174 fn Assignment of property by the debtor to his creditors, provided for in article 1255, is similar to dation in payment in that both are substitute forms of performance of an obligation. Unlike the assignment for the benefit of creditors, however, dation in payment does not involve plurality of creditors, nor the whole of the property of the debtor. It does not suppose a situation of financial difficulties, for it may be made even by a person who is completely solvent. It merely involves a change of the object of the 12 obligation by agreement of the parties and at the same time fulfilling the same voluntarily. (8 Manresa 324). Considering the above jurisprudence, We find that the debt or obligation at bar has not matured on June 2, 1959 when Lopez "alienated" his 4,000 shares of stock to Philamgen. Lopez' obligation would arise only when he would default in the payment of the principal obligation (the loan) to the bank and Philamgen had to pay for it. Such fact being adverse to the nature and concept of dation in payment, the same could not have been constituted when the stock assignment was executed. Moreover, there is no express provision in the terms of the stock assignment between Philamgen and Lopez that the principal obligation (which is the loan) is immediately extinguished by reason of such assignment. In case of doubt as to whether a transaction is a pledge or a dation in payment, the presumption is in favor of pledge, the latter being the lesser transmission of rights and interests. Under American jurisprudence, A distinction might also be made between delivery of property in payment of debt and delivery of such property as collateral security for the debt. Generally, such a transfer was presumed to be made for collateral security, in the absence of evidence tending

to show an intention on the part of the parties that the transfer was in satisfaction of the debt. This presumption of a transfer for collateral security arose particularly where the property given was commercial paper, or some other 'specialty' chose of action, that conferred rights upon transfer by delivery of a different nature from the debt, whose value was neither intrinsic nor apparent and 13 was not agreed upon by the parties. Petitioner's argument that even assuming, arguendo that the transaction was at its inception a pledge, it gave way to a dation in payment when the obligation secured came into existence and private respondent had the stocks transferred to it in the corporate books and took a stock certificate in its name, is without merit. The fact that the execution of the stock assignment is accompanied by the delivery of the shares of stock, duly endorsed in blank to Philamgen is no proof that the transaction is a dation in payment. Likewise, the fact that Philamgen had the shares of stock transferred to it in the books of the corporation and took a certificate in its name in lieu of Lopez which was cancelled does not amount to conversion of the stock to one's own use. The transfer of title to incorporeal property is generally an essential part of the delivery of the same in pledge. It merely constitutes evidence of the pledgee's right of property in the thing pledged. By the contract of pledge, the pledgor does not part with his general right of property in the collateral. The general property therein remains in him, and only a special property vests in the pledgee. The pledgee does not acquire an interest in the property, except as a security for his debt. Thus, the pledgee holds possession of the security subject to the rights of the pledgor; he cannot acquire any interest therein that is adverse to the pledgor's title. Moreover, even where the legal title to incorporeal property which may be pledged is transferred to a pledgee as collateral security, he takes only a special property therein Such transfer merely performs the office that the delivery of possession does in case of a pledge of corporeal property. xxx xxx xxx The pledgee has been considered as having a lien on the pledged property. The extent of such lien is measured by the amount of the debt or the obligation that is secured by the collateral, and the lien continues to exist as long as the pledgee retains actual or symbolic possession of the property, and the debt or obligation remains unpaid. Payment of the debt extinguishes the lien. Though a pledgee of corporation stock does not become personally liable as a stockholder of the company, he may have the shares transferred to him on the books of the corporation if he has been authorized to do so. The general property in the pledge remains in the pledgor after default as well as prior thereto. The failure of the pledgor to pay his debt at maturity in no way affects the nature of the pledgee's rights concerning the property pledged, except that he then becomes 14 entitled to proceed to make the security available in the manner prescribed by law or by the terms of the contract, ... . In his second assignment of error, petitioner contends that the Court of Appeals erred in not holding that since private respondent entered into an agreement with determinate third persons whereby the latter would buy the said shares so sold, assigned and transferred to the former by the petitioner for the purpose of paying petitioner's obligation out of the proceeds, there was a novation of the obligation by substitution of debtor. We do not agree. Under Article 1291 of the New Civil Code, obligations may be modified by: (1) changing their object or principal condition; (2) substituting the person of the debtor; (3) subrogating a third person in the rights of the creditor. And in order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. (Article 1292, N.C.C.) Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. (Article 1293, N.C.C.) Commenting on the second concept of novation, that is, substituting the person of the debtor, Manresa opines, thus: In this kind of novation it is pot enough to extend the juridical relation to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his place in the relation. Without such release, there is no novation; the third person who has assumed the obligation of the debtor merely becomes a co-debtor or a surety. If there is no agreement as to solidarity, the first and the new debtor are considered obligated jointly. (8 Manresa 435, cited in Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. IV, p. 360) In the case at bar, the undertaking of Messrs. Emilio Abello and Pio Pedrosa that they would buy the shares of stock so that Philamgen could be reimbursed from the proceeds that it paid to Prudential Bank does not necessarily imply the extinguishment of the liability of petitioner Lopez. Since it was not established nor shown that Lopez would be released from responsibility, the same does not constitute novation and hence, Philamgen may still enforce the obligation. As the Court of Appeals correctly held that "(t)he representation of Mr. Abello to Atty. Sumawang that he and Mr. Pedrosa would buy the stocks was a purely private arrangement between them, not an agreement between (Philamgen) and (Lopez)" and which We hereby affirm, petitioner's second assignment of error must be rejected. In fine, We hold and rule that the transaction entered into by and between petitioner and respondent under the Stock Assignment Separate From Certificate in relation to the Surety Bond No. 14164 and the Indemnity Agreement, all executed and dated June 2, 1959, constitutes a pledge of the 40,000 shares of stock by the petitioner-pledgor in favor of the private respondent-pledgee, and not a dacion en pago. It is also Our ruling that upon the facts established, there was no novation of the obligation by substitution of debtor. The promise of Abello and Pedrosa to buy the shares from private respondent not having materialized (which promise was given to said respondent only and not to petitioner) and no action was taken against the two by said respondent who chose instead to sue the petitioner on the Indemnity Agreement, it is quite clear that this respondent has abandoned its right and interest over the pledged properties and must, therefore, release or return the same to the petitioner-pledgor upon the latter's satisfaction of his obligation under the Indemnity Agreement. It must also be made clear that there is no double payment nor unjust enrichment in this case because We have ruled that the shares of stock were merely pledged. As the Court of Appeals said: The appellant (Philam) is not enriching himself at the expense of the appellee. True, the stock certificate of the appellee had been in the name of the appellant but the transfer was merely nominal, and was not intended to make the plaintiff the owner thereof. No offer had been made for the return of the stocks to the defendant. As the appellant had stated, the appellee could have the stocks transferred to him anytime as long as he reimburses the plaintiff the amount it had paid to the Prudential Bank. Pending payment, plaintiff is merely holding the certificates as a pledge or security for the payment of defendant's obligation. The above holding of the appellate court is correct and We affirm the same.

As to the third assignment of error which is merely the consequence of the first two assignments of errors, the same is also devoid of merit. WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of the Court of Appeals is hereby AFFIRMED in toto, with costs against the petitioner. SO ORDERED.