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G.R. No.

113032 August 21, 1997
WESTERN INSTITUTE OF TECHNOLOGY, INC., HOMERO L.
VILLASIS, DIMAS ENRIQUEZ, PRESTON F. VILLASIS &
REGINALD F. VILLASIS, petitioner,
vs.
RICARDO T. SALAS, SALVADOR T. SALAS, SOLEDAD
SALAS-TUBILLEJA, ANTONIO S. SALAS, RICHARD S.
SALAS & HON. JUDGE PORFIRIO PARIAN, respondents.
HERMOSISIMA, JR., J.:
Up for review on certiorari are: (1) the Decision dated
September 6, 1993 and (2) the Order dated November 23,
1993 of Branch 33 of the Regional Trial Court of Iloilo City in
Criminal Cases Nos. 37097 and 37098 for estafa and
falsification of a public document, respectively. The judgment
acquitted the private respondents of both charges, but
petitioners seek to hold them civilly liable.
Private respondents Ricardo T. Salas, Salvador T. Salas,
Soledad Salas-Tubilleja, Antonio S. Salas, and Richard S. Salas,
belonging to the same family, are the majority and controlling
members of the Board of Trustees of Western Institute of
Technology, Inc. (WIT, for short), a stock corporation engaged
in the operation, among others, of an educational institution.
According to petitioners, the minority stockholders of WIT,
sometime on June 1, 1986 in the principal office of WIT at La
Paz, Iloilo City, a Special Board Meeting was held. In
attendance were other members of the Board including one of
the petitioners Reginald Villasis. Prior to aforesaid Special
Board Meeting, copies of notice thereof, dated May 24, 1986,
were distributed to all Board Members. The notice allegedly
indicated that the meeting to be held on June 1, 1986
included Item No. 6 which states:
Possible implementation of Art. III, Sec. 6 of the
Amended By-Laws of Western Institute of Technology,
Inc. on compensation of all officers of the
corporation. 1
In said meeting, the Board of Trustees passed Resolution No.
48, s. 1986, granting monthly compensation to the private
respondents as corporate officers retroactive June 1,
1985, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly
seconded by Mrs. Soledad Tubilleja (accused), it was
unanimously resolved that:
The Officers of the Corporation be
granted monthly compensation for
services rendered as follows:
Chairman — P9,000.00/month, Vice
Chairman — P3,500.00/month,
Corporate Treasurer —
P3,500.00/month and Corporate
Secretary — P3,500.00/month,
retroactive June 1, 1985 and the
ten per centum of the net profits
shall be distributed equally among
the ten members of the Board of
Trustees. This shall amend and
superceed (sic) any previous
resolution.
There were no other business.
The Chairman declared the meeting adjourned at
5:11 P.M.
This is to certify that the foregoing minutes of the
regular meeting of the Board of Trustees of Western
Institute of Technology, Inc. held on March 30, 1986
is true and correct to the best of my knowledge and
belief. (Sgd) ANTONIO S. SALAS
Corporate Secretary 2

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

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

Hence, the instant petition.
Significantly on December 8, 1994, a Motion for Intervention,
dated December 2, 1994, was filed before this Court by
Western Institute of Technology, Inc., supposedly one of the
petitioners herein, disowning its inclusion in the petition and
submitting that Atty. Tranquilino R. Gale, counsel for the other
petitioners, had no authority whatsoever to represent the
corporation in filing the petition. Intervenor likewise prayed for
the dismissal of the petition for being utterly without merit.
The Motion for Intervention was granted on January 16,
1995. 8
Petitioners would like us to hold private respondents civilly
liable despite their acquittal in Criminal Cases Nos. 37097 and
37098. They base their claim on the alleged illegal issuance
by private respondents of Resolution No. 48, series of 1986
ordering the disbursement of corporate funds in the amount
of P186,470.70 representing retroactive compensation as of
June 1, 1985 in favor of private respondents, board members
of WIT, plus P1,453,970.79 for the subsequent collective
salaries of private respondents every 15th and 30th of the
month until the filing of the criminal complaints against them
on March 1991. Petitioners maintain that this grant of
compensation to private respondents is proscribed under
Section 30 of the Corporation Code. Thus, private respondents
are obliged to return these amounts to the corporation with
interest.
We cannot sustain the petitioners. The pertinent section of the
Corporation Code provides:
Sec. 30. Compensation of directors — In the absence
of any provision in the by-laws fixing their
compensation, the directors shall not receive any
compensation, as such directors, except for
reasonable per diems: Provided, however, That any
such compensation (other than per diems) may be
granted to directors by the vote of the stockholders
representing at least a majority of the outstanding
capital stock at a regular or special stockholders'
meeting. In no case shall the total yearly
compensation of directors, as such directors, exceed
ten (10%) percent of the net income before income
tax of the corporation during the preceding year.
[Emphasis ours]
There is no argument that directors or trustees, as the case
may be, are not entitled to salary or other compensation when
they perform nothing more than the usual and ordinary duties
of their office. This rule is founded upon a presumption that
directors/trustees render service gratuitously, and that the
return upon their shares adequately furnishes the motives for
service, without compensation. 9 Under the foregoing section,
there are only two (2) ways by which members of the board
can be granted compensation apart from reasonable per
diems: (1) when there is a provision in the by-laws fixing their
compensation; and (2) when the stockholders representing a
majority of the outstanding capital stock at a regular or
special stockholders' meeting agree to give it to them.
This proscription, however, against granting compensation to
directors/trustees of a corporation is not a sweeping rule.
Worthy of note is the clear phraseology of Section 30 which
states: ". . . [T]he directors shall not receive any
compensation, as such directors, . . . ." The phrase as such
directors is not without significance for it delimits the scope of
the prohibition to compensation given to them for services
performed purely in their capacity as directors or trustees.
The unambiguous implication is that members of the board
may receive compensation, in addition to reasonable per
diems, when they render services to the corporation in a
capacity other than as directors/trustees. 10 In the case at
bench, Resolution No. 48, s. 1986 granted monthly
compensation to private respondents not in their capacity as
members of the board, but rather as officers of the

corporation, more particularly as Chairman, Vice-Chairman,
Treasurer and Secretary of Western Institute of Technology. We
quote once more Resolution No. 48, s. 1986 for easy
reference, viz.:
Resolution No. 48 s. 1986
On the motion of Mr. Richard Salas (accused), duly
seconded by Mrs. Soledad Tubilleja (accused), it was
unanimously resolved that:
The Officers of the Corporation be
granted monthly compensation for
services rendered as follows:
Chairman — P9,000.00/month, Vice
Chairman — P3,500.00/month,
Corporate Treasurer —
P3,500.00/month and Corporate
Secretary — P3,500.00/month,
retroactive June 1, 1985 and the
ten per centum of the net profits
shall be distributed equally among
the ten members of the Board of
Trustees. This shall amend and
superceed (sic) any previous
resolution.
There were no other business.
The Chairman declared the meeting adjourned at
5:11 P.M.
This is to certify that the foregoing minutes of the
regular meeting of the Board of Trustees of Western
Institute of Technology, Inc. held on March 30, 1986
is true and correct to the best of my knowledge and
belief.
(Sgd) ANTONIO S. SALAS
Corporate Secretary 11 [Emphasis ours]
Clearly, therefore, the prohibition with respect to granting
compensation to corporate directors/trustees as suchunder
Section 30 is not violated in this particular case.
Consequently, the last sentence of Section 30 which provides:
. . . . . . . In no case shall the total yearly
compensation of directors, as such directors,
exceed ten (10%) percent of the net income before
income tax of the corporation during the preceding
year. (Emphasis ours]
does not likewise find application in this case since the
compensation is being given to private respondents in their
capacity as officers of WIT and not as board members.
Petitioners assert that the instant case is a derivative suit
brought by them as minority shareholders of WIT for and on
behalf of the corporation to annul Resolution No. 48, s. 1986
which is prejudicial to the corporation.
We are unpersuaded. A derivative suit is an action brought by
minority shareholders in the name of the corporation to
redress wrongs committed against it, for which the directors
refuse to sue. 12 It is a remedy designed by equity and has
been the principal defense of the minority shareholders
against abuses by the majority. 13 Here, however, the case is
not a derivative suit but is merely an appeal on the civil
aspect of Criminal Cases Nos. 37097 and 37098 filed with the
RTC of Iloilo for estafa and falsification of public document.
Among the basic requirements for a derivative suit to prosper
is that the minority shareholder who is suing for and on behalf
of the corporation must allege in his complaint before the
proper forum that he is suing on a derivative cause of action
on behalf of the corporation and all other shareholders
similarly situated who wish to join. 14 This is necessary to vest
jurisdiction upon the tribunal in line with the rule that it is the
allegations in the complaint that vests jurisdiction upon the
court or quasi-judicial body concerned over the subject matter
and nature of the action. 15 This was not complied with by the
petitioners either in their complaint before the court a quo nor

in the instant petition which, in part, merely states that "this is
a petition for review on certiorari on pure questions of law to
set aside a portion of the RTC decision in Criminal Cases Nos.
37097 and 37098" 16 since the trial court's judgment of
acquittal failed to impose any civil liability against the private
respondents. By no amount of equity considerations, if at all
deserved, can a mere appeal on the civil aspect of a criminal
case be treated as a derivative suit.
Granting, for purposes of discussion, that this is a derivative
suit as insisted by petitioners, which it is not, the same is
outrightly dismissible for having been wrongfully filed in the
regular court devoid of any jurisdiction to entertain the
complaint. The ease should have been filed with the Securities
and Exchange Commission (SEC) which exercises original and
exclusive jurisdiction over derivative suits, they being intracorporate disputes, per Section 5 (b) of P.D. No. 902-A:
In addition to the regulatory and adjudicative
functions of the Securities and Exchange Commission
over corporations, partnerships and other forms of
associations registered with it as expressly granted
under existing laws and decrees, it shall have original
and exclusive jurisdiction to hear and decide cases
involving:
xxx xxx xxx
b) Controversies arising out of intra-corporate or
partnership relations, between and among
stockholders, members, or associates; between any
or all of them and the corporation, partnership or
association of which they are stockholders, members
or associates, respectively; and between such
corporation, partnership or association and the State
insofar as it concerns their individual franchise or
right to exist as such entity;
xxx xxx xxx
[Emphasis ours]
Once the case is decided by the SEC, the losing party may file
a petition for review before the Court of Appeals raising
questions of fact, of law, or mixed questions of fact and
law. 17 It is only after the case has ran this course, and not
earlier, can it be brought to us via a petition for review
on certiorari under Rule 45 raising only pure questions of
law.18 Petitioners, in pleading that we treat the instant petition
as a derivative suit, are trying to short-circuit the entire
process which we cannot here sanction.
As an appeal on the civil aspect of Criminal Cases Nos. 37097
and 37098 for falsification of public document and estafa,
which this petition truly is, we have to deny the petition just
the same. It will be well to quote the respondent court's
ratiocinations acquitting the private respondents on both
counts:
The prosecution wants this Court to believe and
agree that there is falsification of public document
because, as claimed by the prosecution, Resolution
No. 48, Series of 1986 (Exh. "1-E-1") was not taken
up and passed during the Regular Meeting of the
Board of Trustees of the Western Institute of
Technology (WIT), Inc. on March 30, 1986, but on
June 1, 1986 special meeting of the same board of
trustees.
This Court is reluctant to accept this claim of
falsification. The prosecution omitted to submit the
complete minutes of the regular meeting of the
Board of Trustees on March 30, 1986. It only
presented in evidence Exh. "C", which is page 5 or
the last page of the said minutes. Had the complete
minutes (Exh. "1") consisting of five (5) pages, been
submitted, it can be readily seen and understood
that Resolution No. 48, Series of 1986 (Exh. "1-E-1")
giving compensation to corporate officers, was

indeed included in Other Business, No. 6 of the
Agenda, and was taken up and passed on March 30,
1986. The mere fact of existence of Exh. "C" also
proves that it was passed on March 30, 1986 for Exh.
"C" is part and parcel of the whole minutes of the
Board of Trustees Regular Meeting on March 30,
1986. No better and more credible proof can be
considered other than the Minutes (Exh. "1") itself of
the Regular Meeting of the Board of Trustees on
March 30, 1986. The imputation that said Resolution
No. 48 was neither taken up nor passed on March 30,
1986 because the matter regarding compensation
was not specifically stated or written in the
Agenda and that the words "possible implementation
of said Resolution No. 48, was expressly written in
the Agenda for the Special Meeting of the Board on
June 1, 1986, is simply an implication. This evidence
by implication to the mind of the court cannot prevail
over the Minutes (Exh. "1") and cannot ripen into
proof beyond reasonable doubt which is demanded in
all criminal prosecutions.
This Court finds that under the Eleventh Article (Exh.
"3-D-1") of the Articles of Incorporation (Exh. "3-B")
of the Panay Educational Institution, Inc., now the
Western Institute of Technology, Inc., the officers of
the corporation shall receive such compensation as
the Board of Directors may provide. These Articles of
Incorporation was adopted on May 17, 1957 (Exh. "3E"). The Officers of the corporation and their
corresponding duties are enumerated and stated in
Sections 1, 2, 3 and 4 of Art. III of the Amended ByLaws of the Corporation (Exh. "4-A") which was
adopted on May 31, 1957. According to Sec. 6, Art. III
of the same By-Laws, all officers shall receive such
compensation as may be fixed by the Board of
Directors.
It is the perception of this Court that the grant of
compensation or salary to the accused in their
capacity as officers of the corporation, through
Resolution No. 48, enacted on March 30, 1986 by the
Board of Trustees, is authorized by both the Articles
of Incorporation and the By-Laws of the corporation.
To state otherwise is to depart from the clear terms
of the said articles and by-laws. In their defense the
accused have properly and rightly asserted that the
grant of salary is not for directors, but for their being
officers of the corporation who oversee the day to
day activities and operations of the school.
xxx xxx xxx
. . .[O]n the question of whether or not the accused
can be held liable for estafa under Sec. 1 (b) of Art.
315 of the Revised Penal Code, it is perceived by this
Court that the receipt and the holding of the money
by the accused as salary on basis of the authority
granted by the Articles and By-Laws of the
corporation are not tainted with abuse of confidence.
The money they received belongs to them and
cannot be said to have been converted and/or
misappropriated by them.
xxx xxx xxx

19

[Emphasis ours]
From the foregoing factual findings, which we find to be amply
substantiated by the records, it is evident that there is simply
no basis to hold the accused, private respondents herein,
civilly liable. Section 2(b) of Rule 111 on the New Rules on
Criminal Procedure provides:
Sec. 2. Institution of separate civil action.
xxx xxx xxx

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

modified the appealed decision of the Labor Arbiter in a Decision 7 dated February 13. INC. 2003 is hereby MODIFIED. Petitioner. on the other hand. hence. No. 2001 stating that he has been terminated from service effective March 25. they are hereby ordered to immediately report back to work but without the payment of backwages. Still joined by his co-complainants. the NLRC also gave weight to the corporation’s General Information Sheet6 (GIS) dated October 27. together with 29 others who were either janitors. however. respondent Abe allegedly received a complaint from Epson’s Personnel Manager concerning petitioner’s conduct. petitioner neglected to supervise the employees resulting in complaints from various clients about employees’ performance. 2001 for the following reasons: (1) continuous absences at his post at Ogino Philippines Inc.R. janitresses. leadmen and maintenance men. 2001 and adopted Board Resolution No. the NLRC opined. SANGU PHILIPPINES. As to the other complainants. petitioner allegedly encouraged the employees who had been placed in the manpower pool to file a complaint for illegal dismissal against respondents. went to the premises of one of respondents’ clients. Rulings of the Labor Arbiter and the National Labor Relations Commission The Labor Arbiter in a Decision5 dated June 5. he is not an officer . J. the dispositive portion of which reads: WHEREFORE. Petitioner complained that he was neither notified of the Board Meeting during which said board resolution was passed nor formally charged with any infraction. and Philippine TRC Inc. Ogino Philippines Corporation. while apparently drunk. Petitioner was thereafter informed of his removal through a letter dated March 26. in what respondents believed to be an act of retaliation. He just received from respondents a letter4 dated March 26. In 2001. SP. petitioner brought the case to the CA by way of petition for certiorari. for several months which was detrimental to the corporation’s operation. he later incited those assigned in Epson Precision (Phils. Not satisfied.: The perennial question of whether a complaint for illegal dismissal is intra-corporate and thus beyond the jurisdiction of the Labor Arbiter is the core issue up for consideration in this case. petitioner.) Inc. No. The NLRC found such contention of respondents to be meritorious. a corporation engaged in the business of providing manpower for general services. the Board of Directors of respondent corporation met on March 24. clearly established petitioner’s status as a stockholder and as a corporate officer and hence. With regard to petitioner.. He posited that his being a stockholder and his being a managerial employee do not ipso facto confer upon him the status of a corporate officer. petitioner nevertheless disputed the declaration of the NLRC that he is a corporate officer thereof. 2004. Because of this. vs. He pointed out that although said information sheet clearly indicates that he is a stockholder of respondent corporation. consequently his termination had to be effected through a board resolution. Ruling of the Court of Appeals Before the CA. all employed by respondent corporation. refused to receive. 1999 listing petitioner as one of its stockholders. the corporation’s VicePresident and General Manager. Factual Antecedents Petitioner Renato Real was the Manager of respondent corporation Sangu Philippines. to stage a strike on April 10 to 16. These complaints were later on consolidated. to pay them attorney’s fees. the NLRC ruled that there was no dismissal. The Labor Arbiter found no convincing proof of the causes for which petitioner was terminated and noted that there was complete absence of due process in the manner of his termination. he committed gross acts of misconduct detrimental to the company since 2000. Worse. According to them. Respondents thus appealed to the National Labor Relations Commission (NLRC) and raised therein as one of the issues the lack of jurisdiction of the Labor Arbiter over petitioner’s complaint. his action against respondent corporation is an intra-corporate controversy over which the Labor Arbiter has no jurisdiction. refuted petitioner’s claim of illegal dismissal by alleging that after petitioner was appointed Manager. filed their respective Complaints2 for illegal dismissal against the latter and respondent Kiichi Abe.G.R. petitioner imputed upon the NLRC grave abuse of discretion amounting to lack or excess of jurisdiction in declaring him a corporate officer and in holding that his action against respondents is an intra-corporate controversy and thus beyond the jurisdiction of the Labor Arbiter. (3) to cut down operational expenses to reduce further losses being experienced by respondent corporation. DECISION DEL CASTILLO.. To support this contention. 2001 which he.) Inc. Respondents claimed that petitioner is both a stockholder and a corporate officer of respondent corporation. These. and engaged in a heated argument with the employees therein. The NLRC however. SO ORDERED. Hitachi Cable Philippines Inc. Because of all these. (2) loss of trust and confidence. Respondents. Accordingly. and.. Respondents likewise averred that petitioner established a company engaged in the same business as respondent corporation’s and even submitted proposals for janitorial services to two of the latter’s clients. As to the rest of the complainants. petitioner together with a few others. 2005 of the Court of Appeals (CA) in CA-G. all foregoing premises considered. 86017 which dismissed the petition for certiorari filed before it. to various clients. janitresses and other maintenance personnel. This Petition for Review on Certiorari assails the Decision1 dated June 28. Further. he was removed from his position as Manager through Board Resolution 2001-033adopted by respondent corporation’s Board of Directors. 168757 January 19. All other claims against respondents including attorney’s fees are DISMISSED for lack of merit. While admitting that he is indeed a stockholder of respondent corporation. 2011 RENATO REAL. and/ or KIICHI ABE. Inc. 2001-03 removing petitioner as Manager. like janitors. Aside from petitioner’s own admission in the pleadings that he is a stockholder and at the same time occupying a managerial position. petitioner would almost always absent himself from work without informing the corporation of his whereabouts and that he would come to the office only to collect his salaries. petitioner together with other employees also barricaded the premises of respondent corporation. 2003 declared petitioner and his co-complainants as having been illegally dismissed and ordered respondents to reinstate complainants to their former positions without loss of seniority rights and other privileges and to pay their full backwages from the time of their dismissal until actually reinstated and furthermore. judgment is hereby rendered DISMISSING the complaint of Renato Real for lack of jurisdiction. Such acts respondents posited constitute just cause for petitioner’s dismissal and that same was validly effected. his action against respondents is an intra-corporate controversy over which the Labor Arbiter has no jurisdiction. In one instance. Epson Precision (Phils. petitioner called the CA’s attention to the same GIS relied upon by the NLRC when it declared him to be a corporate officer. Respondents. 2001. As he was almost always absent. the appealed Decision dated June 5.

Said column requires that the particular position be indicated if the person is an officer and if not. the question of whether petitioner is a corporate officer is a question of fact which." and that it is "broad and covers all kinds of controversies between stockholders and corporations. (5) As manager. his complaint is an intra-corporate controversy over which the labor arbiter has no jurisdiction.E. with a par-value of One Hundred Thousand Pesos (P100. they cited several jurisprudence such as Pearson & George (S. in an attempt to demolish petitioner’s claim that the present controversy concerns employer-employee relations.e. respondents stood firm that the action against them is an intra-corporate controversy. National Labor Relations Commission13 and again. unable to properly supervise the employees and even causing friction with the corporation’s clients by engaging in unruly behavior while in client’s premises. that is. nor any exemption whatsoever. he had direct management and authority over all of respondent corporation’s skilled employees." that "[t]here is no distinction. To the respondents. Petitioner likewise contends that his complaint for illegal dismissal against respondents is not an intra-corporate controversy.12 Fortune Cement Corporation v. was even impliedly recognized by respondents as shown by the earlier quoted portion of the termination letter they sent to him. To support its finding. respondents enumerated the following facts and circumstances: (1) Petitioner was an incorporator. (6) Petitioner has shown himself to be an incompetent manager. In the assailed Decision10 dated June 28. Tabang v.15Apparently. respondents posit that what petitioner is essentially assailing before this Court is the finding of the NLRC and the CA that he is a corporate officer of respondent corporation. respondents insist that petitioner who is undisputedly a stockholder of respondent corporation is likewise a corporate officer and that his action against them is an intra-corporate dispute beyond the jurisdiction of the labor tribunals. SO ORDERED.000) of the Ten Thousand Eight Hundred (10. Petitioner further argued that the fact that his dismissal was effected through a board resolution does not likewise mean that he is a corporate officer. They explain that the benefits provided under the Labor Code were merely made by respondent corporation as the basis in determining . same must arise from intra-corporate relations. but one by an officer and at same time a major stockholder seeking to be reinstated to his former office against the corporation that declared his position vacant. all that an employer has to do in order to avoid compliance with the requisites of a valid dismissal under the Labor Code is to dismiss a managerial employee through a board resolution. his utter failure to advance its interest and the prejudice caused by his acts of disloyalty. Hence. the assailed decision and resolution of the public respondent National Labor Relations Commission in NLRC NCR CA No. an action involving the status of a stockholder as such. the instant petition is hereby DISMISSED. respondents intended to show from this enumeration that petitioner’s removal pertains to his relationship with respondent corporation. (4) His appointment as manager was by virtue of Section 1. in a blatant and palpable act of disloyalty. Asia). to wit: In this connection (his dismissal) you are entitled to separation pay and other benefits provided for under the Labor Code of the Philippines. he insisted that his action for illegal dismissal is not an intra-corporate controversy as same stemmed from employee-employer relationship which is well within the jurisdiction of the Labor Arbiter. cannot be the subject of review under this Petition for Review on Certiorari. (9) After his removal. He argues that a corporate officer is one who holds an elective position as provided in the Articles of Incorporation or one who is appointed to such other positions by the Board of Directors as specifically authorized by its By-Laws. As to petitioner’s co-complainants. At any rate. For this reason. petitioner maintains that he is not a corporate officer contrary to the findings of the NLRC and the CA. stockholder and manager of respondent company. according to him. And. Accordingly. Article IV of respondent corporation’s By-Laws.11Philippine School of Business Administration v. It cited Tabang v. the entry "N/A".000. Said court opined that if it was true that petitioner is a mere employee. National Labor Relations Commission. Inc. petitioner is also a corporate officer thereof and consequently. This can be deduced and is bolstered by the last paragraph of the termination letter sent to him by respondents stating that he is entitled to benefits under the Labor Code. the CA likewise cited Tabang. petitioner elevated the case to us through this Petition for Review on Certiorari. v. 036128-03 NLRC SRAB-IV-05-6618-01-B/05-6619-02B/05-6620-02-B/10-6637-01-B/10-6833-01-B. he was one of only seven incorporators of respondent corporation and one of only four Filipino members of the Board of Directors. National Labor Relations Commission. The dispositive portion of the CA Decision reads: WHEREFORE. The Parties’ Arguments Petitioner continues to insist that he is not a corporate officer. STANDS. Now alone but still undeterred. since he was neither elected nor is there any showing that he was appointed by the Board of Directors to his position as Manager. (2) As an incorporator. respondents contended that the action instituted by petitioner against them is an intracorporate controversy cognizable only by the appropriate regional trial court. the NLRC correctly dismissed petitioner’s complaint for lack of jurisdiction. as held in a long line of jurisprudence. For their part. petitioner urged the employees under him to stage an unlawful strike by leading them to believe that they have been illegally dismissed from employment. respondent corporation through a Resolution adopted by its Board of Directors was finally constrained to remove petitioner as Manager and declare his office vacant. He believes that his action against the respondents does not arise from intra-corporate relations but rather from employer-employee relations.. Leano. 2005. Otherwise. He avers that for an action or suit between a stockholder and a corporation to be considered an intracorporate controversy. To support this. (7) As if his incompetence was not enough. respondents state that the fact that petitioner is being given benefits under the Labor Code as stated in his termination letter does not mean that they are recognizing the employer-employee relations between them. Moreover. i. the respondent corporation would not have called a board meeting to pass a resolution for petitioner’s dismissal considering that it was very tedious for the Board of Directors to convene and to adopt a resolution every time they decide to dismiss their managerial employees.thereof as shown by the entry "N/A" or "not applicable" opposite his name in the officer column. National Labor Relations Commission9 wherein this Court declared that "an intra-corporate controversy is one which arises between a stockholder and the corporation.14 Moreover. qualification.00). This. (8) Because of these acts of incompetence and disloyalty." In view of this ruling and since petitioner is undisputedly a stockholder of the corporation. he established another company engaged in the same line of business as respondent corporation. he has One Thousand (1.800) common shares held by Filipino stockholders. Finally. (3) As stockholder. the CA likewise affirmed the NLRC’S finding that they were never dismissed from the service. respondents see the action against them not as a case between an employer and an employee as what petitioner alleges.8 (Emphasis supplied) In contrast. the CA sided with respondents and affirmed the NLRC’s finding that aside from being a stockholder of respondent corporation.

but must as well pertain to the enforcement of the parties’ correlative rights and obligations under the Corporation Code and the internal and intracorporate regulatory rules of the corporation. partners or associates themselves. This came to be known as the relationship test. to wit: [A]n intra-corporate controversy is one which arises between a stockholder and the corporation. partnership or association and the public. b) between the corporation. or association and the State insofar as it concerns the individual franchises. This is explained lengthily in Reyes v. We declared in this case that it is not the mere existence of an intra-corporate relationship that gives rise to an intra-corporate controversy. between any or all of them and the corporation. Inc.. the Court provided in Mainland Construction Co. then no intra-corporate controversy exists. it does not necessarily follow that every conflict between the corporation and its stockholders would involve such corporate matters as only SEC (now the Regional Trial Court20) can resolve in the exercise of its adjudicatory or quasi-judicial powers. However.. National Labor Relations Commission. The existence of any of the above intra-corporate relations was sufficient to confer jurisdiction to the SEC (now the RTC). while Tabang was promulgated later than Mainland Construction Co. Under the nature of the controversy test. Our Ruling Two-tier test in determining the existence of intra-corporate controversy Respondents strongly rely on this Court’s pronouncement in the 1997 case of Tabang v. Regional Trial Court of Makati. and between such corporation. We saw that there is no legal sense in disregarding or minimizing the value of the nature of the transactions which gives rise to the dispute. not all conflicts between the stockholders and the corporation are classified as intracorporate. respondents contend that even if petitioner challenges his being a corporate officer. respondents pray that this petition be dismissed for lack of merit. and d) among the stockholders. the SEC will not have jurisdiction.21 to wit: Intra-Corporate Controversy A review of relevant jurisprudence shows a development in the Court’s approach in classifying what constitutes an intracorporate controversy. The controversy must not only be rooted in the existence of an intra-corporate relationship.. Esta del Sol Mountain Reserve. The Court then combined the two tests and declared that jurisdiction should be determined by considering not only the status or relationship of the parties. This two-tier test was adopted in the recent case of Speed Distribution Inc. Br. in the 1984 case of DMRC Enterprises v. If the relationship and its incidents are merely incidental to the controversy or if there will still be conflict even if the relationship does not exist. regardless of the subject matter of the dispute. the incidents of that relationship must also be considered for the purpose of ascertaining whether the controversy itself is intra-corporate. its directors. to rely on the relationship test alone will divest the regular courts of their jurisdiction for the sole reason that the dispute involves a corporation. Movilla17 a "better policy" in determining which between the Securities and Exchange Commission (SEC) and the Labor Arbiter has jurisdiction over termination disputes. It is worthy to note. It does not and it cannot change the intra-corporate nature of the controversy. respectively. we thus find no merit in respondents’ contention that the fact alone that petitioner is a stockholder and director of respondent corporation automatically classifies this case as an intra-corporate controversy. or stockholders. The provision is broad and covers all kinds of controversies between stockholders and corporations. Court of Appeals: ‘To determine whether a case involves an intra-corporate controversy. necessarily. viz: The fact that the parties involved in the controversy are all stockholders or that the parties involved are the stockholders and the corporation does not necessarily place the dispute within the ambit of the jurisdiction of the SEC (now the Regional Trial Court19). that before the promulgation of the Tabang case. If the nature of the controversy involves matters that are purely civil in character. The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation. Inc.] Guided by this recent jurisprudence. (Emphasis ours) And. the main consideration in determining whether a dispute constitutes an intra-corporate controversy was limited to a consideration of the intracorporate relationship existing between or among the parties. qualification nor any exemption whatsoever. v. whether they are intra-corporate or not. The types of relationships embraced under Section 5(b) x x x were as follows: a) between the corporation. members or associates. partnership or association and the State as far as its franchise. the core issue to be resolved in this case is whether petitioner’s complaint for illegal dismissal constitutes an intra-corporate controversy and thus. partners. and is to be heard and decided by the branches of the RTC specifically designated by the Court to try and decide such cases. officers. 142.16 In view of this.. c) between the corporation. however. In the absence of any one of these factors. There are other factors to consider in determining whether the dispute involves corporate matters as to consider them as intra-corporate controversies. partnership. and (2) the nature of the question that is the subject of their controversy. but also the nature of the question under controversy.petitioner’s compensation package and that same are merely part of the perquisites of petitioner’s office as a director and manager. Initially. partnership or association of which they are stockholders. Hence. two elements must concur: (a) the status or relationship of the parties.18 or similarly. To reiterate. v. Issues From the foregoing and as earlier mentioned. Inc. The first element requires that the controversy must arise out of intra-corporate or partnership relations between any or all of the parties and the corporation. the case does not involve an intra-corporate controversy. the "better policy" enunciated in the latter appears to have developed into a standard approach in classifying what constitutes an intra-corporate controversy. members or officers.’ [Citations omitted. the Court introduced the nature of the controversy test. or association of which they are not stockholders. the present case still constitutes an intra-corporate controversy as petitioner is undisputedly a stockholder and a director of respondent corporation. What then is the nature of petitioner’s Complaint for Illegal Dismissal? Is it intra-corporate and thus beyond the . The better policy to be followed in determining jurisdiction over a case should be to consider concurrent factors such as the status or relationship of the parties or the nature of the question that is subject of their controversy. partnership. beyond the jurisdiction of the Labor Arbiter. partnership or association and its stockholders. members or associates. There is no distinction. Furthermore. permit or license to operate is concerned.

coupled by the fact that they failed to produce any documentary evidence to prove that petitioner was appointed thereto by action or with approval of the board. we cannot subscribe to their claim that petitioner is a corporate officer. therefore. He instead alleges that he was hired as Manager of respondent corporation solely by respondent Abe.00. As such. Complainant-appellee Renato Real was appointed as the manager of respondent-appellant Sangu on November 6. Petitioner negates his status as a corporate officer by pointing out that although he was removed as Manager through a board resolution. reveals that the root of the controversy is petitioner’s dismissal as Manager of respondent corporation. For one. "The Court has stressed time and again that allegations must be proven by sufficient evidence because mere allegation is definitely not evidence. 1998. but as an alleged corporate officer. No intra-corporate relationship between the parties As earlier stated. And albeit respondents claim that the determination of whether petitioner is a corporate officer is a question of fact which this Court cannot pass upon in this petition for review on certiorari."25 It also does not escape our attention that respondents made the following conflicting allegations in their Memorandum on Appeal26 filed before the NLRC which cast doubt on petitioner’s status as a corporate officer. It has been consistently held that "[a]n ‘office’ is created by the charter of the corporation and the officer is elected (or appointed) by the directors or stockholders. respondents’ loss of trust and confidence in petitioner stemmed from his alleged acts of establishing a company engaged in the same line of business as respondent corporation’s and submitting proposals to the latter’s clients . Hence. While the By-Laws of respondent corporation provides that the Board may from time to time appoint such officers as it may deem necessary or proper. the above-quoted inconsistencies in their allegations as to how petitioner was placed in said position.000. the Secretary at said meeting. we shall nonetheless proceed to consider the same because such question is not the main issue to be resolved in this case but is merely collateral to the core issue earlier mentioned."22 Respondents claim that petitioner was appointed Manager by virtue of Section 1. his position was reposed with full trust and confidence. it is necessary to determine if petitioner is a corporate officer of respondent corporation so as to establish the intra-corporate relationship between the parties. In applying the relationship test. x x x x23 (Emphasis ours) We have however examined the records of this case and we find nothing to prove that petitioner’s appointment was made pursuant to the above-quoted provision of respondent corporation’s By-Laws. petitioner claims to be a mere employee of respondent corporation rather than as a corporate officer. petitioner is involved in this case not in his capacity as a stockholder or director."27 Clearly here. Article IV of respondent corporation’s ByLaws which provides: ARTICLE IV OFFICER Section 1.jurisdiction of the Labor Arbiter? We shall answer this question by using the standards set forth in the Reyes case. Masahiko Shibata. he was working at Atlas Ltd. He was staying in Japan as an illegal alien for the past eleven (11) years. except that no one shall act as President and Treasurer or Secretary at the same time. may from time to time. The number of corporate officers is thus limited by law and by the corporation’s by-laws. secretary and the treasurer. one of respondent-appellant Sangu’s Board of Directors. x xx While respondents repeatedly claim that petitioner was appointed as Manager pursuant to the corporation’s By-Laws. A corporation may have such other officers as may be provided for by its by-laws like. if complainant-appellee Renato Real could work as one of its employees here in the Philippines because he had been blacklisted at Japan’s Immigration Office and could no longer go back to Japan. (2) respondents’ loss of trust and confidence on petitioner. moral damages and attorney’s fees. And so it was arranged that he would serve as respondent-appellant Sangu’s manager. "‘Corporate officers’ in the context of Presidential Decree No. He had a problem with his family here in the Philippines which prompted him to surrender himself to Japan’s Bureau of Immigration and was deported back to the Philippines. Ibaraki-ken Japan. Vice-President. No copy of board resolution appointing petitioner as Manager or any other document showing that he was appointed to said position by action of the board was submitted by respondents. it is not difficult to see that the reasons given by respondents for dismissing petitioner have something to do with his being a Manager of respondent corporation and nothing with his being a director or stockholder. Inc. The number of officers is not limited to these three. Priorly [sic]. and. (3) to cut down operational expenses to reduce further losses being experienced by the corporation. but not limited to. to wit: xxxx 24. We find merit in petitioner’s contention. auditor or general manager. Co. however. we find that there is no intracorporate relationship between the parties insofar as petitioner’s complaint for illegal dismissal is concerned and that same does not satisfy the relationship test. As earlier stated. What we found instead were mere allegations of respondents in their various pleadings24 that petitioner was appointed as Manager of respondent corporation and nothing more. Tsutomo Nogami requested Mr. he avers that respondents failed to present any board resolution that he was appointed pursuant to said By-Laws. only leads this Court to believe otherwise. Thus. These are the president. respondents failed to prove that petitioner was appointed by the board of directors. petitioner’s status as a stockholder and director of respondent corporation is not disputed. at Mito-shi. the vice-president. As such. Present controversy does not relate to intra-corporate dispute We now go to the nature of controversy test. From these. There are three specific officers whom a corporation must have under Section 25 of the Corporation Code. the Board of Directors shall formally organize by electing the President. What the parties disagree on is the finding of the NLRC and the CA that petitioner is a corporate officer. a position which respondents claim to be a corporate office. Hence. he was tasked to oversee the operations of the company. he was never elected to said position nor was he appointed thereto by the Board of Directors. appoint such other officers as it may determine to be necessary or proper. The Board. Any two (2) or more positions may be held concurrently by the same person. cashier. An examination of the complaint for illegal dismissal. Election/Appointment – Immediately after their election. Mr. Having said this. receiving a salary of P25. 902-A are those officers of the corporation who are given that character by the Corporation Code or by the corporation’s bylaws. respondents terminated the services of petitioner for the following reasons: (1) his continuous absences at his post at Ogino Philippines. complainant-appellee Renato Real was hired as the manager of respondent-appellant Sangu. petitioner’s continuous absences in his post in Ogino relates to his performance as Manager. x x x (Emphasis ours) xxxx As earlier stated. His former employer. For these reasons. Second. backwages. petitioner filed a complaint for illegal dismissal and sought reinstatement.

Said cases are by no means similar to the present case because as discussed earlier. yet they failed to present any proof that petitioner was indeed absent for such a long time. we again observe that these are mere allegations without sufficient proof. as correctly observed by the Labor Arbiter. National Labor Relations Commission33 both concern a complaint for illegal dismissal by corporate officers who were not re-elected to their respective corporate positions. when petitioner sought for reinstatement. in saying that they were dismissing petitioner to cut operational expenses.38 With the elements of intra-corporate controversy being absent in this case. But just like in the charge of absenteeism. In cases such as this. Certainly. "However. allegations must be proven by sufficient evidence because mere allegation is definitely not evidence. the petition is hereby GRANTED. With the foregoing. The law requires the employer to furnish the employee sought to be dismissed with two written notices before termination of employment can be legally effected: (1) a written notice apprising the employee of the particular acts or omissions for which his dismissal is sought in order to afford him an opportunity to be heard and to defend himself with the assistance of counsel. 2005 Decision of the Court of Appeals insofar as it affirmed the National Labor Relations Commission’s dismissal of petitioner’s complaint for lack of jurisdiction. however. As to the charge of breach of trust allegedly committed by petitioner when he established a new company engaged in the same line of business as respondent corporation’s and submitted proposals to two of the latter’s clients while he was still a Manager. Respondents likewise allege that petitioner engaged in a heated argument with the employees of Epson.28 It was only after respondents invoked the Labor Arbiter’s lack of jurisdiction over petitioner’s complaint in the Supplemental Memorandum of Appeal29 filed before the NLRC that respondents started considering said acts as such. The June 5. petitioner’s dismissal was effected without due process of law. 2003 Decision of the Labor Arbiter with respect to petitioner Renato Real is AFFIRMED and this case is ordered REMANDED to the National Labor Relations Commission for the computation of petitioner’s backwages and attorney’s fees in accordance with this Decision. however. If. when there is enough basis on which a proper evaluation of the merits of petitioner’s case may be had. Fortune Cement Corporation v. Also. the fact that petitioner was still able to collect his salaries after his alleged absences casts doubts on the truthfulness of such charge. To reiterate. there is no showing that an investigation on the matter was done and that disciplinary action was imposed upon petitioner. falls under the jurisdiction of the Labor Arbiter pursuant to Section 21730 of the Labor Code. the Court normally remands the case to the NLRC and directs it to properly dispose of the case on the merits. Petitioner’s dismissal not in accordance with law WHEREFORE. if he desires. what we have here is a case of termination of employment which is a labor controversy and not an intracorporate dispute. earlier declared to be not a corporate position. Philippine School of Business Administration v. And. This procedure is mandatory and its absence taints the dismissal with illegality. the onus probandi rests on the employer to prove that [the] dismissal of an employee is for a valid cause. we hold that petitioner’s complaint likewise does not satisfy the nature of controversy test. it is clear that the CA erred in affirming the decision of the NLRC which dismissed petitioner’s complaint for lack of jurisdiction. the pleadings.40 we affirm the Labor Arbiter’s judgment ordering petitioner’s reinstatement to his former position without loss of seniority rights and other privileges and awarding backwages from the time of his dismissal until actually reinstated. we agree with the findings of the Labor Arbiter that petitioner has been illegally dismissed. He is not trying to recover a seat in the board of directors or to any appointive or elective corporate position which has been declared vacant by the board. petitioner’s dismissal was effected through a board resolution and all that petitioner received was a letter informing him of the board’s decision to terminate him."37 Here. Moreover. it is a termination dispute and. and (2) a subsequent notice informing the employee of the employer’s decision to dismiss him. At any rate. In sum. we have reviewed the records of this case and we agree with the Labor Arbiter that under the circumstances. "In an illegal dismissal case. Rather. . the abovementioned procedure was clearly not complied with. based on the records. leaving no root or branch to bear the seeds of litigation. petitioner here is not a corporate officer. respondents failed to produce any convincing proof to support the grounds for which they terminated petitioner. The Court declared all these cases as involving intra-corporate controversies and thus affirmed the jurisdiction of the SEC (now the RTC)34 over them precisely because they all relate to corporate officers and their removal or non-reelection to their respective corporate positions.lawphi1 "The twin requirements of notice and hearing constitute the essential elements of due process. we.while he was still serving as its Manager. Thus. we likewise affirm the award of attorney’s fees which is equivalent to 10% of the total backwages that respondents must pay petitioner in accordance with this Decision."39 Since in this case. said charges are not sufficient bases for petitioner’s termination. a position which we have. as an illegally dismissed employee is entitled to the two reliefs of backwages and reinstatement. consequently. SO ORDERED. respondents actually want to save on the salaries and other remunerations being given to petitioner as its Manager. we shall proceed to do so. as constituting willful breach of the trust reposed upon petitioner as Manager. the dispute can be resolved by us. one of respondents’ clients. All told. Respondents contend that petitioner has been absent for several months. Considering that petitioner has to secure the services of counsel to protect his interest and necessarily has to incur expenses. we thus hold that petitioner’s complaint for illegal dismissal against respondents is not intra-corporate. respondents did not see such acts to be disloyal acts of a director and stockholder but rather. he wanted to recover his position as Manager. We take note of the cases cited by respondents and find them inapplicable to the case at bar. is hereby REVERSED and SET ASIDE. the Court may dispense with the time-consuming procedure of remand in order to prevent further delays in the disposition of the case."36 We have gone over the records before us and we are convinced that we can now altogether resolve the issue of the validity of petitioner’s dismissal and hence. think that same is a mere afterthought on their part to make it appear that the present case involves an element of intra-corporate controversy. National Labor Relations Commission31 involves a member of the board of directors and at the same time a corporate officer who claims he was illegally dismissed after he was stripped of his corporate position of Executive Vice-President because of loss of trust and confidence. Third. Leano32 and Pearson & George v. and other evidence. we will do so to serve the ends of justice instead of remanding the case to the lower court for further proceedings. While we note that respondents also claim these acts as constituting acts of disloyalty of petitioner as director and stockholder. This is because before the Labor Arbiter. The assailed June 28."35 "It is already an accepted rule of procedure for us to strive to settle the entire controversy in a single proceeding. On the other hand.

compensation. it credited her the years she served with the Filoil task force. and benefits that she used to enjoy at Petron. president. on the other hand. 1996. The Facts and the Case Petitioner Gloria V. hence. Gomez’s task force was abolished and its members. she advised the board to suspend the privatization until all assets have been accounted for. appointed her its corporate secretary and legal counsel. general manager. and attorney’s fees with the Labor Arbiter on December 8. Moreover. In answer. 1999. however. It reasoned that. treasurer. her complaint is within the jurisdiction of the Regional Trial Court (RTC) under P. Consequently.G. in her capacity as administrator of respondent PDMC. Upon elevation of the matter to the Court of Appeals (CA) in CA-G. the Filoil board of directors created a five-member task force headed by petitioner Gomez who had been designated administrator.1 with the same managerial rank. Respondent. her retirement date. But.19 With the denial of her motion for reconsideration. With the privatization temporarily shelved. On the following day.11 In a special meeting held on December 29. J.: This case is about what distinguishes a regular company manager performing important executive tasks from a corporate officer whose election and functions are governed by the company’s by-laws.16 On motion for reconsideration. however. such action should be deemed ratified since the board had been aware of it since 1994. her complaint came under the jurisdiction of the Labor Arbiter. including Gomez. since her position was functionally that of a vice-president or general manager.9 Petitioner Gomez for her part conceded that as corporate secretary. The president alone also determined her compensation package.A. the administrator was not among the corporate officers mentioned in the PDMC by-laws. On May 24. when they named her administrator. her term could be extended under the company’s by-laws only with the approval of the board. 1998. as amended by Republic Act (R.23 Here. 1998 letter that extended her term. she further amended her complaint to include illegal dismissal. a new board of directors for PDMC took over the company.3 The matter was then reported to the Department of Labor and Employment on March 7. 2009 GLORIA V. and are those who are given that character either by the Corporation Code or by the corporation’s bylaws.2 While documenting Filoil’s assets. 174044 November 27. 1994. she found several properties which were not in the books of the corporation. then a governmentowned corporation. SP 88819.10 She later amended her complaint to include other money claims. When this happened. an ordinary employee whose complaint for illegal dismissal and non-payment of wages and benefits is within the jurisdiction of the NLRC. 1996 its president re-hired her as administrator and legal counsel of the company.21Corporate officers.R.4 Meantime.(formerly known as FILOIL DEVELOPMENT AND MANAGEMENT CORPORATION [FDMC]). PNOC DEVELOPMENT AND MANAGEMENT CORPORATION (PDMC) . and secretary. petitioner Gomez continued to serve as corporate secretary of respondent PDMC.5 In accordance with company guidelines.14 Respondent PDMC moved to have petitioner Gomez’s complaint dismissed on ground of lack of jurisdiction. Pending resolution of the issue. Filoil underwent reorganization and was renamed Filoil Development Management Corporation (FDMC). On September 23. not a corporate officer. GOMEZ. the board sought the advice of its legal department. 2000 the board informed petitioner of its decision. 1999. 2004. she presented the former president’s May 24. The Court’s Ruling Ordinary company employees are generally employed not by action of the directors and stockholders but by that of the managing officer of the corporation who also determines the compensation to be paid such employees. DECISION ABAD. To facilitate its conversion.12 On January 5. On March 29. The legal department held that her "de facto" tenure could be legally put to an end.20 Gomez filed this petition for review on certiorari under Rule 45. not its board of directors or the stockholders. 1999 the board questioned her continued employment as administrator. also a government-owned corporation. she became a regular managerial employee. 1996. Gomez used to work as Manager of the Legal Department of Petron Corporation.D. she served only as a corporate officer. the respondent PDMC’s board withheld petitioner Gomez’s wages from November 16 to 30. The Labor Arbiter granted the motion15 upon a finding that Gomez was a corporate officer and that her case involved an intracorporate dispute that fell under the jurisdiction of the Securities and Exchange Commission (SEC) pursuant to Presidential Decree (P. The Issue Presented The key issue in this case is whether or not petitioner Gomez was. 1994. at the board’s meeting on October 21. she was clearly a corporate officer. the respondent PDMC’s board did not have to approve either her appointment as such or the extension of her term in 1998.13 Thus. The CA held that since Gomez’s appointment as administrator required the approval of the board of directors. 902-A.) 8799. the latter rendered a decision on May 19. are elected or appointed 22 by the directors or stockholders. But the OGCC ventured that the extension of her term beyond retirement age should have been made with the board’s approval. executive vice-president.7 She was supposed to serve beyond retirement from August 11. Thus.6 pursuant to his authority under the PDMC Approvals Manual. the Office of the Government Corporate Counsel (OGCC) held the view that while respondent PDMC’s board did not approve the creation of the position of administrator that Gomez held. damages. which later became the respondent PNOC Development Management Corporation (PDMC). she availed of the company’s early retirement program and left that organization on April 30. the next president of PDMC extended her term as administrator beyond her retirement age. With Petron’s privatization. Filoil Refinery Corporation (Filoil). prompting her to file a complaint for non-payment of wages. Further. vice-president. Petitioner.18 reversing the NLRC decision. 2006. But Filoil was later on also identified for privatization. 1998. 1999 the respondent PDMC’s board resolved to terminate petitioner Gomez’s services retroactive on August 11. Consequently. Dissatisfied with this.24 Respondent PDMC claims. 1999 the new board of directors of respondent PDMC removed petitioner Gomez as corporate secretary. The corporate officers proper were the chairman. No. that since its board had under its by-laws the power to create additional corporate .17 The Third Division held that Gomez was a regular employee. Meantime. May 1. vs. the National Labor Relations Commission (NLRC) Third Division set aside the Labor Arbiter’s order and remanded the case to the arbitration branch for further proceedings.8 Sought for comment. however. were given termination notices on March 5.R. it was the PDMC president who appointed petitioner Gomez administrator. 1998 to August 11.D.) 902-A. which expressed the view that Gomez’s term extension was an ultra vires act of the former president.

Her appointment paper said that she would be entitled to all the rights. In Elleccion Vda. The PDMC in this case is estopped from claiming that despite all the appearances of regular employment that it weaved around petitioner Gomez’s position it must have technically hired her only as a corporate officer. the Court GRANTS the petition. Indeed.R. an equitable principle rooted on natural justice.37 These are all indicia of an employeremployee relationship which respondent PDMC failed to refute. respondent PDMC hired petitioner Gomez as an ordinary employee without board approval as was proper for a corporate officer. The company’s mindset from the beginning. corporate positions that were mentioned in the company’s by-laws. whether as officer or agent or employee.25 But creating an additional corporate office was definitely not respondent PDMC’s intent based on its several actions concerning the position of administrator.33 Likewise. was that she was not a corporate officer. It points out that Gomez was third in the line of command. When the company got her the first time. and REINSTATES the resolution dated November 22.30 stating that Gomez was a permanent employee and that the company had remitted combined contributions during her tenure. SP 88819. WHEREFORE.29 What is more. the Medicare. But the relationship of a person to a corporation. finding that the money claims were made as an employee and not as a corporate officer. 2002 of the National Labor Relations Commission’s Third Division in NLRC NCR 30-12-00856-99.38 This principle of law applies to corporations as well. The company also made her a member of the PDMC’s savings and provident plan31 and its retirement plan.offices. REVERSES and SETS ASIDE the decision dated May 19.35 and was entitled to vacation and emergency leaves. and benefits that regular PDMC employees enjoyed.26and had been empowered to make major decisions and manage the affairs of the company. The president even extended her term in May 1998 also without such approval. De Lecciones v. 2008. National Labor Relations Commission. .36 PDMC even withheld taxes on her salary and declared her as an employee in the official Bureau of Internal Revenue forms. A corporation is not prohibited from hiring a corporate officer to perform services under circumstances which will make him an employee. The board and its officers made her stay on and work with the company for years under the belief that she held a regular managerial position.39 Indeed. Respondent PDMC of course claims that as administrator petitioner Gomez performed functions that were similar to those of its vice-president or its general manager.40 the Court upheld NLRC jurisdiction over a complaint filed by one who served both as corporate secretary and administrator. Let the records of this case be REMANDED to the arbitration branch of origin for the conduct of further proceedings. is not determined by the nature of the services he performs but by the incidents of his relationship with the corporation as they actually exist. the PDMC president first hired her as administrator in May 1994 and then as "administrator/legal counsel" in September 1996 without a board approval.34 purchased stocks through the employee stock option plan. 2006 and the resolution dated August 15. next only to the chairman and president. privileges. prevents a person from rejecting his previous acts and representations to the prejudice of others who have relied on them. It even issued certifications dated October 10.1avvphi1 Respondent PDMC never told Gomez that she was a corporate officer until the tail-end of her service after the board found legal justification for getting rid of her by consulting its legal department and the OGCC which supplied an answer that the board obviously wanted. it agreed to have her retain the managerial rank that she held with Petron. and the PagIbig Fund. 2006 of the Court of Appeals in CA-G. therefore.32 It grouped her with the managers covered by the company’s group hospitalization insurance.28 This is in sharp contrast to what the former PDMC president’s appointment paper stated: he was elected to the position and his compensation depended on the will of the board of directors. she underwent regular employee performance appraisals. it may be deemed to have simply ratified its president’s creation of the corporate position of administrator. That petitioner Gomez served concurrently as corporate secretary for a time is immaterial. Estoppel. SO ORDERED. it is possible for one to have a dual role of officer and employee. 27 Here. respondent PDMC enrolled petitioner Gomez with the Social Security System.

members or associates. he would terminate the services of petitioner. Templo allegedly harassed. 1999. 1997 up to the time of his actual reinstatement which is tentatively computed as of the date of this decision on August 21. SP No. THE COURT OF APPEALS ERRED IN FINDING THAT PETITIONER WAS APPOINTED BY RESPONDENT'S BOARD OF DIRECTORS AS COMPTROLLER. J. premises considered.2 On August 21. the Labor Arbiter rendered a Decision stating that petitioner had been illegally dismissed. P75.750. he shall be entitled to additional backwages until actually reinstated. and with full backwages computed from the time of his illegal dismissal on May 16.R. the law in force when the complaint for illegal dismissal was instituted by petitioner in 1997. 5 IBC then filed with the Court of Appeals a petition for certiorari under Rule 65. claiming that petitioner was not the Assistant General Manager/Comptroller of IBC but merely usurped the powers of the Comptroller.16 months = P1. 2002 DILY DANY NACPIL. along with a certain Mr. KAPUNAN. Likewise. The dispositive portion of said decision states: WHEREFORE. Petitioner Nacpil submits that: I. II. between and among stockholders. Templo allegedly refused to recognize petitioner's employment. members or associates.750.00). IBC filed a motion to dismiss alleging that the Labor Arbiter had no jurisdiction over the case.1âwphi1. this petition. the following cases fall under the exclusive of the SEC: a) Devices or schemes employed by or any acts of the board of directors. To reinstate complainant to his former position without diminution of salary or loss of seniority rights. Under Presidential Decree No. in view of all the foregoing. which petition was granted by the appellate court in its Decision dated November 23. Apparently. partnership or association and the State . ordering the latter: 1.R. THE ONLY ISSUE FOR ITS DETERMINATION IS WHETHER NLRC COMMITTED GRAVE ABUSE OF DISCRETION IN DOING THE SAME. 1998 in the amount of P1. No. b) Controversies arising out of intra-corporate or partnership relations. However. for the prior mismanagement of IBC. 1999. 2000 denying petitioner Dily Dany Nacpil's motion for reconsideration. 902-A (the Revised Securities Act). amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholders. which consistently ruled in favor of petitioner.00 as and for exemplary damages. its officers or partners. 1998. Should complainant be not reinstated within ten (10) days from receipt of this decision. but the same was dismissed in a Resolution dated March 2. when Emiliano Templo was appointed to replace IBC President Tomas Gomez III sometime in March 1997. 1999. 144767 March 21. the case qualifies as an intra-corporate dispute falling within the jurisdiction of the Securities and Exchange Commission (SEC).nêt Instead of filing its position paper. Templo blamed petitioner. RESPONDENT'S BY-LAWS DOES NOT INCLUDE COMPTROLLER AS ONE OF ITS CORPORATE OFFICERS. The Court of Appeals reversed the decisions promulgated by the Labor Arbiter and the National Labor Relations Commission (NLRC).e. petitioner.G. THE COURT OF APPEALS WENT BEYOND THE ISSUE OF THE CASE WHEN IT SUBSTITUTED THE NATIONAL LABOR RELATIONS COMMISSION'S DECISION TO APPLY THE APPEAL BOND REQUIREMENT STRICTLY IN THE INSTANT CASE.7 The issue to be resolved is whether the Labor Arbiter had jurisdiction over the case for illegal dismissal and nonpayment of benefits filed by petitioner. the former told the Board of Directors that as soon as he assumes the IBC presidency. 2. 1999 in CA-G. 527551 and the Resolution dated August 31.00 = P94. and between such corporation.00 plus 13th month pay equivalent to 1/12 of P 1. members of associations or organizations registered with the Commission. Furthermore. hence.137. Gomez. the petition for Certiorari is GRANTED.231. However.: This is a petition for review on certiorari under Rule 45.00 a month x 15. between any or all of them and the corporation.000.6 Petitioner then filed a motion for reconsideration. IBC contended that petitioner was a corporate officer who was duly elected by the Board of Directors of IBC.231. the motion was denied by the Labor Arbiter in an Order dated April 22.750. insulted. vs. The dispositive portion thereof reads: WHEREFORE. According to petitioner. SO ORDERED. Basilio and Mr. The Court finds that the Labor Arbiter had no jurisdiction over the same.137. allegedly because he had not yet secured the clearances from the Presidential Commission on Good Government and the Commission on Audit. INTERNATIONAL BROADCASTING CORPORATION. partnership or association of which they are stockholders. 2000. respectively.00 (i. business associates. assailing the Decision of the Court of Appeals dated November 23.00 or the total amount of P 1. Templo refused to pay him his retirement benefits. b) P500.. THIS FINDING IS CONTRARY TO THE COMMON. for its failure to file the required appeal bond in accordance with Article 223 of the Labor Code.000. Hence. FURTHER.3 IBC appealed to the NLRC.000. which was denied by the appellate court in a Resolution dated August 31. Petitioner states that he was Assistant General Manager for Finance/Administration and Comptroller of private respondent Intercontinental Broadcasting Corporation (IBC) from 1996 until April 1997. respondent. The assailed decisions of the Labor Arbiter and the NLRC are REVERSED and SET ASIDE and the complaint is DISMISSED without prejudice.000. jointly and severally. 1998. SO ORDERED. Upon his assumption of the IBC presidency. partners. to pay complainant the following: a) P 2 Million as and for moral damages. CONSISTENT POSITION AND ADMISSION OF BOTH PARTIES. Hence. judgment is hereby rendered in favor of the complainant and against all the respondents.4 IBC then filed a motion for reconsideration that was likewise denied in a Resolution dated April 26. in 1997. plus and (sic) c) Ten (10%) percent thereof as and for attorney's fees. humiliated and pressured petitioner into resigning until the latter was forced to retire. petitioner filed with the Labor Arbiter a complaint for illegal dismissal and non-payment of benefits.

and such other officers as the Board of Directors may from time to time does fit to provide for. Ceferino Basilio. for such claims are actually part of the perquisites of his position in. the same is in the nature of an intra-corporate controversy. The rule is that dismissal or non-appointment of a corporate officer is clearly an intra-corporate matter and jurisdiction over the case properly belongs to the SEC. any act or omission of the parties. trustees. partnership or association has no sufficient assets to cover its liabilities.20 It is likewise of no consequence that petitioner's complaint for illegal dismissal includes money claims. Clearly.D.21 Petitioner further argues that the IBC failed to perfect its appeal from the Labor Arbiter's Decision for its non-payment of the appeal bond as required under Article 223 of the Labor Code. The inclusion of such money claims does not convert the issue into a simple labor problem.D. 902-A. the SEC's jurisdiction over all cases enumerated in Section 5 of P. and managers.2 of the Securities Regulation Code (Republic Act No.17 it is clear therefore holds that petitioner is a corporate officer whose dismissal may be the subject of a controversy cognizable by the SEC under Section 5(c) of P. the corporation. petitioner underscores the fact that the IBC's By-Laws does not even include the position of comptroller in its roster of corporate officers. the Court of Appeals correctly held that: Since complainant's appointment was approved unanimously by the Board of Directors of the corporation. without prejudice to the filing of an appropriate action in the proper court. but is under the Management Committee created pursuant to this decree.SO ORDERED.23 It is a wellsettled rule that jurisdiction is conferred only by the Constitution or by law. but instead by the incidents of the relationship as they actually exist."14 and that where a corporate office is not specifically indicated in the roster of corporate offices in the by-laws of a corporation.D. the Decision of the Labor Arbiter had long become final and executory and thus. a General Manager. It cannot be fixed by the will of the parties. a Secretary-Treasurer. the Court has previously held that the relationship of a person to a corporation. he is therefore considered a corporate officer and his claim of illegal dismissal is a controversy that falls under the jurisdiction of the SEC as contemplated by Section 5 of P. while an "officer" as a person elected by the directors or stockholders. because the IBC's Board of Directors is empowered under Section 25 of the Corporation Code 12 and under the corporation's By-Laws to appoint such other officers as it may deem necessary. OFFICERS The officers of the corporation shall consist of a President. 2000. c) Controversies in the election or appointment of directors.22 Hence. The By-Laws of the IBC categorically provides: XII. officers. . enlarged or diminished by. or associations to be declared in the state of suspension of payments in cases where the corporation. and constitute a corporate controversy in contemplation of the Corporation Code.insofar as it concerns their individual franchise or right to exist as such entity.) The Court has consistently held that there are two elements to be considered in determining whether the SEC has jurisdiction over the controversy. (Emphasis supplied. the petition is hereby DISMISSED and the Decision of the Court of Appeals in CA-G.R. such board action would not have been required. 8799) which was signed into law by then President Joseph Ejercito Estrada on July 19. 902-A which includes controversies involving both election and appointment of corporate directors. d) Petitions of corporations. 902-A has been transferred to the Regional Trial Courts. Thus. the board of directors may also be empowered under the by-laws to create additional officers as may be necessary.24 Considering the foregoing. not to the NLRC. and (2) the nature of the question that is the subject of their controversy. He points out that he had actually been appointed as such on January 11. partnership or association possesses property to cover all of its debts but foresees the impossibility of meeting them when they respectively fall due or in cases where the corporation.13 The Court has held that in most cases the "by-laws may and usually do provide for such other officers. The Court has consistently held that where there is a finding that any decision was rendered without jurisdiction.15 An "office" has been defined as a creation of the charter of a corporation. SP No.18 Had petitioner been an ordinary employee. an "employee" occupies no office and is generally employed not by action of the directors and stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee. officers. and in deciding the case on the merits. trustees.10 Petitioner's argument is untenable.11 That the position of Comptroller is not expressly mentioned among the officers of the IBC in the ByLaws is of no moment. On the other hand. Such defense can be interposed at any time. partnerships or associations. 52755 is AFFIRMED. to wit: (1) the status or relationship of the parties. a Vice-President. 1âwphi1. or managers of such corporations. the issues raised by petitioner against the IBC are matters that come within the area of corporate affairs and management. and therefore linked with his relations with.16 As petitioner's appointment as comptroller required the approval and formal action of the IBC's Board of Directors to become valid.8 Petitioner argues that he is not a corporate officer of the IBC but an employee thereof since he had not been elected nor appointed as Comptroller and Assistant Manager by the IBC's Board of Directors.19 As to petitioner's argument that the nature of his functions is recommendatory thereby making him a mere managerial officer. the Court of Appeals acted with grave abuse of discretion amounting to lack or excess of jurisdiction in giving due course to the IBC's petition for certiorari. Even assuming that he was in fact appointed by the General Manager. whether as officer or agent or employee is not determined by the nature of the services performed. the Court holds that no error was committed by the Court of Appeals in dismissing the case filed before the Labor Arbiter. The IBC's failure to post an appeal bond within the period mandated under Article 223 of the Labor Code has been rendered immaterial by the fact that the Labor Arbiter did not have jurisdiction over the case since as stated earlier. partnerships. during appeal or even after final judgment. the action shall be dismissed. 1995 by the IBC's General Manager. such appointment was subsequently approved by the Board of Directors of the IBC. In support of his argument. it cannot be acquired through.9 He therefore contends that his dismissal is a controversy falling within the jurisdiction of the labor courts. Said officers shall be elected by majority vote of the Board of Directors and shall have such powers and duties as shall hereinafter provide (Emphasis supplied).nêt It must be noted that under Section 5. since compliance with the requirement of posting of a cash or surety bond in an amount equivalent to the monetary award in the judgment appealed from has been held to be both mandatory and jurisdictional.25 WHEREFORE.

. 1994 Resolution of the Court of Appeals in CA-GR CV No. vs. As no new ground was raised by petitioner. 1986. objected to private respondent's offer.000. PAIRCARGO Industrial Engineering Initially. through Punsalan.000.: Preparation of pertinent documentation requirements for the application Contracts entered into by a corporate president without express prior board approval bind the corporation. 6 To obtain a license for the corporation from the Bureau of Customs. Punsalan preferred private respondent's service because of the latter's membership in the task force. granted his prayer for P400. 1994. please be informed that our company is willing to hire your services and will pay the amount of THREE HUNDRED FIFTY THOUSAND PESOS (P350. 1998 Market Study PEOPLE'S AIRCARGO AND WAREHOUSING CO.000. The Facts Petitioner is a domestic corporation.. -------------------------------------------------------------------------------Thank you.R. 117847 October 7. the dispositive portion of which reads: 3 WHEREFORE. 1994. 9 However. sent private respondent a letter.000. Technica l Study Financial Feasibilit y Study PANGANIBAN. which was supervising the transition of the Bureau of Customs from the Marcos government to the Aquino administration. Yours truly. 10 On October 17.00 — uppon signing of the agreement. ordering [petitioner] to pay [private respondent] the amount of sixty thousand (P60. in its Decision promulgated February 28. 30670. 1990. PREMISES CONSIDERED.000. the appealed judgment is hereby MODIFIED in that [petitioner] is ordered to pay [private respondent] the amount of four hundred thousand pesos (P400. 7 Private respondent submitted a letter-proposal dated October 17. Antonio Punsalan Jr. in light of all the foregoing. CONFORME: (S)STEFANI C. respondents.. SAÑO (T)ANTONIO C. SAÑO (S)ANTONIO C. petitioner. Cheng Yong. In a collection case 1 filed by Stefani Saño against People's Aircargo and Warehousing Co. JR.000. Inc.. the Regional Trial Court (RTC) of Pasay City. which is reproduced hereunder: 8 Dear Mr.G. Consultant for President. No. Saño: With regard to the services offered by your company in your letter dated 13 October 1986. Punsalan: With reference to your request for professional engineering consultancy services for your proposed MIA Warehousing Project may we offer the following outputs and the corresponding rate and terms of agreement: ================ ================ ======= Project Feasibility Study consisting of The above services will be provided for a fee of [p]esos 350.00 payable according to the following schedule: ========================== ========================== = Fifty percent (50%) upon confirmation of the agreement Twenty-five percent (25%) 15 days after the confirmation of the agreement Twenty-five percent (25%) upon submission of the specified outputs The outputs will be completed and submitted within 30 days upon confirmation of the agreement and receipt by us of the first fifty percent payment. as another company priced a similar proposal at only P15. INC. for the preparation of the necessary study and documentations to support our Application for Authority to Operate a public Customs Bonded Warehouse located at the old MIA Compound in Pasay City. rendered a Decision 2 dated October 26. when such officer's apparent authority is estabished and when these contracts are ratified by the corporation. pertitioner. solicited a proposal from private respondent for the preparation of a feasibility study. reconsideration of the above-mentioned Decision was denied in the Resolution promulgated on October 28. J. 1994 Decision and the October 28. PUNSALAN. which was organized in the middle of 1986 to operate a customs bonded warehouse at the old Manila International Airport in Pasay City. The Counterclaim is hereby dismissed. Judgment is hereby rendered. the corporation president. private respondent appealed to the Court of Appeals 4 (CA) which.000. Aggrieved by what he considered a minuscule award of P60. confirming their agreement as follows: Dear Mr. COURT OF APPEALS and STEFANI SAÑO.00) representing payment of [private respondent's] services in preparing the manual of operations and in the conduct of a seminar for [petitioner].00) as follows: P100. Branch 110. JR..000. PUNSALAN.00) pesos representing payment of [private respondents] services in preparing the manual of operations and in the conduct of a seminar for [petitioner]. (T)STEFANI C. ___________________________ __________________ The Case This principle is stressed by the Court in rejecting the Petition for Review of the February 28. the majority stockholder of petitioner. as follows: 5 WHEREFORE. 1986 ("First Contract" hereafter) to Punsalan.

PUNSALAN JR. upon Punsalan's request.000.000 — package deal Attention: Mr.333.. Very truly yours. Seminar/workshop for your employees Old MIA Compound. although not according to the schedule agreed upon. Pun[s]alan: This is to formalize our proposal for consultancy services to your company the scope of which is defined in the attached service description.150. private respondent prepared a feasibility study for petitioner which eventually paid him the balance of the contract price.0 0 15 March19 87 53. a position he held until he became technical assitant to then Commissioner Miriam Defensor-Santiago on March 7.0 0 (T)ANTONIO C. SAÑO (S)STEFANI C. a three-day training seminar for the latter's employees.00 — on or before October 31. 1987.333. ANTONIO PUN[S]ALAN. (T)PAIRCARGO CO. 11 On December 4.0 0 30 January 1987 53.00). 1986 2nd letter — 15 June 1987 with "Hinana kit".333. 13 Private respondent also conducted. at the lower right portion of the letter. 1988. INC. you are assured of the highest service quality as our performance record shows we always deliver no less.0 0 100. . the amount of ONE HUNDRED THOUSAND PESOS (P100. Andy Villaceren.000. enabling it to become one of the three public bonded warehouses at the international airport. .333. the Bureau issued to it a license to operate. 50% upon completion of seminar/workshop President Dear Mr. Metro Manila P400. PUNSALAN President CONFORME & RECEIVED from PAIRCARGO. (S)ANTONIO C. as 1st Installment payment of the service agreement Yours truly. the following notations in pencil: 1. PUNSALAN 30 March 1987 53. which reads: People's Air Cargo & Warehousing Co. (S)ANTONIO C. 1987. 1986 With is package. (T)STEFANI C. vice president of petitioner. SAÑO CONFORME: Accordingly. received the operations manual prepared by private respondent. thereafter. in the third week of January 1987 in the warehouse of petitioner. Punsalan sold his shares in petitionercorporation and resigned as its president in 1987. dated October 13. Thank you very much. would be available upon signing of the conforme below and would come [in] the amount of FOUR HUNDRED THOUSAND PESOS (P400.333. 12 Petitioner submitted said operations manual to the Bureau of Customs is connection with the former's application to operate a bonded warehouse. with the favorable Recommendation of the CBW on our application. the lower court observed that the Second Contract bore. this 17th day of October. 14 On March 25. in May 1987. 15 Meanwhile.000.00) payable at the schedule defined as follows (with the balance covered by post-dated cheques): Downpayment upon signing conforme P80. JR.000. SAÑO (S)STEFANI C.0 0 28 February 1987 50% upon approval by the Commissioner The Manual has already been approved by the Commissioner but payment has not yet been made. 1986. Inc.000. SAÑO Industrial Engineering Consultant (T)STEFANI C.333. private respondent joined the Bureau of Customs as special assistant to then Commissioner Alex Padilla. 53. 1986.00 15 January 1987 53. 16 . private respondent sent petitioner another letter-proposal ("Second Contract" hereafter). During the trial. The lower left corner of the letter also contained the following notations: 1st letter — 4 Dec.00 — upon receipt of the study in final form. 1986.0 0 15 February 1987 53. Operations Manual 2. On January 10. The total service you have decided to avail .

Although the Rules of Court specify "reversible errors" as grounds for a petition for review under Rule 45. just as a natural person may authorize another to do certain acts for and on his behalf. . powers added by custom and usage. more specifically: (1) whether the president of the petitioner-corporation had apparent authority to bind petitioner to the Second Contract. lays down all corporate business policies and is responsible for the efficiency of management. implying that it had agreed to pay the P60. However. petitioner lodged this petition before us.000 to the former. in the usual course of the particular business. conducted a seminarworkshop for its employees and delivered to it a computer program. . but that. in the absence of authority from the board of directors. practically laid aside the normal requirement of prior express approval. the power and the responsibility to decide whether the corporation should enter into a contract that will bind the corporation is lodged in the board. It noted that petitioner did not appeal the Decision of the trial court. The Second Contract was declared valid and binding on the petitioner. are incidental to. petitioner had clothed its president with apparent authority to enter into the disputed agreement.: 25 II. the CA ruled in favor of its validity and enforceability. . III. [I]n ruling that the subject letteragreement for services was binding on the corporation notwithstanding the lack of any board authority since it was the purported "practice" to allow the president to enter into contracts of said nature (citing one previous instance of a similar contract)[. The authority of such individuals to bind the corporation is generally derived from law. wherein Instead of alleging reversible errors. and (2) whether the said contract was valid and not merely simulated. not even its officers. . the pivotal issue of private respondent's appeal was the enforceability of the Second Contract. committees or agents. 17 The trial court declared the Second Contract unenforceable or simulated. Hence. no person. Petitioner does not contest its liability. can validly bind a corporation. subject to the articles of incorporaration. the resolution of this petition rests on the sole issue of the enforceability and validity of the Second Contract. the powers intentionally conferred. According to the Court of Appeals. . its president. Accordingly." 18 The Ruling of the Court of Appeals To Respondent Court. it merely disputes the amount of such accountability. the Court will lay aside for the nonce this procedural lapse and consider the allegations of "grave abuse" as statements of reversible errors of law. by its acts and through acquiescence. The Board of Directors or Trustees. the corporate powers of all corporations formed under this Code shall be exercised. either expressly or impliedly by habit. petitioner imputes "grave abuse of discretion" to the Court of Appeals. . Petitioner. or relevant provisions of law. [I]n ruling that the subject letteragreement for services was a valid contract and not merely simulated. not P60. because Punsalan. in its answer.] and A corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that [the] authority to do so has been conferred upon him. which exercises almost all corporate powers. viz. He allege that he had prepared an operations manual for petitioner. 19 The Issues The Court will overlook the lapse of petitioner in alleging grave abuse of discretion as its ground for seeking reversal of the assailed Decision. 1986 contract was simulated or unenforceable. . . It further alleged that the letter-agreement was signed by Punsalan without authority. the appellate court ruled in this case that the authority to act for and to bind a corporation may be presumed from acts of recognition in other instances. Rejecting the finding of the trial court that the December 4.000. Under this provision. As it had also become the practice of the petitioner-corporation to allow its president to negotiate and execute contracts necessary to secure its license as a customs bonded warehouse without prior board approval. despite demand. — Unless otherwise provided in this Code. powers. The trial court determined the amount "in light of the evidence presented by defendant on the usual charges made by a leading consultancy firm on similar services. and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has conferred. separate and distinct from its stockholders and members. then petitioner should be held liable for the full amount stated therein. "in collusion with [private respondent] in order to unlawfully get some money from [petitioner]. corporate bylaws or authorization from the board. . Civil Code). denied that private respondent had prepared an operations manual and a computer program or conducted a seminar-workshop for its employees. a corporation may board of directors. Disagreeing with the CA. . attributes and properties expressly authorized by law or incident to its existence. If the contract was valid and enforceable. 23. 1988. 23 as provided in Section 23 of the Corporation Code of the Philippines: Sec. "having . petitioner refused to pay him for his services. custom or acquiescence in the general course of business. the board of directors may validly delegate some of its functions and powers to officers. The general rule is that. 21 A corporation is a juridical person. . viz. the board itself." 22 Being a juridical entity. .: 20 I. private respondent filed a collection suit against petitioner. . Thus. the evidence on record shows that the president of petititoner-corporation had entered into the First Contract. or may be implied from. as usually pertaining to the particular officer or agent. which was similar to the Second Contract.000 as held by the lower court.000 award. 24 Howeever. [I]n ruling that the subject letteragreement for services was binding on the corporation simply because it was entered into by its president[. on the ground that no one should be unjustly enriched at the expense of another (Article 2142. all business conducted and all property of such corporations controlled and held by the board of directors or trustees .On February 9. the trial court awarded P60. was not authorized by its board of directors to enter into said contract." and despite his knowledge that a group of employees of the company had been commissioned by the board of directors to prepare an operations manual.] . which was held liable to private respondent in the full amount of P400. . since private respondent had actually prepared the operations manual and conducted a training seminar for petitioner and its employees. and also such powers as. The Court's Ruling The petition is not meritorious. First Issue: Apparent Authority of a Corporate President Petitioner argues that the disputed contract is unenforceable. and this includes powers which have been intentionally conferred. bylaws.

it has been held in other jurisdictions that the president of a corporation possesses the power to enter into a contract for the corporation. And I said it [was an exorbitant] price. entered into the First Contract without first securing board approval. And no [down payment] and postdated checks were given. when the "conduct on the part of both the president and the corporation [shows] that he had been in the habit of acting in similar matters on behalf of the company and that the company had authorized him so to act and had recognized. which Webster defines as "frequent or custmary action. .: . In the alleged agreement of December 4. Punsalan he is the [p]resident. the amount is even bigger . it had clothed its president with apparent authority to execute the subject contract. Despite such lack of board approval. to wit: . These and the following considerations. he said: 29 A: Mr. and thus. petitioner's ratification of said contract and acceptance of benefits have made it binding. 1986 subject of the present case. Saño is very influential with the Collector of Customs[s]. private respondent prepared an operations manual and conducted a seminar for the employees of petitioner in accordance with their contract. the president is presumed to have the authority to act within the domain of the general objectives of its business and within the scope of his or her usual duties. Because the Collector of Custom[s] will be the one to approve our project study and I objected to that. the alleged letteragreement drew no letter of confirmation.000. with actual or constructive knowledge thereof. be estopped from denying the agent's authority. Not only that. into contracts that are within the scope of the powers of said corporation and that do not violate any statute or rule on public policy. 28 It is not the quantity of similar acts which establishes apparent authority. Yet. And Mr. as against anyone who has in good faith dealt with it through such agent. the amount awarded by the RTC. or any other agent..P400. thus "clothing" its president with the power to bind the corporation. It is familiar doctrine that if a corporation knowingly permits one of its officers." 33 Furthermore. petitioner did not object to or repudiate said contract. sir. Petitioner had previously allowed its president to enter into the First Contract with private respondent without a board resolution expressly authorizing him. the apparent authority to act in general. viz. with which it clothes him. Kalaw. The October 1986 transaction with [private respondent] involved P350.the power was in fact exercised without any objection from its board or shareholders. as in present case — previously entered into by the corporation without such board resolution. to act within the scope of an apparent authority. Hence. 30 Furthermore. private respondent should not be faulted for believing that Punsalan's conformity to the contract in dispute was also binding on petitioner. no written demand for payment was sent to [petitioner]. Petitioner capitalizes on the "badges of fraud" cited by the trial court in declaring said contract either simulated or unenforceable.00 to Mr. Saño? A: Yes. 27 It requires presentation of evidence of similar act(s) executed either in its favor or in favor of other parties. treasurer and major stockholder of petitioner. The enforceability of contracts under Article 1403(2) is ratified "by the acceptance of benefits under them" under Article 1405. petitioner seeks to pare down its liabilities by limiting its exposure from P400.00. approved and ratified his former and similar actions. Saño because Mr. The grant of apparent authority to Punsalan is evident in the testimony of Yong — senior vice president. without prior board approval. was inferred from sixty contract — not one. Testifying on the First Contract.000. thus. 31 In the absence of a charter or bylaw provision to the contrary. In the case at bar.26 in which the practice of NACOCO allowing its general manager to negotiate and execute contract in its copra trading activities for and on its behalf. indeed. Apparent authority is derived not merely from practice." It cites Board of Liquidators v. a party dealing with the president of a corporation is entitled to assume that he has the authority to enter. [Punsalan] told me that he prefer[s] Mr. whether within or beyond the scope of his ordinary powers. Until the filing of the present case in February 1988. the corporation will. but the vesting of a corporale officer with the power to bind the corporation. the strict rule that said officer has no inherent power to act for the corporation is slowly giving way to the realization that such officer has certain limited powers in the transaction of the usual and ordinary business of the corporation. The same was embodied in a letter which bore therein not only the conformity of [petitioner's] then President Punsalan but also drew a letter-confirmation from the latter for. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or. submitted it to the Bureau of Customs and allowed the seminar for its employees. Petitioner rebuts. Granting arguendo then that the Second Contract was outside the usual powers of the president. [Private respondent's] claim that he sent one in writing. or (2) the acquiescence in his acts of a particular nature. through its president Antonio Punsalan Jr. Inasmuch as a corporate president is often given general supervision and control over corporate operations. it holds him out to the public as possessing the power to do those acts.000 to only P60. so he [gets] his way. Petitioner's argument is not persuasive. sir. petitioner was given by the Bureau of Customs a license to operate a bonded warehouse. he was clothed with authority to enter into the contract after the same was brought to the attention and consideration of [petitioner]. petitioner. arguing that a single isolated agreement prior to the subject contract does not constitute corporate practice.000. As a result of its aforementioned actions. . implemented and paid without a hitch. Q: And so did the company eventually pay this P350. 34 Second Issue: Alleged Simulation of the First Contract As an alternative position. The First Contract was consummated. Petitioner accepted the operations manual. 32 Hence.000. on behalf of the corporation. a [down payment] was made. in other words. nonetheless. and one was sent by his counsel who manifested that "[h]e was looking for a copy in [his] files" fails in light of his failure to present any such copy.

Private respondent heard no objection from the petitioner.]" when it should have been "our employees". Costs against petitioner. as well as the receipt and use of the operations manual. A fictitious and simulated agreement lacks consent which is essential to a valid and enforceable contract. . when Punsalan allegedly visited [private respondent] in his office at the Bureau of Customs. a misspelling in the contract does not establish vitiation of consent. partial or full payment). . Petitioner could have easily filed a third-party claim against Punsalan if it believed that it had recourse against the latter. 2) [There was a delay in the filing of the present suit. including a stipulation of the consideration for the latter's services. ratification of the contract. therefore. and the Court eschews factual examinanon in a petition for review under Rule 45 of the Rules of Court. Lastly. Despite the lapse of one year after private respondent completed his services or eight months after the alleged last demand for payment in June 1987. cause or object of the contract. 39 A contract is simulated if the parties do not intend to be bound at all (absolutely simulated). these "badges" do not establish simulation of said contract. as he was then still connected with [petitioner]. the petition is hereby DENIED and the assailed Decision AFFIRMED. 41 In the case at bar. one of which is a conflict between the factual findings of the lower and of the appellate courts 36 as in the case at bar. imports only a defect in the performance of the contract on the part of petitioner. To repeat. [private respondent] did not even keep a copy of the alleged service contract allegedly attached to the letteragreement? 6) Was not the letter-agreement a mere draft. considering that an action based on a written contract prescribes only after ten years from the time the right of action accrues. shows petitioner's consent to or. 35 This rule. the action was still filed within the allowable period. petitioner even submitted the manual to the Bureau of Customs and allowed private respondent to conduct the seminar for its employees. that Punsalan signed it without [petitioner's] authority and must have been done "in collusion with plaintiff in order to unlawfully get some money from [petitioner]? 4) If. Second. as claimed by [petitioner]. neither is it necessary to perfect one. private respondent] went ahead with the services[. Fourth. however. not Punzalan)? 7) Why was not Punsalan impleaded in the case? The issue of whether the contract is simulated or real is factual in nature. First. A corporation. has ratified the agreement and is. by accepting benefits of a transaction entered into without authority. Punsalan "brought" (again?) the letter (with the pencil [notation] at the left bottom portion allegedly already written)? 5) How come . . the letter was returned by Punsalan after affixing thereon his conformity. at the very least.1) Despite the fact that no [down payment] and/or postdated checks [partial payments] (as purportedly stipulated in the alleged contract) [was given. the mere fact that the contract price was six times the alleged going rate does not invalidate it. . indicate that the letter-agreement was signed by Punsalan when he was no longer connected with [petitioner] or. as [private respondent] claims. After judicious deliberation. SO ORDERED. 43 WHEREFORE. 3) Does not Punsalan's writing allegedly in June 1987 on the alleged letter-agreement of "your employees[. . the lack of payment (whether down. how come . a confirmation letter is not an essential element of a contract.Fifth. even after completion of private respondent's obligations. private respondent's failure to implead the corporate president does not establish collusion between Contemporaneous and subsequent acts are also principal factors in the determination of the will of the contracting parties. bound by it. until he claimed payment for the services he had rendered. 38 In short. 37 Third. admits of exceptions. Punsalan's conformity.] them. it bearing the corrections made by Punsalan of his name (the letter "n" is inserted before the last letter "o" in Antonio) and of the spelling of his family name (Punsalan. in June 1987. the delay in the filing of action was not fatal to private respondent's cause. more than a year after [private respondent] allegedly completed his services or eight months after the alleged last verbal demand for payment made on Punsalan in June 1987. the legal presumption is always on the validity of contracts. 40 or if the parties conceal their true agreement (relatively simulated). petitioner received from private respondent a letter-offer containing the terms of the former. On the contrary. 42 The circumstances outlined above do not establish any intention to simulate the contract in dispute. the Court agrees with the appellate court that the alleged "badges of fraud" mentioned earlier have not affected in any manner the perfection thereof.

00 to cover all existing obligations prior to final liquidation. Considering [the] new political situation since the departure of MR. in which defendant EC was substituted by Eterton MultiResources Corporation. advising that the sale would no longer proceed. Tan.000. confirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux. 1987. responded to the offer. 1987.G. Jr. We regret that we could not make a deal with you this time. In a telex dated April 22. No.000. confirming that he had been instructed by his principal to inform Marquez that "the decision has been taken at a Board Meeting not to sell the properties on which Eternit Corporation is situated. xxx Yours sincerely.000. It was only on February 12.00 with the Security Bank & Trust Company. SR. 451124 and 451125 under the name of Far East Bank & Trust Company. and in a Letter dated February 26. Glanville later showed the properties to Marquez. On October 28. in Civil Case No. Marquez so that the properties could be offered for sale to prospective buyers.4 Eduardo Litonjua. 451117. and his brother Antonio K. Marquez. 1987 that Delsaux sent a telex to Glanville stating that. Pasig City. Branch 165."10 Delsaux himself later sent a letter dated May 22. 1987. accepted the counterproposal of Delsaux. (Sgd. Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B.A. 1987. to wit: May 22. GLANVILLE (Eternit Corp. Jr.000.000.000.9 Meanwhile. the Committee has decided not to stop our operations in Manila. 451121. wrote EC. In a Letter dated September 12. 51022. Since 1950. Marquez declared that he was authorized to sell the properties for P27. Marquez showed the property to Eduardo Litonjua. the Litonjuas. Metro Manila Philippines Dear Sir: Re: Land of Eternit Corporation I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was proposed to you. Adams engaged the services of realtor/broker Lauro G. we would consult you again.A. an Australian citizen. to dispose of the eight parcels of land.) C. and drafted an Escrow Agreement to expedite the sale. Litonjua. The Litonjua siblings offered to buy the property for P20. Jr. The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Stock Ha T.233 square meters.. as trustee.F. Eufemio were impleaded as additional defendants on account of their purchase of ESAC shares of stocks and were the controlling stockholders of EC. An amended complaint was filed. 451119. through counsel. together with the necessary governmental clearances. located in Mandaluyong City. it cannot be subject to the jurisdiction of Philippine courts. Both had their offices in Belgium. Ruperto V. Aquino as President of the Republic of the Philippines. 2006 EDUARDO V. Corporation (ESAC). 54887. but the latter did not respond. Marquez and the Litonjua brothers inquired from Glanville when the sale would be implemented. Benito C. 1986. Glanville informed Delsaux that he had met with the buyer. 6767 Ayala Avenue Makati. Glanville telexed Delsaux in Belgium.G. based on the "Belgian/Swiss decision.00 and that the terms of the sale were subject to negotiation.G. Respondents. EC and ESAC alleged that since Eteroutremer was not doing business in the Philippines. The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the Philippines are (sic) concerned. J.R. as well as the Resolution2 of the CA denying the motion for reconsideration thereof. In fact." 5 Ermita Branch. 334 Makati Stock Exchange Bldg.500. In 1986. Glanville followed it up with a Letter dated May 7. Tan and Deogracias G. LINTONJUA. of the Litonjua & Company. vs. Marquez furnished Eduardo Litonjua. which affirmed the Decision of the Regional Trial Court (RTC). DECISION CALLEJO. production has started again last week. Tan. demanding payment for damages they had suffered on account of the aborted sale. 451120. a corporation organized and registered under the laws of Belgium. ETEROUTREMER. rejected their demand. Litonjua. with the assumption of Corazon C. Jr. and ESAC in the RTC of Pasig City.)11 When apprised of this development. JR.. and (sic) to recognize the participation in the Corporation. with a copy of the telex sent by Delsaux. however. and FAR EAST BANK & TRUST COMPANY. 1986. Petitioners. LITONJUA. confirming that the ESAC Regional Office had decided not to proceed with the sale of the subject land. Inc. EC.000." the final offer was "US$1. Marquez received a telephone call from Glanville. DELSAUX cc. Inc. inquiring on his position/ counterproposal to the offer of the Litonjua siblings. 451118. Jr. The Litonjua brothers deposited the amount of US$1. He also stated that the Litonjua siblings would confirm full payment within 90 days after execution and preparation of all documents of sale.00 cash. The properties. while Claude Frederick Delsaux was the Regional Director for Asia of ESAC. 451122. Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S."8 He also emphasized to Delsaux that the buyers were concerned because they would incur expenses in bank commitment fees as a consequence of prolonged period of inaction. MARCOS and a certain stabilization in the Philippines. ETERNIT CORPORATION (now ETERTON MULTIRESOURCES CORPORATION). 144805 June 8.000.R. was the General Manager and President of EC. the political situation in the Philippines had improved. Its manufacturing operations were conducted on eight parcels of land with a total area of 47. In their answer to the complaint. the . 1987 Mr. Litonjua.000.6 The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company. a member of EC’s Board of Directors. were covered by Transfer Certificates of Title Nos. Marquez apprised Glanville of the Litonjua siblings’ offer and relayed the same to Delsaux in Belgium. L.00 and P2. which had given him the impression that "he is prepared to press for a satisfactory conclusion to the sale. Marquez conferred with Glanville. and ANTONIO K. it had been engaged in the manufacture of roofing materials and pipe products.7 Sometime later.3 Jack Glanville. The Committee for Asia of ESAC instructed Michael Adams. S.: On appeal via a Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA) in CA-G. CV No. Metro Manila. the management of ESAC grew concerned about the political situation in the Philippines and wanted to stop its operations in the country. Marquez L. but in case the policy would change at a later state. To: J.

000. More importantly. Petitioners identified such evidence. In reply. The counterclaim of Eternit Corporation now Eterton MultiResources Corporation and Eteroutremer. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and said defendants. The testimony of Marquez that he was chosen by Glanville as the then President and General Manager of Eternit. On June 16. petitioners aver. His only job as a broker was to look for a buyer and to bring together the parties to the transaction. 2000. need not be in writing.000. The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action. In any event. 4. 5. the CA rendered judgment affirming the decision of the RTC. neither were Glanville and Delsaux authorized by its board of directors to offer the property for sale. However. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners. Plaintiffs could not assume that defendants had agreed to sell the property without a clear authorization from the corporation concerned. S. it would necessarily need the authority from the stockholders.000. which was also denied by the appellate court. WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT AUTHORITY. based on the facts of the case. and as such. the sale is void and not merely unenforceable. petitioners aver that I THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE.A. The CA ruled that Marquez. is also dismissed for lack of merit. at least. As broker. was a special agent within the purview of Article 1874 of the New Civil Code. Moreover.A. who was merely the representative of ESAC (the majority stockholder of EC) had no authority to bind the latter. the Litonjuas failed to prove that an agency by estoppel had been created between the parties. He was not authorized to sell the properties or to make a binding contract to respondent EC. it was equivalent to a perfected contract of sale. he needed a special authority from EC’s board of directors to bind such corporation to the sale of its properties. and (2) the lower court committed grave error of law in holding that appellee corporation is not legally bound for specific performance and/or damages in the absence of an enabling resolution of the board of directors. who was the Managing Director for ESAC Asia. and Delsaux. 6.17 Petitioners maintain that."15 They averred that Marquez acted merely as a broker or go-between and not as agent of the corporation. 3. had been allowed by respondent EC to hold themselves out in the public as having the power to sell the subject properties. could not have been ratified by the principal. On July 3. petitioners argue. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS.14 The Litonjuas appealed the decision to the CA. Since the sale involved substantially all of the corporation’s assets. Exhibits "G" and "H" of the Respondents. Marquez was not an ordinary agent because his authority was of a special and limited character in most respects. thus: 1.00 to cover obligations prior to final liquidation. In any event. such ratification cannot be given any retroactive effect. which evidenced the fact that Petitioners’ offer was allegedly REJECTED by both Glanville and Delsaux. alleging that "(1) the lower court erred in concluding that the real estate broker in the instant case needed a written authority from appellee corporation and/or that said broker had no such written authority. as hereinabove discussed. In the instant petition for review. 16 The Litonjuas filed a motion for reconsideration. The CA pointed out that Delsaux was not even a member of the board of directors of EC.13 The trial court declared that since the authority of the agents/realtors was not in writing. The fact that Petitioners DEPOSITED the price of [US]$1.18 . 2. from 1986 to 1987. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the properties as evidenced by the Petitioners’ ACCEPTANCE of the counter-offer. OR AT THE VERY LEAST. EC alleged that Marquez had no written authority from the Board of Directors to bind it.00 plus P2. there was a perfected contract of sale of the parcels of land and the improvements thereon for "US$1. Article 1874 of the New Civil Code does not apply. Under Section 23 of the Corporation Code. the acceptance was made known to them through real estate broker Marquez. and the telex dated October 28. the trial court rendered judgment in favor of defendants and dismissed the amended complaint. since it was a bilateral contract to buy and sell. 7. that is. Petitioners assert that there was no need for a written authority from the Board of Directors of EC for Marquez to validly act as broker/middleman/intermediary. II THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.000. who was a real estate broker. resulting in a perfected contract of sale.000.500. through resolutions of the Board of Directors and stockholders. 1995. hence.Board and stockholders of EC never approved any resolution to sell subject properties nor authorized Marquez to sell the same. to sell the properties of said corporation to any interested party. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY AND SELL". Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville. AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID PROPERTIES. had the necessary authority to sell the subject property or. it was not necessary for him to be empowered as such by any written authority. S. The trial court also pointed out that the supposed sale involves substantially all the assets of defendant EC which would result in the eventual total cessation of its operation. which authority. III THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES. the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer. who was the President and General Manager of respondent EC.00 with the Security Bank and that an ESCROW agreement was drafted over the subject properties. hence. They further claimed that an agency by estoppel was created when the corporation clothed Marquez with apparent authority to negotiate for the sale of the properties. which the corporation was obliged to consummate." Petitioners insist that they had accepted the counter-offer of respondent EC and that before the counteroffer was withdrawn by respondents. Delsaux. 1986 of Jack Glanville was his own personal making which did not bind EC. what is important and decisive was that Marquez was able to communicate both the offer and counter-offer and their acceptance of respondent EC’s counter-offer. 12 The fallo of the decision reads: WHEREFORE.

21 The findings of the trial court on such issues. through Glanville and Delsaux. There are. but in case the policy would change at a later stage we would consult you again. would warrant a modification or reversal of the outcome of the case. as affirmed by the CA. or where there is no stock.20 Whether an agency by estoppel was created or whether a person acted within the bounds of his apparent authority. Petitioners aver in their subsequent pleadings that respondent EC. 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. and whether the principal is estopped to deny the apparent authority of its agent are. obligations and transactions of the latter. C. respondents EC (now EMC) and ESAC reiterate their submissions in the CA. The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the Philippines are (sic) concerned. It is not to re-examine and assess the evidence on record. whether testimonial and documentary. hence. is that Marquez was able to communicate the offer of respondent EC and the petitioners’ acceptance thereof. The authority of Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June 1. In the meantime.25 It may act only through its board of directors or. a formal resolution of the Board of Directors would be a mere ceremonial formality. respondents aver that the issues raised by the petitioners are factual. and should be affirmed in toto. (3) when there is grave abuse of discretion. and the fact that respondent ESAC owns 90% of the shares of stock of respondent EC. We regret that we could not make a deal with you this time. They assert that the decision and resolution of the CA are in accord with law and the evidence on record. the assailed decision of the Court of Appeals is supported by the evidence on record and the law. are conclusive on the Court. to wit: Dear Sir. Delsaux and Marquez had no authority from the stockholders of respondent EC and its Board of Directors to offer the properties for sale to the petitioners. or misapplied facts and circumstances of substance which. however. a corporation is a juridical person separate and distinct from its members or stockholders and is not affected by the personal rights. went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee. Re: Land of Eternit Corporation I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was proposed to you. 1997. would justify a different conclusion.] [I]n fact production started again last week. namely: (1) When the conclusion is a finding grounded entirely on speculations. respondent EC never repudiated the acts of Glanville. 23. we agree with the contention of respondents that the issues raised by petitioner in this case are factual. when authorized either by its by-laws or by its board resolution. in making its findings. (7) when the findings of the Court of Appeals are contrary to those of the trial court. or impossible. In fact. subject to the articles of incorporation. provides: SEC. questions of fact to be resolved on the basis of the evidence on record. or to any other person or entity for that matter. the corporate powers of all corporations formed under this Code shall be exercised. conformed to the written authority of Marquez to sell the properties. Considering the new political situation since the departure of MR.24 Section 23 of Batas Pambansa Bilang 68. (8) when the findings of fact are conclusions without citation of specific evidence on which they are based. DELSAUX19 Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly permitted by respondent EC to sell the properties within the scope of an apparent authority. Petitioners insist that Delsaux confirmed his authority to sell the properties in his letter to Marquez. who shall hold office for one (1) year and until their successors are elected and qualified. (2) when the inference made is manifestly mistaken. petitioners maintain.22 It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court because the Court is not a trier of facts.F. and Delsaux were authorized by respondent EC to act as its agents relative to the sale of the properties of respondent EC. On the merits of the petition. the agency must be established by clear. absurd. absent evidence that the trial and appellate courts ignored. Anent the first issue. and (sic) to reorganize the participation in the Corporation. Petitioners likewise failed to prove that their counter-offer had been accepted by respondent EC. There was no time that they acted without the knowledge of respondents. or relevant provisions of law. recognized exceptions where the Court may delve into and resolve factual issues. (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties. Whether or not Marquez. The petition has no merit. certain and specific proof. are proscribed by Rule 45 of the Rules of Court. It must be stressed that when specific performance is sought of a contract made with an agent. the existence of an agency is a fact question. Glanville. the boundaries of their authority as agents. and if so. the Committee has decided not to stop our operations in Manila[.23 We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case falls under any of the foregoing exceptions. It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had empowered Adams. MARCOS and a certain stabilization in the Philippines. misconstrued. surmises. or conjectures. Petitioners insist that respondents held themselves to the public as possessing power to sell the subject properties. Given the significance of their positions and their duties in respondent EC at the time of the transaction. Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers and to accept any counter-offer.Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners’ offer and thereafter reject such offer unless they were authorized to do so by respondent EC. which. if considered. likewise. from among the members of the corporation. if properly considered. Indeed. They maintain that Glanville. What is important. through Glanville and Delsaux. The Board of Directors or Trustees. The general principles of agency govern the relation between the corporation and its officers or agents. (4) when the judgment is based on a misapprehension of facts. is a question of fact. and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record. (6) when the Court of Appeals. by-laws. (5) when the findings of fact are conflicting. Marquez and Delsaux. I remain Yours sincerely. In the absence of express written terms creating the relationship of an agency. otherwise known as the Corporation Code of the Philippines. By way of comment. Indeed.26 . – Unless otherwise provided in this Code. through its officers or agents in the normal course of business.

The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority. or his failure to repudiate the agency knowing that another person is acting on his behalf without authority. and as such. Adams and Glanville engaged the services of Marquez to offer to sell the properties to prospective buyers. the agent must intend to accept the authority and act on it. like the offering of the properties of the corporation for sale. such person must not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority. It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. 1997. As gleaned from the letter of Marquez to Glanville. and Adams and Delsaux were members of its Board of Directors. hence. sell. respondent ESAC owned 90% of the shares of stocks of respondent EC. acted on the authority of respondent ESAC. by legal fiction. on June 1. 1986. When petitioners offered to purchase the property for P20.41 When Delsaux finally responded to Glanville on February 12. the personality of the principal is extended through the facility of the agent. the mere fact that a corporation owns a majority of the shares of stocks of another.00.39 and the Belgian/Swiss component of the management of respondent ESAC. The property of a corporation. take or grant. however. a corporation may sell or convey its real properties. through Marquez. based on the "Belgian/Swiss decision" the final offer of respondent ESAC was US$1. A person dealing with a known agent is not authorized. from his silence or lack of action.36Thus. otherwise. may not be sold without express authority from the board of directors. and in case either is controverted. as admitted by petitioners in their Memorandum. subject to the limitations prescribed by the law and the Constitution. the rule is that the declarations of an individual director relating to the affairs of the corporation. convey. 30An unauthorized act of an officer of the corporation is not binding on it unless the latter ratifies the same expressly or impliedly by its board of directors. to ascertain not only the fact of agency but also the nature and extent of authority. 31 By the contract of agency. becomes the principal.28 Absent such valid delegation/authorization. can be performed by the corporation only by officers or agents duly authorized for the purpose by corporate by-laws or by specific acts of the board of directors. Admittedly. Moreover. authorized to perform all acts which the latter would have him do. hence. which must not. receive.40 As such. or connected with. pledge. he confirmed.32 Consent of both principal and agent is necessary to create an agency. blindly to trust the agents. persons dealing with an assumed agent are bound at their peril. but not in the course of. on February 26.00 plus P2. – Every corporation incorporated under this Code has the power and capacity: xxxx 7. the sale shall be void. 36. the final say will have to be with the board of directors through its officers and agents as authorized by a board resolution or by its by-laws. 43 It bears stressing that in an agent-principal relationship. the agent. will not justify their being treated as one corporation.46 In this case. and if they would hold the principal liable. Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to petitioners’ offer. for and in its behalf. the burden of proof is upon them to prove it. Acceptance by the agent may be expressed. statements as to the extent of his powers. be compelled by law or by any court. the three acted for and in behalf of respondent ESAC.000. or even all of such shares of stocks. Glanville or Delsaux to offer the properties for sale and to sell the said properties to the petitioners. or the acceptance of a counter-offer of prospective buyers of such properties and the execution of the deed of sale covering such property. let alone offer for sale. Such a relationship can only be effected with the consent of the principal. as the transaction of a lawful business of the corporation may reasonably and necessarily require. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC.29 While a corporation may appoint agents to negotiate for the sale of its real properties. are not binding on the corporation. we agree with the ruling of . a person binds himself to render some service or to do something in representation on behalf of another. lease. through its Committee for Asia. a special power of attorney is necessary.00 to cover all existing obligations prior to final liquidation.000.000. however. However. Thus. the eight parcels of land owned by respondent EC including the improvements thereon. the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux. Corporate powers and capacity. However. While Glanville was the President and General Manager of respondent EC. for and in behalf of the petitioners. or implied from his acts which carry out the agency. the latter relayed petitioners’ offer to Glanville. the performance of authorized duties of such director. failed to adduce in evidence any resolution of the Board of Directors of respondent EC empowering Marquez. who.000." and not the entire management or Board of Directors of respondent ESAC.42 The offer of Delsaux emanated only from the "Belgian/Swiss decision. petitioners are not entitled to damages from respondent EC. or from his silence or inaction according to the circumstances. and the intention of the parties must find expression either in words or conduct between them. Marquez wrote the petitioner that he was authorized to offer for sale the property forP27. 1987. While it is true that petitioners accepted the counter-offer of respondent ESAC.Under Section 36 of the Corporation Code.000. taken alone. To purchase.000. to create or convey real rights over immovable property. as follows: SEC. that the latter had accepted such offer to sell the land and the improvements thereon.34 Agency may be oral unless the law requires a specific form.37 In this case. 1987. Any sale of real property of a corporation by a person purporting to be an agent thereof but without written authority from the corporation is null and void.44 The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC empowering Adams. in turn. respondent EC was not a party to the transaction between them. and not as duly authorized agents of respondent EC. on September 12. the petitioners as plaintiffs below. 45 The settled rule is that. subject to the limitations prescribed by law and the Constitution.00 and the other terms of the sale subject to negotiations. The principal must intend that the agent shall act for him.35However. EC was not bound by such acceptance.33 An agency may be expressed or implied from the act of the principal. mortgage and otherwise deal with such real and personal property.27 Physical acts. the authority of the latter shall be in writing. is not the property of the stockholders or members. he made it clear that. the petitioners failed to discharge their burden. hold. under any circumstances. Such board resolution is not a mere formality but is a condition sine qua non to bind respondent EC. Delsaux was unable to reply immediately to the telex of Glanville because Delsaux had to wait for confirmation from respondent ESAC.500. when a sale of a piece of land or any portion thereof is through an agent. Glanville or Delsaux as its agents. with the consent or authority of the latter. to sell.38 the Board of Directors of respondent ESAC. including securities and bonds of other corporations. cannot be used as basis for petitioners’ claim that he had likewise been authorized by respondent EC to sell the parcels of land. in any way. In so doing.000. a board resolution evincing the grant of such authority is needed to bind EC to any agreement regarding the sale of the subject properties.

needs proof that the representations predated the action taken in reliance. relied upon such representation. Costs against the petitioners. . in good faith. He has no authority to bind the principal by signing a contract of sale. requires proof of reliance upon the representations. generally speaking. in turn. Delsaux and Marquez. Indeed. through Glanville.47 Equally barren of merit is petitioners’ contention that respondent EC is estopped to deny the existence of a principal-agency relationship between it and Glanville or Delsaux. In their communications to the petitioners. (3) relying upon such representation.49Such proof is lacking in this case. SO ORDERED. (2) the third person. IN LIGHT OF ALL THE FOREGOING. an authority to find a purchaser of real property does not include an authority to sell. the petition is DENIED for lack of merit. For an agency by estoppel to exist. and that. A real estate broker is one who negotiates the sale of real properties. The transactions and the various communications inter se were never submitted to the Board of Directors of respondent EC for ratification. such third person has changed his position to his detriment. is only to find a purchaser who is willing to buy the land upon terms fixed by the owner.the appellate court that Marquez had no authority to bind respondent EC to sell the subject properties. which is similar to the doctrine of apparent authority. Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent ESAC. His business. the following must be established: (1) the principal manifested a representation of the agent’s authority or knowlingly allowed the agent to assume such authority.48 An agency by estoppel. Neither may respondent EC be deemed to have ratified the transactions between the petitioners and respondent ESAC.

Espiritu. Because of the above incident. Freida F. complied with what the rules require. ESPIRITU. KEN RYAN A. and stockholders of Bicol Gas." Petitioner Audie Llona managed Bicol Gas. and stockholders were eventually identified during the preliminary investigation. On August 4. any given distributor of LPGs at times acquired possession of LPG cylinder tanks belonging to other distributors operating in the same area. officers."1 Respondent Carmen J. JUANITO P. DOLOIRAS. Undaunted. described as the directors. It ruled. FREIDA F. however. 623. signed only by Atty. The Facts and the Case Respondent Petron Corporation (Petron) sold and distributed liquefied petroleum gas (LPG) in cylinder tanks that carried its trademark "Gasul. given that only Atty. Kaye Ann A. he noted that it was not. Geronima A. assailing the inadequacy in its certificate of non-forum shopping. however. DE CASTRO. vs. KIM ROLAND A. MIRABUNA. he noticed several Gasul tanks in Bicol Gas’ possession.. The court denied the motion for reconsideration of these employees and stockholders in its Resolution dated January 6. He requested a swap but Audie Llona of Bicol Gas replied that he first needed to ask the permission of the Bicol Gas owners. the court ordered the filing of additional charges of trademark infringement against the concerned Bicol Gas employees as well. in the course of implementing this arrangement. 2006. While the truck carried mostly Bicol Savers LPG tanks. The charge against the other petitioners who were the stockholders and directors of the company was dismissed. Espiritu. RAFAEL F. DEE. and petitioner Llona.A. Petron and KPE filed a special civil action for certiorari with the Court of Appeals4 but the Bicol Gas employees and stockholders concerned opposed it." According to Jose. As to the substantive aspect of the case. de Castro. The Office of the Regional State Prosecutor ordered the filing of additional informations against the four employees of Bicol Gas for unfair competition. 8293).: This case is about the offense or offenses that arise from the reloading of the liquefied petroleum gas cylinder container of one brand with the liquefied petroleum gas of another brand. et al. Mirabuna. Consequently. and several John and Jane Does. Leorena. 170891 November 24.. the Court of Appeals ruled. and c) Unfair competition consisting in passing off Bicol Gas-produced LPGs for Petron- . could be charged. Audie Llona. as amended. The Secretary of Justice denied the appeal of Petron and KPE and their motion for reconsideration. The Issues Presented The petition presents the following issues: 1. The complaint charged the following: Jerome Misal. Carlo F. collectively. 8293.1 (unfair competition) of the Intellectual Property Code (R. who are the officers and directors of BICOL GAS REFILLING PLANT CORPORATION. and Manuel C. These directors. that Bicol Gas’ trucks which plied the streets of the province carried a load of Gasul tanks. saying the Bicol Gas owners wanted to send those tanks to Batangas. Jr. CARLO F. Later Bicol Gas told Jose that it had no more Gasul tanks left in its possession. ESPIRITU. petitioners Espiritu. 2009 MANUEL C. KAYE ANN A. however. Misal. Almonite. Petitioners.2 Jose Nelson Doloiras (Jose) served as KPE’s manager. Rolly Mirabena. Jun Leorena. JR. that no case for trademark infringement was present. 623 (unlawfully filling up registered tanks) and that only the four Bicol Gas employees. Cruz on behalf of Petron. 2001 KPE’s Jose saw a particular Bicol Gas truck on the Maharlika Highway. Doloiras owned and operated Kristina Patricia Enterprises (KPE). when Jose turned open its valve. Joel Angelo C. DECISION ABAD. Mirabuna. the Court of Appeals reversed the Secretary of Justice’s ruling. Jose observed on almost a daily basis. They called these "captured cylinders. Kim Roland A. Mirabuna. It held that unfair competition does not necessarily absorb trademark infringement. hence. and the Bicol Gas sales representative. Cruz’s certification constituted sufficient compliance. the provincial prosecutor ruled that there was probable cause only for violation of R. Mirabena. Bicol Gas Refilling Plant Corporation (Bicol Gas) was also in the business of selling and distributing LPGs in Sorsogon but theirs carried the trademark "Bicol Savers Gas.) 623 (illegally filling up registered cylinder tanks). b) Trademark infringement consisting in Bicol Gas’ use of a trademark that is confusingly similar to Petron’s registered "Gasul" trademark in violation of section 155 also of R. about the Gasul tank in their truck. KPE filed a complaint 3 for violations of Republic Act (R.R. Region V. That permission was given and they had a swap involving around 30 Gasul tanks held by Bicol Gas in exchange for assorted tanks held by KPE. Espiritu. In the course of trade and competition. that Bicol Gas still had a number of Gasul tanks in its yard. Hermilyn A. ESPIRITU. 2. Dissatisfied. J. No. the Court of Appeals also ordered the inclusion of the stockholders of Bicol Gas in the various charges. Jerome Misal. Rafael F. and Sections 155 (infringement of trade marks) and 169. AUDIE LLONA. Whether or not the facts of the case warranted the filing of charges against the Bicol Gas people for: a) Filling up the LPG tanks registered to another manufacturer without the latter’s consent in violation of R. Ken Ryan A. Dee (together with Audie Llona). He noted that KPE’s volume of sales dropped significantly from June to July 2001. it had on it one unsealed 50-kg Gasul tank and one 50-kg Shellane tank. Juanito P. Jun Leorena. They said it was empty but. Misal and Leorena then admitted that the Gasul and Shellane tanks on their truck belonged to a customer who had them filled up by Bicol Gas. he asked the driver.A. ROLANDO M. that Atty. Cruz signed it on behalf of Petron. doing business under the name "KRISTINA PATRICIA ENTERPRISES. 2005. GERONIMA A. KPE’s manager. Rolando M. MIRABUNA. Jose followed the truck and when it stopped at a store. in April 2001 Bicol Gas agreed with KPE for the swapping of "captured cylinders" since one distributor could not refill captured cylinders with its own brand of LPG. HERMILYN A. however. the present petition for review 6before this Court.A. Since the Bicol Gas employees presumably acted under the direct order and control of its owners. KPE’s Jose noticed. as amended. Misal then mentioned that his manager was a certain Rolly Mirabena. PETRON CORPORATION and CARMEN J. MIRABUNA. ALMONITE and MANUEL C. MIRABUNA. In its Decision5 dated October 17. ESPIRITU. At one time. Petron and KPE filed a petition for review with the Office of the Regional State Prosecutor. now including petitioners Manuel C. which initially denied the petition but partially granted it on motion for reconsideration. While there. the exclusive distributor of Gasul LPGs in the whole of Sorsogon. Whether or not the certificate of non-forum shopping that accompanied the petition filed with the Court of Appeals.A. Mirabuna. He offered to make a swap for these but Llona declined.G. MIRABUNA. Espiritu.A. Subsequently." Respondents. officers. bringing to 16 the number of persons to be charged. Mirabuna. KPE’s Jose visited the Bicol Gas refilling plant.

through Atty. they may be prosecuted for that offense. receptacles or advertisements intended to be used in commerce upon or in connection with the sale. But. 8293 (in relation to Section 17013 ) provides that it is committed by any person who shall. the truckfull of Bicol Gas tanks that the KPE manager arrested on a road in Sorsogon just happened to have mixed up with them one authentic Gasul tank that belonged to Petron. committed all three crimes: (a) illegally filling up an LPG tank registered to Petron without the latter’s consent in violation of R. Second.3. In such a case. distribution. there is probable cause that petitioners Espiritu. or the act of a producer or seller of tea bags with red tags showing the shadow of a black dog when his competitor is producing or selling popular tea bags with red tags showing the shadow of a black cat. et al.A. similar in design to the open-jawed alligator in La Coste shirts.3 of R. however. the customer had that one Gasul LPG tank brought to Bicol Gas for refilling and the latter obliged. Here. distribution. 8 Here. offering for sale.14 Examples of this would be the acts of an underground shoe manufacturer in Malabon producing "Nike" branded rubber shoes or the acts of a local shirt company with no connection to La Coste. the responsible officers and staff of Bicol Gas. namely. without the consent of the owner of the registered mark: 1. Atty. as amended. and without in any way limiting the scope of protection against unfair competition. or to cause mistake. point out that the certificate of non-forum shopping that respondents KPE and Petron attached to the petition they filed with the Court of Appeals was inadequate. Besides. advertising of any goods or services including other preparatory steps necessary to carry out the sale of any goods or services on or in connection with which such use is likely to cause confusion. The Court’s Rulings First. et al.A. Here. counterfeit. either as to the goods themselves or in the wrapping of the packages in which they are contained.7 One of these circumstances is where the petitioners filed a collective action in which they share a common interest in its subject matter or raise a common cause of action.A. Indeed. or to deceive. et al. prints. Cruz. Petitioners Espiritu. The Court of Appeals held that under the facts of the case. Essentially. other than the purpose for which the manufacturer or seller registered the same. in this case. and (c) unfair competition which consists in petitioners Espiritu. passing off Bicol Gasproduced LPGs for Petron-produced Gasul LPG in violation of Section 168. the complaint adduced at the preliminary investigation shows that the one 50-kg Petron Gasul LPG tank found on the Bicol Gas’ truck "belonged to [a Bicol Gas] customer who had the same filled up by BICOL GAS. except that the jaw of the alligator in the former is closed.A. But. they may be deemed substantially complied with under justifiable circumstances. the failure of KPE to sign the certificate of non-forum shopping does not render the petition defective with respect to Petron which signed it through Atty. for the purpose of sale. copy or colorable imitation to labels. 8293. disposal or trafficking. et al. Reproduce. 8293. As to the charge of unfair competition. R.A.A. counterfeit. assuming the allegations of KPE’s manager to be true.A. the object of the requirement – to ensure that a party takes no recourse to multiple forums – was substantially achieved. signs. or in any other feature of their appearance. as amended. 623. wrappers.10 The Court of Appeals. 8293. Examples of this would be the act of manufacturing or selling shirts bearing the logo of an alligator. the violation of their proprietary rights with respect to the use of Gasul tanks and trademark. who is selling his goods and gives them the general appearance of goods of another manufacturer or dealer. or the devices or words thereon.3 of R. and co-petitioner Carmen J. the one tank bearing the mark of Petron Gasul found in a truck full of Bicol Gas tanks was a genuine Petron Gasul tank."9Thus. or advertising of goods or services on or in connection with which such use is likely to cause confusion. which would likely mislead the buyer into believing that such goods belong to the latter. Cruz. (b) trademark infringement which consists in Bicol Gas’ use of a trademark that is confusingly similar to Petron’s registered "Gasul" trademark in violation of Section 155 of R. offering for sale. The only point left is the question of the liability of the stockholders and members of the board of directors of Bicol Gas with respect to the charge of unlawfully filling up a steel . there is no showing that Bicol Gas has been giving its LPG tanks the general appearance of the tanks of Petron’s Gasul. Section 155 of R. the allegations in the complaint do not show that Bicol Gas painted on its own tanks Petron’s Gasul trademark or a confusingly similar version of the same to deceive its customers and cheat Petron. 623. Cruz said in his certification that he was executing it "for and on behalf of the Corporation. No proof has been shown that Bicol Gas has gone into the business of distributing imitation Petron Gasul LPGs. acted correctly in giving due course to the petition before it. used Petron’s Gasul trademark or a confusingly similar trademark on Bicol Gas tanks with intent to deceive the public and defraud its competitor as to what it is selling. having been signed only by Petron. therefore. Section 168. fills the steel cylinder or tank. producing and selling shirts that bear the stitched logos of an open-jawed alligator. Bicol Gas employees filled up with their firm’s gas the tank registered to Petron and bearing its mark without the latter’s written authority. copy or colorably imitate a registered mark or a dominant feature thereof and apply such reproduction. packages. which would be likely to influence purchasers to believe that the goods offered are those of a manufacturer or dealer. 8293 (also in relation to Section 170) describes the acts constituting the offense as follows: 168. or any subsequent vendor of such goods or any agent of any vendor engaged in selling such goods with a like purpose. copy or colorable imitation of a registered mark or the same container or a dominant feature thereof in connection with the sale. Here. or to deceive.produced Gasul LPG in violation of Section 168.3 (a) of R. as for the crime of trademark infringement. counterfeit.12 punishes any person who."11In other words. the certification by one of the petitioners may be deemed sufficient. other than the actual manufacturer or dealer. KPE and Petron shared a common cause of action against petitioners Espiritu. In particular. while procedural requirements such as that of submittal of a certificate of non-forum shopping cannot be totally disregarded. Use in commerce any reproduction. As already stated. This was what happened in this case. Doloiras. the following shall be deemed guilty of unfair competition: (a) Any person. or to cause mistake. or who otherwise clothes the goods with such appearance as shall deceive the public and defraud another of his legitimate trade. Consequently. without the written consent of the manufacturer or seller of gases contained in duly registered steel cylinders or tanks. or 2. KPE and Petron have to show that the alleged infringer.. what the law punishes is the act of giving one’s goods the general appearance of the goods of another. Furthermore. more of a captured cylinder belonging to competition.

They do not have a hand in running the day-today business operations of the corporation unless they are at the same time directors or officers of the corporation. But the act that R. Rolando M. Kaye Ann A. It has been held. the management of its business is generally vested in its board of directors. Carlo F. WHEREFORE.15 Jose claimed in his affidavit that. Region V. Bicol Gas declined the offer to swap cylinders for the reason that the owners wanted to send their captured cylinders to Batangas. Espiritu. may themselves be individually held answerable for the crime. Geronima A.. dated February 19. default or omission the corporation commits a crime. it is an entity separate and distinct from the persons of its officers. not its stockholders. 2003. 2002. it must be shown that he had knowledge of the criminal act committed in the name of the corporation and that he took part in the same or gave his consent to its commission. no indication was given as to which Bicol Gas stockholders Llona consulted. whether by action or inaction. SO ORDERED. Mirabuna. 2004.19 No evidence was presented establishing the names of the stockholders who were charged with running the operations of Bicol Gas. permission. Hermilyn A. The petitioners here. Espiritu.A. SP 87711 dated October 17. 2001-9231 (inadvertently referred in the Resolution itself as I. Espiritu. its manager.S. The Court of Appeals seized on this as evidence that the employees of Bicol Gas acted under the direct orders of its owners and that "the owners of Bicol Gas have full control of the operations of the business. It does not punish the act of transporting such tanks. claimed that he would be consulting with the owners of Bicol Gas about it. But the Court of Appeals forgets that in a corporation. petitioner Audie Llona. Espiritu.S. the Resolutions of the Secretary of Justice dated March 11.1avvphi1 Bicol Gas is a corporation. It would be unfair to charge all the stockholders involved. or participation of the owners of Bicol Gas"18 is a sweeping speculation especially since. Mirabuna. when he negotiated the swapping of captured cylinders with Bicol Gas. through whose act. Juanito P. The Court of Appeals of course specifically mentioned petitioner stockholder Manuel C.R. 20019234). 2006. the Court REVERSES and SETS ASIDE the Decision of the Court of Appeals in CA-G. And the complaint did not allege that the truck owner connived with those responsible for filling up that Gasul tank with Bicol Gas LPG. Kim Roland A. 623 punishes is the unlawful filling up of registered tanks of another. The Court REINSTATES the Resolution of the Office of the Provincial Prosecutor of Sorsogon in I. as the registered owner of the truck that the KPE manager brought to the police for investigation because that truck carried a tank of Petron Gasul. Dee are ORDERED excluded from the charge. Subsequently. ."16 The "owners" of a corporate organization are its stockholders and they are to be distinguished from its directors and officers. 2005 as well as its Resolution dated January 6. and stockholders. [abetment]. Jr. The finding of the Court of Appeals that the employees "could not have committed the crimes without the consent. Mirabuna.17 Stockholders are basically investors in a corporation. De Castro. some of whom were proved to be minors. The names of petitioners Manuel C. Mirabuna. Mirabuna. 2004 and August 31. Ken Ryan A. The complaint even failed to allege who among the stockholders sat in the board of directors of the company or served as its officers. therefore. The Court of Appeals ruled that they should be charged along with the Bicol Gas employees who were pointed to as directly involved in overt acts constituting the offense. Jr. what was involved was just one Petron Gasul tank found in a truck filled with Bicol Gas tanks. are being charged in their capacities as stockholders of Bicol Gas. Although the KPE manager heard petitioner Llona say that he was going to consult the owners of Bicol Gas regarding the offer to swap additional captured cylinders. directors. dated February 26. and the Order of the Office of the Regional State Prosecutor. as demonstrated above. however. Before a stockholder may be held criminally liable for acts committed by the corporation. Espititu. As such. Freida F. Rafael F. with the exception of Audie Llona.cylinder or tank that belonged to Petron. that corporate officers or employees. Almonite and Manuel C.

that: [P]laintiff (Peter Ong) on its (sic) own invested money with Termo Loans and Credit Corp.96 inclusive of interest.00 per month. defendants issued and tendered to plaintiff series of postdated checks more particularly described as follows: Planters Bank Check No. PARALUMAN R. and to give semblance of merit to plaintiff’s application for attachment. 22. Check no. Meanwhile.00. MARCELINA MAGALING-TABLADA. 473402 was likewise dishonored but it was subsequently replaced with cash x x x. Ong moved to amend the above complaint "to correct the name ofLucila Magaling to Lucia Magaling. Defendants Sps.000. 6. seeking the reversal of the Decision2 and Amended Decision3 both of the Court of Appeals. 1997 0473404 Jan. at its own risk. 22. Rule 57 of the Rules of Court. In addition to the preceding entreaty. as President of Termo Loans. refuse and neglect to pay to the prejudice and damage of plaintiff. only check nos. J. unjustifiably and illegally failed. with prayer for issuance of a writ of preliminary attachment against the spouses Reynaldo Magaling and Lucila Magaling (Spouses Magaling) and Termo Loans & Credit Corporation (Termo Loans).5 and Termo6 Loans & Credit Corporation. The Complaintalleged that: 3. 1997 0473403 Dec. defendants Sps. defendants’ obligation stands at P389. 22. Plaintiff got attracted with the rate of interest being given by Termo Loans to money placements and this is the reason why plaintiff. oral and written.00. Reynaldo and Lucila Magaling and/or Thermo (sic) Loans and Credit Corp. plus interest. R. with undertaking to pay interest at the rate of two and a half (2 ½%) percent per month. It was alleged further that Reynaldo Magaling. Despite demands. As culled from the record. 22. Ong asked for the issuance of the writ of preliminary attachment pursuant to Section 1(d). 173333 August 13. jointly and severally. 22. "Peter Ong v. Batangas. 1997 0473401 Oct. 2008 LUCIA MAGALING. acting on Ong’s prayer for the issuance of a writ of preliminary attachment grounded on the allegation that Spouses Magaling "were guilty of fraud in contracting the obligation subject of the complaint for sum of money" 9. DECISION CHICO-NAZARIO. Spouses Magaling alleged in their Answer with Counterclaim15 dated 12 November 1998. on 3 November 1998. the principal amount of P389." The assailed rulings reversed and set aside the Decision4 of the Regional Trial Court (RTC). in CA-G.000. Rosita. On 7 October 1998. attorney’s fees and costs of suit. respectively. 7.: Before this Court is a Petition for Review on Certiorari1 filed under Rule 45 of the Rules of Court. defendant Reynaldo Magaling. 22. No. and finding the same to be impressed with merit. As of June 30.00. The alleged assurances/warranties to plaintiff are mere after thoughts to make answering defendants personally answerable for corporate obligations of Termo Loans. Branch 13. petitioners.00. invested money with Termo Loans. together with her spouse. Spouses Reynaldo Magaling and Lucia Magaling. jointly and severally liable to respondent Peter Ong for the corporate obligation of the aforenamed corporation as adjudged in the RTC Decision dated 23 June 1999. with interest. 1998 0473406 Feb. PETER ONG. a certain Mrs. respondent Peter Ong (Ong) instituted with the RTC a Complaint7 for the collection of the sum of P389. on or about September 1997. MAGALING.043.00 plus a monthly interest of 2. (sic) approached plaintiff in his store at Lipa City and induced him to lend him money and/or his company Thermo (sic) Loans and Credit Corp. MAGALING (Heirs of the late Reynaldo Magaling). However.G. 1998. will be able to pay the loan. On or about December 1994. attorney’s fees and costs of suit. 4. and BENITO R. The Spouses Magaling further clarified that: There could be no fraud on the part of Reynaldo Magaling regarding the post-dated checks because he is not even a signatory thereto. and Thermo Loans and Credit Corporation. L.000. The interest thereon computed at 2 ½ % per month is P8. As of September 1997.5%. respondent. 1998 0473405 Feb. refused and neglected and still fail. 5. 22.000. CV No. Furthermore. x x x without any inducement from answering defendants much less assurance that Termo Loans will be able to pay the loan. In their defense. 1998 which were issued for payment of interest and principal loan of P350. the Promissory Note x x x was issued by Termo Loans and not by defendants in their individual capacity. which made petitioner Lucia Magaling. and had used the corporation as mere alter ego or adjunct to evade the payment of valid obligation. Ong filed the above-mentioned complaint praying that Spouses Magaling and Termo Loans be ordered to pay. the RTC granted the aforesaid motion and admitted Ong’s Amended Complaint14 dated 29 October 1998. Defendant gave assurance that he and his company Thermo (sic) Loans and Credit Corp. Based on the assurance and representation of Reynaldo Magaling.000. 70954. 473400 and 473401 were cleared by the bank. Without the assurance plaintiff would not have lent the money. the principal loan extended to defendants stands atP350. Lipa City. xxxx The alleged checks appear to have been issued by Termo Loans as a corporation and answering defendants are not even signatories thereto. Date 0473400 Sept. as amended.750. as amended. Because of the failure of Termo Loans to pay its outstanding obligation despite demand. dated 31 August 2005 and 28 June 2006. together with the corporation’s treasurer. the antecedent facts of the present petition are as follows: On 30 September 1998.00.000. entitled."12 In an Order13 dated 9 November 1998. Reynaldo Magaling.R. vs. . 1997 0473402 Nov. In acknowledgment of the loan. Peter Ong extended loan to defendants. the RTC issued an Order10 directing the issuance of the writ11 prayed for upon the filing of a bond in the amount of P390. signed a Promissory Note8 in favor of Ong for the amount of P300. Reynaldo Magaling and Lucila Magaling are the controlling stockholders/owners of Thermo (sic) Loans and Credit Corp.

the RTC promulgated the first of two decisions in this case.28 The Court of Appeals. the obligation appears to have been incurred in 1994 x x x. xxxx Furthermore. 4.21 On 11 August 1999. caused the attachment of two (2) parcels of land covered by Transfer Certificates of Title No. The Writ of Execution24 was subsequently issued by the RTC on 1 March 2000. In fact. the appellate court reversed and set aside the ruling of the RTC. the Court finds for the plaintiff and against the defendant-corporation and hereby orders the latter to pay the former the following amounts: 1.27 Ong appealed the instant case to the Court of Appeals.viz: WHEREFORE. Plaintiff nakedly alleged that the individual defendants are guilty of fraud in contracting the obligation. It is indeed implausible that movants will give assurances concerning checks they did not sign. The Spouses Magaling expectedly moved for the reconsideration of the 7 October 1998 Order of the RTC granting the writ of preliminary attachment. the Sheriff17 of RTC.00 representing principal obligation. and 5. the foregoing considered. which the RTC granted23 on 18 October 1999. It is therefore a corporate liability and not the personal obligation of herein movants. 1994 (Exh. the RTC declared said corporation in default and allowed Ong to present evidence ex parte. Ong filed a motion22 for execution of the above. The Court of Appeals pierced the veil of corporate fiction and held the spouses Magaling solidarily liable with Termo Loans for the corporate obligations of the latter since it found that Reynaldo Magaling was grossly negligent in managing the affairs of the said corporation. it appears that the obligation was incurred by Termo Loans and Credit Corporation x x x. Defendant Reynaldo Magaling only signed said Promissory Note in his capacity as President of the corporation. Reynaldo Magaling being a mere stockholder of Thermo (sic) Loans and Credit Corporation cannot be held personally liable for the corporate debt incurred by it. and evidenced by the Sheriff’s Return16dated 27 November 1998. insofar as the issue of the propriety of the discharge of the writ of preliminary attachment was concerned. Interest at the rate of 2. the Sheriff’s Return25 was filed before the RTC manifesting that the Writ of Execution earlier issued was being returned unsatisfied in view of the fact that Termo Loans had ceased to exist or had been dissolved. "Fraud" was alleged in connection with the checks that bounced. Deciding affirmatively on Ong’s propositions. The sum of P350. Hence. cannot apply to the spouses Magaling. 13 of Lipa City. On 26 April 2000. a corporation has a personality separate and distinct from that of the stockholders and officers.26 The fallo of the foregoing decision thus states: WHEREFORE. the instant appeal is hereby GRANTED. a perusal of the Amended Complaint and the annexes thereto readily reveals that the obligation subject of the present case is corporate in character and not personal obligations of the individual defendants. The Nonnegotiable Promissory Note No. that is. in reversing the 5 February 2001 Decision of the RTC. Ruling in favor of Ong. T-109347 and No. The assailed decision is REVERSED and SET ASIDE and a new one entered declaring appellee spouses Magaling jointly and severally liable to appellant Peter Ong for the corporate obligation of Thermo (sic) Loans adjudged in the decision of the trial court dated 23 June 1999. the same was not committed simultaneously with the inception of the obligation. A stockholder as a rule is not directly. he invited Our attention to his assignment of error in his Appellant’s . The cost of suit. The trial court ruled in this wise: Records show that the subject obligation is the obligation of defendant corporation. both in the names of the Spouses Magaling. individually and/or personally liable for the indebtedness of the corporation (citation omitted). F) is addressed to the corporation and not to Reynaldo Magaling.000. As correctly stated by the movants. arguing that: The Writ of Preliminary Attachment x x x was improperly or irregularly issued as there is no existing ground to support the issuance of an attachment. trial on the merits concerning Ong’s cause of action against the Spouses Magaling ensued. On 5 February 2001. The Spouses Magaling moved for the reconsideration of the aforequoted decision. The Spouses Magaling’s motion for reconsideration was denied by the Court of Appeals in itsAmended Decision dated 28 June 2006. and which appear to have been issued only in 1998 by way of renewal of plaintiff’s money placement. P20. the instant Complaint against defendants-spouses Magaling is hereby DISMISSED for lack of merit. Br. 2. SECONDLY.000.For its part. foregoing premises considered. In a parallel development. thus. and against Termo Loans. Thus. the Planters Development Bank Checks (Exh. defendant Magaling’s act of convincing the plaintiff in investing money with the corporation granting without admitting it to be true is an act in usual course of business of said corporation. upon Ong’s motion. in complete contrast to its first decision. p. the RTC found that Spouses Magaling’s Motion to Discharge Attachment 20 was impressed with merit based on the following reasons: FIRSTLY. Even plaintiff’s documentary evidence shows that the obligation subject matter of the instant case is a corporate one for which the stockholders and officers of Thermo (sic) Loans and Credit Corporation are not personally answerable. The expenses of litigation. 3) evidencing plaintiff’s money placement belongs to/or is owned by defendant Thermo (sic) Loans and Credit Corporation. Thermo (sic) Loans and Credit Corporation has a personality separate and distinct from that of Reynaldo Magaling who happens to be only a stockholder thereof and president at that time. THIRDLY. Nevertheless. the Court of Appeals explained in the same Amended Decision that: With respect to appellant’s prayer. plaintiff’s demand letter dated February 24. 1998 (Exh. It appears therefore that if there was indeed fraud. But not to be outdone. albeit partial. A – A-3) which were allegedly issued by defendant Reynaldo Magaling to herein plaintiff were corporate checks under the account name of Thermo (sic) Loans and Credit Corporation with defendant Reynaldo Magaling not even a signatory thereof. In a Decision dated 31 August 2005. Termo Loans failed to file an Answer.18 In an Order19 dated 19 February 1999. 551 dated November 25. On 23 June 1999. the RTC promulgated its second decision holding the Spouses Magaling free and clear of any obligation or liability with respect to the sum of money claimed by Ong. Pursuant to the writ of preliminary attachment earlier issued. B. found that the general rule that corporate officers cannot be held personally liable for corporate debt when they act in good faith and within the scope of their authority in executing a contract for and in behalf of the corporation. the dispositive portion reads: WHEREFORE. the checks which bounced do not bear the signatures of herein movants.5% per month from date of default until full payment (sic) 3. T-75559.00 as and for attorney’s fees. Ong likewise filed a motion for reconsideration. For being its President.

5% on his investment or P8. it is incumbent upon Reynaldo Magaling to know the financial condition of his company." under Rule 45 of the Revised Rules of Court. as prayed for by appellant. he was paid his monthly interest of 2. and in his own words. In any case.29 And the dispositive part of the Amended Decision provides: WHEREFORE. and nor was any bankruptcy or insolvency or suspension of payments proceedings instituted to protect the assets of the corporation and the interest of its investors. At the outset.00 monthly. We find that such discharge. Reynaldo Magaling resigned as president of Thermo (sic) Loans in 1998 when the company already became insolvent.30 Hence. prematurely adjudicated the merits of the case on the lack of personal liability of appellees.) Thus. He admitted that when he resigned. he seemed to know nothing at all about its operations. Reynaldo Magaling was grossly negligent in directing the affairs of Thermo (sic) Loans without due regard to the plight of its investors and thus should be held jointly and severally liable for the corporate obligation of Thermo (sic) Loans to appellant Peter Ong. THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND IN EXCESS OF JURISDICTION IN RELYING ON A GROUND RAISED ONLY FOR THE FIRST TIME ON APPEAL. In ruling against the Spouses Magaling on the sole issue of whether or not they "may be held personally liable for the corporate obligation of Thermo (sic) Loans in favor of Peter Ong. of the Court of Appeals. he conveniently gave all the responsibilities to the manager x x x.) It then concluded that: Clearly. in traversing the allegations in support of the present petition. nor could he produce any financial document like the company’s financial statement.) The Articles of Incorporation of Thermo (sic) Loans where he was incorporator and director states its primary purpose was to engage in the business of a lending investor. He argued that the said Order granting such discharge had the effect of prejudging the merits of the case at a time when Thermo (sic) Loans and Credit Corp. This is a procedural error. and II. 3) that the solvency of Termo Loans was never put in issue or raised by Ong. the discharge of attachment is declared illegal and the writ of attachment is declared effective and subsisting."34 the Court of Appeals debunked the ratiocination of the RTC that "the checks issued by appellee Reynaldo Magaling were all corporate checks under the account name of Thermo (sic) Loans to which he was not even a signatory (of) x x x (and) that the demand letter was addressed to Thermo (sic) Loans and not to Reynaldo Magaling. lending money to persons and entities under the terms and conditions allowed by law. the Spouses Magaling claim that the Court of Appeals gravely abused its discretion when it (1) held the Spouses Magaling equally liable with Termo Loans with regard to the financial liability of the latter. and without the latter even posting a counter bond. the partial motion for reconsideration of appellant is GRANTED. had not even filed its answer to the complaint. In the case at bar. This being an appeal by certiorari. nobody took over as president of the company. the foregoing considered. 32 Under this mode of appeal. he failed in this respect that the trial court even commented that he seemed not to know anything about the operation of his business. the present petition premised on the following arguments31: I. Neither were the investors informed about the bankruptcy thereof. (Citation omitted.36 In asking this Court to reverse and set aside the abovequoted Decision. the allegations for the allowance of this petition are that the appellate court committed grave abuse of discretion amounting to lack or excess of jurisdiction in reversing the decision dated 5 February 2001 of the RTC. One glaring fact that stands out is that these creditors are left with an empty bag and cannot collect because of . 2) that "the Amended Complaint did not allege that Reynaldo Magaling was guilty of gross negligence or bad faith in directing the affairs of the corporation"37. and (2) reinstated the writ of preliminary attachment. this Court is precluded from entertaining errors of jurisdiction or grave abuse of discretion – a question which may be appropriately addressed through a petition for certiorari under Rule 65 of the Revised Rules of Court. Miserably. (Citation omitted. Indeed. As director and president of the company. How many creditors does the company have? He was supposed to know that as President but he does not know. considering that it was filed33 within 15 days from receipt of the Amended Decision of the Court of Appeals denying petitioners’ motion for reconsideration. in accordance with the liberal spirit pervading the Revised Rules of Court and in the interest of justice. Therefore. as well as the Amended Decision."35 It took note of the following: Appellee Reynaldo Magaling testified that as president of Thermo (sic) Loans from 1994 up to 1997. and 4) that negligence "is not one of the grounds provided for by Rule 57 of the Rules of Court that will warrant (the) issuance of preliminary attachment. the degree of diligence required of Reynaldo Magaling as director and president of Thermo (sic) Loans was not shown to have been exercised by him as expected from the highest officer of the said company. this Court’s power to review is generally limited to questions of law and errors of judgment. Accordingly. and from 1994 to 1997.750. even before the issues were joined. we note that while the instant suit is denominated as a "Petition for Review onCertiorari. Renaldo (sic) Magaling likewise admitted that there are other twenty more different companies also dealing in financing or lending business. the petitioners contend that the appellate court failed to appreciate several important facts: 1) that the issue of whether or not a corporate debt or credit can be the debt or credit of a stockholder was alleged for the first time on appeal. to put an end to the present controversy.Brief where he sought the nullification of the Order of the trial court discharging the writ of attachment."38 Ong. argues in his Comment that he brought up the issue of Reynaldo Magaling’s negligence in managing the affairs of Termo Loans in his Memorandum before the RTC where he stated that: Being President. while it is true that there may have been no fraud at the inception of the transaction with appellant Peter Ong. (Citation omitted. it was his duty and responsibility to supervise the personnel and the operation of the corporation. the Order discharging the writ of attachment is SET ASIDE and the Writ of Attachment is hereby declared effective and subsisting. THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND IN EXCESS OF JURISDICTION IN REINSTATING THE PRELIMINARY ATTACHMENT. He was found wanting and did not know the financial condition of his company. It behooved him to have exercised utmost diligence in running the affairs of Thermo (sic) Loans to protect its interest and its investors. Appellees’ motion for reconsideration is DENIED. under Rule 45 of the Revised Rules of Court. this Court decided to treat the present petition for certiorari as an appeal by certiorari. Considering the nature of the business of Thermo (sic) Loans and other lending companies of appellee Reynaldo Magaling. TO MAKE REYNALDO MAGALING PERSONALLY LIABLE FOR CORPORATE LIABILITY.

they insist that it was unfair for the appellate court to conclude that Reynaldo Magaling failed to exercise the necessary diligence in running Termo Loans. by specific provision of law. he must be made personally liable for the debt of Termo Loans to Ong. issues and arguments not adequately brought to the attention of the lower court need not be. trustee or officer is made. sir.41 2. undeniable and proven during the course of the proceedings in the trial court. For them. Generally. for reasons of negligence by the director. Or simply put.43 or 4. thus.42 3. you said …. trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation. are deemed to have been waived. Gross negligence is one that is characterized by the want of even slight care. thus. such negligence must be gross. Without such objection. because the inability to pay one’s obligation is not synonymous with fraudulent intent not to honor the obligations. there is nothing substantial on record to show that Reynaldo Magaling.40 The general rule is that obligations incurred by the corporation. issues raised for the first time on appeal and not raised timely in the proceedings in the lower court are barred for being violative of basic due process. It is basic that a corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and. the Spouses Magaling argued that "theAmended Complaint did not allege that Reynaldo Magaling was guilty of gross negligence or bad faith in directing the affairs of the corporation". in general. in their Memorandum filed before the RTC. (b) act in bad faith or with gross negligence in directing the corporate affairs. Mr. As explained above. personally liable for his corporate action. to hold a director. bad faith does not arise just because a corporation fails to pay its obligations. Reynaldo Magaling’s gross negligence became apparent. Parenthetically. 50 In the case at bar. to wit: ATTY. he cannot raise the question for the first time on appeal. The appellate court eventually found the Spouses Magaling equally liable with Termo Loans for the sum of money sought to be collected by Ong. as this matter has not been pleaded before the RTC. not inadvertently but willfully and intentionally with a conscious indifference to consequences insofar as other persons may be affected. When directors and trustees or. and that respondent Ong was not able to adduce evidence to offset the effect of the particular allegation. Reynaldo Magaling was the lone witness presented in court to belie the claim of Ong.39 From the preceding arguments and counter-arguments. in appropriate case. acting or omitting to act in a situation where there is a duty to act. Exceptional circumstances warranting such disregard of a separate personality are summarized as follows: 1. and ordinarily will not be. as President of Termo Loans. and vice versa. its stockholders or members. officers and employees. as such. but he did not do so. That the Spouses Magaling were not able to present evidence to the contrary was solely due to the ineffectiveness of their counsel in rebutting the evidence unearthed and brought to light during the witness’ presentation in court.48 In the case at bar. Basic consideration of due process impels this rule. NG: Q. indeed. are its sole liabilities. he (Reynaldo Magaling) clearly and plainly shed light on how Termo Loans was run under his aegis. When a director. Objection to evidence cannot be raised for the first time on appeal. this Flagship Lending Corporation. however. bad faith or gross negligence by the director. trustee or officer in directing the corporate affairs must be established clearly and convincingly. a trustee or an officer personally liable for the debts of the corporation and.the negligence of Reynaldo Magaling in running his financing companies. acted in bad faith in inviting Ong to invest in Termo Loans and/or in obtaining a loan from Ong for said corporation in order to warrant his personal liability. has. too late in the day to raise the alleged gross negligence of Termo Loans’ President. from the people comprising it. trustee or officer in the conduct of the transactions of the corporation. theories. having knowledge thereof. witness. It cannot be said that the Spouses Magaling were not given an opportunity to refute the issue of his supposed gross negligence in directing the affairs of Termo Loans when the same. the officers of a corporation: (a) vote for or assent to patently unlawful acts of the corporation. and that they had used the corporation to evade the payment of a valid obligation. From all indications. the threshold issues proper for this Court’s consideration are. The testimonial evidence elicited from Reynaldo Magaling himself during his cross-examination in the RTC bears out his wanton disregard of the transactions of Termo Loans. this Court still cannot totally absolve Reynaldo Magaling from any liability considering his gross negligence in directing the affairs of Termo Loans. acting through its directors. gross or willful negligence could amount to bad faith. he must so state in the form of objection. and other persons. There are times. Reynaldo Magaling. We disagree. 47 and must be established by clear and convincing evidence. It imports a dishonest purpose or some moral obliquity and conscious wrongdoing. laws. did not forthwith file with the corporate secretary his written objection thereto. more or less. When a director or officer has consented to the issuance of watered down stocks or who. Bad faith does not connote bad judgment or negligence. having been established by his own testimony during cross-examination. The petition is not meritorious. given the facts of the case. particularly in consideration of the fact that he was the latter’s President. .44 In making the Spouses Magaling co-defendants of Termo Loans. and 2) reinstating the writ of preliminary attachment issued against two (2) real properties of the Spouses Magaling. In order to pierce the veil of corporate fiction. Likewise. considered by a reviewing court. it is. It means breach of a known duty through some ill motive or interest. when a party desires the court to reject the evidence offered. when solidary liabilities may be incurred and the veil of corporate fiction may be pierced. Bad faith is a question of fact and is evidentiary. this company that you have. When was this established. I think it is in 1998. however.46 The foregoing discussion notwithstanding. Mr. whether or not the Court of Appeals erred in: 1) making the Spouses Magaling and Termo Loans jointly and severally liable to Ong for the obligation incurred by the corporation. witness? A. On crossexamination. the proceeds of the investment and/or loan were indeed utilized by Termo Loans. the issue respecting Reynaldo Magaling’s gross negligence was seasonably raised in the proceedings before the RTC. Their counsel could have clarified in the re-direct examination the matters revealed during crossexamination. could have been objected to at the time it was made. thus. Ong alleged in his Complaint for Sum of Money filed with the RTC that the spouses Reynaldo Magaling and Lucia Magaling were the controlling stockholders and/or owners of Termo Loans. pierce the veil of corporate fiction. When a director. 45 In the present case. as they cannot be raised for the first time on appeal49 and. Hence. (c) are guilty of conflict of interest to the prejudice of the corporation. It partakes of the nature of fraud. Petitioners’ argument is that Ong failed to actually allege in the complaint Reynaldo Magaling’s gross negligence in running Termo Loans as basis for making the subject sum of money a personal liability of Reynaldo.

NG: . Q. So. yourself did not tell him? A. Q. How about Thermo (sic) Loans? A. Q. as President. sir. when did you first realize that you have difficulty in receiving payments from borrowers? A. Nobody took over. Q. But because you were the President. As of now. That is my investment. (No answer). I do not remember. were you the one who convinced Peter Ong to invest in your company. I do not know.000. Yes. sir. As of the time that you were still the President. Q. No. Your Honor. How about the other investors? Did you not also tell them of such a situation that you were in in your company? A. Q. How about this First Solid Lending Corporation. Your Honor. Who is in-charged (sic) of the company? A. was there a formal bankruptcy proceedings filed in dissolving the company? xxxx WITNESS: A. Your Honor. Yes. I cannot remember. Your Honor. sir. The others were not able to get back. But did they actually get their money investment? A. NG: Q. Q. ATTY. Q. In that matter. Your Honor. No. can you name some of the other persons who also invested in your company. I do not know. Q. Your Manager. 19 …. Did they file a case against you? A. Your Honor. Yes. Witness. Q. I have invested. Your Honor. Witness. sir. sir. But you talked to him about the interest and the principal? A. Mr. Your Honor. As of now? A. Q.51 xxxx ATTY. I do not know that. In 1998. you do not know who are the other investor? A. sir. that is your investment in the company? A. I cannot remember also when it started operating. Your Honor. COURT: Q. Do you know how much was the investment of the other persons aside from Peter Ong? xxxx WITNESS: A. P1. Being the President. sir. Your Honor. NG: Q. NG: Q. That I do not know. sir. So. but the other investors. Mr. did all the investors get their money? A. you also supervised your manager. Your Honor. COURT: Q. I know the Directors. Q. COURT: Q. Yes. Q. How about the other persons who also invested money with your company? A. Your Honor. ATTY. Q. I do not know. To your knowledge. sir. Can you name them? A. No charges were filed against me. Your Honor. sir. You cannot presume that the investor knows that you have difficulty. Q. the Thermo (sic) Loans? A. So. So. if you know? A. the fact that Thermo (sic) Loans became insolvent in 1998.. ATTY. Q. COURT: Q. ATTY. NG: Q. you do not know or you refused to know? A. Your Honor. That is not a share. sir. 1998. what was happening.8 Million. In the later part of …. Your Honor? Q.? A. The Directors listed there. is it not? A. COURT: Q. COURT: Q. Your Honor. Like me. No. But you did not mention to him that you have other lending companies? A. It was told to him by our manager.00 investment? A. And who took over as President? A. Q. He knew about it.Q. How much? A. Why not? A. when was this put up? A. Many are saying that they will get their money. I do not remember that. Your Honor. Your Honor. witness? A. what is going on for fear that they might be afraid of what is happening. So. Your Honor. this is the only case filed by an investor against Thermo (sic) Loans? A. ATTY. How about the investors? Did they get all their money? WITNESS: A. And in 1998 you did not tell Peter Ong that there was difficulty in receiving payments from the borrowers? A. Q. How much did the Directors invest in this company? A. going back to your relationship with Mr. sir. sir. Upon insolvency. aside from Peter Ong? A. No. NG: Q. Q. sir. ATTY. is it not. there was absolutely no occasion for you to tell him even in passing in his store that there is danger in the P300. Yes. I resigned at that time in 1998. sir. I do not know. were there other investors in the company. Can you produce the financial statement of Thermo (sic) Loans. You have to tell the investor. Mr. Q. Peter Ong. NG: Q. Our manager. That is your share in the company? A. Did you tell him? A. Q. I did not tell that to investors. But you.

What else? A. I do not know that. Among those companies which you mentioned. From our standpoint. which of those are solvent and which are not? A. No." it was a de facto. Lending companies. So. sir. You did not go after your P1.examination. you had …. Q. sir. Reynaldo Magaling’s foregoing testimony only convincingly displayed his gross negligence in the conduct of the affairs of Termo Loans. Q. NG: Q. sir. What else? A. Q. I called a meeting but nobody attended the meeting. What else? COURT: Q. Q. sir. He is a seasoned businessman running several lending companies. COURT: Q. What are the names of that lending companies that you had? A. Because I am not only attending to that company. Q. Witness. sir. Yes. Q. sir. Q. sir. aside from Termo Loans. to the predicament of the distressed corporation glaringly exhibited a lackadaisical attitude from a top office of a corporation. I did not bother to run after my investment for reason of health x x x. If I will think about it. I gave all the responsibilities to the manager. who got hold of the assets of the company? A. Your Honor. indifference. But you did not ask those insolvent. sir. Okay. "nagsarado. there was no…. Q. So. Where you tried to retrieve or will you try to retrieve the financial statement of this company? A. a conduct totally abhorrent in the corporate world. Thermo Loans was insolvent at that time. sir. But you called a meeting? A. because no Directors attended the meeting." Q. I did not receive the investment of Peter Ong. what happened to all these lending companies now? A. I might get sick. Reynaldo Magaling is not a novice in the field of commerce. is it? A. Your Honor. In 1994 when you got this alleged investment from Peter Ong. sir. Q. NG: Q. Mr. sir. Mr. NG: Q. What else? A. sir.8 Million? A. considering that you are a businessman engaged in similar lines of lending company and being the President. Yes. All of those I mentioned except Thermo Loans. Q. They are okay. xxxx ATTY. How about your own personal records? Your personal copy of the financial statement of the company. sir. sir. Q. Not like that. "Nakukunsiyensya ka" but you were not being bothered for the money of the other investors? How can that be? Your conscience bothers you? A. to wit: ATTY. various other lending companies. Your Honor. it was the company who received. ATTY. when this company. sir. NG: Q. the former President of Themo (sic) Loans. Okay. Mediator Lending Company. No more.52 Reynaldo Magaling’s very own testimony gave reason for the appellate court’s finding of gross negligence on his part. That I do not know. Cash Line Lending Company. I have so many companies that are already insolvent. First Solid Lending Company. Q. Do you mean to tell this Honorable Court that all these companies are now doing well and still existing including Thermo Loans? A. Q. bilang Katoliko’y ayaw ko nang makasali pa sa ibang bagay na sa banda roo’y pera lang ho iyon. Aside from Thermo Loans? A. Instead of the intended effect of refuting the supposition that Termo Loans was assiduously managed. Antigo Lending Company. New Profile Lending Company. Q. Q. ATTY. I do not know where it was placed. Vintage Lending Company. you are telling this Court that you cannot produce anymore the financial statement related to this company. Thermo Loans. sir.53 xxxx . Your Honor. What else? A. COURT: Q.Q. with financial statement of the company was it not? A. I have so many other companies. But you did not ask about the company that are solvent. you said that you are a businessman by profession? WITNESS: A. But what were your businesses that you had at that time? A. COURT: Q. sir. What else? A. nay. Where are now the financial records of the company? A. his casual manner. sir. Why? A. During his cross. Q. Q. Nomore (sic). NG: Q. Your Honor. ATTY. he admitted that he had. Beneficial Lending Company. sir. What else? A. Mr. What else? A. You did not call a meeting of the Directors and other stock holders that your company is going down? A. NG: Q. ATTY. considering that your classification in Rotary Club is financial services? A. sir. What else? A. Witness. I do not remember that. sir. insouciance and nonchalance. you were furnished with final…. witness. what were the businesses that you own or control at that time? xxxx WITNESS: A. because "ako’y kinukunsensya rin ng aking sarili. Flagship Lending Company. Smart Cash Lending Company. Thermo (sic) Loans pulled (sic) it up. Insight Lending Company. What else? A. sir.

He talked to me.00 money to Thermo Loans Lending and Credit Corporation? A. the Court of Appeals observed correctly when it succinctly stated that. we hew to the provisions of the law and jurisprudence. or for a willful violation of duty. or by any other person in a fiduciary capacity. The reason is that. or disposed of to prevent its being found or taken by the applicant or an authorized person. has been concealed. 13. Sec. at the commencement of the action or at any time thereafter. that you admitted …. the deposit or counter-bond aforesaid standing in place of the property so released. Your Honor. In either case. He talked to you? Now. After four (4) years … that investment was in 1994 up to 1998. A writ of preliminary attachment is a provisional remedy by virtue of which a plaintiff or other proper party may. have the property of the adverse party taken into the custody of the court as security for the satisfaction of the judgment that may be recovered. provides that: SECTION 1. Who was the one who made the offer for him to invest? Was he the one who voluntarily invested the money or you were the one who convinced him to invest the P300. – The party whose property has been ordered attached may file a motion with the court in which the action is pending. viz: SEC. the corporation became insolvent. witness. for an order to set aside or discharge the attachment on the ground that the same was improperly or . by appropriate proceedings. What about after that? A.55 xxxx ATTY. or become insufficient.The court shall. obtain a judgment and have such property applied to its satisfaction. the property attached. the attaching party may apply for a new order of attachment.56 Accordingly." On the propriety of the RTC’s discharge of the preliminary attachment.COURT: Q. may move for the discharge of the attachment wholly or in part on the security given. how did Thermo Loans become bankrupt? A. Grounds upon which attachment may issue. – At the commencement of the action or at any time before entry of judgment. on a cause of action arising from law. the counter-bond shall be equal to the value of that property as determined by the court. Your Honor.000.) Second. I cannot remember. other than moral and exemplary. what you are saying now is that. or on whom summons may be served by publication. ATTY. after due notice and hearing. in an amount equal to that fixed by the court in the order of attachment. exclusive of costs. Yes. or any part thereof. or files a counter-bond executed to the attaching party with the clerk of the court where the application is made.000. with intent to defraud his creditors. or to make some provision for unsecured debts in cases where the means of satisfaction thereof are liable to be removed beyond the jurisdiction. "[c]learly. contract. agent. or the proceeds of any sale thereof. sir. a counter-bond. as amended. Should such counter-bond for any reason be found to be. (e) In an action against a party who has removed or disposed of his property. the writ of preliminary attachment may be discharged upon a security given. So. the cash deposit or the counter-bond shall secure the payment of any judgment that the attaching party may recover in the action. Q. the borrowers did not pay. Your Honor. (Emphasis supplied. or an attorney. And Peter Ong could have not parted with the Three Hundred Thousand pesos (P300. or otherwise placed beyond the reach of creditors.e. the same rule provides for two ways by which it can be dissolved or discharged. and this last … in the year 1999. delict or quasi-delict against a party who is about to depart from the Philippines with intent to defraud his creditors. order the discharge of the attachment if the movant makes a cash deposit.57 The chief purpose of the remedy of attachment is to secure a contingent lien on defendant’s property until plaintiff can. First. NG: Q. It was in 1994. detained or converted.58 For the provisional remedy to issue. Rule 57 of the Rules of Court. or (f) In an action against a party who does not reside and is not found in the Philippines. to wit: SEC. NG: xxxx Q. shall be delivered to the party making the deposit or giving the counter-bond. A notice of the deposit shall forthwith be served on the attaching party. removed. Upon the discharge of an attachment in accordance with the provisions of this section. a plaintiff or any proper party may have the property of the adverse party attached as security for the satisfaction of any judgment that may be recovered in the following cases: (a) In an action for the recovery of a specified amount of money or damages. the party whose property has been attached. i. broker. Your Honor. or to the person appearing on his behalf. or an officer of a corporation. COURT: Q. Reynaldo Magaling was grossly negligent in directing the affairs of Thermo (sic) Loans without due regard to the plight of its investors and thus should be held jointly and severally liable for the corporate obligation of Thermo (sic) Loans to appellant Peter Ong. Discharge of attachment on other grounds. or clerk. or in the performance thereof. 12. Discharge of attachment upon giving counter-bound. or the person appearing on his behalf. 1. you also talked with Peter Ong about Peter Ong’s investing in Thermo Loans? A. quasi-contract. in the course of his employment as such. Your Honor. What happened when … Mr. – After a writ of attachment has been enforced. Once the writ of preliminary attachment is issued. factor. before or after levy or even after the release of the attached property. (c) In an action to recover possession of property unjustly or fraudulently taken. when the property. or is about to do so. or improperly disposed of or concealed. and the party furnishing the same fail to file an additional counter-bond. because due to the lapse of time.54 xxxx COURT: Q. your manager and Peter Ong made preliminary talks about Peter Ong investing in Thermo Loans and Credit Corporation and thereafter.. said provisional remedy must be shown to have been irregularly or improperly issued.00) investment if he did not talk to you? A. (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. (b) In an action for money or property embezzled or fraudulently misapplied or converted to his own use by a public officer. But if the attachment is sought to be discharged with respect to a particular property.

Costs against petitioners. with the burden of proof to sustain the writ being on the attaching creditor. there must be a hearing. as their position is that the provisional remedy was irregularly or improperly issued. the discharge shall be limited to the excess.60 Herein. 13 of Rule 57 of the Rules of Court. the instant petition is DENIED. If the motion be made on affidavits on the part of the movant but not otherwise. Rule 57 of the Rules of Court. or that the bond is insufficient. or that the attachment is excessive. both of the Court of Appeals in CA-G." WHEREFORE. 13. premises considered. there is no question that no counter bond was given by the Spouses Magaling for the discharge or dissolution of the writ of preliminary attachment. shall be granted only "after due notice and hearing. That Ong was able to file an opposition to the motion of the Spouses Magaling to discharge the preliminary attachment is of no moment. when the attachment is challenged for having been illegally or improperly issued.R. there is no showing that a hearing was conducted prior to the issuance of the 19 February 1999 Order of the RTC discharging or dissolving the writ of preliminary attachment. They sought the discharge or dissolution of the writ based on Sec. The absence of a hearing before the RTC bars the discharge of the writ of preliminary attachment for the simple reason that the discharge or dissolution of said writ. CV No. the assailed 31 August 2005 Decision and 28 June 2006 Amended Decision. the attaching party may oppose the motion by counter-affidavits or other evidence in addition to that on which the attachment was made. . After due notice and hearing. or that the bond is insufficient. It means a fair and open hearing. (Emphasis supplied. as amended. Accordingly. 70954. as amended. are hereby AFFIRMED. the court shall order the setting aside or the corresponding discharge of the attachment if it appears that it was improperly or irregularly issued or enforced. 12 or Sec. heirs of Reynaldo Magaling. The written opposition filed is not equivalent to a hearing.irregularly issued or enforced. SO ORDERED. Under said provision.59 That hearing embraces not only the right to present evidence but also a reasonable opportunity to know the claims of the opposing parties and meet them. and the defect is not cured forthwith.) In the case at bar. whether under Sec. If the attachment is excessive.

85 Summonses were not served upon Eduardo de Leon. and she ceased to be such in 1982. Impact Corporation started encountering financial problems. Eduardo de Leon. unpaid 13th month pay and non-remittance of loan amortization and SSS premiums. SP No. Period August 1980 to December 1984 August 1981 to July 1984 Unremitted Amount P 453. 2423. unpaid 13th month pay and to remit to the Social Security System loan amortizations and SSS premiums previously deducted from the wages of the workers. In March 1983.93 is erroneous.Resolution both of the Social Security Commission (SSC) in SSC Case No. petitioner. A portion of the order reads: On the claims of unpaid wages.845. the union of Impact Corporation filed a Notice of Strike with the Ministry of Labor which was followed by a declaration of strike on 28 July 1985. 10048. through its then Vice President Ricardo de Leon. noted the inability of Impact Corporation to pay wages. due to failure to file his responsive pleading. Subsequently. SOCIAL SECURITY COMMISSION LEGAL AND COLLECTION.G. Pacita Fernandez. They were all later determined to be deceased. 14 In her Answer with Counterclaim15 dated 20 May 1999. namely: Eduardo de Leon. xxxx In brief. all of its assets. petitioner averred that Impact Corporation had ceased operations in 1980. such claims were admitted by the company although it alleged cash liquidity as the main reason for such non-payment. Ricardo de Leon. we are for directing the company to pay the same to the workers and to remit loan amortizations and SSS premiums previously deducted from their wages to the Social Security System.67 andP2.78 and P10. Petitioner Immaculada L. Even as a stockholder and director of Impact Corporation. Nueva Ecija. liable for unremitted. viable. the Ministry of Labor certified the labor dispute for compulsory arbitration to the National Labor Relations Commission (NLRC) in an Order5 dated 25 August 1985. 10048. explained in a letter dated 18 July 1985 that it had been confronted with strikes in 1984 and layoffs were effected thereafter. through its Legal and Collection Division (LCD). stating the following: (3 . One was a "slug" foundry-factory located in Cuyapo. Impact Corporation filed with the Securities and Exchange Commission (SEC) a Petition for Suspension of Payments.D. and petitioner. The petitioner raised the same arguments in her Position Paper. and profitable enterprise. SOCIAL SECURITY SYSTEM. of Pacita Fernandez died on 7 February 2000. filed a case before the SSC for the collection of unremitted SSS premium contributions withheld by Impact Corporation from its employees.85 for the periods August 1980 to December 1984 and August 1981 to July 1984. 02423. while the other was an Extrusion Plant in Cainta. their whereabouts unknown. and the penalties for late remittance at the rate of 3% per month from the date the contributions fell due until fully paid pursuant to Section 22(a) of the Social Security Law. Impact Corporation resumed operations but only for its winding up and dissolution. its machineries. No.988. the Social Security System (SSS). vs. No. lack of cause of action and cessation of business. the corporation failed to appear at the hearings. and Consuelo Villanueva were directors3 of Impact Corporation.6 On 3 July 1985. 16 On 23 January 1998. Records show that around 1978. DECISION CHICO-NAZARIO. as amended. Despite due notice. petitioner herein. of which she had none since her subscription was already fully paid. On 1 December 1995.4 docketed as SEC Case No. finding Immaculada L.R. she insisted that she was a mere director without managerial functions. Ricardo de Leon died following the death.11Pacita Fernandez. J. Ricardo de Leon was declared in default. 13th month pay. and Consuelo Villanueva. Ricardo de Leon. 10048 wherein the directors of Impact Corporation were directly impleaded as respondents. the dispute at Impact Corporation is hereby certified to the National Labor Relations Commission for compulsory arbitration in accordance with Article 264 (g) of the Labor Code. WHEREFORE. It further argued that the P402. On 8 May 1985. 85923. In fact.856. By 1980. namely. The case which impleaded Impact Corporation as respondent was docketed as SSC Case No. in the same Order. respectively. The Ministry of Labor. Petitioner filed with the SSC a Motion to Dismiss13 on grounds of prescription.856.662. it is an on-going.941. were sold to scrap dealers to answer for its arrears in rentals. 170735 December 17. 9 Due to Impact Corporation’s liability and cash flow problems. The corporation was engaged in the business of manufacturing aluminum tube containers and operated two factories. respondents. office furniture and fixtures. Impact Corporation. 03-2745100-21. In answer to the allegations raised in SSC Case No. labor unrest besieged the corporation. In the meantime. Consuelo Villanueva. 10048. but the Motion was denied for lack of merit. too. the sole surviving director of Impact Corporation. In her defense. GARCIA. In an Order dated 11 April 2000. xxxx The company is directed to pay all the entitled workers unpaid wages. Garcia. Metro Manila.845. the appellate court affirmed the --Order and --. On the other hand.R. Such claims were never contested by the company both during the hearing below and in our office. It explained among other things.78 P 10. The amounts sought to be collected totaled P453. equipment. The SSC ordered the investigating team of the SSS to determine if it can still file its claim for unpaid premium contributions against the corporation under the Petition for Suspension of Payments. 7 Impact Corporation was compulsorily covered by the SSS as an employer effective 15 July 1963 and was assigned Employer I.82. in the amounts of P49. the SSS-LCD filed an amended Petition10 in SSC Case No.474. the SSC directed the System to check if Impact Corporation had leviable properties to which the investigating team of respondent SSS manifested that the Impact Corporation had already been dissolved and its assets disposed of. petitioner contended that she cannot be made personally liable for the corporate obligations of Impact Corporation since her liability extended only up to the extent of her unpaid subscription. the Social Security Commission ruled in favor of SSS and declared petitioner liable to pay the unremitted contributions and penalties. Pacita Fernandez. albeit collected.17 In a Resolution dated 28 May 2003. and SSS remittances due to cash liquidity problems. which processed the "slugs" into aluminum collapsible tubes and similar containers for toothpaste and other related products.: This is petition for review on Certiorari under Rule 45 of the Rules of Court is assailing the 2 June 2005 Decision 1and 8 December 2005 Resolution2 both of the Court of Appeals in CA-G.12 as amended. that its operations had been suspended and that it was waiting for the resolution on its Petition for Suspension of Payments by the SEC under SEC Case No. Garcia (Garcia). in which it stated that: [Impact Corporation] has been and still is engaged in the business of manufacturing aluminum tube containers x x x. SSS contributions. 2007 IMMACULADA L. the Petition for Suspension of Payments was dismissed which was pending before the SEC in an Order8 dated 12 December 1985.

respectively.98 and 982-S. III.A. Based on the foregoing. representing the balance of the unpaid SS contributions in favor of Donato Campos. VI.21 again ruled against petitioner. the instant Petition in which petitioner insists that the Court of Appeals committed grave error in holding her solely liable for the collected but unremitted SSS premium contributions and the consequent late penalty payments due thereon. SECTION 28(F) OF THE SSS LAW PROVIDES THAT A MANAGING HEAD.441. BY REASON OF FORTUITOUS EVENTS. and petitioner submitted her Reply thereto on 4 April 2005. Furthermore. Bonifacio Franco and Romeo Fullon for the period August 1980 to December 1984. IN THIS CASE. for the satisfaction of their liabilities to the SSS.22 Aggrieved. 397-S. Petitioner elevated her case to the Court of Appeals via a Petition for Review.856. the same was instituted well within the 20-year prescriptive period provided under Section 22 (b) of the SS Law. and P10. Petitioner anchors her Petition on the following arguments: I. 1998. Jaime Mascarenas. the petition is DISMISSED for lack of merit. SHE IS LIABLE ONLY TO THE EXTENT OF HER SUBSCRIPTION. Needless to state. the dispositive portion of which reads: WHEREFORE. the instant Motion for Reconsideration is hereby denied for lack of merit. as amended. as amended. and a new one be rendered absolving her of any and all liabilities under the Social Security Law. as director and responsible officer of the said corporation. PERSON/S AND/OR ESTATE/S OF THE OTHER DIRECTORS OR OFFICERS OF IMPACT CORPORATION. Rule 9 of the 1997 Rules of Civil Procedure. 2003 and to institute other appropriate actions against the respondent corporation and/or its responsible officers. 1999 and is. neither the legal heirs nor the estate of the defaulted respondent Ricardo de Leon were substituted as partiesrespondents in this case when he died on January 23. and was merely amended on December 1. EVEN WHILE SHE WAS A STOCKHOLDER.194. that respondents Impact Corporation and/or Immaculada L. The case record shows that there was failure of service of summonses upon respondents Eduardo de Leon. The assailed Resolution dated 28 May 2003 and the Order dated 4 August 2004 of the Social Security Commission are AFFIRMED in toto. petitioner filed a Motion for Reconsideration of the appellate court’s Decision but her Motion was denied in a Resolution dated 8 December 2005. 1982. who were all impleaded as parties-respondents in this case. 2003 is it stated that the other directors of the defunct Impact Corporation are absolved from their contribution and penalty liabilities to the SSS. TRUSTEES OR OFFICERS WHO PARTICIPATE IN UNLAWFUL ACTS OR ARE GUILTY OF GROSS NEGLIGENCE AND BAD FAITH SHALL BE PERSONALLY LIABLE. Nos. EVENTS WHICH WERE NEITHER DESIRED NOR CAUSED BY ANY ACT OF THE PETITIONER. No. DIRECTORS OR PARTNERS WHO SHALL BE LIABLE TOGETHER WITH THE CORPORATION. II. SHE NEVER PARTICIPATED IN THE DAILY OPERATIONS OF IMPACT CORPORATION. THE HONORABLE COMMISSION SERIOUSLY ERRED IN NOT RENDERING A JUDGMENT BY DEFAULT AGAINST THE DIRECTORS UPON WHOM IT ACQUIRED JURISDICTION.WHEREFORE.99. Moreover. This is without prejudice to the right of the SSS to collect the penalties accruing after April 30. Garcia. to the exclusion of the directors of the corporation namely: Eduardo de Leon. THUS. applying Section 28(f) of the Social Security Law. the Commission did not acquire jurisdiction over the persons or estates of the other directors of Impact Corporation. 1996 nor in her Answer with Counterclaim dated May 18.97. hence. let a writ of execution be issued. as amended by SSC Res. Finally.988. PETITIONER HAS CEASED TO BE A STOCKHOLDER OF IMPACT CORPORATION IN 1982. as well as the 3% per month penalty imposed thereon for late payment in the amounts of P3. It dismissed the petitioner’s Petition in a Decision dated 2 June 2005. IMPACT CORPORATION SUFFERED IRREVERSIBLE ECONOMIC LOSSES. The Court of Appeals. without changing its causes of action. thus. THE PETITIONER SHOULD BE ABSOLVED FROM LIABILITY. is liable to pay the SSS the amounts of P442. DIRECTOR OR PARTNER IS LIABLE ONLY FOR THE PENALTIES OF THE EMPLOYER CORPORATION AND NOT FOR UNPAID SSS CONTRIBUTIONS OF THE EMPLOYER CORPORATION. not inclusive. computed as of April 30. it could not validly render any pronouncement as to their liabilities in this case. not inclusive. V.33.63 and P78. this Commission has already ruled in the Order dated April 27. 8282. deemed waived pursuant to Section 1. It is certainly farthest from the intention of the petitioner SSS or this Commission to pin the entire liability of Impact Corporation on movant Immaculada L. premises considered. this Commission finds. premises considered. Pacita Fernandez and Conzuelo Villanueva. the movant cannot raise in a motion for reconsideration the defense that she was no longer a director of Impact Corporation in 1982. UNDER THE SSS LAW. ONLY DIRECTORS. OTHERWISE. Ricardo de Leon. Respondent SSS filed its Comment dated 20 January 2005.18 Petitioner filed a Motion for Reconsideration19 of the aforequoted Decision but it was denied for lack of merit in an Order20 dated 4 August 2004. UNDER SECTION 31 OF THE CORPORATION CODE. for the reason that their whereabouts are unknown. . IV. implementing the provision on condonation of penalty under Section 30 of R. thus: Nowhere in the questioned Resolution dated May 28. and so holds. Pacita Fernandez and Conzuelo Villanueva. 2003. petitioner prays that the Decision dated 2 June 2005 and the Resolution dated 8 December 2005 of the Court of Appeals be reversed and set aside.85. considering that the contribution delinquency assessment covered the period August 1980 to December 1984. In the event the respondents fail to pay their liabilities within the aforestated period. IT IS THE MANAGING HEADS. Garcia.548. RESPONDENT SOCIAL SECURITY SYSTEM FAILED MISERABLY IN EXERTING EFFORTS TO ACQUIRE JURISDICTION OVER THE LEVIABLE ASSETS OF IMPACT CORPORATION. which has suppletory application to the Revised Rules of Procedure of the Commission. when she was allegedly eased out by the managing directors of Impact Corporation as purportedly shown in the Deed of Sale and Assignment of Shares of Stock dated January 22. who are all deceased. 1995 to implead the responsible officers of Impact Corporation. This defense was neither pleaded in her Motion to Dismiss dated January 17. 1985. BEING A MERE STOCKHOLDER. Should the respondents pay their liability for unpaid SSS contributions within sixty (60) days from receipt of a copy of this Resolution. pursuant to Section 22 (c) [2] of the SS Law. representing the unpaid SS contributions of their employees for the period August 1980 to December 1984. Hence. the 3% per month penalty for late payment thereof shall be deemed condoned pursuant to SSC Res. In view thereof. 112-S.93. No. 1999 that since the original Petition was filed by the SSS on July 3.

She points out that although the appellate court is of the opinion that the concerned officers of an employer corporation are liable for the penalties for nonremittance of premiums. the liability does not include liability for the unremitted SSS premium contributions. he shall pay besides the contribution a penalty thereon of three percent (3%) per month from the date the contribution falls due until paid. trustees or officers who participate in unlawful acts or are guilty of gross negligence and bad faith shall be personally liable.23 The liability imposed as contemplated under the foregoing Section 28(f) of the Social Security Law does not preclude the liability for the unremitted amount. Respondents are now going after petitioner who is the only surviving director of Impact Corporation. for offenses committed by a juridical person The said provision does not qualify that the director or partner should likewise be a "managing director" or "managing partner. to deduct from its duly covered employee’s monthly salaries their shares as premium contributions and remit the same to the SSS. as amended. According to petitioner. While the Court of Appeals Decision provided that Section 28(f) refers to the liabilities pertaining to penalty for the non-remittance of SSS employee contributions. and kept subservient to the general intent of the whole enactment. the core issue to be resolved in this case is whether or not petitioner. can be held liable for the unpaid SSS premium contributions.27 In the instant case. for and in their behalf. Every employer required to deduct and to remit such contributions shall be liable for their payment and if any contribution is not paid to the SSS as herein prescribed. corporation or any other institution. and not necessarily a "managing" director or officer. partnership. Section 28(f) of the Social Security Law imposes penalty on: (1) the managing head. as the only surviving director of Impact Corporation. the collection and remittance of contributions shall be made quarterly or semi-annually in advance. Relevant to Section 28(f) is Section 22 of the same law. The interpretation petitioner would like us to adopt finds no support in law or in jurisprudence. a simplistic interpretation of the law is untenable. where general words follow an enumeration of persons or things. any contribution so paid in advance but not due shall be credited or refunded to his employer. its managing head. that every part of the statute must be considered together with the other parts. a mere director or officer of an employer corporation. A cursory review of the alleged grave errors of law committed by the Court of Appeals above reveals there seems to be no dispute as to the assessed liability of Impact Corporation for the unremitted SSS premiums of its employees for the period January 1980 to December 1984. This Court agrees in petitioner’s observation that the SSS did not even deny nor rebut the claim that petitioner was not the "managing head" of Impact Corporation. An interpretation thereof is necessary in instances where a literal interpretation would be either impossible or absurd or would lead to an injustice. every employer is required to deduct and remit such contributions penalty refers to the 3% penalty that automatically attaches to the delayed SSS premium contributions.24 Nowhere in the provision or in the Decision can it be inferred that the persons liable are absolved from paying the unremitted premium contributions. distinguishes the penalties from the unremitted or unpaid SSS premium contributions. as well as the intendment of the law. The spirit. There is also no dispute as to the fact that the employees’ SSS premium contributions have been deducted from their salaries by Impact Corporation. and that being a mere stockholder.25 However. It is a rule in statutory construction that every part of the statute must be interpreted with reference to the context. A law is deemed ambiguous when it is capable of being understood by reasonably well-informed persons in either of two or more senses. Clearly. Petitioner nonetheless raises the defense that under Section 31 of the Corporation Code. Petitioner avers that under the aforesaid provision. as a director of Impact Corporation. the corporation has already been dissolved. such general words are not to be construed in their widest extent. together with the employer’s shares of the contributions to the petitioner. ." "managing director. can be made solely liable for the corporate obligations of Impact Corporation pertaining to unremitted SSS premium contributions and penalties therefore. it is incumbent upon the judge to apply them regardless of personal belief or predilections . From all indications. Section 28(f) of the Social Security Law provides the following: (f) If the act or omission penalized by this Act be committed by an association." or "managing partner. Under Section 22(a). by words of a particular and specific meaning. it still affirmed the SSC Resolution holding petitioner liable for the unpaid SSS premium contributions in addition to the penalties. Petitioner’s argument is ridiculous. or (3) partners. This Court cannot be made to accept an interpretation that would defeat the intent of the law and its legislators. a careful review of the whole law involved. must be made.26 The fact that a law admits of different interpretations is the best evidence that it is vague and ambiguous. one must be the "managing head. 22. However.(a) The contributions imposed in the preceding Section shall be remitted to the SSS within the first ten (10) days of each calendar month following the month for which they are applicable or within such time as the Commission may prescribe. the contributions payable by the employees to be advanced by their respective employers:Provided. 28 Petitioner also challenges the finding of the Court of Appeals that under Section 28(f) of the Social Security Law. rather than the letter of a law determines construction of a provision of law. that is. That upon separation of an employee.e. It is a cardinal rule in statutory construction that in interpreting the meaning and scope of a term used in the law. only directors. -. application not interpretation thereof is imperative. holding that it is distinct from the amount of the supposed SSS remittances. 19 and 22 thereof. Petitioner in assailing the Court of Appeals Decision. i.In sum." This Court though finds no need to resort to statutory construction. petitioner interprets Section 28(f) of the Social Security Law as applicable only to penalties and not to the liability of the employer for the unremitted premium contributions. As a covered employer under the Social Security Law. Elementary is the rule that when laws or rules are clear. Remittance of Contributions. but are to be held as applying only to persons or things of the same kind or class as those specifically mentioned. petitioner mistakenly concluded that Section 28(f) is applicable only to penalties and not to the liability of the employer for the unremitted premium contributions.. (2) directors."29 The law is clear and unambiguous. SEC. If deemed expedient and advisable by the Commission. she is liable only to the extent of her subscription. directors or partners shall be liable to the penalties provided in this Act for the offense. the Court of Appeals rightly held that petitioner. is among those officers covered by Section 28(f) of the Social Security Law. Respondents present a more logical interpretation that is consistent with the provisions as a whole and with the legislative intent behind the Social Security Law. it is the obligation of Impact Corporation under the provisions of Sections 18.when the law is unambiguous and unequivocal. Petitioner invokes the rule in statutory construction called ejusdem generic. where the language of a statute is vague and ambiguous. to be held liable under Section 28(f) of the Social Security Law. an interpretation thereof is resorted to.

partnership. criminal actions for violations of the Social Security Law are also provided under the Revised Penal Code. or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation. 31. to wit: (h) Any employer who. Basic is the rule that a corporation is invested by law with a personality separate and distinct from that of the persons composing it as well as from that of any other legal entity to which it may be related. a trustee or an officer. a corporate director. This situation might arise when a corporation is used to evade a just and due obligation or to justify a wrong. there are peculiar situations or valid grounds that can exist to warrant the disregard of its independent being and the lifting of the corporate veil.33 On the other hand. (i) Criminal action arising from a violation of the provisions of this Act may be commenced by the SSS or the employee concerned either under this Act or in appropriate cases under the Revised Penal Code: x x x. the officers should be held liable for acting on behalf of the corporation. after deducting the monthly contributions or loan amortizations from his employees’ compensation. and employee of a corporation are generally not held personally liable for obligations incurred by the corporation. the officers should be held liable for acting on behalf of the corporation. she should be absolved from liability. or officers. to shield or perpetrate fraud. its stockholders or members and other persons. which no longer exists or has ceased operations. Following this. provides: SEC. as one of the directors of Impact Corporation. When a director. 30 A director. The Court of Appeals in the appealed Decision stated: Anent the unpaid SSS contributions of Impact Corporation’s employees. trustees or officers. 32 The aforesaid provision states: SEC. viable. are liable for the unpaid SSS contributions of their employees. one of which is when the employer corporation is no longer existing and is unable to satisfy the judgment in favor of the employee. x x x. the officers and members of a corporation are not personally liable for acts done in the performance of their duties. this rule admits of exceptions. together with the other directors of the defunct corporation. stipulating on the liability of directors. Being a mere fiction of law. its stockholders or members and other persons. and by reason of fortuitous events. one of which is when the employer corporation is no longer existing and is unable to satisfy the judgment in favor of the employee. presented this discussion: Although as a rule. The Social Security Law provides. Respondents would like this Court to apply another exception to the rule that the persons comprising a corporation are not personally liable for acts done in the performance of their duties. trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the Corporation.Section 31 of the Corporation Code. Although as a rule. having knowledge thereof. The evidence adduced totally belies this claim. directors or partners shall be liable to the penalties provided in this Act for the offense. 31. The situation of petitioner. A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and. in Section 28 thereof. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors. Section 31 of the Corporation Law provides: Taking a cue from the above provision. In fact. Petitioner’s defense that since Impact Corporation suffered irreversible economic losses.31 Thus. Liability of directors. (b) act in bad faith or with gross negligence in directing the corporate affairs. in general. corporation or any other institution. its stockholders or members. may be held solidarily liable with the corporation in the following instances: 1. from the people comprising it. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors. in its Resolution." . its managing head. 3. to carry out other similar unjustifiable aims or intentions. and other persons. the officers of a corporation-(a) vote for or assent to patently unlawful acts of the corporation. the officers of a corporation are liable in behalf of a corporation. A reference to the copy of the Petition for Suspension of Payments filed by Impact Corporation on 18 March 1983 before the SEC contained an admission that: "[I]t has been and still is engaged in business" and "has been and still is engaged in the business of manufacturing aluminum tube containers" and "in brief. it is an on-going. fails to remit the said deductions to the SSS within thirty (30) days from the date they became due shall be presumed to have misappropriated such contributions or loan amortizations and shall suffer the penalties provided in Article Three hundred fifteen of the Revised Penal Code. When directors and trustees or. officers and employees. the SSC. (c) are guilty of conflict of interest to the prejudice of the corporation. did not forthwith file with the corporate secretary his written objection thereto. 4. to wit: (f) If the act or omission penalized by this Act be committed by an association. in appropriate cases. the officers and members of a corporation are not personally liable for acts done in performance of their duties. or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation. trustees or officers. personally liable for his corporate action. by specific provision of law. are its sole liabilities. Liability of directors. When a director or officer has consented to the issuance of watered stocks or who. however. and profitable enterprise" which has "sufficient assets" and "actual and potential income-generation capabilities. When a director. trustees. petitioner. officer. Following the foregoing pronouncement. or as a subterfuge to commit injustice and so circumvent the law. Section 28(f) of the Social Security Law imposes a civil liability for any act or omission pertaining to the violation of the Social Security Law. trustee or officer is made. the general rule applied is that obligations incurred by the corporation.34 The rationale cited by respondents in the two preceding paragraphs need not have been applied because the personal liability for the unremitted SSS premium contributions and the late penalty thereof attaches to the petitioner as a director of Impact Corporation during the period the amounts became due and demandable by virtue of a direct provision of law. this rule admits of exception. is also untenable. acting through its directors. 2. as a director of Impact Corporation when said corporation failed to remit the SSS premium contributions falls exactly under the fourth situation.

promote and perfect a sound and viable tax exempt social security system suitable to the needs of the people throughout the Philippines which shall promote social justice and provide meaningful protection to members and their beneficiaries against the hazards of disability. develop. v.37 The sympathy of the law on social security is toward its beneficiaries. who was the vice-president and officer of the corporation. the Hearing Commissioner may. and should have been remitted to the SSS within the first 10 days of each calendar month following the month for which they are applicable or within such time as the SSC prescribes. the Decision of the Court of Appeals dated 2 June 2005 in CA-G. if respondent fails to answer within the time prescribed. Garcia. The soundness and viability of the funds of the SSS in turn depends on the contributions of its covered employee and employer members. The entitlement to and amount of benefits and privileges of the covered members are contribution-based. In fact. This Court cannot and will not allow itself to be made an instrument nor be privy to any attempt at the perpetration of injustice. The concept cannot be extended to a point beyond its reasons and policy. Social Security System.38 this Court rules that although a corporation once formed is conferred a juridical personality separate and distinct from the persons comprising it. Petitioner Immaculada L. This Court will not turn a blind eye on the perpetration of injustice. or motu proprio..R. which it invests in order to deliver the basic social benefits and privileges to its members. SO ORDERED. Both the soundness and viability of the funds of the SSS as well as the entitlement and amount of benefits and privileges of its members are adversely affected to a great extent by the non-remittance of the much-needed contributions. the Commissioner is mandated to render a decision either granting or denying the petition. The assessed SSS premium contributions and penalty are obligations imposed upon Impact Corporation by law. pursuant to the foregoing. 85923 is hereby AFFIRMED WITH FINALITY. old-age. the latest SSS form RIA submitted by Impact Corporation is dated 7 May 1984. will be disregarded by the courts. this Court sees it proper to quote verbatim respondents’ prefatory statement in their Comment: The Social Security System is a government agency imbued with a salutary purpose to carry out the policy of the State to establish. death and other contingencies resulting in loss of income or financial burden. Inc.The foregoing document negates petitioner’s assertion and supports the contention that during the period involved Impact Corporation was still engaged in business and was an ongoing. profitable enterprise. WHEREFORE. upon his non-filing of a responsive pleading after summons was served on him. SP No. . Under the aforesaid provision. as sole surviving director of Impact Corporation is hereby ORDERED to pay for the collected and unremitted SSS contributions of Impact Corporation. As can be gleaned from Section 11 of the SSS Revised Rules of Procedure. maternity. The case is REMANDED to the SSS for computation of the exact amount and collection thereof. declare respondent in default and proceed to receive petitioner’s evidence ex parteand thereafter recommend to the Commission either the granting or denial of the petition as the evidence may warrant. Following the doctrine laid down in Laguna Transportation Co.36 On a final note. sickness. viable.35 This Court also notes the evident failure on the part of SSS to issue a judgment in default against Ricardo de Leon. and when invoked in support of an end subversive of this policy. it is but a legal fiction introduced for purposes of convenience and to subserve the ends of justice. upon motion of petitioner.

67702. computed as follows: a. complainant has not reported for work but continued to receive the salary for the months of August. Regional Arbitration Branch (NLRC-RAB). Subsequently.6 Mantos' services were altogether terminated effective December 1.420.2 denying the petitioners' motion for reconsideration. 1996. Because of the tremendous work pressure. 1996. NATIONAL LABOR RELATIONS COMMISSION AND CHITO S. His closeness to Tamayo has caused problems with his relationship with Peter Maligro. foregoing premises considered.420.41) representing the separation pay for his six (6) years of service at P15. who has been after his neck for sometime. less his personal accountabilities.928. Maligro's hatred on him became evident when he was assigned to Nasipit Bulk Plant at Nasipit. an Industrial Engineer. 154532 October 27. Maligro was not a signatory thereto. Hence. 1996 onwards. From August 28. Intrigues and professional jealousies. 1996.00 x 6 years - P .R. The case was docketed as NLRC RABVII Case No. a complaint for illegal dismissal and other monetary claims against Petron and/or Peter C. After his vacation. contending that he has been constructively dismissed as of August 5. He attained regular employment status on November 15. by reason of his continued absences from August 28. 2006 PETRON CORPORATION AND PETER C. MALIGRO. Mantos made the following allegations: xxx He had an unblemished record in his service with [Petron]. September and October 2. he was no longer allowed to report back at his assignment at Mactan Aviation Facilities but directly to Maligro at the Cebu District Office. More specifically.4 was suspended for 30 days from November 1 to 30. Failing to convince him he was later offered to avail of [Petron's] early retirement program dubbed as "Manpower Reduction Program" or MRP. The facts: Petitioner Petron Corporation (Petron). 1996. Hence. while its co-petitioner Peter C. 7 (Words in brackets supplied. 2002. 1996. petitioners. On May 15. J. Petron and Maligro averred that Mantos was dismissed for just and valid causes effective December 1. 1996. What [Petron and Maligro] have done to him amounts to constructive dismissal. 1996.R. Almirante declared Mantos to have been constructively dismissed but ruled that only Petron could be held liable to him for separation pay in lieu of reinstatement and the cash equivalent of his certificate of stocks. Mantos.000. Maligro was the former Visayas Operations Assistant Manager of Petron's Visayas-Mindanao District Office at Lahug. MANTOS. 1996. the cash equivalent of his certificate of stocks minus his outstanding account. remaining as such for the next five years while being assigned to the different plants and offices of Petron within the Visayas area. professional and technical employee with initial designation as a Bulk Plant Engineering Trainee. when Mantos. 8 In a decision dated June 30. No. Separation Pay: P15. Before he reported back to work he was summoned to the office of Peter Paul Shotwell. This became more particularly true in regard to his close relationship with Jaime "Boy" Tamayo. his complaint. While being designated as Operations Engineer. he availed and was granted a vacation leave in March 1996. he was advised by [Petron's] officers to resign from [Petron] as they were instructed by superiors that he should quit as they no longer liked him. Maligro. a corporation duly organized and existing under the laws of the Philippines. have prevailed over the work atmosphere in [Petron]. Cebu City. digging up files. sale and distribution of petroleum and other related products. Thereafter he was advised to avail of his remaining vacation leave while they process his MRP papers.G. Maligro bad-mouthed him in the presence of his co-employees for alleged dissatisfaction of his work as a mere clerk. 1990. In his complaint. 1996 but complainant failed to appear. thru a Notice of Disciplinary Action dated October 29. 1996. 1990 and was later on designated as a Bulk Plant Relief Supervisor. Labor Arbiter Dominador A. then the VISMIN Operations Manager who later left the company to migrate to Canada. Visayas Operations Assistant Manager. On August 5. Cebu City.) For their part. not having reported for work during the period August 5 to 27. asserting that: xxx complainant [Mantos] incurred absences without leave (AWOL) on August 5 to 27. [Petron's] Investigation Committee in a report and recommendation of November 19. as a managerial. SP No. 1996 inclusive. complainant should be subjected to a more severe penalty. vs. 20011 of the Court of Appeals (CA) in CA-G. on November 8. 1996. through its Cebu District Office. 11-1439-96. It was while assigned at Petron's Cebu District Office with petitioner Peter Maligro as his immediate superior. as well as for Insubordination/Discourtesy for making false accusations against his superior.00 a month. the decision dispositively states: WHEREFORE. drafting and redrafting memoranda and other mere clerical works. hired the herein private respondent Chito S. 1996 for violating company rules and regulations regarding Absence Without Leave (AWOL). he was assigned only menial tasks such as recopying errands. He was deprived of his usual P1. however. recommended that after a 30-day suspension. An investigation was conducted on September 2. Petron. respondents. dismissing the petition for certiorari thereat filed by the herein petitioners on the ground that the Verification and Certification on Non-Forum Shopping was defective because co-petitioner Peter C. 1996. 1998. is engaged in the refining. There. in a notice Termination of Services bearing date November 20.: Assailed and sought to be set aside in this petition for review under Rule 45 of the Rules of Court is theResolution dated November 26. Instead he sent two (2) letters thru his counsel accusing respondent Maligro of certain acts humiliating and prejudicing him. Mantos filed with the National Labor Relations Commission. 1996. DECISION GARCIA.3 a copy of which was received by him on November 18. He was also deprived of the usual facilities such as the service vehicle and the use and access to lighterage services. He failed to comply with the instruction of a superior for him to report for work at the Cebu City District office and to submit a formal explanation of his AWOL. up to the filing of respondents' position paper. as reiterated in its subsequent Resolution of July 16. Agusan del Norte for two (2) months or so. they deny complainant's claims.00 a day per diem. judgment is hereby rendered ordering the respondent Petron Corporation VISMIN District Office to pay complainant the amount of One Hundred Two thousand Nine Hundred Twenty-Eight Pesos and 41/100 (P102. After a series of hearings. 19965 and received by him on November 25. Meanwhile.

and (2) no separate notice for the two new charges of Absence Without Leave (AWOL) starting August 28.600. 1996 which preceded the suspension of Mantos was not received by the latter. and accordingly modified the Labor Arbiter's decision as follows: WHEREFORE. 1996. He is not however entitled to backwages. accordingly and as discussed. SO ORDERED. complainant was still serving his suspension when the Committee was convened and issued the memorandum of November 19. Hence. Respondent Peter C. unbearable and unlikely. that the filing of this complaint has spawned strained relationship between the parties. 1996 because his continued employment was rendered impossible.R. 1996.00 is deleted. We find however. 10 Both dissatisfied. in its assailed Resolution of November 26. For his AWOL. by a motion for reconsideration which the NLRC eventually treated as an appeal. the NLRC reversed the findings of the Labor Arbiter regarding Mantos' constructive dismissal as of November 1. digging up files. 1996 with Maligro himself being a member of said committee. 1996 recommending his dismissal for AWOL and insubordination. 1996 and was ILLEGALLY DISMISSED on December 1. With their motion for reconsideration having been denied by the NLRC in its Resolution of August 31.00) per year of service computed until the month of promulgation (July. xxx xxx xxx We find therefore that complainant was illegally dismissed from the service. were sent to Mantos prior to the Notice of Termination dated November 20. The imposition of the penalty of dismissal smacks of a desire to get even for complainant's filing of a complaint against the respondents. the Investigation Committee was immediately convened regarding Mantos' continued absences beginning August 28. unreasonable and unlikely. 1996 of the Investigation Committee. complainant is entitled to full backwages from November 1. xxx xxx xxx xxx Complainant is also entitled to the cash equivalent of his certificate of stocks admitted in respondent's Exhibit "7" to be P66. On July 31. drafting and redrafting memoranda and other clerical works. 1996. accompanied by a P102. The insubordination aspect stemmed from complainant's accusation in his complaint for constructive dismissal and withholding of his stock certificates. Anyway. the NLRC explained that Mantos failed to prove that he had to quit his job on August 5. We find that the foregoing factual milieu militates badly against the cause for the respondents. with the designation as Operations Engineer. Maligro. and the latter. 2000. The foregoing liabilities are solidary against respondents Petron Corporation and Peter C.12 the petitioners elevated the case via certiorari to the CA in CA-G.11 Justifying its decision. The finding below of cash equivalent of certificate of stocks in the amount of P66. he should be paid separation pay based on his one month salary (P15. outrightly dismissed the petition for being defective in form because . the questioned Decision is MODIFIED in that complainant was illegally suspended from November 1-30. the Committee met to determine the factual basis of the charges of absence without leave and insubordination against complainant. Furthermore. 1996 and considered him to have been illegally dismissed only on December 1. the maximum penalty authorized by law. In the same decision. In fact.191. It appears that the Investigation Committee was belatedly constituted as an afterthought after the respondents received the summons in this case. the parties questioned the aforementioned Labor Arbiter's decision: Petron and Maligro. the Commission noted that on the day after Petron and Maligro received the summons with respect to Mantos' complaint with the NLRCRAB. 1996 per the letter of respondent Maligro to complainant dated October 29. Petron and Maligro did not observe the requisite procedural due process considering that (1) the alleged Notice of Violation of Company Rules and Regulations dated August 27. the CA. reinstatement is no longer practical and feasible. by way of an appeal to the NLRC at Cebu City. there is in an (sic) unrebutted evidence for the complainant that earlier while being assigned directly under respondent Maligro at the Cebu District Office. The following day. 9 Explains the Labor Arbiter in his decision: It is an established fact that for his absences from August 5 to August 27. 1996.59 shall be deleted from his total awards. the NLRC adjudged Maligro solidarily liable with Petron. Maligro is hereby absolved from any liability hereof there being no showing that he acted in bad faith and in excess of his authority in dealing with the complainant. complainant was already sufficiently penalized by suspension for thirty (30) days. The Committee was convened seven (7) days after the filing of the complaint herein on November 8. 1996 until July. 2001. the penalty of dismissal was too harshly and [d]isproportionately imposed on the complainant considering his length of service. Instead complainant should be awarded his separation pay equivalent to one (1) month pay per year of service. 1996 and Insubordination/Discourtesy for making false accusations against his superior. The rest of the claims are hereby ordered dismissed for lack of merit not having been substantiated by clear and convincing evidence. He should have been reinstated to his former position without loss of seniority rights. November 15. 1996 containing the report of the Investigation Committee it is shown therein that the summons in this case was received by respondents on November 14. In addition. Complainant is likewise entitled to ten percent (10%) of the total awards by way of attorney's fees. 928. From the total award shall be deducted the amount of P56. complainant was imposed the penalty of suspension for thirty (30) days from November 1 to 30. 2000.600.00. He is not completely - free from blame in his separation from the service.b. On the other hand. As stated at the threshold hereof. 1996. he was assigned only menial tasks like recopying errands.420. 1996 based on the report/recommendation dated November 19.59 complainant's outstanding account to respondent. 1996. Cash equivalent of certificate of stocks - Total Minus Net Award SO ORDERED. He committed absences without leave. 2000) of this Decision. From respondents' Annex "6" which is a memorandum of November 19. 2001. The accountability of complainant in the amount of P56.191. 1996 (Annex "D"). Furthermore. We find that respondents' act was tantamount to constructive dismissal xxx Under such circumstances.41 surety bond in favor of Mantos. 67702. SP No. There exists also a demotion in rank. the continuance of complainant's employment with respondent corporation has been rendered impossible.

Evidently. Rule 7 of the Rules of Court which expressly requires that the certification against forum shopping must have to be certified under oath by "the plaintiff or principal party. It must be remembered that the petitioners in CA-G. THE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS' PETITION FOR CERTIORARI ON THE GROUND THAT THE SAME FAILED TO COMPLY WITH THE RULE ON CERTIFICATION ON NON-FORUM SHOPPING CONSIDERING THAT: 1. we hold that the CA erred in outrightly dismissing CA-G. Maligro. the latter's failure to equally sign the verification and certification on non-forum shopping should not have merited the CA's outright dismissal of the certiorari petition in CA-G. However. B. DESPITE CONTRARY EVIDENCE ON RECORD. in the subsequent case of Micro Sales Operation Network and Willy Bendol v. whose factual findings are generally accorded not only great respect but even finality. (Emphasis supplied. which held that a certification on nonforum shopping signed by only one of two or more petitioners is defective. DESPITE OVERWHELMING EVIDENCE ON RECORD. Concededly. the certification on nonforum shopping executed and signed only by the corporation . THAT PETITIONERS DID NOT SHOW HOW THE INVESTIGATION COMMITTEE THAT INVESTIGATED MANTOS' VIOLATIONS OF COMPANY RULES WAS CREATED AND THAT THE SAME WAS BIASED AGAINST MANTOS MERELY BECAUSE ITS CHAIRMAN WAS MANTOS' SUPERIOR. the petitioners are the company and its operations manager. executed and signed the Verification and Certification on Non-Forum Shopping. 2002. He argues that the sole office of a writ of certiorari is to correct jurisdictional errors including grave abuse of discretion amounting to lack or excess of jurisdiction. SP No. NLRC. THERE WAS SUBSTANTIAL COMPLIANCE BY PETITIONERS WITH THE REQUIREMENTS ON CERTIFICATION OF NON-FORUM SHOPPING.16 Be that as it may. His failure to sign the verification and certification on non-forum shopping is not a ground for the dismissal of the petition. THAT PETITIONERS DISMISSED MANTOS WITHOUT OBSERVING THE REQUISITE PROCEDURAL DUE PROCESS BECAUSE PETITIONERS ALLEGEDLY DID NOT SEND A NOTICE OF VIOLATION OF COMPANY RULES TO PRIVATE RESPONDENT FOR THE OFFENSES THAT HE COMMITTED FOR THE SECOND TIME. In the instant case." and failure to comply therewith shall cause the dismissal of the action. the petitioners are now with us via the present recourse on the following grounds:13 A. 6. 2. the fact that only Petron. 11-1439-96 in Maligro's capacity as Petron's corporate officer. SP No. et.R.17 The appellate court's reliance on that case is misplaced. Zamboanga del Sur. Maligro has no separate and distinct personality from that of Petron.14 the private respondent avers. SP No. He has no interest in this case separate and distinct from the company. considering that Maligro derives his standing or personality in the case from Petron.) In any event. the CA relied on Loquias v. and attorney's fees in favor of private respondents will be enforced against the company as the real party in interest in an illegal dismissal case. Any award of reinstatement. Office of the Ombudsman. this Court ruled: The Court of Appeals relied on Loquias v. THAT PETITIONER PETER C. and does not include correction of the NLRC's evaluation of the evidence. and three members of the municipal board of San Miguel. 67702 cannot alter the factual findings of the Labor Arbiter as affirmed by the NLRC.R. The petition is partly meritorious. that the petitioners' petition for certiorari in CA-G. MALIGRO IS SOLIDARILY LIABLE WITH PETITIONER PETRON CORPORATION FOR THE LATTER'S ALLEGED LIABILITY TO MANTOS NOTWITHSTANDING THE ABSENCE OF EVIDENCE INDICATING THAT MALIGRO ACTED WITH BAD FAITH AGAINST MANTOS. THERE WAS A REASONABLE CAUSE FOR PETITIONER MALIGRO'S FAILURE TO ATTACH A VERIFICATION/CERTIFICATION OF NONFORUM SHOPPING. undoubtedly the direct employer of Mantos against which any award in the latter's favor is enforceable. 5. DESPITE CONTRARY EVIDENCE ON RECORD. THE OUTRIGHT DISMISSAL OF THE PETITION BY THE COURT OF APPEALS WOULD DEFEAT SUBSTANTIAL JUSTICE CONSIDERING THAT THE NLRC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN FINDING THAT: 1. PETITIONERS DISMISSED PRIVATE RESPONDENT MANTOS WITHOUT OBSERVING THE REQUISITE PROCEDURAL DUE PROCESS BECAUSE PETITIONERS ALLEGEDLY DID NOT PROVE THAT MANTOS RECEIVED THE NOTICE OF VIOLATION OF COMPANY RULES DATED 27 AUGUST 1996 AS WELL AS THE TWO TELEGRAMS REQUIRING MANTOS TO REPORT FOR WORK. THAT PRIVATE RESPONDENT IS ENTITLED TO AWARD OF FULL BACKWAGES FROM 1 NOVEMBER 1996 UNTIL JULY 2000 AND TO THE OTHER MONETARY AWARDS MADE BY THE NLRC. PRIVATE RESPONDENT'S COMPLAINT FOR ILLEGAL DISMISSAL WAS NOT FILED AS A MALICIOUS SCHEME AGAINST PETITIONERS. 18 wherein the CA based its dismissal of the therein similarly defective petition for certiorari on the strength of Loquias. For. 67702. The latter was impleaded simply because he was a co-respondent in the illegal dismissal complaint. The said co-parties were charged with violation of Republic Act No. SP No.R.15 attached to the petition for certiorari in CA-G. In his Comment. Note that the petitioners in Loquias are the mayor. conformably with Section 5. the said ruling applies when the co-parties are being sued in their individual capacities. vice-mayor. Peter Maligro. which was the direct employer of private respondents. 67702 solely on the ground that therein co-petitioner Peter Maligro failed to equally sign the verification and certification on non-forum shopping.only petitioner Petron signed the verification and certification on non-forum shopping without its co-petitioner Peter Maligro likewise signing the same. 3. Their motion for reconsideration having been denied by the CA in its second impugned Resolution of July 16. 2. is a cause for the dismissal of that petition. With Petron being the real partyin interest in that case and not Maligro. SP No.R. Petitioner Bendol is clearly a mere nominal party in the case. 67702 are Petron and its operations assistant manager. al. In outrightly dismissing the petition. Office of the Ombudsman.R. unless he was duly authorized by his co-petitioner. The appellate court erred in dismissing outright petitioners' special civil action for certiorari solely on that ground. 4. among others. 3019 15 in their various capacities. Willy Bendol. 67702.. CONTRARY TO SUBSTANTIAL EVIDENCE ON RECORD. minus its co-petitioner Peter C. Maligro was included in the complaint filed by Mantos in NLRC RAB-VII Case No. backwages.

instructions or commands. 28 were in fact sent to the latter. The first set of infractions consisted of private respondent's being AWOL from August 5 to 27. 1996 or a day at the heels of the petitioners' receipt on November 14. basic of which are the opportunity to be heard and to defend himself. the employer's rules. Under paragraph (a). 1996. 1996 could not be said to have been made to preempt the investigation regarding his alleged offenses as he was yet unaware of any such investigation. he deemed himself to have been already dismissed as early as August 5. 11-1439-96. With the reality that no notice of any investigation was timely served on the private respondent. And realizing that a remand of this case to the CA would only entail further delay in the proceedings. But. in which complaint he believed himself to have been constructively dismissed as of August 5. for which he wasdismissed effective December 1. 26 The procedure is mandatory and non-observance thereof renders the dismissal illegal and void. 1996 terminating his services. in order to be a ground for discharge on the score of disobedience. On the other hand.29 Verily. We have. 1996. 1996. we uphold the legality of his suspension due to his unauthorized absences from August 5 to 27. private respondent was successively charged with two (2) sets of offenses and separately penalized for each set. must be reasonable and lawful. 11-1439-96. 1996. 1996. we find the same unjustified. Mantos. we cannot give credence to petitioners' claim that as early as August 27. 1996 but only for the charge of being AWOL. being written in block letters on the said delivery records. 19 Here. The second set. said delivery records do not substantially show respondent's receipt of the notices in question. however. If. 1996 informing him of his suspension. 1996. 1996 and Insubordination/Discourtesy as set forth in the Notice of Violation of Company Rules and Regulations dated August 27. the latter's filing of his complaint for illegal dismissal in NLRC RAB-VII Case No. and Insubordination/Discourtesy for making false accusations against his superior.22 for which he was penalized with suspension for 30 days effective November 1 to 30. By no stretch of imagination can the filing of such complaint constitute insubordination. 199623 consisted also of being AWOL. 1996 on the second set of charges of AWOL starting August 28. Private respondent did not report for work starting August 5. and the subsequent notice to inform him of the employer's decision to discharge him from the service. opted to give due course to the present petition. Verily. 1996. apart from the private respondent's full name. 67702 should be deemed substantial compliance with the rule on certification on non-forum shopping. the private respondent was not given the following notices. such assertion could not have risen to the level of false accusation against his superior. The Court refrains from reviewing factual assessments of lower courts and agencies exercising adjudicative functions. 111439-96 on November 8. it was only in their motion for reconsideration of the NLRC decision that the petitioners proffered the delivery records of a private courier to show that the aforementioned notices. to wit: (1) the employee was accorded due process. the date of the notice allegedly sent to the respondent informing him of the first set of offenses. making false accusations against his superior cannot constitute a just cause for dismissal. For. Likewise. 1996 due to his belief that he has already been dismissed as of said date. he did not receive any prior notice[s] apprising him of the particular acts for which his suspension and/or termination were being sought. With respect to respondent's dismissal. the penalty of dismissal therefor is too harsh considering that all the while. 1996 because he felt he was "constructively dismissed" he did not file . 1996 on his AWOL from August 5 to 27. must be known to the employee. 1996 and Insubordination/Discourtesy with notice of an investigation on September 2. Besides. 1996 and Insubordination/Discourtesy for allegedly making false accusations against his superior with notice of the investigation on November 15. As borne by the records.e. 1996. 1996. which notice of suspension he only received on November 18.27 Here. the petitioners failed to prove that they complied with the requisites of procedural due process in dismissing private respondent. just and proper determination of the case. therefore. he had been constructively dismissed as of August 5.21 Here. the issue posed is the validity of private respondent's dismissal. therefore. it is clear that the factual basis for the petitioners' charge of insubordination against the private respondent..25 From the foregoing. we are constrained to make a review of the records and a re-examination of the questioned NLRC findings to arrive at a complete. to wit: (1) the Notice of Violation of Company Rules and Regulations dated August 27. as contained in the Notice of Violation of Company Rules and Regulations (EM 300) dated November 12. as the NLRC rightly observed: We note from the records that although complainant quit working starting August 5. however. this time beginning August 28. there is no other way of knowing whether it was really him who received the notices or that another person could have received the same in his behalf. Essentially. SP No. Chito S.R. the latter already knew that a committee was going to investigate him for infractions of company rules and regulations in connection with thesecond set and that he was invited to attend the investigating committee's scheduled hearing. In the review of NLRC decisions through the special civil action of certiorari. while respondent has indeed been absent from August 28. Article 282 of the Labor Code. and must pertain to the duties for which his services were engaged. which had allegedly become so unbearable as to leave him with no choice but to forego his continued employment. and (2) the Notice dated November 12. resolution is confined only to issues of jurisdiction and grave abuse of discretion on the part of the labor tribunal. while the private respondent received the Notice of Disciplinary Action dated October 29. while the illegality in the manner of dismissal is dismissal without due process. a perusal of said delivery records does not bear the petitioners' claim. private respondent has already been penalized with suspension for his unauthorized absences. It is horn-book law that an employee sought to be dismissed must be served two (2) written notices before termination of employment: a notice to apprise the employee of the particular acts or omissions for which his dismissal is sought. as asserted by the private respondent. and the Memorandum dated November 20. We.20 The illegality of the act of dismissal constitutes discharge without just cause. 1996. The validity of an employee's dismissal hinges on the satisfaction of two substantive requirements. 1996. As rightly found by the NLRC. and (2) the dismissal must be for any of the causes provided for in Article 282 of the Labor Code. Given the above. we deemed it prudent to resolve the controversy to finally put it to a rest. 24 an employer may terminate the services of an employee for his willful disobedience of the employer's lawful orders in connection with his work. i. 1996. 1996 of the summons issued in NLRC RAB-VII Case No. lend concurrence to the common findings of both the NLRC and the Labor Arbiter that the committee which investigated the alleged second set of offenses and which eventually led to the committee's recommendation for his dismissal was created only on November 15. But since he failed to prove his allegation of clear acts of harassment and humiliation. Moreover. such as the NLRC.benefited Maligro such that the attachment of said certification to the petition in CA-G. The so-called accusations are embodied in the complaint filed by the private respondent in NLRC RAB-VII Case No. as well as two alleged telegrams requiring the private respondent to report for work.

other privileges and benefits or to the monetary equivalent thereof. and the NLRC decision dated July 31. SO ORDERED.35 Lastly. and (2) the basis for the charge of insubordination was the private respondent's alleged making of false accusations against Maligro. is in order. . in labor cases. Mantos is awarded separation pay equivalent to one month pay for every year of service and full backwages. 1996 until the finality of this decision. It cannot. Those findings. the creation of the investigation committee and said committee's consideration of the insubordination charge against the private respondent. however. the apparent basis for the NLRC in holding petitioner Maligro solidarily liable with Petron were its findings that (1) the Investigation Committee was created a day after the summons in NLRC RAB-VII Case No. and nowhere is there any showing that Maligro. obligations incurred by corporate officers acting as corporate agents are not theirs but the direct accountabilities of the corporation they represent. and (2) petitioner Peter C. as committee chairman. as to the award of backwages. When he therefore finally filed the present case on Novemeber 8. 1996. 6715) which provides that an employee who is unjustly dismissed from work is entitled to reinstatement without loss of seniority rights and other privileges. cannot justify a finding of personal liability on the part of Maligro inasmuch as said findings do not point to Maligro's extreme personal hatred and animosity with the respondent. and whether or not he was assigned to menial clerical jobs when his designation was that of Operations Engineer. were merely aimed to cover up the illegal dismissal or to give it a semblance of legality. equivalent to one month pay for every year of service. therefore. rendered the latter's dismissal illegal. and other benefits or the monetary equivalent thereof. Settled is the rule in this jurisdiction that a corporation is invested by law with a legal personality separate and distinct from those acting for and in its behalf and. we rule and so hold that the NLRC did not gravely abuse its discretion in declaring the illegality of private respondent's dismissal.34 In the present case. in general. that showed his lingering belief that he was constructively dismissed although from the viewpoint of respondents.37 Since the circumstances obtaining in this case do not warrant private respondent's reinstatement in the light of the antagonism generated by this litigation which must have caused a severe strain in the parties' employer-employee relationship. allowances. In fine. The award of attorney's fees is sanctioned by law and must be upheld. It is thus logical for him to be part of the committee that will investigate private respondent's alleged infractions of company rules and regulations. the committee was composed of three other Petron officers as members.32 True. 11-1439-96 was received. In any event. with Maligro no less being the chairman thereof.33 For instance. WHEREFORE. being Petron's Operations Assistant Manager for Visayas and Mindanao. we refer to Article 279 of the Labor Code (as amended by Section 34 of R. It is undisputed that Maligro was private respondent's superior. however. inclusive of allowances. an award of separation pay in lieu of reinstatement. 30 Petitioners' failure to comply with the two-notice requirement as shown above. the assailed Resolution of the Court of Appeals is SET ASIDE. be said that Maligro was motivated by malice and bad faith in connection with private respondent's dismissal from the service. 6715. were not clearly established by complainant. As well. it must be stressed that private respondent's allegation of bad faith on the part of Maligro was not established in this case. Similarly.31 Thus. Costs against the petitioners. If at all. computed from the date of his illegal dismissal on December 1. what said findings show are the illegality itself of private respondent's dismissal. and other benefits or their monetary equivalent computed from the time his compensation was withheld from him (which. Besides. Verily. in addition to full backwages. 2000 is AFFIRMED with the MODIFICATION that (1) private respondent Chito S. thru counsel asking an explanation why no case for illegal dismissal with damages would be filed against respondents. inclusive of allowances and other benefits or their monetary equivalent. under R. the backwages shall be computed from the time of their illegal termination up to the finality of the decision. 1996. Maligro is ABSOLVED from any liability adjudged against co-petitioner Petron Corporation. but only when exceptional circumstances so warrant. In short. the filing of the complaint was not a "malicious scheme" on the part of the complainant contrary to the contention of respondents. as a rule. 1996. he was already penalized with "grave suspension" for his AWOL from August 5-27. We are.36 employees who are illegally dismissed are entitled to full backwages. the lack of just cause therefor and the non-observance of procedural due process. is from the time of his illegal dismissal) up to the time of his actual reinstatement. the fact that Maligro himself was the committee chairman is not itself sufficient to impute bad faith on his part or attribute bias against him. with the petitioners in their submission that the NLRC erred in holding petitioner Peter Maligro jointly and severally liable with petitioner Petron for the money claims of the private respondent.A.outright the present complaint. influenced the other committee members to side against the private respondent. We quote the NLRC's finding in this regard: Whether he really caught the ire of his immediate supervisor (respondent Maligro) in view of his alleged closeness to the previous one who migrated to Canada. let alone the lack of just cause for terminating the services of private respondent. and to the payment of his full backwages. computed from the time their actual compensation was withheld from them up to the time of their actual reinstatement but if reinstatement is no longer possible. he wrote respondent Maligro on October 18.A. solidary liabilities may at times be incurred by corporate officers. from the people comprising it. Instead. corporate directors and officers may be held solidarily liable with the corporation for the termination of employment if done with malice or in bad faith.

He claims damages from the threats to his life and safety from the angry tenants. Peña’s personal defense in the counter-suits filed against him. JR. for a total award of PhP28.500.R. ERIC L.R. At core. BENJAMIN L. x .. URBAN BANK. Petitioner.. a sum that was only 1% of its net worth..104.3 In fact.5000. Respondent.. DIZON. PEÑA. The trial court claims that the basis is an oral contract of agency and the award should be PhP28. Inc. PEÑA. What is the legal basis for an award in favor of Peña for the services he rendered to Urban Bank? Should it be a contract of agency the fee for which was orally agreed on as Peña claims? Should it be the application of the Civil Code provisions on unjust enrichment? Or is it to be based on something else or a combination of the legal findings of both the RTC and the CA? How much should the award be? .000. together with those with undeclared values could reach very much more than such amount.. and (b) the Petition of Atty.000.000. and a miniscule 0. other than against Teodoro Borlongan.630.500.500.781. the final resolution by the Supreme Court of an appeal from a trial court decision would have automatic. it would have been an open-and-shut review where this Court. no evidence was ever offered as to their individual actions that gave rise to Atty.000. and (4) the fact that assets with declared conservative values of at least PhP181 Million which. x . PEÑA. No.500.000. JR.. and (3) the finding of solidary liability against Urban Bank.8 times the amount of the judgment) were filed by Urban Bank and some of its officers and directors to stay the execution pending appeal. 145822 DELFIN C. no contract of agency exists between Atty. LEE.. (2) the controversial execution of the full judgment award of PhP28. no allegation of impending insolvency or attempt to abscond was ever raised by Atty.. and the magnitude of the disproportions in this case is too mind-boggling that this Court must exert extra effort to correct whatever injustices have been occasioned in this case.2 While the bank would be closed by the Bangko Sentral ng Pilipinas (BSP) a year later for having unilaterally declared a bank holiday contrary to banking rules. No. our dispositions will include detailed instructions for several judicial officials to implement. there was no reason to believe that at the time such award came out it could not satisfy a judgment of PhP28. Peña had included as co-defendants with Urban Bank in the RTC case..000.. DE LEON. Corazon Bejasa.000. Incidentally. Interestingly. But this is no ordinary case.. BEN T. CORAZON BEJASA.. LEE. Peña proved that he rendered for Urban Bank. Petitioners.000 v..000 to finance the expenses for the services he rendered Urban Bank.. No. 145822) questioning the propriety of the grant of execution pending appeal. PhP3. Peña to sue the bank officers and directors of Urban Bank and why he chose to sue only some. There is no claim by Atty... DE LEON.. Execution pending appeal was also granted against them for this solidary liability resulting in the levy and sale in execution pending appeal of not only corporate properties of Urban Bank but also personal properties of the individual bank officers and directors.. agreed to pay him for his services 10% of the value of the property then worth PhP240. and the total award in his favor should only amount to PhP3. 145817 October 19. GONZALEZ. No..-x G. vs. Peña for services he rendered for Urban Bank if such had been ordered by the trial court.. these officers and directors were made solidarily liable by the trial court with Urban Bank for the alleged breach of the alleged corporate contract of agency. Not all board directors were sued. No. R..G. Peña (G.R.000... Had the four attendant circumstances not afflicted the original case.: These consolidated petitions began as a simple case for payment of services rendered and for reimbursement of costs. J.933. DELFIN C. Peña should only be recompensed according to the principle of unjust enrichment. The disparity in the size of the award given by the trial court vis-à-vis that of the Court of Appeals (PhP28.. Peña should be paid something by Urban Bank is not in dispute – the Court of Appeals (CA) and the Regional Trial Court (RTC) of Bago City...000 (agent’s fee plus reimbursement for costs and other damages) pending appeal. the trial court granted execution pending appeal. No. and ERIC L. several officers and board directors of Urban Bank.. 162562) assailing the CA’s decision on the substantive merits of the case with respect to his claims of compensation based on an agency agreement.383.. INC. 1 were levied or sold on execution pending appeal to satisfy the PhP28. the net worth of Urban Bank was PhP2. Peña can only be paid under the legal principle against unjust enrichment.. SIERVO H.. which he advanced from his own funds. vs.. Peña and Urban Bank. It involved the filing of ejectment suits against them. and ARTURO MANUEL. and that he should be awarded the amount of PhP3. and Arturo Manuel. Thus.. as in fact. Peña of any service beyond those. Peña should be believed when he testified that in a telephone conversation. but there is nothing on the record with which this analysis can be pursued.. Peña’s cause of action – the execution of the agency contract and its breach – and yet.500... 162562 MAGDALENO M. as well as a vexatious collection suit he had to face from a creditor-friend from whom he borrowed PhP3. Hence. 2011 URBAN BANK.000. the president of Urban Bank.000. JR.. BENJAMIN L.000 – rendered by the trial court. MAGDALENO M.. Peña’s services consisted of causing the departure of unauthorized sub-tenants in twenty-three commercial establishments in an entertainment compound along Roxas Boulevard. It would have been interesting to find out what drove Atty..5 Million award in favor of Atty.000 according to the trial court. What they disagreed on is the basis and the size of the award.000.Respondents. To the Court of Appeals. Atty.000. That Atty. these petitions can be resolved if we answer the following questions: 1. generally-understood consequences on an order issued by the trial court for execution pending appeal. Atty. Ordinarily. his settlement with them to the tune of PhP1. DECISION SERENO.2% of its total assets of PhP11. MAGDALENO M. while. Before us are: (a) the Petitions of Urban Bank (G. Respondent. the appellate court said that Atty.000 only for his services and reimbursements of costs. JR.-x G. vs..219. LIM. however... Peña. agreed on that. applying even just the minimum equitable principle against unjust enrichment would have easily affirmed the grant of fair recompense to Atty. P. 145817) and the De Leon Group (G R. As the records bear.500..500. In the eyes of the trial court. The case spun a web of suits and counter-suits because of: (1) the size of the award for agent’s fee rendered in favor of Atty. a respondent herein. or PhP24.. and several of its corporate officers and directors together with the concomitant levying and sale in execution of the personal (even conjugal) properties of those officers and directors.000) must be placed in the context of the service that Atty.000 by the trial court came out in 1999. such an award has no basis.. but not all of the board directors of Urban Bank.500. two supersedeas bonds worth PhP80 Million (2. Costs and other awards additionally amount to PhP4. INC. GONZALEZ. and his retention of security guards and expenditure for other costs amounting to more or less PhP1. TEODORO BORLONGAN.. the controlling finding is that Atty.000. R.. At the time the award of PhP28. Peña and yet.000.. Magdaleno Peña (Peña) – PhP24. Teodoro Borlongan.000. Petitioner. With respect to those included in the complaint..

when "information reached the judge that the Pasay property had already been transferred by ISCI to Urban Bank. According to Peña. but subject to the above escrow provision. (sgd.6On the other hand. On the same day that the TRO was recalled. a new title to the Pasay property had already been issued in the name of Urban Bank. Inc. she allegedly told him that Urban Bank would be retaining his services in guarding the Pasay property. to wit:23 MEMORANDUM TO: Atty. are the petitioners in G.2.000. respectively – advised Peña38 that the bank had noted the engagement of his services by ISCI and stressed that ISCI remained as the lawyer’s principal.48 Later that same day.612. and Eric L. 37 In response to the letters of Ms. squatters or other structures or from any liens. easements or any other obstruction or impediment to the free use and occupancy by the buyer of the subject Property or its exercise of the rights to ownership over the subject Property. Delfin C. occupants. confirming the latter’s engagement as the corporation’s agent to handle the eviction of the tenants from the Pasay property.) ENRIQUE G.27 On 30 November 1994.36 She repeated therein the earlier request for authority for Peña. Benjamin L. however. petitionerrespondent Peña immediately contacted ISCI’s president.000 in installments for the Pasay property. Ong. asked him to suspend the planned withdrawal of the posted guards. whereby the latter would pay ISCI the amount of PhP241.26 The title to the land was eventually transferred to the name of Urban Bank on 05 December 1994. For this purpose you are authorized to engage the services of security guards to protect the property against intruders. the day the lease contract was to expire.30 He also posted security guards at the property. 162562 were officers and members of Urban Bank’s board of directors. since the tenants were questioning ISCI’s authority to take over the Pasay property. mostly beer houses and night clubs.34 In the meantime.35 Two days thereafter. Mr. Inc. the amount of the final installment would be held by the bank in escrow. on the various results of the execution pending appeal that happened here? Factual Background of the Controversy Urban Bank. Petitioner-respondent Atty. within a period of sixty (60) days from the date of payment by the BUYER of the purchase price of the subject Property net of the amounts authorized to be deducted or withheld under Item II (a) of this Contract. he (Peña) would be recalling the security guards he had posted to secure the property. 14 In 1994. the sub-tenants would come back in the evening. No. 8 ISCI owned a parcel of land9 located in Pasay City (the Pasay property).5 The eight individual respondents in G. No. ISCI informed the lessee15 and his tenants16 that the lease would no longer be renewed and that it intended to take over the Pasay property17 for the purpose of selling it. Pena Director FROM: Enrique G. (hereinafter the de Leon Group). After Peña informed her of the situation. a certain Marilyn G. (both petitioner and respondent in these two consolidated cases). Ms.31 services for which he advanced payments. faxed a letter to Urban Bank – addressed to respondent Corazon Bejasa. Jr. thus. who had separately filed the instant Petition before the Court. who were sued in their official and personal capacities. filed a complaint for injunction 41 (the First Injunction Complaint) with the RTC-Pasay City.47 Peña told Mr. petitioner-respondent bank. Montilla III (Montilla).. Lee. Gonzalez. as representative of ISCI. De Leon. (ISCI).21 (Emphasis supplied) ISCI then instructed Peña. Manuel – Senior Vice-President and Vice-President.45 On 19 December 1994. and proceed to carry on with their businesses. and that he should continue his efforts in retaining possession thereof. so that ISCI could get in touch with petitioner-respondent bank regarding the matter. Magdaleno M. and even threatened to return and inflict greater harm on those guarding it.29 Pursuant to his authority from ISCI.44 At the time the First Injunction Complaint was filed. the trial court favorably issued a temporary restraining order (TRO). 42 Acting on ISCI’s prayer for preliminary relief. 5382 of the Register of Deeds for Pasay City immediately upon the expiration of the contract of lease over the said property on 29 November 1994.39 To prevent the sub-tenants from further appropriating the Pasay property. Ong faxed another letter to the bank.32 Despite the closure of the gates and the posting of the guards. Are the officers and directors of Urban Bank liable in their personal capacities for the amount claimed by Peña? 3. director and corporate secretary of Isabel Sugar Company. through individual respondents Bejasa and Arturo E.000. Mr. Peña (Peña)7 is a lawyer by profession and was formerly a stockholder. reads: "The SELLER (ISCI) agrees that from the proceeds of the purchase prices of the subject Property (Pasay property). as director and representative of ISCI.10 In 1984. the trial court recalled the TRO and issued a break-open order for the property. What are the effects of our answers to questions (1) and (2). Peña received a telephone call from respondent Bejasa. Peña had the gates of the property closed to keep the sub-tenants out. a few months before the lease contract was to expire. encumbrances. to take over possession of the Pasay property22 against the tenants upon the expiration of the lease. inside the compound. who in turn confirmed the sale of the Pasay property to Urban Bank.13 the lessee subleased the land to several tenants.33 On three separate occasions. Enrique G. You may also engage the services of a lawyer in case there is a need to go to court to protect the said property of the corporation. 28 but the unauthorized sub-tenants refused to leave the area. He . Montilla. who was its director and corporate secretary.000 would be released by the bank upon ISCI’s delivery of full and actual possession of the land. 20 In the meantime. engaged in the business of banking.19Both parties agreed that the final installment of PhP25. free from tenants. this time addressed to its president. faxed a letter to Peña. the BUYER (Urban Bank) shall withhold the amount of PHP 25. Montilla III President DATE: 26 November 1994 You are hereby directed to recover and take possession of the property of the corporation situated at Roxas Boulevard covered by TCT No. force open the gates. MONTILLA III President24 On 29 November 1994.18 Two weeks before the lease over the Pasay property was to expire. Magdaleno M.43 which was duly implemented. The escrow provision in the Contract to Sell. Mr. Montilla. ISCI leased the Pasay property for a period of 10 years.000. threw stones. the lessee duly surrendered possession of the Pasay property to ISCI. the subtenants tried to break down the gates of the property.4 was a domestic Philippine corporation. respondent Teodoro Borlongan.40 petitioner-respondent Peña. ISCI and Urban Bank executed a Contract to Sell. R. In addition you may take whatever steps or measures are necessary to ensure our continued possession of the property. who was then the bank’s Senior Vice-President – requesting the issuance of a formal authority for Peña. who in turn put up 23 establishments.11 Without its consent12 and in violation of the lease contract. ISCI’s president. free from any tenants. R. Ong. 145822 and are three of the same bank officers and directors. it was the first time that he was apprised of the sale of the land by ISCI and of the transfer of its title in favor of the bank. Montilla that because of the break-open order of the RTC-Pasay City." 46 It is not clear from the records how such information reached the judge or what the break-open order was in response to. ISCI and Urban Bank executed a Deed of Absolute Sale25 over the Pasay property for the amount agreed upon in the Contract to Sell.00 by way of escrow and shall release this amount to the SELLER only upon its delivery to the BUYER of the full and actual possession and control of the Subject Property.

52 (Emphasis supplied) On even date. while. Peña sued only six out of the eleven members of the Board of the Directors of Urban Bank. the original owners of the Pasay property. or nearly a year after he turned over possession of the Pasay property. petitioner-respondent Peña.55 Thereafter.69 No reason was given why the six directors were selected and the others excluded from Peña’s complaint. filed a separate complaint56 (the Second Injunction Complaint) with the RTC-Makati City. On 07 February 1995. occupants or squatters and from any obstruction or impediment to the free use and occupancy of the property by Urban Bank. Ben Y. to enjoin the tenants from entering the Pasay property.insisted. Magdaleno M. Peña’s request for discretionary execution pending appeal later on. Jr. Peña explained that the policemen in Pasay City were sympathetic to the tenants and were threatening to force their way into the premises. On 31 March 1995. On 24 January 1996. Lim. since the Pasay property.71 . 49 The facts regarding the following phone conversation and correspondences are highly-controverted. not later than four months. Peña supposedly demanded 10% of the market value of the property as compensation and attorney’s fees and reimbursement for all the expenses incurred from the time he took over land until possession was turned over to Urban Bank. and it later on became the subject of a separate collection suit for payment with interest and attorney’s fees. within the four-month period allegedly agreed upon in the telephone conversation. 58 While the Second Injunction Complaint was pending. 51 Later that afternoon. on talking to the Bank’s president. which acknowledged ISCI’s engagement of Peña and commitment to pay for any expenses that may be incurred in the course of his services. Peña received the bank’s letter dated 19 December 1994. it may be necessary for Urban Bank to appoint Atty. and is quoted below: This is to confirm the engagement of your services as the authorized representative of Urban Bank. Peña would lose the 10% compensation and attorney’s fees. filed on behalf of ISCI. Ben T. During the negotiations. free from tenants.62 According to him. Jr. Respondent Borlongan acceded and instructed him to see respondent Bejasa for the letter. when Urban Bank refused to pay for his services in connection with the Pasay property. consequently. He expressed his concern that violence might erupt between the tenants. and the security guards posted in the Pasay property. Pasay City [Pasay property] which you purchased from Isabela Sugar Company under a Deed of Absolute Sale executed on December 1. Peña formally informed Urban Bank that it could already take possession of the Pasay property. he was exposed to several civil and criminal cases they filed in connection with the task he had assumed for Urban Bank. now in representation of Urban Bank. petitioner-respondent Peña demanded a written letter of authority from the bank. had already been transferred to Urban Bank. Peña mistakenly impleaded as a defendant. father and namesake of Ben Y. the RTC-Makati City issued a TRO.. although his creditor-friend granted him several extensions. Lim. then president of Urban Bank. Peña. which was signed by respondents Bejasa and Manuel. respondent Borlongan allegedly asked Peña to maintain possession of the Pasay property and to represent Urban Bank in any legal action that might be instituted relative to the property. In view of the transfer of the ownership of the property to Urban Bank.000 from one of his friends in order to maintain possession thereof on behalf of Urban Bank.. damages and attorney’s fees in RTC-Bago City in the province of Negros Occidental. specifically to hold and maintain possession of our abovecaptioned property [Pasay property] and to protect the same from former tenants. Atty. It is understood that any attorney’s fees. Peña made efforts to settle the issue of possession of the Pasay property with the sub-tenants.50 In the same telephone conversation. respondent Borlongan.68 Interestingly. we have engaged the services of Atty. on the ground of lack of personality to continue the action. and to prevent any intruder. Lim. Peña likewise as its authorized representative for purposes of holding/maintaining continued possession of the said property and to represent Urban Bank in any court action that may be instituted for the abovementioned purposes. subject of the suit. In line with our warranties as the Seller of the said property and our undertaking to deliver to you the full and actual possession and control of said property.61 Peña claims to have borrowed PhP3. he failed to pay his loan when it became due..53 (Emphasis supplied) The following narration of subsequent proceedings is uncontroverted. Nevertheless. and that the latter should not give up possession of the subject land. Sr. otherwise. 1994.66 Proceedings on the Complaint for Compensation On 28 January 1996. In fact.57Acting on Urban Bank’s preliminary prayer.64 There was however no mention of the compensation due and owed to him for the services he had rendered.70 In response to the complaint of Atty. ISCI’s letter reads: This has reference to your property located along Roxas Boulevard. ISCI sent Urban Bank a letter. already passed away in 1997.65 Peña thereafter made several attempts to contact respondents Borlongan and Bejasa by telephone. the bank subsequently took actual possession of the property and installed its own guards at the premises. Respondent Bejasa gave him the contact details of respondent Borlongan. they could not be held liable for the expenses Peña had incurred.59 The sub-tenants eventually agreed to stay off the property for a total consideration of PhP1.54 The RTC-Pasay City dismissed the complaint and recalled its earlier break-open order. but the bank officers would not take any of his calls. Respondent Borlongan purportedly agreed on condition that possession would be turned over to the bank. free of tenants. the city police. however. occupants or any other person who are threatening to return to the said property and/or interfere with your possession of the said property for and in our behalf. Peña of his abovementioned duties shall be for the account of Isabela Sugar Company and any loss or damage that may be incurred to third parties shall be answerable by Isabela Sugar Company. Peña filed a complaint67 for recovery of agent’s compensation and expenses. You are likewise authorized to represent Urban Bank in any court action that you may institute to carry out the aforementioned duties. Peña then moved for the dismissal of ISCI’s First Injunction Complaint. Immediately after talking to respondent Bejasa.000. cost of litigation and any other charges or expenses that may be incurred relative to the exercise by Atty.63 This collection suit became the basis for Atty.500. as pointed out. and.000. and he received several threats against his life. that had engaged the services of Peña in securing the premises.60Peña advanced the payment for the full and final settlement of their claims against Urban Bank. Urban Bank and individual bank officers and directors argued that it was ISCI. Peña formally demanded from Urban Bank the payment of the 10% compensation and attorney’s fees allegedly promised to him during his telephone conversation with Borlongan for securing and maintaining peaceful possession of the property. who had been a director of the bank. who was never even a member of the Board of Directors of Urban Bank. Peña to hold and maintain possession of the property and to prevent the former tenants or occupants from entering or returning to the premises. Respondent Borlongan supposedly assured him that the bank was going to retain his services. Peña got in touch with Urban Bank’s president. squatter or any other person not otherwise authorized in writing by Urban [B]ank from entering or staying in the premises.

which were allegedly incredible. the CA eventually granted Urban Bank’s Rule 65 Petition.90 Peña moved for execution pending appeal91 of the Decision rendered by the RTC-Bago City.88 The appellate court. Siervo H.110 The appellate court found that the bank holiday declared by the BSP after the promulgation of its earlier Decision.000 as compensation for plaintiff’s services plus the legal rate of interest from the time of demand until fully paid. Jr. 102 On 09 November 1999. No other reason for the prayer for execution pending appeal was given by Peña other than this collection suit. and P. after finding that an agency relationship had indeed been created between him and Urban Bank. the RTC-Bago City72 ruled in favor of Peña. 3. however.100The Special Order and Writ of Execution were directed at the properties owned by Urban Bank as well as the properties of the eight individual bank directors and officers. Ben Y.000. The award of exemplary damages. On 04 November 1999. No.80 On the other hand.. The dispositive portion of the CA decision reads as follows: WHEREFORE. but absolved the bank directors and officers from solidary liability.77 Urban Bank78 assigned as errors the trial court’s reliance on the purported oral contract of agency and Peña’s claims for compensation during the controverted telephone conversation with Borlongan.000. Arturo Manuel. Urban Bank declared a bank holiday on 26 April 2000 and was placed under receivership of the Philippine Deposit Insurance Corporation (PDIC). 95 In opposition to the motion. Branch 62. SO ORDERED. Bejasa. prior to the filing of the notice of appeal of Urban Bank and individual bank officers. Meanwhile. Costs of suit.75 In the appeal. P3. the RTC-Bago City. R. 98 In accordance with this Special Order.500. Trocino. Jr. P1. the Court of Appeals denied the motion for reconsideration for lack of merit and the other subsequent Supplemental Motions for Reconsideration for being filed out of time.. attorney’s fees and costs of suit are deleted. through Judge Henry J. PDIC’s receivership of Urban Bank. the instant petition is GRANTED. 1999. are ANNULLED and SET ASIDE.84 Acting favorably on the appeal. P24.000. Execution Pending Appeal On 07 June 1999. the plaintiff-appellee [Peña] in CA GR CV No. Lee (the De Leon Group). respondents Teodoro Borlongan and Corazon M.79 the petitioners in the instant Petition docketed as G.500. he had used the proceeds of the loan for securing the bank’s Pasay property. 2. Urban Bank countered that the collection case was not a sufficient reason for allowing execution pending appeal. who was demanding payment of a PhP3. Benjamin L. The eight directors and bank officers were found to be solidarily liable with the bank for the payment of agency’s fees.89 The CA Decision and Resolution were appealed by Peña to this Court. affected by the trial court’s grant of execution pending appeal. The petition for Indirect Contempt against all the respondents is DISMISSED for utter lack of merit. the Court of Appeals85 annulled the Decision of the RTC-Bago City and ruled that no agency relationship had been created. Dizon (the Borlongan Group)81 reiterated similar arguments as those of the De Leon Group. 162562). the trial court committed reversible error in holding them – as bank directors – solidarily liable with the corporation. R. Nevertheless.000 as and for attorney’s fees.94 According to Peña. the appellate court favorably granted the TRO and preliminarily prohibited the implementation of the Special Order and Writ of Execution. and the imminent insolvency thereof constituted changes in the bank’s conditions that would justify execution pending appeal. issued a Writ of Execution99 on the same day. de Leon.000 in compensation and damages. argued that. 65756 is awarded the amount of P3 Million as reimbursement for his expenses as well as reasonable compensation for his efforts in clearing Urban Bank’s property of unlawful occupants.113 Thereafter.106 while petitioners filed their corresponding Comment/Opposition thereto.76 Although they put up a single defense in the proceedings in the lower court. were annulled. 105 On 02 February 2000. The appellate court ruled:104 WHEREFORE. 2000 Decision [sic] and the October 19.111 On 29 August 2000. premised from the foregoing. they questioned the factual finding that an agency relationship existed between the bank and Peña. The Special Order and writ of execution. Atty. Peña moved for the reconsideration of the CA’s Decision. adding that the claimed compensation of 10% of the purchase price of the Pasay property was not reasonable. 87 (Emphasis supplied) Peña duly filed a Motion for Reconsideration of the unfavorable CA Decision. and reversed its earlier Decision to allow execution pending appeal. Lim.114 as did petitioner Ben T. Jr. The trial court thus ordered Urban Bank and all eight defendant bank directors and officers whom Peña sued to pay the total amount of PhP28. In its Brief. judgment is hereby rendered ordering defendants to pay plaintiff jointly and severally the following amounts: 1. the clerk of court and ex officio sheriff.000 as reimbursement of plaintiff’s expenses. 145822. Corazon M.93 In supporting his prayer for discretionary execution.000 (excluding costs of suit): WHEREFORE.000 loan.103 On 12 January 2000. 2000 [sic] Special Order of the RTC of Bago City.000. which permitted execution pending appeal. Bejasa also filed their separate Supplemental Motion for Reconsideration.000 as exemplary damages..000. 4.107 During the pendency of Peña’s Motion for Reconsideration.108 In its Amended Decision dated 18 August 2000.96 On 29 October 1999.116 The appellate court also ordered Peña to post an . Urban Bank and its officers moved for the reconsideration of the Amended Decision. No.112 The De Leon Group subsequently filed several Supplemental Motions for Reconsideration. and Eric L. 5. Delfin Gonzalez.000.92 which had awarded him a total of PhP28. even on the assumption that there had been an agency contract with the bank. Jr. Urban Bank and individual defendants contracted different counsel and filed separate Briefs on appeal in the appellate court. denied his motion.73 Urban Bank and the individual defendant bank directors and officers filed a common Notice of Appeal. Respondents are directed to desist from further implementing the writ of execution and to lift the garnishment and levy made pursuant thereto. the CA109 favorably granted Peña’s Motion for Reconsideration. the May 28.74 which was given due course. and the RTC’s Special Order and Writ of Execution. Lim.97 favorably granted Peña’s motion and issued a Special Order authorizing execution pending appeal. it ordered Urban Bank to reimburse Peña for his expenses and to give him reasonable compensation for his efforts in clearing the Pasay property of tenants in the amount of PhP3. However. Josephine MutiaHagad. Peña cited the pending separate civil action for collection filed against him by his creditor-friend. both dated October 29.86 are hereby ANNULLED AND SET ASIDE. P500.On 28 May 1999. through one of the three consolidated Rule 45 Petitions before us (G.82 Peña refuted all of their arguments83 and prayed that the trial court’s Decision be affirmed.115 On 19 October 2000. in view of the foregoing considerations. Teodoro Borlongan. Urban Bank101 filed a Rule 65 Petition with the CA to enjoin the Special Order and Writ of Execution issued by the trial court with a prayer for a TRO. the same not having been sufficiently proven.

57698)143 Estimates are based on report of Urban Bank142 A 64.000 A 12.400. one share was selling at P870. Unit P-46) in Makati City (CCT No. A-1893.677 sqm. 131 The appellate court.000137 Atty.700 .077. merely noted Urban Bank’s motion on the ground that there was no showing whether a petition to the Supreme Court had been filed or given due course or denied. Peña posted his indemnity bond as required by the CA. Urban Bank.159 Gonzales’ club share was estimated to be valued at P1.000 Real Property155 No estimate available on record. 3433)146 Borlongan’s club share was estimated to be valued at P1. after they had filed their supersedeas bond. the CA119 granted the stay of the execution upon the filing by the De Leon Group of a PhP40. the rehabilitation plan of Urban Bank was approved by the Monetary Board of the BSP. some of the levied properties of Urban Bank and the other bank officers were sold on public auction. condominium parking space (Parking Three.120 Peña moved for the reconsideration of the stay order.000 30.000 and PhP700. 20471)144 Value based on estimate of Urban Bank145 One Club Share in Manila Polo Club (No.126 Thus. P20. 145818.000. the De Leon Group. In the meantime.000.000.00 per share164 Notice Executi 4. No. 550)161 Gonzales’ club share was estimated to be valued at P2.350 Notice Executi 1.. and the Borlongan Group filed around December 2000 separate Rule 45 Petitions in this Court. They do not include properties covered by the Petition docketed as G.132 After the denial by the Court of Appeals of Urban Bank’s motion for approval of its supersedeas bond.000. however. The table below lists the properties that appear on record to have been levied and/or sold on execution pending appeal and the approximate value of some of these properties. and requested that the troubled bank be removed from receivership of the PDIC.117 The Amended Decision and the Resolution were the subjects of several Rule 45 Petitions filed by Urban Bank and individual petitioners (G. On 12 July 2001. and prayed that the execution of the RTC-Bago City’s Decision against it be stayed as well.121 1avvphil In its Resolution dated 08 December 2000. Pe the win in the a togethe creditor Roberto Atty.000. Nos.139 85. MSCI Club Shares "A" and "B" were selling at PhP650.000.6 Million.147 One Club Share in Subic Bay Yacht Club149 One club share was estimated to be valued at P500.160 1. Ra 85 Condominium Units The highest bid price in the Urban Bank obtained for the Plaza.124 On 08 December 2000.152 870.130 Urban Bank reiterated its request for the approval of the supersedeas bond with the Court of Appeals and the issuance of the corresponding stay order.000 and PhP700.134 Total Amount 4. Makati City138 condominium units was PhP1M at the time of the execution sale. 145818 and 145822). On the same day the CA denied its Motion for Reconsideration.150 500.dant indemnity bond.000 respectively. land in Tagaytay City (TCT No. to assail the unfavorable CA Amended Decision and Resolution that affirmed the execution pending appeal.000. Urban Bank began receiving notices of levy and garnishment over its properties. respectively. the Monetary Board subsequently lifted PDIC’s statutory receivership of the bank.157 One Club Share in Baguio Country Club. or almost a year after the Court of Appeals amended its decision to allow execution pending appeal. 128 for the same amount of PhP40. one share was selling at P1.162 2.000 One Club Share in As of 06 December Baguio Country Club151 1999. 57697) 141 12.129 Sometime in September and October 2001. The details of these Rule 45 Petitions will be discussed in detail later on.000 One Club Share in Alabang Country Club (Member No.077. Garnished and/or Executed Properties Pending Appeal 1avvphi1 Property Description Three Club Shares Tagaytay Highlands International Golf Club133 Estimated Value or Price at Public Auction As of 06 December 1999. R. trying to follow the lead of the De Leon Group.127 On 14 September 2001.000. Club. Makati City (CCT No.585 shares of stock in D. condominium unit. R.000.800.572. One Club Share in Manila Polo Club (No.123 The stay of execution pending appeal.000.000 Persona dated 2 2000148 500. Urban Bank.154 650.000 35. After it received Notice of the impending public execution sale of its shares in the Tagaytay Highlands International Golf Club.000.000. A-2305 and B-762]135 As of 06 December 1999.000.125 As mentioned earlier.5 sqm.000 Persona dated 2 2000158 611. made a similar request with the Court of Appeals for approval of its own supersedeas bond. 3818)156 Gonzales’ club share was estimated to be valued at P4. excluded Urban Bank.000 Interve purchas condom the auc P1M ea of P10 A 155 sqm. MSCI Club Shares "A" and "B" were selling at PhP650.000 Three Club Shares in Makati Sports.136 2. however.118 On 31 October 2000.000 bond in favor of Peña.000. Export and Industry Bank (EIB) submitted its proposal for rehabilitation of Urban Bank to the BSP.000. the De Leon Group immediately moved for the stay of execution pending appeal upon the filing of a supersedeas bond. 145817. Gonzales.122 the appellate court denied Peña’s Motion for Reconsideration and a stay order over the execution pending appeal was issued in favor of the De Leon Group.000 One Club Share in MSCI153 As of 06 December 1999.000. (MSCI) [Covered by Stock Certificate Nos. Table of Levied. Inc. Jr.000. C.000.

000.190 does not include many other properties and it is not difficult to believe that the total value reached more than that.00 per share 1.165 P50.207 filed a Rule 45 Petition with this Court (docketed as G. R.050.previously under the name of Urban Bank. Inc. 145822)216 was filed by the De Leon Group. No. represented by its receiver.000. 181. as judgment creditor. Thus.000. TOTAL VALUE No estimated value.000 One Club Share in Sta. where the judgment award was still subject of reversal on appeal. 194 On 23 October 2002.202 It has not been shown. RTC-Bago City. through Execution on a motion. 145818. Inc.175 One Club Share in Manila Golf Club. No.214. R. or almost a year after some of the condominium units were sold in a public auction. Meanwhile.195 Thus.500. garnished or denial of the petition in G. The Court also preliminarily denied this petition on the ground that the De Leon Group failed to file .198 the sheriff returned EIB’s Notice the of Sale onmanager’s checks. This Court. (Class "A" Share) 179 Lee’s club share was estimated to be valued at P2.168 One Club Share in MSCI (Stock Certificate No. assailing the same Decisions of the appellate court. Inc.000 Cash garnished from BPI Account188 Real Property189 4. EIB garnished or three manager’s checks in the total amount of tendered 196 executed pending PhP22. levied. R.190 already. 200 final Certificates of Sale were issued in favor of Unimega on 04 November 2002. though. among others. A175)170 De Leon’s share was estimated at P450. but the Court as to properties nonetheless denied both motions for lack of merit.919. Inc.186 P20. Peña moved for the denial of the petition on the grounds of lack merit. 215 appeal.000.00 per share 2.000.182 1. This amounts to almost six dated 25 August 2000 times the value of the award given by the trial court. EIB. C. with respect to its pending Rule 45 Petition in this Court.213 The Borlongan Group twice moved for the No records available reconsideration of the denial of their petition. was prompted to turn over the checks to the trial court itself.173 870.171 450. was overly secured by the levied and/or garnished properties for the amount of PhP28.000. R. 145818 became final and executed pending executory. granted the same in its Resolution dated 19 November 2001.140 40 Shares of stock in EQL Properties.919. Gonzales.190 The sum of PhP181.000 One Club Share in Baguio Country Club (5523)172 As of 06 December 1999.163 Real Property190 2. On the other hand. On 22 October 2001. 0597]167 De Leon’s Share was estimated at P4 M for the share and P1.00 per share166 One Club Share in Manila Polo Club (with Associate Membership) [No. Urban Bank. docketed as G. and non-payment of docket fees. whether this Order was followed.210 Peña also argued that the appellate court had committed no error when it considered the bank’s "imminent insolvency" as a good reason for upholding the validity of the execution pending appeal. with the issuance of the Entry of Judgment.000.201 Upon the latter’s motion. 181 Lee’s club shares were estimated to be valued at P1.000 zon a 100.919.750. as the No records available successor of Urban Bank. the Borlongan Group211 filed a separate Rule 45 Petition questioning the same Decision and Resolution. R.000 supersedeas bond192 and requested that the Court stay the execution pending appeal. the Notice covered of Sale on estimated values and/or purchase prices at the auction sale of Execution on the properties of Urban Bank and its officers amounted to no Personal Property less than PhP181. Inc.108.800 to redeem the properties that were appeal. Urban Bank.185 500.204 but his motion was subsequently denied by Notice the of Sale on205 Court. 212 This Court initially denied their petition on the ground that it failed to sufficiently show that the CA committed reversible order.000 No estimated value.757 Shares of stock in EQL Properties.05 M for the associate membership.209 In a separate Comment.750. acting on Urban Bank’s earlier motion to approve its supersedeas bond. Jr.203 Peña moved for reconsideration of the approval. 187 P50.000 40 Shares of stock in D.180 2. Elena Golf Club. ordered the Register of Deeds of Makati to transfer the Condominium Certificates of Title to the name of Unimega. No. 214This levied.199 Personal Property dated 25 August When Urban Bank supposedly failed to redeem the 2000 condominium units according to the sheriff. violation of the rule against forum shopping. expressed to the sheriff of RTC-Bago as to properties City an intent to redeem the said condominium units.. EIB.000 One Club Share in Subic Yacht Club184 Lee’s club share was estimated to be valued at P500. PDIC.000.000.000.000 60. on 29 October 2002. 145817. 145818 & 145822) dated 25 August 206 2000 On 21 December 2000. another Rule 45 Petition (G.000.178 15.e Inc. 145817) to assail the CA’s Amended Decision and Resolution granting execution pending appeal. in its Order dated 13 November 2002. moved for the approval of its PhP40.000 One Club Share in Manila Polo Club (2038)174 Lee’s’ club share was estimated to be valued at P4.191 In summary. Otherwise stated.177 Lee’s club share was estimated to be valued at P15.000 Two Club Shares in Tagaytay Highlands Int’l Golf Club. one share was selling at least P870. Nos.000 5.000. Execution on Proceedings Personal Property in the Supreme Court (G.197 Although the trial court noted the bank’s Manifestation.208 In response. Inc. Peña.000. No.193 Peña opposed the motion on the ground that it had already been rendered moot and academic by the sale of the properties of the bank.000.000.

MSCI filed a Motion for Clarification of the Court’s Resolution staying the execution pending appeal. Although the Petitions had earlier been assigned to Justice Carpio.249 In summary.250 The basis of the civil law relationship of agency is . it had no other option but to comply with the trial court’s Order for the transfer. it could not effect the transfer of one of the shares to Peña because a club share had already been previously registered in his name. No. under the principle against unjust enrichment and on the basis of quantum meruit. there was no more execution to be suspended or stayed.229 (Emphasis supplied) On 09 December 2002. MSCI is also prohibited from transferring petitioner Urban Bank’s MSCI club shares to the winning bidders in the execution sale held on October 11. as well. since the latter was not among the contending parties to the incident.228 The copy of Urban Bank’s motion for clarification intended for Peña was mistakenly sent to the wrong counsel. No.241 Intervenor Unimega then requested that a writ of possession be issued in its favor covering the 10 condominium units sold during the public auction. and that the one-year period for redemption of the bank’s properties was likewise suspended: WHEREFORE. because he was not given an opportunity to be heard on Urban Bank’s Motion for Clarification.242 The Court required the parties to file their comments on the request.239 Thereafter. with the consent or authority of the latter. No. and that the Court’s clarification did not create or diminish his rights in any case. R. Peña moved that the Court’s Resolution be recalled. thus. which was the winning bidder of some of the publicly executed condominium units of Urban Bank. the Court hereby RESOLVES to clarify that as a consequence of its approval of the supersedeas bond. the Court explained that its earlier stay order prohibited the MSCI from transferring the shares. 6332). 145822) questioning the propriety of the grant of execution pending appeal. agents bind themselves to render some service or to do something in representation or on behalf of the principal. No. as the new owner and successor of Urban Bank. and not on the purported oral contract. the Court’s Resolution dated 13 November 2002 and Peña’s Omnibus Motion praying for the recall of the said Resolution became the subject of an administrative case (Administrative Case No. As detailed earlier.243The Lim244 and Borlongan Groups245 manifested separately that they would not be affected by a resolution of the request of intervenor Unimega. which was sent to a different counsel. among others. but on the basis of the principles of unjust enrichment and quantum meruit. is SUSPENDED OR STAYED.219 In compliance with the Court’s Order. and that the purchase price was grossly disproportional to the fair market value of the condominium units.226 On 04 February 2002. and that intervenor was also not a buyer in good faith.240 Also in answer thereto.225 Meanwhile. No. one of the winning bidders in the public auction sale of the MSCI shares wrote to the latter to demand that the club share previously owned by Urban Bank be transferred to him. R. which might preempt the decision with respect to the propriety of execution pending appeal. namely retired Chief Justice Hilario Davide. immediately wrote to tell223 the corporate secretary of MSCI not to effect the cancellation or transfer of Urban Bank’s three MSCI stock certificates previously sold in a public auction. Urban Bank opposed the application of Unimega on the ground that the latter was not entitled to possession of the levied properties. OUR RULING I Peña is entitled to payment for compensation for services rendered as agent of Urban Bank. 231 but Peña was nonetheless aware of the motion. favorably or otherwise. 227 In its Motion for Clarification dated 06 August 2002. In its Resolution dated 13 November 2002.the appeal within the reglementary period and to pay certain fees.246 In contrast. R. 2001.238 The Court eventually granted the Motion to Intervene considering that the intervenor’s title to the condominium units purchased at the public auction would be affected.233 The Court had even called for an executive session234 in which Peña. moved to intervene in the case and to have the Court’s same Resolution suspending the one-year period of redemption of the properties be reconsidered. 11 and 25. its right to redeem the properties sold at a public auction. and the club’s bylaws prohibited a natural person from owning more than one share.218 The Court subsequently gave due course to both of these petitions. 145817) and the De Leon Group (G R. which was treated as a separate matter and later on de-consolidated with the instant Petitions. Justices Jose Vitug. by the judgment of the Court in this case.248 Accordingly. the De Leon Group adopted its earlier Manifestation and Comment. the bank adopted its earlier Opposition to the intervention as its answer to Unimega’s petition-in-intervention. EIB.232 The Motion for Clarification filed by Urban Bank. the bank argued that the error in mistakenly sending the Motion for clarification to a different counsel was by sheer inadvertence. However. but the amount of payment he is entitled to should be made. 162562) assailing the CA’s decision on the substantive merits of the case with respect to his claims of compensation based on an agency agreement. again.235 Unimega claimed that ownership of the bank’s titles to the 10 condominium units had already been transferred to the former at the time the Court issued the Resolution. the Court granted and approved Urban Bank’s supersedeas bond and stayed the execution pending appeal. the Court nonetheless ordered that the case be consolidated with Urban Bank’s own Rule 45 Petition in G. The Court finds that Peña should be paid for services rendered under the agency relationship that existed between him and Urban Bank based on the civil law principle against unjust enrichment. Considering the favorable stay of execution pending appeal. the De Leon Group opposed the application for a writ of possession. 247 In a similar vein. Antonio Carpio and Adolfo Azcuna. Peña similarly interposed no objection to the issuance of the writ of possession. and further argued that the Court had already suspended the running of the one-year period of redemption in the execution sale. 145817. Eventually. In a contract of agency. The transfer and unloading of the case by the subsequently assigned Justices as well as Peña’s numerous motions for inhibition and/or re-raffle has likewise cause considerable delay in the disposition of the instant Petitions and the Administrative Case. 145822 filed by the De Leon Group. Urban Bank likewise requested clarification of whether the stay order suspended. and (b) the Petitions of Urban Bank (G. he has since taken no part in the proceedings of this case and this resulted in the re-raffling of the Petitions. the running of the one-year period for petitioner Urban Bank to redeem the properties sold at the public auctions held on October 4.220 Urban Bank221 and the De Leon Group222 filed their respective Memoranda. it held in abeyance the resolution of intervenor’s Motion for Reconsideration. and.217 Despite the denial of the Rule 45 Petition in G. intervenor Unimega countered that the right of redemption of the levied properties had already expired without having been exercised by the judgment debtor. the Court shall resolve the substantial issues in the following: (a) the Petition of Peña (G. because the rules of extrajudicial foreclosure were not applicable to execution sales under Rule 39. MSCI explained that since there was no injunction or stay order. however. Only Urban Bank236 opposed the motion237 of intervenor Unimega on the ground that the latter was not a buyer in good faith. considering the conflicting claims of Urban Bank (through EIB) and the winning bidders of the club shares. 224 In reply. Unimega. 2001 as well as the consolidation of the titles in favor of the buyers. appeared and was questioned by the then members of the Court’s First Division.230Interposing its objection. R.

representation, 251 the elements of which include the
following: (a) the relationship is established by the parties’
consent, express or implied; (b) the object is the execution of
a juridical act in relation to a third person; (c) agents act as
representatives and not for themselves; and (d) agents act
within the scope of their authority.252
Whether or not an agency has been created is determined by
the fact that one is representing and acting for another.253 The
law makes no presumption of agency; proving its existence,
nature and extent is incumbent upon the person alleging it.254
With respect to the status of Atty. Peña’s relationship with
Urban Bank, the trial and the appellate courts made
conflicting findings that shall be reconciled by the Court. On
one end, the appellate court made a definitive ruling that no
agency relationship existed at all between Peña and the bank,
despite the services performed by Peña with respect to the
Pasay property purchased by the bank. Although the Court of
Appeals ruled against an award of agent’s compensation, it
still saw fit to award Peña with Ph3,000,000 for expenses
incurred for his efforts in clearing the Pasay property of
tenants.255 On the other extreme, the trial court heavily relied
on the sole telephone conversation between Peña and Urban
Bank’s President to establish that the principal-agent
relationship created between them included an agreement to
pay Peña the huge amount of PhP24,000,000. In its defense,
Urban Bank insisted that Peña was never an agent of the
bank, but an agent of ISCI, since the latter, as seller of the
Pasay property committed to transferring it free from tenants.
Meanwhile, Peña argues on the basis of his successful and
peaceful ejectment of the sub-tenants, who previously
occupied the Pasay property.
Based on the evidence on records and the proceedings below,
the Court concludes that Urban Bank constituted Atty. Peña as
its agent to secure possession of the Pasay property. This
conclusion, however, is not determinative of the basis of the
amount of payment that must be made to him by the bank.
The context in which the agency was created lays the basis
for the amount of compensation Atty. Peña is entitled to.
The transactional history and context of the sale between ISCI
and Urban Bank of the Pasay property, and Atty. Peña’s
participation in the transfer of possession thereof to Urban
Bank provide crucial linkages that establish the nature of the
relationship between the lawyer and the landowner-bank.
The evidence reveals that at the time that the Contract to Sell
was executed on 15 November 1994, and even when the
Deed of Absolute Sale was executed two weeks later on 29
November 1994, as far as Urban Bank was concerned, Peña
was nowhere in the picture. All discussions and
correspondences were between the President and Corporate
Secretary of Urban Bank, on one hand, and the President of
ISCI, on the other. The title to the Pasay property was
transferred to Urban Bank on 5 December 1994. Interestingly,
Peña testifies that it was only on 19 December 1994 that he
learned that the land had already been sold by ISCI to Urban
Bank, notwithstanding the fact that Peña was a director of
ISCI. Peña was not asked to render any service for Urban
Bank, neither did he perform any service for Urban Bank at
that point.
ISCI undertook in the Contract to Sell, to physically deliver the
property to Urban Bank, within 60 days from 29 November
1994,256 under conditions of "full and actual possession and
control ..., free from tenants, occupants, squatters or other
structures or from any liens, encumbrances, easements or any
other obstruction or impediment to the free use and
occupancy by the buyer of the subject Property or its exercise
of the rights to ownership over the subject Property...." 257 To
guarantee this undertaking, ISCI agreed to the escrow
provision where PhP25,000,000 (which is a little over 10% of
the value of the Pasay property) would be withheld by Urban
Bank from the total contract price until there is full
compliance with this undertaking.
Apparently to ensure that ISCI is able to deliver the property
physically clean to Urban Bank, it was ISCI’s president,
Enrique Montilla who directed on 26 November 1994 one of its
directors, Peña, to immediately recover and take possession

of the property upon expiration of the contract of lease on 29
November 1994.258 Peña thus first came into the picture as a
director of ISCI who was constituted as its agent to recover
the Pasay property against the lessee as well as the subtenants who were occupying the property in violation of the
lease agreement.259 He was able to obtain possession of the
property from the lessee on the following day, but the
unauthorized sub-tenants refused to vacate the property.
It was only on 7 December 1994, that Urban Bank was
informed of the services that Peña was rendering for ISCI. The
faxed letter from ISCI’s Marilyn Ong reads:
Atty. Magdaleno M. Peña, who has been assigned by
Isabela Sugar Company, Inc., to take charge of
inspecting the tenants would like to request an authority
similar to this from the Bank, as new owners. Can you please
issue something like this today as he needs this.260
Two days later, on 9 December 1994, ISCI sent Urban Bank
another letter that reads:
Dear Mr. Borlongan, I would like to request for an
authorization from Urban Bank as per attached immediately –
as the tenants are questioning the authority of the
people there who are helping us to take over
possession of the property. (Emphasis supplied)261
It is clear from the above that ISCI was asking Urban Bank for
help to comply with ISCI’s own contractual obligation with the
bank under the terms of the sale of the Pasay property. Urban
Bank could have ignored the request, since it was exclusively
the obligation of ISCI, as the seller, to deliver a clean property
to Urban Bank without any help from the latter.
A full-bodied and confident interpretation of the contracts
between ISCI and Urban Bank should have led the latter to
inform the unauthorized sub-tenants that under its obligation
as seller to Urban Bank, it was under duty and had continuing
authority to recover clean possession of the property, despite
the transfer of title. Yet, what unauthorized sub-tenant,
especially in the kind of operations being conducted within
the Pasay property, would care to listen or even understand
such argument?
Urban Bank thus chose to cooperate with ISCI without
realizing the kind of trouble that it would reap in the process.
In an apparent attempt to allow the efforts of ISCI to secure
the property to succeed, it recognized Peña’s role in helping
ISCI, but stopped short of granting him authority to act on its
behalf. In response to the two written requests of ISCI, Urban
Bank sent this letter to Peña on 15 December 1994:
This is to advise you that we have noted the engagement of
your services by Isabela Sugar Company to recover
possession of the Roxas Boulevard property formerly covered
by TCT No. 5382, effective November 29, 1994. It is
understood that your services have been contracted by
and your principal remains to be the Isabela Sugar
Company, which as seller of the property and under the
terms of our Contract to Sell dated November 29, 1994, has
committed to deliver the full and actual possession of the said
property to the buyer, Urban Bank, within the stipulated
period. 262 (Emphasis supplied)
Up to this point, it is unmistakable that Urban Bank was
staying clear from making any contractual commitment to
Peña and conveyed its sense that whatever responsibilities
arose in retaining Peña were to be shouldered by ISCI.
According to the RTC-Bago City, in the reversed Decision, Atty.
Peña only knew of the sale between ISCI and Urban Bank at
the time the RTC-Pasay City recalled the TRO and issued a
break-open order:
"… when information reached the (Pasay City) judge that the
Pasay property had already been transferred by ISCI to Urban
Bank, the trial court recalled the TRO and issued a break-open
order for the property. According to Peña, it was the first time
that he was apprised of the sale of the land by ISCI and of the
transfer of its title in favor of the bank."263
There is something contradictory between some of the trial
court’s factual findings and Peña’s claim that it was only on 19
December 1994 that he first learned of the sale of the

property to Urban Bank. It is difficult to believe Peña on this
point considering: (1) that he was a board director of ISCI and
a sale of this significant and valuable property of ISCI requires
the approval of the board of directors of ISCI; and (2) that ISCI
twice requested Urban Bank for authority to be issued in his
favor (07 and 9 December 1994), 12 and 10 days before 19
December 1994, since it would be contrary to human
experience for Peña not to have been informed by an officer
of ISCI beforehand that a request for authority for him was
being sent to Urban Bank.
The sequence of fast-moving developments, edged with a
sense of panic, with respect to the decision of the RTC-Pasay
City to recall the temporary restraining order and issue a
break-open order on 19 December 1994 in the First Injunction
Complaint, is highly enlightening to this Court.
First, Peña allegedly called up the president of ISCI, Montilla,
who, according to Peña, confirmed to him that the Pasay
property had indeed been sold to Urban Bank.
Second, Peña allegedly told Montilla that he (Peña) would be
withdrawing his guards from the property because of the
break-open order from the RTC-Pasay City.
Third, Montilla requested Peña to suspend the withdrawal of
the guards while ISCI gets in touch with Urban Bank.
Fourth, apparently in view of Montilla’s efforts, Bejasa, an
officer of Urban Bank called Peña and according to the latter,
told him that Urban Bank would continue retaining his
services and for him to please continue with his effort to
secure the property.
Fifth, this statement of Bejasa was not enough for Peña and he
insisted that he be enabled to talk with no less than the
President of Urban Bank, Borlongan. At this point, Bejasa gave
him the phone number of Borlongan.
Sixth, immediately after the conversation with Bejasa, Peña
calls Borlongan and tells Borlongan that violence might erupt
in the property because the Pasay City policemen, who were
sympathetic to the tenants, were threatening to force their
way through the property.
At this point, if indeed this conversation took place, which
Borlongan contests, what would have been the response of
Borlongan? Any prudent president of a bank, which has just
purchased a PhP240,000,000 property plagued by
unauthorized and unruly sub-tenants of the previous owner,
would have sought to continue the possession of ISCI, thru
Peña, and he would have agreed to the reasonable requests of
Peña. Borlongan could also have said that the problem of
having the sub-tenants ejected is completely ISCI’s and ISCI
should resolve the matter on its own that without bothering
the bank, with all its other problems. But the specter of
violence, especially as night was approaching in a newlybought property of Urban Bank, was not something that any
publicly-listed bank would want publicized. To the extent that
the violence could be prevented by the president of Urban
Bank, it is expected that he would opt to have it prevented.
But could such response embrace the following legal
consequences as Peña claims to have arisen from the
telephone conversation with Borlongan: (1) A contract of
agency was created between Peña and Urban Bank whereby
Borlongan agreed to retain the services of Peña directly; (2)
This contract of agency was to be embodied in a written letter
of authority from Urban Bank; and (3) The agency fee of Peña
was to be 10% of the market value as "attorney’s fees and
compensation" and reimbursement of all expenses of Peña
from the time he took over the land until possession is turned
over to Urban Bank.
This Court concludes that the legal consequences described in
statements (1) and (2) above indeed took place and that the
facts support them. However, the evidence does not support
Peña’s claim that Urban Bank agreed to "attorney’s fees and
compensation" of 10% of the market value of the property.
Urban Bank’s letter dated 19 December 1994 confirmed in no
uncertain terms Peña’s designation as its authorized
representative to secure and maintain possession of the Pasay
property against the tenants. Under the terms of the letter,
petitioner-respondent bank confirmed his engagement (a) "to

hold and maintain possession" of the Pasay property; (b) "to
protect the same from former tenants, occupants or any other
person who are threatening to return to the said property
and/or interfere with your possession of the said property for
and in our behalf"; and (c) to represent the bank in any
instituted court action intended to prevent any intruder from
entering or staying in the premises.264
These three express directives of petitioner-respondent bank’s
letter admits of no other construction than that a specific and
special authority was given to Peña to act on behalf of the
bank with respect to the latter’s claims of ownership over the
property against the tenants. Having stipulated on the due
execution and genuineness of the letter during pretrial,265 the
bank is bound by the terms thereof and is subject to the
necessary consequences of Peña’s reliance thereon. No
amount of denial can overcome the presumption that we give
this letter – that it means what it says.
In any case, the subsequent actions of Urban Bank resulted in
the ratification of Peña’s authority as an agent acting on its
behalf with respect to the Pasay property. By ratification, even
an unauthorized act of an agent becomes an authorized act of
the principal.266
Both sides readily admit that it was Peña who was responsible
for clearing the property of the tenants and other occupants,
and who turned over possession of the Pasay property to
petitioner-respondent bank.267 When the latter received full
and actual possession of the property from him, it did not
protest or refute his authority as an agent to do so. Neither
did Urban Bank contest Peña’s occupation of the premises, or
his installation of security guards at the site, starting from the
expiry of the lease until the property was turned over to the
bank, by which time it had already been vested with
ownership thereof. Furthermore, when Peña filed the Second
Injunction Complaint in the RTC-Makati City under the name of
petitioner-respondent bank, the latter did not interpose any
objection or move to dismiss the complaint on the basis of his
lack of authority to represent its interest as the owner of the
property. When he successfully negotiated with the tenants
regarding their departure from its Pasay property, still no
protest was heard from it. After possession was turned over to
the bank, the tenants accepted PhP1,500,000 from Peña, in
"full and final settlement" of their claims against Urban Bank,
and not against ISCI.268
In all these instances, petitioner-respondent bank did not
repudiate the actions of Peña, even if it was fully aware of his
representations to third parties on its behalf as owner of the
Pasay property. Its tacit acquiescence to his dealings with
respect to the Pasay property and the tenants spoke of its
intent to ratify his actions, as if these were its own. Even
assuming arguendo that it issued no written authority, and
that the oral contract was not substantially established, the
bank duly ratified his acts as its agent by its acquiescence and
acceptance of the benefits, namely, the peaceful turnover of
possession of the property free from sub-tenants.
Even if, however, Peña was constituted as the agent of Urban
Bank, it does not necessarily preclude that a third party would
be liable for the payment of the agency fee of Peña. Nor does
it preclude the legal fact that Peña while an agent of Urban
Bank, was also an agent of ISCI, and that his agency from the
latter never terminated. This is because the authority given to
Peña by both ISCI and Urban Bank was common – to secure
the clean possession of the property so that it may be turned
over to Urban Bank. This is an ordinary legal phenomenon –
that an agent would be an agent for the purpose of pursuing a
shared goal so that the common objective of a transferor and
a new transferee would be met.
Indeed, the Civil Code expressly acknowledged instances
when two or more principals have granted a power of attorney
to an agent for a common transaction.269 The agency
relationship between an agent and two principals may even
be considered extinguished if the object or the purpose of the
agency is accomplished.270 In this case, Peña’s services as an
agent of both ISCI and Urban Bank were engaged for one
shared purpose or transaction, which was to deliver the
property free from unauthorized sub-tenants to the new owner

– a task that Peña was able to achieve and is entitled to
receive payment for.
That the agency between ISCI and Peña continued, that ISCI is
to shoulder the agency fee and reimbursement for costs of
Peña, and that Urban Bank never agreed to pay him a 10%
agency fee is established and supported by the following:
First, the initial agency relationship between ISCI and Peña
persisted. No proof was ever offered that the letter of 26
November 1994 of Mr. Montilla of ISCI to Peña, for the latter
"to immediately recover and take possession of the property
upon expiration of the contract of lease on 29 November
1994" was terminated. It is axiomatic that the appointment of
a new agent for the same business or transaction revokes the
previous agency from the day on which notice thereof was
given to the former agent.271 If it is true that the agency
relationship was to be borne by Urban Bank alone, Peña
should have demonstrated that his previous agency
relationship with ISCI is incompatible with his new relationship
with Urban Bank, and was thus terminated.
Second, instead, what is on the record is that ISCI confirmed
the continuation of this agency between Peña and itself and
committed to pay for the services of Peña, in its letter to
Urban Bank dated 19 December 1994 which reads:
In line with our warranties as the Seller of the said property
and our undertaking to deliver to you the full and actual
possession and control of said property, free from tenants,
occupants or squatters and from any obstruction or
impediment to the free use and occupancy of the property by
Urban Bank, we have engaged the services of Atty. Magdaleno
M. Peña to hold and maintain possession of the property and
to prevent the former tenants or occupants from entering or
returning to the premises. In view of the transfer of the
ownership of the property to Urban Bank, it may be necessary
for Urban Bank to appoint Atty. Peña likewise as its authorized
representative for purposes of holding/maintaining continued
possession of the said property and to represent Urban Bank
in any court action that may be instituted for the
abovementioned purposes.
It is understood that any attorney’s fees, cost of litigation and
any other charges or expenses that may be incurred relative
to the exercise by Atty. Peña of his abovementioned duties
shall be for the account of Isabela Sugar Company and any
loss or damage that may be incurred to third parties shall be
answerable by Isabela Sugar Company.272 (Emphasis supplied)
Third, Peña has never shown any written confirmation of his
10% agency fee, whether in a note, letter, memorandum or
board resolution of Urban Bank. An agency fee amounting to
PhP24,000,000 is not a trifling amount, and corporations do
not grant their presidents unilateral authority to bind the
corporation to such an amount, especially not a banking
corporation which is closely supervised by the BSP for being a
business seriously imbued with public interest. There is
nothing on record except the self-serving testimony of Peña
that Borlongan agreed to pay him this amount in the
controverted telephone conversation.
Fourth, while ordinarily, uncontradicted testimony will be
accorded its full weight, we cannot grant full probative value
to the testimony of Peña for the following reasons: (a) Peña is
not a credible witness for testifying that he only learned of the
sale of the property of 19 December 1994 when the acts of
ISCI, of Urban Bank and his own up to that point all indicated
that he must have known about the sale to Urban Bank; and
(b) it is incredible that Urban Bank will agree to add another
PhP24,000,000 to the cost of the property by agreeing to the
agency fee demanded by Peña. No prudent and reasonable
person would agree to expose his corporation to a new
liability of PhP24,000,000 even if, in this case, a refusal would
lead to the Pasay City policemen and unauthorized subtenants entering the guarded property and would possibly
erupt in violence.
Peña’s account of an oral agreement with Urban Bank for the
payment of PhP24,000,000 is just too much for any court to
believe. Whatever may be the agreement between Peña and
ISCI for compensation is not before this Court. This is not to

say, however, that Urban Bank has no liability to Peña. It has.
Payment to him is required because the Civil Code demands
that no one should be unjustly enriched at the expense of
another. This payment is to be measured by the standards of
quantum meruit.
Amount of Compensation
Agency is presumed to be for compensation. But because in
this case we find no evidence that Urban Bank agreed to pay
Peña a specific amount or percentage of amount for his
services, we turn to the principle against unjust enrichment
and on the basis of quantum meruit.
Since there was no written agreement with respect to the
compensation due and owed to Atty. Peña under the letter
dated 19 December 1994, the Court will resort to determining
the amount based on the well-established rules on quantum
meruit.
Agency is presumed to be for compensation. 273 Unless the
contrary intent is shown, a person who acts as an agent does
so with the expectation of payment according to the
agreement and to the services rendered or results
effected.274 We find that the agency of Peña comprised of
services ordinarily performed by a lawyer who is tasked with
the job of ensuring clean possession by the owner of a
property. We thus measure what he is entitled to for the legal
services rendered.
A stipulation on a lawyer’s compensation in a written contract
for professional services ordinarily controls the amount of fees
that the contracting lawyer may be allowed to collect, unless
the court finds the amount to be unconscionable. 275 In the
absence of a written contract for professional services, the
attorney’s fees are fixed on the basis of quantum
meruit,276 i.e., the reasonable worth of the attorney’s
services.277 When an agent performs services for a principal at
the latter’s request, the law will normally imply a promise on
the part of the principal to pay for the reasonable worth of
those services.278 The intent of a principal to compensate the
agent for services performed on behalf of the former will be
inferred from the principal’s request for the agents. 279
In this instance, no extra-ordinary skills employing advanced
legal training nor sophisticated legal maneuvering were
required to be employed in ejecting 23 sub-tenants who have
no lease contract with the property owner, and whose only
authority to enter the premises was unlawfully given by a
former tenant whose own tenancy has clearly expired. The 23
sub-tenants operated beer houses and nightclubs, ordinary
retail establishments for which no sophisticated structure
prevented easy entry. After Peña succeeded in locking the
gate of the compound, the sub-tenants would open the
padlock and resume their businesses at night. Indeed, it
appears that only security guards, chains and padlocks were
needed to keep them out. It was only the alleged connivance
of Pasay City policemen that Peña’s ability to retain the
possession was rendered insecure. And how much did it take
Peña to enter into a settlement agreement with them and
make all these problems go away? By Peña’s own account,
PhP1,500,000 only. That means that each tenant received an
average of PhP65,217.40 only. Surely, the legal services of
Peña cannot be much more than what the sub-tenants were
willing to settle for in the first place. We therefore award him
the equivalent amount of PhP1,500,000 for the legal and
other related services he rendered to eject the illegally
staying tenants of Urban Bank’s property.
The Court of Appeals correctly reversed the trial court and
found it to have acted with grave abuse of discretion in
granting astounding monetary awards amounting to a total of
PhP28,500,000 without any basis.280 For the lower court to
have latched on to the self-serving claims of a telephone
agreement as sufficient support for extending a multi-million
peso award is highly irregular. Absent any clear basis for the
amount of the lawyer’s compensation, the trial court should
have instinctively resorted to quantum meruit, instead of
insisting on a figure with circumstantial and spurious
justification.

We cannot also agree with the Decision penned by Judge
Edgardo L. Catilo characterizing Pena’s 10% fee as believable
because it is nearly congruent to the PhP25 Million retention
money held in escrow for ISCI until a clean physical and legal
turn-over of the property is effected:
We now come to the reasonableness of the compensation
prayed for by the plaintiff which is 10% of the current market
value which defendants claim to be preposterous and
glaringly excessive. Plaintiff [Peña] testified that defendant
Borlongan agreed to such an amount and this has not been
denied by Ted Borlongan. The term "current market value of
the property" is hereby interpreted by the court to mean the
current market value of the property at the time the contract
was entered into. To interpret it in accordance with the
submission of the plaintiff that it is the current market value of
the property at the time payment is made would be
preposterous. The only evidence on record where the court
can determine the market value of the property at the time
the contract of agency was entered into between plaintiff and
defendant is the consideration stated in the sales agreement
between Isabela Sugar Company, Inc. and Urban bank which
is P241,612,000.00. Ten percent of this amount is a
reasonable compensation of the services rendered by the
plaintiff considering the "no cure, no pay" arrangement
between the parties and the risks which plaintiff had to
undertake.281
In the first place, the Decision of Judge Catilo makes Peña’s
demand of an agency fee of PhP24 Million, an additional
burden on Urban Bank. The Decision does not make the
retention money responsible for the same, or acquit Urban
Bank of any liability to ISCI if it pays the PhP24 Million directly
to Pena instead of ISCI. In the second place, the amount of
money that is retained by transferees of property transactions
while the transferor is undertaking acts to ensure a clean and
peaceful transfer to the transferee does not normally
approximate a one-to-one relationship to the services of
ejecting unwanted occupants. They may be inclusive of other
costs, and not only legal costs, with enough allowances for
contingencies, and may take into consideration other
liabilities as well. The amount can even be entirely arbitrary,
and may have been caused by the practice followed by Urban
Bank as advised by its officers and lawyers or by industry
practice in cases where an expensive property has some
tenancy problems. In other words, Judge Catilo’s statement is
a non sequitur, is contrary to normal human experience, and
sounds like an argument being made to fit Peña’s demand for
a shocking pay-out.
In any case, 10% of the purchase price of the Pasay property –
a staggering PhP24,161,200 – is an unconscionable amount,
which we find reason to reduce. Neither will the Court accede
to the settlement offer of Peña to Urban Bank of at least
PhP38,000,000 for alleged legal expenses incurred during the
course of the proceedings,282 an amount that he has not
substantiated at any time.
Lawyering is not a business; it is a profession in which duty to
public service, not money, is the primary consideration. 283 The
principle of quantum meruit applies if lawyers are employed
without a price agreed upon for their services, in which case
they would be entitled to receive what they merit for their
services, or as much as they have earned.284 In fixing a
reasonable compensation for the services rendered by a
lawyer on the basis of quantum meruit, one may consider
factors such as the time spent and extent of services
rendered; novelty and difficulty of the questions involved;
importance of the subject matter; skill demanded; probability
of losing other employment as a result of acceptance of the
proffered case; customary charges for similar services;
amount involved in the controversy and the resulting benefits
for the client; certainty of compensation; character of
employment; and professional standing of the lawyer. 285
Hence, the Court affirms the appellate court’s award of
PhP3,000,000 to Peña, for expenses incurred corresponding to
the performance of his services. An additional award of
PhP1,500,000 is granted to him for the services he performed

as a lawyer in securing the rights of Urban Bank as owner of
the Pasay property.
II
The corporate officers and directors of Urban Bank are not
solidarily or personally liable with their properties for the
corporate liability of Urban Bank to Atty. Peña.
The obligation to pay Peña’s compensation, however, falls
solely on Urban Bank. Absent any proof that individual
petitioners as bank officers acted in bad faith or with gross
negligence or assented to a patently unlawful act, they cannot
be held solidarily liable together with the corporation for
services performed by the latter’s agent to secure possession
of the Pasay property. Thus, the trial court had indeed
committed grave abuse of discretion when it issued a ruling
against the eight individual defendant bank directors and
officers and its Decision should be absolutely reversed and set
aside.
A corporation, as a juridical entity, may act only through its
directors, officers and employees.286 Obligations incurred as a
result of the acts of the directors and officers as corporate
agents are not their personal liabilities but those of the
corporation they represent.287 To hold a director or an officer
personally liable for corporate obligations, two requisites must
concur: (1) the complainant must allege in the complaint that
the director or officer assented to patently unlawful acts of the
corporation, or that the officer was guilty of gross negligence
or bad faith; and (2) the complainant must clearly and
convincingly prove such unlawful acts, negligence or bad
faith.288 "To hold a director, a trustee or an officer personally
liable for the debts of the corporation and, thus, pierce the
veil of corporate fiction, bad faith or gross negligence by the
director, trustee or officer in directing the corporate affairs
must be established clearly and convincingly."289
Peña failed to allege and convincingly show that individual
defendant bank directors and officers assented to patently
unlawful acts of the bank, or that they were guilty of gross
negligence or bad faith. Contrary to his claim, the
Complaint290 in the lower court never alleged that individual
defendants acquiesced to an unlawful act or were grossly
negligent or acted in bad faith.291 Neither is there any specific
allegation of gross negligence or action in bad faith that is
attributable to the individual defendants in performance of
their official duties.
In any event, Peña did not adduce any proof that the eight
individual defendants performed unlawful acts or were grossly
negligent or in bad faith. Aside from the general allegation
that they were corporate officers or members of the board of
directors of Urban Bank, no specific acts were alleged and
proved to warrant a finding of solidary liability. At most,
petitioners Borlongan, Bejasa and Manuel were identified as
those who had processed the agency agreement with Peña
through their telephone conversations with him and/or written
authorization letter.
Aside from Borlongan, Bejasa and Manuel, Atty. Peña in the
complaint pointed to no specific act or circumstance to justify
the inclusion of Delfin C. Gonzalez, Jr., Benjamin L. de Leon, P.
Siervo H. Dizon, Eric L. Lee, and Ben T. Lim, Jr., except for the
fact that they were members of the Board of Directors of
Urban Bank at that time. That the five other members of the
Board of Directors were excluded from Peña’s complaint
highlights the peculiarity of their inclusion. What is more, the
complaint mistakenly included Ben Y. Lim, Jr., who had not
even been a member of the Board of Directors of Urban Bank.
In any case, his father and namesake, Ben T. Lim, Sr., who had
been a director of the bank at that time, had already passed
away in 1997.
In ruling for the solidary liability of the other bank directors,
the decision of the trial court hinged solely on the purported
admission of Arturo Manuel, Jr., that the transactions with Atty.
Peña were approved by the Board of Directors:
In this case, plaintiff testified as to the personal participation
of defendants Ted Borlongan and Corazon Bejasa in the
subject transaction. On the other hand, with respect to the
other defendants, it was the defendants themselves, through

Peña of a telephone conversation. Jr. since they failed to argue for limited corporate liability.309 Hence. Considering the unconscionable award given by the trial court and the unjustified imposition of solidary liability against the eight bank officers. the validity of the execution pending appeal will ultimately hinge on the court’s findings with respect to the decision in which the execution is based. III Considering the absolute nullification of the trial court’s Decision. Thus. and (2) The Special Order authorizing execution pending appeal based on the collection suit filed against Atty. all its issuances pursuant to the Decision. expeditiously issued a Writ of Execution on the same day. who was demanding payment of a PhP3. Consequently. Hence. the proceedings arising from the execution pending appeal based on the said Decision is likewise completely vacated. It seems absurd that the trial court will hold the impleaded selected members of the Board of Directors only. Hence. This is too basic a requirement that this Court must demand sufficient proof before we can disregard the separate legal personality of the corporation from its offices. the Special Order and its concomitant Writ of Execution pending appeal is likewise annulled and is also without effect.305 The trial court’s Special Order and Writ of Execution were the subjects of a Rule 65 Petition filed by Urban Bank with the CA. Josephine Mutia-Hagad. the nullification or complete reversal of the said award necessarily translates to the vacation as well of the processes arising therefrom. Neither is the reason behind the finding of "solidariness" with Urban Bank in such liability explained at all. Urban Bank countered that the collection case was not a sufficient reason for allowing execution pending appeal. or that they were guilty of gross negligence or bad faith. Since the Decision of the RTC-Bago City is vacated. not individual defendants. Peña had no basis under the Rules of Court. He cannot capitalize on their alleged failure to offer a defense. the court has sufficient basis to hold the directors jointly and severally liable with defendant Urban Bank. especially in instances where as in this case. This Court cannot sustain the individual liabilities of the bank officers when Peña.306 Both the Special Order and Writ of Execution are nullified for two reasons: (1) Since the Decision of the RTC-Bago City is completely vacated. with the concomitant duty of restitution under the Rules of Court.303 issued a Special Order authorizing execution pending appeal on the basis of Peña’s indebtedness to his creditor-friend.310 Precisely. . prior to the filing of Urban Bank of its notice of appeal in the main case.witness Arturo Manuel. the outcome of the main case will greatly impact the execution pending appeal. when he had not discharged his responsibility of establishing their personal liabilities in the first place. The trial court erroneously made solidarily liable Urban Bank’s directors and officers without even any allegations. only Urban Bank. without even considering the surrounding circumstances and the sheer disproportion to the legal services rendered to the bank. is liable to pay Peña’s compensation for services he rendered in securing possession of the Pasay property. the Court is vacating the Decision of the RTC-Bago City Decision. We cannot allow the same. the Rules of Court expressly provide for the possibility of reversal.000 on the basis of the mere account of Atty.296 Peña moved on 07 June 1999 for execution pending appeal297 of the Decision. he had used the proceeds of the loan for securing the bank’s Pasay property. His complaint merely asserts that defendant Borlongan and Atty. Although discretionary execution can proceed independently while the appeal on the merits is pending. the execution pending appeal does not bar the continuance of the appeal on the merits.307 In contemplation of law. and the same infirmity thus afflicts the Writ of Execution issued pursuant thereto. This he failed to do. of any acts of bad faith.500. Trocino. As the complainant on the trial court level. Thus. The Court of Appeals correctly rejected the claim of personal liability against the individual petitioners when it held as follows: The plaintiff-appellee’s complaint before the court a quo does not point to any particular act of either one or all of the defendants-appellants that will subject them to personal liability.000. there is a complete reversal of the trial court’s decision. much less proof. has not persuasively demonstrated their assent to patently unlawful acts of the bank. but not the others who also purportedly approved the transactions. garnishment and sales executed pending appeal are declared null and void. including all the proceedings for the execution pending appeal. In fact. Inc. It is void for completely being devoid of facts and the law on which the finding of liability is based.500.300 According to him.000 loan. the clerk of court and ex officio sheriff.. complete or partial.292 (Emphasis supplied) The Decision of the RTC-Bago City must be utterly rejected on this point because its conclusion of any cause of action.308Quod nullum est.000 in compensation and damages.311 Considering that the Decision of the RTC-Bago City has been completely vacated and declared null and void. In addition.301 In opposition to the motion. A void judgment never acquires finality. of a final judgment which has been executed on appeal.500. at the onset. that void decision is deemed non-existent. That they assented to the transactions of the bank with respect to Atty.304 In accordance with this Special Order. nullum producit effectum. Peña’s services without any showing that these corporate actions were patently unlawful or that the officers were guilty of gross negligence or bad faith is insufficient to hold them solidarily liable with Urban Bank. without prejudice to its possible claim against ISCI for reimbursement under their separate agreements. Peña carried the burden of proving that the eight individual defendants performed specific acts that would make them personally liable for the obligations of the corporation. Its liability in this case is.302 Favorably acting on Peña’s motion.298 which had awarded him a total of PhP28. 293 Peña had argued that individual defendant bank directors and officers should be held personally and solidarily liable with petitioner-respondent bank.000. who admitted that all the transactions involved in this case were approved by the board of directors. through Judge Henry J. Bejasa acted for and in behalf of Urban Bank in securing his services in protecting the bank’s newly acquired property.500. for the Rules of Court explicitly provide for restitution according to equity and justice in case the executed judgment is reversed on appeal. Since the trial court’s main Decision awarding PhP28. Peña cited no other reason than the pending separate civil action for collection filed against him by a creditor. all levies. as will be discussed later on. negligence or malice in the performance of their duties. To recall.000 in favor of Peña has been nullified above. regardless of the weaknesses of the defenses raised. Considering that the Special Order and Writ of Execution was a result of the trial court’s earlier award of PhP28. the execution pending appeal attendant thereto.295 The Court is not persuaded. including the Special Order and the Writ of Execution are likewise vacated.299 In supporting his prayer for discretionary execution. the RTC-Bago City. if the decision on the merits is completely nullified. no longer has any leg to stand on and is thus completely vacated. it produces no effect whatsoever. Atty. then the concomitant execution pending appeal is likewise without any effect. all orders and writs pursuant thereto are likewise vacated. as a result.294 The trial court subscribed to his reasoning and held that the failure to resort to the said defense constituted a waiver on the part of individual defendants. Thus. much less actual legal liability on the part of Urban Bank’s corporate officers and directors are shorn of any factual finding. the trial court mistakenly anchored its astounding award of damages amounting PhP28. however.

. Even the danger of extinction of the corporation will not per se justify a discretionary execution unless there are showings of other good reasons. in resolving a motion for execution pending appeal. instead of an instrument of solicitude and justice. The yardstick remains the presence or the absence of good reasons consisting of exceptional circumstances of such urgency as to outweigh the injury or damage that the losing party may suffer. other than extraordinary execution. the presence or the absence of good reasons remains the yardstick in allowing the remedy of execution pending appeal. defendants claim that plaintiff’s indebtedness is a ruse. construction of the [respondent's] buildings.000: It has been established that the plaintiff secured the loan for the purpose of using the money to comply with the mandate of defendant bank to hold and maintain possession of the parcel of land in Pasay City and to prevent intruders and former tenants from occupying the said property. the defendants. This amount. Other than said Solidbank case. Had he been paid by defendant bank soon after he had fulfilled his obligation. Only an appellate court can appreciate the dilatory intent of an appeal as an additional good reason in upholding an order for execution pending appeal which may have been issued by the trial court for other good reasons.313 Thus. we hold that it is not tantamount nor even similar to an impending death of a natural person. the trial court’s grant of execution pending appeal lacks sufficient basis under the law and jurisprudence. failed to perform their obligation to the plaintiff. it is not within competence of the trial court. While plaintiff has complied with the undertaking. (Emphasis supplied) In this case. alternative remedies like loans. advances. Even assuming that it was indeed in financial distress and on the verge of facing civil or even criminal suits. petitioner failed to show "paramount and compelling reasons of urgency and justice. however. The financial distress of a juridical entity is not comparable to a case involving a natural person — such as a very old and sickly one without any means of livelihood. It ruled that the financial distress of the prevailing party in a final judgment which was still pending appeal may not be likened to the situation of a natural person who is ill. The plaintiff stands to suffer greatly if the collection case against him is not addressed.000. internal cash generation and the like to address its precarious financial condition. Indeed. the Court must stress that the execution of a judgment before its finality must be founded upon good reasons. or one who dies. Hence. plaintiff’s total obligation with Roberto Ignacio as of May 1999 is PhP24. The other cases are "impending"." Petitioner's allegedly precarious financial condition. Lesser reasons would make of execution pending appeal. it was noted in Aquino vs. "Good reasons. or in cases where the motion for execution pending appeal is filed with the appellate court in accordance with Section 2. should the appealed judgment be reversed later.314 the Court denied execution pending appeal to a juridical entity which allegedly was in financial distress and was facing civil and criminal suits with respect to the collection of a sum of money." it has been held. Paramount Insurance. . What is worse." Petitioner cites as good reason merely the fact that "it is a small-time building contractor that could ill-afford the protracted delay in the reimbursement of the advances it made for the aforesaid increased costs of . when a judgment has become final and executory: As such exception. the plaintiff accomplished his mission in clearing the property of tenants. the trial court supported its discretionary grant of execution based on the alleged collection suit filed against Peña by his creditor friend for PhP3. Falcon’s survival as a body corporate cannot be threatened by anticipated litigation. to rule that the appeal is patently dilatory and rely on the same as its basis for finding good reason to grant the motion.00. But even as to the latter reason. Certainly. intruders and squatters. Good reason imports a superior circumstance that will outweigh injury or damage to the adverse party. the immediate execution of a judgment in its favor pending appeal cannot be justified as Falcon’s situation may not be likened to a case of a natural person who may be ill or may be of advanced age. only one case was actually filed against Falcon and this is the complaint for collection filed by Solidbank. The plaintiff was assured by no less than the President of defendant bank of the availability of funds for his compensation and reimbursement of his expenses. of advanced age or dying as to justify execution pending appeal: It is significant to stress that private respondent Falcon is a juridical entity and not a natural person. Firstly. outweighing the injury or damages that might result should the losing party secure a reversal of the judgment. abscond or evade a just debt. consist of compelling circumstances that justify immediate execution lest the judgment becomes illusory. such as for instance.000. so it is said.192. The material existence of a juridical person is not on the same plane as that of human life. a tool of oppression and inequity. paragraph (a). It requires proof of circumstances such as insolvency or attempts to escape. Secondly. (Emphasis supplied) In Philippine Bank of Communications v. will continue to increase due to interest charges being imposed by the creditor to the prejudice of plaintiff. (Emphasis supplied) Indeed. This notwithstanding. that it is not for the trial judge to determine the merit of a decision he rendered as this is the role of the appellate court. is not by itself a jurisprudentially compelling circumstance warranting immediate execution. should the appealed judgment be reversed later. Execution pending appeal is an extraordinary remedy allowed only when there are reasons to believe that the judgment debtor will not be able to satisfy the judgment debt if the appeals process will still have to be awaited. In their opposition. impending insolvency of the adverse party or the appeal being patently dilatory. a preliminary attachment has already been issued and this would restrict the plaintiff from freely exercising his rights over his property during the pendency of the case. The circumstances must be superior. We rule that the pendency of a collection suit by a third party creditor which credit was obtained by the winning judgment creditor in another case. 315 . The court finds that the pendency of the case for collection of money against plaintiff is a good reason for immediate execution. In the case at bar. however. is not a sufficiently good reason to allow execution pending appeal as the Rules of Court provide. however. Court of Appeals. Rule 39 of the 1997 Rules of Court.In any case. In Florendo v. The purpose of the loan was very specific and the same was made known to defendant bank through defendant Teodoro Borlongan. a juridical entity like petitioner corporation has. Santiago (161 SCRA 570 [1988]). . and even assuming that there was a serious threat to Falcon’s continued corporate existence. he could have settled his loan obligation with his creditor. which should consist of exceptional circumstances of such urgency as to outweigh the injury or damage that the losing party may suffer. as shown in Exhibit "C". the Court held that even the financial distress of the prevailing company is not sufficient reason to call for execution pending appeal: In addressing this issue. The loan was not secured for some other purpose. if left unpaid. an heir seeking an order for support and monthly allowance for subsistence. the court’s discretion in allowing it must be strictly construed and firmly grounded on the existence of good reasons. Defendants were benefitted by the services rendered by the plaintiff.312 the Court explained that the execution pending appeal is an exception to the general rule that execution issues as a matter of right. Truth to tell. long before the deadline given him by the defendant bank. defendants failed to adduce evidence to support its claim. the alleged financial distress of a corporation does not outweigh the long standing general policy of enforcing only final and executory judgments. Corp. The survival of a juridical personality is clearly outweighed by the long standing general policy of enforcing only final and executory judgments.

192. 319 Hence. the Court of Appeals noted Atty. We are constrained to rule otherwise in this particular case. the case of Philippine National Bank v. Trocino. the insolvency of a co-defendant is not a good reason to justify execution pending appeal if their liability under the judgment is either subsidiary or solidary. this Court ruled that since there was another party who was solidarily liable to pay for the judgment debt. otherwise to await a final and executory judgment may not only diminish but may nullify all chances for recovery on execution from said judgment debtor.500. is likewise erroneous.. Thus.000. its co-defendant PNB is not. Considering that only Urban Bank.500. therefore. there was no good reason for the Court of Appeals to immediately order execution pending appeal. the liability of PNB is either subsidiary or solidary.5 Million judgment notwithstanding the appeal. Columbus Food. The Decision of the Court of Appeals in the case docketed as CA-G.316 As quoted above. as a "good reason" to routinely avail of the remedy of discretionary execution. when there are two or more defendants and one is not insolvent. the trial court noted Atty. insolvent or there were several such parties but all were insolvent..The mere fact that Atty. In this case.321 Urban Bank was even given a Solvency. when the Promissory Notes provided for a penalty of 5% interest per month or 60% per annum for delay in the payment.500. to rule that a pending collection suit against Atty. Inc. Inc.. i. since the liability for the award to Peña was made (albeit. the PhP28. was later on considered by the Court of Appeals to have been "in danger of insolvency. as in fact. Affirming the reversal ordered by the Court of Appeals. be plausibly assumed that the judgment might become illusory. Inc. . would be to encourage judgment creditors to indirectly and indiscriminately instigate collection suits or cite pending actions.317 It seems absurd that Atty. (Flexo Manufacturing) for the principal obligation of PhP2.00. The lower court also granted execution pending appeal on the basis of the insolvency of Columbus Food. In fact. Inc.318 It sounds more like a creative justification of the immediate execution of the PhP28. Peña was already subjected to a collection suit for payment of the loan proceeds he used to perform his services for Urban Bank is not an acceptable reason to order the execution pending appeal against the bank. no allegation of impending insolvency or attempt to abscond was ever raised by Atty. Peña’s total obligation to his creditor-friend as of May 1999 was already the incredible amount of PhP24. which has not been shown to result in his insolvency. a sum that was only 1% of its net worth. as it did in this case.320 As an exception to the general rule on execution after final and executory judgment. Atty. aside from the insolvent Columbus Food. and Pacific Meat Company. In initially denying the execution pending appeal.. Trocino.000 award. There was no reason then to believe that Urban Bank could not satisfy a judgment of PhP28. Hence. which spawned the collection suit included only a prayer for payment of PhP3.500. it was a mistake for the Court of Appeals to have affirmed execution pending appeal based solely on the receivership of Urban Bank.89 over 100 by no less than the BSP322 and reportedly had liquid assets amounting to PhP2.878. Peña for the payment of the PhP28. even if Pacific Meat was not found to be insolvent. the trial court in this case found Urban Bank and all eight individual bank officers solidarily liable to Atty. In Flexo Manufacturing Corp. mistakenly) solidarily liable together with the bank officers. Its insolvency does not amount to a good reason to grant execution pending appeal. Peña. the appellate court held that: On the other hand. there was either only one defeated party or judgment debtor who was. related or not. That Peña would made liable in the collection suit filed by his creditorfriend would not reasonably result in rendering illusory the final judgment in the instant action for agent’s compensation. since Atty. 323 In fact. if MMIC cannot satisfy the judgment. the receivership of Urban Bank. it follows that any affirmance of the same by the Court of Appeals is likewise void. (Emphasis supplied) Similarly. Peña to justify execution pending appeal must be strictly construed. the latter is not the only party that may be answerable to Flexo. PNB will answer for it.957.270.. especially when the de Leon Group filed its supersedeas bond.000 award given by the trial court was overturned by the appellate court and eventually by this Court. Pacific was adjudged to be solidarily liable with Columbus." is not sufficient reason to allow execution pending appeal.933. notwithstanding this Court’s ruling in Lee v. Inc. Urban Bank had assets worth more than PhP11 Billion and had a net worth of more than PhP2 Billion. In the case at bar. Urban Bank even asserts that the collection suit filed against Peña was a mere ruse to provide justification for the execution pending appeal. the reasons offered by Atty. finding a new reason for granting execution pending appeal.000 with attorney’s fees of PhP100. Thus. however. assuming MMIC is insolvent.630. Peña would agree to obtaining a loan from his own friend.. Puno. who were solidarily liable but were not shown to have been insolvent.326 both Columbus Food. Neither will the Court accept the trial court’s unfounded assumption that Urban Bank’s appeal was merely dilatory.00. Peña’s purported difficulty in paying the loan proceeds used to perform his services does not outweigh the injury or damages that might result should Urban Bank obtain a reversal of the judgment.000. Peña’s admission of sufficient properties to answer for any liability arising from the collection suit arising from his creditor-friend. It will be observed that. it is undisputed that. and 1/5 of 1% of its total assets of PhP11. under the dispositive portion of the judgment hereinbefore quoted. and not the other eight individual defendants. Since the original order granting execution pending appeal was completely void for containing no justifiable reason. when there were eight other individual defendants. no matter how flimsy. Financial distress arising from a lone collection suit and not due to the advanced age of the party is not an urgent or compelling reason that would justify the immediate levy on the properties of Urban Bank pending appeal.000. In the aforecited cases.324 In accordance with the subsequent Resolution of the Court in abovementioned case of Lee v.383.325 we directly resolve the issue of the insufficiency of the reasons that led to the grant of execution pending appeal. Peña and yet. there was no good reason to allow the execution pending appeal: Regarding the state of insolvency of Columbus.R. at the time the Special Order of Judge Henry Trociño of the RTC-Bago City came out in 1999. (Pacific Meat) were found by the trial court therein to be solidarily liable to Flexo Manufacturing. Since Urban Bank’s co-defendants were not found to have been insolvent. It cannot. Liquidity and Management Rating of 82. private respondent’s claim that the only way he could pay his indebtedness to Roberto Ignacio is through the money that he expects to receive from petitioners in payment of his services is belied by his testimony at the hearing conducted by the trial court on the motion for execution pending appeal wherein petitioners were able to secure an admission from him that he has some assets which could be attached by Roberto Ignacio and that he would probably have other assets left even after the attachment. (Columbus Food) and Pacific Meat Company. Therefore. had the judgment been upheld on appeal. Peña could have demanded payment from any of the nine defendants. 55667. v. held: "While this Court in several cases has held that insolvency of the judgment debtor or imminent danger thereof is a good reason for discretionary execution. the trial court granted execution pending appeal.036. even when the Complaint dated 03 April 1999 itself. Peña’s award could have been satisfied by the eight other defendants. hence the aforesaid rationale for discretionary execution was present. In cases where the two or more defendants are made subsidiarily or solidarily liable by the final judgment of the trial court. Moreover.e. discretionary execution can be allowed if all the defendants have been found to be insolvent. SP No.

Urban Bank and the eight other individual bank officers." These reasons must consist of compelling or superior circumstances demanding urgency which will outweigh the injury or damages suffered.335 which can answer for the judgment debt.882. it was supremely disconcerting how Urban Bank. we find it necessary to rule categorically on this question because of the magnitude of the aberrations that attended the execution pending appeal in the Decision of the RTC-Bago City. from what is on record.925 and were sufficient to satisfy the judgment debt. After the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations. a lot in Tagaytay City. demanding interim execution of Peña’s claims for compensation and/or damages.327 In the Minute Resolution of the Monetary Board of the BSP. Under Section 30 of Republic Act No. he capitalized on the insolvency and/or receivership of Urban Bank to levy or garnish properties of the eight other individual defendants. no opportunity was given to Urban Bank or the other codefendants to pay the judgment debt in cash or certified check. whose values amount to more than PhP76. Worse. otherwise known as the New Central Bank Act. regardless of the financial capacity of its other co-defendants. In addition. issues have been raised on alleged irregularities that mar the levy and sale on execution of the properties of Urban Bank and its officers and directors. 328 In fact. have already been settled by the financial capacity of the eight other co-defendants. should the losing party secure a reversal of the judgment or final order. they should have been given the option to choose which of their properties to be garnished and/or levied. purchased most of the properties sold. which has been ordered by the BSP to be subject of receivership. levy. which prevailed at that time. Many of the facts have not been sufficiently litigated before the trial and appellate courts for us to fully rule on the issue. at times. through its successor EIB. Rather than stop when the properties sold had approximated the monetary award.332 The fact that EIB’s offer to take over Urban Bank means it was able to satisfy the BSP’s concern that all legitimate liabilities of Urban Bank be duly discharged.329 Until the approval of the rehabilitation or the initiation of the liquidation proceedings. the Sheriff proceeded with garnishing and levying on as many properties of Urban Bank and its officers. attachment or execution.338 No sufficient reason was raised why the bank’s chosen properties were rejected or inadequate for purposes of securing the judgment debt pending appeal.330 (Emphasis supplied) Moreover. Urban Bank exercised its option by presenting to the sheriff various parcels of land.334 The circumstances that would reasonably justify superior urgency. Until there is an approved rehabilitation or the initiation of the liquidation proceedings. for the immediate payment of the award subject of the execution pending appeal. consisting of prime condominium units in the heart of the Makati Business district. After its insolvency. Indeed. Urban Bank was not only prevented from doing business in the Philippines but its asset and affairs were placed under receivership as provided for under the same law. who. concentrating solely on Urban Bank’s inability to pay to justify execution pending appeal. one creditor cannot obtain an advantage or preference over another by an attachment.57% of Peña’s total award from the trial court. as evidenced by EIB’s capacity and willingness to redeem the executed properties (condominium units sold to intervenor Unimega) by tendering manager’s checks for more than PhP22 Million331 which is already 77. even Peña himself assured the PDIC.919. that he would not schedule or undertake execution sales of the bank’s assets for as long as the bank remains in receivership.500. who had no direct hand in the transaction. the assumption by the EIB of the liabilities of Urban Bank meant that any execution pending appeal can be granted only if EIB itself is shown to be unable to satisfy Peña’s judgment award of PhP28. but at the same time. contrary to the general rules on execution.333 the grant of execution pending appeal must perforce be based on "good reasons. Third. Instead of garnishing personal properties of the bank. Peña. shares in exclusive clubs. the receiver shall immediately gather and take charge of all the assets and liabilities of the bank and administer the same for the benefit of its creditors and all of the bank’s assets shall be considered as under custodial legis and exempt from any order of garnishment. In just one particular sale on execution herein. nevertheless. and shares of stock. the public auction sales conducted in the execution pending appeal sold more properties of Urban Bank and the directors than what was sufficient to satisfy the debt.000. the Board becomes the trustee of its assets for the equal benefit of all the depositors and creditors. and cannot be extended preferred status by an execution pending appeal with respect to the bank’s assets: … [t]o execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other creditors. While there is a general rule that a final and executory judgment in the main case will render moot and academic a petition questioning the exercise of the trial court’s discretion in allowing execution pending appeal. In this case. was more than sufficient to answer for the PhP28. was unduly deprived of the opportunity to redeem the properties. the sheriff inexplicably proceeded to levy substantial real properties of the bank and its officers at the onset. a judgment creditor of a bank. the conservative value of the properties levied herein by the sheriff amounting to more than PhP181.It seems incongruous for Atty. once a bank is under receivership. Irregularities in the Levy and Sale on Execution Pending Appeal Assuming that the Special Order granting execution pending appeal were valid.336 Before proceeding on the levying and garnishing personal and real properties. the following are the observations of this Court: First. even after presenting manager’s checks339 equal to the purchase price of the condominium units sold at the execution sale. creditors of the bank stand on equal footing with respect to demanding satisfaction of their debts. Peña to be accorded the benefit of erroneously impleading several bank directors. in disregard of their right to choose under the rules. Thus. demand must be made by the sheriff against the judgment debtors. has to fall in line like every other creditor of the bank and file its claim under the proper procedures for banks that have been taken over by the PDIC. and the successor bank’s stable financial condition. and cannot be afforded special treatment by an execution pending appeal with respect to the bank’s assets. Peña’s interest as a judgment creditor is already well-protected. Peña filed suit against Urban Bank alone minus the bank officers and the same bank was found solely liable for the award and later on declared under receivership. As an exception to the general rule that only final judgments may be executed. The disposition on the execution pending appeal may have been different had Atty. the subsequent takeover by EIB. 7653. No reason was offered by the trial court340 or the sheriff341 for rejecting the redemption price tendered by EIB in order to recover the . That is not at all the case. as judgment creditor and. as receiver of Urban Bank.000 judgment debt six times over. the approval of the supersedeas bonds. execution or otherwise. It has not been shown whether Urban Bank and its officers and directors were afforded such an opportunity. among others.500. Second. the winning bidder. Worse. assuming that the CA was correct in finding a reason to justify the execution pending appeal because of the supervening event of Urban Bank’s closure. only the property located in Tagaytay was levied upon by the sheriff. assuming that Urban Bank and its officers did not possess sufficient cash or funds to pay for the judgment debt pending appeal.337Among those presented by the bank. the execution sale pending appeal continued and unduly benefitted Atty. who were never shown to have been incapable of paying the judgment debt in the first place. Fourth. EIB offered to answer in cash for a substantial part of Peña’s claims. all creditors of the bank under receivership shall stand on equal footing with respect to demanding satisfaction of their debts.190.

352 The Court cannot allow the unnecessary and successive requests for inhibition. who issued the Special Order and had supervisory authority over the proceedings of the execution pending appeal. by way of the corresponding request from each justice. Peña’s claim that Justice Carpio fabricated the Order. by allowing the Court to pursue the question of who was responsible for such gross violation of the rules on execution. In fact. on motion. To recall. in drafting the questioned Order should positively impact his motion for reconsideration of the same. Thirdly. In completely resolving the differing claims and performing its educational function. Nos. Peña. or annulled – on appeal or otherwise – the trial court may. the Court shall briefly encapsulate and restate the operational rules governing execution pending appeal when there has been a reversal of the trial court’s Decision on the award of damages in order to guide the parties as well as the bench and bar in general. Justices Jose Vitug. even Urban Bank tendered a separate supersedeas bond of equal amount with this Court. hostility. for just about any conceivable reason.000. When a reorganization of the Court takes place in the form of a change in the composition of Divisions. Having said that. Jr. this Decision is frontally disposing of this claim by stating that there is no basis to believe that the questioned Order was anything than the joint decision of the five members of the then First Division. in case the executed judgment is reversed on appeal. the policy of the Court not to tolerate acts of litigants who. this Court must undertake corrective actions swiftly. This Order was affirmed by the same Division as its duly-promulgated order. would have been included under such administrative investigation by the Office of the Court Administrator. the Court cannot turn a blind eye to the fact that there was already a sufficient supersedeas bond given to answer for whatever monetary award will be given in the end. Atty.350 which he brought against the ponente of this Decision. 145817 and 145822 on the execution pending appeal is due in no small part to the delays arising from Peña’s peculiar penchant for filing successive motions for inhibition and re-raffle. the then ponente of this case. Indeed. this Court leaves it to the parties to explore avenues for redress in such a situation. Justice Carpio.347 the Court hereby denies both motions. prejudice or prejudgment. In the second place. inasmuch as an equally-important legal doctrine – the immutability of Supreme Court final decisions – is also to be considered. Peña’s claim of undue interest against Justice Carpio specifically with respect to the latter having the instant case transferred to his new Division. for a total of PhP80. then composed of retired Chief Justice Hilario Davide. Peña has voiced the fear in the Letter of Complaint filed in the Court’s Committee on Ethics and Ethical Standards. due to the retirement or loss of a member. That execution sales over the properties of judgment debtors proceeded despite the three-fold value of securities compared to the amount of the award indicates bad faith. the Justices do not thereby lose their case assignments but bring the latter with them to their new Divisions. under a plea of bias. funds are advanced by the losing party to the . It must be emphasized that the prolonged resolution of the procedural issue in the Petitions in G. with respect to the conduct of the execution pending appeal. were it not for his retirement from the judicial service. Each justice is in fact. In relation to this. intervenor Unimega. Corazon Bejasa and Arturo Manuel. Consuelo Ynares-Santiago and Adolfo Azcuna. the De Leon Group had already tendered a supersedeas bond of PhP40.355 "In an execution pending appeal. The necessity of making these detailed instructions is prompted by the most natural question an ordinary person with a sense of justice will ask after reading the facts: How can an obligation to pay for the services of a lawyer so that 23 unwanted tenants leave a corporation's property lead to the loss or the impairment of use of more than PhP181 Million worth of properties of that corporation and of its officers and directors? Obviously. required to make this request. where the executed judgment is reversed totally or partially. at this point. Inasmuch as the RTC Decision has already been vacated and an independent finding has been made by this Court of the complete nullity of the order granting execution pending appeal.properties executed and sold in public auction pending appeal. which were subject of third party claims made by the spouses of Teodoro Borlongan. Atty. and for the Court to find measures to improve the safeguards against abuse of court processes.000 in the Court of Appeals to prevent execution pending appeal over their properties. The Court is fully correct in suspending the period for the running of the redemption period of the properties of Urban Bank and its officers and directors that were levied and subject of execution sale to satisfy the judgment debt in favor of Atty. Peña that the actuations of Justice Carpio. It does not follow however. his insinuation (which he denies) that Justice Carpio may have been bribed because the latter has a new Mercedes Benz349 is highly offensive and has no place where his points should have been confined to legal reasons and arguments. The rule is that. Contrary to this fear. Sillador. Incidentally. otherwise the rollo of the cases of which he is Member-in-Charge will be retained by a Division in which he is no longer a member. lest it opens the floodgates to forum-shopping where litigants look for a judge more friendly and sympathetic to their cause than previous ones. the Court having conclusively determined that the supersedeas bond filed was sufficient and considering the subsequent finding that the said execution pending appeal lacks any sufficient ground for the grant thereof. Judge Henry Trocino of RTC-Bago City. Peña’s Omnibus Motion dated 09 December 2002344 and Unimega’s Motion for Reconsideration dated 10 December 2002345 with respect to the Court’s Order dated 13 November 2002346 that clarified the earlier stay order against the execution pending appeal.000 to secure any judgment to be awarded to Atty. that she will suppress material information regarding the issuance of the Order suspending the redemption period because of her close relationship to Justice Carpio. Finally.342 is nullified. issue such orders of restitution or reparation of damages as equity and justice may warrant under the circumstances. the factual circumstances and the ruling on that case were limited to the actions of Sheriff Allan Sillador with respect to properties levied under the same Special Order and Writ of Execution. Moreover. is based on ignorance of the system of assignment of cases in the Supreme Court. R. The observation on the irregularities above-enumerated are made for the purpose of correcting the injustice that has been committed herein. In the first place. that the Court’s Decision in Co v. but of the entire division to which he belonged. The Court’s Suspension Order of Execution Pending Appeal Acting on Atty.000.348 The cases are then transferred to the Justices’ new Divisions. Peña. it follows that all acts pursuant to such order and its writ are also void. the Court finds this argument utterly devoid of merit. 353 Restitution of the Bank’s Executed Properties The Court is still confronted with the supervening acts related to the execution pending appeal and the reversal of the award of damages. that questioned Order was not the decision of only a single member of the Court. Peña’s imagination has gotten the better of him.343 It does not encompass other specific events and acts committed in the course of the execution pending appeal that may warrant administrative or disciplinary actions. In any case. specifically. seek to disqualify a judge (or justice) for their own purpose. the affirmation by the Division of this Order demonstrates that there is no truth to Atty. It is for this reason that the Office of the Court Administrator will be given a special task by the Court on this matter. As to the theory of Atty. our disposition of this case renders moot his motion to reconsider the order. Atty.354 The Rules of Court precisely provides for restitution according to equity.351 The Court cannot sanction Peña’s repeated requests for voluntary inhibition of members of the Court based on the sole ground of his own self-serving allegations of lack of faith and trust. which affect the rights of the parties as well as of the intervenors to the case. and that his arguments in his motion to reconsider does not persuade this Court to vary in any form the questioned order. and would like to reiterate. if not malice.

which was the basis of the Special Order and Writ of Execution allowing execution pending appeal.363 Whatever rights were acquired by intervenor Unimega from the execution sale under the trial court’s Special Orders are conditional on the final outcome of the appeal in the main case. purchased in the premature public auction sale. the Court adopts with modification the rules of restitution expounded by retired Justice Florenz D. with interest. all of whom have not been found individually or solidarily liable. the titles have remained under the name of the bank. intervenor Unimega knew or was bound to know that its title to the properties. Regalado in his seminal work on civil procedure. the judgment creditor must pay the amount realized from the sheriff’s sale of that property.366 The obligation to return the property itself is likewise imposed on a third-party purchaser.358 Due to the complete reversal of the trial court’s award for damages. with an appeal on the main case still pending. owing to the supersedeas bond it had filed and the Court’s own orders that timely suspended the transfer of the titles and further execution pending appeal.500." 356 In disposing of the main case subject of these Petitions. and title to the property has already been validly and timely transferred to the name of that party.399. especially if the judgment is reversed. 368 In cases in which restitution of the prematurely executed property is no longer possible. if those properties are still in the possession of the judgment creditor. in cases wherein it directly participated in the public auction sale. and limited on a quantum meruit basis the agent’s compensation to PhP4. Considering the foregoing points. are entitled to full restitution of all their properties levied upon and garnished. Unimega’s ex parte petition is consequently denied. If the purchaser at the public auction is the judgment creditor. like intervenor Unimega. petitioners bank officers. It cannot simply assume that whatever inaction or delay was incurred in the process of the appeal of the main Decision would automatically render the remedy dilatory in character. It cannot be gainsaid that it is incumbent upon the plaintiffs in execution (Arandas) to return whatever they got by means of the judgment prior to its reversal. with interest. And if perchance some of the properties might have passed on to innocent third parties as happened in the case at bar. properties of Urban Bank and individual petitioners have been garnished and levied upon in the amount of supposedly more than PhP85.prevailing party with the implied obligation of the latter to repay the former. the premature execution is considered to have lost its legal bases. Meanwhile. Considering the monetary award to Peña and the levy on and execution of some of its properties pending appeal. its action resulted in grave injustice to the private respondents. If the judgment award is reduced on appeal. be entitled to reimbursement from the judgment creditor. the judgment creditor must return to the judgment debtor only the excess received over and above that to which the former is entitled under the final judgment.000 only. the party who moved for immediate execution should. when the executed decision is reversed. is restored to it. since the execution sale was precisely made pending appeal. compensation shall be made in favor of the judgment debtor in the following manner: a. now EIB. intervenor Unimega is required to restore the condominium units to Urban Bank. The Court has ruled: When a judgment is executed pending appeal and subsequently overturned in the appellate court. They shall be personally liable for their failure to do so. Not being entitled to a writ of possession under the present circumstances.350.364Consequently. without prejudice to the concurrent right of intervenor Unimega to the return of the PhP10.000 the latter paid for the condominium units. Urban Bank.367 which the appellate court itself cited earlier. he must pay the full value of the property at the time of its seizure. the Court totally reversed the staggering amount of damages given by the trial court.000. Although execution pending appeal is sanctioned under the rules and jurisprudence. If the purchaser at the public auction is a third party.361 In fact. with interest. 359 As a matter of principle.357 Applying the foregoing rules. upon return of the case to the lower court. if the order is found to have been issued without jurisdiction. The third-party purchaser shall. and the title to the executed property has not yet been transferred. Therefore. While the trial court may have acted judiciously under the premises. with interest. with interest. which Peña received as judgment creditor in satisfaction of the trial court’s earlier Decision. the rights of intervenor Unimega to the 10 condominium units bought during the public auction sale under the Special Order are rendered nugatory by the reversal of the award of unconscionable damages by the trial court. since they have been exonerated from corporate liability with respect to the bank’s agency relationship with Peña. courts are authorized at any time to order the return of property erroneously ordered to be delivered to one party. Urban Bank is entitled to complete restoration and return of the properties levied on execution considering the absolute reversal of the award of damages. (Emphasis supplied)362 In this case. however. The obligation to restore the properties to petitionerrespondent bank is. b. The situation necessarily requires equitable restitution to the party prejudiced thereby. upon the . subject to the payment of the PhP4.500. If specific restitution becomes impracticable. in case the appellate court cancels or reduces the monetary award. Until the judgment on the main case on which the execution pending appeal hinges is rendered final and executory in favor of the prevailing judgment creditor. intervenor’s earlier request for the issuance of a writ of possession 365 over those units no longer has any leg to stand on. intervenor Unimega and other bidders who participated in the public auction sales are liable to completely restore to petitionerrespondent bank all of the properties sold and purchased therein. however.000. was contingent on the outcome of the appeal and could possibly be reversed. both the judgment creditor and the third parties who participate in auction sales pending appeal are deemed to knowingly assume and voluntarily accept the risks of a possible reversal of the decision in the main case by the appellate court. it is incumbent on the purchasers in the execution sale to preserve the levied properties. Upon the reversal of the main Decision. as in this case. with interest. subject of the execution pending appeal. Unlike in auction sales arising from final and executory judgments. In summary. be required to make specific restitution of such property of the prevailing party as he or any person acting in his behalf may have acquired at the execution sale. c. may satisfy the judgment in the main case and at the same time fully recover all the properties executed owing to the complete reversal of the trial court’s awarded damages. plus compensation to the former for the deprivation and the use thereof. Although the intervenor has caused the annotation of the sale and levied on the titles to those units. the losing party in the execution becomes liable for the full value of the property at the time of its seizure. subject of execution pending appeal must be returned to the judgment debtor. However. the levied properties itself. It cannot claim to be an innocent third-party purchaser of the levied condominium units.360 As a purchaser of properties under an execution sale. if specific restitution becomes impracticable – such as when the properties pass on to innocent third parties – the losing party in the execution even becomes liable for the full value of the property at the time of its seizure. It must immediately and fully pay the judgment debt before the entire lot of levied properties. the Arandas are duty bound nonetheless to return the corresponding value of said properties as mandated by the Rules. petitioner-respondent bank is entitled to complete and full restitution of its levied properties.

including all judicial officers or sheriffs in the various places in which execution was implemented. Lim. SO ORDERED. No. The Office of the Court Administrator is also directed to make recommendations for the prevention of abuses of judicial processes in relation to executions. R. .. Urban Bank. If the purchaser at the public auction is a third party. Magdaleno Peña is the winning bidder or purchaser. whether thru administrative circulars from this Court or thru a revision of the Rules of Court.000 that has been placed in escrow for the benefit of Isabela Sugar Company. and its officers.000. Delfin C. Let a copy of the Court’s Decision in this case be sent to the Office of the Court Administrator. Jr. Jr. The Office of the Court Administrator is ordered to conduct an investigation into the possible administrative liabilities of Atty. for the irregularities attending the execution pending appeal in this case. namely Teodoro Borlongan (+). Sillador. The Decision of the Regional Trial Court of Bago City dated 28 May 1999 is hence VACATED. in which case Peña shall be liable for the full value of the property at the time of its seizure. 145822) are hereby GRANTED under the following conditions: a. Lee. to which the case shall be raffled. then he shall pay the full value of the property at the time of its seizure. The Omnibus Motion dated 09 December 2002 filed by Atty. Delfin Gonzalez. is ORDERED to pay Atty. as prescribed under the procedural rules on execution pending appeal. Makati City. R. Gonzalez. Jr. Corazon Bejasa. Delfin C. No. 162562) and AFFIRMS WITH MODIFICATION the Court of Appeals’ Decision dated 06 November 2003 having correctly found that the Regional Trial Court of Bago City gravely abused its discretion in awarding unconscionable damages against Urban Bank. is hereby designated as the court that will fully implement the restorative directives of this Decision with respect to the execution of the final judgment. With respect to individual petitioners. and title to the property has already been validly and timely transferred to the name of that party.. especially those pending appeal. de Leon. R. except when restitution has become impossible. he must fully restore the property to Urban Bank or respondent bank officers.payment of the judgment debt herein amounting to PhP4. 145817) and Benjamin L. and Arturo Manuel. with interest. (respondent bank officers) shall be restored to full ownership and possession of all properties executed pending appeal. Josephine Mutia-Hagad.000. and Arturo Manuel. Peña the amount of PhP3. Teodoro Borlongan.. they are entitled to the absolute restitution of their executed properties. and Eric L. WHEREFORE. and to submit a report thereon within 120 days from receipt of this Decision. de Leon. Atty. Peña must pay Urban Bank or respondent bank officers the amount realized from the sheriff’s sale of that property. the proceedings with respect to any restitution due and owing under the circumstances shall be transferred to the Regional Trial Court in the National Capital Region.. b. Eric L.. is hereby DISMISSED. The Complaint against the eight other individual petitioners. return of properties wrongfully executed. Magdaleno Peña’s Petition for Review dated 23 April 2004 (G. Jr.. and if actual restitution of the property is impossible. Siervo H. with interest at 6% per annum from 28 May 1999. de Leon. Inc. Nevertheless. The Executive Judge of the Regional Trial Court of Makati City is ordered to include the execution of the Decision and the proceedings for the restitution of the case in the next available raffle. a court with venue to hear cases involving Urban Bank/Export and Industry Bank whose headquarters is located in Makati City. Dizon.000. If the property levied or garnished has been sold on execution pending appeal and Atty. The Presiding Judge of RTC Bago City shall make a full report on all incidents related to the execution in this case. Benjamin L. with interest from the time the property was seized. Rule 39 of the Rules of Court. Siervo G. Corazon Bejasa. the ownership and possession of the property shall be returned to Urban Bank or respondent bank officers.000 as reimbursement for his expenses and an additional PhP1. Jr. Jr. the Court DENIES Atty. No. c. The Regional Trial Court of Makati City. in accordance with Section 5. Peña and Motion for Reconsideration dated 10 December 2002 filed by Unimega with respect to the Court’s Order dated 13 November 2002 is hereby DENIED.. Jr. Ben Y. the then Deputy Sheriff of Bago City. The parties are directed to address the implementation of this part of the Decision to the sala to which the case will be raffled. Gonzales. Lee (G. P. within 30 days from submission of the report on administrative liabilities adverted to above. with interest. or the payment of the value of properties that can no longer be restored. Lee. subject to the third party’s right to claim restitution for the purchase price paid at the execution sale against the judgment creditor.500.000 as compensation for his services. Lim. Inc.. Inc. without prejudice to the right of Urban Bank to invoke payment of this sum under a right of set-off against the amount of PhP25. Because so much suspicious circumstances have attended the execution in this case by the Regional Trial Court of Bago City. Urban Bank. including all returns on the writ of execution herein. Dizon. No pronouncement as to costs. and title to the property has not been validly and timely transferred to the name of the third party. the then RTC-Bago City’s Clerk of Court. Eric L. Whether Urban Bank and the bank officers and directors are entitled to any claim for damages against Peña and his indemnity bond is best ventilated before the trial court. d. P. Benjamin L. If the property levied or garnished has been sold to a third party purchaser at the public auction. Ben Y. The Petitions for Review on Certiorari filed by petitioners Urban Bank (G. with interest as indicated in the dispositive portion. and Allan D.500..

KAPUNAN. "9" to "90-GGGGGG"-PNB/DBP). 1984. "6". mining claims. & machineries/equipment of MMIC located at Sipalay. 1984 on the foreclosed personal properties of MMIC. and Antipolo. "11" and "12-QQQQQ"-PNB). buildings. Rizal. The mortgage also covered all of Marinduque Mining's chattels. Nonoc Mining is the assignee of all real and personal properties.2 On April 27. As of November 20. 1987. Marinduque Mining had also obtained loans totaling P2 Billion from DBP. between July 16. Negros Occidental for an initial consideration of P325.6 On March 26. HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES CORPORATION. "7" to "7-AA-" PNB/DBP). The purchases remained unpaid as of August 1. Nonoc Mining. Likewise. 1995 and the Resolution of the same court dated August 29. likewise held on August 31.00 and P543. Negros Occidental were sold to PNB and DBP. pursuant to Proclamation No. Marinduque Mining executed in favor of PNB and DBP an Amendment to Mortgage Trust Agreement by virtue of which Marinduque Mining mortgaged in favor of PNB and DBP all other real and personal properties and other real rights subsequently acquired by Marinduque Mining. respondents. DBP. Maricalum Mining and Island Cement must be treated in law as one and the same entity by disregarding the veil of corporate fiction since: 1. Marinduque Mining executed on October 9. The facts are as follows: Marinduque Mining-Industrial Corporation (Marinduque Mining).048.577. the same were sold to PNB and DBP as the highest bidder in the sum of P678.00 respectively (Exhs. 1978. 1984. No. To secure the loans. nickel and cobalt in mixed sulfides. 1981. PNB and DBP as highest bidders. 1984. including the improvements thereon. The events following the foreclosure are narrated by DBP in its petition.238. chattels. On February 27.G.000. copper ore/concentrates. located at Surigao del Norte. 1980. exclusive of interest and charges.150.000. earlier assigned to Nonoc Mining and Industrial Corporation. PNB and DBP. at the public auction sale conducted on September 18.000. were sold to PNB and DBP as highest bidders in the sum of P1. interest and participation over the foreclosed properties of MMIC at Sipalay. in the amount of P2.610. the loans extended by PNB amounted to P4 Billion.R. major machineries & equipment and other improvements of MMIC located at Antipolo. 1978 a Deed of Real Estate Mortgage and Chattel Mortgage in favor of PNB. J. 1984[.4 In the meantime. PNB and DBP instituted sometime on July and August 1984 extrajudicial foreclosure proceedings over the mortgaged properties. equipment and all other assets of Marinduque Mining at its Nonoc Nickel Factory in Surigao del Norte.95.1 On July 13.040.800.] over the foreclosed real properties. Apparently. attorney's fees and the costs of suit. leasehold rights together with the improvements thereon as well as machineries [sic] and equipments [sic] of MMIC located at Nonoc Nickel Refinery Plant at Surigao del Norte for a bid price of P14. 126200 August 16. interest and participation over the foreclosed properties of MMIC located at Nonoc Island. Rizal.534. obtained from the Philippine National Bank (PNB) various loan accommodations. "13"-PNB). Sipalay. Negros Occidental. 2001 DEVELOPMENT BANK OF THE PHILIPPINES. At the auction sale conducted on September 7. chattels. cement and pyrite conc.000.383.167. as highest bidders. buildings. as well as interest. transferred and conveyed to the National Government thru [sic] the Asset Privatization Trust (APT) all its existing rights and interest over the assets of MMIC.361. 1983.755. Rizal. Marinduque Mining mortgaged to PNB and DBP all its real properties located at Surigao del Norte. in order to ensure the continued operation of the Nickel refinery plant and to prevent the deterioration of the assets foreclosed. The mortgage covered all of Marinduque Mining's real properties. 1982 to October 4. Marinduque Mining executed in favor of PNB and the Development Bank of the Philippines (DBP) a second Mortgage Trust Agreement. exclusive of interest and charges. 50 as amended.: Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court. bidded for P170. machinery.772.00 [and] [o]ver the foreclosed chattels of MMIC located at Nonoc Refinery Plant at Surigao del Norte.107. 1984. vs. "8" to "8BB".00 (Exhs.. Maricalum Mining Corporation and Island Cement Corporation (Exh. PNB and DBP emerged and were declared the highest bidders over the foreclosed real properties. assigned and transferred to Nonoc Mining and Industrial Corporation all their rights. For the foreclosed real properties together with all the buildings. "10" to "10-X"-PNB/ DBP). petitioner. On September 7. 1984.00 (Exhs. 1984. mining claims. equipment and other assets of Marinduque Mining. PNB and DBP thereafter thru a Deed of Transfer dated August 31. 1984. machinery.00 (Exhs. Remington's original complaint was amended to include PNB and DBP as co-defendants in view of the foreclosure by the latter of the real and chattel mortgages on the real and personal properties. Remington filed a third amended complaint including the Maricalum Mining Corporation (Maricalum Mining) and Island Cement Corporation (Island Cement) as co-defendants. as follows: In the ensuing public auction sale conducted on August 31.950. PNB. Sipalay. Co-defendants NMIC. nature and description which Marinduque Mining may subsequently acquire in substitution or replenishment or in addition to the properties covered by the previous Deed of Real and Chattel Mortgage dated October 7. a corporation engaged in the manufacture of pure and refined nickel. Remington asserted that Marinduque Mining. as well as assets of whatever kind. "15" & "15-A" PNB/DBP). thru [sic] a Deed of Transfer dated June 6. including the improvements thereon. the Nonoc Mining and Industrial Corporation (Nonoc Mining). again assigned. Negros Occidental. Remington filed a second amended complaint to include as additional defendant.000.000. all its rights. Maricalum and Island Cement which are newly created entities are .5 On September 13. 1986. 1996. PNB and DBP assigned and transferred in favor of Maricalum Mining Corp.00 (Exh. Marinduque Mining purchased and caused to be delivered construction materials and other merchandise from Remington Industrial Sales Corporation (Remington) worth P921.3 For failure of Marinduque Mining to settle its loan obligations. seeking a review of the Decision of the Court of Appeals dated October 6. 1984 when Remington filed a complaint for a sum of money and damages against Marinduque Mining for the value of the unpaid construction materials and other merchandise purchased by Marinduque Mining.00 (Exh. "14"PNB/DBP). Finally. In said agreement. purposely. and at Antipolo. Surigao del Norte for an initial consideration of P14. "5" to "5-A".

subvert justice. the law will regard the corporation as an association of persons or in case of two corporations.7 On April 3. according to Remington. plus ten percent (10%) surcharge per annum by way of penalty. aside from the fact that the aforesaid co-defendants NMIC.9 cited by the Court of Appeals in its decision. the financial obligations of x x x MMIC whose operations codefendants PNB and DBP had highly financed before the alleged extrajudicial foreclosure of defendant MMIC's assets. justify wrong. It bears stressing that PNB and DBP are mandated to foreclose on the mortgage when the past due account had incurred arrearages of more than 20% of the total outstanding obligation. Yatco. officers and rank-and-file workers in the legitimate pursuit of its business activities. and the APT. 1989. alter ego. co-defendants PNB. the Regional Trial Court (RTC) rendered a decision in favor of Remington. credit accommodation. a fact which all defendants were as (sic) still are aware of during all the time material to the transactions subject of this case. 135136. the sum equivalent to 10% of the amount due as and for attorney's fees. private respondent Remington submits that the transfer of the properties was made in fraud of creditors. subsidiary or auxiliary corporation. In accordance with the foregoing rule. 1996. agency (sic). Nonoc Mining. 1995. DBP NMIC. which was denied in the Resolution dated August 29. protect fraud or confuse legitimate issues involving creditors such as plaintiff. 1990. the Court of Appeals. Maricalum and Island Cement to which were transferred all the assets. Remington filed a motion for leave to file a fourth amended complaint impleading the Asset Privatization Trust (APT) as co-defendant. this petition. Island Cement Corporation and Asset Privatization Trust to pay. 1989. machineries and equipment to the extent that major policies of co-defendant MMIC were being decided upon by co-defendants PNB and DBP as major financiers who were represented in its board of directors forming part of the majority thereof which through the alleged extrajudicial foreclosure culminated in a complete take-over by co-defendants PNB and DBP bringing about the organization of their co-defendants NMIC. Permanent Ed. Island Cement. among others. machineries and pieces of equipment of co-defendant MMIC used in its nickel mining project in Surigao del Norte. The personnel. The places of business not to mention the mining claims and project premises of co-defendants NMIC. 496. Said fourth amended complaint was admitted by the lower court in its Order dated April 29. Maricalum and Island Cement being all corporations created by the government in the pursuit of business ventures should not be allowed to ignore. 385 (The Law on Mandatory Foreclosure) provides: It shall be mandatory for government financial institutions. representing the principal obligation. pp. six (6) distinct and separate entities. codefendant MMIC with some of its vital needs for its operation. copper mining operation in Sipalay. Rizal to the prejudice of creditors of co-defendant MMIC such as plaintiff Remington Industrial Sales Corporation whose stockholders. affirmed the decision of the RTC.755.. On April 10. so as not to defeat public convenience. when the notion of legal entity is used to defeat public convenience. Section 1 of Presidential Decree No.practically owned wholly by defendants PNB and DBP. Development Bank of the Philippines. On top of everything. in its Decision dated October 6. . jointly and severally. 1984. the sum of P920. 247. The transferees. they should be treated as one and the same at least as far as plaintiff's transactions with codefendant MMIC are concerned. justify wrong. Court of Tax Appeals. are also liable for the value of Marinduque Mining's purchases. x x x. DBP. Milwaukee Refrigeration Transit Co. Maricalum Mining Corporation. nor against their transferees.11 In this case.95. protect fraud.. 255 per Sanborn.].). by virtue of which it becomes doubly necessary to disregard the corporation fiction that co-defendants PNB.S. Hence. the dispositive portion of which reads: WHEREFORE. ordering the defendants Marinduque Mining & Industrial Corporation. Inc. On the other hand. x x x or obliterate with impunity nay illegally. Nonoc Mining and Industrial Corporation. invested considerable time. however. In Yutivo Sons Hardware vs. Petitioner filed a Motion for Reconsideration. sweat and private money to supply. key officers and rank-and-file workers and employees of co-defendants NMIC. Negros Occidental and cement factory in Antipolo. this Court has disregarded the separate personality of the corporation where the corporate entity was used to escape liability to third parties. DBP maintaining that Remington has no cause of action against it or PNB. merge them into one". citing 1 Fletcher Encyclopedia of Corporation. NMIC. 142 Fed. Nonoc Mining. mining claims and project premises of co-defendant MMIC as to make the aforesaid co-defendants NMIC. Maricalum and Island Cement likewise used to be the places of business. or defend crime. judgment is hereby rendered in favor of the plaintiff. including the stipulated interest as of June 22. we do not find any fraud on the part of Marinduque Mining and its transferees to warrant the piercing of the corporate veil. U. vs. Maricalum and Island Cement. warrants the piercing of the corporate veil such that Marinduque Mining and its transferees could be considered as one and the same corporation.8 Upon appeal by PNB. until the amount is fully paid. to foreclose the collateral and/or securities for any loan. practically there has only been a change of name for all legal purpose and intents 3. Maricalum Mining. . machineries and equipment which were originally owned by codefendant MMIC beyond the reach of creditors of the latter. Maricalum and Island Cement were organized in such a hurry and in such suspicious circumstances by codefendants PNB and DBP after the supposed extrajudicial foreclosure of MMIC's assets as to make their supposed projects assets. when in fact and in law. (Koppel [Phils. therefore. Maricalum and Island Cement creations of codefendants PNB and DBP were the personnel of codefendant MMIC such that . and to pay the costs. DBP. However. . and subject to their control and management. The presence of fraud.10 this Court declared: It is an elementary and 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. 2. vs. Philippine National Bank. business conduit. which co-defendant MMIC during the time of the transactions material to this case became x x x co-defendants PNB and DBP's instrumentality. J. after the lapse of sixty (60) days from the issuance of this decree. 71 Phil... MMIC. Maricalum Mining. Island Cement and APT. and managed by their officers. Maricalum and Island Cement mere adjuncts and subsidiaries of codefendants PNB and DBP.

not to mention efficiency. It cannot be presumed. In the same manner that "x x x when the corporation is insolvent. The second principle invoked by respondent court involves "directors x x x who are creditors" which is also inapplicable herein." x x x (page 106 of the Appellee's Brief) We also concede that "x x x directors of insolvent corporation. In the absence of liquidation proceedings. it skirted the issue entirely by holding that the question of actual fraudulent intent on the part of the interlocking directors of DBP and Marinduque Mining was irrelevant because: As aptly stated by the appellee in its brief. Here. up to the value of the same. Thus.15 In this case. to secure debts upon which the directors were indorsers. the claim of Remington cannot be enforced against DBP. including the right to foreclose on loans. the creditor of Marinduque Mining is DBP. the following claims or liens shall be preferred: xxx xxx xxx (3) Claims for the unpaid price of movables sold. which reasoned that under Article 19 of the Civil Code. and observe honesty and good faith. convenience and practicality dictated that the corporations so created occupy the premises where these assets were found instead of relocating them. accommodations and/or guarantees on which the arrearages are less than twenty (20%) percent.)12 The Court of Appeals made reference to two principles in corporation law. and if the movable has been resold by the debtor and the price is still unpaid. "x x x where the corporations have directors and officers in common. No doubt. the Court finds that Remington failed to discharge its burden of proving bad faith on the part of Marinduque Mining and its transferees in the mortgage and foreclosure of the subject properties to justify the piercing of the corporate veil. what else would it do with these properties in the meantime? Sound business practice required that they be utilized for the purposes for which they were intended. This rule does not apply in this case. justify wrong. but upon the violation of the fiduciary relation to the directors. without reference to the question of any actual fraudulent intent on the part of the directors. The same reasons of convenience and practicality. the wrongdoing must be clearly and convincingly established. The Court of Appeals also held that there exists in Remington's favor a "lien" on the unpaid purchases of Marinduque Mining. so long as they are in the possession of the debtor. since the corporation allegedly prejudiced (Remington) is a third party. act with justice. not one of the corporations with interlocking directors (Marinduque Mining and DBP). its directors who are its creditors can not secure to themselves any advantage or preference over other creditors. and as transferee of these purchases. provided it has not lost its form. was questioned by other creditors of the corporation.13The creation of the three corporations was necessary to manage and operate the assets acquired in the foreclosure sale lest they deteriorate from non-use and lose their value. however. This shall be without prejudice to the exercise by the government financial institution of such rights and/or remedies available to them under their respective contracts with their debtors. protect fraud or defend crime. x x x" (page 106-107 of the Appellee's Brief. Maricalum and Island Cement of the premises of Marinduque Mining and the hiring of the latter's officers and personnel also constitute badges of bad faith. who are creditors of the company. to the injury of others in equal right. where one corporation was 'insolvent and indebted to another." The appellate court. and it would be a breach of such trust for them to undertake to give any one of its members any advantage over any other creditors in securing the payment of his debts in preference to all others. the lien may be enforced on the price. DBP should be held liable for the value thereof. however. did not point to any fact evidencing bad faith on the part of the Marinduque Mining and its transferees. equity will set aside the transaction at the suit of creditors of the corporation or their representatives. including interest and other charges. The import of this mandate was lost on the Court of Appeals. credits. including accrued interest and other charges. "Every person must. can not secure to themselves any preference or advantage over other creditors in the payment of their claims. from acting as directors of the debtor corporation in the authorization of a mortgage or deed of trust to the former to secure such indebtedness x x x" (page 105 of the Appellee's Brief). Maricalum and Island Cement of Marinduque Mining's personnel to manage and operate the properties and to maintain the continuity of the mining operations. amount to at least twenty percent (20%) of the total outstanding obligations. The banks had no choice but to obey the statutory command. justified the hiring by Nonoc Mining. Maricalum and Island Cement. on said movables. but the duty under said law. to foreclose upon the subject properties. When validity of these mortgages. DBP is not authorized by its charter to engage in the mining business. Article 2241 of the Civil Code provides: ARTICLE 2241. As Remington itself concedes. as appearing in the books of account and/or related records of the financial institution concerned. Indeed. Assuming that the premises of Marinduque Mining were not among those acquired by DBP in the foreclosure sale.14 To disregard the separate juridical personality of a corporation. in the exercise of his rights and in the performance of his duties.and/or guarantees granted by them whenever the arrearages on such account. If they do. many of these assets are heavy equipment and it may have been impossible to move them. give everyone his due. . The first pertains to transactions between corporations with interlocking directors resulting in the prejudice to one of the corporations. With reference to specific movable property of the debtor. not the directors of Marinduque Mining. there may be circumstances under which their interest as officers in one company may disqualify them in equity from representing both corporations in transactions between the two. they should have been classed as instruments rendered void by the legal principle which prevents directors of an insolvent corporation from giving themselves a preference over outside creditors. Neither do we discern any bad faith on the part of DBP by its creation of Nonoc Mining. To reiterate. this right is not lost by the immobilization of the thing by destination. It is not good morals or good law. however. Thus. PNB and DBP did not only have a right. They can not thus take advantage of their fiduciary relation and deal directly with themselves. Remington also asserted in its third amended complaint that the use of Nonoc Mining. In the absence of any entity willing to purchase these assets from the bank. for the right of the creditors does not depend upon fraud in fact. the doctrine of piercing the veil of corporate fiction applies only when such corporate fiction is used to defeat public convenience. it has been held that the directors of the creditor corporation were disqualified. by reason of self-interest. The governing body of officers thereof are charged with the duty of conducting its affairs strictly in the interest of its existing creditors.

Article 2249 provides: "If there are two or more credits with respect to the same specific real property or real rights. and it would render purposeless the special laws on insolvency. and could even exhaust proceeds if necessary. however. and upon its becoming final asked for execution on 31 July 1958. after the payment of the taxes and assessments upon the immovable property or real rights. for which reason the vendor obtained judgment for the unpaid balance. then other creditor-debtor relationships where there are concurrence of credits would be left without any rules to govern them. the Court ratiocinated thus: Article 2242 of the new Civil Code enumerates the claims. explained the reasons for the reversal: In Barretto vs.500 in advance. with the proviso that in case of sale under the foreclosure decree the vendor's lien and the mortgage credit of appellant Barretto should be paid pro rata from the proceeds. as follows "The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by this Article (2243). it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in the case now before us) is not the proceeding contemplated by law for the enforcement of preferences under Article 2242. On 14 August 1958. speaking for the Court. invoking Articles 2242. they shall be satisfied pro-rata. After hearing. the Court reconsidered its decision. and the import of their claims ascertained. when the price thereof can be determined proportionally. mortgages and liens that constitute an encumbrance on specific immovable property. and mortgaged the property to appellant Magdalena C. In the meantime. in proportion to the amount of the respective credits. Villanueva for P19." But in order to make this prorating fully effective. x x x Rosario Cruzado sold all her right.00. neither is the right lost by the sale of the thing together with other property for a lump sum. the preferred creditors enumerated in Nos. married to Jose C. such as insolvency. In its decision upholding the order of the lower court. after the payment of the taxes and assessments upon the immovable property or real rights. they shall be satisfied pro rata. 2 to 14 of Article 2242 (or such of them as have credits outstanding) must necessarily be convened. the court below ordered the "lien" annotated on the back of Certificate of Title No. whereby one class of creditors could exclude the creditors of lower order until the claims of the former were fully satisfied out of the proceeds of the sale of the real property subject of the preference. and executed a promissory note for the balance of P17.L.000. The preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency Law. Thus. up to the value thereof. however.substance and identity.16 the Court had occasion to construe Article 2242. Pura Villanueva defaulted on the mortgage loan in favor of Barretto. This explains the rule of Article 2243 of the new Civil Code that — "The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal property. 32526.17 Upon motion by appellants. obtained judgment.000.000. said mortgage having been duly recorded. to secure a loan of P30. unless the claimant were enforcing a credit for taxes . or other liquidation proceedings of similar import. 32626). conflicts among creditors entitled to preference as to specific real property under Article 1923 were to be resolved according to an order of priorities established by Article 1927. (4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor. The facts that gave rise to the case were summarized by this Court in its resolution as follows: A. Reyes. Baretto. the settlement of decedent's estate under Rule 87 of the Rules of Court. or liens within the purview of legal provisions governing insolvency x x x (Italics supplied).e. Barretto. If we are to interpret this portion of the Code as intended only for insolvency cases.00. plus legal interest. and among them are: "(2) For the unpaid price of real property sold.03. The previous decision failed to take fully into account the radical changes introduced by the Civil Code of the Philippines into the system of priorities among creditors ordained by the Civil Code of 1889. i.B. and 2249 of the new Civil Code. Cruzado filed a motion for recognition for her "vendor's lien" in the amount of P12. xxx xxx xxx say that nothing in the law shows any such limitation. and "(5) Mortgage credits recorded in the Registry of Property.00. but must be paid pro rata. Pursuant to the former Code.." (Italics supplied) Thus. The latter foreclosed the mortgage in her favor. suffice it to Under the system of the Civil Code of the Philippines. governing claims or liens over specific immovable property. Villanueva. only taxes enjoy a similar absolute preference. The purchaser paid P1. and interest and that of her children in the house and lot herein involved to Pura L. xxx xxx xxx As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable only to the insolvent debtor. the buyer could only pay P5." Article 2249 of the same Code provides that "if there are two or more credits with respect to the same specific real property or real rights. All the remaining thirteen classes of preferred creditors under Article 2242 enjoy no priority among themselves.500." Application of the above-quoted provisions to the case at bar would mean that the herein appellee Rosario Cruzado as an unpaid vendor of the property in question has the right to share pro-rata with the appellants the proceeds of the foreclosure sale. Justice J. And the rule is further clarified in the Report of the Code Commission. However. It is thus apparent that the full application of Articles 2249 and 2242 demands that there must be first some proceeding where the claims of all the preferred creditors may be bindingly adjudicated. the buyer Villanueva was able to secure a clean certificate of title (No.500 on account of the note. or those guaranteed by a chattel mortgage. Our original decision affirmed this order of the Court of First Instance of Manila. title. 2243. upon the things pledged or mortgaged. upon the immovable sold".

[Emphasis supplied] The ruling in Barretto was reiterated in Phil. The original complaint filed in the Regional Trial Court in CV Case No. a dispute between two creditors will not enable the Court to ascertain the pro rata dividend corresponding to each. decreeing that the proceeds of the foreclosure sale be apportioned only between appellant and appellee. Lantin.19 Although Barretto involved specific immovable property. Wherefore. etc. WHEREFORE.. because the rights of the other creditors likewise enjoying preference under Article 2242 can not be ascertained. 1996 is REVERSED and SET ASIDE. is incorrect. 1995 and its Resolution promulgated on August 29. Jr. NLRC. the ruling therein should apply equally in this case where specific movable property is involved. The decision of the Court of Appeals dated October 6.18 and in two cases both entitled Development Bank of the Philippines vs. As the extrajudicial foreclosure instituted by PNB and DBP is not the liquidation proceeding contemplated by the Civil Code. Savings Bank vs.that enjoy absolute priority. the order of the Court of First Instance of Manila now appealed from. and must be reversed. 84-25858 is hereby DISMISSED. the petition is GRANTED. . SO ORDERED. Remington cannot claim its pro rata share from DBP. Hon.. If none of the claims is for taxes. et al..

(c) latest balance sheet of San Miguel International. ANTONIO. SECURITIES AND EXCHANGE COMMISSION. petitioner. and/or its successor-in-interest. Antonio Roxas. the Board may consider such factors as business and family relationship. Conde. Walthrode B. Since the amendment was based on the 1961 authorization.00. as stockholder of respondent San Miguel Corporation. ANDRES M. "the vote requirement for a valid delegation of the power to amend. with prayer for issuance of writ of preliminary injunction. basing their authority to do so on a resolution of the stockholders adopted on March 13.. was docketed as SEC Case No. During the pendency of the motion for production. arose out of two cases filed by petitioner with the Securities and Exchange Commission. Soriano. that it fails to show good cause and constitutes continued harrasment. to petitioner. therefore. 1976. and that some of the information sought are not part of the records of the corporation and. respondents San Miguel Corporation. Montecillo & Ongsiako for respondent San Miguel Corporation. JR. therefore. is unreasonable and oppressive and. the outstanding and paid up shares totalled 30..00. and/or Jose M. filed with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws. R. vs..laws. petitioner filed with the Securities and Exchange Commission an "Urgent Motion for Production and Inspection of Documents". modify. in connection with the same case. SR..G. Angara. alleging. De Santos. As a third cause of action. 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. (b) copy of the management contract between San Miguel Corporation and A. 1961 and long prior thereto has never been revoked of SMC". Miguel Ortigas and Antonio Prieto filed their answer to the petition. Andres Soriano. SORIANO.740. petitioner averred that the membership of the Board of Directors had changed since the authority was given in 1961.00 per share and 150. Inc. JOSE M. entered into contracts (specifically a management contract) with respondent corporation. WALTHRODE B. 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. if any. received by Andres M. modify.139. and EDUARDO R.. repeal or adopt new By-laws" delegated to said Board on March 13. Enrique Conde. 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.047 with a total par value of P301. cancellation of certificate of filing of amended by. No. that as a stockholder. Antonio Prieto and San Miguel Corporation". vs. as follows: SEC CASE NO 1375 On October 22. As a second cause of action. that contrary to petitioner's claim. the power to amend.974 common shares at P10. after which the authority of the Board ceased to exist. and (e) lists of salaries. and other compensation.127. that the portion of the amended bylaws which states that in determining whether or not a person is engaged in competitive business.. L-45911 April 11. Miguel Ortigas. SAN MIGUEL CORPORATION. petitioner. Balgos & Perez for petitioner. such as the rights to vote and to be voted upon in the election of directors. ENRIQUE ZOBEL.. It was contended that according to section 22 of the Corporation Law and Article VIII of the by-laws of the corporation. it was claimed that prior to the questioned amendment. void. bonuses. CONDE. SORIANO. 1961. respondents. 1976 resulting in the . therefore.. denying the substantial allegations therein and stating. Jr. 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. 1375. it was alleged that the authority granted in 1961 had already been exercised in 1962 and 1963.513. Jr. and that individual respondents be made to pay damages. 1976. Jose M. Visaya. which 2/3 should have been computed on the basis of the capitalization at the time of the amendment. (d) authority of the stockholders to invest the funds of respondent corporation in San Miguel International. among others that the motion has no legal basis. Jr. The petition. petitioner had all the qualifications to be a director of respondent corporation. At the time of the amendment. ANTONIO ROXAS. 1979 JOHN GOKONGWEI. the questioned act is ultra vires and void. 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. privileged. that Andres M. allowances. not when the Board opts to exercise said delegated power". Concepcion. that the motion is premature since the materiality or relevance of the evidence sought cannot be determined until the issues are joined. Soriano. and that the portion of the amended by-laws which requires that "all nominations for election of directors . 1961. 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. Soriano. respondents purposely provided for petitioner's disqualification and deprived him of his vested right as afore-mentioned hence the amended by-laws are null and void. The "Urgent Motion for Production and Inspection of Documents" was opposed by respondents. As a first cause of action. that petitioner has not availed of his intracorporate remedy for the nullification of the amendment. It was. by way of affirmative defenses that "the action taken by the Board of Directors on September 18. Regala. 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. As a fourth cause of action. while representing other corporations.00 per share.430. therefore. Emeterio Bunao. petitioner contended that the Board acted without authority and in usurpation of the power of the stockholders. VISAYA. Abello.000 preferred shares at P100. entitled "John Gokongwei Jr. ANTONIO PRIETO. it was alleged that corporations have no inherent power to disqualify a stockholder from being elected as a director and. MIGUEL ORTIGAS. .270. EMIGDIO TANJUATCO.. petitioner alleged that on September 18. T Capulong for respondent Eduardo R. divided into 5. in specified amounts. when the outstanding capital stock of respondent corporation was only P70. being a Substantial stockholder thereof.: The instant petition for certiorari. that the demand is not based on good faith. Inc. there being six (6) new directors. Enrique Zobel. J. Among the documents requested to be copied were (a) minutes of the stockholder's meeting field on March 13. On October 28. and that in amending the by-laws. 1 As additional causes of action. amendments is valid and legal because the power to "amend. mandamus and injunction. EMETERIO BUNAO.R. Soriano. Soriano Corporation (ANSCOR). prayed that the amended by-laws be declared null and void and the certificate of filing thereof be cancelled. 1976. Cruz Law Offices for respondents Sorianos Siguion Reyna. individual respondents amended by bylaws of the corporation. petitioner had acquired rights inherent in stock ownership.

as provided in Article VIII. subject only to the condition that the by-laws adopted should not be respondent corporation inconsistent with any existing law.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 part of their affirmative defenses. until after the hearing on the merits of the principal issues in the above-entitled case. Finally. withdrawing his request to copy and inspect the management contract between San Miguel Corporation and A. and that the petition states no cause of action.987 shares: that in October 1972. it being understood that the inspection. Accordingly. at 9:30 o'clock in the morning for purposes of enforcing the rights herein granted. Soriano filed their opposition to the petition. while the petition was yet to be heard. 26. As counterclaims. and/or its successors-ininterest. Soriano Corporation and the renewal and amendments thereof for the reason that he had already obtained the same. a corporation engaged in business competitive to that of respondent corporation. and Eduardo R. Sr. stating. and thereafter. petition is premature..000 shares of stock of respondent corporation. and has. bonuses. by or on behalf of the petitioner-movant. 1976. 1976. and Andres Soriano from San Miguel International. Provided. Visaya were allowed to intervene as oppositors and they accordingly filed their oppositionsintervention to the petition. 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. petitioner. in part as follows: Considering the evidence submitted before the Commission by the petitioner and respondents in the above-entitled case. "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. since he failed. that "petitioner nevertheless vowed to secure a seat in the Board of Directors at the next annual meeting. on December 10. Jr. setting such meeting for February 10. 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. actual damages. Inc. that petitioner is estopped from questioning the amendments on the ground of lack of authority of the Board. it appearing that the same is material and relevant to the issues involved in the main case. custody and control of the said corporation. That respondents produce and permit the inspection.00 in September 1976. denying the material averments thereof and stating. 2. which are in the possession. In view of the Manifestation of petitionermovant dated November 29. the Consolidated Foods Corporation (CFC) likewise began acquiring shares in respondent (corporation. prayed that the petition be dismissed and that petitioner be ordered to pay damages and attorney's fees to respondents. in behalf of himself. for the alleged . This Order is immediately executory upon its approval. as petitionermovant is not a stockholder of San Miguel International. petitioner moved for its reconsideration. Meanwhile. it is hereby ordered: 1. that in the stockholders' meeting of March 18. hence the. 1976. Jr. 1976. expenses of litigation and attorney's fees were presented against petitioner. therefore. until September 1976 when its total holding amounted to 622. moral damages. a Joint Omnibus Motion for the striking out of the motion for production and inspection of documents was filed by all the respondents. 3. 2 Dissatisfied with the foregoing Order. that on January 12. Jr. At this juncture. that in August 1972. exemplary damages. This prompted petitioner to ask respondent Commission for a summary judgment insofar as the first cause of action is concerned. however. It was. began acquiring shares therein. the Commission takes note thereof. as well as the list of salaries. 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. On December 29. respondents Emigdio Tanjuatco. as amended. therefore. 1977. the Petition to produce and inspect the same is hereby DENIED. no inherent right to inspect said documents. As to the Balance Sheet of San Miguel International. The application for writ of preliminary injunction was likewise on various grounds. copying and photographing of the said documents shall be undertaken under the direct and strict supervision of this Commission. Inc. Soriano. 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. allowances. Inc. who is president and controlling shareholder of Robina and CFC (both closed corporations) purchased 5. 1961. are valid and binding and are intended to prevent the possibility of violation of criminal and civil laws prohibiting combinations in restraint of trade. 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.959. until its total holdings amounted to P543. section I of the by-laws and section 22 of the Corporation law. compensation and/or remuneration received by respondent Jose M. respondent corporation issued a notice of special stockholders' meeting for the purpose of "ratification and confirmation of the amendment to the By-laws". Subsequently. the respondents should allow petitioner-movant entry in the principal office of the respondent Corporation. the Securities and Exchange Commission resolved the motion for production and inspection of documents by issuing Order No. 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. San Miguel Corporation on January 14. a seat in the Board of Directors of SMC". This was duly opposed by petitioner. and 4. that thereafter the Board of Directors amended the by-laws as afore-stated. 1977. 1976. copying and photographing. of the minutes of the stockholders' meeting of the respondent San Miguel Corporation held on March 13. Series of 1977. and Jose M.. John Gokongwei. CFC and Robina. the Universal Robina Corporation (Robina). Respondents Andres M. Soriano.

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. on January 20. and denying deferment of Item 6 of the Agenda for the annual stockholders' meeting. On February 10. as well as the respondent corporation declared guilty of such violation. 1977. On May 6. Series of 1977 (SEC Case No. Likewise. Petitioner alleges that up to the time of the filing of the instant petition. including in the Agenda thereof. A motion for reconsideration of the order denying petitioner's motion for summary judgment was filed by petitioner before respondent Commission on March 10. to petitioner's irreparable damage and prejudice. and that respondent are acting oppressively against petitioner. Soriano. until such time that the Commission has decided the validity of the bylaws in dispute. 1977. Respondent Commission. 1977. 450. a petition seeking to have private respondents Andres M. Thereafter. motions to dismiss were filed by private respondents. 1977. Allegedly despite a subsequent Manifestation to prod respondent Commission to act. respondent Commission issued an order denying the motion for issuance of temporary restraining order. in gross derogation of petitioner's rights to property and due process. 449. 1977. praying that pending the determination of petitioner's application for the issuance of a preliminary injunction and/or petitioner's motion for summary judgment. and Jose M. petitioner filed a consolidated motion for contempt and for nullification of the special stockholders' meeting. with its supplement. For the purpose of urging the Commission to act. cancelled the dates of hearing originally scheduled and reset the same to May 16 and 17. 1977. the respondent Commission served upon petitioner copies of the following orders: (1) Order No. requesting that the same be set for hearing on May 3. Despite the fact that said motions were filed as early as February 4. 1375. denying petitioner's motion for reconsideration. (2) Order No. 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. 1976. 1977. Re-affirmation of the authorization to the Board of Directors by the stockholders at the meeting on March 20. With respect to the afore-mentioned SEC cases. petitioner filed a Supplemental Petition. 1977. allowing petitioner to run as a director of respondent corporation but stating that he should not sit as such if elected. a temporary restraining order be issued. private respondents admitted the invalidity of the amendments of September 18. the date set for the second hearing of the case on the merits. 1977. Respondents issued notices of the annual stockholders' meeting. the following: 6. In view of the fact that the annul stockholders' meeting of respondent corporation had been scheduled for May 10. in violation of section 17 1/2 of the Corporation Law. and (3) Order No. 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. respondents conducted the special stockholders' meeting wherein the amendments to the by-laws were ratified. The motion for summary judgment was opposed by private respondents. 1423 Petitioner likewise alleges that. By reason thereof. and set the case for hearing on April 29 and May 3. 451. Pending action on the motion. He prayed that this Court direct respondent SEC to act on collateral incidents pending before it. CASE NO. 1375). On February 14. SEC. or from Making effective the amended by-laws of respondent corporation. he filed with respondent Commission. or after the scheduled annual stockholders' meeting. the said motion had not yet been scheduled for hearing. and ordered to account for such investments and to answer for damages. petitioner filed an urgent manifestation on May 3. 1977. After receipt of the order of denial. By reason of the foregoing. Soriano. when it denied respondents' motion to dismiss and gave them two (2) days within which to file their answer. 1977. 1375). alleging that after a restraining order had been issued by this Court. On May 14. petitioner filed a manifestation and motion to resolve pending incidents in the case and to issue a writ of injunction. subject matter of SEC Case No. On February 4. on April 28. denying petitioner's motion for reconsideration of the order of . or on May 9. petitioner filed an "Urgent Motion for the Issuance of a Temporary Restraining Order". petitioner was not heard prior to the date of the stockholders' meeting. Series of 1977 (SEC Case No. respondents filed a Manifestation with respondent Commission. but this notwithstanding. 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. the commission acted thereon only on April 25. 1977. Petitioner alleges that there appears a deliberate and concerted inability on the part of the SEC to act hence petitioner came to this Court. Jr. 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. having discovered that respondent corporation has been investing corporate funds in other corporations and businesses outside of the primary purpose clause of the corporation. 1977. 1977. however. restraining respondents from holding the special stockholder's meeting as scheduled. petitioner filed with respondent Commission a Manifestation stating that he intended to run for the position of director of respondent corporation. 1977. alleging that private respondents were seeking to nullify and render ineffectual the exercise of jurisdiction by the respondent Commission. until further orders from this Court or until the Securities and Ex-change Commission acts on the matters complained of in the instant petition. Series of 1977 (SEC Case No.reason that by calling a special stockholders' meeting for the aforesaid purpose. to which a consolidated motion to strike and to declare individual respondents in default and an opposition ad abundantiorem cautelam were filed by petitioner. 1977 that he does not come within the disqualifications specified in the amendment to the by-laws. 1977. 1977. and petitioner's consolidated motion to declare respondents in contempt and to nullify the stockholders' meeting. no action has been taken up to the date of the filing of the instant petition. 1375). 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 ratification of the investments thereafter made pursuant thereto. 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. This motion was duly opposed by respondents.

that in said meeting. 449. the Commission en banc issued Orders Nos. disqualifying a competitor from nomination or election to the Board of Directors are valid and reasonable. its stockholders. 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. even assuming that the petition was meritorious was. deliberate upon and/or to express their wishes regarding disposition of corporate funds considering that their investments are the ones directly affected. 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. such that the discussion. alleging that the actuations of respondent SEC tended to deprive him of his right to due process. it has become moot and academic because respondent Commission has acted on the pending incidents. allegedly in violation of section 17-1/2 of the Corporation Law. Tanjuatco. in his memorandum. Further. which was held on may 10. ultimately. 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. 450 which denied deferment of Item 6 of the Agenda of the annual stockholders' meeting of respondent corporation.1977. 1375. Item 6 of the Agenda was discussed. prayed that the petition be dismissed. among others. 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. (1) that respondent Commission acted with indecent haste and without circumspection in issuing the aforesaid orders to petitioner's irreparable damage and injury. took into consideration an urgent manifestation filed with the Commission by petitioner on May 3. become moot and academic. pp. On May 21. . since he failed to have the petition to suspend. it is apparent that respondent Commission was not given a chance to act "with deliberate dispatch". and that in the same meeting. warranting immediate judicial intervention. 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. Further. ratified and confirmed. hence the elevation of these issues before the Supreme Court is premature. 1977. filed his comment. 1375 and 1423 on the merits. Further. pendente lite the amended by-laws calendared for hearing. 1375 and 1423 was due to petitioner's own acts or omissions. 1977 which prayed. 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 denying petitioner's motion for summary judgment. in compliance with the order of respondent Commission. 1977 that petitioner calendared the aforesaid petition for suspension (preliminary injunction) for hearing on May 3. alleging that the petition has become moot and academic for the reason. submits the following issues for resolution. 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. warranting the intervention of this Court. such as the instant case. (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. 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. Inc. therefore. 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. Sr.. (1) whether or not the provisions of the amended by-laws of respondent corporation. 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. It is petitioner's assertions. Petitioner filed a reply to the aforesaid comments." (Reno. It was emphasized that it was only on April 29. (2) that the amended by law were adopted to preserve and protect respondent SMC from the clear and present danger that business competitors. under the law of self-preservation. (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. (2) a derivative suit. is not rendered academic by the act of a majority of stockholders. 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. 1977. it appearing that the owns and controls a greater portion of his SMC stock thru the Universal Robina Corporation and the Consolidated Foods Corporation. 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. 1977 did not render the case moot. when CFC and Robina had accumulated shares in SMC. The instant petition being dated May 4. and (3) that the respondents acted oppressively against the petitioner in violation of his rights as a stockholder. 1977. petitioner was allowed to run and be voted for as director. 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. Respondent Commission. that the discussion of Item 6 of the Agenda be deferred. anent the foregoing orders. ratification and confirmation of Item 6 of the Agenda of the annual stockholders' meeting of May 10. 1977. Soriano. if allowed to become directors. thru the Solicitor General.) Petitioner. Andres M. and without hearing petitioner thereon despite petitioner's request to have the same calendared for hearing . therefore. On September 29. and thereafter to decide SEC Cases No. It was. 450 and 451 in SEC Case No. and Jose M. Inc. (4) that the delay in the resolution and disposition of SEC Cases Nos. and it should be allowed a wide latitude in the selection of means to preserve itself. On May 17. voted upon. 927-928. unfairly and oppresively against petitioner. and the ratification of the investment in a foreign corporation of the corporate funds. 1977. respondent Emigdio G. complained of. In answer to the allegation in the supplemental petition. filed a separate comment. petitioner filed a second supplemental petition with prayer for preliminary injunction. Jr. when CFC and Robina had accumulated investments. and (5) that. and no hearing on the merits has been had. (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. and. 1977. Soriano filed their comment. respondent SEC. a fully owned subsidiary of San Miguel Corporation." It was alleged that the main petition has. stating that the petition presents justiciable questions for the determination of this Court because (1) the respondent Commission acted without circumspection. it states that Order No.

based upon said evidence. Security Credit and Acceptance Corporation. 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 .. has exercised. Soriano and San Miguel Corporation content that ex..403. that in a special meeting on February 10. Central Surety and Insurance Company. viz. and finally: "to remand the case to SEC would only entail delay rather than serve the ends of justice. ".. both of which are allegedly controlled by petitioner and members of his family.. — 6. citingGayong v.. the total shares owned or controlled by petitioner represents 4. Gayos. there are facts which cannot be denied.2344% of the total outstanding capital stock of San Miguel Corporation. to decide the case on its merits.325 shares. invoking the latter's primary jurisdiction to hear and decide case involving intra-corporate controversies.. resolved to decide the case on the merits "because public interest demands an early disposition of the case". or (b) where public interest demand an early disposition of the case. 5 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 would not be subserved by the remand of the case. however. or the promotion of both the interests of petitioner and respondent San Miguel Corporation.647 shares.: that the amended by-laws 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.749 shares with a par value of P10. It is an accepted rule of procedure that the Supreme Court should always strive to settle the entire controversy in a single proceeding. to the limitation that where the reasonableness of a by-law is a mere matter of judgment. Jr. citing precedent where this Court. It is also contended that petitioner is the president and substantial stockholder of Universal Robina Corporation and CFC Corporation. It is alleged that petitioner. and of corporations in which SMC has substantial investments. more importantly. therefore. approved the amended by-laws ex-parte and obviously found the same intrinsically valid. Jr. Jr. was made by the San Miguel Corporation in 1948. 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.139. conclusion of a competitor from the Board is legitimate corporate purpose. Soriano. petitioner cannot devote an unselfish and undivided Loyalty to the corporation.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". 10 This rule is subject.: (a) John Gokongwei. and Jose M. third: "petitioner was denied due process by SEC" when "Commissioner de Guzman had openly shown prejudice against petitioner .. and "Commissioner Sulit . in Francisco v. 1977 held specially for that purpose. 7 this Court denied remand of the third-party complaint to the trial court for further proceedings.313 shares. by this Honorable Court. a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised their authority. (b) Universal Robina Corporation — 738. et al. 4 Thus. or is in a legal sense unreasonable and therefore unlawful is a question of law. respondents Andres M. and in Republic v." Respondent Eduardo R. considering that being a competitor. Upon the other hand. leaving nor root or branch to bear the seeds of future litigation. as of May 6. 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.. and that in the stockholders' annual meeting held in 1972 and 1977. in similar situations resolved to decide the cases on the merits. It is further argued that there is not vested right of any stockholder under Philippine Law to be voted as director of a corporation. otherwise "the time spent and effort exerted by the parties concerned and. would have been for naught because the main question will come back to this Honorable Court for final resolution. 8 It is settled that the doctrine of primary jurisdiction has no application where only a question of law is involved. 11 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". City of Davao.285 shares... vis. 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. or a total of 1. finding that the main issue is one of law. Visaya submits a similar appeal. . considering that: first: "whether or not the provisions of the amended by-laws are intrinsically valid . is represented by 33. that the foreign investment in the Hongkong Brewery and Distellery. 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. (c) CFC Corporation — 658. which may. ".. 8a Because uniformity may be secured through review by a single Supreme Court. control over the following shareholdings in San Miguel 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. or with the charter of the corporation. In Republic v. all foreign investments and operations of San Miguel Corporation were ratified by the stockholders. 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. questions of law may appropriately be determined in the first instance by courts. 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 — The validity or reasonableness of a by-law of a corporation in purely a question of law. ". 3 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. the amended by-laws were ratified by more than 80% of the stockholders of record. second: "it is for the interest and guidance of the public that an immediate and final ruling on the question be made . as of the present date." Respondents Andres M. Since the outstanding capital stock of San Miguel Corporation. 9 Whether the by-law is in conflict with the law of the land. 1978. 6 this Court. Soriano.. a beer manufacturing company in Hongkong. instead of remanding them to the trial court where (a) the ends of justice would not be subserved by the remand of the case.00. 8b In the case at bar. personally or thru two corporations owned or controlled by him. 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 proceeding leaving no root or branch to bear the seeds of future ligiation". Jose M. 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. and one upon which reasonable minds must necessarily differ. is purely a legal question.

owning 23. excluding Litton Mills recently acquired by petitioner) is purportedly also in direct competition with Ramie Textile. the CFC-Robina group was in direct competition on product lines which. viz. 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." 15 To this extent. as a In this jurisdiction. At the meeting of February 10." 16 Pursuant to section 18 of the Corporation Law.0% 40. thus: It is recognized by an authorities that 'every corporation has the inherent power to adopt by-laws 'for its internal government. 14 the Court sustained the validity of a provision in the corporate bylaw requiring that persons elected to the Board of Directors must be holders of shares of the paid up value of P5. According to respondent San Miguel Corporation. officers and employees .000. which product line represented sales for SMC amounting to more than P275 million. 12.5% 9. which provides that "every director must own in his right at least one share of the capital stock of the stock corporation of which he is a director . the owners of the majority of the subscribed capital stock may amend or repeal any by-law or adopt new by-laws. 9. El Hogar. therefore.00. or more than 90% of the outstanding shares. 12 At common law. It cannot therefore be justly said that the contract. under section 21 of the Corporation Law.0% 10.0% 49. and surrendered it to the will of the majority of his fellow incorporators. disqualify a competitor from nomination and election to its Board of Directors. or more than 90% of the total outstanding shares of SMC. opposed the confirmation and ratification. express or implied..014 shares. is the issue — whether or not respondent San Miguel Corporation could.436. The areas of competition between SMC and CFC-Robina in 1977 represented. such power of self-government being essential to enable the corporation to accomplish the purposes of its creation. rejected petitioner's candidacy. according to respondent SMC.. " InGovernment v. 1978. 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.0% Ice Cream 70.0% Instant Coffee 45.6% Thus.0% Poultry & Hog Feeds 40. at the Annual Stockholders' Meeting of March 18. At the Annual Stockholders' Meeting of May 10. for SMC. " NO VESTED RIGHT OF STOCKHOLDER TO BE ELECTED DIRECTOR Any person "who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law. in product sales amounting to more than P95 million. the combined market shares of SMC and CFC-Robina in layer pullets dressed chicken. It is further asserted that in 1977.0% Woven Fabrics 17. a corporation may prescribe in its by-laws "the qualifications.257. while 946 stockholders. 13 Product Line Estimated Market Share Total 1977 SMC Robina-CFC Table Eggs 0.0% 83. these amendments were confirmed and ratified by 5. Significantly.648. owning more than 30 million shares.." approved the amendment to ' he by-laws in question. 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. CFC-Robina was directly competing in the sale of coffee with Filipro. 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.0% 52. And it is settled throughout the United States that in the absence of positive legislative provisions limiting it. duties and compensation of directors..716 shareholders owning 24.. between the corporation and the stockholders is infringed . or more than 90% of the total outstanding shares. independent of any specific enabling provision in its charter or in general law.945 shares. diminishes or restricts the rights of the existing shareholders then the disenting minority has only one right. Submitted for resolution. On the May 9. a subsidiary of SMC. . 1978. In addition..: "to object thereto in writing and demand payment for his share. 1976.283. product sales of more than P849 million.894 stockholders. According to private respondents. therefore. the Board of Directors of SMC. in 1976. subsidiary of SMC.0% 57. 17 It being settled that the corporation has the power to provide for the qualifications of its directors.6% 10. by any act of the former which is authorized by a majority .0% 24. instant coffee and woven fabrics would result in a position of such dominance as to affect the prevailing market factors.801 shares voted for him. It cannot be said. representing 1. or more than 80% of the total outstanding shares. 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-.. for SMC. represented sales amounting to more than ?478 million.0% Dressed Chicken 35. 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. every private corporation has this inherent power as one of its necessary and inseparable legal incidents. voted against petitioner. 1977. 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.754 shares in SMC.0% 14. the areas of..0% 12. alteration and modification.0% 13. 1978 Annual Stockholders' Meeting.0% 85.." Under section 22 of the same law." On September 18. therefore.6% Layer Pullets 33.1% 26. that petitioner has a vested right to be elected director. " This must necessarily refer to a qualification in addition to that specified by section 30 of the Corporation Law.005 shares. .480 shareholders.349 shareholders.ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S CORPORATIONS AND SAN MIGUEL CORPORATION measure of self. poultry and hog feeds ice cream. Inc. representing 7. in the face of the fact that the law at the time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law shall be subject to amendment. 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.. . The CFC-Robina group (Robitex. therefore. and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs.protection. 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. 11. 1977. by "virtue of powers delegated to it by the stockholders. in person or by proxy. owning 27. Only 12 shareholders. competition are enumerated in its Board the areas of competition are enumerated in its Board Resolution dated April 28.

A person cannot serve two hostile and adverse master. . And in Cross v.. (b) budget for expansion and diversification. 20 Justice Douglas. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters . 22 These principles have been applied by this Court in previous cases... said: 21 it was .. He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency. 28 The doctrine of "corporate opportunity" 29 is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. the same reasoning would apply to disqualify the wife and immediate member of the family of such stockholder. 25 This is the exact opposite of the situation in the Philippines because as stated heretofore." An exception exists in New Jersey. . under "the established law that a director or officer of a corporation may not enter into a competing enterprise which cripples or injures the business of the corporation of which he is an officer or director.A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION AND ITS SHAREHOLDERS Although in the strict and technical sense. as a "faultless fiduciary may not reap the fruits of his misconduct to the exclusion of his principal. for the benefit of the corporation. of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for protection.. As agents entrusted with the management of the corporation for the collective benefit of the stockholders. but must betray one or the other. . therefore. 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. HAS BEEN SUSTAINED AS VALID It is a settled state law in the United States. (A)n amendment which renders ineligible. Thus."24 This is based upon the principle that where the director is so employed in the service of a rival company. he cannot serve both. Miller.. and it would simply be going far to deny by mere implication the existence of such a salutary power .. He cannot violate rules of fair play by doing indirectly though the corporation what he could not do so directly. according to Fletcher. 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. 23 AN AMENDMENT TO THE CORPORATION BY-LAW WHICH RENDERS A STOCKHOLDER INELIGIBLE TO BE DIRECTOR. This doctrine rests fundamentally on the unfairness. Human nature is too weak -for this. such as: (a) marketing strategies and pricing structure. 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.. 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. and in none will you find any express prohibition against a discretion to select directors having the company's interest at heart. a director if he be also a director in a corporation whose business is in competition with or is antagonistic to the other corporation is valid.. For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement. If the by-law is to be held reasonable in disqualifying a stockholder in a competing company from being a director. It is obviously to prevent the creation of an opportunity for an officer or director of San Miguel Corporation. 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. or if elected. 30 It is not denied that a member of the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential information. 19 "is not a matter of statutory or technical law.. who is also the . Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof * * *. 26 It is also well established that corporate officers "are not permitted to use their position of trust and confidence to further their private interests. . R.. R. thus: A director is a fiduciary. A judge cannot be impartial if personally interested in the cause.. 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. in particular circumstances. (c) research and development. preference or advantage of the fiduciary to the exclusion or detriment of the cestuis. IF HE BE ALSO DIRECTOR IN A CORPORATION WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THE OTHER CORPORATION. Their powers are powers in trust. in Pepper v. emphatically restated the standard of fiduciary obligation of the directors of corporations.. The only test that we can apply is as to whether or not the action of the Board is authorized and sanctioned by law. directors of a private corporation are not regarded as trustees. Such an amendment "advances the benefit of the corporation and is good... He cannot violate rules of fair play by doing indirectly through the corporation what he could not do so directly. proposals of mergers or tie-ups with other firms." 27 In a case where directors of a corporation cancelled a contract of the corporation for exclusive sale of a foreign firm's products. and after establishing a rival business. on account of the supposed interest of the wife in her husband's affairs. Litton. the directors entered into a new contract themselves with the foreign firm for exclusive sale of its products. and his suppose influence over her. where the Supreme Court held that the Corporation Law in New Jersey prescribed the only qualification. subjects to removal. and therefore the corporation was not empowered to add additional qualifications. 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. and (d) sources of funding. & P. and in this sense the relation is one of trust. .. the court held that equity would regard the new contract as an offshoot of the old contract and. West Virginia Cent. He who is in such fiduciary position cannot serve himself first and his cestuis second. . according to Ashaman v. section 21 of the Corporation Law expressly provides that a corporation may make by-laws for the qualifications of directors. No more can a director. without detriment to one of them. Co." 18 "The ordinary trust relationship of directors of a corporation and stockholders". "they occupy a fiduciary relation. Take whatever statute provision you please giving power to stockholders to choose directors. availability of personnel. He cannot utilize his inside information and strategic position for his own preferment.. 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.

company. as follows: (1) A director shall not be directly or indirectly interested as a stockholder in any other firm. Apart from the impractical results that would ensue from such arrangement. First National Bank of San Diego. More important.) 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. he would absent himself from meetings at which confidential matters would be discussed. 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. 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. shall be imposed upon: (3) A director shall not be an officer. Chief Judge Parker. for the policy of the law is to encourage and enforce responsible corporate management. or association which compete with the subject corporation.. being a manufacturer. in addition to the direct conflict or potential conflict of interest. it would seem improbable. nominees or attorneys of any other banking corporation. in restraint of trade or commerce or to prevent by artificial means free competition in the market. attorney. Monopolies and combinations in restraint of trade. The offer and assurance of petitioner that to avoid any possibility of his taking unfair advantage of his position as 2. nominee. With respect to attorneys or persons associated with a firm which is attorney for another bank. officer. In McKee the Court further listed qualificational by-laws upheld by the courts. (4) A director shall be of good moral character as an essential qualification to holding office. employees. As directors. 1. supra the court sustained as valid and reasonable an amendment to the by-laws of a bank. 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. employee. v." Article 186 of the Revised Penal Code also provides: (2) A director shall not be the immediate member of the family of any stockholder in any other firm. for the director. section 2 of Article XIV of the Constitution provides: "The State shall regulate or prohibit private monopolies when the public interest so requires." 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. 32 There is another important consideration in determining whether or not the amended by-laws are reasonable. 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. Indeed. to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns. affiliate or subsidiary thereof. company. The Ashkins case. or association which competes with the subject corporation. It would seem manifest that in such situations. Thus. producer. or association which competes with the subject corporation. 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.officer or owner of a competing corporation. 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. for advance knowledge by the competitor of the strategies for the development of existing or new markets of existing or new products could enable said competitor to utilize such knowledge to his advantage.. and it was reasonable and prudent to enlarge this minimum disqualification to include any director. agent. explained the reasons of the court. there is also the danger of inadvertent leakage of confidential information through casual office discussions or accessibility of files. or trustee in any other firm. No combinations in restraint of trade or unfair competition shall be snowed. As explained by Oleck: 31 "The law win not tolerate the passive attitude of directors . requiring that its directors should not be directors.. director of San Miguel Corporation. or processor of any merchandise . would not detract from the validity and reasonableness of the by-laws here involved. company. —The penalty of prision correccional in its minimum period or a fine ranging from two hundred to six thousand pesos. 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. it would be inconsistent with petitioner's primary motive in running for board membership — which is to protect his investments in San Miguel Corporation. agents. supra. Thus. or both. The Constitution and the law prohibit combinations in restraint of trade or unfair competition. if he were to discharge effectively his duty. Art. if not impossible. without active and conscientious participation in the managerial functions of the company. thus: . officers. 186. such a proposed norm of conduct would be against all accepted principles underlying a director's duty of fidelity to the corporation. 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. employee. agent. It is only then that directors may be said to have fulfilled their duty of fealty to the corporation. (5) No person who is an attorney against the corporation in a law suit is eligible for service on the board. 7. 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.. These dangers are enhanced considerably where the common director such as the petitioner is a controlling stockholder of two of the competing corporations. Any person who. in McKee. where two corporations are competitive in a substantial sense. in McKee & Co. or attorney of any other bank in California. (At p. Any person who shag monopolize any merchandise or object of trade or commerce. Certainly. that the questioned amendment of the by-laws was made. 3.

Congress on section 9 of the Clayton Act. . A "monopoly" embraces any combination the tendency of which is to prevent competition in the broad and general sense. is to be faithful to both corporations. 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. This is because an express agreement is not necessary for the existence of a combination or conspiracy in restraint of trade. some accommodation must result. orders.) According to the Report of the House Judiciary Committee of the U. prejudice the public interest by unduly restraining competition or unduly obstructing the course of trade. for example. If the firms really do compete — in the sense of vying for economic advantage at the expense of the other — there can hardly be any reason for an interlock between competitors other than the suppression of competition. if a competitor has access to the pricing policy and cost conditions of the products of San Miguel Corporation. The material consideration in determining its existence is not that prices are raised and competition actually excluded. 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. Certainly. These laws are designed to preserve free and unfettered competition as the rule of trade. assembled in or imported into the Philippines. Indeed. wholesale or retailer. the lowest prices and the highest quality . It is. the Clayton Act prohibits a person from serving at the same time as a director in any two or more corporations. Obviously.. production. A common director of two or more competing corporations would have access to confidential sales. 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. or of any article in the manufacture of which such manufactured. knowledge by CFC-Robina of SMC's costs in various industries and regions in the country win enable the former to practice price discrimination. thus: The argument for prohibiting competing corporations from sharing even one director is that theinterlock permits the coordination of policies between nominally independent firms to an extent that competition between them may be completely eliminated. or to control prices to the detriment of the public. considering that both Robina and SMC are. "combination in restraint of trade" and "unfair competition" appear to have a well defined meaning in other jurisdictions. by reason of the inherent nature of the contemplated acts. 33 Basically. 40 It is enough that a concert of action is contemplated and that the defendants conformed to the arrangements. or of increasing the market price in any part of the Philippines. Finally. by virtue of their business and location of operation. As respondent SMC aptly observes. This situation has been aptly explained by Travers. Suppose X is a director of both Corporation A and Corporation B. 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. but that power exists to raise prices or exclude competition when desired. it is the concentration of business in the hands of a few. it was established that: "By means of the interlocking directorates one man or group of men have been able to dominate and control a great number of corporations . S. either as principal or agent. to seek out ways of compromising opposing interests. produced. shall combine. "It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources." 34 they operate to forestall concentration of economic power.or object of commerce or an importer of any merchandise or object of commerce from any foreign country.. processed. unified tactics with regard to prices. or any such merchandise or object of commerce manufactured. it must be considered that the Idea of monopoly is now understood to include a condition produced by the mere act of individuals. to the detriment of the small ones dependent upon them and to the injury of the public. pricing and marketing information and would be in a position to coordinate policies or to aid one corporation at the expense of another. CFC-Robina could determine the most profitable volume at which it could produce for every product line in which it competes with SMC. processed. 36 The terms "monopoly". and thus eliminate competition. shipments. 41 and what is to be considered is what the parties actually did and not the words they used. There are other legislation in this jurisdiction. shared information on production. it is apparent that the contentions of petitioner are not in accord with reality. the essence of competition in a free market for the purpose of serving the lowest priced goods to the consuming public would be frustrated. competitors so that the elimination of competition between them would constitute violation of any provision of the anti-trust laws. or the suppression of competition by the qualification of interest or management. 44 Shared information on cost accounting may lead to price fixing. 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. Where the two competing firms control a substantial segment of the market this could lead to collusion and combination in restraint of trade. 39 From the foregoing definitions.. in brief. 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. conspire or agree in any manner with any person likewise engaged in the manufacture. The election of petitioner to the Board of respondent Corporation can bring about an illegal situation. For instance. thereby stifling competition. 38Further. if a director. 35 The law against monopolies and combinations in restraint of trade is aimed at contracts and combinations that. engaged in agriculture. 42 There is here a statutory recognition of the anti-competitive dangers which may arise when an individual simultaneously acts as a director of two or more competing corporations. or imported merchandise or object of commerce is used. produced. capacity and inventories may lead to control of production for the purpose of controlling prices.. 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. or it may be thru agreement and concert of action. 43 (Emphasis supplied. if such corporations are. 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. processing. Its dominant thought is the notion of exclusiveness or unity. 37 In short. which prohibit monopolies and combinations in restraint of trade. to a certain extent. .

therefore.. each possessing. a court of equity has the power to grant appropriate relief.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 . 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. 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. the inspection has to be germane to the petitioner's interest as a stockholder. allowances. This power. a beneficial ownership. before petitioner can be declared ineligible to run for director. The weight of judicial opinion appears . 1975. "where the reasonableness of a by-law is a mere matter of judgment. It means an independent endeavor of two or more persons to obtain the business patronage of a third by offering more advantageous terms as an inducement to secure trade. the late Col.1976. While We here sustain the validity of the amended by-laws. 52This right is predicated upon the necessity of self-protection. 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. and (4) that from 1972-1975. 1975. It is generally held by majority of the courts that where the right is granted by statute to the stockholder. SMI did not declare cash or stock dividends. Besides. In the absence of any legal prohibition or overriding public policy. then it could be reasonably claimed that the by-law was being applied in a discriminatory manner.00. 49 Indeed. (2) that as of December 31.4 million. (3) a copy of the minutes of the stockholders' meeting of March 18. or is against public policy. 53 In other words. augmented by a loan of Hongkong $6 million from a foreign bank under the personal guaranty of SMC's former President. it was averred that upon request. If the by-law were to be applied in the case of one stockholder but waived in the case of another. 55 this Court held that "the right to examine the books of the corporation must be exercised in good faith. applies to all stockholders. in substantially similar if not Identical degree. or a ownership. this was SMC's first venture abroad. 54 In Grey v. dissipation or misapplication of the corporation assets. therefore.000. the by law. (5) a listing of the salaries. Andres Soriano. and not to gratify curiosity. an incident of ownership of the corporate property. petitioner had been furnished numerous documents and information. which deletions were not objected to by petitioner.6 million investment in associated companies and other companies as of December 31. Sound principles of public policy and management. Inc. there must be hearing and evidence must be submitted to bring his case within the ambit of the disqualification. Consonant with the requirement of due process. It is. and not to gratify curiosity. it is given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the corporation. 45 Although it is asserted that the amended by-laws confer on the present Board powers to perpetua themselves in power such fears appear to be misplaced. or is ultra vires. and has to be proper and lawful in character and not inimical to the interest of the corporation. 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. obvious that not every person or entity engaged in business of the same kind is a competitor. it does not follow as a necessary consequence that petitioner is ipso facto disqualified. therefore. wide latitude may be accorded to the corporation in adopting measures to protect legitimate corporation interests. a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have expressed their authority. with deletions of sensitive data. and (7) copies of the minutes of all meetings of the Board of Directors from January 1975 to May 1976. certain characteristics essential to the business sought. whether this ownership or interest be termed an equitable ownership. Such factors as quantum and place of business. Thus." Neither are We persuaded by the claim that the by-law was Intended to prevent the candidacy of petitioner for election to the Board. bonuses and other compensation or remunerations received by the directors and corporate officers of SMC. However. "(t)he record of all business transactions of the corporation and minutes of any meeting shall be open to the inspection of any director. (4) a breakdown of SMC's P186. or for specific and honest purpose.. or for speculative or vexatious purposes. having started in 1948 with an initial outlay of ?500. 48 Pursuant to this obligation and to remove any suspicion that this power may be utilized by the incumbent members of the Board to perpetuate themselves in power. 46 The test must be whether the business does in fact compete. but is very nature. The equal protection clause of the Constitution requires only that the by-law operate equally upon all persons of a class. therefore. or will result in waste. As trustees of the corporation and of the stockholders. 50 III Whether or not respondent SEC gravely abused its discretion in denying petitioner's request for an examination of the records of San Miguel International Inc. 47 It is. incorporated in Bermuda and wholly owned by SMC. . Further. "Competition" implies a struggle for advantage between two or more forces. it is the responsibility of directors to act with fairness to the stockholders. is subject to certain well established limitations. It is. 51 Pursuant to the second paragraph of section 51 of the Corporation Law. enclosing photocopies of the aforementioned documents. 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. member or stockholder of the corporation at reasonable hours. Insular Lumber. Identity of products and area of competition should be taken into consideration. and upon which reasonable minds must necessarily differ." to wit: (1) a complete list of stockholders and their stockholdings. it is a settled principle that where the action of a Board of Directors is an abuse of discretion. petitioner was informed in writing on September 18. not whether it is capable of an indirect and highly unsubstantial duplication of an isolated or non-characteristics activity. 1976. any decision of the Board to disqualify a candidate for the Board of Directors should be reviewed by the Securities behind Exchange Commission en banc and its decision shall be final unless reversed by this Court on certiorari. 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. (1) that SMC's foreign investments are handled by San Miguel International.. over a specific period. 1975. One of these is inherent in the very convert and definition of the terms "competition" and "competitor". by its terms. (6) a copy of the US $100 million Euro-Dollar Loan Agreement of SMC.. for specific and honest purpose. (2) a complete list of proxies given by the stockholders for use at the annual stockholders' meeting of May 18. or is a fraud upon minority stockholders or creditors." 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. or forbidden by statute.

to require authority of the stockholders would be to unduly curtail the power of the Board of Directors. is entitled to copies of some documents which for some reason or another. and is not legally subject to the control of the parent company. inspection of the books of an allied corporation by stockholder of the parent company which owns all the stock of the subsidiary has been refused on the ground that the stockholder was not within the class of "persons having an interest. it would be more in accord with equity. 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. 58 It appears to be the general rule that stockholders are entitled to full information as to the management of the corporation and the manner of expenditure of its funds. appears relevant. and to inspection to obtain such information. it was held that "the right given by statute is not absolute and may be refused when the information is not sought in good faith or is used to the detriment of the corporation. supra. when SMC.. in order to accomplish is purpose as stated in its . instead of allowing ratification of the investment by the stockholders.to be." This Court affirmed the ruling of the court a quo on the matter and. then San Miguel Brewery. in the Philippine Fiber Processing Co." 59 While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law. Under these circumstances. 1423 that respondent corporation invested corporate funds in SMI without prior authority of the stockholders. 60 and that a writ of mandamus. thus violating section 17-1/2 of the Corporation Law." In the Bailey case." 67 There is no question that stockholders are entitled to inspect the books and records of a corporation in order to investigate the conduct of the management. the ruling in De la Rama v. Some state courts recognize the right under certain conditions. 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. while others do not. 66 stockholders of a corporation were held entitled to inspect the records of a controlled subsidiary corporation which used the same offices and had Identical officers and directors.. one of the issues was the legality of an investment made by Manao Sugar Central Co. 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. Inc. Manao Sugar Central Co. 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. and alleges that respondent SEC should have investigated the charge.) for the manufacture and marketing of San Miguel beer thereat. determine the financial condition of the corporation. If the investment is made in pursuance of the corporate purpose. to all incontents and purposes. "as stockholder of respondent corporation. petitioner contended that respondent corporation "had been attempting to suppress information for the stockholders" and that petitioner. the legal fiction of distinct corporate entities may be disregarded and the books. 63 Likewise. It appears that the original investment was made in 1947-1948. and generally take an account of the stewardship of the officers and directors. Ltd. Inc. 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. especially where it appears that the company is being mismanaged or that it is being managed for the personal benefit of officers or directors or certain of the stockholders to the exclusion of others. Power to acquire or dispose of shares or securities. it does not need the approval of the stockholders. It is only when the purchase of shares is done solely for investment and not to accomplish the purpose of its incorporation that the vote of approval of the stockholders holding shares entitling them to exercise at least two-thirds of the voting power is necessary. In his "Urgent Motion for Production and Inspection of Documents" before respondent SEC. the specific provisions take from the stockholder the burden of showing propriety of purpose and place upon the corporation the burden of showing impropriety of purpose or motive. therefore. In other words. it is proper for the court to inquire into and consider the stockholder's good faith and his purpose and motives in seeking inspection. purchased a beer brewery in Hongkong (Hongkong Brewery & Distillery. In said case. although it owned a vast majority of the stock of the subsidiary. 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. Inc. as the records of the subsidiary were. 56 Thus. may be granted. 61 mandamus was likewise held proper to inspect both the subsidiary's and the parent corporation's books upon proof of sufficient control or dominion by the parent showing the relation of principal or agent or something similar thereto. a company engaged in the manufacture of sugar bags... respondent corporation is very reluctant in revealing to the petitioner notwithstanding the fact that no harm would be caused thereby to the corporation. Restructuring of the investment was made in 1970-1971 thru the organization of SMI in Bermuda as a tax free reorganization. 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." 57 But the "impropriety of purpose such as will defeat enforcement must be set up the corporation defensively if the Court is to take cognizance of it as a qualification. papers and documents of all the corporations may be required to be produced for examination. 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. the records of the parent even though subsidiary was not named as a party. without prior resolution approved by the affirmative vote of 2/3 of the stockholders' voting power.. quoting Prof. said: "j." 64 In the Nash case. — A private corporation. that on application for mandamus to enforce the right. Inc. Sulpicio S.. 69 As stated by respondent corporation. 65 The Supreme Court of New York held that the contractual right of former stockholders to inspect books and records of the corporation included the right to inspect corporation's subsidiaries' books and records which were in corporation's possession and control in its office in New York. Guevara. Thus. being a statutory offense. considering that the foreign subsidiary is wholly owned by respondent San Miguel Corporation and. which is to manufacture and market beer. 62 On the other hand. 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. under its control. 68 In the case at bar..

Guevara. Assuming arguendo that the Board of Directors of SMC had no authority to make the assailed investment. morals. pledge or dispose of shares. Abad Santos and De Castro. securities." The Philippine Corporation Law by Sulpicio S. — A private corporation has the power to invest its corporate funds "in any other corporation or business. there is no question that a corporation. but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation.laws and the ratification of the foreign investment of respondent corporation. has the power to acquire. does not need the approval of stockholders. that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. bonds.. Santos. Justice Fernando reserved his vote on the validity of subject amendment to the by-laws but otherwise concurs in the result. pending hearing by this Court on the applicability of section 13(5) of the Corporation Law to petitioner. to run and if elected to sit as director of respondent San Miguel Corporation being decided. 1977 cannot be construed as an admission that respondent corporation had committed an ultra vires act. requirement of the law that the investment must be authorized by the affirmative vote of the stockholders holding two-thirds of the voting power. 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. In resume. The stockholders for whose benefit the requirement was enacted may. It is a corporate transaction or contract which is within the corporate powers. 1967 Ed. for lack of necessary votes. hold. Jr. Inc. namely. voted to declare the issue on the validity of the foreign investment of respondent corporation as moot.) (pp. the investment was for the purchase of beer manufacturing and marketing facilities which is apparently relevant to the corporate purpose. but which is defective from a supported failure to observe in its execution the. Four (4) Justices... 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. namely.. This requirement is for the benefit of the stockholders. 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. and subject to the limitations imposed by the Corporation Law. The afore-mentioned six (6) Justices.articles of incorporation. 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. 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. namely. therefore. as specified in the petition. are merely voidable and may become binding and enforceable when ratified by the stockholders. 89) (Emphasis supplied. No costs. Concepcion. and other evidence of indebtedness of any domestic or foreign corporation. On the matter of the validity of the amended by-laws of respondent San Miguel Corporation. 71 "or those which are not illegal and void ab initio. Inc. 108) (Emphasis ours. after a new and proper hearing by the Board of Directors of said corporation. the prohibition in the afore-mentioned amended by-laws shall not apply to petitioner. as specified by him. (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. 258-259). WHEREFORE. the purchase of such shares or securities must be subject to the limitations established by the Corporations law. 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. mortgage. six (6) Justices. Antonio.' and provided further. said this Court in Pirovano. may ratify and thereby render binding upon it the originally unauthorized acts of its officers or other agents. together with Justice Fernando. 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. Unless disqualified in the manner herein provided. 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. ratify the investment and its ratification by said stockholders obliterates any defect which it may have had at the outset. or for any purpose other than the main purpose for which it was organized. public order or public policy. Jr. Chief Justice Fred Ruiz Castro reserved his vote on the validity of the amended by-laws. insofar as it assails the validity of the amended by. whose decision shall be appealable to the respondent Securities and Exchange Commission deliberating and acting en banc and ultimately to this Court. is hereby DISMISSED. the vote of approval of the stockholders is necessary. like an individual. Fernandez and Guerrero filed a separate opinion. officers and managers. if done in pursuance of the corporate purpose. The petition. . but are not merely within the scope of the articles of incorporation."" (Id. Such an act. p. Makasiar. 70 This is true because the questioned investment is neither contrary to law. considering the common practice of corporations of periodically submitting for the gratification of their stockholders the acts of their directors. 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. The mere fact that respondent corporation submitted the assailed investment to the stockholders for ratification at the annual meeting of May 10. p. Justices Barredo. Power to invest corporate funds. In any case.) 40. Justices Teehankee. Besides. "Mere ultra vires acts".